Text: H.R.4297 — 109th Congress (2005-2006)All Information (Except Text)

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Public Law No: 109-222 (05/17/2006)

 
[109th Congress Public Law 222]
[From the U.S. Government Printing Office]


[DOCID: f:publ222.109]

[[Page 120 STAT. 345]]

Public Law 109-222
109th Congress

                                 An Act


 
    To provide for reconciliation pursuant to section 201(b) of the 
 concurrent resolution on the budget for <<NOTE: May 17, 2006 -  [H.R. 
                        4297]>> fiscal year 2006.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in <<NOTE: Tax Increase Prevention and 
Reconciliation Act of 2005.>> Congress assembled,

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This <<NOTE: 26 USC 1 note.>> Act may be cited as 
the ``Tax Increase Prevention and Reconciliation Act of 2005''.

    (b) Amendment of 1986 Code.--Except as <<NOTE: 26 USC 1 et. 
seq.>> otherwise expressly provided, whenever in this Act an amendment 
or repeal is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be considered to be made 
to a section or other provision of the Internal Revenue Code of 1986.

    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.

        TITLE I--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS

Sec. 101. Increased expensing for small business.
Sec. 102. Capital gains and dividends rates.
Sec. 103. Controlled foreign corporations.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Clarification of taxation of certain settlement funds.
Sec. 202. Modification of active business definition under section 355.
Sec. 203. Veterans' mortgage bonds.
Sec. 204. Capital gains treatment for certain self-created musical 
           works.
Sec. 205. Vessel tonnage limit.
Sec. 206. Modification of special arbitrage rule for certain funds.
Sec. 207. Amortization of expenses incurred in creating or acquiring 
           music or music copyrights.
Sec. 208. Modification of effective date of disregard of certain capital 
           expenditures for purposes of qualified small issue bonds.
Sec. 209. Modification of treatment of loans to qualified continuing 
           care facilities.

                TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

Sec. 301. Increase in alternative minimum tax exemption amount for 2006.
Sec. 302. Allowance of nonrefundable personal credits against regular 
           and alternative minimum tax liability.

              TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS

Sec. 401. Time for payment of corporate estimated taxes.

                   TITLE V--REVENUE OFFSET PROVISIONS

Sec. 501. Application of earnings stripping rules to partners which are 
           corporations.
Sec. 502. Reporting of interest on tax-exempt bonds.
Sec. 503. 5-year amortization of geological and geophysical expenditures 
           for certain major integrated oil companies.
Sec. 504. Application of FIRPTA to regulated investment companies.

[[Page 120 STAT. 346]]

Sec. 505. Treatment of distributions attributable to FIRPTA gains.
Sec. 506. Prevention of avoidance of tax on investments of foreign 
           persons in United States real property through wash sale 
           transactions.
Sec. 507. Section 355 not to apply to distributions involving 
           disqualified investment companies.
Sec. 508. Loan and redemption requirements on pooled financing 
           requirements.
Sec. 509. Partial payments required with submission of offers-in-
           compromise.
Sec. 510. Increase in age of minor children whose unearned income is 
           taxed as if parent's income.
Sec. 511. Imposition of withholding on certain payments made by 
           government entities.
Sec. 512. Conversions to Roth IRAs.
Sec. 513. Repeal of FSC/ETI binding contract relief.
Sec. 514. Only wages attributable to domestic production taken into 
           account in determining deduction for domestic production.
Sec. 515. Modification of exclusion for citizens living abroad.
Sec. 516. Tax involvement of accommodation parties in tax shelter 
           transactions.

        TITLE I--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS

SEC. 101. INCREASED EXPENSING FOR SMALL BUSINESS.

    Subsections (b)(1), (b)(2), (b)(5), (c)(2), and (d)(1)(A)(ii) of 
section 179 (relating to <<NOTE: 26 USC 179.>> election to expense 
certain depreciable business assets) are each amended by striking 
``2008'' and inserting ``2010''.

SEC. 102. CAPITAL GAINS AND DIVIDENDS RATES.

    Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 
2003 is <<NOTE: 26 USC 1 note.>> amended by striking ``December 31, 
2008'' and inserting ``December 31, 2010''.

SEC. 103. CONTROLLED FOREIGN CORPORATIONS.

    (a) Subpart F Exception for Active Financing.--
            (1) Exempt insurance income.--Paragraph (10) of section 
        953(e) (relating to application) is amended--
                    (A) by striking ``January 1, 2007'' and inserting 
                ``January 1, 2009'', and
                    (B) by striking ``December 31, 2006'' and inserting 
                ``December 31, 2008''.
            (2) Exception to treatment as foreign personal holding 
        company income.--Paragraph (9) of section 954(h) (relating to 
        application) is amended by striking ``January 1, 2007'' and 
        inserting ``January 1, 2009''.

    (b) Look-Through Treatment of Payments Between Related Controlled 
Foreign Corporations Under the Foreign Personal Holding Company Rules.--
            (1) In general.--Subsection (c) of section 954 (relating to 
        foreign personal holding company income) is amended by adding at 
        the end the following new paragraph:
            ``(6) Look-thru rule for related controlled foreign 
        corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                dividends, interest, rents, and royalties received or 
                accrued from a controlled foreign corporation which is a 
                related person shall not be treated as foreign personal 
                holding company income to the extent attributable or 
                properly 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. For

[[Page 120 STAT. 347]]

                purposes of this subparagraph, 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) Application.--Subparagraph (A) shall apply to 
                taxable years of foreign corporations beginning after 
                December 31, 2005, and before January 1, 2009, and to 
                taxable years of United States shareholders with or 
                within which such taxable years of foreign corporations 
                end.''.
            (2) Effective date.--The <<NOTE: 26 USC 954 
        note.>> amendment made by this subsection shall apply to taxable 
        years of foreign corporations beginning after December 31, 2005, 
        and to taxable years of United States shareholders with or 
        within which such taxable years of foreign corporations end.

                       TITLE II--OTHER PROVISIONS

SEC. 201. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT FUNDS.

    (a) In General.--Subsection (g) of <<NOTE: 26 USC 468B.>> section 
468B (relating to clarification of taxation of certain funds) is amended 
to read as follows:

    ``(g) Clarification of Taxation of Certain Funds.--
            ``(1) In general.--Except as provided in paragraph (2), 
        nothing in any provision of law shall be construed as providing 
        that an escrow account, settlement fund, or similar fund is not 
        subject to current income tax. <<NOTE: Regulations.>> The 
        Secretary shall prescribe regulations providing for the taxation 
        of any such account or fund whether as a grantor trust or 
        otherwise.
            ``(2) Exemption from tax for certain settlement funds.--An 
        escrow account, settlement fund, or similar fund shall be 
        treated as beneficially owned by the United States and shall be 
        exempt from taxation under this subtitle if--
                    ``(A) it is established pursuant to a consent decree 
                entered by a judge of a United States District Court,
                    ``(B) it is created for the receipt of settlement 
                payments as directed by a government entity for the sole 
                purpose of resolving or satisfying one or more claims 
                asserting liability under the Comprehensive 
                Environmental Response, Compensation, and Liability Act 
                of 1980,
                    ``(C) the authority and control over the expenditure 
                of funds therein (including the expenditure of 
                contributions thereto and any net earnings thereon) is 
                with such government entity, and
                    ``(D) upon termination, any remaining funds will be 
                disbursed to such government entity for use in 
                accordance with applicable law.
        For purposes of this paragraph, the term `government entity' 
        means the United States, any State or political subdivision 
        thereof, the District of Columbia, any possession of the United 
        States, and any agency or instrumentality of any of the 
        foregoing.
            ``(3) Termination.--Paragraph (2) shall not apply to 
        accounts and funds established after December 31, 2010.''.

[[Page 120 STAT. 348]]

    (b) Effective Date.--The <<NOTE: 26 USC 468B note.>> amendment made 
by subsection (a) shall apply to accounts and funds established after 
the date of the enactment of this Act.

SEC. 202. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.

    Subsection (b) of <<NOTE: 26 USC 355.>> section 355 (defining active 
conduct of a trade or business) is amended by adding at the end the 
following new paragraph:
            ``(3) Special rule relating to active business 
        requirement.--
                    ``(A) In general.--In the case of any distribution 
                made after the date of the enactment of this paragraph 
                and on or before December 31, 2010, a corporation shall 
                be treated as meeting the requirement of paragraph 
                (2)(A) if and only if such corporation is engaged in the 
                active conduct of a trade or business.
                    ``(B) Affiliated group rule.--For purposes of 
                subparagraph (A), all members of such corporation's 
                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.
                    ``(C) Transition rule.--Subparagraph (A) shall not 
                apply to any distribution pursuant to a transaction 
                which is--
                          ``(i) made pursuant to an agreement which was 
                      binding on the date of the enactment of this 
                      paragraph and at all times thereafter,
                          ``(ii) described in a ruling request submitted 
                      to the Internal Revenue Service on or before such 
                      date, or
                          ``(iii) described on or before such date in a 
                      public announcement or in a filing with the 
                      Securities and Exchange Commission.
                The preceding sentence shall not apply if the 
                distributing corporation elects not to have such 
                sentence apply to distributions of such corporation. Any 
                such election, once made, shall be irrevocable.
                    ``(D) Special rule for certain pre-enactment 
                distributions.--For purposes of determining the 
                continued qualification under paragraph (2)(A) of 
                distributions made on or before the date of the 
                enactment of this paragraph as a result of an 
                acquisition, disposition, or other restructuring after 
                such date and on or before December 31, 2010, such 
                distribution shall be treated as made on the date of 
                such acquisition, disposition, or restructuring for 
                purposes of applying subparagraphs (A) through (C) of 
                this paragraph.''.

SEC. 203. VETERANS' MORTGAGE BONDS.

    (a) Expansion of Definition of Veterans Eligible for State Home Loan 
Programs Funded by Qualified Veterans' Mortgage Bonds.--
            (1) In general.--Paragraph (4) of section 143(l) (defining 
        qualified veteran) is amended to read as follows:

[[Page 120 STAT. 349]]

            ``(4) Qualified veteran.--For purposes of this subsection, 
        the term `qualified veteran' means--
                    ``(A) in the case of the States of Alaska, Oregon, 
                and Wisconsin, any veteran--
                          ``(i) who served on active duty, and
                          ``(ii) who applied for the financing before 
                      the date 25 years after the last date on which 
                      such veteran left active service, and
                    ``(B) in the case of any other State, any veteran--
                          ``(i) who served on active duty at some time 
                      before January 1, 1977, and
                          ``(ii) who applied for the financing before 
                      the later of--
                                    ``(I) the date 30 years after the 
                                last date on which such veteran left 
                                active service, or
                                    ``(II) January 31, 1985.''.
            (2) Effective date.--The <<NOTE: 26 USC 143 
        note.>> amendments made by this subsection shall apply to bonds 
        issued on or after the date of the enactment of this Act.

    (b) Revision of State Veterans Limit.--
            (1) In general.--Subparagraph (B) of <<NOTE: 26 USC 
        143.>> section 143(l)(3) (relating to volume limitation) is 
        amended--
                    (A) by redesignating clauses (i) and (ii) as 
                subclauses (I) and (II), respectively, and moving such 
                clauses 2 ems to the right,
                    (B) by amending the matter preceding subclause (I), 
                as designated by subparagraph (A), to read as follows:
                    ``(B) State veterans limit.--
                          ``(i) In general.--In the case of any State to 
                      which clause (ii) does not apply, the State 
                      veterans limit for any calendar year is the amount 
                      equal to--'', and
                    (C) by adding at the end the following new clauses:
                          ``(ii) Alaska, oregon, and wisconsin.--In the 
                      case of the following States, the State veterans 
                      limit for any calendar year is the amount equal 
                      to--
                                    ``(I) $25,000,000 for the State of 
                                Alaska,
                                    ``(II) $25,000,000 for the State of 
                                Oregon, and
                                    ``(III) $25,000,000 for the State of 
                                Wisconsin.
                          ``(iii) Phasein.--In 
                      the <<NOTE: Applicability.>> case of calendar 
                      years beginning before 2010, clause (ii) shall be 
                      applied by substituting for each of the dollar 
                      amounts therein an amount equal to the applicable 
                      percentage of such dollar amount. For purposes of 
                      the preceding sentence, the applicable percentage 
                      shall be determined in accordance with the 
                      following table:

 
 
                                                  Applicable percentage
              ``For Calendar Year:                         is:
 
2006...........................................               20 percent
2007...........................................               40 percent
2008...........................................               60 percent
2009...........................................              80 percent.
 

                          ``(iv) Termination.--The State veterans limit 
                      for the States specified in clause (ii) for any 
                      calendar year after 2010 is zero.''.

[[Page 120 STAT. 350]]

            (2) Effective date.--The <<NOTE: 26 USC 143 
        note.>> amendments made by this subsection shall apply to 
        allocations of State volume limit after April 5, 2006.

SEC. 204. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED MUSICAL 
            WORKS.

    (a) In General.--Subsection (b) of <<NOTE: 26 USC 1221.>> section 
1221 (relating to capital asset defined) is amended by redesignating 
paragraph (3) as paragraph (4) and by inserting after paragraph (2) the 
following new paragraph:
            ``(3) Sale or exchange of self-created musical works.--At 
        the election of the taxpayer, paragraphs (1) and (3) of 
        subsection (a) shall not apply to musical compositions or 
        copyrights in musical works sold or exchanged before January 1, 
        2011, by a taxpayer described in subsection (a)(3).''.

    (b) Limitation on Charitable Contributions.--Subparagraph (A) of 
section 170(e)(1) is amended by inserting ``(determined without regard 
to section 1221(b)(3))'' after ``long-term capital gain''.
    (c) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendments made 
by this section shall apply to sales and exchanges in taxable years 
beginning after the date of the enactment of this Act.

SEC. 205. VESSEL TONNAGE LIMIT.

    (a) In General.--Paragraph (4) of section 1355(a) (relating to 
qualifying vessel) is amended by inserting ``(6,000, in the case of 
taxable years beginning after December 31, 2005, and ending before 
January 1, 2011)'' after ``10,000''.
    (b) Effective Date.--The <<NOTE: 26 USC 1355 note.>> amendment made 
by subsection (a) shall apply to taxable years beginning after December 
31, 2005.

SEC. 206. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    In the case of bonds issued after the date of the enactment of this 
Act and before August 31, 2009--
            (1) the requirement of paragraph (1) of section 648 of the 
        Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated as 
        met with respect to the securities or obligations referred to in 
        such section if such securities or obligations are held in a 
        fund the annual distributions from which cannot exceed 7 percent 
        of the average fair market value of the assets held in such fund 
        except to the extent distributions are necessary to pay debt 
        service on the bond issue, and
            (2) <<NOTE: Applicability.>> paragraph (3) of such section 
        shall be applied by substituting ``distributions from'' for 
        ``the investment earnings of'' both places it appears.

SEC. 207. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR ACQUIRING 
            MUSIC OR MUSIC COPYRIGHTS.

    (a) In General.--Section 167(g) (relating to depreciation under 
income forecast method) is amended by adding at the end the following 
new paragraph:
            ``(8) Special rules for certain musical works and 
        copyrights.--
                    ``(A) In general.--If an election is in effect under 
                this paragraph for any taxable year, then, 
                notwithstanding paragraph (1), any expense which--

[[Page 120 STAT. 351]]

                          ``(i) is paid or incurred by the taxpayer in 
                      creating or acquiring any applicable musical 
                      property placed in service during the taxable 
                      year, and
                          ``(ii) is otherwise properly chargeable to 
                      capital account,
                shall be amortized ratably over the 5-year period 
                beginning with the month in which the property was 
                placed in service. The preceding sentence shall not 
                apply to any expense which, without regard to this 
                paragraph, would not be allowable as a deduction.
                    ``(B) Exclusive method.--Except as provided in this 
                paragraph, no depreciation or amortization deduction 
                shall be allowed with respect to any expense to which 
                subparagraph (A) applies.
                    ``(C) Applicable musical property.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `applicable 
                      musical property' means any musical composition 
                      (including any accompanying words), or any 
                      copyright with respect to a musical composition, 
                      which is property to which this subsection applies 
                      without regard to this paragraph.
                          ``(ii) Exceptions.--Such term shall not 
                      include any property--
                                    ``(I) with respect to which expenses 
                                are treated as qualified creative 
                                expenses to which section 263A(h) 
                                applies,
                                    ``(II) to which a simplified 
                                procedure established under section 
                                263A(j)(2) applies, or
                                    ``(III) which is an amortizable 
                                section 197 intangible (as defined in 
                                section 197(c)).
                    ``(D) Election.--
                An <<NOTE: Applicability.>> election under this 
                paragraph shall be made at such time and in such form as 
                the Secretary may prescribe and shall apply to all 
                applicable musical property placed in service during the 
                taxable year for which the election applies.
                    ``(E) Termination.--An election may not be made 
                under this paragraph for any taxable year beginning 
                after December 31, 2010.''.

    (b) Effective Date.--The <<NOTE: 26 USC 167 note.>> amendments made 
by this section shall apply to expenses paid or incurred with respect to 
property placed in service in taxable years beginning after December 31, 
2005.

SEC. 208. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CERTAIN CAPITAL 
            EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL ISSUE BONDS.

    (a) In General.--Section 144(a)(4)(G) is amended by striking 
``September 30, 2009'' and inserting ``December 31, 2006''.
    (b) Conforming Amendment.--Section 144(a)(4)(F) is amended by 
striking ``September 30, 2009'' and inserting ``December 31, 2006''.

SEC. 209. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED CONTINUING 
            CARE FACILITIES.

    (a) In General.--Section 7872 is amended by redesignating subsection 
(h) as subsection (i) and inserting after subsection (g) the following 
new subsection:

[[Page 120 STAT. 352]]

    ``(h) Exception for Loans to Qualified Continuing Care Facilities.--
            ``(1) In general.--This section shall not apply for any 
        calendar year to any below-market loan owed by a facility which 
        on the last day of such year is a qualified continuing care 
        facility, if such loan was made pursuant to a continuing care 
        contract and if the lender (or the lender's spouse) attains age 
        62 before the close of such year.
            ``(2) Continuing care contract.--For purposes of this 
        section, the term `continuing care contract' means a written 
        contract between an individual and a qualified continuing care 
        facility under which--
                    ``(A) the individual or individual's spouse may use 
                a qualified continuing care facility for their life or 
                lives,
                    ``(B) the individual or individual's spouse will be 
                provided with housing, as appropriate for the health of 
                such individual or individual's spouse--
                          ``(i) in an independent living unit (which has 
                      additional available facilities outside such unit 
                      for the provision of meals and other personal 
                      care), and
                          ``(ii) in an assisted living facility or a 
                      nursing facility, as is available in the 
                      continuing care facility, and
                    ``(C) the individual or individual's spouse will be 
                provided assisted living or nursing care as the health 
                of such individual or individual's spouse requires, and 
                as is available in the continuing care facility.
        The <<NOTE: Guidelines.>> Secretary shall issue guidance which 
        limits such term to contracts which provide only facilities, 
        care, and services described in this paragraph.
            ``(3) Qualified continuing care facility.--
                    ``(A) In general.--For purposes of this section, the 
                term `qualified continuing care facility' means 1 or 
                more facilities--
                          ``(i) which are designed to provide services 
                      under continuing care contracts,
                          ``(ii) which include an independent living 
                      unit, plus an assisted living or nursing facility, 
                      or both, and
                          ``(iii) substantially all of the independent 
                      living unit residents of which are covered by 
                      continuing care contracts.
                    ``(B) Nursing homes excluded.--The term `qualified 
                continuing care facility' shall not include any facility 
                which is of a type which is traditionally considered a 
                nursing home.
            ``(4) Termination.--This subsection shall not apply to any 
        calendar year after 2010.''.

    (b) Conforming Amendments.--
            (1) Section 7872(g) is <<NOTE: 26 USC 7872.>> amended by 
        adding at the end the following new paragraph:
            ``(6) Suspension of application.--Paragraph (1) shall not 
        apply for any calendar year to which subsection (h) applies.''.
            (2) Section 142(d)(2)(B) is amended by striking ``Section 
        7872(g)'' and inserting ``Subsections (g) and (h) of section 
        7872''.

    (c) Effective Date.--The <<NOTE: 26 USC 142 note.>> amendment made 
by this section shall apply to calendar years beginning after December 
31, 2005, with respect to loans made before, on, or after such date.

[[Page 120 STAT. 353]]

                TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

SEC. 301. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR 2006.

    (a) In General.--Section <<NOTE: 26 USC 55.>> 55(d)(1) (relating to 
exemption amount for taxpayers other than corporations) is amended--
            (1) by striking ``$58,000'' and all that follows through 
        ``2005'' in subparagraph (A) and inserting ``$62,550 in the case 
        of taxable years beginning in 2006'', and
            (2) by striking ``$40,250'' and all that follows through 
        ``2005'' in subparagraph (B) and inserting ``$42,500 in the case 
        of taxable years beginning in 2006''.

    (b) Effective Date.--The <<NOTE: 26 USC 55 note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2005.

SEC. 302. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
            AND ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) is amended--
            (1) by striking ``2005'' in the heading thereof and 
        inserting ``2006'', and
            (2) by striking ``or 2005'' and inserting ``2005, or 2006''.

    (b) Effective Date.--The <<NOTE: 26 USC 26 note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2005.

              TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS

SEC. 401. <<NOTE: 26 USC 6655 note.>> TIME FOR PAYMENT OF CORPORATE 
            ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986--
            (1) in the case of a corporation with assets of not less 
        than $1,000,000,000 (determined as of the end of the preceding 
        taxable year)--
                    (A) the amount of any required installment of 
                corporate estimated tax which is otherwise due in July, 
                August, or September of 2006 shall be 105 percent of 
                such amount,
                    (B) the amount of any required installment of 
                corporate estimated tax which is otherwise due in July, 
                August, or September of 2012 shall be 106.25 percent of 
                such amount,
                    (C) the amount of any required installment of 
                corporate estimated tax which is otherwise due in July, 
                August, or September of 2013 shall be 100.75 percent of 
                such amount, and
                    (D) the amount of the next required installment 
                after an installment referred to in subparagraph (A), 
                (B), or (C) shall be appropriately reduced to reflect 
                the amount of the increase by reason of such 
                subparagraph,
            (2) 20.5 percent of the amount of any required installment 
        of corporate estimated tax which is otherwise due in September 
        2010 shall not be due until October 1, 2010, and

[[Page 120 STAT. 354]]

            (3) 27.5 percent of the amount of any required installment 
        of corporate estimated tax which is otherwise due in September 
        2011 shall not be due until October 1, 2011.

                   TITLE V--REVENUE OFFSET PROVISIONS

SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE 
            CORPORATIONS.

    (a) In General.--Section <<NOTE: 26 USC 163.>> 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) Treatment of corporate partners.--Except to the extent 
        provided by regulations, in applying this subsection to a 
        corporation which owns (directly or indirectly) an interest in a 
        partnership--
                    ``(A) such corporation's distributive share of 
                interest income paid or accrued to such partnership 
                shall be treated as interest income paid or accrued to 
                such corporation,
                    ``(B) such corporation's distributive share of 
                interest paid or accrued by such partnership shall be 
                treated as interest paid or accrued by such corporation, 
                and
                    ``(C) such corporation's share of the liabilities of 
                such partnership shall be treated as liabilities of such 
                corporation.''.

    (b) Additional Regulatory Authority.--Section 163(j)(9) (relating to 
regulations), as redesignated by subsection (a), is amended by striking 
``and'' at the end of subparagraph (B), by striking the period at the 
end of subparagraph (C) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(D) regulations providing for the reallocation of 
                shares of partnership indebtedness, or distributive 
                shares of the partnership's interest income or interest 
                expense.''.

    (c) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made 
by this section shall apply to taxable years beginning on or after the 
date of the enactment of this Act.

SEC. 502. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

    (a) In General.--Section 6049(b)(2) (relating to exceptions) is 
amended by striking subparagraph (B) and by redesignating subparagraphs 
(C) and (D) as subparagraphs (B) and (C), respectively.
    (b) Conforming Amendment.--Section 6049(b)(2)(C), as redesignated by 
subsection (a), is amended by striking ``subparagraph (C)'' and 
inserting ``subparagraph (B)''.
    (c) Effective Date.--The <<NOTE: 26 USC 6049 note.>> amendments made 
by this section shall apply to interest paid after December 31, 2005.

SEC. 503. 5-YEAR AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES 
            FOR CERTAIN MAJOR INTEGRATED OIL COMPANIES.

    (a) In General.--Section 167(h) (relating to amortization of 
geological and geophysical expenditures) is amended by adding at the end 
the following new paragraph:

[[Page 120 STAT. 355]]

            ``(5) Special rule for major integrated oil companies.--
                    ``(A) In general.--In <<NOTE: Applicability.>> the 
                case of a major integrated oil company, paragraphs (1) 
                and (4) shall be applied by substituting `5-year' for 
                `24 month'.
                    ``(B) Major integrated oil company.--For purposes of 
                this paragraph, the term `major integrated oil company' 
                means, with respect to any taxable year, a producer of 
                crude oil--
                          ``(i) which has an average daily worldwide 
                      production of crude oil of at least 500,000 
                      barrels for the taxable year,
                          ``(ii) which had gross receipts in excess of 
                      $1,000,000,000 for its last taxable year ending 
                      during calendar year 2005, and
                          ``(iii) to which subsection (c) of section 
                      613A does not apply by reason of paragraph (4) of 
                      section 613A(d), determined--
                                    ``(I) by substituting `15 percent' 
                                for `5 percent' each place it occurs in 
                                paragraph (3) of section 613A(d), and
                                    ``(II) without regard to whether 
                                subsection (c) of section 613A does not 
                                apply by reason of paragraph (2) of 
                                section 613A(d).
                For purposes of <<NOTE: Applicability.>> clauses (i) and 
                (ii), all persons treated as a single employer under 
                subsections (a) and (b) of section 52 shall be treated 
                as 1 person and, in case of a short taxable year, the 
                rule under section 448(c)(3)(B) shall apply.''.

    (b) Effective Date.--The <<NOTE: 26 USC 167 note.>> amendment made 
by this section shall apply to amounts paid or incurred after the date 
of the enactment of this Act.

SEC. 504. APPLICATION OF FIRPTA TO REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subclause (II) of <<NOTE: 26 USC 897.>> section 
897(h)(4)(A)(i) (defining qualified investment entity) is amended by 
inserting ``which is a United States real property holding corporation 
or which would be a United States real property holding corporation if 
the exceptions provided in subsections (c)(3) and (h)(2) did not apply 
to interests in any real estate investment trust or regulated investment 
company'' after ``regulated investment company''.

    (b) Effective Date.--The <<NOTE: 26 USC 897 note.>> amendment made 
by this section shall take effect as if included in the provisions of 
section 411 of the American Jobs Creation Act of 2004 to which it 
relates.

SEC. 505. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.

    (a) Qualified Investment Entity.--
            (1) In general.--Section 897(h)(1) is amended--
                    (A) by striking ``a nonresident alien individual or 
                a foreign corporation'' in the first sentence and 
                inserting ``a nonresident alien individual, a foreign 
                corporation, or other qualified investment entity'',
                    (B) by striking ``such nonresident alien individual 
                or foreign corporation'' in the first sentence and 
                inserting ``such nonresident alien individual, foreign 
                corporation, or other qualified investment entity'', and

[[Page 120 STAT. 356]]

                    (C) by striking the second sentence and inserting 
                the following new sentence: ``Notwithstanding the 
                preceding sentence, any distribution by a qualified 
                investment entity to a nonresident alien individual or a 
                foreign corporation with respect to any class of stock 
                which is regularly traded on an established securities 
                market located in the United States shall not be treated 
                as gain recognized from the sale or exchange of a United 
                States real property interest if such individual or 
                corporation did not own more than 5 percent of such 
                class of stock at any time during the 1-year period 
                ending on the date of such distribution.''.
            (2) Exception to termination of application of section 897 
        rules to regulated investment companies.--Clause (ii) of section 
        897(h)(4)(A) is <<NOTE: 26 USC 897.>> amended by adding at the 
        end the following new sentence: ``Notwithstanding the preceding 
        sentence, an entity described in clause (i)(II) shall be treated 
        as a qualified investment entity for purposes of applying 
        paragraphs (1) and (5) and section 1445 with respect to any 
        distribution by the entity to a nonresident alien individual or 
        a foreign corporation which is attributable directly or 
        indirectly to a distribution to the entity from a real estate 
        investment trust.''.

    (b) Withholding on Distributions Treated as Gain From United States 
Real Property Interests.--Section 1445(e) (relating to special rules for 
distributions, etc. by corporations, partnerships, trusts, or estates) 
is amended by redesignating paragraph (6) as paragraph (7) and by 
inserting after paragraph (5) the following new paragraph:
            ``(6) Distributions by regulated investment companies and 
        real estate investment trusts.--If any portion of a distribution 
        from a qualified investment entity (as defined in section 
        897(h)(4)) to a nonresident alien individual or a foreign 
        corporation is treated under section 897(h)(1) as gain realized 
        by such individual or corporation from the sale or exchange of a 
        United States real property interest, the qualified investment 
        entity shall deduct and withhold under subsection (a) a tax 
        equal to 35 percent (or, to the extent provided in regulations, 
        15 percent (20 percent in the case of taxable years beginning 
        after December 31, 2010)) of the amount so treated.''.

    (c) Treatment of Certain Distributions as Dividends.--
            (1) In general.--Section 852(b)(3) (relating to capital 
        gains) is amended by adding at the end the following new 
        subparagraph:
                    ``(E) Certain distributions.--In the case of a 
                distribution to which section 897 does not apply by 
                reason of the second sentence of section 897(h)(1), the 
                amount of such distribution which would be included in 
                computing long-term capital gains for the shareholder 
                under 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 regulated 
                      investment company.''.
            (2) Conforming amendment.--Section 871(k)(2) (relating to 
        short-term capital gain dividends) is amended by adding at the 
        end the following new subparagraph:

[[Page 120 STAT. 357]]

                    ``(E) Certain distributions.--In the case of a 
                distribution to which section 897 does not apply by 
                reason of the second sentence of section 897(h)(1), the 
                amount which would be treated as a short-term capital 
                gain dividend to the shareholder (without regard to this 
                subparagraph)--
                          ``(i) shall not be treated as a short-term 
                      capital gain dividend, and
                          ``(ii) shall be included in such shareholder's 
                      gross income as a dividend from the regulated 
                      investment company.''.

    (d) Effective Dates.--The <<NOTE: 26 USC 852 note.>> amendments made 
by this section shall apply to taxable years of qualified investment 
entities beginning after December 31, 2005, except that no amount shall 
be required to be withheld under section 1441, 1442, or 1445 of the 
Internal Revenue Code of 1986 with respect to any distribution before 
the date of the enactment of this Act if such amount was not otherwise 
required to be withheld under any such section as in effect before such 
amendments.

SEC. 506. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF FOREIGN 
            PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE 
            TRANSACTIONS.

    (a) In General.--Section <<NOTE: 26 USC 897.>> 897(h) (relating to 
special rules for certain investment entities) is amended by adding at 
the end the following new paragraph:
            ``(5) Treatment of certain wash sale transactions.--
                    ``(A) In general.--If an interest in a domestically 
                controlled qualified investment entity is disposed of in 
                an applicable wash sale transaction, the taxpayer shall, 
                for purposes of this section, be treated as having gain 
                from the sale or exchange of a United States real 
                property interest in an amount equal to the portion of 
                the distribution described in subparagraph (B) with 
                respect to such interest which, but for the disposition, 
                would have been treated by the taxpayer as gain from the 
                sale or exchange of a United States real property 
                interest under paragraph (1).
                    ``(B) Applicable wash sales transaction.--For 
                purposes of this paragraph--
                          ``(i) In general.--The term `applicable wash 
                      sales transaction' means any transaction (or 
                      series of transactions) under which a nonresident 
                      alien individual, foreign corporation, or 
                      qualified investment entity--
                                    ``(I) disposes of an interest in a 
                                domestically controlled qualified 
                                investment entity during the 30-day 
                                period preceding the ex-dividend date of 
                                a distribution which is to be made with 
                                respect to the interest and any portion 
                                of which, but for the disposition, would 
                                have been treated by the taxpayer as 
                                gain from the sale or exchange of a 
                                United States real property interest 
                                under paragraph (1), and
                                    ``(II) acquires, or enters into a 
                                contract or option to acquire, a 
                                substantially identical interest in such 
                                entity during the 61-day period 
                                beginning with the 1st day of the 30-day 
                                period described in subclause (I).

[[Page 120 STAT. 358]]

                      For purposes of subclause (II), a nonresident 
                      alien individual, foreign corporation, or 
                      qualified investment entity shall be treated as 
                      having acquired any interest acquired by a person 
                      related (within the meaning of section 267(b) or 
                      707(b)(1)) to the individual, corporation, or 
                      entity, and any interest which such person has 
                      entered into any contract or option to acquire.
                          ``(ii) Application to substitute dividend and 
                      similar payments.--Subparagraph (A) shall apply 
                      to--
                                    ``(I) any substitute dividend 
                                payment (within the meaning of section 
                                861), or
                                    ``(II) any other similar payment 
                                specified in regulations which the 
                                Secretary determines necessary to 
                                prevent avoidance of the purposes of 
                                this paragraph.
                      The portion of any such payment treated by the 
                      taxpayer as gain from the sale or exchange of a 
                      United States real property interest under 
                      subparagraph (A) by reason of this clause shall be 
                      equal to the portion of the distribution such 
                      payment is in lieu of which would have been so 
                      treated but for the transaction giving rise to 
                      such payment.
                          ``(iii) Exception where distribution actually 
                      received.--A transaction shall not be treated as 
                      an applicable wash sales transaction if the 
                      nonresident alien individual, foreign corporation, 
                      or qualified investment entity receives the 
                      distribution described in clause (i)(I) with 
                      respect to either the interest which was disposed 
                      of, or acquired, in the transaction.
                          ``(iv) Exception for certain publicly traded 
                      stock.--A transaction shall not be treated as an 
                      applicable wash sales transaction if it involves 
                      the disposition of any class of stock in a 
                      qualified investment entity which is regularly 
                      traded on an established securities market within 
                      the United States but only if the nonresident 
                      alien individual, foreign corporation, or 
                      qualified investment entity did not own more than 
                      5 percent of such class of stock at any time 
                      during the 1-year period ending on the date of the 
                      distribution described in clause (i)(I).''.

    (b) No Withholding Required.--Section <<NOTE: 26 USC 1445.>> 1445(b) 
(relating to exemptions) is amended by adding at the end the following 
new paragraph:
            ``(8) Applicable wash sales transactions.--No person shall 
        be required to deduct and withhold any amount under subsection 
        (a) with respect to a disposition which is treated as a 
        disposition of a United States real property interest solely by 
        reason of section 897(h)(5).''.

    (c) Effective Date.--The <<NOTE: 26 USC 897 note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2005, except that such amendments shall not apply to any 
distribution, or substitute dividend payment, occurring before the date 
that is 30 days after the date of the enactment of this Act.

SEC. 507. SECTION 355 NOT TO APPLY TO DISTRIBUTIONS INVOLVING 
            DISQUALIFIED INVESTMENT COMPANIES.

    (a) In General.--

[[Page 120 STAT. 359]]

            Section <<NOTE: 26 USC 355.>> 355 (relating to distributions 
        of stock and securities of a controlled corporation) is amended 
        by adding at the end the following new subsection:

    ``(g) Section Not to Apply to Distributions Involving Disqualified 
Investment Corporations.--
            ``(1) In general.--This section (and so much of section 356 
        as relates to this section) shall not apply to any distribution 
        which is part of a transaction if--
                    ``(A) either the distributing corporation or 
                controlled corporation is, immediately after the 
                transaction, a disqualified investment corporation, and
                    ``(B) any person holds, immediately after the 
                transaction, a 50-percent or greater interest in any 
                disqualified investment corporation, but only if such 
                person did not hold such an interest in such corporation 
                immediately before the transaction.
            ``(2) Disqualified investment corporation.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `disqualified investment 
                corporation' means any distributing or controlled 
                corporation if the fair market value of the investment 
                assets of the corporation is--
                          ``(i) in the case of distributions after the 
                      end of the 1-year period beginning on the date of 
                      the enactment of this subsection, \2/3\ or more of 
                      the fair market value of all assets of the 
                      corporation, and
                          ``(ii) in the case of distributions during 
                      such 1-year period, \3/4\ or more of the fair 
                      market value of all assets of the corporation.
                    ``(B) Investment assets.--
                          ``(i) In general.--Except as otherwise 
                      provided in this subparagraph, the term 
                      `investment assets' means--
                                    ``(I) cash,
                                    ``(II) any stock or securities in a 
                                corporation,
                                    ``(III) any interest in a 
                                partnership,
                                    ``(IV) any debt instrument or other 
                                evidence of indebtedness,
                                    ``(V) any option, forward or futures 
                                contract, notional principal contract, 
                                or derivative,
                                    ``(VI) foreign currency, or
                                    ``(VII) any similar asset.
                          ``(ii) Exception for assets used in active 
                      conduct of certain financial trades or 
                      businesses.--Such term shall not include any asset 
                      which is held for use in the active and regular 
                      conduct of--
                                    ``(I) a lending or finance business 
                                (within the meaning of section 
                                954(h)(4)),
                                    ``(II) a banking business through a 
                                bank (as defined in section 581), a 
                                domestic building and loan association 
                                (within the meaning of section 
                                7701(a)(19)), or any similar institution 
                                specified by the Secretary, or
                                    ``(III) an insurance business if the 
                                conduct of the business is licensed, 
                                authorized, or regulated by an 
                                applicable insurance regulatory body.

[[Page 120 STAT. 360]]

                      This clause <<NOTE: Applicability.>> shall only 
                      apply with respect to any business if 
                      substantially all of the income of the business is 
                      derived from persons who are not related (within 
                      the meaning of section 267(b) or 707(b)(1)) to the 
                      person conducting the business.
                          ``(iii) Exception for securities marked to 
                      market.--Such term shall not include any security 
                      (as defined in section 475(c)(2)) which is held by 
                      a dealer in securities and to which section 475(a) 
                      applies.
                          ``(iv) Stock or securities in a 20-percent 
                      controlled entity.--
                                    ``(I) In general.--Such term shall 
                                not include any stock and securities in, 
                                or any asset described in subclause (IV) 
                                or (V) of clause (i) issued by, a 
                                corporation which is a 20-percent 
                                controlled entity with respect to the 
                                distributing or controlled corporation.
                                    ``(II) Look-thru rule.--The 
                                distributing or controlled corporation 
                                shall, for purposes of applying this 
                                subsection, be treated as owning its 
                                ratable share of the assets of any 20-
                                percent controlled entity.
                                    ``(III) <<NOTE: Applicability.>> 20-
                                percent controlled entity.--For purposes 
                                of this clause, the term `20-percent 
                                controlled entity' means, with respect 
                                to any distributing or controlled 
                                corporation, any corporation with 
                                respect to which the distributing or 
                                controlled corporation owns directly or 
                                indirectly stock meeting the 
                                requirements of section 1504(a)(2), 
                                except that such section shall be 
                                applied by substituting `20 percent' for 
                                `80 percent' and without regard to stock 
                                described in section 1504(a)(4).
                          ``(v) Interests in certain partnerships.--
                                    ``(I) In general.--Such term shall 
                                not include any interest in a 
                                partnership, or any debt instrument or 
                                other evidence of indebtedness, issued 
                                by the partnership, if 1 or more of the 
                                trades or businesses of the partnership 
                                are (or, without regard to the 5-year 
                                requirement under subsection (b)(2)(B), 
                                would be) taken into account by the 
                                distributing or controlled corporation, 
                                as the case may be, in determining 
                                whether the requirements of subsection 
                                (b) are met with respect to the 
                                distribution.
                                    ``(II) Look-thru rule.--The 
                                distributing or controlled corporation 
                                shall, for purposes of applying this 
                                subsection, be treated as owning its 
                                ratable share of the assets of any 
                                partnership described in subclause (I).
            ``(3) 50-percent or greater interest.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `50-percent or greater 
                interest' has the meaning given such term by subsection 
                (d)(4).
                    ``(B) Attribution rules.--
                The <<NOTE: Applicability.>> rules of section 318 shall 
                apply for purposes of determining ownership of stock for 
                purposes of this paragraph.

[[Page 120 STAT. 361]]

            ``(4) Transaction.--For purposes of this subsection, the 
        term `transaction' includes a series of transactions.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out, or prevent the 
        avoidance of, the purposes of this subsection, including 
        regulations--
                    ``(A) to carry out, or prevent the avoidance of, the 
                purposes of this subsection in cases involving--
                          ``(i) the use of related persons, 
                      intermediaries, pass-thru entities, options, or 
                      other arrangements, and
                          ``(ii) the treatment of assets unrelated to 
                      the trade or business of a corporation as 
                      investment assets if, prior to the distribution, 
                      investment assets were used to acquire such 
                      unrelated assets,
                    ``(B) which in appropriate cases exclude from the 
                application of this subsection a distribution which does 
                not have the character of a redemption which would be 
                treated as a sale or exchange under section 302, and
                    ``(C) which modify the application of the 
                attribution rules applied for purposes of this 
                subsection.''.

    (b) Effective <<NOTE: 26 USC 355 note.>> Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to distributions after the date of the enactment of this 
        Act.
            (2) Transition rule.--The amendments made by this 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.

SEC. 508. LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING 
            REQUIREMENTS.

    (a) Strengthened Reasonable Expectation Requirement.--Subparagraph 
(A) of <<NOTE: 26 USC 149.>> section 149(f)(2) (relating to reasonable 
expectation requirement) is amended to read as follows:
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to an issue if the issuer 
                reasonably expects that--
                          ``(i) as of the close of the 1-year period 
                      beginning on the date of issuance of the issue, at 
                      least 30 percent of the net proceeds of the issue 
                      (as of the close of such period) will have been 
                      used directly or indirectly to make or finance 
                      loans to ultimate borrowers, and
                          ``(ii) as of the close of the 3-year period 
                      beginning on such date of issuance, at least 95 
                      percent of the net proceeds of the issue (as of 
                      the close of such period) will have been so 
                      used.''.

    (b) Written Loan Commitment and Redemption Requirements.--Section 
149(f) (relating to treatment of certain pooled financing bonds) is 
amended by redesignating paragraphs (4) and (5) as paragraphs (6) and 
(7), respectively, and by inserting after paragraph (3) the following 
new paragraphs:

[[Page 120 STAT. 362]]

            ``(4) Written loan commitment requirement.--
                    ``(A) In general.--The requirement of this paragraph 
                is met with respect to an issue if the issuer receives 
                prior to issuance written loan commitments identifying 
                the ultimate potential borrowers of at least 30 percent 
                of the net proceeds of such issue.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                with respect to any issuer which--
                          ``(i) is a State (or an integral part of a 
                      State) issuing pooled financing bonds to make or 
                      finance loans to subordinate governmental units of 
                      such State, or
                          ``(ii) is a State-created entity providing 
                      financing for water-infrastructure projects 
                      through the federally-sponsored State revolving 
                      fund program.
            ``(5) Redemption requirement.--The requirement of this 
        paragraph is met if to the extent that less than the percentage 
        of the proceeds of an issue required to be used under clause (i) 
        or (ii) of paragraph (2)(A) is used by the close of the period 
        identified in such clause, the issuer uses an amount of proceeds 
        equal to the excess of--
                    ``(A) the amount required to be used under such 
                clause, over
                    ``(B) the amount actually used by the close of such 
                period,
        to redeem outstanding bonds within 90 days after the end of such 
        period.''.

    (c) Elimination of Disregard of Pooled Bonds in Determining 
Eligibility for Small Issuer Exception to Arbitrage Rebate.--
Section <<NOTE: 26 USC 148.>> 148(f)(4)(D)(ii) (relating to aggregation 
of issuers) is amended by striking subclause (II) and by redesignating 
subclauses (III) and (IV) as subclauses (II) and (III), respectively.

    (d) Conforming Amendments.--
            (1) Section 149(f)(1) is amended by striking ``paragraphs 
        (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
        (5)''.
            (2) Section 149(f)(7)(B), as redesignated by subsection (b), 
        is amended by striking ``paragraph (4)(A)'' and inserting 
        ``paragraph (6)(A)''.
            (3) Section 54(l)(2) is amended by striking ``section 
        149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.

    (e) Effective Date.--The <<NOTE: 26 USC 54 note.>> amendments made 
by this section shall apply to bonds issued after the date of the 
enactment of this Act.

SEC. 509. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-
            COMPROMISE.

    (a) In General.--Section 7122 (relating to compromises) is amended 
by redesignating subsections (c) and (d) as subsections (d) and (e), 
respectively, and by inserting after subsection (b) the following new 
subsection:
    ``(c) Rules for Submission of Offers-in-Compromise.--
            ``(1) Partial payment required with submission.--
                    ``(A) Lump-sum offers.--
                          ``(i) In general.--The submission of any lump-
                      sum offer-in-compromise shall be accompanied by 
                      the payment of 20 percent of the amount of such 
                      offer.

[[Page 120 STAT. 363]]

                          ``(ii) Lump-sum offer-in-compromise.--For 
                      purposes of this section, the term `lump-sum 
                      offer-in-compromise' means any offer of payments 
                      made in 5 or fewer installments.
                    ``(B) Periodic payment offers.--
                          ``(i) In general.--The submission of any 
                      periodic payment offer-in-compromise shall be 
                      accompanied by the payment of the amount of the 
                      first proposed installment.
                          ``(ii) Failure to make installment during 
                      pendency of offer.--Any failure to make an 
                      installment (other than the first installment) due 
                      under such offer-in-compromise during the period 
                      such offer is being evaluated by the Secretary may 
                      be treated by the Secretary as a withdrawal of 
                      such offer-in-compromise.
            ``(2) Rules of application.--
                    ``(A) Use of payment.--The application of any 
                payment made under this subsection to the assessed tax 
                or other amounts imposed under this title with respect 
                to such tax may be specified by the taxpayer.
                    ``(B) Application of user fee.--In the case of any 
                assessed tax or other amounts imposed under this title 
                with respect to such tax which is the subject of an 
                offer-in-compromise to which this subsection applies, 
                such tax or other amounts shall be reduced by any user 
                fee imposed under this title with respect to such offer-
                in-compromise.
                    ``(C) Waiver authority.--The Secretary may issue 
                regulations waiving any payment required under paragraph 
                (1) in a manner consistent with the practices 
                established in accordance with the requirements under 
                subsection (d)(3).''.

    (b) Additional Rules Relating to Treatment of Offers.--
            (1) Unprocessable offer if payment requirements are not 
        met.--Paragraph (3) of <<NOTE: 26 USC 7122.>> section 7122(d) 
        (relating to standards for evaluation of offers), as 
        redesignated by subsection (a), is amended by striking ``; and'' 
        at the end of subparagraph (A) and inserting a comma, by 
        striking the period at the end of subparagraph (B) and inserting 
        ``, and'', and by adding at the end the following new 
        subparagraph:
                    ``(C) any offer-in-compromise which does not meet 
                the requirements of subparagraph (A)(i) or (B)(i), as 
                the case may be, of subsection (c)(1) may be returned to 
                the taxpayer as unprocessable.''.
            (2) Deemed acceptance of offer not rejected within certain 
        period.--Section 7122, as amended by subsection (a), is amended 
        by adding at the end the following new subsection:

    ``(f) Deemed Acceptance of Offer Not Rejected Within Certain 
Period.--Any offer-in-compromise submitted under this section shall be 
deemed to be accepted by the Secretary if such offer is not rejected by 
the Secretary before the date which is 24 months after the date of the 
submission of such offer. For purposes of the preceding sentence, any 
period during which any tax liability which is the subject of such 
offer-in-compromise is in dispute in any judicial proceeding shall not 
be taken into account in determining the expiration of the 24-month 
period.''.
    (c) Conforming Amendment.--Section 6159(f) is amended by striking 
``section 7122(d)'' and inserting ``section 7122(e)''.

[[Page 120 STAT. 364]]

    (d) Effective Date.--The <<NOTE: 26 USC 6159 note.>> amendments made 
by this section shall apply to offers-in-compromise submitted on and 
after the date which is 60 days after the date of the enactment of this 
Act.

SEC. 510. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS 
            TAXED AS IF PARENT'S INCOME.

    (a) In General.--Section <<NOTE: 26 USC 1.>> 1(g)(2)(A) (relating to 
child to whom subsection applies) is amended by striking ``age 14'' and 
inserting ``age 18''.

    (b) Treatment of Distributions From Qualified Disability Trusts.--
Section 1(g)(4) (relating to net unearned income) is amended by adding 
at the end the following new subparagraph:
                    ``(C) Treatment of distributions from qualified 
                disability trusts.--For purposes of this subsection, in 
                the case of any child who is a beneficiary of a 
                qualified disability trust (as defined in section 
                642(b)(2)(C)(ii)), any amount included in the income of 
                such child under sections 652 and 662 during a taxable 
                year shall be considered earned income of such child for 
                such taxable year.''.

    (c) Conforming Amendment.--Section 1(g)(2) is amended by striking 
``and'' at the end of subparagraph (A), by striking the period at the 
end of subparagraph (B) and inserting ``, and'', and by inserting after 
subparagraph (B) the following new subparagraph:
                    ``(C) such child does not file a joint return for 
                the taxable year.''.

    (d) Effective Date.--The <<NOTE: 26 USC 1 note.>> amendments made by 
this section shall apply to taxable years beginning after December 31, 
2005.

SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY 
            GOVERNMENT ENTITIES.

    (a) In General.--Section 3402 is amended by adding at the end the 
following new subsection:
    ``(t) Extension of Withholding to Certain Payments Made by 
Government Entities.--
            ``(1) General rule.--The Government of the United States, 
        every State, every political subdivision thereof, and every 
        instrumentality of the foregoing (including multi-State 
        agencies) making any payment to any person providing any 
        property or services (including any payment made in connection 
        with a government voucher or certificate program which functions 
        as a payment for property or services) shall deduct and withhold 
        from such payment a tax in an amount equal to 3 percent of such 
        payment.
            ``(2) Property and services subject to withholding.--
        Paragraph (1) shall not apply to any payment--
                    ``(A) except as provided in subparagraph (B), which 
                is subject to withholding under any other provision of 
                this chapter or chapter 3,
                    ``(B) which is subject to withholding under section 
                3406 and from which amounts are being withheld under 
                such section,
                    ``(C) of interest,
                    ``(D) for real property,
                    ``(E) to any governmental entity subject to the 
                requirements of paragraph (1), any tax-exempt entity, or 
                any foreign government,

[[Page 120 STAT. 365]]

                    ``(F) made pursuant to a classified or confidential 
                contract described in section 6050M(e)(3),
                    ``(G) made by a political subdivision of a State (or 
                any instrumentality thereof) which makes less than 
                $100,000,000 of such payments annually,
                    ``(H) which is in connection with a public 
                assistance or public welfare program for which 
                eligibility is determined by a needs or income test, and
                    ``(I) to any government employee not otherwise 
                excludable with respect to their services as an 
                employee.
            ``(3) Coordination with other sections.--For purposes of 
        sections 3403 and 3404 and for purposes of so much of subtitle F 
        (except section 7205) as relates to this chapter, payments to 
        any person for property or services which are subject to 
        withholding shall be treated as if such payments were wages paid 
        by an employer to an employee.''.

    (b) Effective Date.--The <<NOTE: 26 USC 3402 note.>> amendment made 
by this section shall apply to payments made after December 31, 2010.

SEC. 512. CONVERSIONS TO ROTH IRAS.

    (a) Repeal of Income Limitations.--
            (1) In general.--Paragraph (3) of <<NOTE: 26 USC 
        408A.>> section 408A(c) (relating to limits based on modified 
        adjusted gross income) is amended by striking subparagraph (B) 
        and redesignating subparagraphs (C) and (D) as subparagraphs (B) 
        and (C), respectively.
            (2) Conforming amendment.--Clause (i) of section 
        408A(c)(3)(B) (as redesignated by paragraph (1)) is amended by 
        striking ``except that--'' and all that follows and inserting 
        ``except that any amount included in gross income under 
        subsection (d)(3) shall not be taken into account, and''.

    (b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA.--
            (1) In general.--Clause (iii) of section 408A(d)(3)(A) 
        (relating to rollovers from an IRA other than a Roth IRA) is 
        amended to read as follows:
                          ``(iii) unless the taxpayer elects not to have 
                      this clause apply, any amount required to be 
                      included in gross income for any taxable year 
                      beginning in 2010 by reason of this paragraph 
                      shall be so included ratably over the 2-taxable-
                      year period beginning with the first taxable year 
                      beginning in 2011.''.
            (2) Conforming amendments.--
                    (A) Clause (i) of section 408A(d)(3)(E) is amended 
                to read as follows:
                          ``(i) Acceleration of inclusion.--
                                    ``(I) In general.--The amount 
                                otherwise required to be included in 
                                gross income for any taxable year 
                                beginning in 2010 or the first taxable 
                                year in the 2-year period under 
                                subparagraph (A)(iii) shall be increased 
                                by the aggregate distributions from Roth 
                                IRAs for such taxable year which are 
                                allocable under paragraph (4) to the 
                                portion of such qualified rollover 
                                contribution required to be included in 
                                gross income under subparagraph (A)(i).
                                    ``(II) Limitation on aggregate 
                                amount included.--The amount required to 
                                be included

[[Page 120 STAT. 366]]

                                in gross income for any taxable year 
                                under subparagraph (A)(iii) shall not 
                                exceed the aggregate amount required to 
                                be included in gross income under 
                                subparagraph (A)(iii) for all taxable 
                                years in the 2-year period (without 
                                regard to subclause (I)) reduced by 
                                amounts included for all preceding 
                                taxable years.''.
                    (B) The heading for <<NOTE: 26 USC 408A.>> section 
                408A(d)(3)(E) is amended by striking ``4-year'' and 
                inserting ``2-year''.

    (c) Effective Date.--The <<NOTE: 26 USC 408A note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2009.

SEC. 513. REPEAL OF FSC/ETI BINDING CONTRACT RELIEF.

    (a) FSC Provisions.--Paragraph (1) of section 5(c) of the FSC Repeal 
and Extraterritorial Income Exclusion Act <<NOTE: 26 USC 56 note.>> of 
2000 is amended by striking ``which occurs--'' and all that follows and 
inserting ``which occurs before January 1, 2002.''.

    (b) ETI Provisions.--Section 101 of the American Jobs Creation Act 
of 2004 is <<NOTE: 26 USC 114 note.>> amended by striking subsection 
(f).

    (c) Effective Date.--The <<NOTE: 26 USC 56 note.>> amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.

SEC. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION TAKEN INTO 
            ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.

    (a) In General.--Paragraph (2) of section 199(b) (relating to W-2 
wages) is amended to read as follows:
            ``(2) W-2 wages.--For purposes of this section--
                    ``(A) In general.--The term `W-2 wages' means, with 
                respect to any person for any taxable year of such 
                person, the sum of the amounts described in paragraphs 
                (3) and (8) of section 6051(a) paid by such person with 
                respect to employment of employees by such person during 
                the calendar year ending during such taxable year.
                    ``(B) Limitation to wages attributable to domestic 
                production.--Such term shall not include any amount 
                which is not properly allocable to domestic production 
                gross receipts for purposes of subsection (c)(1).
                    ``(C) Return requirement.--Such term shall not 
                include any amount which is not properly included in a 
                return filed with the Social Security Administration on 
                or before the 60th day after the due date (including 
                extensions) for such return.''.

    (b) Simplification of Rules for Determining W-2 Wages of Partners 
and S Corporation Shareholders.--
            (1) In general.--Clause (iii) of section 199(d)(1)(A) is 
        amended to read as follows:
                          ``(iii) each partner or shareholder shall be 
                      treated for purposes of subsection (b) as having 
                      W-2 wages for the taxable year in an amount equal 
                      to such person's allocable share of the W-2 wages 
                      of the partnership or S corporation for the 
                      taxable year (as determined under regulations 
                      prescribed by the Secretary).''.
            (2) Conforming amendment.--Paragraph (2) of section 199(a) 
        is amended by striking ``and subsection (d)(1)''.

[[Page 120 STAT. 367]]

    (c) Effective Date.--The <<NOTE: 26 USC 199 note.>> amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.

SEC. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING ABROAD.

    (a) Inflation Adjustment of Foreign Earned Income Limitation.--
Clause (ii) of <<NOTE: 26 USC 911.>> section 911(b)(2)(D) (relating to 
inflation adjustment) is amended--
            (1) by striking ``2007'' and inserting ``2005'', and
            (2) by striking ``2006'' in subclause (II) and inserting 
        ``2004''.

    (b) Modification of Housing Cost Amount.--
            (1) Modification of housing cost floor.--Clause (i) of 
        section 911(c)(1)(B) is amended to read as follows:
                          ``(i) 16 percent of the amount (computed on a 
                      daily basis) in effect under subsection (b)(2)(D) 
                      for the calendar year in which such taxable year 
                      begins, multiplied by''.
            (2) Maximum amount of exclusion.--
                    (A) In general.--Subparagraph (A) of section 
                911(c)(1) is amended by inserting ``to the extent such 
                expenses do not exceed the amount determined under 
                paragraph (2)'' after ``the taxable year''.
                    (B) Limitation.--Subsection (c) of section 911 is 
                amended by redesignating paragraphs (2) and (3) as 
                paragraphs (3) and (4), respectively, and by inserting 
                after paragraph (1) the following new paragraph:
            ``(2) Limitation.--
                    ``(A) In general.--The amount determined under this 
                paragraph is an amount equal to the product of--
                          ``(i) 30 percent (adjusted as may be provided 
                      under subparagraph (B)) of the amount (computed on 
                      a daily basis) in effect under subsection 
                      (b)(2)(D) for the calendar year in which the 
                      taxable year of the individual begins, multiplied 
                      by
                          ``(ii) the number of days of such taxable year 
                      within the applicable period described in 
                      subparagraph (A) or (B) of subsection (d)(1).
                    ``(B) Regulations.--The Secretary may issue 
                regulations or other guidance providing for the 
                adjustment of the percentage under subparagraph (A)(i) 
                on the basis of geographic differences in housing costs 
                relative to housing costs in the United States.''.
                    (C) Conforming amendments.--
                          (i) Section 911(d)(4) is amended by striking 
                      ``and (c)(1)(B)(ii)'' and inserting ``, 
                      (c)(1)(B)(ii), and (c)(2)(A)(ii)''.
                          (ii) Section 911(d)(7) is amended by striking 
                      ``subsection (c)(3)'' and inserting ``subsection 
                      (c)(4)''.

    (c) Rates of Tax Applicable to Nonexcluded Income.--Section 911 
(relating to exclusion of certain income of citizens and residents of 
the United States living abroad) is amended by redesignating subsection 
(f) as subsection (g) and by inserting after subsection (e) the 
following new subsection:
    ``(f) Determination of Tax Liability on Nonexcluded Amounts.--For 
purposes of this chapter, if any amount is excluded

[[Page 120 STAT. 368]]

from the gross income of a taxpayer under subsection (a) for any taxable 
year, then, notwithstanding section 1 or 55--
            ``(1) the tax imposed by section 1 on the taxpayer for such 
        taxable year shall be equal to the excess (if any) of--
                    ``(A) the tax which would be imposed by section 1 
                for the taxable year if the taxpayer's taxable income 
                were increased by the amount excluded under subsection 
                (a) for the taxable year, over
                    ``(B) the tax which would be imposed by section 1 
                for the taxable year if the taxpayer's taxable income 
                were equal to the amount excluded under subsection (a) 
                for the taxable year, and
            ``(2) the tentative minimum tax under section 55 for such 
        taxable year shall be equal to the excess (if any) of--
                    ``(A) the amount which would be such tentative 
                minimum tax for the taxable year if the taxpayer's 
                taxable excess were increased by the amount excluded 
                under subsection (a) for the taxable year, over
                    ``(B) the amount which would be such tentative 
                minimum tax for the taxable year if the taxpayer's 
                taxable excess were equal to the amount excluded under 
                subsection (a) for the taxable year.

For purposes of this subsection, the amount excluded under subsection 
(a) shall be reduced by the aggregate amount of any deductions or 
exclusions disallowed under subsection (d)(6) with respect to such 
excluded amount.''.
    (d) Effective Date.--The <<NOTE: 26 USC 911 note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2005.

SEC. 516. TAX INVOLVEMENT OF ACCOMMODATION PARTIES IN TAX SHELTER 
            TRANSACTIONS.

    (a) Imposition of Excise Tax.--
            (1) In general.--Chapter 42 (relating to private foundations 
        and certain other tax-exempt organizations) is amended by adding 
        at the end the following new subchapter:

                ``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into 
           prohibited tax shelter transactions.

``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING INTO 
            PROHIBITED TAX SHELTER TRANSACTIONS.

    ``(a) Being a Party to and Approval of Prohibited Transactions.--
            ``(1) Tax-exempt entity.--
                    ``(A) In general.--If a transaction is a prohibited 
                tax shelter transaction at the time any tax-exempt 
                entity described in paragraph (1), (2), or (3) of 
                subsection (c) becomes a party to the transaction, such 
                entity shall pay a tax for the taxable year in which the 
                entity becomes such a party and any subsequent taxable 
                year in the amount determined under subsection (b)(1).
                    ``(B) Post-transaction determination.--If any tax-
                exempt entity described in paragraph (1), (2), or (3) of 
                subsection (c) is a party to a subsequently listed 
                transaction at any time during a taxable year, such 
                entity shall pay

[[Page 120 STAT. 369]]

                a tax for such taxable year in the amount determined 
                under subsection (b)(1).
            ``(2) Entity manager.--If any entity manager of a tax-exempt 
        entity approves such entity as (or otherwise causes such entity 
        to be) a party to a prohibited tax shelter transaction at any 
        time during the taxable year and knows or has reason to know 
        that the transaction is a prohibited tax shelter transaction, 
        such manager shall pay a tax for such taxable year in the amount 
        determined under subsection (b)(2).

    ``(b) Amount of Tax.--
            ``(1) Entity.--In the case of a tax-exempt entity--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the amount of the tax imposed under 
                subsection (a)(1) with respect to any transaction for a 
                taxable year shall be an amount equal to the product of 
                the highest rate of tax under section 11, and the 
                greater of--
                          ``(i) the entity's net income (after taking 
                      into account any tax imposed by this subtitle 
                      (other than by this section) with respect to such 
                      transaction) for such taxable year which--
                                    ``(I) in the case of a prohibited 
                                tax shelter transaction (other than a 
                                subsequently listed transaction), is 
                                attributable to such transaction, or
                                    ``(II) in the case of a subsequently 
                                listed transaction, is attributable to 
                                such transaction and which is properly 
                                allocable to the period beginning on the 
                                later of the date such transaction is 
                                identified by guidance as a listed 
                                transaction by the Secretary or the 
                                first day of the taxable year, or
                          ``(ii) 75 percent of the proceeds received by 
                      the entity for the taxable year which--
                                    ``(I) in the case of a prohibited 
                                tax shelter transaction (other than a 
                                subsequently listed transaction), are 
                                attributable to such transaction, or
                                    ``(II) in the case of a subsequently 
                                listed transaction, are attributable to 
                                such transaction and which are properly 
                                allocable to the period beginning on the 
                                later of the date such transaction is 
                                identified by guidance as a listed 
                                transaction by the Secretary or the 
                                first day of the taxable year.
                    ``(B) Increase in tax for certain knowing 
                transactions.--In the case of a tax-exempt entity which 
                knew, or had reason to know, a transaction was a 
                prohibited tax shelter transaction at the time the 
                entity became a party to the transaction, the amount of 
                the tax imposed under subsection (a)(1)(A) with respect 
                to any transaction for a taxable year shall be the 
                greater of--
                          ``(i) 100 percent of the entity's net income 
                      (after taking into account any tax imposed by this 
                      subtitle (other than by this section) with respect 
                      to the prohibited tax shelter transaction) for 
                      such taxable year which is attributable to the 
                      prohibited tax shelter transaction, or

[[Page 120 STAT. 370]]

                          ``(ii) 75 percent of the proceeds received by 
                      the entity for the taxable year which are 
                      attributable to the prohibited tax shelter 
                      transaction.
                This subparagraph shall not apply to any prohibited tax 
                shelter transaction to which a tax-exempt entity became 
                a party on or before the date of the enactment of this 
                section.
            ``(2) Entity manager.--In the case of each entity manager, 
        the amount of the tax imposed under subsection (a)(2) shall be 
        $20,000 for each approval (or other act causing participation) 
        described in subsection (a)(2).

    ``(c) Tax-Exempt Entity.--For purposes of this section, the term 
`tax-exempt entity' means an entity which is--
            ``(1) described in section 501(c) or 501(d),
            ``(2) described in section 170(c) (other than the United 
        States),
            ``(3) an Indian tribal government (within the meaning of 
        section 7701(a)(40)),
            ``(4) described in paragraph (1), (2), or (3) of section 
        4979(e),
            ``(5) a program described in section 529,
            ``(6) an eligible deferred compensation plan described in 
        section 457(b) which is maintained by an employer described in 
        section 4457(e)(1)(A), or
            ``(7) an arrangement described in section 4973(a).

    ``(d) Entity Manager.--For purposes of this section, the term 
`entity manager' means--
            ``(1) in the case of an entity described in paragraph (1), 
        (2), or (3) of subsection (c)--
                    ``(A) the person with authority or responsibility 
                similar to that exercised by an officer, director, or 
                trustee of an organization, and
                    ``(B) with respect to any act, the person having 
                authority or responsibility with respect to such act, 
                and
            ``(2) in the case of an entity described in paragraph (4), 
        (5), (6), or (7) of subsection (c), the person who approves or 
        otherwise causes the entity to be a party to the prohibited tax 
        shelter transaction.

    ``(e) Prohibited Tax Shelter Transaction; Subsequently Listed 
Transaction.--For purposes of this section--
            ``(1) Prohibited tax shelter transaction.--
                    ``(A) In general.--The term `prohibited tax shelter 
                transaction' means--
                          ``(i) any listed transaction, and
                          ``(ii) any prohibited reportable transaction.
                    ``(B) Listed transaction.--The term `listed 
                transaction' has the meaning given such term by section 
                6707A(c)(2).
                    ``(C) Prohibited reportable transaction.--The term 
                `prohibited reportable transaction' means any 
                confidential transaction or any transaction with 
                contractual protection (as defined under regulations 
                prescribed by the Secretary) which is a reportable 
                transaction (as defined in section 6707A(c)(1)).
            ``(2) Subsequently listed transaction.--The term 
        `subsequently listed transaction' means any transaction to which 
        a tax-exempt entity is a party and which is determined by the 
        Secretary to be a listed transaction at any time after

[[Page 120 STAT. 371]]

        the entity has become a party to the transaction. Such term 
        shall not include a transaction which is a prohibited reportable 
        transaction at the time the entity became a party to the 
        transaction.

    ``(f) Regulatory Authority.--The Secretary is authorized to 
promulgate regulations which provide guidance regarding the 
determination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods, 
including before and after the listing of the transaction or the date 
which is 90 days after the date of the enactment of this section.
    ``(g) Coordination With Other Taxes and Penalties.--The tax imposed 
by this section is in addition to any other tax, addition to tax, or 
penalty imposed under this title.''.
            (2) Conforming amendment.--The table of subchapters for 
        chapter 42 is amended by adding at the end the following new 
        item:

              ``subchapter f. tax shelter transactions.''.

    (b) Disclosure Requirements.--
            (1) Disclosure by entity to the internal revenue service.--
                    (A) In general.--Section <<NOTE: 26 USC 
                6033.>> 6033(a) (relating to organizations required to 
                file) is amended by redesignating paragraph (2) as 
                paragraph (3) and by inserting after paragraph (1) the 
                following new paragraph:
            ``(2) Being a party to certain reportable transactions.--
        Every tax-exempt entity described in section 4965(c) shall file 
        (in such form and manner and at such time as determined by the 
        Secretary) a disclosure of--
                    ``(A) such entity's being a party to any prohibited 
                tax shelter transaction (as defined in section 4965(e)), 
                and
                    ``(B) the identity of any other party to such 
                transaction which is known by such tax-exempt entity.''.
                    (B) Conforming amendment.--Section 6033(a)(1) is 
                amended by striking ``paragraph (2)'' and inserting 
                ``paragraph (3)''.
            (2) Disclosure by other taxpayers to the tax-exempt 
        entity.--Section 6011 (relating to general requirement of 
        return, statement, or list) is amended by redesignating 
        subsection (g) as subsection (h) and by inserting after 
        subsection (f) the following new subsection:

    ``(g) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined in 
section 4965(e)(1)) shall by statement disclose to any tax-exempt entity 
(as defined in section 4965(c)) which is a party to such transaction 
that such transaction is such a prohibited tax shelter transaction.''.
    (c) Penalty for Nondisclosure.--
            (1) In general.--Section 6652(c) (relating to returns by 
        exempt organizations and by certain trusts) is amended by 
        redesignating paragraphs (3) and (4) as paragraphs (4) and (5), 
        respectively, and by inserting after paragraph (2) the following 
        new paragraph:
            ``(3) Disclosure under section 6033(a)(2).--
                    ``(A) Penalty on entities.--In the case of a failure 
                to file a disclosure required under section 6033(a)(2), 
                there shall be paid by the tax-exempt entity (the entity 
                manager

[[Page 120 STAT. 372]]

                in the case of a tax-exempt entity described in 
                paragraph (4), (5), (6), or (7) of section 4965(c)) $100 
                for each day during which such failure continues. The 
                maximum penalty under this subparagraph on failures with 
                respect to any 1 disclosure shall not exceed $50,000.
                    ``(B) Written demand.--
                          ``(i) In general.--The Secretary may make a 
                      written demand on any entity or manager subject to 
                      penalty under subparagraph (A) specifying therein 
                      a reasonable future date by which the disclosure 
                      shall be filed for purposes of this subparagraph.
                          ``(ii) Failure to comply with demand.--If any 
                      entity or manager fails to comply with any demand 
                      under clause (i) on or before the date specified 
                      in such demand, there shall be paid by such entity 
                      or manager failing to so comply $100 for each day 
                      after the expiration of the time specified in such 
                      demand during which such failure continues. The 
                      maximum penalty imposed under this subparagraph on 
                      all entities and managers for failures with 
                      respect to any 1 disclosure shall not exceed 
                      $10,000.
                    ``(C) Definitions.--Any term used in this section 
                which is also used in section 4965 shall have the 
                meaning given such term under section 4965.''.
            (2) Conforming amendment.--Paragraph (1) of section 6652(c) 
        is <<NOTE: 26 USC 6652.>> amended by striking ``6033'' each 
        place it appears in the text and heading thereof and inserting 
        ``6033(a)(1)''.

    (d) Effective <<NOTE: 26 USC 4965 note.>> Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending after the date of the enactment of this Act, with respect 
        to transactions before, on, or after such date, except that no 
        tax under section 4965(a) of the Internal Revenue Code of 1986 
        (as added by this section) shall apply with respect to income or 
        proceeds that are properly allocable to any period ending on or 
        before the date which is 90 days after such date of enactment.

[[Page 120 STAT. 373]]

            (2) Disclosure.--The amendments made by subsections (b) and 
        (c) shall apply to disclosures the due date for which are after 
        the date of the enactment of this Act.

    Approved May 17, 2006.

LEGISLATIVE HISTORY--H.R. 4297 (S. 2020):
---------------------------------------------------------------------------

HOUSE REPORTS: Nos. 109-304 (Comm. on Ways and Means) and 109-455 (Comm. 
of Conference).
CONGRESSIONAL RECORD:
                                                        Vol. 151 (2005):
                                    Dec. 8, considered and passed House.
                                                        Vol. 152 (2006):
                                    Feb. 1, 2, considered and passed 
                                        Senate, amended.
                                    May 10, House agreed to conference 
                                        report.
                                    May 11, Senate agreed to conference 
                                        report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 42 (2006):
            May 17, Presidential remarks.

                                  <all>