110 HR 3970 IH: Tax Reduction and Reform Act of

U.S. House of Representatives
2007-10-25
text/xml
EN
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		I
		110th CONGRESS
		1st Session
		H. R. 3970
		IN THE HOUSE OF REPRESENTATIVES

			October 25, 2007
			Mr. Rangel introduced
			 the following bill; which was referred to the
			 Committee on Ways and
			 Means

		A BILL
		To amend the Internal Revenue Code of 1986 to provide
		  additional tax relief to low and moderate income individuals, to repeal the
		  individual alternative minimum tax, to reform the corporate income tax, and for
		  other purposes.

		1.Short title, etc
			(a)Short
			 titleThis Act may be cited
			 as the Tax Reduction and Reform Act of
			 2007.
			(b)ReferenceExcept 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
			 contentsThe table of contents for this Act is as follows:

					Sec. 1. Short title, etc.
					Title I—Individual tax provisions
					Subtitle A—Individual tax relief
					Part 1—General tax reductions
					Sec. 1001. Increase in standard deduction.
					Sec. 1002. Modification of earned income credit amount for
				individuals with no qualifying children.
					Sec. 1003. Change in refundable child credit.
					Part 2—AMT relief
					Subpart A—AMT extension for 2007
					Sec. 1011. Extension of alternative minimum tax relief for
				nonrefundable personal credits.
					Sec. 1012. Extension of increased alternative minimum tax
				exemption amount.
					Subpart B—Repeal of the individual AMT
					Sec. 1021. Repeal of alternative minimum tax on
				individuals.
					Sec. 1022. Limitation of benefits of individual AMT
				repeal.
					Sec. 1023. High income individuals subject to overall
				limitation on itemized deductions and phaseout of deductions for personal
				exemptions.
					Sec. 1024. Modification of 2-percent floor on miscellaneous
				itemized deductions.
					Subpart C—Conforming amendments
					Sec. 1031. Conforming amendments, etc.
					Subtitle B—Other reforms
					Part 1—Provisions related to certain investment
				partnerships
					Sec. 1201. Income of partners for performing investment
				management services treated as ordinary income received for performance of
				services.
					Sec. 1202. Nonqualified deferred compensation for investment
				services.
					Sec. 1203. Indebtedness incurred by a partnership in acquiring
				securities and commodities not treated as acquisition indebtedness for
				organizations which are partners with limited liability.
					Sec. 1204. Application to partnership interests and tax sharing
				agreements of rule treating certain gain on sales between related persons as
				ordinary income.
					Part 2—Self-employment tax treatment of certain interest holders
				in service providing entities
					Sec. 1211. Certain service providing S corporation shareholders
				and partners subject to self-employment taxes.
					Part 3—Broker reporting of customer’s basis in securities
				transactions
					Sec. 1221. Broker reporting of customer’s basis in securities
				transactions.
					Title II—One-year extenders
					Sec. 2001. Research credit.
					Sec. 2002. Indian employment credit.
					Sec. 2003. New markets tax credit.
					Sec. 2004. Railroad track maintenance.
					Sec. 2005. Mortgage insurance premiums treated as
				interest.
					Sec. 2006. Deduction for State and local sales
				taxes.
					Sec. 2007. Fifteen-year straight-line cost recovery for
				qualified leasehold improvements and qualified restaurant property.
					Sec. 2008. Seven-year cost recovery period for motorsports
				racing track facility.
					Sec. 2009. Accelerated depreciation for business property on
				Indian reservation.
					Sec. 2010. Expensing of environmental remediation
				costs.
					Sec. 2011. Deduction allowable with respect to income
				attributable to domestic production activities in Puerto Rico.
					Sec. 2012. Deduction of qualified tuition and related
				expenses.
					Sec. 2013. Modification of tax treatment of certain payments to
				controlling exempt organizations.
					Sec. 2014. Treatment of certain dividends of regulated
				investment companies.
					Sec. 2015. Extension and modification of credit to holders of
				qualified zone academy bonds.
					Sec. 2016. Tax incentives for investment in the District of
				Columbia.
					Sec. 2017. Disclosure for combined employment tax
				reporting.
					Sec. 2018. Disclosure of return information to apprise
				appropriate officials of terrorist activities.
					Sec. 2019. Disclosure upon request of information relating to
				terrorist activities.
					Sec. 2020. Disclosure of return information to carry out income
				contingent repayment of student loans.
					Sec. 2021. Authority for undercover operations.
					Sec. 2022. Increase in limit on cover over of rum excise tax to
				Puerto Rico and the Virgin Islands.
					Sec. 2023. Parity in the application of certain limits to
				mental health benefits.
					Sec. 2024. Extension of economic development credit for
				American Samoa.
					Sec. 2025. Qualified conservation contributions.
					Sec. 2026. Enhanced charitable deduction for contributions of
				food inventory.
					Sec. 2027. Enhanced charitable deduction for contributions of
				book inventory to public schools.
					Sec. 2028. Enhanced deduction for qualified computer
				contributions.
					Sec. 2029. Tax-free distributions from individual retirement
				plans for charitable purposes.
					Sec. 2030. Basis adjustment to stock of S corporations making
				charitable contributions of property.
					Sec. 2031. Deduction for certain expenses of elementary and
				secondary school teachers.
					Sec. 2032. Election to include combat pay as earned income for
				purposes of earned income tax credit.
					Sec. 2033. Modification of mortgage revenue bonds for
				veterans.
					Sec. 2034. Distributions from retirement plans to individuals
				called to active duty.
					Sec. 2035. Stock in RIC for purposes of determining estates of
				nonresidents not citizens.
					Sec. 2036. Qualified investment entities.
					Sec. 2037. Disclosure of return information for certain
				veterans programs.
					Title III—Corporate tax reform
					Subtitle A—Corporate rate reduction
					Sec. 3001. Reduction in top corporate marginal
				rate.
					Subtitle B—Repeal of deduction for income attributable to
				domestic production activities
					Sec. 3101. Repeal of deduction for income attributable to
				domestic production activities.
					Subtitle C—Provisions related to foreign source
				income
					Sec. 3201. Allocation of expenses and taxes on basis of
				repatriation of foreign income.
					Sec. 3202. Foreign currency conversion for determination of
				foreign taxes and foreign corporation’s earnings and profits.
					Sec. 3203. Repeal of worldwide allocation of
				interest.
					Sec. 3204. Limitation on treaty benefits for certain deductible
				payments.
					Subtitle D—Modification of accounting rules
					Sec. 3301. Repeal of last-in, first-out method of
				inventory.
					Sec. 3302. Repeal of lower of cost or market method of
				inventory.
					Sec. 3303. Special rule for service providers on accrual method
				not applicable to C corporations.
					Subtitle E—Modification to expensing and depreciation
				rules
					Sec. 3401.  Small business expensing provisions made
				permanent.
					Sec. 3402. Amortization of goodwill and other
				intangibles.
					Subtitle F—Codification of economic substance
				doctrine
					Sec. 3501. Codification of economic substance
				doctrine.
					Sec. 3502. Penalties for underpayments.
					Subtitle G—Modifications to deductions for dividends
				received
					Sec. 3601. Modifications to deductions for dividends
				received.
					Subtitle H—Other provisions
					Sec. 3701. Recognition of ordinary income on sale or exercise
				of stock option in S corporation with an ESOP.
					Sec. 3702. Termination of special rules for domestic
				international sales corporations.
					Sec. 3703. Treatment of securities of a controlled corporation
				exchanged for assets in certain reorganizations.

			IIndividual tax
			 provisions
			AIndividual tax
			 relief
				1General tax
			 reductions
					1001.Increase in
			 standard deduction
						(a)In
			 generalParagraph (1) of section 63(c) (defining standard
			 deduction) 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:

								(C)the additional
				amount.
								.
						(b)Additional
			 amountSubsection (c) of
			 section 63 (defining standard deduction) is amended by adding at the end the
			 following new paragraph:

								(8)Additional
				amountFor purposes of
				paragraph (1), the additional amount is—
									(A)200 percent of the amount in effect under
				subparagraph (C) for the taxable year in the case of a joint return or a
				surviving spouse (as defined in section 2(a)),
									(B)$625 in the case of a head of household (as
				defined in section 2(b)), and
									(C)$425 in any other
				case.
									.
						(c)Adjustment for
			 inflation
							(1)In
			 generalSection 63(c)(4) (relating to adjustments for inflation)
			 is amended—
								(A)in the matter
			 preceding subparagraph (A) by striking or (5) and inserting
			 (5), (8)(B), or (8)(C), and
								(B)in subparagraph
			 (B) by striking and at the end of clause (i), by striking the
			 period at the end of clause (ii) and inserting , and, and by
			 inserting after clause (ii) the following new clause:

										(iii)calendar year 2007 in the
				case of the dollar amounts contained in paragraph (8)(B) or
				(8)(C).
										.
								(2)RoundingSection
			 1(f)(6) (relating to rounding) is amended by adding at the end the following
			 new subparagraph:

									(C)Special rule for
				standard deduction additional amountIn the case of an increase with respect to
				section 63(c)(8) by reason of section 63(c)(4), subparagraph (A) shall be
				applied by substituting $25 for $50 each place it
				appears and subparagraph (B) shall not
				apply.
									.
							(d)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
						1002.Modification of
			 earned income credit amount for individuals with no qualifying
			 children
						(a)Increase in
			 credit percentage and phaseout percentage for individuals with no
			 childrenThe table contained in subparagraph (A) of section
			 32(b)(1) is amended by striking 7.65 each place it appears and
			 inserting 15.3.
						(b)Increase in
			 beginning phaseout amount
							(1)In
			 generalThe table contained
			 in subparagraph (A) of section 32(b)(2) is amended by striking
			 $5,280 and inserting $10,900.
							(2)Inflation
			 adjustmentSubparagraph (B) of section 32(j)(1) is
			 amended—
								(A)by striking
			 and at the end of clause (i), by redesignating clause (ii) as
			 clause (iii), and by inserting after clause (i) the following new
			 clause:

										(ii)in the case of
				the $10,900 amount in subsection (b)(2)(A), by substituting calendar
				year 2007 for calendar year 1992 in subparagraph (B)
				thereof, and
										,
				and
								(B)in clause (i) by
			 inserting except as provided in clause (ii), before in
			 the case of.
								(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
						1003.Change in
			 refundable child credit
						(a)Modification of
			 threshold amountClause (i)
			 of section 24(d)(1)(B) is amended by striking $10,000 and
			 inserting $8,500.
						(b)Repeal of
			 inflation adjustment to earned income baseSubsection (d) of
			 section 24 (relating to portion of credit refundable) is amended by striking
			 paragraph (3).
						(c)Effective
			 dateThe amendment made by subsection (a) shall apply to taxable
			 years beginning after December 31, 2007.
						2AMT
			 relief
					AAMT
			 extension for 2007
						1011.Extension of
			 alternative minimum tax relief for nonrefundable personal credits
							(a)In
			 generalParagraph (2) of section 26(a) (relating to special rule
			 for taxable years 2000 through 2006) is amended—
								(1)by striking
			 or 2006 and inserting 2006, or 2007, and
								(2)by striking
			 2006 in the heading thereof and inserting
			 2007.
								(b) Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2006.
							1012.Extension of
			 increased alternative minimum tax exemption amount
							(a)In
			 generalParagraph (1) of section 55(d) (relating to exemption
			 amount) is amended—
								(1)by striking
			 ($62,550 in the case of taxable years beginning in 2006) in
			 subparagraph (A) and inserting ($64,950 in the case of taxable years
			 beginning in 2007), and
								(2)by striking
			 ($42,500 in the case of taxable years beginning in 2006) in
			 subparagraph (B) and inserting ($44,150 in the case of taxable years
			 beginning in 2007).
								(b)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2006.
							BRepeal of the
			 individual AMT
						1021.Repeal of
			 alternative minimum tax on individuals
							(a)In
			 generalSubsection (a) of section 55 (relating to alternative
			 minimum tax imposed) is amended by adding at the end the following new flush
			 sentence:

									Except in
				the case of a corporation, no tax shall be imposed by this section for any
				taxable year beginning after December 31, 2007, and the tentative minimum tax
				of any taxpayer other than a corporation for any such taxable year shall be
				zero for purposes of this
				title..
							(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after December 31, 2007.
							1022.Limitation of
			 benefits of individual AMT repeal
							(a)In
			 generalPart VI of subchapter A of chapter 1 (relating to
			 alternative minimum tax) is amended by inserting after section 55 the following
			 new section:

									55A.Limitation of
				benefits of individual AMT repeal
										(a)General
				ruleIn the case of a taxpayer other than a corporation, there is
				hereby imposed (in addition to any other tax imposed by this subtitle) a tax
				equal to the sum of—
											(1)4 percent of so much of modified adjusted
				gross income as exceeds the initial threshold amount, plus
											(2)0.6 percent of so much of modified adjusted
				gross income as exceeds $250,000 ($500,000 in the case of a joint return or a
				surviving spouse (as defined in section 2(a)).
											(b)Initial
				threshold amountFor purposes of this section—
											(1)In
				generalThe term initial threshold amount
				means—
												(A)in the case of a joint return or a
				surviving spouse (as defined in section 2(a)), the greater of—
													(i)the amount which
				the Secretary estimates is the lowest adjusted gross income level (rounded to
				the nearest multiple of $10,000) above which at least 90 percent of married
				individuals filing a joint return would (but for the repeal of such tax) be
				affected by the alternative minimum tax for their first taxable year beginning
				in 2008, or
													(ii)$200,000,
													(B)in the case of any
				married individual filing a separate return, ½ of the
				amount determined under subparagraph (A), and
												(C)in any other case,
				3/4 of the amount determined under subparagraph
				(A).
												(2)Citizens and
				residents living abroadThe initial threshold amount determined
				under paragraph (1) shall be decreased by any amount excluded from the
				taxpayer’s gross income under section 911.
											(c)Modified
				adjusted gross incomeFor purposes of this section, the term
				modified adjusted gross income means adjusted gross income reduced
				by any deduction allowed for investment interest (as defined in section
				163(d)).
										(d)Nonresident
				alienIn the case of a
				nonresident alien individual, only amounts taken into account in connection
				with the tax imposed under section 871(b) shall be taken into account under
				this section.
										(e)Inflation
				adjustments
											(1)In
				generalIn the case of
				taxable years beginning after 2008, the amount in effect under subsection
				(b)(1)(A) for taxable years beginning in 2008 shall be increased by an amount
				equal to—
												(A)such dollar
				amount, multiplied by
												(B)the cost-of-living
				adjustment determined under section 1(f)(3) for the calendar year in which the
				taxable year begins, by substituting calendar year 2007 for
				calendar year 1992 in subparagraph (B) thereof.
												(2)RoundingIf any amount as adjusted under paragraph
				(1) is not a multiple of $5,000, such amount shall be rounded to the next
				lowest multiple of $5,000.
											(f)Marital
				statusFor purposes of this section, marital status shall be
				determined under section
				7703.
										.
							(b)Conforming
			 amendmentSubparagraph (A) of section 26(b)(2) is amended by
			 striking section 55 and inserting sections 55 and
			 55A.
							(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
							1023.High income
			 individuals subject to overall limitation on itemized deductions and phaseout
			 of deductions for personal exemptions
							(a)Overall
			 limitation on itemized deductionsSection 68 (relating to overall
			 limitation on itemized deductions) is amended by striking subsections (f) and
			 (g) and inserting the following new subsection:

									(f)Phaseout of
				limitation
										(1)In
				generalIn the case of a taxpayer whose adjusted gross income is
				not more than $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a))—
											(A)in the case of any
				taxable year beginning in 2008 or 2009, the reduction under subsection (a)
				shall be equal to 1/3 of the amount which would (but for
				this subsection) be the amount of such reduction, and
											(B)in the case of any
				taxable year beginning after 2009, subsection (a) shall not apply.
											(2)Phaseout based
				on income
											(A)In
				generalIn the case of a taxpayer whose adjusted gross income is
				more than $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a)), the reduction under subsection (a) shall
				be equal to the applicable fraction of the amount which would (but for this
				subsection) be the amount of such reduction.
											(B)Applicable
				fractionFor purposes of subparagraph (A), the term
				applicable fraction means—
												(i)in
				the case of any taxable year beginning in 2008 or 2009, a fraction (not in
				excess of 1) equal to the sum of—
													(I)1/3,
				plus
													(II)1/30
				for each $1,000 (or fraction thereof) by which the taxpayer’s adjusted gross
				income exceeds $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a)), and
													(ii)in the case of
				any taxable year beginning in 2010, a fraction (not in excess of 1) equal to
				1/20 for each $1,000 (or fraction thereof) by which the
				taxpayer’s adjusted gross income exceeds $250,000 ($500,000 in the case of a
				joint return or a surviving spouse (as defined in section
				2(a)).
												.
							(b)Phaseout of
			 deductions for personal exemptionsParagraph (3) of section
			 151(d) is amended by striking subparagraphs (E) and (F) and inserting the
			 following new subparagraphs:

									(E)Reduction of
				phaseoutIn the case of a taxpayer whose adjusted gross income is
				not more than $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a))—
										(i)in
				the case of any taxable year beginning in 2008 or 2009, the reduction under
				subparagraph (A) shall be equal to 1/3 of the amount which
				would (but for this subparagraph) be the amount of such reduction, and
										(ii)in the case of
				any taxable year beginning after 2009, subparagraph (A) shall not apply.
										(F)Phaseout based
				on incomeIn the case of a taxpayer whose adjusted gross income
				is more than $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a)), the reduction under subparagraph (A) shall
				be equal to the applicable fraction of the amount which would (but for this
				subparagraph) be the amount of such reduction.
									(G)Applicable
				fractionFor purposes of subparagraph (F), the term
				applicable fraction means—
										(i)in
				the case of any taxable year beginning in 2008 or 2009, the fraction (not in
				excess of 1) equal to the sum of—
											(I)1/3,
				plus
											(II)1/30
				for each $1,000 (or fraction thereof) by which the taxpayer’s adjusted gross
				income exceeds $250,000 ($500,000 in the case of a joint return or a surviving
				spouse (as defined in section 2(a)), and
											(ii)in the case of
				any taxable year beginning in 2010, the fraction (not in excess of 1) equal to
				1/20 for each $1,000 (or fraction thereof) by which the
				taxpayer’s adjusted gross income exceeds $250,000 ($500,000 in the case of a
				joint return or a surviving spouse (as defined in section
				2(a)).
										.
							(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
							1024.Modification of
			 2-percent floor on miscellaneous itemized deductions
							(a)In
			 generalSubsection (a) of
			 section 67 is amended by striking exceeds and all that follows
			 and inserting

									exceeds the sum
			 of—(1)2 percent of so much of modified adjusted
				gross income (as defined in section 55A(c)) as does not exceed the initial
				threshold amount applicable to the taxpayer under section 55A, plus
									(2)5 percent of so
				much of modified adjusted gross income (as so defined) as exceeds such initial
				threshold
				amount.
									.
							(b)Conforming
			 amendment
								(1)The heading for
			 section 67 is amended by striking 2-percent floor and inserting
			 Floor.
								(2)The item in the
			 table of sections for part I of subchapter B of chapter 1 relating to section
			 67 is amended by striking 2-percent floor and inserting
			 Floor.
								(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
							CConforming
			 amendments
						1031.Conforming
			 amendments, etc
							(a)Conforming
			 amendments related to repeal of alternative minimum tax on individuals
								(1)Subparagraph (B)
			 of section 1(g)(7) is amended by adding and at the end of clause
			 (i), by striking , and at the end of clause (ii) and inserting a
			 period, and by striking clause (iii).
								(2)Section 2(d) is
			 amended by striking taxes imposed by sections 1 and 55 and
			 inserting tax imposed by section 1.
								(3)Section 5(a) is
			 amended by striking paragraph (4).
								(4)Section 23 is
			 amended—
									(A)by striking
			 subsection (b)(4), and
									(B)by amending
			 subsection (c) by striking paragraphs (1) and (2), by redesignating paragraph
			 (3) as paragraph (2) and inserting before paragraph (2) (as so redesignated)
			 the following:

											(1)In
				generalIf the credit allowable under subsection (a) for any
				taxable year exceeds the limitation imposed by section 26(a) for such taxable
				year reduced by the sum of the credits allowable under this subpart (other than
				this section and sections 25D and 1400C), such excess shall be carried to the
				next succeeding taxable year and added to the credit allowable under subsection
				(a) for such succeeding taxable
				year.
											.
									(5)Section 24(b) is
			 amended by striking paragraph (3).
								(6)Section 24(d)(1)
			 is amended—
									(A)by striking
			 section 26(a)(2) or subsection (b)(3), as the case may be in
			 subparagraph (A) and inserting section 26(a), and
									(B)by striking section 26(a)(2) or
			 subsection (b)(3), as the case may be, in subparagraph (B) and
			 inserting section 26(a).
									(7)Section
			 25(e)(1)(C) is amended to read as follows:

										(C)Applicable tax
				limitFor purposes of this paragraph, the term applicable
				tax limit means the limitation imposed by section 26(a) for the taxable
				year reduced by the sum of the credits allowable under this subpart (other than
				this section and sections 23, 25D, and
				1400C).
										.
								(8)Section 25B is
			 amended by striking subsection (g).
								(9)Section 25D(c) is
			 amended to read as follows:

										(c)Carryforward of
				unused creditIf the credit allowable under subsection (a) for
				any taxable year exceeds the limitation imposed by section 26(a) for such
				taxable year reduced by the sum of the credits allowable under this subpart
				(other than this section), such excess shall be carried to the next succeeding
				taxable year and added to the credit allowable under subsection (a) for such
				succeeding taxable
				year.
										.
								(10)Section 26 is
			 amended—
									(A)by striking
			 subsection (c), and
									(B)by amending
			 subsection (a) to read as follows:

											(a)In
				generalThe aggregate amount of credits allowable by this subpart
				for the taxable year shall not exceed the taxpayer’s regular tax liability for
				the taxable
				year.
											.
									(11)Sections 30B(g)(2)
			 and 30C(d)(2) are each amended to read as follows:

										(2)Personal
				creditThe credit allowed under subsection (a) (after the
				application of paragraph (1)) shall be treated as a credit allowable under
				subpart
				A.
										.
								(12)Subsection (c) of
			 section 38 is amended by inserting at the end the following new
			 paragraph:

										(6)Tentative
				minimum taxFor purposes of this part, the term tentative
				minimum tax has the meaning given to such term by section 55.
										.
								(13)Section 53 is
			 amended—
									(A)by striking
			 adjusted net minimum tax in subsection (b)(1) and inserting
			 tax imposed by section 55,
									(B)by striking
			 subsection (d), and
									(C)by inserting at
			 the end of subsection (b) the following flush sentence:

											For
				purposes of paragraph (1), the tax imposed by section 55 for taxable years
				beginning before January 1, 2008, shall be the adjusted net minimum tax (as
				defined in section 53(d), as in effect before its
				repeal)..
									(14)(A)Subsection (b) of
			 section 55 (relating to alternative minimum tax imposed) is amended to read as
			 follows:

											(b)Tentative
				minimum taxFor purposes of this part—
												(1)Amount of
				tentative taxThe tentative minimum tax for the taxable year
				is—
													(A)20 percent of so
				much of the alternative minimum taxable income for the taxable year as exceeds
				the exemption amount, reduced by
													(B)the alternative
				minimum tax foreign tax credit for the taxable year.
													(2)Alternative
				minimum taxable incomeThe term alternative minimum taxable
				income means the taxable income of the taxpayer for the taxable
				year—
													(A)determined with
				the adjustments provided in section 56, and
													(B)increased by the
				amount of the items of tax preference described in section 57.
													If a
				taxpayer is subject to the regular tax, such taxpayer shall be subject to the
				tax imposed by this section (and, if the regular tax is determined by reference
				to an amount other than taxable income, such amount shall be treated as the
				taxable income of such taxpayer for purposes of the preceding
				sentence)..
									(B)Subsection (c) of section 55 is
			 amended by striking all that follows paragraph (1) and inserting the
			 following:

											(2)Cross
				referenceFor provision providing that portions of the general
				business credit are not allowable against the tax imposed by this section, see
				section
				38(c).
											.
									(C)Subsection (d) of section 55 is
			 amended to read as follows:

											(d)Exemption
				amountFor purposes of this section, the term exemption
				amount means $40,000 reduced (but not below zero) by an amount equal to
				25 percent of the amount by which the alternative minimum taxable income of the
				taxpayer exceeds
				$150,000.
											.
									(15)(A)Paragraph (6) of section
			 56(a) is amended to read as follows:

											(6)Adjusted
				basisThe adjusted basis of any property to which paragraph (1)
				or (5) applies (or with respect to which there are any expenditures to which
				paragraph (2) applies) shall be determined on the basis of the treatment
				prescribed in paragraph (1), (2), or (5), whichever
				applies.
											.
									(B)Section 56 is amended by striking
			 subsection (b).
									(C)Subsection (c) of section 56 is
			 amended by striking so much of the subsection as precedes paragraph (1), by
			 redesignating paragraphs (1), (2), and (3) as paragraphs (8), (9), and (10),
			 respectively, and moving them to the end of subsection (a).
									(D)Paragraph (8) of section 56(a), as
			 redesignated by subparagraph (C), is amended by striking subsection
			 (g) and inserting subsection (c).
									(E)Section 56 is amended by striking
			 subsection (e) and by redesignating subsections (d) and (g) as subsections (b)
			 and (c), respectively.
									(16)(A)Section 58 is hereby
			 repealed.
									(B)Clause (i) of section 56(b)(2)(A) is
			 amended by striking and section 58.
									(C)Subsection (h) of section 59 is
			 amended—
										(i)by striking , 465, and
			 1366(d) and inserting and 465, and
										(ii)by striking 56, 57, and
			 58 and inserting 56 and 57.
										(17)(A)Subparagraph (C) of
			 section 59(a)(1) is amended—
										(i)by striking subparagraph
			 (A)(i) or (B)(i) of section 55(b)(1) (whichever applies) and inserting
			 section 55(b)(1)(A), and
										(ii)by striking section 1 or 11
			 (whichever applies) and inserting section 11.
										(B)Paragraph (2) of section 59(a) is
			 amended to read as follows:

											(2)Pre-credit
				tentative minimum taxFor purposes of this subsection, the term
				pre-credit tentative minimum tax means the amount determined under
				section
				55(b)(1)(A).
											.
									(C)Section 59 is amended by striking
			 subsection (c).
									(D)Section 59 is amended by striking
			 subsection (j).
									(18)Paragraph (1) of
			 section 59A(b) and paragraph (7) of section 382(l) are each amended by striking
			 section 56(d) and inserting section 56(b).
								(19)Paragraph (2) of
			 section 641(c) is amended by striking subparagraph (B) and by redesignating
			 subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
								(20)Subsections (b)
			 and (c) of section 666 are each amended by striking (other than the tax
			 imposed by section 55).
								(21)Subsections
			 (c)(5) and (d)(3)(B) of section 772 are each amended by striking 56, 57,
			 and 58 and inserting 56 and 57.
								(22)Sections 847 and
			 848(l) are each amended by striking section 56(g) and inserting
			 section 56(c).
								(23)Sections
			 871(b)(1) and 877(b) are each amended by striking or 55.
								(24)Subsection (a) of
			 section 897 is amended to read as follows:

										(a)General
				ruleFor purposes of this title, gain or loss of a nonresident
				alien individual or a foreign corporation from the disposition of a United
				States real property interest shall be taken into account—
											(1)in the case of a
				nonresident alien individual, under section 871(b)(1), or
											(2)in the case of a
				foreign corporation, under section 882(a)(1),
											as if the
				taxpayer were engaged in a trade or business within the United States during
				the taxable year and as if such gain or loss were effectively connected with
				such trade or
				business..
								(25)Section 904 is
			 amended by striking subsection (i).
								(26)The first
			 sentence of section 911(f) is amended to read as follows:

										For purposes of this chapter, if any amount is
			 excluded from the gross income of a taxpayer under subsection (a) for any
			 taxable year, then, notwithstanding section 1, the tax imposed by such section
			 on the taxpayer for such taxable year shall be equal to the excess (if any)
			 of—(1)the tax which
				would be imposed by such section for the taxable year if the taxpayer’s taxable
				income were increased by the amount excluded under subsection (a) for the
				taxable year, over
										(2)the tax which would
				be imposed by such section for the taxable year if the taxpayer’s taxable
				income were equal to the amount excluded under subsection (a) for the taxable
				year.
										.
								(27)Paragraph (1) of
			 section 962(a) is amended by striking sections 1 and 55 and
			 inserting section 1.
								(28)Section 1400C(d)
			 is amended to read as follows:

										(d)Carryforward of
				unused creditIf the credit allowable under subsection (a) for
				any taxable year exceeds the limitation imposed by section 26(a) for such
				taxable year reduced by the sum of the credits allowable under this subpart
				(other than this section and section 25D), such excess shall be carried to the
				next succeeding taxable year and added to the credit allowable under subsection
				(a) for such succeeding taxable
				year.
										.
								(29)The last sentence
			 of section 1563(a) is amended by striking section 55(d)(3) and
			 inserting section 55(d).
								(30)Subparagraph (B)
			 of section 6015(d)(2) is amended by striking or 55.
								(31)Clause (i) of
			 section 6654(d)(2)(C) is amended by striking , alternative minimum
			 taxable income,.
								(b)Application of
			 EGTRRA sunset
								(1)Section 901 of the
			 Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to
			 sections 201(d) and 303(c) of such Act.
								(2)Section 901 of the
			 Economic Growth and Tax Relief Reconciliation Act of 2001 shall apply
			 to—
									(A)the amendments
			 made by section 1023(a) to the same extent and in the same manner as section
			 901 of such Act applies to the amendments made by section 103 of such Act,
			 and
									(B)the amendments made by section 1023(b) to
			 the same extent and in the same manner as section 901 of such Act applies to
			 the amendments made by section 102 of such Act.
									(c)Effective
			 dateThe amendments made by subsection (a) shall apply to taxable
			 years beginning after December 31, 2007.
							BOther
			 reforms
				1Provisions related
			 to certain investment partnerships
					1201.Income of partners
			 for performing investment management services treated as ordinary income
			 received for performance of services
						(a)In
			 generalPart I of subchapter K of chapter 1 is amended by adding
			 at the end the following new section:

								710.Special rules
				for partners providing investment management services to partnership
									(a)Treatment of
				distributive share of partnership itemsFor purposes of this title, in the case of
				an investment services partnership interest—
										(1)In
				generalNotwithstanding section 702(b)—
											(A)any net income
				with respect to such interest for any partnership taxable year shall be treated
				as ordinary income for the performance of services, and
											(B)any net loss with
				respect to such interest for such year, to the extent not disallowed under
				paragraph (2) for such year, shall be treated as an ordinary loss.
											(2)Treatment of
				losses
											(A)LimitationAny
				net loss with respect to such interest shall be allowed for any partnership
				taxable year only to the extent that such loss does not exceed the excess (if
				any) of—
												(i)the
				aggregate net income with respect to such interest for all prior partnership
				taxable years, over
												(ii)the aggregate net
				loss with respect to such interest not disallowed under this subparagraph for
				all prior partnership taxable years.
												(B)CarryforwardAny
				net loss for any partnership taxable year which is not allowed by reason of
				subparagraph (A) shall be treated as an item of loss with respect to such
				partnership interest for the succeeding partnership taxable year.
											(C)Basis
				adjustmentNo adjustment to the basis of a partnership interest
				shall be made on account of any net loss which is not allowed by reason of
				subparagraph (A).
											(D)Exception for
				basis attributable to purchase of a partnership interestIn the
				case of an investment services partnership interest acquired by purchase,
				paragraph (1)(B) shall not apply to so much of any net loss with respect to
				such interest for any taxable year as does not exceed the excess of—
												(i)the basis of such
				interest immediately after such purchase, over
												(ii)the aggregate net
				loss with respect to such interest to which paragraph (1)(B) did not apply by
				reason of this subparagraph for all prior taxable years.
												Any net
				loss to which paragraph (1)(B) does not apply by reason of this subparagraph
				shall not be taken into account under subparagraph (A).(E)Prior
				partnership yearsAny reference in this paragraph to prior
				partnership taxable years shall only include prior partnership taxable years to
				which this section applies.
											(3)Net income and
				lossFor purposes of this section—
											(A)Net
				incomeThe term net income means, with respect to
				any investment services partnership interest, for any partnership taxable year,
				the excess (if any) of—
												(i)all items of
				income and gain taken into account by the holder of such interest under section
				702 with respect to such interest for such year, over
												(ii)all items of
				deduction and loss so taken into account.
												(B)Net
				lossThe term net loss means with respect to such
				interest for such year, the excess (if any) of the amount described in
				subparagraph (A)(ii) over the amount described in subparagraph (A)(i).
											(b)Dispositions of
				partnership interests
										(1)GainAny
				gain on the disposition of an investment services partnership interest shall be
				treated as ordinary income for the performance of services.
										(2)LossAny
				loss on the disposition of an investment services partnership interest shall be
				treated as an ordinary loss to the extent of the excess (if any) of—
											(A)the aggregate net
				income with respect to such interest for all partnership taxable years,
				over
											(B)the aggregate net
				loss with respect to such interest allowed under subsection (a)(2) for all
				partnership taxable years.
											(3)Disposition of
				portion of interestIn the case of any disposition of an
				investment services partnership interest, the amount of net loss which
				otherwise would have (but for subsection (a)(2)(C)) applied to reduce the basis
				of such interest shall be disregarded for purposes of this section for all
				succeeding partnership taxable years.
										(4)Distributions of
				partnership propertyIn the case of any distribution of
				appreciated property by a partnership with respect to any investment services
				partnership interest, gain shall be recognized by the partnership in the same
				manner as if the partnership sold such property at fair market value at the
				time of the distribution. For purposes of this paragraph, the term
				appreciated property means any property with respect to which gain
				would be determined if sold as described in the preceding sentence.
										(5)Application of
				section 751In applying section 751(a), an investment services
				partnership interest shall be treated as an inventory item.
										(c)Investment
				services partnership interestFor purposes of this section—
										(1)In
				generalThe term
				investment services partnership interest means any interest in a
				partnership which is held by any person if such person provides (directly or
				indirectly) a substantial quantity of any of the following services with
				respect to the assets of the partnership in the conduct of the trade or
				business of providing such services:
											(A)Advising as to the
				advisability of investing in, purchasing, or selling any specified
				asset.
											(B)Managing,
				acquiring, or disposing of any specified asset.
											(C)Arranging financing
				with respect to acquiring specified assets.
											(D)Any activity in
				support of any service described in subparagraphs (A) through (C).
											For
				purposes of this paragraph, the term specified asset means
				securities (as defined in section 475(c)(2) without regard to the last sentence
				thereof), real estate, commodities (as defined in section 475(e)(2))), or
				options or derivative contracts with respect to securities (as so defined),
				real estate, or commodities (as so defined).(2)Exception for
				certain capital interests
											(A)In
				generalIf—
												(i)a portion of an
				investment services partnership interest is acquired on account of a
				contribution of invested capital, and
												(ii)the partnership
				makes a reasonable allocation of partnership items between the portion of the
				distributive share that is with respect to invested capital and the portion of
				such distributive share that is not with respect to invested capital,
												then
				subsection (a) shall not apply to the portion of the distributive share that is
				with respect to invested capital. An allocation will not be treated as
				reasonable for purposes of this subparagraph if such allocation would result in
				the partnership allocating a greater portion of income to invested capital than
				any other partner not providing services would have been allocated with respect
				to the same amount of invested capital.(B)Special rule for
				dispositionsIn any case to
				which subparagraph (A) applies, subsection (b) shall not apply to any gain or
				loss allocable to invested capital. The portion of any gain or loss
				attributable to invested capital is the proportion of such gain or loss which
				is based on the distributive share of gain or loss that would have been
				allocable to invested capital under subparagraph (A) if the partnership sold
				all of its assets immediately before the disposition.
											(C)Invested
				capitalFor purposes of this paragraph, the term invested
				capital means, the fair market value at the time of contribution of any
				money or other property contributed to the partnership.
											(D)Treatment of
				certain loans
												(i)Proceeds of
				partnership loans not treated as invested capital of service providing
				partnersFor purposes of this paragraph, an investment services
				partnership interest shall not be treated as acquired on account of a
				contribution of invested capital to the extent that such capital is
				attributable to the proceeds of any loan or other advance made or guaranteed,
				directly or indirectly, by any partner or the partnership.
												(ii)Loans from
				nonservice providing partners to the partnership treated as invested
				capitalFor purposes of this paragraph, any loan or other advance
				to the partnership made or guaranteed, directly or indirectly, by a partner not
				providing services to the partnership shall be treated as invested capital of
				such partner and amounts of income and loss treated as allocable to invested
				capital shall be adjusted accordingly.
												(d)Other income and
				gain in connection with investment management services
										(1)In
				generalIf—
											(A)a person performs
				(directly or indirectly) investment management services for any entity,
											(B)such person holds
				a disqualified interest with respect to such entity, and
											(C)the value of such interest (or payments
				thereunder) is substantially related to the amount of income or gain (whether
				or not realized) from the assets with respect to which the investment
				management services are performed,
											any income
				or gain with respect to such interest shall be treated as ordinary income for
				the performance of services. Rules similar to the rules of subsection (c)(2)
				shall apply where such interest was acquired on account of invested capital in
				such entity.(2)DefinitionsFor
				purposes of this subsection—
											(A)Disqualified
				interestThe term disqualified interest means, with
				respect to any entity—
												(i)any interest in
				such entity other than indebtedness,
												(ii)convertible or
				contingent debt of such entity,
												(iii)any option or
				other right to acquire property described in clause (i) or (ii), and
												(iv)any derivative
				instrument entered into (directly or indirectly) with such entity or any
				investor in such entity.
												Such
				term shall not include a partnership interest and shall not include stock in a
				taxable corporation.(B)Taxable
				corporationThe term taxable corporation
				means—
												(i)a
				domestic C corporation, or
												(ii)a
				foreign corporation subject to a comprehensive foreign income tax (as defined
				in section 457A(d)(4)).
												(C)Investment
				management servicesThe term investment management
				services means a substantial quantity of any of the services described
				in subsection (c)(1) which are provided in the conduct of the trade or business
				of providing such services.
											(e)RegulationsThe
				Secretary shall prescribe such regulations as are necessary or appropriate to
				carry out the purposes of this section, including regulations to—
										(1)prevent the
				avoidance of the purposes of this section, and
										(2)coordinate this
				section with the other provisions of this subchapter.
										(f)Cross
				referenceFor 40 percent no fault penalty on certain
				underpayments due to the avoidance of this section, see section
				6662.
									.
						(b)Application to
			 real estate investment trustsSubsection (c) of section 856 is
			 amended by adding at the end the following new paragraph:

								(8)Exception from
				recharacterization of income from investment services partnership
				interests
									(A)In
				generalParagraphs (2), (3), and (4) shall be applied without
				regard to section 710 (relating to special rules for partners providing
				investment management services to partnership).
									(B)Special rule for
				partnerships owned by REITsSection 7704 shall be applied without
				regard to section 710 in the case of a partnership which meets each of the
				following requirements:
										(i)Such partnership
				is treated as publicly traded under section 7704 solely by reason of interests
				in such partnership being convertible into interests in a real estate
				investment trust which is publicly traded.
										(ii)50 percent or more of the capital and
				profits interests of such partnership are owned, directly or indirectly, at all
				times during the taxable year by such real estate investment trust (determined
				with the application of section 267(c)).
										(iii)Such partnership
				meets the requirements of paragraphs (2), (3), and (4) (applied without regard
				to section
				710).
										.
						(c)Imposition of
			 penalty on underpayments
							(1)In
			 generalSubsection (b) of section 6662 is amended by inserting
			 after paragraph (5) the following new paragraph:

									(6)The application of
				subsection (d) of section 710 or the regulations prescribed under section
				710(e) to prevent the avoidance of the purposes of section
				710.
									.
							(2)Amount of
			 penalty
								(A)In
			 generalSection 6662 is amended by adding at the end the
			 following new subsection:

										(i)Increase in
				penalty in case of property transferred for investment management
				servicesIn the case of any portion of an underpayment to which
				this section applies by reason of subsection (b)(6), subsection (a) shall be
				applied with respect to such portion by substituting 40 percent
				for 20
				percent.
										.
								(B)Conforming
			 amendmentsSubparagraph (B) of section 6662A(e)(2) is
			 amended—
									(i)by
			 striking section 6662(h) and inserting subsection (h) or
			 (i) of section 6662, and
									(ii)by
			 striking gross
			 valuation misstatement penalty in the heading and
			 inserting certain
			 increased underpayment penalties.
									(3)Reasonable cause
			 exception not applicableSubsection (c) of section 6664 is
			 amended—
								(A)by redesignating
			 paragraphs (2) and (3) as paragraphs (3) and (4), respectively,
								(B)by striking
			 paragraph (2) in paragraph (4), as so redesignated, and
			 inserting paragraph (3), and
								(C)by inserting after
			 paragraph (1) the following new paragraph:

										(2)ExceptionParagraph
				(1) shall not apply to any portion of an underpayment to which this section
				applies by reason of subsection
				(b)(6).
										.
								(d)Conforming
			 amendments
							(1)Subsection (d) of
			 section 731 is amended by inserting section 710(b)(4) (relating to
			 distributions of partnership property), before section
			 736.
							(2)Section 741 is
			 amended by inserting or section 710 (relating to special rules for
			 partners providing investment management services to partnership)
			 before the period at the end.
							(3)Paragraph (13) of
			 section 1402(a) is amended—
								(A)by striking
			 other than guaranteed and
			 inserting

										other
			 than—(A)guaranteed
										,
								(B)by striking the
			 semi-colon at the end and inserting , and, and
								(C)by adding at the end
			 the following new subparagraph:

										(B)any income treated
				as ordinary income under section 710 received by an individual who provides
				investment management services (as defined in section
				710(d)(2));
										.
								(4)Paragraph (12) of
			 section 211(a) of the Social Security Act is amended—
								(A)by striking
			 other than guaranteed and
			 inserting

										other
			 than—(A)guaranteed
										,
								(B)by striking the
			 semi-colon at the end and inserting , and, and
								(C)by adding at the
			 end the following new subparagraph:

										(B)any income treated
				as ordinary income under section 710 of the Internal Revenue Code of 1986
				received by an individual who provides investment management services (as
				defined in section 710(d)(2) of such
				Code);
										.
								(5)The table of sections for part I of
			 subchapter K of chapter 1 is amended by adding at the end the following new
			 item:

										Sec. 710. Special rules for partners providing investment
				management services to
				partnership.

									.
							(e)Effective
			 date
							(1)In
			 generalExcept as otherwise provided in this subsection, the
			 amendments made by this section shall apply to taxable years ending after
			 ____.
							(2)Partnership
			 taxable years which include effective dateIn applying section
			 710(a) of the Internal Revenue Code of 1986 (as added by this section) in the
			 case of any partnership taxable year which includes ____, the amount of the net
			 income referred to in such section shall be treated as being the lesser of the
			 net income for the entire partnership taxable year or the net income determined
			 by only taking into account items attributable to the portion of the
			 partnership taxable year which is after such date.
							(3)Dispositions of
			 partnership interestsExcept
			 as provided in paragraph (3), section 710(b) of the Internal Revenue Code of
			 1986 (as added by this section) shall apply to dispositions and distributions
			 after ____.
							(4)Other income and
			 gain in connection with investment management servicesSection 710(d) of such Code (as added by
			 this section) shall take effect on ____.
							1202.Nonqualified
			 deferred compensation for investment services
						(a)In
			 generalSubpart B of part II of subchapter E of chapter 1
			 (relating to taxable year for which items of gross income included) is amended
			 by inserting after section 457 the following new section:

								457A.Nonqualified
				deferred compensation for investment services
									(a)In
				generalAny compensation for
				investment services which is deferred under a nonqualified deferred
				compensation plan of a nonqualified entity shall be taken into account for
				purposes of this chapter when there is no substantial risk of forfeiture of the
				rights to such compensation.
									(b)Nonqualified
				entityFor purposes of this section, the term nonqualified
				entity means—
										(1)any foreign corporation which has
				investment related income unless substantially all of such income is—
											(A)effectively
				connected with the conduct of a trade or business in the United States,
				or
											(B)subject to a
				comprehensive foreign income tax, and
											(2)any partnership which has investment
				related income unless substantially all of such income is allocated to persons
				other than—
											(A)foreign persons
				with respect to whom such income is not subject to a comprehensive foreign
				income tax, and
											(B)organizations
				which are exempt from tax under this title.
											(c)Ascertainability
				of amounts of compensation
										(1)In
				generalIf the amount of any compensation is not ascertainable at
				the time that such compensation is otherwise to be taken into account under
				subsection (a)—
											(A)such amount shall
				be so taken into account when ascertainable, and
											(B)the tax imposed
				under this chapter for the taxable year in which such compensation is taken
				into account under subparagraph (A) shall be increased by the sum of—
												(i)the amount of
				interest determined under paragraph (2), and
												(ii)an amount equal
				to 20 percent of the amount of such compensation.
												(2)InterestFor purposes of paragraph (1)(B)(i), the
				interest determined under this paragraph for any taxable year is the amount of
				interest at the underpayment rate under section 6621 plus 1 percentage point on
				the underpayments that would have occurred had the deferred compensation been
				includible in gross income for the taxable year in which first deferred or, if
				later, the first taxable year in which such deferred compensation is not
				subject to a substantial risk of forfeiture.
										(d)Other
				definitions and special rulesFor purposes of this
				section—
										(1)Investment
				servicesThe term investment services means all
				services provided during any taxable year if a substantial quantity of such
				services are services described in section 710(c)(1).
										(2)Investment
				related incomeThe term
				investment related income means any income attributable (directly
				or indirectly) to—
											(A)the assets with
				respect to which the investment services referred in subsection (a) were
				performed, or
											(B)the investment
				services referred to in subsection (a).
											(3)Substantial risk
				of forfeitureThe rights of a person to compensation shall be
				treated as subject to a substantial risk of forfeiture only if such person’s
				rights to such compensation are conditioned upon the future performance of
				substantial services by any individual.
										(4)Comprehensive
				foreign income taxThe term comprehensive foreign income
				tax means, with respect to any foreign person, the income tax of a
				foreign country if—
											(A)such person is
				eligible for the benefits of a comprehensive income tax treaty between such
				foreign country and the United States, or
											(B)such person
				demonstrates to the satisfaction of the Secretary that such foreign country has
				a comprehensive income tax.
											Such term
				shall not include any tax unless such tax includes rules for the deductibility
				of deferred compensation which are similar to the rules of this title.(5)Nonqualified
				deferred compensation planThe term nonqualified deferred
				compensation plan has the meaning given such term under section 409A(d),
				except that such term shall include any plan that provides a right to
				compensation based on the appreciation in value of a specified number of equity
				units of the service recipient.
										(6)Application of
				rulesRules similar to the
				rules of paragraphs (5) and (6) of section 409A(d) shall apply.
										(e)RegulationsThe Secretary shall prescribe such
				regulations as may be necessary or appropriate to carry out the purposes of
				this section, including regulations disregarding a substantial risk of
				forfeiture in cases where necessary to carry out the purposes of this section.
									.
						(b)Conforming
			 amendmentSection 26(b)(2) is amended by striking
			 and at the end of subparagraph (S), by striking the period at
			 the end of subparagraph (T) and inserting , and, and by adding
			 at the end the following new subparagraph:

								(U)section 457A(c)(1)(B) (relating to
				ascertainability of amounts of
				compensation).
								.
						(c)Clerical
			 amendmentThe table of
			 sections of subpart B of part II of subchapter E of chapter 1 is amended by
			 inserting after the item relating to section 457 the following new item:

									Sec. 457A. Nonqualified deferred compensation for investment
				services.

								.
						(d)Effective
			 date
							(1)In
			 generalThe amendments made by this section shall apply to
			 taxable years beginning after December 31, 2007.
							(2)Treatment as
			 change in method of accountingFor purposes of section 481 of the
			 Internal Revenue Code of 1986—
								(A)the amendments
			 made by this section shall be treated as a change in method of accounting which
			 is initiated by the taxpayer and made with the consent of the Secretary of the
			 Treasury, and
								(B)the period for
			 taking into account the adjustments under such section by reason of such change
			 shall be 4 years.
								1203.Indebtedness
			 incurred by a partnership in acquiring securities and commodities not treated
			 as acquisition indebtedness for organizations which are partners with limited
			 liability
						(a)In
			 generalSubsection (c) of section 514 (relating to acquisition
			 indebtedness) is amended by adding at the end the following new
			 paragraph:

								(10)Securities and
				commodities acquired by partnerships in which an organization is a partner with
				limited liability
									(A)In
				generalIn the case of any
				organization which is a partner with limited liability in a partnership, the
				term acquisition indebtedness does not, for purposes of this
				section, include indebtedness incurred or continued by such partnership in
				purchasing or carrying any qualified security or commodity.
									(B)Qualified
				security or commodityFor
				purposes of this paragraph, the term qualified security or
				commodity means any security (as defined in section 475(c)(2) without
				regard to the last sentence thereof), any commodity (as defined in section
				475(e)(2)), or any option or derivative contract with respect to such a
				security or commodity.
									(C)Application to
				tiered partnerships and other pass-thru entitiesRules similar to the rules of subparagraph
				(A) shall apply in the case of tiered partnerships and other pass-thru
				entities.
									(D)RegulationsThe
				Secretary may prescribe such regulations as may be necessary or appropriate to
				carry out the purposes of this paragraph, including regulations to prevent the
				abuse of this
				paragraph.
									.
						(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after the date of the enactment of this Act.
						1204.Application to
			 partnership interests and tax sharing agreements of rule treating certain gain
			 on sales between related persons as ordinary income
						(a)Partnership
			 interestsSubsection (a) of section 1239 is amended to read as
			 follows:

								(a)Treatment of
				gain as ordinary incomeIn
				the case of a sale or exchange of property, directly or indirectly, between
				related persons, any gain recognized to the transferor shall be treated as
				ordinary income if—
									(1)such property is,
				in the hands of the transferee, of a character which is subject to the
				allowance for depreciation provided in section 167, or
									(2)such property is an interest in a
				partnership, but only to the extent of gain attributable to unrealized
				appreciation in property which is of a character subject to the allowance for
				depreciation provided in section 167.
									.
						(b)Tax sharing
			 agreementsSection 1239
			 (relating to gain from sale of depreciable property between certain related
			 taxpayers) is amended by adding at the end the following new subsection:

								(f)Application to
				tax sharing agreements
									(1)In
				generalIf there is a tax sharing agreement with respect to any
				sale or exchange, the transferee and the transferor shall be treated as related
				persons for purposes of this section.
									(2)Tax sharing
				agreementFor purposes of
				this subsection, the term tax sharing agreement means any
				agreement which provides for the payment to the transferor of any amount which
				is determined by reference to any portion of the tax benefit realized by the
				transferee with respect to the depreciation (or amortization) of the property
				transferred.
									.
						(c)Effective
			 dateThe amendment made by this section shall apply to sales and
			 exchanges after the date of the enactment of this Act.
						2Self-employment
			 tax treatment of certain interest holders in service providing entities

					1211.Certain service
			 providing S corporation shareholders and partners subject to self-employment
			 taxes
						(a)In
			 generalSection 1402 is
			 amended by adding at the end the following new subsection:

								(l)Special rules
				for service providing S corporation shareholders and partners
									(1)S corporation
				shareholdersIn the case of
				any S corporation which is engaged in a trade or business consisting primarily
				of the performance of services, any shareholder of such S corporation who
				provides substantial services with respect to such trade or business shall take
				into account such shareholder’s pro rata share of all items of income or loss
				described in section 1366 which are attributable to such trade or business in
				determining the shareholder’s net earnings from self-employment.
									(2)PartnersIn
				the case of any partnership which is engaged in a trade or business consisting
				primarily of the performance of services, subsection (a)(13) shall not apply to
				any partner who provides substantial services with respect to such trade or
				business.
									(3)RegulationsThe
				Secretary shall prescribe such regulations as may be necessary or appropriate
				to carry out the purposes of this subsection, including regulations which
				prevent the avoidance of the purposes of this subsection through tiered
				entities or otherwise.
									(4)Cross
				referenceFor employment tax
				treatment of wages paid to shareholders of S corporations, see subtitle C.
									.
						(b)Conforming
			 amendmentSection 211 of the
			 Social Security Act is amended by adding at the end the following new
			 subsection:

								(k)Special rules
				for service providing S corporation shareholders and partners
									(1)S corporation
				shareholdersIn the case of
				any S corporation which is engaged in a trade or business consisting primarily
				of the performance of services, any shareholder of such S corporation who
				provides substantial services with respect to such trade or business shall take
				into account such shareholder’s pro rata share of all items of income and loss
				described in section 1366 of the Internal Revenue Code of 1986 which are
				attributable to such trade or business in determining the shareholder’s net
				earnings from self-employment.
									(2)PartnersIn
				the case of any partnership which is engaged in a trade or business consisting
				primarily of the performance of services, subsection (a)(12) shall not apply to
				any partner who provides substantial services with respect to such trade or
				business.
									.
						(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
						3Broker
			 reporting of customer’s basis in securities transactions
					1221.Broker reporting of
			 customer’s basis in securities transactions
						(a)In
			 general
							(1)Broker reporting
			 for securities transactionsSection 6045 (relating to returns of
			 brokers) is amended by adding at the end the following new subsection:

									(g)Additional
				information required in the case of securities transactions
										(1)In
				generalIf a broker is otherwise required to make a return under
				subsection (a) with respect to the gross proceeds of the sale of a covered
				security, the broker shall include in such return the information described in
				paragraph (2).
										(2)Additional
				information required
											(A)In
				generalThe information required under paragraph (1) to be shown
				on a return with respect to a covered security of a customer shall include the
				customer’s adjusted basis in such security and whether any gain or loss with
				respect to such security is long-term or short-term (within the meaning of
				section 1222).
											(B)Determination of
				adjusted basisFor purposes of subparagraph (A)—
												(i)In
				generalThe customer’s adjusted basis shall be determined—
													(I)in the case of any
				stock (other than any stock in an open-end fund), in accordance with the
				first-in first-out method unless the customer notifies the broker by means of
				making an adequate identification of the stock sold or transferred,
													(II)in the case of any interest in an open-end
				fund acquired before January 1, 2011, in accordance with any acceptable method
				under section 1012 with respect to the account in which such interest is
				held,
													(III)in the case of any interest in an open-end
				fund acquired after December 31, 2010, in accordance with the broker’s default
				method unless the customer notifies the broker that he elects another
				acceptable method under section 1012 with respect to the account in which such
				interest is held, and
													(IV)in any other
				case, under the method for making such determination under section 1012.
													(ii)Exception for
				wash salesExcept as otherwise provided by the Secretary, the
				customer’s adjusted basis shall be determined without regard to section 1091
				(relating to loss from wash sales of stock or securities) unless the
				transactions occur in the same account with respect to identical
				securities.
												(3)Covered
				securityFor purposes of this subsection—
											(A)In
				generalThe term covered security means any
				specified security acquired on or after the applicable date if such
				security—
												(i)was
				acquired through a transaction in the account in which such security is held,
				or
												(ii)was transferred
				to such account from an account in which such security was a covered security,
				but only if the broker received a statement under section 6045A with respect to
				the transfer.
												(B)Specified
				securityThe term specified security means—
												(i)any share of stock in a corporation,
												(ii)any note, bond,
				debenture, or other evidence of indebtedness,
												(iii)any commodity,
				or contract or derivative with respect to such commodity, if the Secretary
				determines that adjusted basis reporting is appropriate for purposes of this
				subsection, and
												(iv)any other
				financial instrument with respect to which the Secretary determines that
				adjusted basis reporting is appropriate for purposes of this subsection.
												(C)Applicable
				dateThe term applicable date means—
												(i)January 1, 2009, in the case of any specified security which is stock in a
				corporation, and
												(ii)January 1, 2011,
				or such later date determined by the Secretary in the case of any other
				specified security.
												(4)Open-end
				fundFor purposes of this
				subsection, the term open-end fund means a regulated investment
				company (as defined in section 851) which is offering for sale or has
				outstanding any redeemable security of which it is the issuer and the shares of
				which are not traded on an established securities exchange.
										(5)Treatment of S
				corporationsFor purposes of this section, a S corporation (other
				than a financial institution) shall be treated in the same manner as a
				partnership.
										.
							(2)Broker
			 information required with respect to publicly traded
			 optionsSection 6045, as amended by subsection (a), is amended by
			 adding at the end the following new subsection:

									(h)Application to
				options on covered securities
										(1)Exercise of
				optionFor purposes of this
				section, in the case of any exercise of an option on a covered security where
				the taxpayer is the grantor of the option and the option was acquired in the
				same account as the covered security, the amount received for the grant of an
				option on a covered security shall be treated as an adjustment to gross
				proceeds or as an adjustment to basis, as the case may be. A similar rule shall
				apply in the case of the exercise of an option where the taxpayer is not the
				grantor of the option.
										(2)Lapse or closing
				transactionFor purposes of this section, in the case of the
				lapse (or closing transaction (as defined in section 1234(b)(2)(A))) of an
				option on a covered security where the taxpayer is the grantor of the option,
				this section shall apply as if the premium received for such option were gross
				proceeds received on the date of the lapse or closing transaction, and the cost
				(if any) of the closing transaction shall be taken into account as adjusted
				basis. A similar rule shall apply in the case of a lapse or closing transaction
				where the taxpayer is not the grantor of the option.
										(3)Application
				limited to options granted on or after applicable dateParagraphs
				(1) and (2) shall not apply to any option on a covered security which is
				granted or acquired before the applicable date with respect to such covered
				security.
										(4)DefinitionsFor purposes of this subsection, the terms
				covered security and applicable date shall have the
				meaning given such terms in subsection (g)(3).
										.
							(3)Extension of
			 period for statements sent to customers
								(A)In
			 generalSubsection (b) of
			 section 6045 is amended by striking January 31 and inserting
			 February 15.
								(B)Statements
			 related to substitute paymentsSubsection (d) of section 6045 is
			 amended—
									(i)by striking
			 at such time and, and
									(ii)by inserting
			 after other item. the following new sentence: The written
			 statement required under the preceding sentence shall be furnished on or before
			 February 15 of the year following the calendar year during which such payment
			 was made..
									(C)Other
			 statementsSubsection (b) of section 6045 is amended by adding at
			 the end the following: In the case that a substantial portion of the
			 assets in the account of a customer gives rise to the requirement to furnish a
			 statement under this subsection, section 6042(c), 6049(c)(2)(A), or 6050N(b),
			 any statement otherwise required to be furnished to the customer with respect
			 to any item in such account on or before January 31 shall instead be required
			 to be furnished to such customer on or before February 15..
								(b)Determination of
			 basis of certain securities on account by account methodSection
			 1012 (relating to basis of property–cost) is amended—
							(1)by striking
			 The basis of property and inserting the following:

									(a)In
				generalThe basis of
				property
									,
							(2)by striking
			 The cost of real property and inserting the following:

									(b)Special rule for
				apportioned real estate taxesThe cost of real
				property
									,
				and
							(3)by adding at the
			 end the following new subsection:

									(c)Determinations
				by account
										(1)In
				generalIn the case of the sale, exchange, or other disposition
				of a specified security on or after the applicable date, the conventions
				prescribed by regulations under this section shall be applied on an account by
				account basis.
										(2)Application to
				open-end funds
											(A)In
				generalExcept as provided in
				subparagraph (B), any stock in an open-end fund acquired before January 1,
				2009, shall be treated as a separate account from any such stock acquired on or
				after such date.
											(B)Election by
				open-end fund for treatment as single accountIf an open-end fund
				elects (at such time and in such form and manner as the Secretary may
				prescribe) to have this subparagraph apply with respect to one or more of its
				stockholders—
												(i)subparagraph (A)
				shall not apply with respect to any stock in such fund held by such
				stockholders, and
												(ii)all stock in such
				fund which is held by such stockholders shall be treated as covered securities
				described in section 6045(g)(3) without regard to the date of the acquisition
				of such stock.
												(3)DefinitionsFor
				purposes of this section, the terms specified security,
				applicable date, and open-end fund shall have the
				meaning given such terms in section
				6045(g).
										.
							(c)Information by
			 transferors To aid brokers
							(1)In
			 generalSubpart B of part III of subchapter A of chapter 61 is
			 amended by inserting after section 6045 the following new section:

									6045A.Information
				required in connection with transfers of covered securities to brokers
										(a)Furnishing of
				informationEvery applicable person which transfers to a broker
				(as defined in section 6045(c)(1)) a security which is a covered security (as
				defined in section 6045(g)(3)) in the hands of such applicable person shall
				furnish to such broker a written statement in such manner and setting forth
				such information as the Secretary may by regulations prescribe for purposes of
				enabling such broker to meet the requirements of section 6045(g).
										(b)Applicable
				personFor purposes of subsection (a), the term applicable
				person means—
											(1)any broker (as
				defined in section 6045(c)(1)), and
											(2)any other person
				as provided by the Secretary in regulations.
											(c)Time for
				furnishing statementAny statement required by subsection (a)
				shall be furnished not later than the earlier of—
											(1)45 days after the
				date of the transfer described in subsection (a), or
											(2)January 15 of the
				year following the calendar year during which such transfer
				occurred.
											.
							(2)Assessable
			 penaltiesParagraph (2) of section 6724(d) (defining payee
			 statement) is amended by redesignating subparagraphs (I) through (CC) as
			 subparagraphs (J) through (DD), respectively, and by inserting after
			 subparagraph (H) the following new subparagraph:

									(I)section 6045A
				(relating to information required in connection with transfers of covered
				securities to
				brokers).
									.
							(3)Clerical
			 amendmentThe table of sections for subpart B of part III of
			 subchapter A of chapter 61 is amended by inserting after the item relating to
			 section 6045 the following new item:

										Sec. 6045A. Information required in
				connection with transfers of covered securities to
				brokers.

									.
							(d)Additional issuer
			 information To aid brokers
							(1)In
			 generalSubpart B of part III of subchapter A of chapter 61 of
			 the Internal Revenue Code of 1986, as amended by subsection (b), is amended by
			 inserting after section 6045A the following new section:

									6045B.Returns
				relating to actions affecting basis of specified securities
										(a)In
				generalAccording to the forms or regulations prescribed by the
				Secretary, any issuer of a specified security shall make a return setting
				forth—
											(1)a description of
				any organizational action which affects the basis of such specified security of
				such issuer,
											(2)the quantitative
				effect on the basis of such specified security resulting from such action,
				and
											(3)such other
				information as the Secretary may prescribe.
											(b)Time for filing
				returnAny return required by subsection (a) shall be filed not
				later than the earlier of—
											(1)45 days after the
				date of the action described in subsection (a), or
											(2)January 31 of the
				year following the calendar year during which such action occurred.
											(c)Statements To be
				furnished to holders of specified securities or their
				nomineesAccording to the forms or regulations prescribed by the
				Secretary, every person required to make a return under subsection (a) with
				respect to a specified security shall furnish to the nominee with respect to
				the specified security (or certificate holder if there is no nominee) a written
				statement showing—
											(1)the name, address,
				and phone number of the information contact of the person required to make such
				return,
											(2)the information
				required to be shown on such return with respect to such security, and
											(3)such other
				information as the Secretary may prescribe.
											The
				written statement required under the preceding sentence shall be furnished to
				the holder on or before January 31 of the year following the calendar year
				during which the action described in subsection (a) occurred.(d)Specified
				securityFor purposes of this section, the term specified
				security has the meaning given such term by section 6045(g)(3)(B). No
				return shall be required under this section with respect to actions described
				in subsection (a) with respect to a specified security which occur before the
				applicable date (as defined in section 6045(g)(3)(C) with respect to such
				security.
										(e)Public reporting
				in lieu of returnThe
				Secretary may waive the requirement to file a return under subsections (a) and
				(c) with respect to a specified security, if the person required to make the
				return under subsections (a) and (c) makes publicly available, in such form and
				manner as the Secretary determines necessary to carry out the purposes of this
				section—
											(1)the name, address,
				phone number, and email address of the information contact of such person,
				and
											(2)the information
				described in paragraphs (1), (2), and (3) of subsection
				(a).
											.
							(2)Assessable
			 penalties
								(A)Subparagraph (B)
			 of section 6724(d)(1) of such Code (defining information return) is amended by
			 redesignating clauses (iv) through (xix) as clauses (v) through (xx),
			 respectively, and by inserting after clause (iii) the following new
			 clause:

										(iv)section 6045B(a)
				(relating to returns relating to actions affecting basis of specified
				securities),
										.
								(B)Paragraph (2) of
			 section 6724(d) of such Code (defining payee statement), as amended by
			 subsection (c)(2), is amended by redesignating subparagraphs (J) through (DD)
			 as subparagraphs (K) through (EE), respectively, and by inserting after
			 subparagraph (I) the following new subparagraph:

										(J)subsections (d)
				and (e) of section 6045B (relating to returns relating to actions affecting
				basis of specified
				securities).
										.
								(3)Clerical
			 amendmentThe table of sections for subpart B of part III of
			 subchapter A of chapter 61 of such Code, as amended by subsection (b)(3), is
			 amended by inserting after the item relating to section 6045A the following new
			 item:

										Sec. 6045B. Returns relating to actions
				affecting basis of specified
				securities.

									.
							(e)Effective
			 dateThe amendments made by this section shall take effect on
			 January 1, 2009.
						IIOne-year
			 extenders
			2001.Research
			 credit
				(a)In
			 generalSubparagraph (B) of section 41(h)(1) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Conforming
			 amendmentSubparagraph (D) of section 45C(b)(1) (relating to
			 qualified clinical testing expenses) is amended by striking December 31,
			 2007 and inserting December 31, 2008.
				(c)Effective
			 dateThe amendments made by this section shall apply to amounts
			 paid or incurred after December 31, 2007.
				2002.Indian employment
			 credit
				(a)In
			 generalSubsection (f) of section 45A (relating to termination)
			 is amended by striking December 31, 2007 and inserting
			 December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after December 31, 2007.
				2003.New markets
			 tax creditSubparagraph (D) of
			 section 45D(f)(1) (relating to national limitation on amount of investments
			 designated) is amended by striking and 2008 and inserting
			 2008, and 2009.
			2004.Railroad track
			 maintenance
				(a)In
			 generalSubsection (f) of section 45G (relating to application of
			 section) is amended by striking January 1, 2008 and inserting
			 January 1, 2009.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 expenditures paid or incurred during taxable years beginning after December 31,
			 2007.
				2005.Mortgage
			 insurance premiums treated as interest
				(a)In
			 generalSubclause (I) of section 163(h)(3)(E)(iv) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to amounts
			 paid or accrued after December 31, 2007.
				2006.Deduction for State
			 and local sales taxes
				(a)In
			 generalSubparagraph (I) of section 164(b)(5) is amended by
			 striking January 1, 2008 and inserting January 1,
			 2009.
				(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after December 31, 2007.
				2007.Fifteen-year
			 straight-line cost recovery for qualified leasehold improvements and qualified
			 restaurant property
				(a)In
			 generalClauses (iv) and (v) of section 168(e)(3)(E) (relating to
			 15-year property) are each amended by striking January 1, 2008
			 and inserting January 1, 2009.
				(b)Effective
			 dateThe amendments made by this section shall apply to property
			 placed in service after December 31, 2007.
				2008.Seven-year
			 cost recovery period for motorsports racing track facility
				(a)In
			 generalSubparagraph (D) of section 168(i)(15) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to property
			 placed in service after December 31, 2007.
				2009.Accelerated
			 depreciation for business property on Indian reservation
				(a)In
			 generalParagraph (8) of section 168(j) (relating to termination)
			 is amended by striking December 31, 2007 and inserting
			 December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to property
			 placed in service after December 31, 2007.
				2010.Expensing of
			 environmental remediation costs
				(a)In
			 generalSubsection (h) of section 198 (relating to termination)
			 is amended by striking December 31, 2007 and inserting
			 December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 expenditures paid or incurred after December 31, 2007.
				2011.Deduction
			 allowable with respect to income attributable to domestic production activities
			 in Puerto Rico
				(a)In
			 generalSubparagraph (C) of section 199(d)(8) (relating to
			 termination) is amended—
					(1)by striking
			 first 2 taxable years and inserting first 3 taxable
			 years, and
					(2)by striking
			 January 1, 2008 and inserting January 1,
			 2009.
					(b)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
				2012.Deduction of
			 qualified tuition and related expenses
				(a)In
			 generalSubsection (e) of section 222 (relating to termination)
			 is amended by striking December 31, 2007 and inserting
			 December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after December 31, 2007.
				2013.Modification
			 of tax treatment of certain payments to controlling exempt
			 organizations
				(a)In
			 generalClause (iv) of section 512(b)(13)(E) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to payments
			 received or accrued after December 31, 2007.
				2014.Treatment of
			 certain dividends of regulated investment companies
				(a)Interest-related
			 dividendsSubparagraph (C) of section 871(k)(1) (defining
			 interest-related dividend) is amended by striking December 31,
			 2007 and inserting December 31, 2008.
				(b)Short-term
			 capital gain dividendsSubparagraph (C) of section 871(k)(2)
			 (defining short-term capital gain dividend) is amended by striking
			 December 31, 2007 and inserting December 31,
			 2008.
				(c)Effective
			 dateThe amendments made by this section shall apply to dividends
			 with respect to taxable years of regulated investment companies beginning after
			 December 31, 2007.
				2015.Extension and
			 modification of credit to holders of qualified zone academy bonds
				(a)In
			 generalSubsection (e) of section 1397E (relating to limitation
			 on amount of bonds designated) is amended by striking 1998, 1999, 2000,
			 2001, 2002, 2003, 2004, 2005, 2006, and 2007 and inserting each
			 of calendar years 1998 through 2008.
				(b)Modification of
			 arbitrage rules
					(1)In
			 generalSubsection (g) of section 1397E (relating to special
			 rules relating to arbitrage) is amended to read as follows:

							(g)Special rules
				relating to arbitrage
								(1)In
				generalAn issue shall be treated as meeting the requirements of
				this subsection if the issuer satisfies the requirements of section 148 with
				respect to the proceeds of the issue.
								(2)Special rule for
				investments during expenditure periodAn issue shall not be
				treated as failing to meet the requirements of paragraph (1) by reason of any
				investment of available project proceeds during the 5-year period described in
				subsection (f)(1)(A) (including any extension of such period under subsection
				(f)(2)).
								(3)Special rule for
				reserve fundsAn issue shall not be treated as failing to meet
				the requirements of paragraph (1) by reason of any fund which is expected to be
				used to repay such issue if—
									(A)such fund is
				funded at a rate not more rapid than equal annual installments,
									(B)such fund is
				funded in a manner that such fund will not exceed the amount necessary to repay
				the issue if invested at the maximum rate permitted under subparagraph (C),
				and
									(C)the yield on such
				fund is not greater than the discount rate determined under subsection (d)(3)
				with respect to the
				issue.
									.
					(2)Application of
			 available project proceeds to other requirementsSubsections
			 (d)(1)(A), (d)(2)(A), (f)(1)(A), (f)(1)(B), (f)(1)(C), and (f)(3) of section
			 1397E are each amended by striking proceeds and inserting
			 available project proceeds
					(3)Available project
			 proceeds definedSubsection (i) of section 1397E (relating to
			 definitions) is amended by adding at the end the following new paragraph:

							(4)Available
				project proceedsThe term available project proceeds
				means—
								(A)the excess of—
									(i)the proceeds from
				the sale of an issue, over
									(ii)the issuance
				costs financed by the issue (to the extent that such costs do not exceed 2
				percent of such proceeds), and
									(B)the proceeds from
				any investment of the excess described in subparagraph
				(A).
								.
					(c)Effective
			 date
					(1)ExtensionThe
			 amendment made by subsection (a) shall apply to obligations issued after
			 December 31, 2007.
					(2)Modification of
			 arbitrage rulesThe amendments made by subsection (b) shall apply
			 to obligations issued after the date of the enactment of this Act.
					2016.Tax incentives
			 for investment in the District of Columbia
				(a)Designation of
			 Zone
					(1)In
			 generalSubsection (f) of section 1400 is amended by striking
			 2007 both places it appears and inserting
			 2008.
					(2)Effective
			 dateThe amendments made by this subsection shall apply to
			 periods beginning after December 31, 2007.
					(b)Tax-Exempt
			 Economic Development Bonds
					(1)In
			 generalSubsection (b) of section 1400A is amended by striking
			 2007 and inserting 2008.
					(2)Effective
			 dateThe amendment made by this subsection shall apply to bonds
			 issued after December 31, 2007.
					(c)Zero Percent
			 Capital Gains Rate
					(1)In
			 generalSubsection (b) of section 1400B is amended by striking
			 2008 each place it appears and inserting
			 2009.
					(2)Conforming
			 amendments
						(A)Section 1400B(e)(2)
			 is amended—
							(i)by striking
			 2012 and inserting 2013, and
							(ii)by striking
			 2012 in the heading thereof and inserting
			 2013.
							(B)Section
			 1400B(g)(2) is amended by striking 2012 and inserting
			 2013.
						(C)Section 1400F(d)
			 is amended by striking 2012 and inserting
			 2013.
						(3)Effective
			 dates
						(A)ExtensionThe
			 amendments made by paragraph (1) shall apply to acquisitions after December 31,
			 2007.
						(B)Conforming
			 amendmentsThe amendments made by paragraph (2) shall take effect
			 on the date of the enactment of this Act.
						(d)First-Time
			 Homebuyer Credit
					(1)In
			 generalSubsection (i) of section 1400C is amended by striking
			 2008 and inserting 2009.
					(2)Effective
			 dateThe amendment made by this subsection shall apply to
			 property purchased after December 31, 2007.
					2017.Disclosure for
			 combined employment tax reporting
				(a)In
			 generalSubparagraph (B) of section 6103(d)(5) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 disclosures after December 31, 2007.
				2018.Disclosure of
			 return information to apprise appropriate officials of terrorist
			 activities
				(a)In
			 generalClause (iv) of section 6103(i)(3)(C) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 disclosures after December 31, 2007.
				2019.Disclosure
			 upon request of information relating to terrorist activities
				(a)In
			 generalSubparagraph (E) of section 6103(i)(7) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 disclosures after December 31, 2007.
				2020.Disclosure of
			 return information to carry out income contingent repayment of student
			 loans
				(a)In
			 generalSubparagraph (D) of section 6103(l)(13) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to requests
			 made after December 31, 2007.
				2021.Authority for
			 undercover operations
				(a)In
			 generalParagraph (6) of section 7608(c) (relating to application
			 of section) is amended by striking January 1, 2008 each place it
			 appears and inserting January 1, 2009.
				(b)Effective
			 dateThe amendment made by this section shall take effect on
			 January 1, 2008.
				2022.Increase in
			 limit on cover over of rum excise tax to Puerto Rico and the Virgin
			 Islands
				(a)In
			 generalParagraph (1) of section 7652(f) is amended by striking
			 January 1, 2008 and inserting January 1,
			 2009.
				(b)Effective
			 dateThe amendment made by this section shall apply to distilled
			 spirits brought into the United States after December 31, 2007.
				2023.Parity in the
			 application of certain limits to mental health benefits
				(a)In
			 generalParagraph (3) of section 9812(f) (relating to application
			 of section) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to benefits
			 for services furnished after December 31, 2007.
				2024.Extension of
			 economic development credit for American Samoa
				(a)In
			 generalSubsection (d) of
			 section 119 of division A of the Tax Relief and Health Care Act of 2006 is
			 amended—
					(1)by
			 striking first two taxable years and inserting first 3
			 taxable years, and
					(2)by striking
			 January 1, 2008 and inserting January 1,
			 2009.
					(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years beginning after December 31, 2007.
				2025.Qualified
			 conservation contributions
				(a)In
			 generalClause (vi) of section 170(b)(1)(E) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 contributions made in taxable years beginning after December 31, 2007.
				2026.Enhanced
			 charitable deduction for contributions of food inventory
				(a)In
			 generalClause (iv) of section 170(e)(3)(C) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 contributions made after December 31, 2007.
				2027.Enhanced charitable
			 deduction for contributions of book inventory to public schools
				(a)In
			 generalClause (iv) of section 170(e)(3)(D) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 contributions made after December 31, 2007.
				2028.Enhanced
			 deduction for qualified computer contributions
				(a)In
			 generalSubparagraph (G) of section 170(e)(6) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 contributions made during taxable years beginning after December 31,
			 2007.
				2029.Tax-free
			 distributions from individual retirement plans for charitable purposes
				(a)In
			 generalSubparagraph (F) of section 408(d)(8) (relating to
			 termination) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 distributions made in taxable years beginning after December 31, 2007.
				2030.Basis adjustment to
			 stock of S corporations making charitable contributions of property
				(a)In
			 generalThe last sentence of section 1367(a)(2) (relating to
			 decreases in basis) is amended by striking December 31, 2007 and
			 inserting December 31, 2008.
				(b)Technical
			 amendment related to section 1203 of the Pension Protection Act of
			 2006Subsection (d) of section 1366 is amended by adding at the
			 end the following new paragraph:

						(4)Application of
				limitation on charitable contributionsIn the case of any
				charitable contribution of property to which the second sentence of section
				1367(a)(2) applies, paragraph (1) shall not apply to the extent of the excess
				(if any) of—
							(A)the shareholder’s
				pro rata share of such contribution, over
							(B)the shareholder’s
				pro rata share of the adjusted basis of such
				property.
							.
				(c)Effective
			 date
					(1)In
			 generalExcept as provided in paragraph (2), the amendments made
			 by this section shall apply to contributions made in taxable years beginning
			 after December 31, 2007.
					(2)Technical
			 amendmentThe amendment made by subsection (b)shall take effect
			 as if included in the provision of the Pension Protection Act of 2006 to which
			 it relates.
					2031.Deduction for
			 certain expenses of elementary and secondary school teachers
				(a)In
			 generalSubparagraph (D) of
			 section 62(a)(2) (relating to certain expenses of elementary and secondary
			 school teachers) is amended by striking or 2007 and inserting
			 2007, or 2008.
				(b)Effective
			 dateThe amendment made by subsection (a) shall apply to taxable
			 years beginning after December 31, 2007.
				2032.Election to include
			 combat pay as earned income for purposes of earned income tax credit
				(a)In
			 generalSubclause (II) of section 32(c)(2)(B)(vi) (defining
			 earned income) is amended by striking January 1, 2008 and
			 inserting January 1, 2009.
				(b)Effective
			 dateThe amendment made by this section shall apply to taxable
			 years ending after December 31, 2007.
				2033.Modification of
			 mortgage revenue bonds for veterans
				(a)Qualified
			 mortgage bonds used To finance residences for veterans without regard to
			 first-time homebuyer requirementSubparagraph (D) of section
			 143(d)(2) (relating to exceptions) is amended by striking January 1,
			 2008 and inserting January 1, 2009.
				(b)Effective
			 dateThe amendment made by this section shall apply to bonds
			 issued after December 31, 2007.
				2034.Distributions from
			 retirement plans to individuals called to active duty
				(a)In
			 generalClause (iv) of section 72(t)(2)(G) is amended by striking
			 December 31, 2007 and inserting December 31,
			 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to
			 individuals ordered or called to active duty on or after December 31,
			 2007.
				2035.Stock in RIC
			 for purposes of determining estates of nonresidents not citizens
				(a)In
			 generalParagraph (3) of
			 section 2105(d) (relating to stock in a RIC) is amended by striking
			 December 31, 2007 and inserting December 31,
			 2008.
				(b)Effective
			 dateThe amendment made by this section shall apply to decedents
			 dying after December 31, 2007.
				2036.Qualified
			 investment entities
				(a)In
			 generalClause (ii) of
			 section 897(h)(4)(A) (relating to termination) is amended by striking
			 December 31, 2007 and inserting December 31,
			 2008.
				(b)Effective
			 dateThe amendment made by subsection (a) shall take effect on
			 January 1, 2008.
				2037.Disclosure of
			 return information for certain veterans programs
				(a)In
			 generalThe last sentence of
			 paragraph (7) of section 6103(l) is amended by striking September 30,
			 2008 and inserting December 31, 2008.
				(b)Effective
			 dateThe amendment made by subsection (a) shall apply to requests
			 made after September 30, 2008.
				IIICorporate tax
			 reform
			ACorporate rate
			 reduction
				3001.Reduction in
			 top corporate marginal rate
					(a)General
			 ruleParagraph (1) of section
			 11(b) (relating to amount of tax) is amended—
						(1)by inserting “and”
			 at the end of subparagraph (B),
						(2)by
			 striking subparagraphs (C) and (D) and inserting the following:

								(C)30.5 percent of so
				much of the taxable income as exceeds
				$75,000.
								,
				and
						(3)by striking
			 “$11,750” and all that follows and inserting $9,125..
						(b)Personal service
			 corporationsParagraph (2) of section 11(b) is amended by
			 striking 35 percent and inserting 30.5 percent.
					(c)Conforming
			 amendmentsParagraphs (1) and (2) of section 1445(e) are each
			 amended by striking 35 percent and inserting 30.5
			 percent.
					(d)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2008, except that the amendments made by
			 subsection (c) shall take effect on January 1, 2009.
					BRepeal of
			 deduction for income attributable to domestic production activities
				3101.Repeal of
			 deduction for income attributable to domestic production activities
					(a)In
			 generalSection 199 is repealed.
					(b)Conforming
			 amendments
						(1)Sections
			 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 221(b)(2)(C),
			 222(b)(2)(C), 246(b)(1), and 469(i)(3)(F) are each amended by striking
			 199,.
						(2)Clauses (i)(II)
			 and (ii)(II) of section 56(d)(1)(A) are each amended by striking and the
			 deduction under section 199.
						(3)Clause (i) of
			 section 163(j)(6)(A) is amended by inserting and at the end of
			 subclause (II), by striking subclause (III) and by redesignating subclause (IV)
			 as subclause (III).
						(4)Subparagraph (C)
			 of section 170(b)(2) is amended by striking clause (iv), by redesignating
			 clause (v) as clause (iv), and by inserting and at the end of
			 clause (iii).
						(5)Subsection (d) of
			 section 172 is amended by striking paragraph (7).
						(6)Subsection (a) of
			 section 613 is amended by striking and without the deduction under
			 section 199.
						(7)Paragraph (1) of
			 section 613A(d) is amended by redesignating subparagraphs (C), (D), and (E) as
			 subparagraphs (B), (C), and (D), respectively, and by striking subparagraph
			 (B).
						(8)Subsection (a) of
			 section 1402 is amended by inserting and at the end of paragraph
			 (15), by striking paragraph (16), and by redesignating paragraph (17) as
			 paragraph (16).
						(9)The table of
			 sections for part VI of subchapter B of chapter 1 is amended by striking the
			 item relating to section 199.
						(c)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2008.
					CProvisions related
			 to foreign source income
				3201.Allocation of
			 expenses and taxes on basis of repatriation of foreign income
					(a)In
			 generalPart III of subchapter N of chapter 1 is amended by
			 inserting after subpart G the following new subpart:

							HSpecial Rules for
				Allocation of Foreign-Related Deductions and Foreign Tax Credits

									Sec. 975. Deductions allocated to deferred foreign income may
				  not offset United States source income.
									Sec. 976. Amount of foreign taxes computed on overall
				  basis.
									Sec. 977. Application of subpart.

								975.Deductions
				allocated to deferred foreign income may not offset United States source
				income
									(a)Current year
				deductionsFor purposes of
				this chapter, foreign-related deductions for any taxable year—
										(1)shall be taken
				into account for such taxable year only to the extent that such deductions are
				allocable to currently-taxed foreign income, and
										(2)to the extent not
				so allowed, shall be taken into account in subsequent taxable years as provided
				in subsection (b).
										Foreign-related deductions shall be
				allocated to currently-taxed foreign income in the same proportion which
				currently-taxed foreign income bears to the sum of currently-taxed foreign
				income and deferred foreign income.(b)Deductions
				related to repatriated deferred foreign income
										(1)In
				generalIf there is repatriated foreign income for a taxable
				year, the portion of the previously deferred deductions allocated to the
				repatriated foreign income shall be taken into account for the taxable year as
				a deduction allocated to income from sources outside the United States. Any
				such amount shall not be included in foreign-related deductions for purposes of
				applying subsection (a) to such taxable year.
										(2)Portion of
				previously deferred deductionsFor purposes of paragraph (1), the
				portion of the previously deferred deductions allocated to repatriated foreign
				income is—
											(A)the amount which
				bears the same proportion to such deductions, as
											(B)the repatriated
				income bears to the previously deferred foreign income.
											(c)Definitions and
				special ruleFor purposes of
				this section—
										(1)Foreign-related
				deductionsThe term foreign-related deductions means
				the total amount of deductions and expenses which would be allocated or
				apportioned to gross income from sources without the United States for the
				taxable year if both the currently-taxed foreign income and deferred foreign
				income were taken into account.
										(2)Currently-taxed
				foreign incomeThe term currently-taxed foreign
				income means the amount of gross income from sources without the United
				States for the taxable year (determined without regard to repatriated foreign
				income for such year).
										(3)Deferred foreign
				incomeThe term deferred foreign income means the
				excess of—
											(A)the amount that would be includible in
				gross income under subpart F of this part for the taxable year if—
												(i)all controlled
				foreign corporations were treated as one controlled foreign corporation,
				and
												(ii)all earnings and
				profits of all controlled foreign corporations were subpart F income (as
				defined in section 952), over
												(B)the sum of—
												(i)all dividends
				received during the taxable year from controlled foreign corporations,
				plus
												(ii)amounts includible
				in gross income under section 951(a).
												(4)Previously
				deferred foreign incomeThe
				term previously deferred foreign income means the aggregate amount
				of deferred foreign income for all prior taxable years to which this part
				applies, determined as of the beginning of the taxable year, reduced by the
				repatriated foreign income for all such prior taxable years.
										(5)Repatriated
				foreign incomeThe term repatriated foreign income
				means the amount included in gross income on account of distributions out of
				previously deferred foreign income.
										(6)Previously
				deferred deductionsThe term
				previously deferred deductions means the aggregate amount of
				foreign-related deductions not taken into account under subsection (a) for all
				prior taxable years (determined as of the beginning of the taxable year),
				reduced by any amounts taken into account under subsection (b) for such prior
				taxable years.
										(7)Treatment of
				certain foreign taxes
											(A)Paid by
				controlled foreign corporationSection 78 shall not apply for purposes of
				determining currently-taxed foreign income and deferred foreign income.
											(B)Paid by
				taxpayerFor purposes of determining currently-taxed foreign
				income, gross income from sources without the United States shall be reduced by
				the aggregate amount of taxes described in the applicable paragraph of section
				901(b) which are paid by the taxpayer (without regard to sections 902 and 960)
				during the taxable year.
											(8)Coordination
				with section 976In determining currently-taxed foreign income
				and deferred foreign income, the amount of deemed foreign tax credits shall be
				determined with regard to section 976.
										976.Amount of
				foreign taxes computed on overall basis
									(a)Current year
				allowanceFor purposes of
				this chapter, the amount taken into account as foreign income taxes for any
				taxable year shall be an amount which bears the same ratio to the total foreign
				income taxes for that taxable year as—
										(1)the
				currently-taxed foreign income for such taxable year, bears to
										(2)the sum of the
				currently-taxed foreign income and deferred foreign income for such
				year.
										The
				portion of the total foreign income taxes for any taxable year not taken into
				account under the preceding sentence for a taxable year shall only be taken
				into account as provided in subsection (b) (and shall not be taken into account
				for purposes of applying sections 902 and 960).(b)Allowance
				related to repatriated deferred foreign income
										(1)In
				generalIf there is
				repatriated foreign income for any taxable year, the portion of the previously
				deferred foreign income taxes paid or accrued during such taxable year shall be
				taken into account for the taxable year as foreign taxes paid or accrued. Any
				such taxes so taken into account shall not be included in foreign income taxes
				for purposes of applying subsection (a) to such taxable year.
										(2)Portion of
				previously deferred foreign income taxesFor purposes of
				paragraph (1), the portion of the previously deferred foreign income taxes
				allocated to repatriated deferred foreign income is—
											(A)the amount which
				bears the same proportion to such taxes, as
											(B)the repatriated
				deferred income bears to the previously deferred foreign income.
											(c)Definitions and
				special ruleFor purposes of
				this section—
										(1)Previously
				deferred foreign income taxesThe term previously deferred foreign
				income taxes means the aggregate amount of total foreign income taxes
				not taken into account under subsection (a) for all prior taxable years
				(determined as of the beginning of the taxable year), reduced by any amounts
				taken into account under subsection (b) for such prior taxable years.
										(2)Total foreign
				income taxesThe term
				total foreign income taxes means the sum of foreign income taxes
				paid or accrued during the taxable year (determined without regard to section
				904(c)) plus the increase in foreign income taxes that would be paid or accrued
				during the taxable year under sections 902 and 960 if—
											(A)all controlled
				foreign corporations were treated as one controlled foreign corporation,
				and
											(B)all earnings and
				profits of all controlled foreign corporations were subpart F income (as
				defined in section 952).
											(3)Foreign income
				taxesThe term foreign
				income taxes means any income, war profits, or excess profits taxes paid
				by the taxpayer to any foreign country or possession of the United States.
										(4)Currently-taxed
				foreign income and deferred foreign incomeThe terms currently-taxed foreign
				income and deferred foreign income have the meanings given
				such terms by section 975(c)).
										977.Application of
				subpartThis subpart—
									(1)shall be applied
				before subpart A, and
									(2)shall be applied
				separately with respect to the categories of income specified in section
				904(d)(1).
									.
					(b)Clerical
			 amendmentThe table of subparts for part III of subpart N of
			 chapter 1 is amended by inserting after the item relating to subpart G the
			 following new item:

								Subpart H. Special Rules for Allocation of Foreign-Related
				Deductions and Foreign Tax
				Credits.

							.
					(c)Effective
			 dateThe amendments made by
			 this section shall apply to taxable years beginning after December 31,
			 2007.
					3202.Foreign
			 currency conversion for determination of foreign taxes and foreign
			 corporation’s earnings and profits
					(a)Earnings and
			 profits and distributionsParagraph (2) of section 986(b) is amended
			 to read as follows:

							(2)in the case of any United States person,
				the earnings and profits determined under paragraph (1) shall (if necessary) be
				translated into dollars using the average exchange rate for the taxable year in
				which
				earned.
							.
					(b)Previously taxed
			 earnings and profitsParagraph (1) of section 986(c) is amended
			 by striking movements in exchange rates between the times of deemed and
			 actual distribution and inserting the difference between the
			 exchange rate applicable to such earnings and profits under subsection (b)(2)
			 and the exchange rate at the time of the actual distribution.
					(c)Effective
			 dateThe amendments made by
			 this section shall apply to taxable years beginning after December 31, 2007.
					3203.Repeal of
			 worldwide allocation of interest
					(a)In
			 generalSection 864 is
			 amended by striking subsection (f) and by redesignating subsection (g) as
			 subsection (f).
					(b)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2008.
					3204.Limitation on
			 treaty benefits for certain deductible payments
					(a)In
			 generalSection 894 (relating to income affected by treaty) is
			 amended by adding at the end the following new subsection:

							(d)Limitation on
				treaty benefits for certain deductible payments
								(1)In
				generalIn the case of any
				deductible related-party payment, any withholding tax imposed under chapter 3
				(and any tax imposed under subpart A or B of this part) with respect to such
				payment may not be reduced under any treaty of the United States unless any
				such withholding tax would be reduced under a treaty of the United States if
				such payment were made directly to the foreign parent corporation.
								(2)Deductible
				related-party paymentFor purposes of this subsection, the term
				deductible related-party payment means any payment made, directly
				or indirectly, by any person to any other person if the payment is allowable as
				a deduction under this chapter and both persons are members of the same foreign
				controlled group of entities.
								(3)Foreign
				controlled group of entitiesFor purposes of this subsection—
									(A)In
				generalThe term
				foreign controlled group of entities means a controlled group of
				entities the common parent of which is a foreign corporation.
									(B)Controlled group
				of entitiesThe term
				controlled group of entities means a controlled group of
				corporations as defined in section 1563(a)(1), except that—
										(i)more than
				50 percent shall be substituted for at least 80 percent
				each place it appears therein, and
										(ii)the determination
				shall be made without regard to subsections (a)(4) and (b)(2) of section
				1563.
										A
				partnership or any other entity (other than a corporation) shall be treated as
				a member of a controlled group of entities if such entity is controlled (within
				the meaning of section 954(d)(3)) by members of such group (including any
				entity treated as a member of such group by reason of this sentence).(4)Foreign parent
				corporationFor purposes of this subsection, the term
				foreign parent corporation means, with respect to any deductible
				related-party payment, the common parent of the foreign controlled group of
				entities referred to in paragraph (3)(A).
								(5)RegulationsThe
				Secretary may prescribe such regulations or other guidance as are necessary or
				appropriate to carry out the purposes of this subsection, including regulations
				or other guidance which provide for—
									(A)the treatment of
				two or more persons as members of a foreign controlled group of entities if
				such persons would be the common parent of such group if treated as one
				corporation, and
									(B)the treatment of
				any member of a foreign controlled group of entities as the common parent of
				such group if such treatment is appropriate taking into account the economic
				relationships among such
				entities.
									.
					(b)Effective
			 dateThe amendment made by this section shall apply to payments
			 made after the date of the enactment of this Act.
					DModification of
			 accounting rules
				3301.Repeal of last-in,
			 first-out method of inventory
					(a)In
			 generalSubpart D of part II
			 of subchapter E of chapter 1 is amended by striking sections 472 (relating to
			 last-in, first-out inventories), 473 (relating to qualified liquidations of
			 LIFO inventories), and 474 (relating to simplified dollar-value LIFO method for
			 certain small businesses).
					(b)Conforming
			 amendments
						(1)(A)Section 312(n) is
			 amended by striking paragraph (4) and by redesignating paragraphs (5) through
			 (8) as paragraphs (4) through (7), respectively.
							(B)Section 312(n)(7), as redesignated by
			 subparagraph (A), is amended—
								(i)by striking paragraphs (4)
			 and (6) in subparagraph (A) and inserting paragraph (5),
			 and
								(ii)by striking paragraph
			 (5) in subparagraph (B) and inserting paragraph (4).
								(C)Section 56(g)(4)(D) is amended by
			 striking clause (iii) and by redesignating clause (iv) as clause (iii).
							(2)Section 1363 is
			 amended by striking subsection (d).
						(c)Effective
			 date
						(1)In
			 generalThe amendments made by this section shall apply to
			 taxable years beginning after the date of the enactment of this Act.
						(2)Change in method
			 of accountingIn the case of
			 any taxpayer required by the amendments made by this section to change its
			 method of accounting for its first taxable year beginning after the date of the
			 enactment of this Act—
							(A)such change shall
			 be treated as initiated by the taxpayer,
							(B)such change shall
			 be treated as made with the consent of the Secretary of the Treasury, and
							(C)if the net amount
			 of the adjustments required to be taken into account by the taxpayer under
			 section 481 of the Internal Revenue Code of 1986 is positive, such amount shall
			 be taken into account over a period of 8 years beginning with such first
			 taxable year.
							3302.Repeal of
			 lower of cost or market method of inventory
					(a)In
			 generalSection 471 is
			 amended by redesignating subsection (c) as subsection (d) and by inserting
			 after subsection (b) the following new subsection:

							(c)Inventories
				taken into account at costA
				method of determining inventories shall not be treated as clearly reflecting
				income unless such method provides that inventories shall be taken into account
				at
				cost.
							.
					(b)Effective
			 date
						(1)In
			 generalThe amendments made by this section shall apply to
			 taxable years beginning after the date of the enactment of this Act.
						(2)Change in method
			 of accountingIn the case of
			 any taxpayer required by the amendments made by this section to change its
			 method of accounting for its first taxable year beginning after the date of the
			 enactment of this Act—
							(A)such change shall
			 be treated as initiated by the taxpayer,
							(B)such change shall
			 be treated as made with the consent of the Secretary of the Treasury, and
							(C)if the net amount of the adjustments
			 required to be taken into account by the taxpayer under section 481 of the
			 Internal Revenue Code of 1986 is positive, such amount shall be taken into
			 account over a period of 8 years beginning with such first taxable year.
							3303.Special rule for
			 service providers on accrual method not applicable to C corporations
					(a)In
			 generalSubparagraph (A) of
			 section 448(d)(5) is amended by inserting (other than a C
			 corporation) after any person.
					(b)Effective
			 date
						(1)In
			 generalThe amendments made by this section shall apply to
			 taxable years beginning after the date of the enactment of this Act.
						(2)Change in method
			 of accountingIn the case of
			 any taxpayer required by the amendments made by this section to change its
			 method of accounting for its first taxable year beginning after the date of the
			 enactment of this Act—
							(A)such change shall
			 be treated as initiated by the taxpayer,
							(B)such change shall
			 be treated as made with the consent of the Secretary of the Treasury, and
							(C)if the net amount of the adjustments
			 required to be taken into account by the taxpayer under section 481 of the
			 Internal Revenue Code of 1986 is positive, such amount shall be taken into
			 account over a period of 8 years beginning with such first taxable year.
							EModification to
			 expensing and depreciation rules
				3401.Small business
			 expensing provisions made permanent
					(a)Increase in
			 small business expensing made permanentSubsection (b) of section 179 is
			 amended—
						(1)by striking
			 $25,000 ($125,000 in the case of taxable years beginning after 2006 and
			 before 2011) in paragraph (1) and inserting $125,000,
			 and
						(2)by
			 striking $200,000 ($500,000 in the case of taxable years beginning after
			 2006 and before 2011) in paragraph (2) and inserting
			 $500,000.
						(b)Expensing for
			 computer software made permanentClause (ii) of section
			 179(d)(1)(A) is amended by striking and which is placed in service in a
			 taxable year beginning after 2002 and before 2011,.
					(c)Inflation
			 adjustmentSubparagraph (A) of section 179(b)(5) is amended by
			 striking In the case of any taxable year beginning in a calendar year
			 after 2007 and before 2011, the and inserting
			 The.
					(d)Effective
			 date
						(1)In
			 generalExcept as provided in paragraph (2), the amendments made
			 by this section shall apply to taxable years beginning after the date of the
			 enactment of this Act.
						(2)Computer
			 softwareThe amendment made by subsection (b) shall apply to
			 property placed in service after the date of the enactment of this Act.
						3402.Amortization of
			 goodwill and other intangibles
					(a)In
			 generalSubsection (a) of
			 section 197 (relating to general rule) is amended by striking
			 15-year and inserting 20-year.
					(b)Certain
			 interests or rights acquired separatelyClause (i) of section
			 197(e)(4)(D) is amended by striking 15 years and inserting
			 20 years.
					(c)Effective
			 dateThe amendments made by this section shall apply to property
			 acquired after the date of the enactment of this Act.
					FCodification of
			 economic substance doctrine
				3501.Codification of
			 economic substance doctrine
					(a)In
			 generalSection 7701 is
			 amended by redesignating subsection (p) as subsection (q) and by inserting
			 after subsection (o) the following new subsection:

							(p)Clarification of economic substance
				doctrine
								(1)Application of doctrineIn
				the case of any transaction to which the economic substance doctrine is
				relevant, such transaction shall be treated as having economic substance only
				if—
									(A)the transaction changes in a meaningful way
				(apart from Federal income tax effects) the taxpayer’s economic position,
				and
									(B)the taxpayer has a substantial purpose
				(apart from Federal income tax effects) for entering into such
				transaction.
									(2)Special rule where taxpayer relies on
				profit potential
									(A)In
				generalThe potential for profit of a transaction shall be taken
				into account in determining whether the requirements of subparagraphs (A) and
				(B) of paragraph (1) are met with respect to the transaction only if the
				present value of the reasonably expected pre-tax profit from the transaction is
				substantial in relation to the present value of the expected net tax benefits
				that would be allowed if the transaction were respected.
									(B)Treatment of fees and foreign
				taxesFees and other
				transaction expenses and foreign taxes shall be taken into account as expenses
				in determining pre-tax profit under subparagraph (A).
									(3)State and local
				tax benefitsFor purposes of paragraph (1), any State or local
				income tax effect which is related to a Federal income tax effect shall be
				treated in the same manner as a Federal income tax effect.
								(4)Financial
				accounting benefitsFor purposes of paragraph (1)(B), achieving a
				financial accounting benefit shall not be taken into account as a purpose for
				entering into a transaction if such transaction results in a Federal income tax
				benefit.
								(5)Definitions and special rulesFor purposes of this subsection—
									(A)Economic substance doctrineThe term economic substance
				doctrine means the common law doctrine under which tax benefits under
				subtitle A with respect to a transaction are not allowable if the transaction
				does not have economic substance or lacks a business purpose.
									(B)Exception for personal transactions of
				individualsIn the case of an
				individual, paragraph (1) shall apply only to transactions entered into in
				connection with a trade or business or an activity engaged in for the
				production of income.
									(C)Other common law doctrines not
				affectedExcept as
				specifically provided in this subsection, the provisions of this subsection
				shall not be construed as altering or supplanting any other rule of law, and
				the requirements of this subsection shall be construed as being in addition to
				any such other rule of law.
									(D)Determination of
				application of doctrine not affectedThe determination of whether the economic
				substance doctrine is relevant to a transaction shall be made in the same
				manner as if this subsection had never been enacted.
									(6)RegulationsThe Secretary shall prescribe such
				regulations as may be necessary or appropriate to carry out the purposes of
				this subsection. Such regulations may include exemptions from the application
				of this
				subsection.
								.
					(b)Effective
			 DateThe amendments made by
			 this section shall apply to transactions entered into after the date of the
			 enactment of this Act.
					3502.Penalties for
			 underpayments
					(a)Penalty for underpayments attributable to
			 transactions lacking economic substance
						(1)In generalSubsection (b) of
			 section 6662, as amended by this Act, is amended by inserting after paragraph
			 (6) the following new paragraph:

								(7)Any disallowance
				of claimed tax benefits by reason of a transaction lacking economic substance
				(within the meaning of section 7701(p)) or failing to meet the requirements of
				any similar rule of
				law.
								.
						(2)Increased
			 penalty for nondisclosed transactionsSection 6662, as amended by
			 this Act, is amended by adding at the end the following new subsection:

								(j)Increase in
				penalty in case of nondisclosed noneconomic substance transactions
									(1)In
				generalTo the extent that a portion of the underpayment to which
				this section applies is attributable to one or more nondisclosed noneconomic
				substance transactions, subsection (a) shall be applied with respect to such
				portion by substituting 40 percent for 20
				percent.
									(2)Nondisclosed
				noneconomic substance transactionsFor purposes of this
				subsection, the term nondisclosed noneconomic substance
				transaction means any portion of a transaction described in subsection
				(b)(7) with respect to which the relevant facts affecting the tax treatment are
				not adequately disclosed in the return nor in a statement attached to the
				return.
									(3)Special rule for
				amended returnsExcept as
				provided in regulations, in no event shall any amendment or supplement to a
				return of tax be taken into account for purposes of this subsection if the
				amendment or supplement is filed after the earlier of the date the taxpayer is
				first contacted by the Secretary regarding the examination of the return or
				such other date as is specified by the
				Secretary.
									.
						(3)Conforming
			 amendmentSubparagraph (B) of section 6662A(e)(2), as amended by
			 this Act, is amended by striking subsection (h) or (i) and
			 inserting subsections (h), (i), or (j).
						(b)Reasonable cause
			 exception not applicable to noneconomic substance transactions, tax shelters,
			 and certain large corporationsParagraph (2) of section 6664(c),
			 as amended by this Act, is amended—
						(1)by striking
			 shall not apply to any portion and inserting

								shall not apply—(A)to any
				portion
								,
						(2)by striking the
			 period at the end and inserting a comma, and
						(3)by
			 adding at the end the following new subparagraphs:

								(B)to any portion of
				an underpayment which is attributable to one or more tax shelters (as defined
				in section 6662(d)(2)(C)) or transactions described in section 6662(b)(7),
				and
								(C)to any taxpayer if
				such taxpayer is a specified large corporation (as defined in section
				6662(d)(2)(D)(ii)).
								.
						(c)Special
			 understatement reduction rule for certain large corporations
						(1)In
			 generalParagraph (2) of section 6662(d) is amended by adding at
			 the end the following new subparagraph:

								(D)Special reduction
				rule for certain large corporations
									(i)In
				generalIn the case of any specified large corporation—
										(I)subparagraph (B)
				shall not apply, and
										(II)the amount of the
				understatement under subparagraph (A) shall be reduced by that portion of the
				understatement which is attributable to any item with respect to which the
				taxpayer has a reasonable belief that the tax treatment of such item by the
				taxpayer is more likely than not the proper tax treatment of such item.
										(ii)Specified large
				corporation
										(I)In
				generalFor purposes of this
				subparagraph, the term specified large corporation means any
				corporation with gross receipts in excess of $100,000,000 for the taxable year
				involved.
										(II)Aggregation
				ruleAll persons treated as a
				single employer under section 52(a) shall be treated as one person for purposes
				of subclause
				(I).
										.
						(2)Conforming
			 amendmentSubparagraph (C) of section 6662(d)(2) is amended by
			 striking Subparagraph (B) and inserting Subparagraphs (B)
			 and (D)(i)(II).
						(d)Effective
			 DateThe amendments made by
			 this section shall apply to taxable years beginning after the date of the
			 enactment of this Act.
					GModifications to
			 deductions for dividends received
				3601.Modifications
			 to deductions for dividends received
					(a)General reduction
			 in percentage of deduction
						(1)In
			 generalSections 243(a)(1), 243(c)(1), 244(a)(3), 244(b)(2),
			 245(c)(1)(B), 246(b)(3)(B), and 246A(a)(1), before amendment by subsection (c),
			 are each amended by striking 70 percent and inserting 60
			 percent.
						(2)Conforming
			 amendmentsParagraph (2) of section 861(a), before amendment by
			 subsection (c), is amended by striking 100/70th both places it
			 appears and inserting 100/60th.
						(b)Reduction in
			 percentage for 20-percent owned corporations
						(1)In
			 generalSections 243(c)(1), 245(c)(1)(B), 246(b)(3)(A),
			 246A(a)(1) is amended by striking 80 percent and inserting
			 70 percent.
						(2)Conforming
			 amendmentParagraph (2) of
			 section 861(a) is amended by striking 100/80th and inserting
			 100/70th.
						(c)Repeal of NOL
			 exception to limitation on aggregate deductions; establishment of
			 carryforward
						(1)In
			 generalParagraph (2) of section 246(b) is amended to read as
			 follows:

								(2)CarryforwardThe aggregate amount of deductions
				disallowed under paragraph (1) for any taxable year shall be treated as an
				increase in the amount allowable as a deduction under section 243(a)(1) for the
				following taxable year (subject to the application of paragraph (1) to such
				following taxable
				year).
								.
						(2)Conforming
			 amendments
							(A)Subsection (d) of
			 section 172 is amended by striking paragraph (5) and by redesignating paragraph
			 (6) as paragraph (5).
							(B)Subparagraph (A) of
			 section 172(b)(2) is amended by striking paragraphs (1), (4), and
			 (5) and inserting paragraphs (1) and (4).
							(C)Paragraph (1) of
			 section 246(b) is amended by striking Except as provided in paragraph
			 (2), the and inserting The.
							(D)Paragraph (3) of
			 section 246(b) is amended by striking paragraph (1)and inserting
			 paragraphs (1) and (2).
							(E)Subparagraph (B)
			 of section 805(a)(4) is amended by striking section 1212(a)(1),
			 and all that follows and inserting section 1212(a)(1)..
							(d)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2008.
					HOther
			 provisions
				3701.Recognition of
			 ordinary income on sale or exercise of stock option in S corporation with an
			 ESOP
					(a)In
			 generalSubpart A of part I of subchapter D of chapter 1 is
			 amended by adding at the end the following new section:

							409B.Recognition of
				ordinary income on sale or exercise of stock option in S corporation with an
				ESOP
								(a)In
				generalIf an S corporation
				in which an employee stock ownership plan is a stockholder grants an option
				with respect to its stock and such option is sold or exercised, there shall be
				included in the gross income of the holder of such option (determined
				immediately before such sale or exercise) as ordinary income an amount equal to
				the income inclusion amount.
								(b)Income inclusion
				amountFor purposes of this section, the term income
				inclusion amount means, with respect to the holder of any option, the
				excess (if any) of—
									(1)the sum of the net
				income amounts with respect to such option for all taxable years of the S
				corporation ending during the taxpayer’s holding period, over
									(2)the sum of the net
				loss amounts with respect to such option for all such taxable years.
									(c)Net income and
				loss amountsFor purposes of this section, with respect to any
				taxable year of the S corporation—
									(1)Net income
				amountThe term net income amount means the excess
				(if any) of—
										(A)the pass-thru income share for such taxable
				year, over
										(B)the pass-thru loss
				share for such taxable year.
										(2)Net loss
				amountThe term net loss amount means the excess (if
				any) of the amount described in paragraph (1)(B) over the amount described in
				paragraph (1)(A).
									(d)Pass-thru income
				and loss sharesFor purposes of this section, with respect to any
				taxable year of the S corporation—
									(1)Pass-thru income
				shareThe term pass-thru income share means the
				excess (if any) of—
										(A)the aggregate
				items of income taken into account under section 1366 by the employee stock
				ownership plan for such taxable year, over
										(B)the aggregate
				items of income which would have been so taken into account if such option had
				been exercised upon being granted.
										(2)Pass-thru loss
				shareThe term pass-thru loss share means the excess
				(if any) of—
										(A)the aggregate items
				of deduction and loss taken into account under section 1366 by the employee
				stock ownership plan for such taxable year, over
										(B)the aggregate
				items of deduction and loss which would have been so taken into account if such
				option had been exercised upon being granted.
										(e)Interest at
				underpayment rate
									(1)In
				generalIn the case of any taxpayer who includes any amount in
				gross income for any taxable year under subsection (a), the tax imposed by this
				chapter on such taxpayer for such taxable year shall be increased by interest
				at the underpayment rate determined under section 6621 on the underpayments
				that would have occurred had the net income amounts with respect to each
				taxable year taken into account under subsection (c) been includible in the
				taxpayer’s gross income for each of taxable year of the taxpayer in or with
				which the taxable year so taken into account ends.
									(2)Reduction for
				previous net loss amountsFor purposes of paragraph (1), the net
				income amount for any taxable year shall be reduced by the excess of—
										(A)the aggregate net
				loss amounts for taxable years taken into account under subsection (c) with
				respect to the taxpayer, over
										(B)the amount of such
				aggregate previously taken into account under this paragraph to reduce any net
				income amount.
										(f)Other
				definitions and special rulesFor purposes of this
				section—
									(1)OptionThe
				term option includes any synthetic equity described in section
				409(p)(6)(C).
									(2)Effect of
				starting or terminating an S corporation electionWith respect to
				any option, a corporation which is an S corporation for any taxable year which
				ends while such option is outstanding shall be treated for purposes of this
				section (other than subsection (d)) as an S corporation for all taxable years
				which end while such option is outstanding.
									(3)Adjustments to
				basis
										(A)Increase in
				basis of acquired stockThe
				taxpayer’s basis in any stock acquired pursuant to the exercise of an option to
				which subsection (a) applies shall be increased by the amount included in gross
				income by the taxpayer under subsection (a) with respect to such option.
										(B)Increase in
				basis of option on saleThe
				taxpayer’s basis in any option shall be increased by the amount included in
				gross income by the taxpayer under subsection (a) with respect to such
				option.
										.
					(b)Conforming
			 amendments
						(1)Section 26(b)(2),
			 as amended by this Act, is amended by striking and at the end of
			 subparagraph (T), by striking the period at the end of subparagraph (U) and
			 inserting , and, and by adding at the end the following new
			 subparagraph:

								(V)subsection (e) of section 409B (relating to
				interest on income recognized upon exercise of a stock option in an S
				corporation with an ESOP).
								.
						(2)Section 1016(a) is
			 amended by striking and at the end of paragraph (36), by
			 striking the period at the end of paragraph (37) and inserting ,
			 and, and by adding at the end the following new paragraph:

								(38)to the extent
				provided in section
				409B(f)(3).
								.
						(3)The table of sections for subpart A of part
			 I of subchapter D of chapter 1 is amended by adding at the end the following
			 new item:

									Sec. 409B. Recognition of ordinary income on sale or exercise
				of stock option in S corporation with an
				ESOP.

								.
						(c)Effective
			 dateThe amendments made by this section shall apply to options
			 granted after the date of the enactment of this Act.
					3702.Termination of
			 special rules for domestic international sales corporations
					(a)In
			 generalPart IV of subchapter N of chapter 1 (relating to
			 domestic international sales corporations) is amended by adding at the end the
			 following new subpart:

							CTermination

									Sec. 998. Termination of domestic international sales
				  corporation provisions.

								998.Termination of
				domestic international sales corporation provisions
									(a)Termination of
				electionAny election under section 992(b) in effect for a
				corporation’s last taxable year beginning in 2007 shall be terminated effective
				for such corporation’s next succeeding taxable year.
									(b)No new
				electionNo election may be made under section 992(b) for any
				taxable year beginning after December 31, 2007.
									(c)Effect of
				terminationA shareholder of
				a corporation whose election is terminated by reason of subsection (a) shall be
				deemed to have received a distribution to which section 995(b)(2) applies. Such
				distribution (or any actual distribution after termination to the extent paid
				out of the corporation’s accumulated DISC income) shall not be treated as
				qualified dividend income (within the meaning of section
				1(h)(11)(B)).
									.
					(b)Conforming
			 amendmentThe table of contents for part IV of subchapter N of
			 chapter 1 is amended by adding at the end the following new item:

								Subpart
				C—Termination

							.
					3703.Treatment of
			 securities of a controlled corporation exchanged for assets in certain
			 reorganizations
					(a)In
			 generalSection 361 (relating
			 to nonrecognition of gain or loss to corporations; treatment of distributions)
			 is amended by adding at the end the following new subsection:

							(d)Receipt of
				securities, etc., in exchange for assets in certain
				reorganizationsIf—
								(1)property is
				transferred to a corporation (hereinafter in this subsection referred to as the
				controlled corporation) pursuant to a plan of reorganization
				described in section 368(a)(1)(D), and
								(2)pursuant to such
				plan of reorganization, stock or securities in the controlled corporation are
				distributed in a transaction which qualifies under section 355,
								then any
				securities and nonqualified preferred stock (as defined in section 351(g)(2))
				of the controlled corporation shall be treated as other property for purposes
				of subsections (a) and
				(b)..
					(b)Effective
			 dateThe amendment made by subsection (a) shall apply to
			 distributions after the date of the enactment of this Act.