American Jobs Creation Act of 2004 (P.L. 108-357) (Title VI--Fair and Equitable Tobacco Reform Act of 2004)

Sec. 462. Application of earnings stripping rules to partners which are C corporations.

Sec. 463. Recognition of cancellation of indebtedness income realized on satisfaction of debt with partnership interest.

Sec. 464. Modification of straddle rules.

Sec. 465. Denial of installment sale treatment for all readily tradeable debt.

Sec. 467. Clarification of definition of nonqualified preferred stock.

Sec. 468. Modification of definition of controlled group of corporations.

Sec. 469. Mandatory basis adjustments in connection with partnership distributions and transfers of partnership interests.

Sec. 472. Class lives for utility grading costs.

Sec. 473. Expansion of limitation on depreciation of certain passenger automobiles.

Sec. 474. Consistent amortization of periods for intangibles.

Sec. 475. Reform of tax treatment of leasing operations.

Sec. 476. Limitation on deductions allocable to property used by governments or other tax-exempt entities.

Sec. 482. Extension of IRS user fees.

Sec. 483. Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangement.

Sec. 484. Partial payment of tax liability in installment agreements.

Sec. 485. Extension of customs user fees.

Sec. 486. Deposits made to suspend running of interest on potential underpayments.

Sec. 487. Qualified tax collection contracts.

Sec. 488. Whistleblower reforms.

Sec. 489. Protection of overtime pay.

Sec. 490. Protection of overtime pay.

Sec. 492. Recognition of gain from the sale of a principal residence acquired in a like-kind exchange within 5 years of sale.

Sec. 493. Modification of exemption from tax for small property and casualty insurance companies.

Sec. 494. Treatment of charitable contributions of patents and similar property.

Sec. 495. Increase in age of minor children whose unearned income is taxed as if parent's income.

Sec. 496. Holding period for preferred stock.

Sec. 497. Substantial presence test required to determine bona fide residence in United States possessions.

Sec. 662B. Freeze of provisions regarding suspension of interest where Secretary fails to contact taxpayer.

Sec. 672. Prohibition on deferral of gain from the exercise of stock options and restricted stock gains through deferred compensation arrangements.

Sec. 673. Increase in withholding from supplemental wage payments in excess of $1,000,000.

Sec. 674. Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements.

Sec. 675. Application of basis rules to employer and employee contributions on behalf of nonresident aliens.

Sec. 833. Credit for production from a qualifying advanced clean coal technology unit.

Sec. 872. Transfer of certain amounts from the Airport and Airway Trust Fund to the Highway Trust Fund to reflect highway use of jet fuel.

Sec. 874. Elimination of administrative review for taxable use of dyed fuel.

Sec. 875. Penalty on untaxed chemically altered dyed fuel mixtures.

Sec. 876. Termination of dyed diesel use by intercity buses.

Sec. 878. Assessable penalty for refusal of entry.

Sec. 880. Display of registration.

Sec. 881. Registration of persons within foreign trade zones.

Sec. 882. Penalties for failure to register and failure to report.

Sec. 883. Information reporting for persons claiming certain tax benefits.

Sec. 885. Reconciliation of on-loaded cargo to entered cargo.

Sec. 887. Modification of ultimate vendor refund claims with respect to farming.

Sec. 888. Taxable fuel refunds for certain ultimate vendors.

Sec. 889. Two-party exchanges.

Sec. 890. Modifications of tax on use of certain vehicles.

Sec. 891. Dedication of revenues from certain penalties to the Highway Trust Fund.

Sec. 892. Nonapplication of export exemption to delivery of fuel to motor vehicles removed from United States.

Sec. 894. Excise tax reporting.

Sec. 895. Information reporting.

(3) The second sentence of section 56(g)(4)(B)(i) is amended by striking "114 or".

(4) Section 275(a) is amended--

(7) Section 999(c)(1) is amended by striking "941(a)(5),".

(2) BINDING CONTRACTS.--The amendments made by this section shall not apply to any transaction in the ordinary course of a trade or business which occurs pursuant to a binding contract--

(2) CURRENT FSC/ETI BENEFICIARY.--The term "current FSC/ETI beneficiary" means any corporation which entered into one or more transactions during its taxable year beginning in calendar year 2002 with respect to which FSC/ETI benefits were allowable.

(3) TRANSITION AMOUNT.--For purposes of this subsection--

(B) the exempt foreign trade income of related foreign sales corporations from property acquired from the taxpayer (determined without regard to section 923(a)(5) of such Code (relating to special rule for military property), as in effect on the day before the date of the enactment of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000).

(B) the FSC/ETI benefit of such beneficiary with respect to transactions occurring during the portion of the taxable year ending on the date of the enactment of this Act.

"(2) PHASEIN.--In the case of taxable years beginning in 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table:

"(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 taxpayer's taxable year.

"(3) SPECIAL RULES.--

"(2) REDUCTION FOR TAXABLE YEARS BEGINNING BEFORE 2013.--The amount otherwise determined under paragraph (1) (the 'unreduced amount') shall not exceed--

"(3) SPECIAL RULES FOR DETERMINING COSTS.--

"(2) SPECIAL RULES FOR CERTAIN PROPERTY.--In the case of any qualifying production property described in subsection (f)(1)(C)--

"(5) ORDERING RULE.--The amount of any other deduction allowable under this chapter shall be determined as if this section had not been enacted.

"(6) 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.

"(7) POSSESSIONS, ETC.--

(2) APPLICATION OF SECTION 15.--Section 15 of the Internal Revenue Code of 1986 shall apply to the amendments made by this section as if they were changes in a rate of tax.

(2) SUBSECTION (b).--The amendment made by subsection (b) shall apply to expenses incurred after the date of the enactment of this Act and before January 1, 2006.

(2) by striking ", and in the first, second, third, fourth, or fifth" and inserting "and in any of the first 20".

(2) by striking ", and in the first, second, third, fourth, or fifth" and inserting "and in any of the first 20", and

(3) by striking the last sentence.

(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.

(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:

(6) Section 864(d)(5)(A)(i) is amended by striking "(C)(iii)(III)" and inserting "(C)(iii)(II)".

(2) Section 53(d)(1)(B)(i)(II) is amended by striking "and if section 59(a)(2) did not apply".

"(2) OVERALL DOMESTIC LOSS DEFINED.--For purposes of this subsection--

(2) Subparagraph (A) of section 936(a)(2) is amended by striking "section 904(f)" and inserting "subsections (f) and (g) of section 904".

"(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.--

(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:

"(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".

(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).

(3) Paragraph (2) of section 171(c) is amended--

(5) Section 267(a)(3)(B), as amended by section 453(a) of this Act, is amended by striking "to a foreign personal holding company (as defined in section 552), a controlled foreign corporation (as defined in section 957), or" and inserting "to a controlled foreign corporation (as defined in section 957) or".

(6) Section 312 is amended by striking subsection (j).

(7) 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)".

(8) Subsection (e) of section 443 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

(9) 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).

(10) 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).

(11) Paragraph (1) of section 562(b) is amended by striking "or a foreign personal holding company described in section 552".

(12) Section 563 is amended--

(14) 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.

(15)(A) Subparagraph (A) of section 898(b)(1) is amended to read as follows:

"(3) MAJORITY U.S. SHAREHOLDER YEAR.--

(19) Paragraph (3) of section 989(b) is amended by striking ", 551(a),".

(20) Paragraph (5) of section 1014(b) is amended by inserting "and before January 1, 2005," after "August 26, 1937,".

(21) Subsection (a) of section 1016 is amended by striking paragraph (13).

(22)(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--

(24) Subsection (d) of section 1248 is amended by striking paragraph (5) and by redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.

(25) Paragraph (2) of section 1260(c) is amended by striking subparagraphs (H) and (I) and by redesignating subparagraph (J) as subparagraph (H).

(26)(A) Subparagraph (F) of section 1291(b)(3) is amended by striking "551(d), 959(a)," and inserting "959(a)".

"(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.".

(28) Section 6035 is hereby repealed.

(29) 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.

(30) Subparagraph (B) of section 6501(e)(1) is amended to read as follows:

(33) The table of parts for subchapter G of chapter 1 is amended by striking the item relating to part III.

(34) 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.

(35) 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.

(2) SUBSECTION (c)(29).--The amendments made by subsection (c)(29) shall apply to disclosures of return or return information with respect to taxable years beginning after December 31, 2004.

(2) Clause (i) of section 881(c)(5)(A) is amended by striking "$1,000,000" and inserting "$5,000,000".

(2) CHANGE IN METHOD OF ACCOUNTING.--In the case of any taxpayer required by the amendment made by this section to change its method of accounting for its first taxable year beginning after December 31, 2004--

"(2) the amount determined under section 78 which is attributable to such excess qualified foreign distribution amount.

"(3) FIXED BASE PERIOD.--

"(2) CONTROLLED FOREIGN CORPORATIONS AND UNITED STATES SHAREHOLDERS.--The term 'controlled foreign corporation' has the meaning given such term by section 957(a) and the term 'United States shareholder' has the meaning given such term by section 951(b).

"(3) FOREIGN TAX CREDITS.--The amount of any income, war, profits, or excess profit taxes paid (or deemed paid under sections 902 and 960) or accrued by the taxpayer with respect to the excess qualified foreign distribution amount for which a credit would be allowable under section 901 in the absence of this section, shall be reduced by 85 percent. No deduction shall be allowed under this chapter for the portion of any tax for which credit is not allowable by reason of the preceding sentence.

"(4) FOREIGN TAX CREDIT LIMITATION.--For purposes of section 904, there shall be disregarded 85 percent of--

"(5) TREATMENT OF ACQUISITIONS AND DISPOSITIONS.--Rules similar to the rules of section 41(f)(3) shall apply in the case of acquisitions or dispositions of controlled foreign corporations occurring on or after the first day of the earliest taxable year taken into account in determining the fixed base period.

"(6) TREATMENT OF CONSOLIDATED GROUPS.--Members of an affiliated group of corporations filing a consolidated return under section 1501 shall be treated as a single taxpayer for purposes of this section.

"(7) DESIGNATION OF DIVIDENDS.--Subject to subsection (b)(2), the taxpayer shall designate the particular dividends received during the taxable year from 1 or more corporations which are controlled foreign corporations in which it is a United States shareholder which are dividends excluded from the excess qualified foreign distribution amount. The total amount of such designated dividends shall equal the base dividend amount.

"(8) TREATMENT OF EXPENSES, LOSSES, AND DEDUCTIONS.--Any expenses, losses, or deductions of the taxpayer allowable under subchapter B--

"(2) ALL CONTROLLED FOREIGN CORPORATIONS.--The election shall apply to all corporations which are controlled foreign corporations in which the taxpayer is a United States shareholder during the taxable year.

"(3) CONSOLIDATED GROUPS.--If a taxpayer is a member of an affiliated group of corporations filing a consolidated return under section 1501 for the taxable year, an election under this section shall be made by the common parent of the affiliated group which includes the taxpayer and shall apply to all members of the affiliated group.

"(1) GUAM, AMERICAN SAMOA, THE NORTHERN MARIANA ISLANDS, AND THE VIRGIN ISLANDS.--For purposes", and

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

"(2) COMMONWEALTH OF PUERTO RICO.--If dividends are received during a taxable year by a corporation--

(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".

(2) by striking the period at the end of subclause (II) and inserting ", or",

(3) by inserting after subclause (II) the following new subclause:

"(2) ELECTION.--An election under paragraph (1) shall be made at such time and in such manner as the Secretary may prescribe by regulation.

"(3) LEASED EQUIPMENT.--Such term shall include so much of the purchase price paid by the lessor of qualified equipment subject to a lease described in subsection (c)(2)(B) as is attributable to expenditures incurred by the lessee which would otherwise be described in paragraph (1).

"(2) CABLE OPERATOR.--The term 'cable operator' has the meaning given such term by section 602(5) of the Communications Act of 1934 (47 U.S.C. 522(5)).

"(3) COMMERCIAL MOBILE SERVICE CARRIER.--The term 'commercial mobile service carrier' means any person authorized to provide commercial mobile radio service as defined in section 20.3 of title 47, Code of Federal Regulations.

"(4) CURRENT GENERATION BROADBAND SERVICE.--The term 'current generation broadband service' means the transmission of signals at a rate of at least 1,000,000 bits per second to the subscriber and at least 128,000 bits per second from the subscriber.

"(5) MULTIPLEXING OR DEMULTIPLEXING.--The term 'multiplexing' means the transmission of 2 or more signals over a single channel, and the term 'demultiplexing' means the separation of 2 or more signals previously combined by compatible multiplexing equipment.

"(6) NEXT GENERATION BROADBAND SERVICE.--The term 'next generation broadband service' means the transmission of signals at a rate of at least 22,000,000 bits per second to the subscriber and at least 5,000,000 bits per second from the subscriber.

"(7) NONRESIDENTIAL SUBSCRIBER.--The term 'nonresidential subscriber' means any person who purchases broadband services which are delivered to the permanent place of business of such person.

"(8) OPEN VIDEO SYSTEM OPERATOR.--The term 'open video system operator' means any person authorized to provide service under section 653 of the Communications Act of 1934 (47 U.S.C. 573).

"(9) OTHER WIRELESS CARRIER.--The term 'other wireless carrier' means any person (other than a telecommunications carrier, commercial mobile service carrier, cable operator, open video system operator, or satellite carrier) providing current generation broadband services or next generation broadband service to subscribers through the radio transmission of energy.

"(10) PACKET SWITCHING.--The term 'packet switching' means controlling or routing the path of any digitized transmission signal which is assembled into packets or cells.

"(11) PROVIDER.--The term 'provider' means, with respect to any qualified equipment--

"(12) PROVISION OF SERVICES.--A provider shall be treated as providing services to 1 or more subscribers if--

"(16) RURAL AREA.--The term 'rural area' means any census tract which--

"(18) SATELLITE CARRIER.--The term 'satellite carrier' means any person using the facilities of a satellite or satellite service licensed by the Federal Communications Commission and operating in the Fixed-Satellite Service under part 25 of title 47 of the Code of Federal Regulations or the Direct Broadcast Satellite Service under part 100 of title 47 of such Code to establish and operate a channel of communications for distribution of signals, and owning or leasing a capacity or service on a satellite in order to provide such point-to-multipoint distribution.

"(19) SATURATED MARKET.--The term 'saturated market' means any census tract in which, as of the date of the enactment of this section--

"(21) TELECOMMUNICATIONS CARRIER.--The term 'telecommunications carrier' has the meaning given such term by section 3(44) of the Communications Act of 1934 (47 U.S.C. 153(44)), but--

"(23) UNDERSERVED AREA.--The term 'underserved area' means--

"(2) BASIS REDUCTION.--

"(29) to the extent provided in section 191(f)(2).".

(3) The table of sections for part VI of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 190 the following new item:

(2) SATURATED MARKET.--

(2) TREASURY REGULATORY AUTHORITY.--It is the intent of Congress in providing the election to deduct qualified broadband expenditures under section 191 of the Internal Revenue Code of 1986 (as added by this section) to provide incentives for the purchase, installation, and connection of equipment and facilities offering expanded broadband access to the Internet for users in certain low income and rural areas of the United States, as well as to residential users nationwide, in a manner that maintains competitive neutrality among the various classes of providers of broadband services. Accordingly, the Secretary of the Treasury shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of section 191 of such Code, including--

(2) by striking "ARROWS.--" in the heading and inserting "ARROW COMPONENTS.--".

"For treatment of value-added processing involving animals, see section 1388(k).".

(2) by striking "or 2002" and inserting ", 2002, or 2003".

(2) by striking "and 2002" and inserting ", 2002, and 2003".

(2) Section 102(c)(2) of the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147) is amended by striking "before January 1, 2003" and inserting "after December 31, 1990".

(3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended by striking "attributable to carryovers".

(2) TECHNICAL CORRECTIONS.--The amendments made by subsection (d) shall take effect as if included in the amendments made by section 102 of the Job Creation and Worker Assistance Act of 2002.

(3) ELECTION.--In the case of a net operating loss for a taxable year ending during 2003--

(2) CONFORMING AMENDMENT.--Section 45C(b)(1)(D) is amended by striking "June 30, 2004" and inserting "December 31, 2005".

(2) by striking "3.2 percent" and inserting "4 percent", and

(3) by striking "3.75 percent" and inserting "5 percent".

"(5) ELECTION OF ALTERNATIVE SIMPLIFIED CREDIT.--

(2) SUBSECTIONS (b) AND (c).--The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 2004.

"(3) 20 percent of the amounts paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer during the taxable year (including as contributions) to a research consortium.".

(2) RESEARCH CONSORTIUM DEFINED.--Section 41(f) (relating to special rules) is amended by adding at the end the following new paragraph:

"(6) RESEARCH CONSORTIUM.--

"(2) The W-2 wages paid by the taxpayer during the taxable year to any employee who is an eligible TAA recipient (as defined in section 35(c)(2)) for any month during such taxable year.

"(3) 22.4 percent of the W-2 wages paid by the taxpayer during the taxable year.

"(2) which is not treated at any time during the taxable year as an inverted domestic corporation under section 7874.

"(2) SPECIAL RULE FOR W-2 WAGES.--Notwithstanding paragraph (1), the amount of W-2 wages taken into account with respect to any employee for any taxable year shall not exceed $50,000.

"(2) DESIGNATIONS.--

"(6) DEFINITIONS.--For purposes of this subsection--

"(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--

(2) by striking "and qualified public educational facilities" and inserting "qualified public educational facilities, and qualified green building and sustainable design projects".

"(2) DOLLAR LIMITATION.--

"(2) NO OTHER DEDUCTION OR AMORTIZATION DEDUCTION ALLOWABLE.--With respect to the basis of any qualified film or television production described in paragraph (1), no other depreciation or amortization deduction shall be allowable.

"(2) REVOCATION OF ELECTION.--Any election made under subsection (a) may not be revoked without the consent of the Secretary.

"(2) PRODUCTION.--

(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.--

(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".

(2) The heading for section 631(b) is amended by striking "WITH A RETAINED ECONOMIC INTEREST".

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

"(2) LISTED TRANSACTION.--The amount of the penalty under subsection (a) with respect to a listed transaction shall be $100,000.

"(3) INCREASE IN PENALTY FOR LARGE ENTITIES AND HIGH NET WORTH INDIVIDUALS.--

"(2) LISTED TRANSACTION.--Except as provided in regulations, the term 'listed transaction' means a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011.

"(3) NO APPEAL.--Notwithstanding any other provision of law, any determination under this subsection may not be reviewed in any administrative or judicial proceeding.

"(4) RECORDS.--If a penalty is rescinded under paragraph (1), the Commissioner shall place in the file in the Office of the Commissioner the opinion of the Commissioner or the head of the Office of Tax Shelter Analysis with respect to the determination, including--

"(2) which--

"(2) ITEMS TO WHICH SECTION APPLIES.--This section shall apply to any item which is attributable to--

"(2) RULES APPLICABLE TO ASSERTION AND COMPROMISE OF PENALTY.--

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

"(5) CROSS REFERENCE.--

"For reporting of section 6662A(c) penalty to the Securities and Exchange Commission, see section 6707A(e).".

"(2) SPECIAL RULES.--Paragraph (1) shall not apply to any reportable transaction understatement unless--

"(3) RULES RELATING TO REASONABLE BELIEF.--For purposes of paragraph (2)(C)--

(2) Paragraph (3) of section 1274(b) is amended--

(4) Section 6664(c)(1) is amended by striking "this part" and inserting "section 6662 or 6663".

(5) Subsection (b) of section 7525 is amended by striking "section 6662(d)(2)(C)(iii)" and inserting "section 1274(b)(3)(C)".

(6)(A) The heading for section 6662 is amended to read as follows:

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

"(2) APPLICABLE RULES.--The rules of paragraphs (2), (3), (4), and (5) of section 6707A(d) shall apply for purposes of paragraph (1).

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

"(3) SECRETARIAL LIST.--For purposes of this subsection, section 6664(d)(2), and section 6694(a)(1), the Secretary may prescribe a list of positions for which the Secretary believes there is not substantial authority or there is no reasonable belief that the tax treatment is more likely than not the proper tax treatment. Such list (and any revisions thereof) shall be published in the Federal Register or the Internal Revenue Bulletin.".

"(2) information describing any potential tax benefits expected to result from the transaction, and

"(3) such other information as the Secretary may prescribe.

"(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.".

"(2) containing such other information as the Secretary may by regulations require.

(C) Section 6112(b), as redesignated by subparagraph (B), is amended--

(2) NO CLAIM OF CONFIDENTIALITY AGAINST DISCLOSURE.--The amendment made by subsection (c) shall take effect as if included in the amendments made by section 142 of the Deficit Reduction Act of 1984.

"(2) files false or incomplete information with the Secretary with respect to such transaction,

"(2) LISTED TRANSACTIONS.--The penalty imposed under subsection (a) with respect to any listed transaction shall be an amount equal to the greater of--

"(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.".

"(2) that injunctive relief is appropriate to prevent recurrence of such conduct,

"(2) in violation of any requirement under regulations issued under section 320 of title 31, United States Code.".

(2) by striking "or was frivolous" in paragraph (3) and inserting "or there was no reasonable basis for the tax treatment of such position", and

(3) by striking "UNREALISTIC" in the heading and inserting "IMPROPER".

(2) by striking "$1,000" in subsection (b) and inserting "$5,000".

"(2) SPECIFIED FRIVOLOUS SUBMISSION.--For purposes of this section--

(2) in subsection (c), by striking "and (e)" and inserting "(e), and (g)".

(2) by striking "a penalty" and all that follows through the period in the first sentence of subsection (a) and inserting "a penalty determined under subsection (b)", and

(3) by inserting after subsection (a) the following new subsections:

"(2) CALCULATION OF PENALTY.--The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of an activity described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who participated in such an activity.

"(3) LIABILITY FOR PENALTY.--If more than 1 person is liable under subsection (a) with respect to such activity, all such persons shall be jointly and severally liable for the penalty under such subsection.

"(2) any noneconomic substance transaction understatement (as defined in section 6662B(c)).".

(2) by inserting "aid, assistance, procurement, or advice with respect to such" before "portion" both places it appears in paragraphs (2) and (3), and

(3) by inserting "instance of aid, assistance, procurement, or advice or each such" before "document" in the matter following paragraph (3).

"(2) CALCULATION OF PENALTY.--The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.

"(3) LIABILITY FOR PENALTY.--If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.".

"(2) EXCEPTION FOR AMOUNTS CONSTITUTING RESTITUTION.--Paragraph (1) shall not apply to any amount which the taxpayer establishes constitutes restitution (including remediation of property) for damage or harm caused by or which may be caused by the violation of any law or the potential violation of any law. This paragraph shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation.

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

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

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

(2) LIQUIDATIONS.--The amendment made by subsection (b) shall apply to liquidations after December 31, 2003.

"(2) any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (a) to other partnership property in such manner as the Secretary may prescribe.

(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.".

(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:

(10) Clause (xi) of section 7701(a)(19)(C) is amended--

(12) The table of parts for subchapter M of chapter 1 is amended by striking the item relating to part V.

(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.

(2) by striking "or interest" each place it appears.

"(2) INVERTED DOMESTIC CORPORATION.--For purposes of this section, a foreign incorporated entity shall be treated as an inverted domestic corporation if, pursuant to a plan (or a series of related transactions)--

"(2) ACQUIRED ENTITY.--For purposes of this section--

"(2) CREDITS NOT ALLOWED AGAINST TAX ON INVERSION GAIN.--Credits shall be allowed against the tax imposed by this chapter on an acquired entity for any taxable year described in paragraph (1) only to the extent such tax exceeds the product of--

"(3) SPECIAL RULES FOR PARTNERSHIPS.--In the case of an acquired entity which is a partnership--

"(5) 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 this section.

"(6) STATUTE OF LIMITATIONS.--

"(3) FOREIGN INCORPORATED ENTITY.--The term 'foreign incorporated entity' means any entity which is, or but for subsection (a)(1) would be, treated as a foreign corporation for purposes of this title.

"(4) FOREIGN RELATED PERSON.--The term 'foreign related person' means, with respect to any acquired entity, a foreign person which--

"(2) transactions designed to have persons cease to be (or not become) members of expanded affiliated groups or related persons.".

"(2) RECOGNITION OF GAIN OR LOSS.--In the case of any sale under paragraph (1)--

"(3) EXCLUSION FOR CERTAIN GAIN.--

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

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

"(4) SECURITY.--

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

"(7) INTEREST.--For purposes of section 6601--

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

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

"(2) SPECIAL RULES FOR INTERESTS IN QUALIFIED TRUSTS.--

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

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

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

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

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

(2) GIFTS AND BEQUESTS.--Section 102(d) of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to gifts and bequests received on or after January 1, 2004, from an individual or the estate of an individual whose expatriation date (as so defined) occurs after such date.

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

"(2) any specified stock compensation which is exercised, sold, exchanged, distributed, cashed out, or otherwise paid during such period in a transaction in which gain or loss is recognized in full.

"(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 inverted corporation or by any member of the expanded affiliated group which includes such corporation--

"(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.

(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:

(2) The table of chapters for subtitle D is amended by adding at the end the following new item:

"(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.

"(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.

"(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.".

"(2) EXCEPTION FOR TAXES PAID BY DEALERS.--

"(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.".

"For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(f).".

"(3) SPECIAL RULES FOR STOCK.--For purposes of paragraph (1)--

(2) by striking "(as adjusted by section 732(d))" both places it appears in subsection (b),

(3) by striking the last sentence of subsection (b),

(4) by striking subsection (a) and by redesignating subsections (b) and (c) as subsections (a) and (b), respectively, and

(5) by striking "optional" in the heading.

(2) by striking subsection (a) and by redesignating subsections (b) and (c) as subsections (a) and (b), respectively,

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

(2) Section 755(a) is amended--

(4) Section 761(e)(2) is amended by striking "optional".

(5) Section 774(a) is amended by striking "743(b)" both places it appears and inserting "743(a)".

(6) The item relating to section 734 in the table of sections for subpart B of part II of subchapter K of chapter 1 is amended by striking "Optional".

(7) The item relating to section 743 in the table of sections for subpart C of part II of subchapter K of chapter 1 is amended by striking "Optional".

(2) REPEAL OF SECTION 732(d).--The amendments made by subsections (b)(2) and (d)(1) shall apply to--

(3) Section 1253 (relating to transfers of franchises, trademarks, and trade names) is amended by striking subsection (e).

(2) SECTION 1245.--The amendment made by subsection (b)(2) shall apply to franchises acquired after the date of the enactment of this Act.

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

"(1) ALLOWANCE OF DEDUCTION.--If a taxpayer elects the application of this subsection with respect to any start-up expenditures--

"(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--

(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.

"(2) AVAILABILITY OF FUNDS.--

"(4) LESSEE MAY NOT BEAR MORE THAN MINIMAL RISK OF LOSS.--

"(6) REGULATORY REQUIREMENTS.--A lease of property meets the requirements of this paragraph if such lease of property meets such requirements as the Secretary may prescribe by regulations.

"(3) COORDINATION WITH SECTION 469.--This section shall be applied before the application of section 469.

"(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.

"(2) provide for the determination of the allocation of interest expense for purposes of this section."

(2) LEASES TO FOREIGN ENTITIES.--In the case of tax-exempt use property leased to a tax-exempt entity which is a foreign person or entity, the amendments made by this section shall apply to taxable years beginning after January 31, 2004, with respect to leases entered into on or before November 18, 2003.

(2) VOLUNTARY OFFSHORE COMPLIANCE INITIATIVE.--The term "Voluntary Offshore Compliance Initiative" means the program established by the Department of the Treasury in January of 2003 under which any taxpayer was eligible to voluntarily disclose previously undisclosed income on assets placed in offshore accounts and accessed through credit card and other financial arrangements.

(3) PARTICIPATION.--A taxpayer shall be treated as having participated in the Voluntary Offshore Compliance Initiative if the taxpayer submitted the request in a timely manner and all information requested by the Secretary of the Treasury or his delegate within a reasonable period of time following the request.

"(2) DISPUTABLE TAX.--

"(2) RETURNS OF DEPOSITS.--Deposits shall be treated as returned to the taxpayer on a last-in, first-out basis.".

(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 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.

"(3) prohibits subcontractors from--

"(2) an amount not in excess of 25 percent of such amount collected for collection enforcement activities of the Internal Revenue Service.

"(2) For application of Taxpayer Assistance Orders to persons performing services under a qualified tax collection contract, see section 7811(a)(4).".

(2) CONFORMING AMENDMENTS.--

"(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:

(2) the impact of such contracts on collection enforcement staff levels in the Internal Revenue Service,

(3) the amounts collected and the collection costs incurred (directly and indirectly),

(4) an evaluation of contractor performance,

(5) a disclosure safeguard report in a form similar to that required under section 6103(p)(5) of such Code, and

(6) 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.

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

(3) by striking "(other than interest)", and

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

"(2) AWARD IN CASE OF LESS SUBSTANTIAL CONTRIBUTION.--

"(4) APPLICATION OF THIS SUBSECTION.--This subsection shall apply with respect to any action--

"(3) REQUEST FOR ASSISTANCE.--

"(3) The occupations or job classifications described in this paragraph are as follows:

(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.

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

(2) TRANSITION RULE FOR COMPANIES IN RECEIVERSHIP OR LIQUIDATION.--In the case of a company or association which--

"(2) 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.

"(3) 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.

"(4) 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.

"(5) 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.

"(6) 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:

"(9) OTHER SPECIAL RULES.--

(2) GROSS MISSTATEMENTS.--Section 6662(h)(2)(A) (defining gross valuation misstatements) is amended by striking clause (ii) and inserting the following new clauses:

"(2) REASONABLE CAUSE EXCEPTION.--No penalty shall be imposed under subsection (a) with respect to any violation if such violation was due to reasonable cause and the taxpayer acted in good faith.

"(2) subsection (b)(2) shall not apply.".

(2) CLERICAL AMENDMENT.--The table of sections for Part I of subchapter B of chapter 68 is amended by adding at the end the following new item:

"(2) The prohibition in paragraph (1) does not apply in the case of a contract of an executive agency if--

"(2) The prohibition on disbursement of funds to or for a State under paragraph (1) does not apply with respect to the performance of a State contract outside the United States if--

"(2) the Department of the Army, the Department of the Navy, the Department of the Air Force, or any agency or entity of any of the military departments;

"(3) the Department of Homeland Security;

"(4) the Department of Energy or any agency or entity thereof, with respect to the national security programs of that Department; or

"(5) any element of the intelligence community.

"(2) promptly after the end of such fiscal year, transmit to Congress a report containing a list of the contracts covered by such waivers and exception together with a brief description of the performance of each such contract to the maximum extent feasible outside the United States.".

(2) CLERICAL AMENDMENT.--The table of sections in section 1(b) of such Act is amended by adding at the end the following new item:

(2) CONFORMING AMENDMENT.--Clause (ii) of section 143(a)(2)(D) is amended by striking "(and clause (iv) of subparagraph (A))".

(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to bonds originally issued after the date of the enactment of this Act.

"(2) STATEMENT TO BE FURNISHED TO INDIVIDUALS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.--Every person required to make a return under paragraph (1) shall furnish to each individual with respect to whom a return is made a written statement showing such information as the Secretary may prescribe. Such written statement shall be furnished on or before January 31 of the year following the calendar year for which the return under paragraph (1) was required to be made.

"(3) SPECIAL RULES.--For purposes of this subsection--

"(2) which is part of a qualified low-income building with respect to which a credit under section 42 is allowed, and

"(3) substantially all of the residential rental units of which are used for tenants who have attained the age of 65,

(2) by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following:

(2) QUALIFIED FOREST CONSERVATION BOND.--For purposes of this section, the term "qualified forest conservation bond" means any bond issued as part of an issue if--

(7) EFFECTIVE DATE.--This subsection shall apply to obligations issued on or after the date which is 180 days after the enactment of this Act.

(2) LIMITATION.--The amount of income excluded from gross income under paragraph (1) for any taxable year shall not exceed the amount used by the qualified organization to make debt service payments during such taxable year for qualified forest conservation bonds.

(3) QUALIFIED HARVESTING ACTIVITY.--For purposes of paragraph (1)--

(5) PARTIAL RECAPTURE OF BENEFITS IF HARVESTING LIMIT EXCEEDED.--If, as of the date that this subsection ceases to apply under paragraph (3), the average annual area of timber harvested from the land exceeds the requirement of paragraph (3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal Revenue Code of 1986 shall be increased, under rules prescribed by the Secretary of the Treasury, by the sum of the tax benefits attributable to such excess and interest at the underpayment rate under section 6621 of such Code for the period of the underpayment.

(5) RELATED PERSON.--A person shall be treated as related to another person if--

(2) DEPARTMENT.--The term "Department" means the Department of the Interior.

(3) ESCROW ACCOUNT.--The term "escrow account" means the tribal school modernization escrow account established under subsection (b)(6)(B)(i).

(4) INDIAN.--The term "Indian" means any individual who is a member of an Indian tribe.

(5) INDIAN TRIBE.--

(7) TRIBAL SCHOOL.--The term "tribal school" means an elementary school, secondary school, or dormitory that--

(2) ELIGIBILITY.--

(9) TREATMENT OF TRUST AGREEMENT EARNINGS.--No amount earned through the investment of funds under the control of a trustee under any trust agreement described in paragraph (4) shall be subject to Federal income taxation.

(10) INVESTMENT OF SINKING FUNDS.--A sinking fund established for the purpose of the payment of principal on a qualified tribal school modernization bond issued under this subsection shall be invested in--

"(2) ANNUAL CREDIT.--The annual credit determined with respect to any qualified tribal school modernization bond is the product of--

"(4) SPECIAL RULE FOR ISSUANCE AND REDEMPTION.--In the case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during which the bond is outstanding. A similar rule shall apply when the bond is redeemed.

"(3) BOND.--The term 'bond' includes any obligation.

"(4) TRIBE.--The term 'tribe' has the meaning given the term 'Indian tribal government' by section 7701(a)(40), including the application of section 7871(d). Such term includes any consortium of tribes approved by the Secretary of the Interior.

(2) APPLICATION.--This section and the amendments made by this section shall take effect on the date of the enactment of this Act with respect to bonds issued after December 31, 2004, regardless of the status of regulations promulgated thereunder.

(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)".

(2) NO INFERENCE.--Nothing in the amendments made by this section shall be construed to affect the treatment of expenses incurred on or before the date of the enactment of this Act.

"(2) BONUS DEPRECIATION AMOUNT.--For purposes of paragraph (1), the bonus depreciation amount for any taxable year is an amount (not in excess of $25,000,000) equal to the product of--

"(4) ELECTION.--Sections 168(k) (other than paragraph (2)(F) thereof) shall not apply to any property placed in service during a taxable year by a corporation making an election under this subsection for such taxable year. An election under this subsection may only be revoked with the consent of the Secretary.

"(5) CREDIT REFUNDABLE.--The aggregate increase in the credit allowed by this section for any taxable year by reason of this subsection shall for purposes of this title (other than subsection (b)(2) of this section) be treated as a credit allowed to the taxpayer under subpart C.".

(2) CONFORMING AMENDMENTS.--Subsection (k) of section 168 is amended by adding at the end the following new paragraph:

"(5) CROSS REFERENCE.--For an election to claim certain minimum tax credits in lieu of the allowance determined under this subsection, see section 53(e).".

(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to taxable years ending after December 31, 2003.

"(4) SPECIAL RULE FOR 2004.--Notwithstanding the preceding provisions of this paragraph, in the case of any taxable year beginning in 2004, the credit allowed under subsection (a) shall not exceed the greater of--

"(2) APPLICABLE PERCENTAGE.--For purposes of paragraph (1), the applicable percentage is--

"(2) LIMITATION.--The maximum amount of equity investments issued by a reservation development entity which may be designated under paragraph (1)(C) by such entity shall not exceed the portion of the limitation amount allocated under subsection (f) to such entity.

"(3) SAFE HARBOR FOR DETERMINING USE OF CASH.--The requirement of paragraph (1)(B) shall be treated as met if at least 85 percent of the aggregate gross assets of the reservation development entity are invested in qualified low-income reservation investments.

"(4) TREATMENT OF SUBSEQUENT PURCHASERS.--The term 'qualified equity investment' includes any equity investment which would (but for paragraph (1)(A)) be a qualified equity investment in the hands of the taxpayer if such investment was a qualified equity investment in the hands of a prior holder.

"(5) REDEMPTIONS.--A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this subsection.

"(6) EQUITY INVESTMENT.--The term 'equity investment' means--

"(2) ALLOCATION OF LIMITATION.--The limitation under paragraph (1) shall be allocated by the Secretary among reservation development entities selected by the Secretary. In making allocations under the preceding sentence, the Secretary shall give priority to any entity--