[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4297 Enrolled Bill (ENR)]
H.R.4297
One Hundred Ninth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the third day of January, two thousand and six
An Act
To provide for reconciliation pursuant to section 201(b) of the
concurrent resolution on the budget for fiscal year 2006.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,

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(a) Short Title.--This Act may be cited as the ``Tax Increase
Prevention and Reconciliation Act of 2005''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:

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f2d96d2b41bd401a6f27361af4c254c9f8dfef54900c029fc83297f5c84285a3

TITLE II

-OTHER PROVISIONS

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expenditures for purposes of qualified small issue bonds.

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c241eb5766dbb04d1aacd4117517f2df46edf921f3f7b1a011ee258bdc1b7081

18c407e3edd644e95f171d24284cb8d9dd3680468b8df2cb0a21d746ab5d62eb

TITLE III

-ALTERNATIVE MINIMUM TAX RELIEF

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TITLE V

-REVENUE OFFSET PROVISIONS

for certain major integrated oil companies.

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persons in United States real property through wash sale
transactions.

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account in determining deduction for domestic production.

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

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TITLE I

-EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS

Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of
2003 is amended by striking ``December 31, 2008'' and inserting
``December 31, 2010''.

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(a) Subpart F Exception for Active Financing.--
(1) Exempt insurance income.--Paragraph (10) of section 953(e)
(relating to application) is amended--
(A) by striking ``January 1, 2007'' and inserting ``January
1, 2009'', and
(B) by striking ``December 31, 2006'' and inserting
``December 31, 2008''.
(2) Exception to treatment as foreign personal holding company
income.--Paragraph (9) of section 954(h) (relating to application)
is amended by striking ``January 1, 2007'' and inserting ``January
1, 2009''.
(b) Look-Through Treatment of Payments Between Related Controlled
Foreign Corporations Under the Foreign Personal Holding Company
Rules.--
(1) In general.--Subsection (c) of section 954 (relating to
foreign personal holding company income) is amended by adding at
the end the following new paragraph:
``(6) Look-thru rule for related controlled foreign
corporations.--
``(A) In general.--For purposes of this subsection,
dividends, interest, rents, and royalties received or accrued
from a controlled foreign corporation which is a related person
shall not be treated as foreign personal holding company income
to the extent attributable or properly allocable (determined
under rules similar to the rules of subparagraphs (C) and (D)
of section 904(d)(3)) to income of the related person which is
not subpart F income. For purposes of this subparagraph,
interest shall include factoring income which is treated as
income equivalent to interest for purposes of paragraph (1)(E).
The Secretary shall prescribe such regulations as may be
appropriate to prevent the abuse of the purposes of this
paragraph.
``(B) Application.--Subparagraph (A) shall apply to taxable
years of foreign corporations beginning after December 31,
2005, and before January 1, 2009, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.''.
(2) Effective date.--The amendment made by this subsection
shall apply to taxable years of foreign corporations beginning
after December 31, 2005, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.

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(a) In General.--Subsection (g) of section 468B (relating to
clarification of taxation of certain funds) is amended to read as
follows:
``(g) Clarification of Taxation of Certain Funds.--
``(1) In general.--Except as provided in paragraph (2), nothing
in any provision of law shall be construed as providing that an
escrow account, settlement fund, or similar fund is not subject to
current income tax. The Secretary shall prescribe regulations
providing for the taxation of any such account or fund whether as a
grantor trust or otherwise.
``(2) Exemption from tax for certain settlement funds.--An
escrow account, settlement fund, or similar fund shall be treated
as beneficially owned by the United States and shall be exempt from
taxation under this subtitle if--
``(A) it is established pursuant to a consent decree
entered by a judge of a United States District Court,
``(B) it is created for the receipt of settlement payments
as directed by a government entity for the sole purpose of
resolving or satisfying one or more claims asserting liability
under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980,
``(C) the authority and control over the expenditure of
funds therein (including the expenditure of contributions
thereto and any net earnings thereon) is with such government
entity, and
``(D) upon termination, any remaining funds will be
disbursed to such government entity for use in accordance with
applicable law.
For purposes of this paragraph, the term `government entity' means
the United States, any State or political subdivision thereof, the
District of Columbia, any possession of the United States, and any
agency or instrumentality of any of the foregoing.
``(3) Termination.--Paragraph (2) shall not apply to accounts
and funds established after December 31, 2010.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to accounts and funds established after the date of the enactment
of this Act.

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Subsection (b) of section 355 (defining active conduct of a trade
or business) is amended by adding at the end the following new
paragraph:
``(3) Special rule relating to active business requirement.--
``(A) In general.--In the case of any distribution made
after the date of the enactment of this paragraph and on or
before December 31, 2010, a corporation shall be treated as
meeting the requirement of paragraph (2)(A) if and only if such
corporation is engaged in the active conduct of a trade or
business.
``(B) Affiliated group rule.--For purposes of subparagraph
(A), all members of such corporation's separate affiliated
group shall be treated as one corporation. For purposes of the
preceding sentence, a corporation's separate affiliated group
is the affiliated group which would be determined under section
1504(a) if such corporation were the common parent and section
1504(b) did not apply.
``(C) Transition rule.--Subparagraph (A) shall not apply to
any distribution pursuant to a transaction which is--
``(i) made pursuant to an agreement which was binding
on the date of the enactment of this paragraph and at all
times thereafter,
``(ii) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
``(iii) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
The preceding sentence shall not apply if the distributing
corporation elects not to have such sentence apply to
distributions of such corporation. Any such election, once
made, shall be irrevocable.
``(D) Special rule for certain pre-enactment
distributions.--For purposes of determining the continued
qualification under paragraph (2)(A) of distributions made on
or before the date of the enactment of this paragraph as a
result of an acquisition, disposition, or other restructuring
after such date and on or before December 31, 2010, such
distribution shall be treated as made on the date of such
acquisition, disposition, or restructuring for purposes of
applying subparagraphs (A) through (C) of this paragraph.''.

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(a) Expansion of Definition of Veterans Eligible for State Home
Loan Programs Funded by Qualified Veterans' Mortgage Bonds.--
(1) In general.--Paragraph (4) of section 143(l) (defining
qualified veteran) is amended to read as follows:
``(4) Qualified veteran.--For purposes of this subsection, the
term `qualified veteran' means--
``(A) in the case of the States of Alaska, Oregon, and
Wisconsin, any veteran--
``(i) who served on active duty, and
``(ii) who applied for the financing before the date 25
years after the last date on which such veteran left active
service, and
``(B) in the case of any other State, any veteran--
``(i) who served on active duty at some time before
January 1, 1977, and
``(ii) who applied for the financing before the later
of--
``(I) the date 30 years after the last date on
which such veteran left active service, or
``(II) January 31, 1985.''.
(2) Effective date.--The amendments made by this subsection
shall apply to bonds issued on or after the date of the enactment
of this Act.
(b) Revision of State Veterans Limit.--
(1) In general.--Subparagraph (B) of section 143(l)(3)
(relating to volume limitation) is amended--
(A) by redesignating clauses (i) and (ii) as subclauses (I)
and (II), respectively, and moving such clauses 2 ems to the
right,
(B) by amending the matter preceding subclause (I), as
designated by subparagraph (A), to read as follows:
``(B) State veterans limit.--
``(i) In general.--In the case of any State to which
clause (ii) does not apply, the State veterans limit for
any calendar year is the amount equal to--'', and
(C) by adding at the end the following new clauses:
``(ii) Alaska, oregon, and wisconsin.--In the case of
the following States, the State veterans limit for any
calendar year is the amount equal to--
``(I) $25,000,000 for the State of Alaska,
``(II) $25,000,000 for the State of Oregon, and
``(III) $25,000,000 for the State of Wisconsin.
``(iii) Phasein.--In the case of calendar years
beginning before 2010, clause (ii) shall be applied by
substituting for each of the dollar amounts therein an
amount equal to the applicable percentage of such dollar
amount. For purposes of the preceding sentence, the
applicable percentage shall be determined in accordance
with the following table:
Applicable percentage
``For Calendar Year:                         is:
2006...........................................               20 percent
2007...........................................               40 percent
2008...........................................               60 percent
2009...........................................              80 percent.
``(iv) Termination.--The State veterans limit for the
States specified in clause (ii) for any calendar year after
2010 is zero.''.
(2) Effective date.--The amendments made by this subsection
shall apply to allocations of State volume limit after April 5,
2006.

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WORKS.
(a) In General.--Subsection (b) of section 1221 (relating to
capital asset defined) is amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph (2) the following new
paragraph:
``(3) Sale or exchange of self-created musical works.--At the
election of the taxpayer, paragraphs (1) and (3) of subsection (a)
shall not apply to musical compositions or copyrights in musical
works sold or exchanged before January 1, 2011, by a taxpayer
described in subsection (a)(3).''.
(b) Limitation on Charitable Contributions.--Subparagraph (A) of
section 170(e)(1) is amended by inserting ``(determined without regard
to section 1221(b)(3))'' after ``long-term capital gain''.
(c) Effective Date.--The amendments made by this section shall
apply to sales and exchanges in taxable years beginning after the date
of the enactment of this Act.

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

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

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MUSIC OR MUSIC COPYRIGHTS.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(8) Special rules for certain musical works and copyrights.--
``(A) In general.--If an election is in effect under this
paragraph for any taxable year, then, notwithstanding paragraph
(1), any expense which--
``(i) is paid or incurred by the taxpayer in creating
or acquiring any applicable musical property placed in
service during the taxable year, and
``(ii) is otherwise properly chargeable to capital
account,
shall be amortized ratably over the 5-year period beginning
with the month in which the property was placed in service. The
preceding sentence shall not apply to any expense which,
without regard to this paragraph, would not be allowable as a
deduction.
``(B) Exclusive method.--Except as provided in this
paragraph, no depreciation or amortization deduction shall be
allowed with respect to any expense to which subparagraph (A)
applies.
``(C) Applicable musical property.--For purposes of this
paragraph--
``(i) In general.--The term `applicable musical
property' means any musical composition (including any
accompanying words), or any copyright with respect to a
musical composition, which is property to which this
subsection applies without regard to this paragraph.
``(ii) Exceptions.--Such term shall not include any
property--
``(I) with respect to which expenses are treated as
qualified creative expenses to which section 263A(h)
applies,
``(II) to which a simplified procedure established
under section 263A(j)(2) applies, or
``(III) which is an amortizable section 197
intangible (as defined in section 197(c)).
``(D) Election.--An election under this paragraph shall be
made at such time and in such form as the Secretary may
prescribe and shall apply to all applicable musical property
placed in service during the taxable year for which the
election applies.
``(E) Termination.--An election may not be made under this
paragraph for any taxable year beginning after December 31,
2010.''.
(b) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred with respect to property placed in
service in taxable years beginning after December 31, 2005.

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CAPITAL EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL
ISSUE BONDS.
(a) In General.--Section 144(a)(4)(G) is amended by striking
``September 30, 2009'' and inserting ``December 31, 2006''.
(b) Conforming Amendment.--Section 144(a)(4)(F) is amended by
striking ``September 30, 2009'' and inserting ``December 31, 2006''.

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CARE FACILITIES.
(a) In General.--Section 7872 is amended by redesignating
subsection (h) as subsection (i) and inserting after subsection (g) the
following new subsection:
``(h) Exception for Loans to Qualified Continuing Care
Facilities.--
``(1) In general.--This section shall not apply for any
calendar year to any below-market loan owed by a facility which on
the last day of such year is a qualified continuing care facility,
if such loan was made pursuant to a continuing care contract and if
the lender (or the lender's spouse) attains age 62 before the close
of such year.
``(2) Continuing care contract.--For purposes of this section,
the term `continuing care contract' means a written contract
between an individual and a qualified continuing care facility
under which--
``(A) the individual or individual's spouse may use a
qualified continuing care facility for their life or lives,
``(B) the individual or individual's spouse will be
provided with housing, as appropriate for the health of such
individual or individual's spouse--
``(i) in an independent living unit (which has
additional available facilities outside such unit for the
provision of meals and other personal care), and
``(ii) in an assisted living facility or a nursing
facility, as is available in the continuing care facility,
and
``(C) the individual or individual's spouse will be
provided assisted living or nursing care as the health of such
individual or individual's spouse requires, and as is available
in the continuing care facility.
The Secretary shall issue guidance which limits such term to
contracts which provide only facilities, care, and services
described in this paragraph.
``(3) Qualified continuing care facility.--
``(A) In general.--For purposes of this section, the term
`qualified continuing care facility' means 1 or more
facilities--
``(i) which are designed to provide services under
continuing care contracts,
``(ii) which include an independent living unit, plus
an assisted living or nursing facility, or both, and
``(iii) substantially all of the independent living
unit residents of which are covered by continuing care
contracts.
``(B) Nursing homes excluded.--The term `qualified
continuing care facility' shall not include any facility which
is of a type which is traditionally considered a nursing home.
``(4) Termination.--This subsection shall not apply to any
calendar year after 2010.''.
(b) Conforming Amendments.--
(1) Section 7872(g) is amended by adding at the end the
following new paragraph:
``(6) Suspension of application.--Paragraph (1) shall not apply
for any calendar year to which subsection (h) applies.''.
(2) Section 142(d)(2)(B) is amended by striking ``Section
7872(g)'' and inserting ``Subsections (g) and (h) of section
7872''.
(c) Effective Date.--The amendment made by this section shall apply
to calendar years beginning after December 31, 2005, with respect to
loans made before, on, or after such date.

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2006.
(a) In General.--Section 55(d)(1) (relating to exemption amount for
taxpayers other than corporations) is amended--
(1) by striking ``$58,000'' and all that follows through
``2005'' in subparagraph (A) and inserting ``$62,550 in the case of
taxable years beginning in 2006'', and
(2) by striking ``$40,250'' and all that follows through
``2005'' in subparagraph (B) and inserting ``$42,500 in the case of
taxable years beginning in 2006''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.

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AND ALTERNATIVE MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``2005'' in the heading thereof and inserting
``2006'', and
(2) by striking ``or 2005'' and inserting ``2005, or 2006''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.

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Notwithstanding section 6655 of the Internal Revenue Code of 1986--
(1) in the case of a corporation with assets of not less than
$1,000,000,000 (determined as of the end of the preceding taxable
year)--
(A) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August, or
September of 2006 shall be 105 percent of such amount,
(B) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August, or
September of 2012 shall be 106.25 percent of such amount,
(C) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August, or
September of 2013 shall be 100.75 percent of such amount, and
(D) the amount of the next required installment after an
installment referred to in subparagraph (A), (B), or (C) shall
be appropriately reduced to reflect the amount of the increase
by reason of such subparagraph,
(2) 20.5 percent of the amount of any required installment of
corporate estimated tax which is otherwise due in September 2010
shall not be due until October 1, 2010, and
(3) 27.5 percent of the amount of any required installment of
corporate estimated tax which is otherwise due in September 2011
shall not be due until October 1, 2011.

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TITLE IV

-CORPORATE ESTIMATED TAX PROVISIONS

CORPORATIONS.
(a) In General.--Section 163(j) (relating to limitation on
deduction for interest on certain indebtedness) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(8) Treatment of corporate partners.--Except to the extent
provided by regulations, in applying this subsection to a
corporation which owns (directly or indirectly) an interest in a
partnership--
``(A) such corporation's distributive share of interest
income paid or accrued to such partnership shall be treated as
interest income paid or accrued to such corporation,
``(B) such corporation's distributive share of interest
paid or accrued by such partnership shall be treated as
interest paid or accrued by such corporation, and
``(C) such corporation's share of the liabilities of such
partnership shall be treated as liabilities of such
corporation.''.
(b) Additional Regulatory Authority.--Section 163(j)(9) (relating
to regulations), as redesignated by subsection (a), is amended by
striking ``and'' at the end of subparagraph (B), by striking the period
at the end of subparagraph (C) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(D) regulations providing for the reallocation of shares
of partnership indebtedness, or distributive shares of the
partnership's interest income or interest expense.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning on or after the date of the enactment
of this Act.

3e0c8008adfca051ea02d4b5611092b44d4cf8226421e0491a023beeb9cca5a6

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

196b6167c7a4c978f7a78992784777ea0385546e4467e4653c95f3fb69c60336

EXPENDITURES FOR CERTAIN MAJOR INTEGRATED OIL COMPANIES.
(a) In General.--Section 167(h) (relating to amortization of
geological and geophysical expenditures) is amended by adding at the
end the following new paragraph:
``(5) Special rule for major integrated oil companies.--
``(A) In general.--In the case of a major integrated oil
company, paragraphs (1) and (4) shall be applied by
substituting `5-year' for `24 month'.
``(B) Major integrated oil company.--For purposes of this
paragraph, the term `major integrated oil company' means, with
respect to any taxable year, a producer of crude oil--
``(i) which has an average daily worldwide production
of crude oil of at least 500,000 barrels for the taxable
year,
``(ii) which had gross receipts in excess of
$1,000,000,000 for its last taxable year ending during
calendar year 2005, and
``(iii) to which subsection (c) of section 613A does
not apply by reason of paragraph (4) of section 613A(d),
determined--
``(I) by substituting `15 percent' for `5 percent'
each place it occurs in paragraph (3) of section
613A(d), and
``(II) without regard to whether subsection (c) of
section 613A does not apply by reason of paragraph (2)
of section 613A(d).
For purposes of clauses (i) and (ii), all persons treated as a
single employer under subsections (a) and (b) of section 52
shall be treated as 1 person and, in case of a short taxable
year, the rule under section 448(c)(3)(B) shall apply.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after the date of the enactment of this
Act.

3029e7feab9d5f0d4507ab496eda330bfdf7026f07ec854231300ce4c4d09216

(a) In General.--Subclause (II) of section 897(h)(4)(A)(i)
(defining qualified investment entity) is amended by inserting ``which
is a United States real property holding corporation or which would be
a United States real property holding corporation if the exceptions
provided in subsections (c)(3) and (h)(2) did not apply to interests in
any real estate investment trust or regulated investment company''
after ``regulated investment company''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the provisions of section 411 of the American
Jobs Creation Act of 2004 to which it relates.

58e9816596b455405c99d3eadf9c41014a8d6b00101e13189ff0084a6d05e854

(a) Qualified Investment Entity.--
(1) In general.--Section 897(h)(1) is amended--
(A) by striking ``a nonresident alien individual or a
foreign corporation'' in the first sentence and inserting ``a
nonresident alien individual, a foreign corporation, or other
qualified investment entity'',
(B) by striking ``such nonresident alien individual or
foreign corporation'' in the first sentence and inserting
``such nonresident alien individual, foreign corporation, or
other qualified investment entity'', and
(C) by striking the second sentence and inserting the
following new sentence: ``Notwithstanding the preceding
sentence, any distribution by a qualified investment entity to
a nonresident alien individual or a foreign corporation with
respect to any class of stock which is regularly traded on an
established securities market located in the United States
shall not be treated as gain recognized from the sale or
exchange of a United States real property interest if such
individual or corporation did not own more than 5 percent of
such class of stock at any time during the 1-year period ending
on the date of such distribution.''.
(2) Exception to termination of application of section 897
rules to regulated investment companies.--Clause (ii) of section
897(h)(4)(A) is amended by adding at the end the following new
sentence: ``Notwithstanding the preceding sentence, an entity
described in clause (i)(II) shall be treated as a qualified
investment entity for purposes of applying paragraphs (1) and (5)
and section 1445 with respect to any distribution by the entity to
a nonresident alien individual or a foreign corporation which is
attributable directly or indirectly to a distribution to the entity
from a real estate investment trust.''.
(b) Withholding on Distributions Treated as Gain From United States
Real Property Interests.--Section 1445(e) (relating to special rules
for distributions, etc. by corporations, partnerships, trusts, or
estates) is amended by redesignating paragraph (6) as paragraph (7) and
by inserting after paragraph (5) the following new paragraph:
``(6) Distributions by regulated investment companies and real
estate investment trusts.--If any portion of a distribution from a
qualified investment entity (as defined in section 897(h)(4)) to a
nonresident alien individual or a foreign corporation is treated
under section 897(h)(1) as gain realized by such individual or
corporation from the sale or exchange of a United States real
property interest, the qualified investment entity shall deduct and
withhold under subsection (a) a tax equal to 35 percent (or, to the
extent provided in regulations, 15 percent (20 percent in the case
of taxable years beginning after December 31, 2010)) of the amount
so treated.''.
(c) Treatment of Certain Distributions as Dividends.--
(1) In general.--Section 852(b)(3) (relating to capital gains)
is amended by adding at the end the following new subparagraph:
``(E) Certain distributions.--In the case of a distribution
to which section 897 does not apply by reason of the second
sentence of section 897(h)(1), the amount of such distribution
which would be included in computing long-term capital gains
for the shareholder under subparagraph (B) or (D) (without
regard to this subparagraph)--
``(i) shall not be included in computing such
shareholder's long-term capital gains, and
``(ii) shall be included in such shareholder's gross
income as a dividend from the regulated investment
company.''.
(2) Conforming amendment.--Section 871(k)(2) (relating to
short-term capital gain dividends) is amended by adding at the end
the following new subparagraph:
``(E) Certain distributions.--In the case of a distribution
to which section 897 does not apply by reason of the second
sentence of section 897(h)(1), the amount which would be
treated as a short-term capital gain dividend to the
shareholder (without regard to this subparagraph)--
``(i) shall not be treated as a short-term capital gain
dividend, and
``(ii) shall be included in such shareholder's gross
income as a dividend from the regulated investment
company.''.
(d) Effective Dates.--The amendments made by this section shall
apply to taxable years of qualified investment entities beginning after
December 31, 2005, except that no amount shall be required to be
withheld under section 1441, 1442, or 1445 of the Internal Revenue Code
of 1986 with respect to any distribution before the date of the
enactment of this Act if such amount was not otherwise required to be
withheld under any such section as in effect before such amendments.

631fcd7129570c224a320d989fe2ca96aacef13a4c4cea18511f96930ba195ca

PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE
TRANSACTIONS.
(a) In General.--Section 897(h) (relating to special rules for
certain investment entities) is amended by adding at the end the
following new paragraph:
``(5) Treatment of certain wash sale transactions.--
``(A) In general.--If an interest in a domestically
controlled qualified investment entity is disposed of in an
applicable wash sale transaction, the taxpayer shall, for
purposes of this section, be treated as having gain from the
sale or exchange of a United States real property interest in
an amount equal to the portion of the distribution described in
subparagraph (B) with respect to such interest which, but for
the disposition, would have been treated by the taxpayer as
gain from the sale or exchange of a United States real property
interest under paragraph (1).
``(B) Applicable wash sales transaction.--For purposes of
this paragraph--
``(i) In general.--The term `applicable wash sales
transaction' means any transaction (or series of
transactions) under which a nonresident alien individual,
foreign corporation, or qualified investment entity--
``(I) disposes of an interest in a domestically
controlled qualified investment entity during the 30-
day period preceding the ex-dividend date of a
distribution which is to be made with respect to the
interest and any portion of which, but for the
disposition, would have been treated by the taxpayer as
gain from the sale or exchange of a United States real
property interest under paragraph (1), and
``(II) acquires, or enters into a contract or
option to acquire, a substantially identical interest
in such entity during the 61-day period beginning with
the 1st day of the 30-day period described in subclause
(I).
For purposes of subclause (II), a nonresident alien
individual, foreign corporation, or qualified investment
entity shall be treated as having acquired any interest
acquired by a person related (within the meaning of section
267(b) or 707(b)(1)) to the individual, corporation, or
entity, and any interest which such person has entered into
any contract or option to acquire.
``(ii) Application to substitute dividend and similar
payments.--Subparagraph (A) shall apply to--
``(I) any substitute dividend payment (within the
meaning of section 861), or
``(II) any other similar payment specified in
regulations which the Secretary determines necessary to
prevent avoidance of the purposes of this paragraph.
The portion of any such payment treated by the taxpayer as
gain from the sale or exchange of a United States real
property interest under subparagraph (A) by reason of this
clause shall be equal to the portion of the distribution
such payment is in lieu of which would have been so treated
but for the transaction giving rise to such payment.
``(iii) Exception where distribution actually
received.--A transaction shall not be treated as an
applicable wash sales transaction if the nonresident alien
individual, foreign corporation, or qualified investment
entity receives the distribution described in clause (i)(I)
with respect to either the interest which was disposed of,
or acquired, in the transaction.
``(iv) Exception for certain publicly traded stock.--A
transaction shall not be treated as an applicable wash
sales transaction if it involves the disposition of any
class of stock in a qualified investment entity which is
regularly traded on an established securities market within
the United States but only if the nonresident alien
individual, foreign corporation, or qualified investment
entity did not own more than 5 percent of such class of
stock at any time during the 1-year period ending on the
date of the distribution described in clause (i)(I).''.
(b) No Withholding Required.--Section 1445(b) (relating to
exemptions) is amended by adding at the end the following new
paragraph:
``(8) Applicable wash sales transactions.--No person shall be
required to deduct and withhold any amount under subsection (a)
with respect to a disposition which is treated as a disposition of
a United States real property interest solely by reason of section
897(h)(5).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005, except that
such amendments shall not apply to any distribution, or substitute
dividend payment, occurring before the date that is 30 days after the
date of the enactment of this Act.

e5460cf201c6a11be22f8d3d0fc552b51a8d9c9a1b6d319238d2e480d7a6990d

DISQUALIFIED INVESTMENT COMPANIES.
(a) In General.--
Section 355 (relating to distributions of stock and securities
of a controlled corporation) is amended by adding at the end the
following new subsection:
``(g) Section Not to Apply to Distributions Involving Disqualified
Investment Corporations.--
``(1) In general.--This section (and so much of section 356 as
relates to this section) shall not apply to any distribution which
is part of a transaction if--
``(A) either the distributing corporation or controlled
corporation is, immediately after the transaction, a
disqualified investment corporation, and
``(B) any person holds, immediately after the transaction,
a 50-percent or greater interest in any disqualified investment
corporation, but only if such person did not hold such an
interest in such corporation immediately before the
transaction.
``(2) Disqualified investment corporation.--For purposes of
this subsection--
``(A) In general.--The term `disqualified investment
corporation' means any distributing or controlled corporation
if the fair market value of the investment assets of the
corporation is--
``(i) in the case of distributions after the end of the
1-year period beginning on the date of the enactment of
this subsection, \2/3\ or more of the fair market value of
all assets of the corporation, and
``(ii) in the case of distributions during such 1-year
period, \3/4\ or more of the fair market value of all
assets of the corporation.
``(B) Investment assets.--
``(i) In general.--Except as otherwise provided in this
subparagraph, the term `investment assets' means--
``(I) cash,
``(II) any stock or securities in a corporation,
``(III) any interest in a partnership,
``(IV) any debt instrument or other evidence of
indebtedness,
``(V) any option, forward or futures contract,
notional principal contract, or derivative,
``(VI) foreign currency, or
``(VII) any similar asset.
``(ii) Exception for assets used in active conduct of
certain financial trades or businesses.--Such term shall
not include any asset which is held for use in the active
and regular conduct of--
``(I) a lending or finance business (within the
meaning of section 954(h)(4)),
``(II) a banking business through a bank (as
defined in section 581), a domestic building and loan
association (within the meaning of section
7701(a)(19)), or any similar institution specified by
the Secretary, or
``(III) an insurance business if the conduct of the
business is licensed, authorized, or regulated by an
applicable insurance regulatory body.
This clause shall only apply with respect to any business
if substantially all of the income of the business is
derived from persons who are not related (within the
meaning of section 267(b) or 707(b)(1)) to the person
conducting the business.
``(iii) Exception for securities marked to market.--
Such term shall not include any security (as defined in
section 475(c)(2)) which is held by a dealer in securities
and to which section 475(a) applies.
``(iv) Stock or securities in a 20-percent controlled
entity.--
``(I) In general.--Such term shall not include any
stock and securities in, or any asset described in
subclause (IV) or (V) of clause (i) issued by, a
corporation which is a 20-percent controlled entity
with respect to the distributing or controlled
corporation.
``(II) Look-thru rule.--The distributing or
controlled corporation shall, for purposes of applying
this subsection, be treated as owning its ratable share
of the assets of any 20-percent controlled entity.
``(III) 20-percent controlled entity.--For purposes
of this clause, the term `20-percent controlled entity'
means, with respect to any distributing or controlled
corporation, any corporation with respect to which the
distributing or controlled corporation owns directly or
indirectly stock meeting the requirements of section
1504(a)(2), except that such section shall be applied
by substituting `20 percent' for `80 percent' and
without regard to stock described in section
1504(a)(4).
``(v) Interests in certain partnerships.--
``(I) In general.--Such term shall not include any
interest in a partnership, or any debt instrument or
other evidence of indebtedness, issued by the
partnership, if 1 or more of the trades or businesses
of the partnership are (or, without regard to the 5-
year requirement under subsection (b)(2)(B), would be)
taken into account by the distributing or controlled
corporation, as the case may be, in determining whether
the requirements of subsection (b) are met with respect
to the distribution.
``(II) Look-thru rule.--The distributing or
controlled corporation shall, for purposes of applying
this subsection, be treated as owning its ratable share
of the assets of any partnership described in subclause
(I).
``(3) 50-percent or greater interest.--For purposes of this
subsection--
``(A) In general.--The term `50-percent or greater
interest' has the meaning given such term by subsection (d)(4).
``(B) Attribution rules.--The rules of section 318 shall
apply for purposes of determining ownership of stock for
purposes of this paragraph.
``(4) Transaction.--For purposes of this subsection, the term
`transaction' includes a series of transactions.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out, or prevent the
avoidance of, the purposes of this subsection, including
regulations--
``(A) to carry out, or prevent the avoidance of, the
purposes of this subsection in cases involving--
``(i) the use of related persons, intermediaries, pass-
thru entities, options, or other arrangements, and
``(ii) the treatment of assets unrelated to the trade
or business of a corporation as investment assets if, prior
to the distribution, investment assets were used to acquire
such unrelated assets,
``(B) which in appropriate cases exclude from the
application of this subsection a distribution which does not
have the character of a redemption which would be treated as a
sale or exchange under section 302, and
``(C) which modify the application of the attribution rules
applied for purposes of this subsection.''.
(b) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to distributions after the date of the enactment of this Act.
(2) Transition rule.--The amendments made by this section shall
not apply to any distribution pursuant to a transaction which is--
(A) made pursuant to an agreement which was binding on such
date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and Exchange
Commission.

9086c5751d9cda117a1734463d2b17a3dd0910aacdb3119190fd546722e88389

REQUIREMENTS.
(a) Strengthened Reasonable Expectation Requirement.--Subparagraph
(A) of section 149(f)(2) (relating to reasonable expectation
requirement) is amended to read as follows:
``(A) In general.--The requirements of this paragraph are
met with respect to an issue if the issuer reasonably expects
that--
``(i) as of the close of the 1-year period beginning on
the date of issuance of the issue, at least 30 percent of
the net proceeds of the issue (as of the close of such
period) will have been used directly or indirectly to make
or finance loans to ultimate borrowers, and
``(ii) as of the close of the 3-year period beginning
on such date of issuance, at least 95 percent of the net
proceeds of the issue (as of the close of such period) will
have been so used.''.
(b) Written Loan Commitment and Redemption Requirements.--Section
149(f) (relating to treatment of certain pooled financing bonds) is
amended by redesignating paragraphs (4) and (5) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (3) the following
new paragraphs:
``(4) Written loan commitment requirement.--
``(A) In general.--The requirement of this paragraph is met
with respect to an issue if the issuer receives prior to
issuance written loan commitments identifying the ultimate
potential borrowers of at least 30 percent of the net proceeds
of such issue.
``(B) Exception.--Subparagraph (A) shall not apply with
respect to any issuer which--
``(i) is a State (or an integral part of a State)
issuing pooled financing bonds to make or finance loans to
subordinate governmental units of such State, or
``(ii) is a State-created entity providing financing
for water-infrastructure projects through the federally-
sponsored State revolving fund program.
``(5) Redemption requirement.--The requirement of this
paragraph is met if to the extent that less than the percentage of
the proceeds of an issue required to be used under clause (i) or
(ii) of paragraph (2)(A) is used by the close of the period
identified in such clause, the issuer uses an amount of proceeds
equal to the excess of--
``(A) the amount required to be used under such clause,
over
``(B) the amount actually used by the close of such period,
to redeem outstanding bonds within 90 days after the end of such
period.''.
(c) Elimination of Disregard of Pooled Bonds in Determining
Eligibility for Small Issuer Exception to Arbitrage Rebate.--Section
148(f)(4)(D)(ii) (relating to aggregation of issuers) is amended by
striking subclause (II) and by redesignating subclauses (III) and (IV)
as subclauses (II) and (III), respectively.
(d) Conforming Amendments.--
(1) Section 149(f)(1) is amended by striking ``paragraphs (2)
and (3)'' and inserting ``paragraphs (2), (3), (4), and (5)''.
(2) Section 149(f)(7)(B), as redesignated by subsection (b), is
amended by striking ``paragraph (4)(A)'' and inserting ``paragraph
(6)(A)''.
(3) Section 54(l)(2) is amended by striking ``section
149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.

a3574e5254f75e934082cb16850d95830cff43ce02c07848d0d1ed1c829c3cf4

COMPROMISE.
(a) In General.--Section 7122 (relating to compromises) is amended
by redesignating subsections (c) and (d) as subsections (d) and (e),
respectively, and by inserting after subsection (b) the following new
subsection:
``(c) Rules for Submission of Offers-in-Compromise.--
``(1) Partial payment required with submission.--
``(A) Lump-sum offers.--
``(i) In general.--The submission of any lump-sum
offer-in-compromise shall be accompanied by the payment of
20 percent of the amount of such offer.
``(ii) Lump-sum offer-in-compromise.--For purposes of
this section, the term `lump-sum offer-in-compromise' means
any offer of payments made in 5 or fewer installments.
``(B) Periodic payment offers.--
``(i) In general.--The submission of any periodic
payment offer-in-compromise shall be accompanied by the
payment of the amount of the first proposed installment.
``(ii) Failure to make installment during pendency of
offer.--Any failure to make an installment (other than the
first installment) due under such offer-in-compromise
during the period such offer is being evaluated by the
Secretary may be treated by the Secretary as a withdrawal
of such offer-in-compromise.
``(2) Rules of application.--
``(A) Use of payment.--The application of any payment made
under this subsection to the assessed tax or other amounts
imposed under this title with respect to such tax may be
specified by the taxpayer.
``(B) Application of user fee.--In the case of any assessed
tax or other amounts imposed under this title with respect to
such tax which is the subject of an offer-in-compromise to
which this subsection applies, such tax or other amounts shall
be reduced by any user fee imposed under this title with
respect to such offer-in-compromise.
``(C) Waiver authority.--The Secretary may issue
regulations waiving any payment required under paragraph (1) in
a manner consistent with the practices established in
accordance with the requirements under subsection (d)(3).''.
(b) Additional Rules Relating to Treatment of Offers.--
(1) Unprocessable offer if payment requirements are not met.--
Paragraph (3) of section 7122(d) (relating to standards for
evaluation of offers), as redesignated by subsection (a), is
amended by striking ``; and'' at the end of subparagraph (A) and
inserting a comma, by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the end
the following new subparagraph:
``(C) any offer-in-compromise which does not meet the
requirements of subparagraph (A)(i) or (B)(i), as the case may
be, of subsection (c)(1) may be returned to the taxpayer as
unprocessable.''.
(2) Deemed acceptance of offer not rejected within certain
period.--Section 7122, as amended by subsection (a), is amended by
adding at the end the following new subsection:
``(f) Deemed Acceptance of Offer Not Rejected Within Certain
Period.--Any offer-in-compromise submitted under this section shall be
deemed to be accepted by the Secretary if such offer is not rejected by
the Secretary before the date which is 24 months after the date of the
submission of such offer. For purposes of the preceding sentence, any
period during which any tax liability which is the subject of such
offer-in-compromise is in dispute in any judicial proceeding shall not
be taken into account in determining the expiration of the 24-month
period.''.
(c) Conforming Amendment.--Section 6159(f) is amended by striking
``section 7122(d)'' and inserting ``section 7122(e)''.
(d) Effective Date.--The amendments made by this section shall
apply to offers-in-compromise submitted on and after the date which is
60 days after the date of the enactment of this Act.

c2627371610e50ec1af11e7a300c40396ca7f2fe2e715f697539e7b3149865f6

TAXED AS IF PARENT'S INCOME.
(a) In General.--Section 1(g)(2)(A) (relating to child to whom
subsection applies) is amended by striking ``age 14'' and inserting
``age 18''.
(b) Treatment of Distributions From Qualified Disability Trusts.--
Section 1(g)(4) (relating to net unearned income) is amended by adding
at the end the following new subparagraph:
``(C) Treatment of distributions from qualified disability
trusts.--For purposes of this subsection, in the case of any
child who is a beneficiary of a qualified disability trust (as
defined in section 642(b)(2)(C)(ii)), any amount included in
the income of such child under sections 652 and 662 during a
taxable year shall be considered earned income of such child
for such taxable year.''.
(c) Conforming Amendment.--Section 1(g)(2) is amended by striking
``and'' at the end of subparagraph (A), by striking the period at the
end of subparagraph (B) and inserting ``, and'', and by inserting after
subparagraph (B) the following new subparagraph:
``(C) such child does not file a joint return for the
taxable year.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.

178b0061a97eec7f864d3926a1e6ae4f6dfc463f7c15143cf59efd3a20ffd546

GOVERNMENT ENTITIES.
(a) In General.--Section 3402 is amended by adding at the end the
following new subsection:
``(t) Extension of Withholding to Certain Payments Made by
Government Entities.--
``(1) General rule.--The Government of the United States, every
State, every political subdivision thereof, and every
instrumentality of the foregoing (including multi-State agencies)
making any payment to any person providing any property or services
(including any payment made in connection with a government voucher
or certificate program which functions as a payment for property or
services) shall deduct and withhold from such payment a tax in an
amount equal to 3 percent of such payment.
``(2) Property and services subject to withholding.--Paragraph
(1) shall not apply to any payment--
``(A) except as provided in subparagraph (B), which is
subject to withholding under any other provision of this
chapter or chapter 3,
``(B) which is subject to withholding under section 3406
and from which amounts are being withheld under such section,
``(C) of interest,
``(D) for real property,
``(E) to any governmental entity subject to the
requirements of paragraph (1), any tax-exempt entity, or any
foreign government,
``(F) made pursuant to a classified or confidential
contract described in section 6050M(e)(3),
``(G) made by a political subdivision of a State (or any
instrumentality thereof) which makes less than $100,000,000 of
such payments annually,
``(H) which is in connection with a public assistance or
public welfare program for which eligibility is determined by a
needs or income test, and
``(I) to any government employee not otherwise excludable
with respect to their services as an employee.
``(3) Coordination with other sections.--For purposes of
sections 3403 and 3404 and for purposes of so much of subtitle F
(except section 7205) as relates to this chapter, payments to any
person for property or services which are subject to withholding
shall be treated as if such payments were wages paid by an employer
to an employee.''.
(b) Effective Date.--The amendment made by this section shall apply
to payments made after December 31, 2010.

b53d6fde60827b4ec11f571a24a8cae9228fdbdda413b06d64324250c43ddc30

(a) Repeal of Income Limitations.--
(1) In general.--Paragraph (3) of section 408A(c) (relating to
limits based on modified adjusted gross income) is amended by
striking subparagraph (B) and redesignating subparagraphs (C) and
(D) as subparagraphs (B) and (C), respectively.
(2) Conforming amendment.--Clause (i) of section 408A(c)(3)(B)
(as redesignated by paragraph (1)) is amended by striking ``except
that--'' and all that follows and inserting ``except that any
amount included in gross income under subsection (d)(3) shall not
be taken into account, and''.
(b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA.--
(1) In general.--Clause (iii) of section 408A(d)(3)(A)
(relating to rollovers from an IRA other than a Roth IRA) is
amended to read as follows:
``(iii) unless the taxpayer elects not to have this
clause apply, any amount required to be included in gross
income for any taxable year beginning in 2010 by reason of
this paragraph shall be so included ratably over the 2-
taxable-year period beginning with the first taxable year
beginning in 2011.''.
(2) Conforming amendments.--
(A) Clause (i) of section 408A(d)(3)(E) is amended to read
as follows:
``(i) Acceleration of inclusion.--
``(I) In general.--The amount otherwise required to
be included in gross income for any taxable year
beginning in 2010 or the first taxable year in the 2-
year period under subparagraph (A)(iii) shall be
increased by the aggregate distributions from Roth IRAs
for such taxable year which are allocable under
paragraph (4) to the portion of such qualified rollover
contribution required to be included in gross income
under subparagraph (A)(i).
``(II) Limitation on aggregate amount included.--
The amount required to be included in gross income for
any taxable year under subparagraph (A)(iii) shall not
exceed the aggregate amount required to be included in
gross income under subparagraph (A)(iii) for all
taxable years in the 2-year period (without regard to
subclause (I)) reduced by amounts included for all
preceding taxable years.''.
(B) The heading for section 408A(d)(3)(E) is amended by
striking ``4-year'' and inserting ``2-year''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2009.

862127a190cb86b9acfa73e6b0c986f27aafce53a79e7f97aff49e1ca7a8a84f

(a) FSC Provisions.--Paragraph (1) of section 5(c) of the FSC
Repeal and Extraterritorial Income Exclusion Act of 2000 is amended by
striking ``which occurs--'' and all that follows and inserting ``which
occurs before January 1, 2002.''.
(b) ETI Provisions.--Section 101 of the American Jobs Creation Act
of 2004 is amended by striking subsection (f).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

aa0827b5617a63b4d0b0ef24eb25c95322c486592dfc08ae6c3e9d1315643d24

ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.
(a) In General.--Paragraph (2) of section 199(b) (relating to W-2
wages) is amended to read as follows:
``(2) W-2 wages.--For purposes of this section--
``(A) In general.--The term `W-2 wages' means, with respect
to any person for any taxable year of such person, the sum of
the amounts described in paragraphs (3) and (8) of section
6051(a) paid by such person with respect to employment of
employees by such person during the calendar year ending during
such taxable year.
``(B) Limitation to wages attributable to domestic
production.--Such term shall not include any amount which is
not properly allocable to domestic production gross receipts
for purposes of subsection (c)(1).
``(C) Return requirement.--Such term shall not include any
amount which is not properly included in a return filed with
the Social Security Administration on or before the 60th day
after the due date (including extensions) for such return.''.
(b) Simplification of Rules for Determining W-2 Wages of Partners
and S Corporation Shareholders.--
(1) In general.--Clause (iii) of section 199(d)(1)(A) is
amended to read as follows:
``(iii) each partner or shareholder shall be treated
for purposes of subsection (b) as having W-2 wages for the
taxable year in an amount equal to such person's allocable
share of the W-2 wages of the partnership or S corporation
for the taxable year (as determined under regulations
prescribed by the Secretary).''.
(2) Conforming amendment.--Paragraph (2) of section 199(a) is
amended by striking ``and subsection (d)(1)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

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(a) Inflation Adjustment of Foreign Earned Income Limitation.--
Clause (ii) of section 911(b)(2)(D) (relating to inflation adjustment)
is amended--
(1) by striking ``2007'' and inserting ``2005'', and
(2) by striking ``2006'' in subclause (II) and inserting
``2004''.
(b) Modification of Housing Cost Amount.--
(1) Modification of housing cost floor.--Clause (i) of section
911(c)(1)(B) is amended to read as follows:
``(i) 16 percent of the amount (computed on a daily
basis) in effect under subsection (b)(2)(D) for the
calendar year in which such taxable year begins, multiplied
by''.
(2) Maximum amount of exclusion.--
(A) In general.--Subparagraph (A) of section 911(c)(1) is
amended by inserting ``to the extent such expenses do not
exceed the amount determined under paragraph (2)'' after ``the
taxable year''.
(B) Limitation.--Subsection (c) of section 911 is amended
by redesignating paragraphs (2) and (3) as paragraphs (3) and
(4), respectively, and by inserting after paragraph (1) the
following new paragraph:
``(2) Limitation.--
``(A) In general.--The amount determined under this
paragraph is an amount equal to the product of--
``(i) 30 percent (adjusted as may be provided under
subparagraph (B)) of the amount (computed on a daily basis)
in effect under subsection (b)(2)(D) for the calendar year
in which the taxable year of the individual begins,
multiplied by
``(ii) the number of days of such taxable year within
the applicable period described in subparagraph (A) or (B)
of subsection (d)(1).
``(B) Regulations.--The Secretary may issue regulations or
other guidance providing for the adjustment of the percentage
under subparagraph (A)(i) on the basis of geographic
differences in housing costs relative to housing costs in the
United States.''.
(C) Conforming amendments.--
(i) Section 911(d)(4) is amended by striking ``and
(c)(1)(B)(ii)'' and inserting ``, (c)(1)(B)(ii), and
(c)(2)(A)(ii)''.
(ii) Section 911(d)(7) is amended by striking
``subsection (c)(3)'' and inserting ``subsection (c)(4)''.
(c) Rates of Tax Applicable to Nonexcluded Income.--Section 911
(relating to exclusion of certain income of citizens and residents of
the United States living abroad) is amended by redesignating subsection
(f) as subsection (g) and by inserting after subsection (e) the
following new subsection:
``(f) Determination of Tax Liability on Nonexcluded Amounts.--For
purposes of this chapter, if any amount is excluded from the gross
income of a taxpayer under subsection (a) for any taxable year, then,
notwithstanding section 1 or 55--
``(1) the tax imposed by section 1 on the taxpayer for such
taxable year shall be equal to the excess (if any) of--
``(A) the tax which would be imposed by section 1 for the
taxable year if the taxpayer's taxable income were increased by
the amount excluded under subsection (a) for the taxable year,
over
``(B) the tax which would be imposed by section 1 for the
taxable year if the taxpayer's taxable income were equal to the
amount excluded under subsection (a) for the taxable year, and
``(2) the tentative minimum tax under section 55 for such
taxable year shall be equal to the excess (if any) of--
``(A) the amount which would be such tentative minimum tax
for the taxable year if the taxpayer's taxable excess were
increased by the amount excluded under subsection (a) for the
taxable year, over
``(B) the amount which would be such tentative minimum tax
for the taxable year if the taxpayer's taxable excess were
equal to the amount excluded under subsection (a) for the
taxable year.
For purposes of this subsection, the amount excluded under subsection
(a) shall be reduced by the aggregate amount of any deductions or
exclusions disallowed under subsection (d)(6) with respect to such
excluded amount.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.

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TRANSACTIONS.
(a) Imposition of Excise Tax.--
(1) In general.--Chapter 42 (relating to private foundations
and certain other tax-exempt organizations) is amended by adding at
the end the following new subchapter:
``Subchapter F--Tax Shelter Transactions
``Sec. 4965. Excise tax on certain tax-exempt entities entering into
prohibited tax shelter transactions.
``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING INTO
PROHIBITED TAX SHELTER TRANSACTIONS.
``(a) Being a Party to and Approval of Prohibited Transactions.--
``(1) Tax-exempt entity.--
``(A) In general.--If a transaction is a prohibited tax
shelter transaction at the time any tax-exempt entity described
in paragraph (1), (2), or (3) of subsection (c) becomes a party
to the transaction, such entity shall pay a tax for the taxable
year in which the entity becomes such a party and any
subsequent taxable year in the amount determined under
subsection (b)(1).
``(B) Post-transaction determination.--If any tax-exempt
entity described in paragraph (1), (2), or (3) of subsection
(c) is a party to a subsequently listed transaction at any time
during a taxable year, such entity shall pay a tax for such
taxable year in the amount determined under subsection (b)(1).
``(2) Entity manager.--If any entity manager of a tax-exempt
entity approves such entity as (or otherwise causes such entity to
be) a party to a prohibited tax shelter transaction at any time
during the taxable year and knows or has reason to know that the
transaction is a prohibited tax shelter transaction, such manager
shall pay a tax for such taxable year in the amount determined
under subsection (b)(2).
``(b) Amount of Tax.--
``(1) Entity.--In the case of a tax-exempt entity--
``(A) In general.--Except as provided in subparagraph (B),
the amount of the tax imposed under subsection (a)(1) with
respect to any transaction for a taxable year shall be an
amount equal to the product of the highest rate of tax under
section 11, and the greater of--
``(i) the entity's net income (after taking into
account any tax imposed by this subtitle (other than by
this section) with respect to such transaction) for such
taxable year which--
``(I) in the case of a prohibited tax shelter
transaction (other than a subsequently listed
transaction), is attributable to such transaction, or
``(II) in the case of a subsequently listed
transaction, is attributable to such transaction and
which is properly allocable to the period beginning on
the later of the date such transaction is identified by
guidance as a listed transaction by the Secretary or
the first day of the taxable year, or
``(ii) 75 percent of the proceeds received by the
entity for the taxable year which--
``(I) in the case of a prohibited tax shelter
transaction (other than a subsequently listed
transaction), are attributable to such transaction, or
``(II) in the case of a subsequently listed
transaction, are attributable to such transaction and
which are properly allocable to the period beginning on
the later of the date such transaction is identified by
guidance as a listed transaction by the Secretary or
the first day of the taxable year.
``(B) Increase in tax for certain knowing transactions.--In
the case of a tax-exempt entity which knew, or had reason to
know, a transaction was a prohibited tax shelter transaction at
the time the entity became a party to the transaction, the
amount of the tax imposed under subsection (a)(1)(A) with
respect to any transaction for a taxable year shall be the
greater of--
``(i) 100 percent of the entity's net income (after
taking into account any tax imposed by this subtitle (other
than by this section) with respect to the prohibited tax
shelter transaction) for such taxable year which is
attributable to the prohibited tax shelter transaction, or
``(ii) 75 percent of the proceeds received by the
entity for the taxable year which are attributable to the
prohibited tax shelter transaction.
This subparagraph shall not apply to any prohibited tax shelter
transaction to which a tax-exempt entity became a party on or
before the date of the enactment of this section.
``(2) Entity manager.--In the case of each entity manager, the
amount of the tax imposed under subsection (a)(2) shall be $20,000
for each approval (or other act causing participation) described in
subsection (a)(2).
``(c) Tax-Exempt Entity.--For purposes of this section, the term
`tax-exempt entity' means an entity which is--
``(1) described in section 501(c) or 501(d),
``(2) described in section 170(c) (other than the United
States),
``(3) an Indian tribal government (within the meaning of
section 7701(a)(40)),
``(4) described in paragraph (1), (2), or (3) of section
4979(e),
``(5) a program described in section 529,
``(6) an eligible deferred compensation plan described in
section 457(b) which is maintained by an employer described in
section 4457(e)(1)(A), or
``(7) an arrangement described in section 4973(a).
``(d) Entity Manager.--For purposes of this section, the term
`entity manager' means--
``(1) in the case of an entity described in paragraph (1), (2),
or (3) of subsection (c)--
``(A) the person with authority or responsibility similar
to that exercised by an officer, director, or trustee of an
organization, and
``(B) with respect to any act, the person having authority
or responsibility with respect to such act, and
``(2) in the case of an entity described in paragraph (4), (5),
(6), or (7) of subsection (c), the person who approves or otherwise
causes the entity to be a party to the prohibited tax shelter
transaction.
``(e) Prohibited Tax Shelter Transaction; Subsequently Listed
Transaction.--For purposes of this section--
``(1) Prohibited tax shelter transaction.--
``(A) In general.--The term `prohibited tax shelter
transaction' means--
``(i) any listed transaction, and
``(ii) any prohibited reportable transaction.
``(B) Listed transaction.--The term `listed transaction'
has the meaning given such term by section 6707A(c)(2).
``(C) Prohibited reportable transaction.--The term
`prohibited reportable transaction' means any confidential
transaction or any transaction with contractual protection (as
defined under regulations prescribed by the Secretary) which is
a reportable transaction (as defined in section 6707A(c)(1)).
``(2) Subsequently listed transaction.--The term `subsequently
listed transaction' means any transaction to which a tax-exempt
entity is a party and which is determined by the Secretary to be a
listed transaction at any time after the entity has become a party
to the transaction. Such term shall not include a transaction which
is a prohibited reportable transaction at the time the entity
became a party to the transaction.
``(f) Regulatory Authority.--The Secretary is authorized to
promulgate regulations which provide guidance regarding the
determination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods,
including before and after the listing of the transaction or the date
which is 90 days after the date of the enactment of this section.
``(g) Coordination With Other Taxes and Penalties.--The tax imposed
by this section is in addition to any other tax, addition to tax, or
penalty imposed under this title.''.
(2) Conforming amendment.--The table of subchapters for chapter
42 is amended by adding at the end the following new item:
``Subchapter F. Tax Shelter Transactions.''.
(b) Disclosure Requirements.--
(1) Disclosure by entity to the internal revenue service.--
(A) In general.--Section 6033(a) (relating to organizations
required to file) is amended by redesignating paragraph (2) as
paragraph (3) and by inserting after paragraph (1) the
following new paragraph:
``(2) Being a party to certain reportable transactions.--Every
tax-exempt entity described in section 4965(c) shall file (in such
form and manner and at such time as determined by the Secretary) a
disclosure of--
``(A) such entity's being a party to any prohibited tax
shelter transaction (as defined in section 4965(e)), and
``(B) the identity of any other party to such transaction
which is known by such tax-exempt entity.''.
(B) Conforming amendment.--Section 6033(a)(1) is amended by
striking ``paragraph (2)'' and inserting ``paragraph (3)''.
(2) Disclosure by other taxpayers to the tax-exempt entity.--
Section 6011 (relating to general requirement of return, statement,
or list) is amended by redesignating subsection (g) as subsection
(h) and by inserting after subsection (f) the following new
subsection:
``(g) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined
in section 4965(e)(1)) shall by statement disclose to any tax-exempt
entity (as defined in section 4965(c)) which is a party to such
transaction that such transaction is such a prohibited tax shelter
transaction.''.
(c) Penalty for Nondisclosure.--
(1) In general.--Section 6652(c) (relating to returns by exempt
organizations and by certain trusts) is amended by redesignating
paragraphs (3) and (4) as paragraphs (4) and (5), respectively, and
by inserting after paragraph (2) the following new paragraph:
``(3) Disclosure under section 6033(a)(2).--
``(A) Penalty on entities.--In the case of a failure to
file a disclosure required under section 6033(a)(2), there
shall be paid by the tax-exempt entity (the entity manager in
the case of a tax-exempt entity described in paragraph (4),
(5), (6), or (7) of section 4965(c)) $100 for each day during
which such failure continues. The maximum penalty under this
subparagraph on failures with respect to any 1 disclosure shall
not exceed $50,000.
``(B) Written demand.--
``(i) In general.--The Secretary may make a written
demand on any entity or manager subject to penalty under
subparagraph (A) specifying therein a reasonable future
date by which the disclosure shall be filed for purposes of
this subparagraph.
``(ii) Failure to comply with demand.--If any entity or
manager fails to comply with any demand under clause (i) on
or before the date specified in such demand, there shall be
paid by such entity or manager failing to so comply $100
for each day after the expiration of the time specified in
such demand during which such failure continues. The
maximum penalty imposed under this subparagraph on all
entities and managers for failures with respect to any 1
disclosure shall not exceed $10,000.
``(C) Definitions.--Any term used in this section which is
also used in section 4965 shall have the meaning given such
term under section 4965.''.
(2) Conforming amendment.--Paragraph (1) of section 6652(c) is
amended by striking ``6033'' each place it appears in the text and
heading thereof and inserting ``6033(a)(1)''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years ending
after the date of the enactment of this Act, with respect to
transactions before, on, or after such date, except that no tax
under section 4965(a) of the Internal Revenue Code of 1986 (as
added by this section) shall apply with respect to income or
proceeds that are properly allocable to any period ending on or
before the date which is 90 days after such date of enactment.
(2) Disclosure.--The amendments made by subsections (b) and (c)
shall apply to disclosures the due date for which are after the
date of the enactment of this Act.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.

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Tax Reconciliation bill — HR. 4297

Other Sections

TITLE II

TITLE III

TITLE V

TITLE I

TITLE IV

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