[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 3162 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 3162
To amend the Internal Revenue Code of 1986 to provide tax relief to
improve the competitiveness of United States corporations and small
businesses, to eliminate tax incentives to move jobs and profits
overseas, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 19, 2008
Mr. Voinovich introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax relief to
improve the competitiveness of United States corporations and small
businesses, to eliminate tax incentives to move jobs and profits
overseas, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Manufacturing,
Assembling, Development, and Export in the USA Tax Act'' or the ``MADE
in the USA Tax Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
TITLE I--TAX RELIEF TO IMPROVE THE COMPETITIVENESS OF UNITED STATES
CORPORATIONS AND SMALL BUSINESSES
Sec. 101. Phased in reduction of maximum corporate income tax rate to
28 percent.
Sec. 102. Modifications of deduction for income attributable to
domestic production activities.
Sec. 103. Small business expensing provisions made permanent.
Sec. 104. Repeal of imposition of withholding on certain payments made
to vendors by government entities.
Sec. 105. Repeal of certain modifications to exclusion for citizens
living abroad.
TITLE II--ELIMINATION OF TAX INCENTIVES TO MOVE JOBS AND PROFITS
OVERSEAS
Subtitle A--Foreign Tax Credit Modifications
Sec. 201. Inclusion of all foreign-source royalties in passive category
income in applying foreign tax credit
limitation.
Sec. 202. Separate application of foreign tax credit limitation to
financial services income.
Subtitle B--Classification of Foreign Entities
Sec. 211. Treatment of foreign corporations managed and controlled in
the United States as domestic corporations.
Sec. 212. Entities with single owner treated as corporations.
Subtitle C--Proper Treatment and Allocation of Income and Deductions
Sec. 221. Limitation on treaty benefits for certain deductible
payments.
Sec. 222. Repeal of special source rules for inventory property.
Sec. 223. Clarification of determination of foreign oil and gas
extraction income.
Sec. 224. Modifications of limitation on excess interest deductions of
certain corporations.
Sec. 225. Sense of Senate regarding certain reinsurance transactions
with foreign related persons.
Sec. 226. Study on effectiveness of transfer pricing rules with respect
to inbound transactions.
Subtitle D--Other Provisions
Sec. 231. Nonqualified deferred compensation from certain tax
indifferent parties.
Sec. 232. Restrictions on refundable child tax credit to taxpayers
outside the United States.
TITLE III--OTHER REVENUE MEASURES
Subtitle A--Accounting Provisions
Sec. 301. Repeal of lower of cost or market method of inventory.
Sec. 302. Repeal of percentage depletion.
Sec. 303. Amortization of goodwill and other intangibles.
Subtitle B--Codification of Economic Substance Doctrine
Sec. 311. Codification of economic substance doctrine.
Sec. 312. Penalties for underpayments.
Subtitle C--Extension of Certain Expiring Provisions
Sec. 321. Extension of FUTA tax.
Sec. 322. Permanent extension of custom user fees.
TITLE I--TAX RELIEF TO IMPROVE THE COMPETITIVENESS OF UNITED STATES
CORPORATIONS AND SMALL BUSINESSES
SEC. 101. PHASED IN REDUCTION OF MAXIMUM CORPORATE INCOME TAX RATE TO
28 PERCENT.
(a) Phased Reduction.--
(1) In general.--Paragraph (1) of section 11(b) (relating
to amount of tax on corporations) is amended to read as
follows:
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be the sum of--
``(A) 15 percent of so much of the taxable income
as does not exceed $50,000,
``(B) 25 percent of so much of the taxable income
as exceeds $50,000, but does not exceed $75,000, and
``(C) the applicable percentage of so much of such
taxable income as exceeds $75,000.''.
(2) Applicable percentage.--Section 11(b) is amended by
adding at the end the following new paragraph:
``(3) Applicable percentage.--For purposes of this
subsection, the applicable percentage for any taxable year
shall be determined in accordance with the following table:
``In the case of a taxable year The applicable percentage is:
beginning in calendar year:
2009............................................... 33
2010............................................... 32
2011............................................... 31
2012............................................... 30
2013 and thereafter................................ 28''.
(b) Personal Service Corporations.--Paragraph (2) of section 11(b)
is amended by striking ``35 percent'' and inserting ``the applicable
percentage''.
(c) Conforming Amendments.--
(1) Section 904(b)(3)(D)(ii) is amended by striking
``(determined without regard to the last sentence of section
11(b)(1))''.
(2) Section 1201(a) is amended--
(A) by striking ``35 percent'' each place it
appears and inserting ``the applicable percentage then
in effect under section 11(b)(3)'', and
(B) by striking ``(determined without regard to the
last 2 sentences of section 11(b)(1))''.
(3) Subparagraphs (A) and (B)(ii) of section 1201(b)(1), as
added by the Heartland, Habitat, Harvest, and Horticulture Act
of 2008, are each amended by striking ``35 percent'' and
inserting ``the applicable percentage then in effect under
section 11(b)(3)''.
(4)(A) Paragraph (1) of section 1445(e) is amended by
striking ``35 percent'' and inserting ``the applicable
percentage in effect under section 11(b)(3) on the 1st day of
the calendar year in which the disposition occurs''.
(B) Paragraph (2) of section 1445(e) is amended by striking
``35 percent'' and inserting ``the applicable percentage (in
effect under section 11(b)(3) on the 1st day of the calendar
year in which the distribution occurs)''
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008; except that
the amendments made by subsection (c)(4) shall take effect on January
1, 2009.
SEC. 102. MODIFICATIONS OF DEDUCTION FOR INCOME ATTRIBUTABLE TO
DOMESTIC PRODUCTION ACTIVITIES.
(a) Deduction Limited to Taxpayers Other Than C Corporations.--
Section 199(a)(1) (relating to allowance of deduction for income
attributable to domestic production activities) is amended by striking
``There'' and inserting ``In the case of a taxpayer other than a C
corporation, there''.
(b) Increase in Amount of Deduction.--Section 199(a) is amended--
(1) by striking ``9 percent'' in paragraph (1) and
inserting ``12 percent'', and
(2) in paragraph (2)--
(A) by striking ``before 2010'' and inserting
``before 2011'', and
(B) by striking the table and inserting the
following:
``For taxable years beginning in: The transition percentage is:
2005 or 2006...................
3
2007 or 2008...................
6
2009 or 2010...................
9''.
(c) Conforming Amendments.--
(1) Section 199(c)(4) is amended by striking subparagraph
(D).
(2) Section 199(c)(7)(B) is amended to read as follows:
``(B) Related person.--For purposes of subparagraph
(A), a person shall be treated as related to another
person if such persons are treated as a single employer
under section 52(b) or subsection (m) or (o) of section
414, except that any determination under section 52(b)
shall be made without regard to section 1563(b).''.
(3) Section 199(d)(4) is repealed.
(4) Section 199(d)(6) is amended to read as follows:
``(6) Coordination with minimum tax.--For purposes of
determining alternative minimum taxable income under section
55, qualified production activities income shall be determined
without regard to any adjustments under sections 56 through
59.''.
(5) Section 163(j)(6)(A)(i) is amended by inserting ``and''
at the end of subclause (II), by striking subclause (III), and
by redesignating subclause (IV) as subclause (III).
(6) Section 170(b)(2)(C) is amended by inserting ``and'' at
the end of clause (iii), by striking clause (iv), and by
redesignating clause (v) as clause (iv).
(7) Section 246(b)(1) is amended by striking ``199,''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 103. SMALL BUSINESS EXPENSING PROVISIONS MADE PERMANENT.
(a) Increase in Small Business Expensing Made Permanent.--
Subsection (b) of section 179 is amended--
(1) by striking ``$25,000 ($125,000 in the case of taxable
years beginning after 2006 and before 2011)'' in paragraph (1)
and inserting ``$125,000'', and
(2) by striking ``$200,000 ($500,000 in the case of taxable
years beginning after 2006 and before 2011)'' in paragraph (2)
and inserting ``$500,000''.
(b) Expensing for Computer Software Made Permanent.--Clause (ii) of
section 179(d)(1)(A) is amended--
(1) by striking ``, to which'' and inserting ``and to
which'', and
(2) by striking ``and which is placed in service in a
taxable year beginning after 2002 and before 2011,''.
(c) Inflation Adjustment.--Subparagraph (A) of section 179(b)(5) is
amended by striking ``and before 2011''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2008.
(2) Computer software.--The amendment made by subsection
(b) shall apply to property placed in service after December
31, 2008.
SEC. 104. REPEAL OF IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE
TO VENDORS BY GOVERNMENT ENTITIES.
Section 511 of the Tax Increase Prevention and Reconciliation Act
of 2005, and the amendment made by such section, are repealed, and the
Internal Revenue Code of 1986 shall be applied and administered as if
such amendment had never been enacted.
SEC. 105. REPEAL OF CERTAIN MODIFICATIONS TO EXCLUSION FOR CITIZENS
LIVING ABROAD.
(a) Modification of Housing Cost Amount.--
(1) Housing cost floor.--Clause (i) of section 911(c)(1)(B)
(relating to housing cost amount) is amended to read as
follows:
``(i) 16 percent of the salary (computed on
a daily basis) of an employee of the United
States who is compensated at a rate equal to
the annual rate for step 1 of grade GS-14,
multiplied by''.
(2) Maximum amount of exclusion.--
(A) In general.--Section 911(c) is amended--
(i) in paragraph (1)(A), by striking ``to
the extent such expenses do not exceed the
amount determined under paragraph (2)'', and
(ii) by striking paragraph (2) and
redesignating paragraphs (3) and (4) as
paragraphs (2) and (3), respectively.
(B) Conforming amendments.--
(i) Section 911(d)(4) is amended by
striking ``, (c)(1)(B)(ii), and (c)(2)(A)(ii)''
and inserting ``and (c)(1)(B)(ii)''.
(ii) Section 911(d)(7) is amended by
striking ``subsection (c)(4)'' and inserting
``subsection (c)(3)''.
(b) Rates of Tax Applicable to Nonexcluded Income.--Section 911
(relating to exclusion of earned income of citizens and residents of
the United States living abroad) is amended by striking subsection (f)
and by redesignating subsection (g) as subsection (f).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
TITLE II--ELIMINATION OF TAX INCENTIVES TO MOVE JOBS AND PROFITS
OVERSEAS
Subtitle A--Foreign Tax Credit Modifications
SEC. 201. INCLUSION OF ALL FOREIGN-SOURCE ROYALTIES IN PASSIVE CATEGORY
INCOME IN APPLYING FOREIGN TAX CREDIT LIMITATION.
(a) In General.--Clause (i) of section 904(d)(2)(B) (defining
passive income) is amended to read as follows:
``(i) In general.--Except as otherwise
provided in this subparagraph, the term
`passive income' means--
``(I) any income received or
accrued by any person which is of a
kind which would be foreign personal
holding company income (as defined in
section 954(c)), and
``(II) any royalties received or
accrued by any person which are not
described in subclause (I).''.
(b) Look-Thru Rules Not To Apply to Royalties.--Section 904(d)(3)
(relating to look-thru in the case of controlled foreign corporations)
is amended--
(1) by striking ``rents, and royalties'' in subparagraph
(A) and inserting ``and rents'', and
(2) in subparagraph (C)--
(A) by striking ``, rent, or royalty'' and
inserting ``or rent'', and
(B) by striking ``rents, and royalties'' in the
heading and inserting ``and rents''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 202. SEPARATE APPLICATION OF FOREIGN TAX CREDIT LIMITATION TO
FINANCIAL SERVICES INCOME.
(a) In General.--Section 904(d)(1) (relating to separate
application of section with respect to certain categories of income) is
amended by striking ``and'' at the end of subparagraph (A), by
redesignating subparagraph (B) as subparagraph (C), and by inserting
after subparagraph (A) the following new subparagraph:
``(B) financial services category income, and''.
(b) Financial Services Category Income.--
(1) In general.--Section 904(d)(2)(A) (relating to
categories of income) is amended--
(A) by redesignating clause (ii) as clause (iii)
and inserting after clause (i) the following new
clause:
``(ii) Financial services category
income.--The term `financial services category
income' means income described in subparagraph
(C).'', and
(B) by inserting ``or financial services category
income'' before the period at the end of clause (iii)
(as redesignated by subparagraph (A)).
(2) Coordination with passive income.--Clause (iii) of
section 904(d)(2)(B) (relating to exceptions) is amended by
striking ``and'' at the end of subclause (I), by striking the
period at the end of subclause (II) and inserting ``, and'',
and by adding at the end the following new subclause:
``(III) any financial services
category income.''.
(3) Financial services category income defined.--So much of
section 904(d)(2)(C) as precedes clause (ii) thereof is amended
to read as follows:
``(C) Financial services category income.--
``(i) In general.--Financial services
income shall be treated as financial services
category income in the case of--
``(I) a member of a financial
services group, or
``(II) any other person if such
person is predominantly engaged in the
active conduct of a banking, insurance,
financing, or similar business.
Notwithstanding the preceding sentence, if any
portion of any financial services income
consists of any royalties received or accrued
by any person, then such portion shall be
treated as passive category income.''.
(4) Conforming amendments.--
(A) Section 904(d)(2)(H)(i) is amended by striking
``paragraph (1)(B)'' and inserting ``paragraph (1)(C),
except that in the case of taxable years beginning
after December 31, 2008, the taxpayer may elect to
treat such tax as tax imposed on income described in
subparagraph (B) or (C) of paragraph (1)''.
(B) Section 904(d)(3) is amended--
(i) in subparagraph (A), by striking
``passive category income'' and inserting
``income in a separate category'',
(ii) in subparagraph (B)--
(I) by striking ``passive category
income'' the first place it appears and
inserting ``income in a separate
category'', and
(II) by striking ``passive category
income'' the second place it appears
and inserting ``income in such
category'',
(iii) in subparagraph (C)--
(I) by striking ``passive category
income'' the first place it appears and
inserting ``income in a separate
category'', and
(II) by striking ``passive category
income of the controlled foreign
corporation'' and inserting ``income of
the controlled foreign corporation in
such category'',
(iv) in subparagraph (D)--
(I) by striking ``passive category
income'' the first place it appears and
inserting ``income in a separate
category'', and
(II) by striking ``passive category
income'' the second place it appears
and inserting ``income in such
category'',
(v) in subparagraph (E)--
(I) by striking ``passive category
income'' each place it appears and
inserting ``income in a separate
category'', and
(II) by striking ``financial
services income'' and inserting
``financial services category income'',
and
(vi) by striking subparagraph (F) and
inserting the following new subparagraph:
``(F) Separate category; coordination with high-
taxed income provisions.--For purposes of this
paragraph--
``(i) In general.--Except as provided in
clause (ii), the term `separate category' means
any category of income described in
subparagraph (A) or (B) of paragraph (1).
``(ii) Coordination with high-taxed income
provisions.--
``(I) In determining whether any
income of a controlled foreign
corporation is in a separate category,
subclause (II) of paragraph (2)(B)(iii)
shall not apply.
``(II) Any income of the taxpayer
which is treated as income in a
separate category under this paragraph
shall be so treated notwithstanding any
provision of paragraph (2); except that
the determination of whether any amount
is high-taxed income shall be made
after the application of this
paragraph.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
(2) Transition rules.--The Secretary shall prescribe such
rules or guidance as may be necessary or appropriate to provide
for the proper treatment of items of income, gain, deductions,
losses, and taxes arising in taxable years beginning before
January 1, 2009, which are properly allocable to a different
category of income for taxable years beginning on or after such
date by reason of the amendments made by this section.
Subtitle B--Classification of Foreign Entities
SEC. 211. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN
THE UNITED STATES AS DOMESTIC CORPORATIONS.
(a) In General.--Section 7701 (relating to definitions), as amended
by section 311, is amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the following new
subsection:
``(q) Certain Publicly-Traded Corporations Managed and Controlled
in the United States Treated as Domestic for Income Tax.--
``(1) In general.--Notwithstanding subsection (a)(4), in
the case of a corporation the stock of which is regularly
traded on an established securities market, if--
``(A) the corporation would not otherwise be
treated as a domestic corporation for purposes of this
title, but
``(B) the management and control of the corporation
occurs primarily within the United States,
then, solely for purposes of chapter 1 (and any other provision
of this title relating to chapter 1), the corporation shall be
treated as a domestic corporation.
``(2) Management and control.--The Secretary shall
prescribe regulations for purposes of determining cases in
which the management and control of a corporation is to be
treated as primarily occurring within the United States. Such
regulations shall provide that--
``(A) the management and control of a corporation
shall be treated as primarily occurring within the
United States if substantially all of the executive
officers and senior management of the corporation who
exercise day-to-day responsibility for making decisions
involving strategic, financial, and operational
policies of the corporation are primarily located
within the United States, and
``(B) individuals who are not executive officers
and senior management of the corporation (including
individuals who are officers or employees of other
corporations in the same chain of corporations as the
corporation) shall be treated as executive officers and
senior management if such individuals exercise the day-
to day responsibilities of the corporation described in
subparagraph (A).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning on or after the date which is 2 years
after the date of the enactment of this Act.
SEC. 212. ENTITIES WITH SINGLE OWNER TREATED AS CORPORATIONS.
(a) In General.--Section 7701 (relating to definitions), as amended
by sections 211 and 311, is amended by redesignating subsection (r) as
subsection (s) and by inserting after subsection (q) the following new
subsection:
``(r) Special Rules for Entities With Single Owners.--
``(1) In general.--Notwithstanding this section or any
regulation issued thereunder, a business entity shall be
treated as a corporation if the corporation is created or
organized under the laws of any foreign country and has a
single owner.
``(2) Regulatory authority.--
``(A) Application to domestic entities.--The
Secretary may issue regulations which apply the rule of
paragraph (1) to a domestic business entity in cases
where the single owner is a controlled foreign
corporation (as defined in section 957(a)).
``(B) Other authority.--The Secretary may issue
such regulations as are necessary or appropriate to
carry out the purposes of this section, including
regulations which treat a business entity with more
than one owner as having a single owner to the extent
necessary to prevent the avoidance of the purposes of
this section.''.
(b) Effective Dates.--
(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 certain existing entities.--In the
case of an entity in existence on the date of the enactment of
this Act which is not treated as a corporation for purposes of
the Internal Revenue Code of 1986 for the taxable year which
includes such date, the amendments made by this section shall
apply to taxable years of such corporation beginning on or
after the date which is 1 year after such date of enactment.
Subtitle C--Proper Treatment and Allocation of Income and Deductions
SEC. 221. LIMITATION ON TREATY BENEFITS FOR CERTAIN DEDUCTIBLE
PAYMENTS.
(a) In General.--Section 894 (relating to income affected by
treaty) is amended by adding at the end the following new subsection:
``(d) Limitation on Treaty Benefits for Certain Deductible
Payments.--
``(1) In general.--In the case of any deductible related-
party payment, any withholding tax imposed under chapter 3 (and
any tax imposed under subpart A or B of this part) with respect
to such payment may not be reduced under any treaty of the
United States unless any such withholding tax would be reduced
under a treaty of the United States if such payment were made
directly to the foreign parent corporation.
``(2) Deductible related-party payment.--For purposes of
this subsection, the term `deductible related-party payment'
means any payment made, directly or indirectly, by any person
to any other person if the payment is allowable as a deduction
under this chapter and both persons are members of the same
foreign controlled group of entities.
``(3) Foreign controlled group of entities.--For purposes
of this subsection--
``(A) In general.--The term `foreign controlled
group of entities' means a controlled group of entities
the common parent of which is a foreign corporation.
``(B) Controlled group of entities.--The term
`controlled group of entities' means a controlled group
of corporations as defined in section 1563(a)(1),
except that--
``(i) `more than 50 percent' shall be
substituted for `at least 80 percent' each
place it appears therein, and
``(ii) the determination shall be made
without regard to subsections (a)(4) and (b)(2)
of section 1563.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section 954(d)(3)) by
members of such group (including any entity treated as
a member of such group by reason of this sentence).
``(4) Foreign parent corporation.--For purposes of this
subsection, the term `foreign parent corporation' means, with
respect to any deductible related-party payment, the common
parent of the foreign controlled group of entities referred to
in paragraph (3)(A).
``(5) Regulations.--The Secretary may prescribe such
regulations or other guidance as are necessary or appropriate
to carry out the purposes of this subsection, including
regulations or other guidance which provide for--
``(A) the treatment of two or more persons as
members of a foreign controlled group of entities if
such persons would be the common parent of such group
if treated as one corporation, and
``(B) the treatment of any member of a foreign
controlled group of entities as the common parent of
such group if such treatment is appropriate taking into
account the economic relationships among such
entities.''.
(b) Effective Date.--The amendment made by this section shall apply
to payments made after the date of the enactment of this Act.
SEC. 222. REPEAL OF SPECIAL SOURCE RULES FOR INVENTORY PROPERTY.
(a) In General.--The following provisions are repealed:
(1) Section 861(a)(6).
(2) Section 862(a)(6).
(3) Section 865(b).
(b) Special Rules for Determining Source.--The last sentence of
section 863(b) is amended to read as follows: ``Gains, profits, and
income from services rendered partly within and partly without the
United States shall be treated as derived partly from sources within
and partly from sources without the United States.''.
(c) Conforming Amendments.--
(1) Section 865 is amended by striking ``(b),'' in
subsection (e).
(2) Section 865(i)(1) is repealed.
(3) Section 954(d)(4) is amended--
(A) by striking subparagraph (A) and inserting the
following new subparagraph:
``(A) the sale of any unprocessed timber which is a
softwood and was cut from an area in the United States,
or'', and
(B) by adding at the end the following new
sentence: ``For purposes of subparagraph (A), the term
`unprocessed timber' means any log, cant, or similar
form of timber.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 223. CLARIFICATION OF DETERMINATION OF FOREIGN OIL AND GAS
EXTRACTION INCOME.
(a) In General.--Paragraph (1) of section 907(c) is amended by
redesignating subparagraph (B) as subparagraph (C), by striking ``or''
at the end of subparagraph (A), and by inserting after subparagraph (A)
the following new subparagraph:
``(B) so much of any transportation of such
minerals as occurs before the fair market value event,
or''.
(b) Fair Market Value Event.--Subsection (c) of section 907 is
amended by adding at the end the following new paragraph:
``(6) Fair market value event.--For purposes of this
section, the term `fair market value event' means, with respect
to any mineral, the first point in time at which such mineral--
``(A) has a fair market value which can be
determined on the basis of a transfer, which is an
arm's length transaction, of such mineral from the
taxpayer to a person who is not related (within the
meaning of section 482) to such taxpayer, or
``(B) is at a location at which the fair market
value is readily ascertainable by reason of
transactions among unrelated third parties with respect
to the same mineral (taking into account source,
location, quality, and chemical composition).''.
(c) Special Rule for Certain Petroleum Taxes.--Subsection (c) of
section 907, as amended by subsection (b), is amended by adding at the
end the following new paragraph:
``(7) Oil and gas taxes.--In the case of any tax imposed by
a foreign country which is limited in its application to
taxpayers engaged in oil or gas activities--
``(A) the term `oil and gas extraction taxes' shall
include such tax,
``(B) the term `foreign oil and gas extraction
income' shall include any taxable income which is taken
into account in determining such tax (or is directly
attributable to the activity to which such tax
relates), and
``(C) the term `foreign oil related income' shall
not include any taxable income which is treated as
foreign oil and gas extraction income under
subparagraph (B).''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 907(c)(1), as redesignated
by this section, is amended by inserting ``or used by the
taxpayer in the activity described in subparagraph (B)'' before
the period at the end.
(2) Subparagraph (B) of section 907(c)(2) is amended to
read as follows:
``(B) so much of the transportation of such
minerals or primary products as is not taken into
account under paragraph (1)(B),''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 224. MODIFICATIONS OF LIMITATION ON EXCESS INTEREST DEDUCTIONS OF
CERTAIN CORPORATIONS.
(a) Corporations to Which Limitation Applies.--Section 163(j)(2)
(relating to corporations to which subsection applies) is amended to
read as follows:
``(2) Corporations to which subsection applies.--
``(A) In general.--This subsection shall apply to
any corporation for any taxable year if such
corporation has excess interest expense for the taxable
year.
``(B) Excess interest expense.--For purposes of
this subsection, the term `excess interest expense'
means the excess (if any) of--
``(i) the corporation's net interest
expense, over
``(ii) 25 percent of the adjusted taxable
income of the corporation.''.
(b) Modification of Carryforward of Disallowed Interest.--
Subparagraph (B) of section 163(j)(1) is amended to read as follows:
``(B) Disallowed amount carried to succeeding
taxable year.--
``(i) In general.--Except as provided in
clause (ii), any amount disallowed under
subparagraph (A) for any taxable year shall be
treated as disqualified interest paid or
accrued in the succeeding taxable year.
``(ii) 10-year carryforward limit.--Any
disqualified interest disallowed under
subparagraph (A) shall not be carried forward
under clause (i) to any taxable year beginning
after the 10th taxable year following the
taxable year in which the interest was paid or
accrued (determined without regard to this
subparagraph). For purposes of the preceding
sentence, any deduction under this section with
respect to disqualified interest for which a
deduction was previously disallowed under
subparagraph (A) shall be allocated to such
interest on a first-in, first-out basis.''.
(c) Effective Date.--The amendments made by this section shall
apply to interest paid or accrued in taxable years beginning after
December 31, 2008.
SEC. 225. SENSE OF SENATE REGARDING CERTAIN REINSURANCE TRANSACTIONS
WITH FOREIGN RELATED PERSONS.
It is the sense of the Senate that Congress should enact
legislation as soon as possible to address the tax treatment of
reinsurance transactions with related persons (and other similar
transactions), including the transfer offshore by reinsurance or
otherwise of assets and earnings related to insurance of United States
risks. In enacting such legislation, Congress should consider the
effects of such practices on--
(1) the tax base of the United States, and
(2) the competitiveness of insurers and reinsurers based in
the United States.
SEC. 226. STUDY ON EFFECTIVENESS OF TRANSFER PRICING RULES WITH RESPECT
TO INBOUND TRANSACTIONS.
(a) In General.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study of the effectiveness of the transfer
pricing rules under section 482 of the Internal Revenue Code of 1986 in
properly allocating items of income and deduction in cases involving
foreign persons conducting business within the United States or foreign
persons selling goods and services into the United States. Such study
shall include an analysis of the effectiveness of such rules in
preventing income shifting, preventing the understatement of United
States business profits, and ensuring taxation of income effectively
connected with the United States.
(b) Report.--The Secretary shall, not later than the date which is
1 year after the date of the enactment of this Act, report the results
of the study conducted under subsection (a) to the Committee on Finance
of the Senate and the Committee on Ways and Means of the House of
Representatives, including any specific recommendations for changes in
legislation which the Secretary considers appropriate.
Subtitle D--Other Provisions
SEC. 231. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
INDIFFERENT PARTIES.
(a) In General.--Subpart B of part II of subchapter E of chapter 1
is amended by inserting after section 457 the following new section:
``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
INDIFFERENT PARTIES.
``(a) In General.--Any compensation which is deferred under a
nonqualified deferred compensation plan of a nonqualified entity shall
be includible in gross income when there is no substantial risk of
forfeiture of the rights to such compensation.
``(b) Nonqualified Entity.--For purposes of this section, the term
`nonqualified entity' means--
``(1) any foreign corporation unless substantially all of
its income is--
``(A) effectively connected with the conduct of a
trade or business in the United States, or
``(B) subject to a comprehensive foreign income
tax, and
``(2) any partnership unless substantially all of its
income is allocated to persons other than--
``(A) foreign persons with respect to whom such
income is not subject to a comprehensive foreign income
tax, and
``(B) organizations which are exempt from tax under
this title.
``(c) Determinability of Amounts of Compensation.--
``(1) In general.--If the amount of any compensation is not
determinable at the time that such compensation is otherwise
includible in gross income under subsection (a)--
``(A) such amount shall be so includible in gross
income when determinable, and
``(B) the tax imposed under this chapter for the
taxable year in which such compensation is includible
in gross income shall be increased by the sum of--
``(i) the amount of interest determined
under paragraph (2), and
``(ii) an amount equal to 20 percent of the
amount of such compensation.
``(2) Interest.--For purposes of paragraph (1)(B)(i), the
interest determined under this paragraph for any taxable year
is the amount of interest at the underpayment rate under
section 6621 plus 1 percentage point on the underpayments that
would have occurred had the deferred compensation been
includible in gross income for the taxable year in which first
deferred or, if later, the first taxable year in which such
deferred compensation is not subject to a substantial risk of
forfeiture.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Substantial risk of forfeiture.--The rights of a
person to compensation shall be treated as subject to a
substantial risk of forfeiture only if such person's rights to
such compensation are conditioned upon the future performance
of substantial services by any individual.
``(2) Comprehensive foreign income tax.--The term
`comprehensive foreign income tax' means, with respect to any
foreign person, the income tax of a foreign country if--
``(A) such person is eligible for the benefits of a
comprehensive income tax treaty between such foreign
country and the United States, or
``(B) such person demonstrates to the satisfaction
of the Secretary that such foreign country has a
comprehensive income tax.
``(3) Nonqualified deferred compensation plan.--
``(A) In general.--The term `nonqualified deferred
compensation plan' has the meaning given such term
under section 409A(d), except that such term shall
include any plan that provides a right to compensation
based on the appreciation in value of a specified
number of equity units of the service recipient.
``(B) Exception.--Compensation shall not be treated
as deferred for purposes of this section if the service
provider receives payment of such compensation not
later than 12 months after the end of the taxable year
of the service recipient during which the right to the
payment of such compensation is no longer subject to a
substantial risk of forfeiture.
``(4) Exception for certain compensation with respect to
effectively connected income.--In the case a foreign
corporation with income which is taxable under section 882,
this section shall not apply to compensation which, had such
compensation had been paid in cash on the date that such
compensation ceased to be subject to a substantial risk of
forfeiture, would have been deductible by such foreign
corporation against such income.
``(5) Application of rules.--Rules similar to the rules of
paragraphs (5) and (6) of section 409A(d) shall apply.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations disregarding a substantial risk of
forfeiture in cases where necessary to carry out the purposes of this
section.''.
(b) Conforming Amendment.--Section 26(b)(2) is amended by striking
``and'' at the end of subparagraph (U), by striking the period at the
end of subparagraph (V) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(W) section 457A(c)(1)(B) (relating to
determinability of amounts of compensation).''.
(c) Clerical Amendment.--The table of sections of subpart B of part
II of subchapter E of chapter 1 is amended by inserting after the item
relating to section 457 the following new item:
``Sec. 457A. Nonqualified deferred compensation from certain tax
indifferent parties.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
amounts deferred which are attributable to services performed
after December 31, 2008.
(2) Application to existing deferrals.--In the case of any
amount deferred to which the amendments made by this section do
not apply solely by reason of the fact that the amount is
attributable to services performed before January 1, 2009, to
the extent such amount is not includible in gross income in a
taxable year beginning before 2018, such amounts shall be
includible in gross income in the later of--
(A) the last taxable year beginning before 2018, or
(B) the taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation (determined in the same manner as
determined for purposes of section 457A of the Internal
Revenue Code of 1986, as added by this section).
(3) Accelerated payments.--No later than 120 days after the
date of the enactment of this Act, the Secretary shall issue
guidance providing a limited period of time during which a
nonqualified deferred compensation arrangement attributable to
services performed on or before December 31, 2008, may, without
violating the requirements of section 409A(a) of the Internal
Revenue Code of 1986, be amended to conform the date of
distribution to the date the amounts are required to be
included in income.
(4) Certain back-to-back arrangements.--If the taxpayer is
also a service recipient and maintains one or more nonqualified
deferred compensation arrangements for its service providers
under which any amount is attributable to services performed on
or before December 31, 2008, the guidance issued under
paragraph (3) shall permit such arrangements to be amended to
conform the dates of distribution under such arrangement to the
date amounts are required to be included in the income of such
taxpayer under this subsection.
(5) Accelerated payment not treated as material
modification.--Any amendment to a nonqualified deferred
compensation arrangement made pursuant to paragraph (3) or (4)
shall not be treated as a material modification of the
arrangement for purposes of section 409A of the Internal
Revenue Code of 1986.
SEC. 232. RESTRICTIONS ON REFUNDABLE CHILD TAX CREDIT TO TAXPAYERS
OUTSIDE THE UNITED STATES.
(a) In General.--Section 24(d) is amended by adding at the end the
following new paragraph:
``(4) Application to taxpayers outside of the united
states.--This subsection shall not apply to any taxpayer who
claims the benefits of section 911 (relating to citizens or
residents living abroad) for the taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2008.
(c) Application of EGTRRA Sunset.--The amendment made by this
section shall be subject to title IX of the Economic Growth and Tax
Relief Reconciliation Act of 2001 in the same manner and to the same
extent as such title applies to the amendments made by section 201(c)
of such Act.
TITLE III--OTHER REVENUE MEASURES
Subtitle A--Accounting Provisions
SEC. 301. REPEAL OF LOWER OF COST OR MARKET METHOD OF INVENTORY.
(a) In General.--Section 471 is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Inventories Taken Into Account at Cost.--A method of
determining inventories shall not be treated as clearly reflecting
income unless such method provides that inventories shall be taken into
account at cost.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after the date of the
enactment of this Act.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
beginning after the date of the enactment of this Act--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) if the net amount of the adjustments required
to be taken into account by the taxpayer under section
481 of the Internal Revenue Code of 1986 is positive,
such amount shall be taken into account over a period
of 8 years beginning with such first taxable year.
SEC. 302. REPEAL OF PERCENTAGE DEPLETION.
(a) In General.--Section 613 (relating to percentage depletion) is
amended by adding at the end the following new subsection:
``(f) Termination.--This section shall not apply to any taxable
year beginning after December 31, 2008.''.
(b) Limitations on Percentage Depletion in Case of Oil and Gas
Wells.--Section 613A (relating to limitations on percentage depletion
in case of oil and gas wells) is amended by adding at the end the
following new subsection:
``(f) Termination.--This section shall not apply to any taxable
year beginning after December 31, 2008.''.
SEC. 303. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES.
(a) In General.--Subsection (a) of section 197 (relating to general
rule) is amended by striking ``15-year'' and inserting ``20-year''.
(b) Certain Interests or Rights Acquired Separately.--Clause (i) of
section 197(e)(4)(D) is amended by striking ``15 years'' and inserting
``20 years''.
(c) Effective Date.--The amendments made by this section shall
apply to property acquired after the date of the enactment of this Act.
Subtitle B--Codification of Economic Substance Doctrine
SEC. 311. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Clarification of Economic Substance Doctrine.--
``(1) Application of doctrine.--In the case of any
transaction to which the economic substance doctrine is
relevant, such transaction shall be treated as having economic
substance only if--
``(A) the transaction changes in a meaningful way
(apart from Federal income tax effects) the taxpayer's
economic position, and
``(B) the taxpayer has a substantial purpose (apart
from Federal income tax effects) for entering into such
transaction.
``(2) Special rule where taxpayer relies on profit
potential.--
``(A) In general.--The potential for profit of a
transaction shall be taken into account in determining
whether the requirements of subparagraphs (A) and (B)
of paragraph (1) are met with respect to the
transaction only if the present value of the reasonably
expected pre-tax profit from the transaction is
substantial in relation to the present value of the
expected net tax benefits that would be allowed if the
transaction were respected.
``(B) Treatment of fees and foreign taxes.--Fees
and other transaction expenses and foreign taxes shall
be taken into account as expenses in determining pre-
tax profit under subparagraph (A).
``(3) State and local tax benefits.--For purposes of
paragraph (1), any State or local income tax effect which is
related to a Federal income tax effect shall be treated in the
same manner as a Federal income tax effect.
``(4) Financial accounting benefits.--For purposes of
paragraph (1)(B), achieving a financial accounting benefit
shall not be taken into account as a purpose for entering into
a transaction if such transaction results in a Federal income
tax benefit.
``(5) Definitions and special 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) Exception for personal transactions of
individuals.--In the case of an individual, paragraph
(1) shall apply only to transactions entered into in
connection with a trade or business or an activity
engaged in for the production of income.
``(C) Other common law doctrines not 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.
``(D) Determination of application of doctrine not
affected.--The determination of whether the economic
substance doctrine is relevant to a transaction shall
be made in the same manner as if this subsection had
never been enacted.
``(6) 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. 312. PENALTIES FOR UNDERPAYMENTS.
(a) Penalty for Underpayments Attributable to Transactions Lacking
Economic Substance.--
(1) In general.--Subsection (b) of section 6662 is amended
by inserting after paragraph (5) the following new paragraph:
``(6) Any disallowance of claimed tax benefits by reason of
a transaction lacking economic substance (within the meaning of
section 7701(p)) or failing to meet the requirements of any
similar rule of law.''.
(2) Increased penalty for nondisclosed transactions.--
Section 6662 is amended by adding at the end the following new
subsection:
``(i) Increase in Penalty in Case of Nondisclosed Noneconomic
Substance Transactions.--
``(1) In general.--To the extent that a portion of the
underpayment to which this section applies is attributable to
one or more nondisclosed noneconomic substance transactions,
subsection (a) shall be applied with respect to such portion by
substituting `40 percent' for `20 percent'.
``(2) Nondisclosed noneconomic substance transactions.--For
purposes of this subsection, the term `nondisclosed noneconomic
substance transaction' means any portion of a transaction
described in subsection (b)(6) with respect to which the
relevant facts affecting the tax treatment are not adequately
disclosed in the return nor in a statement attached to the
return.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any amendment or supplement
to a return of tax be taken into account for purposes of this
subsection if the amendment or supplement is filed after the
earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.''.
(3) Conforming amendment.--Subparagraph (B) of section
6662A(e)(2) is amended by striking ``section 6662(h)'' and
inserting ``subsection (h) or (i) of section 6662''.
(b) Reasonable Cause Exception Not Applicable to Noneconomic
Substance Transactions, Tax Shelters, and Certain Large Corporations.--
Section 6664(c) is amended--
(1) by redesignating paragraphs (2) and (3) as paragraphs
(3) and (4), respectively,
(2) by striking ``paragraph (2)'' in paragraph (4), as so
redesignated, and inserting ``paragraph (3)'', and
(3) by inserting after paragraph (1) the following new
paragraph:
``(2) Exception.--Paragraph (1) shall not apply to--
``(A) any portion of an underpayment to which is
attributable to one or more transactions described in
section 6662(b)(6),
``(B) to any portion of an underpayment which is
attributable to one or more tax shelters (as defined in
section 6662(d)(2)(C)), or
``(C) to any taxpayer if such taxpayer is a
specified large corporation (as defined in section
6662(d)(2)(D)(ii)).''.
(c) Special Understatement Reduction Rule for Certain Large
Corporations.--
(1) In general.--Paragraph (2) of section 6662(d) is
amended by adding at the end the following new subparagraph:
``(D) Special reduction rule for certain large
corporations.--
``(i) In general.--In the case of any
specified large corporation--
``(I) subparagraph (B) shall not
apply, and
``(II) the amount of the
understatement under subparagraph (A)
shall be reduced by that portion of the
understatement which is attributable to
any item with respect to which the
taxpayer has a reasonable belief that
the tax treatment of such item by the
taxpayer is more likely than not the
proper tax treatment of such item.
``(ii) Specified large corporation.--
``(I) In general.--For purposes of
this subparagraph, the term `specified
large corporation' means any
corporation with gross receipts in
excess of $100,000,000 for the taxable
year involved.
``(II) Aggregation rule.--All
persons treated as a single employer
under section 52(a) shall be treated as
one person for purposes of subclause
(I).''.
(2) Conforming amendment.--Subparagraph (C) of section
6662(d)(2) is amended by striking ``Subparagraph (B)'' and
inserting ``Subparagraphs (B) and (D)(i)(II)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
Subtitle C--Extension of Certain Expiring Provisions
SEC. 321. EXTENSION OF FUTA TAX.
Section 3301 of the Internal Revenue Code of 1986 (relating to rate
of tax) is amended--
(1) by striking ``2008'' in paragraph (1) and inserting
``2018'', and
(2) by striking ``2009'' in paragraph (2) and inserting
``2019''.
SEC. 322. PERMANENT EXTENSION OF CUSTOM USER FEES.
(a) In General.--Section 13031(j)(3) of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended to
read as follows:
``(3) In any fiscal year for which fees under paragraphs
(1) through (8) of subsection (a) are authorized--
``(A) the Secretary of the Treasury shall charge
fees under each such paragraph in amounts that are
reasonably related to the costs of providing customs
services in connection with the activity or item for
which the fee is charged under such paragraph, except
that in no case may the fee charged under any such
paragraph exceed by more than 10 percent the amount
otherwise prescribed by such paragraph;
``(B) the amount of fees collected under such
paragraphs may not exceed, in the aggregate, the
amounts paid in that fiscal year for the costs
described in subsection (f)(3)(A) incurred in providing
customs services in connection with the activity or
item for which the fees are charged under such
paragraphs;
``(C) a fee may not be collected under any such
paragraph except to the extent such fee will be
expended to pay the costs described in subsection
(f)(3)(A) incurred in providing customs services in
connection with the activity or item for which the fee
is charged under such paragraph; and
``(D) any fee collected under any such paragraph
shall be available for expenditure only to pay the
costs described in subsection (f)(3)(A) incurred in
providing customs services in connection with the
activity or item for which the fee is charged under
such paragraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to fees charged after December 31, 2008.
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