H. Rept. 108-755 - 108th Congress (2003-2004)
October 07, 2004

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House Report 108-755 - AMERICAN JOBS CREATION ACT OF 2004




[House Report 108-755]
[From the U.S. Government Printing Office]




108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-755
_______________________________________________________________________

                                     


                   AMERICAN JOBS CREATION ACT OF 2004

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 4520

<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>



                October 7, 2004.--Ordered to be printed



                   AMERICAN JOBS CREATION ACT OF 2004


108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-755
_______________________________________________________________________

                                     


                   AMERICAN JOBS CREATION ACT OF 2004

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 4520

<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>



                October 7, 2004.--Ordered to be printed
108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-755

======================================================================



 
                   AMERICAN JOBS CREATION ACT OF 2004

                                _______
                                

                October 7, 2004.--Ordered to be printed

                                _______
                                

 Mr. Thomas, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 4520]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
4520), to amend the Internal Revenue Code of 1986 to remove 
impediments in such Code and make our manufacturing, service, 
and high-technology businesses and workers more competitive and 
productive both at home and abroad, having met, after full and 
free conference, have agreed to recommend and do recommend to 
their respective Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``American 
Jobs Creation Act of 2004''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
    (c) Table of Contents.--The table of contents of this Act 
is as follows:

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

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic 
          production activities.

                    TITLE II--BUSINESS TAX INCENTIVES

                  Subtitle A--Small Business Expensing

Sec. 201. 2-year extension of increased expensing for small business.

                        Subtitle B--Depreciation

Sec. 211. Recovery period for depreciation of certain leasehold 
          improvements and restaurant property.

                  Subtitle C--Community Revitalization

Sec. 221. Modification of targeted areas and low-income communities for 
          new markets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000 
          census data.
Sec. 223. Modification of income requirement for census tracts within 
          high migration rural counties.

           Subtitle D--S Corporation Reform and Simplification

Sec. 231. Members of family treated as 1 shareholder.
Sec. 232. Increase in number of eligible shareholders to 100.
Sec. 233. Expansion of bank S corporation eligible shareholders to 
          include IRAs.
Sec. 234. Disregard of unexercised powers of appointment in determining 
          potential current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.
Sec. 236. Use of passive activity loss and at-risk amounts by qualified 
          subchapter S trust income beneficiaries.
Sec. 237. Exclusion of investment securities income from passive income 
          test for bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S 
          subsidiary elections and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.
Sec. 240. Repayment of loans for qualifying employer securities.

                  Subtitle E--Other Business Incentives

Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and 
          inland waterway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of 
          depreciation.
Sec. 243. Improvements related to real estate investment trusts.
Sec. 244. Special rules for certain film and television productions.
Sec. 245. Credit for maintenance of railroad track.
Sec. 246. Suspension of occupational taxes relating to distilled 
          spirits, wine, and beer.
Sec. 247. Modification of unrelated business income limitation on 
          investment in certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international 
          shipping activities using per ton rate.

Subtitle F--Stock Options and Employee Stock Purchase Plan Stock Options

Sec. 251. Exclusion of incentive stock options and employee stock 
          purchase plan stock options from wages.

      TITLE III--TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS

            Subtitle A--Volumetric Ethanol Excise Tax Credit

Sec. 301. Alcohol and biodiesel excise tax credit and extension of 
          alcohol fuels income tax credit.
Sec. 302. Biodiesel income tax credit.
Sec. 303. Information reporting for persons claiming certain tax 
          benefits.

                   Subtitle B--Agricultural Incentives

Sec. 311. Special rules for livestock sold on account of weather-related 
          conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing 
          patronage dividends.
Sec. 313. Apportionment of small ethanol producer credit.
Sec. 314. Coordinate farmers and fishermen income averaging and the 
          alternative minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to 
          outright sales by landowners.
Sec. 316. Modification to cooperative marketing rules to include value 
          added processing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers' 
          cooperative organizations.
Sec. 318. Certain expenses of rural letter carriers.
Sec. 319. Treatment of certain income of cooperatives.
Sec. 320. Exclusion for payments to individuals under National Health 
          Service Corps loan repayment program and certain State loan 
          repayment programs.
Sec. 321. Modification of safe harbor rules for timber REITs.
Sec. 322. Expensing of certain reforestation expenditures.

             Subtitle C--Incentives for Small Manufacturers

Sec. 331. Net income from publicly traded partnerships treated as 
          qualifying income of regulated investment companies.
Sec. 332. Simplification of excise tax imposed on bows and arrows.
Sec. 333. Reduction of excise tax on fishing tackle boxes.
Sec. 334. Sonar devices suitable for finding fish.
Sec. 335. Charitable contribution deduction for certain expenses 
          incurred in support of Native Alaskan subsistence whaling.
Sec. 336. Modification of depreciation allowance for aircraft.
Sec. 337. Modification of placed in service rule for bonus depreciation 
          property.
Sec. 338. Expensing of capital costs incurred in complying with 
          Environmental Protection Agency sulfur regulations.
Sec. 339. Credit for production of low sulfur diesel fuel.
Sec. 340. Expansion of qualified small-issue bond program.
Sec. 341. Oil and gas from marginal wells.

  TITLE IV--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES

Sec. 401. Interest expense allocation rules.
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled 
          section 902 corporations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply 
          in determining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible 
          property.
Sec. 407. United States property not to include certain assets of 
          controlled foreign corporation.
Sec. 408. Translation of foreign taxes.
Sec. 409. Repeal of withholding tax on dividends from certain foreign 
          corporations.
Sec. 410. Equal treatment of interest paid by foreign partnerships and 
          foreign corporations.
Sec. 411. Treatment of certain dividends of regulated investment 
          companies.
Sec. 412. Look-thru treatment for sales of partnership interests.
Sec. 413. Repeal of foreign personal holding company rules and foreign 
          investment company rules.
Sec. 414. Determination of foreign personal holding company income with 
          respect to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping 
          income.
Sec. 416. Modification of exceptions under subpart F for active 
          financing.
Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax 
          credit carryback.
Sec. 418. Modification of the treatment of certain REIT distributions 
          attributable to gain from sales or exchanges of United States 
          real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races 
          and dog races from gross income of nonresident alien 
          individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.
Sec. 421. Foreign tax credit under alternative minimum tax.
Sec. 422. Incentives to reinvest foreign earnings in United States.
Sec. 423. Delay in effective date of final regulations governing 
          exclusion of income from international operation of ships or 
          aircraft.
Sec. 424. Study of earnings stripping provisions.

        TITLE V--DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES

Sec. 501. Deduction of State and local general sales taxes in lieu of 
          State and local income taxes.

               TITLE VI--FAIR AND EQUITABLE TOBACCO REFORM

Sec. 601. Short title.

   Subtitle A--Termination of Federal Tobacco Quota and Price Support 
                                Programs

Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related 
          provisions.
Sec. 613. Conforming amendments.
Sec. 614. Continuation of liability for 2004 and earlier crop years.

Subtitle B--Transitional Payments to Tobacco Quota Holders and Producers 
                               of Tobacco

Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.
Sec. 623. Contract payments for producers of quota tobacco.
Sec. 624. Administration.
Sec. 625. Use of assessments as source of funds for payments.
Sec. 626. Tobacco Trust Fund.
Sec. 627. Limitation on total expenditures.

                Subtitle C--Implementation and Transition

Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan 
          costs.
Sec. 642. Regulations.
Sec. 643. Effective date.

                   TITLE VII--MISCELLANEOUS PROVISIONS

Sec. 701. Brownfields demonstration program for qualified green building 
          and sustainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain 
          brownfield sites from unrelated business taxable income.
Sec. 703. Civil rights tax relief.
Sec. 704. Modification of class life for certain track facilities.
Sec. 705. Suspension of policyholders surplus account provisions.
Sec. 706. Certain Alaska natural gas pipeline property treated as 7-year 
          property.
Sec. 707. Extension of enhanced oil recovery credit to certain Alaska 
          facilities.
Sec. 708. Method of accounting for naval shipbuilders.
Sec. 709. Modification of minimum cost requirement for transfer of 
          excess pension assets.
Sec. 710. Expansion of credit for electricity produced from certain 
          renewable resources.
Sec. 711. Certain business credits allowed against regular and minimum 
          tax.
Sec. 712. Inclusion of primary and secondary medical strategies for 
          children and adults with sickle cell disease as medical 
          assistance under the Medicaid program.
Sec. 713. Ceiling fans.
Sec. 714. Certain steam generators, and certain reactor vessel heads and 
          pressurizers, used in nuclear facilities.

                     TITLE VIII--REVENUE PROVISIONS

 Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and 
                         Corporate Expatriation

Sec. 801. Tax treatment of expatriated entities and their foreign 
          parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated 
          corporations.
Sec. 803. Reinsurance of United States risks in foreign jurisdictions.
Sec. 804. Revision of tax rules on expatriation of individuals.
Sec. 805. Reporting of taxable mergers and acquisitions.
Sec. 806. Studies.

             Subtitle B--Provisions Relating to Tax Shelters

                   Part I--Taxpayer-Related Provisions

Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other 
          reportable transactions having a significant tax avoidance 
          purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating 
          to taxpayer communications.
Sec. 814. Statute of limitations for taxable years for which required 
          listed transactions not reported.
Sec. 815. Disclosure of reportable transactions.
Sec. 816. Failure to furnish information regarding reportable 
          transactions.
Sec. 817. Modification of penalty for failure to maintain lists of 
          investors.
Sec. 818. Penalty on promoters of tax shelters.
Sec. 819. Modifications of substantial understatement penalty for 
          nonreportable transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to 
          tax shelters and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial 
          accounts.
Sec. 822. Regulation of individuals practicing before the Department of 
          Treasury.

                        Part II--Other Provisions

Sec. 831. Treatment of stripped interests in bond and preferred stock 
          funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding 
          taxes on income other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.
Sec. 834. No reduction of basis under section 734 in stock held by 
          partnership in corporate partner.
Sec. 835. Repeal of special rules for FASITS.
Sec. 836. Limitation on transfer or importation of built-in losses.
Sec. 837. Clarification of banking business for purposes of determining 
          investment of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable 
          to nondisclosed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for 
          certain deemed asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence 
          acquired in a like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue 
          discount deductions and income inclusions in transactions with 
          related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential 
          underpayments.
Sec. 843. Partial payment of tax liability in installment agreements.
Sec. 844. Affirmation of consolidated return regulation authority.
Sec. 845. Expanded disallowance of deduction for interest on convertible 
          debt.

                            Part III--Leasing

Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by 
          governments or other tax-exempt entities.
Sec. 849. Effective date.

                Subtitle C--Reduction of Fuel Tax Evasion

Sec. 851. Exemption from certain excise taxes for mobile machinery.
Sec. 852. Modification of definition of off-highway vehicle.
Sec. 853. Taxation of aviation-grade kerosene.
Sec. 854. Dye injection equipment.
Sec. 855. Elimination of administrative review for taxable use of dyed 
          fuel. 
Sec. 856. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 857. Termination of dyed diesel use by intercity buses.
Sec. 858. Authority to inspect on-site records.
Sec. 859. Assessable penalty for refusal of entry.
Sec. 860. Registration of pipeline or vessel operators required for 
          exemption of bulk transfers to registered terminals or 
          refineries.
Sec. 861. Display of registration.
Sec. 862. Registration of persons within foreign trade zones, etc.
Sec. 863. Penalties for failure to register and failure to report.
Sec. 864. Electronic filing of required information reports.
Sec. 865. Taxable fuel refunds for certain ultimate vendors.
Sec. 866. Two-party exchanges.
Sec. 867. Modifications of tax on use of certain vehicles.
Sec. 868. Dedication of revenues from certain penalties to the Highway 
          Trust Fund.
Sec. 869. Simplification of tax on tires.
Sec. 870. Transmix and diesel fuel blend stocks treated as taxable fuel.
Sec. 871. Study regarding fuel tax compliance.

                  Subtitle D--Other Revenue Provisions

Sec. 881. Qualified tax collection contracts.
Sec. 882. Treatment of charitable contributions of patents and similar 
          property.
Sec. 883. Increased reporting for noncash charitable contributions.
Sec. 884. Donations of motor vehicles, boats, and airplanes.
Sec. 885. Treatment of nonqualified deferred compensation plans.
Sec. 886. Extension of amortization of intangibles to sports franchises.
Sec. 887. Modification of continuing levy on payments to Federal 
          venders.
Sec. 888. Modification of straddle rules.
Sec. 889. Addition of vaccines against hepatitis A to list of taxable 
          vaccines.
Sec. 890. Addition of vaccines against influenza to list of taxable 
          vaccines.
Sec. 891. Extension of IRS user fees.
Sec. 892. COBRA fees.
Sec. 893. Prohibition on nonrecognition of gain through complete 
          liquidation of holding company.
Sec. 894. Effectively connected income to include certain foreign source 
          income.
Sec. 895. Recapture of overall foreign losses on sale of controlled 
          foreign corporation.
Sec. 896. Recognition of cancellation of indebtedness income realized on 
          satisfaction of debt with partnership interest.
Sec. 897. Denial of installment sale treatment for all readily tradable 
          debt.
Sec. 898. Modification of treatment of transfers to creditors in 
          divisive reorganizations.
Sec. 899. Clarification of definition of nonqualified preferred stock.
Sec. 900. Modification of definition of controlled group of 
          corporations.
Sec. 901. Class lives for utility grading costs.
Sec. 902. Consistent amortization of periods for intangibles.
Sec. 903. Freeze of provisions regarding suspension of interest where 
          Secretary fails to contact taxpayer.
Sec. 904. Increase in withholding from supplemental wage payments in 
          excess of $1,000,000.
Sec. 905. Treatment of sale of stock acquired pursuant to exercise of 
          stock options to comply with conflict-of-interest 
          requirements.
Sec. 906. Application of basis rules to nonresident aliens.
Sec. 907. Limitation of employer deduction for certain entertainment 
          expenses.
Sec. 908. Residence and source rules relating to United States 
          possessions.
Sec. 909. Sales or dispositions to implement Federal Energy Regulatory 
          Commission or State electric restructuring policy.
Sec. 910. Expansion of limitation on depreciation of certain passenger 
          automobiles.

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

SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

    (a) In General.--Section 114 is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subpart E of part III of subchapter N of 
        chapter 1 (relating to qualifying foreign trade income) 
        is hereby repealed.
            (2) The table of subparts for such part III is 
        amended by striking the item relating to subpart E.
            (3) The table of sections for part III of 
        subchapter B of chapter 1 is amended by striking the 
        item relating to section 114.
            (4) The second sentence of section 56(g)(4)(B)(i) 
        is amended by striking ``114 or''.
            (5) Section 275(a) is amended--
                    (A) by inserting ``or'' at the end of 
                paragraph (4)(A), by striking ``or'' at the end 
                of paragraph (4)(B) and inserting a period, and 
                by striking subparagraph (C), and
                    (B) by striking the last sentence.
            (6) Paragraph (3) of section 864(e) is amended--
                    (A) by striking:
            ``(3) Tax-exempt assets not taken into account.--
                    ``(A) In general.--For purposes of''; and 
                inserting:
            ``(3) Tax-exempt assets not taken into account.--
        For purposes of'', and
                    (B) by striking subparagraph (B).
            (7) Section 903 is amended by striking ``114, 
        164(a),'' and inserting ``164(a)''.
            (8) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.
    (c) Effective Date.--The amendments made by this section 
shall apply to transactions after December 31, 2004.
    (d) Transitional Rule for 2005 and 2006.--
            (1) In general.--In the case of transactions during 
        2005 or 2006, the amount includible in gross income by 
        reason of the amendments made by this section shall not 
        exceed the applicable percentage of the amount which 
        would have been so included but for this subsection.
            (2) Applicable percentage.--For purposes of 
        paragraph (1), the applicable percentage shall be as 
        follows:
                    (A) For 2005, the applicable percentage 
                shall be 20 percent.
                    (B) For 2006, the applicable percentage 
                shall be 40 percent.
    (e) Revocation of Election To Be Treated as Domestic 
Corporation.--If, during the 1-year period beginning on the 
date of the enactment of this Act, a corporation for which an 
election is in effect under section 943(e) of the Internal 
Revenue Code of 1986 revokes such election, no gain or loss 
shall be recognized with respect to property treated as 
transferred under clause (ii) of section 943(e)(4)(B) of such 
Code to the extent such property--
            (1) was treated as transferred under clause (i) 
        thereof, or
            (2) was acquired during a taxable year to which 
        such election applies and before May 1, 2003, in the 
        ordinary course of its trade or business.
The Secretary of the Treasury (or such Secretary's delegate) 
may prescribe such regulations as may be necessary to prevent 
the abuse of the purposes of this subsection.
    (f) Binding Contracts.--The amendments made by this section 
shall not apply to any transaction in the ordinary course of a 
trade or business which occurs pursuant to a binding contract--
            (1) which is between the taxpayer and a person who 
        is not a related person (as defined in section 
        943(b)(3) of such Code, as in effect on the day before 
        the date of the enactment of this Act), and
            (2) which is in effect on September 17, 2003, and 
        at all times thereafter.
For purposes of this subsection, a binding contract shall 
include a purchase option, renewal option, or replacement 
option which is included in such contract and which is 
enforceable against the seller or lessor.

SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO DOMESTIC 
                    PRODUCTION ACTIVITIES.

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

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

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a 
        deduction an amount equal to 9 percent of the lesser 
        of--
                    ``(A) the qualified production activities 
                income of the taxpayer for the taxable year, or
                    ``(B) taxable income (determined without 
                regard to this section) for the taxable year.
            ``(2) Phasein.--In the case of any taxable year 
        beginning after 2004 and before 2010, paragraph (1) and 
        subsections (d)(1) and (d)(6) shall be applied by 
        substituting for the percentage contained therein the 
        transition percentage determined under the following 
        table:

``For taxable years                                       The transition
beginning in:                                             percentage is:
    2005 or 2006..............................................        3 
    2007, 2008, or 2009.......................................        6.

    ``(b) Deduction Limited to Wages Paid.--
            ``(1) In general.--The amount of the deduction 
        allowable under subsection (a) for any taxable year 
        shall not exceed 50 percent of the W-2 wages of the 
        employer for the taxable year.
            ``(2) W-2 wages.--For purposes of paragraph (1), 
        the term `W-2 wages' means the sum of the aggregate 
        amounts the taxpayer is required to include on 
        statements under paragraphs (3) and (8) of section 
        6051(a) with respect to employment of employees of the 
        taxpayer during the calendar year ending during the 
        taxpayer's taxable year.
            ``(3) Acquisitions and dispositions.--The Secretary 
        shall provide for the application of this subsection in 
        cases where the taxpayer acquires, or disposes of, the 
        major portion of a trade or business or the major 
        portion of a separate unit of a trade or business 
        during the taxable year.
    ``(c) Qualified Production Activities Income.--For purposes 
of this section--
            ``(1) In general.--The term `qualified production 
        activities income' for any taxable year means an amount 
        equal to the excess (if any) of--
                    ``(A) the taxpayer's domestic production 
                gross receipts for such taxable year, over
                    ``(B) the sum of--
                            ``(i) the cost of goods sold that 
                        are allocable to such receipts,
                            ``(ii) other deductions, expenses, 
                        or losses directly allocable to such 
                        receipts, and
                            ``(iii) a ratable portion of other 
                        deductions, expenses, and losses that 
                        are not directly allocable to such 
                        receipts or another class of income.
            ``(2) Allocation method.--The Secretary shall 
        prescribe rules for the proper allocation of items of 
        income, deduction, expense, and loss for purposes of 
        determining income attributable to domestic production 
        activities.
            ``(3) Special rules for determining costs.--
                    ``(A) In general.--For purposes of 
                determining costs under clause (i) of paragraph 
                (1)(B), any item or service brought into the 
                United States shall be treated as acquired by 
                purchase, and its cost shall be treated as not 
                less than its value immediately after it 
                entered the United States. A similar rule shall 
                apply in determining the adjusted basis of 
                leased or rented property where the lease or 
                rental gives rise to domestic production gross 
                receipts.
                    ``(B) Exports for further manufacture.--In 
                the case of any property described in 
                subparagraph (A) that had been exported by the 
                taxpayer for further manufacture, the increase 
                in cost or adjusted basis under subparagraph 
                (A) shall not exceed the difference between the 
                value of the property when exported and the 
                value of the property when brought back into 
                the United States after the further 
                manufacture.
            ``(4) Domestic production gross receipts.--
                    ``(A) In general.--The term `domestic 
                production gross receipts' means the gross 
                receipts of the taxpayer which are derived 
                from--
                            ``(i) any lease, rental, license, 
                        sale, exchange, or other disposition 
                        of--
                                    ``(I) qualifying production 
                                property which was 
                                manufactured, produced, grown, 
                                or extracted by the taxpayer in 
                                whole or in significant part 
                                within the United States,
                                    ``(II) any qualified film 
                                produced by the taxpayer, or
                                    ``(III) electricity, 
                                natural gas, or potable water 
                                produced by the taxpayer in the 
                                United States,
                            ``(ii) construction performed in 
                        the United States, or
                            ``(iii) engineering or 
                        architectural services performed in the 
                        United States for construction projects 
                        in the United States.
                    ``(B) Exceptions.--Such term shall not 
                include gross receipts of the taxpayer which 
                are derived from--
                            ``(i) the sale of food and 
                        beverages prepared by the taxpayer at a 
                        retail establishment, and
                            ``(ii) the transmission or 
                        distribution of electricity, natural 
                        gas, or potable water.
            ``(5) Qualifying production property.--The term 
        `qualifying production property' means--
                    ``(A) tangible personal property,
                    ``(B) any computer software, and
                    ``(C) any property described in section 
                168(f)(4).
            ``(6) Qualified film.--The term `qualified film' 
        means any property described in section 168(f)(3) if 
        not less than 50 percent of the total compensation 
        relating to the production of such property is 
        compensation for services performed in the United 
        States by actors, production personnel, directors, and 
        producers. Such term does not include property with 
        respect to which records are required to be maintained 
        under section 2257 of title 18, United States Code.
            ``(7) Related persons.--
                    ``(A) In general.--The term `domestic 
                production gross receipts' shall not include 
                any gross receipts of the taxpayer derived from 
                property leased, licensed, or rented by the 
                taxpayer for use by any related person.
                    ``(B) Related person.--For purposes of 
                subparagraph (A), a person shall be treated as 
                related to another person if such persons are 
                treated as a single employer under subsection 
                (a) or (b) of section 52 or subsection (m) or 
                (o) of section 414, except that determinations 
                under subsections (a) and (b) of section 52 
                shall be made without regard to section 
                1563(b).
    ``(d) Definitions and Special Rules.--
            ``(1) Application of section to pass-thru 
        entities.--
                    ``(A) In general.--In the case of an S 
                corporation, partnership, estate or trust, or 
                other pass-thru entity--
                            ``(i) subject to the provisions of 
                        paragraphs (2) and (3), this section 
                        shall be applied at the shareholder, 
                        partner, or similar level, and
                            ``(ii) the Secretary shall 
                        prescribe rules for the application of 
                        this section, including rules relating 
                        to--
                                    ``(I) restrictions on the 
                                allocation of the deduction to 
                                taxpayers at the partner or 
                                similar level, and
                                    ``(II) additional reporting 
                                requirements.
                    ``(B) Application of wage limitation.--
                Notwithstanding subparagraph (A)(i), for 
                purposes of applying subsection (b), a 
                shareholder, partner, or similar person which 
                is allocated qualified production activities 
                income from an S corporation, partnership, 
                estate, trust, or other pass-thru entity shall 
                also be treated as having been allocated W-2 
                wages from such entity in an amount equal to 
                the lesser of--
                            ``(i) such person's allocable share 
                        of such wages (without regard to this 
                        subparagraph), as determined under 
                        regulations prescribed by the 
                        Secretary, or
                            ``(ii) 2 times 9 percent of the 
                        qualified production activities income 
                        allocated to such person for the 
                        taxable year.
            ``(2) Application to individuals.--In the case of 
        an individual, subsection (a)(1)(B) shall be applied by 
        substituting `adjusted gross income' for `taxable 
        income'. For purposes of the preceding sentence, 
        adjusted gross income shall be determined--
                    ``(A) after application of sections 86, 
                135, 137, 219, 221, 222, and 469, and
                    ``(B) without regard to this section.
            ``(3) Patrons of agricultural and horticultural 
        cooperatives.--
                    ``(A) In general.--If any amount described 
                in paragraph (1) or (3) of section 1385(a)--
                            ``(i) is received by a person from 
                        an organization to which part I of 
                        subchapter T applies which is engaged--
                                    ``(I) in the manufacturing, 
                                production, growth, or 
                                extraction in whole or 
                                significant part of any 
                                agricultural or horticultural 
                                product, or
                                    ``(II) in the marketing of 
                                agricultural or horticultural 
                                products, and
                            ``(ii) is allocable to the portion 
                        of the qualified production activities 
                        income of the organization which, but 
                        for this paragraph, would be deductible 
                        under subsection (a) by the 
                        organization and is designated as such 
                        by the organization in a written notice 
                        mailed to its patrons during the 
                        payment period described in section 
                        1382(d),
                then such person shall be allowed a deduction 
                under subsection (a) with respect to such 
                amount. The taxable income of the organization 
                shall not be reduced under section 1382 by 
                reason of any amount to which the preceding 
                sentence applies.
                    ``(B) Special rules.--For purposes of 
                applying subparagraph (A), in determining the 
                qualified production activities income which 
                would be deductible by the organization under 
                subsection (a)--
                            ``(i) there shall not be taken into 
                        account in computing the organization's 
                        taxable income any deduction allowable 
                        under subsection (b) or (c) of section 
                        1382 (relating to patronage dividends, 
                        per-unit retain allocations, and 
                        nonpatronage distributions), and
                            ``(ii) in the case of an 
                        organization described in subparagraph 
                        (A)(i)(II), the organization shall be 
                        treated as having manufactured, 
                        produced, grown, or extracted in whole 
                        or significant part any qualifying 
                        production property marketed by the 
                        organization which its patrons have so 
                        manufactured, produced, grown, or 
                        extracted.
            ``(4) Special rule for affiliated groups.--
                    ``(A) In general.--All members of an 
                expanded affiliated group shall be treated as a 
                single corporation for purposes of this 
                section.
                    ``(B) Expanded affiliated group.--For 
                purposes of this section, the term `expanded 
                affiliated group' means an affiliated group as 
                defined in section 1504(a), determined--
                            ``(i) by substituting `50 percent' 
                        for `80 percent' each place it appears, 
                        and
                            ``(ii) without regard to paragraphs 
                        (2) and (4) of section 1504(b).
                    ``(C) Allocation of deduction.--Except as 
                provided in regulations, the deduction under 
                subsection (a) shall be allocated among the 
                members of the expanded affiliated group in 
                proportion to each member's respective amount 
                (if any) of qualified production activities 
                income.
            ``(5) Trade or business requirement.--This section 
        shall be applied by only taking into account items 
        which are attributable to the actual conduct of a trade 
        or business.
            ``(6) Coordination with minimum tax.--The deduction 
        under this section shall be allowed for purposes of the 
        tax imposed by section 55; except that for purposes of 
        section 55, the deduction under subsection (a) shall be 
        9 percent of the lesser of--
                    ``(A) qualified production activities 
                income (determined without regard to part IV of 
                subchapter A), or
                    ``(B) alternative minimum taxable income 
                (determined without regard to this section) for 
                the taxable year.
        In the case of an individual, subparagraph (B) shall be 
        applied by substituting `adjusted gross income' for 
        `alternative minimum taxable income'. For purposes of 
        the preceding sentence, adjusted gross income shall be 
        determined in the same manner as provided in paragraph 
        (2).
            ``(7) Regulations.--The Secretary shall prescribe 
        such regulations as are necessary to carry out the 
        purposes of this section.''.
    (b) Minimum Tax.--Section 56(g)(4)(C) (relating to 
disallowance of items not deductible in computing earnings and 
profits) is amended by adding at the end the following new 
clause:
                            ``(v) Deduction for domestic 
                        production.--Clause (i) shall not apply 
                        to any amount allowable as a deduction 
                        under section 199.''.
    (c) Special Rule Relating to Election To Treat Cutting of 
Timber as a Sale or Exchange.--Any election under section 
631(a) of the Internal Revenue Code of 1986 made for a taxable 
year ending on or before the date of the enactment of this Act 
may be revoked by the taxpayer for any taxable year ending 
after such date. For purposes of determining whether such 
taxpayer may make a further election under such section, such 
election (and any revocation under this section) shall not be 
taken into account.
    (d) Technical Amendments.--
            (1) Sections 86(b)(2)(A), 135(c)(4)(A), 
        137(b)(3)(A), and 219(g)(3)(A)(ii) are each amended by 
        inserting ``199,'' before ``221''.
            (2) Clause (i) of section 221(b)(2)(C) is amended 
        by inserting ``199,'' before ``222''.
            (3) Clause (i) of section 222(b)(2)(C) is amended 
        by inserting ``199,'' before ``911''.
            (4) Paragraph (1) of section 246(b) is amended by 
        inserting ``199,'' after ``172,''.
            (5) Clause (iii) of section 469(i)(3)(F) is amended 
        by inserting ``199,'' before ``219,''.
            (6) Subsection (a) of section 613 is amended by 
        inserting ``and without the deduction under section 
        199'' after ``without allowances for depletion''.
            (7) Subsection (a) of section 1402 is amended by 
        striking ``and'' at the end of paragraph (14), by 
        striking the period at the end of paragraph (15) and 
        inserting ``, and'', and by inserting after paragraph 
        (15) the following new paragraph:
            ``(16) the deduction provided by section 199 shall 
        not be allowed.''.
            (8) The table of sections for part VI of subchapter 
        B of chapter 1 is amended by adding at the end the 
        following new item:

        ``Sec. 199. Income attributable to domestic production 
                  activities.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004.

                   TITLE II--BUSINESS TAX INCENTIVES

                  Subtitle A--Small Business Expensing

SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS.

    Subsections (b), (c), and (d) of section 179 are each 
amended by striking ``2006'' each place it appears and 
inserting ``2008''.

                        Subtitle B--Depreciation

SEC. 211. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD 
                    IMPROVEMENTS AND RESTAURANT PROPERTY.

    (a) 15-Year Recovery Period.--Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ``and'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting a 
comma, and by adding at the end the following new clauses:
                            ``(iv) any qualified leasehold 
                        improvement property placed in service 
                        before January 1, 2006, and
                            ``(v) any qualified restaurant 
                        property placed in service before 
                        January 1, 2006.''.
    (b) Qualified Leasehold Improvement Property.--Subsection 
(e) of section 168 is amended by adding at the end the 
following new paragraph:
            ``(6) Qualified leasehold improvement property.--
        The term `qualified leasehold improvement property' has 
        the meaning given such term in section 168(k)(3) except 
        that the following special rules shall apply:
                    ``(A) Improvements made by lessor.--In the 
                case of an improvement made by the person who 
                was the lessor of such improvement when such 
                improvement was placed in service, such 
                improvement shall be qualified leasehold 
                improvement property (if at all) only so long 
                as such improvement is held by such person.
                    ``(B) Exception for changes in form of 
                business.--Property shall not cease to be 
                qualified leasehold improvement property under 
                subparagraph (A) by reason of--
                            ``(i) death,
                            ``(ii) a transaction to which 
                        section 381(a) applies,
                            ``(iii) a mere change in the form 
                        of conducting the trade or business so 
                        long as the property is retained in 
                        such trade or business as qualified 
                        leasehold improvement property and the 
                        taxpayer retains a substantial interest 
                        in such trade or business,
                            ``(iv) the acquisition of such 
                        property in an exchange described in 
                        section 1031, 1033, or 1038 to the 
                        extent that the basis of such property 
                        includes an amount representing the 
                        adjusted basis of other property owned 
                        by the taxpayer or a related person, or
                            ``(v) the acquisition of such 
                        property by the taxpayer in a 
                        transaction described in section 332, 
                        351, 361, 721, or 731 (or the 
                        acquisition of such property by the 
                        taxpayer from the transferee or 
                        acquiring corporation in a transaction 
                        described in such section), to the 
                        extent that the basis of the property 
                        in the hands of the taxpayer is 
                        determined by reference to its basis in 
                        the hands of the transferor or 
                        distributor.''.
    (c) Qualified Restaurant Property.--Subsection (e) of 
section 168 (as amended by subsection (b)) is further amended 
by adding at the end the following new paragraph:
            ``(7) Qualified restaurant property.--The term 
        `qualified restaurant property' means any section 1250 
        property which is an improvement to a building if--
                    ``(A) such improvement is placed in service 
                more than 3 years after the date such building 
                was first placed in service, and
                    ``(B) more than 50 percent of the 
                building's square footage is devoted to 
                preparation of, and seating for on-premises 
                consumption of, prepared meals.''.
    (d) Requirement To Use Straight Line Method.--
            (1) Paragraph (3) of section 168(b) is amended by 
        adding at the end the following new subparagraphs:
                    ``(G) Qualified leasehold improvement 
                property described in subsection (e)(6).
                    ``(H) Qualified restaurant property 
                described in subsection (e)(7).''.
            (2) Subparagraph (A) of section 168(b)(2) is 
        amended by inserting before the comma ``not referred to 
        in paragraph (3)''.
    (e) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by adding at the end the following new 
items:

      ``(E)(iv).........................................         39     
      ``(E)(v)..........................................       39''.    

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

                  Subtitle C--Community Revitalization

SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME COMMUNITIES FOR 
                    NEW MARKETS TAX CREDIT.

    (a) Targeted Areas.--Paragraph (2) of section 45D(e) 
(relating to targeted areas) is amended to read as follows:
            ``(2) Targeted populations.--The Secretary shall 
        prescribe regulations under which 1 or more targeted 
        populations (within the meaning of section 103(20) of 
        the Riegle Community Development and Regulatory 
        Improvement Act of 1994 (12 U.S.C. 4702(20))) may be 
        treated as low-income communities. Such regulations 
        shall include procedures for determining which entities 
        are qualified active low-income community businesses 
        with respect to such populations.''.
    (b) Tracts With Low Population.--Subsection (e) of section 
45D (defining low-income community) is amended by adding at the 
end the following:
            ``(4) Tracts with low population.--A population 
        census tract with a population of less than 2,000 shall 
        be treated as a low-income community for purposes of 
        this section if such tract--
                    ``(A) is within an empowerment zone the 
                designation of which is in effect under section 
                1391, and
                    ``(B) is contiguous to 1 or more low-income 
                communities (determined without regard to this 
                paragraph).''.
    (c) Effective Dates.--
            (1) Targeted areas.--The amendment made by 
        subsection (a) shall apply to designations made by the 
        Secretary of the Treasury after the date of the 
        enactment of this Act.
            (2) Tracts with low population.--The amendment made 
        by subsection (b) shall apply to investments made after 
        the date of the enactment of this Act.

SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED ON 2000 
                    CENSUS DATA.

    (a) In General.--Section 1400E (relating to designation of 
renewal communities) is amended by adding at the end the 
following new subsection:
    ``(g) Expansion of Designated Area Based on 2000 Census.--
            ``(1) In general.--At the request of all 
        governments which nominated an area as a renewal 
        community, the Secretary of Housing and Urban 
        Development may expand the area of such community to 
        include any census tract if--
                    ``(A)(i) at the time such community was 
                nominated, such community would have met the 
                requirements of this section using 1990 census 
                data even if such tract had been included in 
                such community, and
                    ``(ii) such tract has a poverty rate using 
                2000 census data which exceeds the poverty rate 
                for such tract using 1990 census data, or
                    ``(B)(i) such community would be described 
                in subparagraph (A)(i) but for the failure to 
                meet one or more of the requirements of 
                paragraphs (2)(C)(i), (3)(C), and (3)(D) of 
                subsection (c) using 1990 census data,
                    ``(ii) such community, including such 
                tract, has a population of not more than 
                200,000 using either 1990 census data or 2000 
                census data,
                    ``(iii) such tract meets the requirement of 
                subsection (c)(3)(C) using 2000 census data, 
                and
                    ``(iv) such tract meets the requirement of 
                subparagraph (A)(ii).
            ``(2) Exception for certain census tracts with low 
        population in 1990.--In the case of any census tract 
        which did not have a poverty rate determined by the 
        Bureau of the Census using 1990 census data, paragraph 
        (1)(B) shall be applied without regard to clause (iv) 
        thereof.
            ``(3) Special rule for certain census tracts with 
        low population in 2000.--At the request of all 
        governments which nominated an area as a renewal 
        community, the Secretary of Housing and Urban 
        Development may expand the area of such community to 
        include any census tract if--
                    ``(A) either--
                            ``(i) such tract has no population 
                        using 2000 census data, or
                            ``(ii) no poverty rate for such 
                        tract is determined by the Bureau of 
                        the Census using 2000 census data,
                    ``(B) such tract is one of general 
                distress, and
                    ``(C) such community, including such tract, 
                meets the requirements of subparagraphs (A) and 
                (B) of subsection (c)(2).
            ``(4) Period in effect.--Any expansion under this 
        subsection shall take effect as provided in subsection 
        (b).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect as if included in the amendments made by 
section 101 of the Community Renewal Tax Relief Act of 2000.

SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS TRACTS WITHIN 
                    HIGH MIGRATION RURAL COUNTIES.

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

          Subtitle D--S Corporation Reform and Simplification

SEC. 231. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.

    (a) In General.--Paragraph (1) of section 1361(c) (relating 
to special rules for applying subsection (b)) is amended to 
read as follows:
            ``(1) Members of family treated as 1 shareholder.--
                    ``(A) In general.--For purpose of 
                subsection (b)(1)(A)--
                            ``(i) except as provided in clause 
                        (ii), a husband and wife (and their 
                        estates) shall be treated as 1 
                        shareholder, and
                            ``(ii) in the case of a family with 
                        respect to which an election is in 
                        effect under subparagraph (D), all 
                        members of the family shall be treated 
                        as 1 shareholder.
                    ``(B) Members of the family.--For purpose 
                of subparagraph (A)(ii)--
                            ``(i) In general.--The term 
                        `members of the family' means the 
                        common ancestor, lineal descendants of 
                        the common ancestor, and the spouses 
                        (or former spouses) of such lineal 
                        descendants or common ancestor.
                            ``(ii) Common Ancestor--For 
                        purposes of this paragraph, an 
                        individual shall not be considered a 
                        common ancestor if, as of the later of 
                        the effective date of this paragraph or 
                        the time the election under section 
                        1362(a) is made, the individual is more 
                        than 6 generations removed from the 
                        youngest generation of shareholders who 
                        would (but for this clause) be members 
                        of the family. For purposes of the 
                        preceding sentence, a spouse (or former 
                        spouse) shall be treated as being of 
                        the same generation as the individual 
                        to which such spouse is (or was) 
                        married.
                    ``(C) Effect of adoption, etc.--In 
                determining whether any relationship specified 
                in subparagraph (B) exists, the rules of 
                section 152(b)(2) shall apply.
                    ``(D) Election.--An election under 
                subparagraph (A)(ii)--
                            ``(i) may, except as otherwise 
                        provided in regulations prescribed by 
                        the Secretary, be made by any member of 
                        the family, and
                            ``(ii) shall remain in effect until 
                        terminated as provided in regulations 
                        prescribed by the Secretary.''.
    (b) Relief From Inadvertent Invalid Election or 
Termination.--Section 1362(f) (relating to inadvertent invalid 
elections or terminations), as amended by this Act, is 
amended--
            (1) by inserting ``or section 1361(c)(1)(A)(ii)'' 
        after ``section 1361(b)(3)(B)(ii),'' in paragraph (1), 
        and
            (2) by inserting ``or section 1361(c)(1)(D)(iii)'' 
        after ``section 1361(b)(3)(C),'' in paragraph (1)(B).
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall apply to taxable years beginning 
        after December 31, 2004.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply to elections and 
        terminations made after December 31, 2004.

SEC. 232. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 100.

    (a) In General.--Section 1361(b)(1)(A) (defining small 
business corporation) is amended by striking ``75'' and 
inserting ``100''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 233. EXPANSION OF BANK S CORPORATION ELIGIBLE SHAREHOLDERS TO 
                    INCLUDE IRAS.

    (a) In General.--Section 1361(c)(2)(A) (relating to certain 
trusts permitted as shareholders) is amended by inserting after 
clause (v) the following new clause:
                            ``(vi) In the case of a corporation 
                        which is a bank (as defined in section 
                        581), a trust which constitutes an 
                        individual retirement account under 
                        section 408(a), including one 
                        designated as a Roth IRA under section 
                        408A, but only to the extent of the 
                        stock held by such trust in such bank 
                        as of the date of the enactment of this 
                        clause.''.
    (b) Treatment as Shareholder.--Section 1361(c)(2)(B) 
(relating to treatment as shareholders) is amended by adding at 
the end the following new clause:
                            ``(vi) In the case of a trust 
                        described in clause (vi) of 
                        subparagraph (A), the individual for 
                        whose benefit the trust was created 
                        shall be treated as a shareholder.''.
    (c) Sale of Bank Stock in IRA Relating to S Corporation 
Election Exempt From Prohibited Transaction Rules.--Section 
4975(d) (relating to exemptions) is amended by striking ``or'' 
at the end of paragraph (14), by striking the period at the end 
of paragraph (15) and inserting ``; or'', and by adding at the 
end the following new paragraph:
            ``(16) a sale of stock held by a trust which 
        constitutes an individual retirement account under 
        section 408(a) to the individual for whose benefit such 
        account is established if--
                    ``(A) such stock is in a bank (as defined 
                in section 581),
                    ``(B) such stock is held by such trust as 
                of the date of the enactment of this paragraph,
                    ``(C) such sale is pursuant to an election 
                under section 1362(a) by such bank,
                    ``(D) such sale is for fair market value at 
                the time of sale (as established by an 
                independent appraiser) and the terms of the 
                sale are otherwise at least as favorable to 
                such trust as the terms that would apply on a 
                sale to an unrelated party,
                    ``(E) such trust does not pay any 
                commissions, costs, or other expenses in 
                connection with the sale, and
                    ``(F) the stock is sold in a single 
                transaction for cash not later than 120 days 
                after the S corporation election is made.''.
    (d) Conforming Amendment.--Section 512(e)(1) is amended by 
inserting ``1361(c)(2)(A)(vi) or'' before ``1361(c)(6)''.
    (e) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 234. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT IN DETERMINING 
                    POTENTIAL CURRENT BENEFICIARIES OF ESBT.

    (a) In General.--Section 1361(e)(2) (defining potential 
current beneficiary) is amended--
            (1) by inserting ``(determined without regard to 
        any power of appointment to the extent such power 
        remains unexercised at the end of such period)'' after 
        ``of the trust'' in the first sentence, and
            (2) by striking ``60-day'' in the second sentence 
        and inserting ``1-year''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 235. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE, ETC.

    (a) In General.--Section 1366(d)(2) (relating to indefinite 
carryover of disallowed losses and deductions) is amended to 
read as follows:
            ``(2) Indefinite carryover of disallowed losses and 
        deductions.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), any loss or deduction which 
                is disallowed for any taxable year by reason of 
                paragraph (1) shall be treated as incurred by 
                the corporation in the succeeding taxable year 
                with respect to that shareholder.
                    ``(B) Transfers of stock between spouses or 
                incident to divorce.--In the case of any 
                transfer described in section 1041(a) of stock 
                of an S corporation, any loss or deduction 
                described in subparagraph (A) with respect such 
                stock shall be treated as incurred by the 
                corporation in the succeeding taxable year with 
                respect to the transferee.''
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 236. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS BY QUALIFIED 
                    SUBCHAPTER S TRUST INCOME BENEFICIARIES.

    (a) In General.--Section 1361(d)(1) (relating to special 
rule for qualified subchapter S trust) is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (A),
            (2) by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(C) for purposes of applying sections 465 
                and 469 to the beneficiary of the trust, the 
                disposition of the S corporation stock by the 
                trust shall be treated as a disposition by such 
                beneficiary.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to transfers made after December 31, 2004.

SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME 
                    TEST FOR BANK S CORPORATIONS.

    (a) In General.--Section 1362(d)(3) (relating to where 
passive investment income exceeds 25 percent of gross receipts 
for 3 consecutive taxable years and corporation has accumulated 
earnings and profits) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Exception for banks; etc.--In the 
                case of a bank (as defined in section 581), a 
                bank holding company (within the meaning of 
                section 2(a) of the Bank Holding Company Act of 
                1956 (12 U.S.C. 1841(a))), or a financial 
                holding company (within the meaning of section 
                2(p) of such Act), the term `passive investment 
                income' shall not include--
                            ``(i) interest income earned by 
                        such bank or company, or
                            ``(ii) dividends on assets required 
                        to be held by such bank or company, 
                        including stock in the Federal Reserve 
                        Bank, the Federal Home Loan Bank, or 
                        the Federal Agricultural Mortgage Bank 
                        or participation certificates issued by 
                        a Federal Intermediate Credit Bank.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUBCHAPTER S 
                    SUBSIDIARY ELECTIONS AND TERMINATIONS.

    (a) In General.--Section 1362(f) (relating to inadvertent 
invalid elections or terminations) is amended--
            (1) by inserting ``, section 1361(b)(3)(B)(ii),'' 
        after ``subsection (a)'' in paragraph (1),
            (2) by inserting ``, section 1361(b)(3)(C),'' after 
        ``subsection (d)'' in paragraph (1)(B),
            (3) by amending paragraph (3)(A) to read as 
        follows:
                    ``(A) so that the corporation for which the 
                election was made or the termination occurred 
                is a small business corporation or a qualified 
                subchapter S subsidiary, as the case may be, 
                or'',
            (4) by amending paragraph (4) to read as follows:
            ``(4) the corporation for which the election was 
        made or the termination occurred, and each person who 
        was a shareholder in such corporation at any time 
        during the period specified pursuant to this 
        subsection, agrees to make such adjustments (consistent 
        with the treatment of such corporation as an S 
        corporation or a qualified subchapter S subsidiary, as 
        the case may be) as may be required by the Secretary 
        with respect to such period,'', and
            (5) by inserting ``or a qualified subchapter S 
        subsidiary, as the case may be'' after ``S 
        corporation'' in the matter following paragraph (4).
    (b) Effective Date.--The amendments made by this section 
shall apply to elections made and terminations made after 
December 31, 2004.

SEC. 239. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES.

    (a) In General.--Section 1361(b)(3)(A) (relating to 
treatment of certain wholly owned subsidiaries) is amended by 
inserting ``and in the case of information returns required 
under part III of subchapter A of chapter 61'' after 
``Secretary''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 240. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURITIES.

    (a) In General.--Subsection (f) of section 4975 (relating 
to other definitions and special rules) is amended by adding at 
the end the following new paragraph:
            ``(7) S corporation repayment of loans for 
        qualifying employer securities.--A plan shall not be 
        treated as violating the requirements of section 401 or 
        409 or subsection (e)(7), or as engaging in a 
        prohibited transaction for purposes of subsection 
        (d)(3), merely by reason of any distribution (as 
        described in section 1368(a)) with respect to S 
        corporation stock that constitutes qualifying employer 
        securities, which in accordance with the plan 
        provisions is used to make payments on a loan described 
        in subsection (d)(3) the proceeds of which were used to 
        acquire such qualifying employer securities (whether or 
        not allocated to participants). The preceding sentence 
        shall not apply in the case of a distribution which is 
        paid with respect to any employer security which is 
        allocated to a participant unless the plan provides 
        that employer securities with a fair market value of 
        not less than the amount of such distribution are 
        allocated to such participant for the year which (but 
        for the preceding sentence) such distribution would 
        have been allocated to such participant.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to distributions with respect to S corporation 
stock made after December 31, 1997.

                 Subtitle E--Other Business Incentives

SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND 
                    INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN 
                    GENERAL FUND.

    (a) Taxes on Trains.--
            (1) In general.--Clause (ii) of section 
        4041(a)(1)(C) is amended by striking subclauses (I), 
        (II), and (III) and inserting the following new 
        subclauses:
                                    ``(I) 3.3 cents per gallon 
                                after December 31, 2004, and 
                                before July 1, 2005,
                                    ``(II) 2.3 cents per gallon 
                                after June 30, 2005, and before 
                                January 1, 2007, and
                                    ``(III) 0 after December 
                                31, 2006.''.
            (2) Conforming amendments.--
                    (A) Subsection (d) of section 4041 is 
                amended by redesignating paragraph (3) as 
                paragraph (4) and by inserting after paragraph 
                (2) the following new paragraph:
            ``(3) Diesel fuel used in trains.--In the case of 
        any sale for use or use after December 31, 2006, there 
        is hereby imposed a tax of 0.1 cent per gallon on any 
        liquid other than gasoline (as defined in section 
        4083)--
                    ``(A) sold by any person to an owner, 
                lessee, or other operator of a diesel-powered 
                train for use as a fuel in such train, or
                    ``(B) used by any person as a fuel in a 
                diesel-powered train unless there was a taxable 
                sale of such fuel under subparagraph (A).
        No tax shall be imposed by this paragraph on the sale 
        or use of any liquid if tax was imposed on such liquid 
        under section 4081.''.
                    (B) Subsection (f) of section 4082 is 
                amended by striking ``section 4041(a)(1)'' and 
                inserting ``subsections (a)(1) and (d)(3) of 
                section 4041''.
                    (C) Subparagraph (B) of section 6421(f)(3) 
                is amended to read as follows:
                    ``(B) so much of the rate specified in 
                section 4081(a)(2)(A) as does not exceed the 
                rate applicable under section 
                4041(a)(1)(C)(ii).''.
                    (D) Subparagraph (B) of section 6427(l)(3) 
                is amended to read as follows:
                    ``(B) so much of the rate specified in 
                section 4081(a)(2)(A) as does not exceed the 
                rate applicable under section 
                4041(a)(1)(C)(ii).''.
    (b) Fuel Used on Inland Waterways.--Subparagraph (C) of 
section 4042(b)(2) is amended to read as follows:
                    ``(C) The deficit reduction rate is--
                            ``(i) 3.3 cents per gallon after 
                        December 31, 2004, and before July 1, 
                        2005,
                            ``(ii) 2.3 cents per gallon after 
                        June 30, 2005, and before January 1, 
                        2007, and
                            ``(iii) 0 after December 31, 
                        2006.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2005.

SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF 
                    DEPRECIATION.

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

SEC. 243. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT TRUSTS.

    (a) Expansion of Straight Debt Safe Harbor.--Section 856 
(defining real estate investment trust) is amended--
            (1) in subsection (c) by striking paragraph (7), 
        and
            (2) by adding at the end the following new 
        subsection:
    ``(m) Safe Harbor in Applying Subsection (c)(4).--
            ``(1) In general.--In applying subclause (III) of 
        subsection (c)(4)(B)(iii), except as otherwise 
        determined by the Secretary in regulations, the 
        following shall not be considered securities held by 
        the trust:
                    ``(A) Straight debt securities of an issuer 
                which meet the requirements of paragraph (2).
                    ``(B) Any loan to an individual or an 
                estate.
                    ``(C) Any section 467 rental agreement (as 
                defined in section 467(d)), other than with a 
                person described in subsection (d)(2)(B).
                    ``(D) Any obligation to pay rents from real 
                property (as defined in subsection (d)(1)).
                    ``(E) Any security issued by a State or any 
                political subdivision thereof, the District of 
                Columbia, a foreign government or any political 
                subdivision thereof, or the Commonwealth of 
                Puerto Rico, but only if the determination of 
                any payment received or accrued under such 
                security does not depend in whole or in part on 
                the profits of any entity not described in this 
                subparagraph or payments on any obligation 
                issued by such an entity,
                    ``(F) Any security issued by a real estate 
                investment trust.
                    ``(G) Any other arrangement as determined 
                by the Secretary.
            ``(2) Special rules relating to straight debt 
        securities.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(A), securities meet the 
                requirements of this paragraph if such 
                securities are straight debt, as defined in 
                section 1361(c)(5) (without regard to 
                subparagraph (B)(iii) thereof).
                    ``(B) Special rules relating to certain 
                contingencies.--For purposes of subparagraph 
                (A), any interest or principal shall not be 
                treated as failing to satisfy section 
                1361(c)(5)(B)(i) solely by reason of the fact 
                that--
                            ``(i) the time of payment of such 
                        interest or principal is subject to a 
                        contingency, but only if--
                                    ``(I) any such contingency 
                                does not have the effect of 
                                changing the effective yield to 
                                maturity, as determined under 
                                section 1272, other than a 
                                change in the annual yield to 
                                maturity which does not exceed 
                                the greater of \1/4\ of 1 
                                percent or 5 percent of the 
                                annual yield to maturity, or
                            ``(II) neither the aggregate issue 
                        price nor the aggregate face amount of 
                        the issuer's debt instruments held by 
                        the trust exceeds $1,000,000 and not 
                        more than 12 months of unaccrued 
                        interest can be required to be prepaid 
                        thereunder, or
                            ``(ii) the time or amount of 
                        payment is subject to a contingency 
                        upon a default or the exercise of a 
                        prepayment right by the issuer of the 
                        debt, but only if such contingency is 
                        consistent with customary commercial 
                        practice.
                    ``(C) Special rules relating to corporate 
                or partnership issuers.--In the case of an 
                issuer which is a corporation or a partnership, 
                securities that otherwise would be described in 
                paragraph (1)(A) shall be considered not to be 
                so described if the trust holding such 
                securities and any of its controlled taxable 
                REIT subsidiaries (as defined in subsection 
                (d)(8)(A)(iv)) hold any securities of the 
                issuer which--
                            ``(i) are not described in 
                        paragraph (1) (prior to the application 
                        of this subparagraph), and
                            ``(ii) have an aggregate value 
                        greater than 1 percent of the issuer's 
                        outstanding securities determined 
                        without regard to paragraph (3)(A)(i).
            ``(3) Look-through rule for partnership 
        securities.--
                    ``(A) In general.--For purposes of applying 
                subclause (III) of subsection (c)(4)(B)(iii)--
                            ``(i) a trust's interest as a 
                        partner in a partnership (as defined in 
                        section 7701(a)(2)) shall not be 
                        considered a security, and
                            ``(ii) the trust shall be deemed to 
                        own its proportionate share of each of 
                        the assets of the partnership.
                    ``(B) Determination of trust's interest in 
                partnership assets.--For purposes of 
                subparagraph (A), with respect to any taxable 
                year beginning after the date of the enactment 
                of this subparagraph--
                            ``(i) the trust's interest in the 
                        partnership assets shall be the trust's 
                        proportionate interest in any 
                        securities issued by the partnership 
                        (determined without regard to 
                        subparagraph (A)(i) and paragraph (4), 
                        but not including securities described 
                        in paragraph (1)), and
                            ``(ii) the value of any debt 
                        instrument shall be the adjusted issue 
                        price thereof, as defined in section 
                        1272(a)(4).
            ``(4) Certain partnership debt instruments not 
        treated as a security.--For purposes of applying 
        subclause (III) of subsection (c)(4)(B)(iii)--
                    ``(A) any debt instrument issued by a 
                partnership and not described in paragraph (1) 
                shall not be considered a security to the 
                extent of the trust's interest as a partner in 
                the partnership, and
                    ``(B) any debt instrument issued by a 
                partnership and not described in paragraph (1) 
                shall not be considered a security if at least 
                75 percent of the partnership's gross income 
                (excluding gross income from prohibited 
                transactions) is derived from sources referred 
                to in subsection (c)(3).
            ``(5) Secretarial guidance.--The Secretary is 
        authorized to provide guidance (including through the 
        issuance of a written determination, as defined in 
        section 6110(b)) that an arrangement shall not be 
        considered a security held by the trust for purposes of 
        applying subclause (III) of subsection (c)(4)(B)(iii) 
        notwithstanding that such arrangement otherwise could 
        be considered a security under subparagraph (F) of 
        subsection (c)(5).''.
    (b) Clarification of Application of Limited Rental 
Exception.--Subparagraph (A) of section 856(d)(8) (relating to 
special rules for taxable REIT subsidiaries) is amended to read 
as follows:
                    ``(A) Limited rental exception.--
                            ``(i) In general.--The requirements 
                        of this subparagraph are met with 
                        respect to any property if at least 90 
                        percent of the leased space of the 
                        property is rented to persons other 
                        than taxable REIT subsidiaries of such 
                        trust and other than persons described 
                        in paragraph (2)(B).
                            ``(ii) Rents must be substantially 
                        comparable.--Clause (i) shall apply 
                        only to the extent that the amounts 
                        paid to the trust as rents from real 
                        property (as defined in paragraph (1) 
                        without regard to paragraph (2)(B)) 
                        from such property are substantially 
                        comparable to such rents paid by the 
                        other tenants of the trust's property 
                        for comparable space.
                            ``(iii) Times for testing rent 
                        comparability.--The substantial 
                        comparability requirement of clause 
                        (ii) shall be treated as met with 
                        respect to a lease to a taxable REIT 
                        subsidiary of the trust if such 
                        requirement is met under the terms of 
                        the lease--
                                    ``(I) at the time such 
                                lease is entered into,
                                    ``(II) at the time of each 
                                extension of the lease, 
                                including a failure to exercise 
                                a right to terminate, and
                                    ``(III) at the time of any 
                                modification of the lease 
                                between the trust and the 
                                taxable REIT subsidiary if the 
                                rent under such lease is 
                                effectively increased pursuant 
                                to such modification.
                        With respect to subclause (III), if the 
                        taxable REIT subsidiary of the trust is 
                        a controlled taxable REIT subsidiary of 
                        the trust, the term `rents from real 
                        property' shall not in any event 
                        include rent under such lease to the 
                        extent of the increase in such rent on 
                        account of such modification.
                            ``(iv) Controlled taxable reit 
                        subsidiary.--For purposes of clause 
                        (iii), the term `controlled taxable 
                        REIT subsidiary' means, with respect to 
                        any real estate investment trust, any 
                        taxable REIT subsidiary of such trust 
                        if such trust owns directly or 
                        indirectly--
                                    ``(I) stock possessing more 
                                than 50 percent of the total 
                                voting power of the outstanding 
                                stock of such subsidiary, or
                                    ``(II) stock having a value 
                                of more than 50 percent of the 
                                total value of the outstanding 
                                stock of such subsidiary.
                            ``(v) Continuing qualification 
                        based on third party actions.--If the 
                        requirements of clause (i) are met at a 
                        time referred to in clause (iii), such 
                        requirements shall continue to be 
                        treated as met so long as there is no 
                        increase in the space leased to any 
                        taxable REIT subsidiary of such trust 
                        or to any person described in paragraph 
                        (2)(B).
                            ``(vi) Correction period.--If there 
                        is an increase referred to in clause 
                        (v) during any calendar quarter with 
                        respect to any property, the 
                        requirements of clause (iii) shall be 
                        treated as met during the quarter and 
                        the succeeding quarter if such 
                        requirements are met at the close of 
                        such succeeding quarter.''.
    (c) Deletion of Customary Services Exception.--Subparagraph 
(B) of section 857(b)(7) (relating to redetermined rents) is 
amended by striking clause (ii) and by redesignating clauses 
(iii), (iv), (v), (vi), and (vii) as clauses (ii), (iii), (iv), 
(v), and (vi), respectively.
    (d) Conformity With General Hedging Definition.--
Subparagraph (G) of section 856(c)(5) (relating to treatment of 
certain hedging instruments) is amended to read as follows:
                    ``(G) Treatment of certain hedging 
                instruments.--Except to the extent provided by 
                regulations, any income of a real estate 
                investment trust from a hedging transaction (as 
                defined in clause (ii) or (iii) of section 
                1221(b)(2)(A)) which is clearly identified 
                pursuant to section 1221(a)(7), including gain 
                from the sale or disposition of such a 
                transaction, shall not constitute gross income 
                under paragraph (2) to the extent that the 
                transaction hedges any indebtedness incurred or 
                to be incurred by the trust to acquire or carry 
                real estate assets.''.
    (e) Conformity With Regulated Investment Company Rules.--
Clause (i) of section 857(b)(5)(A) (relating to imposition of 
tax in case of failure to meet certain requirements) is amended 
by striking ``90 percent'' and inserting ``95 percent''.
    (f) Savings Provisions.--
            (1) Rules of application for failure to satisfy 
        section 856(c)(4).--Section 856(c) (relating to 
        definition of real estate investment trust) is amended 
        by inserting after paragraph (6) the following new 
        paragraph:
            ``(7) Rules of application for failure to satisfy 
        paragraph (4).--
                    ``(A) De minimis failure.--A corporation, 
                trust, or association that fails to meet the 
                requirements of paragraph (4)(B)(iii) for a 
                particular quarter shall nevertheless be 
                considered to have satisfied the requirements 
                of such paragraph for such quarter if--
                            ``(i) such failure is due to the 
                        ownership of assets the total value of 
                        which does not exceed the lesser of--
                                    ``(I) 1 percent of the 
                                total value of the trust's 
                                assets at the end of the 
                                quarter for which such 
                                measurement is done, and
                                    ``(II) $10,000,000, and
                            ``(ii)(I) the corporation, trust, 
                        or association, following the 
                        identification of such failure, 
                        disposes of assets in order to meet the 
                        requirements of such paragraph within 6 
                        months after the last day of the 
                        quarter in which the corporation, trust 
                        or association's identification of the 
                        failure to satisfy the requirements of 
                        such paragraph occurred or such other 
                        time period prescribed by the Secretary 
                        and in the manner prescribed by the 
                        Secretary, or
                            ``(II) the requirements of such 
                        paragraph are otherwise met within the 
                        time period specified in subclause (I).
                    ``(B) Failures exceeding de minimis 
                amount.--A corporation, trust, or association 
                that fails to meet the requirements of 
                paragraph (4) for a particular quarter shall 
                nevertheless be considered to have satisfied 
                the requirements of such paragraph for such 
                quarter if--
                            ``(i) such failure involves the 
                        ownership of assets the total value of 
                        which exceeds the de minimis standard 
                        described in subparagraph (A)(i) at the 
                        end of the quarter for which such 
                        measurement is done,
                            ``(ii) following the corporation, 
                        trust, or association's identification 
                        of the failure to satisfy the 
                        requirements of such paragraph for a 
                        particular quarter, a description of 
                        each asset that causes the corporation, 
                        trust, or association to fail to 
                        satisfy the requirements of such 
                        paragraph at the close of such quarter 
                        of any taxable year is set forth in a 
                        schedule for such quarter filed in 
                        accordance with regulations prescribed 
                        by the Secretary,
                            ``(iii) the failure to meet the 
                        requirements of such paragraph for a 
                        particular quarter is due to reasonable 
                        cause and not due to willful neglect,
                            ``(iv) the corporation, trust, or 
                        association pays a tax computed under 
                        subparagraph (C), and
                            ``(v)(I) the corporation, trust, or 
                        association disposes of the assets set 
                        forth on the schedule specified in 
                        clause (ii) within 6 months after the 
                        last day of the quarter in which the 
                        corporation, trust or association's 
                        identification of the failure to 
                        satisfy the requirements of such 
                        paragraph occurred or such other time 
                        period prescribed by the Secretary and 
                        in the manner prescribed by the 
                        Secretary, or
                            ``(II) the requirements of such 
                        paragraph are otherwise met within the 
                        time period specified in subclause (I).
                    ``(C) Tax.--For purposes of subparagraph 
                (B)(iv)--
                            ``(i) Tax imposed.--If a 
                        corporation, trust, or association 
                        elects the application of this 
                        subparagraph, there is hereby imposed a 
                        tax on the failure described in 
                        subparagraph (B) of such corporation, 
                        trust, or association. Such tax shall 
                        be paid by the corporation, trust, or 
                        association.
                            ``(ii) Tax computed.--The amount of 
                        the tax imposed by clause (i) shall be 
                        the greater of--
                                    ``(I) $50,000, or
                                    ``(II) the amount 
                                determined (pursuant to 
                                regulations promulgated by the 
                                Secretary) by multiplying the 
                                net income generated by the 
                                assets described in the 
                                schedule specified in 
                                subparagraph (B)(ii) for the 
                                period specified in clause 
                                (iii) by the highest rate of 
                                tax specified in section 11.
                            ``(iii) Period.--For purposes of 
                        clause (ii)(II), the period described 
                        in this clause is the period beginning 
                        on the first date that the failure to 
                        satisfy the requirements of such 
                        paragraph (4) occurs as a result of the 
                        ownership of such assets and ending on 
                        the earlier of the date on which the 
                        trust disposes of such assets or the 
                        end of the first quarter when there is 
                        no longer a failure to satisfy such 
                        paragraph (4).
                            ``(iv) Administrative provisions.--
                        For purposes of subtitle F, the taxes 
                        imposed by this subparagraph shall be 
                        treated as excise taxes with respect to 
                        which the deficiency procedures of such 
                        subtitle apply.''.
            (2) Modification of rules of application for 
        failure to satisfy sections 856(c)(2) or 856(c)(3).--
        Paragraph (6) of section 856(c) (relating to definition 
        of real estate investment trust) is amended by striking 
        subparagraphs (A) and (B), by redesignating 
        subparagraph (C) as subparagraph (B), and by inserting 
        before subparagraph (B) (as so redesignated) the 
        following new subparagraph:
                    ``(A) following the corporation, trust, or 
                association's identification of the failure to 
                meet the requirements of paragraph (2) or (3), 
                or of both such paragraphs, for any taxable 
                year, a description of each item of its gross 
                income described in such paragraphs is set 
                forth in a schedule for such taxable year filed 
                in accordance with regulations prescribed by 
                the Secretary, and''.
            (3) Reasonable cause exception to loss of reit 
        status if failure to satisfy requirements.--Subsection 
        (g) of section 856 (relating to termination of 
        election) is amended--
                    (A) in paragraph (1) by inserting before 
                the period at the end of the first sentence the 
                following: ``unless paragraph (5) applies'', 
                and
                    (B) by adding at the end the following new 
                paragraph:
            ``(5) Entities to which paragraph applies.--This 
        paragraph applies to a corporation, trust, or 
        association--
                    ``(A) which is not a real estate investment 
                trust to which the provisions of this part 
                apply for the taxable year due to one or more 
                failures to comply with one or more of the 
                provisions of this part (other than subsection 
                (c)(6) or (c)(7) of section 856),
                    ``(B) such failures are due to reasonable 
                cause and not due to willful neglect, and
                    ``(C) if such corporation, trust, or 
                association pays (as prescribed by the 
                Secretary in regulations and in the same manner 
                as tax) a penalty of $50,000 for each failure 
                to satisfy a provision of this part due to 
                reasonable cause and not willful neglect.''.
            (4) Deduction of tax paid from amount required to 
        be distributed.--Subparagraph (E) of section 857(b)(2) 
        is amended by striking ``(7)'' and inserting ``(7) of 
        this subsection, section 856(c)(7)(B)(iii), and section 
        856(g)(1).''.
            (5) Expansion of deficiency dividend procedure.--
        Subsection (e) of section 860 is amended by striking 
        ``or'' at the end of paragraph (2), by striking the 
        period at the end of paragraph (3) and inserting ``; 
        or'', and by adding at the end the following new 
        paragraph:
            ``(4) a statement by the taxpayer attached to its 
        amendment or supplement to a return of tax for the 
        relevant tax year.''.
    (g) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2000.
            (2) Subsections (c) through  (f).--The amendments 
        made by subsections (c), (d), (e), and (f) shall apply 
        to taxable years beginning after the date of the 
        enactment of this Act.

SEC. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.

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

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

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

        ``Sec. 181. Treatment of certain qualified film and television 
                  productions.''.

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

SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.

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

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

    ``(a) General Rule.--For purposes of section 38, the 
railroad track maintenance credit determined under this section 
for the taxable year is an amount equal to 50 percent of the 
qualified railroad track maintenance expenditures paid or 
incurred by an eligible taxpayer during the taxable year.
    ``(b) Limitation.--The credit allowed under subsection (a) 
for any taxable year shall not exceed the product of--
            ``(1) $3,500, and
            ``(2) the number of miles of railroad track owned 
        or leased by the eligible taxpayer as of the close of 
        the taxable year.
A mile of railroad track may be taken into account by a person 
other than the owner only if such mile is assigned to such 
person by the owner for purposes of this subsection. Any mile 
which is so assigned may not be taken into account by the owner 
for purposes of this subsection.
    ``(c) Eligible Taxpayer.--For purposes of this section, the 
term `eligible taxpayer' means--
            ``(1) any Class II or Class III railroad, and
            ``(2) any person who transports property using the 
        rail facilities of a person described in paragraph (1) 
        or who furnishes railroad-related property or services 
        to such a person.
    ``(d) Qualified Railroad Track Maintenance Expenditures.--
For purposes of this section, the term `qualified railroad 
track maintenance expenditures' means expenditures (whether or 
not otherwise chargeable to capital account) for maintaining 
railroad track (including roadbed, bridges, and related track 
structures) owned or leased as of January 1, 2005, by a Class 
II or Class III railroad.
    ``(e) Other Definitions and Special Rules.--
            ``(1) Class ii or class iii railroad.--For purposes 
        of this section, the terms `Class II railroad' and 
        `Class III railroad' have the respective meanings given 
        such terms by the Surface Transportation Board.
            ``(2) Controlled groups.--Rules similar to the 
        rules of paragraph (1) of section 41(f) shall apply for 
        purposes of this section.
            ``(3) Basis adjustment.--For purposes of this 
        subtitle, if a credit is allowed under this section 
        with respect to any railroad track, the basis of such 
        track shall be reduced by the amount of the credit so 
        allowed.
    ``(f) Application of Section.--This section shall apply to 
qualified railroad track maintenance expenditures paid or 
incurred during taxable years beginning after December 31, 
2004, and before January 1, 2008.''.
    (b) Limitation on Carryback.--
            (1) In general.--Subsection (d) of section 39 is 
        amended to read as follows:
    ``(d) Transitional Rule.--No portion of the unused business 
credit for any taxable year which is attributable to a credit 
specified in section 38(b) or any portion thereof may be 
carried back to any taxable year before the first taxable year 
for which such specified credit or such portion is allowable 
(without regard to subsection (a)).''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply with respect to taxable years 
        ending after December 31, 2003.
    (c) Conforming Amendments.--
            (1) Section 38(b) (relating to general business 
        credit) is amended by striking ``plus'' at the end of 
        paragraph (14), by striking the period at the end of 
        paragraph (15) and inserting ``, plus'', and by adding 
        at the end the following new paragraph:
            ``(16) the railroad track maintenance credit 
        determined under section 45G(a).''.
            (2) Subsection (a) of section 1016 is amended by 
        striking ``and'' at the end of paragraph (27), by 
        striking the period at the end of paragraph (28) and 
        inserting ``, and'', and by inserting after paragraph 
        (28) the following new paragraph:
            ``(29) in the case of railroad track with respect 
        to which a credit was allowed under section 45G, to the 
        extent provided in section 45G(e)(3).''.
    (d) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 45F the following 
new item:

        ``Sec. 45G. Railroad track maintenance credit.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 246. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DISTILLED 
                    SPIRITS, WINE, AND BEER.

    (a) In General.--Subpart G of part II of subchapter A of 
chapter 51 is amended by redesignating section 5148 as section 
5149 and by inserting after section 5147 the following new 
section:

``SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.

    ``(a) In General.--Notwithstanding sections 5081, 5091, 
5111, 5121, and 5131, the rate of tax imposed under such 
sections for the suspension period shall be zero. During such 
period, persons engaged in or carrying on a trade or business 
covered by such sections shall register under section 5141 and 
shall comply with the recordkeeping requirements under this 
part.
    ``(b) Suspension Period.--For purposes of subsection (a), 
the suspension period is the period beginning on July 1, 2005, 
and ending on June 30, 2008.''.
    (b) Conforming Amendment.--Section 5117 is amended by 
adding at the end the following new subsection:
    ``(d) Special Rule During Suspension Period.--Except as 
provided in subsection (b) or by the Secretary, during the 
suspension period (as defined in section 5148) it shall be 
unlawful for any dealer to purchase distilled spirits for 
resale from any person other than a wholesale dealer in liquors 
who is required to keep records under section 5114.''.
    (c) Clerical Amendment.--The table of sections for subpart 
G of part II of subchapter A of chapter 51 is amended by 
striking the last item and inserting the following new items:

        ``Sec. 5148. Suspension of occupational tax.
        ``Sec. 5149. Cross references.''.

    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 247. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON 
                    INVESTMENT IN CERTAIN SMALL BUSINESS INVESTMENT 
                    COMPANIES.

    (a) In General.--Paragraph (6) of section 514(c) (relating 
to acquisition indebtedness) is amended to read as follows:
            ``(6) Certain federal financing.--
                    ``(A) In general.--For purposes of this 
                section, the term `acquisition indebtedness' 
                does not include--
                            ``(i) an obligation, to the extent 
                        that it is insured by the Federal 
                        Housing Administration, to finance the 
                        purchase, rehabilitation, or 
                        construction of housing for low and 
                        moderate income persons, or
                            ``(ii) indebtedness incurred by a 
                        small business investment company 
                        licensed after the date of the 
                        enactment of the American Jobs Creation 
                        Act of 2004 under the Small Business 
                        Investment Act of 1958 if such 
                        indebtedness is evidenced by a 
                        debenture--
                                    ``(I) issued by such 
                                company under section 303(a) of 
                                such Act, and
                                    ``(II) held or guaranteed 
                                by the Small Business 
                                Administration.
                    ``(B) Limitation.--Subparagraph (A)(ii) 
                shall not apply with respect to any small 
                business investment company during any period 
                that--
                            ``(i) any organization which is 
                        exempt from tax under this title (other 
                        than a governmental unit) owns more 
                        than 25 percent of the capital or 
                        profits interest in such company, or
                            ``(ii) organizations which are 
                        exempt from tax under this title 
                        (including governmental units other 
                        than any agency or instrumentality of 
                        the United States) own, in the 
                        aggregate, 50 percent or more of the 
                        capital or profits interest in such 
                        company.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to indebtedness incurred after the date of the 
enactment of this Act by a small business investment company 
licensed after the date of the enactment of this Act.

SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN INTERNATIONAL 
                    SHIPPING ACTIVITIES USING PER TON RATE.

    (a) In General.--Chapter 1 is amended by inserting after 
subchapter Q the following new subchapter:

    ``Subchapter R--Election To Determine Corporate Tax on Certain 
          International Shipping Activities Using Per Ton Rate

        ``Sec. 1352. Alternative tax on qualifying shipping activities.
        ``Sec. 1353. Notional shipping income.
        ``Sec. 1354. Alternative tax election; revocation; termination.
        ``Sec. 1355. Definitions and special rules.
        ``Sec. 1356. Qualifying shipping activities.
        ``Sec. 1357. Items not subject to regular tax; depreciation; 
                  interest.
        ``Sec. 1358. Allocation of credits, income, and deductions.
        ``Sec. 1359. Disposition of qualifying vessels.

``SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.

    ``In the case of an electing corporation, the tax imposed 
by section 11 shall be the amount equal to the sum of--
            ``(1) the tax imposed by section 11 determined 
        after the application of this subchapter, and
            ``(2) a tax equal to--
                    ``(A) the highest rate of tax specified in 
                section 11, multiplied by
                    ``(B) the notional shipping income for the 
                taxable year.

``SEC. 1353. NOTIONAL SHIPPING INCOME.

    ``(a) In General.--For purposes of this subchapter, the 
notional shipping income of an electing corporation shall be 
the sum of the amounts determined under subsection (b) for each 
qualifying vessel operated by such electing corporation.
    ``(b) Amounts.--
            ``(1) In general.--For purposes of subsection (a), 
        the amount of notional shipping income of an electing 
        corporation for each qualifying vessel for the taxable 
        year shall equal the product of--
                    ``(A) the daily notional shipping income, 
                and
                    ``(B) the number of days during the taxable 
                year that the electing corporation operated 
                such vessel as a qualifying vessel in United 
                States foreign trade.
            ``(2) Treatment of vessels the income from which is 
        not otherwise subject to tax.--In the case of a 
        qualifying vessel any of the income from which is not 
        included in gross income by reason of section 883 or 
        otherwise, the amount of notional shipping income from 
        such vessel for the taxable year shall be the amount 
        which bears the same ratio to such shipping income 
        (determined without regard to this paragraph) as the 
        gross income from the operation of such vessel in the 
        United States foreign trade bears to the sum of such 
        gross income and the income so excluded.
    ``(c) Daily Notional Shipping Income.--For purposes of 
subsection (b), the daily notional shipping income from the 
operation of a qualifying vessel is--
            ``(1) 40 cents for each 100 tons of so much of the 
        net tonnage of the vessel as does not exceed 25,000 net 
        tons, and
            ``(2) 20 cents for each 100 tons of so much of the 
        net tonnage of the vessel as exceeds 25,000 net tons.
    ``(d) Multiple Operators of Vessel.--If for any period 2 or 
more persons are operators of a qualifying vessel, the notional 
shipping income from the operation of such vessel for such 
period shall be allocated among such persons on the basis of 
their respective ownership and charter interests in such vessel 
or on such other basis as the Secretary may prescribe by 
regulations.

``SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMINATION.

    ``(a) In General.--A qualifying vessel operator may elect 
the application of this subchapter.
    ``(b) Time and Manner; Years for Which Effective.--An 
election under this subchapter--
            ``(1) shall be made in such form as prescribed by 
        the Secretary, and
            ``(2) shall be effective for the taxable year for 
        which made and all succeeding taxable years until 
        terminated under subsection (d).
Such election may be effective for any taxable year only if 
made before the due date (including extensions) for filing the 
corporation's return for such taxable year.
    ``(c) Consistent Elections By Members of Controlled 
Groups.--An election under subsection (a) by a member of a 
controlled group shall apply to all qualifying vessel operators 
that are members of such group.
    ``(d) Termination.--
            ``(1) By revocation.--
                    ``(A) In general.--An election under 
                subsection (a) may be terminated by revocation.
                    ``(B) When effective.--Except as provided 
                in subparagraph (C)--
                            ``(i) a revocation made during the 
                        taxable year and on or before the 15th 
                        day of the 3d month thereof shall be 
                        effective on the 1st day of such 
                        taxable year, and
                            ``(ii) a revocation made during the 
                        taxable year but after such 15th day 
                        shall be effective on the 1st day of 
                        the following taxable year.
                    ``(C) Revocation may specify prospective 
                date.--If the revocation specifies a date for 
                revocation which is on or after the day on 
                which the revocation is made, the revocation 
                shall be effective for taxable years beginning 
                on and after the date so specified.
            ``(2) By person ceasing to be qualifying vessel 
        operator.--
                    ``(A) In general.--An election under 
                subsection (a) shall be terminated whenever (at 
                any time on or after the 1st day of the 1st 
                taxable year for which the corporation is an 
                electing corporation) such corporation ceases 
                to be a qualifying vessel operator.
                    ``(B) When effective.--Any termination 
                under this paragraph shall be effective on and 
                after the date of cessation.
                    ``(C) Annualization.--The Secretary shall 
                prescribe such annualization and other rules as 
                are appropriate in the case of a termination 
                under this paragraph.
    ``(e) Election After Termination.--If a qualifying vessel 
operator has made an election under subsection (a) and if such 
election has been terminated under subsection (d), such 
operator (and any successor operator) shall not be eligible to 
make an election under subsection (a) for any taxable year 
before its 5th taxable year which begins after the 1st taxable 
year for which such termination is effective, unless the 
Secretary consents to such election.

``SEC. 1355. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) Electing corporation.--The term `electing 
        corporation' means any corporation for which an 
        election is in effect under this subchapter.
            ``(2) Electing group; controlled group.--
                    ``(A) Electing group.--The term `electing 
                group' means a controlled group of which one or 
                more members is an electing corporation.
                    ``(B) Controlled group.--The term 
                `controlled group' means any group which would 
                be treated as a single employer under 
                subsection (a) or (b) of section 52 if 
                paragraphs (1) and (2) of section 52(a) did not 
                apply.
            ``(3) Qualifying vessel operator.--The term 
        `qualifying vessel operator' means any corporation--
                    ``(A) who operates one or more qualifying 
                vessels, and
                    ``(B) who meets the shipping activity 
                requirement in subsection (c).
            ``(4) Qualifying vessel.--The term `qualifying 
        vessel' means a self-propelled (or a combination self-
        propelled and non-self-propelled) United States flag 
        vessel of not less than 10,000 deadweight tons used 
        exclusively in the United States foreign trade during 
        the period that the election under this subchapter is 
        in effect.
            ``(5) United states flag vessel.--The term `United 
        States flag vessel' means any vessel documented under 
        the laws of the United States.
            ``(6) United states domestic trade.--The term 
        `United States domestic trade' means the transportation 
        of goods or passengers between places in the United 
        States.
            ``(7) United states foreign trade.--The term 
        `United States foreign trade' means the transportation 
        of goods or passengers between a place in the United 
        States and a foreign place or between foreign places.
            ``(8) Charter.--The term `charter' includes an 
        operating agreement.
    ``(b) Operating a Vessel.--For purposes of this 
subchapter--
            ``(1) In general.--Except as provided in paragraph 
        (2), a person is treated as operating any vessel during 
        any period if such vessel is--
                    ``(A) owned by, or chartered (including a 
                time charter) to, the person, and
                    ``(B) is in use as a qualifying vessel 
                during such period.
            ``(2) Bareboat charters.--A person is treated as 
        operating and using a vessel that it has chartered out 
        on bareboat charter terms only if--
                    ``(A)(i) the vessel is temporarily surplus 
                to the person's requirements and the term of 
                the charter does not exceed 3 years, or
                    ``(ii) the vessel is bareboat chartered to 
                a member of a controlled group which includes 
                such person or to an unrelated person who sub-
                bareboats or time charters the vessel to such a 
                member (including the owner of the vessel), and
                    ``(B) the vessel is used as a qualifying 
                vessel by the person to whom ultimately 
                chartered.
    ``(c) Shipping Activity Requirement.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, a corporation meets the shipping 
        activity requirement of this subsection for any taxable 
        year only if the requirement of paragraph (4) is met 
        for each of the 2 preceding taxable years.
            ``(2) Special rule for 1st year of election.--A 
        corporation meets the shipping activity requirement of 
        this subsection for the first taxable year for which 
        the election under section 1354(a) is in effect only if 
        the requirement of paragraph (4) is met for the 
        preceding taxable year.
            ``(3) Controlled groups.--A corporation who is a 
        member of a controlled group meets the shipping 
        activity requirement of this subsection only if such 
        requirement is met determined--
                    ``(A) by treating all members of such group 
                as 1 person, and
                    ``(B) by disregarding vessel charters 
                between members of such group.
            ``(4) Requirement.--The requirement of this 
        paragraph is met for any taxable year if, on average 
        during such year, at least 25 percent of the aggregate 
        tonnage of qualifying vessels used by the corporation 
        were owned by such corporation or chartered to such 
        corporation on bareboat charter terms.
    ``(d) Activities Carried on Partnerships, Etc.--In applying 
this subchapter to a partner in a partnership--
            ``(1) each partner shall be treated as operating 
        vessels operated by the partnership,
            ``(2) each partner shall be treated as conducting 
        the activities conducted by the partnership, and
            ``(3) the extent of a partner's ownership or 
        charter interest in any vessel owned by or chartered to 
        the partnership shall be determined on the basis of the 
        partner's interest in the partnership.
A similar rule shall apply with respect to other pass-thru 
entities.
    ``(e) Effect of Temporarily Ceasing To Operate a Qualifying 
Vessel.--
            ``(1) In general.--For purposes of subsections (b) 
        and (c), an electing corporation shall be treated as 
        continuing to use a qualifying vessel during any period 
        of temporary cessation if the electing corporation 
        gives timely notice to the Secretary stating--
                    ``(A) that it has temporarily ceased to 
                operate the qualifying vessel, and
                    ``(B) its intention to resume operating the 
                qualifying vessel.
            ``(2) Notice.--Notice shall be deemed timely if 
        given not later than the due date (including 
        extensions) for the corporation's tax return for the 
        taxable year in which the temporary cessation begins.
            ``(3) Period disregard in effect.--The period of 
        temporary cessation under paragraph (1) shall continue 
        until the earlier of the date on which--
                    ``(A) the electing corporation abandons its 
                intention to resume operation of the qualifying 
                vessel, or
                    ``(B) the electing corporation resumes 
                operation of the qualifying vessel.
    ``(f) Effect of Temporarily Operating a Qualifying Vessel 
in the United States Domestic Trade.--
            ``(1) In general.--For purposes of this subchapter, 
        an electing corporation shall be treated as continuing 
        to use a qualifying vessel in the United States foreign 
        trade during any period of temporary use in the United 
        States domestic trade if the electing corporation gives 
        timely notice to the Secretary stating--
                    ``(A) that it temporarily operates or has 
                operated in the United States domestic trade a 
                qualifying vessel which had been used in the 
                United States foreign trade, and
                    ``(B) its intention to resume operation of 
                the vessel in the United States foreign trade.
            ``(2) Notice.--Notice shall be deemed timely if 
        given not later than the due date (including 
        extensions) for the corporation's tax return for the 
        taxable year in which the temporary cessation begins.
            ``(3) Period disregard in effect.--The period of 
        temporary use under paragraph (1) continues until the 
        earlier of the date of which--
                    ``(A) the electing corporation abandons its 
                intention to resume operations of the vessel in 
                the United States foreign trade, or
                    ``(B) the electing corporation resumes 
                operation of the vessel in the United States 
                foreign trade.
            ``(4) No disregard if domestic trade use exceeds 30 
        days.--Paragraph (1) shall not apply to any qualifying 
        vessel which is operated in the United States domestic 
        trade for more than 30 days during the taxable year.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

``SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.

    ``(a) Qualifying Shipping Activities.--For purposes of this 
subchapter, the term `qualifying shipping activities' means--
            ``(1) core qualifying activities,
            ``(2) qualifying secondary activities, and
            ``(3) qualifying incidental activities.
    ``(b) Core Qualifying Activities.--For purposes of this 
subchapter, the term `core qualifying activities' means 
activities in operating qualifying vessels in United States 
foreign trade.
    ``(c) Qualifying Secondary Activities.--For purposes of 
this section--
            ``(1) In general.--The term `qualifying secondary 
        activities' means secondary activities but only to the 
        extent that, without regard to this subchapter, the 
        gross income derived by such corporation from such 
        activities does not exceed 20 percent of the gross 
        income derived by the corporation from its core 
        qualifying activities.
            ``(2) Secondary activities.--The term `secondary 
        activities' means--
                    ``(A) the active management or operation of 
                vessels other than qualifying vessels in the 
                United States foreign trade,
                    ``(B) the provision of vessel, barge, 
                container, or cargo-related facilities or 
                services to any person,
                    ``(C) other activities of the electing 
                corporation and other members of its electing 
                group that are an integral part of its business 
                of operating qualifying vessels in United 
                States foreign trade, including--
                            ``(i) ownership or operation of 
                        barges, containers, chassis, and other 
                        equipment that are the complement of, 
                        or used in connection with, a 
                        qualifying vessel in United States 
                        foreign trade,
                            ``(ii) the inland haulage of cargo 
                        shipped, or to be shipped, on 
                        qualifying vessels in United States 
                        foreign trade, and
                            ``(iii) the provision of terminal, 
                        maintenance, repair, logistical, or 
                        other vessel, barge, container, or 
                        cargo-related services that are an 
                        integral part of operating qualifying 
                        vessels in United States foreign trade, 
                        and
                    ``(D) such other activities as may be 
                prescribed by the Secretary pursuant to 
                regulations.
            ``(3) Coordination with core activities.--
                    ``(A) In general.--Such term shall not 
                include any core qualifying activities.
                    ``(B) Nonelecting corporations.--In the 
                case of a corporation (other than an electing 
                corporation) which is a member of an electing 
                group, any core qualifying activities of the 
                corporation shall be treated as qualifying 
                secondary activities (and not as core 
                qualifying activities).
    ``(d) Qualifying Incidental Activities.--For purposes of 
this section, the term `qualified incidental activities' means 
shipping-related activities if--
            ``(1) they are incidental to the corporation's core 
        qualifying activities,
            ``(2) they are not qualifying secondary activities, 
        and
            ``(3) without regard to this subchapter, the gross 
        income derived by such corporation from such activities 
        does not exceed 0.1 percent of the corporation's gross 
        income from its core qualifying activities.
    ``(e) Application of Gross Income Tests in Case of Electing 
Group.--In the case of an electing group, subsections (c)(1) 
and (d)(3) shall be applied as if such group were 1 entity, and 
the limitations under such subsections shall be allocated among 
the corporations in such group.

``SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION; INTEREST.

    ``(a) Exclusion From Gross Income.--Gross income of an 
electing corporation shall not include its income from 
qualifying shipping activities.
    ``(b) Electing Group Member.--Gross income of a corporation 
(other than an electing corporation) which is a member of an 
electing group shall not include its income from qualifying 
shipping activities conducted by such member.
    ``(c) Denial of Losses, Deductions, and Credits.--
            ``(1) General rule.--Subject to paragraph (2), each 
        item of loss, deduction (other than for interest 
        expense), or credit of any taxpayer with respect to any 
        activity the income from which is excluded from gross 
        income under this section shall be disallowed.
            ``(2) Depreciation.--
                    ``(A) In general.--Notwithstanding 
                paragraph (1), the adjusted basis (for purposes 
                of determining gain) of any qualifying vessel 
                shall be determined as if the deduction for 
                depreciation had been allowed.
                    ``(B) Method.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), the straight-
                        line method of depreciation shall apply 
                        to qualifying vessels the income from 
                        operation of which is excluded from 
                        gross income under this section.
                            ``(ii) Exception.--Clause (i) shall 
                        not apply to any qualifying vessel 
                        which is subject to a charter entered 
                        into before the date of the enactment 
                        of this subchapter.
            ``(3) Interest.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the interest expense of an 
                electing corporation shall be disallowed in the 
                ratio that the fair market value of such 
                corporation's qualifying vessels bears to the 
                fair market value of such corporation's total 
                assets.
                    ``(B) Electing group.--In the case of a 
                corporation which is a member of an electing 
                group, the interest expense of such corporation 
                shall be disallowed in the ratio that the fair 
                market value of such corporation's qualifying 
                vessels bears to the fair market value of the 
                electing group's total assets.

``SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.

    ``(a) Qualifying Shipping Activities.--For purposes of this 
chapter, the qualifying shipping activities of an electing 
corporation shall be treated as a separate trade or business 
activity distinct from all other activities conducted by such 
corporation.
    ``(b) Exclusion of Credits or Deductions.--
            ``(1) No deduction shall be allowed against the 
        notional shipping income of an electing corporation, 
        and no credit shall be allowed against the tax imposed 
        by section 1352(a)(2).
            ``(2) No deduction shall be allowed for any net 
        operating loss attributable to the qualifying shipping 
        activities of any person to the extent that such loss 
        is carried forward by such person from a taxable year 
        preceding the first taxable year for which such person 
        was an electing corporation.
    ``(c) Transactions Not at Arm's Length.--Section 482 
applies in accordance with this subsection to a transaction or 
series of transactions--
            ``(1) as between an electing corporation and 
        another person, or
            ``(2) as between a person's qualifying shipping 
        activities and other activities carried on by it.

``SEC. 1359. DISPOSITION OF QUALIFYING VESSELS.

    ``(a) In General.--If any qualifying vessel operator sells 
or disposes of any qualifying vessel in an otherwise taxable 
transaction, at the election of such operator, no gain shall be 
recognized if any replacement qualifying vessel is acquired 
during the period specified in subsection (b), except to the 
extent that the amount realized upon such sale or disposition 
exceeds the cost of the replacement qualifying vessel.
    ``(b) Period Within Which Property Must Be Replaced.--The 
period referred to in subsection (a) shall be the period 
beginning one year prior to the disposition of the qualifying 
vessel and ending--
            ``(1) 3 years after the close of the first taxable 
        year in which the gain is realized, or
            ``(2) subject to such terms and conditions as may 
        be specified by the Secretary, on such later date as 
        the Secretary may designate on application by the 
        taxpayer.
Such application shall be made at such time and in such manner 
as the Secretary may by regulations prescribe.
    ``(c) Application of Section to Noncorporate Operators.--
For purposes of this section, the term `qualifying vessel 
operator' includes any person who would be a qualifying vessel 
operator were such person a corporation.
    ``(d) Time for Assessment of Deficiency Attributable to 
Gain.--If a qualifying vessel operator has made the election 
provided in subsection (a), then--
            ``(1) the statutory period for the assessment of 
        any deficiency, for any taxable year in which any part 
        of the gain is realized, attributable to such gain 
        shall not expire prior to the expiration of 3 years 
        from the date the Secretary is notified by such 
        operator (in such manner as the Secretary may by 
        regulations prescribe) of the replacement qualifying 
        vessel or of an intention not to replace, and
            ``(2) such deficiency may be assessed before the 
        expiration of such 3-year period notwithstanding the 
        provisions of section 6212(c) or the provisions of any 
        other law or rule of law which would otherwise prevent 
        such assessment.
    ``(e) Basis of Replacement Qualifying Vessel.--In the case 
of any replacement qualifying vessel purchased by the 
qualifying vessel operator which resulted in the nonrecognition 
of any part of the gain realized as the result of a sale or 
other disposition of a qualifying vessel, the basis shall be 
the cost of the replacement qualifying vessel decreased in the 
amount of the gain not so recognized; and if the property 
purchased consists of more than one piece of property, the 
basis determined under this sentence shall be allocated to the 
purchased properties in proportion to their respective costs.''
    (b) Technical Amendments.--
            (1) The second sentence of section 56(g)(4)(B)(i), 
        as amended by this Act, is further amended by inserting 
        ``or 1357'' after ``section 139A''.
            (2) The table of subchapters for chapter 1 is 
        amended by inserting after the item relating to 
        subchapter S the following new item:

        ``Subchapter R. Election to determine corporate tax on certain 
                  international shipping activities using per ton 
                  rate.''

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

   Subtitle F--Stock Options and Employee Stock Purchase Plan Stock 
                                Options

SEC. 251. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK 
                    PURCHASE PLAN STOCK OPTIONS FROM WAGES.

    (a) Exclusion From Employment Taxes.--
            (1) Social security taxes.--
                    (A) Section 3121(a) (relating to definition 
                of wages) is amended by striking ``or'' at the 
                end of paragraph (20), by striking the period 
                at the end of paragraph (21) and inserting ``; 
                or'', and by inserting after paragraph (21) the 
                following new paragraph:
            ``(22) remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an 
                incentive stock option (as defined in section 
                422(b)) or under an employee stock purchase 
                plan (as defined in section 423(b)), or
                    ``(B) any disposition by the individual of 
                such stock.''.
                    (B) Section 209(a) of the Social Security 
                Act is amended by striking ``or'' at the end of 
                paragraph (17), by striking the period at the 
                end of paragraph (18) and inserting ``; or'', 
                and by inserting after paragraph (18) the 
                following new paragraph:
            ``(19) Remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an 
                incentive stock option (as defined in section 
                422(b) of the Internal Revenue Code of 1986) or 
                under an employee stock purchase plan (as 
                defined in section 423(b) of such Code), or
                    ``(B) any disposition by the individual of 
                such stock.''.
            (2) Railroad retirement taxes.--Subsection (e) of 
        section 3231 is amended by adding at the end the 
        following new paragraph:
            ``(12) Qualified stock options.--The term 
        `compensation' shall not include any remuneration on 
        account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an 
                incentive stock option (as defined in section 
                422(b)) or under an employee stock purchase 
                plan (as defined in section 423(b)), or
                    ``(B) any disposition by the individual of 
                such stock.''.
            (3) Unemployment taxes.--Section 3306(b) (relating 
        to definition of wages) is amended by striking ``or'' 
        at the end of paragraph (17), by striking the period at 
        the end of paragraph (18) and inserting ``; or'', and 
        by inserting after paragraph (18) the following new 
        paragraph:
            ``(19) remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an 
                incentive stock option (as defined in section 
                422(b)) or under an employee stock purchase 
                plan (as defined in section 423(b)), or
                    ``(B) any disposition by the individual of 
                such stock.''.
    (b) Wage Withholding Not Required on Disqualifying 
Dispositions.--Section 421(b) (relating to effect of 
disqualifying dispositions) is amended by adding at the end the 
following new sentence: ``No amount shall be required to be 
deducted and withheld under chapter 24 with respect to any 
increase in income attributable to a disposition described in 
the preceding sentence.''.
    (c) Wage Withholding Not Required on Compensation Where 
Option Price Is Between 85 Percent and 100 Percent of Value of 
Stock.--Section 423(c) (relating to special rule where option 
price is between 85 percent and 100 percent of value of stock) 
is amended by adding at the end the following new sentence: 
``No amount shall be required to be deducted and withheld under 
chapter 24 with respect to any amount treated as compensation 
under this subsection.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to stock acquired pursuant to options exercised 
after the date of the enactment of this Act.

     TITLE III--TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS

            Subtitle A--Volumetric Ethanol Excise Tax Credit

SEC. 301. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTENSION OF 
                    ALCOHOL FUELS INCOME TAX CREDIT.

    (a) In General.--Subchapter B of chapter 65 (relating to 
rules of special application) is amended by inserting after 
section 6425 the following new section:

``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.

    ``(a) Allowance of Credits.--There shall be allowed as a 
credit against the tax imposed by section 4081 an amount equal 
to the sum of--
            ``(1) the alcohol fuel mixture credit, plus
            ``(2) the biodiesel mixture credit.
    ``(b) Alcohol Fuel Mixture Credit.--
            ``(1) In general.--For purposes of this section, 
        the alcohol fuel mixture credit is the product of the 
        applicable amount and the number of gallons of alcohol 
        used by the taxpayer in producing any alcohol fuel 
        mixture for sale or use in a trade or business of the 
        taxpayer.
            ``(2) Applicable amount.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the applicable amount is 51 
                cents.
                    ``(B) Mixtures not containing ethanol.--In 
                the case of an alcohol fuel mixture in which 
                none of the alcohol consists of ethanol, the 
                applicable amount is 60 cents.
            ``(3) Alcohol fuel mixture.--For purposes of this 
        subsection, the term `alcohol fuel mixture' means a 
        mixture of alcohol and a taxable fuel which--
                    ``(A) is sold by the taxpayer producing 
                such mixture to any person for use as a fuel, 
                or
                    ``(B) is used as a fuel by the taxpayer 
                producing such mixture.
        For purposes of subparagraph (A), a mixture produced by 
        any person at a refinery prior to a taxable event which 
        includes ethyl tertiary butyl ether or other ethers 
        produced from alcohol shall be treated as sold at the 
        time of its removal from the refinery (and only at such 
        time) to another person for use as a fuel.
            ``(4) Other definitions.--For purposes of this 
        subsection--
                    ``(A) Alcohol.--The term `alcohol' includes 
                methanol and ethanol but does not include--
                            ``(i) alcohol produced from 
                        petroleum, natural gas, or coal 
                        (including peat), or
                            ``(ii) alcohol with a proof of less 
                        than 190 (determined without regard to 
                        any added denaturants).
                Such term also includes an alcohol gallon 
                equivalent of ethyl tertiary butyl ether or 
                other ethers produced from such alcohol.
                    ``(B) Taxable fuel.--The term `taxable 
                fuel' has the meaning given such term by 
                section 4083(a)(1).
            ``(5) Termination.--This subsection shall not apply 
        to any sale, use, or removal for any period after 
        December 31, 2010.
    ``(c) Biodiesel Mixture Credit.--
            ``(1) In general.--For purposes of this section, 
        the biodiesel mixture credit is the product of the 
        applicable amount and the number of gallons of 
        biodiesel used by the taxpayer in producing any 
        biodiesel mixture for sale or use in a trade or 
        business of the taxpayer.
            ``(2) Applicable amount.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the applicable amount is 50 
                cents.
                    ``(B) Amount for agri-biodiesel.--In the 
                case of any biodiesel which is agri-biodiesel, 
                the applicable amount is $1.00.
            ``(3) Biodiesel mixture.--For purposes of this 
        section, the term `biodiesel mixture' means a mixture 
        of biodiesel and diesel fuel (as defined in section 
        4083(a)(3)), determined without regard to any use of 
        kerosene, which--
                    ``(A) is sold by the taxpayer producing 
                such mixture to any person for use as a fuel, 
                or
                    ``(B) is used as a fuel by the taxpayer 
                producing such mixture.
            ``(4) Certification for biodiesel.--No credit shall 
        be allowed under this subsection unless the taxpayer 
        obtains a certification (in such form and manner as 
        prescribed by the Secretary) from the producer of the 
        biodiesel which identifies the product produced and the 
        percentage of biodiesel and agri-biodiesel in the 
        product.
            ``(5) Other definitions.--Any term used in this 
        subsection which is also used in section 40A shall have 
        the meaning given such term by section 40A.
            ``(6) Termination.--This subsection shall not apply 
        to any sale, use, or removal for any period after 
        December 31, 2006.
    ``(d) Mixture Not Used As a Fuel, Etc.--
            ``(1) Imposition of tax.--If--
                    ``(A) any credit was determined under this 
                section with respect to alcohol or biodiesel 
                used in the production of any alcohol fuel 
                mixture or biodiesel mixture, respectively, and
                    ``(B) any person--
                            ``(i) separates the alcohol or 
                        biodiesel from the mixture, or
                            ``(ii) without separation, uses the 
                        mixture other than as a fuel,
                then there is hereby imposed on such person a 
                tax equal to the product of the applicable 
                amount and the number of gallons of such 
                alcohol or biodiesel.
            ``(2) Applicable laws.--All provisions of law, 
        including penalties, shall, insofar as applicable and 
        not inconsistent with this section, apply in respect of 
        any tax imposed under paragraph (1) as if such tax were 
        imposed by section 4081 and not by this section.
    ``(e) Coordination With Exemption From Excise Tax.--Rules 
similar to the rules under section 40(c) shall apply for 
purposes of this section.''.
    (b) Registration Requirement.--Section 4101(a)(1) (relating 
to registration), as amended by section 861, is amended by 
inserting ``and every person producing or importing biodiesel 
(as defined in section 40A(d)(1)) or alcohol (as defined in 
section 6426(b)(4)(A))'' before ``shall register with the 
Secretary''.
    (c) Additional Amendments.--
            (1) Section 40(c) is amended by striking 
        ``subsection (b)(2), (k), or (m) of section 4041, 
        section 4081(c), or section 4091(c)'' and inserting 
        ``section 4041(b)(2), section 6426, or section 
        6427(e)''.
            (2) Paragraph (4) of section 40(d) is amended to 
        read as follows:
            ``(4) Volume of alcohol.--For purposes of 
        determining under subsection (a) the number of gallons 
        of alcohol with respect to which a credit is allowable 
        under subsection (a), the volume of alcohol shall 
        include the volume of any denaturant (including 
        gasoline) which is added under any formulas approved by 
        the Secretary to the extent that such denaturants do 
        not exceed 5 percent of the volume of such alcohol 
        (including denaturants).''.
            (3) Section 40(e)(1) is amended--
                    (A) by striking ``2007'' in subparagraph 
                (A) and inserting ``2010'', and
                    (B) by striking ``2008'' in subparagraph 
                (B) and inserting ``2011''.
            (4) Section 40(h) is amended--
                    (A) by striking ``2007'' in paragraph (1) 
                and inserting ``2010'', and
                    (B) by striking ``, 2006, or 2007'' in the 
                table contained in paragraph (2) and inserting 
                ``through 2010''.
            (5) Section 4041(b)(2)(B) is amended by striking 
        ``a substance other than petroleum or natural gas'' and 
        inserting ``coal (including peat)''.
            (6) Section 4041 is amended by striking subsection 
        (k).
            (7) Section 4081 is amended by striking subsection 
        (c).
            (8) Paragraph (2) of section 4083(a) is amended to 
        read as follows:
            ``(2) Gasoline.--The term `gasoline'--
                    ``(A) includes any gasoline blend, other 
                than qualified methanol or ethanol fuel (as 
                defined in section 4041(b)(2)(B)), partially 
                exempt methanol or ethanol fuel (as defined in 
                section 4041(m)(2)), or a denatured alcohol, 
                and
                    ``(B) includes, to the extent prescribed in 
                regulations--
                            ``(i) any gasoline blend stock, and
                            ``(ii) any product commonly used as 
                        an additive in gasoline (other than 
                        alcohol).
        For purposes of subparagraph (B)(i), the term `gasoline 
        blend stock' means any petroleum product component of 
        gasoline.''.
            (9) Section 6427 is amended by inserting after 
        subsection (d) the following new subsection:
    ``(e) Alcohol or Biodiesel Used To Produce Alcohol Fuel and 
Biodiesel Mixtures.--Except as provided in subsection (k)--
            ``(1) Used to produce a mixture.--If any person 
        produces a mixture described in section 6426 in such 
        person's trade or business, the Secretary shall pay 
        (without interest) to such person an amount equal to 
        the alcohol fuel mixture credit or the biodiesel 
        mixture credit with respect to such mixture.
            ``(2) Coordination with other repayment 
        provisions.--No amount shall be payable under paragraph 
        (1) with respect to any mixture with respect to which 
        an amount is allowed as a credit under section 6426.
            ``(3) Termination.--This subsection shall not apply 
        with respect to--
                    ``(A) any alcohol fuel mixture (as defined 
                in section 6426(b)(3)) sold or used after 
                December 31, 2010, and
                    ``(B) any biodiesel mixture (as defined in 
                section 6426(c)(3)) sold or used after December 
                31, 2006.''.
            (10) Section 6427(i)(3) is amended--
                    (A) by striking ``subsection (f)'' both 
                places it appears in subparagraph (A) and 
                inserting ``subsection (e)(1)'',
                    (B) by striking ``gasoline, diesel fuel, or 
                kerosene used to produce a qualified alcohol 
                mixture (as defined in section 4081(c)(3))'' in 
                subparagraph (A) and inserting ``a mixture 
                described in section 6426'',
                    (C) by adding at the end of subparagraph 
                (A) the following new flush sentence:
                ``In the case of an electronic claim, this 
                subparagraph shall be applied without regard to 
                clause (i).'',
                    (D) by striking ``subsection (f)(1)'' in 
                subparagraph (B) and inserting ``subsection 
                (e)(1)'',
                    (E) by striking ``20 days of the date of 
                the filing of such claim'' in subparagraph (B) 
                and inserting ``45 days of the date of the 
                filing of such claim (20 days in the case of an 
                electronic claim)'', and
                    (F) by striking ``alcohol mixture'' in the 
                heading and inserting ``alcohol fuel and 
                biodiesel mixture''.
            (11) Section 9503(b)(1) is amended by adding at the 
        end the following new flush sentence:
        ``For purposes of this paragraph, taxes received under 
        sections 4041 and 4081 shall be determined without 
        reduction for credits under section 6426.''.
            (12) Section 9503(b)(4) is amended--
                    (A) by adding ``or'' at the end of 
                subparagraph (C),
                    (B) by striking the comma at the end of 
                subparagraph (D)(iii) and inserting a period, 
                and
                    (C) by striking subparagraphs (E) and (F).
            (13) Section 9503(c)(2)(A) is amended by adding at 
        the end the following: ``Clauses (i)(III) and (ii) 
        shall not apply to claims under section 6427(e).''.
            (14) The table of sections for subchapter B of 
        chapter 65 is amended by inserting after the item 
        relating to section 6425 the following new item:

    ``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.

    (d) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to fuel sold or used after December 31, 
        2004.
            (2) Registration requirement.--The amendment made 
        by subsection (b) shall take effect on April 1, 2005.
            (3) Extension of alcohol fuels credit.--The 
        amendments made by paragraphs (3), (4), and (14) of 
        subsection (c) shall take effect on the date of the 
        enactment of this Act.
            (4) Repeal of general fund retention of certain 
        alcohol fuels taxes.--The amendments made by subsection 
        (c)(12) shall apply to fuel sold or used after 
        September 30, 2004.
    (e) Format for Filing.--The Secretary of the Treasury shall 
describe the electronic format for filing claims described in 
section 6427(i)(3)(B) of the Internal Revenue Code of 1986 (as 
amended by subsection (c)(10)(C)) not later than December 31, 
2004.

SEC. 302. BIODIESEL INCOME TAX CREDIT.

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

``SEC. 40A. BIODIESEL USED AS FUEL.

    ``(a) General Rule.--For purposes of section 38, the 
biodiesel fuels credit determined under this section for the 
taxable year is an amount equal to the sum of--
            ``(1) the biodiesel mixture credit, plus
            ``(2) the biodiesel credit.
    ``(b) Definition of Biodiesel Mixture Credit and Biodiesel 
Credit.--For purposes of this section--
            ``(1) Biodiesel mixture credit.--
                    ``(A) In general.--The biodiesel mixture 
                credit of any taxpayer for any taxable year is 
                50 cents for each gallon of biodiesel used by 
                the taxpayer in the production of a qualified 
                biodiesel mixture.
                    ``(B) Qualified biodiesel mixture.--The 
                term `qualified biodiesel mixture' means a 
                mixture of biodiesel and diesel fuel (as 
                defined in section 4083(a)(3)), determined 
                without regard to any use of kerosene, which--
                            ``(i) is sold by the taxpayer 
                        producing such mixture to any person 
                        for use as a fuel, or
                            ``(ii) is used as a fuel by the 
                        taxpayer producing such mixture.
                    ``(C) Sale or use must be in trade or 
                business, etc.--Biodiesel used in the 
                production of a qualified biodiesel mixture 
                shall be taken into account--
                            ``(i) only if the sale or use 
                        described in subparagraph (B) is in a 
                        trade or business of the taxpayer, and
                            ``(ii) for the taxable year in 
                        which such sale or use occurs.
                    ``(D) Casual off-farm production not 
                eligible.--No credit shall be allowed under 
                this section with respect to any casual off-
                farm production of a qualified biodiesel 
                mixture.
            ``(2) Biodiesel credit.--
                    ``(A) In general.--The biodiesel credit of 
                any taxpayer for any taxable year is 50 cents 
                for each gallon of biodiesel which is not in a 
                mixture with diesel fuel and which during the 
                taxable year--
                            ``(i) is used by the taxpayer as a 
                        fuel in a trade or business, or
                            ``(ii) is sold by the taxpayer at 
                        retail to a person and placed in the 
                        fuel tank of such person's vehicle.
                    ``(B) User credit not to apply to biodiesel 
                sold at retail.--No credit shall be allowed 
                under subparagraph (A)(i) with respect to any 
                biodiesel which was sold in a retail sale 
                described in subparagraph (A)(ii).
            ``(3) Credit for agri-biodiesel.--In the case of 
        any biodiesel which is agri-biodiesel, paragraphs 
        (1)(A) and (2)(A) shall be applied by substituting 
        `$1.00' for `50 cents'.
            ``(4) Certification for biodiesel.--No credit shall 
        be allowed under this section unless the taxpayer 
        obtains a certification (in such form and manner as 
        prescribed by the Secretary) from the producer or 
        importer of the biodiesel which identifies the product 
        produced and the percentage of biodiesel and agri-
        biodiesel in the product.
    ``(c) Coordination With Credit Against Excise Tax.--The 
amount of the credit determined under this section with respect 
to any biodiesel shall be properly reduced to take into account 
any benefit provided with respect to such biodiesel solely by 
reason of the application of section 6426 or 6427(e).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Biodiesel.--The term `biodiesel' means the 
        monoalkyl esters of long chain fatty acids derived from 
        plant or animal matter which meet--
                    ``(A) the registration requirements for 
                fuels and fuel additives established by the 
                Environmental Protection Agency under section 
                211 of the Clean Air Act (42 U.S.C. 7545), and
                    ``(B) the requirements of the American 
                Society of Testing and Materials D6751.
            ``(2) Agri-biodiesel.--The term `agri-biodiesel' 
        means biodiesel derived solely from virgin oils, 
        including esters derived from virgin vegetable oils 
        from corn, soybeans, sunflower seeds, cottonseeds, 
        canola, crambe, rapeseeds, safflowers, flaxseeds, rice 
        bran, and mustard seeds, and from animal fats.
            ``(3) Mixture or biodiesel not used as a fuel, 
        etc.--
                    ``(A) Mixtures.--If--
                            ``(i) any credit was determined 
                        under this section with respect to 
                        biodiesel used in the production of any 
                        qualified biodiesel mixture, and
                            ``(ii) any person--
                                    ``(I) separates the 
                                biodiesel from the mixture, or
                                    ``(II) without separation, 
                                uses the mixture other than as 
                                a fuel,
                then there is hereby imposed on such person a 
                tax equal to the product of the rate applicable 
                under subsection (b)(1)(A) and the number of 
                gallons of such biodiesel in such mixture.
                    ``(B) Biodiesel.--If--
                            ``(i) any credit was determined 
                        under this section with respect to the 
                        retail sale of any biodiesel, and
                            ``(ii) any person mixes such 
                        biodiesel or uses such biodiesel other 
                        than as a fuel,
                then there is hereby imposed on such person a 
                tax equal to the product of the rate applicable 
                under subsection (b)(2)(A) and the number of 
                gallons of such biodiesel.
                    ``(C) Applicable laws.--All provisions of 
                law, including penalties, shall, insofar as 
                applicable and not inconsistent with this 
                section, apply in respect of any tax imposed 
                under subparagraph (A) or (B) as if such tax 
                were imposed by section 4081 and not by this 
                chapter.
            ``(4) Pass-thru in the case of estates and 
        trusts.--Under regulations prescribed by the Secretary, 
        rules similar to the rules of subsection (d) of section 
        52 shall apply.
    ``(e) Termination.--This section shall not apply to any 
sale or use after December 31, 2006.''.
    (b) Credit Treated as Part of General Business Credit.--
Section 38(b) (relating to current year business credit), as 
amended by this Act, is amended by striking ``plus'' at the end 
of paragraph (15), by striking the period at the end of 
paragraph (16) and inserting ``, plus'', and by inserting after 
paragraph (16) the following new paragraph:
            ``(17) the biodiesel fuels credit determined under 
        section 40A(a).''.
    (c) Conforming Amendments.--
            (1)(A) Section 87 is amended to read as follows:

``SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.

    ``Gross income includes--
            ``(1) the amount of the alcohol fuel credit 
        determined with respect to the taxpayer for the taxable 
        year under section 40(a), and
            ``(2) the biodiesel fuels credit determined with 
        respect to the taxpayer for the taxable year under 
        section 40A(a).''.
            (B) The item relating to section 87 in the table of 
        sections for part II of subchapter B of chapter 1 is 
        amended by striking ``fuel credit'' and inserting ``and 
        biodiesel fuels credits''.
            (2) Section 196(c) is amended by striking ``and'' 
        at the end of paragraph (9), by striking the period at 
        the end of paragraph (10) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(11) the biodiesel fuels credit determined under 
        section 40A(a).''.
            (3) The table of sections for subpart D of part IV 
        of subchapter A of chapter 1 is amended by adding after 
        the item relating to section 40 the following new item:

        ``Sec. 40A. Biodiesel used as fuel.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to fuel produced, and sold or used, after December 
31, 2004, in taxable years ending after such date.

SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX 
                    BENEFITS.

    (a) In General.--Subpart C of part III of subchapter A of 
chapter 32 is amended by adding at the end the following new 
section:

``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX 
                    BENEFITS.

    ``(a) In General.--The Secretary shall require any person 
claiming tax benefits--
            ``(1) under the provisions of section 34, 40, and 
        40A, to file a return at the time such person claims 
        such benefits (in such manner as the Secretary may 
        prescribe), and
            ``(2) under the provisions of section 4041(b)(2), 
        6426, or 6427(e) to file a quarterly return (in such 
        manner as the Secretary may prescribe).
    ``(b) Contents of Return.--Any return filed under this 
section shall provide such information relating to such 
benefits and the coordination of such benefits as the Secretary 
may require to ensure the proper administration and use of such 
benefits.
    ``(c) Enforcement.--With respect to any person described in 
subsection (a) and subject to registration requirements under 
this title, rules similar to rules of section 4222(c) shall 
apply with respect to any requirement under this section.''.
    (b) Conforming Amendment.--The table of sections for 
subpart C of part III of subchapter A of chapter 32 is amended 
by adding at the end the following new item:

    ``Sec. 4104. Information reporting for persons claiming certain tax 
              benefits.''.

    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2005.

                  Subtitle B--Agricultural Incentives

SEC. 311. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
                    RELATED CONDITIONS.

    (a) Replacement of Livestock With Other Farm Property.--
Subsection (f) of section 1033 (relating to involuntary 
conversions) is amended--
            (1) by inserting ``drought, flood, or other 
        weather-related conditions, or'' after ``because of'',
            (2) by inserting ``in the case of soil 
        contamination or other environmental contamination'' 
        after ``including real property'', and
            (3) by striking ``Where There Has Been 
        Environmental Contamination'' in the heading and 
        inserting ``in Certain Cases''.
    (b) Extension of Replacement Period of Involuntarily 
Converted Livestock.--Subsection (e) of section 1033 (relating 
to involuntary conversions) is amended--
            (1) by striking ``Conditions.--For purposes'' and 
        inserting ``Conditions.--
            ``(1) In general.--For purposes'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Extension of replacement period.--
                    ``(A) In general.--In the case of drought, 
                flood, or other weather-related conditions 
                described in paragraph (1) which result in the 
                area being designated as eligible for 
                assistance by the Federal Government, 
                subsection (a)(2)(B) shall be applied with 
                respect to any converted property by 
                substituting `4 years' for `2 years'.
                    ``(B) Further extension by secretary.--The 
                Secretary may extend on a regional basis the 
                period for replacement under this section 
                (after the application of subparagraph (A)) for 
                such additional time as the Secretary 
                determines appropriate if the weather-related 
                conditions which resulted in such application 
                continue for more than 3 years.''.
    (c) Income Inclusion Rules.--Section 451(e) (relating to 
special rule for proceeds from livestock sold on account of 
drought, flood, or other weather-related conditions) is amended 
by adding at the end the following new paragraph:
            ``(3) Special election rules.--If section 
        1033(e)(2) applies to a sale or exchange of livestock 
        described in paragraph (1), the election under 
        paragraph (1) shall be deemed valid if made during the 
        replacement period described in such section.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to any taxable year with respect to which the due 
date (without regard to extensions) for the return is after 
December 31, 2002.

SEC. 312. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
                    REDUCING PATRONAGE DIVIDENDS.

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

SEC. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.

    (a) Allocation of Alcohol Fuels Credit to Patrons of a 
Cooperative.--Section 40(g) (relating to definitions and 
special rules for eligible small ethanol producer credit) is 
amended by adding at the end the following new paragraph:
            ``(6) Allocation of small ethanol producer credit 
        to patrons of cooperative.--
                    ``(A) Election to allocate.--
                            ``(i) In general.--In the case of a 
                        cooperative organization described in 
                        section 1381(a), any portion of the 
                        credit determined under subsection 
                        (a)(3) for the taxable year may, at the 
                        election of the organization, be 
                        apportioned pro rata among patrons of 
                        the organization on the basis of the 
                        quantity or value of business done with 
                        or for such patrons for the taxable 
                        year.
                            ``(ii) Form and effect of 
                        election.--An election under clause (i) 
                        for any taxable year shall be made on a 
                        timely filed return for such year. Such 
                        election, once made, shall be 
                        irrevocable for such taxable year.
                    ``(B) Treatment of organizations and 
                patrons.--
                            ``(i) Organizations.--The amount of 
                        the credit not apportioned to patrons 
                        pursuant to subparagraph (A) shall be 
                        included in the amount determined under 
                        subsection (a)(3) for the taxable year 
                        of the organization.
                            ``(ii) Patrons.--The amount of the 
                        credit apportioned to patrons pursuant 
                        to subparagraph (A) shall be included 
                        in the amount determined under such 
                        subsection for the first taxable year 
                        of each patron ending on or after the 
                        last day of the payment period (as 
                        defined in section 1382(d)) for the 
                        taxable year of the organization or, if 
                        earlier, for the taxable year of each 
                        patron ending on or after the date on 
                        which the patron receives notice from 
                        the cooperative of the apportionment.
                            ``(iii) Special rules for decrease 
                        in credits for taxable year.--If the 
                        amount of the credit of the 
                        organization determined under such 
                        subsection for a taxable year is less 
                        than the amount of such credit shown on 
                        the return of the organization for such 
                        year, an amount equal to the excess 
                        of--
                                    ``(I) such reduction, over
                                    ``(ii) the amount not 
                                apportioned to such patrons 
                                under subparagraph (A) for the 
                                taxable year,
                        shall be treated as an increase in tax 
                        imposed by this chapter on the 
                        organization. Such increase shall not 
                        be treated as tax imposed by this 
                        chapter for purposes of determining the 
                        amount of any credit under this chapter 
                        or for purposes of section 55.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND THE 
                    ALTERNATIVE MINIMUM TAX.

    (a) In General.--Section 55(c) (defining regular tax) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
            ``(2) Coordination with income averaging for 
        farmers and fishermen.--Solely for purposes of this 
        section, section 1301 (relating to averaging of farm 
        and fishing income) shall not apply in computing the 
        regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
            (1) In general.--Section 1301(a) is amended by 
        striking ``farming business'' and inserting ``farming 
        business or fishing business''.
            (2) Definition of elected farm income.--
                    (A) In general.--Clause (i) of section 
                1301(b)(1)(A) is amended by inserting ``or 
                fishing business'' before the semicolon.
                    (B) Conforming amendment.--Subparagraph (B) 
                of section 1301(b)(1) is amended by inserting 
                ``or fishing business'' after ``farming 
                business'' both places it occurs.
            (3) Definition of fishing business.--Section 
        1301(b) is amended by adding at the end the following 
        new paragraph:
            ``(4) Fishing business.--The term `fishing 
        business' means the conduct of commercial fishing as 
        defined in section 3 of the Magnuson-Stevens Fishery 
        Conservation and Management Act (16 U.S.C. 1802).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2003.

SEC. 315. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
                    OUTRIGHT SALES BY LANDOWNERS.

    (a) In General.--The first sentence of section 631(b) 
(relating to disposal of timber with a retained economic 
interest) is amended by striking ``retains an economic interest 
in such timber'' and inserting ``either retains an economic 
interest in such timber or makes an outright sale of such 
timber''.
    (b) Conforming Amendments.--
            (1) The third sentence of section 631(b) is amended 
        by striking ``The date of disposal'' and inserting ``In 
        the case of disposal of timber with a retained economic 
        interest, the date of disposal''.
            (2) The heading for section 631(b) is amended by 
        striking ``With a Retained Economic Interest''.
    (c) Effective Date.--The amendments made by this section 
shall apply to sales after December 31, 2004.

SEC. 316. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE 
                    ADDED PROCESSING INVOLVING ANIMALS.

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

          ``For treatment of value-added processing involving animals, 
        see section 1388(k).''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS' 
                    COOPERATIVE ORGANIZATIONS.

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

SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.

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

SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

    (a) Income From Open Access and Nuclear Decommissioning 
Transactions.--
            (1) In general.--Subparagraph (C) of section 
        501(c)(12) is amended by striking clause (ii) and 
        adding at the end the following:
                            ``(ii) from any provision or sale 
                        of electric energy transmission 
                        services or ancillary services if such 
                        services are provided on a 
                        nondiscriminatory open access basis 
                        under an open access transmission 
                        tariff approved or accepted by FERC or 
                        under an independent transmission 
                        provider agreement approved or accepted 
                        by FERC (other than income received or 
                        accrued directly or indirectly from a 
                        member),
                            ``(iii) from the provision or sale 
                        of electric energy distribution 
                        services or ancillary services if such 
                        services are provided on a 
                        nondiscriminatory open access basis to 
                        distribute electric energy not owned by 
                        the mutual or electric cooperative 
                        company--
                                    ``(I) to end-users who are 
                                served by distribution 
                                facilities not owned by such 
                                company or any of its members 
                                (other than income received or 
                                accrued directly or indirectly 
                                from a member), or
                                    ``(II) generated by a 
                                generation facility not owned 
                                or leased by such company or 
                                any of its members and which is 
                                directly connected to 
                                distribution facilities owned 
                                by such company or any of its 
                                members (other than income 
                                received or accrued directly or 
                                indirectly from a member),
                            ``(iv) from any nuclear 
                        decommissioning transaction, or
                            ``(v) from any asset exchange or 
                        conversion transaction.
                Clauses (ii) through (v) shall not apply to 
                taxable years beginning after December 31, 
                2006.''.
            (2) Definitions and special rules.--Paragraph (12) 
        of section 501(c) is amended by adding at the end the 
        following new subparagraphs:
                    ``(E) For purposes of subparagraph (C)(ii), 
                the term `FERC' means the Federal Energy 
                Regulatory Commission and references to such 
                term shall be treated as including the Public 
                Utility Commission of Texas with respect to any 
                ERCOT utility (as defined in section 
                212(k)(2)(B) of the Federal Power Act (16 
                U.S.C. 824k(k)(2)(B))).
                    ``(F) For purposes of subparagraph 
                (C)(iii), the term `nuclear decommissioning 
                transaction' means--
                            ``(i) any transfer into a trust, 
                        fund, or instrument established to pay 
                        any nuclear decommissioning costs if 
                        the transfer is in connection with the 
                        transfer of the mutual or cooperative 
                        electric company's interest in a 
                        nuclear power plant or nuclear power 
                        plant unit,
                            ``(ii) any distribution from any 
                        trust, fund, or instrument established 
                        to pay any nuclear decommissioning 
                        costs, or
                            ``(iii) any earnings from any 
                        trust, fund, or instrument established 
                        to pay any nuclear decommissioning 
                        costs.
                    ``(G) For purposes of subparagraph (C)(iv), 
                the term `asset exchange or conversion 
                transaction' means any voluntary exchange or 
                involuntary conversion of any property related 
                to generating, transmitting, distributing, or 
                selling electric energy by a mutual or 
                cooperative electric company, the gain from 
                which qualifies for deferred recognition under 
                section 1031 or 1033, but only if the 
                replacement property acquired by such company 
                pursuant to such section constitutes property 
                which is used, or to be used, for--
                            ``(i) generating, transmitting, 
                        distributing, or selling electric 
                        energy, or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural 
                        gas.''.
    (b) Treatment of Income From Load Loss Transactions, Etc.--
Paragraph (12) of section 501(c), as amended by subsection 
(a)(2), is amended by adding after subparagraph (G) the 
following new subparagraph:
                    ``(H)(i) In the case of a mutual or 
                cooperative electric company described in this 
                paragraph or an organization described in 
                section 1381(a)(2)(C), income received or 
                accrued from a load loss transaction shall be 
                treated as an amount collected from members for 
                the sole purpose of meeting losses and 
                expenses.
                    ``(ii) For purposes of clause (i), the term 
                `load loss transaction' means any wholesale or 
                retail sale of electric energy (other than to 
                members) to the extent that the aggregate sales 
                during the recovery period do not exceed the 
                load loss mitigation sales limit for such 
                period.
                    ``(iii) For purposes of clause (ii), the 
                load loss mitigation sales limit for the 
                recovery period is the sum of the annual load 
                losses for each year of such period.
                    ``(iv) For purposes of clause (iii), a 
                mutual or cooperative electric company's annual 
                load loss for each year of the recovery period 
                is the amount (if any) by which--
                            ``(I) the megawatt hours of 
                        electric energy sold during such year 
                        to members of such electric company are 
                        less than
                            ``(II) the megawatt hours of 
                        electric energy sold during the base 
                        year to such members.
                    ``(v) For purposes of clause (iv)(II), the 
                term `base year' means--
                            ``(I) the calendar year preceding 
                        the start-up year, or
                            ``(II) at the election of the 
                        mutual or cooperative electric company, 
                        the second or third calendar years 
                        preceding the start-up year.
                    ``(vi) For purposes of this subparagraph, 
                the recovery period is the 7-year period 
                beginning with the start-up year.
                    ``(vii) For purposes of this subparagraph, 
                the start-up year is the first year that the 
                mutual or cooperative electric company offers 
                nondiscriminatory open access or the calendar 
                year which includes the date of the enactment 
                of this subparagraph, if later, at the election 
                of such company.
                    ``(viii) A company shall not fail to be 
                treated as a mutual or cooperative electric 
                company for purposes of this paragraph or as a 
                corporation operating on a cooperative basis 
                for purposes of section 1381(a)(2)(C) by reason 
                of the treatment under clause (i).
                    ``(ix) For purposes of subparagraph (A), in 
                the case of a mutual or cooperative electric 
                company, income received, or accrued, 
                indirectly from a member shall be treated as an 
                amount collected from members for the sole 
                purpose of meeting losses and expenses.
                    ``(x) This subparagraph shall not apply to 
                taxable years beginning after December 31, 
                2006.''.
    (c) Exception From Unrelated Business Taxable Income.--
Subsection (b) of section 512 (relating to modifications) is 
amended by adding at the end the following new paragraph:
            ``(18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative 
        electric company described in section 501(c)(12), there 
        shall be excluded income which is treated as member 
        income under subparagraph (H) thereof.''.
    (d) Cross Reference.--Section 1381 is amended by adding at 
the end the following new subsection:
    ``(c) Cross Reference.--

          ``For treatment of income from load loss transactions of 
        organizations described in subsection (a)(2)(C), see section 
        501(c)(12)(H).''.

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH 
                    SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN 
                    STATE LOAN REPAYMENT PROGRAMS.

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

SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.

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

SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.

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

             Subtitle C--Incentives for Small Manufacturers

SEC. 331. NET INCOME FROM PUBLICLY TRADED PARTNERSHIPS TREATED AS 
                    QUALIFYING INCOME OF REGULATED INVESTMENT 
                    COMPANIES.

    (a) In General.--Paragraph (2) of section 851(b) (defining 
regulated investment company) is amended to read as follows:
            ``(2) at least 90 percent of its gross income is 
        derived from--
                    ``(A) dividends, interest, payments with 
                respect to securities loans (as defined in 
                section 512(a)(5)), and gains from the sale or 
                other disposition of stock or securities (as 
                defined in section 2(a)(36) of the Investment 
                Company Act of 1940, as amended) or foreign 
                currencies, or other income (including but not 
                limited to gains from options, futures or 
                forward contracts) derived with respect to its 
                business of investing in such stock, 
                securities, or currencies, and
                    ``(B) net income derived from an interest 
                in a qualified publicly traded partnership (as 
                defined in subsection (h)); and''.
    (b) Source Flow-Through Rule Not To Apply.--The last 
sentence of section 851(b) is amended by inserting ``(other 
than a qualified publicly traded partnership as defined in 
subsection (h))'' after ``derived from a partnership''.
    (c) Limitation on Ownership.--Subsection (c) of section 851 
is amended by redesignating paragraph (5) as paragraph (6) and 
inserting after paragraph (4) the following new paragraph:
            ``(5) The term `outstanding voting securities of 
        such issuer' shall include the equity securities of a 
        qualified publicly traded partnership (as defined in 
        subsection (h)).''.
    (d) Definition of Qualified Publicly Traded Partnership.--
Section 851 is amended by adding at the end the following new 
subsection:
    ``(h) Qualified Publicly Traded Partnership.--For purposes 
of this section, the term `qualified publicly traded 
partnership' means a publicly traded partnership described in 
section 7704(b) other than a partnership which would satisfy 
the gross income requirements of section 7704(c)(2) if 
qualifying income included only income described in subsection 
(b)(2)(A).''.
    (e) Definition of Qualifying Income.--Section 7704(d)(4) is 
amended by striking ``section 851(b)(2)'' and inserting 
``section 851(b)(2)(A)''.
    (f) Limitation on Composition of Assets.--Subparagraph (B) 
of section 851(b)(3) is amended to read as follows:
                    ``(B) not more than 25 percent of the value 
                of its total assets is invested in--
                            ``(i) the securities (other than 
                        Government securities or the securities 
                        of other regulated investment 
                        companies) of any one issuer,
                            ``(ii) the securities (other than 
                        the securities of other regulated 
                        investment companies) of two or more 
                        issuers which the taxpayer controls and 
                        which are determined, under regulations 
                        prescribed by the Secretary, to be 
                        engaged in the same or similar trades 
                        or businesses or related trades or 
                        businesses, or
                            ``(iii) the securities of one or 
                        more qualified publicly traded 
                        partnerships (as defined in subsection 
                        (h)).''.
    (g) Application of Special Passive Activity Rule to 
Regulated Investment Companies.--Subsection (k) of section 469 
(relating to separate application of section in case of 
publicly traded partnerships) is amended by adding at the end 
the following new paragraph:
            ``(4) Application to regulated investment 
        companies.--For purposes of this section, a regulated 
        investment company (as defined in section 851) holding 
        an interest in a qualified publicly traded partnership 
        (as defined in section 851(h)) shall be treated as a 
        taxpayer described in subsection (a)(2) with respect to 
        items attributable to such interest.''.
    (h) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 332. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.

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

SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.

    (a) In General.--Subsection (a) of section 4161 (relating 
to sport fishing equipment) is amended by redesignating 
paragraph (3) as paragraph (4) and by inserting after paragraph 
(2) the following new paragraph:
            ``(3) 3 percent rate of tax for tackle boxes.--In 
        the case of fishing tackle boxes, paragraph (1) shall 
        be applied by substituting `3 percent' for `10 
        percent'.''.
    (b) Effective Date.--The amendments made this section shall 
apply to articles sold by the manufacturer, producer, or 
importer after December 31, 2004.

SEC. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.

    (a) Not Treated as Sport Fishing Equipment.--Subsection (a) 
of section 4162 (relating to sport fishing equipment defined) 
is amended by inserting ``and'' at the end of paragraph (8), by 
striking ``, and'' at the end of paragraph (9) and inserting a 
period, and by striking paragraph (10).
    (b) Conforming Amendment.--Section 4162 is amended by 
striking subsection (b) and by redesignating subsection (c) as 
subsection (b).
    (c) Effective Date.--The amendments made this section shall 
apply to articles sold by the manufacturer, producer, or 
importer after December 31, 2004.

SEC. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES 
                    INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE 
                    WHALING.

    (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts), as amended by this Act, is amended by 
redesignating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following new subsection:
    ``(n) Expenses Paid by Certain Whaling Captains in Support 
of Native Alaskan Subsistence Whaling.--
            ``(1) In general.--In the case of an individual who 
        is recognized by the Alaska Eskimo Whaling Commission 
        as a whaling captain charged with the responsibility of 
        maintaining and carrying out sanctioned whaling 
        activities and who engages in such activities during 
        the taxable year, the amount described in paragraph (2) 
        (to the extent such amount does not exceed $10,000 for 
        the taxable year) shall be treated for purposes of this 
        section as a charitable contribution.
            ``(2) Amount described.--
                    ``(A) In general.--The amount described in 
                this paragraph is the aggregate of the 
                reasonable and necessary whaling expenses paid 
                by the taxpayer during the taxable year in 
                carrying out sanctioned whaling activities.
                    ``(B) Whaling expenses.--For purposes of 
                subparagraph (A), the term `whaling expenses' 
                includes expenses for--
                            ``(i) the acquisition and 
                        maintenance of whaling boats, weapons, 
                        and gear used in sanctioned whaling 
                        activities,
                            ``(ii) the supplying of food for 
                        the crew and other provisions for 
                        carrying out such activities, and
                            ``(iii) storage and distribution of 
                        the catch from such activities.
            ``(3) Sanctioned whaling activities.--For purposes 
        of this subsection, the term `sanctioned whaling 
        activities' means subsistence bowhead whale hunting 
        activities conducted pursuant to the management plan of 
        the Alaska Eskimo Whaling Commission.
            ``(4) Substantiation of expenses.--The Secretary 
        shall issue guidance requiring that the taxpayer 
        substantiate the whaling expenses for which a deduction 
        is claimed under this subsection, including by 
        maintaining appropriate written records with respect to 
        the time, place, date, amount, and nature of the 
        expense, as well as the taxpayer's eligibility for such 
        deduction, and that (to the extent provided by the 
        Secretary) such substantiation be provided as part of 
        the taxpayer's return of tax.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to contributions made after December 31, 2004.

SEC. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.

    (a) Aircraft Treated as Qualified Property.--
            (1) In general.--Paragraph (2) of section 168(k) is 
        amended by redesignating subparagraphs (C) through (F) 
        as subparagraphs (D) through (G), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) Certain aircraft.--The term 
                `qualified property' includes property--
                            ``(i) which meets the requirements 
                        of clauses (ii) and (iii) of 
                        subparagraph (A),
                            ``(ii) which is an aircraft which 
                        is not a transportation property (as 
                        defined in subparagraph (B)(iii)) other 
                        than for agricultural or firefighting 
                        purposes,
                            ``(iii) which is purchased and on 
                        which such purchaser, at the time of 
                        the contract for purchase, has made a 
                        nonrefundable deposit of the lesser 
                        of--
                                    ``(I) 10 percent of the 
                                cost, or
                                    ``(II) $100,000, and
                            ``(iv) which has--
                                    ``(I) an estimated 
                                production period exceeding 4 
                                months, and
                                    ``(II) a cost exceeding 
                                $200,000.''.
            (2) Placed in service date.--Clause (iv) of section 
        168(k)(2)(A) is amended by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (C)''.
    (b) Conforming Amendments.--
            (1) Section 168(k)(2)(B) is amended by adding at 
        the end the following new clause:
                            ``(iv) Application of 
                        subparagraph.--This subparagraph shall 
                        not apply to any property which is 
                        described in subparagraph (C).''.
            (2) Section 168(k)(4)(A)(ii) is amended by striking 
        ``paragraph (2)(C)'' and inserting ``paragraph 
        (2)(D)''.
            (3) Section 168(k)(4)(B)(iii) is amended by 
        inserting ``and paragraph (2)(C)'' after ``of this 
        paragraph)''.
            (4) Section 168(k)(4)(C) is amended by striking 
        ``subparagraphs (B) and (D)'' and inserting 
        ``subparagraphs (B), (C), and (E)''.
            (5) Section 168(k)(4)(D) is amended by striking 
        ``Paragraph (2)(E)'' and inserting ``Paragraph 
        (2)(F)''.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the amendments made by 
section 101 of the Job Creation and Worker Assistance Act of 
2002.

SEC. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS DEPRECIATION 
                    PROPERTY.

    (a) In General.--Subclause (II) of section 
168(k)(2)(E)(iii) (relating to syndication), as amended by the 
Working Families Tax Relief Act of 2004 and as redesignated by 
this Act, is amended by inserting before the comma at the end 
the following: ``(or, in the case of multiple units of property 
subject to the same lease, within 3 months after the date the 
final unit is placed in service, so long as the period between 
the time the first unit is placed in service and the time the 
last unit is placed in service does not exceed 12 months)''.
    (b) Effective Date.--The amendment made by this section 
shall apply to property sold after June 4, 2004.

SEC. 338. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH 
                    ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    (a) In General.--Part VI of subchapter B of chapter 1 
(relating to itemized deductions for individuals and 
corporations) is amended by inserting after section 179A the 
following new section:

``SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH 
                    ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    ``(a) Allowance of Deduction.--In the case of a small 
business refiner (as defined in section 45H(c)(1)) which elects 
the application of this section, there shall be allowed as a 
deduction an amount equal to 75 percent of qualified capital 
costs (as defined in section 45H(c)(2)) which are paid or 
incurred by the taxpayer during the taxable year.
    ``(b) Reduced Percentage.--In the case of a small business 
refiner with average daily domestic refinery runs for the 1-
year period ending on December 31, 2002, in excess of 155,000 
barrels, the number of percentage points described in 
subsection (a) shall be reduced (not below zero) by the product 
of such number (before the application of this subsection) and 
the ratio of such excess to 50,000 barrels.
    ``(c) Basis Reduction.--
            ``(1) In general.--For purposes of this title, the 
        basis of any property shall be reduced by the portion 
        of the cost of such property taken into account under 
        subsection (a).
            ``(2) Ordinary income recapture.--For purposes of 
        section 1245, the amount of the deduction allowable 
        under subsection (a) with respect to any property which 
        is of a character subject to the allowance for 
        depreciation shall be treated as a deduction allowed 
        for depreciation under section 167.''.
    ``(d) Coordination With Other Provisions.--Section 280B 
shall not apply to amounts which are treated as expenses under 
this section.''.
    (b) Conforming Amendments.--
            (1) Section 263(a)(1), as amended by this Act, is 
        amended by striking ``or'' at the end of subparagraph 
        (G), by striking the period at the end of subparagraph 
        (H) and inserting ``, or'', and by adding at the end 
        the following new subparagraph:
                    ``(I) expenditures for which a deduction is 
                allowed under section 179B.''.
            (2) Section 263A(c)(3) is amended by inserting 
        ``179B,'' after ``section''.
            (3) Section 312(k)(3)(B) is amended by striking 
        ``or 179A'' each place it appears in the heading and 
        text and inserting ``179A, or 179B''.
            (4) Section 1016(a) is amended by striking ``and'' 
        at the end of paragraph (28), by striking the period at 
        the end of paragraph (29) and inserting ``, and'', and 
        by inserting after paragraph (29) the following new 
        paragraph:
            ``(30) to the extent provided in section 179B(c).''
            (5) Paragraphs (2)(C) and (3)(C) of section 1245(a) 
        are each amended by inserting ``179B,'' after 
        ``179A,''.
            (6) The table of sections for part VI of subchapter 
        B of chapter 1, as amended by this Act, is amended by 
        inserting after the item relating to section 179A the 
        following new item:

        ``Sec. 179B. Deduction for capital costs incurred in complying 
                  with Environmental Protection Agency sulfur 
                  regulations.''.

    (c) Effective Date.--The amendment made by this section 
shall apply to expenses paid or incurred after December 31, 
2002, in taxable years ending after such date.

SEC. 339. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

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

``SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

    ``(a) In General.--For purposes of section 38, the amount 
of the low sulfur diesel fuel production credit determined 
under this section with respect to any facility of a small 
business refiner is an amount equal to 5 cents for each gallon 
of low sulfur diesel fuel produced during the taxable year by 
such small business refiner at such facility.
    ``(b) Maximum Credit.--
            ``(1) In general.--The aggregate credit determined 
        under subsection (a) for any taxable year with respect 
        to any facility shall not exceed--
                    ``(A) 25 percent of the qualified capital 
                costs incurred by the small business refiner 
                with respect to such facility, reduced by
                    ``(B) the aggregate credits determined 
                under this section for all prior taxable years 
                with respect to such facility.
            ``(2) Reduced percentage.--In the case of a small 
        business refiner with average daily domestic refinery 
        runs for the 1-year period ending on December 31, 2002, 
        in excess of 155,000 barrels, the number of percentage 
        points described in paragraph (1) shall be reduced (not 
        below zero) by the product of such number (before the 
        application of this paragraph) and the ratio of such 
        excess to 50,000 barrels.
    ``(c) Definitions and Special Rule.--For purposes of this 
section--
            ``(1) Small business refiner.--The term `small 
        business refiner' means, with respect to any taxable 
        year, a refiner of crude oil--
                    ``(A) with respect to which not more than 
                1,500 individuals are engaged in the refinery 
                operations of the business on any day during 
                such taxable year, and
                    ``(B) the average daily domestic refinery 
                run or average retained production of which for 
                all facilities of the taxpayer for the 1-year 
                period ending on December 31, 2002, did not 
                exceed 205,000 barrels.
            ``(2) Qualified capital costs.--The term `qualified 
        capital costs' means, with respect to any facility, 
        those costs paid or incurred during the applicable 
        period for compliance with the applicable EPA 
        regulations with respect to such facility, including 
        expenditures for the construction of new process 
        operation units or the dismantling and reconstruction 
        of existing process units to be used in the production 
        of low sulfur diesel fuel, associated adjacent or 
        offsite equipment (including tankage, catalyst, and 
        power supply), engineering, construction period 
        interest, and sitework.
            ``(3) Applicable epa regulations.--The term 
        `applicable EPA regulations' means the Highway Diesel 
        Fuel Sulfur Control Requirements of the Environmental 
        Protection Agency.
            ``(4) Applicable period.--The term `applicable 
        period' means, with respect to any facility, the period 
        beginning on January 1, 2003, and ending on the earlier 
        of the date which is 1 year after the date on which the 
        taxpayer must comply with the applicable EPA 
        regulations with respect to such facility or December 
        31, 2009.
            ``(5) Low sulfur diesel fuel.--The term `low sulfur 
        diesel fuel' means diesel fuel with a sulfur content of 
        15 parts per million or less.
    ``(d) Reduction in Basis.--For purposes of this subtitle, 
if a credit is determined under this section for any 
expenditure with respect to any property, the increase in basis 
of such property which would (but for this subsection) result 
from such expenditure shall be reduced by the amount of the 
credit so determined.
    ``(e) Special Rule for Determination of Refinery Runs.--For 
purposes this section and section 179B(b), in the calculation 
of average daily domestic refinery run or retained production, 
only refineries which on April 1, 2003, were refineries of the 
refiner or a related person (within the meaning of section 
613A(d)(3)), shall be taken into account.
    ``(f) Certification.--
            ``(1) Required.--No credit shall be allowed unless, 
        not later than the date which is 30 months after the 
        first day of the first taxable year in which the low 
        sulfur diesel fuel production credit is determined with 
        respect to a facility, the small business refiner 
        obtains certification from the Secretary, after 
        consultation with the Administrator of the 
        Environmental Protection Agency, that the taxpayer's 
        qualified capital costs with respect to such facility 
        will result in compliance with the applicable EPA 
        regulations.
            ``(2) Contents of application.--An application for 
        certification shall include relevant information 
        regarding unit capacities and operating characteristics 
        sufficient for the Secretary, after consultation with 
        the Administrator of the Environmental Protection 
        Agency, to determine that such qualified capital costs 
        are necessary for compliance with the applicable EPA 
        regulations.
            ``(3) Review period.--Any application shall be 
        reviewed and notice of certification, if applicable, 
        shall be made within 60 days of receipt of such 
        application. In the event the Secretary does not notify 
        the taxpayer of the results of such certification 
        within such period, the taxpayer may presume the 
        certification to be issued until so notified.
            ``(4) Statute of limitations.--With respect to the 
        credit allowed under this section--
                    ``(A) the statutory period for the 
                assessment of any deficiency attributable to 
                such credit shall not expire before the end of 
                the 3-year period ending on the date that the 
                review period described in paragraph (3) ends 
                with respect to the taxpayer, and
                    ``(B) such deficiency may be assessed 
                before the expiration of such 3-year period 
                notwithstanding the provisions of any other law 
                or rule of law which would otherwise prevent 
                such assessment.
    ``(g) Cooperative Organizations.--
            ``(1) Apportionment of credit.--
                    ``(A) In general.--In the case of a 
                cooperative organization described in section 
                1381(a), any portion of the credit determined 
                under subsection (a) for the taxable year may, 
                at the election of the organization, be 
                apportioned among patrons eligible to share in 
                patronage dividends on the basis of the 
                quantity or value of business done with or for 
                such patrons for the taxable year.
                    ``(B) Form and effect of election.--An 
                election under subparagraph (A) for any taxable 
                year shall be made on a timely filed return for 
                such year. Such election, once made, shall be 
                irrevocable for such taxable year.
            ``(2) Treatment of organizations and patrons.--
                    ``(A) Organizations.--The amount of the 
                credit not apportioned to patrons pursuant to 
                paragraph (1) shall be included in the amount 
                determined under subsection (a) for the taxable 
                year of the organization.
                    ``(B) Patrons.--The amount of the credit 
                apportioned to patrons pursuant to paragraph 
                (1) shall be included in the amount determined 
                under subsection (a) for the first taxable year 
                of each patron ending on or after the last day 
                of the payment period (as defined in section 
                1382(d)) for the taxable year of the 
                organization or, if earlier, for the taxable 
                year of each patron ending on or after the date 
                on which the patron receives notice from the 
                cooperative of the apportionment.
            ``(3) Special rule.--If the amount of a credit 
        which has been apportioned to any patron under this 
        subsection is decreased for any reason--
                    ``(A) such amount shall not increase the 
                tax imposed on such patron, and
                    ``(B) the tax imposed by this chapter on 
                such organization shall be increased by such 
                amount.
        The increase under subparagraph (B) shall not be 
        treated as tax imposed by this chapter for purposes of 
        determining the amount of any credit under this chapter 
        or for purposes of section 55.''.
    (b) Credit Made Part of General Business Credit.--
Subsection (b) of section 38 (relating to general business 
credit), as amended by this Act, is amended by striking 
``plus'' at the end of paragraph (16), by striking the period 
at the end of paragraph (17) and inserting ``, plus'', and by 
inserting after paragraph (17) the following new paragraph:
            ``(18) the low sulfur diesel fuel production credit 
        determined under section 45H(a).''.
    (c) Denial of Double Benefit.--Section 280C (relating to 
certain expenses for which credits are allowable) is amended by 
adding at the end the following new subsection:
    ``(d) Low Sulfur Diesel Fuel Production Credit.--No 
deduction shall be allowed for that portion of the expenses 
otherwise allowable as a deduction for the taxable year which 
is equal to the amount of the credit determined for the taxable 
year under section 45H(a).''.
    (d) Basis Adjustment.--Section 1016(a) (relating to 
adjustments to basis), as amended by this Act, is amended by 
striking ``and'' at the end of paragraph (29), by striking the 
period at the end of paragraph (30) and inserting ``, and'', 
and by inserting after paragraph (30) the following new 
paragraph:
            ``(31) in the case of a facility with respect to 
        which a credit was allowed under section 45H, to the 
        extent provided in section 45H(d).''.
    (e) Deduction for Certain Unused Business Credits.--Section 
196(c) (defining qualified business credits), as amended by 
this Act, is amended by striking ``and'' at the end of 
paragraph (10), by striking the period at the end of paragraph 
(11) and inserting ``, and'', and by adding after paragraph 
(11) the following new paragraph:
            ``(12) the low sulfur diesel fuel production credit 
        determined under section 45H(a).''.
    (e) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1, as amended by this 
Act, is amended by inserting after the item relating to section 
45G the following new item:

        ``Sec. 45H. Credit for production of low sulfur diesel fuel.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to expenses paid or incurred after December 31, 
2002, in taxable years ending after such date.

SEC. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.

    (a) In General.--Section 144(a)(4) (relating to $10,000,000 
limit in certain cases) is amended by adding at the end the 
following new subparagraph:
                    ``(G) Additional capital expenditures not 
                taken into account.--With respect to bonds 
                issued after September 30, 2009, in addition to 
                any capital expenditure described in 
                subparagraph (C), capital expenditures of not 
                to exceed $10,000,000 shall not be taken into 
                account for purposes of applying subparagraph 
                (A)(ii).''.
    (b) Conforming Amendment.--Subparagraph (F) of section 
144(a)(4) is amended by adding at the end the following new 
sentence: ``This subparagraph shall not apply to bonds issued 
after September 30, 2009.''.

SEC. 341. OIL AND GAS FROM MARGINAL WELLS.

    (a) In General.--Subpart D of part IV of subchapter A of 
chapter 1 (relating to business credits), as amended by this 
Act, is amended by inserting after section 45H the following:

``SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

    ``(a) General Rule.--For purposes of section 38, the 
marginal well production credit for any taxable year is an 
amount equal to the product of--
            ``(1) the credit amount, and
            ``(2) the qualified credit oil production and the 
        qualified natural gas production which is attributable 
        to the taxpayer.
    ``(b) Credit Amount.--For purposes of this section--
            ``(1) In general.--The credit amount is--
                    ``(A) $3 per barrel of qualified crude oil 
                production, and
                    ``(B) 50 cents per 1,000 cubic feet of 
                qualified natural gas production.
            ``(2) Reduction as oil and gas prices increase.--
                    ``(A) In general.--The $3 and 50 cents 
                amounts under paragraph (1) shall each be 
                reduced (but not below zero) by an amount which 
                bears the same ratio to such amount (determined 
                without regard to this paragraph) as--
                            ``(i) the excess (if any) of the 
                        applicable reference price over $15 
                        ($1.67 for qualified natural gas 
                        production), bears to
                            ``(ii) $3 ($0.33 for qualified 
                        natural gas production).
                The applicable reference price for a taxable 
                year is the reference price of the calendar 
                year preceding the calendar year in which the 
                taxable year begins.
                    ``(B) Inflation adjustment.--In the case of 
                any taxable year beginning in a calendar year 
                after 2005, each of the dollar amounts 
                contained in subparagraph (A) shall be 
                increased to an amount equal to such dollar 
                amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under 
                section 43(b)(3)(B) by substituting `2004' for 
                `1990').
                    ``(C) Reference price.--For purposes of 
                this paragraph, the term `reference price' 
                means, with respect to any calendar year--
                            ``(i) in the case of qualified 
                        crude oil production, the reference 
                        price determined under section 
                        29(d)(2)(C), and
                            ``(ii) in the case of qualified 
                        natural gas production, the Secretary's 
                        estimate of the annual average wellhead 
                        price per 1,000 cubic feet for all 
                        domestic natural gas.
    ``(c) Qualified Crude Oil and Natural Gas Production.--For 
purposes of this section--
            ``(1) In general.--The terms `qualified crude oil 
        production' and `qualified natural gas production' mean 
        domestic crude oil or natural gas which is produced 
        from a qualified marginal well.
            ``(2) Limitation on amount of production which may 
        qualify.--
                    ``(A) In general.--Crude oil or natural gas 
                produced during any taxable year from any well 
                shall not be treated as qualified crude oil 
                production or qualified natural gas production 
                to the extent production from the well during 
                the taxable year exceeds 1,095 barrels or 
                barrel-of-oil equivalents (as defined in 
                section 29(d)(5)).
                    ``(B) Proportionate reductions.--
                            ``(i) Short taxable years.--In the 
                        case of a short taxable year, the 
                        limitations under this paragraph shall 
                        be proportionately reduced to reflect 
                        the ratio which the number of days in 
                        such taxable year bears to 365.
                            ``(ii) Wells not in production 
                        entire year.--In the case of a well 
                        which is not capable of production 
                        during each day of a taxable year, the 
                        limitations under this paragraph 
                        applicable to the well shall be 
                        proportionately reduced to reflect the 
                        ratio which the number of days of 
                        production bears to the total number of 
                        days in the taxable year.
            ``(3) Definitions.--
                    ``(A) Qualified marginal well.--The term 
                `qualified marginal well' means a domestic 
                well--
                            ``(i) the production from which 
                        during the taxable year is treated as 
                        marginal production under section 
                        613A(c)(6), or
                            ``(ii) which, during the taxable 
                        year--
                                    ``(I) has average daily 
                                production of not more than 25 
                                barrel-of-oil equivalents (as 
                                so defined), and
                                    ``(II) produces water at a 
                                rate not less than 95 percent 
                                of total well effluent.
                    ``(B) Crude oil, etc.--The terms `crude 
                oil', `natural gas', `domestic', and `barrel' 
                have the meanings given such terms by section 
                613A(e).
    ``(d) Other Rules.--
            ``(1) Production attributable to the taxpayer.--In 
        the case of a qualified marginal well in which there is 
        more than one owner of operating interests in the well 
        and the crude oil or natural gas production exceeds the 
        limitation under subsection (c)(2), qualifying crude 
        oil production or qualifying natural gas production 
        attributable to the taxpayer shall be determined on the 
        basis of the ratio which taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue 
        interests of all operating interest owners in the 
        production.
            ``(2) Operating interest required.--Any credit 
        under this section may be claimed only on production 
        which is attributable to the holder of an operating 
        interest.
            ``(3) Production from nonconventional sources 
        excluded.--In the case of production from a qualified 
        marginal well which is eligible for the credit allowed 
        under section 29 for the taxable year, no credit shall 
        be allowable under this section unless the taxpayer 
        elects not to claim the credit under section 29 with 
        respect to the well.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as 
amended by this Act, is amended by striking ``plus'' at the end 
of paragraph (17), by striking the period at the end of 
paragraph (18) and inserting ``, plus'', and by inserting after 
paragraph (18) the following:
            ``(19) the marginal oil and gas well production 
        credit determined under section 45I(a).''.
    (c) Carryback.--Subsection (a) of section 39 (relating to 
carryback and carryforward of unused credits generally) is 
amended by adding at the end the following:
            ``(3) 5-year carryback for marginal oil and gas 
        well production credit.--Notwithstanding subsection 
        (d), in the case of the marginal oil and gas well 
        production credit--
                    ``(A) this section shall be applied 
                separately from the business credit (other than 
                the marginal oil and gas well production 
                credit),
                    ``(B) paragraph (1) shall be applied by 
                substituting `5 taxable years' for `1 taxable 
                years' in subparagraph (A) thereof, and
                    ``(C) paragraph (2) shall be applied--
                            ``(i) by substituting `25 taxable 
                        years' for `21 taxable years' in 
                        subparagraph (A) thereof, and
                            ``(ii) by substituting `24 taxable 
                        years' for `20 taxable years' in 
                        subparagraph (B) thereof.''.
    (d) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1, as amended by this 
Act, is amended by inserting after section 45H the following:

        ``Sec. 45I. Credit for producing oil and gas from marginal 
                  wells.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to production in taxable years beginning after 
December 31, 2004.

  TITLE IV--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES

SEC. 401. INTEREST EXPENSE ALLOCATION RULES.

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

SEC. 402. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

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

SEC. 403. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
                    SECTION 902 CORPORATIONS.

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

SEC. 404. REDUCTION TO 2 FOREIGN TAX CREDIT BASKETS.

    (a) In General.--Paragraph (1) of section 904(d) (relating 
to separate application of section with respect to certain 
categories of income) is amended to read as follows:
            ``(1) In general.--The provisions of subsections 
        (a), (b), and (c) and sections 902, 907, and 960 shall 
        be applied separately with respect to--
                    ``(A) passive category income, and
                    ``(B) general category income.''
    (b) Categories.--Paragraph (2) of section 904(d) is amended 
by striking subparagraph (B), by redesignating subparagraph (A) 
as subparagraph (B), and by inserting before subparagraph (B) 
(as so redesignated) the following new subparagraph:
                    ``(A) Categories.--
                            ``(i) Passive category income.--The 
                        term `passive category income' means 
                        passive income and specified passive 
                        category income.
                            ``(ii) General category income.--
                        The term `general category income' 
                        means income other than passive 
                        category income.''.
    (c) Specified Passive Category Income.--Subparagraph (B) of 
section 904(d)(2), as so redesignated, is amended by adding at 
the end the following new clause:
                            ``(v) Specified passive category 
                        income.--The term `specified passive 
                        category income' means--
                                    ``(I) dividends from a DISC 
                                or former DISC (as defined in 
                                section 992(a)) to the extent 
                                such dividends are treated as 
                                income from sources without the 
                                United States,
                                    ``(II) taxable income 
                                attributable to foreign trade 
                                income (within the meaning of 
                                section 923(b)), and
                                    ``(III) distributions from 
                                a FSC (or a former FSC) out of 
                                earnings and profits 
                                attributable to foreign trade 
                                income (within the meaning of 
                                section 923(b)) or interest or 
                                carrying charges (as defined in 
                                section 927(d)(1)) derived from 
                                a transaction which results in 
                                foreign trade income (as 
                                defined in section 923(b)).''.
    (d) Treatment of Financial Services.--Paragraph (2) of 
section 904(d), as amended by section 403(b)(3), is amended by 
striking subparagraph (D), by redesignating subparagraph (C) as 
subparagraph (D), and by inserting before subparagraph (D) (as 
so redesignated) the following new subparagraph:
                    ``(C) Treatment of financial services 
                income and companies.--
                            ``(i) In general.--Financial 
                        services income shall be treated as 
                        general category income in the case 
                        of--
                                    ``(I) a member of a 
                                financial services group, and
                                    ``(II) any other person if 
                                such person is predominantly 
                                engaged in the active conduct 
                                of a banking, insurance, 
                                financing, or similar business.
                            ``(ii) Financial services group.--
                        The term `financial services group' 
                        means any affiliated group (as defined 
                        in section 1504(a) without regard to 
                        paragraphs (2) and (3) of section 
                        1504(b)) which is predominantly engaged 
                        in the active conduct of a banking, 
                        insurance, financing, or similar 
                        business. In determining whether such a 
                        group is so engaged, there shall be 
                        taken into account only the income of 
                        members of the group that are--
                                    ``(I) United States 
                                corporations, or
                                    ``(II) controlled foreign 
                                corporations in which such 
                                United States corporations own, 
                                directly or indirectly, at 
                                least 80 percent of the total 
                                voting power and value of the 
                                stock.
                            ``(iii) Pass-thru entities.--The 
                        Secretary shall by regulation specify 
                        for purposes of this subparagraph the 
                        treatment of financial services income 
                        received or accrued by partnerships and 
                        by other pass-thru entities which are 
                        not members of a financial services 
                        group.''.
    (e) Treatment of Income Tax Base Differences.--Paragraph 
(2) of section 904(d) is amended by redesignating subparagraphs 
(H) and (I) as subparagraphs (I) and (J), respectively, and by 
inserting after subparagraph (G) the following new 
subparagraph:
                    ``(H) Treatment of income tax base 
                differences.--
                            ``(i) In general.--In the case of 
                        taxable years beginning after December 
                        31, 2006, tax imposed under the law of 
                        a foreign country or possession of the 
                        United States on an amount which does 
                        not constitute income under United 
                        States tax principles shall be treated 
                        as imposed on income described in 
                        paragraph (1)(B).
                            ``(ii) Special rule for years 
                        before 2007.--
                                    ``(I) In general.--In the 
                                case of taxes paid or accrued 
                                in taxable years beginning 
                                after December 31, 2004, and 
                                before January 1, 2007, a 
                                taxpayer may elect to treat tax 
                                imposed under the law of a 
                                foreign country or possession 
                                of the United States on an 
                                amount which does not 
                                constitute income under United 
                                States tax principles as tax 
                                imposed on income described in 
                                subparagraph (C) or (I) of 
                                paragraph (1).
                                    ``(II) Election 
                                irrevocable.--Any such election 
                                shall apply to the taxable year 
                                for which made and all 
                                subsequent taxable years 
                                described in subclause (I) 
                                unless revoked with the consent 
                                of the Secretary.''.
    (f) Conforming Amendments.--
            (1) Clause (iii) of section 904(d)(2)(B) (relating 
        to exceptions from passive income), as so redesignated, 
        is amended by striking subclause (I) and by 
        redesignating subclauses (II) and (III) as subclauses 
        (I) and (II), respectively.
            (2) Clause (i) of section 904(d)(2)(D) (defining 
        financial services income), as so redesignated, is 
        amended by adding ``or'' at the end of subclause (I) 
        and by striking subclauses (II) and (III) and inserting 
        the following new subclause:
                                    ``(II) passive income 
                                (determined without regard to 
                                subparagraph (B)(iii)(II)).''
            (3) Section 904(d)(2)(D) (defining financial 
        services income), as so redesignated and amended by 
        section 404(b)(3), is amended by striking clause (iii).
            (4) Paragraph (3) of section 904(d) is amended to 
        read as follows:
            ``(3) Look-thru in case of controlled foreign 
        corporations.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, dividends, 
                interest, rents, and royalties received or 
                accrued by the taxpayer from a controlled 
                foreign corporation in which the taxpayer is a 
                United States shareholder shall not be treated 
                as passive category income.
                    ``(B) Subpart f inclusions.--Any amount 
                included in gross income under section 
                951(a)(1)(A) shall be treated as passive 
                category income to the extent the amount so 
                included is attributable to passive category 
                income.
                    ``(C) Interest, rents, and royalties.--Any 
                interest, rent, or royalty which is received or 
                accrued from a controlled foreign corporation 
                in which the taxpayer is a United States 
                shareholder shall be treated as passive 
                category income to the extent it is properly 
                allocable (under regulations prescribed by the 
                Secretary) to passive category income of the 
                controlled foreign corporation.
                    ``(D) Dividends.--Any dividend paid out of 
                the earnings and profits of any controlled 
                foreign corporation in which the taxpayer is a 
                United States shareholder shall be treated as 
                passive category income in proportion to the 
                ratio of--
                            ``(i) the portion of the earnings 
                        and profits attributable to passive 
                        category income, to
                            ``(ii) the total amount of earnings 
                        and profits.
                    ``(E) Look-thru applies only where subpart 
                f applies.--If a controlled foreign corporation 
                meets the requirements of section 954(b)(3)(A) 
                (relating to de minimis rule) for any taxable 
                year, for purposes of this paragraph, none of 
                its foreign base company income (as defined in 
                section 954(a) without regard to section 
                954(b)(5)) and none of its gross insurance 
                income (as defined in section 954(b)(3)(C)) for 
                such taxable year shall be treated as passive 
                category income, except that this sentence 
                shall not apply to any income which (without 
                regard to this sentence) would be treated as 
                financial services income. Solely for purposes 
                of applying subparagraph (D), passive income of 
                a controlled foreign corporation shall not be 
                treated as passive category income if the 
                requirements of section 954(b)(4) are met with 
                respect to such income.
                    ``(F) Coordination with high-taxed income 
                provisions.--
                            ``(i) In determining whether any 
                        income of a controlled foreign 
                        corporation is passive category income, 
                        subclause (II) of paragraph (2)(B)(iii) 
                        shall not apply.
                            ``(ii) Any income of the taxpayer 
                        which is treated as passive category 
                        income under this paragraph shall be so 
                        treated notwithstanding any provision 
                        of paragraph (2); except that the 
                        determination of whether any amount is 
                        high-taxed income shall be made after 
                        the application of this paragraph.
                    ``(G) Dividend.--For purposes of this 
                paragraph, the term `dividend' includes any 
                amount included in gross income in section 
                951(a)(1)(B). Any amount included in gross 
                income under section 78 to the extent 
                attributable to amounts included in gross 
                income in section 951(a)(1)(A) shall not be 
                treated as a dividend but shall be treated as 
                included in gross income under section 
                951(a)(1)(A).
                    ``(H) Look-thru applies to passive foreign 
                investment company inclusion.--If--
                            ``(i) a passive foreign investment 
                        company is a controlled foreign 
                        corporation, and
                            ``(ii) the taxpayer is a United 
                        States shareholder in such controlled 
                        foreign corporation,
                any amount included in gross income under 
                section 1293 shall be treated as income in a 
                separate category to the extent such amount is 
                attributable to income in such category.''.
            (5) Paragraph (2) of section 904(d) is amended by 
        adding at the end the following new subparagraph:
                    ``(K) Transitional rules for 2007 
                changes.--For purposes of paragraph (1)--
                            ``(i) taxes carried from any 
                        taxable year beginning before January 
                        1, 2007, to any taxable year beginning 
                        on or after such date, with respect to 
                        any item of income, shall be treated as 
                        described in the subparagraph of 
                        paragraph (1) in which such income 
                        would be described were such taxes paid 
                        or accrued in a taxable year beginning 
                        on or after such date, and
                            ``(ii) the Secretary may by 
                        regulations provide for the allocation 
                        of any carryback of taxes with respect 
                        to income from a taxable year beginning 
                        on or after January 1, 2007, to a 
                        taxable year beginning before such date 
                        for purposes of allocating such income 
                        among the separate categories in effect 
                        for the taxable year to which 
                        carried.''.
            (6) Section 904(j)(3)(A)(i) is amended by striking 
        ``subsection (d)(2)(A)'' and inserting ``subsection 
        (d)(2)(B)''.
    (g) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2006.
            (2) Transitional rule relating to income tax base 
        difference.--Section 904(d)(2)(H)(ii) of the Internal 
        Revenue Code of 1986, as added by subsection (e), shall 
        apply to taxable years beginning after December 31, 
        2004.

SEC. 405. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY 
                    IN DETERMINING SECTION 902 AND 960 CREDITS.

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

SEC. 406. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF INTANGIBLE 
                    PROPERTY.

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

SEC. 407. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS OF 
                    CONTROLLED FOREIGN CORPORATION.

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

SEC. 408. TRANSLATION OF FOREIGN TAXES.

    (a) Elective Exception for Taxes Paid Other Than in 
Functional Currency.--Paragraph (1) of section 986(a) (relating 
to determination of foreign taxes and foreign corporation's 
earnings and profits) is amended by redesignating subparagraph 
(D) as subparagraph (E) and by inserting after subparagraph (C) 
the following new subparagraph:
                    ``(D) Elective exception for taxes paid 
                other than in functional currency.--
                            ``(i) In general.--At the election 
                        of the taxpayer, subparagraph (A) shall 
                        not apply to any foreign income taxes 
                        the liability for which is denominated 
                        in any currency other than in the 
                        taxpayer's functional currency.
                            ``(ii) Application to qualified 
                        business units.--An election under this 
                        subparagraph may apply to foreign 
                        income taxes attributable to a 
                        qualified business unit in accordance 
                        with regulations prescribed by the 
                        Secretary.
                            ``(iii) Election.--Any such 
                        election shall apply to the taxable 
                        year for which made and all subsequent 
                        taxable years unless revoked with the 
                        consent of the Secretary.''.
    (b) Special Rule for Regulated Investment Companies.--
            (1) In general.--Section 986(a)(1), as amended by 
        subsection (a), is amended by redesignating 
        subparagraph (E) as subparagraph (F) and by inserting 
        after subparagraph (D) the following:
                    ``(E) Special rule for regulated investment 
                companies.--In the case of a regulated 
                investment company which takes into account 
                income on an accrual basis, subparagraphs (A) 
                through (D) shall not apply and foreign income 
                taxes paid or accrued with respect to such 
                income shall be translated into dollars using 
                the exchange rate as of the date the income 
                accrues.''.
            (2) Conforming amendment.--Section 986(a)(2) is 
        amended by inserting ``or (E)'' after ``subparagraph 
        (A)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 409. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN 
                    CORPORATIONS.

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

SEC. 410. EQUAL TREATMENT OF INTEREST PAID BY FOREIGN PARTNERSHIPS AND 
                    FOREIGN CORPORATIONS.

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

SEC. 411. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT 
                    COMPANIES.

    (a) Treatment of Certain Dividends.--
            (1) Nonresident alien individuals.--Section 871 
        (relating to tax on nonresident alien individuals) is 
        amended by redesignating subsection (k) as subsection 
        (l) and by inserting after subsection (j) the following 
        new subsection:
    ``(k) Exemption for Certain Dividends of Regulated 
Investment Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any 
                interest-related dividend received from a 
                regulated investment company.
                    ``(B) Exceptions.--Subparagraph (A) shall 
                not apply--
                            ``(i) to any interest-related 
                        dividend received from a regulated 
                        investment company by a person to the 
                        extent such dividend is attributable to 
                        interest (other than interest described 
                        in subparagraph (E) (i) or (iii)) 
                        received by such company on 
                        indebtedness issued by such person or 
                        by any corporation or partnership with 
                        respect to which such person is a 10-
                        percent shareholder,
                            ``(ii) to any interest-related 
                        dividend with respect to stock of a 
                        regulated investment company unless the 
                        person who would otherwise be required 
                        to deduct and withhold tax from such 
                        dividend under chapter 3 receives a 
                        statement (which meets requirements 
                        similar to the requirements of 
                        subsection (h)(5)) that the beneficial 
                        owner of such stock is not a United 
                        States person, and
                            ``(iii) to any interest-related 
                        dividend paid to any person within a 
                        foreign country (or any interest-
                        related dividend payment addressed to, 
                        or for the account of, persons within 
                        such foreign country) during any period 
                        described in subsection (h)(6) with 
                        respect to such country.
                Clause (iii) shall not apply to any dividend 
                with respect to any stock which was acquired on 
                or before the date of the publication of the 
                Secretary's determination under subsection 
                (h)(6).
                    ``(C) Interest-related dividend.--For 
                purposes of this paragraph, the term `interest-
                related dividend' means any dividend (or part 
                thereof) which is designated by the regulated 
                investment company as an interest-related 
                dividend in a written notice mailed to its 
                shareholders not later than 60 days after the 
                close of its taxable year. If the aggregate 
                amount so designated with respect to a taxable 
                year of the company (including amounts so 
                designated with respect to dividends paid after 
                the close of the taxable year described in 
                section 855) is greater than the qualified net 
                interest income of the company for such taxable 
                year, the portion of each distribution which 
                shall be an interest-related dividend shall be 
                only that portion of the amounts so designated 
                which such qualified net interest income bears 
                to the aggregate amount so designated. Such 
                term shall not include any dividend with 
                respect to any taxable year of the company 
                beginning after December 31, 2007.
                    ``(D) Qualified net interest income.--For 
                purposes of subparagraph (C), the term 
                `qualified net interest income' means the 
                qualified interest income of the regulated 
                investment company reduced by the deductions 
                properly allocable to such income.
                    ``(E) Qualified interest income.--For 
                purposes of subparagraph (D), the term 
                `qualified interest income' means the sum of 
                the following amounts derived by the regulated 
                investment company from sources within the 
                United States:
                            ``(i) Any amount includible in 
                        gross income as original issue discount 
                        (within the meaning of section 1273) on 
                        an obligation payable 183 days or less 
                        from the date of original issue 
                        (without regard to the period held by 
                        the company).
                            ``(ii) Any interest includible in 
                        gross income (including amounts 
                        recognized as ordinary income in 
                        respect of original issue discount or 
                        market discount or acquisition discount 
                        under part V of subchapter P and such 
                        other amounts as regulations may 
                        provide) on an obligation which is in 
                        registered form; except that this 
                        clause shall not apply to--
                                    ``(I) any interest on an 
                                obligation issued by a 
                                corporation or partnership if 
                                the regulated investment 
                                company is a 10-percent 
                                shareholder in such corporation 
                                or partnership, and
                                    ``(II) any interest which 
                                is treated as not being 
                                portfolio interest under the 
                                rules of subsection (h)(4).
                            ``(iii) Any interest referred to in 
                        subsection (i)(2)(A) (without regard to 
                        the trade or business of the regulated 
                        investment company).
                            ``(iv) Any interest-related 
                        dividend includable in gross income 
                        with respect to stock of another 
                        regulated investment company.
                    ``(F) 10-percent shareholder.--For purposes 
                of this paragraph, the term `10-percent 
                shareholder' has the meaning given such term by 
                subsection (h)(3)(B).
            ``(2) Short-term capital gain dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any 
                short-term capital gain dividend received from 
                a regulated investment company.
                    ``(B) Exception for aliens taxable under 
                subsection (a)(2).--Subparagraph (A) shall not 
                apply in the case of any nonresident alien 
                individual subject to tax under subsection 
                (a)(2).
                    ``(C) Short-term capital gain dividend.--
                For purposes of this paragraph, the term 
                `short-term capital gain dividend' means any 
                dividend (or part thereof) which is designated 
                by the regulated investment company as a short-
                term capital gain dividend in a written notice 
                mailed to its shareholders not later than 60 
                days after the close of its taxable year. If 
                the aggregate amount so designated with respect 
                to a taxable year of the company (including 
                amounts so designated with respect to dividends 
                paid after the close of the taxable year 
                described in section 855) is greater than the 
                qualified short-term gain of the company for 
                such taxable year, the portion of each 
                distribution which shall be a short-term 
                capital gain dividend shall be only that 
                portion of the amounts so designated which such 
                qualified short-term gain bears to the 
                aggregate amount so designated. Such term shall 
                not include any dividend with respect to any 
                taxable year of the company beginning after 
                December 31, 2007.
                    ``(D) Qualified short-term gain.--For 
                purposes of subparagraph (C), the term 
                `qualified short-term gain' means the excess of 
                the net short-term capital gain of the 
                regulated investment company for the taxable 
                year over the net long-term capital loss (if 
                any) of such company for such taxable year. For 
                purposes of this subparagraph--
                            ``(i) the net short-term capital 
                        gain of the regulated investment 
                        company shall be computed by treating 
                        any short-term capital gain dividend 
                        includible in gross income with respect 
                        to stock of another regulated 
                        investment company as a short-term 
                        capital gain, and
                            ``(ii) the excess of the net short-
                        term capital gain for a taxable year 
                        over the net long-term capital loss for 
                        a taxable year (to which an election 
                        under section 4982(e)(4) does not 
                        apply) shall be determined without 
                        regard to any net capital loss or net 
                        short-term capital loss attributable to 
                        transactions after October 31 of such 
                        year, and any such net capital loss or 
                        net short-term capital loss shall be 
                        treated as arising on the 1st day of 
                        the next taxable year.
                To the extent provided in regulations, clause 
                (ii) shall apply also for purposes of computing 
                the taxable income of the regulated investment 
                company.''
            (2) Foreign corporations.--Section 881 (relating to 
        tax on income of foreign corporations not connected 
        with United States business) is amended by 
        redesignating subsection (e) as subsection (f) and by 
        inserting after subsection (d) the following new 
        subsection:
    ``(e) Tax Not To Apply to Certain Dividends of Regulated 
Investment Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1) of subsection (a) on any 
                interest-related dividend (as defined in 
                section 871(k)(1)) received from a regulated 
                investment company.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply--
                            ``(i) to any dividend referred to 
                        in section 871(k)(1)(B), and
                            ``(ii) to any interest-related 
                        dividend received by a controlled 
                        foreign corporation (within the meaning 
                        of section 957(a)) to the extent such 
                        dividend is attributable to interest 
                        received by the regulated investment 
                        company from a person who is a related 
                        person (within the meaning of section 
                        864(d)(4)) with respect to such 
                        controlled foreign corporation.
                    ``(C) Treatment of dividends received by 
                controlled foreign corporations.--The rules of 
                subsection (c)(5)(A) shall apply to any (within 
                the meaning of section 957(a)) to the extent 
                such dividend is attributable to interest 
                received by the regulated investment company 
                which is described in clause (ii) of section 
                871(k)(1)(E) (and not described in clause (i) 
                or (iii) of such section).
            ``(2) Short-term capital gain dividends.--No tax 
        shall be imposed under paragraph (1) of subsection (a) 
        on any short-term capital gain dividend (as defined in 
        section 871(k)(2)) received from a regulated investment 
        company.''.
            (3) Withholding taxes.--
                    (A) Section 1441(c) (relating to 
                exceptions) is amended by adding at the end the 
                following new paragraph:
            ``(12) Certain dividends received from regulated 
        investment companies.--
                    ``(A) In general.--No tax shall be required 
                to be deducted and withheld under subsection 
                (a) from any amount exempt from the tax imposed 
                by section 871(a)(1)(A) by reason of section 
                871(k).
                    ``(B) Special rule.--For purposes of 
                subparagraph (A), clause (i) of section 
                871(k)(1)(B) shall not apply to any dividend 
                unless the regulated investment company knows 
                that such dividend is a dividend referred to in 
                such clause. A similar rule shall apply with 
                respect to the exception contained in section 
                871(k)(2)(B).''.
                    (B) Section 1442(a) (relating to 
                withholding of tax on foreign corporations) is 
                amended--
                            (i) by striking ``and the reference 
                        in section 1441(c)(10)'' and inserting 
                        ``the reference in section 
                        1441(c)(10)'', and
                            (ii) by inserting before the period 
                        at the end the following: ``, and the 
                        references in section 1441(c)(12) to 
                        sections 871(a) and 871(k) shall be 
                        treated as referring to sections 881(a) 
                        and 881(e) (except that for purposes of 
                        applying subparagraph (A) of section 
                        1441(c)(12), as so modified, clause 
                        (ii) of section 881(e)(1)(B) shall not 
                        apply to any dividend unless the 
                        regulated investment company knows that 
                        such dividend is a dividend referred to 
                        in such clause)''.
    (b) Estate Tax Treatment of Interest in Certain Regulated 
Investment Companies.--Section 2105 (relating to property 
without the United States for estate tax purposes) is amended 
by adding at the end the following new subsection:
    ``(d) Stock in a RIC.--
            ``(1) In general.--For purposes of this subchapter, 
        stock in a regulated investment company (as defined in 
        section 851) owned by a nonresident not a citizen of 
        the United States shall not be deemed property within 
        the United States in the proportion that, at the end of 
        the quarter of such investment company's taxable year 
        immediately preceding a decedent's date of death (or at 
        such other time as the Secretary may designate in 
        regulations), the assets of the investment company that 
        were qualifying assets with respect to the decedent 
        bore to the total assets of the investment company.
            ``(2) Qualifying assets.--For purposes of this 
        subsection, qualifying assets with respect to a 
        decedent are assets that, if owned directly by the 
        decedent, would have been--
                    ``(A) amounts, deposits, or debt 
                obligations described in subsection (b) of this 
                section,
                    ``(B) debt obligations described in the 
                last sentence of section 2104(c), or
                    ``(C) other property not within the United 
                States.
            ``(3) Termination.--This subsection shall not apply 
        to estates of decedents dying after December 31, 
        2007.''
    (c) Treatment of Regulated Investment Companies Under 
Section 897.--
            (1) Paragraph (1) of section 897(h) is amended by 
        striking ``REIT'' each place it appears and inserting 
        ``qualified investment entity''.
            (2) Paragraphs (2) and (3) of section 897(h) are 
        amended to read as follows:
            ``(2) Sale of stock in domestically controlled 
        entity not taxed.--The term `United States real 
        property interest' does not include any interest in a 
        domestically controlled qualified investment entity.
            ``(3) Distributions by domestically controlled 
        qualified investment entities.--In the case of a 
        domestically controlled qualified investment entity, 
        rules similar to the rules of subsection (d) shall 
        apply to the foreign ownership percentage of any 
        gain.''
            (3) Subparagraphs (A) and (B) of section 897(h)(4) 
        are amended to read as follows:
                    ``(A) Qualified investment entity.--
                            ``(i) In general.--The term 
                        `qualified investment entity' means--
                                    ``(I) any real estate 
                                investment trust, and
                                    ``(II) any regulated 
                                investment company.
                            ``(ii) Termination.--Clause (i)(II) 
                        shall not apply after December 31, 
                        2007.
                    ``(B) Domestically controlled.--The term 
                `domestically controlled qualified investment 
                entity' means any qualified investment entity 
                in which at all times during the testing period 
                less than 50 percent in value of the stock was 
                held directly or indirectly by foreign 
                persons.''
            (4) Subparagraphs (C) and (D) of section 897(h)(4) 
        are each amended by striking ``REIT'' and inserting 
        ``qualified investment entity''.
            (5) The subsection heading for subsection (h) of 
        section 897 is amended by striking ``REITS'' and 
        inserting ``Certain Investment Entities''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to dividends with respect to taxable years 
        of regulated investment companies beginning after 
        December 31, 2004.
            (2) Estate tax treatment.--The amendment made by 
        subsection (b) shall apply to estates of decedents 
        dying after December 31, 2004.
            (3) Certain other provisions.--The amendments made 
        by subsection (c) (other than paragraph (1) thereof) 
        shall take effect after December 31, 2004.

SEC. 412. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.

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

SEC. 413. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN 
                    INVESTMENT COMPANY RULES.

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

SEC. 414. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH 
                    RESPECT TO TRANSACTIONS IN COMMODITIES.

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

SEC. 415. MODIFICATIONS TO TREATMENT OF AIRCRAFT LEASING AND SHIPPING 
                    INCOME.

    (a) Elimination of Foreign Base Company Shipping Income.--
Section 954 (relating to foreign base company income) is 
amended--
            (1) by striking paragraph (4) of subsection (a) 
        (relating to foreign base company shipping income), and
            (2) by striking subsection (f) (relating to foreign 
        base company shipping income).
    (b) Safe Harbor for Certain Leasing Activities.--
Subparagraph (A) of section 954(c)(2) is amended by adding at 
the end the following new sentence: ``For purposes of the 
preceding sentence, rents derived from leasing an aircraft or 
vessel in foreign commerce shall not fail to be treated as 
derived in the active conduct of a trade or business if, as 
determined under regulations prescribed by the Secretary, the 
active leasing expenses are not less than 10 percent of the 
profit on the lease.''.
    (c) Conforming Amendments.--
            (1) Section 952(c)(1)(B)(iii) is amended by 
        striking subclause (I) and redesignating subclauses 
        (II) through (VI) as subclauses (I) through (V), 
        respectively.
            (2) Subsection (b) of section 954 is amended--
                    (A) by striking ``the foreign base company 
                shipping income,'' in paragraph (5),
                    (B) by striking paragraphs (6) and (7), and
                    (C) by redesignating paragraph (8) as 
                paragraph (6).
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years of foreign corporations beginning 
after December 31, 2004, and to taxable years of United States 
shareholders with or within which such taxable years of foreign 
corporations end.

SEC. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE 
                    FINANCING.

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

SEC. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX 
                    CREDIT CARRYBACK.

    (a) General Rule.--Section 904(c) (relating to carryback 
and carryover of excess tax paid) is amended--
            (1) by striking ``in the second preceding taxable 
        year,'', and
            (2) by striking ``, and in the first, second, 
        third, fourth, or fifth'' and inserting ``and in any of 
        the first 10''.
    (b) Excess Extraction Taxes.--Paragraph (1) of section 
907(f) is amended--
            (1) by striking ``in the second preceding taxable 
        year,'',
            (2) by striking ``, and in the first, second, 
        third, fourth, or fifth'' and inserting ``and in any of 
        the first 10'', and
            (3) by striking the last sentence.
    (c) Effective Date.--
            (1) Carryback.--The amendments made by subsections 
        (a)(1) and (b)(1) shall apply to excess foreign taxes 
        arising in taxable years beginning after the date of 
        the enactment of this Act.
            (2) Carryover.--The amendments made by subsections 
        (a)(2) and (b)(2) shall apply to excess foreign taxes 
        which (without regard to the amendments made by this 
        section) may be carried to any taxable year ending 
        after the date of the enactment of this Act.

SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS 
                    ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF 
                    UNITED STATES REAL PROPERTY INTERESTS.

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

SEC. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE 
                    RACES AND DOG RACES FROM GROSS INCOME OF 
                    NONRESIDENT ALIEN INDIVIDUALS.

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

SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.

    (a) In General.--Subsection (b) of section 881 is amended 
by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
            ``(2) Commonwealth of puerto rico.--
                    ``(A) In general.--If dividends are 
                received during a taxable year by a 
                corporation--
                            ``(i) created or organized in, or 
                        under the law of, the Commonwealth of 
                        Puerto Rico, and
                            ``(ii) with respect to which the 
                        requirements of subparagraphs (A), (B), 
                        and (C) of paragraph (1) are met for 
                        the taxable year,
                subsection (a) shall be applied for such 
                taxable year by substituting `10 percent' for 
                `30 percent'.
                    ``(B) Applicability.--If, on or after the 
                date of the enactment of this paragraph, an 
                increase in the rate of the Commonwealth of 
                Puerto Rico's withholding tax which is 
                generally applicable to dividends paid to 
                United States corporations not engaged in a 
                trade or business in the Commonwealth to a rate 
                greater than 10 percent takes effect, this 
                paragraph shall not apply to dividends received 
                on or after the effective date of the 
                increase.''.
    (b) Withholding.--Subsection (c) of section 1442 (relating 
to withholding of tax on foreign corporations) is amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
            ``(1) Guam, american samoa, the northern mariana 
        islands, and the virgin islands.--For purposes'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Commonwealth of puerto rico.--
                    ``(A) In general.--If dividends are 
                received during a taxable year by a 
                corporation--
                            ``(i) created or organized in, or 
                        under the law of, the Commonwealth of 
                        Puerto Rico, and
                            ``(ii) with respect to which the 
                        requirements of subparagraphs (A), (B), 
                        and (C) of section 881(b)(1) are met 
                        for the taxable year,
                subsection (a) shall be applied for such 
                taxable year by substituting `10 percent' for 
                `30 percent'.
                    ``(B) Applicability.--If, on or after the 
                date of the enactment of this paragraph, an 
                increase in the rate of the Commonwealth of 
                Puerto Rico's withholding tax which is 
                generally applicable to dividends paid to 
                United States corporations not engaged in a 
                trade or business in the Commonwealth to a rate 
                greater than 10 percent takes effect, this 
                paragraph shall not apply to dividends received 
                on or after the effective date of the 
                increase.''.
    (c) Conforming Amendments.--
            (1) Subsection (b) of section 881 is amended by 
        striking ``Guam and Virgin Islands Corporations'' in 
        the heading and inserting ``Possessions''.
            (2) Paragraph (1) of section 881(b) is amended by 
        striking ``In general'' in the heading and inserting 
        ``Guam, american samoa, the northern mariana islands, 
        and the virgin islands''.
    (d) Effective Date.--The amendments made by this section 
shall apply to dividends paid after the date of the enactment 
of this Act.

SEC. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

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

SEC. 422. INCENTIVES TO REINVEST FOREIGN EARNINGS IN UNITED STATES.

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

``SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.

    ``(a) Deduction.--
            ``(1) In general.--In the case of a corporation 
        which is a United States shareholder and for which the 
        election under this section is in effect for the 
        taxable year, there shall be allowed as a deduction an 
        amount equal to 85 percent of the cash dividends which 
        are received during such taxable year by such 
        shareholder from controlled foreign corporations.
            ``(2) Dividends paid indirectly from controlled 
        foreign corporations.--If, within the taxable year for 
        which the election under this section is in effect, a 
        United States shareholder receives a cash distribution 
        from a controlled foreign corporation which is excluded 
        from gross income under section 959(a), such 
        distribution shall be treated for purposes of this 
        section as a cash dividend to the extent of any amount 
        included in income by such United States shareholder 
        under section 951(a)(1)(A) as a result of any cash 
        dividend during such taxable year to--
                    ``(A) such controlled foreign corporation 
                from another controlled foreign corporation 
                that is in a chain of ownership described in 
                section 958(a), or
                    ``(B) any other controlled foreign 
                corporation in such chain of ownership, but 
                only to the extent of cash distributions 
                described in section 959(b) which are made 
                during such taxable year to the controlled 
                foreign corporation from which such United 
                States shareholder received such distribution.
    ``(b) Limitations.--
            ``(1) In general.--The amount of dividends taken 
        into account under subsection (a) shall not exceed the 
        greater of--
                    ``(A) $500,000,000,
                    ``(B) the amount shown on the applicable 
                financial statement as earnings permanently 
                reinvested outside the United States, or
                    ``(C) in the case of an applicable 
                financial statement which fails to show a 
                specific amount of earnings permanently 
                reinvested outside the United States and which 
                shows a specific amount of tax liability 
                attributable to such earnings, the amount equal 
                to the amount of such liability divided by 
                0.35.
        The amounts described in subparagraphs (B) and (C) 
        shall be treated as being zero if there is no such 
        statement or such statement fails to show a specific 
        amount of such earnings or liability, as the case may 
        be.
            ``(2) Dividends must be extraordinary.--The amount 
        of dividends taken into account under subsection (a) 
        shall not exceed the excess (if any) of--
                    ``(A) the dividends received during the 
                taxable year by such shareholder from 
                controlled foreign corporations, over
                    ``(B) the annual average for the base 
                period years of--
                            ``(i) the dividends received during 
                        each base period year by such 
                        shareholder from controlled foreign 
                        corporations,
                            ``(ii) the amounts includible in 
                        such shareholder's gross income for 
                        each base period year under section 
                        951(a)(1)(B) with respect to controlled 
                        foreign corporations, and
                            ``(iii) the amounts that would have 
                        been included for each base period year 
                        but for section 959(a) with respect to 
                        controlled foreign corporations.
                The amount taken into account under clause 
                (iii) for any base period year shall not 
                include any amount which is not includible in 
                gross income by reason of an amount described 
                in clause (ii) with respect to a prior taxable 
                year. Amounts described in subparagraph (B) for 
                any base period year shall be such amounts as 
                shown on the most recent return filed for such 
                year; except that amended returns filed after 
                June 30, 2003, shall not be taken into account.
            ``(3) Reduction of benefit if increase in related 
        party indebtedness.--The amount of dividends which 
        would (but for this paragraph) be taken into account 
        under subsection (a) shall be reduced by the excess (if 
        any) of--
                    ``(A) the amount of indebtedness of the 
                controlled foreign corporation to any related 
                person (as defined in section 954(d)(3)) as of 
                the close of the taxable year for which the 
                election under this section is in effect, over
                    ``(B) the amount of indebtedness of the 
                controlled foreign corporation to any related 
                person (as so defined) as of the close of 
                October 3, 2004.
        All controlled foreign corporations with respect to 
        which the taxpayer is a United States shareholder shall 
        be treated as 1 controlled foreign corporation for 
        purposes of this paragraph.
            ``(4) Requirement to invest in united states.--
        Subsection (a) shall not apply to any dividend received 
        by a United States shareholder unless the amount of the 
        dividend is invested in the United States pursuant to a 
        domestic reinvestment plan which--
                    ``(A) is approved by the taxpayer's 
                president, chief executive officer, or 
                comparable official before the payment of such 
                dividend and subsequently approved by the 
                taxpayer's board of directors, management 
                committee, executive committee, or similar 
                body, and
                    ``(B) provides for the reinvestment of such 
                dividend in the United States (other than as 
                payment for executive compensation), including 
                as a source for the funding of worker hiring 
                and training, infrastructure, research and 
                development, capital investments, or the 
                financial stabilization of the corporation for 
                the purposes of job retention or creation.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable financial statement.--The term 
        `applicable financial statement' means, with respect to 
        a United States shareholder, the most recently audited 
        financial statement (including notes and other 
        documents which accompany such statement) which 
        includes such shareholder--
                    ``(A) which is certified on or before June 
                30, 2003, as being prepared in accordance with 
                generally accepted accounting principles, and
                    ``(B) which is used for the purposes of a 
                statement or report--
                            ``(i) to creditors,
                            ``(ii) to shareholders, or
                            ``(iii) for any other substantial 
                        nontax purpose.
        In the case of a corporation required to file a 
        financial statement with the Securities and Exchange 
        Commission, such term means the most recent such 
        statement filed on or before June 30, 2003.
            ``(2) Base period years.--
                    ``(A) In general.--The base period years 
                are the 3 taxable years--
                            ``(i) which are among the 5 most 
                        recent taxable years ending on or 
                        before June 30, 2003, and
                            ``(ii) which are determined by 
                        disregarding--
                                    ``(I) 1 taxable year for 
                                which the sum of the amounts 
                                described in clauses (i), (ii), 
                                and (iii) of subsection 
                                (b)(2)(B) is the largest, and
                                    ``(II) 1 taxable year for 
                                which such sum is the smallest.
                    ``(B) Shorter period.--If the taxpayer has 
                fewer than 5 taxable years ending on or before 
                June 30, 2003, then in lieu of applying 
                subparagraph (A), the base period years shall 
                include all the taxable years of the taxpayer 
                ending on or before June 30, 2003.
                    ``(C) Mergers, acquisitions, etc.--
                            ``(i) In general.--Rules similar to 
                        the rules of subparagraphs (A) and (B) 
                        of section 41(f)(3) shall apply for 
                        purposes of this paragraph.
                            ``(ii) Spin-offs, etc.--If there is 
                        a distribution to which section 355 (or 
                        so much of section 356 as relates to 
                        section 355) applies during the 5-year 
                        period referred to in subparagraph 
                        (A)(i) and the controlled corporation 
                        (within the meaning of section 355) is 
                        a United States shareholder--
                                    ``(I) the controlled 
                                corporation shall be treated as 
                                being in existence during the 
                                period that the distributing 
                                corporation (within the meaning 
                                of section 355) is in 
                                existence, and
                                    ``(II) for purposes of 
                                applying subsection (b)(2) to 
                                the controlled corporation and 
                                the distributing corporation, 
                                amounts described in subsection 
                                (b)(2)(B) which are received or 
                                includible by the distributing 
                                corporation or controlled 
                                corporation (as the case may 
                                be) before the distribution 
                                referred to in subclause (I) 
                                from a controlled foreign 
                                corporation shall be allocated 
                                between such corporations in 
                                proportion to their respective 
                                interests as United States 
                                shareholders of such controlled 
                                foreign corporation immediately 
                                after such distribution.
                        Subclause (II) shall not apply if 
                        neither the controlled corporation nor 
                        the distributing corporation is a 
                        United States shareholder of such 
                        controlled foreign corporation 
                        immediately after such distribution.
            ``(3) Dividend.--The term `dividend' shall not 
        include amounts includible in gross income as a 
        dividend under section 78, 367, or 1248. In the case of 
        a liquidation under section 332 to which section 367(b) 
        applies, the preceding sentence shall not apply to the 
        extent the United States shareholder actually receives 
        cash as part of the liquidation.
            ``(4) Coordination with dividends received 
        deduction.--No deduction shall be allowed under section 
        243 or 245 for any dividend for which a deduction is 
        allowed under this section.
            ``(5) Controlled groups.--
                    ``(A) In general.--All United States 
                shareholders which are members of an affiliated 
                group filing a consolidated return under 
                section 1501 shall be treated as one United 
                States shareholder.
                    ``(B) Application of $500,000,000 limit.--
                All corporations which are treated as a single 
                employer under section 52(a) shall be limited 
                to one $500,000,000 amount in subsection 
                (b)(1)(A), and such amount shall be divided 
                among such corporations under regulations 
                prescribed by the Secretary.
                    ``(C) Permanently reinvested earnings.--If 
                a financial statement is an applicable 
                financial statement for more than 1 United 
                States shareholder, the amount applicable under 
                subparagraph (B) or (C) of subsection (b)(1) 
                shall be divided among such shareholders under 
                regulations prescribed by the Secretary.
    ``(d) Denial of Foreign Tax Credit; Denial of Certain 
Expenses.--
            ``(1) Foreign tax credit.--No credit shall be 
        allowed under section 901 for any taxes paid or accrued 
        (or treated as paid or accrued) with respect to the 
        deductible portion of--
                    ``(A) any dividend, or
                    ``(B) any amount described in subsection 
                (a)(2) which is included in income under 
                section 951(a)(1)(A).
        No deduction shall be allowed under this chapter for 
        any tax for which credit is not allowable by reason of 
        the preceding sentence.
            ``(2) Expenses.--No deduction shall be allowed for 
        expenses properly allocated and apportioned to the 
        deductible portion described in paragraph (1).
            ``(3) Deductible portion.--For purposes of 
        paragraph (1), unless the taxpayer otherwise specifies, 
        the deductible portion of any dividend or other amount 
        is the amount which bears the same ratio to the amount 
        of such dividend or other amount as the amount allowed 
        as a deduction under subsection (a) for the taxable 
        year bears to the amount described in subsection 
        (b)(2)(A) for such year.
    ``(e) Increase in Tax on Included Amounts Not Reduced by 
Credits, Etc.--
            ``(1) In general.--Any tax under this chapter by 
        reason of nondeductible CFC dividends shall not be 
        treated as tax imposed by this chapter for purposes of 
        determining--
                    ``(A) the amount of any credit allowable 
                under this chapter, or
                    ``(B) the amount of the tax imposed by 
                section 55.
        Subparagraph (A) shall not apply to the credit under 
        section 53 or to the credit under section 27(a) with 
        respect to taxes attributable to such dividends.
            ``(2) Limitation on reduction in taxable income, 
        etc.--
                    ``(A) In general.--The taxable income of 
                any United States shareholder for any taxable 
                year shall in no event be less than the amount 
                of nondeductible CFC dividends received during 
                such year.
                    ``(B) Coordination with section 172.--The 
                nondeductible CFC dividends for any taxable 
                year shall not be taken into account--
                            ``(i) in determining under section 
                        172 the amount of any net operating 
                        loss for such taxable year, and
                            ``(ii) in determining taxable 
                        income for such taxable year for 
                        purposes of the 2nd sentence of section 
                        172(b)(2).
            ``(3) Nondeductible cfc dividends.--For purposes of 
        this subsection, the term `nondeductible CFC dividends' 
        means the excess of the amount of dividends taken into 
        account under subsection (a) over the deduction allowed 
        under subsection (a) for such dividends.
    ``(f) Election.--The taxpayer may elect to apply this 
section to--
            ``(1) the taxpayer's last taxable year which begins 
        before the date of the enactment of this section, or
            ``(2) the taxpayer's first taxable year which 
        begins during the 1-year period beginning on such date.
Such election may be made for a taxable year only if made 
before the due date (including extensions) for filing the 
return of tax for such taxable year.''
    (b) Alternative Minimum Tax.--Subparagraph (C) of section 
56(g)(4) is amended by inserting after clause (v) the following 
new clause:
                            ``(vi) Special rule for certain 
                        distributions from controlled foreign 
                        corporations.--Clause (i) shall not 
                        apply to any deduction allowable under 
                        section 965.''.
    (c) Clerical Amendment.--The table of sections for subpart 
F of part III of subchapter N of chapter 1 is amended by adding 
at the end the following new item:

        ``Sec. 965. Temporary dividends received deduction.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years ending on or after the date of the 
enactment of this Act.

SEC. 423. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING 
                    EXCLUSION OF INCOME FROM INTERNATIONAL OPERATION OF 
                    SHIPS OR AIRCRAFT.

    Notwithstanding the provisions of Treasury regulation 
Sec. 1.883-5, the final regulations issued by the Secretary of 
the Treasury relating to income derived by foreign corporations 
from the international operation of ships or aircraft (Treasury 
regulations Sec. 1.883-1 through Sec. 1.883-5) shall apply to 
taxable years of a foreign corporation seeking qualified 
foreign corporation status beginning after September 24, 2004.

SEC. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.

    (a) In General.--The Secretary of the Treasury or the 
Secretary's delegate shall conduct a study of the effectiveness 
of the provisions of the Internal Revenue Code of 1986 
applicable to earnings stripping, including a study of--
            (1) the effectiveness of section 163(j) of such 
        Code in preventing the shifting of income outside the 
        United States,
            (2) whether any deficiencies of such provisions 
        place United States-based businesses at a competitive 
        disadvantage relative to foreign-based businesses,
            (3) the impact of earnings stripping activities on 
        the United States tax base,
            (4) whether laws of foreign countries facilitate 
        stripping of earnings out of the United States, and
            (5) whether changes to the earning stripping rules 
        would affect jobs in the United States.
    (b) Report.--Not later than June 30, 2005, the Secretary 
shall submit to the Congress a report of the study conducted 
under this section, including specific recommendations as to 
how to improve the provisions of such Code applicable to 
earnings stripping.

       TITLE V--DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES

SEC. 501. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES IN LIEU OF 
                    STATE AND LOCAL INCOME TAXES.

    (a) In General.--Subsection (b) of section 164 (relating to 
definitions and special rules) is amended by adding at the end 
the following:
            ``(5) General sales taxes.--For purposes of 
        subsection (a)--
                    ``(A) Election to deduct state and local 
                sales taxes in lieu of state and local income 
                taxes.--
                            ``(i) In general.--At the election 
                        of the taxpayer for the taxable year, 
                        subsection (a) shall be applied--
                                    ``(I) without regard to the 
                                reference to State and local 
                                income taxes, and
                                    ``(II) as if State and 
                                local general sales taxes were 
                                referred to in a paragraph 
                                thereof.
                    ``(B) Definition of general sales tax.--The 
                term `general sales tax' means a tax imposed at 
                one rate with respect to the sale at retail of 
                a broad range of classes of items.
                    ``(C) Special rules for food, etc.--In the 
                case of items of food, clothing, medical 
                supplies, and motor vehicles--
                            ``(i) the fact that the tax does 
                        not apply with respect to some or all 
                        of such items shall not be taken into 
                        account in determining whether the tax 
                        applies with respect to a broad range 
                        of classes of items, and
                            ``(ii) the fact that the rate of 
                        tax applicable with respect to some or 
                        all of such items is lower than the 
                        general rate of tax shall not be taken 
                        into account in determining whether the 
                        tax is imposed at one rate.
                    ``(D) Items taxed at different rates.--
                Except in the case of a lower rate of tax 
                applicable with respect to an item described in 
                subparagraph (C), no deduction shall be allowed 
                under this paragraph for any general sales tax 
                imposed with respect to an item at a rate other 
                than the general rate of tax.
                    ``(E) Compensating use taxes.--A 
                compensating use tax with respect to an item 
                shall be treated as a general sales tax. For 
                purposes of the preceding sentence, the term 
                `compensating use tax' means, with respect to 
                any item, a tax which--
                            ``(i) is imposed on the use, 
                        storage, or consumption of such item, 
                        and
                            ``(ii) is complementary to a 
                        general sales tax, but only if a 
                        deduction is allowable under this 
                        paragraph with respect to items sold at 
                        retail in the taxing jurisdiction which 
                        are similar to such item.
                    ``(F) Special rule for motor vehicles.--In 
                the case of motor vehicles, if the rate of tax 
                exceeds the general rate, such excess shall be 
                disregarded and the general rate shall be 
                treated as the rate of tax.
                    ``(G) Separately stated general sales 
                taxes.--If the amount of any general sales tax 
                is separately stated, then, to the extent that 
                the amount so stated is paid by the consumer 
                (other than in connection with the consumer's 
                trade or business) to the seller, such amount 
                shall be treated as a tax imposed on, and paid 
                by, such consumer.
                    ``(H) Amount of deduction may be determined 
                under tables.--
                            ``(i) In general.--At the election 
                        of the taxpayer for the taxable year, 
                        the amount of the deduction allowed 
                        under this paragraph for such year 
                        shall be--
                                    ``(I) the amount determined 
                                under this paragraph (without 
                                regard to this subparagraph) 
                                with respect to motor vehicles, 
                                boats, and other items 
                                specified by the Secretary, and
                                    ``(II) the amount 
                                determined under tables 
                                prescribed by the Secretary 
                                with respect to items to which 
                                subclause (I) does not apply.
                            ``(ii) Requirements for tables.--
                        The tables prescribed under clause 
                        (i)--
                                    ``(I) shall reflect the 
                                provisions of this paragraph,
                                    ``(II) shall be based on 
                                the average consumption by 
                                taxpayers on a State-by-State 
                                basis (as determined by the 
                                Secretary) of items to which 
                                clause (i)(I) does not apply, 
                                taking into account filing 
                                status, number of dependents, 
                                adjusted gross income, and 
                                rates of State and local 
                                general sales taxation, and
                                    ``(III) need only be 
                                determined with respect to 
                                adjusted gross incomes up to 
                                the applicable amount (as 
                                determined under section 
                                68(b)).
                    ``(I) Application of paragraph.--This 
                paragraph shall apply to taxable years 
                beginning after December 31, 2003, and before 
                January 1, 2006.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2003.

              TITLE VI--FAIR AND EQUITABLE TOBACCO REFORM

SEC. 601. SHORT TITLE.

    This title may be cited as the ``Fair and Equitable Tobacco 
Reform Act of 2004''.

  Subtitle A--Termination of Federal Tobacco Quota and Price Support 
                                Programs

SEC. 611. TERMINATION OF TOBACCO QUOTA PROGRAM AND RELATED PROVISIONS.

    (a) Marketing Quotas.--Part I of subtitle B of title III of 
the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.) 
is repealed.
    (b) Tobacco Inspections.--Section 213 of the Tobacco 
Adjustment Act of 1983 (7 U.S.C. 511r) is repealed.
    (c) Tobacco Control.--The Act of April 25, 1936 (commonly 
known as the Tobacco Control Act; 7 U.S.C. 515 et seq.), is 
repealed.
    (d) Processing Tax.--Section 9(b) of the Agricultural 
Adjustment Act (7 U.S.C. 609(b)), reenacted with amendments by 
the Agricultural Marketing Agreement Act of 1937, is amended--
            (1) in paragraph (2), by striking ``tobacco,''; and
            (2) in paragraph (6)(B)(i), by striking ``, or, in 
        the case of tobacco, is less than the fair exchange 
        value by not more than 10 per centum,''.
    (e) Declaration of Policy.--Section 2 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking 
``tobacco,''.
    (f) Definitions.--Section 301(b) of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1301(b)) is amended--
            (1) in paragraph (3)--
                    (A) by striking subparagraph (C); and
                    (B) by redesignating subparagraph (D) as 
                subparagraph (C);
            (2) in paragraph (6)(A), by striking ``tobacco,'';
            (3) in paragraph (10)--
                    (A) by striking subparagraph (B); and
                    (B) by redesignating subparagraph (C) as 
                subparagraph (B);
            (4) in paragraph (11)(B), by striking ``and 
        tobacco'';
            (5) in paragraph (12), by striking ``tobacco,'';
            (6) in paragraph (14)--
                    (A) in subparagraph (A), by striking 
                ``(A)''; and
                    (B) by striking subparagraphs (B), (C), and 
                (D);
            (7) by striking paragraph (15);
            (8) in paragraph (16)--
                    (A) by striking subparagraph (B); and
                    (B) by redesignating subparagraph (C) as 
                subparagraph (B);
            (9) by striking paragraph (17); and
            (10) by redesignating paragraph (16) as paragraph 
        (15).
    (g) Parity Payments.--Section 303 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1303) is amended in the first 
sentence by striking ``rice, or tobacco,'' and inserting ``or 
rice,''.
    (h) Administrative Provisions.--Section 361 of the 
Agricultural Adjustment Act of 1938 (7 U.S.C. 1361) is amended 
by striking ``tobacco,''.
    (i) Adjustment of Quotas.--Section 371 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1371) is amended--
            (1) in the first sentence of subsection (a), by 
        striking ``rice, or tobacco'' and inserting ``or 
        rice''; and
            (2) in the first sentence of subsection (b), by 
        striking ``rice, or tobacco'' and inserting ``or 
        rice''.
    (j) Reports and Records.--Section 373 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1373) is amended--
            (1) by striking ``rice, or tobacco'' each place it 
        appears in subsections (a) and (b) and inserting ``or 
        rice''; and
            (2) in subsection (a)--
                    (A) in the first sentence, by striking 
                ``all persons engaged in the business of 
                redrying, prizing, or stemming tobacco for 
                producers,''; and
                    (B) in the last sentence, by striking 
                ``$500;'' and all that follows through the 
                period at the end of the sentence and inserting 
                ``$500.''.
    (k) Regulations.--Section 375 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1375) is amended--
            (1) in subsection (a), by striking ``peanuts, or 
        tobacco'' and inserting ``or peanuts''; and
            (2) by striking subsection (c).
    (l) Eminent Domain.--Section 378 of the Agricultural 
Adjustment Act of 1938 (7 U.S.C. 1378) is amended--
            (1) in the first sentence of subsection (c), by 
        striking ``cotton, and tobacco'' and inserting ``and 
        cotton''; and
            (2) by striking subsections (d), (e), and (f).
    (m) Burley Tobacco Farm Reconstitution.--Section 379 of the 
Agricultural Adjustment Act of 1938 (7 U.S.C. 1379) is 
amended--
            (1) in subsection (a)--
                    (A) by striking ``(a)''; and
                    (B) in paragraph (6), by striking ``, but 
                this clause (6) shall not be applicable in the 
                case of burley tobacco''; and
            (2) by striking subsections (b) and (c).
    (n) Acreage-Poundage Quotas.--Section 4 of the Act of April 
16, 1955 (Public Law 89-12; 7 U.S.C. 1314c note), is repealed.
    (o) Burley Tobacco Acreage Allotments.--The Act of July 12, 
1952 (7 U.S.C. 1315), is repealed.
    (p) Transfer of Allotments.--Section 703 of the Food and 
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
    (q) Advance Recourse Loans.--Section 13(a)(2)(B) of the 
Food Security Improvements Act of 1986 (7 U.S.C. 1433c-
1(a)(2)(B)) is amended by striking ``tobacco and''.
    (r) Tobacco Field Measurement.--Section 1112 of the Omnibus 
Budget Reconciliation Act of 1987 (Public Law 100-203; 101 
Stat. 1330-8) is amended by striking subsection (c).
    (s) Burley Tobacco Import Review.--Section 3 of Public Law 
98-59 (7 U.S.C. 625) is repealed.

SEC. 612. TERMINATION OF TOBACCO PRICE SUPPORT PROGRAM AND RELATED 
                    PROVISIONS.

    (a) Termination of Tobacco Price Support and No Net Cost 
Provisions.--Sections 106, 106A, and 106B of the Agricultural 
Act of 1949 (7 U.S.C. 1445, 1445-1, 1445-2) are repealed.
    (b) Parity Price Support.--Section 101 of the Agricultural 
Act of 1949 (7 U.S.C. 1441) is amended--
            (1) in the first sentence of subsection (a), by 
        striking ``tobacco (except as otherwise provided 
        herein), corn,'' and inserting ``corn'';
            (2) by striking subsections (c), (g), (h), and (i);
            (3) in subsection (d)(3)--
                    (A) by striking ``, except tobacco,''; and
                    (B) by striking ``and no price support 
                shall be made available for any crop of tobacco 
                for which marketing quotas have been 
                disapproved by producers;''; and
            (4) by redesignating subsections (d) and (e) as 
        subsections (c) and (d), respectively.
    (c) Definition of Basic Agricultural Commodity.--Section 
408(c) of the Agricultural Act of 1949 (7 U.S.C. 1428(c)) is 
amended by striking ``tobacco,''.
    (d) Powers of Commodity Credit Corporation.--Section 5 of 
the Commodity Credit Corporation Charter Act (15 U.S.C. 714c) 
is amended by inserting ``(other than tobacco)'' after 
``agricultural commodities'' each place it appears.

SEC. 613. CONFORMING AMENDMENTS.

    Section 320B(c)(1) of the Agricultural Adjustment Act of 
1938 (7 U.S.C. 1314h(c)(1)) is amended--
            (1) by inserting ``(A)'' after ``(1)'';
            (2) by striking ``by'' at the end and inserting 
        ``or''; and
            (3) by adding at the end the following:
            ``(B) in the case of the 2004 marketing year, the 
        price support rate for the kind of tobacco involved in 
        effect under section 106 of the Agricultural Act of 
        1949 (7 U.S.C. 1445) at the time of the violation; 
        by''.

SEC. 614. CONTINUATION OF LIABILITY FOR 2004 AND EARLIER CROP YEARS.

    The amendments made by this subtitle shall not affect the 
liability of any person under any provision of law so amended 
with respect to the 2004 or an earlier crop of each kind of 
tobacco.

    Subtitle B--Transitional Payments to Tobacco Quota Holders and 
                          Producers of Tobacco

SEC. 621. DEFINITIONS.

    In this subtitle and subtitle C:
            (1) Agricultural act of 1949.--The term 
        ``Agricultural Act of 1949'' means the Agricultural Act 
        of 1949 (7 U.S.C. 1421 et seq.), as in effect on the 
        day before the date of the enactment of this title.
            (2) Agricultural adjustment act of 1938.--The term 
        ``Agricultural Adjustment Act of 1938'' means the 
        Agricultural Adjustment Act of 1938 (7 U.S.C. 1281 et 
        seq.), as in effect on the day before the date of the 
        enactment of this title.
            (3) Considered planted.--The term ``considered 
        planted'' means tobacco that was planted, but failed to 
        be produced as a result of a natural disaster, as 
        determined by the Secretary.
            (4) Contract.--The term ``contract'' means a 
        contract entered into under section 622 or 623.
            (5) Contract payment.--The term ``contract 
        payment'' means a payment made under section 622 or 623 
        pursuant to a contract.
            (6) Producer of quota tobacco.--The term ``producer 
        of quota tobacco'' means an owner, operator, landlord, 
        tenant, or sharecropper that shared in the risk of 
        producing tobacco on a farm where tobacco was produced 
        or considered planted pursuant to a tobacco farm 
        poundage quota or farm acreage allotment established 
        under part I of subtitle B of title III of the 
        Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et 
        seq.).
            (7) Quota tobacco.--The term ``quota tobacco'' 
        means a kind of tobacco that is subject to a farm 
        marketing quota or farm acreage allotment for the 2004 
        tobacco marketing year under a marketing quota or 
        allotment program established under part I of subtitle 
        B of title III of the Agricultural Adjustment Act of 
        1938 (7 U.S.C. 1311 et seq.).
            (8) Tobacco.--The term ``tobacco'' means each of 
        the following kinds of tobacco:
                    (A) Flue-cured tobacco, comprising types 
                11, 12, 13, and 14.
                    (B) Fire-cured tobacco, comprising types 22 
                and 23.
                    (C) Dark air-cured tobacco, comprising 
                types 35 and 36.
                    (D) Virginia sun-cured tobacco, comprising 
                type 37.
                    (E) Virginia fire-cured tobacco, comprising 
                type 21.
                    (F) Burley tobacco, comprising type 31.
                    (G) Cigar-filler and cigar-binder tobacco, 
                comprising types 42, 43, 44, 53, 54, and 55.
            (9) Tobacco quota holder.--The term ``tobacco quota 
        holder'' means a person that was an owner of a farm, as 
        of the date of enactment of this title, for which a 
        basic tobacco farm marketing quota or farm acreage 
        allotment for quota tobacco was established for the 
        2004 tobacco marketing year.
            (10) Tobacco trust fund.--The term ``Tobacco Trust 
        Fund'' means the Tobacco Trust Fund established under 
        section 626.
            (11) Secretary.--The term ``Secretary'' means the 
        Secretary of Agriculture.

SEC. 622. CONTRACT PAYMENTS TO TOBACCO QUOTA HOLDERS.

    (a) Contract Offered.--The Secretary shall offer to enter 
into a contract with each tobacco quota holder under which the 
tobacco quota holder shall be entitled to receive payments 
under this section in exchange for the termination of tobacco 
marketing quotas and related price support under the amendments 
made by sections 611 and 612. The contract payments shall 
constitute full and fair consideration for the termination of 
such tobacco marketing quotas and related price support.
    (b) Eligibility.--To be eligible to enter into a contract 
to receive a contract payment under this section, a person 
shall submit to the Secretary an application containing such 
information as the Secretary may require to demonstrate to the 
satisfaction of the Secretary that the person is a tobacco 
quota holder. The application shall be submitted within such 
time, in such form, and in such manner as the Secretary may 
require.
    (c) Base Quota Level.--
            (1) Establishment.--The Secretary shall establish a 
        base quota level applicable to each tobacco quota 
        holder identified under subsection (b).
            (2) Poundage quotas.--Subject to adjustment under 
        subsection (d), for each kind of tobacco for which the 
        marketing quota is expressed in pounds, the base quota 
        level for each tobacco quota holder shall be equal to 
        the basic quota for quota tobacco established for the 
        2002 tobacco marketing year under a marketing quota 
        program established under part I of subtitle B of title 
        III of the Agriculture Adjustment Act of 1938 on the 
        farm owned by the tobacco quota holder.
            (3) Marketing quotas other than poundage quotas.--
        Subject to adjustment under subsection (d), for each 
        kind of tobacco for which there is marketing quota or 
        allotment on an acreage basis, the base quota level for 
        each tobacco quota holder shall be the quantity equal 
        to the product obtained by multiplying--
                    (A) the basic tobacco farm marketing quota 
                or allotment for the 2002 marketing year 
                established by the Secretary for quota tobacco 
                owned by the tobacco quota holder; by
                    (B) the average production yield, per acre, 
                for the period covering the 2001, 2002, and 
                2003 crop years for that kind of tobacco in the 
                county in which the quota tobacco is located.
    (d) Treatment of Certain Contracts and Agreements.--
            (1) Effect of purchase contract.--If there was an 
        agreement for the purchase of all or part of a farm 
        described in subsection (c) as of the date of the 
        enactment of this title, and the parties to the sale 
        are unable to agree to the disposition of eligibility 
        for contract payments, the Secretary, taking into 
        account any transfer of quota that has been agreed to, 
        shall provide for the equitable division of the 
        contract payments among the parties by adjusting the 
        determination of who is the tobacco quota holder with 
        respect to particular pounds or allotment of the quota.
            (2) Effect of agreement for permanent quota 
        transfer.--If the Secretary determines that there was 
        in existence, as of the day before the date of the 
        enactment of this title, an agreement for the permanent 
        transfer of quota, but that the transfer was not 
        completed by that date, the Secretary shall consider 
        the tobacco quota holder to be the party to the 
        agreement that, as of that date, was the owner of the 
        farm to which the quota was to be transferred.
    (e) Contract Payments.--
            (1) Calculation of total payment amount.--The total 
        amount of contract payments to which an eligible 
        tobacco quota holder is entitled under this section, 
        with respect to a kind of tobacco, shall be equal to 
        the product obtained by multiplying--
                    (A) $7.00 per pound; by
                    (B) the base quota level of the tobacco 
                quota holder determined under subsection (c) 
                with respect to that kind of tobacco.
            (2) Annual payment.--During each of fiscal years 
        2005 through 2014, the Secretary shall make a contract 
        payment under this section to each eligible tobacco 
        quota holder, with respect to a kind of tobacco, in an 
        amount equal to \1/10\ of the amount determined under 
        paragraph (1) for the tobacco quota holder for that 
        kind of tobacco.
    (f) Death of Tobacco Quota Holder.--If a tobacco quota 
holder who is entitled to contract payments under this section 
dies and is survived by a spouse or one or more dependents, the 
right to receive the payments shall transfer to the surviving 
spouse or, if there is no surviving spouse, to the estate of 
the tobacco quota holder.

SEC. 623. CONTRACT PAYMENTS FOR PRODUCERS OF QUOTA TOBACCO.

    (a) Contract Offered.--The Secretary shall offer to enter 
into a contract with each producer of quota tobacco under which 
the producer of quota tobacco shall be entitled to receive 
payments under this section in exchange for the termination of 
tobacco marketing quotas and related price support under the 
amendments made by sections 611 and 612. The contract payments 
shall constitute full and fair consideration for the 
termination of such tobacco marketing quotas and related price 
support.
    (b) Eligibility.--
            (1) Application and determination.--To be eligible 
        to enter into a contract to receive a contract payment 
        under this section, a person shall submit to the 
        Secretary an application containing such information as 
        the Secretary may require to demonstrate to the 
        satisfaction of the Secretary that the person is a 
        producer of quota tobacco. The application shall be 
        submitted within such time, in such form, and in such 
        manner as the Secretary may require.
            (2) Effect of Multiple Producers for Same Quota 
        Tobacco.--If, on the basis of the applications 
        submitted under paragraph (1) or other information, the 
        Secretary determines that two or more persons are a 
        producer of the same quota tobacco, the Secretary shall 
        provide for an equitable distribution among the persons 
        of the contract payments made under this section with 
        respect to that quota tobacco, based on relative share 
        of such persons in the risk of producing the quota 
        tobacco and such other factors as the Secretary 
        considers appropriate.
    (c) Base Quota Level.--
            (1) Establishment.--The Secretary shall establish a 
        base quota level applicable to each producer of quota 
        tobacco, as determined under this subsection.
            (2) Flue-cured and burley tobacco.--In the case of 
        Flue-cured tobacco (types 11, 12, 13, and 14) and 
        Burley tobacco (type 31), the base quota level for each 
        producer of quota tobacco shall be equal to the 
        effective tobacco marketing quota (irrespective of 
        disaster lease and transfers) under part I of subtitle 
        B of title III of the Agriculture Adjustment Act of 
        1938 for the 2002 marketing year for quota tobacco 
        produced on the farm.
            (3) Other kinds of tobacco.--In the case of each 
        kind of tobacco (other than tobacco covered by 
        paragraph (2)), for the purpose of calculating a 
        contract payment to a producer of quota tobacco, the 
        base quota level for the producer of quota tobacco 
        shall be the quantity obtained by multiplying--
                    (A) the basic tobacco farm acreage 
                allotment for the 2002 marketing year 
                established by the Secretary for quota tobacco 
                produced on the farm; by
                    (B) the average annual yield, per acre, of 
                quota tobacco produced on the farm for the 
                period covering the 2001, 2002, and 2003 crop 
                years.
    (d) Contract Payments.--
            (1) Calculation of total payment amount.--Subject 
        to subsection (b)(2), the total amount of contract 
        payments to which an eligible producer of quota tobacco 
        is entitled under this section, with respect to a kind 
        of tobacco, shall be equal to the product obtained by 
        multiplying--
                    (A) subject to paragraph (2), $3.00 per 
                pound; by
                    (B) the base quota level of the producer of 
                quota tobacco determined under subsection (c) 
                with respect to that kind of tobacco.
            (2) Annual payment.--During each of fiscal years 
        2005 through 2014, the Secretary shall make a contract 
        payment under this section to each eligible producer of 
        tobacco, with respect to a kind of tobacco, in an 
        amount equal to \1/10\ of the amount determined under 
        paragraph (1) for the producer for that kind of 
        tobacco.
            (3) Variable payment rates.--The rate for payments 
        to a producer of quota tobacco under paragraph (1)(A) 
        shall be equal to--
                    (A) in the case of a producer of quota 
                tobacco that produced quota tobacco marketed, 
                or considered planted, under a marketing quota 
                in all three of the 2002, 2003, or 2004 tobacco 
                marketing years, the rate prescribed under 
                paragraph (1)(A);
                    (B) in the case of a producer of quota 
                tobacco that produced quota tobacco marketed, 
                or considered planted, under a marketing quota 
                in only two of those tobacco marketing years, 
                \2/3\ of the rate prescribed under paragraph 
                (1)(A); and
                    (C) in the case of a producer of quota 
                tobacco that produced quota tobacco marketed, 
                or considered planted, under a marketing quota 
                in only one of those tobacco marketing years, 
                \1/3\ of the rate prescribed under paragraph 
                (1)(A).
    (e) Death of Tobacco Producer.--If a producer of quota 
tobacco who is entitled to contract payments under this section 
dies and is survived by a spouse or one or more dependents, the 
right to receive the contract payments shall transfer to the 
surviving spouse or, if there is no surviving spouse, to the 
estate of the producer.

SEC. 624. ADMINISTRATION.

    (a) Time for Payment of Contract Payments.--Contract 
payments required to be made for a fiscal year shall be made by 
the Secretary as soon as practicable.
    (b) Use of County Committees to Resolve Disputes.--Any 
dispute regarding the eligibility of a person to enter into a 
contract or to receive contract payments, and any dispute 
regarding the amount of a contract payment, may be appealed to 
the county committee established under section 8 of the Soil 
Conservation and Domestic Allotment Act (16 U.S.C. 590h) for 
the county or other area in which the farming operation of the 
person is located.
    (c) Role of National Appeals Division.--Any adverse 
determination of a county committee under subsection (b) may be 
appealed to the National Appeals Division established under 
subtitle H of the Department of Agriculture Reorganization Act 
of 1994 (7 U.S.C. 6991 et seq.).
    (d) Use of Financial Institutions.--The Secretary may use a 
financial institution to manage assets, make contract payments, 
and otherwise carry out this title.
    (e) Payment to Financial Institutions.--The Secretary shall 
permit a tobacco quota holder or producer of quota tobacco 
entitled to contract payments to assign to a financial 
institution the right to receive the contract payments. Upon 
receiving notification of the assignment, the Secretary shall 
make subsequent contract payments for the tobacco quota holder 
or producer of quota tobacco directly to the financial 
institution designated by the tobacco quota holder or producer 
of quota tobacco. The Secretary shall make information 
available to tobacco quota holders and producers of quota 
tobacco regarding their ability to elect to have the Secretary 
make payments directly to a financial institution under this 
subsection so that they may obtain a lump sum or other payment.

SEC. 625. USE OF ASSESSMENTS AS SOURCE OF FUNDS FOR PAYMENTS.

    (a) Definitions.--In this section:
            (1) Base period.--The term ``base period'' means 
        the one-year period ending the June 30 before the 
        beginning of a fiscal year.
            (2) Gross domestic volume.--The term ``gross 
        domestic volume'' means the volume of tobacco 
        products--
                    (A) removed (as defined by section 5702 of 
                the Internal Revenue Code of 1986); and
                    (B) not exempt from tax under chapter 52 of 
                the Internal Revenue Code of 1986 at the time 
                of their removal under that chapter or the 
                Harmonized Tariff Schedule of the United States 
                (19 U.S.C. 1202).
            (3) Market share.--The term ``market share'' means 
        the share of each manufacturer or importer of a class 
        of tobacco product (expressed as a decimal to the 
        fourth place) of the total volume of domestic sales of 
        the class of tobacco product during the base period for 
        a fiscal year for an assessment under this section.
    (b) Quarterly Assessments.--
            (1) Imposition of assessment.--The Secretary, 
        acting through the Commodity Credit Corporation, shall 
        impose quarterly assessments during each of fiscal 
        years 2005 through 2014, calculated in accordance with 
        this section, on each tobacco product manufacturer and 
        tobacco product importer that sells tobacco products in 
        domestic commerce in the United States during that 
        fiscal year.
            (2) Amounts.--Beginning with the calendar quarter 
        ending on December 31 of each of fiscal years 2005 
        through 2014, the assessment payments over each four-
        calendar quarter period shall be sufficient to cover--
                    (A) the contract payments made under 
                sections 622 and 623 during that period; and
                    (B) other expenditures from the Tobacco 
                Trust Fund made during the base quarter periods 
                corresponding to the four calendar quarters of 
                that period.
            (3) Deposit.--Assessments collected under this 
        section shall be deposited in the Tobacco Trust Fund.
    (c) Assessments for Classes of Tobacco Products.--
            (1) Initial allocation.--The percentage of the 
        total amount required by subsection (b) to be assessed 
        against, and paid by, the manufacturers and importers 
        of each class of tobacco product in fiscal year 2005 
        shall be as follows:
                    (A) For cigarette manufacturers and 
                importers, 96.331 percent.
                    (B) For cigar manufacturers and importers, 
                2.783 percent.
                    (C) For snuff manufacturers and importers, 
                0.539 percent.
                    (D) For roll-your-own tobacco manufacturers 
                and importers, 0.171 percent.
                    (E) For chewing tobacco manufacturers and 
                importers, 0.111 percent.
                    (F) For pipe tobacco manufacturers and 
                importers, 0.066 percent.
            (2) Subsequent allocations.--For subsequent fiscal 
        years, the Secretary shall periodically adjust the 
        percentage of the total amount required under 
        subsection (b) to be assessed against, and paid by, the 
        manufacturers and importers of each class of tobacco 
        product specified in paragraph (1) to reflect changes 
        in the share of gross domestic volume held by that 
        class of tobacco product.
            (3) Effect of insufficient amounts.--If the 
        Secretary determines that the assessment imposed under 
        subsection (b) will result in insufficient amounts to 
        carry out this subtitle during a fiscal year, the 
        Secretary shall assess such additional amounts as the 
        Secretary determines to be necessary to carry out this 
        subtitle during that fiscal year. The additional amount 
        shall be allocated to manufacturers and importers of 
        each class of tobacco product specified in paragraph 
        (1) in the same manner and based on the same 
        percentages applicable under paragraph (1) or (2) for 
        that fiscal year.
    (d) Notification and Timing of Assessments.--
            (1) Notification of assessments.--The Secretary 
        shall provide each manufacturer or importer subject to 
        an assessment under subsection (b) with written notice 
        setting forth the amount to be assessed against the 
        manufacturer or importer for each quarterly payment 
        period. The notice for a quarterly period shall be 
        provided not later than 30 days before the date payment 
        is due under paragraph (3).
            (2) Content.--The notice shall include the 
        following information with respect to the quarterly 
        period used by the Secretary in calculating the amount:
                    (A) The total combined assessment for all 
                manufacturers and importers of tobacco 
                products.
                    (B) The total assessment with respect to 
                the class of tobacco products manufactured or 
                imported by the manufacturer or importer.
                    (C) Any adjustments to the percentage 
                allocations among the classes of tobacco 
                products made pursuant to paragraph (2) or (3) 
                of subsection (c).
                    (D) The volume of gross sales of the 
                applicable class of tobacco product treated as 
                made by the manufacturer or importer for 
                purposes of calculating the manufacturer's or 
                importer's market share under subsection (f).
                    (E) The total volume of gross sales of the 
                applicable class of tobacco product that the 
                Secretary treated as made by all manufacturers 
                and importers for purposes of calculating the 
                manufacturer's or importer's market share under 
                subsection (f).
                    (F) The manufacturer's or importer's market 
                share of the applicable class of tobacco 
                product, as determined by the Secretary under 
                subsection (f).
                    (G) The market share, as determined by the 
                Secretary under subsection (f), of each other 
                manufacturer and importer, for each applicable 
                class of tobacco product.
            (3) Timing of assessment payments.--
                    (A) Collection date.--Assessments shall be 
                collected at the end of each calendar year 
                quarter, except that the Secretary shall ensure 
                that the final assessment due under this 
                section is collected not later than September 
                30, 2014.
                    (B) Base period quarter.--The assessment 
                for a calendar year quarter shall correspond to 
                the base period quarter that ended at the end 
                of the preceding calendar year quarter.
    (e) Allocation of Assessment Within Each Class of Tobacco 
Product.--
            (1) Pro rata basis.--The assessment for each class 
        of tobacco product specified in subsection (c)(1) shall 
        be allocated on a pro rata basis among manufacturers 
        and importers based on each manufacturer's or 
        importer's share of gross domestic volume.
            (2) Limitation.--No manufacturer or importer shall 
        be required to pay an assessment that is based on a 
        share that is in excess of the manufacturer's or 
        importer's share of domestic volume.
    (f) Allocation of Total Assessments by Market Share.--The 
amount of the assessment for each class of tobacco product 
specified in subsection (c)(1) to be paid by each manufacturer 
or importer of that class of tobacco product shall be 
determined for each quarterly payment period by multiplying--
            (1) the market share of the manufacturer or 
        importer, as calculated with respect to that payment 
        period, of the class of tobacco product; by
            (2) the total amount of the assessment for that 
        quarterly payment period under subsection (c), for the 
        class of tobacco product.
    (g) Determination of Volume of Domestic Sales.--
            (1) In general.--The calculation of the volume of 
        domestic sales of a class of tobacco product by a 
        manufacturer or importer, and by all manufacturers and 
        importers as a group, shall be made by the Secretary 
        based on information provided by the manufacturers and 
        importers pursuant to subsection (h), as well as any 
        other relevant information provided to or obtained by 
        the Secretary.
            (2) Gross domestic volume.--The volume of domestic 
        sales shall be calculated based on gross domestic 
        volume.
            (3) Measurement.--For purposes of the calculations 
        under this subsection and the certifications under 
        subsection (h) by the Secretary, the volumes of 
        domestic sales shall be measured by--
                    (A) in the case of cigarettes and cigars, 
                the number of cigarettes and cigars; and
                    (B) in the case of the other classes of 
                tobacco products specified in subsection 
                (c)(1), in terms of number of pounds, or 
                fraction thereof, of those products.
    (h) Measurement of Volume of Domestic Sales.--
            (1) Submission of information.--Each manufacturer 
        and importer of tobacco products shall submit to the 
        Secretary a certified copy of each of the returns or 
        forms described by paragraph (2) that are required to 
        be filed with a Federal agency on the same date that 
        those returns or forms are filed, or required to be 
        filed, with the agency.
            (2) Returns and forms.--The returns and forms 
        described by this paragraph are those returns and forms 
        that relate to--
                    (A) the removal of tobacco products into 
                domestic commerce (as defined by section 5702 
                of the Internal Revenue Code of 1986); and
                    (B) the payment of the taxes imposed under 
                charter 52 of the Internal Revenue Code of 
                1986, including AFT Form 5000.24 and United 
                States Customs Form 7501 under currently 
                applicable regulations.
            (3) Effect of failure to provide required 
        information.--Any person that knowingly fails to 
        provide information required under this subsection or 
        that provides false information under this subsection 
        shall be subject to the penalties described in section 
        1003 of title 18, United States Code. The Secretary may 
        also assess against the person a civil penalty in an 
        amount not to exceed two percent of the value of the 
        kind of tobacco products manufactured or imported by 
        the person during the fiscal year in which the 
        violation occurred, as determined by the Secretary.
    (i) Challenge to Assessment.--
            (1) Appeal to secretary.--A manufacturer or 
        importer subject to this section may contest an 
        assessment imposed on the manufacturer or importer 
        under this section by notifying the Secretary, not 
        later than 30 business days after receiving the 
        assessment notification required by subsection (d), 
        that the manufacturer or importer intends to contest 
        the assessment.
            (2) Information.--Not later than 180 days after the 
        date of the enactment of this title, the Secretary 
        shall establish by regulation a procedure under which a 
        manufacturer or importer contesting an assessment under 
        this subsection may present information to the 
        Secretary to demonstrate that the assessment applicable 
        to the manufacturer or importer is incorrect. In 
        challenging the assessment, the manufacturer or 
        importer may use any information that is available, 
        including third party data on industry or individual 
        company sales volumes.
            (3) Revision.--If a manufacturer or importer 
        establishes that the initial determination of the 
        amount of an assessment is incorrect, the Secretary 
        shall revise the amount of the assessment so that the 
        manufacturer or importer is required to pay only the 
        amount correctly determined.
            (4) Time for review.--Not later than 30 days after 
        receiving notice from a manufacturer or importer under 
        paragraph (1), the Secretary shall--
                    (A) decide whether the information provided 
                to the Secretary under paragraph (2), and any 
                other information that the Secretary determines 
                is appropriate, is sufficient to establish that 
                the original assessment was incorrect; and
                    (B) make any revisions necessary to ensure 
                that each manufacturer and importer pays only 
                its correct pro rata share of total gross 
                domestic volume from all sources.
            (5) Immediate payment of undisputed amounts.--The 
        regulations promulgated by the Secretary under 
        paragraph (2) shall provide for the immediate payment 
        by a manufacturer or importer challenging an assessment 
        of that portion of the assessment that is not in 
        dispute. The manufacturer and importer may place into 
        escrow, in accordance with such regulations, only the 
        portion of the assessment being challenged in good 
        faith pending final determination of the claim.
    (j) Judicial Review.--
            (1) In general.--Any manufacturer or importer 
        aggrieved by a determination of the Secretary with 
        respect to the amount of any assessment may seek review 
        of the determination in the United States District 
        Court for the District of Columbia or for the district 
        in which the manufacturer or importer resides or has 
        its principal place of business at any time following 
        exhaustion of the administrative remedies available 
        under subsection (i).
            (2) Time limits.--Administrative remedies shall be 
        deemed exhausted if no decision by the Secretary is 
        made within the time limits established under 
        subsection (i)(4).
            (3) Excessive assessments.--The court shall 
        restrain collection of the excessive portion of any 
        assessment or order a refund of excessive assessments 
        already paid, along with interest calculated at the 
        rate prescribed in section 3717 of title 31, United 
        States Code, if it finds that the Secretary's 
        determination is not supported by a preponderance of 
        the information available to the Secretary.
    (k) Termination Date.--The authority provided by this 
section to impose assessments terminates on September 30, 2014.

SEC. 626. TOBACCO TRUST FUND.

    (a) Establishment.--There is established in the Commodity 
Credit Corporation a revolving trust fund, to be known as the 
``Tobacco Trust Fund'', which shall be used in carrying out 
this subtitle. The Tobacco Trust Fund shall consist of the 
following:
            (1) Assessments collected under section 625.
            (2) Such amounts as are necessary from the 
        Commodity Credit Corporation.
            (3) Any interest earned on investment of amounts in 
        the Tobacco Trust Fund under subsection (c).
    (b) Expenditures.--
            (1) Authorized expenditures.--Subject to paragraph 
        (2), and notwithstanding any other provision of law, 
        the Secretary shall use amounts in the Tobacco Trust 
        Fund, in such amounts as the Secretary determines are 
        necessary--
                    (A) to make payments under sections 622 and 
                623;
                    (B) to provide reimbursement under section 
                641(c);
                    (C) to reimburse the Commodity Credit 
                Corporation for costs incurred by the Commodity 
                Credit Corporation under paragraph (2); and
                    (D) to make payments to financial 
                institutions to satisfy contractual obligations 
                under section 622 or 623.
            (2) Expenditures by commodity credit corporation.--
        Notwithstanding any other provision of law, the 
        Secretary shall use the funds, facilities, and 
        authorities of the Commodity Credit Corporation to make 
        payments described in paragraph (1). Not later than 
        January 1, 2015, the Secretary shall use amounts in the 
        Tobacco Trust Fund to fully reimburse, with interest, 
        the Commodity Credit Corporation for all funds of the 
        Commodity Credit Corporation expended under the 
        authority of this paragraph. Administrative costs 
        incurred by the Secretary or the Commodity Credit 
        Corporation to carry out this title may not be paid 
        using amounts in the Tobacco Trust Fund.
    (c) Investment of Amounts.--
            (1) In general.--The Commodity Credit Corporation 
        shall invest such portion of the amounts in the Tobacco 
        Trust Fund as are not, in the judgment of the Commodity 
        Credit Corporation, required to meet current 
        expenditures.
            (2) Interest-bearing obligations.--Investments may 
        be made only in interest-bearing obligations of the 
        United States.
            (3) Acquisition of obligations.--For the purpose of 
        investments under paragraph (1), obligations may be 
        acquired--
                    (A) on original issue at the issue price; 
                or
                    (B) by purchase of outstanding obligations 
                at the market price.
            (4) Sale of obligations.--Any obligation acquired 
        by the Tobacco Trust Fund may be sold by the Commodity 
        Credit Corporation at the market price.
            (5) Credits to fund.--The interest on, and the 
        proceeds from the sale or redemption of, any 
        obligations held in the Tobacco Trust Fund shall be 
        credited to and form a part of the Fund.

SEC. 627. LIMITATION ON TOTAL EXPENDITURES.

    The total amount expended by the Secretary from the Tobacco 
Trust Fund to make payments under sections 622 and 623 and for 
the other authorized purposes of the Fund shall not exceed 
$10,140,000,000.

               Subtitle C--Implementation and Transition

SEC. 641. TREATMENT OF TOBACCO LOAN POOL STOCKS AND OUTSTANDING LOAN 
                    COSTS.

    (a) Disposal of Stocks.--To provide for the orderly 
disposition of quota tobacco held by an association that has 
entered into a loan agreement with the Commodity Credit 
Corporation under section 106A or 106B of the Agricultural Act 
of 1949 (7 U.S.C. 1445-1, 1445-2) (referred to in this section 
as an ``association''), loan pool stocks for each kind of 
tobacco held by the association shall be disposed of in 
accordance with this section.
    (b) Disposal by Associations.--For each kind of tobacco 
held by an association, the association shall be responsible 
for the disposal of a specific quantity of the loan pool stocks 
for that kind of tobacco held by the association. The quantity 
transferred to the association for disposal shall be equal to 
the quantity determined by dividing--
            (1) the amount of funds held by the association in 
        the No Net Cost Tobacco Fund and the No Net Cost 
        Tobacco Account established under sections 106A and 
        106B of the Agricultural Act of 1949 (7 U.S.C. 1445-1, 
        1445-2) for the kind of tobacco; by
            (2) the average list price per pound for the kind 
        of tobacco, as determined by the Secretary.
    (c) Disposal of Remainder by Commodity Credit 
Corporation.--
            (1) Disposal.--Any loan pool stocks of a kind of 
        tobacco of an association that are not transferred to 
        the association under subsection (b) for disposal shall 
        be disposed of by Commodity Credit Corporation in a 
        manner determined by the Secretary.
            (2) Reimbursement.--As required by section 
        626(b)(1)(B), the Secretary shall transfer from the 
        Tobacco Trust Fund to the No Net Cost Tobacco Fund or 
        the No Net Cost Tobacco Account of an association 
        established under section 106A or 106B of the 
        Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) such 
        amounts as the Secretary determines will be adequate to 
        reimburse the Commodity Credit Corporation for any net 
        losses that the Corporation may sustain under its loan 
        agreements with the association.
    (d) Transfer of Remaining No Net Cost Funds.--Any funds in 
the No Net Cost Tobacco Fund or the No Net Cost Tobacco Account 
of an association established under sections 106A and 106B of 
the Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) that 
remain after the application of subsections (b) and (c) shall 
be transferred to the association for distribution to producers 
of quota tobacco in accordance with a plan approved by the 
Secretary.

SEC. 642. REGULATIONS.

    (a) In General.--The Secretary may promulgate such 
regulations as are necessary to implement this title and the 
amendments made by this title.
    (b) Procedure.--The promulgation of the regulations and 
administration of this title and the amendments made by this 
title shall be made without regard to--
            (1) the notice and comment provisions of section 
        553 of title 5, United States Code;
            (2) the Statement of Policy of the Secretary of 
        Agriculture effective July 24, 1971 (36 Fed. Reg. 
        13804), relating to notices of proposed rulemaking and 
        public participation in rulemaking; and
            (3) chapter 35 of title 44, United States Code 
        (commonly known as the ``Paperwork Reduction Act'').
    (c) Congressional Review of Agency Rulemaking.--In carrying 
out this section, the Secretary shall use the authority 
provided under section 808 of title 5, United States Code.

SEC. 643. EFFECTIVE DATE.

    This title and the amendments made by this title shall 
apply to the 2005 and subsequent crops of each kind of tobacco.

                  TITLE VII--MISCELLANEOUS PROVISIONS

SEC. 701. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED GREEN 
                    BUILDING AND SUSTAINABLE DESIGN PROJECTS.

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

SEC. 702. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF CERTAIN 
                    BROWNFIELD SITES FROM UNRELATED BUSINESS TAXABLE 
                    INCOME.

    (a) In General.--Subsection (b) of section 512 (relating to 
unrelated business taxable income) is amended by adding at the 
end the following new paragraph:
            ``(18) Treatment of gain or loss on sale or 
        exchange of certain brownfield sites.--
                    ``(A) In general.--Notwithstanding 
                paragraph (5)(B), there shall be excluded any 
                gain or loss from the qualified sale, exchange, 
                or other disposition of any qualifying 
                brownfield property by an eligible taxpayer.
                    ``(B) Eligible taxpayer.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term 
                        `eligible taxpayer' means, with respect 
                        to a property, any organization exempt 
                        from tax under section 501(a) which--
                                    ``(I) acquires from an 
                                unrelated person a qualifying 
                                brownfield property, and
                                    ``(II) pays or incurs 
                                eligible remediation 
                                expenditures with respect to 
                                such property in an amount 
                                which exceeds the greater of 
                                $550,000 or 12 percent of the 
                                fair market value of the 
                                property at the time such 
                                property was acquired by the 
                                eligible taxpayer, determined 
                                as if there was not a presence 
                                of a hazardous substance, 
                                pollutant, or contaminant on 
                                the property which is 
                                complicating the expansion, 
                                redevelopment, or reuse of the 
                                property.
                            ``(ii) Exception.--Such term shall 
                        not include any organization which is--
                                    ``(I) potentially liable 
                                under section 107 of the 
                                Comprehensive Environmental 
                                Response, Compensation, and 
                                Liability Act of 1980 with 
                                respect to the qualifying 
                                brownfield property,
                                    ``(II) affiliated with any 
                                other person which is so 
                                potentially liable through any 
                                direct or indirect familial 
                                relationship or any 
                                contractual, corporate, or 
                                financial relationship (other 
                                than a contractual, corporate, 
                                or financial relationship which 
                                is created by the instruments 
                                by which title to any 
                                qualifying brownfield property 
                                is conveyed or financed or by a 
                                contract of sale of goods or 
                                services), or
                                    ``(III) the result of a 
                                reorganization of a business 
                                entity which was so potentially 
                                liable.
                    ``(C) Qualifying brownfield property.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term 
                        `qualifying brownfield property' means 
                        any real property which is certified, 
                        before the taxpayer incurs any eligible 
                        remediation expenditures (other than to 
                        obtain a Phase I environmental site 
                        assessment), by an appropriate State 
                        agency (within the meaning of section 
                        198(c)(4)) in the State in which such 
                        property is located as a brownfield 
                        site within the meaning of section 
                        101(39) of the Comprehensive 
                        Environmental Response, Compensation, 
                        and Liability Act of 1980 (as in effect 
                        on the date of the enactment of this 
                        paragraph).
                            ``(ii) Request for certification.--
                        Any request by an eligible taxpayer for 
                        a certification described in clause (i) 
                        shall include a sworn statement by the 
                        eligible taxpayer and supporting 
                        documentation of the presence of a 
                        hazardous substance, pollutant, or 
                        contaminant on the property which is 
                        complicating the expansion, 
                        redevelopment, or reuse of the property 
                        given the property's reasonably 
                        anticipated future land uses or 
                        capacity for uses of the property 
                        (including a Phase I environmental site 
                        assessment and, if applicable, evidence 
                        of the property's presence on a local, 
                        State, or Federal list of brownfields 
                        or contaminated property) and other 
                        environmental assessments prepared or 
                        obtained by the taxpayer.
                    ``(D) Qualified sale, exchange, or other 
                disposition.--For purposes of this paragraph--
                            ``(i) In general.--A sale, 
                        exchange, or other disposition of 
                        property shall be considered as 
                        qualified if--
                                    ``(I) such property is 
                                transferred by the eligible 
                                taxpayer to an unrelated 
                                person, and
                                    ``(II) within 1 year of 
                                such transfer the eligible 
                                taxpayer has received a 
                                certification from the 
                                Environmental Protection Agency 
                                or an appropriate State agency 
                                (within the meaning of section 
                                198(c)(4)) in the State in 
                                which such property is located 
                                that, as a result of the 
                                eligible taxpayer's remediation 
                                actions, such property would 
                                not be treated as a qualifying 
                                brownfield property in the 
                                hands of the transferee.
                        For purposes of subclause (II), before 
                        issuing such certification, the 
                        Environmental Protection Agency or 
                        appropriate State agency shall respond 
                        to comments received pursuant to clause 
                        (ii)(V) in the same form and manner as 
                        required under section 117(b) of the 
                        Comprehensive Environmental Response, 
                        Compensation, and Liability Act of 1980 
                        (as in effect on the date of the 
                        enactment of this paragraph).
                            ``(ii) Request for certification.--
                        Any request by an eligible taxpayer for 
                        a certification described in clause (i) 
                        shall be made not later than the date 
                        of the transfer and shall include a 
                        sworn statement by the eligible 
                        taxpayer certifying the following:
                                    ``(I) Remedial actions 
                                which comply with all 
                                applicable or relevant and 
                                appropriate requirements 
                                (consistent with section 121(d) 
                                of the Comprehensive 
                                Environmental Response, 
                                Compensation, and Liability Act 
                                of 1980) have been 
                                substantially completed, such 
                                that there are no hazardous 
                                substances, pollutants, or 
                                contaminants which complicate 
                                the expansion, redevelopment, 
                                or reuse of the property given 
                                the property's reasonably 
                                anticipated future land uses or 
                                capacity for uses of the 
                                property.
                                    ``(II) The reasonably 
                                anticipated future land uses or 
                                capacity for uses of the 
                                property are more economically 
                                productive or environmentally 
                                beneficial than the uses of the 
                                property in existence on the 
                                date of the certification 
                                described in subparagraph 
                                (C)(i). For purposes of the 
                                preceding sentence, use of 
                                property as a landfill or other 
                                hazardous waste facility shall 
                                not be considered more 
                                economically productive or 
                                environmentally beneficial.
                                    ``(III) A remediation plan 
                                has been implemented to bring 
                                the property into compliance 
                                with all applicable local, 
                                State, and Federal 
                                environmental laws, 
                                regulations, and standards and 
                                to ensure that the remediation 
                                protects human health and the 
                                environment.
                                    ``(IV) The remediation plan 
                                described in subclause (III), 
                                including any physical 
                                improvements required to 
                                remediate the property, is 
                                either complete or 
                                substantially complete, and, if 
                                substantially complete, 
                                sufficient monitoring, funding, 
                                institutional controls, and 
                                financial assurances have been 
                                put in place to ensure the 
                                complete remediation of the 
                                property in accordance with the 
                                remediation plan as soon as is 
                                reasonably practicable after 
                                the sale, exchange, or other 
                                disposition of such property.
                                    ``(V) Public notice and the 
                                opportunity for comment on the 
                                request for certification was 
                                completed before the date of 
                                such request. Such notice and 
                                opportunity for comment shall 
                                be in the same form and manner 
                                as required for public 
                                participation required under 
                                section 117(a) of the 
                                Comprehensive Environmental 
                                Response, Compensation, and 
                                Liability Act of 1980 (as in 
                                effect on the date of the 
                                enactment of this paragraph). 
                                For purposes of this subclause, 
                                public notice shall include, at 
                                a minimum, publication in a 
                                major local newspaper of 
                                general circulation.
                            ``(iii) Attachment to tax 
                        returns.--A copy of each of the 
                        requests for certification described in 
                        clause (ii) of subparagraph (C) and 
                        this subparagraph shall be included in 
                        the tax return of the eligible taxpayer 
                        (and, where applicable, of the 
                        qualifying partnership) for the taxable 
                        year during which the transfer occurs.
                            ``(iv) Substantial completion.--For 
                        purposes of this subparagraph, a 
                        remedial action is substantially 
                        complete when any necessary physical 
                        construction is complete, all immediate 
                        threats have been eliminated, and all 
                        long-term threats are under control.
                    ``(E) Eligible remediation expenditures.--
                For purposes of this paragraph--
                            ``(i) In general.--The term 
                        `eligible remediation expenditures' 
                        means, with respect to any qualifying 
                        brownfield property, any amount paid or 
                        incurred by the eligible taxpayer to an 
                        unrelated third person to obtain a 
                        Phase I environmental site assessment 
                        of the property, and any amount so paid 
                        or incurred after the date of the 
                        certification described in subparagraph 
                        (C)(i) for goods and services necessary 
                        to obtain a certification described in 
                        subparagraph (D)(i) with respect to 
                        such property, including expenditures--
                                    ``(I) to manage, remove, 
                                control, contain, abate, or 
                                otherwise remediate a hazardous 
                                substance, pollutant, or 
                                contaminant on the property,
                                    ``(II) to obtain a Phase II 
                                environmental site assessment 
                                of the property, including any 
                                expenditure to monitor, sample, 
                                study, assess, or otherwise 
                                evaluate the release, threat of 
                                release, or presence of a 
                                hazardous substance, pollutant, 
                                or contaminant on the property,
                                    ``(III) to obtain 
                                environmental regulatory 
                                certifications and approvals 
                                required to manage the 
                                remediation and monitoring of 
                                the hazardous substance, 
                                pollutant, or contaminant on 
                                the property, and
                                    ``(IV) regardless of 
                                whether it is necessary to 
                                obtain a certification 
                                described in subparagraph 
                                (D)(i)(II), to obtain 
                                remediation cost-cap or stop-
                                loss coverage, re-opener or 
                                regulatory action coverage, or 
                                similar coverage under 
                                environmental insurance 
                                policies, or financial 
                                guarantees required to manage 
                                such remediation and 
                                monitoring.
                            ``(ii) Exceptions.--Such term shall 
                        not include--
                                    ``(I) any portion of the 
                                purchase price paid or incurred 
                                by the eligible taxpayer to 
                                acquire the qualifying 
                                brownfield property,
                                    ``(II) environmental 
                                insurance costs paid or 
                                incurred to obtain legal 
                                defense coverage, owner/
                                operator liability coverage, 
                                lender liability coverage, 
                                professional liability 
                                coverage, or similar types of 
                                coverage,
                                    ``(III) any amount paid or 
                                incurred to the extent such 
                                amount is reimbursed, funded, 
                                or otherwise subsidized by 
                                grants provided by the United 
                                States, a State, or a political 
                                subdivision of a State for use 
                                in connection with the 
                                property, proceeds of an issue 
                                of State or local government 
                                obligations used to provide 
                                financing for the property the 
                                interest of which is exempt 
                                from tax under section 103, or 
                                subsidized financing provided 
                                (directly or indirectly) under 
                                a Federal, State, or local 
                                program provided in connection 
                                with the property, or
                                    ``(IV) any expenditure paid 
                                or incurred before the date of 
                                the enactment of this 
                                paragraph.
                        For purposes of subclause (III), the 
                        Secretary may issue guidance regarding 
                        the treatment of government-provided 
                        funds for purposes of determining 
                        eligible remediation expenditures.
                    ``(F) Determination of gain or loss.--For 
                purposes of this paragraph, the determination 
                of gain or loss shall not include an amount 
                treated as gain which is ordinary income with 
                respect to section 1245 or section 1250 
                property, including amounts deducted as section 
                198 expenses which are subject to the recapture 
                rules of section 198(e), if the taxpayer had 
                deducted such amounts in the computation of its 
                unrelated business taxable income.
                    ``(G) Special rules for partnerships.--
                            ``(i) In general.--In the case of 
                        an eligible taxpayer which is a partner 
                        of a qualifying partnership which 
                        acquires, remediates, and sells, 
                        exchanges, or otherwise disposes of a 
                        qualifying brownfield property, this 
                        paragraph shall apply to the eligible 
                        taxpayer's distributive share of the 
                        qualifying partnership's gain or loss 
                        from the sale, exchange, or other 
                        disposition of such property.
                            ``(ii) Qualifying partnership.--The 
                        term `qualifying partnership' means a 
                        partnership which--
                                    ``(I) has a partnership 
                                agreement which satisfies the 
                                requirements of section 
                                514(c)(9)(B)(vi) at all times 
                                beginning on the date of the 
                                first certification received by 
                                the partnership under 
                                subparagraph (C)(i),
                                    ``(II) satisfies the 
                                requirements of subparagraphs 
                                (B)(i), (C), (D), and (E), if 
                                `qualified partnership' is 
                                substituted for `eligible 
                                taxpayer' each place it appears 
                                therein (except subparagraph 
                                (D)(iii)), and
                                    ``(III) is not an 
                                organization which would be 
                                prevented from constituting an 
                                eligible taxpayer by reason of 
                                subparagraph (B)(ii).
                            ``(iii) Requirement that tax-exempt 
                        partner be a partner since first 
                        certification.--This paragraph shall 
                        apply with respect to any eligible 
                        taxpayer which is a partner of a 
                        partnership which acquires, remediates, 
                        and sells, exchanges, or otherwise 
                        disposes of a qualifying brownfield 
                        property only if such eligible taxpayer 
                        was a partner of the qualifying 
                        partnership at all times beginning on 
                        the date of the first certification 
                        received by the partnership under 
                        subparagraph (C)(i) and ending on the 
                        date of the sale, exchange, or other 
                        disposition of the property by the 
                        partnership.
                            ``(iv) Regulations.--The Secretary 
                        shall prescribe such regulations as are 
                        necessary to prevent abuse of the 
                        requirements of this subparagraph, 
                        including abuse through--
                                    ``(I) the use of special 
                                allocations of gains or losses, 
                                or
                                    ``(II) changes in ownership 
                                of partnership interests held 
                                by eligible taxpayers.
                    ``(H) Special rules for multiple 
                properties.--
                            ``(i) In general.--An eligible 
                        taxpayer or a qualifying partnership of 
                        which the eligible taxpayer is a 
                        partner may make a 1-time election to 
                        apply this paragraph to more than 1 
                        qualifying brownfield property by 
                        averaging the eligible remediation 
                        expenditures for all such properties 
                        acquired during the election period. If 
                        the eligible taxpayer or qualifying 
                        partnership makes such an election, the 
                        election shall apply to all qualified 
                        sales, exchanges, or other dispositions 
                        of qualifying brownfield properties the 
                        acquisition and transfer of which occur 
                        during the period for which the 
                        election remains in effect.
                            ``(ii) Election.--An election under 
                        clause (i) shall be made with the 
                        eligible taxpayer's or qualifying 
                        partnership's timely filed tax return 
                        (including extensions) for the first 
                        taxable year for which the taxpayer or 
                        qualifying partnership intends to have 
                        the election apply. An election under 
                        clause (i) is effective for the 
                        period--
                                    ``(I) beginning on the date 
                                which is the first day of the 
                                taxable year of the return in 
                                which the election is included 
                                or a later day in such taxable 
                                year selected by the eligible 
                                taxpayer or qualifying 
                                partnership, and
                                    ``(II) ending on the date 
                                which is the earliest of a date 
                                of revocation selected by the 
                                eligible taxpayer or qualifying 
                                partnership, the date which is 
                                8 years after the date 
                                described in subclause (I), or, 
                                in the case of an election by a 
                                qualifying partnership of which 
                                the eligible taxpayer is a 
                                partner, the date of the 
                                termination of the qualifying 
                                partnership.
                            ``(iii) Revocation.--An eligible 
                        taxpayer or qualifying partnership may 
                        revoke an election under clause (i)(II) 
                        by filing a statement of revocation 
                        with a timely filed tax return 
                        (including extensions). A revocation is 
                        effective as of the first day of the 
                        taxable year of the return in which the 
                        revocation is included or a later day 
                        in such taxable year selected by the 
                        eligible taxpayer or qualifying 
                        partnership. Once an eligible taxpayer 
                        or qualifying partnership revokes the 
                        election, the eligible taxpayer or 
                        qualifying partnership is ineligible to 
                        make another election under clause (i) 
                        with respect to any qualifying 
                        brownfield property subject to the 
                        revoked election.
                    ``(I) Recapture.--If an eligible taxpayer 
                excludes gain or loss from a sale, exchange, or 
                other disposition of property to which an 
                election under subparagraph (H) applies, and 
                such property fails to satisfy the requirements 
                of this paragraph, the unrelated business 
                taxable income of the eligible taxpayer for the 
                taxable year in which such failure occurs shall 
                be determined by including any previously 
                excluded gain or loss from such sale, exchange, 
                or other disposition allocable to such 
                taxpayer, and interest shall be determined at 
                the overpayment rate established under section 
                6621 on any resulting tax for the period 
                beginning with the due date of the return for 
                the taxable year during which such sale, 
                exchange, or other disposition occurred, and 
                ending on the date of payment of the tax.
                    ``(J) Related persons.--For purposes of 
                this paragraph, a person shall be treated as 
                related to another person if--
                            ``(i) such person bears a 
                        relationship to such other person 
                        described in section 267(b) (determined 
                        without regard to paragraph (9) 
                        thereof), or section 707(b)(1), 
                        determined by substituting `25 percent' 
                        for `50 percent' each place it appears 
                        therein, and
                            ``(ii) in the case such other 
                        person is a nonprofit organization, if 
                        such person controls directly or 
                        indirectly more than 25 percent of the 
                        governing body of such organization.
                    ``(K) Termination.--Except for purposes of 
                determining the average eligible remediation 
                expenditures for properties acquired during the 
                election period under subparagraph (H), this 
                paragraph shall not apply to any property 
                acquired by the eligible taxpayer or qualifying 
                partnership after December 31, 2009.''.
    (b) Exclusion From Definition of Debt-Financed Property.--
Section 514(b)(1) (defining debt-financed property) is amended 
by striking ``or'' at the end of subparagraph (C), by striking 
the period at the end of subparagraph (D) and inserting ``; 
or'', and by inserting after subparagraph (D) the following new 
subparagraph:
                    ``(E) any property the gain or loss from 
                the sale, exchange, or other disposition of 
                which would be excluded by reason of the 
                provisions of section 512(b)(18) in computing 
                the gross income of any unrelated trade or 
                business.''.
    (c) Savings Clause.--Nothing in the amendments made by this 
section shall affect any duty, liability, or other requirement 
imposed under any other Federal or State law. Notwithstanding 
section 128(b) of the Comprehensive Environmental Response, 
Compensation, and Liability Act of 1980, a certification 
provided by the Environmental Protection Agency or an 
appropriate State agency (within the meaning of section 
198(c)(4) of the Internal Revenue Code of 1986) shall not 
affect the liability of any person under section 107(a) of such 
Act.
    (d) Effective Date.--The amendments made by this section 
shall apply to any gain or loss on the sale, exchange, or other 
disposition of any property acquired by the taxpayer after 
December 31, 2004.

SEC. 703. CIVIL RIGHTS TAX RELIEF.

    (a) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 (defining 
adjusted gross income) is amended by inserting after paragraph 
(18) the following new item:
            ``(19) Costs involving discrimination suits, etc.--
        Any deduction allowable under this chapter for attorney 
        fees and court costs paid by, or on behalf of, the 
        taxpayer in connection with any action involving a 
        claim of unlawful discrimination (as defined in 
        subsection (e)) or a claim of a violation of subchapter 
        III of chapter 37 of title 31, United States Code or a 
        claim made under section 1862(b)(3)(A) of the Social 
        Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding 
        sentence shall not apply to any deduction in excess of 
        the amount includible in the taxpayer's gross income 
        for the taxable year on account of a judgment or 
        settlement (whether by suit or agreement and whether as 
        lump sum or periodic payments) resulting from such 
        claim.''.
    (b) Unlawful Discrimination Defined.--Section 62 is amended 
by adding at the end the following new subsection:
    ``(e) Unlawful Discrimination Defined.--For purposes of 
subsection (a)(19), the term `unlawful discrimination' means an 
act that is unlawful under any of the following:
            ``(1) Section 302 of the Civil Rights Act of 1991 
        (2 U.S.C. 1202).
            ``(2) Section 201, 202, 203, 204, 205, 206, or 207 
        of the Congressional Accountability Act of 1995 (2 
        U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or 1317).
            ``(3) The National Labor Relations Act (29 U.S.C. 
        151 et seq.).
            ``(4) The Fair Labor Standards Act of 1938 (29 
        U.S.C. 201 et seq.).
            ``(5) Section 4 or 15 of the Age Discrimination in 
        Employment Act of 1967 (29 U.S.C. 623 or 633a).
            ``(6) Section 501 or 504 of the Rehabilitation Act 
        of 1973 (29 U.S.C. 791 or 794).
            ``(7) Section 510 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1140).
            ``(8) Title IX of the Education Amendments of 1972 
        (20 U.S.C. 1681 et seq.).
            ``(9) The Employee Polygraph Protection Act of 1988 
        (29 U.S.C. 2001 et seq.).
            ``(10) The Worker Adjustment and Retraining 
        Notification Act (29 U.S.C. 2102 et seq.).
            ``(11) Section 105 of the Family and Medical Leave 
        Act of 1993 (29 U.S.C. 2615).
            ``(12) Chapter 43 of title 38, United States Code 
        (relating to employment and reemployment rights of 
        members of the uniformed services).
            ``(13) Section 1977, 1979, or 1980 of the Revised 
        Statutes (42 U.S.C. 1981, 1983, or 1985).
            ``(14) Section 703, 704, or 717 of the Civil Rights 
        Act of 1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
            ``(15) Section 804, 805, 806, 808, or 818 of the 
        Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 
        3617).
            ``(16) Section 102, 202, 302, or 503 of the 
        Americans with Disabilities Act of 1990 (42 U.S.C. 
        12112, 12132, 12182, or 12203).
            ``(17) Any provision of Federal law (popularly 
        known as whistleblower protection provisions) 
        prohibiting the discharge of an employee, the 
        discrimination against an employee, or any other form 
        of retaliation or reprisal against an employee for 
        asserting rights or taking other actions permitted 
        under Federal law.
            ``(18) Any provision of Federal, State, or local 
        law, or common law claims permitted under Federal, 
        State, or local law--
                            ``(i) providing for the enforcement 
                        of civil rights, or
                            ``(ii) regulating any aspect of the 
                        employment relationship, including 
                        claims for wages, compensation, or 
                        benefits, or prohibiting the discharge 
                        of an employee, the discrimination 
                        against an employee, or any other form 
                        of retaliation or reprisal against an 
                        employee for asserting rights or taking 
                        other actions permitted by law.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to fees and costs paid after the date of the 
enactment of this Act with respect to any judgment or 
settlement occurring after such date.

SEC. 704. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.

    (a) 7-Year Property.--Subparagraph (C) of section 168(e)(3) 
(relating to classification of certain property) is amended by 
redesignating clause (ii) as clause (iii) and by inserting 
after clause (i) the following new clause:
                            ``(ii) any motorsports 
                        entertainment complex, and''.
    (b) Definition.--Section 168(i) (relating to definitions 
and special rules) is amended by adding at the end the 
following new paragraph:
            ``(15) Motorsports entertainment complex.--
                    ``(A) In general.--The term `motorsports 
                entertainment complex' means a racing track 
                facility which--
                            ``(i) is permanently situated on 
                        land, and
                            ``(ii) during the 36-month period 
                        following the first day of the month in 
                        which the asset is placed in service, 
                        hosts 1 or more racing events for 
                        automobiles (of any type), trucks, or 
                        motorcycles which are open to the 
                        public for the price of admission.
                    ``(B) Ancillary and support facilities.--
                Such term shall include, if owned by the 
                taxpayer who owns the complex and provided for 
                the benefit of patrons of the complex--
                            ``(i) ancillary facilities and land 
                        improvements in support of the 
                        complex's activities (including parking 
                        lots, sidewalks, waterways, bridges, 
                        fences, and landscaping),
                            ``(ii) support facilities 
                        (including food and beverage retailing, 
                        souvenir vending, and other nonlodging 
                        accommodations), and
                            ``(iii) appurtenances associated 
                        with such facilities and related 
                        attractions and amusements (including 
                        ticket booths, race track surfaces, 
                        suites and hospitality facilities, 
                        grandstands and viewing structures, 
                        props, walls, facilities that support 
                        the delivery of entertainment services, 
                        other special purpose structures, 
                        facades, shop interiors, and 
                        buildings).
                    ``(C) Exception.--Such term shall not 
                include any transportation equipment, 
                administrative services assets, warehouses, 
                administrative buildings, hotels, or motels.
                    ``(D) Termination.--This paragraph shall 
                not apply to any property placed in service 
                after December 31, 2007.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to any property placed in service 
        after the date of the enactment of this Act.
            (2) Special rule for asset class 80.0.--In the case 
        of race track facilities placed in service after the 
        date of the enactment of this Act, such facilities 
        shall not be treated as theme and amusement facilities 
        classified under asset class 80.0.
            (3) No inference.--Nothing in this section or the 
        amendments made by this section shall be construed to 
        affect the treatment of property placed in service on 
        or before the date of the enactment of this Act.

SEC. 705. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

    (a) Distributions To Shareholders From Pre-1984 
Policyholders Surplus Account.--Section 815 (relating to 
distributions to shareholders from pre-1984 policyholders 
surplus account) is amended by adding at the end the following:
    ``(g) Special Rules Applicable During 2005 and 2006.--In 
the case of any taxable year of a stock life insurance company 
beginning after December 31, 2004, and before January 1, 2007--
            ``(1) the amount under subsection (a)(2) for such 
        taxable year shall be treated as zero, and
            ``(2) notwithstanding subsection (b), in 
        determining any subtractions from an account under 
        subsections (c)(3) and (d)(3), any distribution to 
        shareholders during such taxable year shall be treated 
        as made first out of the policyholders surplus account, 
        then out of the shareholders surplus account, and 
        finally out of other accounts.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 706. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY TREATED AS 7-
                    YEAR PROPERTY.

    (a) In General.--Section 168(e)(3)(C) (defining 7-year 
property), as amended by this Act, is amended by striking 
``and'' at the end of clause (ii), by redesignating clause 
(iii) as clause (iv), and by inserting after clause (ii) the 
following new clause:
                            ``(iii) any Alaska natural gas 
                        pipeline, and''.
    (b) Alaska Natural Gas Pipeline.--Section 168(i) (relating 
to definitions and special rules), as amended by this Act, is 
amended by inserting after paragraph (15) the following new 
paragraph:
            ``(16) Alaska natural gas pipeline.--The term 
        `Alaska natural gas pipeline' means the natural gas 
        pipeline system located in the State of Alaska which--
                    ``(A) has a capacity of more than 
                500,000,000,000 Btu of natural gas per day, and
                    ``(B) is--
                            ``(i) placed in service after 
                        December 31, 2013, or
                            ``(ii) treated as placed in service 
                        on January 1, 2014, if the taxpayer who 
                        places such system in service before 
                        January 1, 2014, elects such treatment.

        Such term includes the pipe, trunk lines, related 
        equipment, and appurtenances used to carry natural gas, 
        but does not include any gas processing plant.''.
    (c) Alternative System.--The table contained in section 
168(g)(3)(B) (relating to special rule for certain property 
assigned to classes) is amended by inserting after the item 
relating to subparagraph (C)(ii) the following new item:

``(C)(iii).........             22''.  

    (d) Effective Date.--The amendments made by this section 
shall apply to property placed in service after December 31, 
2004.

SEC. 707. EXTENSION OF ENHANCED OIL RECOVERY CREDIT TO CERTAIN ALASKA 
                    FACILITIES.

    (a) In General.--Section 43(c)(1) (defining qualified 
enhanced oil recovery costs) is amended by adding at the end 
the following new subparagraph:
                    ``(D) Any amount which is paid or incurred 
                during the taxable year to construct a gas 
                treatment plant which--
                            ``(i) is located in the area of the 
                        United States (within the meaning of 
                        section 638(1)) lying north of 64 
                        degrees North latitude,
                            ``(ii) prepares Alaska natural gas 
                        for transportation through a pipeline 
                        with a capacity of at least 
                        2,000,000,000,000 Btu of natural gas 
                        per day, and
                            ``(iii) produces carbon dioxide 
                        which is injected into hydrocarbon-
                        bearing geological formations.''.
    (b) Alaska Natural Gas.--Section 43(c) is amended by adding 
at the end the following new paragraph:
            ``(5) Alaska Natural Gas.--For purposes of 
        paragraph (1)(D)--
            ``(1) In general.--The term `Alaska natural gas' 
        means natural gas entering the Alaska natural gas 
        pipeline (as defined in section 168(i)(16) (determined 
        without regard to subparagraph (B) thereof)) which is 
        produced from a well--
                    ``(A) located in the area of the State of 
                Alaska lying north of 64 degrees North 
                latitude, determined by excluding the area of 
                the Alaska National Wildlife Refuge (including 
                the continental shelf thereof within the 
                meaning of section 638(1)), and
                    ``(B) pursuant to the applicable State and 
                Federal pollution prevention, control, and 
                permit requirements from such area (including 
                the continental shelf thereof within the 
                meaning of section 638(1)).
            ``(2) Natural gas.--The term `natural gas' has the 
        meaning given such term by section 613A(e)(2).''.
    (c) Effective Date.--The amendment made by this section 
shall apply to costs paid or incurred in taxable years 
beginning after December 31, 2004.

SEC. 708. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.

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

SEC. 709. MODIFICATION OF MINIMUM COST REQUIREMENT FOR TRANSFER OF 
                    EXCESS PENSION ASSETS.

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

SEC. 710. EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN 
                    RENEWABLE RESOURCES.

    (a) Expansion of Qualified Energy Resources.--Subsection 
(c) of section 45 (relating to electricity produced from 
certain renewable resources) is amended to read as follows:
    ``(c) Qualified Energy Resources and Refined Coal.--For 
purposes of this section--
            ``(1) In general.--The term `qualified energy 
        resources' means--
                    ``(A) wind,
                    ``(B) closed-loop biomass,
                    ``(C) open-loop biomass,
                    ``(D) geothermal energy,
                    ``(E) solar energy,
                    ``(F) small irrigation power, and
                    ``(G) municipal solid waste.
            ``(2) Closed-loop biomass.--The term `closed-loop 
        biomass' means any organic material from a plant which 
        is planted exclusively for purposes of being used at a 
        qualified facility to produce electricity.
            ``(3) Open-loop biomass.--
                    ``(A) In general.--The term `open-loop 
                biomass' means--
                            ``(i) any agricultural livestock 
                        waste nutrients, or
                            ``(ii) any solid, nonhazardous, 
                        cellulosic waste material which is 
                        segregated from other waste materials 
                        and which is derived from--
                                    ``(I) any of the following 
                                forest-related resources: mill 
                                and harvesting residues, 
                                precommercial thinnings, slash, 
                                and brush,
                                    ``(II) solid wood waste 
                                materials, including waste 
                                pallets, crates, dunnage, 
                                manufacturing and construction 
                                wood wastes (other than 
                                pressure-treated, chemically-
                                treated, or painted wood 
                                wastes), and landscape or 
                                right-of-way tree trimmings, 
                                but not including municipal 
                                solid waste, gas derived from 
                                the biodegradation of solid 
                                waste, or paper which is 
                                commonly recycled, or
                                    ``(III) agriculture 
                                sources, including orchard tree 
                                crops, vineyard, grain, 
                                legumes, sugar, and other crop 
                                by-products or residues.
                Such term shall not include closed-loop biomass 
                or biomass burned in conjunction with fossil 
                fuel (cofiring) beyond such fossil fuel 
                required for startup and flame stabilization.
                    ``(B) Agricultural livestock waste 
                nutrients.--
                            ``(i) In general.--The term 
                        `agricultural livestock waste 
                        nutrients' means agricultural livestock 
                        manure and litter, including wood 
                        shavings, straw, rice hulls, and other 
                        bedding material for the disposition of 
                        manure.
                            ``(ii) Agricultural livestock.--The 
                        term `agricultural livestock' includes 
                        bovine, swine, poultry, and sheep.
            ``(4) Geothermal energy.--The term `geothermal 
        energy' means energy derived from a geothermal deposit 
        (within the meaning of section 613(e)(2)).
            ``(5) Small irrigation power.--The term `small 
        irrigation power' means power--
                    ``(A) generated without any dam or 
                impoundment of water through an irrigation 
                system canal or ditch, and
                    ``(B) the nameplate capacity rating of 
                which is not less than 150 kilowatts but is 
                less than 5 megawatts.
            ``(6) Municipal solid waste.--The term `municipal 
        solid waste' has the meaning given the term `solid 
        waste' under section 2(27) of the Solid Waste Disposal 
        Act (42 U.S.C. 6903).
            ``(7) Refined coal.--
                    ``(A) In general.--The term `refined coal' 
                means a fuel which--
                            ``(i) is a liquid, gaseous, or 
                        solid synthetic fuel produced from coal 
                        (including lignite) or high carbon fly 
                        ash, including such fuel used as a 
                        feedstock,
                            ``(ii) is sold by the taxpayer with 
                        the reasonable expectation that it will 
                        be used for purpose of producing steam,
                            ``(iii) is certified by the 
                        taxpayer as resulting (when used in the 
                        production of steam) in a qualified 
                        emission reduction, and
                            ``(iv) is produced in such a manner 
                        as to result in an increase of at least 
                        50 percent in the market value of the 
                        refined coal (excluding any increase 
                        caused by materials combined or added 
                        during the production process), as 
                        compared to the value of the feedstock 
                        coal.
                    ``(B) Qualified emission reduction.--The 
                term `qualified emission reduction' means a 
                reduction of at least 20 percent of the 
                emissions of nitrogen oxide and either sulfur 
                dioxide or mercury released when burning the 
                refined coal (excluding any dilution caused by 
                materials combined or added during the 
                production process), as compared to the 
                emissions released when burning the feedstock 
                coal or comparable coal predominantly available 
                in the marketplace as of January 1, 2003.''.
    (b) Expansion of Qualified Facilities.--
            (1) In general.--Section 45 is amended by 
        redesignating subsection (d) as subsection (e) and by 
        inserting after subsection (c) the following new 
        subsection:
    ``(d) Qualified Facilities.--For purposes of this section--
            ``(1) Wind facility.--In the case of a facility 
        using wind to produce electricity, the term `qualified 
        facility' means any facility owned by the taxpayer 
        which is originally placed in service after December 
        31, 1993, and before January 1, 2006.
            ``(2) Closed-loop biomass facility.--
                    ``(A) In general.--In the case of a 
                facility using closed-loop biomass to produce 
                electricity, the term `qualified facility' 
                means any facility--
                            ``(i) owned by the taxpayer which 
                        is originally placed in service after 
                        December 31, 1992, and before January 
                        1, 2006, or
                            ``(ii) owned by the taxpayer which 
                        before January 1, 2006, is originally 
                        placed in service and modified to use 
                        closed-loop biomass to co-fire with 
                        coal, with other biomass, or with both, 
                        but only if the modification is 
                        approved under the Biomass Power for 
                        Rural Development Programs or is part 
                        of a pilot project of the Commodity 
                        Credit Corporation as described in 65 
                        Fed. Reg. 63052.
                    ``(B) Special rules.--In the case of a 
                qualified facility described in subparagraph 
                (A)(ii)--
                            ``(i) the 10-year period referred 
                        to in subsection (a) shall be treated 
                        as beginning no earlier than the date 
                        of the enactment of this clause,
                            ``(ii) the amount of the credit 
                        determined under subsection (a) with 
                        respect to the facility shall be an 
                        amount equal to the amount determined 
                        without regard to this clause 
                        multiplied by the ratio of the thermal 
                        content of the closed-loop biomass used 
                        in such facility to the thermal content 
                        of all fuels used in such facility, and
                            ``(iii) if the owner of such 
                        facility is not the producer of the 
                        electricity, the person eligible for 
                        the credit allowable under subsection 
                        (a) shall be the lessee or the operator 
                        of such facility.
            ``(3) Open-loop biomass facilities.--
                    ``(A) In general.--In the case of a 
                facility using open-loop biomass to produce 
                electricity, the term `qualified facility' 
                means any facility owned by the taxpayer 
                which--
                            ``(i) in the case of a facility 
                        using agricultural livestock waste 
                        nutrients--
                                    ``(I) is originally placed 
                                in service after the date of 
                                the enactment of this subclause 
                                and before January 1, 2006, and
                                    ``(II) the nameplate 
                                capacity rating of which is not 
                                less than 150 kilowatts, and
                            ``(ii) in the case of any other 
                        facility, is originally placed in 
                        service before January 1, 2006.
                    ``(B) Credit eligibility.--In the case of 
                any facility described in subparagraph (A), if 
                the owner of such facility is not the producer 
                of the electricity, the person eligible for the 
                credit allowable under subsection (a) shall be 
                the lessee or the operator of such facility.
            ``(4) Geothermal or solar energy facility.--In the 
        case of a facility using geothermal or solar energy to 
        produce electricity, the term `qualified facility' 
        means any facility owned by the taxpayer which is 
        originally placed in service after the date of the 
        enactment of this paragraph and before January 1, 2006. 
        Such term shall not include any property described in 
        section 48(a)(3) the basis of which is taken into 
        account by the taxpayer for purposes of determining the 
        energy credit under section 48.
            ``(5) Small irrigation power facility.--In the case 
        of a facility using small irrigation power to produce 
        electricity, the term `qualified facility' means any 
        facility owned by the taxpayer which is originally 
        placed in service after the date of the enactment of 
        this paragraph and before January 1, 2006.
            ``(6) Landfill gas facilities.--In the case of a 
        facility producing electricity from gas derived from 
        the biodegradation of municipal solid waste, the term 
        `qualified facility' means any facility owned by the 
        taxpayer which is originally placed in service after 
        the date of the enactment of this paragraph and before 
        January 1, 2006.
            ``(7) Trash combustion facilities.--In the case of 
        a facility which burns municipal solid waste to produce 
        electricity, the term `qualified facility' means any 
        facility owned by the taxpayer which is originally 
        placed in service after the date of the enactment of 
        this paragraph and before January 1, 2006.
            ``(8) Refined coal production facility.--The term 
        `refined coal production facility' means a facility 
        which is placed in service after the date of the 
        enactment of this paragraph and before January 1, 
        2009.''.
            (2) Rules for refined coal production facilities.--
        Subsection (e) of section 45, as so redesignated, is 
        amended by adding at the end the following new 
        paragraph:
            ``(8) Refined coal production facilities.--
                    ``(A) Determination of credit amount.--In 
                the case of a producer of refined coal, the 
                credit determined under this section (without 
                regard to this paragraph) for any taxable year 
                shall be increased by an amount equal to $4.375 
                per ton of qualified refined coal--
                            ``(i) produced by the taxpayer at a 
                        refined coal production facility during 
                        the 10-year period beginning on the 
                        date the facility was originally placed 
                        in service, and
                            ``(ii) sold by the taxpayer--
                                    ``(I) to an unrelated 
                                person, and
                                    ``(II) during such 10-year 
                                period and such taxable year.
                    ``(B) Phaseout of credit.--The amount of 
                the increase determined under subparagraph (A) 
                shall be reduced by an amount which bears the 
                same ratio to the amount of the increase 
                (determined without regard to this 
                subparagraph) as--
                            ``(i) the amount by which the 
                        reference price of fuel used as a 
                        feedstock (within the meaning of 
                        subsection (c)(7)(A)) for the calendar 
                        year in which the sale occurs exceeds 
                        an amount equal to 1.7 multiplied by 
                        the reference price for such fuel in 
                        2002, bears to
                            ``(ii) $8.75.
                    ``(C) Application of rules.--Rules similar 
                to the rules of the subsection (b)(3) and 
                paragraphs (1) through (5) and (9) of this 
                subsection shall apply for purposes of 
                determining the amount of any increase under 
                this paragraph.''.
            (3) Conforming amendments.--
                    (A) Section 45(e), as so redesignated, is 
                amended by striking ``subsection (c)(3)(A)'' in 
                paragraph (7)(A)(i) and inserting ``subsection 
                (d)(1)''.
                    (B) The heading of section 45 and the item 
                relating to such section in the table of 
                sections for subpart D of part IV of subchapter 
                A of chapter 1 are each amended by inserting 
                before the period at the end ``, etc''.
                    (C) Paragraph (2) of section 45(b) is 
                amended by striking ``The 1.5 cent amount'' and 
                all that follows through ``paragraph (1)'' and 
                inserting ``The 1.5 cent amount in subsection 
                (a), the 8 cent amount in paragraph (1), the 
                $4.375 amount in subsection (e)(8)(A), and in 
                subsection (e)(8)(B)(i) the reference price of 
                fuel used as a feedstock (within the meaning of 
                subsection (c)(7)(A)) in 2002''.
    (c) Special Credit Rate and Period for Electricity Produced 
and Sold After Enactment Date.--Section 45(b) is amended by 
adding at the end the following new paragraph:
            ``(4) Credit rate and period for electricity 
        produced and sold from certain facilities.--
                    ``(A) Credit rate.--In the case of 
                electricity produced and sold in any calendar 
                year after 2003 at any qualified facility 
                described in paragraph (3), (5), (6), or (7) of 
                subsection (d), the amount in effect under 
                subsection (a)(1) for such calendar year 
                (determined before the application of the last 
                sentence of paragraph (2) of this subsection) 
                shall be reduced by one-half.
                    ``(B) Credit period.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), in the case of 
                        any facility described in paragraph 
                        (3), (4), (5), (6), or (7) of 
                        subsection (d), the 5-year period 
                        beginning on the date the facility was 
                        originally placed in service shall be 
                        substituted for the 10-year period in 
                        subsection (a)(2)(A)(ii).
                            ``(ii) Certain open-loop biomass 
                        facilities.--In the case of any 
                        facility described in subsection 
                        (d)(3)(A)(ii) placed in service before 
                        the date of the enactment of this 
                        paragraph, the 5-year period beginning 
                        on the date of the enactment of this 
                        Act shall be substituted for the 10-
                        year period in subsection 
                        (a)(2)(A)(ii).''.
    (d) Coordination With Other Credits.--Section 45(e), as 
redesignated and amended by this section, is amended by 
inserting after paragraph (8) the following new paragraph:
            ``(9) Coordination with credit for producing fuel 
        from a nonconventional source.--The term `qualified 
        facility' shall not include any facility the production 
        from which is allowed as a credit under section 29 for 
        the taxable year or any prior taxable year.''.
    (e) Coordination With Section 48.--Section 48(a)(3) 
(defining energy property) is amended by adding at the end the 
following new sentence: ``Such term shall not include any 
property which is part of a facility the production from which 
is allowed as a credit under section 45 for the taxable year or 
any prior taxable year.''.
    (f) Elimination of Certain Credit Reductions.--Section 
45(b)(3) (relating to credit reduced for grants, tax-exempt 
bonds, subsidized energy financing, and other credits) is 
amended--
            (1) by inserting ``the lesser of \1/2\ or'' before 
        ``a fraction'' in the matter preceding subparagraph 
        (A), and
            (2) by adding at the end the following new 
        sentence: ``This paragraph shall not apply with respect 
        to any facility described in subsection 
        (d)(2)(A)(ii).''.
    (g) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to electricity produced and sold after the 
        date of the enactment of this Act, in taxable years 
        ending after such date.
            (2) Certain biomass facilities.--With respect to 
        any facility described in section 45(d)(3)(A)(ii) of 
        the Internal Revenue Code of 1986, as added by 
        subsection (b)(1), which is placed in service before 
        the date of the enactment of this Act, the amendments 
        made by this section shall apply to electricity 
        produced and sold after December 31, 2004, in taxable 
        years ending after such date.
            (3) Credit rate and period for new facilities.--The 
        amendments made by subsection (c) shall apply to 
        electricity produced and sold after December 31, 2004, 
        in taxable years ending after such date.
            (4) Nonapplication of amendments to preeffective 
        date poultry waste facilities.--The amendments made by 
        this section shall not apply with respect to any 
        poultry waste facility (within the meaning of section 
        45(c)(3)(C), as in effect on the day before the date of 
        the enactment of this Act) placed in service before 
        January 1, 2004.
            (5) Refined coal production facilities.--Section 
        45(e)(8) of the Internal Revenue Code of 1986, as added 
        by this section, shall apply to refined coal produced 
        and sold after the date of the enactment of this Act.

SEC. 711. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST REGULAR AND 
                    MINIMUM TAX.

    (a) In General.--Subsection (c) of section 38 (relating to 
limitation based on amount of tax) is amended by redesignating 
paragraph (4) as paragraph (5) and by inserting after paragraph 
(3) the following new paragraph:
            ``(4) Special rules for specified credits.--
                    ``(A) In general.--In the case of specified 
                credits--
                            ``(i) this section and section 39 
                        shall be applied separately with 
                        respect to such credits, and
                            ``(ii) in applying paragraph (1) to 
                        such credits--
                                    ``(I) the tentative minimum 
                                tax shall be treated as being 
                                zero, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by 
                                subclause (I)) shall be reduced 
                                by the credit allowed under 
                                subsection (a) for the taxable 
                                year (other than the specified 
                                credits).
                    ``(B) Specified credits.--For purposes of 
                this subsection, the term `specified credits' 
                includes--
                            ``(i) for taxable years beginning 
                        after December 31, 2004, the credit 
                        determined under section 40,
                            ``(ii) the credit determined under 
                        section 45 to the extent that such 
                        credit is attributable to electricity 
                        or refined coal produced--
                                    ``(I) at a facility which 
                                is originally placed in service 
                                after the date of the enactment 
                                of this paragraph, and
                                    ``(II) during the 4-year 
                                period beginning on the date 
                                that such facility was 
                                originally placed in service''.
    (b) Conforming Amendments.--Paragraph (2)(A)(ii)(II) and 
(3)(A)(ii)(II) of section 38(c) are each amended by inserting 
``or the specified credits'' after ``employee credit''.
    (c) Effective Date.--Except as otherwise provided, the 
amendments made by this section shall apply to taxable years 
ending after the date of the enactment of this Act.

SEC. 712. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR 
                    CHILDREN AND ADULTS WITH SICKLE CELL DISEASE AS 
                    MEDICAL ASSISTANCE UNDER THE MEDICAID PROGRAM.

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

SEC. 713. CEILING FANS.

    (a) In General.--Subchapter II of chapter 99 of the 
Harmonized Tariff Schedule of the United States is amended by 
inserting in numerical sequence the following new heading:

``            9902.84.14    Ceiling fans for  Free          No change    No change    On or before
                             permanent                                                 12/31/2006        ''.
                             installation
                             (provided for
                             in subheading
                             8414.51.00)....
----------------------------------------------------------------------------------------------------------------

    (b) Effective Date.--The amendment made by this section 
applies to goods entered, or withdrawn from warehouse, for 
consumption on or after the 15th day after the date of 
enactment of this Act.

SEC. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR VESSEL HEADS 
                    AND PRESSURIZERS, USED IN NUCLEAR FACILITIES.

    (a) Certain Steam Generators.--Heading 9902.84.02 of the 
Harmonized Tariff Schedule of the United States is amended by 
striking ``12/31/2006'' and inserting ``12/31/2008''.
    (b) Certain Reactor Vessel Heads and Pressurizers.--
Subchapter II of chapter 99 of the Harmonized Tariff Schedule 
of the United States is amended by inserting in numerical 
sequence the following new heading:

``            9902.84.03    Reactor vessel    Free          No change    No change    On or before
                             heads and                                                 12/31/2008        ''.
                             pressurizers
                             for nuclear
                             reactors
                             (provided for
                             in subheading
                             8401.40.00)....
----------------------------------------------------------------------------------------------------------------

    (c) Effective Date.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall take effect on the date of the 
        enactment of this Act.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall apply to goods entered, or 
        withdrawn from warehouse, for consumption on or after 
        the 15th day after the date of the enactment of this 
        Act.

                     TITLE VIII--REVENUE PROVISIONS

 Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and 
                         Corporate Expatriation

SEC. 801. TAX TREATMENT OF EXPATRIATED ENTITIES AND THEIR FOREIGN 
                    PARENTS.

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

``SEC. 7874. RULES RELATING TO EXPATRIATED ENTITIES AND THEIR FOREIGN 
                    PARENTS.

    ``(a) Tax on Inversion Gain of Expatriated Entities.--
            ``(1) In general.--The taxable income of an 
        expatriated entity for any taxable year which includes 
        any portion of the applicable period shall in no event 
        be less than the inversion gain of the entity for the 
        taxable year.
            ``(2) Expatriated entity.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `expatriated 
                entity' means--
                            ``(i) the domestic corporation or 
                        partnership referred to in subparagraph 
                        (B)(i) with respect to which a foreign 
                        corporation is a surrogate foreign 
                        corporation, and
                            ``(ii) any United States person who 
                        is related (within the meaning of 
                        section 267(b) or 707(b)(1)) to a 
                        domestic corporation or partnership 
                        described in clause (i).
                    ``(B) Surrogate foreign corporation.--A 
                foreign corporation shall be treated as a 
                surrogate foreign corporation if, pursuant to a 
                plan (or a series of related transactions)--
                            ``(i) the entity completes after 
                        March 4, 2003, the direct or indirect 
                        acquisition of substantially all of the 
                        properties held directly or indirectly 
                        by a domestic corporation or 
                        substantially all of the properties 
                        constituting a trade or business of a 
                        domestic partnership,
                            ``(ii) after the acquisition at 
                        least 60 percent of the stock (by vote 
                        or value) of the entity is held--
                                    ``(I) in the case of an 
                                acquisition with respect to a 
                                domestic corporation, by former 
                                shareholders of the domestic 
                                corporation by reason of 
                                holding stock in the domestic 
                                corporation, or
                                    ``(II) in the case of an 
                                acquisition with respect to a 
                                domestic partnership, by former 
                                partners of the domestic 
                                partnership by reason of 
                                holding a capital or profits 
                                interest in the domestic 
                                partnership, and
                            ``(iii) after the acquisition the 
                        expanded affiliated group which 
                        includes the entity does not have 
                        substantial business activities in the 
                        foreign country in which, or under the 
                        law of which, the entity is created or 
                        organized, when compared to the total 
                        business activities of such expanded 
                        affiliated group.
                An entity otherwise described in clause (i) 
                with respect to any domestic corporation or 
                partnership trade or business shall be treated 
                as not so described if, on or before March 4, 
                2003, such entity acquired directly or 
                indirectly more than half of the properties 
                held directly or indirectly by such corporation 
                or more than half of the properties 
                constituting such partnership trade or 
                business, as the case may be.
            ``(3) Coordination with subsection (b).--Paragraph 
        (1) shall not apply to any entity which is treated as a 
        domestic corporation under subsection (b).
    ``(b) Inverted Corporations Treated as Domestic 
Corporations.--Notwithstanding section 7701(a)(4), a foreign 
corporation shall be treated for purposes of this title as a 
domestic corporation if such corporation would be a surrogate 
foreign corporation if subsection (a)(2) were applied by 
substituting `80 percent' for `60 percent'.
    ``(c) Definitions and Special Rules.--
            ``(1) Expanded affiliated group.--The term 
        `expanded affiliated group' means an affiliated group 
        as defined in section 1504(a) but without regard to 
        section 1504(b)(3), except that section 1504(a) shall 
        be applied by substituting `more than 50 percent' for 
        `at least 80 percent' each place it appears.
            ``(2) Certain stock disregarded.--There shall not 
        be taken into account in determining ownership under 
        subsection (a)(2)(B)(ii)--
                    ``(A) stock held by members of the expanded 
                affiliated group which includes the foreign 
                corporation, or
                    ``(B) stock of such foreign corporation 
                which is sold in a public offering related to 
                the acquisition described in subsection 
                (a)(2)(B)(i).
            ``(3) Plan deemed in certain cases.--If a foreign 
        corporation acquires directly or indirectly 
        substantially all of the properties of a domestic 
        corporation or partnership during the 4-year period 
        beginning on the date which is 2 years before the 
        ownership requirements of subsection (a)(2)(B)(ii) are 
        met, such actions shall be treated as pursuant to a 
        plan.
            ``(4) Certain transfers disregarded.--The transfer 
        of properties or liabilities (including by contribution 
        or distribution) shall be disregarded if such transfers 
        are part of a plan a principal purpose of which is to 
        avoid the purposes of this section.
            ``(5) Special rule for related partnerships.--For 
        purposes of applying subsection (a)(2)(B)(ii) to the 
        acquisition of a trade or business of a domestic 
        partnership, except as provided in regulations, all 
        partnerships which are under common control (within the 
        meaning of section 482) shall be treated as 1 
        partnership.
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to determine 
        whether a corporation is a surrogate foreign 
        corporation, including regulations--
                    ``(A) to treat warrants, options, contracts 
                to acquire stock, convertible debt interests, 
                and other similar interests as stock, and
                    ``(B) to treat stock as not stock.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Applicable period.--The term `applicable 
        period' means the period--
                    ``(A) beginning on the first date 
                properties are acquired as part of the 
                acquisition described in subsection 
                (a)(2)(B)(i), and
                    ``(B) ending on the date which is 10 years 
                after the last date properties are acquired as 
                part of such acquisition.
            ``(2) Inversion gain.--The term `inversion gain' 
        means the income or gain recognized by reason of the 
        transfer during the applicable period of stock or other 
        properties by an expatriated entity, and any income 
        received or accrued during the applicable period by 
        reason of a license of any property by an expatriated 
        entity--
                    ``(A) as part of the acquisition described 
                in subsection (a)(2)(B)(i), or
                    ``(B) after such acquisition if the 
                transfer or license is to a foreign related 
                person.
        Subparagraph (B) shall not apply to property described 
        in section 1221(a)(1) in the hands of the expatriated 
        entity.
            ``(3) Foreign related person.--The term `foreign 
        related person' means, with respect to any expatriated 
        entity, a foreign person which--
                    ``(A) is related (within the meaning of 
                section 267(b) or 707(b)(1)) to such entity, or
                    ``(B) is under the same common control 
                (within the meaning of section 482) as such 
                entity.
    ``(e) Special Rules.--
            ``(1) Credits not allowed against tax on inversion 
        gain.--Credits (other than the credit allowed by 
        section 901) shall be allowed against the tax imposed 
        by this chapter on an expatriated entity for any 
        taxable year described in subsection (a) only to the 
        extent such tax exceeds the product of--
                    ``(A) the amount of the inversion gain for 
                the taxable year, and
                    ``(B) the highest rate of tax specified in 
                section 11(b)(1).
        For purposes of determining the credit allowed by 
        section 901, inversion gain shall be treated as from 
        sources within the United States.
            ``(2) Special rules for partnerships.--In the case 
        of an expatriated entity which is a partnership--
                    ``(A) subsection (a)(1) shall apply at the 
                partner rather than the partnership level,
                    ``(B) the inversion gain of any partner for 
                any taxable year shall be equal to the sum of--
                            ``(i) the partner's distributive 
                        share of inversion gain of the 
                        partnership for such taxable year, plus
                            ``(ii) gain recognized for the 
                        taxable year by the partner by reason 
                        of the transfer during the applicable 
                        period of any partnership interest of 
                        the partner in such partnership to the 
                        surrogate foreign corporation, and
                    ``(C) the highest rate of tax specified in 
                the rate schedule applicable to the partner 
                under this chapter shall be substituted for the 
                rate of tax referred to in paragraph (1).
            ``(3) Coordination with section 172 and minimum 
        tax.--Rules similar to the rules of paragraphs (3) and 
        (4) of section 860E(a) shall apply for purposes of 
        subsection (a).
            ``(4) Statute of limitations.--
                    ``(A) In general.--The statutory period for 
                the assessment of any deficiency attributable 
                to the inversion gain of any taxpayer for any 
                pre-inversion year shall not expire before the 
                expiration of 3 years from the date the 
                Secretary is notified by the taxpayer (in such 
                manner as the Secretary may prescribe) of the 
                acquisition described in subsection 
                (a)(2)(B)(i) to which such gain relates and 
                such deficiency may be assessed before the 
                expiration of such 3-year period 
                notwithstanding the provisions of any other law 
                or rule of law which would otherwise prevent 
                such assessment.
                    ``(B) Pre-inversion year.--For purposes of 
                subparagraph (A), the term `pre-inversion year' 
                means any taxable year if--
                            ``(i) any portion of the applicable 
                        period is included in such taxable 
                        year, and
                            ``(ii) such year ends before the 
                        taxable year in which the acquisition 
                        described in subsection (a)(2)(B)(i) is 
                        completed.
    ``(f) Special Rule for Treaties.--Nothing in section 894 or 
7852(d) or in any other provision of law shall be construed as 
permitting an exemption, by reason of any treaty obligation of 
the United States heretofore or hereafter entered into, from 
the provisions of this section.
    ``(g) Regulations.--The Secretary shall provide such 
regulations as are necessary to carry out this section, 
including regulations providing for such adjustments to the 
application of this section as are necessary to prevent the 
avoidance of the purposes of this section, including the 
avoidance of such purposes through--
            ``(1) the use of related persons, pass-through or 
        other noncorporate entities, or other intermediaries, 
        or
            ``(2) transactions designed to have persons cease 
        to be (or not become) members of expanded affiliated 
        groups or related persons.''.
    (b) Conforming Amendment.--The table of sections for 
subchapter C of chapter 80 is amended by adding at the end the 
following new item:

        ``Sec. 7874. Rules relating to expatriated entities and their 
                  foreign parents.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after March 4, 2003.

SEC. 802. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN EXPATRIATED 
                    CORPORATIONS.

    (a) In General.--Subtitle D is amended by inserting after 
chapter 44 end the following new chapter:

       ``CHAPTER 45--PROVISIONS RELATING TO EXPATRIATED ENTITIES

        ``Sec. 4985. Stock compensation of insiders in expatriated 
                  corporations.

``SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPATRIATED 
                    CORPORATIONS.

    ``(a) Imposition of Tax.--In the case of an individual who 
is a disqualified individual with respect to any expatriated 
corporation, there is hereby imposed on such person a tax equal 
to--
            ``(1) the rate of tax specified in section 
        1(h)(1)(C), multiplied by
            ``(2) the value (determined under subsection (b)) 
        of the specified stock compensation held (directly or 
        indirectly) by or for the benefit of such individual or 
        a member of such individual's family (as defined in 
        section 267) at any time during the 12-month period 
        beginning on the date which is 6 months before the 
        expatriation date.
    ``(b) Value.--For purposes of subsection (a)--
            ``(1) In general.--The value of specified stock 
        compensation shall be--
                    ``(A) in the case of a stock option (or 
                other similar right) or a stock appreciation 
                right, the fair value of such option or right, 
                and
                    ``(B) in any other case, the fair market 
                value of such compensation.
            ``(2) Date for determining value.--The 
        determination of value shall be made--
                    ``(A) in the case of specified stock 
                compensation held on the expatriation date, on 
                such date,
                    ``(B) in the case of such compensation 
                which is canceled during the 6 months before 
                the expatriation date, on the day before such 
                cancellation, and
                    ``(C) in the case of such compensation 
                which is granted after the expatriation date, 
                on the date such compensation is granted.
    ``(c) Tax To Apply Only if Shareholder Gain Recognized.--
Subsection (a) shall apply to any disqualified individual with 
respect to an expatriated corporation only if gain (if any) on 
any stock in such corporation is recognized in whole or part by 
any shareholder by reason of the acquisition referred to in 
section 7874(a)(2)(B)(i) with respect to such corporation.
    ``(d) Exception Where Gain Recognized on Compensation.--
Subsection (a) shall not apply to--
            ``(1) any stock option which is exercised on the 
        expatriation date or during the 6-month period before 
        such date and to the stock acquired in such exercise, 
        if income is recognized under section 83 on or before 
        the expatriation date with respect to the stock 
        acquired pursuant to such exercise, and
            ``(2) any other specified stock compensation which 
        is exercised, sold, exchanged, distributed, cashed-out, 
        or otherwise paid during such period in a transaction 
        in which income, gain, or loss is recognized in full.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Disqualified individual.--The term 
        `disqualified individual' means, with respect to a 
        corporation, any individual who, at any time during the 
        12-month period beginning on the date which is 6 months 
        before the expatriation date--
                    ``(A) is subject to the requirements of 
                section 16(a) of the Securities Exchange Act of 
                1934 with respect to such corporation or any 
                member of the expanded affiliated group which 
                includes such corporation, or
                    ``(B) would be subject to such requirements 
                if such corporation or member were an issuer of 
                equity securities referred to in such section.
            ``(2) Expatriated corporation; expatriation date.--
                    ``(A) Expatriated corporation.--The term 
                `expatriated corporation' means any corporation 
                which is an expatriated entity (as defined in 
                section 7874(a)(2)). Such term includes any 
                predecessor or successor of such a corporation.
                    ``(B) Expatriation date.--The term 
                `expatriation date' means, with respect to a 
                corporation, the date on which the corporation 
                first becomes an expatriated corporation.
            ``(3) Specified stock compensation.--
                    ``(A) In general.--The term `specified 
                stock compensation' means payment (or right to 
                payment) granted by the expatriated corporation 
                (or by any member of the expanded affiliated 
                group which includes such corporation) to any 
                person in connection with the performance of 
                services by a disqualified individual for such 
                corporation or member if the value of such 
                payment or right is based on (or determined by 
                reference to) the value (or change in value) of 
                stock in such corporation (or any such member).
                    ``(B) Exceptions.--Such term shall not 
                include--
                            ``(i) any option to which part II 
                        of subchapter D of chapter 1 applies, 
                        or
                            ``(ii) any payment or right to 
                        payment from a plan referred to in 
                        section 280G(b)(6).
            ``(4) Expanded affiliated group.--The term 
        `expanded affiliated group' means an affiliated group 
        (as defined in section 1504(a) without regard to 
        section 1504(b)(3)); except that section 1504(a) shall 
        be applied by substituting `more than 50 percent' for 
        `at least 80 percent' each place it appears.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Cancellation of restriction.--The 
        cancellation of a restriction which by its terms will 
        never lapse shall be treated as a grant.
            ``(2) Payment or reimbursement of tax by 
        corporation treated as specified stock compensation.--
        Any payment of the tax imposed by this section directly 
        or indirectly by the expatriated corporation or by any 
        member of the expanded affiliated group which includes 
        such corporation--
                    ``(A) shall be treated as specified stock 
                compensation, and
                    ``(B) shall not be allowed as a deduction 
                under any provision of chapter 1.
            ``(3) Certain restrictions ignored.--Whether there 
        is specified stock compensation, and the value thereof, 
        shall be determined without regard to any restriction 
        other than a restriction which by its terms will never 
        lapse.
            ``(4) Property transfers.--Any transfer of property 
        shall be treated as a payment and any right to a 
        transfer of property shall be treated as a right to a 
        payment.
            ``(5) Other administrative provisions.--For 
        purposes of subtitle F, any tax imposed by this section 
        shall be treated as a tax imposed by subtitle A.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (b) Denial of Deduction.--
            (1) In general.--Paragraph (6) of section 275(a) is 
        amended by inserting ``45,'' before ``46,''.
            (2) $1,000,000 limit on deductible compensation 
        reduced by payment of excise tax on specified stock 
        compensation.--Paragraph (4) of section 162(m) is 
        amended by adding at the end the following new 
        subparagraph:
                    ``(G) Coordination with excise tax on 
                specified stock compensation.--The dollar 
                limitation contained in paragraph (1) with 
                respect to any covered employee shall be 
                reduced (but not below zero) by the amount of 
                any payment (with respect to such employee) of 
                the tax imposed by section 4985 directly or 
                indirectly by the expatriated corporation (as 
                defined in such section) or by any member of 
                the expanded affiliated group (as defined in 
                such section) which includes such 
                corporation.''.
    (c) Conforming Amendments.--
            (1) The last sentence of section 3121(v)(2)(A) is 
        amended by inserting before the period ``or to any 
        specified stock compensation (as defined in section 
        4985) on which tax is imposed by section 4985''.
            (2) The table of chapters for subtitle D is amended 
        by inserting after the item relating to chapter 44 the 
        following new item:

        ``Chapter 45. Provisions relating to expatriated entities.''.

    (d) Effective Date.--The amendments made by this section 
shall take effect on March 4, 2003; except that periods before 
such date shall not be taken into account in applying the 
periods in subsections (a) and (e)(1) of section 4985 of the 
Internal Revenue Code of 1986, as added by this section.

SEC. 803. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.

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

SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.

    (a) Expatriation To Avoid Tax.--
            (1) In general.--Subsection (a) of section 877 
        (relating to treatment of expatriates) is amended to 
        read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien 
        individual to whom this section applies and who, within 
        the 10-year period immediately preceding the close of 
        the taxable year, lost United States citizenship shall 
        be taxable for such taxable year in the manner provided 
        in subsection (b) if the tax imposed pursuant to such 
        subsection (after any reduction in such tax under the 
        last sentence of such subsection) exceeds the tax 
        which, without regard to this section, is imposed 
        pursuant to section 871.
            ``(2) Individuals subject to this section.--This 
        section shall apply to any individual if--
                    ``(A) the average annual net income tax (as 
                defined in section 38(c)(1)) of such individual 
                for the period of 5 taxable years ending before 
                the date of the loss of United States 
                citizenship is greater than $124,000,
                    ``(B) the net worth of the individual as of 
                such date is $2,000,000 or more, or
                    ``(C) such individual fails to certify 
                under penalty of perjury that he has met the 
                requirements of this title for the 5 preceding 
                taxable years or fails to submit such evidence 
                of such compliance as the Secretary may 
                require.
        In the case of the loss of United States citizenship in 
        any calendar year after 2004, such $124,000 amount 
        shall be increased by an amount equal to such dollar 
        amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) for such calendar year 
        by substituting `2003' for `1992' in subparagraph (B) 
        thereof. Any increase under the preceding sentence 
        shall be rounded to the nearest multiple of $1,000.''.
            (2) Revision of exceptions from alternative tax.--
        Subsection (c) of section 877 (relating to tax 
        avoidance not presumed in certain cases) is amended to 
        read as follows:
    ``(c) Exceptions.--
            ``(1) In general.--Subparagraphs (A) and (B) of 
        subsection (a)(2) shall not apply to an individual 
        described in paragraph (2) or (3).
            ``(2) Dual citizens.--
                    ``(A) In general.--An individual is 
                described in this paragraph if--
                            ``(i) the individual became at 
                        birth a citizen of the United States 
                        and a citizen of another country and 
                        continues to be a citizen of such other 
                        country, and
                            ``(ii) the individual has had no 
                        substantial contacts with the United 
                        States.
                    ``(B) Substantial contacts.--An individual 
                shall be treated as having no substantial 
                contacts with the United States only if the 
                individual--
                            ``(i) was never a resident of the 
                        United States (as defined in section 
                        7701(b)),
                            ``(ii) has never held a United 
                        States passport, and
                            ``(iii) was not present in the 
                        United States for more than 30 days 
                        during any calendar year which is 1 of 
                        the 10 calendar years preceding the 
                        individual's loss of United States 
                        citizenship.
            ``(3) Certain minors.--An individual is described 
        in this paragraph if--
                    ``(A) the individual became at birth a 
                citizen of the United States,
                    ``(B) neither parent of such individual was 
                a citizen of the United States at the time of 
                such birth,
                    ``(C) the individual's loss of United 
                States citizenship occurs before such 
                individual attains age 18\1/2\, and
                    ``(D) the individual was not present in the 
                United States for more than 30 days during any 
                calendar year which is 1 of the 10 calendar 
                years preceding the individual's loss of United 
                States citizenship.''.
            (3) Conforming amendment.--Section 2107(a) is 
        amended to read as follows:
    ``(a) Treatment of Expatriates.--A tax computed in 
accordance with the table contained in section 2001 is hereby 
imposed on the transfer of the taxable estate, determined as 
provided in section 2106, of every decedent nonresident not a 
citizen of the United States if the date of death occurs during 
a taxable year with respect to which the decedent is subject to 
tax under section 877(b).''.
    (b) Special Rules for Determining When an Individual Is No 
Longer a United States Citizen or Long-Term Resident.--Section 
7701 (relating to definitions) is amended by redesignating 
subsection (n) as subsection (o) and by inserting after 
subsection (m) the following new subsection:
    ``(n) Special Rules for Determining When an Individual Is 
No Longer a United States Citizen or Long-Term Resident.--An 
individual who would (but for this subsection) cease to be 
treated as a citizen or resident of the United States shall 
continue to be treated as a citizen or resident of the United 
States, as the case may be, until such individual--
            ``(1) gives notice of an expatriating act or 
        termination of residency (with the requisite intent to 
        relinquish citizenship or terminate residency) to the 
        Secretary of State or the Secretary of Homeland 
        Security, and
            ``(2) provides a statement in accordance with 
        section 6039G.''.
    (c) Physical Presence in the United States for More Than 30 
Days.--Section 877 (relating to expatriation to avoid tax) is 
amended by adding at the end the following new subsection:
    ``(g) Physical Presence.--
            ``(1) In general.--This section shall not apply to 
        any individual to whom this section would otherwise 
        apply for any taxable year during the 10-year period 
        referred to in subsection (a) in which such individual 
        is physically present in the United States at any time 
        on more than 30 days in the calendar year ending in 
        such taxable year, and such individual shall be treated 
        for purposes of this title as a citizen or resident of 
        the United States, as the case may be, for such taxable 
        year.
            ``(2) Exception.--
                    ``(A) In general.--In the case of an 
                individual described in any of the following 
                subparagraphs of this paragraph, a day of 
                physical presence in the United States shall be 
                disregarded if the individual is performing 
                services in the United States on such day for 
                an employer. The preceding sentence shall not 
                apply if--
                            ``(i) such employer is related 
                        (within the meaning of section 267 and 
                        707) to such individual, or
                            ``(ii) such employer fails to meet 
                        such requirements as the Secretary may 
                        prescribe by regulations to prevent the 
                        avoidance of the purposes of this 
                        paragraph.
                Not more than 30 days during any calendar year 
                may be disregarded under this subparagraph.
                    ``(B) Individuals with ties to other 
                countries.--An individual is described in this 
                subparagraph if--
                            ``(i) the individual becomes (not 
                        later than the close of a reasonable 
                        period after loss of United States 
                        citizenship or termination of 
                        residency) a citizen or resident of the 
                        country in which--
                                    ``(I) such individual was 
                                born,
                                    ``(II) if such individual 
                                is married, such individual's 
                                spouse was born, or
                                    ``(III) either of such 
                                individual's parents were born, 
                                and
                            ``(ii) the individual becomes fully 
                        liable for income tax in such country.
                    ``(C) Minimal prior physical presence in 
                the united states.--An individual is described 
                in this subparagraph if, for each year in the 
                10-year period ending on the date of loss of 
                United States citizenship or termination of 
                residency, the individual was physically 
                present in the United States for 30 days or 
                less. The rule of section 7701(b)(3)(D)(ii) 
                shall apply for purposes of this 
                subparagraph.''.
    (d) Transfers Subject to Gift Tax.--
            (1) In general.--Subsection (a) of section 2501 
        (relating to taxable transfers) is amended by striking 
        paragraph (4), by redesignating paragraph (5) as 
        paragraph (4), and by striking paragraph (3) and 
        inserting the following new paragraph:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) 
                shall not apply in the case of a donor to whom 
                section 877(b) applies for the taxable year 
                which includes the date of the transfer.
                    ``(B) Credit for foreign gift taxes.--The 
                tax imposed by this section solely by reason of 
                this paragraph shall be credited with the 
                amount of any gift tax actually paid to any 
                foreign country in respect of any gift which is 
                taxable under this section solely by reason of 
                this paragraph.''.
            (2) Transfers of certain stock.--Subsection (a) of 
        section 2501 is amended by adding at the end the 
        following new paragraph:
            ``(5) Transfers of certain stock.--
                    ``(A) In general.--In the case of a 
                transfer of stock in a foreign corporation 
                described in subparagraph (B) by a donor to 
                whom section 877(b) applies for the taxable 
                year which includes the date of the transfer--
                            ``(i) section 2511(a) shall be 
                        applied without regard to whether such 
                        stock is situated within the United 
                        States, and
                            ``(ii) the value of such stock for 
                        purposes of this chapter shall be its 
                        U.S.-asset value determined under 
                        subparagraph (C).
                    ``(B) Foreign corporation described.--A 
                foreign corporation is described in this 
                subparagraph with respect to a donor if--
                            ``(i) the donor owned (within the 
                        meaning of section 958(a)) at the time 
                        of such transfer 10 percent or more of 
                        the total combined voting power of all 
                        classes of stock entitled to vote of 
                        the foreign corporation, and
                            ``(ii) such donor owned (within the 
                        meaning of section 958(a)), or is 
                        considered to have owned (by applying 
                        the ownership rules of section 958(b)), 
                        at the time of such transfer, more than 
                        50 percent of--
                                    ``(I) the total combined 
                                voting power of all classes of 
                                stock entitled to vote of such 
                                corporation, or
                                    ``(II) the total value of 
                                the stock of such corporation.
                    ``(C) U.S.-asset value.--For purposes of 
                subparagraph (A), the U.S.-asset value of stock 
                shall be the amount which bears the same ratio 
                to the fair market value of such stock at the 
                time of transfer as--
                            ``(i) the fair market value (at 
                        such time) of the assets owned by such 
                        foreign corporation and situated in the 
                        United States, bears to
                            ``(ii) the total fair market value 
                        (at such time) of all assets owned by 
                        such foreign corporation.''.
    (e) Enhanced Information Reporting From Individuals Losing 
United States Citizenship.--
            (1) In general.--Subsection (a) of section 6039G is 
        amended to read as follows:
    ``(a) In General.--Notwithstanding any other provision of 
law, any individual to whom section 877(b) applies for any 
taxable year shall provide a statement for such taxable year 
which includes the information described in subsection (b).''.
            (2) Information to be provided.--Subsection (b) of 
        section 6039G is amended to read as follows:
    ``(b) Information To Be Provided.--Information required 
under subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's 
        principal foreign residence,
            ``(3) the foreign country in which such individual 
        is residing,
            ``(4) the foreign country of which such individual 
        is a citizen,
            ``(5) information detailing the income, assets, and 
        liabilities of such individual,
            ``(6) the number of days during any portion of 
        which that the individual was physically present in the 
        United States during the taxable year, and
            ``(7) such other information as the Secretary may 
        prescribe.''.
            (3) Increase in penalty.--Subsection (d) of section 
        6039G is amended to read as follows:
    ``(d) Penalty.--If--
            ``(1) an individual is required to file a statement 
        under subsection (a) for any taxable year, and
            ``(2) fails to file such a statement with the 
        Secretary on or before the date such statement is 
        required to be filed or fails to include all the 
        information required to be shown on the statement or 
        includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is 
shown that such failure is due to reasonable cause and not to 
willful neglect.''.
            (4) Conforming amendment.--Section 6039G is amended 
        by striking subsections (c), (f), and (g) and by 
        redesignating subsections (d) and (e) as subsection (c) 
        and (d), respectively.
    (f) Effective Date.--The amendments made by this section 
shall apply to individuals who expatriate after June 3, 2004.

SEC. 805. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

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

``SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISITIONS.

    ``(a) In General.--According to the forms or regulations 
prescribed by the Secretary, the acquiring corporation in any 
taxable acquisition shall make a return setting forth--
            ``(1) a description of the acquisition,
            ``(2) the name and address of each shareholder of 
        the acquired corporation who is required to recognize 
        gain (if any) as a result of the acquisition,
            ``(3) the amount of money and the fair market value 
        of other property transferred to each such shareholder 
        as part of such acquisition, and
            ``(4) such other information as the Secretary may 
        prescribe.
To the extent provided by the Secretary, the requirements of 
this section applicable to the acquiring corporation shall be 
applicable to the acquired corporation and not to the acquiring 
corporation.
    ``(b) Nominees.--According to the forms or regulations 
prescribed by the Secretary--
            ``(1) Reporting.--Any person who holds stock as a 
        nominee for another person shall furnish in the manner 
        prescribed by the Secretary to such other person the 
        information provided by the corporation under 
        subsection (d).
            ``(2) Reporting to nominees.--In the case of stock 
        held by any person as a nominee, references in this 
        section (other than in subsection (c)) to a shareholder 
        shall be treated as a reference to the nominee.
    ``(c) Taxable Acquisition.--For purposes of this section, 
the term `taxable acquisition' means any acquisition by a 
corporation of stock in or property of another corporation if 
any shareholder of the acquired corporation is required to 
recognize gain (if any) as a result of such acquisition.
    ``(d) Statements To Be Furnished to Shareholders.--
According to the forms or regulations prescribed by the 
Secretary, every person required to make a return under 
subsection (a) shall furnish to each shareholder whose name is 
required to be set forth in such return a written statement 
showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return,
            ``(2) the information required to be shown on such 
        return with respect to such shareholder, and
            ``(3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence 
shall be furnished to the shareholder on or before January 31 
of the year following the calendar year during which the 
taxable acquisition occurred.''.
    (b) Assessable Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) 
        (relating to definitions) is amended by redesignating 
        clauses (ii) through (xviii) as clauses (iii) through 
        (xix), respectively, and by inserting after clause (i) 
        the following new clause:
                            ``(ii) section 6043A(a) (relating 
                        to returns relating to taxable mergers 
                        and acquisitions),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (F) through (BB) as 
        subparagraphs (G) through (CC), respectively, and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) subsections (b) and (d) of section 
                6043A (relating to returns relating to taxable 
                mergers and acquisitions).''.
    (c) Clerical Amendment.--The table of sections for subpart 
B of part III of subchapter A of chapter 61 is amended by 
inserting after the item relating to section 6043 the following 
new item:

        ``Sec. 6043A. Returns relating to taxable mergers and 
                  acquisitions.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to acquisitions after the date of the enactment of 
this Act.

SEC. 806. STUDIES.

    (a) Transfer Pricing Rules.--The Secretary of the Treasury 
or the Secretary's delegate shall conduct a study regarding the 
effectiveness of current transfer pricing rules and compliance 
efforts in ensuring that cross-border transfers and other 
related-party transactions, particularly transactions involving 
intangible assets, service contracts, or leases cannot be used 
improperly to shift income out of the United States. The study 
shall include a review of the contemporaneous documentation and 
penalty rules under section 6662 of the Internal Revenue Code 
of 1986, a review of the regulatory and administrative guidance 
implementing the principles of section 482 of such Code to 
transactions involving intangible property and services and to 
cost-sharing arrangements, and an examination of whether 
increased disclosure of cross-border transactions should be 
required. The study shall set forth specific recommendations to 
address all abuses identified in the study. Not later than June 
30, 2005, such Secretary or delegate shall submit to the 
Congress a report of such study.
    (b) Income Tax Treaties.--The Secretary of the Treasury or 
the Secretary's delegate shall conduct a study of United States 
income tax treaties to identify any inappropriate reductions in 
United States withholding tax that provide opportunities for 
shifting income out of the United States, and to evaluate 
whether existing anti-abuse mechanisms are operating properly. 
The study shall include specific recommendations to address all 
inappropriate uses of tax treaties. Not later than June 30, 
2005, such Secretary or delegate shall submit to the Congress a 
report of such study.
    (c) Effectiveness of Corporate Expatriation Provisions.--
The Secretary of the Treasury or the Secretary's delegate shall 
conduct a study of the effectiveness of the provisions of this 
title on corporate expatriation. The study shall include such 
recommendations as such Secretary or delegate may have to 
improve the effectiveness of such provisions in carrying out 
the purposes of this title. Not later than December 31, 2006, 
such Secretary or delegate shall submit to the Congress a 
report of such study.

            Subtitle B--Provisions Relating to Tax Shelters

                  PART I--TAXPAYER-RELATED PROVISIONS

SEC. 811. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTIONS.

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

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

    ``(a) Imposition of Penalty.--Any person who fails to 
include on any return or statement any information with respect 
to a reportable transaction which is required under section 
6011 to be included with such return or statement shall pay a 
penalty in the amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the amount of the penalty under subsection (a) 
        shall be--
                    ``(A) $10,000 in the case of a natural 
                person, and
                    ``(B) $50,000 in any other case.
            ``(2) Listed transaction.--The amount of the 
        penalty under subsection (a) with respect to a listed 
        transaction shall be--
                    ``(A) $100,000 in the case of a natural 
                person, and
                    ``(B) $200,000 in any other case.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to 
        which information is required to be included with a 
        return or statement because, as determined under 
        regulations prescribed under section 6011, such 
        transaction is of a type which the Secretary determines 
        as having a potential for tax avoidance or evasion.
            ``(2) Listed transaction.--The term `listed 
        transaction' means a reportable transaction which is 
        the same as, or substantially similar to, a transaction 
        specifically identified by the Secretary as a tax 
        avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal 
        Revenue may rescind all or any portion of any penalty 
        imposed by this section with respect to any violation 
        if--
                    ``(A) the violation is with respect to a 
                reportable transaction other than a listed 
                transaction, and
                    ``(B) rescinding the penalty would promote 
                compliance with the requirements of this title 
                and effective tax administration.
            ``(2) No judicial appeal.--Notwithstanding any 
        other provision of law, any determination under this 
        subsection may not be reviewed in any judicial 
        proceeding.
            ``(3) Records.--If a penalty is rescinded under 
        paragraph (1), the Commissioner shall place in the file 
        in the Office of the Commissioner the opinion of the 
        Commissioner with respect to the determination, 
        including--
                    ``(A) a statement of the facts and 
                circumstances relating to the violation,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports 
        under section 13 or 15(d) of the Securities Exchange 
        Act of 1934 or is required to be consolidated with 
        another person for purposes of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under 
                this section with respect to a listed 
                transaction,
                    ``(B) is required to pay a penalty under 
                section 6662A with respect to any reportable 
                transaction at a rate prescribed under section 
                6662A(c), or
                    ``(C) is required to pay a penalty under 
                section 6662(h) with respect to any reportable 
                transaction and would (but for section 
                6662A(e)(2)(C)) have been subject to penalty 
                under section 6662A at a rate prescribed under 
                section 6662A(c),
the requirement to pay such penalty shall be disclosed in such 
reports filed by such person for such periods as the Secretary 
shall specify. Failure to make a disclosure in accordance with 
the preceding sentence shall be treated as a failure to which 
the penalty under subsection (b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty 
imposed by this section shall be in addition to any other 
penalty imposed by this title.''
    (b) Conforming Amendment.--The table of sections for part I 
of subchapter B of chapter 68 is amended by inserting after the 
item relating to section 6707 the following:

        ``Sec. 6707A. Penalty for failure to include reportable 
                  transaction information with return.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to returns and statements the due date for which is 
after the date of the enactment of this Act.
    (d) Report.--The Commissioner of Internal Revenue shall 
annually report to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate--
            (1) a summary of the total number and aggregate 
        amount of penalties imposed, and rescinded, under 
        section 6707A of the Internal Revenue Code of 1986, and
            (2) a description of each penalty rescinded under 
        section 6707(c) of such Code and the reasons therefor.

SEC. 812. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS, OTHER 
                    REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
                    AVOIDANCE PURPOSE, ETC.

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

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

    ``(a) Imposition of Penalty.--If a taxpayer has a 
reportable transaction understatement for any taxable year, 
there shall be added to the tax an amount equal to 20 percent 
of the amount of such understatement.
    ``(b) Reportable Transaction Understatement.--For purposes 
of this section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase 
                        (if any) in taxable income which 
                        results from a difference between the 
                        proper tax treatment of an item to 
                        which this section applies and the 
                        taxpayer's treatment of such item (as 
                        shown on the taxpayer's return of tax), 
                        and
                            ``(ii) the highest rate of tax 
                        imposed by section 1 (section 11 in the 
                        case of a taxpayer which is a 
                        corporation), and
                    ``(B) the amount of the decrease (if any) 
                in the aggregate amount of credits determined 
                under subtitle A which results from a 
                difference between the taxpayer's treatment of 
                an item to which this section applies (as shown 
                on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the 
        excess of deductions allowed for the taxable year over 
        gross income for such year, and any reduction in the 
        amount of capital losses which would (without regard to 
        section 1211) be allowed for such year, shall be 
        treated as an increase in taxable income.
            ``(2) Items to which section applies.--This section 
        shall apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other 
                than a listed transaction) if a significant 
                purpose of such transaction is the avoidance or 
                evasion of Federal income tax.
    ``(c) Higher Penalty for Nondisclosed Listed and Other 
Avoidance Transactions.--Subsection (a) shall be applied by 
substituting `30 percent' for `20 percent' with respect to the 
portion of any reportable transaction understatement with 
respect to which the requirement of section 6664(d)(2)(A) is 
not met.
    ``(d) Definitions of Reportable and Listed Transactions.--
For purposes of this section, the terms `reportable 
transaction' and `listed transaction' have the respective 
meanings given to such terms by section 6707A(c).
    ``(e) Special Rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as 
        defined in section 6662(d)(2))--
                    ``(A) the amount of such understatement 
                (determined without regard to this paragraph) 
                shall be increased by the aggregate amount of 
                reportable transaction understatements for 
                purposes of determining whether such 
                understatement is a substantial understatement 
                under section 6662(d)(1), and
                    ``(B) the addition to tax under section 
                6662(a) shall apply only to the excess of the 
                amount of the substantial understatement (if 
                any) after the application of subparagraph (A) 
                over the aggregate amount of reportable 
                transaction understatements.
            ``(2) Coordination with other penalties.--
                    ``(A) Application of fraud penalty.--
                References to an underpayment in section 6663 
                shall be treated as including references to a 
                reportable transaction understatement.
                    ``(B) No double penalty.--This section 
                shall not apply to any portion of an 
                understatement on which a penalty is imposed 
                under section 6663.
                    ``(C) Coordination with valuation 
                penalties.--
                            ``(i) Section 6662(e).--Section 
                        6662(e) shall not apply to any portion 
                        of an understatement on which a penalty 
                        is imposed under this section.
                            ``(ii) Section 6662(h).--This 
                        section shall not apply to any portion 
                        of an understatement on which a penalty 
                        is imposed under section 6662(h).
            ``(3) Special rule for amended returns.--Except as 
        provided in regulations, in no event shall any tax 
        treatment included with an amendment or supplement to a 
        return of tax be taken into account in determining the 
        amount of any reportable transaction understatement if 
        the amendment or supplement is filed after the earlier 
        of the date the taxpayer is first contacted by the 
        Secretary regarding the examination of the return or 
        such other date as is specified by the Secretary.''.
    (b) Determination of Other Understatements.--Subparagraph 
(A) of section 6662(d)(2) is amended by adding at the end the 
following flush sentence:
                ``The excess under the preceding sentence shall 
                be determined without regard to items to which 
                section 6662A applies.''.
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding 
        at the end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed 
        under section 6662A with respect to any portion of a 
        reportable transaction understatement if it is shown 
        that there was a reasonable cause for such portion and 
        that the taxpayer acted in good faith with respect to 
        such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply 
        to any reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed 
                in accordance with the regulations prescribed 
                under section 6011,
                    ``(B) there is or was substantial authority 
                for such treatment, and
                    ``(C) the taxpayer reasonably believed that 
                such treatment was more likely than not the 
                proper treatment.
        A taxpayer failing to adequately disclose in accordance 
        with section 6011 shall be treated as meeting the 
        requirements of subparagraph (A) if the penalty for 
        such failure was rescinded under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For 
        purposes of paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be 
                treated as having a reasonable belief with 
                respect to the tax treatment of an item only if 
                such belief--
                            ``(i) is based on the facts and law 
                        that exist at the time the return of 
                        tax which includes such tax treatment 
                        is filed, and
                            ``(ii) relates solely to the 
                        taxpayer's chances of success on the 
                        merits of such treatment and does not 
                        take into account the possibility that 
                        a return will not be audited, such 
                        treatment will not be raised on audit, 
                        or such treatment will be resolved 
                        through settlement if it is raised.
                    ``(B) Certain opinions may not be relied 
                upon.--
                            ``(i) In general.--An opinion of a 
                        tax advisor may not be relied upon to 
                        establish the reasonable belief of a 
                        taxpayer if--
                                    ``(I) the tax advisor is 
                                described in clause (ii), or
                                    ``(II) the opinion is 
                                described in clause (iii).
                            ``(ii) Disqualified tax advisors.--
                        A tax advisor is described in this 
                        clause if the tax advisor--
                                    ``(I) is a material advisor 
                                (within the meaning of section 
                                6111(b)(1)) and participates in 
                                the organization, management, 
                                promotion, or sale of the 
                                transaction or is related 
                                (within the meaning of section 
                                267(b) or 707(b)(1)) to any 
                                person who so participates,
                                    ``(II) is compensated 
                                directly or indirectly by a 
                                material advisor with respect 
                                to the transaction,
                                    ``(III) has a fee 
                                arrangement with respect to the 
                                transaction which is contingent 
                                on all or part of the intended 
                                tax benefits from the 
                                transaction being sustained, or
                                    ``(IV) as determined under 
                                regulations prescribed by the 
                                Secretary, has a disqualifying 
                                financial interest with respect 
                                to the transaction.
                            ``(iii) Disqualified opinions.--For 
                        purposes of clause (i), an opinion is 
                        disqualified if the opinion--
                                    ``(I) is based on 
                                unreasonable factual or legal 
                                assumptions (including 
                                assumptions as to future 
                                events),
                                    ``(II) unreasonably relies 
                                on representations, statements, 
                                findings, or agreements of the 
                                taxpayer or any other person,
                                    ``(III) does not identify 
                                and consider all relevant 
                                facts, or
                                    ``(IV) fails to meet any 
                                other requirement as the 
                                Secretary may prescribe.''.
            (2) Conforming amendments.--
                    (A) Paragraph (1) of section 6664(c) is 
                amended by striking ``this part'' and inserting 
                ``section 6662 or 6663''.
                    (B) The heading for subsection (c) of 
                section 6664 is amended by inserting ``for 
                Underpayments'' after ``Exception''.
    (d) Reduction in Penalty for Substantial Understatement of 
Income Tax Not To Apply to Tax Shelters.--Subparagraph (C) of 
section 6662(d)(2) (relating to substantial understatement of 
income tax) is amended to read as follows:
                    ``(C) Reduction not to apply to tax 
                shelters.--
                            ``(i) In general.--Subparagraph (B) 
                        shall not apply to any item 
                        attributable to a tax shelter.
                            ``(ii) Tax shelter.--For purposes 
                        of clause (i), the term `tax shelter' 
                        means--
                                    ``(I) a partnership or 
                                other entity,
                                    ``(II) any investment plan 
                                or arrangement, or
                                    ``(III) any other plan or 
                                arrangement,
                        if a significant purpose of such 
                        partnership, entity, plan, or 
                        arrangement is the avoidance or evasion 
                        of Federal income tax.''.
    (e) Clerical Amendments.--
            (1) The heading for section 6662 is amended to read 
        as follows:

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

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

        ``Sec. 6662. Imposition of accuracy-related penalty on 
                  underpayments.
        ``Sec. 6662A. Imposition of accuracy-related penalty on 
                  understatements with respect to reportable 
                  transactions.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

SEC. 813. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
                    TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not 
to apply to communications regarding corporate tax shelters) is 
amended to read as follows:
    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply 
to any written communication which is--
            ``(1) between a federally authorized tax 
        practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, 
                agent, or representative of the person, or
                    ``(C) any other person holding a capital or 
                profits interest in the person, and
            ``(2) in connection with the promotion of the 
        direct or indirect participation of the person in any 
        tax shelter (as defined in section 
        6662(d)(2)(C)(ii)).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to communications made on or after the date of the 
enactment of this Act.

SEC. 814. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED 
                    LISTED TRANSACTIONS NOT REPORTED.

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

SEC. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

        ``Sec. 6111. Disclosure of reportable transactions.''.

            (2) So much of section 6112 as precedes subsection 
        (c) thereof is amended to read as follows:

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

    ``(a) In General.--Each material advisor (as defined in 
section 6111) with respect to any reportable transaction (as 
defined in section 6707A(c)) shall (whether or not required to 
file a return under section 6111 with respect to such 
transaction) maintain (in such manner as the Secretary may by 
regulations prescribe) a list--
            ``(1) identifying each person with respect to whom 
        such advisor acted as a material advisor with respect 
        to such transaction, and
            ``(2) containing such other information as the 
        Secretary may by regulations require.''.
            (3) Section 6112 is amended--
                    (A) by redesignating subsection (c) as 
                subsection (b),
                    (B) by inserting ``written'' before 
                ``request'' in subsection (b)(1) (as so 
                redesignated), and
                    (C) by striking ``shall prescribe'' in 
                subsection (b)(2) (as so redesignated) and 
                inserting ``may prescribe''.
            (4) The item relating to section 6112 in the table 
        of sections for subchapter B of chapter 61 is amended 
        to read as follows:

        ``Sec. 6112. Material advisors of reportable transactions must 
                  keep lists of advisees, etc.''.

            (5)(A) The heading for section 6708 is amended to 
        read as follows:

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

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

        ``Sec. 6708. Failure to maintain lists of advisees with respect 
                  to reportable transactions.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to transactions with respect to which material aid, 
assistance, or advice referred to in section 6111(b)(1)(A)(i) 
of the Internal Revenue Code of 1986 (as added by this section) 
is provided after the date of the enactment of this Act.

SEC. 816. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
                    TRANSACTIONS.

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

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

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

SEC. 817. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
                    INVESTORS.

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

SEC. 818. PENALTY ON PROMOTERS OF TAX SHELTERS.

    (a) Penalty on Promoting Abusive Tax Shelters.--Section 
6700(a) is amended by adding at the end the following new 
sentence: ``Notwithstanding the first sentence, if an activity 
with respect to which a penalty imposed under this subsection 
involves a statement described in paragraph (2)(A), the amount 
of the penalty shall be equal to 50 percent of the gross income 
derived (or to be derived) from such activity by the person on 
which the penalty is imposed.''
    (b) Effective Date.--The amendment made by this section 
shall apply to activities after the date of the enactment of 
this Act.

SEC. 819. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
                    NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is 
amended to read as follows:
                    ``(B) Special rule for corporations.--In 
                the case of a corporation other than an S 
                corporation or a personal holding company (as 
                defined in section 542), there is a substantial 
                understatement of income tax for any taxable 
                year if the amount of the understatement for 
                the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax 
                        required to be shown on the return for 
                        the taxable year (or, if greater, 
                        $10,000), or
                            ``(ii) $10,000,000.''.
    (b) Secretarial List.--
            (1) In general.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--The Secretary may 
        prescribe a list of positions which the Secretary 
        believes do not meet the 1 or more of the standards 
        specified in paragraph (2)(B)(i), section 6664(d)(2), 
        and section 6694(a)(1). Such list (and any revisions 
        thereof) shall be published in the Federal Register or 
        the Internal Revenue Bulletin.''.
            (2) Conforming amendment.--Paragraph (2) of section 
        6662(d) is amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
                    TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by 
redesignating subsection (c) as subsection (d) and by striking 
subsections (a) and (b) and inserting the following new 
subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the 
name of the United States to enjoin any person from further 
engaging in specified conduct may be commenced at the request 
of the Secretary. Any action under this section shall be 
brought in the district court of the United States for the 
district in which such person resides, has his principal place 
of business, or has engaged in specified conduct. The court may 
exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action 
brought by the United States against such person.
    ``(b) Adjudication and Decree.--In any action under 
subsection (a), if the court finds--
            ``(1) that the person has engaged in any specified 
        conduct, and
            ``(2) that injunctive relief is appropriate to 
        prevent recurrence of such conduct,
the court may enjoin such person from engaging in such conduct 
or in any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the 
term `specified conduct' means any action, or failure to take 
action, which is--
            ``(1) subject to penalty under section 6700, 6701, 
        6707, or 6708, or
            ``(2) in violation of any requirement under 
        regulations issued under section 330 of title 31, 
        United States Code.''.
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read 
        as follows:

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

            (2) The table of sections for subchapter A of 
        chapter 76 is amended by striking the item relating to 
        section 7408 and inserting the following new item:

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

SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
                    ACCOUNTS.

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

SEC. 822. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
                    TREASURY.

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

                       PART II--OTHER PROVISIONS

SEC. 831. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK 
                    FUNDS, ETC.

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

          ``For treatment of stripped interests in certain accounts or 
        entities holding preferred stock, see section 1286(f).''.

    (c) Effective Date.--The amendments made by this section 
shall apply to purchases and dispositions after the date of the 
enactment of this Act.

SEC. 832. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING 
                    TAXES ON INCOME OTHER THAN DIVIDENDS.

    (a) In General.--Section 901 is amended by redesignating 
subsection (l) as subsection (m) and by inserting after 
subsection (k) the following new subsection:
    ``(l) Minimum Holding Period for Withholding Taxes on Gain 
and Income Other Than Dividends etc.--
            ``(1) In general.--In no event shall a credit be 
        allowed under subsection (a) for any withholding tax 
        (as defined in subsection (k)) on any item of income or 
        gain with respect to any property if--
                    ``(A) such property is held by the 
                recipient of the item for 15 days or less 
                during the 31-day period beginning on the date 
                which is 15 days before the date on which the 
                right to receive payment of such item arises, 
                or
                    ``(B) to the extent that the recipient of 
                the item is under an obligation (whether 
                pursuant to a short sale or otherwise) to make 
                related payments with respect to positions in 
                substantially similar or related property.
        This paragraph shall not apply to any dividend to which 
        subsection (k) applies.
            ``(2) Exception for taxes paid by dealers.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to any qualified tax with respect to any 
                property held in the active conduct in a 
                foreign country of a business as a dealer in 
                such property.
                    ``(B) Qualified tax.--For purposes of 
                subparagraph (A), the term `qualified tax' 
                means a tax paid to a foreign country (other 
                than the foreign country referred to in 
                subparagraph (A)) if--
                            ``(i) the item to which such tax is 
                        attributable is subject to taxation on 
                        a net basis by the country referred to 
                        in subparagraph (A), and
                            ``(ii) such country allows a credit 
                        against its net basis tax for the full 
                        amount of the tax paid to such other 
                        foreign country.
                    ``(C) Dealer.--For purposes of subparagraph 
                (A), the term `dealer' means--
                            ``(i) with respect to a security, 
                        any person to whom paragraphs (1) and 
                        (2) of subsection (k) would not apply 
                        by reason of paragraph (4) thereof if 
                        such security were stock, and
                            ``(ii) with respect to any other 
                        property, any person with respect to 
                        whom such property is described in 
                        section 1221(a)(1).
                    ``(D) Regulations.--The Secretary may 
                prescribe such regulations as may be 
                appropriate to carry out this paragraph, 
                including regulations to prevent the abuse of 
                the exception provided by this paragraph and to 
                treat other taxes as qualified taxes.
            ``(3) Exceptions.--The Secretary may by regulation 
        provide that paragraph (1) shall not apply to property 
        where the Secretary determines that the application of 
        paragraph (1) to such property is not necessary to 
        carry out the purposes of this subsection.
            ``(4) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (5), (6), and (7) of subsection (k) 
        shall apply for purposes of this subsection.
            ``(5) Determination of holding period.--Holding 
        periods shall be determined for purposes of this 
        subsection without regard to section 1235 or any 
        similar rule.''.
    (b) Conforming Amendment.--The heading of subsection (k) of 
section 901 is amended by inserting ``on Dividends'' after 
``Taxes''.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid or accrued more than 30 days after 
the date of the enactment of this Act.

SEC. 833. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.

    (a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is amended by striking ``and'' 
at the end of subparagraph (A), by striking the period at the 
end of subparagraph (B) and inserting ``, and'', and by adding 
at the end the following:
                    ``(C) if any property so contributed has a 
                built-in loss--
                            ``(i) such built-in loss shall be 
                        taken into account only in determining 
                        the amount of items allocated to the 
                        contributing partner, and
                            ``(ii) except as provided in 
                        regulations, in determining the amount 
                        of items allocated to other partners, 
                        the basis of the contributed property 
                        in the hands of the partnership shall 
                        be treated as being equal to its fair 
                        market value at the time of 
                        contribution.
        For purposes of subparagraph (C), the term `built-in 
        loss' means the excess of the adjusted basis of the 
        property (determined without regard to subparagraph 
        (C)(ii)) over its fair market value at the time of 
        contribution.''.
    (b) Special Rules for Transfers of Partnership Interest if 
There Is Substantial Built-In Loss.--
            (1) Adjustment of partnership basis required.--
        Subsection (a) of section 743 (relating to optional 
        adjustment to basis of partnership property) is amended 
        by inserting before the period ``or unless the 
        partnership has a substantial built-in loss immediately 
        after such transfer''.
            (2) Adjustment.--Subsection (b) of section 743 is 
        amended by inserting ``or which has a substantial 
        built-in loss immediately after such transfer'' after 
        ``section 754 is in effect''.
            (3) Substantial built-in loss.--Section 743 is 
        amended by adding at the end the following new 
        subsection:
    ``(d) Substantial Built-In Loss.--
            ``(1) In general.--For purposes of this section, a 
        partnership has a substantial built-in loss with 
        respect to a transfer of an interest in a partnership 
        if the partnership's adjusted basis in the partnership 
        property exceeds by more than $250,000 the fair market 
        value of such property.
            ``(2) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to carry out the 
        purposes of paragraph (1) and section 734(d), including 
        regulations aggregating related partnerships and 
        disregarding property acquired by the partnership in an 
        attempt to avoid such purposes.''.
            (4) Alternative rules for electing investment 
        partnerships.--
                    (A) In general.--Section 743 is amended by 
                adding after subsection (d) the following new 
                subsection:
    ``(e) Alternative rules for electing investment 
partnerships.--
            ``(1) No adjustment of partnership basis.--For 
        purposes of this section, an electing investment 
        partnership shall not be treated as having a 
        substantial built-in loss with respect to any transfer 
        occurring while the election under paragraph (6)(A) is 
        in effect.
            ``(2) Loss deferral for transferee partner.--In the 
        case of a transfer of an interest in an electing 
        investment partnership, the transferee partner's 
        distributive share of losses (without regard to gains) 
        from the sale or exchange of partnership property shall 
        not be allowed except to the extent that it is 
        established that such losses exceed the loss (if any) 
        recognized by the transferor (or any prior transferor 
        to the extent not fully offset by a prior disallowance 
        under this paragraph) on the transfer of the 
        partnership interest.
            ``(3) No reduction in partnership basis.--Losses 
        disallowed under paragraph (2) shall not decrease the 
        transferee partner's basis in the partnership interest.
            ``(4) Effect of termination of partnership.--This 
        subsection shall be applied without regard to any 
        termination of a partnership under section 
        708(b)(1)(B).
            ``(5) Certain basis reductions treated as losses.--
        In the case of a transferee partner whose basis in 
        property distributed by the partnership is reduced 
        under section 732(a)(2), the amount of the loss 
        recognized by the transferor on the transfer of the 
        partnership interest which is taken into account under 
        paragraph (2) shall be reduced by the amount of such 
        basis reduction.
            ``(6) Electing investment partnership.--For 
        purposes of this subsection, the term `electing 
        investment partnership' means any partnership if--
                    ``(A) the partnership makes an election to 
                have this subsection apply,
                    ``(B) the partnership would be an 
                investment company under section 3(a)(1)(A) of 
                the Investment Company Act of 1940 but for an 
                exemption under paragraph (1) or (7) of section 
                3(c) of such Act,
                    ``(C) such partnership has never been 
                engaged in a trade or business,
                    ``(D) substantially all of the assets of 
                such partnership are held for investment,
                    ``(E) at least 95 percent of the assets 
                contributed to such partnership consist of 
                money,
                    ``(F) no assets contributed to such 
                partnership had an adjusted basis in excess of 
                fair market value at the time of contribution,
                    ``(G) all partnership interests of such 
                partnership are issued by such partnership 
                pursuant to a private offering before the date 
                which is 24 months after the date of the first 
                capital contribution to such partnership,
                    ``(H) the partnership agreement of such 
                partnership has substantive restrictions on 
                each partner's ability to cause a redemption of 
                the partner's interest, and
                    ``(I) the partnership agreement of such 
                partnership provides for a term that is not in 
                excess of 15 years.
        The election described in subparagraph (A), once made, 
        shall be irrevocable except with the consent of the 
        Secretary.
            ``(7) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to carry out the 
        purposes of this subsection, including regulations for 
        applying this subsection to tiered partnerships.''.
                    (B) Information reporting.--Section 6031 is 
                amended by adding at the end the following new 
                subsection:
    ``(f) Electing Investment Partnerships.--In the case of any 
electing investment partnership (as defined in section 
743(e)(6)), the information required under subsection (b) to be 
furnished to any partner to whom section 743(e)(2) applies 
shall include such information as is necessary to enable the 
partner to compute the amount of losses disallowed under 
section 743(e).''.
            (5) Special rule for securitization partnerships.--
        Section 743 is amended by adding after subsection (e) 
        the following new subsection:
    ``(f) Exception for Securitization Partnerships.--
            ``(1) No adjustment of partnership basis.--For 
        purposes of this section, a securitization partnership 
        shall not be treated as having a substantial built-in 
        loss with respect to any transfer.
            ``(2) Securitization partnership.--For purposes of 
        paragraph (1), the term `securitization partnership' 
        means any partnership the sole business activity of 
        which is to issue securities which provide for a fixed 
        principal (or similar) amount and which are primarily 
        serviced by the cash flows of a discrete pool (either 
        fixed or revolving) of receivables or other financial 
        assets that by their terms convert into cash in a 
        finite period, but only if the sponsor of the pool 
        reasonably believes that the receivables and other 
        financial assets comprising the pool are not acquired 
        so as to be disposed of.''
            (6) Clerical amendments.--
                    (A) The section heading for section 743 is 
                amended to read as follows:

``SEC. 743. SPECIAL RULES WHERE SECTION 754 ELECTION OR SUBSTANTIAL 
                    BUILT-IN LOSS.''

                    (B) The table of sections for subpart C of 
                part II of subchapter K of chapter 1 is amended 
                by striking the item relating to section 743 
                and inserting the following new item:

        ``Sec. 743. Special rules where section 754 election or 
                  substantial built-in loss.''.

    (c) Adjustment to Basis of Undistributed Partnership 
Property if There Is Substantial Basis Reduction.--
            (1) Adjustment required.--Subsection (a) of section 
        734 (relating to optional adjustment to basis of 
        undistributed partnership property) is amended by 
        inserting before the period ``or unless there is a 
        substantial basis reduction''.
            (2) Adjustment.--Subsection (b) of section 734 is 
        amended by inserting ``or unless there is a substantial 
        basis reduction'' after ``section 754 is in effect''.
            (3) Substantial basis reduction.--Section 734 is 
        amended by adding at the end the following new 
        subsection:
    ``(d) Substantial Basis Reduction.--
            ``(1) In general.--For purposes of this section, 
        there is a substantial basis reduction with respect to 
        a distribution if the sum of the amounts described in 
        subparagraphs (A) and (B) of subsection (b)(2) exceeds 
        $250,000.
            ``(2) Regulations.--

          ``For regulations to carry out this subsection, see section 
        743(d)(2).''.

            (4) Exception for securitization partnerships.--
        Section 734 is amended by inserting after subsection 
        (d) the following new subsection:
    ``(e) Exception for Securitization Partnerships.--For 
purposes of this section, a securitization partnership (as 
defined in section 743(f)) shall not be treated as having a 
substantial basis reduction with respect to any distribution of 
property to a partner.''.
            (5) Clerical amendments.--
                    (A) The section heading for section 734 is 
                amended to read as follows:

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY 
                    WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS 
                    REDUCTION.''

                    (B) The table of sections for subpart B of 
                part II of subchapter K of chapter 1 is amended 
                by striking the item relating to section 734 
                and inserting the following new item:

        ``Sec. 734. Adjustment to basis of undistributed partnership 
                  property where section 754 election or substantial 
                  basis reduction.''.

    (d) Effective Dates.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall apply to contributions made after 
        the date of the enactment of this Act.
            (2) Subsection (b).--
                    (A) In general.--Except as provided in 
                subparagraph (B), the amendments made by 
                subsection (b) shall apply to transfers after 
                the date of the enactment of this Act.
                    (B) Transition rule.--In the case of an 
                electing investment partnership which is in 
                existence on June 4, 2004, section 743(e)(6)(H) 
                of the Internal Revenue Code of 1986, as added 
                by this section, shall not apply to such 
                partnership and section 743(e)(6)(I) of such 
                Code, as so added, shall be applied by 
                substituting ``20 years'' for ``15 years''.
            (3) Subsection (c).--The amendments made by 
        subsection (c) shall apply to distributions after the 
        date of the enactment of this Act.

SEC. 834. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY 
                    PARTNERSHIP IN CORPORATE PARTNER.

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

SEC. 835. REPEAL OF SPECIAL RULES FOR FASITS.

    (a) In General.--Part V of subchapter M of chapter 1 
(relating to financial asset securitization investment trusts) 
is hereby repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (6) of section 56(g) is amended by 
        striking ``REMIC, or FASIT'' and inserting ``or 
        REMIC''.
            (2) Clause (ii) of section 382(l)(4)(B) is amended 
        by striking ``a REMIC to which part IV of subchapter M 
        applies, or a FASIT to which part V of subchapter M 
        applies,'' and inserting ``or a REMIC to which part IV 
        of subchapter M applies,''.
            (3) Paragraph (1) of section 582(c) is amended by 
        striking ``, and any regular interest in a FASIT,''.
            (4) Subparagraph (E) of section 856(c)(5) is 
        amended by striking the last sentence.
            (5)(A) Section 860G(a)(1) is amended by adding at 
        the end the following new sentence: ``An interest shall 
        not fail to qualify as a regular interest solely 
        because the specified principal amount of the regular 
        interest (or the amount of interest accrued on the 
        regular interest) can be reduced as a result of the 
        nonoccurrence of 1 or more contingent payments with 
        respect to any reverse mortgage loan held by the REMIC 
        if, on the startup day for the REMIC, the sponsor 
        reasonably believes that all principal and interest due 
        under the regular interest will be paid at or prior to 
        the liquidation of the REMIC.''.
            (B) The last sentence of section 860G(a)(3) is 
        amended by inserting ``, and any reverse mortgage loan 
        (and each balance increase on such loan meeting the 
        requirements of subparagraph (A)(iii)) shall be treated 
        as an obligation secured by an interest in real 
        property'' before the period at the end.
            (6) Paragraph (3) of section 860G(a) is amended by 
        adding ``and'' at the end of subparagraph (B), by 
        striking ``, and'' at the end of subparagraph (C) and 
        inserting a period, and by striking subparagraph (D).
            (7) Section 860G(a)(3), as amended by paragraph 
        (6), is amended by adding at the end the following new 
        sentence: ``For purposes of subparagraph (A), if more 
        than 50 percent of the obligations transferred to, or 
        purchased by, the REMIC are originated by the United 
        States or any State (or any political subdivision, 
        agency, or instrumentality of the United States or any 
        State) and are principally secured by an interest in 
        real property, then each obligation transferred to, or 
        purchased by, the REMIC shall be treated as secured by 
        an interest in real property.''.
            (8)(A) Section 860G(a)(3)(A) is amended by striking 
        ``or'' at the end of clause (i), by inserting ``or'' at 
        the end of clause (ii), and by inserting after clause 
        (ii) the following new clause:
                            ``(iii) represents an increase in 
                        the principal amount under the original 
                        terms of an obligation described in 
                        clause (i) or (ii) if such increase--
                                    ``(I) is attributable to an 
                                advance made to the obligor 
                                pursuant to the original terms 
                                of the obligation,
                                    ``(II) occurs after the 
                                startup day, and
                                    ``(III) is purchased by the 
                                REMIC pursuant to a fixed price 
                                contract in effect on the 
                                startup day.''.
            (B) Section 860G(a)(7)(B) is amended to read as 
        follows:
                    ``(B) Qualified reserve fund.--For purposes 
                of subparagraph (A), the term `qualified 
                reserve fund' means any reasonably required 
                reserve to--
                            ``(i) provide for full payment of 
                        expenses of the REMIC or amounts due on 
                        regular interests in the event of 
                        defaults on qualified mortgages or 
                        lower than expected returns on cash 
                        flow investments, or
                            ``(ii) provide a source of funds 
                        for the purchase of obligations 
                        described in clause (ii) or (iii) of 
                        paragraph (3)(A).
                The aggregate fair market value of the assets 
                held in any such reserve shall not exceed 50 
                percent of the aggregate fair market value of 
                all of the assets of the REMIC on the startup 
                day, and the amount of any such reserve shall 
                be promptly and appropriately reduced to the 
                extent the amount held in such reserve is no 
                longer reasonably required for purposes 
                specified in clause (i) or (ii) of this 
                subparagraph.''.
            (9) Subparagraph (C) of section 1202(e)(4) is 
        amended by striking ``REMIC, or FASIT'' and inserting 
        ``or REMIC''.
            (10) Clause (xi) of section 7701(a)(19)(C) is 
        amended--
                    (A) by striking ``and any regular interest 
                in a FASIT,'', and
                    (B) by striking ``or FASIT'' each place it 
                appears.
            (11) Subparagraph (A) of section 7701(i)(2) is 
        amended by striking ``or a FASIT''.
            (12) The table of parts for subchapter M of chapter 
        1 is amended by striking the item relating to part V.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall take 
        effect on January 1, 2005.
            (2) Exception for existing fasits.--Paragraph (1) 
        shall not apply to any FASIT in existence on the date 
        of the enactment of this Act to the extent that regular 
        interests issued by the FASIT before such date continue 
        to remain outstanding in accordance with the original 
        terms of issuance.

SEC. 836. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

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

SEC. 837. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF DETERMINING 
                    INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY.

    (a) In General.--Subparagraph (A) of section 956(c)(2) is 
amended to read as follows:
                    ``(A) obligations of the United States, 
                money, or deposits with--
                            ``(i) any bank (as defined by 
                        section 2(c) of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 
                        1841(c)), without regard to 
                        subparagraphs (C) and (G) of paragraph 
                        (2) of such section), or
                            ``(ii) any corporation not 
                        described in clause (i) with respect to 
                        which a bank holding company (as 
                        defined by section 2(a) of such Act) or 
                        financial holding company (as defined 
                        by section 2(p) of such Act) owns 
                        directly or indirectly more than 80 
                        percent by vote or value of the stock 
                        of such corporation;''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 838. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                    ATTRIBUTABLE TO NONDISCLOSED REPORTABLE 
                    TRANSACTIONS.

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

SEC. 839. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR 
                    CERTAIN DEEMED ASSET SALES.

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

SEC. 840. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE 
                    ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF 
                    SALE.

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

SEC. 841. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE 
                    DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN 
                    TRANSACTIONS WITH RELATED FOREIGN PERSONS.

    (a) Original Issue Discount.--Section 163(e)(3) (relating 
to special rule for original issue discount on obligation held 
by related foreign person) is amended by redesignating 
subparagraph (B) as subparagraph (C) and by inserting after 
subparagraph (A) the following new subparagraph:
                    ``(B) Special rule for certain foreign 
                entities.--
                            ``(i) In general.--In the case of 
                        any debt instrument having original 
                        issue discount which is held by a 
                        related foreign person which is a 
                        controlled foreign corporation (as 
                        defined in section 957) or a passive 
                        foreign investment company (as defined 
                        in section 1297), a deduction shall be 
                        allowable to the issuer with respect to 
                        such original issue discount for any 
                        taxable year before the taxable year in 
                        which paid only to the extent such 
                        original issue discount is includible 
                        (determined without regard to properly 
                        allocable deductions and qualified 
                        deficits under section 952(c)(1)(B)) 
                        during such prior taxable year in the 
                        gross income of a United States person 
                        who owns (within the meaning of section 
                        958(a)) stock in such corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt 
                        transactions from the application of 
                        clause (i), including any transaction 
                        which is entered into by a payor in the 
                        ordinary course of a trade or business 
                        in which the payor is predominantly 
                        engaged.''.
    (b) Interest and Other Deductible Amounts.--Section 
267(a)(3) is amended--
            (1) by striking ``The Secretary'' and inserting:
                    ``(A) In general.--The Secretary'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(B) Special rule for certain foreign 
                entities.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A), in the case of any 
                        item payable to a controlled foreign 
                        corporation (as defined in section 957) 
                        or a passive foreign investment company 
                        (as defined in section 1297), a 
                        deduction shall be allowable to the 
                        payor with respect to such amount for 
                        any taxable year before the taxable 
                        year in which paid only to the extent 
                        that an amount attributable to such 
                        item is includible (determined without 
                        regard to properly allocable deductions 
                        and qualified deficits under section 
                        952(c)(1)(B)) during such prior taxable 
                        year in the gross income of a United 
                        States person who owns (within the 
                        meaning of section 958(a)) stock in 
                        such corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt 
                        transactions from the application of 
                        clause (i), including any transaction 
                        which is entered into by a payor in the 
                        ordinary course of a trade or business 
                        in which the payor is predominantly 
                        engaged and in which the payment of the 
                        accrued amounts occurs within 8\1/2\ 
                        months after accrual or within such 
                        other period as the Secretary may 
                        prescribe.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to payments accrued on or after the date of the 
enactment of this Act.

SEC. 842. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
                    UNDERPAYMENTS.

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

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

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

        ``Sec. 6603. Deposits made to suspend running of interest on 
                  potential underpayments, etc.''.

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

SEC. 843. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.

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

SEC. 844. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 is amended by adding at the 
end the following new sentence: ``In carrying out the preceding 
sentence, the Secretary may prescribe rules that are different 
from the provisions of chapter 1 that would apply if such 
corporations filed separate returns.''.
    (b) Result Not Overturned.--Notwithstanding the amendment 
made by subsection (a), the Internal Revenue Code of 1986 shall 
be construed by treating Treasury Regulation Sec. 1.1502-
20(c)(1)(iii) (as in effect on January 1, 2001) as being 
inapplicable to the factual situation in Rite Aid Corporation 
and Subsidiary Corporations v. United States, 255 F.3d 1357 
(Fed. Cir. 2001).
    (c) Effective Date.--This section, and the amendment made 
by this section, shall apply to taxable years beginning before, 
on, or after the date of the enactment of this Act.

SEC. 845. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
                    CONVERTIBLE DEBT.

    (a) In General.--Paragraph (2) of section 163(l) is amended 
by inserting ``or equity held by the issuer (or any related 
party) in any other person'' after ``or a related party''.
    (b) Capitalization Allowed With Respect to Equity of 
Persons Other Than Issuer and Related Parties.--Section 163(l) 
is amended by redesignating paragraphs (4) and (5) as 
paragraphs (5) and (6) and by inserting after paragraph (3) the 
following new paragraph:
            ``(4) Capitalization allowed with respect to equity 
        of persons other than issuer and related parties.--If 
        the disqualified debt instrument of a corporation is 
        payable in equity held by the issuer (or any related 
        party) in any other person (other than a related 
        party), the basis of such equity shall be increased by 
        the amount not allowed as a deduction by reason of 
        paragraph (1) with respect to the instrument.''.
    (c) Exception for Certain Instruments Issued by Dealers in 
Securities.--Section 163(l), as amended by subsection (b), is 
amended by redesignating paragraphs (5) and (6) as paragraphs 
(6) and (7) and by inserting after paragraph (4) the following 
new paragraph:
            ``(5) Exception for certain instruments issued by 
        dealers in securities.--For purposes of this 
        subsection, the term `disqualified debt instrument' 
        does not include indebtedness issued by a dealer in 
        securities (or a related party) which is payable in, or 
        by reference to, equity (other than equity of the 
        issuer or a related party) held by such dealer in its 
        capacity as a dealer in securities. For purposes of 
        this paragraph, the term `dealer in securities' has the 
        meaning given such term by section 475.''.
    (d) Conforming Amendment.--Paragraph (3) of section 163(l) 
is amended by striking ``or a related party'' in the material 
preceding subparagraph (A) and inserting ``or any other 
person''.
    (e) Effective Date.--The amendments made by this section 
shall apply to debt instruments issued after October 3, 2004.

                           PART III--LEASING

SEC. 847. REFORM OF TAX TREATMENT OF CERTAIN LEASING ARRANGEMENTS.

    (a) Clarification of Recovery Period for Tax-Exempt Use 
Property Subject to Lease.--Subparagraph (A) of section 
168(g)(3) (relating to special rules for determining class 
life) is amended by inserting ``(notwithstanding any other 
subparagraph of this paragraph)'' after ``shall''.
    (b) Limitation on Depreciation and Amortization Periods for 
Intangibles Leased to Tax-Exempt Entity.--
            (1) Computer software.--Paragraph (1) of section 
        167(f) is amended by adding at the end the following 
        new subparagraph:
                    ``(C) Tax-exempt use property subject to 
                lease.--In the case of computer software which 
                would be tax-exempt use property as defined in 
                subsection (h) of section 168 if such section 
                applied to computer software, the useful life 
                under subparagraph (A) shall not be less than 
                125 percent of the lease term (within the 
                meaning of section 168(i)(3)).''.
            (2) Certain interests or rights acquired 
        separately.--Paragraph (2) of section 167(f) is amended 
        by adding at the end the following new sentence: ``If 
        such property would be tax-exempt use property as 
        defined in subsection (h) of section 168 if such 
        section applied to such property, the useful life under 
        such regulations shall not be less than 125 percent of 
        the lease term (within the meaning of section 
        168(i)(3)).''.
            (3) Section 197 intangibles.--Section 197(f) 
        (relating to special rules) is amended by adding at the 
        end the following new paragraph:
            ``(10) Tax-exempt use property subject to lease.--
        In the case of any section 197 intangible which would 
        be tax-exempt use property as defined in subsection (h) 
        of section 168 if such section applied to such 
        intangible, the amortization period under this section 
        shall not be less than 125 percent of the lease term 
        (within the meaning of section 168(i)(3)).''.
    (c) Lease Term To Include Related Service Contracts.--
Subparagraph (A) of section 168(i)(3) (relating to lease term) 
is amended by striking ``and'' at the end of clause (i), by 
redesignating clause (ii) as clause (iii), and by inserting 
after clause (i) the following new clause:
                            ``(ii) the term of a lease shall 
                        include the term of any service 
                        contract or similar arrangement 
                        (whether or not treated as a lease 
                        under section 7701(e))--
                                    ``(I) which is part of the 
                                same transaction (or series of 
                                related transactions) which 
                                includes the lease, and
                                    ``(II) which is with 
                                respect to the property subject 
                                to the lease or substantially 
                                similar property, and''.
    (d) Expansion of Short-Term Lease Exemption for Qualified 
Technological Equipment.--Subparagraph (A) of section 168(h)(3) 
is amended by adding at the end the following new sentence: 
``Notwithstanding subsection (i)(3)(A)(i), in determining a 
lease term for purposes of the preceding sentence, there shall 
not be taken into account any option of the lessee to renew at 
the fair market value rent determined at the time of renewal; 
except that the aggregate period not taken into account by 
reason of this sentence shall not exceed 24 months.''.
    (e) Treatment of Certain Indian Tribal Governments As Tax-
Exempt Entities.--Section 168(h)(2)(A) is amended by striking 
``and'' at the end of clause (ii), by striking the period at 
the end of clause (iii) and inserting ``, and'', and by 
inserting at the end the following:
                            ``(iv) any Indian tribal government 
                        described in section 7701(a)(40).
                For purposes of applying this subsection, any 
                Indian tribal government referred to in clause 
                (iv) shall be treated in the same manner as a 
                State.''

SEC. 848. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
                    GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

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

``SEC. 470. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
                    GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

    ``(a) Limitation on Losses.--Except as otherwise provided 
in this section, a tax-exempt use loss for any taxable year 
shall not be allowed.
    ``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt 
use loss with respect to any tax-exempt use property which is 
disallowed under subsection (a) for any taxable year shall be 
treated as a deduction with respect to such property in the 
next taxable year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Tax-exempt use loss.--The term `tax-exempt 
        use loss' means, with respect to any taxable year, the 
        amount (if any) by which--
                    ``(A) the sum of--
                            ``(i) the aggregate deductions 
                        (other than interest) directly 
                        allocable to a tax-exempt use property, 
                        plus
                            ``(ii) the aggregate deductions for 
                        interest properly allocable to such 
                        property, exceed
                    ``(B) the aggregate income from such 
                property.
            ``(2) Tax-exempt use property.--The term `tax-
        exempt use property' has the meaning given to such term 
        by section 168(h), except that such section shall be 
        applied--
                    ``(A) without regard to paragraphs (1)(C) 
                and (3) thereof, and
                    ``(B) as if property described in--
                            ``(i) section 167(f)(1)(B),
                            ``(ii) section 167(f)(2), and
                            ``(iii) section 197 intangible,
                were tangible property.
        Such term shall not include property which would (but 
        for this sentence) be tax-exempt use property solely by 
        reason of section 168(h)(6) if any credit is allowable 
        under section 42 or 47 with respect to such property.
    ``(d) Exception for Certain Leases.--This section shall not 
apply to any lease of property which meets the requirements of 
all of the following paragraphs:
            ``(1) Availability of funds.--
                    ``(A) In general.--A lease of property 
                meets the requirements of this paragraph if (at 
                any time during the lease term) not more than 
                an allowable amount of funds are--
                            ``(i) subject to any arrangement 
                        referred to in subparagraph (B), or
                            ``(ii) set aside or expected to be 
                        set aside,
                to or for the benefit of the lessor or any 
                lender, or to or for the benefit of the lessee 
                to satisfy the lessee's obligations or options 
                under the lease. For purposes of clause (ii), 
                funds shall be treated as set aside or expected 
                to be set aside only if a reasonable person 
                would conclude, based on the facts and 
                circumstances, that such funds are set aside or 
                expected to be set aside.
                    ``(B) Arrangements.--The arrangements 
                referred to in this subparagraph include a 
                defeasance arrangement, a loan by the lessee to 
                the lessor or any lender, a deposit 
                arrangement, a letter of credit collateralized 
                with cash or cash equivalents, a payment 
                undertaking agreement, prepaid rent (within the 
                meaning of the regulations under section 467), 
                a sinking fund arrangement, a guaranteed 
                investment contract, financial guaranty 
                insurance, and any similar arrangement (whether 
                or not such arrangement provides credit 
                support).
                    ``(C) Allowable amount.--
                            ``(i) In general.--Except as 
                        otherwise provided in this 
                        subparagraph, the term `allowable 
                        amount' means an amount equal to 20 
                        percent of the lessor's adjusted basis 
                        in the property at the time the lease 
                        is entered into.
                            ``(ii) Higher amount permitted in 
                        certain cases.--To the extent provided 
                        in regulations, a higher percentage 
                        shall be permitted under clause (i) 
                        where necessary because of the credit-
                        worthiness of the lessee. In no event 
                        may such regulations permit a 
                        percentage of more than 50 percent.
                            ``(iii) Option to purchase.--If 
                        under the lease the lessee has the 
                        option to purchase the property for a 
                        fixed price or for other than the fair 
                        market value of the property 
                        (determined at the time of exercise), 
                        the allowable amount at the time such 
                        option may be exercised may not exceed 
                        50 percent of the price at which such 
                        option may be exercised.
                            ``(iv) No allowable amount for 
                        certain arrangements.--The allowable 
                        amount shall be zero with respect to 
                        any arrangement which involves--
                                    ``(I) a loan from the 
                                lessee to the lessor or a 
                                lender,
                                    ``(II) any deposit 
                                received, letter of credit 
                                issued, or payment undertaking 
                                agreement entered into by a 
                                lender otherwise involved in 
                                the transaction, or
                                    ``(III) in the case of a 
                                transaction which involves a 
                                lender, any credit support made 
                                available to the lessor in 
                                which any such lender does not 
                                have a claim that is senior to 
                                the lessor.

                        For purposes of subclause (I), the term 
                        `loan' shall not include any amount 
                        treated as a loan under section 467 
                        with respect to a section 467 rental 
                        agreement.
            ``(2) Lessor must make substantial equity 
        investment.--
                    ``(A) In general.--A lease of property 
                meets the requirements of this paragraph if--
                            ``(i) the lessor--
                                    ``(I) has at the time the 
                                lease is entered into an 
                                unconditional at-risk equity 
                                investment (as determined by 
                                the Secretary) in the property 
                                of at least 20 percent of the 
                                lessor's adjusted basis in the 
                                property as of that time, and
                                    ``(II) maintains such 
                                investment throughout the term 
                                of the lease, and
                            ``(ii) the fair market value of the 
                        property at the end of the lease term 
                        is reasonably expected to be equal to 
                        at least 20 percent of such basis.
                    ``(B) Risk of loss.--For purposes of clause 
                (ii), the fair market value at the end of the 
                lease term shall be reduced to the extent that 
                a person other than the lessor bears a risk of 
                loss in the value of the property.
                    ``(C) Paragraph not to apply to short-term 
                leases.--This paragraph shall not apply to any 
                lease with a lease term of 5 years or less.
            ``(3) Lessee may not bear more than minimal risk of 
        loss.--
                    ``(A) In general.--A lease of property 
                meets the requirements of this paragraph if 
                there is no arrangement under which the lessee 
                bears--
                            ``(i) any portion of the loss that 
                        would occur if the fair market value of 
                        the leased property were 25 percent 
                        less than its reasonably expected fair 
                        market value at the time the lease is 
                        terminated, or
                            ``(ii) more than 50 percent of the 
                        loss that would occur if the fair 
                        market value of the leased property at 
                        the time the lease is terminated were 
                        zero.
                    ``(B) Exception.--The Secretary may by 
                regulations provide that the requirements of 
                this paragraph are not met where the lessee 
                bears more than a minimal risk of loss.
                    ``(C) Paragraph not to apply to short-term 
                leases.--This paragraph shall not apply to any 
                lease with a lease term of 5 years or less.
            ``(4) Property with more than 7-year class life.--
        In the case of a lease--
                    ``(A) of property with a class life (as 
                defined in section 168(i)(1)) of more than 7 
                years, other than fixed-wing aircraft and 
                vessels, and
                    ``(B) under which the lessee has the option 
                to purchase the property,
        the lease meets the requirements of this paragraph only 
        if the purchase price under the option equals the fair 
        market value of the property (determined at the time of 
        exercise).
    ``(e) Special Rules.--
            ``(1) Treatment of former tax-exempt use 
        property.--
                    ``(A) In general.--In the case of any 
                former tax-exempt use property--
                            ``(i) any deduction allowable under 
                        subsection (b) with respect to such 
                        property for any taxable year shall be 
                        allowed only to the extent of any net 
                        income (without regard to such 
                        deduction) from such property for such 
                        taxable year, and
                            ``(ii) any portion of such unused 
                        deduction remaining after application 
                        of clause (i) shall be treated as a 
                        deduction allowable under subsection 
                        (b) with respect to such property in 
                        the next taxable year.
                    ``(B) Former tax-exempt use property.--For 
                purposes of this subsection, the term `former 
                tax-exempt use property' means any property 
                which--
                            ``(i) is not tax-exempt use 
                        property for the taxable year, but
                            ``(ii) was tax-exempt use property 
                        for any prior taxable year.
            ``(2) Disposition of entire interest in property.--
        If during the taxable year a taxpayer disposes of the 
        taxpayer's entire interest in tax-exempt use property 
        (or former tax-exempt use property), rules similar to 
        the rules of section 469(g) shall apply for purposes of 
        this section.
            ``(3) Coordination with section 469.--This section 
        shall be applied before the application of section 469.
            ``(4) Coordination with sections 1031 and 1033.--
                    ``(A) In general.--Sections 1031(a) and 
                1033(a) shall not apply if--
                            ``(i) the exchanged or converted 
                        property is tax-exempt use property 
                        subject to a lease which was entered 
                        into before March 13, 2004, and which 
                        would not have met the requirements of 
                        subsection (d) had such requirements 
                        been in effect when the lease was 
                        entered into, or
                            ``(ii) the replacement property is 
                        tax-exempt use property subject to a 
                        lease which does not meet the 
                        requirements of subsection (d).
                    ``(B) Adjusted basis.--In the case of 
                property acquired by the lessor in a 
                transaction to which section 1031 or 1033 
                applies, the adjusted basis of such property 
                for purposes of this section shall be equal to 
                the lesser of--
                            ``(i) the fair market value of the 
                        property as of the beginning of the 
                        lease term, or
                            ``(ii) the amount which would be 
                        the lessor's adjusted basis if such 
                        sections did not apply to such 
                        transaction.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Related parties.--The terms `lessor', 
        `lessee', and `lender' each include any related party 
        (within the meaning of section 197(f)(9)(C)(i)).
            ``(2) Lease term.--The term `lease term' has the 
        meaning given to such term by section 168(i)(3).
            ``(3) Lender.--The term `lender' means, with 
        respect to any lease, a person that makes a loan to the 
        lessor which is secured (or economically similar to 
        being secured) by the lease or the leased property.
            ``(4) Loan.--The term `loan' includes any similar 
        arrangement.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations which--
            ``(1) allow in appropriate cases the aggregation of 
        property subject to the same lease, and
            ``(2) provide for the determination of the 
        allocation of interest expense for purposes of this 
        section.''.
    (b) Conforming Amendment.--The table of sections for 
subpart C of part II of subchapter E of chapter 1 is amended by 
adding at the end the following new item:

        ``Sec. 470. Limitation on deductions allocable to property used 
                  by governments or other tax-exempt entities.''.

SEC. 849. EFFECTIVE DATE.

    (a) In General.--Except as provided in this section, the 
amendments made by this part shall apply to leases entered into 
after March 12, 2004.
    (b) Exception.--
            (1) In general.--The amendments made by this part 
        shall not apply to qualified transportation property.
            (2) Qualified transportation property.--For 
        purposes of paragraph (1), the term ``qualified 
        transportation property'' means domestic property 
        subject to a lease with respect to which a formal 
        application--
                    (A) was submitted for approval to the 
                Federal Transit Administration (an agency of 
                the Department of Transportation) after June 
                30, 2003, and before March 13, 2004,
                    (B) is approved by the Federal Transit 
                Administration before January 1, 2006, and
                    (C) includes a description of such property 
                and the value of such property.
            (3) Exchanges and conversion of tax-exempt use 
        property.--Section 470(e)(4) of the Internal Revenue 
        Code of 1986, as added by section 848, shall apply to 
        property exchanged or converted after the date of the 
        enactment of this Act.
            (4) Intangibles and indian tribal governments.--The 
        amendments made subsections (b)(2), (b)(3), and (e) of 
        section 847, and the treatment of property described in 
        clauses (ii) and (iii) of section 470(c)(2)(B) of the 
        Internal Revenue Code of 1986 (as added by section 848) 
        as tangible property, shall apply to leases entered 
        into after October 3, 2004.

               Subtitle C--Reduction of Fuel Tax Evasion

SEC. 851. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE MACHINERY.

    (a) Exemption From Tax on Heavy Trucks and Trailers Sold at 
Retail.--
            (1) In general.--Section 4053 (relating to 
        exemptions) is amended by adding at the end the 
        following new paragraph:
            ``(8) Mobile machinery.--Any vehicle which consists 
        of a chassis--
                    ``(A) to which there has been permanently 
                mounted (by welding, bolting, riveting, or 
                other means) machinery or equipment to perform 
                a construction, manufacturing, processing, 
                farming, mining, drilling, timbering, or 
                similar operation if the operation of the 
                machinery or equipment is unrelated to 
                transportation on or off the public highways,
                    ``(B) which has been specially designed to 
                serve only as a mobile carriage and mount (and 
                a power source, where applicable) for the 
                particular machinery or equipment involved, 
                whether or not such machinery or equipment is 
                in operation, and
                    ``(C) which, by reason of such special 
                design, could not, without substantial 
                structural modification, be used as a component 
                of a vehicle designed to perform a function of 
                transporting any load other than that 
                particular machinery or equipment or similar 
                machinery or equipment requiring such a 
                specially designed chassis.''.
            (2) Effective date.--The amendment made by this 
        subsection shall take effect on the day after the date 
        of the enactment of this Act.
    (b) Exemption From Tax on Use of Certain Vehicles.--
            (1) In general.--Section 4483 (relating to 
        exemptions) is amended by redesignating subsection (g) 
        as subsection (h) and by inserting after subsection (f) 
        the following new subsection:
    ``(g) Exemption for Mobile Machinery.--No tax shall be 
imposed by section 4481 on the use of any vehicle described in 
section 4053(8).''.
            (2) Effective date.--The amendments made by this 
        subsection shall take effect on the day after the date 
        of the enactment of this Act.
    (c) Exemption From Tax on Tires.--
            (1) In General.--Section 4072(b)(2) is amended by 
        adding at the end the following flush sentence: ``Such 
        term shall not include tires of a type used exclusively 
        on vehicles described in section 4053(8).''.
            (2) Effective date.--The amendment made by this 
        subsection shall take effect on the day after the date 
        of the enactment of this Act.
    (d) Refund of Fuel Taxes.--
            (1) In general.--Section 6421(e)(2) (defining off-
        highway business use) is amended by adding at the end 
        the following new subparagraph:
                    ``(C) Uses in mobile machinery.--
                            ``(i) In general.--The term `off-
                        highway business use' shall include any 
                        use in a vehicle which meets the 
                        requirements described in clause (ii).
                            ``(ii) Requirements for mobile 
                        machinery.--The requirements described 
                        in this clause are--
                                    ``(I) the design-based 
                                test, and
                                    ``(II) the use-based test.
                            ``(iii) Design-based test.--For 
                        purposes of clause (ii)(I), the design-
                        based test is met if the vehicle 
                        consists of a chassis--
                                    ``(I) to which there has 
                                been permanently mounted (by 
                                welding, bolting, riveting, or 
                                other means) machinery or 
                                equipment to perform a 
                                construction, manufacturing, 
                                processing, farming, mining, 
                                drilling, timbering, or similar 
                                operation if the operation of 
                                the machinery or equipment is 
                                unrelated to transportation on 
                                or off the public highways,
                                    ``(II) which has been 
                                specially designed to serve 
                                only as a mobile carriage and 
                                mount (and a power source, 
                                where applicable) for the 
                                particular machinery or 
                                equipment involved, whether or 
                                not such machinery or equipment 
                                is in operation, and
                                    ``(III) which, by reason of 
                                such special design, could not, 
                                without substantial structural 
                                modification, be used as a 
                                component of a vehicle designed 
                                to perform a function of 
                                transporting any load other 
                                than that particular machinery 
                                or equipment or similar 
                                machinery or equipment 
                                requiring such a specially 
                                designed chassis.
                            ``(iv) Use-based test.--For 
                        purposes of clause (ii)(II), the use-
                        based test is met if the use of the 
                        vehicle on public highways was less 
                        than 7,500 miles during the taxpayer's 
                        taxable year. This clause shall be 
                        applied without regard to use of the 
                        vehicle by any organization which is 
                        described in section 501(c) and exempt 
                        from tax under section 501(a).''.
            (2) No tax-free sales.--Subsection (b) of section 
        4082 is amended by inserting before the period at the 
        end ``and such term shall not include any use described 
        in section 6421(e)(2)(C)''.
            (3) Annual refund of tax paid.--Section 6427(i)(2) 
        (relating to exceptions) is amended by adding at the 
        end the following new subparagraph:
                    ``(C) Nonapplication of paragraph.--This 
                paragraph shall not apply to any fuel used 
                solely in any off-highway business use 
                described in section 6421(e)(2)(C).''.
            (4) Effective date.--The amendments made by this 
        subsection shall apply to taxable years beginning after 
        the date of the enactment of this Act.

SEC. 852. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.

    (a) In General.--Section 7701(a) (relating to definitions) 
is amended by adding at the end the following new paragraph:
            ``(48) Off-highway vehicles.--
                    ``(A) Off-highway transportation 
                vehicles.--
                            ``(i) In general.--A vehicle shall 
                        not be treated as a highway vehicle if 
                        such vehicle is specially designed for 
                        the primary function of transporting a 
                        particular type of load other than over 
                        the public highway and because of this 
                        special design such vehicle's 
                        capability to transport a load over the 
                        public highway is substantially limited 
                        or impaired.
                            ``(ii) Determination of vehicle's 
                        design.--For purposes of clause (i), a 
                        vehicle's design is determined solely 
                        on the basis of its physical 
                        characteristics.
                            ``(iii) Determination of 
                        substantial limitation or impairment.--
                        For purposes of clause (i), in 
                        determining whether substantial 
                        limitation or impairment exists, 
                        account may be taken of factors such as 
                        the size of the vehicle, whether such 
                        vehicle is subject to the licensing, 
                        safety, and other requirements 
                        applicable to highway vehicles, and 
                        whether such vehicle can transport a 
                        load at a sustained speed of at least 
                        25 miles per hour. It is immaterial 
                        that a vehicle can transport a greater 
                        load off the public highway than such 
                        vehicle is permitted to transport over 
                        the public highway.
                    ``(B) Nontransportation trailers and 
                semitrailers.--A trailer or semitrailer shall 
                not be treated as a highway vehicle if it is 
                specially designed to function only as an 
                enclosed stationary shelter for the carrying on 
                of an off-highway function at an off-highway 
                site.''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendment made by this section shall take 
        effect on the date of the enactment of this Act.
            (2) Fuel taxes.--With respect to taxes imposed 
        under subchapter B of chapter 31 and part III of 
        subchapter A of chapter 32, the amendment made by this 
        section shall apply to taxable periods beginning after 
        the date of the enactment of this Act.

SEC. 853. TAXATION OF AVIATION-GRADE KEROSENE.

    (a) Rate of Tax.--
            (1) In general.--Subparagraph (A) of section 
        4081(a)(2) is amended by striking ``and'' at the end of 
        clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, and'', and by adding at 
        the end the following new clause:
                            ``(iv) in the case of aviation-
                        grade kerosene, 21.8 cents per 
                        gallon.''.
            (2) Commercial aviation.--Paragraph (2) of section 
        4081(a) is amended by adding at the end the following 
        new subparagraph:
                    ``(C) Taxes imposed on fuel used in 
                commercial aviation.--In the case of aviation-
                grade kerosene which is removed from any 
                refinery or terminal directly into the fuel 
                tank of an aircraft for use in commercial 
                aviation, the rate of tax under subparagraph 
                (A)(iv) shall be 4.3 cents per gallon.''.
            (3) Certain refueler trucks, tankers, and tank 
        wagons treated as terminal.--
                    (A) In general.--Subsection (a) of section 
                4081 is amended by adding at the end the 
                following new paragraph:
            ``(3) Certain refueler trucks, tankers, and tank 
        wagons treated as terminal.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(C), a refueler truck, tanker, or 
                tank wagon shall be treated as part of a 
                terminal if--
                            ``(i) such terminal is located 
                        within a secured area of an airport,
                            ``(ii) any aviation-grade kerosene 
                        which is loaded in such truck, tanker, 
                        or wagon at such terminal is for 
                        delivery only into aircraft at the 
                        airport in which such terminal is 
                        located,
                            ``(iii) such truck, tanker, or 
                        wagon meets the requirements of 
                        subparagraph (B) with respect to such 
                        terminal, and
                            ``(iv) except in the case of 
                        exigent circumstances identified by the 
                        Secretary in regulations, no vehicle 
                        registered for highway use is loaded 
                        with aviation-grade kerosene at such 
                        terminal.
                    ``(B) Requirements.--A refueler truck, 
                tanker, or tank wagon meets the requirements of 
                this subparagraph with respect to a terminal if 
                such truck, tanker, or wagon--
                            ``(i) has storage tanks, hose, and 
                        coupling equipment designed and used 
                        for the purposes of fueling aircraft,
                            ``(ii) is not registered for 
                        highway use, and
                            ``(iii) is operated by--
                                    ``(I) the terminal operator 
                                of such terminal, or
                                    ``(II) a person that makes 
                                a daily accounting to such 
                                terminal operator of each 
                                delivery of fuel from such 
                                truck, tanker, or wagon.
                    ``(C) Reporting.--The Secretary shall 
                require under section 4101(d) reporting by such 
                terminal operator of--
                            ``(i) any information obtained 
                        under subparagraph (B)(iii)(II), and
                            ``(ii) any similar information 
                        maintained by such terminal operator 
                        with respect to deliveries of fuel made 
                        by trucks, tankers, or wagons operated 
                        by such terminal operator.''.
                    (B) List of airports with secured 
                terminals.--Not later than December 15, 2004, 
                the Secretary of the Treasury shall publish and 
                maintain a list of airports which include a 
                secured area in which a terminal is located 
                (within the meaning of section 4081(a)(3)(A)(i) 
                of the Internal Revenue Code of 1986, as added 
                by this paragraph).
            (4) Liability for tax on aviation-grade kerosene 
        used in commercial aviation.--Subsection (a) of section 
        4081 is amended by adding at the end the following new 
        paragraph:
            ``(4) Liability for tax on aviation-grade kerosene 
        used in commercial aviation.--For purposes of paragraph 
        (2)(C), the person who uses the fuel for commercial 
        aviation shall pay the tax imposed under such 
        paragraph. For purposes of the preceding sentence, fuel 
        shall be treated as used when such fuel is removed into 
        the fuel tank.''.
            (5) Nontaxable uses.--
                    (A) In general.--Section 4082 is amended by 
                redesignating subsections (e) and (f) as 
                subsections (f) and (g), respectively, and by 
                inserting after subsection (d) the following 
                new subsection:
    ``(e) Aviation-Grade Kerosene.--In the case of aviation-
grade kerosene which is exempt from the tax imposed by section 
4041(c) (other than by reason of a prior imposition of tax) and 
which is removed from any refinery or terminal directly into 
the fuel tank of an aircraft, the rate of tax under section 
4081(a)(2)(A)(iv) shall be zero.''.
                    (B) Conforming amendments.--
                            (i) Subsection (b) of section 4082 
                        is amended by adding at the end the 
                        following new flush sentence:
``The term `nontaxable use' does not include the use of 
aviation-grade kerosene in an aircraft.''.
                            (ii) Section 4082(d) is amended by 
                        striking paragraph (1) and by 
                        redesignating paragraphs (2) and (3) as 
                        paragraphs (1) and (2), respectively.
            (6) Nonaircraft use of aviation-grade kerosene.--
                    (A) In general.--Subparagraph (B) of 
                section 4041(a)(1) is amended by adding at the 
                end the following new sentence: ``This 
                subparagraph shall not apply to aviation-grade 
                kerosene.''.
                    (B) Conforming amendment.--The heading for 
                paragraph (1) of section 4041(a) is amended by 
                inserting ``and kerosene'' after ``diesel 
                fuel''.
    (b) Commercial Aviation.--Section 4083 is amended by 
redesignating subsections (b) and (c) as subsections (c) and 
(d), respectively, and by inserting after subsection (a) the 
following new subsection:
    ``(b) Commercial Aviation.--For purposes of this subpart, 
the term `commercial aviation' means any use of an aircraft in 
a business of transporting persons or property for compensation 
or hire by air, unless properly allocable to any transportation 
exempt from the taxes imposed by sections 4261 and 4271 by 
reason of section 4281 or 4282 or by reason of section 
4261(h).''.
    (c) Refunds.--
            (1) In general.--Paragraph (4) of section 6427(l) 
        is amended to read as follows:
            ``(4) Refunds for aviation-grade kerosene.--
                    ``(A) No refund of certain taxes on fuel 
                used in commercial aviation.--In the case of 
                aviation-grade kerosene used in commercial 
                aviation (as defined in section 4083(b)) (other 
                than supplies for vessels or aircraft within 
                the meaning of section 4221(d)(3)), paragraph 
                (1) shall not apply to so much of the tax 
                imposed by section 4081 as is attributable to--
                            ``(i) the Leaking Underground 
                        Storage Tank Trust Fund financing rate 
                        imposed by such section, and
                            ``(ii) so much of the rate of tax 
                        specified in section 4081(a)(2)(A)(iv) 
                        as does not exceed 4.3 cents per 
                        gallon.
                    ``(B) Payment to ultimate, registered 
                vendor.--With respect to aviation-grade 
                kerosene, if the ultimate purchaser of such 
                kerosene waives (at such time and in such form 
                and manner as the Secretary shall prescribe) 
                the right to payment under paragraph (1) and 
                assigns such right to the ultimate vendor, then 
                the Secretary shall pay the amount which would 
                be paid under paragraph (1) to such ultimate 
                vendor, but only if such ultimate vendor--
                            ``(i) is registered under section 
                        4101, and
                            ``(ii) meets the requirements of 
                        subparagraph (A), (B), or (D) of 
                        section 6416(a)(1).''.
            (2) Time for filing claims.--Subparagraph (A) of 
        section 6427(i)(4) is amended--
                    (A) by striking ``subsection (l)(5)'' both 
                places it appears and inserting ``paragraph 
                (4)(B) or (5) of subsection (l)'', and
                    (B) by striking ``the preceding sentence'' 
                and inserting ``subsection (l)(5)''.
            (3) Conforming amendment.--Subparagraph (B) of 
        section 6427(l)(2) is amended to read as follows:
                    ``(B) in the case of aviation-grade 
                kerosene--
                            ``(i) any use which is exempt from 
                        the tax imposed by section 4041(c) 
                        other than by reason of a prior 
                        imposition of tax, or
                            ``(ii) any use in commercial 
                        aviation (within the meaning of section 
                        4083(b)).''.
    (d) Repeal of Prior Taxation of Aviation Fuel.--
            (1) In general.--Part III of subchapter A of 
        chapter 32 is amended by striking subpart B and by 
        redesignating subpart C as subpart B.
            (2) Conforming amendments.--
                    (A) Section 4041(c) is amended to read as 
                follows:
    ``(c) Aviation-Grade Kerosene.--
            ``(1) In general.--There is hereby imposed a tax 
        upon aviation-grade kerosene--
                    ``(A) sold by any person to an owner, 
                lessee, or other operator of an aircraft for 
                use in such aircraft, or
                    ``(B) used by any person in an aircraft 
                unless there was a taxable sale of such fuel 
                under subparagraph (A).
            ``(2) Exemption for previously taxed fuel.--No tax 
        shall be imposed by this subsection on the sale or use 
        of any aviation-grade kerosene if tax was imposed on 
        such liquid under section 4081 and the tax thereon was 
        not credited or refunded.
            ``(3) Rate of tax.--The rate of tax imposed by this 
        subsection shall be the rate of tax applicable under 
        section 4081(a)(2)(A)(iv) which is in effect at the 
        time of such sale or use.''.
                    (B) Section 4041(d)(2) is amended by 
                striking ``section 4091'' and inserting 
                ``section 4081''.
                    (C) Section 4041 is amended by striking 
                subsection (e).
                    (D) Section 4041 is amended by striking 
                subsection (i).
                    (E) Section 4041(m)(1) is amended to read 
                as follows:
            ``(1) In general.--In the case of the sale or use 
        of any partially exempt methanol or ethanol fuel the 
        rate of the tax imposed by subsection (a)(2) shall be--
                    ``(A) after September 30, 1997, and before 
                October 1, 2005--
                            ``(i) in the case of fuel none of 
                        the alcohol in which consists of 
                        ethanol, 9.15 cents per gallon, and
                            ``(ii) in any other case, 11.3 
                        cents per gallon, and
                    ``(B) after September 30, 2005--
                            ``(i) in the case of fuel none of 
                        the alcohol in which consists of 
                        ethanol, 2.15 cents per gallon, and
                            ``(ii) in any other case, 4.3 cents 
                        per gallon.''.
                    (F) Sections 4101(a), 4103, 4221(a), and 
                6206 are each amended by striking ``, 4081, or 
                4091'' and inserting ``or 4081''.
                    (G) Section 6416(b)(2) is amended by 
                striking ``4091 or''.
                    (H) Section 6416(b)(3) is amended by 
                striking ``or 4091'' each place it appears.
                    (I) Section 6416(d) is amended by striking 
                ``or to the tax imposed by section 4091 in the 
                case of refunds described in section 4091(d)''.
                    (J) Section 6427(j)(1) is amended by 
                striking ``, 4081, and 4091'' and inserting 
                ``and 4081''.
                    (K)(i) Section 6427(l)(1) is amended to 
                read as follows:
            ``(1) In general.--Except as otherwise provided in 
        this subsection and in subsection (k), if any diesel 
        fuel or kerosene on which tax has been imposed by 
        section 4041 or 4081 is used by any person in a 
        nontaxable use, the Secretary shall pay (without 
        interest) to the ultimate purchaser of such fuel an 
        amount equal to the aggregate amount of tax imposed on 
        such fuel under section 4041 or 4081, as the case may 
        be, reduced by any payment made to the ultimate vendor 
        under paragraph (4)(B).''.
                    (ii) Paragraph (5)(B) of section 6427(l) is 
                amended by striking ``Paragraph (1)(A) shall 
                not apply to kerosene'' and inserting 
                ``Paragraph (1) shall not apply to kerosene 
                (other than aviation-grade kerosene)''.
                    (L) Subparagraph (B) of section 6724(d)(1), 
                as amended by section 805, is amended by 
                striking clause (xvi) and by redesignating the 
                succeeding clauses accordingly.
                    (M) Paragraph (2) of section 6724(d), as 
                amended by section 805, is amended by striking 
                subparagraph (X) and by redesignating the 
                succeeding subparagraphs accordingly.
                    (N) Paragraph (1) of section 9502(b) is 
                amended by adding ``and'' at the end of 
                subparagraph (B) and by striking subparagraphs 
                (C) and (D) and inserting the following new 
                subparagraph:
                    ``(C) section 4081 with respect to aviation 
                gasoline and aviation-grade kerosene, and''.
                    (O) The last sentence of section 9502(b) is 
                amended to read as follows:
``There shall not be taken into account under paragraph (1) so 
much of the taxes imposed by section 4081 as are determined at 
the rate specified in section 4081(a)(2)(B).''.
                    (P) Subsection (b) of section 9508 is 
                amended by striking paragraph (3) and by 
                redesignating paragraphs (4) and (5) as 
                paragraphs (3) and (4), respectively.
                    (Q) Section 9508(c)(2)(A) is amended by 
                striking ``sections 4081 and 4091'' and 
                inserting ``section 4081''.
                    (R) The table of subparts for part III of 
                subchapter A of chapter 32 is amended to read 
                as follows:

        ``Subpart A. Motor and aviation fuels.
        ``Subpart B. Special provisions applicable to fuels tax.''.

                    (S) The heading for subpart A of part III 
                of subchapter A of chapter 32 is amended to 
                read as follows:

                ``Subpart A--Motor and Aviation Fuels''.

                    (T) The heading for subpart B of part III 
                of subchapter A of chapter 32, as redesignated 
                by paragraph (1), is amended to read as 
                follows:

       ``Subpart B--Special Provisions Applicable to Fuels Tax''.

    (e) Effective Date.--The amendments made by this section 
shall apply to aviation-grade kerosene removed, entered, or 
sold after December 31, 2004.
    (f) Floor Stocks Tax.--
            (1) In general.--There is hereby imposed on 
        aviation-grade kerosene held on January 1, 2005, by any 
        person a tax equal to--
                    (A) the tax which would have been imposed 
                before such date on such kerosene had the 
                amendments made by this section been in effect 
                at all times before such date, reduced by
                    (B) the sum of--
                            (i) the tax imposed before such 
                        date on such kerosene under section 
                        4091 of the Internal Revenue Code of 
                        1986, as in effect on such date, and
                            (ii) in the case of kerosene held 
                        exclusively for such person's own use, 
                        the amount which such person would (but 
                        for this clause) reasonably expect (as 
                        of such date) to be paid as a refund 
                        under section 6427(l) of such Code with 
                        respect to such kerosene.
            (2) Exception for fuel held in aircraft fuel 
        tank.--Paragraph (1) shall not apply to kerosene held 
        in the fuel tank of an aircraft on January 1, 2005.
            (3) Liability for tax and method of payment.--
                    (A) Liability for tax.--The person holding 
                the kerosene on January 1, 2005, to which the 
                tax imposed by paragraph (1) applies shall be 
                liable for such tax.
                    (B) Method and time for payment.--The tax 
                imposed by paragraph (1) shall be paid at such 
                time and in such manner as the Secretary of the 
                Treasury (or the Secretary's delegate) shall 
                prescribe, including the nonapplication of such 
                tax on de minimis amounts of kerosene.
            (4) Transfer of floor stock tax revenues to trust 
        funds.--For purposes of determining the amount 
        transferred to any trust fund, the tax imposed by this 
        subsection shall be treated as imposed by section 4081 
        of the Internal Revenue Code of 1986--
                    (A) in any case in which tax was not 
                imposed by section 4091 of such Code, at the 
                Leaking Underground Storage Tank Trust Fund 
                financing rate under such section to the extent 
                of 0.1 cents per gallon, and
                    (B) at the rate under section 
                4081(a)(2)(A)(iv) of such Code to the extent of 
                the remainder.
            (5) Held by a person.--For purposes of this 
        subsection, kerosene shall be considered as held by a 
        person if title thereto has passed to such person 
        (whether or not delivery to the person has been made).
            (6) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the tax 
        imposed by section 4081 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of 
        this subsection, apply with respect to the floor stock 
        tax imposed by paragraph (1) to the same extent as if 
        such tax were imposed by such section.

SEC. 854. DYE INJECTION EQUIPMENT.

    (a) In General.--Section 4082(a)(2) (relating to exemptions 
for diesel fuel and kerosene) is amended by inserting ``by 
mechanical injection'' after ``indelibly dyed''.
    (b) Dye Injector Security.--Not later than 180 days after 
the date of the enactment of this Act, the Secretary of the 
Treasury shall issue regulations regarding mechanical dye 
injection systems described in the amendment made by subsection 
(a), and such regulations shall include standards for making 
such systems tamper resistant.
    (c) Penalty for Tampering With or Failing To Maintain 
Security Requirements for Mechanical Dye Injection Systems.--
            (1) In general.--Part I of subchapter B of chapter 
        68 (relating to assessable penalties) is amended by 
        adding after section 6715 the following new section:

``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY 
                    REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.

    ``(a) Imposition of Penalty--
            ``(1) Tampering.--If any person tampers with a 
        mechanical dye injection system used to indelibly dye 
        fuel for purposes of section 4082, such person shall 
        pay a penalty in addition to the tax (if any).
            ``(2) Failure to maintain security requirements.--
        If any operator of a mechanical dye injection system 
        used to indelibly dye fuel for purposes of section 4082 
        fails to maintain the security standards for such 
        system as established by the Secretary, then such 
        operator shall pay a penalty in addition to the tax (if 
        any).
    ``(b) Amount of Penalty.--The amount of the penalty under 
subsection (a) shall be--
            ``(1) for each violation described in paragraph 
        (1), the greater of--
                    ``(A) $25,000, or
                    ``(B) $10 for each gallon of fuel involved, 
                and
            ``(2) for each--
                    ``(A) failure to maintain security 
                standards described in paragraph (2), $1,000, 
                and
                    ``(B) failure to correct a violation 
                described in paragraph (2), $1,000 per day for 
                each day after which such violation was 
                discovered or such person should have 
                reasonably known of such violation.
    ``(c) Joint and Several Liability.--
            ``(1) In general.--If a penalty is imposed under 
        this section on any business entity, each officer, 
        employee, or agent of such entity or other contracting 
        party who willfully participated in any act giving rise 
        to such penalty shall be jointly and severally liable 
        with such entity for such penalty.
            ``(2) Affiliated groups.--If a business entity 
        described in paragraph (1) is part of an affiliated 
        group (as defined in section 1504(a)), the parent 
        corporation of such entity shall be jointly and 
        severally liable with such entity for the penalty 
        imposed under this section.''.
            (2) Clerical amendment.--The table of sections for 
        part I of subchapter B of chapter 68 is amended by 
        adding after the item related to section 6715 the 
        following new item:

        ``Sec. 6715A. Tampering with or failing to maintain security 
                  requirements for mechanical dye injection systems.''.

    (d) Effective Date.--The amendments made by subsections (a) 
and (c) shall take effect on the 180th day after the date on 
which the Secretary issues the regulations described in 
subsection (b).

SEC. 855. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE USE OF DYED 
                    FUEL.

    (a) In General.--Section 6715 is amended by inserting at 
the end the following new subsection:
    ``(e) No Administrative Appeal for Third and Subsequent 
Violations.--In the case of any person who is found to be 
subject to the penalty under this section after a chemical 
analysis of such fuel and who has been penalized under this 
section at least twice after the date of the enactment of this 
subsection, no administrative appeal or review shall be allowed 
with respect to such finding except in the case of a claim 
regarding--
            ``(1) fraud or mistake in the chemical analysis, or
            ``(2) mathematical calculation of the amount of the 
        penalty.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to penalties assessed after the date of the 
enactment of this Act.

SEC. 856. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL MIXTURES.

    (a) In General.--Section 6715(a) (relating to dyed fuel 
sold for use or used in taxable use, etc.) is amended by 
striking ``or'' in paragraph (2), by inserting ``or'' at the 
end of paragraph (3), and by inserting after paragraph (3) the 
following new paragraph:
            ``(4) any person who has knowledge that a dyed fuel 
        which has been altered as described in paragraph (3) 
        sells or holds for sale such fuel for any use which the 
        person knows or has reason to know is not a nontaxable 
        use of such fuel,''.
    (b) Conforming Amendment.--Section 6715(a)(3) is amended by 
striking ``alters, or attempts to alter,'' and inserting 
``alters, chemically or otherwise, or attempts to so alter,''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 857. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.

    (a) In General.--Paragraph (3) of section 4082(b) (relating 
to nontaxable use) is amended to read as follows:
            ``(3) any use described in section 
        4041(a)(1)(C)(iii)(II).''.
    (b) Ultimate Vendor Refund.--Subsection (b) of section 6427 
is amended by adding at the end the following new paragraph:
            ``(4) Refunds for use of diesel fuel in certain 
        intercity buses.--With respect to any fuel to which 
        paragraph (2)(A) applies, if the ultimate purchaser of 
        such fuel waives (at such time and in such form and 
        manner as the Secretary shall prescribe) the right to 
        payment under paragraph (1) and assigns such right to 
        the ultimate vendor, then the Secretary shall pay the 
        amount which would be paid under paragraph (1) to such 
        ultimate vendor, but only if such ultimate vendor--
                    ``(A) is registered under section 4101, and
                    ``(B) meets the requirements of 
                subparagraph (A), (B), or (D) of section 
                6416(a)(1).''.
    (c) Payment of Refunds.--Subparagraph (A) of section 
6427(i)(4), as amended by this Act, is amended by inserting 
``subsections (b)(4) and'' after ``filed under''.
    (d) Effective Date.--The amendments made by this section 
shall apply to fuel sold after December 31, 2004.

SEC. 858. AUTHORITY TO INSPECT ON-SITE RECORDS.

    (a) In General.--Section 4083(d)(1)(A) (relating to 
administrative authority), as amended by this Act, is amended 
by striking ``and'' at the end of clause (i) and by inserting 
after clause (ii) the following new clause:
                            ``(iii) inspecting any books and 
                        records and any shipping papers 
                        pertaining to such fuel, and''.
    (b) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 859. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.

    (a) In General.--Part I of subchapter B of chapter 68 
(relating to assessable penalties), as amended by this Act, is 
amended by inserting after section 6716 the following new 
section:

``SEC. 6717. REFUSAL OF ENTRY.

    ``(a) In General.--In addition to any other penalty 
provided by law, any person who refuses to admit entry or 
refuses to permit any other action by the Secretary authorized 
by section 4083(d)(1) shall pay a penalty of $1,000 for such 
refusal.
    ``(b) Joint and Several Liability.--
            ``(1) In general.--If a penalty is imposed under 
        this section on any business entity, each officer, 
        employee, or agent of such entity or other contracting 
        party who willfully participated in any act giving rise 
        to such penalty shall be jointly and severally liable 
        with such entity for such penalty.
            ``(2) Affiliated groups.--If a business entity 
        described in paragraph (1) is part of an affiliated 
        group (as defined in section 1504(a)), the parent 
        corporation of such entity shall be jointly and 
        severally liable with such entity for the penalty 
        imposed under this section.
    ``(c) Reasonable Cause Exception.--No penalty shall be 
imposed under this section with respect to any failure if it is 
shown that such failure is due to reasonable cause.''.
    (b) Conforming Amendments.--
            (1) Section 4083(d)(3), as amended by this Act, is 
        amended--
                    (A) by striking ``entry.--The penalty'' and 
                inserting: ``entry.--
                    ``(A) Forfeiture.--The penalty'', and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Assessable penalty.--For additional 
                assessable penalty for the refusal to admit 
                entry or other refusal to permit an action by 
                the Secretary authorized by paragraph (1), see 
                section 6717.''.
            (2) The table of sections for part I of subchapter 
        B of chapter 68, as amended by this Act, is amended by 
        inserting after the item relating to section 6716 the 
        following new item:

        ``Sec. 6717. Refusal of entry.''.

    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2005.

SEC. 860. REGISTRATION OF PIPELINE OR VESSEL OPERATORS REQUIRED FOR 
                    EXEMPTION OF BULK TRANSFERS TO REGISTERED TERMINALS 
                    OR REFINERIES.

    (a) In General.--Section 4081(a)(1)(B) (relating to 
exemption for bulk transfers to registered terminals or 
refineries) is amended--
            (1) by inserting ``by pipeline or vessel'' after 
        ``transferred in bulk'', and
            (2) by inserting ``, the operator of such pipeline 
        or vessel,'' after ``the taxable fuel''.
    (b) Effective Date.--The amendments made by this section 
shall take effect on March 1, 2005.
    (c) Publication of Registered Persons.--Beginning on 
January 1, 2005, the Secretary of the Treasury (or the 
Secretary's delegate) shall periodically publish under section 
6103(k)(7) of the Internal Revenue Code of 1986 a current list 
of persons registered under section 4101 of such Code who are 
required to register under such section.

SEC. 861. DISPLAY OF REGISTRATION.

    (a) In General.--Subsection (a) of section 4101 (relating 
to registration) is amended--
            (1) by striking ``Every'' and inserting the 
        following:
            ``(1) In general.--Every'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Display of registration.--Every operator of a 
        vessel required by the Secretary to register under this 
        section shall display proof of registration through an 
        identification device prescribed by the Secretary on 
        each vessel used by such operator to transport any 
        taxable fuel.''.
    (b) Civil Penalty for Failure To Display Registration.--
            (1) In general.--Part I of subchapter B of chapter 
        68 (relating to assessable penalties), as amended by 
        this Act, is amended by inserting after section 6717 
        the following new section:

``SEC. 6718. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.

    ``(a) Failure To Display Registration.--Every operator of a 
vessel who fails to display proof of registration pursuant to 
section 4101(a)(2) shall pay a penalty of $500 for each such 
failure. With respect to any vessel, only one penalty shall be 
imposed by this section during any calendar month.
    ``(b) Multiple Violations.--In determining the penalty 
under subsection (a) on any person, subsection (a) shall be 
applied by increasing the amount in subsection (a) by the 
product of such amount and the aggregate number of penalties 
(if any) imposed with respect to prior months by this section 
on such person (or a related person or any predecessor of such 
person or related person).
    ``(c) Reasonable Cause Exception.--No penalty shall be 
imposed under this section with respect to any failure if it is 
shown that such failure is due to reasonable cause.''.
            (2) Clerical amendment.--The table of sections for 
        part I of subchapter B of chapter 68, as amended by 
        this Act, is amended by inserting after the item 
        relating to section 6717 the following new item:

        ``Sec. 6718. Failure to display tax registration on vessels.''.

    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by 
        subsection (a) shall take effect on January 1, 2005.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply to penalties imposed after 
        December 31, 2004.

SEC. 862. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE ZONES, ETC.

    (a) In General.--Section 4101(a), as amended by this Act, 
is amended by redesignating paragraph (2) as paragraph (3), and 
by inserting after paragraph (1) the following new paragraph:
            ``(2) Registration of persons within foreign trade 
        zones, etc.--The Secretary shall require registration 
        by any person which--
                    ``(A) operates a terminal or refinery 
                within a foreign trade zone or within a customs 
                bonded storage facility, or
                    ``(B) holds an inventory position with 
                respect to a taxable fuel in such a 
                terminal.''.
    (b) Technical Amendment.--Section 6718(a), as added by this 
Act, is amended by striking ``section 4101(a)(2)'' and 
inserting ``section 4101(a)(3)''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2005.

SEC. 863. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO REPORT.

    (a) Increased Penalty.--Subsection (a) of section 7272 
(relating to penalty for failure to register) is amended by 
inserting ``($10,000 in the case of a failure to register under 
section 4101)'' after ``$50''.
    (b) Increased Criminal Penalty.--Section 7232 (relating to 
failure to register under section 4101, false representations 
of registration status, etc.) is amended by striking ``$5,000'' 
and inserting ``$10,000''.
    (c) Assessable Penalty for Failure To Register.--
            (1) In general.--Part I of subchapter B of chapter 
        68 (relating to assessable penalties), as amended by 
        this Act, is amended by inserting after section 6718 at 
        the end the following new section:

``SEC. 6719. FAILURE TO REGISTER.

    ``(a) Failure to Register.--Every person who is required to 
register under section 4101 and fails to do so shall pay a 
penalty in addition to the tax (if any).
    ``(b) Amount of Penalty.--The amount of the penalty under 
subsection (a) shall be--
            ``(1) $10,000 for each initial failure to register, 
        and
            ``(2) $1,000 for each day thereafter such person 
        fails to register.
    ``(c) Reasonable Cause Exception.--No penalty shall be 
imposed under this section with respect to any failure if it is 
shown that such failure is due to reasonable cause.''.
            (2) Clerical amendment.--The table of sections for 
        part I of subchapter B of chapter 68, as amended by 
        this Act, is amended by inserting after the item 
        relating to section 6718 the following new item:

        ``Sec. 6719. Failure to register.''.

    (d) Assessable Penalty for Failure To Report.--
            (1) In general.--Part II of subchapter B of chapter 
        68 (relating to assessable penalties) is amended by 
        adding at the end the following new section:

``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.

    ``(a) In General.--In the case of each failure described in 
subsection (b) by any person with respect to a vessel or 
facility, such person shall pay a penalty of $10,000 in 
addition to the tax (if any).
    ``(b) Failures Subject to Penalty.--For purposes of 
subsection (a), the failures described in this subsection are--
            ``(1) any failure to make a report under section 
        4101(d) on or before the date prescribed therefor, and
            ``(2) any failure to include all of the information 
        required to be shown on such report or the inclusion of 
        incorrect information.
    ``(c) Reasonable Cause Exception.--No penalty shall be 
imposed under this section with respect to any failure if it is 
shown that such failure is due to reasonable cause.''.
            (2) Clerical amendment.--The table of sections for 
        part II of subchapter B of chapter 68 is amended by 
        adding at the end the following new item:

        ``Sec. 6725. Failure to report information under section 
                  4101.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to penalties imposed after December 31, 2004.

SEC. 864. ELECTRONIC FILING OF REQUIRED INFORMATION REPORTS.

    (a) In General.--Section 4101(d) is amended by adding at 
the end the following new flush sentence:

``Any person who is required to report under this subsection 
and who has 25 or more reportable transactions in a month shall 
file such report in electronic format.''.
    (b) Effective Date.--The amendment made by this section 
shall apply on January 1, 2006.

SEC. 865. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

    (a) In General.--Paragraph (4) of section 6416(a) (relating 
to abatements, credits, and refunds) is amended to read as 
follows:
            ``(4) Registered ultimate vendor to administer 
        credits and refunds of gasoline tax.--
                    ``(A) In general.--For purposes of this 
                subsection, if an ultimate vendor purchases any 
                gasoline on which tax imposed by section 4081 
                has been paid and sells such gasoline to an 
                ultimate purchaser described in subparagraph 
                (C) or (D) of subsection (b)(2) (and such 
                gasoline is for a use described in such 
                subparagraph), such ultimate vendor shall be 
                treated as the person (and the only person) who 
                paid such tax, but only if such ultimate vendor 
                is registered under section 4101.
                    ``(B) Timing of claims.--The procedure and 
                timing of any claim under subparagraph (A) 
                shall be the same as for claims under section 
                6427(i)(4), except that the rules of section 
                6427(i)(3)(B) regarding electronic claims shall 
                not apply unless the ultimate vendor has 
                certified to the Secretary for the most recent 
                quarter of the taxable year that all ultimate 
                purchasers of the vendor are certified and 
                entitled to a refund under subparagraph (C) or 
                (D) of subsection (b)(2).''.
    (b) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2005.

SEC. 866. TWO-PARTY EXCHANGES.

    (a) In General.--Subpart C of part III of subchapter A of 
chapter 32, as amended by this Act, is amended by inserting 
after section 4104 the following new section:

``SEC. 4105. TWO-PARTY EXCHANGES.

    ``(a) In General.--In a two-party exchange, the delivering 
person shall not be liable for the tax imposed under of section 
4081(a)(1)(A)(ii).
    ``(b) Two-Party Exchange.--The term `two-party exchange' 
means a transaction, other than a sale, in which taxable fuel 
is transferred from a delivering person registered under 
section 4101 as a taxable fuel registrant to a receiving person 
who is so registered where all of the following occur:
            ``(1) The transaction includes a transfer from the 
        delivering person, who holds the inventory position for 
        taxable fuel in the terminal as reflected in the 
        records of the terminal operator.
            ``(2) The exchange transaction occurs before or 
        contemporaneous with completion of removal across the 
        rack from the terminal by the receiving person.
            ``(3) The terminal operator in its books and 
        records treats the receiving person as the person that 
        removes the product across the terminal rack for 
        purposes of reporting the transaction to the Secretary.
            ``(4) The transaction is the subject of a written 
        contract.''.
    (b) Conforming Amendment.--The table of sections for 
subpart C of part III of subchapter A of chapter 32, as amended 
by of this Act, is amended by adding after the last item the 
following new item:

        ``Sec. 4105. Two-party exchanges.''.

    (c) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 867. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

    (a) Proration of Tax Where Vehicle Sold.--
            (1) In general.--Subparagraph (A) of section 
        4481(c)(2) (relating to where vehicle destroyed or 
        stolen) is amended by striking ``destroyed or stolen'' 
        both places it appears and inserting ``sold, destroyed, 
        or stolen''.
            (2) Conforming amendment.--The heading for section 
        4481(c)(2) is amended by striking ``destroyed or 
        stolen'' and inserting ``sold, destroyed, or stolen''.
    (b) Repeal of Installment Payment.--
            (1) Section 6156 (relating to installment payment 
        of tax on use of highway motor vehicles) is repealed.
            (2) The table of sections for subchapter A of 
        chapter 62 is amended by striking the item relating to 
        section 6156.
    (c) Electronic Filing.--Section 4481 is amended by 
redesignating subsection (e) as subsection (f) and by inserting 
after subsection (d) the following new subsection:
    ``(e) Electronic Filing.--Any taxpayer who files a return 
under this section with respect to 25 or more vehicles for any 
taxable period shall file such return electronically.''.
    (d) Repeal of Reduction in Tax for Certain Trucks.--Section 
4483 is amended by striking subsection (f).
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable periods beginning after the date of the 
enactment of this Act.

SEC. 868. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO THE HIGHWAY 
                    TRUST FUND.

    (a) In General.--Subsection (b) of section 9503 (relating 
to transfer to Highway Trust Fund of amounts equivalent to 
certain taxes) is amended by redesignating paragraph (5) as 
paragraph (6) and inserting after paragraph (4) the following 
new paragraph:
            ``(5) Certain penalties.--There are hereby 
        appropriated to the Highway Trust Fund amounts 
        equivalent to the penalties paid under sections 6715, 
        6715A, 6717, 6718, 6719, 6725, 7232, and 7272 (but only 
        with regard to penalties under such section related to 
        failure to register under section 4101).''.
    (b) Conforming Amendments.--
            (1) The heading of subsection (b) of section 9503 
        is amended by inserting ``and Penalties'' after 
        ``Taxes''.
            (2) The heading of paragraph (1) of section 9503(b) 
        is amended by striking ``In general'' and inserting 
        ``Certain taxes''.
    (c) Effective Date.--The amendments made by this section 
shall apply to penalties assessed on or after the date of the 
enactment of this Act.

SEC. 869. SIMPLIFICATION OF TAX ON TIRES.

    (a) In General.--Subsection (a) of section 4071 is amended 
to read as follows:
    ``(a) Imposition and Rate of Tax.--There is hereby imposed 
on taxable tires sold by the manufacturer, producer, or 
importer thereof a tax at the rate of 9.45 cents (4.725 cents 
in the case of a biasply tire or super single tire) for each 10 
pounds so much of the maximum rated load capacity thereof as 
exceeds 3,500 pounds.''
    (b) Biasply and Super Single Tires.--Section 4072 is 
amended by adding at the end the following new subsections:
    ``(c) Biasply.--For purposes of this part, the term 
`biasply tire'' means a pneumatic tire on which the ply cords 
that extend to the beads are laid at alternate angles 
substantially less than 90 degrees to the centerline of the 
tread.
    ``(d) Super single tire.--For purposes of this part, the 
term `super single tire' means a single tire greater than 13 
inches in cross section width designed to replace 2 tires in a 
dual fitment.''.
    (b) Taxable Tire.--Section 4072, as amended by subsection 
(a), is amended by redesignating subsections (a), (b), (c), and 
(d) as subsections (b), (c), (d), and (e) respectively, and by 
inserting before subsection (b) (as so redesignated) the 
following new subsection:
    ``(a) Taxable Tire.--For purposes of this chapter, the term 
`taxable tire' means any tire of the type used on highway 
vehicles if wholly or in part made of rubber and if marked 
pursuant to Federal regulations for highway use.''
    (c) Exemption for Tires Sold to Department of Defense.--
Section 4073 is amended to read as follows:

``SEC. 4073. EXEMPTIONS.

    ``The tax imposed by section 4071 shall not apply to tires 
sold for the exclusive use of the Department of Defense or the 
Coast Guard.''.
    (d) Conforming Amendments.--
            (1) Section 4071 is amended by striking subsection 
        (c) and by moving subsection (e) after subsection (b) 
        and redesignating subsection (e) as subsection (c).
            (2) The item relating to section 4073 in the table 
        of sections for part II of subchapter A of chapter 32 
        is amended to read as follows:

        ``Sec. 4073. Exemptions.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to sales in calendar years beginning more than 30 
days after the date of the enactment of this Act.

SEC. 870. TRANSMIX AND DIESEL FUEL BLEND STOCKS TREATED AS TAXABLE 
                    FUEL.

    (a) In General.--Paragraph (3) of section 4083(a) is 
amended to read as follows:
            ``(3) Diesel fuel.--
                    ``(A) In general.--The term `diesel fuel' 
                means--
                            ``(i) any liquid (other than 
                        gasoline) which is suitable for use as 
                        a fuel in a diesel-powered highway 
                        vehicle, or a diesel-powered train,
                            ``(ii) transmix, and
                            ``(iii) diesel fuel blend stocks 
                        identified by the Secretary.
                    ``(B) Transmix.--For purposes of 
                subparagraph (A), the term `transmix' means a 
                byproduct of refined products pipeline 
                operations created by the mixing of different 
                specification products during pipeline 
                transportation.''.
    (b) Conforming Amendment.--Subsection (h) of section 6427 
is amended to read as follows:
    ``(h) Blend Stocks Not Used for Producing Taxable Fuel.--
            ``(1) Gasoline blend stocks or additives not used 
        for producing gasoline.--Except as provided in 
        subsection (k), if any gasoline blend stock or additive 
        (within the meaning of section 4083(a)(2)) is not used 
        by any person to produce gasoline and such person 
        establishes that the ultimate use of such gasoline 
        blend stock or additive is not to produce gasoline, the 
        Secretary shall pay (without interest) to such person 
        an amount equal to the aggregate amount of the tax 
        imposed on such person with respect to such gasoline 
        blend stock or additive.
            ``(2) Diesel fuel blend stocks or additives not 
        used for producing diesel.--Except as provided in 
        subsection (k), if any diesel fuel blend stock is not 
        used by any person to produce diesel fuel and such 
        person establishes that the ultimate use of such diesel 
        fuel blend stock is not to produce diesel fuel, the 
        Secretary shall pay (without interest) to such person 
        an amount equal to the aggregate amount of the tax 
        imposed on such person with respect to such diesel fuel 
        blend stock.''.
    (c) Effective Date.--The amendment made by this section 
shall apply to fuel removed, sold, or used after December 31, 
2004.

SEC. 871. STUDY REGARDING FUEL TAX COMPLIANCE.

    (a) In General.--Not later than January 31, 2005, the 
Secretary of the Treasury shall submit to the Committee on 
Finance of the Senate and the Committee on Ways and Means of 
the House of Representatives a report regarding compliance with 
the tax imposed under subchapter B of chapter 31 and part III 
of subchapter A of chapter 32 of the Internal Revenue Code of 
1986. Such report shall include the information, analysis, and 
recommendations specified in subsections (b), (c), and (d).
    (b) Taxable Fuel Blendstocks.--The Secretary shall identify 
chemical products to be added to the list of blendstocks from 
lab analysis of fuel samples collected by the Internal Revenue 
Service which have been blended with taxable fuel but are not 
treated as blendstocks. The Secretary shall include statistics 
regarding the frequency in which a chemical product has been 
collected, and whether the sample contained an above normal 
concentration of the chemical product.
    (c) Waste Products Added to Taxable Fuels.--The report 
shall include a discussion of Internal Revenue Service findings 
regarding the addition of waste products to taxable fuel and 
any recommendations to address the taxation of such products.
    (d) Erroneous Claims of Fuel Tax Exemptions.--The report 
shall include a discussion of Internal Revenue Service findings 
regarding sales of taxable fuel to entities claiming exempt 
status as a State or local government and the frequency of 
erroneous certifications of tax exempt status. The Secretary, 
in consultation with representatives of State and local 
governments, shall provide recommendations to address such 
erroneous claims, including recommendations on the feasibility 
of a State maintained list of exempt governmental entities 
within the State.

                  Subtitle D--Other Revenue Provisions

SEC. 881. QUALIFIED TAX COLLECTION CONTRACTS.

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

``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

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

          ``(1) For damages for certain unauthorized collection actions 
        by persons performing services under a qualified tax collection 
        contract, see section 7433A.
          ``(2) For application of Taxpayer Assistance Orders to persons 
        performing services under a qualified tax collection contract, 
        see section 7811(g).''.

            (2) Conforming amendments.--
                    (A) Section 7809(a) is amended by inserting 
                ``6306,'' before ``7651''.
                    (B) The table of sections for subchapter A 
                of chapter 64 is amended by adding at the end 
                the following new item:

        ``Sec. 6306. Qualified tax collection contracts.''.

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

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

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

        ``Sec. 7433A. Civil damages for certain unauthorized collection 
                  actions by persons performing services under qualified 
                  tax collection contracts.''.

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

SEC. 882. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS AND SIMILAR 
                    PROPERTY.

    (a) In General.--Subparagraph (B) of section 170(e)(1) is 
amended by striking ``or'' at the end of clause (i), by adding 
``or'' at the end of clause (ii), and by inserting after clause 
(ii) the following new clause:
                            ``(iii) of any patent, copyright 
                        (other than a copyright described in 
                        section 1221(a)(3) or 1231(b)(1)(C)), 
                        trademark, trade name, trade secret, 
                        know-how, software (other than software 
                        described in section 197(e)(3)(A)(i)), 
                        or similar property, or applications or 
                        registrations of such property,''.
    (b) Certain Donee Income From Intellectual Property Treated 
as an Additional Charitable Contribution.--Section 170 is 
amended by redesignating subsection (m) as subsection (n) and 
by inserting after subsection (l) the following new subsection:
    ``(m) Certain Donee Income From Intellectual Property 
Treated as an Additional Charitable Contribution.--
            ``(1) Treatment as additional contribution.--In the 
        case of a taxpayer who makes a qualified intellectual 
        property contribution, the deduction allowed under 
        subsection (a) for each taxable year of the taxpayer 
        ending on or after the date of such contribution shall 
        be increased (subject to the limitations under 
        subsection (b)) by the applicable percentage of 
        qualified donee income with respect to such 
        contribution which is properly allocable to such year 
        under this subsection.
            ``(2) Reduction in additional deductions to extent 
        of initial deduction.--With respect to any qualified 
        intellectual property contribution, the deduction 
        allowed under subsection (a) shall be increased under 
        paragraph (1) only to the extent that the aggregate 
        amount of such increases with respect to such 
        contribution exceed the amount allowed as a deduction 
        under subsection (a) with respect to such contribution 
        determined without regard to this subsection.
            ``(3) Qualified donee income.--For purposes of this 
        subsection, the term `qualified donee income' means any 
        net income received by or accrued to the donee which is 
        properly allocable to the qualified intellectual 
        property.
            ``(4) Allocation of qualified donee income to 
        taxable years of donor.--For purposes of this 
        subsection, qualified donee income shall be treated as 
        properly allocable to a taxable year of the donor if 
        such income is received by or accrued to the donee for 
        the taxable year of the donee which ends within or with 
        such taxable year of the donor.
            ``(5) 10-year limitation.--Income shall not be 
        treated as properly allocable to qualified intellectual 
        property for purposes of this subsection if such income 
        is received by or accrued to the donee after the 10-
        year period beginning on the date of the contribution 
        of such property.
            ``(6) Benefit limited to life of intellectual 
        property.--Income shall not be treated as properly 
        allocable to qualified intellectual property for 
        purposes of this subsection if such income is received 
        by or accrued to the donee after the expiration of the 
        legal life of such property.
            ``(7) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means the 
        percentage determined under the following table which 
        corresponds to a taxable year of the donor ending on or 
        after the date of the qualified intellectual property 
        contribution:

        ``Taxable Year of Donor Ending on or AfterApplicable Percentage:
    1st...........................................................  100 
    2nd...........................................................  100 
    3rd...........................................................   90 
    4th...........................................................   80 
    5th...........................................................   70 
    6th...........................................................   60 
    7th...........................................................   50 
    8th...........................................................   40 
    9th...........................................................   30 
    10th..........................................................   20 
    11th..........................................................   10 
    12th..........................................................   10.

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

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

    ``(a) Dispositions of Donated Property.--
            ``(1) In general.--If the donee of any charitable 
        deduction property sells, exchanges, or otherwise 
        disposes of such property within 2 years after its 
        receipt, the donee shall make a return (in accordance 
        with forms and regulations prescribed by the Secretary) 
        showing--
                    ``(A) the name, address, and TIN of the 
                donor,
                    ``(B) a description of the property,
                    ``(C) the date of the contribution,
                    ``(D) the amount received on the 
                disposition, and
                    ``(E) the date of such disposition.
            ``(2) Definitions.--For purposes of this 
        subsection--
                    ``(A) Charitable deduction property.--The 
                term `charitable deduction property' means any 
                property (other than publicly traded 
                securities) contributed in a contribution for 
                which a deduction was claimed under section 170 
                if the claimed value of such property (plus the 
                claimed value of all similar items of property 
                donated by the donor to 1 or more donees) 
                exceeds $5,000.
                    ``(B) Publicly traded securities.--The term 
                `publicly traded securities' means securities 
                for which (as of the date of the contribution) 
                market quotations are readily available on an 
                established securities market.
    ``(b) Qualified Intellectual Property Contributions.--
            ``(1) In general.--Each donee with respect to a 
        qualified intellectual property contribution shall make 
        a return (at such time and in such form and manner as 
        the Secretary may by regulations prescribe) with 
        respect to each specified taxable year of the donee 
        showing--
                    ``(A) the name, address, and TIN of the 
                donor,
                    ``(B) a description of the qualified 
                intellectual property contributed,
                    ``(C) the date of the contribution, and
                    ``(D) the amount of net income of the donee 
                for the taxable year which is properly 
                allocable to the qualified intellectual 
                property (determined without regard to 
                paragraph (10)(B) of section 170(m) and with 
                the modifications described in paragraphs (5) 
                and (6) of such section).
            ``(2) Definitions.--For purposes of this 
        subsection--
                    ``(A) In general.--Terms used in this 
                subsection which are also used in section 
                170(m) have the respective meanings given such 
                terms in such section.
                    ``(B) Specified taxable year.--The term 
                `specified taxable year' means, with respect to 
                any qualified intellectual property 
                contribution, any taxable year of the donee any 
                portion of which is part of the 10-year period 
                beginning on the date of such contribution.
    ``(c) Statement To Be Furnished to Donors.--Every person 
making a return under subsection (a) or (b) shall furnish a 
copy of such return to the donor at such time and in such 
manner as the Secretary may by regulations prescribe.''.
            (2) Clerical amendment.--The table of sections for 
        subpart A of part II of subchapter A of chapter 61 is 
        amended by striking the item relating to section 6050L 
        and inserting the following new item:

        ``Sec. 6050L. Returns relating to certain donated property.''.

    (d) Coordination With Appraisal Requirements.--Subclause 
(I) of section 170(f)(11)(A)(ii), as added by this Act, is 
amended by inserting ``subsection (e)(1)(B)(iii) or'' before 
``section 1221(a)(1)''.
    (e) Anti-Abuse Rules.--The Secretary of the Treasury may 
prescribe such regulations or other guidance as may be 
necessary or appropriate to prevent the avoidance of the 
purposes of section 170(e)(1)(B)(iii) of the Internal Revenue 
Code of 1986 (as added by subsection (a)), including 
preventing--
            (1) the circumvention of the reduction of the 
        charitable deduction by embedding or bundling the 
        patent or similar property as part of a charitable 
        contribution of property that includes the patent or 
        similar property,
            (2) the manipulation of the basis of the property 
        to increase the amount of the charitable deduction 
        through the use of related persons, pass-thru entities, 
        or other intermediaries, or through the use of any 
        provision of law or regulation (including the 
        consolidated return regulations), and
            (3) a donor from changing the form of the patent or 
        similar property to property of a form for which 
        different deduction rules would apply.
    (f) Effective Date.--The amendments made by this section 
shall apply to contributions made after June 3, 2004.

SEC. 883. INCREASED REPORTING FOR NONCASH CHARITABLE CONTRIBUTIONS.

    (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules) 
is amended by adding after paragraph (10) the following new 
paragraph:
            ``(11) Qualified appraisal and other documentation 
        for certain contributions.--
                    ``(A) In general.--
                            ``(i) Denial of deduction.--In the 
                        case of an individual, partnership, or 
                        corporation, no deduction shall be 
                        allowed under subsection (a) for any 
                        contribution of property for which a 
                        deduction of more than $500 is claimed 
                        unless such person meets the 
                        requirements of subparagraphs (B), (C), 
                        and (D), as the case may be, with 
                        respect to such contribution.
                            ``(ii) Exceptions.--
                                    ``(I) Readily valued 
                                property.--Subparagraphs (C) 
                                and (D) shall not apply to 
                                cash, property described in 
                                section 1221(a)(1), publicly 
                                traded securities (as defined 
                                in section 6050L(a)(2)(B)), and 
                                any qualified vehicle described 
                                in paragraph (12)(A)(ii) for 
                                which an acknowledgement under 
                                paragraph (12)(B)(iii) is 
                                provided.
                                    ``(II) Reasonable cause.--
                                Clause (i) shall not apply if 
                                it is shown that the failure to 
                                meet such requirements is due 
                                to reasonable cause and not to 
                                willful neglect.
                    ``(B) Property description for 
                contributions of more than $500.--In the case 
                of contributions of property for which a 
                deduction of more than $500 is claimed, the 
                requirements of this subparagraph are met if 
                the individual, partnership or corporation 
                includes with the return for the taxable year 
                in which the contribution is made a description 
                of such property and such other information as 
                the Secretary may require. The requirements of 
                this subparagraph shall not apply to a C 
                corporation which is not a personal service 
                corporation or a closely held C corporation.
                    ``(C) Qualified appraisal for contributions 
                of more than $5,000.--In the case of 
                contributions of property for which a deduction 
                of more than $5,000 is claimed, the 
                requirements of this subparagraph are met if 
                the individual, partnership, or corporation 
                obtains a qualified appraisal of such property 
                and attaches to the return for the taxable year 
                in which such contribution is made such 
                information regarding such property and such 
                appraisal as the Secretary may require.
                    ``(D) Substantiation for contributions of 
                more than $500,000.--In the case of 
                contributions of property for which a deduction 
                of more than $500,000 is claimed, the 
                requirements of this subparagraph are met if 
                the individual, partnership, or corporation 
                attaches to the return for the taxable year a 
                qualified appraisal of such property.
                    ``(E) Qualified appraisal.--For purposes of 
                this paragraph, the term `qualified appraisal' 
                means, with respect to any property, an 
                appraisal of such property which is treated for 
                purposes of this paragraph as a qualified 
                appraisal under regulations or other guidance 
                prescribed by the Secretary.
                    ``(F) Aggregation of similar items of 
                property.--For purposes of determining 
                thresholds under this paragraph, property and 
                all similar items of property donated to 1 or 
                more donees shall be treated as 1 property.
                    ``(G) Special rule for pass-thru 
                entities.--In the case of a partnership or S 
                corporation, this paragraph shall be applied at 
                the entity level, except that the deduction 
                shall be denied at the partner or shareholder 
                level.
                    ``(H) Regulations.--The Secretary may 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations that may 
                provide that some or all of the requirements of 
                this paragraph do not apply in appropriate 
                cases.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions made after June 3, 2004.

SEC. 884. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.

    (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules), 
as amended by this Act, is amended by inserting after paragraph 
(11) the following new paragraph:
            ``(12) Contributions of used motor vehicles, boats, 
        and airplanes.--
                    ``(A) In general.--In the case of a 
                contribution of a qualified vehicle the claimed 
                value of which exceeds $500--
                            ``(i) paragraph (8) shall not apply 
                        and no deduction shall be allowed under 
                        subsection (a) for such contribution 
                        unless the taxpayer substantiates the 
                        contribution by a contemporaneous 
                        written acknowledgement of the 
                        contribution by the donee organization 
                        that meets the requirements of 
                        subparagraph (B) and includes the 
                        acknowledgement with the taxpayer's 
                        return of tax which includes the 
                        deduction, and
                            ``(ii) if the organization sells 
                        the vehicle without any significant 
                        intervening use or material improvement 
                        of such vehicle by the organization, 
                        the amount of the deduction allowed 
                        under subsection (a) shall not exceed 
                        the gross proceeds received from such 
                        sale.
                    ``(B) Content of acknowledgement.--An 
                acknowledgement meets the requirements of this 
                subparagraph if it includes the following 
                information:
                            ``(i) The name and taxpayer 
                        identification number of the donor.
                            ``(ii) The vehicle identification 
                        number or similar number.
                            ``(iii) In the case of a qualified 
                        vehicle to which subparagraph (A)(ii) 
                        applies--
                                    ``(I) a certification that 
                                the vehicle was sold in an 
                                arm's length transaction 
                                between unrelated parties,
                                    ``(II) the gross proceeds 
                                from the sale, and
                                    ``(III) a statement that 
                                the deductible amount may not 
                                exceed the amount of such gross 
                                proceeds.
                            ``(iv) In the case of a qualified 
                        vehicle to which subparagraph (A)(ii) 
                        does not apply--
                                    ``(I) a certification of 
                                the intended use or material 
                                improvement of the vehicle and 
                                the intended duration of such 
                                use, and
                                    ``(II) a certification that 
                                the vehicle would not be 
                                transferred in exchange for 
                                money, other property, or 
                                services before completion of 
                                such use or improvement.
                    ``(C) Contemporaneous.--For purposes of 
                subparagraph (A), an acknowledgement shall be 
                considered to be contemporaneous if the donee 
                organization provides it within 30 days of--
                            ``(i) the sale of the qualified 
                        vehicle, or
                            ``(ii) in the case of an 
                        acknowledgement including a 
                        certification described in subparagraph 
                        (B)(iv), the contribution of the 
                        qualified vehicle.
                    ``(D) Information to secretary.--A donee 
                organization required to provide an 
                acknowledgement under this paragraph shall 
                provide to the Secretary the information 
                contained in the acknowledgement. Such 
                information shall be provided at such time and 
                in such manner as the Secretary may prescribe.
                    ``(E) Qualified vehicle.--For purposes of 
                this paragraph, the term `qualified vehicle' 
                means any--
                            ``(i) motor vehicle manufactured 
                        primarily for use on public streets, 
                        roads, and highways,
                            ``(ii) boat, or
                            ``(iii) airplane.
                Such term shall not include any property which 
                is described in section 1221(a)(1).
                    ``(F) Regulations or other guidance.--The 
                Secretary shall prescribe such regulations or 
                other guidance as may be necessary to carry out 
                the purposes of this paragraph. The Secretary 
                may prescribe regulations or other guidance 
                which exempts sales by the donee organization 
                which are in direct furtherance of such 
                organization's charitable purpose from the 
                requirements of subparagraphs (A)(ii) and 
                (B)(iv)(II).''.
    (b) Penalty for Fraudulent Acknowledgments.--
            (1) In general.--Part I of subchapter B of chapter 
        68 (relating to assessable penalties), as amended by 
        this Act, is amended by inserting after section 6719 
        the following new section:

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

    ``Any donee organization required under section 
170(f)(12)(A) to furnish a contemporaneous written 
acknowledgment to a donor which knowingly furnishes a false or 
fraudulent acknowledgment, or which knowingly fails to furnish 
such acknowledgment in the manner, at the time, and showing the 
information required under section 170(f)(12), or regulations 
prescribed thereunder, shall for each such act, or for each 
such failure, be subject to a penalty equal to--
            ``(1) in the case of an acknowledgment with respect 
        to a qualified vehicle to which section 
        170(f)(12)(A)(ii) applies, the greater of--
                    ``(A) the product of the highest rate of 
                tax specified in section 1 and the sales price 
                stated on the acknowledgment, or
                    ``(B) the gross proceeds from the sale of 
                such vehicle, and
            ``(2) in the case of an acknowledgment with respect 
        to any other qualified vehicle to which section 
        170(f)(12) applies, the greater of--
                    ``(A) the product of the highest rate of 
                tax specified in section 1 and the claimed 
                value of the vehicle, or
                    ``(B) $5,000.''.
            (2) Conforming amendment.--The table of sections 
        for part I of subchapter B of chapter 68, as amended by 
        this Act, is amended by inserting after the item 
        relating to section 6719 the following new item:

        ``Sec. 6720. Fraudulent acknowledgments with respect to 
                  donations of motor vehicles, boats, and airplanes.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to contributions made after December 31, 2004.

SEC. 885. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS.

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

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

    ``(a) Rules Relating to Constructive Receipt.--
            ``(1) Plan failures.--
                    ``(A) Gross income inclusion.--
                            ``(i) In general.--If at any time 
                        during a taxable year a nonqualified 
                        deferred compensation plan--
                                    ``(I) fails to meet the 
                                requirements of paragraphs (2), 
                                (3), and (4), or
                                    ``(II) is not operated in 
                                accordance with such 
                                requirements,
                        all compensation deferred under the 
                        plan for the taxable year and all 
                        preceding taxable years shall be 
                        includible in gross income for the 
                        taxable year to the extent not subject 
                        to a substantial risk of forfeiture and 
                        not previously included in gross 
                        income.
                            ``(ii) Application only to affected 
                        participants.--Clause (i) shall only 
                        apply with respect to all compensation 
                        deferred under the plan for 
                        participants with respect to whom the 
                        failure relates.
                    ``(B) Interest and additional tax payable 
                with respect to previously deferred 
                compensation.--
                            ``(i) In general.--If compensation 
                        is required to be included in gross 
                        income under subparagraph (A) for a 
                        taxable year, the tax imposed by this 
                        chapter for the taxable year shall be 
                        increased by the sum of--
                                    ``(I) the amount of 
                                interest determined under 
                                clause (ii), and
                                    ``(II) an amount equal to 
                                20 percent of the compensation 
                                which is required to be 
                                included in gross income.
                            ``(ii) Interest.--For purposes of 
                        clause (i), the interest determined 
                        under this clause for any taxable year 
                        is the amount of interest at the 
                        underpayment rate plus 1 percentage 
                        point on the underpayments that would 
                        have occurred had the deferred 
                        compensation been includible in gross 
                        income for the taxable year in which 
                        first deferred or, if later, the first 
                        taxable year in which such deferred 
                        compensation is not subject to a 
                        substantial risk of forfeiture.
            ``(2) Distributions.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the plan provides that 
                compensation deferred under the plan may not be 
                distributed earlier than--
                            ``(i) separation from service as 
                        determined by the Secretary (except as 
                        provided in subparagraph (B)(i)),
                            ``(ii) the date the participant 
                        becomes disabled (within the meaning of 
                        subparagraph (C)),
                            ``(iii) death,
                            ``(iv) a specified time (or 
                        pursuant to a fixed schedule) specified 
                        under the plan at the date of the 
                        deferral of such compensation,
                            ``(v) to the extent provided by the 
                        Secretary, a change in the ownership or 
                        effective control of the corporation, 
                        or in the ownership of a substantial 
                        portion of the assets of the 
                        corporation, or
                            ``(vi) the occurrence of an 
                        unforeseeable emergency.
                    ``(B) Special rules.--
                            ``(i) Specified employees.--In the 
                        case of any specified employee, the 
                        requirement of subparagraph (A)(i) is 
                        met only if distributions may not be 
                        made before the date which is 6 months 
                        after the date of separation from 
                        service (or, if earlier, the date of 
                        death of the employee). For purposes of 
                        the preceding sentence, a specified 
                        employee is a key employee (as defined 
                        in section 416(i) without regard to 
                        paragraph (5) thereof) of a corporation 
                        any stock in which is publicly traded 
                        on an established securities market or 
                        otherwise.
                            ``(ii) Unforeseeable emergency.--
                        For purposes of subparagraph (A)(vi)--
                                    ``(I) In general.--The term 
                                `unforeseeable emergency' means 
                                a severe financial hardship to 
                                the participant resulting from 
                                an illness or accident of the 
                                participant, the participant's 
                                spouse, or a dependent (as 
                                defined in section 152(a)) of 
                                the participant, loss of the 
                                participant's property due to 
                                casualty, or other similar 
                                extraordinary and unforeseeable 
                                circumstances arising as a 
                                result of events beyond the 
                                control of the participant.
                                    ``(II) Limitation on 
                                distributions.--The requirement 
                                of subparagraph (A)(vi) is met 
                                only if, as determined under 
                                regulations of the Secretary, 
                                the amounts distributed with 
                                respect to an emergency do not 
                                exceed the amounts necessary to 
                                satisfy such emergency plus 
                                amounts necessary to pay taxes 
                                reasonably anticipated as a 
                                result of the distribution, 
                                after taking into account the 
                                extent to which such hardship 
                                is or may be relieved through 
                                reimbursement or compensation 
                                by insurance or otherwise or by 
                                liquidation of the 
                                participant's assets (to the 
                                extent the liquidation of such 
                                assets would not itself cause 
                                severe financial hardship).
                    ``(C) Disabled.--For purposes of 
                subparagraph (A)(ii), a participant shall be 
                considered disabled if the participant--
                            ``(i) is unable to engage in any 
                        substantial gainful activity by reason 
                        of any medically determinable physical 
                        or mental impairment which can be 
                        expected to result in death or can be 
                        expected to last for a continuous 
                        period of not less than 12 months, or
                            ``(ii) is, by reason of any 
                        medically determinable physical or 
                        mental impairment which can be expected 
                        to result in death or can be expected 
                        to last for a continuous period of not 
                        less than 12 months, receiving income 
                        replacement benefits for a period of 
                        not less than 3 months under an 
                        accident and health plan covering 
                        employees of the participant's 
                        employer.
            ``(3) Acceleration of benefits.--The requirements 
        of this paragraph are met if the plan does not permit 
        the acceleration of the time or schedule of any payment 
        under the plan, except as provided in regulations by 
        the Secretary.
            ``(4) Elections.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the requirements of 
                subparagraphs (B) and (C) are met.
                    ``(B) Initial deferral decision.--
                            ``(i) In general.--The requirements 
                        of this subparagraph are met if the 
                        plan provides that compensation for 
                        services performed during a taxable 
                        year may be deferred at the 
                        participant's election only if the 
                        election to defer such compensation is 
                        made not later than the close of the 
                        preceding taxable year or at such other 
                        time as provided in regulations.
                            ``(ii) First year of eligibility.--
                        In the case of the first year in which 
                        a participant becomes eligible to 
                        participate in the plan, such election 
                        may be made with respect to services to 
                        be performed subsequent to the election 
                        within 30 days after the date the 
                        participant becomes eligible to 
                        participate in such plan.
                            ``(iii) Performance-based 
                        compensation.--In the case of any 
                        performance-based compensation based on 
                        services performed over a period of at 
                        least 12 months, such election may be 
                        made no later than 6 months before the 
                        end of the period.
                    ``(C) Changes in time and form of 
                distribution.--The requirements of this 
                subparagraph are met if, in the case of a plan 
                which permits under a subsequent election a 
                delay in a payment or a change in the form of 
                payment--
                            ``(i) the plan requires that such 
                        election may not take effect until at 
                        least 12 months after the date on which 
                        the election is made,
                            ``(ii) in the case of an election 
                        related to a payment not described in 
                        clause (ii), (iii), or (vi) of 
                        paragraph (2)(A), the plan requires 
                        that the first payment with respect to 
                        which such election is made be deferred 
                        for a period of not less than 5 years 
                        from the date such payment would 
                        otherwise have been made, and
                            ``(iii) the plan requires that any 
                        election related to a payment described 
                        in paragraph (2)(A)(iv) may not be made 
                        less than 12 months prior to the date 
                        of the first scheduled payment under 
                        such paragraph.
    ``(b) Rules Relating to Funding.--
            ``(1) Offshore property in a trust.--In the case of 
        assets set aside (directly or indirectly) in a trust 
        (or other arrangement determined by the Secretary) for 
        purposes of paying deferred compensation under a 
        nonqualified deferred compensation plan, for purposes 
        of section 83 such assets shall be treated as property 
        transferred in connection with the performance of 
        services whether or not such assets are available to 
        satisfy claims of general creditors--
                    ``(A) at the time set aside if such assets 
                (or such trust or other arrangement) are 
                located outside of the United States, or
                    ``(B) at the time transferred if such 
                assets (or such trust or other arrangement) are 
                subsequently transferred outside of the United 
                States.
        This paragraph shall not apply to assets located in a 
        foreign jurisdiction if substantially all of the 
        services to which the nonqualified deferred 
        compensation relates are performed in such 
        jurisdiction.
            ``(2) Employer's financial health.--In the case of 
        compensation deferred under a nonqualified deferred 
        compensation plan, there is a transfer of property 
        within the meaning of section 83 with respect to such 
        compensation as of the earlier of--
                    ``(A) the date on which the plan first 
                provides that assets will become restricted to 
                the provision of benefits under the plan in 
                connection with a change in the employer's 
                financial health, or
                    ``(B) the date on which assets are so 
                restricted,
        whether or not such assets are available to satisfy 
        claims of general creditors.
            ``(3) Income inclusion for offshore trusts and 
        employer's financial health.--For each taxable year 
        that assets treated as transferred under this 
        subsection remain set aside in a trust or other 
        arrangement subject to paragraph (1) or (2), any 
        increase in value in, or earnings with respect to, such 
        assets shall be treated as an additional transfer of 
        property under this subsection (to the extent not 
        previously included in income).
            ``(4) Interest on tax liability payable with 
        respect to transferred property.--
                    ``(A) In general.--If amounts are required 
                to be included in gross income by reason of 
                paragraph (1) or (2) for a taxable year, the 
                tax imposed by this chapter for such taxable 
                year shall be increased by the sum of--
                            ``(i) the amount of interest 
                        determined under subparagraph (B), and
                            ``(ii) an amount equal to 20 
                        percent of the amounts required to be 
                        included in gross income.
                    ``(B) Interest.--For purposes of 
                subparagraph (A), the interest determined under 
                this subparagraph for any taxable year is the 
                amount of interest at the underpayment rate 
                plus 1 percentage point on the underpayments 
                that would have occurred had the amounts so 
                required to be included in gross income by 
                paragraph (1) or (2) been includible in gross 
                income for the taxable year in which first 
                deferred or, if later, the first taxable year 
                in which such amounts are not subject to a 
                substantial risk of forfeiture.
    ``(c) No Inference on Earlier Income Inclusion or 
Requirement of Later Inclusion.--Nothing in this section shall 
be construed to prevent the inclusion of amounts in gross 
income under any other provision of this chapter or any other 
rule of law earlier than the time provided in this section. Any 
amount included in gross income under this section shall not be 
required to be included in gross income under any other 
provision of this chapter or any other rule of law later than 
the time provided in this section.
    ``(d) Other Definitions and Special Rules.--For purposes of 
this section--
            ``(1) Nonqualified deferred compensation plan.--The 
        term `nonqualified deferred compensation plan' means 
        any plan that provides for the deferral of 
        compensation, other than--
                    ``(A) a qualified employer plan, and
                    ``(B) any bona fide vacation leave, sick 
                leave, compensatory time, disability pay, or 
                death benefit plan.
            ``(2) Qualified employer plan.--The term `qualified 
        employer plan' means--
                    ``(A) any plan, contract, pension, account, 
                or trust described in subparagraph (A) or (B) 
                of section 219(g)(5) (without regard to 
                subparagraph (A)(iii)),
                    ``(B) any eligible deferred compensation 
                plan (within the meaning of section 457(b)), 
                and
                    ``(C) any plan described in section 415(m).
            ``(3) Plan includes arrangements, etc.--The term 
        `plan' includes any agreement or arrangement, including 
        an agreement or arrangement that includes one person.
            ``(4) Substantial risk of forfeiture.--The rights 
        of a person to compensation are subject to a 
        substantial risk of forfeiture if such person's rights 
        to such compensation are conditioned upon the future 
        performance of substantial services by any individual.
            ``(5) Treatment of earnings.--References to 
        deferred compensation shall be treated as including 
        references to income (whether actual or notional) 
        attributable to such compensation or such income.
            ``(6) Aggregation rules.--Except as provided by the 
        Secretary, rules similar to the rules of subsections 
        (b) and (c) of section 414 shall apply.
    ``(e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations--
            ``(1) providing for the determination of amounts of 
        deferral in the case of a nonqualified deferred 
        compensation plan which is a defined benefit plan,
            ``(2) relating to changes in the ownership and 
        control of a corporation or assets of a corporation for 
        purposes of subsection (a)(2)(A)(v),
            ``(3) exempting arrangements from the application 
        of subsection (b) if such arrangements will not result 
        in an improper deferral of United States tax and will 
        not result in assets being effectively beyond the reach 
        of creditors,
            ``(4) defining financial health for purposes of 
        subsection (b)(2), and
            ``(5) disregarding a substantial risk of forfeiture 
        in cases where necessary to carry out the purposes of 
        this section.''.
    (b) Treatment of Deferred Amounts.--
            (1) W-2 forms.--
                    (A) In general.--Subsection (a) of section 
                6051 (relating to receipts for employees) is 
                amended by striking ``and'' at the end of 
                paragraph (11), by striking the period at the 
                end of paragraph (12) and inserting ``, and'', 
                and by inserting after paragraph (12) the 
                following new paragraph:
            ``(13) the total amount of deferrals for the year 
        under a nonqualified deferred compensation plan (within 
        the meaning of section 409A(d)).''.
                    (B) Threshold.--Subsection (a) of section 
                6051 is amended by adding at the end the 
                following: ``In the case of the amounts 
                required to be shown by paragraph (13), the 
                Secretary may (by regulation) establish a 
                minimum amount of deferrals below which 
                paragraph (13) does not apply.''.
            (2) Wage withholding.--Section 3401(a) (defining 
        wages) is amended by adding at the end the following 
        flush sentence: ``The term `wages' includes any amount 
        includible in gross income of an employee under section 
        409A and payment of such amount shall be treated as 
        having been made in the taxable year in which the 
        amount is so includible.''.
            (3) Other reporting.--Section 6041 (relating to 
        information at source) is amended by adding at the end 
        the following new subsection:
    ``(g) Nonqualified Deferred Compensation.--Subsection (a) 
shall apply to--
            ``(1) any deferrals for the year under a 
        nonqualified deferred compensation plan (within the 
        meaning of section 409A(d)), whether or not paid, 
        except that this paragraph shall not apply to deferrals 
        which are required to be reported under section 
        6051(a)(13) (without regard to any de minimis 
        exception), and
            ``(2) any amount includible under section 409A and 
        which is not treated as wages under section 3401(a).''.
    (c) Clerical Amendment.--The table of sections for such 
subpart A of part I of subchapter D of chapter 1 is amended by 
adding at the end the following new item:

        ``Sec. 409A. Inclusion in gross income of deferred compensation 
                  under nonqualified deferred compensation plans.''.

    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to amounts deferred after December 
        31, 2004.
            (2) Special rules.--
                    (A) Earnings.--The amendments made by this 
                section shall apply to earnings on deferred 
                compensation only to the extent that such 
                amendments apply to such compensation.
                    (B) Material modifications.--For purposes 
                of this subsection, amounts deferred in taxable 
                years beginning before January 1, 2005, shall 
                be treated as amounts deferred in a taxable 
                year beginning on or after such date if the 
                plan under which the deferral is made is 
                materially modified after October 3, 2004, 
                unless such modification is pursuant to the 
                guidance issued under subsection (f).
            (3) Exception for nonelective deferred 
        compensation.--The amendments made by this section 
        shall not apply to any nonelective deferred 
        compensation to which section 457 of the Internal 
        Revenue Code of 1986 does not apply by reason of 
        section 457(e)(12) of such Code, but only if such 
        compensation is provided under a nonqualified deferred 
        compensation plan--
                    (A) which was in existence on May 1, 2004,
                    (B) which was providing nonelective 
                deferred compensation described in such section 
                457(e)(12) on such date, and
                    (C) which is established or maintained by 
                an organization incorporated on July 2, 1974.
        If, after May 1, 2004, a plan described in the 
        preceding sentence adopts a plan amendment which 
        provides a material change in the classes of 
        individuals eligible to participate in the plan, this 
        paragraph shall not apply to any nonelective deferred 
        compensation provided under the plan on or after the 
        date of the adoption of the amendment.
    (e) Guidance Relating to Change of Ownership or Control.--
Not later than 90 days after the date of the enactment of this 
Act, the Secretary of the Treasury shall issue guidance on what 
constitutes a change in ownership or effective control for 
purposes of section 409A of the Internal Revenue Code of 1986, 
as added by this section.
    (f) Guidance Relating to Termination of Certain Existing 
Arrangements.--Not later than 60 days after the date of the 
enactment of this Act, the Secretary of the Treasury shall 
issue guidance providing a limited period during which a 
nonqualified deferred compensation plan adopted before December 
31, 2004, may, without violating the requirements of paragraphs 
(2), (3), and (4) of section 409A(a) of the Internal Revenue 
Code of 1986 (as added by this section), be amended--
            (1) to provide that a participant may terminate 
        participation in the plan, or cancel an outstanding 
        deferral election with regard to amounts deferred after 
        December 31, 2004, but only if amounts subject to the 
        termination or cancellation are includible in income of 
        the participant as earned (or, if later, when no longer 
        subject to substantial risk of forfeiture), and
            (2) to conform to the requirements of such section 
        409A with regard to amounts deferred after December 31, 
        2004.

SEC. 886. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                    FRANCHISES.

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

SEC. 887. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL 
                    VENDERS.

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

SEC. 888. MODIFICATION OF STRADDLE RULES.

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

SEC. 889. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE 
                    VACCINES.

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

SEC. 890. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF TAXABLE 
                    VACCINES.

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

SEC. 891. EXTENSION OF IRS USER FEES.

    (a) In General.--Section 7528(c) (relating to termination) 
is amended by striking ``December 31, 2004'' and inserting 
``September 30, 2014''.
    (b) Effective Date.--The amendment made by this section 
shall apply to requests after the date of the enactment of this 
Act.

SEC. 892. COBRA FEES.

    (a) Use of Merchandise Processing Fee.--Section 13031(f) of 
the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 
U.S.C. 58c(f)) is amended--
            (1) in paragraph (1), by aligning subparagraph (B) 
        with subparagraph (A); and
            (2) in paragraph (2), by striking ``commercial 
        operations'' and all that follows through 
        ``processing.'' and inserting ``customs revenue 
        functions as defined in section 415 of the Homeland 
        Security Act of 2002 (other than functions performed by 
        the Office of International Affairs referred to in 
        section 415(8) of that Act), and for automation 
        (including the Automation Commercial Environment 
        computer system), and for no other purpose. To the 
        extent that funds in the Customs User Fee Account are 
        insufficient to pay the costs of such customs revenue 
        functions, customs duties in an amount equal to the 
        amount of such insufficiency shall be available, to the 
        extent provided for in appropriations Acts, to pay the 
        costs of such customs revenue functions in the amount 
        of such insufficiency, and shall be available for no 
        other purpose. The provisions of the first and second 
        sentences of this paragraph specifying the purposes for 
        which amounts in the Customs User Fee Account may be 
        made available shall not be superseded except by a 
        provision of law which specifically modifies or 
        supersedes such provisions.''.
    (b) Reimbursement of Appropriations From COBRA Fees.--
Section 13031(f)(3) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (19 U.S.C. 58c(f)(3)) is amended by 
adding at the end the following:
    ``(E) Nothing in this paragraph shall be construed to 
preclude the use of appropriated funds, from sources other than 
the fees collected under subsection (a), to pay the costs set 
forth in clauses (i), (ii), and (iii) of subparagraph (A).''.
    (c) Sense of Congress; Effective Period for Collecting 
Fees; Standard for Setting Fees.--
            (1) Sense of congress.--The Congress finds that--
                    (A) the fees set forth in paragraphs (1) 
                through (8) of subsection (a) of section 13031 
                of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 have been reasonably 
                related to the costs of providing customs 
                services in connection with the activities or 
                items for which the fees have been charged 
                under such paragraphs; and
                    (B) the fees collected under such 
                paragraphs have not exceeded, in the aggregate, 
                the amounts paid for the costs described in 
                subsection (f)(3)(A) incurred in providing 
                customs services in connection with the 
                activities or items for which the fees were 
                charged under such paragraphs.
            (2) Effective period; standard for setting fees.--
        Section 13031(j)(3) of the Consolidated Omnibus Budget 
        Reconciliation Act of 1985 is amended to read as 
        follows:
    ``(3)(A) Fees may not be charged under paragraphs (9) and 
(10) of subsection (a) after September 30, 2014.
    ``(B)(i) Subject to clause (ii), Fees may not be charged 
under paragraphs (1) through (8) of subsection (a) after 
September 30, 2014.
    ``(ii) In fiscal year 2006 and in each succeeding fiscal 
year for which fees under paragraphs (1) through (8) of 
subsection (a) are authorized--
            ``(I) the Secretary of the Treasury shall charge 
        fees under each such paragraph in amounts that are 
        reasonably related to the costs of providing customs 
        services in connection with the activity or item for 
        which the fee is charged under such paragraph, except 
        that in no case may the fee charged under any such 
        paragraph exceed by more than 10 percent the amount 
        otherwise prescribed by such paragraph;
            ``(II) the amount of fees collected under such 
        paragraphs may not exceed, in the aggregate, the 
        amounts paid in that fiscal year for the costs 
        described in subsection (f)(3)(A) incurred in providing 
        customs services in connection with the activity or 
        item for which the fees are charged under such 
        paragraphs;
            ``(III) a fee may not be collected under any such 
        paragraph except to the extent such fee will be 
        expended to pay the costs described in subsection 
        (f)(3)(A) incurred in providing customs services in 
        connection with the activity or item for which the fee 
        is charged under such paragraph; and
            ``(IV) any fee collected under any such paragraph 
        shall be available for expenditure only to pay the 
        costs described in subsection (f)(3)(A) incurred in 
        providing customs services in connection with the 
        activity or item for which the fee is charged under 
        such paragraph.''.
    (d) Clerical Amendments.--Section 13031 of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 is amended--
            (1) in subsection (a)(5)(B), by striking ``$1.75'' 
        and inserting ``$1.75.'';
            (2) in subsection (b)--
                    (A) in paragraph (1)(A), by aligning clause 
                (iii) with clause (ii);
                    (B) in paragraph (7), by striking 
                ``paragraphs'' and inserting ``paragraph''; and
                    (C) in paragraph (9), by aligning 
                subparagraph (B) with subparagraph (A); and
            (3) in subsection (e)(2), by aligning subparagraph 
        (B) with subparagraph (A).
    (e) Study of All Fees Collected by Department of Homeland 
Security.--The Secretary of the Treasury shall conduct a study 
of all the fees collected by the Department of Homeland 
Security, and shall submit to the Congress, not later than 
September 30, 2005, a report containing the recommendations of 
the Secretary on--
            (1) what fees should be eliminated;
            (2) what the rate of fees retained should be; and
            (3) any other recommendations with respect to the 
        fees that the Secretary considers appropriate.

SEC. 893. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE 
                    LIQUIDATION OF HOLDING COMPANY.

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

SEC. 894. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN 
                    SOURCE INCOME.

    (a) In General.--Section 864(c)(4)(B) (relating to 
treatment of income from sources without the United States as 
effectively connected income) is amended by adding at the end 
the following new flush sentence:

                ``Any income or gain which is equivalent to any 
                item of income or gain described in clause (i), 
                (ii), or (iii) shall be treated in the same 
                manner as such item for purposes of this 
                subparagraph.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 895. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED 
                    FOREIGN CORPORATION.

    (a) In General.--Section 904(f)(3) (relating to 
dispositions) is amending by adding at the end the following 
new subparagraph:
                    ``(D) Application to certain dispositions 
                of stock in controlled foreign corporation.--
                            ``(i) In general.--This paragraph 
                        shall apply to an applicable 
                        disposition in the same manner as if it 
                        were a disposition of property 
                        described in subparagraph (A), except 
                        that the exception contained in 
                        subparagraph (C)(i) shall not apply.
                            ``(ii) Applicable disposition.--For 
                        purposes of clause (i), the term 
                        `applicable disposition' means any 
                        disposition of any share of stock in a 
                        controlled foreign corporation in a 
                        transaction or series of transactions 
                        if, immediately before such transaction 
                        or series of transactions, the taxpayer 
                        owned more than 50 percent (by vote or 
                        value) of the stock of the controlled 
                        foreign corporation. Such term shall 
                        not include a disposition described in 
                        clause (iii) or (iv), except that 
                        clause (i) shall apply to any gain 
                        recognized on any such disposition.
                            ``(iii) Exception for certain 
                        exchanges where ownership percentage 
                        retained.--A disposition shall not be 
                        treated as an applicable disposition 
                        under clause (ii) if it is part of a 
                        transaction or series of transactions--
                                    ``(I) to which section 351 
                                or 721 applies, or under which 
                                the transferor receives stock 
                                in a foreign corporation in 
                                exchange for the stock in the 
                                controlled foreign corporation 
                                and the stock received is 
                                exchanged basis property (as 
                                defined in section 
                                7701(a)(44)), and
                                    ``(II) immediately after 
                                which, the transferor owns (by 
                                vote or value) at least the 
                                same percentage of stock in the 
                                controlled foreign corporation 
                                (or, if the controlled foreign 
                                corporation is not in existence 
                                after such transaction or 
                                series of transactions, in 
                                another foreign corporation 
                                stock in which was received by 
                                the transferor in exchange for 
                                stock in the controlled foreign 
                                corporation) as the percentage 
                                of stock in the controlled 
                                foreign corporation which the 
                                taxpayer owned immediately 
                                before such transaction or 
                                series of transactions.
                            ``(iv) Exception for certain asset 
                        acquisitions.--A disposition shall not 
                        be treated as an applicable disposition 
                        under clause (ii) if it is part of a 
                        transaction or series of transactions 
                        in which the taxpayer (or any member of 
                        a controlled group of corporations 
                        filing a consolidated return under 
                        section 1501 which includes the 
                        taxpayer) acquires the assets of a 
                        controlled foreign corporation in 
                        exchange for the shares of the 
                        controlled foreign corporation in a 
                        liquidation described in section 332 or 
                        a reorganization described in section 
                        368(a)(1).
                            ``(v) Controlled foreign 
                        corporation.--For purposes of this 
                        subparagraph, the term `controlled 
                        foreign corporation' has the meaning 
                        given such term by section 957.
                            ``(vi) Stock ownership.--For 
                        purposes of this subparagraph, 
                        ownership of stock shall be determined 
                        under the rules of subsections (a) and 
                        (b) of section 958.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to dispositions after the date of the enactment of 
this Act.

SEC. 896. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED 
                    ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.

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

SEC. 897. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY TRADABLE 
                    DEBT.

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

SEC. 898. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN 
                    DIVISIVE REORGANIZATIONS.

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

SEC. 899. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.

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

SEC. 900. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                    CORPORATIONS.

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

SEC. 901. CLASS LIVES FOR UTILITY GRADING COSTS.

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

    ``(E)(vi).................................................     20''.
    ``(F).....................................................     25''.

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

SEC. 902. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

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

SEC. 903. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE 
                    SECRETARY FAILS TO CONTACT TAXPAYER.

    (a) In General.--Section 6404(g) (relating to suspension of 
interest and certain penalties where Secretary fails to contact 
taxpayer) is amended by striking ``1-year period (18-month 
period in the case of taxable years beginning before January 1, 
2004)'' both places it appears and inserting ``18-month 
period''.
    (b) Exception for Gross Misstatement.--Section 6404(g)(2) 
(relating to exceptions) is amended by striking ``or'' at the 
end of subparagraph (C), by redesignating subparagraph (D) as 
subparagraph (E), and by inserting after subparagraph (C) the 
following new subparagraph:
                    ``(D) any interest, penalty, addition to 
                tax, or additional amount with respect to any 
                gross misstatement; or''.
    (c) Exception for Listed and Reportable Transactions.--
Section 6404(g)(2) (relating to exceptions), as amended by 
subsection (b), is amended by striking ``or'' at the end of 
subparagraph (D), by redesignating subparagraph (E) as 
subparagraph (F), and by inserting after subparagraph (D) the 
following new subparagraph:
                    ``(E) any interest, penalty, addition to 
                tax, or additional amount with respect to any 
                reportable transaction with respect to which 
                the requirement of section 6664(d)(2)(A) is not 
                met and any listed transaction (as defined in 
                6707A(c)); or''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2003.
            (2) Exception for reportable or listed 
        transactions.--The amendments made by subsection (c) 
        shall apply with respect to interest accruing after 
        October 3, 2004.

SEC. 904. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN 
                    EXCESS OF $1,000,000.

    (a) In General.--If an employer elects under Treasury 
Regulation 31.3402(g)-1 to determine the amount to be deducted 
and withheld from any supplemental wage payment by using a flat 
percentage rate, the rate to be used in determining the amount 
to be so deducted and withheld shall not be less than 28 
percent (or the corresponding rate in effect under section 
1(i)(2) of the Internal Revenue Code of 1986 for taxable years 
beginning in the calendar year in which the payment is made).
    (b) Special Rule for Large Payments.--
            (1) In general.--Notwithstanding subsection (a), if 
        the supplemental wage payment, when added to all such 
        payments previously made by the employer to the 
        employee during the calendar year, exceeds $1,000,000, 
        the rate used with respect to such excess shall be 
        equal to the maximum rate of tax in effect under 
        section 1 of such Code for taxable years beginning in 
        such calendar year.
            (2) Aggregation.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 of 
        the Internal Revenue Code of 1986 shall be treated as a 
        single employer for purposes of this subsection.
    (c) Conforming Amendment.--Section 13273 of the Revenue 
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
    (d) Effective Date.--The provisions of, and the amendment 
made by, this section shall apply to payments made after 
December 31, 2004.

SEC. 905. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF 
                    STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST 
                    REQUIREMENTS.

    (a) In General.--Section 421 (relating to general rules for 
certain stock options) is amended by adding at the end the 
following new subsection:
    ``(d) Certain Sales To Comply With Conflict-of-Interest 
Requirements.--If--
            ``(1) a share of stock is transferred to an 
        eligible person (as defined in section 1043(b)(1)) 
        pursuant to such person's exercise of an option to 
        which this part applies, and
            ``(2) such share is disposed of by such person 
        pursuant to a certificate of divestiture (as defined in 
        section 1043(b)(2)),

such disposition shall be treated as meeting the requirements 
of section 422(a)(1) or 423(a)(1), whichever is applicable.''
    (b) Effective Date.--The amendment made by this section 
shall apply to sales after the date of the enactment of this 
Act.

SEC. 906. APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.

    (a) In General.--Section 72 (relating to annuities and 
certain proceeds of endowment and life insurance contracts) is 
amended by redesignating subsection (w) as subsection (x) and 
by inserting after subsection (v) the following new subsection:
    ``(w) Application of Basis Rules to Nonresident Aliens.--
            ``(1) In general.--Notwithstanding any other 
        provision of this section, for purposes of determining 
        the portion of any distribution which is includible in 
        gross income of a distributee who is a citizen or 
        resident of the United States, the investment in the 
        contract shall not include any applicable nontaxable 
        contributions or applicable nontaxable earnings.
            ``(2) Applicable nontaxable contribution.--For 
        purposes of this subsection, the term `applicable 
        nontaxable contribution' means any employer or employee 
        contribution--
                    ``(A) which was made with respect to 
                compensation--
                            ``(i) for labor or personal 
                        services performed by an employee who, 
                        at the time the labor or services were 
                        performed, was a nonresident alien for 
                        purposes of the laws of the United 
                        States in effect at such time, and
                            ``(ii) which is treated as from 
                        sources without the United States, and
                    ``(B) which was not subject to income tax 
                (and would have been subject to income tax if 
                paid as cash compensation when the services 
                were rendered) under the laws of the United 
                States or any foreign country.
            ``(3) Applicable nontaxable earnings.--For purposes 
        of this subsection, the term `applicable nontaxable 
        earnings' means earnings--
                    ``(A) which are paid or accrued with 
                respect to any employer or employee 
                contribution which was made with respect to 
                compensation for labor or personal services 
                performed by an employee,
                    ``(B) with respect to which the employee 
                was at the time the earnings were paid or 
                accrued a nonresident alien for purposes of the 
                laws of the United States, and
                    ``(C) which were not subject to income tax 
                under the laws of the United States or any 
                foreign country.
            ``(4) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        provisions of this subsection, including regulations 
        treating contributions and earnings as not subject to 
        tax under the laws of any foreign country where 
        appropriate to carry out the purposes of this 
        subsection.''
    (b) Basis.--Section 83 (relating to property transferred in 
connection with the performance of services is amended by 
adding after paragraph (3) of subsection (c) the following new 
paragraph:
            ``(4) For purposes of determining an individual's 
        basis in property transferred in connection with the 
        performance of services, rules similar to the rules of 
        section 72(w) shall apply.''
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions on or after the date of the 
enactment of this Act.

SEC. 907. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT 
                    EXPENSES.

    (a) In General.--Paragraph (2) of section 274(e) (relating 
to expenses treated as compensation) is amended to read as 
follows:
            ``(2) Expenses treated as compensation.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), expenses for goods, services, 
                and facilities, to the extent that the expenses 
                are treated by the taxpayer, with respect to 
                the recipient of the entertainment, amusement, 
                or recreation, as compensation to an employee 
                on the taxpayer's return of tax under this 
                chapter and as wages to such employee for 
                purposes of chapter 24 (relating to withholding 
                of income tax at source on wages).
                    ``(B) Specified individuals.--
                            ``(i) In general.--In the case of a 
                        recipient who is a specified 
                        individual, subparagraph (A) and 
                        paragraph (9) shall each be applied by 
                        substituting `to the extent that the 
                        expenses do not exceed the amount of 
                        the expenses which' for `to the extent 
                        that the expenses'.
                            ``(ii) Specified individual.--For 
                        purposes of clause (i), the term 
                        `specified individual' means any 
                        individual who--
                                    ``(I) is subject to the 
                                requirements of section 16(a) 
                                of the Securities Exchange Act 
                                of 1934 with respect to the 
                                taxpayer, or
                                    ``(II) would be subject to 
                                such requirements if the 
                                taxpayer were an issuer of 
                                equity securities referred to 
                                in such section.''
    (b) Effective Date.--The amendment made by this section 
shall apply to expenses incurred after the date of the 
enactment of this Act.

SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED STATES 
                    POSSESSIONS.

    (a) Residence and Source Rules.--Subpart D of part III of 
subchapter N of chapter 1 (relating to possessions of the 
United States) is amended by adding at the end the following 
new section:

``SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS.

    ``(a) Bona Fide Resident.--For purposes of this subpart, 
section 865(g)(3), section 876, section 881(b), paragraphs (2) 
and (3) of section 901(b), section 957(c), section 
3401(a)(8)(C), and section 7654(a), except as provided in 
regulations, the term `bona fide resident' means a person--
            ``(1) who is present for at least 183 days during 
        the taxable year in Guam, American Samoa, the Northern 
        Mariana Islands, Puerto Rico, or the Virgin Islands, as 
        the case may be, and
            ``(2) who does not have a tax home (determined 
        under the principles of section 911(d)(3) without 
        regard to the second sentence thereof) outside such 
        specified possession during the taxable year and does 
        not have a closer connection (determined under the 
        principles of section 7701(b)(3)(B)(ii)) to the United 
        States or a foreign country than to such specified 
        possession.
For purposes of paragraph (1), the determination as to whether 
a person is present for any day shall be made under the 
principles of section 7701(b).
    ``(b) Source Rules.--Except as provided in regulations, for 
purposes of this title--
            ``(1) except as provided in paragraph (2), rules 
        similar to the rules for determining whether income is 
        income from sources within the United States or is 
        effectively connected with the conduct of a trade or 
        business within the United States shall apply for 
        purposes of determining whether income is from sources 
        within a possession specified in subsection (a)(1) or 
        effectively connected with the conduct of a trade or 
        business within any such possession, and
            ``(2) any income treated as income from sources 
        within the United States or as effectively connected 
        with the conduct of a trade or business within the 
        United States shall not be treated as income from 
        sources within any such possession or as effectively 
        connected with the conduct of a trade or business 
        within any such possession.
    ``(c) Reporting Requirement.--
            ``(1) In general.--If, for any taxable year, an 
        individual takes the position for United States income 
        tax reporting purposes that the individual became, or 
        ceases to be, a bona fide resident of a possession 
        specified in subsection (a)(1), such individual shall 
        file with the Secretary, at such time and in such 
        manner as the Secretary may prescribe, notice of such 
        position.
            ``(2) Transition rule.--If, for any of an 
        individual's 3 taxable years ending before the 
        individual's first taxable year ending after the date 
        of the enactment of this subsection, the individual 
        took a position described in paragraph (1), the 
        individual shall file with the Secretary, at such time 
        and in such manner as the Secretary may prescribe, 
        notice of such position.''.
    (b) Penalty.--Section 6688 is amended--
            (1) by inserting ``under section 937(c) or'' before 
        ``by regulations'', and
            (2) by striking ``$100'' and inserting ``$1,000''.
    (c) Conforming and Clerical Amendments.--
            (1) Section 931(d) is amended to read as follows:
    ``(d) Employees of the United States.--Amounts paid for 
services performed as an employee of the United States (or any 
agency thereof) shall be treated as not described in paragraph 
(1) or (2) of subsection (a).''
            (2) Section 932 is amended by striking ``at the 
        close of the taxable year'' and inserting ``during the 
        entire taxable year'' each place it appears.
            (3) Section 934(b)(4) is amended by striking ``the 
        Virgin Islands or'' each place it appears.
            (4) Section 935, as in effect before the effective 
        date of its repeal, is amended--
                    (A) by striking ``for the taxable year 
                who'' in subsection (a) and inserting ``who, 
                during the entire taxable year'',
                    (B) by inserting ``bona fide'' before 
                ``resident'' in subsection (a)(1),
                    (C) in subsection (b)(1)--
                            (i) by inserting ``(other a bona 
                        fide resident of Guam during the entire 
                        taxable year)'' after ``United States'' 
                        in subparagraph (A), and
                            (ii) by inserting ``bona fide'' 
                        before ``resident'' in subparagraph 
                        (B), and
                    (D) in subsection (b)(2) by striking 
                ``residence and''.
            (5) Section 957(c) is amended--
                    (A) in paragraph (2)(B) by striking 
                ``conduct of an active'' and inserting ``active 
                conduct of a'', and
                    (B) in the last sentence by striking 
                ``derived from sources within a possession, was 
                effectively connected with the conduct of a 
                trade or business within a possession, or''.
            (6) The table of sections of subpart D of part III 
        of subchapter N of chapter 1 is amended by adding at 
        the end the following new item:

        ``Sec. 937. Residence and source rules involving possessions.''.

    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to taxable years ending after the date of 
        the enactment of this Act.
            (2) 183-day rule.--Section 937(a)(1) of the 
        Internal Revenue Code of 1986 (as added by this 
        section) shall apply to taxable years beginning after 
        the date of the enactment of this Act.
            (3) Sourcing.--Section 937(b)(2) of such Code (as 
        so added) shall apply to income earned after the date 
        of the enactment of this Act.

SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY 
                    COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

    (a) In General.--Section 451 (relating to general rule for 
taxable year of inclusion) is amended by adding at the end the 
following new subsection:
    ``(i) Special Rule for Sales or Dispositions To Implement 
Federal Energy Regulatory Commission or State Electric 
Restructuring Policy.--
            ``(1) In general.--In the case of any qualifying 
        electric transmission transaction for which the 
        taxpayer elects the application of this section, 
        qualified gain from such transaction shall be 
        recognized--
                    ``(A) in the taxable year which includes 
                the date of such transaction to the extent the 
                amount realized from such transaction exceeds--
                            ``(i) the cost of exempt utility 
                        property which is purchased by the 
                        taxpayer during the 4-year period 
                        beginning on such date, reduced (but 
                        not below zero) by
                            ``(ii) any portion of such cost 
                        previously taken into account under 
                        this subsection, and
                    ``(B) ratably over the 8-taxable year 
                period beginning with the taxable year which 
                includes the date of such transaction, in the 
                case of any such gain not recognized under 
                subparagraph (A).
            ``(2) Qualified gain.--For purposes of this 
        subsection, the term `qualified gain' means, with 
        respect to any qualifying electric transmission 
        transaction in any taxable year--
                    ``(A) any ordinary income derived from such 
                transaction which would be required to be 
                recognized under section 1245 or 1250 for such 
                taxable year (determined without regard to this 
                subsection), and
                    ``(B) any income derived from such 
                transaction in excess of the amount described 
                in subparagraph (A) which is required to be 
                included in gross income for such taxable year 
                (determined without regard to this subsection).
            ``(3) Qualifying electric transmission 
        transaction.--For purposes of this subsection, the term 
        `qualifying electric transmission transaction' means 
        any sale or other disposition before January 1, 2007, 
        of--
                    ``(A) property used in the trade or 
                business of providing electric transmission 
                services, or
                    ``(B) any stock or partnership interest in 
                a corporation or partnership, as the case may 
                be, whose principal trade or business consists 
                of providing electric transmission services,
        but only if such sale or disposition is to an 
        independent transmission company.
            ``(4) Independent transmission company.--For 
        purposes of this subsection, the term `independent 
        transmission company' means--
                    ``(A) an independent transmission provider 
                approved by the Federal Energy Regulatory 
                Commission,
                    ``(B) a person--
                            ``(i) who the Federal Energy 
                        Regulatory Commission determines in its 
                        authorization of the transaction under 
                        section 203 of the Federal Power Act 
                        (16 U.S.C. 824b) or by declaratory 
                        order is not a market participant 
                        within the meaning of such Commission's 
                        rules applicable to independent 
                        transmission providers, and
                            ``(ii) whose transmission 
                        facilities to which the election under 
                        this subsection applies are under the 
                        operational control of a Federal Energy 
                        Regulatory Commission-approved 
                        independent transmission provider 
                        before the close of the period 
                        specified in such authorization, but 
                        not later than the close of the period 
                        applicable under subsection (a)(2)(B) 
                        as extended under paragraph (2), or
                    ``(C) in the case of facilities subject to 
                the jurisdiction of the Public Utility 
                Commission of Texas--
                            ``(i) a person which is approved by 
                        that Commission as consistent with 
                        Texas State law regarding an 
                        independent transmission provider, or
                            ``(ii) a political subdivision or 
                        affiliate thereof whose transmission 
                        facilities are under the operational 
                        control of a person described in clause 
                        (i).
            ``(5) Exempt utility property.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `exempt utility 
                property' means property used in the trade or 
                business of--
                            ``(i) generating, transmitting, 
                        distributing, or selling electricity, 
                        or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural gas.
                    ``(B) Nonrecognition of gain by reason of 
                acquisition of stock.--Acquisition of control 
                of a corporation shall be taken into account 
                under this subsection with respect to a 
                qualifying electric transmission transaction 
                only if the principal trade or business of such 
                corporation is a trade or business referred to 
                in subparagraph (A).
            ``(6) Special rule for consolidated groups.--In the 
        case of a corporation which is a member of an 
        affiliated group filing a consolidated return, any 
        exempt utility property purchased by another member of 
        such group shall be treated as purchased by such 
        corporation for purposes of applying paragraph (1)(A).
            ``(7) Time for assessment of deficiencies.--If the 
        taxpayer has made the election under paragraph (1) and 
        any gain is recognized by such taxpayer as provided in 
        paragraph (1)(B), then--
                    ``(A) the statutory period for the 
                assessment of any deficiency, for any taxable 
                year in which any part of the gain on the 
                transaction is realized, attributable to such 
                gain shall not expire prior to the expiration 
                of 3 years from the date the Secretary is 
                notified by the taxpayer (in such manner as the 
                Secretary may by regulations prescribe) of the 
                purchase of exempt utility property or of an 
                intention not to purchase such property, and
                    ``(B) such deficiency may be assessed 
                before the expiration of such 3-year period 
                notwithstanding any law or rule of law which 
                would otherwise prevent such assessment.
            ``(8) Purchase.--For purposes of this subsection, 
        the taxpayer shall be considered to have purchased any 
        property if the unadjusted basis of such property is 
        its cost within the meaning of section 1012.
            ``(9) Election.--An election under paragraph (1) 
        shall be made at such time and in such manner as the 
        Secretary may require and, once made, shall be 
        irrevocable.
            ``(10) Nonapplication of installment sales 
        treatment.--Section 453 shall not apply to any 
        qualifying electric transmission transaction with 
        respect to which an election to apply this subsection 
        is made.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to transactions occurring after the date of the 
enactment of this Act, in taxable years ending after such date.

SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER 
                    AUTOMOBILES.

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

                From the Committee on Ways and Means, for 
                consideration of the House bill and the Senate 
                amendment, and modifications committed to 
                conference:
                                   William M. Thomas,
                                   Phil Crane,
                                   Jim McCrery,
                From the Committee on Agriculture, for 
                consideration of Title VII of the House bill, 
                and subtitle B of Title XI of the Senate 
                amendment, and modifications committed to 
                conference:
                                   Bob Goodlatte,
                                   John Boehner,
                                   Charlie Stenholm,
                From the Committee on Education and the 
                Workforce, for consideration of sections 489, 
                489, 616, 701, and 719 of the Senate amendment, 
                and modifications committed to conference:
                                   John Boehner,
                                   Sam Johnson,
                From the Committee on Energy and Commerce, for 
                consideration of sections 662 and subtitle A of 
                Title XI of the Senate amendment, and 
                modifications committed to conference:
                                   Joe Barton,
                                   Richard Burr,
                From the Committee on the Judiciary, for 
                consideration of sections 422, 442, 1111, 1151, 
                and 1161 of the Senate amendment, and 
                modifications committed to conference:
                                   Lamar Smith,
                For consideration of the House bill and the 
                Senate amendment, and modifications committed 
                to conference:
                                   Tom DeLay,
                                 Managers on the Part of the House.

                                   Chuck Grassley,
                                   Orrin Hatch,
                                   Don Nickles,
                                   Trent Lott,
                                   Olympia Snowe,
                                   Jon Kyl,
                                   Craig Thomas,
                                   Rick Santorum,
                                   Gordon Smith,
                                   Jim Bunning,
                                   Mitch McConnell,
                                   Max Baucus,
                                   Tom Daschle,
                                   John Breaux,
                                   Kent Conrad,
                                   Jeff Bingaman,
                                   Blanche L. Lincoln,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendment of the Senate to the bill (H.R. 4520), to amend 
the Internal Revenue Code of 1986 to remove impediments in such 
Code and make our manufacturing, service, and high-technology 
businesses and workers more competitive and productive both at 
home and abroad, submit the following joint statement to the 
House and the Senate in explantion of the effect of the action 
agreed upon by the managers and recommended in the accompanying 
conference report:
      The Senate amendment struck all of the House bill after 
the enacting clause and inserted a substitute text.
      The House recedes from its disagreement to the amendment 
of the Senate with an amendment that is a substitute for the 
House bill and the Senate amendment. The differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clarifying 
changes.

                                CONTENTS

                                                                   Page
Title I--Provisions Relating to Repeal of Exclusion for 
  Extraterritorial Income........................................   262
    A. Repeal of Extraterritorial Income Regime (sec. 101 of the 
      House bill, sec. 101 of the Senate amendment, and secs. 114 
      and 941 through 943 of the Code)...........................   262
    B. Deduction Relating to Income Attributable to United States 
      Production Activities (sec. 102 of the House bill, secs. 
      102 and 103 of the Senate amendment, and sec. 11 of the 
      Code)......................................................   265
    C. Reduced Corporate Income Tax Rate for Small Corporations 
      (sec. 103 of the House bill and sec. 11 of the Code).......   275
Title II--Provisions Relating to Job Creation Tax Incentives for 
  Manufacturers, Small Businesses, and Farmers...................   277
    A. Section 179 Expensing (sec. 201 of the House bill, sec. 
      309 of the Senate amendment and sec. 179 of the Code)......   277
    B. Depreciation..............................................   279
        1. Recovery period for depreciation of certain leasehold 
          improvements (sec. 211 of the House bill and sec. 168 
          of the Code)...........................................   279
        2. Recovery period for depreciation of certain restaurant 
          improvements (sec. 211 of the House bill and sec. 168 
          of the Code)...........................................   281
        3. Extended placed in service date for bonus depreciation 
          for certain aircraft (excluding aircraft used in the 
          transportation industry) (sec. 212 of the House bill, 
          sec. 622 of the Senate amendment, and sec. 168 of the 
          Code)..................................................   282
        4. Special placed in service rule for bonus depreciation 
          for certain property subject to syndication (sec. 213 
          of the House bill, sec. 621 of the Senate amendment, 
          and sec. 168 of the Code)..............................   285
    C. S Corporation Reform and Simplification (sec. 221-231 of 
      the House bill, sec. 654 of the Senate amendment and secs. 
      1361-1379 and 4975 of the Code)............................   286
        1. Members of family treated as one shareholder..........   287
        2. Increase in number of eligible shareholders to 100....   288
        3. Expansion of bank S corporation eligible shareholders 
          to include IRAs........................................   289
        4. Disregard of unexercised powers of appointment in 
          determining potential current beneficiaries of ESBT....   290
        5. Transfers of suspended losses incident to divorce, etc   290
        6. Use of passive activity loss and at-risk amounts by 
          qualified subchapter S trust income beneficiaries......   291
        7. Exclusion of investment securities income from passive 
          investment income test for bank S corporations.........   291
        8. Treatment of bank director shares.....................   292
        9. Relief from inadvertently invalid qualified subchapter 
          S subsidiary elections and terminations................   294
        10. Information returns for qualified subchapter S 
          subsidiaries...........................................   294
        11. Repayment of loans for qualifying employer securities   294
    D. Alternative Minimum Tax Relief............................   297
        1. Repeal limitation on use of foreign tax credit (sec. 
          241 of the House bill, sec. 203 of the Senate 
          amendment, and sec. 59 of the Code)....................   297
        2. Expansion of exemption from alternative minimum tax 
          for small corporations (sec. 242 of the House bill and 
          sec. 55 of the Code)...................................   298
        3. Coordinate farmer and fisherman income averaging and 
          the alternative minimum tax (sec. 243 of the House bill 
          and secs. 55 and 1301 of the Code).....................   298
    E. Restructuring of Incentives for Alcohol Fuels, Etc........   299
        1. Incentives for alcohol and biodiesel fuels (secs. 251 
          and 252 of the House bill, sec. 861 of the Senate 
          amendment, and secs. 4041, 4081, 4091, 6427, 9503 and 
          new section 6426 of the Code)..........................   299
        2. Biodiesel income tax credit (sec. 862 of the bill and 
          new sec. 40A of the Code)..............................   309
    F. Exclusion of Incentive Stock Options and Employee Stock 
      Purchase Plan Stock Options From Wages (sec. 261 of the 
      House bill and secs. 421(b), 423(c), 3121(a), 3231, and 
      3306(b) of the Code).......................................   310
    G. Incentives To Reinvest Foreign Earnings in the United 
      States (sec. 271 of the House bill, sec. 231 of the Senate 
      amendment, and new sec. 965 of the Code)...................   312
    H. Other Incentive Provisions................................   317
        1. Special rules for livestock sold on account of 
          weather-related conditions (sec. 281 of the House bill, 
          sec. 649 of the Senate amendment, and secs. 1033 and 
          451 of the Code).......................................   317
        2. Payment of dividends on stock of cooperatives without 
          reducing patronage dividends (sec. 282 of the House 
          bill, sec. 648 of the Senate amendment, and sec. 1388 
          of the Code)...........................................   318
        3. Manufacturing relating to timber......................   319
            a. Capital gains treatment to apply to outright sales 
              of timber by landowner (sec. 283 of the House bill, 
              sec. 333 of the Senate amendment, and sec. 631(b) 
              of the Code).......................................   319
            b. Expensing of reforestation expenditures (sec. 331 
              of the Senate amendment and secs. 48 and 194 of the 
              Code)..............................................   320
            c. Election to treat cutting of timber as a sale or 
              exchange (sec. 102(b) of the House bill, sec. 332 
              of the Senate amendment, and sec. 631(a) of the 
              Code)..............................................   321
            d. Modified safe harbor rules for timber REITs (sec. 
              334 of the Senate amendment and sec. 857 of the 
              Code)..............................................   321
        4. Net income from publicly traded partnerships treated 
          as qualifying income of regulated investment company 
          (sec. 284 of the House bill, sec. 899 of the Senate 
          amendment, and secs. 851(b), 469(k), 7704(d) and new 
          sec. 851(h) of the Code)...............................   325
        5. Improvements related to real estate investment trusts 
          (sec. 285 of the House bill and secs. 856, 857 and 860 
          of the Code)...........................................   327
        6. Treatment of certain dividends of regulated investment 
          companies (sec. 286 of the House bill and secs. 871 and 
          881 of the Code).......................................   336
        7. Taxation of certain settlement funds (sec. 287 of the 
          House bill and sec. 468B of the Code)..................   341
        8. Expand human clinical trials expenses qualifying for 
          the orphan drug tax credit (sec. 288 of the House bill 
          and sec. 45C of the Code)..............................   342
        9. Simplification of excise tax imposed on bows and 
          arrows (sec. 289 of the House bill, sec. 305 of the 
          Senate amendment, and sec. 4161 of the Code)...........   343
        10. Reduce rate of excise tax on fishing tackle boxes to 
          three percent (sec. 290 of the House bill and sec. 4162 
          of the Code)...........................................   344
        11. Repeal of excise tax on sonar devices suitable for 
          finding fish (sec. 291 of the House bill and secs. 4161 
          and 4162 of the Code)..................................   345
        12. Income tax credit for cost of carrying tax-paid 
          distilled spirits in wholesale inventories (sec. 292 of 
          the House bill)........................................   345
        13. Suspension of occupational taxes relating to 
          distilled spirits, wine, and beer (sec. 293 of the 
          House bill and new sec. 5148 of the Code)..............   346
        14. Modification of unrelated business income limitation 
          on investment in certain small business investment 
          companies (sec. 294 of the House bill, sec. 642 of the 
          Senate amendment, and sec. 514 of the Code)............   348
        15. Election to determine taxable income from certain 
          international shipping activities using per ton rate 
          (sec. 295 of the House bill and new secs. 1352-1359 of 
          the Code)..............................................   349
        16. Charitable contribution deduction for certain 
          expenses in support of Native Alaskan subsistence 
          whaling (sec. 296 of the House bill and sec. 170 of the 
          Code)..................................................   355
    I. General Provisions........................................   357
        1. Modification to qualified small issue bonds (sec. 301 
          of the Senate amendment and sec. 144 of the Code)......   357
        2. Expensing of investment in broadband equipment (sec. 
          302 of the Senate amendment and new sec. 191 of the 
          Code)..................................................   358
        3. Exemption for natural aging process from interest 
          capitalization (sec. 303 of the Senate amendment and 
          sec. 263A of the Code).................................   359
        4. Section 355 ``active business test'' applied to chains 
          of affiliated corporations (sec. 304 of the Senate 
          amendment and sec. 355 of the Code)....................   360
        5. Modification to cooperative marketing rules to include 
          value-added processing involving animals (sec. 306 of 
          the Senate amendment and sec. 1388 of the Code)........   362
        6. Extension of declaratory judgment procedures to 
          farmers' cooperative organizations (sec. 307 of the 
          Senate amendment and sec. 7428 of the Code)............   363
        7. Temporary suspension of personal holding company tax 
          (sec. 308 of the Senate amendment and sec. 541 of the 
          Code)..................................................   364
        8. 5-year NOL carryback for 2003 NOLs if taxpayer elects 
          out of bonus depreciation as modified; extend temporary 
          suspension of 90-percent limit on minimum tax NOLs 
          (sec. 310 of the Senate amendment and sec. 172 of the 
          Code)..................................................   366
        9. Manufacturer's jobs credit (sec. 313 of the Senate 
          amendment).............................................   367
        10. Brownfields demonstration program for qualified green 
          building and sustainable design projects (sec. 314 of 
          the Senate amendment and secs. 142 and 146 of the Code)   368
    J. Manufacturing Relating to Films...........................   371
        1. Special rules for certain film and television 
          production (sec. 321 of the Senate amendment and new 
          sec. 181 of the Code)..................................   371
        2. Modification of application of income forecast method 
          of depreciation (sec. 322 of the Senate amendment and 
          sec. 167 of the Code)..................................   373
Title III--Provisions Relating to Tax Reform and Simplification 
  for United States Businesses...................................   375
        1. Interest expense allocation rules (sec. 301 of the 
          House bill, sec. 205 of the Senate amendment, and sec. 
          864 of the Code).......................................   375
        2. Recharacterize overall domestic loss (sec. 302 of the 
          House bill, sec. 204 of the Senate amendment, and sec. 
          904 of the Code).......................................   379
        3. Foreign tax credit baskets and ``base differences'' 
          (sec. 303 of the House bill, sec. 225 of the Senate 
          amendment, and sec. 904 of the Code)...................   381
        4. Apply look-through rules for dividends from 
          noncontrolled section 902 corporations (sec. 304 of the 
          House bill, sec. 202 of the Senate amendment, and sec. 
          904 of the Code).......................................   385
        5. Attribution of stock ownership through partnerships in 
          determining section 902 and 960 credits (sec. 305 of 
          the House bill, sec. 213 of the Senate amendment, and 
          sec. 902 of the Code)..................................   386
        6. Foreign tax credit treatment of deemed payments under 
          section 367(d) of the Code (sec. 306 of the House bill, 
          sec. 229 of the Senate amendment, and sec. 367(d) of 
          the Code)..............................................   388
        7. United States property not to include certain assets 
          of controlled foreign corporations (sec. 307 of the 
          House bill, sec. 227 of the Senate amendment, and sec. 
          956 of the Code).......................................   389
        8. Election not to use average exchange rate for foreign 
          tax paid other than in functional currency (sec. 308 of 
          the House bill, sec. 224 of the Senate amendment, and 
          sec. 986 of the Code)..................................   391
        9. Eliminate secondary withholding tax with respect to 
          dividends paid by certain foreign corporations (sec. 
          309 of the House bill, sec. 215 of the Senate 
          amendment, and sec. 871 of the Code)...................   392
        10. Equal treatment for interest paid by foreign 
          partnerships and foreign corporations (sec. 310 of the 
          House bill, sec. 228 of the Senate amendment, and sec. 
          861 of the Code).......................................   394
        11. Look-through treatment of payments between related 
          controlled foreign corporations (sec. 311 of the House 
          bill, sec. 222 of the Senate amendment, and sec. 954 of 
          the Code)..............................................   395
        12. Look-through treatment under subpart F for sales of 
          partnership interests (sec. 312 of the House bill, sec. 
          223 of the Senate amendment, and sec. 954 of the Code).   396
        13. Repeal of foreign personal holding company rules and 
          foreign investment company rules (sec. 313 of the House 
          bill, sec. 211 of the Senate amendment, and secs. 542, 
          551-558, 954, 1246, and 1247 of the Code)..............   397
        14. Determination of foreign personal holding company 
          income with respect to transactions in commodities 
          (sec. 314 of the House bill, sec. 206 of the Senate 
          amendment, and sec. 954 of the Code)...................   398
        15. Modification to treatment of aircraft leasing and 
          shipping income (sec. 315 of the House bill, sec. 221 
          of the Senate amendment, and sec. 954 of the Code).....   400
        16. Modification of exceptions under subpart F for active 
          financing (sec. 316 of the House bill, sec. 226 of the 
          Senate amendment, and sec. 954 of the Code)............   404
        17. Ten-year foreign tax credit carryover; one-year 
          foreign tax credit carryback (sec. 201 of the Senate 
          amendment and sec. 904 of the Code)....................   406
        18. Expand the subpart F de minimis rule to the lesser of 
          five percent of gross income or $5 million (sec. 212 of 
          the Senate amendment and sec. 954 of the Code).........   407
        19. Limit application of uniform capitalization rules in 
          the case of foreign persons (sec. 214 of the Senate 
          amendment and sec. 263A of the Code)...................   408
        20. Eliminate the 30-percent tax on certain U.S.-source 
          capital gains of nonresident individuals (sec. 216 of 
          the Senate amendment and sec. 871 of the Code).........   410
        21. Modify FIRPTA rules for real estate investment trusts 
          (sec. 230 of the Senate amendment and sec. 857 and 897 
          of the Code)...........................................   412
        22. Exclusion of certain horse-racing and dog-racing 
          gambling winnings from the income of nonresident alien 
          individuals (sec. 232 of the Senate amendment and sec. 
          872 of the Code).......................................   413
        23. Limitation of withholding on U.S.-source dividends 
          paid to Puerto Rico corporation (sec. 233 of the Senate 
          amendment and sec. 881 and 1442 of the Code)...........   415
        24. Require Commerce Department report on adverse 
          decisions of the World Trade Organization (sec. 234 of 
          the Senate amendment)..................................   416
        25. Study of impact of international tax law on taxpayers 
          other than large corporations (sec. 235 of the Senate 
          amendment).............................................   417
        26. Delay in effective date of final regulations 
          governing exclusion of income from international 
          operations of ships and aircraft (sec. 236 of the 
          Senate amendment and sec. 883 of the Code).............   418
        27. Interest payments deductible where taxpayer could 
          have borrowed without a guarantee (sec. 237 of the 
          Senate amendment and sec. 163(j) of the Code)..........   419
Title IV--Extension of Certain Expiring Provisions...............   419
        28. Nonrefundable personal credits allowed against the 
          alternative minimum tax (``AMT'') (sec. 401 of the 
          House bill, sec. 713 of the Senate amendment, and sec. 
          26 of the Code)........................................   419
        29. Extension and modification of the research credit 
          (sec. 402 of the House bill, secs. 311 and 312 of the 
          Senate amendment, and sec. 41 of the Code).............   420
        30. Extension of credit for electricity produced from 
          certain renewable resources (sec. 403 of the House 
          bill, secs. 714 and 8801 of the Senate amendment, and 
          sec. 45 of the Code)...................................   421
        31. Indian employment tax credit (sec. 404 of the House 
          bill, sec. 716 of the Senate amendment, and sec. 45A of 
          the Code)..............................................   422
        32. Extension of the work opportunity tax credit (sec. 
          405 of the House bill, sec. 702 of the Senate 
          amendment, and sec. 51 of the Code)....................   423
        33. Extension of the welfare-to-work tax credit (sec. 406 
          of the House bill, sec. 702 of the Senate amendment, 
          and sec. 51A of the Code)..............................   425
        34. Combination and modification of the work opportunity 
          tax credit and the welfare-to-work tax credit (sec. 703 
          of the Senate amendment and sec. 51 of the Code).......   427
        35. Certain expenses of elementary and secondary school 
          teachers (sec. 407 of the House bill, sec. 707 of the 
          Senate amendment, and sec. 62 of the Code).............   428
        36. Accelerated depreciation for business property on 
          Indian reservations (sec. 408 of the House bill, sec. 
          717 of the Senate amendment, and sec. 168 of the Code).   429
        37. Charitable contributions of computer technology and 
          equipment used for educational purposes and of 
          scientific property used for research (sec. 409 of the 
          House bill, sec. 706 of the Senate amendment, and sec. 
          170 of the Code).......................................   430
        38. Expensing of environmental remediation costs (sec. 
          410 of the House bill, sec. 708 of the Senate 
          amendment, and sec. 198 of the Code)...................   431
        39. Availability of Archer medical savings accounts (sec. 
          411 of the House bill and sec. 220 of the Code)........   431
        40. Suspension of 100-percent-of-net-income limitation on 
          percentage depletion for oil and gas from marginal 
          wells (sec. 412 of the House bill, secs. 715 and 846 of 
          the Senate amendment, and sec. 613A of the Code).......   433
        41. Qualified zone academy bonds (sec. 413 of the House 
          bill, secs. 612 and 704 of the Senate amendment, and 
          sec. 1397E of the Code)................................   435
        42. Tax Incentives for Investment in the District of 
          Columbia (sec. 414 of the House bill, sec. 711 of the 
          Senate amendment, and secs. 1400, 1400A, and 1400C of 
          the Code)..............................................   436
        43. Modifications to New York Liberty Zone bond 
          provisions (sec. 415 of the House bill, secs. 611 and 
          709 of the Senate amendment, and sec. 1400L of the 
          Code)..................................................   436
        44. Qualified New York Liberty Zone leasehold improvement 
          election out (sec. 709(c) of the Senate amendment).....   437
        45. Disclosures relating to terrorist activities (sec. 
          416 of the House bill and sec. 6103 of the Code).......   438
        46. Disclosure of return information relating to student 
          loans (sec. 417 of the House bill, sec. 718 of the 
          Senate amendment, and sec. 6103(l) of the Code)........   440
        47. Extension of cover over of excise tax on distilled 
          spirits to Puerto Rico and Virgin Islands (sec. 418 of 
          the House bill, sec. 705 of the Senate amendment, and 
          sec. 7652 of the Code).................................   441
        48. Joint review of strategic plans and budget for the 
          IRS (sec. 419 of the House bill and secs. 8021 and 8022 
          of the Code)...........................................   442
        49. Extension of parity in the application of certain 
          limits to mental health benefits (sec. 420 of the House 
          bill, sec. 701 of the Senate amendment, and sec. 9812 
          of the Code, sec. 712 of ERISA, and section 2705 of the 
          PHSA)..................................................   442
        50. Combined employment tax reporting (sec. 421 of the 
          House bill and sec. 712 of the Senate amendment).......   444
        51. Deduction for qualified clean-fuel vehicle property 
          (sec. 422 of the House bill, sec. 721 of the Senate 
          amendment, and sec. 179 of the Code)...................   445
        52. Credit for qualified electric vehicles (sec. 422 of 
          the House bill, sec. 720 of the Senate amendment, and 
          sec. 30 of the Code)...................................   445
        53. Repeal of reduction of deductions for mutual life 
          insurance companies (sec. 710 of the Senate amendment 
          and sec. 809 of the Code)..............................   446
        54. Study of earnings stripping provisions (sec. 163(j) 
          of the Code)...........................................   447
Title V--Deduction of State and Local General Sales Taxes........   448
    A. Deduction of State and Local General Sales Taxes (sec. 501 
      of the House bill and sec. 164 of the Code)................   448
Title VI--Fair and Equitable Tobacco Reform......................   450
    A. Tobacco Reform (secs. 701-725 of the House bill and title 
      XI of the Senate amendment)................................   450
Title VII--Protection of United States Workers From Competition 
  of Foreign Workforces..........................................   452
Title VIII--Other Provisions.....................................   452
    A. Provisions Relating to Housing............................   452
        1. Treatment of qualified mortgage revenue bonds (sec. 
          601 of the Senate amendment and sec. 143 of the Code)..   452
        2. Premiums for mortgage insurance (sec. 602 of the 
          Senate amendment and secs. 163(h) and 6050H of the 
          Code)..................................................   453
        3. Increase in historic rehabilitation credit for 
          residential housing for the elderly (sec. 603 of the 
          Senate amendment and secs. 42 and 47 of the Code)......   455
    B. Provisions Relating to Bonds..............................   456
        1. Modification of the authority of Indian tribal 
          governments to issue tax-exempt bonds (sec. 613 of the 
          Senate amendment and sec. 7871 of the Code)............   456
        2. Definition of manufacturing facility for qualified 
          small issue bonds (sec. 614 of the Senate amendment and 
          sec. 144 of the Code)..................................   457
        3. Qualified forest conservation bonds (sec. 615 of the 
          Senate amendment and sec. 142 of the Code).............   458
        4. Qualified tribal school modernization bonds (sec. 616 
          of the Senate amendment)...............................   460
    C. Provisions Relating to Depreciation.......................   461
        1. 7-year recovery period for certain track facilities 
          (sec. 623 of the Senate amendment and sec. 168 of the 
          Code)..................................................   461
        2. Alternative minimum tax and credits (sec. 624 of the 
          Senate amendment and secs. 38 and 53 of the Code)......   462
    D. Expansion of Business Credit..............................   463
        1. New markets tax credit for Native American 
          reservations (sec. 631 of the Senate amendment)........   463
        2. Ready Reserve-National Guard employee credit and Ready 
          Reserve-National Guard replacement employee credit 
          (sec. 632 of the Senate amendment).....................   465
        3. Rural investment tax credit (sec. 633 of the Senate 
          amendment and new sec. 42A of the Code)................   466
        4. Qualified small business rural investment tax credit 
          (sec. 634 of the Senate amendment and new sec. 42B of 
          the Code)..............................................   468
        5. Provide a tax credit or maintenance of railroad track 
          (sec. 635 of the Senate amendment and new sec. 45I of 
          the Code)..............................................   469
        6. Railroad revitalization and security investment credit 
          (sec. 636 of the Senate amendment).....................   470
        7. Special allocation of the railroad revitalization and 
          security investment credit for New York city rail 
          projects (sec. 636 of the Senate amendment)............   471
        8. Modification of targeted areas and low-income 
          communities designated for new markets tax credit (sec. 
          637 of the Senate amendment and sec. 45D of the Code)..   471
        9. Modification of income requirement for census tracts 
          within high migration rural counties for new markets 
          tax credit (sec. 638 of the Senate amendment and sec. 
          45D of the Code).......................................   473
        10. Provide a tax credit for expenditures on closed 
          captioning technology in movies (sec. 639 of the Senate 
          amendment and new sec. 45T of the Code)................   475
    E. Miscellaneous Provisions..................................   476
        1. Exclusion of gain or loss on sale or exchange of 
          certain brownfield sites from unrelated business 
          taxable income (sec. 641 of the Senate amendment and 
          secs. 512 and 514 of the Code).........................   476
        2. Civil rights tax relief (sec. 643 of the Senate 
          amendment and sec. 62 of the Code).....................   483
        3. Exclusion from gross income for amounts paid under 
          National Health Service Corps loan repayment program 
          (sec. 644 of the Senate amendment and sec. 108 of the 
          Code)..................................................   485
        4. Certain expenses of rural letter carriers (sec. 645 of 
          the Senate amendment and sec. 162(o) of the Code)......   486
        5. Method of accounting for naval shipbuilders (sec. 646 
          of the Senate amendment)...............................   486
        6. Distributions to shareholders from policyholders 
          surplus account of life insurance companies (sec. 647 
          of the Senate amendment and sec. 815 of the Code)......   487
        7. Motor vehicle dealer transitional assistance (sec. 650 
          of the Senate amendment)...............................   489
        8. Expansion of designated renewal community area based 
          on 2000 census data (sec. 651 of the Senate amendment 
          and sec. 1400E of the Code)............................   490
        9. Reduction of holding period to 12 months for purposes 
          of determining whether horses are section 1231 assets 
          (sec. 652 of the Senate amendment and sec. 1231 of the 
          Code)..................................................   491
        10. Blue ribbon commission on comprehensive tax reform 
          (sec. 653 of the Senate amendment).....................   492
        11. Temporary accumulated earnings tax safe harbor (sec. 
          655 of the Senate amendment and sec. 537 of the Code)..   492
        12. Tax Treatment of State Ownership of Railroad REIT 
          (sec. 656 of the Senate amendment and secs. 103, 115, 
          336 and 337 of the Code)...............................   494
        13. Contribution in aid of construction (sec. 657 of the 
          Senate amendment and sec. 118 of the Code).............   495
        14. Credit for purchase and installation of agricultural 
          water conservation systems (sec. 658 of the Senate 
          amendment).............................................   496
        15. Modification of involuntary conversion rules for 
          businesses affected by the September 11th terrorist 
          attacks (sec. 659 of the Senate amendment and sec. 
          1400L of the Code).....................................   497
        16. Repeal of application of below-market loan rules to 
          amounts paid to certain continuing care facilities 
          (sec. 660 of the Senate amendment and sec. 7872 of the 
          Code)..................................................   498
        17. Maximum capital gain rates of individuals for gold, 
          silver, platinum, and palladium (sec. 661 of the Senate 
          amendment and sec. 1(h) of the Code)...................   499
        18. Inclusion of primary and secondary medical strategies 
          for children and adults with sickle cell disease as 
          medical assistance under the medicaid program (sec. 662 
          of the Senate amendment)...............................   500
        19. Mortgage payment assistance (secs. 901 and 902 of the 
          Senate amendment)......................................   502
        20. Protection of overtime pay (secs. 489-490 of the 
          Senate amendment and sec. 13 of the Fair Labor 
          Standards Act of 1938).................................   503
        21. Report on acquisitions of goods from foreign sources 
          (sec. 1001 of the Senate amendment and sec. 43 of the 
          Office of Federal Procurement Policy Act)..............   504
        22. Minimum cost requirement for excess asset transfers 
          (sec. 719 of the Senate amendment and sec. 420 of the 
          Code)..................................................   505
Title IX--Energy Tax Incentives..................................   507
    A. Credit for Electricity Produced from Certain Sources (sec. 
      801 of the Senate amendment and sec. 45 of the Code).......   507
    B. Alternative Motor Vehicles and Fuels Incentives...........   513
        1. Alternative motor vehicle credit (sec. 811 of the 
          Senate amendment)......................................   513
        2. Modification of credit for electric vehicles (sec. 812 
          of Senate amendment and sec. 30 of the Code)...........   515
        3. Modifications of deduction for refueling property 
          (sec. 813 of Senate amendment and sec. 179A of the 
          Code)..................................................   516
        4. Credit for retail sale of alternative motor vehicle 
          fuels (sec. 814 of Senate amendment)...................   516
        5. Small ethanol producer credit (sec. 815 of the Senate 
          amendment and sec. 40 of the Code).....................   517
    C. Conservation and Energy Efficiency Provisions.............   519
        1. Energy efficient new homes (sec. 821 of the Senate 
          amendment).............................................   519
        2. Energy efficient appliances (sec. 822 of the Senate 
          amendment).............................................   521
        3. Residential solar hot water, photovoltaics and other 
          energy efficient property (sec. 823 of the Senate 
          amendment).............................................   523
        4. Credit for business installation of qualified fuel 
          cells and stationary microturbine power plants (sec. 
          824 of the Senate amendment and sec. 48 of the Code)...   525
        5. Energy efficient commercial building deduction (sec. 
          825 of the Senate amendment)...........................   526
        6. Three-year applicable recovery period for depreciation 
          of qualified energy management devices and qualified 
          water submetering devices (secs. 826 and 827 of the 
          Senate amendment and sec. 168 of the Code).............   528
        7. Energy credit for combined heat and power system 
          property (sec. 828 of the Senate amendment and sec. 48 
          of the Code)...........................................   528
        8. Energy efficient improvements to existing homes (sec. 
          829 of the Senate amendment)...........................   530
    D. Clean Coal Incentives.....................................   531
        1. Credit for production from a clean coal technology 
          unit (secs. 831 and 834 of the Senate amendment).......   531
        2. Investment credit for clean coal technology units 
          (secs. 832 and 834 of the Senate amendment)............   532
        3. Credit for production from advanced clean coal 
          technology (secs. 833 and 834 of the Senate amendment).   534
    E. Oil and Gas Provisions....................................   535
        1. Oil and gas production from marginal wells (sec. 841 
          of the Senate amendment and new sec. 451 of the Code)..   535
        2. Natural gas gathering lines treated as seven-year 
          property (sec. 842 of the Senate amendment and sec. 168 
          of the Code)...........................................   536
        3. Expensing of capital costs incurred for production in 
          complying with environmental protection agency sulfur 
          regulations for small refiners (sec. 843 of the Senate 
          amendment and new sec. 179B of the Code)...............   537
        4. Credit for small refiners for production of diesel 
          fuel in compliance with Environmental Protection Agency 
          sulfur regulations for small refiners (sec. 844 of the 
          Senate amendment and new sec. 45H of the Code).........   538
        5. Determination of small refiner exception to oil 
          depletion deduction (sec. 845 of the Senate amendment 
          and sec. 613A of the Code).............................   539
        6. Suspension of 100-percent-of-net-income limitation on 
          percentage depletion for oil and gas from marginal 
          wells (sec. 412 of the House bill, sec. 846 of the 
          Senate amendment, and sec. 613A of the Code)...........   540
        7. Delay rental payments (sec. 847 of the Senate 
          amendment and sec. 167 of the Code)....................   541
        8. Geological and geophysical costs (sec. 848 of the 
          Senate amendment and sec. 167 of the Code).............   542
        9. Extension and modification of credit for producing 
          fuel from a non-coneventional source (sec. 849 of the 
          Senate amendment and sec. 29 of the Code)..............   543
        10. Natural gas distribution lines treated as 15-year 
          property (sec. 850 of the Senate amendment and sec. 168 
          of the Code)...........................................   546
        11. Credit for production of Alaska natural gas (sec. 851 
          of the Senate amendment)...............................   547
        12. Treat certain Alaska pipeline property as seven-year 
          property (sec. 852 of the Senate amendment and sec. 168 
          of the Code)...........................................   548
        13. Enhanced oil recovery credit for certain gas 
          processing facilities (sec. 853 of the Senate amendment 
          and sec. 43 of the Code)...............................   549
        14. Exempt certain prepayments for natural gas from tax-
          exempt bond arbitrage rules (sec. 854 of the Senate 
          amendment and secs. 141 and 148 of the Code)...........   549
    F. Electric Utility Restructuring and Reliability Provisions.   553
        1. Modification to special rules for nuclear 
          decommissioning costs (sec. 855 of the Senate amendment 
          and sec. 468A of the Code).............................   553
        2. Treatment of certain income of electric cooperatives 
          (sec. 856 of the Senate amendment and sec. 501 of the 
          Code)..................................................   556
        3. Dispositions of transmission property to implement 
          Federal Energy Regulatory Commission restructuring 
          policy (no reinvestment obligation) (sec. 857 of the 
          Senate amendment and sec. 451 of the Code).............   561
    G. Additional Provisions.....................................   563
        1. GAO Study (sec. 897 of the Senate amendment)..........   563
        2. Repeal certain excise taxes on rail diesel fuel and 
          inland waterway barge fuels (sec. 898 of the Senate 
          amendment and secs. 4041, 4042, 6421, and 6427 of the 
          Code)..................................................   564
        3. Increase tax limitation on use of business energy 
          credits (secs. 851(c) and 899A of the Senate amendment, 
          and sec. 38 of the Code)...............................   564
        4. Transmission property treated as fifteen-year property 
          (sec. 899C of the Senate amendment and sec. 168 of the 
          Code)..................................................   565
        5. Qualifying pollution control equipment credit (sec. 
          899B of the Senate amendment)..........................   566
Title X--Revenue Provisions......................................   567
    A. Provisions to Reduce Tax Avoidance Through Individual and 
      Corporate Expatriation.....................................   567
        1. Tax treatment of expatriated entities and their 
          foreign parents (sec. 601 of the House bill, sec. 441 
          of the Senate amendment, and new sec. 7874 of the Code)   567
        2. Excise tax on stock compensation of insiders in 
          expatriated corporations (sec. 602 of the House bill, 
          sec. 443 of the Senate amendment, and secs. 162(m), 
          275(a), and new sec. 4985 of the Code).................   575
        3. Reinsurance of U.S. risks in foreign jurisdictions 
          (sec. 603 of the House bill, sec. 444 of the Senate 
          amendment, and sec. 845(a) of the Code)................   580
        4. Revision of tax rules on expatriation of individuals 
          (sec. 604 of the House bill, sec. 442 of the Senate 
          amendment, and secs. 877, 2107, 2501 and 6039G of the 
          Code)..................................................   581
        5. Reporting of taxable mergers and acquisitions (sec. 
          605 of the House bill, sec. 445 of the Senate 
          amendment, and new sec. 6043A of the Code..............   593
        6. Studies (sec. 606 of the House bill)..................   594
    B. Provisions Relating to Tax Shelters.......................   595
        1. Penalty for failure to disclose reportable 
          transactions (sec. 611 of the House bill, sec. 402 of 
          the Senate amendment, and new sec. 6707A of the Code)..   595
        2. Modifications to the accuracy-related penalties for 
          listed transactions and reportable transactions having 
          a significant tax avoidance purpose (sec. 612 of the 
          House bill, sec. 403 of the Senate amendment, and new 
          sec. 6662A of the Code)................................   599
        3. Tax shelter exception to confidentiality privileges 
          relating to taxpayer communications (sec. 613 of the 
          House bill, sec. 406 of the Senate amendment, and sec. 
          7525 of the Code)......................................   604
        4. Statute of limitations for unreported listed 
          transactions (sec. 614 of the House bill, sec. 416 of 
          the Senate amendment, and sec. 6501 of the Code).......   605
        5. Disclosure of reportable transactions by material 
          advisors (secs. 615 and 616 of the House bill, secs. 
          407 and 408 of the Senate amendment, and secs. 6111 and 
          6707 of the Code)......................................   606
        6. Investor lists and modification of penalty for failure 
          to maintain investor lists (secs. 615 and 617 of the 
          House bill, secs. 407 and 409 of the Senate amendment, 
          and secs. 6112 and 6708 of the Code)...................   609
        7. Penalty on promoters of tax shelters (sec. 618 of the 
          House bill, sec. 415 of the Senate amendment, and sec. 
          6700 of the Code)......................................   611
        8. Penalty for aiding and abetting the understatement of 
          tax liability (sec. 419 of the Senate amendment and 
          sec. 6701 of the Code).................................   612
        9. Modifications of substantial understatement penalty 
          for nonreportable transactions (sec. 619 of the House 
          bill, sec. 405 of the Senate amendment, and sec. 6662 
          of the Code)...........................................   613
        10. Modification of actions to enjoin certain conduct 
          related to tax shelters and reportable transactions 
          (sec. 620 of the House bill, sec. 410 of the Senate 
          amendment, and sec. 7408 of the Code)..................   614
        11. Penalty on failure to report interests in foreign 
          financial accounts (sec. 621 of the House bill, sec. 
          412 of the Senate amendment, and sec. 5321 of Title 31, 
          United States Code)....................................   614
        12. Regulation of individuals practicing before the 
          Department of the Treasury (sec. 622 of the House bill, 
          sec. 414 of the Senate amendment, and sec. 330 of Title 
          31, Untied States Code)................................   616
        13. Treatment of stripped bonds to apply to stripped 
          interests in bond and preferred stock funds (sec. 631 
          of the House bill, sec. 461 of the Senate amendment, 
          and secs. 305 and 1286 of the Code)....................   617
        14. Minimum holding period for foreign tax credit with 
          respect to withholding taxes on income other than 
          dividends (sec. 632 of the House bill, sec. 456 of the 
          Senate amendment, and sec. 901 of the Code)............   620
        15. Treatment of partnership loss transfers and 
          partnership basis adjustments (sec. 633 of the House 
          bill, sec. 469 of the Senate amendment, and secs. 704, 
          734, 743, and 754 of the Code).........................   621
        16. No reduction of basis under section 734 in stock held 
          by partnership in corporate partner (sec. 634 of the 
          House bill, sec. 432 of the Senate amendment, and sec. 
          755 of the Code).......................................   628
        17. Repeal of special rules for FASITs (sec. 635 of the 
          House bill, sec. 433 of the Senate amendment, and secs. 
          860H through 860L of the Code).........................   629
        18. Limitation on transfer and importation of built-in 
          losses (sec. 636 of the House bill, sec. 431 of the 
          Senate amendment, and secs. 362 and 334 of the Code)...   634
        19. Clarification of banking business for purposes of 
          determining investment of earnings in U.S. property 
          (sec. 637 of the House bill, sec. 451 of the Senate 
          amendment, and sec. 956 of the Code)...................   636
        20. Alternative tax for small insurance companies and 
          modification of exemption from tax for small property 
          and casualty insurance companies (sec. 638 of the House 
          bill, sec. 493 of the Senate amendment, and secs. 
          501(c)(15) and 831(b) of the Code).....................   638
        21. Denial of deduction for interest on underpayments 
          attributable to nondisclosed reportable transactions 
          (sec. 639 of the House bill, sec. 417 of the Senate 
          amendment, and sec. 163 of the Code)...................   639
        22. Clarification of rules for payment of estimated tax 
          for certain deemed asset sales (sec. 640 of the House 
          bill, sec. 481 of the Senate amendment, and sec. 338 of 
          the Code)..............................................   640
        23. Exclusion of like-kind exchange property from 
          nonrecognition treatment on the sale or exchange of a 
          principal resident (sec. 641 of the House bill and sec. 
          492 of the Senate amendment)...........................   641
        24. Prevention of mismatching of interest and original 
          issue discount deductions and income inclusions in 
          transactions with related foreign persons (sec. 642 of 
          the House bill, sec. 453 of the Senate amendment, and 
          secs. 163 and 267 of the Code).........................   642
        25. Exclusion from gross income for interest on 
          overpayments of income tax by individuals (sec. 643 of 
          the House bill)........................................   644
        26. Deposits made to suspend the running of interest on 
          potential underpayments (sec. 644 of the House bill, 
          sec. 486 of the Senate amendment, and new sec. 6603 of 
          the Code)..............................................   646
        27. Authorize IRS to enter into installment agreements 
          that provide for partial payment (sec. 645 of the House 
          bill, sec. 484 of the Senate amendment, and sec. 6159 
          of the Code)...........................................   649
        28. Affirmation of consolidated return regulation 
          authority (sec. 646 of the House bill, sec. 421 of the 
          Senate amendment, and sec. 1502 of the Code)...........   650
        29. Reform of tax treatment of certain leasing 
          arrangements and limitation on deductions allocable to 
          property used by governments or other tax-exempt 
          entities (secs. 647 through 649 of the bill, secs. 475 
          and 476 of the Senate amendment, secs. 167 and 168 of 
          the Code, and new sec. 470 of the Code)................   654
        30. Clarification of the economic substance doctrine 
          (sec. 401 of the Senate amendment and sec. 7701 of the 
          Code)..................................................   663
        31. Penalty for understatements attributable to 
          transactions lacking economic substance, etc. (sec. 404 
          of the Senate amendment and sec. 6662B of the Code)....   669
        32. Understatement of taxpayer's liability by income tax 
          return preparer (sec. 411 of the Senate amendment).....   671
        33. Frivolous tax submissions (sec. 413 of the Senate 
          amendment and sec. 6702 of the Code)...................   672
        34. Authorization of appropriations for tax law 
          enforcement (sec. 418 of the Senate amendment).........   673
        35. Declaration by chief executive officer relating to 
          Federal annual corporate income tax return (sec. 422 of 
          the Senate amendment)..................................   673
        36. Denial of deduction for certain fines, penalties, and 
          other amounts (sec. 423 of the Senate amendment and 
          sec. 162 of the Code)..................................   675
        37. Denial of deduction for punitive damages (sec. 424 of 
          the Senate amendment and sec. 162 of the Code).........   677
        38. Increase in criminal monetary penalty limitation for 
          the underpayment or overpayment of tax due to fraud 
          (sec. 425 of the Senate amendment).....................   678
        39. Expanded disallowance of deduction for interest on 
          convertible debt (sec. 434 of the Senate amendment and 
          sec. 163 of the Code)..................................   679
        40. Expand authority to disallow tax benefits under 
          section 269 (sec. 435 of the Senate amendment and sec. 
          269 of the Code).......................................   680
        41. Modification of coordination rules for controlled 
          foreign corporation and passive foreign investment 
          company regimes (sec. 436 of the Senate amendment and 
          sec. 1297 of the Code).................................   681
    C. Reduction of Fuel Tax Evasion.............................   684
        1. Exemption from certain excise taxes for mobile 
          machinery vehicles and modification of definition of 
          offhighway vehicle (sec. 651 of the House bill, sec. 
          896 of the Senate amendment, and secs. 4053, 4072, 
          4082, 4483, 6421, and 7701 of the Code)................   684
        2. Taxation of aviation-grade kerosene (sec. 652 of the 
          House bill, sec. 871 of the Senate amendment, and secs. 
          4041, 4081, 4082, 4083, 4091, 4092, 4093, 4101, and 
          6427 of the Code)......................................   687
        3. Provide for transfer from Airport and Airway Trust 
          Fund to Highway Trust Fund to adjust for continued 
          highway use of aviation fuel (sec. 872 of the Senate 
          amendment and secs. 9502 and 9503 of the Code).........   693
        4. Mechanical dye injection and related penalties (sec. 
          653 of the House bill, secs. 873, 874 and 875 of the 
          Senate amendment and secs. 4082 and 6715 and new sec. 
          6715A of the Code).....................................   694
        5. Terminate dyed diesel use by intercity buses (sec. 876 
          of the Senate amendment and secs. 4082 and 6427 of the 
          Code)..................................................   697
        6. Authority to inspect on-site records (sec. 654 of the 
          House bill, sec. 877 of the Senate amendment, and sec. 
          4083 of the Code)......................................   698
        7. Assessable penalty for refusal of entry (sec. 878 of 
          the Senate amendment and new sec. 6717 of the Code)....   698
        8. Registration of pipeline or vessel operators required 
          for exemption of bulk transfers to registered terminals 
          or refineries (sec. 655 of the House bill, sec. 879 of 
          the Senate amendment, and sec. 4081 of the Code).......   700
        9. Display of registration and penalties for failure to 
          display registration and to register (secs. 656 and 657 
          of the House bill, secs. 880 and 882 of the Senate 
          amendment, and secs. 4101, 7232, 7272 and new secs. 
          6718 and 6719 of the Code).............................   701
        10. Registration of persons within foreign trade zones 
          (sec. 881 of the Senate amendment and sec. 4101 of the 
          Code)..................................................   702
        11. Penalties for failure to report (sec. 657 of the 
          House bill, sec. 882 of the Senate amendment, and new 
          sec. 6725 of the Code).................................   702
        12. Electronic filing of required information reports 
          (sec. 895 of the Senate amendment and sec. 4010 of the 
          Code)..................................................   703
        13. Information reporting for persons claiming certain 
          tax benefits (sec. 883 of the Senate amendment and new 
          sec. 4104 of the Code).................................   704
        14. Collection from Customs bond where importer not 
          registered (sec. 658 of the House bill and sec. 884 of 
          Senate amendment)......................................   705
        15. Reconciliation of on-loaded cargo to entered cargo 
          (sec. 885 of the Senate amendment).....................   706
        16. Modification of the use tax on heavy highway vehicles 
          (sec. 659 of the House bill, sec. 890 of the Senate 
          amendment, and secs. 4481, 4483 and 6165 of the Code)..   707
        17. Modification of ultimate vendor refund claims with 
          respect to farming (sec. 660 of the House bill, sec. 
          887 of the Senate amendment, and sec. 6427 of the Code)   708
        18. Dedication of revenue from certain penalties to the 
          Highway Trust Fund (sec. 661 of the House bill, sec. 
          891 of the Senate amendment, and sec. 9503 of the Code)   709
        19. Taxable fuel refunds for certain ultimate vendors 
          (sec. 662 of the House bill, sec. 888 of the Senate 
          amendment, and secs. 6416 and 6427 of the Code)........   710
        20. Two party exchanges (sec. 663 of the bill and new 
          sec. 4105 of the Code).................................   711
        21. Simplification of tax on tires (sec. 664 of the House 
          bill and sec. 4071 of the Code)........................   712
        22. Tax on sale of diesel fuel whether suitable for use 
          or not in a diesel-powered vehicle or train (sec. 886 
          of the Senate amendment)...............................   713
        23. Nonapplication of export exemption to delivery of 
          fuel to motor vehicles removed from United States (sec. 
          892 of the Senate amendment)...........................   714
        24. Taxation of transmix and diesel fuel blend stocks and 
          Treasury study on fuel tax compliance (secs. 893, 894 
          and 895 of the Senate amendment and sec. 4083 of the 
          Code)..................................................   716
    D. Nonqualified Deferred Compensation Plans..................   720
        1. Treatment of nonqualified deferred compensation plans 
          (sec. 671 of the House bill, section 671 of the Senate 
          amendment, and new sec. 490A and secs. 6040 and 6051 of 
          the Code)..............................................   720
        2. Denial of deferral of certain stock option and 
          restricted stock gains (sec. 672 of the Senate 
          amendment and sec. 83 of the Code).....................   738
    E. Other Revenue Provisions..................................   739
        1. Permit private sector debt collection companies to 
          collect tax debts (sec. 681 of the House bill, sec. 487 
          of the Senate amendment, and new sec. 6306 of the Code)   739
        2. Modify charitable contribution rules for donations of 
          patents and other intellectual property (sec. 682 of 
          the House bill, sec. 494 of the Senate amendment, and 
          secs. 170 and 6050L of the Code).......................   742
        3. Require increased reporting for noncash charitable 
          contributions (sec. 683 of the House bill and sec. 170 
          of the Code)...........................................   745
        4. Limit deduction for charitable contributions of 
          vehicles (sec. 684 of the House bill, sec. 731 of the 
          Senate amendment, and new sec. 6720 and sec. 170 of the 
          Code)..................................................   747
        5. Extend the present-law intangible amortization 
          provisions to acquisitions of sports franchises (sec. 
          685 of the House bill, sec. 471 of the Senate 
          amendment, and sec. 197 of the Code)...................   752
        6. Increase continuous levy for certain federal payments 
          (sec. 686 of the House bill, sec. 734 of the Senate 
          amendment, and sec. 6331(h) of the Code)...............   753
        7. Modification of straddle rules (sec. 687 of the House 
          bill, sec. 64 of the Senate amendment, and sec. 1092 of 
          the Code)..............................................   754
        8. Add vaccines against Hepatitis A to the list of 
          taxable vaccines (sec. 688 of the House bill, sec. 491 
          of the Senate amendment, and sec. 4132 of the Code)....   758
        9. Add vaccines against influenza to the list of taxable 
          vaccines (sec. 689 of the House bill, sec. 732 of the 
          Senate amendment, and sec. 4132 of the Code)...........   759
        10. Extension of IRS user fees (sec. 690 of the House 
          bill, sec. 482 of the Senate amendment, and sec. 7528 
          of the Code)...........................................   759
        11. Extension of Customs user fees (Sec. 691 of the House 
          bill and sec. 485 of the Senate amendment).............   760
        12. Prohibition on nonrecognition of gain through 
          complete liquidation of holding company (sec. 452 of 
          the Senate amendment and sec. 332 of the Code).........   761
        13. Effectively connected income to include certain 
          foreign source income (sec. 454 of the Senate amendment 
          and sec. 864 of the Code)..............................   762
        14. Recapture of overall foreign losses on sale of 
          controlled foreign corporation stock (sec. 455 of the 
          Senate amendment and sec. 904 of the Code).............   764
        15. Application of earnings-stripping rules to 
          partnerships and S corporations (sec. 462 of the Senate 
          amendment and sec. 163 of the Code)....................   766
        16. Recognition of cancellation of indebtedness income 
          realized on satisfaction of debt with partnership 
          interest (sec. 463 of the Senate amendment and sec. 108 
          of the Code)...........................................   767
        17. Denial of installment sale treatment for all readily 
          tradable debt (sec. 465 of the Senate amendment and 
          sec. 453 of the Code)..................................   769
        18. Modify treatment of transfers to creditors in 
          divisive reorganizations (sec. 466 of the Senate 
          amendment and secs. 357 and 361 of the Code)...........   770
        19. Clarify definition of nonqualified preferred stock 
          (sec. 467 of the Senate amendment and sec. 351(g) of 
          the Code)..............................................   771
        20. Modify definition of controlled group of corporations 
          (sec. 468 of the Senate amendment and sec. 1563 of the 
          Code)..................................................   772
        21. Establish specific class lives for utility grading 
          costs (sec. 472 of the Senate amendment and sec. 168 of 
          the Code)..............................................   773
        22. Expansion of limitation on expensing of certain 
          passenger automobiles (sec. 473 of the Senate amendment 
          and sec. 179 of the Code)..............................   774
        23. Provide consistent amortization period for 
          intangibles (sec. 474 of the Senate amendment and secs. 
          195, 248, and 709 of the Code).........................   776
        24. Doubling of certain penalties, fines, and interest on 
          underpayments related to certain offshore financial 
          arrangements (sec. 483 of the Senate amendment)........   777
        25. Whistleblower reforms (sec. 488 of the Senate 
          amendment).............................................   778
        26. Increase in age of minor children whose unearned 
          income is taxed as if parent's income (sec. 495 of the 
          Senate amendment and sec. 1 of the Code)...............   779
        27. Modify holding period requirement for qualification 
          for reduced tax rate on dividends on preferred stock 
          (sec. 496 of the Senate amendment and sec. 1 of the 
          Code)..................................................   782
        28. Grant Treasury regulatory authority to address 
          foreign tax credit transactions involving inappropriate 
          separation of foreign taxes from related foreign income 
          (sec. 661A of Senate amendment and sec. 901 of the 
          Code)..................................................   783
        29. Freeze of provision regarding suspension of interest 
          where Secretary fails to contact taxpayer (sec. 662B of 
          the Senate amendment and sec. 6404(g) of the Code).....   784
        30. Increase in withholding from supplemental wage 
          payments in excess of $1 million (sec. 673 of the 
          Senate amendment and sec. 13273 of the Revenue 
          Reconciliation Act of 1993)............................   785
        31. Capital gain treatment on sale of stock acquired from 
          exercise of statutory stock options to comply with 
          conflict of interest requirements (sec 674 of the 
          Senate amendment and sec. 421 of the Code).............   786
        32. Application of basis rules to nonresident aliens (sec 
          675 of the Senate amendment and new sec. 72(w) and sec. 
          83 of the Code)........................................   787
        33. Residence and source rules related to a United States 
          possession (sec. 497 of the Senate amendment and new 
          sec. 937 of the Code)..................................   791
        34. Include employer provided housing under foreign 
          earned income exclusion cap (sec. 632 of the Senate 
          amendment and sec. 911 of the Code)....................   795
        35. Deduction for personal use of company aircraft and 
          other entertainment expenses (sec. 103(b) of the Senate 
          amendment and sec. 274(e) of the Code).................   797
        36. Treatment of contingent payment convertible debt 
          instruments (sec. 733 of the Senate Amendment and sec. 
          1275 of the Code)......................................   799
Title XI--Trade Provisions.......................................   801
    A. Suspension of Duties on Ceiling Fans (sec. 801 of the 
      House bill and Chapter 99, II of the harmonized Tariff 
      Schedule of the United States).............................   801
    B. Temporary Suspension of Certain Customs Duties............   801
        1. Suspension of duties on nuclear steam generators (sec. 
          802(a) of the House bill and Chapter 99, II of the 
          harmonized Tariff Schedule of the United States).......   801
        2. Suspension of Duties on Nuclear Reactor Vessel Heads 
          (sec. 802(b) of the House bill and Chapter 99, II of 
          the Harmonized Tariff Schedule of the United States....   802
Title XII--Tax Complexity Analysis...............................   802
        1. Deduction relating to income attributable to United 
          States production activities (sec. 102 of the House 
          bill, secs. 102 and 103 of the Senate amendment, and 
          sec. 11 of the Code)...................................   803

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


              A. Repeal of Extraterritorial Income Regime


(Sec. 101 of the House bill, sec. 101 of the Senate amendment, and 
        secs. 114 and 941 through 943 of the Code)

                              PRESENT LAW

      Like many other countries, the United States has long 
provided export-related benefits under its tax law. In the 
United States, for most of the last two decades, these benefits 
were provided under the foreign sales corporation (``FSC'') 
regime. In 2000, the European Union succeeded in having the FSC 
regime declared a prohibited export subsidy by the World Trade 
Organization (``WTO''). In response to this WTO finding, the 
United States repealed the FSC rules and enacted a new regime, 
under the FSC Repeal and Extraterritorial Income Exclusion Act 
of 2000.\1\ The European Union immediately challenged the 
extraterritorial income (``ETI'') regime in the WTO, and in 
January of 2002 the WTO Appellate Body held that the ETI regime 
also constituted a prohibited export subsidy under the relevant 
trade agreements.
---------------------------------------------------------------------------
    \1\ Transition rules delayed the repeal of the FSC rules and the 
effective date of ETI for transactions before January 1, 2002. An 
election was provided, however, under which taxpayers could adopt ETI 
at an earlier date for transactions after September 30, 2000. This 
election allowed the ETI rules to apply to transactions after September 
30, 2000, including transactions occurring pursuant to pre-existing 
binding contracts.
---------------------------------------------------------------------------
      Under the ETI regime, an exclusion from gross income 
applies with respect to ``extraterritorial income,'' which is a 
taxpayer's gross income attributable to ``foreign trading gross 
receipts.'' This income is eligible for the exclusion to the 
extent that it is ``qualifying foreign trade income.'' 
Qualifying foreign trade income is the amount of gross income 
that, if excluded, would result in a reduction of taxable 
income by the greatest of: (1) 1.2 percent of the foreign 
trading gross receipts derived by the taxpayer from the 
transaction; (2) 15 percent of the ``foreign trade income'' 
derived by the taxpayer from the transaction; \2\ or (3) 30 
percent of the ``foreign sale and leasing income'' derived by 
the taxpayer from the transaction.\3\
---------------------------------------------------------------------------
    \2\ ``Foreign trade income'' is the taxable income of the taxpayer 
(determined without regard to the exclusion of qualifying foreign trade 
income) attributable to foreign trading gross receipts.
    \3\ ``Foreign sale and leasing income'' is the amount of the 
taxpayer's foreign trade income (with respect to a transaction) that is 
properly allocable to activities that constitute foreign economic 
processes. Foreign sale and leasing income also includes foreign trade 
income derived by the taxpayer in connection with the lease or rental 
of qualifying foreign trade property for use by the lessee outside the 
United States.
---------------------------------------------------------------------------
      Foreign trading gross receipts are gross receipts derived 
from certain activities in connection with ``qualifying foreign 
trade property'' with respect to which certain economic 
processes take place outside of the United States. 
Specifically, the gross receipts must be: (1) from the sale, 
exchange, or other disposition of qualifying foreign trade 
property; (2) from the lease or rental of qualifying foreign 
trade property for use by the lessee outside the United States; 
(3) for services which are related and subsidiary to the sale, 
exchange, disposition, lease, or rental of qualifying foreign 
trade property (as described above); (4) for engineering or 
architectural services for construction projects located 
outside the United States; or (5) for the performance of 
certain managerial services for unrelated persons. A taxpayer 
may elect to treat gross receipts from a transaction as not 
foreign trading gross receipts. As a result of such an 
election, a taxpayer may use any related foreign tax credits in 
lieu of the exclusion.
      Qualifying foreign trade property generally is property 
manufactured, produced, grown, or extracted within or outside 
the United States that is held primarily for sale, lease, or 
rental in the ordinary course of a trade or business for direct 
use, consumption, or disposition outside the United States. No 
more than 50 percent of the fair market value of such property 
can be attributable to the sum of: (1) the fair market value of 
articles manufactured outside the United States; and (2) the 
direct costs of labor performed outside the United States. With 
respect to property that is manufactured outside the United 
States, certain rules are provided to ensure consistent U.S. 
tax treatment with respect to manufacturers.

                               HOUSE BILL

      The provision repeals the ETI exclusion. For transactions 
prior to 2005, taxpayers retain 100 percent of their ETI 
benefits. For transactions after 2004, the provision provides 
taxpayers with 80 percent of their otherwise-applicable ETI 
benefits for transactions during 2005 and 60 percent of their 
otherwise-applicable ETI benefits for transactions during 2006. 
However, the provision provides that the ETI exclusion 
provisions remain in effect for transactions in the ordinary 
course of a trade or business if such transactions are pursuant 
to a binding contract \4\ between the taxpayer and an unrelated 
person and such contract is in effect on January 14, 2002, and 
at all times thereafter.
---------------------------------------------------------------------------
    \4\ This rule also applies to a purchase option, renewal option, or 
replacement option that is included in such contract. For this purpose, 
a replacement option will be considered enforceable against a lessor 
notwithstanding the fact that a lessor retained approval of the 
replacement lessee.
---------------------------------------------------------------------------
      In addition, foreign corporations that elected to be 
treated for all Federal tax purposes as domestic corporations 
in order to facilitate the claiming of ETI benefits are allowed 
to revoke such elections within one year of the date of 
enactment of the provision without recognition of gain or loss, 
subject to anti-abuse rules.
      Effective date.--The provision is effective for 
transactions after December 31, 2004.

                            SENATE AMENDMENT

      The provision repeals the exclusion for extraterritorial 
income. However, the provision provides that the 
extraterritorial income exclusion provisions remain in effect 
for transactions in the ordinary course of a trade or business 
if such transactions are pursuant to a binding contract between 
the taxpayer and an unrelated person and such contract is in 
effect on September 17, 2003, and at all times thereafter.
      The provision permits foreign corporations that have 
elected to be treated as U.S. corporations pursuant to the 
extraterritorial income exclusion provisions to revoke their 
elections. Such revocations are effective on the date of 
enactment of this provision. A corporation revoking its 
election is treated as a U.S. corporation that transfers all of 
its property to a foreign corporation in connection with an 
exchange described in section 354 of the Code. In general, the 
corporation shall not recognize any gain or loss on such deemed 
transfer. However, a revoking corporation shall recognize any 
gain on any asset held by the corporation if: (1) the basis of 
such asset is determined (in whole or in part) by reference to 
the basis of such asset in the hands of the person from whom 
the corporation acquired such asset; (2) the asset was acquired 
by an actual transfer (rather than as a result of the U.S. 
corporation election by the corporation) occurring on or after 
the first day on which the U.S. corporation election by the 
corporation was effective; and (3) a principal purpose of the 
acquisition was the reduction or avoidance of tax.
      The provision also provides a deduction for taxable years 
of certain corporations ending after the date of enactment of 
the provision and beginning before January 1, 2007.\5\ The 
amount of the deduction for each such taxable year is equal to 
a specified percentage of the amount that, for the taxable year 
of a corporation beginning in 2002, was excludable from the 
gross income of the corporation under the extraterritorial 
income exclusion provisions or was treated by the corporation 
as exempt foreign trade income of related FSCs from property 
acquired by the FSCs from the corporation.\6\ However, this 
aggregate amount does not include any amount attributable to a 
transaction involving a lease by the corporation unless the 
corporation manufactured or produced (in whole or in part) the 
leased property.
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    \5\ The deduction also is available to cooperatives engaged in the 
marketing of agricultural or horticultural products.
    \6\ In the case of a short taxable year that ends after the date of 
enactment and begins before January 1, 2007, the Treasury Secretary 
shall prescribe guidance for determining the amount of the deduction, 
including guidance that limits the amount of the deduction for a short 
taxable year based upon the proportion that the number of days in the 
short taxable year bears to 365.
---------------------------------------------------------------------------
      The specified percentage to be used in determining the 
deduction is: 80 percent for calendar years 2004 and 2005; 60 
percent for calendar year 2006; and 0 percent for calendar 
years 2007 and thereafter. For calendar year 2003, the 
specified percentage is the amount that bears the same ratio to 
100 percent as the number of days after the date of enactment 
of this provision bears to 365. In the case of a corporation 
with a taxable year that is not the calendar year (i.e., a 
fiscal year corporation), a special rule is provided for 
determining a weighted average specified percentage based upon 
the calendar years that are included in the taxable year.
      The deduction for a taxable year generally is reduced by 
the specified percentage of exempted FSC income and excluded 
extraterritorial income of the corporation for the taxable year 
from transactions pursuant to a binding contract.
      Effective date.--The provision is effective for 
transactions occurring after the date of enactment.

                          CONFERENCE AGREEMENT

      The conference agreement follows the House bill, except 
that under the conference agreement the ETI exclusion 
provisions remain in effect for transactions in the ordinary 
course of a trade or business if such transactions are pursuant 
to a binding contract \7\ between the taxpayer and an unrelated 
person and such contract is in effect on September 17, 2003, 
and at all times thereafter.
---------------------------------------------------------------------------
    \7\ This rule also applies to a purchase option, renewal option, or 
replacement option that is included in such contract. For this purpose, 
a replacement option will be considered enforceable against a lessor 
notwithstanding the fact that a lessor retained approval of the 
replacement lessee.
---------------------------------------------------------------------------
      Effective date.--The effective date is the same as the 
House bill.

     B. Deduction Relating to Income Attributable to United States 
                         Production Activities

(Sec. 102 of the House bill, secs. 102 and 103 of the Senate amendment, 
        and sec. 11 of the Code)

                              PRESENT LAW

      A corporation's regular income tax liability is 
determined by applying the following tax rate schedule to its 
taxable income.

     TABLE 1.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2004
------------------------------------------------------------------------
              Taxable income:                     Income tax rate:
------------------------------------------------------------------------
$0-$50,000................................  15 percent of taxable
                                             income.
$50,001-$75,000...........................  25 percent of taxable
                                             income.
$75,001-$10,000,000.......................  34 percent of taxable
                                             income.
Over $10,000,000..........................  35 percent of taxable
                                             income.
------------------------------------------------------------------------

      The benefit of the first two graduated rates described 
above is phased out by a five-percent surcharge for 
corporations with taxable income between $100,000 and $335,000. 
Also, the benefit of the 34-percent rate is phased out by a 
three-percent surcharge for corporations with taxable income 
between $15 million and $18,333,333; a corporation with taxable 
income of $18,333,333 or more effectively is subject to a flat 
rate of 35 percent.
      Under present law, there is no provision that reduces the 
corporate income tax for taxable income attributable to 
domestic production activities.

                               HOUSE BILL

In general
      The House bill provides that the corporate tax rate 
applicable to qualified production activities income may not 
exceed 32 percent (34 percent for taxable years beginning 
before 2007) of the qualified production activities income.
            Qualified production activities income
      ``Qualified production activities income'' is the income 
attributable to domestic production gross receipts, reduced by 
the sum of: (1) the costs of goods sold that are allocable to 
such receipts; (2) other deductions, expenses, or losses that 
are directly allocable to such receipts; and (3) a proper share 
of other deductions, expenses, and losses that are not directly 
allocable to such receipts or another class of income.\8\
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    \8\ The House bill provides that Secretary shall prescribe rules 
for the proper allocation of items of income, deduction, expense, and 
loss for purposes of determining income attributable to domestic 
production activities. Where appropriate, such rules shall be similar 
to and consistent with relevant present-law rules (e.g., secs. 263A and 
861).
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                   DOMESTIC PRODUCTION GROSS RECEIPTS

      Under the House bill, ``domestic production gross 
receipts'' generally are gross receipts of a corporation that 
are derived from: (1) any sale, exchange or other disposition, 
or any lease, rental or license, of qualifying production 
property that was manufactured, produced, grown or extracted 
(in whole or in significant part) by the corporation within the 
United States; \9\ (2) any sale, exchange or other disposition, 
or any lease, rental or license, of qualified film produced by 
the taxpayer; or (3) construction, engineering or architectural 
services performed in the United States for construction 
projects located in the United States. However, domestic 
production gross receipts do not include any gross receipts of 
the taxpayer derived from property that is leased, licensed or 
rented by the taxpayer for use by any related person.\10\
---------------------------------------------------------------------------
    \9\ Domestic production gross receipts under the House bill include 
gross receipts of a taxpayer derived from any sale, exchange or other 
disposition of agricultural products with respect to which the taxpayer 
performs storage, handling or other processing activities (other than 
transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth or extraction of qualifying 
production property (whether or not by the taxpayer). Domestic 
production gross receipts also include gross receipts of a taxpayer 
derived from any sale, exchange or other disposition of food products 
with respect to which the taxpayer performs processing activities (in 
whole or in significant part) within the United States.
    \10\ It is intended under the House bill that principles similar to 
those under the present-law extraterritorial income regime apply for 
this purpose. See Temp. Treas. Reg. sec. 1.927(a)-1T(f)(2)(i). For 
example, this exclusion generally does not apply to property leased by 
the taxpayer to a related person if the property is held for sublease, 
or is subleased, by the related person to an unrelated person for the 
ultimate use of such unrelated person. Similarly, the license of 
computer software to a related person for reproduction and sale, 
exchange, lease, rental or sublicense to an unrelated person for the 
ultimate use of such unrelated person is not treated as excluded 
property by reason of the license to the related person.
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      ``Qualifying production property'' under the House bill 
generally is any tangible personal property, computer software, 
or property described in section 168(f)(4) of the Code. 
``Qualified film'' is any property described in section 
168(f)(3) of the Code (other than certain sexually explicit 
productions) if 50 percent or more of the total compensation 
relating to the production of such film (other than 
compensation in the form of residuals and participations) 
constitutes compensation for services performed in the United 
States by actors, production personnel, directors, and 
producers.
      Under the House bill, an election under section 631(a) 
made by a corporate taxpayer for a taxable year ending on or 
before the date of enactment to treat the cutting of timber as 
a sale or exchange, may be revoked by the taxpayer without the 
consent of the IRS for any taxable year ending after that date. 
The prior election (and revocation) is disregarded for purposes 
of making a subsequent election.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 2004.

                            SENATE AMENDMENT

In general
      The Senate amendment provides a deduction equal to a 
portion of the taxpayer's qualified production activities 
income. For taxable years beginning after 2008, the Senate 
amendment deduction is nine percent of such income. For taxable 
years beginning in 2004, 2005, 2006, 2007 and 2008, the 
deduction is five, five, five, six, and seven percent of 
income, respectively. However, the deduction for a taxable year 
is limited to 50 percent of the wages paid by the taxpayer 
during such taxable year.\11\ In the case of corporate 
taxpayers that are members of certain affiliated groups, the 
deduction is determined by treating all members of such groups 
as a single taxpayer.
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    \11\ For purposes of the Senate amendment, ``wages'' include the 
sum of the aggregate amounts of wages (as defined in section 3401(a) 
without regard to exclusions for remuneration paid for services 
performed in possessions of the United States) and elective deferrals 
that the taxpayer is required to include on statements with respect to 
the employment of employees of the taxpayer during the taxpayer's 
taxable year. Elective deferrals include elective deferrals as defined 
in section 402(g)(3), amounts deferred under section 457, and, for 
taxable years beginning after December 31, 2005, designated Roth 
contributions (as defined in section 402A). Any wages taken into 
account for purposes of determining the wage limitation under the 
Senate amendment cannot also be taken into account for purposes of 
determining any credit allowable under sections 30A or 936.
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Qualified production activities income
      In general, ``qualified production activities income'' 
under the Senate amendment is the modified taxable income \12\ 
of a taxpayer that is attributable to domestic production 
activities. Income attributable to domestic production 
activities generally is equal to domestic production gross 
receipts, reduced by the sum of: (1) the costs of goods sold 
that are allocable to such receipts; \13\ (2) other deductions, 
expenses, or losses that are directly allocable to such 
receipts; and (3) a proper share of other deductions, expenses, 
and losses that are not directly allocable to such receipts or 
another class of income.\14\
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    \12\ ``Modified taxable income'' under the Senate amendment is 
taxable income of the taxpayer computed without regard to the deduction 
provided by the Senate amendment. Qualified production activities 
income is limited to the modified taxable income of the taxpayer.
    \13\ For purposes of determining such costs under the Senate 
amendment, any item or service that is imported into the United States 
without an arm's length transfer price shall be treated as acquired by 
purchase, and its cost shall be treated as not less than its fair 
market value when it entered the United States. A similar rule shall 
apply in determining the adjusted basis of leased or rented property 
where the lease or rental gives rise to domestic production gross 
receipts. With regard to property previously exported by the taxpayer 
for further manufacture, the increase in cost or adjusted basis shall 
not exceed the difference between the fair market value of the property 
when exported and the fair market value of the property when re-
imported into the United States after further manufacture.
    \14\ The Senate amendment provides that the Secretary shall 
prescribe rules for the proper allocation of items of income, 
deduction, expense, and loss for purposes of determining income 
attributable to domestic production activities. Where appropriate, such 
rules shall be similar to and consistent with relevant present-law 
rules (e.g., secs. 263A and 861).
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      For taxable years beginning before 2013, the Senate 
amendment provides that qualified production activities income 
is reduced by virtue of a fraction (not to exceed one), the 
numerator of which is the value of the domestic production of 
the taxpayer and the denominator of which is the value of the 
worldwide production of the taxpayer (the ``domestic/worldwide 
fraction'').\15\ For taxable years beginning in 2010, 2011, and 
2012, the reduction in qualified production activities income 
by virtue of this fraction is reduced by 25, 50, and 75 
percent, respectively. For taxable years beginning after 2012, 
there is no reduction in qualified production activities income 
by virtue of this fraction.
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    \15\ For purposes of the domestic/worldwide fraction under the 
Senate amendment, the value of domestic production is the excess of 
domestic production gross receipts (as defined below) over the cost of 
deductible purchased inputs that are allocable to such receipts. 
Similarly, the value of worldwide production is the excess of worldwide 
production gross receipts over the cost of deductible purchased inputs 
that are allocable to such receipts. For purposes of determining the 
domestic/worldwide fraction, purchased inputs include: purchased 
services (other than employees) used in manufacture, production, 
growth, or extraction activities; purchased items consumed in 
connection with such activities; and purchased items incorporated as 
part of the property being manufactured, produced, grown, or extracted. 
In the case of corporate taxpayers that are members of certain 
affiliated groups, the domestic/worldwide fraction is determined by 
treating all members of such groups as a single taxpayer.
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Domestic production gross receipts
      Under the Senate amendment, ``domestic production gross 
receipts'' are gross receipts of a taxpayer that are derived in 
the actual conduct of a trade or business from any sale, 
exchange or other disposition, or any lease, rental or license, 
of qualifying production property that was manufactured, 
produced, grown or extracted (in whole or in significant part) 
by the taxpayer within the United States or any possession of 
the United States.\16\ Such term also includes a percentage of 
gross receipts derived from engineering or architectural 
services performed in the United States for construction 
projects in the United States.\17\ Finally, such term includes 
gross receipts derived by the taxpayer from the use of film and 
videotape property produced in whole or in significant part by 
the taxpayer within the United States. ``Qualifying production 
property'' generally is any tangible personal property, 
computer software, or property described in section 168(f)(3) 
or (4) of the Code.\18\ However, qualifying production property 
does not include: (1) consumable property that is sold, leased 
or licensed as an integral part of the provision of services; 
(2) oil or gas (other than certain primary products thereof); 
\19\ (3) electricity; (4) water supplied by pipeline to the 
consumer; (5) utility services; and (6) any film, tape, 
recording, book, magazine, newspaper or similar property the 
market for which is primarily topical or otherwise essentially 
transitory in nature.\20\
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    \16\ Under the Senate amendment, domestic production gross receipts 
include gross receipts of a taxpayer derived from any sale, exchange or 
other disposition of agricultural products with respect to which the 
taxpayer performs storage, handling or other processing activities (but 
not transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth or extraction of qualifying 
production property (whether or not by the taxpayer).
    \17\ For taxable years beginning in 2004 through 2008, the 
applicable percentage is 25%. For taxable years beginning in 2009 
through 2012, the applicable percentage is 50%. For taxable years 
beginning after 2012, the applicable percentage is 100%.
    \18\ For purposes of the definition of qualified production 
property under the Senate amendment, property described in section 
168(f)(3) or (4) of the Code includes underlying copyrights and 
trademarks. In addition, gross receipts from the sale, exchange, lease, 
rental, license or other disposition of property described in section 
168(f)(3) or (4) are treated as domestic production gross receipts if 
more than 50 percent of the aggregate development and production costs 
of such property are incurred by the taxpayer within the United States. 
For this purpose, property that is acquired by the taxpayer after 
development or production has commenced, but before such property 
generates substantial gross receipts, shall be treated as developed or 
produced by the taxpayer.
    \19\ Under the Senate amendment, qualifying production property 
does not include extracted but unrefined oil or gas, but generally 
includes primary products of oil and gas that are produced by the 
taxpayer. Examples of primary products for this purpose include motor 
fuels, chemical feedstocks and fertilizer. However, primary products do 
not include the output of a natural gas processing plant. Natural gas 
processing plants generally are located at or near the producing gas 
field that supplies the facility, and the facility serves to separate 
impurities from the natural gas liquids recovered from the field for 
the purpose of selling the liquids for future production and 
preparation of the natural gas for pipeline transportation.
    \20\ The topical and transitory exclusion does not apply to the 
extent of the gross receipts from the use of film and videotape 
property produced in whole or in significant part by the taxpayer 
within the United States.
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Other rules
            Qualified production activities income of passthrough 
                    entities (other than cooperatives)
      With respect to domestic production activities of an S 
corporation, partnership, estate, trust or other passthrough 
entity (other than an agricultural or horticultural 
cooperative), the deduction under the Senate amendment 
generally is determined at the shareholder, partner or similar 
level by taking into account at such level the proportionate 
share of qualified production activities income of the 
entity.\21\ The Senate amendment directs the Secretary to 
prescribe rules for the application of the deduction to 
passthrough entities, including reporting requirements and 
rules relating to restrictions on the allocation of the 
deduction to taxpayers at the partner or similar level.
---------------------------------------------------------------------------
    \21\ However, the wage limitation described above is determined at 
the entity level in computing the deduction with respect to qualified 
production activities income of a passthrough entity.
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            Qualified production activities income of agricultural and 
                    horticultural cooperatives
      With regard to member-owned agricultural and 
horticultural cooperatives formed under Subchapter T of the 
Code, the Senate amendment provides the same treatment of 
qualified production activities income derived from products 
marketed through cooperatives as it provides for qualified 
production activities income of other taxpayers (i.e., the 
cooperative may claim a deduction from qualified production 
activities income). In addition, the Senate amendment provides 
that the amount of any patronage dividends or per-unit retain 
allocations paid to a member of an agricultural or 
horticultural cooperative (to which Part I of Subchapter T 
applies), which is allocable to the portion of qualified 
production activities income of the cooperative that is 
deductible under the Senate amendment, is excludible from the 
gross income of the member. In order to qualify, such amount 
must be designated by the organization as allocable to the 
deductible portion of qualified production activities income in 
a written notice mailed to its patrons not later than the 
payment period described in section 1382(d). The cooperative 
cannot reduce its income under section 1382 (e.g., cannot claim 
a dividends-paid deduction) for such amounts.
            Separate application to films and videotape
      Under the Senate amendment, the deduction provided by 
this provision with respect to films and videotape is 
determined separately with respect to qualified production 
activities income of the taxpayer allocable to each of three 
markets: theatrical, broadcast television, and home video. The 
Senate amendment provides rules for making a separate 
determination of qualified production activities allocable to 
each market.
            Alternative minimum tax
      The deduction provided by the Senate amendment is allowed 
for purposes of the alternative minimum tax (including adjusted 
current earnings). The deduction is determined by reference to 
modified alternative minimum taxable income.
            Coordination with ETI repeal
      For purposes of the Senate amendment, domestic production 
gross receipts does not include gross receipts from any 
transaction that produces excluded extraterritorial income 
pursuant to the binding contract exception to the ETI repeal 
provisions of the Senate amendment.
      Qualified production activities income is determined 
without regard to any deduction provided by the ETI repeal 
provisions of the Senate amendment.
      Effective date.--The Senate amendment provision is 
effective for taxable years ending after the date of enactment.

                          CONFERENCE AGREEMENT

In general
      The conference agreement provides a deduction from 
taxable income (or, in the case of an individual, adjusted 
gross income) that is equal to a portion of the taxpayer's 
qualified production activities income. For taxable years 
beginning after 2009, the deduction is equal to nine percent of 
the lesser of (1) the qualified production activities income of 
the taxpayer for the taxable year, or (2) taxable income 
(determined without regard to this provision) for the taxable 
year. For taxable years beginning in 2005 and 2006, the 
deduction is three percent of income and, for taxable years 
beginning in 2007, 2008 and 2009, the deduction is six percent 
of income. However, the deduction for a taxable year is limited 
to 50 percent of the wages paid by the taxpayer during the 
calendar year that ends in such taxable year.\22\ In the case 
of corporate taxpayers that are members of certain affiliated 
groups, the deduction is determined by treating all members of 
such groups as a single taxpayer and the deduction is allocated 
among such members in proportion to each member's respective 
amount (if any) of qualified production activities income.
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    \22\ For purposes of the conference agreement, ``wages'' include 
the sum of the aggregate amounts of wages and elective deferrals that 
the taxpayer is required to include on statements with respect to the 
employment of employees of the taxpayer during the taxpayer's taxable 
year. Elective deferrals include elective deferrals as defined in 
section 402(g)(3), amounts deferred under section 457, and, for taxable 
years beginning after December 31, 2005, designated Roth contributions 
(as defined in section 402A).
---------------------------------------------------------------------------
Qualified production activities income
      In general, ``qualified production activities income'' is 
equal to domestic production gross receipts, reduced by the sum 
of: (1) the costs of goods sold that are allocable to such 
receipts; \23\ (2) other deductions, expenses, or losses that 
are directly allocable to such receipts; and (3) a proper share 
of other deductions, expenses, and losses that are not directly 
allocable to such receipts or another class of income.\24\
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    \23\ For purposes of determining such costs, any item or service 
that is imported into the United States without an arm's length 
transfer price shall be treated as acquired by purchase, and its cost 
shall be treated as not less than its value when it entered the United 
States. A similar rule shall apply in determining the adjusted basis of 
leased or rented property where the lease or rental gives rise to 
domestic production gross receipts. With regard to property previously 
exported by the taxpayer for further manufacture, the increase in cost 
or adjusted basis shall not exceed the difference between the value of 
the property when exported and the value of the property when re-
imported into the United States after further manufacture. Except as 
provided by the Secretary, the value of property for this purpose shall 
be its customs value (as defined in section 1059A(b)(1)).
    \24\ The Secretary shall prescribe rules for the proper allocation 
of items of income, deduction, expense, and loss for purposes of 
determining income attributable to domestic production activities. 
Where appropriate, such rules shall be similar to and consistent with 
relevant present-law rules (e.g., sec. 263A, in determining the cost of 
goods sold, and sec. 861, in determining the source of such items). 
Other deductions, expenses or losses that are directly allocable to 
such receipts include, for example, selling and marketing expenses. A 
proper share of other deductions, expenses, and losses that are not 
directly allocable to such receipts or another class of income include, 
for example, general and administrative expenses allocable to selling 
and marketing expenses.
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Domestic production gross receipts
      ``Domestic production gross receipts'' generally are 
gross receipts of a taxpayer that are derived from: (1) any 
sale, exchange or other disposition, or any lease, rental or 
license, of qualifying production property that was 
manufactured, produced, grown or extracted by the taxpayer in 
whole or in significant part within the United States; \25\ (2) 
any sale, exchange or other disposition, or any lease, rental 
or license, of qualified film produced by the taxpayer; (3) any 
sale, exchange or other disposition electricity, natural gas, 
or potable water produced by the taxpayer in the United States; 
(4) construction activities performed in the United States; 
\26\ or (5) engineering or architectural services performed in 
the United States for construction projects located in the 
United States.
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    \25\ Domestic production gross receipts include gross receipts of a 
taxpayer derived from any sale, exchange or other disposition of 
agricultural products with respect to which the taxpayer performs 
storage, handling or other processing activities (other than 
transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth or extraction of qualifying 
production property (whether or not by the taxpayer).
    \26\ For this purpose, construction activities include activities 
that are directly related to the erection or substantial renovation of 
residential and commercial buildings and infrastructure. Substantial 
renovation would include structural improvements, but not mere cosmetic 
changes, such as painting.
---------------------------------------------------------------------------
      However, domestic production gross receipts do not 
include any gross receipts of the taxpayer that are derived 
from (1) the sale of food or beverages prepared by the taxpayer 
at a retail establishment,\27\ or (2) the transmission or 
distribution of electricity, natural gas, or potable water.\28\ 
In addition, domestic production gross receipts do not include 
any gross receipts of the taxpayer derived from property that 
is leased, licensed or rented by the taxpayer for use by any 
related person.\29\
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    \27\ The conferees intend that food processing, which generally is 
a qualified production activity under the conference agreement, does 
not include activities carried out at retail establishment. Thus, under 
the conference agreement while the gross receipts of a meat packing 
establishment are qualified domestic production gross receipts, the 
activities of a master chef who creates a venison sausage for his or 
her restaurant menu cannot be construed as a qualified production 
activity.
    The conferees recognize that some taxpayers may own facilities at 
which the predominant activity is domestic production as defined in the 
conference agreement and other facilities at which they engage in the 
retail sale of the taxpayer's produced goods and also sell food and 
beverages. For example, assume that the taxpayer buys coffee beans and 
roasts those beans at a facility, the primary activity of which is the 
roasting and packaging of roasted coffee. The taxpayer sells the 
roasted coffee through a variety of unrelated third-party vendors and 
also sells roasted coffee at the taxpayer's own retail establishments. 
In addition, at the taxpayer's retail establishments, the taxpayer 
prepares brewed coffee and other foods. The conferees intend that to 
the extent that the gross receipts of the taxpayer's retail 
establishment represent receipts from the sale of its roasted coffee 
beans to customers, the receipts are qualified domestic production 
gross receipts, but to the extent that the gross receipts of the 
taxpayer's retail establishment represent receipts from the sale of 
brewed coffee or food prepared at the retail establishment, the 
receipts are not qualified domestic production gross receipts. However, 
the conferees intend that, in this case, the taxpayer may allocate part 
of the receipts from the sale of the brewed coffee as qualified 
domestic production gross receipts to the extent of the value of the 
roasted coffee beans used to brew the coffee. The conferees intend that 
the Secretary provide guidance drawing on the principles of section 482 
by which such a taxpayer can allocate gross receipts between qualified 
and nonqualified gross receipts. The conferees observe that in this 
example, the taxpayer's sales of roasted coffee beans to unrelated 
third parties would provide a value for the beans used in brewing a cup 
of coffee for retail sale.
    The conferees intend that the disqualification of gross receipts 
derived from the sale of food and beverage prepared by the taxpayer at 
a retail establishment not be construed narrowly to apply only to 
establishments at which customers dine on premises. The receipts of a 
facility that prepares food and beverage solely for take out service 
would not be qualified production gross receipts. Likewise, the 
conferees intend that the disqualification of gross receipts derived 
from the sale of food and beverages prepared by the taxpayer need not 
be limited to retail establishments primarily engaged in the dining 
trade. For example, if a taxpayer operates a supermarket and as part of 
the supermarket the taxpayer operates an in-store bakery, the same 
allocation described above would apply to determine the extent to which 
the taxpayer's gross receipts represent qualified domestic production 
gross receipts.
    \28\ The conference agreement provides that domestic production 
gross receipts include the gross receipts from the production in the 
United States of electricity, gas, and potable water, but excludes the 
gross receipts from the transmission or distribution of electricity, 
gas, and potable water. Thus, in the case of a taxpayer who owns a 
facility for the production of electricity, whether the taxpayer's 
facility is part of a regulated utility or an independent power 
facility, the taxpayer's gross receipts from the production of 
electricity at that facility are qualified domestic production gross 
receipts. However, to the extent that the taxpayer is an integrated 
producer that generates electricity and delivers electricity to end 
users, any gross receipts properly attributable to the transmission of 
electricity from the generating facility to a point of local 
distribution and any gross receipts properly attributable to the 
distribution of electricity to final customers are not qualified 
domestic production gross receipts. For example, assume taxpayer A owns 
a wind turbine that generates electricity and taxpayer B owns a high-
voltage transmission line that passes near taxpayer A's wind turbine 
and ends near the system of local distribution lines of taxpayer C. 
Taxpayer A sells the electricity produced at the wind turbine to 
taxpayer C and contracts with taxpayer B to transmit the electricity 
produced at the wind turbine to taxpayer C who sells the electricity to 
his or her customers using taxpayer C's distribution network. The gross 
receipts received by taxpayer A for the sale of electricity produced at 
the wind turbine constitute qualifying domestic production gross 
receipts. The gross receipts of taxpayer B from transporting taxpayer 
A's electricity to taxpayer C are not qualifying domestic production 
gross receipts. Likewise the gross receipts of taxpayer C from 
distributing the electricity are not qualifying domestic production 
gross receipts. Also, if taxpayer A made direct sales of electricity to 
customers in taxpayer C's service area and taxpayer C receives 
remuneration for the distribution of electricity, the gross receipts of 
taxpayer C are not qualifying domestic production gross receipts. If 
taxpayers A, B, and C are all related taxpayer, then taxpayers A, B, 
and C must allocate gross receipts to production activities, 
transmission activities, and distribution activities in a manner 
consistent with the preceding example.
    The conference agreement provides that the same principles apply in 
the case of the natural gas and water supply industries. In the case of 
natural gas, production activities generally are all activities 
involved in extracting natural gas from the ground and processing the 
gas into pipeline quality gas. Such activities would produce qualifying 
domestic production gross receipts. However gross receipts of a 
taxpayer attributable to transmission of pipeline quality gas from a 
natural gas field (or from a natural gas processing plant) to a local 
distribution company's citygate (or to another customer) are not 
qualified domestic production gross receipts. Likewise gas purchased by 
a local gas distribution company and distributed from the citygate to 
the local customers does not give rise to domestic production gross 
receipts.
    In the case of the production of potable water the conferees intend 
that activities involved in the production of potable water include the 
acquisition, collection, and storage of raw water (untreated water). It 
also includes the transportation of raw water to a water treatment 
facility and treatment of raw water at such a facility. However, any 
gross receipts from the storage of potable water after the water 
treatment facility or delivery of potable water to customers does not 
give rise to qualifying domestic production gross receipts. The 
conferees intend that a taxpayer that both produces potable water and 
distributes potable water will properly allocate gross receipts across 
qualifying and non-qualifying activities.
    \29\ It is intended that principles similar to those under the 
present-law extraterritorial income regime apply for this purpose. See 
Temp. Treas. Reg. sec. 1.927(a)-1T(f)(2)(i). For example, this 
exclusion generally does not apply to property leased by the taxpayer 
to a related person if the property is held for sublease, or is 
subleased, by the related person to an unrelated person for the 
ultimate use of such unrelated person. Similarly, the license of 
computer software to a related person for reproduction and sale, 
exchange, lease, rental or sublicense to an unrelated person for the 
ultimate use of such unrelated person is not treated as excluded 
property by reason of the license to the related person.
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      ``Qualifying production property'' generally includes any 
tangible personal property, computer software, or sound 
recordings. ``Qualified film'' includes any motion picture film 
or videotape \30\ (including live or delayed television 
programming, but not including certain sexually explicit 
productions) if 50 percent or more of the total compensation 
relating to the production of such film (including compensation 
in the form of residuals and participations \31\) constitutes 
compensation for services performed in the United States by 
actors, production personnel, directors, and producers.\32\
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    \30\ The conferees intend that the nature of the material on which 
properties described in section 168(f)(3) are embodied and the methods 
and means of distribution of such properties shall not affect their 
qualification under this provision.
    \31\ To the extent that a taxpayer has included an estimate of 
participations and/or residuals in its income forecast calculation 
under section 167(g), such taxpayer must use the same estimate of 
participations and/or residuals for purposes of determining total 
compensation.
    \32\ It is intended that the Secretary will provide appropriate 
rules governing the determination of total compensation for services 
performed in the United States.
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Other rules
            Qualified production activities income of passthrough 
                    entities (other than cooperatives)
      With respect to domestic production activities of an S 
corporation, partnership, estate, trust or other passthrough 
entity (other than an agricultural or horticultural 
cooperative), although the wage limitation is applied first at 
the entity level, the deduction under the conference agreement 
generally is determined at the shareholder, partner or similar 
level by taking into account at such level the proportionate 
share of qualified production activities income of the entity. 
The Secretary is directed to prescribe rules for the 
application of the conference agreement to passthrough 
entities, including reporting requirements and rules relating 
to restrictions on the allocation of the deduction to taxpayers 
at the partner or similar level.
      For purposes of applying the wage limitation at the level 
of a shareholder, partner, or similar person, each person who 
is allocated qualified production activities income from a 
passthrough entity also is treated as having been allocated 
wages from such entity in an amount that is equal to the lesser 
of: (1) such person's allocable share of wages, as determined 
under regulations prescribed by the Secretary; or (2) twice the 
appropriate deductible percentage of qualified production 
activities income that actually is allocated to such person for 
the taxable year.
            Qualified production activities income of agricultural and 
                    horticultural cooperatives
      With regard to member-owned agricultural and 
horticultural cooperatives formed under Subchapter T of the 
Code, the conference agreement provides the same treatment of 
qualified production activities income derived from 
agricultural or horticultural products that are manufactured, 
produced, grown, or extracted by cooperatives,\33\ or that are 
marketed through cooperatives, as it provides for qualified 
production activities income of other taxpayers (i.e., the 
cooperative may claim a deduction from qualified production 
activities income).
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    \33\ For this purpose, agricultural or horticultural products also 
include fertilizer, diesel fuel and other supplies used in agricultural 
or horticultural production that are manufactured, produced, grown, or 
extracted by the cooperative.
---------------------------------------------------------------------------
      In addition, the conference agreement provides that the 
amount of any patronage dividends or per-unit retain 
allocations paid to a member of an agricultural or 
horticultural cooperative (to which Part I of Subchapter T 
applies), which is allocable to the portion of qualified 
production activities income of the cooperative that is 
deductible under the conference agreement, is deductible from 
the gross income of the member. In order to qualify, such 
amount must be designated by the organization as allocable to 
the deductible portion of qualified production activities 
income in a written notice mailed to its patrons not later than 
the payment period described in section 1382(d). The 
cooperative cannot reduce its income under section 1382 (e.g., 
cannot claim a dividends-paid deduction) for such amounts.
            Alternative minimum tax
      The deduction provided by the conference agreement is 
allowed for purposes of computing alternative minimum taxable 
income (including adjusted current earnings). The deduction in 
computing alternative minimum taxable income is determined by 
reference to the lesser of the qualified production activities 
income (as determined for the regular tax) or the alternative 
minimum taxable income (in the case of an individual, adjusted 
gross income as determined for the regular tax) without regard 
to this deduction.
            Timber cutting
      Under the conference agreement, an election made for a 
taxable year ending on or before the date of enactment, to 
treat the cutting of timber as a sale or exchange, may be 
revoked by the taxpayer without the consent of the IRS for any 
taxable year ending after that date. The prior election (and 
revocation) is disregarded for purposes of making a subsequent 
election.
Exploration of fundamental tax reform
      The conferees acknowledge that Congress has not reduced 
the statutory corporate income tax rate since 1986. According 
to the Organisation of Economic Cooperation and Development 
(``OECD''), the combined corporate income tax rate, as defined 
by the OECD, in most instances is lower than the U.S. corporate 
income tax rate.\34\ Higher corporate tax rates factor into the 
United States' ability to attract and retain economically 
vibrant industries, which create good jobs and contribute to 
overall economic growth.
---------------------------------------------------------------------------
    \34\ Organisation of Economic Cooperation and Development, Table 
1.5, Tax Data Base Statistics, Tax Policy and Administration, Summary 
Tables (2003).
---------------------------------------------------------------------------
      This legislation was crafted to repeal an export tax 
benefit that was deemed inconsistent with obligations of the 
United States under the Agreement on Subsidies and 
Countervailing Measures and other international trade 
agreements. This legislation replaces the benefit with tax 
relief specifically designed to be economically equivalent to a 
3-percentage point reduction in U.S.-based manufacturing.
      The conferees recognize that manufacturers are a segment 
of the economy that has faced significant challenges during the 
nation's recent economic slowdown. The conferees recognize that 
trading partners of the United States retain subsidies for 
domestic manufacturers and exports through their indirect tax 
systems. The conferees are concerned about the adverse 
competitive impact of these subsidies on U.S. manufacturers.
      These concerns should be considered in the context of the 
benefits of a unified top tax rate for all corporate taxpayers, 
including manufacturing, in terms of efficiency and fairness. 
The conferees also expect that the tax-writing committees will 
explore a unified top corporate tax rate in the context of 
fundamental tax reform.
      Effective date.--The conference agreement is effective 
for taxable years beginning after December 31, 2004.

      C. Reduced Corporate Income Tax Rate for Small Corporations

(Sec. 103 of the House bill and sec. 11 of the Code)

                              PRESENT LAW

      A corporation's regular income tax liability is 
determined by applying the following tax rate schedule to its 
taxable income.

     TABLE 1.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2004
------------------------------------------------------------------------
              Taxable income:                     Income tax rate:
------------------------------------------------------------------------
$0-$50,000................................  15 percent of taxable
                                             income.
$50,001-$75,000...........................  25 percent of taxable
                                             income.
$75,001-$10,000,000.......................  34 percent of taxable
                                             income.
Over $10,000,000..........................  35 percent of taxable
                                             income.
------------------------------------------------------------------------

      The benefit of the first two graduated rates described 
above is phased out by a five-percent surcharge for 
corporations with taxable income between $100,000 and $335,000. 
Also, the benefit of the 34-percent rate is phased out by a 
three-percent surcharge for corporations with taxable income 
between $15 million and $18,333,333; a corporation with taxable 
income of $18,333,333 or more effectively is subject to a flat 
rate of 35 percent.

                               HOUSE BILL

      Under the House bill, a corporation's regular income tax 
liability is determined by applying the following tax rate 
schedules to its taxable income.

   TABLE 2.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2013 AND
                               THEREAFTER
------------------------------------------------------------------------
              Taxable income:                     Income tax rate:
------------------------------------------------------------------------
$0-$50,000................................  15 percent of taxable
                                             income.
$50,001-$75,000...........................  25 percent of taxable
                                             income.
$75,001-$20,000,000.......................  32 percent of taxable
                                             income.
Over $20,000,000..........................  35 percent of taxable
                                             income.
------------------------------------------------------------------------

      The benefit of the graduated rates described above is 
phased out by a three-percent surcharge for corporations with 
taxable income between $20 million and $40,341,667; a 
corporation with taxable income of $40,341,667 or more 
effectively is subject to a flat rate of 35 percent.

   TABLE 3.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2011-2012
------------------------------------------------------------------------
              Taxable income:                     Income tax rate:
------------------------------------------------------------------------
$0-$50,000................................  15 percent of taxable
                                             income.
$50,001-$75,000...........................  25 percent of taxable
                                             income.
$75,001-$5,000,000........................  32 percent of taxable
                                             income.
$5,000,001-$10,000,000....................  34 percent of taxable
                                             income.
Over $10,000,000..........................  35 percent of taxable
                                             income.
------------------------------------------------------------------------

      The benefit of the first three graduated rates described 
above is phased out by a five-percent surcharge for 
corporations with taxable income between $5,000,000 and 
$7,205,000. Also, the benefit of the 34-percent rate is phased 
out by a three-percent surcharge for corporations with taxable 
income between $15 million and $18,333,333; a corporation with 
taxable income of $18,333,333 or more effectively is subject to 
a flat rate of 35 percent.

   TABLE 4.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2008-2010
------------------------------------------------------------------------
              Taxable income:                     Income tax rate:
------------------------------------------------------------------------
$0-$50,000................................  15 percent of taxable
                                             income.
$50,001-$75,000...........................  25 percent of taxable
                                             income.
$75,001-$1,000,000........................  32 percent of taxable
                                             income.
$1,000,001-$10,000,000....................  34 percent of taxable
                                             income.
Over $10,000,000..........................  35 percent of taxable income
------------------------------------------------------------------------

      The benefit of the first three graduated rates described 
above is phased out by a five-percent surcharge for 
corporations with taxable income between $1,000,000 and 
$1,605,000. Also, the benefit of the 34-percent rate is phased 
out by a three-percent surcharge for corporations with taxable 
income between $15 million and $18,333,333; a corporation with 
taxable income of $18,333,333 or more effectively is subject to 
a flat rate of 35 percent.

                       TABLE 5.--MARGINAL FEDERAL CORPORATE INCOME TAX RATES FOR 2005-2007
----------------------------------------------------------------------------------------------------------------
                         Taxable income:                                          Income tax rate:
----------------------------------------------------------------------------------------------------------------
$0-$50,000.......................................................                  15 percent of taxable income.
$50,001-$75,000..................................................                  25 percent of taxable income.
$75,001-$1,000,000...............................................                  33 percent of taxable income.
$1,000,001-$10,000,000...........................................                  34 percent of taxable income.
Over $10,000,000.................................................                  35 percent of taxable income.
----------------------------------------------------------------------------------------------------------------

      The benefit of the first three graduated rates described 
above is phased out by a five-percent surcharge for 
corporations with taxable income between $1,000,000 and 
$1,420,000. Also, the benefit of the 34-percen