Download:
pdf |
pdfPUBLIC LAW 108–357—OCT. 22, 2004
AMERICAN JOBS CREATION ACT OF 2004
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00001
Fmt 6579
Sfmt 6655
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1418
PUBLIC LAW 108–357—OCT. 22, 2004
Public Law 108–357
108th Congress
An Act
Oct. 22, 2004
[H.R. 4520]
American Jobs
Creation Act of
2004.
26 USC 1 note.
To amend the Internal Revenue Code of 1986 to remove impediments in such
Code and make our manufacturing, service, and high-technology businesses and
workers more competitive and productive both at home and abroad.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the ‘‘American
Jobs Creation Act of 2004’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed
in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section
or other provision of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents of this Act
is as follows:
Sec. 1. Short title; etc.
TITLE I—PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic production activities.
TITLE II—BUSINESS TAX INCENTIVES
Subtitle A—Small Business Expensing
Sec. 201. 2-year extension of increased expensing for small business.
Subtitle B—Depreciation
Sec. 211. Recovery period for depreciation of certain leasehold improvements and
restaurant property.
Subtitle C—Community Revitalization
Sec. 221. Modification of targeted areas and low-income communities for new markets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000 census
data.
Sec. 223. Modification of income requirement for census tracts within high migration rural counties.
Subtitle D—S Corporation Reform and Simplification
Members of family treated as 1 shareholder.
Increase in number of eligible shareholders to 100.
Expansion of bank S corporation eligible shareholders to include IRAs.
Disregard of unexercised powers of appointment in determining potential
current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.
Sec. 236. Use of passive activity loss and at-risk amounts by qualified subchapter
S trust income beneficiaries.
Sec.
Sec.
Sec.
Sec.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
231.
232.
233.
234.
PO 00357
Frm 00002
Fmt 6580
Sfmt 6582
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1419
Sec. 237. Exclusion of investment securities income from passive income test for
bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S subsidiary elections and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.
Sec. 240. Repayment of loans for qualifying employer securities.
Subtitle E—Other Business Incentives
Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of depreciation.
Sec. 243. Improvements related to real estate investment trusts.
Sec. 244. Special rules for certain film and television productions.
Sec. 245. Credit for maintenance of railroad track.
Sec. 246. Suspension of occupational taxes relating to distilled spirits, wine, and
beer.
Sec. 247. Modification of unrelated business income limitation on investment in
certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international shipping activities using per ton rate.
Subtitle F—Stock Options and Employee Stock Purchase Plan Stock Options
Sec. 251. Exclusion of incentive stock options and employee stock purchase plan
stock options from wages.
TITLE III—TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A—Volumetric Ethanol Excise Tax Credit
Sec. 301. Alcohol and biodiesel excise tax credit and extension of alcohol fuels income tax credit.
Sec. 302. Biodiesel income tax credit.
Sec. 303. Information reporting for persons claiming certain tax benefits.
Subtitle B—Agricultural Incentives
Sec. 311. Special rules for livestock sold on account of weather-related conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing patronage
dividends.
Sec. 313. Apportionment of small ethanol producer credit.
Sec. 314. Coordinate farmers and fishermen income averaging and the alternative
minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to outright sales by
landowners.
Sec. 316. Modification to cooperative marketing rules to include value added processing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers’ cooperative organizations.
Sec. 318. Certain expenses of rural letter carriers.
Sec. 319. Treatment of certain income of cooperatives.
Sec. 320. Exclusion for payments to individuals under National Health Service
Corps loan repayment program and certain State loan repayment programs.
Sec. 321. Modification of safe harbor rules for timber REITs.
Sec. 322. Expensing of certain reforestation expenditures.
Subtitle C—Incentives for Small Manufacturers
Sec. 331. Net income from publicly traded partnerships treated as qualifying income of regulated investment companies.
Sec. 332. Simplification of excise tax imposed on bows and arrows.
Sec. 333. Reduction of excise tax on fishing tackle boxes.
Sec. 334. Sonar devices suitable for finding fish.
Sec. 335. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling.
Sec. 336. Modification of depreciation allowance for aircraft.
Sec. 337. Modification of placed in service rule for bonus depreciation property.
Sec. 338. Expensing of capital costs incurred in complying with Environmental Protection Agency sulfur regulations.
Sec. 339. Credit for production of low sulfur diesel fuel.
Sec. 340. Expansion of qualified small-issue bond program.
Sec. 341. Oil and gas from marginal wells.
TITLE IV—TAX REFORM AND SIMPLIFICATION FOR UNITED STATES
BUSINESSES
Sec. 401. Interest expense allocation rules.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00003
Fmt 6580
Sfmt 6582
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1420
PUBLIC LAW 108–357—OCT. 22, 2004
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled section 902 corporations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply in determining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible property.
Sec. 407. United States property not to include certain assets of controlled foreign
corporation.
Sec. 408. Translation of foreign taxes.
Sec. 409. Repeal of withholding tax on dividends from certain foreign corporations.
Sec. 410. Equal treatment of interest paid by foreign partnerships and foreign corporations.
Sec. 411. Treatment of certain dividends of regulated investment companies.
Sec. 412. Look-thru treatment for sales of partnership interests.
Sec. 413. Repeal of foreign personal holding company rules and foreign investment
company rules.
Sec. 414. Determination of foreign personal holding company income with respect
to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping income.
Sec. 416. Modification of exceptions under subpart F for active financing.
Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax credit carryback.
Sec. 418. Modification of the treatment of certain REIT distributions attributable
to gain from sales or exchanges of United States real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races and dog
races from gross income of nonresident alien individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.
Sec. 421. Foreign tax credit under alternative minimum tax.
Sec. 422. Incentives to reinvest foreign earnings in United States.
Sec. 423. Delay in effective date of final regulations governing exclusion of income
from international operation of ships or aircraft.
Sec. 424. Study of earnings stripping provisions.
TITLE V—DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
Sec. 501. Deduction of State and local general sales taxes in lieu of State and local
income taxes.
TITLE VI—FAIR AND EQUITABLE TOBACCO REFORM
Sec. 601. Short title.
Subtitle A—Termination of Federal Tobacco Quota and Price Support Programs
Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related provisions.
Sec. 613. Conforming amendments.
Sec. 614. Continuation of liability for 2004 and earlier crop years.
Subtitle B—Transitional Payments to Tobacco Quota Holders and Producers of
Tobacco
Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.
Sec. 623. Contract payments for producers of quota tobacco.
Sec. 624. Administration.
Sec. 625. Use of assessments as source of funds for payments.
Sec. 626. Tobacco Trust Fund.
Sec. 627. Limitation on total expenditures.
Subtitle C—Implementation and Transition
Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan costs.
Sec. 642. Regulations.
Sec. 643. Effective date.
TITLE VII—MISCELLANEOUS PROVISIONS
Sec. 701. Brownfields demonstration program for qualified green building and sustainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain brownfield sites
from unrelated business taxable income.
Sec. 703. Civil rights tax relief.
Sec. 704. Modification of class life for certain track facilities.
Sec. 705. Suspension of policyholders surplus account provisions.
Sec. 706. Certain Alaska natural gas pipeline property treated as 7-year property.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00004
Fmt 6580
Sfmt 6582
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1421
Sec. 707. Extension of enhanced oil recovery credit to certain Alaska facilities.
Sec. 708. Method of accounting for naval shipbuilders.
Sec. 709. Modification of minimum cost requirement for transfer of excess pension
assets.
Sec. 710. Expansion of credit for electricity produced from certain renewable resources.
Sec. 711. Certain business credits allowed against regular and minimum tax.
Sec. 712. Inclusion of primary and secondary medical strategies for children and
adults with sickle cell disease as medical assistance under the Medicaid
program.
Sec. 713. Ceiling fans.
Sec. 714. Certain steam generators, and certain reactor vessel heads and pressurizers, used in nuclear facilities.
TITLE VIII—REVENUE PROVISIONS
Subtitle A—Provisions to Reduce Tax Avoidance Through Individual and Corporate
Expatriation
Sec. 801. Tax treatment of expatriated entities and their foreign parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated corporations.
Sec. 803. Reinsurance of United States risks in foreign jurisdictions.
Sec. 804. Revision of tax rules on expatriation of individuals.
Sec. 805. Reporting of taxable mergers and acquisitions.
Sec. 806. Studies.
Subtitle B—Provisions Relating to Tax Shelters
PART I—TAXPAYER-RELATED PROVISIONS
Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other reportable transactions having a significant tax avoidance purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating to taxpayer
communications.
Sec. 814. Statute of limitations for taxable years for which required listed transactions not reported.
Sec. 815. Disclosure of reportable transactions.
Sec. 816. Failure to furnish information regarding reportable transactions.
Sec. 817. Modification of penalty for failure to maintain lists of investors.
Sec. 818. Penalty on promoters of tax shelters.
Sec. 819. Modifications of substantial understatement penalty for nonreportable
transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to tax shelters
and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial accounts.
Sec. 822. Regulation of individuals practicing before the Department of the Treasury.
PART II—OTHER PROVISIONS
Sec. 831. Treatment of stripped interests in bond and preferred stock funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding taxes on income other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.
Sec. 834. No reduction of basis under section 734 in stock held by partnership in
corporate partner.
Sec. 835. Repeal of special rules for FASITS.
Sec. 836. Limitation on transfer or importation of built-in losses.
Sec. 837. Clarification of banking business for purposes of determining investment
of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable to nondisclosed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for certain deemed
asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence acquired in a
like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue discount deductions and income inclusions in transactions with related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential underpayments.
Sec. 843. Partial payment of tax liability in installment agreements.
Sec. 844. Affirmation of consolidated return regulation authority.
Sec. 845. Expanded disallowance of deduction for interest on convertible debt.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00005
Fmt 6580
Sfmt 6582
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1422
PUBLIC LAW 108–357—OCT. 22, 2004
PART III—LEASING
Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by governments or
other tax-exempt entities.
Sec. 849. Effective date.
Subtitle C—Reduction of Fuel Tax Evasion
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
851.
852.
853.
854.
855.
856.
857.
858.
859.
860.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
861.
862.
863.
864.
865.
866.
867.
868.
869.
870.
871.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
881.
882.
883.
884.
885.
886.
887.
888.
889.
890.
891.
892.
893.
Exemption from certain excise taxes for mobile machinery.
Modification of definition of off-highway vehicle.
Taxation of aviation-grade kerosene.
Dye injection equipment.
Elimination of administrative review for taxable use of dyed fuel.
Penalty on untaxed chemically altered dyed fuel mixtures.
Termination of dyed diesel use by intercity buses.
Authority to inspect on-site records.
Assessable penalty for refusal of entry.
Registration of pipeline or vessel operators required for exemption of bulk
transfers to registered terminals or refineries.
Display of registration.
Registration of persons within foreign trade zones, etc.
Penalties for failure to register and failure to report.
Electronic filing of required information reports.
Taxable fuel refunds for certain ultimate vendors.
Two-party exchanges.
Modifications of tax on use of certain vehicles.
Dedication of revenues from certain penalties to the Highway Trust Fund.
Simplification of tax on tires.
Transmix and diesel fuel blend stocks treated as taxable fuel.
Study regarding fuel tax compliance.
Subtitle D—Other Revenue Provisions
Sec. 894.
Sec. 895.
Sec. 896.
Sec. 897.
Sec. 898.
Sec.
Sec.
Sec.
Sec.
Sec.
899.
900.
901.
902.
903.
Sec. 904.
Sec. 905.
Sec.
Sec.
Sec.
Sec.
906.
907.
908.
909.
Sec. 910.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
Qualified tax collection contracts.
Treatment of charitable contributions of patents and similar property.
Increased reporting for noncash charitable contributions.
Donations of motor vehicles, boats, and airplanes.
Treatment of nonqualified deferred compensation plans.
Extension of amortization of intangibles to sports franchises.
Modification of continuing levy on payments to Federal vendors.
Modification of straddle rules.
Addition of vaccines against hepatitis A to list of taxable vaccines.
Addition of vaccines against influenza to list of taxable vaccines.
Extension of IRS user fees.
COBRA fees.
Prohibition on nonrecognition of gain through complete liquidation of
holding company.
Effectively connected income to include certain foreign source income.
Recapture of overall foreign losses on sale of controlled foreign corporation.
Recognition of cancellation of indebtedness income realized on satisfaction
of debt with partnership interest.
Denial of installment sale treatment for all readily tradable debt.
Modification of treatment of transfers to creditors in divisive reorganizations.
Clarification of definition of nonqualified preferred stock.
Modification of definition of controlled group of corporations.
Class lives for utility grading costs.
Consistent amortization of periods for intangibles.
Freeze of provisions regarding suspension of interest where Secretary
fails to contact taxpayer.
Increase in withholding from supplemental wage payments in excess of
$1,000,000.
Treatment of sale of stock acquired pursuant to exercise of stock options
to comply with conflict-of-interest requirements.
Application of basis rules to nonresident aliens.
Limitation of employer deduction for certain entertainment expenses.
Residence and source rules relating to United States possessions.
Sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy.
Expansion of limitation on depreciation of certain passenger automobiles.
PO 00357
Frm 00006
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1423
TITLE I—PROVISIONS RELATING TO REPEAL
OF
EXCLUSION
FOR
EXTRATERRITORIAL INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) IN GENERAL.—Section 114 is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby repealed.
(2) The table of subparts for such part III is amended
by striking the item relating to subpart E.
(3) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(4) The second sentence of section 56(g)(4)(B)(i) is amended
by striking ‘‘114 or’’.
(5) Section 275(a) is amended—
(A) by inserting ‘‘or’’ at the end of paragraph (4)(A),
by striking ‘‘or’’ at the end of paragraph (4)(B) and inserting
a period, and by striking subparagraph (C), and
(B) by striking the last sentence.
(6) Paragraph (3) of section 864(e) is amended—
(A) by striking:
‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT.—
‘‘(A) IN GENERAL.—For purposes of’’; and inserting:
‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT.—For
purposes of’’, and
(B) by striking subparagraph (B).
(7) Section 903 is amended by striking ‘‘114, 164(a),’’ and
inserting ‘‘164(a)’’.
(8) Section 999(c)(1) is amended by striking ‘‘941(a)(5),’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions after December 31, 2004.
(d) TRANSITIONAL RULE FOR 2005 AND 2006.—
(1) IN GENERAL.—In the case of transactions during 2005
or 2006, the amount includible in gross income by reason of
the amendments made by this section shall not exceed the
applicable percentage of the amount which would have been
so included but for this subsection.
(2) APPLICABLE PERCENTAGE.—For purposes of paragraph
(1), the applicable percentage shall be as follows:
(A) For 2005, the applicable percentage shall be 20
percent.
(B) For 2006, the applicable percentage shall be 40
percent.
(e) REVOCATION OF ELECTION TO BE TREATED AS DOMESTIC
CORPORATION.—If, during the 1-year period beginning on the date
of the enactment of this Act, a corporation for which an election
is in effect under section 943(e) of the Internal Revenue Code
of 1986 revokes such election, no gain or loss shall be recognized
with respect to property treated as transferred under clause (ii)
of section 943(e)(4)(B) of such Code to the extent such property—
(1) was treated as transferred under clause (i) thereof,
or
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00007
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 941–943.
26 USC 56 note.
26 USC 114 note.
BILLW
PsN: PUBL357
118 STAT. 1424
PUBLIC LAW 108–357—OCT. 22, 2004
(2) was acquired during a taxable year to which such
election applies and before May 1, 2003, in the ordinary course
of its trade or business.
The Secretary of the Treasury (or such Secretary’s delegate) may
prescribe such regulations as may be necessary to prevent the
abuse of the purposes of this subsection.
(f) BINDING CONTRACTS.—The amendments made by this section
shall not apply to any transaction in the ordinary course of a
trade or business which occurs pursuant to a binding contract—
(1) which is between the taxpayer and a person who is
not a related person (as defined in section 943(b)(3) of such
Code, as in effect on the day before the date of the enactment
of this Act), and
(2) which is in effect on September 17, 2003, and at all
times thereafter.
For purposes of this subsection, a binding contract shall include
a purchase option, renewal option, or replacement option which
is included in such contract and which is enforceable against the
seller or lessor.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO
DOMESTIC PRODUCTION ACTIVITIES.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amended
by adding at the end the following new section:
‘‘SEC.
199.
INCOME ATTRIBUTABLE
ACTIVITIES.
TO
DOMESTIC
PRODUCTION
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a deduction
an amount equal to 9 percent of the lesser of—
‘‘(A) the qualified production activities income of the
taxpayer for the taxable year, or
‘‘(B) taxable income (determined without regard to this
section) for the taxable year.
‘‘(2) PHASEIN.—In the case of any taxable year beginning
after 2004 and before 2010, paragraph (1) and subsections
(d)(1) and (d)(6) shall be applied by substituting for the percentage contained therein the transition percentage determined
under the following table:
Applicability.
‘‘For taxable years
The
transition
beginning in:
percentage is:
2005 or 2006 .....................................................................................
3
2007, 2008, or 2009 ..........................................................................
6.
‘‘(b) DEDUCTION LIMITED TO WAGES PAID.—
‘‘(1) IN GENERAL.—The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed
50 percent of the W–2 wages of the employer for the taxable
year.
‘‘(2) W–2 WAGES.—For purposes of paragraph (1), the term
‘W–2 wages’ means the sum of the aggregate amounts the
taxpayer is required to include on statements under paragraphs
(3) and (8) of section 6051(a) with respect to employment of
employees of the taxpayer during the calendar year ending
during the taxpayer’s taxable year.
‘‘(3) ACQUISITIONS AND DISPOSITIONS.—The Secretary shall
provide for the application of this subsection in cases where
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00008
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1425
the taxpayer acquires, or disposes of, the major portion of
a trade or business or the major portion of a separate unit
of a trade or business during the taxable year.
‘‘(c) QUALIFIED PRODUCTION ACTIVITIES INCOME.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified production activities
income’ for any taxable year means an amount equal to the
excess (if any) of—
‘‘(A) the taxpayer’s domestic production gross receipts
for such taxable year, over
‘‘(B) the sum of—
‘‘(i) the cost of goods sold that are allocable to
such receipts,
‘‘(ii) other deductions, expenses, or losses directly
allocable to such receipts, and
‘‘(iii) a ratable portion of other deductions,
expenses, and losses that are not directly allocable
to such receipts or another class of income.
‘‘(2) ALLOCATION METHOD.—The Secretary shall prescribe
rules for the proper allocation of items of income, deduction,
expense, and loss for purposes of determining income attributable to domestic production activities.
‘‘(3) SPECIAL RULES FOR DETERMINING COSTS.—
‘‘(A) IN GENERAL.—For purposes of determining costs
under clause (i) of paragraph (1)(B), any item or service
brought into the United States shall be treated as acquired
by purchase, and its cost shall be treated as not less
than its value immediately after it entered the United
States. A similar rule shall apply in determining the
adjusted basis of leased or rented property where the lease
or rental gives rise to domestic production gross receipts.
‘‘(B) EXPORTS FOR FURTHER MANUFACTURE.—In the case
of any property described in subparagraph (A) that had
been exported by the taxpayer for further manufacture,
the increase in cost or adjusted basis under subparagraph
(A) shall not exceed the difference between the value of
the property when exported and the value of the property
when brought back into the United States after the further
manufacture.
‘‘(4) DOMESTIC PRODUCTION GROSS RECEIPTS.—
‘‘(A) IN GENERAL.—The term ‘domestic production gross
receipts’ means the gross receipts of the taxpayer which
are derived from—
‘‘(i) any lease, rental, license, sale, exchange, or
other disposition of—
‘‘(I) qualifying production property which was
manufactured, produced, grown, or extracted by
the taxpayer in whole or in significant part within
the United States,
‘‘(II) any qualified film produced by the taxpayer, or
‘‘(III) electricity, natural gas, or potable water
produced by the taxpayer in the United States,
‘‘(ii) construction performed in the United States,
or
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00009
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Regulations.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1426
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(iii) engineering or architectural services performed in the United States for construction projects
in the United States.
‘‘(B) EXCEPTIONS.—Such term shall not include gross
receipts of the taxpayer which are derived from—
‘‘(i) the sale of food and beverages prepared by
the taxpayer at a retail establishment, and
‘‘(ii) the transmission or distribution of electricity,
natural gas, or potable water.
‘‘(5) QUALIFYING PRODUCTION PROPERTY.—The term ‘qualifying production property’ means—
‘‘(A) tangible personal property,
‘‘(B) any computer software, and
‘‘(C) any property described in section 168(f)(4).
‘‘(6) QUALIFIED FILM.—The term ‘qualified film’ means any
property described in section 168(f)(3) if not less than 50 percent
of the total compensation relating to the production of such
property is compensation for services performed in the United
States by actors, production personnel, directors, and producers.
Such term does not include property with respect to which
records are required to be maintained under section 2257 of
title 18, United States Code.
‘‘(7) RELATED PERSONS.—
‘‘(A) IN GENERAL.—The term ‘domestic production gross
receipts’ shall not include any gross receipts of the taxpayer
derived from property leased, licensed, or rented by the
taxpayer for use by any related person.
‘‘(B) RELATED PERSON.—For purposes of subparagraph
(A), a person shall be treated as related to another person
if such persons are treated as a single employer under
subsection (a) or (b) of section 52 or subsection (m) or
(o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without
regard to section 1563(b).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) APPLICATION OF SECTION TO PASS-THRU ENTITIES.—
‘‘(A) IN GENERAL.—In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity—
‘‘(i) subject to the provisions of paragraphs (2) and
(3), this section shall be applied at the shareholder,
partner, or similar level, and
‘‘(ii) the Secretary shall prescribe rules for the
application of this section, including rules relating to—
‘‘(I) restrictions on the allocation of the deduction to taxpayers at the partner or similar level,
and
‘‘(II) additional reporting requirements.
‘‘(B) APPLICATION OF WAGE LIMITATION.—Notwithstanding subparagraph (A)(i), for purposes of applying subsection (b), a shareholder, partner, or similar person which
is allocated qualified production activities income from an
S corporation, partnership, estate, trust, or other passthru entity shall also be treated as having been allocated
W–2 wages from such entity in an amount equal to the
lesser of—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00010
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1427
‘‘(i) such person’s allocable share of such wages
(without regard to this subparagraph), as determined
under regulations prescribed by the Secretary, or
‘‘(ii) 2 times 9 percent of the qualified production
activities income allocated to such person for the taxable year.
‘‘(2) APPLICATION TO INDIVIDUALS.—In the case of an individual, subsection (a)(1)(B) shall be applied by substituting
‘adjusted gross income’ for ‘taxable income’. For purposes of
the preceding sentence, adjusted gross income shall be
determined—
‘‘(A) after application of sections 86, 135, 137, 219,
221, 222, and 469, and
‘‘(B) without regard to this section.
‘‘(3) PATRONS OF AGRICULTURAL AND HORTICULTURAL
COOPERATIVES.—
‘‘(A) IN GENERAL.—If any amount described in paragraph (1) or (3) of section 1385(a)—
‘‘(i) is received by a person from an organization
to which part I of subchapter T applies which is
engaged—
‘‘(I) in the manufacturing, production, growth,
or extraction in whole or significant part of any
agricultural or horticultural product, or
‘‘(II) in the marketing of agricultural or horticultural products, and
‘‘(ii) is allocable to the portion of the qualified
production activities income of the organization which,
but for this paragraph, would be deductible under subsection (a) by the organization and is designated as
such by the organization in a written notice mailed
to its patrons during the payment period described
in section 1382(d),
then such person shall be allowed a deduction under subsection (a) with respect to such amount. The taxable income
of the organization shall not be reduced under section
1382 by reason of any amount to which the preceding
sentence applies.
‘‘(B) SPECIAL RULES.—For purposes of applying
subparagraph (A), in determining the qualified production
activities income which would be deductible by the
organization under subsection (a)—
‘‘(i) there shall not be taken into account in computing the organization’s taxable income any deduction
allowable under subsection (b) or (c) of section 1382
(relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions), and
‘‘(ii) in the case of an organization described in
subparagraph (A)(i)(II), the organization shall be
treated as having manufactured, produced, grown, or
extracted in whole or significant part any qualifying
production property marketed by the organization
which its patrons have so manufactured, produced,
grown, or extracted.
‘‘(4) SPECIAL RULE FOR AFFILIATED GROUPS.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00011
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1428
26 USC 631 note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) IN GENERAL.—All members of an expanded affiliated group shall be treated as a single corporation for
purposes of this section.
‘‘(B) EXPANDED AFFILIATED GROUP.—For purposes of
this section, the term ‘expanded affiliated group’ means
an affiliated group as defined in section 1504(a),
determined—
‘‘(i) by substituting ‘50 percent’ for ‘80 percent’
each place it appears, and
‘‘(ii) without regard to paragraphs (2) and (4) of
section 1504(b).
‘‘(C) ALLOCATION OF DEDUCTION.—Except as provided
in regulations, the deduction under subsection (a) shall
be allocated among the members of the expanded affiliated
group in proportion to each member’s respective amount
(if any) of qualified production activities income.
‘‘(5) TRADE OR BUSINESS REQUIREMENT.—This section shall
be applied by only taking into account items which are attributable to the actual conduct of a trade or business.
‘‘(6) COORDINATION WITH MINIMUM TAX.—The deduction
under this section shall be allowed for purposes of the tax
imposed by section 55; except that for purposes of section
55, the deduction under subsection (a) shall be 9 percent of
the lesser of—
‘‘(A) qualified production activities income (determined
without regard to part IV of subchapter A), or
‘‘(B) alternative minimum taxable income (determined
without regard to this section) for the taxable year.
In the case of an individual, subparagraph (B) shall be applied
by substituting ‘adjusted gross income’ for ‘alternative minimum taxable income’. For purposes of the preceding sentence,
adjusted gross income shall be determined in the same manner
as provided in paragraph (2).
‘‘(7) REGULATIONS.—The Secretary shall prescribe such
regulations as are necessary to carry out the purposes of this
section.’’.
(b) MINIMUM TAX.—Section 56(g)(4)(C) (relating to disallowance
of items not deductible in computing earnings and profits) is
amended by adding at the end the following new clause:
‘‘(v) DEDUCTION FOR DOMESTIC PRODUCTION.—
Clause (i) shall not apply to any amount allowable
as a deduction under section 199.’’.
(c) SPECIAL RULE RELATING TO ELECTION TO TREAT CUTTING
OF TIMBER AS A SALE OR EXCHANGE.—Any election under section
631(a) of the Internal Revenue Code of 1986 made for a taxable
year ending on or before the date of the enactment of this Act
may be revoked by the taxpayer for any taxable year ending after
such date. For purposes of determining whether such taxpayer
may make a further election under such section, such election
(and any revocation under this section) shall not be taken into
account.
(d) TECHNICAL AMENDMENTS.—
(1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and
219(g)(3)(A)(ii) are each amended by inserting ‘‘199,’’ before
‘‘221’’.
(2) Clause (i) of section 221(b)(2)(C) is amended by inserting
by inserting ‘‘199,’’ before ‘‘222’’.
Jkt 039139
PO 00357
Frm 00012
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1429
(3) Clause (i) of section 222(b)(2)(C) is amended by inserting
‘‘199,’’ before ‘‘911’’.
(4) Paragraph (1) of section 246(b) is amended by inserting
‘‘199,’’ after ‘‘172,’’.
(5) Clause (iii) of section 469(i)(3)(F) is amended by
inserting ‘‘199,’’ before ‘‘219,’’.
(6) Subsection (a) of section 613 is amended by inserting
‘‘and without the deduction under section 199’’ after ‘‘without
allowances for depletion’’.
(7) Subsection (a) of section 1402 is amended by striking
‘‘and’’ at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ‘‘, and’’, and by
inserting after paragraph (15) the following new paragraph:
‘‘(16) the deduction provided by section 199 shall not be
allowed.’’.
(8) The table of sections for part VI of subchapter B of
chapter 1 is amended by adding at the end the following new
item:
‘‘Sec. 199. Income attributable to domestic production activities.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
26 USC 56 note.
TITLE II—BUSINESS TAX INCENTIVES
Subtitle A—Small Business Expensing
SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL
BUSINESS.
Subsections (b), (c), and (d) of section 179 are each amended
by striking ‘‘2006’’ each place it appears and inserting ‘‘2008’’.
Subtitle B—Depreciation
SEC. 211. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD IMPROVEMENTS AND RESTAURANT PROPERTY.
(a) 15-YEAR RECOVERY PERIOD.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is amended
by striking ‘‘and’’ at the end of clause (ii), by striking the period
at the end of clause (iii) and inserting a comma, and by adding
at the end the following new clauses:
‘‘(iv) any qualified leasehold improvement property
placed in service before January 1, 2006, and
‘‘(v) any qualified restaurant property placed in
service before January 1, 2006.’’.
(b) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY.—Subsection (e) of section 168 is amended by adding at the end the
following new paragraph:
‘‘(6) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY.—The
term ‘qualified leasehold improvement property’ has the
meaning given such term in section 168(k)(3) except that the
following special rules shall apply:
‘‘(A) IMPROVEMENTS MADE BY LESSOR.—In the case of
an improvement made by the person who was the lessor
of such improvement when such improvement was placed
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00013
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1430
PUBLIC LAW 108–357—OCT. 22, 2004
in service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as such
improvement is held by such person.
‘‘(B) EXCEPTION FOR CHANGES IN FORM OF BUSINESS.—
Property shall not cease to be qualified leasehold improvement property under subparagraph (A) by reason of—
‘‘(i) death,
‘‘(ii) a transaction to which section 381(a) applies,
‘‘(iii) a mere change in the form of conducting
the trade or business so long as the property is retained
in such trade or business as qualified leasehold
improvement property and the taxpayer retains a
substantial interest in such trade or business,
‘‘(iv) the acquisition of such property in an
exchange described in section 1031, 1033, or 1038 to
the extent that the basis of such property includes
an amount representing the adjusted basis of other
property owned by the taxpayer or a related person,
or
‘‘(v) the acquisition of such property by the taxpayer in a transaction described in section 332, 351,
361, 721, or 731 (or the acquisition of such property
by the taxpayer from the transferee or acquiring corporation in a transaction described in such section),
to the extent that the basis of the property in the
hands of the taxpayer is determined by reference to
its basis in the hands of the transferor or distributor.’’.
(c) QUALIFIED RESTAURANT PROPERTY.—Subsection (e) of section
168 (as amended by subsection (b)) is further amended by adding
at the end the following new paragraph:
‘‘(7) QUALIFIED RESTAURANT PROPERTY.—The term ‘qualified
restaurant property’ means any section 1250 property which
is an improvement to a building if—
‘‘(A) such improvement is placed in service more than
3 years after the date such building was first placed in
service, and
‘‘(B) more than 50 percent of the building’s square
footage is devoted to preparation of, and seating for onpremises consumption of, prepared meals.’’.
(d) REQUIREMENT TO USE STRAIGHT LINE METHOD.—
(1) Paragraph (3) of section 168(b) is amended by adding
at the end the following new subparagraphs:
‘‘(G) Qualified leasehold improvement property
described in subsection (e)(6).
‘‘(H) Qualified restaurant property described in subsection (e)(7).’’.
(2) Subparagraph (A) of section 168(b)(2) is amended by
inserting before the comma ‘‘not referred to in paragraph (3)’’.
(e) ALTERNATIVE SYSTEM.—The table contained in section
168(g)(3)(B) is amended by adding at the end the following new
items:
‘‘(E)(iv) ...................................................................................
‘‘(E)(v) ....................................................................................
26 USC 168 note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
39
39’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
Jkt 039139
PO 00357
Frm 00014
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1431
Subtitle C—Community Revitalization
SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME
COMMUNITIES FOR NEW MARKETS TAX CREDIT.
(a) TARGETED AREAS.—Paragraph (2) of section 45D(e) (relating
to targeted areas) is amended to read as follows:
‘‘(2) TARGETED POPULATIONS.—The Secretary shall prescribe regulations under which 1 or more targeted populations
(within the meaning of section 103(20) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (12
U.S.C. 4702(20))) may be treated as low-income communities.
Such regulations shall include procedures for determining
which entities are qualified active low-income community
businesses with respect to such populations.’’.
(b) TRACTS WITH LOW POPULATION.—Subsection (e) of section
45D (defining low-income community) is amended by adding at
the end the following:
‘‘(4) TRACTS WITH LOW POPULATION.—A population census
tract with a population of less than 2,000 shall be treated
as a low-income community for purposes of this section if such
tract—
‘‘(A) is within an empowerment zone the designation
of which is in effect under section 1391, and
‘‘(B) is contiguous to 1 or more low-income communities
(determined without regard to this paragraph).’’.
(c) EFFECTIVE DATES.—
(1) TARGETED AREAS.—The amendment made by subsection
(a) shall apply to designations made by the Secretary of the
Treasury after the date of the enactment of this Act.
(2) TRACTS WITH LOW POPULATION.—The amendment made
by subsection (b) shall apply to investments made after the
date of the enactment of this Act.
Regulations.
26 USC 45D
note.
SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA
BASED ON 2000 CENSUS DATA.
(a) IN GENERAL.—Section 1400E (relating to designation of
renewal communities) is amended by adding at the end the following
new subsection:
‘‘(g) EXPANSION OF DESIGNATED AREA BASED ON 2000 CENSUS.—
‘‘(1) IN GENERAL.—At the request of all governments which
nominated an area as a renewal community, the Secretary
of Housing and Urban Development may expand the area of
such community to include any census tract if—
‘‘(A)(i) at the time such community was nominated,
such community would have met the requirements of this
section using 1990 census data even if such tract had
been included in such community, and
‘‘(ii) such tract has a poverty rate using 2000 census
data which exceeds the poverty rate for such tract using
1990 census data, or
‘‘(B)(i) such community would be described in subparagraph (A)(i) but for the failure to meet one or more of
the requirements of paragraphs (2)(C)(i), (3)(C), and (3)(D)
of subsection (c) using 1990 census data,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00015
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1432
26 USC 1400E
note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(ii) such community, including such tract, has a population of not more than 200,000 using either 1990 census
data or 2000 census data,
‘‘(iii) such tract meets the requirement of subsection
(c)(3)(C) using 2000 census data, and
‘‘(iv) such tract meets the requirement of subparagraph
(A)(ii).
‘‘(2) EXCEPTION FOR CERTAIN CENSUS TRACTS WITH LOW
POPULATION IN 1990.—In the case of any census tract which
did not have a poverty rate determined by the Bureau of
the Census using 1990 census data, paragraph (1)(B) shall
be applied without regard to clause (iv) thereof.
‘‘(3) SPECIAL RULE FOR CERTAIN CENSUS TRACTS WITH LOW
POPULATION IN 2000.—At the request of all governments which
nominated an area as a renewal community, the Secretary
of Housing and Urban Development may expand the area of
such community to include any census tract if—
‘‘(A) either—
‘‘(i) such tract has no population using 2000 census
data, or
‘‘(ii) no poverty rate for such tract is determined
by the Bureau of the Census using 2000 census data,
‘‘(B) such tract is one of general distress, and
‘‘(C) such community, including such tract, meets the
requirements of subparagraphs (A) and (B) of subsection
(c)(2).
‘‘(4) PERIOD IN EFFECT.—Any expansion under this subsection shall take effect as provided in subsection (b).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect as if included in the amendments made by section
101 of the Community Renewal Tax Relief Act of 2000.
SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES.
26 USC 45D
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Section 45D(e) (relating to low-income community), as amended by this Act, is amended by inserting after paragraph (4) the following new paragraph:
‘‘(5) MODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES.—
‘‘(A) IN GENERAL.—In the case of a population census
tract located within a high migration rural county, paragraph (1)(B)(i) shall be applied by substituting ‘85 percent’
for ‘80 percent’.
‘‘(B) HIGH MIGRATION RURAL COUNTY.—For purposes
of this paragraph, the term ‘high migration rural county’
means any county which, during the 20-year period ending
with the year in which the most recent census was conducted, has a net out-migration of inhabitants from the
county of at least 10 percent of the population of the
county at the beginning of such period.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendment made by section
121(a) of the Community Renewal Tax Relief Act of 2000.
Jkt 039139
PO 00357
Frm 00016
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1433
Subtitle D—S Corporation Reform and
Simplification
SEC. 231. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) IN GENERAL.—Paragraph (1) of section 1361(c) (relating
to special rules for applying subsection (b)) is amended to read
as follows:
‘‘(1) MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.—
‘‘(A) IN GENERAL.—For purpose of subsection (b)(1)(A)—
‘‘(i) except as provided in clause (ii), a husband
and wife (and their estates) shall be treated as 1 shareholder, and
‘‘(ii) in the case of a family with respect to which
an election is in effect under subparagraph (D), all
members of the family shall be treated as 1 shareholder.
‘‘(B) MEMBERS OF THE FAMILY.—For purpose of
subparagraph (A)(ii)—
‘‘(i) IN GENERAL.—The term ‘members of the family’
means the common ancestor, lineal descendants of the
common ancestor, and the spouses (or former spouses)
of such lineal descendants or common ancestor.
‘‘(ii) COMMON ANCESTOR—For purposes of this
paragraph, an individual shall not be considered a
common ancestor if, as of the later of the effective
date of this paragraph or the time the election under
section 1362(a) is made, the individual is more than
6 generations removed from the youngest generation
of shareholders who would (but for this clause) be
members of the family. For purposes of the preceding
sentence, a spouse (or former spouse) shall be treated
as being of the same generation as the individual to
which such spouse is (or was) married.
‘‘(C) EFFECT OF ADOPTION, ETC.—In determining
whether any relationship specified in subparagraph (B)
exists, the rules of section 152(b)(2) shall apply.
‘‘(D) ELECTION.—An election under subparagraph
(A)(ii)—
‘‘(i) may, except as otherwise provided in regulations prescribed by the Secretary, be made by any
member of the family, and
‘‘(ii) shall remain in effect until terminated as provided in regulations prescribed by the Secretary.’’.
(b) RELIEF FROM INADVERTENT INVALID ELECTION OR TERMINATION.—Section 1362(f) (relating to inadvertent invalid elections
or terminations), as amended by this Act, is amended—
(1) by inserting ‘‘or section 1361(c)(1)(A)(ii)’’ after ‘‘section
1361(b)(3)(B)(ii),’’ in paragraph (1), and
(2) by inserting ‘‘or section 1361(c)(1)(D)(iii)’’ after ‘‘section
1361(b)(3)(C),’’ in paragraph (1)(B).
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall apply to taxable years beginning after December 31,
2004.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00017
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
Regulations.
26 USC 1361
note.
BILLW
PsN: PUBL357
118 STAT. 1434
PUBLIC LAW 108–357—OCT. 22, 2004
(2) SUBSECTION (b).—The amendments made by subsection
(b) shall apply to elections and terminations made after
December 31, 2004.
26 USC 1362
note.
SEC. 232. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO
100.
26 USC 1361
note.
(a) IN GENERAL.—Section 1361(b)(1)(A) (defining small business
corporation) is amended by striking ‘‘75’’ and inserting ‘‘100’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 233. EXPANSION OF BANK S CORPORATION ELIGIBLE SHAREHOLDERS TO INCLUDE IRAS.
(a) IN GENERAL.—Section 1361(c)(2)(A) (relating to certain
trusts permitted as shareholders) is amended by inserting after
clause (v) the following new clause:
‘‘(vi) In the case of a corporation which is a bank
(as defined in section 581), a trust which constitutes
an individual retirement account under section 408(a),
including one designated as a Roth IRA under section
408A, but only to the extent of the stock held by
such trust in such bank as of the date of the enactment
of this clause.’’.
(b) TREATMENT AS SHAREHOLDER.—Section 1361(c)(2)(B)
(relating to treatment as shareholders) is amended by adding at
the end the following new clause:
‘‘(vi) In the case of a trust described in clause
(vi) of subparagraph (A), the individual for whose benefit the trust was created shall be treated as a shareholder.’’.
(c) SALE OF BANK STOCK IN IRA RELATING TO S CORPORATION
ELECTION EXEMPT FROM PROHIBITED TRANSACTION RULES.—Section
4975(d) (relating to exemptions) is amended by striking ‘‘or’’ at
the end of paragraph (14), by striking the period at the end of
paragraph (15) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(16) a sale of stock held by a trust which constitutes
an individual retirement account under section 408(a) to the
individual for whose benefit such account is established if—
‘‘(A) such stock is in a bank (as defined in section
581),
‘‘(B) such stock is held by such trust as of the date
of the enactment of this paragraph,
‘‘(C) such sale is pursuant to an election under section
1362(a) by such bank,
‘‘(D) such sale is for fair market value at the time
of sale (as established by an independent appraiser) and
the terms of the sale are otherwise at least as favorable
to such trust as the terms that would apply on a sale
to an unrelated party,
‘‘(E) such trust does not pay any commissions, costs,
or other expenses in connection with the sale, and
‘‘(F) the stock is sold in a single transaction for cash
not later than 120 days after the S corporation election
is made.’’.
(d) CONFORMING AMENDMENT.—Section 512(e)(1) is amended
by inserting ‘‘1361(c)(2)(A)(vi) or’’ before ‘‘1361(c)(6)’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00018
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1435
(e) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
26 USC 512 note.
SEC. 234. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT
IN DETERMINING POTENTIAL CURRENT BENEFICIARIES
OF ESBT.
(a) IN GENERAL.—Section 1361(e)(2) (defining potential current
beneficiary) is amended—
(1) by inserting ‘‘(determined without regard to any power
of appointment to the extent such power remains unexercised
at the end of such period)’’ after ‘‘of the trust’’ in the first
sentence, and
(2) by striking ‘‘60-day’’ in the second sentence and
inserting ‘‘1-year’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
26 USC 1361
note.
SEC. 235. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE,
ETC.
(a) IN GENERAL.—Section 1366(d)(2) (relating to indefinite
carryover of disallowed losses and deductions) is amended to read
as follows:
‘‘(2) INDEFINITE CARRYOVER OF DISALLOWED LOSSES AND
DEDUCTIONS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), any loss or deduction which is disallowed for any
taxable year by reason of paragraph (1) shall be treated
as incurred by the corporation in the succeeding taxable
year with respect to that shareholder.
‘‘(B) TRANSFERS OF STOCK BETWEEN SPOUSES OR
INCIDENT TO DIVORCE.—In the case of any transfer
described in section 1041(a) of stock of an S corporation,
any loss or deduction described in subparagraph (A) with
respect such stock shall be treated as incurred by the
corporation in the succeeding taxable year with respect
to the transferee.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
26 USC 1366
note.
SEC. 236. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS
BY QUALIFIED SUBCHAPTER S TRUST INCOME BENEFICIARIES.
(a) IN GENERAL.—Section 1361(d)(1) (relating to special rule
for qualified subchapter S trust) is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (A),
(2) by striking the period at the end of subparagraph (B)
and inserting ‘‘, and’’, and
(3) by adding at the end the following new subparagraph:
‘‘(C) for purposes of applying sections 465 and 469
to the beneficiary of the trust, the disposition of the S
corporation stock by the trust shall be treated as a disposition by such beneficiary.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers made after December 31, 2004.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00019
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 1361
note.
BILLW
PsN: PUBL357
118 STAT. 1436
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME TEST FOR BANK S CORPORATIONS.
26 USC 1362
note.
(a) IN GENERAL.—Section 1362(d)(3) (relating to where passive
investment income exceeds 25 percent of gross receipts for 3
consecutive taxable years and corporation has accumulated earnings
and profits) is amended by adding at the end the following new
subparagraph:
‘‘(F) EXCEPTION FOR BANKS; ETC.—In the case of a
bank (as defined in section 581), a bank holding company
(within the meaning of section 2(a) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(a))), or a financial
holding company (within the meaning of section 2(p) of
such Act), the term ‘passive investment income’ shall not
include—
‘‘(i) interest income earned by such bank or company, or
‘‘(ii) dividends on assets required to be held by
such bank or company, including stock in the Federal
Reserve Bank, the Federal Home Loan Bank, or the
Federal Agricultural Mortgage Bank or participation
certificates issued by a Federal Intermediate Credit
Bank.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUBCHAPTER S SUBSIDIARY ELECTIONS AND TERMINATIONS.
26 USC 1362
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Section 1362(f) (relating to inadvertent
invalid elections or terminations) is amended—
(1) by inserting ‘‘, section 1361(b)(3)(B)(ii),’’ after ‘‘subsection (a)’’ in paragraph (1),
(2) by inserting ‘‘, section 1361(b)(3)(C),’’ after ‘‘subsection
(d)’’ in paragraph (1)(B),
(3) by amending paragraph (3)(A) to read as follows:
‘‘(A) so that the corporation for which the election
was made or the termination occurred is a small business
corporation or a qualified subchapter S subsidiary, as the
case may be, or’’,
(4) by amending paragraph (4) to read as follows:
‘‘(4) the corporation for which the election was made or
the termination occurred, and each person who was a shareholder in such corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of such corporation as
an S corporation or a qualified subchapter S subsidiary, as
the case may be) as may be required by the Secretary with
respect to such period,’’, and
(5) by inserting ‘‘or a qualified subchapter S subsidiary,
as the case may be’’ after ‘‘S corporation’’ in the matter following
paragraph (4).
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to elections made and terminations made after December
31, 2004.
Jkt 039139
PO 00357
Frm 00020
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1437
SEC. 239. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S
SUBSIDIARIES.
(a) IN GENERAL.—Section 1361(b)(3)(A) (relating to treatment
of certain wholly owned subsidiaries) is amended by inserting ‘‘and
in the case of information returns required under part III of subchapter A of chapter 61’’ after ‘‘Secretary’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
26 USC 1361
note.
SEC. 240. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURITIES.
(a) IN GENERAL.—Subsection (f) of section 4975 (relating to
other definitions and special rules) is amended by adding at the
end the following new paragraph:
‘‘(7) S CORPORATION REPAYMENT OF LOANS FOR QUALIFYING
EMPLOYER SECURITIES.—A plan shall not be treated as violating
the requirements of section 401 or 409 or subsection (e)(7),
or as engaging in a prohibited transaction for purposes of
subsection (d)(3), merely by reason of any distribution (as
described in section 1368(a)) with respect to S corporation stock
that constitutes qualifying employer securities, which in accordance with the plan provisions is used to make payments on
a loan described in subsection (d)(3) the proceeds of which
were used to acquire such qualifying employer securities
(whether or not allocated to participants). The preceding sentence shall not apply in the case of a distribution which is
paid with respect to any employer security which is allocated
to a participant unless the plan provides that employer securities with a fair market value of not less than the amount
of such distribution are allocated to such participant for the
year which (but for the preceding sentence) such distribution
would have been allocated to such participant.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to distributions with respect to S corporation stock
made after December 31, 1997.
26 USC 4975
note.
Subtitle E—Other Business Incentives
SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND INLAND WATERWAY TRANSPORTATION
WHICH REMAIN IN GENERAL FUND.
(a) TAXES ON TRAINS.—
(1) IN GENERAL.—Clause (ii) of section 4041(a)(1)(C) is
amended by striking subclauses (I), (II), and (III) and inserting
the following new subclauses:
‘‘(I) 3.3 cents per gallon after December 31,
2004, and before July 1, 2005,
‘‘(II) 2.3 cents per gallon after June 30, 2005,
and before January 1, 2007, and
‘‘(III) 0 after December 31, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
‘‘(3) DIESEL FUEL USED IN TRAINS.—In the case of any
sale for use or use after December 31, 2006, there is hereby
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00021
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1438
26 USC 4041
note.
PUBLIC LAW 108–357—OCT. 22, 2004
imposed a tax of 0.1 cent per gallon on any liquid other than
gasoline (as defined in section 4083)—
‘‘(A) sold by any person to an owner, lessee, or other
operator of a diesel-powered train for use as a fuel in
such train, or
‘‘(B) used by any person as a fuel in a diesel-powered
train unless there was a taxable sale of such fuel under
subparagraph (A).
No tax shall be imposed by this paragraph on the sale or
use of any liquid if tax was imposed on such liquid under
section 4081.’’.
(B) Subsection (f) of section 4082 is amended by
striking ‘‘section 4041(a)(1)’’ and inserting ‘‘subsections
(a)(1) and (d)(3) of section 4041’’.
(C) Subparagraph (B) of section 6421(f)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).’’.
(D) Subparagraph (B) of section 6427(l)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).’’.
(b) FUEL USED ON INLAND WATERWAYS.—Subparagraph (C)
of section 4042(b)(2) is amended to read as follows:
‘‘(C) The deficit reduction rate is—
‘‘(i) 3.3 cents per gallon after December 31, 2004,
and before July 1, 2005,
‘‘(ii) 2.3 cents per gallon after June 30, 2005, and
before January 1, 2007, and
‘‘(iii) 0 after December 31, 2006.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST
METHOD OF DEPRECIATION.
(a) IN GENERAL.—Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the
following new paragraph:
‘‘(7) TREATMENT OF PARTICIPATIONS AND RESIDUALS.—
‘‘(A) IN GENERAL.—For purposes of determining the
depreciation deduction allowable with respect to a property
under this subsection, the taxpayer may include participations and residuals with respect to such property in the
adjusted basis of such property for the taxable year in
which the property is placed in service, but only to the
extent that such participations and residuals relate to
income estimated (for purposes of this subsection) to be
earned in connection with the property before the close
of the 10th taxable year referred to in paragraph (1)(A).
‘‘(B) PARTICIPATIONS AND RESIDUALS.—For purposes of
this paragraph, the term ‘participations and residuals’
means, with respect to any property, costs the amount
of which by contract varies with the amount of income
earned in connection with such property.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00022
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1439
‘‘(C) SPECIAL RULES RELATING TO RECOMPUTATION
the adjusted basis of any property is determined
under this paragraph, paragraph (4) shall be applied by
substituting ‘for each taxable year in such period’ for ‘for
such period’.
‘‘(D) OTHER SPECIAL RULES.—
‘‘(i) PARTICIPATIONS AND RESIDUALS.—Notwithstanding subparagraph (A), the taxpayer may exclude
participations and residuals from the adjusted basis
of such property and deduct such participations and
residuals in the taxable year that such participations
and residuals are paid.
‘‘(ii) COORDINATION WITH OTHER RULES.—Deductions computed in accordance with this paragraph shall
be allowable notwithstanding paragraph (1)(B), section
263, 263A, 404, 419, or 461(h).
‘‘(E) AUTHORITY TO MAKE ADJUSTMENTS.—The Secretary shall prescribe appropriate adjustments to the basis
of property and to the look-back method for the additional
amounts allowable as a deduction solely by reason of this
paragraph.’’.
(b) DETERMINATION OF INCOME.—Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and
(F) as subparagraphs (F) and (G), respectively, and inserting after
subparagraph (D) the following new subparagraph:
‘‘(E) TREATMENT OF DISTRIBUTION COSTS.—For purposes
of this subsection, the income with respect to any property
shall be the taxpayer’s gross income from such property.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
YEARS.—If
26 USC 167 note.
SEC. 243. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT
TRUSTS.
(a) EXPANSION OF STRAIGHT DEBT SAFE HARBOR.—Section 856
(defining real estate investment trust) is amended—
(1) in subsection (c) by striking paragraph (7), and
(2) by adding at the end the following new subsection:
‘‘(m) SAFE HARBOR IN APPLYING SUBSECTION (c)(4).—
‘‘(1) IN GENERAL.—In applying subclause (III) of subsection
(c)(4)(B)(iii), except as otherwise determined by the Secretary
in regulations, the following shall not be considered securities
held by the trust:
‘‘(A) Straight debt securities of an issuer which meet
the requirements of paragraph (2).
‘‘(B) Any loan to an individual or an estate.
‘‘(C) Any section 467 rental agreement (as defined in
section 467(d)), other than with a person described in subsection (d)(2)(B).
‘‘(D) Any obligation to pay rents from real property
(as defined in subsection (d)(1)).
‘‘(E) Any security issued by a State or any political
subdivision thereof, the District of Columbia, a foreign
government or any political subdivision thereof, or the
Commonwealth of Puerto Rico, but only if the determination of any payment received or accrued under such security
does not depend in whole or in part on the profits of
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00023
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1440
PUBLIC LAW 108–357—OCT. 22, 2004
any entity not described in this subparagraph or payments
on any obligation issued by such an entity,
‘‘(F) Any security issued by a real estate investment
trust.
‘‘(G) Any other arrangement as determined by the Secretary.
‘‘(2) SPECIAL RULES RELATING TO STRAIGHT DEBT SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1)(A),
securities meet the requirements of this paragraph if such
securities are straight debt, as defined in section 1361(c)(5)
(without regard to subparagraph (B)(iii) thereof).
‘‘(B) SPECIAL RULES RELATING TO CERTAIN CONTINGENCIES.—For purposes of subparagraph (A), any interest
or principal shall not be treated as failing to satisfy section
1361(c)(5)(B)(i) solely by reason of the fact that—
‘‘(i) the time of payment of such interest or principal is subject to a contingency, but only if—
‘‘(I) any such contingency does not have the
effect of changing the effective yield to maturity,
as determined under section 1272, other than a
change in the annual yield to maturity which does
not exceed the greater of 1⁄4 of 1 percent or 5
percent of the annual yield to maturity, or
‘‘(II) neither the aggregate issue price nor the
aggregate face amount of the issuer’s debt
instruments held by the trust exceeds $1,000,000
and not more than 12 months of unaccrued interest
can be required to be prepaid thereunder, or
‘‘(ii) the time or amount of payment is subject
to a contingency upon a default or the exercise of
a prepayment right by the issuer of the debt, but
only if such contingency is consistent with customary
commercial practice.
‘‘(C) SPECIAL RULES RELATING TO CORPORATE OR PARTNERSHIP ISSUERS.—In the case of an issuer which is a
corporation or a partnership, securities that otherwise
would be described in paragraph (1)(A) shall be considered
not to be so described if the trust holding such securities
and any of its controlled taxable REIT subsidiaries (as
defined in subsection (d)(8)(A)(iv)) hold any securities of
the issuer which—
‘‘(i) are not described in paragraph (1) (prior to
the application of this subparagraph), and
‘‘(ii) have an aggregate value greater than 1 percent of the issuer’s outstanding securities determined
without regard to paragraph (3)(A)(i).
‘‘(3) LOOK-THROUGH RULE FOR PARTNERSHIP SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of applying subclause
(III) of subsection (c)(4)(B)(iii)—
‘‘(i) a trust’s interest as a partner in a partnership
(as defined in section 7701(a)(2)) shall not be considered a security, and
‘‘(ii) the trust shall be deemed to own its proportionate share of each of the assets of the partnership.
‘‘(B) DETERMINATION OF TRUST’S INTEREST IN PARTNERSHIP ASSETS.—For purposes of subparagraph (A), with
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00024
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1441
respect to any taxable year beginning after the date of
the enactment of this subparagraph—
‘‘(i) the trust’s interest in the partnership assets
shall be the trust’s proportionate interest in any securities issued by the partnership (determined without
regard to subparagraph (A)(i) and paragraph (4), but
not including securities described in paragraph (1)),
and
‘‘(ii) the value of any debt instrument shall be
the adjusted issue price thereof, as defined in section
1272(a)(4).
‘‘(4) CERTAIN PARTNERSHIP DEBT INSTRUMENTS NOT TREATED
AS A SECURITY.—For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)—
‘‘(A) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considered
a security to the extent of the trust’s interest as a partner
in the partnership, and
‘‘(B) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considered
a security if at least 75 percent of the partnership’s gross
income (excluding gross income from prohibited transactions) is derived from sources referred to in subsection
(c)(3).
‘‘(5) SECRETARIAL GUIDANCE.—The Secretary is authorized
to provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an arrangement shall not be considered a security held by the trust
for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of subsection (c)(5).’’.
(b) CLARIFICATION OF APPLICATION OF LIMITED RENTAL EXCEPTION.—Subparagraph (A) of section 856(d)(8) (relating to special
rules for taxable REIT subsidiaries) is amended to read as follows:
‘‘(A) LIMITED RENTAL EXCEPTION.—
‘‘(i) IN GENERAL.—The requirements of this
subparagraph are met with respect to any property
if at least 90 percent of the leased space of the property
is rented to persons other than taxable REIT subsidiaries of such trust and other than persons described
in paragraph (2)(B).
‘‘(ii) RENTS MUST BE SUBSTANTIALLY COMPARABLE.—Clause (i) shall apply only to the extent
that the amounts paid to the trust as rents from real
property (as defined in paragraph (1) without regard
to paragraph (2)(B)) from such property are substantially comparable to such rents paid by the other tenants of the trust’s property for comparable space.
‘‘(iii) TIMES FOR TESTING RENT COMPARABILITY.—
The substantial comparability requirement of clause
(ii) shall be treated as met with respect to a lease
to a taxable REIT subsidiary of the trust if such
requirement is met under the terms of the lease—
‘‘(I) at the time such lease is entered into,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00025
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1442
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(II) at the time of each extension of the lease,
including a failure to exercise a right to terminate,
and
‘‘(III) at the time of any modification of the
lease between the trust and the taxable REIT subsidiary if the rent under such lease is effectively
increased pursuant to such modification.
With respect to subclause (III), if the taxable REIT
subsidiary of the trust is a controlled taxable REIT
subsidiary of the trust, the term ‘rents from real property’ shall not in any event include rent under such
lease to the extent of the increase in such rent on
account of such modification.
‘‘(iv) CONTROLLED TAXABLE REIT SUBSIDIARY.—For
purposes of clause (iii), the term ‘controlled taxable
REIT subsidiary’ means, with respect to any real estate
investment trust, any taxable REIT subsidiary of such
trust if such trust owns directly or indirectly—
‘‘(I) stock possessing more than 50 percent of
the total voting power of the outstanding stock
of such subsidiary, or
‘‘(II) stock having a value of more than 50
percent of the total value of the outstanding stock
of such subsidiary.
‘‘(v) CONTINUING QUALIFICATION BASED ON THIRD
PARTY ACTIONS.—If the requirements of clause (i) are
met at a time referred to in clause (iii), such requirements shall continue to be treated as met so long
as there is no increase in the space leased to any
taxable REIT subsidiary of such trust or to any person
described in paragraph (2)(B).
‘‘(vi) CORRECTION PERIOD.—If there is an increase
referred to in clause (v) during any calendar quarter
with respect to any property, the requirements of
clause (iii) shall be treated as met during the quarter
and the succeeding quarter if such requirements are
met at the close of such succeeding quarter.’’.
(c) DELETION OF CUSTOMARY SERVICES EXCEPTION.—Subparagraph (B) of section 857(b)(7) (relating to redetermined rents) is
amended by striking clause (ii) and by redesignating clauses (iii),
(iv), (v), (vi), and (vii) as clauses (ii), (iii), (iv), (v), and (vi), respectively.
(d) CONFORMITY WITH GENERAL HEDGING DEFINITION.—
Subparagraph (G) of section 856(c)(5) (relating to treatment of
certain hedging instruments) is amended to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING INSTRUMENTS.—
Except to the extent provided by regulations, any income
of a real estate investment trust from a hedging transaction
(as defined in clause (ii) or (iii) of section 1221(b)(2)(A))
which is clearly identified pursuant to section 1221(a)(7),
including gain from the sale or disposition of such a transaction, shall not constitute gross income under paragraph
(2) to the extent that the transaction hedges any indebtedness incurred or to be incurred by the trust to acquire
or carry real estate assets.’’.
(e) CONFORMITY WITH REGULATED INVESTMENT COMPANY
RULES.—Clause (i) of section 857(b)(5)(A) (relating to imposition
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00026
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1443
of tax in case of failure to meet certain requirements) is amended
by striking ‘‘90 percent’’ and inserting ‘‘95 percent’’.
(f) SAVINGS PROVISIONS.—
(1) RULES OF APPLICATION FOR FAILURE TO SATISFY SECTION
856(c)(4).—Section 856(c) (relating to definition of real estate
investment trust) is amended by inserting after paragraph (6)
the following new paragraph:
‘‘(7) RULES OF APPLICATION FOR FAILURE TO SATISFY PARAGRAPH (4).—
‘‘(A) DE MINIMIS FAILURE.—A corporation, trust, or
association that fails to meet the requirements of paragraph (4)(B)(iii) for a particular quarter shall nevertheless
be considered to have satisfied the requirements of such
paragraph for such quarter if—
‘‘(i) such failure is due to the ownership of assets
the total value of which does not exceed the lesser
of—
‘‘(I) 1 percent of the total value of the trust’s
assets at the end of the quarter for which such
measurement is done, and
‘‘(II) $10,000,000, and
‘‘(ii)(I) the corporation, trust, or association, following the identification of such failure, disposes of
assets in order to meet the requirements of such paragraph within 6 months after the last day of the quarter
in which the corporation, trust or association’s identification of the failure to satisfy the requirements of
such paragraph occurred or such other time period
prescribed by the Secretary and in the manner prescribed by the Secretary, or
‘‘(II) the requirements of such paragraph are otherwise met within the time period specified in subclause
(I).
‘‘(B) FAILURES EXCEEDING DE MINIMIS AMOUNT.—A corporation, trust, or association that fails to meet the requirements of paragraph (4) for a particular quarter shall nevertheless be considered to have satisfied the requirements
of such paragraph for such quarter if—
‘‘(i) such failure involves the ownership of assets
the total value of which exceeds the de minimis
standard described in subparagraph (A)(i) at the end
of the quarter for which such measurement is done,
‘‘(ii) following the corporation, trust, or association’s identification of the failure to satisfy the requirements of such paragraph for a particular quarter, a
description of each asset that causes the corporation,
trust, or association to fail to satisfy the requirements
of such paragraph at the close of such quarter of any
taxable year is set forth in a schedule for such quarter
filed in accordance with regulations prescribed by the
Secretary,
‘‘(iii) the failure to meet the requirements of such
paragraph for a particular quarter is due to reasonable
cause and not due to willful neglect,
‘‘(iv) the corporation, trust, or association pays a
tax computed under subparagraph (C), and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00027
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1444
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(v)(I) the corporation, trust, or association disposes of the assets set forth on the schedule specified
in clause (ii) within 6 months after the last day of
the quarter in which the corporation, trust or association’s identification of the failure to satisfy the requirements of such paragraph occurred or such other time
period prescribed by the Secretary and in the manner
prescribed by the Secretary, or
‘‘(II) the requirements of such paragraph are otherwise met within the time period specified in subclause
(I).
‘‘(C) TAX.—For purposes of subparagraph (B)(iv)—
‘‘(i) TAX IMPOSED.—If a corporation, trust, or
association elects the application of this subparagraph,
there is hereby imposed a tax on the failure described
in subparagraph (B) of such corporation, trust, or
association. Such tax shall be paid by the corporation,
trust, or association.
‘‘(ii) TAX COMPUTED.—The amount of the tax
imposed by clause (i) shall be the greater of—
‘‘(I) $50,000, or
‘‘(II) the amount determined (pursuant to regulations promulgated by the Secretary) by multiplying the net income generated by the assets
described in the schedule specified in subparagraph (B)(ii) for the period specified in clause (iii)
by the highest rate of tax specified in section 11.
‘‘(iii) PERIOD.—For purposes of clause (ii)(II), the
period described in this clause is the period beginning
on the first date that the failure to satisfy the requirements of such paragraph (4) occurs as a result of
the ownership of such assets and ending on the earlier
of the date on which the trust disposes of such assets
or the end of the first quarter when there is no longer
a failure to satisfy such paragraph (4).
‘‘(iv) ADMINISTRATIVE PROVISIONS.—For purposes of
subtitle F, the taxes imposed by this subparagraph
shall be treated as excise taxes with respect to which
the deficiency procedures of such subtitle apply.’’.
(2) MODIFICATION OF RULES OF APPLICATION FOR FAILURE
TO SATISFY SECTIONS 856(c)(2) OR 856(c)(3).—Paragraph (6) of
section 856(c) (relating to definition of real estate investment
trust) is amended by striking subparagraphs (A) and (B), by
redesignating subparagraph (C) as subparagraph (B), and by
inserting before subparagraph (B) (as so redesignated) the following new subparagraph:
‘‘(A) following the corporation, trust, or association’s
identification of the failure to meet the requirements of
paragraph (2) or (3), or of both such paragraphs, for any
taxable year, a description of each item of its gross income
described in such paragraphs is set forth in a schedule
for such taxable year filed in accordance with regulations
prescribed by the Secretary, and’’.
(3) REASONABLE CAUSE EXCEPTION TO LOSS OF REIT STATUS
IF FAILURE TO SATISFY REQUIREMENTS.—Subsection (g) of section
856 (relating to termination of election) is amended—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00028
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1445
(A) in paragraph (1) by inserting before the period
at the end of the first sentence the following: ‘‘unless paragraph (5) applies’’, and
(B) by adding at the end the following new paragraph:
‘‘(5) ENTITIES TO WHICH PARAGRAPH APPLIES.—This paragraph applies to a corporation, trust, or association—
‘‘(A) which is not a real estate investment trust to
which the provisions of this part apply for the taxable
year due to one or more failures to comply with one or
more of the provisions of this part (other than subsection
(c)(6) or (c)(7) of section 856),
‘‘(B) such failures are due to reasonable cause and
not due to willful neglect, and
‘‘(C) if such corporation, trust, or association pays (as
prescribed by the Secretary in regulations and in the same
manner as tax) a penalty of $50,000 for each failure to
satisfy a provision of this part due to reasonable cause
and not willful neglect.’’.
(4) DEDUCTION OF TAX PAID FROM AMOUNT REQUIRED TO
BE DISTRIBUTED.—Subparagraph (E) of section 857(b)(2) is
amended by striking ‘‘(7)’’ and inserting ‘‘(7) of this subsection,
section 856(c)(7)(B)(iii), and section 856(g)(1).’’.
(5) EXPANSION OF DEFICIENCY DIVIDEND PROCEDURE.—Subsection (e) of section 860 is amended by striking ‘‘or’’ at the
end of paragraph (2), by striking the period at the end of
paragraph (3) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) SUBSECTIONS (c) THROUGH (f).—The amendments made
by subsections (c), (d), (e), and (f) shall apply to taxable years
beginning after the date of the enactment of this Act.
26 USC 856 note.
SEC. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION
PRODUCTIONS.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 is
amended by inserting after section 180 the following new section:
‘‘SEC. 181. TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION
PRODUCTIONS.
‘‘(a) ELECTION TO TREAT COSTS AS EXPENSES.—
‘‘(1) IN GENERAL.—A taxpayer may elect to treat the cost
of any qualified film or television production as an expense
which is not chargeable to capital account. Any cost so treated
shall be allowed as a deduction.
‘‘(2) DOLLAR LIMITATION.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
any qualified film or television production the aggregate
cost of which exceeds $15,000,000.
‘‘(B) HIGHER DOLLAR LIMITATION FOR PRODUCTIONS IN
CERTAIN AREAS.—In the case of any qualified film or television production the aggregate cost of which is significantly incurred in an area eligible for designation as—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00029
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1446
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(i) a low-income community under section 45D,
or
‘‘(ii) a distressed county or isolated area of distress
by the Delta Regional Authority established under section 2009aa–1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting
‘$20,000,000’ for ‘$15,000,000’.
‘‘(b) NO OTHER DEDUCTION OR AMORTIZATION DEDUCTION
ALLOWABLE.—With respect to the basis of any qualified film or
television production to which an election is made under subsection
(a), no other depreciation or amortization deduction shall be allowable.
‘‘(c) ELECTION.—
‘‘(1) IN GENERAL.—An election under this section with
respect to any qualified film or television production shall be
made in such manner as prescribed by the Secretary and by
the due date (including extensions) for filing the taxpayer’s
return of tax under this chapter for the taxable year in which
costs of the production are first incurred.
‘‘(2) REVOCATION OF ELECTION.—Any election made under
this section may not be revoked without the consent of the
Secretary.
‘‘(d) QUALIFIED FILM OR TELEVISION PRODUCTION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified film or television
production’ means any production described in paragraph (2)
if 75 percent of the total compensation of the production is
qualified compensation.
‘‘(2) PRODUCTION.—
‘‘(A) IN GENERAL.—A production is described in this
paragraph if such production is property described in section 168(f)(3). For purposes of a television series, only the
first 44 episodes of such series may be taken into account.
‘‘(B) EXCEPTION.—A production is not described in this
paragraph if records are required under section 2257 of
title 18, United States Code, to be maintained with respect
to any performer in such production.
‘‘(3) QUALIFIED COMPENSATION.—For purposes of paragraph
(1)—
‘‘(A) IN GENERAL.—The term ‘qualified compensation’
means compensation for services performed in the United
States by actors, directors, producers, and other relevant
production personnel.
‘‘(B) PARTICIPATIONS AND RESIDUALS EXCLUDED.—The
term ‘compensation’ does not include participations and
residuals (as defined in section 167(g)(7)(B)).
‘‘(e) APPLICATION OF CERTAIN OTHER RULES.—For purposes of
this section, rules similar to the rules of subsections (b)(2) and
(c)(4) of section 194 shall apply.
‘‘(f) TERMINATION.—This section shall not apply to qualified
film and television productions commencing after December 31,
2008.’’.
(b) CONFORMING AMENDMENT.—The table of sections for part
VI of subchapter B of chapter 1 is amended by inserting after
the item relating to section 180 the following new item:
‘‘Sec. 181. Treatment of certain qualified film and television productions.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00030
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1447
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to qualified film and television productions (as defined
in section 181(d)(1) of the Internal Revenue Code of 1986, as added
by this section) commencing after the date of the enactment of
this Act.
26 USC 181 note.
SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits) is amended by adding
at the end the following new section:
‘‘SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the railroad
track maintenance credit determined under this section for the
taxable year is an amount equal to 50 percent of the qualified
railroad track maintenance expenditures paid or incurred by an
eligible taxpayer during the taxable year.
‘‘(b) LIMITATION.—The credit allowed under subsection (a) for
any taxable year shall not exceed the product of—
‘‘(1) $3,500, and
‘‘(2) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year.
A mile of railroad track may be taken into account by a person
other than the owner only if such mile is assigned to such person
by the owner for purposes of this subsection. Any mile which
is so assigned may not be taken into account by the owner for
purposes of this subsection.
‘‘(c) ELIGIBLE TAXPAYER.—For purposes of this section, the term
‘eligible taxpayer’ means—
‘‘(1) any Class II or Class III railroad, and
‘‘(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who furnishes
railroad-related property or services to such a person.
‘‘(d) QUALIFIED RAILROAD TRACK MAINTENANCE EXPENDITURES.—For purposes of this section, the term ‘qualified railroad
track maintenance expenditures’ means expenditures (whether or
not otherwise chargeable to capital account) for maintaining railroad track (including roadbed, bridges, and related track structures)
owned or leased as of January 1, 2005, by a Class II or Class
III railroad.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) CLASS II OR CLASS III RAILROAD.—For purposes of this
section, the terms ‘Class II railroad’ and ‘Class III railroad’
have the respective meanings given such terms by the Surface
Transportation Board.
‘‘(2) CONTROLLED GROUPS.—Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of this
section.
‘‘(3) BASIS ADJUSTMENT.—For purposes of this subtitle, if
a credit is allowed under this section with respect to any
railroad track, the basis of such track shall be reduced by
the amount of the credit so allowed.
‘‘(f) APPLICATION OF SECTION.—This section shall apply to qualified railroad track maintenance expenditures paid or incurred
during taxable years beginning after December 31, 2004, and before
January 1, 2008.’’.
(b) LIMITATION ON CARRYBACK.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00031
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1448
26 USC 39 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(1) IN GENERAL.—Subsection (d) of section 39 is amended
to read as follows:
‘‘(d) TRANSITIONAL RULE.—No portion of the unused business
credit for any taxable year which is attributable to a credit specified
in section 38(b) or any portion thereof may be carried back to
any taxable year before the first taxable year for which such specified credit or such portion is allowable (without regard to subsection
(a)).’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply with respect to taxable years ending after
December 31, 2003.
(c) CONFORMING AMENDMENTS.—
(1) Section 38(b) (relating to general business credit) is
amended by striking ‘‘plus’’ at the end of paragraph (14), by
striking the period at the end of paragraph (15) and inserting
‘‘, plus’’, and by adding at the end the following new paragraph:
‘‘(16) the railroad track maintenance credit determined
under section 45G(a).’’.
(2) Subsection (a) of section 1016 is amended by striking
‘‘and’’ at the end of paragraph (27), by striking the period
at the end of paragraph (28) and inserting ‘‘, and’’, and by
inserting after paragraph (28) the following new paragraph:
‘‘(29) in the case of railroad track with respect to which
a credit was allowed under section 45G, to the extent provided
in section 45G(e)(3).’’.
(d) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 45F the following new item:
‘‘Sec. 45G. Railroad track maintenance credit.’’.
26 USC 38 note.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 246. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, WINE, AND BEER.
(a) IN GENERAL.—Subpart G of part II of subchapter A of
chapter 51 is amended by redesignating section 5148 as section
5149 and by inserting after section 5147 the following new section:
‘‘SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.
‘‘(a) IN GENERAL.—Notwithstanding sections 5081, 5091, 5111,
5121, and 5131, the rate of tax imposed under such sections for
the suspension period shall be zero. During such period, persons
engaged in or carrying on a trade or business covered by such
sections shall register under section 5141 and shall comply with
the recordkeeping requirements under this part.
‘‘(b) SUSPENSION PERIOD.—For purposes of subsection (a), the
suspension period is the period beginning on July 1, 2005, and
ending on June 30, 2008.’’.
(b) CONFORMING AMENDMENT.—Section 5117 is amended by
adding at the end the following new subsection:
‘‘(d) SPECIAL RULE DURING SUSPENSION PERIOD.—Except as
provided in subsection (b) or by the Secretary, during the suspension
period (as defined in section 5148) it shall be unlawful for any
dealer to purchase distilled spirits for resale from any person other
than a wholesale dealer in liquors who is required to keep records
under section 5114.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00032
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1449
(c) CLERICAL AMENDMENT.—The table of sections for subpart
G of part II of subchapter A of chapter 51 is amended by striking
the last item and inserting the following new items:
‘‘Sec. 5148. Suspension of occupational tax.
‘‘Sec. 5149. Cross references.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
26 USC 5117
note.
SEC. 247. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON INVESTMENT IN CERTAIN SMALL BUSINESS
INVESTMENT COMPANIES.
(a) IN GENERAL.—Paragraph (6) of section 514(c) (relating to
acquisition indebtedness) is amended to read as follows:
‘‘(6) CERTAIN FEDERAL FINANCING.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘acquisition indebtedness’ does not include—
‘‘(i) an obligation, to the extent that it is insured
by the Federal Housing Administration, to finance the
purchase, rehabilitation, or construction of housing for
low and moderate income persons, or
‘‘(ii) indebtedness incurred by a small business
investment company licensed after the date of the
enactment of the American Jobs Creation Act of 2004
under the Small Business Investment Act of 1958 if
such indebtedness is evidenced by a debenture—
‘‘(I) issued by such company under section
303(a) of such Act, and
‘‘(II) held or guaranteed by the Small Business
Administration.
‘‘(B) LIMITATION.—Subparagraph (A)(ii) shall not apply
with respect to any small business investment company
during any period that—
‘‘(i) any organization which is exempt from tax
under this title (other than a governmental unit) owns
more than 25 percent of the capital or profits interest
in such company, or
‘‘(ii) organizations which are exempt from tax
under this title (including governmental units other
than any agency or instrumentality of the United
States) own, in the aggregate, 50 percent or more
of the capital or profits interest in such company.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to indebtedness incurred after the date of the enactment
of this Act by a small business investment company licensed after
the date of the enactment of this Act.
26 USC 514 note.
SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN
INTERNATIONAL SHIPPING ACTIVITIES USING PER TON
RATE.
(a) IN GENERAL.—Chapter 1 is amended by inserting after
subchapter Q the following new subchapter:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00033
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1450
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘Subchapter R—Election To Determine Corporate Tax on
Certain International Shipping Activities Using Per Ton
Rate
‘‘Sec.
‘‘Sec.
‘‘Sec.
‘‘Sec.
‘‘Sec.
‘‘Sec.
‘‘Sec.
‘‘Sec.
1352.
1353.
1354.
1355.
1356.
1357.
1358.
1359.
Alternative tax on qualifying shipping activities.
Notional shipping income.
Alternative tax election; revocation; termination.
Definitions and special rules.
Qualifying shipping activities.
Items not subject to regular tax; depreciation; interest.
Allocation of credits, income, and deductions.
Disposition of qualifying vessels.
‘‘SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.
‘‘In the case of an electing corporation, the tax imposed by
section 11 shall be the amount equal to the sum of—
‘‘(1) the tax imposed by section 11 determined after the
application of this subchapter, and
‘‘(2) a tax equal to—
‘‘(A) the highest rate of tax specified in section 11,
multiplied by
‘‘(B) the notional shipping income for the taxable year.
‘‘SEC. 1353. NOTIONAL SHIPPING INCOME.
‘‘(a) IN GENERAL.—For purposes of this subchapter, the notional
shipping income of an electing corporation shall be the sum of
the amounts determined under subsection (b) for each qualifying
vessel operated by such electing corporation.
‘‘(b) AMOUNTS.—
‘‘(1) IN GENERAL.—For purposes of subsection (a), the
amount of notional shipping income of an electing corporation
for each qualifying vessel for the taxable year shall equal
the product of—
‘‘(A) the daily notional shipping income, and
‘‘(B) the number of days during the taxable year that
the electing corporation operated such vessel as a qualifying
vessel in United States foreign trade.
‘‘(2) TREATMENT OF VESSELS THE INCOME FROM WHICH IS
NOT OTHERWISE SUBJECT TO TAX.—In the case of a qualifying
vessel any of the income from which is not included in gross
income by reason of section 883 or otherwise, the amount
of notional shipping income from such vessel for the taxable
year shall be the amount which bears the same ratio to such
shipping income (determined without regard to this paragraph)
as the gross income from the operation of such vessel in the
United States foreign trade bears to the sum of such gross
income and the income so excluded.
‘‘(c) DAILY NOTIONAL SHIPPING INCOME.—For purposes of subsection (b), the daily notional shipping income from the operation
of a qualifying vessel is—
‘‘(1) 40 cents for each 100 tons of so much of the net
tonnage of the vessel as does not exceed 25,000 net tons,
and
‘‘(2) 20 cents for each 100 tons of so much of the net
tonnage of the vessel as exceeds 25,000 net tons.
‘‘(d) MULTIPLE OPERATORS OF VESSEL.—If for any period 2
or more persons are operators of a qualifying vessel, the notional
shipping income from the operation of such vessel for such period
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00034
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1451
shall be allocated among such persons on the basis of their respective ownership and charter interests in such vessel or on such
other basis as the Secretary may prescribe by regulations.
‘‘SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMINATION.
‘‘(a) IN GENERAL.—A qualifying vessel operator may elect the
application of this subchapter.
‘‘(b) TIME AND MANNER; YEARS FOR WHICH EFFECTIVE.—An
election under this subchapter—
‘‘(1) shall be made in such form as prescribed by the Secretary, and
‘‘(2) shall be effective for the taxable year for which made
and all succeeding taxable years until terminated under subsection (d).
Such election may be effective for any taxable year only if made
before the due date (including extensions) for filing the corporation’s
return for such taxable year.
‘‘(c) CONSISTENT ELECTIONS BY MEMBERS OF CONTROLLED
GROUPS.—An election under subsection (a) by a member of a controlled group shall apply to all qualifying vessel operators that
are members of such group.
‘‘(d) TERMINATION.—
‘‘(1) BY REVOCATION.—
‘‘(A) IN GENERAL.—An election under subsection (a)
may be terminated by revocation.
‘‘(B) WHEN EFFECTIVE.—Except as provided in subparagraph (C)—
‘‘(i) a revocation made during the taxable year
and on or before the 15th day of the 3d month thereof
shall be effective on the 1st day of such taxable year,
and
‘‘(ii) a revocation made during the taxable year
but after such 15th day shall be effective on the 1st
day of the following taxable year.
‘‘(C) REVOCATION MAY SPECIFY PROSPECTIVE DATE.—
If the revocation specifies a date for revocation which is
on or after the day on which the revocation is made, the
revocation shall be effective for taxable years beginning
on and after the date so specified.
‘‘(2) BY PERSON CEASING TO BE QUALIFYING VESSEL OPERATOR.—
‘‘(A) IN GENERAL.—An election under subsection (a)
shall be terminated whenever (at any time on or after
the 1st day of the 1st taxable year for which the corporation
is an electing corporation) such corporation ceases to be
a qualifying vessel operator.
‘‘(B) WHEN EFFECTIVE.—Any termination under this
paragraph shall be effective on and after the date of cessation.
‘‘(C) ANNUALIZATION.—The Secretary shall prescribe
such annualization and other rules as are appropriate in
the case of a termination under this paragraph.
‘‘(e) ELECTION AFTER TERMINATION.—If a qualifying vessel operator has made an election under subsection (a) and if such election
has been terminated under subsection (d), such operator (and any
successor operator) shall not be eligible to make an election under
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00035
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1452
PUBLIC LAW 108–357—OCT. 22, 2004
subsection (a) for any taxable year before its 5th taxable year
which begins after the 1st taxable year for which such termination
is effective, unless the Secretary consents to such election.
‘‘SEC. 1355. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this subchapter—
‘‘(1) ELECTING CORPORATION.—The term ‘electing corporation’ means any corporation for which an election is in effect
under this subchapter.
‘‘(2) ELECTING GROUP; CONTROLLED GROUP.—
‘‘(A) ELECTING GROUP.—The term ‘electing group’
means a controlled group of which one or more members
is an electing corporation.
‘‘(B) CONTROLLED GROUP.—The term ‘controlled group’
means any group which would be treated as a single
employer under subsection (a) or (b) of section 52 if paragraphs (1) and (2) of section 52(a) did not apply.
‘‘(3) QUALIFYING VESSEL OPERATOR.—The term ‘qualifying
vessel operator’ means any corporation—
‘‘(A) who operates one or more qualifying vessels, and
‘‘(B) who meets the shipping activity requirement in
subsection (c).
‘‘(4) QUALIFYING VESSEL.—The term ‘qualifying vessel’
means a self-propelled (or a combination self-propelled and
non-self-propelled) United States flag vessel of not less than
10,000 deadweight tons used exclusively in the United States
foreign trade during the period that the election under this
subchapter is in effect.
‘‘(5) UNITED STATES FLAG VESSEL.—The term ‘United States
flag vessel’ means any vessel documented under the laws of
the United States.
‘‘(6) UNITED STATES DOMESTIC TRADE.—The term ‘United
States domestic trade’ means the transportation of goods or
passengers between places in the United States.
‘‘(7) UNITED STATES FOREIGN TRADE.—The term ‘United
States foreign trade’ means the transportation of goods or passengers between a place in the United States and a foreign
place or between foreign places.
‘‘(8) CHARTER.—The term ‘charter’ includes an operating
agreement.
‘‘(b) OPERATING A VESSEL.—For purposes of this subchapter—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
a person is treated as operating any vessel during any period
if such vessel is—
‘‘(A) owned by, or chartered (including a time charter)
to, the person, and
‘‘(B) is in use as a qualifying vessel during such period.
‘‘(2) BAREBOAT CHARTERS.—A person is treated as operating
and using a vessel that it has chartered out on bareboat charter
terms only if—
‘‘(A)(i) the vessel is temporarily surplus to the person’s
requirements and the term of the charter does not exceed
3 years, or
‘‘(ii) the vessel is bareboat chartered to a member of
a controlled group which includes such person or to an
unrelated person who sub-bareboats or time charters the
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00036
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1453
vessel to such a member (including the owner of the vessel),
and
‘‘(B) the vessel is used as a qualifying vessel by the
person to whom ultimately chartered.
‘‘(c) SHIPPING ACTIVITY REQUIREMENT.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, a corporation meets the shipping activity requirement of this subsection for any taxable year only if the requirement of paragraph (4) is met for each of the 2 preceding
taxable years.
‘‘(2) SPECIAL RULE FOR 1ST YEAR OF ELECTION.—A corporation meets the shipping activity requirement of this subsection
for the first taxable year for which the election under section
1354(a) is in effect only if the requirement of paragraph (4)
is met for the preceding taxable year.
‘‘(3) CONTROLLED GROUPS.—A corporation who is a member
of a controlled group meets the shipping activity requirement
of this subsection only if such requirement is met determined—
‘‘(A) by treating all members of such group as 1 person,
and
‘‘(B) by disregarding vessel charters between members
of such group.
‘‘(4) REQUIREMENT.—The requirement of this paragraph is
met for any taxable year if, on average during such year,
at least 25 percent of the aggregate tonnage of qualifying vessels used by the corporation were owned by such corporation
or chartered to such corporation on bareboat charter terms.
‘‘(d) ACTIVITIES CARRIED ON PARTNERSHIPS, ETC.—In applying
this subchapter to a partner in a partnership—
‘‘(1) each partner shall be treated as operating vessels
operated by the partnership,
‘‘(2) each partner shall be treated as conducting the activities conducted by the partnership, and
‘‘(3) the extent of a partner’s ownership or charter interest
in any vessel owned by or chartered to the partnership shall
be determined on the basis of the partner’s interest in the
partnership.
A similar rule shall apply with respect to other pass-thru entities.
‘‘(e) EFFECT OF TEMPORARILY CEASING TO OPERATE A QUALIFYING VESSEL.—
‘‘(1) IN GENERAL.—For purposes of subsections (b) and (c),
an electing corporation shall be treated as continuing to use
a qualifying vessel during any period of temporary cessation
if the electing corporation gives timely notice to the Secretary
stating—
‘‘(A) that it has temporarily ceased to operate the qualifying vessel, and
‘‘(B) its intention to resume operating the qualifying
vessel.
‘‘(2) NOTICE.—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corporation’s tax return for the taxable year in which the temporary
cessation begins.
‘‘(3) PERIOD DISREGARD IN EFFECT.—The period of temporary cessation under paragraph (1) shall continue until the
earlier of the date on which—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00037
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1454
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) the electing corporation abandons its intention
to resume operation of the qualifying vessel, or
‘‘(B) the electing corporation resumes operation of the
qualifying vessel.
‘‘(f) EFFECT OF TEMPORARILY OPERATING A QUALIFYING VESSEL
IN THE UNITED STATES DOMESTIC TRADE.—
‘‘(1) IN GENERAL.—For purposes of this subchapter, an
electing corporation shall be treated as continuing to use a
qualifying vessel in the United States foreign trade during
any period of temporary use in the United States domestic
trade if the electing corporation gives timely notice to the
Secretary stating—
‘‘(A) that it temporarily operates or has operated in
the United States domestic trade a qualifying vessel which
had been used in the United States foreign trade, and
‘‘(B) its intention to resume operation of the vessel
in the United States foreign trade.
‘‘(2) NOTICE.—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corporation’s tax return for the taxable year in which the temporary
cessation begins.
‘‘(3) PERIOD DISREGARD IN EFFECT.—The period of temporary use under paragraph (1) continues until the earlier
of the date of which—
‘‘(A) the electing corporation abandons its intention
to resume operations of the vessel in the United States
foreign trade, or
‘‘(B) the electing corporation resumes operation of the
vessel in the United States foreign trade.
‘‘(4) NO DISREGARD IF DOMESTIC TRADE USE EXCEEDS 30
DAYS.—Paragraph (1) shall not apply to any qualifying vessel
which is operated in the United States domestic trade for
more than 30 days during the taxable year.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes
of this section.
‘‘SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For purposes of this
subchapter, the term ‘qualifying shipping activities’ means—
‘‘(1) core qualifying activities,
‘‘(2) qualifying secondary activities, and
‘‘(3) qualifying incidental activities.
‘‘(b) CORE QUALIFYING ACTIVITIES.—For purposes of this subchapter, the term ‘core qualifying activities’ means activities in
operating qualifying vessels in United States foreign trade.
‘‘(c) QUALIFYING SECONDARY ACTIVITIES.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualifying secondary activities’
means secondary activities but only to the extent that, without
regard to this subchapter, the gross income derived by such
corporation from such activities does not exceed 20 percent
of the gross income derived by the corporation from its core
qualifying activities.
‘‘(2) SECONDARY ACTIVITIES.—The term ‘secondary activities’
means—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00038
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1455
‘‘(A) the active management or operation of vessels
other than qualifying vessels in the United States foreign
trade,
‘‘(B) the provision of vessel, barge, container, or cargorelated facilities or services to any person,
‘‘(C) other activities of the electing corporation and
other members of its electing group that are an integral
part of its business of operating qualifying vessels in United
States foreign trade, including—
‘‘(i) ownership or operation of barges, containers,
chassis, and other equipment that are the complement
of, or used in connection with, a qualifying vessel in
United States foreign trade,
‘‘(ii) the inland haulage of cargo shipped, or to
be shipped, on qualifying vessels in United States foreign trade, and
‘‘(iii) the provision of terminal, maintenance,
repair, logistical, or other vessel, barge, container, or
cargo-related services that are an integral part of operating qualifying vessels in United States foreign trade,
and
‘‘(D) such other activities as may be prescribed by
the Secretary pursuant to regulations.
‘‘(3) COORDINATION WITH CORE ACTIVITIES.—
‘‘(A) IN GENERAL.—Such term shall not include any
core qualifying activities.
‘‘(B) NONELECTING CORPORATIONS.—In the case of a
corporation (other than an electing corporation) which is
a member of an electing group, any core qualifying activities of the corporation shall be treated as qualifying secondary activities (and not as core qualifying activities).
‘‘(d) QUALIFYING INCIDENTAL ACTIVITIES.—For purposes of this
section, the term ‘qualified incidental activities’ means shippingrelated activities if—
‘‘(1) they are incidental to the corporation’s core qualifying
activities,
‘‘(2) they are not qualifying secondary activities, and
‘‘(3) without regard to this subchapter, the gross income
derived by such corporation from such activities does not exceed
0.1 percent of the corporation’s gross income from its core
qualifying activities.
‘‘(e) APPLICATION OF GROSS INCOME TESTS IN CASE OF ELECTING
GROUP.—In the case of an electing group, subsections (c)(1) and
(d)(3) shall be applied as if such group were 1 entity, and the
limitations under such subsections shall be allocated among the
corporations in such group.
‘‘SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION;
INTEREST.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross income of an
electing corporation shall not include its income from qualifying
shipping activities.
‘‘(b) ELECTING GROUP MEMBER.—Gross income of a corporation
(other than an electing corporation) which is a member of an
electing group shall not include its income from qualifying shipping
activities conducted by such member.
‘‘(c) DENIAL OF LOSSES, DEDUCTIONS, AND CREDITS.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00039
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1456
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(1) GENERAL RULE.—Subject to paragraph (2), each item
of loss, deduction (other than for interest expense), or credit
of any taxpayer with respect to any activity the income from
which is excluded from gross income under this section shall
be disallowed.
‘‘(2) DEPRECIATION.—
‘‘(A) IN GENERAL.—Notwithstanding paragraph (1), the
adjusted basis (for purposes of determining gain) of any
qualifying vessel shall be determined as if the deduction
for depreciation had been allowed.
‘‘(B) METHOD.—
‘‘(i) IN GENERAL.—Except as provided in clause
(ii), the straight-line method of depreciation shall apply
to qualifying vessels the income from operation of
which is excluded from gross income under this section.
‘‘(ii) EXCEPTION.—Clause (i) shall not apply to any
qualifying vessel which is subject to a charter entered
into before the date of the enactment of this subchapter.
‘‘(3) INTEREST.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the interest expense of an electing corporation shall
be disallowed in the ratio that the fair market value of
such corporation’s qualifying vessels bears to the fair
market value of such corporation’s total assets.
‘‘(B) ELECTING GROUP.—In the case of a corporation
which is a member of an electing group, the interest
expense of such corporation shall be disallowed in the
ratio that the fair market value of such corporation’s qualifying vessels bears to the fair market value of the electing
groups total assets.
‘‘SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
Applicability.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For purposes of this
chapter, the qualifying shipping activities of an electing corporation
shall be treated as a separate trade or business activity distinct
from all other activities conducted by such corporation.
‘‘(b) EXCLUSION OF CREDITS OR DEDUCTIONS.—
‘‘(1) No deduction shall be allowed against the notional
shipping income of an electing corporation, and no credit shall
be allowed against the tax imposed by section 1352(a)(2).
‘‘(2) No deduction shall be allowed for any net operating
loss attributable to the qualifying shipping activities of any
person to the extent that such loss is carried forward by such
person from a taxable year preceding the first taxable year
for which such person was an electing corporation.
‘‘(c) TRANSACTIONS NOT AT ARM’S LENGTH.—Section 482 applies
in accordance with this subsection to a transaction or series of
transactions—
‘‘(1) as between an electing corporation and another person,
or
‘‘(2) as between an person’s qualifying shipping activities
and other activities carried on by it.
‘‘SEC. 1359. DISPOSITION OF QUALIFYING VESSELS.
‘‘(a) IN GENERAL.—If any qualifying vessel operator sells or
disposes of any qualifying vessel in an otherwise taxable transaction, at the election of such operator, no gain shall be recognized
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00040
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1457
if any replacement qualifying vessel is acquired during the period
specified in subsection (b), except to the extent that the amount
realized upon such sale or disposition exceeds the cost of the replacement qualifying vessel.
‘‘(b) PERIOD WITHIN WHICH PROPERTY MUST BE REPLACED.—
The period referred to in subsection (a) shall be the period beginning
one year prior to the disposition of the qualifying vessel and
ending—
‘‘(1) 3 years after the close of the first taxable year in
which the gain is realized, or
‘‘(2) subject to such terms and conditions as may be specified by the Secretary, on such later date as the Secretary
may designate on application by the taxpayer.
Such application shall be made at such time and in such manner
as the Secretary may by regulations prescribe.
‘‘(c) APPLICATION OF SECTION TO NONCORPORATE OPERATORS.—
For purposes of this section, the term ‘qualifying vessel operator’
includes any person who would be a qualifying vessel operator
were such person a corporation.
‘‘(d) TIME FOR ASSESSMENT OF DEFICIENCY ATTRIBUTABLE TO
GAIN.—If a qualifying vessel operator has made the election provided in subsection (a), then—
‘‘(1) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain
is realized, attributable to such gain shall not expire prior
to the expiration of 3 years from the date the Secretary is
notified by such operator (in such manner as the Secretary
may by regulations prescribe) of the replacement qualifying
vessel or of an intention not to replace, and
‘‘(2) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of section
6212(c) or the provisions of any other law or rule of law which
would otherwise prevent such assessment.
‘‘(e) BASIS OF REPLACEMENT QUALIFYING VESSEL.—In the case
of any replacement qualifying vessel purchased by the qualifying
vessel operator which resulted in the nonrecognition of any part
of the gain realized as the result of a sale or other disposition
of a qualifying vessel, the basis shall be the cost of the replacement
qualifying vessel decreased in the amount of the gain not so recognized; and if the property purchased consists of more than one
piece of property, the basis determined under this sentence shall
be allocated to the purchased properties in proportion to their
respective costs.’’.
(b) TECHNICAL AMENDMENTS.—
(1) The second sentence of section 56(g)(4)(B)(i), as amended
by this Act, is further amended by inserting ‘‘or 1357’’ after
‘‘section 139A’’.
(2) The table of subchapters for chapter 1 is amended
by inserting after the item relating to subchapter S the following new item:
‘‘Subchapter R. Election to determine corporate tax on certain international
shipping activities using per ton rate.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00041
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 56 note.
BILLW
PsN: PUBL357
118 STAT. 1458
PUBLIC LAW 108–357—OCT. 22, 2004
Subtitle F—Stock Options and Employee
Stock Purchase Plan Stock Options
SEC. 251. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE
STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES.
42 USC 409.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) EXCLUSION FROM EMPLOYMENT TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Section 3121(a) (relating to definition of wages)
is amended by striking ‘‘or’’ at the end of paragraph (20),
by striking the period at the end of paragraph (21) and
inserting ‘‘; or’’, and by inserting after paragraph (21) the
following new paragraph:
‘‘(22) remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (as
defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(B) Section 209(a) of the Social Security Act is amended
by striking ‘‘or’’ at the end of paragraph (17), by striking
the period at the end of paragraph (18) and inserting
‘‘; or’’, and by inserting after paragraph (18) the following
new paragraph:
‘‘(19) Remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (as
defined in section 422(b) of the Internal Revenue Code
of 1986) or under an employee stock purchase plan (as
defined in section 423(b) of such Code), or
‘‘(B) any disposition by the individual of such stock.’’.
(2) RAILROAD RETIREMENT TAXES.—Subsection (e) of section
3231 is amended by adding at the end the following new paragraph:
‘‘(12) QUALIFIED STOCK OPTIONS.—The term ‘compensation’
shall not include any remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (as
defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(3) UNEMPLOYMENT TAXES.—Section 3306(b) (relating to
definition of wages) is amended by striking ‘‘or’’ at the end
of paragraph (17), by striking the period at the end of paragraph
(18) and inserting ‘‘; or’’, and by inserting after paragraph
(18) the following new paragraph:
‘‘(19) remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (as
defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(b) WAGE WITHHOLDING NOT REQUIRED ON DISQUALIFYING DISPOSITIONS.—Section 421(b) (relating to effect of disqualifying dispositions) is amended by adding at the end the following new
sentence: ‘‘No amount shall be required to be deducted and withheld
Jkt 039139
PO 00357
Frm 00042
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1459
under chapter 24 with respect to any increase in income attributable
to a disposition described in the preceding sentence.’’.
(c) WAGE WITHHOLDING NOT REQUIRED ON COMPENSATION
WHERE OPTION PRICE IS BETWEEN 85 PERCENT AND 100 PERCENT
OF VALUE OF STOCK.—Section 423(c) (relating to special rule where
option price is between 85 percent and 100 percent of value of
stock) is amended by adding at the end the following new sentence:
‘‘No amount shall be required to be deducted and withheld under
chapter 24 with respect to any amount treated as compensation
under this subsection.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to stock acquired pursuant to options exercised after
the date of the enactment of this Act.
26 USC 421 note.
TITLE III—TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A—Volumetric Ethanol Excise Tax
Credit
SEC. 301. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTENSION OF ALCOHOL FUELS INCOME TAX CREDIT.
(a) IN GENERAL.—Subchapter B of chapter 65 (relating to rules
of special application) is amended by inserting after section 6425
the following new section:
‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
‘‘(a) ALLOWANCE OF CREDITS.—There shall be allowed as a
credit against the tax imposed by section 4081 an amount equal
to the sum of—
‘‘(1) the alcohol fuel mixture credit, plus
‘‘(2) the biodiesel mixture credit.
‘‘(b) ALCOHOL FUEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this section, the alcohol
fuel mixture credit is the product of the applicable amount
and the number of gallons of alcohol used by the taxpayer
in producing any alcohol fuel mixture for sale or use in a
trade or business of the taxpayer.
‘‘(2) APPLICABLE AMOUNT.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the applicable amount is 51 cents.
‘‘(B) MIXTURES NOT CONTAINING ETHANOL.—In the case
of an alcohol fuel mixture in which none of the alcohol
consists of ethanol, the applicable amount is 60 cents.
‘‘(3) ALCOHOL FUEL MIXTURE.—For purposes of this subsection, the term ‘alcohol fuel mixture’ means a mixture of
alcohol and a taxable fuel which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00043
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1460
PUBLIC LAW 108–357—OCT. 22, 2004
For purposes of subparagraph (A), a mixture produced by any
person at a refinery prior to a taxable event which includes
ethyl tertiary butyl ether or other ethers produced from alcohol
shall be treated as sold at the time of its removal from the
refinery (and only at such time) to another person for use
as a fuel.
‘‘(4) OTHER DEFINITIONS.—For purposes of this subsection—
‘‘(A) ALCOHOL.—The term ‘alcohol’ includes methanol
and ethanol but does not include—
‘‘(i) alcohol produced from petroleum, natural gas,
or coal (including peat), or
‘‘(ii) alcohol with a proof of less than 190 (determined without regard to any added denaturants).
Such term also includes an alcohol gallon equivalent of
ethyl tertiary butyl ether or other ethers produced from
such alcohol.
‘‘(B) TAXABLE FUEL.—The term ‘taxable fuel’ has the
meaning given such term by section 4083(a)(1).
‘‘(5) TERMINATION.—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.
‘‘(c) BIODIESEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this section, the biodiesel
mixture credit is the product of the applicable amount and
the number of gallons of biodiesel used by the taxpayer in
producing any biodiesel mixture for sale or use in a trade
or business of the taxpayer.
‘‘(2) APPLICABLE AMOUNT.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the applicable amount is 50 cents.
‘‘(B) AMOUNT FOR AGRI-BIODIESEL.—In the case of any
biodiesel which is agri-biodiesel, the applicable amount is
$1.00.
‘‘(3) BIODIESEL MIXTURE.—For purposes of this section, the
term ‘biodiesel mixture’ means a mixture of biodiesel and diesel
fuel (as defined in section 4083(a)(3)), determined without
regard to any use of kerosene, which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.
‘‘(4) CERTIFICATION FOR BIODIESEL.—No credit shall be
allowed under this subsection unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agribiodiesel in the product.
‘‘(5) OTHER DEFINITIONS.—Any term used in this subsection
which is also used in section 40A shall have the meaning
given such term by section 40A.
‘‘(6) TERMINATION.—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.
‘‘(d) MIXTURE NOT USED AS A FUEL, ETC.—
‘‘(1) IMPOSITION OF TAX.—If—
‘‘(A) any credit was determined under this section with
respect to alcohol or biodiesel used in the production of
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00044
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1461
any alcohol fuel mixture or biodiesel mixture, respectively,
and
‘‘(B) any person—
‘‘(i) separates the alcohol or biodiesel from the
mixture, or
‘‘(ii) without separation, uses the mixture other
than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the applicable amount and the number
of gallons of such alcohol or biodiesel.
‘‘(2) APPLICABLE LAWS.—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent with
this section, apply in respect of any tax imposed under paragraph (1) as if such tax were imposed by section 4081 and
not by this section.
‘‘(e) COORDINATION WITH EXEMPTION FROM EXCISE TAX.—Rules
similar to the rules under section 40(c) shall apply for purposes
of this section.’’.
(b) REGISTRATION REQUIREMENT.—Section 4101(a)(1) (relating
to registration), as amended by section 861, is amended by inserting
‘‘and every person producing or importing biodiesel (as defined
in section 40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))’’
before ‘‘shall register with the Secretary’’.
(c) ADDITIONAL AMENDMENTS.—
(1) Section 40(c) is amended by striking ‘‘subsection (b)(2),
(k), or (m) of section 4041, section 4081(c), or section 4091(c)’’
and inserting ‘‘section 4041(b)(2), section 6426, or section
6427(e)’’.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
‘‘(4) VOLUME OF ALCOHOL.—For purposes of determining
under subsection (a) the number of gallons of alcohol with
respect to which a credit is allowable under subsection (a),
the volume of alcohol shall include the volume of any denaturant (including gasoline) which is added under any formulas
approved by the Secretary to the extent that such denaturants
do not exceed 5 percent of the volume of such alcohol (including
denaturants).’’.
(3) Section 40(e)(1) is amended—
(A) by striking ‘‘2007’’ in subparagraph (A) and
inserting ‘‘2010’’, and
(B) by striking ‘‘2008’’ in subparagraph (B) and
inserting ‘‘2011’’.
(4) Section 40(h) is amended—
(A) by striking ‘‘2007’’ in paragraph (1) and inserting
‘‘2010’’, and
(B) by striking ‘‘, 2006, or 2007’’ in the table contained
in paragraph (2) and inserting ‘‘through 2010’’.
(5) Section 4041(b)(2)(B) is amended by striking ‘‘a substance other than petroleum or natural gas’’ and inserting
‘‘coal (including peat)’’.
(6) Section 4041 is amended by striking subsection (k).
(7) Section 4081 is amended by striking subsection (c).
(8) Paragraph (2) of section 4083(a) is amended to read
as follows:
‘‘(2) GASOLINE.—The term ‘gasoline’—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00045
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1462
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) includes any gasoline blend, other than qualified
methanol or ethanol fuel (as defined in section
4041(b)(2)(B)), partially exempt methanol or ethanol fuel
(as defined in section 4041(m)(2)), or a denatured alcohol,
and
‘‘(B) includes, to the extent prescribed in regulations—
‘‘(i) any gasoline blend stock, and
‘‘(ii) any product commonly used as an additive
in gasoline (other than alcohol).
For purposes of subparagraph (B)(i), the term ‘gasoline blend
stock’ means any petroleum product component of gasoline.’’.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:
‘‘(e) ALCOHOL OR BIODIESEL USED TO PRODUCE ALCOHOL FUEL
AND BIODIESEL MIXTURES.—Except as provided in subsection (k)—
‘‘(1) USED TO PRODUCE A MIXTURE.—If any person produces
a mixture described in section 6426 in such person’s trade
or business, the Secretary shall pay (without interest) to such
person an amount equal to the alcohol fuel mixture credit
or the biodiesel mixture credit with respect to such mixture.
‘‘(2) COORDINATION WITH OTHER REPAYMENT PROVISIONS.—
No amount shall be payable under paragraph (1) with respect
to any mixture with respect to which an amount is allowed
as a credit under section 6426.
‘‘(3) TERMINATION.—This subsection shall not apply with
respect to—
‘‘(A) any alcohol fuel mixture (as defined in section
6426(b)(3)) sold or used after December 31, 2010, and
‘‘(B) any biodiesel mixture (as defined in section
6426(c)(3)) sold or used after December 31, 2006.’’.
(10) Section 6427(i)(3) is amended—
(A) by striking ‘‘subsection (f)’’ both places it appears
in subparagraph (A) and inserting ‘‘subsection (e)(1)’’,
(B) by striking ‘‘gasoline, diesel fuel, or kerosene used
to produce a qualified alcohol mixture (as defined in section
4081(c)(3))’’ in subparagraph (A) and inserting ‘‘a mixture
described in section 6426’’,
(C) by adding at the end of subparagraph (A) the
following new flush sentence:
‘‘In the case of an electronic claim, this subparagraph shall
be applied without regard to clause (i).’’,
(D) by striking ‘‘subsection (f)(1)’’ in subparagraph (B)
and inserting ‘‘subsection (e)(1)’’,
(E) by striking ‘‘20 days of the date of the filing of
such claim’’ in subparagraph (B) and inserting ‘‘45 days
of the date of the filing of such claim (20 days in the
case of an electronic claim)’’, and
(F) by striking ‘‘ALCOHOL MIXTURE’’ in the heading and
inserting ‘‘ALCOHOL FUEL AND BIODIESEL MIXTURE’’.
(11) Section 9503(b)(1) is amended by adding at the end
the following new flush sentence:
‘‘For purposes of this paragraph, taxes received under sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.’’.
(12) Section 9503(b)(4) is amended—
(A) by adding ‘‘or’’ at the end of subparagraph (C),
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00046
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1463
(B) by striking the comma at the end of subparagraph
(D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(13) Section 9503(c)(2)(A) is amended by adding at the
end the following: ‘‘Clauses (i)(III) and (ii) shall not apply
to claims under section 6427(e).’’.
(14) The table of sections for subchapter B of chapter
65 is amended by inserting after the item relating to section
6425 the following new item:
‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to
fuel sold or used after December 31, 2004.
(2) REGISTRATION REQUIREMENT.—The amendment made
by subsection (b) shall take effect on April 1, 2005.
(3) EXTENSION OF ALCOHOL FUELS CREDIT.—The amendments made by paragraphs (3), (4), and (14) of subsection
(c) shall take effect on the date of the enactment of this Act.
(4) REPEAL OF GENERAL FUND RETENTION OF CERTAIN
ALCOHOL FUELS TAXES.—The amendments made by subsection
(c)(12) shall apply to fuel sold or used after September 30,
2004.
(e) FORMAT FOR FILING.—The Secretary of the Treasury shall
describe the electronic format for filing claims described in section
6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amended
by subsection (c)(10)(C)) not later than December 31, 2004.
26 USC 40 note.
Applicability.
Deadline.
26 USC 6427
note.
SEC. 302. BIODIESEL INCOME TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended by
inserting after section 40 the following new section:
‘‘SEC. 40A. BIODIESEL USED AS FUEL.
‘‘(a) GENERAL RULE.—For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year
is an amount equal to the sum of—
‘‘(1) the biodiesel mixture credit, plus
‘‘(2) the biodiesel credit.
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT AND BIODIESEL
CREDIT.—For purposes of this section—
‘‘(1) BIODIESEL MIXTURE CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel mixture credit of any
taxpayer for any taxable year is 50 cents for each gallon
of biodiesel used by the taxpayer in the production of
a qualified biodiesel mixture.
‘‘(B) QUALIFIED BIODIESEL MIXTURE.—The term ‘qualified biodiesel mixture’ means a mixture of biodiesel and
diesel fuel (as defined in section 4083(a)(3)), determined
without regard to any use of kerosene, which—
‘‘(i) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(ii) is used as a fuel by the taxpayer producing
such mixture.
‘‘(C) SALE OR USE MUST BE IN TRADE OR BUSINESS,
ETC.—Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00047
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1464
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer,
and
‘‘(ii) for the taxable year in which such sale or
use occurs.
‘‘(D) CASUAL OFF-FARM PRODUCTION NOT ELIGIBLE.—
No credit shall be allowed under this section with respect
to any casual off-farm production of a qualified biodiesel
mixture.
‘‘(2) BIODIESEL CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel credit of any taxpayer
for any taxable year is 50 cents for each gallon of biodiesel
which is not in a mixture with diesel fuel and which
during the taxable year—
‘‘(i) is used by the taxpayer as a fuel in a trade
or business, or
‘‘(ii) is sold by the taxpayer at retail to a person
and placed in the fuel tank of such person’s vehicle.
‘‘(B) USER CREDIT NOT TO APPLY TO BIODIESEL SOLD
AT RETAIL.—No credit shall be allowed under subparagraph
(A)(i) with respect to any biodiesel which was sold in a
retail sale described in subparagraph (A)(ii).
‘‘(3) CREDIT FOR AGRI-BIODIESEL.—In the case of any biodiesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shall
be applied by substituting ‘$1.00’ for ‘50 cents’.
‘‘(4) CERTIFICATION FOR BIODIESEL.—No credit shall be
allowed under this section unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary)
from the producer or importer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agribiodiesel in the product.
‘‘(c) COORDINATION WITH CREDIT AGAINST EXCISE TAX.—The
amount of the credit determined under this section with respect
to any biodiesel shall be properly reduced to take into account
any benefit provided with respect to such biodiesel solely by reason
of the application of section 6426 or 6427(e).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) BIODIESEL.—The term ‘biodiesel’ means the monoalkyl
esters of long chain fatty acids derived from plant or animal
matter which meet—
‘‘(A) the registration requirements for fuels and fuel
additives established by the Environmental Protection
Agency under section 211 of the Clean Air Act (42 U.S.C.
7545), and
‘‘(B) the requirements of the American Society of
Testing and Materials D6751.
‘‘(2) AGRI-BIODIESEL.—The term ‘agri-biodiesel’ means biodiesel derived solely from virgin oils, including esters derived
from virgin vegetable oils from corn, soybeans, sunflower seeds,
cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds,
rice bran, and mustard seeds, and from animal fats.
‘‘(3) MIXTURE OR BIODIESEL NOT USED AS A FUEL, ETC.—
‘‘(A) MIXTURES.—If—
‘‘(i) any credit was determined under this section
with respect to biodiesel used in the production of
any qualified biodiesel mixture, and
Jkt 039139
PO 00357
Frm 00048
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1465
‘‘(ii) any person—
‘‘(I) separates the biodiesel from the mixture,
or
‘‘(II) without separation, uses the mixture
other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(1)(A) and the number of gallons of such biodiesel in
such mixture.
‘‘(B) BIODIESEL.—If—
‘‘(i) any credit was determined under this section
with respect to the retail sale of any biodiesel, and
‘‘(ii) any person mixes such biodiesel or uses such
biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(2)(A) and the number of gallons of such biodiesel.
‘‘(C) APPLICABLE LAWS.—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed
under subparagraph (A) or (B) as if such tax were imposed
by section 4081 and not by this chapter.
‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS.—
Under regulations prescribed by the Secretary, rules similar
to the rules of subsection (d) of section 52 shall apply.
‘‘(e) TERMINATION.—This section shall not apply to any sale
or use after December 31, 2006.’’.
(b) CREDIT TREATED AS PART OF GENERAL BUSINESS CREDIT.—
Section 38(b) (relating to current year business credit), as amended
by this Act, is amended by striking ‘‘plus’’ at the end of paragraph
(15), by striking the period at the end of paragraph (16) and
inserting ‘‘, plus’’, and by inserting after paragraph (16) the following new paragraph:
‘‘(17) the biodiesel fuels credit determined under section
40A(a).’’.
(c) CONFORMING AMENDMENTS.—
(1)(A) Section 87 is amended to read as follows:
Regulations.
Applicability.
‘‘SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.
‘‘Gross income includes—
‘‘(1) the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section
40(a), and
‘‘(2) the biodiesel fuels credit determined with respect to
the taxpayer for the taxable year under section 40A(a).’’.
(B) The item relating to section 87 in the table of sections
for part II of subchapter B of chapter 1 is amended by striking
‘‘fuel credit’’ and inserting ‘‘and biodiesel fuels credits’’.
(2) Section 196(c) is amended by striking ‘‘and’’ at the
end of paragraph (9), by striking the period at the end of
paragraph (10) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(11) the biodiesel fuels credit determined under section
40A(a).’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00049
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1466
PUBLIC LAW 108–357—OCT. 22, 2004
(3) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding after the item
relating to section 40 the following new item:
‘‘Sec. 40A. Biodiesel used as fuel.’’.
26 USC 38 note.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to fuel produced, and sold or used, after December
31, 2004, in taxable years ending after such date.
SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX BENEFITS.
(a) IN GENERAL.—Subpart C of part III of subchapter A of
chapter 32 is amended by adding at the end the following new
section:
‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX BENEFITS.
Applicability.
‘‘(a) IN GENERAL.—The Secretary shall require any person
claiming tax benefits—
‘‘(1) under the provisions of section 34, 40, and 40A, to
file a return at the time such person claims such benefits
(in such manner as the Secretary may prescribe), and
‘‘(2) under the provisions of section 4041(b)(2), 6426, or
6427(e) to file a quarterly return (in such manner as the Secretary may prescribe).
‘‘(b) CONTENTS OF RETURN.—Any return filed under this section
shall provide such information relating to such benefits and the
coordination of such benefits as the Secretary may require to ensure
the proper administration and use of such benefits.
‘‘(c) ENFORCEMENT.—With respect to any person described in
subsection (a) and subject to registration requirements under this
title, rules similar to rules of section 4222(c) shall apply with
respect to any requirement under this section.’’.
(b) CONFORMING AMENDMENT.—The table of sections for subpart C of part III of subchapter A of chapter 32 is amended by
adding at the end the following new item:
‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’.
26 USC 4104
note.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
Subtitle B—Agricultural Incentives
SEC. 311. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF
WEATHER-RELATED CONDITIONS.
(a) REPLACEMENT OF LIVESTOCK WITH
ERTY.—Subsection (f) of section 1033 (relating
OTHER FARM PROPto involuntary conver-
sions) is amended—
(1) by inserting ‘‘drought, flood, or other weather-related
conditions, or’’ after ‘‘because of’’,
(2) by inserting ‘‘in the case of soil contamination or other
environmental contamination’’ after ‘‘including real property’’,
and
(3) by striking ‘‘WHERE THERE HAS BEEN ENVIRONMENTAL
CONTAMINATION’’ in the heading and inserting ‘‘IN CERTAIN
CASES’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00050
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1467
(b) EXTENSION OF REPLACEMENT PERIOD OF INVOLUNTARILY
CONVERTED LIVESTOCK.—Subsection (e) of section 1033 (relating
to involuntary conversions) is amended—
(1) by striking ‘‘CONDITIONS.—For purposes’’ and inserting
‘‘CONDITIONS.—
‘‘(1) IN GENERAL.—For purposes’’, and
(2) by adding at the end the following new paragraph:
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—
‘‘(A) IN GENERAL.—In the case of drought, flood, or
other weather-related conditions described in paragraph
(1) which result in the area being designated as eligible
for assistance by the Federal Government, subsection
(a)(2)(B) shall be applied with respect to any converted
property by substituting ‘4 years’ for ‘2 years’.
‘‘(B) FURTHER EXTENSION BY SECRETARY.—The Secretary may extend on a regional basis the period for
replacement under this section (after the application of
subparagraph (A)) for such additional time as the Secretary
determines appropriate if the weather-related conditions
which resulted in such application continue for more than
3 years.’’.
(c) INCOME INCLUSION RULES.—Section 451(e) (relating to special rule for proceeds from livestock sold on account of drought,
flood, or other weather-related conditions) is amended by adding
at the end the following new paragraph:
‘‘(3) SPECIAL ELECTION RULES.—If section 1033(e)(2) applies
to a sale or exchange of livestock described in paragraph (1),
the election under paragraph (1) shall be deemed valid if made
during the replacement period described in such section.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to any taxable year with respect to which the due
date (without regard to extensions) for the return is after December
31, 2002.
26 USC 451 note.
SEC. 312. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT REDUCING PATRONAGE DIVIDENDS.
(a) IN GENERAL.—Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end the
following: ‘‘For purposes of paragraph (3), net earnings shall not
be reduced by amounts paid during the year as dividends on capital
stock or other proprietary capital interests of the organization to
the extent that the articles of incorporation or bylaws of such
organization or other contract with patrons provide that such dividends are in addition to amounts otherwise payable to patrons
which are derived from business done with or for patrons during
the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to distributions in taxable years beginning after the
date of the enactment of this Act.
26 USC 1388
note.
SEC. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.
(a) ALLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF
COOPERATIVE.—Section 40(g) (relating to definitions and special
rules for eligible small ethanol producer credit) is amended by
adding at the end the following new paragraph:
‘‘(6) ALLOCATION OF SMALL ETHANOL PRODUCER CREDIT TO
PATRONS OF COOPERATIVE.—
‘‘(A) ELECTION TO ALLOCATE.—
A
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00051
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1468
26 USC 40 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(i) IN GENERAL.—In the case of a cooperative
organization described in section 1381(a), any portion
of the credit determined under subsection (a)(3) for
the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the
organization on the basis of the quantity or value
of business done with or for such patrons for the taxable year.
‘‘(ii) FORM AND EFFECT OF ELECTION.—An election
under clause (i) for any taxable year shall be made
on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year.
‘‘(B) TREATMENT OF ORGANIZATIONS AND PATRONS.—
‘‘(i) ORGANIZATIONS.—The amount of the credit not
apportioned to patrons pursuant to subparagraph (A)
shall be included in the amount determined under
subsection (a)(3) for the taxable year of the organization.
‘‘(ii) PATRONS.—The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall
be included in the amount determined under such subsection for the first taxable year of each patron ending
on or after the last day of the payment period (as
defined in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of each
patron ending on or after the date on which the patron
receives notice from the cooperative of the apportionment.
‘‘(iii) SPECIAL RULES FOR DECREASE IN CREDITS FOR
TAXABLE YEAR.—If the amount of the credit of the
organization determined under such subsection for a
taxable year is less than the amount of such credit
shown on the return of the organization for such year,
an amount equal to the excess of—
‘‘(I) such reduction, over
‘‘(II) the amount not apportioned to such
patrons under subparagraph (A) for the taxable
year,
shall be treated as an increase in tax imposed by
this chapter on the organization. Such increase shall
not be treated as tax imposed by this chapter for
purposes of determining the amount of any credit
under this chapter or for purposes of section 55.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND THE ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Section 55(c) (defining regular tax) is
amended by redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following new paragraph:
‘‘(2) COORDINATION WITH INCOME AVERAGING FOR FARMERS
AND FISHERMEN.—Solely for purposes of this section, section
1301 (relating to averaging of farm and fishing income) shall
not apply in computing the regular tax.’’.
(b) ALLOWING INCOME AVERAGING FOR FISHERMEN.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00052
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1469
(1) IN GENERAL.—Section 1301(a) is amended by striking
‘‘farming business’’ and inserting ‘‘farming business or fishing
business’’.
(2) DEFINITION OF ELECTED FARM INCOME.—
(A) IN GENERAL.—Clause (i) of section 1301(b)(1)(A)
is amended by inserting ‘‘or fishing business’’ before the
semicolon.
(B) CONFORMING AMENDMENT.—Subparagraph (B) of
section 1301(b)(1) is amended by inserting ‘‘or fishing business’’ after ‘‘farming business’’ both places it occurs.
(3) DEFINITION OF FISHING BUSINESS.—Section 1301(b) is
amended by adding at the end the following new paragraph:
‘‘(4) FISHING BUSINESS.—The term ‘fishing business’ means
the conduct of commercial fishing as defined in section 3 of
the Magnuson-Stevens Fishery Conservation and Management
Act (16 U.S.C. 1802).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
26 USC 55 note.
SEC. 315. CAPITAL GAIN TREATMENT UNDER SECTION 631(b) TO APPLY
TO OUTRIGHT SALES BY LANDOWNERS.
(a) IN GENERAL.—The first sentence of section 631(b) (relating
to disposal of timber with a retained economic interest) is amended
by striking ‘‘retains an economic interest in such timber’’ and
inserting ‘‘either retains an economic interest in such timber or
makes an outright sale of such timber’’.
(b) CONFORMING AMENDMENTS.—
(1) The third sentence of section 631(b) is amended by
striking ‘‘The date of disposal’’ and inserting ‘‘In the case of
disposal of timber with a retained economic interest, the date
of disposal’’.
(2) The heading for section 631(b) is amended by striking
‘‘WITH A RETAINED ECONOMIC INTEREST’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales after December 31, 2004.
26 USC 631 note.
SEC. 316. MODIFICATION TO COOPERATIVE MARKETING RULES TO
INCLUDE VALUE ADDED PROCESSING INVOLVING ANIMALS.
(a) IN GENERAL.—Section 1388 (relating to definitions and special rules) is amended by adding at the end the following new
subsection:
‘‘(k) COOPERATIVE MARKETING INCLUDES VALUE-ADDED PROCESSING INVOLVING ANIMALS.—For purposes of section 521 and this
subchapter, the marketing of the products of members or other
producers shall include the feeding of such products to cattle, hogs,
fish, chickens, or other animals and the sale of the resulting animals
or animal products.’’.
(b) CONFORMING AMENDMENT.—Section 521(b) is amended by
adding at the end the following new paragraph:
‘‘(7) CROSS REFERENCE.—
‘‘For treatment of value-added processing involving animals, see
section 1388(k).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00053
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 521 note.
BILLW
PsN: PUBL357
118 STAT. 1470
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO
FARMERS’ COOPERATIVE ORGANIZATIONS.
(a) IN GENERAL.—Section 7428(a)(1) (relating to declaratory
judgments of tax exempt organizations) is amended by striking
‘‘or’’ at the end of subparagraph (B) and by adding at the end
the following new subparagraph:
‘‘(D) with respect to the initial classification or continuing classification of a cooperative as an organization
described in section 521(b) which is exempt from tax under
section 521(a), or’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to pleadings filed after the date of the
enactment of this Act.
26 USC 7428
note.
SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
26 USC 162 note.
(a) IN GENERAL.—Section 162(o) (relating to treatment of certain reimbursed expenses of rural mail carriers) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following:
‘‘(2) SPECIAL RULE WHERE EXPENSES EXCEED REIMBURSEMENTS.—Notwithstanding paragraph (1)(A), if the expenses
incurred by an employee for the use of a vehicle in performing
services described in paragraph (1) exceed the qualified
reimbursements for such expenses, such excess shall be taken
into account in computing the miscellaneous itemized deductions of the employee under section 67.’’.
(b) CONFORMING AMENDMENT.—The heading for section 162(o)
is amended by striking ‘‘REIMBURSED’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DECOMMISTRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section 501(c)(12)
is amended by striking clause (ii) and adding at the end the
following:
‘‘(ii) from any provision or sale of electric energy
transmission services or ancillary services if such services are provided on a nondiscriminatory open access
basis under an open access transmission tariff
approved or accepted by FERC or under an independent transmission provider agreement approved or
accepted by FERC (other than income received or
accrued directly or indirectly from a member),
‘‘(iii) from the provision or sale of electric energy
distribution services or ancillary services if such services are provided on a nondiscriminatory open access
basis to distribute electric energy not owned by the
mutual or electric cooperative company—
‘‘(I) to end-users who are served by distribution
facilities not owned by such company or any of
its members (other than income received or
accrued directly or indirectly from a member), or
‘‘(II) generated by a generation facility not
owned or leased by such company or any of its
SIONING
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00054
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1471
members and which is directly connected to distribution facilities owned by such company or any
of its members (other than income received or
accrued directly or indirectly from a member),
‘‘(iv) from any nuclear decommissioning transaction, or
‘‘(v) from any asset exchange or conversion transaction.
Clauses (ii) through (v) shall not apply to taxable years
beginning after December 31, 2006.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Paragraph (12) of
section 501(c) is amended by adding at the end the following
new subparagraphs:
‘‘(E) For purposes of subparagraph (C)(ii), the term
‘FERC’ means the Federal Energy Regulatory Commission
and references to such term shall be treated as including
the Public Utility Commission of Texas with respect to
any ERCOT utility (as defined in section 212(k)(2)(B) of
the Federal Power Act (16 U.S.C. 824k(k)(2)(B))).
‘‘(F) For purposes of subparagraph (C)(iii), the term
‘nuclear decommissioning transaction’ means—
‘‘(i) any transfer into a trust, fund, or instrument
established to pay any nuclear decommissioning costs
if the transfer is in connection with the transfer of
the mutual or cooperative electric company’s interest
in a nuclear power plant or nuclear power plant unit,
‘‘(ii) any distribution from any trust, fund, or
instrument established to pay any nuclear decommissioning costs, or
‘‘(iii) any earnings from any trust, fund, or
instrument established to pay any nuclear decommissioning costs.
‘‘(G) For purposes of subparagraph (C)(iv), the term
‘asset exchange or conversion transaction’ means any voluntary exchange or involuntary conversion of any property
related to generating, transmitting, distributing, or selling
electric energy by a mutual or cooperative electric company,
the gain from which qualifies for deferred recognition under
section 1031 or 1033, but only if the replacement property
acquired by such company pursuant to such section constitutes property which is used, or to be used, for—
‘‘(i) generating, transmitting, distributing, or
selling electric energy, or
‘‘(ii) producing, transmitting, distributing, or
selling natural gas.’’.
(b) TREATMENT OF INCOME FROM LOAD LOSS TRANSACTIONS,
ETC.—Paragraph (12) of section 501(c), as amended by subsection
(a)(2), is amended by adding after subparagraph (G) the following
new subparagraph:
‘‘(H)(i) In the case of a mutual or cooperative electric
company described in this paragraph or an organization
described in section 1381(a)(2)(C), income received or
accrued from a load loss transaction shall be treated as
an amount collected from members for the sole purpose
of meeting losses and expenses.
‘‘(ii) For purposes of clause (i), the term ‘load loss
transaction’ means any wholesale or retail sale of electric
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00055
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1472
PUBLIC LAW 108–357—OCT. 22, 2004
energy (other than to members) to the extent that the
aggregate sales during the recovery period do not exceed
the load loss mitigation sales limit for such period.
‘‘(iii) For purposes of clause (ii), the load loss mitigation
sales limit for the recovery period is the sum of the annual
load losses for each year of such period.
‘‘(iv) For purposes of clause (iii), a mutual or cooperative electric company’s annual load loss for each year of
the recovery period is the amount (if any) by which—
‘‘(I) the megawatt hours of electric energy sold
during such year to members of such electric company
are less than
‘‘(II) the megawatt hours of electric energy sold
during the base year to such members.
‘‘(v) For purposes of clause (iv)(II), the term ‘base year’
means—
‘‘(I) the calendar year preceding the start-up year,
or
‘‘(II) at the election of the mutual or cooperative
electric company, the second or third calendar years
preceding the start-up year.
‘‘(vi) For purposes of this subparagraph, the recovery
period is the 7-year period beginning with the start-up
year.
‘‘(vii) For purposes of this subparagraph, the startup year is the first year that the mutual or cooperative
electric company offers nondiscriminatory open access or
the calendar year which includes the date of the enactment
of this subparagraph, if later, at the election of such company.
‘‘(viii) A company shall not fail to be treated as a
mutual or cooperative electric company for purposes of
this paragraph or as a corporation operating on a cooperative basis for purposes of section 1381(a)(2)(C) by reason
of the treatment under clause (i).
‘‘(ix) For purposes of subparagraph (A), in the case
of a mutual or cooperative electric company, income
received, or accrued, indirectly from a member shall be
treated as an amount collected from members for the sole
purpose of meeting losses and expenses.
‘‘(x) This subparagraph shall not apply to taxable years
beginning after December 31, 2006.’’.
(c) EXCEPTION FROM UNRELATED BUSINESS TAXABLE INCOME.—
Subsection (b) of section 512 (relating to modifications) is amended
by adding at the end the following new paragraph:
‘‘(18) TREATMENT OF MUTUAL OR COOPERATIVE ELECTRIC
COMPANIES.—In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be excluded
income which is treated as member income under subparagraph
(H) thereof.’’.
(d) CROSS REFERENCE.—Section 1381 is amended by adding
at the end the following new subsection:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00056
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1473
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss transactions of organizations described in subsection (a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
26 USC 501 note.
SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER
NATIONAL HEALTH SERVICE CORPS LOAN REPAYMENT
PROGRAM AND CERTAIN STATE LOAN REPAYMENT PROGRAMS.
(a) IN GENERAL.—Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
‘‘(4) PAYMENTS UNDER NATIONAL HEALTH SERVICE CORPS
LOAN REPAYMENT PROGRAM AND CERTAIN STATE LOAN REPAYMENT PROGRAMS.—In the case of an individual, gross income
shall not include any amount received under section 338B(g)
of the Public Health Service Act or under a State program
described in section 338I of such Act.’’.
(b) TREATMENT FOR PURPOSES OF EMPLOYMENT TAXES.—Each
of the following provisions is amended by inserting ‘‘108(f)(4),’’ after
‘‘74(c),’’:
(1) Section 3121(a)(20).
(2) Section 3231(e)(5).
(3) Section 3306(b)(16).
(4) Section 3401(a)(19).
(5) Section 209(a)(17) of the Social Security Act.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts received by an individual in taxable years
beginning after December 31, 2003.
42 USC 409.
26 USC 108 note.
SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.
(a) EXPANSION OF PROHIBITED TRANSACTION SAFE HARBOR.—
Section 857(b)(6) (relating to income from prohibited transactions)
is amended by redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F), respectively, and by inserting after subparagraph (C) the following new subparagraph:
‘‘(D) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED
TRANSACTIONS.—For purposes of this part, the term ‘prohibited transaction’ does not include a sale of property which
is a real estate asset (as defined in section 856(c)(5)(B))
if—
‘‘(i) the trust held the property for not less than
4 years in connection with the trade or business of
producing timber,
‘‘(ii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year period
preceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),
and
‘‘(II) are directly related to operation of the
property for the production of timber or for the
preservation of the property for use as timberland,
do not exceed 30 percent of the net selling price of
the property,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00057
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1474
26 USC 857 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(iii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year period
preceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),
and
‘‘(II) are not directly related to operation of
the property for the production of timber, or for
the preservation of the property for use as
timberland,
do not exceed 5 percent of the net selling price of
the property,
‘‘(iv)(I) during the taxable year the trust does not
make more than 7 sales of property (other than sales
of foreclosure property or sales to which section 1033
applies), or
‘‘(II) the aggregate adjusted bases (as determined
for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales
to which section 1033 applies) sold during the taxable
year does not exceed 10 percent of the aggregate bases
(as so determined) of all of the assets of the trust
as of the beginning of the taxable year,
‘‘(v) in the case that the requirement of clause
(iv)(I) is not satisfied, substantially all of the marketing
expenditures with respect to the property were made
through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not
derive or receive any income, and
‘‘(vi) the sales price of the property sold by the
trust is not based in whole or in part on income or
profits, including income or profits derived from the
sale or operation of such property.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) IN GENERAL.—So much of subsection (b) of section 194
(relating to amortization of reforestation expenditures) as precedes
paragraph (2) is amended to read as follows:
‘‘(b) TREATMENT AS EXPENSES.—
‘‘(1) ELECTION TO TREAT CERTAIN REFORESTATION EXPENDITURES AS EXPENSES.—
‘‘(A) IN GENERAL.—In the case of any qualified timber
property with respect to which the taxpayer has made
(in accordance with regulations prescribed by the Secretary)
an election under this subsection, the taxpayer shall treat
reforestation expenditures which are paid or incurred
during the taxable year with respect to such property as
an expense which is not chargeable to capital account.
The reforestation expenditures so treated shall be allowed
as a deduction.
‘‘(B) DOLLAR LIMITATION.—The aggregate amount of
reforestation expenditures which may be taken into account
under subparagraph (A) with respect to each qualified
timber property for any taxable year shall not exceed
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00058
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1475
$10,000 ($5,000 in the case of a separate return by a
married individual (as defined in section 7703)).’’.
(b) NET AMORTIZABLE BASIS.—Section 194(c)(2) (defining
amortizable basis) is amended by inserting ‘‘which have not been
taken into account under subsection (b)’’ after ‘‘expenditures’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 194(b) is amended by striking paragraphs (3)
and (4).
(2) Section 194(b)(2) is amended by striking ‘‘paragraph
(1)’’ both places it appears and inserting ‘‘paragraph (1)(B)’’.
(3) Section 194(c) is amended by striking paragraph (4)
and inserting the following new paragraphs:
‘‘(4) TREATMENT OF TRUSTS AND ESTATES.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), this section shall not apply to trusts and estates.
‘‘(B) AMORTIZATION DEDUCTION ALLOWED TO ESTATES.—
The benefit of the deduction for amortization provided by
subsection (a) shall be allowed to estates in the same
manner as in the case of an individual. The allowable
deduction shall be apportioned between the income beneficiary and the fiduciary under regulations prescribed by
the Secretary. Any amount so apportioned to a beneficiary
shall be taken into account for purposes of determining
the amount allowable as a deduction under subsection (a)
to such beneficiary.
‘‘(5) APPLICATION WITH OTHER DEDUCTIONS.—No deduction
shall be allowed under any other provision of this chapter
with respect to any expenditure with respect to which a deduction is allowed or allowable under this section to the taxpayer.’’.
(4) The heading for section 194 is amended by striking
‘‘AMORTIZATION’’ and inserting ‘‘TREATMENT’’.
(5) The item relating to section 194 in the table of sections
for part VI of subchapter B of chapter 1 is amended by striking
‘‘Amortization’’ and inserting ‘‘Treatment’’.
(d) REPEAL OF REFORESTATION CREDIT.—
(1) IN GENERAL.—Section 46 (relating to amount of credit)
is amended—
(A) by adding ‘‘and’’ at the end of paragraph (1),
(B) by striking ‘‘, and’’ at the end of paragraph (2)
and inserting a period, and
(C) by striking paragraph (3).
(2) CONFORMING AMENDMENTS.—
(A) Section 48 is amended—
(i) by striking subsection (b),
(ii) by striking ‘‘this subsection’’ in paragraph (5)
of subsection (a) and inserting ‘‘subsection (a)’’, and
(iii) by redesignating such paragraph (5) as subsection (b).
(B) The heading for section 48 is amended by striking
‘‘; REFORESTATION CREDIT’’.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of chapter
1 is amended by striking ‘‘, reforestation credit’’.
(D) Section 50(c)(3) is amended by striking ‘‘or reforestation credit’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00059
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1476
PUBLIC LAW 108–357—OCT. 22, 2004
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to expenditures paid or incurred after
the date of the enactment of this Act.
Subtitle C—Incentives for Small
Manufacturers
SEC. 331. NET INCOME FROM PUBLICLY TRADED PARTNERSHIPS
TREATED AS QUALIFYING INCOME OF REGULATED
INVESTMENT COMPANIES.
(a) IN GENERAL.—Paragraph (2) of section 851(b) (defining regulated investment company) is amended to read as follows:
‘‘(2) at least 90 percent of its gross income is derived
from—
‘‘(A) dividends, interest, payments with respect to securities loans (as defined in section 512(a)(5)), and gains
from the sale or other disposition of stock or securities
(as defined in section 2(a)(36) of the Investment Company
Act of 1940, as amended) or foreign currencies, or other
income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies,
and
‘‘(B) net income derived from an interest in a qualified
publicly traded partnership (as defined in subsection (h));
and’’.
(b) SOURCE FLOW-THROUGH RULE NOT TO APPLY.—The last
sentence of section 851(b) is amended by inserting ‘‘(other than
a qualified publicly traded partnership as defined in subsection
(h))’’ after ‘‘derived from a partnership’’.
(c) LIMITATION ON OWNERSHIP.—Subsection (c) of section 851
is amended by redesignating paragraph (5) as paragraph (6) and
inserting after paragraph (4) the following new paragraph:
‘‘(5) The term ‘outstanding voting securities of such issuer’
shall include the equity securities of a qualified publicly traded
partnership (as defined in subsection (h)).’’.
(d) DEFINITION OF QUALIFIED PUBLICLY TRADED PARTNERSHIP.—Section 851 is amended by adding at the end the following
new subsection:
‘‘(h) QUALIFIED PUBLICLY TRADED PARTNERSHIP.—For purposes
of this section, the term ‘qualified publicly traded partnership’
means a publicly traded partnership described in section 7704(b)
other than a partnership which would satisfy the gross income
requirements of section 7704(c)(2) if qualifying income included
only income described in subsection (b)(2)(A).’’.
(e) DEFINITION OF QUALIFYING INCOME.—Section 7704(d)(4) is
amended by striking ‘‘section 851(b)(2)’’ and inserting ‘‘section
851(b)(2)(A)’’.
(f) LIMITATION ON COMPOSITION OF ASSETS.—Subparagraph (B)
of section 851(b)(3) is amended to read as follows:
‘‘(B) not more than 25 percent of the value of its
total assets is invested in—
‘‘(i) the securities (other than Government securities or the securities of other regulated investment
companies) of any one issuer,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00060
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1477
‘‘(ii) the securities (other than the securities of
other regulated investment companies) of two or more
issuers which the taxpayer controls and which are
determined, under regulations prescribed by the Secretary, to be engaged in the same or similar trades
or businesses or related trades or businesses, or
‘‘(iii) the securities of one or more qualified publicly
traded partnerships (as defined in subsection (h)).’’.
(g) APPLICATION OF SPECIAL PASSIVE ACTIVITY RULE TO REGULATED INVESTMENT COMPANIES.—Subsection (k) of section 469
(relating to separate application of section in case of publicly traded
partnerships) is amended by adding at the end the following new
paragraph:
‘‘(4) APPLICATION TO REGULATED INVESTMENT COMPANIES.—
For purposes of this section, a regulated investment company
(as defined in section 851) holding an interest in a qualified
publicly traded partnership (as defined in section 851(h)) shall
be treated as a taxpayer described in subsection (a)(2) with
respect to items attributable to such interest.’’.
(h) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
26 USC 469 note.
SEC. 332. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND
ARROWS.
(a) BOWS.—Paragraph (1) of section 4161(b) (relating to bows)
is amended to read as follows:
‘‘(1) BOWS.—
‘‘(A) IN GENERAL.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a peak draw weight of 30 pounds or more,
a tax equal to 11 percent of the price for which so sold.
‘‘(B) ARCHERY EQUIPMENT.—There is hereby imposed
on the sale by the manufacturer, producer, or importer—
‘‘(i) of any part or accessory suitable for inclusion
in or attachment to a bow described in subparagraph
(A), and
‘‘(ii) of any quiver or broadhead suitable for use
with an arrow described in paragraph (2),
a tax equal to 11 percent of the price for which so sold.’’.
(b) ARROWS.—Subsection (b) of section 4161 (relating to bows
and arrows, etc.) is amended by redesignating paragraph (3) as
paragraph (4) and inserting after paragraph (2) the following:
‘‘(3) ARROWS.—
‘‘(A) IN GENERAL.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
arrow, a tax equal to 12 percent of the price for which
so sold.
‘‘(B) EXCEPTION.—In the case of any arrow of which
the shaft or any other component has been previously
taxed under paragraph (1) or (2)—
‘‘(i) section 6416(b)(3) shall not apply, and
‘‘(ii) the tax imposed by subparagraph (A) shall
be an amount equal to the excess (if any) of—
‘‘(I) the amount of tax imposed by this paragraph (determined without regard to this subparagraph), over
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00061
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1478
26 USC 4161
note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(II) the amount of tax paid with respect to
the tax imposed under paragraph (1) or (2) on
such shaft or component.
‘‘(C) ARROW.—For purposes of this paragraph, the term
‘arrow’ means any shaft described in paragraph (2) to which
additional components are attached.’’.
(c)
CONFORMING
AMENDMENTS.—Section
4161(b)(2)
is
amended—
(1) by inserting ‘‘(other than broadheads)’’ after ‘‘point’’,
and
(2) by striking ‘‘ARROWS.—’’ in the heading and inserting
‘‘ARROW COMPONENTS.—’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to articles sold by the manufacturer, producer, or
importer after the date which is 30 days after the date of the
enactment of this Act.
SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.
Applicability.
26 USC 4161
note.
(a) IN GENERAL.—Subsection (a) of section 4161 (relating to
sport fishing equipment) is amended by redesignating paragraph
(3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
‘‘(3) 3 PERCENT RATE OF TAX FOR TACKLE BOXES.—In the
case of fishing tackle boxes, paragraph (1) shall be applied
by substituting ‘3 percent’ for ‘10 percent’.’’.
(b) EFFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importer
after December 31, 2004.
SEC. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.
26 USC 4162
note.
(a) NOT TREATED AS SPORT FISHING EQUIPMENT.—Subsection
(a) of section 4162 (relating to sport fishing equipment defined)
is amended by inserting ‘‘and’’ at the end of paragraph (8), by
striking ‘‘, and’’ at the end of paragraph (9) and inserting a period,
and by striking paragraph (10).
(b) CONFORMING AMENDMENT.—Section 4162 is amended by
striking subsection (b) and by redesignating subsection (c) as subsection (b).
(c) EFFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importer
after December 31, 2004.
SEC. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN
EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN
SUBSISTENCE WHALING.
(a) IN GENERAL.—Section 170 (relating to charitable, etc., contributions and gifts), as amended by this Act, is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
‘‘(n) EXPENSES PAID BY CERTAIN WHALING CAPTAINS IN SUPPORT
OF NATIVE ALASKAN SUBSISTENCE WHALING.—
‘‘(1) IN GENERAL.—In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as a
whaling captain charged with the responsibility of maintaining
and carrying out sanctioned whaling activities and who engages
in such activities during the taxable year, the amount described
in paragraph (2) (to the extent such amount does not exceed
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00062
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1479
$10,000 for the taxable year) shall be treated for purposes
of this section as a charitable contribution.
‘‘(2) AMOUNT DESCRIBED.—
‘‘(A) IN GENERAL.—The amount described in this paragraph is the aggregate of the reasonable and necessary
whaling expenses paid by the taxpayer during the taxable
year in carrying out sanctioned whaling activities.
‘‘(B) WHALING EXPENSES.—For purposes of subparagraph (A), the term ‘whaling expenses’ includes expenses
for—
‘‘(i) the acquisition and maintenance of whaling
boats, weapons, and gear used in sanctioned whaling
activities,
‘‘(ii) the supplying of food for the crew and other
provisions for carrying out such activities, and
‘‘(iii) storage and distribution of the catch from
such activities.
‘‘(3) SANCTIONED WHALING ACTIVITIES.—For purposes of this
subsection, the term ‘sanctioned whaling activities’ means
subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling
Commission.
‘‘(4) SUBSTANTIATION OF EXPENSES.—The Secretary shall
issue guidance requiring that the taxpayer substantiate the
whaling expenses for which a deduction is claimed under this
subsection, including by maintaining appropriate written
records with respect to the time, place, date, amount, and
nature of the expense, as well as the taxpayer’s eligibility
for such deduction, and that (to the extent provided by the
Secretary) such substantiation be provided as part of the taxpayer’s return of tax.’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to contributions made after December 31, 2004.
Regulations.
26 USC 170 note.
SEC. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.
(a) AIRCRAFT TREATED AS QUALIFIED PROPERTY.—
(1) IN GENERAL.—Paragraph (2) of section 168(k) is
amended by redesignating subparagraphs (C) through (F) as
subparagraphs (D) through (G), respectively, and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) CERTAIN AIRCRAFT.—The term ‘qualified property’
includes property—
‘‘(i) which meets the requirements of clauses (ii)
and (iii) of subparagraph (A),
‘‘(ii) which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii))
other than for agricultural or firefighting purposes,
‘‘(iii) which is purchased and on which such purchaser, at the time of the contract for purchase, has
made a nonrefundable deposit of the lesser of—
‘‘(I) 10 percent of the cost, or
‘‘(II) $100,000, and
‘‘(iv) which has—
‘‘(I) an estimated production period exceeding
4 months, and
‘‘(II) a cost exceeding $200,000.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00063
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1480
26 USC 168 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(2) PLACED IN SERVICE DATE.—Clause (iv) of section
168(k)(2)(A) is amended by striking ‘‘subparagraph (B)’’ and
inserting ‘‘subparagraphs (B) and (C)’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 168(k)(2)(B) is amended by adding at the end
the following new clause:
‘‘(iv) APPLICATION OF SUBPARAGRAPH.—This
subparagraph shall not apply to any property which
is described in subparagraph (C).’’.
(2) Section 168(k)(4)(A)(ii) is amended by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘paragraph (2)(D)’’.
(3) Section 168(k)(4)(B)(iii) is amended by inserting ‘‘and
paragraph (2)(C)’’ after ‘‘of this paragraph)’’.
(4) Section 168(k)(4)(C) is amended by striking ‘‘subparagraphs (B) and (D)’’ and inserting ‘‘subparagraphs (B), (C),
and (E)’’.
(5) Section 168(k)(4)(D) is amended by striking ‘‘Paragraph
(2)(E)’’ and inserting ‘‘Paragraph (2)(F)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect as if included in the amendments made by section
101 of the Job Creation and Worker Assistance Act of 2002.
SEC. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS
DEPRECIATION PROPERTY.
26 USC 168 note.
(a) IN GENERAL.—Subclause (II) of section 168(k)(2)(E)(iii)
(relating to syndication), as amended by the Working Families
Tax Relief Act of 2004 and as redesignated by this Act, is amended
by inserting before the comma at the end the following: ‘‘(or, in
the case of multiple units of property subject to the same lease,
within 3 months after the date the final unit is placed in service,
so long as the period between the time the first unit is placed
in service and the time the last unit is placed in service does
not exceed 12 months)’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to property sold after June 4, 2004.
SEC. 338. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING
WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR
REGULATIONS.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amended
by inserting after section 179A the following new section:
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY
SULFUR REGULATIONS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a small business refiner (as defined in section 45H(c)(1)) which elects the
application of this section, there shall be allowed as a deduction
an amount equal to 75 percent of qualified capital costs (as defined
in section 45H(c)(2)) which are paid or incurred by the taxpayer
during the taxable year.
‘‘(b) REDUCED PERCENTAGE.—In the case of a small business
refiner with average daily domestic refinery runs for the 1-year
period ending on December 31, 2002, in excess of 155,000 barrels,
the number of percentage points described in subsection (a) shall
be reduced (not below zero) by the product of such number (before
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00064
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1481
the application of this subsection) and the ratio of such excess
to 50,000 barrels.
‘‘(c) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of
such property taken into account under subsection (a).
‘‘(2) ORDINARY INCOME RECAPTURE.—For purposes of section
1245, the amount of the deduction allowable under subsection
(a) with respect to any property which is of a character subject
to the allowance for depreciation shall be treated as a deduction
allowed for depreciation under section 167.’’.
‘‘(d) COORDINATION WITH OTHER PROVISIONS.—Section 280B
shall not apply to amounts which are treated as expenses under
this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ‘‘or’’ at the end of subparagraph (G), by striking
the period at the end of subparagraph (H) and inserting ‘‘,
or’’, and by adding at the end the following new subparagraph:
‘‘(I) expenditures for which a deduction is allowed
under section 179B.’’.
(2) Section 263A(c)(3) is amended by inserting ‘‘179B,’’ after
‘‘section’’.
(3) Section 312(k)(3)(B) is amended by striking ‘‘or 179A’’
each place it appears in the heading and text and inserting
‘‘179A, or 179B’’.
(4) Section 1016(a) is amended by striking ‘‘and’’ at the
end of paragraph (28), by striking the period at the end of
paragraph (29) and inserting ‘‘, and’’, and by inserting after
paragraph (29) the following new paragraph:
‘‘(30) to the extent provided in section 179B(c).’’.
(5) Paragraphs (2)(C) and (3)(C) of section 1245(a) are
each amended by inserting ‘‘179B,’’ after ‘‘179A,’’.
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by inserting
after the item relating to section 179A the following new item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations.’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to expenses paid or incurred after December 31, 2002,
in taxable years ending after such date.
26 USC 179B
note.
SEC. 339. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended by
this Act, is amended by inserting after section 45G the following
new section:
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
‘‘(a) IN GENERAL.—For purposes of section 38, the amount of
the low sulfur diesel fuel production credit determined under this
section with respect to any facility of a small business refiner
is an amount equal to 5 cents for each gallon of low sulfur diesel
fuel produced during the taxable year by such small business refiner
at such facility.
‘‘(b) MAXIMUM CREDIT.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00065
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1482
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(1) IN GENERAL.—The aggregate credit determined under
subsection (a) for any taxable year with respect to any facility
shall not exceed—
‘‘(A) 25 percent of the qualified capital costs incurred
by the small business refiner with respect to such facility,
reduced by
‘‘(B) the aggregate credits determined under this section for all prior taxable years with respect to such facility.
‘‘(2) REDUCED PERCENTAGE.—In the case of a small business
refiner with average daily domestic refinery runs for the 1year period ending on December 31, 2002, in excess of 155,000
barrels, the number of percentage points described in paragraph
(1) shall be reduced (not below zero) by the product of such
number (before the application of this paragraph) and the ratio
of such excess to 50,000 barrels.
‘‘(c) DEFINITIONS AND SPECIAL RULE.—For purposes of this
section—
‘‘(1) SMALL BUSINESS REFINER.—The term ‘small business
refiner’ means, with respect to any taxable year, a refiner
of crude oil—
‘‘(A) with respect to which not more than 1,500 individuals are engaged in the refinery operations of the business
on any day during such taxable year, and
‘‘(B) the average daily domestic refinery run or average
retained production of which for all facilities of the taxpayer
for the 1-year period ending on December 31, 2002, did
not exceed 205,000 barrels.
‘‘(2) QUALIFIED CAPITAL COSTS.—The term ‘qualified capital
costs’ means, with respect to any facility, those costs paid
or incurred during the applicable period for compliance with
the applicable EPA regulations with respect to such facility,
including expenditures for the construction of new process operation units or the dismantling and reconstruction of existing
process units to be used in the production of low sulfur diesel
fuel, associated adjacent or offsite equipment (including tankage, catalyst, and power supply), engineering, construction
period interest, and sitework.
‘‘(3) APPLICABLE EPA REGULATIONS.—The term ‘applicable
EPA regulations’ means the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency.
‘‘(4) APPLICABLE PERIOD.—The term ‘applicable period’
means, with respect to any facility, the period beginning on
January 1, 2003, and ending on the earlier of the date which
is 1 year after the date on which the taxpayer must comply
with the applicable EPA regulations with respect to such facility
or December 31, 2009.
‘‘(5) LOW SULFUR DIESEL FUEL.—The term ‘low sulfur diesel
fuel’ means diesel fuel with a sulfur content of 15 parts per
million or less.
‘‘(d) REDUCTION IN BASIS.—For purposes of this subtitle, if
a credit is determined under this section for any expenditure with
respect to any property, the increase in basis of such property
which would (but for this subsection) result from such expenditure
shall be reduced by the amount of the credit so determined.
‘‘(e) SPECIAL RULE FOR DETERMINATION OF REFINERY RUNS.—
For purposes this section and section 179B(b), in the calculation
of average daily domestic refinery run or retained production, only
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00066
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1483
refineries which on April 1, 2003, were refineries of the refiner
or a related person (within the meaning of section 613A(d)(3)),
shall be taken into account.
‘‘(f) CERTIFICATION.—
‘‘(1) REQUIRED.—No credit shall be allowed unless, not later
than the date which is 30 months after the first day of the
first taxable year in which the low sulfur diesel fuel production
credit is determined with respect to a facility, the small business refiner obtains certification from the Secretary, after consultation with the Administrator of the Environmental Protection Agency, that the taxpayer’s qualified capital costs with
respect to such facility will result in compliance with the
applicable EPA regulations.
‘‘(2) CONTENTS OF APPLICATION.—An application for certification shall include relevant information regarding unit capacities and operating characteristics sufficient for the Secretary,
after consultation with the Administrator of the Environmental
Protection Agency, to determine that such qualified capital
costs are necessary for compliance with the applicable EPA
regulations.
‘‘(3) REVIEW PERIOD.—Any application shall be reviewed
and notice of certification, if applicable, shall be made within
60 days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such certification
within such period, the taxpayer may presume the certification
to be issued until so notified.
‘‘(4) STATUTE OF LIMITATIONS.—With respect to the credit
allowed under this section—
‘‘(A) the statutory period for the assessment of any
deficiency attributable to such credit shall not expire before
the end of the 3-year period ending on the date that the
review period described in paragraph (3) ends with respect
to the taxpayer, and
‘‘(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions
of any other law or rule of law which would otherwise
prevent such assessment.
‘‘(g) COOPERATIVE ORGANIZATIONS.—
‘‘(1) APPORTIONMENT OF CREDIT.—
‘‘(A) IN GENERAL.—In the case of a cooperative
organization described in section 1381(a), any portion of
the credit determined under subsection (a) for the taxable
year may, at the election of the organization, be apportioned
among patrons eligible to share in patronage dividends
on the basis of the quantity or value of business done
with or for such patrons for the taxable year.
‘‘(B) FORM AND EFFECT OF ELECTION.—An election
under subparagraph (A) for any taxable year shall be made
on a timely filed return for such year. Such election, once
made, shall be irrevocable for such taxable year.
‘‘(2) TREATMENT OF ORGANIZATIONS AND PATRONS.—
‘‘(A) ORGANIZATIONS.—The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
‘‘(B) PATRONS.—The amount of the credit apportioned
to patrons pursuant to paragraph (1) shall be included
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00067
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1484
PUBLIC LAW 108–357—OCT. 22, 2004
in the amount determined under subsection (a) for the
first taxable year of each patron ending on or after the
last day of the payment period (as defined in section
1382(d)) for the taxable year of the organization or, if
earlier, for the taxable year of each patron ending on or
after the date on which the patron receives notice from
the cooperative of the apportionment.
‘‘(3) SPECIAL RULE.—If the amount of a credit which has
been apportioned to any patron under this subsection is
decreased for any reason—
‘‘(A) such amount shall not increase the tax imposed
on such patron, and
‘‘(B) the tax imposed by this chapter on such organization shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as
tax imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes of
section 55.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT.—Subsection (b) of section 38 (relating to general business credit), as
amended by this Act, is amended by striking ‘‘plus’’ at the end
of paragraph (16), by striking the period at the end of paragraph
(17) and inserting ‘‘, plus’’, and by inserting after paragraph (17)
the following new paragraph:
‘‘(18) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C (relating to
certain expenses for which credits are allowable) is amended by
adding at the end the following new subsection:
‘‘(d) LOW SULFUR DIESEL FUEL PRODUCTION CREDIT.—No deduction shall be allowed for that portion of the expenses otherwise
allowable as a deduction for the taxable year which is equal to
the amount of the credit determined for the taxable year under
section 45H(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating to adjustments to basis), as amended by this Act, is amended by striking
‘‘and’’ at the end of paragraph (29), by striking the period at the
end of paragraph (30) and inserting ‘‘, and’’, and by inserting after
paragraph (30) the following new paragraph:
‘‘(31) in the case of a facility with respect to which a
credit was allowed under section 45H, to the extent provided
in section 45H(d).’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.—Section 196(c) (defining qualified business credits), as amended by
this Act, is amended by striking ‘‘and’’ at the end of paragraph
(10), by striking the period at the end of paragraph (11) and
inserting ‘‘, and’’, and by adding after paragraph (11) the following
new paragraph:
‘‘(12) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.
(e) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after the item relating to section
45G the following new item:
‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00068
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1485
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to expenses paid or incurred after December 31, 2002,
in taxable years ending after such date.
26 USC 38 note.
SEC. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) IN GENERAL.—Section 144(a)(4) (relating to $10,000,000
limit in certain cases) is amended by adding at the end the following
new subparagraph:
‘‘(G) ADDITIONAL CAPITAL EXPENDITURES NOT TAKEN
INTO ACCOUNT.—With respect to bonds issued after September 30, 2009, in addition to any capital expenditure
described in subparagraph (C), capital expenditures of not
to exceed $10,000,000 shall not be taken into account for
purposes of applying subparagraph (A)(ii).’’.
(b) CONFORMING AMENDMENT.—Subparagraph (F) of section
144(a)(4) is amended by adding at the end the following new sentence: ‘‘This subparagraph shall not apply to bonds issued after
September 30, 2009.’’.
SEC. 341. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business credits), as amended by this Act,
is amended by inserting after section 45H the following:
‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL
WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38, the marginal
well production credit for any taxable year is an amount equal
to the product of—
‘‘(1) the credit amount, and
‘‘(2) the qualified credit oil production and the qualified
natural gas production which is attributable to the taxpayer.
‘‘(b) CREDIT AMOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil production,
and
‘‘(B) 50 cents per 1,000 cubic feet of qualified natural
gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES INCREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents amounts under
paragraph (1) shall each be reduced (but not below zero)
by an amount which bears the same ratio to such amount
(determined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applicable reference
price over $15 ($1.67 for qualified natural gas production), bears to
‘‘(ii) $3 ($0.33 for qualified natural gas production).
The applicable reference price for a taxable year is the
reference price of the calendar year preceding the calendar
year in which the taxable year begins.
‘‘(B) INFLATION ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2005, each
of the dollar amounts contained in subparagraph (A) shall
be increased to an amount equal to such dollar amount
multiplied by the inflation adjustment factor for such calendar year (determined under section 43(b)(3)(B) by substituting ‘2004’ for ‘1990’).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00069
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1486
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(C) REFERENCE PRICE.—For purposes of this paragraph, the term ‘reference price’ means, with respect to
any calendar year—
‘‘(i) in the case of qualified crude oil production,
the reference price determined under section
29(d)(2)(C), and
‘‘(ii) in the case of qualified natural gas production,
the Secretary’s estimate of the annual average wellhead price per 1,000 cubic feet for all domestic natural
gas.
‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRODUCTION.—
For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘qualified crude oil production’
and ‘qualified natural gas production’ mean domestic crude
oil or natural gas which is produced from a qualified marginal
well.
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION WHICH MAY
QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural gas produced
during any taxable year from any well shall not be treated
as qualified crude oil production or qualified natural gas
production to the extent production from the well during
the taxable year exceeds 1,095 barrels or barrel-of-oil
equivalents (as defined in section 29(d)(5)).
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the case of a short
taxable year, the limitations under this paragraph
shall be proportionately reduced to reflect the ratio
which the number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION ENTIRE YEAR.—
In the case of a well which is not capable of production
during each day of a taxable year, the limitations
under this paragraph applicable to the well shall be
proportionately reduced to reflect the ratio which the
number of days of production bears to the total number
of days in the taxable year.
‘‘(3) DEFINITIONS.—
‘‘(A) QUALIFIED MARGINAL WELL.—The term ‘qualified
marginal well’ means a domestic well—
‘‘(i) the production from which during the taxable
year is treated as marginal production under section
613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production of not more
than 25 barrel-of-oil equivalents (as so defined),
and
‘‘(II) produces water at a rate not less than
95 percent of total well effluent.
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude oil’, ‘natural
gas’, ‘domestic’, and ‘barrel’ have the meanings given such
terms by section 613A(e).
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAXPAYER.—In the
case of a qualified marginal well in which there is more than
one owner of operating interests in the well and the crude
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00070
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1487
oil or natural gas production exceeds the limitation under subsection (c)(2), qualifying crude oil production or qualifying natural gas production attributable to the taxpayer shall be determined on the basis of the ratio which taxpayer’s revenue
interest in the production bears to the aggregate of the revenue
interests of all operating interest owners in the production.
‘‘(2) OPERATING INTEREST REQUIRED.—Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
‘‘(3) PRODUCTION FROM NONCONVENTIONAL SOURCES
EXCLUDED.—In the case of production from a qualified marginal
well which is eligible for the credit allowed under section 29
for the taxable year, no credit shall be allowable under this
section unless the taxpayer elects not to claim the credit under
section 29 with respect to the well.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section 38(b), as
amended by this Act, is amended by striking ‘‘plus’’ at the end
of paragraph (17), by striking the period at the end of paragraph
(18) and inserting ‘‘, plus’’, and by inserting after paragraph (18)
the following:
‘‘(19) the marginal oil and gas well production credit determined under section 45I(a).’’.
(c) CARRYBACK.—Subsection (a) of section 39 (relating to
carryback and carryforward of unused credits generally) is amended
by adding at the end the following:
‘‘(3) 5-YEAR CARRYBACK FOR MARGINAL OIL AND GAS WELL
PRODUCTION CREDIT.—Notwithstanding subsection (d), in the
case of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied separately from the
business credit (other than the marginal oil and gas well
production credit),
‘‘(B) paragraph (1) shall be applied by substituting
‘5 taxable years’ for ‘1 taxable years’ in subparagraph (A)
thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘25 taxable years’ for ‘21 taxable
years’ in subparagraph (A) thereof, and
‘‘(ii) by substituting ‘24 taxable years’ for ‘20 taxable years’ in subparagraph (B) thereof.’’.
(d) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after section 45H the following:
Applicability.
‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to production in taxable years beginning after December
31, 2004.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00071
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 38 note.
BILLW
PsN: PUBL357
118 STAT. 1488
PUBLIC LAW 108–357—OCT. 22, 2004
TITLE IV—TAX REFORM AND SIMPLIFICATION FOR UNITED STATES
BUSINESSES
SEC. 401. INTEREST EXPENSE ALLOCATION RULES.
(a) ELECTION TO ALLOCATE ON WORLDWIDE BASIS.—Section
864 is amended by redesignating subsection (f) as subsection (g)
and by inserting after subsection (e) the following new subsection:
‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ON WORLDWIDE
BASIS.—For purposes of this subchapter, at the election of the
worldwide affiliated group—
‘‘(1) ALLOCATION AND APPORTIONMENT OF INTEREST
EXPENSE.—
‘‘(A) IN GENERAL.—The taxable income of each domestic
corporation which is a member of a worldwide affiliated
group shall be determined by allocating and apportioning
interest expense of each member as if all members of
such group were a single corporation.
‘‘(B) TREATMENT OF WORLDWIDE AFFILIATED GROUP.—
The taxable income of the domestic members of a worldwide
affiliated group from sources outside the United States
shall be determined by allocating and apportioning the
interest expense of such domestic members to such income
in an amount equal to the excess (if any) of—
‘‘(i) the total interest expense of the worldwide
affiliated group multiplied by the ratio which the foreign assets of the worldwide affiliated group bears
to all the assets of the worldwide affiliated group,
over
‘‘(ii) the interest expense of all foreign corporations
which are members of the worldwide affiliated group
to the extent such interest expense of such foreign
corporations would have been allocated and apportioned to foreign source income if this subsection were
applied to a group consisting of all the foreign corporations in such worldwide affiliated group.
‘‘(C) WORLDWIDE AFFILIATED GROUP.—For purposes of
this paragraph, the term ‘worldwide affiliated group’ means
a group consisting of—
‘‘(i) the includible members of an affiliated group
(as defined in section 1504(a), determined without
regard to paragraphs (2) and (4) of section 1504(b)),
and
‘‘(ii) all controlled foreign corporations in which
such members in the aggregate meet the ownership
requirements of section 1504(a)(2) either directly or
indirectly through applying paragraph (2) of section
958(a) or through applying rules similar to the rules
of such paragraph to stock owned directly or indirectly
by domestic partnerships, trusts, or estates.
‘‘(2) ALLOCATION AND APPORTIONMENT OF OTHER
EXPENSES.—Expenses other than interest which are not directly
allocable or apportioned to any specific income producing
activity shall be allocated and apportioned as if all members
of the affiliated group were a single corporation. For purposes
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00072
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1489
of the preceding sentence, the term ‘affiliated group’ has the
meaning given such term by section 1504 (determined without
regard to paragraph (4) of section 1504(b)).
‘‘(3) TREATMENT OF TAX-EXEMPT ASSETS; BASIS OF STOCK
IN NONAFFILIATED 10-PERCENT OWNED CORPORATIONS.—The
rules of paragraphs (3) and (4) of subsection (e) shall apply
for purposes of this subsection, except that paragraph (4) shall
be applied on a worldwide affiliated group basis.
‘‘(4) TREATMENT OF CERTAIN FINANCIAL INSTITUTIONS.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), any
corporation described in subparagraph (B) shall be treated
as an includible corporation for purposes of section 1504
only for purposes of applying this subsection separately
to corporations so described.
‘‘(B) DESCRIPTION.—A corporation is described in this
subparagraph if—
‘‘(i) such corporation is a financial institution
described in section 581 or 591,
‘‘(ii) the business of such financial institution is
predominantly with persons other than related persons
(within the meaning of subsection (d)(4)) or their customers, and
‘‘(iii) such financial institution is required by State
or Federal law to be operated separately from any
other entity which is not such an institution.
‘‘(C) TREATMENT OF BANK AND FINANCIAL HOLDING
COMPANIES.—To the extent provided in regulations—
‘‘(i) a bank holding company (within the meaning
of section 2(a) of the Bank Holding Company Act of
1956 (12 U.S.C. 1841(a)),
‘‘(ii) a financial holding company (within the
meaning of section 2(p) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841(p)), and
‘‘(iii) any subsidiary of a financial institution
described in section 581 or 591, or of any such bank
or financial holding company, if such subsidiary is
predominantly engaged (directly or indirectly) in the
active conduct of a banking, financing, or similar business,
shall be treated as a corporation described in subparagraph
(B).
‘‘(5) ELECTION TO EXPAND FINANCIAL INSTITUTION GROUP
OF WORLDWIDE GROUP.—
‘‘(A) IN GENERAL.—If a worldwide affiliated group elects
the application of this subsection, all financial corporations
which—
‘‘(i) are members of such worldwide affiliated
group, but
‘‘(ii) are not corporations described in paragraph
(4)(B),
shall be treated as described in paragraph (4)(B) for purposes of applying paragraph (4)(A). This subsection (other
than this paragraph) shall apply to any such group in
the same manner as this subsection (other than this paragraph) applies to the pre-election worldwide affiliated group
of which such group is a part.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00073
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1490
‘‘(B) FINANCIAL CORPORATION.—For purposes of this
paragraph, the term ‘financial corporation’ means any corporation if at least 80 percent of its gross income is income
described in section 904(d)(2)(D)(ii) and the regulations
thereunder which is derived from transactions with persons
who are not related (within the meaning of section 267(b)
or 707(b)(1)) to the corporation. For purposes of the preceding sentence, there shall be disregarded any item of
income or gain from a transaction or series of transactions
a principal purpose of which is the qualification of any
corporation as a financial corporation.
‘‘(C) ANTI-ABUSE RULES.—In the case of a corporation
which is a member of an electing financial institution
group, to the extent that such corporation—
‘‘(i) distributes dividends or makes other distributions with respect to its stock after the date of the
enactment of this paragraph to any member of the
pre-election worldwide affiliated group (other than to
a member of the electing financial institution group)
in excess of the greater of—
‘‘(I) its average annual dividend (expressed as
a percentage of current earnings and profits)
during the 5-taxable-year period ending with the
taxable year preceding the taxable year, or
‘‘(II) 25 percent of its average annual earnings
and profits for such 5-taxable-year period, or
‘‘(ii) deals with any person in any manner not
clearly reflecting the income of the corporation (as
determined under principles similar to the principles
of section 482),
an amount of indebtedness of the electing financial institution group equal to the excess distribution or the understatement or overstatement of income, as the case may
be, shall be recharacterized (for the taxable year and subsequent taxable years) for purposes of this paragraph as
indebtedness of the worldwide affiliated group (excluding
the electing financial institution group). If a corporation
has not been in existence for 5 taxable years, this subparagraph shall be applied with respect to the period it was
in existence.
‘‘(D) ELECTION.—An election under this paragraph with
respect to any financial institution group may be made
only by the common parent of the pre-election worldwide
affiliated group and may be made only for the first taxable
year beginning after December 31, 2008, in which such
affiliated group includes 1 or more financial corporations.
Such an election, once made, shall apply to all financial
corporations which are members of the electing financial
institution group for such taxable year and all subsequent
years unless revoked with the consent of the Secretary.
‘‘(E) DEFINITIONS RELATING TO GROUPS.—For purposes
of this paragraph—
‘‘(i)
PRE-ELECTION
WORLDWIDE
AFFILIATED
GROUP.—The term ‘pre-election worldwide affiliated
group’ means, with respect to a corporation, the worldwide affiliated group of which such corporation would
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00074
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1491
(but for an election under this paragraph) be a member
for purposes of applying paragraph (1).
‘‘(ii) ELECTING FINANCIAL INSTITUTION GROUP.—
The term ‘electing financial institution group’ means
the group of corporations to which this subsection
applies separately by reason of the application of paragraph (4)(A) and which includes financial corporations
by reason of an election under subparagraph (A).
‘‘(F) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out this subsection, including regulations—
‘‘(i) providing for the direct allocation of interest
expense in other circumstances where such allocation
would be appropriate to carry out the purposes of
this subsection,
‘‘(ii) preventing assets or interest expense from
being taken into account more than once, and
‘‘(iii) dealing with changes in members of any group
(through acquisitions or otherwise) treated under this
paragraph as an affiliated group for purposes of this
subsection.
‘‘(6) ELECTION.—An election to have this subsection apply
with respect to any worldwide affiliated group may be made
only by the common parent of the domestic affiliated group
referred to in paragraph (1)(C) and may be made only for
the first taxable year beginning after December 31, 2008, in
which a worldwide affiliated group exists which includes such
affiliated group and at least 1 foreign corporation. Such an
election, once made, shall apply to such common parent and
all other corporations which are members of such worldwide
affiliated group for such taxable year and all subsequent years
unless revoked with the consent of the Secretary.’’.
(b) EXPANSION OF REGULATORY AUTHORITY.—Paragraph (7) of
section 864(e) is amended—
(1) by inserting before the comma at the end of subparagraph (B) ‘‘and in other circumstances where such allocation
would be appropriate to carry out the purposes of this subsection’’, and
(2) by striking ‘‘and’’ at the end of subparagraph (E), by
redesignating subparagraph (F) as subparagraph (G), and by
inserting after subparagraph (E) the following new subparagraph:
‘‘(F) preventing assets or interest expense from being
taken into account more than once, and’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2008.
Applicability.
26 USC 864 note.
SEC. 402. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) GENERAL RULE.—Section 904 is amended by redesignating
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), (k),
and (l) respectively, and by inserting after subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.—
‘‘(1) GENERAL RULE.—For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an overall
domestic loss for any taxable year beginning after December
31, 2006, that portion of the taxpayer’s taxable income from
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00075
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1492
Regulations.
26 USC 535 note.
PUBLIC LAW 108–357—OCT. 22, 2004
sources within the United States for each succeeding taxable
year which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent not used
under this paragraph in prior taxable years), or
‘‘(B) 50 percent of the taxpayer’s taxable income from
sources within the United States for such succeeding taxable year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘overall domestic loss’
means any domestic loss to the extent such loss offsets
taxable income from sources without the United States
for the taxable year or for any preceding taxable year
by reason of a carryback. For purposes of the preceding
sentence, the term ‘domestic loss’ means the amount by
which the gross income for the taxable year from sources
within the United States is exceeded by the sum of the
deductions properly apportioned or allocated thereto (determined without regard to any carryback from a subsequent
taxable year).
‘‘(B) TAXPAYER MUST HAVE ELECTED FOREIGN TAX
CREDIT FOR YEAR OF LOSS.—The term ‘overall domestic
loss’ shall not include any loss for any taxable year unless
the taxpayer chose the benefits of this subpart for such
taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT INCOME.—
‘‘(A) IN GENERAL.—Any income from sources within
the United States that is treated as income from sources
without the United States under paragraph (1) shall be
allocated among and increase the income categories in
proportion to the loss from sources within the United States
previously allocated to those income categories.
‘‘(B) INCOME CATEGORY.—For purposes of this paragraph, the term ‘income category’ has the meaning given
such term by subsection (f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—The Secretary
shall prescribe such regulations as may be necessary to coordinate the provisions of this subsection with the provisions of
subsection (f).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking ‘‘section
904(g)(6)’’ and inserting ‘‘section 904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is amended by
striking ‘‘section 904(f)’’ and inserting ‘‘subsections (f) and (g)
of section 904’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to losses for taxable years beginning after December
31, 2006.
SEC. 403. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS.
(a) IN GENERAL.—Section 904(d)(4) (relating to look-thru rules
apply to dividends from noncontrolled section 902 corporations)
is amended to read as follows:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00076
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1493
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this subsection, any
dividend from a noncontrolled section 902 corporation with
respect to the taxpayer shall be treated as income described
in a subparagraph of paragraph (1) in proportion to the
ratio of—
‘‘(i) the portion of earnings and profits attributable
to income described in such subparagraph, to
‘‘(ii) the total amount of earnings and profits.
‘‘(B) EARNINGS AND PROFITS OF CONTROLLED FOREIGN
CORPORATIONS.—In the case of any distribution from a
controlled foreign corporation to a United States shareholder, rules similar to the rules of subparagraph (A) shall
apply in determining the extent to which earnings and
profits of the controlled foreign corporation which are
attributable to dividends received from a noncontrolled section 902 corporation may be treated as income in a separate
category.
‘‘(C) SPECIAL RULES.—For purposes of this paragraph—
‘‘(i) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of section 316
shall apply.
‘‘(II) REGULATIONS.—The Secretary may prescribe regulations regarding the treatment of distributions out of earnings and profits for periods
before the taxpayer’s acquisition of the stock to
which the distributions relate.
‘‘(ii) INADEQUATE SUBSTANTIATION.—If the Secretary determines that the proper subparagraph of
paragraph (1) in which a dividend is described has
not been substantiated, such dividend shall be treated
as income described in paragraph (1)(A).
‘‘(iii) COORDINATION WITH HIGH-TAXED INCOME
PROVISIONS.—Rules similar to the rules of paragraph
(3)(F) shall apply for purposes of this paragraph.
‘‘(iv) LOOK-THRU WITH RESPECT TO CARRYOVER OF
CREDIT.—Rules similar to subparagraph (A) also shall
apply to any carryforward under subsection (c) from
a taxable year beginning before January 1, 2003, of
tax allocable to a dividend from a noncontrolled section
902 corporation with respect to the taxpayer. The Secretary may by regulations provide for the allocation
of any carryback of tax allocable to a dividend from
a noncontrolled section 902 corporation from a taxable
year beginning on or after January 1, 2003, to a taxable
year beginning before such date for purposes of allocating such dividend among the separate categories
in effect for the taxable year to which carried.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1) is hereby repealed.
(2) Section 904(d)(2)(C)(iii) is amended by adding ‘‘and’’
at the end of subclause (I), by striking subclause (II), and
by redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is amended
to read as follows: ‘‘Such term does not include any financial
services income.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00077
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1494
26 USC 864 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(4) Section 904(d)(2)(E) is amended—
(A) by inserting ‘‘or (4)’’ after ‘‘paragraph (3)’’ in clause
(i), and
(B) by striking clauses (ii) and (iv) and by redesignating
clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking ‘‘(D), or
(E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by striking
‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 404. REDUCTION TO 2 FOREIGN TAX CREDIT BASKETS.
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Paragraph (1) of section 904(d) (relating to
separate application of section with respect to certain categories
of income) is amended to read as follows:
‘‘(1) IN GENERAL.—The provisions of subsections (a), (b),
and (c) and sections 902, 907, and 960 shall be applied separately with respect to—
‘‘(A) passive category income, and
‘‘(B) general category income.’’.
(b) CATEGORIES.—Paragraph (2) of section 904(d) is amended
by striking subparagraph (B), by redesignating subparagraph (A)
as subparagraph (B), and by inserting before subparagraph (B)
(as so redesignated) the following new subparagraph:
‘‘(A) CATEGORIES.—
‘‘(i) PASSIVE CATEGORY INCOME.—The term ‘passive
category income’ means passive income and specified
passive category income.
‘‘(ii) GENERAL CATEGORY INCOME.—The term ‘general category income’ means income other than passive
category income.’’.
(c) SPECIFIED PASSIVE CATEGORY INCOME.—Subparagraph (B)
of section 904(d)(2), as so redesignated, is amended by adding
at the end the following new clause:
‘‘(v) SPECIFIED PASSIVE CATEGORY INCOME.—The
term ‘specified passive category income’ means—
‘‘(I) dividends from a DISC or former DISC
(as defined in section 992(a)) to the extent such
dividends are treated as income from sources without the United States,
‘‘(II) taxable income attributable to foreign
trade income (within the meaning of section
923(b)), and
‘‘(III) distributions from a FSC (or a former
FSC) out of earnings and profits attributable to
foreign trade income (within the meaning of section 923(b)) or interest or carrying charges (as
defined in section 927(d)(1)) derived from a transaction which results in foreign trade income (as
defined in section 923(b)).’’.
(d) TREATMENT OF FINANCIAL SERVICES.—Paragraph (2) of section 904(d), as amended by section 403(b)(3), is amended by striking
subparagraph (D), by redesignating subparagraph (C) as subparagraph (D), and by inserting before subparagraph (D) (as so redesignated) the following new subparagraph:
Jkt 039139
PO 00357
Frm 00078
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1495
‘‘(C) TREATMENT OF FINANCIAL SERVICES INCOME AND
COMPANIES.—
‘‘(i) IN GENERAL.—Financial services income shall
be treated as general category income in the case of—
‘‘(I) a member of a financial services group,
and
‘‘(II) any other person if such person is
predominantly engaged in the active conduct of
a banking, insurance, financing, or similar business.
‘‘(ii) FINANCIAL SERVICES GROUP.—The term ‘financial services group’ means any affiliated group (as
defined in section 1504(a) without regard to paragraphs
(2) and (3) of section 1504(b)) which is predominantly
engaged in the active conduct of a banking, insurance,
financing, or similar business. In determining whether
such a group is so engaged, there shall be taken into
account only the income of members of the group that
are—
‘‘(I) United States corporations, or
‘‘(II) controlled foreign corporations in which
such United States corporations own, directly or
indirectly, at least 80 percent of the total voting
power and value of the stock.
‘‘(iii) PASS-THRU ENTITIES.—The Secretary shall by
regulation specify for purposes of this subparagraph
the treatment of financial services income received or
accrued by partnerships and by other pass-thru entities
which are not members of a financial services group.’’.
(e) TREATMENT OF INCOME TAX BASE DIFFERENCES.—Paragraph
(2) of section 904(d) is amended by redesignating subparagraphs
(H) and (I) as subparagraphs (I) and (J), respectively, and by
inserting after subparagraph (G) the following new subparagraph:
‘‘(H) TREATMENT OF INCOME TAX BASE DIFFERENCES.—
‘‘(i) IN GENERAL.—In the case of taxable years
beginning after December 31, 2006, tax imposed under
the law of a foreign country or possession of the United
States on an amount which does not constitute income
under United States tax principles shall be treated
as imposed on income described in paragraph (1)(B).
‘‘(ii) SPECIAL RULE FOR YEARS BEFORE 2007.—
‘‘(I) IN GENERAL.—In the case of taxes paid
or accrued in taxable years beginning after
December 31, 2004, and before January 1, 2007,
a taxpayer may elect to treat tax imposed under
the law of a foreign country or possession of the
United States on an amount which does not constitute income under United States tax principles
as tax imposed on income described in subparagraph (C) or (I) of paragraph (1).
‘‘(II) ELECTION IRREVOCABLE.—Any such election shall apply to the taxable year for which made
and all subsequent taxable years described in subclause (I) unless revoked with the consent of the
Secretary.’’.
(f) CONFORMING AMENDMENTS.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00079
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Regulations.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1496
(1) Clause (iii) of section 904(d)(2)(B) (relating to exceptions
from passive income), as so redesignated, is amended by
striking subclause (I) and by redesignating subclauses (II) and
(III) as subclauses (I) and (II), respectively.
(2) Clause (i) of section 904(d)(2)(D) (defining financial
services income), as so redesignated, is amended by adding
‘‘or’’ at the end of subclause (I) and by striking subclauses
(II) and (III) and inserting the following new subclause:
‘‘(II) passive income (determined without
regard to subparagraph (B)(iii)(II)).’’.
(3) Section 904(d)(2)(D) (defining financial services income),
as so redesignated and amended by section 404(b)(3), is
amended by striking clause (iii).
(4) Paragraph (3) of section 904(d) is amended to read
as follows:
‘‘(3) LOOK-THRU IN CASE OF CONTROLLED FOREIGN CORPORATIONS.—
‘‘(A) IN GENERAL.—Except as otherwise provided in
this paragraph, dividends, interest, rents, and royalties
received or accrued by the taxpayer from a controlled foreign corporation in which the taxpayer is a United States
shareholder shall not be treated as passive category income.
‘‘(B) SUBPART F INCLUSIONS.—Any amount included in
gross income under section 951(a)(1)(A) shall be treated
as passive category income to the extent the amount so
included is attributable to passive category income.
‘‘(C) INTEREST, RENTS, AND ROYALTIES.—Any interest,
rent, or royalty which is received or accrued from a controlled foreign corporation in which the taxpayer is a
United States shareholder shall be treated as passive category income to the extent it is properly allocable (under
regulations prescribed by the Secretary) to passive category
income of the controlled foreign corporation.
‘‘(D) DIVIDENDS.—Any dividend paid out of the earnings
and profits of any controlled foreign corporation in which
the taxpayer is a United States shareholder shall be treated
as passive category income in proportion to the ratio of—
‘‘(i) the portion of the earnings and profits attributable to passive category income, to
‘‘(ii) the total amount of earnings and profits.
‘‘(E) LOOK-THRU APPLIES ONLY WHERE SUBPART F
APPLIES.—If a controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de minimis
rule) for any taxable year, for purposes of this paragraph,
none of its foreign base company income (as defined in
section 954(a) without regard to section 954(b)(5)) and none
of its gross insurance income (as defined in section
954(b)(3)(C)) for such taxable year shall be treated as passive category income, except that this sentence shall not
apply to any income which (without regard to this sentence)
would be treated as financial services income. Solely for
purposes of applying subparagraph (D), passive income
of a controlled foreign corporation shall not be treated
as passive category income if the requirements of section
954(b)(4) are met with respect to such income.
‘‘(F) COORDINATION WITH HIGH-TAXED INCOME PROVISIONS.—
Regulations.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00080
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1497
‘‘(i) In determining whether any income of a controlled foreign corporation is passive category income,
subclause (II) of paragraph (2)(B)(iii) shall not apply.
‘‘(ii) Any income of the taxpayer which is treated
as passive category income under this paragraph shall
be so treated notwithstanding any provision of paragraph (2); except that the determination of whether
any amount is high-taxed income shall be made after
the application of this paragraph.
‘‘(G) DIVIDEND.—For purposes of this paragraph, the
term ‘dividend’ includes any amount included in gross
income in section 951(a)(1)(B). Any amount included in
gross income under section 78 to the extent attributable
to amounts included in gross income in section 951(a)(1)(A)
shall not be treated as a dividend but shall be treated
as included in gross income under section 951(a)(1)(A).
‘‘(H) LOOK-THRU APPLIES TO PASSIVE FOREIGN INVESTMENT COMPANY INCLUSION.—If—
‘‘(i) a passive foreign investment company is a
controlled foreign corporation, and
‘‘(ii) the taxpayer is a United States shareholder
in such controlled foreign corporation,
any amount included in gross income under section 1293
shall be treated as income in a separate category to the
extent such amount is attributable to income in such category.’’.
(5) Paragraph (2) of section 904(d) is amended by adding
at the end the following new subparagraph:
‘‘(K) TRANSITIONAL RULES FOR 2007 CHANGES.—For purposes of paragraph (1)—
‘‘(i) taxes carried from any taxable year beginning
before January 1, 2007, to any taxable year beginning
on or after such date, with respect to any item of
income, shall be treated as described in the subparagraph of paragraph (1) in which such income would
be described were such taxes paid or accrued in a
taxable year beginning on or after such date, and
‘‘(ii) the Secretary may by regulations provide for
the allocation of any carryback of taxes with respect
to income from a taxable year beginning on or after
January 1, 2007, to a taxable year beginning before
such date for purposes of allocating such income among
the separate categories in effect for the taxable year
to which carried.’’.
(6) Section 904(j)(3)(A)(i) is amended by striking ‘‘subsection
(d)(2)(A)’’ and inserting ‘‘subsection (d)(2)(B)’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2006.
(2) TRANSITIONAL RULE RELATING TO INCOME TAX BASE DIFFERENCE.—Section 904(d)(2)(H)(ii) of the Internal Revenue Code
of 1986, as added by subsection (e), shall apply to taxable
years beginning after December 31, 2004.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00081
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 904 note.
BILLW
PsN: PUBL357
118 STAT. 1498
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 405. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY IN DETERMINING SECTION 902 AND 960
CREDITS.
26 USC 901 note.
(a) IN GENERAL.—Subsection (c) of section 902 is amended
by redesignating paragraph (7) as paragraph (8) and by inserting
after paragraph (6) the following new paragraph:
‘‘(7) CONSTRUCTIVE OWNERSHIP THROUGH PARTNERSHIPS.—
Stock owned, directly or indirectly, by or for a partnership
shall be considered as being owned proportionately by its partners. Stock considered to be owned by a person by reason
of the preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person. The
Secretary may prescribe such regulations as may be necessary
to carry out the purposes of this paragraph, including rules
to account for special partnership allocations of dividends,
credits, and other incidents of ownership of stock in determining
proportionate ownership.’’.
(b) CLARIFICATION OF COMPARABLE ATTRIBUTION UNDER SECTION 901(b)(5).—Paragraph (5) of section 901(b) is amended by
striking ‘‘any individual’’ and inserting ‘‘any person’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxes of foreign corporations for taxable years of
such corporations beginning after the date of the enactment of
this Act.
SEC. 406. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS
OF INTANGIBLE PROPERTY.
26 USC 367 note.
(a) IN GENERAL.—Subparagraph (C) of section 367(d)(2) is
amended by adding at the end the following new sentence: ‘‘For
purposes of applying section 904(d), any such amount shall be
treated in the same manner as if such amount were a royalty.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to amounts treated as received pursuant to section
367(d)(2) of the Internal Revenue Code of 1986 on or after August
5, 1997.
SEC. 407. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN
ASSETS OF CONTROLLED FOREIGN CORPORATION.
(a) IN GENERAL.—Section 956(c)(2) (relating to exceptions from
property treated as United States property) is amended by striking
‘‘and’’ at the end of subparagraph (J), by striking the period at
the end of subparagraph (K) and inserting a semicolon, and by
adding at the end the following new subparagraphs:
‘‘(L) securities acquired and held by a controlled foreign
corporation in the ordinary course of its business as a
dealer in securities if—
‘‘(i) the dealer accounts for the securities as securities held primarily for sale to customers in the ordinary
course of business, and
‘‘(ii) the dealer disposes of the securities (or such
securities mature while held by the dealer) within
a period consistent with the holding of securities for
sale to customers in the ordinary course of business;
and
‘‘(M) an obligation of a United States person which—
‘‘(i) is not a domestic corporation, and
‘‘(ii) is not—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00082
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1499
‘‘(I) a United States shareholder (as defined
in section 951(b)) of the controlled foreign corporation, or
‘‘(II) a partnership, estate, or trust in which
the controlled foreign corporation, or any related
person (as defined in section 954(d)(3)), is a
partner, beneficiary, or trustee immediately after
the acquisition of any obligation of such partnership, estate, or trust by the controlled foreign corporation.’’.
(b) CONFORMING AMENDMENT.—Section 956(c)(2) is amended
by striking ‘‘and (K)’’ in the last sentence and inserting ‘‘, (K),
and (L)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning after
December 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
26 USC 956 note.
SEC. 408. TRANSLATION OF FOREIGN TAXES.
(a) ELECTIVE EXCEPTION FOR TAXES PAID OTHER THAN IN FUNCCURRENCY.—Paragraph (1) of section 986(a) (relating to
determination of foreign taxes and foreign corporation’s earnings
and profits) is amended by redesignating subparagraph (D) as
subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph:
‘‘(D) ELECTIVE EXCEPTION FOR TAXES PAID OTHER THAN
IN FUNCTIONAL CURRENCY.—
‘‘(i) IN GENERAL.—At the election of the taxpayer,
subparagraph (A) shall not apply to any foreign income
taxes the liability for which is denominated in any
currency other than in the taxpayer’s functional currency.
‘‘(ii) APPLICATION TO QUALIFIED BUSINESS UNITS.—
An election under this subparagraph may apply to
foreign income taxes attributable to a qualified business unit in accordance with regulations prescribed
by the Secretary.
‘‘(iii) ELECTION.—Any such election shall apply to
the taxable year for which made and all subsequent
taxable years unless revoked with the consent of the
Secretary.’’.
(b) SPECIAL RULE FOR REGULATED INVESTMENT COMPANIES.—
(1) IN GENERAL.—Section 986(a)(1), as amended by subsection (a), is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following:
‘‘(E) SPECIAL RULE FOR REGULATED INVESTMENT COMPANIES.—In the case of a regulated investment company
which takes into account income on an accrual basis, subparagraphs (A) through (D) shall not apply and foreign
income taxes paid or accrued with respect to such income
shall be translated into dollars using the exchange rate
as of the date the income accrues.’’.
(2) CONFORMING AMENDMENT.—Section 986(a)(2) is
amended by inserting ‘‘or (E)’’ after ‘‘subparagraph (A)’’.
TIONAL
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00083
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1500
26 USC 986 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 409. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN CORPORATIONS.
26 USC 871 note.
(a) IN GENERAL.—Paragraph (2) of section 871(i) (relating to
tax not to apply to certain interest and dividends) is amended
by adding at the end the following new subparagraph:
‘‘(D) Dividends paid by a foreign corporation which
are treated under section 861(a)(2)(B) as income from
sources within the United States.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to payments made after December 31, 2004.
SEC. 410. EQUAL TREATMENT OF INTEREST PAID BY FOREIGN PARTNERSHIPS AND FOREIGN CORPORATIONS.
26 USC 861 note.
(a) IN GENERAL.—Paragraph (1) of section 861(a) is amended
by striking ‘‘and’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting ‘‘, and’’, and
by adding at the end the following new subparagraph:
‘‘(C) in the case of a foreign partnership, which is
predominantly engaged in the active conduct of a trade
or business outside the United States, any interest not
paid by a trade or business engaged in by the partnership
in the United States and not allocable to income which
is effectively connected (or treated as effectively connected)
with the conduct of a trade or business in the United
States.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 411. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED
INVESTMENT COMPANIES.
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Section 871 (relating
to tax on nonresident alien individuals) is amended by redesignating subsection (k) as subsection (l) and by inserting after
subsection (j) the following new subsection:
‘‘(k) EXEMPTION FOR CERTAIN DIVIDENDS OF REGULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1)(A) of
subsection (a) on any interest-related dividend received
from a regulated investment company.
‘‘(B) EXCEPTIONS.—Subparagraph (A) shall not apply—
‘‘(i) to any interest-related dividend received from
a regulated investment company by a person to the
extent such dividend is attributable to interest (other
than interest described in subparagraph (E) (i) or (iii))
received by such company on indebtedness issued by
such person or by any corporation or partnership with
respect to which such person is a 10-percent shareholder,
‘‘(ii) to any interest-related dividend with respect
to stock of a regulated investment company unless
the person who would otherwise be required to deduct
and withhold tax from such dividend under chapter
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00084
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1501
3 receives a statement (which meets requirements
similar to the requirements of subsection (h)(5)) that
the beneficial owner of such stock is not a United
States person, and
‘‘(iii) to any interest-related dividend paid to any
person within a foreign country (or any interest-related
dividend payment addressed to, or for the account of,
persons within such foreign country) during any period
described in subsection (h)(6) with respect to such
country.
Clause (iii) shall not apply to any dividend with respect
to any stock which was acquired on or before the date
of the publication of the Secretary’s determination under
subsection (h)(6).
‘‘(C) INTEREST-RELATED DIVIDEND.—For purposes of
this paragraph, the term ‘interest-related dividend’ means
any dividend (or part thereof) which is designated by the
regulated investment company as an interest-related dividend in a written notice mailed to its shareholders not
later than 60 days after the close of its taxable year.
If the aggregate amount so designated with respect to
a taxable year of the company (including amounts so designated with respect to dividends paid after the close of
the taxable year described in section 855) is greater than
the qualified net interest income of the company for such
taxable year, the portion of each distribution which shall
be an interest-related dividend shall be only that portion
of the amounts so designated which such qualified net
interest income bears to the aggregate amount so designated. Such term shall not include any dividend with
respect to any taxable year of the company beginning after
December 31, 2007.
‘‘(D) QUALIFIED NET INTEREST INCOME.—For purposes
of subparagraph (C), the term ‘qualified net interest income’
means the qualified interest income of the regulated investment company reduced by the deductions properly allocable
to such income.
‘‘(E) QUALIFIED INTEREST INCOME.—For purposes of
subparagraph (D), the term ‘qualified interest income’
means the sum of the following amounts derived by the
regulated investment company from sources within the
United States:
‘‘(i) Any amount includible in gross income as
original issue discount (within the meaning of section
1273) on an obligation payable 183 days or less from
the date of original issue (without regard to the period
held by the company).
‘‘(ii) Any interest includible in gross income
(including amounts recognized as ordinary income in
respect of original issue discount or market discount
or acquisition discount under part V of subchapter
P and such other amounts as regulations may provide)
on an obligation which is in registered form; except
that this clause shall not apply to—
‘‘(I) any interest on an obligation issued by
a corporation or partnership if the regulated
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00085
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1502
investment company is a 10-percent shareholder
in such corporation or partnership, and
‘‘(II) any interest which is treated as not being
portfolio interest under the rules of subsection
(h)(4).
‘‘(iii) Any interest referred to in subsection (i)(2)(A)
(without regard to the trade or business of the regulated investment company).
‘‘(iv) Any interest-related dividend includable in
gross income with respect to stock of another regulated
investment company.
‘‘(F) 10-PERCENT SHAREHOLDER.—For purposes of this
paragraph, the term ‘10-percent shareholder’ has the
meaning given such term by subsection (h)(3)(B).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1)(A) of
subsection (a) on any short-term capital gain dividend
received from a regulated investment company.
‘‘(B) EXCEPTION FOR ALIENS TAXABLE UNDER SUBSECTION (a)(2).—Subparagraph (A) shall not apply in the
case of any nonresident alien individual subject to tax
under subsection (a)(2).
‘‘(C) SHORT-TERM CAPITAL GAIN DIVIDEND.—For purposes of this paragraph, the term ‘short-term capital gain
dividend’ means any dividend (or part thereof) which is
designated by the regulated investment company as a
short-term capital gain dividend in a written notice mailed
to its shareholders not later than 60 days after the close
of its taxable year. If the aggregate amount so designated
with respect to a taxable year of the company (including
amounts so designated with respect to dividends paid after
the close of the taxable year described in section 855)
is greater than the qualified short-term gain of the company
for such taxable year, the portion of each distribution which
shall be a short-term capital gain dividend shall be only
that portion of the amounts so designated which such qualified short-term gain bears to the aggregate amount so
designated. Such term shall not include any dividend with
respect to any taxable year of the company beginning after
December 31, 2007.
‘‘(D) QUALIFIED SHORT-TERM GAIN.—For purposes of
subparagraph (C), the term ‘qualified short-term gain’
means the excess of the net short-term capital gain of
the regulated investment company for the taxable year
over the net long-term capital loss (if any) of such company
for such taxable year. For purposes of this subparagraph—
‘‘(i) the net short-term capital gain of the regulated
investment company shall be computed by treating
any short-term capital gain dividend includible in gross
income with respect to stock of another regulated
investment company as a short-term capital gain, and
‘‘(ii) the excess of the net short-term capital gain
for a taxable year over the net long-term capital loss
for a taxable year (to which an election under section
4982(e)(4) does not apply) shall be determined without
regard to any net capital loss or net short-term capital
Notice.
Deadline.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00086
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1503
loss attributable to transactions after October 31 of
such year, and any such net capital loss or net shortterm capital loss shall be treated as arising on the
1st day of the next taxable year.
To the extent provided in regulations, clause (ii) shall apply
also for purposes of computing the taxable income of the
regulated investment company.’’.
(2) FOREIGN CORPORATIONS.—Section 881 (relating to tax
on income of foreign corporations not connected with United
States business) is amended by redesignating subsection (e)
as subsection (f) and by inserting after subsection (d) the following new subsection:
‘‘(e) TAX NOT TO APPLY TO CERTAIN DIVIDENDS OF REGULATED
INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1) of subsection (a) on any interest-related dividend (as defined
in section 871(k)(1)) received from a regulated investment
company.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply—
‘‘(i) to any dividend referred to in section
871(k)(1)(B), and
‘‘(ii) to any interest-related dividend received by
a controlled foreign corporation (within the meaning
of section 957(a)) to the extent such dividend is attributable to interest received by the regulated investment
company from a person who is a related person (within
the meaning of section 864(d)(4)) with respect to such
controlled foreign corporation.
‘‘(C) TREATMENT OF DIVIDENDS RECEIVED BY CONTROLLED FOREIGN CORPORATIONS.—The rules of subsection
(c)(5)(A) shall apply to any (within the meaning of section
957(a)) to the extent such dividend is attributable to
interest received by the regulated investment company
which is described in clause (ii) of section 871(k)(1)(E)
(and not described in clause (i) or (iii) of such section).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—No tax shall
be imposed under paragraph (1) of subsection (a) on any shortterm capital gain dividend (as defined in section 871(k)(2))
received from a regulated investment company.’’.
(3) WITHHOLDING TAXES.—
(A) Section 1441(c) (relating to exceptions) is amended
by adding at the end the following new paragraph:
‘‘(12) CERTAIN DIVIDENDS RECEIVED FROM REGULATED
INVESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—No tax shall be required to be
deducted and withheld under subsection (a) from any
amount exempt from the tax imposed by section
871(a)(1)(A) by reason of section 871(k).
‘‘(B) SPECIAL RULE.—For purposes of subparagraph (A),
clause (i) of section 871(k)(1)(B) shall not apply to any
dividend unless the regulated investment company knows
that such dividend is a dividend referred to in such clause.
A similar rule shall apply with respect to the exception
contained in section 871(k)(2)(B).’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00087
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1504
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
(B) Section 1442(a) (relating to withholding of tax on
foreign corporations) is amended—
(i) by striking ‘‘and the reference in section
1441(c)(10)’’ and inserting ‘‘the reference in section
1441(c)(10)’’, and
(ii) by inserting before the period at the end the
following: ‘‘, and the references in section 1441(c)(12)
to sections 871(a) and 871(k) shall be treated as referring to sections 881(a) and 881(e) (except that for purposes of applying subparagraph (A) of section
1441(c)(12), as so modified, clause (ii) of section
881(e)(1)(B) shall not apply to any dividend unless
the regulated investment company knows that such
dividend is a dividend referred to in such clause)’’.
(b) ESTATE TAX TREATMENT OF INTEREST IN CERTAIN REGULATED INVESTMENT COMPANIES.—Section 2105 (relating to property
without the United States for estate tax purposes) is amended
by adding at the end the following new subsection:
‘‘(d) STOCK IN A RIC.—
‘‘(1) IN GENERAL.—For purposes of this subchapter, stock
in a regulated investment company (as defined in section 851)
owned by a nonresident not a citizen of the United States
shall not be deemed property within the United States in
the proportion that, at the end of the quarter of such investment
company’s taxable year immediately preceding a decedent’s date
of death (or at such other time as the Secretary may designate
in regulations), the assets of the investment company that
were qualifying assets with respect to the decedent bore to
the total assets of the investment company.
‘‘(2) QUALIFYING ASSETS.—For purposes of this subsection,
qualifying assets with respect to a decedent are assets that,
if owned directly by the decedent, would have been—
‘‘(A) amounts, deposits, or debt obligations described
in subsection (b) of this section,
‘‘(B) debt obligations described in the last sentence
of section 2104(c), or
‘‘(C) other property not within the United States.
‘‘(3) TERMINATION.—This subsection shall not apply to
estates of decedents dying after December 31, 2007.’’.
(c) TREATMENT OF REGULATED INVESTMENT COMPANIES UNDER
SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended by striking
‘‘REIT’’ each place it appears and inserting ‘‘qualified investment entity’’.
(2) Paragraphs (2) and (3) of section 897(h) are amended
to read as follows:
‘‘(2) SALE OF STOCK IN DOMESTICALLY CONTROLLED ENTITY
NOT TAXED.—The term ‘United States real property interest’
does not include any interest in a domestically controlled qualified investment entity.
‘‘(3) DISTRIBUTIONS BY DOMESTICALLY CONTROLLED QUALIFIED INVESTMENT ENTITIES.—In the case of a domestically controlled qualified investment entity, rules similar to the rules
of subsection (d) shall apply to the foreign ownership percentage
of any gain.’’.
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:
Jkt 039139
PO 00357
Frm 00088
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1505
‘‘(A) QUALIFIED INVESTMENT ENTITY.—
‘‘(i) IN GENERAL.—The term ‘qualified investment
entity’ means—
‘‘(I) any real estate investment trust, and
‘‘(II) any regulated investment company.
‘‘(ii) TERMINATION.—Clause (i)(II) shall not apply
after December 31, 2007.
‘‘(B) DOMESTICALLY CONTROLLED.—The term ‘domestically controlled qualified investment entity’ means any
qualified investment entity in which at all times during
the testing period less than 50 percent in value of the
stock was held directly or indirectly by foreign persons.’’.
(4) Subparagraphs (C) and (D) of section 897(h)(4) are
each amended by striking ‘‘REIT’’ and inserting ‘‘qualified
investment entity’’.
(5) The subsection heading for subsection (h) of section
897 is amended by striking ‘‘REITS’’ and inserting ‘‘CERTAIN
INVESTMENT ENTITIES’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to
dividends with respect to taxable years of regulated investment
companies beginning after December 31, 2004.
(2) ESTATE TAX TREATMENT.—The amendment made by
subsection (b) shall apply to estates of decedents dying after
December 31, 2004.
(3) CERTAIN OTHER PROVISIONS.—The amendments made
by subsection (c) (other than paragraph (1) thereof) shall take
effect after December 31, 2004.
26 USC 871 note.
SEC. 412. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP
INTERESTS.
(a) IN GENERAL.—Section 954(c) (defining foreign personal
holding company income) is amended by adding after paragraph
(3) the following new paragraph:
‘‘(4) LOOK-THRU RULE FOR CERTAIN PARTNERSHIP SALES.—
‘‘(A) IN GENERAL.—In the case of any sale by a controlled foreign corporation of an interest in a partnership
with respect to which such corporation is a 25-percent
owner, such corporation shall be treated for purposes of
this subsection as selling the proportionate share of the
assets of the partnership attributable to such interest. The
Secretary shall prescribe such regulations as may be appropriate to prevent abuse of the purposes of this paragraph,
including regulations providing for coordination of this
paragraph with the provisions of subchapter K.
‘‘(B) 25-PERCENT OWNER.—For purposes of this paragraph, the term ‘25-percent owner’ means a controlled foreign corporation which owns directly 25 percent or more
of the capital or profits interest in a partnership. For
purposes of the preceding sentence, if a controlled foreign
corporation is a shareholder or partner of a corporation
or partnership, the controlled foreign corporation shall be
treated as owning directly its proportionate share of any
such capital or profits interest held directly or indirectly
by such corporation or partnership.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00089
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Regulations.
BILLW
PsN: PUBL357
118 STAT. 1506
26 USC 954 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years of foreign corporations beginning after
December 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
SEC. 413. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES
AND FOREIGN INVESTMENT COMPANY RULES.
26 USC 551–558.
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) GENERAL RULE.—The following provisions are hereby
repealed:
(1) Part III of subchapter G of chapter 1 (relating to foreign
personal holding companies).
(2) Section 1246 (relating to gain on foreign investment
company stock).
(3) Section 1247 (relating to election by foreign investment
companies to distribute income currently).
(b) EXEMPTION OF FOREIGN CORPORATIONS FROM PERSONAL
HOLDING COMPANY RULES.—
(1) IN GENERAL.—Subsection (c) of section 542 (relating
to exceptions) is amended—
(A) by striking paragraph (5) and inserting the following:
‘‘(5) a foreign corporation,’’,
(B) by striking paragraphs (7) and (10) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8),
respectively,
(C) by inserting ‘‘and’’ at the end of paragraph (7)
(as so redesignated), and
(D) by striking ‘‘; and’’ at the end of paragraph (8)
(as so redesignated) and inserting a period.
(2) TREATMENT OF INCOME FROM PERSONAL SERVICE CONTRACTS.—Paragraph (1) of section 954(c) is amended by adding
at the end the following new subparagraph:
‘‘(I) PERSONAL SERVICE CONTRACTS.—
‘‘(i) Amounts received under a contract under
which the corporation is to furnish personal services
if—
‘‘(I) some person other than the corporation
has the right to designate (by name or by description) the individual who is to perform the services,
or
‘‘(II) the individual who is to perform the services is designated (by name or by description) in
the contract, and
‘‘(ii) amounts received from the sale or other disposition of such a contract.
This subparagraph shall apply with respect to amounts
received for services under a particular contract only if
at some time during the taxable year 25 percent or more
in value of the outstanding stock of the corporation is
owned, directly or indirectly, by or for the individual who
has performed, is to perform, or may be designated (by
name or by description) as the one to perform, such services.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 1(h) is amended—
Jkt 039139
PO 00357
Frm 00090
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1507
(A) in paragraph (10), by inserting ‘‘and’’ at the end
of subparagraph (F), by striking subparagraph (G), and
by redesignating subparagraph (H) as subparagraph (G),
and
(B) by striking ‘‘a foreign personal holding company
(as defined in section 552), a foreign investment company
(as defined in section 1246(b)), or’’ in paragraph (11)(C)(iii).
(2) Paragraph (2) of section 171(c) is amended—
(A) by striking ‘‘, or by a foreign personal holding
company, as defined in section 552’’, and
(B) by striking ‘‘, or foreign personal holding company’’.
(3) Paragraph (2) of section 245(a) is amended by striking
‘‘foreign personal holding company or’’.
(4) Section 312 is amended by striking subsection (j).
(5) Subsection (m) of section 312 is amended by striking
‘‘, a foreign investment company (within the meaning of section
1246(b)), or a foreign personal holding company (within the
meaning of section 552)’’.
(6) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5)
as paragraphs (3) and (4), respectively.
(7) Subparagraph (B) of section 465(c)(7) is amended by
adding ‘‘or’’ at the end of clause (i), by striking clause (ii),
and by redesignating clause (iii) as clause (ii).
(8) Paragraph (1) of section 543(b) is amended by inserting
‘‘and’’ at the end of subparagraph (A), by striking ‘‘, and’’
at the end of subparagraph (B) and inserting a period, and
by striking subparagraph (C).
(9) Paragraph (1) of section 562(b) is amended by striking
‘‘or a foreign personal holding company described in section
552’’.
(10) Section 563 is amended—
(A) by striking subsection (c),
(B) by redesignating subsection (d) as subsection (c),
and
(C) by striking ‘‘subsection (a), (b), or (c)’’ in subsection
(c) (as so redesignated) and inserting ‘‘subsection (a) or
(b)’’.
(11) Subsection (d) of section 751 is amended by adding
‘‘and’’ at the end of paragraph (2), by striking paragraph (3),
by redesignating paragraph (4) as paragraph (3), and by
striking ‘‘paragraph (1), (2), or (3)’’ in paragraph (3) (as so
redesignated) and inserting ‘‘paragraph (1) or (2)’’.
(12) Paragraph (2) of section 864(d) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and
(C) as subparagraphs (A) and (B), respectively.
(13)(A) Subparagraph (A) of section 898(b)(1) is amended
to read as follows:
‘‘(A) which is treated as a controlled foreign corporation
for any purpose under subpart F of part III of this subchapter, and’’.
(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ‘‘and sections 551(f) and 554, whichever are
applicable,’’.
(C) Paragraph (3) of section 898(b) is amended to read
as follows:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00091
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1508
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(3) UNITED STATES SHAREHOLDER.—The term ‘United
States shareholder’ has the meaning given to such term by
section 951(b), except that, in the case of a foreign corporation
having related person insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such person
is treated as a United States shareholder under section
953(c)(1).’’.
(D) Subsection (c) of section 898 is amended to read as
follows:
‘‘(c) DETERMINATION OF REQUIRED YEAR.—
‘‘(1) IN GENERAL.—The required year is—
‘‘(A) the majority U.S. shareholder year, or
‘‘(B) if there is no majority U.S. shareholder year,
the taxable year prescribed under regulations.
‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A specified foreign corporation may elect, in lieu of the taxable year under paragraph
(1)(A), a taxable year beginning 1 month earlier than the
majority U.S. shareholder year.
‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘majority U.S. shareholder year’ means the taxable
year (if any) which, on each testing day, constituted the
taxable year of—
‘‘(i) each United States shareholder described in
subsection (b)(2)(A), and
‘‘(ii) each United States shareholder not described
in clause (i) whose stock was treated as owned under
subsection (b)(2)(B) by any shareholder described in
such clause.
‘‘(B) TESTING DAY.—The testing days shall be—
‘‘(i) the first day of the corporation’s taxable year
(determined without regard to this section), or
‘‘(ii) the days during such representative period
as the Secretary may prescribe.’’.
(14) Clause (ii) of section 904(d)(2)(A) is amended to read
as follows:
‘‘(ii) CERTAIN AMOUNTS INCLUDED.—Except as provided in clause (iii), the term ‘passive income’ includes,
except as provided in subparagraph (E)(iii) or paragraph (3)(I), any amount includible in gross income
under section 1293 (relating to certain passive foreign
investment companies).’’.
(15)(A) Subparagraph (A) of section 904(h)(1), as redesignated by this Act, is amended by adding ‘‘or’’ at the end of
clause (i), by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of section
904(h), as so redesignated, is amended by striking ‘‘FOREIGN
PERSONAL HOLDING OR’’.
(16) Section 951 is amended by striking subsections (c)
and (d) and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively.
(17) Paragraph (3) of section 989(b) is amended by striking
‘‘, 551(a),’’.
(18) Paragraph (5) of section 1014(b) is amended by
inserting ‘‘and before January 1, 2005,’’ after ‘‘August 26, 1937,’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00092
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1509
(19) Subsection (a) of section 1016 is amended by striking
paragraph (13).
(20)(A) Paragraph (3) of section 1212(a) is amended to
read as follows:
‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net capital loss
of a corporation shall not be carried back under paragraph
(1)(A) to a taxable year—
‘‘(A) for which it is a regulated investment company
(as defined in section 851), or
‘‘(B) for which it is a real estate investment trust
(as defined in section 856).’’.
(B) The amendment made by subparagraph (A) shall apply
to taxable years beginning after December 31, 2004.
(21) Section 1223 is amended by striking paragraph (10)
and by redesignating the following paragraphs accordingly.
(22) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7)
as paragraphs (5) and (6), respectively.
(23) Paragraph (2) of section 1260(c) is amended by striking
subparagraphs (H) and (I) and by redesignating subparagraph
(J) as subparagraph (H).
(24)(A) Subparagraph (F) of section 1291(b)(3) is amended
by striking ‘‘551(d), 959(a),’’ and inserting ‘‘959(a)’’.
(B) Subsection (e) of section 1291 is amended by inserting
‘‘(as in effect on the day before the date of the enactment
of the American Jobs Creation Act of 2004)’’ after ‘‘section
1246’’.
(25) Paragraph (2) of section 1294(a) is amended to read
as follows:
‘‘(2) ELECTION NOT PERMITTED WHERE AMOUNTS OTHERWISE
INCLUDIBLE UNDER SECTION 951.—The taxpayer may not make
an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified
electing fund for the taxable year if any amount is includible
in the gross income of the taxpayer under section 951 with
respect to such fund for such taxable year.’’.
(26) Section 6035 is hereby repealed.
(27) Subparagraph (D) of section 6103(e)(1) is amended
by striking clause (iv) and redesignating clauses (v) and (vi)
as clauses (iv) and (v), respectively.
(28) Subparagraph (B) of section 6501(e)(1) is amended
to read as follows:
‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the taxpayer omits
from gross income an amount properly includible therein
under section 951(a), the tax may be assessed, or a proceeding in court for the collection of such tax may be
done without assessing, at any time within 6 years after
the return was filed.’’.
(29) Subsection (a) of section 6679 is amended—
(A) by striking ‘‘6035, 6046, and 6046A’’ in paragraph
(1) and inserting ‘‘6046 and 6046A’’, and
(B) by striking paragraph (3).
(30) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) are
each amended by striking ‘‘556(b)(2),’’ each place it appears.
(31) The table of parts for subchapter G of chapter 1
is amended by striking the item relating to part III.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00093
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1510
PUBLIC LAW 108–357—OCT. 22, 2004
(32) The table of sections for part IV of subchapter P
of chapter 1 is amended by striking the items relating to
sections 1246 and 1247.
(33) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the item
relating to section 6035.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
of foreign corporations beginning after December 31, 2004, and
to taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
(2) SUBSECTION (c)(27).—The amendments made by subsection (c)(27) shall apply to disclosures of return or return
information with respect to taxable years beginning after
December 31, 2004.
26 USC 1 note.
SEC. 414. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH RESPECT TO TRANSACTIONS IN
COMMODITIES.
(a) IN GENERAL.—Clauses (i) and (ii) of section 954(c)(1)(C)
(relating to commodity transactions) are amended to read as follows:
‘‘(i) arise out of commodity hedging transactions
(as defined in paragraph (4)(A)),
‘‘(ii) are active business gains or losses from the
sale of commodities, but only if substantially all of
the controlled foreign corporation’s commodities are
property described in paragraph (1), (2), or (8) of section
1221(a), or’’.
(b) DEFINITION AND SPECIAL RULES.—Subsection (c) of section
954, as amended by this Act, is amended by adding after paragraph
(4) the following new paragraph:
‘‘(5) DEFINITION AND SPECIAL RULES RELATING TO COMMODITY TRANSACTIONS.—
‘‘(A) COMMODITY HEDGING TRANSACTIONS.—For purposes of paragraph (1)(C)(i), the term ‘commodity hedging
transaction’ means any transaction with respect to a commodity if such transaction—
‘‘(i) is a hedging transaction as defined in section
1221(b)(2), determined—
‘‘(I) without regard to subparagraph (A)(ii)
thereof,
‘‘(II) by applying subparagraph (A)(i) thereof
by substituting ‘ordinary property or property
described in section 1231(b)’ for ‘ordinary property’,
and
‘‘(III) by substituting ‘controlled foreign corporation’ for ‘taxpayer’ each place it appears, and
‘‘(ii) is clearly identified as such in accordance with
section 1221(a)(7).
‘‘(B) TREATMENT OF DEALER ACTIVITIES UNDER PARAGRAPH (1)(C).—Commodities with respect to which gains
and losses are not taken into account under paragraph
(2)(C) in computing a controlled foreign corporation’s foreign personal holding company income shall not be taken
into account in applying the substantially all test under
paragraph (1)(C)(ii) to such corporation.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00094
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1511
‘‘(C) REGULATIONS.—The Secretary shall prescribe such
regulations as are appropriate to carry out the purposes
of paragraph (1)(C) in the case of transactions involving
related parties.’’.
(c) MODIFICATION OF EXCEPTION FOR DEALERS.—Clause (i) of
section 954(c)(2)(C) is amended by inserting ‘‘and transactions
involving physical settlement’’ after ‘‘(including hedging transactions’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions entered into after December 31, 2004.
26 USC 954 note.
SEC. 415. MODIFICATIONS TO TREATMENT OF AIRCRAFT LEASING AND
SHIPPING INCOME.
(a) ELIMINATION OF FOREIGN BASE COMPANY SHIPPING
INCOME.—Section 954 (relating to foreign base company income)
is amended—
(1) by striking paragraph (4) of subsection (a) (relating
to foreign base company shipping income), and
(2) by striking subsection (f) (relating to foreign base company shipping income).
(b) SAFE HARBOR FOR CERTAIN LEASING ACTIVITIES.—Subparagraph (A) of section 954(c)(2) is amended by adding at the end
the following new sentence: ‘‘For purposes of the preceding sentence,
rents derived from leasing an aircraft or vessel in foreign commerce
shall not fail to be treated as derived in the active conduct of
a trade or business if, as determined under regulations prescribed
by the Secretary, the active leasing expenses are not less than
10 percent of the profit on the lease.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 952(c)(1)(B)(iii) is amended by striking subclause
(I) and redesignating subclauses (II) through (VI) as subclauses
(I) through (V), respectively.
(2) Subsection (b) of section 954 is amended—
(A) by striking ‘‘the foreign base company shipping
income,’’ in paragraph (5),
(B) by striking paragraphs (6) and (7), and
(C) by redesignating paragraph (8) as paragraph (6).
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning after
December 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
26 USC 952 note.
SEC. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR
ACTIVE FINANCING.
(a) IN GENERAL.—Section 954(h)(3) is amended by adding at
the end the following:
‘‘(E) DIRECT CONDUCT OF ACTIVITIES.—For purposes of
subparagraph (A)(ii)(II), an activity shall be treated as
conducted directly by an eligible controlled foreign corporation or qualified business unit in its home country if the
activity is performed by employees of a related person
and—
‘‘(i) the related person is an eligible controlled foreign corporation the home country of which is the
same as the home country of the corporation or unit
to which subparagraph (A)(ii)(II) is being applied,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00095
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1512
26 USC 954 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(ii) the activity is performed in the home country
of the related person, and
‘‘(iii) the related person is compensated on an
arm’s-length basis for the performance of the activity
by its employees and such compensation is treated
as earned by such person in its home country for
purposes of the home country’s tax laws.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years of such foreign corporations beginning
after December 31, 2004, and to taxable years of United States
shareholders with or within which such taxable years of such foreign
corporations end.
SEC. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN
TAX CREDIT CARRYBACK.
26 USC 904 note.
(a) GENERAL RULE.—Section 904(c) (relating to carryback and
carryover of excess tax paid) is amended—
(1) by striking ‘‘in the second preceding taxable year,’’,
and
(2) by striking ‘‘, and in the first, second, third, fourth,
or fifth’’ and inserting ‘‘and in any of the first 10’’.
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of section 907(f)
is amended—
(1) by striking ‘‘in the second preceding taxable year,’’,
(2) by striking ‘‘, and in the first, second, third, fourth,
or fifth’’ and inserting ‘‘and in any of the first 10’’, and
(3) by striking the last sentence.
(c) EFFECTIVE DATE.—
(1) CARRYBACK.—The amendments made by subsections
(a)(1) and (b)(1) shall apply to excess foreign taxes arising
in taxable years beginning after the date of the enactment
of this Act.
(2) CARRYOVER.—The amendments made by subsections
(a)(2) and (b)(2) shall apply to excess foreign taxes which (without regard to the amendments made by this section) may be
carried to any taxable year ending after the date of the enactment of this Act.
SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES OR
EXCHANGES OF UNITED STATES REAL PROPERTY
INTERESTS.
(a) IN GENERAL.—Paragraph (1) of section 897(h) (relating to
look-through of distributions) is amended by adding at the end
the following new sentence: ‘‘Notwithstanding the preceding sentence, any distribution by a REIT with respect to any class of
stock which is regularly traded on an established securities market
located in the United States shall not be treated as gain recognized
from the sale or exchange of a United States real property interest
if the shareholder did not own more than 5 percent of such class
of stock at any time during the taxable year.’’.
(b) CONFORMING AMENDMENT.—Paragraph (3) of section 857(b)
(relating to capital gains) is amended by adding at the end the
following new subparagraph:
‘‘(F) CERTAIN DISTRIBUTIONS.—In the case of a shareholder of a real estate investment trust to whom section
897 does not apply by reason of the second sentence of
section 897(h)(1), the amount which would be included
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00096
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1513
in computing long-term capital gains for such 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 real estate investment
trust.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
26 USC 857 note.
SEC. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS
ON HORSE RACES AND DOG RACES FROM GROSS INCOME
OF NONRESIDENT ALIEN INDIVIDUALS.
(a) IN GENERAL.—Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6), and
(7) as paragraphs (6), (7), and (8), respectively, and inserting after
paragraph (4) the following new paragraph:
‘‘(5) INCOME DERIVED FROM WAGERING TRANSACTIONS IN
CERTAIN PARIMUTUEL POOLS.—Gross income derived by a nonresident alien individual from a legal wagering transaction
initiated outside the United States in a parimutuel pool with
respect to a live horse race or dog race in the United States.’’.
(b) CONFORMING AMENDMENT.—Section 883(a)(4) is amended
by striking ‘‘(5), (6), and (7)’’ and inserting ‘‘(6), (7), and (8)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to wagers made after the date of the enactment of
this Act.
26 USC 872 note.
SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.
(a) IN GENERAL.—Subsection (b) of section 881 is amended
by redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
‘‘(2) COMMONWEALTH OF PUERTO RICO.—
‘‘(A) IN GENERAL.—If dividends are received during
a taxable year by a corporation—
‘‘(i) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
‘‘(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) are
met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting ‘10 percent’ for ‘30 percent’.
‘‘(B) APPLICABILITY.—If, on or after the date of the
enactment of this paragraph, an increase in the rate of
the Commonwealth of Puerto Rico’s withholding tax which
is generally applicable to dividends paid to United States
corporations not engaged in a trade or business in the
Commonwealth to a rate greater than 10 percent takes
effect, this paragraph shall not apply to dividends received
on or after the effective date of the increase.’’.
(b) WITHHOLDING.—Subsection (c) of section 1442 (relating to
withholding of tax on foreign corporations) is amended—
(1) by striking ‘‘For purposes’’ and inserting the following:
‘‘(1) GUAM, AMERICAN SAMOA, THE NORTHERN MARIANA
ISLANDS, AND THE VIRGIN ISLANDS.—For purposes’’, and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00097
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1514
26 USC 881 note.
PUBLIC LAW 108–357—OCT. 22, 2004
(2) by adding at the end the following new paragraph:
‘‘(2) COMMONWEALTH OF PUERTO RICO.—
‘‘(A) IN GENERAL.—If dividends are received during
a taxable year by a corporation—
‘‘(i) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
‘‘(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1)
are met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting ‘10 percent’ for ‘30 percent’.
‘‘(B) APPLICABILITY.—If, on or after the date of the
enactment of this paragraph, an increase in the rate of
the Commonwealth of Puerto Rico’s withholding tax which
is generally applicable to dividends paid to United States
corporations not engaged in a trade or business in the
Commonwealth to a rate greater than 10 percent takes
effect, this paragraph shall not apply to dividends received
on or after the effective date of the increase.’’.
(c) CONFORMING AMENDMENTS.—
(1) Subsection (b) of section 881 is amended by striking
‘‘GUAM AND VIRGIN ISLANDS CORPORATIONS’’ in the heading
and inserting ‘‘POSSESSIONS’’.
(2) Paragraph (1) of section 881(b) is amended by striking
‘‘IN GENERAL’’ in the heading and inserting ‘‘GUAM, AMERICAN
SAMOA, THE NORTHERN MARIANA ISLANDS, AND THE VIRGIN
ISLANDS’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to dividends paid after the date of the enactment of
this Act.
SEC. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
26 USC 53 note.
(a) IN GENERAL.—
(1) Subsection (a) of section 59 is amended by striking
paragraph (2) and by redesignating paragraphs (3) and (4)
as paragraphs (2) and (3), respectively.
(2) Section 53(d)(1)(B)(i)(II) is amended by striking ‘‘and
if section 59(a)(2) did not apply’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 422. INCENTIVES TO REINVEST FOREIGN EARNINGS IN UNITED
STATES.
(a) IN GENERAL.—Subpart F of part III of subchapter N of
chapter 1 (relating to controlled foreign corporations) is amended
by adding at the end the following new section:
‘‘SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
‘‘(a) DEDUCTION.—
‘‘(1) IN GENERAL.—In the case of a corporation which is
a United States shareholder and for which the election under
this section is in effect for the taxable year, there shall be
allowed as a deduction an amount equal to 85 percent of the
cash dividends which are received during such taxable year
by such shareholder from controlled foreign corporations.
‘‘(2) DIVIDENDS PAID INDIRECTLY FROM CONTROLLED FOREIGN CORPORATIONS.—If, within the taxable year for which
the election under this section is in effect, a United States
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00098
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1515
shareholder receives a cash distribution from a controlled foreign corporation which is excluded from gross income under
section 959(a), such distribution shall be treated for purposes
of this section as a cash dividend to the extent of any amount
included in income by such United States shareholder under
section 951(a)(1)(A) as a result of any cash dividend during
such taxable year to—
‘‘(A) such controlled foreign corporation from another
controlled foreign corporation that is in a chain of ownership described in section 958(a), or
‘‘(B) any other controlled foreign corporation in such
chain of ownership, but only to the extent of cash distributions described in section 959(b) which are made during
such taxable year to the controlled foreign corporation from
which such United States shareholder received such distribution.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount of dividends taken into
account under subsection (a) shall not exceed the greater of—
‘‘(A) $500,000,000,
‘‘(B) the amount shown on the applicable financial
statement as earnings permanently reinvested outside the
United States, or
‘‘(C) in the case of an applicable financial statement
which fails to show a specific amount of earnings permanently reinvested outside the United States and which
shows a specific amount of tax liability attributable to
such earnings, the amount equal to the amount of such
liability divided by 0.35.
The amounts described in subparagraphs (B) and (C) shall
be treated as being zero if there is no such statement or
such statement fails to show a specific amount of such earnings
or liability, as the case may be.
‘‘(2) DIVIDENDS MUST BE EXTRAORDINARY.—The amount of
dividends taken into account under subsection (a) shall not
exceed the excess (if any) of—
‘‘(A) the dividends received during the taxable year
by such shareholder from controlled foreign corporations,
over
‘‘(B) the annual average for the base period years of—
‘‘(i) the dividends received during each base period
year by such shareholder from controlled foreign corporations,
‘‘(ii) the amounts includible in such shareholder’s
gross income for each base period year under section
951(a)(1)(B) with respect to controlled foreign corporations, and
‘‘(iii) the amounts that would have been included
for each base period year but for section 959(a) with
respect to controlled foreign corporations.
The amount taken into account under clause (iii) for any
base period year shall not include any amount which is
not includible in gross income by reason of an amount
described in clause (ii) with respect to a prior taxable
year. Amounts described in subparagraph (B) for any base
period year shall be such amounts as shown on the most
recent return filed for such year; except that amended
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00099
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1516
PUBLIC LAW 108–357—OCT. 22, 2004
returns filed after June 30, 2003, shall not be taken into
account.
‘‘(3) REDUCTION OF BENEFIT IF INCREASE IN RELATED PARTY
INDEBTEDNESS.—The amount of dividends which would (but
for this paragraph) be taken into account under subsection
(a) shall be reduced by the excess (if any) of—
‘‘(A) the amount of indebtedness of the controlled foreign corporation to any related person (as defined in section
954(d)(3)) as of the close of the taxable year for which
the election under this section is in effect, over
‘‘(B) the amount of indebtedness of the controlled foreign corporation to any related person (as so defined) as
of the close of October 3, 2004.
All controlled foreign corporations with respect to which the
taxpayer is a United States shareholder shall be treated as
1 controlled foreign corporation for purposes of this paragraph.
‘‘(4) REQUIREMENT TO INVEST IN UNITED STATES.—Subsection (a) shall not apply to any dividend received by a United
States shareholder unless the amount of the dividend is
invested in the United States pursuant to a domestic reinvestment plan which—
‘‘(A) is approved by the taxpayer’s president, chief
executive officer, or comparable official before the payment
of such dividend and subsequently approved by the taxpayer’s board of directors, management committee, executive committee, or similar body, and
‘‘(B) provides for the reinvestment of such dividend
in the United States (other than as payment for executive
compensation), including as a source for the funding of
worker hiring and training, infrastructure, research and
development, capital investments, or the financial stabilization of the corporation for the purposes of job retention
or creation.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) APPLICABLE FINANCIAL STATEMENT.—The term
‘applicable financial statement’ means, with respect to a United
States shareholder, the most recently audited financial statement (including notes and other documents which accompany
such statement) which includes such shareholder—
‘‘(A) which is certified on or before June 30, 2003,
as being prepared in accordance with generally accepted
accounting principles, and
‘‘(B) which is used for the purposes of a statement
or report—
‘‘(i) to creditors,
‘‘(ii) to shareholders, or
‘‘(iii) for any other substantial nontax purpose.
In the case of a corporation required to file a financial statement
with the Securities and Exchange Commission, such term
means the most recent such statement filed on or before June
30, 2003.
‘‘(2) BASE PERIOD YEARS.—
‘‘(A) IN GENERAL.—The base period years are the 3
taxable years—
‘‘(i) which are among the 5 most recent taxable
years ending on or before June 30, 2003, and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00100
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1517
‘‘(ii) which are determined by disregarding—
‘‘(I) 1 taxable year for which the sum of the
amounts described in clauses (i), (ii), and (iii) of
subsection (b)(2)(B) is the largest, and
‘‘(II) 1 taxable year for which such sum is
the smallest.
‘‘(B) SHORTER PERIOD.—If the taxpayer has fewer than
5 taxable years ending on or before June 30, 2003, then
in lieu of applying subparagraph (A), the base period years
shall include all the taxable years of the taxpayer ending
on or before June 30, 2003.
‘‘(C) MERGERS, ACQUISITIONS, ETC.—
‘‘(i) IN GENERAL.—Rules similar to the rules of
subparagraphs (A) and (B) of section 41(f)(3) shall
apply for purposes of this paragraph.
‘‘(ii) SPIN-OFFS, ETC.—If there is a distribution to
which section 355 (or so much of section 356 as relates
to section 355) applies during the 5-year period referred
to in subparagraph (A)(i) and the controlled corporation
(within the meaning of section 355) is a United States
shareholder—
‘‘(I) the controlled corporation shall be treated
as being in existence during the period that the
distributing corporation (within the meaning of
section 355) is in existence, and
‘‘(II) for purposes of applying subsection (b)(2)
to the controlled corporation and the distributing
corporation, amounts described in subsection
(b)(2)(B) which are received or includible by the
distributing corporation or controlled corporation
(as the case may be) before the distribution
referred to in subclause (I) from a controlled foreign corporation shall be allocated between such
corporations in proportion to their respective
interests as United States shareholders of such
controlled foreign corporation immediately after
such distribution.
Subclause (II) shall not apply if neither the controlled
corporation nor the distributing corporation is a United
States shareholder of such controlled foreign corporation immediately after such distribution.
‘‘(3) DIVIDEND.—The term ‘dividend’ shall not include
amounts includible in gross income as a dividend under section
78, 367, or 1248. In the case of a liquidation under section
332 to which section 367(b) applies, the preceding sentence
shall not apply to the extent the United States shareholder
actually receives cash as part of the liquidation.
‘‘(4) COORDINATION WITH DIVIDENDS RECEIVED DEDUCTION.—No deduction shall be allowed under section 243 or
245 for any dividend for which a deduction is allowed under
this section.
‘‘(5) CONTROLLED GROUPS.—
‘‘(A) IN GENERAL.—All United States shareholders
which are members of an affiliated group filing a consolidated return under section 1501 shall be treated as one
United States shareholder.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00101
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1518
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(B) APPLICATION OF $500,000,000 LIMIT.—All corporations which are treated as a single employer under section
52(a) shall be limited to one $500,000,000 amount in subsection (b)(1)(A), and such amount shall be divided among
such corporations under regulations prescribed by the Secretary.
‘‘(C) PERMANENTLY REINVESTED EARNINGS.—If a financial statement is an applicable financial statement for more
than 1 United States shareholder, the amount applicable
under subparagraph (B) or (C) of subsection (b)(1) shall
be divided among such shareholders under regulations prescribed by the Secretary.
‘‘(d) DENIAL OF FOREIGN TAX CREDIT; DENIAL OF CERTAIN
EXPENSES.—
‘‘(1) FOREIGN TAX CREDIT.—No credit shall be allowed under
section 901 for any taxes paid or accrued (or treated as paid
or accrued) with respect to the deductible portion of—
‘‘(A) any dividend, or
‘‘(B) any amount described in subsection (a)(2) which
is included in income under section 951(a)(1)(A).
No deduction shall be allowed under this chapter for any tax
for which credit is not allowable by reason of the preceding
sentence.
‘‘(2) EXPENSES.—No deduction shall be allowed for expenses
properly allocated and apportioned to the deductible portion
described in paragraph (1).
‘‘(3) DEDUCTIBLE PORTION.—For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the deductible portion
of any dividend or other amount is the amount which bears
the same ratio to the amount of such dividend or other amount
as the amount allowed as a deduction under subsection (a)
for the taxable year bears to the amount described in subsection
(b)(2)(A) for such year.
‘‘(e) INCREASE IN TAX ON INCLUDED AMOUNTS NOT REDUCED
BY CREDITS, ETC.—
‘‘(1) IN GENERAL.—Any tax under this chapter by reason
of nondeductible CFC dividends shall not be treated as tax
imposed by this chapter for purposes of determining—
‘‘(A) the amount of any credit allowable under this
chapter, or
‘‘(B) the amount of the tax imposed by section 55.
Subparagraph (A) shall not apply to the credit under section
53 or to the credit under section 27(a) with respect to taxes
attributable to such dividends.
‘‘(2) LIMITATION ON REDUCTION IN TAXABLE INCOME, ETC.—
‘‘(A) IN GENERAL.—The taxable income of any United
States shareholder for any taxable year shall in no event
be less than the amount of nondeductible CFC dividends
received during such year.
‘‘(B) COORDINATION WITH SECTION 172.—The nondeductible CFC dividends for any taxable year shall not be taken
into account—
‘‘(i) in determining under section 172 the amount
of any net operating loss for such taxable year, and
‘‘(ii) in determining taxable income for such taxable
year for purposes of the 2nd sentence of section
172(b)(2).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00102
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1519
‘‘(3) NONDEDUCTIBLE CFC DIVIDENDS.—For purposes of this
subsection, the term ‘nondeductible CFC dividends’ means the
excess of the amount of dividends taken into account under
subsection (a) over the deduction allowed under subsection
(a) for such dividends.
‘‘(f) ELECTION.—The taxpayer may elect to apply this section
to—
‘‘(1) the taxpayer’s last taxable year which begins before
the date of the enactment of this section, or
‘‘(2) the taxpayer’s first taxable year which begins during
the 1-year period beginning on such date.
Such election may be made for a taxable year only if made before
the due date (including extensions) for filing the return of tax
for such taxable year.’’.
(b) ALTERNATIVE MINIMUM TAX.—Subparagraph (C) of section
56(g)(4) is amended by inserting after clause (v) the following new
clause:
‘‘(vi) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS
FROM CONTROLLED FOREIGN CORPORATIONS.—Clause (i)
shall not apply to any deduction allowable under section 965.’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart
F of part III of subchapter N of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 965. Temporary dividends received deduction.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending on or after the date of the
enactment of this Act.
26 USC 56 note.
SEC. 423. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING EXCLUSION OF INCOME FROM INTERNATIONAL
OPERATION OF SHIPS OR AIRCRAFT.
Notwithstanding the provisions of Treasury regulation § 1.883–
5, the final regulations issued by the Secretary of the Treasury
relating to income derived by foreign corporations from the international operation of ships or aircraft (Treasury regulations § 1.883–
1 through § 1.883–5) shall apply to taxable years of a foreign corporation seeking qualified foreign corporation status beginning after
September 24, 2004.
SEC. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
(a) IN GENERAL.—The Secretary of the Treasury or the Secretary’s delegate shall conduct a study of the effectiveness of the
provisions of the Internal Revenue Code of 1986 applicable to
earnings stripping, including a study of—
(1) the effectiveness of section 163(j) of such Code in preventing the shifting of income outside the United States,
(2) whether any deficiencies of such provisions place United
States-based businesses at a competitive disadvantage relative
to foreign-based businesses,
(3) the impact of earnings stripping activities on the United
States tax base,
(4) whether laws of foreign countries facilitate stripping
of earnings out of the United States, and
(5) whether changes to the earning stripping rules would
affect jobs in the United States.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00103
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1520
PUBLIC LAW 108–357—OCT. 22, 2004
(b) REPORT.—Not later than June 30, 2005, the Secretary shall
submit to the Congress a report of the study conducted under
this section, including specific recommendations as to how to
improve the provisions of such Code applicable to earnings stripping.
TITLE V—DEDUCTION OF STATE AND
LOCAL GENERAL SALES TAXES
SEC. 501. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
IN LIEU OF STATE AND LOCAL INCOME TAXES.
(a) IN GENERAL.—Subsection (b) of section 164 (relating to
definitions and special rules) is amended by adding at the end
the following:
‘‘(5) GENERAL SALES TAXES.—For purposes of subsection
(a)—
‘‘(A) ELECTION TO DEDUCT STATE AND LOCAL SALES
TAXES IN LIEU OF STATE AND LOCAL INCOME TAXES.—
‘‘(i) IN GENERAL.—At the election of the taxpayer
for the taxable year, subsection (a) shall be applied—
‘‘(I) without regard to the reference to State
and local income taxes, and
‘‘(II) as if State and local general sales taxes
were referred to in a paragraph thereof.
‘‘(B) DEFINITION OF GENERAL SALES TAX.—The term
‘general sales tax’ means a tax imposed at one rate with
respect to the sale at retail of a broad range of classes
of items.
‘‘(C) SPECIAL RULES FOR FOOD, ETC.—In the case of
items of food, clothing, medical supplies, and motor
vehicles—
‘‘(i) the fact that the tax does not apply with respect
to some or all of such items shall not be taken into
account in determining whether the tax applies with
respect to a broad range of classes of items, and
‘‘(ii) the fact that the rate of tax applicable with
respect to some or all of such items is lower than
the general rate of tax shall not be taken into account
in determining whether the tax is imposed at one
rate.
‘‘(D) ITEMS TAXED AT DIFFERENT RATES.—Except in the
case of a lower rate of tax applicable with respect to an
item described in subparagraph (C), no deduction shall
be allowed under this paragraph for any general sales
tax imposed with respect to an item at a rate other than
the general rate of tax.
‘‘(E) COMPENSATING USE TAXES.—A compensating use
tax with respect to an item shall be treated as a general
sales tax. For purposes of the preceding sentence, the term
‘compensating use tax’ means, with respect to any item,
a tax which—
‘‘(i) is imposed on the use, storage, or consumption
of such item, and
‘‘(ii) is complementary to a general sales tax, but
only if a deduction is allowable under this paragraph
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00104
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1521
with respect to items sold at retail in the taxing jurisdiction which are similar to such item.
‘‘(F) SPECIAL RULE FOR MOTOR VEHICLES.—In the case
of motor vehicles, if the rate of tax exceeds the general
rate, such excess shall be disregarded and the general
rate shall be treated as the rate of tax.
‘‘(G) SEPARATELY STATED GENERAL SALES TAXES.—If the
amount of any general sales tax is separately stated, then,
to the extent that the amount so stated is paid by the
consumer (other than in connection with the consumer’s
trade or business) to the seller, such amount shall be
treated as a tax imposed on, and paid by, such consumer.
‘‘(H) AMOUNT OF DEDUCTION MAY BE DETERMINED
UNDER TABLES.—
‘‘(i) IN GENERAL.—At the election of the taxpayer
for the taxable year, the amount of the deduction
allowed under this paragraph for such year shall be—
‘‘(I) the amount determined under this paragraph (without regard to this subparagraph) with
respect to motor vehicles, boats, and other items
specified by the Secretary, and
‘‘(II) the amount determined under tables prescribed by the Secretary with respect to items
to which subclause (I) does not apply.
‘‘(ii) REQUIREMENTS FOR TABLES.—The tables prescribed under clause (i)—
‘‘(I) shall reflect the provisions of this paragraph,
‘‘(II) shall be based on the average consumption by taxpayers on a State-by-State basis (as
determined by the Secretary) of items to which
clause (i)(I) does not apply, taking into account
filing status, number of dependents, adjusted gross
income, and rates of State and local general sales
taxation, and
‘‘(III) need only be determined with respect
to adjusted gross incomes up to the applicable
amount (as determined under section 68(b)).
‘‘(I) APPLICATION OF PARAGRAPH.—This paragraph shall
apply to taxable years beginning after December 31, 2003,
and before January 1, 2006.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
TITLE VI—FAIR AND EQUITABLE
TOBACCO REFORM
SEC. 601. SHORT TITLE.
26 USC 164 note.
Fair and
Equitable
Tobacco Reform
Act of 2004.
7 USC 518 note.
This title may be cited as the ‘‘Fair and Equitable Tobacco
Reform Act of 2004’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00105
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1522
PUBLIC LAW 108–357—OCT. 22, 2004
Subtitle A—Termination of Federal Tobacco Quota and Price Support Programs
SEC. 611. TERMINATION OF TOBACCO QUOTA PROGRAM AND RELATED
PROVISIONS.
(a) MARKETING QUOTAS.—Part I of subtitle B of title III of
the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.)
is repealed.
(b) TOBACCO INSPECTIONS.—Section 213 of the Tobacco Adjustment Act of 1983 (7 U.S.C. 511r) is repealed.
(c) TOBACCO CONTROL.—The Act of April 25, 1936 (commonly
known as the Tobacco Control Act; 7 U.S.C. 515 et seq.), is repealed.
(d) PROCESSING TAX.—Section 9(b) of the Agricultural Adjustment Act (7 U.S.C. 609(b)), reenacted with amendments by the
Agricultural Marketing Agreement Act of 1937, is amended—
(1) in paragraph (2), by striking ‘‘tobacco,’’; and
(2) in paragraph (6)(B)(i), by striking ‘‘, or, in the case
of tobacco, is less than the fair exchange value by not more
than 10 per centum,’’.
(e) DECLARATION OF POLICY.—Section 2 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking
‘‘tobacco,’’.
(f) DEFINITIONS.—Section 301(b) of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1301(b)) is amended—
(1) in paragraph (3)—
(A) by striking subparagraph (C); and
(B) by redesignating subparagraph (D) as subparagraph (C);
(2) in paragraph (6)(A), by striking ‘‘tobacco,’’;
(3) in paragraph (10)—
(A) by striking subparagraph (B); and
(B) by redesignating subparagraph (C) as subparagraph (B);
(4) in paragraph (11)(B), by striking ‘‘and tobacco’’;
(5) in paragraph (12), by striking ‘‘tobacco,’’;
(6) in paragraph (14)—
(A) in subparagraph (A), by striking ‘‘(A)’’; and
(B) by striking subparagraphs (B), (C), and (D);
(7) by striking paragraph (15);
(8) in paragraph (16)—
(A) by striking subparagraph (B); and
(B) by redesignating subparagraph (C) as subparagraph (B);
(9) by striking paragraph (17); and
(10) by redesignating paragraph (16) as paragraph (15).
(g) PARITY PAYMENTS.—Section 303 of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1303) is amended in the first sentence
by striking ‘‘rice, or tobacco,’’ and inserting ‘‘or rice,’’.
(h) ADMINISTRATIVE PROVISIONS.—Section 361 of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
‘‘tobacco,’’.
(i) ADJUSTMENT OF QUOTAS.—Section 371 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1371) is amended—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00106
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1523
(1) in the first sentence of subsection (a), by striking ‘‘rice,
or tobacco’’ and inserting ‘‘or rice’’; and
(2) in the first sentence of subsection (b), by striking ‘‘rice,
or tobacco’’ and inserting ‘‘or rice’’.
(j) REPORTS AND RECORDS.—Section 373 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1373) is amended—
(1) by striking ‘‘rice, or tobacco’’ each place it appears
in subsections (a) and (b) and inserting ‘‘or rice’’; and
(2) in subsection (a)—
(A) in the first sentence, by striking ‘‘all persons
engaged in the business of redrying, prizing, or stemming
tobacco for producers,’’; and
(B) in the last sentence, by striking ‘‘$500;’’ and all
that follows through the period at the end of the sentence
and inserting ‘‘$500.’’.
(k) REGULATIONS.—Section 375 of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1375) is amended—
(1) in subsection (a), by striking ‘‘peanuts, or tobacco’’ and
inserting ‘‘or peanuts’’; and
(2) by striking subsection (c).
(l) EMINENT DOMAIN.—Section 378 of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1378) is amended—
(1) in the first sentence of subsection (c), by striking ‘‘cotton,
and tobacco’’ and inserting ‘‘and cotton’’; and
(2) by striking subsections (d), (e), and (f).
(m) BURLEY TOBACCO FARM RECONSTITUTION.—Section 379 of
the Agricultural Adjustment Act of 1938 (7 U.S.C. 1379) is
amended—
(1) in subsection (a)—
(A) by striking ‘‘(a)’’; and
(B) in paragraph (6), by striking ‘‘, but this clause
(6) shall not be applicable in the case of burley tobacco’’;
and
(2) by striking subsections (b) and (c).
(n) ACREAGE-POUNDAGE QUOTAS.—Section 4 of the Act of April
16, 1955 (Public Law 89–12; 7 U.S.C. 1314c note), is repealed.
(o) BURLEY TOBACCO ACREAGE ALLOTMENTS.—The Act of July
12, 1952 (7 U.S.C. 1315), is repealed.
(p) TRANSFER OF ALLOTMENTS.—Section 703 of the Food and
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
(q) ADVANCE RECOURSE LOANS.—Section 13(a)(2)(B) of the Food
Security Improvements Act of 1986 (7 U.S.C. 1433c–1(a)(2)(B)) is
amended by striking ‘‘tobacco and’’.
(r) TOBACCO FIELD MEASUREMENT.—Section 1112 of the Omnibus Budget Reconciliation Act of 1987 (Public Law 100–203; 101
Stat. 1330-8) is amended by striking subsection (c).
(s) BURLEY TOBACCO IMPORT REVIEW.—Section 3 of Public Law
98–59 (7 U.S.C. 625) is repealed.
SEC. 612. TERMINATION OF TOBACCO PRICE SUPPORT PROGRAM AND
RELATED PROVISIONS.
(a) TERMINATION OF TOBACCO PRICE SUPPORT AND NO NET
COST PROVISIONS.—Sections 106, 106A, and 106B of the Agricultural Act of 1949 (7 U.S.C. 1445, 1445–1, 1445–2) are repealed.
(b) PARITY PRICE SUPPORT.—Section 101 of the Agricultural
Act of 1949 (7 U.S.C. 1441) is amended—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00107
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1524
PUBLIC LAW 108–357—OCT. 22, 2004
(1) in the first sentence of subsection (a), by striking
‘‘tobacco (except as otherwise provided herein), corn,’’ and
inserting ‘‘corn’’;
(2) by striking subsections (c), (g), (h), and (i);
(3) in subsection (d)(3)—
(A) by striking ‘‘, except tobacco,’’; and
(B) by striking ‘‘and no price support shall be made
available for any crop of tobacco for which marketing quotas
have been disapproved by producers;’’; and
(4) by redesignating subsections (d) and (e) as subsections
(c) and (d), respectively.
(c) DEFINITION OF BASIC AGRICULTURAL COMMODITY.—Section
408(c) of the Agricultural Act of 1949 (7 U.S.C. 1428(c)) is amended
by striking ‘‘tobacco,’’.
(d) POWERS OF COMMODITY CREDIT CORPORATION.—Section 5
of the Commodity Credit Corporation Charter Act (15 U.S.C. 714c)
is amended by inserting ‘‘(other than tobacco)’’ after ‘‘agricultural
commodities’’ each place it appears.
SEC. 613. CONFORMING AMENDMENTS.
Section 320B(c)(1) of the Agricultural Adjustment Act of 1938
(7 U.S.C. 1314h(c)(1)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(1)’’;
(2) by striking ‘‘by’’ at the end and inserting ‘‘or’’; and
(3) by adding at the end the following:
‘‘(B) in the case of the 2004 marketing year, the price
support rate for the kind of tobacco involved in effect under
section 106 of the Agricultural Act of 1949 (7 U.S.C. 1445)
at the time of the violation; by’’.
7 USC 515 note.
SEC. 614. CONTINUATION OF LIABILITY FOR 2004 AND EARLIER CROP
YEARS.
The amendments made by this subtitle shall not affect the
liability of any person under any provision of law so amended
with respect to the 2004 or an earlier crop of each kind of tobacco.
Subtitle B—Transitional Payments to Tobacco Quota Holders and Producers of
Tobacco
7 USC 518.
SEC. 621. DEFINITIONS.
In this subtitle and subtitle C:
(1) AGRICULTURAL ACT OF 1949.—The term ‘‘Agricultural
Act of 1949’’ means the Agricultural Act of 1949 (7 U.S.C.
1421 et seq.), as in effect on the day before the date of the
enactment of this title.
(2) AGRICULTURAL ADJUSTMENT ACT OF 1938.—The term
‘‘Agricultural Adjustment Act of 1938’’ means the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1281 et seq.), as in effect
on the day before the date of the enactment of this title.
(3) CONSIDERED PLANTED.—The term ‘‘considered planted’’
means tobacco that was planted, but failed to be produced
as a result of a natural disaster, as determined by the Secretary.
(4) CONTRACT.—The term ‘‘contract’’ means a contract
entered into under section 622 or 623.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00108
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1525
(5) CONTRACT PAYMENT.—The term ‘‘contract payment’’
means a payment made under section 622 or 623 pursuant
to a contract.
(6) PRODUCER OF QUOTA TOBACCO.—The term ‘‘producer
of quota tobacco’’ means an owner, operator, landlord, tenant,
or sharecropper that shared in the risk of producing tobacco
on a farm where tobacco was produced or considered planted
pursuant to a tobacco farm poundage quota or farm acreage
allotment established under part I of subtitle B of title III
of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311
et seq.).
(7) QUOTA TOBACCO.—The term ‘quota tobacco’ means a
kind of tobacco that is subject to a farm marketing quota
or farm acreage allotment for the 2004 tobacco marketing year
under a marketing quota or allotment program established
under part I of subtitle B of title III of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.).
(8) TOBACCO.—The term ‘‘tobacco’’ means each of the following kinds of tobacco:
(A) Flue-cured tobacco, comprising types 11, 12, 13,
and 14.
(B) Fire-cured tobacco, comprising types 22 and 23.
(C) Dark air-cured tobacco, comprising types 35 and
36.
(D) Virginia sun-cured tobacco, comprising type 37.
(E) Virginia fire-cured tobacco, comprising type 21.
(F) Burley tobacco, comprising type 31.
(G) Cigar-filler and cigar-binder tobacco, comprising
types 42, 43, 44, 53, 54, and 55.
(9) TOBACCO QUOTA HOLDER.—The term ‘‘tobacco quota
holder’’ means a person that was an owner of a farm, as
of the date of enactment of this title, for which a basic tobacco
farm marketing quota or farm acreage allotment for quota
tobacco was established for the 2004 tobacco marketing year.
(10) TOBACCO TRUST FUND.—The term ‘‘Tobacco Trust
Fund’’ means the Tobacco Trust Fund established under section
626.
(11) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of Agriculture.
SEC. 622. CONTRACT PAYMENTS TO TOBACCO QUOTA HOLDERS.
7 USC 518a.
(a) CONTRACT OFFERED.—The Secretary shall offer to enter
into a contract with each tobacco quota holder under which the
tobacco quota holder shall be entitled to receive payments under
this section in exchange for the termination of tobacco marketing
quotas and related price support under the amendments made
by sections 611 and 612. The contract payments shall constitute
full and fair consideration for the termination of such tobacco marketing quotas and related price support.
(b) ELIGIBILITY.—To be eligible to enter into a contract to
receive a contract payment under this section, a person shall submit
to the Secretary an application containing such information as
the Secretary may require to demonstrate to the satisfaction of
the Secretary that the person is a tobacco quota holder. The application shall be submitted within such time, in such form, and in
such manner as the Secretary may require.
(c) BASE QUOTA LEVEL.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00109
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1526
PUBLIC LAW 108–357—OCT. 22, 2004
(1) ESTABLISHMENT.—The Secretary shall establish a base
quota level applicable to each tobacco quota holder identified
under subsection (b).
(2) POUNDAGE QUOTAS.—Subject to adjustment under subsection (d), for each kind of tobacco for which the marketing
quota is expressed in pounds, the base quota level for each
tobacco quota holder shall be equal to the basic quota for
quota tobacco established for the 2002 tobacco marketing year
under a marketing quota program established under part I
of subtitle B of title III of the Agriculture Adjustment Act
of 1938 on the farm owned by the tobacco quota holder.
(3) MARKETING QUOTAS OTHER THAN POUNDAGE QUOTAS.—
Subject to adjustment under subsection (d), for each kind of
tobacco for which there is marketing quota or allotment on
an acreage basis, the base quota level for each tobacco quota
holder shall be the quantity equal to the product obtained
by multiplying—
(A) the basic tobacco farm marketing quota or allotment for the 2002 marketing year established by the Secretary for quota tobacco owned by the tobacco quota holder;
by
(B) the average production yield, per acre, for the
period covering the 2001, 2002, and 2003 crop years for
that kind of tobacco in the county in which the quota
tobacco is located.
(d) TREATMENT OF CERTAIN CONTRACTS AND AGREEMENTS.—
(1) EFFECT OF PURCHASE CONTRACT.—If there was an agreement for the purchase of all or part of a farm described in
subsection (c) as of the date of the enactment of this title,
and the parties to the sale are unable to agree to the disposition
of eligibility for contract payments, the Secretary, taking into
account any transfer of quota that has been agreed to, shall
provide for the equitable division of the contract payments
among the parties by adjusting the determination of who is
the tobacco quota holder with respect to particular pounds
or allotment of the quota.
(2) EFFECT OF AGREEMENT FOR PERMANENT QUOTA
TRANSFER.—If the Secretary determines that there was in existence, as of the day before the date of the enactment of this
title, an agreement for the permanent transfer of quota, but
that the transfer was not completed by that date, the Secretary
shall consider the tobacco quota holder to be the party to
the agreement that, as of that date, was the owner of the
farm to which the quota was to be transferred.
(e) CONTRACT PAYMENTS.—
(1) CALCULATION OF TOTAL PAYMENT AMOUNT.—The total
amount of contract payments to which an eligible tobacco quota
holder is entitled under this section, with respect to a kind
of tobacco, shall be equal to the product obtained by
multiplying—
(A) $7.00 per pound; by
(B) the base quota level of the tobacco quota holder
determined under subsection (c) with respect to that kind
of tobacco.
(2) ANNUAL PAYMENT.—During each of fiscal years 2005
through 2014, the Secretary shall make a contract payment
under this section to each eligible tobacco quota holder, with
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00110
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1527
respect to a kind of tobacco, in an amount equal to 1⁄10 of
the amount determined under paragraph (1) for the tobacco
quota holder for that kind of tobacco.
(f) DEATH OF TOBACCO QUOTA HOLDER.—If a tobacco quota
holder who is entitled to contract payments under this section
dies and is survived by a spouse or one or more dependents, the
right to receive the payments shall transfer to the surviving spouse
or, if there is no surviving spouse, to the estate of the tobacco
quota holder.
SEC.
623.
CONTRACT PAYMENTS
TOBACCO.
FOR
PRODUCERS
OF
QUOTA
7 USC 518b.
(a) CONTRACT OFFERED.—The Secretary shall offer to enter
into a contract with each producer of quota tobacco under which
the producer of quota tobacco shall be entitled to receive payments
under this section in exchange for the termination of tobacco marketing quotas and related price support under the amendments
made by sections 611 and 612. The contract payments shall constitute full and fair consideration for the termination of such tobacco
marketing quotas and related price support.
(b) ELIGIBILITY.—
(1) APPLICATION AND DETERMINATION.—To be eligible to
enter into a contract to receive a contract payment under this
section, a person shall submit to the Secretary an application
containing such information as the Secretary may require to
demonstrate to the satisfaction of the Secretary that the person
is a producer of quota tobacco. The application shall be submitted within such time, in such form, and in such manner
as the Secretary may require.
(2) EFFECT OF MULTIPLE PRODUCERS FOR SAME QUOTA
TOBACCO.—If, on the basis of the applications submitted under
paragraph (1) or other information, the Secretary determines
that two or more persons are a producer of the same quota
tobacco, the Secretary shall provide for an equitable distribution
among the persons of the contract payments made under this
section with respect to that quota tobacco, based on relative
share of such persons in the risk of producing the quota tobacco
and such other factors as the Secretary considers appropriate.
(c) BASE QUOTA LEVEL.—
(1) ESTABLISHMENT.—The Secretary shall establish a base
quota level applicable to each producer of quota tobacco, as
determined under this subsection.
(2) FLUE-CURED AND BURLEY TOBACCO.—In the case of Fluecured tobacco (types 11, 12, 13, and 14) and Burley tobacco
(type 31), the base quota level for each producer of quota
tobacco shall be equal to the effective tobacco marketing quota
(irrespective of disaster lease and transfers) under part I of
subtitle B of title III of the Agriculture Adjustment Act of
1938 for the 2002 marketing year for quota tobacco produced
on the farm.
(3) OTHER KINDS OF TOBACCO.—In the case of each kind
of tobacco (other than tobacco covered by paragraph (2)), for
the purpose of calculating a contract payment to a producer
of quota tobacco, the base quota level for the producer of quota
tobacco shall be the quantity obtained by multiplying—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00111
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1528
PUBLIC LAW 108–357—OCT. 22, 2004
(A) the basic tobacco farm acreage allotment for the
2002 marketing year established by the Secretary for quota
tobacco produced on the farm; by
(B) the average annual yield, per acre, of quota tobacco
produced on the farm for the period covering the 2001,
2002, and 2003 crop years.
(d) CONTRACT PAYMENTS.—
(1) CALCULATION OF TOTAL PAYMENT AMOUNT.—Subject to
subsection (b)(2), the total amount of contract payments to
which an eligible producer of quota tobacco is entitled under
this section, with respect to a kind of tobacco, shall be equal
to the product obtained by multiplying—
(A) subject to paragraph (2), $3.00 per pound; by
(B) the base quota level of the producer of quota tobacco
determined under subsection (c) with respect to that kind
of tobacco.
(2) ANNUAL PAYMENT.—During each of fiscal years 2005
through 2014, the Secretary shall make a contract payment
under this section to each eligible producer of tobacco, with
respect to a kind of tobacco, in an amount equal to 1⁄10 of
the amount determined under paragraph (1) for the producer
for that kind of tobacco.
(3) VARIABLE PAYMENT RATES.—The rate for payments to
a producer of quota tobacco under paragraph (1)(A) shall be
equal to—
(A) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,
under a marketing quota in all three of the 2002, 2003,
or 2004 tobacco marketing years, the rate prescribed under
paragraph (1)(A);
(B) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,
under a marketing quota in only two of those tobacco
marketing years, 2⁄3 of the rate prescribed under paragraph
(1)(A);
(C) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,
under a marketing quota in only one of those tobacco
marketing years, 1⁄3 of the rate prescribed under paragraph
(1)(A).
(e) DEATH OF TOBACCO PRODUCER.—If a producer of quota
tobacco who is entitled to contract payments under this section
dies and is survived by a spouse or one or more dependents, the
right to receive the contract payments shall transfer to the surviving
spouse or, if there is no surviving spouse, to the estate of the
producer.
7 USC 518c.
SEC. 624. ADMINISTRATION.
(a) TIME FOR PAYMENT OF CONTRACT PAYMENTS.—Contract payments required to be made for a fiscal year shall be made by
the Secretary as soon as practicable.
(b) USE OF COUNTY COMMITTEES TO RESOLVE DISPUTES.—Any
dispute regarding the eligibility of a person to enter into a contract
or to receive contract payments, and any dispute regarding the
amount of a contract payment, may be appealed to the county
committee established under section 8 of the Soil Conservation
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00112
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1529
and Domestic Allotment Act (16 U.S.C. 590h) for the county or
other area in which the farming operation of the person is located.
(c) ROLE OF NATIONAL APPEALS DIVISION.—Any adverse determination of a county committee under subsection (b) may be
appealed to the National Appeals Division established under subtitle H of the Department of Agriculture Reorganization Act of
1994 (7 U.S.C. 6991 et seq.).
(d) USE OF FINANCIAL INSTITUTIONS.—The Secretary may use
a financial institution to manage assets, make contract payments,
and otherwise carry out this title.
(e) PAYMENT TO FINANCIAL INSTITUTIONS.—The Secretary shall
permit a tobacco quota holder or producer of quota tobacco entitled
to contract payments to assign to a financial institution the right
to receive the contract payments. Upon receiving notification of
the assignment, the Secretary shall make subsequent contract payments for the tobacco quota holder or producer of quota tobacco
directly to the financial institution designated by the tobacco quota
holder or producer of quota tobacco. The Secretary shall make
information available to tobacco quota holders and producers of
quota tobacco regarding their ability to elect to have the Secretary
make payments directly to a financial institution under this subsection so that they may obtain a lump sum or other payment.
SEC. 625. USE OF ASSESSMENTS AS SOURCE OF FUNDS FOR PAYMENTS.
7 USC 518d.
(a) DEFINITIONS.—In this section:
(1) BASE PERIOD.—The term ‘‘base period’ means the oneyear period ending the June 30 before the beginning of a
fiscal year.
(2) GROSS DOMESTIC VOLUME.—The term ‘‘gross domestic
volume’’ means the volume of tobacco products—
(A) removed (as defined by section 5702 of the Internal
Revenue Code of 1986); and
(B) not exempt from tax under chapter 52 of the
Internal Revenue Code of 1986 at the time of their removal
under that chapter or the Harmonized Tariff Schedule
of the United States (19 U.S.C. 1202).
(3) MARKET SHARE.—The term ‘‘market share’’ means the
share of each manufacturer or importer of a class of tobacco
product (expressed as a decimal to the fourth place) of the
total volume of domestic sales of the class of tobacco product
during the base period for a fiscal year for an assessment
under this section.
(b) QUARTERLY ASSESSMENTS.—
(1) IMPOSITION OF ASSESSMENT.—The Secretary, acting
through the Commodity Credit Corporation, shall impose quarterly assessments during each of fiscal years 2005 through
2014, calculated in accordance with this section, on each tobacco
product manufacturer and tobacco product importer that sells
tobacco products in domestic commerce in the United States
during that fiscal year.
(2) AMOUNTS.—Beginning with the calendar quarter ending
on December 31 of each of fiscal years 2005 through 2014,
the assessment payments over each four-calendar quarter
period shall be sufficient to cover—
(A) the contract payments made under sections 622
and 623 during that period; and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00113
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1530
(B) other expenditures from the Tobacco Trust Fund
made during the base quarter periods corresponding to
the four calendar quarters of that period.
(3) DEPOSIT.—Assessments collected under this section
shall be deposited in the Tobacco Trust Fund.
(c) ASSESSMENTS FOR CLASSES OF TOBACCO PRODUCTS.—
(1) INITIAL ALLOCATION.—The percentage of the total
amount required by subsection (b) to be assessed against, and
paid by, the manufacturers and importers of each class of
tobacco product in fiscal year 2005 shall be as follows:
(A) For cigarette manufacturers and importers, 96.331
percent.
(B) For cigar manufacturers and importers, 2.783 percent.
(C) For snuff manufacturers and importers, 0.539 percent.
(D) For roll-your-own tobacco manufacturers and
importers, 0.171 percent.
(E) For chewing tobacco manufacturers and importers,
0.111 percent.
(F) For pipe tobacco manufacturers and importers,
0.066 percent.
(2) SUBSEQUENT ALLOCATIONS.—For subsequent fiscal
years, the Secretary shall periodically adjust the percentage
of the total amount required under subsection (b) to be assessed
against, and paid by, the manufacturers and importers of each
class of tobacco product specified in paragraph (1) to reflect
changes in the share of gross domestic volume held by that
class of tobacco product.
(3) EFFECT OF INSUFFICIENT AMOUNTS.—If the Secretary
determines that the assessment imposed under subsection (b)
will result in insufficient amounts to carry out this subtitle
during a fiscal year, the Secretary shall assess such additional
amounts as the Secretary determines to be necessary to carry
out this subtitle during that fiscal year. The additional amount
shall be allocated to manufacturers and importers of each class
of tobacco product specified in paragraph (1) in the same
manner and based on the same percentages applicable under
paragraph (1) or (2) for that fiscal year.
(d) NOTIFICATION AND TIMING OF ASSESSMENTS.—
(1) NOTIFICATION OF ASSESSMENTS.—The Secretary shall
provide each manufacturer or importer subject to an assessment
under subsection (b) with written notice setting forth the
amount to be assessed against the manufacturer or importer
for each quarterly payment period. The notice for a quarterly
period shall be provided not later than 30 days before the
date payment is due under paragraph (3).
(2) CONTENT.—The notice shall include the following
information with respect to the quarterly period used by the
Secretary in calculating the amount:
(A) The total combined assessment for all manufacturers and importers of tobacco products.
(B) The total assessment with respect to the class
of tobacco products manufactured or imported by the manufacturer or importer.
Deadline.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00114
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1531
(C) Any adjustments to the percentage allocations
among the classes of tobacco products made pursuant to
paragraph (2) or (3) of subsection (c).
(D) The volume of gross sales of the applicable class
of tobacco product treated as made by the manufacturer
or importer for purposes of calculating the manufacturer’s
or importer’s market share under subsection (f).
(E) The total volume of gross sales of the applicable
class of tobacco product that the Secretary treated as made
by all manufacturers and importers for purposes of calculating the manufacturer’s or importer’s market share under
subsection (f).
(F) The manufacturer’s or importer’s market share of
the applicable class of tobacco product, as determined by
the Secretary under subsection (f).
(G) The market share, as determined by the Secretary
under subsection (f), of each other manufacturer and
importer, for each applicable class of tobacco product.
(3) TIMING OF ASSESSMENT PAYMENTS.—
(A) COLLECTION DATE.—Assessments shall be collected
at the end of each calendar year quarter, except that the
Secretary shall ensure that the final assessment due under
this section is collected not later than September 30, 2014.
(B) BASE PERIOD QUARTER.—The assessment for a calendar year quarter shall correspond to the base period
quarter that ended at the end of the preceding calendar
year quarter.
(e) ALLOCATION OF ASSESSMENT WITHIN EACH CLASS OF
TOBACCO PRODUCT.—
(1) PRO RATA BASIS.—The assessment for each class of
tobacco product specified in subsection (c)(1) shall be allocated
on a pro rata basis among manufacturers and importers based
on each manufacturer’s or importer’s share of gross domestic
volume.
(2) LIMITATION.—No manufacturer or importer shall be
required to pay an assessment that is based on a share that
is in excess of the manufacturer’s or importer’s share of
domestic volume.
(f) ALLOCATION OF TOTAL ASSESSMENTS BY MARKET SHARE.—
The amount of the assessment for each class of tobacco product
specified in subsection (c)(1) to be paid by each manufacturer or
importer of that class of tobacco product shall be determined for
each quarterly payment period by multiplying—
(1) the market share of the manufacturer or importer,
as calculated with respect to that payment period, of the class
of tobacco product; by
(2) the total amount of the assessment for that quarterly
payment period under subsection (c), for the class of tobacco
product.
(g) DETERMINATION OF VOLUME OF DOMESTIC SALES.—
(1) IN GENERAL.—The calculation of the volume of domestic
sales of a class of tobacco product by a manufacturer or
importer, and by all manufacturers and importers as a group,
shall be made by the Secretary based on information provided
by the manufacturers and importers pursuant to subsection
(h), as well as any other relevant information provided to
or obtained by the Secretary.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00115
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1532
(2) GROSS DOMESTIC VOLUME.—The volume of domestic
sales shall be calculated based on gross domestic volume.
(3) MEASUREMENT.—For purposes of the calculations under
this subsection and the certifications under subsection (h) by
the Secretary, the volumes of domestic sales shall be measured
by—
(A) in the case of cigarettes and cigars, the number
of cigarettes and cigars; and
(B) in the case of the other classes of tobacco products
specified in subsection (c)(1), in terms of number of pounds,
or fraction thereof, of those products.
(h) MEASUREMENT OF VOLUME OF DOMESTIC SALES.—
(1) SUBMISSION OF INFORMATION.—Each manufacturer and
importer of tobacco products shall submit to the Secretary
a certified copy of each of the returns or forms described by
paragraph (2) that are required to be filed with a Federal
agency on the same date that those returns or forms are filed,
or required to be filed, with the agency.
(2) RETURNS AND FORMS.—The returns and forms described
by this paragraph are those returns and forms that relate
to—
(A) the removal of tobacco products into domestic commerce (as defined by section 5702 of the Internal Revenue
Code of 1986); and
(B) the payment of the taxes imposed under charter
52 of the Internal Revenue Code of 1986, including AFT
Form 5000.24 and United States Customs Form 7501 under
currently applicable regulations.
(3) EFFECT OF FAILURE TO PROVIDE REQUIRED INFORMATION.—Any person that knowingly fails to provide information
required under this subsection or that provides false information under this subsection shall be subject to the penalties
described in section 1003 of title 18, United States Code. The
Secretary may also assess against the person a civil penalty
in an amount not to exceed two percent of the value of the
kind of tobacco products manufactured or imported by the
person during the fiscal year in which the violation occurred,
as determined by the Secretary.
(i) CHALLENGE TO ASSESSMENT.—
(1) APPEAL TO SECRETARY.—A manufacturer or importer
subject to this section may contest an assessment imposed
on the manufacturer or importer under this section by notifying
the Secretary, not later than 30 business days after receiving
the assessment notification required by subsection (d), that
the manufacturer or importer intends to contest the assessment.
(2) INFORMATION.—Not later than 180 days after the date
of the enactment of this title, the Secretary shall establish
by regulation a procedure under which a manufacturer or
importer contesting an assessment under this subsection may
present information to the Secretary to demonstrate that the
assessment applicable to the manufacturer or importer is incorrect. In challenging the assessment, the manufacturer or
importer may use any information that is available, including
third party data on industry or individual company sales volumes.
(3) REVISION.—If a manufacturer or importer establishes
that the initial determination of the amount of an assessment
Certification.
Deadline.
Deadline.
Regulations.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00116
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1533
is incorrect, the Secretary shall revise the amount of the assessment so that the manufacturer or importer is required to pay
only the amount correctly determined.
(4) TIME FOR REVIEW.—Not later than 30 days after
receiving notice from a manufacturer or importer under paragraph (1), the Secretary shall—
(A) decide whether the information provided to the
Secretary under paragraph (2), and any other information
that the Secretary determines is appropriate, is sufficient
to establish that the original assessment was incorrect;
and
(B) make any revisions necessary to ensure that each
manufacturer and importer pays only its correct pro rata
share of total gross domestic volume from all sources.
(5) IMMEDIATE PAYMENT OF UNDISPUTED AMOUNTS.—The
regulations promulgated by the Secretary under paragraph (2)
shall provide for the immediate payment by a manufacturer
or importer challenging an assessment of that portion of the
assessment that is not in dispute. The manufacturer and
importer may place into escrow, in accordance with such regulations, only the portion of the assessment being challenged in
good faith pending final determination of the claim.
(j) JUDICIAL REVIEW.—
(1) IN GENERAL.—Any manufacturer or importer aggrieved
by a determination of the Secretary with respect to the amount
of any assessment may seek review of the determination in
the United States District Court for the District of Columbia
or for the district in which the manufacturer or importer resides
or has its principal place of business at any time following
exhaustion of the administrative remedies available under subsection (i).
(2) TIME LIMITS.—Administrative remedies shall be deemed
exhausted if no decision by the Secretary is made within the
time limits established under subsection (i)(4).
(3) EXCESSIVE ASSESSMENTS.—The court shall restrain
collection of the excessive portion of any assessment or order
a refund of excessive assessments already paid, along with
interest calculated at the rate prescribed in section 3717 of
title 31, United States Code, if it finds that the Secretary’s
determination is not supported by a preponderance of the
information available to the Secretary.
(k) TERMINATION DATE.—The authority provided by this section
to impose assessments terminates on September 30, 2014.
SEC. 626. TOBACCO TRUST FUND.
Deadline.
7 USC 518e.
(a) ESTABLISHMENT.—There is established in the Commodity
Credit Corporation a revolving trust fund, to be known as the
‘‘Tobacco Trust Fund’’, which shall be used in carrying out this
subtitle. The Tobacco Trust Fund shall consist of the following:
(1) Assessments collected under section 625.
(2) Such amounts as are necessary from the Commodity
Credit Corporation.
(3) Any interest earned on investment of amounts in the
Tobacco Trust Fund under subsection (c).
(b) EXPENDITURES.—
(1) AUTHORIZED EXPENDITURES.—Subject to paragraph (2),
and notwithstanding any other provision of law, the Secretary
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00117
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1534
shall use amounts in the Tobacco Trust Fund, in such amounts
as the Secretary determines are necessary—
(A) to make payments under sections 622 and 623;
(B) to provide reimbursement under section 641(c);
(C) to reimburse the Commodity Credit Corporation
for costs incurred by the Commodity Credit Corporation
under paragraph (2); and
(D) to make payments to financial institutions to satisfy contractual obligations under section 622 or 623.
(2) EXPENDITURES BY COMMODITY CREDIT CORPORATION.—
Notwithstanding any other provision of law, the Secretary shall
use the funds, facilities, and authorities of the Commodity
Credit Corporation to make payments described in paragraph
(1). Not later than January 1, 2015, the Secretary shall use
amounts in the Tobacco Trust Fund to fully reimburse, with
interest, the Commodity Credit Corporation for all funds of
the Commodity Credit Corporation expended under the
authority of this paragraph. Administrative costs incurred by
the Secretary or the Commodity Credit Corporation to carry
out this title may not be paid using amounts in the Tobacco
Trust Fund.
(c) INVESTMENT OF AMOUNTS.—
(1) IN GENERAL.—The Commodity Credit Corporation shall
invest such portion of the amounts in the Tobacco Trust Fund
as are not, in the judgment of the Commodity Credit Corporation, required to meet current expenditures.
(2) INTEREST-BEARING OBLIGATIONS.—Investments may be
made only in interest-bearing obligations of the United States.
(3) ACQUISITION OF OBLIGATIONS.—For the purpose of
investments under paragraph (1), obligations may be acquired—
(A) on original issue at the issue price; or
(B) by purchase of outstanding obligations at the
market price.
(4) SALE OF OBLIGATIONS.—Any obligation acquired by the
Tobacco Trust Fund may be sold by the Commodity Credit
Corporation at the market price.
(5) CREDITS TO FUND.—The interest on, and the proceeds
from the sale or redemption of, any obligations held in the
Tobacco Trust Fund shall be credited to and form a part of
the Fund.
Deadline.
7 USC 518f.
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 627. LIMITATION ON TOTAL EXPENDITURES.
The total amount expended by the Secretary from the Tobacco
Trust Fund to make payments under sections 622 and 623 and
for the other authorized purposes of the Fund shall not exceed
$10,140,000,000.
Subtitle C—Implementation and
Transition
7 USC 519.
SEC. 641. TREATMENT OF TOBACCO LOAN POOL STOCKS AND OUTSTANDING LOAN COSTS.
(a) DISPOSAL OF STOCKS.—To provide for the orderly disposition
of quota tobacco held by an association that has entered into a
loan agreement with the Commodity Credit Corporation under section 106A or 106B of the Agricultural Act of 1949 (7 U.S.C. 1445–
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00118
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1535
1, 1445–2) (referred to in this section as an ‘‘association’’), loan
pool stocks for each kind of tobacco held by the association shall
be disposed of in accordance with this section.
(b) DISPOSAL BY ASSOCIATIONS.—For each kind of tobacco held
by an association, the association shall be responsible for the disposal of a specific quantity of the loan pool stocks for that kind
of tobacco held by the association. The quantity transferred to
the association for disposal shall be equal to the quantity determined by dividing—
(1) the amount of funds held by the association in the
No Net Cost Tobacco Fund and the No Net Cost Tobacco
Account established under sections 106A and 106B of the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–2) for the kind
of tobacco; by
(2) the average list price per pound for the kind of tobacco,
as determined by the Secretary.
(c) DISPOSAL OF REMAINDER BY COMMODITY CREDIT CORPORATION.—
(1) DISPOSAL.—Any loan pool stocks of a kind of tobacco
of an association that are not transferred to the association
under subsection (b) for disposal shall be disposed of by Commodity Credit Corporation in a manner determined by the
Secretary.
(2) REIMBURSEMENT.—As required by section 626(b)(1)(B),
the Secretary shall transfer from the Tobacco Trust Fund to
the No Net Cost Tobacco Fund or the No Net Cost Tobacco
Account of an association established under section 106A or
106B of the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–
2) such amounts as the Secretary determines will be adequate
to reimburse the Commodity Credit Corporation for any net
losses that the Corporation may sustain under its loan agreements with the association.
(d) TRANSFER OF REMAINING NO NET COST FUNDS.—Any funds
in the No Net Cost Tobacco Fund or the No Net Cost Tobacco
Account of an association established under sections 106A and
106B of the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–
2) that remain after the application of subsections (b) and (c)
shall be transferred to the association for distribution to producers
of quota tobacco in accordance with a plan approved by the Secretary.
SEC. 642. REGULATIONS.
7 USC 519a.
(a) IN GENERAL.—The Secretary may promulgate such regulations as are necessary to implement this title and the amendments
made by this title.
(b) PROCEDURE.—The promulgation of the regulations and
administration of this title and the amendments made by this
title shall be made without regard to—
(1) the notice and comment provisions of section 553 of
title 5, United States Code;
(2) the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971 (36 Fed. Reg. 13804), relating to notices
of proposed rulemaking and public participation in rulemaking;
and
(3) chapter 35 of title 44, United States Code (commonly
known as the ‘‘Paperwork Reduction Act’’).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00119
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1536
PUBLIC LAW 108–357—OCT. 22, 2004
(c) CONGRESSIONAL REVIEW OF AGENCY RULEMAKING.—In carrying out this section, the Secretary shall use the authority provided
under section 808 of title 5, United States Code.
7 USC 518 note.
SEC. 643. EFFECTIVE DATE.
This title and the amendments made by this title shall apply
to the 2005 and subsequent crops of each kind of tobacco.
TITLE VII—MISCELLANEOUS
PROVISIONS
SEC. 701. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED
GREEN BUILDING AND SUSTAINABLE DESIGN PROJECTS.
Deadline.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) TREATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of
section 142 (relating to the definition of exempt facility bond) is
amended by striking ‘‘or’’ at the end of paragraph (12), by striking
the period at the end of paragraph (13) and inserting ‘‘, or’’, and
by inserting at the end the following new paragraph:
‘‘(14) qualified green building and sustainable design
projects.’’.
(b) QUALIFIED GREEN BUILDING AND SUSTAINABLE DESIGN
PROJECTS.—Section 142 (relating to exempt facility bonds) is
amended by adding at the end thereof the following new subsection:
‘‘(l) QUALIFIED GREEN BUILDING AND SUSTAINABLE DESIGN
PROJECTS.—
‘‘(1) IN GENERAL.—For purposes of subsection (a)(14), the
term ‘qualified green building and sustainable design project’
means any project which is designated by the Secretary, after
consultation with the Administrator of the Environmental
Protection Agency, as a qualified green building and sustainable
design project and which meets the requirements of clauses
(i), (ii), (iii), and (iv) of paragraph (4)(A).
‘‘(2) DESIGNATIONS.—
‘‘(A) IN GENERAL.—Within 60 days after the end of
the application period described in paragraph (3)(A), the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, shall designate qualified
green building and sustainable design projects. At least
one of the projects designated shall be located in, or within
a 10-mile radius of, an empowerment zone as designated
pursuant to section 1391, and at least one of the projects
designated shall be located in a rural State. No more than
one project shall be designated in a State. A project shall
not be designated if such project includes a stadium or
arena for professional sports exhibitions or games.
‘‘(B) MINIMUM CONSERVATION AND TECHNOLOGY
INNOVATION OBJECTIVES.—The Secretary, after consultation
with the Administrator of the Environmental Protection
Agency, shall ensure that, in the aggregate, the projects
designated shall—
‘‘(i) reduce electric consumption by more than 150
megawatts annually as compared to conventional
generation,
‘‘(ii) reduce daily sulfur dioxide emissions by at
least 10 tons compared to coal generation power,
Jkt 039139
PO 00357
Frm 00120
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1537
‘‘(iii) expand by 75 percent the domestic solar
photovoltaic market in the United States (measured
in megawatts) as compared to the expansion of that
market from 2001 to 2002, and
‘‘(iv) use at least 25 megawatts of fuel cell energy
generation.
‘‘(3) LIMITED DESIGNATIONS.—A project may not be designated under this subsection unless—
‘‘(A) the project is nominated by a State or local government within 180 days of the enactment of this subsection,
and
‘‘(B) such State or local government provides written
assurances that the project will satisfy the eligibility criteria described in paragraph (4).
‘‘(4) APPLICATION.—
‘‘(A) IN GENERAL.—A project may not be designated
under this subsection unless the application for such designation includes a project proposal which describes the
energy efficiency, renewable energy, and sustainable design
features of the project and demonstrates that the project
satisfies the following eligibility criteria:
‘‘(i) GREEN BUILDING AND SUSTAINABLE DESIGN.—
At least 75 percent of the square footage of commercial
buildings which are part of the project is registered
for United States Green Building Council’s LEED certification and is reasonably expected (at the time of
the designation) to receive such certification. For purposes of determining LEED certification as required
under this clause, points shall be credited by using
the following:
‘‘(I) For wood products, certification under the
Sustainable Forestry Initiative Program and the
American Tree Farm System.
‘‘(II) For renewable wood products, as credited
for recycled content otherwise provided under
LEED certification.
‘‘(III) For composite wood products, certification under standards established by the American National Standards Institute, or such other
voluntary standards as published in the Federal
Register by the Administrator of the Environmental Protection Agency.
‘‘(ii) BROWNFIELD REDEVELOPMENT.—The project
includes a brownfield site as defined by section 101(39)
of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. 9601),
including a site described in subparagraph
(D)(ii)(II)(aa) thereof.
‘‘(iii) STATE AND LOCAL SUPPORT.—The project
receives specific State or local government resources
which will support the project in an amount equal
to at least $5,000,000. For purposes of the preceding
sentence, the term ‘resources’ includes tax abatement
benefits and contributions in kind.
‘‘(iv) SIZE.—The project includes at least one of
the following:
‘‘(I) At least 1,000,000 square feet of building.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00121
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1538
‘‘(II) At least 20 acres.
‘‘(v) USE OF TAX BENEFIT.—The project proposal
includes a description of the net benefit of the taxexempt financing provided under this subsection which
will be allocated for financing of one or more of the
following:
‘‘(I) The purchase, construction, integration,
or other use of energy efficiency, renewable energy,
and sustainable design features of the project.
‘‘(II) Compliance with certification standards
cited under clause (i).
‘‘(III) The purchase, remediation, and foundation construction and preparation of the
brownfields site.
‘‘(vi) PROHIBITED FACILITIES.—An issue shall not
be treated as an issue described in subsection (a)(14)
if any proceeds of such issue are used to provide any
facility the principal business of which is the sale
of food or alcoholic beverages for consumption on the
premises.
‘‘(vii) EMPLOYMENT.—The project is projected to
provide permanent employment of at least 1,500 full
time equivalents (150 full time equivalents in rural
States) when completed and construction employment
of at least 1,000 full time equivalents (100 full time
equivalents in rural States).
The application shall include an independent analysis
which describes the project’s economic impact, including
the amount of projected employment.
‘‘(B)
PROJECT
DESCRIPTION.—Each
application
described in subparagraph (A) shall contain for each project
a description of—
‘‘(i) the amount of electric consumption reduced
as compared to conventional construction,
‘‘(ii) the amount of sulfur dioxide daily emissions
reduced compared to coal generation,
‘‘(iii) the amount of the gross installed capacity
of the project’s solar photovoltaic capacity measured
in megawatts, and
‘‘(iv) the amount, in megawatts, of the project’s
fuel cell energy generation.
‘‘(5) CERTIFICATION OF USE OF TAX BENEFIT.—No later than
30 days after the completion of the project, each project must
certify to the Secretary that the net benefit of the tax-exempt
financing was used for the purposes described in paragraph
(4).
‘‘(6) DEFINITIONS.—For purposes of this subsection—
‘‘(A) RURAL STATE.—The term ‘rural State’ means any
State which has—
‘‘(i) a population of less than 4,500,000 according
to the 2000 census,
‘‘(ii) a population density of less than 150 people
per square mile according to the 2000 census, and
‘‘(iii) increased in population by less than half the
rate of the national increase between the 1990 and
2000 censuses.
Deadline.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00122
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1539
‘‘(B) LOCAL GOVERNMENT.—The term ‘local government’
has the meaning given such term by section 1393(a)(5).
‘‘(C) NET BENEFIT OF TAX-EXEMPT FINANCING.—The
term ‘net benefit of tax-exempt financing’ means the
present value of the interest savings (determined by a
calculation established by the Secretary) which result from
the tax-exempt status of the bonds.
‘‘(7) AGGREGATE FACE AMOUNT OF TAX-EXEMPT FINANCING.—
‘‘(A) IN GENERAL.—An issue shall not be treated as
an issue described in subsection (a)(14) if the aggregate
face amount of bonds issued by the State or local government pursuant thereto for a project (when added to the
aggregate face amount of bonds previously so issued for
such project) exceeds an amount designated by the Secretary as part of the designation.
‘‘(B) LIMITATION ON AMOUNT OF BONDS.—The Secretary
may not allocate authority to issue qualified green building
and sustainable design project bonds in an aggregate face
amount exceeding $2,000,000,000.
‘‘(8) TERMINATION.—Subsection (a)(14) shall not apply with
respect to any bond issued after September 30, 2009.
‘‘(9) TREATMENT OF CURRENT REFUNDING BONDS.—Paragraphs (7)(B) and (8) shall not apply to any bond (or series
of bonds) issued to refund a bond issued under subsection
(a)(14) before October 1, 2009, if—
‘‘(A) the average maturity date of the issue of which
the refunding bond is a part is not later than the average
maturity date of the bonds to be refunded by such issue,
‘‘(B) the amount of the refunding bond does not exceed
the outstanding amount of the refunded bond, and
‘‘(C) the net proceeds of the refunding bond are used
to redeem the refunded bond not later than 90 days after
the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A).’’.
(c) EXEMPTION FROM GENERAL STATE VOLUME CAPS.—Paragraph (3) of section 146(g) (relating to exception for certain bonds)
is amended—
(1) by striking ‘‘or (13)’’ and inserting ‘‘(13), or (14)’’, and
(2) by striking ‘‘and qualified public educational facilities’’
and inserting ‘‘qualified public educational facilities, and qualified green building and sustainable design projects’’.
(d) ACCOUNTABILITY.—Each issuer shall maintain, on behalf
of each project, an interest bearing reserve account equal to 1
percent of the net proceeds of any bond issued under this section
for such project. Not later than 5 years after the date of issuance,
the Secretary of the Treasury, after consultation with the Administrator of the Environmental Protection Agency, shall determine
whether the project financed with such bonds has substantially
complied with the terms and conditions described in section 142(l)(4)
of the Internal Revenue Code of 1986 (as added by this section).
If the Secretary, after such consultation, certifies that the project
has substantially complied with such terms and conditions and
meets the commitments set forth in the application for such project
described in section 142(l)(4) of such Code, amounts in the reserve
account, including all interest, shall be released to the project.
If the Secretary determines that the project has not substantially
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00123
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 142 note.
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1540
26 USC 142 note.
PUBLIC LAW 108–357—OCT. 22, 2004
complied with such terms and conditions, amounts in the reserve
account, including all interest, shall be paid to the United States
Treasury.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to bonds issued after December 31, 2004.
SEC. 702. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF
CERTAIN BROWNFIELD SITES FROM UNRELATED BUSINESS TAXABLE INCOME.
(a) IN GENERAL.—Subsection (b) of section 512 (relating to
unrelated business taxable income) is amended by adding at the
end the following new paragraph:
‘‘(18) TREATMENT OF GAIN OR LOSS ON SALE OR EXCHANGE
OF CERTAIN BROWNFIELD SITES.—
‘‘(A) IN GENERAL.—Notwithstanding paragraph (5)(B),
there shall be excluded any gain or loss from the qualified
sale, exchange, or other disposition of any qualifying
brownfield property by an eligible taxpayer.
‘‘(B) ELIGIBLE TAXPAYER.—For purposes of this
paragraph—
‘‘(i) IN GENERAL.—The term ‘eligible taxpayer’
means, with respect to a property, any organization
exempt from tax under section 501(a) which—
‘‘(I) acquires from an unrelated person a qualifying brownfield property, and
‘‘(II) pays or incurs eligible remediation
expenditures with respect to such property in an
amount which exceeds the greater of $550,000 or
12 percent of the fair market value of the property
at the time such property was acquired by the
eligible taxpayer, determined as if there was not
a presence of a hazardous substance, pollutant,
or contaminant on the property which is complicating the expansion, redevelopment, or reuse of
the property.
‘‘(ii) EXCEPTION.—Such term shall not include any
organization which is—
‘‘(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 with respect
to the qualifying brownfield property,
‘‘(II) affiliated with any other person which
is so potentially liable through any direct or
indirect familial relationship or any contractual,
corporate, or financial relationship (other than a
contractual, corporate, or financial relationship
which is created by the instruments by which title
to any qualifying brownfield property is conveyed
or financed or by a contract of sale of goods or
services), or
‘‘(III) the result of a reorganization of a business entity which was so potentially liable.
‘‘(C) QUALIFYING BROWNFIELD PROPERTY.—For purposes
of this paragraph—
‘‘(i) IN GENERAL.—The term ‘qualifying brownfield
property’ means any real property which is certified,
before the taxpayer incurs any eligible remediation
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00124
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1541
expenditures (other than to obtain a Phase I environmental site assessment), by an appropriate State
agency (within the meaning of section 198(c)(4)) in
the State in which such property is located as a
brownfield site within the meaning of section 101(39)
of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on
the date of the enactment of this paragraph).
‘‘(ii) REQUEST FOR CERTIFICATION.—Any request by
an eligible taxpayer for a certification described in
clause (i) shall include a sworn statement by the
eligible taxpayer and supporting documentation of the
presence of a hazardous substance, pollutant, or
contaminant on the property which is complicating
the expansion, redevelopment, or reuse of the property
given the property’s reasonably anticipated future land
uses or capacity for uses of the property (including
a Phase I environmental site assessment and, if
applicable, evidence of the property’s presence on a
local, State, or Federal list of brownfields or contaminated property) and other environmental assessments
prepared or obtained by the taxpayer.
‘‘(D) QUALIFIED SALE, EXCHANGE, OR OTHER DISPOSITION.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—A sale, exchange, or other disposition of property shall be considered as qualified
if—
‘‘(I) such property is transferred by the eligible
taxpayer to an unrelated person, and
‘‘(II) within 1 year of such transfer the eligible
taxpayer has received a certification from the
Environmental Protection Agency or an appropriate State agency (within the meaning of section
198(c)(4)) in the State in which such property is
located that, as a result of the eligible taxpayer’s
remediation actions, such property would not be
treated as a qualifying brownfield property in the
hands of the transferee.
For purposes of subclause (II), before issuing such certification, the Environmental Protection Agency or
appropriate State agency shall respond to comments
received pursuant to clause (ii)(V) in the same form
and manner as required under section 117(b) of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on the
date of the enactment of this paragraph).
‘‘(ii) REQUEST FOR CERTIFICATION.—Any request by
an eligible taxpayer for a certification described in
clause (i) shall be made not later than the date of
the transfer and shall include a sworn statement by
the eligible taxpayer certifying the following:
‘‘(I) Remedial actions which comply with all
applicable or relevant and appropriate requirements (consistent with section 121(d) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980) have been substantially completed, such that there are no hazardous
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00125
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1542
substances, pollutants, or contaminants which
complicate the expansion, redevelopment, or reuse
of the property given the property’s reasonably
anticipated future land uses or capacity for uses
of the property.
‘‘(II) The reasonably anticipated future land
uses or capacity for uses of the property are more
economically productive or environmentally beneficial than the uses of the property in existence
on the date of the certification described in
subparagraph (C)(i). For purposes of the preceding
sentence, use of property as a landfill or other
hazardous waste facility shall not be considered
more economically productive or environmentally
beneficial.
‘‘(III) A remediation plan has been implemented to bring the property into compliance with
all applicable local, State, and Federal environmental laws, regulations, and standards and to
ensure that the remediation protects human health
and the environment.
‘‘(IV) The remediation plan described in subclause (III), including any physical improvements
required to remediate the property, is either complete or substantially complete, and, if substantially complete, sufficient monitoring, funding,
institutional controls, and financial assurances
have been put in place to ensure the complete
remediation of the property in accordance with
the remediation plan as soon as is reasonably practicable after the sale, exchange, or other disposition of such property.
‘‘(V) Public notice and the opportunity for comment on the request for certification was completed
before the date of such request. Such notice and
opportunity for comment shall be in the same form
and manner as required for public participation
required under section 117(a) of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date
of the enactment of this paragraph). For purposes
of this subclause, public notice shall include, at
a minimum, publication in a major local newspaper
of general circulation.
‘‘(iii) ATTACHMENT TO TAX RETURNS.—A copy of
each of the requests for certification described in clause
(ii) of subparagraph (C) and this subparagraph shall
be included in the tax return of the eligible taxpayer
(and, where applicable, of the qualifying partnership)
for the taxable year during which the transfer occurs.
‘‘(iv) SUBSTANTIAL COMPLETION.—For purposes of
this subparagraph, a remedial action is substantially
complete when any necessary physical construction is
complete, all immediate threats have been eliminated,
and all long-term threats are under control.
‘‘(E) ELIGIBLE REMEDIATION EXPENDITURES.—For purposes of this paragraph—
Notice.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00126
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1543
‘‘(i) IN GENERAL.—The term ‘eligible remediation
expenditures’ means, with respect to any qualifying
brownfield property, any amount paid or incurred by
the eligible taxpayer to an unrelated third person to
obtain a Phase I environmental site assessment of
the property, and any amount so paid or incurred
after the date of the certification described in subparagraph (C)(i) for goods and services necessary to obtain
a certification described in subparagraph (D)(i) with
respect to such property, including expenditures—
‘‘(I) to manage, remove, control, contain, abate,
or otherwise remediate a hazardous substance,
pollutant, or contaminant on the property,
‘‘(II) to obtain a Phase II environmental site
assessment of the property, including any expenditure to monitor, sample, study, assess, or otherwise
evaluate the release, threat of release, or presence
of a hazardous substance, pollutant, or contaminant on the property,
‘‘(III) to obtain environmental regulatory certifications and approvals required to manage the
remediation and monitoring of the hazardous substance, pollutant, or contaminant on the property,
and
‘‘(IV) regardless of whether it is necessary to
obtain a certification described in subparagraph
(D)(i)(II), to obtain remediation cost-cap or stoploss coverage, re-opener or regulatory action coverage, or similar coverage under environmental
insurance policies, or financial guarantees required
to manage such remediation and monitoring.
‘‘(ii) EXCEPTIONS.—Such term shall not include—
‘‘(I) any portion of the purchase price paid
or incurred by the eligible taxpayer to acquire
the qualifying brownfield property,
‘‘(II) environmental insurance costs paid or
incurred to obtain legal defense coverage, owner/
operator liability coverage, lender liability coverage, professional liability coverage, or similar
types of coverage,
‘‘(III) any amount paid or incurred to the
extent such amount is reimbursed, funded, or
otherwise subsidized by grants provided by the
United States, a State, or a political subdivision
of a State for use in connection with the property,
proceeds of an issue of State or local government
obligations used to provide financing for the property the interest of which is exempt from tax under
section 103, or subsidized financing provided
(directly or indirectly) under a Federal, State, or
local program provided in connection with the
property, or
‘‘(IV) any expenditure paid or incurred before
the date of the enactment of this paragraph.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00127
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1544
For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-provided funds for purposes of determining eligible
remediation expenditures.
‘‘(F) DETERMINATION OF GAIN OR LOSS.—For purposes
of this paragraph, the determination of gain or loss shall
not include an amount treated as gain which is ordinary
income with respect to section 1245 or section 1250 property, including amounts deducted as section 198 expenses
which are subject to the recapture rules of section 198(e),
if the taxpayer had deducted such amounts in the computation of its unrelated business taxable income.
‘‘(G) SPECIAL RULES FOR PARTNERSHIPS.—
‘‘(i) IN GENERAL.—In the case of an eligible taxpayer which is a partner of a qualifying partnership
which acquires, remediates, and sells, exchanges, or
otherwise disposes of a qualifying brownfield property,
this paragraph shall apply to the eligible taxpayer’s
distributive share of the qualifying partnership’s gain
or loss from the sale, exchange, or other disposition
of such property.
‘‘(ii) QUALIFYING PARTNERSHIP.—The term ‘qualifying partnership’ means a partnership which—
‘‘(I) has a partnership agreement which satisfies the requirements of section 514(c)(9)(B)(vi) at
all times beginning on the date of the first certification received by the partnership under subparagraph (C)(i),
‘‘(II) satisfies the requirements of subparagraphs (B)(i), (C), (D), and (E), if ‘qualified partnership’ is substituted for ‘eligible taxpayer’ each place
it appears therein (except subparagraph (D)(iii)),
and
‘‘(III) is not an organization which would be
prevented from constituting an eligible taxpayer
by reason of subparagraph (B)(ii).
‘‘(iii) REQUIREMENT THAT TAX-EXEMPT PARTNER BE
A PARTNER SINCE FIRST CERTIFICATION.—This paragraph shall apply with respect to any eligible taxpayer
which is a partner of a partnership which acquires,
remediates, and sells, exchanges, or otherwise disposes
of a qualifying brownfield property only if such eligible
taxpayer was a partner of the qualifying partnership
at all times beginning on the date of the first certification received by the partnership under subparagraph
(C)(i) and ending on the date of the sale, exchange,
or other disposition of the property by the partnership.
‘‘(iv) REGULATIONS.—The Secretary shall prescribe
such regulations as are necessary to prevent abuse
of the requirements of this subparagraph, including
abuse through—
‘‘(I) the use of special allocations of gains or
losses, or
‘‘(II) changes in ownership of partnership
interests held by eligible taxpayers.
‘‘(H) SPECIAL RULES FOR MULTIPLE PROPERTIES.—
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00128
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1545
‘‘(i) IN GENERAL.—An eligible taxpayer or a qualifying partnership of which the eligible taxpayer is a
partner may make a 1-time election to apply this paragraph to more than 1 qualifying brownfield property
by averaging the eligible remediation expenditures for
all such properties acquired during the election period.
If the eligible taxpayer or qualifying partnership makes
such an election, the election shall apply to all qualified
sales, exchanges, or other dispositions of qualifying
brownfield properties the acquisition and transfer of
which occur during the period for which the election
remains in effect.
‘‘(ii) ELECTION.—An election under clause (i) shall
be made with the eligible taxpayer’s or qualifying partnership’s timely filed tax return (including extensions)
for the first taxable year for which the taxpayer or
qualifying partnership intends to have the election
apply. An election under clause (i) is effective for the
period—
‘‘(I) beginning on the date which is the first
day of the taxable year of the return in which
the election is included or a later day in such
taxable year selected by the eligible taxpayer or
qualifying partnership, and
‘‘(II) ending on the date which is the earliest
of a date of revocation selected by the eligible
taxpayer or qualifying partnership, the date which
is 8 years after the date described in subclause
(I), or, in the case of an election by a qualifying
partnership of which the eligible taxpayer is a
partner, the date of the termination of the qualifying partnership.
‘‘(iii) REVOCATION.—An eligible taxpayer or qualifying partnership may revoke an election under clause
(i)(II) by filing a statement of revocation with a timely
filed tax return (including extensions). A revocation
is effective as of the first day of the taxable year
of the return in which the revocation is included or
a later day in such taxable year selected by the eligible
taxpayer or qualifying partnership. Once an eligible
taxpayer or qualifying partnership revokes the election,
the eligible taxpayer or qualifying partnership is ineligible to make another election under clause (i) with
respect to any qualifying brownfield property subject
to the revoked election.
‘‘(I) RECAPTURE.—If an eligible taxpayer excludes gain
or loss from a sale, exchange, or other disposition of property to which an election under subparagraph (H) applies,
and such property fails to satisfy the requirements of this
paragraph, the unrelated business taxable income of the
eligible taxpayer for the taxable year in which such failure
occurs shall be determined by including any previously
excluded gain or loss from such sale, exchange, or other
disposition allocable to such taxpayer, and interest shall
be determined at the overpayment rate established under
section 6621 on any resulting tax for the period beginning
with the due date of the return for the taxable year during
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00129
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1546
PUBLIC LAW 108–357—OCT. 22, 2004
which such sale, exchange, or other disposition occurred,
and ending on the date of payment of the tax.
‘‘(J) RELATED PERSONS.—For purposes of this paragraph, a person shall be treated as related to another
person if—
‘‘(i) such person bears a relationship to such other
person described in section 267(b) (determined without
regard to paragraph (9) thereof), or section 707(b)(1),
determined by substituting ‘25 percent’ for ‘50 percent’
each place it appears therein, and
‘‘(ii) in the case such other person is a nonprofit
organization, if such person controls directly or
indirectly more than 25 percent of the governing body
of such organization.
‘‘(K) TERMINATION.—Except for purposes of determining the average eligible remediation expenditures for
properties acquired during the election period under
subparagraph (H), this paragraph shall not apply to any
property acquired by the eligible taxpayer or qualifying
partnership after December 31, 2009.’’.
(b) EXCLUSION FROM DEFINITION OF DEBT-FINANCED PROPERTY.—Section 514(b)(1) (defining debt-financed property) is
amended by striking ‘‘or’’ at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting ‘‘; or’’,
and by inserting after subparagraph (D) the following new subparagraph:
‘‘(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be excluded
by reason of the provisions of section 512(b)(18) in computing the gross income of any unrelated trade or business.’’.
(c) SAVINGS CLAUSE.—Nothing in the amendments made by
this section shall affect any duty, liability, or other requirement
imposed under any other Federal or State law. Notwithstanding
section 128(b) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, a certification provided by
the Environmental Protection Agency or an appropriate State
agency (within the meaning of section 198(c)(4) of the Internal
Revenue Code of 1986) shall not affect the liability of any person
under section 107(a) of such Act.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to any gain or loss on the sale, exchange, or other
disposition of any property acquired by the taxpayer after December
31, 2004.
SEC. 703. CIVIL RIGHTS TAX RELIEF.
(a) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES
OTHER DEDUCTIONS.—Subsection (a) of section 62 (defining adjusted
gross income) is amended by inserting after paragraph (18) the
following new item:
‘‘(19) COSTS INVOLVING DISCRIMINATION SUITS, ETC.—Any
deduction allowable under this chapter for attorney fees and
court costs paid by, or on behalf of, the taxpayer in connection
with any action involving a claim of unlawful discrimination
(as defined in subsection (e)) or a claim of a violation of subchapter III of chapter 37 of title 31, United States Code or
a claim made under section 1862(b)(3)(A) of the Social Security
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00130
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1547
Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall
not apply to any deduction in excess of the amount includible
in the taxpayer’s gross income for the taxable year on account
of a judgment or settlement (whether by suit or agreement
and whether as lump sum or periodic payments) resulting
from such claim.’’.
(b) UNLAWFUL DISCRIMINATION DEFINED.—Section 62 is
amended by adding at the end the following new subsection:
‘‘(e) UNLAWFUL DISCRIMINATION DEFINED.—For purposes of subsection (a)(19), the term ‘unlawful discrimination’ means an act
that is unlawful under any of the following:
‘‘(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
‘‘(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,
1313, 1314, 1315, 1316, or 1317).
‘‘(3) The National Labor Relations Act (29 U.S.C. 151 et
seq.).
‘‘(4) The Fair Labor Standards Act of 1938 (29 U.S.C.
201 et seq.).
‘‘(5) Section 4 or 15 of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 623 or 633a).
‘‘(6) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
‘‘(7) Section 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1140).
‘‘(8) Title IX of the Education Amendments of 1972 (20
U.S.C. 1681 et seq.).
‘‘(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 2001 et seq.).
‘‘(10) The Worker Adjustment and Retraining Notification
Act (29 U.S.C. 2102 et seq.).
‘‘(11) Section 105 of the Family and Medical Leave Act
of 1993 (29 U.S.C. 2615).
‘‘(12) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of the
uniformed services).
‘‘(13) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
‘‘(14) Section 703, 704, or 717 of the Civil Rights Act
of 1964 (42 U.S.C. 2000e–2, 2000e–3, or 2000e–16).
‘‘(15) Section 804, 805, 806, 808, or 818 of the Fair Housing
Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
‘‘(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
‘‘(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge
of an employee, the discrimination against an employee, or
any other form of retaliation or reprisal against an employee
for asserting rights or taking other actions permitted under
Federal law.
‘‘(18) Any provision of Federal, State, or local law, or
common law claims permitted under Federal, State, or local
law—
‘‘(i) providing for the enforcement of civil rights,
or
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00131
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1548
26 USC 62 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or
benefits, or prohibiting the discharge of an employee,
the discrimination against an employee, or any other
form of retaliation or reprisal against an employee
for asserting rights or taking other actions permitted
by law.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to fees and costs paid after the date of the enactment
of this Act with respect to any judgment or settlement occurring
after such date.
SEC. 704. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.
26 USC 168 note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) 7-YEAR PROPERTY.—Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended by redesignating clause (ii) as clause (iii) and by inserting after clause (i)
the following new clause:
‘‘(ii) any motorsports entertainment complex, and’’.
(b) DEFINITION.—Section 168(i) (relating to definitions and special rules) is amended by adding at the end the following new
paragraph:
‘‘(15) MOTORSPORTS ENTERTAINMENT COMPLEX.—
‘‘(A) IN GENERAL.—The term ‘motorsports entertainment complex’ means a racing track facility which—
‘‘(i) is permanently situated on land, and
‘‘(ii) during the 36-month period following the first
day of the month in which the asset is placed in
service, hosts 1 or more racing events for automobiles
(of any type), trucks, or motorcycles which are open
to the public for the price of admission.
‘‘(B) ANCILLARY AND SUPPORT FACILITIES.—Such term
shall include, if owned by the taxpayer who owns the
complex and provided for the benefit of patrons of the
complex—
‘‘(i) ancillary facilities and land improvements in
support of the complex’s activities (including parking
lots, sidewalks, waterways, bridges, fences, and landscaping),
‘‘(ii) support facilities (including food and beverage
retailing, souvenir vending, and other nonlodging
accommodations), and
‘‘(iii) appurtenances associated with such facilities
and related attractions and amusements (including
ticket booths, race track surfaces, suites and hospitality
facilities, grandstands and viewing structures, props,
walls, facilities that support the delivery of entertainment services, other special purpose structures,
facades, shop interiors, and buildings).
‘‘(C) EXCEPTION.—Such term shall not include any
transportation equipment, administrative services assets,
warehouses, administrative buildings, hotels, or motels.
‘‘(D) TERMINATION.—This paragraph shall not apply
to any property placed in service after December 31, 2007.’’.
(c) EFFECTIVE DATE.—
Jkt 039139
PO 00357
Frm 00132
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1549
(1) IN GENERAL.—The amendments made by this section
shall apply to any property placed in service after the date
of the enactment of this Act.
(2) SPECIAL RULE FOR ASSET CLASS 80.0.—In the case of
race track facilities placed in service after the date of the
enactment of this Act, such facilities shall not be treated as
theme and amusement facilities classified under asset class
80.0.
(3) NO INFERENCE.—Nothing in this section or the amendments made by this section shall be construed to affect the
treatment of property placed in service on or before the date
of the enactment of this Act.
SEC. 705. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT
PROVISIONS.
(a) DISTRIBUTIONS TO SHAREHOLDERS FROM PRE-1984 POLICYSURPLUS ACCOUNT.—Section 815 (relating to distributions
to shareholders from pre-1984 policyholders surplus account) is
amended by adding at the end the following:
‘‘(g) SPECIAL RULES APPLICABLE DURING 2005 AND 2006.—In
the case of any taxable year of a stock life insurance company
beginning after December 31, 2004, and before January 1, 2007—
‘‘(1) the amount under subsection (a)(2) for such taxable
year shall be treated as zero, and
‘‘(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and (d)(3),
any distribution to shareholders during such taxable year shall
be treated as made first out of the policyholders surplus
account, then out of the shareholders surplus account, and
finally out of other accounts.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
HOLDERS
26 USC 815 note.
SEC. 706. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY
TREATED AS 7-YEAR PROPERTY.
(a) IN GENERAL.—Section 168(e)(3)(C) (defining 7-year property), as amended by this Act, is amended by striking ‘‘and’’ at
the end of clause (ii), by redesignating clause (iii) as clause (iv),
and by inserting after clause (ii) the following new clause:
‘‘(iii) any Alaska natural gas pipeline, and’’.
(b) ALASKA NATURAL GAS PIPELINE.—Section 168(i) (relating
to definitions and special rules), as amended by this Act, is amended
by inserting after paragraph (15) the following new paragraph:
‘‘(16) ALASKA NATURAL GAS PIPELINE.—The term ‘Alaska
natural gas pipeline’ means the natural gas pipeline system
located in the State of Alaska which—
‘‘(A) has a capacity of more than 500,000,000,000 Btu
of natural gas per day, and
‘‘(B) is—
‘‘(i) placed in service after December 31, 2013,
or
‘‘(ii) treated as placed in service on January 1,
2014, if the taxpayer who places such system in service
before January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment,
and appurtenances used to carry natural gas, but does not
include any gas processing plant.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00133
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1550
PUBLIC LAW 108–357—OCT. 22, 2004
(c) ALTERNATIVE SYSTEM.—The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned
to classes) is amended by inserting after the item relating to
subparagraph (C)(ii) the following new item:
‘‘(C)(iii) ....................................................................................................................
26 USC 168 note.
22’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after December 31, 2004.
SEC. 707. EXTENSION OF ENHANCED OIL RECOVERY CREDIT TO CERTAIN ALASKA FACILITIES.
26 USC 43 note.
26 USC 460 note.
(a) IN GENERAL.—Section 43(c)(1) (defining qualified enhanced
oil recovery costs) is amended by adding at the end the following
new subparagraph:
‘‘(D) Any amount which is paid or incurred during
the taxable year to construct a gas treatment plant which—
‘‘(i) is located in the area of the United States
(within the meaning of section 638(1)) lying north of
64 degrees North latitude,
‘‘(ii) prepares Alaska natural gas for transportation
through a pipeline with a capacity of at least
2,000,000,000,000 Btu of natural gas per day, and
‘‘(iii) produces carbon dioxide which is injected into
hydrocarbon-bearing geological formations.’’.
(b) ALASKA NATURAL GAS.—Section 43(c) is amended by adding
at the end the following new paragraph:
‘‘(5) ALASKA NATURAL GAS.—For purposes of paragraph
(1)(D)—
‘‘(1) IN GENERAL.—The term ‘Alaska natural gas’ means
natural gas entering the Alaska natural gas pipeline (as defined
in section 168(i)(16) (determined without regard to subparagraph (B) thereof)) which is produced from a well—
‘‘(A) located in the area of the State of Alaska lying
north of 64 degrees North latitude, determined by excluding
the area of the Alaska National Wildlife Refuge (including
the continental shelf thereof within the meaning of section
638(1)), and
‘‘(B) pursuant to the applicable State and Federal pollution prevention, control, and permit requirements from
such area (including the continental shelf thereof within
the meaning of section 638(1)).
‘‘(2) NATURAL GAS.—The term ‘natural gas’ has the meaning
given such term by section 613A(e)(2).’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to costs paid or incurred in taxable years beginning
after December 31, 2004.
SEC. 708. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.
(a) IN GENERAL.—In the case of a qualified naval ship contract,
the taxable income of such contract during the 5-taxable year period
beginning with the taxable year in which the contract commencement date occurs shall be determined under a method identical
to the method used in the case of a qualified ship contract (as
defined in section 10203(b)(2)(B) of the Revenue Act of 1987).
(b) RECAPTURE OF TAX BENEFIT.—In the case of a qualified
naval ship contract to which subsection (a) applies, the taxpayer’s
tax imposed by chapter 1 of the Internal Revenue Code of 1986
for the first taxable year following the 5-taxable year period
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00134
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1551
described in subsection (a) shall be increased by the excess (if
any) of—
(1) the amount of tax which would have been imposed
during such period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) QUALIFIED NAVAL SHIP CONTRACT.—For purposes of this
section:
(1) IN GENERAL.—The term ‘‘qualified naval ship contract’’
means any contract or portion thereof that is for the construction in the United States of 1 ship or submarine for the Federal
Government if the taxpayer reasonably expects the acceptance
date will occur no later than 9 years after the construction
commencement date.
(2) ACCEPTANCE DATE.—The term ‘‘acceptance date’’ means
the date 1 year after the date on which the Federal Government
issues a letter of acceptance or other similar document for
the ship or submarine.
(3) CONSTRUCTION COMMENCEMENT DATE.—The term
‘‘construction commencement date’’ means the date on which
the physical fabrication of any section or component of the
ship or submarine begins in the taxpayer’s shipyard.
(d) EFFECTIVE DATE.—This section shall apply to contracts for
ships or submarines with respect to which the construction
commencement date occurs after the date of the enactment of
this Act.
SEC. 709. MODIFICATION OF MINIMUM COST REQUIREMENT FOR
TRANSFER OF EXCESS PENSION ASSETS.
(a) AMENDMENTS OF ERISA.—
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ‘‘Pension Funding Equity Act of 2004’’ and inserting
‘‘American Jobs Creation Act of 2004’’.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ‘‘Pension Funding Equity Act of 2004’’
and inserting ‘‘American Jobs Creation Act of 2004’’.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended by striking ‘‘Pension Funding Equity
Act of 2004’’ and inserting ‘‘American Jobs Creation Act of
2004’’.
(b) MINIMUM COST REQUIREMENTS.—
(1) IN GENERAL.—Section 420(c)(3)(E) is amended by adding
at the end the following new clause:
‘‘(ii) INSIGNIFICANT COST REDUCTIONS PERMITTED.—
‘‘(I) IN GENERAL.—An eligible employer shall
not be treated as failing to meet the requirements
of this paragraph for any taxable year if, in lieu
of any reduction of retiree health coverage permitted under the regulations prescribed under
clause (i), the employer reduces applicable
employer cost by an amount not in excess of the
reduction in costs which would have occurred if
the employer had made the maximum permissible
reduction in retiree health coverage under such
regulations. In applying such regulations to any
subsequent taxable year, any reduction in
applicable employer cost under this clause shall
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00135
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1552
PUBLIC LAW 108–357—OCT. 22, 2004
be treated as if it were an equivalent reduction
in retiree health coverage.
‘‘(II) ELIGIBLE EMPLOYER.—For purposes of
subclause (I), an employer shall be treated as an
eligible employer for any taxable year if, for the
preceding taxable year, the qualified current
retiree health liabilities of the employer were at
least 5 percent of the gross receipts of the
employer. For purposes of this subclause, the rules
of paragraphs (2), (3)(B), and (3)(C) of section
448(c) shall apply in determining the amount of
an employer’s gross receipts.’’.
(2) CONFORMING AMENDMENT.—Section 420(c)(3)(E) is
amended by striking ‘‘The Secretary’’ and inserting:
‘‘(i) IN GENERAL.—The Secretary’’.
(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years ending after the date of
the enactment of this Act.
26 USC 420.
26 USC 420 note.
SEC. 710. EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED FROM
CERTAIN RENEWABLE RESOURCES.
(a) EXPANSION OF QUALIFIED ENERGY RESOURCES.—Subsection
(c) of section 45 (relating to electricity produced from certain renewable resources) is amended to read as follows:
‘‘(c) QUALIFIED ENERGY RESOURCES AND REFINED COAL.—For
purposes of this section:
‘‘(1) IN GENERAL.—The term ‘qualified energy resources’
means—
‘‘(A) wind,
‘‘(B) closed-loop biomass,
‘‘(C) open-loop biomass,
‘‘(D) geothermal energy,
‘‘(E) solar energy,
‘‘(F) small irrigation power, and
‘‘(G) municipal solid waste.
‘‘(2) CLOSED-LOOP BIOMASS.—The term ‘closed-loop biomass’
means any organic material from a plant which is planted
exclusively for purposes of being used at a qualified facility
to produce electricity.
‘‘(3) OPEN-LOOP BIOMASS.—
‘‘(A) IN GENERAL.—The term ‘open-loop biomass’
means—
‘‘(i) any agricultural livestock waste nutrients, or
‘‘(ii) any solid, nonhazardous, cellulosic waste
material which is segregated from other waste materials and which is derived from—
‘‘(I) any of the following forest-related
resources:
mill
and
harvesting
residues,
precommercial thinnings, slash, and brush,
‘‘(II) solid wood waste materials, including
waste pallets, crates, dunnage, manufacturing and
construction wood wastes (other than pressuretreated, chemically-treated, or painted wood
wastes), and landscape or right-of-way tree trimmings, but not including municipal solid waste,
gas derived from the biodegradation of solid waste,
or paper which is commonly recycled, or
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00136
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1553
‘‘(III) agriculture sources, including orchard
tree crops, vineyard, grain, legumes, sugar, and
other crop by-products or residues.
Such term shall not include closed-loop biomass or biomass
burned in conjunction with fossil fuel (cofiring) beyond
such fossil fuel required for startup and flame stabilization.
‘‘(B) AGRICULTURAL LIVESTOCK WASTE NUTRIENTS.—
‘‘(i) IN GENERAL.—The term ‘agricultural livestock
waste nutrients’ means agricultural livestock manure
and litter, including wood shavings, straw, rice hulls,
and other bedding material for the disposition of
manure.
‘‘(ii) AGRICULTURAL LIVESTOCK.—The term ‘agricultural livestock’ includes bovine, swine, poultry, and
sheep.
‘‘(4) GEOTHERMAL ENERGY.—The term ‘geothermal energy’
means energy derived from a geothermal deposit (within the
meaning of section 613(e)(2)).
‘‘(5) SMALL IRRIGATION POWER.—The term ‘small irrigation
power’ means power—
‘‘(A) generated without any dam or impoundment of
water through an irrigation system canal or ditch, and
‘‘(B) the nameplate capacity rating of which is not
less than 150 kilowatts but is less than 5 megawatts.
‘‘(6) MUNICIPAL SOLID WASTE.—The term ‘municipal solid
waste’ has the meaning given the term ‘solid waste’ under
section 2(27) of the Solid Waste Disposal Act (42 U.S.C. 6903).
‘‘(7) REFINED COAL.—
‘‘(A) IN GENERAL.—The term ‘refined coal’ means a
fuel which—
‘‘(i) is a liquid, gaseous, or solid synthetic fuel
produced from coal (including lignite) or high carbon
fly ash, including such fuel used as a feedstock,
‘‘(ii) is sold by the taxpayer with the reasonable
expectation that it will be used for purpose of producing
steam,
‘‘(iii) is certified by the taxpayer as resulting (when
used in the production of steam) in a qualified emission
reduction, and
‘‘(iv) is produced in such a manner as to result
in an increase of at least 50 percent in the market
value of the refined coal (excluding any increase caused
by materials combined or added during the production
process), as compared to the value of the feedstock
coal.
‘‘(B) QUALIFIED EMISSION REDUCTION.—The term ‘qualified emission reduction’ means a reduction of at least 20
percent of the emissions of nitrogen oxide and either sulfur
dioxide or mercury released when burning the refined coal
(excluding any dilution caused by materials combined or
added during the production process), as compared to the
emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace
as of January 1, 2003.’’.
(b) EXPANSION OF QUALIFIED FACILITIES.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00137
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1554
PUBLIC LAW 108–357—OCT. 22, 2004
(1) IN GENERAL.—Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after subsection
(c) the following new subsection:
‘‘(d) QUALIFIED FACILITIES.—For purposes of this section:
‘‘(1) WIND FACILITY.—In the case of a facility using wind
to produce electricity, the term ‘qualified facility’ means any
facility owned by the taxpayer which is originally placed in
service after December 31, 1993, and before January 1, 2006.
‘‘(2) CLOSED-LOOP BIOMASS FACILITY.—
‘‘(A) IN GENERAL.—In the case of a facility using closedloop biomass to produce electricity, the term ‘qualified
facility’ means any facility—
‘‘(i) owned by the taxpayer which is originally
placed in service after December 31, 1992, and before
January 1, 2006, or
‘‘(ii) owned by the taxpayer which before January
1, 2006, is originally placed in service and modified
to use closed-loop biomass to co-fire with coal, with
other biomass, or with both, but only if the modification
is approved under the Biomass Power for Rural
Development Programs or is part of a pilot project
of the Commodity Credit Corporation as described in
65 Fed. Reg. 63052.
‘‘(B) SPECIAL RULES.—In the case of a qualified facility
described in subparagraph (A)(ii)—
‘‘(i) the 10-year period referred to in subsection
(a) shall be treated as beginning no earlier than the
date of the enactment of this clause,
‘‘(ii) the amount of the credit determined under
subsection (a) with respect to the facility shall be an
amount equal to the amount determined without
regard to this clause multiplied by the ratio of the
thermal content of the closed-loop biomass used in
such facility to the thermal content of all fuels used
in such facility, and
‘‘(iii) if the owner of such facility is not the producer
of the electricity, the person eligible for the credit
allowable under subsection (a) shall be the lessee or
the operator of such facility.
‘‘(3) OPEN-LOOP BIOMASS FACILITIES.—
‘‘(A) IN GENERAL.—In the case of a facility using openloop biomass to produce electricity, the term ‘qualified
facility’ means any facility owned by the taxpayer which—
‘‘(i) in the case of a facility using agricultural livestock waste nutrients—
‘‘(I) is originally placed in service after the
date of the enactment of this subclause and before
January 1, 2006, and
‘‘(II) the nameplate capacity rating of which
is not less than 150 kilowatts, and
‘‘(ii) in the case of any other facility, is originally
placed in service before January 1, 2006.
‘‘(B) CREDIT ELIGIBILITY.—In the case of any facility
described in subparagraph (A), if the owner of such facility
is not the producer of the electricity, the person eligible
for the credit allowable under subsection (a) shall be the
lessee or the operator of such facility.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00138
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1555
‘‘(4) GEOTHERMAL OR SOLAR ENERGY FACILITY.—In the case
of a facility using geothermal or solar energy to produce electricity, the term ‘qualified facility’ means any facility owned
by the taxpayer which is originally placed in service after
the date of the enactment of this paragraph and before January
1, 2006. Such term shall not include any property described
in section 48(a)(3) the basis of which is taken into account
by the taxpayer for purposes of determining the energy credit
under section 48.
‘‘(5) SMALL IRRIGATION POWER FACILITY.—In the case of
a facility using small irrigation power to produce electricity,
the term ‘qualified facility’ means any facility owned by the
taxpayer which is originally placed in service after the date
of the enactment of this paragraph and before January 1,
2006.
‘‘(6) LANDFILL GAS FACILITIES.—In the case of a facility
producing electricity from gas derived from the biodegradation
of municipal solid waste, the term ‘qualified facility’ means
any facility owned by the taxpayer which is originally placed
in service after the date of the enactment of this paragraph
and before January 1, 2006.
‘‘(7) TRASH COMBUSTION FACILITIES.—In the case of a
facility which burns municipal solid waste to produce electricity,
the term ‘qualified facility’ means any facility owned by the
taxpayer which is originally placed in service after the date
of the enactment of this paragraph and before January 1,
2006.
‘‘(8) REFINED COAL PRODUCTION FACILITY.—The term
‘refined coal production facility’ means a facility which is placed
in service after the date of the enactment of this paragraph
and before January 1, 2009.’’.
(2) RULES FOR REFINED COAL PRODUCTION FACILITIES.—
Subsection (e) of section 45, as so redesignated, is amended
by adding at the end the following new paragraph:
‘‘(8) REFINED COAL PRODUCTION FACILITIES.—
‘‘(A) DETERMINATION OF CREDIT AMOUNT.—In the case
of a producer of refined coal, the credit determined under
this section (without regard to this paragraph) for any
taxable year shall be increased by an amount equal to
$4.375 per ton of qualified refined coal—
‘‘(i) produced by the taxpayer at a refined coal
production facility during the 10-year period beginning
on the date the facility was originally placed in service,
and
‘‘(ii) sold by the taxpayer—
‘‘(I) to an unrelated person, and
‘‘(II) during such 10-year period and such taxable year.
‘‘(B) PHASEOUT OF CREDIT.—The amount of the increase
determined under subparagraph (A) shall be reduced by
an amount which bears the same ratio to the amount
of the increase (determined without regard to this subparagraph) as—
‘‘(i) the amount by which the reference price of
fuel used as a feedstock (within the meaning of subsection (c)(7)(A)) for the calendar year in which the
sale occurs exceeds an amount equal to 1.7 multiplied
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00139
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1556
PUBLIC LAW 108–357—OCT. 22, 2004
by the reference price for such fuel in 2002, bears
to
‘‘(ii) $8.75.
‘‘(C) APPLICATION OF RULES.—Rules similar to the rules
of the subsection (b)(3) and paragraphs (1) through (5)
and (9) of this subsection shall apply for purposes of determining the amount of any increase under this paragraph.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 45(e), as so redesignated, is amended by
striking ‘‘subsection (c)(3)(A)’’ in paragraph (7)(A)(i) and
inserting ‘‘subsection (d)(1)’’.
(B) The heading of section 45 and the item relating
to such section in the table of sections for subpart D of
part IV of subchapter A of chapter 1 are each amended
by inserting before the period at the end ‘‘, etc’’.
(C) Paragraph (2) of section 45(b) is amended by
striking ‘‘The 1.5 cent amount’’ and all that follows through
‘‘paragraph (1)’’ and inserting ‘‘The 1.5 cent amount in
subsection (a), the 8 cent amount in paragraph (1), the
$4.375 amount in subsection (e)(8)(A), and in subsection
(e)(8)(B)(i) the reference price of fuel used as a feedstock
(within the meaning of subsection (c)(7)(A)) in 2002’’.
(c) SPECIAL CREDIT RATE AND PERIOD FOR ELECTRICITY PRODUCED AND SOLD AFTER ENACTMENT DATE.—Section 45(b) is
amended by adding at the end the following new paragraph:
‘‘(4) CREDIT RATE AND PERIOD FOR ELECTRICITY PRODUCED
AND SOLD FROM CERTAIN FACILITIES.—
‘‘(A) CREDIT RATE.—In the case of electricity produced
and sold in any calendar year after 2003 at any qualified
facility described in paragraph (3), (5), (6), or (7) of subsection (d), the amount in effect under subsection (a)(1)
for such calendar year (determined before the application
of the last sentence of paragraph (2) of this subsection)
shall be reduced by one-half.
‘‘(B) CREDIT PERIOD.—
‘‘(i) IN GENERAL.—Except as provided in clause
(ii), in the case of any facility described in paragraph
(3), (4), (5), (6), or (7) of subsection (d), the 5-year
period beginning on the date the facility was originally
placed in service shall be substituted for the 10-year
period in subsection (a)(2)(A)(ii).
‘‘(ii) CERTAIN OPEN-LOOP BIOMASS FACILITIES.—In
the case of any facility described in subsection
(d)(3)(A)(ii) placed in service before the date of the
enactment of this paragraph, the 5-year period beginning on the date of the enactment of this Act shall
be substituted for the 10-year period in subsection
(a)(2)(A)(ii).’’.
(d) COORDINATION WITH OTHER CREDITS.—Section 45(e), as
redesignated and amended by this section, is amended by inserting
after paragraph (8) the following new paragraph:
‘‘(9) COORDINATION WITH CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE.—The term ‘qualified facility’ shall
not include any facility the production from which is allowed
as a credit under section 29 for the taxable year or any prior
taxable year.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00140
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1557
(e) COORDINATION WITH SECTION 48.—Section 48(a)(3) (defining
energy property) is amended by adding at the end the following
new sentence: ‘‘Such term shall not include any property which
is part of a facility the production from which is allowed as a
credit under section 45 for the taxable year or any prior taxable
year.’’.
(f) ELIMINATION OF CERTAIN CREDIT REDUCTIONS.—Section
45(b)(3) (relating to credit reduced for grants, tax-exempt bonds,
subsidized energy financing, and other credits) is amended—
(1) by inserting ‘‘the lesser of 1⁄2 or’’ before ‘‘a fraction’’
in the matter preceding subparagraph (A), and
(2) by adding at the end the following new sentence: ‘‘This
paragraph shall not apply with respect to any facility described
in subsection (d)(2)(A)(ii).’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to
electricity produced and sold after the date of the enactment
of this Act, in taxable years ending after such date.
(2) CERTAIN BIOMASS FACILITIES.—With respect to any
facility described in section 45(d)(3)(A)(ii) of the Internal Revenue Code of 1986, as added by subsection (b)(1), which is
placed in service before the date of the enactment of this
Act, the amendments made by this section shall apply to electricity produced and sold after December 31, 2004, in taxable
years ending after such date.
(3) CREDIT RATE AND PERIOD FOR NEW FACILITIES.—The
amendments made by subsection (c) shall apply to electricity
produced and sold after December 31, 2004, in taxable years
ending after such date.
(4) NONAPPLICATION OF AMENDMENTS TO PREEFFECTIVE
DATE POULTRY WASTE FACILITIES.—The amendments made by
this section shall not apply with respect to any poultry waste
facility (within the meaning of section 45(c)(3)(C), as in effect
on the day before the date of the enactment of this Act) placed
in service before January 1, 2004.
(5) REFINED COAL PRODUCTION FACILITIES.—Section 45(e)(8)
of the Internal Revenue Code of 1986, as added by this section,
shall apply to refined coal produced and sold after the date
of the enactment of this Act.
26 USC 45 note.
SEC. 711. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST
REGULAR AND MINIMUM TAX.
(a) IN GENERAL.—Subsection (c) of section 38 (relating to limitation based on amount of tax) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:
‘‘(4) SPECIAL RULES FOR SPECIFIED CREDITS.—
‘‘(A) IN GENERAL.—In the case of specified credits—
‘‘(i) this section and section 39 shall be applied
separately with respect to such credits, and
‘‘(ii) in applying paragraph (1) to such credits—
‘‘(I) the tentative minimum tax shall be treated
as being zero, and
‘‘(II) the limitation under paragraph (1) (as
modified by subclause (I)) shall be reduced by the
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00141
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1558
26 USC 38 note.
PUBLIC LAW 108–357—OCT. 22, 2004
credit allowed under subsection (a) for the taxable
year (other than the specified credits).
‘‘(B) SPECIFIED CREDITS.—For purposes of this subsection, the term ‘specified credits’ includes—
‘‘(i) for taxable years beginning after December
31, 2004, the credit determined under section 40,
‘‘(ii) the credit determined under section 45 to the
extent that such credit is attributable to electricity
or refined coal produced—
‘‘(I) at a facility which is originally placed in
service after the date of the enactment of this
paragraph, and
‘‘(II) during the 4-year period beginning on
the date that such facility was originally placed
in service’’.
(b) CONFORMING AMENDMENTS.—Paragraph (2)(A)(ii)(II) and
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ‘‘or
the specified credits’’ after ‘‘employee credit’’.
(c) EFFECTIVE DATE.—Except as otherwise provided, the amendments made by this section shall apply to taxable years ending
after the date of the enactment of this Act.
SEC. 712. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR CHILDREN AND ADULTS WITH SICKLE CELL
DISEASE AS MEDICAL ASSISTANCE UNDER THE MEDICAID PROGRAM.
42 USC 1396d
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) OPTIONAL MEDICAL ASSISTANCE.—
(1) IN GENERAL.—Section 1905 of the Social Security Act
(42 U.S.C. 1396d) is amended—
(A) in subsection (a)—
(i) by striking ‘‘and’’ at the end of paragraph (26);
(ii) by redesignating paragraph (27) as paragraph
(28); and
(iii) by inserting after paragraph (26), the following:
‘‘(27) subject to subsection (x), primary and secondary medical strategies and treatment and services for individuals who
have Sickle Cell Disease; and’’; and
(B) by adding at the end the following:
‘‘(x) For purposes of subsection (a)(27), the strategies, treatment,
and services described in that subsection include the following:
‘‘(1) Chronic blood transfusion (with deferoxamine chelation) to prevent stroke in individuals with Sickle Cell Disease
who have been identified as being at high risk for stroke.
‘‘(2) Genetic counseling and testing for individuals with
Sickle Cell Disease or the sickle cell trait to allow health
care professionals to treat such individuals and to prevent
symptoms of Sickle Cell Disease.
‘‘(3) Other treatment and services to prevent individuals
who have Sickle Cell Disease and who have had a stroke
from having another stroke.’’.
(2) RULE OF CONSTRUCTION.—Nothing in subsections (a)(27)
or (x) of section 1905 of the Social Security Act (42 U.S.C.
1396d), as added by paragraph (1), shall be construed as
implying that a State medicaid program under title XIX of
such Act could not have treated, prior to the date of enactment
of this Act, any of the primary and secondary medical strategies
Jkt 039139
PO 00357
Frm 00142
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1559
and treatment and services described in such subsections as
medical assistance under such program, including as early and
periodic screening, diagnostic, and treatment services under
section 1905(r) of such Act.
(b) FEDERAL REIMBURSEMENT FOR EDUCATION AND OTHER SERVICES RELATED TO THE PREVENTION AND TREATMENT OF SICKLE
CELL DISEASE.—Section 1903(a)(3) of the Social Security Act (42
U.S.C. 1396b(a)(3)) is amended—
(1) in subparagraph (D), by striking ‘‘plus’’ at the end
and inserting ‘‘and’’; and
(2) by adding at the end the following:
‘‘(E) 50 percent of the sums expended with respect
to costs incurred during such quarter as are attributable
to providing—
‘‘(i) services to identify and educate individuals
who are likely to be eligible for medical assistance
under this title and who have Sickle Cell Disease or
who are carriers of the sickle cell gene, including education regarding how to identify such individuals; or
‘‘(ii) education regarding the risks of stroke and
other complications, as well as the prevention of stroke
and other complications, in individuals who are likely
to be eligible for medical assistance under this title
and who have Sickle Cell Disease; plus’’.
(c) DEMONSTRATION PROGRAM FOR THE DEVELOPMENT AND
ESTABLISHMENT OF SYSTEMIC MECHANISMS FOR THE PREVENTION
AND TREATMENT OF SICKLE CELL DISEASE.—
(1) AUTHORITY TO CONDUCT DEMONSTRATION PROGRAM.—
(A) IN GENERAL.—The Administrator, through the
Bureau of Primary Health Care and the Maternal and
Child Health Bureau, shall conduct a demonstration program by making grants to up to 40 eligible entities for
each fiscal year in which the program is conducted under
this section for the purpose of developing and establishing
systemic mechanisms to improve the prevention and treatment of Sickle Cell Disease, including through—
(i) the coordination of service delivery for individuals with Sickle Cell Disease;
(ii) genetic counseling and testing;
(iii) bundling of technical services related to the
prevention and treatment of Sickle Cell Disease;
(iv) training of health professionals; and
(v) identifying and establishing other efforts
related to the expansion and coordination of education,
treatment, and continuity of care programs for individuals with Sickle Cell Disease.
(B) GRANT AWARD REQUIREMENTS.—
(i) GEOGRAPHIC DIVERSITY.—The Administrator
shall, to the extent practicable, award grants under
this section to eligible entities located in different
regions of the United States.
(ii) PRIORITY.—In awarding grants under this subsection, the Administrator shall give priority to
awarding grants to eligible entities that are—
(I) Federally-qualified health centers that have
a partnership or other arrangement with a comprehensive Sickle Cell Disease treatment center
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00143
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
42 USC 300b–1
note.
BILLW
PsN: PUBL357
118 STAT. 1560
that does not receive funds from the National
Institutes of Health; or
(II) Federally-qualified health centers that
intend to develop a partnership or other arrangement with a comprehensive Sickle Cell Disease
treatment center that does not receive funds from
the National Institutes of Health.
(2) ADDITIONAL REQUIREMENTS.—An eligible entity awarded
a grant under this subsection shall use funds made available
under the grant to carry out, in addition to the activities
described in paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of education, treatment, and continuity of care for individuals
with Sickle Cell Disease under—
(i) the entity’s collaborative agreement with a
community-based Sickle Cell Disease organization or
a nonprofit entity that works with individuals who
have Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn screening program for the State in which the entity is located;
and
(iii) the maternal and child health program under
title V of the Social Security Act (42 U.S.C. 701 et
seq.) for the State in which the entity is located.
(B) To train nursing and other health staff who provide
care for individuals with Sickle Cell Disease.
(C) To enter into a partnership with adult or pediatric
hematologists in the region and other regional experts in
Sickle Cell Disease at tertiary and academic health centers
and State and county health offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State children’s health insurance program, and other health programs for the prevention and treatment of Sickle Cell
Disease.
(3) NATIONAL COORDINATING CENTER.—
(A) ESTABLISHMENT.—The Administrator shall enter
into a contract with an entity to serve as the National
Coordinating Center for the demonstration program conducted under this subsection.
(B) ACTIVITIES DESCRIBED.—The National Coordinating
Center shall—
(i) collect, coordinate, monitor, and distribute data,
best practices, and findings regarding the activities
funded under grants made to eligible entities under
the demonstration program;
(ii) develop a model protocol for eligible entities
with respect to the prevention and treatment of Sickle
Cell Disease;
(iii) develop educational materials regarding the
prevention and treatment of Sickle Cell Disease; and
(iv) prepare and submit to Congress a final report
that includes recommendations regarding the effectiveness of the demonstration program conducted under
this subsection and such direct outcome measures as—
(I) the number and type of health care
resources utilized (such as emergency room visits,
Contracts.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00144
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1561
hospital visits, length of stay, and physician visits
for individuals with Sickle Cell Disease); and
(II) the number of individuals that were tested
and subsequently received genetic counseling for
the sickle cell trait.
(4) APPLICATION.—An eligible entity desiring a grant under
this subsection shall submit an application to the Administrator
at such time, in such manner, and containing such information
as the Administrator may require.
(5) DEFINITIONS.—In this subsection:
(A) ADMINISTRATOR.—The term ‘‘Administrator’’ means
the Administrator of the Health Resources and Services
Administration.
(B) ELIGIBLE ENTITY.—The term ‘‘eligible entity’’ means
a Federally-qualified health center, a nonprofit hospital
or clinic, or a university health center that provides primary health care, that—
(i) has a collaborative agreement with a community-based Sickle Cell Disease organization or a nonprofit entity with experience in working with individuals who have Sickle Cell Disease; and
(ii) demonstrates to the Administrator that either
the Federally-qualified health center, the nonprofit hospital or clinic, the university health center, the
organization or entity described in clause (i), or the
experts described in paragraph (2)(C), has at least
5 years of experience in working with individuals who
have Sickle Cell Disease.
(C) FEDERALLY-QUALIFIED HEALTH CENTER.—The term
‘‘Federally-qualified health center’’ has the meaning given
that term in section 1905(l)(2)(B) of the Social Security
Act (42 U.S.C. 1396d(l)(2)(B)).
(6) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to be appropriated to carry out this subsection, $10,000,000
for each of fiscal years 2005 through 2009.
(d) EFFECTIVE DATE.—The amendments made by subsections
(a) and (b) take effect on the date of enactment of this Act and
apply to medical assistance and services provided under title XIX
of the Social Security Act (42 U.S.C. 1396 et seq.) on or after
that date.
42 USC 1396b
note.
SEC. 713. CEILING FANS.
(a) IN GENERAL.—Subchapter II of chapter 99 of the Harmonized Tariff Schedule of the United States is amended by
inserting in numerical sequence the following new heading:
‘‘
9902.84.14
Ceiling fans for permanent installation (provided for in subheading
8414.51.00) .......................................
Free
No change
No change
On or before
12/31/2006
’’.
(b) EFFECTIVE DATE.—The amendment made by this section
applies to goods entered, or withdrawn from warehouse, for
consumption on or after the 15th day after the date of enactment
of this Act.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00145
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1562
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR
VESSEL HEADS AND PRESSURIZERS, USED IN NUCLEAR
FACILITIES.
(a) CERTAIN STEAM GENERATORS.—Heading 9902.84.02 of the
Harmonized Tariff Schedule of the United States is amended by
striking ‘‘12/31/2006’’ and inserting ‘‘12/31/2008’’.
(b) CERTAIN REACTOR VESSEL HEADS AND PRESSURIZERS.—Subchapter II of chapter 99 of the Harmonized Tariff Schedule of
the United States is amended by inserting in numerical sequence
the following new heading:
‘‘
9902.84.03
Reactor vessel heads and pressurizers for nuclear reactors (provided
for in subheading 8401.40.00) ........
Free
No change
No change
On or before
12/31/2008
’’.
(c) EFFECTIVE DATE.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall take effect on the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendment made subsection (b)
shall apply to goods entered, or withdrawn from warehouse,
for consumption on or after the 15th day after the date of
the enactment of this Act.
TITLE VIII—REVENUE PROVISIONS
Subtitle A—Provisions to Reduce Tax
Avoidance Through Individual and Corporate Expatriation
SEC. 801. TAX TREATMENT OF EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
(a) IN GENERAL.—Subchapter C of chapter 80 (relating to provisions affecting more than one subtitle) is amended by adding at
the end the following new section:
‘‘SEC. 7874. RULES RELATING TO EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
‘‘(a) TAX ON INVERSION GAIN OF EXPATRIATED ENTITIES.—
‘‘(1) IN GENERAL.—The taxable income of an expatriated
entity for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
‘‘(2) EXPATRIATED ENTITY.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘expatriated entity’
means—
‘‘(i) the domestic corporation or partnership
referred to in subparagraph (B)(i) with respect to which
a foreign corporation is a surrogate foreign corporation,
and
‘‘(ii) any United States person who is related
(within the meaning of section 267(b) or 707(b)(1))
to a domestic corporation or partnership described in
clause (i).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00146
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1563
‘‘(B) SURROGATE FOREIGN CORPORATION.—A foreign corporation shall be treated as a surrogate foreign corporation
if, pursuant to a plan (or a series of related transactions)—
‘‘(i) the entity completes after March 4, 2003, the
direct or indirect acquisition of substantially all of
the properties held directly or indirectly by a domestic
corporation or substantially all of the properties constituting a trade or business of a domestic partnership,
‘‘(ii) after the acquisition at least 60 percent of
the stock (by vote or value) of the entity is held—
‘‘(I) in the case of an acquisition with respect
to a domestic corporation, by former shareholders
of the domestic corporation by reason of holding
stock in the domestic corporation, or
‘‘(II) in the case of an acquisition with respect
to a domestic partnership, by former partners of
the domestic partnership by reason of holding a
capital or profits interest in the domestic partnership, and
‘‘(iii) after the acquisition the expanded affiliated
group which includes the entity does not have substantial business activities in the foreign country in which,
or under the law of which, the entity is created or
organized, when compared to the total business activities of such expanded affiliated group.
An entity otherwise described in clause (i) with respect
to any domestic corporation or partnership trade or business shall be treated as not so described if, on or before
March 4, 2003, such entity acquired directly or indirectly
more than half of the properties held directly or indirectly
by such corporation or more than half of the properties
constituting such partnership trade or business, as the
case may be.
‘‘(3) COORDINATION WITH SUBSECTION (b).—Paragraph (1)
shall not apply to any entity which is treated as a domestic
corporation under subsection (b).
‘‘(b) INVERTED CORPORATIONS TREATED AS DOMESTIC CORPORATIONS.—Notwithstanding section 7701(a)(4), a foreign corporation
shall be treated for purposes of this title as a domestic corporation
if such corporation would be a surrogate foreign corporation if
subsection (a)(2) were applied by substituting ‘80 percent’ for ‘60
percent’.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) EXPANDED AFFILIATED GROUP.—The term ‘expanded
affiliated group’ means an affiliated group as defined in section
1504(a) but without regard to section 1504(b)(3), except that
section 1504(a) shall be applied by substituting ‘more than
50 percent’ for ‘at least 80 percent’ each place it appears.
‘‘(2) CERTAIN STOCK DISREGARDED.—There shall not be
taken into account in determining ownership under subsection
(a)(2)(B)(ii)—
‘‘(A) stock held by members of the expanded affiliated
group which includes the foreign corporation, or
‘‘(B) stock of such foreign corporation which is sold
in a public offering related to the acquisition described
in subsection (a)(2)(B)(i).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00147
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1564
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(3) PLAN DEEMED IN CERTAIN CASES.—If a foreign corporation acquires directly or indirectly substantially all of the properties of a domestic corporation or partnership during the 4year period beginning on the date which is 2 years before
the ownership requirements of subsection (a)(2)(B)(ii) are met,
such actions shall be treated as pursuant to a plan.
‘‘(4) CERTAIN TRANSFERS DISREGARDED.—The transfer of
properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan
a principal purpose of which is to avoid the purposes of this
section.
‘‘(5) SPECIAL RULE FOR RELATED PARTNERSHIPS.—For purposes of applying subsection (a)(2)(B)(ii) to the acquisition of
a trade or business of a domestic partnership, except as provided in regulations, all partnerships which are under common
control (within the meaning of section 482) shall be treated
as 1 partnership.
‘‘(6) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to determine whether a
corporation is a surrogate foreign corporation, including
regulations—
‘‘(A) to treat warrants, options, contracts to acquire
stock, convertible debt interests, and other similar interests
as stock, and
‘‘(B) to treat stock as not stock.
‘‘(d) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) APPLICABLE PERIOD.—The term ‘applicable period’
means the period—
‘‘(A) beginning on the first date properties are acquired
as part of the acquisition described in subsection
(a)(2)(B)(i), and
‘‘(B) ending on the date which is 10 years after the
last date properties are acquired as part of such acquisition.
‘‘(2) INVERSION GAIN.—The term ‘inversion gain’ means the
income or gain recognized by reason of the transfer during
the applicable period of stock or other properties by an expatriated entity, and any income received or accrued during the
applicable period by reason of a license of any property by
an expatriated entity—
‘‘(A) as part of the acquisition described in subsection
(a)(2)(B)(i), or
‘‘(B) after such acquisition if the transfer or license
is to a foreign related person.
Subparagraph (B) shall not apply to property described in section 1221(a)(1) in the hands of the expatriated entity.
‘‘(3) FOREIGN RELATED PERSON.—The term ‘foreign related
person’ means, with respect to any expatriated entity, a foreign
person which—
‘‘(A) is related (within the meaning of section 267(b)
or 707(b)(1)) to such entity, or
‘‘(B) is under the same common control (within the
meaning of section 482) as such entity.
‘‘(e) SPECIAL RULES.—
‘‘(1) CREDITS NOT ALLOWED AGAINST TAX ON INVERSION
GAIN.—Credits (other than the credit allowed by section 901)
shall be allowed against the tax imposed by this chapter on
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00148
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1565
an expatriated entity for any taxable year described in subsection (a) only to the extent such tax exceeds the product
of—
‘‘(A) the amount of the inversion gain for the taxable
year, and
‘‘(B) the highest rate of tax specified in section 11(b)(1).
For purposes of determining the credit allowed by section 901,
inversion gain shall be treated as from sources within the
United States.
‘‘(2) SPECIAL RULES FOR PARTNERSHIPS.—In the case of an
expatriated entity which is a partnership—
‘‘(A) subsection (a)(1) shall apply at the partner rather
than the partnership level,
‘‘(B) the inversion gain of any partner for any taxable
year shall be equal to the sum of—
‘‘(i) the partner’s distributive share of inversion
gain of the partnership for such taxable year, plus
‘‘(ii) gain recognized for the taxable year by the
partner by reason of the transfer during the applicable
period of any partnership interest of the partner in
such partnership to the surrogate foreign corporation,
and
‘‘(C) the highest rate of tax specified in the rate
schedule applicable to the partner under this chapter shall
be substituted for the rate of tax referred to in paragraph
(1).
‘‘(3) COORDINATION WITH SECTION 172 AND MINIMUM TAX.—
Rules similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of subsection (a).
‘‘(4) STATUTE OF LIMITATIONS.—
‘‘(A) IN GENERAL.—The statutory period for the assessment of any deficiency attributable to the inversion gain
of any taxpayer for any pre-inversion year shall not expire
before the expiration of 3 years from the date the Secretary
is notified by the taxpayer (in such manner as the Secretary
may prescribe) of the acquisition described in subsection
(a)(2)(B)(i) to which such gain relates and such deficiency
may be assessed before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
‘‘(B) PRE-INVERSION YEAR.—For purposes of subparagraph (A), the term ‘pre-inversion year’ means any taxable
year if—
‘‘(i) any portion of the applicable period is included
in such taxable year, and
‘‘(ii) such year ends before the taxable year in
which the acquisition described in subsection
(a)(2)(B)(i) is completed.
‘‘(f) SPECIAL RULE FOR TREATIES.—Nothing in section 894 or
7852(d) or in any other provision of law shall be construed as
permitting an exemption, by reason of any treaty obligation of
the United States heretofore or hereafter entered into, from the
provisions of this section.
‘‘(g) REGULATIONS.—The Secretary shall provide such regulations as are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00149
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1566
PUBLIC LAW 108–357—OCT. 22, 2004
as are necessary to prevent the avoidance of the purposes of this
section, including the avoidance of such purposes through—
‘‘(1) the use of related persons, pass-through or other noncorporate entities, or other intermediaries, or
‘‘(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.’’.
(b) CONFORMING AMENDMENT.—The table of sections for subchapter C of chapter 80 is amended by adding at the end the
following new item:
‘‘Sec. 7874. Rules relating to expatriated entities and their foreign parents.’’.
26 USC 7874
note.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after March 4, 2003.
SEC. 802. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN
EXPATRIATED CORPORATIONS.
(a) IN GENERAL.—Subtitle D is amended by inserting after
chapter 44 end the following new chapter:
‘‘CHAPTER 45—PROVISIONS RELATING TO
EXPATRIATED ENTITIES
‘‘Sec. 4985. Stock compensation of insiders in expatriated corporations.
‘‘SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPATRIATED
CORPORATIONS.
‘‘(a) IMPOSITION OF TAX.—In the case of an individual who
is a disqualified individual with respect to any expatriated corporation, there is hereby imposed on such person a tax equal to—
‘‘(1) the rate of tax specified in section 1(h)(1)(C), multiplied
by
‘‘(2) the value (determined under subsection (b)) of the
specified stock compensation held (directly or indirectly) by
or for the benefit of such individual or a member of such
individual’s family (as defined in section 267) at any time
during the 12-month period beginning on the date which is
6 months before the expatriation date.
‘‘(b) VALUE.—For purposes of subsection (a)—
‘‘(1) IN GENERAL.—The value of specified stock compensation shall be—
‘‘(A) in the case of a stock option (or other similar
right) or a stock appreciation right, the fair value of such
option or right, and
‘‘(B) in any other case, the fair market value of such
compensation.
‘‘(2) DATE FOR DETERMINING VALUE.—The determination
of value shall be made—
‘‘(A) in the case of specified stock compensation held
on the expatriation date, on such date,
‘‘(B) in the case of such compensation which is canceled
during the 6 months before the expatriation date, on the
day before such cancellation, and
‘‘(C) in the case of such compensation which is granted
after the expatriation date, on the date such compensation
is granted.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00150
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1567
‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN RECOGNIZED.—
Subsection (a) shall apply to any disqualified individual with respect
to an expatriated corporation only if gain (if any) on any stock
in such corporation is recognized in whole or part by any shareholder by reason of the acquisition referred to in section
7874(a)(2)(B)(i) with respect to such corporation.
‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON COMPENSATION.—
Subsection (a) shall not apply to—
‘‘(1) any stock option which is exercised on the expatriation
date or during the 6-month period before such date and to
the stock acquired in such exercise, if income is recognized
under section 83 on or before the expatriation date with respect
to the stock acquired pursuant to such exercise, and
‘‘(2) any other specified stock compensation which is exercised, sold, exchanged, distributed, cashed-out, or otherwise
paid during such period in a transaction in which income,
gain, or loss is recognized in full.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) DISQUALIFIED INDIVIDUAL.—The term ‘disqualified individual’ means, with respect to a corporation, any individual
who, at any time during the 12-month period beginning on
the date which is 6 months before the expatriation date—
‘‘(A) is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect to
such corporation or any member of the expanded affiliated
group which includes such corporation, or
‘‘(B) would be subject to such requirements if such
corporation or member were an issuer of equity securities
referred to in such section.
‘‘(2) EXPATRIATED CORPORATION; EXPATRIATION DATE.—
‘‘(A) EXPATRIATED CORPORATION.—The term ‘expatriated corporation’ means any corporation which is an
expatriated entity (as defined in section 7874(a)(2)). Such
term includes any predecessor or successor of such a corporation.
‘‘(B) EXPATRIATION DATE.—The term ‘expatriation date’
means, with respect to a corporation, the date on which
the corporation first becomes an expatriated corporation.
‘‘(3) SPECIFIED STOCK COMPENSATION.—
‘‘(A) IN GENERAL.—The term ‘specified stock compensation’ means payment (or right to payment) granted by
the expatriated corporation (or by any member of the
expanded affiliated group which includes such corporation)
to any person in connection with the performance of services by a disqualified individual for such corporation or
member if the value of such payment or right is based
on (or determined by reference to) the value (or change
in value) of stock in such corporation (or any such member).
‘‘(B) EXCEPTIONS.—Such term shall not include—
‘‘(i) any option to which part II of subchapter D
of chapter 1 applies, or
‘‘(ii) any payment or right to payment from a plan
referred to in section 280G(b)(6).
‘‘(4) EXPANDED AFFILIATED GROUP.—The term ‘expanded
affiliated group’ means an affiliated group (as defined in section
1504(a) without regard to section 1504(b)(3)); except that section
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00151
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1568
PUBLIC LAW 108–357—OCT. 22, 2004
1504(a) shall be applied by substituting ‘more than 50 percent’
for ‘at least 80 percent’ each place it appears.
‘‘(f) SPECIAL RULES.—For purposes of this section—
‘‘(1) CANCELLATION OF RESTRICTION.—The cancellation of
a restriction which by its terms will never lapse shall be treated
as a grant.
‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY CORPORATION
TREATED AS SPECIFIED STOCK COMPENSATION.—Any payment
of the tax imposed by this section directly or indirectly by
the expatriated corporation or by any member of the expanded
affiliated group which includes such corporation—
‘‘(A) shall be treated as specified stock compensation,
and
‘‘(B) shall not be allowed as a deduction under any
provision of chapter 1.
‘‘(3) CERTAIN RESTRICTIONS IGNORED.—Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
‘‘(4) PROPERTY TRANSFERS.—Any transfer of property shall
be treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
‘‘(5) OTHER ADMINISTRATIVE PROVISIONS.—For purposes of
subtitle F, any tax imposed by this section shall be treated
as a tax imposed by subtitle A.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes
of this section.’’.
(b) DENIAL OF DEDUCTION.—
(1) IN GENERAL.—Paragraph (6) of section 275(a) is
amended by inserting ‘‘45,’’ before ‘‘46,’’.
(2) $1,000,000 limit on deductible compensation reduced
by payment of excise tax on specified stock compensation.—
Paragraph (4) of section 162(m) is amended by adding at the
end the following new subparagraph:
‘‘(G) COORDINATION WITH EXCISE TAX ON SPECIFIED
STOCK COMPENSATION.—The dollar limitation contained in
paragraph (1) with respect to any covered employee shall
be reduced (but not below zero) by the amount of any
payment (with respect to such employee) of the tax imposed
by section 4985 directly or indirectly by the expatriated
corporation (as defined in such section) or by any member
of the expanded affiliated group (as defined in such section)
which includes such corporation.’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ‘‘or to any specified stock compensation (as defined in section 4985) on which tax is imposed
by section 4985’’.
(2) The table of chapters for subtitle D is amended by
inserting after the item relating to chapter 44 the following
new item:
‘‘Chapter 45. Provisions relating to expatriated entities.’’.
26 USC 4985
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect on March 4, 2003; except that periods before
such date shall not be taken into account in applying the periods
Jkt 039139
PO 00357
Frm 00152
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1569
in subsections (a) and (e)(1) of section 4985 of the Internal Revenue
Code of 1986, as added by this section.
SEC. 803. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.
(a) IN GENERAL.—Section 845(a) (relating to allocation in case
of reinsurance agreement involving tax avoidance or evasion) is
amended by striking ‘‘source and character’’ and inserting ‘‘amount,
source, or character’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to any risk reinsured after the date of the enactment
of this Act.
26 USC 845 note.
SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) EXPATRIATION TO AVOID TAX.—
(1) IN GENERAL.—Subsection (a) of section 877 (relating
to treatment of expatriates) is amended to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien individual to
whom this section applies and who, within the 10-year period
immediately preceding the close of the taxable year, lost United
States citizenship shall be taxable for such taxable year in
the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under
the last sentence of such subsection) exceeds the tax which,
without regard to this section, is imposed pursuant to section
871.
‘‘(2) INDIVIDUALS SUBJECT TO THIS SECTION.—This section
shall apply to any individual if—
‘‘(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period of
5 taxable years ending before the date of the loss of United
States citizenship is greater than $124,000,
‘‘(B) the net worth of the individual as of such date
is $2,000,000 or more, or
‘‘(C) such individual fails to certify under penalty of
perjury that he has met the requirements of this title
for the 5 preceding taxable years or fails to submit such
evidence of such compliance as the Secretary may require.
In the case of the loss of United States citizenship in any
calendar year after 2004, such $124,000 amount shall be
increased by an amount equal to such dollar amount multiplied
by the cost-of-living adjustment determined under section 1(f)(3)
for such calendar year by substituting ‘2003’ for ‘1992’ in
subparagraph (B) thereof. Any increase under the preceding
sentence shall be rounded to the nearest multiple of $1,000.’’.
(2) REVISION OF EXCEPTIONS FROM ALTERNATIVE TAX.—Subsection (c) of section 877 (relating to tax avoidance not presumed in certain cases) is amended to read as follows:
‘‘(c) EXCEPTIONS.—
‘‘(1) IN GENERAL.—Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph
(2) or (3).
‘‘(2) DUAL CITIZENS.—
‘‘(A) IN GENERAL.—An individual is described in this
paragraph if—
‘‘(i) the individual became at birth a citizen of
the United States and a citizen of another country
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00153
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1570
PUBLIC LAW 108–357—OCT. 22, 2004
and continues to be a citizen of such other country,
and
‘‘(ii) the individual has had no substantial contacts
with the United States.
‘‘(B) SUBSTANTIAL CONTACTS.—An individual shall be
treated as having no substantial contacts with the United
States only if the individual—
‘‘(i) was never a resident of the United States
(as defined in section 7701(b)),
‘‘(ii) has never held a United States passport, and
‘‘(iii) was not present in the United States for
more than 30 days during any calendar year which
is 1 of the 10 calendar years preceding the individual’s
loss of United States citizenship.
‘‘(3) CERTAIN MINORS.—An individual is described in this
paragraph if—
‘‘(A) the individual became at birth a citizen of the
United States,
‘‘(B) neither parent of such individual was a citizen
of the United States at the time of such birth,
‘‘(C) the individual’s loss of United States citizenship
occurs before such individual attains age 181⁄2, and
‘‘(D) the individual was not present in the United
States for more than 30 days during any calendar year
which is 1 of the 10 calendar years preceding the individual’s loss of United States citizenship.’’.
(3) CONFORMING AMENDMENT.—Section 2107(a) is amended
to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—A tax computed in accordance with the table contained in section 2001 is hereby imposed
on the transfer of the taxable estate, determined as provided in
section 2106, of every decedent nonresident not a citizen of the
United States if the date of death occurs during a taxable year
with respect to which the decedent is subject to tax under section
877(b).’’.
(b) SPECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
IS NO LONGER A UNITED STATES CITIZEN OR LONG-TERM RESIDENT.—Section 7701 (relating to definitions) is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
‘‘(n) SPECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
IS NO LONGER A UNITED STATES CITIZEN OR LONG-TERM RESIDENT.—An individual who would (but for this subsection) cease
to be treated as a citizen or resident of the United States shall
continue to be treated as a citizen or resident of the United States,
as the case may be, until such individual—
‘‘(1) gives notice of an expatriating act or termination of
residency (with the requisite intent to relinquish citizenship
or terminate residency) to the Secretary of State or the Secretary of Homeland Security, and
‘‘(2) provides a statement in accordance with section
6039G.’’.
(c) PHYSICAL PRESENCE IN THE UNITED STATES FOR MORE THAN
30 DAYS.—Section 877 (relating to expatriation to avoid tax) is
amended by adding at the end the following new subsection:
‘‘(g) PHYSICAL PRESENCE.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00154
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1571
‘‘(1) IN GENERAL.—This section shall not apply to any individual to whom this section would otherwise apply for any
taxable year during the 10-year period referred to in subsection
(a) in which such individual is physically present in the United
States at any time on more than 30 days in the calendar
year ending in such taxable year, and such individual shall
be treated for purposes of this title as a citizen or resident
of the United States, as the case may be, for such taxable
year.
‘‘(2) EXCEPTION.—
‘‘(A) IN GENERAL.—In the case of an individual
described in any of the following subparagraphs of this
paragraph, a day of physical presence in the United States
shall be disregarded if the individual is performing services
in the United States on such day for an employer. The
preceding sentence shall not apply if—
‘‘(i) such employer is related (within the meaning
of section 267 and 707) to such individual, or
‘‘(ii) such employer fails to meet such requirements
as the Secretary may prescribe by regulations to prevent the avoidance of the purposes of this paragraph.
Not more than 30 days during any calendar year may
be disregarded under this subparagraph.
‘‘(B) INDIVIDUALS WITH TIES TO OTHER COUNTRIES.—
An individual is described in this subparagraph if—
‘‘(i) the individual becomes (not later than the close
of a reasonable period after loss of United States citizenship or termination of residency) a citizen or resident of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is married, such individual’s spouse was born, or
‘‘(III) either of such individual’s parents were
born, and
‘‘(ii) the individual becomes fully liable for income
tax in such country.
‘‘(C) MINIMAL PRIOR PHYSICAL PRESENCE IN THE UNITED
STATES.—An individual is described in this subparagraph
if, for each year in the 10-year period ending on the date
of loss of United States citizenship or termination of residency, the individual was physically present in the United
States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this subparagraph.’’.
(d) TRANSFERS SUBJECT TO GIFT TAX.—
(1) IN GENERAL.—Subsection (a) of section 2501 (relating
to taxable transfers) is amended by striking paragraph (4),
by redesignating paragraph (5) as paragraph (4), and by
striking paragraph (3) and inserting the following new paragraph:
‘‘(3) EXCEPTION.—
‘‘(A) CERTAIN INDIVIDUALS.—Paragraph (2) shall not
apply in the case of a donor to whom section 877(b) applies
for the taxable year which includes the date of the transfer.
‘‘(B) CREDIT FOR FOREIGN GIFT TAXES.—The tax
imposed by this section solely by reason of this paragraph
shall be credited with the amount of any gift tax actually
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00155
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1572
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
paid to any foreign country in respect of any gift which
is taxable under this section solely by reason of this paragraph.’’.
(2) TRANSFERS OF CERTAIN STOCK.—Subsection (a) of section
2501 is amended by adding at the end the following new paragraph:
‘‘(5) TRANSFERS OF CERTAIN STOCK.—
‘‘(A) IN GENERAL.—In the case of a transfer of stock
in a foreign corporation described in subparagraph (B) by
a donor to whom section 877(b) applies for the taxable
year which includes the date of the transfer—
‘‘(i) section 2511(a) shall be applied without regard
to whether such stock is situated within the United
States, and
‘‘(ii) the value of such stock for purposes of this
chapter shall be its U.S.-asset value determined under
subparagraph (C).
‘‘(B) FOREIGN CORPORATION DESCRIBED.—A foreign corporation is described in this subparagraph with respect
to a donor if—
‘‘(i) the donor owned (within the meaning of section
958(a)) at the time of such transfer 10 percent or
more of the total combined voting power of all classes
of stock entitled to vote of the foreign corporation,
and
‘‘(ii) such donor owned (within the meaning of section 958(a)), or is considered to have owned (by
applying the ownership rules of section 958(b)), at the
time of such transfer, more than 50 percent of—
‘‘(I) the total combined voting power of all
classes of stock entitled to vote of such corporation,
or
‘‘(II) the total value of the stock of such corporation.
‘‘(C) U.S.-ASSET VALUE.—For purposes of subparagraph
(A), the U.S.-asset value of stock shall be the amount
which bears the same ratio to the fair market value of
such stock at the time of transfer as—
‘‘(i) the fair market value (at such time) of the
assets owned by such foreign corporation and situated
in the United States, bears to
‘‘(ii) the total fair market value (at such time)
of all assets owned by such foreign corporation.’’.
(e) ENHANCED INFORMATION REPORTING FROM INDIVIDUALS
LOSING UNITED STATES CITIZENSHIP.—
(1) IN GENERAL.—Subsection (a) of section 6039G is
amended to read as follows:
‘‘(a) IN GENERAL.—Notwithstanding any other provision of law,
any individual to whom section 877(b) applies for any taxable
year shall provide a statement for such taxable year which includes
the information described in subsection (b).’’.
(2) INFORMATION TO BE PROVIDED.—Subsection (b) of section
6039G is amended to read as follows:
‘‘(b) INFORMATION TO BE PROVIDED.—Information required
under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,
Jkt 039139
PO 00357
Frm 00156
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1573
‘‘(2) the mailing address of such individual’s principal foreign residence,
‘‘(3) the foreign country in which such individual is residing,
‘‘(4) the foreign country of which such individual is a citizen,
‘‘(5) information detailing the income, assets, and liabilities
of such individual,
‘‘(6) the number of days during any portion of which that
the individual was physically present in the United States
during the taxable year, and
‘‘(7) such other information as the Secretary may prescribe.’’.
(3) INCREASE IN PENALTY.—Subsection (d) of section 6039G
is amended to read as follows:
‘‘(d) PENALTY.—If—
‘‘(1) an individual is required to file a statement under
subsection (a) for any taxable year, and
‘‘(2) fails to file such a statement with the Secretary on
or before the date such statement is required to be filed or
fails to include all the information required to be shown on
the statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown
that such failure is due to reasonable cause and not to willful
neglect.’’.
(4) CONFORMING AMENDMENT.—Section 6039G is amended
by striking subsections (c), (f), and (g) and by redesignating
subsections (d) and (e) as subsection (c) and (d), respectively.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to individuals who expatriate after June 3, 2004.
26 USC 877 note.
SEC. 805. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) IN GENERAL.—Subpart B of part III of subchapter A of
chapter 61 is amended by inserting after section 6043 the following
new section:
‘‘SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISITIONS.
‘‘(a) IN GENERAL.—According to the forms or regulations prescribed by the Secretary, the acquiring corporation in any taxable
acquisition shall make a return setting forth—
‘‘(1) a description of the acquisition,
‘‘(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)
as a result of the acquisition,
‘‘(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part
of such acquisition, and
‘‘(4) such other information as the Secretary may prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable
to the acquired corporation and not to the acquiring corporation.
‘‘(b) NOMINEES.—According to the forms or regulations prescribed by the Secretary:
‘‘(1) REPORTING.—Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by
the Secretary to such other person the information provided
by the corporation under subsection (d).
‘‘(2) REPORTING TO NOMINEES.—In the case of stock held
by any person as a nominee, references in this section (other
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00157
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1574
PUBLIC LAW 108–357—OCT. 22, 2004
than in subsection (c)) to a shareholder shall be treated as
a reference to the nominee.
‘‘(c) TAXABLE ACQUISITION.—For purposes of this section, the
term ‘taxable acquisition’ means any acquisition by a corporation
of stock in or property of another corporation if any shareholder
of the acquired corporation is required to recognize gain (if any)
as a result of such acquisition.
‘‘(d) STATEMENTS TO BE FURNISHED TO SHAREHOLDERS.—
According to the forms or regulations prescribed by the Secretary,
every person required to make a return under subsection (a) shall
furnish to each shareholder whose name is required to be set
forth in such return a written statement showing—
‘‘(1) the name, address, and phone number of the information contact of the person required to make such return,
‘‘(2) the information required to be shown on such return
with respect to such shareholder, and
‘‘(3) such other information as the Secretary may prescribe.
The written statement required under the preceding sentence shall
be furnished to the shareholder on or before January 31 of the
year following the calendar year during which the taxable acquisition occurred.’’.
(b) ASSESSABLE PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through
(xviii) as clauses (iii) through (xix), respectively, and by
inserting after clause (i) the following new clause:
‘‘(ii) section 6043A(a) (relating to returns relating
to taxable mergers and acquisitions),’’.
(2) Paragraph (2) of section 6724(d) is amended by redesignating subparagraphs (F) through (BB) as subparagraphs (G)
through (CC), respectively, and by inserting after subparagraph
(E) the following new subparagraph:
‘‘(F) subsections (b) and (d) of section 6043A (relating
to returns relating to taxable mergers and acquisitions).’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart
B of part III of subchapter A of chapter 61 is amended by inserting
after the item relating to section 6043 the following new item:
‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’.
VerDate 11-MAY-2000
26 USC 6043A
note.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to acquisitions after the date of the enactment of this
Act.
Deadlines.
Reports.
SEC. 806. STUDIES.
05:51 Nov 20, 2004
(a) TRANSFER PRICING RULES.—The Secretary of the Treasury
or the Secretary’s delegate shall conduct a study regarding the
effectiveness of current transfer pricing rules and compliance efforts
in ensuring that cross-border transfers and other related-party
transactions, particularly transactions involving intangible assets,
service contracts, or leases cannot be used improperly to shift
income out of the United States. The study shall include a review
of the contemporaneous documentation and penalty rules under
section 6662 of the Internal Revenue Code of 1986, a review of
the regulatory and administrative guidance implementing the principles of section 482 of such Code to transactions involving intangible property and services and to cost-sharing arrangements, and
an examination of whether increased disclosure of cross-border
transactions should be required. The study shall set forth specific
Jkt 039139
PO 00357
Frm 00158
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1575
recommendations to address all abuses identified in the study.
Not later than June 30, 2005, such Secretary or delegate shall
submit to the Congress a report of such study.
(b) INCOME TAX TREATIES.—The Secretary of the Treasury or
the Secretary’s delegate shall conduct a study of United States
income tax treaties to identify any inappropriate reductions in
United States withholding tax that provide opportunities for shifting
income out of the United States, and to evaluate whether existing
anti-abuse mechanisms are operating properly. The study shall
include specific recommendations to address all inappropriate uses
of tax treaties. Not later than June 30, 2005, such Secretary or
delegate shall submit to the Congress a report of such study.
(c) EFFECTIVENESS OF CORPORATE EXPATRIATION PROVISIONS.—
The Secretary of the Treasury or the Secretary’s delegate shall
conduct a study of the effectiveness of the provisions of this title
on corporate expatriation. The study shall include such recommendations as such Secretary or delegate may have to improve
the effectiveness of such provisions in carrying out the purposes
of this title. Not later than December 31, 2006, such Secretary
or delegate shall submit to the Congress a report of such study.
Subtitle B—Provisions Relating to Tax
Shelters
Part I—Taxpayer-Related Provisions
SEC. 811. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Part I of subchapter B of chapter 68 (relating
to assessable penalties) is amended by inserting after section 6707
the following new section:
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE
TRANSACTION INFORMATION WITH RETURN.
‘‘(a) IMPOSITION OF PENALTY.—Any person who fails to include
on any return or statement any information with respect to a
reportable transaction which is required under section 6011 to
be included with such return or statement shall pay a penalty
in the amount determined under subsection (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the amount of the penalty under subsection (a) shall be—
‘‘(A) $10,000 in the case of a natural person, and
‘‘(B) $50,000 in any other case.
‘‘(2) LISTED TRANSACTION.—The amount of the penalty
under subsection (a) with respect to a listed transaction shall
be—
‘‘(A) $100,000 in the case of a natural person, and
‘‘(B) $200,000 in any other case.
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) REPORTABLE TRANSACTION.—The term ‘reportable
transaction’ means any transaction with respect to which
information is required to be included with a return or statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00159
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1576
PUBLIC LAW 108–357—OCT. 22, 2004
Secretary determines as having a potential for tax avoidance
or evasion.
‘‘(2) LISTED TRANSACTION.—The term ‘listed transaction’
means a reportable transaction which is the same as, or
substantially similar to, a transaction specifically identified
by the Secretary as a tax avoidance transaction for purposes
of section 6011.
‘‘(d) AUTHORITY TO RESCIND PENALTY.—
‘‘(1) IN GENERAL.—The Commissioner of Internal Revenue
may rescind all or any portion of any penalty imposed by
this section with respect to any violation if—
‘‘(A) the violation is with respect to a reportable transaction other than a listed transaction, and
‘‘(B) rescinding the penalty would promote compliance
with the requirements of this title and effective tax
administration.
‘‘(2) NO JUDICIAL APPEAL.—Notwithstanding any other
provision of law, any determination under this subsection may
not be reviewed in any judicial proceeding.
‘‘(3) RECORDS.—If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office
of the Commissioner the opinion of the Commissioner with
respect to the determination, including—
‘‘(A) a statement of the facts and circumstances relating
to the violation,
‘‘(B) the reasons for the rescission, and
‘‘(C) the amount of the penalty rescinded.
‘‘(e) PENALTY REPORTED TO SEC.—In the case of a person—
‘‘(1) which is required to file periodic reports under section
13 or 15(d) of the Securities Exchange Act of 1934 or is required
to be consolidated with another person for purposes of such
reports, and
‘‘(2) which—
‘‘(A) is required to pay a penalty under this section
with respect to a listed transaction,
‘‘(B) is required to pay a penalty under section 6662A
with respect to any reportable transaction at a rate prescribed under section 6662A(c), or
‘‘(C) is required to pay a penalty under section 6662(h)
with respect to any reportable 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),
the requirement to pay such penalty shall be disclosed in such
reports filed by such person for such periods as the Secretary
shall specify. Failure to make a disclosure in accordance with the
preceding sentence shall be treated as a failure to which the penalty
under subsection (b)(2) applies.
‘‘(f) COORDINATION WITH OTHER PENALTIES.—The penalty
imposed by this section shall be in addition to any other penalty
imposed by this title.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00160
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1577
(b) CONFORMING AMENDMENT.—The table of sections for part
I of subchapter B of chapter 68 is amended by inserting after
the item relating to section 6707 the following:
‘‘Sec. 6707A. Penalty for failure to include reportable transaction information with return.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns and statements the due date for which
is after the date of the enactment of this Act.
(d) REPORT.—The Commissioner of Internal Revenue shall
annually report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance of the
Senate—
(1) a summary of the total number and aggregate amount
of penalties imposed, and rescinded, under section 6707A of
the Internal Revenue Code of 1986, and
(2) a description of each penalty rescinded under section
6707(c) of such Code and the reasons therefor.
26 USC 6707A
note.
26 USC 6707A
note.
SEC. 812. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS,
OTHER REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX AVOIDANCE PURPOSE, ETC.
(a) IN GENERAL.—Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
‘‘SEC.
6662A.
IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERSTATEMENTS WITH RESPECT TO REPORTABLE
TRANSACTIONS.
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be
added to the tax an amount equal to 20 percent of the amount
of such understatement.
‘‘(b) REPORTABLE TRANSACTION UNDERSTATEMENT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘reportable transaction understatement’ means the sum of—
‘‘(A) the product of—
‘‘(i) the amount of the increase (if any) in taxable
income which results from a difference between the
proper tax treatment of an item to which this section
applies and the taxpayer’s treatment of such item (as
shown on the taxpayer’s return of tax), and
‘‘(ii) the highest rate of tax imposed by section
1 (section 11 in the case of a taxpayer which is a
corporation), and
‘‘(B) the amount of the decrease (if any) in the aggregate amount of credits determined under subtitle A which
results from a difference between the taxpayer’s treatment
of an item to which this section applies (as shown on
the taxpayer’s return of tax) and the proper tax treatment
of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable income.
‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This section shall
apply to any item which is attributable to—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00161
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1578
Applicability.
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) any listed transaction, and
‘‘(B) any reportable transaction (other than a listed
transaction) if a significant purpose of such transaction
is the avoidance or evasion of Federal income tax.
‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED AND OTHER
AVOIDANCE TRANSACTIONS.—Subsection (a) shall be applied by substituting ‘30 percent’ for ‘20 percent’ with respect to the portion
of any reportable transaction understatement with respect to which
the requirement of section 6664(d)(2)(A) is not met.
‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED TRANSACTIONS.—
For purposes of this section, the terms ‘reportable transaction’ and
‘listed transaction’ have the respective meanings given to such
terms by section 6707A(c).
‘‘(e) SPECIAL RULES.—
‘‘(1) COORDINATION WITH PENALTIES, ETC., ON OTHER UNDERSTATEMENTS.—In the case of an understatement (as defined
in section 6662(d)(2))—
‘‘(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction understatements for purposes of determining whether such understatement is a substantial understatement under section
6662(d)(1), and
‘‘(B) the addition to tax under section 6662(a) shall
apply only to the excess of the amount of the substantial
understatement (if any) after the application of subparagraph (A) over the aggregate amount of reportable transaction understatements.
‘‘(2) COORDINATION WITH OTHER PENALTIES.—
‘‘(A) APPLICATION OF FRAUD PENALTY.—References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction understatement.
‘‘(B) NO DOUBLE PENALTY.—This section shall not apply
to any portion of an understatement on which a penalty
is imposed under section 6663.
‘‘(C) COORDINATION WITH VALUATION PENALTIES.—
‘‘(i) SECTION 6662(e).—Section 6662(e) shall not
apply to any portion of an understatement on which
a penalty is imposed under this section.
‘‘(ii) SECTION 6662(h).—This section shall not apply
to any portion of an understatement on which a penalty
is imposed under section 6662(h).
‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—Except as provided in regulations, in no event shall any tax treatment
included with an amendment or supplement to a return of
tax be taken into account in determining the amount of any
reportable transaction understatement if the amendment or
supplement is filed after the earlier of the date the taxpayer
is first contacted by the Secretary regarding the examination
of the return or such other date as is specified by the Secretary.’’.
(b) DETERMINATION OF OTHER UNDERSTATEMENTS.—Subparagraph (A) of section 6662(d)(2) is amended by adding at the end
the following flush sentence:
Jkt 039139
PO 00357
Frm 00162
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1579
‘‘The excess under the preceding sentence shall be determined without regard to items to which section 6662A
applies.’’.
(c) REASONABLE CAUSE EXCEPTION.—
(1) IN GENERAL.—Section 6664 is amended by adding at
the end the following new subsection:
‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANSACTION UNDERSTATEMENTS.—
‘‘(1) IN GENERAL.—No penalty shall be imposed under section 6662A with respect to any portion of a reportable transaction understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in
good faith with respect to such portion.
‘‘(2) SPECIAL RULES.—Paragraph (1) shall not apply to any
reportable transaction understatement unless—
‘‘(A) the relevant facts affecting the tax treatment of
the item are adequately disclosed in accordance with the
regulations prescribed under section 6011,
‘‘(B) there is or was substantial authority for such
treatment, and
‘‘(C) the taxpayer reasonably believed that such treatment was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements
of subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
‘‘(3) RULES RELATING TO REASONABLE BELIEF.—For purposes
of paragraph (2)(C)—
‘‘(A) IN GENERAL.—A taxpayer shall be treated as
having a reasonable belief with respect to the tax treatment
of an item only if such belief—
‘‘(i) is based on the facts and law that exist at
the time the return of tax which includes such tax
treatment is filed, and
‘‘(ii) relates solely to the taxpayer’s chances of success on the merits of such treatment and does not
take into account the possibility that a return will
not be audited, such treatment will not be raised on
audit, or such treatment will be resolved through
settlement if it is raised.
‘‘(B) CERTAIN OPINIONS MAY NOT BE RELIED UPON.—
‘‘(i) IN GENERAL.—An opinion of a tax advisor may
not be relied upon to establish the reasonable belief
of a taxpayer if—
‘‘(I) the tax advisor is described in clause (ii),
or
‘‘(II) the opinion is described in clause (iii).
‘‘(ii) DISQUALIFIED TAX ADVISORS.—A tax advisor
is described in this clause if the tax advisor—
‘‘(I) is a material advisor (within the meaning
of section 6111(b)(1)) and participates in the
organization, management, promotion, or sale of
the transaction or is related (within the meaning
of section 267(b) or 707(b)(1)) to any person who
so participates,
‘‘(II) is compensated directly or indirectly by
a material advisor with respect to the transaction,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00163
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1580
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(III) has a fee arrangement with respect to
the transaction which is contingent on all or part
of the intended tax benefits from the transaction
being sustained, or
‘‘(IV) as determined under regulations prescribed by the Secretary, has a disqualifying financial interest with respect to the transaction.
‘‘(iii) DISQUALIFIED OPINIONS.—For purposes of
clause (i), an opinion is disqualified if the opinion—
‘‘(I) is based on unreasonable factual or legal
assumptions (including assumptions as to future
events),
‘‘(II) unreasonably relies on representations,
statements, findings, or agreements of the taxpayer or any other person,
‘‘(III) does not identify and consider all relevant facts, or
‘‘(IV) fails to meet any other requirement as
the Secretary may prescribe.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 6664(c) is amended by
striking ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.
(B) The heading for subsection (c) of section 6664 is
amended by inserting ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’.
(d) REDUCTION IN PENALTY FOR SUBSTANTIAL UNDERSTATEMENT
OF INCOME TAX NOT TO APPLY TO TAX SHELTERS.—Subparagraph
(C) of section 6662(d)(2) (relating to substantial understatement
of income tax) is amended to read as follows:
‘‘(C) REDUCTION NOT TO APPLY TO TAX SHELTERS.—
‘‘(i) IN GENERAL.—Subparagraph (B) shall not
apply to any item attributable to a tax shelter.
‘‘(ii) TAX SHELTER.—For purposes of clause (i), the
term ‘tax shelter’ means—
‘‘(I) a partnership or other entity,
‘‘(II) any investment plan or arrangement, or
‘‘(III) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.’’.
(e) CLERICAL AMENDMENTS.—
(1) The heading for section 6662 is amended to read as
follows:
‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.’’.
(2) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements
with respect to reportable transactions.’’.
26 USC 6662
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
Jkt 039139
PO 00357
Frm 00164
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1581
SEC. 813. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES
RELATING TO TAXPAYER COMMUNICATIONS.
(a) IN GENERAL.—Section 7525(b) (relating to section not to
apply to communications regarding corporate tax shelters) is
amended to read as follows:
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS REGARDING
TAX SHELTERS.—The privilege under subsection (a) shall not apply
to any written communication which is—
‘‘(1) between a federally authorized tax practitioner and—
‘‘(A) any person,
‘‘(B) any director, officer, employee, agent, or representative of the person, or
‘‘(C) any other person holding a capital or profits
interest in the person, and
‘‘(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 6662(d)(2)(C)(ii)).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to communications made on or after the date of the
enactment of this Act.
26 USC 7525
note.
SEC. 814. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH
REQUIRED LISTED TRANSACTIONS NOT REPORTED.
(a) IN GENERAL.—Section 6501(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
‘‘(10) LISTED TRANSACTIONS.—If a taxpayer fails to include
on any return or statement for any taxable year any information
with respect to a listed transaction (as defined in section
6707A(c)(2)) which is required under section 6011 to be included
with such return or statement, the time for assessment of
any tax imposed by this title with respect to such transaction
shall not expire before the date which is 1 year after the
earlier of—
‘‘(A) the date on which the Secretary is furnished the
information so required, or
‘‘(B) the date that a material advisor (as defined in
section 6111) meets the requirements of section 6112 with
respect to a request by the Secretary under section 6112(b)
relating to such transaction with respect to such taxpayer.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years with respect to which the period for
assessing a deficiency did not expire before the date of the enactment of this Act.
26 USC 6501
note.
SEC. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth—
‘‘(1) information identifying and describing the transaction,
‘‘(2) information describing any potential tax benefits
expected to result from the transaction, and
‘‘(3) such other information as the Secretary may prescribe.
Such return shall be filed not later than the date specified by
the Secretary.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00165
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1582
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(b) DEFINITIONS.—For purposes of this section:
‘‘(1) MATERIAL ADVISOR.—
‘‘(A) IN GENERAL.—The term ‘material advisor’ means
any person—
‘‘(i) who provides any material aid, assistance, or
advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying
out any reportable transaction, and
‘‘(ii) who directly or indirectly derives gross income
in excess of the threshold amount (or such other
amount as may be prescribed by the Secretary) for
such advice or assistance.
‘‘(B) THRESHOLD AMOUNT.—For purposes of subparagraph (A), the threshold amount is—
‘‘(i) $50,000 in the case of a reportable transaction
substantially all of the tax benefits from which are
provided to natural persons, and
‘‘(ii) $250,000 in any other case.
‘‘(2) REPORTABLE TRANSACTION.—The term ‘reportable
transaction’ has the meaning given to such term by section
6707A(c).
‘‘(c) REGULATIONS.—The Secretary may prescribe regulations
which provide—
‘‘(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
‘‘(2) exemptions from the requirements of this section, and
‘‘(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CONFORMING AMENDMENTS.—(1) The item relating to section
6111 in the table of sections for subchapter B of chapter 61 is
amended to read as follows:
‘‘Sec. 6111. Disclosure of reportable transactions.’’.
(2) So much of section 6112 as precedes subsection (c) thereof
is amended to read as follows:
‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS
MUST KEEP LISTS OF ADVISEES, ETC.
‘‘(a) IN GENERAL.—Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in
section 6707A(c)) shall (whether or not required to file a return
under section 6111 with respect to such transaction) maintain (in
such manner as the Secretary may by regulations prescribe) a
list—
‘‘(1) identifying each person with respect to whom such
advisor acted as a material advisor with respect to such transaction, and
‘‘(2) containing such other information as the Secretary
may by regulations require.’’.
(3) Section 6112 is amended—
(A) by redesignating subsection (c) as subsection (b),
(B) by inserting ‘‘written’’ before ‘‘request’’ in subsection
(b)(1) (as so redesignated), and
(C) by striking ‘‘shall prescribe’’ in subsection (b)(2) (as
so redesignated) and inserting ‘‘may prescribe’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00166
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1583
(4) The item relating to section 6112 in the table of sections
for subchapter B of chapter 61 is amended to read as follows:
‘‘Sec. 6112. Material advisors of reportable transactions must keep lists of
advisees, etc.’’.
(5)(A) The heading for section 6708 is amended to read as
follows:
‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT
TO REPORTABLE TRANSACTIONS.’’
(B) The item relating to section 6708 in the table of sections
for part I of subchapter B of chapter 68 is amended to read as
follows:
‘‘Sec. 6708. Failure to maintain lists of advisees with respect to reportable
transactions.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions with respect to which material aid,
assistance, or advice referred to in section 6111(b)(1)(A)(i) of the
Internal Revenue Code of 1986 (as added by this section) is provided
after the date of the enactment of this Act.
26 USC 6111
note.
SEC. 816. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction—
‘‘(1) fails to file such return on or before the date prescribed
therefor, or
‘‘(2) files false or incomplete information with the Secretary
with respect to such transaction,
such person shall pay a penalty with respect to such return in
the amount determined under subsection (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
‘‘(2) LISTED TRANSACTIONS.—The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of—
‘‘(A) $200,000, or
‘‘(B) 50 percent of the gross income derived by such
person with respect to aid, assistance, or advice which
is provided with respect to the listed transaction before
the date the return is filed under section 6111.
Subparagraph (B) shall be applied by substituting ‘75 percent’
for ‘50 percent’ in the case of an intentional failure or act
described in subsection (a).
‘‘(c) RESCISSION AUTHORITY.—The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall
apply to any penalty imposed under this section.
‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—For purposes of
this section, the terms ‘reportable transaction’ and ‘listed transaction’ have the respective meanings given to such terms by section
6707A(c).’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00167
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1584
26 USC 6707
note.
PUBLIC LAW 108–357—OCT. 22, 2004
(b) CLERICAL AMENDMENT.—The item relating to section 6707
in the table of sections for part I of subchapter B of chapter
68 is amended by striking ‘‘tax shelters’’ and inserting ‘‘reportable
transactions’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns the due date for which is after the date
of the enactment of this Act.
SEC. 817. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN
LISTS OF INVESTORS.
Deadline.
26 USC 6708
note.
(a) IN GENERAL.—Subsection (a) of section 6708 is amended
to read as follows:
‘‘(a) IMPOSITION OF PENALTY.—
‘‘(1) IN GENERAL.—If any person who is required to maintain a list under section 6112(a) fails to make such list available
upon written request to the Secretary in accordance with section
6112(b) within 20 business days after the date of such request,
such person shall pay a penalty of $10,000 for each day of
such failure after such 20th day.
‘‘(2) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed by paragraph (1) with respect to the failure on any
day if such failure is due to reasonable cause.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to requests made after the date of the enactment of
this Act.
SEC. 818. PENALTY ON PROMOTERS OF TAX SHELTERS.
26 USC 6700
note.
(a) PENALTY ON PROMOTING ABUSIVE TAX SHELTERS.—Section
6700(a) is amended by adding at the end the following new sentence:
‘‘Notwithstanding the first sentence, if an activity with respect
to which a penalty imposed under this subsection involves a statement described in paragraph (2)(A), the amount of the penalty
shall be equal to 50 percent of the gross income derived (or to
be derived) from such activity by the person on which the penalty
is imposed.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to activities after the date of the enactment of this
Act.
SEC. 819. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR NONREPORTABLE TRANSACTIONS.
(a) SUBSTANTIAL UNDERSTATEMENT OF CORPORATIONS.—Section
6662(d)(1)(B) (relating to special rule for corporations) is amended
to read as follows:
‘‘(B) SPECIAL RULE FOR CORPORATIONS.—In the case
of a corporation other than an S corporation or a personal
holding company (as defined in section 542), there is a
substantial understatement of income tax for any taxable
year if the amount of the understatement for the taxable
year exceeds the lesser of—
‘‘(i) 10 percent of the tax required to be shown
on the return for the taxable year (or, if greater,
$10,000), or
‘‘(ii) $10,000,000.’’.
(b) SECRETARIAL LIST.—
(1) IN GENERAL.—Section 6662(d) is amended by adding
at the end the following new paragraph:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00168
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1585
‘‘(3) SECRETARIAL LIST.—The Secretary may prescribe a
list of positions which the Secretary believes do not meet the
1 or more of the standards specified in paragraph (2)(B)(i),
section 6664(d)(2), and section 6694(a)(1). Such list (and any
revisions thereof) shall be published in the Federal Register
or the Internal Revenue Bulletin.’’.
(2) CONFORMING AMENDMENT.—Paragraph (2) of section
6662(d) is amended by striking subparagraph (D).
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
Federal Register,
publication.
26 USC 6662
note.
SEC. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT
RELATED TO TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a)
and (b) and inserting the following new subsections:
‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil action in the
name of the United States to enjoin any person from further
engaging in specified conduct may be commenced at the request
of the Secretary. Any action under this section shall be brought
in the district court of the United States for the district in which
such person resides, has his principal place of business, or has
engaged in specified conduct. The court may exercise its jurisdiction
over such action (as provided in section 7402(a)) separate and
apart from any other action brought by the United States against
such person.
‘‘(b) ADJUDICATION AND DECREE.—In any action under subsection (a), if the court finds—
‘‘(1) that the person has engaged in any specified conduct,
and
‘‘(2) that injunctive relief is appropriate to prevent recurrence of such conduct,
the court may enjoin such person from engaging in such conduct
or in any other activity subject to penalty under this title.
‘‘(c) SPECIFIED CONDUCT.—For purposes of this section, the
term ‘specified conduct’ means any action, or failure to take action,
which is—
‘‘(1) subject to penalty under section 6700, 6701, 6707,
or 6708, or
‘‘(2) in violation of any requirement under regulations
issued under section 330 of title 31, United States Code.’’.
(b) CONFORMING AMENDMENTS.—(1) The heading for section
7408 is amended to read as follows:
‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.’’.
(2) The table of sections for subchapter A of chapter 76 is
amended by striking the item relating to section 7408 and inserting
the following new item:
‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and reportable transactions.’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the day after the date of the enactment of
this Act.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00169
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 7408
note.
BILLW
PsN: PUBL357
118 STAT. 1586
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
31 USC 5321
note.
(a) IN GENERAL.—Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
‘‘(A) PENALTY AUTHORIZED.—The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
‘‘(B) AMOUNT OF PENALTY.—
‘‘(i) IN GENERAL.—Except as provided in subparagraph (C), the amount of any civil penalty imposed
under subparagraph (A) shall not exceed $10,000.
‘‘(ii) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subparagraph (A) with respect
to any violation if—
‘‘(I) such violation was due to reasonable cause,
and
‘‘(II) the amount of the transaction or the balance in the account at the time of the transaction
was properly reported.
‘‘(C) WILLFUL VIOLATIONS.—In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314—
‘‘(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of—
‘‘(I) $100,000, or
‘‘(II) 50 percent of the amount determined
under subparagraph (D), and
‘‘(ii) subparagraph (B)(ii) shall not apply.
‘‘(D) AMOUNT.—The amount determined under this
subparagraph is—
‘‘(i) in the case of a violation involving a transaction, the amount of the transaction, or
‘‘(ii) in the case of a violation involving a failure
to report the existence of an account or any identifying
information required to be provided with respect to
an account, the balance in the account at the time
of the violation.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to violations occurring after the date of the enactment
of this Act.
SEC. 822. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE
DEPARTMENT OF THE TREASURY.
(a) CENSURE; IMPOSITION OF PENALTY.—
(1) IN GENERAL.—Section 330(b) of title 31, United States
Code, is amended—
(A) by inserting ‘‘, or censure,’’ after ‘‘Department’’,
and
(B) by adding at the end the following new flush sentence:
‘‘The Secretary may impose a monetary penalty on any representative described in the preceding sentence. If the representative was
acting on behalf of an employer or any firm or other entity in
connection with the conduct giving rise to such penalty, the Secretary may impose a monetary penalty on such employer, firm,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00170
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1587
or entity if it knew, or reasonably should have known, of such
conduct. Such penalty shall not exceed the gross income derived
(or to be derived) from the conduct giving rise to the penalty
and may be in addition to, or in lieu of, any suspension, disbarment,
or censure of the representative.’’.
(2) EFFECTIVE DATE.—The amendments made by this subsection shall apply to actions taken after the date of the enactment of this Act.
(b) TAX SHELTER OPINIONS, ETC.—Section 330 of such title
31 is amended by adding at the end the following new subsection:
‘‘(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement,
or other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.’’.
31 USC 330 note.
Part II—Other Provisions
SEC. 831. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK FUNDS, ETC.
(a) IN GENERAL.—Section 1286 (relating to tax treatment of
stripped bonds) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new
subsection:
‘‘(f) TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK FUNDS, ETC.—In the case of an account or entity
substantially all of the assets of which consist of bonds, preferred
stock, or a combination thereof, the Secretary may by regulations
provide that rules similar to the rules of this section and 305(e),
as appropriate, shall apply to interests in such account or entity
to which (but for this subsection) this section or section 305(e),
as the case may be, would not apply.’’.
(b) CROSS REFERENCE.—Subsection (e) of section 305 is
amended by adding at the end the following new paragraph:
‘‘(7) CROSS REFERENCE.—
‘‘For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(f).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to purchases and dispositions after the date of the
enactment of this Act.
26 USC 305 note.
SEC. 832. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON
WITHHOLDING TAXES ON INCOME OTHER THAN DIVIDENDS.
(a) IN GENERAL.—Section 901 is amended by redesignating
subsection (l) as subsection (m) and by inserting after subsection
(k) the following new subsection:
‘‘(l) MINIMUM HOLDING PERIOD FOR WITHHOLDING TAXES ON
GAIN AND INCOME OTHER THAN DIVIDENDS ETC.—
‘‘(1) IN GENERAL.—In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect
to any property if—
‘‘(A) such property is held by the recipient of the item
for 15 days or less during the 31-day period beginning
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00171
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1588
26 USC 901 note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
on the date which is 15 days before the date on which
the right to receive payment of such item arises, or
‘‘(B) to the extent that the recipient of the item is
under an obligation (whether pursuant to a short sale
or otherwise) to make related payments with respect to
positions in substantially similar or related property.
This paragraph shall not apply to any dividend to which subsection (k) applies.
‘‘(2) EXCEPTION FOR TAXES PAID BY DEALERS.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business as
a dealer in such property.
‘‘(B) QUALIFIED TAX.—For purposes of subparagraph
(A), the term ‘qualified tax’ means a tax paid to a foreign
country (other than the foreign country referred to in
subparagraph (A)) if—
‘‘(i) the item to which such tax is attributable
is subject to taxation on a net basis by the country
referred to in subparagraph (A), and
‘‘(ii) such country allows a credit against its net
basis tax for the full amount of the tax paid to such
other foreign country.
‘‘(C) DEALER.—For purposes of subparagraph (A), the
term ‘dealer’ means—
‘‘(i) with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would not
apply by reason of paragraph (4) thereof if such security were stock, and
‘‘(ii) with respect to any other property, any person
with respect to whom such property is described in
section 1221(a)(1).
‘‘(D) REGULATIONS.—The Secretary may prescribe such
regulations as may be appropriate to carry out this paragraph, including regulations to prevent the abuse of the
exception provided by this paragraph and to treat other
taxes as qualified taxes.
‘‘(3) EXCEPTIONS.—The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the Secretary determines that the application of paragraph (1) to such
property is not necessary to carry out the purposes of this
subsection.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
‘‘(5) DETERMINATION OF HOLDING PERIOD.—Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.’’.
(b) CONFORMING AMENDMENT.—The heading of subsection (k)
of section 901 is amended by inserting ‘‘ON DIVIDENDS’’ after
‘‘TAXES’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or accrued more than 30 days after
the date of the enactment of this Act.
Jkt 039139
PO 00357
Frm 00172
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1589
SEC. 833. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) TREATMENT OF CONTRIBUTED PROPERTY WITH BUILT-IN
LOSS.—Paragraph (1) of section 704(c) is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the period at the
end of subparagraph (B) and inserting ‘‘, and’’, and by adding
at the end the following:
‘‘(C) if any property so contributed has a built-in loss—
‘‘(i) such built-in loss shall be taken into account
only in determining the amount of items allocated to
the contributing partner, and
‘‘(ii) except as provided in regulations, in determining the amount of items allocated to other partners,
the basis of the contributed property in the hands
of the partnership shall be treated as being equal
to its fair market value at the time of contribution.
For purposes of subparagraph (C), the term ‘built-in loss’ means
the excess of the adjusted basis of the property (determined
without regard to subparagraph (C)(ii)) over its fair market
value at the time of contribution.’’.
(b) SPECIAL RULES FOR TRANSFERS OF PARTNERSHIP INTEREST
IF THERE IS SUBSTANTIAL BUILT-IN LOSS.—
(1) ADJUSTMENT OF PARTNERSHIP BASIS REQUIRED.—Subsection (a) of section 743 (relating to optional adjustment to
basis of partnership property) is amended by inserting before
the period ‘‘or unless the partnership has a substantial builtin loss immediately after such transfer’’.
(2) ADJUSTMENT.—Subsection (b) of section 743 is amended
by inserting ‘‘or which has a substantial built-in loss immediately after such transfer’’ after ‘‘section 754 is in effect’’.
(3) SUBSTANTIAL BUILT-IN LOSS.—Section 743 is amended
by adding at the end the following new subsection:
‘‘(d) SUBSTANTIAL BUILT-IN LOSS.—
‘‘(1) IN GENERAL.—For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer
of an interest in a partnership if the partnership’s adjusted
basis in the partnership property exceeds by more than
$250,000 the fair market value of such property.
‘‘(2) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes
of paragraph (1) and section 734(d), including regulations aggregating related partnerships and disregarding property acquired
by the partnership in an attempt to avoid such purposes.’’.
(4) ALTERNATIVE RULES FOR ELECTING INVESTMENT PARTNERSHIPS.—
(A) IN GENERAL.—Section 743 is amended by adding
after subsection (d) the following new subsection:
‘‘(e) ALTERNATIVE RULES FOR ELECTING INVESTMENT PARTNERSHIPS.—
‘‘(1) NO ADJUSTMENT OF PARTNERSHIP BASIS.—For purposes
of this section, an electing investment partnership shall not
be treated as having a substantial built-in loss with respect
to any transfer occurring while the election under paragraph
(6)(A) is in effect.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00173
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1590
‘‘(2) LOSS DEFERRAL FOR TRANSFEREE PARTNER.—In the case
of a transfer of an interest in an electing investment partnership, the transferee partner’s distributive share of losses (without regard to gains) from the sale or exchange of partnership
property shall not be allowed except to the extent that it
is established that such losses exceed the loss (if any) recognized
by the transferor (or any prior transferor to the extent not
fully offset by a prior disallowance under this paragraph) on
the transfer of the partnership interest.
‘‘(3) NO REDUCTION IN PARTNERSHIP BASIS.—Losses disallowed under paragraph (2) shall not decrease the transferee
partner’s basis in the partnership interest.
‘‘(4) EFFECT OF TERMINATION OF PARTNERSHIP.—This subsection shall be applied without regard to any termination
of a partnership under section 708(b)(1)(B).
‘‘(5) CERTAIN BASIS REDUCTIONS TREATED AS LOSSES.—In
the case of a transferee partner whose basis in property distributed by the partnership is reduced under section 732(a)(2),
the amount of the loss recognized by the transferor on the
transfer of the partnership interest which is taken into account
under paragraph (2) shall be reduced by the amount of such
basis reduction.
‘‘(6) ELECTING INVESTMENT PARTNERSHIP.—For purposes of
this subsection, the term ‘electing investment partnership’
means any partnership if—
‘‘(A) the partnership makes an election to have this
subsection apply,
‘‘(B) the partnership would be an investment company
under section 3(a)(1)(A) of the Investment Company Act
of 1940 but for an exemption under paragraph (1) or (7)
of section 3(c) of such Act,
‘‘(C) such partnership has never been engaged in a
trade or business,
‘‘(D) substantially all of the assets of such partnership
are held for investment,
‘‘(E) at least 95 percent of the assets contributed to
such partnership consist of money,
‘‘(F) no assets contributed to such partnership had
an adjusted basis in excess of fair market value at the
time of contribution,
‘‘(G) all partnership interests of such partnership are
issued by such partnership pursuant to a private offering
before the date which is 24 months after the date of the
first capital contribution to such partnership,
‘‘(H) the partnership agreement of such partnership
has substantive restrictions on each partner’s ability to
cause a redemption of the partner’s interest, and
‘‘(I) the partnership agreement of such partnership provides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall
be irrevocable except with the consent of the Secretary.
‘‘(7) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes
of this subsection, including regulations for applying this subsection to tiered partnerships.’’.
(B) INFORMATION REPORTING.—Section 6031 is
amended by adding at the end the following new subsection:
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00174
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1591
‘‘(f) ELECTING INVESTMENT PARTNERSHIPS.—In the case of any
electing investment partnership (as defined in section 743(e)(6)),
the information required under subsection (b) to be furnished to
any partner to whom section 743(e)(2) applies shall include such
information as is necessary to enable the partner to compute the
amount of losses disallowed under section 743(e).’’.
(5) SPECIAL RULE FOR SECURITIZATION PARTNERSHIPS.—Section 743 is amended by adding after subsection (e) the following
new subsection:
‘‘(f) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—
‘‘(1) NO ADJUSTMENT OF PARTNERSHIP BASIS.—For purposes
of this section, a securitization partnership shall not be treated
as having a substantial built-in loss with respect to any
transfer.
‘‘(2) SECURITIZATION PARTNERSHIP.—For purposes of paragraph (1), the term ‘securitization partnership’ means any partnership the sole business activity of which is to issue securities
which provide for a fixed principal (or similar) amount and
which are primarily serviced by the cash flows of a discrete
pool (either fixed or revolving) of receivables or other financial
assets that by their terms convert into cash in a finite period,
but only if the sponsor of the pool reasonably believes that
the receivables and other financial assets comprising the pool
are not acquired so as to be disposed of.’’.
(6) CLERICAL AMENDMENTS.—(A) The section heading for
section 743 is amended to read as follows:
‘‘SEC. 743. SPECIAL RULES WHERE SECTION 754 ELECTION OR
SUBSTANTIAL BUILT-IN LOSS.’’.
(B) The table of sections for subpart C of part II of subchapter K of chapter 1 is amended by striking the item relating
to section 743 and inserting the following new item:
‘‘Sec. 743. Special rules where section 754 election or substantial built-in
loss.’’.
(c) ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY IF THERE IS SUBSTANTIAL BASIS REDUCTION.—
(1) ADJUSTMENT REQUIRED.—Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed partnership property) is amended by inserting before the period
the following: ‘‘or unless there is a substantial basis reduction’’.
(2) ADJUSTMENT.—Subsection (b) of section 734 is amended
by inserting ‘‘or unless there is a substantial basis reduction’’
after ‘‘section 754 is in effect’’.
(3) SUBSTANTIAL BASIS REDUCTION.—Section 734 is
amended by adding at the end the following new subsection:
‘‘(d) SUBSTANTIAL BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this section, there is
a substantial basis reduction with respect to a distribution
if the sum of the amounts described in subparagraphs (A)
and (B) of subsection (b)(2) exceeds $250,000.
‘‘(2) REGULATIONS.—
‘‘For regulations to carry out this subsection, see section
743(d)(2).’’.
(4) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—Section
734 is amended by inserting after subsection (d) the following
new subsection:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00175
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1592
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(e) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—For purposes of this section, a securitization partnership (as defined in
section 743(f)) shall not be treated as having a substantial basis
reduction with respect to any distribution of property to a partner.’’.
(5) CLERICAL AMENDMENTS.—(A) The section heading for
section 734 is amended to read as follows:
‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS REDUCTION.’’.
(B) The table of sections for subpart B of part II of subchapter K of chapter 1 is amended by striking the item relating
to section 734 and inserting the following new item:
‘‘Sec. 734. Adjustment to basis of undistributed partnership property
where section 754 election or substantial basis reduction.’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall apply to contributions made after the date of the
enactment of this Act.
(2) SUBSECTION (b).—
(A) IN GENERAL.—Except as provided in subparagraph
(B), the amendments made by subsection (b) shall apply
to transfers after the date of the enactment of this Act.
(B) TRANSITION RULE.—In the case of an electing
investment partnership which is in existence on June 4,
2004, section 743(e)(6)(H) of the Internal Revenue Code
of 1986, as added by this section, shall not apply to such
partnership and section 743(e)(6)(I) of such Code, as so
added, shall be applied by substituting ‘‘20 years’’ for ‘‘15
years’’.
(3) SUBSECTION (c).—The amendments made by subsection
(c) shall apply to distributions after the date of the enactment
of this Act.
26 USC 704 note.
26 USC 743 note.
26 USC 734 note.
SEC. 834. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK
HELD BY PARTNERSHIP IN CORPORATE PARTNER.
26 USC 755 note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Section 755 is amended by adding at the
end the following new subsection:
‘‘(c) NO ALLOCATION OF BASIS DECREASE TO STOCK OF CORPORATE PARTNER.—In making an allocation under subsection (a)
of any decrease in the adjusted basis of partnership property under
section 734(b)—
‘‘(1) no allocation may be made to stock in a corporation
(or any person related (within the meaning of sections 267(b)
and 707(b)(1)) to such corporation) which is a partner in the
partnership, and
‘‘(2) any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (a) to other partnership property.
Gain shall be recognized to the partnership to the extent that
the amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such
other property immediately before the allocation required by paragraph (2).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to distributions after the date of the enactment of
this Act.
Jkt 039139
PO 00357
Frm 00176
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1593
SEC. 835. REPEAL OF SPECIAL RULES FOR FASITS.
(a) IN GENERAL.—Part V of subchapter M of chapter 1 (relating
to financial asset securitization investment trusts) is hereby
repealed.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 56(g) is amended by striking
‘‘REMIC, or FASIT’’ and inserting ‘‘or REMIC’’.
(2) Clause (ii) of section 382(l)(4)(B) is amended by striking
‘‘a REMIC to which part IV of subchapter M applies, or a
FASIT to which part V of subchapter M applies,’’ and inserting
‘‘or a REMIC to which part IV of subchapter M applies,’’.
(3) Paragraph (1) of section 582(c) is amended by striking
‘‘, and any regular interest in a FASIT,’’.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5)(A) Section 860G(a)(1) is amended by adding at the
end the following new sentence: ‘‘An interest shall not fail
to qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced as
a result of the nonoccurrence of 1 or more contingent payments
with respect to any reverse mortgage loan held by the REMIC
if, on the startup day for the REMIC, the sponsor reasonably
believes that all principal and interest due under the regular
interest will be paid at or prior to the liquidation of the
REMIC.’’.
(B) The last sentence of section 860G(a)(3) is amended
by inserting ‘‘, and any reverse mortgage loan (and each balance
increase on such loan meeting the requirements of subparagraph (A)(iii)) shall be treated as an obligation secured by
an interest in real property’’ before the period at the end.
(6) Paragraph (3) of section 860G(a) is amended by adding
‘‘and’’ at the end of subparagraph (B), by striking ‘‘, and’’
at the end of subparagraph (C) and inserting a period, and
by striking subparagraph (D).
(7) Section 860G(a)(3), as amended by paragraph (6), is
amended by adding at the end the following new sentence:
‘‘For purposes of subparagraph (A), if more than 50 percent
of the obligations transferred to, or purchased by, the REMIC
are originated by the United States or any State (or any political
subdivision, agency, or instrumentality of the United States
or any State) and are principally secured by an interest in
real property, then each obligation transferred to, or purchased
by, the REMIC shall be treated as secured by an interest
in real property.’’.
(8)(A) Section 860G(a)(3)(A) is amended by striking ‘‘or’’
at the end of clause (i), by inserting ‘‘or’’ at the end of clause
(ii), and by inserting after clause (ii) the following new clause:
‘‘(iii) represents an increase in the principal
amount under the original terms of an obligation
described in clause (i) or (ii) if such increase—
‘‘(I) is attributable to an advance made to the
obligor pursuant to the original terms of the obligation,
‘‘(II) occurs after the startup day, and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00177
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 860H–
860L.
BILLW
PsN: PUBL357
118 STAT. 1594
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(III) is purchased by the REMIC pursuant
to a fixed price contract in effect on the startup
day.’’.
(B) Section 860G(a)(7)(B) is amended to read as follows:
‘‘(B) QUALIFIED RESERVE FUND.—For purposes of
subparagraph (A), the term ‘qualified reserve fund’ means
any reasonably required reserve to—
‘‘(i) provide for full payment of expenses of the
REMIC or amounts due on regular interests in the
event of defaults on qualified mortgages or lower than
expected returns on cash flow investments, or
‘‘(ii) provide a source of funds for the purchase
of obligations described in clause (ii) or (iii) of paragraph (3)(A).
The aggregate fair market value of the assets held in
any such reserve shall not exceed 50 percent of the aggregate fair market value of all of the assets of the REMIC
on the startup day, and the amount of any such reserve
shall be promptly and appropriately reduced to the extent
the amount held in such reserve is no longer reasonably
required for purposes specified in clause (i) or (ii) of this
subparagraph.’’.
(9) Subparagraph (C) of section 1202(e)(4) is amended by
striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or REMIC’’.
(10) Clause (xi) of section 7701(a)(19)(C) is amended—
(A) by striking ‘‘and any regular interest in a FASIT,’’,
and
(B) by striking ‘‘or FASIT’’ each place it appears.
(11) Subparagraph (A) of section 7701(i)(2) is amended
by striking ‘‘or a FASIT’’.
(12) The table of parts for subchapter M of chapter 1
is amended by striking the item relating to part V.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall take effect on January
1, 2005.
(2) EXCEPTION FOR EXISTING FASITS.—Paragraph (1) shall
not apply to any FASIT in existence on the date of the enactment of this Act to the extent that regular interests issued
by the FASIT before such date continue to remain outstanding
in accordance with the original terms of issuance.
26 USC 56 note.
SEC. 836. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN
LOSSES.
(a) IN GENERAL.—Section 362 (relating to basis to corporations)
is amended by adding at the end the following new subsection:
‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.—
‘‘(1) LIMITATION ON IMPORTATION OF BUILT-IN LOSSES.—
‘‘(A) IN GENERAL.—If in any transaction described in
subsection (a) or (b) there would (but for this subsection)
be an importation of a net built-in loss, the basis of each
property described in subparagraph (B) which is acquired
in such transaction shall (notwithstanding subsections (a)
and (b)) be its fair market value immediately after such
transaction.
‘‘(B) PROPERTY DESCRIBED.—For purposes of subparagraph (A), property is described in this subparagraph if—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00178
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1595
‘‘(i) gain or loss with respect to such property is
not subject to tax under this subtitle in the hands
of the transferor immediately before the transfer, and
‘‘(ii) gain or loss with respect to such property
is subject to such tax in the hands of the transferee
immediately after such transfer.
In any case in which the transferor is a partnership, the
preceding sentence shall be applied by treating each
partner in such partnership as holding such partner’s
proportionate share of the property of such partnership.
‘‘(C) IMPORTATION OF NET BUILT-IN LOSS.—For purposes
of subparagraph (A), there is an importation of a net builtin loss in a transaction if the transferee’s aggregate
adjusted bases of property described in subparagraph (B)
which is transferred in such transaction would (but for
this paragraph) exceed the fair market value of such property immediately after such transaction.
‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN LOSSES IN SECTION 351 TRANSACTIONS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) property is transferred by a transferor in any
transaction which is described in subsection (a) and
which is not described in paragraph (1) of this subsection, and
‘‘(ii) the transferee’s aggregate adjusted bases of
such property so transferred would (but for this paragraph) exceed the fair market value of such property
immediately after such transaction,
then, notwithstanding subsection (a), the transferee’s
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
‘‘(B) ALLOCATION OF BASIS REDUCTION.—The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in proportion to their respective built-in losses immediately before
the transaction.
‘‘(C) ELECTION TO APPLY LIMITATION TO TRANSFEROR’S
STOCK BASIS.—
‘‘(i) IN GENERAL.—If the transferor and transferee
of a transaction described in subparagraph (A) both
elect the application of this subparagraph—
‘‘(I) subparagraph (A) shall not apply, and
‘‘(II) the transferor’s basis in the stock received
for property to which subparagraph (A) does not
apply by reason of the election shall not exceed
its fair market value immediately after the
transfer.
‘‘(ii) ELECTION.—An election under clause (i) shall
be included with the return of tax for the taxable
year in which the transaction occurred, shall be in
such form and manner as the Secretary may prescribe,
and, once made, shall be irrevocable.’’.
(b) COMPARABLE TREATMENT WHERE LIQUIDATION.—Paragraph
(1) of section 334(b) (relating to liquidation of subsidiary) is
amended to read as follows:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00179
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1596
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(1) IN GENERAL.—If property is received by a corporate
distributee in a distribution in a complete liquidation to which
section 332 applies (or in a transfer described in section
337(b)(1)), the basis of such property in the hands of such
distributee shall be the same as it would be in the hands
of the transferor; except that the basis of such property in
the hands of such distributee shall be the fair market value
of the property at the time of the distribution—
‘‘(A) in any case in which gain or loss is recognized
by the liquidating corporation with respect to such property, or
‘‘(B) in any case in which the liquidating corporation
is a foreign corporation, the corporate distributee is a
domestic corporation, and the corporate distributee’s aggregate adjusted bases of property described in section
362(e)(1)(B) which is distributed in such liquidation would
(but for this subparagraph) exceed the fair market value
of such property immediately after such liquidation.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendment made by subsection (a)
shall apply to transactions after the date of the enactment
of this Act.
(2) LIQUIDATIONS.—The amendment made by subsection
(b) shall apply to liquidations after the date of the enactment
of this Act.
26 USC 362 note.
26 USC 334 note.
SEC. 837. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF
DETERMINING INVESTMENT OF EARNINGS IN UNITED
STATES PROPERTY.
26 USC 956 note.
(a) IN GENERAL.—Subparagraph (A) of section 956(c)(2) is
amended to read as follows:
‘‘(A) obligations of the United States, money, or
deposits with—
‘‘(i) any bank (as defined by section 2(c) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)),
without regard to subparagraphs (C) and (G) of paragraph (2) of such section), or
‘‘(ii) any corporation not described in clause (i)
with respect to which a bank holding company (as
defined by section 2(a) of such Act) or financial holding
company (as defined by section 2(p) of such Act) owns
directly or indirectly more than 80 percent by vote
or value of the stock of such corporation;’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 838. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and
by inserting after subsection (l) the following new subsection:
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE TO NONDISCLOSED REPORTABLE TRANSACTIONS.—No deduction shall be allowed
under this chapter for any interest paid or accrued under section
6601 on any underpayment of tax which is attributable to the
portion of any reportable transaction understatement (as defined
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00180
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1597
in section 6662A(b)) with respect to which the requirement of section
6664(d)(2)(A) is not met.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions in taxable years beginning after the
date of the enactment of this Act.
26 USC 163 note.
SEC. 839. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED
TAX FOR CERTAIN DEEMED ASSET SALES.
(a) IN GENERAL.—Paragraph (13) of section 338(h) (relating
to tax on deemed sale not taken into account for estimated tax
purposes) is amended by adding at the end the following: ‘‘The
preceding sentence shall not apply with respect to a qualified stock
purchase for which an election is made under paragraph (10).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to transactions occurring after the date of the enactment
of this Act.
26 USC 163 note.
SEC. 840. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL
RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE
WITHIN 5 YEARS OF SALE.
(a) IN GENERAL.—Section 121(d) (relating to special rules for
exclusion of gain from sale of principal residence) is amended by
adding at the end the following new paragraph:
‘‘(10) PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE.—If a
taxpayer acquired property in an exchange to which section
1031 applied, subsection (a) shall not apply to the sale or
exchange of such property if it occurs during the 5-year period
beginning with the date of the acquisition of such property.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to sales or exchanges after the date of the enactment
of this Act.
26 USC 121 note.
SEC. 841. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL
ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS
IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.
(a) ORIGINAL ISSUE DISCOUNT.—Section 163(e)(3) (relating to
special rule for original issue discount on obligation held by related
foreign person) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph:
‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN ENTITIES.—
‘‘(i) IN GENERAL.—In the case of any debt
instrument having original issue discount which is held
by a related foreign person which is a controlled foreign
corporation (as defined in section 957) or a passive
foreign investment company (as defined in section
1297), a deduction shall be allowable to the issuer
with respect to such original issue discount for any
taxable year before the taxable year in which paid
only to the extent such original issue discount is includible (determined without regard to properly allocable
deductions and qualified deficits under section
952(c)(1)(B)) during such prior taxable year in the gross
income of a United States person who owns (within
the meaning of section 958(a)) stock in such corporation.
‘‘(ii) SECRETARIAL AUTHORITY.—The Secretary may
by regulation exempt transactions from the application
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00181
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1598
26 USC 163 note.
PUBLIC LAW 108–357—OCT. 22, 2004
of clause (i), including any transaction which is entered
into by a payor in the ordinary course of a trade
or business in which the payor is predominantly
engaged.’’.
(b) INTEREST AND OTHER DEDUCTIBLE AMOUNTS.—Section
267(a)(3) is amended—
(1) by striking ‘‘The Secretary’’ and inserting:
‘‘(A) IN GENERAL.—The Secretary’’, and
(2) by adding at the end the following new subparagraph:
‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN ENTITIES.—
‘‘(i) IN GENERAL.—Notwithstanding subparagraph
(A), in the case of any item payable to a controlled
foreign corporation (as defined in section 957) or a
passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the payor
with respect to such amount for any taxable year before
the taxable year in which paid only to the extent
that an amount attributable to such item is includible
(determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B))
during such prior taxable year in the gross income
of a United States person who owns (within the
meaning of section 958(a)) stock in such corporation.
‘‘(ii) SECRETARIAL AUTHORITY.—The Secretary may
by regulation exempt transactions from the application
of clause (i), including any transaction which is entered
into by a payor in the ordinary course of a trade
or business in which the payor is predominantly
engaged and in which the payment of the accrued
amounts occurs within 81⁄2 months after accrual or
within such other period as the Secretary may prescribe.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments accrued on or after the date of the enactment of this Act.
SEC. 842. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS.
(a) IN GENERAL.—Subchapter A of chapter 67 (relating to
interest on underpayments) is amended by adding at the end the
following new section:
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS, ETC.
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN AS PAYMENT
TAX.—A taxpayer may make a cash deposit with the Secretary
which may be used by the Secretary to pay any tax imposed under
subtitle A or B or chapter 41, 42, 43, or 44 which has not been
assessed at the time of the deposit. Such a deposit shall be made
in such manner as the Secretary shall prescribe.
‘‘(b) NO INTEREST IMPOSED.—To the extent that such deposit
is used by the Secretary to pay tax, for purposes of section 6601
(relating to interest on underpayments), the tax shall be treated
as paid when the deposit is made.
‘‘(c) RETURN OF DEPOSIT.—Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shall
return to the taxpayer any amount of the deposit (to the extent
OF
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00182
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1599
not used for a payment of tax) which the taxpayer requests in
writing.
‘‘(d) PAYMENT OF INTEREST.—
‘‘(1) IN GENERAL.—For purposes of section 6611 (relating
to interest on overpayments), except as provided in paragraph
(4), a deposit which is returned to a taxpayer shall be treated
as a payment of tax for any period to the extent (and only
to the extent) attributable to a disputable tax for such period.
Under regulations prescribed by the Secretary, rules similar
to the rules of section 6611(b)(2) shall apply.
‘‘(2) DISPUTABLE TAX.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘disputable tax’ means the amount of tax specified
at the time of the deposit as the taxpayer’s reasonable
estimate of the maximum amount of any tax attributable
to disputable items.
‘‘(B) SAFE HARBOR BASED ON 30-DAY LETTER.—In the
case of a taxpayer who has been issued a 30-day letter,
the maximum amount of tax under subparagraph (A) shall
not be less than the amount of the proposed deficiency
specified in such letter.
‘‘(3) OTHER DEFINITIONS.—For purposes of paragraph (2)—
‘‘(A) DISPUTABLE ITEM.—The term ‘disputable item’
means any item of income, gain, loss, deduction, or credit
if the taxpayer—
‘‘(i) has a reasonable basis for its treatment of
such item, and
‘‘(ii) reasonably believes that the Secretary also
has a reasonable basis for disallowing the taxpayer’s
treatment of such item.
‘‘(B) 30-DAY LETTER.—The term ‘30-day letter’ means
the first letter of proposed deficiency which allows the
taxpayer an opportunity for administrative review in the
Internal Revenue Service Office of Appeals.
‘‘(4) RATE OF INTEREST.—The rate of interest under this
subsection shall be the Federal short-term rate determined
under section 6621(b), compounded daily.
‘‘(e) USE OF DEPOSITS.—
‘‘(1) PAYMENT OF TAX.—Except as otherwise provided by
the taxpayer, deposits shall be treated as used for the payment
of tax in the order deposited.
‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.’’.
(b) CLERICAL AMENDMENT.—The table of sections for subchapter
A of chapter 67 is amended by adding at the end the following
new item:
Regulations.
Applicability.
‘‘Sec. 6603. Deposits made to suspend running of interest on potential underpayments, etc.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to deposits made after the date of the enactment
of this Act.
(2) COORDINATION WITH DEPOSITS MADE UNDER REVENUE
PROCEDURE 84–58.—In the case of an amount held by the Secretary of the Treasury or his delegate on the date of the
enactment of this Act as a deposit in the nature of a cash
bond deposit pursuant to Revenue Procedure 84–58, the date
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00183
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 6603
note.
BILLW
PsN: PUBL357
118 STAT. 1600
PUBLIC LAW 108–357—OCT. 22, 2004
that the taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue Code (as
added by this Act) shall be treated as the date such amount
is deposited for purposes of such section 6603.
SEC. 843. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT
AGREEMENTS.
26 USC 6159
note.
(a) IN GENERAL.—
(1) Section 6159(a) (relating to authorization of agreements)
is amended—
(A) by striking ‘‘satisfy liability for payment of’’ and
inserting ‘‘make payment on’’, and
(B) by inserting ‘‘full or partial’’ after ‘‘facilitate’’.
(2) Section 6159(c) (relating to Secretary required to enter
into installment agreements in certain cases) is amended in
the matter preceding paragraph (1) by inserting ‘‘full’’ before
‘‘payment’’.
(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT AGREEMENTS
EVERY TWO YEARS.—Section 6159 is amended by redesignating
subsections (d) and (e) as subsections (e) and (f), respectively, and
inserting after subsection (c) the following new subsection:
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALLMENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO YEARS.—In the case
of an agreement entered into by the Secretary under subsection
(a) for partial collection of a tax liability, the Secretary shall review
the agreement at least once every 2 years.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to agreements entered into on or after the date of
the enactment of this Act.
SEC. 844. AFFIRMATION OF CONSOLIDATED RETURN REGULATION
AUTHORITY.
26 USC 1502
note.
(a) IN GENERAL.—Section 1502 is amended by adding at the
end the following new sentence: ‘‘In carrying out the preceding
sentence, the Secretary may prescribe rules that are different from
the provisions of chapter 1 that would apply if such corporations
filed separate returns.’’.
(b) RESULT NOT OVERTURNED.—Notwithstanding the amendment made by subsection (a), the Internal Revenue Code of 1986
shall be construed by treating Treasury Regulation § 1.150220(c)(1)(iii) (as in effect on January 1, 2001) as being inapplicable
to the factual situation in Rite Aid Corporation and Subsidiary
Corporations v. United States, 255 F.3d 1357 (Fed. Cir. 2001).
(c) EFFECTIVE DATE.—This section, and the amendment made
by this section, shall apply to taxable years beginning before, on,
or after the date of the enactment of this Act.
SEC. 845. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST
ON CONVERTIBLE DEBT.
(a) IN GENERAL.—Paragraph (2) of section 163(l) is amended
by inserting ‘‘or equity held by the issuer (or any related party)
in any other person’’ after ‘‘or a related party’’.
(b) CAPITALIZATION ALLOWED WITH RESPECT TO EQUITY OF
PERSONS OTHER THAN ISSUER AND RELATED PARTIES.—Section
163(l) is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by inserting after paragraph (3) the following
new paragraph:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00184
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1601
‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT TO EQUITY OF
PERSONS OTHER THAN ISSUER AND RELATED PARTIES.—If the
disqualified debt instrument of a corporation is payable in
equity held by the issuer (or any related party) in any other
person (other than a related party), the basis of such equity
shall be increased by the amount not allowed as a deduction
by reason of paragraph (1) with respect to the instrument.’’.
(c) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY DEALERS
IN SECURITIES.—Section 163(l), as amended by subsection (b), is
amended by redesignating paragraphs (5) and (6) as paragraphs
(6) and (7) and by inserting after paragraph (4) the following
new paragraph:
‘‘(5) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY
DEALERS IN SECURITIES.—For purposes of this subsection, the
term ‘disqualified debt instrument’ does not include indebtedness issued by a dealer in securities (or a related party) which
is payable in, or by reference to, equity (other than equity
of the issuer or a related party) held by such dealer in its
capacity as a dealer in securities. For purposes of this paragraph, the term ‘dealer in securities’ has the meaning given
such term by section 475.’’.
(d) CONFORMING AMENDMENT.—Paragraph (3) of section 163(l)
is amended by striking ‘‘or a related party’’ in the material preceding
subparagraph (A) and inserting ‘‘or any other person’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to debt instruments issued after October 3, 2004.
26 USC 163 note.
Part III—Leasing
SEC. 847. REFORM OF TAX TREATMENT OF CERTAIN LEASING
ARRANGEMENTS.
(a) CLARIFICATION OF RECOVERY PERIOD FOR TAX-EXEMPT USE
PROPERTY SUBJECT TO LEASE.—Subparagraph (A) of section
168(g)(3) (relating to special rules for determining class life) is
amended by inserting ‘‘(notwithstanding any other subparagraph
of this paragraph)’’ after ‘‘shall’’.
(b) LIMITATION ON DEPRECIATION AND AMORTIZATION PERIODS
FOR INTANGIBLES LEASED TO TAX-EXEMPT ENTITY.—
(1) COMPUTER SOFTWARE.—Paragraph (1) of section 167(f)
is amended by adding at the end the following new subparagraph:
‘‘(C) TAX-EXEMPT USE PROPERTY SUBJECT TO LEASE.—
In the case of computer software which would be taxexempt use property as defined in subsection (h) of section
168 if such section applied to computer software, the useful
life under subparagraph (A) shall not be less than 125
percent of the lease term (within the meaning of section
168(i)(3)).’’.
(2) CERTAIN INTERESTS OR RIGHTS ACQUIRED SEPARATELY.—
Paragraph (2) of section 167(f) is amended by adding at the
end the following new sentence: ‘‘If such property would be
tax-exempt use property as defined in subsection (h) of section
168 if such section applied to such property, the useful life
under such regulations shall not be less than 125 percent
of the lease term (within the meaning of section 168(i)(3)).’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00185
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1602
PUBLIC LAW 108–357—OCT. 22, 2004
(3) SECTION 197 INTANGIBLES.—Section 197(f) (relating to
special rules) is amended by adding at the end the following
new paragraph:
‘‘(10) TAX-EXEMPT USE PROPERTY SUBJECT TO LEASE.—In
the case of any section 197 intangible which would be taxexempt use property as defined in subsection (h) of section
168 if such section applied to such intangible, the amortization
period under this section shall not be less than 125 percent
of the lease term (within the meaning of section 168(i)(3)).’’.
(c) LEASE TERM TO INCLUDE RELATED SERVICE CONTRACTS.—
Subparagraph (A) of section 168(i)(3) (relating to lease term) is
amended by striking ‘‘and’’ at the end of clause (i), by redesignating
clause (ii) as clause (iii), and by inserting after clause (i) the
following new clause:
‘‘(ii) the term of a lease shall include the term
of any service contract or similar arrangement
(whether or not treated as a lease under section
7701(e))—
‘‘(I) which is part of the same transaction (or
series of related transactions) which includes the
lease, and
‘‘(II) which is with respect to the property
subject to the lease or substantially similar property, and’’.
(d) EXPANSION OF SHORT-TERM LEASE EXEMPTION FOR QUALIFIED TECHNOLOGICAL EQUIPMENT.—Subparagraph (A) of section
168(h)(3) is amended by adding at the end the following new sentence: ‘‘Notwithstanding subsection (i)(3)(A)(i), in determining a
lease term for purposes of the preceding sentence, there shall not
be taken into account any option of the lessee to renew at the
fair market value rent determined at the time of renewal; except
that the aggregate period not taken into account by reason of
this sentence shall not exceed 24 months.’’.
(e) TREATMENT OF CERTAIN INDIAN TRIBAL GOVERNMENTS AS
TAX-EXEMPT ENTITIES.—Section 168(h)(2)(A) is amended by striking
‘‘and’’ at the end of clause (ii), by striking the period at the end
of clause (iii) and inserting ‘‘, and’’, and by inserting at the end
the following:
‘‘(iv) any Indian tribal government described in
section 7701(a)(40).
For purposes of applying this subsection, any Indian tribal
government referred to in clause (iv) shall be treated in
the same manner as a State.’’.
SEC. 848. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY
USED BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—Subpart C of part II of subchapter E of
chapter 1 (relating to taxable year for which deductions taken)
is amended by adding at the end the following new section:
‘‘SEC. 470. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY
USED BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
‘‘(a) LIMITATION ON LOSSES.—Except as otherwise provided in
this section, a tax-exempt use loss for any taxable year shall not
be allowed.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00186
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1603
‘‘(b) DISALLOWED LOSS CARRIED TO NEXT YEAR.—Any taxexempt use loss with respect to any tax-exempt use property which
is disallowed under subsection (a) for any taxable year shall be
treated as a deduction with respect to such property in the next
taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) TAX-EXEMPT USE LOSS.—The term ‘tax-exempt use loss’
means, with respect to any taxable year, the amount (if any)
by which—
‘‘(A) the sum of—
‘‘(i) the aggregate deductions (other than interest)
directly allocable to a tax-exempt use property, plus
‘‘(ii) the aggregate deductions for interest properly
allocable to such property, exceed
‘‘(B) the aggregate income from such property.
‘‘(2) TAX-EXEMPT USE PROPERTY.—The term ‘tax-exempt use
property’ has the meaning given to such term by section 168(h),
except that such section shall be applied—
‘‘(A) without regard to paragraphs (1)(C) and (3)
thereof, and
‘‘(B) as if property described in—
‘‘(i) section 167(f)(1)(B),
‘‘(ii) section 167(f)(2), and
‘‘(iii) section 197 intangible,
were tangible property.
Such term shall not include property which would (but for
this sentence) be tax-exempt use property solely by reason
of section 168(h)(6) if any credit is allowable under section
42 or 47 with respect to such property.
‘‘(d) EXCEPTION FOR CERTAIN LEASES.—This section shall not
apply to any lease of property which meets the requirements of
all of the following paragraphs:
‘‘(1) AVAILABILITY OF FUNDS.—
‘‘(A) IN GENERAL.—A lease of property meets the
requirements of this paragraph if (at any time during the
lease term) not more than an allowable amount of funds
are—
‘‘(i) subject to any arrangement referred to in
subparagraph (B), or
‘‘(ii) set aside or expected to be set aside,
to or for the benefit of the lessor or any lender, or to
or for the benefit of the lessee to satisfy the lessee’s obligations or options under the lease. For purposes of clause
(ii), funds shall be treated as set aside or expected to
be set aside only if a reasonable person would conclude,
based on the facts and circumstances, that such funds
are set aside or expected to be set aside.
‘‘(B) ARRANGEMENTS.—The arrangements referred to
in this subparagraph include a defeasance arrangement,
a loan by the lessee to the lessor or any lender, a deposit
arrangement, a letter of credit collateralized with cash
or cash equivalents, a payment undertaking agreement,
prepaid rent (within the meaning of the regulations under
section 467), a sinking fund arrangement, a guaranteed
investment contract, financial guaranty insurance, and any
similar arrangement (whether or not such arrangement
provides credit support).
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00187
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1604
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(C) ALLOWABLE AMOUNT.—
‘‘(i) IN GENERAL.—Except as otherwise provided
in this subparagraph, the term ‘allowable amount’
means an amount equal to 20 percent of the lessor’s
adjusted basis in the property at the time the lease
is entered into.
‘‘(ii) HIGHER AMOUNT PERMITTED IN CERTAIN
CASES.—To the extent provided in regulations, a higher
percentage shall be permitted under clause (i) where
necessary because of the credit-worthiness of the lessee. In no event may such regulations permit a percentage of more than 50 percent.
‘‘(iii) OPTION TO PURCHASE.—If under the lease
the lessee has the option to purchase the property
for a fixed price or for other than the fair market
value of the property (determined at the time of exercise), the allowable amount at the time such option
may be exercised may not exceed 50 percent of the
price at which such option may be exercised.
‘‘(iv) NO ALLOWABLE AMOUNT FOR CERTAIN
ARRANGEMENTS.—The allowable amount shall be zero
with respect to any arrangement which involves—
‘‘(I) a loan from the lessee to the lessor or
a lender,
‘‘(II) any deposit received, letter of credit
issued, or payment undertaking agreement entered
into by a lender otherwise involved in the transaction, or
‘‘(III) in the case of a transaction which
involves a lender, any credit support made available to the lessor in which any such lender does
not have a claim that is senior to the lessor.
For purposes of subclause (I), the term ‘loan’ shall
not include any amount treated as a loan under section
467 with respect to a section 467 rental agreement.
‘‘(2) LESSOR MUST MAKE SUBSTANTIAL EQUITY INVESTMENT.—
‘‘(A) IN GENERAL.—A lease of property meets the
requirements of this paragraph if—
‘‘(i) the lessor—
‘‘(I) has at the time the lease is entered into
an unconditional at-risk equity investment (as
determined by the Secretary) in the property of
at least 20 percent of the lessor’s adjusted basis
in the property as of that time, and
‘‘(II) maintains such investment throughout
the term of the lease, and
‘‘(ii) the fair market value of the property at the
end of the lease term is reasonably expected to be
equal to at least 20 percent of such basis.
‘‘(B) RISK OF LOSS.—For purposes of clause (ii), the
fair market value at the end of the lease term shall be
reduced to the extent that a person other than the lessor
bears a risk of loss in the value of the property.
‘‘(C) PARAGRAPH NOT TO APPLY TO SHORT-TERM
LEASES.—This paragraph shall not apply to any lease with
a lease term of 5 years or less.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00188
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(3) LESSEE
118 STAT. 1605
MAY NOT BEAR MORE THAN MINIMAL RISK OF
LOSS.—
‘‘(A) IN GENERAL.—A lease of property meets the
requirements of this paragraph if there is no arrangement
under which the lessee bears—
‘‘(i) any portion of the loss that would occur if
the fair market value of the leased property were 25
percent less than its reasonably expected fair market
value at the time the lease is terminated, or
‘‘(ii) more than 50 percent of the loss that would
occur if the fair market value of the leased property
at the time the lease is terminated were zero.
‘‘(B) EXCEPTION.—The Secretary may by regulations
provide that the requirements of this paragraph are not
met where the lessee bears more than a minimal risk
of loss.
‘‘(C) PARAGRAPH NOT TO APPLY TO SHORT-TERM
LEASES.—This paragraph shall not apply to any lease with
a lease term of 5 years or less.
‘‘(4) PROPERTY WITH MORE THAN 7-YEAR CLASS LIFE.—In
the case of a lease—
‘‘(A) of property with a class life (as defined in section
168(i)(1)) of more than 7 years, other than fixed-wing aircraft and vessels, and
‘‘(B) under which the lessee has the option to purchase
the property,
the lease meets the requirements of this paragraph only if
the purchase price under the option equals the fair market
value of the property (determined at the time of exercise).
‘‘(e) SPECIAL RULES.—
‘‘(1) TREATMENT OF FORMER TAX-EXEMPT USE PROPERTY.—
‘‘(A) IN GENERAL.—In the case of any former tax-exempt
use property—
‘‘(i) any deduction allowable under subsection (b)
with respect to such property for any taxable year
shall be allowed only to the extent of any net income
(without regard to such deduction) from such property
for such taxable year, and
‘‘(ii) any portion of such unused deduction
remaining after application of clause (i) shall be treated
as a deduction allowable under subsection (b) with
respect to such property in the next taxable year.
‘‘(B) FORMER TAX-EXEMPT USE PROPERTY.—For purposes
of this subsection, the term ‘former tax-exempt use property’ means any property which—
‘‘(i) is not tax-exempt use property for the taxable
year, but
‘‘(ii) was tax-exempt use property for any prior
taxable year.
‘‘(2) DISPOSITION OF ENTIRE INTEREST IN PROPERTY.—If
during the taxable year a taxpayer disposes of the taxpayer’s
entire interest in tax-exempt use property (or former taxexempt use property), rules similar to the rules of section
469(g) shall apply for purposes of this section.
‘‘(3) COORDINATION WITH SECTION 469.—This section shall
be applied before the application of section 469.
‘‘(4) COORDINATION WITH SECTIONS 1031 AND 1033.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00189
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1606
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) IN GENERAL.—Sections 1031(a) and 1033(a) shall
not apply if—
‘‘(i) the exchanged or converted property is taxexempt use property subject to a lease which was
entered into before March 13, 2004, and which would
not have met the requirements of subsection (d) had
such requirements been in effect when the lease was
entered into, or
‘‘(ii) the replacement property is tax-exempt use
property subject to a lease which does not meet the
requirements of subsection (d).
‘‘(B) ADJUSTED BASIS.—In the case of property acquired
by the lessor in a transaction to which section 1031 or
1033 applies, the adjusted basis of such property for purposes of this section shall be equal to the lesser of—
‘‘(i) the fair market value of the property as of
the beginning of the lease term, or
‘‘(ii) the amount which would be the lessor’s
adjusted basis if such sections did not apply to such
transaction.
‘‘(f) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) RELATED PARTIES.—The terms ‘lessor’, ‘lessee’, and
‘lender’ each include any related party (within the meaning
of section 197(f)(9)(C)(i)).
‘‘(2) LEASE TERM.—The term ‘lease term’ has the meaning
given to such term by section 168(i)(3).
‘‘(3) LENDER.—The term ‘lender’ means, with respect to
any lease, a person that makes a loan to the lessor which
is secured (or economically similar to being secured) by the
lease or the leased property.
‘‘(4) LOAN.—The term ‘loan’ includes any similar arrangement.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes
of this section, including regulations which—
‘‘(1) allow in appropriate cases the aggregation of property
subject to the same lease, and
‘‘(2) provide for the determination of the allocation of
interest expense for purposes of this section.’’.
(b) CONFORMING AMENDMENT.—The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by
adding at the end the following new item:
‘‘Sec. 470. Limitation on deductions allocable to property used by governments or other tax-exempt entities.’’.
26 USC 470 note.
SEC. 849. EFFECTIVE DATE.
(a) IN GENERAL.—Except as provided in this section, the amendments made by this part shall apply to leases entered into after
March 12, 2004.
(b) EXCEPTION.—
(1) IN GENERAL.—The amendments made by this part shall
not apply to qualified transportation property.
(2) QUALIFIED TRANSPORTATION PROPERTY.—For purposes
of paragraph (1), the term ‘‘qualified transportation property’’
means domestic property subject to a lease with respect to
which a formal application—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00190
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1607
(A) was submitted for approval to the Federal Transit
Administration (an agency of the Department of Transportation) after June 30, 2003, and before March 13, 2004,
(B) is approved by the Federal Transit Administration
before January 1, 2006, and
(C) includes a description of such property and the
value of such property.
(3) EXCHANGES AND CONVERSION OF TAX-EXEMPT USE PROPERTY.—Section 470(e)(4) of the Internal Revenue Code of 1986,
as added by section 848, shall apply to property exchanged
or converted after the date of the enactment of this Act.
(4) INTANGIBLES AND INDIAN TRIBAL GOVERNMENTS.—The
amendments made subsections (b)(2), (b)(3), and (e) of section
847, and the treatment of property described in clauses (ii)
and (iii) of section 470(c)(2)(B) of the Internal Revenue Code
of 1986 (as added by section 848) as tangible property, shall
apply to leases entered into after October 3, 2004.
Applicability.
Applicability.
Subtitle C—Reduction of Fuel Tax Evasion
SEC. 851. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE
MACHINERY.
(a) EXEMPTION FROM TAX ON HEAVY TRUCKS AND TRAILERS
SOLD AT RETAIL.—
(1) IN GENERAL.—Section 4053 (relating to exemptions) is
amended by adding at the end the following new paragraph:
‘‘(8) MOBILE MACHINERY.—Any vehicle which consists of
a chassis—
‘‘(A) to which there has been permanently mounted
(by welding, bolting, riveting, or other means) machinery
or equipment to perform a construction, manufacturing,
processing, farming, mining, drilling, timbering, or similar
operation if the operation of the machinery or equipment
is unrelated to transportation on or off the public highways,
‘‘(B) which has been specially designed to serve only
as a mobile carriage and mount (and a power source, where
applicable) for the particular machinery or equipment
involved, whether or not such machinery or equipment
is in operation, and
‘‘(C) which, by reason of such special design, could
not, without substantial structural modification, be used
as a component of a vehicle designed to perform a function
of transporting any load other than that particular
machinery or equipment or similar machinery or equipment
requiring such a specially designed chassis.’’.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall take effect on the day after the date of the enactment of this Act.
(b) EXEMPTION FROM TAX ON USE OF CERTAIN VEHICLES.—
(1) IN GENERAL.—Section 4483 (relating to exemptions) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
‘‘(g) EXEMPTION FOR MOBILE MACHINERY.—No tax shall be
imposed by section 4481 on the use of any vehicle described in
section 4053(8).’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00191
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 4053
note.
BILLW
PsN: PUBL357
118 STAT. 1608
(2) EFFECTIVE DATE.—The amendments made by this subsection shall take effect on the day after the date of the enactment of this Act.
(c) EXEMPTION FROM TAX ON TIRES.—
(1) IN GENERAL.—Section 4072(b)(2) is amended by adding
at the end the following flush sentence: ‘‘Such term shall not
include tires of a type used exclusively on vehicles described
in section 4053(8).’’.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall take effect on the day after the date of the enactment of this Act.
(d) REFUND OF FUEL TAXES.—
(1) IN GENERAL.—Section 6421(e)(2) (defining off-highway
business use) is amended by adding at the end the following
new subparagraph:
‘‘(C) USES IN MOBILE MACHINERY.—
‘‘(i) IN GENERAL.—The term ‘off-highway business
use’ shall include any use in a vehicle which meets
the requirements described in clause (ii).
‘‘(ii) REQUIREMENTS FOR MOBILE MACHINERY.—The
requirements described in this clause are—
‘‘(I) the design-based test, and
‘‘(II) the use-based test.
‘‘(iii) DESIGN-BASED TEST.—For purposes of clause
(ii)(I), the design-based test is met if the vehicle consists of a chassis—
‘‘(I) to which there has been permanently
mounted (by welding, bolting, riveting, or other
means) machinery or equipment to perform a
construction, manufacturing, processing, farming,
mining, drilling, timbering, or similar operation
if the operation of the machinery or equipment
is unrelated to transportation on or off the public
highways,
‘‘(II) which has been specially designed to serve
only as a mobile carriage and mount (and a power
source, where applicable) for the particular
machinery or equipment involved, whether or not
such machinery or equipment is in operation, and
‘‘(III) which, by reason of such special design,
could not, without substantial structural modification, be used as a component of a vehicle designed
to perform a function of transporting any load
other than that particular machinery or equipment
or similar machinery or equipment requiring such
a specially designed chassis.
‘‘(iv) USE-BASED TEST.—For purposes of clause
(ii)(II), the use-based test is met if the use of the
vehicle on public highways was less than 7,500 miles
during the taxpayer’s taxable year. This clause shall
be applied without regard to use of the vehicle by
any organization which is described in section 501(c)
and exempt from tax under section 501(a).’’.
(2) NO TAX-FREE SALES.—Subsection (b) of section 4082
is amended by inserting before the period at the end the following: ‘‘and such term shall not include any use described
in section 6421(e)(2)(C)’’.
26 USC 4483
note.
26 USC 4072
note.
Applicability.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00192
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1609
(3) ANNUAL REFUND OF TAX PAID.—Section 6427(i)(2)
(relating to exceptions) is amended by adding at the end the
following new subparagraph:
‘‘(C) NONAPPLICATION OF PARAGRAPH.—This paragraph
shall not apply to any fuel used solely in any off-highway
business use described in section 6421(e)(2)(C).’’.
(4) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years beginning after the date
of the enactment of this Act.
26 USC 4082
note.
SEC. 852. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.
(a) IN GENERAL.—Section 7701(a) (relating to definitions) is
amended by adding at the end the following new paragraph:
‘‘(48) OFF-HIGHWAY VEHICLES.—
‘‘(A) OFF-HIGHWAY TRANSPORTATION VEHICLES.—
‘‘(i) IN GENERAL.—A vehicle shall not be treated
as a highway vehicle if such vehicle is specially
designed for the primary function of transporting a
particular type of load other than over the public highway and because of this special design such vehicle’s
capability to transport a load over the public highway
is substantially limited or impaired.
‘‘(ii) DETERMINATION OF VEHICLE’S DESIGN.—For
purposes of clause (i), a vehicle’s design is determined
solely on the basis of its physical characteristics.
‘‘(iii) DETERMINATION OF SUBSTANTIAL LIMITATION
OR IMPAIRMENT.—For purposes of clause (i), in determining whether substantial limitation or impairment
exists, account may be taken of factors such as the
size of the vehicle, whether such vehicle is subject
to the licensing, safety, and other requirements
applicable to highway vehicles, and whether such
vehicle can transport a load at a sustained speed of
at least 25 miles per hour. It is immaterial that a
vehicle can transport a greater load off the public
highway than such vehicle is permitted to transport
over the public highway.
TRAILERS
AND
‘‘(B)
NONTRANSPORTATION
SEMITRAILERS.—A trailer or semitrailer shall not be treated
as a highway vehicle if it is specially designed to function
only as an enclosed stationary shelter for the carrying
on of an off-highway function at an off-highway site.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendment made by this section shall take effect on the date
of the enactment of this Act.
(2) FUEL TAXES.—With respect to taxes imposed under
subchapter B of chapter 31 and part III of subchapter A of
chapter 32, the amendment made by this section shall apply
to taxable periods beginning after the date of the enactment
of this Act.
26 USC 7701
note.
SEC. 853. TAXATION OF AVIATION-GRADE KEROSENE.
(a) RATE OF TAX.—
(1) IN GENERAL.—Subparagraph (A) of section 4081(a)(2)
is amended by striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting
‘‘, and’’, and by adding at the end the following new clause:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00193
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1610
‘‘(iv) in the case of aviation-grade kerosene, 21.8
cents per gallon.’’.
(2) COMMERCIAL AVIATION.—Paragraph (2) of section
4081(a) is amended by adding at the end the following new
subparagraph:
‘‘(C) TAXES IMPOSED ON FUEL USED IN COMMERCIAL
AVIATION.—In the case of aviation-grade kerosene which
is removed from any refinery or terminal directly into
the fuel tank of an aircraft for use in commercial aviation,
the rate of tax under subparagraph (A)(iv) shall be 4.3
cents per gallon.’’.
(3) CERTAIN REFUELER TRUCKS, TANKERS, AND TANK WAGONS
TREATED AS TERMINAL.—
(A) IN GENERAL.—Subsection (a) of section 4081 is
amended by adding at the end the following new paragraph:
‘‘(3) CERTAIN REFUELER TRUCKS, TANKERS, AND TANK
WAGONS TREATED AS TERMINAL.—
‘‘(A) IN GENERAL.—For purposes of paragraph (2)(C),
a refueler truck, tanker, or tank wagon shall be treated
as part of a terminal if—
‘‘(i) such terminal is located within a secured area
of an airport,
‘‘(ii) any aviation-grade kerosene which is loaded
in such truck, tanker, or wagon at such terminal is
for delivery only into aircraft at the airport in which
such terminal is located,
‘‘(iii) such truck, tanker, or wagon meets the
requirements of subparagraph (B) with respect to such
terminal, and
‘‘(iv) except in the case of exigent circumstances
identified by the Secretary in regulations, no vehicle
registered for highway use is loaded with aviationgrade kerosene at such terminal.
‘‘(B) REQUIREMENTS.—A refueler truck, tanker, or tank
wagon meets the requirements of this subparagraph with
respect to a terminal if such truck, tanker, or wagon—
‘‘(i) has storage tanks, hose, and coupling equipment designed and used for the purposes of fueling
aircraft,
‘‘(ii) is not registered for highway use, and
‘‘(iii) is operated by—
‘‘(I) the terminal operator of such terminal,
or
‘‘(II) a person that makes a daily accounting
to such terminal operator of each delivery of fuel
from such truck, tanker, or wagon.
‘‘(C) REPORTING.—The Secretary shall require under
section 4101(d) reporting by such terminal operator of—
‘‘(i) any information obtained under subparagraph
(B)(iii)(II), and
‘‘(ii) any similar information maintained by such
terminal operator with respect to deliveries of fuel
made by trucks, tankers, or wagons operated by such
terminal operator.’’.
(B) LIST OF AIRPORTS WITH SECURED TERMINALS.—Not
later than December 15, 2004, the Secretary of the
Treasury shall publish and maintain a list of airports which
Deadline.
Publication.
Records.
26 USC 4081
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00194
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1611
include a secured area in which a terminal is located
(within the meaning of section 4081(a)(3)(A)(i) of the
Internal Revenue Code of 1986, as added by this paragraph).
(4) LIABILITY FOR TAX ON AVIATION-GRADE KEROSENE USED
IN COMMERCIAL AVIATION.—Subsection (a) of section 4081 is
amended by adding at the end the following new paragraph:
‘‘(4) LIABILITY FOR TAX ON AVIATION-GRADE KEROSENE USED
IN COMMERCIAL AVIATION.—For purposes of paragraph (2)(C),
the person who uses the fuel for commercial aviation shall
pay the tax imposed under such paragraph. For purposes of
the preceding sentence, fuel shall be treated as used when
such fuel is removed into the fuel tank.’’.
(5) NONTAXABLE USES.—
(A) IN GENERAL.—Section 4082 is amended by redesignating subsections (e) and (f) as subsections (f) and (g),
respectively, and by inserting after subsection (d) the following new subsection:
‘‘(e) AVIATION-GRADE KEROSENE.—In the case of aviation-grade
kerosene which is exempt from the tax imposed by section 4041(c)
(other than by reason of a prior imposition of tax) and which
is removed from any refinery or terminal directly into the fuel
tank of an aircraft, the rate of tax under section 4081(a)(2)(A)(iv)
shall be zero.’’.
(B) CONFORMING AMENDMENTS.—(i) Subsection (b) of
section 4082 is amended by adding at the end the following
new flush sentence:
‘‘The term ‘nontaxable use’ does not include the use of aviationgrade kerosene in an aircraft.’’.
(ii) Section 4082(d) is amended by striking paragraph
(1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
(6) NONAIRCRAFT USE OF AVIATION-GRADE KEROSENE.—
(A) IN GENERAL.—Subparagraph (B) of section
4041(a)(1) is amended by adding at the end the following
new sentence: ‘‘This subparagraph shall not apply to aviation-grade kerosene.’’.
(B) CONFORMING AMENDMENT.—The heading for paragraph (1) of section 4041(a) is amended by inserting ‘‘AND
KEROSENE’’ after ‘‘DIESEL FUEL’’.
(b) COMMERCIAL AVIATION.—Section 4083 is amended by
redesignating subsections (b) and (c) as subsections (c) and (d),
respectively, and by inserting after subsection (a) the following
new subsection:
‘‘(b) COMMERCIAL AVIATION.—For purposes of this subpart, the
term ‘commercial aviation’ means any use of an aircraft in a business of transporting persons or property for compensation or hire
by air, unless properly allocable to any transportation exempt from
the taxes imposed by sections 4261 and 4271 by reason of section
4281 or 4282 or by reason of section 4261(h).’’.
(c) REFUNDS.—
(1) IN GENERAL.—Paragraph (4) of section 6427(l) is
amended to read as follows:
‘‘(4) REFUNDS FOR AVIATION-GRADE KEROSENE.—
‘‘(A) NO REFUND OF CERTAIN TAXES ON FUEL USED IN
COMMERCIAL AVIATION.—In the case of aviation-grade kerosene used in commercial aviation (as defined in section
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00195
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1612
4083(b)) (other than supplies for vessels or aircraft within
the meaning of section 4221(d)(3)), paragraph (1) shall
not apply to so much of the tax imposed by section 4081
as is attributable to—
‘‘(i) the Leaking Underground Storage Tank Trust
Fund financing rate imposed by such section, and
‘‘(ii) so much of the rate of tax specified in section
4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.
‘‘(B) PAYMENT TO ULTIMATE, REGISTERED VENDOR.—
With respect to aviation-grade kerosene, if the ultimate
purchaser of such kerosene waives (at such time and in
such form and manner as the Secretary shall prescribe)
the right to payment under paragraph (1) and assigns
such right to the ultimate vendor, then the Secretary shall
pay the amount which would be paid under paragraph
(1) to such ultimate vendor, but only if such ultimate
vendor—
‘‘(i) is registered under section 4101, and
‘‘(ii) meets the requirements of subparagraph (A),
(B), or (D) of section 6416(a)(1).’’.
(2) TIME FOR FILING CLAIMS.—Subparagraph (A) of section
6427(i)(4) is amended—
(A) by striking ‘‘subsection (l)(5)’’ both places it appears
and inserting ‘‘paragraph (4)(B) or (5) of subsection (l)’’,
and
(B) by striking ‘‘the preceding sentence’’ and inserting
‘‘subsection (l)(5)’’.
(3) CONFORMING AMENDMENT.—Subparagraph (B) of section
6427(l)(2) is amended to read as follows:
‘‘(B) in the case of aviation-grade kerosene—
‘‘(i) any use which is exempt from the tax imposed
by section 4041(c) other than by reason of a prior
imposition of tax, or
‘‘(ii) any use in commercial aviation (within the
meaning of section 4083(b)).’’.
(d) REPEAL OF PRIOR TAXATION OF AVIATION FUEL.—
(1) IN GENERAL.—Part III of subchapter A of chapter 32
is amended by striking subpart B and by redesignating subpart
C as subpart B.
(2) CONFORMING AMENDMENTS.—
(A) Section 4041(c) is amended to read as follows:
‘‘(c) AVIATION-GRADE KEROSENE.—
‘‘(1) IN GENERAL.—There is hereby imposed a tax upon
aviation-grade kerosene—
‘‘(A) sold by any person to an owner, lessee, or other
operator of an aircraft for use in such aircraft, or
‘‘(B) used by any person in an aircraft unless there
was a taxable sale of such fuel under subparagraph (A).
‘‘(2) EXEMPTION FOR PREVIOUSLY TAXED FUEL.—No tax shall
be imposed by this subsection on the sale or use of any aviationgrade kerosene if tax was imposed on such liquid under section
4081 and the tax thereon was not credited or refunded.
‘‘(3) RATE OF TAX.—The rate of tax imposed by this subsection shall be the rate of tax applicable under section
4081(a)(2)(A)(iv) which is in effect at the time of such sale
or use.’’.
26 USC 4091–
4093.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
PUBLIC LAW 108–357—OCT. 22, 2004
Jkt 039139
PO 00357
Frm 00196
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1613
(B) Section 4041(d)(2) is amended by striking ‘‘section
4091’’ and inserting ‘‘section 4081’’.
(C) Section 4041 is amended by striking subsection
(e).
(D) Section 4041 is amended by striking subsection
(i).
(E) Section 4041(m)(1) is amended to read as follows:
‘‘(1) IN GENERAL.—In the case of the sale or use of any
partially exempt methanol or ethanol fuel the rate of the tax
imposed by subsection (a)(2) shall be—
‘‘(A) after September 30, 1997, and before October 1,
2005—
‘‘(i) in the case of fuel none of the alcohol in which
consists of ethanol, 9.15 cents per gallon, and
‘‘(ii) in any other case, 11.3 cents per gallon, and
‘‘(B) after September 30, 2005—
‘‘(i) in the case of fuel none of the alcohol in which
consists of ethanol, 2.15 cents per gallon, and
‘‘(ii) in any other case, 4.3 cents per gallon.’’.
(F) Sections 4101(a), 4103, 4221(a), and 6206 are each
amended by striking ‘‘, 4081, or 4091’’ and inserting ‘‘or
4081’’.
(G) Section 6416(b)(2) is amended by striking ‘‘4091
or’’.
(H) Section 6416(b)(3) is amended by striking ‘‘or 4091’’
each place it appears.
(I) Section 6416(d) is amended by striking ‘‘or to the
tax imposed by section 4091 in the case of refunds described
in section 4091(d)’’.
(J) Section 6427(j)(1) is amended by striking ‘‘, 4081,
and 4091’’ and inserting ‘‘and 4081’’.
(K)(i) Section 6427(l)(1) is amended to read as follows:
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection and in subsection (k), if any diesel fuel or kerosene
on which tax has been imposed by section 4041 or 4081 is
used by any person in a nontaxable use, the Secretary shall
pay (without interest) to the ultimate purchaser of such fuel
an amount equal to the aggregate amount of tax imposed
on such fuel under section 4041 or 4081, as the case may
be, reduced by any payment made to the ultimate vendor
under paragraph (4)(B).’’.
(ii) Paragraph (5)(B) of section 6427(l) is amended by
striking ‘‘Paragraph (1)(A) shall not apply to kerosene’’
and inserting ‘‘Paragraph (1) shall not apply to kerosene
(other than aviation-grade kerosene)’’.
(L) Subparagraph (B) of section 6724(d)(1), as amended
by section 805, is amended by striking clause (xvi) and
by redesignating the succeeding clauses accordingly.
(M) Paragraph (2) of section 6724(d), as amended by
section 805, is amended by striking subparagraph (X) and
by redesignating the succeeding subparagraphs accordingly.
(N) Paragraph (1) of section 9502(b) is amended by
adding ‘‘and’’ at the end of subparagraph (B) and by striking
subparagraphs (C) and (D) and inserting the following new
subparagraph:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00197
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1614
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(C) section 4081 with respect to aviation gasoline and
aviation-grade kerosene, and’’.
(O) The last sentence of section 9502(b) is amended
to read as follows:
‘‘There shall not be taken into account under paragraph (1) so
much of the taxes imposed by section 4081 as are determined
at the rate specified in section 4081(a)(2)(B).’’.
(P) Subsection (b) of section 9508 is amended by
striking paragraph (3) and by redesignating paragraphs
(4) and (5) as paragraphs (3) and (4), respectively.
(Q) Section 9508(c)(2)(A) is amended by striking ‘‘sections 4081 and 4091’’ and inserting ‘‘section 4081’’.
(R) The table of subparts for part III of subchapter
A of chapter 32 is amended to read as follows:
‘‘Subpart A. Motor and aviation fuels.
‘‘Subpart B. Special provisions applicable to fuels tax.’’.
(S) The heading for subpart A of part III of subchapter
A of chapter 32 is amended to read as follows:
‘‘Subpart A—Motor and Aviation Fuels’’.
(T) The heading for subpart B of part III of subchapter
A of chapter 32, as redesignated by paragraph (1), is
amended to read as follows:
‘‘Subpart B—Special Provisions Applicable to
Fuels Tax’’.
26 USC 4041
note.
26 USC 4081
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to aviation-grade kerosene removed, entered, or sold
after December 31, 2004.
(f) FLOOR STOCKS TAX.—
(1) IN GENERAL.—There is hereby imposed on aviationgrade kerosene held on January 1, 2005, by any person a
tax equal to—
(A) the tax which would have been imposed before
such date on such kerosene had the amendments made
by this section been in effect at all times before such
date, reduced by
(B) the sum of—
(i) the tax imposed before such date on such kerosene under section 4091 of the Internal Revenue Code
of 1986, as in effect on such date, and
(ii) in the case of kerosene held exclusively for
such person’s own use, the amount which such person
would (but for this clause) reasonably expect (as of
such date) to be paid as a refund under section 6427(l)
of such Code with respect to such kerosene.
(2) EXCEPTION FOR FUEL HELD IN AIRCRAFT FUEL TANK.—
Paragraph (1) shall not apply to kerosene held in the fuel
tank of an aircraft on January 1, 2005.
(3) LIABILITY FOR TAX AND METHOD OF PAYMENT.—
(A) LIABILITY FOR TAX.—The person holding the kerosene on January 1, 2005, to which the tax imposed by
paragraph (1) applies shall be liable for such tax.
(B) METHOD AND TIME FOR PAYMENT.—The tax imposed
by paragraph (1) shall be paid at such time and in such
Jkt 039139
PO 00357
Frm 00198
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1615
manner as the Secretary of the Treasury (or the Secretary’s
delegate) shall prescribe, including the nonapplication of
such tax on de minimis amounts of kerosene.
(4) TRANSFER OF FLOOR STOCK TAX REVENUES TO TRUST
FUNDS.—For purposes of determining the amount transferred
to any trust fund, the tax imposed by this subsection shall
be treated as imposed by section 4081 of the Internal Revenue
Code of 1986—
(A) in any case in which tax was not imposed by
section 4091 of such Code, at the Leaking Underground
Storage Tank Trust Fund financing rate under such section
to the extent of 0.1 cents per gallon, and
(B) at the rate under section 4081(a)(2)(A)(iv) of such
Code to the extent of the remainder.
(5) HELD BY A PERSON.—For purposes of this subsection,
kerosene shall be considered as held by a person if title thereto
has passed to such person (whether or not delivery to the
person has been made).
(6) OTHER LAWS APPLICABLE.—All provisions of law,
including penalties, applicable with respect to the tax imposed
by section 4081 of such Code shall, insofar as applicable and
not inconsistent with the provisions of this subsection, apply
with respect to the floor stock tax imposed by paragraph (1)
to the same extent as if such tax were imposed by such section.
SEC. 854. DYE INJECTION EQUIPMENT.
(a) IN GENERAL.—Section 4082(a)(2) (relating to exemptions
for diesel fuel and kerosene) is amended by inserting ‘‘by mechanical
injection’’ after ‘‘indelibly dyed’’.
(b) DYE INJECTOR SECURITY.—Not later than 180 days after
the date of the enactment of this Act, the Secretary of the Treasury
shall issue regulations regarding mechanical dye injection systems
described in the amendment made by subsection (a), and such
regulations shall include standards for making such systems tamper
resistant.
(c) PENALTY FOR TAMPERING WITH OR FAILING TO MAINTAIN
SECURITY REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.—
(1) IN GENERAL.—Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding after
section 6715 the following new section:
Deadline.
Regulations.
26 USC 4082
note.
‘‘SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY
REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.
‘‘(a) IMPOSITION OF PENALTY.—
‘‘(1) TAMPERING.—If any person tampers with a mechanical
dye injection system used to indelibly dye fuel for purposes
of section 4082, such person shall pay a penalty in addition
to the tax (if any).
‘‘(2) FAILURE TO MAINTAIN SECURITY REQUIREMENTS.—If any
operator of a mechanical dye injection system used to indelibly
dye fuel for purposes of section 4082 fails to maintain the
security standards for such system as established by the Secretary, then such operator shall pay a penalty in addition
to the tax (if any).
‘‘(b) AMOUNT OF PENALTY.—The amount of the penalty under
subsection (a) shall be—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00199
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1616
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(1) for each violation described in paragraph (1), the
greater of—
‘‘(A) $25,000, or
‘‘(B) $10 for each gallon of fuel involved, and
‘‘(2) for each—
‘‘(A) failure to maintain security standards described
in paragraph (2), $1,000, and
‘‘(B) failure to correct a violation described in paragraph (2), $1,000 per day for each day after which such
violation was discovered or such person should have reasonably known of such violation.
‘‘(c) JOINT AND SEVERAL LIABILITY.—
‘‘(1) IN GENERAL.—If a penalty is imposed under this section
on any business entity, each officer, employee, or agent of
such entity or other contracting party who willfully participated
in any act giving rise to such penalty shall be jointly and
severally liable with such entity for such penalty.
‘‘(2) AFFILIATED GROUPS.—If a business entity described
in paragraph (1) is part of an affiliated group (as defined
in section 1504(a)), the parent corporation of such entity shall
be jointly and severally liable with such entity for the penalty
imposed under this section.’’.
(2) CLERICAL AMENDMENT.—The table of sections for part
I of subchapter B of chapter 68 is amended by adding after
the item related to section 6715 the following new item:
‘‘Sec. 6715A. Tampering with or failing to maintain security requirements
for mechanical dye injection systems.’’.
26 USC 4082
note.
(d) EFFECTIVE DATE.—The amendments made by subsections
(a) and (c) shall take effect on the 180th day after the date on
which the Secretary issues the regulations described in subsection
(b).
SEC. 855. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE
USE OF DYED FUEL.
26 USC 6715
note.
(a) IN GENERAL.—Section 6715 is amended by inserting at
the end the following new subsection:
‘‘(e) NO ADMINISTRATIVE APPEAL FOR THIRD AND SUBSEQUENT
VIOLATIONS.—In the case of any person who is found to be subject
to the penalty under this section after a chemical analysis of such
fuel and who has been penalized under this section at least twice
after the date of the enactment of this subsection, no administrative
appeal or review shall be allowed with respect to such finding
except in the case of a claim regarding—
‘‘(1) fraud or mistake in the chemical analysis, or
‘‘(2) mathematical calculation of the amount of the penalty.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to penalties assessed after the date of the enactment
of this Act.
SEC. 856. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL
MIXTURES.
(a) IN GENERAL.—Section 6715(a) (relating to dyed fuel sold
for use or used in taxable use, etc.) is amended by striking ‘‘or’’
in paragraph (2), by inserting ‘‘or’’ at the end of paragraph (3),
and by inserting after paragraph (3) the following new paragraph:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00200
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1617
‘‘(4) any person who has knowledge that a dyed fuel which
has been altered as described in paragraph (3) sells or holds
for sale such fuel for any use which the person knows or
has reason to know is not a nontaxable use of such fuel,’’.
(b) CONFORMING AMENDMENT.—Section 6715(a)(3) is amended
by striking ‘‘alters, or attempts to alter,’’ and inserting ‘‘alters,
chemically or otherwise, or attempts to so alter,’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
26 USC 6715
note.
SEC. 857. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.
(a) IN GENERAL.—Paragraph (3) of section 4082(b) (relating
to nontaxable use) is amended to read as follows:
‘‘(3) any use described in section 4041(a)(1)(C)(iii)(II).’’.
(b) ULTIMATE VENDOR REFUND.—Subsection (b) of section 6427
is amended by adding at the end the following new paragraph:
‘‘(4) REFUNDS FOR USE OF DIESEL FUEL IN CERTAIN INTERCITY BUSES.—With respect to any fuel to which paragraph
(2)(A) applies, if the ultimate purchaser of such fuel waives
(at such time and in such form and manner as the Secretary
shall prescribe) the right to payment under paragraph (1) and
assigns such right to the ultimate vendor, then the Secretary
shall pay the amount which would be paid under paragraph
(1) to such ultimate vendor, but only if such ultimate vendor—
‘‘(A) is registered under section 4101, and
‘‘(B) meets the requirements of subparagraph (A), (B),
or (D) of section 6416(a)(1).’’.
(c) PAYMENT OF REFUNDS.—Subparagraph (A) of section
6427(i)(4), as amended by this Act, is amended by inserting ‘‘subsections (b)(4) and’’ after ‘‘filed under’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to fuel sold after December 31, 2004.
26 USC 4082
note.
SEC. 858. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) IN GENERAL.—Section 4083(d)(1)(A) (relating to administrative authority), as amended by this Act, is amended by striking
‘‘and’’ at the end of clause (i) and by inserting after clause (ii)
the following new clause:
‘‘(iii) inspecting any books and records and any
shipping papers pertaining to such fuel, and’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
26 USC 4083
note.
SEC. 859. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.
(a) IN GENERAL.—Part I of subchapter B of chapter 68 (relating
to assessable penalties), as amended by this Act, is amended by
inserting after section 6716 the following new section:
‘‘SEC. 6717. REFUSAL OF ENTRY.
‘‘(a) IN GENERAL.—In addition to any other penalty provided
by law, any person who refuses to admit entry or refuses to permit
any other action by the Secretary authorized by section 4083(d)(1)
shall pay a penalty of $1,000 for such refusal.
‘‘(b) JOINT AND SEVERAL LIABILITY.—
‘‘(1) IN GENERAL.—If a penalty is imposed under this section
on any business entity, each officer, employee, or agent of
such entity or other contracting party who willfully participated
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00201
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1618
PUBLIC LAW 108–357—OCT. 22, 2004
in any act giving rise to such penalty shall be jointly and
severally liable with such entity for such penalty.
‘‘(2) AFFILIATED GROUPS.—If a business entity described
in paragraph (1) is part of an affiliated group (as defined
in section 1504(a)), the parent corporation of such entity shall
be jointly and severally liable with such entity for the penalty
imposed under this section.
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed under this section with respect to any failure if it is
shown that such failure is due to reasonable cause.’’.
(b) CONFORMING AMENDMENTS.—(1) Section 4083(d)(3), as
amended by this Act, is amended—
(A) by striking ‘‘ENTRY.—The penalty’’ and inserting:
‘‘ENTRY.—
‘‘(A) FORFEITURE.—The penalty’’, and
(B) by adding at the end the following new subparagraph:
‘‘(B) ASSESSABLE PENALTY.—For additional assessable
penalty for the refusal to admit entry or other refusal
to permit an action by the Secretary authorized by paragraph (1), see section 6717.’’.
(2) The table of sections for part I of subchapter B of chapter
68, as amended by this Act, is amended by inserting after the
item relating to section 6716 the following new item:
‘‘Sec. 6717. Refusal of entry.’’.
26 USC 4083
note.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 860. REGISTRATION OF PIPELINE OR VESSEL OPERATORS
REQUIRED FOR EXEMPTION OF BULK TRANSFERS TO
REGISTERED TERMINALS OR REFINERIES.
26 USC 4081
note.
Effective date.
26 USC 4101
note.
(a) IN GENERAL.—Section 4081(a)(1)(B) (relating to exemption
for bulk transfers to registered terminals or refineries) is amended—
(1) by inserting ‘‘by pipeline or vessel’’ after ‘‘transferred
in bulk’’, and
(2) by inserting ‘‘, the operator of such pipeline or vessel,’’
after ‘‘the taxable fuel’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall take effect on March 1, 2005.
(c) PUBLICATION OF REGISTERED PERSONS.—Beginning on
January 1, 2005, the Secretary of the Treasury (or the Secretary’s
delegate) shall periodically publish under section 6103(k)(7) of the
Internal Revenue Code of 1986 a current list of persons registered
under section 4101 of such Code who are required to register
under such section.
SEC. 861. DISPLAY OF REGISTRATION.
(a) IN GENERAL.—Subsection (a) of section 4101 (relating to
registration) is amended—
(1) by striking ‘‘Every’’ and inserting the following:
‘‘(1) IN GENERAL.—Every’’, and
(2) by adding at the end the following new paragraph:
‘‘(2) DISPLAY OF REGISTRATION.—Every operator of a vessel
required by the Secretary to register under this section shall
display proof of registration through an identification device
prescribed by the Secretary on each vessel used by such operator to transport any taxable fuel.’’.
(b) CIVIL PENALTY FOR FAILURE TO DISPLAY REGISTRATION.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00202
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1619
(1) IN GENERAL.—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6717 the following new
section:
‘‘SEC. 6718. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.
‘‘(a) FAILURE TO DISPLAY REGISTRATION.—Every operator of
a vessel who fails to display proof of registration pursuant to
section 4101(a)(2) shall pay a penalty of $500 for each such failure.
With respect to any vessel, only one penalty shall be imposed
by this section during any calendar month.
‘‘(b) MULTIPLE VIOLATIONS.—In determining the penalty under
subsection (a) on any person, subsection (a) shall be applied by
increasing the amount in subsection (a) by the product of such
amount and the aggregate number of penalties (if any) imposed
with respect to prior months by this section on such person (or
a related person or any predecessor of such person or related
person).
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed under this section with respect to any failure if it is
shown that such failure is due to reasonable cause.’’.
(2) CLERICAL AMENDMENT.—The table of sections for part
I of subchapter B of chapter 68, as amended by this Act,
is amended by inserting after the item relating to section 6717
the following new item:
Applicability.
‘‘Sec. 6718. Failure to display tax registration on vessels.’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendments made by subsection
(a) shall take effect on January 1, 2005.
(2) SUBSECTION (b).—The amendments made by subsection
(b) shall apply to penalties imposed after December 31, 2004.
26 USC 4101
note.
26 USC 6718
note.
SEC. 862. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE ZONES,
ETC.
(a) IN GENERAL.—Section 4101(a), as amended by this Act,
is amended by redesignating paragraph (2) as paragraph (3), and
by inserting after paragraph (1) the following new paragraph:
‘‘(2) REGISTRATION OF PERSONS WITHIN FOREIGN TRADE
ZONES, ETC.—The Secretary shall require registration by any
person which—
‘‘(A) operates a terminal or refinery within a foreign
trade zone or within a customs bonded storage facility,
or
‘‘(B) holds an inventory position with respect to a taxable fuel in such a terminal.’’.
(b) TECHNICAL AMENDMENT.—Section 6718(a), as added by this
Act, is amended by striking ‘‘section 4101(a)(2)’’ and inserting ‘‘section 4101(a)(3)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
26 USC 4101
note.
SEC. 863. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO
REPORT.
(a) INCREASED PENALTY.—Subsection (a) of section 7272
(relating to penalty for failure to register) is amended by inserting
‘‘($10,000 in the case of a failure to register under section 4101)’’
after ‘‘$50’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00203
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1620
PUBLIC LAW 108–357—OCT. 22, 2004
(b) INCREASED CRIMINAL PENALTY.—Section 7232 (relating to
failure to register under section 4101, false representations of registration status, etc.) is amended by striking ‘‘$5,000’’ and inserting
‘‘$10,000’’.
(c) ASSESSABLE PENALTY FOR FAILURE TO REGISTER.—
(1) IN GENERAL.—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6718 at the end the following
new section:
‘‘SEC. 6719. FAILURE TO REGISTER.
‘‘(a) FAILURE TO REGISTER.—Every person who is required to
register under section 4101 and fails to do so shall pay a penalty
in addition to the tax (if any).
‘‘(b) AMOUNT OF PENALTY.—The amount of the penalty under
subsection (a) shall be—
‘‘(1) $10,000 for each initial failure to register, and
‘‘(2) $1,000 for each day thereafter such person fails to
register.
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed under this section with respect to any failure if it is
shown that such failure is due to reasonable cause.’’.
(2) CLERICAL AMENDMENT.—The table of sections for part
I of subchapter B of chapter 68, as amended by this Act,
is amended by inserting after the item relating to section 6718
the following new item:
‘‘Sec. 6719. Failure to register.’’.
(d) ASSESSABLE PENALTY FOR FAILURE TO REPORT.—
(1) IN GENERAL.—Part II of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end the following new section:
‘‘SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.
‘‘(a) IN GENERAL.—In the case of each failure described in
subsection (b) by any person with respect to a vessel or facility,
such person shall pay a penalty of $10,000 in addition to the
tax (if any).
‘‘(b) FAILURES SUBJECT TO PENALTY.—For purposes of subsection (a), the failures described in this subsection are—
‘‘(1) any failure to make a report under section 4101(d)
on or before the date prescribed therefor, and
‘‘(2) any failure to include all of the information required
to be shown on such report or the inclusion of incorrect information.
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed under this section with respect to any failure if it is
shown that such failure is due to reasonable cause.’’.
(2) CLERICAL AMENDMENT.—The table of sections for part
II of subchapter B of chapter 68 is amended by adding at
the end the following new item:
‘‘Sec. 6725. Failure to report information under section 4101.’’.
26 USC 6719
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to penalties imposed after December 31, 2004.
Jkt 039139
PO 00357
Frm 00204
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1621
SEC. 864. ELECTRONIC FILING OF REQUIRED INFORMATION REPORTS.
(a) IN GENERAL.—Section 4101(d) is amended by adding at
the end the following new flush sentence:
‘‘Any person who is required to report under this subsection and
who has 25 or more reportable transactions in a month shall file
such report in electronic format.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply on January 1, 2006.
26 USC 4101
note.
SEC. 865. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.
(a) IN GENERAL.—Paragraph (4) of section 6416(a) (relating
to abatements, credits, and refunds) is amended to read as follows:
‘‘(4) REGISTERED ULTIMATE VENDOR TO ADMINISTER CREDITS
AND REFUNDS OF GASOLINE TAX.—
‘‘(A) IN GENERAL.—For purposes of this subsection, if
an ultimate vendor purchases any gasoline on which tax
imposed by section 4081 has been paid and sells such
gasoline to an ultimate purchaser described in subparagraph (C) or (D) of subsection (b)(2) (and such gasoline
is for a use described in such subparagraph), such ultimate
vendor shall be treated as the person (and the only person)
who paid such tax, but only if such ultimate vendor is
registered under section 4101.
‘‘(B) TIMING OF CLAIMS.—The procedure and timing
of any claim under subparagraph (A) shall be the same
as for claims under section 6427(i)(4), except that the rules
of section 6427(i)(3)(B) regarding electronic claims shall
not apply unless the ultimate vendor has certified to the
Secretary for the most recent quarter of the taxable year
that all ultimate purchasers of the vendor are certified
and entitled to a refund under subparagraph (C) or (D)
of subsection (b)(2).’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
26 USC 6416
note.
SEC. 866. TWO-PARTY EXCHANGES.
(a) IN GENERAL.—Subpart C of part III of subchapter A of
chapter 32, as amended by this Act, is amended by inserting after
section 4104 the following new section:
‘‘SEC. 4105. TWO-PARTY EXCHANGES.
‘‘(a) IN GENERAL.—In a two-party exchange, the delivering person shall not be liable for the tax imposed under section
4081(a)(1)(A)(ii).
‘‘(b) TWO-PARTY EXCHANGE.—The term ‘two-party exchange’
means a transaction, other than a sale, in which taxable fuel
is transferred from a delivering person registered under section
4101 as a taxable fuel registrant to a receiving person who is
so registered where all of the following occur:
‘‘(1) The transaction includes a transfer from the delivering
person, who holds the inventory position for taxable fuel in
the terminal as reflected in the records of the terminal operator.
‘‘(2) The exchange transaction occurs before or contemporaneous with completion of removal across the rack from the
terminal by the receiving person.
‘‘(3) The terminal operator in its books and records treats
the receiving person as the person that removes the product
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00205
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1622
PUBLIC LAW 108–357—OCT. 22, 2004
across the terminal rack for purposes of reporting the transaction to the Secretary.
‘‘(4) The transaction is the subject of a written contract.’’.
(b) CONFORMING AMENDMENT.—The table of sections for subpart C of part III of subchapter A of chapter 32, as amended
by this Act, is amended by adding after the last item the following
new item:
‘‘Sec. 4105. Two-party exchanges.’’.
26 USC 4105
note.
(c) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 867. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.
26 USC 4481
note.
(a) PRORATION OF TAX WHERE VEHICLE SOLD.—
(1) IN GENERAL.—Subparagraph (A) of section 4481(c)(2)
(relating to where vehicle destroyed or stolen) is amended by
striking ‘‘destroyed or stolen’’ both places it appears and
inserting ‘‘sold, destroyed, or stolen’’.
(2) CONFORMING AMENDMENT.—The heading for section
4481(c)(2) is amended by striking ‘‘DESTROYED OR STOLEN’’ and
inserting ‘‘SOLD, DESTROYED, OR STOLEN’’.
(b) REPEAL OF INSTALLMENT PAYMENT.—(1) Section 6156
(relating to installment payment of tax on use of highway motor
vehicles) is repealed.
(2) The table of sections for subchapter A of chapter 62 is
amended by striking the item relating to section 6156.
(c) ELECTRONIC FILING.—Section 4481 is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
‘‘(e) ELECTRONIC FILING.—Any taxpayer who files a return
under this section with respect to 25 or more vehicles for any
taxable period shall file such return electronically.’’.
(d) REPEAL OF REDUCTION IN TAX FOR CERTAIN TRUCKS.—
Section 4483 is amended by striking subsection (f).
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable periods beginning after the date of the enactment of this Act.
SEC. 868. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO
THE HIGHWAY TRUST FUND.
26 USC 9503
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Subsection (b) of section 9503 (relating to
transfer to Highway Trust Fund of amounts equivalent to certain
taxes) is amended by redesignating paragraph (5) as paragraph
(6) and inserting after paragraph (4) the following new paragraph:
‘‘(5) CERTAIN PENALTIES.—There are hereby appropriated
to the Highway Trust Fund amounts equivalent to the penalties
paid under sections 6715, 6715A, 6717, 6718, 6719, 6725, 7232,
and 7272 (but only with regard to penalties under such section
related to failure to register under section 4101).’’.
(b) CONFORMING AMENDMENTS.—(1) The heading of subsection
(b) of section 9503 is amended by inserting ‘‘AND PENALTIES’’ after
‘‘TAXES’’.
(2) The heading of paragraph (1) of section 9503(b) is amended
by striking ‘‘IN GENERAL’’ and inserting ‘‘CERTAIN TAXES’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to penalties assessed on or after the date of the enactment of this Act.
Jkt 039139
PO 00357
Frm 00206
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1623
SEC. 869. SIMPLIFICATION OF TAX ON TIRES.
(a) IN GENERAL.—Subsection (a) of section 4071 is amended
to read as follows:
‘‘(a) IMPOSITION AND RATE OF TAX.—There is hereby imposed
on taxable tires sold by the manufacturer, producer, or importer
thereof a tax at the rate of 9.45 cents (4.725 cents in the case
of a biasply tire or super single tire) for each 10 pounds so much
of the maximum rated load capacity thereof as exceeds 3,500
pounds.’’.
(b) BIASPLY AND SUPER SINGLE TIRES.—Section 4072 is
amended by adding at the end the following new subsections:
‘‘(c) BIASPLY.—For purposes of this part, the term ‘biasply tire’
means a pneumatic tire on which the ply cords that extend to
the beads are laid at alternate angles substantially less than 90
degrees to the centerline of the tread.
‘‘(d) SUPER SINGLE TIRE.—For purposes of this part, the term
‘super single tire’ means a single tire greater than 13 inches in
cross section width designed to replace 2 tires in a dual fitment.’’.
(b) TAXABLE TIRE.—Section 4072, as amended by subsection
(a), is amended by redesignating subsections (a), (b), (c), and (d)
as subsections (b), (c), (d), and (e) respectively, and by inserting
before subsection (b) (as so redesignated) the following new subsection:
‘‘(a) TAXABLE TIRE.—For purposes of this chapter, the term
‘taxable tire’ means any tire of the type used on highway vehicles
if wholly or in part made of rubber and if marked pursuant to
Federal regulations for highway use.’’.
(c) EXEMPTION FOR TIRES SOLD TO DEPARTMENT OF DEFENSE.—
Section 4073 is amended to read as follows:
‘‘SEC. 4073. EXEMPTIONS.
‘‘The tax imposed by section 4071 shall not apply to tires
sold for the exclusive use of the Department of Defense or the
Coast Guard.’’.
(d) CONFORMING AMENDMENTS.—(1) Section 4071 is amended
by striking subsection (c) and by moving subsection (e) after subsection (b) and redesignating subsection (e) as subsection (c).
(2) The item relating to section 4073 in the table of sections
for part II of subchapter A of chapter 32 is amended to read
as follows:
‘‘Sec. 4073. Exemptions.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales in calendar years beginning more than 30
days after the date of the enactment of this Act.
26 USC 4071
note.
SEC. 870. TRANSMIX AND DIESEL FUEL BLEND STOCKS TREATED AS
TAXABLE FUEL.
(a) IN GENERAL.—Paragraph (3) of section 4083(a) is amended
to read as follows:
‘‘(3) DIESEL FUEL.—
‘‘(A) IN GENERAL.—The term ‘diesel fuel’ means—
‘‘(i) any liquid (other than gasoline) which is suitable for use as a fuel in a diesel-powered highway
vehicle, or a diesel-powered train,
‘‘(ii) transmix, and
‘‘(iii) diesel fuel blend stocks identified by the Secretary.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00207
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1624
26 USC 4083
note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(B) TRANSMIX.—For purposes of subparagraph (A), the
term ‘transmix’ means a byproduct of refined products pipeline operations created by the mixing of different specification products during pipeline transportation.’’.
(b) CONFORMING AMENDMENT.—Subsection (h) of section 6427
is amended to read as follows:
‘‘(h) BLEND STOCKS NOT USED FOR PRODUCING TAXABLE FUEL.—
‘‘(1) GASOLINE BLEND STOCKS OR ADDITIVES NOT USED FOR
PRODUCING GASOLINE.—Except as provided in subsection (k),
if any gasoline blend stock or additive (within the meaning
of section 4083(a)(2)) is not used by any person to produce
gasoline and such person establishes that the ultimate use
of such gasoline blend stock or additive is not to produce
gasoline, the Secretary shall pay (without interest) to such
person an amount equal to the aggregate amount of the tax
imposed on such person with respect to such gasoline blend
stock or additive.
‘‘(2) DIESEL FUEL BLEND STOCKS OR ADDITIVES NOT USED
FOR PRODUCING DIESEL.—Except as provided in subsection (k),
if any diesel fuel blend stock is not used by any person to
produce diesel fuel and such person establishes that the ultimate use of such diesel fuel blend stock is not to produce
diesel fuel, the Secretary shall pay (without interest) to such
person an amount equal to the aggregate amount of the tax
imposed on such person with respect to such diesel fuel blend
stock.’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to fuel removed, sold, or used after December 31, 2004.
SEC. 871. STUDY REGARDING FUEL TAX COMPLIANCE.
Deadline.
Reports.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Not later than January 31, 2005, the Secretary of the Treasury shall submit to the Committee on Finance
of the Senate and the Committee on Ways and Means of the
House of Representatives a report regarding compliance with the
tax imposed under subchapter B of chapter 31 and part III of
subchapter A of chapter 32 of the Internal Revenue Code of 1986.
Such report shall include the information, analysis, and recommendations specified in subsections (b), (c), and (d).
(b) TAXABLE FUEL BLENDSTOCKS.—The Secretary shall identify
chemical products to be added to the list of blendstocks from lab
analysis of fuel samples collected by the Internal Revenue Service
which have been blended with taxable fuel but are not treated
as blendstocks. The Secretary shall include statistics regarding
the frequency in which a chemical product has been collected,
and whether the sample contained an above normal concentration
of the chemical product.
(c) WASTE PRODUCTS ADDED TO TAXABLE FUELS.—The report
shall include a discussion of Internal Revenue Service findings
regarding the addition of waste products to taxable fuel and any
recommendations to address the taxation of such products.
(d) ERRONEOUS CLAIMS OF FUEL TAX EXEMPTIONS.—The report
shall include a discussion of Internal Revenue Service findings
regarding sales of taxable fuel to entities claiming exempt status
as a State or local government and the frequency of erroneous
certifications of tax exempt status. The Secretary, in consultation
with representatives of State and local governments, shall provide
Jkt 039139
PO 00357
Frm 00208
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1625
recommendations to address such erroneous claims, including recommendations on the feasibility of a State maintained list of exempt
governmental entities within the State.
Subtitle D—Other Revenue Provisions
SEC. 881. QUALIFIED TAX COLLECTION CONTRACTS.
(a) CONTRACT REQUIREMENTS.—
(1) IN GENERAL.—Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following new
section:
‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
‘‘(a) IN GENERAL.—Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a qualified
tax collection contract.
‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.—For purposes of
this section, the term ‘qualified tax collection contract’ means any
contract which—
‘‘(1) is for the services of any person (other than an officer
or employee of the Treasury Department)—
‘‘(A) to locate and contact any taxpayer specified by
the Secretary,
‘‘(B) to request full payment from such taxpayer of
an amount of Federal tax specified by the Secretary and,
if such request cannot be met by the taxpayer, to offer
the taxpayer an installment agreement providing for full
payment of such amount during a period not to exceed
5 years, and
‘‘(C) to obtain financial information specified by the
Secretary with respect to such taxpayer,
‘‘(2) prohibits each person providing such services under
such contract from committing any act or omission which
employees of the Internal Revenue Service are prohibited from
committing in the performance of similar services,
‘‘(3) prohibits subcontractors from—
‘‘(A) having contacts with taxpayers,
‘‘(B) providing quality assurance services, and
‘‘(C) composing debt collection notices, and
‘‘(4) permits subcontractors to perform other services only
with the approval of the Secretary.
‘‘(c) FEES.—The Secretary may retain and use—
‘‘(1) an amount not in excess of 25 percent of the amount
collected under any qualified tax collection contract for the
costs of services performed under such contract, and
‘‘(2) an amount not in excess of 25 percent of such amount
collected for collection enforcement 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 subsection.
‘‘(d) NO FEDERAL LIABILITY.—The United States shall not be
liable for any act or omission of any person performing services
under a qualified tax collection contract.
‘‘(e) APPLICATION OF FAIR DEBT COLLECTION PRACTICES ACT.—
The provisions of the Fair Debt Collection Practices Act (15 U.S.C.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00209
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Records.
BILLW
PsN: PUBL357
118 STAT. 1626
PUBLIC LAW 108–357—OCT. 22, 2004
1692 et seq.) shall apply to any qualified tax collection contract,
except to the extent superseded by section 6304, section 7602(c),
or by any other provision of this title.
‘‘(f) CROSS REFERENCES.—
‘‘(1) For damages for certain unauthorized collection actions by
persons performing services under a qualified tax collection contract, see section 7433A.
‘‘(2) For application of Taxpayer Assistance Orders to persons
performing services under a qualified tax collection contract, see
section 7811(g).’’.
(2) CONFORMING AMENDMENTS.—(A) Section 7809(a) is
amended by inserting ‘‘6306,’’ before ‘‘7651’’.
(B) The table of sections for subchapter A of chapter 64
is amended by adding at the end the following new item:
‘‘Sec. 6306. Qualified tax collection contracts.’’.
(b) CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION
ACTIONS BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.—
(1) IN GENERAL.—Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES
UNDER QUALIFIED TAX COLLECTION CONTRACTS.
Applicability.
‘‘(a) IN GENERAL.—Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and omissions
of any person performing services under a qualified tax collection
contract (as defined in section 6306(b)) to the same extent and
in the same manner as if such person were an employee of the
Internal Revenue Service.
‘‘(b) MODIFICATIONS.—For purposes of subsection (a):
‘‘(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who entered
into the qualified tax collection contract with the Secretary
and shall not be brought against the United States.
‘‘(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
‘‘(3) Such civil action shall not be an exclusive remedy
with respect to such person.
‘‘(4) Subsections (c), (d)(1), and (e) of section 7433 shall
not apply.’’.
(2) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 76 is amended by inserting after the
item relating to section 7433 the following new item:
‘‘Sec. 7433A. Civil damages for certain unauthorized collection actions by
persons performing services under qualified tax collection contracts.’’.
(c) APPLICATION OF TAXPAYER ASSISTANCE ORDERS TO PERSONS
PERFORMING SERVICES UNDER A QUALIFIED TAX COLLECTION CONTRACT.—Section 7811 (relating to taxpayer assistance orders) is
amended by adding at the end the following new subsection:
‘‘(g) APPLICATION TO PERSONS PERFORMING SERVICES UNDER
A QUALIFIED TAX COLLECTION CONTRACT.—Any order issued or
action taken by the National Taxpayer Advocate pursuant to this
section shall apply to persons performing services under a qualified
tax collection contract (as defined in section 6306(b)) to the same
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00210
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1627
extent and in the same manner as such order or action applies
to the Secretary.’’.
(d) INELIGIBILITY OF INDIVIDUALS WHO COMMIT MISCONDUCT
TO PERFORM UNDER CONTRACT.—Section 1203 of the Internal Revenue Service Restructuring Act of 1998 (relating to termination
of employment for misconduct) is amended by adding at the end
the following new subsection:
‘‘(e) INDIVIDUALS PERFORMING SERVICES UNDER A QUALIFIED
TAX COLLECTION CONTRACT.—An individual shall cease to be permitted to perform any services under any qualified tax collection
contract (as defined in section 6306(b) of the Internal Revenue
Code of 1986) if there is a final determination by the Secretary
of the Treasury under such contract that such individual committed
any act or omission described under subsection (b) in connection
with the performance of such services.’’.
(e) BIENNIAL REPORT.—The Secretary of the Treasury shall
biennially submit (beginning in 2005) to the Committee on Finance
of the Senate and the Committee on Ways and Means of the
House of Representatives a report with respect to qualified tax
collection contracts under section 6306 of the Internal Revenue
Code of 1986 (as added by this section) which includes—
(1) a complete cost benefit analysis,
(2) the impact of such contracts on collection enforcement
staff levels in the Internal Revenue Service,
(3) the impact of such contracts on the total number and
amount of unpaid assessments, and on the number and amount
of assessments collected by Internal Revenue Service personnel
after initial contact by a contractor,
(4) the amounts collected and the collection costs incurred
(directly and indirectly) by the Internal Revenue Service,
(5) an evaluation of contractor performance,
(6) a disclosure safeguard report in a form similar to that
required under section 6103(p)(5) of such Code, and
(7) a measurement plan which includes a comparison of
the best practices used by the private collectors with the
Internal Revenue Service’s own collection techniques and
mechanisms to identify and capture information on successful
collection techniques used by the contractors which could be
adopted by the Internal Revenue Service.
(f) EFFECTIVE DATE.—The amendments made to this section
shall take effect on the date of the enactment of this Act.
26 USC 7804
note.
26 USC 6306
note.
26 USC 6306
note.
SEC. 882. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS
AND SIMILAR PROPERTY.
(a) IN GENERAL.—Subparagraph (B) of section 170(e)(1) is
amended by striking ‘‘or’’ at the end of clause (i), by adding ‘‘or’’
at the end of clause (ii), and by inserting after clause (ii) the
following new clause:
‘‘(iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)),
trademark, trade name, trade secret, know-how, software (other than software described in section
197(e)(3)(A)(i)), or similar property, or applications or
registrations of such property,’’.
(b) CERTAIN DONEE INCOME FROM INTELLECTUAL PROPERTY
TREATED AS AN ADDITIONAL CHARITABLE CONTRIBUTION.—Section
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00211
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1628
PUBLIC LAW 108–357—OCT. 22, 2004
170 is amended by redesignating subsection (m) as subsection (n)
and by inserting after subsection (l) the following new subsection:
‘‘(m) CERTAIN DONEE INCOME FROM INTELLECTUAL PROPERTY
TREATED AS AN ADDITIONAL CHARITABLE CONTRIBUTION.—
‘‘(1) TREATMENT AS ADDITIONAL CONTRIBUTION.—In the case
of a taxpayer who makes a qualified intellectual property contribution, the deduction allowed under subsection (a) for each
taxable year of the taxpayer ending on or after the date of
such contribution shall be increased (subject to the limitations
under subsection (b)) by the applicable percentage of qualified
donee income with respect to such contribution which is properly allocable to such year under this subsection.
‘‘(2) REDUCTION IN ADDITIONAL DEDUCTIONS TO EXTENT OF
INITIAL DEDUCTION.—With respect to any qualified intellectual
property contribution, the deduction allowed under subsection
(a) shall be increased under paragraph (1) only to the extent
that the aggregate amount of such increases with respect to
such contribution exceed the amount allowed as a deduction
under subsection (a) with respect to such contribution determined without regard to this subsection.
‘‘(3) QUALIFIED DONEE INCOME.—For purposes of this subsection, the term ‘qualified donee income’ means any net income
received by or accrued to the donee which is properly allocable
to the qualified intellectual property.
‘‘(4) ALLOCATION OF QUALIFIED DONEE INCOME TO TAXABLE
YEARS OF DONOR.—For purposes of this subsection, qualified
donee income shall be treated as properly allocable to a taxable
year of the donor if such income is received by or accrued
to the donee for the taxable year of the donee which ends
within or with such taxable year of the donor.
‘‘(5) 10-YEAR LIMITATION.—Income shall not be treated as
properly allocable to qualified intellectual property for purposes
of this subsection if such income is received by or accrued
to the donee after the 10-year period beginning on the date
of the contribution of such property.
‘‘(6) BENEFIT LIMITED TO LIFE OF INTELLECTUAL PROPERTY.—Income shall not be treated as properly allocable to
qualified intellectual property for purposes of this subsection
if such income is received by or accrued to the donee after
the expiration of the legal life of such property.
‘‘(7) APPLICABLE PERCENTAGE.—For purposes of this subsection, the term ‘applicable percentage’ means the percentage
determined under the following table which corresponds to
a taxable year of the donor ending on or after the date of
the qualified intellectual property contribution:
‘‘Taxable Year of Donor
Ending on or After
Applicable
Date of Contribution:
Percentage:
1st ....................................................................................................................
100
2nd ...................................................................................................................
100
3rd ....................................................................................................................
90
4th ....................................................................................................................
80
5th ....................................................................................................................
70
6th ....................................................................................................................
60
7th ....................................................................................................................
50
8th ....................................................................................................................
40
9th ....................................................................................................................
30
10th ..................................................................................................................
20
11th ..................................................................................................................
10
12th ..................................................................................................................
10.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00212
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1629
‘‘(8) QUALIFIED INTELLECTUAL PROPERTY CONTRIBUTION.—
For purposes of this subsection, the term ‘qualified intellectual
property contribution’ means any charitable contribution of
qualified intellectual property—
‘‘(A) the amount of which taken into account under
this section is reduced by reason of subsection (e)(1), and
‘‘(B) with respect to which the donor informs the donee
at the time of such contribution that the donor intends
to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section
6050L.
‘‘(9) QUALIFIED INTELLECTUAL PROPERTY.—For purposes of
this subsection, the term ‘qualified intellectual property’ means
property described in subsection (e)(1)(B)(iii) (other than property contributed to or for the use of an organization described
in subsection (e)(1)(B)(ii)).
‘‘(10) OTHER SPECIAL RULES.—
‘‘(A) APPLICATION OF LIMITATIONS ON CHARITABLE CONTRIBUTIONS.—Any increase under this subsection of the
deduction provided under subsection (a) shall be treated
for purposes of subsection (b) as a deduction which is
attributable to a charitable contribution to the donee to
which such increase relates.
‘‘(B) NET INCOME DETERMINED BY DONEE.—The net
income taken into account under paragraph (3) shall not
exceed the amount of such income reported under section
6050L(b)(1).
‘‘(C) DEDUCTION LIMITED TO 12 TAXABLE YEARS.—Except
as may be provided under subparagraph (D)(i), this subsection shall not apply with respect to any qualified intellectual property contribution for any taxable year of the donor
after the 12th taxable year of the donor which ends on
or after the date of such contribution.
‘‘(D) REGULATIONS.—The Secretary may issue regulations or other guidance to carry out the purposes of this
subsection, including regulations or guidance—
‘‘(i) modifying the application of this subsection
in the case of a donor or donee with a short taxable
year, and
‘‘(ii) providing for the determination of an amount
to be treated as net income of the donee which is
properly allocable to qualified intellectual property in
the case of a donee who uses such property to further
a purpose or function constituting the basis of the
donee’s exemption under section 501 (or, in the case
of a governmental unit, any purpose described in section 170(c)) and does not possess a right to receive
any payment from a third party with respect to such
property.’’.
(c) REPORTING REQUIREMENTS.—
(1) IN GENERAL.—Section 6050L (relating to returns
relating to certain dispositions of donated property) is amended
to read as follows:
‘‘SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.
‘‘(a) DISPOSITIONS OF DONATED PROPERTY.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00213
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1630
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(1) IN GENERAL.—If the donee of any charitable deduction
property sells, exchanges, or otherwise disposes of such property
within 2 years after its receipt, the donee shall make a return
(in accordance with forms and regulations prescribed by the
Secretary) showing—
‘‘(A) the name, address, and TIN of the donor,
‘‘(B) a description of the property,
‘‘(C) the date of the contribution,
‘‘(D) the amount received on the disposition, and
‘‘(E) the date of such disposition.
‘‘(2) DEFINITIONS.—For purposes of this subsection:
‘‘(A) CHARITABLE DEDUCTION PROPERTY.—The term
‘charitable deduction property’ means any property (other
than publicly traded securities) contributed in a contribution for which a deduction was claimed under section 170
if the claimed value of such property (plus the claimed
value of all similar items of property donated by the donor
to 1 or more donees) exceeds $5,000.
‘‘(B) PUBLICLY TRADED SECURITIES.—The term ‘publicly
traded securities’ means securities for which (as of the
date of the contribution) market quotations are readily
available on an established securities market.
‘‘(b) QUALIFIED INTELLECTUAL PROPERTY CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—Each donee with respect to a qualified
intellectual property contribution shall make a return (at such
time and in such form and manner as the Secretary may
by regulations prescribe) with respect to each specified taxable
year of the donee showing—
‘‘(A) the name, address, and TIN of the donor,
‘‘(B) a description of the qualified intellectual property
contributed,
‘‘(C) the date of the contribution, and
‘‘(D) the amount of net income of the donee for the
taxable year which is properly allocable to the qualified
intellectual property (determined without regard to paragraph (10)(B) of section 170(m) and with the modifications
described in paragraphs (5) and (6) of such section).
‘‘(2) DEFINITIONS.—For purposes of this subsection:
‘‘(A) IN GENERAL.—Terms used in this subsection which
are also used in section 170(m) have the respective
meanings given such terms in such section.
‘‘(B) SPECIFIED TAXABLE YEAR.—The term ‘specified taxable year’ means, with respect to any qualified intellectual
property contribution, any taxable year of the donee any
portion of which is part of the 10-year period beginning
on the date of such contribution.
‘‘(c) STATEMENT TO BE FURNISHED TO DONORS.—Every person
making a return under subsection (a) or (b) shall furnish a copy
of such return to the donor at such time and in such manner
as the Secretary may by regulations prescribe.’’.
(2) CLERICAL AMENDMENT.—The table of sections for subpart A of part II of subchapter A of chapter 61 is amended
by striking the item relating to section 6050L and inserting
the following new item:
‘‘Sec. 6050L. Returns relating to certain donated property.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00214
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1631
(d) COORDINATION WITH APPRAISAL REQUIREMENTS.—Subclause
(I) of section 170(f)(11)(A)(ii), as added by this Act, is amended
by inserting ‘‘subsection (e)(1)(B)(iii) or’’ before ‘‘section 1221(a)(1)’’.
(e) ANTI-ABUSE RULES.—The Secretary of the Treasury may
prescribe such regulations or other guidance as may be necessary
or appropriate to prevent the avoidance of the purposes of section
170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added
by subsection (a)), including preventing—
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar property as part of a charitable contribution of property that
includes the patent or similar property,
(2) the manipulation of the basis of the property to increase
the amount of the charitable deduction through the use of
related persons, pass-thru entities, or other intermediaries, or
through the use of any provision of law or regulation (including
the consolidated return regulations), and
(3) a donor from changing the form of the patent or similar
property to property of a form for which different deduction
rules would apply.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to contributions made after June 3, 2004.
26 USC 170 note.
26 USC 170 note.
SEC. 883. INCREASED REPORTING FOR NONCASH CHARITABLE CONTRIBUTIONS.
(a) IN GENERAL.—Subsection (f) of section 170 (relating to disallowance of deduction in certain cases and special rules) is
amended by adding after paragraph (10) the following new paragraph:
‘‘(11) QUALIFIED APPRAISAL AND OTHER DOCUMENTATION FOR
CERTAIN CONTRIBUTIONS.—
‘‘(A) IN GENERAL.—
‘‘(i) DENIAL OF DEDUCTION.—In the case of an individual, partnership, or corporation, no deduction shall
be allowed under subsection (a) for any contribution
of property for which a deduction of more than $500
is claimed unless such person meets the requirements
of subparagraphs (B), (C), and (D), as the case may
be, with respect to such contribution.
‘‘(ii) EXCEPTIONS.—
‘‘(I) READILY VALUED PROPERTY.—Subparagraphs (C) and (D) shall not apply to cash, property
described in section 1221(a)(1), publicly traded
securities (as defined in section 6050L(a)(2)(B)),
and any qualified vehicle described in paragraph
(12)(A)(ii) for which an acknowledgement under
paragraph (12)(B)(iii) is provided.
‘‘(II) REASONABLE CAUSE.—Clause (i) shall not
apply if it is shown that the failure to meet such
requirements is due to reasonable cause and not
to willful neglect.
‘‘(B) PROPERTY DESCRIPTION FOR CONTRIBUTIONS OF
MORE THAN $500.—In the case of contributions of property
for which a deduction of more than $500 is claimed, the
requirements of this subparagraph are met if the individual, partnership or corporation includes with the return
for the taxable year in which the contribution is made
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00215
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1632
Applicability.
26 USC 170 note.
PUBLIC LAW 108–357—OCT. 22, 2004
a description of such property and such other information
as the Secretary may require. The requirements of this
subparagraph shall not apply to a C corporation which
is not a personal service corporation or a closely held C
corporation.
‘‘(C) QUALIFIED APPRAISAL FOR CONTRIBUTIONS OF MORE
THAN $5,000.—In the case of contributions of property for
which a deduction of more than $5,000 is claimed, the
requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified
appraisal of such property and attaches to the return for
the taxable year in which such contribution is made such
information regarding such property and such appraisal
as the Secretary may require.
‘‘(D) SUBSTANTIATION FOR CONTRIBUTIONS OF MORE
THAN $500,000.—In the case of contributions of property
for which a deduction of more than $500,000 is claimed,
the requirements of this subparagraph are met if the individual, partnership, or corporation attaches to the return
for the taxable year a qualified appraisal of such property.
‘‘(E) QUALIFIED APPRAISAL.—For purposes of this paragraph, the term ‘qualified appraisal’ means, with respect
to any property, an appraisal of such property which is
treated for purposes of this paragraph as a qualified
appraisal under regulations or other guidance prescribed
by the Secretary.
‘‘(F) AGGREGATION OF SIMILAR ITEMS OF PROPERTY.—
For purposes of determining thresholds under this paragraph, property and all similar items of property donated
to 1 or more donees shall be treated as 1 property.
‘‘(G) SPECIAL RULE FOR PASS-THRU ENTITIES.—In the
case of a partnership or S corporation, this paragraph
shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
‘‘(H) REGULATIONS.—The Secretary may prescribe such
regulations as may be necessary or appropriate to carry
out the purposes of this paragraph, including regulations
that may provide that some or all of the requirements
of this paragraph do not apply in appropriate cases.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to contributions made after June 3, 2004.
SEC. 884. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) IN GENERAL.—Subsection (f) of section 170 (relating to disallowance of deduction in certain cases and special rules), as
amended by this Act, is amended by inserting after paragraph
(11) the following new paragraph:
‘‘(12) CONTRIBUTIONS OF USED MOTOR VEHICLES, BOATS, AND
AIRPLANES.—
‘‘(A) IN GENERAL.—In the case of a contribution of
a qualified vehicle the claimed value of which exceeds
$500—
‘‘(i) paragraph (8) shall not apply and no deduction
shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution
by a contemporaneous written acknowledgement of the
contribution by the donee organization that meets the
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00216
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1633
requirements of subparagraph (B) and includes the
acknowledgement with the taxpayer’s return of tax
which includes the deduction, and
‘‘(ii) if the organization sells the vehicle without
any significant intervening use or material improvement of such vehicle by the organization, the amount
of the deduction allowed under subsection (a) shall
not exceed the gross proceeds received from such sale.
‘‘(B) CONTENT OF ACKNOWLEDGEMENT.—An acknowledgement meets the requirements of this subparagraph
if it includes the following information:
‘‘(i) The name and taxpayer identification number
of the donor.
‘‘(ii) The vehicle identification number or similar
number.
‘‘(iii) In the case of a qualified vehicle to which
subparagraph (A)(ii) applies—
‘‘(I) a certification that the vehicle was sold
in an arm’s length transaction between unrelated
parties,
‘‘(II) the gross proceeds from the sale, and
‘‘(III) a statement that the deductible amount
may not exceed the amount of such gross proceeds.
‘‘(iv) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply—
‘‘(I) a certification of the intended use or material improvement of the vehicle and the intended
duration of such use, and
‘‘(II) a certification that the vehicle would not
be transferred in exchange for money, other property, or services before completion of such use or
improvement.
‘‘(C) CONTEMPORANEOUS.—For purposes of subparagraph (A), an acknowledgement shall be considered to be
contemporaneous if the donee organization provides it
within 30 days of—
‘‘(i) the sale of the qualified vehicle, or
‘‘(ii) in the case of an acknowledgement including
a certification described in subparagraph (B)(iv), the
contribution of the qualified vehicle.
‘‘(D) INFORMATION TO SECRETARY.—A donee organization required to provide an acknowledgement under this
paragraph shall provide to the Secretary the information
contained in the acknowledgement. Such information shall
be provided at such time and in such manner as the Secretary may prescribe.
‘‘(E) QUALIFIED VEHICLE.—For purposes of this paragraph, the term ‘qualified vehicle’ means any—
‘‘(i) motor vehicle manufactured primarily for use
on public streets, roads, and highways,
‘‘(ii) boat, or
‘‘(iii) airplane.
Such term shall not include any property which is described
in section 1221(a)(1).
‘‘(F) REGULATIONS OR OTHER GUIDANCE.—The Secretary
shall prescribe such regulations or other guidance as may
be necessary to carry out the purposes of this paragraph.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00217
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1634
PUBLIC LAW 108–357—OCT. 22, 2004
The Secretary may prescribe regulations or other guidance
which exempts sales by the donee organization which are
in direct furtherance of such organization’s charitable purpose from the requirements of subparagraphs (A)(ii) and
(B)(iv)(II).’’.
(b) PENALTY FOR FRAUDULENT ACKNOWLEDGMENTS.—
(1) IN GENERAL.—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6719 the following new
section:
‘‘SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO
DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
‘‘Any donee organization required under section 170(f)(12)(A)
to furnish a contemporaneous written acknowledgment to a donor
which knowingly furnishes a false or fraudulent acknowledgment,
or which knowingly fails to furnish such acknowledgment in the
manner, at the time, and showing the information required under
section 170(f)(12), or regulations prescribed thereunder, shall for
each such act, or for each such failure, be subject to a penalty
equal to—
‘‘(1) in the case of an acknowledgment with respect to
a qualified vehicle to which section 170(f)(12)(A)(ii) applies,
the greater of—
‘‘(A) the product of the highest rate of tax specified
in section 1 and the sales price stated on the acknowledgment, or
‘‘(B) the gross proceeds from the sale of such vehicle,
and
‘‘(2) in the case of an acknowledgment with respect to
any other qualified vehicle to which section 170(f)(12) applies,
the greater of—
‘‘(A) the product of the highest rate of tax specified
in section 1 and the claimed value of the vehicle, or
‘‘(B) $5,000.’’.
(2) CONFORMING AMENDMENT.—The table of sections for
part I of subchapter B of chapter 68, as amended by this
Act, is amended by inserting after the item relating to section
6719 the following new item:
‘‘Sec. 6720. Fraudulent acknowledgments with respect to donations of
motor vehicles, boats, and airplanes.’’.
26 USC 170 note.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to contributions made after December 31, 2004.
SEC. 885. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION
PLANS.
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter
1 is amended by adding at the end the following new section:
‘‘SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER NONQUALIFIED DEFERRED COMPENSATION
PLANS.
‘‘(a) RULES RELATING TO CONSTRUCTIVE RECEIPT.—
‘‘(1) PLAN FAILURES.—
‘‘(A) GROSS INCOME INCLUSION.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00218
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1635
‘‘(i) IN GENERAL.—If at any time during a taxable
year a nonqualified deferred compensation plan—
‘‘(I) fails to meet the requirements of paragraphs (2), (3), and (4), or
‘‘(II) is not operated in accordance with such
requirements,
all compensation deferred under the plan for the taxable year and all preceding taxable years shall be
includible in gross income for the taxable year to the
extent not subject to a substantial risk of forfeiture
and not previously included in gross income.
‘‘(ii) APPLICATION ONLY TO AFFECTED PARTICIPANTS.—Clause (i) shall only apply with respect to
all compensation deferred under the plan for participants with respect to whom the failure relates.
‘‘(B) INTEREST AND ADDITIONAL TAX PAYABLE WITH
RESPECT TO PREVIOUSLY DEFERRED COMPENSATION.—
‘‘(i) IN GENERAL.—If compensation is required to
be included in gross income under subparagraph (A)
for a taxable year, the tax imposed by this chapter
for the taxable year shall be increased by the sum
of—
‘‘(I) the amount of interest determined under
clause (ii), and
‘‘(II) an amount equal to 20 percent of the
compensation which is required to be included in
gross income.
‘‘(ii) INTEREST.—For purposes of clause (i), the
interest determined under this clause for any taxable
year is the amount of interest at the underpayment
rate plus 1 percentage point on the underpayments
that would have occurred had the deferred compensation been includible in gross income for the taxable
year in which first deferred or, if later, the first taxable
year in which such deferred compensation is not subject
to a substantial risk of forfeiture.
‘‘(2) DISTRIBUTIONS.—
‘‘(A) IN GENERAL.—The requirements of this paragraph
are met if the plan provides that compensation deferred
under the plan may not be distributed earlier than—
‘‘(i) separation from service as determined by the
Secretary (except as provided in subparagraph (B)(i)),
‘‘(ii) the date the participant becomes disabled
(within the meaning of subparagraph (C)),
‘‘(iii) death,
‘‘(iv) a specified time (or pursuant to a fixed
schedule) specified under the plan at the date of the
deferral of such compensation,
‘‘(v) to the extent provided by the Secretary, a
change in the ownership or effective control of the
corporation, or in the ownership of a substantial portion of the assets of the corporation, or
‘‘(vi) the occurrence of an unforeseeable emergency.
‘‘(B) SPECIAL RULES.—
‘‘(i) SPECIFIED EMPLOYEES.—In the case of any
specified employee, the requirement of subparagraph
(A)(i) is met only if distributions may not be made
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00219
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1636
PUBLIC LAW 108–357—OCT. 22, 2004
before the date which is 6 months after the date of
separation from service (or, if earlier, the date of death
of the employee). For purposes of the preceding sentence, a specified employee is a key employee (as
defined in section 416(i) without regard to paragraph
(5) thereof) of a corporation any stock in which is
publicly traded on an established securities market
or otherwise.
‘‘(ii) UNFORESEEABLE EMERGENCY.—For purposes
of subparagraph (A)(vi)—
‘‘(I) IN GENERAL.—The term ‘unforeseeable
emergency’ means a severe financial hardship to
the participant resulting from an illness or
accident of the participant, the participant’s
spouse, or a dependent (as defined in section
152(a)) of the participant, loss of the participant’s
property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the participant.
‘‘(II) LIMITATION ON DISTRIBUTIONS.—The
requirement of subparagraph (A)(vi) is met only
if, as determined under regulations of the Secretary, the amounts distributed with respect to
an emergency do not exceed the amounts necessary
to satisfy such emergency plus amounts necessary
to pay taxes reasonably anticipated as a result
of the distribution, after taking into account the
extent to which such hardship is or may be relieved
through reimbursement or compensation by insurance or otherwise or by liquidation of the participant’s assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship).
‘‘(C) DISABLED.—For purposes of subparagraph (A)(ii),
a participant shall be considered disabled if the
participant—
‘‘(i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less than 12 months, or
‘‘(ii) is, by reason of any medically determinable
physical or mental impairment which can be expected
to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving
income replacement benefits for a period of not less
than 3 months under an accident and health plan
covering employees of the participant’s employer.
‘‘(3) ACCELERATION OF BENEFITS.—The requirements of this
paragraph are met if the plan does not permit the acceleration
of the time or schedule of any payment under the plan, except
as provided in regulations by the Secretary.
‘‘(4) ELECTIONS.—
‘‘(A) IN GENERAL.—The requirements of this paragraph
are met if the requirements of subparagraphs (B) and
(C) are met.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00220
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1637
‘‘(B) INITIAL DEFERRAL DECISION.—
‘‘(i) IN GENERAL.—The requirements of this
subparagraph are met if the plan provides that compensation for services performed during a taxable year
may be deferred at the participant’s election only if
the election to defer such compensation is made not
later than the close of the preceding taxable year or
at such other time as provided in regulations.
‘‘(ii) FIRST YEAR OF ELIGIBILITY.—In the case of
the first year in which a participant becomes eligible
to participate in the plan, such election may be made
with respect to services to be performed subsequent
to the election within 30 days after the date the participant becomes eligible to participate in such plan.
‘‘(iii) PERFORMANCE-BASED COMPENSATION.—In the
case of any performance-based compensation based on
services performed over a period of at least 12 months,
such election may be made no later than 6 months
before the end of the period.
‘‘(C) CHANGES IN TIME AND FORM OF DISTRIBUTION.—
The requirements of this subparagraph are met if, in the
case of a plan which permits under a subsequent election
a delay in a payment or a change in the form of payment—
‘‘(i) the plan requires that such election may not
take effect until at least 12 months after the date
on which the election is made,
‘‘(ii) in the case of an election related to a payment
not described in clause (ii), (iii), or (vi) of paragraph
(2)(A), the plan requires that the first payment with
respect to which such election is made be deferred
for a period of not less than 5 years from the date
such payment would otherwise have been made, and
‘‘(iii) the plan requires that any election related
to a payment described in paragraph (2)(A)(iv) may
not be made less than 12 months prior to the date
of the first scheduled payment under such paragraph.
‘‘(b) RULES RELATING TO FUNDING.—
‘‘(1) OFFSHORE PROPERTY IN A TRUST.—In the case of assets
set aside (directly or indirectly) in a trust (or other arrangement
determined by the Secretary) for purposes of paying deferred
compensation under a nonqualified deferred compensation plan,
for purposes of section 83 such assets shall be treated as
property transferred in connection with the performance of
services whether or not such assets are available to satisfy
claims of general creditors—
‘‘(A) at the time set aside if such assets (or such trust
or other arrangement) are located outside of the United
States, or
‘‘(B) at the time transferred if such assets (or such
trust or other arrangement) are subsequently transferred
outside of the United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which the
nonqualified deferred compensation relates are performed in
such jurisdiction.
‘‘(2) EMPLOYER’S FINANCIAL HEALTH.—In the case of compensation deferred under a nonqualified deferred compensation
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00221
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Deadline.
BILLW
PsN: PUBL357
118 STAT. 1638
PUBLIC LAW 108–357—OCT. 22, 2004
plan, there is a transfer of property within the meaning of
section 83 with respect to such compensation as of the earlier
of—
‘‘(A) the date on which the plan first provides that
assets will become restricted to the provision of benefits
under the plan in connection with a change in the
employer’s financial health, or
‘‘(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claims
of general creditors.
‘‘(3) INCOME INCLUSION FOR OFFSHORE TRUSTS AND
EMPLOYER’S FINANCIAL HEALTH.—For each taxable year that
assets treated as transferred under this subsection remain set
aside in a trust or other arrangement subject to paragraph
(1) or (2), any increase in value in, or earnings with respect
to, such assets shall be treated as an additional transfer of
property under this subsection (to the extent not previously
included in income).
‘‘(4) INTEREST ON TAX LIABILITY PAYABLE WITH RESPECT
TO TRANSFERRED PROPERTY.—
‘‘(A) IN GENERAL.—If amounts are required to be
included in gross income by reason of paragraph (1) or
(2) for a taxable year, the tax imposed by this chapter
for such taxable year shall be increased by the sum of—
‘‘(i) the amount of interest determined under
subparagraph (B), and
‘‘(ii) an amount equal to 20 percent of the amounts
required to be included in gross income.
‘‘(B) INTEREST.—For purposes of subparagraph (A), the
interest determined under this subparagraph for any taxable year is the amount of interest at the underpayment
rate plus 1 percentage point on the underpayments that
would have occurred had the amounts so required to be
included in gross income by paragraph (1) or (2) been
includible in gross income for the taxable year in which
first deferred or, if later, the first taxable year in which
such amounts are not subject to a substantial risk of forfeiture.
‘‘(c) NO INFERENCE ON EARLIER INCOME INCLUSION OR REQUIREMENT OF LATER INCLUSION.—Nothing in this section shall be construed to prevent the inclusion of amounts in gross income under
any other provision of this chapter or any other rule of law earlier
than the time provided in this section. Any amount included in
gross income under this section shall not be required to be included
in gross income under any other provision of this chapter or any
other rule of law later than the time provided in this section.
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes
of this section:
‘‘(1) NONQUALIFIED DEFERRED COMPENSATION PLAN.—The
term ‘nonqualified deferred compensation plan’ means any plan
that provides for the deferral of compensation, other than—
‘‘(A) a qualified employer plan, and
‘‘(B) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan.
‘‘(2) QUALIFIED EMPLOYER PLAN.—The term ‘qualified
employer plan’ means—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00222
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1639
‘‘(A) any plan, contract, pension, account, or trust
described in subparagraph (A) or (B) of section 219(g)(5)
(without regard to subparagraph (A)(iii)),
‘‘(B) any eligible deferred compensation plan (within
the meaning of section 457(b)), and
‘‘(C) any plan described in section 415(m).
‘‘(3) PLAN INCLUDES ARRANGEMENTS, ETC.—The term ‘plan’
includes any agreement or arrangement, including an agreement or arrangement that includes one person.
‘‘(4) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person’s rights to such compensation are
conditioned upon the future performance of substantial services
by any individual.
‘‘(5) TREATMENT OF EARNINGS.—References to deferred compensation shall be treated as including references to income
(whether actual or notional) attributable to such compensation
or such income.
‘‘(6) AGGREGATION RULES.—Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c)
of section 414 shall apply.
‘‘(e) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes
of this section, including regulations—
‘‘(1) providing for the determination of amounts of deferral
in the case of a nonqualified deferred compensation plan which
is a defined benefit plan,
‘‘(2) relating to changes in the ownership and control of
a corporation or assets of a corporation for purposes of subsection (a)(2)(A)(v),
‘‘(3) exempting arrangements from the application of subsection (b) if such arrangements will not result in an improper
deferral of United States tax and will not result in assets
being effectively beyond the reach of creditors,
‘‘(4) defining financial health for purposes of subsection
(b)(2), and
‘‘(5) disregarding a substantial risk of forfeiture in cases
where necessary to carry out the purposes of this section.’’.
(b) TREATMENT OF DEFERRED AMOUNTS.—
(1) W–2 FORMS.—
(A) IN GENERAL.—Subsection (a) of section 6051
(relating to receipts for employees) is amended by striking
‘‘and’’ at the end of paragraph (11), by striking the period
at the end of paragraph (12) and inserting ‘‘, and’’, and
by inserting after paragraph (12) the following new paragraph:
‘‘(13) the total amount of deferrals for the year under
a nonqualified deferred compensation plan (within the meaning
of section 409A(d)).’’.
(B) THRESHOLD.—Subsection (a) of section 6051 is
amended by adding at the end the following: ‘‘In the case
of the amounts required to be shown by paragraph (13),
the Secretary may (by regulation) establish a minimum
amount of deferrals below which paragraph (13) does not
apply.’’.
(2) WAGE WITHHOLDING.—Section 3401(a) (defining wages)
is amended by adding at the end the following flush sentence:
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00223
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1640
26 USC 6041.
Applicability.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘The term ‘wages’ includes any amount includible in gross
income of an employee under section 409A and payment of
such amount shall be treated as having been made in the
taxable year in which the amount is so includible.’’.
(3) OTHER REPORTING.—Section 6041 (relating to information at source) is amended by adding at the end the following
new subsection:
‘‘(g) NONQUALIFIED DEFERRED COMPENSATION.—Subsection (a)
shall apply to—
‘‘(1) any deferrals for the year under a nonqualified deferred
compensation plan (within the meaning of section 409A(d)),
whether or not paid, except that this paragraph shall not apply
to deferrals which are required to be reported under section
6051(a)(13) (without regard to any de minimis exception), and
‘‘(2) any amount includible under section 409A and which
is not treated as wages under section 3401(a).’’.
(c) CLERICAL AMENDMENT.—The table of sections for such subpart A of part I of subchapter D of chapter 1 is amended by
adding at the end the following new item:
‘‘Sec. 409A. Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans.’’.
26 USC 409A
note.
Deadline.
26 USC 409A
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to amounts deferred after December 31, 2004.
(2) SPECIAL RULES.—
(A) EARNINGS.—The amendments made by this section
shall apply to earnings on deferred compensation only to
the extent that such amendments apply to such compensation.
(B) MATERIAL MODIFICATIONS.—For purposes of this
subsection, amounts deferred in taxable years beginning
before January 1, 2005, shall be treated as amounts
deferred in a taxable year beginning on or after such date
if the plan under which the deferral is made is materially
modified after October 3, 2004, unless such modification
is pursuant to the guidance issued under subsection (f).
(3) EXCEPTION FOR NONELECTIVE DEFERRED COMPENSATION.—The amendments made by this section shall not apply
to any nonelective deferred compensation to which section 457
of the Internal Revenue Code of 1986 does not apply by reason
of section 457(e)(12) of such Code, but only if such compensation
is provided under a nonqualified deferred compensation plan—
(A) which was in existence on May 1, 2004,
(B) which was providing nonelective deferred compensation described in such section 457(e)(12) on such date,
and
(C) which is established or maintained by an organization incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding sentence
adopts a plan amendment which provides a material change
in the classes of individuals eligible to participate in the plan,
this paragraph shall not apply to any nonelective deferred
compensation provided under the plan on or after the date
of the adoption of the amendment.
(e) GUIDANCE RELATING TO CHANGE OF OWNERSHIP OR CONTROL.—Not later than 90 days after the date of the enactment
of this Act, the Secretary of the Treasury shall issue guidance
Jkt 039139
PO 00357
Frm 00224
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1641
on what constitutes a change in ownership or effective control
for purposes of section 409A of the Internal Revenue Code of 1986,
as added by this section.
(f) GUIDANCE RELATING TO TERMINATION OF CERTAIN EXISTING
ARRANGEMENTS.—Not later than 60 days after the date of the
enactment of this Act, the Secretary of the Treasury shall issue
guidance providing a limited period during which a nonqualified
deferred compensation plan adopted before December 31, 2004,
may, without violating the requirements of paragraphs (2), (3),
and (4) of section 409A(a) of the Internal Revenue Code of 1986
(as added by this section), be amended—
(1) to provide that a participant may terminate participation in the plan, or cancel an outstanding deferral election
with regard to amounts deferred after December 31, 2004,
but only if amounts subject to the termination or cancellation
are includible in income of the participant as earned (or, if
later, when no longer subject to substantial risk of forfeiture),
and
(2) to conform to the requirements of such section 409A
with regard to amounts deferred after December 31, 2004.
Deadline.
26 USC 409A
note.
SEC. 886. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS
FRANCHISES.
(a) IN GENERAL.—Section 197(e) (relating to exceptions to definition of section 197 intangible) is amended by striking paragraph
(6) and by redesignating paragraphs (7) and (8) as paragraphs
(6) and (7), respectively.
(b) CONFORMING AMENDMENTS.—
(1)(A) Section 1056 (relating to basis limitation for player
contracts transferred in connection with the sale of a franchise)
is repealed.
(B) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section
1056.
(2) Section 1245(a) (relating to gain from disposition of
certain depreciable property) is amended by striking paragraph
(4).
(3) Section 1253 (relating to transfers of franchises, trademarks, and trade names) is amended by striking subsection
(e).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to property
acquired after the date of the enactment of this Act.
(2) SECTION 1245.—The amendment made by subsection
(b)(2) shall apply to franchises acquired after the date of the
enactment of this Act.
26 USC 197 note.
SEC. 887. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL VENDORS.
(a) IN GENERAL.—Section 6331(h) (relating to continuing levy
on certain payments) is amended by adding at the end the following
new paragraph:
‘‘(3) INCREASE IN LEVY FOR CERTAIN PAYMENTS.—Paragraph
(1) shall be applied by substituting ‘100 percent’ for ‘15 percent’
in the case of any specified payment due to a vendor of goods
or services sold or leased to the Federal Government.’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00225
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1642
26 USC 6331
note.
PUBLIC LAW 108–357—OCT. 22, 2004
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 888. MODIFICATION OF STRADDLE RULES.
(a) RULES RELATING TO IDENTIFIED STRADDLES.—
(1) IN GENERAL.—Subparagraph (A) of section 1092(a)(2)
(relating to special rule for identified straddles) is amended
to read as follows:
‘‘(A) IN GENERAL.—In the case of any straddle which
is an identified straddle—
‘‘(i) paragraph (1) shall not apply with respect
to identified positions comprising the identified
straddle,
‘‘(ii) if there is any loss with respect to any identified position of the identified straddle, the basis of
each of the identified offsetting positions in the identified straddle shall be increased by an amount which
bears the same ratio to the loss as the unrecognized
gain with respect to such offsetting position bears to
the aggregate unrecognized gain with respect to all
such offsetting positions, and
‘‘(iii) any loss described in clause (ii) shall not
otherwise be taken into account for purposes of this
title.’’.
(2) IDENTIFIED STRADDLE.—Section 1092(a)(2)(B) (defining
identified straddle) is amended—
(A) by striking clause (ii) and inserting the following:
‘‘(ii) to the extent provided by regulations, the
value of each position of which (in the hands of the
taxpayer immediately before the creation of the
straddle) is not less than the basis of such position
in the hands of the taxpayer at the time the straddle
is created, and’’, and
(B) by adding at the end the following new flush sentence:
‘‘The Secretary shall prescribe regulations which specify
the proper methods for clearly identifying a straddle as
an identified straddle (and the positions comprising such
straddle), which specify the rules for the application of
this section for a taxpayer which fails to properly identify
the positions of an identified straddle, and which specify
the ordering rules in cases where a taxpayer disposes of
less than an entire position which is part of an identified
straddle.’’.
(3) UNRECOGNIZED GAIN.—Section 1092(a)(3) (defining
unrecognized gain) is amended by redesignating subparagraph
(B) as subparagraph (C) and by inserting after subparagraph
(A) the following new subparagraph:
‘‘(B) SPECIAL RULE FOR IDENTIFIED STRADDLES.—For
purposes of paragraph (2)(A)(ii), the unrecognized gain with
respect to any identified offsetting position shall be the
excess of the fair market value of the position at the
time of the determination over the fair market value of
the position at the time the taxpayer identified the position
as a position in an identified straddle.’’.
Regulations.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00226
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1643
(4) CONFORMING AMENDMENT.—Section 1092(c)(2) is
amended by striking subparagraph (B) and by redesignating
subparagraph (C) as subparagraph (B).
(b) PHYSICALLY SETTLED POSITIONS.—Section 1092(d) (relating
to definitions and special rules) is amended by adding at the end
the following new paragraph:
‘‘(8) SPECIAL RULES FOR PHYSICALLY SETTLED POSITIONS.—
For purposes of subsection (a), if a taxpayer settles a position
which is part of a straddle by delivering property to which
the position relates (and such position, if terminated, would
result in a realization of a loss), then such taxpayer shall
be treated as if such taxpayer—
‘‘(A) terminated the position for its fair market value
immediately before the settlement, and
‘‘(B) sold the property so delivered by the taxpayer
at its fair market value.’’.
(c) REPEAL OF STOCK EXCEPTION.—
(1) IN GENERAL.—Paragraph (3) of section 1092(d) (relating
to definitions and special rules) is amended to read as follows:
‘‘(3) SPECIAL RULES FOR STOCK.—For purposes of paragraph
(1)—
‘‘(A) IN GENERAL.—In the case of stock, the term ‘personal property’ includes stock only if—
‘‘(i) such stock is of a type which is actively traded
and at least 1 of the positions offsetting such stock
is a position with respect to such stock or substantially
similar or related property, or
‘‘(ii) such stock is of a corporation formed or availed
of to take positions in personal property which offset
positions taken by any shareholder.
‘‘(B) RULE FOR APPLICATION.—For purposes of determining whether subsection (e) applies to any transaction
with respect to stock described in subparagraph (A)(ii),
all includible corporations of an affiliated group (within
the meaning of section 1504(a)) shall be treated as 1 taxpayer.’’.
(2) CONFORMING AMENDMENT.—Section 1258(d)(1) is
amended by striking ‘‘; except that the term ‘personal property’
shall include stock’’.
(d) HOLDING PERIOD FOR DIVIDEND EXCLUSION.—The last sentence of section 246(c) is amended by inserting: ‘‘, other than a
qualified covered call option to which section 1092(f) applies’’ before
the period at the end.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to positions established on or after the date of the
enactment of this Act.
26 USC 246 note.
SEC. 889. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF
TAXABLE VACCINES.
(a) IN GENERAL.—Paragraph (1) of section 4132(a) (defining
taxable vaccine) is amended by redesignating subparagraphs (I),
(J), (K), and (L) as subparagraphs (J), (K), (L), and (M), respectively,
and by inserting after subparagraph (H) the following new subparagraph:
‘‘(I) Any vaccine against hepatitis A.’’.
(b) EFFECTIVE DATE.—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00227
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 4132
note.
BILLW
PsN: PUBL357
118 STAT. 1644
PUBLIC LAW 108–357—OCT. 22, 2004
(1) SALES, ETC.—The amendments made by subsection (a)
shall apply to sales and uses on or after the first day of
the first month which begins more than 4 weeks after the
date of the enactment of this Act.
(2) DELIVERIES.—For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of
sales on or before the effective date described in such paragraph
for which delivery is made after such date, the delivery date
shall be considered the sale date.
Applicability.
SEC. 890. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF
TAXABLE VACCINES.
26 USC 4132
note.
(a) IN GENERAL.—Section 4132(a)(1) (defining taxable vaccine),
as amended by this Act, is amended by adding at the end the
following new subparagraph:
‘‘(N) Any trivalent vaccine against influenza.’’.
(b) EFFECTIVE DATE.—
(1) SALES, ETC.—The amendment made by this section
shall apply to sales and uses on or after the later of—
(A) the first day of the first month which begins more
than 4 weeks after the date of the enactment of this Act,
or
(B) the date on which the Secretary of Health and
Human Services lists any vaccine against influenza for
purposes of compensation for any vaccine-related injury
or death through the Vaccine Injury Compensation Trust
Fund.
(2) DELIVERIES.—For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of
sales on or before the effective date described in such paragraph
for which delivery is made after such date, the delivery date
shall be considered the sale date.
SEC. 891. EXTENSION OF IRS USER FEES.
26 USC 7528
note.
(a) IN GENERAL.—Section 7528(c) (relating to termination) is
amended by striking ‘‘December 31, 2004’’ and inserting ‘‘September
30, 2014’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to requests after the date of the enactment of this
Act.
SEC. 892. COBRA FEES.
(a) USE OF MERCHANDISE PROCESSING FEE.—Section 13031(f)
of the Consolidated Omnibus Budget Reconciliation Act of 1985
(19 U.S.C. 58c(f)) is amended—
(1) in paragraph (1), by aligning subparagraph (B) with
subparagraph (A); and
(2) in paragraph (2), by striking ‘‘commercial operations’’
and all that follows through ‘‘processing.’’ and inserting ‘‘customs revenue functions as defined in section 415 of the Homeland Security Act of 2002 (other than functions performed by
the Office of International Affairs referred to in section 415(8)
of that Act), and for automation (including the Automation
Commercial Environment computer system), and for no other
purpose. To the extent that funds in the Customs User Fee
Account are insufficient to pay the costs of such customs revenue functions, customs duties in an amount equal to the
amount of such insufficiency shall be available, to the extent
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00228
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1645
provided for in appropriations Acts, to pay the costs of such
customs revenue functions in the amount of such insufficiency,
and shall be available for no other purpose. The provisions
of the first and second sentences of this paragraph specifying
the purposes for which amounts in the Customs User Fee
Account may be made available shall not be superseded except
by a provision of law which specifically modifies or supersedes
such provisions.’’.
(b) REIMBURSEMENT OF APPROPRIATIONS FROM COBRA FEES.—
Section 13031(f)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(f)(3)) is amended by adding at
the end the following:
‘‘(E) Nothing in this paragraph shall be construed to preclude
the use of appropriated funds, from sources other than the fees
collected under subsection (a), to pay the costs set forth in clauses
(i), (ii), and (iii) of subparagraph (A).’’.
(c) SENSE OF CONGRESS; EFFECTIVE PERIOD FOR COLLECTING
FEES; STANDARD FOR SETTING FEES.—
(1) SENSE OF CONGRESS.—The Congress finds that—
(A) the fees set forth in paragraphs (1) through (8)
of subsection (a) of section 13031 of the Consolidated Omnibus Budget Reconciliation Act of 1985 have been reasonably
related to the costs of providing customs services in connection with the activities or items for which the fees have
been charged under such paragraphs; and
(B) the fees collected under such paragraphs have not
exceeded, in the aggregate, the amounts paid for the costs
described in subsection (f)(3)(A) incurred in providing customs services in connection with the activities or items
for which the fees were charged under such paragraphs.
(2) EFFECTIVE PERIOD; STANDARD FOR SETTING FEES.—Section 13031(j)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 is amended to read as follows:
‘‘(3)(A) Fees may not be charged under paragraphs (9) and
(10) of subsection (a) after September 30, 2014.
‘‘(B)(i) Subject to clause (ii), Fees may not be charged under
paragraphs (1) through (8) of subsection (a) after September 30,
2014.
‘‘(ii) In fiscal year 2006 and in each succeeding fiscal year
for which fees under paragraphs (1) through (8) of subsection (a)
are authorized—
‘‘(I) the Secretary of the Treasury shall charge fees under
each such paragraph in amounts that are reasonably related
to the costs of providing customs services in connection with
the activity or item for which the fee is charged under such
paragraph, except that in no case may the fee charged under
any such paragraph exceed by more than 10 percent the amount
otherwise prescribed by such paragraph;
‘‘(II) the amount of fees collected under such paragraphs
may not exceed, in the aggregate, the amounts paid in that
fiscal year for the costs described in subsection (f)(3)(A) incurred
in providing customs services in connection with the activity
or item for which the fees are charged under such paragraphs;
‘‘(III) a fee may not be collected under any such paragraph
except to the extent such fee will be expended to pay the
costs described in subsection (f)(3)(A) incurred in providing
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00229
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
19 USC 58c note.
19 USC 58c.
BILLW
PsN: PUBL357
118 STAT. 1646
19 USC 58c.
Deadline.
Reports.
PUBLIC LAW 108–357—OCT. 22, 2004
customs services in connection with the activity or item for
which the fee is charged under such paragraph; and
‘‘(IV) any fee collected under any such paragraph shall
be available for expenditure only to pay the costs described
in subsection (f)(3)(A) incurred in providing customs services
in connection with the activity or item for which the fee is
charged under such paragraph.’’.
(d) CLERICAL AMENDMENTS.—Section 13031 of the Consolidated
Omnibus Budget Reconciliation Act of 1985 is amended—
(1) in subsection (a)(5)(B), by striking ‘‘$1.75’’ and inserting
‘‘$1.75.’’;
(2) in subsection (b)—
(A) in paragraph (1)(A), by aligning clause (iii) with
clause (ii);
(B) in paragraph (7), by striking ‘‘paragraphs’’ and
inserting ‘‘paragraph’’; and
(C) in paragraph (9), by aligning subparagraph (B)
with subparagraph (A); and
(3) in subsection (e)(2), by aligning subparagraph (B) with
subparagraph (A).
(e) STUDY OF ALL FEES COLLECTED BY DEPARTMENT OF HOMELAND SECURITY.—The Secretary of the Treasury shall conduct a
study of all the fees collected by the Department of Homeland
Security, and shall submit to the Congress, not later than September 30, 2005, a report containing the recommendations of the
Secretary on—
(1) what fees should be eliminated;
(2) what the rate of fees retained should be; and
(3) any other recommendations with respect to the fees
that the Secretary considers appropriate.
SEC. 893. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH
COMPLETE LIQUIDATION OF HOLDING COMPANY.
(a) IN GENERAL.—Section 332 is amended by adding at the
end the following new subsection:
‘‘(d) RECOGNITION OF GAIN ON LIQUIDATION OF CERTAIN
HOLDING COMPANIES.—
‘‘(1) IN GENERAL.—In the case of any distribution to a
foreign corporation in complete liquidation of an applicable
holding company—
‘‘(A) subsection (a) and section 331 shall not apply
to such distribution, and
‘‘(B) such distribution shall be treated as a distribution
to which section 301 applies.
‘‘(2) APPLICABLE HOLDING COMPANY.—For purposes of this
subsection:
‘‘(A) IN GENERAL.—The term ‘applicable holding company’ means any domestic corporation—
‘‘(i) which is a common parent of an affiliated
group,
‘‘(ii) stock of which is directly owned by the distributee foreign corporation,
‘‘(iii) substantially all of the assets of which consist
of stock in other members of such affiliated group,
and
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00230
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1647
‘‘(iv) which has not been in existence at all times
during the 5 years immediately preceding the date
of the liquidation.
‘‘(B) AFFILIATED GROUP.—For purposes of this subsection, the term ‘affiliated group’ has the meaning given
such term by section 1504(a) (without regard to paragraphs
(2) and (4) of section 1504(b)).
‘‘(3) COORDINATION WITH SUBPART F.—If the distributee
of a distribution described in paragraph (1) is a controlled
foreign corporation (as defined in section 957), then notwithstanding paragraph (1) or subsection (a), such distribution shall
be treated as a distribution to which section 331 applies.
‘‘(4) REGULATIONS.—The Secretary shall provide such regulations as appropriate to prevent the abuse of this subsection,
including regulations which provide, for the purposes of clause
(iv) of paragraph (2)(A), that a corporation is not in existence
for any period unless it is engaged in the active conduct of
a trade or business or owns a significant ownership interest
in another corporation so engaged.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to distributions in complete liquidation occurring on
or after the date of the enactment of this Act.
26 USC 332 note.
SEC. 894. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN
FOREIGN SOURCE INCOME.
(a) IN GENERAL.—Section 864(c)(4)(B) (relating to treatment
of income from sources without the United States as effectively
connected income) is amended by adding at the end the following
new flush sentence:
‘‘Any income or gain which is equivalent to any item of
income or gain described in clause (i), (ii), or (iii) shall
be treated in the same manner as such item for purposes
of this subparagraph.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
26 USC 864 note.
SEC. 895. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF
CONTROLLED FOREIGN CORPORATION.
(a) IN GENERAL.—Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
‘‘(D) APPLICATION TO CERTAIN DISPOSITIONS OF STOCK
IN CONTROLLED FOREIGN CORPORATION.—
‘‘(i) IN GENERAL.—This paragraph shall apply to
an applicable disposition in the same manner as if
it were a disposition of property described in subparagraph (A), except that the exception contained in
subparagraph (C)(i) shall not apply.
‘‘(ii) APPLICABLE DISPOSITION.—For purposes of
clause (i), the term ‘applicable disposition’ means any
disposition of any share of stock in a controlled foreign
corporation in a transaction or series of transactions
if, immediately before such transaction or series of
transactions, the taxpayer owned more than 50 percent
(by vote or value) of the stock of the controlled foreign
corporation. Such term shall not include a disposition
described in clause (iii) or (iv), except that clause (i)
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00231
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1648
26 USC 904 note.
PUBLIC LAW 108–357—OCT. 22, 2004
shall apply to any gain recognized on any such disposition.
‘‘(iii) EXCEPTION FOR CERTAIN EXCHANGES WHERE
OWNERSHIP PERCENTAGE RETAINED.—A disposition
shall not be treated as an applicable disposition under
clause (ii) if it is part of a transaction or series of
transactions—
‘‘(I) to which section 351 or 721 applies, or
under which the transferor receives stock in a
foreign corporation in exchange for the stock in
the controlled foreign corporation and the stock
received is exchanged basis property (as defined
in section 7701(a)(44)), and
‘‘(II) immediately after which, the transferor
owns (by vote or value) at least the same percentage of stock in the controlled foreign corporation
(or, if the controlled foreign corporation is not in
existence after such transaction or series of transactions, in another foreign corporation stock in
which was received by the transferor in exchange
for stock in the controlled foreign corporation) as
the percentage of stock in the controlled foreign
corporation which the taxpayer owned immediately
before such transaction or series of transactions.
‘‘(iv) EXCEPTION FOR CERTAIN ASSET ACQUISITIONS.—A disposition shall not be treated as an
applicable disposition under clause (ii) if it is part
of a transaction or series of transactions in which
the taxpayer (or any member of a controlled group
of corporations filing a consolidated return under section 1501 which includes the taxpayer) acquires the
assets of a controlled foreign corporation in exchange
for the shares of the controlled foreign corporation
in a liquidation described in section 332 or a reorganization described in section 368(a)(1).
‘‘(v) CONTROLLED FOREIGN CORPORATION.—For purposes of this subparagraph, the term ‘controlled foreign
corporation’ has the meaning given such term by section 957.
‘‘(vi) STOCK OWNERSHIP.—For purposes of this
subparagraph, ownership of stock shall be determined
under the rules of subsections (a) and (b) of section
958.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to dispositions after the date of the enactment of this
Act.
SEC.
896.
RECOGNITION OF CANCELLATION OF INDEBTEDNESS
INCOME REALIZED ON SATISFACTION OF DEBT WITH
PARTNERSHIP INTEREST.
(a) IN GENERAL.—Paragraph (8) of section 108(e) (relating to
general rules for discharge of indebtedness (including discharges
not in title 11 cases or insolvency)) is amended to read as follows:
‘‘(8) INDEBTEDNESS SATISFIED BY CORPORATE STOCK OR
PARTNERSHIP INTEREST.—For purposes of determining income
of a debtor from discharge of indebtedness, if—
‘‘(A) a debtor corporation transfers stock, or
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00232
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1649
‘‘(B) a debtor partnership transfers a capital or profits
interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse
indebtedness, such corporation or partnership shall be treated
as having satisfied the indebtedness with an amount of money
equal to the fair market value of the stock or interest. In
the case of any partnership, any discharge of indebtedness
income recognized under this paragraph shall be included in
the distributive shares of taxpayers which were the partners
in the partnership immediately before such discharge.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply with respect to cancellations of indebtedness occurring
on or after the date of the enactment of this Act.
26 USC 108 note.
SEC. 897. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL
READILY TRADABLE DEBT.
(a) IN GENERAL.—Section 453(f)(4)(B) (relating to purchaser
evidences of indebtedness payable on demand or readily tradable)
is amended by striking ‘‘is issued by a corporation or a government
or political subdivision thereof and’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to sales occurring on or after the date of the enactment
of this Act.
26 USC 453 note.
SEC. 898. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN DIVISIVE REORGANIZATIONS.
(a) IN GENERAL.—Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the following
new sentence: ‘‘In the case of a reorganization described in section
368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply
only to the extent that the sum of the money and the fair market
value of other property transferred to such creditors does not exceed
the adjusted bases of such assets transferred.’’.
(b) LIABILITIES IN EXCESS OF BASIS.—Section 357(c)(1)(B) is
amended by inserting ‘‘with respect to which stock or securities
of the corporation to which the assets are transferred are distributed
in a transaction which qualifies under section 355’’ after ‘‘section
368(a)(1)(D)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers of money or other property, or liabilities
assumed, in connection with a reorganization occurring on or after
the date of the enactment of this Act.
26 USC 357 note.
SEC. 899. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.
(a) IN GENERAL.—Section 351(g)(3)(A) is amended by adding
at the end the following: ‘‘Stock shall not be treated as participating
in corporate growth to any significant extent unless there is a
real and meaningful likelihood of the shareholder actually participating in the earnings and growth of the corporation.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to transactions after May 14, 2003.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00233
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
26 USC 351 note.
BILLW
PsN: PUBL357
118 STAT. 1650
PUBLIC LAW 108–357—OCT. 22, 2004
SEC. 900. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
26 USC 1563
note.
(a) IN GENERAL.—Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ‘‘possessing—’’ and all
that follows through ‘‘(B)’’ and inserting ‘‘possessing’’.
(b) APPLICATION OF EXISTING RULES TO OTHER CODE PROVISIONS.—Section 1563(f) (relating to other definitions and rules) is
amended by adding at the end the following new paragraph:
‘‘(5) BROTHER-SISTER CONTROLLED GROUP DEFINITION FOR
PROVISIONS OTHER THAN THIS PART.—
‘‘(A) IN GENERAL.—Except as specifically provided in
an applicable provision, subsection (a)(2) shall be applied
to an applicable provision as if it read as follows:
‘‘(2) BROTHER-SISTER CONTROLLED GROUP.—Two or more
corporations if 5 or fewer persons who are individuals, estates,
or trusts own (within the meaning of subsection (d)(2) stock
possessing—
‘‘(A) at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, or at least
80 percent of the total value of shares of all classes of
stock, of each corporation, and
‘‘(B) more than 50 percent of the total combined voting
power of all classes of stock entitled to vote or more than
50 percent of the total value of shares of all classes of
stock of each corporation, taking into account the stock
ownership of each such person only to the extent such
stock ownership is identical with respect to each such corporation.’
‘‘(B) APPLICABLE PROVISION.—For purposes of this paragraph, an applicable provision is any provision of law (other
than this part) which incorporates the definition of controlled group of corporations under subsection (a).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enactment of this Act.
SEC. 901. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) GAS UTILITY PROPERTY.—Section 168(e)(3)(E) (defining 15year property), as amended by this Act, is amended by striking
‘‘and’’ at the end of clause (iv), by striking the period at the end
of clause (v) and inserting ‘‘, and’’, and by adding at the end
the following new clause:
‘‘(vi) initial clearing and grading land improvements with respect to gas utility property.’’.
(b) ELECTRIC UTILITY PROPERTY.—Section 168(e)(3) is amended
by adding at the end the following new subparagraph:
‘‘(F) 20-YEAR PROPERTY.—The term ‘20-year property’
means initial clearing and grading land improvements with
respect to any electric utility transmission and distribution
plant.’’.
(c) CONFORMING AMENDMENT.—The table contained in section
168(g)(3)(B), as amended by this Act, is amended by inserting
after the item relating to subparagraph (E)(v) the following new
items:
‘‘(E)(vi) ...............................................................................................
‘‘(F) .....................................................................................................
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00234
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
20’’.
25’’.
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1651
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
26 USC 168 note.
SEC. 902. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) START-UP EXPENDITURES.—
(1) ALLOWANCE OF DEDUCTION.—Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to read
as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures—
‘‘(A) the taxpayer shall be allowed a deduction for
the taxable year in which the active trade or business
begins in an amount equal to the lesser of—
‘‘(i) the amount of start-up expenditures with
respect to the active trade or business, or
‘‘(ii) $5,000, reduced (but not below zero) by the
amount by which such start-up expenditures exceed
$50,000, and
‘‘(B) the remainder of such start-up expenditures shall
be allowed as a deduction ratably over the 180-month
period beginning with the month in which the active trade
or business begins.’’.
(2) CONFORMING AMENDMENT.—Subsection (b) of section
195 is amended by striking ‘‘AMORTIZE’’ and inserting ‘‘DEDUCT’’
in the heading.
(b) ORGANIZATIONAL EXPENDITURES.—Subsection (a) of section
248 (relating to organizational expenditures) is amended to read
as follows:
‘‘(a) ELECTION TO DEDUCT.—If a corporation elects the application of this subsection (in accordance with regulations prescribed
by the Secretary) with respect to any organizational expenditures—
‘‘(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an
amount equal to the lesser of—
‘‘(A) the amount of organizational expenditures with
respect to the taxpayer, or
‘‘(B) $5,000, reduced (but not below zero) by the amount
by which such organizational expenditures exceed $50,000,
and
‘‘(2) the remainder of such organizational expenditures
shall be allowed as a deduction ratably over the 180-month
period beginning with the month in which the corporation
begins business.’’.
(c) TREATMENT OF ORGANIZATIONAL AND SYNDICATION FEES OR
PARTNERSHIPS.—
(1) IN GENERAL.—Section 709(b) (relating to amortization
of organization fees) is amended by redesignating paragraph
(2) as paragraph (3) and by amending paragraph (1) to read
as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer elects the
application of this subsection (in accordance with regulations
prescribed by the Secretary) with respect to any organizational
expenses—
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00235
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Regulations.
BILLW
PsN: PUBL357
118 STAT. 1652
26 USC 195 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(A) the taxpayer shall be allowed a deduction for
the taxable year in which the partnership begins business
in an amount equal to the lesser of—
‘‘(i) the amount of organizational expenses with
respect to the partnership, or
‘‘(ii) $5,000, reduced (but not below zero) by the
amount by which such organizational expenses exceed
$50,000, and
‘‘(B) the remainder of such organizational expenses
shall be allowed as a deduction ratably over the 180-month
period beginning with the month in which the partnership
begins business.
‘‘(2) DISPOSITIONS BEFORE CLOSE OF AMORTIZATION
PERIOD.—In any case in which a partnership is liquidated before
the end of the period to which paragraph (1)(B) applies, any
deferred expenses attributable to the partnership which were
not allowed as a deduction by reason of this section may be
deducted to the extent allowable under section 165.’’.
(2) CONFORMING AMENDMENT.—Subsection (b) of section
709 is amended by striking ‘‘AMORTIZATION’’ and inserting
‘‘DEDUCTION’’ in the heading.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or incurred after the date of the
enactment of this Act.
SEC. 903. FREEZE OF PROVISIONS REGARDING SUSPENSION OF
INTEREST WHERE SECRETARY FAILS TO CONTACT TAXPAYER.
26 USC 6404
note.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
(a) IN GENERAL.—Section 6404(g) (relating to suspension of
interest and certain penalties where Secretary fails to contact taxpayer) is amended by striking ‘‘1-year period (18-month period
in the case of taxable years beginning before January 1, 2004)’’
both places it appears and inserting ‘‘18-month period’’.
(b) EXCEPTION FOR GROSS MISSTATEMENT.—Section 6404(g)(2)
(relating to exceptions) is amended by striking ‘‘or’’ at the end
of subparagraph (C), by redesignating subparagraph (D) as subparagraph (E), and by inserting after subparagraph (C) the following
new subparagraph:
‘‘(D) any interest, penalty, addition to tax, or additional
amount with respect to any gross misstatement; or’’.
(c) EXCEPTION FOR LISTED AND REPORTABLE TRANSACTIONS.—
Section 6404(g)(2) (relating to exceptions), as amended by subsection
(b), is amended by striking ‘‘or’’ at the end of subparagraph (D),
by redesignating subparagraph (E) as subparagraph (F), and by
inserting after subparagraph (D) the following new subparagraph:
‘‘(E) any interest, penalty, addition to tax, or additional
amount with respect to any reportable transaction with
respect to which the requirement of section 6664(d)(2)(A)
is not met and any listed transaction (as defined in
6707A(c)); or’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) EXCEPTION FOR REPORTABLE OR LISTED TRANSACTIONS.—
The amendments made by subsection (c) shall apply with
respect to interest accruing after October 3, 2004.
Jkt 039139
PO 00357
Frm 00236
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1653
SEC. 904. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE
PAYMENTS IN EXCESS OF $1,000,000.
(a) IN GENERAL.—If an employer elects under Treasury Regulation 31.3402(g)–1 to determine the amount to be deducted and
withheld from any supplemental wage payment by using a flat
percentage rate, the rate to be used in determining the amount
to be so deducted and withheld shall not be less than 28 percent
(or the corresponding rate in effect under section 1(i)(2) of the
Internal Revenue Code of 1986 for taxable years beginning in
the calendar year in which the payment is made).
(b) SPECIAL RULE FOR LARGE PAYMENTS.—
(1) IN GENERAL.—Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the
calendar year, exceeds $1,000,000, the rate used with respect
to such excess shall be equal to the maximum rate of tax
in effect under section 1 of such Code for taxable years beginning in such calendar year.
(2) AGGREGATION.—All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal Revenue
Code of 1986 shall be treated as a single employer for purposes
of this subsection.
(c) CONFORMING AMENDMENT.—Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103–66) is repealed.
(d) EFFECTIVE DATE.—The provisions of, and the amendment
made by, this section shall apply to payments made after December
31, 2004.
107 Stat. 542.
SEC. 905. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO
EXERCISE OF STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST REQUIREMENTS.
(a) IN GENERAL.—Section 421 (relating to general rules for
certain stock options) is amended by adding at the end the following
new subsection:
‘‘(d) CERTAIN SALES TO COMPLY WITH CONFLICT-OF-INTEREST
REQUIREMENTS.—If—
‘‘(1) a share of stock is transferred to an eligible person
(as defined in section 1043(b)(1)) pursuant to such person’s
exercise of an option to which this part applies, and
‘‘(2) such share is disposed of by such person pursuant
to a certificate of divestiture (as defined in section 1043(b)(2)),
such disposition shall be treated as meeting the requirements of
section 422(a)(1) or 423(a)(1), whichever is applicable.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to sales after the date of the enactment of this Act.
26 USC 421 note.
SEC. 906. APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.
(a) IN GENERAL.—Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended
by redesignating subsection (w) as subsection (x) and by inserting
after subsection (v) the following new subsection:
‘‘(w) APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.—
‘‘(1) IN GENERAL.—Notwithstanding any other provision of
this section, for purposes of determining the portion of any
distribution which is includible in gross income of a distributee
who is a citizen or resident of the United States, the investment
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00237
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1654
26 USC 72 note.
PUBLIC LAW 108–357—OCT. 22, 2004
in the contract shall not include any applicable nontaxable
contributions or applicable nontaxable earnings.
‘‘(2) APPLICABLE NONTAXABLE CONTRIBUTION.—For purposes
of this subsection, the term ‘applicable nontaxable contribution’
means any employer or employee contribution—
‘‘(A) which was made with respect to compensation—
‘‘(i) for labor or personal services performed by
an employee who, at the time the labor or services
were performed, was a nonresident alien for purposes
of the laws of the United States in effect at such
time, and
‘‘(ii) which is treated as from sources without the
United States, and
‘‘(B) which was not subject to income tax (and would
have been subject to income tax if paid as cash compensation when the services were rendered) under the laws
of the United States or any foreign country.
‘‘(3) APPLICABLE NONTAXABLE EARNINGS.—For purposes of
this subsection, the term ‘applicable nontaxable earnings’
means earnings—
‘‘(A) which are paid or accrued with respect to any
employer or employee contribution which was made with
respect to compensation for labor or personal services performed by an employee,
‘‘(B) with respect to which the employee was at the
time the earnings were paid or accrued a nonresident alien
for purposes of the laws of the United States, and
‘‘(C) which were not subject to income tax under the
laws of the United States or any foreign country.
‘‘(4) REGULATIONS.—The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions
of this subsection, including regulations treating contributions
and earnings as not subject to tax under the laws of any
foreign country where appropriate to carry out the purposes
of this subsection.’’.
(b) BASIS.—Section 83 (relating to property transferred in
connection with the performance of services is amended by adding
after paragraph (3) of subsection (c) the following new paragraph:
‘‘(4) For purposes of determining an individual’s basis in
property transferred in connection with the performance of
services, rules similar to the rules of section 72(w) shall apply.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions on or after the date of the enactment
of this Act.
SEC. 907. 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.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), expenses for goods, services, and facilities, to the extent
that the expenses 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
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00238
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1655
employee for purposes of chapter 24 (relating to withholding of income tax at source on wages).
‘‘(B) SPECIFIED INDIVIDUALS.—
‘‘(i) IN GENERAL.—In the case of a recipient who
is a specified individual, subparagraph (A) and paragraph (9) shall each be applied by substituting ‘to
the extent that the expenses do not exceed the amount
of the expenses which’ for ‘to the extent that the
expenses’.
‘‘(ii) SPECIFIED INDIVIDUAL.—For purposes of clause
(i), the term ‘specified individual’ means any individual
who—
‘‘(I) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to the taxpayer, or
‘‘(II) would be subject to such requirements
if the taxpayer were an issuer of equity securities
referred to in such section.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to expenses incurred after the date of the enactment
of this Act.
Applicability.
26 USC 274 note.
SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED
STATES POSSESSIONS.
(a) RESIDENCE AND SOURCE RULES.—Subpart D of part III
of subchapter N of chapter 1 (relating to possessions of the United
States) is amended by adding at the end the following new section:
‘‘SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS.
‘‘(a) BONA FIDE RESIDENT.—For purposes of this subpart, section 865(g)(3), section 876, section 881(b), paragraphs (2) and (3)
of section 901(b), section 957(c), section 3401(a)(8)(C), and section
7654(a), except as provided in regulations, the term ‘bona fide
resident’ means a person—
‘‘(1) who is present for at least 183 days during the taxable
year in Guam, American Samoa, the Northern Mariana Islands,
Puerto Rico, or the Virgin Islands, as the case may be, and
‘‘(2) who does not have a tax home (determined under
the principles of section 911(d)(3) without regard to the second
sentence thereof) outside such specified possession during the
taxable year and does not have a closer connection (determined
under the principles of section 7701(b)(3)(B)(ii)) to the United
States or a foreign country than to such specified possession.
For purposes of paragraph (1), the determination as to whether
a person is present for any day shall be made under the principles
of section 7701(b).
‘‘(b) SOURCE RULES.—Except as provided in regulations, for
purposes of this title—
‘‘(1) except as provided in paragraph (2), rules similar to
the rules for determining whether income is income from
sources within the United States or is effectively connected
with the conduct of a trade or business within the United
States shall apply for purposes of determining whether income
is from sources within a possession specified in subsection
(a)(1) or effectively connected with the conduct of a trade or
business within any such possession, and
‘‘(2) any income treated as income from sources within
the United States or as effectively connected with the conduct
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00239
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
Applicability.
BILLW
PsN: PUBL357
118 STAT. 1656
PUBLIC LAW 108–357—OCT. 22, 2004
of a trade or business within the United States shall not be
treated as income from sources within any such possession
or as effectively connected with the conduct of a trade or business within any such possession.
‘‘(c) REPORTING REQUIREMENT.—
‘‘(1) IN GENERAL.—If, for any taxable year, an individual
takes the position for United States income tax reporting purposes that the individual became, or ceases to be, a bona
fide resident of a possession specified in subsection (a)(1), such
individual shall file with the Secretary, at such time and in
such manner as the Secretary may prescribe, notice of such
position.
‘‘(2) TRANSITION RULE.—If, for any of an individual’s 3
taxable years ending before the individual’s first taxable year
ending after the date of the enactment of this subsection, the
individual took a position described in paragraph (1), the individual shall file with the Secretary, at such time and in such
manner as the Secretary may prescribe, notice of such position.’’.
(b) PENALTY.—Section 6688 is amended—
(1) by inserting ‘‘under section 937(c) or’’ before ‘‘by regulations’’, and
(2) by striking ‘‘$100’’ and inserting ‘‘$1,000’’.
(c) CONFORMING AND CLERICAL AMENDMENTS.—
(1) Section 931(d) is amended to read as follows:
‘‘(d) EMPLOYEES OF THE UNITED STATES.—Amounts paid for
services performed as an employee of the United States (or any
agency thereof) shall be treated as not described in paragraph
(1) or (2) of subsection (a).’’.
(2) Section 932 is amended by striking ‘‘at the close of
the taxable year’’ and inserting ‘‘during the entire taxable year’’
each place it appears.
(3) Section 934(b)(4) is amended by striking ‘‘the Virgin
Islands or’’ each place it appears.
(4) Section 935, as in effect before the effective date of
its repeal, is amended—
(A) by striking ‘‘for the taxable year who’’ in subsection
(a) and inserting ‘‘who, during the entire taxable year’’,
(B) by inserting ‘‘bona fide’’ before ‘‘resident’’ in subsection (a)(1),
(C) in subsection (b)(1)—
(i) by inserting ‘‘(other a bona fide resident of
Guam during the entire taxable year)’’ after ‘‘United
States’’ in subparagraph (A), and
(ii) by inserting ‘‘bona fide’’ before ‘‘resident’’ in
subparagraph (B), and
(D) in subsection (b)(2) by striking ‘‘residence and’’.
(5) Section 957(c) is amended—
(A) in paragraph (2)(B) by striking ‘‘conduct of an
active’’ and inserting ‘‘active conduct of a’’, and
(B) in the last sentence by striking ‘‘derived from
sources within a possession, was effectively connected with
the conduct of a trade or business within a possession,
or’’.
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00240
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1657
(6) The table of sections of subpart D of part III of subchapter N of chapter 1 is amended by adding at the end
the following new item:
‘‘Sec. 937. Residence and source rules involving possessions.’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to
taxable years ending after the date of the enactment of this
Act.
(2) 183-DAY RULE.—Section 937(a)(1) of the Internal Revenue Code of 1986 (as added by this section) shall apply to
taxable years beginning after the date of the enactment of
this Act.
(3) SOURCING.—Section 937(b)(2) of such Code (as so added)
shall apply to income earned after the date of the enactment
of this Act.
26 USC 937 note.
SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY
REGULATORY
COMMISSION
OR
STATE
ELECTRIC
RESTRUCTURING POLICY.
(a) IN GENERAL.—Section 451 (relating to general rule for taxable year of inclusion) is amended by adding at the end the following
new subsection:
‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO IMPLEMENT
FEDERAL ENERGY REGULATORY COMMISSION OR STATE ELECTRIC
RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—In the case of any qualifying electric
transmission transaction for which the taxpayer elects the
application of this section, qualified gain from such transaction
shall be recognized—
‘‘(A) in the taxable year which includes the date of
such transaction to the extent the amount realized from
such transaction exceeds—
‘‘(i) the cost of exempt utility property which is
purchased by the taxpayer during the 4-year period
beginning on such date, reduced (but not below zero)
by
‘‘(ii) any portion of such cost previously taken into
account under this subsection, and
‘‘(B) ratably over the 8-taxable year period beginning
with the taxable year which includes the date of such
transaction, in the case of any such gain not recognized
under subparagraph (A).
‘‘(2) QUALIFIED GAIN.—For purposes of this subsection, the
term ‘qualified gain’ means, with respect to any qualifying
electric transmission transaction in any taxable year—
‘‘(A) any ordinary income derived from such transaction
which would be required to be recognized under section
1245 or 1250 for such taxable year (determined without
regard to this subsection), and
‘‘(B) any income derived from such transaction in excess
of the amount described in subparagraph (A) which is
required to be included in gross income for such taxable
year (determined without regard to this subsection).
‘‘(3) QUALIFYING ELECTRIC TRANSMISSION TRANSACTION.—
For purposes of this subsection, the term ‘qualifying electric
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00241
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1658
PUBLIC LAW 108–357—OCT. 22, 2004
transmission transaction’ means any sale or other disposition
before January 1, 2007, of—
‘‘(A) property used in the trade or business of providing
electric transmission services, or
‘‘(B) any stock or partnership interest in a corporation
or partnership, as the case may be, whose principal trade
or business consists of providing electric transmission services,
but only if such sale or disposition is to an independent transmission company.
‘‘(4) INDEPENDENT TRANSMISSION COMPANY.—For purposes
of this subsection, the term ‘independent transmission company’
means—
‘‘(A) an independent transmission provider approved
by the Federal Energy Regulatory Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regulatory Commission determines in its authorization of the transaction
under section 203 of the Federal Power Act (16 U.S.C.
824b) or by declaratory order is not a market participant within the meaning of such Commission’s rules
applicable to independent transmission providers, and
‘‘(ii) whose transmission facilities to which the election under this subsection applies are under the operational control of a Federal Energy Regulatory
Commission-approved independent transmission provider before the close of the period specified in such
authorization, but not later than the close of the period
applicable under subsection (a)(2)(B) as extended under
paragraph (2), or
‘‘(C) in the case of facilities subject to the jurisdiction
of the Public Utility Commission of Texas—
‘‘(i) a person which is approved by that Commission
as consistent with Texas State law regarding an independent transmission provider, or
‘‘(ii) a political subdivision or affiliate thereof
whose transmission facilities are under the operational
control of a person described in clause (i).
‘‘(5) EXEMPT UTILITY PROPERTY.—For purposes of this subsection:
‘‘(A) IN GENERAL.—The term ‘exempt utility property’
means property used in the trade or business of—
‘‘(i) generating, transmitting, distributing, or
selling electricity, or
‘‘(ii) producing, transmitting, distributing, or
selling natural gas.
‘‘(B) NONRECOGNITION OF GAIN BY REASON OF ACQUISITION OF STOCK.—Acquisition of control of a corporation
shall be taken into account under this subsection with
respect to a qualifying electric transmission transaction
only if the principal trade or business of such corporation
is a trade or business referred to in subparagraph (A).
‘‘(6) SPECIAL RULE FOR CONSOLIDATED GROUPS.—In the case
of a corporation which is a member of an affiliated group
filing a consolidated return, any exempt utility property purchased by another member of such group shall be treated
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00242
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
PUBLIC LAW 108–357—OCT. 22, 2004
118 STAT. 1659
as purchased by such corporation for purposes of applying
paragraph (1)(A).
‘‘(7) TIME FOR ASSESSMENT OF DEFICIENCIES.—If the taxpayer has made the election under paragraph (1) and any
gain is recognized by such taxpayer as provided in paragraph
(1)(B), then—
‘‘(A) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of the
gain on the transaction is realized, attributable to such
gain shall not expire prior to the expiration of 3 years
from the date the Secretary is notified by the taxpayer
(in such manner as the Secretary may by regulations prescribe) of the purchase of exempt utility property or of
an intention not to purchase such property, and
‘‘(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding any law or
rule of law which would otherwise prevent such assessment.
‘‘(8) PURCHASE.—For purposes of this subsection, the taxpayer shall be considered to have purchased any property if
the unadjusted basis of such property is its cost within the
meaning of section 1012.
‘‘(9) ELECTION.—An election under paragraph (1) shall be
made at such time and in such manner as the Secretary may
require and, once made, shall be irrevocable.
‘‘(10) NONAPPLICATION OF INSTALLMENT SALES TREATMENT.—Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions occurring after the date of the enactment
of this Act, in taxable years ending after such date.
26 USC 451 note.
SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.
(a) IN GENERAL.—Section 179(b) (relating to limitations) is
amended by adding at the end the following new paragraph:
‘‘(6) LIMITATION ON COST TAKEN INTO ACCOUNT FOR CERTAIN
PASSENGER VEHICLES.—
‘‘(A) IN GENERAL.—The cost of any sport utility vehicle
for any taxable year which may be taken into account
under this section shall not exceed $25,000.
‘‘(B) SPORT UTILITY VEHICLE.—For purposes of subparagraph (A)—
‘‘(i) IN GENERAL.—The term ‘sport utility vehicle’
means any 4-wheeled vehicle—
‘‘(I) which is primarily designed or which can
be used to carry passengers over public streets,
roads, or highways (except any vehicle operated
exclusively on a rail or rails),
‘‘(II) which is not subject to section 280F, and
‘‘(III) which is rated at not more than 14,000
pounds gross vehicle weight.
‘‘(ii) CERTAIN VEHICLES EXCLUDED.—Such term
does not include any vehicle which—
‘‘(I) is designed to have a seating capacity of
more than 9 persons behind the driver’s seat,
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00243
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
118 STAT. 1660
26 USC 179 note.
PUBLIC LAW 108–357—OCT. 22, 2004
‘‘(II) is equipped with a cargo area of at least
6 feet in interior length which is an open area
or is designed for use as an open area but is
enclosed by a cap and is not readily accessible
directly from the passenger compartment, or
‘‘(III) has an integral enclosure, fully enclosing
the driver compartment and load carrying device,
does not have seating rearward of the driver’s
seat, and has no body section protruding more
than 30 inches ahead of the leading edge of the
windshield.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
Approved October 22, 2004.
LEGISLATIVE HISTORY—H.R. 4520:
HOUSE REPORTS: Nos. 108–548, Pt. 1 (Comm. on Ways and Means) and 108–755
(Comm. of Conference).
CONGRESSIONAL RECORD, Vol. 150 (2004):
June 17, considered and passed House.
July 15, considered and passed Senate, amended.
Oct. 7, House agreed to conference report.
Oct. 8–11, Senate considered and agreed to conference report.
Æ
VerDate 11-MAY-2000
05:51 Nov 20, 2004
Jkt 039139
PO 00357
Frm 00244
Fmt 6580
Sfmt 6580
E:\PUBLAW\PUBL357.108
BILLW
PsN: PUBL357
| File Type | application/pdf |
| File Title | E:\PUBLAW\PUBL357.108 |
| File Modified | 2012-03-20 |
| File Created | 2004-12-03 |