[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4297 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
February 2, 2006.
Resolved, That the bill from the House of Representatives (H.R.
4297) entitled ``An Act to provide for reconciliation pursuant to
section 201(b) of the concurrent resolution on the budget for fiscal
year 2006.'', do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Tax Relief Act of
2005''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--EXTENSION OF EXPIRING PROVISIONS
Sec. 101. Extension of increased expensing for small business.
Sec. 102. Credit for elective deferrals and IRA contributions.
Sec. 103. Above-the-line deduction for higher education.
Sec. 104. Extension and modification of new markets tax credit.
Sec. 105. Election to deduct State and local general sales taxes.
Sec. 106. Extension and increase in minimum tax relief to individuals.
Sec. 107. Allowance of nonrefundable personal credits against regular
and alternative minimum tax liability.
Sec. 108. Extension and modification of research credit.
Sec. 109. Work opportunity tax credit and welfare-to-work credit.
Sec. 110. Qualified zone academy bonds.
Sec. 111. Deduction for corporate donations of computer technology and
equipment.
Sec. 112. Above-the-line deduction for certain expenses of elementary
and secondary school teachers.
Sec. 113. Expensing of brownfields remediation costs.
Sec. 114. Tax incentives for investment in the District of Columbia.
Sec. 115. Indian employment tax credit.
Sec. 116. Accelerated depreciation for business property on Indian
reservation.
Sec. 117. Fifteen-year straight-line cost recovery for qualified
leasehold improvements and qualified
restaurant improvements.
Sec. 118. Extension of full credit for qualified electric vehicles.
Sec. 119. Application of EGTRRA sunset to this title.
TITLE II--PROVISIONS RELATING TO CHARITABLE DONATIONS
Subtitle A--Charitable Giving Incentives
Sec. 201. Charitable deduction for nonitemizers.
Sec. 202. Tax-free distributions from individual retirement plans for
charitable purposes.
Sec. 203. Modification of charitable deduction for contributions of
food inventory.
Sec. 204. Basis adjustment to stock of S corporation contributing
property.
Sec. 205. Modification of charitable deduction for contributions of
book inventory.
Sec. 206. Modification of tax treatment of certain payments to
controlling exempt organizations and public
disclosure of information relating to
unrelated business income.
Sec. 207. Encouragement of contributions of capital gain real property
made for conservation purposes.
Sec. 208. Enhanced deduction for charitable contribution of literary,
musical, artistic, and scholarly
compositions.
Sec. 209. Mileage reimbursements to charitable volunteers excluded from
gross income.
Sec. 210. Alternative percentage limitation for corporate charitable
contributions to the mathematics and
science partnership program.
Subtitle B--Reforming Charitable Organizations
PART I--General Reforms
Sec. 211. Tax involvement by exempt organizations in tax shelter
transactions.
Sec. 212. Excise tax on certain acquisitions of interests in insurance
contracts in which certain exempt
organizations hold an interest.
Sec. 213. Increase in penalty excise taxes on public charities, social
welfare organizations, and private
foundations.
Sec. 214. Reform of charitable contributions of certain easements on
buildings in registered historic districts.
Sec. 215. Charitable contributions of taxidermy property.
Sec. 216. Recapture of tax benefit for charitable contributions of
exempt use property not used for an exempt
use.
Sec. 217. Limitation of deduction for charitable contributions of
clothing and household items.
Sec. 218. Modification of recordkeeping requirements for certain
charitable contributions.
Sec. 219. Contributions of fractional interests in tangible personal
property.
Sec. 220. Provisions relating to substantial and gross overstatements
of valuations of charitable deduction
property.
Sec. 221. Additional standards for credit counseling organizations.
Sec. 222. Expansion of the base of tax on private foundation net
investment income.
Sec. 223. Definition of convention or association of churches.
Sec. 224. Notification requirement for entities not currently required
to file.
Sec. 225. Disclosure to State officials of proposed actions related to
exempt organizations.
PART II--Improved Accountability of Donor Advised Funds
Sec. 231. Excise tax on sponsoring organizations of donor advised funds
for failure to meet distribution
requirements.
Sec. 232. Prohibited transactions.
Sec. 233. Treatment of charitable contribution deductions to donor
advised funds.
Sec. 234. Returns of, and applications for recognition by, sponsoring
organizations.
PART III--Improved Accountability of Supporting Organizations
Sec. 241. Requirements for supporting organizations.
Sec. 242. Excise tax on supporting organizations for failure to meet
distribution requirements.
Sec. 243. Excess benefit transactions.
Sec. 244. Excess business holdings of supporting organizations.
Sec. 245. Treatment of amounts paid to supporting organizations by
private foundations.
Sec. 246. Returns of supporting organizations.
TITLE III--MISCELLANEOUS PROVISIONS
Sec. 301. Restructuring of New York Liberty Zone tax credits.
Sec. 302. Modification to S corporation passive investment income
rules.
Sec. 303. Modification of effective date of disregard of certain
capital expenditures for purposes of
qualified small issue bonds.
Sec. 304. Premiums for mortgage insurance.
Sec. 305. Sense of the Senate on use of no-bid contracting by Federal
Emergency Management Agency.
Sec. 306. Sense of Congress regarding Doha Round.
Sec. 307. Modification of bond rule.
Sec. 308. Treatment of certain stock option plans under nonqualified
deferred compensation rules.
Sec. 309. Sense of the Senate regarding the dedication of excess funds.
Sec. 310. Modification of treatment of loans to qualified continuing
care facilities.
Sec. 311. Exclusion of gain from sale of a principal residence by
certain employees of the intelligence
community.
Sec. 312. Sense of the Senate regarding the permanent extension of
EGTRRA and JGTRRA provisions relating to
child tax credit.
Sec. 313. Partial expensing for advanced mine safety equipment.
Sec. 314. Mine rescue team training tax credit.
Sec. 315. Funding for veterans health care and disability compensation
and hospital infrastructure for veterans.
Sec. 316. Sense of the Senate regarding protecting middle-class
families from the alternative minimum tax.
TITLE IV--REVENUE OFFSET PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 401. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 402. Frivolous tax submissions.
Sec. 403. Penalty for promoting abusive tax shelters.
Sec. 404. Penalty for aiding and abetting the understatement of tax
liability.
Subtitle B--Economic Substance Doctrine
Sec. 411. Clarification of economic substance doctrine.
Sec. 412. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 413. Denial of deduction for interest on underpayments
attributable to noneconomic substance
transactions.
Subtitle C--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection
Sec. 421. Waiver of user fee for installment agreements using automated
withdrawals.
Sec. 422. Termination of installment agreements.
Sec. 423. Partial payments required with submission of offers-in-
compromise.
Subtitle D--Penalties and Fines
Sec. 431. Increase in criminal monetary penalty limitation for the
underpayment or overpayment of tax due to
fraud.
Sec. 432. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore
financial arrangements.
Sec. 433. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 434. Denial of deduction for punitive damages.
Sec. 435. Increase in penalty for bad checks and money orders.
Subtitle E--Provisions To Discourage Expatriation
Sec. 441. Tax treatment of inverted entities.
Sec. 442. Revision of tax rules on expatriation of individuals.
Subtitle F--Miscellaneous Provisions
Sec. 451. Treatment of contingent payment convertible debt instruments.
Sec. 452. Grant of Treasury regulatory authority to address foreign tax
credit transactions involving inappropriate
separation of foreign taxes from related
foreign income.
Sec. 453. Repeal of special property exception to leasing provisions of
the American Jobs Creation Act of 2004.
Sec. 454. Application of earnings stripping rules to partners which are
corporations.
Sec. 455. Limitation of employer deduction for certain entertainment
expenses.
Sec. 456. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 457. Loan and redemption requirements on pooled financing
requirements.
Sec. 458. Reporting of interest on tax-exempt bonds.
Sec. 459. Modification of credit for producing fuel from a
nonconventional source.
Sec. 460. Modification of individual estimated tax safe harbor.
Sec. 461. Revaluation of LIFO inventories of large integrated oil
companies.
Sec. 462. Elimination of amortization of geological and geophysical
expenditures for major integrated oil
companies.
Sec. 463. Valuation of employee personal use of noncommercial aircraft.
Sec. 464. Application of FIRPTA to regulated investment companies.
Sec. 465. Treatment of distributions attributable to FIRPTA gains.
Sec. 466. Prevention of avoidance of tax on investments of foreign
persons in United States real property
through wash sale transactions.
Sec. 467. Modifications to rules relating to taxation of distributions
of stock and securities of a controlled
corporation.
Sec. 468. Amortization of expenses incurred in creating or acquiring
music or music copyrights.
Sec. 469. Credit to holders of rural renaissance bonds.
Sec. 470. Modifications of foreign tax credit rules applicable to large
integrated oil companies which are dual
capacity taxpayers.
Sec. 471. Disability preference program for tax collection contracts.
TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
Sec. 501. Sunset of certain provisions and amendments.
TITLE VI--STRENGTHENING AMERICA'S MILITARY
Sec. 601. Short title.
Subtitle A--Military Funding
Sec. 602. Funding for military operations.
TITLE I--EXTENSION OF EXPIRING PROVISIONS
SEC. 101. EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS.
Section 179 is amended by striking ``2008'' each place it appears
and inserting ``2010''.
SEC. 102. CREDIT FOR ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS.
Section 25B(h) is amended by striking ``2006'' and inserting
``2009''.
SEC. 103. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.
(a) In General.--Section 222(e) is amended by striking ``2005''and
inserting ``2009''.
(b) Conforming Amendments.--Section 222(b)(2)(B) is amended--
(1) by striking ``a taxable year beginning in 2004 or
2005'' and inserting ``any taxable year beginning after 2003'',
and
(2) by striking ``2004 and 2005'' and inserting ``after
2003''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 104. EXTENSION AND MODIFICATION OF NEW MARKETS TAX CREDIT.
(a) Extension.--Section 45D(f)(1)(D) is amended by striking ``and
2007'' and inserting ``, 2007, and 2008''.
(b) Regulations Regarding Non-Metropolitan Counties.--Section
45D(i) is amended by striking ``and'' at the end of paragraph (4), by
striking the period at the end of paragraph (5) and inserting ``,
and'', and by adding at the end by the following new paragraph:
``(6) which ensure that non-metropolitan counties receive a
proportional allocation of qualified equity investments.''.
SEC. 105. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES TAXES.
(a) In General.--Section 164(b)(5)(I) is amended by striking
``2006'' and inserting ``2008''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 106. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO INDIVIDUALS.
(a) In General.--Section 55(d)(1) is amended--
(1) by striking ``$58,000'' and all that follows through
``2005'' in subparagraph (A) and inserting ``$62,550 in the
case of taxable years beginning in 2006'', and
(2) by striking ``$40,250'' and all that follows through
``2005'' in subparagraph (B) and inserting ``$42,500 in the
case of taxable years beginning in 2006''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 107. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR
AND ALTERNATIVE MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``2005'' in the heading thereof and
inserting ``2007'', and
(2) by striking ``or 2005'' and inserting ``2005, 2006, or
2007''.
(b) Conforming Provisions.--
(1) Section 30B(g) is amended by adding at the end the
following new paragraph:
``(3) Special rule for 2006 and 2007.--For purposes of any
taxable year beginning during 2006 or 2007, the credit allowed
under subsection (a) (after the application of paragraph (1))
shall not exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under
subpart A and this subpart (other than this section and
section 30C).''.
(2) Section 30C(d) is amended by adding at the end the
following new paragraph:
``(3) Special rule for 2006 and 2007.--For purposes of any
taxable year beginning during 2006 or 2007, the credit allowed
under subsection (a) (after the application of paragraph (1))
shall not exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under
subpart A and this subpart (other than this
section).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 108. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
(a) Extension.--
(1) In general.--Section 41(h)(1)(B) is amended by striking
``2005'' and inserting ``2007''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``2005'' and inserting ``2007''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2005.
(b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of
alternative incremental credit) is amended--
(1) by striking ``2.65 percent'' and inserting ``3
percent'',
(2) by striking ``3.2 percent'' and inserting ``4
percent'', and
(3) by striking ``3.75 percent'' and inserting ``5
percent''.
(c) Alternative Simplified Credit for Qualified Research
Expenses.--
(1) In general.--Subsection (c) of section 41 (relating to
base amount) is amended by redesignating paragraphs (5) and (6)
as paragraphs (6) and (7), respectively, and by inserting after
paragraph (4) the following new paragraph:
``(5) Election of alternative simplified credit.--
``(A) In general.--At the election of the taxpayer,
the credit determined under subsection (a)(1) shall be
equal to 12 percent of so much of the qualified
research expenses for the taxable year as exceeds 50
percent of the average qualified research expenses for
the 3 taxable years preceding the taxable year for
which the credit is being determined.
``(B) Special rule in case of no qualified research
expenses in any of 3 preceding taxable years.--
``(i) Taxpayers to which subparagraph
applies.--The credit under this paragraph shall
be determined under this subparagraph if the
taxpayer has no qualified research expenses in
any 1 of the 3 taxable years preceding the
taxable year for which the credit is being
determined.
``(ii) Credit rate.--The credit determined
under this subparagraph shall be equal to 6
percent of the qualified research expenses for
the taxable year.
``(C) Election.--An election under this paragraph
shall apply to the taxable year for which made and all
succeeding taxable years unless revoked with the
consent of the Secretary. An election under this
paragraph may not be made for any taxable year to which
an election under paragraph (4) applies.''.
(2) Coordination with election of alternative incremental
credit.--
(A) In general.--Section 41(c)(4)(B) (relating to
election) is amended by adding at the end the
following: ``An election under this paragraph may not
be made for any taxable year to which an election under
paragraph (5) applies.''.
(B) Transition rule.--In the case of an election
under section 41(c)(4) of the Internal Revenue Code of
1986 which applies to the taxable year which includes
the date of the enactment of this Act, such election
shall be treated as revoked with the consent of the
Secretary of the Treasury if the taxpayer makes an
election under section 41(c)(5) of such Code (as added
by subsection (a)) for such year.
(d) Expansion of Credit to Expenses of General Collaborative
Research Consortia.--Section 41 is amended--
(1) by striking ``an energy research consortium'' in
subsections (a)(3) and (b)(3)(C)(i) and inserting ``a research
consortium'',
(2) by striking ``energy'' each place it appears in
subsection (f)(6)(A),
(3) by inserting ``or 501(c)(6)'' after ``section
501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
(4) by striking ``Energy research'' in the heading for
subsection (f)(6) and inserting ``Research''.
(e) Effective Date.--Except as provided in subsection (a)(3), the
amendments made by this section shall apply to taxable years ending
after December 31, 2005.
SEC. 109. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK CREDIT.
(a) In General.--Section 51(c)(4)(B) is amended by striking
``2005'' and inserting ``2007''.
(b) Eligibility of Ex-Felons Determined Without Regard to Family
Income.--Paragraph (4) of section 51(d) is amended by adding ``and'' at
the end of subparagraph (A), by striking ``, and'' at the end of
subparagraph (B) and inserting a period, and by striking all that
follows subparagraph (B).
(c) Increase in Maximum Age for Eligibility of Food Stamp
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by striking
``25'' and inserting ``40''.
(d) Increase in Maximum Age for Designated Community Residents.--
(1) In general.--Paragraph (5) of section 51(d) is amended
to read as follows:
``(5) Designated community residents.--
``(A) In general.--The term `designated community
resident' means any individual who is certified by the
designated local agency--
``(i) as having attained age 18 but not age
40 on the hiring date, and
``(ii) as having his principal place of
abode within an empowerment zone, enterprise
community, or renewal community.
``(B) Individual must continue to reside in zone or
community.--In the case of a designated community
resident, the term `qualified wages' shall not include
wages paid or incurred for services performed while the
individual's principal place of abode is outside an
empowerment zone, enterprise community, or renewal
community.''
(2) Conforming amendment.--Subparagraph (D) of section
51(d)(1) is amended to read as follows:
``(D) a designated community resident,''.
(e) Consolidation of Work Opportunity Credit With Welfare-to-Work
Credit.--
(1) In general.--Paragraph (1) of section 51(d) is amended
by striking ``or'' at the end of subparagraph (G), by striking
the period at the end of subparagraph (H) and inserting ``,
or'', and by adding at the end the following new subparagraph:
``(I) a long-term family assistance recipient.''
(2) Long-term family assistance recipient.--Subsection (d)
of section 51 is amended by redesignating paragraphs (10)
through (12) as paragraphs (11) through (13), respectively, and
by inserting after paragraph (9) the following new paragraph:
``(10) Long-term family assistance recipient.--The term
`long-term family assistance recipient' means any individual
who is certified by the designated local agency--
``(A) as being a member of a family receiving
assistance under a IV-A program (as defined in
paragraph (2)(B)) for at least the 18-month period
ending on the hiring date,
``(B)(i) as being a member of a family receiving
such assistance for 18 months beginning after August 5,
1997, and
``(ii) as having a hiring date which is not more
than 2 years after the end of the earliest such 18-
month period, or
``(C)(i) as being a member of a family which ceased
to be eligible for such assistance by reason of any
limitation imposed by Federal or State law on the
maximum period such assistance is payable to a family,
and
``(ii) as having a hiring date which is not more
than 2 years after the date of such cessation.''
(3) Increased credit for employment of long-term family
assistance recipients.--Section 51 is amended by inserting
after subsection (d) the following new subsection:
``(e) Credit for Second-Year Wages for Employment of Long-Term
Family Assistance Recipients.--
``(1) In general.--With respect to the employment of a
long-term family assistance recipient--
``(A) the amount of the work opportunity credit
determined under this section for the taxable year
shall include 50 percent of the qualified second-year
wages for such year, and
``(B) in lieu of applying subsection (b)(3), the
amount of the qualified first-year wages, and the
amount of qualified second-year wages, which may be
taken into account with respect to such a recipient
shall not exceed $10,000 per year.
``(2) Qualified second-year wages.--For purposes of this
subsection, the term `qualified second-year wages' means
qualified wages--
``(A) which are paid to a long-term family
assistance recipient, and
``(B) which are attributable to service rendered
during the 1-year period beginning on the day after the
last day of the 1-year period with respect to such
recipient determined under subsection (b)(2).
``(3) Special rules for agricultural and railway labor.--If
such recipient is an employee to whom subparagraph (A) or (B)
of subsection (h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that--
``(A) such subparagraph (A) shall be applied by
substituting `$10,000' for `$6,000', and
``(B) such subparagraph (B) shall be applied by
substituting `$833.33' for `$500'.''
(4) Repeal of separate welfare-to-work credit.--
(A) In general.--Section 51A is hereby repealed.
(B) Clerical amendment.--The table of sections for
subpart F of part IV of subchapter A of chapter 1 is
amended by striking the item relating to section 51A.
(f) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after December 31,
2005.
SEC. 110. QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is amended by
striking ``and 2005'' and inserting ``2005, 2006, and 2007''.
(b) Form of Private Business Contributions.--Section 1397E(d)(2)(B)
is amended by striking ``any contribution'' and all that follows and
inserting ``any cash or cash equivalent contribution''.
(c) Special Rules Relating to Amortization, Expenditures,
Arbitrage, and Reporting.--
(1) In general.--Section 1397E is amended--
(A) in subsection (d)(1), by striking ``and'' at
the end of subparagraph (C)(iii), by striking the
period at the end of subparagraph (D) and inserting ``,
and'', and by adding at the end the following new
subparagraph:
``(E) the issue meets the requirements of
subsections (f), (g), (h), and (i).'', and
(B) by redesignating subsections (f), (g), (h), and
(i) as subsection (j), (k), (l), and (m), respectively,
and by inserting after subsection (e) the following new
subsections:
``(f) Ratable Principal Amortization Required.--An issue shall be
treated as meeting the requirements of this subsection if such issue
provides for an equal amount of principal to be paid by the issuer
during each calendar year that the issue is outstanding.
``(g) Special Rules Relating to Expenditures.--
``(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if, as of the date of issuance,
the issuer reasonably expects--
``(A) at least 95 percent of the proceeds from the
sale of the issue are to be spent for 1 or more
qualified purposes with respect to qualified zone
academies within the 5-year period beginning on the
date of issuance of the qualified zone academy bond,
``(B) a binding commitment with a third party to
spend at least 10 percent of the proceeds from the sale
of the issue will be incurred within the 6-month period
beginning on the date of issuance of the qualified zone
academy bond, and
``(C) such purposes will be completed with due
diligence and the proceeds from the sale of the issue
will be spent with due diligence.
``(2) Extension of period.--Upon submission of a request
prior to the expiration of the period described in paragraph
(1)(A), the Secretary may extend such period if the issuer
establishes that the failure to satisfy the 5-year requirement
is due to reasonable cause and the related purposes will
continue to proceed with due diligence.
``(3) Failure to spend required amount of bond proceeds
within 5 years.--To the extent that less than 95 percent of the
proceeds of such issue are expended by the close of the 5-year
period beginning on the date of issuance (or if an extension
has been obtained under paragraph (2), by the close of the
extended period), the issuer shall redeem all of the
nonqualified bonds within 90 days after the end of such period.
For purposes of this paragraph, the amount of the nonqualified
bonds required to be redeemed shall be determined in the same
manner as under section 142.
``(h) Special Rules Relating to Arbitrage.--An issue shall be
treated as meeting the requirements of this subsection if the issuer
satisfies the arbitrage requirements of section 148 with respect to
proceeds of the issue.
``(i) Reporting.--Issuers of qualified academy zone bonds shall
submit reports similar to the reports required under section 149(e).''.
(2) Conforming amendments.--
(A) Section 1397E(d)(3) is amended by inserting
``without regard to the requirements of subsection (f)
and'' after ``Such present value shall be determined''.
(B) Sections 54(l)(3)(B) and 1400N(l)(7)(B)(ii) are
each amended by striking ``section 1397E(i)'' and
inserting ``section 1397E(l)''.
(d) Effective Date.--The amendments made by this section shall
apply to obligations issued after December 31, 2005.
SEC. 111. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER TECHNOLOGY AND
EQUIPMENT.
(a) In General.--Section 170(e)(6)(G) is amended by striking
``2005'' and inserting ``2007''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 112. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY
AND SECONDARY SCHOOL TEACHERS.
(a) In General.--Subparagraph (D) of section 62(a)(2) is amended by
striking ``or 2005'' and inserting ``2005, 2006, or 2007''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 113. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.
(a) Extension.--Subsection (h) of section 198 is amended by
striking ``2005'' and inserting ``2007''.
(b) Expansion.--Section 198(d)(1) (defining hazardous substance) 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) any petroleum product (as defined in section
4612(a)(3)).''.
(c) Effective Date.--The amendments made by this section shall
apply to expenditures paid or incurred after December 31, 2005.
SEC. 114. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.
(a) Designation of Zone.--
(1) In general.--Subsection (f) of section 1400 is amended
by striking ``2005'' both places it appears and inserting
``2006''.
(2) Effective date.--The amendments made by this subsection
shall apply to periods beginning after December 31, 2005.
(b) Tax-Exempt Economic Development Bonds.--
(1) In general.--Subsection (b) of section 1400A is amended
by striking ``2005'' and inserting ``2006''.
(2) Effective date.--The amendment made by this subsection
shall apply to bonds issued after December 31, 2005.
(c) Zero Percent Capital Gains Rate.--
(1) In general.--Subsection (b) of section 1400B is amended
by striking ``2006'' each place it appears and inserting
``2007''.
(2) Conforming amendments.--
(A) Section 1400B(e)(2) is amended--
(i) by striking ``2010'' and inserting
``2011'', and
(ii) by striking ``2010'' in the heading
thereof and inserting ``2011''.
(B) Section 1400B(g)(2) is amended by striking
``2010'' and inserting ``2011''.
(C) Section 1400F(d) is amended by striking
``2010'' and inserting ``2011''.
(3) Effective dates.--
(A) Extension.--The amendments made by paragraph
(1) shall apply to acquisitions after December 31,
2005.
(B) Conforming amendments.--The amendments made by
paragraph (2) shall take effect on the date of the
enactment of this Act.
(d) First-Time Homebuyer Credit.--
(1) In general.--Subsection (i) of section 1400C is amended
by striking ``2006'' and inserting ``2007''.
(2) Effective date.--The amendment made by this subsection
shall apply to property purchased after December 31, 2005.
SEC. 115. INDIAN EMPLOYMENT TAX CREDIT.
(a) In General.--Section 45A(f) is amended by striking ``2005'' and
inserting ``2007''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 116. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN
RESERVATION.
(a) In General.--Section 168(j)(8) is amended by striking ``2005''
and inserting ``2007''.
(b) Effective Date.--The amendment made by this section shall apply
to property placed in service after December 31, 2005.
SEC. 117. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR QUALIFIED
LEASEHOLD IMPROVEMENTS AND QUALIFIED RESTAURANT
IMPROVEMENTS.
(a) In General.--Clauses (iv) and (v) of section 168(e)(3)(E) are
each amended by striking ``2006'' and inserting ``2008''.
(b) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2005.
SEC. 118. EXTENSION OF FULL CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) In General.--Section 30(e) is amended by striking ``2006'' and
inserting ``2007''.
(b) Repeal of Phaseout.--Section 30(b) (relating to limitations) is
amended by striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 119. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.
Each amendment made by this title shall be subject to title IX of
the Economic Growth and Tax Relief Reconciliation Act of 2001 to the
same extent and in the same manner as the provision of such Act to
which such amendment relates.
TITLE II--PROVISIONS RELATING TO CHARITABLE DONATIONS
Subtitle A--Charitable Giving Incentives
SEC. 201. CHARITABLE DEDUCTION FOR NONITEMIZERS.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts) is amended by redesignating subsection (o) as
subsection (p) and by inserting after subsection (n) the following new
subsection:
``(o) Deduction for Individuals Not Itemizing Deductions.--In the
case of an individual who does not itemize deductions for any taxable
year beginning after December 31, 2005, and before January 1, 2008,
there shall be taken into account as a direct charitable deduction
under section 63 an amount equal to the amount allowable under
subsection (a) for the taxable year for cash contributions (determined
without regard to any carryover).''.
(b) Direct Charitable Deduction.--
(1) In general.--Subsection (b) of section 63 (defining
taxable income) is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of paragraph
(2) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(3) the direct charitable deduction.''.
(2) Definition.--Section 63 is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Direct Charitable Deduction.--For purposes of this section,
the term `direct charitable deduction' means that portion of the amount
allowable under section 170(a) which is taken as a direct charitable
deduction for the taxable year under section 170(o).''.
(3) Conforming amendment.--Subsection (d) of section 63 is
amended by striking ``and'' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(3) the direct charitable deduction.''.
(c) Floor on Charitable Contributions by Individuals.--Section
170(a) is amended by adding at the end the following new paragraph:
``(4) Dollar floor on charitable contributions by
individuals.--In the case of an individual, for any taxable
year beginning after December 31, 2005, and before January 1,
2008, the amount otherwise allowed as a deduction under
paragraph (1) shall be allowed only to the extent that such
amount exceeds $210 ($420 in the case of a joint return).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 202. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR
CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 (relating to
individual retirement accounts) is amended by adding at the end the
following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in
gross income by reason of a qualified charitable
distribution.
``(B) Qualified charitable distribution.--For
purposes of this paragraph, the term `qualified
charitable distribution' means any distribution from an
individual retirement plan (other than a plan described
in subsection (k) or (p))--
``(i) which is made directly by the
trustee--
``(I) to an organization described
in section 170(c), or
``(II) to a split-interest entity,
and
``(ii) which is made on or after--
``(I) in the case of any
distribution described in clause
(i)(I), the date that the individual
for whose benefit the plan is
maintained has attained age 70\1/2\,
and
``(II) in the case of any
distribution described in clause
(i)(II), the date that such individual
has attained age 59\1/2\.
A distribution shall be treated as a qualified
charitable distribution only to the extent that the
distribution would be includible in gross income
without regard to subparagraph (A) and, in the case of
a distribution to a split-interest entity, only if no
person holds an income interest in the amounts in the
split-interest entity attributable to such distribution
other than one or more of the following: the individual
for whose benefit such plan is maintained, the spouse
of such individual, or any organization described in
section 170(c).
``(C) Contributions must be otherwise deductible.--
For purposes of this paragraph--
``(i) Direct contributions.--A distribution
to an organization described in section 170(c)
shall be treated as a qualified charitable
distribution only if a deduction for the entire
distribution would be allowable under section
170 (determined without regard to subsections
(a)(4) and (b) thereof and this paragraph).
``(ii) Split-interest gifts.--A
distribution to a split-interest entity shall
be treated as a qualified charitable
distribution only if a deduction for the entire
value of the interest in the distribution for
the use of an organization described in section
170(c) would be allowable under section 170
(determined without regard to subsections
(a)(4) and (b) thereof and this paragraph).
``(D) Application of section 72.--Notwithstanding
section 72, in determining the extent to which a
distribution is a qualified charitable distribution,
the entire amount of the distribution shall be treated
as includible in gross income without regard to
subparagraph (A) to the extent that such amount does
not exceed the aggregate amount which would have been
so includible if all amounts distributed from all
individual retirement plans were treated as 1 contract
under paragraph (2)(A) for purposes of determining the
inclusion of such distribution under section 72. Proper
adjustments shall be made in applying section 72 to
other distributions in such taxable year and subsequent
taxable years.
``(E) Special rules for split-interest entities.--
``(i) Charitable remainder trusts.--
Notwithstanding section 664(b), distributions
made from a trust described in subparagraph
(G)(i) shall be treated as ordinary income in
the hands of the beneficiary to whom is paid
the annuity described in section 664(d)(1)(A)
or the payment described in section
664(d)(2)(A).
``(ii) Pooled income funds.--No amount
shall be includible in the gross income of a
pooled income fund (as defined in subparagraph
(G)(ii)) by reason of a qualified charitable
distribution to such fund, and all
distributions from the fund which are
attributable to qualified charitable
distributions shall be treated as ordinary
income to the beneficiary.
``(iii) Charitable gift annuities.--
Qualified charitable distributions made for a
charitable gift annuity shall not be treated as
an investment in the contract.
``(F) Denial of deduction.--Qualified charitable
distributions shall not be taken into account in
determining the deduction under section 170.
``(G) Split-interest entity defined.--For purposes
of this paragraph, the term `split-interest entity'
means--
``(i) a charitable remainder annuity trust
or a charitable remainder unitrust (as such
terms are defined in section 664(d)) which must
be funded exclusively by qualified charitable
distributions,
``(ii) a pooled income fund (as defined in
section 642(c)(5)), but only if the fund
accounts separately for amounts attributable to
qualified charitable distributions, and
``(iii) a charitable gift annuity (as
defined in section 501(m)(5)).
``(H) Termination.--This paragraph shall not apply
to distributions made in taxable years beginning after
December 31, 2007.''.
(b) Modifications Relating to Information Returns by Certain
Trusts.--
(1) Returns.--Section 6034 (relating to returns by trusts
described in section 4947(a)(2) or claiming charitable
deductions under section 642(c)) is amended to read as follows:
``SEC. 6034. RETURNS BY CERTAIN TRUSTS.
``(a) Split-Interest Trusts.--Every trust described in section
4947(a)(2) shall furnish such information with respect to the taxable
year as the Secretary may by forms or regulations require.
``(b) Trusts Claiming Certain Charitable Deductions.--
``(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a deduction under
section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the Secretary
may by forms or regulations prescribe, including--
``(A) the amount of the deduction taken under
section 642(c) within such year,
``(B) the amount paid out within such year which
represents amounts for which deductions under section
642(c) have been taken in prior years,
``(C) the amount for which such deductions have
been taken in prior years but which has not been paid
out at the beginning of such year,
``(D) the amount paid out of principal in the
current and prior years for the purposes described in
section 642(c),
``(E) the total income of the trust within such
year and the expenses attributable thereto, and
``(F) a balance sheet showing the assets,
liabilities, and net worth of the trust as of the
beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply to a trust
for any taxable year if--
``(A) all the net income for such year, determined
under the applicable principles of the law of trusts,
is required to be distributed currently to the
beneficiaries, or
``(B) the trust is described in section
4947(a)(1).''.
(2) Increase in penalty relating to filing of information
return by split-interest trusts.--Paragraph (2) of section
6652(c) (relating to returns by exempt organizations and by
certain trusts) is amended by adding at the end the following
new subparagraph:
``(C) Split-interest trusts.--In the case of a
trust which is required to file a return under section
6034(a), subparagraphs (A) and (B) of this paragraph
shall not apply and paragraph (1) shall apply in the
same manner as if such return were required under
section 6033, except that--
``(i) the 5 percent limitation in the
second sentence of paragraph (1)(A) shall not
apply,
``(ii) in the case of any trust with gross
income in excess of $250,000, the first
sentence of paragraph (1)(A) shall be applied
by substituting `$100' for `$20', and the
second sentence thereof shall be applied by
substituting `$50,000' for `$10,000', and
``(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person required
to file such return knowingly fails to file the return,
such penalty shall also be imposed on such person who
shall be personally liable for such penalty.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 (relating to inspection of
annual information returns) is amended by adding at the end the
following new sentence: ``In the case of a trust which is
required to file a return under section 6034(a), this
subsection shall not apply to information regarding
beneficiaries which are not organizations described in section
170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to distributions made in taxable years beginning
after December 31, 2005.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to returns for taxable years beginning after
December 31, 2005.
SEC. 203. MODIFICATION OF CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF
FOOD INVENTORY.
(a) In General.--Subparagraph (C) of section 170(e)(3) (relating to
special rule for certain contributions of inventory and other property)
is amended to read as follows:
``(C) Special rule for contributions of food
inventory.--
``(i) General rule.--In the case of a
charitable contribution of food from any trade
or business of the taxpayer, this paragraph
shall be applied--
``(I) without regard to whether the
contribution is made by a C
corporation, and
``(II) only to food that is
apparently wholesome food.
``(ii) Limitation.--In the case of a
taxpayer other than a C corporation, the
aggregate amount of such contributions for any
taxable year which may be taken into account
under this section shall not exceed 10 percent
of the taxpayer's aggregate net income for such
taxable year from all trades or businesses from
which such contributions were made for such
year, computed without regard to this section.
``(iii) Limitation on reduction.--In the
case of any such contribution, notwithstanding
subparagraph (B), the amount of the reduction
determined under paragraph (1)(A) shall not
exceed the amount by which the fair market
value of the apparently wholesome food exceeds
twice the basis of such food.
``(iv) Determination of basis.--If a
taxpayer--
``(I) does not account for
inventories under section 471, and
``(II) is not required to
capitalize indirect costs under section
263A,
the taxpayer may elect, solely for purposes of
subparagraph (B), to treat the basis of any
apparently wholesome food as being equal to 25
percent of the fair market value of such food.
``(v) Determination of fair market value.--
In the case of any such contribution of
apparently wholesome food which, solely by
reason of internal standards of the taxpayer or
lack of market, cannot or will not be sold, the
fair market value of such contribution shall be
determined--
``(I) without regard to such
internal standards or such lack of
market and
``(II) by taking into account the
price at which the same or
substantially the same food items (as
to both type and quality) are sold by
the taxpayer at the time of the
contribution (or, if not so sold at
such time, in the recent past).
``(vi) Apparently wholesome food.--For
purposes of this subparagraph, the term
`apparently wholesome food' has the meaning
given to such term by section 22(b)(2) of the
Bill Emerson Good Samaritan Food Donation Act
(42 U.S.C. 1791(b)(2)), as in effect on the
date of the enactment of this subparagraph.
``(vii) Termination.--This subparagraph
shall not apply to contributions made after
December 31, 2007.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after December 31, 2005.
SEC. 204. BASIS ADJUSTMENT TO STOCK OF S CORPORATION CONTRIBUTING
PROPERTY.
(a) In General.--Paragraph (2) of section 1367(a) (relating to
adjustments to basis of stock of shareholders, etc.) is amended by
adding at the end the following new flush sentence:
``The decrease under subparagraph (B) by reason of a charitable
contribution (as defined in section 170(c)) of property shall
be the amount equal to the shareholder's pro rata share of the
adjusted basis of such property. The preceding sentence shall
not apply to contributions made in taxable years beginning
after December 31, 2007.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made in taxable years beginning after December 31,
2005.
SEC. 205. MODIFICATION OF CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF
BOOK INVENTORY.
(a) In General.--Subparagraph (D) of section 170(e)(3) (relating to
special rule for certain contributions of inventory and other property)
is amended to read as follows:
``(D) Special rule for contributions of book
inventory for educational purposes.--
``(i) Contributions of book inventory.--In
determining whether a qualified book
contribution is a qualified contribution,
subparagraph (A) shall be applied without
regard to whether--
``(I) the donee is an organization
described in the matter preceding
clause (i) of subparagraph (A), and
``(II) the property is to be used
by the donee solely for the care of the
ill, the needy, or infants.
``(ii) Amount of reduction.--
Notwithstanding subparagraph (B), the amount of
the reduction determined under paragraph (1)(A)
shall not exceed the amount by which the fair
market value of the contributed property (as
determined by the taxpayer using a bona fide
published market price for such book) exceeds
twice the basis of such property.
``(iii) Qualified book contribution.--For
purposes of this paragraph, the term `qualified
book contribution' means a charitable
contribution of books, but only if the
requirements of clauses (iv) and (v) are met.
``(iv) Identity of donee.--The requirement
of this clause is met if the contribution is to
an organization--
``(I) described in subclause (I) or
(III) of paragraph (6)(B)(i), or
``(II) described in section
501(c)(3) and exempt from tax under
section 501(a) (other than a private
foundation, as defined in section
509(a), which is not an operating
foundation, as defined in section
4942(j)(3)), which is organized
primarily to make books available to
the general public at no cost or to
operate a literacy program.
``(v) Certification by donee.--The
requirement of this clause is met if, in
addition to the certifications required by
subparagraph (A) (as modified by this
subparagraph), the donee certifies in writing
that--
``(I) the books are suitable, in
terms of currency, content, and
quantity, for use in the donee's
educational programs, and
``(II) the donee will use the books
in its educational programs.
``(vi) Bona fide published market price.--
For purposes of this subparagraph, the term
`bona fide published market price' means, with
respect to any book, a price--
``(I) determined using the same
printing and edition,
``(II) determined in the usual
market in which such a book has been
customarily sold by the taxpayer, and
``(III) for which the taxpayer can
demonstrate to the satisfaction of the
Secretary that the taxpayer customarily
sold such books in arm's length
transactions within 7 years preceding
the contribution of such a book.
``(vii) Termination.--This subparagraph
shall not apply to contributions made after
December 31, 2007.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after December 31, 2005.
SEC. 206. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS TO
CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC DISCLOSURE OF
INFORMATION RELATING TO UNRELATED BUSINESS INCOME.
(a) Modification of Section 512(b)(13).--
(1) In general.--Paragraph (13) of section 512(b) (relating
to special rules for certain amounts received from controlled
entities) is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following new subparagraph:
``(E) Paragraph to apply only to excess payments.--
``(i) In general.--Subparagraph (A) shall
apply only to the portion of a specified
payment received or accrued by the controlling
organization that exceeds the amount which
would have been paid or accrued if such payment
met the requirements prescribed under section
482.
``(ii) Addition to tax for valuation
misstatements.--The tax imposed by this chapter
on the controlling organization shall be
increased by an amount equal to 20 percent of
the larger of--
``(I) such excess determined
without regard to any amendment or
supplement to a return of tax, or
``(II) such excess determined with
regard to all such amendments and
supplements.''.
(2) Effective date.--
(A) In general.--The amendment made by this
subsection shall apply to payments received or accrued
after December 31, 2000.
(B) Payments subject to binding contract transition
rule.--If the amendments made by section 1041 of the
Taxpayer Relief Act of 1997 did not apply to any amount
received or accrued in the first 2 taxable years
beginning on or after the date of the enactment of the
Taxpayer Relief Act of 1997 under any contract
described in subsection (b)(2) of such section, such
amendments also shall not apply to amounts received or
accrued under such contract before January 1, 2001.
(b) Public Availability of Unrelated Business Income Tax Returns.--
(1) In general.--Subparagraph (A) of section 6104(d)(1) is
amended by redesignating clauses (ii) and (iii) as clauses
(iii) and (iv), respectively, and by inserting after clause (i)
the following new clause:
``(ii) any annual return filed under
section 6011 which relates to any tax imposed
by section 511 (relating to imposition of tax
on unrelated business income of charitable,
etc., organizations) by such organization, but
only if such organization is described in
section 501(c)(3),''.
(2) Effective date.--The amendments made by this subsection
shall apply to returns filed after the date of the enactment of
this Act.
(c) Certification of Unrelated Business Taxable Income for Certain
Organizations.--
(1) In general.--Section 6011 is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Returns of Certain Organizations Relating to Unrelated
Business Taxable Income.--
``(1) In general.--Every applicable exempt organization
shall include with the return under subsection (a) for the
taxable year a statement by an independent auditor or an
independent counsel which meets the requirements of paragraph
(2).
``(2) Statement.--A statement meets the requirement of this
paragraph if the statement--
``(A) contains a certification that--
``(i) the information contained in the
return--
``(I) has been reviewed by the
auditor or counsel, and
``(II) to the best of the auditor's
or counsel's knowledge, is accurate,
and
``(ii) to the best of the auditor's or
counsel's knowledge, the allocation of expenses
between the unrelated trades and business of
the organization and the activities related to
the purpose or function constituting the basis
of the organization's exemption under section
501 complies with the requirements set forth by
the Secretary under section 512, and
``(B) indicates--
``(i) whether the auditor or counsel has
provided a tax opinion to the organization
regarding--
``(I) the classification of any
trade or business of the organization
as an unrelated trade or business, or
``(II) the treatment of any income
as unrelated business taxable income,
and
``(ii) a description of any material facts
with respect to any such opinion.
``(3) Applicable exempt organization.--For purposes of this
subsection, the term `applicable exempt organization' means any
organization which--
``(A) is described in section 501(c)(3),
``(B) has--
``(i) gross income and receipts of not less
than $10,000,000 for the taxable year, or
``(ii) gross assets of not less than
$10,000,000 on the last day of the taxable
year, and
``(C) is subject to the tax imposed under section
511 for the taxable year.''.
(2) Penalty.--
(A) In general.--Part I of subchapter B of chapter
68 (relating to assessable penalties) is amended by
adding at the end the following new section:
``SEC. 6720B. UNRELATED BUSINESS INCOME REQUIREMENTS.
``(a) In General.--Any applicable exempt organization (as defined
in section 6011(g)(3)) which fails to file a statement required under
section 6011(g) shall pay a penalty in an amount equal to \1/2\ percent
of the gross revenue amount of such organization for the taxable year
to which such statement relates.
``(b) Gross Revenue Amount.--For purposes of subsection (a), the
term `gross revenue amount' means, with respect to any taxable year,
the gross income and receipts of the organization determined without
regard to any contributions or grants received by the organization.
``(c) Reasonable Cause.--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 amendment.--The table of sections of
part I of subchapter B of chapter 68 is amended by
adding after the item relating to section 6720A the
following new item:
``Sec. 6720B. Unrelated business income requirements.''.
(3) Effective date.--The amendments made by this subsection
shall apply to returns for taxable years beginning after the
date of the enactment of this Act.
SEC. 207. ENCOURAGEMENT OF CONTRIBUTIONS OF CAPITAL GAIN REAL PROPERTY
MADE FOR CONSERVATION PURPOSES.
(a) In General.--
(1) Individuals.--Paragraph (1) of subsection 170(b)
(relating to percentage limitations) is amended by
redesignating subparagraphs (E) and (F) as subparagraphs (F)
and (G), respectively, and by inserting after subparagraph (D)
the following new subparagraph:
``(E) Contributions of qualified conservation
contributions.--
``(i) In general.--Any qualified
conservation contribution (as defined in
subsection (h)(1)) to an organization described
in subparagraph (A) shall be allowed to the
extent the aggregate of such contributions does
not exceed the excess of 50 percent of the
taxpayer's contribution base over the amount of
all other charitable contributions allowable
under this paragraph.
``(ii) Carryover.--If the aggregate amount
of contributions described in clause (i)
exceeds the limitation of clause (i), such
excess shall be treated (in a manner consistent
with the rules of subsection (d)(1)) as a
charitable contribution to which clause (i)
applies in each of the 15 succeeding years in
order of time.
``(iii) Coordination with other
subparagraphs.--For purposes of applying this
subsection and subsection (d)(1), contributions
described in clause (i) shall not be treated as
described in subparagraph (A), (B), (C), or (D)
and such subparagraphs shall apply without
regard to such contributions.
``(iv) Qualified farmer or rancher.--
``(I) In general.--If the
individual is a qualified farmer or
rancher for the taxable year in which
the contribution is made, clause (i)
shall be applied by substituting `100
percent' for `50 percent'.
``(II) Definition.--For purposes of
subclause (I), the term `qualified
farmer or rancher' means a taxpayer
whose gross income from the trade or
business of farming (within the meaning
of section 2032A(e)(5)) is greater than
50 percent of the taxpayer's gross
income for the taxable year.
``(v) Termination.--This subparagraph shall
not apply to any contribution made in taxable
years beginning after December 31, 2007.''.
(2) Corporations.--Paragraph (2) of section 170(b) is
amended to read as follows:
``(2) Corporations.--In the case of a corporation--
``(A) In general.--The total deductions under
subsection (a) for any taxable year (other than for
contributions to which subparagraph (B) applies) shall
not exceed 10 percent of the taxpayer's taxable income.
``(B) Qualified conservation contributions by
certain corporate farmers and ranchers.--
``(i) In general.--Any qualified
conservation contribution (as defined in
subsection (h)(1)) made--
``(I) by a corporation which, for
the taxable year during which the
contribution is made, is a qualified
farmer or rancher (as defined in
paragraph (1)(E)(iv)(II)) and the stock
of which is not readily tradable on an
established securities market at any
time during such year, and
``(II) to an organization described
in paragraph (1)(A),
shall be allowed to the extent the aggregate of
such contributions does not exceed the excess
of the taxpayer's taxable income over the
amount of charitable contributions allowable
under subparagraph (A).
``(ii) Carryover.--If the aggregate amount
of contributions described in clause (i)
exceeds the limitation of clause (i), such
excess shall be treated (in a manner consistent
with the rules of subsection (d)(2)) as a
charitable contribution to which clause (i)
applies in each of the 15 succeeding years in
order of time.
``(iii) Termination.--This subparagraph
shall not apply to any contribution made in
taxable years beginning after December 31,
2007.
``(C) Taxable income.--For purposes of this
paragraph, taxable income shall be computed without
regard to--
``(i) this section,
``(ii) part VIII (except section 248),
``(iii) any net operating loss carrryback
to the taxable year under section 172,
``(iv) section 199, and
``(v) any capital loss carryback to the
taxable year under section 1212(a)(1).''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 170(d) is amended by striking
``subsection (b)(2)'' each place it appears and inserting
``subsection (b)(2)(A)''.
(2) Section 545(b)(2) is amended by striking ``and (D)''
and inserting ``(D), and (E)''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 2005.
SEC. 208. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF LITERARY,
MUSICAL, ARTISTIC, AND SCHOLARLY COMPOSITIONS.
(a) In General.--Subsection (e) of section 170 (relating to certain
contributions of ordinary income and capital gain property) is amended
by adding at the end the following new paragraph:
``(7) Special rule for certain contributions of literary,
musical, artistic, or scholarly compositions.--
``(A) In general.--In the case of a qualified
artistic charitable contribution--
``(i) the amount of such contribution taken
into account under this section shall be the
fair market value of the property contributed
(determined at the time of such contribution),
and
``(ii) no reduction in the amount of such
contribution shall be made under paragraph (1).
``(B) Qualified artistic charitable contribution.--
For purposes of this paragraph, the term `qualified
artistic charitable contribution' means a charitable
contribution of any literary, musical, artistic, or
scholarly composition, or similar property, or the
copyright thereon (or both), but only if--
``(i) such property was created by the
personal efforts of the taxpayer making such
contribution no less than 18 months prior to
such contribution,
``(ii) the taxpayer--
``(I) has received a qualified
appraisal of the fair market value of
such property in accordance with the
regulations under this section, and
``(II) attaches to the taxpayer's
income tax return for the taxable year
in which such contribution was made a
copy of such appraisal,
``(iii) the donee is an organization
described in subsection (b)(1)(A),
``(iv) the use of such property by the
donee is related to the purpose or function
constituting the basis for the donee's
exemption under section 501 (or, in the case of
a governmental unit, to any purpose or function
described under section 501(c)),
``(v) the taxpayer receives from the donee
a written statement representing that the
donee's use of the property will be in
accordance with the provisions of clause (iv),
and
``(vi) the written appraisal referred to in
clause (ii) includes evidence of the extent (if
any) to which property created by the personal
efforts of the taxpayer and of the same type as
the donated property is or has been--
``(I) owned, maintained, and
displayed by organizations described in
subsection (b)(1)(A), and
``(II) sold to or exchanged by
persons other than the taxpayer, donee,
or any related person (as defined in
section 465(b)(3)(C)).
``(C) Maximum dollar limitation; no carryover of
increased deduction.--
``(i) In general.--Subsections (b) and (d)
shall not apply to the amount by which any
charitable contribution is increased by reason
of this paragraph and such increased
contribution shall not be taken into account
for purposes of applying subparagraphs (A)
through (D) of subsection (b)(1) and subsection
(d).
``(ii) Contribution base limitation.--The
increased contributions shall be allowed to the
extent the aggregate of such contributions do
not exceed the excess of 50 percent of the
contribution base (as defined in subparagraph
(F) of subsection (b)(1)) over the amount of
all other charitable contributions allowable
under subparagraphs (A) through (D) of
subsection (b)(1).
``(iii) Artistic adjusted gross income.--
The aggregate increase in the charitable
contributions by reason of this paragraph for
any taxable year shall not exceed the artistic
adjusted gross income of the taxpayer for such
taxable year.
``(D) Artistic adjusted gross income.--For purposes
of this paragraph, the term `artistic adjusted gross
income' means that portion of the adjusted gross income
of the taxpayer for the taxable year attributable to--
``(i) income from the sale or use of
property created by the personal efforts of the
taxpayer which is of the same type as the
donated property, and
``(ii) income from teaching, lecturing,
performing, or similar activity with respect to
property described in clause (i).
``(E) Paragraph not to apply to certain
contributions.--Subparagraph (A) shall not apply to any
charitable contribution of any letter, memorandum, or
similar property which was written, prepared, or
produced by or for an individual while the individual
is an officer or employee of any person (including any
government agency or instrumentality) unless such
letter, memorandum, or similar property is entirely
personal.
``(F) Copyright treated as separate property for
partial interest rule.--In the case of a qualified
artistic charitable contribution, the tangible
literary, musical, artistic, or scholarly composition,
or similar property and the copyright on such work
shall be treated as separate properties for purposes of
this paragraph and subsection (f)(3).
``(G) Termination.--This paragraph shall not apply
to contributions made after December 31, 2007.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after December 31, 2005.
SEC. 209. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS EXCLUDED FROM
GROSS INCOME.
(a) In General.--Part III of subchapter B of chapter 1 is amended
by inserting after section 139A the following new section:
``SEC. 139B. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.
``(a) In General.--Gross income of an individual does not include
amounts received, from an organization described in section 170(c), as
reimbursement of operating expenses with respect to use of a passenger
automobile for the benefit of such organization. The preceding sentence
shall apply only to the extent that the expenses which are reimbursed
would be deductible under this chapter if section 274(d) were applied--
``(1) by using the standard business mileage rate
established under such section, and
``(2) as if the individual were an employee of an
organization not described in section 170(c).
``(b) Application to Volunteer Services Only.--Subsection (a) shall
not apply with respect to any expenses relating to the performance of
services for compensation.
``(c) No Double Benefit.--A taxpayer may not claim a deduction or
credit under any other provision of this title with respect to the
expenses under subsection (a).
``(d) Exemption From Reporting Requirements.--Section 6041 shall
not apply with respect to reimbursements excluded from income under
subsection (a).
``(e) Termination.--This section shall not apply to taxable years
beginning after December 31, 2007.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 139A the following new item:
``Sec. 139B. Mileage reimbursements to charitable volunteers.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 210. ALTERNATIVE PERCENTAGE LIMITATION FOR CORPORATE CHARITABLE
CONTRIBUTIONS TO THE MATHEMATICS AND SCIENCE PARTNERSHIP
PROGRAM.
(a) In General.--Section 170(b) (related to percentage limitations)
is amended by adding at the end the following new paragraph:
``(3) Special rule for corporate contributions to the
mathematics and science partnership program.--
``(A) In general.--In the case of a corporation
which makes an eligible mathematics and science
contribution--
``(i) the limitation under paragraph (2)
shall apply separately with respect to all such
contributions and all other charitable
contributions, and
``(ii) paragraph (2)(A) shall be applied by
substituting for `10 percent of the taxpayer's
taxable income' the following: `the sum of (i)
the lesser of all eligible mathematics and
science contributions or 15 percent of the
taxpayer's taxable income, plus (ii) the lesser
of the contributions (other than eligible
mathematics and science contributions and
contributions to which subparagraph (B)
applies) or 10 percent of the taxpayer's
taxable income reduced by all eligible
mathematics and science contributions'.
``(B) Eligible mathematics and science
contribution.--
``(i) In general.--For purposes of this
paragraph, the term `eligible mathematics and
science contribution' means a charitable
contribution (other than a contribution of used
equipment) to a qualified partnership for the
purpose of an activity described in section
2202(c) of the Elementary and Secondary
Education Act of 1965.
``(ii) Qualified partnership.--The term
`qualified partnership' means an eligible
partnership (within the meaning of section
2201(b)(1) of the Elementary and Secondary
Education Act of 1965), but only to the extent
that such partnership does not include a person
other than a person described in paragraph
(1)(A).
``(C) Termination.--This paragraph shall not apply
to any contributions made in taxable years beginning
after December 31, 2006.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made in taxable years beginning after December 31,
2005.
Subtitle B--Reforming Charitable Organizations
PART I--GENERAL REFORMS
SEC. 211. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX SHELTER
TRANSACTIONS.
(a) Imposition of Excise Tax.--
(1) In general.--Chapter 42 (relating to private
foundations and certain other tax-exempt organizations) is
amended by adding at the end the following new subchapter:
``Subchapter F--Tax Shelter Transactions
``Sec. 4965. Excise tax on certain tax-exempt entities entering into
prohibited tax shelter transactions.
``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING INTO
PROHIBITED TAX SHELTER TRANSACTIONS.
``(a) Participation in and Approval of Prohibited Transactions.--
``(1) Tax-exempt entity.--
``(A) In general.--If any tax-exempt entity (other
than a tax-exempt entity described in paragraph (4),
(5), (6), or (7) of subsection (c)) is a party to a
prohibited tax shelter transaction at any time during
the taxable year and knows or has reason to know such
transaction is a prohibited tax shelter transaction,
such entity shall pay a tax for such taxable year in
the amount determined under subsection (b)(1)(A).
``(B) Post-transaction determination.--If any tax-
exempt entity (other than a tax-exempt entity described
in paragraph (4), (5), (6), or (7) of subsection (c))
is a party to a subsequently listed transaction at any
time during the taxable year, such entity shall pay a
tax in the amount determined under subsection
(b)(1)(B).
``(2) Entity manager.--If any entity manager of a tax-
exempt entity approves such entity as (or otherwise causes such
entity to be) a party to a prohibited tax shelter transaction
at any time during the taxable year and knows or has reason to
know that the transaction is a prohibited tax shelter
transaction, such manager shall pay a tax for such taxable year
in the amount determined under subsection (b)(2).
``(3) Reasonable cause exception.--No tax shall be imposed
under paragraph (1)(A) or (2) if it is shown that the
participation of the tax-exempt entity in the transaction was
not willful and was due to reasonable cause.
``(b) Amount of Tax.--
``(1) Entity.--In the case of a tax-exempt entity--
``(A) In general.--The amount of the tax imposed
under subsection (a)(1)(A) on the entity with respect
to a taxable year shall be the greater of--
``(i) 100 percent of the entity's net
income (after taking into account any tax
imposed by this subtitle with respect to the
prohibited tax shelter transaction) for such
taxable year which is attributable to the
prohibited tax shelter transaction, or
``(ii) 75 percent of the proceeds received
by the entity which are attributable to the
prohibited tax shelter transaction.
``(B) Post-transaction determination.--The amount
of the tax imposed under subsection (a)(1)(B) on the
entity with respect to any taxable year shall be an
amount equal to the product of--
``(i) the highest rate of tax under section
11, and
``(ii) the greater of--
``(I) the entity's net income
(after taking into account any tax
imposed by this subtitle with respect
to the subsequently listed transaction)
for such taxable year which is
attributable to the subsequently listed
transaction and which is properly
allocable to the period beginning on
the later of the date such transaction
is identified by guidance as a listed
transaction by the Secretary or the
first day of the taxable year, or
``(II) 75 percent of the proceeds
received by the entity which are
attributable to the subsequently listed
transaction and which are properly
allocable to the period beginning on
the later of the date such transaction
is identified by guidance as a listed
transaction by the Secretary or the
first day of the taxable year.
``(2) Entity manager.--In the case of each entity manager
to whom subsection (a)(2) applies, the amount of the tax under
such subsection shall be $20,000 for each approval.
``(c) Tax-Exempt Entity.--For purposes of this section, the term
`tax-exempt entity' means an entity which is--
``(1) described in section 501(c) or 501(d),
``(2) described in section 170(c) (other than an agency or
instrumentality of the United States) to which paragraph (1) of
this subsection does not apply,
``(3) an Indian tribal government (within the meaning of
section 7701(a)(40)),
``(4) described in paragraph (1), (2), or (3) of section
4979(e),
``(5) a program described in section 529,
``(6) an eligible deferred compensation plan described in
section 457(b) which is maintained by an employer described in
section 4457(e)(1)(A), or
``(7) an arrangement described in section 4973(a).
``(d) Entity Manager.--For purposes of this section, the term
`entity manager' means--
``(1) with respect to a tax-exempt entity described in
paragraph (3) or (4) of section 501(c)--
``(A) in the case of an entity other than a private
foundation, an organization manager (as defined in
section 4958(f)(2)), and
``(B) in the case of a private foundation, a
foundation manager (as defined in section 4946(b)), and
``(2) in all other cases, the person with authority or
responsibility similar to that exercised by an officer,
director, or trustee of an organization.
``(e) Prohibited Tax Shelter Transaction; Subsequently Listed
Transaction.--For purposes of this section--
``(1) Prohibited tax shelter transaction.--
``(A) In general.--The term `prohibited tax shelter
transaction' means--
``(i) any listed transaction, or
``(ii) any prohibited reportable
transaction if the tax-exempt entity knows or
has reason to know that such transaction is a
reportable transaction.
``(B) Listed transaction.--The term `listed
transaction' has the meaning given such term by section
6707A(c)(2).
``(C) Prohibited reportable transaction.--The term
`prohibited reportable transaction' means any
confidential transaction or any transaction with
contractual protection (as defined under regulations
prescribed by the Secretary) which is a reportable
transaction (as defined in section 6707A(c)(1)).
``(2) Subsequently listed transaction.--The term
`subsequently listed transaction' means any transaction to
which a tax-exempt entity is a party and which is determined by
the Secretary to be a listed transaction at any time after the
entity has entered into the transaction.
``(f) Regulatory Authority.--The Secretary is authorized to
promulgate regulations which provide guidance regarding the
determination of the allocation of net income of a tax-exempt entity
attributable to a transaction to various periods, including before and
after the listing of the transaction or the date which is 90 days after
the date of the enactment of this section.
``(g) Coordination With Other Taxes and Penalties.--The tax imposed
by this section is in addition to any other tax, addition to tax, or
penalty imposed under this title.''.
(2) Conforming amendment.--The table of subchapters for
chapter 42 is amended by adding at the end the following new
item:
``subchapter f. tax shelter transactions.''.
(b) Disclosure Requirements.--
(1) Disclosure by organization to the internal revenue
service.--
(A) In general.--Section 6033(a) (relating to
organizations required to file) is amended by
redesignating paragraph (2) as paragraph (3), and by
inserting after paragraph (1) the following new
paragraph:
``(2) Participation in certain reportable transactions.--
Every tax-exempt entity described in section 4965(c) shall file
(in such form and manner and at such time as determined by the
Secretary) a disclosure of--
``(A) such entity's participation in any prohibited
tax shelter transaction (as defined in section
4965(e)), and
``(B) the identity of any other party participating
in such transaction which is known by such tax-exempt
entity.''.
(B) Conforming amendment.--Section 6033(a)(1) is
amended by striking ``paragraph (2)'' and inserting
``paragraph (3)''.
(2) Disclosure by other taxpayers to the tax-exempt
entity.--Section 6011 (relating to general requirement of
return, statement, or list), as amended by this Act, is amended
by redesignating subsection (h) as subsection (i) and by
inserting after subsection (g) the following new subsection:
``(h) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined
in section 4965(e)(1)) shall by statement disclose to any tax-exempt
entity (as defined in section 4965(c)) which is a party to such
transaction that such transaction is such a prohibited tax shelter
transaction.''.
(c) Penalty for Nondisclosure.--
(1) In general.--Section 6652(c) (relating to returns by
exempt organizations and by certain trusts), as amended by this
Act, is amended by redesignating paragraphs (2), (3), and (4)
as paragraphs (3), (4), and (5), respectively, and by inserting
after paragraph (1) the following new paragraph:
``(2) Disclosure under section 6033.--
``(A) Penalty on organizations.--In the case of a
failure to file a disclosure required under section
6033(a)(2), there shall be paid by the tax-exempt
entity (the entity manager in the case of a tax-exempt
entity described in paragraph (4), (5), (6), or (7) of
section 4965(c)) $100 for each day during which such
failure continues. The maximum penalty under this
subparagraph on failures with respect to any 1
disclosure shall not exceed $50,000.
``(B) Persons.--
``(i) In general.--The Secretary may make a
written demand on any tax-exempt entity subject
to penalty under subparagraph (A) specifying
therein a reasonable future date by which the
disclosure shall be filed for purposes of this
subparagraph.
``(ii) Failure to comply with demand.--If
any person fails to comply with any demand
under clause (i) on or before the date
specified in such demand, there shall be paid
by such person failing to so comply $100 for
each day after the expiration of the time
specified in such demand during which such
failure continues. The maximum penalty imposed
under this subparagraph on all tax-exempt
entities for failures with respect to any 1
disclosure shall not exceed $10,000.
``(C) Definitions.--Any term used in this section
which is also used in section 4965 shall have the
meaning given such term under section 4965.''.
(2) Conforming amendment.--Subparagraph (A) of section
6652(c)(1) of such Code is amended by striking ``6033'' each
place it appears in the text and heading thereof and inserting
``6033(a)(1)''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transactions
after the date of the enactment of this Act, except that no tax
under section 4965(a) of the Internal Revenue Code of 1986 (as
added by this section) shall apply with respect to income that
is properly allocable to any period on or before the date which
is 90 days after such date of enactment.
(2) Disclosure.--The amendments made by subsections (b) and
(c) shall apply to disclosures the due date for which are after
the date of the enactment of this Act.
SEC. 212. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN INSURANCE
CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN
INTEREST.
(a) Imposition of Tax.--
(1) In general.--Subchapter F of chapter 42 (relating to
tax shelter transactions), as added by this Act, is amended by
adding at the end the following new section:
``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN INSURANCE
CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN
INTEREST.
``(a) Imposition of Tax.--If there is a taxable acquisition of any
interest in an applicable insurance contract, there is hereby imposed
on the person acquiring the interest a tax equal to 100 percent of the
acquisition costs of the interest.
``(b) Taxable Acquisition.--For purposes of this section--
``(1) In general.--The term `taxable acquisition' means the
acquisition of any direct or indirect interest in an applicable
insurance contract by--
``(A) an applicable exempt organization, or
``(B) a person other than an applicable exempt
organization if such interest in the hands of such
person is not an interest described in clause (i),
(ii), (iii), or (iv) of paragraph (2)(B).
``(2) Applicable insurance contract.--
``(A) In general.--The term `applicable insurance
contract' means any life insurance, annuity, or
endowment contract with respect to which both an
applicable exempt organization and a person other than
an applicable exempt organization have directly or
indirectly held an interest in the contract (whether or
not at the same time).
``(B) Exceptions.--Such term shall not include a
life insurance, annuity, or endowment contract if--
``(i) all persons directly or indirectly
holding any interest in the contract (other
than applicable exempt organizations) have an
insurable interest in the insured under the
contract independent of any interest of an
applicable exempt organization in the contract,
``(ii) the sole interest in the contract of
each person other than an applicable exempt
organization is as a named beneficiary,
``(iii) the sole interest in the contract
of each person other than an applicable exempt
organization is--
``(I) as a beneficiary of a trust
holding an interest in the contract,
but only if the person's designation as
such beneficiary was made without
consideration and solely on a purely
gratuitous basis, or
``(II) as a trustee who holds an
interest in the contract in a fiduciary
capacity solely for the benefit of
applicable exempt organizations or
persons otherwise described in clauses
(i), (ii), and (iv) or subclause (I) of
this clause, or
``(iv) except as provided in subparagraph
(C), the sole interest in the contract of each
person other than an applicable exempt
organization is as a lender with respect to the
contract and the contract covers only 1
individual and such individual is an officer,
director, or employee of the applicable exempt
organization with an interest in the contract.
``(C) Restrictions on exception for lenders.--
``(i) Numerical limit.--The number of
contracts that may be taken into account under
subparagraph (B)(iv) with respect to officers,
directors, or employees of the applicable
exempt organization with interests in the
contracts shall not exceed the greater of--
``(I) the lesser of 5 percent of
the total officers, directors, and
employees of the organization or 20, or
``(II) 5.
``(ii) Aggregate indebtedness.--The
exception under subparagraph (B)(iv) shall
apply only to the extent that the aggregate
amount of the indebtedness with respect to 1 or
more contracts covering a single individual
does not exceed $50,000.
``(D) Secretarial authority.--The Secretary may
exempt a contract from treatment as an applicable
insurance contract based on specific factors, including
factors such as whether the transaction is at arms
length, whether economic benefits to the applicable
exempt organization substantially exceed the economic
benefits to all other persons with an interest in the
contract (determined without regard to whether, or the
extent to which, such organization has paid or
contributed with respect to the contract), and the
likelihood of abuse.
``(3) Definition and rule relating to acquisition costs.--
``(A) Acquisition costs defined.--The term
`acquisition costs' means the direct or indirect costs
of acquiring an interest in an applicable insurance
contract. Such term shall include any fees,
commissions, charges, or other amounts paid in
connection with the acquisition, whether or not paid to
the issuer of the contract.
``(B) Timing of payments.--Except as provided in
regulations, if acquisition costs of any acquisition
are paid or incurred in more than 1 calendar year, the
tax imposed by subsection (a) with respect to the
acquisition shall be imposed each time the costs are so
paid or incurred.
``(4) Rules relating to interests.--
``(A) In general.--An interest in the contract
includes any right with respect to the contract,
whether as an owner, beneficiary, or otherwise.
``(B) Indirect interests.--
``(i) In general.--Except as provided in
clause (ii), an indirect interest in a contract
includes an interest in an entity which
directly or indirectly holds an interest in the
contract.
``(ii) Portfolio investments.--If an
applicable exempt organization holds an
interest in a contract solely because the
organization holds, as part of a diversified
investment strategy, a de minimis interest in
an entity which directly or indirectly holds
the interest in the contract, such indirect
interest in the contract shall not be taken
into account for purposes of this section.
``(C) Exchanged contracts.--In the case of an
exchange of an applicable insurance contract on which
no gain or loss is recognized under section 1035, any
interest in any of the contracts involved in the
exchange shall be treated as an interest in all such
contracts.
``(5) Increase in interest.--If a person increases an
interest in an applicable insurance contract, the increase
shall be treated as a separate acquisition for purposes of this
section.
``(6) Prior acquisitions.--Except as provided in
regulations, if a person acquires an interest in a contract
before the contract is treated as an applicable insurance
contract, the acquisition shall be treated as a taxable
acquisition of an interest in an applicable insurance contract
as of the date the contract becomes an applicable insurance
contract.
``(c) Applicable Exempt Organization.--For purposes of this
section, the term `applicable exempt organization' means--
``(1) an organization described in section 170(c),
``(2) an organization described in section
168(h)(2)(A)(iv), or
``(3) an organization not described in paragraph (1) or (2)
which is described in section 2055(a) or section 2522(a).
``(d) Tax Not Treated as Investment in the Contract.--For purposes
of section 72, the tax imposed by this section shall not be included in
investment in the contract.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section. Such
regulations may include regulations which--
``(1) provide, for purposes of subsection (b)(6),
appropriate rules for the application of this section in any
case where an interest is acquired before a contract becomes an
applicable insurance contract,
``(2) prevent, in cases the Secretary determines
appropriate, the imposition of more than one tax under this
section if the same interest is acquired more than once, and
``(3) are designed to prevent avoidance of the purposes of
this section, including through the use of intermediaries.''.
(2) Conforming amendment.--The table of sections for
subchapter F of chapter 42, as added by this Act, is amended by
adding at the end the following new item:
``Sec. 4966. Excise tax on acquisition of interests in insurance
contracts in which certain exempt
organizations hold an interest.''.
(b) Reporting Requirements.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61 (relating to information concerning transactions
with other persons) is amended by adding at the end the
following new section:
``SEC. 6050U. RETURNS RELATING TO APPLICABLE INSURANCE CONTRACTS IN
WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD INTERESTS.
``(a) Requirements of Reporting.--
``(1) Exempt organizations.--Each--
``(A) applicable exempt organization which acquires
(within the meaning of section 4966) an interest in any
applicable insurance contract, and
``(B) other person which makes an acquisition of
such an interest if such acquisition is taxable under
section 4966,
shall make the return described in subsection (c).
``(2) Transfers.--If a person (including an applicable
exempt organization) acquires an interest in an applicable
insurance contract in an acquisition which is taxable under
section 4966 and then transfers such interest to 1 or more
other persons, each person acquiring all or a portion of such
interest shall make the return described in subsection (c).
``(b) Time for Making Return.--Any organization or person required
to make a return under subsection (a) shall file such return at such
time as may be established by the Secretary with respect to--
``(1) in the case of a person described in subsection
(a)(1), the calendar year in which the acquisition occurs, any
calendar year in which acquisition costs are paid or incurred,
and any other calendar years specified by the Secretary, and
``(2) in the case of a person described in subsection
(a)(2), the calendar year in which the transfer occurs.
``(c) Form and Manner of Returns.--A return is described in this
subsection if such return--
``(1) is in such form as the Secretary prescribes,
``(2) in the case of--
``(A) a return required under subsection (a)(1)(A),
contains the name, address, and taxpayer identification
number of the applicable exempt organization, the
issuer of the applicable insurance contract, and any
person acquiring an interest in the contract if the
acquisition is taxable under section 4966,
``(B) a return required under subsection (a)(1)(B),
contains the name, address, and taxpayer identification
number of the person acquiring an interest in the
applicable insurance contract if the acquisition is
taxable under section 4966, any applicable exempt
organization holding an interest in the contract, and
the issuer of the contract, and
``(C) a return required under subsection (a)(2),
contains the name, address, and taxpayer identification
number of the transferor and transferee, and
``(3) contains such other information as the Secretary may
prescribe.
``(d) Statements To Be Furnished to Persons With Respect to Whom
Information Is Required.--Every person required to make a return under
subsection (a) shall furnish to each person whose taxpayer
identification information is required to be included in such return
under subsection (c) a written statement showing--
``(1) the name and address of the person required to make
such return and the telephone number of the information contact
for such person, and
``(2) the taxpayer identity and other information required
to be shown on the return with respect to such person.
The written statement required under the preceding sentence shall be
furnished on or before the date specified by the Secretary.
``(e) Definitions.--For purposes of this section, any term used in
this section which is also used in section 4966 shall have the meaning
given such term by section 4966.''.
(2) Penalties.--
(A) In general.--Section 6724(d) is amended--
(i) in paragraph (1)(B), by redesignating
clauses (xiii) through (xviii) as clauses (xiv)
through (xix) and by inserting after clause
(xii) the following new clause:
``(xiii) section 6050U (relating to returns
relating to applicable insurance contracts in
which certain exempt organizations hold
interests),'', and
(ii) in paragraph (3), by striking ``and''
at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and
inserting ``, and'', and by adding at the end
the following new subparagraph:
``(E) the statement required by subsection (d) of
section 6050U (relating to returns relating to
applicable insurance contracts in which certain exempt
organizations hold interests).''.
(B) Intentional disregard.--Section 6721(e)(2) is
amended by striking ``or'' at the end of subparagraph
(B), by striking ``and'' at the end of subparagraph (C)
and inserting ``or'', and by adding at the end the
following new subparagraph:
``(D) in the case of a return required to be filed
under section 6050U, the amount of tax imposed under
section 4966 which has not been paid with respect to
items required to be included on the return, and''.
(3) Conforming amendment.--The table of sections for
subpart B of part III of subchapter A of chapter 61is amended
by adding at the end the following new item:
``Sec. 6050U. Returns relating to applicable insurance contracts in
which certain exempt organizations hold
interests.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to contracts issued after May 3, 2005.
(2) Reporting of existing contracts.--In the case of any
life insurance, annuity, or endowment contract--
(A) which was issued on or before May 3, 2005,
(B) with respect to which an applicable exempt
organization (as defined in section 4966 of the
Internal Revenue Code of 1986, as added by this
section) holds an interest on May 3, 2005, and
(C) which would be treated as an applicable
insurance contract (as so defined) if issued after May
3, 2005,
such organization shall, not later than the date which is 1
year after the date of the enactment of this Act, report to the
Secretary of the Treasury with respect to such contract. Such
report shall be in such form and manner, and contain such
information, as the Secretary may prescribe. The Secretary
shall submit such reports, along with any recommendations for
legislation as the Secretary considers appropriate, to the
Committee on Ways and Means of the House of Representatives and
to the Committee on Finance of the Senate within 6 months of
the date such reports are required to be filed.
SEC. 213. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC CHARITIES, SOCIAL
WELFARE ORGANIZATIONS, AND PRIVATE FOUNDATIONS.
(a) Taxes on Self-Dealing and Excess Benefit Transactions.--
(1) In general.--Section 4941(a) (relating to initial
taxes) is amended--
(A) in paragraph (1), by striking ``5 percent'' and
inserting ``10 percent'', and
(B) in paragraph (2), by striking ``2\1/2\
percent'' and inserting ``5 percent''.
(2) Increase in tax if self-dealing includes compensation
to disqualified person.--Section 4941(a)(1) is amended by
adding at the end the following new sentence: ``If the act of
self-dealing includes acts described in subsection (d)(1)(D),
`25 percent' shall be substituted for `10 percent', except that
the Secretary may abate under section 4962 (determined without
regard to the exception under subsection (b) thereof) not more
than 15 percentage points of such tax.''.
(3) Increased limitation for managers on self-dealing.--
Section 4941(c)(2) is amended by striking ``$10,000'' each
place it appears in the text and heading thereof and inserting
``$20,000''.
(4) Increased limitation for managers on excess benefit
transactions.--Section 4958(d)(2) is amended by striking
``$10,000'' and inserting ``$20,000''.
(b) Taxes on Failure To Distribute Income.--Section 4942(a)
(relating to initial tax) is amended by striking ``15 percent'' and
inserting ``30 percent''.
(c) Taxes on Excess Business Holdings.--Section 4943(a)(1)
(relating to imposition) is amended by striking ``5 percent'' and
inserting ``10 percent''.
(d) Taxes on Investments Which Jeopardize Charitable Purpose.--
(1) In general.--Section 4944(a) (relating to initial
taxes) is amended by striking ``5 percent'' both places it
appears and inserting ``10 percent''.
(2) Increased limitation for managers.--Section 4944(d)(2)
is amended--
(A) by striking ``$5,000,'' and inserting
``$10,000,'', and
(B) by striking ``$10,000.'' and inserting
``$20,000.''.
(e) Taxes on Taxable Expenditures.--
(1) In general.--Section 4945(a) (relating to initial
taxes) is amended--
(A) in paragraph (1), by striking ``10 percent''
and inserting ``20 percent'', and
(B) in paragraph (2), by striking ``2\1/2\
percent'' and inserting ``5 percent''.
(2) Increased limitation for managers.--Section 4945(c)(2)
is amended--
(A) by striking ``$5,000,'' and inserting
``$10,000,'', and
(B) by striking ``$10,000.'' and inserting
``$20,000.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 214. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN EASEMENTS ON
BUILDINGS IN REGISTERED HISTORIC DISTRICTS.
(a) Special Rules With Respect to Buildings in Registered Historic
Districts.--
(1) In general.--Paragraph (4) of section 170(h) (relating
to definition of conservation purpose) is amended by
redesignating subparagraph (B) as subparagraph (C) and by
inserting after subparagraph (A) the following new
subparagraph:
``(B) Special rules with respect to buildings in
registered historic districts.--In the case of any
contribution of a qualified real property interest
which is a restriction with respect to the exterior of
a building described in subparagraph (C)(ii), such
contribution shall not be considered to be exclusively
for conservation purposes unless--
``(i) such interest--
``(I) includes a restriction which
preserves the entire exterior of the
building (including the front, sides,
rear, and height of the building), and
``(II) prohibits any change in the
exterior of the building which is
inconsistent with the historical
character of such exterior,
``(ii) the donor and donee enter into a
written agreement certifying, under penalty of
perjury, that the donee--
``(I) is a qualified organization
(as defined in paragraph (3)) with a
purpose of environmental protection,
land conservation, open space
preservation, or historic preservation,
and
``(II) has the resources to manage
and enforce the restriction and a
commitment to do so, and
``(iii) in the case of any contribution
made in a taxable year beginning after the date
of the enactment of this subparagraph, the
taxpayer includes with the taxpayer's return
for the taxable year of the contribution--
``(I) a qualified appraisal (within
the meaning of subsection (f)(11)(E))
of the qualified property interest,
``(II) photographs of the entire
exterior of the building, and
``(III) a description of all
restrictions on the development of the
building.''.
(b) Disallowance of Deduction for Structures and Land in Registered
Historic Districts.--Subparagraph (C) of section 170(h)(4), as
redesignated by subsection (a), is amended--
(1) by striking ``any building, structure, or land area
which'',
(2) by inserting ``any building, structure, or land area
which'' before ``is listed'' in clause (i), and
(3) by inserting ``any building which'' before ``is
located'' in clause (ii).
(c) Filing Fee for Certain Contributions.--Subsection (f) of
section 170 (relating to disallowance of deduction in certain cases and
special rules) is amended by inserting at the end the following new
paragraph:
``(13) Contributions of certain interests in buildings
located in registered historic districts.--
``(A) In general.--No deduction shall be allowed
with respect to any contribution described in
subparagraph (B) unless the taxpayer includes with the
return for the taxable year of the contribution a $500
filing fee.
``(B) Contribution described.--A contribution is
described in this subparagraph if such contribution is
a qualified conservation contribution (as defined in
subsection (h)) which is a restriction with respect to
the exterior of a building described in subsection
(h)(4)(C)(ii) and for which a deduction is claimed in
excess of the greater of--
``(i) 3 percent of the fair market value of
the building (determined immediately before
such contribution), or
``(ii) $10,000.
``(C) Dedication of fee.--Any fee collected under
this paragraph shall be used for the enforcement of the
provisions of subsection (h).''.
(d) Effective Date.--
(1) Special rules for buildings in registered historic
districts.--The amendments made by subsection (a) shall apply
to contributions made after November 15, 2005.
(2) Disallowance of deduction for structures and land.--The
amendments made by subsection (b) shall apply to contributions
made after the date of the enactment of this Act.
(3) Filing fee.--The amendment made by subsection (c) shall
apply to contributions made 180 days after the date of the
enactment of this Act.
SEC. 215. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.
(a) In General.--Subsection (f) of section 170, as amended by this
Act, is amended by adding at the end the following new paragraph:
``(14) Contributions of taxidermy property.--
``(A) Contributions of more than $500.--In the case
of any contribution of taxidermy property for which a
deduction of more than $500 is claimed, no deduction
shall be allowed under subsection (a) unless the donor
includes with the return for the taxable year in which
the contribution is made a photograph of the taxidermy
property and data with respect to the sales prices of
similar taxidermy property.
``(B) Contributions of more than $5,000.--In the
case of any contribution of taxidermy property for
which a deduction of more than $5,000 is claimed, no
deduction shall be allowed under subsection (a) unless
the donor--
``(i) notifies the Internal Revenue Service
of such deduction, and
``(ii) includes with the return for the
taxable year in which the contribution is
made--
``(I) a statement of value from the
Internal Revenue Service, or
``(II) a request for a statement of
value from the Internal Revenue Service
and a $500 fee.
``(C) Taxidermy property.--For purposes of this
section, the term `taxidermy property' means a mounted
work of art which contains any part of a dead
animal.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after November 15, 2005.
SEC. 216. RECAPTURE OF TAX BENEFIT FOR CHARITABLE CONTRIBUTIONS OF
EXEMPT USE PROPERTY NOT USED FOR AN EXEMPT USE.
(a) Recapture of Deduction on Certain Sales of Exempt Use
Property.--
(1) In general.--Clause (i) of section 170(e)(1)(B)
(related to certain contributions of ordinary income and
capital gain property) is amended to read as follows:
``(i) of tangible personal property--
``(I) if the use by the donee is
unrelated to the purpose or function
constituting the basis for its
exemption under section 501 (or, in the
case of a governmental unit, to any
purpose or function described in
subsection (c)), or
``(II) which is applicable property
(as defined in paragraph (8)(C)) which
is sold, exchanged, or otherwise
disposed of by the donee before the
last day of the taxable year in which
the contribution was made and with
respect to which the donee has not made
a certification in accordance with
paragraph (8)(D),''.
(2) Dispositions after close of taxable year.--Section
170(e), as amended by this Act, is amended by adding at the end
the following new paragraph:
``(8) Recapture of deduction on certain dispositions of
exempt use property.--
``(A) In general.--In the case of an applicable
disposition of applicable property, there shall be
included in the income of the donor of such property
for the taxable year of such donor in which the
applicable disposition occurs an amount equal to the
excess (if any) of--
``(i) the amount of the deduction allowed
to the donor under this section with respect to
such property, over
``(ii) the donor's basis in such property
at the time such property was contributed.
``(B) Applicable disposition.--For purposes of this
paragraph, the term `applicable disposition' means any
sale, exchange, or other disposition by the donee of
applicable property--
``(i) after the last day of the taxable
year of the donor in which such property was
contributed, and
``(ii) before the last day of the 3-year
period beginning on the date of the
contribution of such property,
unless the donee makes a certification in accordance
with subparagraph (D).
``(C) Applicable property.--For purposes of this
paragraph, the term `applicable property' means
charitable deduction property (as defined in section
6050L(a)(2)(A))--
``(i) which is tangible personal property
the use of which is identified by the donee as
related to the purpose or function constituting
the basis of the donee's exemption under
section 501, and
``(ii) for which a deduction in excess of
the donor's basis is allowed.
``(D) Certification.--A certification meets the
requirements of this subparagraph if it is a written
statement which is signed under penalty of perjury by
an officer of the donee organization and--
``(i) which--
``(I) certifies that the use of the
property by the donee was related to
the purpose or function constituting
the basis for the donee's exemption
under section 501, and
``(II) describes how the property
was used and how such use furthered
such purpose or function, or
``(ii) which--
``(I) states the intended use of
the property by the donee at the time
of the contribution, and
``(II) certifies that such intended
use has become impossible or infeasible
to implement.''.
(b) Reporting Requirements.--Paragraph (1) of section 6050L(a)
(relating to returns relating to certain dispositions of donated
property) is amended--
(1) by striking ``2 years'' and inserting ``3 years'', and
(2) by striking ``and'' at the end of subparagraph (D), by
striking the period at the end of subparagraph (E) and
inserting a comma, and by inserting at the end the following:
``(F) a description of the donee's use of the
property, and
``(G) a statement indicating whether the use of the
property was related to the purpose or function
constituting the basis for the donee's exemption under
section 501.
In any case in which the donee indicates that the use of
applicable property (as defined in section 170(e)(1)(C)) was
related to the purpose or function constituting the basis for
the exemption of the donee under section 501 under subparagraph
(G), the donee shall include with the return the certification
described in section 170(e)(8)(D) if such certification is
required under section 170(e)(8).''.
(c) Penalty.--
(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 6720B the following new
section:
``SEC. 6720C. FRAUDULENT IDENTIFICATION OF EXEMPT USE PROPERTY.
``In addition to any criminal penalty provided by law, any person
who identifies applicable property (as defined in section 170(e)(8)(C))
as having a use which is related to a purpose or function constituting
the basis for the donee's exemption under section 501 and who knows
that such property is not intended for such a use shall pay a penalty
of $10,000.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68, as amended by this Act, is
amended by adding after the item relating to section 6720B the
following new item:
``Sec. 6720C. Fraudulent identification of exempt use property.''.
(d) Effective Date.--
(1) Recapture.--The amendments made by subsection (a) shall
apply to contributions after June 1, 2006.
(2) Reporting.--The amendments made by subsection (b) shall
apply to returns filed after June 1, 2006.
(3) Penalty.--The amendments made by subsection (c) shall
apply to identifications made after the date of the enactment
of this Act.
SEC. 217. LIMITATION OF DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF
CLOTHING AND HOUSEHOLD ITEMS.
(a) In General.--Subsection (f) of section 170, as amended by this
Act, is amended by adding at the end the following new paragraph:
``(15) Contributions of clothing and household items.--
``(A) In general.--In the case of an individual,
partnership, or S corporation, the deduction allowed
under subsection (a) for any contribution of clothing
or household items with respect to which the donor has
not obtained a qualified appraisal shall be--
``(i) in the case of an item which is in
good used condition or better, no more than the
amount assigned to such item under subparagraph
(B) for such year,
``(ii) except as provided by clause (iii),
in the case of an item which is not in good
used condition or better, no more than 20
percent of the amount assigned to such item
under subparagraph (B) for such year, and
``(iii) in the case of an item which is not
functional with respect to the use for which it
was designed, zero.
``(B) Assigned values.--Each year the Secretary
shall publish an itemized list of clothing and
household items and shall assign an amount with respect
to each item on the list which represents the fair
market value of such item in good used condition.
``(C) Exception for items sold by the donee.--
Subparagraph (A) shall not apply to any contribution of
clothing or household items for which a deduction of
more than $500 is claimed if--
``(i) the donee sells the clothing or
household items before the earlier of--
``(I) the due date (including
extensions) for filing the return of
tax for the taxable year of the donor
in which the contribution was made, or
``(II) the date on which such
return was filed,
``(ii) the donee reports the sales price of
the clothing or household items to the donor,
and
``(iii) the amount claimed as a deduction
with respect to such clothing or household
items does not exceed the amount of the sales
price reported to the donor.
``(D) Household items.--For purposes of this
paragraph--
``(i) In general.--The term `household
items' includes furniture, furnishings,
electronics, appliances, linens, and other
similar items.
``(ii) Excluded items.--Such term does not
include--
``(I) food,
``(II) paintings, antiques, and
other objects of art,
``(III) jewelry and gems, and
``(IV) collections.
``(E) 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.''.
(b) Substantiation.--
(1) Items of $250 or more.--Subparagraph (B) of section
170(f)(8) is amended by inserting after clause (iii) the
following new clause:
``(iv) In the case of a contribution
consisting of clothing or household items, the
number of items contributed, an indication of
the condition of each item, a description of
the type of item contributed, and a copy of the
list published under paragraph (15)(B) or an
instruction on how to obtain such list.''.
(2) Items of $500 or more.--Subparagraph (B) of section
170(f)(11) is amended by inserting ``, the information
contained in the acknowledgment required under paragraph (8) in
the case of any contribution of clothing or household items,''
after ``a description of such property''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made after December 31, 2006.
SEC. 218. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR CERTAIN
CHARITABLE CONTRIBUTIONS.
(a) Recordkeeping Requirement.--Subsection (f) of section 170, as
amended by this Act, is amended by adding at the end the following new
paragraph:
``(16) Recordkeeping.--No deduction shall be allowed under
subsection (a) for any contribution of a cash, check, or other
monetary gift unless the donor maintains as a record of such
contribution--
``(A) a cancelled check, or
``(B) a receipt or a letter or other written
communication from the donee showing the name of the
donee organization, the date of the contribution, and
the amount of the contribution.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made in taxable years beginning after the date of the
enactment of this Act.
SEC. 219. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE PERSONAL
PROPERTY.
(a) Income Tax.--Section 170 (relating to charitable, etc.,
contributions and gifts), as amended by this Act, is amended by
redesignating subsection (p) as subsection (q) and by inserting after
subsection (o) the following new subsection:
``(p) Special Rules for Fractional Gifts.--
``(1) Valuation of subsequent gifts.--
``(A) In general.--In the case of any additional
contribution, the fair market value of such
contribution shall be determined by using the lesser
of--
``(i) the fair market value of the property
at the time of the initial fractional
contribution, or
``(ii) the fair market value of the
property at the time of the additional
contribution.
``(B) Definitions.--For purposes of this
paragraph--
``(i) Additional contribution.--The term
`additional contribution' means any charitable
contribution by the taxpayer of any interest in
property with respect to which the taxpayer has
previously made an initial fractional
contribution.
``(ii) Initial fractional contribution.--
The term `initial fractional contribution'
means, with respect to any taxpayer, the first
charitable contribution of an undivided portion
of the taxpayer's entire interest in any
tangible personal property.
``(2) Recapture of deduction in certain cases.--
``(A) In general.--The Secretary shall provide for
the recapture of an amount equal to the amount of any
deduction allowed under this section (plus interest)
with respect to any contribution of an undivided
interest of a taxpayer's entire interest in property in
any case where such property is not in the physical
possession of the donee during any applicable period
for a period of time which bears substantially the same
ratio to 1 year as--
``(i) the percentage of the undivided
interest of the donee in the property
(determined on the day after such contribution
was made), bears to
``(ii) 100 percent.
``(B) Applicable period.--For purposes of
subparagraph (A), the term `applicable period' means
any 1-year period which begins on--
``(i) in the year of the contribution, the
date of the contribution, and
``(ii) in any subsequent calendar year, the
date which corresponds to the date described in
clause (i).
``(C) Anti-abuse rules.--The Secretary shall
prescribe such regulations as necessary to prevent the
avoidance of the purposes of this paragraph through the
transfer of any such undivided interest to a third
party controlled by the taxpayer.''.
(b) Estate Tax.--Section 2055 (relating to transfers for public,
charitable, and religious uses) is amended by redesignating subsection
(g) as subsection (h) and by inserting after subsection (f) the
following new subsection:
``(g) Valuation of Subsequent Gifts.--
``(1) In general.--In the case of any additional
contribution, the fair market value of such contribution shall
be determined by using the lesser of--
``(A) the fair market value of the property at the
time of the initial fractional contribution, or
``(B) the fair market value of the property at the
time of the additional contribution.
``(2) Definitions.--For purposes of this paragraph--
``(A) Additional contribution.--The term
`additional contribution' means a bequest, legacy,
devise, or transfer described in subsection (a) of any
interest in a property with respect to which the
decedent had previously made an initial fractional
contribution.
``(B) Initial fractional contribution.--The term
`initial fractional contribution' means, with respect
to any decedent, any charitable contribution of an
undivided portion of the decedent's entire interest in
any tangible personal property for which a deduction
was allowed under section 170.''.
(c) Gift Tax.--Section 2522 (relating to charitable and similar
gifts) is amended by redesignating subsection (e) as subsection (f) and
by inserting after subsection (d) the following new subsection:
``(e) Special Rules for Fractional Gifts.--
``(1) Valuation of subsequent gifts.--
``(A) In general.--In the case of any additional
contribution, the fair market value of such
contribution shall be determined by using the lesser
of--
``(i) the fair market value of the property
at the time of the initial fractional
contribution, or
``(ii) the fair market value of the
property at the time of the additional
contribution.
``(B) Definitions.--For purposes of this
paragraph--
``(i) Additional contribution.--The term
`additional contribution' means any gift for
which a deduction is allowed under subsection
(a) or (b) of any interest in a property with
respect to which the donor has previously made
an initial fractional contribution.
``(ii) Initial fractional contribution.--
The term `initial fractional contribution'
means, with respect to any donor, the first
gift of an undivided portion of the donor's
entire interest in any tangible personal
property for which a deduction is allowed under
subsection (a) or (b).
``(2) Recapture of deduction in certain cases.--
``(A) In general.--The Secretary shall provide for
the recapture of an amount equal to the amount of any
deduction allowed under this section (plus interest)
with respect to any contribution of an undivided
interest of a donor's entire interest in property in
any case where such property is not in the physical
possession of the donee during any applicable period
for a period of time which bears substantially the same
ratio to 1 year as--
``(i) the percentage of the undivided
interest of the donee in the property
(determined on the day after such contribution
was made), bears to
``(ii) 100 percent.
``(B) Applicable period.--For purposes of
subparagraph (A), the term `applicable period' means
any 1-year period which begins on--
``(i) in the year of the contribution, the
date of the contribution, and
``(ii) in any subsequent calendar year, the
date which corresponds to the date described in
clause (i).
``(C) Anti-abuse rules.--The Secretary shall
prescribe such regulations as necessary to prevent the
avoidance of the purposes of this paragraph though the
transfer of any such undivided interest to a third
party controlled by the donor.''.
(d) Effective Date.--The amendments made by this section shall
apply to contributions, bequests, and gifts made after the date of the
enactment of this Act.
SEC. 220. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS OVERSTATEMENTS
OF VALUATIONS OF CHARITABLE DEDUCTION PROPERTY.
(a) Substantial and Gross Overstatements of Valuations of
Charitable Deduction Property.--
(1) In general.--Section 6662 (relating to imposition of
accuracy-related penalties) is amended by adding at the end the
following new subsection:
``(i) Special Rules for Charitable Deduction Property.--In the case
of charitable deduction property (as defined in section
6664(c)(3)(A))--
``(1) the determination under subsection (e)(1)(A) as to
whether there is a substantial valuation misstatement under
chapter 1 with respect to the value of the property shall be
made by substituting `150 percent' for `200 percent', and
``(2) the determination under subsection (h)(2)(A)(i) as to
whether there is a gross valuation misstatement with respect to
the value of the property shall be made by substituting `200
percent' for `400 percent' and by substituting `150 percent'
for `200 percent' in applying subsection (e)(1)(A) for purposes
of such determination.''.
(2) Elimination of reasonable cause exception for gross
misstatements.--Section 6664(c)(2) (relating to reasonable
cause exception for underpayments) is amended by striking
``paragraph (1) shall not apply unless'' and inserting
``paragraph (1) shall not apply. The preceding sentence shall
not apply to a substantial valuation overstatement under
chapter 1 if''.
(b) Penalty on Appraisers Whose Appraisals Result in Substantial or
Gross Valuation Misstatements.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6695 the following new section:
``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS
ATTRIBUTABLE TO INCORRECT APPRAISALS.
``(a) Imposition of Penalty.--If--
``(1) a person prepares an appraisal of the value of
property and such person knows, or reasonably should have
known, that the appraisal would be used in connection with a
return or a claim for refund, and
``(2) the claimed value of the property on a return or
claim for refund which is based on such appraisal results in a
substantial valuation misstatement under chapter 1 (within the
meaning of section 6662(e)), or a gross valuation misstatement
(within the meaning of section 6662(h)), with respect to such
property,
then such person shall pay a penalty in the amount determined under
subsection (b).
``(b) Amount of Penalty.--The amount of the penalty imposed under
subsection (a) on any person with respect to an appraisal shall be
equal to the lesser of--
``(1) the greater of--
``(A) 10 percent of the amount of the underpayment
(as defined in section 6664(a)) attributable to the
misstatement described in subsection (a)(2), or
``(B) $1,000, or
``(2) 125 percent of the gross income received by the
person described in subsection (a)(1) from the preparation of
the appraisal.
``(c) Exception.--No penalty shall be imposed under subsection (a)
if the person establishes to the satisfaction of the Secretary that the
value established in the appraisal was more likely than not the proper
value.''.
(2) Rules applicable to penalty.--Section 6696 (relating to
rules applicable with respect to sections 6694 and 6695) is
amended--
(A) by striking ``6694 and 6695'' each place it
appears in the text and heading thereof and inserting
``6694, 6695, and 6695A'', and
(B) by striking ``6694 or 6695'' each place it
appears in the text and inserting ``6694, 6695, or
6695A''.
(3) Conforming amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6696 and inserting the following new items:
``Sec. 6695A. Substantial and gross valuation misstatements
attributable to incorrect appraisals.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, and
6695A.''.
(c) Qualified Appraisers and Appraisals.--
(1) In general.--Subparagraph (E) of section 170(f)(11) is
amended to read as follows:
``(E) Qualified appraisal and appraiser.--For
purposes of this paragraph--
``(i) Qualified appraisal.--The term
`qualified appraisal' means, with respect to
any property, an appraisal of such property
which--
``(I) is treated for purposes of
this paragraph as a qualified appraisal
under regulations or other guidance
prescribed by the Secretary, and
``(II) is conducted by a qualified
appraiser in accordance with generally
accepted appraisal standards and any
regulations or other guidance
prescribed under subclause (I).
``(ii) Qualified appraiser.--Except as
provided in clause (iii), the term `qualified
appraiser' means an individual who--
``(I) has earned an appraisal
designation from a recognized
professional appraiser organization or
has otherwise met minimum education and
experience requirements set forth in
regulations prescribed by the
Secretary,
``(II) regularly performs
appraisals for which the individual
receives compensation, and
``(III) meets such other
requirements as may be prescribed by
the Secretary in regulations or other
guidance.
``(iii) Specific appraisals.--An individual
shall not be treated as a qualified appraiser
with respect to any specific appraisal unless--
``(I) the individual demonstrates
verifiable education and experience in
valuing the type of property subject to
the appraisal, and
``(II) the individual has not been
prohibited from practicing before the
Internal Revenue Service by the
Secretary under section 330(c) of title
31, United States Code, at any time
during the 3-year period ending on the
date of the appraisal.''.
(2) Reasonable cause exception.--Subparagraphs (B) and (C)
of section 6664(c)(3) are amended to read as follows:
``(B) Qualified appraisal.--The term `qualified
appraisal' has the meaning given such term by section
170(f)(11)(E)(i).
``(C) Qualified appraiser.--The term `qualified
appraiser' has the meaning given such term by section
170(f)(11)(E)(ii).''.
(d) Disciplinary Actions Against Appraisers.--Section 330(c) of
title 31, United States Code, is amended by striking ``with respect to
whom a penalty has been assessed under section 6701(a) of the Internal
Revenue Code of 1986''.
(e) Effective Dates.--
(1) Misstatement penalties.--Except as provided in
paragraph (3), the amendments made by subsection (a) shall
apply to returns filed after the date of the enactment of this
Act.
(2) Appraiser provisions.--Except as provided in paragraph
(3), the amendments made by subsections (b), (c), and (d) shall
apply to appraisals prepared with respect to returns or
submissions filed after the date of the enactment of this Act.
(3) Special rule for certain easements.--In the case of a
contribution of a qualified real property interest which is a
restriction with respect to the exterior of a building
described in section 170(h)(4)(C)(ii) of the Internal Revenue
Code of 1986, and an appraisal with respect to the
contribution, the amendments made by subsections (a) and (b)
shall apply to returns filed after December 16, 2004.
SEC. 221. ADDITIONAL STANDARDS FOR CREDIT COUNSELING ORGANIZATIONS.
(a) In General.--Section 501 (relating to exemption from tax on
corporations, certain trusts, etc.) is amended by redesignating
subsection (q) as subsection (r) and by inserting after subsection (p)
the following new subsection:
``(q) Special Rules for Credit Counseling Organizations.--
``(1) In general.--An organization with respect to which
the provision of credit counseling services is a substantial
purpose shall not be exempt from tax under subsection (a)
unless such organization is described in paragraph (3) or (4)
of subsection (c) and such organization is organized and
operated in accordance with the following requirements:
``(A) The organization--
``(i) provides credit counseling services
tailored to the specific needs and
circumstances of consumers,
``(ii) makes no loans to debtors and does
not negotiate the making of loans on behalf of
debtors, and
``(iii) does not promote, or charge any
separate fee for, any service for the purpose
of improving any consumer's credit record,
credit history, or credit rating.
``(B) The organization does not refuse to provide
credit counseling services to a consumer due to the
inability of the consumer to pay, the ineligibility of
the consumer for debt management plan enrollment, or
the unwillingness of the consumer to enroll in a debt
management plan.
``(C) The organization establishes and implements a
fee policy which--
``(i) requires that any fees charged to a
consumer for services are reasonable, and
``(ii) prohibits charging any fee based in
whole or in part on a percentage of the
consumer's debt, the consumer's payments to be
made pursuant to a debt management plan, or the
projected or actual savings to the consumer
resulting from enrolling in a debt management
plan.
``(D) At all times the organization has a board of
directors or other governing body--
``(i) which is controlled by persons who
represent the broad interests of the public,
such as public officials acting in their
capacities as such, persons having special
knowledge or expertise in credit or financial
education, and community leaders,
``(ii) not more than 20 percent of the
voting power of which is vested in persons who
are employed by the organization or who will
benefit financially, directly or indirectly,
from the organization's activities (other than
through the receipt of reasonable directors'
fees or the repayment of consumer debt to
creditors other than the credit counseling
organization or its affiliates), and
``(iii) not more than 49 percent of the
voting power of which is vested in persons who
are employed by the organization or who will
benefit financially, directly or indirectly,
from the organization's activities (other than
through the receipt of reasonable directors'
fees).
``(E) The organization does not own more than 35
percent of--
``(i) the total combined voting power of a
corporation which is in the business of lending
money, repairing credit, or providing debt
management plan services, payment processing,
or similar services,
``(ii) the profits interest of a
partnership which is in the business of lending
money, repairing credit, or providing debt
management plan services, payment processing,
or similar services, and
``(iii) the beneficial interest of a trust
or estate which is in the business of lending
money, repairing credit, or providing debt
management plan services, payment processing,
or similar services.
``(F) The organization receives no amount for
providing referrals to others for financial services
(including debt management services) or credit
counseling services to be provided to consumers, and
pays no amount to others for obtaining referrals of
consumers.
``(2) Requirements under subsection (c)(3).--In addition to
the requirements under paragraph (1), an organization with
respect to which the provision of credit counseling services is
a substantial purpose and which is described in paragraph (3)
of subsection (c) shall not be exempt from tax under subsection
(a) unless such organization is organized and operated in
accordance with the following requirements:
``(A) The organization--
``(i) charges no fees (other than nominal
fees) for debt management plan services or
credit counseling services and waives any fees
if the consumer is unable to pay such fees, and
``(ii) does not solicit contributions from
consumers during the initial counseling process
or while the consumer is receiving services
from the organization.
``(B) The activities of the organization related to
debt management plan services (in the aggregate) do not
exceed 25 percent of the total activities of the
organization activities measured by any of the
following:
``(i) The time spent on activities.
``(ii) The resources dedicated to
activities.
``(iii) The effort expended by the
organization with respect to activities.
``(iv) The sources of revenue of the
organization.
``(v) Any other measures prescribed by the
Secretary.
``(3) Requirements under subsection (c)(4).--In addition to
the requirements under paragraph (1), an organization with
respect to which the provision of credit counseling services is
a substantial purpose and which is described in paragraph (4)
of subsection (c) shall not be exempt from tax under subsection
(a) unless such organization--
``(A) is organized and operated such that it
charges no fees (other than nominal fees) for credit
counseling services and waives any fees if the consumer
is unable to pay such fees, and
``(B) notifies the Secretary, in such manner as the
Secretary may by regulations prescribe, that it is
applying for recognition as a credit counseling
organization.
``(4) Secretarial authority.--The Secretary may require any
organization described in paragraph (1) to submit such
information as the Secretary requires to verify that such
organization meets the requirements of this section.
``(5) Credit counseling services; debt management plan
services.--For purposes of this subsection--
``(A) Credit counseling services.--The term `credit
counseling services' means--
``(i) the providing of educational
information to the general public on budgeting,
personal finance, financial literacy, saving
and spending practices, and the sound use of
consumer credit,
``(ii) the assisting of individuals and
families with financial problems by providing
them with counseling, or
``(iii) a combination of the activities
described in clauses (i) and (ii).
``(B) Debt management plan services.--The term
`debt management plan services' means services related
to the repayment, consolidation, or restructuring of a
consumer's debt, and includes the negotiation with
creditors of lower interest rates, the waiver or
reduction of fees, and the marketing and processing of
debt management plans.''.
(b) Debt Management Plan Services Treated as an Unrelated
Business.--Section 513 (relating to unrelated trade or business) is
amended by adding at the end the following:
``(j) Debt Management Plan Services.--The term `unrelated trade or
business' includes--
``(1) the provision of debt management plan services (as
defined in section 501(q)(4)(B)) by an organization described
in section 501(q) to the extent such services are not
substantially related to the provision of credit counseling
services (as defined in section 501(q)(4)(A)) to a consumer,
and
``(2) the provision of debt management plan services (as so
defined) by any organization other than an organization which
meets the requirements of section 501(q).''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after the date of the enactment of this Act.
(2) Transition rule for existing organizations.--In the
case of any organization described in paragraph (3) or (4)
section 501(c) of the Internal Revenue Code of 1986 and with
respect to which the provision of credit counseling services is
a substantial purpose on the date of the enactment of this Act,
the amendments made by this section shall apply to taxable
years beginning after the date which is 1 year after the date
of the enactment of this Act.
SEC. 222. EXPANSION OF THE BASE OF TAX ON PRIVATE FOUNDATION NET
INVESTMENT INCOME.
(a) Gross Investment Income.--
(1) In general.--Paragraph (2) of section 4940(c) (relating
to gross investment income) is amended by adding at the end the
following new sentence: ``Such term shall also include income
from sources similar to those in the preceding sentence.''.
(2) Conforming amendment.--Subsection (e) of section 509
(relating to gross investment income) is amended by adding at
the end the following new sentence: ``Such term shall also
include income from sources similar to those in the preceding
sentence.''.
(b) Capital Gain Net Income.--Paragraph (4) of section 4940(c)
(relating to capital gains and losses) is amended--
(1) in subparagraph (A), by striking ``used for the
production of interest, dividends, rents, and royalties'' and
inserting ``used for the production of gross investment income
(as defined in paragraph (2))'', and
(2) in subparagraph (C), by inserting ``or carrybacks''
after ``carryovers''.
(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. 223. DEFINITION OF CONVENTION OR ASSOCIATION OF CHURCHES.
Section 7701 (relating to definitions) is amended by redesignating
subsection(o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
``(o) Convention or Association of Churches.--For purposes of this
title, any organization which is otherwise a convention or association
of churches shall not fail to so qualify merely because the membership
of such organization includes individuals as well as churches or
because individuals have voting rights in such organization.''.
SEC. 224. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY REQUIRED
TO FILE.
(a) In General.--Section 6033 (relating to returns by exempt
organizations) is amended by redesignating subsection (h) as subsection
(i) and by inserting after subsection (g) the following new subsection:
``(h) Additional Notification Requirements.--Any organization the
gross receipts of which in any taxable year result in such organization
being referred to in subsection (a)(3)(A)(ii) or (a)(3)(B)--
``(1) shall furnish annually, at such time and in such
manner as the Secretary may by forms or regulations prescribe,
information setting forth--
``(A) the legal name of the organization,
``(B) any name under which such organization
operates or does business,
``(C) the organization's mailing address and
Internet web site address (if any),
``(D) the organization's taxpayer identification
number,
``(E) the name and address of a principal officer,
and
``(F) evidence of the continuing basis for the
organization's exemption from the filing requirements
under subsection (a)(1), and
``(2) upon the termination of the existence of the
organization, shall furnish notice of such termination.''.
(b) Loss of Exempt Status for Failure To File Return or Notice.--
Section 6033 (relating to returns by exempt organizations), as amended
by subsection (a), is amended by redesignating subsection (i) as
subsection (j) and by inserting after subsection (h) the following new
subsection:
``(i) Loss of Exempt Status for Failure To File Return or Notice.--
``(1) In general.--If an organization described in
subsection (a)(1) or (k) fails to file an annual return or
notice required under either subsection for 3 consecutive
years, such organization's status as an organization exempt
from tax under section 501(a) shall be considered revoked on
and after the date set by the Secretary for the filing of the
third annual return or notice. The Secretary shall publish and
maintain a list of any organization the status of which is so
revoked.
``(2) Application necessary for reinstatement.--Any
organization the tax-exempt status of which is revoked under
paragraph (1) must apply in order to obtain reinstatement of
such status regardless of whether such organization was
originally required to make such an application.
``(3) Retroactive reinstatement if reasonable cause shown
for failure.--If upon application for reinstatement of status
as an organization exempt from tax under section 501(a), an
organization described in paragraph (1) can show to the
satisfaction of the Secretary evidence of reasonable cause for
the failure described in such paragraph, the organization's
exempt status may, in the discretion of the Secretary, be
reinstated effective from the date of the revocation under such
paragraph.''.
(c) No Declaratory Judgment Relief.--Section 7428(b) (relating to
limitations) is amended by adding at the end the following new
paragraph:
``(4) Nonapplication for certain revocations.--No action
may be brought under this section with respect to any
revocation of status described in section 6033(i)(1).''.
(d) No Inspection Requirement.--Section 6104(b) (relating to
inspection of annual information returns), as amended by this Act, is
amended by inserting ``(other than subsection (h) thereof)'' after
``6033''.
(e) No Disclosure Requirement.--Section 6104(d)(3) (relating to
exceptions from disclosure requirements) is amended by redesignating
subparagraph (B) as subparagraph (C) and by inserting after
subparagraph (A) the following new subparagraph:
``(B) Nondisclosure of annual notices.--Paragraph
(1) shall not require the disclosure of any notice
required under section 6033(h).''.
(f) No Monetary Penalty for Failure To Notify.--Section 6652(c)(1)
(relating to annual returns under section 6033 or 6012(a)(6)) is
amended by adding at the end the following new subparagraph:
``(E) No penalty for certain annual notices.--This
paragraph shall not apply with respect to any notice
required under section 6033(h).''.
(g) Secretarial Outreach Requirements.--
(1) Notice requirement.--The Secretary of the Treasury
shall notify in a timely manner every organization described in
section 6033(h) of the Internal Revenue Code of 1986 (as added
by this section) of the requirement under such section 6033(h)
and of the penalty established under section 6033(i) of such
Code--
(A) by mail, in the case of any organization the
identity and address of which is included in the list
of exempt organizations maintained by the Secretary,
and
(B) by Internet or other means of outreach, in the
case of any other organization.
(2) Loss of status penalty for failure to file return.--The
Secretary of the Treasury shall publicize in a timely manner in
appropriate forms and instructions and through other
appropriate means, the penalty established under section
6033(i) of such Code for the failure to file a return under
section 6033(a)(1) of such Code.
(h) Effective Date.--The amendments made by this section shall
apply to notices and returns with respect to annual periods beginning
after 2005.
SEC. 225. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS RELATED TO
EXEMPT ORGANIZATIONS.
(a) In General.--Subsection (c) of section 6104 is amended by
striking paragraph (2) and inserting the following new paragraphs:
``(2) Disclosure of proposed actions related to charitable
organizations.--
``(A) Specific notifications.--In the case of an
organization to which paragraph (1) applies, the
Secretary may disclose to the appropriate State
officer--
``(i) a notice of proposed refusal to
recognize such organization as an organization
described in section 501(c)(3) or a notice of
proposed revocation of such organization's
recognition as an organization exempt from
taxation,
``(ii) the issuance of a letter of proposed
deficiency of tax imposed under section 507 or
chapter 41 or 42, and
``(iii) the names, addresses, and taxpayer
identification numbers of organizations which
have applied for recognition as organizations
described in section 501(c)(3).
``(B) Additional disclosures.--Returns and return
information of organizations with respect to which
information is disclosed under subparagraph (A) may be
made available for inspection by or disclosed to an
appropriate State officer.
``(C) Procedures for disclosure.--Information may
be inspected or disclosed under subparagraph (A) or (B)
only--
``(i) upon written request by an
appropriate State officer, and
``(ii) for the purpose of, and only to the
extent necessary in, the administration of
State laws regulating such organizations.
Such information may only be inspected by or disclosed
to a person other than the appropriate State officer if
such person is an officer or employee of the State and
is designated by the appropriate State officer to
receive the returns or return information under this
paragraph on behalf of the appropriate State officer.
``(D) Disclosures other than by request.--The
Secretary may make available for inspection or disclose
returns and return information of an organization to
which paragraph (1) applies to an appropriate State
officer of any State if the Secretary determines that
such inspection or disclosure may facilitate the
resolution of Federal or State issues relating to the
tax-exempt status of such organization.
``(3) Disclosure with respect to certain other exempt
organizations.--Upon written request by an appropriate State
officer, the Secretary may make available for inspection or
disclosure returns and return information of an organization
described in paragraph (2), (4), (6), (7), (8), (10), or (13)
of section 501(c) for the purpose of, and to the extent
necessary in, the administration of State laws regulating the
solicitation or administration of the charitable funds or
charitable assets of such organizations. Such information may
only be inspected by or disclosed to a person other than the
appropriate State officer if such person is an officer or
employee of the State and is designated by the appropriate
State officer to receive the returns or return information
under this paragraph on behalf of the appropriate State
officer.
``(4) Use in civil judicial and administrative
proceedings.--Returns and return information disclosed pursuant
to this subsection may be disclosed in civil administrative and
civil judicial proceedings pertaining to the enforcement of
State laws regulating such organizations in a manner prescribed
by the Secretary similar to that for tax administration
proceedings under section 6103(h)(4).
``(5) No disclosure if impairment.--Returns and return
information shall not be disclosed under this subsection, or in
any proceeding described in paragraph (4), to the extent that
the Secretary determines that such disclosure would seriously
impair Federal tax administration.
``(6) Definitions.--For purposes of this subsection--
``(A) Return and return information.--The terms
`return' and `return information' have the respective
meanings given to such terms by section 6103(b).
``(B) Appropriate state officer.--The term
`appropriate State officer' means--
``(i) the State attorney general,
``(ii) the State tax officer,
``(iii) in the case of an organization to
which paragraph (1) applies, any other State
official charged with overseeing organizations
of the type described in section 501(c)(3), and
``(iv) in the case of an organization to
which paragraph (3) applies, the head of an
agency designated by the State attorney general
as having primary responsibility for overseeing
the solicitation of funds for charitable
purposes.''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 6103(p)(3) is amended by
inserting ``an section 6104(c)'' after ``section'' in the first
sentence.
(2) Paragraph (4) of section 6103(p) is amended--
(A) in the matter preceding subparagraph (A), by
inserting ``, or any appropriate State officer (as
defined in section 6104(c)),'' before ``or any other
person'',
(B) in subparagraph (F)(i), by inserting ``or any
appropriate State officer (as defined in section
6104(c)),'' before ``or any other person'', and
(C) in the matter following subparagraph (F), by
inserting ``, an appropriate State officer (as defined
in section 6104(c)),'' after ``including an agency''
each place it appears.
(3) The heading for paragraph (1) of section 6104(c) is
amended by inserting ``for charitable organizations'' after
``rule''.
(4) Paragraph (2) of section 7213(a) is amended by
inserting ``or under section 6104(c)'' after ``6103''.
(5) Paragraph (2) of section 7213A(a) is amended by
inserting ``or 6104(c)'' after ``6103''.
(6) Paragraph (2) of section 7431(a) is amended by
inserting ``(including any disclosure in violation of section
6014(c)'' after ``6103''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act but shall not apply to
requests made before such date.
PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS
SEC. 231. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR ADVISED FUNDS
FOR FAILURE TO MEET DISTRIBUTION REQUIREMENTS.
(a) In General.--Chapter 42 (relating to private foundations and
certain other tax-exempt organizations), as amended by this Act, is
amended by adding at the end the following new subchapter:
``Subchapter G--Donor Advised Funds
``Sec. 4967. Taxes on sponsoring organizations of donor advised funds
for failure to meet distributions
requirements.
``Sec. 4968. Taxes on prohibited distributions.
``Sec. 4969. Taxes on prohibited benefits.
``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR ADVISED FUNDS
FOR FAILURE TO MEET DISTRIBUTION REQUIREMENTS.
``(a) Initial Tax.--There is hereby imposed on any sponsoring
organization a tax equal to 30 percent of each of the following
amounts:
``(1) The organization level undistributed amount of such
sponsoring organization (other than any organization subject to
tax under section 4942) for any taxable year which has not been
distributed before the first day of the second (or any
succeeding) taxable year following such taxable year (if such
first day falls within the taxable period).
``(2) The fund level undistributed amount of any donor
advised fund of such sponsoring organization for any taxable
year which has not been distributed before the 181st day of the
first (or any succeeding) taxable year following the applicable
period (if such 181st day falls within the taxable period).
``(3) The illiquid fund undistributed amount of any
illiquid asset donor advised fund of such sponsoring
organization for any taxable year which has not been
distributed before the 181st day of the second (or any
succeeding) taxable year following such taxable year (if such
181st day falls within the taxable period).
``(b) Additional Tax.--In any case in which an initial tax is
imposed under subsection (a) on any amount, if any portion of such
amount remains undistributed at the close of the taxable period, there
is hereby imposed a tax equal to 100 percent of the amount remaining
undistributed at such time.
``(c) Organization Level Undistributed Amount; Fund Level
Undistributed Amount; Illiquid Fund Undistributed Amount.--For purposes
of this section--
``(1) Organization level undistributed amount.--The term
`organization level undistributed amount' means, with respect
to any sponsoring organization for any taxable year, the amount
by which--
``(A) the organization level distributable amount
for such taxable year, exceeds
``(B) the qualifying distributions made during such
taxable year and designated for the purpose of reducing
such amount.
``(2) Fund level undistributed amount.--The term `fund
level undistributed amount' means, with respect to any donor
advised fund of a sponsoring organization for any applicable
period, the amount by which--
``(A) the fund level distributable amount for such
applicable period, exceeds
``(B) the qualifying distributions made during such
applicable period and designated for the purpose of
reducing such amount.
``(3) Illiquid fund undistributed amount.--
``(A) In general.--The term `illiquid fund
undistributed amount' means, with respect to any
illiquid asset donor advised fund of a sponsoring
organization for any taxable year, the amount by
which--
``(i) the illiquid fund distributable
amount for such taxable year, exceeds
``(ii) the qualifying distributions made
during such taxable year and designated for the
purpose of reducing such amount.
``(B) Illiquid asset donor advised fund.--The term
`illiquid asset donor advised fund' means for any
taxable year a donor advised fund the value of the
illiquid assets of which (as of the end of the
preceding taxable year) exceeds 10 percent of the value
of the total assets of such fund.
``(C) Illiquid asset.--The term `illiquid asset'
means for any taxable year any asset other than cash
and marketable securities the value of which is held
for the entire taxable year as such asset or any other
illiquid asset.
``(d) Organization Level Distributable Amount; Fund Level
Distributable Amount; Illiquid Fund Distributable Amount.--For purposes
of this section--
``(1) Organization level distributable amount.--The term
`organization level distributable amount' means, with respect
to any sponsoring organization for any taxable year, an amount
equal to the applicable percentage of the fair market value of
the aggregate assets of all donor advised funds maintained by
such organization as determined on the last day of the
preceding taxable year (other than such funds which have been
in existence for less than 1 year as so determined).
``(2) Fund level distributable amount.--The term `fund
level distributable amount' means, with respect to any donor
advised fund of any sponsoring organization for any applicable
3-consecutive taxable year period, an amount equal to the
greater of--
``(A) $250, or
``(B) 2.5 percent of the greater of--
``(i) the average of the sponsoring
organization's required minimum initial
contribution amount for such period, or
``(ii) the average of the sponsoring
organization's required minimum balance for
such period,
for the type of donor with respect to such donor
advised fund.
``(3) Illiquid fund distributable amount.--The term
`illiquid fund distributable amount' means, with respect to any
illiquid asset donor advised fund of any sponsoring
organization for any taxable year, an amount equal to the
applicable percentage of the value of the assets in such fund
as determined at the end of the preceding taxable year.
``(4) Applicable percentage.--For purposes of paragraphs
(1) and (3), the applicable percentage is--
``(A) 3 percent for the first taxable year
beginning after the date of the enactment of this
section,
``(B) 4 percent for the second taxable year
beginning after such date, and
``(C) 5 percent for any taxable year beginning
after the second taxable year beginning after such
date.
``(e) Qualifying Distribution.--For purposes of this section--
``(1) In general.--The term `qualifying distribution'
means--
``(A) any amount paid by the sponsoring
organization from a donor advised fund--
``(i) to any organization described in
section 170(b)(1)(A) (other than any
organization described in section 509(a)(3) or
any sponsoring organization if such amount is
for maintenance in a donor advised fund), and
``(ii) notwithstanding clause (i), to any
organization described section
170(f)(17)(B)(ii), but only to the extent not
prohibited by regulations, and
``(B) any amount set aside in such donor advised
fund for purposes, and under procedures similar to
those, described in section 4942(g)(2).
Such term shall also include any amount paid during any taxable
year for reasonable and necessary administrative expenses
charged to a donor advised fund by a sponsoring organization.
``(2) Distributions to sponsoring organizations.--
``(A) In general.--Except as provided in
subparagraph (B), such term shall include any
distribution to a sponsoring organization.
``(B) Organization level distributions.--For
purposes of subsection (c)(1)(B), such term shall not
include any distribution to a sponsoring organization
unless such distribution is designated for use in
connection with a charitable program of such
organization.
``(3) Purpose of distribution.--Each qualifying
distribution shall be taken into account in determining whether
each of the requirements of paragraphs (1), (2), and (3) of
subsection (a) are met, except that only qualifying
distributions from a donor advised fund shall be taken into
account in determining whether the requirements of paragraphs
(2) and (3) of subsection (a) are met with respect to the fund.
``(4) Designation of taxable year.--
``(A) In general.--A sponsoring organization shall
designate the taxable years or applicable periods with
respect to which any qualifying distribution shall be
applied for purposes of satisfying the distribution
requirements of such taxable year or applicable period.
``(B) Carryover of excess distribution
designations.--If a sponsoring organization designates
an amount of qualifying distributions in excess of the
amount necessary to meet the distribution requirements
for all taxable years and all applicable periods, the
sponsoring organization may designate such excess as a
carryover distribution which may be applied for
purposes of satisfying the distribution requirements of
the succeeding 5 taxable years.
``(f) Valuation Rules.--For purposes of determining the value of
any asset held by a donor advised fund, the following rules shall
apply:
``(1) Securities for which market quotations are readily
available shall be valued at fair market value determined on a
monthly basis.
``(2) Cash shall be determined on an average monthly basis.
``(3) Any illiquid asset transferred by a donor to a
sponsoring organization for maintenance in such donor advised
fund shall be valued in an amount equal to the sum of--
``(A) the value of such asset claimed by the donor
for purposes of determining the donor's deduction under
section 170, 2055, or 2522 with respect to such
transfer and reported by the donor to the sponsoring
organization (in any manner specified by the
Secretary), and
``(B) an assumed annual rate of return of 5 percent
of such value.
``(4) Any illiquid asset purchased by such fund shall be
valued in an amount equal to--
``(A) the purchase price paid for such asset by
such fund, and
``(B) an assumed annual rate of return of 5 percent
of such value.
``(g) Sponsoring Organization; Donor Advised Fund.--For purposes of
this subchapter--
``(1) Sponsoring organization.--The term `sponsoring
organization' means any organization which--
``(A) is described in section 170(c) (other than in
paragraph (1) thereof, and without regard to paragraph
(2)(A) thereof), and
``(B) maintains 1 or more donor advised funds.
``(2) Donor advised fund.--
``(A) In general.--Except as provided in
subparagraph (B), the term `donor advised fund' means a
fund or account--
``(i) which is separately identified by
reference to contributions of a donor or
donors,
``(ii) which is owned and controlled by a
sponsoring organization, and
``(iii) with respect to which a donor or
any person appointed or designated by such
person) has, or reasonably expects to have,
advisory privileges with respect to the
distribution or investment of amounts held in
such fund or account by reason of the donor's
status as a donor.
``(B) Exception.--The term `donor advised fund'
shall not include any fund or account with respect to
which a person described in subparagraph (A)(iii)
advises as to which individuals receive grants for
travel, study, or other similar purposes, but only if--
``(i) such person's advisory privileges are
performed exclusively by such person in the
person's capacity as a member of a committee
appointed by the sponsoring organization,
``(ii) no combination of persons described
in subparagraph (A)(iii) (or persons related to
such persons) control, directly or indirectly,
such committee, and
``(iii) all grants from such fund or
account satisfy requirements similar to those
described in section 4945(g) (concerning grants
to individuals by private foundations).
``(C) Secretarial authority.--The Secretary may
exempt a fund or account from treatment as a donor
advised fund which--
``(i) is advised by committee not directly
or indirectly controlled by the donor or
advisor (and any related parties), or
``(ii) will benefit a single identified
organization or governmental entity or a single
identified charitable purpose.
``(h) Other Definitions.--For purposes of this section--
``(1) Taxable period.--The term `taxable period' means,
with respect to the undistributed amount for any taxable year,
the period beginning with the first day of the taxable year and
ending on the earlier of--
``(A) the date of mailing of a notice of deficiency
with respect to the tax imposed by subsection (a) under
section 6212, or
``(B) the date on which the tax imposed by
subsection (a) is assessed.
``(2) Applicable period.--The term `applicable period'
means, with respect to any donor advised fund of any sponsoring
organization, a 3-consecutive taxable year period determined
under the following rules:
``(A) The first applicable 3-consecutive taxable
year period for any donor advised fund shall begin on
the first day of the first taxable year of the
sponsoring organization beginning after the date such
fund has been in existence for 1 year.
``(B) Any applicable 3-consecutive taxable year
period after the first such period shall begin on the
day after the termination of any preceding applicable
3-consecutive taxable year period with respect to such
donor advised fund.
``(i) Regulations.--The Secretary may issue such regulations as are
necessary to carry out the purposes of this section, including
regulations regarding--
``(1) the acceptable methods for calculating the
organization level undistributed amount for sponsoring
organizations,
``(2) the allowable adjustments in the determination of the
value of any illiquid asset where the asset value has declined
significantly after a contribution to, or purchase by, the
donor advised fund, and
``(3) the treatment or disregard of transactions designed
to avoid the application of the illiquid asset rules, such as
through exchanges of illiquid assets for other assets.
``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.
``(a) Imposition of Taxes.--
``(1) On the donor or donor advisor.--There is hereby
imposed on the advice of any person described in section
4967(g)(2)(A)(iii) to have a sponsoring organization of a donor
advised fund make a taxable distribution from such fund a tax
equal to 20 percent of the amount thereof. The tax imposed by
this paragraph shall be paid by such person who advised the
sponsoring organization of the donor advised fund to make the
distribution.
``(2) On the fund management.--There is hereby imposed on
the agreement of any fund manager to the making of a
distribution, knowing that it is a taxable distribution, a tax
equal to 5 percent of the amount thereof, unless such agreement
is not willful and is due to reasonable cause. The tax imposed
by this paragraph shall be paid by any fund manager who agreed
to the making of the distribution.
``(b) Joint and Several Liability.--For purposes of subsection (a),
if more than one person is liable under subsection (a)(1) or (a)(2)
with respect to the making of a taxable distribution, all such persons
shall be jointly and severally liable under such paragraph with respect
to such distribution.
``(c) Taxable Distribution.--For purposes of this subsection--
``(1) In general.--The term `taxable distribution' means
any distribution from a donor advised fund to any person other
than the sponsoring organization's non donor advised funds or
accounts or organizations described in section 170(b)(1)(A)
(other than any organization described in section 509(a)(3) or
any sponsoring organization if such amount is for maintenance
in a donor advised fund).
``(2) Exception.--Notwithstanding paragraph (1), such term
shall not include any distribution from a donor advised fund to
any organization described in section 170(f)(17)(B)(ii) to the
extent such distribution is not prohibited under regulations.
``(d) Fund Manager.--For purposes of this subchapter, the term
`fund manager' means, with respect to any sponsoring organization of a
donor advised fund--
``(1) an officer, director, or trustee of such sponsoring
organization (or an individual having powers or
responsibilities similar to those of officers, directors, or
trustees of the sponsoring organization), and
``(2) with respect to any act (or failure to act), the
employees of the sponsoring organization having authority or
responsibility with respect to such act (or failure to act).
``SEC. 4969. TAXES ON PROHIBITED BENEFITS.
``(a) Imposition of Taxes.--
``(1) On the donor, donor advisor, or related person.--
There is hereby imposed on the advice of any person described
in subsection (c) to have a sponsoring organization of a donor
advised fund make a distribution from such fund which results
in such a person receiving, directly or indirectly, a more than
incidental benefit as a result of such distribution, a tax
equal to 25 percent of the amount of such distribution. The tax
imposed by this paragraph shall be paid by such person who
advised the sponsoring organization of the donor advised fund
to make the distribution.
``(2) On the recipient of the benefit.--There is hereby
imposed on any person described in subsection (c) who receives
a benefit described in paragraph (1), a tax equal to 25 percent
of the amount of the distribution described in paragraph (1).
``(3) On the fund management.--There is hereby imposed on
the agreement of any fund manager to the making of a
distribution, knowing that such distribution would confer a
benefit described in paragraph (1), a tax equal to 10 percent
of the amount of such distribution, unless such agreement is
not willful and is due to reasonable cause. The tax imposed by
this paragraph shall be paid by any fund manager who agreed to
the making of the distribution.
``(b) Joint and Several Liability.--For purposes of subsection (a),
if more than one person is liable under subsection (a)(1), (a)(2), or
(a)(3) with respect to the making of a distribution described in
subsection (a), all such persons shall be jointly and severally liable
under such paragraph with respect to such distribution.
``(c) Donor, Donor Advisor, or Related Person.--A person is
described in this subsection if such person is described in section
4958(f)(1)(D) (determined without regard to any investment advisor).''.
(b) Abatement of Taxes Allowed.--Section 4963 is amended--
(1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each
place it appears in subsections (a) and (c),
(2) by inserting ``4967,'' after ``4958,'' in subsection
(b),
(3) in subsection (d)(2), by striking ``and'' at the end of
subparagraph (B), by striking the period at the end of
subparagraph (C) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(D) in the case of the second tier tax imposed by
section 4967(b), reducing the amount of the
undistributed amount to zero.'', and
(4) in subsection (e)(2), by redesignating subparagraphs
(C) and (D) as subparagraphs (E) and (F), respectively, and by
inserting after subparagraph (B) the following new
subparagraphs:
``(C) in the case of section 4967(a)(1), on the
first day of the taxable year for which there was a
failure to distribute,
``(D) in the case of paragraph (2) or (3) of
section 4967(a), on the 181st day of the taxable year
for which there was a failure to distribute,''.
(c) Conforming Amendments.--
(1) The table of subchapters for chapter 42, as amended by
this Act, is amended by adding at the end the following new
item:
``subchapter g. donor advised funds.''.
(2) Section 6213(e) is amended by inserting ``4967
(relating to taxes on sponsoring organizations of donor advised
funds for failure to meet distribution requirements),'' after
``benefit),''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 232. PROHIBITED TRANSACTIONS.
(a) Disqualified Persons.--
(1) In general.--Paragraph (1) of section 4958(f) is
amended by striking ``and'' at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and
inserting ``, and'', and by adding after subparagraph (C) the
following new subparagraph:
``(D) any person who is described in paragraph (7)
with respect to any sponsoring organization (as defined
in section 4967(g)(1)).''.
(2) Donors, donor advisors, and investment advisors treated
as disqualified persons.--Section 4958(f) is amended by adding
at the end the following new paragraph:
``(7) Donors, donor advisors, and investment advisors with
respect to sponsoring organizations.--For purposes of paragraph
(1)(D)--
``(A) In general.--A person is described in this
paragraph if such person--
``(i) is described in section
4967(g)(2)(A)(iii),
``(ii) is an investment advisor,
``(iii) is a member of the family of an
individual described in clause (i) or (ii), or
``(iv) is a 35-percent controlled entity
(as defined in paragraph (3) by substituting
`persons described in clause (i), (ii), or
(iii) of paragraph (7)(A)' for `persons
described in subparagraph (A) or (B) of
paragraph (1)' in subparagraph (A)(i) thereof).
``(B) Investment advisor.--The term `investment
advisor' means, with respect to any sponsoring
organization (as defined in section 4967(g)(1)), any
person (other than an employee of such organization)
compensated by such organization for managing the
investment of, or providing investment advice with
respect to, assets maintained in donor advised funds
(as defined in section 4967(g)(2)) owned by such
organization.''.
(3) Donors, donor advisors, and investment advisors treated
as disqualified persons with respect to a sponsoring
organization which is a private foundation.--Section 4946(a)(1)
is amended by striking ``and'' at the end of subparagraph (H),
by striking the period at the end of subparagraph (I) and
inserting ``, and'', and by adding at the end the following new
subparagraph:
``(J) a person described in section
4958(f)(1)(D).''.
(b) Certain Transactions Treated as Excess Benefit Transactions.--
(1) In general.--Section 4958(c) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
``(2) Special rules for donor advised funds owned by
sponsoring organizations.--In the case of any donor advised
fund (as defined in section 4967(g)(2)) of a sponsoring
organization (as defined in section 4967(g)(1))--
``(A) the term `excess benefit transaction'
includes any grant, loan, compensation, or other
payment from such fund to a person described in
subsection (f)(1)(D) (determined without regard to any
investment advisor) with respect to such fund, and
``(B) the term `excess benefit' includes, with
respect to any transaction described in subparagraph
(A), the amount of any such grant, loan, compensation,
or other payment.
Notwithstanding the last sentence of subsection (e), a
sponsoring organization shall be treated as an applicable tax-
exempt organization to the extent necessary to carry out this
paragraph.''.
(2) Special rule for correction of transaction.--Section
4958(f)(6) is amended by inserting ``, except that in the case
of any correction of an excess benefit transaction described in
subsection (c)(2), no amount repaid in a manner prescribed by
the Secretary may be held in, or credited to, any donor advised
fund'' after ``standards''.
(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. 233. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO DONOR
ADVISED FUNDS.
(a) Income.--Section 170(f) (relating to disallowance of deduction
in certain cases and special rules), as amended by this Act, is amended
by adding at the end the following new paragraph:
``(17) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed
under subsection (a) for any contribution to a
sponsoring organization (as defined in section
4967(g)(1)) to be maintained in any donor advised fund
(as defined in section 4967(g)(2)) of such organization
shall only be allowed if--
``(i) such sponsoring organization is not
described in paragraph (3), (4), or (5) of
subsection (c) or section 509(a)(3), and
``(ii) the taxpayer obtains a
contemporaneous written acknowledgment
(determined under rules similar to the rules of
paragraph (8)(C) from the sponsoring
organization that such organization has
exclusive legal control over the assets
contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), a contribution to a
sponsoring organization (as so defined)
described in clause (ii) to be maintained in
any donor advised fund (as so defined) of such
organization shall be allowed to the extent not
prohibited by regulations.
``(ii) Organization described.--An
organization is described in this clause if the
organization meets the requirements of
subparagraphs (A) and (C) of section 509(a)(3)
and is--
``(I) operated, supervised, or
controlled by one or more organizations
described in paragraph (1) or (2) of
section 509(a), or
``(II) supervised or controlled in
connection with one or more such
organizations.''.
(b) Estate.--Section 2055(e) is amended by adding at the end the
following new paragraph:
``(5) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed
under subsection (a) for any contribution to a
sponsoring organization (as defined in section
4967(g)(1)) to be maintained in any donor advised fund
(as defined in section 4967(g)(2)) of such organization
shall only be allowed if--
``(i) such sponsoring organization is not
described in paragraph (3) or (4) of subsection
(a) or section 509(a)(3), and
``(ii) the taxpayer obtains a
contemporaneous written acknowledgment
(determined under rules similar to the rules of
section 170(f)(8)(C)) from the sponsoring
organization that such organization has
exclusive legal control over the assets
contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), a contribution to a
sponsoring organization (as so defined)
described in clause (ii) to be maintained in
any donor advised fund (as so defined) of such
organization shall be allowed to the extent not
prohibited by regulations.
``(ii) Organization described.--An
organization is described in this clause if the
organization meets the requirements of
subparagraphs (A) and (C) of section 509(a)(3)
and is--
``(I) operated, supervised, or
controlled by one or more organizations
described in paragraph (1) or (2) of
section 509(a), or
``(II) supervised or controlled in
connection with one or more such
organizations.''.
(c) Gift.--Section 2522(c) is amended by adding at the end the
following new paragraph:
``(13) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed
under subsection (a) for any contribution to a
sponsoring organization (as defined in section
4967(g)(1)) to be maintained in any donor advised fund
(as defined in section 4967(g)(2)) of such organization
shall only be allowed if--
``(i) such sponsoring organization is not
described in paragraph (3) or (4) of subsection
(a) or section 509(a)(3), and
``(ii) the taxpayer obtains a
contemporaneous written acknowledgment
(determined under rules similar to the rules of
section 170(f)(8)(C)) from the sponsoring
organization that such organization has
exclusive legal control over the assets
contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), a contribution to a
sponsoring organization (as so defined)
described in clause (ii) to be maintained in
any donor advised fund (as so defined) of such
organization shall be allowed to the extent not
prohibited by regulations.
``(ii) Organization described.--An
organization is described in this clause if the
organization meets the requirements of
subparagraphs (A) and (C) of section 509(a)(3)
and is--
``(I) operated, supervised, or
controlled by one or more organizations
described in paragraph (1) or (2) of
section 509(a), or
``(II) supervised or controlled in
connection with one or more such
organizations.''.
(d) Regulations.--The regulations prescribed under sections
170(f)(17)(B)(i), 2055(e)(5)(B)(i), 2522(c)(13)(B)(i),
4967(e)(i)(A)(ii), and 4968(c)(2) of the Internal Revenue Code of 1986
shall deny a deduction for contributions to sponsoring organizations
(as defined in section 4967(g)(1) of such Code) which are described in
section 170(f)(17)(B)(ii) of such Code and shall apply excise taxes to
distributions from donor advised funds (as defined in section
4967(g)(2) of such Code) and sponsoring organizations (as so defined)
to organizations so described in cases where the donor of the
contributions or the donor or donor advisor of the amounts distributed
directly or indirectly controls a supported organization (as defined in
section 509(f)(3) of such Code) of such organization.
(e) Effective Date.--The amendments made by this section shall
apply to contributions made after the date which is 180 days after the
date of the enactment of this Act.
SEC. 234. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY, SPONSORING
ORGANIZATIONS.
(a) Matters Included on Returns.--
(1) In general.--Section 6033, as amended by this Act, is
amended by redesignating subsection (j) as subsection (k) and
by inserting after subsection (i) the following new subsection:
``(j) Additional Provisions Relating to Sponsoring Organizations.--
Every organization described in section 4967(g)(1) shall, on the return
required under subsection (a) for the taxable year--
``(1) list the total number of donor advised funds (as
defined in section 4967(g)(2)) it owns at the end of such
taxable year,
``(2) indicate the aggregate value of assets held in such
funds at the end of such taxable year, and
``(3) indicate the aggregate contributions to and grants
made from such funds during such taxable year.''.
(2) Extension of statute of limitations6501(c) is amended
by adding at the end the following new paragraph:
``(11) Donor advised funds.--If a sponsoring organization
(as defined in section 4967(g)(1)) fails to include on any
return for any taxable year any information with respect to any
donor advised fund of such organization which is required under
section 6033(j) to be included with such return, the time for
assessment of any tax imposed under subchapter G of chapter 42
with respect to any distribution from such donor advised fund
shall not expire before the date which is 3 years after the
date on which the secretary is furnished the information so
required.''.
(3) Effective date.--The amendments made by this subsection
shall apply to returns filed for taxable years ending after the
date of the enactment of this Act.
(b) Matters Included on Exempt Status Application.--
(1) In general.--Section 508 is amended by adding at the
end the following new subsection:
``(f) Additional Provisions Relating to Sponsoring Organizations.--
A sponsoring organization (as defined in section 4967(g)(1)) shall give
notice to the Secretary (in such manner as the Secretary may provide)
whether such organization maintains or intends to maintain donor
advised funds (as defined in section 4967(g)(2)) and the manner in
which such organization plans to operate such funds.''.
(2) Effective date.--The amendment made by this subsection
shall apply to organizations applying for tax-exempt status
after the date of the enactment of this Act.
PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS
SEC. 241. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.
(a) Types of Supporting Organizations.--Subparagraph (B) of section
509(a)(3) is amended to read as follows:
``(B) is--
``(i) operated, supervised, or controlled
by one or more organizations described in
paragraph (1) or (2),
``(ii) supervised or controlled in
connection with one or more such organizations,
or
``(iii) operated in connection with one or
more such organizations, and''.
(b) Requirements for Supporting Organizations.--Section 509
(relating to private foundation defined) is amended by adding at the
end the following new subsection:
``(f) Requirements for Supporting Organizations
``(1) Type iii supporting organizations.--For purposes of
subsection (a)(3)(B)(iii), an organization shall not be
considered to be operated in connection with any organization
described in paragraph (1) or (2) of subsection (a) unless such
organization meets the following requirements:
``(A) Application requirement.--The organization
provides to the Secretary, as a part of any
notification filed under section 508(a) after the date
of the enactment of this subsection, a letter from each
supported organization acknowledging that the supported
organization has been designated by such organization
as a supported organization.
``(B) Responsiveness.--For each taxable year
beginning after the date of the enactment of this
subsection, the organization provides to each supported
organization such information as the Secretary may
require to ensure that such organization is responsive
to the needs or demands of the supported organization.
``(C) Supported organizations.--
``(i) In general.--The organization--
``(I) is not operated in connection
with more than 5 supported
organizations, and
``(II) is not operated in
connection with any supported
organization that is not organized in
the United States on any date after the
date which is 180 days after the date
of the enactment of this subsection.
``(ii) Special rule for existing
organizations.--If the organization is operated
in connection with more than 5 supported
organizations on the date of the enactment of
this subsection--
``(I) clause (i)(I) shall not
apply, and
``(II) the organization may not be
operated in connection with any other
organization after such date unless the
total number of supported organizations
is 5 or less.
``(D) Contributions to donor advised funds.--The
organization makes no contributions to or for the use
of any donor advised fund (as defined in section
4967(g)(2)).
``(2) Organizations controlled by donors.--
``(A) In general.--For purposes of subsection
(a)(3)(B), an organization shall not be considered to
be--
``(i) operated, supervised, or controlled
by any organization described in paragraph (1)
or (2) of subsection (a), or
``(ii) operated in connection with any
organization described in paragraph (1) or (2)
of subsection (a),
if such organization accepts any gift or contribution
from any person described in subparagraph (B).
``(B) Person described.--A person is described in
this subparagraph if such person is--
``(i) a person (other than an organization
described in paragraph (1), (2), or (4) of
section 509(a)) who controls, directly or
indirectly, either alone or together with
persons described in clauses (ii) and (iii),
the governing body of a supported organization,
``(ii) a member of the family (determined
under section 4958(f)(4)) of an individual
described in clause (i), or
``(iii) a 35-percent controlled entity (as
defined in section 4958(f)(3) by substituting
`persons described in clause (i) or (ii) of
section 509(f)(2)(B)' for `persons described in
subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(3) Supported organization.--For purposes of this
subsection, the term `supported organization' means, with
respect to an organization described in subsection (a)(3), an
organization described in paragraph (1) or (2) of subsection
(a)--
``(A) for whose benefit the organization described
in subsection (a)(3) is organized and operated, or
``(B) with respect to which the organization
performs the functions of, or carries out the purposes
of.''.
(c) Charitable Trusts Which Are Type III Supporting
Organizations.--For purposes of section 509(a)(3)(B)(iii) of the
Internal Revenue Code of 1986, an organization which is a trust shall
not be considered to be operated in connection with any organization
described in paragraph (1) or (2) of section 509(a) of such Code solely
because--
(1) it is a charitable trust under State law,
(2) the supported organization (as defined in section
509(f)(3) of such Code) is a beneficiary of such trust, and
(3) the supported organization (as so defined) has the
power to enforce the trust and compel an accounting.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 242. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE TO MEET
DISTRIBUTION REQUIREMENTS.
(a) In General.--Subchapter D of chapter 42 (relating to failure by
certain charitable organizations to meet certain qualification
requirements) is amended by adding at the end the following new
section:
``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS FAILING TO MEET
DISTRIBUTION REQUIREMENTS.
``(a) Initial Tax.--There is hereby imposed on the undistributed
income of any type III supporting organization for any taxable year,
which has not been distributed before the first day of the second (or
any succeeding) taxable year following such taxable year (if such first
day falls within the taxable period), a tax equal to 30 percent of the
amount of such income remaining undistributed at the beginning of such
second (or succeeding) taxable year.
``(b) Additional Tax.--In any case in which an initial tax is
imposed under subsection (a) on the undistributed income of a type III
supporting organization for any taxable year, if any portion of such
income remains undistributed at the close of the taxable period, there
is hereby imposed a tax equal to 100 percent of the amount remaining
undistributed at such time.
``(c) Undistributed Income.--For purposes of this section, the term
`undistributed income' means, with respect to any type III supporting
organization for any taxable year as of any time, the amount by which--
``(1) the distributable amount for such taxable year,
exceeds
``(2) the qualifying distributions made before such time
out of such distributable amount.
``(d) Distributable Amount.--For purposes of this section--
``(1) In general.--the term `distributable amount' means,
with respect to any type III supporting organization for any
taxable year, an amount equal to the sum of--
``(A) the greater of--
``(i) 85 percent of the adjusted net income
(as defined in section 4942(f)) of the type III
supporting organization for the preceding
taxable year, or
``(ii) the applicable percentage of the
fair market value of the aggregate assets of
such organization (other than assets used or
held to perform the functions of, or carry out
the purposes of, a supported organization) on
the last day of the preceding taxable year, and
``(B) any amount received during the preceding
taxable year which is a repayment of amounts paid by
the organization in any prior taxable year to a
supported organization exclusively for the benefit of
such supported organization or to perform the functions
of, or carry out the purposes of such supported
organization.
``(2) Investment assets.--For purposes of paragraph
(1)(A)(ii), assets held for investment or for the operation of
an unrelated trade or business shall not be considered as
assets used or held to perform the functions of, or carry out
the purposes of, a supported organization.
``(3) Applicable percentage.--For purposes of paragraph
(1)(A)(ii), the applicable percentage is--
``(A) 3 percent for the first taxable year
beginning after the date of the enactment of this
section,
``(B) 4 percent for the second taxable year
beginning after such date, and
``(C) 5 percent for any taxable year beginning
after the second taxable year beginning after such
date.
``(e) Qualifying Distribution.--For purposes of this section--
``(1) In general.--The term `qualifying distribution' means
amounts paid by the type III supporting organization to or for
the use of a supported organization.
``(2) Administrative and operating expenses.--Reasonable
and necessary administrative expenses of a type III supporting
organization shall be treated as a qualifying distribution to a
supported organization.
``(f) Treatment of Qualifying Distributions.--
``(1) In general.--Except as provided in paragraph (2), any
qualifying distribution made during a taxable year shall be
treated as made--
``(A) first out of the undistributed income of the
immediately preceding taxable year (if the type III
supporting organization was subject to the tax imposed
by this section for such preceding taxable year) to the
extent thereof, and
``(B) second out of the undistributed income for
the taxable year to the extent thereof.
For purposes of this paragraph, distributions shall be taken
into account in the order of time in which made.
``(2) Correction of deficient distributions for prior
taxable years, etc.--In the case of any qualifying distribution
which (under paragraph (1)) is not treated as made out of the
undistributed income of the immediately preceding taxable year,
the type III supporting organization may elect to treat any
portion of such distribution as made out of the undistributed
income of a designated prior taxable year. The election shall
be made by the type III supporting organization at such time
and in such manner as the Secretary shall by regulations
prescribe.
``(g) Adjustment of Distributable Amount Where Distributions During
Prior Years Have Exceeded Income.--
``(1) In general.--If, for the taxable years in the
adjustment period for which an organization is a type III
supporting organization--
``(A) the aggregate qualifying distributions
treated (under subsection (f)) as made out of the
undistributed income for such taxable years, exceeds
``(B) the distributable amounts for such taxable
years (determined without regard to this subsection),
then, for purposes of this section (other than subsection (f)),
the distributable amount for the taxable year shall be reduced
by an amount equal to such excess.
``(2) Taxable years in adjustment period.--For purposes of
paragraph (1), with respect to any taxable year of a type III
supporting organization, the taxable years in the adjustment
period are the taxable years (not exceeding 5) beginning after
the date of the enactment of this section and immediately
preceding the taxable year.
``(h) Other Definitions.--For purposes of this section--
``(1) Taxable period.--The term `taxable period' means,
with respect to the undistributed income for any taxable year,
the period beginning with the first day of the taxable year and
ending on the earlier of--
``(A) the date of mailing of a notice of deficiency
with respect to the tax imposed by subsection (a) under
section 6212, or
``(B) the date on which the tax imposed by
subsection (a) is assessed.
``(2) Type iii supporting organization.--The term `type III
supporting organization' means an organization which meets the
requirements of subparagraphs (A) and (C) of section 509(a)(3)
and which is operated in connection with one or more
organizations described in paragraph (1) or (2) of section
509(a).
``(3) Supported organization.--The term `supported
organization' has the meaning given such term under section
509(f)(3).''.
(b) Conforming Amendment.--The table of sections for subchapter D
of chapter 42 is amended by inserting after the item relating to
section 4958 the following new item:
``Sec. 4959. Taxes on certain supporting organizations failing to meet
distribution requirements.''.
(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. 243. EXCESS BENEFIT TRANSACTIONS.
(a) In General.--Section 4958(c), as amended by this Act, is
amended by redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
``(3) Special rules for supporting organizations.--
``(A) In general.--In the case of any organization
described in section 509(a)(3)--
``(i) the term `excess benefit transaction'
includes--
``(I) any grant, loan,
compensation, or other payment provided
by such organization to a person
described in subparagraph (B), and
``(II) any loan provided by such
organization to a disqualified person
(other than an organization described
in paragraph (1), (2), or (4) of
section 509(a)), and
``(ii) the term `excess benefit' includes,
with respect to any transaction described in
clause (i), the amount of any such grant, loan,
compensation, or other payment.
``(B) Person described.--A person is described in
this subparagraph if such person is--
``(i) a substantial contributor to such
organization,
``(ii) a member of the family (determined
under section 4958(f)(4)) of an individual
described in clause (i), or
``(iii) a 35-percent controlled entity (as
defined in section 4958(f)(3) by substituting
`persons described in clause (i) or (ii) of
section 4958(c)(3)(B)' for `persons described
in subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(C) Substantial contributor.--For purposes of
this paragraph--
``(i) In general.--The term `substantial
contributor' means any person who contributed
or bequeathed an aggregate amount of more than
$5,000 to the organization, if such amount is
more than 2 percent of the total contributions
and bequests received by the organization
before the close of the taxable year of the
organization in which the contribution or
bequest is received by the organization from
such person. In the case of a trust, such term
also means the creator of the trust.
``(ii) Exception.--Such term shall not
include any organization described in paragraph
(1), (2), or (4) of section 509(a).''.
(b) Disqualified Persons.--Paragraph (1) of section 4958(f), as
amended by this Act, is amended by striking ``and'' at the end of
subparagraph (D), by striking the period at the end of subparagraph (E)
and inserting ``, and'', and by adding after subparagraph (D) the
following new subparagraph:
``(E) any person who is described in subparagraph
(A), (B), or (C) with respect to an organization
described in section 509(a)(3) which is organized and
operated exclusively for the benefit of, to perform the
functions of, or to carry out the purposes of the
applicable tax-exempt organization.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions occurring after the date of the enactment of this
Act.
SEC. 244. EXCESS BUSINESS HOLDINGS OF SUPPORTING ORGANIZATIONS.
(a) In General.--Section 4943 is amended by adding at the end the
following new subsection:
``(e) Application of Tax to Supporting Organizations.--
``(1) In general.--For purposes of this section, a
qualified supporting organization shall be treated as a private
foundation.
``(2) Exception.--The Secretary may exempt any qualified
supporting organization from the application of this subsection
if the Secretary determines that the excess business holdings
of such organization are consistent with the purpose or
function constituting the basis for its exemption under section
501.
``(3) Qualified supporting organization.--For purposes of
this subsection, the term `qualified supporting organization'
means any--
``(A) type III supporting organization (as defined
in section 4959(h)(2)), or
``(B) organization which meets the requirements of
subparagraphs (A) and (C) of section 509(a)(3) and
which is supervised or controlled in connection with or
one or more organizations described in paragraph (1) or
(2) of section 509(a), but only if such organization
accepts any gift or contribution from any person
described in section 509(f)(2)(B).
``(4) Disqualified person.--
``(A) In general.--In applying this section to any
organization described in section 509(a)(3), the term
`disqualified person' means, with respect to the
organization--
``(i) any person who was, at any time
during the 5-year period ending on date
described in subsection (a)(2)(A), in a
position to exercise substantial influence over
the affairs of the organization,
``(ii) any member of the family (determined
under section 4958(f)(4)) of an individual
described in clause (i),
``(iii) any 35-percent controlled entity
(as defined in section 4958(f)(3) by
substituting `persons described in clause (i)
or (ii) of section 4943(e)(2)(A)' for `persons
described in subparagraph (A) or (B) of
paragraph (1)' in subparagraph (A)(i) thereof),
``(iv) any person described in section
4958(c)(3)(B), and
``(v) any organization--
``(I) which is effectively
controlled (directly or indirectly) by
the same person or persons who control
the organization in question, or
``(II) substantially all of the
contributions to which were made
(directly or indirectly) by the same
person or persons described in
subparagraph (B) or a member of their
family (within the meaning of section
4946(d)) who made (directly or
indirectly) substantially all of the
contributions to the organization in
question.
``(B) Persons described.--A person is described in
this subparagraph if such person is--
``(i) a substantial contributor to the
organization (as defined in section
4958(c)(3)(C)),
``(ii) an officer, director, or trustee of
the organization (or an individual having
powers or responsibilities similar to those
officers, directors, or trustees of the
organization), or
``(iii) an owner of more than 20 percent
of--
``(I) the total combined voting
power of a corporation,
``(II) the profits interest of a
partnership, or
``(III) the beneficial interest of
a trust or unincorporated enterprise,
which is a substantial contributor (as so
defined) to the organization.
``(5) Special rule for certain holdings of type iii
supporting organizations.--For purposes of this subsection, the
term `excess business holdings' shall not include any holdings
of a type III supporting organization (as defined in section
4959(h)(2)) in any business enterprise if the holdings are held
for the benefit of the community pursuant to the direction of a
State attorney general or a State official with jurisdiction
over the type III supporting organization.
``(6) Present holdings.--For purposes of this subsection,
rules similar to the rules of paragraphs (4), (5), and (6) of
subsection (c) shall apply to organizations described in
section 509(a)(3), except that--
``(A) `the date of the enactment of this
subsection' shall be substituted for `May 26, 1969'
each place it appears in paragraphs (4), (5), and (6),
and
``(B) `January 1, 2007' shall be substituted for
`January 1, 1970' in paragraph (4)(E).''.
(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. 245. TREATMENT OF AMOUNTS PAID TO SUPPORTING ORGANIZATIONS BY
PRIVATE FOUNDATIONS.
(a) Qualifying Distributions.--Paragraph (4) of section 4942(g) is
amended to read as follows:
``(4) Limitation on distributions by nonoperating private
foundations to supporting organizations.--For purposes of this
section, the term `qualifying distribution' shall not include
any amount paid by a private foundation which is not an
operating foundation to an organization described in section
509(a)(3).''.
(b) Taxable Expenditures.--
(1) In general.--Subsection (d) of section 4945 is amended
by redesignating paragraphs (4) and (5) as paragraphs (5) and
(6), respectively, and by inserting after paragraph (3) the
following new paragraph:
``(4) to an organization described in section 509(a)(3),''.
(2) Conforming amendments.--
(A) Section 4945(d)(5), as redesignated by
subparagraph (A), is amended--
(i) by striking ``a grant to an
organization'' and inserting ``a grant to any
other organization'', and
(ii) by striking ``paragraph (1), (2), or
(3) of section 509(a)'' in subparagraph (A) and
inserting ``paragraph (1) or (2) of section
509(a)''.
(B) Section 4945(f) is amended by striking
``Subsection (d)(4)'' in the last sentence thereof and
inserting ``Subsection (d)(5)''.
(C) Section 4945(h) is amended by striking
``subsection (d)(4)'' and inserting ``subsection
(d)(5)''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions and expenditures after the date of the enactment
of this Act.
SEC. 246. RETURNS OF SUPPORTING ORGANIZATIONS.
(a) Requirement To File Return.--Subparagraph (B) of section
6033(a)(3), as redesignated by this Act, is amended by inserting
``(other than an organization described in section 509(a)(3))'' after
``paragraph (1)''.
(b) Matters Included on Returns.--Section 6033, as amended by this
Act, is amended by redesignating subsection (k) as subsection (l) and
by inserting after subsection (j) the following new subsection:
``(k) Additional Provisions Relating to Supporting Organizations.--
``(1) In general.--Every organization described in section
509(a)(3) shall, on the return required under subsection (a)--
``(A) list the organizations described in section
509(a)(3)(A) with respect to which such organization
provides support,
``(B) indicate whether the organization meets the
requirements of clause (i), (ii), or (iii) of section
509(a)(3)(B), and
``(C) certify that the organization meets the
requirements of section 509(a)(3)(C).
``(2) Type iii supporting organizations.--Every type III
supporting organization (as defined in section 4959(h)(2))
shall indicate on the return required under subsection (a) for
the taxable year whether the organization has received a letter
from each supported organization (as defined in section
509(f)(3)) during the taxable year which--
``(A) acknowledges that the supporting organization
has designated such organization as a supported
organization,
``(B) details the type of support provided by the
supporting organization, and
``(C) explains how such support furthers the
charitable purpose of the supported organization.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns filed for taxable years ending after the date of the
enactment of this Act.
TITLE III--MISCELLANEOUS PROVISIONS
SEC. 301. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.
(a) In General.--Subchapter Y of chapter 1 is amended by adding at
the end the following new section:
``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.
``(a) In General.--There shall be allowed as a credit against any
taxes imposed by this title (other than by section 3111(a), section
3403, or subtitle D) paid or incurred by any governmental unit of the
State of New York and the City of New York, New York (including any
agency or instrumentality thereof) for any calendar year an amount
equal to the lesser of--
``(1) the total expenditures during such year by such
governmental unit for qualifying projects, or
``(2) the amount allocated to such governmental unit for
such calendar year under subsection (b)(2).
``(b) Qualifying Project.--For purposes of this section--
``(1) In general.--The term `qualifying project' means any
transportation infrastructure project, including highways, mass
transit systems, railroads, airports, ports, and waterways, in
or connecting with the New York Liberty Zone (as defined in
section 1400L(h)), which is designated as a qualifying project
under this section jointly by the Governor of the State of New
York and the Mayor of the City of New York, New York.
``(2) Dollar limitation.--
``(A) In general.--The Governor of the State of New
York and the Mayor of the City of New York, New York,
shall jointly allocate to a governmental unit the
amount of expenditures which may be taken into account
under subsection (a) for any calendar year in the
credit period with respect to a qualifying project.
``(B) Aggregate limit.--The aggregate amount which
may be allocated under subparagraph (A) for all
calendar years in the credit period shall not exceed
$2,000,000,000.
``(C) Annual limit.--The aggregate amount which may
be allocated under subparagraph (A) for any calendar
year in the credit period shall not exceed the sum of--
``(i) $200,000,000, plus
``(ii) the aggregate amount authorized to
be allocated under this paragraph for all
preceding calendar years in the credit period
which was not so allocated.
``(D) Unallocated amounts at end of credit
period.--If, as of the close of the credit period, the
amount under subparagraph (B) exceeds the aggregate
amount allocated under subparagraph (A) for all
calendar years in the credit period, the Governor of
the State of New York and the Mayor of the City of New
York, New York, may jointly allocate for any calendar
year following the credit period for expenditures with
respect to qualifying projects which may be taken into
account under subsection (a) an amount equal to such
excess, reduced by the aggregate amount allocated under
this subparagraph for all preceding calendar years.
``(c) Carryover of Unused Allocations.--
``(1) In general.--If the amount allocated under subsection
(b)(2) to a governmental unit for any calendar year exceeds the
total expenditures for such year by such governmental unit for
qualifying projects, the allocation of such governmental unit
for the succeeding calendar year shall be increased by the
amount of such excess.
``(2) Reallocation.--If a governmental unit does not use an
amount allocated to it under subsection (b)(2) within the time
prescribed by the Governor of the State of New York and the
Mayor of the City of New York, New York, then such amount shall
after such time be treated for purposes of subsection (b)(2) in
the same manner as if it had never been allocated.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Credit period.--The term `credit period' means the
10-year period beginning on January 1, 2006.
``(2) Treatment of funds.--Any expenditure for a qualifying
project taken into account for purposes of the credit under
this section shall be considered State and local funds for the
purpose of any Federal program.
``(e) Regulations.--The Secretary may prescribe such regulations as
are necessary to ensure compliance with the purposes of this
section.''.
(b) Termination of Certain New York Liberty Zone Benefits.--
(1) Special allowance and expensing.--Section
1400L(b)(2)(A)(v) is amended by striking ``the termination
date'' and inserting ``the date of the enactment of the Tax
Relief Act of 2005 or the termination date if pursuant to a
binding contract in effect on such enactment date''.
(2) Leasehold.--Section 1400L(c)(2)(B) is amended by
striking ``before January 1, 2007'' and inserting ``on or
before the date of the enactment of the Tax Relief Act of 2005
or before January 1, 2007, if pursuant to a binding contract in
effect on such enactment date''.
SEC. 302. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT INCOME
RULES.
(a) Increased Percentage Limit.--Paragraph (2) of section 1375(a)
is amended by striking ``25 percent'' and inserting ``60 percent''.
(b) Other Provisions.--
(1) Repeal of excessive passive income as a termination
event.--Section 1362(d) is amended by striking paragraph (3).
(2) Capital gain not treated as passive investment
income.--Subsection (b) of section 1375 is amended by striking
paragraphs (3) and (4) and inserting the following new
paragraph:
``(3) Passive investment income defined.--
``(A) Except as otherwise provided in this
paragraph, the term `passive investment income' means
gross receipts derived from royalties, rents,
dividends, interest, and annuities.
``(B) Exception for interest on notes from sales of
inventory.--The term `passive investment income' shall
not include interest on any obligation acquired in the
ordinary course of the corporation's trade or business
from its sale of property described in section
1221(a)(1).
``(C) Treatment of certain lending or finance
companies.--If the S corporation meets the requirements
of section 542(c)(6) for the taxable year, the term
`passive investment income' shall not include gross
receipts for the taxable year which are derived
directly from the active and regular conduct of a
lending or finance business (as defined in section
542(d)(1)).
``(D) Treatment of certain dividends.--If an S
corporation holds stock in a C corporation meeting the
requirements of section 1504(a)(2), the term `passive
investment income' shall not include dividends from
such C corporation to the extent such dividends are
attributable to the earnings and profits of such C
corporation derived from the active conduct of a trade
or business.
``(E) Exception for banks, etc.--In the case of a
bank (as defined in section 581) or a depository
institution holding company (as defined in section
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1)), 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.
``(F) Coordination with section 1374.--The amount
of passive investment income shall be determined by not
taking into account any recognized built-in gain or
loss of the S corporation for any taxable year in the
recognition period. Terms used in the preceding
sentence shall have the same respective meanings as
when used in section 1374.''.
(c) Conforming Amendments.--
(1) Subparagraph (J) of section 26(b)(2) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(2) Clause (i) of section 1042(c)(4)(A) is amended by
striking ``section 1362(d)(3)(C)'' and inserting ``section
1375(b)(3)''.
(3) Subparagraph (B) of section 1362(f)(1) is amended by
striking ``or (3)''.
(4) Clause (i) of section 1375(b)(1)(A) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(5) The heading for section 1375 is amended by striking
``25 percent'' and inserting ``60 percent''.
(6) The item relating to section 1375 in the table of
sections for part III of subchapter S of chapter 1 is amended
by striking ``25 percent'' and inserting ``60 percent''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006 and before
October 1, 2009.
SEC. 303. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CERTAIN
CAPITAL EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL
ISSUE BONDS.
(a) In General.--Section 144(a)(4)(G) is amended by striking
``September 30, 2009'' and inserting ``December 31, 2006''.
(b) Conforming Amendment.--Section 144(a)(4)(F) is amended by
striking ``September 30, 2009'' and inserting ``December 31, 2006''.
SEC. 304. PREMIUMS FOR MORTGAGE INSURANCE.
(a) In General.--Section 163(h)(3) (relating to qualified residence
interest) is amended by adding at the end the following new
subparagraph:
``(E) Mortgage insurance premiums treated as
interest.--
``(i) In general.--Premiums paid or accrued
for qualified mortgage insurance by a taxpayer
during the taxable year in connection with
acquisition indebtedness with respect to a
qualified residence of the taxpayer shall be
treated for purposes of this section as
interest which is qualified residence interest.
``(ii) Phaseout.--The amount otherwise
treated as interest under clause (i) shall be
reduced (but not below zero) by 10 percent of
such amount for each $1,000 ($500 in the case
of a married individual filing a separate
return) (or fraction thereof) that the
taxpayer's adjusted gross income for the
taxable year exceeds $100,000 ($50,000 in the
case of a married individual filing a separate
return).''.
(b) Definition and Special Rules.--Section 163(h)(4) (relating to
other definitions and special rules) is amended by adding at the end
the following new subparagraphs:
``(E) Qualified mortgage insurance.--The term
`qualified mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subparagraph).
``(F) Special rules for prepaid qualified mortgage
insurance.--Any amount paid by the taxpayer for
qualified mortgage insurance that is properly allocable
to any mortgage the payment of which extends to periods
that are after the close of the taxable year in which
such amount is paid shall be chargeable to capital
account and shall be treated as paid in such periods to
which so allocated. No deduction shall be allowed for
the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The
preceding sentences shall not apply to amounts paid for
qualified mortgage insurance provided by the Veterans
Administration or the Rural Housing Administration.''.
(c) Information Returns Relating to Mortgage Insurance.--Section
6050H (relating to returns relating to mortgage interest received in
trade or business from individuals) is amended by adding at the end the
following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year, shall
make a return with respect to each such individual. Such return
shall be in such form, shall be made at such time, and shall
contain such information as the Secretary may prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to make
a return under paragraph (1) shall furnish to each individual
with respect to whom a return is made a written statement
showing such information as the Secretary may prescribe. Such
written statement shall be furnished on or before January 31 of
the year following the calendar year for which the return under
paragraph (1) was required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c)
shall apply, and
``(B) the term `mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subsection).''.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued during the period beginning after
December 31, 2006, and before January 1, 2008, and properly allocable
to such period, with respect to mortgage insurance contracts issued
after December 31, 2006.
SEC. 305. SENSE OF THE SENATE ON USE OF NO-BID CONTRACTING BY FEDERAL
EMERGENCY MANAGEMENT AGENCY.
(a) Findings.--The Senate finds that--
(1) on September 8, 2005, the Federal Emergency Management
Agency announced that it had awarded 4 contracts for emergency
housing relief following Hurricane Katrina to The Shaw Group of
Baton Rouge, Louisiana, Fluor Corporation of Aliso Viejo,
California, Bechtel National of San Francisco, California, and
CH2M Hill of Denver, Colorado;
(2) these contracts were awarded with no competition from
other capable firms, and up to $100,000,000 in taxpayer funds
were authorized for each of these contracts;
(3) in the midst of concerns about abusive and
irresponsible spending of taxpayer funds, the Federal Emergency
Management Agency pledged to re-bid these noncompetitive
contracts, with Acting Under Secretary of Emergency
Preparedness and Response, R. David Paulison, stating before
the Committee on Homeland Security and Government Affairs of
the Senate that ``[a]ll of these no-bid contracts, we are going
to go back and re-bid'';
(4) the Federal Emergency Management Agency has yet to
reopen these 4 contracts to competitive bidding, and declared
on November 11, 2005, that these contracts would not be
reopened for bidding until February 2006;
(5) by February 2006, the majority of the contracts will
have been completed and the majority of taxpayer funds will
have been spent;
(6) large and politically-connected firms continue to
benefit from no-bid and limited-competition contracts, and
contracts are not being awarded to capable, local companies;
(7) according to an analysis in the Washington Post,
companies outside the States most affected by Hurricane Katrina
have received more than 90 percent of the Federal contracts for
recovery and reconstruction;
(8) the monitoring of Federal contracting practices remains
difficult, with a report by the San Jose Mercury News stating
``The database of contracts is incomplete. Information released
by Federal agencies is spotty and sporadic. And disclosure of
many no-bid contracts isn't required by law''; and
(9)(A) there is currently no Chief Financial Officer
charged with monitoring the flow of all funds to the affected
areas; and
(B) the task of financial management is spread across
disparate Federal departments and agencies with inadequate
oversight of taxpayer funds.
(b) Sense of the Senate.--It is the sense of the Senate that the
Federal Emergency Management Agency should--
(1) immediately rebid noncompetitive contracts entered into
following Hurricane Katrina, consistent with the commitment of
the Agency made on October 6, 2005, before millions of taxpayer
dollars are wasted on irresponsible and inefficient spending;
(2)(A) immediately implement the planned competitive
contracting strategy of the Agency for recovery work in all
current and future reconstruction efforts; and
(B) in carrying out that strategy, should prioritize local
and small disadvantaged businesses in the contracting and
subcontracting process; and
(3) immediately after the awarding of a contract, publicly
disclose the amount and competitive or noncompetitive nature of
the contract.
SEC. 306. SENSE OF CONGRESS REGARDING DOHA ROUND.
(a) Findings.--The Congress makes the following findings:
(1) Members of the World Trade Organization (WTO) are
currently engaged in a round of trade negotiations known as the
Doha Development Agenda (Doha Round).
(2) The Doha Round includes negotiations aimed at
clarifying and improving disciplines under the Agreement on
Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994 (Antidumping Agreement) and the
Agreement on Subsidies and Countervailing Measures (Subsidies
Agreement).
(3) The WTO Ministerial Declaration adopted on November 14,
2001 (WTO Paper No. WT/MIN(01)/DEC/1) specifically provides
that the Doha Round negotiations are to preserve the ``basic
concepts, principles and effectiveness'' of the Antidumping
Agreement and the Subsidies Agreement.
(4) In section 2102(b)(14)(A) of the Bipartisan Trade
Promotion Authority Act of 2002, the Congress mandated that the
principal negotiating objective of the United States with
respect to trade remedy laws was to ``preserve the ability of
the United States to enforce rigorously its trade laws . . .
and avoid agreements that lessen the effectiveness of domestic
and international disciplines on unfair trade, especially
dumping and subsidies''.
(5) The countries that have been the most persistent and
egregious violators of international fair trade rules are
engaged in an aggressive effort to significantly weaken the
disciplines provided in the Antidumping Agreement and the
Subsidies Agreement and undermine the ability of the United
States to effectively enforce its trade remedy laws.
(6) Chronic violators of fair trade disciplines have put
forward proposals that would substantially weaken United States
trade remedy laws and practices, including mandating that
unfair trade orders terminate after a set number of years even
if unfair trade and injury are likely to recur, mandating that
trade remedy duties reflect less than the full margin of
dumping or subsidization, mandating higher de minimis levels of
unfair trade, making cumulation of the effects of imports from
multiple countries more difficult in unfair trade
investigations, outlawing the critical practice of ``zeroing''
in antidumping investigations, mandating the weighing of
causes, and mandating other provisions that make it more
difficult to prove injury.
(7) United States trade remedy laws have already been
significantly weakened by numerous unjust and activist WTO
dispute settlement decisions which have created new obligations
to which the United States never agreed.
(8) Trade remedy laws remain a critical resource for
American manufacturers, agricultural producers, and
aquacultural producers in responding to closed foreign markets,
subsidized imports, and other forms of unfair trade,
particularly in the context of the challenges currently faced
by these vital sectors of the United States economy.
(9) The United States had a current account trade deficit
of approximately $668,000,000,000 in 2004, including a trade
deficit of almost $162,000,000,000 with China alone, as well as
a trade deficit of $40,000,000,000 in advanced technology.
(10) United States manufacturers have lost over 3,000,000
jobs since June 2000, and United States manufacturing
employment is currently at its lowest level since 1950.
(11) Many industries critical to United States national
security are at severe risk from unfair foreign competition.
(12) The Congress strongly believes that the proposals put
forward by countries seeking to undermine trade remedy
disciplines in the Doha Round would result in serious harm to
the United States economy, including significant job losses and
trade disadvantages.
(b) Sense of Congress.--It is the sense of Congress that--
(1) the United States should not be a signatory to any
agreement or protocol with respect to the Doha Development
Round of the World Trade Organization negotiations, or any
other bilateral or multilateral trade negotiations, that--
(A) adopts any proposal to lessen the effectiveness
of domestic and international disciplines on unfair
trade or safeguard provisions, including proposals--
(i) mandating that unfair trade orders
terminate after a set number of years even if
unfair trade and injury are likely to recur;
(ii) mandating that trade remedy duties
reflect less than the full margin of dumping or
subsidization;
(iii) mandating higher de minimis levels of
unfair trade;
(iv) making cumulation of the effects of
imports from multiple countries more difficult
in unfair trade investigations;
(v) outlawing the critical practice of
``zeroing'' in antidumping investigations; or
(vi) mandating the weighing of causes or
other provisions making it more difficult to
prove injury in unfair trade cases; and
(B) would lessen in any manner the ability of the
United States to enforce rigorously its trade laws,
including the antidumping, countervailing duty, and
safeguard laws;
(2) the United States trade laws and international rules
appropriately serve the public interest by offsetting injurious
unfair trade, and that further ``balancing modifications'' or
other similar provisions are unnecessary and would add to the
complexity and difficulty of achieving relief against injurious
unfair trade practices; and
(3) the United States should ensure that any new agreement
relating to international disciplines on unfair trade or
safeguard provisions fully rectifies and corrects decisions by
WTO dispute settlement panels or the Appellate Body that have
unjustifiably and negatively impacted, or threaten to
negatively impact, United States law or practice, including a
law or practice with respect to foreign dumping or
subsidization.
SEC. 307. MODIFICATION OF BOND RULE.
In the case of bonds issued after the date of the enactment of this
Act and before August 31, 2009--
(1) the requirement of paragraph (1) of section 648 of the
Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated
as met with respect to the securities or obligations referred
to in such section if such securities or obligations are held
in a fund the annual distributions from which cannot exceed 7
percent of the average fair market value of the assets held in
such fund except to the extent distributions are necessary to
pay debt service on the bond issue,
(2) paragraph (3) of such section shall be applied by
substituting ``distributions from'' for ``the investment
earnings of'' both places it appears, and
(3) paragraph (4) of such section shall be applied by
substituting ``March 1, 1985'' for ``October 9, 1969''.
SEC. 308. TREATMENT OF CERTAIN STOCK OPTION PLANS UNDER NONQUALIFIED
DEFERRED COMPENSATION RULES.
(a) In General.--The Secretary of the Treasury shall modify the
regulations under section 409A of the Internal Revenue Code of 1986 to
extend to applicable foreign option plans the exception under such
section for incentive stock options under section 422 of such Code and
options granted under an employee stock purchase plan meeting the
requirements of section 423 of such Code. Such extension shall be
subject to such terms and conditions as may be prescribed in such
regulations.
(b) Applicable Foreign Option Plans.--For purposes of subsection
(a)--
(1) In general.--The term ``applicable foreign option
plan'' means a plan providing for the issuance of employee
stock options--
(A) which is established under the laws of a
foreign jurisdiction, and
(B) which, under such laws or the terms of the plan
(or both), is subject to requirements substantially
similar to the requirements under section 422 or 423 of
such Code.
(2) Substantially similar.--A plan shall not be treated as
subject to substantially similar requirements under paragraph
(1)(B) unless--
(A) the plan is required to cover substantially all
employees,
(B) in the case of an option under an employee
stock purchase plan, the plan is required to provide an
option price which is not less than the amount
specified in section 423(b)(6) of such Code, except
that such section shall be applied by substituting ``80
percent'' for ``85 percent'' each place it appears,
(C) the plan is required to provide coverage of
individuals who, but for the exception of the
application of section 409A of such Code by reason of
this section, would be subject to tax under such
section with respect to the plan, and
(D) the plan meets such other requirements as the
Secretary of the Treasury prescribes in the regulations
under subsection (a).
SEC. 309. SENSE OF THE SENATE REGARDING THE DEDICATION OF EXCESS FUNDS.
It is the sense of the Senate that any increases in revenues to the
Treasury as a result of this Act and the amendments made by this Act
that exceed the amounts specified in the reconciliation instructions
shall be dedicated to the Low-Income Home Energy Assistance Program, in
an amount not to exceed the amount which is $2,900,000,000 more than
the funding levels established for such Program for fiscal year 2005.
SEC. 310. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED CONTINUING
CARE FACILITIES.
(a) In General.--Subsection (g) of section 7872 is amended to read
as follows:
``(g) Exception for Loans to Qualified Continuing Care
Facilities.--
``(1) In general.--This section shall not apply for any
calendar year to any below-market loan owed by a facility which
on the last day of such year is a continuing care facility, if
such loan was made pursuant to a continuing care contract and
if the lender (or the lender's spouse) attains age 62 before
the close of such year.
``(2) Continuing care contract.--For purposes of this
section, the term `continuing care contract' means a written
contract between an individual and a qualified continuing care
facility under which--
``(A) the individual or individual's spouse may use
a qualified continuing care facility for their life or
lives,
``(B) the individual or individual's spouse will be
provided with housing in an independent living unit
(which has additional available facilities outside such
unit for the provision of meals and other personal
care), an assisted living facility or a nursing
facility, as is available in the continuing care
facility, as appropriate for the health of such
individual or individual's spouse, and
``(C) the individual or individual's spouse will be
provided assisted living or nursing care as the health
of such individual or individual's spouse requires, and
as is available in the continuing care facility.
``(3) Qualified continuing care facility.--
``(A) In general.--For purposes of this section,
the term `qualified continuing care facility' means 1
or more facilities--
``(i) which are designed to provide
services under continuing care contracts,
``(ii) that include an independent living
unit, plus an assisted living or nursing
facility, or both, and
``(iii) substantially all of the
independent living unit residents of which are
covered by continuing care contracts.
``(B) Nursing homes excluded.--The term `qualified
continuing care facility' shall not include any
facility which is of a type which is traditionally
considered a nursing home.''.
(b) Effective Date.--The amendment made by this section shall apply
to loans made after December 31, 2005.
SEC. 311. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE BY
CERTAIN EMPLOYEES OF THE INTELLIGENCE COMMUNITY.
(a) In General.--Subparagraph (A) of section 121(d)(9) (relating to
exclusion of gain from sale of principal residence) is amended by
striking ``duty'' and all that follows and inserting ``duty--
``(i) as a member of the uniformed
services,
``(ii) as a member of the Foreign Service
of the United States, or
``(iii) as an employee of the intelligence
community.''.
(b) Employee of Intelligence Community Defined.--Subparagraph (C)
of section 121(d)(9) is amended by redesignating clause (iv) as clause
(v) and by inserting after clause (iii) the following new clause:
``(iv) Employee of intelligence
community.--The term `employee of the
intelligence community' means an employee (as
defined by section 2105 of title 5, United
States Code) of--
``(I) the Office of the Director of
National Intelligence,
``(II) the Central Intelligence
Agency,
``(III) the National Security
Agency,
``(IV) the Defense Intelligence
Agency,
``(V) the National Geospatial-
Intelligence Agency,
``(VI) the National Reconnaissance
Office,
``(VII) any other office within the
Department of Defense for the
collection of specialized national
intelligence through reconnaissance
programs,
``(VIII) any of the intelligence
elements of the Army, the Navy, the Air
Force, the Marine Corps, the Federal
Bureau of Investigation, the Department
of Treasury, the Department of Energy,
and the Coast Guard,
``(IX) the Bureau of Intelligence
and Research of the Department of
State, or
``(X) any of the elements of the
Department of Homeland Security
concerned with the analyses of foreign
intelligence information.''.
(c) Special Rule.--Subparagraph (C) of section 121(d)(9), as
amended by subsection (b), is amended by adding at the end the
following new clause:
``(vi) Special rule relating to
intelligence community.--An employee of the
intelligence community shall not be treated as
serving on qualified extended duty unless--
``(I) for purposes of such duty
such employee has moved from 1 duty
station to another, and
``(II) at least 1 of such duty
stations is located outside of the
Washington, District of Columbia, and
Baltimore metropolitan statistical
areas (as defined by the Secretary of
Commerce).''.
(d) Conforming Amendment.--The heading for section 121(d)(9) is
amended by striking ``Members of uniformed services and foreign
service'' and inserting ``Uniformed services, foreign service, and
intelligence community''.
(e) Effective Date.--The amendments made by this section shall
apply to sales or exchanges after the date of the enactment of this
Act.
SEC. 312. SENSE OF THE SENATE REGARDING THE PERMANENT EXTENSION OF
EGTRRA AND JGTRRA PROVISIONS RELATING TO CHILD TAX
CREDIT.
It is the sense of the Senate that the conferees for the Tax Relief
Act of 2006 should strive to permanently extend the amendments to the
child tax credit under section 24 of the Internal Revenue Code of 1986
made by the Economic Growth and Tax Relief Reconciliation Act of 2001
and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
SEC. 313. PARTIAL EXPENSING FOR ADVANCED MINE SAFETY EQUIPMENT.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
inserting after section 179D the following new section:
``SEC. 179E. ELECTION TO EXPENSE ADVANCED MINE SAFETY EQUIPMENT.
``(a) Treatment as Expenses.--A taxpayer may elect to treat 50
percent of the cost of any qualified advanced mine safety equipment
property as an expense which is not chargeable to capital account. Any
cost so treated shall be allowed as a deduction for the taxable year in
which the qualified advanced mine safety equipment property is placed
in service.
``(b) Election.--
``(1) In general.--An election under this section for any
taxable year shall be made on the taxpayer's return of the tax
imposed by this chapter for the taxable year. Such election
shall specify the advanced mine safety equipment property to
which the election applies and shall be made in such manner as
the Secretary may by regulations prescribe.
``(2) Election irrevocable.--Any election made under this
section may not be revoked except with the consent of the
Secretary.
``(c) Qualified Advanced Mine Safety Equipment Property.--For
purposes of this section, the term `qualified advanced mine safety
equipment property' means any advanced mine safety equipment property
for use in any underground mine located in the United States--
``(1) the original use of which commences with the
taxpayer, and
``(2) which is placed in service by the taxpayer after the
date of the enactment of this section.
``(d) Advanced Mine Safety Equipment Property.--For purposes of
this section, the term `advanced mine safety equipment property' means
any of the following:
``(1) Emergency communication technology or device which is
used to allow a miner to maintain constant communication with
an individual who is not in the mine.
``(2) Electronic identification and location device which
allows an individual who is not in the mine to track at all
times the movements and location of miners working in or at the
mine.
``(3) Emergency oxygen-generating, self-rescue device which
provides oxygen for at least 90 minutes.
``(4) Pre-positioned supplies of oxygen which (in
combination with self-rescue devices) can be used to provide
each miner on a shift, in the event of an accident or other
event which traps the miner in the mine or otherwise
necessitates the use of such a self-rescue device, the ability
to survive for at least 48 hours.
``(5) Comprehensive atmospheric monitoring system which
monitors the levels of carbon monoxide, methane, and oxygen
that are present in all areas of the mine and which can detect
smoke in the case of a fire in a mine.
``(e) Special Rules.--
``(1) Coordination with section 179.--No expenditures shall
be taken into account under subsection (a) with respect to the
portion of the cost of any property specified in an election
under section 179.
``(2) Basis reduction.--For purposes of this title, the
basis of any property shall be reduced by the portion of the
cost of such property taken into account under subsection (a).
``(f) Reporting.--No deduction shall be allowed under subsection
(a) to any taxpayer for any taxable year unless such taxpayer files
with the Secretary a report containing such information with respect to
the operation of the mines of the taxpayer as the Secretary shall
require.
``(g) Termination.--This section shall not apply to property placed
in service after the date which is 3 years after the date of the
enactment of this section.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1) is amended by striking ``or'' at the
end of subparagraph (J), by striking the period at the end of
subparagraph (K) and inserting ``, or'', and by inserting after
subparagraph (K) the following new subparagraph:
``(L) expenditures for which a deduction is allowed
under section 179E.''.
(2) Section 312(k)(3)(B) is amended by striking ``or 179D''
each place it appears in the heading and text thereof and
inserting ``179D, or 179E''.
(3) Section 1016(a) is amended by striking ``and'' at the
end of paragraph (36), by striking the period at the end of
paragraph (37) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(38) to the extent provided in section 179E(e)(2).''.
(4) Section 1245(a)(2)(C) is amended by inserting ``179E,''
after ``179D,''.
(5) The table of sections for part VI of subchapter B of
chapter 1 is amended by inserting after the item relating to
section 179D the following new item:
``Sec. 179E. Election to expense advanced mine safety equipment.''.
(c) Effective Date.--The amendments made by this section shall
apply to costs paid or incurred after the date of the enactment of this
Act.
SEC. 314. MINE RESCUE TEAM TRAINING TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end
the following new section:
``SEC. 45N. MINE RESCUE TEAM TRAINING CREDIT.
``(a) Amount of Credit.--For purposes of section 38, the mine
rescue team training credit determined under this section with respect
to any eligible employer for any taxable year is an amount equal to the
lesser of--
``(1) 20 percent of the amount paid or incurred by the
taxpayer during the taxable year with respect to the training
program costs of each qualified mine rescue team employee
(including wages of such employee while attending such
program), or
``(2) $10,000.
``(b) Qualified Mine Rescue Team Employee.--For purposes of this
section, the term `qualified mine rescue team employee' means with
respect to any taxable year any full-time employee of the taxpayer who
is--
``(1) a miner eligible for more than 6 months of such
taxable year to serve as a mine rescue team member as a result
of completing, at a minimum, an initial 20-hour course of
instruction as prescribed by the Mine Safety and Health
Administration's Office of Educational Policy and Development,
or
``(2) a miner eligible for more than 6 months of such
taxable year to serve as a mine rescue team member by virtue of
receiving at least 40 hours of refresher training in such
instruction.
``(c) Eligible Employer.--For purposes of this section, the term
`eligible employer' means any taxpayer which employs individuals as
miners in underground mines in the United States.
``(d) Wages.--For purposes of this section, the term `wages' has
the meaning given to such term by subsection (b) of section 3306
(determined without regard to any dollar limitation contained in such
section).
``(e) Termination.--This section shall not apply to taxable years
beginning after December 31, 2008.''.
(b) Credit Made Part of General Business Credit.--Section 38(b) is
amended by striking ``and'' at the end of paragraph (25), by striking
the period at the end of paragraph (26) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(27) the mine rescue team training credit determined
under section 45N(a).''.
(c) No Double Benefit.--Section 280C is amended by adding at the
end the following new subsection:
``(e) Mine Rescue Team Training 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 45N(a).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by adding at the end
the following new item:
``Sec. 45N. Mine rescue team training credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 315. FUNDING FOR VETERANS HEALTH CARE AND DISABILITY COMPENSATION
AND HOSPITAL INFRASTRUCTURE FOR VETERANS.
(a) Funding for Medical Services.--
(1) Authorization of appropriations.--There is hereby
authorized to be appropriated for the Department of Veterans
Affairs for the Veterans Health Administration for Medical Care
amounts as follows:
(A) $900,000,000 for fiscal year 2006.
(B) $1,300,000,000 for fiscal year 2007.
(C) $1,500,000,000 for fiscal year 2008.
(D) $1,600,000,000 for fiscal year 2009.
(E) $1,600,000,000 for fiscal year 2010.
(2) Supplement not supplant.--The amounts authorized to be
appropriated by this subsection are in addition to any other
amounts authorized to be appropriated for the Veterans Health
Administration for Medical Care under any other provisions of
law.
(b) Funding for Disability Compensation Benefits.--
(1) Authorization of appropriations.--There is hereby
authorized to be appropriated for the Department of Veterans
Affairs for the Veterans Benefits Administration for
Compensation and Pensions amounts as follows:
(A) $2,300,000,000 for fiscal year 2006.
(B) $2,700,000,000 for fiscal year 2007.
(C) $3,000,000,000 for fiscal year 2008.
(D) $3,000,000,000 for fiscal year 2009.
(E) $3,000,000,000 for fiscal year 2010.
(2) Supplement not supplant.--The amounts authorized to be
appropriated by this subsection are in addition to any other
amounts authorized to be appropriated for the Veterans Benefits
Administration for Compensation and Pensions under any other
provisions of law.
(c) Funding for Infrastructure Improvements for Hospitals Providing
Health Care and Services to Veterans.--
(1) Establishment of fund.--There is hereby established on
the books of the Treasury an account to be known as the
``Veterans Hospital Improvement Fund'' (in this subsection
referred to as the ``Fund'').
(2) Elements.--The Fund shall consist of the following:
(A) $1,000,000,000, which shall be deposited in the
Fund upon the enactment of this subsection.
(B) Any other amounts authorized for transfer to or
deposit in the Fund by law.
(3) Administration.--The Funds shall be administered by the
Secretary of Veterans Affairs.
(4) Use of funds.--
(A) In general.--Amounts in the Fund shall be
available expenditures for improvements of health
facilities treating veterans, including military
medical treatment facilities, medical centers and other
facilities administered by the Secretary of Veterans
Affairs for the provision of medical care and services
to veterans, and other State, local, and private
facilities providing medical care and services to
veterans.
(B) Application for funds.--A non-Federal health
facility seeking amounts from the Fund shall submit to
the Secretary of Veterans Affairs an application
therefor setting forth such information as the
Secretary shall require.
(C) Availability.--Amounts in the Fund shall remain
available until expended.
SEC. 316. SENSE OF THE SENATE REGARDING PROTECTING MIDDLE-CLASS
FAMILIES FROM THE ALTERNATIVE MINIMUM TAX.
(a) Findings.--The Senate finds that--
(1) the alternative minimum tax was originally enacted in
1969 as a supplemental tax on wealthy tax evaders, but has
evolved into a tax on millions of middle-class working
families, particularly families in which both parents work, and
families with 2 or more children;
(2) by the end of the decade, the alternative minimum tax
will ensnare more than 30,000,000 taxpayers, the majority of
which will have adjusted gross incomes below $100,000, and the
National Taxpayer Advocate has thus identified it as the most
serious problem facing individual taxpayers;
(3) the alternative minimum tax is often portrayed as a tax
that is most problematic for residents of States such as New
York, California, Massachusetts, and New Jersey, but the truth
is that many other States have a significant percentage of
taxpayers affected by the alternative minimum tax, including
Oregon, Maryland, Virginia, Minnesota, Ohio, Maine, Georgia,
North Carolina, and Pennsylvania, so the problem is of national
importance;
(4) a family with 2 children will become subject to the
alternative minimum tax at about $67,500 of income in 2006, and
a family with 5 children will start owing the alternative
minimum tax at about $54,000 of income, if Congress fails to
act;
(5) the year 2006 is the ``tipping point'' for the
alternative minimum tax, as the number of taxpayers affected
nationally will explode from 3,600,000 to 19,000,000 if
Congress fails to act;
(6) in 2004, only 6.2 percent of families earning $100,000
to $200,000 a year were subject to the alternative minimum tax,
and that number will explode to nearly 50 percent if Congress
fails to act;
(7) if alternative minimum tax relief is extended through
2006, about two-thirds of the benefits will be realized by
families earning under $200,000, with more than half of the
total benefits going to families with incomes between $100,000
and $200,000;
(8) starting in 2008, the average married couple with 2
children earning $75,000 or more will find that more than half
of the tax cuts they have been expecting from the various laws
passed since 2001 will be ``taken back'' via the alternative
minimum tax; and
(9) the temporary relief from the alternative minimum tax
(provided in 2001 and extended twice in 2003 and 2004) expired
at the end of 2005, but the tax reductions on dividends and
capital gains do not expire until the end of 2008, making
immediate action on those provisions a less urgent matter.
(b) Sense of the Senate.--It is the sense of the Senate that
protecting middle-class families from the alternative minimum tax
should be a higher priority for Congress in 2006 than extending a tax
cut that does not expire until the end of 2008.
TITLE IV--REVENUE OFFSET PROVISIONS
Subtitle A--Provisions Designed to Curtail Tax Shelters
SEC. 401. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section 6694(a)
(relating to understatements due to unrealistic positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more likely
than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading thereof and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section shall
apply to documents prepared after the date of the enactment of this
Act.
SEC. 402. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay
a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the
substantial correctness of the self-assessment may be
judged, or
``(B) contains information that on its face
indicates that the self-assessment is substantially
incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary
has identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term
`specified frivolous submission' means a specified
submission if any portion of such submission--
``(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(ii) reflects a desire to delay or impede
the administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to
notice and opportunity for hearing upon
filing of notice of lien), or
``(II) section 6330 (relating to
notice and opportunity for hearing
before levy), and
``(ii) an application under--
``(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
``(II) section 7122 (relating to
compromises), or
``(III) section 7811 (relating to
taxpayer assistance orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a specified
frivolous submission and such person withdraws such submission
within 30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which the
Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position
that the Secretary determines meets the requirement of section
6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the amount of
any penalty imposed under this section if the Secretary determines that
such reduction would promote compliance with and administration of the
Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The penalties
imposed by this section shall be in addition to any other penalty
provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any
other provision of this section, if the Secretary determines that any
portion of a request for a hearing under this section or section 6320
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were never submitted
and such portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first
sentence and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i)
or (ii) of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon Filing of
Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-Compromise
and Installment Agreements.--Section 7122 is amended by adding at the
end the following new subsection:
``(e) Frivolous Submissions, Etc.--Notwithstanding any other
provision of this section, if the Secretary determines that any portion
of an application for an offer-in-compromise or installment agreement
submitted under this section or section 6159 meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial review.''.
(e) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item relating to
section 6702 and inserting the following new item:
``Sec. 6702. Frivolous tax submissions.''.
(f) Effective Date.--The amendments made by this section shall
apply to submissions made and issues raised after the date on which the
Secretary first prescribes a list under section 6702(c) of the Internal
Revenue Code of 1986, as amended by subsection (a).
SEC. 403. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.
(a) Penalty for Promoting Abusive Tax Shelters.--Section 6700
(relating to promoting abusive tax shelters, etc.) is amended--
(1) by redesignating subsections (b) and (c) as subsections
(d) and (e), respectively,
(2) by striking ``a penalty'' and all that follows through
the period in the first sentence of subsection (a) and
inserting ``a penalty determined under subsection (b)'', and
(3) by inserting after subsection (a) the following new
subsections:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall be 100 percent of the gross income
derived (or to be derived) from such activity by the person or
persons subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of an activity described in subsection (a),
each instance in which income was derived by the person or
persons subject to such penalty, and each person who
participated in such an activity.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to such activity, all
such persons shall be jointly and severally liable for the
penalty under such subsection.
``(c) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be considered an ordinary and
necessary expense in carrying on a trade or business for purposes of
this title and shall not be deductible by the person who is subject to
such penalty or who makes such payment.''.
(b) Conforming Amendment.--Section 6700(a) is amended by striking
the last sentence.
(c) Effective Date.--The amendments made by this section shall
apply to the activities described in paragraphs (1) and (2) of section
6700(a) of the Internal Revenue Code of 1986 and after the date of the
enactment of this Act.
SEC. 404. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX
LIABILITY.
(a) In General.--Section 6701(a) (relating to imposition of
penalty) is amended--
(1) by inserting ``, or tax liability reflected in,'' after
``the preparation or presentation of'' in paragraph (1),
(2) by inserting ``aid, assistance, procurement, or advice
with respect to such'' before ``portion'' both places it
appears in paragraphs (2) and (3), and
(3) by inserting ``instance of aid, assistance,
procurement, or advice or each such'' before ``document'' in
the matter following paragraph (3).
(b) Amount of Penalty.--Subsection (b) of section 6701 (relating to
penalties for aiding and abetting understatement of tax liability) is
amended to read as follows:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall be 100 percent of the gross income
derived (or to be derived) from such aid, assistance,
procurement, or advice provided by the person or persons
subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of aid, assistance, procurement, or advice
described in subsection (a), each instance in which income was
derived by the person or persons subject to such penalty, and
each person who made such an understatement of the liability
for tax.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to providing such aid,
assistance, procurement, or advice, all such persons shall be
jointly and severally liable for the penalty under such
subsection.''.
(c) Penalty Not Deductible.--Section 6701 is amended by adding at
the end the following new subsection:
``(g) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be considered an ordinary and
necessary expense in carrying on a trade or business for purposes of
this title and shall not be deductible by the person who is subject to
such penalty or who makes such payment.''.
(d) Effective Date.--The amendments made by this section shall
apply to the activities described in section 6701(a) of the Internal
Revenue Code of 1986 after the date of the enactment of this Act.
Subtitle B--Economic Substance Doctrine
SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
``(o) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In any case in which a court
determines that the economic substance doctrine is
relevant for purposes of this title to a transaction
(or series of transactions), such transaction (or
series of transactions) shall have economic substance
only if the requirements of this paragraph are met.
``(B) Definition of economic substance.--For
purposes of subparagraph (A)--
``(i) In general.--A transaction has
economic substance only if--
``(I) the transaction changes in a
meaningful way (apart from Federal tax
effects) the taxpayer's economic
position, and
``(II) the taxpayer has a
substantial nontax purpose for entering
into such transaction and the
transaction is a reasonable means of
accomplishing such purpose.
In applying subclause (II), a purpose of
achieving a financial accounting benefit shall
not be taken into account in determining
whether a transaction has a substantial nontax
purpose if the origin of such financial
accounting benefit is a reduction of income
tax.
``(ii) Special rule where taxpayer relies
on profit potential.--A transaction shall not
be treated as having economic substance by
reason of having a potential for profit
unless--
``(I) the present value of the
reasonably expected pre-tax profit from
the transaction is substantial in
relation to the present value of the
expected net tax benefits that would be
allowed if the transaction were
respected, and
``(II) the reasonably expected pre-
tax profit from the transaction exceeds
a risk-free rate of return.
``(C) Treatment of fees and foreign taxes.--Fees
and other transaction expenses and foreign taxes shall
be taken into account as expenses in determining pre-
tax profit under subparagraph (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--
The form of a transaction which is in substance the
borrowing of money or the acquisition of financial
capital directly or indirectly from a tax-indifferent
party shall not be respected if the present value of
the deductions to be claimed with respect to the
transaction is substantially in excess of the present
value of the anticipated economic returns of the person
lending the money or providing the financial capital. A
public offering shall be treated as a borrowing, or an
acquisition of financial capital, from a tax-
indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with
tax-indifferent parties.
``(B) Artificial income shifting and basis
adjustments.--The form of a transaction with a tax-
indifferent party shall not be respected if--
``(i) it results in an allocation of income
or gain to the tax-indifferent party in excess
of such party's economic income or gain, or
``(ii) it results in a basis adjustment or
shifting of basis on account of overstating the
income or gain of the tax-indifferent party.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Economic substance doctrine.--The term
`economic substance doctrine' means the common law
doctrine under which tax benefits under subtitle A with
respect to a transaction are not allowable if the
transaction does not have economic substance or lacks a
business purpose.
``(B) Tax-indifferent party.--The term `tax-
indifferent party' means any person or entity not
subject to tax imposed by subtitle A. A person shall be
treated as a tax-indifferent party with respect to a
transaction if the items taken into account with
respect to the transaction have no substantial impact
on such person's liability under subtitle A.
``(C) Exception for personal transactions of
individuals.--In the case of an individual, this
subsection shall apply only to transactions entered
into in connection with a trade or business or an
activity engaged in for the production of income.
``(D) Treatment of lessors.--In applying paragraph
(1)(B)(ii) to the lessor of tangible property subject
to a lease--
``(i) the expected net tax benefits with
respect to the leased property shall not
include the benefits of--
``(I) depreciation,
``(II) any tax credit, or
``(III) any other deduction as
provided in guidance by the Secretary,
and
``(ii) subclause (II) of paragraph
(1)(B)(ii) shall be disregarded in determining
whether any of such benefits are allowable.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be construed as altering or
supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such
other rule of law.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an noneconomic
substance transaction understatement for any taxable year, there shall
be added to the tax an amount equal to 40 percent of the amount of such
understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--Subsection
(a) shall be applied by substituting `20 percent' for `40 percent' with
respect to the portion of any noneconomic substance transaction
understatement with respect to which the relevant facts affecting the
tax treatment of the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--For
purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be an
understatement under section 6662A(b)(1) if section 6662A were
applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction if--
``(A) there is a lack of economic substance (within
the meaning of section 7701(o)(1)) for the transaction
giving rise to the claimed benefit or the transaction
was not respected under section 7701(o)(2), or
``(B) the transaction fails to meet the
requirements of any similar rule of law.
``(d) Rules Applicable to Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2) and
(3) of section 6707A(d) shall apply for purposes of paragraph
(1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section shall be in
addition to any other penalty imposed by this title.
``(f) Cross References.--
``(1) For coordination of penalty with
understatements under section 6662 and other
special rules, see section 6662A(e).
``(2) For reporting of penalty imposed under
this section to the Securities and Exchange
Commission, see section 6707A(e).''.
(b) Coordination With Other Understatements and Penalties.--
(1) The second sentence of section 6662(d)(2)(A) is amended
by inserting ``and without regard to items with respect to
which a penalty is imposed by section 6662B'' before the period
at the end.
(2) Subsection (e) of section 6662A is amended--
(A) in paragraph (1), by inserting ``and
noneconomic substance transaction understatements''
after ``reportable transaction understatements'' both
places it appears,
(B) in paragraph (2)(A), by inserting ``and a
noneconomic substance transaction understatement''
after ``reportable transaction understatement'',
(C) in paragraph (2)(B), by inserting ``6662B or''
before ``6663'',
(D) in paragraph (2)(C)(i), by inserting ``or
section 6662B'' before the period at the end,
(E) in paragraph (2)(C)(ii), by inserting ``and
section 6662B'' after ``This section'',
(F) in paragraph (3), by inserting ``or noneconomic
substance transaction understatement'' after
``reportable transaction understatement'', and
(G) by adding at the end the following new
paragraph:
``(4) Noneconomic substance transaction understatement.--
For purposes of this subsection, the term `noneconomic
substance transaction understatement' has the meaning given
such term by section 6662B(c).''.
(3) Subsection (e) of section 6707A is amended--
(A) by striking ``or'' at the end of subparagraph
(B), and
(B) by striking subparagraph (C) and inserting the
following new subparagraphs:
``(C) is required to pay a penalty under section
6662B with respect to any noneconomic substance
transaction, or
``(D) is required to pay a penalty under section
6662(h) with respect to any 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) or under section 6662B,''.
(c) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the item
relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements attributable to transactions
lacking economic substance, etc.''.
(d) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163(m) (relating to interest on unpaid
taxes attributable to nondisclosed reportable transactions) is
amended--
(1) by striking ``attributable'' and all that follows and
inserting the following: ``attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).'', and
(2) by inserting ``And Noneconomic Substance Transactions''
in the heading thereof after ``Transactions''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions after the date of the enactment of this Act in
taxable years ending after such date.
Subtitle C--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection
SEC. 421. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED
WITHDRAWALS.
(a) In General.--Section 6159 (relating to agreements for payment
of tax liability in installments) is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection (d)
the following:
``(e) Waiver of User Fees for Installment Agreements Using
Automated Withdrawals.--In the case of a taxpayer who enters into an
installment agreement in which automated installment payments are
agreed to, the Secretary shall waive the fee (if any) for entering into
the installment agreement.''.
(b) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date which is 180 days
after the date of the enactment of this Act.
SEC. 422. TERMINATION OF INSTALLMENT AGREEMENTS.
(a) In General.--Section 6159(b)(4) (relating to failure to pay an
installment or any other tax liability when due or to provide requested
financial information) is amended by striking ``or'' at the end of
subparagraph (B), by redesignating subparagraph (C) as subparagraph
(E), and by inserting after subparagraph (B) the following:
``(C) to make a Federal tax deposit under section
6302 at the time such deposit is required to be made,
``(D) to file a return of tax imposed under this
title by its due date (including extensions), or''.
(b) Conforming Amendment.--The heading for section 6159(b)(4) is
amended by striking ``Failure to pay an installment or any other tax
liability when due or to provide requested financial information'' and
inserting ``Failure to make payments or deposits or file returns when
due or to provide requested financial information''.
(c) Effective Date.--The amendments made by this section shall
apply to failures occurring on or after the date of the enactment of
this Act.
SEC. 423. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-
COMPROMISE.
(a) In General.--Section 7122 (relating to compromises), as amended
by this Act, is amended by redesignating subsections (c), (d), and (e)
as subsections (d), (e), and (f), respectively, and by inserting after
subsection (b) the following new subsection:
``(c) Rules for Submission of Offers-in-Compromise.--
``(1) Partial payment required with submission.--
``(A) Lump-sum offers.--
``(i) In general.--The submission of any
lump-sum offer-in-compromise shall be
accompanied by the payment of 20 percent of
amount of such offer.
``(ii) Lump-sum offer-in-compromise.--For
purposes of this section, the term `lump-sum
offer-in-compromise' means any offer of
payments made in 5 or fewer installments.
``(B) Periodic payment offers.--The submission of
any periodic payment offer-in-compromise shall be
accompanied by the payment of the amount of the first
proposed installment and each proposed installment due
during the period such offer is being evaluated for
acceptance and has not been rejected by the Secretary.
Any failure to make a payment required under the
preceding sentence shall be deemed a withdrawal of the
offer-in-compromise.
``(2) Rules of application.--
``(A) Use of payment.--The application of any
payment made under this subsection to the assessed tax
or other amounts imposed under this title with respect
to such tax may be specified by the taxpayer.
``(B) No user fee imposed.--Any user fee which
would otherwise be imposed under this section shall not
be imposed on any offer-in-compromise accompanied by a
payment required under this subsection.
``(C) Waiver authority.--The Secretary may issue
regulations waiving any payment required under
paragraph (1) in a manner consistent with the practices
established in accordance with the requirements under
subsection (d)(3).''.
(b) Additional Rules Relating to Treatment of Offers.--
(1) Unprocessable offer if payment requirements are not
met.--Paragraph (3) of section 7122(d) (relating to standards
for evaluation of offers), as redesignated by subsection (a),
is amended by striking ``; and'' at the end of subparagraph (A)
and inserting a comma, by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(C) any offer-in-compromise which does not meet
the requirements of subsection (c) shall be returned to
the taxpayer as unprocessable.''.
(2) Deemed acceptance of offer not rejected within certain
period.--Section 7122, as amended by subsection (a), is amended
by adding at the end the following new subsection:
``(g) Deemed Acceptance of Offer Not Rejected Within Certain
Period.--Any offer-in-compromise submitted under this section shall be
deemed to be accepted by the Secretary if such offer is not rejected by
the Secretary before the date which is 24 months after the date of the
submission of such offer. For purposes of the preceding sentence, any
period during which any tax liability which is the subject of such
offer-in-compromise is in dispute in any judicial proceeding shall not
be taken in to account in determining the expiration of the 24-month
period.''.
(c) Effective Date.--The amendments made by this section shall
apply to offers-in-compromise submitted on and after the date which is
60 days after the date of the enactment of this Act.
Subtitle D--Penalties and Fines
SEC. 431. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE
UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.
(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) In
General.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due to Fraud.--If any portion of any underpayment
(as defined in section 6664(a)) or overpayment (as defined in section
6401(a)) of tax required to be shown on a return is attributable to
fraudulent action described in subsection (a), the applicable dollar
amount under subsection (a) shall in no event be less than an amount
equal to such portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting
``$500,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``5 years'' and inserting ``10
years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``Any person'' and
inserting the following:
``(a) In General.--Any person'', and
(ii) by striking ``$25,000'' and inserting
``$50,000'',
(B) in the third sentence, by striking ``section''
and inserting ``subsection'', and
(C) by adding at the end the following new
subsection:
``(b) Aggravated Failure To File.--
``(1) In general.--In the case of any failure described in
paragraph (2), the first sentence of subsection (a) shall be
applied by substituting--
``(A) `felony' for `misdemeanor',
``(B) `$500,000 ($1,000,000' for `$25,000
($100,000', and
``(C) `10 years' for `1 year'.
``(2) Failure described.--A failure described in this
paragraph is a failure to make a return described in subsection
(a) for a period of 3 or more consecutive taxable years.''.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting
``$500,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``3 years'' and inserting ``5
years''.
(c) Effective Date.--The amendments made by this section shall
apply to actions, and failures to act, occurring after the date of the
enactment of this Act.
SEC. 432. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON
UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL
ARRANGEMENTS.
(a) Determination of Penalty.--
(1) In general.--Notwithstanding any other provision of
law, in the case of an applicable taxpayer--
(A) the determination as to whether any interest or
applicable penalty is to be imposed with respect to any
arrangement described in paragraph (2), or to any
underpayment of Federal income tax attributable to
items arising in connection with any such arrangement,
shall be made without regard to the rules of
subsections (b), (c), and (d) of section 6664 of the
Internal Revenue Code of 1986, and
(B) if any such interest or applicable penalty is
imposed, the amount of such interest or penalty shall
be equal to twice that determined without regard to
this section.
(2) Applicable taxpayer.--For purposes of this subsection--
(A) In general.--The term ``applicable taxpayer''
means a taxpayer which--
(i) has underreported its United States
income tax liability with respect to any item
which directly or indirectly involves--
(I) any financial arrangement which
in any manner relies on the use of
offshore payment mechanisms (including
credit, debit, or charge cards) issued
by banks or other entities in foreign
jurisdictions, or
(II) any offshore financial
arrangement (including any arrangement
with foreign banks, financial
institutions, corporations,
partnerships, trusts, or other
entities), and
(ii) has neither signed a closing agreement
pursuant to the Voluntary Offshore Compliance
Initiative established by the Department of the
Treasury under Revenue Procedure 2003-11 nor
voluntarily disclosed its participation in such
arrangement by notifying the Internal Revenue
Service of such arrangement prior to the issue
being raised by the Internal Revenue Service
during an examination.
(B) Authority to waive.--The Secretary of the
Treasury or the Secretary's delegate may waive the
application of paragraph (1) to any taxpayer if the
Secretary or the Secretary's delegate determines that
the use of such offshore payment mechanisms is
incidental to the transaction and, in addition, in the
case of a trade or business, such use is conducted in
the ordinary course of the type of trade or business of
the taxpayer.
(C) Issues raised.--For purposes of subparagraph
(A)(ii), an item shall be treated as an issue raised
during an examination if the individual examining the
return--
(i) communicates to the taxpayer knowledge
about the specific item, or
(ii) has made a request to the taxpayer for
information and the taxpayer could not make a
complete response to that request without
giving the examiner knowledge of the specific
item.
(b) Applicable Penalty.--For purposes of this section, the term
``applicable penalty'' means any penalty, addition to tax, or fine
imposed under chapter 68 of the Internal Revenue Code of 1986.
(c) Effective Date.--The provisions of this section shall apply to
interest, penalties, additions to tax, and fines with respect to any
taxable year if, as of the date of the enactment of this Act, the
assessment of any tax, penalty, or interest with respect to such
taxable year is not prevented by the operation of any law or rule of
law.
SEC. 433. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER
AMOUNTS.
(a) In General.--Subsection (f) of section 162 (relating to trade
or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (4) in relation to
the violation of any law or the investigation or inquiry by
such government or entity into the potential violation of any
law.
``(2) Exception for amounts constituting restitution or
paid to come into compliance with law.--Paragraph (1) shall not
apply to any amount which--
``(A) the taxpayer establishes--
``(i) constitutes restitution (including
remediation of property) for damage or harm
caused by or which may be caused by the
violation of any law or the potential violation
of any law, or
``(ii) is paid to come into compliance with
any law which was violated or involved in the
investigation or inquiry, and
``(B) is identified as restitution or as an amount
paid to come into compliance with the law, as the case
may be, in the court order or settlement agreement.
Identification pursuant to subparagraph (B) alone shall not
satisfy the requirement under subparagraph (A). This paragraph
shall not apply to any amount paid or incurred as reimbursement
to the government or entity for the costs of any investigation
or litigation.
``(3) Exception for amounts paid or incurred as the result
of certain court orders.--Paragraph (1) shall not apply to any
amount paid or incurred by order of a court in a suit in which
no government or entity described in paragraph (4) is a party.
``(4) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises
self-regulatory powers (including imposing sanctions)
in connection with a qualified board or exchange (as
defined in section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory
powers (including imposing sanctions) as part of
performing an essential governmental function.
``(5) Exception for taxes due.--Paragraph (1) shall not
apply to any amount paid or incurred as taxes due.''.
(b) Reporting of Deductible Amounts.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61, as amended by this Act, is amended by inserting
after section 6050U the following new section:
``SEC. 6050V. INFORMATION WITH RESPECT TO CERTAIN FINES, PENALTIES, AND
OTHER AMOUNTS.
``(a) Requirement of Reporting.--
``(1) In general.--The appropriate official of any
government or entity which is described in section 162(f)(4)
which is involved in a suit or agreement described in paragraph
(2) shall make a return in such form as determined by the
Secretary setting forth--
``(A) the amount required to be paid as a result of
the suit or agreement to which paragraph (1) of section
162(f) applies,
``(B) any amount required to be paid as a result of
the suit or agreement which constitutes restitution or
remediation of property, and
``(C) any amount required to be paid as a result of
the suit or agreement for the purpose of coming into
compliance with any law which was violated or involved
in the investigation or inquiry.
``(2) Suit or agreement described.--
``(A) In general.--A suit or agreement is described
in this paragraph if--
``(i) it is--
``(I) a suit with respect to a
violation of any law over which the
government or entity has authority and
with respect to which there has been a
court order, or
``(II) an agreement which is
entered into with respect to a
violation of any law over which the
government or entity has authority, or
with respect to an investigation or
inquiry by the government or entity
into the potential violation of any law
over which such government or entity
has authority, and
``(ii) the aggregate amount involved in all
court orders and agreements with respect to the
violation, investigation, or inquiry is $600 or
more.
``(B) Adjustment of reporting threshold.--The
Secretary may adjust the $600 amount in subparagraph
(A)(ii) as necessary in order to ensure the efficient
administration of the internal revenue laws.
``(3) Time of filing.--The return required under this
subsection shall be filed not later than--
``(A) 30 days after the date on which a court order
is issued with respect to the suit or the date the
agreement is entered into, as the case may be, or
``(B) the date specified Secretary.
``(b) Statements To Be Furnished to Individuals Involved in the
Settlement.--Every person required to make a return under subsection
(a) shall furnish to each person who is a party to the suit or
agreement a written statement showing--
``(1) the name of the government or entity, and
``(2) the information supplied to the Secretary under
subsection (a)(1).
The written statement required under the preceding sentence shall be
furnished to the person at the same time the government or entity
provides the Secretary with the information required under subsection
(a).
``(c) Appropriate Official Defined.--For purposes of this section,
the term `appropriate official' means the officer or employee having
control of the suit, investigation, or inquiry or the person
appropriately designated for purposes of this section.''.
(2) Conforming amendment.--The table of sections for
subpart B of part III of subchapter A of chapter 61, as amended
by this Act, is amended by inserting after the item relating to
section 6050U the following new item:
``Sec. 6050V. Information with respect to certain fines, penalties, and
other amounts.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred on or after the date of the enactment
of this Act, except that such amendments shall not apply to amounts
paid or incurred under any binding order or agreement entered into
before such date. Such exception shall not apply to an order or
agreement requiring court approval unless the approval was obtained
before such date.
SEC. 434. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended--
(A) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively,
(B) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(C) by adding at the end the following new
paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for punitive
damages in connection with any judgment in, or settlement of,
any action. This paragraph shall not apply to punitive damages
described in section 104(c).''.
(2) Conforming amendment.--The heading for section 162(g)
is amended by inserting ``Or Punitive Damages'' after ``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer or
Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:
``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.
``Gross income shall include any amount paid to or on behalf of a
taxpayer as insurance or otherwise by reason of the taxpayer's
liability (or agreement) to pay punitive damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--This
section shall apply to payments by a person to or on behalf of another
person as insurance or otherwise by reason of the other person's
liability (or agreement) to pay punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
(c) Effective Date.--The amendments made by this section shall
apply to damages paid or incurred on or after the date of the enactment
of this Act.
SEC. 435. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.
(a) In General.--Section 6657 (relating to bad checks) is amended--
(1) by striking ``$750'' and inserting ``$2,000'', and
(2) by striking ``$15'' and inserting ``$40''.
(b) Effective Date.--The amendments made by this section apply to
checks or money orders received after the date of the enactment of this
Act.
Subtitle E--Provisions To Discourage Expatriation
SEC. 441. TAX TREATMENT OF INVERTED ENTITIES.
(a) In General.--Section 7874 is amended--
(1) by striking ``March 4, 2003'' in subsection
(a)(2)(B)(i) and in the matter following subsection
(a)(2)(B)(iii) and inserting ``March 20, 2002'',
(2) by striking ``at least 60 percent'' in subsection
(a)(2)(B)(ii) and inserting ``more than 50 percent'',
(3) by striking ``80 percent'' in subsection (b) and
inserting ``at least 80 percent'',
(4) by striking ``60 percent'' in subsection (b) and
inserting ``more than 50 percent'',
(5) by adding at the end of subsection (a)(2) the following
new sentence: ``Except as provided in regulations, an
acquisition of properties of a domestic corporation shall not
be treated as described in subparagraph (B) if none of the
corporation's stock was readily tradeable on an established
securities market at any time during the 4-year period ending
on the date of the acquisition.'', and
(6) by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
``(g) Special Rules Applicable to Expatriated Entities.--
``(1) Increases in accuracy-related penalties.--In the case
of any underpayment of tax of an expatriated entity--
``(A) section 6662(a) shall be applied with respect
to such underpayment by substituting `30 percent' for
`20 percent', and
``(B) if such underpayment is attributable to one
or more gross valuation understatements, the increase
in the rate of penalty under section 6662(h) shall be
to 50 percent rather than 40 percent.
``(2) Modifications of limitation on interest deduction.--
In the case of an expatriated entity, section 163(j) shall be
applied--
``(A) without regard to paragraph (2)(A)(ii)
thereof, and
``(B) by substituting `25 percent' for `50 percent'
each place it appears in paragraph (2)(B) thereof.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years ending after March 20, 2002.
SEC. 442. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) In General.--Subpart A of part II of subchapter N of chapter 1
is amended by inserting after section 877 the following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsections
(d) and (f), all property of a covered expatriate to whom this
section applies shall be treated as sold on the day before the
expatriation date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this
title, any gain arising from such sale shall be taken
into account for the taxable year of the sale, and
``(B) any loss arising from such sale shall be
taken into account for the taxable year of the sale to
the extent otherwise provided by this title, except
that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence.
``(3) Exclusion for certain gain.--
``(A) In general.--The amount which, but for this
paragraph, would be includible in the gross income of
any individual by reason of this section shall be
reduced (but not below zero) by $600,000. For purposes
of this paragraph, allocable expatriation gain taken
into account under subsection (f)(2) shall be treated
in the same manner as an amount required to be
includible in gross income.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of an
expatriation date occurring in any calendar
year after 2005, the $600,000 amount under
subparagraph (A) shall be increased by an
amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
1(f)(3) for such calendar year,
determined by substituting `calendar
year 2004' for `calendar year 1992' in
subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple
of $1,000, such amount shall be rounded to the
next lower multiple of $1,000.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If a covered expatriate elects
the application of this paragraph--
``(i) this section (other than this
paragraph and subsection (i)) shall not apply
to the expatriate, but
``(ii) in the case of property to which
this section would apply but for such election,
the expatriate shall be subject to tax under
this title in the same manner as if the
individual were a United States citizen.
``(B) Requirements.--Subparagraph (A) shall not
apply to an individual unless the individual--
``(i) provides security for payment of tax
in such form and manner, and in such amount, as
the Secretary may require,
``(ii) consents to the waiver of any right
of the individual under any treaty of the
United States which would preclude assessment
or collection of any tax which may be imposed
by reason of this paragraph, and
``(iii) complies with such other
requirements as the Secretary may prescribe.
``(C) Election.--An election under subparagraph (A)
shall apply to all property to which this section would
apply but for the election and, once made, shall be
irrevocable. Such election shall also apply to property
the basis of which is determined in whole or in part by
reference to the property with respect to which the
election was made.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application
of this subsection with respect to any property treated as sold
by reason of subsection (a), the payment of the additional tax
attributable to such property shall be postponed until the due
date of the return for the taxable year in which such property
is disposed of (or, in the case of property disposed of in a
transaction in which gain is not recognized in whole or in
part, until such other date as the Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same ratio to the
additional tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property
bears to the total gain taken into account under subsection (a)
with respect to all property to which subsection (a) applies.
``(3) Termination of postponement.--No tax may be postponed
under this subsection later than the due date for the return of
tax imposed by this chapter for the taxable year which includes
the date of death of the expatriate (or, if earlier, the time
that the security provided with respect to the property fails
to meet the requirements of paragraph (4), unless the taxpayer
corrects such failure within the time specified by the
Secretary).
``(4) Security.--
``(A) In general.--No election may be made under
paragraph (1) with respect to any property unless
adequate security is provided to the Secretary with
respect to such property.
``(B) Adequate security.--For purposes of
subparagraph (A), security with respect to any property
shall be treated as adequate security if--
``(i) it is a bond in an amount equal to
the deferred tax amount under paragraph (2) for
the property, or
``(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
``(5) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer consents to the waiver
of any right under any treaty of the United States which would
preclude assessment or collection of any tax imposed by reason
of this section.
``(6) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable. An election may be made under paragraph
(1) with respect to an interest in a trust with respect to
which gain is required to be recognized under subsection
(f)(1).
``(7) Interest.--For purposes of section 6601--
``(A) the last date for the payment of tax shall be
determined without regard to the election under this
subsection, and
``(B) section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3 percentage
points' in subparagraph (B) thereof.
``(c) Covered Expatriate.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `covered expatriate' means an expatriate.
``(2) Exceptions.--An individual shall not be treated as a
covered expatriate if--
``(A) the individual--
``(i) became at birth a citizen of the
United States and a citizen of another country
and, as of the expatriation date, continues to
be a citizen of, and is taxed as a resident of,
such other country, and
``(ii) has not been a resident of the
United States (as defined in section
7701(b)(1)(A)(ii)) during the 5 taxable years
ending with the taxable year during which the
expatriation date occurs, or
``(B)(i) the individual's relinquishment of United
States citizenship occurs before such individual
attains age 18\1/2\, and
``(ii) the individual has been a resident of the
United States (as so defined) for not more than 5
taxable years before the date of relinquishment.
``(d) Exempt Property; Special Rules for Pension Plans.--
``(1) Exempt property.--This section shall not apply to the
following:
``(A) United states real property interests.--Any
United States real property interest (as defined in
section 897(c)(1)), other than stock of a United States
real property holding corporation which does not, on
the day before the expatriation date, meet the
requirements of section 897(c)(2).
``(B) Specified property.--Any property or interest
in property not described in subparagraph (A) which the
Secretary specifies in regulations.
``(2) Special rules for certain retirement plans.--
``(A) In general.--If a covered expatriate holds on
the day before the expatriation date any interest in a
retirement plan to which this paragraph applies--
``(i) such interest shall not be treated as
sold for purposes of subsection (a)(1), but
``(ii) an amount equal to the present value
of the expatriate's nonforfeitable accrued
benefit shall be treated as having been
received by such individual on such date as a
distribution under the plan.
``(B) Treatment of subsequent distributions.--In
the case of any distribution on or after the
expatriation date to or on behalf of the covered
expatriate from a plan from which the expatriate was
treated as receiving a distribution under subparagraph
(A), the amount otherwise includible in gross income by
reason of the subsequent distribution shall be reduced
by the excess of the amount includible in gross income
under subparagraph (A) over any portion of such amount
to which this subparagraph previously applied.
``(C) Treatment of subsequent distributions by
plan.--For purposes of this title, a retirement plan to
which this paragraph applies, and any person acting on
the plan's behalf, shall treat any subsequent
distribution described in subparagraph (B) in the same
manner as such distribution would be treated without
regard to this paragraph.
``(D) Applicable plans.--This paragraph shall apply
to--
``(i) any qualified retirement plan (as
defined in section 4974(c)),
``(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an
eligible employer described in section
457(e)(1)(A), and
``(iii) to the extent provided in
regulations, any foreign pension plan or
similar retirement arrangements or programs.
``(e) Definitions.--For purposes of this section--
``(1) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes
citizenship, and
``(B) any long-term resident of the United States
who--
``(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
``(ii) commences to be treated as a
resident of a foreign country under the
provisions of a tax treaty between the United
States and the foreign country and who does not
waive the benefits of such treaty applicable to
residents of the foreign country.
``(2) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United
States citizenship, or
``(B) in the case of a long-term resident of the
United States, the date of the event described in
clause (i) or (ii) of paragraph (1)(B).
``(3) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing United States citizenship on the
earliest of--
``(A) the date the individual renounces such
individual's United States nationality before a
diplomatic or consular officer of the United States
pursuant to paragraph (5) of section 349(a) of the
Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the
United States Department of State a signed statement of
voluntary relinquishment of United States nationality
confirming the performance of an act of expatriation
specified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)-(4)),
``(C) the date the United States Department of
State issues to the individual a certificate of loss of
nationality, or
``(D) the date a court of the United States cancels
a naturalized citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual
unless the renunciation or voluntary relinquishment is
subsequently approved by the issuance to the individual of a
certificate of loss of nationality by the United States
Department of State.
``(4) Long-term resident.--The term `long-term resident'
has the meaning given to such term by section 877(e)(2).
``(f) Special Rules Applicable to Beneficiaries' Interests in
Trust.--
``(1) In general.--Except as provided in paragraph (2), if
an individual is determined under paragraph (3) to hold an
interest in a trust on the day before the expatriation date--
``(A) the individual shall not be treated as having
sold such interest,
``(B) such interest shall be treated as a separate
share in the trust, and
``(C)(i) such separate share shall be treated as a
separate trust consisting of the assets allocable to
such share,
``(ii) the separate trust shall be treated as
having sold its assets on the day before the
expatriation date for their fair market value and as
having distributed all of its assets to the individual
as of such time, and
``(iii) the individual shall be treated as having
recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or loss of
the individual arising from a distribution described in
subparagraph (C)(ii). In determining the amount of such
distribution, proper adjustments shall be made for liabilities
of the trust allocable to an individual's share in the trust.
``(2) Special rules for interests in qualified trusts.--
``(A) In general.--If the trust interest described
in paragraph (1) is an interest in a qualified trust--
``(i) paragraph (1) and subsection (a)
shall not apply, and
``(ii) in addition to any other tax imposed
by this title, there is hereby imposed on each
distribution with respect to such interest a
tax in the amount determined under subparagraph
(B).
``(B) Amount of tax.--The amount of tax under
subparagraph (A)(ii) shall be equal to the lesser of--
``(i) the highest rate of tax imposed by
section 1(e) for the taxable year which
includes the day before the expatriation date,
multiplied by the amount of the distribution,
or
``(ii) the balance in the deferred tax
account immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th day
preceding the distribution.
``(C) Deferred tax account.--For purposes of
subparagraph (B)(ii)--
``(i) Opening balance.--The opening balance
in a deferred tax account with respect to any
trust interest is an amount equal to the tax
which would have been imposed on the allocable
expatriation gain with respect to the trust
interest if such gain had been included in
gross income under subsection (a).
``(ii) Increase for interest.--The balance
in the deferred tax account shall be increased
by the amount of interest determined (on the
balance in the account at the time the interest
accrues), for periods after the 90th day after
the expatriation date, by using the rates and
method applicable under section 6621 for
underpayments of tax for such periods, except
that section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3
percentage points' in subparagraph (B) thereof.
``(iii) Decrease for taxes previously
paid.--The balance in the tax deferred account
shall be reduced--
``(I) by the amount of taxes
imposed by subparagraph (A) on any
distribution to the person holding the
trust interest, and
``(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subparagraph
(A) on distributions from the trust
with respect to nonvested interests not
held by such person.
``(D) Allocable expatriation gain.--For purposes of
this paragraph, the allocable expatriation gain with
respect to any beneficiary's interest in a trust is the
amount of gain which would be allocable to such
beneficiary's vested and nonvested interests in the
trust if the beneficiary held directly all assets
allocable to such interests.
``(E) Tax deducted and withheld.--
``(i) In general.--The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribution
to which it relates.
``(ii) Exception where failure to waive
treaty rights.--If an amount may not be
deducted and withheld under clause (i) by
reason of the distributee failing to waive any
treaty right with respect to such
distribution--
``(I) the tax imposed by
subparagraph (A)(ii) shall be imposed
on the trust and each trustee shall be
personally liable for the amount of
such tax, and
``(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
``(F) Disposition.--If a trust ceases to be a
qualified trust at any time, a covered expatriate
disposes of an interest in a qualified trust, or a
covered expatriate holding an interest in a qualified
trust dies, then, in lieu of the tax imposed by
subparagraph (A)(ii), there is hereby imposed a tax
equal to the lesser of--
``(i) the tax determined under paragraph
(1) as if the day before the expatriation date
were the date of such cessation, disposition,
or death, whichever is applicable, or
``(ii) the balance in the tax deferred
account immediately before such date.
Such tax shall be imposed on the trust and each trustee
shall be personally liable for the amount of such tax
and any other beneficiary of the trust shall be
entitled to recover from the covered expatriate or the
estate the amount of such tax imposed on the other
beneficiary.
``(G) Definitions and special rules.--For purposes
of this paragraph--
``(i) Qualified trust.--The term `qualified
trust' means a trust which is described in
section 7701(a)(30)(E).
``(ii) Vested interest.--The term `vested
interest' means any interest which, as of the
day before the expatriation date, is vested in
the beneficiary.
``(iii) Nonvested interest.--The term
`nonvested interest' means, with respect to any
beneficiary, any interest in a trust which is
not a vested interest. Such interest shall be
determined by assuming the maximum exercise of
discretion in favor of the beneficiary and the
occurrence of all contingencies in favor of the
beneficiary.
``(iv) Adjustments.--The Secretary may
provide for such adjustments to the bases of
assets in a trust or a deferred tax account,
and the timing of such adjustments, in order to
ensure that gain is taxed only once.
``(v) Coordination with retirement plan
rules.--This subsection shall not apply to an
interest in a trust which is part of a
retirement plan to which subsection (d)(2)
applies.
``(3) Determination of beneficiaries' interest in trust.--
``(A) Determinations under paragraph (1).--For
purposes of paragraph (1), a beneficiary's interest in
a trust shall be based upon all relevant facts and
circumstances, including the terms of the trust
instrument and any letter of wishes or similar
document, historical patterns of trust distributions,
and the existence of and functions performed by a trust
protector or any similar adviser.
``(B) Other determinations.--For purposes of this
section--
``(i) Constructive ownership.--If a
beneficiary of a trust is a corporation,
partnership, trust, or estate, the
shareholders, partners, or beneficiaries shall
be deemed to be the trust beneficiaries for
purposes of this section.
``(ii) Taxpayer return position.--A
taxpayer shall clearly indicate on its income
tax return--
``(I) the methodology used to
determine that taxpayer's trust
interest under this section, and
``(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a
different methodology to determine such
beneficiary's trust interest under this
section.
``(g) Termination of Deferrals, Etc.--In the case of any covered
expatriate, notwithstanding any other provision of this title--
``(1) any period during which recognition of income or gain
is deferred shall terminate on the day before the expatriation
date, and
``(2) any extension of time for payment of tax shall cease
to apply on the day before the expatriation date and the unpaid
portion of such tax shall be due and payable at the time and in
the manner prescribed by the Secretary.
``(h) Imposition of Tentative Tax.--
``(1) In general.--If an individual is required to include
any amount in gross income under subsection (a) for any taxable
year, there is hereby imposed, immediately before the
expatriation date, a tax in an amount equal to the amount of
tax which would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
``(2) Due date.--The due date for any tax imposed by
paragraph (1) shall be the 90th day after the expatriation
date.
``(3) Treatment of tax.--Any tax paid under paragraph (1)
shall be treated as a payment of the tax imposed by this
chapter for the taxable year to which subsection (a) applies.
``(4) Deferral of tax.--The provisions of subsection (b)
shall apply to the tax imposed by this subsection to the extent
attributable to gain includible in gross income by reason of
this section.
``(i) Special Liens for Deferred Tax Amounts.--
``(1) Imposition of lien.--
``(A) In general.--If a covered expatriate makes an
election under subsection (a)(4) or (b) which results
in the deferral of any tax imposed by reason of
subsection (a), the deferred amount (including any
interest, additional amount, addition to tax,
assessable penalty, and costs attributable to the
deferred amount) shall be a lien in favor of the United
States on all property of the expatriate located in the
United States (without regard to whether this section
applies to the property).
``(B) Deferred amount.--For purposes of this
subsection, the deferred amount is the amount of the
increase in the covered expatriate's income tax which,
but for the election under subsection (a)(4) or (b),
would have occurred by reason of this section for the
taxable year including the expatriation date.
``(2) Period of lien.--The lien imposed by this subsection
shall arise on the expatriation date and continue until--
``(A) the liability for tax by reason of this
section is satisfied or has become unenforceable by
reason of lapse of time, or
``(B) it is established to the satisfaction of the
Secretary that no further tax liability may arise by
reason of this section.
``(3) Certain rules apply.--The rules set forth in
paragraphs (1), (3), and (4) of section 6324A(d) shall apply
with respect to the lien imposed by this subsection as if it
were a lien imposed by section 6324A.
``(j) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Inclusion in Income of Gifts and Bequests Received by United
States Citizens and Residents From Expatriates.--Section 102 (relating
to gifts, etc. not included in gross income) is amended by adding at
the end the following new subsection:
``(d) Gifts and Inheritances From Covered Expatriates.--
``(1) In general.--Subsection (a) shall not exclude from
gross income the value of any property acquired by gift,
bequest, devise, or inheritance from a covered expatriate after
the expatriation date. For purposes of this subsection, any
term used in this subsection which is also used in section 877A
shall have the same meaning as when used in section 877A.
``(2) Exceptions for transfers otherwise subject to estate
or gift tax.--Paragraph (1) shall not apply to any property if
either--
``(A) the gift, bequest, devise, or inheritance
is--
``(i) shown on a timely filed return of tax
imposed by chapter 12 as a taxable gift by the
covered expatriate, or
``(ii) included in the gross estate of the
covered expatriate for purposes of chapter 11
and shown on a timely filed return of tax
imposed by chapter 11 of the estate of the
covered expatriate, or
``(B) no such return was timely filed but no such
return would have been required to be filed even if the
covered expatriate were a citizen or long-term resident
of the United States.''.
(c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new
paragraph:
``(49) Termination of united states citizenship.--
``(A) In general.--An individual shall not cease to
be treated as a United States citizen before the date
on which the individual's citizenship is treated as
relinquished under section 877A(e)(3).
``(B) Dual citizens.--Under regulations prescribed
by the Secretary, subparagraph (A) shall not apply to
an individual who became at birth a citizen of the
United States and a citizen of another country.''.
(d) Ineligibility for Visa or Admission to United States.--
(1) In general.--Section 212(a)(10)(E) of the Immigration
and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to
read as follows:
``(E) Former citizens not in compliance with
expatriation revenue provisions.--Any alien who is a
former citizen of the United States who relinquishes
United States citizenship (within the meaning of
section 877A(e)(3) of the Internal Revenue Code of
1986) and who is not in compliance with section 877A of
such Code (relating to expatriation) is
inadmissible.''.
(2) Availability of information.--
(A) In general.--Section 6103(l) (relating to
disclosure of returns and return information for
purposes other than tax administration) is amended by
adding at the end the following new paragraph:
``(21) Disclosure to deny visa or admission to certain
expatriates.--Upon written request of the Attorney General or
the Attorney General's delegate, the Secretary shall disclose
whether an individual is in compliance with section 877A (and
if not in compliance, any items of noncompliance) to officers
and employees of the Federal agency responsible for
administering section 212(a)(10)(E) of the Immigration and
Nationality Act solely for the purpose of, and to the extent
necessary in, administering such section 212(a)(10)(E).''.
(B) Safeguards.--Section 6103(p)(4) (relating to
safeguards) is amended by striking ``or (20)'' each
place it appears and inserting ``(20), or (21)''.
(3) Effective dates.--The amendments made by this
subsection shall apply to individuals who relinquish United
States citizenship on or after the date of the enactment of
this Act.
(e) Conforming Amendments.--
(1) Section 877 is amended by adding at the end the
following new subsection:
``(h) Application.--This section shall not apply to an expatriate
(as defined in section 877A(e)) whose expatriation date (as so defined)
occurs on or after the date of the enactment of this subsection.''.
(2) Section 2107 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any expatriate
subject to section 877A.''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new subparagraph:
``(C) Application.--This paragraph shall not apply
to any expatriate subject to section 877A.''.
(4) Section 6039G(a) is amended by inserting ``or 877A''
after ``section 877(b)''.
(5) The second sentence of section 6039G(d) is amended by
inserting ``or who relinquishes United States citizenship
(within the meaning of section 877A(e)(3))'' after ``section
877(a))''.
(f) Clerical Amendment.--The table of sections for subpart A of
part II of subchapter N of chapter 1 is amended by inserting after the
item relating to section 877 the following new item:
``Sec. 877A. Tax responsibilities of expatriation.''.
(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal Revenue
Code of 1986, as added by this section) whose expatriation date
(as so defined) occurs on or after the date of the enactment of
this Act.
(2) Gifts and bequests.--Section 102(d) of the Internal
Revenue Code of 1986 (as added by subsection (b)) shall apply
to gifts and bequests received on or after the date of the
enactment of this Act, from an individual or the estate of an
individual whose expatriation date (as so defined) occurs after
such date.
(3) Due date for tentative tax.--The due date under section
877A(h)(2) of the Internal Revenue Code of 1986, as added by
this section, shall in no event occur before the 90th day after
the date of the enactment of this Act.
Subtitle F--Miscellaneous Provisions
SEC. 451. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.
(a) In General.--Section 1275(d) (relating to regulation authority)
is amended--
(1) by striking ``The Secretary'' and inserting the
following:
``(1) In general.--The Secretary'', and
(2) by adding at the end the following new paragraph:
``(2) Treatment of contingent payment convertible debt.--
``(A) In general.--In the case of a debt instrument
which--
``(i) is convertible into stock of the
issuing corporation, into stock or debt of a
related party (within the meaning of section
267(b) or 707(b)(1)), or into cash or other
property in an amount equal to the approximate
value of such stock or debt, and
``(ii) provides for contingent payments,
any regulations which require original issue discount
to be determined by reference to the comparable yield
of a noncontingent fixed-rate debt instrument shall be
applied as if the regulations require that such
comparable yield be determined by reference to a
noncontingent fixed-rate debt instrument which is
convertible into stock.
``(B) Special rule.--For purposes of subparagraph
(A), the comparable yield shall be determined without
taking into account the yield resulting from the
conversion of a debt instrument into stock.''.
(b) Cross Reference.--Section 163(e)(6) (relating to cross
references) is amended by adding at the end the following:
``For the treatment of contingent payment
convertible debt, see section 1275(d)(2).''.
(c) Effective Date.--The amendments made by this section shall
apply to debt instruments issued on or after the date of the enactment
of this Act.
SEC. 452. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS FOREIGN TAX
CREDIT TRANSACTIONS INVOLVING INAPPROPRIATE SEPARATION OF
FOREIGN TAXES FROM RELATED FOREIGN INCOME.
(a) In General.--Section 901 (relating to taxes of foreign
countries and of possessions of United States) is amended by
redesignating subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Regulations.--The Secretary may prescribe regulations
disallowing a credit under subsection (a) for all or a portion of any
foreign tax, or allocating a foreign tax among 2 or more persons, in
cases where the foreign tax is imposed on any person in respect of
income of another person or in other cases involving the inappropriate
separation of the foreign tax from the related foreign income.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
SEC. 453. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING PROVISIONS OF
THE AMERICAN JOBS CREATION ACT OF 2004.
(a) In General.--Section 849(b) of the American Jobs Creation Act
of 2004 is amended by striking paragraphs (1) and (2), by redesignating
paragraphs (3) and (4) as paragraphs (1) and (2), respectively.
(b) Leases to Foreign Entities.--Section 849(b) of the American
Jobs Creation Act of 2004, as amended by subsection (a), is amended by
adding at the end the following new paragraph:
``(3) Leases to foreign entities.--In the case of tax-
exempt use property leased to a tax-exempt entity which is a
foreign person or entity, the amendments made by this part
shall apply to taxable years beginning after December 31, 2005,
with respect to leases entered into on or before March 12,
2004.''.
(c) Effective Date.--The amendments made by this section shall take
effect as if included in the enactment of the American Jobs Creation
Act of 2004.
SEC. 454. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE
CORPORATIONS.
(a) In General.--Section 163(j) (relating to limitation on
deduction for interest on certain indebtedness) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(8) Treatment of corporate partners.--Except to the
extent provided by regulations, in applying this subsection to
a corporation which owns (directly or indirectly) an interest
in a partnership--
``(A) such corporation's distributive share of
interest income paid or accrued to such partnership
shall be treated as interest income paid or accrued to
such corporation,
``(B) such corporation's distributive share of
interest paid or accrued by such partnership shall be
treated as interest paid or accrued by such
corporation, and
``(C) such corporation's share of the liabilities
of such partnership shall be treated as liabilities of
such corporation.''.
(b) Additional Regulatory Authority.--Section 163(j)(9) (relating
to regulations), as redesignated by subsection (a), is amended by
striking ``and'' at the end of subparagraph (B), by striking the period
at the end of subparagraph (C) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(D) regulations providing for the reallocation of
shares of partnership indebtedness, or distributive
shares of the partnership's interest income or interest
expense, as may be appropriate to carry out the
purposes of this subsection.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning on or after the date of the enactment
of this Act.
SEC. 455. 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.--Expenses for
goods, services, and facilities, to the extent that the
expenses do not exceed the amount of the expenses which 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) Persons Not Employees.--Paragraph (9) of section 274(e) is
amended by striking ``to the extent that the expenses are includible in
the gross income'' and inserting ``to the extent that the expenses do
not exceed the amount of the expenses which are includible in the gross
income''.
(c) Effective Date.--The amendments made by this section shall
apply to expenses incurred after the date of the enactment of this Act.
SEC. 456. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS
TAXED AS IF PARENT'S INCOME.
(a) In General.--Section 1(g)(2)(A) (relating to child to whom
subsection applies) is amended by striking ``age 14'' and inserting
``age 18''.
(b) Treatment of Distributions From Qualified Disability Trusts.--
Section 1(g)(4) (relating to net unearned income) is amended by adding
at the end the following new subparagraph:
``(C) Treatment of distributions from qualified
disability trusts.--For purposes of this subsection, in
the case of any child who is a beneficiary of a
qualified disability trust (as defined in section
642(b)(2)(C)(ii)), any amount included in the income of
such child under sections 652 and 662 during a taxable
year shall be considered earned income of such child
for such taxable year.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 457. LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING
REQUIREMENTS.
(a) Strengthened Reasonable Expectation Requirement.--Subparagraph
(A) of section 149(f)(2) (relating to reasonable expectation
requirement) is amended to read as follows:
``(A) In general.--The requirements of this
paragraph are met with respect to an issue if the
issuer reasonably expects that--
``(i) as of the close of the 1-year period
beginning on the date of issuance of the issue,
at least 50 percent of the net proceeds of the
issue (as of the close of such period) will
have been used directly or indirectly to make
or finance loans to ultimate borrowers, and
``(ii) as of the close of the 3-year period
beginning on such date of issuance, at least 95
percent of the net proceeds of the issue (as of
the close of such period) will have been so
used.''.
(b) Written Loan Commitment and Redemption Requirements.--Section
149(f) (relating to treatment of certain pooled financing bonds) is
amended by redesignating paragraphs (4) and (5) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (3) the following
new paragraphs:
``(4) Written loan commitment requirement.--
``(A) In general.--The requirement of this
paragraph is met with respect to an issue if the issuer
receives prior to issuance written loan commitments
identifying the ultimate potential borrowers of at
least 50 percent of the net proceeds of such issue.
``(B) Exception.--Subparagraph (A) shall not apply
with respect to any issuer which is a State (or an
integral part of a State) issuing pooled financing
bonds to make or finance loans to subordinate
governmental units of such State or to State-created
entities providing financing for water-infrastructure
projects through the federally-sponsored State
revolving fund program.
``(5) Redemption requirement.--The requirement of this
paragraph is met if to the extent that less than the percentage
of the proceeds of an issue required to be used under clause
(i) or (ii) of paragraph (2)(A) is used by the close of the
period identified in such clause, the issuer uses an amount of
proceeds equal to the excess of--
``(A) the amount required to be used under such
clause, over
``(B) the amount actually used by the close of such
period,
``to redeem outstanding bonds within 90 days after the end
of such period.''.
(c) Elimination of Disregard of Pooled Bonds in Determining
Eligibility for Small Issuer Exception to Arbitrage Rebate.--Section
148(f)(4)(D)(ii) (relating to aggregation of issuers) is amended by
striking subclause (II) and by redesignating subclauses (III) and (IV)
as subclauses (II) and (III), respectively.
(d) Conforming Amendments.--
(1) Section 149(f)(1) is amended by striking ``paragraphs
(2) and (3)'' and inserting ``paragraphs (2), (3), (4), and
(5)''.
(2) Section 149(f)(7)(B), as redesignated by subsection
(b), is amended by striking ``paragraph (4)(A)'' and inserting
``paragraph (6)(A)''.
(3) Section 54(l)(2) is amended by striking ``section
149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.
SEC. 458. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.
(a) In General.--Section 6049(b)(2) (relating to exceptions) is
amended by striking subparagraph (B) and by redesignating subparagraphs
(C) and (D) as subparagraphs (B) and (C), respectively.
(b) Conforming Amendment.--Section 6049(b)(2)(C), as redesignated
by subsection (a), is amended by striking ``subparagraph (C)'' and
inserting ``subparagraph (B)''.
(c) Effective Date.--The amendments made by this section shall
apply to interest earned after December 31, 2005.
SEC. 459. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A
NONCONVENTIONAL SOURCE.
(a) Taxable Years Ending Before 2006.--
(1) Modification of phaseout.--
(A) In general.--Section 29(b)(1)(A) is amended by
inserting ``the calendar year preceding'' before ``the
calendar year''.
(B) Conforming amendments.--Section 29(b)((2) is
amended--
(i) by striking ``The'' and inserting
``With respect to any calendar year, the'', and
(ii) by striking ``for the calendar year in
which the sale occurs'' and inserting ``for
such calendar year''.
(2) No inflation adjustment for the credit amount in
2005.--Section 29(b)(2), as amended by paragraph (1), is
amended by adding at the end the following new sentence: ``This
paragraph shall not apply with respect to the $3 amount in
subsection (a) for calendar year 2005 and the amount in effect
under subsection (a) for sales in such calendar year shall be
the amount which was in effect for sales in calendar year
2004.''.
(b) Taxable Years Ending After 2005.--
(1) Modification of phaseout.--
(A) In general.--Section 45K(b)(1)(A) is amended by
inserting ``the calendar year preceding'' before ``the
calendar year''.
(B) Conforming amendments.--Section 45K(b)((2) is
amended--
(i) by striking ``The'' and inserting
``With respect to any calendar year, the'', and
(ii) by striking ``for the calendar year in
which the sale occurs'' and inserting ``for
such calendar year''.
(2) No inflation adjustment for the credit amount in 2005,
2006, and 2007.--Section 45K(b)(2), as amended by paragraph
(1), is amended by adding at the end the following new
sentence: ``This paragraph shall not apply with respect to the
$3 amount in subsection (a) for calendar years 2005, 2006, and
2007 and the amount in effect under subsection (a) for sales in
each such calendar year shall be the amount which was in effect
for sales in calendar year 2004.''.
(3) Treatment of coke and coke gas.--
(A) Nonapplication of phaseout.--Section 45K(g)(2)
is amended by adding at the end the following new
subparagraph:
``(D) Nonapplication of phaseout.--Subsection
(b)(1) shall not apply.''.
(B) Application of inflation adjustment.--Section
45K(g)(2)(B) is amended by inserting ``and the last
sentence of subsection (b)(2) shall not apply.''.
(C) Clarification of qualifying facility.--Section
45K(g)(1) is amended by inserting ``(other than from
petroleum based products)'' after ``coke or coke gas''.
(c) Effective Date.--The amendments made by this section shall
apply to fuel sold after December 31, 2004.
SEC. 460. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE HARBOR.
(a) In General.--Clause (i) of section 6654(d)(1)(C) is amended by
striking ``substituting'' and all that follows through ``1997.'' and
inserting ``substituting `110 percent (120 percent if the preceding
taxable year begins in 2005)' for `100 percent'.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to any installment payment for taxable years beginning
after December 31, 2005.
SEC. 461. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED OIL
COMPANIES.
(a) General Rule.--Notwithstanding any other provision of law, if a
taxpayer is an applicable integrated oil company for its last taxable
year ending in calendar year 2005, the taxpayer shall--
(1) increase, effective as of the close of such taxable
year, the value of each historic LIFO layer of inventories of
crude oil, natural gas, or any other petroleum product (within
the meaning of section 4611) by the layer adjustment amount,
and
(2) decrease its cost of goods sold for such taxable year
by the aggregate amount of the increases under paragraph (1).
If the aggregate amount of the increases under paragraph (1) exceed the
taxpayer's cost of goods sold for such taxable year, the taxpayer's
gross income for such taxable year shall be increased by the amount of
such excess.
(b) Layer Adjustment Amount.--For purposes of this section--
(1) In general.--The term ``layer adjustment amount''
means, with respect to any historic LIFO layer, the product
of--
(A) $18.75, and
(B) the number of barrels of crude oil (or in the
case of natural gas or other petroleum products, the
number of barrel-of-oil equivalents) represented by the
layer.
(2) Barrel-of-oil equivalent.--The term ``barrel-of-oil
equivalent'' has the meaning given such term by section
29(d)(5) (as in effect before its redesignation by the Energy
Tax Incentives Act of 2005).
(c) Application of Requirement.--
(1) No change in method of accounting.--Any adjustment
required by this section shall not be treated as a change in
method of accounting.
(2) Underpayments of estimated tax.--No addition to the tax
shall be made under section 6655 of the Internal Revenue Code
of 1986 (relating to failure by corporation to pay estimated
tax) with respect to any underpayment of an installment
required to be paid with respect to the taxable year described
in subsection (a) to the extent such underpayment was created
or increased by this section.
(d) Applicable Integrated Oil Company.--For purposes of this
section, the term ``applicable integrated oil company'' means an
integrated oil company (as defined in section 291(b)(4) of the Internal
Revenue Code of 1986) which has an average daily worldwide production
of crude oil of at least 500,000 barrels for the taxable year and which
had gross receipts in excess of $1,000,000,000 for its last taxable
year ending during calendar year 2005. For purposes of this subsection
all persons treated as a single employer under subsections (a) and (b)
of section 52 of the Internal Revenue Code of 1986 shall be treated as
1 person and, in the case of a short taxable year, the rule under
section 448(c)(3)(B) shall apply.
SEC. 462. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL
EXPENDITURES FOR MAJOR INTEGRATED OIL COMPANIES.
(a) In General.--Section 167(h) is amended by adding at the end the
following new paragraph:
``(5) Nonapplication to major integrated oil companies.--
This subsection shall not apply with respect to any expenses
paid or incurred for any taxable year by any integrated oil
company (as defined in section 291(b)(4)) which has an average
daily worldwide production of crude oil of at least 500,000
barrels for such taxable year.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the amendment made by section 1329(a) of the
Energy Policy Act of 2005.
SEC. 463. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL AIRCRAFT.
(a) In General.--For purposes of Federal income tax inclusion, the
value of any employee personal use of noncommercial aircraft shall
equal the excess (if any) of--
(1) greater of--
(A) the fair market value of such use, or
(B) the actual cost of such use (including all
fixed and variable costs), over
(2) any amount paid by or on behalf of such employee for
such use.
(b) Effective Date.--Subsection (a) shall apply to use after the
date of the enactment of this Act.
SEC. 464. APPLICATION OF FIRPTA TO REGULATED INVESTMENT COMPANIES.
(a) In General.--Subclause (II) of section 897(h)(4)(A)(i)
(defining qualified investment entity) is amended by inserting ``which
is a United States real property holding corporation or which would be
a United States real property holding corporation if the exceptions
provided in subsections (c)(3) and (h)(2) did not apply to interests in
any real estate investment trust or regulated investment company''
after ``regulated investment company''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions with respect to taxable years beginning after December
31, 2004.
SEC. 465. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.
(a) Qualified Investment Entity.--
(1) In general.--Section 897(h)(1) is amended--
(A) by striking ``a nonresident alien individual or
a foreign corporation'' in the first sentence and
inserting ``a nonresident alien individual, a foreign
corporation, or other qualified investment entity'',
(B) by striking ``such nonresident alien individual
or foreign corporation'' in the first sentence and
inserting ``such nonresident alien individual, foreign
corporation, or other qualified investment entity'',
and
(C) by striking the second sentence and inserting
the following new sentence: ``Notwithstanding the
preceding sentence, any distribution by a qualified
investment entity to a nonresident alien, a foreign
corporation, or other qualified investment entity 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 1 year period ending on the date of such
distribution.''.
(2) Application after 2007.--Clause (ii) of section
897(h)(4)(A) is amended by adding at the end the following new
sentence: ``Notwithstanding the preceding sentence, an entity
described in clause (i)(II) shall be treated as a qualified
investment entity for purposes of applying paragraph (1) in any
case in which a real estate investment trust makes a
distribution to an entity described in clause (i)(II).''.
(b) Treatment of Certain Distributions as Dividends.--
(1) In general.--Section 852(b)(3) (relating to capital
gains) is amended by adding at the end the following new
subparagraph:
``(E) Certain distributions.--In the case of a
distribution to which section 897 does not apply by
reason of the second sentence of section 897(h)(1), the
amount of such distribution which would be included in
computing long-term capital gains for the shareholder
under subparagraph (B) or (D) (without regard to this
subparagraph)--
``(i) shall not be included in computing
such shareholder's long-term capital gains, and
``(ii) shall be included in such
shareholder's gross income as a dividend from
the regulated investment company.''.
(2) Conforming amendment.--Section 871(k)(2) (relating to
short-term capital gain dividends) is amended by adding at the
end the following new subparagraph:
``(E) Certain distributions.--In the case of a
distribution to which section 897 does not apply by
reason of the second sentence of section 897(h)(1), the
amount which would be treated as a short-term capital
gain dividend to the shareholder (without regard to
this subparagraph)--
``(i) shall not be treated as a short-term
capital gain dividend, and
``(ii) shall be included in such
shareholder's gross income as a dividend from
the regulated investment company.''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years of
qualified investment entities beginning after the date of the
enactment of this Act.
(2) Dividends.--The amendments made by subsection (b) shall
apply to dividends with respect to taxable years of regulated
investment companies beginning after December 31, 2004.
SEC. 466. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF FOREIGN
PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE
TRANSACTIONS.
(a) In General.--Section 897(h) of the Internal Revenue Code of
1986 (relating to special rules in certain investment entities) is
amended by redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new paragraph:
``(4) Treatment of certain wash sale transactions.--
``(A) In general.--If an interest in a domestically
controlled qualified investment entity is disposed of
in an applicable wash sale transaction, the taxpayer
shall, for purposes of this section, be treated as
having gain from the sale or exchange of a United
States real property interest in an amount equal to the
portion of the distribution described in subparagraph
(B) with respect to such interest which, but for the
disposition, would have been treated by the taxpayer as
gain from the sale or exchange of a United States real
property interest under paragraph (1).
``(B) Applicable wash sales transaction.--For
purposes of this paragraph--
``(i) In general.--The term `applicable
wash sales transaction' means any transaction
(or series of transactions) under which a
nonresident alien individual or foreign
corporation--
``(I) disposes of an interest in a
domestically controlled qualified
investment entity during the 30-day
period preceding a distribution which
is to be made with respect to the
interest and any portion of which, but
for the disposition, would have been
treated by the taxpayer as gain from
the sale or exchange of a United States
real property interest under paragraph
(1), and
``(II) acquires an identical
interest in such entity during the 60-
day period beginning with the 1st day
of the 30-day period described in
subclause (I).
For purposes of subclause (II), a nonresident
alien individual or foreign corporation shall
be treated as having acquired any interest
acquired by a person related (within the
meaning of section 465(b)(3)(C)) to the
individual or corporation.
``(ii) Exception where distribution
actually received.--A transaction shall not be
treated as an applicable wash sales transaction
if the nonresident alien individual or foreign
corporation receives the distribution described
in clause (i)(I) with respect to either the
interest which was disposed of, or acquired, in
the transaction.
``(iii) Exception for certain publicly
traded stock.--A transaction shall not be
treated as an applicable wash sales transaction
if it involves the disposition of any class of
stock in a qualified investment entity which is
regularly traded on an established securities
market within the United States but only if the
nonresident alien individual or foreign
corporation did not own more than 5 percent of
such class of stock at any time during the 1-
year period ending on the date of the
distribution described in clause (i)(I).''.
(b) No Withholding Required.--Section 1445(b) of the Internal
Revenue Code of 1986 (relating to exemptions) is amended by adding at
the end the following new paragraph:
``(8) Applicable wash sales transactions.--No person shall
be required to deduct and withhold any amount under subsection
(a) with respect to a disposition which is treated as a
disposition of a United States real property interest solely by
reason of section 897(h)(4).''.
(c) Effective Date.--The amendments made by this section shall
apply to dispositions after December 31, 2005, in taxable years ending
after such date.
SEC. 467. MODIFICATIONS TO RULES RELATING TO TAXATION OF DISTRIBUTIONS
OF STOCK AND SECURITIES OF A CONTROLLED CORPORATION.
(a) Modification of Active Business Definition Under Section 355.--
(1) In general.--Section 355(b) (defining active conduct of
a trade or business) is amended by adding at the end the
following new paragraph:
``(3) Special rules relating to active business
requirement.--
``(A) In general.--For purposes of determining
whether a corporation meets the requirement of
paragraph (2)(A), all members of such corporation's
separate affiliated group shall be treated as 1
corporation. For purposes of the preceding sentence,
the term `separate affiliated group' means, with
respect to any corporation, the affiliated group which
would be determined under section 1504(a) if such
corporation were the common parent and section 1504(b)
did not apply.
``(B) Control.--For purposes of paragraph (2)(D),
all distributee corporations which are members of the
same affiliated group (as defined in section 1504(a)
without regard to section 1504(b)) shall be treated as
1 distributee corporation.''.
(2) Conforming amendments.--
(A) Subparagraph (A) of section 355(b)(2) is
amended to read as follows:
``(A) it is engaged in the active conduct of a
trade or business,''.
(B) Section 355(b)(2) of such Code is amended by
striking the last sentence.
(3) Effective dates.--
(A) In general.--The amendments made by this
subsection shall apply--
(i) to distributions after the date of the
enactment of this Act, and before January 1,
2010, and
(ii) for purposes of determining the
continued qualification under section
355(b)(2)(A) of the Internal Revenue Code of
1986 (as amended by paragraph (2)(A)) of
distributions made before such date, as a
result of an acquisition, disposition, or other
restructuring after such date and before
January 1, 2010.
(B) Transition rule.--The amendments made by this
subsection shall not apply to any distribution pursuant
to a transaction which is--
(i) made pursuant to an agreement which was
binding on such date of enactment and at all
times thereafter,
(ii) described in a ruling request
submitted to the Internal Revenue Service on or
before such date, or
(iii) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission.
(C) Elections.--
(i) Out of transition relief.--Subparagraph
(B) shall not apply if the distributing
corporation elects not to have such
subparagraph apply to distributions of such
corporation. Any such election, once made,
shall be irrevocable.
(ii) Application to prior distributions.--
Subparagraph (A)(ii) shall not apply to a
distributing or controlled corporation if the
corporation elects not to have such
subparagraph apply to such corporation. Any
such election, once made, shall be irrevocable.
(b) Section 355 Not To Apply to Distributions if the Distributing
or Controlled Corporation Is a Disqualified Investment Corporation.--
(1) In general.--Section 355 (relating to distributions of
stock and securities of a controlled corporation) is amended by
adding at the end the following new subsection:
``(g) Section Not To Apply to Distributions Involving Disqualified
Investment Corporations.--
``(1) In general.--This section (and so much of section 356
as relates to this section) shall not apply to any distribution
which is part of a transaction if--
``(A) either the distributing corporation or
controlled corporation is, immediately after the
transaction, a disqualified investment corporation, and
``(B) any person holds, immediately after the
transaction, a 50-percent or greater interest in any
disqualified investment corporation, but only if such
person did not hold such an interest in such
corporation immediately before the transaction.
``(2) Disqualified investment corporation.--For purposes of
this subsection--
``(A) In general.--The term `disqualified
investment corporation' means any distributing or
controlled corporation if the fair market value of the
investment assets of the corporation is 75 percent or
more of the fair market value of all assets of the
corporation.
``(B) Investment assets.--
``(i) In general.--Except as otherwise
provided in this subparagraph, the term
`investment assets' means--
``(I) cash,
``(II) any stock or securities in a
corporation,
``(III) any interest in a
partnership,
``(IV) any debt instrument or other
evidence of indebtedness,
``(V) any option, forward or
futures contract, notional principal
contract, or derivative,
``(VI) foreign currency, or
``(VII) any similar asset.
``(ii) Exception for assets used in active
conduct of certain financial trades or
businesses.--Such term shall not include any
asset which is held for use in the active and
regular conduct of--
``(I) a lending or finance business
(within the meaning of section
954(h)(4)),
``(II) a banking business through a
bank (as defined in section 581), a
domestic building and loan association
(within the meaning of section
7701(a)(19)), or any similar
institution specified by the Secretary,
or
``(III) an insurance business if
the conduct of the business is
licensed, authorized, or regulated by
an applicable insurance regulatory
body.
This clause shall only apply with respect to
any business if substantially all of the income
of the business is derived from persons who are
not related (within the meaning of section
267(b) or 707(b)(1)) to the person conducting
the business.
``(iii) Exception for securities marked to
market.--Such term shall not include any
security (as defined in section 475(c)(2))
which is held by a dealer in securities and to
which section 475(a) applies.
``(iv) Stock or securities in a 25-percent
controlled entity.--
``(I) In general.--Such term shall
not include any stock and securities
in, or any asset described in subclause
(IV) or (V) of clause (i) issued by, a
corporation which is a 25-percent
controlled entity with respect to the
distributing or controlled corporation.
``(II) Look-thru rule.--The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any 25-
percent controlled entity.
``(III) 25-percent controlled
entity.--For purposes of this clause,
the term `25-percent controlled entity'
means, with respect to any distributing
or controlled corporation, any
corporation with respect to which the
distributing or controlled corporation
owns directly or indirectly stock
meeting the requirements of section
1504(a)(2), except that such section
shall be applied by substituting `25
percent' for `80 percent' and without
regard to stock described in section
1504(a)(4).
``(v) Interests in certain partnerships.--
``(I) In general.--Such term shall
not include any interest in a
partnership, or any debt instrument or
other evidence of indebtedness, issued
by the partnership, if 1 or more of the
trades or businesses of the partnership
are (or, without regard to the 5-year
requirement under subsection (b)(2)(B),
would be) taken into account by the
distributing or controlled corporation,
as the case may be, in determining
whether the requirements of subsection
(b) are met with respect to the
distribution.
``(II) Look-thru rule.--The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any
partnership described in subclause (I).
``(3) 50-percent or greater interest.--For purposes of this
subsection--
``(A) In general.--The term `50-percent or greater
interest' has the meaning given such term by subsection
(d)(4).
``(B) Attribution rules.--The rules of section 318
shall apply for purposes of determining ownership of
stock for purposes of this paragraph.
``(4) Transaction.--For purposes of this subsection, the
term `transaction' includes a series of transactions.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out, or prevent the
avoidance of, the purposes of this subsection, including
regulations--
``(A) to carry out, or prevent the avoidance of,
the purposes of this subsection in cases involving--
``(i) the use of related persons,
intermediaries, pass-thru entities, options, or
other arrangements, and
``(ii) the treatment of assets unrelated to
the trade or business of a corporation as
investment assets if, prior to the
distribution, investment assets were used to
acquire such unrelated assets,
``(B) which in appropriate cases exclude from the
application of this subsection a distribution which
does not have the character of a redemption which would
be treated as a sale or exchange under section 302, and
``(C) which modify the application of the
attribution rules applied for purposes of this
subsection.''.
(2) Effective dates.--
(A) In general.--The amendments made by this
subsection shall apply to distributions after the date
of the enactment of this Act.
(B) Transition rule.--The amendments made by this
subsection shall not apply to any distribution pursuant
to a transaction which is--
(i) made pursuant to an agreement which was
binding on such date of enactment and at all
times thereafter,
(ii) described in a ruling request
submitted to the Internal Revenue Service on or
before such date, or
(iii) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission.
SEC. 468. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR ACQUIRING
MUSIC OR MUSIC COPYRIGHTS.
(a) In General.--Section 263A (relating to capitalization and
inclusion in inventory costs of certain expenses) is amended by
redesignating subsection (i) as subsection (j) and by adding after
subsection (h) the following new subsection:
``(i) Special Rules for Certain Musical Works and Copyrights.--
``(1) In general.--If--
``(A) any expense is paid or incurred by the
taxpayer in creating or acquiring any musical
composition (including any accompanying words) or any
copyright with respect to a musical composition, and
``(B) such expense is required to be capitalized
under this section,
then, notwithstanding section 167(g), the amount capitalized
shall be amortized ratably over the 5-year period beginning
with the month in which the composition or copyright was
acquired (or, in the case of expenses paid or incurred in
connection with the creation of a musical composition, the 5-
taxable-year period beginning with the taxable year in which
the expenses were paid or incurred).
``(2) Exceptions.--Paragraph (1) shall not apply to any
expense--
``(A) which is a qualified creative expense under
subsection (h),
``(B) to which a simplified procedure established
under subsection (j)(2) applies,
``(C) which is an amortizable section 197
intangible (as defined in section 197(c)), or
``(D) which, without regard to this section, would
not be allowable as a deduction.''
(b) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred after December 31, 2005, in taxable
years ending after such date.
SEC. 469. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.
(a) In General.--Subpart H of part IV of subchapter A of chapter 1
(relating to credits against tax) is amended by adding at the end the
following new section:
``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.
``(a) Allowance of Credit.--In the case of a taxpayer who holds a
rural renaissance bond on a credit allowance date of such bond, which
occurs during the taxable year, there shall be allowed as a credit
against the tax imposed by this chapter for such taxable year an amount
equal to the sum of the credits determined under subsection (b) with
respect to credit allowance dates during such year on which the
taxpayer holds such bond.
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit determined
under this subsection with respect to any credit allowance date
for a rural renaissance bond is 25 percent of the annual credit
determined with respect to such bond.
``(2) Annual credit.--The annual credit determined with
respect to any rural renaissance bond is the product of--
``(A) the credit rate determined by the Secretary
under paragraph (3) for the day on which such bond was
sold, multiplied by
``(B) the outstanding face amount of the bond.
``(3) Determination.--For purposes of paragraph (2), with
respect to any rural renaissance bond, the Secretary shall
determine daily or caused to be determined daily a credit rate
which shall apply to the first day on which there is a binding,
written contract for the sale or exchange of the bond. The
credit rate for any day is the credit rate which the Secretary
or the Secretary's designee estimates will permit the issuance
of rural renaissance bonds with a specified maturity or
redemption date without discount and without interest cost to
the qualified issuer.
``(4) Credit allowance date.--For purposes of this section,
the term `credit allowance date' means--
``(A) March 15,
``(B) June 15,
``(C) September 15, and
``(D) December 15.
Such term also includes the last day on which the bond is
outstanding.
``(5) Special rule for issuance and redemption.--In the
case of a bond which is issued during the 3-month period ending
on a credit allowance date, the amount of the credit determined
under this subsection with respect to such credit allowance
date shall be a ratable portion of the credit otherwise
determined based on the portion of the 3-month period during
which the bond is outstanding. A similar rule shall apply when
the bond is redeemed or matures.
``(c) Limitation Based on Amount of Tax.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess of--
``(1) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
``(2) the sum of the credits allowable under this part
(other than subpart C).
``(d) Rural Renaissance Bond.--For purposes of this section--
``(1) In general.--The term `rural renaissance bond' means
any bond issued as part of an issue if--
``(A) the bond is issued by a qualified issuer,
``(B) 95 percent or more of the proceeds from the
sale of such issue are to be used for capital
expenditures incurred for 1 or more qualified projects,
``(C) the qualified issuer designates such bond for
purposes of this section and the bond is in registered
form, and
``(D) the issue meets the requirements of
subsections (e) and (h).
``(2) Qualified project; special use rules.--
``(A) In general.--The term `qualified project'
means 1 or more projects described in subparagraph (B)
located in a rural area.
``(B) Projects described.--A project described in
this subparagraph is--
``(i) a water or waste treatment project,
``(ii) an affordable housing project,
``(iii) a community facility project,
including hospitals, fire and police stations,
and nursing and assisted-living facilities,
``(iv) a value-added agriculture or
renewable energy facility project for
agricultural producers or farmer-owned
entities, including any project to promote the
production, processing, or retail sale of
ethanol (including fuel at least 85 percent of
the volume of which consists of ethanol),
biodiesel, animal waste, biomass, raw
commodities, or wind as a fuel,
``(v) a distance learning or telemedicine
project,
``(vi) a rural utility infrastructure
project, including any electric or telephone
system,
``(vii) a project to expand broadband
technology,
``(viii) a rural teleworks project, and
``(ix) any project described in any
preceding clause carried out by the Delta
Regional Authority.
``(C) Special rules.--For purposes of this
paragraph--
``(i) any project described in subparagraph
(B)(iv) for a farmer-owned entity may be
considered a qualified project if such entity
is located in a rural area, or in the case of a
farmer-owned entity the headquarters of which
are located in a nonrural area, if the project
is located in a rural area, and
``(ii) any project for a farmer-owned
entity which is a facility described in
subparagraph (B)(iv) for agricultural producers
may be considered a qualified project
regardless of whether the facility is located
in a rural or nonrural area.
``(3) Special use rules.--
``(A) Refinancing rules.--For purposes of paragraph
(1)(B), a qualified project may be refinanced with
proceeds of a rural renaissance bond only if the
indebtedness being refinanced (including any obligation
directly or indirectly refinanced by such indebtedness)
was originally incurred after the date of the enactment
of this section.
``(B) Reimbursement.--For purposes of paragraph
(1)(B), a rural renaissance bond may be issued to
reimburse a borrower for amounts paid after the date of
the enactment of this section with respect to a
qualified project, but only if--
``(i) prior to the payment of the original
expenditure, the borrower declared its intent
to reimburse such expenditure with the proceeds
of a rural renaissance bond,
``(ii) not later than 60 days after payment
of the original expenditure, the qualified
issuer adopts an official intent to reimburse
the original expenditure with such proceeds,
and
``(iii) the reimbursement is made not later
than 18 months after the date the original
expenditure is paid.
``(C) Treatment of changes in use.--For purposes of
paragraph (1)(B), the proceeds of an issue shall not be
treated as used for a qualified project to the extent
that a borrower takes any action within its control
which causes such proceeds not to be used for a
qualified project. The Secretary shall prescribe
regulations specifying remedial actions that may be
taken (including conditions to taking such remedial
actions) to prevent an action described in the
preceding sentence from causing a bond to fail to be a
rural renaissance bond.
``(e) Maturity Limitations.--
``(1) Duration of term.--A bond shall not be treated as a
rural renaissance bond if the maturity of such bond exceeds the
maximum term determined by the Secretary under paragraph (2)
with respect to such bond.
``(2) Maximum term.--During each calendar month, the
Secretary shall determine the maximum term permitted under this
paragraph for bonds issued during the following calendar month.
Such maximum term shall be the term which the Secretary
estimates will result in the present value of the obligation to
repay the principal on the bond being equal to 50 percent of
the face amount of such bond. Such present value shall be
determined without regard to the requirements of subsection
(f)(3) and using as a discount rate the average annual interest
rate of tax-exempt obligations having a term of 10 years or
more which are issued during the month. If the term as so
determined is not a multiple of a whole year, such term shall
be rounded to the next highest whole year.
``(3) Ratable principal amortization required.--A bond
shall not be treated as a rural renaissance bond unless it is
part of an issue which provides for an equal amount of
principal to be paid by the qualified issuer during each
calendar year that the issue is outstanding.
``(f) Limitation on Amount of Bonds Designated.--
``(1) National limitation.--There is a rural renaissance
bond limitation of $200,000,000.
``(2) Allocation by secretary.--The Secretary shall
allocate the amount described in paragraph (1) among qualified
projects in such manner as the Secretary determines
appropriate.
``(g) Credit Included in Gross Income.--Gross income includes the
amount of the credit allowed to the taxpayer under this section
(determined without regard to subsection (c)) and the amount so
included shall be treated as interest income.
``(h) Special Rules Relating to Expenditures.--
``(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if, as of the date of issuance,
the qualified issuer reasonably expects--
``(A) at least 95 percent of the proceeds from the
sale of the issue are to be spent for 1 or more
qualified projects within the 5-year period beginning
on the date of issuance of the rural renaissance bond,
``(B) a binding commitment with a third party to
spend at least 10 percent of the proceeds from the sale
of the issue will be incurred within the 6-month period
beginning on the date of issuance of the rural
renaissance bond or, in the case of a rural renaissance
bond, the proceeds of which are to be loaned to 2 or
more borrowers, such binding commitment will be
incurred within the 6-month period beginning on the
date of the loan of such proceeds to a borrower, and
``(C) such projects will be completed with due
diligence and the proceeds from the sale of the issue
will be spent with due diligence.
``(2) Extension of period.--Upon submission of a request
prior to the expiration of the period described in paragraph
(1)(A), the Secretary may extend such period if the qualified
issuer establishes that the failure to satisfy the 5-year
requirement is due to reasonable cause and the related projects
will continue to proceed with due diligence.
``(3) Failure to spend required amount of bond proceeds
within 5 years.--To the extent that less than 95 percent of the
proceeds of such issue are expended by the close of the 5-year
period beginning on the date of issuance (or if an extension
has been obtained under paragraph (2), by the close of the
extended period), the qualified issuer shall redeem all of the
nonqualified bonds within 90 days after the end of such period.
For purposes of this paragraph, the amount of the nonqualified
bonds required to be redeemed shall be determined in the same
manner as under section 142.
``(i) Special Rules Relating to Arbitrage.--A bond which is part of
an issue shall not be treated as a rural renaissance bond unless, with
respect to the issue of which the bond is a part, the qualified issuer
satisfies the arbitrage requirements of section 148 with respect to
proceeds of the issue.
``(j) Qualified Issuer.--For purposes of this section--
``(1) In general.--The term `qualified issuer' means any
not-for-profit cooperative lender which has as of the date of
the enactment of this section received a guarantee under
section 306 of the Rural Electrification Act and which meets
the requirement of paragraph (2).
``(2) User fee requirement.--The requirement of this
paragraph is met if the issuer of any rural renaissance bond
makes grants for qualified projects as defined under subsection
(d)(2) on a semi-annual basis every year that such bond is
outstanding in an annual amount equal to one-half of the rate
on United States Treasury Bills of the same maturity multiplied
by the outstanding principle balance of rural renaissance bonds
issued by such issuer.
``(k) Special Rules Relating to Pool Bonds.--No portion of a pooled
financing bond may be allocable to loan unless the borrower has entered
into a written loan commitment for such portion prior to the issue date
of such issue.
``(l) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Bond.--The term `bond' includes any obligation.
``(2) Pooled financing bond.--The term `pooled financing
bond' shall have the meaning given such term by section
149(f)(4)(A).
``(3) Rural area.--The term `rural area' means any area
other than--
``(A) a city or town which has a population of
greater than 50,000 inhabitants, or
``(B) the urbanized area contiguous and adjacent to
such a city or town.
``(4) Partnership; s corporation; and other pass-thru
entities.--
``(A) In general.--Under regulations prescribed by
the Secretary, in the case of a partnership, trust, S
corporation, or other pass-thru entity, rules similar
to the rules of section 41(g) shall apply with respect
to the credit allowable under subsection (a).
``(B) No basis adjustment.--In the case of a bond
held by a partnership or an S corporation, rules
similar to the rules under section 1397E(l) shall
apply.
``(5) Bonds held by regulated investment companies.--If any
rural renaissance bond is held by a regulated investment
company, the credit determined under subsection (a) shall be
allowed to shareholders of such company under procedures
prescribed by the Secretary.
``(6) Reporting.--Issuers of rural renaissance bonds shall
submit reports similar to the reports required under section
149(e).''.
(b) Reporting.--Subsection (d) of section 6049 (relating to returns
regarding payments of interest) is amended by adding at the end the
following new paragraph:
``(9) Reporting of credit on rural renaissance bonds.--
``(A) In general.--For purposes of subsection (a),
the term `interest' includes amounts includible in
gross income under section 54(f) and such amounts shall
be treated as paid on the credit allowance date (as
defined in section 54(b)(4)).
``(B) Reporting to corporations, etc.--Except as
otherwise provided in regulations, in the case of any
interest described in subparagraph (A), subsection
(b)(4) shall be applied without regard to subparagraphs
(A), (H), (I), (J), (K), and (L)(i) of such subsection.
``(C) Regulatory authority.--The Secretary may
prescribe such regulations as are necessary or
appropriate to carry out the purposes of this
paragraph, including regulations which require more
frequent or more detailed reporting.''.
(c) Conforming Amendments.--
(1) The table of sections for subpart H of part IV of
subchapter A of chapter 1 is amended by adding at the end the
following new item:
``Sec. 54A. Credit to holders of rural renaissance bonds.''.
(2) Section 54(c)(2) is amended by inserting ``, section
54A,'' after ``subpart C''.
(d) Issuance of Regulations.--The Secretary of Treasury shall issue
regulations required under section 54A of the Internal Revenue Code of
1986 (as added by this section) not later than 120 days after the date
of the enactment of this Act.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act and
before January 1, 2010.
SEC. 470. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO LARGE
INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY
TAXPAYERS.
(a) In General.--Section 901 (relating to credit for taxes of
foreign countries and of possessions of the United States), as amended
by this Act, is amended by redesignating subsections (m) and (n) as
subsections (n) and (o), respectively, and by inserting after
subsection (l) the following new subsection:
``(m) Special Rules Relating to Large Integrated Oil Companies
Which Are Dual Capacity Taxpayers.--
``(1) General rule.--Notwithstanding any other provision of
this chapter, any amount paid or accrued by a dual capacity
taxpayer which is a large integrated oil company to a foreign
country or possession of the United States for any period shall
not be considered a tax--
``(A) if, for such period, the foreign country or
possession does not impose a generally applicable
income tax, or
``(B) to the extent such amount exceeds the amount
(determined in accordance with regulations) which--
``(i) is paid by such dual capacity
taxpayer pursuant to the generally applicable
income tax imposed by the country or
possession, or
``(ii) would be paid if the generally
applicable income tax imposed by the country or
possession were applicable to such dual
capacity taxpayer.
Nothing in this paragraph shall be construed to imply
the proper treatment of any such amount not in excess
of the amount determined under subparagraph (B).
``(2) Dual capacity taxpayer.--For purposes of this
subsection, the term `dual capacity taxpayer' means, with
respect to any foreign country or possession of the United
States, a person who--
``(A) is subject to a levy of such country or
possession, and
``(B) receives (or will receive) directly or
indirectly a specific economic benefit (as determined
in accordance with regulations) from such country or
possession.
``(3) Generally applicable income tax.--For purposes of
this subsection--
``(A) In general.--The term `generally applicable
income tax' means an income tax (or a series of income
taxes) which is generally imposed under the laws of a
foreign country or possession on income derived from
the conduct of a trade or business within such country
or possession.
``(B) Exceptions.--Such term shall not include a
tax unless it has substantial application, by its terms
and in practice, to--
``(i) persons who are not dual capacity
taxpayers, and
``(ii) persons who are citizens or
residents of the foreign country or possession.
``(4) Large integrated oil company.--For purposes of this
subsection, the term `large integrated oil company' means, with
respect to any taxable year, an integrated oil company (as
defined in section 291(b)(4)) which--
``(A) had gross receipts in excess of
$1,000,000,000 for such taxable year, and
``(B) has an average daily worldwide production of
crude oil of at least 500,000 barrels for such taxable
year.''
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxes paid or accrued in taxable years beginning after
the date of the enactment of this Act.
(2) Contrary treaty obligations upheld.--The amendments
made by this section shall not apply to the extent contrary to
any treaty obligation of the United States.
SEC. 471. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION CONTRACTS.
(a) In General.--The Secretary of the Treasury shall not enter into
any qualified tax collection contract after April 1, 2006, until the
Secretary implements a disability preference program that meets the
requirements of subsection (b).
(b) Disability Preference Program Requirements.--
(1) In general.--A disability preference program meets the
requirements of this subsection if such program requires that
not less than 10 percent of the accounts of each dollar value
category are awarded to persons described in paragraph (2).
(2) Person described.--For purposes of paragraph (1), a
person is described in this paragraph if--
(A) as of the date any qualified tax collection
contract is awarded--
(i) such person employs not less than 50
severely disabled individuals within the United
States; or
(ii) not less than 30 percent of the
employees of such person within the United
States are severely disabled individuals;
(B) such person agrees as a condition of the
qualified tax collection contract that not more than 90
days after the date such contract is awarded, not less
than 35 percent of the employees of such person
employed in connection with providing services under
such contract shall--
(i) be hired after the date such contract
is awarded; and
(ii) be severely disabled individuals; and
(C) such person is otherwise qualified to perform
the services required.
(c) Definitions.--For purposes of this section--
(1) Qualified tax collection contract.--The term
``qualified tax collection contract'' shall have the meaning
given such term under section 6306(b) of the Internal Revenue
Code of 1986.
(2) Dollar value category.--The term ``dollar value
category'' means the dollar ranges of accounts for collection
as determined and assigned by the Secretary under section
6306(b)(1)(B) of the Internal Revenue Code of 1986 with respect
to a qualified tax collection contract.
(3) Severely disabled individual.--The term ``severely
disabled individual'' means--
(A) a veteran of the United States armed forces
with a disability of 50 percent or greater--
(i) determined by the Secretary of Veterans
Affairs to be service-connected; or
(ii) deemed by law to be service-connected;
or
(B) any individual who is a disabled beneficiary
(as defined in section 1148(k)(2) of the Social
Security Act (42 U.S.C. 1320b-19(k)(2))) or who would
be considered to be such a disabled beneficiary but for
having income or resources in excess of the income or
resources eligibility limits established under title
XVI of the Social Security Act (42 U.S.C. 1381 et
seq.), respectively.
TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
SEC. 501. SUNSET OF CERTAIN PROVISIONS AND AMENDMENTS.
The provisions of, and amendments made by, title I, subtitle A of
title II, and title III shall not apply to taxable years beginning
after September 30, 2010, and the Internal Revenue Code of 1986 shall
be applied and administered to such years as if such provisions and
amendments had never been enacted.
TITLE VI--STRENGTHENING AMERICA'S MILITARY
SEC. 601. SHORT TITLE.
This title may be cited as the ``Strengthening America's Military
Act''.
Subtitle A--Military Funding
SEC. 602. FUNDING FOR MILITARY OPERATIONS.
There is appropriated, out of any money in the Treasury which is
not otherwise appropriated, for the fiscal years 2006 through 2010, the
following amounts, to be used for resetting and recapitalizing
equipment being used in theaters of operations:
(1) $16,900,000,000 for operations and maintenance of the
Army.
(2) $1,800,000,000 for aircraft for the Army.
(3) $6,300,000,000 for other Army procurement.
(4) $10,000,000,000 for wheeled and tracked combat vehicles
for the Army.
(5) $467,000,000 for the Army working capital fund.
(6) $6,000,000 for missiles for the Department of Defense.
(7) $100,000,000 for defense wide procurement for the
Department of Defense.
(8) $4,500,000,000 for Marine Corps procurement.
(9) $4,500,000,000 for operations and maintenance of the
Marine Corps.
(10) $2,700,000,000 for Navy aircraft procurement.
Attest:
Secretary.
109th CONGRESS
2d Session
H. R. 4297
_______________________________________________________________________
AMENDMENT