Jobs and Growth Reconciliation Tax Act of 2003 - Amends the Internal Revenue Code to accelerate: (1) the increase in the child care credit and the increase in the refundable portion of the credit; (2) the increase in the standard deduction for joint filers to twice that of single filers; and (3) the expansion of the ten percent bracket for married taxpayers filing jointly.
Increases the earned income credit phase-out amount on a joint return by $3,000.
Extends the work opportunity credit to long-term unemployed individuals.
Unemployment Benefits Extension Act - Amends the Temporary Extended Unemployment Compensation Act of 2002 (TEUCA) to: (1) extend the TEUC program; (2) provide for additional weeks of TEUC benefits; (3) revise unemployment rate triggers for TEUC benefit periods; and (4) provide for regular unemployment compensation for certain individuals based on part-time work or an alternative base period.
Establishes a program of payments to States to provide: (1) regular unemployment compensation benefits for individuals who otherwise would be ineligible because the base period does not count wages earned in the most recently completed calendar quarter or the individuals seek or are available for less than full-time work; and (2) enhanced unemployment benefits.
Establishes in the Treasury the Pressing Domestic Needs Trust Fund.
Increases: (1) and extends certain bonus depreciation provisions; and (2) small business expensing limits.
Allows a ten percent deduction for income attributable to a corporation's domestic production, with a 2006 through 2009 phase-in period.
Eliminates: (1) top individual income tax rate reductions scheduled to began as of 2004 (provides for restoration under specified circumstances); and (2) scheduled elimination of income-based phase-outs for deductions and personal exemptions.
Repeals the extraterritorial income exclusion, with a 2004 through 2008 phase-in period.
Revises tax shelter provisions to, among other things: (1) define economic substance; (2) impose a penalty for the failure to include in a return information concerning a reportable transaction, a reportable transaction understatement (including imposing the penalty for certain understatements which were based on unreasonable legal or factual assumptions), a noneconomic substance transaction understatement, and interests in foreign financial accounts; (3) modify rules concerning the failure to furnish information regarding reportable transactions and the penalty for such failure, the failure to maintain lists of investors in potentially abusive tax shelters and the penalty for such failure, the authority to seek an injunction to enjoin promoters of abusive tax shelters; and (4) deny a deduction of interest on underpayments attributable to nondisclosed reportable transactions and noneconomic substance transactions.
Amends other provisions to, among other things: (1) place a limit on the transfer or importation by a corporation of built-in losses; (2) provide for the partnership treatment of certain contributed property with a built-in loss; (3) repeal part V (Financial Asset Securitization Investment Trusts) of subchapter M (Regulated Investment Companies and Real Estate Investment Trusts); and (4) modify rules concerning the disallowance of a deduction on certain debt instruments of corporations, passive foreign investment companies, and the reduction in a corporate shareholder's basis in stock by the nontaxed portion of extraordinary dividends.
Revises corporate expatriation provisions to treat acquiring corporations in "corporate expatriation transactions" as domestic corporations. Defines a "corporate expatriation transaction" as, with certain exceptions, one in which a "nominally foreign corporation" acquires substantially all of the properties held by a domestic corporation and in which, immediately after the transaction, more than 80 percent of the stock of the acquiring corporation is held by former shareholders of the domestic corporation. Lowers the 80 percent threshold to 50 percent when the acquiring "nominally foreign corporation" lacks substantial business activities in the foreign country in which it was created and organized compared to the total activities of the "expanded affiliated group" and the stock is publicly traded, with the principal market of trading being the United States. Defines the terms "nominally foreign corporation" an "expanded affiliated group." Applies similar rules to partnership transactions. Establishes that a series of related transactions relevant to the Act shall be handled as a single transaction.
Includes funded deferred compensation in the gross income of certain disqualified employees (corporate insiders).
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2046 Introduced in House (IH)]
108th CONGRESS
1st Session
H. R. 2046
To amend the Internal Revenue Code of 1986 to rebuild America through
job creation.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 9, 2003
Mr. Rangel (for himself, Mr. Andrews, Mr. Baca, Mr. Bell, Mr.
Blumenauer, Mr. Brown of Ohio, Mrs. Christensen, Mr. Cummings, Mr.
Davis of Illinois, Mr. Delahunt, Ms. DeLauro, Mr. Engel, Ms. Eshoo, Mr.
Etheridge, Mr. Gutierrez, Mr. Hill, Mr. Holt, Mr. Honda, Mr. Hoyer, Mr.
Lantos, Ms. Lee, Mr. Levin, Mr. McGovern, Mr. Menendez, Mr. Michaud,
Ms. Millender-McDonald, Mr. George Miller of California, Mr. Oberstar,
Mr. Ortiz, Mr. Pallone, Ms. Pelosi, Mr. Price of North Carolina, Mr.
Rothman, Mr. Ryan of Ohio, Mr. Sabo, Mr. Sandlin, Ms. Slaughter, Mrs.
Jones of Ohio, Ms. Waters, Mr. Waxman, and Mr. Ballance) introduced the
following bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to rebuild America through
job creation.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Jobs and Growth
Reconciliation Tax Act of 2003''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; references; table of contents.
TITLE I--IMMEDIATE STIMULUS AND JOB CREATION
Subtitle A--Family Tax Relief
Sec. 101. Acceleration of increase in child tax credit.
Sec. 102. Increase in standard deduction for married taxpayers filing
joint returns accelerated.
Sec. 103. Acceleration of 10-percent individual income tax rate bracket
expansion.
Sec. 104. Acceleration of elimination of marriage penalty in earned
income credit.
Subtitle B--Incentives to Hire the Long-Term Unemployed
Sec. 111. Incentives to hire the long-term unemployed.
Subtitle C--Extension of Unemployment Benefits
Sec. 121. Short title.
Part I--Temporary Extended Unemployment Compensation
Sec. 131. References.
Sec. 132. Extension of the Temporary Extended Unemployment Compensation
Act of 2002.
Sec. 133. Entitlement to additional weeks of temporary extended
unemployment compensation.
Sec. 134. Extended benefit periods.
Part II--Unemployment Benefits for Individuals Qualifying Based on
Part-time Work or an Alternative Base Period
Sec. 141. Federal-State agreements.
Sec. 142. Payments to States having agreements under this part.
Sec. 143. Financing provisions.
Sec. 144. Definitions.
Sec. 145. Applicability.
Part III--Enhanced Unemployment Benefits
Sec. 151. Federal-State agreements.
Sec. 152. Payments to States having agreements under this part.
Sec. 153. Definitions.
Sec. 154. Applicability.
Subtitle D--Trust Fund to Meet Nation's Pressing Needs
Sec. 161. Trust fund to meet nation's pressing needs.
TITLE II--LONG-TERM JOB CREATION AND GROWTH
Sec. 201. Increase and extension of bonus depreciation.
Sec. 202. Increased expensing for small business.
Sec. 203. Deduction relating to income attributable to United States
production activities.
TITLE III--FISCAL RESPONSIBILITY AND PROVISIONS ADDRESSING CORPORATE
ABUSE
Subtitle A-- General Provisions
Sec. 301. Freeze of top individual income tax rates.
Sec. 302. Restoration of phaseouts of deductions for personal
exemptions and of itemized deductions.
Sec. 303. Repeal of exclusion for extraterritorial income.
Subtitle B--Abusive Tax Shelter Shutdown and Taxpayer Accountability
Part I--Provisions Designed to Curtail Tax Shelters
Sec. 311. Clarification of economic substance doctrine.
Sec. 312. Penalty for failing to disclose reportable transaction.
Sec. 313. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 314. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 315. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 316. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 317. Disclosure of reportable transactions.
Sec. 318. Modifications to penalty for failure to register tax
shelters.
Sec. 319. Modification of penalty for failure to maintain lists of
investors.
Sec. 320. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 321. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 322. Penalty on failure to report interests in foreign financial
accounts.
Sec. 323. Frivolous tax submissions.
Sec. 324. Regulation of individuals practicing before the department of
treasury.
Sec. 325. Penalty on promoters of tax shelters.
Sec. 326. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 327. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and
noneconomic substance transactions.
Part II--Other Provisions
Sec. 331. Limitation on transfer or importation of built-in losses.
Sec. 332. Disallowance of certain partnership loss transfers.
Sec. 333. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 334. Repeal of special rules for fasits.
Sec. 335. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 336. Expanded authority to disallow tax benefits under section
269.
Sec. 337. Modifications of certain rules relating to controlled foreign
corporations.
Sec. 338. Basis for determining loss always reduced by nontaxed portion
of dividends.
Sec. 339. Affirmation of consolidated return regulation authority.
Subtitle C--Prevention of Corporate Expatriation To Avoid United States
Income Tax
Sec. 341. Prevention of corporate expatriation to avoid United States
income tax.
Subtitle D--Inclusion in Gross Income of Funded Deferred Compensation
of Corporate Insiders
Sec. 351. Inclusion in gross income of funded deferred compensation of
corporate insiders.
TITLE I--IMMEDIATE STIMULUS AND JOB CREATION
Subtitle A--Family Tax Relief
SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.
(a) In General.--The items relating to calendar years 2001 through
2008 in the table contained in paragraph (2) of section 24(a) (relating
to per child amount) are amended to read as follows:
``2003 thru 2009.............................. $800
2010 or thereafter........................... 1,000''.
(b) Acceleration of Increase in Refundable Portion of Credit.--
(1) In general.--Clause (i) of section 24(d)(1)(B) is
amended to read as follows:
``(i) 15 percent of so much of the
taxpayer's earned income (within the meaning of
section 32) which is taken into account in
computing taxable income for the taxable year
as exceeds $7,500, or''.
(2) Conforming amendment.--Paragraph (3) of section 24(d)
is amended--
(A) by striking ``$10,000'' and inserting
``$7,500'', and
(B) by striking ``2000'' and inserting ``2002''.
(c) Effective Dates.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 102. INCREASE IN STANDARD DEDUCTION FOR MARRIED TAXPAYERS FILING
JOINT RETURNS ACCELERATED.
(a) In General.--Subparagraph (A) of section 63(c)(2), as amended
by the Economic Growth and Tax Relief Reconciliation Act of 2001, is
amended by striking ``the applicable percentage of'' and inserting
``twice''.
(b) Conforming Amendments.--
(1) Section 301(d) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is amended by striking ``2004'' and
inserting ``2002''.
(2) Section 63(c) is amended by striking paragraph (7).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 103. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
EXPANSION.
(a) In General.--Clause (i) of section 1(i)(1)(B) (relating to the
initial bracket amount) is amended by striking ``($12,000 in the case
of taxable years beginning before January 1, 2008)''.
(b) Inflation Adjustment.--Subparagraph (C) of section 1(i)(1) is
amended to read as follows:
``(C) Inflation adjustment.--In prescribing the
tables under subsection (f)--
``(i) no adjustment shall be made in the
$14,000 amount for any taxable year beginning
before 2004, and
``(ii) the adjustment in such amount with
respect to taxable years beginning after 2003
shall be determined under subsection (f)(3) by
substituting `2003' for `1992' in subparagraph
(B) thereof.''
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
(2) Tables for 2003.--The Secretary of the Treasury shall
modify each table which has been prescribed under section 1(f)
of the Internal Revenue Code of 1986 for taxable years
beginning in 2003 and which relates to the amendment made by
this section to reflect such amendment.
SEC. 104. ACCELERATION OF ELIMINATION OF MARRIAGE PENALTY IN EARNED
INCOME CREDIT.
(a) In General.--Subparagraph (B) of section 32(b)(2) is amended to
read as follows:
``(B) Joint returns.--In the case of a joint return
filed by an eligible individual and such individual's
spouse, the phaseout amount determined under
subparagraph (A) shall be increased by $3,000.''
(b) Conforming Amendment.--Clause (ii) of section 32(j)(1)(B) is
amended by striking ``2007'' and inserting ``2002''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
Subtitle B--Incentives to Hire the Long-Term Unemployed
SEC. 111. INCENTIVES TO HIRE THE LONG-TERM UNEMPLOYED.
(a) In General.--Paragraph (1) of section 51(d) (relating to
members of targeted groups) 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 qualified long-term unemployed
individual.''
(b) Qualified Long-Term Unemployed Individual.--Subsection (d) of
section 51 is amended by redesignating paragraphs (10), (11), and (12)
as paragraphs (11), (12), and (13), respectively, and by inserting
after paragraph (9) the following new paragraph:
``(10) Qualified long-term unemployed individual.--
``(A) In general.--The term `qualified long-term
unemployed individual' means any individual who is
certified by the designated local agency--
``(i) as having exhausted, during the 1-
year period ending on the hiring date, all
rights to regular unemployment compensation
under State or Federal law, and
``(ii) as having a hiring date which is
during the 1-year period beginning on the date
of the enactment of this paragraph.
Subsection (c)(4) shall not apply to any qualified
long-term unemployed individual.
``(B) Exhaustion of benefits.--For purposes of
subparagraph (A), an individual shall be deemed to have
exhausted such individual's rights to regular
compensation when--
``(i) no payments of regular compensation
can be made under such law because such
individual has received all regular
compensation available to such individual based
on employment or wages during such individual's
base period, or
``(ii) such individual's rights to such
compensation have been terminated by reason of
the expiration of the benefit year with respect
to which such rights existed.''
(c) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after the date of
the enactment of this Act.
Subtitle C--Extension of Unemployment Benefits
SEC. 121. SHORT TITLE.
This subtitle may be cited as the ``Unemployment Benefits Extension
Act''.
PART I--TEMPORARY EXTENDED UNEMPLOYMENT COMPENSATION
SEC. 131. REFERENCES.
Except as otherwise expressly provided, whenever in this part an
amendment is expressed in terms of an amendment to a section or other
provision, the reference shall be considered to be made to a section or
other provision of the Temporary Extended Unemployment Compensation Act
of 2002 (Public Law 107-147; 26 U.S.C. 3304 note).
SEC. 132. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT COMPENSATION
ACT OF 2002.
(a) Extension of Program.--Section 208 is amended to read as
follows:
``SEC. 208. APPLICABILITY.
``(a) In General.--Subject to subsection (b), an agreement entered
into under this title shall apply to weeks of unemployment--
``(1) beginning after the date on which such agreement is
entered into; and
``(2) ending before March 1, 2004.
``(b) Transition.--In the case of an individual who is receiving
temporary extended unemployment compensation for the week which
immediately precedes the first day of the week that includes March 1,
2004, temporary extended unemployment compensation shall continue to be
payable to such individual for any week thereafter from the account
from which such individual received compensation for the week
immediately preceding that termination date. No compensation shall be
payable by reason of the preceding sentence for any week beginning
after October 31, 2004.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the enactment of the Temporary Extended
Unemployment Compensation Act of 2002 (Public Law 107-147; 116 Stat.
21).
SEC. 133. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY EXTENDED
UNEMPLOYMENT COMPENSATION.
(a) Weeks of TEUC Amounts.--Paragraph (1) of section 203(b) is
amended to read as follows:
``(1) In general.--The amount established in an account
under subsection (a) shall be equal to 26 times the
individual's weekly benefit amount for the benefit year.''.
(b) Weeks of TEUC-X Amounts.--Section 203(c)(1) is amended by
striking ``an amount equal to the amount originally established in such
account (as determined under subsection (b)(1))'' and inserting ``7
times the individual's weekly benefit amount for the benefit year''.
(c) Effective Date.--
(1) In general.--The amendments made by this section--
(A) shall take effect as if included in the
enactment of the Temporary Extended Unemployment
Compensation Act of 2002 (Public Law 107-147; 116 Stat.
21); but
(B) shall apply only with respect to weeks of
unemployment beginning on or after the date of
enactment of this Act, subject to paragraph (2).
(2) Special rules.--In the case of an individual for whom a
temporary extended unemployment account was established before
the date of enactment of this Act, the Temporary Extended
Unemployment Compensation Act of 2002 (as amended by this part)
shall be applied subject to the following:
(A) Any amounts deposited in the individual's
temporary extended unemployment compensation account by
reason of section 203(c) of such Act (commonly known as
``TEUC-X amounts'') before the date of enactment of
this Act shall be treated as amounts deposited by
reason of section 203(b) of such Act (commonly known as
``TEUC amounts''), as amended by subsection (a).
(B) For purposes of determining whether the
individual is eligible for any TEUC-X amounts under
such Act, as amended by this part--
(i) any determination made under section
203(c) of such Act before the application of
the amendments made by this part shall be
disregarded; and
(ii) any such determination shall instead
be made by applying section 203(c) of such Act,
as amended by this part--
(I) as of the time that all amounts
established in such account in
accordance with section 203(b) of such
Act (as amended by this part, and
including any amounts described in
subparagraph (A)) are in fact
exhausted, except that
(II) if such individual's account
was both augmented by and exhausted of
all TEUC-X amounts before the date of
enactment of this Act, such
determination shall be made as if
exhaustion (as described in section
203(c)(1) of such Act) had not occurred
until such date of enactment.
SEC. 134. EXTENDED BENEFIT PERIODS.
(a) Application of Revised Rate of Insured Unemployment.--Section
207 is amended--
(1) by striking ``In'' and inserting ``(a) In General.--
In''; and
(2) by adding at the end the following:
``(b) Insured Unemployment Rate.--For purposes of carrying out
section 203(c) with respect to weeks of unemployment beginning on or
after the date of enactment of this subsection, the term `rate of
insured unemployment', as used in section 203(d) of the Federal-State
Extended Unemployment Compensation Act of 1970 (26 U.S.C. 3304 note),
has the meaning given such term under section 203(e)(1) of such Act,
except that individuals exhausting their right to regular compensation
during the most recent 3 calendar months for which data are available
before the close of the period for which such rate is being determined
shall be taken into account as if they were individuals filing claims
for regular compensation for each week during the period for which such
rate is being determined, and section 203(d)(1)(A) of such Act shall be
applied by substituting `either (or both)' for `each'.''.
(b) Additional Extended Benefit Period Trigger.--
(1) In general.--Section 203(c) is amended by adding at the
end the following:
``(3) Additional extended benefit period trigger.--
``(A) In general.--Effective with respect to
compensation for weeks of unemployment beginning on or
after the date of enactment of this paragraph, an
agreement under this title shall provide that, in
addition to any other extended benefit period trigger,
for purposes of beginning or ending any extended
benefit period under this section--
``(i) there is a State `on' indicator for a
week if--
``(I) the average rate of total
unemployment in such State (seasonally
adjusted) for the period consisting of
the most recent 3 months for which data
for all States are published before the
close of such week equals or exceeds 6
percent; and
``(II) the average rate of total
unemployment in such State (seasonally
adjusted) for the 3-month period
referred to in subclause (I) equals or
exceeds 110 percent of such average
rate for either (or both) of the
corresponding 3-month periods ending in
the 2 preceding calendar years; and
``(ii) there is a State `off' indicator for
a week if either the requirements of subclause
(I) or (II) of clause (i) are not satisfied.
``(B) No effect on other determinations.--
Notwithstanding the provisions of any agreement
described in subparagraph (A), any week for which there
would otherwise be a State `on' indicator shall
continue to be such a week and shall not be determined
to be a week for which there is a State `off'
indicator.
``(C) Determinations made by the secretary.--For
purposes of this subsection, determinations of the rate
of total unemployment in any State for any period (and
of any seasonal adjustment) shall be made by the
Secretary.''.
(2) Conforming amendment.--Section 203(c)(1) is amended by
inserting ``or (3)'' after ``paragraph (2)''.
PART II--UNEMPLOYMENT BENEFITS FOR INDIVIDUALS QUALIFYING BASED ON
PART-TIME WORK OR AN ALTERNATIVE BASE PERIOD
SEC. 141. FEDERAL-STATE AGREEMENTS.
(a) In General.--Any State which desires to do so may enter into
and participate in an agreement under this part with the Secretary of
Labor (hereinafter in this part referred to as the ``Secretary''). Any
State which is a party to an agreement under this part may, upon
providing 30 days' written notice to the Secretary, terminate such
agreement.
(b) Provisions of Agreement.--
(1) In general.--Any agreement under subsection (a) shall
provide that the State agency of the State will make payments
of regular compensation to individuals in amounts and to the
extent that they would be determined if the State law were
applied with the modifications described in paragraph (2).
(2) Modifications described.--The modifications described
in this paragraph are as follows:
(A) In the case of an individual who is not
eligible for regular compensation under the State law
because of the use of a definition of base period that
does not count wages earned in the most recently
completed calendar quarter, eligibility for
compensation under this part shall be determined by
applying a base period ending at the close of the most
recently completed calendar quarter.
(B) In the case of an individual who is not
eligible for regular compensation under the State law
because such individual does not meet requirements
relating to availability for work, active search for
work, or refusal to accept work, because such
individual is seeking, or is available for, less than
full-time work, compensation under this part shall not
be denied by such State to an otherwise eligible
individual who seeks less than full-time work or fails
to accept full-time work.
(c) Coordination Rule.--The modifications described in subsection
(b)(2) shall also apply in determining the amount of benefits payable
under any Federal law to the extent that those benefits are determined
by reference to regular compensation payable under the State law of the
State involved.
SEC. 142. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS PART.
(a) General Rule.--There shall be paid to each State which has
entered into an agreement under this part an amount equal to--
(1) 100 percent of any regular compensation made payable to
individuals by such State by virtue of the modifications which
are described in section 141(b)(2) and deemed to be in effect
with respect to such State pursuant to section 141(b)(1), and
(2) 100 percent of any regular compensation--
(A) which is paid to individuals by such State by
reason of the fact that its State law contains
provisions comparable to the modifications described in
section 141(b)(2), but only
(B) to the extent that those amounts would, if such
amounts were instead payable by virtue of the State
law's being deemed to be so modified pursuant to
section 141(b)(1), have been reimbursable under
paragraph (1).
(b) Determination of Amount.--Sums under subsection (a) payable to
any State by reason of such State having an agreement under this part
shall be payable, either in advance or by way of reimbursement (as may
be determined by the Secretary), in such amounts as the Secretary
estimates the State will be entitled to receive under this part for
each calendar month, reduced or increased, as the case may be, by any
amount by which the Secretary finds that the Secretary's estimates for
any prior calendar month were greater or less than the amounts which
should have been paid to the State. Such estimates may be made on the
basis of such statistical, sampling, or other method as may be agreed
upon by the Secretary and the State agency of the State involved.
(c) Administrative and Other Expenses.--There is hereby
appropriated out of the employment security administration account of
the Unemployment Trust Fund (as established by section 901(a) of the
Social Security Act) $500,000,000 to reimburse States for the costs of
the administration of agreements under this part (including any
improvements in technology in connection therewith) and to provide
reemployment services to unemployment compensation claimants in States
having agreements under this part. Each State's share of the amount
appropriated by the preceding sentence shall be determined by the
Secretary according to the factors described in section 302(a) of the
Social Security Act and certified by the Secretary to the Secretary of
the Treasury.
SEC. 143. FINANCING PROVISIONS.
(a) In General.--Funds in the extended unemployment compensation
account (as established by section 905(a) of the Social Security Act),
and the Federal unemployment account (as established by section 904(g)
of the Social Security Act), of the Unemployment Trust Fund shall be
used, in accordance with subsection (b), for the making of payments
(described in section 142(a)) to States having agreements entered into
under this part.
(b) Certification.--The Secretary shall from time to time certify
to the Secretary of the Treasury for payment to each State the sums
described in section 142(a) which are payable to such State under this
part. The Secretary of the Treasury, prior to audit or settlement by
the General Accounting Office, shall make payments to the State in
accordance with such certification by transfers from the extended
unemployment compensation account (or, to the extent that there are
insufficient funds in that account, from the Federal unemployment
account) to the account of such State in the Unemployment Trust Fund.
SEC. 144. DEFINITIONS.
For purposes of this part:
(1) In general.--The terms ``compensation'', ``regular
compensation'', ``base period'', ``State'', ``State agency'',
``State law'', and ``week'' have the respective meanings given
such terms under section 205 of the Federal-State Extended
Unemployment Compensation Act of 1970, subject to paragraph
(2).
(2) State law and regular compensation.--In the case of a
State entering into an agreement under this part--
(A) ``State law'' shall be considered to refer to
the State law of such State, applied in conformance
with the modifications described in section 201(b)(2),
and
(B) ``regular compensation'' shall be considered to
refer to such compensation, determined under its State
law (applied in the manner described in subparagraph
(A)),
except as otherwise provided or where the context clearly
indicates otherwise.
SEC. 145. APPLICABILITY.
An agreement entered into under this part shall apply to weeks of
unemployment--
(1) beginning after the date on which such agreement is
entered into, and
(2) ending before July 1, 2004.
PART III--ENHANCED UNEMPLOYMENT BENEFITS
SEC. 151. FEDERAL-STATE AGREEMENTS.
(a) In General.--Any State which desires to do so may enter into
and participate in an agreement under this part with the Secretary of
Labor (hereinafter in this part referred to as the ``Secretary''). Any
State which is a party to an agreement under this part may, upon
providing 30 days' written notice to the Secretary, terminate such
agreement.
(b) Provisions of Agreement.--
(1) In general.--Any agreement under subsection (a) shall
provide that the State agency of the State will make payments
of regular compensation to individuals in amounts and to the
extent that they would be determined if the State law were
applied with the modification described in paragraph (2).
(2) Modification described.--The modification described in
this paragraph is that the amount of regular compensation
(including dependents' allowances) payable for any week shall
be equal to the amount determined under the State law (before
the application of this paragraph), plus an additional--
(A) 15 percent, or
(B) $25,
whichever is greater.
(c) Nonreduction Rule.--Each agreement shall provide that such
agreement shall not apply (or shall cease to apply) upon a
determination by the Secretary that the method governing the
computation of regular compensation under the State law of that State
has been modified in a way such that--
(1) the average weekly amount of regular compensation which
will be payable during the period of the agreement (determined
disregarding the modification described in subsection (b)(2))
will be less than
(2) the average weekly amount of regular compensation which
would otherwise have been payable during such period under the
State law, as in effect on September 11, 2001.
(d) Coordination Rule.--The modification described in subsection
(b)(2) shall also apply in determining the amount of benefits payable
under any Federal law to the extent that those benefits are determined
by reference to regular compensation payable under the State law of the
State involved.
SEC. 152. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS PART.
(a) General Rule.--There shall be paid to each State which has
entered into an agreement under this part an amount equal to 100
percent of any regular compensation made payable to individuals by such
State by virtue of the modification described in section 151(b)(2) and
deemed to be in effect with respect to such State pursuant to section
151(b)(1).
(b) Determination of Amount.--Sums under subsection (a) payable to
any State by reason of such State having an agreement under this part
shall be payable, either in advance or by way of reimbursement (as may
be determined by the Secretary), in such amounts as the Secretary
estimates the State will be entitled to receive under this part for
each calendar month, reduced or increased, as the case may be, by any
amount by which the Secretary finds that the Secretary's estimates for
any prior calendar month were greater or less than the amounts which
should have been paid to the State. Such estimates may be made on the
basis of such statistical, sampling, or other method as may be agreed
upon by the Secretary and the State agency of the State involved.
SEC. 153. DEFINITIONS.
For purposes of this part:
(1) In general.--The terms ``compensation'', ``regular
compensation'', ``extended compensation'', ``additional
compensation'', ``benefit year'', ``base period'', ``State'',
``State agency'', ``State law'', and ``week'' have the
respective meanings given such terms under section 205 of the
Federal-State Extended Unemployment Compensation Act of 1970,
subject to paragraph (2).
(2) State law and regular compensation.--In the case of a
State entering into an agreement under this part--
(A) ``State law'' shall be considered to refer to
the State law of such State, applied in conformance
with the modification described in section 151(b)(2),
subject to section 151(c), and
(B) ``regular compensation'' shall be considered to
refer to such compensation, determined under its State
law (applied in the manner described in subparagraph
(A)),
except as otherwise provided or where the context clearly
indicates otherwise.
SEC. 154. APPLICABILITY.
(a) In General.--An agreement entered into under this part shall
apply to weeks of unemployment--
(1) beginning after the date on which such agreement is
entered into, and
(2) ending before January 1, 2004.
Subtitle D--Trust Fund to Meet Nation's Pressing Needs
SEC. 161. TRUST FUND TO MEET NATION'S PRESSING NEEDS.
(a) Creation of Trust Fund.--There is established in the Treasury
of the United States a trust fund to be known as the `Pressing Domestic
Needs Trust Fund', consisting of such amounts as may be transferred to
the Trust Fund as provided in this section.
(b) Transfers to Fund.--There are hereby transferred from the
general Fund of the Treasury to the Pressing Domestic Needs Trust Fund
so much of the additional amounts received in the Treasury by reason of
the amendments made by title III of this Act as does not exceed--
(1) $18,000,000,000 to be used for increasing Federal
matching funds under medicaid, and
(2) $26,000,000,000 to be used for infrastructure
improvements, homeland security, community development, and
education.
(c) Expenditures.--Amounts in the Pressing Domestic Needs Trust
Fund shall be available, as provided by appropriation Acts, for
purposes and in the amount specified in subsection (b).
Subtitle D--Trust Fund to Meet Nation's Pressing Needs
SEC. 161. TRUST FUND TO MEET NATION'S PRESSING NEEDS.
(a) Creation of Trust Fund.--There is established in the Treasury
of the United States a trust fund to be known as the `Pressing Domestic
Needs Trust Fund', consisting of such amounts as may be transferred to
the Trust Fund as provided in this section.
(b) Transfers to Fund.--There are hereby transferred from the
general Fund of the Treasury to the Pressing Domestic Needs Trust Fund
so much of the additional amounts received in the Treasury by reason of
the amendments made by title III of this Act as does not exceed--
(1) $18,000,000,000 to be used for increasing Federal
matching funds under medicaid, and
(2) $26,000,000,000 to be used for infrastructure
improvements, homeland security, community development, and
education.
(c) Expenditures.--Amounts in the Pressing Domestic Needs Trust
Fund shall be available, as provided by appropriation Acts, for
purposes and in the amount specified in subsection (b).
TITLE II--LONG-TERM JOB CREATION AND GROWTH
SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.
(a) In General.--Section 168(k) (relating to special allowance for
certain property acquired after September 10, 2001, and before
September 11, 2004) is amended by adding at the end the following new
paragraph:
``(4) 50-percent bonus depreciation for certain property.--
``(A) In general.--In the case of 50-percent bonus
depreciation property--
``(i) paragraph (1)(A) shall be applied by
substituting `50 percent' for `30 percent', and
``(ii) except as provided in paragraph
(2)(C), such property shall be treated as
qualified property for purposes of this
subsection.
``(B) 50-percent bonus depreciation property.--For
purposes of this subsection, the term `50-percent bonus
depreciation property' means property described in
paragraph (2)(A)(i)--
``(i) the original use of which commences
with the taxpayer after April 30, 2003,
``(ii) which is acquired by the taxpayer
after April 30, 2003, and before May 1, 2004,
but only if no written binding contract for the
acquisition was in effect before May 1, 2003,
and
``(iii) which is placed in service by the
taxpayer before January 1, 2005, or, in the
case of property described in paragraph (2)(B)
(as modified by subparagraph (C) of this
paragraph), before January 1, 2006.
``(C) Special rules.--Rules similar to the rules of
subparagraphs (B) and (D) of paragraph (2) shall apply
for purposes of this paragraph; except that reference
to September 10, 2001, shall be treated as references
to April 30, 2003.
``(D) Automobiles.--Paragraph (2)(E) shall be
applied by substituting `$9,200' for `$4,600' in the
case of 50-percent bonus depreciation property.
``(E) Election of 30 percent bonus.--If a taxpayer
makes an election under this subparagraph with respect
to any class of property for any taxable year,
subparagraph (A)(i) shall not apply to all property in
such class placed in service during such taxable
year.''
(b) Modification to 30-Percent Bonus Depreciation Property.--
(1) Portion of basis taken into account.--Subparagraphs
(B)(ii) and (D)(i) of section 168(k)(2) are each amended by
striking ``September 11, 2004'' each place it appears and
inserting ``January 1, 2005''.
(2) Election.--Clause (iii) of section 168(k)(2)(C) is
amended by adding at the end the following: ``The preceding
sentence shall be applied separately with respect to property
treated as qualified property by paragraph (4) and other
qualified property.''
(3) Acquisition date.--Clause (iii) of section 168(k)(2)(A)
is amended by striking ``September 11, 2004'' each place it
appears and inserting ``January 1, 2005''.
(c) Conforming Amendments.--
(1) The subsection heading for section 168(k) is amended by
striking ``September 11, 2004'' and inserting ``January 1,
2005''.
(2) The heading for clause (i) of section 1400L(b)(2)(C) is
amended by striking ``30-percent additional allowable
property'' and inserting ``Bonus depreciation property under
section 168(k)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.
(a) In General.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be
taken into account under subsection (a) for any taxable year
shall not exceed $25,000 ($75,000 in the case of taxable years
beginning in 2003 or 2004).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 203. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES
PRODUCTION ACTIVITIES.
(a) In General.--Part VIII of subchapter B of chapter 1 (relating
to special deductions for corporations) is amended by adding at the end
the following new section:
``SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
``(a) In General.--In the case of a corporation, there shall be
allowed as a deduction an amount equal to 10 percent of the qualified
production activities income of the corporation for the taxable year.
``(b) Phasein.--In the case of taxable years beginning in 2006,
2007, 2008 or 2009, subsection (a) shall be applied by substituting for
the percentage contained therein the transition percentage determined
under the following table:
``Taxable years The transition
beginning in: percentage is:
2006.............................. 1
2007.............................. 2
2008.............................. 4
2009.............................. 9
``(c) Qualified Production Activities Income.--For purposes of this
section, the term `qualified production activities income' means the
product of--
``(1) the portion of the modified taxable income of the
taxpayer which is attributable to domestic production
activities, and
``(2) the domestic/foreign fraction.
``(d) Determination of Income Attributable to Domestic Production
Activities.--For purposes of this section--
``(1) In general.--The portion of the modified taxable
income which is attributable to domestic production activities
is so much of the modified taxable income for the taxable year
as does not exceed--
``(A) the taxpayer's domestic production gross
receipts for such taxable year, reduced by
``(B) the sum of--
``(i) the costs of goods sold that are
allocable to such receipts,
``(ii) other deductions, expenses, or
losses directly allocable to such receipts, and
``(iii) a ratable portion of other
deductions, expenses, and losses that are not
directly allocable to such receipts or another
class of income.
``(2) Allocation method.--Except as provided in
regulations, allocations under clauses (ii) and (iii) of
paragraph (1)(B) shall be made under the principles used in
determining the portion of taxable income from sources within
and without the United States.
``(3) Special rule.--
``(A) For purposes of determining costs under
clause (i) of paragraph (1)(B), any item or service
brought into the United States without a transfer price
meeting the requirements of section 482 shall be
treated as acquired by purchase, and its cost shall be
treated as not less than its value when it entered the
United States. A similar rule shall apply in
determining the adjusted basis of leased or rented
property where the lease or rental gives rise to
domestic production gross receipts.
``(B) In the case of any property described in
subparagraph (A) that had been exported by the taxpayer
for further manufacture, the increase in cost (or
adjusted basis) under subparagraph (A) shall not exceed
the difference between the value of the property when
exported and the value of the property when brought
back into the United States after the further
manufacture.
``(4) Modified taxable income.--The term `modified taxable
income' means taxable income computed without regard to the
deduction allowable under this section.
``(e) Domestic Production Gross Receipts.--For purposes of this
section--
``(1) In general.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer which are
derived from--
``(A) any sale, exchange, or other disposition of,
or
``(B) any lease, rental or license of,
qualifying production property which was manufactured,
produced, grown, or extracted in whole or in significant part
by the taxpayer within the United States.
``(2) Special rule.--The term `domestic production gross
receipts' includes gross receipts of the taxpayer from the
sale, exchange, or other disposition of replacement parts if--
``(A) such parts are sold by the taxpayer as
replacement parts for qualified production property
produced or manufactured in whole or significant part
by the taxpayer in the United States, and
``(B) the taxpayer (or a related party) owns the
designs for such parts.
``(3) Related party.--The term `related party' means any
corporation which is a member of the taxpayer's expanded
affiliated group.
``(f) Qualifying Production Property.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
paragraph, the term `qualifying production property' means--
``(A) any tangible personal property,
``(B) any computer software, and
``(C) any films, tapes, records, or similar
reproductions.
``(2) Exclusions from qualifying production property.--The
term `qualifying production property' shall not include--
``(A) consumable property that is sold, leased, or
licensed by the taxpayer as an integral part of the
provision of services,
``(B) oil or gas (or any primary product thereof),
``(C) electricity,
``(D) water supplied by pipeline to the consumer,
``(E) any unprocessed timber which is softwood,
``(F) utility services, or
``(G) any property (not described in paragraph
(1)(B)) which is a film, tape, recording, book,
magazine, newspaper, or similar property the market for
which is primarily topical or otherwise essentially
transitory in nature.
For purposes of subparagraph (E), the term `unprocessed timber'
means any log, cant, or similar form of timber.
``(g) Domestic/Foreign Fraction.--For purposes of this section--
``(1) In general.--The term `domestic/foreign fraction'
means a fraction--
``(A) the numerator of which is the value of the
domestic production of the taxpayer, and
``(B) the denominator of which is the value of the
worldwide production of the taxpayer.
``(2) Value of domestic production.--The value of domestic
production is the excess of--
``(A) the domestic production gross receipts, over
``(B) the cost of purchased inputs allocable to
such receipts that are deductible under this chapter
for the taxable year.
``(3) Purchased inputs.--
``(A) In general.--Purchased inputs are any of the
following items acquired by purchase:
``(i) Services (other than services of
employees) used in manufacture, production,
growth, or extraction activities.
``(ii) Items consumed in connection with
such activities.
``(iii) Items incorporated as part of the
property being manufactured, produced, grown,
or extracted.
``(B) Special rule.--Rules similar to the rules of
subsection (d)(3) shall apply for purposes of this
subsection.
``(4) Value of worldwide production.--
``(A) In general.--The value of worldwide
production shall be determined under the principles of
paragraph (2), except that--
``(i) worldwide production gross receipts
shall be taken into account, and
``(ii) paragraph (3)(B) shall not apply.
``(B) Worldwide production gross receipts.--The
worldwide production gross receipts is the amount that
would be determined under subsection (e) if such
subsection were applied without any reference to the
United States.
``(5) Special rule for affiliated groups.--
``(A) In general.--In the case of a taxpayer that
is a member of an expanded affiliated group, the
domestic/foreign fraction shall be the amount
determined under the preceding provisions of this
subsection by treating all members of such group as a
single corporation.
``(B) Expanded affiliated group.--The term
`expanded affiliated group' means an affiliated group
as defined in section 1504(a), determined--
``(i) by substituting `50 percent' for `80
percent' each place it appears, and
``(ii) without regard to paragraphs (2),
(3), and (4) of section 1504(b).
``(h) Definitions and Special Rules.--
``(1) United states.--For purposes of this section, the
term `United States' includes the Commonwealth of Puerto Rico
and any other possession of the United States.
``(2) Special rule for partnerships.--For purposes of this
section, a corporation's distributive share of any partnership
item shall be taken into account as if directly realized by the
corporation.
``(3) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed
by section 55; except that for purposes of section 55,
alternative minimum taxable income shall be taken into account
in determining the deduction under this section.
``(4) Ordering rule.--The amount of any other deduction
allowable under this chapter shall be determined as if this
section had not been enacted.
``(5) Coordination with transition rules.--For purposes of
this section--
``(A) domestic production gross receipts shall not
include gross receipts from any transaction if the
binding contract transition relief of section 303(c)(2)
of the Jobs and Growth Reconciliation Tax Act of 2003
applies to such transaction, and
``(B) any deduction allowed under section 2(e) of
such Act shall be disregarded in determining the
portion of the taxable income which is attributable to
domestic production gross receipts.''.
(b) Clerical Amendment.--The table of sections for part VIII of
subchapter B of chapter 1 is amended by adding at the end the following
new item:
``Sec. 250. Income attributable to
domestic production
activities.''.
(c) Effective Date.--
``(1) In general.--The amendments made by this section
shall apply to taxable years beginning after 2005.
``(2) Application of section 15.--Section 15 of the
Internal Revenue Code of 1986 shall apply to the amendments
made by this section as if they were changes in a rate of tax.
TITLE III--FISCAL RESPONSIBILITY AND PROVISIONS ADDRESSING CORPORATE
ABUSE
Subtitle A-- General Provisions
SEC. 301. FREEZE OF TOP INDIVIDUAL INCOME TAX RATES.
(a) Freeze of Top Individual Income Tax Rates.--Paragraph (2) of
section 1(i) (relating to reductions in rates after June 30, 2001) is
amended--
(1) in the column for the highest rate--
(A) by striking ``37.6'' and inserting ``38.6'',
and
(B) by striking ``35.0'' and inserting ``38.6'',
and
(2) in the column for the next highest rate--
(A) by striking ``34.0'' and inserting ``35.0'',
and
(B) by striking ``33.0'' and inserting ``35.0''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
(c) Restoration of Rate Reductions If Funds Not Committed to Meet
Nation's Pressing Needs.--
(1) In general.--On December 31, 2003, the Director of the
Office of Management and Budget shall determine whether there
is a noncommitted balance in the Pressing Domestic Needs Trust
Fund (established by section 161 of this Act). If such a
noncommitted balance is determined, the Secretary of the
Treasury shall reduce the rates otherwise applicable under the
amendment made by subsection (a) so that the total revenue
raised by such amendment is reduced by the amount of such
noncommitted balance.
(2) Noncommitted balance.--For purposes of paragraph (1),
the noncommitted balance of the trust fund is the portion of
the amounts in the trust fund which are not committed to
meeting the pressing needs specified in section 161.
(d) Restoration of Rate Reductions If Balanced Budget.--The
amendments made by this section shall cease to apply to any taxable
year beginning after a calendar year if there is no deficit in the
Federal budget for the fiscal year ending in such calendar year.
SEC. 302. RESTORATION OF PHASEOUTS OF DEDUCTIONS FOR PERSONAL
EXEMPTIONS AND OF ITEMIZED DEDUCTIONS.
(a) Phaseout of Personal Exemptions.--Paragraph (3) of section
151(d) is amended by striking subparagraphs (E) and (F).
(b) Phaseout of Itemized Deductions.--Section 68 (relating to
overall limitation on itemized deductions) is amended by striking
subsections (f) and (g).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 303. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby
repealed.
(2) The table of subparts for such part III is amended by
striking the item relating to subpart E.
(3) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transactions occurring after the date of the enactment
of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any transaction in the ordinary course of a
trade or business which occurs pursuant to a binding contract--
(A) which is between the taxpayer and a person who
is not a related person (as defined in section
943(b)(3) of such Code, as in effect on the day before
the date of the enactment of this Act), and
(B) which is in effect on April 11, 2003, and at
all times thereafter.
For purposes of this paragraph, a binding contract shall
include a purchase option, renewal option, or replacement
option which is included in such contract.
(d) Revocation of Section 943(e) Elections.--
(1) In general.--In the case of a corporation that elected
to be treated as a domestic corporation under section 943(e) of
the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act)--
(A) the corporation may revoke such election,
effective as of the date of the enactment of this Act,
and
(B) if the corporation does revoke such election--
(i) such corporation shall be treated as a
domestic corporation transferring (as of the
date of the enactment of this Act) all of its
property to a foreign corporation in connection
with an exchange described in section 354 of
the Internal Revenue Code of 1986, and
(ii) no gain or loss shall be recognized on
such transfer.
(2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall
not apply to gain on any asset held by the revoking corporation
if--
(A) the basis of such asset is determined in whole
or in part by reference to the basis of such asset in
the hands of the person from whom the revoking
corporation acquired such asset,
(B) the asset was acquired by transfer (not as a
result of the election under section 943(e) of such
Code) occurring on or after the 1st day on which its
election under section 943(e) of such Code was
effective, and
(C) a principal purpose of the acquisition was the
reduction or avoidance of tax.
(e) General Transition.--
(1) In general.--In the case of a taxable year ending after
the date of the enactment of this Act and beginning before
January 1, 2009, for purposes of chapter 1 of such Code, each
current FSC/ETI beneficiary shall be allowed a deduction equal
to the transition amount determined under this subsection with
respect to such beneficiary for such year.
(2) Current fsc/eti beneficiary.--The term ``current FSC/
ETI beneficiary'' means any corporation which entered into one
or more transactions during its taxable year beginning in
calendar year 2001 with respect to which FSC/ETI benefits were
allowable.
(3) Transition amount.--For purposes of this subsection--
(A) In general.--The transition amount applicable
to any current FSC/ETI beneficiary for any taxable year
is the phaseout percentage of the adjusted base period
amount.
(B) Phaseout percentage.--
(i) In general.--In the case of a taxpayer
using the calendar year as its taxable year,
the phaseout percentage shall be determined
under the following table:
The phaseout
``Years: percentage is:
2004 and 2005................... 100
2006............................ 75
2007............................ 75
2008............................ 50
2009 and thereafter............ 0
(ii) Special rule for 2003.--The phaseout
percentage for 2003 shall be the amount that
bears the same ratio to 100 percent as the
number of days after the date of the enactment
of this Act bears to 365.
(iii) Special rule for fiscal year
taxpayers.--In the case of a taxpayer not using
the calendar year as its taxable year, the
phaseout percentage is the weighted average of
the phaseout percentages determined under the
preceding provisions of this paragraph with
respect to calendar years any portion of which
is included in the taxpayer's taxable year. The
weighted average shall be determined on the
basis of the respective portions of the taxable
year in each calendar year.
(4) Adjusted base period amount.--For purposes of
this subsection--
(A) In general.--In the case of a taxpayer
using the calendar year as its taxable year,
the adjusted base period amount for any taxable
year is the base period amount multiplied by
the applicable percentage, as determined in the
following table:
The applicable
``Years: percentage is:
2003............................ 100
2004............................ 100
2005............................ 105
2006............................ 110
2007............................ 115
2008............................ 120
2009 and thereafter............ 0
(B) Base period amount.--The base period
amount is the aggregate FSC/ETI benefits for
the taxpayer's taxable year beginning in
calendar year 2001.
(C) Special rules for fiscal year
taxpayers, etc.--Rules similar to rules of
clauses (ii) and (iii) of paragraph (3)(B)
shall apply for purposes of this paragraph.
(5) FSC/ETI benefit.--For purposes of this subsection, the
term ``FSC/ETI benefit'' means--
(A) amounts excludable from gross income under
section 114 of such Code, and
(B) the exempt foreign trade income of related
foreign sales corporations from property acquired from
the taxpayer (determined without regard to section
923(a)(5) of such Code (relating to special rule for
military property), as in effect on the day before the
date of the enactment of the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000).
In determining the FSC/ETI benefit there shall be excluded any
amount attributable to a transaction with respect to which the
taxpayer is the lessor unless the leased property was
manufactured or produced in whole or in part by the taxpayer.
(6) Special rule for farm cooperatives.--Under regulations
prescribed by the Secretary, determinations under this
subsection with respect to an organization described in section
943(g)(1) of such Code, as in effect on the day before the date
of the enactment of this Act, shall be made at the cooperative
level and the purposes of this subsection shall be carried out
by excluding amounts from the gross income of its patrons.
(7) Certain rules to apply.--Rules similar to the rules of
section 41(f) of such Code shall apply for purposes of this
subsection.
(8) Coordination with binding contract rule.--The deduction
determined under paragraph (1) for any taxable year shall be
reduced by the phaseout percentage of any FSC/ETI benefit
realized for the taxable year by reason of subsection (c)(2).
The preceding sentence shall not apply to any FSC/ETI benefit
attributable to a transaction described in the last sentence of
paragraph (5).
(9) Special rule for taxable year which includes date of
enactment.--In the case of a taxable year which includes the
date of the enactment of this Act, the deduction allowed under
this subsection to any current FSC/ETI beneficiary shall in no
event exceed--
(A) 100 percent of such beneficiary's adjusted base
period amount for calendar year 2003, reduced by
(B) the aggregate FSC/ETI benefits of such
beneficiary with respect to transactions occurring
during the portion of the taxable year ending on the
date of the enactment of this Act.
Subtitle B--Abusive Tax Shelter Shutdown and Taxpayer Accountability
PART I--PROVISIONS DESIGNED TO CURTAIL TAX SHELTERS
SEC. 311. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (m) as subsection (n) and by inserting after subsection (l)
the following new subsection:
``(m) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In applying the economic
substance doctrine, the determination of whether a
transaction has economic substance shall be made as
provided in this paragraph.
``(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 and, if there is any Federal
tax effects, also apart from any
foreign, State, or local 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.
``(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) Substantial nontax purpose.--In applying
subclause (II) of paragraph (1)(B)(i), 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.
``(D) 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.
``(E) Treatment of lessors.--In applying subclause
(I) of paragraph (1)(B)(ii) to the lessor of tangible
property subject to a lease, the expected net tax
benefits shall not include the benefits of
depreciation, or any tax credit, with respect to the
leased property and 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 February 13, 2003.
SEC. 312. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has
a history of complying with the requirements of this
title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity
and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under paragraph
(1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner or the head of
the Office of Tax Shelter Analysis with respect to the
determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate
amount of penalties imposed, and rescinded, under this
section, and
``(B) a description of each penalty rescinded under
this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for purposes
of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction,
``(B) is required to pay a penalty under section
6662A with respect to any reportable transaction at a
rate prescribed under section 6662A(c), or
``(C) is required to pay a penalty under section
6662B with respect to any noneconomic substance
transaction,
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section is in addition to any penalty imposed under this title.''
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return or
statement.''
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.
SEC. 313. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) 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 paragraph (1) applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs
(3), (4), and (5) of section 6707A(d) shall apply for
purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement and a noneconomic substance transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic substance transaction
understatement if the amendment or supplement is filed after
the earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.
``(4) Noneconomic substance transaction
understatement.--For purposes of this subsection, the
term `noneconomic substance transaction understatement'
has the meaning given such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies and without regard to items with respect
to which a penalty is imposed by section 6662B.''
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
``(B) there is or was substantial authority for
such treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of an item only if such belief--
``(i) is based on the facts and law that
exist at the time the return of tax which
includes such tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such
treatment and does not take into account the
possibility that a return will not be audited,
such treatment will not be raised on audit, or
such treatment will be resolved through
settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax
advisor may not be relied upon to establish the
reasonable belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified tax advisors.--A tax
advisor is described in this clause if the tax
advisor--
``(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization,
management, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing financial
interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 314. 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(m)(1)) for the transaction
giving rise to the claimed tax benefit or the
transaction was not respected under section 7701(m)(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 (3), (4),
and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section shall be in
addition to any other penalty imposed by this title.
``(f) Cross References.--
``(1) For coordination of penalty with
understatements under section 6662 and other special rules, see section
6662A(e).
``(2) For reporting of penalty imposed
under this section to the Securities and Exchange Commission, see
section 6707A(e).''
(b) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the item
relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements
attributable to transactions
lacking economic substance,
etc.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after February 13, 2003.
SEC. 315. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case
of a corporation other than an S corporation or a
personal holding company (as defined in section 542),
there is a substantial understatement of income tax for
any taxable year if the amount of the understatement
for the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required to be
shown on the return for the taxable year (or,
if greater, $10,000), or
``(ii) $10,000,000.''
(b) Reduction for Understatement of Taxpayer Due to Position of
Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the
taxpayer if the taxpayer had reasonable belief
that the tax treatment was more likely than not
the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 316. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.
SEC. 317. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable
transactions.''
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:
``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
SEC. 318. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the reportable
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.
SEC. 319. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 320. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action,
subject to penalty under section 6700, 6701, 6707, or 6708.''
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''
(c) Effective Date.--The amendment made by this section shall take
effect on the day after the date of the enactment of this Act.
SEC. 321. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section 6694(a)
(relating to understatements due to unrealistic positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more likely
than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section shall
apply to documents prepared after the date of the enactment of this
Act.
SEC. 322. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $5,000.
``(ii) Reasonable cause exceptionNo penalty
shall be imposed under subparagraph (A) with
respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the
transaction or the balance in the
account at the time of the transaction
was properly reported.
``(C) Willful violations.--In the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314--
``(i) the maximum penalty under
subparagraph (B)(i) shall be increased to the
greater of--
``(I) $25,000, or
``(II) the amount (not exceeding
$100,000) determined under subparagraph
(D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 323. 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. 324. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after
``Department'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary may impose a monetary penalty on any representative
described in the preceding sentence. If the representative was acting
on behalf of an employer or any firm or other entity in connection with
the conduct giving rise to such penalty, the Secretary may impose a
monetary penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty shall not
exceed the gross income derived (or to be derived) from the conduct
giving rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure.''
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment of
this Act.
(b) Tax Shelter Opinions, Etc.--Section 330 of such title 31 is
amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement, or
other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.''
SEC. 325. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.
SEC. 326. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED
TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(e)(1) (relating to substantial
omission of items for income taxes) is amended by adding at the end the
following new subparagraph:
``(C) Listed transactions.--If a taxpayer fails to
include on any return or statement for any taxable year
any information with respect to a listed transaction
(as defined in section 6707A(c)(2)) which is required
under section 6011 to be included with such return or
statement, the tax for such taxable year may be
assessed, or a proceeding in court for collection of
such tax may be begun without assessment, at any time
within 6 years after the time the return is filed. This
subparagraph shall not apply to any taxable year if the
time for assessment or beginning the proceeding in
court has expired before the time a transaction is
treated as a listed transaction under section 6011.''
(b) Effective Date.--The amendment made by this section shall apply
to transactions after the date of the enactment of this Act in taxable
years ending after such date.
SEC. 327. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC
SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions and Noneconomic Substance Transactions.--No
deduction shall be allowed under this chapter for any interest paid or
accrued under section 6601 on any underpayment of tax which is
attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''
(b) Effective Date.--The amendments made by this section shall
apply to transactions after the date of the enactment of this Act in
taxable years ending after such date.
PART II--OTHER PROVISIONS
SEC. 331. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-in Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described
in subsection (a) or (b) there would (but for this
subsection) be an importation of a net built-in loss,
the basis of each property described in subparagraph
(B) which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair
market value immediately after such transaction.
``(B) Property described.--For purposes of
subparagraph (A), property is described in this
paragraph if--
``(i) gain or loss with respect to such
property is not subject to tax under this
subtitle in the hands of the transferor
immediately before the transfer, and
``(ii) gain or loss with respect to such
property is subject to such tax in the hands of
the transferee immediately after such transfer.
In any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating
each partner in such partnership as holding such
partner's proportionate share of the property of such
partnership.
``(C) Importation of net built-in loss.--For
purposes of subparagraph (A), there is an importation
of a net built-in loss in a transaction if the
transferee's aggregate adjusted bases of property
described in subparagraph (B) which is transferred in
such transaction would (but for this paragraph) exceed
the fair market value of such property immediately
after such transaction.''
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred in any
transaction which is described in subsection
(a) and which is not described in paragraph (1)
of this subsection, and
``(ii) the transferee's aggregate adjusted
bases of the property so transferred would (but
for this paragraph) exceed the fair market
value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in
proportion to their respective built-in losses
immediately before the transaction.
``(C) Exception for transfers within affiliated
group.--Subparagraph (A) shall not apply to any
transaction if the transferor owns stock in the
transferee meeting the requirements of section
1504(a)(2). In the case of property to which
subparagraph (A) does not apply by reason of the
preceding sentence, the transferor's basis in the stock
received for such property shall not exceed its fair
market value immediately after the transfer.''
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to
which section 332 applies (or in a transfer described in
section 337(b)(1)), the basis of such property in the hands of
such distributee shall be the same as it would be in the hands
of the transferor; except that the basis of such property in
the hands of such distributee shall be the fair market value of
the property at the time of the distribution--
``(A) in any case in which gain or loss is
recognized by the liquidating corporation with respect
to such property, or
``(B) in any case in which the liquidating
corporation is a foreign corporation, the corporate
distributee is a domestic corporation, and the
corporate distributee's aggregate adjusted bases of
property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such
property immediately after such liquidation.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions after the date of the enactment of this Act.
SEC. 332. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is amended by striking ``and'' at the
end of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the end the
following:
``(C) if any property so contributed has a built-in
loss--
``(i) such built-in loss shall be taken
into account only in determining the amount of
items allocated to the contributing partner,
and
``(ii) except as provided in regulations,
in determining the amount of items allocated to
other partners, the basis of the contributed
property in the hands of the partnership shall
be treated as being equal to its fair market
value immediately after the contribution.
For purposes of subparagraph (C), the term `built-in loss'
means the excess of the adjusted basis of the property
(determined without regard to subparagraph (C)(ii)) over its
fair market value immediately after the contribution.''
(b) Adjustment to Basis of Partnership Property on Transfer of
Partnership Interest If There Is Substantial Built-In Loss.--
(1) Adjustment required.--Subsection (a) of section 743
(relating to optional adjustment to basis of partnership
property) is amended by inserting before the period ``or unless
the partnership has a substantial built-in loss immediately
after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended
by inserting ``or with respect to which there is a substantial
built-in loss immediately after such transfer'' after ``section
754 is in effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the transferee
partner's proportionate share of the adjusted basis of the
partnership property exceeds by more than $250,000 the basis of
such partner's interest in the partnership.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by the partnership in an attempt to avoid such
purposes.''
(4) Clerical amendments.--
(A) The section heading for section 743 is amended
to read as follows:
``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION
754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.''
(B) The table of sections for subpart C of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 743 and inserting the
following new item:
``Sec. 743. Adjustment to basis of
partnership property where
section 754 election or
substantial built-in loss.''
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
``or unless there is a substantial basis reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended
by inserting ``or unless there is a substantial basis
reduction'' after ``section 754 is in effect''.
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B)
of subsection (b)(2) exceeds $250,000.
``(2) Regulations.--
``For regulations to carry out this
subsection, see section 743(d)(2).''
(4) Clerical amendments.--
(A) The section heading for section 734 is amended
to read as follows:
``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY
WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS
REDUCTION.''
(B) The table of sections for subpart B of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 734 and inserting the
following new item:
``Sec. 734. Adjustment to basis of
undistributed partnership
property where section 754
election or substantial basis
reduction.''
(d) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to contributions made after the date of the
enactment of this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to transfers after the date of the enactment of
this Act.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to distributions after the date of the enactment of
this Act.
SEC. 333. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY
PARTNERSHIP IN CORPORATE PARTNER.
(a) In General.--Section 755 is amended by adding at the end the
following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any decrease
in the adjusted basis of partnership property under section 734(b)--
``(1) no allocation may be made to stock in a corporation
which is a partner in the partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by paragraph (2).''
(b) Effective Date.--The amendment made by this section shall apply
to distributions after the date of the enactment of this Act.
SEC. 334. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of subchapter M of chapter 1 (relating to
financial asset securitization investment trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies, or
a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5) Paragraph (5) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by striking ``, and''
at the end of subparagraph (C) and inserting a period, and by
striking subparagraph (D).
(6) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(7) Subparagraph (C) of section 7701(a)(19) is amended by
adding ``and'' at the end of clause (ix), by striking ``, and''
at the end of clause (x) and inserting a period, and by
striking clause (xi).
(8) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for existing fasits.--
(A) In general.--Paragraph (1) shall not apply to
any FASIT in existence on the date of the enactment of
this Act.
(B) Transfer of additional assets not permitted.--
Except as provided in regulations prescribed by the
Secretary of the Treasury or the Secretary's delegate,
subparagraph (A) shall cease to apply as of the
earliest date after the date of the enactment of this
Act that any property is transferred to the FASIT.
SEC. 335. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.
(a) In General.--Paragraph (2) of section 163(l) is amended by
striking ``or a related party'' and inserting ``or equity held by the
issuer (or any related party) in any other person''.
(b) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(c) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after the date of the enactment of
this Act.
SEC. 336. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION
269.
(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to read as
follows:
``(a) In General.--If--
``(1)(A) any person acquires stock in a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such property,
in the hands of the acquiring corporation, is determined by
reference to the basis in the hands of the transferor
corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal income tax by securing
the benefit of a deduction, credit, or other allowance,
then the Secretary may disallow such deduction, credit, or other
allowance.''
(b) Effective Date.--The amendment made by this section shall apply
to stock and property acquired after February 13, 2003.
SEC. 337. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED FOREIGN
CORPORATIONS.
(a) Limitation on Exception From PFIC Rules for United States
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of
section 1297(e) (relating to passive investment company) is amended by
adding at the end the following flush sentence:
``Such term shall not include any period if there is only a
remote likelihood of an inclusion in gross income under section
951(a)(1)(A)(i) of subpart F income of such corporation for
such period.''
(b) Determination of Pro Rata Share of Subpart F Income.--
Subsection (a) of section 951 (relating to amounts included in gross
income of United States shareholders) is amended by adding at the end
the following new paragraph:
``(4) Special rules for determining pro rata share of
subpart f income.--The pro rata share under paragraph (2) shall
be determined by disregarding--
``(A) any rights lacking substantial economic
effect, and
``(B) stock owned by a shareholder who is a tax-
indifferent party (as defined in section 7701(m)(3)) if
the amount which would (but for this paragraph) be
allocated to such shareholder does not reflect such
shareholder's economic share of the earnings and
profits of the corporation.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years on controlled foreign corporation beginning
after February 13, 2003, and to taxable years of United States
shareholder in which or with which such taxable years of controlled
foreign corporations end.
SEC. 338. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY NONTAXED PORTION
OF DIVIDENDS.
(a) In General.--Section 1059 (relating to corporate shareholder's
basis in stock reduced by nontaxed portion of extraordinary dividends)
is amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
``(g) Basis for Determining Loss Always Reduced by Nontaxed Portion
of Dividends.--The basis of stock in a corporation (for purposes of
determining loss) shall be reduced by the nontaxed portion of any
dividend received with respect to such stock if this section does not
otherwise apply to such dividend.''
(b) Effective Date.--The amendment made by this section shall apply
to dividends received after the date of the enactment of this Act.
SEC. 339. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated return
regulations) is amended by adding at the end the following new
sentence: ``In prescribing such regulations, the Secretary may
prescribe rules applicable to corporations filing consolidated returns
under section 1501 that are different from other provisions of this
title that would apply if such corporations filed separate returns.''
(b) Result Not Overturned.--Notwithstanding subsection (a), the
Internal Revenue Code of 1986 shall be construed by treating Treasury
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001)
as being inapplicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall apply to
taxable years beginning before, on, or after the date of the enactment
of this Act.
Subtitle C--Prevention of Corporate Expatriation To Avoid United States
Income Tax
SEC. 341. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES
INCOME TAX.
(a) In General.--Paragraph (4) of section 7701(a) (defining
domestic) is amended to read as follows:
``(4) Domestic.--
``(A) In general.--Except as provided in
subparagraph (B), the term `domestic' when applied to a
corporation or partnership means created or organized
in the United States or under the law of the United
States or of any State unless, in the case of a
partnership, the Secretary provides otherwise by
regulations.
``(B) Certain corporations treated as domestic.--
``(i) In general.--The acquiring
corporation in a corporate expatriation
transaction shall be treated as a domestic
corporation.
``(ii) Corporate expatriation
transaction.--For purposes of this
subparagraph, the term `corporate expatriation
transaction' means any transaction if--
``(I) a nominally foreign
corporation (referred to in this
subparagraph as the `acquiring
corporation') acquires, as a result of
such transaction, directly or
indirectly substantially all of the
properties held directly or indirectly
by a domestic corporation, and
``(II) immediately after the
transaction, more than 80 percent of
the stock (by vote or value) of the
acquiring corporation is held by former
shareholders of the domestic
corporation by reason of holding stock
in the domestic corporation.
``(iii) Lower stock ownership requirement
in certain cases.--Subclause (II) of clause
(ii) shall be applied by substituting `50
percent' for `80 percent' with respect to any
nominally foreign corporation if--
``(I) such corporation does not
have substantial business activities
(when compared to the total business
activities of the expanded affiliated
group) in the foreign country in which
or under the law of which the
corporation is created or organized,
and
``(II) the stock of the corporation
is publicly traded and the principal
market for the public trading of such
stock is in the United States.
``(iv) Partnership transactions.--The term
`corporate expatriation transaction' includes
any transaction if--
``(I) a nominally foreign
corporation (referred to in this
subparagraph as the `acquiring
corporation') acquires, as a result of
such transaction, directly or
indirectly properties constituting a
trade or business of a domestic
partnership,
``(II) immediately after the
transaction, more than 80 percent of
the stock (by vote or value) of the
acquiring corporation is held by former
partners of the domestic partnership or
related foreign partnerships
(determined without regard to stock of
the acquiring corporation which is sold
in a public offering related to the
transaction), and
``(III) the acquiring corporation
meets the requirements of subclauses
(I) and (II) of clause (iii).
``(v) Special rules.--For purposes of this
subparagraph--
``(I) a series of related
transactions shall be treated as 1
transaction, and
``(II) stock held by members of the
expanded affiliated group which
includes the acquiring corporation
shall not be taken into account in
determining ownership.
``(vi) Other definitions.--For purposes of
this subparagraph--
``(I) Nominally foreign
corporation.--The term `nominally
foreign corporation' means any
corporation which would (but for this
subparagraph) be treated as a foreign
corporation.
``(II) Expanded affiliated group.--
The term `expanded affiliated group'
means an affiliated group (as defined
in section 1504(a) without regard to
section 1504(b)).
``(III) Related foreign
partnership.--A foreign partnership is
related to a domestic partnership if
they are under common control (within
the meaning of section 482), or they
shared the same trademark or
tradename.''
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to corporate expatriation transactions completed after
September 11, 2001.
(2) Special rule.--The amendment made by this section shall
also apply to corporate expatriation transactions completed on
or before September 11, 2001, but only with respect to taxable
years of the acquiring corporation beginning after December 31,
2003.
Subtitle D--Inclusion in Gross Income of Funded Deferred Compensation
of Corporate Insiders
SEC. 351. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF
CORPORATE INSIDERS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
is amended by adding at the end the following new section:
``SEC. 409A. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION
OF CORPORATE INSIDERS.
``(a) In General.--If an employer maintains a funded deferred
compensation plan--
``(1) compensation of any disqualified individual which is
deferred under such funded deferred compensation plan shall be
included in the gross income of the disqualified individual or
beneficiary for the 1st taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation, and
``(2) the tax treatment of any amount made available under
the plan to a disqualified individual or beneficiary shall be
determined under section 72 (relating to annuities, etc.).
``(b) Funded Deferred Compensation Plan.--For purposes of this
section--
``(1) In general.--The term `funded deferred compensation
plan' means any plan providing for the deferral of compensation
unless--
``(A) the employee's rights to the compensation
deferred under the plan are no greater than the rights
of a general creditor of the employer, and
``(B) all amounts set aside (directly or
indirectly) for purposes of paying the deferred
compensation, and all income attributable to such
amounts, remain (until made available to the
participant or other beneficiary) solely the property
of the employer (without being restricted to the
provision of benefits under the plan), and
``(C) the amounts referred to in subparagraph (B)
are available to satisfy the claims of the employer's
general creditors at all times (not merely after
bankruptcy or insolvency).
Such term shall not include a qualified employer plan.
``(2) Special rules.--
``(A) Employee's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(A)
unless--
``(i) the compensation deferred under the
plan is payable only upon separation from
service, death, or at a specified time (or
pursuant to a fixed schedule), and
``(ii) the plan does not permit the
acceleration of the time such deferred
compensation is payable by reason of any event.
If the employer and employee agree to a modification of
the plan that accelerates the time for payment of any
deferred compensation, then all compensation previously
deferred under the plan shall be includible in gross
income for the taxable year during which such
modification takes effect and the taxpayer shall pay
interest at the underpayment rate on the underpayments
that would have occurred had the deferred compensation
been includible in gross income on the earliest date
that there is no substantial risk of forfeiture of the
rights to such compensation.
``(B) Creditor's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(B)
with respect to amounts set aside in a trust unless--
``(i) the employee has no beneficial
interest in the trust,
``(ii) assets in the trust are available to
satisfy claims of general creditors at all
times (not merely after bankruptcy or
insolvency), and
``(iii) there is no factor that would make
it more difficult for general creditors to
reach the assets in the trust than it would be
if the trust assets were held directly by the
employer in the United States.
Except as provided in regulations prescribed by the
Secretary, such a factor shall include the location of
the trust outside the United States.
``(c) Disqualified Individual.--For purposes of this section, the
term `disqualified individual' means, with respect to a corporation,
any individual--
``(1) who is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect to such
corporation, or
``(2) who would be subject to such requirements if such
corporation were an issuer of equity securities referred to in
such section.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified employer plan.--The term `qualified
employer plan' means--
``(A) any plan, contract, pension, account, or
trust described in subparagraph (A) or (B) of section
219(g)(5), and
``(B) any other plan of an organization exempt from
tax under subtitle A.
``(2) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement.
``(3) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial services
by any individual.
``(4) Treatment of earnings.--Except for purposes of
subsection (a)(1) and the last sentence of (b)(2)(A),
references to deferred compensation shall be treated as
including references to income attributable to such
compensation or such income.''
(b) Clerical Amendment.--The table of sections for such subpart A
is amended by adding at the end the following new item:
``Sec. 409A. Inclusion in gross income of
funded deferred compensation of
corporate insiders.''
(b) Effective Date.--The amendments made by this section shall
apply to amounts deferred after July 10, 2002.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
Llama 3.2 · runs locally in your browser
Ask anything about this bill. The AI reads the full text to answer.
Enter to send · Shift+Enter for new line