Text: H.R.4520 — 108th Congress (2003-2004)All Bill Information (Except Text)

10/22/2004 Became Public Law No: 108-357

Bill text available as:

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Engrossed Amendment Senate (07/15/2004)


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[Congressional Bills 108th Congress]
[From the U.S. Government Printing Office]
[H.R. 4520 Engrossed Amendment Senate (EAS)]

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

                  In the Senate of the United States,

                                                         July 15, 2004.
    Resolved, That the bill from the House of Representatives (H.R. 
4520) entitled ``An Act to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes.'', do pass with the following

                               AMENDMENT:

            Strike out all after the enacting clause and insert:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Jumpstart Our 
Business Strength (JOBS) Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States 
                            production activities.
Sec. 103. Deduction for United States production activities includes 
                            income related to certain architectural and 
                            engineering services.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax 
                            credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled 
                            section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with 
                            respect to transactions in commodities.

              Subtitle B--International Tax Simplification

Sec. 211. Repeal of foreign personal holding company rules and foreign 
                            investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply 
                            in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign 
                            persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign 
                            corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the 
                            United States for 183 days or more.

          Subtitle C--Additional International Tax Provisions

Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled 
                            foreign corporations under foreign personal 
                            holding company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax 
                            paid other than in functional currency.
Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active 
                            financing.
Sec. 227. United States property not to include certain assets of 
                            controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign 
                            partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible 
                            property.
Sec. 230. Modification of the treatment of certain REIT distributions 
                            attributable to gain from sales or 
                            exchanges of United States real property 
                            interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse 
                            races and dog races from gross income of 
                            nonresident alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate 
                            body.
Sec. 235. Study of impact of international tax laws on taxpayers other 
                            than large corporations.
Sec. 236. Delay in effective date of final regulations governing 
                            exclusion of income from international 
                            operation of ships or aircraft.
Sec. 237. Interest payments deductible where disqualified guarantee has 
                            no economic effect.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of 
                            production period for distilled spirits 
                            under section 263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Modified taxation of imported archery products.
Sec. 306. Modification to cooperative marketing rules to include value 
                            added processing involving animals.
Sec. 307. Extension of declaratory judgment procedures to farmers' 
                            cooperative organizations.
Sec. 308. Temporary suspension of personal holding company tax.
Sec. 309. Increase in section 179 expensing.
Sec. 310. Five-year carryback of net operating losses.
Sec. 311. Extension and modification of research credit.
Sec. 312. Expansion of research credit.
Sec. 313. Manufacturer's jobs credit.
Sec. 314. Brownfields Demonstration Program for qualified green 
                            building and sustainable design projects.

              Subtitle B--Manufacturing Relating to Films

Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of 
                            depreciation.

              Subtitle C--Manufacturing Relating to Timber

Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to 
                            outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 409. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 410. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 412. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 415. Penalty for promoting abusive tax shelters.
Sec. 416. Statute of limitations for taxable years for which required 
                            listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments 
                            attributable to nondisclosed reportable and 
                            noneconomic substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.
Sec. 419. Penalty for aiding and abetting the understatement of tax 
                            liability.
Sec. 420. Study on information sharing among law enforcement agencies.

           Subtitle B--Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Declaration by chief executive officer relating to Federal 
                            annual income tax return of a corporation.
Sec. 423. Denial of deduction for certain fines, penalties, and other 
                            amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the 
                            underpayment or overpayment of tax due to 
                            fraud.

            Subtitle C--Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by 
                            partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on 
                            convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section 
                            269.
Sec. 436. Modification of interaction between subpart F and passive 
                            foreign investment company rules.

           Subtitle D--Provisions To Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who 
                            expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted 
                            corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.

                     Subtitle E--International Tax

Sec. 451. Clarification of banking business for purposes of determining 
                            investment of earnings in United States 
                            property.
Sec. 452. Prohibition on nonrecognition of gain through complete 
                            liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue 
                            discount deductions and income inclusions 
                            in transactions with related foreign 
                            persons.
Sec. 454. Effectively connected income to include certain foreign 
                            source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled 
                            foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding 
                            taxes on income other than dividends.

                  Subtitle F--Other Revenue Provisions

                     Part I--Financial Instruments

Sec. 461. Treatment of stripped interests in bond and preferred stock 
                            funds, etc.
Sec. 462. Application of earnings stripping rules to partners which are 
                            C corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized 
                            on satisfaction of debt with partnership 
                            interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily 
                            tradeable debt.

                 Part II--Corporations and Partnerships

Sec. 466. Modification of treatment of transfers to creditors in 
                            divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of 
                            corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership 
                            distributions and transfers of partnership 
                            interests.

                Part III--Depreciation and Amortization

Sec. 471. Extension of amortization of intangibles to sports 
                            franchises.
Sec. 472. Class lives for utility grading costs.
Sec. 473. Expansion of limitation on depreciation of certain passenger 
                            automobiles.
Sec. 474. Consistent amortization of periods for intangibles.
Sec. 475. Reform of tax treatment of leasing operations.
Sec. 476. Limitation on deductions allocable to property used by 
                            governments or other tax-exempt entities.

                   Part IV--Administrative Provisions

Sec. 481. Clarification of rules for payment of estimated tax for 
                            certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on 
                            underpayments related to certain offshore 
                            financial arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential 
                            underpayments.
Sec. 487. Qualified tax collection contracts.
Sec. 488. Whistleblower reforms.
Sec. 489. Protection of overtime pay.
Sec. 490. Protection of overtime pay.

                    Part V--Miscellaneous Provisions

Sec. 491. Addition of vaccines against hepatitis A to list of taxable 
                            vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence 
                            acquired in a like-kind exchange within 5 
                            years of sale.
Sec. 493. Modification of exemption from tax for small property and 
                            casualty insurance companies.
Sec. 494. Treatment of charitable contributions of patents and similar 
                            property.
Sec. 495. Increase in age of minor children whose unearned income is 
                            taxed as if parent's income.
Sec. 496. Holding period for preferred stock.
Sec. 497. Substantial presence test required to determine bona fide 
                            residence in United States possessions.

   TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF 
                           FOREIGN WORKFORCES

Sec. 501. Limitations on off-shore performance of contracts.
Sec. 502. Repeal of superseded law.
Sec. 503. Effective date and applicability.

                       TITLE VI--OTHER PROVISIONS

               Subtitle A--Provisions Relating to Housing

Sec. 601. Treatment of qualified mortgage bonds.
Sec. 602. Premiums for mortgage insurance.
Sec. 603. Increase in historic rehabilitation credit for certain low-
                            income housing for the elderly.

                Subtitle B--Provisions Relating to Bonds

Sec. 611. Expansion of New York Liberty Zone tax benefits.
Sec. 612. Modifications of treatment of qualified zone academy bonds.
Sec. 613. Modifications of authority of Indian tribal governments to 
                            issue tax-exempt bonds.
Sec. 614. Definition of manufacturing facility for small issue bonds.
Sec. 615. Conservation bonds.
Sec. 616. Indian school construction.

            Subtitle C--Provisions Relating to Depreciation

Sec. 621. Special placed in service rule for bonus depreciation 
                            property.
Sec. 622. Modification of depreciation allowance for aircraft.
Sec. 623. Modification of class life for certain track facilities.
Sec. 624. Minimum tax relief for certain taxpayers.

                Subtitle D--Expansion of Business Credit

Sec. 631. New markets tax credit for Native American reservations.
Sec. 632. Ready Reserve-National Guard employee credit and Ready 
                            Reserve-National Guard replacement employee 
                            credit.
Sec. 633. Rural investment tax credit.
Sec. 634. Qualified rural small business investment credit.
Sec. 635. Credit for maintenance of railroad track.
Sec. 636. Railroad revitalization and security investment credit.
Sec. 637. Modification of targeted areas designated for new markets tax 
                            credit.
Sec. 638. Modification of income requirement for census tracts within 
                            high migration rural counties.
Sec. 639. Credit for investment in technology to make motion pictures 
                            more accessible to the deaf and hard of 
                            hearing.

                  Subtitle E--Miscellaneous Provisions

Sec. 641. Exclusion of gain or loss on sale or exchange of certain 
                            brownfield sites from unrelated business 
                            taxable income.
Sec. 642. Modification of unrelated business income limitation on 
                            investment in certain debt-financed 
                            properties.
Sec. 643. Civil rights tax relief.
Sec. 644. Exclusion for payments to individuals under National Health 
                            Service Corps loan repayment program and 
                            certain State loan repayment programs.
Sec. 645. Certain expenses of rural letter carriers.
Sec. 646. Method of accounting for naval shipbuilders.
Sec. 647. Suspension of policyholders surplus account provisions.
Sec. 648. Payment of dividends on stock of cooperatives without 
                            reducing patronage dividends.
Sec. 649. Special rules for livestock sold on account of weather-
                            related conditions.
Sec. 650. Motor vehicle dealer transitional assistance.
Sec. 651. Expansion of designated renewal community area based on 2000 
                            census data.
Sec. 652. Reduction of holding period to 12 months for purposes of 
                            determining whether horses are section 1231 
                            assets.
Sec. 653. Blue Ribbon Commission on Comprehensive Tax Reform.
Sec. 654. Treatment of distributions by ESOPs with respect to S 
                            corporation stock.
Sec. 655. Clarification of working capital for reasonably anticipated 
                            needs of a business for purposes of 
                            accumulated earnings tax.
Sec. 656. Tax treatment of State ownership of railroad real estate 
                            investment trust.
Sec. 657. Clarification of contribution in aid of construction for 
                            water and sewerage disposal utilities.
Sec. 658. Credit for purchase and installation of agricultural water 
                            conservation systems.
Sec. 659. Modification of involuntary conversion rules for businesses 
                            affected by the September 11th terrorist 
                            attacks.
Sec. 660. Repeal of application of below-market loan rules to amounts 
                            paid to certain continuing care facilities.
Sec. 661. Gold, silver, platinum, and palladium treated in the same 
                            manner as stocks and bonds for maximum 
                            capital gains rate for individuals.
Sec. 662. Inclusion of primary and secondary medical strategies for 
                            children and adults with sickle cell 
                            disease as medical assistance under the 
                            Medicaid program.

                     Subtitle F--Revenue Provisions

                   Part I--General Revenue Provisions

Sec. 661A. Treasury regulations on foreign tax credit.
Sec. 662B. Freeze of provisions regarding suspension of interest where 
                            Secretary fails to contact taxpayer.

               Part II--Pension and Deferred Compensation

Sec. 671. Treatment of nonqualified deferred compensation plans.
Sec. 672. Prohibition on deferral of gain from the exercise of stock 
                            options and restricted stock gains through 
                            deferred compensation arrangements.
Sec. 673. Increase in withholding from supplemental wage payments in 
                            excess of $1,000,000.
Sec. 674. Treatment of sale of stock acquired pursuant to exercise of 
                            stock options to comply with conflict-of-
                            interest requirements.
Sec. 675. Application of basis rules to employer and employee 
                            contributions on behalf of nonresident 
                            aliens.

          TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                         Subtitle A--Extensions

Sec. 701. Parity in the application of certain limits to mental health 
                            benefits.
Sec. 702. Modifications to work opportunity credit and welfare-to-work 
                            credit.
Sec. 703. Consolidation of work opportunity credit with welfare-to-work 
                            credit.
Sec. 704. Qualified zone academy bonds.
Sec. 705. Cover over of tax on distilled spirits.
Sec. 706. Deduction for corporate donations of scientific property and 
                            computer technology.
Sec. 707. Deduction for certain expenses of school teachers.
Sec. 708. Expensing of environmental remediation costs.
Sec. 709. Expansion of certain New York Liberty Zone benefits.
Sec. 710. Repeal of reduction of deductions for mutual life insurance 
                            companies.
Sec. 711. Tax incentives for investment in the District of Columbia.
Sec. 712.Disclosure of tax information to facilitate combined 
                            employment tax reporting.
Sec. 713. Allowance of nonrefundable personal credits against regular 
                            and minimum tax liability.
Sec. 714. Credit for electricity produced from certain renewable 
                            resources.
Sec. 715. Taxable income limit on percentage depletion for oil and 
                            natural gas produced from marginal 
                            properties.
Sec. 716. Indian employment tax credit.
Sec. 717. Accelerated depreciation for business property on Indian 
                            reservation.
Sec. 718. Disclosure of return information relating to student loans.
Sec. 719. Extension of transfers of excess pension assets to retiree 
                            health accounts.
Sec. 720. Elimination of phaseout of credit for qualified electric 
                            vehicles.
Sec. 721. Elimination of phaseout for deduction for clean-fuel vehicle 
                            property.

                     Subtitle B--Revenue Provisions

Sec. 731. Donations of motor vehicles, boats, and airplanes. 
Sec. 732. Addition of vaccines against influenza to list of taxable 
                            vaccines.
Sec. 733. Treatment of contingent payment convertible debt instruments.
Sec. 734. Modification of continuing levy on payments to Federal 
                            venders.

                   TITLE VIII--ENERGY TAX INCENTIVES

Sec. 800. Short title.

        Subtitle A--Renewable Electricity Production Tax Credit

Sec. 801. Extension and expansion of credit for electricity produced 
                            from certain renewable resources.

      Subtitle B--Alternative Motor Vehicles and Fuels Incentives

Sec. 811. Alternative motor vehicle credit.
Sec. 812. Modification of credit for qualified electric vehicles.
Sec. 813. Credit for installation of alternative fueling stations.
Sec. 814. Credit for retail sale of alternative fuels as motor vehicle 
                            fuel.
Sec. 815. Small ethanol producer credit.

       Subtitle C--Conservation and Energy Efficiency Provisions

Sec. 821. Credit for construction of new energy efficient home.
Sec. 822. Credit for energy efficient appliances.
Sec. 823. Credit for residential energy efficient property.
Sec. 824. Credit for business installation of qualified fuel cells and 
                            stationary microturbine power plants.
Sec. 825. Energy efficient commercial buildings deduction.
Sec. 826. Three-year applicable recovery period for depreciation of 
                            qualified energy management devices.
Sec. 827. Three-year applicable recovery period for depreciation of 
                            qualified water submetering devices.
Sec. 828. Energy credit for combined heat and power system property.
Sec. 829. Credit for energy efficiency improvements to existing homes.

                   Subtitle D--Clean Coal Incentives

 Part I--Credit for Emission Reductions and Efficiency Improvements in 
         Existing Coal-Based Electricity Generation Facilities

Sec. 831. Credit for production from a qualifying clean coal technology 
                            unit.

Part II--Incentives for Early Commercial Applications of Advanced Clean 
                           Coal Technologies

Sec. 832. Credit for investment in qualifying advanced clean coal 
                            technology.
Sec. 833. Credit for production from a qualifying advanced clean coal 
                            technology unit.

      Part III--Treatment of Persons Not Able To Use Entire Credit

Sec. 834. Treatment of persons not able to use entire credit.

                   Subtitle E--Oil and Gas Provisions

Sec. 841. Oil and gas from marginal wells.
Sec. 842. Natural gas gathering lines treated as 7-year property.
Sec. 843. Expensing of capital costs incurred in complying with 
                            Environmental Protection Agency sulfur 
                            regulations.
Sec. 844. Credit for production of low sulfur diesel fuel.
Sec. 845. Determination of small refiner exception to oil depletion 
                            deduction.
Sec. 846. Marginal production income limit extension.
Sec. 847. Amortization of delay rental payments.
Sec. 848. Amortization of geological and geophysical expenditures.
Sec. 849. Extension and modification of credit for producing fuel from 
                            a nonconventional source.
Sec. 850. Natural gas distribution lines treated as 15-year property.
Sec. 851. Credit for Alaska natural gas.
Sec. 852. Certain Alaska natural gas pipeline property treated as 7-
                            year property.
Sec. 853. Extension of enhanced oil recovery credit to certain Alaska 
                            facilities.
Sec. 854. Arbitrage rules not to apply to prepayments for natural gas.

         Subtitle F--Electric Utility Restructuring Provisions

Sec. 855. Modifications to special rules for nuclear decommissioning 
                            costs.
Sec. 856. Treatment of certain income of cooperatives.
Sec. 857. Sales or dispositions to implement Federal Energy Regulatory 
                            Commission or State electric restructuring 
                            policy.

            Subtitle G--Volumetric Ethanol Excise Tax Credit

Sec. 860. Short title.
Sec. 861. Alcohol and biodiesel excise tax credit and extension of 
                            alcohol fuels income tax credit.
Sec. 862. Biodiesel income tax credit.

                   Subtitle H--Fuel Fraud Prevention

Sec. 870. Short title.

                       Part I--Aviation Jet Fuel

Sec. 871. Taxation of aviation-grade kerosene.
Sec. 872. Transfer of certain amounts from the Airport and Airway Trust 
                            Fund to the Highway Trust Fund to reflect 
                            highway use of jet fuel.

                           Part II--Dyed Fuel

Sec. 873. Dye injection equipment.
Sec. 874. Elimination of administrative review for taxable use of dyed 
                            fuel.
Sec. 875. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 876. Termination of dyed diesel use by intercity buses.

       Part III--Modification of Inspection of Records Provisions

Sec. 877. Authority to inspect on-site records.
Sec. 878. Assessable penalty for refusal of entry.

            Part IV--Registration and Reporting Requirements

Sec. 879. Registration of pipeline or vessel operators required for 
                            exemption of bulk transfers to registered 
                            terminals or refineries.
Sec. 880. Display of registration.
Sec. 881. Registration of persons within foreign trade zones.
Sec. 882. Penalties for failure to register and failure to report.
Sec. 883. Information reporting for persons claiming certain tax 
                            benefits.

                            Part V--Imports

Sec. 884. Tax at point of entry where importer not registered.
Sec. 885. Reconciliation of on-loaded cargo to entered cargo.

                   Part VI--Miscellaneous Provisions

Sec. 886. Tax on sale of diesel fuel whether suitable for use or not in 
                            a diesel-powered vehicle or train.
Sec. 887. Modification of ultimate vendor refund claims with respect to 
                            farming.
Sec. 888. Taxable fuel refunds for certain ultimate vendors.
Sec. 889. Two-party exchanges.
Sec. 890. Modifications of tax on use of certain vehicles.
Sec. 891. Dedication of revenues from certain penalties to the Highway 
                            Trust Fund.
Sec. 892. Nonapplication of export exemption to delivery of fuel to 
                            motor vehicles removed from United States.

                     Part VII--Total Accountability

Sec. 893. Total accountability.
Sec. 894. Excise tax reporting.
Sec. 895. Information reporting.

                      Subtitle I--Mobile Machinery

Sec. 896. Treatment of mobile machinery.

                   Subtitle J--Additional Provisions

Sec. 897. Study of effectiveness of certain provisions by GAO.
Sec. 898. Repeal of 4.3-cent motor fuel excise taxes on railroads and 
                            inland waterway transportation which remain 
                            in general fund.
Sec. 899. Distributions from publicly traded partnerships treated as 
                            qualifying income of regulated investment 
                            companies.
Sec. 899A. Certain business related credits allowed against regular and 
                            minimum tax.
Sec. 899B. Credit for qualifying pollution control equipment.
Sec. 899C. Electric transmission property treated as 15-year property.

                  TITLE IX--HOMESTEAD PRESERVATION ACT

Sec. 901. Short Title.
Sec. 902. Mortgage payment assistance.

     TITLE X--OFFICE OF FEDERAL PROCUREMENT POLICY ACT IMPROVEMENTS

Sec. 1001. Report on acquisitions of goods from foreign sources.

                TITLE XI--PROVISIONS RELATING TO TOBACCO

       Subtitle A--Family Smoking Prevention and Tobacco Control

Sec. 1101. Short title.
Sec. 1102. Findings.
Sec. 1103. Purpose.
Sec. 1104. Scope and effect.
Sec. 1105. Severability.

        CHAPTER 1--AUTHORITY OF THE FOOD AND DRUG ADMINISTRATION

Sec. 1111. Amendment of Federal Food, Drug, and Cosmetic Act.
Sec. 1112. Interim final rule.
Sec. 1113. Conforming and other amendments to general provisions.

CHAPTER 2--TOBACCO PRODUCT WARNINGS; CONSTITUENT AND SMOKE CONSTITUENT 
                               DISCLOSURE

Sec. 1121. Cigarette label and advertising warnings.
Sec. 1122. Authority to revise cigarette warning label statements.
Sec. 1123. State regulation of cigarette advertising and promotion.
Sec. 1124. Smokeless tobacco labels and advertising warnings.
Sec. 1125. Authority to revise smokeless tobacco product warning label 
                            statements.
Sec. 1126. Tar, nicotine, and other smoke constituent disclosure to the 
                            public.

       CHAPTER 3--PREVENTION OF ILLICIT TRADE IN TOBACCO PRODUCTS

Sec. 1131. Labeling, recordkeeping, records inspection.
Sec. 1132. Study and report.

                 Subtitle B--Tobacco Market Transition

Sec. 1140. Short title of subtitle.

           CHAPTER 1--TERMINATION OF CURRENT TOBACCO PROGRAMS

Sec. 1141. Termination of Tobacco Production Adjustment Programs.
Sec. 1142. Termination of Tobacco Price Support Program.
Sec. 1143. Liability.

                     CHAPTER 2--TOBACCO ASSISTANCE

Sec. 1151. Tobacco assistance.
Sec. 1152. Tobacco insurance research and development.
Sec. 1153. Conforming amendments.

                       CHAPTER 3--IMPLEMENTATION

Sec. 1161. Regulations.
Sec. 1162. Effective Date.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

    (a) In General.--Section 114 is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) Subpart E of part III of subchapter N of chapter 1 
        (relating to qualifying foreign trade income) is hereby 
        repealed.
            (B) The table of subparts for such part III is amended by 
        striking the item relating to subpart E.
            (2) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        114.
            (3) The second sentence of section 56(g)(4)(B)(i) is 
        amended by striking ``114 or''.
            (4) Section 275(a) is amended--
                    (A) by inserting ``or'' at the end of paragraph 
                (4)(A), by striking ``or'' at the end of paragraph 
                (4)(B) and inserting a period, and by striking 
                subparagraph (C), and
                    (B) by striking the last sentence.
            (5) Paragraph (3) of section 864(e) is amended--
                    (A) by striking:
            ``(3) Tax-exempt assets not taken into account.--
                    ``(A) In general.--For purposes of''; and 
                inserting:
            ``(3) Tax-exempt assets not taken into account.--For 
        purposes of'', and
                    (B) by striking subparagraph (B).
            (6) Section 903 is amended by striking ``114, 164(a),'' and 
        inserting ``164(a)''.
            (7) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transactions occurring after the date of the enactment 
        of this Act.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any transaction in the ordinary course of a 
        trade or business which occurs pursuant to a binding contract--
                    (A) which is between the taxpayer and a person who 
                is not a related person (as defined in section 
                943(b)(3) of the Internal Revenue Code of 1986, as in 
                effect on the day before the date of the enactment of 
                this Act), and
                    (B) which is in effect on September 17, 2003, and 
                at all times thereafter.
    (d) Revocation of Section 943(e) Elections.--
            (1) In general.--In the case of a corporation that elected 
        to be treated as a domestic corporation under section 943(e) of 
        the Internal Revenue Code of 1986 (as in effect on the day 
        before the date of the enactment of this Act)--
                    (A) the corporation may, during the 1-year period 
                beginning on the date of the enactment of this Act, 
                revoke such election, effective as of such date of 
                enactment, and
                    (B) if the corporation does revoke such election--
                            (i) such corporation shall be treated as a 
                        domestic corporation transferring (as of such 
                        date of enactment) all of its property to a 
                        foreign corporation in connection with an 
                        exchange described in section 354 of such Code, 
                        and
                            (ii) no gain or loss shall be recognized on 
                        such transfer.
            (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
        not apply to gain on any asset held by the revoking corporation 
        if--
                    (A) the basis of such asset is determined in whole 
                or in part by reference to the basis of such asset in 
                the hands of the person from whom the revoking 
                corporation acquired such asset,
                    (B) the asset was acquired by transfer (not as a 
                result of the election under section 943(e) of such 
                Code) occurring on or after the 1st day on which its 
                election under section 943(e) of such Code was 
                effective, and
                    (C) a principal purpose of the acquisition was the 
                reduction or avoidance of tax (other than a reduction 
                in tax under section 114 of such Code, as in effect on 
                the day before the date of the enactment of this Act).
    (e) General Transition.--
            (1) In general.--In the case of a taxable year ending after 
        the date of the enactment of this Act and beginning before 
        January 1, 2007, for purposes of chapter 1 of such Code, a 
        current FSC/ETI beneficiary shall be allowed a deduction equal 
        to the transition amount determined under this subsection with 
        respect to such beneficiary for such year.
            (2) Current fsc/eti beneficiary.--The term ``current FSC/
        ETI beneficiary'' means any corporation which entered into one 
        or more transactions during its taxable year beginning in 
        calendar year 2002 with respect to which FSC/ETI benefits were 
        allowable.
            (3) Transition amount.--For purposes of this subsection--
                    (A) In general.--The transition amount applicable 
                to any current FSC/ETI beneficiary for any taxable year 
                is the phaseout percentage of the base period amount.
                    (B) Phaseout percentage.--
                            (i) In general.--In the case of a taxpayer 
                        using the calendar year as its taxable year, 
                        the phaseout percentage shall be determined 
                        under the following table:

                                                The phaseout
            Years:                              percentage is:
                2005...............
                                                         80 
                2006...............
                                                         60.
                            (ii) Special rule for 2004.--The phaseout 
                        percentage for 2004 shall be the amount that 
                        bears the same ratio to 80 percent as the 
                        number of days after the date of the enactment 
                        of this Act bears to 366.
                            (iii) Special rule for fiscal year 
                        taxpayers.--In the case of a taxpayer not using 
                        the calendar year as its taxable year, the 
                        phaseout percentage is the weighted average of 
                        the phaseout percentages determined under the 
                        preceding provisions of this paragraph with 
                        respect to calendar years any portion of which 
                        is included in the taxpayer's taxable year. The 
                        weighted average shall be determined on the 
                        basis of the respective portions of the taxable 
                        year in each calendar year.
                    (C) Short taxable year.--The Secretary shall 
                prescribe guidance for the computation of the 
                transition amount in the case of a short taxable year.
            (4) Base period amount.--For purposes of this subsection, 
        the base period amount is the average FSC/ETI benefit for the 
        taxpayer's taxable years beginning in calendar years 2000, 
        2001, and 2002.
            (5) FSC/ETI benefit.--For purposes of this subsection, the 
        term ``FSC/ETI benefit'' means--
                    (A) amounts excludable from gross income under 
                section 114 of such Code, and
                    (B) the exempt foreign trade income of related 
                foreign sales corporations from property acquired from 
                the taxpayer (determined without regard to section 
                923(a)(5) of such Code (relating to special rule for 
                military property), as in effect on the day before the 
                date of the enactment of the FSC Repeal and 
                Extraterritorial Income Exclusion Act of 2000).
        In determining the FSC/ETI benefit there shall be excluded any 
        amount attributable to a transaction with respect to which the 
        taxpayer is the lessor unless the leased property was 
        manufactured or produced in whole or in significant part by the 
        taxpayer.
            (6) Special rule for agricultural and horticultural 
        cooperatives.--Determinations under this subsection with 
        respect to an organization described in section 943(g)(1) of 
        such Code, as in effect on the day before the date of the 
        enactment of this Act, shall be made at the cooperative level 
        and the purposes of this subsection shall be carried out in a 
        manner similar to section 199(h)(2) of such Code, as added by 
        this Act. Such determinations shall be in accordance with such 
        requirements and procedures as the Secretary may prescribe.
            (7) Certain rules to apply.--Rules similar to the rules of 
        section 41(f) of such Code shall apply for purposes of this 
        subsection.
            (8) Coordination with binding contract rule.--The deduction 
        determined under paragraph (1) for any taxable year shall be 
        reduced by the phaseout percentage of any FSC/ETI benefit 
        realized for the taxable year by reason of subsection (c)(2) or 
        section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
        Income Exclusion Act of 2000, except that for purposes of this 
        paragraph the phaseout percentage for 2004 shall be treated as 
        being equal to 100 percent.
            (9) Special rule for taxable year which includes date of 
        enactment.--In the case of a taxable year which includes the 
        date of the enactment of this Act, the deduction allowed under 
        this subsection to any current FSC/ETI beneficiary shall in no 
        event exceed--
                    (A) 100 percent of such beneficiary's base period 
                amount for calendar year 2004, reduced by
                    (B) the FSC/ETI benefit of such beneficiary with 
                respect to transactions occurring during the portion of 
                the taxable year ending on the date of the enactment of 
                this Act.

SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES 
              PRODUCTION ACTIVITIES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
adding at the end the following new section:

``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction an 
        amount equal to 9 percent of the qualified production 
        activities income of the taxpayer for the taxable year.
            ``(2) Phasein.--In the case of taxable years beginning in 
        2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be applied 
        by substituting for the percentage contained therein the 
        transition percentage determined under the following table:

            ``Taxable years                     The transition
            beginning in:                       percentage is:
                2004, 2005, or 2006
                                                        5 
                2007...............
                                                        6 
                2008...............
                                                        7.
    ``(b) Deduction Limited to Wages Paid.--
            ``(1) In general.--The amount of the deduction allowable 
        under subsection (a) for any taxable year shall not exceed 50 
        percent of the W-2 wages of the employer for the taxable year.
            ``(2) W-2 wages.--For purposes of paragraph (1), the term 
        `W-2 wages' means the sum of the aggregate amounts the taxpayer 
        is required to include on statements under paragraphs (3) and 
        (8) of section 6051(a) with respect to employment of employees 
        of the taxpayer during the taxpayer's taxable year.
            ``(3) Special rules.--
                    ``(A) Pass-thru entities.--In the case of an S 
                corporation, partnership, estate or trust, or other 
                pass-thru entity, the limitation under this subsection 
                shall apply at the entity level. The preceding sentence 
                shall not apply to any entity all of the ownership 
                interests of which are held directly or indirectly by 
                members of the same expanded affiliated group.
                    ``(B) Acquisitions and dispositions.--The Secretary 
                shall provide for the application of this subsection in 
                cases where the taxpayer acquires, or disposes of, the 
                major portion of a trade or business or the major 
                portion of a separate unit of a trade or business 
                during the taxable year.
    ``(c) Qualified Production Activities Income.--For purposes of this 
section--
            ``(1) In general.--The term `qualified production 
        activities income' means an amount equal to the portion of the 
        modified taxable income of the taxpayer which is attributable 
        to domestic production activities.
            ``(2) Reduction for taxable years beginning before 2013.--
        The amount otherwise determined under paragraph (1) (the 
        `unreduced amount') shall not exceed--
                    ``(A) in the case of taxable years beginning before 
                2010, the product of the unreduced amount and the 
                domestic/worldwide fraction, and
                    ``(B) in the case of taxable years beginning in 
                2010, 2011, or 2012, an amount equal to the sum of--
                            ``(i) the product of the unreduced amount 
                        and the domestic/worldwide fraction, plus
                            ``(ii) the applicable percentage of an 
                        amount equal to the unreduced amount minus the 
                        amount determined under clause (i).
        For purposes of subparagraph (B)(ii), the applicable percentage 
        is 25 percent for 2010, 50 percent for 2011, and 75 percent for 
        2012.
    ``(d) Determination of Income Attributable to Domestic Production 
Activities.--For purposes of this section--
            ``(1) In general.--The portion of the modified taxable 
        income which is attributable to domestic production activities 
        is so much of the modified taxable income for the taxable year 
        as does not exceed--
                    ``(A) the taxpayer's domestic production gross 
                receipts for such taxable year, reduced by
                    ``(B) the sum of--
                            ``(i) the costs of goods sold that are 
                        allocable to such receipts,
                            ``(ii) other deductions, expenses, or 
                        losses directly allocable to such receipts, and
                            ``(iii) a proper share of other deductions, 
                        expenses, and losses that are not directly 
                        allocable to such receipts or another class of 
                        income.
            ``(2) Allocation method.--The Secretary shall prescribe 
        rules for the proper allocation of items of income, deduction, 
        expense, and loss for purposes of determining income 
        attributable to domestic production activities.
            ``(3) Special rules for determining costs.--
                    ``(A) In general.--For purposes of determining 
                costs under clause (i) of paragraph (1)(B), any item or 
                service brought into the United States shall be treated 
                as acquired by purchase, and its cost shall be treated 
                as not less than its fair market value immediately 
                after it entered the United States. A similar rule 
                shall apply in determining the adjusted basis of leased 
                or rented property where the lease or rental gives rise 
                to domestic production gross receipts.
                    ``(B) Exports for further manufacture.--In the case 
                of any property described in subparagraph (A) that had 
                been exported by the taxpayer for further manufacture, 
                the increase in cost or adjusted basis under 
                subparagraph (A) shall not exceed the difference 
                between the value of the property when exported and the 
                value of the property when brought back into the United 
                States after the further manufacture.
            ``(4) Modified taxable income.--The term `modified taxable 
        income' means taxable income computed without regard to the 
        deduction allowable under this section.
    ``(e) Domestic Production Gross Receipts.--For purposes of this 
section--
            ``(1) In general.--The term `domestic production gross 
        receipts' means the gross receipts of the taxpayer which are 
        derived from--
                    ``(A) any sale, exchange, or other disposition of, 
                or
                    ``(B) any lease, rental, or license of,
        qualifying production property which was manufactured, 
        produced, grown, or extracted in whole or in significant part 
        by the taxpayer within the United States.
            ``(2) Special rules for certain property.--In the case of 
        any qualifying production property described in subsection 
        (f)(1)(C)--
                    ``(A) such property shall be treated for purposes 
                of paragraph (1) as produced in significant part by the 
                taxpayer within the United States if more than 50 
                percent of the aggregate development and production 
                costs are incurred by the taxpayer within the United 
                States, and
                    ``(B) if a taxpayer acquires such property before 
                such property begins to generate substantial gross 
                receipts, any development or production costs incurred 
                before the acquisition shall be treated as incurred by 
                the taxpayer for purposes of subparagraph (A) and 
                paragraph (1).
            ``(3) Gross receipts from use of films and video tape.--In 
        the case of any qualifying production property which is 
        property described in section 168(f)(3) produced in whole or in 
        significant part by the taxpayer within the United States 
        (determined after application of paragraph (2)), domestic 
        production gross receipts shall include gross receipts derived 
        by the taxpayer from the use of the property by the taxpayer.
    ``(f) Qualifying Production Property.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        paragraph, the term `qualifying production property' means--
                    ``(A) any tangible personal property,
                    ``(B) any computer software, and
                    ``(C) any property described in section 168(f) (3) 
                or (4), including any underlying copyright or 
                trademark.
            ``(2) Exclusions from qualifying production property.--The 
        term `qualifying production property' shall not include--
                    ``(A) consumable property that is sold, leased, or 
                licensed by the taxpayer as an integral part of the 
                provision of services,
                    ``(B) oil or gas,
                    ``(C) electricity,
                    ``(D) water supplied by pipeline to the consumer,
                    ``(E) utility services, or
                    ``(F) any film, tape, recording, book, magazine, 
                newspaper, or similar property the market for which is 
                primarily topical or otherwise essentially transitory 
                in nature.
Subparagraph (F) shall not apply to property described in section 
168(f)(3) to the extent of the gross receipts from the use of the 
property to which subsection (e)(3) applies (determined after 
application of this sentence).
    ``(g) Domestic/Worldwide Fraction.--For purposes of this section--
            ``(1) In general.--The term `domestic/worldwide fraction' 
        means a fraction (not greater than 1)--
                    ``(A) the numerator of which is the value of the 
                domestic production of the taxpayer, and
                    ``(B) the denominator of which is the value of the 
                worldwide production of the taxpayer.
            ``(2) Value of domestic production.--The value of domestic 
        production is the excess (if any) of--
                    ``(A) the domestic production gross receipts, over
                    ``(B) the cost of purchased inputs allocable to 
                such receipts that are deductible under this chapter 
                for the taxable year.
            ``(3) Purchased inputs.--
                    ``(A) In general.--Purchased inputs are any of the 
                following items acquired by purchase:
                            ``(i) Services (other than services of 
                        employees) used in manufacture, production, 
                        growth, or extraction activities.
                            ``(ii) Items consumed in connection with 
                        such activities.
                            ``(iii) Items incorporated as part of the 
                        property being manufactured, produced, grown, 
                        or extracted.
                    ``(B) Special rule.--Rules similar to the rules of 
                subsection (d)(3) shall apply for purposes of this 
                subsection.
            ``(4) Value of worldwide production.--
                    ``(A) In general.--The value of worldwide 
                production shall be determined under the principles of 
                paragraph (2), except that--
                            ``(i) worldwide production gross receipts 
                        shall be taken into account, and
                            ``(ii) paragraph (3)(B) shall not apply.
                    ``(B) Worldwide production gross receipts.--The 
                worldwide production gross receipts is the amount that 
                would be determined under subsection (e) if such 
                subsection were applied without any reference to the 
                United States.
    ``(h) Definitions and Special Rules.--
            ``(1) Application of section to pass-thru entities.--In the 
        case of an S corporation, partnership, estate or trust, or 
        other pass-thru entity--
                    ``(A) subject to the provisions of paragraph (2) 
                and subsection (b)(3)(A), this section shall be applied 
                at the shareholder, partner, or similar level, and
                    ``(B) the Secretary shall prescribe rules for the 
                application of this section, including rules relating 
                to--
                            ``(i) restrictions on the allocation of the 
                        deduction to taxpayers at the partner or 
                        similar level, and
                            ``(ii) additional reporting requirements.
            ``(2) Patrons of agricultural and horticultural 
        cooperatives.--
                    ``(A) In general.--If any amount described in 
                paragraph (1) or (3) of section 1385 (a)--
                            ``(i) is received by a person from an 
                        organization to which part I of subchapter T 
                        applies which is engaged--
                                    ``(I) in the manufacturing, 
                                production, growth, or extraction in 
                                whole or significant part of any 
                                agricultural or horticultural product, 
                                or
                                    ``(II) in the marketing of 
                                agricultural or horticultural products, 
                                and
                            ``(ii) is allocable to the portion of the 
                        qualified production activities income of the 
                        organization which, but for this paragraph, 
                        would be deductible under subsection (a) by the 
                        organization and is designated as such by the 
                        organization in a written notice mailed to its 
                        patrons during the payment period described in 
                        section 1382(d),
                then such person shall be allowed a deduction under 
                subsection (a) with respect to such amount. The taxable 
                income of the organization shall not be reduced under 
                section 1382 by reason of any amount to which the 
                preceding sentence applies.
                    ``(B) Special rules.--For purposes of applying 
                subparagraph (A), in determining the qualified 
                production activities income of the organization under 
                this section--
                            ``(i) there shall not be taken into account 
                        in computing the organization's modified 
                        taxable income any deduction allowable under 
                        subsection (b) or (c) of section 1382 (relating 
                        to patronage dividends, per-unit retain 
                        allocations, and nonpatronage distributions), 
                        and
                            ``(ii) in the case of an organization 
                        described in subparagraph (A)(i)(II), the 
                        organization shall be treated as having 
                        manufactured, produced, grown, or extracted in 
                        whole or significant part any qualifying 
                        production property marketed by the 
                        organization which its patrons have so 
                        manufactured, produced, grown, or extracted.
            ``(3) Special rule for affiliated groups.--
                    ``(A) In general.--All members of an expanded 
                affiliated group shall be treated as a single 
                corporation for purposes of this section.
                    ``(B) Expanded affiliated group.--The term 
                `expanded affiliated group' means an affiliated group 
                as defined in section 1504(a), determined--
                            ``(i) by substituting `50 percent' for `80 
                        percent' each place it appears, and
                            ``(ii) without regard to paragraphs (2) and 
                        (4) of section 1504(b).
                For purposes of determining the domestic/worldwide 
                fraction under subsection (g), clause (ii) shall be 
                applied by also disregarding paragraphs (3) and (8) of 
                section 1504(b).
            ``(4) Coordination with minimum tax.--The deduction under 
        this section shall be allowed for purposes of the tax imposed 
        by section 55; except that for purposes of section 55, 
        alternative minimum taxable income shall be taken into account 
        in determining the deduction under this section.
            ``(5) Ordering rule.--The amount of any other deduction 
        allowable under this chapter shall be determined as if this 
        section had not been enacted.
            ``(6) Trade or business requirement.--This section shall be 
        applied by only taking into account items which are 
        attributable to the actual conduct of a trade or business.
            ``(7) Possessions, etc.--
                    ``(A) In general.--For purposes of subsections (d) 
                and (e), the term `United States' includes the 
                Commonwealth of Puerto Rico, Guam, American Samoa, the 
                Commonwealth of the Northern Mariana Islands, and the 
                Virgin Islands of the United States.
                    ``(B) Special rules for applying wage limitation.--
                For purposes of applying the limitation under 
                subsection (b) for any taxable year--
                            ``(i) the determination of W-2 wages of a 
                        taxpayer shall be made without regard to any 
                        exclusion under section 3401(a)(8) for 
                        remuneration paid for services performed in a 
                        jurisdiction described in subparagraph (A), and
                            ``(ii) in determining the amount of any 
                        credit allowable under section 30A or 936 for 
                        the taxable year, there shall not be taken into 
                        account any wages which are taken into account 
                        in applying such limitation.
            ``(8) Coordination with transition rules.--For purposes of 
        this section--
                    ``(A) domestic production gross receipts shall not 
                include gross receipts from any transaction if the 
                binding contract transition relief of section 101(c)(2) 
                of the Jumpstart Our Business Strength (JOBS) Act 
                applies to such transaction, and
                    ``(B) any deduction allowed under section 101(e) of 
                such Act shall be disregarded in determining the 
                portion of the taxable income which is attributable to 
                domestic production gross receipts.
            ``(9) Separate application to films and videotape.--
                    ``(A) In general.--In the case of qualifying 
                production property described in section 168(f)(3), the 
                deduction under this section shall be determined 
                separately with respect to qualified production 
                activities income of the taxpayer allocable to each of 
                the following markets with respect to such property:
                            ``(i) Theatrical.
                            ``(ii) Broadcast television (including 
                        cable, foreign, pay-per-view, and syndication).
                            ``(iii) Home video.
                    ``(B) Rules for separate determination.--Except as 
                provided in subparagraph (C)--
                            ``(i) any computation required to determine 
                        the amount of the deduction with respect to any 
                        of the markets described in subparagraph (A) 
                        shall be made by only taking into account items 
                        properly allocable to such market, including 
                        the computation of qualified production 
                        activities income, modified taxable income, and 
                        the domestic/worldwide fraction, and
                            ``(ii) such items shall not be taken into 
                        account in determining the deduction with 
                        respect to either of the other 2 markets or 
                        with respect to qualified production activities 
                        income of the taxpayer not allocable to any of 
                        such markets.
                    ``(C) Wage limitation.--This paragraph shall not 
                apply for purposes of subsection (b) and subsection (b) 
                shall be applied after the application of this 
                paragraph.''
    (b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of 
items not deductible in computing earnings and profits) is amended by 
adding at the end the following new clause:
                            ``(v) Deduction for domestic production.--
                        Clause (i) shall not apply to any amount 
                        allowable as a deduction under section 199.''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 199. Income attributable to 
                                        domestic production 
                                        activities.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Application of section 15.--Section 15 of the Internal 
        Revenue Code of 1986 shall apply to the amendments made by this 
        section as if they were changes in a rate of tax.

SEC. 103. DEDUCTION FOR UNITED STATES PRODUCTION ACTIVITIES INCLUDES 
              INCOME RELATED TO CERTAIN ARCHITECTURAL AND ENGINEERING 
              SERVICES.

    (a) In General.--Paragraph (1) of section 199(e) (relating to 
domestic production gross receipts), as added by section 102, is 
amended to read as follows:
            ``(1) In general.--
                    ``(A) Receipts from qualifying production 
                property.--The term `domestic production gross 
                receipts' means the gross receipts of the taxpayer 
                which are derived from--
                            ``(i) any sale, exchange, or other 
                        disposition of, or
                            ``(ii) any lease, rental, or license of,
                qualifying production property which was manufactured, 
                produced, grown, or extracted in whole or in 
                significant part by the taxpayer within the United 
                States.
                    ``(B) Receipts from certain services.--
                            ``(i) In general.--Such term also includes 
                        the applicable percentage of gross receipts of 
                        the taxpayer which are derived from any 
                        engineering or architectural services performed 
                        in the United States for construction projects 
                        in the United States.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage shall 
                        be determined under the following table:

``In the case of any taxable year   The applicable percentage is--
        beginning in--
    2004, 2005, 2006, 2007, or 2008...............                  25 
    2009, 2010, 2011, or 2012.....................                  50 
    2013 or thereafter............................                 100.

    (b) Limitation of Employer Deduction for Certain Entertainment 
Expenses with Respect to Covered Employees.--Paragraph (2) of section 
274(e) (relating to expenses treated as compensation) is amended to 
read as follows:
            ``(2) Expenses treated as compensation.--Expenses for 
        goods, services, and facilities--
                    ``(A) in the case of a covered employee (within the 
                meaning of section 162(m)(3)), to the extent that the 
                expenses do not exceed the amount of the expenses 
                treated by the taxpayer, with respect to the recipient 
                of the entertainment, amusement, or recreation, as 
                compensation to such covered employee on the taxpayer's 
                return of tax under this chapter and as wages to such 
                covered employee for purposes of chapter 24 (relating 
                to withholding of income tax at source on wages), and
                    ``(B) in the case of any other employee, to the 
                extent that the expenses are treated by the taxpayer, 
                with respect to the recipient of the entertainment, 
                amusement, or recreation, as compensation to such 
                employee on the taxpayer's return of tax under this 
                chapter and as wages to such employee for purposes of 
                chapter 24 (relating to withholding of income tax at 
                source on wages).''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to taxable years ending after the date of the 
        enactment of this Act, and section 15 of the Internal Revenue 
        Code of 1986 shall apply to the amendment made by this 
        subsection as if it were a change in the rate of tax.
            (2) Subsection (b).--The amendment made by subsection (b) 
        shall apply to expenses incurred after the date of the 
        enactment of this Act and before January 1, 2006.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX 
              CREDIT CARRYBACK.

    (a) General Rule.--Section 904(c) (relating to carryback and 
carryover of excess tax paid) is amended--
            (1) by striking ``in the second preceding taxable year,'', 
        and
            (2) by striking ``, and in the first, second, third, 
        fourth, or fifth'' and inserting ``and in any of the first 
        20''.
    (b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is 
amended--
            (1) by striking ``in the second preceding taxable year,'',
            (2) by striking ``, and in the first, second, third, 
        fourth, or fifth'' and inserting ``and in any of the first 
        20'', and
            (3) by striking the last sentence.
    (c) Effective Date.--
            (1) Carryback.--The amendments made by subsections (a)(1) 
        and (b)(1) shall apply to excess foreign taxes arising in 
        taxable years beginning after the date of the enactment of this 
        Act.
            (2) Carryover.--The amendments made by subsections (a)(2) 
        and (b)(2) shall apply to excess foreign taxes which (without 
        regard to the amendments made by this section) may be carried 
        to any taxable year ending after the date of the enactment of 
        this Act.

SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) (relating to look-thru rules 
apply to dividends from noncontrolled section 902 corporations) is 
amended to read as follows:
            ``(4) Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                any dividend from a noncontrolled section 902 
                corporation with respect to the taxpayer shall be 
                treated as income described in a subparagraph of 
                paragraph (1) in proportion to the ratio of--
                            ``(i) the portion of earnings and profits 
                        attributable to income described in such 
                        subparagraph, to
                            ``(ii) the total amount of earnings and 
                        profits.
                    ``(B) Earnings and profits of controlled foreign 
                corporations.--In the case of any distribution from a 
                controlled foreign corporation to a United States 
                shareholder, rules similar to the rules of subparagraph 
                (A) shall apply in determining the extent to which 
                earnings and profits of the controlled foreign 
                corporation which are attributable to dividends 
                received from a noncontrolled section 902 corporation 
                may be treated as income in a separate category.
                    ``(C) Special rules.--For purposes of this 
                paragraph--
                            ``(i) Earnings and profits.--
                                    ``(I) In general.--The rules of 
                                section 316 shall apply.
                                    ``(II) Regulations.--The Secretary 
                                may prescribe regulations regarding the 
                                treatment of distributions out of 
                                earnings and profits for periods before 
                                the taxpayer's acquisition of the stock 
                                to which the distributions relate.
                            ``(ii) Inadequate substantiation.--If the 
                        Secretary determines that the proper 
                        subparagraph of paragraph (1) in which a 
                        dividend is described has not been 
                        substantiated, such dividend shall be treated 
                        as income described in paragraph (1)(A).
                            ``(iii) Coordination with high-taxed income 
                        provisions.--Rules similar to the rules of 
                        paragraph (3)(F) shall apply for purposes of 
                        this paragraph.
                            ``(iv) Look-thru with respect to carryover 
                        of credit.--Rules similar to subparagraph (A) 
                        also shall apply to any carryforward under 
                        subsection (c) from a taxable year beginning 
                        before January 1, 2003, of tax allocable to a 
                        dividend from a noncontrolled section 902 
                        corporation with respect to the taxpayer. The 
                        Secretary may by regulations provide for the 
                        allocation of any carryback of tax allocable to 
                        a dividend from a noncontrolled section 902 
                        corporation to such a taxable year for purposes 
                        of allocating such dividend among the separate 
                        categories in effect for such taxable year.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (E) of section 904(d)(1) is hereby 
        repealed.
            (2) Section 904(d)(2)(C)(iii) is amended by adding ``and'' 
        at the end of subclause (I), by striking subclause (II), and by 
        redesignating subclause (III) as subclause (II).
            (3) The last sentence of section 904(d)(2)(D) is amended to 
        read as follows: ``Such term does not include any financial 
        services income.''.
            (4) Section 904(d)(2)(E) is amended--
                    (A) by inserting ``or (4)'' after ``paragraph (3)'' 
                in clause (i), and
                    (B) by striking clauses (ii) and (iv) and by 
                redesignating clause (iii) as clause (ii).
            (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
        (E)'' and inserting ``or (D)''.
            (6) Section 864(d)(5)(A)(i) is amended by striking 
        ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

    (a) In General.--
            (1) Subsection (a) of section 59 is amended by striking 
        paragraph (2) and by redesignating paragraphs (3) and (4) as 
        paragraphs (2) and (3), respectively.
            (2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and 
        if section 59(a)(2) did not apply''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l) respectively, and by inserting after subsection (f) the 
following new subsection:
    ``(g) Recharacterization of Overall Domestic Loss.--
            ``(1) General rule.--For purposes of this subpart and 
        section 936, in the case of any taxpayer who sustains an 
        overall domestic loss for any taxable year beginning after 
        December 31, 2006, that portion of the taxpayer's taxable 
        income from sources within the United States for each 
        succeeding taxable year which is equal to the lesser of--
                    ``(A) the amount of such loss (to the extent not 
                used under this paragraph in prior taxable years), or
                    ``(B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
            ``(2) Overall domestic loss defined.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `overall domestic loss' 
                means any domestic loss to the extent such loss offsets 
                taxable income from sources without the United States 
                for the taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the preceding 
                sentence, the term `domestic loss' means the amount by 
                which the gross income for the taxable year from 
                sources within the United States is exceeded by the sum 
                of the deductions properly apportioned or allocated 
                thereto (determined without regard to any carryback 
                from a subsequent taxable year).
                    ``(B) Taxpayer must have elected foreign tax credit 
                for year of loss.--The term `overall domestic loss' 
                shall not include any loss for any taxable year unless 
                the taxpayer chose the benefits of this subpart for 
                such taxable year.
            ``(3) Characterization of subsequent income.--
                    ``(A) In general.--Any income from sources within 
                the United States that is treated as income from 
                sources without the United States under paragraph (1) 
                shall be allocated among and increase the income 
                categories in proportion to the loss from sources 
                within the United States previously allocated to those 
                income categories.
                    ``(B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
            ``(4) Coordination with subsection (f).--The Secretary 
        shall prescribe such regulations as may be necessary to 
        coordinate the provisions of this subsection with the 
        provisions of subsection (f).''.
    (b) Conforming Amendments.--
            (1) Section 535(d)(2) is amended by striking ``section 
        904(g)(6)'' and inserting ``section 904(h)(6)''.
            (2) Subparagraph (A) of section 936(a)(2) is amended by 
        striking ``section 904(f)'' and inserting ``subsections (f) and 
        (g) of section 904''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses for taxable years beginning after December 31, 2006.

SEC. 205. INTEREST EXPENSE ALLOCATION RULES.

    (a) Election To Allocate on Worldwide Basis.--Section 864 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Election To Allocate Interest, etc. on Worldwide Basis.--For 
purposes of this subchapter, at the election of the worldwide 
affiliated group--
            ``(1) Allocation and apportionment of interest expense.--
                    ``(A) In general.--The taxable income of each 
                domestic corporation which is a member of a worldwide 
                affiliated group shall be determined by allocating and 
                apportioning interest expense of each member as if all 
                members of such group were a single corporation.
                    ``(B) Treatment of worldwide affiliated group.--The 
                taxable income of the domestic members of a worldwide 
                affiliated group from sources outside the United States 
                shall be determined by allocating and apportioning the 
                interest expense of such domestic members to such 
                income in an amount equal to the excess (if any) of--
                            ``(i) the total interest expense of the 
                        worldwide affiliated group multiplied by the 
                        ratio which the foreign assets of the worldwide 
                        affiliated group bears to all the assets of the 
                        worldwide affiliated group, over
                            ``(ii) the interest expense of all foreign 
                        corporations which are members of the worldwide 
                        affiliated group to the extent such interest 
                        expense of such foreign corporations would have 
                        been allocated and apportioned to foreign 
                        source income if this subsection were applied 
                        to a group consisting of all the foreign 
                        corporations in such worldwide affiliated 
                        group.
                    ``(C) Worldwide affiliated group.--For purposes of 
                this paragraph, the term `worldwide affiliated group' 
                means a group consisting of--
                            ``(i) the includible members of an 
                        affiliated group (as defined in section 
                        1504(a), determined without regard to 
                        paragraphs (2) and (4) of section 1504(b)), and
                            ``(ii) all controlled foreign corporations 
                        in which such members in the aggregate meet the 
                        ownership requirements of section 1504(a)(2) 
                        either directly or indirectly through applying 
                        paragraph (2) of section 958(a) or through 
                        applying rules similar to the rules of such 
                        paragraph to stock owned directly or indirectly 
                        by domestic partnerships, trusts, or estates.
            ``(2) Allocation and apportionment of other expenses.--
        Expenses other than interest which are not directly allocable 
        or apportioned to any specific income producing activity shall 
        be allocated and apportioned as if all members of the 
        affiliated group were a single corporation. For purposes of the 
        preceding sentence, the term `affiliated group' has the meaning 
        given such term by section 1504 (determined without regard to 
        paragraph (4) of section 1504(b)).
            ``(3) Treatment of tax-exempt assets; basis of stock in 
        nonaffiliated 10-percent owned corporations.--The rules of 
        paragraphs (3) and (4) of subsection (e) shall apply for 
        purposes of this subsection, except that paragraph (4) shall be 
        applied on a worldwide affiliated group basis.
            ``(4) Treatment of certain financial institutions.--
                    ``(A) In general.--For purposes of paragraph (1), 
                any corporation described in subparagraph (B) shall be 
                treated as an includible corporation for purposes of 
                section 1504 only for purposes of applying this 
                subsection separately to corporations so described.
                    ``(B) Description.--A corporation is described in 
                this subparagraph if--
                            ``(i) such corporation is a financial 
                        institution described in section 581 or 591,
                            ``(ii) the business of such financial 
                        institution is predominantly with persons other 
                        than related persons (within the meaning of 
                        subsection (d)(4)) or their customers, and
                            ``(iii) such financial institution is 
                        required by State or Federal law to be operated 
                        separately from any other entity which is not 
                        such an institution.
                    ``(C) Treatment of bank and financial holding 
                companies.--To the extent provided in regulations--
                            ``(i) a bank holding company (within the 
                        meaning of section 2(a) of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841(a)),
                            ``(ii) a financial holding company (within 
                        the meaning of section 2(p) of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841(p)), and
                            ``(iii) any subsidiary of a financial 
                        institution described in section 581 or 591, or 
                        of any such bank or financial holding company, 
                        if such subsidiary is predominantly engaged 
                        (directly or indirectly) in the active conduct 
                        of a banking, financing, or similar business,
                shall be treated as a corporation described in 
                subparagraph (B).
            ``(5) Election to expand financial institution group of 
        worldwide group.--
                    ``(A) In general.--If a worldwide affiliated group 
                elects the application of this subsection, all 
                financial corporations which--
                            ``(i) are members of such worldwide 
                        affiliated group, but
                            ``(ii) are not corporations described in 
                        paragraph (4)(B),
                shall be treated as described in paragraph (4)(B) for 
                purposes of applying paragraph (4)(A). This subsection 
                (other than this paragraph) shall apply to any such 
                group in the same manner as this subsection (other than 
                this paragraph) applies to the pre-election worldwide 
                affiliated group of which such group is a part.
                    ``(B) Financial corporation.--For purposes of this 
                paragraph, the term `financial corporation' means any 
                corporation if at least 80 percent of its gross income 
                is income described in section 904(d)(2)(C)(ii) and the 
                regulations thereunder which is derived from 
                transactions with persons who are not related (within 
                the meaning of section 267(b) or 707(b)(1)) to the 
                corporation. For purposes of the preceding sentence, 
                there shall be disregarded any item of income or gain 
                from a transaction or series of transactions a 
                principal purpose of which is the qualification of any 
                corporation as a financial corporation.
                    ``(C) Antiabuse rules.--In the case of a 
                corporation which is a member of an electing financial 
                institution group, to the extent that such 
                corporation--
                            ``(i) distributes dividends or makes other 
                        distributions with respect to its stock after 
                        the date of the enactment of this paragraph to 
                        any member of the pre-election worldwide 
                        affiliated group (other than to a member of the 
                        electing financial institution group) in excess 
                        of the greater of--
                                    ``(I) its average annual dividend 
                                (expressed as a percentage of current 
                                earnings and profits) during the 5-
                                taxable-year period ending with the 
                                taxable year preceding the taxable 
                                year, or
                                    ``(II) 25 percent of its average 
                                annual earnings and profits for such 5-
                                taxable-year period, or
                            ``(ii) deals with any person in any manner 
                        not clearly reflecting the income of the 
                        corporation (as determined under principles 
                        similar to the principles of section 482),
                an amount of indebtedness of the electing financial 
                institution group equal to the excess distribution or 
                the understatement or overstatement of income, as the 
                case may be, shall be recharacterized (for the taxable 
                year and subsequent taxable years) for purposes of this 
                paragraph as indebtedness of the worldwide affiliated 
                group (excluding the electing financial institution 
                group). If a corporation has not been in existence for 
                5 taxable years, this subparagraph shall be applied 
                with respect to the period it was in existence.
                    ``(D) Election.--An election under this paragraph 
                with respect to any financial institution group may be 
                made only by the common parent of the pre-election 
                worldwide affiliated group and may be made only for the 
                first taxable year beginning after December 31, 2008, 
                in which such affiliated group includes 1 or more 
                financial corporations. Such an election, once made, 
                shall apply to all financial corporations which are 
                members of the electing financial institution group for 
                such taxable year and all subsequent years unless 
                revoked with the consent of the Secretary.
                    ``(E) Definitions relating to groups.--For purposes 
                of this paragraph--
                            ``(i) Pre-election worldwide affiliated 
                        group.--The term `pre-election worldwide 
                        affiliated group' means, with respect to a 
                        corporation, the worldwide affiliated group of 
                        which such corporation would (but for an 
                        election under this paragraph) be a member for 
                        purposes of applying paragraph (1).
                            ``(ii) Electing financial institution 
                        group.--The term `electing financial 
                        institution group' means the group of 
                        corporations to which this subsection applies 
                        separately by reason of the application of 
                        paragraph (4)(A) and which includes financial 
                        corporations by reason of an election under 
                        subparagraph (A).
                    ``(F) Regulations.--The Secretary shall prescribe 
                such regulations as may be appropriate to carry out 
                this subsection, including regulations--
                            ``(i) providing for the direct allocation 
                        of interest expense in other circumstances 
                        where such allocation would be appropriate to 
                        carry out the purposes of this subsection,
                            ``(ii) preventing assets or interest 
                        expense from being taken into account more than 
                        once, and
                            ``(iii) dealing with changes in members of 
                        any group (through acquisitions or otherwise) 
                        treated under this paragraph as an affiliated 
                        group for purposes of this subsection.
            ``(6) Election.--An election to have this subsection apply 
        with respect to any worldwide affiliated group may be made only 
        by the common parent of the domestic affiliated group referred 
        to in paragraph (1)(C) and may be made only for the first 
        taxable year beginning after December 31, 2008, in which a 
        worldwide affiliated group exists which includes such 
        affiliated group and at least 1 foreign corporation. Such an 
        election, once made, shall apply to such common parent and all 
        other corporations which are members of such worldwide 
        affiliated group for such taxable year and all subsequent years 
        unless revoked with the consent of the Secretary.''.
    (b) Expansion of Regulatory Authority.--Paragraph (7) of section 
864(e) is amended--
            (1) by inserting before the comma at the end of 
        subparagraph (B) ``and in other circumstances where such 
        allocation would be appropriate to carry out the purposes of 
        this subsection'', and
            (2) by striking ``and'' at the end of subparagraph (E), by 
        redesignating subparagraph (F) as subparagraph (G), and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) preventing assets or interest expense from 
                being taken into account more than once, and''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH 
              RESPECT TO TRANSACTIONS IN COMMODITIES.

    (a) In General.--Clauses (i) and (ii) of section 954(c)(1)(C) 
(relating to commodity transactions) are amended to read as follows:
                            ``(i) arise out of commodity hedging 
                        transactions (as defined in paragraph (4)(A)),
                            ``(ii) are active business gains or losses 
                        from the sale of commodities, but only if 
                        substantially all of the controlled foreign 
                        corporation's commodities are property 
                        described in paragraph (1), (2), or (8) of 
                        section 1221(a), or''.
    (b) Definition and Special Rules.--Subsection (c) of section 954 is 
amended by adding after paragraph (3) the following new paragraph:
            ``(4) Definition and special rules relating to commodity 
        transactions.--
                    ``(A) Commodity hedging transactions.--For purposes 
                of paragraph (1)(C)(i), the term `commodity hedging 
                transaction' means any transaction with respect to a 
                commodity if such transaction--
                            ``(i) is a hedging transaction as defined 
                        in section 1221(b)(2), determined--
                                    ``(I) without regard to 
                                subparagraph (A)(ii) thereof,
                                    ``(II) by applying subparagraph 
                                (A)(i) thereof by substituting 
                                `ordinary property or property 
                                described in section 1231(b)' for 
                                `ordinary property', and
                                    ``(III) by substituting `controlled 
                                foreign corporation' for `taxpayer' 
                                each place it appears, and
                            ``(ii) is clearly identified as such in 
                        accordance with section 1221(a)(7).
                    ``(B) Treatment of dealer activities under 
                paragraph (1)(C).--Commodities with respect to which 
                gains and losses are not taken into account under 
                paragraph (2)(C) in computing a controlled foreign 
                corporation's foreign personal holding company income 
                shall not be taken into account in applying the 
                substantially all test under paragraph (1)(C)(ii) to 
                such corporation.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as are appropriate to carry out the 
                purposes of paragraph (1)(C) in the case of 
                transactions involving related parties.''.
    (c) Modification of Exception for Dealers.--Clause (i) of section 
954(c)(2)(C) is amended by inserting ``and transactions involving 
physical settlement'' after ``(including hedging transactions''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after December 31, 2004.

              Subtitle B--International Tax Simplification

SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN 
              INVESTMENT COMPANY RULES.

    (a) General Rule.--The following provisions are hereby repealed:
            (1) Part III of subchapter G of chapter 1 (relating to 
        foreign personal holding companies).
            (2) Section 1246 (relating to gain on foreign investment 
        company stock).
            (3) Section 1247 (relating to election by foreign 
        investment companies to distribute income currently).
    (b) Exemption of Foreign Corporations From Personal Holding Company 
Rules.--
            (1) In general.--Subsection (c) of section 542 (relating to 
        exceptions) is amended--
                    (A) by striking paragraph (5) and inserting the 
                following:
            ``(5) a foreign corporation,'',
                    (B) by striking paragraphs (7) and (10) and by 
                redesignating paragraphs (8) and (9) as paragraphs (7) 
                and (8), respectively,
                    (C) by inserting ``and'' at the end of paragraph 
                (7) (as so redesignated), and
                    (D) by striking ``; and'' at the end of paragraph 
                (8) (as so redesignated) and inserting a period.
            (2) Treatment of income from personal service contracts.--
        Paragraph (1) of section 954(c) is amended by adding at the end 
        the following new subparagraph:
                    ``(I) Personal service contracts.--
                            ``(i) Amounts received under a contract 
                        under which the corporation is to furnish 
                        personal services if--
                                    ``(I) some person other than the 
                                corporation has the right to designate 
                                (by name or by description) the 
                                individual who is to perform the 
                                services, or
                                    ``(II) the individual who is to 
                                perform the services is designated (by 
                                name or by description) in the 
                                contract, and
                            ``(ii) amounts received from the sale or 
                        other disposition of such a contract.
                This subparagraph shall apply with respect to amounts 
                received for services under a particular contract only 
                if at some time during the taxable year 25 percent or 
                more in value of the outstanding stock of the 
                corporation is owned, directly or indirectly, by or for 
                the individual who has performed, is to perform, or may 
                be designated (by name or by description) as the one to 
                perform, such services.''.
    (c) Conforming Amendments.--
            (1) Section 1(h) is amended--
                    (A) in paragraph (10), by inserting ``and'' at the 
                end of subparagraph (F), by striking subparagraph (G), 
                and by redesignating subparagraph (H) as subparagraph 
                (G), and
                    (B) by striking ``a foreign personal holding 
                company (as defined in section 552), a foreign 
                investment company (as defined in section 1246(b)), 
                or'' in paragraph (11)(C)(iii).
            (2) Section 163(e)(3)(B), as amended by section 453(a) of 
        this Act, is amended by striking ``which is a foreign personal 
        holding company (as defined in section 552), a controlled 
        foreign corporation (as defined in section 957), or'' and 
        inserting ``which is a controlled foreign corporation (as 
        defined in section 957) or''.
            (3) Paragraph (2) of section 171(c) is amended--
                    (A) by striking ``, or by a foreign personal 
                holding company, as defined in section 552'', and
                    (B) by striking ``, or foreign personal holding 
                company''.
            (4) Paragraph (2) of section 245(a) is amended by striking 
        ``foreign personal holding company or''.
            (5) Section 267(a)(3)(B), as amended by section 453(a) of 
        this Act, is amended by striking ``to a foreign personal 
        holding company (as defined in section 552), a controlled 
        foreign corporation (as defined in section 957), or'' and 
        inserting ``to a controlled foreign corporation (as defined in 
        section 957) or''.
            (6) Section 312 is amended by striking subsection (j).
            (7) Subsection (m) of section 312 is amended by striking 
        ``, a foreign investment company (within the meaning of section 
        1246(b)), or a foreign personal holding company (within the 
        meaning of section 552)''.
            (8) Subsection (e) of section 443 is amended by striking 
        paragraph (3) and by redesignating paragraphs (4) and (5) as 
        paragraphs (3) and (4), respectively.
            (9) Subparagraph (B) of section 465(c)(7) is amended by 
        adding ``or'' at the end of clause (i), by striking clause 
        (ii), and by redesignating clause (iii) as clause (ii).
            (10) Paragraph (1) of section 543(b) is amended by 
        inserting ``and'' at the end of subparagraph (A), by striking 
        ``, and'' at the end of subparagraph (B) and inserting a 
        period, and by striking subparagraph (C).
            (11) Paragraph (1) of section 562(b) is amended by striking 
        ``or a foreign personal holding company described in section 
        552''.
            (12) Section 563 is amended--
                    (A) by striking subsection (c),
                    (B) by redesignating subsection (d) as subsection 
                (c), and
                    (C) by striking ``subsection (a), (b), or (c)'' in 
                subsection (c) (as so redesignated) and inserting 
                ``subsection (a) or (b)''.
            (13) Subsection (d) of section 751 is amended by adding 
        ``and'' at the end of paragraph (2), by striking paragraph (3), 
        by redesignating paragraph (4) as paragraph (3), and by 
        striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so 
        redesignated) and inserting ``paragraph (1) or (2)''.
            (14) Paragraph (2) of section 864(d) is amended by striking 
        subparagraph (A) and by redesignating subparagraphs (B) and (C) 
        as subparagraphs (A) and (B), respectively.
            (15)(A) Subparagraph (A) of section 898(b)(1) is amended to 
        read as follows:
                    ``(A) which is treated as a controlled foreign 
                corporation for any purpose under subpart F of part III 
                of this subchapter, and''.
            (B) Subparagraph (B) of section 898(b)(2) is amended by 
        striking ``and sections 551(f) and 554, whichever are 
        applicable,''.
            (C) Paragraph (3) of section 898(b) is amended to read as 
        follows:
            ``(3) United states shareholder.--The term `United States 
        shareholder' has the meaning given to such term by section 
        951(b), except that, in the case of a foreign corporation 
        having related person insurance income (as defined in section 
        953(c)(2)), the Secretary may treat any person as a United 
        States shareholder for purposes of this section if such person 
        is treated as a United States shareholder under section 
        953(c)(1).''.
            (D) Subsection (c) of section 898 is amended to read as 
        follows:
    ``(c) Determination of Required Year.--
            ``(1) In general.--The required year is--
                    ``(A) the majority U.S. shareholder year, or
                    ``(B) if there is no majority U.S. shareholder 
                year, the taxable year prescribed under regulations.
            ``(2) 1-month deferral allowed.--A specified foreign 
        corporation may elect, in lieu of the taxable year under 
        paragraph (1)(A), a taxable year beginning 1 month earlier than 
        the majority U.S. shareholder year.
            ``(3) Majority u.s. shareholder year.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `majority U.S. shareholder year' means the 
                taxable year (if any) which, on each testing day, 
                constituted the taxable year of--
                            ``(i) each United States shareholder 
                        described in subsection (b)(2)(A), and
                            ``(ii) each United States shareholder not 
                        described in clause (i) whose stock was treated 
                        as owned under subsection (b)(2)(B) by any 
                        shareholder described in such clause.
                    ``(B) Testing day.--The testing days shall be--
                            ``(i) the first day of the corporation's 
                        taxable year (determined without regard to this 
                        section), or
                            ``(ii) the days during such representative 
                        period as the Secretary may prescribe.''.
            (16) Clause (ii) of section 904(d)(2)(A) is amended to read 
        as follows:
                            ``(ii) Certain amounts included.--Except as 
                        provided in clause (iii), the term `passive 
                        income' includes, except as provided in 
                        subparagraph (E)(iii) or paragraph (3)(I), any 
                        amount includible in gross income under section 
                        1293 (relating to certain passive foreign 
                        investment companies).''.
            (17)(A) Subparagraph (A) of section 904(g)(1), as 
        redesignated by section 204, is amended by adding ``or'' at the 
        end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).
            (B) The paragraph heading of paragraph (2) of section 
        904(g), as so redesignated, is amended by striking ``foreign 
        personal holding or''.
            (18) Section 951 is amended by striking subsections (c) and 
        (d) and by redesignating subsections (e) and (f) as subsections 
        (c) and (d), respectively.
            (19) Paragraph (3) of section 989(b) is amended by striking 
        ``, 551(a),''.
            (20) Paragraph (5) of section 1014(b) is amended by 
        inserting ``and before January 1, 2005,'' after ``August 26, 
        1937,''.
            (21) Subsection (a) of section 1016 is amended by striking 
        paragraph (13).
            (22)(A) Paragraph (3) of section 1212(a) is amended to read 
        as follows:
            ``(3) Special rules on carrybacks.--A net capital loss of a 
        corporation shall not be carried back under paragraph (1)(A) to 
        a taxable year--
                    ``(A) for which it is a regulated investment 
                company (as defined in section 851), or
                    ``(B) for which it is a real estate investment 
                trust (as defined in section 856).''.
            (B) The amendment made by subparagraph (A) shall apply to 
        taxable years beginning after December 31, 2004.
            (23) Section 1223 is amended by striking paragraph (10) and 
        by redesignating the following paragraphs accordingly.
            (24) Subsection (d) of section 1248 is amended by striking 
        paragraph (5) and by redesignating paragraphs (6) and (7) as 
        paragraphs (5) and (6), respectively.
            (25) Paragraph (2) of section 1260(c) is amended by 
        striking subparagraphs (H) and (I) and by redesignating 
        subparagraph (J) as subparagraph (H).
            (26)(A) Subparagraph (F) of section 1291(b)(3) is amended 
        by striking ``551(d), 959(a),'' and inserting ``959(a)''.
            (B) Subsection (e) of section 1291 is amended by inserting 
        ``(as in effect on the day before the date of the enactment of 
        the Jumpstart Our Business Strength (JOBS) Act)'' after 
        ``section 1246''.
            (27) Paragraph (2) of section 1294(a) is amended to read as 
        follows:
            ``(2) Election not permitted where amounts otherwise 
        includible under section 951.--The taxpayer may not make an 
        election under paragraph (1) with respect to the undistributed 
        PFIC earnings tax liability attributable to a qualified 
        electing fund for the taxable year if any amount is includible 
        in the gross income of the taxpayer under section 951 with 
        respect to such fund for such taxable year.''.
            (28) Section 6035 is hereby repealed.
            (29) Subparagraph (D) of section 6103(e)(1) is amended by 
        striking clause (iv) and redesignating clauses (v) and (vi) as 
        clauses (iv) and (v), respectively.
            (30) Subparagraph (B) of section 6501(e)(1) is amended to 
        read as follows:
                    ``(B) Constructive dividends.--If the taxpayer 
                omits from gross income an amount properly includible 
                therein under section 951(a), the tax may be assessed, 
                or a proceeding in court for the collection of such tax 
                may be done without assessing, at any time within 6 
                years after the return was filed.''.
            (31) Subsection (a) of section 6679 is amended--
                    (A) by striking ``6035, 6046, and 6046A'' in 
                paragraph (1) and inserting ``6046 and 6046A'', and
                    (B) by striking paragraph (3).
            (32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) 
        are each amended by striking ``556(b)(2),'' each place it 
        appears.
            (33) The table of parts for subchapter G of chapter 1 is 
        amended by striking the item relating to part III.
            (34) The table of sections for part IV of subchapter P of 
        chapter 1 is amended by striking the items relating to sections 
        1246 and 1247.
            (35) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 is amended by striking the item 
        relating to section 6035.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years of 
        foreign corporations beginning after December 31, 2004, and to 
        taxable years of United States shareholders with or within 
        which such taxable years of foreign corporations end.
            (2) Subsection (c)(29).--The amendments made by subsection 
        (c)(29) shall apply to disclosures of return or return 
        information with respect to taxable years beginning after 
        December 31, 2004.

SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

    (a) In General.--Clause (ii) of section 954(b)(3)(A) (relating to 
de minimis, etc., rules) is amended by striking ``$1,000,000'' and 
inserting ``$5,000,000''.
    (b) Technical Amendments.--
            (1) Clause (ii) of section 864(d)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.
            (2) Clause (i) of section 881(c)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY 
              IN DETERMINING SECTION 902 AND 960 CREDITS.

    (a) In General.--Subsection (c) of section 902 is amended by 
redesignating paragraph (7) as paragraph (8) and by inserting after 
paragraph (6) the following new paragraph:
            ``(7) Constructive ownership through partnerships.--Stock 
        owned, directly or indirectly, by or for a partnership shall be 
        considered as being owned proportionately by its partners. 
        Stock considered to be owned by a person by reason of the 
        preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person. The 
        Secretary may prescribe such regulations as may be necessary to 
        carry out the purposes of this paragraph, including rules to 
        account for special partnership allocations of dividends, 
        credits, and other incidents of ownership of stock in 
        determining proportionate ownership.''.
    (b) Clarification of Comparable Attribution Under Section 
901(b)(5).--Paragraph (5) of section 901(b) is amended by striking 
``any individual'' and inserting ``any person''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxes of foreign corporations for taxable years of such 
corporations beginning after the date of the enactment of this Act.

SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
              PERSONS.

    (a) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(7) Foreign persons.--Except for purposes of applying 
        sections 871(b)(1) and 882(a)(1), this section shall not apply 
        to any taxpayer who is not a United States person if such 
        taxpayer capitalizes costs of produced property or property 
        acquired for resale by applying the method used to ascertain 
        the income, profit, or loss for purposes of reports or 
        statements to shareholders, partners, other proprietors, or 
        beneficiaries, or for credit purposes.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 2004.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by the amendment made by this section to 
        change its method of accounting for its first taxable year 
        beginning after December 31, 2004--
                    (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) 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 shall be taken 
                into account in such first year.

SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN 
              CORPORATIONS.

    (a) In General.--Paragraph (2) of section 871(i) (relating to tax 
not to apply to certain interest and dividends) is amended by adding at 
the end the following new subparagraph:
                    ``(D) Dividends paid by a foreign corporation which 
                are treated under section 861(a)(2)(B) as income from 
                sources within the United States.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2004.

SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE 
              UNITED STATES FOR 183 DAYS OR MORE.

    (a) In General.--Subsection (a) of section 871 is amended by 
striking paragraph (2) and by redesignating paragraph (3) as paragraph 
(2).
    (b) Conforming Amendment.--Section 1441(g) is amended is amended by 
striking ``section 871(a)(3)'' and inserting ``section 871(a)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

          Subtitle C--Additional International Tax Provisions

SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.

    (a) In General.--Section 954(c)(2) is amended by adding at the end 
the following new subparagraph:
                    ``(D) Certain rents, etc.--
                            ``(i) In general.--Foreign personal holding 
                        company income shall not include qualified 
                        leasing income derived from or in connection 
                        with the leasing or rental of any aircraft or 
                        vessel.
                            ``(ii) Qualified leasing income.--For 
                        purposes of this subparagraph, the term 
                        `qualified leasing income' means rents and 
                        gains derived in the active conduct of a trade 
                        or business of leasing with respect to which 
                        the controlled foreign corporation conducts 
                        substantial activity, but only if--
                                    ``(I) the leased property is used 
                                by the lessee or other end-user in 
                                foreign commerce and predominantly 
                                outside the United States, and
                                    ``(II) the lessee or other end-user 
                                is not a related person (as defined in 
                                subsection (d)(3)).
                        Any amount not treated as foreign personal 
                        holding income under this subparagraph shall 
                        not be treated as foreign base company shipping 
                        income.''.
    (b) Conforming Amendment.--Section 954(c)(1)(B) is amended by 
inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2005, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED CONTROLLED 
              FOREIGN CORPORATIONS UNDER FOREIGN PERSONAL HOLDING 
              COMPANY INCOME RULES.

    (a) In General.--Subsection (c) of section 954, as amended by this 
Act, is amended by adding after paragraph (4) the following new 
paragraph:
            ``(5) Look-thru in the case of related controlled foreign 
        corporations.--For purposes of this subsection, dividends, 
        interest, rents, and royalties received or accrued from a 
        controlled foreign corporation which is a related person (as 
        defined in subsection (b)(9)) shall not be treated as foreign 
        personal holding company income to the extent attributable or 
        properly allocable (determined under rules similar to the rules 
        of subparagraphs (C) and (D) of section 904(d)(3)) to income of 
        the related person which is not subpart F income (as defined in 
        section 952). For purposes of this paragraph, interest shall 
        include factoring income which is treated as income equivalent 
        to interest for purposes of paragraph (1)(E). The Secretary 
        shall prescribe such regulations as may be appropriate to 
        prevent the abuse of the purposes of this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning after December 31, 
2004, and to taxable years of United States shareholders with or within 
which such taxable years of foreign corporations end.

SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 954(c) (defining foreign personal holding 
company income), as amended by this Act, is amended by adding after 
paragraph (5) the following new paragraph:
            ``(6) Look-thru rule for certain partnership sales.--
                    ``(A) In general.--In the case of any sale by a 
                controlled foreign corporation of an interest in a 
                partnership with respect to which such corporation is a 
                25-percent owner, such corporation shall be treated for 
                purposes of this subsection as selling the 
                proportionate share of the assets of the partnership 
                attributable to such interest. The Secretary shall 
                prescribe such regulations as may be appropriate to 
                prevent abuse of the purposes of this paragraph, 
                including regulations providing for coordination of 
                this paragraph with the provisions of subchapter K.
                    ``(B) 25-percent owner.--For purposes of this 
                paragraph, the term `25-percent owner' means a 
                controlled foreign corporation which owns directly 25 
                percent or more of the capital or profits interest in a 
                partnership. For purposes of the preceding sentence, if 
                a controlled foreign corporation is a shareholder or 
                partner of a corporation or partnership, the controlled 
                foreign corporation shall be treated as owning directly 
                its proportionate share of any such capital or profits 
                interest held directly or indirectly by such 
                corporation or partnership''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning after December 31, 
2004, and to taxable years of United States shareholders with or within 
which such taxable years of foreign corporations end.

SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR FOREIGN TAX 
              PAID OTHER THAN IN FUNCTIONAL CURRENCY.

    (a) In General.--Paragraph (1) of section 986(a) (relating to 
determination of foreign taxes and foreign corporation's earnings and 
profits) is amended by redesignating subparagraph (D) as subparagraph 
(E) and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) Elective exception for taxes paid other than 
                in functional currency.--
                            ``(i) In general.--At the election of the 
                        taxpayer, subparagraph (A) shall not apply to 
                        any foreign income taxes the liability for 
                        which is denominated in any currency other than 
                        in the taxpayer's functional currency.
                            ``(ii) Application to qualified business 
                        units.--An election under this subparagraph may 
                        apply to foreign income taxes attributable to a 
                        qualified business unit in accordance with 
                        regulations prescribed by the Secretary.
                            ``(iii) Election.--Any such election shall 
                        apply to the taxable year for which made and 
                        all subsequent taxable years unless revoked 
                        with the consent of the Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.

    (a) In General.--Paragraph (2) of section 904(d) is amended by 
redesignating subparagraphs (H) and (I) as subparagraphs (I) and (J), 
respectively, and by inserting after subparagraph (G) the following new 
subparagraph:
                    ``(H) Treatment of income tax base differences.--
                            ``(i) In general.--A taxpayer may elect to 
                        treat tax imposed under the law of a foreign 
                        country or possession of the United States on 
                        an amount which does not constitute income 
                        under United States tax principles as tax 
                        imposed on income described in subparagraph (C) 
                        or (I) of paragraph (1).
                            ``(ii) Election irrevocable.--Any such 
                        election shall apply to the taxable year for 
                        which made and all subsequent taxable years 
                        unless revoked with the consent of the 
                        Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE 
              FINANCING.

    (a) In General.--Section 954(h)(3) is amended by adding at the end 
the following:
                    ``(E) Direct conduct of activities.--For purposes 
                of subparagraph (A)(ii)(II), an activity shall be 
                treated as conducted directly by an eligible controlled 
                foreign corporation or qualified business unit in its 
                home country if the activity is performed by employees 
                of a related person and--
                            ``(i) the related person is an eligible 
                        controlled foreign corporation the home country 
                        of which is the same as the home country of the 
                        corporation or unit to which subparagraph 
                        (A)(ii)(II) is being applied,
                            ``(ii) the activity is performed in the 
                        home country of the related person, and
                            ``(iii) the related person is compensated 
                        on an arm's-length basis for the performance of 
                        the activity by its employees and such 
                        compensation is treated as earned by such 
                        person in its home country for purposes of the 
                        home country's tax laws.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of such foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of such foreign corporations end.

SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS OF 
              CONTROLLED FOREIGN CORPORATION.

    (a) In General.--Section 956(c)(2) (relating to exceptions from 
property treated as United States property) is amended by striking 
``and'' at the end of subparagraph (J), by striking the period at the 
end of subparagraph (K) and inserting a semicolon, and by adding at the 
end the following new subparagraphs:
                    ``(L) securities acquired and held by a controlled 
                foreign corporation in the ordinary course of its 
                business as a dealer in securities if--
                            ``(i) the dealer accounts for the 
                        securities as securities held primarily for 
                        sale to customers in the ordinary course of 
                        business, and
                            ``(ii) the dealer disposes of the 
                        securities (or such securities mature while 
                        held by the dealer) within a period consistent 
                        with the holding of securities for sale to 
                        customers in the ordinary course of business; 
                        and
                    ``(M) an obligation of a United States person 
                which--
                            ``(i) is not a domestic corporation, and
                            ``(ii) is not--
                                    ``(I) a United States shareholder 
                                (as defined in section 951(b)) of the 
                                controlled foreign corporation, or
                                    ``(II) a partnership, estate, or 
                                trust in which the controlled foreign 
                                corporation, or any related person (as 
                                defined in section 954(d)(3)), is a 
                                partner, beneficiary, or trustee 
                                immediately after the acquisition of 
                                any obligation of such partnership, 
                                estate, or trust by the controlled 
                                foreign corporation.''.
    (b) Conforming Amendment.--Section 956(c)(2) is amended by striking 
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY FOREIGN 
              PARTNERSHIPS AND FOREIGN CORPORATIONS.

    (a) In General.--Paragraph (1) of section 861(a) 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 adding 
at the end the following new subparagraph:
                    ``(C) in the case of a foreign partnership, which 
                is predominantly engaged in the active conduct of a 
                trade or business outside the United States, any 
                interest not paid by a trade or business engaged in by 
                the partnership in the United States and not allocable 
                to income which is effectively connected (or treated as 
                effectively connected) with the conduct of a trade or 
                business in the United States.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF INTANGIBLE 
              PROPERTY.

    (a) In General.--Subparagraph (C) of section 367(d)(2) is amended 
by adding at the end the following new sentence: ``For purposes of 
applying section 904(d), any such amount shall be treated in the same 
manner as if such amount were a royalty.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts treated as received pursuant to section 367(d)(2) of the 
Internal Revenue Code of 1986 on or after August 5, 1997.

SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS 
              ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED 
              STATES REAL PROPERTY INTERESTS.

    (a) In General.--Paragraph (1) of section 897(h) (relating to look-
through of distributions) is amended by adding at the end the following 
new sentence: ``Notwithstanding the preceding sentence, any 
distribution by a REIT with respect to any class of stock which is 
regularly traded on an established securities market located in the 
United States shall not be treated as gain recognized from the sale or 
exchange of a United States real property interest if the shareholder 
did not own more than 5 percent of such class of stock at any time 
during the taxable year.''.
    (b) Conforming Amendment.--Paragraph (3) of section 857(b) 
(relating to capital gains) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Certain distributions.--In the case of a 
                shareholder of a real estate investment trust to whom 
                section 897 does not apply by reason of the second 
                sentence of section 897(h)(1), the amount which would 
                be included in computing long-term capital gains for 
                such shareholder under subparagraph (B) or (D) (without 
                regard to this subparagraph)--
                            ``(i) shall not be included in computing 
                        such shareholder's long-term capital gains, and
                            ``(ii) shall be included in such 
                        shareholder's gross income as a dividend from 
                        the real estate investment trust.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION AMOUNT.

    (a) In General.--Subpart F of part III of subchapter N of chapter 1 
is amended by adding at the end the following new section:

``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN DISTRIBUTION 
              AMOUNT.

    ``(a) Toll Tax Imposed on Excess Qualified Foreign Distribution 
Amount.--If a corporation elects the application of this section, a tax 
shall be imposed on the taxpayer in an amount equal to 5.25 percent 
of--
            ``(1) the taxpayer's excess qualified foreign distribution 
        amount, and
            ``(2) the amount determined under section 78 which is 
        attributable to such excess qualified foreign distribution 
        amount.
Such tax shall be imposed in lieu of the tax imposed under section 11 
or 55 on the amounts described in paragraphs (1) and (2) for the 
taxable year.
    ``(b) Excess Qualified Foreign Distribution Amount.--For purposes 
of this section--
            ``(1) In general.--The term `excess qualified foreign 
        distribution amount' means the excess (if any) of--
                    ``(A) the aggregate dividends received by the 
                taxpayer during the taxable year which are--
                            ``(i) from 1 or more corporations which are 
                        controlled foreign corporations in which the 
                        taxpayer is a United States shareholder on the 
                        date such dividends are paid, and
                            ``(ii) described in a domestic reinvestment 
                        plan which--
                                    ``(I) is approved by the taxpayer's 
                                president, chief executive officer, or 
                                comparable official before the payment 
                                of such dividends and subsequently 
                                approved by the taxpayer's board of 
                                directors, management committee, 
                                executive committee, or similar body, 
                                and
                                    ``(II) provides for the 
                                reinvestment of such dividends in the 
                                United States (other than as payment 
                                for executive compensation), including 
                                as a source for the funding of worker 
                                hiring and training, infrastructure, 
                                research and development, capital 
                                investments, or the financial 
                                stabilization of the corporation for 
                                the purposes of job retention or 
                                creation, over
                    ``(B) the base dividend amount.
            ``(2) Base dividend amount.--The term `base dividend 
        amount' means an amount designated under subsection (c)(7), but 
        not less than the average amount of dividends received during 
        the fixed base period from 1 or more corporations which are 
        controlled foreign corporations in which the taxpayer is a 
        United States shareholder on the date such dividends are paid.
            ``(3) Fixed base period.--
                    ``(A) In general.--The term `fixed base period' 
                means each of 3 taxable years which are among the 5 
                most recent taxable years of the taxpayer ending on or 
                before December 31, 2002, determined by disregarding--
                            ``(i) the 1 taxable year for which the 
                        taxpayer had the highest amount of dividends 
                        from 1 or more corporations which are 
                        controlled foreign corporations relative to the 
                        other 4 taxable years, and
                            ``(ii) the 1 taxable year for which the 
                        taxpayer had the lowest amount of dividends 
                        from such corporations relative to the other 4 
                        taxable years.
                    ``(B) Shorter period.--If the taxpayer has fewer 
                than 5 taxable years ending on or before December 31, 
                2002, then in lieu of applying subparagraph (A), the 
                fixed base period shall include all the taxable years 
                of the taxpayer ending on or before December 31, 2002.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Dividends.--The term `dividend' has the meaning given 
        such term by section 316, except that the term shall include 
        amounts described in section 951(a)(1)(B), but shall not 
        include amounts described in sections 78 and 959.
            ``(2) Controlled foreign corporations and united states 
        shareholders.--The term `controlled foreign corporation' has 
        the meaning given such term by section 957(a) and the term 
        `United States shareholder' has the meaning given such term by 
        section 951(b).
            ``(3) Foreign tax credits.--The amount of any income, war, 
        profits, or excess profit taxes paid (or deemed paid under 
        sections 902 and 960) or accrued by the taxpayer with respect 
        to the excess qualified foreign distribution amount for which a 
        credit would be allowable under section 901 in the absence of 
        this section, shall be reduced by 85 percent. No deduction 
        shall be allowed under this chapter for the portion of any tax 
        for which credit is not allowable by reason of the preceding 
        sentence.
            ``(4) Foreign tax credit limitation.--For purposes of 
        section 904, there shall be disregarded 85 percent of--
                    ``(A) the excess qualified foreign distribution 
                amount,
                    ``(B) the amount determined under section 78 which 
                is attributable to such excess qualified foreign 
                distribution amount, and
                    ``(C) the amounts (including assets, gross income, 
                and other relevant bases of apportionment) which are 
                attributable to the excess qualified foreign 
                distribution amount which would, determined without 
                regard to this section, be used to apportion the 
                expenses, losses, and deductions of the taxpayer under 
                section 861 and 864 in determining its taxable income 
                from sources without the United States.
        For purposes of applying subparagraph (C), the principles of 
        section 864(e)(3)(A) shall apply.
            ``(5) Treatment of acquisitions and dispositions.--Rules 
        similar to the rules of section 41(f)(3) shall apply in the 
        case of acquisitions or dispositions of controlled foreign 
        corporations occurring on or after the first day of the 
        earliest taxable year taken into account in determining the 
        fixed base period.
            ``(6) Treatment of consolidated groups.--Members of an 
        affiliated group of corporations filing a consolidated return 
        under section 1501 shall be treated as a single taxpayer for 
        purposes of this section.
            ``(7) Designation of dividends.--Subject to subsection 
        (b)(2), the taxpayer shall designate the particular dividends 
        received during the taxable year from 1 or more corporations 
        which are controlled foreign corporations in which it is a 
        United States shareholder which are dividends excluded from the 
        excess qualified foreign distribution amount. The total amount 
        of such designated dividends shall equal the base dividend 
        amount.
            ``(8) Treatment of expenses, losses, and deductions.--Any 
        expenses, losses, or deductions of the taxpayer allowable under 
        subchapter B--
                    ``(A) shall not be applied to reduce the amounts 
                described in subsection (a)(1), and
                    ``(B) shall be applied to reduce other income of 
                the taxpayer (determined without regard to the amounts 
                described in subsection (a)(1)).
    ``(d) Election.--
            ``(1) In general.--An election under this section shall be 
        made on the taxpayer's timely filed income tax return for the 
        first taxable year (determined by taking extensions into 
        account) ending 120 days or more after the date of the 
        enactment of this section, and, once made, may be revoked only 
        with the consent of the Secretary.
            ``(2) All controlled foreign corporations.--The election 
        shall apply to all corporations which are controlled foreign 
        corporations in which the taxpayer is a United States 
        shareholder during the taxable year.
            ``(3) Consolidated groups.--If a taxpayer is a member of an 
        affiliated group of corporations filing a consolidated return 
        under section 1501 for the taxable year, an election under this 
        section shall be made by the common parent of the affiliated 
        group which includes the taxpayer and shall apply to all 
        members of the affiliated group.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary and appropriate to carry out the purposes of this 
section, including regulations under section 55 and regulations 
addressing corporations which, during the fixed base period or 
thereafter, join or leave an affiliated group of corporations filing a 
consolidated return.''.
    (b) Conforming Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by adding at the end 
the following new item:

                              ``Sec. 965. Toll tax imposed on excess 
                                        qualified foreign distribution 
                                        amount.''.
    (c) Effective Date.--The amendments made by this section shall 
apply only to the first taxable year of the electing taxpayer ending 
120 days or more after the date of the enactment of this Act.

SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE 
              RACES AND DOG RACES FROM GROSS INCOME OF NONRESIDENT 
              ALIEN INDIVIDUALS.

    (a) In General.--Subsection (b) of section 872 (relating to 
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as 
paragraphs (6), (7), and (8), respectively, and inserting after 
paragraph (4) the following new paragraph:
            ``(5) Income derived from wagering transactions in certain 
        parimutuel pools.--Gross income derived by a nonresident alien 
        individual from a legal wagering transaction initiated outside 
        the United States in a parimutuel pool with respect to a live 
        horse race or dog race in the United States.''.
    (b) Conforming Amendment.--Section 883(a)(4) is amended by striking 
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to wagers made after the date of the enactment of this Act.

SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.

    (a) In General.--Subsection (b) of section 881 is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Commonwealth of puerto rico.--If dividends are 
        received during a taxable year by a corporation--
                    ``(A) created or organized in, or under the law of, 
                the Commonwealth of Puerto Rico, and
                    ``(B) with respect to which the requirements of 
                subparagraphs (A), (B), and (C) of paragraph (1) are 
                met for the taxable year,
        subsection (a) shall be applied for such taxable year by 
        substituting `10 percent' for `30 percent'.''.
    (b) Withholding.--Subsection (c) of section 1442 (relating to 
withholding of tax on foreign corporations) is amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
            ``(1) Guam, american samoa, the northern mariana islands, 
        and the virgin islands.--For purposes'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Commonwealth of puerto rico.--If dividends are 
        received during a taxable year by a corporation--
                    ``(A) created or organized in, or under the law of, 
                the Commonwealth of Puerto Rico, and
                    ``(B) with respect to which the requirements of 
                subparagraphs (A), (B), and (C) of section 881(b)(1) 
                are met for the taxable year,
        subsection (a) shall be applied for such taxable year by 
        substituting `10 percent' for `30 percent'.''.
    (b) Conforming Amendments.--
            (1) Subsection (b) of section 881 is amended by striking 
        ``Guam and Virgin Islands Corporations'' in the heading and 
        inserting ``Possessions''.
            (2) Paragraph (1) of section 881(b) is amended by striking 
        ``In general'' in the heading and inserting ``Guam, american 
        samoa, the northern mariana islands, and the virgin islands''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dividends paid after the date of the enactment of this Act.

SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE APPELLATE 
              BODY.

    Not later than March 31, 2004, the Secretary of Commerce, in 
consultation with the United States Trade Representative, shall 
transmit a report to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives, regarding 
whether dispute settlement panels and the Appellate Body of the World 
Trade Organization have--
            (1) added to or diminished the rights of the United States 
        by imposing obligations or restrictions on the use of 
        antidumping, countervailing, and safeguard measures not agreed 
        to under the Agreement on Implementation of Article VI of the 
        General Agreement on Tariffs and Trade of 1994, the Agreement 
        on Subsidies and Countervailing Measures, and the Agreement on 
        Safeguards;
            (2) appropriately applied the standard of review contained 
        in Article 17.6 of the Agreement on Implementation of Article 
        VI of the General Agreement on Tariffs and Trade of 1994; or
            (3) exceeded their authority or terms of reference under 
        the Agreements referred to in paragraph (1).

SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON TAXPAYERS OTHER 
              THAN LARGE CORPORATIONS.

    (a) Study.--The Secretary of the Treasury or the Secretary's 
delegate shall conduct a study of the impact of Federal international 
tax rules on taxpayers other than large corporations, including the 
burdens placed on such taxpayers in complying with such rules.
    (b) Report.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary shall report to the Committee on 
Finance of the Senate and the Committee on Ways and Means of the House 
of Representatives the results of the study conducted under subsection 
(a), including any recommendations for legislative or administrative 
changes to reduce the compliance burden on taxpayers other than large 
corporations and for such other purposes as the Secretary determines 
appropriate.

SEC. 236. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING 
              EXCLUSION OF INCOME FROM INTERNATIONAL OPERATION OF SHIPS 
              OR AIRCRAFT.

    Notwithstanding the provisions of Treasury regulation Sec. 1.883-5, 
the final regulations issued by the Secretary of the Treasury relating 
to income derived by foreign corporations from the international 
operation of ships or aircraft (Treasury regulations Sec. 1.883-1 
through Sec. 1.883-5) shall apply to taxable years of a foreign 
corporation seeking qualified foreign corporation status beginning 
after December 31, 2004.

SEC. 237. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED GUARANTEE HAS 
              NO ECONOMIC EFFECT.

    (a) In General.--Section 163(j)(6)(D)(ii) (relating to exceptions 
to disqualified guarantee) is amended--
            (1) by striking ``or'' at the end of subclause (I),
            (2) by striking the period at the end of subclause (II) and 
        inserting ``, or'',
            (3) by inserting after subclause (II) the following new 
        subclause:
                                    ``(III) in the case of a guarantee 
                                by a foreign person, to the extent of 
                                the amount that the taxpayer 
                                establishes to the satisfaction of the 
                                Secretary that the taxpayer could have 
                                borrowed from an unrelated person 
                                without the guarantee.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to guarantees issued on or after the date of the enactment of 
this Act.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.

    (a) In General.--Subparagraph (F) of section 144(a)(4) (relating to 
$10,000,000 limit in certain cases) is amended to read as follows:
                    ``(F) Additional capital expenditures not taken 
                into account.--With respect to any issue, in addition 
                to any capital expenditure described in subparagraph 
                (C), capital expenditures of not to exceed $10,000,000 
                shall not be taken into account for purposes of 
                applying subparagraph (A)(ii).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bonds issued after the date of the enactment of this Act.

SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 190 the following new section:

``SEC. 191. BROADBAND EXPENDITURES.

    ``(a) Treatment of Expenditures.--
            ``(1) In general.--A taxpayer may elect to treat any 
        qualified broadband expenditure which is paid or incurred by 
        the taxpayer as an expense which is not chargeable to capital 
        account. Any expenditure which is so treated shall be allowed 
        as a deduction.
            ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        prescribe by regulation.
    ``(b) Qualified Broadband Expenditures.--For purposes of this 
section--
            ``(1) In general.--The term `qualified broadband 
        expenditure' means, with respect to any taxable year, any 
        direct or indirect costs incurred and properly taken into 
        account with respect to--
                    ``(A) the purchase or installation of qualified 
                equipment (including any upgrades thereto), and
                    ``(B) the connection of such qualified equipment to 
                any qualified subscriber.
            ``(2) Certain satellite expenditures excluded.--Such term 
        shall not include any costs incurred with respect to the 
        launching of any satellite equipment.
            ``(3) Leased equipment.--Such term shall include so much of 
        the purchase price paid by the lessor of qualified equipment 
        subject to a lease described in subsection (c)(2)(B) as is 
        attributable to expenditures incurred by the lessee which would 
        otherwise be described in paragraph (1).
    ``(c) When Expenditures Taken Into Account.--For purposes of this 
section--
            ``(1) In general.--Qualified broadband expenditures with 
        respect to qualified equipment shall be taken into account with 
        respect to the first taxable year in which--
                    ``(A) current generation broadband services are 
                provided through such equipment to qualified 
                subscribers, or
                    ``(B) next generation broadband services are 
                provided through such equipment to qualified 
                subscribers.
            ``(2) Limitation.--
                    ``(A) In general.--Qualified expenditures shall be 
                taken into account under paragraph (1) only with 
                respect to qualified equipment--
                            ``(i) the original use of which commences 
                        with the taxpayer, and
                            ``(ii) which is placed in service, after 
                        the date of the enactment of this Act.
                    ``(B) Sale-leasebacks.--For purposes of 
                subparagraph (A), if property--
                            ``(i) is originally placed in service after 
                        the date of the enactment of this Act by any 
                        person, and
                            ``(ii) sold and leased back by such person 
                        within 3 months after the date such property 
                        was originally placed in service,
                such property shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback referred to in 
                clause (ii).
    ``(d) Special Allocation Rules.--
            ``(1) Current generation broadband services.--For purposes 
        of determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which current generation broadband services are 
        provided, if the qualified equipment is capable of serving both 
        qualified subscribers and other subscribers, the qualified 
        broadband expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of the 
                number of potential qualified subscribers within the 
                rural areas and the underserved areas which the 
                equipment is capable of serving with current generation 
                broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with current generation 
                broadband services.
            ``(2) Next generation broadband services.--For purposes of 
        determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which next generation broadband services are provided, 
        if the qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified expenditures 
        shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of--
                            ``(i) the number of potential qualified 
                        subscribers within the rural areas and 
                        underserved areas, plus
                            ``(ii) the number of potential qualified 
                        subscribers within the area consisting only of 
                        residential subscribers not described in clause 
                        (i),
                which the equipment is capable of serving with next 
                generation broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with next generation 
                broadband services.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Antenna.--The term `antenna' means any device used to 
        transmit or receive signals through the electromagnetic 
        spectrum, including satellite equipment.
            ``(2) Cable operator.--The term `cable operator' has the 
        meaning given such term by section 602(5) of the Communications 
        Act of 1934 (47 U.S.C. 522(5)).
            ``(3) Commercial mobile service carrier.--The term 
        `commercial mobile service carrier' means any person authorized 
        to provide commercial mobile radio service as defined in 
        section 20.3 of title 47, Code of Federal Regulations.
            ``(4) Current generation broadband service.--The term 
        `current generation broadband service' means the transmission 
        of signals at a rate of at least 1,000,000 bits per second to 
        the subscriber and at least 128,000 bits per second from the 
        subscriber.
            ``(5) Multiplexing or demultiplexing.--The term 
        `multiplexing' means the transmission of 2 or more signals over 
        a single channel, and the term `demultiplexing' means the 
        separation of 2 or more signals previously combined by 
        compatible multiplexing equipment.
            ``(6) Next generation broadband service.--The term `next 
        generation broadband service' means the transmission of signals 
        at a rate of at least 22,000,000 bits per second to the 
        subscriber and at least 5,000,000 bits per second from the 
        subscriber.
            ``(7) Nonresidential subscriber.--The term `nonresidential 
        subscriber' means any person who purchases broadband services 
        which are delivered to the permanent place of business of such 
        person.
            ``(8) Open video system operator.--The term `open video 
        system operator' means any person authorized to provide service 
        under section 653 of the Communications Act of 1934 (47 U.S.C. 
        573).
            ``(9) Other wireless carrier.--The term `other wireless 
        carrier' means any person (other than a telecommunications 
        carrier, commercial mobile service carrier, cable operator, 
        open video system operator, or satellite carrier) providing 
        current generation broadband services or next generation 
        broadband service to subscribers through the radio transmission 
        of energy.
            ``(10) Packet switching.--The term `packet switching' means 
        controlling or routing the path of any digitized transmission 
        signal which is assembled into packets or cells.
            ``(11) Provider.--The term `provider' means, with respect 
        to any qualified equipment--
                    ``(A) a cable operator,
                    ``(B) a commercial mobile service carrier,
                    ``(C) an open video system operator,
                    ``(D) a satellite carrier,
                    ``(E) a telecommunications carrier, or
                    ``(F) any other wireless carrier,
        providing current generation broadband services or next 
        generation broadband services to subscribers through such 
        qualified equipment.
            ``(12) Provision of services.--A provider shall be treated 
        as providing services to 1 or more subscribers if--
                    ``(A) such a subscriber has been passed by the 
                provider's equipment and can be connected to such 
                equipment for a standard connection fee,
                    ``(B) the provider is physically able to deliver 
                current generation broadband services or next 
                generation broadband services, as applicable, to such a 
                subscriber without making more than an insignificant 
                investment with respect to such subscriber,
                    ``(C) the provider has made reasonable efforts to 
                make such subscribers aware of the availability of such 
                services,
                    ``(D) such services have been purchased by 1 or 
                more such subscribers, and
                    ``(E) such services are made available to such 
                subscribers at average prices comparable to those at 
                which the provider makes available similar services in 
                any areas in which the provider makes available such 
                services.
            ``(13) Qualified equipment.--
                    ``(A) In general.--The term `qualified equipment' 
                means equipment which provides current generation 
                broadband services or next generation broadband 
                services--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand to each 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
                    ``(B) Only certain investment taken into account.--
                Except as provided in subparagraph (C) or (D), 
                equipment shall be taken into account under 
                subparagraph (A) only to the extent it--
                            ``(i) extends from the last point of 
                        switching to the outside of the unit, building, 
                        dwelling, or office owned or leased by a 
                        subscriber in the case of a telecommunications 
                        carrier,
                            ``(ii) extends from the customer side of 
                        the mobile telephone switching office to a 
                        transmission/receive antenna (including such 
                        antenna) owned or leased by a subscriber in the 
                        case of a commercial mobile service carrier,
                            ``(iii) extends from the customer side of 
                        the headend to the outside of the unit, 
                        building, dwelling, or office owned or leased 
                        by a subscriber in the case of a cable operator 
                        or open video system operator, or
                            ``(iv) extends from a transmission/receive 
                        antenna (including such antenna) which 
                        transmits and receives signals to or from 
                        multiple subscribers, to a transmission/receive 
                        antenna (including such antenna) on the outside 
                        of the unit, building, dwelling, or office 
                        owned or leased by a subscriber in the case of 
                        a satellite carrier or other wireless carrier, 
                        unless such other wireless carrier is also a 
                        telecommunications carrier.
                    ``(C) Packet switching equipment.--Packet switching 
                equipment, regardless of location, shall be taken into 
                account under subparagraph (A) only if it is deployed 
                in connection with equipment described in subparagraph 
                (B) and is uniquely designed to perform the function of 
                packet switching for current generation broadband 
                services or next generation broadband services, but 
                only if such packet switching is the last in a series 
                of such functions performed in the transmission of a 
                signal to a subscriber or the first in a series of such 
                functions performed in the transmission of a signal 
                from a subscriber.
                    ``(D) Multiplexing and demultiplexing equipment.--
                Multiplexing and demultiplexing equipment shall be 
                taken into account under subparagraph (A) only to the 
                extent it is deployed in connection with equipment 
                described in subparagraph (B) and is uniquely designed 
                to perform the function of multiplexing and 
                demultiplexing packets or cells of data and making 
                associated application adaptions, but only if such 
                multiplexing or demultiplexing equipment is located 
                between packet switching equipment described in 
                subparagraph (C) and the subscriber's premises.
            ``(14) Qualified subscriber.--The term `qualified 
        subscriber' means--
                    ``(A) with respect to the provision of current 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber residing 
                        in a dwelling located in a rural area or 
                        underserved area which is not a saturated 
                        market, and
                    ``(B) with respect to the provision of next 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber.
            ``(15) Residential subscriber.--The term `residential 
        subscriber' means any individual who purchases broadband 
        services which are delivered to such individual's dwelling.
            ``(16) Rural area.--The term `rural area' means any census 
        tract which--
                    ``(A) is not within 10 miles of any incorporated or 
                census designated place containing more than 25,000 
                people, and
                    ``(B) is not within a county or county equivalent 
                which has an overall population density of more than 
                500 people per square mile of land.
            ``(17) Rural subscriber.--The term `rural subscriber' means 
        any residential subscriber residing in a dwelling located in a 
        rural area or nonresidential subscriber maintaining a permanent 
        place of business located in a rural area.
            ``(18) Satellite carrier.--The term `satellite carrier' 
        means any person using the facilities of a satellite or 
        satellite service licensed by the Federal Communications 
        Commission and operating in the Fixed-Satellite Service under 
        part 25 of title 47 of the Code of Federal Regulations or the 
        Direct Broadcast Satellite Service under part 100 of title 47 
        of such Code to establish and operate a channel of 
        communications for distribution of signals, and owning or 
        leasing a capacity or service on a satellite in order to 
        provide such point-to-multipoint distribution.
            ``(19) Saturated market.--The term `saturated market' means 
        any census tract in which, as of the date of the enactment of 
        this section--
                    ``(A) current generation broadband services have 
                been provided by a single provider to 85 percent or 
                more of the total number of potential residential 
                subscribers residing in dwellings located within such 
                census tract, and
                    ``(B) such services can be utilized--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand by each such 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
            ``(20) Subscriber.--The term `subscriber' means any person 
        who purchases current generation broadband services or next 
        generation broadband services.
            ``(21) Telecommunications carrier.--The term 
        `telecommunications carrier' has the meaning given such term by 
        section 3(44) of the Communications Act of 1934 (47 U.S.C. 
        153(44)), but--
                    ``(A) includes all members of an affiliated group 
                of which a telecommunications carrier is a member, and
                    ``(B) does not include a commercial mobile service 
                carrier.
            ``(22) Total potential subscriber population.--The term 
        `total potential subscriber population' means, with respect to 
        any area and based on the most recent census data, the total 
        number of potential residential subscribers residing in 
        dwellings located in such area and potential nonresidential 
        subscribers maintaining permanent places of business located in 
        such area.
            ``(23) Underserved area.--The term `underserved area' 
        means--
                    ``(A) any census tract which is located in--
                            ``(i) an empowerment zone or enterprise 
                        community designated under section 1391, or
                            ``(ii) the District of Columbia Enterprise 
                        Zone established under section 1400, or
                    ``(B) any census tract--
                            ``(i) the poverty level of which is at 
                        least 30 percent (based on the most recent 
                        census data), and
                            ``(ii) the median family income of which 
                        does not exceed--
                                    ``(I) in the case of a census tract 
                                located in a metropolitan statistical 
                                area, 70 percent of the greater of the 
                                metropolitan area median family income 
                                or the statewide median family income, 
                                and
                                    ``(II) in the case of a census 
                                tract located in a nonmetropolitan 
                                statistical area, 70 percent of the 
                                nonmetropolitan statewide median family 
                                income.
            ``(24) Underserved subscriber.--The term `underserved 
        subscriber' means any residential subscriber residing in a 
        dwelling located in an underserved area or nonresidential 
        subscriber maintaining a permanent place of business located in 
        an underserved area.
    ``(f) Special Rules.--
            ``(1) Property used outside the united states, etc., not 
        qualified.--No expenditures shall be taken into account under 
        subsection (a)(1) with respect to the portion of the cost of 
        any property referred to in section 50(b) or with respect to 
        the portion of the cost of any property specified in an 
        election under section 179.
            ``(2) Basis reduction.--
                    ``(A) In general.--For purposes of this title, the 
                basis of any property shall be reduced by the portion 
                of the cost of such property taken into account under 
                subsection (a)(1).
                    ``(B) Ordinary income recapture.--For purposes of 
                section 1245, the amount of the deduction allowable 
                under subsection (a)(1) with respect to any property 
                which is of a character subject to the allowance for 
                depreciation shall be treated as a deduction allowed 
                for depreciation under section 167.
            ``(3) Coordination with section 38.--No credit shall be 
        allowed under section 38 with respect to any amount for which a 
        deduction is allowed under subsection (a)(1).''.
    (b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 512(b) (relating to modifications) is amended by adding at the 
end the following new paragraph:
            ``(18) Special rule for mutual or cooperative telephone 
        companies.--A mutual or cooperative telephone company which for 
        the taxable year satisfies the requirements of section 
        501(c)(12)(A) may elect to reduce its unrelated business 
        taxable income for such year, if any, by an amount that does 
        not exceed the qualified broadband expenditures which would be 
        taken into account under section 191 for such year by such 
        company if such company was not exempt from taxation. Any 
        amount which is allowed as a deduction under this paragraph 
        shall not be allowed as a deduction under section 191 and the 
        basis of any property to which this paragraph applies shall be 
        reduced under section 1016(a)(29).''.
    (c) Conforming Amendments.--
            (1) Section 263(a)(1) (relating to capital expenditures) is 
        amended by striking ``or'' at the end of subparagraph (G), by 
        striking the period at the end of subparagraph (H) and 
        inserting ``, or'', and by adding at the end the following new 
        subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 191.''.
            (2) Section 1016(a) of such Code is amended by striking 
        ``and'' at the end of paragraph (27), by striking the period at 
        the end of paragraph (28) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(29) to the extent provided in section 191(f)(2).''.
            (3) The table of sections for part VI of subchapter A of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 190 the following new item:

``Sec. 191. Broadband expenditures.''.
    (d) Designation of Census Tracts.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than 90 days after the date of the enactment of this Act, 
        designate and publish those census tracts meeting the criteria 
        described in paragraphs (16), (22), and (23) of section 191(e) 
        of the Internal Revenue Code of 1986 (as added by this 
        section). In making such designations, the Secretary of the 
        Treasury shall consult with such other departments and agencies 
        as the Secretary determines appropriate.
            (2) Saturated market.--
                    (A) In general.--For purposes of designating and 
                publishing those census tracts meeting the criteria 
                described in subsection (e)(19) of such section 191--
                            (i) the Secretary of the Treasury shall 
                        prescribe not later than 30 days after the date 
                        of the enactment of this Act the form upon 
                        which any provider which takes the position 
                        that it meets such criteria with respect to any 
                        census tract shall submit a list of such census 
                        tracts (and any other information required by 
                        the Secretary) not later than 60 days after the 
                        date of the publication of such form, and
                            (ii) the Secretary of the Treasury shall 
                        publish an aggregate list of such census tracts 
                        and the applicable providers not later than 30 
                        days after the last date such submissions are 
                        allowed under clause (i).
                    (B) No subsequent lists required.--The Secretary of 
                the Treasury shall not be required to publish any list 
                of census tracts meeting such criteria subsequent to 
                the list described in subparagraph (A)(ii).
    (e) Other Regulatory Matters.--
            (1) Prohibition.--No Federal or State agency or 
        instrumentality shall adopt regulations or ratemaking 
        procedures that would have the effect of eliminating or 
        reducing any deduction or portion thereof allowed under section 
        191 of the Internal Revenue Code of 1986 (as added by this 
        section) or otherwise subverting the purpose of this section.
            (2) Treasury regulatory authority.--It is the intent of 
        Congress in providing the election to deduct qualified 
        broadband expenditures under section 191 of the Internal 
        Revenue Code of 1986 (as added by this section) to provide 
        incentives for the purchase, installation, and connection of 
        equipment and facilities offering expanded broadband access to 
        the Internet for users in certain low income and rural areas of 
        the United States, as well as to residential users nationwide, 
        in a manner that maintains competitive neutrality among the 
        various classes of providers of broadband services. 
        Accordingly, the Secretary of the Treasury shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of section 191 of such Code, including--
                    (A) regulations to determine how and when a 
                taxpayer that incurs qualified broadband expenditures 
                satisfies the requirements of section 191 of such Code 
                to provide broadband services, and
                    (B) regulations describing the information, 
                records, and data taxpayers are required to provide the 
                Secretary to substantiate compliance with the 
                requirements of section 191 of such Code.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenditures incurred after the date of the enactment of this 
Act and before the date which is 12 months after the date of the 
enactment of this Act.

SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION OF 
              PRODUCTION PERIOD FOR DISTILLED SPIRITS UNDER SECTION 
              263A.

    (a) In General.--Section 263A(f) of the Internal Revenue Code of 
1986 (relating to general exceptions) is amended by adding at the end 
the following new paragraph:
            ``(5) Exemption of natural aging process in determination 
        of production period for distilled spirits.--For purposes of 
        this subsection, the production period for distilled spirits 
        shall be determined without regard to any period allocated to 
        the natural aging process.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to production periods beginning after the date of the enactment of this 
Act.

SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.

    (a) In General.--Section 355(b) (defining active conduct of a trade 
or business) is amended by adding at the end the following new 
paragraph:
            ``(3) Special rules relating to active business 
        requirement.--
                    ``(A) In general.--For purposes of determining 
                whether a corporation meets the requirement of 
                paragraph (2)(A), all members of such corporation's 
                separate affiliated group shall be treated as one 
                corporation. For purposes of the preceding sentence, a 
                corporation's separate affiliated group is the 
                affiliated group which would be determined under 
                section 1504(a) if such corporation were the common 
                parent and section 1504(b) did not apply.
                    ``(B) Control.--For purposes of paragraph (2)(D), 
                all distributee corporations which are members of the 
                same affiliated group (as defined in section 1504(a) 
                without regard to section 1504(b)) shall be treated as 
                one distributee corporation.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 355(b)(2) is amended to 
        read as follows:
                    ``(A) it is engaged in the active conduct of a 
                trade or business,''.
            (2) Section 355(b)(2) is amended by striking the last 
        sentence.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply--
                    (A) to distributions after the date of the 
                enactment of this Act, and
                    (B) for purposes of determining the continued 
                qualification under section 355(b)(2)(A) of the 
                Internal Revenue Code of 1986 (as amended by subsection 
                (b)(1)) of distributions made before such date, as a 
                result of an acquisition, disposition, or other 
                restructuring after such date.
            (2) Transition rule.--The amendments made by this section 
        shall not apply to any distribution pursuant to a transaction 
        which is--
                    (A) made pursuant to an agreement which was binding 
                on such date of enactment and at all times thereafter,
                    (B) described in a ruling request submitted to the 
                Internal Revenue Service on or before such date, or
                    (C) described on or before such date in a public 
                announcement or in a filing with the Securities and 
                Exchange Commission.
            (3) Election to have amendments apply.--Paragraph (2) shall 
        not apply if the distributing corporation elects not to have 
        such paragraph apply to distributions of such corporation. Any 
        such election, once made, shall be irrevocable.

SEC. 305. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.

    (a) Bows.--Paragraph (1) of section 4161(b) (relating to bows) is 
amended to read as follows:
            ``(1) Bows.--
                    ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                bow which has a peak draw weight of 30 pounds or more, 
                a tax equal to 11 percent of the price for which so 
                sold.
                    ``(B) Archery equipment.--There is hereby imposed 
                on the sale by the manufacturer, producer, or 
                importer--
                            ``(i) of any part or accessory suitable for 
                        inclusion in or attachment to a bow described 
                        in subparagraph (A), and
                            ``(ii) of any quiver or broadhead suitable 
                        for use with an arrow described in paragraph 
                        (2),
                a tax equal to 11 percent of the price for which so 
                sold.''.
    (b) Arrows.--Subsection (b) of section 4161 (relating to bows and 
arrows, etc.) is amended by redesignating paragraph (3) as paragraph 
(4) and inserting after paragraph (2) the following:
            ``(3) Arrows.--
                    ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                arrow, a tax equal to 12 percent of the price for which 
                so sold.
                    ``(B) Exception.--In the case of any arrow of which 
                the shaft or any other component has been previously 
                taxed under paragraph (1) or (2)--
                            ``(i) section 6416(b)(3) shall not apply, 
                        and
                            ``(ii) the tax imposed by subparagraph (A) 
                        shall be an amount equal to the excess (if any) 
                        of--
                                    ``(I) the amount of tax imposed by 
                                this paragraph (determined without 
                                regard to this subparagraph), over
                                    ``(II) the amount of tax paid with 
                                respect to the tax imposed under 
                                paragraph (1) or (2) on such shaft or 
                                component.
                    ``(C) Arrow.--For purposes of this paragraph, the 
                term `arrow' means any shaft described in paragraph (2) 
                to which additional components are attached.''.
    (c) Conforming Amendments.--Section 4161(b)(2) is amended--
            (1) by inserting ``(other than broadheads)'' after 
        ``point'', and
            (2) by striking ``Arrows.--'' in the heading and inserting 
        ``Arrow components.--''.
    (d) Effective Date.--The amendments made by this section shall 
apply to articles sold by the manufacturer, producer, or importer after 
the date which is 30 days after the date of the enactment of this Act.

SEC. 306. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE 
              ADDED PROCESSING INVOLVING ANIMALS.

    (a) In General.--Section 1388 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(k) Cooperative Marketing Includes Value-Added Processing 
Involving Animals.--For purposes of section 521 and this subchapter, 
the marketing of the products of members or other producers shall 
include the feeding of such products to cattle, hogs, fish, chickens, 
or other animals and the sale of the resulting animals or animal 
products.''.
    (b) Conforming Amendment.--Section 521(b) is amended by adding at 
the end the following new paragraph:
    ``(7) Cross Reference.--

                                ``For treatment of value-added 
processing involving animals, see section 1388(k).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 307. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS' 
              COOPERATIVE ORGANIZATIONS.

    (a) In General.--Section 7428(a)(1) (relating to declaratory 
judgments of tax exempt organizations) is amended by striking ``or'' at 
the end of subparagraph (B) and by adding at the end the following new 
subparagraph:
                    ``(D) with respect to the initial classification or 
                continuing classification of a cooperative as an 
                organization described in section 521(b) which is 
                exempt from tax under section 521(a), or''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to pleadings filed after the date of the enactment 
of this Act.

SEC. 308. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY TAX.

    (a) In General.--Section 541 (relating to imposition of personal 
holding company tax) is amended by adding at the end the following new 
sentence: ``The preceding sentence shall not apply with respect to any 
taxable year to which section 1(h)(11) (as in effect on the date of the 
enactment of this sentence) applies.''.
    (b) Coordination With Accumulated Earnings Tax.--Section 532(b) is 
amended by adding at the end the following flush sentence:
``Paragraph (1) shall not apply to any taxable year to which section 
541 does not apply.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 309. INCREASE IN SECTION 179 EXPENSING.

    (a) In General.--Section 179(b)(2) (relating to reduction in 
limitation) is amended by inserting ``50 percent of'' before ``the 
amount''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 310. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.

    (a) In General.--Subparagraph (H) of section 172(b)(1) is amended--
            (1) by inserting ``5-year carryback of certain losses.--'' 
        after ``(H)'', and
            (2) by striking ``or 2002'' and inserting ``, 2002, or 
        2003''.
    (b) Rules Relating to Certain Extended Net Operating Losses.--
Section 172 is amended by redesignating subsection (k) as subsection 
(l) and by inserting after subsection (j) the following new subsection:
    ``(k) Rules Relating to Certain Extended Net Operating Losses.--In 
the case of a taxpayer which has a net operating loss for any taxable 
year ending during 2003 and does not make an election under subsection 
(j), such taxpayer shall be treated as having made an election under 
paragraphs (4)(E) and (2)(C)(iii) of section 168(k) with respect to all 
classes of property for such taxable year.
    (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general rule 
defining alternative tax net operating loss deduction) is amended--
            (1) by striking ``or 2002'' and inserting ``, 2002, or 
        2003'', and
            (2) by striking ``and 2002'' and inserting ``, 2002, and 
        2003''.
    (d) Technical Corrections.--
            (1) Subparagraph (H) of section 172(b)(1) is amended by 
        striking ``a taxpayer which has''.
            (2) Section 102(c)(2) of the Job Creation and Worker 
        Assistance Act of 2002 (Public Law 107-147) is amended by 
        striking ``before January 1, 2003'' and inserting ``after 
        December 31, 1990''.
            (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
        by striking ``attributable to carryovers''.
            (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
                    (i) by striking ``for taxable years'' and inserting 
                ``from taxable years'', and
                    (ii) by striking ``carryforwards'' and inserting 
                ``carryovers''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to net operating 
        losses for taxable years ending after December 31, 2002.
            (2) Technical corrections.--The amendments made by 
        subsection (d) shall take effect as if included in the 
        amendments made by section 102 of the Job Creation and Worker 
        Assistance Act of 2002.
            (3) Election.--In the case of a net operating loss for a 
        taxable year ending during 2003--
                    (A) any election made under section 172(b)(3) of 
                such Code may (notwithstanding such section) be revoked 
                before November 15, 2004, and
                    (B) any election made under section 172(j) of such 
                Code shall (notwithstanding such section) be treated as 
                timely made if made before November 15, 2004.
            (4) Special rule for taxpayers with taxable years ending 
        during january.--Any taxpayer which has a taxable year ending 
        during January may elect under this paragraph to apply section 
        172(b)(1)(H) of the Internal Revenue Code of 1986 (as amended 
        by this section) to its taxable year ending in 2004 rather than 
        its taxable year ending in 2003. If such election is made, then 
        section 172(k) of such Code (as added by this section) shall be 
        applied to the taxpayer's taxable year ending in 2004. Such 
        election shall be made in such manner and at such time as may 
        be prescribed by the Secretary of the Treasury. Such election, 
        once made, shall be irrevocable.

SEC. 311. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

    (a) Extension.--
            (1) In general.--Section 41(h)(1)(B) (relating to 
        termination) is amended by striking ``June 30, 2004'' and 
        inserting ``December 31, 2005''.
            (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
        by striking ``June 30, 2004'' and inserting ``December 31, 
        2005''.
    (b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of 
alternative incremental credit) is amended--
            (1) by striking ``2.65 percent'' and inserting ``3 
        percent'',
            (2) by striking ``3.2 percent'' and inserting ``4 
        percent'', and
            (3) by striking ``3.75 percent'' and inserting ``5 
        percent''.
    (c) Alternative Simplified Credit for Qualified Research 
Expenses.--
            (1) In general.--Subsection (c) of section 41 (relating to 
        base amount) is amended by redesignating paragraphs (5) and (6) 
        as paragraphs (6) and (7), respectively, and by inserting after 
        paragraph (4) the following new paragraph:
            ``(5) Election of alternative simplified credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to 12 percent of so much of the qualified 
                research expenses for the taxable year as exceeds 50 
                percent of the average qualified research expenses for 
                the 3 taxable years preceding the taxable year for 
                which the credit is being determined.
                    ``(B) Special rule in case of no qualified research 
                expenses in any of 3 preceding taxable years.--
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The credit under this paragraph shall 
                        be determined under this subparagraph if the 
                        taxpayer has no qualified research expenses in 
                        any 1 of the 3 taxable years preceding the 
                        taxable year for which the credit is being 
                        determined.
                            ``(ii) Credit rate.--The credit determined 
                        under this subparagraph shall be equal to 6 
                        percent of the qualified research expenses for 
                        the taxable year.
                    ``(C) Election.--An election under this paragraph 
                shall apply to the taxable year for which made and all 
                succeeding taxable years unless revoked with the 
                consent of the Secretary. An election under this 
                paragraph may not be made for any taxable year to which 
                an election under paragraph (4) applies.''
            (2) Coordination with election of alternative incremental 
        credit.--
                    (A) In general.--Section 41(c)(4)(B) (relating to 
                election) is amended by adding at the end the 
                following: ``An election under this paragraph may not 
                be made for any taxable year to which an election under 
                paragraph (5) applies.''
                    (B) Transition rule.--In the case of an election 
                under section 41(c)(4) of the Internal Revenue Code of 
                1986 which applies to the taxable year which includes 
                the date of the enactment of this Act, such election 
                shall be treated as revoked with the consent of the 
                Secretary of the Treasury if the taxpayer makes an 
                election under section 41(c)(5) of such Code (as added 
                by paragraph (1)) for such year.
    (f) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to amounts paid or incurred after the date of the 
        enactment of this Act.
            (2) Subsections (b) and (c).--The amendments made by 
        subsections (b) and (c) shall apply to taxable years beginning 
        after December 31, 2004.

SEC. 312. EXPANSION OF RESEARCH CREDIT.

    (a) Credit for Expenses Attributable to Certain Collaborative 
Research Consortia.--
            (1) In general.--Section 41(a) (relating to credit for 
        increasing research activities) is amended by striking ``and'' 
        at the end of paragraph (1), by striking the period at the end 
        of paragraph (2) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(3) 20 percent of the amounts paid or incurred by the 
        taxpayer in carrying on any trade or business of the taxpayer 
        during the taxable year (including as contributions) to a 
        research consortium.''.
            (2) Research consortium defined.--Section 41(f) (relating 
        to special rules) is amended by adding at the end the following 
        new paragraph:
            ``(6) Research consortium.--
                    ``(A) In general.--The term `research consortium' 
                means any organization--
                            ``(i) which is--
                                    ``(I) described in section 
                                501(c)(3) or 501(c)(6) and is exempt 
                                from tax under section 501(a) and is 
                                organized and operated primarily to 
                                conduct research, or
                                    ``(II) organized and operated 
                                primarily to conduct research in the 
                                public interest (within the meaning of 
                                section 501(c)(3)),
                            ``(ii) which is not a private foundation,
                            ``(iii) to which at least 5 unrelated 
                        persons paid or incurred during the calendar 
                        year in which the taxable year of the 
                        organization begins amounts (including as 
                        contributions) to such organization for 
                        research, and
                            ``(iv) to which no single person paid or 
                        incurred (including as contributions) during 
                        such calendar year an amount equal to more than 
                        50 percent of the total amounts received by 
                        such organization during such calendar year for 
                        research.
                    ``(B) Treatment of persons.--All persons treated as 
                a single employer under subsection (a) or (b) of 
                section 52 shall be treated as related persons for 
                purposes of subparagraph (A)(iii) and as a single 
                person for purposes of subparagraph (A)(iv).''.
            (3) Conforming amendment.--Section 41(b)(3)(C) is amended 
        by inserting ``(other than a research consortium)'' after 
        ``organization''.
    (b) Repeal of Limitation on Contract Research Expenses Paid to 
Small Businesses, Universities, and Federal Laboratories.--Section 
41(b)(3) (relating to contract research expenses) is amended by adding 
at the end the following new subparagraph:
                    ``(D) Amounts paid to eligible small businesses, 
                universities, and federal laboratories.--
                            ``(i) In general.--In the case of amounts 
                        paid by the taxpayer to--
                                    ``(I) an eligible small business,
                                    ``(II) an institution of higher 
                                education (as defined in section 
                                3304(f)), or
                                    ``(III) an organization which is a 
                                Federal laboratory,
                        for qualified research, subparagraph (A) shall 
                        be applied by substituting `100 percent' for 
                        `65 percent'.
                            ``(ii) Eligible small business.--For 
                        purposes of this subparagraph, the term 
                        `eligible small business' means a small 
                        business with respect to which the taxpayer 
                        does not own (within the meaning of section 
                        318) 50 percent or more of--
                                    ``(I) in the case of a corporation, 
                                the outstanding stock of the 
                                corporation (either by vote or value), 
                                and
                                    ``(II) in the case of a small 
                                business which is not a corporation, 
                                the capital and profits interests of 
                                the small business.
                            ``(iii) Small business.--For purposes of 
                        this subparagraph--
                                    ``(I) In general.--The term `small 
                                business' means, with respect to any 
                                calendar year, any person if the annual 
                                average number of employees employed by 
                                such person during either of the 2 
                                preceding calendar years was 500 or 
                                fewer. For purposes of the preceding 
                                sentence, a preceding calendar year may 
                                be taken into account only if the 
                                person was in existence throughout the 
                                year.
                                    ``(II) Startups, controlled groups, 
                                and predecessors.--Rules similar to the 
                                rules of subparagraphs (B) and (D) of 
                                section 220(c)(4) shall apply for 
                                purposes of this clause.
                            ``(iv) Federal laboratory.--For purposes of 
                        this subparagraph, the term `Federal 
                        laboratory' has the meaning given such term by 
                        section 4(6) of the Stevenson-Wydler Technology 
                        Innovation Act of 1980 (15 U.S.C. 3703(6)), as 
                        in effect on the date of the enactment of the 
                        Jumpstart Our Business Strength (JOBS) Act.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 2004.

SEC. 313. MANUFACTURER'S JOBS CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits), as amended by this Act, is 
amended by adding at the end the following:

``SEC. 45S. MANUFACTURER'S JOBS CREDIT.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible taxpayer, the manufacturer's jobs credit determined under this 
section is an amount equal to 50 percent of the lesser of the 
following:
            ``(1) The excess of the W-2 wages paid by the taxpayer 
        during the taxable year over the W-2 wages paid by the taxpayer 
        during the preceding taxable year.
            ``(2) The W-2 wages paid by the taxpayer during the taxable 
        year to any employee who is an eligible TAA recipient (as 
        defined in section 35(c)(2)) for any month during such taxable 
        year.
            ``(3) 22.4 percent of the W-2 wages paid by the taxpayer 
        during the taxable year.
    ``(b) Limitation.--
            ``(1) In general.--If there is an excess described in 
        paragraph (2)(A) for any taxable year, the amount of credit 
        determined under subsection (a) (without regard to this 
        subsection)--
                    ``(A) if the value of domestic production 
                determined under section 199(g)(2) for the taxable year 
                does not exceed such value for the preceding taxable 
                year, shall be zero, and
                    ``(B) if subparagraph (A) does not apply, shall be 
                reduced (but not below zero) by the applicable 
                percentage of such amount.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means, with respect to 
        any taxable year, the percentage equal to a fraction--
                    ``(A) the numerator of which is the excess (if any) 
                of the modified value of worldwide production of the 
                taxpayer for the taxable year over such modified value 
                for the preceding taxable year, and
                    ``(B) the denominator of which is the excess (if 
                any) of the value of worldwide production of the 
                taxpayer for the taxable year over such value for the 
                preceding taxable year.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Value of worldwide production.--The value of 
                worldwide production for any taxable year shall be 
                determined under section 199(g)(4).
                    ``(B) Modified value.--The term `modified value of 
                worldwide production' means the value of worldwide 
                production determined by not taking into account any 
                item taken into account in determining the value of 
                domestic production under section 199(g)(2).
    ``(c) Eligible Taxpayer.--For purposes of this section, the term 
`eligible taxpayer' means any taxpayer--
            ``(1) which has domestic production gross receipts for the 
        taxable year and the preceding taxable year, and
            ``(2) which is not treated at any time during the taxable 
        year as an inverted domestic corporation under section 7874.
    ``(d) Definitions and Special Rule.--For purposes of this section--
            ``(1) In general.--Any term used in this section which is 
        also used in section 199 shall have the meaning given such term 
        by section 199.
            ``(2) Special rule for w-2 wages.--Notwithstanding 
        paragraph (1), the amount of W-2 wages taken into account with 
        respect to any employee for any taxable year shall not exceed 
        $50,000.
    ``(e) Certain Rules Made Applicable.--For purposes of this section, 
rules similar to the rules of section 52 shall apply.
    ``(f) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 2005.''.
    (b) Credit To Be Part of General Business Credit.--Section 38(b) 
(relating to current year business credit), as amended by this Act, is 
amended by striking ``plus'' at the end of paragraph (29), by striking 
the period at the end of paragraph (30) and inserting ``, plus'', and 
by adding at the end the following:
            ``(31) the manufacturer's jobs credit determined under 
        section 45S.''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following:

                              ``Sec. 45S. Manufacturer's jobs 
                                        credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 314. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED GREEN 
              BUILDING AND SUSTAINABLE DESIGN PROJECTS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 (relating to the definition of exempt facility bond) is amended by 
striking ``or'' at the end of paragraph (12), by striking the period at 
the end of paragraph (13) and inserting ``, or'', and by inserting at 
the end the following new paragraph:
            ``(14) qualified green building and sustainable design 
        projects.''.
    (b) Qualified Green Building and Sustainable Design Projects.--
Section 142 (relating to exempt facility bonds) is amended by adding at 
the end thereof the following new subsection:
    ``(l) Qualified Green Building and Sustainable Design Projects.--
            ``(1) In general.--For purposes of subsection (a)(14), the 
        term `qualified green building and sustainable design project' 
        means any project which is designated by the Secretary, after 
        consultation with the Administrator of the Environmental 
        Protection Agency, as a qualified green building and 
        sustainable design project and which meets the requirements of 
        clauses (i), (ii), (iii), and (iv) of paragraph (4)(A).
            ``(2) Designations.--
                    ``(A) In general.--Within 60 days after the end of 
                the application period described in paragraph (3)(A), 
                the Secretary, after consultation with the 
                Administrator of the Environmental Protection Agency, 
                shall designate qualified green building and 
                sustainable design projects. At least one of the 
                projects designated shall be located in, or within a 
                10-mile radius of, an empowerment zone as designated 
                pursuant to section 1391, and at least one of the 
                projects designated shall be located in a rural State. 
                No more than one project shall be designated in a 
                State. A project shall not be designated if such 
                project includes a stadium or arena for professional 
                sports exhibitions or games.
                    ``(B) Minimum conservation and technology 
                innovation objectives.--The Secretary, after 
                consultation with the Administrator of the 
                Environmental Protection Agency, shall ensure that, in 
                the aggregate, the projects designated shall--
                            ``(i) reduce electric consumption by more 
                        than 150 megawatts annually as compared to 
                        conventional generation,
                            ``(ii) reduce daily sulfur dioxide 
                        emissions by at least 10 tons compared to coal 
                        generation power,
                            ``(iii) expand by 75 percent the domestic 
                        solar photovoltaic market in the United States 
                        (measured in megawatts) as compared to the 
                        expansion of that market from 2001 to 2002, and
                            ``(iv) use at least 25 megawatts of fuel 
                        cell energy generation.
            ``(3) Limited designations.--A project may not be 
        designated under this subsection unless--
                    ``(A) the project is nominated by a State or local 
                government within 180 days of the enactment of this 
                subsection, and
                    ``(B) such State or local government provides 
                written assurances that the project will satisfy the 
                eligibility criteria described in paragraph (4).
            ``(4) Application.--
                    ``(A) In general.--A project may not be designated 
                under this subsection unless the application for such 
                designation includes a project proposal which describes 
                the energy efficiency, renewable energy, and 
                sustainable design features of the project and 
                demonstrates that the project satisfies the following 
                eligibility criteria:
                            ``(i) Green building and sustainable 
                        design.--At least 75 percent of the square 
                        footage of commercial buildings which are part 
                        of the project is registered for United States 
                        Green Building Council's LEED certification and 
                        is reasonably expected (at the time of the 
                        designation) to receive such certification. For 
                        purposes of determining LEED certification as 
                        required under this clause, points shall be 
                        credited by using the following:
                                    ``(I) For wood products, 
                                certification under the Sustainable 
                                Forestry Initiative Program and the 
                                American Tree Farm System.
                                    ``(II) For renewable wood products, 
                                as credited for recycled content 
                                otherwise provided under LEED 
                                certification.
                                    ``(III) For composite wood 
                                products, certification under standards 
                                established by the American National 
                                Standards Institute, or such other 
                                voluntary standards as published in the 
                                Federal Register by the Administrator 
                                of the Environmental Protection Agency.
                            ``(ii) Brownfield redevelopment.--The 
                        project includes a brownfield site as defined 
                        by section 101(39) of the Comprehensive 
                        Environmental Response, Compensation, and 
                        Liability Act of 1980 (42 U.S.C. 9601), 
                        including a site described in subparagraph 
                        (D)(ii)(II)(aa) thereof.
                            ``(iii) State and local support.--The 
                        project receives specific State or local 
                        government resources which will support the 
                        project in an amount equal to at least 
                        $5,000,000. For purposes of the preceding 
                        sentence, the term `resources' includes tax 
                        abatement benefits and contributions in kind.
                            ``(iv) Size.--The project includes at least 
                        one of the following:
                                    ``(I) At least 1,000,000 square 
                                feet of building.
                                    ``(II) At least 20 acres.
                            ``(v) Use of tax benefit.--The project 
                        proposal includes a description of the net 
                        benefit of the tax-exempt financing provided 
                        under this subsection which will be allocated 
                        for financing of one or more of the following:
                                    ``(I) The purchase, construction, 
                                integration, or other use of energy 
                                efficiency, renewable energy, and 
                                sustainable design features of the 
                                project.
                                    ``(II) Compliance with 
                                certification standards cited under 
                                clause (i).
                                    ``(III) The purchase, remediation, 
                                and foundation construction and 
                                preparation of the brownfields site.
                            ``(vi) Prohibited facilities.--An issue 
                        shall not be treated as an issue described in 
                        subsection (a)(14) if any proceeds of such 
                        issue are used to provide any facility the 
                        principal business of which is the sale of food 
                        or alcoholic beverages for consumption on the 
                        premises.
                            ``(vii) Employment.--The project is 
                        projected to provide permanent employment of at 
                        least 1,500 full time equivalents (150 full 
                        time equivalents in rural States) when 
                        completed and construction employment of at 
                        least 1,000 full time equivalents (100 full 
                        time equivalents in rural States).
                The application shall include an independent analysis 
                which describes the project's economic impact, 
                including the amount of projected employment.
                    ``(B) Project description.--Each application 
                described in subparagraph (A) shall contain for each 
                project a description of--
                            ``(i) the amount of electric consumption 
                        reduced as compared to conventional 
                        construction,
                            ``(ii) the amount of sulfur dioxide daily 
                        emissions reduced compared to coal generation,
                            ``(iii) the amount of the gross installed 
                        capacity of the project's solar photovoltaic 
                        capacity measured in megawatts, and
                            ``(iv) the amount, in megawatts, of the 
                        project's fuel cell energy generation.
            ``(5) Certification of use of tax benefit.--No later than 
        30 days after the completion of the project, each project must 
        certify to the Secretary that the net benefit of the tax-exempt 
        financing was used for the purposes described in paragraph (4).
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Rural state.--The term `rural State' means 
                any State which has--
                            ``(i) a population of less than 4,500,000 
                        according to the 2000 census,
                            ``(ii) a population density of less than 
                        150 people per square mile according to the 
                        2000 census, and
                            ``(iii) increased in population by less 
                        than half the rate of the national increase 
                        between the 1990 and 2000 censuses.
                    ``(B) Local government.--The term `local 
                government' has the meaning given such term by section 
                1393(a)(5).
                    ``(C) Net benefit of tax-exempt financing.--The 
                term `net benefit of tax-exempt financing' means the 
                present value of the interest savings (determined by a 
                calculation established by the Secretary) which result 
                from the tax-exempt status of the bonds.
            ``(7) Aggregate face amount of tax-exempt financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(14) if the 
                aggregate face amount of bonds issued by the State or 
                local government pursuant thereto for a project (when 
                added to the aggregate face amount of bonds previously 
                so issued for such project) exceeds an amount 
                designated by the Secretary as part of the designation.
                    ``(B) Limitation on amount of bonds.--The Secretary 
                may not allocate authority to issue qualified green 
                building and sustainable design project bonds in an 
                aggregate face amount exceeding $2,000,000,000.
            ``(8) Termination.--Subsection (a)(14) shall not apply with 
        respect to any bond issued after September 30, 2009.
            ``(9) Treatment of current refunding bonds.--Paragraphs 
        (7)(B) and (8) shall not apply to any bond (or series of bonds) 
        issued to refund a bond issued under subsection (a)(14) before 
        October 1, 2009, if--
                    ``(A) the average maturity date of the issue of 
                which the refunding bond is a part is not later than 
                the average maturity date of the bonds to be refunded 
                by such issue,
                    ``(B) the amount of the refunding bond does not 
                exceed the outstanding amount of the refunded bond, and
                    ``(C) the net proceeds of the refunding bond are 
                used to redeem the refunded bond not later than 90 days 
                after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined 
in accordance with section 147(b)(2)(A).''.
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) (relating to exception for certain bonds) is amended--
            (1) by striking ``or (13)'' and inserting ``(13), or 
        (14)'', and
            (2) by striking ``and qualified public educational 
        facilities'' and inserting ``qualified public educational 
        facilities, and qualified green building and sustainable design 
        projects''.
    (d) Accountability.--Each issuer shall maintain, on behalf of each 
project, an interest bearing reserve account equal to 1 percent of the 
net proceeds of any bond issued under this section for such project. 
Not later than 5 years after the date of issuance, the Secretary of the 
Treasury, after consultation with the Administrator of the 
Environmental Protection Agency, shall determine whether the project 
financed with such bonds has substantially complied with the terms and 
conditions described in section 142(l)(4) of the Internal Revenue Code 
of 1986 (as added by this section). If the Secretary, after such 
consultation, certifies that the project has substantially complied 
with such terms and conditions and meets the commitments set forth in 
the application for such project described in section 142(l)(4) of such 
Code, amounts in the reserve account, including all interest, shall be 
released to the project. If the Secretary determines that the project 
has not substantially complied with such terms and conditions, amounts 
in the reserve account, including all interest, shall be paid to the 
United States Treasury.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2004.

              Subtitle B--Manufacturing Relating to Films

SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.

    (a) In General.--Part VI of subchapter B of chapter 1 is amended by 
inserting after section 180 the following new section:

``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION PRODUCTIONS.

    ``(a) Election To Treat Certain Costs of Qualified Film and 
Television Productions as Expenses.--
            ``(1) In general.--A taxpayer may elect to treat the cost 
        of any qualified film or television production as an expense 
        which is not chargeable to capital account. Any cost so treated 
        shall be allowed as a deduction.
            ``(2) Dollar limitation.--
                    ``(A) In general.--The aggregate cost which may be 
                taken into account under paragraph (1) with respect to 
                each qualified film or television production shall not 
                exceed $15,000,000.
                    ``(B) Higher dollar limitation for productions in 
                certain areas.--In the case of any qualified film or 
                television production the aggregate cost of which is 
                significantly incurred in an area eligible for 
                designation as--
                            ``(i) a low-income community under section 
                        45D, or
                            ``(ii) a distressed county or isolated area 
                        of distress by the Delta Regional Authority 
                        established under section 2009aa-1 of title 7, 
                        United States Code,
                subparagraph (A) shall be applied by substituting 
                `$20,000,000' for `$15,000,000'.
    ``(b) Amortization of Remaining Costs.--
            ``(1) In general.--If an election is made under subsection 
        (a) with respect to any qualified film or television 
        production, that portion of the basis of such production in 
        excess of the amount taken into account under subsection (a) 
        shall be allowed as a deduction ratably over the 36-month 
        period beginning with the month in which such production is 
        placed in service.
            ``(2) No other deduction or amortization deduction 
        allowable.--With respect to the basis of any qualified film or 
        television production described in paragraph (1), no other 
        depreciation or amortization deduction shall be allowable.
    ``(c) Election.--
            ``(1) In general.--An election under subsection (a) with 
        respect to any qualified film or television production shall be 
        made in such manner as prescribed by the Secretary and by the 
        due date (including extensions) for filing the taxpayer's 
        return of tax under this chapter for the taxable year in which 
        costs of the production are first incurred.
            ``(2) Revocation of election.--Any election made under 
        subsection (a) may not be revoked without the consent of the 
        Secretary.
    ``(d) Qualified Film or Television Production.--For purposes of 
this section--
            ``(1) In general.--The term `qualified film or television 
        production' means any production described in paragraph (2) if 
        75 percent of the total compensation of the production is 
        qualified compensation.
            ``(2) Production.--
                    ``(A) In general.--A production is described in 
                this paragraph if such production is property described 
                in section 168(f)(3). For purposes of a television 
                series, only the first 44 episodes of such series may 
                be taken into account.
                    ``(B) Exception.--A production is not described in 
                this paragraph if records are required under section 
                2257 of title 18, United States Code, to be maintained 
                with respect to any performer in such production.
            ``(3) Qualified compensation.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The term `qualified 
                compensation' means compensation for services performed 
                in the United States by actors, directors, producers, 
                and other relevant production personnel.
                    ``(B) Participations and residuals excluded.--The 
                term `compensation' does not include participations and 
                residuals (as defined in section 167(g)(7)(B)).
    ``(e) Application of Certain Other Rules.--For purposes of this 
section, rules similar to the rules of subsections (b)(2) and (c)(4) of 
section 194 shall apply.
    ``(f) Termination.--This section shall not apply to qualified film 
and television productions commencing after December 31, 2008.''.
    (b) Conforming Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 180 the following new item:

                              ``Sec. 181. Treatment of qualified film 
                                        and television productions.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to qualified film and television productions (as defined in 
section 181(d)(1) of the Internal Revenue Code of 1986, as added by 
this section) commencing after the date of the enactment of this Act.

SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF 
              DEPRECIATION.

    (a) In General.--Section 167(g) (relating to depreciation under 
income forecast method) is amended by adding at the end the following 
new paragraph:
            ``(7) Treatment of participations and residuals.--
                    ``(A) In general.--For purposes of determining the 
                depreciation deduction allowable with respect to a 
                property under this subsection, the taxpayer may 
                include participations and residuals with respect to 
                such property in the adjusted basis of such property 
                for the taxable year in which the property is placed in 
                service, but only to the extent that such 
                participations and residuals relate to income estimated 
                (for purposes of this subsection) to be earned in 
                connection with the property before the close of the 
                10th taxable year referred to in paragraph (1)(A).
                    ``(B) Participations and residuals.--For purposes 
                of this paragraph, the term `participations and 
                residuals' means, with respect to any property, costs 
                the amount of which by contract varies with the amount 
                of income earned in connection with such property.
                    ``(C) Special rules relating to recomputation 
                years.--If the adjusted basis of any property is 
                determined under this paragraph, paragraph (4) shall be 
                applied by substituting `for each taxable year in such 
                period' for `for such period'.
                    ``(D) Other special rules.--
                            ``(i) Participations and residuals.--
                        Notwithstanding subparagraph (A), the taxpayer 
                        may exclude participations and residuals from 
                        the adjusted basis of such property and deduct 
                        such participations and residuals in the 
                        taxable year that such participations and 
                        residuals are paid.
                            ``(ii) Coordination with other rules.--
                        Deductions computed in accordance with this 
                        paragraph shall be allowable notwithstanding 
                        paragraph (1)(B) or sections 263, 263A, 404, 
                        419, or 461(h).
                    ``(E) Authority to make adjustments.--The Secretary 
                shall prescribe appropriate adjustments to the basis of 
                property and to the look-back method for the additional 
                amounts allowable as a deduction solely by reason of 
                this paragraph.''.
    (b) Determination of Income.--Section 167(g)(5) (relating to 
special rules) is amended by redesignating subparagraphs (E) and (F) as 
subparagraphs (F) and (G), respectively, and inserting after 
subparagraph (D) the following new subparagraph:
                    ``(E) Treatment of distribution costs.--For 
                purposes of this subsection, the income with respect to 
                any property shall be the taxpayer's gross income from 
                such property.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

              Subtitle C--Manufacturing Relating to Timber

SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.

    (a) In General.--So much of subsection (b) of section 194 (relating 
to amortization of reforestation expenditures) as precedes paragraph 
(2) is amended to read as follows:
    ``(b) Treatment as Expenses.--
            ``(1) Election to treat certain reforestation expenditures 
        as expenses.--
                    ``(A) In general.--In the case of any qualified 
                timber property with respect to which the taxpayer has 
                made (in accordance with regulations prescribed by the 
                Secretary) an election under this subsection, the 
                taxpayer shall treat reforestation expenditures which 
                are paid or incurred during the taxable year with 
                respect to such property as an expense which is not 
                chargeable to capital account. The reforestation 
                expenditures so treated shall be allowed as a 
                deduction.
                    ``(B) Dollar limitation.--The aggregate amount of 
                reforestation expenditures which may be taken into 
                account under subparagraph (A) with respect to each 
                qualified timber property for any taxable year shall 
                not exceed $10,000 ($5,000 in the case of a separate 
                return by a married individual (as defined in section 
                7703)).''.
    (b) Net Amortizable Basis.--Section 194(c)(2) (defining amortizable 
basis) is amended by inserting ``which have not been taken into account 
under subsection (b)'' after ``expenditures''.
    (c) Conforming Amendments.--
            (1) Section 194(b) is amended by striking paragraphs (3) 
        and (4).
            (2) Section 194(b)(2) is amended by striking ``paragraph 
        (1)'' both places it appears and inserting ``paragraph 
        (1)(B)''.
            (3) Section 194(c) is amended by striking paragraph (4) and 
        inserting the following new paragraphs:
            ``(4) Treatment of trusts and estates.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), this section shall not apply to 
                trusts and estates.
                    ``(B) Amortization deduction allowed to estates.--
                The benefit of the deduction for amortization provided 
                by subsection (a) shall be allowed to estates in the 
                same manner as in the case of an individual. The 
                allowable deduction shall be apportioned between the 
                income beneficiary and the fiduciary under regulations 
                prescribed by the Secretary. Any amount so apportioned 
                to a beneficiary shall be taken into account for 
                purposes of determining the amount allowable as a 
                deduction under subsection (a) to such beneficiary.
            ``(5) Application with other deductions.--No deduction 
        shall be allowed under any other provision of this chapter with 
        respect to any expenditure with respect to which a deduction is 
        allowed or allowable under this section to the taxpayer.''.
            (4) The heading for section 194 is amended by striking 
        ``amortization'' and inserting ``treatment''.
            (5) The item relating to section 194 in the table of 
        sections for part VI of subchapter B of chapter 1 is amended by 
        striking ``Amortization'' and inserting ``Treatment''.
    (d) Repeal of Reforestation Credit.--
            (1) In general.--Section 46 (relating to amount of credit) 
        is amended--
                    (A) by adding ``and'' at the end of paragraph (1),
                    (B) by striking ``, and'' at the end of paragraph 
                (2) and inserting a period, and
                    (C) by striking paragraph (3).
            (2) Conforming amendments.--
                    (A) Section 48 is amended--
                            (i) by striking subsection (b),
                            (ii) by striking ``this subsection'' in 
                        paragraph (5) of subsection (a) and inserting 
                        ``subsection (a)'', and
                            (iii) by redesignating such paragraph (5) 
                        as subsection (b).
                    (B) The heading for section 48 is amended by 
                striking ``; reforestation credit''.
                    (C) The item relating to section 48 in the table of 
                sections for subpart E of part IV of subchapter A of 
                chapter 1 is amended by striking ``, reforestation 
                credit''.
                    (D) Section 50(c)(3) is amended by striking ``or 
                reforestation credit''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to expenditures paid or incurred after the date of 
the enactment of this Act.

SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR EXCHANGE.

    Any election under section 631(a) of the Internal Revenue Code of 
1986 made for a taxable year ending on or before the date of the 
enactment of this Act may be revoked by the taxpayer for any taxable 
year ending after such date. For purposes of determining whether the 
taxpayer may make a further election under such section, such election 
(and any revocation under this section) shall not be taken into 
account.

SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
              OUTRIGHT SALES BY LANDOWNERS.

    (a) In General.--The first sentence of section 631(b) (relating to 
disposal of timber with a retained economic interest) is amended by 
striking ``retains an economic interest in such timber'' and inserting 
``either retains an economic interest in such timber or makes an 
outright sale of such timber''.
    (b) Conforming Amendments.--
            (1) The third sentence of section 631(b) is amended by 
        striking ``The date of disposal'' and inserting ``In the case 
        of disposal of timber with a retained economic interest, the 
        date of disposal''.
            (2) The heading for section 631(b) is amended by striking 
        ``With a Retained Economic Interest''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales after the date of the enactment of this Act.

SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.

    (a) Expansion of Prohibited Transaction Safe Harbor.--Section 
857(b)(6) (relating to income from prohibited transactions) is amended 
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and 
(F), respectively, and by inserting after subparagraph (C) the 
following new subparagraph:
                    ``(D) Certain sales not to constitute prohibited 
                transactions.--For purposes of this part, the term 
                `prohibited transaction' does not include a sale of 
                property which is a real estate asset (as defined in 
                section 856(c)(5)(B)) if--
                            ``(i) the trust held the property for not 
                        less than 4 years in connection with the trade 
                        or business of producing timber,
                            ``(ii) the aggregate expenditures made by 
                        the trust, or a partner of the trust, during 
                        the 4-year period preceding the date of sale 
                        which--
                                    ``(I) are includible in the basis 
                                of the property (other than timberland 
                                acquisition expenditures), and
                                    ``(II) are directly related to 
                                operation of the property for the 
                                production of timber or for the 
                                preservation of the property for use as 
                                timberland,
                        do not exceed 30 percent of the net selling 
                        price of the property,
                            ``(iii) the aggregate expenditures made by 
                        the trust, or a partner of the trust, during 
                        the 4-year period preceding the date of sale 
                        which--
                                    ``(I) are includible in the basis 
                                of the property (other than timberland 
                                acquisition expenditures), and
                                    ``(II) are not directly related to 
                                operation of the property for the 
                                production of timber, or for the 
                                preservation of the property for use as 
                                timberland,
                        do not exceed 5 percent of the net selling 
                        price of the property,
                            ``(iv)(I) during the taxable year the trust 
                        does not make more than 7 sales of property 
                        (other than sales of foreclosure property or 
                        sales to which section 1033 applies), or
                            ``(II) the aggregate adjusted bases (as 
                        determined for purposes of computing earnings 
                        and profits) of property (other than sales of 
                        foreclosure property or sales to which section 
                        1033 applies) sold during the taxable year does 
                        not exceed 10 percent of the aggregate bases 
                        (as so determined) of all of the assets of the 
                        trust as of the beginning of the taxable year,
                            ``(v) in the case that the requirement of 
                        clause (iv)(I) is not satisfied, substantially 
                        all of the marketing expenditures with respect 
                        to the property were made through an 
                        independent contractor (as defined in section 
                        856(d)(3)) from whom the trust itself does not 
                        derive or receive any income, and
                            ``(vi) the sales price of the property sold 
                        by the trust is not based in whole or in part 
                        on income or profits, including income or 
                        profits derived from the sale or operation of 
                        such property.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (n) as subsection (o) and by inserting after subsection (m) 
the following new subsection:
    ``(n) Clarification of Economic Substance Doctrine; Etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                        In applying subclause (II), a purpose of 
                        achieving a financial accounting benefit shall 
                        not be taken into account in determining 
                        whether a transaction has a substantial nontax 
                        purpose if the origin of such financial 
                        accounting benefit is a reduction of income 
                        tax.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) 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, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The 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) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(D) Treatment of lessors.--In applying paragraph 
                (1)(B)(ii) to the lessor of tangible property subject 
                to a lease--
                            ``(i) the expected net tax benefits with 
                        respect to the leased property shall not 
                        include the benefits of--
                                    ``(I) depreciation,
                                    ``(II) any tax credit, or
                                    ``(III) any other deduction as 
                                provided in guidance by the Secretary, 
                                and
                            ``(ii) subclause (II) of paragraph 
                        (1)(B)(ii) shall be disregarded in determining 
                        whether any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except 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.
            ``(5) Regulations.--The 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 Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6707 the 
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
              INFORMATION WITH RETURN OR STATEMENT.

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), the term `large entity' means, with respect to any 
                taxable year, a person (other than a natural person) 
                with gross receipts in excess of $10,000,000 for the 
                taxable year in which the reportable transaction occurs 
                or the preceding taxable year. Rules similar to the 
                rules of paragraph (2) and subparagraphs (B), (C), and 
                (D) of paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) High net worth individual.--For purposes of 
                subparagraph (A), the term `high net worth individual' 
                means, with respect to a reportable transaction, a 
                natural person whose net worth exceeds $2,000,000 
                immediately before the transaction.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction which is the same as, or substantially similar to, 
        a transaction specifically identified by the Secretary as a tax 
        avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in the 
        Commissioner's sole discretion, may establish a procedure to 
        determine if a penalty should be referred to the Commissioner 
        or the head of such Office for a determination under paragraph 
        (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) the facts and circumstances of the 
                transaction,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction,
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c), or
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction,
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under this title.''.
    (b) Disclosure by Secretary.--
            (1) In general.--Section 6103 is amended by redesignating 
        subsection (q) as subsection (r) and by inserting after 
        subsection (p) the following new subsection:
    ``(q) Disclosure Relating to Payments of Certain Penalties.--
Notwithstanding any other provision of this section, the Secretary 
shall make public the name of any person required to pay a penalty 
described in section 6707A(e)(2) and the amount of the penalty.''.
            (2) Records.--Section 6103(p)(3)(A) is amended by striking 
        ``or (n)'' and inserting ``(n), or (q)''.
    (c) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which is after the 
date of the enactment of this Act.

SEC. 403. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
              WITH RESPECT TO REPORTABLE TRANSACTIONS.

    ``(a) Imposition of Penalty.--If a taxpayer has a reportable 
transaction understatement for any taxable year, there shall be added 
to the tax an amount equal to 20 percent of the amount of such 
understatement.
    ``(b) Reportable Transaction Understatement.--For purposes of this 
section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase (if any) 
                        in taxable income which results from a 
                        difference between the proper tax treatment of 
                        an item to which this section applies and the 
                        taxpayer's treatment of such item (as shown on 
                        the taxpayer's return of tax), and
                            ``(ii) the highest rate of tax imposed by 
                        section 1 (section 11 in the case of a taxpayer 
                        which is a corporation), and
                    ``(B) the amount of the decrease (if any) in the 
                aggregate amount of credits determined under subtitle A 
                which results from a difference between the taxpayer's 
                treatment of an item to which this section applies (as 
                shown on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the excess 
        of deductions allowed for the taxable year over gross income 
        for such year, and any reduction in the amount of capital 
        losses which would (without regard to section 1211) be allowed 
        for such year, shall be treated as an increase in taxable 
        income.
            ``(2) Items to which section applies.--This section shall 
        apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other than a 
                listed transaction) if a significant purpose of such 
                transaction is the avoidance or evasion of Federal 
                income tax.
    ``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance 
Transactions.--
            ``(1) In general.--Subsection (a) shall be applied by 
        substituting `30 percent' for `20 percent' with respect to the 
        portion of any reportable transaction understatement with 
        respect to which the requirement of section 6664(d)(2)(A) is 
        not met.
            ``(2) Rules applicable to assertion and compromise of 
        penalty.--
                    ``(A) In general.--Only upon the approval by the 
                Chief Counsel for the Internal Revenue Service or the 
                Chief Counsel's delegate at the national office of the 
                Internal Revenue Service may a penalty to which 
                paragraph (1) applies be included in a 1st letter of 
                proposed deficiency which allows the taxpayer an 
                opportunity for administrative review in the Internal 
                Revenue Service Office of Appeals. If such a letter is 
                provided to the taxpayer, only the Commissioner of 
                Internal Revenue may compromise all or any portion of 
                such penalty.
                    ``(B) Applicable rules.--The rules of paragraphs 
                (2), (3), (4), and (5) of section 6707A(d) shall apply 
                for purposes of subparagraph (A).
    ``(d) Definitions of Reportable and Listed Transactions.--For 
purposes of this section, the terms `reportable transaction' and 
`listed transaction' have the respective meanings given to such terms 
by section 6707A(c).
    ``(e) Special Rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as defined 
        in section 6662(d)(2))--
                    ``(A) the amount of such understatement (determined 
                without regard to this paragraph) shall be increased by 
                the aggregate amount of reportable transaction 
                understatements and noneconomic substance transaction 
                understatements for purposes of determining whether 
                such understatement is a substantial understatement 
                under section 6662(d)(1), and
                    ``(B) the addition to tax under section 6662(a) 
                shall apply only to the excess of the amount of the 
                substantial understatement (if any) after the 
                application of subparagraph (A) over the aggregate 
                amount of reportable transaction understatements and 
                noneconomic substance transaction understatements.
            ``(2) Coordination with other penalties.--
                    ``(A) Application of fraud penalty.--References to 
                an underpayment in section 6663 shall be treated as 
                including references to a reportable transaction 
                understatement and a noneconomic substance transaction 
                understatement.
                    ``(B) No double penalty.--This section shall not 
                apply to any portion of an understatement on which a 
                penalty is imposed under section 6662B or 6663.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any tax treatment included 
        with an amendment or supplement to a return of tax be taken 
        into account in determining the amount of any reportable 
        transaction understatement or noneconomic substance transaction 
        understatement 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.
                    ``(4) Noneconomic substance transaction 
                understatement.--For purposes of this subsection, the 
                term `noneconomic substance transaction understatement' 
                has the meaning given such term by section 6662B(c).
                    ``(5) Cross reference.--

                                ``For reporting of section 6662A(c) 
penalty to the Securities and Exchange Commission, see section 
6707A(e).''.
    (b) Determination of Other Understatements.--Subparagraph (A) of 
section 6662(d)(2) is amended by adding at the end the following flush 
sentence:
                ``The excess under the preceding sentence shall be 
                determined without regard to items to which section 
                6662A applies and without regard to items with respect 
                to which a penalty is imposed by section 6662B.''.
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding at the 
        end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed under 
        section 6662A with respect to any portion of a reportable 
        transaction understatement if it is shown that there was a 
        reasonable cause for such portion and that the taxpayer acted 
        in good faith with respect to such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply to any 
        reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,
                    ``(B) there is or was substantial authority for 
                such treatment, and
                    ``(C) the taxpayer reasonably believed that such 
                treatment was more likely than not the proper 
                treatment.
        A taxpayer failing to adequately disclose in accordance with 
        section 6011 shall be treated as meeting the requirements of 
        subparagraph (A) if the penalty for such failure was rescinded 
        under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For purposes of 
        paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be treated as 
                having a reasonable belief with respect to the tax 
                treatment of an item only if such belief--
                            ``(i) is based on the facts and law that 
                        exist at the time the return of tax which 
                        includes such tax treatment is filed, and
                            ``(ii) relates solely to the taxpayer's 
                        chances of success on the merits of such 
                        treatment and does not take into account the 
                        possibility that a return will not be audited, 
                        such treatment will not be raised on audit, or 
                        such treatment will be resolved through 
                        settlement if it is raised.
                    ``(B) Certain opinions may not be relied upon.--
                            ``(i) In general.--An opinion of a tax 
                        advisor may not be relied upon to establish the 
                        reasonable belief of a taxpayer if--
                                    ``(I) the tax advisor is described 
                                in clause (ii), or
                                    ``(II) the opinion is described in 
                                clause (iii).
                            ``(ii) Disqualified tax advisors.--A tax 
                        advisor is described in this clause if the tax 
                        advisor--
                                    ``(I) is a material advisor (within 
                                the meaning of section 6111(b)(1)) who 
                                participates in the organization, 
                                management, promotion, or sale of the 
                                transaction or who is related (within 
                                the meaning of section 267(b) or 
                                707(b)(1)) to any person who so 
                                participates,
                                    ``(II) is compensated directly or 
                                indirectly by a material advisor with 
                                respect to the transaction,
                                    ``(III) has a fee arrangement with 
                                respect to the transaction which is 
                                contingent on all or part of the 
                                intended tax benefits from the 
                                transaction being sustained,
                                    ``(IV) has an arrangement with 
                                respect to the transaction which 
                                provides that contractual disputes 
                                between the taxpayer and the advisor 
                                are to be settled by arbitration or 
                                which limits damages by reference to 
                                fees paid to the advisor for such 
                                transaction, or
                                    ``(V) as determined under 
                                regulations prescribed by the 
                                Secretary, has a disqualifying 
                                financial interest with respect to the 
                                transaction.
                            ``(iii) Disqualified opinions.--For 
                        purposes of clause (i), an opinion is 
                        disqualified if the opinion--
                                    ``(I) is based on unreasonable 
                                factual or legal assumptions (including 
                                assumptions as to future events),
                                    ``(II) unreasonably relies on 
                                representations, statements, findings, 
                                or agreements of the taxpayer or any 
                                other person,
                                    ``(III) does not identify and 
                                consider all relevant facts,
                                    ``(IV) is not signed by all 
                                individuals who are principal authors 
                                of the opinion, or
                                    ``(V) fails to meet any other 
                                requirement as the Secretary may 
                                prescribe.''.
            (2) Conforming amendment.--The heading for subsection (c) 
        of section 6664 is amended by inserting ``for Underpayments'' 
        after ``Exception''.
    (d) Conforming Amendments.--
            (1) Subparagraph (C) of section 461(i)(3) is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (2) Paragraph (3) of section 1274(b) is amended--
                    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Tax shelter.--For purposes of subparagraph 
                (B), the term `tax shelter' means--
                            ``(i) a partnership or other entity,
                            ``(ii) any investment plan or arrangement, 
                        or
                            ``(iii) any other plan or arrangement,
                if a significant purpose of such partnership, entity, 
                plan, or arrangement is the avoidance or evasion of 
                Federal income tax.''.
            (3) Section 6662(d)(2) is amended by striking subparagraphs 
        (C) and (D).
            (4) Section 6664(c)(1) is amended by striking ``this part'' 
        and inserting ``section 6662 or 6663''.
            (5) Subsection (b) of section 7525 is amended by striking 
        ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (6)(A) The heading for section 6662 is amended to read as 
        follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON 
              UNDERPAYMENTS.''.

            (B) The table of sections for part II of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662 and inserting the following new items:

                              ``Sec. 6662. Imposition of accuracy-
                                        related penalty on 
                                        underpayments.
                              ``Sec. 6662A. Imposition of accuracy-
                                        related penalty on 
                                        understatements with respect to 
                                        reportable transactions.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 404. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(n)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(n)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable To Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2), (3), 
        (4), and (5) of section 6707A(d) shall apply for purposes of 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

                                ``(1) For coordination of penalty with 
understatements under section 6662 and other special rules, see section 
6662A(e).
                                ``(2) For reporting of penalty imposed 
under this section to the Securities and Exchange Commission, see 
section 6707A(e).''.
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

                              ``Sec. 6662B. Penalty for understatements 
                                        attributable to transactions 
                                        lacking economic substance, 
                                        etc.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 405. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:
                    ``(B) Special rule for corporations.--In the case 
                of a corporation other than an S corporation or a 
                personal holding company (as defined in section 542), 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax required to be 
                        shown on the return for the taxable year (or, 
                        if greater, $10,000), or
                            ``(ii) $10,000,000.''.
    (b) Reduction for Understatement of Taxpayer Due to Position of 
Taxpayer or Disclosed Item.--
            (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
        substantial authority) is amended to read as follows:
                            ``(i) the tax treatment of any item by the 
                        taxpayer if the taxpayer had reasonable belief 
                        that the tax treatment was more likely than not 
                        the proper treatment, or''.
            (2) Conforming amendment.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--For purposes of this subsection, 
        section 6664(d)(2), and section 6694(a)(1), the Secretary may 
        prescribe a list of positions for which the Secretary believes 
        there is not substantial authority or there is no reasonable 
        belief that the tax treatment is more likely than not the 
        proper tax treatment. Such list (and any revisions thereof) 
        shall be published in the Federal Register or the Internal 
        Revenue Bulletin.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not to apply 
to communications regarding corporate tax shelters) is amended to read 
as follows:
    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--
            ``(1) between a federally authorized tax practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, agent, or 
                representative of the person, or
                    ``(C) any other person holding a capital or profits 
                interest in the person, and
            ``(2) in connection with the promotion of the direct or 
        indirect participation of the person in any tax shelter (as 
        defined in section 1274(b)(3)(C)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to communications made on or after the date of the enactment of this 
Act.

SEC. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    ``(a) In General.--Each material advisor with respect to any 
reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--
            ``(1) information identifying and describing the 
        transaction,
            ``(2) information describing any potential tax benefits 
        expected to result from the transaction, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date specified by the 
Secretary.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Material advisor.--
                    ``(A) In general.--The term `material advisor' 
                means any person--
                            ``(i) who provides any material aid, 
                        assistance, or advice with respect to 
                        organizing, managing, promoting, selling, 
                        implementing, insuring, or carrying out any 
                        reportable transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such aid, assistance, or advice.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''.
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6111. Disclosure of reportable 
                                        transactions.''.
            (2)(A) So much of section 6112 as precedes subsection (c) 
        thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP 
              LISTS OF ADVISEES.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any reportable transaction (as defined in section 
6707A(c)) shall maintain, in such manner as the Secretary may by 
regulations prescribe, a list--
            ``(1) identifying each person with respect to whom such 
        advisor acted as such a material advisor with respect to such 
        transaction, and
            ``(2) containing such other information as the Secretary 
        may by regulations require.
This section shall apply without regard to whether a material advisor 
is required to file a return under section 6111 with respect to such 
transaction.''.
            (B) Section 6112 is amended by redesignating subsection (c) 
        as subsection (b).
            (C) Section 6112(b), as redesignated by subparagraph (B), 
        is amended--
                    (i) by inserting ``written'' before ``request'' in 
                paragraph (1)(A), and
                    (ii) by striking ``shall prescribe'' in paragraph 
                (2) and inserting ``may prescribe''.
            (D) The item relating to section 6112 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6112. Material advisors of 
                                        reportable transactions must 
                                        keep lists of advisees.''.
            (3)(A) The heading for section 6708 is amended to read as 
        follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO 
              REPORTABLE TRANSACTIONS.''.

            (B) The item relating to section 6708 in the table of 
        sections for part I of subchapter B of chapter 68 is amended to 
        read as follows:

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''.
    (c) Required Disclosure Not Subject to Claim of Confidentiality.--
Subparagraph (A) of section 6112(b)(1), as redesignated by subsection 
(b)(2)(B), is amended by adding at the end the following new flush 
sentence:
        ``For purposes of this section, the identity of any person on 
        such list shall not be privileged.''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transactions 
        with respect to which material aid, assistance, or advice 
        referred to in section 6111(b)(1)(A)(i) of the Internal Revenue 
        Code of 1986 (as added by this section) is provided after the 
        date of the enactment of this Act.
            (2) No claim of confidentiality against disclosure.--The 
        amendment made by subsection (c) shall take effect as if 
        included in the amendments made by section 142 of the Deficit 
        Reduction Act of 1984.

SEC. 408. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

    (a) In General.--Section 6707 (relating to failure to furnish 
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
              TRANSACTIONS.

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the listed 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Certain Rules To Apply.--The provisions of section 6707A(d) 
shall apply to any penalty imposed under this section.
    ``(d) Reportable and Listed Transactions.--The terms `reportable 
transaction' and `listed transaction' have the respective meanings 
given to such terms by section 6707A(c).''.
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 is amended 
by striking ``tax shelters'' and inserting ``reportable transactions''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns the due date for which is after the date of the 
enactment of this Act.

SEC. 409. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

    (a) In General.--Subsection (a) of section 6708 is amended to read 
as follows:
    ``(a) Imposition of Penalty.--
            ``(1) In general.--If any person who is required to 
        maintain a list under section 6112(a) fails to make such list 
        available upon written request to the Secretary in accordance 
        with section 6112(b)(1)(A) within 20 business days after the 
        date of the Secretary's request, such person shall pay a 
        penalty of $10,000 for each day of such failure after such 20th 
        day.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed by paragraph (1) with respect to the failure on any day 
        if such failure is due to reasonable cause.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by redesignating 
subsection (c) as subsection (d) and by striking subsections (a) and 
(b) and inserting the following new subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the name of 
the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.
    ``(b) Adjudication and Decree.--In any action under subsection (a), 
if the court finds--
            ``(1) that the person has engaged in any specified conduct, 
        and
            ``(2) that injunctive relief is appropriate to prevent 
        recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in 
any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the term 
`specified conduct' means any action, or failure to take action, which 
is--
            ``(1) subject to penalty under section 6700, 6701, 6707, or 
        6708, or
            ``(2) in violation of any requirement under regulations 
        issued under section 320 of title 31, United States Code.''.
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read as 
        follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX 
              SHELTERS AND REPORTABLE TRANSACTIONS.''.

            (2) The table of sections for subchapter A of chapter 67 is 
        amended by striking the item relating to section 7408 and 
        inserting the following new item:

        ``Sec. 7408. Actions to enjoin specified conduct related to tax 
                            shelters and reportable transactions.''.
    (c) Effective Date.--The amendment made by this section shall take 
effect on the day after the date of the enactment of this Act.

SEC. 411. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

    (a) Standards Conformed to Taxpayer Standards.--Section 6694(a) 
(relating to understatements due to unrealistic positions) is amended--
            (1) by striking ``realistic possibility of being sustained 
        on its merits'' in paragraph (1) and inserting ``reasonable 
        belief that the tax treatment in such position was more likely 
        than not the proper treatment'',
            (2) by striking ``or was frivolous'' in paragraph (3) and 
        inserting ``or there was no reasonable basis for the tax 
        treatment of such position'', and
            (3) by striking ``Unrealistic'' in the heading and 
        inserting ``Improper''.
    (b) Amount of Penalty.--Section 6694 is amended--
            (1) by striking ``$250'' in subsection (a) and inserting 
        ``$1,000'', and
            (2) by striking ``$1,000'' in subsection (b) and inserting 
        ``$5,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to documents prepared after the date of the enactment of this 
Act.

SEC. 412. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $10,000.
                            ``(ii) Reasonable cause exception.--No 
                        penalty shall be imposed under subparagraph (A) 
                        with respect to any violation if--
                                    ``(I) such violation was due to 
                                reasonable cause, and
                                    ``(II) the amount of the 
                                transaction or the balance in the 
                                account at the time of the transaction 
                                was properly reported.
                    ``(C) Willful violations.--In the case of any 
                person willfully violating, or willfully causing any 
                violation of, any provision of section 5314--
                            ``(i) the maximum penalty under 
                        subparagraph (B)(i) shall be increased to the 
                        greater of--
                                    ``(I) $100,000, or
                                    ``(II) 50 percent of the amount 
                                determined under subparagraph (D), and
                            ``(ii) subparagraph (B)(ii) shall not 
                        apply.
                    ``(D) Amount.--The amount determined under this 
                subparagraph is--
                            ``(i) in the case of a violation involving 
                        a transaction, the amount of the transaction, 
                        or
                            ``(ii) in the case of a violation involving 
                        a failure to report the existence of an account 
                        or any identifying information required to be 
                        provided with respect to an account, the 
                        balance in the account at the time of the 
                        violation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to violations occurring after the date of the enactment of this Act.

SEC. 413. FRIVOLOUS TAX SUBMISSIONS.

    (a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

    ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return of a 
        tax imposed by this title but which--
                    ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                    ``(B) contains information that on its face 
                indicates that the self-assessment is substantially 
                incorrect; and
            ``(2) the conduct referred to in paragraph (1)--
                    ``(A) is based on a position which the Secretary 
                has identified as frivolous under subsection (c), or
                    ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
    ``(b) Civil Penalty for Specified Frivolous Submissions.--
            ``(1) Imposition of penalty.--Except as provided in 
        paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.
            ``(2) Specified frivolous submission.--For purposes of this 
        section--
                    ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                            ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                            ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                    ``(B) Specified submission.--The term `specified 
                submission' means--
                            ``(i) a request for a hearing under--
                                    ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                            ``(ii) an application under--
                                    ``(I) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments),
                                    ``(II) section 7122 (relating to 
                                compromises), or
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous for purposes of this 
subsection. The Secretary shall not include in such list any position 
that the Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
    ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''.
    (b) Treatment of Frivolous Requests for Hearings Before Levy.--
            (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
    ``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any 
other provision of this section, if the Secretary determines that any 
portion of a request for a hearing under this section or section 6320 
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further administrative or 
judicial review.''.
            (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                    (A) by striking ``(A)'' and inserting ``(A)(i)'';
                    (B) by striking ``(B)'' and inserting ``(ii)'';
                    (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                    (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following:
                    ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''.
            (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
    (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
            (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.
    (d) Treatment of Frivolous Applications for Offers-in-Compromise 
and Installment Agreements.--Section 7122 is amended by adding at the 
end the following new subsection:
    ``(e) Frivolous Submissions, etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''.
    (e) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

                              ``Sec. 6702. Frivolous tax 
                                        submissions.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to submissions made and issues raised after the date on which the 
Secretary first prescribes a list under section 6702(c) of the Internal 
Revenue Code of 1986, as amended by subsection (a).

SEC. 414. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

    (a) Censure; Imposition of Penalty.--
            (1) In general.--Section 330(b) of title 31, United States 
        Code, is amended--
                    (A) by inserting ``, or censure,'' after 
                ``Department'', and
                    (B) by adding at the end the following new flush 
                sentence:
``The Secretary may impose a monetary penalty on any representative 
described in the preceding sentence. If the representative was acting 
on behalf of an employer or any firm or other entity in connection with 
the conduct giving rise to such penalty, the Secretary may impose a 
monetary penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such penalty shall not 
exceed the gross income derived (or to be derived) from the conduct 
giving rise to the penalty and may be in addition to, or in lieu of, 
any suspension, disbarment, or censure of the representative.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to actions taken after the date of the enactment of 
        this Act.
    (b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is 
amended by adding at the end the following new subsection:
    ``(d) Nothing in this section or in any other provision of law 
shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.''.

SEC. 415. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

    (a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 
(relating to promoting abusive tax shelters, etc.) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (d) and (e), respectively,
            (2) by striking ``a penalty'' and all that follows through 
        the period in the first sentence of subsection (a) and 
        inserting ``a penalty determined under subsection (b)'', and
            (3) by inserting after subsection (a) the following new 
        subsections:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 100 percent of the gross 
        income derived (or to be derived) from such activity by the 
        person or persons subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of an activity described in subsection (a), 
        each instance in which income was derived by the person or 
        persons subject to such penalty, and each person who 
        participated in such an activity.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to such activity, all 
        such persons shall be jointly and severally liable for the 
        penalty under such subsection.
    ``(c) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be deductible by the person who is 
subject to such penalty or who makes such payment.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED 
              LISTED TRANSACTIONS NOT REPORTED.

    (a) In General.--Section 6501(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(10) Listed transactions.--If a taxpayer fails to include 
        on any return or statement for any taxable year any information 
        with respect to a listed transaction (as defined in section 
        6707A(c)(2)) which is required under section 6011 to be 
        included with such return or statement, the time for assessment 
        of any tax imposed by this title with respect to such 
        transaction shall not expire before the date which is 1 year 
        after the earlier of--
                    ``(A) the date on which the Secretary is furnished 
                the information so required; or
                    ``(B) the date that a material advisor (as defined 
                in section 6111) meets the requirements of section 6112 
                with respect to a request by the Secretary under 
                section 6112(b) relating to such transaction with 
                respect to such taxpayer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years with respect to which the period for assessing a 
deficiency did not expire before the date of the enactment of this Act.

SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC 
              SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163 (relating to deduction for interest) 
is amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following new subsection:
    ``(m) Interest on Unpaid Taxes Attributable To Nondisclosed 
Reportable Transactions and Noneconomic Substance Transactions.--No 
deduction shall be allowed under this chapter for any interest paid or 
accrued under section 6601 on any underpayment of tax which is 
attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.

    There is authorized to be appropriated $300,000,000 for each fiscal 
year beginning after September 30, 2003, for the purpose of carrying 
out tax law enforcement to combat tax avoidance transactions and other 
tax shelters, including the use of offshore financial accounts to 
conceal taxable income.

SEC. 419. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

    (a) In General.--Section 6701(a) (relating to imposition of 
penalty) is amended--
            (1) by inserting ``the tax liability or'' after ``respect 
        to,'' in paragraph (1),
            (2) by inserting ``aid, assistance, procurement, or advice 
        with respect to such'' before ``portion'' both places it 
        appears in paragraphs (2) and (3), and
            (3) by inserting ``instance of aid, assistance, 
        procurement, or advice or each such'' before ``document'' in 
        the matter following paragraph (3).
    (b) Amount of Penalty.--Subsection (b) of section 6701 (relating to 
penalties for aiding and abetting understatement of tax liability) is 
amended to read as follows:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 100 percent of the gross 
        income derived (or to be derived) from such aid, assistance, 
        procurement, or advice provided by the person or persons 
        subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of aid, assistance, procurement, or advice 
        described in subsection (a), each instance in which income was 
        derived by the person or persons subject to such penalty, and 
        each person who made such an understatement of the liability 
        for tax.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to providing such aid, 
        assistance, procurement, or advice, all such persons shall be 
        jointly and severally liable for the penalty under such 
        subsection.''.
    (c) Penalty Not Deductible.--Section 6701 is amended by adding at 
the end the following new subsection:
    ``(g) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be deductible by the person who is 
subject to such penalty or who makes such payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 420. STUDY ON INFORMATION SHARING AMONG LAW ENFORCEMENT AGENCIES.

    (a) Study.--The Secretary of the Treasury shall, jointly with the 
Attorney General, the Securities and Exchange Commission, and the 
Commissioner of Internal Revenue, study the effectiveness of, and ways 
to improve, the sharing of information related to the promotion of 
prohibited tax shelters or tax avoidance schemes and other potential 
violations of Federal laws.
    (b) Report.--The Secretary shall, not later than 1 year after the 
date of the enactment of this Act, report to the appropriate committees 
of the Congress the results of the study under subsection (a), 
including any recommendations for legislation.

           Subtitle B--Other Corporate Governance Provisions

SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 (relating to consolidated return 
regulations) is amended by adding at the end the following new 
sentence: ``In prescribing such regulations, the Secretary may 
prescribe rules applicable to corporations filing consolidated returns 
under section 1501 that are different from other provisions of this 
title that would apply if such corporations filed separate returns.''.
    (b) Result Not Overturned.--Notwithstanding subsection (a), the 
Internal Revenue Code of 1986 shall be construed by treating Treasury 
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) 
as being inapplicable to the type of factual situation in 255 F.3d 1357 
(Fed. Cir. 2001).
    (c) Effective Date.--The provisions of this section shall apply to 
taxable years beginning before, on, or after the date of the enactment 
of this Act.

SEC. 422. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO FEDERAL 
              ANNUAL INCOME TAX RETURN OF A CORPORATION.

    (a) In General.--The Federal annual tax return of a corporation 
with respect to income shall also include a declaration signed by the 
chief executive officer of such corporation (or other such officer of 
the corporation as the Secretary of the Treasury may designate if the 
corporation does not have a chief executive officer), under penalties 
of perjury, that the corporation has in place processes and procedures 
to ensure that such return complies with the Internal Revenue Code of 
1986 and that the chief executive officer was provided reasonable 
assurance of the accuracy of all material aspects of such return. The 
preceding sentence shall not apply to any return of a regulated 
investment company (within the meaning of section 851 of such Code).
    (b) Effective Date.--This section shall apply to the Federal annual 
tax return of a corporation with respect to income for taxable years 
ending after the date of the enactment of this Act.

SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation to 
        the violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which the taxpayer 
        establishes constitutes restitution (including remediation of 
        property) for damage or harm caused by or which may be caused 
        by the violation of any law or the potential violation of any 
        law. This paragraph shall not apply to any amount paid or 
        incurred as reimbursement to the government or entity for the 
        costs of any investigation or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after April 27, 2003, except that such 
amendment shall not apply to amounts paid or incurred under any binding 
order or agreement entered into on or before April 27, 2003. Such 
exception shall not apply to an order or agreement requiring court 
approval unless the approval was obtained on or before April 27, 2003.

SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) (relating to treble damage 
        payments under the antitrust laws) is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively,
                    (B) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendment.--The heading for section 162(g) 
        is amended by inserting ``or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 (relating to 
        information at source) is amended by adding at the end the 
        following new subsection:
    ``(f) Section To Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE 
              UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.

    (a) In General.--Section 7206 (relating to fraud and false 
statements) is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6401(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (b) Increase in Penalties.--
            (1) Attempt to evade or defeat tax.--Section 7201 is 
        amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``5 years'' and inserting ``10 
                years''.
            (2) Willful failure to file return, supply information, or 
        pay tax.--Section 7203 is amended--
                    (A) in the first sentence--
                            (i) by striking ``misdemeanor'' and 
                        inserting ``felony'', and
                            (ii) by striking ``1 year'' and inserting 
                        ``10 years'', and
                    (B) by striking the third sentence.
            (3) Fraud and false statements.--Section 7206(a) (as 
        redesignated by subsection (a)) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``3 years'' and inserting ``5 
                years''.
    (c) Effective Date.--The amendments made by this section shall 
apply to underpayments and overpayments attributable to actions 
occurring after the date of the enactment of this Act.

            Subtitle C--Enron-Related Tax Shelter Provisions

SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

    (a) In General.--Section 362 (relating to basis to corporations) is 
amended by adding at the end the following new subsection:
    ``(e) Limitations on Built-In Losses.--
            ``(1) Limitation on importation of built-in losses.--
                    ``(A) In general.--If in any transaction described 
                in subsection (a) or (b) there would (but for this 
                subsection) be an importation of a net built-in loss, 
                the basis of each property described in subparagraph 
                (B) which is acquired in such transaction shall 
                (notwithstanding subsections (a) and (b)) be its fair 
                market value immediately after such transaction.
                    ``(B) Property described.--For purposes of 
                subparagraph (A), property is described in this 
                subparagraph if--
                            ``(i) gain or loss with respect to such 
                        property is not subject to tax under this 
                        subtitle in the hands of the transferor 
                        immediately before the transfer, and
                            ``(ii) gain or loss with respect to such 
                        property is subject to such tax in the hands of 
                        the transferee immediately after such transfer.
                In any case in which the transferor is a partnership, 
                the preceding sentence shall be applied by treating 
                each partner in such partnership as holding such 
                partner's proportionate share of the property of such 
                partnership.
                    ``(C) Importation of net built-in loss.--For 
                purposes of subparagraph (A), there is an importation 
                of a net built-in loss in a transaction if the 
                transferee's aggregate adjusted bases of property 
                described in subparagraph (B) which is transferred in 
                such transaction would (but for this paragraph) exceed 
                the fair market value of such property immediately 
                after such transaction.
            ``(2) Limitation on transfer of built-in losses in section 
        351 transactions.--
                    ``(A) In general.--If--
                            ``(i) property is transferred by a 
                        transferor in any transaction which is 
                        described in subsection (a) and which is not 
                        described in paragraph (1) of this subsection, 
                        and
                            ``(ii) the transferee's aggregate adjusted 
                        bases of such property so transferred would 
                        (but for this paragraph) exceed the fair market 
                        value of such property immediately after such 
                        transaction,
                then, notwithstanding subsection (a), the transferee's 
                aggregate adjusted bases of the property so transferred 
                shall not exceed the fair market value of such property 
                immediately after such transaction.
                    ``(B) Allocation of basis reduction.--The aggregate 
                reduction in basis by reason of subparagraph (A) shall 
                be allocated among the property so transferred in 
                proportion to their respective built-in losses 
                immediately before the transaction.
                    ``(C) Exception for transfers within affiliated 
                group.--Subparagraph (A) shall not apply to any 
                transaction if the transferor owns stock in the 
                transferee meeting the requirements of section 
                1504(a)(2). In the case of property to which 
                subparagraph (A) does not apply by reason of the 
                preceding sentence, the transferor's basis in the stock 
                received for such property shall not exceed its fair 
                market value immediately after the transfer.''.
    (b) Comparable Treatment Where Liquidation.--Paragraph (1) of 
section 334(b) (relating to liquidation of subsidiary) is amended to 
read as follows:
            ``(1) In general.--If property is received by a corporate 
        distributee in a distribution in a complete liquidation to 
        which section 332 applies (or in a transfer described in 
        section 337(b)(1)), the basis of such property in the hands of 
        such distributee shall be the same as it would be in the hands 
        of the transferor; except that the basis of such property in 
        the hands of such distributee shall be the fair market value of 
        the property at the time of the distribution--
                    ``(A) in any case in which gain or loss is 
                recognized by the liquidating corporation with respect 
                to such property, or
                    ``(B) in any case in which the liquidating 
                corporation is a foreign corporation, the corporate 
                distributee is a domestic corporation, and the 
                corporate distributee's aggregate adjusted bases of 
                property described in section 362(e)(1)(B) which is 
                distributed in such liquidation would (but for this 
                subparagraph) exceed the fair market value of such 
                property immediately after such liquidation.''.
    (c) Effective Dates.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to transactions after December 31, 2003.
            (2) Liquidations.--The amendment made by subsection (b) 
        shall apply to liquidations after December 31, 2003.

SEC. 432. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY 
              PARTNERSHIP IN CORPORATE PARTNER.

    (a) In General.--Section 755 is amended by adding at the end the 
following new subsection:
    ``(c) No Allocation of Basis Decrease to Stock of Corporate 
Partner.--In making an allocation under subsection (a) of any decrease 
in the adjusted basis of partnership property under section 734(b)--
            ``(1) no allocation may be made to stock in a corporation 
        (or any person which is related (within the meaning of section 
        267(b) or 707(b)(1)) to such corporation) which is a partner in 
        the partnership, and
            ``(2) any amount not allocable to stock by reason of 
        paragraph (1) shall be allocated under subsection (a) to other 
        partnership property in such manner as the Secretary may 
        prescribe.
Gain shall be recognized to the partnership to the extent that the 
amount required to be allocated under paragraph (2) to other 
partnership property exceeds the aggregate adjusted basis of such other 
property immediately before the allocation required by paragraph 
(2).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after February 13, 2003.

SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS.

    (a) In General.--Part V of subchapter M of chapter 1 (relating to 
financial asset securitization investment trusts) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (6) of section 56(g) is amended by striking 
        ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (2) Clause (ii) of section 382(l)(4)(B) is amended by 
        striking ``a REMIC to which part IV of subchapter M applies, or 
        a FASIT to which part V of subchapter M applies,'' and 
        inserting ``or a REMIC to which part IV of subchapter M 
        applies,''.
            (3) Paragraph (1) of section 582(c) is amended by striking 
        ``, and any regular interest in a FASIT,''.
            (4) Subparagraph (E) of section 856(c)(5) is amended by 
        striking the last sentence.
            (5)(A) Section 860G(a)(1) is amended by adding at the end 
        the following new sentence: ``An interest shall not fail to 
        qualify as a regular interest solely because the specified 
        principal amount of the regular interest (or the amount of 
        interest accrued on the regular interest) can be reduced as a 
        result of the nonoccurrence of 1 or more contingent payments 
        with respect to any reverse mortgage loan held by the REMIC if, 
        on the startup day for the REMIC, the sponsor reasonably 
        believes that all principal and interest due under the regular 
        interest will be paid at or prior to the liquidation of the 
        REMIC.''.
            (B) The last sentence of section 860G(a)(3) is amended by 
        inserting ``, and any reverse mortgage loan (and each balance 
        increase on such loan meeting the requirements of subparagraph 
        (A)(iii)) shall be treated as an obligation secured by an 
        interest in real property'' before the period at the end.
            (6) Paragraph (3) of section 860G(a) is amended by adding 
        ``and'' at the end of subparagraph (B), by striking ``, and'' 
        at the end of subparagraph (C) and inserting a period, and by 
        striking subparagraph (D).
            (7) Section 860G(a)(3), as amended by paragraph (6), is 
        amended by adding at the end the following new sentence: ``For 
        purposes of subparagraph (A), if more than 50 percent of the 
        obligations transferred to, or purchased by, the REMIC are 
        originated by the United States or any State (or any political 
        subdivision, agency, or instrumentality of the United States or 
        any State) and are principally secured by an interest in real 
        property, then each obligation transferred to, or purchased by, 
        the REMIC shall be treated as secured by an interest in real 
        property.''.
            (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
        at the end of clause (i), by inserting ``or'' at the end of 
        clause (ii), and by inserting after clause (ii) the following 
        new clause:
                            ``(iii) represents an increase in the 
                        principal amount under the original terms of an 
                        obligation described in clause (i) or (ii) if 
                        such increase--
                                    ``(I) is attributable to an advance 
                                made to the obligor pursuant to the 
                                original terms of the obligation,
                                    ``(II) occurs after the startup 
                                day, and
                                    ``(III) is purchased by the REMIC 
                                pursuant to a fixed price contract in 
                                effect on the startup day.''.
            (B) Section 860G(a)(7)(B) is amended to read as follows:
                    ``(B) Qualified reserve fund.--For purposes of 
                subparagraph (A), the term `qualified reserve fund' 
                means any reasonably required reserve to--
                            ``(i) provide for full payment of expenses 
                        of the REMIC or amounts due on regular 
                        interests in the event of defaults on qualified 
                        mortgages or lower than expected returns on 
                        cash flow investments, or
                            ``(ii) provide a source of funds for the 
                        purchase of obligations described in clause 
                        (ii) or (iii) of paragraph (3)(A).
                The aggregate fair market value of the assets held in 
                any such reserve shall not exceed 50 percent of the 
                aggregate fair market value of all of the assets of the 
                REMIC on the startup day, and the amount of any such 
                reserve shall be promptly and appropriately reduced to 
                the extent the amount held in such reserve is no longer 
                reasonably required for purposes specified in clause 
                (i) or (ii) of this subparagraph.''.
            (9) Subparagraph (C) of section 1202(e)(4) is amended by 
        striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (10) Clause (xi) of section 7701(a)(19)(C) is amended--
                    (A) by striking ``and any regular interest in a 
                FASIT,'', and
                    (B) by striking ``or FASIT'' each place it appears.
            (11) Subparagraph (A) of section 7701(i)(2) is amended by 
        striking ``or a FASIT''.
            (12) The table of parts for subchapter M of chapter 1 is 
        amended by striking the item relating to part V.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on February 
        14, 2003.
            (2) Exception for existing fasits.--Paragraph (1) shall not 
        apply to any FASIT in existence on the date of the enactment of 
        this Act to the extent that regular interests issued by the 
        FASIT before such date continue to remain outstanding in 
        accordance with the original terms of issuance.

SEC. 434. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
              CONVERTIBLE DEBT.

    (a) In General.--Paragraph (2) of section 163(l) is amended by 
inserting ``or equity held by the issuer (or any related party) in any 
other person'' after ``or a related party''.
    (b) Capitalization Allowed With Respect to Equity of Persons Other 
Than Issuer and Related Parties.--Section 163(l) is amended by 
redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) Capitalization allowed with respect to equity of 
        persons other than issuer and related parties.--If the 
        disqualified debt instrument of a corporation is payable in 
        equity held by the issuer (or any related party) in any other 
        person (other than a related party), the basis of such equity 
        shall be increased by the amount not allowed as a deduction by 
        reason of paragraph (1) with respect to the instrument.''.
    (c) Exception for Certain Instruments Issued by Dealers in 
Securities.--Section 163(l), as amended by subsection (b), is amended 
by redesignating paragraphs (5) and (6) as paragraphs (6) and (7) and 
by inserting after paragraph (4) the following new paragraph:
            ``(5) Exception for certain instruments issued by dealers 
        in securities.--For purposes of this subsection, the term 
        `disqualified debt instrument' does not include indebtedness 
        issued by a dealer in securities (or a related party) which is 
        payable in, or by reference to, equity (other than equity of 
        the issuer or a related party) held by such dealer in its 
        capacity as a dealer in securities. For purposes of this 
        paragraph, the term `dealer in securities' has the meaning 
        given such term by section 475.''.
    (d) Conforming Amendments.--Paragraph (3) of section 163(l) is 
amended--
            (1) by striking ``or a related party'' in the material 
        preceding subparagraph (A) and inserting ``or any other 
        person'', and
            (2) by striking ``or interest'' each place it appears.
    (e) Effective Date.--The amendments made by this section shall 
apply to debt instruments issued after February 13, 2003.

SEC. 435. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION 
              269.

    (a) In General.--Subsection (a) of section 269 (relating to 
acquisitions made to evade or avoid income tax) is amended to read as 
follows:
    ``(a) In General.--If--
            ``(1)(A) any person or persons acquire, directly or 
        indirectly, control of a corporation, or
            ``(B) any corporation acquires, directly or indirectly, 
        property of another corporation and the basis of such property, 
        in the hands of the acquiring corporation, is determined by 
        reference to the basis in the hands of the transferor 
        corporation, and
            ``(2) the principal purpose for which such acquisition was 
        made is evasion or avoidance of Federal income tax,
then the Secretary may disallow such deduction, credit, or other 
allowance. For purposes of paragraph (1)(A), control means the 
ownership of stock possessing at least 50 percent of the total combined 
voting power of all classes of stock entitled to vote or at least 50 
percent of the total value of all shares of all classes of stock of the 
corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to stock and property acquired after February 13, 2003.

SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND PASSIVE 
              FOREIGN INVESTMENT COMPANY RULES.

    (a) Limitation on Exception From PFIC Rules for United States 
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of 
section 1297(e) (relating to passive foreign investment company) is 
amended by adding at the end the following flush sentence:
                ``Such term shall not include any period if the earning 
                of subpart F income by such corporation during such 
                period would result in only a remote likelihood of an 
                inclusion in gross income under section 
                951(a)(1)(A)(i).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
February 13, 2003, and to taxable years of United States shareholders 
with or within which such taxable years of controlled foreign 
corporations end.

           Subtitle D--Provisions to Discourage Expatriation

SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

    (a) In General.--Subchapter C of chapter 80 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.

    ``(a) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall be 
        treated for purposes of this title as a domestic corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        section, a foreign incorporated entity shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after March 20, 2002, 
                the direct or indirect acquisition of substantially all 
                of the properties held directly or indirectly by a 
                domestic corporation or substantially all of the 
                properties constituting a trade or business of a 
                domestic partnership,
                    ``(B) after the acquisition at least 80 percent of 
                the stock (by vote or value) of the entity is held--
                            ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                            ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership, and
                    ``(C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                substantial business activities in the foreign country 
                in which or under the law of which the entity is 
                created or organized when compared to the total 
                business activities of such expanded affiliated group.
        Except as provided in regulations, an acquisition of properties 
        of a domestic corporation shall not be treated as described in 
        subparagraph (A) if none of the corporation's stock was readily 
        tradeable on an established securities market at any time 
        during the 4-year period ending on the date of the acquisition.
    ``(b) Preservation of Domestic Tax Base in Certain Inversion 
Transactions to Which Subsection (a) Does Not Apply.--
            ``(1) In general.--If a foreign incorporated entity would 
        be treated as an inverted domestic corporation with respect to 
        an acquired entity if either--
                    ``(A) subsection (a)(2)(A) were applied by 
                substituting `after December 31, 1996, and on or before 
                March 20, 2002' for `after March 20, 2002' and 
                subsection (a)(2)(B) were applied by substituting `more 
                than 50 percent' for `at least 80 percent', or
                    ``(B) subsection (a)(2)(B) were applied by 
                substituting `more than 50 percent' for `at least 80 
                percent',
        then the rules of subsection (c) shall apply to any inversion 
        gain of the acquired entity during the applicable period and 
        the rules of subsection (d) shall apply to any related party 
        transaction of the acquired entity during the applicable 
        period. This subsection shall not apply for any taxable year if 
        subsection (a) applies to such foreign incorporated entity for 
        such taxable year.
            ``(2) Acquired entity.--For purposes of this section--
                    ``(A) In general.--The term `acquired entity' means 
                the domestic corporation or partnership substantially 
                all of the properties of which are directly or 
                indirectly acquired in an acquisition described in 
                subsection (a)(2)(A) to which this subsection applies.
                    ``(B) Aggregation rules.--Any domestic person 
                bearing a relationship described in section 267(b) or 
                707(b) to an acquired entity shall be treated as an 
                acquired entity with respect to the acquisition 
                described in subparagraph (A).
            ``(3) Applicable period.--For purposes of this section--
                    ``(A) In general.--The term `applicable period' 
                means the period--
                            ``(i) beginning on the first date 
                        properties are acquired as part of the 
                        acquisition described in subsection (a)(2)(A) 
                        to which this subsection applies, and
                            ``(ii) ending on the date which is 10 years 
                        after the last date properties are acquired as 
                        part of such acquisition.
                    ``(B) Special rule for inversions occurring before 
                march 21, 2002.--In the case of any acquired entity to 
                which paragraph (1)(A) applies, the applicable period 
                shall be the 10-year period beginning on January 1, 
                2003.
    ``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b) 
applies--
            ``(1) In general.--The taxable income of an acquired entity 
        (or any expanded affiliated group which includes such entity) 
        for any taxable year which includes any portion of the 
        applicable period shall in no event be less than the inversion 
        gain of the entity for the taxable year.
            ``(2) Credits not allowed against tax on inversion gain.--
        Credits shall be allowed against the tax imposed by this 
        chapter on an acquired entity for any taxable year described in 
        paragraph (1) only to the extent such tax exceeds the product 
        of--
                    ``(A) the amount of the inversion gain for the 
                taxable year, and
                    ``(B) the highest rate of tax specified in section 
                11(b)(1).
        For purposes of determining the credit allowed by section 901 
        inversion gain shall be treated as from sources within the 
        United States.
            ``(3) Special rules for partnerships.--In the case of an 
        acquired entity which is a partnership--
                    ``(A) the limitations of this subsection shall 
                apply at the partner rather than the partnership level,
                    ``(B) the inversion gain of any partner for any 
                taxable year shall be equal to the sum of--
                            ``(i) the partner's distributive share of 
                        inversion gain of the partnership for such 
                        taxable year, plus
                            ``(ii) income or gain required to be 
                        recognized for the taxable year by the partner 
                        under section 367(a), 741, or 1001, or under 
                        any other provision of chapter 1, by reason of 
                        the transfer during the applicable period of 
                        any partnership interest of the partner in such 
                        partnership to the foreign incorporated entity, 
                        and
                    ``(C) the highest rate of tax specified in the rate 
                schedule applicable to the partner under chapter 1 
                shall be substituted for the rate of tax under 
                paragraph (2)(B).
            ``(4) Inversion gain.--For purposes of this section, the 
        term `inversion gain' means any income or gain required to be 
        recognized under section 304, 311(b), 367, 1001, or 1248, or 
        under any other provision of chapter 1, by reason of the 
        transfer during the applicable period of stock or other 
        properties by an acquired entity--
                    ``(A) as part of the acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, 
                or
                    ``(B) after such acquisition to a foreign related 
                person.
        The Secretary may provide that income or gain from the sale of 
        inventories or other transactions in the ordinary course of a 
        trade or business shall not be treated as inversion gain under 
        subparagraph (B) to the extent the Secretary determines such 
        treatment would not be inconsistent with the purposes of this 
        section.
            ``(5) Coordination with section 172 and minimum tax.--Rules 
        similar to the rules of paragraphs (3) and (4) of section 
        860E(a) shall apply for purposes of this section.
            ``(6) Statute of limitations.--
                    ``(A) In general.--The statutory period for the 
                assessment of any deficiency attributable to the 
                inversion gain of any taxpayer for any pre-inversion 
                year shall not expire before the expiration of 3 years 
                from the date the Secretary is notified by the taxpayer 
                (in such manner as the Secretary may prescribe) of the 
                acquisition described in subsection (a)(2)(A) to which 
                such gain relates and such deficiency may be assessed 
                before the expiration of such 3-year period 
                notwithstanding the provisions of any other law or rule 
                of law which would otherwise prevent such assessment.
                    ``(B) Pre-inversion year.--For purposes of 
                subparagraph (A), the term `pre-inversion year' means 
                any taxable year if--
                            ``(i) any portion of the applicable period 
                        is included in such taxable year, and
                            ``(ii) such year ends before the taxable 
                        year in which the acquisition described in 
                        subsection (a)(2)(A) is completed.
    ``(d) Special Rules Applicable to Acquired Entities to Which 
Subsection (b) Applies.--
            ``(1) Increases in accuracy-related penalties.--In the case 
        of any underpayment of tax of an acquired entity to which 
        subsection (b) applies--
                    ``(A) section 6662(a) shall be applied with respect 
                to such underpayment by substituting `30 percent' for 
                `20 percent', and
                    ``(B) if such underpayment is attributable to one 
                or more gross valuation understatements, the increase 
                in the rate of penalty under section 6662(h) shall be 
                to 50 percent rather than 40 percent.
            ``(2) Modifications of limitation on interest deduction.--
        In the case of an acquired entity to which subsection (b) 
        applies, section 163(j) shall be applied--
                    ``(A) without regard to paragraph (2)(A)(ii) 
                thereof, and
                    ``(B) by substituting `25 percent' for `50 percent' 
                each place it appears in paragraph (2)(B) thereof.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Rules for application of subsection (a)(2).--In 
        applying subsection (a)(2) for purposes of subsections (a) and 
        (b), the following rules shall apply:
                    ``(A) Certain stock disregarded.--There shall not 
                be taken into account in determining ownership for 
                purposes of subsection (a)(2)(B)--
                            ``(i) stock held by members of the expanded 
                        affiliated group which includes the foreign 
                        incorporated entity, or
                            ``(ii) stock of such entity which is sold 
                        in a public offering or private placement 
                        related to the acquisition described in 
                        subsection (a)(2)(A).
                    ``(B) Plan deemed in certain cases.--If a foreign 
                incorporated entity acquires directly or indirectly 
                substantially all of the properties of a domestic 
                corporation or partnership during the 4-year period 
                beginning on the date which is 2 years before the 
                ownership requirements of subsection (a)(2)(B) are met 
                with respect to such domestic corporation or 
                partnership, such actions shall be treated as pursuant 
                to a plan.
                    ``(C) Certain transfers disregarded.--The transfer 
                of properties or liabilities (including by contribution 
                or distribution) shall be disregarded if such transfers 
                are part of a plan a principal purpose of which is to 
                avoid the purposes of this section.
                    ``(D) Special rule for related partnerships.--For 
                purposes of applying subsection (a)(2) to the 
                acquisition of a domestic partnership, except as 
                provided in regulations, all partnerships which are 
                under common control (within the meaning of section 
                482) shall be treated as 1 partnership.
                    ``(E) Treatment of certain rights.--The Secretary 
                shall prescribe such regulations as may be necessary--
                            ``(i) to treat warrants, options, contracts 
                        to acquire stock, convertible debt instruments, 
                        and other similar interests as stock, and
                            ``(ii) to treat stock as not stock.
            ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to section 1504(b)(3), 
        except that section 1504(a) shall be applied by substituting 
        `more than 50 percent' for `at least 80 percent' each place it 
        appears.
            ``(3) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but for 
        subsection (a)(1) would be, treated as a foreign corporation 
        for purposes of this title.
            ``(4) Foreign related person.--The term `foreign related 
        person' means, with respect to any acquired entity, a foreign 
        person which--
                    ``(A) bears a relationship to such entity described 
                in section 267(b) or 707(b), or
                    ``(B) is under the same common control (within the 
                meaning of section 482) as such entity.
            ``(5) Subsequent acquisitions by unrelated domestic 
        corporations.--
                    ``(A) In general.--Subject to such conditions, 
                limitations, and exceptions as the Secretary may 
                prescribe, if, after an acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, a 
                domestic corporation stock of which is traded on an 
                established securities market acquires directly or 
                indirectly any properties of one or more acquired 
                entities in a transaction with respect to which the 
                requirements of subparagraph (B) are met, this section 
                shall cease to apply to any such acquired entity with 
                respect to which such requirements are met.
                    ``(B) Requirements.--The requirements of the 
                subparagraph are met with respect to a transaction 
                involving any acquisition described in subparagraph (A) 
                if--
                            ``(i) before such transaction the domestic 
                        corporation did not have a relationship 
                        described in section 267(b) or 707(b), and was 
                        not under common control (within the meaning of 
                        section 482), with the acquired entity, or any 
                        member of an expanded affiliated group 
                        including such entity, and
                            ``(ii) after such transaction, such 
                        acquired entity--
                                    ``(I) is a member of the same 
                                expanded affiliated group which 
                                includes the domestic corporation or 
                                has such a relationship or is under 
                                such common control with any member of 
                                such group, and
                                    ``(II) is not a member of, and does 
                                not have such a relationship and is not 
                                under such common control with any 
                                member of, the expanded affiliated 
                                group which before such acquisition 
                                included such entity.
    ``(f) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
            ``(1) the use of related persons, pass-thru or other 
        noncorporate entities, or other intermediaries, or
            ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''.
    (b) Information Reporting.--The Secretary of the Treasury shall 
exercise the Secretary's authority under the Internal Revenue Code of 
1986 to require entities involved in transactions to which section 7874 
of such Code (as added by subsection (a)) applies to report to the 
Secretary, shareholders, partners, and such other persons as the 
Secretary may prescribe such information as is necessary to ensure the 
proper tax treatment of such transactions.
    (c) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 is amended by adding at the end the following new item:

                              ``Sec. 7874. Rules relating to inverted 
                                        corporate entities.''.
    (d) Transition Rule for Certain Regulated Investment Companies and 
Unit Investment Trusts.--Notwithstanding section 7874 of the Internal 
Revenue Code of 1986 (as added by subsection (a)), a regulated 
investment company, or other pooled fund or trust specified by the 
Secretary of the Treasury, may elect to recognize gain by reason of 
section 367(a) of such Code with respect to a transaction under which a 
foreign incorporated entity is treated as an inverted domestic 
corporation under section 7874(a) of such Code by reason of an 
acquisition completed after March 20, 2002, and before January 1, 2004.
    (e) Disclosure of Corporate Expatriation Transactions.--
            (1) In general.--Section 14 of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78n) is amended by adding at the end the 
        following new subsection:
    ``(i) Proxy Solicitations in Connection With Corporate Expatriation 
Transactions.--
            ``(1) Disclosure to shareholders of effects of corporate 
        expatriation transaction.--The Commission shall, by rule, 
        require that each domestic issuer shall prominently disclose, 
        not later than 5 business days before any shareholder vote 
        relating to a corporate expatriation transaction, as a separate 
        and distinct document accompanying each proxy statement 
        relating to the transaction--
                    ``(A) the number of employees of the domestic 
                issuer that would be located in the new foreign 
                jurisdiction of incorporation or organization of that 
                issuer upon completion of the corporate expatriation 
                transaction;
                    ``(B) how the rights of holders of the securities 
                of the domestic issuer would be impacted by a completed 
                corporate expatriation transaction, and any differences 
                in such rights before and after a completed corporate 
                expatriation transaction; and
                    ``(C) that, as a result of a completed corporate 
                expatriation transaction, any taxable holder of the 
                securities of the domestic issuer shall be subject to 
                the taxation of any capital gains realized with respect 
                to such securities, and the amount of any such capital 
                gains tax that would apply as a result of the 
                transaction.
            ``(2) Definitions.--In this subsection, the following 
        definitions shall apply:
                    ``(A) Corporate expatriation transaction.--The term 
                `corporate expatriation transaction' means any 
                transaction, or series of related transactions, 
                described in subsection (a) or (b) of section 7874 of 
                the Internal Revenue Code of 1986.
                    ``(A) Domestic issuer.--The term `domestic issuer' 
                means an issuer created or organized in the United 
                States or under the law of the United States or of any 
                State.''
            (2) Effective date.--Section 14(i) of the Securities 
        Exchange Act of 1934 (as added by this subsection) shall apply 
        with respect to corporate expatriation transactions (as defined 
        in that section 14(i)) proposed on and after the date of 
        enactment of this Act.

SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
              EXPATRIATE.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsections 
        (d) and (f), all property of a covered expatriate to whom this 
        section applies shall be treated as sold on the day before the 
        expatriation date for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence.
            ``(3) Exclusion for certain gain.--
                    ``(A) In general.--The amount which, but for this 
                paragraph, would be includible in the gross income of 
                any individual by reason of this section shall be 
                reduced (but not below zero) by $600,000. For purposes 
                of this paragraph, allocable expatriation gain taken 
                into account under subsection (f)(2) shall be treated 
                in the same manner as an amount required to be 
                includible in gross income.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of an 
                        expatriation date occurring in any calendar 
                        year after 2004, the $600,000 amount under 
                        subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `calendar 
                                year 2003' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $1,000, such amount shall be rounded to the 
                        next lower multiple of $1,000.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If a covered expatriate elects 
                the application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph and subsection (i)) shall not apply 
                        to the expatriate, but
                            ``(ii) in the case of property to which 
                        this section would apply but for such election, 
                        the expatriate shall be subject to tax under 
                        this title in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(C) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property treated as sold 
        by reason of subsection (a), the payment of the additional tax 
        attributable to such property shall be postponed until the due 
        date of the return for the taxable year in which such property 
        is disposed of (or, in the case of property disposed of in a 
        transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
            ``(3) Termination of postponement.--No tax may be postponed 
        under this subsection later than the due date for the return of 
        tax imposed by this chapter for the taxable year which includes 
        the date of death of the expatriate (or, if earlier, the time 
        that the security provided with respect to the property fails 
        to meet the requirements of paragraph (4), unless the taxpayer 
        corrects such failure within the time specified by the 
        Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided to the Secretary with 
                respect to such property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2) for 
                        the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be made under paragraph 
        (1) with respect to an interest in a trust with respect to 
        which gain is required to be recognized under subsection 
        (f)(1).
            ``(7) Interest.--For purposes of section 6601--
                    ``(A) the last date for the payment of tax shall be 
                determined without regard to the election under this 
                subsection, and
                    ``(B) section 6621(a)(2) shall be applied by 
                substituting `5 percentage points' for `3 percentage 
                points' in subparagraph (B) thereof.
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph (2), the 
        term `covered expatriate' means an expatriate.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has not been a resident of the 
                        United States (as defined in section 
                        7701(b)(1)(A)(ii)) during the 5 taxable years 
                        ending with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Exempt Property; Special Rules for Pension Plans.--
            ``(1) Exempt property.--This section shall not apply to the 
        following:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the day before the expatriation date, meet the 
                requirements of section 897(c)(2).
                    ``(B) Specified property.--Any property or interest 
                in property not described in subparagraph (A) which the 
                Secretary specifies in regulations.
            ``(2) Special rules for certain retirement plans.--
                    ``(A) In general.--If a covered expatriate holds on 
                the day before the expatriation date any interest in a 
                retirement plan to which this paragraph applies--
                            ``(i) such interest shall not be treated as 
                        sold for purposes of subsection (a)(1), but
                            ``(ii) an amount equal to the present value 
                        of the expatriate's nonforfeitable accrued 
                        benefit shall be treated as having been 
                        received by such individual on such date as a 
                        distribution under the plan.
                    ``(B) Treatment of subsequent distributions.--In 
                the case of any distribution on or after the 
                expatriation date to or on behalf of the covered 
                expatriate from a plan from which the expatriate was 
                treated as receiving a distribution under subparagraph 
                (A), the amount otherwise includible in gross income by 
                reason of the subsequent distribution shall be reduced 
                by the excess of the amount includible in gross income 
                under subparagraph (A) over any portion of such amount 
                to which this subparagraph previously applied.
                    ``(C) Treatment of subsequent distributions by 
                plan.--For purposes of this title, a retirement plan to 
                which this paragraph applies, and any person acting on 
                the plan's behalf, shall treat any subsequent 
                distribution described in subparagraph (B) in the same 
                manner as such distribution would be treated without 
                regard to this paragraph.
                    ``(D) Applicable plans.--This paragraph shall apply 
                to--
                            ``(i) any qualified retirement plan (as 
                        defined in section 4974(c)),
                            ``(ii) an eligible deferred compensation 
                        plan (as defined in section 457(b)) of an 
                        eligible employer described in section 
                        457(e)(1)(A), and
                            ``(iii) to the extent provided in 
                        regulations, any foreign pension plan or 
                        similar retirement arrangements or programs.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                citizenship, and
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces such 
                individual's United States nationality before a 
                diplomatic or consular officer of the United States 
                pursuant to paragraph (5) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust on the day before the expatriation date--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets on the day before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii). In determining the amount of such 
        distribution, proper adjustments shall be made for liabilities 
        of the trust allocable to an individual's share in the trust.
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year which 
                        includes the day before the expatriation date, 
                        multiplied by the amount of the distribution, 
                        or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods, except 
                        that section 6621(a)(2) shall be applied by 
                        substituting `5 percentage points' for `3 
                        percentage points' in subparagraph (B) thereof.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the day before the expatriation date 
                        were the date of such cessation, disposition, 
                        or death, whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rules.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust which is described in 
                        section 7701(a)(30)(E).
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        day before the expatriation date, is vested in 
                        the beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
                            ``(v) Coordination with retirement plan 
                        rules.--This subsection shall not apply to an 
                        interest in a trust which is part of a 
                        retirement plan to which subsection (d)(2) 
                        applies.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar adviser.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, etc.--In the case of any covered 
expatriate, notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate on the day before the expatriation 
        date, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply on the day before the expatriation date and the unpaid 
        portion of such tax shall be due and payable at the time and in 
        the manner prescribed by the Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Special Liens for Deferred Tax Amounts.--
            ``(1) Imposition of lien.--
                    ``(A) In general.--If a covered expatriate makes an 
                election under subsection (a)(4) or (b) which results 
                in the deferral of any tax imposed by reason of 
                subsection (a), the deferred amount (including any 
                interest, additional amount, addition to tax, 
                assessable penalty, and costs attributable to the 
                deferred amount) shall be a lien in favor of the United 
                States on all property of the expatriate located in the 
                United States (without regard to whether this section 
                applies to the property).
                    ``(B) Deferred amount.--For purposes of this 
                subsection, the deferred amount is the amount of the 
                increase in the covered expatriate's income tax which, 
                but for the election under subsection (a)(4) or (b), 
                would have occurred by reason of this section for the 
                taxable year including the expatriation date.
            ``(2) Period of lien.--The lien imposed by this subsection 
        shall arise on the expatriation date and continue until--
                    ``(A) the liability for tax by reason of this 
                section is satisfied or has become unenforceable by 
                reason of lapse of time, or
                    ``(B) it is established to the satisfaction of the 
                Secretary that no further tax liability may arise by 
                reason of this section.
            ``(3) Certain rules apply.--The rules set forth in 
        paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
        with respect to the lien imposed by this subsection as if it 
        were a lien imposed by section 6324A.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Inclusion in Income of Gifts and Bequests Received by United 
States Citizens and Residents From Expatriates.--Section 102 (relating 
to gifts, etc. not included in gross income) is amended by adding at 
the end the following new subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--
            ``(1) In general.--Subsection (a) shall not exclude from 
        gross income the value of any property acquired by gift, 
        bequest, devise, or inheritance from a covered expatriate after 
        the expatriation date. For purposes of this subsection, any 
        term used in this subsection which is also used in section 877A 
        shall have the same meaning as when used in section 877A.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Paragraph (1) shall not apply to any property if 
        either--
                    ``(A) the gift, bequest, devise, or inheritance 
                is--
                            ``(i) shown on a timely filed return of tax 
                        imposed by chapter 12 as a taxable gift by the 
                        covered expatriate, or
                            ``(ii) included in the gross estate of the 
                        covered expatriate for purposes of chapter 11 
                        and shown on a timely filed return of tax 
                        imposed by chapter 11 of the estate of the 
                        covered expatriate, or
                    ``(B) no such return was timely filed but no such 
                return would have been required to be filed even if the 
                covered expatriate were a citizen or long-term resident 
                of the United States.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(48) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date 
                on which the individual's citizenship is treated as 
                relinquished under section 877A(e)(3).
                    ``(B) Dual citizens.--Under regulations prescribed 
                by the Secretary, subparagraph (A) shall not apply to 
                an individual who became at birth a citizen of the 
                United States and a citizen of another country.''.
    (d) Ineligibility for Visa or Admission to United States.--
            (1) In general.--Section 212(a)(10)(E) of the Immigration 
        and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
        read as follows:
                    ``(E) Former citizens not in compliance with 
                expatriation revenue provisions.--Any alien who is a 
                former citizen of the United States who relinquishes 
                United States citizenship (within the meaning of 
                section 877A(e)(3) of the Internal Revenue Code of 
                1986) and who is not in compliance with section 877A of 
                such Code (relating to expatriation).''.
            (2) Availability of information.--
                    (A) In general.--Section 6103(l) (relating to 
                disclosure of returns and return information for 
                purposes other than tax administration) is amended by 
                adding at the end the following new paragraph:
            ``(19) Disclosure to deny visa or admission to certain 
        expatriates.--Upon written request of the Attorney General or 
        the Attorney General's delegate, the Secretary shall disclose 
        whether an individual is in compliance with section 877A (and 
        if not in compliance, any items of noncompliance) to officers 
        and employees of the Federal agency responsible for 
        administering section 212(a)(10)(E) of the Immigration and 
        Nationality Act solely for the purpose of, and to the extent 
        necessary in, administering such section 212(a)(10)(E).''.
                    (B) Safeguards.--
                            (i) Technical amendments.--Paragraph (4) of 
                        section 6103(p) of the Internal Revenue Code of 
                        1986, as amended by section 202(b)(2)(B) of the 
                        Trade Act of 2002 (Public Law 107-210; 116 
                        Stat. 961), is amended by striking ``or (17)'' 
                        after ``any other person described in 
                        subsection (l)(16)'' each place it appears and 
                        inserting ``or (18)''.
                            (ii) Conforming amendments.--Section 
                        6103(p)(4) (relating to safeguards), as amended 
                        by clause (i), is amended by striking ``or 
                        (18)'' after ``any other person described in 
                        subsection (l)(16)'' each place it appears and 
                        inserting ``(18), or (19)''.
            (3) Effective dates.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to individuals who relinquish United States citizenship 
                on or after the date of the enactment of this Act.
                    (B) Technical amendments.--The amendments made by 
                paragraph (2)(B)(i) shall take effect as if included in 
                the amendments made by section 202(b)(2)(B) of the 
                Trade Act of 2002 (Public Law 107-210; 116 Stat. 961).
    (e) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(g) Application.--This section shall not apply to an expatriate 
(as defined in section 877A(e)) whose expatriation date (as so defined) 
occurs on or after January 1, 2004.''.
            (2) Section 2107 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any expatriate 
subject to section 877A.''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(F) Application.--This paragraph shall not apply 
                to any expatriate subject to section 877A.''.
            (4)(A) Paragraph (1) of section 6039G(d) is amended by 
        inserting ``or 877A'' after ``section 877''.
            (B) The second sentence of section 6039G(e) is amended by 
        inserting ``or who relinquishes United States citizenship 
        (within the meaning of section 877A(e)(3))'' after ``877(a))''.
            (C) Section 6039G(f) is amended by inserting ``or 
        877A(e)(2)(B)'' after ``877(e)(1)''.
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after January 1, 2004.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to gifts and bequests received on or after January 1, 2004, 
        from an individual or the estate of an individual whose 
        expatriation date (as so defined) occurs after such date.
            (3) Due date for tentative tax.--The due date under section 
        877A(h)(2) of the Internal Revenue Code of 1986, as added by 
        this section, shall in no event occur before the 90th day after 
        the date of the enactment of this Act.

SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED 
              CORPORATIONS.

    (a) In General.--Subtitle D is amended by adding at the end the 
following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

                              ``Sec. 5000A. Stock compensation of 
                                        insiders in inverted 
                                        corporations entities.

``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.

    ``(a) Imposition of Tax.--In the case of an individual who is a 
disqualified individual with respect to any inverted corporation, there 
is hereby imposed on such person a tax equal to 20 percent of the value 
(determined under subsection (b)) of the specified stock compensation 
held (directly or indirectly) by or for the benefit of such individual 
or a member of such individual's family (as defined in section 267) at 
any time during the 12-month period beginning on the date which is 6 
months before the inversion date.
    ``(b) Value.--For purposes of subsection (a)--
            ``(1) In general.--The value of specified stock 
        compensation shall be--
                    ``(A) in the case of a stock option (or other 
                similar right) or any stock appreciation right, the 
                fair value of such option or right, and
                    ``(B) in any other case, the fair market value of 
                such compensation.
            ``(2) Date for determining value.--The determination of 
        value shall be made--
                    ``(A) in the case of specified stock compensation 
                held on the inversion date, on such date,
                    ``(B) in the case of such compensation which is 
                canceled during the 6 months before the inversion date, 
                on the day before such cancellation, and
                    ``(C) in the case of such compensation which is 
                granted after the inversion date, on the date such 
                compensation is granted.
    ``(c) Tax To Apply Only if Shareholder Gain Recognized.--Subsection 
(a) shall apply to any disqualified individual with respect to an 
inverted corporation only if gain (if any) on any stock in such 
corporation is recognized in whole or part by any shareholder by reason 
of the acquisition referred to in section 7874(a)(2)(A) (determined by 
substituting `July 10, 2002' for `March 20, 2002') with respect to such 
corporation.
    ``(d) Exception Where Gain Recognized on Compensation.--Subsection 
(a) shall not apply to--
            ``(1) any stock option which is exercised on the inversion 
        date or during the 6-month period before such date and to the 
        stock acquired in such exercise, if income is recognized under 
        section 83 on or before the inversion date with respect to the 
        stock acquired pursuant to such exercise, and
            ``(2) any specified stock compensation which is exercised, 
        sold, exchanged, distributed, cashed out, or otherwise paid 
        during such period in a transaction in which gain or loss is 
        recognized in full.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Disqualified individual.--The term `disqualified 
        individual' means, with respect to a corporation, any 
        individual who, at any time during the 12-month period 
        beginning on the date which is 6 months before the inversion 
        date--
                    ``(A) is subject to the requirements of section 
                16(a) of the Securities Exchange Act of 1934 with 
                respect to such corporation, or
                    ``(B) would be subject to such requirements if such 
                corporation were an issuer of equity securities 
                referred to in such section.
            ``(2) Inverted corporation; inversion date.--
                    ``(A) Inverted corporation.--The term `inverted 
                corporation' means any corporation to which subsection 
                (a) or (b) of section 7874 applies determined--
                            ``(i) by substituting `July 10, 2002' for 
                        `March 20, 2002' in section 7874(a)(2)(A), and
                            ``(ii) without regard to subsection 
                        (b)(1)(A).
                Such term includes any predecessor or successor of such 
                a corporation.
                    ``(B) Inversion date.--The term `inversion date' 
                means, with respect to a corporation, the date on which 
                the corporation first becomes an inverted corporation.
            ``(3) Specified stock compensation.--
                    ``(A) In general.--The term `specified stock 
                compensation' means payment (or right to payment) 
                granted by the inverted corporation (or by any member 
                of the expanded affiliated group which includes such 
                corporation) to any person in connection with the 
                performance of services by a disqualified individual 
                for such corporation or member if the value of such 
                payment or right is based on (or determined by 
                reference to) the value (or change in value) of stock 
                in such corporation (or any such member).
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) any option to which part II of 
                        subchapter D of chapter 1 applies, or
                            ``(ii) any payment or right to payment from 
                        a plan referred to in section 280G(b)(6).
            ``(4) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group (as defined in 
        section 1504(a) without regard to section 1504(b)(3)); except 
        that section 1504(a) shall be applied by substituting `more 
        than 50 percent' for `at least 80 percent' each place it 
        appears.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Cancellation of restriction.--The cancellation of a 
        restriction which by its terms will never lapse shall be 
        treated as a grant.
            ``(2) Payment or reimbursement of tax by corporation 
        treated as specified stock compensation.--Any payment of the 
        tax imposed by this section directly or indirectly by the 
        inverted corporation or by any member of the expanded 
        affiliated group which includes such corporation--
                    ``(A) shall be treated as specified stock 
                compensation, and
                    ``(B) shall not be allowed as a deduction under any 
                provision of chapter 1.
            ``(3) Certain restrictions ignored.--Whether there is 
        specified stock compensation, and the value thereof, shall be 
        determined without regard to any restriction other than a 
        restriction which by its terms will never lapse.
            ``(4) Property transfers.--Any transfer of property shall 
        be treated as a payment and any right to a transfer of property 
        shall be treated as a right to a payment.
            ``(5) Other administrative provisions.--For purposes of 
        subtitle F, any tax imposed by this section shall be treated as 
        a tax imposed by subtitle A.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Denial of Deduction.--
            (1) In general.--Paragraph (6) of section 275(a) is amended 
        by inserting ``48,'' after ``46,''.
            (2) $1,000,000 limit on deductible compensation reduced by 
        payment of excise tax on specified stock compensation.--
        Paragraph (4) of section 162(m) is amended by adding at the end 
        the following new subparagraph:
                    ``(G) Coordination with excise tax on specified 
                stock compensation.--The dollar limitation contained in 
                paragraph (1) with respect to any covered employee 
                shall be reduced (but not below zero) by the amount of 
                any payment (with respect to such employee) of the tax 
                imposed by section 5000A directly or indirectly by the 
                inverted corporation (as defined in such section) or by 
                any member of the expanded affiliated group (as defined 
                in such section) which includes such corporation.''.
    (c) Conforming Amendments.--
            (1) The last sentence of section 3121(v)(2)(A) is amended 
        by inserting before the period ``or to any specified stock 
        compensation (as defined in section 5000A) on which tax is 
        imposed by section 5000A''.
            (2) The table of chapters for subtitle D is amended by 
        adding at the end the following new item:

                              ``Chapter 48. Stock compensation of 
                                        insiders in inverted 
                                        corporations.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on July 11, 2002; except that periods before such date shall not 
be taken into account in applying the periods in subsections (a) and 
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added 
by this section.

SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.

    (a) In General.--Section 845(a) (relating to allocation in case of 
reinsurance agreement involving tax avoidance or evasion) is amended by 
striking ``source and character'' and inserting ``amount, source, or 
character''.
    (b) Effective Date.--The amendments made by this section shall 
apply to any risk reinsured after April 11, 2002.

SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by inserting after section 6043 the following new 
section:

``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

    ``(a) In General.--The acquiring corporation in any taxable 
acquisition shall make a return (according to the forms or regulations 
prescribed by the Secretary) setting forth--
            ``(1) a description of the acquisition,
            ``(2) the name and address of each shareholder of the 
        acquired corporation who is required to recognize gain (if any) 
        as a result of the acquisition,
            ``(3) the amount of money and the fair market value of 
        other property transferred to each such shareholder as part of 
        such acquisition, and
            ``(4) such other information as the Secretary may 
        prescribe.
To the extent provided by the Secretary, the requirements of this 
section applicable to the acquiring corporation shall be applicable to 
the acquired corporation and not to the acquiring corporation.
    ``(b) Nominee Reporting.--Any person who holds stock as a nominee 
for another person shall furnish in the manner prescribed by the 
Secretary to such other person the information provided by the 
corporation under subsection (d).
    ``(c) Taxable Acquisition.--For purposes of this section, the term 
`taxable acquisition' means any acquisition by a corporation of stock 
in or property of another corporation if any shareholder of the 
acquired corporation is required to recognize gain (if any) as a result 
of such acquisition.
    ``(d) Statements To Be Furnished to Shareholders.--Every person 
required to make a return under subsection (a) shall furnish to each 
shareholder whose name is required to be set forth in such return 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 shareholder, and
            ``(3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence shall be 
furnished to the shareholder on or before January 31 of the year 
following the calendar year during which the taxable acquisition 
occurred.''.
    (b) Assessable Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) (defining 
        information return) is amended by redesignating clauses (ii) 
        through (xviii) as clauses (iii) through (xix), respectively, 
        and by inserting after clause (i) the following new clause:
                            ``(ii) section 6043A(a) (relating to 
                        returns relating to taxable mergers and 
                        acquisitions),''.
            (2) Paragraph (2) of section 6724(d) (relating to 
        definitions) is amended by redesignating subparagraphs (F) 
        through (BB) as subparagraphs (G) through (CC), respectively, 
        and by inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) subsections (b) and (d) of section 6043A 
                (relating to returns relating to taxable mergers and 
                acquisitions).''.
    (c) Clerical Amendment.--The 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 6043 the following new item:

                              ``Sec. 6043A. Returns relating to taxable 
                                        mergers and acquisitions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to acquisitions after the date of the enactment of this Act.

                     Subtitle E--International Tax

SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF DETERMINING 
              INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY.

    (a) In General.--Subparagraph (A) of section 956(c)(2) is amended 
to read as follows:
                    ``(A) obligations of the United States, money, or 
                deposits with persons described in paragraph (4);''.
    (b) Eligible Persons.--Section 956(c) (relating to exceptions to 
definition of United States property) is amended by adding at the end 
the following new paragraph:
            ``(4) Financial services providers.--
                    ``(A) In general.--For purposes of paragraph 
                (2)(A), a person is described in this paragraph if at 
                least 80 percent of the person's income is income 
                described in section 904(d)(2)(C)(ii) (and the 
                regulations thereunder) which is derived from persons 
                who are not related persons.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all related persons shall be treated 
                        as 1 person in applying the 80-percent test, 
                        and
                            ``(ii) there shall be disregarded any item 
                        of income or gain from a transaction or series 
                        of transactions a principal purpose of which is 
                        the qualification of a person as a person 
                        described in this paragraph.
                    ``(C) Related person.--For purposes of this 
                paragraph, the term `related person' has the meaning 
                given such term by section 954(d)(3).''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE 
              LIQUIDATION OF HOLDING COMPANY.

    (a) In General.--Section 332 is amended by adding at the end the 
following new subsection:
    ``(d) Recognition of Gain on Liquidation of Certain Holding 
Companies.--
            ``(1) In general.--In the case of any distribution to a 
        foreign corporation in complete liquidation of an applicable 
        holding company--
                    ``(A) subsection (a) and section 331 shall not 
                apply to such distribution, and
                    ``(B) such distribution shall be treated as a 
                distribution to which section 301 applies.
            ``(2) Applicable holding company.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `applicable holding 
                company' means any domestic corporation--
                            ``(i) which is a common parent of an 
                        affiliated group,
                            ``(ii) stock of which is directly owned by 
                        the distributee foreign corporation,
                            ``(iii) substantially all of the assets of 
                        which consist of stock in other members of such 
                        affiliated group, and
                            ``(iv) which has not been in existence at 
                        all times during the 5 years immediately 
                        preceding the date of the liquidation.
                    ``(B) Affiliated group.--For purposes of this 
                subsection, the term `affiliated group' has the meaning 
                given such term by section 1504(a) (without regard to 
                paragraphs (2) and (4) 0f section 1504(b)).
            ``(3) Coordination with subpart f.--If the distributee of a 
        distribution described in paragraph (1) is a controlled foreign 
        corporation (as defined in section 957), then notwithstanding 
        paragraph (1) or subsection (a), such distribution shall be 
        treated as a distribution to which section 331 applies.
            ``(4) Regulations.--The Secretary shall provide such 
        regulations as appropriate to prevent the abuse of this 
        subsection, including regulations which provide, for the 
        purposes of clause (iv) of paragraph (2)(A), that a corporation 
        is not in existence for any period unless it is engaged in the 
        active conduct of a trade or business or owns a significant 
        ownership interest in another corporation so engaged.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions in complete liquidation occurring on or after the date 
of the enactment of this Act.

SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE 
              DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN TRANSACTIONS 
              WITH RELATED FOREIGN PERSONS.

    (a) Original Issue Discount.--Section 163(e)(3) (relating to 
special rule for original issue discount on obligation held by related 
foreign person) is amended by redesignating subparagraph (B) as 
subparagraph (C) and by inserting after subparagraph (A) the following 
new subparagraph:
                    ``(B) Special rule for certain foreign entities.--
                            ``(i) In general.--In the case of any debt 
                        instrument having original issue discount which 
                        is held by a related foreign person which is a 
                        foreign personal holding company (as defined in 
                        section 552), a controlled foreign corporation 
                        (as defined in section 957), or a passive 
                        foreign investment company (as defined in 
                        section 1297), a deduction shall be allowable 
                        to the issuer with respect to such original 
                        issue discount for any taxable year before the 
                        taxable year in which paid only to the extent 
                        such original issue discount (reduced by 
                        properly allowable deductions and qualified 
                        deficits under section 952(c)(1)(B)) is 
                        includible during such prior taxable year in 
                        the gross income of a United States person who 
                        owns (within the meaning of section 958(a)) 
                        stock in such corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt transactions 
                        from the application of clause (i), including 
                        any transaction which is entered into by a 
                        payor in the ordinary course of a trade or 
                        business in which the payor is predominantly 
                        engaged.''.
    (b) Interest and Other Deductible Amounts.--Section 267(a)(3) is 
amended--
            (1) by striking ``The Secretary'' and inserting:
                    ``(A) In general.--The Secretary'', and
            (2) by adding at the end the following new subparagraph:
                    ``(B) Special rule for certain foreign entities.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A), in the case of any item 
                        payable to a foreign personal holding company 
                        (as defined in section 552), a controlled 
                        foreign corporation (as defined in section 
                        957), or a passive foreign investment company 
                        (as defined in section 1297), a deduction shall 
                        be allowable to the payor with respect to such 
                        amount for any taxable year before the taxable 
                        year in which paid only to the extent that an 
                        amount attributable to such item (reduced by 
                        properly allowable deductions and qualified 
                        deficits under section 952(c)(1)(B)) is 
                        includible during such prior taxable year in 
                        the gross income of a United States person who 
                        owns (within the meaning of section 958(a)) 
                        stock in such corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt transactions 
                        from the application of clause (i), including 
                        any transaction which is entered into by a 
                        payor in the ordinary course of a trade or 
                        business in which the payor is predominantly 
                        engaged and in which the payment of the accrued 
                        amounts occurs within 8\1/2\ months after 
                        accrual or within such other period as the 
                        Secretary may prescribe.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments accrued on or after the date of the enactment of this 
Act.

SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN 
              SOURCE INCOME.

    (a) In General.--Section 864(c)(4)(B) (relating to treatment of 
income from sources without the United States as effectively connected 
income) is amended by adding at the end the following new flush 
sentence:
                ``Any income or gain which is equivalent to any item of 
                income or gain described in clause (i), (ii), or (iii) 
                shall be treated in the same manner as such item for 
                purposes of this subparagraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED 
              FOREIGN CORPORATION.

    (a) In General.--Section 904(f)(3) (relating to dispositions) is 
amending by adding at the end the following new subparagraph:
                    ``(D) Application to certain dispositions of stock 
                in controlled foreign corporation.--
                            ``(i) In general.--This paragraph shall 
                        apply to an applicable disposition in the same 
                        manner as if it were a disposition of property 
                        described in subparagraph (A), except that the 
                        exception contained in subparagraph (C)(i) 
                        shall not apply.
                            ``(ii) Applicable disposition.--For 
                        purposes of clause (i), the term `applicable 
                        disposition' means any disposition of any share 
                        of stock in a controlled foreign corporation in 
                        a transaction or series of transactions if, 
                        immediately before such transaction or series 
                        of transactions, the taxpayer owned more than 
                        50 percent (by vote or value) of the stock of 
                        the controlled foreign corporation.
                            ``(iii) Exception.--A disposition shall not 
                        be treated as an applicable disposition under 
                        clause (ii) if it is part of a transaction or 
                        series of transactions--
                                    ``(I) to which section 351 or 721 
                                applies, or under which the transferor 
                                receives stock in a foreign corporation 
                                in exchange for the stock in the 
                                controlled foreign corporation and the 
                                stock received is exchanged basis 
                                property (as defined in section 
                                7701(a)(44)), and
                                    ``(II) immediately after which, the 
                                transferor owns (by vote or value) at 
                                least the same percentage of stock in 
                                the controlled foreign corporation (or, 
                                if the controlled foreign corporation 
                                is not in existence after such 
                                transaction or series of transactions, 
                                in another foreign corporation stock in 
                                which was received by the transferor in 
                                exchange for stock in the controlled 
                                foreign corporation) as the percentage 
                                of stock in the controlled foreign 
                                corporation which the taxpayer owned 
                                immediately before such transaction or 
                                series of transactions.
                        Clause (i) shall apply to any gain recognized 
                        on any disposition to which this clause 
                        applies.
                            ``(iv) Controlled foreign corporation.--For 
                        purposes of this subparagraph, the term 
                        `controlled foreign corporation' has the 
                        meaning given such term by section 957.
                            ``(v) Stock ownership.--For purposes of 
                        this subparagraph, ownership of stock shall be 
                        determined under the rules of subsections (a) 
                        and (b) of section 958.
    (b) Effective Date.--The amendment made by this section shall apply 
to dispositions after the date of the enactment of this Act.

SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING 
              TAXES ON INCOME OTHER THAN DIVIDENDS.

    (a) In General.--Section 901 is amended by redesignating subsection 
(l) as subsection (m) and by inserting after subsection (k) the 
following new subsection:
    ``(l) Minimum Holding Period for Withholding Taxes on Gain and 
Income Other Than Dividends etc.--
            ``(1) In general.--In no event shall a credit be allowed 
        under subsection (a) for any withholding tax (as defined in 
        subsection (k)) on any item of income or gain with respect to 
        any property if--
                    ``(A) such property is held by the recipient of the 
                item for 15 days or less during the 30-day period 
                beginning on the date which is 15 days before the date 
                on which the right to receive payment of such item 
                arises, or
                    ``(B) to the extent that the recipient of the item 
                is under an obligation (whether pursuant to a short 
                sale or otherwise) to make related payments with 
                respect to positions in substantially similar or 
                related property.
        This paragraph shall not apply to any dividend to which 
        subsection (k) applies.
            ``(2) Exception for taxes paid by dealers.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any qualified tax with respect to any property held in 
                the active conduct in a foreign country of a business 
                as a dealer in such property.
                    ``(B) Qualified tax.--For purposes of subparagraph 
                (A), the term `qualified tax' means a tax paid to a 
                foreign country (other than the foreign country 
                referred to in subparagraph (A)) if--
                            ``(i) the item to which such tax is 
                        attributable is subject to taxation on a net 
                        basis by the country referred to in 
                        subparagraph (A), and
                            ``(ii) such country allows a credit against 
                        its net basis tax for the full amount of the 
                        tax paid to such other foreign country.
                    ``(C) Dealer.--For purposes of subparagraph (A), 
                the term `dealer' means--
                            ``(i) with respect to a security, any 
                        person to whom paragraphs (1) and (2) of 
                        subsection (k) would not apply by reason of 
                        paragraph (4) thereof if such security were 
                        stock, and
                            ``(ii) with respect to any other property, 
                        any person with respect to whom such property 
                        is described in section 1221(a)(1).
                    ``(D) Regulations.--The Secretary may prescribe 
                such regulations as may be appropriate to carry out 
                this paragraph, including regulations to prevent the 
                abuse of the exception provided by this paragraph and 
                to treat other taxes as qualified taxes.
            ``(3) Exceptions.--The Secretary may by regulation provide 
        that paragraph (1) shall not apply to property where the 
        Secretary determines that the application of paragraph (1) to 
        such property is not necessary to carry out the purposes of 
        this subsection.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (5), (6), and (7) of subsection (k) shall apply 
        for purposes of this subsection.
            ``(5) Determination of holding period.--Holding periods 
        shall be determined for purposes of this subsection without 
        regard to section 1235 or any similar rule.''.
    (b) Conforming Amendment.--The heading of subsection (k) of section 
901 is amended by inserting ``on Dividends'' after ``Taxes''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or accrued more than 30 days after the date of 
the enactment of this Act.

                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK 
              FUNDS, ETC.

    (a) In General.--Section 1286 (relating to tax treatment of 
stripped bonds) is amended by redesignating subsection (f) as 
subsection (g) and by inserting after subsection (e) the following new 
subsection:
    ``(f) Treatment of Stripped Interests in Bond and Preferred Stock 
Funds, etc.--In the case of an account or entity substantially all of 
the assets of which consist of bonds, preferred stock, or a combination 
thereof, the Secretary may by regulations provide that rules similar to 
the rules of this section and 305(e), as appropriate, shall apply to 
interests in such account or entity to which (but for this subsection) 
this section or section 305(e), as the case may be, would not apply.''.
    (b) Cross Reference.--Subsection (e) of section 305 is amended by 
adding at the end the following new paragraph:
            ``(7) Cross reference.--

                                ``For treatment of stripped interests 
in certain accounts or entities holding preferred stock, see section 
1286(f).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to purchases and dispositions after the date of the enactment of 
this Act.

SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE 
              C CORPORATIONS.

    (a) In General.--Section 163(j) (relating to limitation on 
deduction for interest on certain indebtedness) is amended by 
redesignating paragraph (8) as paragraph (9) and by inserting after 
paragraph (7) the following new paragraph:
            ``(8) Allocations to certain corporate partners.--If a C 
        corporation is a partner in a partnership--
                    ``(A) the corporation's allocable share of 
                indebtedness and interest income of the partnership 
                shall be taken into account in applying this subsection 
                to the corporation, and
                    ``(B) if a deduction is not disallowed under this 
                subsection with respect to any interest expense of the 
                partnership, this subsection shall be applied 
                separately in determining whether a deduction is 
                allowable to the corporation with respect to the 
                corporation's allocable share of such interest 
                expense.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED 
              ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.

    (a) In General.--Paragraph (8) of section 108(e) (relating to 
general rules for discharge of indebtedness (including discharges not 
in title 11 cases or insolvency)) is amended to read as follows:
            ``(8) Indebtedness satisfied by corporate stock or 
        partnership interest.--For purposes of determining income of a 
        debtor from discharge of indebtedness, if--
                    ``(A) a debtor corporation transfers stock, or
                    ``(B) a debtor partnership transfers a capital or 
                profits interest in such partnership,
        to a creditor in satisfaction of its recourse or nonrecourse 
        indebtedness, such corporation or partnership shall be treated 
        as having satisfied the indebtedness with an amount of money 
        equal to the fair market value of the stock or interest. In the 
        case of any partnership, any discharge of indebtedness income 
        recognized under this paragraph shall be included in the 
        distributive shares of taxpayers which were the partners in the 
        partnership immediately before such discharge.''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to cancellations of indebtedness occurring on or after the 
date of the enactment of this Act.

SEC. 464. MODIFICATION OF STRADDLE RULES.

    (a) Rules Relating to Identified Straddles.--
            (1) In general.--Subparagraph (A) of section 1092(a)(2) 
        (relating to special rule for identified straddles) is amended 
        to read as follows:
                    ``(A) In general.--In the case of any straddle 
                which is an identified straddle--
                            ``(i) paragraph (1) shall not apply with 
                        respect to identified positions comprising the 
                        identified straddle,
                            ``(ii) if there is any loss with respect to 
                        any identified position of the identified 
                        straddle, the basis of each of the identified 
                        offsetting positions in the identified straddle 
                        shall be increased by an amount which bears the 
                        same ratio to the loss as the unrecognized gain 
                        with respect to such offsetting position bears 
                        to the aggregate unrecognized gain with respect 
                        to all such offsetting positions, and
                            ``(iii) any loss described in clause (ii) 
                        shall not otherwise be taken into account for 
                        purposes of this title.''.
            (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
        identified straddle) is amended--
                    (A) by striking clause (ii) and inserting the 
                following:
                            ``(ii) to the extent provided by 
                        regulations, the value of each position of 
                        which (in the hands of the taxpayer immediately 
                        before the creation of the straddle) is not 
                        less than the basis of such position in the 
                        hands of the taxpayer at the time the straddle 
                        is created, and'', and
                    (B) by adding at the end the following new flush 
                sentence:
                ``The Secretary shall prescribe regulations which 
                specify the proper methods for clearly identifying a 
                straddle as an identified straddle (and the positions 
                comprising such straddle), which specify the rules for 
                the application of this section for a taxpayer which 
                fails to properly identify the positions of an 
                identified straddle, and which specify the ordering 
                rules in cases where a taxpayer disposes of less than 
                an entire position which is part of an identified 
                straddle.''.
            (3) Unrecognized gain.--Section 1092(a)(3) (defining 
        unrecognized gain) is amended by redesignating subparagraph (B) 
        as subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) Special rule for identified straddles.--For 
                purposes of paragraph (2)(A)(ii), the unrecognized gain 
                with respect to any identified offsetting position 
                shall be the excess of the fair market value of the 
                position at the time of the determination over the fair 
                market value of the position at the time the taxpayer 
                identified the position as a position in an identified 
                straddle.''.
            (4) Conforming amendment.--Section 1092(c)(2) is amended by 
        striking subparagraph (B) and by redesignating subparagraph (C) 
        as subparagraph (B).
    (b) Physically Settled Positions.--Section 1092(d) (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
            ``(8) Special rules for physically settled positions.--For 
        purposes of subsection (a), if a taxpayer settles a position 
        which is part of a straddle by delivering property to which the 
        position relates (and such position, if terminated, would 
        result in a realization of a loss), then such taxpayer shall be 
        treated as if such taxpayer--
                    ``(A) terminated the position for its fair market 
                value immediately before the settlement, and
                    ``(B) sold the property so delivered by the 
                taxpayer at its fair market value.''.
    (c) Repeal of Stock Exception.--
            (1) In general.--Paragraph (3) of section 1092(d) (relating 
        to definitions and special rules) is amended to read as 
        follows:
            ``(3) Special rules for stock.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The term `personal property' 
                includes--
                            ``(i) any stock which is a part of a 
                        straddle at least 1 of the offsetting positions 
                        of which is a position with respect to such 
                        stock or substantially similar or related 
                        property, or
                            ``(ii) any stock of a corporation formed or 
                        availed of to take positions in personal 
                        property which offset positions taken by any 
                        shareholder.
                    ``(B) Rule for application.--For purposes of 
                determining whether subsection (e) applies to any 
                transaction with respect to stock described in 
                subparagraph (A)(ii), all includible corporations of an 
                affiliated group (within the meaning of section 
                1504(a)) shall be treated as 1 taxpayer.''.
            (2) Conforming amendment.--Section 1258(d)(1) is amended by 
        striking ``; except that the term `personal property' shall 
        include stock''.
    (d) Modifications of Qualified Covered Call Exception.--
            (1) Markets on which options may be traded.--
                    (A) In general.--Section 1092(c)(4)(B)(i) is 
                amended by striking ``or other market which the 
                Secretary determines has rules adequate to carry out 
                the purposes of this paragraph''.
                    (B) Regulations.--Section 1092(c)(4)(H) is amended 
                by adding at the end the following new sentence: ``Such 
                regulations shall not add any exchange or market not 
                described in subparagraph (B)(i) to the exchanges or 
                markets on which qualified covered call options may be 
                traded.''
            (2) Holding period for dividend exclusion.--The last 
        sentence of section 246(c) is amended by inserting: ``, other 
        than a qualified covered call option to which section 1092(f) 
        applies'' before the period at the end.
    (e) Effective Date.--The amendments made by this section shall 
apply to positions established on or after the date of the enactment of 
this Act.

SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY 
              TRADEABLE DEBT.

    (a) In General.--Section 453(f)(4)(B) (relating to purchaser 
evidences of indebtedness payable on demand or readily tradeable) is 
amended by striking ``is issued by a corporation or a government or 
political subdivision thereof and''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales occurring on or after the date of the enactment of this Act.

                 PART II--CORPORATIONS AND PARTNERSHIPS

SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN 
              DIVISIVE REORGANIZATIONS.

    (a) In General.--Section 361(b)(3) (relating to treatment of 
transfers to creditors) is amended by adding at the end the following 
new sentence: ``In the case of a reorganization described in section 
368(a)(1)(D) with respect to which stock or securities of the 
corporation to which the assets are transferred are distributed in a 
transaction which qualifies under section 355, this paragraph shall 
apply only to the extent that the sum of the money and the fair market 
value of other property transferred to such creditors does not exceed 
the adjusted bases of such assets transferred.''.
    (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is 
amended by inserting ``with respect to which stock or securities of the 
corporation to which the assets are transferred are distributed in a 
transaction which qualifies under section 355'' after ``section 
368(a)(1)(D)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers of money or other property, or liabilities assumed, 
in connection with a reorganization occurring on or after the date of 
the enactment of this Act.

SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.

    (a) In General.--Section 351(g)(3)(A) is amended by adding at the 
end the following: ``Stock shall not be treated as participating in 
corporate growth to any significant extent unless there is a real and 
meaningful likelihood of the shareholder actually participating in the 
earnings and growth of the corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions after May 14, 2003.

SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
              CORPORATIONS.

    (a) In General.--Section 1563(a)(2) (relating to brother-sister 
controlled group) is amended by striking ``possessing--'' and all that 
follows through ``(B)'' and inserting ``possessing''.
    (b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by 
adding at the end the following new paragraph:
            ``(5) Brother-sister controlled group definition for 
        provisions other than this part.--
                    ``(A) In general.--Except as specifically provided 
                in an applicable provision, subsection (a)(2) shall be 
                applied to an applicable provision as if it read as 
                follows:
            ```(2) Brother-sister controlled group.--Two or more 
        corporations if 5 or fewer persons who are individuals, 
        estates, or trusts own (within the meaning of subsection (d)(2) 
        stock possessing--
                    ```(A) at least 80 percent of the total combined 
                voting power of all classes of stock entitled to vote, 
                or at least 80 percent of the total value of shares of 
                all classes of stock, of each corporation, and
                    ```(B) more than 50 percent of the total combined 
                voting power of all classes of stock entitled to vote 
                or more than 50 percent of the total value of shares of 
                all classes of stock of each corporation, taking into 
                account the stock ownership of each such person only to 
                the extent such stock ownership is identical with 
                respect to each such corporation.'
                    ``(B) Applicable provision.--For purposes of this 
                paragraph, an applicable provision is any provision of 
                law (other than this part) which incorporates the 
                definition of controlled group of corporations under 
                subsection (a).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH PARTNERSHIP 
              DISTRIBUTIONS AND TRANSFERS OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 754 is repealed.
    (b) Adjustment to Basis of Undistributed Partnership Property.--
Section 734 is amended--
            (1) by striking ``, with respect to which the election 
        provided in section 754 is in effect,'' in the matter preceding 
        paragraph (1) of subsection (b),
            (2) by striking ``(as adjusted by section 732(d))'' both 
        places it appears in subsection (b),
            (3) by striking the last sentence of subsection (b),
            (4) by striking subsection (a) and by redesignating 
        subsections (b) and (c) as subsections (a) and (b), 
        respectively, and
            (5) by striking ``optional'' in the heading.
    (c) Adjustment to Basis of Partnership Property.--Section 743 is 
amended--
            (1) by striking ``with respect to which the election 
        provided in section 754 is in effect'' in the matter preceding 
        paragraph (1) of subsection (b),
            (2) by striking subsection (a) and by redesignating 
        subsections (b) and (c) as subsections (a) and (b), 
        respectively,
            (3) by adding at the end the following new subsection:
    ``(c) Election To Adjust Basis for Transfers Upon Death of 
Partner.--Subsection (a) shall not apply and no adjustments shall be 
made in the case of any transfer of an interest in a partnership upon 
the death of a partner unless an election to do so is made by the 
partnership. Such an election shall apply with respect to all such 
transfers of interests in the partnership. Any election under section 
754 in effect on the date of the enactment of this subsection shall 
constitute an election made under this subsection. Such election may be 
revoked by the partnership, subject to such limitations as may be 
provided by regulations prescribed by the Secretary.'', and
            (4) by striking ``optional'' in the heading.
    (d) Conforming Amendments.--
            (1) Subsection (d) of section 732 is repealed.
            (2) Section 755(a) is amended--
                    (A) by striking ``section 734(b) (relating to the 
                optional adjustment'' and inserting ``section 734(a) 
                (relating to the adjustment'', and
                    (B) by striking ``section 743(b) (relating to the 
                optional adjustment'' and inserting ``section 743(a) 
                (relating to the adjustment''.
            (3) Section 755(c), as added by this Act, is amended by 
        striking ``section 734(b)'' and inserting ``section 734(a)''.
            (4) Section 761(e)(2) is amended by striking ``optional''.
            (5) Section 774(a) is amended by striking ``743(b)'' both 
        places it appears and inserting ``743(a)''.
            (6) The item relating to section 734 in the table of 
        sections for subpart B of part II of subchapter K of chapter 1 
        is amended by striking ``Optional''.
            (7) The item relating to section 743 in the table of 
        sections for subpart C of part II of subchapter K of chapter 1 
        is amended by striking ``Optional''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transfers and 
        distributions made after the date of the enactment of this Act.
            (2) Repeal of section 732(d).--The amendments made by 
        subsections (b)(2) and (d)(1) shall apply to--
                    (A) except as provided in subparagraph (B), 
                transfers made after the date of the enactment of this 
                Act, and
                    (B) in the case of any transfer made on or before 
                such date to which section 732(d) applies, 
                distributions made after the date which is 2 years 
                after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
              FRANCHISES.

    (a) In General.--Section 197(e) (relating to exceptions to 
definition of section 197 intangible) is amended by striking paragraph 
(6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and 
(7), respectively.
    (b) Conforming Amendments.--
            (1)(A) Section 1056 (relating to basis limitation for 
        player contracts transferred in connection with the sale of a 
        franchise) is repealed.
            (B) The table of sections for part IV of subchapter O of 
        chapter 1 is amended by striking the item relating to section 
        1056.
            (2) Section 1245(a) (relating to gain from disposition of 
        certain depreciable property) is amended by striking paragraph 
        (4).
            (3) Section 1253 (relating to transfers of franchises, 
        trademarks, and trade names) is amended by striking subsection 
        (e).
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property 
        acquired after the date of the enactment of this Act.
            (2) Section 1245.--The amendment made by subsection (b)(2) 
        shall apply to franchises acquired after the date of the 
        enactment of this Act.

SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

    (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year 
property) is amended by striking ``and'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting ``, and'', 
and by adding at the end the following new clause:
                            ``(iv) initial clearing and grading land 
                        improvements with respect to gas utility 
                        property.''.
    (b) Electric Utility Property.--Section 168(e)(3) is amended by 
adding at the end the following new subparagraph:
                    ``(F) 20-year property.--The term `20-year 
                property' means initial clearing and grading land 
                improvements with respect to any electric utility 
                transmission and distribution plant.''.
    (c) Conforming Amendments.--The table contained in section 
168(g)(3)(B) is amended--
            (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
            (2) by adding at the end the following new item:

    ``(F).........................................                25''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER 
              AUTOMOBILES.

    (a) In General.--Section 179(b) of the Internal Revenue Code of 
1986 (relating to limitations) is amended by adding at the end the 
following new paragraph:
            ``(6) Limitation on cost taken into account for certain 
        passenger vehicles.--
                    ``(A) In general.--The cost of any sport utility 
                vehicle for any taxable year which may be taken into 
                account under this section shall not exceed $25,000.
                    ``(B) Sport utility vehicle.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term `sport utility 
                        vehicle' means any 4-wheeled vehicle--
                                    ``(I) which is primarily designed 
                                or which can be used to carry 
                                passengers over public streets, roads, 
                                or highways (except any vehicle 
                                operated exclusively on a rail or 
                                rails),
                                    ``(II) which is not subject to 
                                section 280F, and
                                    ``(III) which is rated at not more 
                                than 14,000 pounds gross vehicle 
                                weight.
                            ``(ii) Certain vehicles excluded.--Such 
                        term does not include any vehicle which--
                                    ``(I) is designed to have a seating 
                                capacity of more than 9 persons behind 
                                the driver's seat,
                                    ``(II) is equipped with a cargo 
                                area of at least 6 feet in interior 
                                length which is an open area or is 
                                designed for use as an open area but is 
                                enclosed by a cap and is not readily 
                                accessible directly from the passenger 
                                compartment, or
                                    ``(III) has an integral enclosure, 
                                fully enclosing the driver compartment 
                                and load carrying device, does not have 
                                seating rearward of the driver's seat, 
                                and has no body section protruding more 
                                than 30 inches ahead of the leading 
                                edge of the windshield.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act.

SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

    (a) Start-Up Expenditures.--
            (1) Allowance of deduction.--Paragraph (1) of section 
        195(b) (relating to start-up expenditures) is amended to read 
        as follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection with respect to any start-up 
        expenditures--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the active trade or business 
                begins in an amount equal to the lesser of--
                            ``(i) the amount of start-up expenditures 
                        with respect to the active trade or business, 
                        or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such start-up 
                        expenditures exceed $50,000, and
                    ``(B) the remainder of such start-up expenditures 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                active trade or business begins.''.
            (2) Conforming amendment.--Subsection (b) of section 195 is 
        amended by striking ``Amortize'' and inserting ``Deduct'' in 
        the heading.
    (b) Organizational Expenditures.--Subsection (a) of section 248 
(relating to organizational expenditures) is amended to read as 
follows:
    ``(a) Election to Deduct.--If a corporation elects the application 
of this subsection (in accordance with regulations prescribed by the 
Secretary) with respect to any organizational expenditures--
            ``(1) the corporation shall be allowed a deduction for the 
        taxable year in which the corporation begins business in an 
        amount equal to the lesser of--
                    ``(A) the amount of organizational expenditures 
                with respect to the taxpayer, or
                    ``(B) $5,000, reduced (but not below zero) by the 
                amount by which such organizational expenditures exceed 
                $50,000, and
            ``(2) the remainder of such organizational expenditures 
        shall be allowed as a deduction ratably over the 180-month 
        period beginning with the month in which the corporation begins 
        business.''.
    (c) Treatment of Organizational and Syndication Fees or 
Partnerships.--
            (1) In general.--Section 709(b) (relating to amortization 
        of organization fees) is amended by redesignating paragraph (2) 
        as paragraph (3) and by amending paragraph (1) to read as 
        follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection (in accordance with regulations 
        prescribed by the Secretary) with respect to any organizational 
        expenses--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the partnership begins 
                business in an amount equal to the lesser of--
                            ``(i) the amount of organizational expenses 
                        with respect to the partnership, or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such organizational 
                        expenses exceed $50,000, and
                    ``(B) the remainder of such organizational expenses 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                partnership begins business.
            ``(2) Dispositions before close of amortization period.--In 
        any case in which a partnership is liquidated before the end of 
        the period to which paragraph (1)(B) applies, any deferred 
        expenses attributable to the partnership which were not allowed 
        as a deduction by reason of this section may be deducted to the 
        extent allowable under section 165.''.
            (2) Conforming amendment.--Subsection (b) of section 709 is 
        amended by striking ``Amortization'' and inserting 
        ``Deduction'' in the heading.
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.

    (a) Clarification of Recovery Period for Tax-Exempt Use Property 
Subject to Lease.--Subparagraph (A) of section 168(g)(3) (relating to 
special rules for determining class life) is amended by inserting 
``(notwithstanding any other subparagraph of this paragraph)'' after 
``shall''.
    (b) Limitation on Depreciation Period for Software Leased to Tax-
Exempt Entity.--Paragraph (1) of section 167(f) is amended by adding at 
the end the following new subparagraph:
                    ``(C) Tax-exempt use property subject to lease.--In 
                the case of computer software which would be tax-exempt 
                use property as defined in subsection (h) of section 
                168 if such section applied to computer software, the 
                useful life under subparagraph (A) shall not be less 
                than 125 percent of the lease term (within the meaning 
                of section 168(i)(3)).''
    (c) Lease Term To Include Related Service Contracts.--Subparagraph 
(A) of section 168(i)(3) (relating to lease term) is amended 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) the term of a lease shall include 
                        the term of any service contract or similar 
                        arrangement (whether or not treated as a lease 
                        under section 7701(e))--
                                    ``(I) which is part of the same 
                                transaction (or series of related 
                                transactions) which includes the lease, 
                                and
                                    ``(II) which is with respect to the 
                                property subject to the lease or 
                                substantially similar property, and''.
    (d) Effective Date.--The amendments made by this section shall 
apply to leases entered into after December 31, 2003.

SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
              GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

    (a) In General.--Subpart C of part II of subchapter E of chapter 1 
(relating to taxable year for which deductions taken) is amended by 
adding at the end the following new section:

``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE PROPERTY.

    ``(a) Limitation on Losses.--Except as otherwise provided in this 
section, a tax-exempt use loss for any taxable year shall not be 
allowed.
    ``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt use 
loss with respect to any tax-exempt use property which is disallowed 
under subsection (a) for any taxable year shall be treated as a 
deduction with respect to such property in the next taxable year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Tax-exempt use loss.--The term `tax-exempt use loss' 
        means, with respect to any taxable year, the amount (if any) by 
        which--
                    ``(A) the sum of--
                            ``(i) the aggregate deductions (other than 
                        interest) directly allocable to a tax-exempt 
                        use property, plus
                            ``(ii) the aggregate deductions for 
                        interest properly allocable to such property, 
                        exceed
                    ``(B) the aggregate income from such property.
            ``(2) Tax-exempt use property.--The term `tax-exempt use 
        property' has the meaning given to such term by section 168(h) 
        (without regard to paragraph (1)(C) or (3) thereof and 
        determined as if property described in section 167(f)(1)(B) 
        were tangible property). Such term shall not include property 
        with respect to which the credit under section 42 is allowed 
        and which, but for this sentence, would be tax-exempt property 
        solely by reason of section 168(h)(6).
    ``(d) Exception for Certain Leases.--This section shall not apply 
to any lease of property which meets the requirements of all of the 
following paragraphs:
            ``(1) Property not financed with tax-exempt bonds or 
        federal funds.--A lease of property meets the requirements of 
        this paragraph if no part of the property was financed 
        (directly or indirectly) from--
                    ``(A) the proceeds of an obligation the interest on 
                which is exempt from tax under section 103(a) and which 
                (or any refunding bond of which) is outstanding when 
                the lease is entered into, or
                    ``(B) Federal funds.
        The Secretary may by regulations provide for a de minimis 
        exception from this paragraph.
            ``(2) Availability of funds.--
                    ``(A) In general.--A lease of property meets the 
                requirements of this paragraph if (at any time during 
                the lease term) not more than an allowable amount of 
                funds are--
                            ``(i) subject to any arrangement referred 
                        to in subparagraph (B), or
                            ``(ii) set aside or expected to be set 
                        aside,
                to or for the benefit of the lessor or a lender, or to 
                or for the benefit of the lessee to satisfy the 
                lessee's obligations or options under the lease. Funds 
                shall be treated as described in clause (ii) only if a 
                reasonable person would conclude, based on the facts 
                and circumstances, that such funds are so described.
                    ``(B) Arrangements.--The arrangements referred to 
                in this subparagraph are--
                            ``(i) a defeasance arrangement, a loan by 
                        the lessee to the lessor or a lender, a deposit 
                        arrangement, a letter of credit collateralized 
                        with cash or cash equivalents, a payment 
                        undertaking agreement, a lease prepayment, a 
                        sinking fund arrangement, or any similar 
                        arrangement (whether or not such arrangement 
                        provides credit support), and
                            ``(ii) any other arrangement identified by 
                        the Secretary in regulations.
                    ``(C) Allowable amount.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the term 
                        `allowable amount' means an amount equal to 20 
                        percent of the lessor's adjusted basis in the 
                        property at the time the lease is entered into.
                            ``(ii) Higher amount permitted in certain 
                        cases.--To the extent provided in regulations, 
                        a higher percentage shall be permitted under 
                        clause (i) where necessary because of the 
                        credit-worthiness of the lessee. In no event 
                        may such regulations permit a percentage of 
                        more than 50 percent.
                            ``(iii) Option to purchase.--If under the 
                        lease the lessee has the option to purchase the 
                        property for a fixed price or for other than 
                        the fair market value of the property 
                        (determined at the time of exercise), the 
                        allowable amount at the time such option may be 
                        exercised may not exceed 50 percent of the 
                        price at which such option may be exercised.
                            ``(iv) No allowable amount for certain 
                        arrangements.--The allowable amount shall be 
                        zero in the case of any arrangement which 
                        involves--
                                    ``(I) a loan from the lessee to the 
                                lessor or a lender,
                                    ``(II) any deposit, letter of 
                                credit, or payment undertaking 
                                agreement involving a lender, or
                                    ``(III) any credit support made 
                                available to the lessor in which a 
                                lender (if any) does not have a claim 
                                which is senior to the lessor.
                        For purposes of subclause (I), the term `loan' 
                        shall not include any amount treated as a loan 
                        under section 467 with respect to a section 467 
                        rental agreement.
            ``(3) Lessor must make substantial equity investment.--A 
        lease of property meets the requirements of this paragraph if--
                    ``(A) the lessor--
                            ``(i) has at the time the lease is entered 
                        into an unconditional at-risk equity investment 
                        (as determined by the Secretary) in the 
                        property of at least 20 percent of the lessor's 
                        adjusted basis in the property as of that time, 
                        and
                            ``(ii) maintains such investment throughout 
                        the term of the lease, and
                    ``(B) the fair market value of the property at the 
                end of the lease term is reasonably expected to be 
                equal to at least 20 percent of such basis.
        Subparagraphs (A)(ii) and (B) shall not apply if the lease term 
        is described in section 168(h)(1)(C)(ii), or in the case of 
        qualified technological equipment, is described in section 
        168(h)(3). For purposes of subparagraph (B), the fair market 
        value at the end of the lease term shall be reduced to the 
        extent that a person other than the lessor bears a risk of loss 
        in the value of the property.
            ``(4) Lessee may not bear more than minimal risk of loss.--
                    ``(A) In general.--A lease of property meets the 
                requirements of this paragraph if there is no 
                arrangement under which more than a minimal risk of 
                loss (as determined under regulations) in the value of 
                the property is borne by the lessee.
                    ``(B) Certain arrangements fail requirement.--In no 
                event will the requirements of this paragraph be met if 
                there is any arrangement under which the lessee bears--
                            ``(i) any portion of the loss that would 
                        occur if the fair market value of the leased 
                        property were 25 percent less than its 
                        reasonably expected fair market value at the 
                        time the lease is terminated, or
                            ``(ii) more than 50 percent of the loss 
                        that would occur if the fair market value of 
                        the leased property at the time the lease is 
                        terminated were zero.
            ``(5) Property with more than 7-year class life.--In the 
        case of a lease--
                    ``(A) of property with a class life (as defined in 
                section 168(i)(1)) of more than 7 years, and
                    ``(B) under which the lessee has the option to 
                purchase the property,
        the lease meets the requirements of this paragraph only if the 
        purchase price under the option equals the fair market value of 
        the property (determined at the time of exercise).
            ``(6) Regulatory requirements.--A lease of property meets 
        the requirements of this paragraph if such lease of property 
        meets such requirements as the Secretary may prescribe by 
        regulations.
    ``(e) Special Rules.--
            ``(1) Treatment of former tax-exempt use property.--
                    ``(A) In general.--In the case of any former tax-
                exempt use property--
                            ``(i) any deduction allowable under 
                        subsection (b) with respect to such property 
                        for any taxable year shall be allowed only to 
                        the extent of any net income (without regard to 
                        such deduction) from such property for such 
                        taxable year, and
                            ``(ii) any portion of such unused deduction 
                        remaining after application of clause (i) shall 
                        be treated as allowable under subsection (b) 
                        with respect to such property in the next 
                        taxable year.
                    ``(B) Former tax-exempt use property.--For purposes 
                of this subsection, the term `former tax-exempt use 
                property' means any property which--
                            ``(i) is not tax-exempt use property for 
                        the taxable year, but
                            ``(ii) was tax-exempt use property for any 
                        prior taxable year.
            ``(2) Disposition of entire interest in property.--If 
        during the taxable year a taxpayer disposes of the taxpayer's 
        entire interest in tax-exempt use property (or former tax-
        exempt use property), rules similar to the rules of section 
        469(g) shall apply for purposes of this section.
            ``(3) Coordination with section 469.--This section shall be 
        applied before the application of section 469.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Related parties.--The terms `lessor', `lessee', and 
        `lender' include any related party (within the meaning of 
        section 197(f)(9)(C)(i)).
            ``(2) Lease term.--The term `lease term' has the meaning 
        given to such term by section 168(i)(3).
            ``(3) Lender.--The term `lender' means, with respect to any 
        lease, a person that makes a loan to the lessor which is 
        secured (or economically similar to being secured) by the lease 
        or the leased property.
            ``(4) Loan.--The term `loan' includes any similar 
        arrangement.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulation which--
            ``(1) allow in appropriate cases the aggregation of 
        property subject to the same lease, and
            ``(2) provide for the determination of the allocation of 
        interest expense for purposes of this section.''
    (b) Conforming Amendment.--The table of sections for subpart C of 
part II of subchapter E of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 470. Limitations on losses from tax-exempt use property.''
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to leases entered into after November 18, 2003.
            (2) Leases to foreign entities.--In the case of tax-exempt 
        use property leased to a tax-exempt entity which is a foreign 
        person or entity, the amendments made by this section shall 
        apply to taxable years beginning after January 31, 2004, with 
        respect to leases entered into on or before November 18, 2003.

                   PART IV--ADMINISTRATIVE PROVISIONS

SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR 
              CERTAIN DEEMED ASSET SALES.

    (a) In General.--Paragraph (13) of section 338(h) (relating to tax 
on deemed sale not taken into account for estimated tax purposes) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply with respect to a qualified stock purchase for which an 
election is made under paragraph (10).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transactions occurring after the date of the enactment of this 
Act.

SEC. 482. EXTENSION OF IRS USER FEES.

    (a) In General.--Section 7528(c) (relating to termination) is 
amended by striking ``December 31, 2004'' and inserting ``September 30, 
2013''.
    (b) Effective Date.--The amendment made by this section shall apply 
to requests after the date of the enactment of this Act.

SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON 
              UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL 
              ARRANGEMENT.

    (a) Determination of Penalty.--
            (1) In general.--Notwithstanding any other provision of 
        law, in the case of an applicable taxpayer--
                    (A) the determination as to whether any interest or 
                applicable penalty is to be imposed with respect to any 
                arrangement to which any initiative described in 
                paragraph (2) applied, or to any underpayment of 
                Federal income tax attributable to items arising in 
                connection with any arrangement described in paragraph 
                (2), shall be made without regard to section 6664 of 
                the Internal Revenue Code of 1986, and
                    (B) if any such interest or applicable penalty is 
                imposed, the amount of such interest or penalty shall 
                be equal to twice that determined without regard to 
                this section.
            (2) Applicable taxpayer.--For purposes of this subsection, 
        the term ``applicable taxpayer'' means a taxpayer eligible to 
        participate in--
                    (A) the Department of the Treasury's Offshore 
                Voluntary Compliance Initiative, or
                    (B) the Department of the Treasury's voluntary 
                disclosure initiative which applies to the taxpayer by 
                reason of the taxpayer's underreporting of United 
                States income tax liability through financial 
                arrangements which rely on the use of offshore 
                arrangements which were the subject of the initiative 
                described in subparagraph (A).
    (b) Definitions and Rules.--For purposes of this section--
            (1) Applicable penalty.--The term ``applicable penalty'' 
        means any penalty, addition to tax, or fine imposed under 
        chapter 68 of the Internal Revenue Code of 1986.
            (2) Voluntary offshore compliance initiative.--The term 
        ``Voluntary Offshore Compliance Initiative'' means the program 
        established by the Department of the Treasury in January of 
        2003 under which any taxpayer was eligible to voluntarily 
        disclose previously undisclosed income on assets placed in 
        offshore accounts and accessed through credit card and other 
        financial arrangements.
            (3) Participation.--A taxpayer shall be treated as having 
        participated in the Voluntary Offshore Compliance Initiative if 
        the taxpayer submitted the request in a timely manner and all 
        information requested by the Secretary of the Treasury or his 
        delegate within a reasonable period of time following the 
        request.
    (c) Effective Date.--The provisions of this section shall apply to 
interest, penalties, additions to tax, and fines with respect to any 
taxable year if as of the date of the enactment of this Act, the 
assessment of any tax, penalty, or interest with respect to such 
taxable year is not prevented by the operation of any law or rule of 
law.

SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.

    (a) In General.--
            (1) Section 6159(a) (relating to authorization of 
        agreements) is amended--
                    (A) by striking ``satisfy liability for payment 
                of'' and inserting ``make payment on'', and
                    (B) by inserting ``full or partial'' after 
                ``facilitate''.
            (2) Section 6159(c) (relating to Secretary required to 
        enter into installment agreements in certain cases) is amended 
        in the matter preceding paragraph (1) by inserting ``full'' 
        before ``payment''.
    (b) Requirement To Review Partial Payment Agreements Every Two 
Years.--Section 6159, as amended by this Act, is amended by 
redesignating subsections (d), (e), and (f) as subsections (e), (f), 
and (g), respectively, and inserting after subsection (c) the following 
new subsection:
    ``(d) Secretary Required To Review Installment Agreements for 
Partial Collection Every Two Years.--In the case of an agreement 
entered into by the Secretary under subsection (a) for partial 
collection of a tax liability, the Secretary shall review the agreement 
at least once every 2 years.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date of the enactment 
of this Act.

SEC. 485. EXTENSION OF CUSTOMS USER FEES.

    Section 13031(j)(3) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking 
``March 1, 2005'' and inserting ``September 30, 2013''.

SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS.

    (a) In General.--Subchapter A of chapter 67 (relating to interest 
on underpayments) is amended by adding at the end the following new 
section:

``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS, ETC.

    ``(a) Authority To Make Deposits Other Than As Payment of Tax.--A 
taxpayer may make a cash deposit with the Secretary which may be used 
by the Secretary to pay any tax imposed under subtitle A or B or 
chapter 41, 42, 43, or 44 which has not been assessed at the time of 
the deposit. Such a deposit shall be made in such manner as the 
Secretary shall prescribe.
    ``(b) No Interest Imposed.--To the extent that such deposit is used 
by the Secretary to pay tax, for purposes of section 6601 (relating to 
interest on underpayments), the tax shall be treated as paid when the 
deposit is made.
    ``(c) Return of Deposit.--Except in a case where the Secretary 
determines that collection of tax is in jeopardy, the Secretary shall 
return to the taxpayer any amount of the deposit (to the extent not 
used for a payment of tax) which the taxpayer requests in writing.
    ``(d) Payment of Interest.--
            ``(1) In general.--For purposes of section 6611 (relating 
        to interest on overpayments), a deposit which is returned to a 
        taxpayer shall be treated as a payment of tax for any period to 
        the extent (and only to the extent) attributable to a 
        disputable tax for such period. Under regulations prescribed by 
        the Secretary, rules similar to the rules of section 6611(b)(2) 
        shall apply.
            ``(2) Disputable tax.--
                    ``(A) In general.--For purposes of this section, 
                the term `disputable tax' means the amount of tax 
                specified at the time of the deposit as the taxpayer's 
                reasonable estimate of the maximum amount of any tax 
                attributable to disputable items.
                    ``(B) Safe harbor based on 30-day letter.--In the 
                case of a taxpayer who has been issued a 30-day letter, 
                the maximum amount of tax under subparagraph (A) shall 
                not be less than the amount of the proposed deficiency 
                specified in such letter.
            ``(3) Other definitions.--For purposes of paragraph (2)--
                    ``(A) Disputable item.--The term `disputable item' 
                means any item of income, gain, loss, deduction, or 
                credit if the taxpayer--
                            ``(i) has a reasonable basis for its 
                        treatment of such item, and
                            ``(ii) reasonably believes that the 
                        Secretary also has a reasonable basis for 
                        disallowing the taxpayer's treatment of such 
                        item.
                    ``(B) 30-day letter.--The term `30-day letter' 
                means the first letter of proposed deficiency which 
                allows the taxpayer an opportunity for administrative 
                review in the Internal Revenue Service Office of 
                Appeals.
            ``(4) Rate of interest.--The rate of interest allowable 
        under this subsection shall be the Federal short-term rate 
        determined under section 6621(b), compounded daily.
    ``(e) Use of Deposits.--
            ``(1) Payment of tax.--Except as otherwise provided by the 
        taxpayer, deposits shall be treated as used for the payment of 
        tax in the order deposited.
            ``(2) Returns of deposits.--Deposits shall be treated as 
        returned to the taxpayer on a last-in, first-out basis.''.
    (b) Clerical Amendment.--The table of sections for subchapter A of 
chapter 67 is amended by adding at the end the following new item:

                              ``Sec. 6603. Deposits made to suspend 
                                        running of interest on 
                                        potential underpayments, 
                                        etc.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to deposits made after the date of the enactment of this 
        Act.
            (2) Coordination with deposits made under revenue procedure 
        84-58.--In the case of an amount held by the Secretary of the 
        Treasury or his delegate on the date of the enactment of this 
        Act as a deposit in the nature of a cash bond deposit pursuant 
        to Revenue Procedure 84-58, the date that the taxpayer 
        identifies such amount as a deposit made pursuant to section 
        6603 of the Internal Revenue Code (as added by this Act) shall 
        be treated as the date such amount is deposited for purposes of 
        such section 6603.

SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

    (a) Contract Requirements.--
            (1) In general.--Subchapter A of chapter 64 (relating to 
        collection) is amended by adding at the end the following new 
        section:

``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

    ``(a) In General.--Nothing in any provision of law shall be 
construed to prevent the Secretary from entering into a qualified tax 
collection contract.
    ``(b) Qualified Tax Collection Contract.--For purposes of this 
section, the term `qualified tax collection contract' means any 
contract which--
            ``(1) is for the services of any person (other than an 
        officer or employee of the Treasury Department)--
                    ``(A) to locate and contact any taxpayer specified 
                by the Secretary,
                    ``(B) to request full payment from such taxpayer of 
                an amount of Federal tax specified by the Secretary 
                and, if such request cannot be met by the taxpayer, to 
                offer the taxpayer an installment agreement providing 
                for full payment of such amount during a period not to 
                exceed 3 years, and
                    ``(C) to obtain financial information specified by 
                the Secretary with respect to such taxpayer,
            ``(2) prohibits each person providing such services under 
        such contract from committing any act or omission which 
        employees of the Internal Revenue Service are prohibited from 
        committing in the performance of similar services,
            ``(3) prohibits subcontractors from--
                    ``(A) having contacts with taxpayers,
                    ``(B) providing quality assurance services, and
                    ``(C) composing debt collection notices, and
            ``(4) permits subcontractors to perform other services only 
        with the approval of the Secretary.
    ``(c) Fees and Expenses.--The Secretary may retain and use--
            ``(1) an amount not in excess of 25 percent of the amount 
        collected under any qualified tax collection contract for the 
        costs of services performed under such contract, and
            ``(2) an amount not in excess of 25 percent of such amount 
        collected for collection enforcement activities of the Internal 
        Revenue Service.
The Secretary shall keep adequate records regarding amounts so retained 
and used. The amount credited as paid by any taxpayer shall be 
determined without regard to this subsection.
    ``(d) No Federal Liability.--The United States shall not be liable 
for any act or omission of any person performing services under a 
qualified tax collection contract.
    ``(e) Application of Fair Debt Collection Practices Act.--The 
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et 
seq.) shall apply to any qualified tax collection contract, except to 
the extent superseded by section 6304, section 7602(c), or by any other 
provision of this title.
    ``(f) Application of Section.--In no event may the term of any 
qualified tax collection contract extend beyond the date which is 5 
years after the date of the enactment of this section.
    ``(g) Cross References.--
            ``(1) For damages for certain unauthorized collection 
        actions by persons performing services under a qualified tax 
        collection contract, see section 7433A.
            ``(2) For application of Taxpayer Assistance Orders to 
        persons performing services under a qualified tax collection 
        contract, see section 7811(a)(4).''.
            (2) Conforming amendments.--
                    (A) Section 7809(a) is amended by inserting 
                ``6306,'' before ``7651''.
                    (B) The table of sections for subchapter A of 
                chapter 64 is amended by adding at the end the 
                following new item:

                              ``Sec. 6306. Qualified Tax Collection 
                                        Contracts.''.
    (b) Civil Damages for Certain Unauthorized Collection Actions by 
Persons Performing Services Under Qualified Tax Collection Contracts.--
            (1) In general.--Subchapter B of chapter 76 (relating to 
        proceedings by taxpayers and third parties) is amended by 
        inserting after section 7433 the following new section:

``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS 
              BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX 
              COLLECTION CONTRACTS.

    ``(a) In General.--Subject to the modifications provided by 
subsection (b), section 7433 shall apply to the acts and omissions of 
any person performing services under a qualified tax collection 
contract (as defined in section 6306(b)) to the same extent and in the 
same manner as if such person were an employee of the Internal Revenue 
Service.
    ``(b) Modifications.--For purposes of subsection (a)--
            ``(1) Any civil action brought under section 7433 by reason 
        of this section shall be brought against the person who entered 
        into the qualified tax collection contract with the Secretary 
        and shall not be brought against the United States.
            ``(2) Such person and not the United States shall be liable 
        for any damages and costs determined in such civil action.
            ``(3) Such civil action shall not be an exclusive remedy 
        with respect to such person.
            ``(4) Subsections (c), (d)(1), and (e) of section 7433 
        shall not apply.''.
            (2) Clerical amendment.--The table of sections for 
        subchapter B of chapter 76 is amended by inserting after the 
        item relating to section 7433 the following new item:

                              ``Sec. 7433A. Civil damages for certain 
                                        unauthorized collection actions 
                                        by persons performing services 
                                        under a qualified tax 
                                        collection contract.''.
    (c) Application of Taxpayer Assistance Orders to Persons Performing 
Services Under a Qualified Tax Collection Contract.--Section 7811 
(relating to taxpayer assistance orders) is amended by adding at the 
end the following new subsection:
    ``(g) Application to Persons Performing Services Under a Qualified 
Tax Collection Contract.--Any order issued or action taken by the 
National Taxpayer Advocate pursuant to this section shall apply to 
persons performing services under a qualified tax collection contract 
(as defined in section 6306(b)) to the same extent and in the same 
manner as such order or action applies to the Secretary.''.
    (d) Ineligibility of Individuals Who Commit Misconduct To Perform 
Under Contract.--Section 1203 of the Internal Revenue Service 
Restructuring Act of 1998 (relating to termination of employment for 
misconduct) is amended by adding at the end the following new 
subsection:
    ``(e) Individuals Performing Services Under a Qualified Tax 
Collection Contract.--An individual shall cease to be permitted to 
perform any services under any qualified tax collection contract (as 
defined in section 6306(b) of the Internal Revenue Code of 1986) if 
there is a final determination by the Secretary of the Treasury under 
such contract that such individual committed any act or omission 
described under subsection (b) in connection with the performance of 
such services.''.
    (e) Biennial Report.--The Secretary of the Treasury shall 
biennially submit (beginning in 2005) to the Committee on Finance of 
the Senate and the Committee on Ways and Means of the House of 
Representatives a report with respect to qualified tax collection 
contracts under section 6306 of the Internal Revenue Code of 1986 (as 
added by this section) which includes--
            (1) a complete cost benefit analysis,
            (2) the impact of such contracts on collection enforcement 
        staff levels in the Internal Revenue Service,
            (3) the amounts collected and the collection costs incurred 
        (directly and indirectly),
            (4) an evaluation of contractor performance,
            (5) a disclosure safeguard report in a form similar to that 
        required under section 6103(p)(5) of such Code, and
            (6) a measurement plan which includes a comparison of the 
        best practices used by the private collectors with the Internal 
        Revenue Service's own collection techniques) and mechanisms to 
        identify and capture information on successful collection 
        techniques used by the contractors which could be adopted by 
        the Internal Revenue Service.
    (f) Effective Date.--The amendments made to this section shall take 
effect on the date of the enactment of this Act.

SEC. 488. WHISTLEBLOWER REFORMS.

    (a) In General.--Section 7623 (relating to expenses of detection of 
underpayments and fraud, etc.) is amended--
            (1) by striking ``The Secretary'' and inserting ``(a) In 
        General.--The Secretary'',
            (2) by striking ``and'' at the end of paragraph (1) and 
        inserting ``or'',
            (3) by striking ``(other than interest)'', and
            (4) by adding at the end the following new subsections:
    ``(b) Awards to Whistleblowers.--
            ``(1) In general.--If the Secretary proceeds with any 
        administrative or judicial action described in subsection (a) 
        based on information brought to the Secretary's attention by an 
        individual, such individual shall, subject to paragraph (2), 
        receive as an award at least 15 percent but not more than 30 
        percent of the collected proceeds (including penalties, 
        interest, additions to tax, and additional amounts) resulting 
        from the action (including any related actions) or from any 
        settlement in response to such action. The determination of the 
        amount of such award by the Whistleblower Office shall depend 
        upon the extent to which the individual substantially 
        contributed to such action.
            ``(2) Award in case of less substantial contribution.--
                    ``(A) In general.--In the event the action 
                described in paragraph (1) is one which the 
                Whistleblower Office determines to be based principally 
                on disclosures of specific allegations (other than 
                information provided by the individual described in 
                paragraph (1)) resulting from a judicial or 
                administrative hearing, from a governmental report, 
                hearing, audit, or investigation, or from the news 
                media, the Whistleblower Office may award such sums as 
                it considers appropriate, but in no case more than 10 
                percent of the collected proceeds (including penalties, 
                interest, additions to tax, and additional amounts) 
                resulting from the action (including any related 
                actions) or from any settlement in response to such 
                action, taking into account the significance of the 
                individual's information and the role of such 
                individual and any legal representative of such 
                individual in contributing to such action.
                    ``(B) Nonapplication of paragraph where individual 
                is original source of information.--Subparagraph (A) 
                shall not apply if the information resulting in the 
                initiation of the action described in paragraph (1) was 
                originally provided by the individual described in 
                paragraph (1).
            ``(3) Appeal of award determination.--Any determination 
        regarding an award under paragraph (1) or (2) shall be subject 
        to the filing by the individual described in such paragraph of 
        a petition for review with the Tax Court under rules similar to 
        the rules under section 7463 (without regard to the amount in 
        dispute) and such review shall be subject to the rules under 
        section 7461(b)(1).
            ``(4) Application of this subsection.--This subsection 
        shall apply with respect to any action--
                    ``(A) against any taxpayer, but in the case of any 
                individual, only if such individual's gross income 
                exceeds $200,000 for any taxable year subject to such 
                action, and
                    ``(B) if the tax, penalties, interest, additions to 
                tax, and additional amounts in dispute exceed $20,000.
            ``(5) Additional rules.--
                    ``(A) No contract necessary.--No contract with the 
                Internal Revenue Service is necessary for any 
                individual to receive an award under this subsection.
                    ``(B) Representation.--Any individual described in 
                paragraph (1) or (2) may be represented by counsel.
                    ``(C) Award not subject to individual alternative 
                minimum tax.--No award received under this subsection 
                shall be included in gross income for purposes of 
                determining alternative minimum taxable income.
    ``(c) Whistleblower Office.--
            ``(1) In general.--There is established in the Internal 
        Revenue Service an office to be known as the `Whistleblower 
        Office' which--
                    ``(A) shall analyze information received from any 
                individual described in subsection (b) and either 
                investigate the matter itself or assign it to the 
                appropriate Internal Revenue Service office,
                    ``(B) shall monitor any action taken with respect 
                to such matter,
                    ``(C) shall inform such individual that it has 
                accepted the individual's information for further 
                review,
                    ``(D) may require such individual and any legal 
                representative of such individual to not disclose any 
                information so provided,
                    ``(E) may ask for additional assistance from such 
                individual or any legal representative of such 
                individual, and
                    ``(F) shall determine the amount to be awarded to 
                such individual under subsection (b).
            ``(2) Funding for office.--From the amounts available for 
        expenditure under subsection (a), the Whistleblower Office 
        shall be credited with an amount equal to the awards made under 
        subsection (b). These funds shall be used to maintain the 
        Whistleblower Office and also to reimburse other Internal 
        Revenue Service offices for related costs, such as costs of 
        investigation and collection.
            ``(3) Request for assistance.--
                    ``(A) In general.--Any assistance requested under 
                paragraph (1)(E) shall be under the direction and 
                control of the Whistleblower Office or the office 
                assigned to investigate the matter under subparagraph 
                (A). To the extent the disclosure of any returns or 
                return information to the individual or legal 
                representative is required for the performance of such 
                assistance, such disclosure shall be pursuant to a 
                contract entered into between the Secretary and the 
                recipients of such disclosure subject to section 
                6103(n).
                    ``(B) Funding of assistance.--From the funds made 
                available to the Whistleblower Office under paragraph 
                (2), the Whistleblower Office may reimburse the costs 
                incurred by any legal representative in providing 
                assistance described in subparagraph (A).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to information provided on or after the date of the enactment of 
this Act.

SEC. 489. PROTECTION OF OVERTIME PAY.

    Section 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 213) 
is amended by adding at the end the following:
    ``(k)(1) The Secretary shall not promulgate any rule under 
subsection (a)(1) that exempts from the overtime pay provisions of 
section 7 any employee who earns less than $23,660 per year.
    ``(2) The Secretary shall not promulgate any rule under subsection 
(a)(1) concerning the right to overtime pay that is not as protective, 
or more protective, of the overtime pay rights of employees in the 
occupations or job classifications described in paragraph (3) as the 
protections provided for such employees under the regulations in effect 
under such subsection on March 31, 2003.
    ``(3) The occupations or job classifications described in this 
paragraph are as follows:
            ``(A) Any worker paid on an hourly basis.
            ``(B) Blue collar workers.
            ``(C) Any worker provided overtime under a collective 
        bargaining agreement.
            ``(D) Team leaders.
            ``(E) Computer programmers.
            ``(F) Registered nurses.
            ``(G) Licensed practical nurses.
            ``(H) Nurse midwives.
            ``(I) Nursery school teachers.
            ``(J) Oil and gas pipeline workers.
            ``(K) Oil and gas field workers.
            ``(L) Oil and gas platform workers.
            ``(M) Refinery workers.
            ``(N) Steel workers.
            ``(O) Shipyard and ship scrapping workers.
            ``(P) Teachers.
            ``(Q) Technicians.
            ``(R) Journalists.
            ``(S) Chefs.
            ``(T) Cooks.
            ``(U) Police officers.
            ``(V) Firefighters.
            ``(W) Fire sergeants.
            ``(X) Police sergeants.
            ``(Y) Emergency medical technicians.
            ``(Z) Paramedics.
            ``(AA) Waste disposal workers.
            ``(BB) Day care workers.
            ``(CC) Maintenance employees.
            ``(DD) Production line employees.
            ``(EE) Construction employees.
            ``(FF) Carpenters.
            ``(GG) Mechanics.
            ``(HH) Plumbers.
            ``(II) Iron workers.
            ``(JJ) Craftsmen.
            ``(KK) Operating engineers.
            ``(LL) Laborers.
            ``(MM) Painters.
            ``(NN) Cement masons.
            ``(OO) Stone and brick masons.
            ``(PP) Sheet metal workers.
            ``(QQ) Utility workers.
            ``(RR) Longshoremen.
            ``(SS) Stationary engineers.
            ``(TT) Welders.
            ``(UU) Boilermakers.
            ``(VV) Funeral directors.
            ``(WW) Athletic trainers.
            ``(XX) Outside sales employees.
            ``(YY) Inside sales employees.
            ``(ZZ) Grocery store managers.
            ``(AAA) Financial services industry workers.
            ``(BBB) Route drivers.
            ``(CCC) Assistant retail managers.
    ``(4) Any portion of a rule promulgated under subsection (a)(1) 
after March 31, 2003, that modifies the overtime pay provisions of 
section 7 in a manner that is inconsistent with paragraphs (2) and (3) 
shall have no force or effect as it relates to the occupation or job 
classification involved.''.

SEC. 490. PROTECTION OF OVERTIME PAY.

    Section 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 213) 
is amended by adding at the end the following:
    ``(k) Notwithstanding the provisions of subchapter II of chapter 5 
and chapter 7 of title 5, United States Code (commonly referred to as 
the Administrative Procedures Act) or any other provision of law, any 
portion of the final rule promulgated on April 23, 2004, revising part 
541 of title 29, Code of Federal Regulations, that exempts from the 
overtime pay provisions of section 7 any employee who would not 
otherwise be exempt if the regulations in effect on March 31, 2003 
remained in effect, shall have no force or effect and that portion of 
such regulations (as in effect on March 31, 2003) that would prevent 
such employee from being exempt shall remain in effect. Notwithstanding 
the preceding sentence, the increased salary requirements provided for 
in such final rule at section 541.600 of such title 29, shall remain in 
effect.''.

                    PART V--MISCELLANEOUS PROVISIONS

SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE 
              VACCINES.

    (a) In General.--Section 4132(a)(1) (defining taxable vaccine) is 
amended by redesignating subparagraphs (I), (J), (K), and (L) as 
subparagraphs (J), (K), (L), and (M), respectively, and by inserting 
after subparagraph (H) the following new subparagraph:
                    ``(I) Any vaccine against hepatitis A.''.
    (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended by 
striking ``October 18, 2000'' and inserting ``the date of the enactment 
of the Jumpstart Our Business Strength (JOBS) Act''.
    (c) Effective Date.--
            (1) Sales, etc.--The amendments made by this section shall 
        apply to sales and uses on or after the first day of the first 
        month which begins more than 4 weeks after the date of the 
        enactment of this Act.
            (2) Deliveries.--For purposes of paragraph (1) and section 
        4131 of the Internal Revenue Code of 1986, in the case of sales 
        on or before the effective date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.

SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE 
              ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.

    (a) In General.--Section 121(d) (relating to special rules for 
exclusion of gain from sale of principal residence) is amended by 
adding at the end the following new paragraph:
            ``(10) Property acquired in like-kind exchange.--If a 
        taxpayer acquired property in an exchange to which section 1031 
        applied, subsection (a) shall not apply to the sale or exchange 
        of such property if it occurs during the 5-year period 
        beginning with the date of the acquisition of such property.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales or exchanges after the date of the enactment of this Act.

SEC. 493. MODIFICATION OF EXEMPTION FROM TAX FOR SMALL PROPERTY AND 
              CASUALTY INSURANCE COMPANIES.

    (a) Premiums as Percentage of Gross Receipts Increased.--Section 
501(c)(15)(A)(i)(II) is amended by striking ``50 percent'' and 
inserting ``60 percent''.
    (b) Limitation on Net Written Premiums Increased.--Section 
831(b)(2) (relating to companies to which this subsection applies) is 
amended--
            (1) by striking ``$1,200,000'' and inserting 
        ``$1,890,000'', and
            (2) by adding at the end the following new subparagraph:
                    ``(C) Inflation adjustments.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2005, the dollar amount in subparagraph (A)(i) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) 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 2004' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If the amount in 
                        subparagraph (A)(i) as increased under clause 
                        (i) is not a multiple of $10,000, such amount 
                        shall be rounded to the nearest multiple of 
                        $10,000.''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2004.
            (2) Transition rule for companies in receivership or 
        liquidation.--In the case of a company or association which--
                    (A) for the taxable year which includes April 1, 
                2004, meets the requirements of section 501(c)(15)(A) 
                of the Internal Revenue Code of 1986, as in effect for 
                the last taxable year beginning before January 1, 2004, 
                and
                    (B) on April 1, 2004, is in a receivership, 
                liquidation, or similar proceeding under the 
                supervision of a State court,
        the amendments made by this section shall apply to taxable 
        years beginning after the earlier of the date such proceeding 
        ends (or, if later, December 31, 2004) or December 31, 2007.

SEC. 494. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS AND SIMILAR 
              PROPERTY.

    (a) In General.--Section 170(e)(1)(B) (relating to certain 
contributions of ordinary income and capital gain property) is amended 
by striking ``or'' at the end of clause (i), by adding ``or'' at the 
end of clause (ii), and by inserting after clause (ii) the following 
new clause:
                            ``(iii) of any patent, copyright, 
                        trademark, trade name, trade secret, know-how, 
                        software (other than software described in 
                        section 197(e)(3)(A)(i)), or similar property, 
                        or applications or registrations of such 
                        property,''.
    (b) Additional Deduction for Certain Contributions of Patents and 
Similar Property.--Section 170(e) is amended by adding at the end the 
following new paragraph:
            ``(7) Additional deduction for certain contributions of 
        patents and similar property.--
                    ``(A) In general.--In the case of a charitable 
                contribution of any property described in paragraph 
                (1)(B)(iii) (other than copyrights described in section 
                1221(a)(3) or 1231(b)(1)(C) or property contributed to 
                or for the use of an organization described in 
                paragraph (1)(B)(ii)), if--
                            ``(i) the lesser of--
                                    ``(I) 5 percent of the fair market 
                                value of such property (determined at 
                                the time of such contribution), or
                                    ``(II) $1,000,000, exceeds
                            ``(ii) the amount of such contribution as 
                        determined under paragraph (1),
                then the amount of the charitable contribution of such 
                property otherwise taken into account under this 
                section shall equal the amount determined under clause 
                (i).''.
    (c) Certain Donee Income From Intellectual Property Treated as an 
Additional Charitable Contribution.--Section 170 is amended by 
redesignating subsection (m) as subsection (n) and by inserting after 
subsection (l) the following new subsection:
    ``(m) Certain Donee Income From Intellectual Property Treated as an 
Additional Charitable Contribution.--
            ``(1) Treatment as additional contribution.--In the case of 
        a taxpayer who makes a qualified intellectual property 
        contribution, the deduction allowed under subsection (a) for 
        each taxable year of the taxpayer ending on or after the date 
        of such contribution shall be increased (subject to the 
        limitations under subsection (b)) by the applicable percentage 
        of qualified donee income with respect to such contribution 
        which is properly allocable to such year under this subsection.
            ``(2) Qualified donee income.--For purposes of this 
        subsection, the term `qualified donee income' means any net 
        income received by or accrued to the donee which is properly 
        allocable to the qualified intellectual property.
            ``(3) Allocation of qualified donee income to taxable years 
        of donor.--For purposes of this subsection, qualified donee 
        income shall be treated as properly allocable to a taxable year 
        of the donor if such income is received by or accrued to the 
        donee for the taxable year of the donee which ends within or 
        with such taxable year of the donor.
            ``(4) 10-year limitation.--Income shall not be treated as 
        properly allocable to qualified intellectual property for 
        purposes of this subsection if such income is received by or 
        accrued to the donee after the 10-year period beginning on the 
        date of the contribution of such property.
            ``(5) Benefit limited to life of intellectual property.--
        Income shall not be treated as properly allocable to qualified 
        intellectual property for purposes of this subsection if such 
        income is received by or accrued to the donee after the 
        expiration of the legal life of such property.
            ``(6) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means the 
        percentage determined under the following table which 
        corresponds to a taxable year of the donor ending on or after 
        the date of the qualified intellectual property contribution:

``Taxable Year of Donor Ending On   Applicable Percentage:
        or After Date of 
        Contribution:
    1st or 2d.....................................                 100 
    3rd...........................................                  90 
    4th...........................................                  80 
    5th...........................................                  70 
    6th...........................................                  60 
    7th...........................................                  50 
    8th...........................................                  40 
    9th...........................................                  30 
    10th..........................................                  20 
    11th or 12th..................................                  10.
            ``(7) Qualified intellectual property contribution.--For 
        purposes of this subsection, the term `qualified intellectual 
        property contribution' means any charitable contribution of 
        qualified intellectual property--
                    ``(A) the amount of which taken into account under 
                this section--
                            ``(i) is reduced by reason of subsection 
                        (e)(1), or
                            ``(ii) determined under subsection (e)(7), 
                        and
                    ``(B) with respect to which the donor informs the 
                donee at the time of such contribution that the donor 
                intends to treat such contribution as a qualified 
                intellectual property contribution for purposes of this 
                subsection and section 6050L.
            ``(8) Qualified intellectual property.--For purposes of 
        this subsection, the term `qualified intellectual property' 
        means property described in subsection (e)(1)(B)(iii) (other 
        than copyrights described in section 1221(a)(3) or 
        1231(b)(1)(C) or property contributed to or for the use of an 
        organization described in subsection (e)(1)(B)(ii)).
            ``(9) Other special rules.--
                    ``(A) Application of limitations on charitable 
                contributions.--Any increase under this subsection of 
                the deduction provided under subparagraph (a) shall be 
                treated for purposes of subsection (b) as a deduction 
                which is attributable to a charitable contribution to 
                the donee to which such increase relates.
                    ``(B) Net income determined by donee.--The net 
                income taken into account under paragraph (2) shall not 
                exceed the amount of such income reported under section 
                6050L(b)(1).
                    ``(C) Deduction limited to 12 taxable years.--
                Except as may be provided under subparagraph (D)(i), 
                this subsection shall not apply with respect to any 
                qualified intellectual property contribution for any 
                taxable year of the donor after the 12th taxable year 
                of the donor which ends on or after the date of such 
                contribution.
                    ``(D) Regulations.--The Secretary may issue 
                regulations or other guidance to carry out the purposes 
                of this subsection, including regulations or guidance--
                            ``(i) modifying the application of this 
                        subsection in the case of a donor or donee with 
                        a short taxable year, and
                            ``(ii) providing for the determination of 
                        an amount to be treated as net income of the 
                        donee which is properly allocable to qualified 
                        intellectual property in the case of a donee 
                        who uses such property to further a purpose or 
                        function constituting the basis of the donee's 
                        exemption under section 501 (or, in the case of 
                        a governmental unit, any purpose described in 
                        section 170(c)) and does not possess a right to 
                        receive any payment from a third party with 
                        respect to such property.''.
    (d) Reporting Requirements.--Section 6050L (relating to returns 
relating to certain dispositions of donated property) is amended to 
read as follows:

``SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.

    ``(a) Dispositions of Donated Property.--
            ``(1) In general.--If the donee of any charitable deduction 
        property sells, exchanges, or otherwise disposes of such 
        property within 2 years after its receipt, the donee shall make 
        a return (in accordance with forms and regulations prescribed 
        by the Secretary) showing--
                    ``(A) the name, address, and TIN of the donor,
                    ``(B) a description of the property,
                    ``(C) the date of the contribution,
                    ``(D) the amount received on the disposition, and
                    ``(E) the date of such disposition.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Charitable deduction property.--The term 
                `charitable deduction property' means any property 
                (other than publicly traded securities) contributed in 
                a contribution for which a deduction was claimed under 
                section 170 if the claimed value of such property (plus 
                the claimed value of all similar items of property 
                donated by the donor to 1 or more donees) exceeds 
                $5,000.
                    ``(B) Publicly traded securities.--The term 
                `publicly traded securities' means securities for which 
                (as of the date of the contribution) market quotations 
                are readily available on an established securities 
                market.
    ``(b) Qualified Intellectual Property Contributions.--
            ``(1) In general.--Each donee with respect to a qualified 
        intellectual property contribution shall make a return (at such 
        time and in such form and manner as the Secretary may by 
        regulations prescribe) with respect to each specified taxable 
        year of the donee showing--
                    ``(A) the name, address, and TIN of the donor,
                    ``(B) a description of the qualified intellectual 
                property contributed,
                    ``(C) the date of the contribution, and
                    ``(D) the amount of net income of the donee for the 
                taxable year which is properly allocable to the 
                qualified intellectual property (determined without 
                regard to paragraph (9)(B) of section 170(m) and with 
                the modifications described in paragraphs (4) and (5) 
                of such section).
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) In general.--Terms used in this subsection 
                which are also used in section 170(m) have the 
                respective meanings given such terms in such section.
                    ``(B) Specified taxable year.--The term `specified 
                taxable year' means, with respect to any qualified 
                intellectual property contribution, any taxable year of 
                the donee any portion of which is part of the 10-year 
                period beginning on the date of such contribution.
    ``(c) Statement to Be Furnished to Donors.--Every person making a 
return under subsection (a) or (b) shall furnish a copy of such return 
to the donor at such time and in such manner as the Secretary may by 
regulations prescribe.''.
    (e) Processing Fee.--Section 170, as amended by subsection (b), is 
amended by redesignating subsection (n) as subsection (o) and by 
inserting after subsection (m) the following new subsection:
    ``(n) Processing Fee.--In the case of a deduction allowed for any 
taxable year under this section with respect to a charitable 
contribution of any property described in subsection (e)(1)(B)(iii) 
(other than copyrights described in section 1221(a)(3) or 1231(b)(1)(C) 
or property contributed to or for the use of an organization described 
in subsection (e)(1)(B)(ii)), the taxpayer shall include, with the 
taxpayer's return of tax including such deduction, a fee equal to 1 
percent of the amount of such deduction. Such fee shall be credited by 
the Secretary to the operations of the Exempt Organizations unit within 
the Internal Revenue Service.''.
    (f) Modification of Substantial Valuations Misstatement Penalty for 
Charitable Contributions of Property.--
            (1) Substantial misstatements.--Section 6662(e)(1)(A) 
        (relating to substantial valuation misstatements under chapter 
        1) is amended by inserting ``(50 percent or more in the case of 
        a charitable contribution of any property described in section 
        170(e)(1)(B)(iii))'' after ``200 percent or more''.
            (2) Gross misstatements.--Section 6662(h)(2)(A) (defining 
        gross valuation misstatements) is amended by striking clause 
        (ii) and inserting the following new clauses:
                            ``(ii) `100 percent or more' for `50 
                        percent or more',
                            ``(iii) `25 percent or less' for `50 
                        percent or less', and''.
    (g) Anti-Abuse Rules.--The Secretary of the Treasury--
            (1) may prescribe such regulations or other guidance as may 
        be necessary or appropriate to prevent the avoidance of the 
        purposes of paragraphs (1)(B)(iii) and (7) of section 170(e) of 
        the Internal Revenue Code of 1986 (as added by subsections (a) 
        and (b)), including preventing--
                    (A) the circumvention of the reduction of the 
                charitable deduction by embedding or bundling the 
                patent or similar property as part of a charitable 
                contribution of property that includes the patent or 
                similar property,
                    (B) the manipulation of the basis of the property 
                to increase the amount of the charitable deduction 
                through the use of related persons, pass-thru entities, 
                or other intermediaries, or through the use of any 
                provision of law or regulation (including the 
                consolidated return regulations), and
                    (C) a donor from changing the form of the patent or 
                similar property to property of a form for which 
                different deduction rules would apply, and
            (2) shall prescribe guidance on appraisal standards for 
        contributions of property described in section 
        170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as 
        added by this section).
    (h) Effective Date.--The amendments made by this section shall 
apply to contributions made after the date of the enactment of this 
Act.

SEC. 495. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS 
              TAXED AS IF PARENT'S INCOME.

    (a) In General.--Section 1(g)(2)(A) (relating to child to whom 
subsection applies) is amended by striking ``age 14'' and inserting 
``age 18''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 496. HOLDING PERIOD FOR PREFERRED STOCK.

    (a) In General.--Section 1(h)(11)(B)(iii)(I) is amended to read as 
follows:
                                    ``(I) with respect to which the 
                                holding period requirements of section 
                                246(c) are not met, determined by 
                                substituting `60 days' for `45' days 
                                each place it appears, by substituting 
                                `120-day' for `90-day' each place it 
                                appears, and by substituting `120 days' 
                                for `90 days' and `240-day' for `180-
                                day' in paragraph (2).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 497. SUBSTANTIAL PRESENCE TEST REQUIRED TO DETERMINE BONA FIDE 
              RESIDENCE IN UNITED STATES POSSESSIONS.

    (a) Substantial Presence Test.--
            (1) In General.--Subpart D of part III of subchapter N of 
        chapter 1 (relating to possessions of the United States) is 
        amended by adding at the end the following new section:

``SEC. 937. BONA FIDE RESIDENT.

    ``For purposes of this subpart, section 865(g)(3), section 876, 
section 881(b), paragraphs (2) and (3) of section 901(b), section 
957(c), section 3401(a)(8)(C), and section 7654(a), the term `bona fide 
resident' means a person who satisfies a test, determined by the 
Secretary, similar to the substantial presence test under section 
7701(b)(3) with respect to Guam, American Samoa, the Northern Mariana 
Islands, Puerto Rico, or the Virgin Islands, as the case may be.''.
            (2) Conforming amendments.--
                    (A) The following provisions are amended by 
                striking ``during the entire taxable year'' and 
                inserting ``for the taxable year'':
                            (i) Paragraph (3) of section 865(g).
                            (ii) Subsection (a) of section 876(a).
                            (iii) Paragraphs (2) and (3) of section 
                        901(b).
                            (iv) Subsection (a) of section 931.
                            (v) Paragraphs (1) and (2) of section 933.
                    (B) Section 931(d) is amended by striking paragraph 
                (3).
                    (C) Section 932 is amended by striking ``at the 
                close of the taxable year'' and inserting ``for the 
                taxable year'' each place it appears.
            (3) Clerical amendment.--The table of sections of subpart D 
        of part III of subchapter N of chapter 1 is amended by adding 
        at the end the following new item:

                              ``Sec. 937. Bona fide resident.''.
    (b) Reporting Requirements for Bona Fide Residents of the Virgin 
Islands.--Paragraph (2) of section 932(c) (relating to treatment of 
Virgin Islands residents) is amended to read as follows:
            ``(2) Filing requirements.--
                    ``(A) In general.--Notwithstanding paragraph (4), 
                each individual to whom this subsection applies for the 
                taxable year shall file an income tax return for the 
                taxable year with--
                            ``(i) the Virgin Islands, and
                            ``(ii) the United States.
                    ``(B) Filing fee.--The Secretary shall charge a 
                processing fee with respect to the return filed under 
                subparagraph (A)(ii) of an amount appropriate to cover 
                the administrative costs of the requirements of 
                subparagraph (A)(ii) and the enforcement of the 
                purposes of subparagraph (A)(ii).''.
    (c) Penalties.--
            (1) In general.--Part I of subchapter B of chapter 68 is 
        amended by adding at the end the following new section:

``SEC. 6717. FAILURE OF VIRGIN ISLANDS RESIDENTS TO FILE RETURNS WITH 
              THE UNITED STATES.

    ``(a) Penalty Authorized.--The Secretary may impose a civil money 
penalty on any person who violates, or causes any violation of, the 
requirements of section 932(c)(2)(A)(ii).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in subsection (c), 
        the amount of any civil penalty imposed under subsection (a) 
        shall not exceed $5,000.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed under subsection (a) with respect to any violation if 
        such violation was due to reasonable cause and the taxpayer 
        acted in good faith.
    ``(c) Willful Violations.--In the case of any person willfully 
violating, or willfully causing any violation of, any requirement of 
section 932(c)(2)(A)(ii)--
            ``(1) the maximum penalty under subsection (b)(1) shall be 
        increased to $25,000 and
            ``(2) subsection (b)(2) shall not apply.''.
            (2) Clerical amendment.--The table of sections for Part I 
        of subchapter B of chapter 68 is amended by adding at the end 
        the following new item:

                              ``Sec. 6717. Failure of Virgin Islands 
                                        residents to file returns with 
                                        the United States.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

   TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF 
                           FOREIGN WORKFORCES

SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

    (a) Limitations.--
            (1) In general.--The Office of Federal Procurement Policy 
        Act (41 U.S.C. 403 et seq.) is amended by adding at the end the 
        following new section:

``SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

    ``(a) Conversions to Contractor Performance of Federal 
Activities.--An activity or function of an executive agency that is 
converted to contractor performance under Office of Management and 
Budget Circular A-76 may not be performed by the contractor or any 
subcontractor at a location outside the United States except to the 
extent that such activity or function was previously performed by 
Federal Government employees outside the United States.
    ``(b) Other Federal Contracts.--(1) A contract that is entered into 
by the head of an executive agency may not be performed outside the 
United States except to meet a requirement of the executive agency for 
the contract to be performed specifically at a location outside the 
United States.
    ``(2) The prohibition in paragraph (1) does not apply in the case 
of a contract of an executive agency if--
            ``(A) the President determines in writing that it is 
        necessary in the national security interests of the United 
        States for the contract to be performed outside the United 
        States; or
            ``(B) the head of such executive agency makes a 
        determination and reports such determination on a timely basis 
        to the Director of the Office of Management and Budget that--
                    ``(i) the property or services needed by the 
                executive agency are available only by means of 
                performance of the contract outside the United States; 
                and
                    ``(ii) no property or services available by means 
                of performance of the contract inside the United States 
                would satisfy the executive agency's need.
    ``(3) Paragraph (1) does not apply to the performance of a contract 
outside the United States under the exception provided in subsection 
(a).
    ``(c) State Contracts.--(1) Except as provided in paragraph (2), 
funds appropriated for financial assistance for a State may not be 
disbursed to or for such State during a fiscal year unless the chief 
executive of that State has transmitted to the Administrator for 
Federal Procurement Policy, not later than April 1 of the preceding 
fiscal year, a written certification that none of such funds will be 
expended for the performance outside the United States of contracts 
entered into by such State.
    ``(2) The prohibition on disbursement of funds to or for a State 
under paragraph (1) does not apply with respect to the performance of a 
State contract outside the United States if--
            ``(A) the chief executive of such State--
                    ``(i) determines that the property or services 
                needed by the State are available only by means of 
                performance of the contract outside the United States 
                and no property or services available by means of 
                performance of the contract inside the United States 
                would satisfy the State's need; and
                    ``(ii) transmits a notification of such 
                determination to the head of the executive agency of 
                the United States that administers the authority under 
                which such funds are disbursed to or for the State; and
            ``(B) the head of the executive agency receiving the 
        notification of such determination--
                    ``(i) confirms that the facts warrant the 
                determination;
                    ``(ii) approves the determination; and
                    ``(iii) transmits a notification of the approval of 
                the determination to the Director of the Office of 
                Management and Budget.
    ``(3) In this subsection, the term `State' means each of the 
several States of the United States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, the Virgin Islands, Guam, American Samoa, and the Trust 
Territory of the Pacific Islands.
    ``(d) Subsections (b) and (c) shall not apply to procurement 
covered by the World Trade Organization Government Procurement 
Agreement.
    ``(e) National Security Exemption.--Subsection (b) shall not apply 
to any procurement for national security purposes entered into by--
            ``(1) the Department of Defense or any agency or entity 
        thereof;
            ``(2) the Department of the Army, the Department of the 
        Navy, the Department of the Air Force, or any agency or entity 
        of any of the military departments;
            ``(3) the Department of Homeland Security;
            ``(4) the Department of Energy or any agency or entity 
        thereof, with respect to the national security programs of that 
        Department; or
            ``(5) any element of the intelligence community.
    ``(f) Responsibilities of OMB.--The Director of the Office of 
Management and Budget shall--
            ``(1) maintain--
                    ``(A) the waivers granted under subsection (b)(2), 
                together with the determinations and certifications on 
                which such waivers were based; and
                    ``(B) the notifications received under subsection 
                (c)(2)(B)(iii); and
            ``(2) submit to Congress promptly after the end of each 
        quarter of each fiscal year a report that sets forth--
                    ``(A) the waivers that were granted under 
                subsection (b)(2) during such quarter; and
                    ``(B) the notifications that were received under 
                subsection (c)(2)(B)(iii) during such quarter.
    ``(g) Annual GAO Review.--The Comptroller General shall--
            ``(1) review, each fiscal year, the waivers granted during 
        such fiscal year under subsection (b)(2) and the disbursements 
        of funds authorized pursuant to the exceptions in subsections 
        (c)(2) and (e); and
            ``(2) promptly after the end of such fiscal year, transmit 
        to Congress a report containing a list of the contracts covered 
        by such waivers and exception together with a brief description 
        of the performance of each such contract to the maximum extent 
        feasible outside the United States.''.
            (2) Clerical amendment.--The table of sections in section 
        1(b) of such Act is amended by adding at the end the following 
        new item:

``Sec. 42. Limitations on off-shore performance of contracts.''.
    (b) Inapplicability to States During First Two Fiscal Years.--
Section 42(c) of the Office of Federal Procurement Policy Act (as added 
by subsection (a)) shall not apply to disbursements of funds to a State 
during the fiscal year in which this Act is enacted and the next fiscal 
year.

SEC. 502. REPEAL OF SUPERSEDED LAW.

    Section 647 of the Transportation, Treasury, and Independent 
Agencies Appropriations Act, 2004 (division F of Public Law 108-199) is 
amended by striking subsection (e).

SEC. 503. EFFECTIVE DATE AND APPLICABILITY.

    (a) In General.--This title and the amendments made by this title 
shall take effect 30 days after the Secretary of Commerce certifies 
that the amendments made by this title will not result in the loss of 
more jobs than it will protect and will not cause harm to the United 
States economy. The initial certification shall be made by the 
Secretary of Commerce no later than 90 days after the enactment of this 
Act. Such certification must be renewed on or before January 1 of each 
year in order for the amendments made by this title to be in effect for 
that year.
    (b) Consistency With International Agreements.--The provisions of 
this title shall not apply to the extent that they may be inconsistent 
with obligations under international agreements. Within 90 days of this 
legislation, the Office of Management and Budget, in consultation with 
the Office of the United States Trade Representative, shall develop 
guidelines for the implementation of this provision.

                       TITLE VI--OTHER PROVISIONS

               Subtitle A--Provisions Relating to Housing

SEC. 601. TREATMENT OF QUALIFIED MORTGAGE BONDS.

    (a) Year Holiday.--Section 143(a)(2)(A)(iv) of the Internal Revenue 
Code of 1986 shall not apply to amounts received during the 1-year 
period beginning on the date of the enactment of this Act with respect 
to any bond outstanding on such date.
    (b) Repeal of Required Use of Certain Principal Repayments on 
Mortgage Subsidy Bond Financings To Redeem Bonds.--
            (1) In general.--Subparagraph (A) of section 143(a)(2) 
        (defining qualified mortgage issue) is amended by adding 
        ``and'' at the end of clause (ii), by striking ``, and'' at the 
        end of clause (iii) and inserting a period, and by striking 
        clause (iv) and the last sentence.
            (2) Conforming amendment.--Clause (ii) of section 
        143(a)(2)(D) is amended by striking ``(and clause (iv) of 
        subparagraph (A))''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to bonds originally issued after the date of the 
        enactment of this Act.

SEC. 602. PREMIUMS FOR MORTGAGE INSURANCE.

    (a) In General.--Paragraph (3) of section 163(h) (relating to 
qualified residence interest) is amended by adding after subparagraph 
(D) the following new subparagraph:
                    ``(E) Mortgage insurance premiums treated as 
                interest.--
                            ``(i) In general.--Premiums paid or accrued 
                        for qualified mortgage insurance by a taxpayer 
                        during the taxable year in connection with 
                        acquisition indebtedness with respect to a 
                        qualified residence of the taxpayer shall be 
                        treated for purposes of this subsection as 
                        qualified residence interest.
                            ``(ii) Phaseout.--The amount otherwise 
                        allowable as a deduction under clause (i) shall 
                        be reduced (but not below zero) by 10 percent 
                        of such amount for each $1,000 ($500 in the 
                        case of a married individual filing a separate 
                        return) (or fraction thereof) that the 
                        taxpayer's adjusted gross income for the 
                        taxable year exceeds $100,000 ($50,000 in the 
                        case of a married individual filing a separate 
                        return).''.
    (b) Definition and Special Rules.--Paragraph (4) of section 163(h) 
(relating to other definitions and special rules) is amended by adding 
at the end the following new subparagraphs:
                    ``(E) Qualified mortgage insurance.--The term 
                `qualified mortgage insurance' means--
                            ``(i) the Home Loan Guaranty Program of the 
                        Department of Veterans Affairs, and mortgage 
                        insurance provided by the Federal Housing 
                        Administration or the Rural Housing 
                        Administration, and
                            ``(ii) private mortgage insurance (as 
                        defined by section 2 of the Homeowners 
                        Protection Act of 1998 (12 U.S.C. 4901), as in 
                        effect on the date of the enactment of this 
                        subparagraph).
                    ``(F) Special rules for prepaid qualified mortgage 
                insurance.--Any amount paid by the taxpayer for 
                qualified mortgage insurance that is properly allocable 
                to any mortgage the payment of which extends to periods 
                that are after the close of the taxable year in which 
                such amount is paid shall be chargeable to capital 
                account and shall be treated as paid in such periods to 
                which so allocated. No deduction shall be allowed for 
                the unamortized balance of such account if such 
                mortgage is satisfied before the end of its term. The 
                preceding sentences shall not apply to amounts paid for 
                qualified mortgage insurance provided by the Department 
                of Veterans Affairs or the Rural Housing 
                Administration.''.
    (c) Information Returns Relating to Mortgage Insurance.--Section 
6050H (relating to returns relating to mortgage interest received in 
trade or business from individuals) is amended by adding at the end the 
following new subsection:
    ``(h) Returns Relating to Mortgage Insurance Premiums.--
            ``(1) In general.--The Secretary may prescribe, by 
        regulations, that any person who, in the course of a trade or 
        business, receives from any individual premiums for mortgage 
        insurance aggregating $600 or more for any calendar year, shall 
        make a return with respect to each such individual. Such return 
        shall be in such form, shall be made at such time, and shall 
        contain such information as the Secretary may prescribe.
            ``(2) Statement to be furnished to individuals with respect 
        to whom information is required.--Every person required to make 
        a return under paragraph (1) shall furnish to each individual 
        with respect to whom a return is made a written statement 
        showing such information as the Secretary may prescribe. Such 
        written statement shall be furnished on or before January 31 of 
        the year following the calendar year for which the return under 
        paragraph (1) was required to be made.
            ``(3) Special rules.--For purposes of this subsection--
                    ``(A) rules similar to the rules of subsection (c) 
                shall apply, and
                    ``(B) the term `mortgage insurance' means--
                            ``(i) the Home Loan Guaranty Program of the 
                        Department of Veterans Affairs, and mortgage 
                        insurance provided by the Federal Housing 
                        Administration or the Rural Housing 
                        Administration, and
                            ``(ii) private mortgage insurance (as 
                        defined by section 2 of the Homeowners 
                        Protection Act of 1998 (12 U.S.C. 4901), as in 
                        effect on the date of the enactment of this 
                        subparagraph).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or accrued in taxable years beginning after 
December 31, 2004, and ending before January 1, 2006.

SEC. 603. INCREASE IN HISTORIC REHABILITATION CREDIT FOR CERTAIN LOW-
              INCOME HOUSING FOR THE ELDERLY.

    (a) In General.--Section 47 (relating to rehabilitation credit) is 
amended by adding at the end the following new subsection:
    ``(e) Special Rule Regarding Certain Historic Structures.--In the 
case of any qualified rehabilitation expenditure with respect to any 
certified historic structure--
            ``(1) which is placed in service after the date of the 
        enactment of this subsection,
            ``(2) which is part of a qualified low-income building with 
        respect to which a credit under section 42 is allowed, and
            ``(3) substantially all of the residential rental units of 
        which are used for tenants who have attained the age of 65,
subsection (a)(2) shall be applied by substituting `25 percent' for `20 
percent'.''.
    (b) Application of MACRS.--The Internal Revenue Code of 1986 shall 
be applied and administered as if paragraph (4)(X) of section 251(d) of 
the Tax Reform Act of 1986 as applied to the amendments made by section 
201 of such Act had not been enacted with respect to any property 
described in such paragraph and placed in service after the date of the 
enactment of this Act.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to property placed in service after the date of the enactment of 
this Act.

                Subtitle B--Provisions Relating to Bonds

SEC. 611. EXPANSION OF NEW YORK LIBERTY ZONE TAX BENEFITS.

    (a) Additional Extension of Tax-Exempt Bond Financing.--Section 
1400L(d)(2)(D), as amended by this Act, is amended by striking ``2006'' 
and inserting ``2010''.
    (b) Extension of Advance Refundings.--Section 1400L(e)(1) is 
amended by striking ``2005'' and inserting ``2006''.

SEC. 612. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE ACADEMY BONDS.

    (a) Proceeds of Bonds May Be Used for Construction and Land 
Acquisition.--Paragraph (5) of section 1397E(d) (defining qualified 
purpose) is amended--
            (1) by striking ``rehabilitating or repairing'' in 
        subparagraph (A) and inserting ``constructing, rehabilitating, 
        or repairing'', and
            (2) by redesignating subparagraphs (B), (C), and (D) as 
        subparagraphs (C), (D), and (E), respectively, and by inserting 
        after subparagraph (A) the following:
                    ``(B) acquiring the land on which the facility is 
                to be constructed,''.
    (b) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2003.

SEC. 613. MODIFICATIONS OF AUTHORITY OF INDIAN TRIBAL GOVERNMENTS TO 
              ISSUE TAX-EXEMPT BONDS.

    (a) In General.--Paragraph (1) of section 7871(c) (relating to 
Indian tribal governments treated as States for certain purposes) is 
amended to read as follows:
            ``(1) In general.--Subsection (a) of section 103 shall 
        apply to any obligation issued by an Indian tribal government 
        (or subdivision thereof) only if--
                    ``(A) such obligation--
                            ``(i) is part of an issue 95 percent or 
                        more of the net proceeds of which are to be 
                        used to finance any facility located on an 
                        Indian reservation, and
                            ``(ii) is issued before January 1, 2006, or
                    ``(B) such obligation is part of an issue 
                substantially all of the proceeds of which are to be 
                used in the exercise of any essential governmental 
                function.''.
    (b) Special Rules and Definitions.--Subsection (c) of section 7871 
is amended by inserting at the end the following new paragraph:
            ``(4) Special rules and definitions.--
                    ``(A) Exclusion of gaming.--An obligation described 
                in subparagraph (A) or (B) of paragraph (1) may not be 
                used to finance any portion of a building in which 
                class II or III gaming (as defined in section 4 of the 
                Indian Gaming Regulatory Act (25 U.S.C. 2702)) is 
                conducted or housed.
                    ``(B) Indian reservation.--For purposes of 
                paragraph (1), the term `Indian reservation' means--
                            ``(i) a reservation, as defined in section 
                        4(10) of the Indian Child Welfare Act of 1978 
                        (25 U.S.C. 1903(10)), and
                            ``(ii) lands held under the provisions of 
                        the Alaska Native Claims Settlement Act (43 
                        U.S.C. 1601 et seq.) by a Native corporation as 
                        defined in section 3(m) of such Act (43 U.S.C. 
                        1602(m)).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.

SEC. 614. DEFINITION OF MANUFACTURING FACILITY FOR SMALL ISSUE BONDS.

    (a) In General.--Section 144(a)(12) (relating to termination dates) 
is amended by striking subparagraph (C) and inserting the following new 
subparagraphs:
                    ``(C) Manufacturing facility.--For purposes of this 
                paragraph, the term `manufacturing facility' means any 
                facility which is used in--
                            ``(i) the manufacture of tangible personal 
                        property (including processing which results in 
                        a change in the condition of such property),
                            ``(ii) the manufacture or development of 
                        any software product or process if--
                                    ``(I) it takes more than 6 months 
                                to manufacture or develop such product,
                                    ``(II) the manufacture or 
                                development could not with due 
                                diligence be reasonably expected to 
                                occur in less than 6 months, and
                                    ``(III) the software product or 
                                process comprises programs, routines, 
                                and attendant documentation developed 
                                and maintained for use in computer and 
                                telecommunications technology, or
                            ``(iii) the manufacture or development of 
                        any biobased product or bioenergy if--
                                    ``(I) it takes more than 6 months 
                                to manufacture or develop, and
                                    ``(II) the manufacture or 
                                development could not with due 
                                diligence be reasonably expected to 
                                occur in less than 6 months.
                    ``(D) Related facilities.--For purposes of 
                subparagraph (C), the term `manufacturing facility' 
                includes a facility which is directly and functionally 
                related to a manufacturing facility (determined without 
                regard to subparagraph (C)) if--
                            ``(i) such facility, including an office 
                        facility and a research and development 
                        facility, is located on the same site as the 
                        manufacturing facility, and
                            ``(ii) not more than 40 percent of the net 
                        proceeds of the issue are used to provide such 
                        facility.
                    ``(E) Other definitions.--For purposes of 
                subparagraph (C)(iii)--
                            ``(i) Biobased product.--The term `biobased 
                        product' means a commercial or industrial 
                        product (other than food or feed) which 
                        utilizes biological products or renewable 
                        domestic agricultural (plant, animal, and 
                        marine) or forestry materials.
                            ``(ii) Bioenergy.--The term `bioenergy' 
                        means biomass used in the production of energy, 
                        including liquid, solid, or gaseous fuels, 
                        electricity, and heat.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 615. CONSERVATION BONDS.

    (a) Tax-Exempt Bond Financing.--
            (1) In general.--For purposes of the Internal Revenue Code 
        of 1986, any qualified forest conservation bond shall be 
        treated as an exempt facility bond under section 142 of such 
        Code.
            (2) Qualified forest conservation bond.--For purposes of 
        this section, the term ``qualified forest conservation bond'' 
        means any bond issued as part of an issue if--
                    (A) 95 percent or more of the net proceeds (as 
                defined in section 150(a)(3) of such Code) of such 
                issue are to be used for qualified project costs,
                    (B) such bond is issued for a qualified 
                organization, and
                    (C) such bond is issued before December 31, 2006.
            (3) Limitation on aggregate amount issued.--
                    (A) In general.--The maximum aggregate face amount 
                of bonds which may be issued under this subsection 
                shall not exceed $1,500,000,000 for all projects 
                (excluding refunding bonds).
                    (B) Allocation of limitation.--The limitation 
                described in subparagraph (A) shall be allocated by the 
                Secretary of the Treasury among qualified organizations 
                based on criteria established by the Secretary not 
                later than 180 days after the date of the enactment of 
                this section, after consultation with the Chief of the 
                Forest Service.
            (4) Qualified project costs.--For purposes of this 
        subsection, the term ``qualified project costs'' means the sum 
        of--
                    (A) the cost of acquisition by the qualified 
                organization from an unrelated person of forests and 
                forest land which at the time of acquisition or 
                immediately thereafter are subject to a conservation 
                restriction described in subsection (c)(2),
                    (B) capitalized interest on the qualified forest 
                conservation bonds for the 3-year period beginning on 
                the date of issuance of such bonds, and
                    (C) credit enhancement fees which constitute 
                qualified guarantee fees (within the meaning of section 
                148 of such Code).
            (5) Special rules.--In applying the Internal Revenue Code 
        of 1986 to any qualified forest conservation bond, the 
        following modifications shall apply:
                    (A) Section 146 of such Code (relating to volume 
                cap) shall not apply.
                    (B) For purposes of section 147(b) of such Code 
                (relating to maturity may not exceed 120 percent of 
                economic life), the land and standing timber acquired 
                with proceeds of qualified forest conservation bonds 
                shall have an economic life of 35 years.
                    (C) Subsections (c) and (d) of section 147 of such 
                Code (relating to limitations on acquisition of land 
                and existing property) shall not apply.
                    (D) Section 57(a)(5) of such Code (relating to tax-
                exempt interest) shall not apply to interest on 
                qualified forest conservation bonds.
            (6) Treatment of current refunding bonds.--Paragraphs 
        (2)(C) and (3) shall not apply to any bond (or series of bonds) 
        issued to refund a qualified forest conservation bond issued 
        before December 31, 2006, if--
                    (A) the average maturity date of the issue of which 
                the refunding bond is a part is not later than the 
                average maturity date of the bonds to be refunded by 
                such issue,
                    (B) the amount of the refunding bond does not 
                exceed the outstanding amount of the refunded bond, and
                    (C) the net proceeds of the refunding bond are used 
                to redeem the refunded bond not later than 90 days 
                after the date of the issuance of the refunding bond.
        For purposes of subparagraph (A), average maturity shall be 
        determined in accordance with section 147(b)(2)(A) of such 
        Code.
            (7) Effective date.--This subsection shall apply to 
        obligations issued on or after the date which is 180 days after 
        the enactment of this Act.
    (b) Items From Qualified Harvesting Activities Not Subject to Tax 
or Taken Into Account.--
            (1) In general.--Income, gains, deductions, losses, or 
        credits from a qualified harvesting activity conducted by a 
        qualified organization shall not be subject to tax or taken 
        into account under subtitle A of the Internal Revenue Code of 
        1986.
            (2) Limitation.--The amount of income excluded from gross 
        income under paragraph (1) for any taxable year shall not 
        exceed the amount used by the qualified organization to make 
        debt service payments during such taxable year for qualified 
        forest conservation bonds.
            (3) Qualified harvesting activity.--For purposes of 
        paragraph (1)--
                    (A) In general.--The term ``qualified harvesting 
                activity'' means the sale, lease, or harvesting, of 
                standing timber--
                            (i) on land owned by a qualified 
                        organization which was acquired with proceeds 
                        of qualified forest conservation bonds,
                            (ii) with respect to which a written 
                        acknowledgement has been obtained by the 
                        qualified organization from the State or local 
                        governments with jurisdiction over such land 
                        that the acquisition lessens the burdens of 
                        such government with respect to such land, and
                            (iii) pursuant to a qualified conservation 
                        plan adopted by the qualified organization.
                    (B) Exceptions.--
                            (i) Cessation as qualified organization.--
                        The term ``qualified harvesting activity'' 
                        shall not include any sale, lease, or 
                        harvesting for any period during which the 
                        organization ceases to qualify as a qualified 
                        organization.
                            (ii) Exceeding limits on harvesting.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting of 
                        standing timber on land acquired with proceeds 
                        of qualified forest conservation bonds to the 
                        extent that--
                                    (I) the average annual area of 
                                timber harvested from such land exceeds 
                                2.5 percent of the total area of such 
                                land or,
                                    (II) the quantity of timber removed 
                                from such land exceeds the quantity 
                                which can be removed from such land 
                                annually in perpetuity on a sustained-
                                yield basis with respect to such land.
                        The limitations under subclauses (I) and (II) 
                        shall not apply to post-fire restoration and 
                        rehabilitation or sanitation harvesting of 
                        timber stands which are substantially damaged 
                        by fire, windthrow, or other catastrophes, or 
                        which are in imminent danger from insect or 
                        disease attack.
            (4) Termination.--This subsection shall not apply to any 
        qualified harvesting activity of a qualified organization 
        occurring after the date on which there is no outstanding 
        qualified forest conservation bond with respect to such 
        qualified organization or any such bond ceases to be a tax-
        exempt bond.
            (5) Partial recapture of benefits if harvesting limit 
        exceeded.--If, as of the date that this subsection ceases to 
        apply under paragraph (3), the average annual area of timber 
        harvested from the land exceeds the requirement of paragraph 
        (3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal 
        Revenue Code of 1986 shall be increased, under rules prescribed 
        by the Secretary of the Treasury, by the sum of the tax 
        benefits attributable to such excess and interest at the 
        underpayment rate under section 6621 of such Code for the 
        period of the underpayment.
    (c) Definitions.--For purposes of this section--
            (1) Qualified conservation plan.--The term ``qualified 
        conservation plan'' means a multiple land use program or plan 
        which--
                    (A) is designed and administered primarily for the 
                purposes of protecting and enhancing wildlife and fish, 
                timber, scenic attributes, recreation, and soil and 
                water quality of the forest and forest land,
                    (B) mandates that conservation of forest and forest 
                land is the single-most significant use of the forest 
                and forest land, and
                    (C) requires that timber harvesting be consistent 
                with--
                            (i) restoring and maintaining reference 
                        conditions for the region's ecotype,
                            (ii) restoring and maintaining a 
                        representative sample of young, mid, and late 
                        successional forest age classes,
                            (iii) maintaining or restoring the 
                        resources' ecological health for purposes of 
                        preventing damage from fire, insect, or 
                        disease,
                            (iv) maintaining or enhancing wildlife or 
                        fish habitat, or
                            (v) enhancing research opportunities in 
                        sustainable renewable resource uses.
            (2) Conservation restriction.--The conservation restriction 
        described in this paragraph is a restriction which--
                    (A) is granted in perpetuity to an unrelated person 
                which is described in section 170(h)(3) of such Code 
                and which, in the case of a nongovernmental unit, is 
                organized and operated for conservation purposes,
                    (B) meets the requirements of clause (ii) or 
                (iii)(II) of section 170(h)(4)(A) of such Code,
                    (C) obligates the qualified organization to pay the 
                costs incurred by the holder of the conservation 
                restriction in monitoring compliance with such 
                restriction, and
                    (D) requires an increasing level of conservation 
                benefits to be provided whenever circumstances allow 
                it.
            (3) Qualified organization.--The term ``qualified 
        organization'' means an organization--
                    (A) which is a nonprofit organization substantially 
                all the activities of which are charitable, scientific, 
                or educational, including acquiring, protecting, 
                restoring, managing, and developing forest lands and 
                other renewable resources for the long-term charitable, 
                educational, scientific and public benefit,
                    (B) more than half of the value of the property of 
                which consists of forests and forest land acquired with 
                the proceeds from qualified forest conservation bonds,
                    (C) which periodically conducts educational 
                programs designed to inform the public of 
                environmentally sensitive forestry management and 
                conservation techniques,
                    (D) which has at all times a board of directors--
                            (i) at least 20 percent of the members of 
                        which represent the holders of the conservation 
                        restriction described in paragraph (2),
                            (ii) at least 20 percent of the members of 
                        which are public officials, and
                            (iii) not more than one-third of the 
                        members of which are individuals who are or 
                        were at any time within 5 years before the 
                        beginning of a term of membership on the board, 
                        an employee of, independent contractor with 
                        respect to, officer of, director of, or held a 
                        material financial interest in, a commercial 
                        forest products enterprise with which the 
                        qualified organization has a contractual or 
                        other financial arrangement,
                    (E) the bylaws of which require at least two-thirds 
                of the members of the board of directors to vote 
                affirmatively to approve the qualified conservation 
                plan and any change thereto, and
                    (F) upon dissolution, is required to dedicate its 
                assets to--
                            (i) an organization described in section 
                        501(c)(3) of such Code which is organized and 
                        operated for conservation purposes, or
                            (ii) a governmental unit described in 
                        section 170(c)(1) of such Code.
            (4) Unrelated person.--The term ``unrelated person'' means 
        a person who is not a related person.
            (5) Related person.--A person shall be treated as related 
        to another person if--
                    (A) such person bears a relationship to such other 
                person described in section 267(b) (determined without 
                regard to paragraph (9) thereof), or 707(b)(1), of such 
                Code, determined by substituting ``25 percent'' for 
                ``50 percent'' each place it appears therein, and
                    (B) in the case such other person is a non-profit 
                organization, if such person controls directly or 
                indirectly more than 25 percent of the governing body 
                of such organization.

SEC. 616. INDIAN SCHOOL CONSTRUCTION.

    (a) Definitions.--In this section:
            (1) Bureau.--The term ``Bureau'' means the Bureau of Indian 
        Affairs of the Department.
            (2) Department.--The term ``Department'' means the 
        Department of the Interior.
            (3) Escrow account.--The term ``escrow account'' means the 
        tribal school modernization escrow account established under 
        subsection (b)(6)(B)(i).
            (4) Indian.--The term ``Indian'' means any individual who 
        is a member of an Indian tribe.
            (5) Indian tribe.--
                    (A) In general.--The term ``Indian tribe'' has the 
                meaning given the term ``Indian tribal government'' by 
                section 7701(a)(40) of the Internal Revenue Code of 
                1986 (including the application of section 7871(d) of 
                that Code).
                    (B) Inclusion.--The term ``Indian tribe'' includes 
                a consortium of Indian tribes approved by the 
                Secretary.
            (6) Secretary.--The term ``Secretary'' means the Secretary 
        of the Interior.
            (7) Tribal school.--The term ``tribal school'' means an 
        elementary school, secondary school, or dormitory that--
                    (A) is operated by a tribal organization or the 
                Bureau for the education of Indian children; and
                    (B) under a contract, a grant, or an agreement, or 
                for a Bureau-operated school, receives financial 
                assistance to pay the costs of operation from funds 
                made available under--
                            (i) section 102, 103(a), or 208 of the 
                        Indian Self-Determination and Education 
                        Assistance Act (25 U.S.C. 450f, 450h(a), 458d); 
                        or
                            (ii) the Tribally Controlled Schools Act of 
                        1988 (25 U.S.C. 2501 et seq.).
    (b) Issuance of Bonds.--
            (1) In general.--The Secretary shall establish a pilot 
        program under which eligible Indian tribes may issue qualified 
        tribal school modernization bonds to provide funding for the 
        construction, rehabilitation, or repair of tribal schools 
        (including the advance planning and design of tribal schools).
            (2) Eligibility.--
                    (A) In general.--To be eligible to issue any 
                qualified tribal school modernization bond under the 
                program under paragraph (1), an Indian tribe shall--
                            (i) prepare and submit to the Secretary a 
                        plan of construction that meets the 
                        requirements of subparagraph (B);
                            (ii) provide for quarterly and final 
                        inspection of the project by the Bureau; and
                            (iii) pledge that the facilities financed 
                        by the bond will be used primarily for 
                        elementary and secondary educational purposes 
                        for not less than the period during which the 
                        bond remains outstanding.
                    (B) Plan of construction.--A plan of construction 
                referred to in subparagraph (A)(i) meets the 
                requirements of this subparagraph if the plan--
                            (i) contains a description of the 
                        construction to be carried out with funding 
                        provided under a qualified tribal school 
                        modernization bond;
                            (ii) demonstrates that a comprehensive 
                        survey has been completed to determine the 
                        construction needs of the tribal school 
                        involved;
                            (iii) contains assurances that funding 
                        under the bond will be used only for the 
                        activities described in the plan;
                            (iv) contains a response to the evaluation 
                        criteria contained in Instructions and 
                        Application for Replacement School 
                        Construction, Revision 6, dated February 6, 
                        1999; and
                            (v) contains any other reasonable and 
                        related information determined to be 
                        appropriate by the Secretary.
                    (C) Priority.--In determining whether an Indian 
                tribe is eligible to participate in the program under 
                this subsection, the Secretary shall give priority to 
                an Indian tribe that, as demonstrated by the relevant 
                plans of construction, will fund projects--
                            (i) described in the Education Facilities 
                        Replacement Construction Priorities List, as of 
                        fiscal year 2000, of the Bureau (65 Fed. Reg. 
                        4623);
                            (ii) described in any subsequent priorities 
                        list published in the Federal Register; or
                            (iii) that meet the criteria for ranking 
                        schools as described in Instructions and 
                        Application for Replacement School 
                        Construction, Revision 6, dated February 6, 
                        1999.
                    (D) Advance planning and design funding.--
                            (i) In general.--An Indian tribe may 
                        propose in the plan of construction of the 
                        Indian tribe to receive advance planning and 
                        design funding from the escrow account.
                            (ii) Conditions on allocation of funds.--As 
                        a condition to the allocation to an Indian 
                        tribe of advance planning and design funds from 
                        the escrow account under clause (i), the Indian 
                        tribe shall agree--
                                    (I) to issue qualified tribal 
                                school modernization bonds after the 
                                date of receipt of the funds; and
                                    (II) as a condition of each bond 
                                issuance, that the Indian tribe will 
                                deposit into the escrow account, or a 
                                fund managed by the trustee as 
                                described in paragraph (4)(C), an 
                                amount equal to the amount of funds 
                                received from the escrow account.
            (3) Permissible activities.--In addition to the use of 
        funds permitted under paragraph (1), an Indian tribe may use 
        amounts received through the issuance of a qualified tribal 
        school modernization bond--
                    (A) to enter into and make payments under contracts 
                with licensed and bonded architects, engineers, and 
                construction firms--
                            (i) to determine the needs of the tribal 
                        school; and
                            (ii) for the design and engineering of the 
                        tribal school;
                    (B) enter into and make payments under contracts 
                with financial advisers, underwriters, attorneys, 
                trustees, and other professionals who would be able to 
                provide assistance to the Indian tribe in issuing 
                bonds; and
                    (C) carry out other activities determined to be 
                appropriate by the Secretary.
            (4) Bond trustee.--
                    (A) In general.--Notwithstanding any other 
                provision of law, any qualified tribal school 
                modernization bond issued by an Indian tribe under this 
                subsection shall be subject to a trust agreement 
                between the Indian tribe and a trustee.
                    (B) Trustee.--Any bank or trust company that meets 
                requirements established by the Secretary may be 
                designated as a trustee under subparagraph (A).
                    (C) Content of trust agreement.--A trust agreement 
                entered into by an Indian tribe under this paragraph 
                shall specify that the trustee, with respect to any 
                bond issued under this subsection, shall--
                            (i) act as a repository for the proceeds of 
                        the bond;
                            (ii) make payments to bondholders;
                            (iii) receive, as a condition to the 
                        issuance of the bond, a transfer of funds from 
                        the escrow account, or from other funds 
                        furnished by or on behalf of the Indian tribe, 
                        in an amount that (including interest earnings 
                        from the investment of the funds in obligations 
                        of, or fully guaranteed by, the United States, 
                        or from other investments authorized by 
                        paragraph (10)) will produce funds sufficient 
                        to timely pay in full the entire principal 
                        amount of the bond on the stated maturity date 
                        of the bond;
                            (iv) invest the funds transferred under 
                        clause (iii) in an investment described in that 
                        clause; and
                            (v)(I) hold and invest the funds 
                        transferred under clause (iii) in a segregated 
                        fund or account under the agreement; and
                            (II) use the fund or account solely for 
                        payment of the costs of items described in 
                        paragraph (3).
                    (D) Requirements for making direct payments.--
                            (i) Payments.--
                                    (I) In general.--Notwithstanding 
                                any other provision of law, the trustee 
                                shall make any payment referred to in 
                                subparagraph (C)(v) in accordance with 
                                such requirements as the Indian tribe 
                                shall prescribe in the trust agreement 
                                entered into under subparagraph (C).
                                    (II) Inspection.--Before making a 
                                payment for a project to a contractor 
                                under subparagraph (C)(v), to ensure 
                                completion of the project, the trustee 
                                shall require an inspection of the 
                                project by--
                                            (aa) a local financial 
                                        institution; or
                                            (bb) an independent 
                                        inspecting architect or 
                                        engineer.
                            (ii) Contracts.--Each contract referred to 
                        in paragraph (3) shall specify, or be 
                        renegotiated to specify, that payments under 
                        the contract shall be made in accordance with 
                        this paragraph.
            (5) Payments of principal and interest.--
                    (A) Principal.--
                            (i) In general.--No principal payment on 
                        any qualified tribal school modernization bond 
                        shall be required under this subsection until 
                        the final, stated date on which the bond 
                        reaches maturity.
                            (ii) Maturity; outstanding principal.--With 
                        respect to a qualified tribal school 
                        modernization bond issued under this 
                        subsection--
                                    (I) the bond shall reach maturity 
                                not later than 15 years after the date 
                                of issuance of the bond; and
                                    (II) on the date on which the bond 
                                reaches maturity, the entire 
                                outstanding principal under the bond 
                                shall become due and payable.
                    (B) Interest.--There shall be awarded a tax credit 
                under section 1400M of the Internal Revenue Code of 
                1986 in lieu of interest on a qualified tribal school 
                modernization bond issued under this subsection.
            (6) Bond guarantees.--
                    (A) In general.--Payment of the principal portion 
                of a qualified tribal school modernization bond issued 
                under this subsection shall be guaranteed solely by 
                amounts deposited with each respective bond trustee as 
                described in paragraph (4)(C)(iii).
                    (B) Establishment of account.--
                            (i) In general.--Notwithstanding any other 
                        provision of law, the Secretary may--
                                    (I) establish a tribal school 
                                modernization escrow account; and
                                    (II) beginning in fiscal year 2005, 
                                from amounts made available for school 
                                replacement under the construction 
                                account of the Bureau, deposit not more 
                                than $30,000,000 for each fiscal year 
                                into the escrow account.
                            (ii) Transfers of excess proceeds.--Excess 
                        proceeds held under any trust agreement that 
                        are not needed for any of the purposes 
                        described in clauses (iii) and (v) of paragraph 
                        (4)(C) shall be transferred, from time to time, 
                        by the trustee for deposit into the escrow 
                        account.
                            (iii) Payments.--The Secretary shall use 
                        any amounts deposited in the escrow account 
                        under clauses (i) and (ii)--
                                    (I) to make payments to trustees 
                                appointed and acting in accordance with 
                                paragraph (4); or
                                    (II) to make payments described in 
                                paragraph (2)(D).
            (7) Limitations.--
                    (A) Obligation to repay.--
                            (i) In general.--Notwithstanding any other 
                        provision of law, the principal amount on any 
                        qualified tribal school modernization bond 
                        issued under this subsection shall be repaid 
                        only to the extent of any escrowed funds 
                        provided under paragraph (4)(C)(iii).
                            (ii) No guarantee.--No qualified tribal 
                        school modernization bond issued by an Indian 
                        tribe under this subsection shall be an 
                        obligation of, and no payment of the principal 
                        of such a bond shall be guaranteed by--
                                    (I) the United States;
                                    (II) the Indian tribe; or
                                    (III) the tribal school for which 
                                the bond was issued.
                    (B) Land and facilities.--No land or facility 
                purchased or improved with amounts derived from a 
                qualified tribal school modernization bond issued under 
                this subsection shall be mortgaged or used as 
                collateral for the bond.
            (8) Sale of bonds.--A qualified tribal school modernization 
        bond may be sold at a purchase price equal to, in excess of, or 
        at a discount from, the par amount of the bond.
            (9) Treatment of trust agreement earnings.--No amount 
        earned through the investment of funds under the control of a 
        trustee under any trust agreement described in paragraph (4) 
        shall be subject to Federal income taxation.
            (10) Investment of sinking funds.--A sinking fund 
        established for the purpose of the payment of principal on a 
        qualified tribal school modernization bond issued under this 
        subsection shall be invested in--
                    (A) obligations issued by or guaranteed by the 
                United States; or
                    (B) such other assets as the Secretary of the 
                Treasury may by regulation allow.
    (c) Expansion of Incentives for Tribal Schools.--Chapter 1 is 
amended by adding at the end the following new subchapter:

         ``Subchapter Z--Tribal School Modernization Provisions

``Sec. 1400M. Credit to holders of qualified tribal school 
                            modernization bonds.

``SEC. 1400M. CREDIT TO HOLDERS OF QUALIFIED TRIBAL SCHOOL 
              MODERNIZATION BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified tribal school modernization bond on a credit allowance date 
of such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for such 
taxable year an amount equal to the sum of the credits determined under 
subsection (b) with respect to credit allowance dates during such year 
on which the taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified tribal school modernization bond is 25 percent 
        of the annual credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified tribal school modernization bond is 
        the product of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (1), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the date of sale 
        of the issue) on outstanding long-term corporate obligations 
        (as determined by the Secretary).
            ``(4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under part 
                IV of subchapter A (other than subpart C thereof, 
                relating to refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Qualified Tribal School Modernization Bond; Other 
Definitions.--For purposes of this section--
            ``(1) Qualified tribal school modernization bond.--
                    ``(A) In general.--The term `qualified tribal 
                school modernization bond' means, subject to 
                subparagraph (B), any bond issued as part of an issue 
                under section 616(b) of the Jumpstart Our Business 
                Strength (JOBS) Act, as in effect on the date of the 
                enactment of this section, if--
                            ``(i) 95 percent or more of the proceeds of 
                        such issue are to be used for the construction, 
                        rehabilitation, or repair of a school facility 
                        funded by the Bureau of Indian Affairs of the 
                        Department of the Interior or for the 
                        acquisition of land on which such a facility is 
                        to be constructed with part of the proceeds of 
                        such issue,
                            ``(ii) the bond is issued by an Indian 
                        tribe,
                            ``(iii) the issuer designates such bond for 
                        purposes of this section, and
                            ``(iv) the term of each bond which is part 
                        of such issue does not exceed 15 years.
                    ``(B) National limitation on amount of bonds 
                designated.--
                            ``(i) National limitation.--There is a 
                        national qualified tribal school modernization 
                        bond limitation for each calendar year. Such 
                        limitation is--
                                    ``(I) $200,000,000 for 2005,
                                    ``(II) $200,000,000 for 2006, and
                                    ``(III) zero after 2006.
                            ``(ii) Allocation of limitation.--The 
                        national qualified tribal school modernization 
                        bond limitation shall be allocated to Indian 
                        tribes by the Secretary of the Interior subject 
                        to the provisions of section 616 of the 
                        Jumpstart Our Business Strength (JOBS) Act, as 
                        in effect on the date of the enactment of this 
                        section.
                            ``(iii) Designation subject to limitation 
                        amount.--The maximum aggregate face amount of 
                        bonds issued during any calendar year which may 
                        be designated under subsection (d)(1) with 
                        respect to any Indian tribe shall not exceed 
                        the limitation amount allocated to such 
                        government under clause (ii) for such calendar 
                        year.
                            ``(iv) Carryover of unused limitation.--If 
                        for any calendar year--
                                    ``(I) the limitation amount under 
                                this subparagraph, exceeds
                                    ``(II) the amount of qualified 
                                tribal school modernization bonds 
                                issued during such year,
                        the limitation amount under this subparagraph 
                        for the following calendar year shall be 
                        increased by the amount of such excess. The 
                        preceding sentence shall not apply if such 
                        following calendar year is after 2012.
            ``(2) Credit allowance date.--The term `credit allowance 
        date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(3) Bond.--The term `bond' includes any obligation.
            ``(4) Tribe.--The term `tribe' has the meaning given the 
        term `Indian tribal government' by section 7701(a)(40), 
        including the application of section 7871(d). Such term 
        includes any consortium of tribes approved by the Secretary of 
        the Interior.
    ``(e) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(f) Bonds Held by Regulated Investment Companies.--If any 
qualified tribal school modernization bond is held by a regulated 
investment company, the credit determined under subsection (a) shall be 
allowed to shareholders of such company under procedures prescribed by 
the Secretary.
    ``(g) Treatment for Estimated Tax Purposes.--Solely for purposes of 
sections 6654 and 6655, the credit allowed by this section to a 
taxpayer by reason of holding a qualified tribal school modernization 
bonds on a credit allowance date shall be treated as if it were a 
payment of estimated tax made by the taxpayer on such date.
    ``(h) Credit Treated as Allowed Under Part IV of Subchapter A.--For 
purposes of subtitle F, the credit allowed by this section shall be 
treated as a credit allowable under part IV of subchapter A of this 
chapter.
    ``(i) Reporting.--Issuers of qualified tribal school modernization 
bonds shall submit reports similar to the reports required under 
section 149(e).''.
    (d) Conforming Amendment.--The table of subchapters for chapter 1 
is amended by adding at the end the following new item:

                              ``Subchapter Z. Tribal school 
                                        modernization provisions.''.
    (e) Additional Provisions.--
            (1) Sovereign immunity.--This section and the amendments 
        made by this section shall not be construed to impact, limit, 
        or affect the sovereign immunity of the Federal Government or 
        any State or tribal government.
            (2) Application.--This section and the amendments made by 
        this section shall take effect on the date of the enactment of 
        this Act with respect to bonds issued after December 31, 2004, 
        regardless of the status of regulations promulgated thereunder.

            Subtitle C--Provisions Relating to Depreciation

SEC. 621. SPECIAL PLACED IN SERVICE RULE FOR BONUS DEPRECIATION 
              PROPERTY.

    (a) In General.--Section 168(k)(2)(D) (relating to special rules) 
is amended by adding at the end the following new clause:
                            ``(iii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                    ``(I) property is originally placed 
                                in service after September 10, 2001, by 
                                the lessor of such property,
                                    ``(II) such property is sold by 
                                such lessor or any subsequent purchaser 
                                within 3 months after the date so 
                                placed in service (or, in the case of 
                                multiple units of property subject to 
                                the same lease, within 3 months after 
                                the date the final unit is placed in 
                                service, so long as the period between 
                                the time the first unit is placed in 
                                service and the time the last unit is 
                                placed in service does not exceed 12 
                                months), and
                                    ``(III) the user of such property 
                                after the last sale during such 3-month 
                                period remains the same as when such 
                                property was originally placed in 
                                service,
                        such property shall be treated as originally 
                        placed in service not earlier than the date of 
                        such last sale, so long as no previous owner of 
                        such property elects the application of this 
                        subsection with respect to such property.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales after the date of the enactment of this Act.

SEC. 622. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.

    (a) Aircraft Treated as Qualified Property.--
            (1) In general.--Paragraph (2) of section 168(k) is amended 
        by redesignating subparagraphs (C) through (F) as subparagraphs 
        (D) through (G), respectively, and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) Certain aircraft.--The term `qualified 
                property' includes property--
                            ``(i) which meets the requirements of 
                        clauses (ii) and (iii) of subparagraph (A),
                            ``(ii) which is an aircraft which is not a 
                        transportation property (as defined in 
                        subparagraph (B)(iii)) other than for 
                        agricultural or firefighting purposes,
                            ``(iii) which is purchased and on which 
                        such purchaser, at the time of the contract for 
                        purchase, has made a nonrefundable deposit of 
                        the lesser of--
                                    ``(I) 10 percent of the cost, or
                                    ``(II) $100,000, and
                            ``(iv) which has--
                                    ``(I) an estimated production 
                                period exceeding 4 months, and
                                    ``(II) a cost exceeding 
                                $200,000.''.
            (2) Placed in service date.--Clause (iv) of section 
        168(k)(2)(A) is amended by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (C)''.
    (b) Conforming Amendments.--
            (1) Section 168(k)(2)(B) is amended by adding at the end 
        the following new clause:
                            ``(iv) Application of subparagraph.--This 
                        subparagraph shall not apply to any property 
                        which is described in subparagraph (C).''.
            (2) Section 168(k)(4)(A)(ii) is amended by striking 
        ``paragraph (2)(C)'' and inserting ``paragraph (2)(D)''.
            (3) Section 168(k)(4)(B)(iii) is amended by inserting ``and 
        paragraph (2)(C)'' after ``of this paragraph)''.
            (4) Section 168(k)(4)(C) is amended by striking 
        ``subparagraphs (B) and (D)'' and inserting ``subparagraphs 
        (B), (C), and (E)''.
            (5) Section 168(k)(4)(D) is amended by striking ``Paragraph 
        (2)(E)'' and inserting ``Paragraph (2)(F)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 623. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.

    (a) 7-Year Property.--Subparagraph (C) of section 168(e)(3) 
(relating to classification of certain property) is amended by 
redesignating clause (ii) as clause (iii) and by inserting after clause 
(i) the following new clause:
                            ``(ii) any motorsports entertainment 
                        complex, and''.
    (b) Definition.--Section 168(i) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraph:
            ``(15) Motorsports entertainment complex.--
                    ``(A) In general.--The term `motorsports 
                entertainment complex' means a racing track facility 
                which--
                            ``(i) is permanently situated on land, and
                            ``(ii) during the 36-month period following 
                        the first day of the month in which the asset 
                        is placed in service, is scheduled to host 1 or 
                        more racing events for automobiles (of any 
                        type), trucks, or motorcycles which are open to 
                        the public for the price of admission.
                    ``(B) Ancillary and support facilities.--Such term 
                shall include, if owned by the complex and provided for 
                the benefit of patrons of the complex--
                            ``(i) ancillary grounds and facilities and 
                        land improvements in support of the complex's 
                        activities (including parking lots, sidewalks, 
                        waterways, bridges, fences, and landscaping),
                            ``(ii) support facilities (including food 
                        and beverage retailing, souvenir vending, and 
                        other nonlodging accommodations), and
                            ``(iii) appurtenances associated with such 
                        facilities and related attractions and 
                        amusements (including ticket booths, race track 
                        surfaces, suites and hospitality facilities, 
                        grandstands and viewing structures, props, 
                        walls, facilities that support the delivery of 
                        entertainment services, other special purpose 
                        structures, facades, shop interiors, and 
                        buildings).
                    ``(C) Exception.--Such term shall not include any 
                transportation equipment, administrative services 
                assets, warehouses, administrative buildings, hotels, 
                or motels.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to any property placed in service after the date of the 
        enactment of this Act and before January 1, 2008.
            (2) No inference.--Nothing in the amendments made by this 
        section shall be construed to affect the treatment of expenses 
        incurred on or before the date of the enactment of this Act.

SEC. 624. MINIMUM TAX RELIEF FOR CERTAIN TAXPAYERS.

    (a) Election to Increase Minimum Tax Credit Limitation in Lieu of 
Bonus Depreciation.--
            (1) In general.--Section 53 (relating to credit for prior 
        year minimum tax liability) is amended by adding at the end the 
        following new subsection:
    ``(e) Additional Credit in Lieu of Bonus Depreciation.--
            ``(1) In general.--In the case of a corporation making an 
        election under this subsection for a taxable year, the 
        limitation under subsection (c) shall be increased by an amount 
        equal to 50 percent of the bonus depreciation amount.
            ``(2) Bonus depreciation amount.--For purposes of paragraph 
        (1), the bonus depreciation amount for any taxable year is an 
        amount (not in excess of $25,000,000) equal to the product of--
                    ``(A) 30 percent, and
                    ``(B) the excess (if any) of--
                            ``(i) the aggregate amount of depreciation 
                        which would be determined under section 168 for 
                        property placed in service during such taxable 
                        year if no election under this subsection were 
                        made, over
                            ``(ii) the aggregate allowance for 
                        depreciation allowable with respect to such 
                        property placed in service for such taxable 
                        year.
            ``(3) Aggregation rule.--All members of the same controlled 
        group of corporations shall be treated as 1 corporation for 
        purposes of this subsection.
            ``(4) Election.--Sections 168(k) (other than paragraph 
        (2)(F) thereof) shall not apply to any property placed in 
        service during a taxable year by a corporation making an 
        election under this subsection for such taxable year. An 
        election under this subsection may only be revoked with the 
        consent of the Secretary.
            ``(5) Credit refundable.--The aggregate increase in the 
        credit allowed by this section for any taxable year by reason 
        of this subsection shall for purposes of this title (other than 
        subsection (b)(2) of this section) be treated as a credit 
        allowed to the taxpayer under subpart C.''.
            (2) Conforming amendments.--Subsection (k) of section 168 
        is amended by adding at the end the following new paragraph:
            ``(5) Cross reference.--For an election to claim certain 
        minimum tax credits in lieu of the allowance determined under 
        this subsection, see section 53(e).''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after December 31, 2003.
    (b) Use of General Business Credits Against Alternative Minimum 
Tax.--
            (1) In general.--Section 38(c) (relating to limitations 
        based on amount of tax) is amended by redesignating paragraph 
        (4) as paragraph (5) and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) Special rule for 2004.--Notwithstanding the preceding 
        provisions of this paragraph, in the case of any taxable year 
        beginning in 2004, the credit allowed under subsection (a) 
        shall not exceed the greater of--
                    ``(A) the amount determined under this subsection 
                without regard to this paragraph, or
                    ``(B) 50 percent of the lesser of--
                            ``(i) the amount which would be determined 
                        under this subsection if the tentative minimum 
                        tax were treated as being zero in applying 
                        paragraph (1) to such credit, or
                            ``(ii) the amount of the current year 
                        business credit.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning in 2004.

                Subtitle D--Expansion of Business Credit

SEC. 631. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN RESERVATIONS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by redesignating 
sections 45E and 45F as sections 45F and 45G, respectively, and by 
inserting after section 45D the following new section:

``SEC. 45E. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN RESERVATIONS.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, in the case 
        of a taxpayer who holds a qualified equity investment on a 
        credit allowance date of such investment which occurs during 
        the taxable year, the Native American new markets tax credit 
        determined under this section for such taxable year is an 
        amount equal to the applicable percentage of the amount paid to 
        the reservation development entity for such investment at its 
        original issue.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is--
                    ``(A) 5 percent with respect to the first 3 credit 
                allowance dates, and
                    ``(B) 6 percent with respect to the remainder of 
                the credit allowance dates.
            ``(3) Credit allowance date.--For purposes of paragraph 
        (1), the term `credit allowance date' means, with respect to 
        any qualified equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 6 anniversary dates of such date 
                thereafter.
    ``(b) Qualified Equity Investment.--For purposes of this section--
            ``(1) In general.--The term `qualified equity investment' 
        means any equity investment in a reservation development entity 
        if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) substantially all of such cash is used by the 
                reservation development entity to make qualified low-
                income reservation investments, and
                    ``(C) such investment is designated for purposes of 
                this section by the reservation development entity.
        Such term shall not include any equity investment issued by a 
        reservation development entity more than 5 years after the date 
        that such entity receives an allocation under subsection (f). 
        Any allocation not used within such 5-year period may be 
        reallocated by the Secretary under subsection (f).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a reservation development entity which may be 
        designated under paragraph (1)(C) by such entity shall not 
        exceed the portion of the limitation amount allocated under 
        subsection (f) to such entity.
            ``(3) Safe harbor for determining use of cash.--The 
        requirement of paragraph (1)(B) shall be treated as met if at 
        least 85 percent of the aggregate gross assets of the 
        reservation development entity are invested in qualified low-
        income reservation investments.
            ``(4) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity investment 
        which would (but for paragraph (1)(A)) be a qualified equity 
        investment in the hands of the taxpayer if such investment was 
        a qualified equity investment in the hands of a prior holder.
            ``(5) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(6) Equity investment.--The term `equity investment' 
        means--
                    ``(A) any stock (other than nonqualified preferred 
                stock as defined in section 351(g)(2)) in an entity 
                which is a corporation, and
                    ``(B) any capital interest in an entity which is a 
                partnership.
    ``(c) Reservation Development Entity.--For purposes of this 
section--
            ``(1) In general.--The term `reservation development 
        entity' means any domestic corporation or partnership if--
                    ``(A) the primary mission of the entity is serving, 
                or providing investment capital for, low-income 
                reservations,
                    ``(B) the entity maintains accountability to 
                residents of low-income reservations through their 
                representation on any governing board of the entity or 
                on any advisory board to the entity, and
                    ``(C) the entity is certified by the Secretary for 
                purposes of this section as being a reservation 
                development entity.
            ``(2) Exception.--For purposes of subparagraph (C) of 
        paragraph (1), the Secretary shall not certify an entity as a 
        reservation development entity if such entity is also certified 
        as a qualified community development entity under section 
        45D(c).
    ``(d) Qualified Low-Income Reservation Investments.--For purposes 
of this section--
            ``(1) In general.--The term `qualified low-income 
        reservation investment' means--
                    ``(A) any capital or equity investment in, or loan 
                to, any qualified active low-income reservation 
                business,
                    ``(B) the purchase from another reservation 
                development entity of any loan made by such entity 
                which is a qualified low-income reservation investment,
                    ``(C) financial counseling and other services 
                specified in regulations prescribed by the Secretary to 
                businesses located in, and residents of, low-income 
                reservations, and
                    ``(D) any equity investment in, or loan to, any 
                reservation development entity.
            ``(2) Qualified active low-income reservation business.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `qualified active low-income reservation 
                business' means, with respect to any taxable year, any 
                corporation (including a nonprofit corporation) or 
                partnership if for such year--
                            ``(i) at least 50 percent of the total 
                        gross income of such entity is derived from the 
                        active conduct of a qualified business within 
                        any low-income reservation,
                            ``(ii) a substantial portion of the use of 
                        the tangible property of such entity (whether 
                        owned or leased) is within any low-income 
                        reservation,
                            ``(iii) a substantial portion of the 
                        services performed for such entity by its 
                        employees are performed in any low-income 
                        reservation,
                            ``(iv) less than 5 percent of the average 
                        of the aggregate unadjusted bases of the 
                        property of such entity is attributable to 
                        collectibles (as defined in section 408(m)(2)) 
                        other than collectibles that are held primarily 
                        for sale to customers in the ordinary course of 
                        such business, and
                            ``(v) less than 5 percent of the average of 
                        the aggregate unadjusted bases of the property 
                        of such entity is attributable to nonqualified 
                        financial property (as defined in section 
                        1397C(e)).
                    ``(B) Proprietorship.--Such term shall include any 
                business carried on by an individual as a proprietor if 
                such business would meet the requirements of 
                subparagraph (A) were it incorporated.
                    ``(C) Portions of business may be qualified active 
                low-income reservation business.--The term `qualified 
                active low-income reservation business' includes any 
                trades or businesses which would qualify as a qualified 
                active low-income reservation business if such trades 
                or businesses were separately incorporated.
            ``(3) Qualified business.--For purposes of this subsection, 
        the term `qualified business' has the meaning given to such 
        term by section 45D(d)(3).
    ``(e) Low-Income Reservation.--For purposes of this section, the 
term `low-income reservation' means any Indian reservation (as defined 
in section 168(j)(6)) which has a poverty rate of at least 40 percent.
    ``(f) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is a Native American new markets 
        tax credit limitation of $50,000,000 for each of calendar years 
        2004 through 2007.
            ``(2) Allocation of limitation.--The limitation under 
        paragraph (1) shall be allocated by the Secretary among 
        reservation development entities selected by the Secretary. In 
        making allocations under the preceding sentence, the Secretary 
        shall give priority to any entity--
                    ``(A) with a record of having successfully provided 
                capital or technical assistance to disadvantaged 
                businesses or communities, or
                    ``(B) which intends to satisfy the requirement 
                under subsection (b)(1)(B) by making qualified low-
                income reservation investments in 1 or more businesses 
                in which persons unrelated to such entity (within the 
                meaning of section 267(b) or 707(b)(1)) hold the 
                majority equity interest.
            ``(3) Carryover of unused limitation.--If the Native 
        American new markets tax credit limitation for any calendar 
        year exceeds the aggregate amount allocated under paragraph (2) 
        for such year, such limitation for the succeeding calendar year 
        shall be increased by the amount of such excess. No amount may 
        be carried under the preceding sentence to any calendar year 
        after 2014.
    ``(g) Recapture of Credit in Certain Cases.--
            ``(1) In general.--If, at any time during the 7-year period 
        beginning on the date of the original issue of a qualified 
        equity investment in a reservation development entity, there is 
        a recapture event with respect to such investment, then the tax 
        imposed by this chapter for the taxable year in which such 
        event occurs shall be increased by the credit recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the aggregate decrease in the credits allowed 
                to the taxpayer under section 38 for all prior taxable 
                years which would have resulted if no credit had been 
                determined under this section with respect to such 
                investment, plus
                    ``(B) interest at the underpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to an equity investment 
        in a reservation development entity if--
                    ``(A) such entity ceases to be a reservation 
                development entity,
                    ``(B) the proceeds of the investment cease to be 
                used as required of subsection (b)(1)(B), or
                    ``(C) such investment is redeemed by such entity.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under this chapter or for purposes 
                of section 55.
    ``(h) Basis Reduction.--The basis of any qualified equity 
investment shall be reduced by the amount of any credit determined 
under this section with respect to such investment. This subsection 
shall not apply for purposes of sections 1202, 1400B, and 1400F.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including 
regulations--
            ``(1) which limit the credit for investments which are 
        directly or indirectly subsidized by other Federal tax benefits 
        (including the credit under section 42 and the exclusion from 
        gross income under section 103),
            ``(2) which prevent the abuse of the purposes of this 
        section,
            ``(3) which provide rules for determining whether the 
        requirement of subsection (b)(1)(B) is treated as met,
            ``(4) which impose appropriate reporting requirements, and
            ``(5) which apply the provisions of this section to newly 
        formed entities.''.
    (b) Credit Made Part of General Business Credit.--
            (1) In general.--Subsection (b) of section 38 is amended by 
        redesignating paragraphs (14) and (15) as paragraphs (15) and 
        (16), respectively, and by inserting after paragraph (13) the 
        following new paragraph:
            ``(14) the Native American new markets tax credit 
        determined under section 45E(a),''.
            (2) Limitation on carryback.--Subsection (d) of section 39 
        is amended by redesignating paragraph (10) as paragraph (11) 
        and by inserting after paragraph (9) the following new 
        paragraph:
            ``(10) No carryback of native american new markets tax 
        credit before january 1, 2004.--No portion of the unused 
        business credit for any taxable year which is attributable to 
        the credit under section 45E may be carried back to a taxable 
        year ending before January 1, 2004.''.
    (c) Deduction for Unused Credit.--Subsection (c) of section 196 is 
amended by redesignating paragraph (10) as paragraph (11), by striking 
``and'' at the end of paragraph (9), and by inserting after paragraph 
(9) the following new paragraph:
            ``(10) the Native American new markets tax credit 
        determined under section 45E(a), and''.
    (d) Conforming Amendments.--
            (1) Section 38(b)(15), as redesignated by subsection 
        (b)(1), is amended--
                    (A) by striking ``45E(c)'' and inserting 
                ``45F(c)'', and
                    (B) by striking ``45E(a)'' and inserting 
                ``45F(a)''.
            (2) Section 38(b)(16), as redesignated by subsection 
        (b)(1), is amended by striking ``45F(a)'' and inserting 
        ``45G(a)''.
            (3) Section 39(d)(11), as redesignated by subsection 
        (b)(2), is amended by striking ``section 45E'' and inserting 
        ``section 45F''.
            (4) Section 196(c)(11), as redesignated by subsection (c), 
        is amended by striking ``45E(a)'' and inserting ``45F(a)''.
            (5) Section 1016(a)(28) is amended--
                    (A) by striking ``under section 45F'' and inserting 
                ``under section 45G'', and
                    (B) by striking ``section 45F(f)(1)'' and inserting 
                ``section 45G(f)(1)''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by striking the items 
relating to sections 45E and 45F and inserting the following:

                              ``Sec. 45E. New markets tax credit for 
                                        Native American reservations.
                              ``Sec. 45F. Small employer pension plan 
                                        startup costs.
                              ``Sec. 45G. Employer-provided child care 
                                        credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to investments made after December 31, 2003.
    (f) Guidance on Allocation of National Limitation.--Not later than 
120 days after the date of the enactment of this Act, the Secretary of 
the Treasury or the Secretary's delegate shall issue guidance which 
specifies--
            (1) how entities shall apply for an allocation under 
        section 45E(f)(2) of the Internal Revenue Code of 1986, as 
        added by this section;
            (2) the competitive procedure through which such 
        allocations are made; and
            (3) the actions that such Secretary or delegate shall take 
        to ensure that such allocations are properly made to 
        appropriate entities.
    (g) Audit and Report.--Not later than January 31 of 2007 and 2010, 
the Comptroller General of the United States shall, pursuant to an 
audit of the Native American new markets tax credit program established 
under section 45E of the Internal Revenue Code of 1986 (as added by 
subsection (a)), report to Congress on such program, including all 
reservation development entities that receive an allocation under the 
Native American new markets credit under such section.
    (h) Grants in Coordination With Credit.--
            (1) In general.--The Secretary of the Treasury is 
        authorized to award a grant of not more than $1,000,000 to the 
        First Nations Oweesta Corporation.
            (2) Use of funds.--The grant awarded under paragraph (1) 
        may be used--
                    (A) to enhance the capacity of people living on 
                low-income reservations (within the meaning of section 
                45E(e) of the Internal Revenue Code of 1986, as added 
                by this section) to access, apply, control, create, 
                leverage, utilize, and retain the financial benefits to 
                such low-income reservations which are attributable to 
                qualified low-income reservation investments (within 
                the meaning of section 45E(d) of such Code), and
                    (B) to provide access to appropriate financial 
                capital for the development of such low-income 
                reservations.
            (3) Authorization of appropriations.--There are authorized 
        to be appropriated $1,000,000 for fiscal years 2004 through 
        2014 to carry out the provisions of this subsection.

SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND READY 
              RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.

    (a) Ready Reserve-National Guard Credit.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business-related credits), as amended by 
        this Act, is amended by adding at the end the following:

``SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the Ready Reserve-
National Guard employee credit determined under this section for any 
taxable year with respect to each Ready Reserve-National Guard employee 
of an employer is an amount equal to 50 percent of the lesser of--
            ``(1) the actual compensation amount with respect to such 
        employee for such taxable year, or
            ``(2) $30,000.
    ``(b) Definition of Actual Compensation Amount.--For purposes of 
this section, the term `actual compensation amount' means the amount of 
compensation paid or incurred by an employer with respect to a Ready 
Reserve-National Guard employee on any day when the employee was absent 
from employment for the purpose of performing qualified active duty.
    ``(c) Limitations.--No credit shall be allowed with respect to any 
day that a Ready Reserve-National Guard employee who performs qualified 
active duty was not scheduled to work (for reason other than to 
participate in qualified active duty).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified active duty.--The term `qualified active 
        duty' means--
                    ``(A) active duty, other than the training duty 
                specified in section 10147 of title 10, United States 
                Code (relating to training requirements for the Ready 
                Reserve), or section 502(a) of title 32, United States 
                Code (relating to required drills and field exercises 
                for the National Guard), in connection with which an 
                employee is entitled to reemployment rights and other 
                benefits or to a leave of absence from employment under 
                chapter 43 of title 38, United States Code, and
                    ``(B) hospitalization incident to such duty.
            ``(2) Compensation.--The term `compensation' means any 
        remuneration for employment, whether in cash or in kind, which 
        is paid or incurred by a taxpayer and which is deductible from 
        the taxpayer's gross income under section 162(a)(1).
            ``(3) Ready reserve-national guard employee.--The term 
        `Ready Reserve-National Guard employee' means an employee who 
        is a member of the Ready Reserve of a reserve component of an 
        Armed Force of the United States as described in sections 10142 
        and 10101 of title 10, United States Code.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of section 52 shall apply.
    ``(e) Portion of Credit Refundable.--
            ``(1) In general.--In the case of an employer of a 
        qualified first responder, the aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the lesser of--
                    ``(A) the credit which would be allowed under this 
                section without regard to this subsection and the 
                limitation under section 38(c), or
                    ``(B) the amount by which the aggregate amount of 
                credits allowed by this subpart (determined without 
                regard to this subsection) would increase if the 
                limitation imposed by section 38(c) for any taxable 
                year were increased by the amount of employer payroll 
                taxes imposed on the taxpayer during the calendar year 
                in which the taxable year begins.
        The amount of the credit allowed under this subsection shall 
        not be treated as a credit allowed under this subpart and shall 
        reduce the amount of the credit otherwise allowable under 
        subsection (a) without regard to section 38(c).
            ``(2) Employer payroll taxes.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `employer payroll 
                taxes' means the taxes imposed by--
                            ``(i) section 3111(b), and
                            ``(ii) sections 3211(a) and 3221(a) 
                        (determined at a rate equal to the rate under 
                        section 3111(b)).
                    ``(B) Special rule.--A rule similar to the rule of 
                section 24(d)(2)(C) shall apply for purposes of 
                subparagraph (A).
            ``(3) Qualified first responder.--For purposes of this 
        subsection, the term `qualified first responder' means any 
        person who is--
                    ``(A) employed as a law enforcement official, a 
                firefighter, or a paramedic, and
                    ``(B) a Ready Reserve-National Guard employee.''.
            (2) Credit to be part of general business credit.--
        Subsection (b) of section 38 (relating to general business 
        credit), as amended by this Act, is amended by striking 
        ``plus'' at the end of paragraph (15), by striking the period 
        at the end of paragraph (16) and inserting ``, plus'', and by 
        adding at the end the following:
            ``(17) the Ready Reserve-National Guard employee credit 
        determined under section 45H(a).''.
            (3) Denial of double benefit.--Section 280C(a) (relating to 
        rule for employment credits) is amended by inserting 
        ``45H(a),'' after ``45A(a),''.
            (4) Conforming amendment.--The table of sections for 
        subpart D of part IV of subchapter A of chapter 1, as amended 
        by this Act, is amended by inserting after the item relating to 
        section 45G the following:

                              ``Sec. 45H. Ready Reserve-National Guard 
                                        employee credit.''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after September 30, 
        2004, in taxable years ending after such date.
    (b) Ready Reserve-National Guard Replacement Employee Credit.--
            (1) In general.--Subpart B of part IV of subchapter A of 
        chapter 1 (relating to foreign tax credit, etc.), as amended by 
        this Act, is amended by adding after section 30C the following 
        new section:

``SEC. 30D. READY RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an eligible taxpayer, 
        there shall be allowed as a credit against the tax imposed by 
        this chapter for the taxable year the sum of the employment 
        credits for each qualified replacement employee under this 
        section.
            ``(2) Employment credit.--The employment credit with 
        respect to a qualified replacement employee of the taxpayer for 
        any taxable year is equal to 50 percent of the lesser of--
                    ``(A) the individual's qualified compensation 
                attributable to service rendered as a qualified 
                replacement employee, or
                    ``(B) $12,000.
    ``(b) Qualified Compensation.--The term `qualified compensation' 
means--
            ``(1) compensation which is normally contingent on the 
        qualified replacement employee's presence for work and which is 
        deductible from the taxpayer's gross income under section 
        162(a)(1),
            ``(2) compensation which is not characterized by the 
        taxpayer as vacation or holiday pay, or as sick leave or pay, 
        or as any other form of pay for a nonspecific leave of absence, 
        and
            ``(3) group health plan costs (if any) with respect to the 
        qualified replacement employee.
    ``(c) Qualified Replacement Employee.--For purposes of this 
section--
            ``(1) In general.--The term `qualified replacement 
        employee' means an individual who is hired to replace a Ready 
        Reserve-National Guard employee or a Ready Reserve-National 
        Guard self-employed taxpayer, but only with respect to the 
        period during which such Ready Reserve-National Guard employee 
        or Ready Reserve-National Guard self-employed taxpayer 
        participates in qualified active duty, including time spent in 
        travel status.
            ``(2) Ready reserve-national guard employee.--The term 
        `Ready Reserve-National Guard employee' has the meaning given 
        such term by section 45H(d)(3).
            ``(3) Ready reserve-national guard self-employed 
        taxpayer.--The term `Ready Reserve-National Guard self-employed 
        taxpayer' means a taxpayer who--
                    ``(A) has net earnings from self-employment (as 
                defined in section 1402(a)) for the taxable year, and
                    ``(B) is a member of the Ready Reserve of a reserve 
                component of an Armed Force of the United States as 
                described in section 10142 and 10101 of title 10, 
                United States Code.
    ``(d) Coordination With Other Credits.--The amount of credit 
otherwise allowable under sections 51(a) and 1396(a) with respect to 
any employee shall be reduced by the credit allowed by this section 
with respect to such employee.
    ``(e) Limitations.--
            ``(1) Application with other credits.--The credit allowed 
        under subsection (a) for any taxable year shall not exceed the 
        excess (if any) of--
                    ``(A) the regular tax for the taxable year reduced 
                by the sum of the credits allowable under subpart A and 
                sections 27, 29, and 30, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Disallowance for failure to comply with employment or 
        reemployment rights of members of the reserve components of the 
        armed forces of the united states.--No credit shall be allowed 
        under subsection (a) to a taxpayer for--
                    ``(A) any taxable year, beginning after the date of 
                the enactment of this section, in which the taxpayer is 
                under a final order, judgment, or other process issued 
                or required by a district court of the United States 
                under section 4323 of title 38 of the United States 
                Code with respect to a violation of chapter 43 of such 
                title, and
                    ``(B) the 2 succeeding taxable years.
    ``(f) General Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible taxpayer.--The term `eligible taxpayer' 
        means a small business employer or a Ready Reserve-National 
        Guard self-employed taxpayer.
            ``(2) Small business employer.--
                    ``(A) In general.--The term `small business 
                employer' means, with respect to any taxable year, any 
                employer who employed an average of 50 or fewer 
                employees on business days during such taxable year.
                    ``(B) Controlled groups.--For purposes of 
                subparagraph (A), all persons treated as a single 
                employer under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as a single employer.
            ``(3) Qualified active duty.--The term `qualified active 
        duty' has the meaning given such term by section 45H(d)(1).
            ``(4) Special rules for certain manufacturers.--
                    ``(A) In general.--In the case of any qualified 
                manufacturer--
                            ``(i) subsection (a)(2)(B) shall be applied 
                        by substituting `$20,000' for `$12,000', and
                            ``(ii) paragraph (2)(A) of this subsection 
                        shall be applied by substituting `100' for 
                        `50'.
                    ``(B) Qualified manufacturer.--For purposes of this 
                paragraph, the term `qualified manufacturer' means any 
                person if--
                            ``(i) the primary business of such person 
                        is classified in sector 31, 32, or 33 of the 
                        North American Industrial Classification 
                        System, and
                            ``(ii) all of such person's facilities 
                        which are used for production in such business 
                        are located in the United States.
            ``(5) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit allowable under 
                subsection (a) for a taxable year exceeds the amount of 
                the limitation under subsection (e)(1) for such taxable 
                year (in this paragraph referred to as the `unused 
                credit year'), such excess shall be a credit carryback 
                to each of the 3 taxable years preceding the unused 
                credit year and a credit carryforward to each of the 20 
                taxable years following the unused credit year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).
            ``(6) Certain rules to apply.--Rules similar to the rules 
        of subsections (c), (d), and (e) of section 52 shall apply.''.
            (2) No deduction for compensation taken into account for 
        credit.--Section 280C(a) (relating to rule for employment 
        credits), as amended by this Act, is amended--
                    (A) by inserting ``or compensation'' after 
                ``salaries'', and
                    (B) by inserting ``30D,'' before ``45A(a),''.
            (3) Conforming amendment.--Section 55(c)(2), as amended by 
        this Act, is amended by inserting ``30D(e)(1),'' after 
        ``30C(e),''.
            (4) Clerical amendment.--The table of sections for subpart 
        B of part IV of subchapter A of chapter 1, as amended by this 
        Act, is amended by adding after the item relating to section 
        30C the following new item:

                              ``Sec. 30D. Credit for replacement of 
                                        activated military 
                                        reservists.''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after September 30, 
        2004, in taxable years ending after such date.
    (c) Application of Annual Exclusion Limit Under Section 911 to 
Housing Costs.--
            (1) In general.--Section 911(c) (relating to housing cost 
        amount) is amended by adding at the end the following new 
        paragraph:
            ``(4) Limit on exclusion for employer provided housing 
        costs.--The housing cost amount for any individual for any 
        taxable year attributable to employer provided amounts shall 
        not exceed the excess (if any) of--
                    ``(A) the product of--
                            ``(i) the exclusion amount determined under 
                        subsection (b)(2)(D) for the taxable year, and
                            ``(ii) a fraction equal to the number of 
                        days of the taxable year within the applicable 
                        period described in subparagraph (A) or (B) of 
                        subsection (d)(1) divided by the number of days 
                        in the taxable year, over
                    ``(B) the foreign earned income of the individual 
                excluded under subsection (a)(1) for the taxable 
                year.''
            (2) Conforming amendment.--Section 911(c)(1) is amended by 
        striking ``The'' and inserting ``Except as provided in 
        paragraph (4), the''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2003.

SEC. 633. RURAL INVESTMENT TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following:

``SEC. 42A. RURAL INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
rural investment credit determined under this section for any taxable 
year in the credit period shall be an amount equal to the applicable 
percentage of the eligible basis of each qualified rural investment 
building.
    ``(b) Applicable Percentage: 70 Percent Present Value Credit for 
New Buildings; 30 Percent Present Value Credit for Existing 
Buildings.--For purposes of this section--
            ``(1) In general.--The term `applicable percentage' means 
        the appropriate percentage prescribed by the Secretary for the 
        earlier of--
                    ``(A) the first month of the credit period with 
                respect to a rural investment building, or
                    ``(B) at the election of the taxpayer, the month in 
                which the taxpayer and the rural investment credit 
                agency enter into an agreement with respect to such 
                building (which is binding on such agency, the 
                taxpayer, and all successors in interest) as to the 
                rural investment credit dollar amount to be allocated 
                to such building.
        A month may be elected under subparagraph (B) only if the 
        election is made not later than the 5th day after the close of 
        such month. Such an election, once made, shall be irrevocable.
            ``(2) Method of prescribing percentages.--The percentages 
        prescribed by the Secretary for any month shall be percentages 
        which will yield over a 10-year period amounts of credit under 
        subsection (a) which have a present value equal to--
                    ``(A) 70 percent of the eligible basis of a new 
                building, and
                    ``(B) 30 percent of the eligible basis of an 
                existing building.
            ``(3) Method of discounting.--The present value under 
        paragraph (2) shall be determined--
                    ``(A) as of the last day of the 1st year of the 10-
                year period referred to in paragraph (2),
                    ``(B) by using a discount rate equal to 72 percent 
                of the average of the annual Federal mid-term rate and 
                the annual Federal long-term rate applicable under 
                section 1274(d)(1) to the month applicable under 
                subparagraph (A) or (B) of paragraph (1) and compounded 
                annually, and
                    ``(C) by assuming that the credit allowable under 
                this section for any year is received on the last day 
                of such year.
    ``(c) Eligible Basis; Qualified Rural Investment Building.--For 
purposes of this section--
            ``(1) Eligible basis.--
                    ``(A) In general.--The eligible basis of any 
                qualified rural investment building for any taxable 
                year shall be determined under rules similar to the 
                rules under section 42(d), except that--
                            ``(i) the determination of the adjusted 
                        basis of any building shall be made as of the 
                        beginning of the credit period, and
                            ``(ii) such basis shall include development 
                        costs properly attributable to such building.
                    ``(B) Development costs.--For purposes of 
                subparagraph (A)(ii), the term `development costs' 
                includes--
                            ``(i) site preparation costs,
                            ``(ii) State and local impact fees,
                            ``(iii) reasonable development costs,
                            ``(iv) professional fees related to basis 
                        items,
                            ``(v) construction financing costs related 
                        to basis items other than land, and
                            ``(vi) on-site and adjacent improvements 
                        required by State and local governments.
            ``(2) Qualified rural investment building.--The term 
        `qualified rural investment building' means any building which 
        is part of a qualified rural investment project at all times 
        during the period--
                    ``(A) beginning on the 1st day in the compliance 
                period on which such building is part of such an 
                investment project, and
                    ``(B) ending on the last day of the compliance 
                period with respect to such building.
    ``(d) Rehabilitation Expenditures Treated as Separate New 
Building.--Rehabilitation expenditures paid or incurred by the taxpayer 
with respect to any building shall be treated for purposes of this 
section as a separate new building under the rules of section 42(e).
    ``(e) Definition and Special Rules Relating to Credit Period.--
            ``(1) Credit period defined.--For purposes of this section, 
        the term `credit period' means, with respect to any building, 
        the period of 10 taxable years beginning with the taxable year 
        in which the building is first placed in service.
            ``(2) Special rule for 1st year of credit period.--
                    ``(A) In general.--The credit allowable under 
                subsection (a) with respect to any building for the 1st 
                taxable year of the credit period shall be determined 
                by multiplying such credit by the fraction--
                            ``(i) the numerator of which is the number 
                        of full months of such year during which such 
                        building was in service, and
                            ``(ii) the denominator of which is 12.
                    ``(B) Disallowed 1st year credit allowed in 11th 
                year.--Any reduction by reason of subparagraph (A) in 
                the credit allowable (without regard to subparagraph 
                (A)) for the 1st taxable year of the credit period 
                shall be allowable under subsection (a) for the 1st 
                taxable year following the credit period.
            ``(3) Credit period for existing buildings not to begin 
        before rehabilitation credit allowed.--The credit period for an 
        existing building shall not begin before the 1st taxable year 
        of the credit period for rehabilitation expenditures with 
        respect to the building.
    ``(f) Qualified Rural Investment Project; Qualifying County.--For 
purposes of this section--
            ``(1) Qualified rural investment project.--The term 
        `qualified rural investment project' means any investment 
        project of 1 or more qualified rural investment buildings 
        located in a qualifying county (and, if necessary to the 
        project, any contiguous county) and selected by the State 
        according to its qualified rural investment plan.
            ``(2) Qualifying county.--The term `qualifying county' 
        means any county which--
                    ``(A) is outside a metropolitan statistical area 
                (defined as such by the Office of Management and 
                Budget), and
                    ``(B) during the 20-year period ending with the 
                year in which the most recent census was conducted, has 
                a net out-migration of inhabitants from the county of 
                at least 10 percent of the population of the county at 
                the beginning of such period.
    ``(g) Limitation on Aggregate Credit Allowable With Respect to 
Investment Projects Located in a State.--
            ``(1) Credit may not exceed credit amount allocated to 
        building.--The amount of the credit determined under this 
        section for any taxable year with respect to any building shall 
        not exceed the rural investment credit dollar amount allocated 
        to such building under rules similar to the rules of section 
        42(h)(1).
            ``(2) Allocated credit amount to apply to all taxable years 
        ending during or after credit allocation year.--Any rural 
        investment credit dollar amount allocated to any building for 
        any calendar year--
                    ``(A) shall apply to such building for all taxable 
                years in the credit period ending during or after such 
                calendar year, and
                    ``(B) shall reduce the aggregate rural investment 
                credit dollar amount of the allocating agency only for 
                such calendar year.
            ``(3) Rural investment credit dollar amount for agencies.--
                    ``(A) In general.--The aggregate rural investment 
                credit dollar amount which a rural investment credit 
                agency may allocate for any calendar year is the 
                portion of the State rural investment credit ceiling 
                allocated under this paragraph for such calendar year 
                to such agency.
                    ``(B) State ceiling initially allocated to state 
                rural investment credit agencies.--Except as provided 
                in subparagraphs (D) and (E), the State rural 
                investment credit ceiling for each calendar year shall 
                be allocated to the rural investment credit agency of 
                such State. If there is more than 1 rural investment 
                credit agency of a State, all such agencies shall be 
                treated as a single agency.
                    ``(C) State rural investment credit ceiling.--The 
                State rural investment credit ceiling applicable to any 
                State and any calendar year shall be an amount equal to 
                the sum of--
                            ``(i) the unused State rural investment 
                        credit ceiling (if any) of such State for the 
                        preceding calendar year,
                            ``(ii) $185,000 for each qualifying county 
                        in the State,
                            ``(iii) the amount of State rural 
                        investment credit ceiling returned in the 
                        calendar year, plus
                            ``(iv) the amount (if any) allocated under 
                        subparagraph (D) to such State by the 
                        Secretary.
                For purposes of clause (i), the unused State rural 
                investment credit ceiling for any calendar year is the 
                excess (if any) of the sum of the amounts described in 
                clauses (ii) through (iv) over the aggregate rural 
                investment credit dollar amount allocated for such 
                year. For purposes of clause (iii), the amount of State 
                rural investment credit ceiling returned in the 
                calendar year equals the rural investment credit dollar 
                amount previously allocated within the State to any 
                investment project which fails to meet the 10 percent 
                test under section 42(h)(1)(E)(ii) on a date after the 
                close of the calendar year in which the allocation was 
                made or which does not become a qualified rural 
                investment project within the period required by this 
                section or the terms of the allocation or to any 
                investment project with respect to which an allocation 
                is canceled by mutual consent of the rural investment 
                credit agency and the allocation recipient.
                    ``(D) Unused rural investment credit carryovers 
                allocated among certain states.--
                            ``(i) In general.--The unused rural 
                        investment credit carryover of a State for any 
                        calendar year shall be assigned to the 
                        Secretary for allocation among qualified States 
                        for the succeeding calendar year.
                            ``(ii) Unused rural investment credit 
                        carryover.--For purposes of this subparagraph, 
                        the unused rural investment credit carryover of 
                        a State for any calendar year is the excess (if 
                        any) of the unused State rural investment 
                        credit ceiling for such year (as defined in 
                        subparagraph (C)(i)) over the excess (if any) 
                        of--
                                    ``(I) the unused State rural 
                                investment credit ceiling for the year 
                                preceding such year, over
                                    ``(II) the aggregate rural 
                                investment credit dollar amount 
                                allocated for such year.
                            ``(iii) Formula for allocation of unused 
                        rural investment credit carryovers among 
                        qualified states.--The amount allocated under 
                        this subparagraph to a qualified State for any 
                        calendar year shall be the amount determined by 
                        the Secretary to bear the same ratio to the 
                        aggregate unused rural investment credit 
                        carryovers of all States for the preceding 
                        calendar year as such State's population for 
                        the calendar year bears to the population of 
                        all qualified States for the calendar year. For 
                        purposes of the preceding sentence, population 
                        shall be determined in accordance with section 
                        146(j).
                            ``(iv) Qualified state.--For purposes of 
                        this subparagraph, the term `qualified State' 
                        means, with respect to a calendar year, any 
                        State--
                                    ``(I) which allocated its entire 
                                State rural investment credit ceiling 
                                for the preceding calendar year, and
                                    ``(II) for which a request is made 
                                (not later than May 1 of the calendar 
                                year) to receive an allocation under 
                                clause (iii).
                    ``(E) State may provide for different allocation.--
                Rules similar to the rules of section 146(e) (other 
                than paragraph (2)(B) thereof) shall apply for purposes 
                of this paragraph.
                    ``(F) Population.--For purposes of this paragraph, 
                population shall be determined in accordance with 
                section 146(j).
                    ``(G) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2005, the $185,000 amount 
                        in subparagraph (C) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year by 
                                substituting `calendar year 2004' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--Any increase under clause 
                        (i) which is not a multiple of $5,000 shall be 
                        rounded to the next lowest multiple of $5,000.
            ``(4) Portion of state ceiling set-aside for certain 
        investment projects involving qualified nonprofit 
        organizations.--
                    ``(A) In general.--At least 10 percent of the State 
                rural investment credit ceiling for any State for any 
                calendar year shall be allocated to qualified rural 
                investment projects described in subparagraph (B).
                    ``(B) Investment projects involving qualified 
                nonprofit organizations.--For purposes of subparagraph 
                (A), a qualified rural investment project is described 
                in this subparagraph if a qualified nonprofit 
                organization is to materially participate (within the 
                meaning of section 469(h)) in the development and 
                operation of the investment project throughout the 
                compliance period.
                    ``(C) Qualified nonprofit organization.--For 
                purposes of this paragraph, the term `qualified 
                nonprofit organization' means any organization if--
                            ``(i) such organization is described in any 
                        paragraph of section 501(c) and is exempt from 
                        tax under section 501(a),
                            ``(ii) such organization is determined by 
                        the State rural investment credit agency not to 
                        be affiliated with or controlled by a for-
                        profit organization; and
                            ``(iii) 1 of the exempt purposes of such 
                        organization includes the fostering of rural 
                        investment.
                    ``(D) Treatment of certain subsidiaries.--
                            ``(i) In general.--For purposes of this 
                        paragraph, a qualified nonprofit organization 
                        shall be treated as satisfying the ownership 
                        and material participation test of subparagraph 
                        (B) if any qualified corporation in which such 
                        organization holds stock satisfies such test.
                            ``(ii) Qualified corporation.--For purposes 
                        of clause (i), the term `qualified corporation' 
                        means any corporation if 100 percent of the 
                        stock of such corporation is held by 1 or more 
                        qualified nonprofit organizations at all times 
                        during the period such corporation is in 
                        existence.
                    ``(E) State may not override set-aside.--Nothing in 
                subparagraph (F) of paragraph (3) shall be construed to 
                permit a State not to comply with subparagraph (A) of 
                this paragraph.
                    ``(F) Credits for qualified nonprofit 
                organizations.--
                            ``(i) Allowance of credit.--Any credit 
                        which would be allowable under subsection (a) 
                        with respect to a qualified rural investment 
                        building of a qualified nonprofit organization 
                        if such organization were not exempt from tax 
                        under this chapter shall be treated as a credit 
                        allowable under subpart C to such organization.
                            ``(ii) Use of credit.--A qualified 
                        nonprofit organization may assign, trade, sell, 
                        or otherwise transfer any credit allowable to 
                        such organization under subparagraph (A) to any 
                        taxpayer.
                            ``(iii) Credit not income.--A transfer 
                        under subparagraph (B) of any credit allowable 
                        under subparagraph (A) shall not result in 
                        income for purposes of section 511.
            ``(5) Special rules.--
                    ``(A) Building must be located within jurisdiction 
                of credit agency.--A rural investment credit agency may 
                allocate its aggregate rural investment credit dollar 
                amount only to buildings located in the jurisdiction of 
                the governmental unit of which such agency is a part.
                    ``(B) Agency allocations in excess of limit.--If 
                the aggregate rural investment credit dollar amounts 
                allocated by a rural investment credit agency for any 
                calendar year exceed the portion of the State rural 
                investment credit ceiling allocated to such agency for 
                such calendar year, the rural investment credit dollar 
                amounts so allocated shall be reduced (to the extent of 
                such excess) for buildings in the reverse of the order 
                in which the allocations of such amounts were made.
                    ``(C) Credit reduced if allocated credit dollar 
                amount is less than credit which would be allowable 
                without regard to sales convention, etc.--
                            ``(i) In general.--The amount of the credit 
                        determined under this section with respect to 
                        any building shall not exceed the clause (ii) 
                        percentage of the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to such 
                        building.
                            ``(ii) Determination of percentage.--For 
                        purposes of clause (i), the clause (ii) 
                        percentage with respect to any building is the 
                        percentage which--
                                    ``(I) the rural investment credit 
                                dollar amount allocated to such 
                                building bears to
                                    ``(II) the credit amount determined 
                                in accordance with clause (iii).
                            ``(iii) Determination of credit amount.--
                        The credit amount determined in accordance with 
                        this clause is the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to the building 
                        if this section were applied without regard to 
                        paragraph (2)(A) of subsection (e).
                    ``(D) Rural investment credit agency to specify 
                applicable percentage and maximum eligible basis.--In 
                allocating a rural investment credit dollar amount to 
                any building, the rural investment credit agency shall 
                specify the applicable percentage and the maximum 
                eligible basis which may be taken into account under 
                this section with respect to such building. The 
                applicable percentage and maximum eligible basis so 
                specified shall not exceed the applicable percentage 
                and eligible basis determined under this section 
                without regard to this subsection.
            ``(6) Other definitions.--For purposes of this subsection--
                    ``(A) Rural investment credit agency.--The term 
                `rural investment credit agency' means any agency 
                authorized to carry out this subsection.
                    ``(B) Possessions treated as States.--The term 
                `State' includes a possession of the United States.
            ``(7) Portion of state ceiling set-aside for qualified 
        rural small business investment credits.--Not more than 10 
        percent of the State rural investment credit ceiling for any 
        State for any calendar year may be allocated to qualified rural 
        small business investment credits under section 42B.
    ``(h) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Compliance period.--The term `compliance period' 
        means, with respect to any building, the period of 10 taxable 
        years beginning with the 1st taxable year of the credit period 
        with respect thereto.
            ``(2) New building.--The term `new building' means a 
        building the original use of which begins with the taxpayer.
            ``(3) Existing building.--The term `existing building' 
        means any building which is not a new building.
            ``(4) Application to estates and trusts.--In the case of an 
        estate or trust, the amount of the credit determined under 
        subsection (a) and any increase in tax under subsection (i) 
        shall be apportioned between the estate or trust and the 
        beneficiaries on the basis of the income of the estate or trust 
        allocable to each.
    ``(i) Recapture of Credit.--If--
            ``(1) as of the close of any taxable year in the compliance 
        period, the amount of the eligible basis of any building with 
        respect to the taxpayer is less than
            ``(2) the amount of such basis as of the close of the 
        preceding taxable year,
        then the taxpayer's tax under this chapter for the taxable year 
        shall be increased by the credit recapture amount determined 
        under rules similar to the rules of section 42(j).
    ``(j) Certifications and Other Reports to Secretary.--
            ``(1) Certification with respect to 1st year of credit 
        period.--Following the close of the 1st taxable year in the 
        credit period with respect to any qualified rural investment 
        building, the taxpayer shall certify to the Secretary (at such 
        time and in such form and in such manner as the Secretary 
        prescribes)--
                    ``(A) the taxable year, and calendar year, in which 
                such building was first placed in service,
                    ``(B) the eligible basis of such building as of the 
                beginning of the credit period,
                    ``(C) the maximum applicable percentage and 
                eligible basis permitted to be taken into account by 
                the appropriate rural investment credit agency under 
                subsection (g),
                    ``(D) the election made under subsection (f) with 
                respect to the qualified rural investment project of 
                which such building is a part, and
                    ``(E) such other information as the Secretary may 
                require.
        In the case of a failure to make the certification required by 
        the preceding sentence on the date prescribed therefor, unless 
        it is shown that such failure is due to reasonable cause and 
        not to willful neglect, no credit shall be allowable by reason 
        of subsection (a) with respect to such building for any taxable 
        year ending before such certification is made.
            ``(2) Annual reports to the secretary.--The Secretary may 
        require taxpayers to submit an information return (at such time 
        and in such form and manner as the Secretary prescribes) for 
        each taxable year setting forth--
                    ``(A) the eligible basis for the taxable year of 
                each qualified rural investment building of the 
                taxpayer,
                    ``(B) the information described in paragraph (1)(C) 
                for the taxable year, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the return required by the Secretary under the preceding 
        sentence on the date prescribed therefor.
            ``(3) Annual reports from rural investment credit 
        agencies.--Each agency which allocates any rural investment 
        credit amount to any building for any calendar year shall 
        submit to the Secretary (at such time and in such manner as the 
        Secretary shall prescribe) an annual report specifying--
                    ``(A) the amount of rural investment credit amount 
                allocated to each building for such year,
                    ``(B) sufficient information to identify each such 
                building and the taxpayer with respect thereto, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the report required by the preceding sentence on the 
        date prescribed therefor.
    ``(k) Responsibilities of Rural Investment Credit Agencies.--
            ``(1) Plans for allocation of credit among investment 
        projects.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this section, the rural investment credit 
                dollar amount with respect to any building shall be 
                zero unless--
                            ``(i) such amount was allocated pursuant to 
                        a qualified rural investment plan of the agency 
                        which is approved by the governmental unit (in 
                        accordance with rules similar to the rules of 
                        section 147(f)(2) (other than subparagraph 
                        (B)(ii) thereof)) of which such agency is a 
                        part,
                            ``(ii) such agency notifies the chief 
                        executive officer (or the equivalent) of the 
                        local jurisdiction within which the building is 
                        located of such investment project and provides 
                        such individual a reasonable opportunity to 
                        comment on the investment project,
                            ``(iii) a comprehensive market study of the 
                        development needs of individuals in the 
                        qualifying county to be served by the 
                        investment project is conducted before the 
                        credit allocation is made and at the 
                        developer's expense by a disinterested party 
                        who is approved by such agency, and
                            ``(iv) a written explanation is available 
                        to the general public for any allocation of a 
                        rural investment credit dollar amount which is 
                        not made in accordance with established 
                        priorities and selection criteria of the rural 
                        investment credit agency.
                    ``(B) Qualified rural investment plan.--For 
                purposes of this section, the term `qualified rural 
                investment plan' means any plan--
                            ``(i) which sets forth selection criteria 
                        to be used to determine priorities of the rural 
                        investment credit agency which are appropriate 
                        to qualifying counties,
                            ``(ii) which also gives preference in 
                        allocating rural investment credit dollar 
                        amounts among selected investment projects to--
                                    ``(I) investment projects that 
                                target those small rural counties with 
                                consistently high rates of net out-
                                migration,
                                    ``(II) investment projects that 
                                link the economic development and job 
                                creation efforts of 2 or more small 
                                rural counties with high rates of net 
                                out-migration, and
                                    ``(III) investment projects that 
                                link the economic development and job 
                                creation efforts of 1 or more small 
                                rural counties in the State with high 
                                rates of net out-migration to related 
                                efforts in regions of such State 
                                experiencing economic growth, and
                            ``(iii) which provides a procedure that the 
                        agency (or an agent or other private contractor 
                        of such agency) will follow in monitoring for 
                        noncompliance with the provisions of this 
                        section and in notifying the Internal Revenue 
                        Service of such noncompliance which such agency 
                        becomes aware of and in monitoring for 
                        noncompliance through regular site visits.
                    ``(C) Certain selection criteria must be used.--The 
                selection criteria set forth in a qualified rural 
                investment plan must include--
                            ``(i) investment project location,
                            ``(ii) technology and transportation 
                        infrastructure needs, and
                            ``(iii) private development trends.
            ``(2) Credit allocated to building not to exceed amount 
        necessary to assure investment project feasibility.--
                    ``(A) In general.--The rural investment credit 
                dollar amount allocated to an investment project shall 
                not exceed the amount the rural investment credit 
                agency determines is necessary for the financial 
                feasibility of the investment project and its viability 
                as a qualified rural investment project throughout the 
                compliance period.
                    ``(B) Agency evaluation.--In making the 
                determination under subparagraph (A), the rural 
                investment credit agency shall consider--
                            ``(i) the sources and uses of funds and the 
                        total financing planned for the investment 
                        project,
                            ``(ii) any proceeds or receipts expected to 
                        be generated by reason of tax benefits,
                            ``(iii) the percentage of the rural 
                        investment credit dollar amount used for 
                        investment project costs other than the cost of 
                        intermediaries, and
                            ``(iv) the reasonableness of the 
                        developmental and operational costs of the 
                        investment project.
                Clause (iii) shall not be applied so as to impede the 
                development of investment projects in hard-to-develop 
                areas.
                    ``(C) Determination made when credit amount applied 
                for and when building placed in service.--
                            ``(i) In general.--A determination under 
                        subparagraph (A) shall be made as of each of 
                        the following times:
                                    ``(I) The application for the rural 
                                investment credit dollar amount.
                                    ``(II) The allocation of the rural 
                                investment credit dollar amount.
                                    ``(III) The date the building is 
                                first placed in service.
                            ``(ii) Certification as to amount of other 
                        subsidies.--Prior to each determination under 
                        clause (i), the taxpayer shall certify to the 
                        rural investment credit agency the full extent 
                        of all Federal, State, and local subsidies 
                        which apply (or which the taxpayer expects to 
                        apply) with respect to the building.
    ``(l) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) dealing with--
                    ``(A) investment projects which include more than 1 
                building or only a portion of a building,
                    ``(B) buildings which are sold in portions,
            ``(2) providing for the application of this section to 
        short taxable years,
            ``(3) preventing the avoidance of the rules of this 
        section, and
            ``(4) providing the opportunity for rural investment credit 
        agencies to correct administrative errors and omissions with 
        respect to allocations and record keeping within a reasonable 
        period after their discovery, taking into account the 
        availability of regulations and other administrative guidance 
        from the Secretary.''.
    (b) Current Year Business Credit Calculation.--Section 38(b) 
(relating to current year business credit), as amended by this Act, is 
amended by striking ``plus'' at the end of paragraph (16), by striking 
the period at the end of paragraph (17) and inserting ``, plus'', and 
by adding at the end the following:
            ``(18) the rural investment credit determined under section 
        42A(a).''.
    (c) Limitation on Carryback.--Subsection (d) of section 39 
(relating to carryback and carryforward of unused credits), as amended 
by this Act, is amended by adding at the end the following:
            ``(12) No carryback of rural investment credit before 
        effective date.--No portion of the unused business credit for 
        any taxable year which is attributable to the rural investment 
        credit determined under section 42A may be carried back to a 
        taxable year beginning before the date of the enactment of the 
        Jumpstart Our Business Strength (JOBS) Act.''.
    (d) Conforming Amendments.--
            (1) Section 55(c)(1) is amended by inserting ``or 
        subsection (i) or (j) of section 42A'' after ``section 42''.
            (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of 
        section 469 are each amended by inserting ``or 42A'' after 
        ``section 42''.
            (3) Section 772(a) is amended by striking ``and'' at the 
        end of paragraph (10), by redesignating paragraph (11) as 
        paragraph (12), and by inserting after paragraph (10) the 
        following:
            ``(11) the rural investment credit determined under section 
        42A, and''.
            (4) Section 774(b)(4) is amended by inserting ``, 42A(i),'' 
        after ``section 42(j)''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 42 the following:

                              ``Sec. 42A. Rural investment credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act.

SEC. 634. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following:

``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of a 
qualified rural small business, the amount of the qualified rural small 
business investment credit determined under this section for any 
taxable year is equal to 30 percent of the qualified expenditures for 
the taxable year of such business.
    ``(b) Dollar Limitation.--
            ``(1) In general.--The credit allowable under subsection 
        (a) for any taxable year shall not exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) the amount when added to the aggregate 
                credits allowable to the taxpayer under subsection (a) 
                for all preceding taxable years does not exceed 
                $25,000.
            ``(2) No double credit allowed.--In the case of any 
        qualified rural small business which places in service a 
        qualified rural investment building with respect to which a 
        rural investment credit is allowed under section 42A for any 
        taxable year, paragraph (1)(A) shall be applied with respect to 
        such taxable year by substituting `zero' for `$5,000'.
    ``(c) Qualified Rural Small Business.--For purposes of this 
section, the term `qualified rural small business' means any person if 
such person--
            ``(1) employed not more than 5 full-time employees during 
        the taxable year,
            ``(2) materially and substantially participates in 
        management,
            ``(3) is located in a qualifying county, and
            ``(4) submitted a qualified business plan with respect to 
        which the rural investment credit agency with jurisdiction over 
        such qualifying county has allocated a portion of the State 
        rural investment ceiling for such taxable year under section 
        42A(g)(7).
For purposes of paragraph (1), an employee shall be considered full-
time if such employee is employed at least 30 hours per week for 20 or 
more calendar weeks in the taxable year.
    ``(d) Qualified Expenditures.--For purposes of this section--
            ``(1) In general.--The term `qualified expenditures' means 
        expenditures normally associated with starting or expanding a 
        business and included in a qualified business plan, including 
        costs for capital, plant and equipment, inventory expenses, and 
        wages, but not including interest costs.
            ``(2) Only certain expenditures included for existing 
        businesses.--In the case of a qualified rural small business 
        with respect to which a credit under subsection (a) was allowed 
        for a preceding taxable year, such term shall include only so 
        much of the expenditures described in paragraph (1) for the 
        taxable year as exceed the aggregate of such expenditures for 
        the preceding taxable year.
    ``(e) Qualified Business Plan.--For purposes of this section, the 
term `qualified business plan' means a business plan which--
            ``(1) has been approved by the rural investment credit 
        agency with jurisdiction over the qualifying county in which 
        the qualified rural small business is located pursuant to such 
        agency's rural investment plan, and
            ``(2) meets such requirements as the agency may specify.
    ``(f) Denial of Double Benefit.--In the case of the amount of the 
credit determined under this section--
            ``(1) no deduction or credit shall be allowed for such 
        amount under any other provision of this chapter, and
            ``(2) no increase in the adjusted basis of any property 
        shall result from such amount.
    ``(g) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) any term which is used in this section which is used 
        in section 42A shall have the meaning given such term by 
        section 42A, and
            ``(2) rules similar to the rules under subsections (j)(2), 
        (j)(3), and (k) of section 42A shall apply.''.
    (b) Current Year Business Credit Calculation.--Section 38(b) 
(relating to current year business credit), as amended by this Act, is 
amended by striking ``plus'' at the end of paragraph (17), by striking 
the period at the end of paragraph (18) and inserting ``, plus'', and 
by adding at the end the following:
            ``(19) the qualified rural small business investment credit 
        determined under section 42B(a).''.
    (c) Limitation on Carryback.--Subsection (d) of section 39 
(relating to carryback and carryforward of unused credits), as amended 
by this Act, is amended by adding at the end the following:
            ``(13) No carryback of qualified rural small business 
        investment credit before effective date.--No portion of the 
        unused business credit for any taxable year which is 
        attributable to the qualified rural small business investment 
        credit determined under section 42B may be carried back to a 
        taxable year beginning before the date of the enactment of the 
        Jumpstart Our Business Strength (JOBS) Act.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by inserting after the item relating to section 42A the 
following:

                              ``Sec. 42B. Qualified rural small 
                                        business investment credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act.

SEC. 635. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45I. RAILROAD TRACK MAINTENANCE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the railroad track 
maintenance credit determined under this section for the taxable year 
is an amount equal to 30 percent of the qualified railroad track 
maintenance expenditures paid or incurred by an eligible taxpayer 
during the taxable year.
    ``(b) Limitation.--The credit allowed under subsection (a) for any 
taxable year shall not exceed the product of--
            ``(1) $3,500, and
            ``(2) the number of miles of railroad track owned or leased 
        by the eligible taxpayer as of the close of the taxable year.
    ``(c) Eligible taxpayer.--For purposes of this section, the term 
`eligible taxpayer' means--
            ``(1) any Class II or Class III railroad, and
            ``(2) any person who transports property using the rail 
        facilities of a person described in paragraph (1) or who 
        furnishes railroad-related property or services to such a 
        person.
    ``(d) Qualified Railroad Track Maintenance Expenditures.--For 
purposes of this section, the term `qualified railroad track 
maintenance expenditures' means expenditures (whether or not otherwise 
chargeable to capital account) for maintaining railroad track 
(including roadbed, bridges, and related track structures) owned or 
leased as of January 1, 2005, by a Class II or Class III railroad.
    ``(e) Other Definitions and Special Rules.--
            ``(1) Class ii or Class iii railroad.--For purposes of this 
        section, the terms `Class II railroad' and `Class III railroad' 
        have the meanings given such terms by the Surface 
        Transportation Board.
            ``(2) Controlled groups.--Rules similar to the rules of 
        paragraph (1) of section 41(f) shall apply for purposes of this 
        section.
            ``(3) Basis adjustment.--For purposes of this subtitle, if 
        a credit is allowed under this section with respect to any 
        railroad track, the basis of such track shall be reduced by the 
        amount of the credit so allowed.
    ``(f) Application of Section.--This section shall apply to 
qualified railroad track maintenance expenditures paid or incurred 
during taxable years beginning after December 31, 2004, and before 
January 1, 2008.''.
    (b) Limitation on Carryback.--Section 39(d) (relating to transition 
rules), as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(14) No carryback of railroad track maintenance credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the 
        railroad track maintenance credit determined under section 45I 
        may be carried to a taxable year beginning before January 1, 
        2005.''.
    (c) Conforming Amendments.--
            (1) Section 38(b) (relating to general business credit), as 
        amended by this Act, is amended by striking ``plus'' at the end 
        of paragraph (18), by striking the period at the end of 
        paragraph (19) and inserting ``, plus'', and by adding at the 
        end the following new paragraph:
            ``(20) the railroad track maintenance credit determined 
        under section 45I(a).''.
            (2) Subsection (a) of section 1016, as amended by this Act, 
        is amended by striking ``and'' at the end of paragraph (28), by 
        striking the period at the end of paragraph (29) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(30) in the case of railroad track with respect to which 
        a credit was allowed under section 45I, to the extent provided 
        in section 45I(e)(3).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by inserting after the item relating to section 45H the 
following new item:

                              ``Sec. 45I. Railroad track maintenance 
                                        credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 636. RAILROAD REVITALIZATION AND SECURITY INVESTMENT CREDIT.

    (a) Railroad Revitalization and Security Investment Credit.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business-related credits), as amended by 
        this Act, is amended by adding at the end the following new 
        section:

``SEC. 45J. RAILROAD REVITALIZATION AND SECURITY INVESTMENT CREDIT.

    ``(a) General Rule.--For purposes of section 38, the railroad 
revitalization and security investment credit determined under this 
section for the taxable year is the amount equal to 50 percent of the 
qualified project expenditures paid or incurred by the taxpayer during 
the taxable year.
    ``(b) Qualified Project Expenditures.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified project expenditures' means, with respect to any 
        project for intercity passenger rail transportation (as defined 
        under section 24102 of title 49, United States Code) which is 
        included in a State rail plan, expenditures (whether or not 
        otherwise chargeable to capital account) for--
                    ``(A) planning,
                    ``(B) environmental review and environmental impact 
                mitigation,
                    ``(C) track and track structure rehabilitation, 
                relocation, improvement, and development,
                    ``(D) railroad safety and security improvements,
                    ``(E) communications and signaling improvements,
                    ``(F) intercity passenger rail equipment 
                acquisition, and
                    ``(G) rail station and intermodal facilities 
                development.
            ``(2) Exceptions.--An expenditure shall not be treated as a 
        qualified project expenditure unless all persons which conduct 
        rail operations over the infrastructure with respect to which 
        such an expenditure is made--
                    ``(A) are employers for purposes of the Railroad 
                Retirement Act of 1974 and are carriers for purposes of 
                the Railway Labor Act (unless such a person is an 
                operator with respect to commuter rail passenger 
                transportation (as defined in section 24102(4) of title 
                49, United States Code) of a State or local government 
                authority (as such terms are defined in section 5302 of 
                such title) eligible to receive financial assistance 
                under section 5307 of such title, a contractor 
                performing services in connection with the operations 
                with respect to commuter rail passenger transportation 
                (as so defined), or the Alaska Railroad or its 
                contractors),
                    ``(B) provide assurances to the State that any 
                collective bargaining agreements with such a person's 
                employees (including terms regulating the contracting 
                of work) will remain in full force and effect according 
                to the terms of the agreements for work performed for 
                such a person on the railroad transportation corridor, 
                and
                    ``(C) comply with the protective agreements 
                established under section 504 of the Railroad 
                Revitalization and Regulatory Reform Act of 1976 with 
                respect to employees affected by actions taken in 
                connection with the project.
    ``(c) Limitation.--
            ``(1) In general.--The amount of the credit allowed under 
        subsection (a) for any taxable year with respect to any project 
        for which qualified project expenditures are made shall not 
        exceed the limitation allocated to such project under this 
        subsection for the calendar year in which the taxable year 
        begins.
            ``(2) State limitation.--
                    ``(A) In general.--There is a State railroad 
                revitalization and security investment credit 
                limitation for each calendar year. Such limitation is 
                the amount which bears the same ratio to $165,000,000 
                as the allocation number for such State bears to the 
                allocation number for all States.
                    ``(B) Allocation number.--For purposes of 
                subparagraph (A), the allocation number is, with 
                respect to any State, the sum of the following:
                            ``(i) The number of railroad and public 
                        road at grade crossings on intercity passenger 
                        rail routes within the State.
                            ``(ii) The number of intercity passenger 
                        train miles within the State.
                            ``(iii) The number of intercity 
                        embarkations and disembarkations for each 
                        passenger within the State.
            ``(3) Unused credit carryovers allocated among certain 
        states.--
                    ``(A) In general.--The unused credit carryover for 
                all States for any calendar year shall be reallocated 
                to each qualified State in an amount which bears the 
                same ratio to the unused credit carryover for all 
                States for the calendar as the allocation number for 
                such qualified State bears to the allocation number for 
                all qualified States.
                    ``(B) Unused credit carryover.--For purposes of 
                this paragraph, the term `unused credit carryover' 
                means, with respect to any State, the excess of the 
                State limitation (determined under paragraph (2)) for 
                the calendar year over the amount allocated by the 
                State under paragraph (4) for such calendar year.
                    ``(C) Qualified states.--For purposes of this 
                paragraph, the term `qualified State' means any State--
                            ``(i) which allocated its entire State 
                        limitation amount under paragraph (4) for the 
                        calendar year, and
                            ``(ii) for which a request is made to 
                        receive an allocation under this paragraph.
            ``(4) Allocation within states.--Each State shall allocate 
        the limitation amount allocated to such State under paragraphs 
        (2) and (3) to projects for intercity passenger rail 
        transportation which are included in the State rail plan of 
        such State.
            ``(5) New york city rail projects.--
                    ``(A) In general.--In addition to the amounts 
                allocated under paragraph (2), the Secretary shall 
                allocate a limitation of $200,000,000 to New York City, 
                New York, for qualified project expenditures within the 
                New York Liberty Zone (as defined in section 1400L(h)) 
                for the period described in subsection (h).
                    ``(B) Allocation among projects.--Of the limitation 
                allocated under subparagraph (A)--
                            ``(i) $100,000,000 shall be allocated to 
                        projects designated by the Mayor of New York 
                        City, New York, and
                            ``(ii) $100,000,000 shall be allocated to 
                        projects designated by the Governor of New 
                        York.
                    ``(C) Special rule regarding qualified project 
                expenditures.--For purposes of this paragraph, a 
                qualified project expenditure shall include any 
                expenditure for improvements to subway systems, for 
                commuter rail systems, for rail links to airports, and 
                for public infrastructure improvements in the vicinity 
                of rail or subway stations.
    ``(d) State rail plan.--For purposes of this section, the term 
`State rail plan' means a plan prepared and maintained in accordance 
with chapter 225 of title 49, United States Code.
    ``(e) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section with respect to any property, the basis 
of such property shall be reduced by the amount of the credit so 
allowed.
    ``(f) No Double Benefit.--No credit shall be allowed under this 
section with respect to any expenditures for which a credit is allowed 
under section 45I.
    ``(g) Credit Transferability.--Any credit allowable under this 
section may be transferred (but not more than once) if--
            ``(1) the credit exceeds the tax liability of the taxpayer 
        for the taxable year, or
            ``(2) the taxpayer is not subject to any tax imposed by 
        this chapter by reason of having a tax-exempt status.
    ``(h) Application of Section.--This section shall apply to 
qualified project expenditures paid or incurred during taxable years 
beginning after December 31, 2004, and before January 1, 2008.''.
            (2) Limitation on carryback.--Section 39(d) (relating to 
        transition rules), as amended by this Act, is amended by adding 
        at the end the following new paragraph:
            ``(15) No carryback of section 45j credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the credit determined under 
        section 45J(a) may be carried back to any taxable year 
        beginning before January 1, 2005.''.
            (3) Conforming Amendments.--
                    (A) Section 38(b) (relating to general business 
                credit), as amended by this Act, is amended by striking 
                ``plus'' at the end of paragraph (19), by striking the 
                period at the end of paragraph (20) and inserting ``, 
                plus'', and by adding at the end the following new 
                paragraph:
            ``(21) the railroad revitalization and security investment 
        credit determined under section 45J(a).''.
                    (B) Subsection (a) of section 1016, as amended by 
                this Act, is amended by striking ``and'' at the end of 
                paragraph (29), by striking the period at the end of 
                paragraph (30) and inserting ``, and'', and by adding 
                at the end the following new paragraph:
            ``(31) in the case of property with respect to which a 
        credit was allowed under section 45J, to the extent provided in 
        section 45J(e).''.
            (4) Clerical Amendment.--The table of sections for subpart 
        D of part IV of subchapter A of chapter 1, as amended by this 
        Act, is amended by inserting after the item relating to section 
        45I the following new item:

                              ``Sec. 45J. Railroad revitalization and 
                                        security investment credit.''.
            (5) Effective Date.--The amendments made by this section 
        shall apply to taxable years beginning after December 31, 2004.
    (b) State rail plans.--
            (1) In general.--Part B of subtitle V of title 49, United 
        States Code, is amended by adding at the end the following:

                    ``CHAPTER 225--STATE RAIL PLANS

        ``Sec.
        ``22501. Authority.
        ``22502. Purposes.
        ``22503. Transparency; coordination.
        ``22504. Content.
        ``22505. Approval.
        ``22506. Definitions.
``Sec. 22501. Authority
    ``(a) In General.--Each State may prepare and maintain a State rail 
plan in accordance with the provisions of this chapter.
    ``(b) Requirements.--For the preparation and periodic revision of a 
State rail plan, a State shall--
            ``(1) establish or designate a State rail transportation 
        authority to prepare, maintain, coordinate, and administer the 
        plan;
            ``(2) establish or designate a State rail plan approval 
        authority to approve the plan;
            ``(3) make the State's approved plan available to the 
        public and transmit a copy to the Secretary of Transportation; 
        and
            ``(4) revise the plan no less frequently than once every 5 
        years.
``Sec. 22502. Purposes
    ``(a) Purposes.--The purposes of a State rail plan are as follows:
            ``(1) To set forth State policy involving freight and 
        passenger rail transportation, including commuter rail 
        operations, in the State.
            ``(2) To present priorities and strategies to enhance rail 
        service in the State that benefits the public.
            ``(3) To serve as the basis for Federal and State rail 
        investments within the State.
    ``(b) Content.--The State rail plan shall establish the period 
covered by such plan.
    ``(c) Consistency With State Transportation Efforts.--A State rail 
plan shall be consistent with the State transportation planning goals 
and programs and shall set forth rail transportation's role within the 
State transportation system.
``Sec. 22503. Transparency; coordination
    ``(a) Preparation.--A State shall provide adequate and reasonable 
notice and opportunity for comment and other input on a proposed State 
rail plan under this chapter to the following:
            ``(1) The public.
            ``(2) Rail carriers.
            ``(3) Commuter and transit authorities operating in, or 
        affected by rail operations within, the State.
            ``(4) Units of local government.
            ``(5) Other parties interested in the preparation and 
        review of the State rail plan.
    ``(b) Intergovernmental Coordination.--A State shall review the 
freight and passenger rail service activities and initiatives of 
regional planning agencies, regional transportation authorities, and 
municipalities within the State, or in the region in which the State is 
located, while preparing the plan, and shall include any 
recommendations made by such agencies, authorities, and municipalities 
as deemed appropriate by the State.
``Sec. 22504. Content
    ``(a) In General.--Each State rail plan shall contain the 
following:
            ``(1) An inventory of the existing overall rail 
        transportation system and rail services and facilities within 
        the State and an analysis of the role of rail transportation 
        within the State's surface transportation system.
            ``(2) A comprehensive review of all rail lines within the 
        State, including proposed high speed rail corridors and 
        significant rail line segments not currently in service.
            ``(3) A statement of the State's passenger rail service 
        objectives, including minimum service levels, for intercity 
        passenger rail transportation routes in the State.
            ``(4) A general analysis of rail's transportation, 
        economic, and environmental impacts in the State, including 
        congestion mitigation, trade and economic development, air 
        quality, land-use, energy-use, and community impacts.
            ``(5) A long-range rail investment program for current and 
        future freight and passenger infrastructure in the State that 
        meets the requirements of subsection (b).
            ``(6) A statement of public financing issues for rail 
        projects and service in the State, including a list of current 
        and prospective public capital and operating funding resources, 
        public subsidies, State taxation, and other financial policies 
        relating to rail infrastructure development.
            ``(7) An identification of rail infrastructure issues 
        within the State that reflects consultation with all relevant 
        stake holders.
            ``(8) A review of major passenger and freight intermodal 
        rail connections and facilities within the State, including 
        seaports, and prioritized options to maximize service 
        integration and efficiency between rail and other modes of 
        transportation within the State.
            ``(9) A review of publicly funded projects within the State 
        to improve rail transportation safety and security, including 
        all major projects funded under section 130 of title 23.
            ``(10) A performance evaluation of passenger rail services 
        operating in the State, including possible improvements in 
        those services, and a description of strategies to achieve 
        those improvements.
            ``(11) A compilation of studies and reports on high-speed 
        rail corridor development within the State not included in a 
        previous plan under this chapter, and a plan for funding any 
        recommended development of such corridors in the State.
            ``(12) A statement that the State satisfies the conditions 
        set forth in section 22102.
    ``(b) Long-Range Service and Investment Program.--
            ``(1) Program content.--A long-range rail investment 
        program included in a State rail plan under subsection (a)(5) 
        shall include the following matters:
                    ``(A) Two lists for rail capital projects, 1 list 
                for freight rail capital projects and 1 list for 
                intercity passenger rail capital projects.
                    ``(B) A detailed funding plan for the projects.
            ``(2) Project list content.--The lists of freight and 
        intercity passenger rail capital projects shall contain--
                    ``(A) a description of the anticipated public and 
                private benefits of each such project; and
                    ``(B) a statement of the correlation between--
                            ``(i) public funding contributions for the 
                        projects; and
                            ``(ii) the public benefits.
            ``(3) Considerations for project list.--In preparing the 
        list of freight and intercity passenger rail capital projects, 
        a State rail transportation authority shall take into 
        consideration the following matters:
                    ``(A) Contributions made by non-Federal and non-
                State sources through user fees, matching funds, or 
                other private capital involvement.
                    ``(B) Rail capacity and congestion effects.
                    ``(C) Effects to highway, aviation, and maritime 
                capacity, congestion, or safety.
                    ``(D) Regional balance.
                    ``(E) Environmental impact.
                    ``(F) Economic and employment impacts.
                    ``(G) Projected ridership and other service 
                measures for passenger rail projects.
``Sec. 22505. Approval
    ``The State rail plan approval authority established or designated 
under section 22501(b)(2) may approve a State rail plan for the 
purposes of this chapter if--
            ``(1) the plan meets all of the requirements applicable to 
        State plans under this chapter;
            ``(2) for each ready-to-commence project listed on the 
        ranked list of freight and intercity passenger rail capital 
        improvement projects under the plan--
                    ``(A) the project meets all safety and 
                environmental requirements, including those prescribed 
                under the National Environmental Policy Act of 1969 (42 
                U.S.C. 4331 et seq.) that are applicable to the project 
                under law; and
                    ``(B) the State has entered into an agreement with 
                any owner of rail infrastructure or right-of-way 
                directly affected by the project that provides for the 
                State to proceed with the project and includes 
                assurances regarding capacity and compensation for use 
                of such infrastructure or right-of-way, if applicable; 
                and
            ``(3) the content of the plan is coordinated with State 
        transportation plans developed pursuant to section 135 of title 
        23.
``Sec. 22506. Definitions
    ``In this chapter:
            ``(1) Private benefit.--The term `private benefit'--
                    ``(A) means a benefit accrued to a person or 
                private entity, other than the National Railroad 
                Passenger Corporation, that directly improves the 
                economic and competitive condition of that person or 
                entity through improved assets, cost reductions, 
                service improvements, or other means; and
                    ``(B) shall be determined on a project-by-project 
                basis, based upon an agreement between the State and 
                the affected persons or private entities.
            ``(2) Public benefit.--The term `public benefit'--
                    ``(A) means a benefit accrued to the public in the 
                form of enhanced mobility of people or goods, 
                environmental protection or enhancement, congestion 
                mitigation, enhanced trade and economic development, 
                improved air quality or land use, more efficient energy 
                use, enhanced public safety or security, reduction of 
                public expenditures due to improved transportation 
                efficiency or infrastructure preservation, and other 
                positive community effects; and
                    ``(B) shall be determined on a project-by-project 
                basis, based upon an agreement between the State and 
                the persons or private entities involved in the 
                project.
            ``(3) State.--The term `State' means any of the 50 States 
        and the District of Columbia.
            ``(4) State rail transportation authority.--The term `State 
        rail transportation authority' means the State agency or 
        official responsible under the direction of the Chief Executive 
        of the State or a State law for preparation, maintenance, 
        coordination, and administration of the State rail plan under 
        this chapter.''.
            (2) Clerical amendment.--The table of chapters at the 
        beginning of subtitle V of title 49, United States Code, is 
        amended by inserting after the item relating to chapter 223 the 
        following:

``225. STATE RAIL PLANS........................................22501.''.

SEC. 637. MODIFICATION OF TARGETED AREAS DESIGNATED FOR NEW MARKETS TAX 
              CREDIT.

    (a) In General.--Paragraph (2) of section 45D(e) is amended to read 
as follows:
            ``(2) Targeted populations.--The Secretary shall prescribe 
        regulations under which 1 or more targeted populations (within 
        the meaning of section 103(20) of the Riegle Community 
        Development and Regulatory Improvement Act of 1994 (12 U.S.C. 
        4702(20))) may be treated as low-income communities. Such 
        regulations shall include procedures for determining which 
        entities are qualified active low-income community businesses 
        with respect to such populations.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to designations made by the Secretary of the Treasury after the date of 
the enactment of this Act.

SEC. 638. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS TRACTS WITHIN 
              HIGH MIGRATION RURAL COUNTIES.

    (a) In general.--Section 45D(e) (relating to low-income community) 
is amended by adding at the end the following new paragraph:
            ``(4) Modification of income requirement for census tracts 
        within high migration rural counties.--
                    ``(A) In general.--In the case of a population 
                census tract located within a high migration rural 
                county, paragraph (1)(B)(i) shall be applied by 
                substituting `85 percent' for `80 percent'.
                    ``(B) High migration rural county.--For purposes of 
                this paragraph, the term `high migration rural county' 
                means any county which, during the 20-year period 
                ending with the year in which the most recent census 
                was conducted, has a net out-migration of inhabitants 
                from the county of at least 10 percent of the 
                population of the county at the beginning of such 
                period.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendment made by section 121(a) of the 
Community Renewal Tax Relief Act of 2000.

SEC. 639. CREDIT FOR INVESTMENT IN TECHNOLOGY TO MAKE MOTION PICTURES 
              MORE ACCESSIBLE TO THE DEAF AND HARD OF HEARING.

    (a) In General.--
            (1) Allowance of credit.--Subpart D of part IV of 
        subchapter A of chapter 1 (relating to business related 
        credits), as amended by this Act, is amended by adding at the 
        end the following new section:

``SEC. 45T. EXPENDITURES TO PROVIDE ACCESS TO MOTION PICTURES FOR THE 
              DEAF AND HARD OF HEARING.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible taxpayer, the motion picture accessibility credit for any 
taxable year shall be an amount equal to 50 percent of the qualified 
expenditures made by the eligible taxpayer during the taxable year.
    ``(b) Eligible Taxpayer.--For purposes of this section, the term 
`eligible taxpayer' means a taxpayer who is in the business of--
            ``(1) showing motion pictures to the public in theaters, or
            ``(2) producing or distributing such motion pictures.
    ``(c) Qualified Expenditures.--For purposes of this section, the 
term `qualified expenditures' means amounts paid or incurred by the 
taxpayer for the purpose of making motion pictures accessible to 
individuals who are deaf or hard of hearing through the use of 
captioning technology.
    ``(d) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section with respect to any property, the basis 
of such property shall be reduced by the amount of the credit so 
allowed.
    ``(e) No Double Benefit.--In the case of the credit determined 
under this section, no deduction or credit shall be allowed for such 
amount under any other provision of this chapter.''.
            (2) Conforming amendments.--
                    (A) Section 38(b) (relating to general business 
                credit), as amended by this Act, is amended by striking 
                ``plus'' at the end of paragraph (30), by striking the 
                period at the end of paragraph (31) and inserting ``, 
                plus'', and by adding at the end the following new 
                paragraph:
            ``(32) the motion picture accessibility credit determined 
        under section 45T(a).''.
                    (B) Subsection (a) of section 1016, as amended by 
                this Act, is amended by striking ``and'' at the end of 
                paragraph (38), by striking the period at the end of 
                paragraph (39) and inserting ``, and'', and by adding 
                at the end the following new paragraph:
            ``(40) in the case of property with respect to which a 
        credit was allowed under section 45T, to the extent provided in 
        section 45T(d).''.
    (b) Limitation on Carryback.--Section 39(d) (relating to transition 
rules) is amended by adding at the end the following new paragraph:
            ``(16) No carryback of motion picture accessibility credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the motion 
        picture accessibility credit determined under section 45T may 
        be carried to a taxable year beginning before January 1, 
        2004.''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by inserting after the item relating to section 45S the 
following new item:

                              ``Sec. 45T. Expenditures to provide 
                                        access to motion pictures for 
                                        the deaf and hard of 
                                        hearing.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

                  Subtitle E--Miscellaneous Provisions

SEC. 641. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF CERTAIN 
              BROWNFIELD SITES FROM UNRELATED BUSINESS TAXABLE INCOME.

    (a) In General.--Subsection (b) of section 512 (relating to 
unrelated business taxable income), as amended by this Act, is amended 
by adding at the end the following new paragraph:
            ``(19) Treatment of gain or loss on sale or exchange of 
        certain brownfield sites.--
                    ``(A) In general.--Notwithstanding paragraph 
                (5)(B), there shall be excluded any gain or loss from 
                the qualified sale, exchange, or other disposition of 
                any qualifying brownfield property by an eligible 
                taxpayer.
                    ``(B) Eligible taxpayer.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `eligible 
                        taxpayer' means, with respect to a property, 
                        any organization exempt from tax under section 
                        501(a) which--
                                    ``(I) acquires from an unrelated 
                                person a qualifying brownfield 
                                property, and
                                    ``(II) pays or incurs eligible 
                                remediation expenditures with respect 
                                to such property in an amount which 
                                exceeds the greater of $550,000 or 12 
                                percent of the fair market value of the 
                                property at the time such property was 
                                acquired by the eligible taxpayer, 
                                determined as if there was not a 
                                presence of a hazardous substance, 
                                pollutant, or contaminant on the 
                                property which is complicating the 
                                expansion, redevelopment, or reuse of 
                                the property.
                            ``(ii) Exception.--Such term shall not 
                        include any organization which is--
                                    ``(I) potentially liable under 
                                section 107 of the Comprehensive 
                                Environmental Response, Compensation, 
                                and Liability Act of 1980 with respect 
                                to the qualifying brownfield property,
                                    ``(II) affiliated with any other 
                                person which is so potentially liable 
                                through any direct or indirect familial 
                                relationship or any contractual, 
                                corporate, or financial relationship 
                                (other than a contractual, corporate, 
                                or financial relationship which is 
                                created by the instruments by which 
                                title to any qualifying brownfield 
                                property is conveyed or financed or by 
                                a contract of sale of goods or 
                                services), or
                                    ``(III) the result of a 
                                reorganization of a business entity 
                                which was so potentially liable.
                    ``(C) Qualifying brownfield property.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `qualifying 
                        brownfield property' means any real property 
                        which is certified, before the taxpayer incurs 
                        any eligible remediation expenditures (other 
                        than to obtain a Phase I environmental site 
                        assessment), by an appropriate State agency 
                        (within the meaning of section 198(c)(4)) in 
                        the State in which such property is located as 
                        a brownfield site within the meaning of section 
                        101(39) of the Comprehensive Environmental 
                        Response, Compensation, and Liability Act of 
                        1980 (as in effect on the date of the enactment 
                        of this paragraph).
                            ``(ii) Request for certification.--Any 
                        request by an eligible taxpayer for a 
                        certification described in clause (i) shall 
                        include a sworn statement by the eligible 
                        taxpayer and supporting documentation of the 
                        presence of a hazardous substance, pollutant, 
                        or contaminant on the property which is 
                        complicating the expansion, redevelopment, or 
                        reuse of the property given the property's 
                        reasonably anticipated future land uses or 
                        capacity for uses of the property (including a 
                        Phase I environmental site assessment and, if 
                        applicable, evidence of the property's presence 
                        on a local, State, or Federal list of 
                        brownfields or contaminated property) and other 
                        environmental assessments prepared or obtained 
                        by the taxpayer.
                    ``(D) Qualified sale, exchange, or other 
                disposition.--For purposes of this paragraph--
                            ``(i) In general.--A sale, exchange, or 
                        other disposition of property shall be 
                        considered as qualified if--
                                    ``(I) such property is transferred 
                                by the eligible taxpayer to an 
                                unrelated person, and
                                    ``(II) within 1 year of such 
                                transfer the eligible taxpayer has 
                                received a certification from the 
                                Environmental Protection Agency or an 
                                appropriate State agency (within the 
                                meaning of section 198(c)(4)) in the 
                                State in which such property is located 
                                that, as a result of the eligible 
                                taxpayer's remediation actions, such 
                                property would not be treated as a 
                                qualifying brownfield property in the 
                                hands of the transferee.
                        For purposes of subclause (II), before issuing 
                        such certification, the Environmental 
                        Protection Agency or appropriate State agency 
                        shall respond to comments received pursuant to 
                        clause (ii)(V) in the same form and manner as 
                        required under section 117(b) of the 
                        Comprehensive Environmental Response, 
                        Compensation, and Liability Act of 1980 (as in 
                        effect on the date of the enactment of this 
                        paragraph).
                            ``(ii) Request for certification.--Any 
                        request by an eligible taxpayer for a 
                        certification described in clause (i) shall be 
                        made not later than the date of the transfer 
                        and shall include a sworn statement by the 
                        eligible taxpayer certifying the following:
                                    ``(I) Remedial actions which comply 
                                with all applicable or relevant and 
                                appropriate requirements (consistent 
                                with section 121(d) of the 
                                Comprehensive Environmental Response, 
                                Compensation, and Liability Act of 
                                1980) have been substantially 
                                completed, such that there are no 
                                hazardous substances, pollutants, or 
                                contaminants which complicate the 
                                expansion, redevelopment, or reuse of 
                                the property given the property's 
                                reasonably anticipated future land uses 
                                or capacity for uses of the property.
                                    ``(II) The reasonably anticipated 
                                future land uses or capacity for uses 
                                of the property are more economically 
                                productive or environmentally 
                                beneficial than the uses of the 
                                property in existence on the date of 
                                the certification described in 
                                subparagraph (C)(i). For purposes of 
                                the preceding sentence, use of property 
                                as a landfill or other hazardous waste 
                                facility shall not be considered more 
                                economically productive or 
                                environmentally beneficial.
                                    ``(III) A remediation plan has been 
                                implemented to bring the property into 
                                compliance with all applicable local, 
                                State, and Federal environmental laws, 
                                regulations, and standards and to 
                                ensure that the remediation protects 
                                human health and the environment.
                                    ``(IV) The remediation plan 
                                described in subclause (III), including 
                                any physical improvements required to 
                                remediate the property, is either 
                                complete or substantially complete, 
                                and, if substantially complete, 
                                sufficient monitoring, funding, 
                                institutional controls, and financial 
                                assurances have been put in place to 
                                ensure the complete remediation of the 
                                property in accordance with the 
                                remediation plan as soon as is 
                                reasonably practicable after the sale, 
                                exchange, or other disposition of such 
                                property.
                                    ``(V) Public notice and the 
                                opportunity for comment on the request 
                                for certification was completed before 
                                the date of such request. Such notice 
                                and opportunity for comment shall be in 
                                the same form and manner as required 
                                for public participation required under 
                                section 117(a) of the Comprehensive 
                                Environmental Response, Compensation, 
                                and Liability Act of 1980 (as in effect 
                                on the date of the enactment of this 
                                paragraph). For purposes of this 
                                subclause, public notice shall include, 
                                at a minimum, publication in a major 
                                local newspaper of general circulation.
                            ``(iii) Attachment to tax returns.--A copy 
                        of each of the requests for certification 
                        described in clause (ii) of subparagraph (C) 
                        and this subparagraph shall be included in the 
                        tax return of the eligible taxpayer (and, where 
                        applicable, of the qualifying partnership) for 
                        the taxable year during which the transfer 
                        occurs.
                            ``(iv) Substantial completion.--For 
                        purposes of this subparagraph, a remedial 
                        action is substantially complete when any 
                        necessary physical construction is complete, 
                        all immediate threats have been eliminated, and 
                        all long-term threats are under control.
                    ``(E) Eligible remediation expenditures.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `eligible 
                        remediation expenditures' means, with respect 
                        to any qualifying brownfield property, any 
                        amount paid or incurred by the eligible 
                        taxpayer to an unrelated third person to obtain 
                        a Phase I environmental site assessment of the 
                        property, and any amount so paid or incurred 
                        after the date of the certification described 
                        in subparagraph (C)(i) for goods and services 
                        necessary to obtain a certification described 
                        in subparagraph (D)(i) with respect to such 
                        property, including expenditures--
                                    ``(I) to manage, remove, control, 
                                contain, abate, or otherwise remediate 
                                a hazardous substance, pollutant, or 
                                contaminant on the property,
                                    ``(II) to obtain a Phase II 
                                environmental site assessment of the 
                                property, including any expenditure to 
                                monitor, sample, study, assess, or 
                                otherwise evaluate the release, threat 
                                of release, or presence of a hazardous 
                                substance, pollutant, or contaminant on 
                                the property,
                                    ``(III) to obtain environmental 
                                regulatory certifications and approvals 
                                required to manage the remediation and 
                                monitoring of the hazardous substance, 
                                pollutant, or contaminant on the 
                                property, and
                                    ``(IV) regardless of whether it is 
                                necessary to obtain a certification 
                                described in subparagraph (D)(i)(II), 
                                to obtain remediation cost-cap or stop-
                                loss coverage, re-opener or regulatory 
                                action coverage, or similar coverage 
                                under environmental insurance policies, 
                                or financial guarantees required to 
                                manage such remediation and monitoring.
                            ``(ii) Exceptions.--Such term shall not 
                        include--
                                    ``(I) any portion of the purchase 
                                price paid or incurred by the eligible 
                                taxpayer to acquire the qualifying 
                                brownfield property,
                                    ``(II) environmental insurance 
                                costs paid or incurred to obtain legal 
                                defense coverage, owner/operator 
                                liability coverage, lender liability 
                                coverage, professional liability 
                                coverage, or similar types of coverage,
                                    ``(III) any amount paid or incurred 
                                to the extent such amount is 
                                reimbursed, funded, or otherwise 
                                subsidized by grants provided by the 
                                United States, a State, or a political 
                                subdivision of a State for use in 
                                connection with the property, proceeds 
                                of an issue of State or local 
                                government obligations used to provide 
                                financing for the property the interest 
                                of which is exempt from tax under 
                                section 103, or subsidized financing 
                                provided (directly or indirectly) under 
                                a Federal, State, or local program 
                                provided in connection with the 
                                property, or
                                    ``(IV) any expenditure paid or 
                                incurred before the date of the 
                                enactment of this paragraph.
                        For purposes of subclause (III), the Secretary 
                        may issue guidance regarding the treatment of 
                        government-provided funds for purposes of 
                        determining eligible remediation expenditures.
                    ``(F) Determination of gain or loss.--For purposes 
                of this paragraph, the determination of gain or loss 
                shall not include an amount treated as gain which is 
                ordinary income with respect to section 1245 or section 
                1250 property, including amounts deducted as section 
                198 expenses which are subject to the recapture rules 
                of section 198(e), if the taxpayer had deducted such 
                amounts in the computation of its unrelated business 
                taxable income.
                    ``(G) Special rules for partnerships.--
                            ``(i) In general.--In the case of an 
                        eligible taxpayer which is a partner of a 
                        qualifying partnership which acquires, 
                        remediates, and sells, exchanges, or otherwise 
                        disposes of a qualifying brownfield property, 
                        this paragraph shall apply to the eligible 
                        taxpayer's distributive share of the qualifying 
                        partnership's gain or loss from the sale, 
                        exchange, or other disposition of such 
                        property.
                            ``(ii) Qualifying partnership.--The term 
                        `qualifying partnership' means a partnership 
                        which--
                                    ``(I) has a partnership agreement 
                                which satisfies the requirements of 
                                section 514(c)(9)(B)(vi) at all times 
                                beginning on the date of the first 
                                certification received by the 
                                partnership under subparagraph (C)(i),
                                    ``(II) satisfies the requirements 
                                of subparagraphs (B)(i), (C), (D), and 
                                (E), if `qualified partnership' is 
                                substituted for `eligible taxpayer' 
                                each place it appears therein (except 
                                subparagraph (D)(iii)), and
                                    ``(III) is not an organization 
                                which would be prevented from 
                                constituting an eligible taxpayer by 
                                reason of subparagraph (B)(ii).
                            ``(iii) Requirement that tax-exempt partner 
                        be a partner since first certification.--This 
                        paragraph shall apply with respect to any 
                        eligible taxpayer which is a partner of a 
                        partnership which acquires, remediates, and 
                        sells, exchanges, or otherwise disposes of a 
                        qualifying brownfield property only if such 
                        eligible taxpayer was a partner of the 
                        qualifying partnership at all times beginning 
                        on the date of the first certification received 
                        by the partnership under subparagraph (C)(i) 
                        and ending on the date of the sale, exchange, 
                        or other disposition of the property by the 
                        partnership.
                            ``(iv) Regulations.--The Secretary shall 
                        prescribe such regulations as are necessary to 
                        prevent abuse of the requirements of this 
                        subparagraph, including abuse through--
                                    ``(I) the use of special 
                                allocations of gains or losses, or
                                    ``(II) changes in ownership of 
                                partnership interests held by eligible 
                                taxpayers.
                    ``(H) Special rules for multiple properties.--
                            ``(i) In general.--An eligible taxpayer or 
                        a qualifying partnership of which the eligible 
                        taxpayer is a partner may make a 1-time 
                        election to apply this paragraph to more than 1 
                        qualifying brownfield property by averaging the 
                        eligible remediation expenditures for all such 
                        properties acquired during the election period. 
                        If the eligible taxpayer or qualifying 
                        partnership makes such an election, the 
                        election shall apply to all qualified sales, 
                        exchanges, or other dispositions of qualifying 
                        brownfield properties the acquisition and 
                        transfer of which occur during the period for 
                        which the election remains in effect.
                            ``(ii) Election.--An election under clause 
                        (i) shall be made with the eligible taxpayer's 
                        or qualifying partnership's timely filed tax 
                        return (including extensions) for the first 
                        taxable year for which the taxpayer or 
                        qualifying partnership intends to have the 
                        election apply. An election under clause (i) is 
                        effective for the period--
                                    ``(I) beginning on the date which 
                                is the first day of the taxable year of 
                                the return in which the election is 
                                included or a later day in such taxable 
                                year selected by the eligible taxpayer 
                                or qualifying partnership, and
                                    ``(II) ending on the date which is 
                                the earliest of a date of revocation 
                                selected by the eligible taxpayer or 
                                qualifying partnership, the date which 
                                is 8 years after the date described in 
                                subclause (I), or, in the case of an 
                                election by a qualifying partnership of 
                                which the eligible taxpayer is a 
                                partner, the date of the termination of 
                                the qualifying partnership.
                            ``(iii) Revocation.--An eligible taxpayer 
                        or qualifying partnership may revoke an 
                        election under clause (i)(II) by filing a 
                        statement of revocation with a timely filed tax 
                        return (including extensions). A revocation is 
                        effective as of the first day of the taxable 
                        year of the return in which the revocation is 
                        included or a later day in such taxable year 
                        selected by the eligible taxpayer or qualifying 
                        partnership. Once an eligible taxpayer or 
                        qualifying partnership revokes the election, 
                        the eligible taxpayer or qualifying partnership 
                        is ineligible to make another election under 
                        clause (i) with respect to any qualifying 
                        brownfield property subject to the revoked 
                        election.
                    ``(I) Recapture.--If an eligible taxpayer excludes 
                gain or loss from a sale, exchange, or other 
                disposition of property to which an election under 
                subparagraph (H) applies, and such property fails to 
                satisfy the requirements of this paragraph, the 
                unrelated business taxable income of the eligible 
                taxpayer for the taxable year in which such failure 
                occurs shall be determined by including any previously 
                excluded gain or loss from such sale, exchange, or 
                other disposition allocable to such taxpayer, and 
                interest shall be determined at the overpayment rate 
                established under section 6621 on any resulting tax for 
                the period beginning with the due date of the return 
                for the taxable year during which such sale, exchange, 
                or other disposition occurred, and ending on the date 
                of payment of the tax.
                    ``(J) Related persons.--For purposes of this 
                paragraph, a person shall be treated as related to 
                another person if--
                            ``(i) such person bears a relationship to 
                        such other person described in section 267(b) 
                        (determined without regard to paragraph (9) 
                        thereof), or section 707(b)(1), determined by 
                        substituting `25 percent' for `50 percent' each 
                        place it appears therein, and
                            ``(ii) in the case such other person is a 
                        nonprofit organization, if such person controls 
                        directly or indirectly more than 25 percent of 
                        the governing body of such organization.''
    (b) Exclusion From Definition of Debt-Financed Property.--Section 
514(b)(1) (defining debt-financed property) is amended by striking 
``or'' at the end of subparagraph (C), by striking the period at the 
end of subparagraph (D) and inserting ``; or'', and by inserting after 
subparagraph (D) the following new subparagraph:
                    ``(E) any property the gain or loss from the sale, 
                exchange, or other disposition of which would be 
                excluded by reason of the provisions of section 
                512(b)(19) in computing the gross income of any 
                unrelated trade or business.''.
    (c) Savings Clause.--Nothing in the amendments made by this section 
shall affect any duty, liability, or other requirement imposed under 
any other Federal or State law. Notwithstanding section 128(b) of the 
Comprehensive Environmental Response, Compensation, and Liability Act 
of 1980, a certification provided by the Environmental Protection 
Agency or an appropriate State agency (within the meaning of section 
198(c)(4) of the Internal Revenue Code of 1986) shall not affect the 
liability of any person under section 107(a) of such Act.
    (d) Effective Date.--The amendments made by this section shall 
apply to any gain or loss on the sale, exchange, or other disposition 
of any property acquired by the taxpayer after December 31, 2004.

SEC. 642. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON 
              INVESTMENT IN CERTAIN DEBT-FINANCED PROPERTIES.

    (a) In General.--Section 514(c)(6) (relating to acquisition 
indebtedness) is amended--
            (1) by striking ``include an obligation'' and inserting 
        ``include--
                    ``(A) an obligation'',
            (2) by striking the period at the end and inserting ``, 
        or'', and
            (3) by adding at the end the following:
                    ``(B) indebtedness incurred by a small business 
                investment company licensed under the Small Business 
                Investment Act of 1958 which is evidenced by a 
                debenture--
                            ``(i) issued by such company under section 
                        303(a) of such Act, and
                            ``(ii) held or guaranteed by the Small 
                        Business Administration.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to acquisitions made on or after the date of the enactment of 
this Act.

SEC. 643. CIVIL RIGHTS TAX RELIEF.

    (a) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 (defining adjusted gross 
income) is amended by inserting after paragraph (18) the following new 
item:
            ``(19) Costs involving discrimination suits, etc.--Any 
        deduction allowable under this chapter for attorney fees and 
        court costs paid by, or on behalf of, the taxpayer in 
        connection with any action involving a claim of unlawful 
        discrimination (as defined in subsection (e)) or a claim of a 
        violation of subchapter III of chapter 37 of title 31, United 
        States Code or a claim made under section 1862(b)(3)(A) of the 
        Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding 
        sentence shall not apply to any deduction in excess of the 
        amount includible in the taxpayer's gross income for the 
        taxable year on account of a judgment or settlement (whether by 
        suit or agreement and whether as lump sum or periodic payments) 
        resulting from such claim.''.
    (b) Unlawful Discrimination Defined.--Section 62 is amended by 
adding at the end the following new subsection:
    ``(e) Unlawful discrimination defined.--For purposes of subsection 
(a)(19), the term `unlawful discrimination' means an act that is 
unlawful under any of the following:
            ``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C. 
        1202).
            ``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the 
        Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312, 
        1313, 1314, 1315, 1316, or 1317).
            ``(3) The National Labor Relations Act (29 U.S.C. 151 et 
        seq.).
            ``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 
        et seq.).
            ``(5) Section 4 or 15 of the Age Discrimination in 
        Employment Act of 1967 (29 U.S.C. 623 or 633a).
            ``(6) Section 501 or 504 of the Rehabilitation Act of 1973 
        (29 U.S.C. 791 or 794).
            ``(7) Section 510 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1140).
            ``(8) Title IX of the Education Amendments of 1972 (29 
        U.S.C. 1681 et seq.).
            ``(9) The Employee Polygraph Protection Act of 1988 (29 
        U.S.C. 201 et seq.).
            ``(10) The Worker Adjustment and Retraining Notification 
        Act (29 U.S.C. 2102 et seq.).
            ``(11) Section 105 of the Family and Medical Leave Act of 
        1993 (29 U.S.C. 2615).
            ``(12) Chapter 43 of title 38, United States Code (relating 
        to employment and reemployment rights of members of the 
        uniformed services).
            ``(13) Section 1977, 1979, or 1980 of the Revised Statutes 
        (42 U.S.C. 1981, 1983, or 1985).
            ``(14) Section 703, 704, or 717 of the Civil Rights Act of 
        1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
            ``(15) Section 804, 805, 806, 808, or 818 of the Fair 
        Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
            ``(16) Section 102, 202, 302, or 503 of the Americans with 
        Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 
        12203).
            ``(17) Any provision of Federal law (popularly known as 
        whistleblower protection provisions) prohibiting the discharge 
        of an employee, the discrimination against an employee, or any 
        other form of retaliation or reprisal against an employee for 
        asserting rights or taking other actions permitted under 
        Federal law.
            ``(18) Any provision of Fderal, State, or local law, or 
        common law claims permitted under Federal, State, or local 
        law--
                            ``(i) providing for the enforcement of 
                        civil rights, or
                            ``(ii) regulating any aspect of the 
                        employment relationship, including claims for 
                        wages, compensation, or benefits, or 
                        prohibiting the discharge of an employee, the 
                        discrimination against an employee, or any 
                        other form of retaliation or reprisal against 
                        an employee for asserting rights or taking 
                        other actions permitted by law.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to fees and costs paid after December 31, 2002, with respect to 
any judgment or settlement occurring after such date.

SEC. 644. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH 
              SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN STATE 
              LOAN REPAYMENT PROGRAMS.

    (a) In General.--Section 108(f) (relating to student loans) is 
amended by adding at the end the following new paragraph:
            ``(4) Payments under national health service corps loan 
        repayment program and certain state loan repayment programs.--
        In the case of an individual, gross income shall not include 
        any amount received under section 338B(g) of the Public Health 
        Service Act or under a State program described in section 338I 
        of such Act.''.
    (b) Treatment for Purposes of Employment Taxes.--Each of the 
following provisions is amended by inserting ``108(f)(4),'' after 
``74(c),'':
            (1) Section 3121(a)(20).
            (2) Section 3231(e)(5).
            (3) Section 3306(b)(16).
            (4) Section 3401(a)(19).
            (5) Section 209(a)(17) of the Social Security Act.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received by an individual in taxable years beginning 
after December 31, 2003.

SEC. 645. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.

    (a) In General.--Section 162(o) (relating to treatment of certain 
reimbursed expenses of rural mail carriers) is amended by redesignating 
paragraph (2) as paragraph (3) and by inserting after paragraph (1) the 
following:
            ``(2) Special rule where expenses exceed reimbursements.--
        Notwithstanding paragraph (1)(A), if the expenses incurred by 
        an employee for the use of a vehicle in performing services 
        described in paragraph (1) exceed the qualified reimbursements 
        for such expenses, such excess shall be taken into account in 
        computing the miscellaneous itemized deductions of the employee 
        under section 67.''.
    (b) Conforming Amendment.--The heading for section 162(o) is 
amended by striking ``Reimbursed''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 646. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.

    (a) In General.--In the case of a qualified naval ship contract, 
the taxable income of such contract during the 5-taxable year period 
beginning with the taxable year in which the contract commencement date 
occurs shall be determined under a method identical to the method used 
in the case of a qualified ship contract (as defined in section 
10203(b)(2)(B) of the Revenue Act of 1987).
    (b) Recapture of Tax Benefit.--In the case of a qualified naval 
ship contract to which subsection (a) applies, the taxpayer's tax 
imposed by chapter 1 of the Internal Revenue Code of 1986 for the first 
taxable year following the 5-taxable year period described in 
subsection (a) shall be increased by the excess (if any) of--
            (1) the amount of tax which would have been imposed during 
        such period if this section had not been enacted, over
            (2) the amount of tax so imposed during such period.
    (c) Qualified Naval Ship Contract.--For purposes of this section--
            (1) In general.--The term ``qualified naval ship contract'' 
        means any contract or portion thereof that is for the 
        construction in the United States of 1 ship or submarine for 
        the Federal Government if the taxpayer reasonably expects the 
        acceptance date will occur no later than 9 years after the 
        construction commencement date.
            (2) Acceptance date.--The term ``acceptance date'' means 
        the date 1 year after the date on which the Federal Government 
        issues a letter of acceptance or other similar document for the 
        ship or submarine.
            (3) Construction commencement date.--The term 
        ``construction commencement date'' means the date on which the 
        physical fabrication of any section or component of the ship or 
        submarine begins.
    (d) Effective Date.--This section shall apply to contracts for 
ships or submarines with respect to which the construction commencement 
date occurs after the date of the enactment of this Act.

SEC. 647. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

    (a) Distributions To Shareholders From Pre-1984 Policyholders 
Surplus Account.--Section 815 (relating to distributions to 
shareholders from pre-1984 policyholders surplus account) is amended by 
adding at the end the following:
    ``(g) Special Rules Applicable During 2004 and 2005.--In the case 
of any taxable year of a stock life insurance company beginning after 
December 31, 2003, and before January 1, 2006--
            ``(1) the amount under subsection (a)(2) for such taxable 
        year shall be treated as zero, and
            ``(2) notwithstanding subsection (b), in determining any 
        subtractions from an account under subsections (c)(3) and 
        (d)(3), any distribution to shareholders during such taxable 
        year shall be treated as made first out of the policyholders 
        surplus account, then out of the shareholders surplus account, 
        and finally out of other accounts.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 648. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
              REDUCING PATRONAGE DIVIDENDS.

    (a) In General.--Subsection (a) of section 1388 (relating to 
patronage dividend defined) is amended by adding at the end the 
following new sentence: ``For purposes of paragraph (3), net earnings 
shall not be reduced by amounts paid during the year as dividends on 
capital stock or other proprietary capital interests of the 
organization to the extent that the articles of incorporation or bylaws 
of such organization or other contract with patrons provide that such 
dividends are in addition to amounts otherwise payable to patrons which 
are derived from business done with or for patrons during the taxable 
year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 649. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
              RELATED CONDITIONS.

    (a) Replacement of Livestock With Other Farm Property.--Subsection 
(f) of section 1033 (relating to involuntary conversions) is amended--
            (1) by inserting ``drought, flood, or other weather-related 
        conditions, or'' after ``because of'',
            (2) by inserting ``in the case of soil contamination or 
        other environmental contamination'' after ``including real 
        property'', and
            (3) by striking ``Where There Has Been Environmental 
        Contamination'' in the heading and inserting ``in Certain 
        Cases''.
    (b) Extension of Replacement Period of Involuntarily Converted 
Livestock.--Subsection (e) of section 1033 (relating to involuntary 
conversions) is amended--
            (1) by striking ``Conditions.--For purposes'' and inserting 
        ``Conditions.--
            ``(1) In general.--For purposes'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Extension of replacement period.--
                    ``(A) In general.--In the case of drought, flood, 
                or other weather-related conditions described in 
                paragraph (1) which result in the area being designated 
                as eligible for assistance by the Federal Government, 
                subsection (a)(2)(B) shall be applied with respect to 
                any converted property by substituting `4 years' for `2 
                years'.
                    ``(B) Further extension by secretary.--The 
                Secretary may extend on a regional basis the period for 
                replacement under this section (after the application 
                of subparagraph (A)) for such additional time as the 
                Secretary determines appropriate if the weather-related 
                conditions which resulted in such application continue 
                for more than 3 years.''.
    (c) Income Inclusion Rules.--Section 451(e) (relating to special 
rule for proceeds from livestock sold on account of drought, flood, or 
other weather-related conditions) is amended by adding at the end the 
following new paragraph:
            ``(3) Special election rules.--If section 1033(e)(2) 
        applies to a sale or exchange of livestock described in 
        paragraph (1), the election under paragraph (1) shall be deemed 
        valid if made during the replacement period described in such 
        section.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 650. MOTOR VEHICLE DEALER TRANSITIONAL ASSISTANCE.

    (a) In General.--For purposes of subtitle A of the Internal Revenue 
Code of 1986, in the case of a taxpayer who elects the application of 
this section and who was a party to a motor vehicle sales and service 
agreement with a motor vehicle manufacturer who announced in December 
2000 that it would phase-out the motor vehicle brand to which such 
agreement relates--
            (1) amounts received by such taxpayer from such 
        manufacturer on account of the termination of such agreement 
        (hereafter in this section referred to as ``termination 
        payment'') are considered to be received for property used in 
        the trade or business of a motor vehicle retail sales and 
        service dealership, and
            (2) to the extent such termination payment is reinvested in 
        property used in a motor vehicle retail sales and service 
        dealership located within the United States, such property 
        shall qualify as like-kind replacement property to which 
        section 1031 of the Internal Revenue Code of 1986 shall apply 
        with the following modifications:
                    (A) Such section shall be applied without regard to 
                subparagraphs (A) and (B)(ii) of subsection (a)(3).
                    (B) The period described in section 1031(a)(3)(B) 
                of such Code shall be applied by substituting ``2 
                years'' for ``180 days''.
    (b) Rules for Election.--
            (1) Form of election.--The taxpayer shall make an election 
        under this section in such form and manner as the Secretary of 
        the Treasury may prescribe and shall include in such election 
        the amount of the termination payment received, the 
        identification of the replacement property purchased, and such 
        other information as the Secretary may prescribe.
            (2) Election on amended return.--The Secretary of the 
        Treasury shall permit an election under this section on an 
        amended tax return for taxable years beginning before the date 
        of the enactment of this Act.
    (c) Statute of Limitations.--Notwithstanding the provisions of any 
other law or rule of law, the statutory period for the assessment for 
any deficiency attributable to any termination payment gain shall be 
extended until 3 years after the date the Secretary of the Treasury is 
notified by the taxpayer of the like-kind replacement property or an 
intention not to replace.
    (d) Effective Date.--This section shall apply to amounts received 
after December 12, 2000, in taxable years ending after such date.

SEC. 651. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED ON 2000 
              CENSUS DATA.

    (a) Renewal Communities.--Section 1400E (relating to designation of 
renewal communities) is amended by adding at the end the following new 
subsection:
    ``(g) Expansion of Designated Areas.--
            ``(1) Expansion based on 2000 Census.--At the request of 
        the nominating entity with respect to a renewal community, the 
        Secretary of Housing and Urban Development may expand the area 
        of a renewal community to include any census tract--
                    ``(A) which, at the time such community was 
                nominated, met the requirements of this section for 
                inclusion in such community but for the failure of such 
                tract to meet 1 or more of the population and poverty 
                rate requirements of this section using 1990 census 
                data, and
                    ``(B) which meets all failed population and poverty 
                rate requirements of this section using 2000 census 
                data.
            ``(2) Expansion to certain areas which do not meet 
        population requirements.--
                    ``(A) In general.--At the request of 1 or more 
                local governments and the State or States in which an 
                area described in subparagraph (B) is located, the 
                Secretary of Housing and Urban Development may expand a 
                designated area to include such area.
                    ``(B) Area.--An area is described in this 
                subparagraph if--
                            ``(i) the area is adjacent to at least 1 
                        other area designated as a renewal community,
                            ``(ii) the area has a population less than 
                        the population required under subsection 
                        (c)(2)(C), and
                            ``(iii)(I) the area meets the requirements 
                        of subparagraphs (A) and (B) of subsection 
                        (c)(2) and subparagraph (A) of subsection 
                        (c)(3), or
                            ``(II) the area contains a population of 
                        less than 100 people.
            ``(3) Applicability.--Any expansion of a renewal community 
        under this section shall take effect as provided in subsection 
        (b).''.
    (b) Effective Date.--The amendment made by this subsection shall 
take effect as if included in the amendments made by section 101 of the 
Community Renewal Tax Relief Act of 2000.

SEC. 652. REDUCTION OF HOLDING PERIOD TO 12 MONTHS FOR PURPOSES OF 
              DETERMINING WHETHER HORSES ARE SECTION 1231 ASSETS.

    (a) In General.--Subparagraph (A) of section 1231(b)(3) (relating 
to definition of property used in the trade or business) is amended by 
striking ``and horses''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 653. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.

    (a) Establishment.--
            (1) In general.--There is established the ``Blue Ribbon 
        Commission on Comprehensive Tax Reform'' (in this section 
        referred to as the ``Commission'').
            (2) Membership.--
                    (A) Composition.--The Commission shall be composed 
                of 17 members of whom--
                            (i) 3 shall be appointed by the majority 
                        leader of the Senate;
                            (ii) 3 shall be appointed by the minority 
                        leader of the Senate;
                            (iii) 3 shall be appointed by the Speaker 
                        of the House of Representatives;
                            (iv) 3 shall be appointed by the minority 
                        leader of the House of Representatives; and
                            (v) 5 shall be appointed by the President, 
                        of which no more than 3 shall be of the same 
                        party as the President.
                    (B) Federal employees.--The members of the 
                Commission may be employees or former employees of the 
                Federal Government.
                    (C) Date.--The appointments of the members of the 
                Commission shall be made not later than October 30, 
                2004.
            (3) Period of appointment; vacancies.--Members shall be 
        appointed for the life of the Commission. Any vacancy in the 
        Commission shall not affect its powers, but shall be filled in 
        the same manner as the original appointment.
            (4) Initial meeting.--Not later than 30 days after the date 
        on which all members of the Commission have been appointed, the 
        Commission shall hold its first meeting.
            (5) Meetings.--The Commission shall meet at the call of the 
        Chairman.
            (6) Quorum.--A majority of the members of the Commission 
        shall constitute a quorum, but a lesser number of members may 
        hold hearings.
            (7) Chairman and vice chairman.--The President shall select 
        a Chairman and Vice Chairman from among its members.
    (b) Duties of the Commission.--
            (1) Study.--The Commission shall conduct a thorough study 
        of all matters relating to a comprehensive reform of the 
        Federal tax system, including the reform of the Internal 
        Revenue Code of 1986 and the implementation (if appropriate) of 
        other types of tax systems.
            (2) Recommendations.--The Commission shall develop 
        recommendations on how to comprehensively reform the Federal 
        tax system in a manner that generates appropriate revenue for 
        the Federal Government.
            (3) Report.--Not later than 18 months after the date on 
        which all initial members of the commission have been appointed 
        pursuant to subsection (a)(2), the Commission shall submit a 
        report to the President and Congress which shall contain a 
        detailed statement of the findings and conclusions of the 
        Commission, together with its recommendations for such 
        legislation and administrative actions as it considers 
        appropriate.
    (c) Powers of the Commission.--
            (1) Hearings.--The Commission may hold such hearings, sit 
        and act at such times and places, take such testimony, and 
        receive such evidence as the Commission considers advisable to 
        carry out this Act.
            (2) Information from federal agencies.--The Commission may 
        secure directly from any Federal department or agency such 
        information as the Commission considers necessary to carry out 
        this Act. Upon request of the Chairman of the Commission, the 
        head of such department or agency shall furnish such 
        information to the Commission.
            (3) Postal services.--The Commission may use the United 
        States mails in the same manner and under the same conditions 
        as other departments and agencies of the Federal Government.
            (4) Gifts.--The Commission may accept, use, and dispose of 
        gifts or donations of services or property.
    (d) Commission Personnel Matters.--
            (1) Compensation of members.--Each member of the Commission 
        who is not an officer or employee of the Federal Government 
        shall be compensated at a rate equal to the daily equivalent of 
        the annual rate of basic pay prescribed for level IV of the 
        Executive Schedule under section 5315 of title 5, United States 
        Code, for each day (including travel time) during which such 
        member is engaged in the performance of the duties of the 
        Commission. All members of the Commission who are officers or 
        employees of the United States shall serve without compensation 
        in addition to that received for their services as officers or 
        employees of the United States.
            (2) Travel expenses.--The members of the Commission shall 
        be allowed travel expenses, including per diem in lieu of 
        subsistence, at rates authorized for employees of agencies 
        under subchapter I of chapter 57 of title 5, United States 
        Code, while away from their homes or regular places of business 
        in the performance of services for the Commission.
            (3) Staff.--
                    (A) In general.--The Chairman of the Commission 
                may, without regard to the civil service laws and 
                regulations, appoint and terminate an executive 
                director and such other additional personnel as may be 
                necessary to enable the Commission to perform its 
                duties. The employment of an executive director shall 
                be subject to confirmation by the Commission.
                    (B) Compensation.--The Chairman of the Commission 
                may fix the compensation of the executive director and 
                other personnel without regard to chapter 51 and 
                subchapter III of chapter 53 of title 5, United States 
                Code, relating to classification of positions and 
                General Schedule pay rates, except that the rate of pay 
                for the executive director and other personnel may not 
                exceed the rate payable for level V of the Executive 
                Schedule under section 5316 of such title.
            (4) Detail of government employees.--Any Federal Government 
        employee may be detailed to the Commission without 
        reimbursement, and such detail shall be without interruption or 
        loss of civil service status or privilege.
            (5) Procurement of temporary and intermittent services.--
        The Chairman of the Commission may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code, at rates for individuals which do not exceed the 
        daily equivalent of the annual rate of basic pay prescribed for 
        level V of the Executive Schedule under section 5316 of such 
        title.
    (e) Termination of the Commission.--The Commission shall terminate 
90 days after the date on which the Commission submits its report under 
subsection (b).
    (f) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to the Commission to carry out 
this section.

SEC. 654. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH RESPECT TO S 
              CORPORATION STOCK.

    (a) In General.--Section 4975(d) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new flush sentences:
``A plan shall not be treated as violating the requirements of section 
401, 409, or subsection (e)(7), or as engaging in a prohibited 
transaction for purposes of paragraph (3), merely by reason of any 
distribution described in section 1368(a) with respect to S corporation 
stock which constitutes qualifying employer securities if the 
distribution is, in accordance with the plan provisions, used to make 
payments on a loan described in paragraph (3) the proceeds of which 
were used to acquire the qualifying employer securities (whether or not 
allocated to participants). The preceding sentence shall not apply in 
the case of a distribution which is paid with respect to any employer 
security which is allocated to a participant unless the plan provides 
that employer securities with a fair market value of not less than the 
amount of such distribution are allocated to such participant for the 
year which (but for the preceding sentence) such distribution would 
have been allocated to such participant.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 1998.

SEC. 655. CLARIFICATION OF WORKING CAPITAL FOR REASONABLY ANTICIPATED 
              NEEDS OF A BUSINESS FOR PURPOSES OF ACCUMULATED EARNINGS 
              TAX.

    (a) In General.--Section 537(b) (relating to special rules) is 
amended by adding at the end the following new paragraph:
            ``(6) Working capital.--The reasonably anticipated needs of 
        a business for any taxable year shall include working capital 
        for the business in an amount which is not less than the sum of 
        the cost of goods, operating expenses, taxes, and interest 
        expense which the business incurred during the preceding 
        taxable year. Any amounts incurred as part of a plan a 
        principal purpose of which is to increase the limitation under 
        this subsection shall not be taken into account.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003, and before January 
1, 2009.

SEC. 656. TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL ESTATE 
              INVESTMENT TRUST.

    (a) In General.--If a State owns all of the outstanding stock of a 
corporation which is a real estate investment trust, which is a non-
operating class III railroad, and substantially all of the activities 
of which consist of the ownership, leasing, and operation by such 
corporation of facilities, equipment, and other property used by the 
corporation or other persons in railroad transportation, then, for 
purposes of section 115 of the Internal Revenue Code of 1986--
            (1) income derived from such activities by the corporation 
        shall be treated as accruing to the State, and
            (2) such activities shall be treated as the exercise of an 
        essential governmental function of the State to the extent such 
        activities are of a type which are an essential government 
        function (within the meaning of section 115 of such Code).
    (b) Gain or Loss Not Recognized on Conversion.--Notwithstanding 
section 337(d) of the Internal Revenue Code of 1986--
            (1) no gain or loss shall be recognized under section 336 
        or 337 of such Code, and
            (2) no change in basis of the property of such corporation 
        shall occur,
because of any change of status of the corporation to a tax-exempt 
entity by reason of the application of subsection (a).
    (c) Tax-Exempt Financing.--Any obligation issued by an entity 
described in subsection (a) shall be treated as an obligation of the 
State for purposes of applying section 103 and part IV of subchapter B 
of chapter 1 of the Internal Revenue Code of 1986.
    (d) Definitions.--For purposes of this section--
            (1) Real estate investment trust.--The term ``real estate 
        investment trust'' has the meaning given such term by section 
        856(a) of the Internal Revenue Code of 1986.
            (2) Non-operating class iii railroad.--The term ``non-
        operating class III railroad'' has the meaning given such term 
        by part A of subtitle IV of title 49, United States Code (49 
        U.S.C. 10101 et seq.) and the regulations thereunder.
            (3) State.--The term ``State'' includes--
                    (A) the District of Columbia and any possession of 
                the United States, and
                    (B) any authority, agency, or public corporation of 
                a State.
    (e) Applicability.--
            (1) In general.--Except as provided in paragraph (2), this 
        section shall apply on and after the date on which a State 
        becomes the owner of all of the outstanding stock of a 
        corporation described in subsection (a).
            (2) Exception.--This section shall not apply to any State 
        which--
                    (A) becomes the owner of all of the voting stock of 
                a corporation described in subsection (a) after 
                December 31, 2003, or
                    (B) becomes the owner of all of the outstanding 
                stock of a corporation described in subsection (a) 
                after December 31, 2005.

SEC. 657. CLARIFICATION OF CONTRIBUTION IN AID OF CONSTRUCTION FOR 
              WATER AND SEWERAGE DISPOSAL UTILITIES.

    (a) In General.--Subparagraph (A) of section 118(c)(3) (relating to 
definitions) is amended to read as follows:
                    ``(A) Contribution in aid of construction.--The 
                term `contribution in aid of construction' shall be 
                defined by regulations prescribed by the Secretary, 
                except that such term--
                            ``(i) shall include amounts paid as 
                        customer connection fees (including amounts 
                        paid to connect the customer's water service 
                        line or sewer lateral line to the utility's 
                        distribution or collection system or extend a 
                        main water or sewer line to provide service to 
                        a customer), and
                            ``(ii) shall not include amounts paid as 
                        service charges for starting or stopping 
                        services.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contributions made after the date of the enactment of this 
Act.

SEC. 658. CREDIT FOR PURCHASE AND INSTALLATION OF AGRICULTURAL WATER 
              CONSERVATION SYSTEMS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.) is amended by adding at the end 
the following new section:

``SEC. 30B. PURCHASE AND INSTALLATION OF AGRICULTURAL WATER 
              CONSERVATION SYSTEMS.

    ``(a) Allowance of Credit.--In the case of an eligible taxpayer, 
there shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year an amount equal to 30 percent of the water 
conservation system expenses paid or incurred by the taxpayer during 
such year.
    ``(b) Limitations.--The credit allowed by subsection (a) with 
respect to any acre of land which is served by a water conservation 
system shall not exceed the excess of--
            ``(1) $500, over
            ``(2) the amount of credit allowed under this section with 
        respect to such acre for all prior taxable years.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible taxpayer.--The term `eligible taxpayer' 
        means any taxpayer if--
                    ``(A) at least 50 percent of such taxpayer's gross 
                income is normally derived from farm land, and
                    ``(B) such taxpayer complies with all Federal, 
                State, and local water rights and environmental laws.
            ``(2) Water conservation system expenses.--
                    ``(A) In general.--The term `water conservation 
                system expenses' means expenses for the purchase and 
                installation of a water conservation system but only 
                if--
                            ``(i) the land served by the water 
                        conservation system is entirely in a county or 
                        county-equivalent area which has received, in 
                        the taxable year the expenses were paid or 
                        incurred or in any of the 3 preceding taxable 
                        years, a primary-county designation due to 
                        drought by the Secretary of Agriculture, and
                            ``(ii) such system is certified as saving 
                        at least 5 percent more irrigation water than 
                        the irrigation system which was used on such 
                        land immediately prior to the installation of 
                        such water conservation system.
                For purposes of clause (ii), irrigation water savings 
                shall be determined and certified under regulations 
                prescribed jointly by the Natural Resources 
                Conservation Service of the Department of Agriculture 
                and the Bureau of Reclamation of the Department of the 
                Interior. Such regulations shall include a list of 
                individuals or organizations qualified to make such 
                certification.
                    ``(B) Water conservation system.--The term `water 
                conservation system' means, with respect to farm land--
                            ``(i) new or replacement irrigation 
                        equipment and machinery, including sprinklers, 
                        pipes, siphons, nozzles, pumps, motors, and 
                        engines, and
                            ``(ii) computer systems for irrigation and 
                        water management.
                    ``(C) Farm land.--The term `farm land' means land 
                used in a trade or business by the taxpayer or a tenant 
                of the taxpayer for--
                            ``(i) the production of crops, fruits, or 
                        other agricultural products,
                            ``(ii) the raising, harvesting, or growing 
                        of trees, or
                            ``(iii) the sustenance of livestock.
    ``(d) Year Expenditure Made.--For purposes of this section, an 
expenditure with respect to a water conservation system shall be 
treated as made when the original installation of the system is 
completed.
    ``(e) Limitation Based on Amount of Tax.--
            ``(1) Liability for tax.--The credit allowable under 
        subsection (a) for any taxable year shall not exceed the excess 
        (if any) of--
                    ``(A) the regular tax for the taxable year, reduced 
                by the sum of the credits allowable under subpart A and 
                the preceding sections of this subpart, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Carryforward of unused credit.--If the amount of the 
        credit allowable under subsection (a) for any taxable year 
        exceeds the limitation under paragraph (1) for the taxable 
        year, the excess shall be carried to the succeeding taxable 
        year and added to the amount allowable as a credit under 
        subsection (a) for such succeeding taxable year.
    ``(f) Denial of Double Benefit.--No deduction shall be allowed 
under this chapter with respect to any expense which is taken into 
account in determining the credit under this section, and any increase 
in the basis of any property which would (but for this subsection) 
result from such expense shall be reduced by the amount of credit 
allowed under this section for such expense.
    ``(g) Termination.--This section shall not apply to amounts paid or 
incurred with respect any water conservation system the installation of 
which is completed after December 31, 2006.''.
    (b) Technical Amendment.--Subsection (a) of section 1016, as 
amended by this Act, is amended by striking ``and'' at the end of 
paragraph (30), by striking the period at the end of paragraph (31) and 
inserting ``; and'', and by adding at the end the following new 
paragraph:
            ``(32) to the extent provided in section 30B(f), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 30B.''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

                              ``Sec. 30B. Purchase and installation of 
                                        agricultural water conservation 
                                        systems.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act with respect any water conservation system the installation of 
which is completed after December 31, 2004.

SEC. 659. MODIFICATION OF INVOLUNTARY CONVERSION RULES FOR BUSINESSES 
              AFFECTED BY THE SEPTEMBER 11TH TERRORIST ATTACKS.

    (a) In General.--Subsection (g) of section 1400L is amended to read 
as follows:
    ``(g) Modification of Rules Applicable to Nonrecognition of Gain.--
In the case of property which is compulsorily or involuntarily 
converted as a result of the terrorist attacks on September 11, 2001, 
in the New York Liberty Zone--
            ``(1) which was held by a corporation which is a member of 
        an affiliated group filing a consolidated return, such 
        corporation shall be treated as satisfying the purchase 
        requirement of section 1033(a)(2) with respect to such property 
        to the extent such requirement is satisfied by another member 
        of the group, and
            ``(2) notwithstanding subsections (g) and (h) of section 
        1033, clause (i) of section 1033(a)(2)(B) shall be applied by 
        substituting `5 years' for `2 years' with respect to property 
        which is compulsorily or involuntarily converted as a result of 
        the terrorist attacks on September 11, 2001, in the New York 
        Liberty Zone but only if substantially all of the use of the 
        replacement property is in the City of New York, New York.''.
    (b) Effective Date.--The amendments made by this Act shall apply to 
involuntary conversions occurring on or after September 11, 2001.

SEC. 660. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO AMOUNTS 
              PAID TO CERTAIN CONTINUING CARE FACILITIES.

    (a) In General.--Section 7872(c)(1) (relating to below-market loans 
to which section applies) is amended--
            (1) by striking subparagraph (F), and
            (2) by striking ``(C), or (F)'' in subparagraph (E) and 
        inserting ``or (C)''.
    (b) Full Exception.--Section 7872(g) (relating to exception for 
certain loans to qualified continuing care facilities) is amended--
            (1) by striking ``made by a lender to a qualified 
        continuing care facility pursuant to a continuing care 
        contract'' in paragraph (1) and inserting ``owed by a facility 
        which on the last day of such year is a qualified continuing 
        care facility, if such loan was made pursuant to a continuing 
        care contract and'',
            (2) by striking ``increased personal care services or'' in 
        paragraph (3)(C),
            (3) by adding at the end of paragraph (3) the following new 
        flush sentence:
        ``The Secretary shall issue guidance which limits such term to 
        contracts which provide to an individual or individual's spouse 
        only facilities, care, and services described in this paragraph 
        which are customarily offered by continuing care facilities.'',
            (4) by inserting ``independent living unit'' after ``all of 
        the'' in paragraph (4)(A)(ii),
            (5) by striking paragraphs (2) and (5),
            (6) by redesignating paragraphs (3) and (4) as paragraphs 
        (2) and (3), respectively, and
            (7) by striking ``Certain'' in the heading thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after 2004.

SEC. 661. GOLD, SILVER, PLATINUM, AND PALLADIUM TREATED IN THE SAME 
              MANNER AS STOCKS AND BONDS FOR MAXIMUM CAPITAL GAINS RATE 
              FOR INDIVIDUALS.

    (a) In General.--Section 1(h)(5) (relating to definition of 
collectibles gain and loss) is amended--
            (1) by striking ``(as defined in section 408(m) without 
        regard to paragraph (3) thereof)'' in subparagraph (A) thereof, 
        and
            (2) by adding at the end the following new subparagraph:
                    ``(C) Collectible.--For purposes of this paragraph, 
                the term `collectible' has the meaning given such term 
                by section 408(m), except that in applying paragraph 
                (3)(B) thereof the determination of whether any bullion 
                is excluded from treatment as a collectible shall be 
                made without regard to the person who is in physical 
                possession of the bullion.''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.

SEC. 662. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR 
              CHILDREN AND ADULTS WITH SICKLE CELL DISEASE AS MEDICAL 
              ASSISTANCE UNDER THE MEDICAID PROGRAM.

    (a) Optional Medical Assistance.--
            (1) In general.--Section 1905 of the Social Security Act 
        (42 U.S.C. 1396d) is amended--
                    (A) in subsection (a)--
                            (i) by striking ``and'' at the end of 
                        paragraph (26);
                            (ii) by redesignating paragraph (27) as 
                        paragraph (28); and
                            (iii) by inserting after paragraph (26), 
                        the following:
            ``(27) subject to subsection (x), primary and secondary 
        medical strategies and treatment and services for individuals 
        who have Sickle Cell Disease; and''; and
                    (B) by adding at the end the following:
    ``(x) For purposes of subsection (a)(27), the strategies, 
treatment, and services described in that subsection include the 
following:
            ``(1) Chronic blood transfusion (with deferoxamine 
        chelation) to prevent stroke in individuals with Sickle Cell 
        Disease who have been identified as being at high risk for 
        stroke.
            ``(2) Genetic counseling and testing for individuals with 
        Sickle Cell Disease or the sickle cell trait to allow health 
        care professionals to treat such individuals and to prevent 
        symptoms of Sickle Cell Disease.
            ``(3) Other treatment and services to prevent individuals 
        who have Sickle Cell Disease and who have had a stroke from 
        having another stroke.''.
            (2) Rule of Construction.--Nothing in subsections (a)(27) 
        or (x) of section 1905 of the Social Security Act (42 U.S.C. 
        1396d), as added by paragraph (1), shall be construed as 
        implying that a State medicaid program under title XIX of such 
        Act could not have treated, prior to the date of enactment of 
        this Act, any of the primary and secondary medical strategies 
        and treatment and services described in such subsections as 
        medical assistance under such program, including as early and 
        periodic screening, diagnostic, and treatment services under 
        section 1905(r) of such Act.
    (b) Federal Reimbursement for Education and Other Services Related 
to the Prevention and Treatment of Sickle Cell Disease.--Section 
1903(a)(3) of the Social Security Act (42 U.S.C. 1396b(a)(3)) is 
amended--
            (1) in subparagraph (D), by striking ``plus'' at the end 
        and inserting ``and''; and
            (2) by adding at the end the following:
                    ``(E) 50 percent of the sums expended with respect 
                to costs incurred during such quarter as are 
                attributable to providing--
                            ``(i) services to identify and educate 
                        individuals who are likely to be eligible for 
                        medical assistance under this title and who 
                        have Sickle Cell Disease or who are carriers of 
                        the sickle cell gene, including education 
                        regarding how to identify such individuals; or
                            ``(ii) education regarding the risks of 
                        stroke and other complications, as well as the 
                        prevention of stroke and other complications, 
                        in individuals who are likely to be eligible 
                        for medical assistance under this title and who 
                        have Sickle Cell Disease; plus''.
    (c) Demonstration Program for the Development and Establishment of 
Systemic Mechanisms for the Prevention and Treatment of Sickle Cell 
Disease.--
            (1) Authority to conduct demonstration program.--
                    (A) In general.--The Administrator, through the 
                Bureau of Primary Health Care and the Maternal and 
                Child Health Bureau, shall conduct a demonstration 
                program by making grants to up to 40 eligible entities 
                for each fiscal year in which the program is conducted 
                under this section for the purpose of developing and 
                establishing systemic mechanisms to improve the 
                prevention and treatment of Sickle Cell Disease, 
                including through--
                            (i) the coordination of service delivery 
                        for individuals with Sickle Cell Disease;
                            (ii) genetic counseling and testing;
                            (iii) bundling of technical services 
                        related to the prevention and treatment of 
                        Sickle Cell Disease;
                            (iv) training of health professionals; and
                            (v) identifying and establishing other 
                        efforts related to the expansion and 
                        coordination of education, treatment, and 
                        continuity of care programs for individuals 
                        with Sickle Cell Disease.
                    (B) Grant award requirements.--
                            (i) Geographic diversity.--The 
                        Administrator shall, to the extent practicable, 
                        award grants under this section to eligible 
                        entities located in different regions of the 
                        United States.
                            (ii) Priority.--In awarding grants under 
                        this subsection, the Administrator shall give 
                        priority to awarding grants to eligible 
                        entities that are--
                                    (I) Federally-qualified health 
                                centers that have a partnership or 
                                other arrangement with a comprehensive 
                                Sickle Cell Disease treatment center 
                                that does not receive funds from the 
                                National Institutes of Health; or
                                    (II) Federally-qualified health 
                                centers that intend to develop a 
                                partnership or other arrangement with a 
                                comprehensive Sickle Cell Disease 
                                treatment center that does not receive 
                                funds from the National Institutes of 
                                Health.
            (2) Additional requirements.--An eligible entity awarded a 
        grant under this subsection shall use funds made available 
        under the grant to carry out, in addition to the activities 
        described in paragraph (1)(A), the following activities:
                    (A) To facilitate and coordinate the delivery of 
                education, treatment, and continuity of care for 
                individuals with Sickle Cell Disease under--
                            (i) the entity's collaborative agreement 
                        with a community-based Sickle Cell Disease 
                        organization or a nonprofit entity that works 
                        with individuals who have Sickle Cell Disease;
                            (ii) the Sickle Cell Disease newborn 
                        screening program for the State in which the 
                        entity is located; and
                            (iii) the maternal and child health program 
                        under title V of the Social Security Act (42 
                        U.S.C. 701 et seq.) for the State in which the 
                        entity is located.
                    (B) To train nursing and other health staff who 
                provide care for individuals with Sickle Cell Disease.
                    (C) To enter into a partnership with adult or 
                pediatric hematologists in the region and other 
                regional experts in Sickle Cell Disease at tertiary and 
                academic health centers and State and county health 
                offices.
                    (D) To identify and secure resources for ensuring 
                reimbursement under the medicaid program, State 
                children's health insurance program, and other health 
                programs for the prevention and treatment of Sickle 
                Cell Disease.
            (3) National coordinating center.--
                    (A) Establishment.--The Administrator shall enter 
                into a contract with an entity to serve as the National 
                Coordinating Center for the demonstration program 
                conducted under this subsection.
                    (B) Activities described.--The National 
                Coordinating Center shall--
                            (i) collect, coordinate, monitor, and 
                        distribute data, best practices, and findings 
                        regarding the activities funded under grants 
                        made to eligible entities under the 
                        demonstration program;
                            (ii) develop a model protocol for eligible 
                        entities with respect to the prevention and 
                        treatment of Sickle Cell Disease;
                            (iii) develop educational materials 
                        regarding the prevention and treatment of 
                        Sickle Cell Disease; and
                            (iv) prepare and submit to Congress a final 
                        report that includes recommendations regarding 
                        the effectiveness of the demonstration program 
                        conducted under this subsection and such direct 
                        outcome measures as--
                                    (I) the number and type of health 
                                care resources utilized (such as 
                                emergency room visits, hospital visits, 
                                length of stay, and physician visits 
                                for individuals with Sickle Cell 
                                Disease); and
                                    (II) the number of individuals that 
                                were tested and subsequently received 
                                genetic counseling for the sickle cell 
                                trait.
            (4) Application.--An eligible entity desiring a grant under 
        this subsection shall submit an application to the 
        Administrator at such time, in such manner, and containing such 
        information as the Administrator may require.
            (5) Definitions.--In this subsection:
                    (A) Administrator.--The term ``Administrator'' 
                means the Administrator of the Health Resources and 
                Services Administration.
                    (B) Eligible entity.--The term ``eligible entity'' 
                means a Federally-qualified health center, a nonprofit 
                hospital or clinic, or a university health center that 
                provides primary health care, that--
                            (i) has a collaborative agreement with a 
                        community-based Sickle Cell Disease 
                        organization or a nonprofit entity with 
                        experience in working with individuals who have 
                        Sickle Cell Disease; and
                            (ii) demonstrates to the Administrator that 
                        either the Federally-qualified health center, 
                        the nonprofit hospital or clinic, the 
                        university health center, the organization or 
                        entity described in clause (i), or the experts 
                        described in paragraph (2)(C), has at least 5 
                        years of experience in working with individuals 
                        who have Sickle Cell Disease.
                    (C) Federally-qualified health center.--The term 
                ``Federally-qualified health center'' has the meaning 
                given that term in section 1905(l)(2)(B) of the Social 
                Security Act (42 U.S.C. 1396d(l)(2)(B)).
            (6) Authorization of appropriations.--There is authorized 
        to be appropriated to carry out this subsection, $10,000,000 
        for each of fiscal years 2005 through 2009.
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
take effect on the date of enactment of this Act and apply to medical 
assistance and services provided under title XIX of the Social Security 
Act (42 U.S.C. 1396 et seq.) on or after that date.

                     Subtitle F--Revenue Provisions

                   PART I--GENERAL REVENUE PROVISIONS

SEC. 661A. TREASURY REGULATIONS ON FOREIGN TAX CREDIT.

    Section 901, as amended by this Act, is amended by redesignating 
subsection (m) as subsection (n) and by inserting after subsection (l) 
the following new subsection:
    ``(m) Regulations.--The Secretary may prescribe regulations 
disallowing a credit under subsection (a) for all or a portion of any 
foreign tax, or allocating a foreign tax among 2 or more persons, in 
cases where the foreign tax is imposed on any person in respect of 
income of another person or in other cases involving the inappropriate 
separation of the foreign tax from the related foreign income.''.

SEC. 662B. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE 
              SECRETARY FAILS TO CONTACT TAXPAYER.

    (a) In General.--Section 6404(g) (relating to suspension of 
interest and certain penalties where Secretary fails to contact 
taxpayer) is amended by striking ``1-year period (18-month period in 
the case of taxable years beginning before January 1, 2004)'' both 
places it appears and inserting ``18-month period''.
    (b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating 
to exceptions) is amended by striking ``or'' at the end of subparagraph 
(C), by redesignating subparagraph (D) as subparagraph (E), and by 
inserting after subparagraph (C) the following new subparagraph:
                    ``(D) any interest, penalty, addition to tax, or 
                additional amount with respect to any gross 
                misstatement; or''.
    (c) Exception for Listed and Reportable Transactions.--Section 
6404(g)(2) (relating to exceptions), as amended by subsection (b), is 
amended by striking ``or'' at the end of subparagraph (D), by 
redesignating subparagraph (E) as subparagraph (F), and by inserting 
after subparagraph (D) the following new subparagraph:
                    ``(E) any interest, penalty, addition to tax, or 
                additional amount with respect to any reportable 
                transaction or listed transaction (as defined in 
                6707A(c)); or''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2003.
            (2) Exception for reportable or listed transactions.--The 
        amendments made by subsection (c) shall apply with respect to 
        interest accruing after May 5, 2004.

               PART II--PENSION AND DEFERRED COMPENSATION

SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
is amended by adding at the end the following new section:

``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
              NONQUALIFIED DEFERRED COMPENSATION PLANS.

    ``(a) Rules Relating to Constructive Receipt.--
            ``(1) In general.--
                    ``(A) Gross income inclusion.--If at any time 
                during a taxable year a nonqualified deferred 
                compensation plan--
                            ``(i) fails to meet the requirements of 
                        paragraphs (2), (3), (4), and (5), or
                            ``(ii) is not operated in accordance with 
                        such requirements,
                all compensation deferred under the plan for the 
                taxable year and all preceding taxable years shall be 
                includible in gross income for the taxable year to the 
                extent not subject to a substantial risk of forfeiture 
                and not previously included in gross income.
                    ``(B) Interest and additional tax payable with 
                respect to previously deferred compensation.--
                            ``(i) In general.--If compensation is 
                        required to be included in gross income under 
                        subparagraph (A) for a taxable year, the tax 
                        imposed by this chapter for the taxable year of 
                        inclusion shall be increased by the sum of--
                                    ``(I) the amount of interest 
                                determined under clause (ii), and
                                    ``(II) an amount equal to 10 
                                percent of the compensation which is 
                                required to be included in gross 
                                income.
                            ``(ii) Interest.--For purposes of clause 
                        (i), the interest determined under this clause 
                        for any taxable year is the amount of interest 
                        at the underpayment rate 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.
            ``(2) Distributions.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the plan provides that 
                compensation deferred under the plan may not be 
                distributed earlier than--
                            ``(i) except as provided in subparagraph 
                        (B)(i), separation from service (as determined 
                        by the Secretary),
                            ``(ii) the date the participant becomes 
                        disabled (within the meaning of subparagraph 
                        (C)),
                            ``(iii) death,
                            ``(iv) a specified time (or pursuant to a 
                        fixed schedule) specified under the plan as of 
                        the date of the deferral of such compensation,
                            ``(v) to the extent provided by the 
                        Secretary, a change in the ownership or 
                        effective control of the corporation, or in the 
                        ownership of a substantial portion of the 
                        assets of the corporation, or
                            ``(vi) the occurrence of an unforeseeable 
                        emergency.
                    ``(B) Special rules.--
                            ``(i) Separation from service of specified 
                        employees.--In the case of specified employees, 
                        the requirement of subparagraph (A)(i) is met 
                        only if distributions may not be made earlier 
                        than 6 months after the date of separation from 
                        service. For purposes of the preceding 
                        sentence, a specified employee is a key 
                        employee (as defined in section 416(i)) of a 
                        corporation the stock in which is publicly 
                        traded on an established securities market or 
                        otherwise.
                            ``(ii) Changes in ownership or control.--In 
                        the case of a participant who is subject to the 
                        requirements of section 16(a) of the Securities 
                        Exchange Act of 1934, the requirement of 
                        subparagraph (A)(v) is met only if 
                        distributions may not be made earlier than 1 
                        year after the date of the change in ownership 
                        or effective control.
                            ``(iii) Unforeseeable emergency.--For 
                        purposes of subparagraph (A)(vi)--
                                    ``(I) In general.--The term 
                                `unforeseeable emergency' means a 
                                severe financial hardship to the 
                                participant or beneficiary resulting 
                                from a sudden and unexpected illness or 
                                accident of the participant or 
                                beneficiary, the participant's or 
                                beneficiary's spouse, or the 
                                participant's or beneficiary's 
                                dependent (as defined in section 
                                152(a)), loss of the participant's or 
                                beneficiary's property due to casualty, 
                                or other similar extraordinary and 
                                unforeseeable circumstances arising as 
                                a result of events beyond the control 
                                of the participant or beneficiary.
                                    ``(II) Limitation on 
                                distributions.--The requirement of 
                                subparagraph (A)(vi) is met only if, as 
                                determined under regulations of the 
                                Secretary, the amounts distributed with 
                                respect to an emergency do not exceed 
                                the amounts necessary to satisfy such 
                                emergency plus amounts necessary to pay 
                                taxes reasonably anticipated as a 
                                result of the distribution, after 
                                taking into account the extent to which 
                                such hardship is or may be relieved 
                                through reimbursement or compensation 
                                by insurance or otherwise or by 
                                liquidation of the participant's or 
                                beneficiary's assets (to the extent the 
                                liquidation of such assets would not 
                                itself cause severe financial 
                                hardship).
                    ``(C) Disabled.--For purposes of subparagraph 
                (A)(ii), a participant shall be considered disabled if 
                the participant--
                            ``(i) is unable to engage in any 
                        substantial gainful activity by reason of any 
                        medically determinable physical or mental 
                        impairment which can be expected to result in 
                        death or can be expected to last for a 
                        continuous period of not less than 12 months, 
                        or
                            ``(ii) is, by reason of any medically 
                        determinable physical or mental impairment 
                        which can be expected to result in death or can 
                        be expected to last for a continuous period of 
                        not less than 12 months, receiving income 
                        replacement benefits for a period of not less 
                        than 3 months under an accident and health plan 
                        covering employees of the participant's 
                        employer.
            ``(3) Investment options.--The requirements of this 
        paragraph are met if the plan provides that the investment 
        options a participant may elect under the plan--
                    ``(A) are comparable to the investment options 
                which a participant may elect under the defined 
                contribution plan of the employer which--
                            ``(i) meets the requirement of section 
                        401(a) and includes a trust exempt from 
                        taxation under section 501(a), and
                            ``(ii) has the fewest investment options, 
                        or
                    ``(B) if there is no such defined contribution 
                plan, meet such requirements as the Secretary may 
                prescribe (including requirements limiting such options 
                to permissible investment options specified by the 
                Secretary).
            ``(4) Acceleration of benefits.--The requirements of this 
        paragraph are met if the plan does not permit the acceleration 
        of the time or schedule of any payment under the plan, except 
        as provided by the Secretary in regulations.
            ``(5) Elections.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the requirements of subparagraphs 
                (B) and (C) are met.
                    ``(B) Initial deferral decision.--The requirements 
                of this subparagraph are met if the plan provides that 
                compensation for services performed during a taxable 
                year may be deferred at the participant's election only 
                if the election to defer such compensation is made 
                during the preceding taxable year or at such other time 
                as provided in regulations. In the case of the first 
                year in which a participant becomes eligible to 
                participate in the plan, such election may be made with 
                respect to services to be performed subsequent to the 
                election within 30 days after the date the participant 
                becomes eligible to participate in such plan.
                    ``(C) Changes in time and form of distribution.--
                The requirements of this subparagraph are met if, in 
                the case of a plan which permits under a subsequent 
                election a delay in a payment or a change in the form 
                of payment--
                            ``(i) the plan requires that such election 
                        may not take effect until at least 12 months 
                        after the date on which the election is made,
                            ``(ii) in the case an election related to a 
                        payment not described in clause (ii), (iii), or 
                        (vi) of paragraph (2)(A), the plan requires 
                        that the first payment with respect to which 
                        such election is made be deferred for a period 
                        of not less than 5 years from the date such 
                        payment would otherwise have been made, and
                            ``(iii) the plan requires that any election 
                        related to a payment described in paragraph 
                        (2)(A)(iv) may not be made less than 12 months 
                        prior to the date of the first scheduled 
                        payment under such paragraph.
                A plan shall be treated as failing to meet the 
                requirements of this subparagraph if the plan permits 
                more than 1 subsequent election to delay any payment.
    ``(b) Rules Relating to Funding.--
            ``(1) Offshore property in a trust.--In the case of assets 
        set aside (directly or indirectly) in a trust (or other 
        arrangement determined by the Secretary) for purposes of paying 
        deferred compensation under a nonqualified deferred 
        compensation plan, such assets shall be treated for purposes of 
        section 83 as property transferred in connection with the 
        performance of services whether or not such assets are 
        available to satisfy claims of general creditors--
                    ``(A) at the time set aside if such assets are 
                located outside of the United States, or
                    ``(B) at the time transferred if such assets are 
                subsequently transferred outside of the United States.
        This paragraph shall not apply to assets located in a foreign 
        jurisdiction if substantially all of the services to which the 
        nonqualified deferred compensation relates are performed in 
        such jurisdiction.
            ``(2) Employer's financial health.--In the case of a 
        nonqualified deferred compensation plan, there is a transfer of 
        property within the meaning of section 83 as of the earlier 
        of--
                    ``(A) the date on which the plan first provides 
                that assets will become restricted to the provision of 
                benefits under the plan in connection with a change in 
                the employer's financial health, or
                    ``(B) the date on which assets are so restricted.
            ``(3) Income inclusion for offshore trusts and employer's 
        financial health.--For each taxable year that assets treated as 
        transferred under this subsection remain set aside in a trust 
        or other arrangement subject to paragraph (1) or (2), any 
        increase in value in, or earnings with respect to, such assets 
        shall be treated as an additional transfer of property under 
        this subsection (to the extent not previously included in 
        income).
            ``(4) Interest on tax liability payable with respect to 
        transferred property.--
                    ``(A) In general.--If amounts are required to be 
                included in gross income by reason of paragraph (1) or 
                (2) for a taxable year, the tax imposed by this chapter 
                for such taxable year shall be increased by the sum 
                of--
                            ``(i) the amount of interest determined 
                        under subparagraph (B), and
                            ``(ii) an amount equal to 10 percent of the 
                        amounts required to be included in gross 
                        income.
                    ``(B) Interest.--For purposes of subparagraph (A), 
                the interest determined under this subparagraph for any 
                taxable year is the amount of interest at the 
                underpayment rate on the underpayments that would have 
                occurred had the amounts so required to be included in 
                gross income by paragraph (1) or (2) been includible in 
                gross income for the taxable year in which first 
                deferred or, if later, the first taxable year in which 
                such amounts are not subject to a substantial risk of 
                forfeiture.
    ``(c) No Inference on Earlier Income Inclusion.--Nothing in this 
section shall be construed to prevent the inclusion of amounts in gross 
income under any other provision of this chapter or any other rule of 
law earlier than the time provided in this section. Any amount included 
in gross income under this section shall not be required to be included 
in gross income under any other provision of this chapter or any other 
rule of law later than the time provided in this section.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Nonqualified deferred compensation plan.--The term 
        `nonqualified deferred compensation plan' means any plan that 
        provides for the deferral of compensation, other than--
                    ``(A) a qualified employer plan, and
                    ``(B) any bona fide vacation leave, sick leave, 
                compensatory time, disability pay, or death benefit 
                plan.
            ``(2) Qualified employer plan.--The term `qualified 
        employer plan' means--
                    ``(A) any plan, contract, pension, account, or 
                trust described in subparagraph (A) or (B) of section 
                219(g)(5), and
                    ``(B) any eligible deferred compensation plan 
                (within the meaning of section 457(b)) of an employer 
                described in section 457(e)(1)(A).
            ``(3) Plan includes arrangements, etc.--The term `plan' 
        includes any agreement or arrangement, including an agreement 
        or arrangement that includes one person.
            ``(4) Substantial risk of forfeiture.--The rights of a 
        person to compensation are subject to a substantial risk of 
        forfeiture if such person's rights to such compensation are 
        conditioned upon the future performance of substantial services 
        by any individual.
            ``(5) Treatment of earnings.--References to deferred 
        compensation shall be treated as including references to income 
        (whether actual or notional) attributable to such compensation 
        or such income.
            ``(6) Exception for nonelective deferred compensation.--
        This section shall not apply to any nonelective deferred 
        compensation to which section 457 does not apply by reason of 
        section 457(e)(12), but only if such compensation is provided 
        under a nonqualified deferred compensation plan which was in 
        existence on May 1, 2004, and which was providing nonelective 
        deferred compensation described in section 457(e)(12) on such 
        date. If, after May 1, 2004, a plan described in the preceding 
        sentence adopts a plan amemdment which provides a material 
        change in the classes of individuals eligible to participate in 
        the plan, this paragraph shall not apply to any nonelective 
        deferred compensation provided under the plan on or after the 
        date of the adoption of the amendment.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) providing for the determination of amounts of 
        deferral in the case of a nonqualified deferred compensation 
        plan which is a defined benefit plan,
            ``(2) relating to changes in the ownership and control of a 
        corporation or assets of a corporation for purposes of 
        subsection (a)(2)(A)(v),
            ``(3) exempting arrangements from the application of 
        subsection (b) if such arrangements will not result in an 
        improper deferral of United States tax and will not result in 
        assets being effectively beyond the reach of creditors,
            ``(4) defining financial health for purposes of subsection 
        (b)(2), and
            ``(5) disregarding a substantial risk of forfeiture in 
        cases where necessary to carry out the purposes of this 
        section.''.
    (b) Application of Golden Parachute Payment Provisions.--Section 
280G of such Code (relating to golden parachute payments) is amended by 
redesignating subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Special Rules for Certain Payments From Nonqualified Deferred 
Compensation Plans.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, an applicable payment shall be treated as an 
        excess parachute payment for purposes of this section and 
        section 4999.
            ``(2) Coordination with other payments.--
                    ``(A) Applicable payments which are parachute 
                payments.--If any applicable payment is a parachute 
                payment (determined without regard to subsection 
                (b)(2)(A)(ii))--
                            ``(i) except as provided in paragraph (4), 
                        this section shall be applied to such payment 
                        in the same manner as if this subsection had 
                        not been enacted, and
                            ``(ii) if such application results in an 
                        excess parachute payment, any tax under section 
                        4999 on the excess parachute payment shall be 
                        in addition to the tax imposed by reason of 
                        paragraph (1).
                    ``(B) Applicable payments which are not parachute 
                payments.--An applicable payment not described in 
                subparagraph (A) shall be taken into account in 
                determining whether any payment described in 
                subparagraph (A) or any payment which is not an 
                applicable payment is a parachute payment under 
                subsection (b)(2).
            ``(3) Applicable payment.--For purposes of this subsection, 
        the term `applicable payment' means any distribution (including 
        any distribution treated as a parachute payment without regard 
        to this subsection) from a nonqualified deferred compensation 
        plan (as defined in section 409A(d)) which is made--
                    ``(A) to a participant who is subject to the 
                requirements of section 16(a) of the Securities 
                Exchange Act of 1934, and
                    ``(B) during the 1-year period following a change 
                in the ownership or effective control of the 
                corporation or in the ownership of a substantial 
                portion of the assets of the corporation.
        Such terms shall not include any distribution by reason of the 
        death of the participant or the participant becoming disabled 
        (within the meaning of section 409A(a)(2)(C)).
            ``(4) No double counting.--Under regulations, proper 
        adjustments shall be made in the application of this subsection 
        to prevent a deduction from being disallowed more than once.''.
    (c) W-2 Forms.--
            (1) In general.--Subsection (a) of section 6051 (relating 
        to receipts for employees) is amended by striking ``and'' at 
        the end of paragraph (11), by striking the period at the end of 
        paragraph (12) and inserting ``, and'', and by inserting after 
        paragraph (12) the following new paragraph:
            ``(13) the total amount of deferrals under a nonqualified 
        deferred compensation plan (within the meaning of section 
        409A(d)).''.
            (2) Threshold.--Subsection (a) of section 6051 is amended 
        by adding at the end the following: ``In the case of the 
        amounts required to be shown by paragraph (13), the Secretary 
        may (by regulation) establish a minimum amount of deferrals 
        below which paragraph (13) does not apply.''.
    (d) Conforming and Clerical Amendments.--
            (1) Section 414(b) is amended by inserting ``409A,'' after 
        ``408(p),''.
            (2) Section 414(c) is amended by inserting ``409A,'' after 
        ``408(p),''.
            (3) The table of sections for such subpart A is amended by 
        adding at the end the following new item:

                              ``Sec. 409A. Inclusion in gross income of 
                                        deferred compensation under 
                                        nonqualified deferred 
                                        compensation plans.''.
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts deferred in taxable years beginning after 
        December 31, 2004.
            (2) Earnings attributable to amount previously deferred.--
        The amendments made by this section shall apply to earnings on 
        deferred compensation only to the extent that such amendments 
        apply to such compensation.
    (f) Guidance Relating to Change of Ownership or Control.--Not later 
than 90 days after the date of the enactment of this Act, the Secretary 
of the Treasury shall issue guidance on what constitutes a change in 
ownership or effective control for purposes of section 409A of the 
Internal Revenue Code of 1986, as added by this section.
    (g) Guidance Relating to Termination of Certain Existing 
Arrangements.--Not later than 90 days after the date of the enactment 
of this Act, the Secretary of the Treasury shall issue guidance 
providing a limited period during which an individual participating in 
a nonqualified deferred compensation plan adopted on or before December 
31, 2004, may, without violating the requirements of paragraphs (2), 
(3), (4), and (5) of section 409A(a) of the Internal Revenue Code of 
1986 (as added by this section), terminate participation or cancel an 
outstanding deferral election with regard to amounts earned after 
December 31, 2004, if such amounts are includible in income as earned.

SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK 
              OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED 
              COMPENSATION ARRANGEMENTS.

    (a) In General.--Section 83 (relating to property transferred in 
connection with performance of services) is amending by adding at the 
end the following new subsection:
    ``(i) Prohibition on Additional Deferral Through Deferred 
Compensation Arrangements.--If a taxpayer exchanges--
            ``(1) an option to purchase employer securities--
                    ``(A) to which subsection (a) applies, or
                    ``(B) which is described in subsection (e)(3), or
            ``(2) employer securities or any other property based on 
        employer securities transferred to the taxpayer,
for a right to receive future payments, then, notwithstanding any other 
provision of this title, there shall be included in gross income for 
the taxable year of the exchange an amount equal to the present value 
of such right (or such other amount as the Secretary may by regulations 
specify). For purposes of this subsection, the term `employer 
securities' includes any security issued by the employer.''.
    (b) Controlled Group Rules.--Section 414(t)(2) is amended by 
inserting ``83(i),'' after ``79,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any exchange after December 31, 2004.

SEC. 673. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN 
              EXCESS OF $1,000,000.

    (a) In General.--If an employer elects under Treasury Regulation 
31.3402(g)-1 to determine the amount to be deducted and withheld from 
any supplemental wage payment by using a flat percentage rate, the rate 
to be used in determining the amount to be so deducted and withheld 
shall not be less than 28 percent (or the corresponding rate in effect 
under section 1(i)(2) of the Internal Revenue Code of 1986 for taxable 
years beginning in the calendar year in which the payment is made).
    (b) Special Rule for Large Payments.--
            (1) In general.--Notwithstanding subsection (a), if the 
        supplemental wage payment, when added to all such payments 
        previously made by the employer to the employee during the 
        calendar year, exceeds $1,000,000, the rate used with respect 
        to such excess shall be equal to the maximum rate of tax in 
        effect under section 1 of such Code for taxable years beginning 
        in such calendar year.
            (2) Aggregation.--All persons treated as a single employer 
        under subsection (a) or (b) of section 52 of the Internal 
        Revenue Code of 1986 shall be treated as a single employer for 
        purposes of this subsection.
    (c) Conforming Amendment.--Section 13273 of the Revenue 
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
    (d) Effective Date.--The provisions of, and the amendment made by, 
this section shall apply to payments made after December 31, 2003.

SEC. 674. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF 
              STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST 
              REQUIREMENTS.

    (a) In General.--Section 421 of the Internal Revenue Code of 1986 
(relating to general rules for certain stock options) is amended by 
adding at the end the following new subsection:
    ``(d) Certain Sales To Comply With Conflict-of-Interest 
Requirements.--If--
            ``(1) a share of stock is transferred to an eligible person 
        (as defined in section 1043(b)(1)) pursuant to such person's 
        exercise of an option to which this part applies, and
            ``(2) such share is disposed of by such person pursuant to 
        a certificate of divestiture (as defined in section 
        1043(b)(2)),
such disposition shall be treated as meeting the requirements of 
section 422(a)(1) or 423(a)(1), whichever is applicable.''
    (b) Effective Date.--The amendment made by this section shall apply 
to sales after the date of the enactment of this Act.

SEC. 675. APPLICATION OF BASIS RULES TO EMPLOYER AND EMPLOYEE 
              CONTRIBUTIONS ON BEHALF OF NONRESIDENT ALIENS.

    (a) In General.--Section 72 (relating to annuities and certain 
proceeds of endowment and life insurance contracts) is amended by 
redesignating subsection (w) as subsection (x) and by inserting after 
subsection (v) the following new subsection:
    ``(w) Application of Basis Rules to Employer and Employee 
Contributions Made on Behalf of Nonresident Aliens.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, for purposes of determining the portion of any 
        distribution which is includible in gross income of a 
        distributee who is a citizen or resident of the United States, 
        the investment in the contract shall not include any applicable 
        nontaxable contributions.
            ``(2) Applicable nontaxable contribution.--For purposes of 
        this subsection, the term `applicable nontaxable contribution' 
        means any employer or employee contribution--
                    ``(A) which was made with respect to compensation 
                for labor or personal services by an employee who, at 
                the time the services were performed, was a nonresident 
                alien for purposes of the laws of the United States in 
                effect at such time, but only if such compensation is 
                treated as from sources without the United States, and
                    ``(B) which was not subject to income tax under the 
                laws of the United States or any foreign country.
            ``(3) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the provisions of 
        this subsection, including regulations treating contributions 
        as not subject to tax under the laws of any foreign country 
        where appropriate to carry out the purposes of this 
        subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions on or after the date of the enactment of this 
Act.

          TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                         Subtitle A--Extensions

SEC. 701. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
              BENEFITS.

    (a) In General.--Section 9812(f) is amended--
            (1) by striking ``and'' at the end of paragraph (1), and
            (2) by striking paragraph (2) and inserting the following 
        new paragraphs:
            ``(2) on or after January 1, 2004, and before the date of 
        the enactment of the Jumpstart Our Business Strength (JOBS) 
        Act, and
            ``(3) after December 31, 2005.''.
    (b) ERISA.--Section 712(f) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1185a(f)) is amended by striking ``on 
or after December 31, 2004'' and inserting ``after December 31, 2005''.
    (c) PHSA.--Section 2705(f) of the Public Health Service Act (42 
U.S.C. 300gg-5(f)) is amended by striking ``on or after December 31, 
2004'' and inserting ``after December 31, 2005''.
    (d) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to benefits for services furnished on or after 
        December 31, 2003.
            (2) Subsections (b) and (c).--The amendments made by 
        subsections (b) and (c) shall apply to benefits for services 
        furnished on or after December 31, 2004.

SEC. 702. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
              CREDIT.

    (a) Permanent Extension of Credit.--
            (1) In general.--Section 51(c) is amended by striking 
        paragraph (4).
            (2) Long-term family assistance recipients.--
                    (A) In general.--Section 51A is amended by striking 
                subsection (f).
                    (B) Conforming amendments.--
                            (i) The heading for section 51A is amended 
                        by striking ``temporary''.
                            (ii) The item relating to section 51A in 
                        the table of sections for subpart F of part IV 
                        of subchapter A of chapter 1 is amended by 
                        striking ``Temporary incentives'' and inserting 
                        ``Incentives''.
    (b) Eligibility of Ex-Felons Determined Without Regard to Family 
Income.--Paragraph (4) of section 51(d) is amended by adding ``and'' at 
the end of subparagraph (A), by striking ``, and'' at the end of 
subparagraph (B) and inserting a period, and by striking all that 
follows subparagraph (B).
    (c) Increase in Maximum Age for Eligibility of Food Stamp 
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by striking 
``25'' and inserting ``40''.
    (d) Increase in Maximum Age for Designated Community residents.--
            (1) In general.--Paragraph (5) of section 51(d) is amended 
        to read as follows:
            ``(5) Designated community residents.--
                    ``(A) In general.--The term `designated community 
                resident' means any individual who is certified by the 
                designated local agency--
                            ``(i) as having attained age 18 but not age 
                        40 on the hiring date, and
                            ``(ii) as having his principal place of 
                        abode within an empowerment zone, enterprise 
                        community, or renewal community.
                    ``(B) Individual must continue to reside in zone or 
                community.--In the case of a designated community 
                resident, the term `qualified wages' shall not include 
                wages paid or incurred for services performed while the 
                individual's principal place of abode is outside an 
                empowerment zone, enterprise community, or renewal 
                community.''
            (2) Conforming amendment.--Subparagraph (D) of section 
        51(d)(1) is amended to read as follows:
                    ``(D) a designated community resident,''.
    (e) Effective Dates.--
            (1) Extension of credits.--The amendments made by 
        subsection (a) shall apply to individuals who begin work for 
        the employer after December 31, 2003.
            (2) Modifications.--The amendments made by subsections (b), 
        (c), and (d) shall apply to individuals who begin work for the 
        employer after December 31, 2004.

SEC. 703. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH WELFARE-TO-WORK 
              CREDIT.

    (a) In General.--Paragraph (1) of section 51(d) is amended by 
striking ``or'' at the end of subparagraph (G), by striking the period 
at the end of subparagraph (H) and inserting ``, or'', and by adding at 
the end the following new subparagraph:
                    ``(I) a long-term family assistance recipient.''
    (b) Long-Term Family Assistance Recipient.--Subsection (d) of 
section 51 is amended by redesignating paragraphs (10) through (12) as 
paragraphs (11) through (13), respectively, and by inserting after 
paragraph (9) the following new paragraph:
            ``(10) Long-term family assistance recipient.--The term 
        `long-term family assistance recipient' means any individual 
        who is certified by the designated local agency--
                    ``(A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                paragraph (2)(B)) for at least the 18-month period 
                ending on the hiring date,
                    ``(B)(i) as being a member of a family receiving 
                such assistance for 18 months beginning after August 5, 
                1997, and
                    ``(ii) as having a hiring date which is not more 
                than 2 years after the end of the earliest such 18-
                month period, or
                    ``(C)(i) as being a member of a family which ceased 
                to be eligible for such assistance by reason of any 
                limitation imposed by Federal or State law on the 
                maximum period such assistance is payable to a family, 
                and
                    ``(ii) as having a hiring date which is not more 
                than 2 years after the date of such cessation.''
    (c) Increased Credit for Employment of Long-Term Family Assistance 
Recipients.--Section 51 is amended by inserting after subsection (d) 
the following new subsection:
    ``(e) Credit for Employment of Long-Term Family Assistance 
Recipients.--
            ``(1) In general.--With respect to the employment of a 
        long-term family assistance recipient--
                    ``(A) the amount of the work opportunity credit 
                determined under this section for the taxable year 
                shall include 50 percent of the qualified second-year 
                wages for such year, and
                    ``(B) in lieu of applying subsection (b)(3), the 
                amount of the qualified first-year wages, and the 
                amount of qualified second-year wages, which may be 
                taken into account with respect to such a recipient 
                shall not exceed $10,000 per year.
            ``(2) Qualified second-year wages.--For purposes of this 
        subsection, the term `qualified second-year wages' means 
        qualified wages--
                    ``(A) which are paid to a long-term family 
                assistance recipient, and
                    ``(B) which are attributable to service rendered 
                during the 1-year period beginning on the day after the 
                last day of the 1-year period with respect to such 
                recipient determined under subsection (b)(2).
            ``(3) Special rules for agricultural and railway labor.--If 
        such recipient is an employee to whom subparagraph (A) or (B) 
        of subsection (h)(1) applies, rules similar to the rules of 
        such subparagraphs shall apply except that--
                    ``(A) such subparagraph (A) shall be applied by 
                substituting `$10,000' for `$6,000', and
                    ``(B) such subparagraph (B) shall be applied by 
                substituting `$833.33' for `$500'.''
    (d) Repeal of Separate Welfare-to-Work Credit.--
            (1) In general.--Section 51A is hereby repealed.
            (2) Clerical amendment.--The table of sections for subpart 
        F of part IV of subchapter A of chapter 1 is amended by 
        striking the item relating to section 51A.
    (e) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after December 31, 
2004.

SEC. 704. QUALIFIED ZONE ACADEMY BONDS.

    (a) In General.--Paragraph (1) of section 1397E(e) is amended by 
striking ``and 2003'' and inserting ``2003, 2004, and 2005''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued after December 31, 2003.

SEC. 705. COVER OVER OF TAX ON DISTILLED SPIRITS.

    (a) In General.--Paragraph (1) of section 7652(f) is amended by 
striking ``January 1, 2004'' and inserting ``January 1, 2006''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to articles brought into the United States after December 31, 
2003.

SEC. 706. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC PROPERTY AND 
              COMPUTER TECHNOLOGY.

    (a) Scientific Property Used for Research.--
            (1) In general.--Clause (ii) of section 170(e)(4)(B) 
        (defining qualified research contributions) is amended by 
        inserting ``or assembled'' after ``constructed''.
            (2) Conforming amendment.--Clause (iii) of section 
        170(e)(4)(B) is amended by inserting ``or assembling'' after 
        ``construction''.
    (b) Computer Technology and Equipment for Educational Purposes.--
            (1) In general.--Clause (ii) of section 170(e)(6)(B) is 
        amended by inserting ``or assembled'' after ``constructed'' and 
        ``or assembling'' after ``construction''.
            (2) Special rule extended.--Section 170(e)(6)(G) is amended 
        by striking ``2003'' and inserting ``2005''.
            (3) Conforming amendments.--Subparagraph (D) of section 
        170(e)(6) is amended by inserting ``or assembled'' after 
        ``constructed'' and ``or assembling'' after ``construction''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2003.

SEC. 707. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.

    (a) In General.--Subparagraph (D) of section 62(a)(2) is amended by 
striking ``or 2003'' and inserting ``, 2003, 2004, or 2005''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to expenses paid or incurred in taxable years beginning after 
December 31, 2003.

SEC. 708. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Extension of Termination Date.--Subsection (h) of section 198 
is amended by striking ``December 31, 2003'' and inserting ``December 
31, 2005''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to expenditures paid or incurred after December 31, 2003.

SEC. 709. EXPANSION OF CERTAIN NEW YORK LIBERTY ZONE BENEFITS.

    (a) Extension of Tax-Exempt Bond Financing.--Subparagraph (D) of 
section 1400L(d)(2) is amended by striking ``2005'' and inserting 
``2006''.
    (b) Clarification of Bonds Eligible for Advance Refunding.--Section 
1400L(e)(2)(B) (relating to bonds described) is amended by striking ``, 
or'' and inserting ``or the Municipal Assistance Corporation, or''.
    (c) Election Out Technical Amendment.--Subsection (c) of section 
1400L is amended by adding at the end the following new paragraph:
            ``(5) Election out.--For purposes of this subsection, rules 
        similar to the rules of section 168(k)(2)(C)(iii) shall 
        apply.''.
    (d) Effective date.--The amendments made by subsections (b) and (c) 
shall take effect as if included in the amendments made by section 301 
of the Job Creation and Worker Assistance Act of 2002.

SEC. 710. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE INSURANCE 
              COMPANIES.

    (a) In General.--Section 809 of the Internal Revenue Code of 1986 
(relating to reductions in certain deduction of mutual life insurance 
companies) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 of 
        such Code are each amended by striking ``the sum of (i)'' and 
        by striking ``plus (ii) any excess described in section 
        809(a)(2) for the taxable year,''.
            (2)(A) The last sentence of section 807(d)(1) of such Code 
        is amended by striking ``section 809(b)(4)(B)'' and inserting 
        ``paragraph (6)''.
            (B) Subsection (d) of section 807 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(6) Statutory reserves.--The term `statutory reserves' 
        means the aggregate amount set forth in the annual statement 
        with respect to items described in section 807(c). Such term 
        shall not include any reserve attributable to a deferred and 
        uncollected premium if the establishment of such reserve is not 
        permitted under section 811(c).''
            (3) Subsection (c) of section 808 of such Code is amended 
        to read as follows:
    ``(c) Amount of Deduction.--The deduction for policyholder 
dividends for any taxable year shall be an amount equal to the 
policyholder dividends paid or accrued during the taxable year.''
            (4) Subparagraph (A) of section 812(b)(3) of such Code is 
        amended by striking ``sections 808 and 809'' and inserting 
        ``section 808''.
            (5) Subsection (c) of section 817 of such Code is amended 
        by striking ``(other than section 809)''.
            (6) Subsection (c) of section 842 of such Code is amended 
        by striking paragraph (3) and by redesignating paragraph (4) as 
        paragraph (3).
            (7) The table of sections for subpart C of part I of 
        subchapter L of chapter 1 of such Code is amended by striking 
        the item relating to section 809.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 711. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.

    (a) Designation of Zone.--Subsection (f) of section 1400 is amended 
by striking ``December 31, 2003'' both places it appears and inserting 
``December 31, 2005''.
    (b) Tax-Exempt Economic Development Bonds.--Subsection (b) of 
section 1400A is amended by striking ``December 31, 2003'' and 
inserting ``December 31, 2005''.
    (c) Zero Percent Capital Gains Rate.--
            (1) In general.--Subsection (b) of section 1400B is amended 
        by striking ``January 1, 2004'' each place it appears and 
        inserting ``January 1, 2006''.
            (2) Conforming amendments.--
                    (A) Section 1400B(e)(2) is amended--
                            (i) by striking ``December 31, 2008'' and 
                        inserting ``December 31, 2010'', and
                            (ii) by striking ``2008'' in the heading 
                        and inserting ``2010''.
                    (B) Section 1400B(g)(2) is amended by striking 
                ``December 31, 2008'' and inserting ``December 31, 
                2010''.
                    (C) Section 1400F(d) is amended by striking 
                ``December 31, 2008'' and inserting ``December 31, 
                2010''.
    (d) First-Time Homebuyer Credit.--Subsection (i) of section 1400C 
is amended by striking ``January 1, 2004'' and inserting ``January 1, 
2006''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on January 1, 
        2004.
            (2) Tax-exempt economic development bonds.--The amendment 
        made by subsection (b) shall apply to obligations issued after 
        the date of the enactment of this Act.

SEC. 712. DISCLOSURE OF TAX INFORMATION TO FACILITATE COMBINED 
              EMPLOYMENT TAX REPORTING.

    (a) In General.--Paragraph (5) of section 6103(d) (relating to 
disclosure to State tax officials and State and local law enforcement 
agencies) is amended to read as follows:
            ``(5) Disclosure for combined employment tax reporting.--
        The Secretary may disclose taxpayer identity information and 
        signatures to any agency, body, or commission of any State for 
        the purpose of carrying out with such agency, body, or 
        commission a combined Federal and State employment tax 
        reporting program approved by the Secretary. Subsections (a)(2) 
        and (p)(4) and sections 7213 and 7213A shall not apply with 
        respect to disclosures or inspections made pursuant to this 
        paragraph.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 713. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
              AND MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) is amended--
            (1) by striking ``rule for 2000, 2001, 2002, and 2003.--'' 
        and inserting ``rule for taxable years 2000 through 2004.--'', 
        and
            (2) by striking ``or 2003'' and inserting ``2003, or 
        2004''.
    (b) Conforming Provisions.--
            (1) Section 904(i), as redesignated by this Act, is amended 
        by striking ``or 2003'' and inserting ``2003, or 2004''.
            (2) The amendments made by sections 201(b), 202(f), and 
        618(b) of the Economic Growth and Tax Relief Reconciliation Act 
        of 2001 shall not apply to taxable years beginning during 2004.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 714. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE 
              RESOURCES.

    (a) In General.--Subparagraphs (A), (B), and (C) of section 
45(c)(3) are each amended by striking ``January 1, 2004'' and inserting 
``January 1, 2005''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to facilities placed in service after December 31, 2003.

SEC. 715. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND 
              NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.

    (a) In General.--Subparagraph (H) of section 613A(c)(6) is amended 
by striking ``January 1, 2004'' and inserting ``January 1, 2005''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.

SEC. 716. INDIAN EMPLOYMENT TAX CREDIT.

    Section 45A(f) (relating to termination) is amended by striking 
``December 31, 2004'' and inserting ``December 31, 2005''.

SEC. 717. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN 
              RESERVATION.

    Section 168(j)(8) (relating to termination) is amended by striking 
``December 31, 2004'' and inserting ``December 31, 2005''.

SEC. 718. DISCLOSURE OF RETURN INFORMATION RELATING TO STUDENT LOANS.

    Section 6103(l)(13)(D) (relating to termination) is amended by 
striking ``December 31, 2004'' and inserting ``December 31, 2005''.

SEC. 719. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO RETIREE 
              HEALTH ACCOUNTS.

    (a) Amendments of ERISA.--
            (1) Section 101(e)(3) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
        striking ``Pension Funding Equity Act of 2004'' and inserting 
        ``Jumpstart Our Business Strength (JOBS) Act''.
            (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
        amended by striking ``Pension Funding Equity Act of 2004'' and 
        inserting ``Jumpstart Our Business Strength (JOBS) Act''.
            (3) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
        1108(b)(3)) is amended by striking ``Pension Funding Equity Act 
        of 2004'' and inserting ``Jumpstart Our Business Strength 
        (JOBS) Act''.
    (b) Minimum Cost Requirements.--
            (1) In general.--Section 420(c)(3)(E) is amended by adding 
        at the end the following new clause:
                            ``(ii) Insignificant cost reductions 
                        permitted.--
                                    ``(I) In general.--An eligible 
                                employer shall not be treated as 
                                failing to meet the requirements of 
                                this paragraph for any taxable year if, 
                                in lieu of any reduction of retiree 
                                health coverage permitted under the 
                                regulations prescribed under clause 
                                (i), the employer reduces applicable 
                                employer cost by an amount not in 
                                excess of the reduction in costs which 
                                would have occurred if the employer had 
                                made the maximum permissible reduction 
                                in retiree health coverage under such 
                                regulations. In applying such 
                                regulations to any subsequent taxable 
                                year, any reduction in applicable 
                                employer cost under this clause shall 
                                be treated as if it were an equivalent 
                                reduction in retiree health coverage.
                                    ``(II) Eligible employer.--For 
                                purposes of subclause (I), an employer 
                                shall be treated as an eligible 
                                employer for any taxable year if, for 
                                the preceding taxable year, the 
                                qualified current retiree health 
                                liabilities of the employer were at 
                                least 5 percent of the gross receipts 
                                of the employer. For purposes of this 
                                subclause, the rules of paragraphs (2), 
                                (3)(B), and (3)(C) of section 448(c) 
                                shall apply in determining the amount 
                                of an employer's gross receipts.''.
            (2) Conforming amendment.--Section 420(c)(3)(E) is amended 
        by striking ``The Secretary'' and inserting:
                            ``(i) In general.--The Secretary''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.

SEC. 720. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED ELECTRIC 
              VEHICLES.

    (a) In General.--Section 30(b) is amended by striking paragraph (2) 
and by redesignating paragraph (3) as paragraph (2).
    (b) Conforming Amendments.--
            (1) Section 53(d)(1)(B)(iii) is amended by striking 
        ``section 30(b)(3)(B)'' and inserting ``section 30(b)(2)(B)''.
            (2) Section 55(c)(2) is amended by striking ``30(b)(3)'' 
        and inserting ``30(b)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2003.

SEC. 721. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-FUEL VEHICLE 
              PROPERTY.

    (a) In General.--Paragraph (1) of section 179A(b) is amended to 
read as follows:
            ``(1) Qualified clean-fuel vehicle property.--The cost 
        which may be taken into account under subsection (a)(1)(A) with 
        respect to any motor vehicle shall not exceed--
                    ``(A) in the case of a motor vehicle not described 
                in subparagraph (B) or (C), $2,000,
                    ``(B) in the case of any truck or van with a gross 
                vehicle weight rating greater than 10,000 pounds but 
                not greater than 26,000 pounds, $5,000, or
                    ``(C) $50,000 in the case of--
                            ``(i) a truck or van with a gross vehicle 
                        weight rating greater than 26,000 pounds, or
                            ``(ii) any bus which has a seating capacity 
                        of at least 20 adults (not including the 
                        driver).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property placed in service after December 31, 2003.

                     Subtitle B--Revenue Provisions

SEC. 731. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.

    (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules) is 
amended by adding at the end the following new paragraph:
            ``(11) Contributions of used motor vehicles, boats, and 
        airplanes.--
                    ``(A) In general.--In the case of a contribution of 
                a qualified vehicle in excess of $500--
                            ``(i) paragraph (8) shall not apply and no 
                        deduction shall be allowed under subsection (a) 
                        for such contribution unless the taxpayer 
                        substantiates the contribution by a 
                        contemporaneous written acknowledgement of the 
                        contribution by the donee organization that 
                        meets the requirements of subparagraph (B) and 
                        includes the acknowledgement with the 
                        taxpayer's return of tax which includes the 
                        deduction, and
                            ``(ii) if the organization sells the 
                        vehicle without any significant intervening use 
                        or material improvement of such vehicle by the 
                        organization, the amount of the deduction 
                        allowed under subsection (a) shall not exceed 
                        the gross proceeds received from such sale.
                    ``(B) Content of acknowledgement.--An 
                acknowledgement meets the requirements of this 
                subparagraph if it includes the following information:
                            ``(i) The name and taxpayer identification 
                        number of the donor.
                            ``(ii) The vehicle identification number or 
                        similar number.
                            ``(iii) In the case of a qualified vehicle 
                        to which subparagraph (A)(ii) applies and which 
                        is sold by the donee organization--
                                    ``(I) a certification that the 
                                vehicle was sold in an arm's length 
                                transaction between unrelated parties,
                                    ``(II) the gross proceeds from the 
                                sale, and
                                    ``(III) that the deductible amount 
                                may not exceed the amount of such gross 
                                proceeds.
                            ``(iv) In the case of a qualified vehicle 
                        to which subparagraph (A)(ii) does not apply--
                                    ``(I) a certification of the 
                                intended use or material improvement of 
                                the vehicle and the intended duration 
                                of such use, and
                                    ``(II) a certification that the 
                                vehicle would not be transferred in 
                                exchange for money, other property, or 
                                services before completion of such use 
                                or improvement.
                    ``(C) Contemporaneous.--For purposes of 
                subparagraph (A), an acknowledgement shall be 
                considered to be contemporaneous if the donee 
                organization provides it within 30 days of--
                            ``(i) the sale of the qualified vehicle, or
                            ``(ii) in the case of an acknowledgement 
                        including a certification described in 
                        subparagraph (B)(iv), the contribution of the 
                        qualified vehicle.
                    ``(D) Information to secretary.--A donee 
                organization required to provide an acknowledgement 
                under this paragraph shall provide to the Secretary the 
                information contained in the acknowledgement. Such 
                information shall be provided at such time and in such 
                manner as the Secretary may prescribe.
                    ``(E) Qualified vehicle.--For purposes of this 
                paragraph, the term `qualified vehicle' means any--
                            ``(i) self-propelled vehicle manufactured 
                        primarily for use on public streets, roads, and 
                        highways,
                            ``(ii) boat, or
                            ``(iii) airplane.
                Such term shall not include any property which is 
                described in section 1221(a)(1).
                    ``(F) Regulations or other guidance.--The Secretary 
                shall prescribe such regulations or other guidance as 
                may be necessary to carry out the purposes of this 
                paragraph.''.
    (b) Penalty for Fraudulent Acknowledgments.--
            (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalities), as amended by section 
        882(c) of this Act, is amended adding at the end the following 
        new section:

``SEC. 6720A. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO DONATIONS OF 
              MOTOR VEHICLES, BOATS, AND AIRPLANES.

    ``Any donee organization required under section 170(f)(11)(A) to 
furnish a contemporaneous written acknowledgment to a donor which 
knowingly furnishes a false or fraudulent acknowledgment, or which 
knowingly fails to furnish such acknowledgment in the manner, at the 
time, and showing the information required under section 170(f)(11), or 
regulations prescribed thereunder, shall for each such act, or for each 
such failure, be subject to a penalty equal to--
            ``(1) in the case of an acknowledgment with respect to a 
        qualified vehicle to which section 170(f)(11)(A)(ii) applies, 
        the greater of the value of the tax benefit to the donor or the 
        gross proceeds from the sale of such vehicle, and
            ``(2) in the case of an acknowledgment with respect to any 
        other qualified vehicle to which section 170(f)(11) applies, 
        the greater of the value of the tax benefit to the donor or 
        $5,000.''.
            (2) Conforming amendment.--The table of sections for part I 
        of subchapter B of chapter 68, as amended by section 882(c) of 
        this Act, is amended by adding at the end the following new 
        item:

                              ``Sec. 6720A. Fraudulent acknowledgments 
                                        with respect to donations of 
                                        motor vehicles, boats, and 
                                        airplanes.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions after June 30, 2004.

SEC. 732. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF TAXABLE 
              VACCINES.

    (a) In General.--Section 4132(a)(1) (defining taxable vaccine), as 
amended by this Act, is amended adding at the end the following new 
subparagraph:
                    ``(N) Any trivalent vaccine against influenza.''.
    (b) Effective Date.--
            (1) Sales, etc.--The amendment made by this section shall 
        apply to sales and uses on or after the later of--
                    (A) the first day of the first month which begins 
                more than 4 weeks after the date of the enactment of 
                this Act, or
                    (B) the date on which the Secretary of Health and 
                Human Services lists any vaccine against influenza for 
                purposes of compensation for any vaccine-related injury 
                or death through the Vaccine Injury Compensation Trust 
                Fund.
            (2) Deliveries.--For purposes of paragraph (1) and section 
        4131 of the Internal Revenue Code of 1986, in the case of sales 
        on or before the effective date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.

SEC. 733. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.

    (a) In General.--Section 1275(d) (relating to regulation authority) 
is amended--
            (1) by striking ``The Secretary'' and inserting the 
        following:
            ``(1) In general.--The Secretary'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Treatment of contingent payment convertible debt.--
                    ``(A) In general.--In the case of a debt instrument 
                which--
                            ``(i) is convertible into stock of the 
                        issuing corporation, into stock or debt of a 
                        related party (within the meaning of section 
                        267(b) or 707(b)(1)), or into cash or other 
                        property in an amount equal to the approximate 
                        value of such stock or debt, and
                            ``(ii) provides for contingent payments,
                any regulations which require original issue discount 
                to be determined by reference to the comparable yield 
                of a noncontingent fixed rate debt instrument shall be 
                applied as requiring that such comparable yield be 
                determined by reference to a noncontingent fixed rate 
                debt instrument which is convertible into stock.
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), the comparable yield shall be determined without 
                taking into account the yield resulting from the 
                conversion of a debt instrument into stock.''.
    (b) Cross Reference.--Section 163(e)(6) (relating to cross 
references) is amended by adding at the end the following:
            ``For the treatment of contingent payment convertible debt, 
        see section 1275(d)(2).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to debt instruments issued after the date of the enactment of 
this Act.

SEC. 734. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL 
              VENDERS.

    (a) In General.--Section 6331(h) (relating to continuing levy on 
certain payments) is amended by adding at the end the following new 
paragraph:
            ``(3) Increase in levy for certain payments.--Paragraph (1) 
        shall be applied by substituting `100 percent' for `15 percent' 
        in the case of any specified payment due to a vendor of goods 
        or services sold or leased to the Federal Government.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                   TITLE VIII--ENERGY TAX INCENTIVES

SEC. 800. SHORT TITLE.

    This title may be cited as the ``Energy Tax Incentives Act''.

        Subtitle A--Renewable Electricity Production Tax Credit

SEC. 801. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED 
              FROM CERTAIN RENEWABLE RESOURCES.

    (a) Expansion of Qualified Energy Resources.--Subsection (c) of 
section 45 (relating to electricity produced from certain renewable 
resources) is amended to read as follows:
    ``(c) Qualified Energy Resources.--For purposes of this section--
            ``(1) In general.--The term `qualified energy resources' 
        means--
                    ``(A) wind,
                    ``(B) closed-loop biomass,
                    ``(C) open-loop biomass,
                    ``(D) geothermal energy,
                    ``(E) solar energy,
                    ``(F) small irrigation power,
                    ``(G) biosolids and sludge, and
                    ``(H) municipal solid waste.
            ``(2) Closed-loop biomass.--The term `closed-loop biomass' 
        means any organic material from a plant which is planted 
        exclusively for purposes of being used at a qualified facility 
        to produce electricity.
            ``(3) Open-loop biomass.--
                    ``(A) In general.--The term `open-loop biomass' 
                means--
                            ``(i) any agricultural livestock waste 
                        nutrients, or
                            ``(ii) any solid, nonhazardous, cellulosic 
                        waste material which is segregated from other 
                        waste materials and which is derived from--
                                    ``(I) any of the following forest-
                                related resources: mill and harvesting 
                                residues, precommercial thinnings, 
                                slash, and brush; but not including 
                                spent chemicals from pulp 
                                manufacturing,
                                    ``(II) solid wood waste materials, 
                                including waste pallets, crates, 
                                dunnage, manufacturing and construction 
                                wood wastes (other than pressure-
                                treated, chemically-treated, or painted 
                                wood wastes), and landscape or right-
                                of-way tree trimmings, but not 
                                including municipal solid waste, gas 
                                derived from the biodegradation of 
                                solid waste, or paper which is commonly 
                                recycled, or
                                    ``(III) agriculture sources, 
                                including orchard tree crops, vineyard, 
                                grain, legumes, sugar, and other crop 
                                by-products or residues.
                    ``(B) Agricultural livestock waste nutrients.--
                            ``(i) In general.--The term `agricultural 
                        livestock waste nutrients' means agricultural 
                        livestock manure and litter, including wood 
                        shavings, straw, rice hulls, and other bedding 
                        material for the disposition of manure.
                            ``(ii) Agricultural livestock.--The term 
                        `agricultural livestock' includes bovine, 
                        swine, poultry, and sheep.
                    ``(C) Exceptions.--The term `open-loop biomass' 
                does not include--
                            ``(i) closed-loop biomass, or
                            ``(ii) biomass burned in conjunction with 
                        fossil fuel (cofiring) beyond such fossil fuel 
                        required for startup and flame stabilization.
            ``(4) Geothermal energy.--The term `geothermal energy' 
        means energy derived from a geothermal deposit (within the 
        meaning of section 613(e)(2)).
            ``(5) Small irrigation power.--The term `small irrigation 
        power' means power--
                    ``(A) generated without any dam or impoundment of 
                water through an irrigation system canal or ditch, and
                    ``(B) the installed capacity of which is less than 
                5 megawatts.
            ``(6) Biosolids and sludge.--The term `biosolids and 
        sludge' means the residue or solids removed in the treatment of 
        commercial, industrial, or municipal wastewater.
            ``(7) Municipal solid waste.--The term `municipal solid 
        waste' has the meaning given the term `solid waste' under 
        section 2(27) of the Solid Waste Disposal Act (42 U.S.C. 
        6903).''.
    (b) Extension and Expansion of Qualified Facilities.--
            (1) In general.--Section 45 is amended by redesignating 
        subsection (d) as subsection (e) and by inserting after 
        subsection (c) the following new subsection:
    ``(d) Qualified Facilities.--For purposes of this section--
            ``(1) Wind facility.--In the case of a facility using wind 
        to produce electricity, the term `qualified facility' means any 
        facility owned by the taxpayer which is originally placed in 
        service after December 31, 1993, and before January 1, 2007.
            ``(2) Closed-loop biomass facility.--
                    ``(A) In general.--In the case of a facility using 
                closed-loop biomass to produce electricity, the term 
                `qualified facility' means any facility--
                            ``(i) owned by the taxpayer which is 
                        originally placed in service after December 31, 
                        1992, and before January 1, 2007, or
                            ``(ii) owned by the taxpayer which before 
                        January 1, 2007, is originally placed in 
                        service and modified to use closed-loop biomass 
                        to co-fire with coal, with other biomass, or 
                        with both, but only if the modification is 
                        approved under the Biomass Power for Rural 
                        Development Programs or is part of a pilot 
                        project of the Commodity Credit Corporation as 
                        described in 65 Fed. Reg. 63052.
                    ``(B) Special rules.--In the case of a qualified 
                facility described in subparagraph (A)(ii)--
                            ``(i) the 10-year period referred to in 
                        subsection (a) shall be treated as beginning no 
                        earlier than January 1, 2005,
                            ``(ii) the amount of the credit determined 
                        under subsection (a) with respect to the 
                        facility shall be an amount equal to the amount 
                        determined without regard to this clause 
                        multiplied by the ratio of the thermal content 
                        of the closed-loop biomass used in such 
                        facility to the thermal content of all fuels 
                        used in such facility, and
                            ``(iii) if the owner of such facility is 
                        not the producer of the electricity, the person 
                        eligible for the credit allowable under 
                        subsection (a) shall be the lessee or the 
                        operator of such facility.
            ``(3) Open-loop biomass facility.--
                    ``(A) In general.--In the case of a facility using 
                open-loop biomass to produce electricity for grid sale 
                in excess of its internal requirements, the term 
                `qualified facility' means any facility owned by the 
                taxpayer which--
                            ``(i) in the case of a facility using 
                        agricultural livestock waste nutrients, is 
                        originally placed in service after December 31, 
                        2004, and before January 1, 2007, and
                            ``(ii) in the case of any other facility, 
                        is originally placed in service before January 
                        1, 2005.
                    ``(B) Special rules for preeffective date 
                facilities.--In the case of any facility described in 
                subparagraph (A)(ii) which is placed in service before 
                January 1, 2005--
                            ``(i) subsection (a)(1) shall be applied by 
                        substituting `1.2 cents' for `1.5 cents', and
                            ``(ii) the 5-year period beginning on 
                        January 1, 2005, shall be substituted for the 
                        10-year period in subsection (a)(2)(A)(ii).
                    ``(C) Credit eligibility.--In the case of any 
                facility described in subparagraph (A), if the owner of 
                such facility is not the producer of the electricity, 
                the person eligible for the credit allowable under 
                subsection (a) shall be the lessee or the operator of 
                such facility.
            ``(4) Geothermal or solar energy facility.--In the case of 
        a facility using geothermal or solar energy to produce 
        electricity, the term `qualified facility' means any facility 
        owned by the taxpayer which is originally placed in service 
        after December 31, 2004, and before January 1, 2007. Such term 
        shall not include any property described in section 48(a)(3) 
        the basis of which is taken into account by the taxpayer for 
        purposes of determining the energy credit under section 48.
            ``(5) Small irrigation power facility.--In the case of a 
        facility using small irrigation power to produce electricity, 
        the term `qualified facility' means any facility owned by the 
        taxpayer which is originally placed in service after December 
        31, 2004, and before January 1, 2007.
            ``(6) Biosolids and sludge facility.--In the case of a 
        facility using waste heat from the incineration of biosolids 
        and sludge to produce electricity, the term `qualified 
        facility' means any facility owned by the taxpayer which is 
        originally placed in service after December 31, 2004, and 
        before January 1, 2007. Such term shall not include any 
        property described in section 48(a)(3) the basis of which is 
        taken into account for purposes of the energy credit under 
        section 46.
            ``(7) Municipal solid waste facility.--
                    ``(A) In general.--In the case of a facility or 
                unit incinerating municipal solid waste to produce 
                electricity, the term `qualified facility' means any 
                facility or unit owned by the taxpayer which is 
                originally placed in service after December 31, 2004, 
                and before January 1, 2007.
                    ``(B) Special rule.--In the case of any facility or 
                unit described in subparagraph (A), the 5-year period 
                beginning on the date the facility or unit was 
                originally placed in service shall be substituted for 
                the 10-year period in subsection (a)(2)(A)(ii).
                    ``(C) Credit eligibility.--In the case of any 
                qualified facility described in subparagraph (A), if 
                the owner of such facility is not the producer of the 
                electricity, the person eligible for the credit 
                allowable under subsection (a) shall be the lessee or 
                the operator of such facility.''.
            (2) No credit for certain production.--Section 45(e) 
        (relating to definitions and special rules), as redesignated by 
        paragraph (1), is amended by striking paragraph (6) and 
        inserting the following new paragraph:
            ``(6) Operations inconsistent with solid waste disposal 
        act.--In the case of a qualified facility described in 
        subsection (d)(6)(A), subsection (a) shall not apply to 
        electricity produced at such facility during any taxable year 
        if, during a portion of such year, there is a certification in 
        effect by the Administrator of the Environmental Protection 
        Agency that such facility was permitted to operate in a manner 
        inconsistent with section 4003(d) of the Solid Waste Disposal 
        Act (42 U.S.C. 6943(d)).''.
            (3) Conforming amendment.--Section 45(e), as so 
        redesignated, is amended by striking ``subsection (c)(3)(A)'' 
        in paragraph (7)(A)(i) and inserting ``subsection (d)(1)''.
    (c) Credit Rate for Electricity Produced From New Facilities.--
            (1) In general.--Section 45(a) is amended by adding at the 
        end the following new flush sentence:
``In the case of electricity produced after December 31, 2004, at any 
qualified facility originally placed in service after such date, 
paragraph (1) shall be applied by substituting `1.8 cents' for `1.5 
cents'.''.
            (2) New rate not subject to inflation adjustment.--Section 
        45(b)(2) (relating to credit and phaseout adjustment based on 
        inflation) is amended by adding at the end the following new 
        sentence: ``This paragraph shall not apply to any amount which 
        is substituted for the 1.5 cent amount in subsection (a) by 
        reason of any provision of this section.''.
    (d) Elimination of Certain Credit Reductions.--Section 45(b)(3)(A) 
(relating to credit reduced for grants, tax-exempt bonds, subsidized 
energy financing, and other credits) is amended--
            (1) by striking clause (ii),
            (2) by redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii),
            (3) by inserting ``(other than proceeds of an issue of 
        State or local government obligations the interest on which is 
        exempt from tax under section 103, or any loan, debt, or other 
        obligation incurred under subchapter I of chapter 31 of title 7 
        of the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
        seq.), as in effect on the date of the enactment of the Energy 
        Tax Incentives Act)'' after ``project'' in clause (ii) (as so 
        redesignated),
            (4) by adding at the end the following new sentence: ``This 
        paragraph shall not apply with respect to any facility 
        described in subsection (d)(2)(A)(ii).'', and
            (5) by striking ``tax-exempt bonds,'' in the heading and 
        inserting ``certain''.
    (e) Treatment of Persons Not Able To Use Entire Credit.--Section 
45(e) (relating to definitions and special rules), as redesignated by 
subsection (b)(1), is amended by adding at the end the following new 
paragraph:
            ``(8) Treatment of persons not able to use entire credit.--
                    ``(A) Allowance of credit.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subsection--
                                    ``(I) any credit allowable under 
                                subsection (a) with respect to a 
                                qualified facility owned by a person 
                                described in clause (ii) may be 
                                transferred or used as provided in this 
                                paragraph, and
                                    ``(II) the determination as to 
                                whether the credit is allowable shall 
                                be made without regard to the tax-
                                exempt status of the person.
                            ``(ii) Persons described.--A person is 
                        described in this clause if the person is--
                                    ``(I) an organization described in 
                                section 501(c)(12)(C) and exempt from 
                                tax under section 501(a),
                                    ``(II) an organization described in 
                                section 1381(a)(2)(C),
                                    ``(III) a public utility (as 
                                defined in section 136(c)(2)(B)), which 
                                is exempt from income tax under this 
                                subtitle,
                                    ``(IV) any State or political 
                                subdivision thereof, the District of 
                                Columbia, any possession of the United 
                                States, or any agency or 
                                instrumentality of any of the 
                                foregoing,
                                    ``(V) any Indian tribal government 
                                (within the meaning of section 7871) or 
                                any agency or instrumentality thereof, 
                                or
                                    ``(VI) the Tennessee Valley 
                                Authority.
                    ``(B) Transfer of credit.--
                            ``(i) In general.--A person described in 
                        subclause (I), (II), (III), (IV), or (V) of 
                        subparagraph (A)(ii) may transfer any credit to 
                        which subparagraph (A)(i) applies through an 
                        assignment to any other person not described in 
                        subparagraph (A)(ii). Such transfer may be 
                        revoked only with the consent of the Secretary.
                            ``(ii) Regulations.--The Secretary shall 
                        prescribe such regulations as necessary to 
                        ensure that any credit described in clause (i) 
                        is assigned once and not reassigned by such 
                        other person.
                            ``(iii) Transfer proceeds treated as 
                        arising from essential government function.--
                        Any proceeds derived by a person described in 
                        subclause (III), (IV), or (V) of subparagraph 
                        (A)(ii) from the transfer of any credit under 
                        clause (i) shall be treated as arising from the 
                        exercise of an essential government function.
                    ``(C) Use of credit as an offset.--Notwithstanding 
                any other provision of law, in the case of a person 
                described in subclause (I), (II), or (V) of 
                subparagraph (A)(ii), any credit to which subparagraph 
                (A)(i) applies may be applied by such person, to the 
                extent provided by the Secretary of Agriculture, as a 
                prepayment of any loan, debt, or other obligation the 
                entity has incurred under subchapter I of chapter 31 of 
                title 7 of the Rural Electrification Act of 1936 (7 
                U.S.C. 901 et seq.), as in effect on the date of the 
                enactment of the Energy Tax Incentives Act.
                    ``(D) Use by tva.--
                            ``(i) In general.--Notwithstanding any 
                        other provision of law, in the case of a person 
                        described in subparagraph (A)(ii)(VI), any 
                        credit to which subparagraph (A)(i) applies may 
                        be applied as a credit against the payments 
                        required to be made in any fiscal year under 
                        section 15d(e) of the Tennessee Valley 
                        Authority Act of 1933 (16 U.S.C. 831n-4(e)) as 
                        an annual return on the appropriations 
                        investment and an annual repayment sum.
                            ``(ii) Treatment of credits.--The aggregate 
                        amount of credits described in subparagraph 
                        (A)(i) with respect to such person shall be 
                        treated in the same manner and to the same 
                        extent as if such credits were a payment in 
                        cash and shall be applied first against the 
                        annual return on the appropriations investment.
                            ``(iii) Credit carryover.--With respect to 
                        any fiscal year, if the aggregate amount of 
                        credits described subparagraph (A)(i) with 
                        respect to such person exceeds the aggregate 
                        amount of payment obligations described in 
                        clause (i), the excess amount shall remain 
                        available for application as credits against 
                        the amounts of such payment obligations in 
                        succeeding fiscal years in the same manner as 
                        described in this subparagraph.
                    ``(E) Credit not income.--Any transfer under 
                subparagraph (B) or use under subparagraph (C) of any 
                credit to which subparagraph (A)(i) applies shall not 
                be treated as income for purposes of section 
                501(c)(12).
                    ``(F) Treatment of unrelated persons.--For purposes 
                of subsection (a)(2)(B), sales of electricity among and 
                between persons described in subparagraph (A)(ii) shall 
                be treated as sales between unrelated parties.''.
    (f) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        electricity produced and sold after December 31, 2004, in 
        taxable years ending after such date.
            (2) Certain biomass facilities.--With respect to any 
        facility described in section 45(d)(3)(A)(ii) of the Internal 
        Revenue Code of 1986, as added by subsection (b)(1), which is 
        placed in service before the date of the enactment of this Act, 
        the amendments made by this section shall apply to electricity 
        produced and sold after December 31, 2004, in taxable years 
        ending after such date.
            (3) Credit rate for new facilities.--The amendments made by 
        subsection (c) shall apply to electricity produced and sold 
        after December 31, 2004, in taxable years ending after such 
        date.
            (4) Nonapplication of amendments to preeffective date 
        poultry waste facilities.--The amendments made by this section 
        shall not apply with respect to any poultry waste facility 
        (within the meaning of section 45(c)(3)(C), as in effect on 
        December 31, 2004) placed in service on or before such date.

      Subtitle B--Alternative Motor Vehicles and Fuels Incentives

SEC. 811. ALTERNATIVE MOTOR VEHICLE CREDIT.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 30C. ALTERNATIVE MOTOR VEHICLE CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of--
            ``(1) the new qualified fuel cell motor vehicle credit 
        determined under subsection (b),
            ``(2) the new qualified hybrid motor vehicle credit 
        determined under subsection (c), and
            ``(3) the new qualified alternative fuel motor vehicle 
        credit determined under subsection (d).
    ``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified fuel cell motor vehicle credit determined under this 
        subsection with respect to a new qualified fuel cell motor 
        vehicle placed in service by the taxpayer during the taxable 
        year is--
                    ``(A) $4,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $20,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(2) Increase for fuel efficiency.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new qualified fuel 
                cell motor vehicle which is a passenger automobile or 
                light truck shall be increased by--
                            ``(i) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2002 model year city fuel economy,
                            ``(ii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2002 model year city fuel economy,
                            ``(iii) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2002 model year city fuel economy,
                            ``(iv) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2002 model year city fuel economy,
                            ``(v) $3,000, if such vehicle achieves at 
                        least 250 percent but less than 275 percent of 
                        the 2002 model year city fuel economy,
                            ``(vi) $3,500, if such vehicle achieves at 
                        least 275 percent but less than 300 percent of 
                        the 2002 model year city fuel economy, and
                            ``(vii) $4,000, if such vehicle achieves at 
                        least 300 percent of the 2002 model year city 
                        fuel economy.
                    ``(B) 2002 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2002 model year city 
                fuel economy with respect to a vehicle shall be 
                determined in accordance with the following tables:
                            ``(i) In the case of a passenger 
                        automobile:
                                               The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
        is:
    1,500 or 1,750 lbs............................            45.2 mpg 
    2,000 lbs.....................................            39.6 mpg 
    2,250 lbs.....................................            35.2 mpg 
    2,500 lbs.....................................            31.7 mpg 
    2,750 lbs.....................................            28.8 mpg 
    3,000 lbs.....................................            26.4 mpg 
    3,500 lbs.....................................            22.6 mpg 
    4,000 lbs.....................................            19.8 mpg 
    4,500 lbs.....................................            17.6 mpg 
    5,000 lbs.....................................            15.9 mpg 
    5,500 lbs.....................................            14.4 mpg 
    6,000 lbs.....................................            13.2 mpg 
    6,500 lbs.....................................            12.2 mpg 
    7,000 to 8,500 lbs............................            11.3 mpg.
                            ``(ii) In the case of a light truck:

                                               The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
        is:
    1,500 or 1,750 lbs............................            39.4 mpg 
    2,000 lbs.....................................            35.2 mpg 
    2,250 lbs.....................................            31.8 mpg 
    2,500 lbs.....................................            29.0 mpg 
    2,750 lbs.....................................            26.8 mpg 
    3,000 lbs.....................................            24.9 mpg 
    3,500 lbs.....................................            21.8 mpg 
    4,000 lbs.....................................            19.4 mpg 
    4,500 lbs.....................................            17.6 mpg 
    5,000 lbs.....................................            16.1 mpg 
    5,500 lbs.....................................            14.8 mpg 
    6,000 lbs.....................................            13.7 mpg 
    6,500 lbs.....................................            12.8 mpg 
    7,000 to 8,500 lbs............................            12.1 mpg.
                    ``(C) Vehicle inertia weight class.--For purposes 
                of subparagraph (B), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
            ``(3) New qualified fuel cell motor vehicle.--For purposes 
        of this subsection, the term `new qualified fuel cell motor 
        vehicle' means a motor vehicle--
                    ``(A) which is propelled by power derived from 1 or 
                more cells which convert chemical energy directly into 
                electricity by combining oxygen with hydrogen fuel 
                which is stored on board the vehicle in any form and 
                may or may not require reformation prior to use,
                    ``(B) which, in the case of a passenger automobile 
                or light truck--
                            ``(i) for 2002 and later model vehicles, 
                        has received a certificate of conformity under 
                        the Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
                        vehicle standard under section 243(e)(2) of the 
                        Clean Air Act for that make and model year, and
                            ``(ii) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 5 Tier II emission 
                        level established in regulations prescribed by 
                        the Administrator of the Environmental 
                        Protection Agency under section 202(i) of the 
                        Clean Air Act for that make and model year 
                        vehicle,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(c) New Qualified Hybrid Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified hybrid motor vehicle credit determined under this 
        subsection with respect to a new qualified hybrid motor vehicle 
        placed in service by the taxpayer during the taxable year is 
        the credit amount determined under paragraph (2).
            ``(2) Credit amount.--
                    ``(A) In general.--The credit amount determined 
                under this paragraph shall be determined in accordance 
                with the following tables:
                            ``(i) In the case of a new qualified hybrid 
                        motor vehicle which is a passenger automobile, 
                        medium duty passenger vehicle, or light truck 
                        and which provides the following percentage of 
                        the maximum available power:

``If percentage of the maximum
  available power is:                             The credit amount is:
    At least 4 percent but less than 10 percent...                $250 
    At least 10 percent but less than 20 percent..                $500 
    At least 20 percent but less than 30 percent..                $750 
    At least 30 percent...........................              $1,000.
                            ``(ii) In the case of a new qualified 
                        hybrid motor vehicle which is a heavy duty 
                        hybrid motor vehicle and which provides the 
                        following percentage of the maximum available 
                        power:
                                    ``(I) If such vehicle has a gross 
                                vehicle weight rating of not more than 
                                14,000 pounds:

``If percentage of the maximum
  available power is:                             The credit amount is:
    At least 20 percent but less than 30 percent..              $1,000 
    At least 30 percent but less than 40 percent..              $1,750 
    At least 40 percent but less than 50 percent..              $2,000 
    At least 50 percent but less than 60 percent..              $2,250 
    At least 60 percent...........................              $2,500.
                                    ``(II) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                14,000 but not more than 26,000 pounds:

``If percentage of the maximum
  available power is:                             The credit amount is:
    At least 20 percent but less than 30 percent..              $4,000 
    At least 30 percent but less than 40 percent..              $4,500 
    At least 40 percent but less than 50 percent..              $5,000 
    At least 50 percent but less than 60 percent..              $5,500 
    At least 60 percent...........................              $6,000.
                                    ``(III) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                26,000 pounds:

``If percentage of the maximum
  available power is:                             The credit amount is:
    At least 20 percent but less than 30 percent..              $6,000 
    At least 30 percent but less than 40 percent..              $7,000 
    At least 40 percent but less than 50 percent..              $8,000 
    At least 50 percent but less than 60 percent..              $9,000 
    At least 60 percent...........................             $10,000.
                    ``(B) Increase for fuel efficiency.--
                            ``(i) Amount.--The amount determined under 
                        subparagraph (A)(i) with respect to a new 
                        qualified hybrid motor vehicle which is a 
                        passenger automobile or light truck shall be 
                        increased by--
                                    ``(I) $500, if such vehicle 
                                achieves at least 125 percent but less 
                                than 150 percent of the 2002 model year 
                                city fuel economy,
                                    ``(II) $1,000, if such vehicle 
                                achieves at least 150 percent but less 
                                than 175 percent of the 2002 model year 
                                city fuel economy,
                                    ``(III) $1,500, if such vehicle 
                                achieves at least 175 percent but less 
                                than 200 percent of the 2002 model year 
                                city fuel economy,
                                    ``(IV) $2,000, if such vehicle 
                                achieves at least 200 percent but less 
                                than 225 percent of the 2002 model year 
                                city fuel economy,
                                    ``(V) $2,500, if such vehicle 
                                achieves at least 225 percent but less 
                                than 250 percent of the 2002 model year 
                                city fuel economy, and
                                    ``(VI) $3,000, if such vehicle 
                                achieves at least 250 percent of the 
                                2002 model year city fuel economy.
                            ``(ii) 2002 model year city fuel economy.--
                        For purposes of clause (i), the 2002 model year 
                        city fuel economy with respect to a vehicle 
                        shall be determined on a gasoline gallon 
                        equivalent basis as determined by the 
                        Administrator of the Environmental Protection 
                        Agency using the tables provided in subsection 
                        (b)(2)(B) with respect to such vehicle.
                    ``(C) Increase for accelerated emissions 
                performance.--The amount determined under subparagraph 
                (A)(ii) with respect to an applicable heavy duty hybrid 
                motor vehicle shall be increased by the increased 
                credit amount determined in accordance with the 
                following tables:
                            ``(i) In the case of a vehicle which has a 
                        gross vehicle weight rating of not more than 
                        14,000 pounds:

``If the model year is:             The increased credit amount is:
    2004..........................................              $2,500 
    2005..........................................              $2,000 
    2006..........................................              $1,500.
                            ``(ii) In the case of a vehicle which has a 
                        gross vehicle weight rating of more than 14,000 
                        pounds but not more than 26,000 pounds:

``If the model year is:             The increased credit amount is:
    2004..........................................              $6,500 
    2005..........................................              $5,250 
    2006..........................................              $4,000.
                            ``(iii) In the case of a vehicle which has 
                        a gross vehicle weight rating of more than 
                        26,000 pounds:

``If the model year is:             The increased credit amount is:
    2004..........................................             $10,000 
    2005..........................................              $8,000 
    2006..........................................              $6,000.
                    ``(D) Definitions relating to credit amount.--
                            ``(i) Applicable heavy duty hybrid motor 
                        vehicle.--For purposes of subparagraph (C), the 
                        term `applicable heavy duty hybrid motor 
                        vehicle' means a heavy duty hybrid motor 
                        vehicle which is powered by an internal 
                        combustion or heat engine which is certified as 
                        meeting the emission standards set in the 
                        regulations prescribed by the Administrator of 
                        the Environmental Protection Agency for 2007 
                        and later model year diesel heavy duty engines, 
                        or for 2008 and later model year ottocycle 
                        heavy duty engines, as applicable.
                            ``(ii) Maximum available power.--
                                    ``(I) Passenger automobile, medium 
                                duty passenger vehicle, or light 
                                truck.--For purposes of subparagraph 
                                (A)(i), the term `maximum available 
                                power' means the maximum power 
                                available from the rechargeable energy 
                                storage system, during a standard 10 
                                second pulse power or equivalent test, 
                                divided by such maximum power and the 
                                SAE net power of the heat engine.
                                    ``(II) Heavy duty hybrid motor 
                                vehicle.--For purposes of subparagraph 
                                (A)(ii), the term `maximum available 
                                power' means the maximum power 
                                available from the rechargeable energy 
                                storage system, during a standard 10 
                                second pulse power or equivalent test, 
                                divided by the vehicle's total traction 
                                power. The term `total traction power' 
                                means the sum of the peak power from 
                                the rechargeable energy storage system 
                                and the heat engine peak power of the 
                                vehicle, except that if such storage 
                                system is the sole means by which the 
                                vehicle can be driven, the total 
                                traction power is the peak power of 
                                such storage system.
            ``(3) New qualified hybrid motor vehicle.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `new qualified hybrid 
                motor vehicle' means a motor vehicle--
                            ``(i) which draws propulsion energy from 
                        onboard sources of stored energy which are 
                        both--
                                    ``(I) an internal combustion or 
                                heat engine using consumable fuel, and
                                    ``(II) a rechargeable energy 
                                storage system,
                            ``(ii) which, in the case of a passenger 
                        automobile, medium duty passenger vehicle, or 
                        light truck--
                                    ``(I) for 2002 and later model 
                                vehicles, has received a certificate of 
                                conformity under the Clean Air Act and 
                                meets or exceeds the equivalent 
                                qualifying California low emission 
                                vehicle standard under section 
                                243(e)(2) of the Clean Air Act for that 
                                make and model year, and
                                    ``(II) for 2004 and later model 
                                vehicles, has received a certificate 
                                that such vehicle meets or exceeds the 
                                Bin 5 Tier II emission level 
                                established in regulations prescribed 
                                by the Administrator of the 
                                Environmental Protection Agency under 
                                section 202(i) of the Clean Air Act for 
                                that make and model year vehicle,
                            ``(iii) which, in the case of a heavy duty 
                        hybrid motor vehicle, has an internal 
                        combustion or heat engine which has received a 
                        certificate of conformity under the Clean Air 
                        Act as meeting the emission standards set in 
                        the regulations prescribed by the Administrator 
                        of the Environmental Protection Agency for 2004 
                        through 2007 model year diesel heavy duty 
                        engines or ottocycle heavy duty engines, as 
                        applicable,
                            ``(iv) the original use of which commences 
                        with the taxpayer,
                            ``(v) which is acquired for use or lease by 
                        the taxpayer and not for resale, and
                            ``(vi) which is made by a manufacturer.
                    ``(B) Consumable fuel.--For purposes of 
                subparagraph (A)(i)(I), the term `consumable fuel' 
                means any solid, liquid, or gaseous matter which 
                releases energy when consumed by an auxiliary power 
                unit.
            ``(4) Heavy duty hybrid motor vehicle.--For purposes of 
        this subsection, the term `heavy duty hybrid motor vehicle' 
        means a new qualified hybrid motor vehicle which has a gross 
        vehicle weight rating of more than 8,500 pounds. Such term does 
        not include a medium duty passenger vehicle.
    ``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
            ``(1) Allowance of credit.--Except as provided in paragraph 
        (5), the new qualified alternative fuel motor vehicle credit 
        determined under this subsection is an amount equal to the 
        applicable percentage of the incremental cost of any new 
        qualified alternative fuel motor vehicle placed in service by 
        the taxpayer during the taxable year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage with respect to any new 
        qualified alternative fuel motor vehicle is--
                    ``(A) 40 percent, plus
                    ``(B) 30 percent, if such vehicle--
                            ``(i) has received a certificate of 
                        conformity under the Clean Air Act and meets or 
                        exceeds the most stringent standard available 
                        for certification under the Clean Air Act for 
                        that make and model year vehicle (other than a 
                        zero emission standard), or
                            ``(ii) has received an order certifying the 
                        vehicle as meeting the same requirements as 
                        vehicles which may be sold or leased in 
                        California and meets or exceeds the most 
                        stringent standard available for certification 
                        under the State laws of California (enacted in 
                        accordance with a waiver granted under section 
                        209(b) of the Clean Air Act) for that make and 
                        model year vehicle (other than a zero emission 
                        standard).
        For purposes of the preceding sentence, in the case of any new 
        qualified alternative fuel motor vehicle which weighs more than 
        14,000 pounds gross vehicle weight rating, the most stringent 
        standard available shall be such standard available for 
        certification on the date of the enactment of the Energy Tax 
        Incentives Act.
            ``(3) Incremental cost.--For purposes of this subsection, 
        the incremental cost of any new qualified alternative fuel 
        motor vehicle is equal to the amount of the excess of the 
        manufacturer's suggested retail price for such vehicle over 
        such price for a gasoline or diesel fuel motor vehicle of the 
        same model, to the extent such amount does not exceed--
                    ``(A) $5,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $25,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(4) New qualified alternative fuel motor vehicle.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `new qualified 
                alternative fuel motor vehicle' means any motor 
                vehicle--
                            ``(i) which is only capable of operating on 
                        an alternative fuel,
                            ``(ii) the original use of which commences 
                        with the taxpayer,
                            ``(iii) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(iv) which is made by a manufacturer.
                    ``(B) Alternative fuel.--The term `alternative 
                fuel' means compressed natural gas, liquefied natural 
                gas, liquefied petroleum gas, hydrogen, and any liquid 
                at least 85 percent of the volume of which consists of 
                methanol.
            ``(5) Credit for mixed-fuel vehicles.--
                    ``(A) In general.--In the case of a mixed-fuel 
                vehicle placed in service by the taxpayer during the 
                taxable year, the credit determined under this 
                subsection is an amount equal to--
                            ``(i) in the case of a 75/25 mixed-fuel 
                        vehicle, 70 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle, and
                            ``(ii) in the case of a 90/10 mixed-fuel 
                        vehicle, 90 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle.
                    ``(B) Mixed-fuel vehicle.--For purposes of this 
                subsection, the term `mixed-fuel vehicle' means any 
                motor vehicle described in subparagraph (C) or (D) of 
                paragraph (3), which--
                            ``(i) is certified by the manufacturer as 
                        being able to perform efficiently in normal 
                        operation on a combination of an alternative 
                        fuel and a petroleum-based fuel,
                            ``(ii) either--
                                    ``(I) has received a certificate of 
                                conformity under the Clean Air Act, or
                                    ``(II) has received an order 
                                certifying the vehicle as meeting the 
                                same requirements as vehicles which may 
                                be sold or leased in California and 
                                meets or exceeds the low emission 
                                vehicle standard under section 88.105-
                                94 of title 40, Code of Federal 
                                Regulations, for that make and model 
                                year vehicle,
                            ``(iii) the original use of which commences 
                        with the taxpayer,
                            ``(iv) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(v) which is made by a manufacturer.
                    ``(C) 75/25 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `75/25 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 75 percent alternative fuel and not more than 25 
                percent petroleum-based fuel.
                    ``(D) 90/10 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `90/10 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 90 percent alternative fuel and not more than 10 
                percent petroleum-based fuel.
    ``(e) Application With Other Credits.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess (if 
any) of--
            ``(1) the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27, 
        29, and 30, over
            ``(2) the tentative minimum tax for the taxable year.
    ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(2) City fuel economy.--The city fuel economy with 
        respect to any vehicle shall be measured in a manner which is 
        substantially similar to the manner city fuel economy is 
        measured in accordance with procedures under part 600 of 
        subchapter Q of chapter I of title 40, Code of Federal 
        Regulations, as in effect on the date of the enactment of this 
        section.
            ``(3) Other terms.--The terms `automobile', `passenger 
        automobile', `medium duty passenger vehicle', `light truck', 
        and `manufacturer' have the meanings given such terms in 
        regulations prescribed by the Administrator of the 
        Environmental Protection Agency for purposes of the 
        administration of title II of the Clean Air Act (42 U.S.C. 7521 
        et seq.).
            ``(4)  Reduction in basis.--For purposes of this subtitle, 
        the basis of any property for which a credit is allowable under 
        subsection (a) shall be reduced by the amount of such credit so 
        allowed (determined without regard to subsection (e)).
            ``(5) No double benefit.--The amount of any deduction or 
        other credit allowable under this chapter--
                    ``(A) for any incremental cost taken into account 
                in computing the amount of the credit determined under 
                subsection (d) shall be reduced by the amount of such 
                credit attributable to such cost, and
                    ``(B) with respect to a vehicle described under 
                subsection (b) or (c), shall be reduced by the amount 
                of credit allowed under subsection (a) for such vehicle 
                for the taxable year.
            ``(6) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity at the time of any sale or lease the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(7) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(8) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(9) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
            ``(10) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit allowable under 
                subsection (a) for a taxable year exceeds the amount of 
                the limitation under subsection (e) for such taxable 
                year (in this paragraph referred to as the `unused 
                credit year'), such excess shall be a credit carryback 
                to each of the 3 taxable years preceding the unused 
                credit year and a credit carryforward to each of the 20 
                taxable years following the unused credit year, except 
                that no excess may be carried to a taxable year 
                beginning before January 1, 2005.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).
            ``(11) Interaction with air quality and motor vehicle 
        safety standards.--Unless otherwise provided in this section, a 
        motor vehicle shall not be considered eligible for a credit 
        under this section unless such vehicle is in compliance with--
                    ``(A) the applicable provisions of the Clean Air 
                Act for the applicable make and model year of the 
                vehicle (or applicable air quality provisions of State 
                law in the case of a State which has adopted such 
                provision under a waiver under section 209(b) of the 
                Clean Air Act), and
                    ``(B) the motor vehicle safety provisions of 
                sections 30101 through 30169 of title 49, United States 
                Code.
    ``(g) Regulations.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        Secretary shall promulgate such regulations as necessary to 
        carry out the provisions of this section.
            ``(2) Coordination in prescription of certain 
        regulations.--The Secretary of the Treasury, in coordination 
        with the Secretary of Transportation and the Administrator of 
        the Environmental Protection Agency, shall prescribe such 
        regulations as necessary to determine whether a motor vehicle 
        meets the requirements to be eligible for a credit under this 
        section.
    ``(h) Termination.--This section shall not apply to any property 
purchased after--
            ``(1) in the case of a new qualified fuel cell motor 
        vehicle (as described in subsection (b)), December 31, 2011, 
        and
            ``(2) in the case of any other property, December 31, 
        2006.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (31), by striking the period at the end of 
        paragraph (32) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(33) to the extent provided in section 30C(f)(4).''.
            (2) Section 55(c)(2), as amended by this Act, is amended by 
        inserting ``30C(e),'' after ``30(b)(2),''.
            (3) Section 6501(m) is amended by inserting ``30C(f)(9),'' 
        after ``30(d)(4),''.
            (4) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 30B the 
        following new item:

        ``Sec. 30C. Alternative motor vehicle credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2004, in taxable 
years ending after such date.

SEC. 812. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

    (a) Amount of Credit.--
            (1) In general.--Section 30(a) (relating to allowance of 
        credit) is amended by striking ``10 percent of''.
            (2) Limitation of credit according to type of vehicle.--
        Paragraph (1) of section 30(b) (relating to limitations) is 
        amended to read as follows:
            ``(1) Limitation according to type of vehicle.--The amount 
        of the credit allowed under subsection (a) for any vehicle 
        shall not exceed the greatest of the following amounts 
        applicable to such vehicle:
                    ``(A) In the case of a vehicle with a gross vehicle 
                weight rating not exceeding 8,500 pounds--
                            ``(i) except as provided in clause (ii) or 
                        (iii), $3,500,
                            ``(ii) $6,000, if such vehicle is--
                                    ``(I) capable of a driving range of 
                                at least 100 miles on a single charge 
                                of the vehicle's rechargeable batteries 
                                as measured pursuant to the urban 
                                dynamometer schedules under appendix I 
                                to part 86 of title 40, Code of Federal 
                                Regulations, or
                                    ``(II) capable of a payload 
                                capacity of at least 1,000 pounds, and
                            ``(iii) if such vehicle is a low-speed 
                        vehicle which conforms to Standard 500 
                        prescribed by the Secretary of Transportation 
                        (49 C.F.R. 571.500), as in effect on the date 
                        of the enactment of the Energy Tax Incentives 
                        Act, the lesser of--
                                    ``(I) 10 percent of the 
                                manufacturer's suggested retail price 
                                of the vehicle, or
                                    ``(II) $1,500.
                    ``(B) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 8,500 but not exceeding 14,000 
                pounds, $10,000.
                    ``(C) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 14,000 but not exceeding 26,000 
                pounds, $20,000.
                    ``(D) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 26,000 pounds, $40,000.''.
    (b) Qualified Battery Electric Vehicle.--
            (1) In general.--Section 30(c)(1)(A) (defining qualified 
        electric vehicle) is amended to read as follows:
                    ``(A) which is--
                            ``(i) operated solely by use of a battery 
                        or battery pack, or
                            ``(ii) powered primarily through the use of 
                        an electric battery or battery pack using a 
                        flywheel or capacitor which stores energy 
                        produced by an electric motor through 
                        regenerative braking to assist in vehicle 
                        operation,''.
            (2) Leased vehicles.--Section 30(c)(1)(C) is amended by 
        inserting ``or lease'' after ``use''.
            (3) Conforming amendments.--
                    (A) Subsections (a), (b)(2), and (c) of section 30 
                are each amended by inserting ``battery'' after 
                ``qualified'' each place it appears.
                    (B) The heading of subsection (c) of section 30 is 
                amended by inserting ``Battery'' after ``Qualified''.
                    (C) The heading of section 30 is amended by 
                inserting ``battery'' after ``qualified''.
                    (D) The item relating to section 30 in the table of 
                sections for subpart B of part IV of subchapter A of 
                chapter 1 is amended by inserting ``battery'' after 
                ``qualified''.
                    (E) Section 179A(c)(3) is amended by inserting 
                ``battery'' before ``electric''.
                    (F) The heading of paragraph (3) of section 179A(c) 
                is amended by inserting ``battery'' before 
                ``electric''.
    (c) Additional Special Rules.--Section 30(d) (relating to special 
rules) is amended by adding at the end the following new paragraphs:
            ``(5) No double benefit.--The amount of any deduction or 
        other credit allowable under this chapter for any cost taken 
        into account in computing the amount of the credit determined 
        under subsection (a) shall be reduced by the amount of such 
        credit attributable to such cost.
            ``(6) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a vehicle 
        which is acquired by an entity exempt from tax under this 
        chapter, the person which sells or leases such vehicle to the 
        entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity at the time of any sale or lease the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(7) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit allowable under 
                subsection (a) for a taxable year exceeds the amount of 
                the limitation under subsection (b)(2) for such taxable 
                year (in this paragraph referred to as the `unused 
                credit year'), such excess shall be a credit carryback 
                to each of the 3 taxable years preceding the unused 
                credit year and a credit carryforward to each of the 20 
                taxable years following the unused credit year, except 
                that no excess may be carried to a taxable year 
                beginning before January 1, 2005.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2004, in taxable 
years ending after such date.

SEC. 813. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 30D. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.

    ``(a) Credit Allowed.--There shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year an amount equal to 
50 percent of the amount paid or incurred by the taxpayer during the 
taxable year for the installation of qualified clean-fuel vehicle 
refueling property.
    ``(b) Limitation.--The credit allowed under subsection (a)--
            ``(1) with respect to any retail clean-fuel vehicle 
        refueling property, shall not exceed $30,000, and
            ``(2) with respect to any residential clean-fuel vehicle 
        refueling property, shall not exceed $1,000.
    ``(c) Year Credit Allowed.--Notwithstanding subsection (a), no 
credit shall be allowed under subsection (a) with respect to any 
qualified clean-fuel vehicle refueling property before the taxable year 
in which the property is placed in service by the taxpayer.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified clean-fuel vehicle refueling property.--The 
        term `qualified clean-fuel vehicle refueling property' has the 
        same meaning given such term by section 179A(d).
            ``(2) Residential clean-fuel vehicle refueling property.--
        The term `residential clean-fuel vehicle refueling property' 
        means qualified clean-fuel vehicle refueling property which is 
        installed on property which is used as the principal residence 
        (within the meaning of section 121) of the taxpayer.
            ``(3) Retail clean-fuel vehicle refueling property.--The 
        term `retail clean-fuel vehicle refueling property' means 
        qualified clean-fuel vehicle refueling property which is 
        installed on property (other than property described in 
        paragraph (2)) used in a trade or business of the taxpayer.
    ``(e) Application With Other Credits.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess (if 
any) of--
            ``(1) the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27, 
        29, 30, and 30C, over
            ``(2) the tentative minimum tax for the taxable year.
    ``(f) Basis Reduction.--For purposes of this title, the basis of 
any property shall be reduced by the portion of the cost of such 
property taken into account under subsection (a).
    ``(g) No Double Benefit.--
            ``(1) Coordination with other deductions and credits.--
        Except as provided in paragraph (2), the amount of any 
        deduction or other credit allowable under this chapter for any 
        cost taken into account in computing the amount of the credit 
        determined under subsection (a) shall be reduced by the amount 
        of such credit attributable to such cost.
            ``(2) No deduction allowed under section 179a.--No 
        deduction shall be allowed under section 179A with respect to 
        any property with respect to which a credit is allowed under 
        subsection (a).
    ``(h) Refueling Property Installed for Tax-Exempt Entities.--In the 
case of qualified clean-fuel vehicle refueling property installed on 
property owned or used by an entity exempt from tax under this chapter, 
the person which installs such refueling property for the entity shall 
be treated as the taxpayer with respect to the refueling property for 
purposes of this section (and such refueling property shall be treated 
as retail clean-fuel vehicle refueling property) and the credit shall 
be allowed to such person, but only if the person clearly discloses to 
the entity in any installation contract the specific amount of the 
credit allowable under this section.
    ``(i) Carryforward Allowed.--
            ``(1) In general.--If the credit allowable under subsection 
        (a) for a taxable year exceeds the amount of the limitation 
        under subsection (e) for such taxable year, such excess shall 
        be a credit carryforward to each of the 20 taxable years 
        following such taxable year.
            ``(2) Rules.--Rules similar to the rules of section 39 
        shall apply with respect to the credit carryforward under 
        paragraph (1).
    ``(j) Special Rules.--Rules similar to the rules of paragraphs (4) 
and (5) of section 179A(e) shall apply.
    ``(k) Regulations.--The Secretary shall prescribe such regulations 
as necessary to carry out the provisions of this section.
    ``(l) Termination.--This section shall not apply to any property 
placed in service--
            ``(1) in the case of property relating to hydrogen, after 
        December 31, 2011, and
            ``(2) in the case of any other property, after December 31, 
        2007.''.
    (b) Modifications to Extension of Deduction for Certain Refueling 
Property.--Subsection (f) of section 179A is amended to read as 
follows:
    ``(f) Termination.--This section shall not apply to any property 
placed in service--
            ``(1) in the case of property relating to hydrogen, after 
        December 31, 2011, and
            ``(2) in the case of any other property, after December 31, 
        2007.''.
    (c) Incentive for Production of Hydrogen at Qualified Clean-Fuel 
Vehicle Refueling Property.--Section 179A(d) (defining qualified clean-
fuel vehicle refueling property) is amended by adding at the end the 
following new flush sentence:
``In the case of clean-burning fuel which is hydrogen produced from 
another clean-burning fuel, paragraph (3)(A) shall be applied by 
substituting `production, storage, or dispensing' for `storage or 
dispensing' both places it appears.''.
    (d) Conforming Amendments.--
            (1) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (32), by striking the 
        period at the end of paragraph (33) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(34) to the extent provided in section 30D(f).''.
            (2) Section 55(c)(2), as amended by this Act, is amended by 
        inserting ``30D(e),'' after ``30C(e),''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 30C the 
        following new item:

        ``Sec. 30D. Clean-fuel vehicle refueling property credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2004, in taxable 
years ending after such date.

SEC. 814. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE 
              FUEL.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 40 the following new section:

``SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR 
              VEHICLE FUEL.

    ``(a) General Rule.--For purposes of section 38, the alternative 
fuel retail sales credit for any taxable year is the applicable amount 
for each gasoline gallon equivalent of alternative fuel sold at retail 
by the taxpayer during such year as a fuel to propel any qualified 
motor vehicle.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Applicable amount.--The term `applicable amount' 
        means the amount determined in accordance with the following 
        table:

``In the case of any taxable year
  ending in--                                The applicable amount is--
    2005 and 2006.................................            50 cents.
            ``(2) Alternative fuel.--The term `alternative fuel' means 
        compressed natural gas, liquefied natural gas, liquefied 
        petroleum gas, hydrogen, or any liquid at least 85 percent of 
        the volume of which consists of methanol or ethanol.
            ``(3) Gasoline gallon equivalent.--The term `gasoline 
        gallon equivalent' means, with respect to any alternative fuel, 
        the amount (determined by the Secretary) of such fuel having a 
        Btu content of 114,000.
            ``(4) Qualified motor vehicle.--The term `qualified motor 
        vehicle' means any motor vehicle (as defined in section 
        30(c)(2)) which meets any applicable Federal or State emissions 
        standards with respect to each fuel by which such vehicle is 
        designed to be propelled.
            ``(5) Sold at retail.--
                    ``(A) In general.--The term `sold at retail' means 
                the sale, for a purpose other than resale, after 
                manufacture, production, or importation.
                    ``(B) Use treated as sale.--If any person uses 
                alternative fuel (including any use after importation) 
                as a fuel to propel any new qualified alternative fuel 
                motor vehicle (as defined in section 30C(d)(4)) before 
                such fuel is sold at retail, then such use shall be 
                treated in the same manner as if such fuel were sold at 
                retail as a fuel to propel such a vehicle by such 
                person.
    ``(c) No Double Benefit.--The amount of any deduction or other 
credit allowable under this chapter for any fuel taken into account in 
computing the amount of the credit determined under subsection (a) 
shall be reduced by the amount of such credit attributable to such 
fuel.
    ``(d) Pass-Thru in the Case of Estates and Trusts.--Under 
regulations prescribed by the Secretary, rules similar to the rules of 
subsection (d) of section 52 shall apply.
    ``(e) Termination.--This section shall not apply to any fuel sold 
at retail after December 31, 2006.''.
    (b) Credit Treated as Business Credit.--Section 38(b) (relating to 
current year business credit) is amended by striking ``plus'' at the 
end of paragraph (20), by striking the period at the end of paragraph 
(21) and inserting ``, plus'', and by adding at the end the following 
new paragraph:
            ``(22) the alternative fuel retail sales credit determined 
        under section 40A(a).''.
    (c) Limitation on Carryback.--
            (1) In general.--Subsection (d) of section 39, as amended 
        by this Act, is amended to read as follows:
    ``(d) Transitional Rule.--No portion of the unused business credit 
for any taxable year which is attributable to a credit specified in 
section 38(b) may be carried back to any taxable year before the first 
taxable year for which such specified credit is allowable.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply with respect to taxable years beginning after 
        December 31, 2003.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 40 the following new item:

        ``Sec. 40A. Credit for retail sale of alternative fuels as 
                            motor vehicle fuel.''.
    (e) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to fuel sold at retail after December 
31, 2004, in taxable years ending after such date.

SEC. 815. SMALL ETHANOL PRODUCER CREDIT.

    (a) Allocation of Alcohol Fuels Credit to Patrons of a 
Cooperative.--Section 40(g) (relating to definitions and special rules 
for eligible small ethanol producer credit) is amended by adding at the 
end the following new paragraph:
            ``(6) Allocation of small ethanol producer credit to 
        patrons of cooperative.--
                    ``(A) Election to allocate.--
                            ``(i) In general.--In the case of a 
                        cooperative organization described in section 
                        1381(a), any portion of the credit determined 
                        under subsection (a)(3) for the taxable year 
                        may, at the election of the organization, be 
                        apportioned pro rata among patrons of the 
                        organization on the basis of the quantity or 
                        value of business done with or for such patrons 
                        for the taxable year.
                            ``(ii) Form and effect of election.--An 
                        election under clause (i) for any taxable year 
                        shall be made on a timely filed return for such 
                        year. Such election, once made, shall be 
                        irrevocable for such taxable year.
                    ``(B) Treatment of organizations and patrons.--The 
                amount of the credit apportioned to patrons under 
                subparagraph (A)--
                            ``(i) shall not be included in the amount 
                        determined under subsection (a) with respect to 
                        the organization for the taxable year, and
                            ``(ii) shall be included in the amount 
                        determined under subsection (a) for the taxable 
                        year of each patron for which the patronage 
                        dividends for the taxable year described in 
                        subparagraph (A) are included in gross income.
                    ``(C) Special rules for decrease in credits for 
                taxable year.--If the amount of the credit of a 
                cooperative organization determined under subsection 
                (a)(3) for a taxable year is less than the amount of 
                such credit shown on the return of the cooperative 
                organization for such year, an amount equal to the 
                excess of--
                            ``(i) such reduction, over
                            ``(ii) the amount not apportioned to such 
                        patrons under subparagraph (A) for the taxable 
                        year,
                shall be treated as an increase in tax imposed by this 
                chapter on the organization. Such increase shall not be 
                treated as tax imposed by this chapter for purposes of 
                determining the amount of any credit under this chapter 
                or for purposes of section 55.''.
    (b) Improvements to Small Ethanol Producer Credit.--
            (1) Definition of small ethanol producer.--Section 40(g) 
        (relating to definitions and special rules for eligible small 
        ethanol producer credit) is amended by striking ``30,000,000'' 
        each place it appears and inserting ``60,000,000''.
            (2) Small ethanol producer credit not a passive activity 
        credit.--Clause (i) of section 469(d)(2)(A) is amended by 
        striking ``subpart D'' and inserting ``subpart D, other than 
        section 40(a)(3),''.
            (3) Small ethanol producer credit not added back to income 
        under section 87.--Section 87 (relating to income inclusion of 
        alcohol fuel credit) is amended to read as follows:

``SEC. 87. ALCOHOL FUEL CREDIT.

    ``Gross income includes an amount equal to the sum of--
            ``(1) the amount of the alcohol mixture credit determined 
        with respect to the taxpayer for the taxable year under section 
        40(a)(1), and
            ``(2) the alcohol credit determined with respect to the 
        taxpayer for the taxable year under section 40(a)(2).''.
    (c) Conforming Amendment.--Section 1388 (relating to definitions 
and special rules for cooperative organizations), as amended by this 
Act, is amended by adding at the end the following new subsection:
    ``(l) Cross Reference.--For provisions relating to the 
apportionment of the alcohol fuels credit between cooperative 
organizations and their patrons, see section 40(g)(6).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

       Subtitle C--Conservation and Energy Efficiency Provisions

SEC. 821. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45K. NEW ENERGY EFFICIENT HOME CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property installed in a qualifying new home during 
construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a qualifying new home shall not 
                exceed--
                            ``(i) in the case of a 30-percent home, 
                        $1,000, and
                            ``(ii) in the case of a 50-percent home, 
                        $2,000.
                    ``(B) 30- or 50-percent home.--For purposes of 
                subparagraph (A)--
                            ``(i) 30-percent home.--The term `30-
                        percent home' means--
                                    ``(I) a qualifying new home which 
                                is certified to have a projected level 
                                of annual heating and cooling energy 
                                consumption, measured in terms of 
                                average annual energy cost to the 
                                homeowner, which is at least 30 percent 
                                less than the annual level of heating 
                                and cooling energy consumption of a 
                                qualifying new home constructed in 
                                accordance with the latest standards of 
                                chapter 4 of the International Energy 
                                Conservation Code approved by the 
                                Department of Energy before the 
                                construction of such qualifying new 
                                home and any applicable Federal minimum 
                                efficiency standards for equipment, or
                                    ``(II) in the case of a qualifying 
                                new home which is a manufactured home, 
                                a home which meets the applicable 
                                standards required by the Administrator 
                                of the Environmental Protection Agency 
                                under the Energy Star Labeled Homes 
                                program.
                            ``(ii) 50-percent home.--The term `50-
                        percent home' means a qualifying new home which 
                        would be described in clause (i)(I) if 50 
                        percent were substituted for 30 percent.
                    ``(C) Prior credit amounts on same home taken into 
                account.--The amount of the credit otherwise allowable 
                for the taxable year with respect to a qualifying new 
                home under clause (i) or (ii) of subparagraph (A) shall 
                be reduced by the sum of the credits allowed under 
                subsection (a) to any taxpayer with respect to the home 
                for all preceding taxable years.
            ``(2) Coordination with certain credits.--For purposes of 
        this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to the 
                rehabilitation credit (as determined under section 
                47(a)) or to the energy credit (as determined under 
                section 48(a)), and
                    ``(B) expenditures taken into account under section 
                25D, 47, or 48(a) shall not be taken into account under 
                this section.
            ``(3) Provider limitation.--Any eligible contractor who 
        directly or indirectly provides the guarantee of energy savings 
        under a guarantee-based method of certification described in 
        subsection (d)(1)(D) shall not be eligible to receive the 
        credit allowed by this section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means--
                    ``(A) the person who constructed the qualifying new 
                home, or
                    ``(B) in the case of a qualifying new home which is 
                a manufactured home, the manufactured home producer of 
                such home.
        If more than 1 person is described in subparagraph (A) or (B) 
        with respect to any qualifying new home, such term means the 
        person designated as such by the owner of such home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy efficient heating or cooling 
        equipment or system which can, individually or in combination 
        with other components, meet the requirements of this section.
            ``(3) Qualifying new home.--
                    ``(A) In general.--The term `qualifying new home' 
                means a dwelling--
                            ``(i) located in the United States,
                            ``(ii) the construction of which is 
                        substantially completed after December 31, 
                        2004, and
                            ``(iii) the first use of which after 
                        construction is as a principal residence 
                        (within the meaning of section 121).
                    ``(B) Manufactured home included.--The term 
                `qualifying new home' includes a manufactured home 
                conforming to Federal Manufactured Home Construction 
                and Safety Standards (24 C.F.R. 3280).
            ``(4) Construction.--The term `construction' includes 
        reconstruction and rehabilitation.
            ``(5) Building envelope component.--The term `building 
        envelope component' means--
                    ``(A) any insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain of a qualifying new home when installed in 
                or on such home,
                    ``(B) exterior windows (including skylights), and
                    ``(C) exterior doors.
    ``(d) Certification.--
            ``(1) Method of certification.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be determined either by a 
                component-based method, a performance-based method, or 
                a guarantee-based method, or, in the case of a 
                qualifying new home which is a manufactured home, by a 
                method prescribed by the Administrator of the 
                Environmental Protection Agency under the Energy Star 
                Labeled Homes program.
                    ``(B) Component-based method.--A component-based 
                method is a method which uses the applicable technical 
                energy efficiency specifications or ratings (including 
                product labeling requirements) for the energy efficient 
                building envelope component or energy efficient heating 
                or cooling equipment. The Secretary shall, in 
                consultation with the Administrator of the 
                Environmental Protection Agency, develop prescriptive 
                component-based packages which are equivalent in energy 
                performance to properties which qualify under 
                subparagraph (C).
                    ``(C) Performance-based method.--
                            ``(i) In general.--A performance-based 
                        method is a method which calculates projected 
                        energy usage and cost reductions in the 
                        qualifying new home in relation to a new home--
                                    ``(I) heated by the same fuel type, 
                                and
                                    ``(II) constructed in accordance 
                                with the latest standards of chapter 4 
                                of the International Energy 
                                Conservation Code approved by the 
                                Department of Energy before the 
                                construction of such qualifying new 
                                home and any applicable Federal minimum 
                                efficiency standards for equipment.
                            ``(ii) Computer software.--Computer 
                        software shall be used in support of a 
                        performance-based method certification under 
                        clause (i). Such software shall meet procedures 
                        and methods for calculating energy and cost 
                        savings in regulations promulgated by the 
                        Secretary of Energy.
                    ``(D) Guarantee-based method.--
                            ``(i) In general.--A guarantee-based method 
                        is a method which guarantees in writing to the 
                        homeowner energy savings of either 30 percent 
                        or 50 percent over the 2000 International 
                        Energy Conservation Code for heating and 
                        cooling costs. The guarantee shall be provided 
                        for a minimum of 2 years and shall fully 
                        reimburse the homeowner any heating and cooling 
                        costs in excess of the guaranteed amount.
                            ``(ii) Computer software.--Computer 
                        software shall be selected by the provider to 
                        support the guarantee-based method 
                        certification under clause (i). Such software 
                        shall meet procedures and methods for 
                        calculating energy and cost savings in 
                        regulations promulgated by the Secretary of 
                        Energy.
            ``(2) Provider.--A certification described in subsection 
        (b)(1)(B) shall be provided by--
                    ``(A) in the case of a component-based method, a 
                local building regulatory authority, a utility, or a 
                home energy rating organization,
                    ``(B) in the case of a performance-based method or 
                a guarantee-based method, an individual recognized by 
                an organization designated by the Secretary for such 
                purposes, or
                    ``(C) in the case of a qualifying new home which is 
                a manufactured home, a manufactured home primary 
                inspection agency.
            ``(3) Form.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be made in writing in a 
                manner which specifies in readily verifiable fashion 
                the energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their respective rated energy efficiency 
                performance, and
                            ``(i) in the case of a performance-based 
                        method, accompanied by a written analysis 
                        documenting the proper application of a 
                        permissible energy performance calculation 
                        method to the specific circumstances of such 
                        qualifying new home, and
                            ``(ii) in the case of a qualifying new home 
                        which is a manufactured home, accompanied by 
                        such documentation as required by the 
                        Administrator of the Environmental Protection 
                        Agency under the Energy Star Labeled Homes 
                        program.
                    ``(B) Form provided to buyer.--A form documenting 
                the energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their rated energy efficiency performance shall be 
                provided to the buyer of the qualifying new home. The 
                form shall include labeled R-value for insulation 
                products, NFRC-labeled U-factor and solar heat gain 
                coefficient for windows, skylights, and doors, labeled 
                annual fuel utilization efficiency (AFUE) ratings for 
                furnaces and boilers, labeled heating seasonal 
                performance factor (HSPF) ratings for electric heat 
                pumps, and labeled seasonal energy efficiency ratio 
                (SEER) ratings for air conditioners.
                    ``(C) Ratings label affixed in dwelling.--A 
                permanent label documenting the ratings in subparagraph 
                (B) shall be affixed to the front of the electrical 
                distribution panel of the qualifying new home, or shall 
                be otherwise permanently displayed in a readily 
                inspectable location in such home.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for performance-based and guarantee-
                based certification methods, the Secretary shall 
                prescribe procedures for calculating annual energy 
                usage and cost reductions for heating and cooling and 
                for the reporting of the results. Such regulations 
                shall--
                            ``(i) provide that any calculation 
                        procedures be fuel neutral such that the same 
                        energy efficiency measures allow a qualifying 
                        new home to be eligible for the credit under 
                        this section regardless of whether such home 
                        uses a gas or oil furnace or boiler or an 
                        electric heat pump, and
                            ``(ii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        for the printing of forms for disclosure to the 
                        homebuyer.
                    ``(B) Providers.--For purposes of paragraph (2)(B), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the Mortgage Industry National Home Energy Rating 
                Standards.
    ``(e) Application.--Subsection (a) shall apply to qualifying new 
homes the construction of which is substantially completed after 
December 31, 2004, and purchased during the period beginning on such 
date and ending on--
            ``(1) in the case of any 30-percent home, December 31, 
        2005, and
            ``(2) in the case of any 50-percent home, December 31, 
        2007.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) 
(relating to current year business credit), as amended by this Act, is 
amended by striking ``plus'' at the end of paragraph (21), by striking 
the period at the end of paragraph (22) and inserting ``, plus'', and 
by adding at the end the following new paragraph:
            ``(23) the new energy efficient home credit determined 
        under section 45K(a).''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding at the 
end the following new subsection:
    ``(d) New Energy Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a qualifying new home 
otherwise allowable as a deduction for the taxable year which is equal 
to the amount of the credit determined for such taxable year under 
section 45K(a).''.
    (d) Deduction for Certain Unused Business Credits.--Section 196(c) 
(defining qualified business credits), as amended by this Act, is 
amended by striking ``and'' at the end of paragraph (10), by striking 
the period at the end of paragraph (11) and inserting ``, and'', and by 
adding after paragraph (11) the following new paragraph:
            ``(12) the new energy efficient home credit determined 
        under section 45K(a).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

                              ``Sec. 45K. New energy efficient home 
                                        credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to homes the construction of which is substantially completed 
after December 31, 2004.

SEC. 822. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45L. ENERGY EFFICIENT APPLIANCE CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, the energy 
        efficient appliance credit determined under this section for 
        the taxable year is an amount equal to the sum of the amounts 
        determined under paragraph (2) for qualified energy efficient 
        appliances produced by the taxpayer during the calendar year 
        ending with or within the taxable year.
            ``(2) Amount.--The amount determined under this paragraph 
        for any category described in subsection (b)(2)(B) shall be the 
        product of the applicable amount for appliances in the category 
        and the eligible production for the category.
    ``(b) Applicable Amount; Eligible Production.--For purposes of 
subsection (a)--
            ``(1) Applicable amount.--The applicable amount is--
                    ``(A) $50, in the case of--
                            ``(i) a clothes washer which is 
                        manufactured with at least a 1.42 MEF, or
                            ``(ii) a refrigerator which consumes at 
                        least 10 percent less kilowatt hours per year 
                        than the energy conservation standards for 
                        refrigerators promulgated by the Department of 
                        Energy and effective on July 1, 2001,
                    ``(B) $100, in the case of--
                            ``(i) a clothes washer which is 
                        manufactured with at least a 1.50 MEF, or
                            ``(ii) a refrigerator which consumes at 
                        least 15 percent (20 percent in the case of a 
                        refrigerator manufactured after 2006) less 
                        kilowatt hours per year than such energy 
                        conservation standards, and
                    ``(C) $150, in the case of a refrigerator 
                manufactured before 2007 which consumes at least 20 
                percent less kilowatt hours per year than such energy 
                conservation standards.
            ``(2) Eligible production.--
                    ``(A) In general.--The eligible production of each 
                category of qualified energy efficient appliances is 
                the excess of--
                            ``(i) the number of appliances in such 
                        category which are produced by the taxpayer 
                        during such calendar year, over
                            ``(ii) the average number of appliances in 
                        such category which were produced by the 
                        taxpayer during calendar years 2001, 2002, and 
                        2003.
                    ``(B) Categories.--For purposes of subparagraph 
                (A), the categories are--
                            ``(i) clothes washers described in 
                        paragraph (1)(A)(i),
                            ``(ii) clothes washers described in 
                        paragraph (1)(B)(i),
                            ``(iii) refrigerators described in 
                        paragraph (1)(A)(ii),
                            ``(iv) refrigerators described in paragraph 
                        (1)(B)(ii), and
                            ``(v) refrigerators described in paragraph 
                        (1)(C).
    ``(c) Limitation on Maximum Credit.--
            ``(1) In general.--The amount of credit allowed under 
        subsection (a) with respect to a taxpayer for all taxable years 
        shall not exceed $60,000,000, of which not more than 
        $30,000,000 may be allowed with respect to the credit 
        determined by using the applicable amount under subsection 
        (b)(1)(A).
            ``(2) Limitation based on gross receipts.--The credit 
        allowed under subsection (a) with respect to a taxpayer for the 
        taxable year shall not exceed an amount equal to 2 percent of 
        the average annual gross receipts of the taxpayer for the 3 
        taxable years preceding the taxable year in which the credit is 
        determined.
            ``(3) Gross receipts.--For purposes of this subsection, the 
        rules of paragraphs (2) and (3) of section 448(c) shall apply.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified energy efficient appliance.--The term 
        `qualified energy efficient appliance' means--
                    ``(A) a clothes washer described in subparagraph 
                (A)(i) or (B)(i) of subsection (b)(1), or
                    ``(B) a refrigerator described in subparagraph 
                (A)(ii), (B)(ii), or (C) of subsection (b)(1).
            ``(2) Clothes washer.--The term `clothes washer' means a 
        residential clothes washer, including a residential style coin 
        operated washer.
            ``(3) Refrigerator.--The term `refrigerator' means an 
        automatic defrost refrigerator-freezer which has an internal 
        volume of at least 16.5 cubic feet.
            ``(4) MEF.--The term `MEF' means Modified Energy Factor (as 
        determined by the Secretary of Energy).
    ``(e) Special Rules.--
            ``(1) In general.--Rules similar to the rules of 
        subsections (c), (d), and (e) of section 52 shall apply for 
        purposes of this section.
            ``(2) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414 shall be treated as 1 
        person for purposes of subsection (a).
    ``(f) Verification.--The taxpayer sha