Tax Title of   Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005, as Passed by the Senate on May 17, 2005

May 23, 2005

109th CongressMay 18, 2005

Ordered to be printed as passed

HR 3 PP

In the Senate of the United States,

May 17, 2005.

Resolved, That the bill from the House of Representatives (H.R. 3) entitled `An Act to authorize funds for Federal-aid highways, highway safety programs, and transit programs, and for other purposes.', do pass with the following AMENDMENT:

Strike out all after the enacting clause and insert:



SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005'.

(b) TABLE OF CONTENTS- The table of contents of this Act is as follows:

Sec. 1. Short title; table of contents.

* * * * *



TITLE V --HIGHWAY REAUTHORIZATION AND EXCISE TAX SIMPLIFICATION

Sec. 5000. Short title; amendment of 1986 Code.



Subtitle A --Trust Fund Reauthorization



 


Part I --General Provisions

Sec. 5501. Treatment of contingent payment convertible debt instruments.

Sec. 5502. Frivolous tax submissions.

Sec. 5503. Increase in certain criminal penalties.

Sec. 5504. Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangements.

Sec. 5505. Modification of interaction between subpart F and passive foreign investment company rules.

Sec. 5506. Declaration by chief executive officer relating to Federal annual corporate income tax return.

Sec. 5507. Treasury regulations on foreign tax credit.

Sec. 5508. Whistleblower reforms.

Sec. 5509. Denial of deduction for certain fines, penalties, and other amounts.

Sec. 5510. Freeze of interest suspension rules with respect to listed transactions.

Sec. 5511. Modifications of effective dates of leasing provisions of the American Jobs Creation Act of 2004.

Sec. 5512. Imposition of mark-to-market tax on individuals who expatriate.

Sec. 5513. Disallowance of deduction for punitive damages.

Sec. 5514. Application of earnings stripping rules to partners which are C corporations.

Sec. 5515. Prohibition on deferral of gain from the exercise of stock options and restricted stock gains through deferred compensation arrangements.

Sec. 5516. Limitation of employer deduction for certain entertainment expenses.

Sec. 5517. Increase in penalty for bad checks and money orders.

Sec. 5518. Elimination of double deduction on mining exploration and development costs under the minimum tax.



Part II --Economic Substance Doctrine

Sec. 5521. Clarification of economic substance doctrine.

Sec. 5522. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 5523. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.



Part III --Improvements in Efficiency and Safeguards in Internal Revenue Service Collection

Sec. 5531. Waiver of user fee for installment agreements using automated withdrawals.

Sec. 5532. Termination of installment agreements.

Sec. 5533. Office of Chief Counsel review of offers-in-compromise.

Sec. 5534. Partial payments required with submission of offers-in-compromise.

Sec. 5535. Joint task force on offers-in-compromise.







TITLE V --HIGHWAY REAUTHORIZATION AND EXCISE TAX SIMPLIFICATION



SEC . 5000. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) Short Title- This title may be cited as the `Highway Reauthorization and Excise Tax Simplification Act of 2005'.


PART I --GENERAL PROVISIONS

SEC . 5501. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.

(a) In General- Section 1275(d) (relating to regulation authority) is amended --

(1) by striking `The Secretary' and inserting the following:

`(1) IN GENERAL- The Secretary', and

(2) by adding at the end the following new paragraph:

`(2) TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT-

`(A) IN GENERAL- In the case of a debt instrument which --`(i) is convertible into stock of the issuing corporation, into stock or debt of a related party (within the meaning of section 267(b) or 707(b)(1)), or into cash or other property in an amount equal to the approximate value of such stock or debt, and

`(ii) provides for contingent payments, any regulations which require original issue discount to be determined by reference to the comparable yield of a noncontingent fixed-rate debt instrument shall be applied as if the regulations require that such comparable yield be determined by reference to a noncontingent fixed-rate debt instrument which is convertible into stock.

`(B) SPECIAL RULE- For purposes of subparagraph (A), the comparable yield shall be determined without taking into account the yield resulting from the conversion of a debt instrument into stock.'.

(b) Cross Reference- Section 163(e)(6) (relating to cross references) is amended by adding at the end the following: `For the treatment of contingent payment convertible debt, see section 1275(d)(2).'.

(c) Effective Date- The amendments made by this section shall apply to debt instruments issued on or after the date of the enactment of this Act.



SEC . 5502. 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 . 5503. INCREASE IN CERTAIN CRIMINAL PENALTIES.

(a) In General- Section 7206 (relating to fraud and false statements) is amended --

(1) by striking `Any person who --' and inserting `(a) In General- Any person who --', and

(2) by adding at the end the following new subsection:

`(b) Increase in Monetary Limitation for Underpayment or Overpayment of Tax Due to Fraud- If any portion of any underpayment (as defined in section 6664(a)) or overpayment (as defined in section 6401(a)) of tax required to be shown on a return is attributable to fraudulent action described in subsection

(a), the applicable dollar amount under subsection (a) shall in no event be less than an amount equal to such portion. A rule similar to the rule under section 6663(b) shall apply for purposes of determining the portion so attributable.'.

(b) Increase in Penalties-

(1) ATTEMPT TO EVADE OR DEFEAT TAX- Section 7201 is amended --

(A) by striking `$100,000' and inserting `$500,000',

(B) by striking `$500,000' and inserting `$1,000,000', and

(C) by striking `5 years' and inserting `10 years'.

(2) WILLFUL FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR PAY TAX-Section 7203 is amended --

(A) in the first sentence --

(i) by striking `Any person' and inserting the following:

`(a) In General- Any person', and

(ii) by striking `$25,000' and inserting `$50,000',

(B) in the third sentence, by striking `section' and inserting `subsection', and

(C) by adding at the end the following new subsection:

`(b) Aggravated Failure To File-

`(1) IN GENERAL- In the case of any failure described in paragraph (2), the first sentence of subsection (a) shall be applied by substituting --

`(A) `felony' for `misdemeanor',

`(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and

`(C) `10 years' for `1 year'.

`(2) FAILURE DESCRIBED- A failure described in this paragraph is a failure to make a return described in subsection (a) for a period of 3 or more consecutive taxable years and the aggregated tax liability for such period is at least $100,000.'.

(3) FRAUD AND FALSE STATEMENTS- Section 7206(a) (as redesignated by subsection (a)) is amended --

(A) by striking `$100,000' and inserting `$500,000',

(B) by striking `$500,000' and inserting `$1,000,000', and

(C) by striking `3 years' and inserting `5 years'.

(c) Effective Date- The amendments made by this section shall apply to actions, and failures to act, occurring after the date of the enactment of this Act.



SEC . 5504. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL ARRANGEMENTS.

(a) Determination of Penalty-

(1) IN GENERAL- Notwithstanding any other provision of law, in the case of an applicable taxpayer --

(A) the determination as to whether any interest or applicable penalty is to be imposed with respect to any arrangement described in paragraph (2), or to any underpayment of Federal income tax attributable to items arising in connection with any such arrangement, shall be made without regard to the rules of subsections (b), (c), and (d) of section 6664 of the Internal Revenue Code of 1986, and

(B) if any such interest or applicable penalty is imposed, the amount of such interest or penalty shall be equal to twice that determined without regard to this section.

(2) APPLICABLE TAXPAYER- For purposes of this subsection --

(A) IN GENERAL- The term `applicable taxpayer' means a taxpayer which --

(i) has underreported its United States income tax liability with respect to any item which directly or indirectly involves --(I) any financial arrangement which in any manner relies on the use of offshore payment mechanisms (including credit, debit, or charge cards) issued by banks or other entities in foreign jurisdictions, or (II) any offshore financial arrangement (including any arrangement with foreign banks, financial institutions, corporations, partnerships, trusts, or other entities), and

(ii) has not signed a closing agreement pursuant to the Voluntary Offshore Compliance Initiative established by the Department of the Treasury under Revenue Procedure 2003-11 or voluntarily disclosed its participation in such arrangement by notifying the Internal Revenue Service of such arrangement prior to the issue being raised by the Internal Revenue Service during an examination.

(B) AUTHORITY TO WAIVE- The Secretary of the Treasury or the Secretary's delegate may waive the application of paragraph (1) to any taxpayer if the Secretary or the Secretary's delegate determines that the use of such offshore payment mechanisms is incidental to the transaction and, in addition, in the case of a trade or business, such use is conducted in the ordinary course of the trade or business of the taxpayer.

(C) ISSUES RAISED- For purposes of subparagraph (A)(ii), an item shall be treated as an issue raised during an examination if the individual examining the return --

(i) communicates to the taxpayer knowledge about the specific item, or

(ii) has made a request to the taxpayer for information and the taxpayer could not make a complete response to that request without giving the examiner knowledge of the specific item.

(b) Definitions and Rules- For purposes of this section --

(1) APPLICABLE PENALTY- The term `applicable penalty' means any penalty, addition to tax, or fine imposed under chapter 68 of the Internal Revenue Code of 1986.

(2) FEES AND EXPENSES- The Secretary of the Treasury may retain and use an amount not in excess of 25 percent of all additional interest, penalties, additions to tax, and fines collected under this section to be used for enforcement and collection activities of the Internal Revenue Service. The Secretary shall keep adequate records regarding amounts so retained and used. The amount credited as paid by any taxpayer shall be determined without regard to this paragraph.

(c) Report by Secretary- The Secretary shall each year conduct a study and report to Congress on the implementation of this section during the preceding year, including statistics on the number of taxpayers affected by such implementation and the amount of interest and applicable penalties asserted, waived, and assessed during such preceding year.

(d) Effective Date- The provisions of this section shall apply to interest, penalties, additions to tax, and fines with respect to any taxable year if, as of the date of the enactment of this Act, the assessment of any tax, penalty, or interest with respect to such taxable year is not prevented by the operation of any law or rule of law.



SEC . 5505. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND PASSIVE FOREIGN INVESTMENT COMPANY RULES.

(a) Limitation on Exception From PFIC Rules for United States Shareholders of Controlled Foreign Corporations- Paragraph (2) of section 1297(e) (relating to passive foreign investment company) is amended by adding at the end the following flush sentence:

`Such term shall not include any period if the earning of subpart F income by such corporation during such period would result in only a remote likelihood of an inclusion in gross income under section 951(a)(1)(A)(i).'.

(b) Effective Date- The amendment made by this section shall apply to taxable years of controlled foreign corporations beginning after March 2, 2005, and to taxable years of United States shareholders with or within which such taxable years of controlled foreign corporations end.



SEC . 5506. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO FEDERAL ANNUAL CORPORATE INCOME TAX RETURN.

(a) In General- The Federal annual tax return of a corporation with respect to income shall also include a declaration signed by the chief executive officer of such corporation (or other such officer of the corporation as the Secretary of the Treasury may designate if the corporation does not have a chief executive officer), under penalties of perjury, that the corporation has in place processes and procedures that ensure that such return complies with the Internal Revenue Code of 1986 and that the chief executive officer was provided reasonable assurance of the accuracy of all material aspects of such return. The preceding sentence shall not apply to any return of a regulated investment company (within the meaning of section 851 of such Code).

(b) Effective Date- This section shall apply to Federal annual tax returns for taxable years ending after the date of the enactment of this Act. SEC . 5507. TREASURY REGULATIONS ON FOREIGN TAX CREDIT.

(a) In General- Section 901 (relating to taxes of foreign countries and of possessions of United States) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

`(m) Regulations- The Secretary may prescribe regulations disallowing a credit under subsection (a) for all or a portion of any foreign tax, or allocating a foreign tax among 2 or more persons, in cases where the foreign tax is imposed on any person in respect of income of another person or in other cases involving the inappropriate separation of the foreign tax from the related foreign income.'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.



SEC . 5508. WHISTLEBLOWER REFORMS.

(a) In General- Section 7623 (relating to expenses of detection of underpayments and fraud, etc.) is amended --

(1) by striking `The Secretary' and inserting `(a) In General- The Secretary',

(2) by striking `and' at the end of paragraph (1) and inserting `or',

(3) by striking `(other than interest)', and

(4) by adding at the end the following new subsections:

`(b) Awards to Whistleblowers-

`(1) IN GENERAL- If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by an individual, such individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action

(including any related actions) or from any settlement in response to such action. The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action.

`(2) AWARD IN CASE OF LESS SUBSTANTIAL CONTRIBUTION-

`(A) IN GENERAL- In the event the action described in paragraph (1) is one which the Whistleblower Office determines to be based principally on disclosures of specific allegations (other than information provided by the individual described in paragraph (1)) resulting from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation, or from the news media, the Whistleblower Office may award such sums as it considers appropriate, but in no case more than 10 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action, taking into account the significance of the individual's information and the role of such individual and any legal representative of such individual in contributing to such action.

`(B) NONAPPLICATION OF PARAGRAPH WHERE INDIVIDUAL IS ORIGINAL SOURCE OF INFORMATION- Subparagraph (A) shall not apply if the information resulting in the initiation of the action described in paragraph (1) was originally provided by the individual described in paragraph (1).

`(3) REDUCTION IN OR DENIAL OF AWARD- If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award.

`(4) APPEAL OF AWARD DETERMINATION- Any determination regarding an award under paragraph (1), (2), or (3) shall be subject to the filing by the individual described in such paragraph of a petition for review with the Tax Court under rules similar to the rules under section 7463 (without regard to the amount in dispute) and such review shall be subject to the rules under section 7461(b)(1).

`(5) APPLICATION OF THIS SUBSECTION- This subsection shall apply with respect to any action --

`(A) against any taxpayer, but in the case of any individual, only if such individual's gross income exceeds $200,000 for any taxable year subject to such action, and

`(B) if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $20,000.

`(6) ADDITIONAL RULES-

`(A) NO CONTRACT NECESSARY- No contract with the Internal Revenue Service is necessary for any individual to receive an award under this subsection.

`(B) REPRESENTATION- Any individual described in paragraph (1) or (2) may be represented by counsel.

`(C) AWARD NOT SUBJECT TO INDIVIDUAL ALTERNATIVE MINIMUM TAX- No award received under this subsection shall be included in gross income for purposes of determining alternative minimum taxable income.

`(c) Whistleblower Office-

`(1) IN GENERAL- There is established in the Internal Revenue Service an office to be known as the `Whistleblower Office' which --

`(A) shall at all times operate at the direction of the Commissioner and coordinate and consult with other divisions in the Internal Revenue Service as directed by the Commissioner,

`(B) shall analyze information received from any individual described in subsection (b) and either investigate the matter itself or assign it to the appropriate Internal Revenue Service office,

`(C) shall monitor any action taken with respect to such matter,

`(D) shall inform such individual that it has accepted the individual's information for further review,

`(E) may require such individual and any legal representative of such individual to not disclose any information so provided,

`(F) in its sole discretion, may ask for additional assistance from such individual or any legal representative of such individual, and

`(G) shall determine the amount to be awarded to such individual under subsection (b).

`(2) FUNDING FOR OFFICE- There is authorized to be appropriated $10,000,000 for each fiscal year for the Whistleblower Office. These funds shall be used to maintain the Whistleblower Office and also to reimburse other Internal Revenue Service offices for related costs, such as costs of investigation and collection.

`(3) REQUEST FOR ASSISTANCE-

`(A) IN GENERAL- Any assistance requested under paragraph (1)(F) shall be under the direction and control of the Whistleblower Office or the office assigned to investigate the matter under subparagraph (A). To the extent the disclosure of any returns or return information to the individual or legal representative is required for the performance of such assistance, such disclosure shall be pursuant to a contract entered into between the Secretary and the recipients of such disclosure subject to section 6103(n). No individual or legal representative whose assistance is so requested may by reason of such request represent himself or herself as an employee of the Federal Government.

`(B) FUNDING OF ASSISTANCE- From the amounts available for expenditure under subsection (b), the Whistleblower Office may, with the agreement of the individual described in subsection (b), reimburse the costs incurred by any legal representative of such individual in providing assistance described in subparagraph (A).

`(d) Report by Secretary- The Secretary shall each year conduct a study and report to Congress on the use of this section, including --

`(1) an analysis of the use of this section during the preceding year and the results of such use, and

`(2) any legislative or administrative recommendations regarding the provisions of this section and its application.'.

(b) Effective Date- The amendments made by this section shall apply to information provided on or after the date of the enactment of this Act.



SEC . 5509. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS.

(a) In General- Subsection (f) of section 162 (relating to trade or business expenses) is amended to read as follows:

`(f) Fines, Penalties, and Other Amounts-

`(1) IN GENERAL- Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or entity described in paragraph (4) in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.

`(2) EXCEPTION FOR AMOUNTS CONSTITUTING RESTITUTION- Paragraph (1) shall not apply to any amount which --

`(A) the taxpayer establishes constitutes restitution (including remediation of property) for damage or harm caused by or which may be caused by the violation of any law or the potential violation of any law, and

`(B) is identified as restitution in the court order or settlement agreement. Identification pursuant to subparagraph (B) alone shall not satisfy the requirement under subparagraph (A). This paragraph shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation.

`(3) EXCEPTION FOR AMOUNTS PAID OR INCURRED AS THE RESULT OF CERTAIN COURT ORDERS- Paragraph (1) shall not apply to any amount paid or incurred by order of a court in a suit in which no government or entity described in paragraph (4) is a party.

`(4) CERTAIN NONGOVERNMENTAL REGULATORY ENTITIES- An entity is described in this paragraph if it is --

`(A) a nongovernmental entity which exercises self-regulatory powers

(including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)), or

`(B) to the extent provided in regulations, a nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.

`(5) EXCEPTION FOR TAXES DUE- Paragraph (1) shall not apply to any amount paid or incurred as taxes due.'.

(b) Effective Date- The amendment made by this section shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendment shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. SEC . 5510. FREEZE OF INTEREST SUSPENSION RULES WITH RESPECT TO LISTED TRANSACTIONS.

(a) In General- Paragraph (2) of section 903(d) of the American Jobs Creation Act of 2005 is amended to read as follows:

`(2) EXCEPTION FOR REPORTABLE OR LISTED TRANSACTIONS-

`(A) IN GENERAL- The amendments made by subsection (c) shall apply with respect to interest accruing after October 3, 2004.

`(B) SPECIAL RULE FOR CERTAIN LISTED TRANSACTIONS-

`(i) IN GENERAL- Except as provided in clause (ii) or (iii), in the case of any listed transaction, the amendments made by subsection (c) shall also apply with respect to interest accruing on or before October 3, 2004.

`(ii) PARTICIPANTS IN SETTLEMENT INITIATIVES- Clause (i) shall not apply to a listed transaction if, as of May 9, 2005 --

`(I) the taxpayer is participating in a published settlement initiative which is offered by the Secretary of the Treasury or his delegate to a group of similarly situated taxpayers claiming benefits from the listed transaction, or

`(II) the taxpayer has entered into a settlement agreement pursuant to such an initiative with respect to the tax liability arising in connection with the listed transaction.

Subclause (I) shall not apply to the taxpayer if, after May 9, 2005, the taxpayer withdraws from, or terminates, participation in the initiative or the Secretary or his delegate determines that a settlement agreement will not be reached pursuant to the initiative within a reasonable period of time.

`(iii) CLOSED TRANSACTIONS- Clause (i) shall not apply to a listed transaction if, as of May 9, 2005 --

`(I) the assessment of all Federal income taxes for the taxable year in which the tax liability to which the interest relates arose is prevented by the operation of any law or rule of law, or

`(II) a closing agreement under section 7121 has been entered into with respect to the tax liability arising in connection with the listed transaction.'.

(b) Effective Date- The amendment made by this section shall take effect as if included in the provisions of the American Jobs Creation Act of 2004 to which it relates.



SEC . 5511. MODIFICATIONS OF EFFECTIVE DATES OF LEASING PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 2004.

(a) Repeal of Exception for Qualified Transportation Property- Section 849(b) of the American Jobs Creation Act of 2004 is amended by striking paragraphs (1) and (2) and by redesignating paragraphs (3) and (4) as paragraphs (1) and (2).

(b) Effective Date- The amendments made by this section shall take effect as if included in the enactment of the American Jobs Creation Act of 2004.



SEC . 5512. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO EXPATRIATE.

(a) IN GENERAL- Subpart A of part II of subchapter N of chapter 1 is amended by inserting after section 877 the following new section:



` SEC . 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

`(a) GENERAL RULES- For purposes of this subtitle --

`(1) MARK TO MARKET- Except as provided in subsections (d) and (f), all property of a covered expatriate to whom this section applies shall be treated as sold on the day before the expatriation date for its fair market value.

`(2) RECOGNITION OF GAIN OR LOSS- In the case of any sale under paragraph

(1) --

`(A) notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale, and

`(B) any loss arising from such sale shall be taken into account for the taxable year of the sale to the extent otherwise provided by this title, except that section 1091 shall not apply to any such loss. Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence.

`(3) EXCLUSION FOR CERTAIN GAIN-

`(A) IN GENERAL- The amount which, but for this paragraph, would be includible in the gross income of any individual by reason of this section shall be reduced (but not below zero) by $600,000. For purposes of this paragraph, allocable expatriation gain taken into account under subsection (f)(2) shall be treated in the same manner as an amount required to be includible in gross income.

`(B) COST -OF-LIVING ADJUSTMENT-

`(i) IN GENERAL- In the case of an expatriation date occurring in any calendar year after 2005, the $600,000 amount under subparagraph (A) shall be increased by an amount equal to --

`(I) such dollar amount, multiplied by

`(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting `calendar year 2004' for `calendar year 1992' in subparagraph (B) thereof.

`(ii) ROUNDING RULES- If any amount after adjustment under clause (i) is not a multiple of $1,000, such amount shall be rounded to the next lower multiple of $1,000.

`(4) ELECTION TO CONTINUE TO BE TAXED AS UNITED STATES CITIZEN-

`(A) IN GENERAL- If a covered expatriate elects the application of this paragraph --

`(i) this section (other than this paragraph and subsection (i)) shall not apply to the expatriate, but

`(ii) in the case of property to which this section would apply but for such election, the expatriate shall be subject to tax under this title in the same manner as if the individual were a United States citizen.

`(B) REQUIREMENTS- Subparagraph (A) shall not apply to an individual unless the individual --

`(i) provides security for payment of tax in such form and manner, and in such amount, as the Secretary may require,

`(ii) consents to the waiver of any right of the individual under any treaty of the United States which would preclude assessment or collection of any tax which may be imposed by reason of this paragraph, and

`(iii) complies with such other requirements as the Secretary may prescribe.

`(C) ELECTION- An election under subparagraph (A) shall apply to all property to which this section would apply but for the election and, once made, shall be irrevocable. Such election shall also apply to property the basis of which is determined in whole or in part by reference to the property with respect to which the election was made.

`(b) ELECTION TO DEFER TAX-

`(1) IN GENERAL- If the taxpayer elects the application of this subsection with respect to any property treated as sold by reason of subsection (a), the payment of the additional tax attributable to such property shall be postponed until the due date of the return for the taxable year in which such property is disposed of (or, in the case of property disposed of in a transaction in which gain is not recognized in whole or in part, until such other date as the Secretary may prescribe).

`(2) DETERMINATION OF TAX WITH RESPECT TO PROPERTY- For purposes of paragraph (1), the additional tax attributable to any property is an amount which bears the same ratio to the additional tax imposed by this chapter for the taxable year solely by reason of subsection (a) as the gain taken into account under subsection (a) with respect to such property bears to the total gain taken into account under subsection (a) with respect to all property to which subsection (a) applies.

`(3) TERMINATION OF POSTPONEMENT- No tax may be postponed under this subsection later than the due date for the return of tax imposed by this chapter for the taxable year which includes the date of death of the expatriate (or, if earlier, the time that the security provided with respect to the property fails to meet the requirements of paragraph (4), unless the taxpayer corrects such failure within the time specified by the Secretary).

`(4) SECURITY-

`(A) IN GENERAL- No election may be made under paragraph (1) with respect to any property unless adequate security is provided to the Secretary with respect to such property.

`(B) ADEQUATE SECURITY- For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if --

`(i) it is a bond in an amount equal to the deferred tax amount under paragraph (2) for the property, or

`(ii) the taxpayer otherwise establishes to the satisfaction of the Secretary that the security is adequate.

`(5) WAIVER OF CERTAIN RIGHTS- No election may be made under paragraph (1) unless the taxpayer consents to the waiver of any right under any treaty of the United States which would preclude assessment or collection of any tax imposed by reason of this section.

`(6) ELECTIONS- An election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable. An election may be made under paragraph (1) with respect to an interest in a trust with respect to which gain is required to be recognized under subsection (f)(1).

`(7) INTEREST- For purposes of section 6601 --

`(A) the last date for the payment of tax shall be determined without regard to the election under this subsection, and

`(B) section 6621(a)(2) shall be applied by substituting `5 percentage points' for `3 percentage points' in subparagraph (B) thereof.

`(c) COVERED EXPATRIATE- For purposes of this section --

`(1) IN GENERAL- Except as provided in paragraph (2), the term `covered expatriate' means an expatriate.

`(2) EXCEPTIONS- An individual shall not be treated as a covered expatriate if --

`(A) the individual --

`(i) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and

`(ii) has not been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) during the 5 taxable years ending with the taxable year during which the expatriation date occurs, or

`(B)(i) the individual's relinquishment of United States citizenship occurs before such individual attains age 18 1/2 , and

`(ii) the individual has been a resident of the United States (as so defined) for not more than 5 taxable years before the date of relinquishment.

`(d) EXEMPT PROPERTY; SPECIAL RULES FOR PENSION PLANS-

`(1) EXEMPT PROPERTY- This section shall not apply to the following:

`(A) UNITED STATES REAL PROPERTY INTERESTS- Any United States real property interest (as defined in section 897(c)(1)), other than stock of a United States real property holding corporation which does not, on the day before the expatriation date, meet the requirements of section 897(c)(2).

`(B) SPECIFIED PROPERTY- Any property or interest in property not described in subparagraph (A) which the Secretary specifies in regulations.

`(2) SPECIAL RULES FOR CERTAIN RETIREMENT PLANS-

`(A) IN GENERAL- If a covered expatriate holds on the day before the expatriation date any interest in a retirement plan to which this paragraph applies --

`(i) such interest shall not be treated as sold for purposes of subsection (a)(1), but

`(ii) an amount equal to the present value of the expatriate's nonforfeitable accrued benefit shall be treated as having been received by such individual on such date as a distribution under the plan.

`(B) TREATMENT OF SUBSEQUENT DISTRIBUTIONS- In the case of any distribution on or after the expatriation date to or on behalf of the covered expatriate from a plan from which the expatriate was treated as receiving a distribution under subparagraph (A), the amount otherwise includible in gross income by reason of the subsequent distribution shall be reduced by the excess of the amount includible in gross income under subparagraph (A) over any portion of such amount to which this subparagraph previously applied.

`(C) TREATMENT OF SUBSEQUENT DISTRIBUTIONS BY PLAN - For purposes of this title, a retirement plan to which this paragraph applies, and any person acting on the plan's behalf, shall treat any subsequent distribution described in subparagraph (B) in the same manner as such distribution would be treated without regard to this paragraph.

`(D) APPLICABLE PLANS- This paragraph shall apply to --

`(i) any qualified retirement plan (as defined in section 4974(c)),

`(ii) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), and

`(iii) to the extent provided in regulations, any foreign pension plan or similar retirement arrangements or programs.

`(e) DEFINITIONS- For purposes of this section --

`(1) EXPATRIATE- The term `expatriate' means --

`(A) any United States citizen who relinquishes citizenship, and

`(B) any long-term resident of the United States who --

`(i) ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)), or

`(ii) commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country and who does not waive the benefits of such treaty applicable to residents of the foreign country.

`(2) EXPATRIATION DATE- The term `expatriation date' means --

`(A) the date an individual relinquishes United States citizenship, or

`(B) in the case of a long-term resident of the United States, the date of the event described in clause (i) or (ii) of paragraph (1)(B).

`(3) RELINQUISHMENT OF CITIZENSHIP- A citizen shall be treated as relinquishing United States citizenship on the earliest of --

`(A) the date the individual renounces such individual's United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),

`(B) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),

`(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or

`(D) the date a court of the United States cancels a naturalized citizen's certificate of naturalization. Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.

`(4) LONG-TERM RESIDENT- The term `long-term resident' has the meaning given to such term by section 877(e)(2).

`(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES' INTERESTS IN TRUST-

`(1) IN GENERAL- Except as provided in paragraph (2), if an individual is determined under paragraph (3) to hold an interest in a trust on the day before the expatriation date --

`(A) the individual shall not be treated as having sold such interest,

`(B) such interest shall be treated as a separate share in the trust, and

`(C)(i) such separate share shall be treated as a separate trust consisting of the assets allocable to such share,

`(ii) the separate trust shall be treated as having sold its assets on the day before the expatriation date for their fair market value and as having distributed all of its assets to the individual as of such time, and

`(iii) the individual shall be treated as having recontributed the assets to the separate trust. Subsection (a)(2) shall apply to any income, gain, or loss of the individual arising from a distribution described in subparagraph (C)(ii). In determining the amount of such distribution, proper adjustments shall be made for liabilities of the trust allocable to an individual's share in the trust.

`(2) SPECIAL RULES FOR INTERESTS IN QUALIFIED TRUSTS-

`(A) IN GENERAL- If the trust interest described in paragraph (1) is an interest in a qualified trust --

`(i) paragraph (1) and subsection (a) shall not apply, and

`(ii) in addition to any other tax imposed by this title, there is hereby imposed on each distribution with respect to such interest a tax in the amount determined under subparagraph (B).

`(B) AMOUNT OF TAX- The amount of tax under subparagraph (A)(ii) shall be equal to the lesser of --

`(i) the highest rate of tax imposed by section 1(e) for the taxable year which includes the day before the expatriation date, multiplied by the amount of the distribution, or

`(ii) the balance in the deferred tax account immediately before the distribution determined without regard to any increases under subparagraph (C)(ii) after the 30th day preceding the distribution.

`(C) DEFERRED TAX ACCOUNT- For purposes of subparagraph (B)(ii) --

`(i) OPENING BALANCE- The opening balance in a deferred tax account with respect to any trust interest is an amount equal to the tax which would have been imposed on the allocable expatriation gain with respect to the trust interest if such gain had been included in gross income under subsection (a).

`(ii) INCREASE FOR INTEREST- The balance in the deferred tax account shall be increased by the amount of interest determined (on the balance in the account at the time the interest accrues), for periods after the 90th day after the expatriation date, by using the rates and method applicable under section 6621 for underpayments of tax for such periods, except that section 6621(a)(2) shall be applied by substituting `5 percentage points' for `3 percentage points' in subparagraph (B) thereof.

`(iii) DECREASE FOR TAXES PREVIOUSLY PAID- The balance in the tax deferred account shall be reduced --

`(I) by the amount of taxes imposed by subparagraph (A) on any distribution to the person holding the trust interest, and

`(II) in the case of a person holding a nonvested interest, to the extent provided in regulations, by the amount of taxes imposed by subparagraph (A) on distributions from the trust with respect to nonvested interests not held by such person.

`(D) ALLOCABLE EXPATRIATION GAIN- For purposes of this paragraph, the allocable expatriation gain with respect to any beneficiary's interest in a trust is the amount of gain which would be allocable to such beneficiary's vested and nonvested interests in the trust if the beneficiary held directly all assets allocable to such interests.

`(E) TAX DEDUCTED AND WITHHELD-

`(i) IN GENERAL- The tax imposed by subparagraph (A)(ii) shall be deducted and withheld by the trustees from the distribution to which it relates.

`(ii) EXCEPTION WHERE FAILURE TO WAIVE TREATY RIGHTS- If an amount may not be deducted and withheld under clause (i) by reason of the distributee failing to waive any treaty right with respect to such distribution --

`(I) the tax imposed by subparagraph (A)(ii) shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax, and

`(II) any other beneficiary of the trust shall be entitled to recover from the distributee the amount of such tax imposed on the other beneficiary.

`(F) DISPOSITION- If a trust ceases to be a qualified trust at any time, a covered expatriate disposes of an interest in a qualified trust, or a covered expatriate holding an interest in a qualified trust dies, then, in lieu of the tax imposed by subparagraph (A)(ii), there is hereby imposed a tax equal to the lesser of --

`(i) the tax determined under paragraph (1) as if the day before the expatriation date were the date of such cessation, disposition, or death, whichever is applicable, or

`(ii) the balance in the tax deferred account immediately before such date. Such tax shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax and any other beneficiary of the trust shall be entitled to recover from the covered expatriate or the estate the amount of such tax imposed on the other beneficiary.

`(G) DEFINITIONS AND SPECIAL RULES- For purposes of this paragraph --

`(i) QUALIFIED TRUST- The term `qualified trust' means a trust which is described in section 7701(a)(30)(E).

`(ii) VESTED INTEREST- The term `vested interest' means any interest which, as of the day before the expatriation date, is vested in the beneficiary.

`(iii) NONVESTED INTEREST- The term `nonvested interest' means, with respect to any beneficiary, any interest in a trust which is not a vested interest. Such interest shall be determined by assuming the maximum exercise of discretion in favor of the beneficiary and the occurrence of all contingencies in favor of the beneficiary.

`(iv) ADJUSTMENTS- The Secretary may provide for such adjustments to the bases of assets in a trust or a deferred tax account, and the timing of such adjustments, in order to ensure that gain is taxed only once.

`(v) COORDINATION WITH RETIREMENT PLAN RULES- This subsection shall not apply to an interest in a trust which is part of a retirement plan to which subsection (d)(2) applies.

`(3) DETERMINATION OF BENEFICIARIES' INTEREST IN TRUST-

`(A) DETERMINATIONS UNDER PARAGRAPH (1)- For purposes of paragraph (1), a beneficiary's interest in a trust shall be based upon all relevant facts and circumstances, including the terms of the trust instrument and any letter of wishes or similar document, historical patterns of trust distributions, and the existence of and functions performed by a trust protector or any similar adviser.

`(B) OTHER DETERMINATIONS- For purposes of this section --

`(i) CONSTRUCTIVE OWNERSHIP- If a beneficiary of a trust is a corporation, partnership, trust, or estate, the shareholders, partners, or beneficiaries shall be deemed to be the trust beneficiaries for purposes of this section.

`(ii) TAXPAYER RETURN POSITION- A taxpayer shall clearly indicate on its income tax return --

`(I) the methodology used to determine that taxpayer's trust interest under this section, and

`(II) if the taxpayer knows (or has reason to know) that any other beneficiary of such trust is using a different methodology to determine such beneficiary's trust interest under this section.

`(g) TERMINATION OF DEFERRALS, ETC - In the case of any covered expatriate, notwithstanding any other provision of this title --

`(1) any period during which recognition of income or gain is deferred shall terminate on the day before the expatriation date, and

`(2) any extension of time for payment of tax shall cease to apply on the day before the expatriation date and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary.

`(h) IMPOSITION OF TENTATIVE TAX-

`(1) IN GENERAL- If an individual is required to include any amount in gross income under subsection (a) for any taxable year, there is hereby imposed, immediately before the expatriation date, a tax in an amount equal to the amount of tax which would be imposed if the taxable year were a short taxable year ending on the expatriation date.

`(2) DUE DATE- The due date for any tax imposed by paragraph (1) shall be the 90th day after the expatriation date.

`(3) TREATMENT OF TAX- Any tax paid under paragraph (1) shall be treated as a payment of the tax imposed by this chapter for the taxable year to which subsection (a) applies.

`(4) DEFERRAL OF TAX- The provisions of subsection (b) shall apply to the tax imposed by this subsection to the extent attributable to gain includible in gross income by reason of this section.

`(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS-

`(1) IMPOSITION OF LIEN-

`(A) IN GENERAL- If a covered expatriate makes an election under subsection (a)(4) or (b) which results in the deferral of any tax imposed by reason of subsection (a), the deferred amount (including any interest, additional amount, addition to tax, assessable penalty, and costs attributable to the deferred amount) shall be a lien in favor of the United States on all property of the expatriate located in the United States (without regard to whether this section applies to the property).

`(B) DEFERRED AMOUNT- For purposes of this subsection, the deferred amount is the amount of the increase in the covered expatriate's income tax which, but for the election under subsection (a)(4) or (b), would have occurred by reason of this section for the taxable year including the expatriation date.

`(2) PERIOD OF LIEN- The lien imposed by this subsection shall arise on the expatriation date and continue until --

`(A) the liability for tax by reason of this section is satisfied or has become unenforceable by reason of lapse of time, or

`(B) it is established to the satisfaction of the Secretary that no further tax liability may arise by reason of this section.

`(3) CERTAIN RULES APPLY- The rules set forth in paragraphs (1), (3), and

(4) of section 6324A(d) shall apply with respect to the lien imposed by this subsection as if it were a lien imposed by section 6324A.

`(j) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.'.

(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS FROM EXPATRIATES- Section 102 (relating to gifts, etc. not included in gross income) is amended by adding at the end the following new subsection:

`(d) GIFTS AND INHERITANCES FROM COVERED EXPATRIATES-

`(1) IN GENERAL- Subsection (a) shall not exclude from gross income the value of any property acquired by gift, bequest, devise, or inheritance from a covered expatriate after the expatriation date. For purposes of this subsection, any term used in this subsection which is also used in section 877A shall have the same meaning as when used in section 877A.

`(2) EXCEPTIONS FOR TRANSFERS OTHERWISE SUBJECT TO ESTATE OR GIFT TAX- Paragraph (1) shall not apply to any property if either --

`(A) the gift, bequest, devise, or inheritance is --

`(i) shown on a timely filed return of tax imposed by chapter 12 as a taxable gift by the covered expatriate, or

`(ii) included in the gross estate of the covered expatriate for purposes of chapter 11 and shown on a timely filed return of tax imposed by chapter 11 of the estate of the covered expatriate, or

`(B) no such return was timely filed but no such return would have been required to be filed even if the covered expatriate were a citizen or long-term resident of the United States.'.

(c) DEFINITION OF TERMINATION OF UNITED STATES CITIZENSHIP- Section 7701(a) is amended by adding at the end the following new paragraph:

`(49) TERMINATION OF UNITED STATES CITIZENSHIP-

`(A) IN GENERAL- An individual shall not cease to be treated as a United States citizen before the date on which the individual's citizenship is treated as relinquished under section 877A(e)(3).

`(B) DUAL CITIZENS- Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to an individual who became at birth a citizen of the United States and a citizen of another country.'.

(d) INELIGIBILITY FOR VISA OR ADMISSION TO UNITED STATES-

(1) IN GENERAL- Section 212(a)(10)(E) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to read as follows:

`(E) FORMER CITIZENS NOT IN COMPLIANCE WITH EXPATRIATION REVENUE PROVISIONS- Any alien who is a former citizen of the United States who relinquishes United States citizenship (within the meaning of section 877A(e)(3) of the Internal Revenue Code of 1986) and who is not in compliance with section 877A of such Code (relating to expatriation).'.

(2) AVAILABILITY OF INFORMATION-

(A) IN GENERAL- Section 6103(l) (relating to disclosure of returns and return information for purposes other than tax administration) is amended by adding at the end the following new paragraph:

`(21) DISCLOSURE TO DENY VISA OR ADMISSION TO CERTAIN EXPATRIATES-Upon written request of the Attorney General or the Attorney General's delegate, the Secretary shall disclose whether an individual is in compliance with section 877A (and if not in compliance, any items of noncompliance) to officers and employees of the Federal agency responsible for administering section 212(a)(10)(E) of the Immigration and Nationality Act solely for the purpose of, and to the extent necessary in, administering such section 212(a)(10)(E).'.

(B) SAFEGUARDS- Section 6103(p)(4) (relating to safeguards) is amended by striking `or (20)' each place it appears and inserting `(20), or (21)'.

(3) EFFECTIVE DATES- The amendments made by this subsection shall apply to individuals who relinquish United States citizenship on or after the date of the enactment of this Act.

(e) CONFORMING AMENDMENTS-

(1) Section 877 is amended by adding at the end the following new subsection:

`(h) APPLICATION- This section shall not apply to an expatriate (as defined in section 877A(e)) whose expatriation date (as so defined) occurs on or after the date of the enactment of the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005.'.

(2) Section 2107 is amended by adding at the end the following new subsection:

`(f) APPLICATION- This section shall not apply to any expatriate subject to section 877A.'.

(3) Section 2501(a)(3) is amended by adding at the end the following new subparagraph:

`(C) APPLICATION- This paragraph shall not apply to any expatriate subject to section 877A.'.

(f) CLERICAL AMENDMENT- The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by inserting after the item relating to section 877 the following new item:



`Sec. 877A. Tax responsibilities of expatriation.'.

(g) EFFECTIVE DATE-

(1) IN GENERAL- Except as provided in this subsection, the amendments made by this section shall apply to expatriates (within the meaning of section 877A(e) of the Internal Revenue Code of 1986, as added by this section) whose expatriation date (as so defined) occurs on or after the date of the enactment of this Act.

(2) GIFTS AND BEQUESTS- Section 102(d) of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to gifts and bequests received on or after the date of the enactment of this Act, from an individual or the estate of an individual whose expatriation date (as so defined) occurs after such date.

(3) DUE DATE FOR TENTATIVE TAX- The due date under section 877A(h)(2) of the Internal Revenue Code of 1986, as added by this section, shall in no event occur before the 90th day after the date of the enactment of this Act.



SEC . 5513. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

(a) DISALLOWANCE OF DEDUCTION-

(1) IN GENERAL- Section 162(g) (relating to treble damage payments under the antitrust laws) is amended --

(A) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively,

(B) by striking `If' and inserting:

`(1) TREBLE DAMAGES- If', and

(C) by adding at the end the following new paragraph:

`(2) PUNITIVE DAMAGES- No deduction shall be allowed under this chapter for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action. This paragraph shall not apply to punitive damages described in section 104(c).'.

(2) CONFORMING AMENDMENT- The heading for section 162(g) is amended by inserting `OR PUNITIVE DAMAGES' after ` LAWS '.

(b) INCLUSION IN INCOME OF PUNITIVE DAMAGES PAID BY INSURER OR OTHERWISE-

(1) IN GENERAL- Part II of subchapter B of chapter 1 (relating to items specifically included in gross income) is amended by adding at the end the following new section:



` SEC . 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

`Gross income shall include any amount paid to or on behalf of a taxpayer as insurance or otherwise by reason of the taxpayer's liability (or agreement) to pay punitive damages.'.

(2) REPORTING REQUIREMENTS- Section 6041 (relating to information at source) is amended by adding at the end the following new subsection:

`(f) SECTION TO APPLY TO PUNITIVE DAMAGES COMPENSATION- This section shall apply to payments by a person to or on behalf of another person as insurance or otherwise by reason of the other person's liability (or agreement) to pay punitive damages.'.

(3) CONFORMING AMENDMENT- The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end the following new item:

`Sec. 91. Punitive damages compensated by insurance or otherwise.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to damages paid or incurred on or after the date of the enactment of this Act.



SEC . 5514. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE C 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) ALLOCATIONS TO CERTAIN CORPORATE PARTNERS- If a C corporation is a partner in a partnership --

`(A) the corporation's allocable share of indebtedness and interest income of the partnership shall be taken into account in applying this subsection to the corporation, and

`(B) if a deduction is not disallowed under this subsection with respect to any interest expense of the partnership, this subsection shall be applied separately in determining whether a deduction is allowable to the corporation with respect to the corporation's allocable share of such interest expense.'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning on or after the date of the enactment of this Act.



SEC . 5515. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED COMPENSATION ARRANGEMENTS.

(a) IN GENERAL- Section 83 (relating to property transferred in connection with performance of services) is amending by adding at the end the following new subsection:

`(i) PROHIBITION ON ADDITIONAL DEFERRAL THROUGH DEFERRED COMPENSATION ARRANGEMENTS- If a taxpayer exchanges --

`(1) an option to purchase employer securities --

`(A) to which subsection (a) applies, or

`(B) which is described in subsection (e)(3), or

`(2) employer securities or any other property based on employer securities transferred to the taxpayer, for a right to receive future payments, then, notwithstanding any other provision of this title, there shall be included in gross income for the taxable year of the exchange an amount equal to the present value of such right (or such other amount as the Secretary may by regulations specify). For purposes of this subsection, the term `employer securities' includes any security issued by the employer.'.

(b) CONTROLLED GROUP RULES- Section 414(t)(2) is amended by inserting `83(i),' after `79,'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to any exchange after the date of the enactment of this Act.



SEC . 5516. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT EXPENSES.

(a) IN GENERAL- Paragraph (2) of section 274(e) (relating to expenses treated as compensation) is amended to read as follows:

`(2) EXPENSES TREATED AS COMPENSATION- Expenses for goods, services, and facilities, to the extent that the expenses do not exceed the amount of the expenses which are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer's return of tax under this chapter and as wages to such employee for purposes of chapter 24 (relating to withholding of income tax at source on wages).'.

(b) PERSONS NOT EMPLOYEES- Paragraph (9) of section 274(e) is amended by striking `to the extent that the expenses are includible in the gross income' and inserting `to the extent that the expenses do not exceed the amount of the expenses which are includible in the gross income'.

(c) EFFECTIVE DATE- The amendment made by this section shall apply to expenses incurred after the date of the enactment of this Act.



SEC . 5517. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.

(a) In General- Section 6657 (relating to bad checks) is amended --

(1) by striking `$750' and inserting `$1,250', and

(2) by striking `$15' and inserting `$25'.

(b) Effective Date- The amendments made by this section apply to checks or money orders received after the date of the enactment of this Act.



SEC . 5518. ELIMINATION OF DOUBLE DEDUCTION ON MINING EXPLORATION AND DEVELOPMENT COSTS UNDER THE MINIMUM TAX.

(a) IN GENERAL- Section 57(a)(1) (relating to depletion) is amended by striking `for the taxable year)' and inserting `for the taxable year and determined without regard to so much of the basis as is attributable to mining exploration and development costs described in section 616 or 617 for which a deduction is allowable for any taxable year under this part).'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after the date of the enactment this Act.



PART II --ECONOMIC SUBSTANCE DOCTRINE



SEC . 5521. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

(a) In General- Section 7701 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:

`(o) Clarification of Economic Substance Doctrine; Etc-

`(1) GENERAL RULES-

`(A) IN GENERAL- In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction

(or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.

`(B) DEFINITION OF ECONOMIC SUBSTANCE- For purposes of subparagraph (A) --

`(i) IN GENERAL- A transaction has economic substance only if --

`(I) the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer's economic position, and

`(II) the taxpayer has a substantial nontax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose. In applying subclause (II), a purpose of achieving a financial accounting benefit shall not be taken into account in determining whether a transaction has a substantial nontax purpose if the origin of such financial accounting benefit is a reduction of income tax.

`(ii) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL- A transaction shall not be treated as having economic substance by reason of having a potential for profit unless --

`(I) the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected, and

`(II) the reasonably expected pre-tax profit from the transaction exceeds a risk-free rate of return.

`(C) TREATMENT OF FEES AND FOREIGN TAXES- Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (B)(ii).

`(2) SPECIAL RULES FOR TRANSACTIONS WITH TAX-INDIFFERENT PARTIES-

`(A) SPECIAL RULES FOR FINANCING TRANSACTIONS- The form of a transaction which is in substance the borrowing of money or the acquisition of financial capital directly or indirectly from a tax-indifferent party shall not be respected if the present value of the deductions to be claimed with respect to the transaction is substantially in excess of the present value of the anticipated economic returns of the person lending the money or providing the financial capital. A public offering shall be treated as a borrowing, or an acquisition of financial capital, from a tax-indifferent party if it is reasonably expected that at least 50 percent of the offering will be placed with tax-indifferent parties.

`(B) ARTIFICIAL INCOME SHIFTING AND BASIS ADJUSTMENTS- The form of a transaction with a tax-indifferent party shall not be respected if --

`(i) it results in an allocation of income or gain to the tax-indifferent party in excess of such party's economic income or gain, or

`(ii) it results in a basis adjustment or shifting of basis on account of overstating the income or gain of the tax-indifferent party.

`(3) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection --

`(A) ECONOMIC SUBSTANCE DOCTRINE- The term `economic substance doctrine' means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.

`(B) TAX-INDIFFERENT PARTY- The term `tax-indifferent party' means any person or entity not subject to tax imposed by subtitle A. A person shall be treated as a tax-indifferent party with respect to a transaction if the items taken into account with respect to the transaction have no substantial impact on such person's liability under subtitle A.

`(C) EXCEPTION FOR PERSONAL TRANSACTIONS OF INDIVIDUALS- In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.

`(D) TREATMENT OF LESSORS- In applying paragraph (1)(B)(ii) to the lessor of tangible property subject to a lease --

`(i) the expected net tax benefits with respect to the leased property shall not include the benefits of --

`(I) depreciation,

`(II) any tax credit, or

`( III ) any other deduction as provided in guidance by the Secretary, and

`(ii) subclause (II) of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such benefits are allowable.

`(4) OTHER COMMON LAW DOCTRINES NOT AFFECTED- Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.

`(5) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.'.

(b) Effective Date- The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.



SEC . 5522. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC .

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



` SEC . 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC .

`(a) Imposition of Penalty- If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.

`(b) Reduction of Penalty for Disclosed Transactions- Subsection (a) shall be applied by substituting `20 percent' for `40 percent' with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.

`(c) Noneconomic Substance Transaction Understatement- For purposes of this section --

`(1) IN GENERAL- The term `noneconomic substance transaction understatement' means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.

`(2) NONECONOMIC SUBSTANCE TRANSACTION- The term `noneconomic substance transaction' means any transaction if --

`(A) there is a lack of economic substance (within the meaning of section 7701(o)(1)) for the transaction giving rise to the claimed benefit or the transaction was not respected under section 7701(o)(2), or

`(B) the transaction fails to meet the requirements of any similar rule of law.

`(d) Rules Applicable to Compromise of Penalty-

`(1) IN GENERAL- If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

`(2) APPLICABLE RULES- The rules of paragraphs (2) and (3) of section 6707A(d) shall apply for purposes of paragraph (1).

`(e) Coordination With Other Penalties- Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.

`(f) Cross References-

`(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).

`(2) For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).'.

(b) Coordination With Other Understatements and Penalties-

(1) The second sentence of section 6662(d)(2)(A) is amended by inserting `and without regard to items with respect to which a penalty is imposed by section 6662B' before the period at the end.

(2) Subsection (e) of section 6662A is amended --

(A) in paragraph (1), by inserting `and noneconomic substance transaction understatements' after `reportable transaction understatements' both places it appears,

(B) in paragraph (2)(A), by inserting `and a noneconomic substance transaction understatement' after `reportable transaction understatement',

(C) in paragraph (2)(B), by inserting `6662B or' before `6663',

(D) in paragraph (2)(C)(i), by inserting `or section 6662B' before the period at the end,

(E) in paragraph (2)(C)(ii), by inserting `and section 6662B' after `This section',

(F) in paragraph (3), by inserting `or noneconomic substance transaction understatement' after `reportable transaction understatement', and

(G) by adding at the end the following new paragraph:

`(4) NONECONOMIC SUBSTANCE TRANSACTION UNDERSTATEMENT- For purposes of this subsection, the term `noneconomic substance transaction understatement' has the meaning given such term by section 6662B(c).'.

(3) Subsection (e) of section 6707A is amended --

(A) by striking `or' at the end of subparagraph (B), and

(B) by striking subparagraph (C) and inserting the following new subparagraphs:

`(C) is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or

`(D) is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or under section 6662B,'.

(c) Clerical Amendment- The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item: `Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.'.

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



SEC . 5523. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

(a) In General- Section 163(m) (relating to interest on unpaid taxes attributable to nondisclosed reportable transactions) is amended --

(1) by striking `attributable' and all that follows and inserting the following: `attributable to --

`(1) the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, or

`(2) any noneconomic substance transaction understatement (as defined in section 6662B(c)).', and

(2) by inserting ` AND NONECONOMIC SUBSTANCE TRANSACTIONS' in the heading thereof after `TRANSACTIONS'.

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



PART III --IMPROVEMENTS IN EFFICIENCY AND SAFEGUARDS IN INTERNAL REVENUE SERVICE COLLECTION



SEC . 5531. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED WITHDRAWALS.

(a) In General- Section 6159 (relating to agreements for payment of tax liability in installments) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following:

`(e) Waiver of User Fees for Installment Agreements Using Automated Withdrawals- In the case of a taxpayer who enters into an installment agreement in which automated installment payments are agreed to, the Secretary shall waive the fee (if any) for entering into the installment agreement.'.

(b) Effective Date- The amendments made by this section shall apply to agreements entered into on or after the date which is 180 days after the date of the enactment of this Act.



SEC . 5532. TERMINATION OF INSTALLMENT AGREEMENTS.

(a) In General- Section 6159(b)(4) (relating to failure to pay an installment or any other tax liability when due or to provide requested financial information) is amended by striking `or' at the end of subparagraph (B), by redesignating subparagraph (C) as subparagraph (E), and by inserting after subparagraph (B) the following:

`(C) to make a Federal tax deposit under section 6302 at the time such deposit is required to be made,

`(D) to file a return of tax imposed under this title by its due date

(including extensions), or'.

(b) Conforming Amendment- The heading for section 6159(b)(4) is amended by striking `FAILURE TO PAY AN INSTALLMENT OR ANY OTHER TAX LIABILITY WHEN DUE OR TO PROVIDE REQUESTED FINANCIAL INFORMATION' and inserting `FAILURE TO MAKE PAYMENTS OR DEPOSITS OR FILE RETURNS WHEN DUE OR TO PROVIDE REQUESTED FINANCIAL INFORMATION'.

(c) Effective Date- The amendments made by this section shall apply to failures occurring on or after the date of the enactment of this Act. SEC . 5533. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS-IN-COMPROMISE.

(a) In General- Section 7122(b) (relating to record) is amended by striking `Whenever a compromise' and all that follows through `his delegate' and inserting `If the Secretary determines that an opinion of the General Counsel for the Department of the Treasury, or the Counsel's delegate, is required with respect to a compromise, there shall be placed on file in the office of the Secretary such opinion'.

(b) Conforming Amendments- Section 7122(b) is amended by striking the second and third sentences.

(c) Effective Date- The amendments made by this section shall apply to offers-in-compromise submitted or pending on or after the date of the enactment of this Act.



SEC . 5534. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-COMPROMISE.

(a) In General- Section 7122 (relating to compromises), as amended by this Act, is amended by redesignating subsections (c), (d), and (e) as subsections

(d), (e), and (f), respectively, and by inserting after subsection (b) the following new subsection:

`(c) Rules for Submission of Offers-in-compromise-

`(1) PARTIAL PAYMENT REQUIRED WITH SUBMISSION-

`(A) LUMP-SUM OFFERS-

`(i) IN GENERAL- The submission of any lump-sum offer-in-compromise shall be accompanied by the payment of 20 percent of amount of such offer.

`(ii) LUMP-SUM OFFER-IN-COMPROMISE- For purposes of this section, the term `lump-sum offer-in-compromise' means any offer of payments made in 5 or fewer installments.

`(B) PERIODIC PAYMENT OFFERS- The submission of any periodic payment offer-in-compromise shall be accompanied by the payment of the amount of the first proposed installment and each proposed installment due during the period such offer is being evaluated for acceptance and has not been rejected by the Secretary. Any failure to make a payment required under the preceding sentence shall be deemed a withdrawal of the offer-in-compromise.

`(2) RULES OF APPLICATION-

`(A) USE OF PAYMENT- The application of any payment made under this subsection to the assessed tax or other amounts imposed under this title with respect to such tax may be specified by the taxpayer.

`(B) NO USER FEE IMPOSED- Any user fee which would otherwise be imposed under this section shall not be imposed on any offer-in-compromise accompanied by a payment required under this subsection.'.

(b) Additional Rules Relating to Treatment of Offers-

(1) UNPROCESSABLE OFFER IF PAYMENT REQUIREMENTS ARE NOT MET - Paragraph (3) of section 7122(d) (relating to standards for evaluation of offers), as redesignated by subsection (a), is amended by striking `; and' at the end of subparagraph (A) and inserting a comma, by striking the period at the end of subparagraph (B) and inserting `, and', and by adding at the end the following new subparagraph:

`(C) any offer-in-compromise which does not meet the requirements of subsection (c) shall be returned to the taxpayer as unprocessable.'.

(2) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN CERTAIN PERIOD-Section 7122, as amended by subsection (a), is amended by adding at the end the following new subsection:

`(g) Deemed Acceptance of Offer Not Rejected Within Certain Period- Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer (12 months for offers-in-compromise submitted after the date which is 5 years after the date of the enactment of this subsection). For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken in to account in determining the expiration of the 24-month period (or 12-month period, if applicable).'.

(c) Effective Date- The amendments made by this section shall apply to offers-in-compromise submitted on and after the date which is 60 days after the date of the enactment of this Act.



SEC . 5535. JOINT TASK FORCE ON OFFERS-IN-COMPROMISE.

(a) IN GENERAL- The Secretary of the Treasury shall establish a joint task force --

(1) to review the Internal Revenue Service's determinations with respect to offers-in-compromise, including offers which raise equitable, public policy, or economic hardship grounds for compromise of a tax liability under section 7122 of the Internal Revenue Code of 1986,

(2) to review the extent to which the Internal Revenue Service has used its authority to resolve longstanding cases by forgoing penalties and interest which have accumulated as a result of delay in determining the taxpayer's liability,

(3) to provide recommendations as to whether the Internal Revenue Service's evaluation of offers-in-compromise should include --

(A) the taxpayer's compliance history,

(B) errors by the Internal Revenue Service with respect to the underlying tax, and

(C) wrongful acts by a third party which gave rise to the liability, and

(4) to annually report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives (beginning in 2006) regarding such review and recommendations.

(b) MEMBERS OF JOINT TASK FORCE- The membership of the joint task force under subsection (a) shall consist of 1 representative each from the Department of the Treasury, the Internal Revenue Service Oversight Board, the Office of the Chief Counsel for the Internal Revenue Service, the Office of the Taxpayer Advocate, the Office of Appeals, and the division of the Internal Revenue Service charged with operating the offer-in-compromise program.

(c) REPORT OF NATIONAL TAXPAYER ADVOCATE-

(1) IN GENERAL- Clause (ii) of section 7803(c)(2)(B) (relating to annual reports) is amended by striking `and' at the end of subclause (X), by redesignating subclause (XI) as subclause (XII), and by inserting after subclause (X) the following new subclause:

`(XI) include a list of the factors taxpayers have raised to support their claims for offers-in-compromise relief, the number of such offers submitted, accepted, and rejected, the number of such offers appealed, the period during which review of such offers have remained pending, and the efforts the Internal Revenue Service has made to correctly identify such offers, including the training of employees in identifying and evaluating such offers.'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to reports in calendar year 2006 and thereafter.



Subtitle F --Additional Revenue Provisions



PART I --GENERAL PROVISIONS


 (a) In General- Section 9503(c)(2)(A) (relating to transfers from Highway Trust Fund for certain repayments and credits) is amended --

(1) by striking `July 1, 2006' in clause (i) and inserting `July 1, 2012',

(2) by striking `October 1, 2005' in the matter following clause (i)( III ) and inserting `April 1, 2005, or for periods ending after September 30, 2009, and before October 1, 2011', and

(3) by striking `October 1, 2005' in clause (ii) and inserting `April 1, 2005, or used after September 30, 2009, and before October 1, 2011'.

(b) Effective Date- The amendments made by this section shall apply to amounts paid for which no transfer has been made before April 1, 2005.



SEC . 5602. TEMPORARY DEDICATION OF GAS GUZZLER TAX TO HIGHWAY TRUST FUND.

(a) In General- Section 9503(b)(1) (relating to transfer to Highway Trust Fund of amounts equivalent to certain taxes), as amended by this Act, is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and

(F), respectively, and by inserting after subparagraph (B) the following new subparagraph:

`(C) section 4064 (relating to gas guzzler tax),'.

(b) Temporary Period for Dedication- Section 9503(b)(4) (relating to certain taxes not transferred to Highway Trust Fund) is amended by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following new subparagraph:

`(B) section 4064 with respect to taxes imposed after September 30, 2009,'.

(c) Effective Date- The amendments made by this section shall apply to taxes imposed on and after July 1, 2005.


Attest:

Secretary.

109th CONGRESS

1st Session

H. R. 3

AMENDMENT

May 18, 2005

Ordered to be printed as passed