[House Report 108-273]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 108-273
======================================================================
PROVIDING FOR CONSIDERATION OF H.R. 7, CHARITABLE GIVING ACT OF 2003
_______
September 16, 2003.--Referred to the House Calendar and ordered to be
printed
_______
Mr. Linder, from the Committee on Rules, submitted the following
R E P O R T
[To accompany H. Res. 370]
The Committee on Rules, having had under consideration
House Resolution 370, by a nonrecord vote, report the same to
the House with the recommendation that the resolution be
adopted.
SUMMARY OF PROVISIONS OF THE RESOLUTION
The resolution provides for the consideration of H.R. 7,
the Charitable Giving Act of 2003, under a modified closed
rule. The rule provides one hour of debate in the House equally
divided and controlled by the chairman and ranking minority
member of the Committee on Ways and Means.
The rule waives all points of order against consideration
of the bill. The rule provides that the amendment in the nature
of a substitute recommended by the Committee on Ways and Means,
as modified by the amendment printed in Part A of this report,
shall be considered as adopted.
The rule provides for consideration of the amendment in the
nature of a substitute printed in Part B of this report if
offered by Representative Cardin or his designee, which shall
be considered as read and shall be debatable for one hour
equally divided and controlled by the proponent and an
opponent. The rule waives all points of order against the
amendment printed in Part B of this report. Finally, the rule
provides one motion to recommit with or without instructions.
The waiver of all points of order against consideration of
this bill in the rule includes a waiver of clause 4(a) of rule
XIII (requiring a three-day layover of the committee report),
which is necessary because the committee report (H. Rept. 108-
270, Part 1) was not filed until Tuesday, September 16, 2003,
and the bill may be considered by the House as early as
Wednesday, September 17, 2003.
COMMITTEE VOTES
Pursuant to clause 3(b) of House rule XIII the results of
each record vote on an amendment or motion to report, together
with the names of those voting for and against, are printed
below:
Rules Committee record vote No. 197
Date: September 16, 2003.
Measure: H.R. 7--Charitable Giving Act of 2003.
Motion by: Mrs. Slaughter.
Summary of motion: To make in order and provide the
appropriate waivers for the amendment offered by Representative
Maloney which holds the IRS accountable for the tax treatment
of 9/11 CDBG relief grants for individuals and businesses in
lower Manhattan. Clarifies that the grants should be exempt
from federal tax and should not be considered as gross income.
Refunds taxes already paid on grants and makes future grants
tax exempt.
Results: Defeated 4 to 9.
Vote by Members: Goss--Nay; Linder--Nay; Pryce--Nay; Diaz-
Balart--Nay; Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay;
Reynolds--Nay; Frost--Yea; Slaughter--Yea; McGovern--Yea;
Hastings (FL)--Yea; Dreier--Nay.
PART A--SUMMARY OF AMENDMENT TO BE CONSIDERED AS ADOPTED
Boehner: Strikes provisions contained in the section of the
bill pertaining to maternity group homes which provide for
contract evaluation and a separate authorization for
appropriations. The amendment seeks to conform the language of
H.R. 7 with the language of H.R. 1925 (Runaway, Homeless, and
Missing Children Protection Act) as passed by the House (404-
14).
PART B--SUMMARY OF AMENDMENT MADE IN ORDER
Cardin: Amendment in the Nature of a Substitute. Includes
all the provisions of the underlying bill, as reported by the
Committee on Ways and Means. Adds a provision increasing the
funding for the Social Security Block Grant (SSBG) by $1.1
billion next year. Adds revenue offset provisions to prevent
abusive tax shelter transactions and also tightens penalties
for egregious tax shelter behavior.
PART A--TEXT OF AMENDMENT TO BE CONSIDERED AS ADOPTED
In section 304 of the bill, strike subsections (b) and (c)
and ``(a) Permissible Use of Funds.--'' (subsection heading of
subsection (a)).
PART B--TEXT OF AMENDMENT MADE IN ORDER
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Charitable
Giving Act of 2003''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section
or other provision, the reference shall be considered to be
made to a section or other provision of the Internal Revenue
Code of 1986.
(c) Table of Contents.--
Sec. 1. Short title; etc.
TITLE I--CHARITABLE GIVING INCENTIVES
Sec. 101. Deduction for portion of charitable contributions to be
allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement plans for
charitable purposes.
Sec. 103. Increase in cap on corporate charitable contributions.
Sec. 104. Charitable deduction for contributions of food inventory.
Sec. 105. Reform of certain excise taxes related to private foundations.
Sec. 106. Excise tax on unrelated business taxable income of charitable
remainder trusts.
Sec. 107. Expansion of charitable contribution allowed for scientific
property used for research and for computer technology and
equipment used for educational purposes.
Sec. 108. Adjustment to basis of s corporation stock for certain
charitable contributions.
Sec. 109. Charitable organizations permitted to make collegiate housing
and infrastructure grants.
Sec. 110. Conduct of certain games of chance not treated as unrelated
trade or business.
Sec. 111. Excise taxes exemption for blood collector organizations.
Sec. 112. Nonrecognition of gain on the sale of property used in
performance of an exempt function.
Sec. 113. Exemption of qualified 501(c)(3) bonds for nursing homes from
Federal guarantee prohibitions.
TITLE II--TAX REFORM AND IMPROVEMENTS RELATING TO CHARITABLE
ORGANIZATIONS AND PROGRAMS
Sec. 201. Suspension of tax-exempt status of terrorist organizations.
Sec. 202. Clarification of definition of church tax inquiry.
Sec. 203. Extension of declaratory judgment remedy to tax-exempt
organizations.
Sec. 204. Landowner incentives programs.
Sec. 205. Modifications to section 512(b)(13).
Sec. 206. Simplification of lobbying expenditure limitation.
Sec. 207. Pilot project for forest conservation activities.
TITLE III--OTHER PROVISIONS
Sec. 301. Compassion capital fund.
Sec. 302. Reauthorization of assets for independence demonstration.
Sec. 303. Sense of the Congress regarding corporate contributions to
faith-based organizations, etc.
TITLE IV--SOCIAL SERVICES BLOCK GRANT
Sec. 401. Restoration of funds for the social services block grant.
Sec. 402. Restoration of authority to transfer up to 10 percent of TANF
funds to the social services block grant.
Sec. 403. Requirement to submit annual report on State activities.
TITLE V--ABUSIVE TAX SHELTERS
Sec. 501. Short title.
Sec. 502. Findings and purpose.
Subtitle A--Provisions Designed to Curtail Tax Shelters
Sec. 511. Clarification of economic substance doctrine.
Sec. 512. Penalty for failing to disclose reportable transaction.
Sec. 513. Accuracy-related penalty for listed transactions and other
reportable transactions having a significant tax avoidance
purpose.
Sec. 514. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 515. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 516. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 517. Disclosure of reportable transactions.
Sec. 518. Modifications to penalty for failure to register tax shelters.
Sec. 519. Modification of penalty for failure to maintain lists of
investors.
Sec. 520. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 521. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 522. Penalty on failure to report interests in foreign financial
accounts.
Sec. 523. Frivolous tax submissions.
Sec. 524. Regulation of individuals practicing before the Department of
Treasury.
Sec. 525. Penalty on promoters of tax shelters.
Sec. 526. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 527. Denial of deduction for interest on underpayments attributable
to nondisclosed reportable and noneconomic substance
transactions.
Subtitle B--Affirmation of Consolidated Return Regulation Authority
Sec. 531. Affirmation of consolidated return regulation authority.
TITLE I--CHARITABLE GIVING INCENTIVES
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE
ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE
DEDUCTIONS.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts) is amended by redesignating subsection
(m) as subsection (n) and by inserting after subsection (l) the
following new subsection:
``(m) Deduction for Individuals Not Itemizing Deductions.--
``(1) In general.--In the case of an individual who
does not itemize deductions for a taxable year, there
shall be taken into account as a direct charitable
deduction under section 63 an amount equal to the
amount allowable under subsection (a) for the taxable
year for cash contributions (determined without regard
to any carryover), to the extent that such
contributions exceed $250 ($500 in the case of a joint
return) but do not exceed $500 ($1,000 in the case of a
joint return).
``(2) Termination.--Paragraph (1) shall not apply to
any taxable year beginning after December 31, 2005.''.
(b) Direct Charitable Deduction.--
(1) In general.--Subsection (b) of section 63
(defining taxable income) is amended by striking
``and'' at the end of paragraph (1), by striking the
period at the end of paragraph (2) and inserting ``,
and'', and by adding at the end the following new
paragraph:
``(3) the direct charitable deduction.''.
(2) Definition.--Section 63 is amended by
redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new
subsection:
``(g) Direct Charitable Deduction.--For purposes of this
section, the term `direct charitable deduction' means that
portion of the amount allowable under section 170(a) which is
taken as a direct charitable deduction for the taxable year
under section 170(m).''.
(3) Conforming amendment.--Subsection (d) of section
63 is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of
paragraph (2) and inserting ``, and'', and by adding at
the end the following new paragraph:
``(3) the direct charitable deduction.''.
(c) Study.--
(1) In general.--The Secretary of the Treasury shall
study the effect of the amendments made by this section
on increased charitable giving and taxpayer compliance,
including a comparison of taxpayer compliance between
taxpayers who itemize their charitable contributions
and taxpayers who claim a direct charitable deduction.
(2) Report.--Not later than December 31, 2006, the
Secretary of the Treasury shall report on the study
required under paragraph (1) to the Committee on
Finance of the Senate and the Committee on Ways and
Means of the House of Representatives.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR
CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 (relating to
individual retirement accounts) is amended by adding at the end
the following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be
includible in gross income by reason of a
qualified charitable distribution.
``(B) Qualified charitable distribution.--For
purposes of this paragraph, the term `qualified
charitable distribution' means any distribution
from an individual retirement plan other than a
plan described in subsection (k) or (p) of
section 408--
``(i) which is made on or after the
date that the individual for whose
benefit the plan is maintained has
attained age 70 \1/2\, and
``(ii) which is made directly by the
trustee--
``(I) to an organization
described in section 170(c), or
``(II) to a split-interest
entity.
A distribution shall be treated as a qualified
charitable distribution only to the extent that
the distribution would be includible in gross
income without regard to subparagraph (A) and,
in the case of a distribution to a split-
interest entity, only if no person holds an
income interest in the amounts in the split-
interest entity attributable to such
distribution other than one or more of the
following: the individual for whose benefit
such plan is maintained, the spouse of such
individual, or any organization described in
section 170(c).
``(C) Contributions must be otherwise
deductible.--For purposes of this paragraph--
``(i) Direct contributions.--A
distribution to an organization
described in section 170(c) shall be
treated as a qualified charitable
distribution only if a deduction for
the entire distribution would be
allowable under section 170 (determined
without regard to subsection (b)
thereof and this paragraph).
``(ii) Split-interest gifts.--A
distribution to a split-interest entity
shall be treated as a qualified
charitable distribution only if a
deduction for the entire value of the
interest in the distribution for the
use of an organization described in
section 170(c) would be allowable under
section 170 (determined without regard
to subsection (b) thereof and this
paragraph).
``(D) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which a distribution is a qualified
charitable distribution, the entire amount of
the distribution shall be treated as includible
in gross income without regard to subparagraph
(A) to the extent that such amount does not
exceed the aggregate amount which would have
been so includible if all amounts distributed
from all individual retirement plans were
treated as 1 contract under paragraph (2)(A)
for purposes of determining the inclusion of
such distribution under section 72. Proper
adjustments shall be made in applying section
72 to other distributions in such taxable year
and subsequent taxable years.
``(E) Special rules for split-interest
entities.--
``(i) Charitable remainder trusts.--
Notwithstanding section 664(b),
distributions made from a trust
described in subparagraph (G)(i) shall
be treated as ordinary income in the
hands of the beneficiary to whom is
paid the annuity described in section
664(d)(1)(A) or the payment described
in section 664(d)(2)(A).
``(ii) Pooled income funds.--No
amount shall be includible in the gross
income of a pooled income fund (as
defined in subparagraph (G)(ii)) by
reason of a qualified charitable
distribution to such fund, and all
distributions from the fund which are
attributable to qualified charitable
distributions shall be treated as
ordinary income to the beneficiary.
``(iii) Charitable gift annuities.--
Qualified charitable distributions made
for a charitable gift annuity shall not
be treated as an investment in the
contract.
``(F) Denial of deduction.--Qualified
charitable distributions shall not be taken
into account in determining the deduction under
section 170.
``(G) Split-interest entity defined.--For
purposes of this paragraph, the term `split-
interest entity' means--
``(i) a charitable remainder annuity
trust or a charitable remainder
unitrust (as such terms are defined in
section 664(d)) which must be funded
exclusively by qualified charitable
distributions,
``(ii) a pooled income fund (as
defined in section 642(c)(5)), but only
if the fund accounts separately for
amounts attributable to qualified
charitable distributions, and
``(iii) a charitable gift annuity (as
defined in section 501(m)(5)).''.
(b) Modifications Relating to Information Returns by Certain
Trusts.--
(1) Returns.--Section 6034 (relating to returns by
trusts described in section 4947(a)(2) or claiming
charitable deductions under section 642(c)) is amended
to read as follows:
``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION
642(C).
``(a) Trusts Described in Section 4947(a)(2).--Every trust
described in section 4947(a)(2) shall furnish such information
with respect to the taxable year as the Secretary may by forms
or regulations require.
``(b) Trusts Claiming a Charitable Deduction Under Section
642(c).--
``(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a deduction
under section 642(c) for the taxable year shall furnish
such information with respect to such taxable year as
the Secretary may by forms or regulations prescribe,
including--
``(A) the amount of the deduction taken under
section 642(c) within such year,
``(B) the amount paid out within such year
which represents amounts for which deductions
under section 642(c) have been taken in prior
years,
``(C) the amount for which such deductions
have been taken in prior years but which has
not been paid out at the beginning of such
year,
``(D) the amount paid out of principal in the
current and prior years for the purposes
described in section 642(c),
``(E) the total income of the trust within
such year and the expenses attributable
thereto, and
``(F) a balance sheet showing the assets,
liabilities, and net worth of the trust as of
the beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply to a
trust for any taxable year if--
``(A) all the net income for such year,
determined under the applicable principles of
the law of trusts, is required to be
distributed currently to the beneficiaries, or
``(B) the trust is described in section
4947(a)(1).''.
(2) Increase in penalty relating to filing of
information return by split-interest trusts.--Paragraph
(2) of section 6652(c) (relating to returns by exempt
organizations and by certain trusts) is amended by
adding at the end the following new subparagraph:
``(C) Split-interest trusts.--In the case of
a trust which is required to file a return
under section 6034(a), subparagraphs (A) and
(B) of this paragraph shall not apply and
paragraph (1) shall apply in the same manner as
if such return were required under section
6033, except that--
``(i) the 5 percent limitation in the
second sentence of paragraph (1)(A)
shall not apply,
``(ii) in the case of any trust with
gross income in excess of $250,000, the
first sentence of paragraph (1)(A)
shall be applied by substituting `$100'
for `$20', and the second sentence
thereof shall be applied by
substituting `$50,000' for `$10,000',
and
``(iii) the third sentence of
paragraph (1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person
required to file such return knowingly fails to
file the return, such penalty shall also be
imposed on such person who shall be personally
liable for such penalty.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 (relating to inspection
of annual information returns) is amended by adding at
the end the following new sentence: ``In the case of a
trust which is required to file a return under section
6034(a), this subsection shall not apply to information
regarding beneficiaries which are not organizations
described in section 170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection
(a) shall apply to distributions made after December
31, 2003.
(2) Subsection (b).--The amendments made by
subsection (b) shall apply to returns for taxable years
beginning after December 31, 2003.
SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (2) of section 170(b) (relating to
corporations) is amended by striking ``10 percent'' and
inserting ``the applicable percentage''.
(b) Applicable Percentage.--Subsection (b) of section 170 is
amended by adding at the end the following new paragraph:
``(3) Applicable percentage defined.--For purposes of
paragraph (2), the applicable percentage shall be
determined in accordance with the following table:
``For taxable years beginning The applicable
in calendar year-- percentage is--
2004................................................ 11
2005................................................ 12
2006................................................ 13
2007................................................ 14
2008 through 2011................................... 15
2012 and thereafter................................. 20.''.
(c) Conforming Amendments.--
(1) Sections 512(b)(10) and 805(b)(2)(A) are each
amended by striking ``10 percent'' each place it occurs
and inserting ``the applicable percentage (determined
under section 170(b)(3))''.
(2) Sections 545(b)(2) and 556(b)(2) are each amended
by striking ``10-percent limitation'' and inserting
``applicable percentage limitation''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD INVENTORY.
(a) In General.--Paragraph (3) of section 170(e) (relating to
special rule for certain contributions of inventory and other
property) is amended by redesignating subparagraph (C) as
subparagraph (D) and by inserting after subparagraph (B) the
following new subparagraph:
``(C) Special rule for contributions of food
inventory.--
``(i) General rule.--In the case of a
charitable contribution of food from
any trade or business (or interest
therein) of the taxpayer, this
paragraph shall be applied--
``(I) without regard to
whether the contribution is
made by a C corporation, and
``(II) only to food that is
apparently wholesome food.
``(ii) Limitation.--In the case of a
taxpayer other than a C corporation,
the aggregate amount of such
contributions for any taxable year
which may be taken into account under
this section shall not exceed the
applicable percentage (within the
meaning of subsection (b)(3)) of the
taxpayer's aggregate net income for
such taxable year from all trades or
businesses from which such
contributions were made for such year,
computed without regard to this
section.
``(iii) Determination of fair market
value.--In the case of a qualified
contribution of apparently wholesome
food to which this paragraph applies
and which, solely by reason of internal
standards of the taxpayer or lack of
market, cannot or will not be sold, the
fair market value of such food shall be
determined by taking into account the
price at which the same or
substantially the same food items (as
to both type and quality) are sold by
the taxpayer at the time of the
contribution (or, if not so sold at
such time, in the recent past).
``(iv) Apparently wholesome food.--
For purposes of this subparagraph, the
term `apparently wholesome food' has
the meaning given to such term by
section 22(b)(2) of the Bill Emerson
Good Samaritan Food Donation Act (42
U.S.C. 1791(b)(2)), as in effect on the
date of the enactment of this
subparagraph.''.
(b) Effective Date.--The amendment made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 105. REFORM OF CERTAIN EXCISE TAXES RELATED TO PRIVATE
FOUNDATIONS.
(a) Reduction of Tax on Net Investment Income.--Section
4940(a) (relating to tax-exempt foundations) is amended by
striking ``2 percent'' and inserting ``1 percent''.
(b) Repeal of Reduction in Tax Where Private Foundation Meets
Certain Distribution Requirements.--Section 4940 (relating to
excise tax based on investment income) is amended by striking
subsection (e).
(c) Modification of Excise Tax on Self-Dealing.--The second
sentence of section 4941(a)(1) (relating to initial excise tax
imposed on self-dealer) is amended by striking ``5 percent''
and inserting ``25 percent''.
(d) Modification of Excise Tax on Failure To Distribute
Income.--
(1) Certain administrative expenses not treated as
distributions.--Section 4942(g) is amended by striking
paragraph (4) and inserting the following new
paragraphs:
``(4) Limitation on administrative expenses treated
as distributions.--
``(A) In general.--For purposes of paragraph
(1)(A), the following administrative expenses
shall not be treated as qualifying
distributions:
``(i) Any administrative expense
which is not directly attributable to
direct charitable activities, grant
selection activities, grant monitoring
and administration activities,
compliance with applicable Federal,
State, or local law, or furthering
public accountability of the private
foundation.
``(ii) Any compensation paid to a
disqualified person to the extent that
such compensation exceeds an annual
rate of $100,000.
``(iii) Any expense incurred for
transportation by air unless such
transportation is regularly-scheduled
commercial air transportation.
``(iv) Any expense incurred for
regularly-scheduled commercial air
transportation to the extent that such
expense exceeds the cost of such
transportation in coach-class
accommodations.
``(B) Adjustment for inflation.--In the case
of a taxable year beginning after December 31,
2004, the $100,000 amount in subparagraph
(A)(ii) shall be increased by an amount equal
to--
``(i) such dollar amount, multiplied
by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for
the calendar year in which the taxable
year begins, determined by substituting
`calendar year 2003' for `calendar year
1992' in subparagraph (B) thereof.
If any amount as increased under the preceding
sentence is not a multiple of $50, such amount
shall be rounded to the next lowest multiple of
$50.
``(5) Regulations.--The Secretary shall prescribe
such regulations as may be necessary to carry out the
purposes of paragraph (4). Such regulations shall
provide that administrative expenses which are excluded
from qualifying distributions solely by reason of the
limitations in paragraph (4) shall not for such reason
subject a private foundation to any other excise taxes
imposed by this subchapter.''.
(2) Disallowance not to apply to certain private
foundations.--
(A) In general.--Section 4942(j)(3) (defining
operating foundation) is amended--
(i) by striking ``(within the meaning
of paragraph (1) or (2) of subsection
(g))'' each place it appears, and
(ii) by adding at the end the
following new sentence: ``For purposes
of this paragraph, the term `qualifying
distributions' means qualifying
distributions within the meaning of
paragraph (1) or (2) of subsection (g)
(determined without regard to
subsection (g)(4)).''.
(B) Conforming amendment.--Section
4942(f)(2)(C)(i) is amended by inserting
``(determined without regard to subsection
(g)(4))'' after ``within the meaning of
subsection (g)(1)(A)''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 106. EXCISE TAX ON UNRELATED BUSINESS TAXABLE INCOME OF CHARITABLE
REMAINDER TRUSTS.
(a) In General.--Subsection (c) of section 664 (relating to
exemption from income taxes) is amended to read as follows:
``(c) Taxation of Trusts.--
``(1) Income tax.--A charitable remainder annuity
trust and a charitable remainder unitrust shall, for
any taxable year, not be subject to any tax imposed by
this subtitle.
``(2) Excise tax.--
``(A) In general.--In the case of a
charitable remainder annuity trust or a
charitable remainder unitrust that has
unrelated business taxable income (within the
meaning of section 512, determined as if part
III of subchapter F applied to such trust) for
a taxable year, there is hereby imposed on such
trust or unitrust an excise tax equal to the
amount of such unrelated business taxable
income.
``(B) Certain rules to apply.--The tax
imposed by subparagraph (A) shall be treated as
imposed by chapter 42 for purposes of this
title other than subchapter E of chapter 42.
``(C) Character of distributions and
coordination with distribution requirements.--
The amounts taken into account in determining
unrelated business taxable income (as defined
in subparagraph (A)) shall not be taken into
account for purposes of--
``(i) subsection (b),
``(ii) determining the value of trust
assets under subsection (d)(2), and
``(iii) determining income under
subsection (d)(3).
``(D) Tax court proceedings.--For purposes of
this paragraph, the references in section
6212(c)(1) to section 4940 shall be deemed to
include references to this paragraph.''.
(b) Effective Date.--The amendment made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 107. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR SCIENTIFIC
PROPERTY USED FOR RESEARCH AND FOR COMPUTER
TECHNOLOGY AND EQUIPMENT USED FOR EDUCATIONAL
PURPOSES.
(a) Scientific Property Used for Research.--
(1) In general.--Clause (ii) of section 170(e)(4)(B)
(defining qualified research contributions) is amended
by inserting ``or assembled'' after ``constructed''.
(2) Conforming amendment.--Clause (iii) of section
170(e)(4)(B) is amended by inserting ``or assembling''
after ``construction''.
(b) Computer Technology and Equipment for Educational
Purposes.--
(1) In general.--Clause (ii) of section 170(e)(6)(B)
is amended by inserting ``or assembled'' after
``constructed'' and ``or assembling'' after
``construction''.
(2) Special rule made permanent.--Section 170(e)(6)
is amended by striking subparagraph (G).
(3) Conforming amendments.--Subparagraph (D) of
section 170(e)(6) is amended by inserting ``or
assembled'' after ``constructed'' and ``or assembling''
after ``construction''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 108. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR CERTAIN
CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (2) of section 1367(a) (relating
to adjustments to basis of stock of shareholders, etc.) is
amended by adding at the end the following new flush sentence:
``The decrease under subparagraph (B) by reason of a
charitable contribution (as defined in section 170(c))
of property shall be the amount equal to the
shareholder's pro rata share of the adjusted basis of
such property.''.
(b) Effective Date.--The amendment made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 109. CHARITABLE ORGANIZATIONS PERMITTED TO MAKE COLLEGIATE HOUSING
AND INFRASTRUCTURE GRANTS.
(a) In General.--Section 501 (relating to exemption from tax
on corporations, certain trusts, etc.), as amended by section
201, is further amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Treatment of Organizations Making Collegiate Housing
and Infrastructure Improvement Grants.--
``(1) In general.--For purposes of subsection (c)(3)
and sections 170(c)(2)(B), 2055(a), and 2522(a)(2), an
organization shall not fail to be treated as organized
and operated exclusively for charitable or educational
purposes solely because such organization makes
collegiate housing and infrastructure grants to an
organization described in subsection (c)(7), so long
as, at the time of the grant, substantially all of the
active members of the recipient organization are full-
time students at the college or university with which
such recipient organization is associated.
``(2) Housing and infrastructure grants.--For
purposes of paragraph (1), collegiate housing and
infrastructure grants are grants to provide, improve,
operate, or maintain collegiate housing that may
involve more than incidental social, recreational, or
private purposes, so long as such grants are for
purposes that would be permissible for a dormitory of
the college or university referred to in paragraph (1).
A grant shall not be treated as a collegiate housing
and infrastructure grant for purposes of paragraph (1)
to the extent that such grant is used to provide
physical fitness equipment.
``(3) Grants to certain organizations holding title
to property, etc.--For purposes of this subsection, a
collegiate housing and infrastructure grant to an
organization described in subsection (c)(2) or (c)(7)
holding title to property exclusively for the benefit
of an organization described in subsection (c)(7) shall
be considered a grant to the organization described in
subsection (c)(7) for whose benefit such property is
held.''.
(b) Effective Date.--The amendment made by this section shall
apply to grants made after December 31, 2003.
SEC. 110. CONDUCT OF CERTAIN GAMES OF CHANCE NOT TREATED AS UNRELATED
TRADE OR BUSINESS.
(a) In General.--Paragraph (1) of section 513(f) (relating to
certain bingo games) is amended to read as follows:
``(1) In general.--The term `unrelated trade or
business' does not include--
``(A) any trade or business which consists of
conducting bingo games, and
``(B) any trade or business which consists of
conducting qualified games of chance if the net
proceeds from such trade or business are paid
or set aside for payment for purposes described
in section 170(c)(2)(B), for the promotion of
social welfare (within the meaning of section
501(c)(4)), or for a purpose for which State
law specifically authorizes the expenditure of
such proceeds.''.
(b) Qualified Games of Chance.--Subsection (f) of section 513
is amended by adding at the end the following new paragraph:
``(3) Qualified games of chance.--For purposes of
paragraph (1), the term `qualified game of chance'
means any game of chance (other than bingo) conducted
by an organization if--
``(A) such organization is licensed pursuant
to State law to conduct such game,
``(B) only organizations which are organized
as nonprofit corporations or are exempt from
tax under section 501(a) may be so licensed to
conduct such game within the State, and
``(C) the conduct of such game does not
violate State or local law.''
(c) Clerical Amendment.--The subsection heading of section
513(f) is amended by striking ``Bingo Games'' and inserting
``Games of Chance''.
(d) Effective Date.-- The amendments made by this section
shall apply to games conducted after December 31, 2003.
SEC. 111. EXCISE TAXES EXEMPTION FOR BLOOD COLLECTOR ORGANIZATIONS.
(a) Exemption From Imposition of Special Fuels Tax.--Section
4041(g) (relating to other exemptions) is amended by striking
``and'' at the end of paragraph (3), by striking the period in
paragraph (4) and inserting ``; and'', and by inserting after
paragraph (4) the following new paragraph:
``(5) with respect to the sale of any liquid to a
qualified blood collector organization (as defined in
section 7701(a)(48)) for such organization's exclusive
use, or with respect to the use by a qualified blood
collector organization of any liquid as a fuel.''.
(b) Exemption From Manufacturers Excise Tax.--
(1) In general.--Section 4221(a) (relating to certain
tax-free sales) is amended by striking ``or'' at the
end of paragraph (4), by adding ``or'' at the end of
paragraph (5), and by inserting after paragraph (5) the
following new paragraph:
``(6) to a qualified blood collector organization (as
defined in section 7701(a)(48)) for such organization's
exclusive use,''.
(2) Conforming amendments.--
(A) The second sentence of section 4221(a) is
amended by striking ``Paragraphs (4) and (5)''
and inserting ``Paragraphs (4), (5), and (6)''.
(B) Section 6421(c) is amended by striking
``or (5)'' and inserting ``(5), or (6)''.
(c) Exemption From Communication Excise Tax.--
(1) In general.--Section 4253 (relating to
exemptions) is amended by redesignating subsection (k)
as subsection (l) and inserting after subsection (j)
the following new subsection:
``(k) Exemption for Qualified Blood Collector
Organizations.--Under regulations provided by the Secretary, no
tax shall be imposed under section 4251 on any amount paid by a
qualified blood collector organization (as defined in section
7701(a)(48)) for services or facilities furnished to such
organization.''.
(2) Conforming amendment.--Section 4253(l), as
redesignated by paragraph (1), is amended by striking
``or (j)'' and inserting ``(j), or (k)''.
(d) Credit for Refund for Certain Taxes on Sales and
Services.--
(1) Deemed overpayment.--
(A) In general.--Section 6416(b)(2) is
amended by redesignating subparagraphs (E) and
(F) as subparagraphs (F) and (G), respectively,
and by inserting after subparagraph (D) the
following new subparagraph:
``(E) sold to a qualified blood collector
organization (as defined in section
7701(a)(48)) for such organization's exclusive
use;''.
(B) Conforming amendments.--Section
6416(b)(2) is amended--
(i) by striking ``Subparagraphs (C)
and (D)'' and inserting ``Subparagraphs
(C), (D), and (E)'', and
(ii) by striking ``(C), and (D)'' and
inserting ``(C), (D), and (E)''.
(2) Sales of tires.--Clause (ii) of section
6416(b)(4)(B) is amended by inserting ``sold to a
qualified blood collector organization (as defined in
section 7701(a)(48)) for its exclusive use,'' after
``for its exclusive use,''.
(e) Definition of Qualified Blood Collector Organization.--
Section 7701(a) is amended by inserting at the end the
following new paragraph:
``(48) Qualified blood collector organization.--The
term `qualified blood collector organization' means an
organization which is--
``(A) described in section 501(c)(3) and
exempt from tax under section 501(a),
``(B) registered by the Food and Drug
Administration to collect blood, and
``(C) primarily engaged in the activity of
the collection of blood.''.
(f) Effective Date.--The amendments made by this section
shall take effect on January 1, 2004.
SEC. 112. NONRECOGNITION OF GAIN ON THE SALE OF PROPERTY USED IN
PERFORMANCE OF AN EXEMPT FUNCTION.
(a) In General.--Subparagraph (D) of section 512(a)(3) is
amended to read as follows:
``(D) Nonrecognition of gain.--
``(i) In general.--If property used
directly in the performance of the
exempt function of an organization
described in paragraph (7), (9), (17),
or (20) of section 501(c) is sold by
such organization, and within a period
beginning 1 year before the date of
such sale, and ending 3 years (10
years, in the case of an organization
described in section 501(c)(7)) after
such date, other property is purchased
and used by such organization directly
in the performance of its exempt
function, gain (if any) from such sale
shall be recognized only to the extent
that such organization's sales price of
the old property exceeds the
organization's cost of purchasing the
other property.
``(ii) Statute of limitations.--If an
organization described in section
501(c)(7) sells property on which gain
is not recognized, in whole or in part,
by reason of clause (i), then the
statutory period for the assessment of
any deficiency attributable to such
gain shall not expire until the end of
the 3-year period beginning on the date
that the Secretary is notified by such
organization (in such manner as the
Secretary may prescribe) that--
``(I) the organization has
met the requirements of clause
(i) with respect to gain which
was not recognized,
``(II) the organization does
not intend to meet such
requirements, or
``(III) the organization
failed to meet such
requirements within the
prescribed period.
For the purposes of this clause, any
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.
``(iii) Destruction and loss.--For
purposes of this subparagraph, the
destruction in whole or in part, theft,
seizure, requisition, or condemnation
of property, shall be treated as the
sale of such property, and rules
similar to the rules provided by
subsections (b), (c), (e), and (j) of
section 1034 (as in effect on the day
before the date of the enactment of the
Taxpayer Relief Act of 1997) shall
apply.''.
(b) Effective Date.--The amendment made by this section shall
apply with respect to the sale of any property for which the 3-
year period for offsetting gain by purchasing other property
under subparagraph (D) of section 512(a)(3) of the Internal
Revenue Code (as in effect on the day before the date of the
enactment of this Act) had not expired as of January 1, 2001.
SEC. 113. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING HOMES FROM
FEDERAL GUARANTEE PROHIBITIONS.
(a) In General.--For purposes of section 149(b)(1) of the
Internal Revenue Code of 1986, any qualified 501(c)(3) bond (as
defined in section 145 of such Code) shall not be treated as
federally guaranteed solely because such bond is part of an
issue supported by a letter of credit, if such bond--
(1) is issued after December 31, 2003, and before the
date which is 1 year after the date of the enactment of
this Act, and
(2) is part of an issue 95 percent or more of the net
proceeds of which are to be used to finance 1 or more
of the following facilities primarily for the benefit
of the elderly:
(A) Licensed nursing home facility.
(B) Licensed or certified assisted living
facility.
(C) Licensed personal care facility.
(D) Continuing care retirement community.
(b) Limitation on Issuer.--Subsection (a) shall not apply to
any bond described in such subsection if the aggregate
authorized face amount of the issue of which such bond is a
part, when increased by the outstanding amount of such bonds
issued by the issuer during the period described in subsection
(a)(1) exceeds $15,000,000.
(c) Limitation on Beneficiary.--Rules similar to the rules of
section 144(a)(10) of the Internal Revenue Code of 1986 shall
apply for purposes of this section, except that--
(1) ``$15,000,000'' shall be substituted for
``$40,000,000'' in subparagraph (A) thereof, and
(2) such rules shall be applied--
(A) only with respect to bonds described in
this section, and
(B) with respect to the aggregate authorized
face amount of all issues of such bonds which
are allocable to the beneficiary.
(d) Continuing Care Retirement Community.--For purposes of
this section, the term ``continuing care retirement community''
means a community which provides, on the same campus, a
consortium of residential living options and support services
to persons at least 60 years of age under a written agreement.
For purposes of the preceding sentence, the residential living
options shall include independent living units, nursing home
beds, and either assisted living units or personal care beds.
TITLE II--TAX REFORM AND IMPROVEMENTS RELATING TO CHARITABLE
ORGANIZATIONS AND PROGRAMS
SEC. 201. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.
(a) In General.--Section 501 (relating to exemption from tax
on corporations, certain trusts, etc.) is amended by
redesignating subsection (p) as subsection (q) and by inserting
after subsection (o) the following new subsection:
``(p) Suspension of Tax-Exempt Status of Terrorist
Organizations.--
``(1) In general.--The exemption from tax under
subsection (a) with respect to any organization
described in paragraph (2), and the eligibility of any
organization described in paragraph (2) to apply for
recognition of exemption under subsection (a), shall be
suspended during the period described in paragraph (3).
``(2) Terrorist organizations.--An organization is
described in this paragraph if such organization is
designated or otherwise individually identified--
``(A) under section 212(a)(3)(B)(vi)(II) or
219 of the Immigration and Nationality Act as a
terrorist organization or foreign terrorist
organization,
``(B) in or pursuant to an Executive order
which is related to terrorism and issued under
the authority of the International Emergency
Economic Powers Act or section 5 of the United
Nations Participation Act of 1945 for the
purpose of imposing on such organization an
economic or other sanction, or
``(C) in or pursuant to an Executive order
issued under the authority of any Federal law
if--
``(i) the organization is designated
or otherwise individually identified in
or pursuant to such Executive order as
supporting or engaging in terrorist
activity (as defined in section
212(a)(3)(B) of the Immigration and
Nationality Act) or supporting
terrorism (as defined in section
140(d)(2) of the Foreign Relations
Authorization Act, Fiscal Years 1988
and 1989); and
``(ii) such Executive order refers to
this subsection.
``(3) Period of suspension.--With respect to any
organization described in paragraph (2), the period of
suspension--
``(A) begins on the later of--
``(i) the date of the first
publication of a designation or
identification described in paragraph
(2) with respect to such organization,
or
``(ii) the date of the enactment of
this subsection, and
``(B) ends on the first date that all
designations and identifications described in
paragraph (2) with respect to such organization
are rescinded pursuant to the law or Executive
order under which such designation or
identification was made.
``(4) Denial of deduction.--No deduction shall be
allowed under section 170, 545(b)(2), 556(b)(2),
642(c), 2055, 2106(a)(2), or 2522 for any contribution
to an organization described in paragraph (2) during
the period described in paragraph (3).
``(5) Denial of administrative or judicial challenge
of suspension or denial of deduction.--Notwithstanding
section 7428 or any other provision of law, no
organization or other person may challenge a suspension
under paragraph (1), a designation or identification
described in paragraph (2), the period of suspension
described in paragraph (3), or a denial of a deduction
under paragraph (4) in any administrative or judicial
proceeding relating to the Federal tax liability of
such organization or other person.
``(6) Erroneous designation.--
``(A) In general.--If--
``(i) the tax exemption of any
organization described in paragraph (2)
is suspended under paragraph (1),
``(ii) each designation and
identification described in paragraph
(2) which has been made with respect to
such organization is determined to be
erroneous pursuant to the law or
Executive order under which such
designation or identification was made,
and
``(iii) the erroneous designations
and identifications result in an
overpayment of income tax for any
taxable year by such organization,
credit or refund (with interest) with respect
to such overpayment shall be made.
``(B) Waiver of limitations.--If the credit
or refund of any overpayment of tax described
in subparagraph (A)(iii) is prevented at any
time by the operation of any law or rule of law
(including res judicata), such credit or refund
may nevertheless be allowed or made if the
claim therefor is filed before the close of the
1-year period beginning on the date of the last
determination described in subparagraph
(A)(ii).
``(7) Notice of suspensions.--If the tax exemption of
any organization is suspended under this subsection,
the Internal Revenue Service shall update the listings
of tax-exempt organizations and shall publish
appropriate notice to taxpayers of such suspension and
of the fact that contributions to such organization are
not deductible during the period of such suspension.''.
(b) Effective Date.--The amendments made by this section
shall apply to designations made before, on, or after the date
of the enactment of this Act.
SEC. 202. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.
Subsection (i) of section 7611 (relating to section not to
apply to criminal investigations, etc.) is amended by striking
``or'' at the end of paragraph (4), by striking the period at
the end of paragraph (5) and inserting ``, or'', and by
inserting after paragraph (5) the following:
``(6) information provided by the Secretary related
to the standards for exemption from tax under this
title and the requirements under this title relating to
unrelated business taxable income.''.
SEC. 203. EXTENSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Paragraph (1) of section 7428(a) (relating
to creation of remedy) is amended--
(1) in subparagraph (B) by inserting after
``509(a))'' the following: ``or as a private operating
foundation (as defined in section 4942(j)(3))''; and
(2) by amending subparagraph (C) to read as follows:
``(C) with respect to the initial
qualification or continuing qualification of an
organization as an organization described in
subsection (c) (other than paragraph (3)) or
(d) of section 501 which is exempt from tax
under section 501(a), or''.
(b) Court Jurisdiction.--Subsection (a) of section 7428 is
amended in the material following paragraph (2) by striking
``United States Tax Court, the United States Claims Court, or
the district court of the United States for the District of
Columbia'' and inserting the following: ``United States Tax
Court (in the case of any such determination or failure) or the
United States Claims Court or the district court of the United
States for the District of Columbia (in the case of a
determination or failure with respect to an issue referred to
in subparagraph (A) or (B) of paragraph (1)),''.
(c) Effective Date.--The amendments made by this section
shall apply to pleadings filed with respect to determinations
(or requests for determinations) made after the date of the
enactment of this Act.
SEC. 204. LANDOWNER INCENTIVES PROGRAMS.
(a) In General.--Subsection (a) of section 126 is amended by
redesignating paragraph (10) as paragraph (11) and by inserting
after paragraph (9) the following new paragraph:
``(10) Landowner initiatives programs to conserve
threatened, endangered, or imperiled species, or
protect or restore habitat carried out under--
``(A) the Fish and Wildlife Coordination Act
(16 U.S.C. 661 et seq.),
``(B) the Fish and Wildlife Act of 1956 (16
U.S.C. 742f), or
``(C) section 6 of the Endangered Species Act
(16 U.S.C. 11531 et seq.).''.
(b) Excludable Portion.--Subparagraph (A) of section
126(b)(1) is amended by inserting after ``Secretary of
Agriculture'' the following: ``(the Secretary of the Interior,
in the case of the landowner incentives programs described in
subsection (a)(10) and the programs described in subsection
(a)(11) that are implemented by the Department of the
Interior)''.
(c) Effective Date.--The amendments made by this section
shall apply to amounts received after December 31, 2003, in
taxable years ending after such date.
SEC. 205. MODIFICATIONS TO SECTION 512(B)(13).
(a) In General.--Paragraph (13) of section 512(b) (relating
to special rules for certain amounts received from controlled
entities) is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following new subparagraph:
``(E) Paragraph to apply only to excess
payments.--
``(i) In general.--Subparagraph (A)
shall apply only to the portion of a
specified payment received or accrued
by the controlling organization that
exceeds the amount which would have
been paid or accrued if such payment
met the requirements prescribed under
section 482.
``(ii) Addition to tax for valuation
misstatements.--The tax imposed by this
chapter on the controlling organization
shall be increased by an amount equal
to 20 percent of the larger of--
``(I) such excess determined
without regard to any amendment
or supplement to a return of
tax, or
``(II) such excess determined
with regard to all such
amendments and supplements.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section
shall apply to payments received or accrued after
December 31, 2003.
(2) Payments subject to binding contract transition
rule.--If the amendments made by section 1041 of the
Taxpayer Relief Act of 1997 did not apply to any amount
received or accrued in the first 2 taxable years
beginning on or after the date of the enactment of the
Taxpayer Relief Act of 1997 under any contract
described in subsection (b)(2) of such section, such
amendments also shall not apply to amounts received or
accrued under such contract before January 1, 2001.
SEC. 206. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.
(a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) of
section 501(h) (relating to expenditures by public charities to
influence legislation) is amended to read as follows:
``(1) General rule.--In the case of an organization
to which this subsection applies, exemption from
taxation under subsection (a) shall be denied because a
substantial part of the activities of such organization
consists of carrying on propaganda, or otherwise
attempting, to influence legislation, but only if such
organization normally makes lobbying expenditures in
excess of the lobbying ceiling amount for such
organization for each taxable year.''.
(b) Excess Lobbying Expenditures.--Section 4911(b) is amended
to read as follows:
``(b) Excess Lobbying Expenditures.--For purposes of this
section, the term `excess lobbying expenditures' means, for a
taxable year, the amount by which the lobbying expenditures
made by the organization during the taxable year exceed the
lobbying nontaxable amount for such organization for such
taxable year.''.
(c) Conforming Amendments.--
(1) Section 501(h)(2) is amended by striking
subparagraphs (C) and (D).
(2) Section 4911(c) is amended by striking paragraphs
(3) and (4).
(3) Paragraph (1)(A) of section 4911(f) is amended by
striking ``limits of section 501(h)(1) have'' and
inserting ``limit of section 501(h)(1) has''.
(4) Paragraph (1)(C) of section 4911(f) is amended by
striking ``limits of section 501(h)(1) are'' and
inserting ``limit of section 501(h)(1) is''.
(5) Paragraphs (4)(A) and (4)(B) of section 4911(f)
are each amended by striking ``limits of section
501(h)(1)'' and inserting ``limit of section
501(h)(1)''.
(6) Paragraph (8) of section 6033(b) (relating to
certain organizations described in section 501(c)(3))
is amended by inserting ``and'' at the end of
subparagraph (A) and by striking subparagraphs (C) and
(D).
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 207. PILOT PROJECT FOR FOREST CONSERVATION ACTIVITIES.
(a) Tax-Exempt Bond Financing.--
(1) In general.--For purposes of the Internal Revenue
Code of 1986, any qualified forest conservation bond
shall be treated as an exempt facility bond under
section 142 of such Code.
(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--
(A) 95 percent or more of the net proceeds
(as defined in section 150(a)(3) of such Code)
of such issue are to be used for qualified
project costs,
(B) such bond is an obligation of the State
of Washington or any political subdivision
thereof, and
(C) such bond is issued for a qualified
organization before December 31, 2006.
(3) Limitation on aggregate amount issued.--The
maximum aggregate face amount of bonds which may be
issued under this subsection shall not exceed
$250,000,000.
(4) Qualified project costs.--For purposes of this
subsection, the term ``qualified project costs'' means
the sum of--
(A) the cost of acquisition by the qualified
organization from an unrelated person of
forests and forest land located in the State of
Washington which at the time of acquisition or
immediately thereafter are subject to a
conservation restriction described in
subsection (c)(2),
(B) interest on the qualified forest
conservation bonds for the 3-year period
beginning on the date of issuance of such
bonds, and
(C) credit enhancement fees which constitute
qualified guarantee fees (within the meaning of
section 148 of such Code).
(5) Special rules.--In applying the Internal Revenue
Code of 1986 to any qualified forest conservation bond,
the following modifications shall apply:
(A) Section 146 of such Code (relating to
volume cap) shall not apply.
(B) For purposes of section 147(b) of such
Code (relating to maturity may not exceed 120
percent of economic life), the land and
standing timber acquired with proceeds of
qualified forest conservation bonds shall have
an economic life of 35 years.
(C) Subsections (c) and (d) of section 147 of
such Code (relating to limitations on
acquisition of land and existing property)
shall not apply.
(D) Section 57(a)(5) of such Code (relating
to tax-exempt interest) shall not apply to
interest on qualified forest conservation
bonds.
(6) Treatment of current refunding bonds.--Paragraphs
(2)(C) and (3) shall not apply to any bond (or series
of bonds) issued to refund a qualified forest
conservation bond issued before December 31, 2006, 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) of such Code.
(7) Effective date.--This subsection shall apply to
obligations issued on or after the date of enactment of
this Act.
(b) Items From Qualified Harvesting Activities Not Subject to
Tax or Taken Into Account.--
(1) In general.--Income, gains, deductions, losses,
or credits from a qualified harvesting activity
conducted by a qualified organization shall not be
subject to tax or taken into account under subtitle A
of the Internal Revenue Code of 1986.
(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)--
(A) In general.--The term ``qualified
harvesting activity'' means the sale, lease, or
harvesting, of standing timber--
(i) on land owned by a qualified
organization which was acquired with
proceeds of qualified forest
conservation bonds, and
(ii) pursuant to a qualified
conservation plan adopted by the
qualified organization.
(B) Exceptions.--
(i) Cessation as qualified
organization.--The term ``qualified
harvesting activity'' shall not include
any sale, lease, or harvesting for any
period during which the organization
ceases to qualify as a qualified
organization.
(ii) Exceeding limits on
harvesting.--The term ``qualified
harvesting activity'' shall not include
any sale, lease, or harvesting of
standing timber on land acquired with
proceeds of qualified forest
conservation bonds to the extent that--
(I) the average annual area
of timber harvested from such
land exceeds 2.5 percent of the
total area of such land, or
(II) the quantity of timber
removed from such land exceeds
the quantity which can be
removed from such land annually
in perpetuity on a sustained-
yield basis with respect to
such land.
The limitations under subclauses (I)
and (II) shall not apply to post-fire
restoration and rehabilitation or
sanitation harvesting of timber stands
which are substantially damaged by
fire, windthrow, or other catastrophes,
or which are in imminent danger from
insect or disease attack.
(4) Termination.--This subsection shall not apply to
any qualified harvesting activity occurring after the
date on which there is no outstanding qualified forest
conservation bond or any such bond ceases to be a tax-
exempt bond.
(5) Partial recapture of benefits if harvesting limit
exceeded.--If, as of the date that this subsection
ceases to apply under paragraph (4), 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 such Code 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.
(c) Definitions.--For purposes of this section--
(1) Qualified conservation plan.--The term
``qualified conservation plan'' means a multiple land
use program or plan which--
(A) is designed and administered primarily
for the purposes of protecting and enhancing
wildlife and fish, timber, scenic attributes,
recreation, and soil and water quality of the
forest and forest land,
(B) mandates that conservation of forest and
forest land is the single-most significant use
of the forest and forest land, and
(C) requires that timber harvesting be
consistent with--
(i) restoring and maintaining
reference conditions for the region's
ecotype,
(ii) restoring and maintaining a
representative sample of young, mid,
and late successional forest age
classes,
(iii) maintaining or restoring the
resources' ecological health for
purposes of preventing damage from
fire, insect, or disease,
(iv) maintaining or enhancing
wildlife or fish habitat, or
(v) enhancing research opportunities
in sustainable renewable resource uses.
(2) Conservation restriction.--The conservation
restriction described in this paragraph is a
restriction which--
(A) is granted in perpetuity to an unrelated
person which is described in section 170(h)(3)
of such Code and which, in the case of a
nongovernmental unit, is organized and operated
for conservation purposes,
(B) meets the requirements of clause (ii) or
(iii)(II) of section 170(h)(4)(A) of such Code,
(C) obligates the qualified organization to
pay the costs incurred by the holder of the
conservation restriction in monitoring
compliance with such restriction, and
(D) requires an increasing level of
conservation benefits to be provided whenever
circumstances allow it.
(3) Qualified organization.--The term ``qualified
organization'' means an organization--
(A) which is a nonprofit organization
substantially all the activities of which are
charitable, scientific, or educational,
including acquiring, protecting, restoring,
managing, and developing forest lands and other
renewable resources for the long-term
charitable, educational, scientific and public
benefit,
(B) more than half of the value of the
property of which consists of forests and
forest land acquired with the proceeds from
qualified forest conservation bonds,
(C) which periodically conducts educational
programs designed to inform the public of
environmentally sensitive forestry management
and conservation techniques,
(D) which has at all times a board of
directors--
(i) at least 20 percent of the
members of which represent the holders
of the conservation restriction
described in paragraph (2),
(ii) at least 20 percent of the
members of which are public officials,
and
(iii) not more than one-third of the
members of which are individuals who
are or were at any time within 5 years
before the beginning of a term of
membership on the board, an employee
of, independent contractor with respect
to, officer of, director of, or held a
material financial interest in, a
commercial forest products enterprise
with which the qualified organization
has a contractual or other financial
arrangement,
(E) the bylaws of which require at least two-
thirds of the members of the board of directors
to vote affirmatively to approve the qualified
conservation plan and any change thereto, and
(F) upon dissolution, is required to dedicate
its assets to--
(i) an organization described in
section 501(c)(3) of such Code which is
organized and operated for conservation
purposes, or
(ii) a governmental unit described in
section 170(c)(1) of such Code.
(4) Unrelated person.--The term ``unrelated person''
means a person who is not a related person.
(5) Related person.--A person shall be treated as
related to another person if--
(A) such person bears a relationship to such
other person described in section 267(b)
(determined without regard to paragraph (9)
thereof), or 707(b)(1), of such Code,
determined by substituting ``25 percent'' for
``50 percent'' each place it appears therein,
and
(B) 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.
(d) Report.--
(1) In general.--The Comptroller General of the
United States shall conduct a study on the pilot
project for forest conservation activities under this
section. Such study shall examine the extent to which
forests and forest lands were managed during the 5-year
period beginning on the date of the enactment of this
Act to achieve the goals of such project.
(2) Submission of report to congress.--Not later than
six years after the date of the enactment of this Act,
the Comptroller General shall submit a report of such
study to the Committee on Ways and Means and the
Committee on Resources of the House of Representatives
and the Committee on Finance and the Committee on
Energy and Natural Resources of the Senate.
TITLE III--OTHER PROVISIONS
SEC. 301. COMPASSION CAPITAL FUND.
Title IV of the Social Security Act (42 U.S.C. 601-679b) is
amended by adding at the end the following:
``PART F--COMPASSION CAPITAL FUND
``SEC. 481. SECRETARY'S FUND TO SUPPORT AND REPLICATE PROMISING SOCIAL
SERVICE PROGRAMS.
``(a) Grant Authority.--
``(1) In general.--The Secretary may make grants to
support any private entity that operates a promising
social services program.
``(2) Applications.--An entity desiring to receive a
grant under paragraph (1) shall submit to the Secretary
an application for the grant, which shall contain such
information as the Secretary may require.
``(b) Contract Authority, Etc.--The Secretary may enter into
a grant, contract, or cooperative agreement with any entity
under which the entity would provide technical assistance to
another entity to operate a social service program that assists
persons and families in need, including by--
``(1) providing the other entity with--
``(A) technical assistance and information,
including legal assistance and other business
assistance;
``(B) information on capacity-building;
``(C) information and assistance in
identifying and using best practices for
serving persons and families in need; or
``(D) assistance in replicating programs with
demonstrated effectiveness in assisting persons
and families in need; or
``(2) supporting research on the best practices of
social service organizations.
``(c) Guidance and Technical Assistance.--The Secretary may
use not more than 25 percent of the amount appropriated under
this section for a fiscal year to provide guidance and
technical assistance to States and political subdivisions of
States with respect to the implementation of any social service
program.
``(d) Social Services Program Defined.--In this section, the
term `social services program' means a program that provides
benefits or services of any kind to persons and families in
need.
``(e) Limitations on Authorization of Appropriations.--To
carry out this section, there are authorized to be appropriated
to the Secretary $150,000,000 for fiscal year 2004, and such
sums as may be necessary for fiscal years 2005 through 2008.''.
SEC. 302. REAUTHORIZATION OF ASSETS FOR INDEPENDENCE DEMONSTRATION.
(a) In General.--Section 416 of the Assets for Independence
Act (title IV of Public Law 105-285; 42 U.S.C. 604 note) is
amended by striking ``and 2003'' and inserting ``2003, 2004,
2005, 2006, 2007, and 2008''.
(b) Removal of Economic Literacy Activities From Limitation
on Use of Amounts in the Reserve Fund.--Section 407(c)(3) of
such Act (title IV of Public Law 105-285; 42 U.S.C. 604 note)
is amended by adding at the end the following: ``The preceding
sentences of this paragraph shall not apply to amounts used by
an entity for any activity described in paragraph (1)(A).''.
(c) Eligibility Expanded to Include Individuals In Households
With Income Not Exceeding 50 Percent of Area Median Income.--
Section 408(a)(1) of such Act (title IV of Public Law 105-285;
42 U.S.C. 604 note) is amended to read as follows:
``(1) Income test.--The adjusted gross income of the
household--
``(A) does not exceed 200 percent of the
poverty line (as determined by the Office of
Management and Budget) or the earned income
amount described in section 32 of the Internal
Revenue Code of 1986 (taking into account the
size of the household); or
``(B) does not exceed 50 percent of the area
median income (as determined by the Secretary
of Housing and Urban Development) for the area
in which the household is located.''.
(d) Extension of Time for Account Holders to Access Federal
Funds.--Section 407(d) of such Act (title IV of Public Law 105-
285; 42 U.S.C. 604 note) is amended--
(1) in the subsection heading, by striking ``When
Project Terminates''; and
(2) by striking ``upon'' and inserting ``on the date
that is 6 months after''.
(e) Verification of Postsecondary Education Expenses.--
Section 404(8)(A) of such Act (title IV of Public Law 105-285;
42 U.S.C. 604 note) is amended in the 1st sentence by inserting
``or a vendor, but only to the extent that the expenses are
described in a document which explains the educational items to
be purchased, and the document and the expenses are approved by
the qualified entity'' before the period.
(f) Authority to Use Excess Interest to Fund Other Individual
Development Accounts.--Section 410 of such Act (title IV of
Public Law 105-285; 42 U.S.C. 604 note) is amended--
(1) in subsection (a)(3)--
(A) by striking ``any interest that has
accrued'' and inserting ``interest that has
accrued during that period''; and
(B) by striking the period and inserting ``,
but only to the extent that the amount of the
interest does not exceed the amount of interest
that has accrued during that period on amounts
deposited in the account by that individual.'';
and
(2) by adding at the end the following:
``(f) Use of Excess Interest to Fund Other Individual
Development Accounts.--To the extent that a qualified entity
has an amount that, but for the limitation in subsection
(a)(3), would be required by that subsection to be deposited
into the individual development account of an individual or
into a parallel account maintained by the qualified entity, the
qualified entity may deposit the amount into the individual
development account of any individual or into any such parallel
account maintained by the qualified entity.''.
SEC. 303. SENSE OF THE CONGRESS REGARDING CORPORATE CONTRIBUTIONS TO
FAITH-BASED ORGANIZATIONS, ETC.
(a) Findings.--The Congress finds as follows:
(1) America's community of faith has long played a
leading role in dealing with difficult societal
problems that might otherwise have gone unaddressed.
(2) President Bush has called upon Americans ``to
revive the spirit of citizenship . . . to marshal the
compassion of our people to meet the continuing needs
of our Nation''.
(3) Although the work of faith-based organizations
should not be used by government as an excuse for
backing away from its historic and rightful commitment
to help those who are disadvantaged and in need, such
organizations can and should be seen as a valuable
partner with government in meeting societal challenges.
(4) Every day faith-based organizations in the United
States help people recover from drug and alcohol
addiction, provide food and shelter for the homeless,
rehabilitate prison inmates so that they can break free
from the cycle of recidivism, and teach people job
skills that will allow them to move from poverty to
productivity.
(5) Faith-based organizations are often more
successful in dealing with difficult societal problems
than government and non-sectarian organizations.
(6) As President Bush has stated, ``It is not
sufficient to praise charities and community groups; we
must support them. And this is both a public obligation
and a personal responsibility.''.
(7) Corporate foundations contribute billions of
dollars each year to a variety of philanthropic causes.
(8) According to a study produced by the Capital
Research Center, the 10 largest corporate foundations
in the United States contributed $1,900,000,000 to such
causes.
(9) According to the same study, faith-based
organizations only receive a small fraction of the
contributions made by corporations in the United
States, and 6 of the 10 corporations that give the most
to philanthropic causes explicitly ban or restrict
contributions to faith-based organizations.
(b) Corporations Encouraged To Contribute to Faith-Based
Organizations.--The Congress calls on corporations in the
United States, in the words of the President, ``to give more
and to give better'' by making greater contributions to faith-
based organizations that are on the front lines battling some
of the great societal challenges of our day.
(c) Sense of the Congress.--It is the sense of Congress
that--
(1) corporations in the United States are important
partners with government in efforts to overcome
difficult societal problems; and
(2) no corporation in the United States should adopt
policies that prohibit the corporation from
contributing to an organization that is successfully
advancing a philanthropic cause merely because such
organization is faith based.
TITLE IV--SOCIAL SERVICES BLOCK GRANT
SEC. 401. RESTORATION OF FUNDS FOR THE SOCIAL SERVICES BLOCK GRANT.
(a) Findings.--Congress makes the following findings:
(1) On August 22, 1996, the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 (Public
Law 104-193; 110 Stat. 2105) was signed into law.
(2) In enacting that law, Congress authorized
$2,800,000,000 for fiscal year 2003 and each fiscal
year thereafter to carry out the Social Services Block
Grant program established under title XX of the Social
Security Act (42 U.S.C. 1397 et seq.).
(b) Restoration of Funds.--Section 2003(c)(11) of the Social
Security Act (42 U.S.C. 1397b(c)(11)) is amended by inserting
``, except that, with respect to fiscal year 2004, the amount
shall be $2,800,000,000'' after ``thereafter''.
SEC. 402. RESTORATION OF AUTHORITY TO TRANSFER UP TO 10 PERCENT OF TANF
FUNDS TO THE SOCIAL SERVICES BLOCK GRANT.
(a) In General.--Section 404(d)(2) of the Social Security Act
(42 U.S.C. 604(d)(2)) is amended to read as follows:
``(2) Limitation on amount transferable to title xx
programs.--A State may use not more than 10 percent of
the amount of any grant made to the State under section
403(a) for a fiscal year to carry out State programs
pursuant to title XX.''.
(b) Effective Date.--The amendment made by subsection (a)
applies to amounts made available for fiscal year 2004 and each
fiscal year thereafter.
SEC. 403. REQUIREMENT TO SUBMIT ANNUAL REPORT ON STATE ACTIVITIES.
(a) In General.--Section 2006(c) of the Social Security Act
(42 U.S.C. 1397e(c)) is amended by adding at the end the
following:
``The Secretary shall compile the information submitted by the
States and submit that information to Congress on an annual
basis.''.
(b) Effective Date.--The amendment made by subsection (a)
applies to information submitted by States under section 2006
of the Social Security Act (42 U.S.C. 1397e) with respect to
fiscal year 2004 and each fiscal year thereafter.
TITLE V--ABUSIVE TAX SHELTERS
SEC. 501. SHORT TITLE.
This title may be cited as the ``Abusive Tax Shelter Shutdown
and Taxpayer Accountability Act of 2003''.
SEC. 502. FINDINGS AND PURPOSE.
(a) Findings.--The Congress hereby finds that:
(1) Many corporate tax shelter transactions are
complicated ways of accomplishing nothing aside from
claimed tax benefits, and the legal opinions justifying
those transactions take an inappropriately narrow and
restrictive view of well-developed court doctrines
under which--
(A) the taxation of a transaction is
determined in accordance with its substance and
not merely its form,
(B) transactions which have no significant
effect on the taxpayer's economic or beneficial
interests except for tax benefits are treated
as sham transactions and disregarded,
(C) transactions involving multiple steps are
collapsed when those steps have no substantial
economic meaning and are merely designed to
create tax benefits,
(D) transactions with no business purpose are
not given effect, and
(E) in the absence of a specific
congressional authorization, it is presumed
that Congress did not intend a transaction to
result in a negative tax where the taxpayer's
economic position or rate of return is better
after tax than before tax.
(2) Permitting aggressive and abusive tax shelters
not only results in large revenue losses but also
undermines voluntary compliance with the Internal
Revenue Code of 1986.
(b) Purpose.--The purpose of this title is to eliminate
abusive tax shelters by denying tax attributes claimed to arise
from transactions that do not meet a heightened economic
substance requirement and by repealing the provision that
permits legal opinions to be used to avoid penalties on tax
underpayments resulting from transactions without significant
economic substance or business purpose.
Subtitle A--Provisions Designed to Curtail Tax Shelters
SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In applying the economic
substance doctrine, the determination of
whether a transaction has economic substance
shall be made as provided in this paragraph.
``(B) Definition of economic substance.--For
purposes of subparagraph (A)--
``(i) In general.--A transaction has
economic substance only if--
``(I) the transaction changes
in a meaningful way (apart from
Federal tax effects and, if
there are any Federal tax
effects, also apart from any
foreign, State, or local tax
effects) the taxpayer's
economic position, and
``(II) the taxpayer has a
substantial nontax purpose for
entering into such transaction
and the transaction is a
reasonable means of
accomplishing such purpose.
``(ii) Special rule where taxpayer
relies on profit potential.--A
transaction shall not be treated as
having economic substance by reason of
having a potential for profit unless--
``(I) the present value of
the reasonably expected pre-tax
profit from the transaction is
substantial in relation to the
present value of the expected
net tax benefits that would be
allowed if the transaction were
respected, and
``(II) the reasonably
expected pre-tax profit from
the transaction exceeds a risk-
free rate of return.
``(C) Treatment of fees and foreign taxes.--
Fees and other transaction expenses and foreign
taxes shall be taken into account as expenses
in determining pre-tax profit under
subparagraph (B)(ii).
``(2) Special rules for transactions with tax-
indifferent parties.--
``(A) Special rules for financing
transactions.--The form of a transaction which
is in substance the borrowing of money or the
acquisition of financial capital directly or
indirectly from a tax-indifferent party shall
not be respected if the present value of the
deductions to be claimed with respect to the
transaction is substantially in excess of the
present value of the anticipated economic
returns of the person lending the money or
providing the financial capital. A public
offering shall be treated as a borrowing, or an
acquisition of financial capital, from a tax-
indifferent party if it is reasonably expected
that at least 50 percent of the offering will
be placed with tax-indifferent parties.
``(B) Artificial income shifting and basis
adjustments.--The form of a transaction with a
tax-indifferent party shall not be respected
if--
``(i) it results in an allocation of
income or gain to the tax-indifferent
party in excess of such party's
economic income or gain, or
``(ii) it results in a basis
adjustment or shifting of basis on
account of overstating the income or
gain of the tax-indifferent party.
``(3) Definitions and special rules.--For purposes of
this subsection--
``(A) Economic substance doctrine.--The term
`economic substance doctrine' means the common
law doctrine under which tax benefits under
subtitle A with respect to a transaction are
not allowable if the transaction does not have
economic substance or lacks a business purpose.
``(B) Tax-indifferent party.--The term `tax-
indifferent party' means any person or entity
not subject to tax imposed by subtitle A. A
person shall be treated as a tax-indifferent
party with respect to a transaction if the
items taken into account with respect to the
transaction have no substantial impact on such
person's liability under subtitle A.
``(C) Substantial nontax purpose.--In
applying subclause (II) of paragraph (1)(B)(i),
a purpose of achieving a financial accounting
benefit shall not be taken into account in
determining whether a transaction has a
substantial nontax purpose if the origin of
such financial accounting benefit is a
reduction of income tax.
``(D) Exception for personal transactions of
individuals.--In the case of an individual,
this subsection shall apply only to
transactions entered into in connection with a
trade or business or an activity engaged in for
the production of income.
``(E) Treatment of lessors.--In applying
subclause (I) of paragraph (1)(B)(ii) to the
lessor of tangible property subject to a lease,
the expected net tax benefits shall not include
the benefits of depreciation, or any tax
credit, with respect to the leased property and
subclause (II) of paragraph (1)(B)(ii) shall be
disregarded in determining whether any of such
benefits are allowable.
``(4) Other common law doctrines not affected.--
Except as specifically provided in this subsection, the
provisions of this subsection shall not be construed as
altering or supplanting any other rule of law, and the
requirements of this subsection shall be construed as
being in addition to any such other rule of law.
``(5) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this subsection. Such
regulations may include exemptions from the application
of this subsection.''
(b) Effective Date.--The amendments made by this section
shall apply to transactions entered into after February 13,
2003.
SEC. 512. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6707 the following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include
on any return or statement any information with respect to a
reportable transaction which is required under section 6011 to
be included with such return or statement shall pay a penalty
in the amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs
(2) and (3), the amount of the penalty under subsection
(a) shall be $50,000.
``(2) Listed transaction.--The amount of the penalty
under subsection (a) with respect to a listed
transaction shall be $100,000.
``(3) Increase in penalty for large entities and high
net worth individuals.--
``(A) In general.--In the case of a failure
under subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be
twice the amount determined without regard to
this paragraph.
``(B) Large entity.--For purposes of
subparagraph (A), the term `large entity'
means, with respect to any taxable year, a
person (other than a natural person) with gross
receipts in excess of $10,000,000 for the
taxable year in which the reportable
transaction occurs or the preceding taxable
year. Rules similar to the rules of paragraph
(2) and subparagraphs (B), (C), and (D) of
paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For
purposes of subparagraph (A), the term `high
net worth individual' means, with respect to a
reportable transaction, a natural person whose
net worth exceeds $2,000,000 immediately before
the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to
which information is required to be included with a
return or statement because, as determined under
regulations prescribed under section 6011, such
transaction is of a type which the Secretary determines
as having a potential for tax avoidance or evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a
reportable transaction which is the same as, or
substantially similar to, a transaction specifically
identified by the Secretary as a tax avoidance
transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal
Revenue may rescind all or any portion of any penalty
imposed by this section with respect to any violation
if--
``(A) the violation is with respect to a
reportable transaction other than a listed
transaction,
``(B) the person on whom the penalty is
imposed has a history of complying with the
requirements of this title,
``(C) it is shown that the violation is due
to an unintentional mistake of fact;
``(D) imposing the penalty would be against
equity and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title
and effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of
the Office of Tax Shelter Analysis. The Commissioner,
in the Commissioner's sole discretion, may establish a
procedure to determine if a penalty should be referred
to the Commissioner or the head of such Office for a
determination under paragraph (1).
``(3) No appeal.--Notwithstanding any other provision
of law, any determination under this subsection may not
be reviewed in any administrative or judicial
proceeding.
``(4) Records.--If a penalty is rescinded under
paragraph (1), the Commissioner shall place in the file
in the Office of the Commissioner the opinion of the
Commissioner or the head of the Office of Tax Shelter
Analysis with respect to the determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year
report to the Committee on Ways and Means of the House
of Representatives and the Committee on Finance of the
Senate--
``(A) a summary of the total number and
aggregate amount of penalties imposed, and
rescinded, under this section, and
``(B) a description of each penalty rescinded
under this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports
under section 13 or 15(d) of the Securities Exchange
Act of 1934 or is required to be consolidated with
another person for purposes of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction,
``(B) is required to pay a penalty under
section 6662A with respect to any reportable
transaction at a rate prescribed under section
6662A(c), or
``(C) is required to pay a penalty under
section 6662B with respect to any noneconomic
substance transaction,
the requirement to pay such penalty shall be disclosed in such
reports filed by such person for such periods as the Secretary
shall specify. Failure to make a disclosure in accordance with
the preceding sentence shall be treated as a failure to which
the penalty under subsection (b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed
by this section is in addition to any penalty imposed under
this title.''.
(b) Conforming Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by inserting after the
item relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to include reportable
transaction information with return or statement.''.
(c) Effective Date.--The amendments made by this section
shall apply to returns and statements the due date for which is
after the date of the enactment of this Act.
SEC. 513. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be
added to the tax an amount equal to 20 percent of the amount of
such understatement.
``(b) Reportable Transaction Understatement.--For purposes of
this section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if
any) in taxable income which results
from a difference between the proper
tax treatment of an item to which this
section applies and the taxpayer's
treatment of such item (as shown on the
taxpayer's return of tax), and
``(ii) the highest rate of tax
imposed by section 1 (section 11 in the
case of a taxpayer which is a
corporation), and
``(B) the amount of the decrease (if any) in
the aggregate amount of credits determined
under subtitle A which results from a
difference between the taxpayer's treatment of
an item to which this section applies (as shown
on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the
excess of deductions allowed for the taxable year over
gross income for such year, and any reduction in the
amount of capital losses which would (without regard to
section 1211) be allowed for such year, shall be
treated as an increase in taxable income.
``(2) Items to which section applies.--This section
shall apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than
a listed transaction) if a significant purpose
of such transaction is the avoidance or evasion
of Federal income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other
Avoidance Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect
to the portion of any reportable transaction
understatement with respect to which the requirement of
section 6664(d)(2)(A) is not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of
proposed deficiency which allows the taxpayer
an opportunity for administrative review in the
Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which
paragraph (1) applies, only the Commissioner of
Internal Revenue may compromise all or any
portion of such penalty.
``(B) Applicable rules.--The rules of
paragraphs (3), (4), and (5) of section
6707A(d) shall apply for purposes of
subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction'
and `listed transaction' have the respective meanings given to
such terms by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as
defined in section 6662(d)(2))--
``(A) the amount of such understatement
(determined without regard to this paragraph)
shall be increased by the aggregate amount of
reportable transaction understatements and
noneconomic substance transaction
understatements for purposes of determining
whether such understatement is a substantial
understatement under section 6662(d)(1), and
``(B) the addition to tax under section
6662(a) shall apply only to the excess of the
amount of the substantial understatement (if
any) after the application of subparagraph (A)
over the aggregate amount of reportable
transaction understatements and noneconomic
substance transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--
References to an underpayment in section 6663
shall be treated as including references to a
reportable transaction understatement and a
noneconomic substance transaction
understatement.
``(B) No double penalty.--This section shall
not apply to any portion of an understatement
on which a penalty is imposed under section
6662B or 6663.
``(3) Special rule for amended returns.--Except as
provided in regulations, in no event shall any tax
treatment included with an amendment or supplement to a
return of tax be taken into account in determining the
amount of any reportable transaction understatement or
noneconomic substance transaction understatement if the
amendment or supplement is filed after the earlier of
the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or
such other date as is specified by the Secretary.
``(4) Noneconomic substance transaction
understatement.--For purposes of this
subsection, the term `noneconomic substance
transaction understatement' has the meaning
given such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c) penalty to the Securities
and Exchange Commission, see section 6707A(e).''
(b) Determination of Other Understatements.--Subparagraph (A)
of section 6662(d)(2) is amended by adding at the end the
following flush sentence:
``The excess under the preceding sentence shall
be determined without regard to items to which
section 6662A applies and without regard to
items with respect to which a penalty is
imposed by section 6662B.''
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at
the end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a
reportable transaction understatement if it is shown
that there was a reasonable cause for such portion and
that the taxpayer acted in good faith with respect to
such portion.
``(2) Special rules.--Paragraph (1) shall not apply
to any reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed
in accordance with the regulations prescribed
under section 6011,
``(B) there is or was substantial authority
for such treatment, and
``(C) the taxpayer reasonably believed that
such treatment was more likely than not the
proper treatment.
A taxpayer failing to adequately disclose in accordance
with section 6011 shall be treated as meeting the
requirements of subparagraph (A) if the penalty for
such failure was rescinded under section 6707A(d).
``(3) Rules relating to reasonable belief.--For
purposes of paragraph (2)(C)--
``(A) In general.--A taxpayer shall be
treated as having a reasonable belief with
respect to the tax treatment of an item only if
such belief--
``(i) is based on the facts and law
that exist at the time the return of
tax which includes such tax treatment
is filed, and
``(ii) relates solely to the
taxpayer's chances of success on the
merits of such treatment and does not
take into account the possibility that
a return will not be audited, such
treatment will not be raised on audit,
or such treatment will be resolved
through settlement if it is raised.
``(B) Certain opinions may not be relied
upon.--
``(i) In general.--An opinion of a
tax advisor may not be relied upon to
establish the reasonable belief of a
taxpayer if--
``(I) the tax advisor is
described in clause (ii), or
``(II) the opinion is
described in clause (iii).
``(ii) Disqualified tax advisors.--A
tax advisor is described in this clause
if the tax advisor--
``(I) is a material advisor
(within the meaning of section
6111(b)(1)) who participates in
the organization, management,
promotion, or sale of the
transaction or who is related
(within the meaning of section
267(b) or 707(b)(1)) to any
person who so participates,
``(II) is compensated
directly or indirectly by a
material advisor with respect
to the transaction,
``(III) has a fee arrangement
with respect to the transaction
which is contingent on all or
part of the intended tax
benefits from the transaction
being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing
financial interest with respect
to the transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on
unreasonable factual or legal
assumptions (including
assumptions as to future
events),
``(II) unreasonably relies on
representations, statements,
findings, or agreements of the
taxpayer or any other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any
other requirement as the
Secretary may prescribe.''
(2) Conforming amendment.--The heading for subsection
(c) of section 6664 is amended by inserting ``for
Underpayments'' after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended
by striking ``section 6662(d)(2)(C)(iii)'' and
inserting ``section 1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i),
and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of
subparagraph (B), the term `tax shelter'
means--
``(i) a partnership or other entity,
``(ii) any investment plan or
arrangement, or
``(iii) any other plan or
arrangement,
if a significant purpose of such partnership,
entity, plan, or arrangement is the avoidance
or evasion of Federal income tax.''
(3) Section 6662(d)(2) is amended by striking
subparagraphs (C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this
part'' and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting
``section 1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to
read as follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''
(B) The table of sections for part II of subchapter A
of chapter 68 is amended by striking the item relating
to section 6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-related penalty on
understatements with respect to reportable
transactions.''
(e) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 514. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an
noneconomic substance transaction understatement for any
taxable year, there shall be added to the tax an amount equal
to 40 percent of the amount of such understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--
Subsection (a) shall be applied by substituting `20 percent'
for `40 percent' with respect to the portion of any noneconomic
substance transaction understatement with respect to which the
relevant facts affecting the tax treatment of the item are
adequately disclosed in the return or a statement attached to
the return.
``(c) Noneconomic Substance Transaction Understatement.--For
purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which
would be an understatement under section 6662A(b)(1) if
section 6662A were applied by taking into account items
attributable to noneconomic substance transactions
rather than items to which section 6662A would apply
without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any
transaction if--
``(A) there is a lack of economic substance
(within the meaning of section 7701(m)(1)) for
the transaction giving rise to the claimed tax
benefit or the transaction was not respected
under section 7701(m)(2), or
``(B) the transaction fails to meet the
requirements of any similar rule of law.
``(d) Rules Applicable To Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals has been sent with respect to a
penalty to which this section applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (3),
(4), and (5) of section 6707A(d) shall apply for
purposes of paragraph (1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section
shall be in addition to any other penalty imposed by this
title.
``(f) Cross References.--
``(1) For coordination of penalty with understatements under
section 6662 and other special rules, see section 6662A(e).
``(2) For reporting of penalty imposed under this section to
the Securities and Exchange Commission, see section 6707A(e).''
(b) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the
item relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements attributable to
transactions lacking economic substance, etc.''
(c) Effective Date.--The amendments made by this section
shall apply to transactions entered into after February 13,
2003.
SEC. 515. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is
amended to read as follows:
``(B) Special rule for corporations.--In the
case of a corporation other than an S
corporation or a personal holding company (as
defined in section 542), there is a substantial
understatement of income tax for any taxable
year if the amount of the understatement for
the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required
to be shown on the return for the
taxable year (or, if greater, $10,000),
or
``(ii) $10,000,000.''
(b) Reduction for Understatement of Taxpayer Due to Position
of Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating
to substantial authority) is amended to read as
follows:
``(i) the tax treatment of any item
by the taxpayer if the taxpayer had
reasonable belief that the tax
treatment was more likely than not the
proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended
by adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this
subsection, section 6664(d)(2), and section 6694(a)(1),
the Secretary may prescribe a list of positions for
which the Secretary believes there is not substantial
authority or there is no reasonable belief that the tax
treatment is more likely than not the proper tax
treatment. Such list (and any revisions thereof) shall
be published in the Federal Register or the Internal
Revenue Bulletin.''
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 516. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to
apply to communications regarding corporate tax shelters) is
amended to read as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply
to any written communication which is--
``(1) between a federally authorized tax practitioner
and--
``(A) any person,
``(B) any director, officer, employee, agent,
or representative of the person, or
``(C) any other person holding a capital or
profits interest in the person, and
``(2) in connection with the promotion of the direct
or indirect participation of the person in any tax
shelter (as defined in section 1274(b)(3)(C)).''
(b) Effective Date.--The amendment made by this section shall
apply to communications made on or after the date of the
enactment of this Act.
SEC. 517. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of
tax shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax
benefits expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by
the Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material
advisor' means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling,
implementing, or carrying out any
reportable transaction, and
``(ii) who directly or indirectly
derives gross income in excess of the
threshold amount for such aid,
assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a
reportable transaction substantially
all of the tax benefits from which are
provided to natural persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by
section 6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations
which provide--
``(1) that only 1 person shall be required to meet
the requirements of subsection (a) in cases in which 2
or more persons would otherwise be required to meet
such requirements,
``(2) exemptions from the requirements of this
section, and
``(3) such rules as may be necessary or appropriate
to carry out the purposes of this section.''
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to
read as follows:
``Sec. 6111. Disclosure of reportable transactions.''
(2)(A) So much of section 6112 as precedes subsection
(c) thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in
section 6111) with respect to any reportable transaction (as
defined in section 6707A(c)) shall maintain, in such manner as
the Secretary may by regulations prescribe, a list--
``(1) identifying each person with respect to whom
such advisor acted as such a material advisor with
respect to such transaction, and
``(2) containing such other information as the
Secretary may by regulations require.
This section shall apply without regard to whether a material
advisor is required to file a return under section 6111 with
respect to such transaction.''
(B) Section 6112 is amended by redesignating
subsection (c) as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph
(B), is amended--
(i) by inserting ``written'' before
``request'' in paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in
paragraph (2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to
read as follows:
``Sec. 6112. Material advisors of reportable transactions must
keep lists of advisees.''
(3)(A) The heading for section 6708 is amended to
read as follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is
amended to read as follows:
``Sec. 6708. Failure to maintain lists of advisees with respect
to reportable transactions.''
(c) Effective Date.--The amendments made by this section
shall apply to transactions with respect to which material aid,
assistance, or advice referred to in section 6111(b)(1)(A)(i)
of the Internal Revenue Code of 1986 (as added by this section)
is provided after the date of the enactment of this Act.
SEC. 518. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as
follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--If a person who is required to file a
return under section 6111(a) with respect to any reportable
transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in
the amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph
(2), the penalty imposed under subsection (a) with
respect to any failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction
shall be an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived
by such person with respect to aid, assistance,
or advice which is provided with respect to the
reportable transaction before the date the
return including the transaction is filed under
section 6111.
Subparagraph (B) shall be applied by substituting `75
percent' for `50 percent' in the case of an intentional
failure or act described in subsection (a).
``(c) Rescission Authority.--The provisions of section
6707A(d) (relating to authority of Commissioner to rescind
penalty) shall apply to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms
`reportable transaction' and `listed transaction' have the
respective meanings given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in
the table of sections for part I of subchapter B of chapter 68
is amended by striking ``tax shelters'' and inserting
``reportable transactions''.
(c) Effective Date.--The amendments made by this section
shall apply to returns the due date for which is after the date
of the enactment of this Act.
SEC. 519. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to
read as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make
such list available upon written request to the
Secretary in accordance with section 6112(b)(1)(A)
within 20 business days after the date of the
Secretary's request, such person shall pay a penalty of
$10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall
be imposed by paragraph (1) with respect to the failure
on any day if such failure is due to reasonable
cause.''
(b) Effective Date.--The amendment made by this section shall
apply to requests made after the date of the enactment of this
Act.
SEC. 520. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by
redesignating subsection (c) as subsection (d) and by striking
subsections (a) and (b) and inserting the following new
subsections:
``(a) Authority To Seek Injunction.--A civil action in the
name of the United States to enjoin any person from further
engaging in specified conduct may be commenced at the request
of the Secretary. Any action under this section shall be
brought in the district court of the United States for the
district in which such person resides, has his principal place
of business, or has engaged in specified conduct. The court may
exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action
brought by the United States against such person.
``(b) Adjudication and Decree.--In any action under
subsection (a), if the court finds--
``(1) that the person has engaged in any specified
conduct, and
``(2) that injunctive relief is appropriate to
prevent recurrence of such conduct,
the court may enjoin such person from engaging in such conduct
or in any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the
term `specified conduct' means any action, or failure to take
action, subject to penalty under section 6700, 6701, 6707, or
6708.''
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read
as follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''
(2) The table of sections for subchapter A of chapter
67 is amended by striking the item relating to section
7408 and inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''
(c) Effective Date.--The amendment made by this section shall
take effect on the day after the date of the enactment of this
Act.
SEC. 521. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section
6694(a) (relating to understatements due to unrealistic
positions) is amended--
(1) by striking ``realistic possibility of being
sustained on its merits'' in paragraph (1) and
inserting ``reasonable belief that the tax treatment in
such position was more likely than not the proper
treatment'',
(2) by striking ``or was frivolous'' in paragraph (3)
and inserting ``or there was no reasonable basis for
the tax treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and
inserting ``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and
inserting ``$5,000''.
(c) Effective Date.--The amendments made by this section
shall apply to documents prepared after the date of the
enactment of this Act.
SEC. 522. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United
States Code, is amended to read as follows:
``(5) Foreign financial agency transaction
violation.--
``(A) Penalty authorized.--The Secretary of
the Treasury may impose a civil money penalty
on any person who violates, or causes any
violation of, any provision of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided
in subparagraph (C), the amount of any
civil penalty imposed under
subparagraph (A) shall not exceed
$5,000.
``(ii) Reasonable cause 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) $25,000, or
``(II) the amount (not
exceeding $100,000) determined
under subparagraph (D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under
this subparagraph is--
``(i) in the case of a violation
involving a transaction, the amount of
the transaction, or
``(ii) in the case of a violation
involving a failure to report the
existence of an account or any
identifying information required to be
provided with respect to an account,
the balance in the account at the time
of the violation.''
(b) Effective Date.--The amendment made by this section shall
apply to violations occurring after the date of the enactment
of this Act.
SEC. 523. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as
follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person
shall pay a penalty of $5,000 if--
``(1) such person files what purports to be a return
of a tax imposed by this title but which--
``(A) does not contain information on which
the substantial correctness of the self-
assessment may be judged, or
``(B) contains information that on its face
indicates that the self-assessment is
substantially incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(B) reflects a desire to delay or impede
the administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified
frivolous submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes
of this section--
``(A) Specified frivolous submission.--The
term `specified frivolous submission' means a
specified submission if any portion of such
submission--
``(i) is based on a position which
the Secretary has identified as
frivolous under subsection (c), or
``(ii) reflects a desire to delay or
impede the administration of Federal
tax laws.
``(B) Specified submission.--The term
`specified submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating
to notice and opportunity for
hearing upon filing of notice
of lien), or
``(II) section 6330 (relating
to notice and opportunity for
hearing before levy), and
``(ii) an application under--
``(I) section 6159 (relating
to agreements for payment of
tax liability in installments),
``(II) section 7122 (relating
to compromises), or
``(III) section 7811
(relating to taxpayer
assistance orders).
``(3) Opportunity to withdraw submission.--If the
Secretary provides a person with notice that a
submission is a specified frivolous submission and such
person withdraws such submission within 30 days after
such notice, the penalty imposed under paragraph (1)
shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which
the Secretary has identified as being frivolous for purposes of
this subsection. The Secretary shall not include in such list
any position that the Secretary determines meets the
requirement of section 6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the
amount of any penalty imposed under this section if the
Secretary determines that such reduction would promote
compliance with and administration of the Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The
penalties imposed by this section shall be in addition to any
other penalty provided by law.''
(b) Treatment of Frivolous Requests for Hearings Before
Levy.--
(1) Frivolous requests disregarded.--Section 6330
(relating to notice and opportunity for hearing before
levy) is amended by adding at the end the following new
subsection:
``(g) Frivolous Requests for Hearing, etc.--Notwithstanding
any other provision of this section, if the Secretary
determines that any portion of a request for a hearing under
this section or section 6320 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative or
judicial review.''
(2) Preclusion from raising frivolous issues at
hearing.--Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting
``(A)(i)'';
(B) by striking ``(B)'' and inserting
``(ii)'';
(C) by striking the period at the end of the
first sentence and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii)
(as so redesignated) the following:
``(B) the issue meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A).''
(3) Statement of grounds.--Section 6330(b)(1) is
amended by striking ``under subsection (a)(3)(B)'' and
inserting ``in writing under subsection (a)(3)(B) and
states the grounds for the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon Filing
of Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under
subsection (a)(3)(B)'' and inserting ``in writing under
subsection (a)(3)(B) and states the grounds for the
requested hearing'', and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is amended
by adding at the end the following new subsection:
``(e) Frivolous Submissions, etc.--Notwithstanding any other
provision of this section, if the Secretary determines that any
portion of an application for an offer-in-compromise or
installment agreement submitted under this section or section
6159 meets the requirement of clause (i) or (ii) of section
6702(b)(2)(A), then the Secretary may treat such portion as if
it were never submitted and such portion shall not be subject
to any further administrative or judicial review.''
(e) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item
relating to section 6702 and inserting the following new item:
``Sec. 6702. Frivolous tax submissions.''
(f) Effective Date.--The amendments made by this section
shall apply to submissions made and issues raised after the
date on which the Secretary first prescribes a list under
section 6702(c) of the Internal Revenue Code of 1986, as
amended by subsection (a).
SEC. 524. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United
States Code, is amended--
(A) by inserting ``, or censure,'' after
``Department'', and
(B) by adding at the end the following new
flush sentence:
``The Secretary may impose a monetary penalty on any
representative described in the preceding sentence. If the
representative was acting on behalf of an employer or any firm
or other entity in connection with the conduct giving rise to
such penalty, the Secretary may impose a monetary penalty on
such employer, firm, or entity if it knew, or reasonably should
have known, of such conduct. Such penalty shall not exceed the
gross income derived (or to be derived) from the conduct giving
rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure.''
(2) Effective date.--The amendments made by this
subsection shall apply to actions taken after the date
of the enactment of this Act.
(b) Tax Shelter Opinions, etc.--Section 330 of such title 31
is amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of
law shall be construed to limit the authority of the Secretary
of the Treasury to impose standards applicable to the rendering
of written advice with respect to any entity, transaction plan
or arrangement, or other plan or arrangement, which is of a
type which the Secretary determines as having a potential for
tax avoidance or evasion.''
SEC. 525. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section
6700(a) is amended by adding at the end the following new
sentence: ``Notwithstanding the first sentence, if an activity
with respect to which a penalty imposed under this subsection
involves a statement described in paragraph (2)(A), the amount
of the penalty shall be equal to 50 percent of the gross income
derived (or to be derived) from such activity by the person on
which the penalty is imposed.''
(b) Effective Date.--The amendment made by this section shall
apply to activities after the date of the enactment of this
Act.
SEC. 526. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED
TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(e)(1) (relating to substantial
omission of items for income taxes) is amended by adding at the
end the following new subparagraph:
``(C) Listed transactions.--If a taxpayer
fails to include on any return or statement for
any taxable year any information with respect
to a listed transaction (as defined in section
6707A(c)(2)) which is required under section
6011 to be included with such return or
statement, the tax for such taxable year may be
assessed, or a proceeding in court for
collection of such tax may be begun without
assessment, at any time within 6 years after
the time the return is filed. This subparagraph
shall not apply to any taxable year if the time
for assessment or beginning the proceeding in
court has expired before the time a transaction
is treated as a listed transaction under
section 6011.''
(b) Effective Date.--The amendment made by this section shall
apply to transactions after the date of the enactment of this
Act in taxable years ending after such date.
SEC. 527. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND
NONECONOMIC SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for
interest) is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the
following new subsection:
``(m) Interest on Unpaid Taxes Attributable to Nondisclosed
Reportable Transactions and Noneconomic Substance
Transactions.--No deduction shall be allowed under this chapter
for any interest paid or accrued under section 6601 on any
underpayment of tax which is attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with
respect to which the requirement of section
6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction
understatement (as defined in section 6662B(c)).''
(b) Effective Date.--The amendments made by this section
shall apply to transactions after the date of the enactment of
this Act in taxable years ending after such date.
Subtitle B--Affirmation of Consolidated Return Regulation Authority
SEC. 531. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated
return regulations) is amended by adding at the end the
following new sentence: ``In prescribing such regulations, the
Secretary may prescribe rules applicable to corporations filing
consolidated returns under section 1501 that are different from
other provisions of this title that would apply if such
corporations filed separate returns.''
(b) Result Not Overturned.--Notwithstanding subsection (a),
the Internal Revenue Code of 1986 shall be construed by
treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in
effect on January 1, 2001) as being inapplicable to the type of
factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall
apply to taxable years beginning before, on, or after the date
of the enactment of this Act.