S 3162 ISCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide tax relief to improve the competitiveness of United States corporations and small businesses, to eliminate tax incentives to move jobs and profits overseas, and for other purposes.CommentsClose CommentsPermalink

June 19, 2008CommentsClose CommentsPermalink

Mr. VOINOVICH introduced the following bill; which was read twice and referred to the Committee on FinanceCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide tax relief to improve the competitiveness of United States corporations and small businesses, to eliminate tax incentives to move jobs and profits overseas, and for other purposes.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE, ETC.

(a) Short Title- This Act may be cited as the ‘Manufacturing, Assembling, Development, and Export in the USA Tax Act’ or the ‘MADE in the USA Tax Act’.CommentsClose CommentsPermalink





(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.CommentsClose CommentsPermalink





(c) Table of Contents- The table of contents for this Act is as follows:CommentsClose CommentsPermalink





Sec. 1. Short title, etc.CommentsClose CommentsPermalink

TITLE I--TAX RELIEF TO IMPROVE THE COMPETITIVENESS OF UNITED STATES CORPORATIONS AND SMALL BUSINESSES

Sec. 101. Phased in reduction of maximum corporate income tax rate to 28 percent.CommentsClose CommentsPermalink





Sec. 102. Modifications of deduction for income attributable to domestic production activities.CommentsClose CommentsPermalink





Sec. 103. Small business expensing provisions made permanent.CommentsClose CommentsPermalink





Sec. 104. Repeal of imposition of withholding on certain payments made to vendors by government entities.CommentsClose CommentsPermalink





Sec. 105. Repeal of certain modifications to exclusion for citizens living abroad.CommentsClose CommentsPermalink

TITLE II--ELIMINATION OF TAX INCENTIVES TO MOVE JOBS AND PROFITS OVERSEAS

Subtitle A--Foreign Tax Credit Modifications

Sec. 201. Inclusion of all foreign-source royalties in passive category income in applying foreign tax credit limitation.CommentsClose CommentsPermalink





Sec. 202. Separate application of foreign tax credit limitation to financial services income.CommentsClose CommentsPermalink

Subtitle B--Classification of Foreign Entities

Sec. 211. Treatment of foreign corporations managed and controlled in the United States as domestic corporations.CommentsClose CommentsPermalink





Sec. 212. Entities with single owner treated as corporations.CommentsClose CommentsPermalink

Subtitle C--Proper Treatment and Allocation of Income and Deductions

Sec. 221. Limitation on treaty benefits for certain deductible payments.CommentsClose CommentsPermalink





Sec. 222. Repeal of special source rules for inventory property.CommentsClose CommentsPermalink





Sec. 223. Clarification of determination of foreign oil and gas extraction income.CommentsClose CommentsPermalink





Sec. 224. Modifications of limitation on excess interest deductions of certain corporations.CommentsClose CommentsPermalink





Sec. 225. Sense of Senate regarding certain reinsurance transactions with foreign related persons.CommentsClose CommentsPermalink





Sec. 226. Study on effectiveness of transfer pricing rules with respect to inbound transactions.CommentsClose CommentsPermalink

Subtitle D--Other Provisions

Sec. 231. Nonqualified deferred compensation from certain tax indifferent parties.CommentsClose CommentsPermalink





Sec. 232. Restrictions on refundable child tax credit to taxpayers outside the United States.CommentsClose CommentsPermalink

TITLE III--OTHER REVENUE MEASURES

Subtitle A--Accounting Provisions

Sec. 301. Repeal of lower of cost or market method of inventory.CommentsClose CommentsPermalink





Sec. 302. Repeal of percentage depletion.CommentsClose CommentsPermalink





Sec. 303. Amortization of goodwill and other intangibles.CommentsClose CommentsPermalink

Subtitle B--Codification of Economic Substance Doctrine

Sec. 311. Codification of economic substance doctrine.CommentsClose CommentsPermalink





Sec. 312. Penalties for underpayments.CommentsClose CommentsPermalink

Subtitle C--Extension of Certain Expiring Provisions

Sec. 321. Extension of FUTA tax.CommentsClose CommentsPermalink





Sec. 322. Permanent extension of custom user fees.CommentsClose CommentsPermalink

TITLE I--TAX RELIEF TO IMPROVE THE COMPETITIVENESS OF UNITED STATES CORPORATIONS AND SMALL BUSINESSESCommentsClose CommentsPermalink

SEC. 101. PHASED IN REDUCTION OF MAXIMUM CORPORATE INCOME TAX RATE TO 28 PERCENT.

(a) Phased Reduction-CommentsClose CommentsPermalink





(1) IN GENERAL- Paragraph (1) of section 11(b) (relating to amount of tax on corporations) is amended to read as follows:CommentsClose CommentsPermalink





‘(1) IN GENERAL- The amount of the tax imposed by subsection (a) shall be the sum of--CommentsClose CommentsPermalink





‘(A) 15 percent of so much of the taxable income as does not exceed $50,000,CommentsClose CommentsPermalink





‘(B) 25 percent of so much of the taxable income as exceeds $50,000, but does not exceed $75,000, andCommentsClose CommentsPermalink





‘(C) the applicable percentage of so much of such taxable income as exceeds $75,000.’.CommentsClose CommentsPermalink





(2) APPLICABLE PERCENTAGE- Section 11(b) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(3) APPLICABLE PERCENTAGE- For purposes of this subsection, the applicable percentage for any taxable year shall be determined in accordance with the following table:CommentsClose CommentsPermalink

‘In the case of a taxable year beginning in calendar year:CommentsClose CommentsPermalink

2009CommentsClose CommentsPermalink

--33CommentsClose CommentsPermalink

2010CommentsClose CommentsPermalink

--32CommentsClose CommentsPermalink

2011CommentsClose CommentsPermalink

--31CommentsClose CommentsPermalink

2012CommentsClose CommentsPermalink

--30CommentsClose CommentsPermalink

2013 and thereafterCommentsClose CommentsPermalink

--28’.CommentsClose CommentsPermalink

(b) Personal Service Corporations- Paragraph (2) of section 11(b) is amended by striking ‘35 percent’ and inserting ‘the applicable percentage’.CommentsClose CommentsPermalink





(c) Conforming Amendments-CommentsClose CommentsPermalink





(1) Section 904(b)(3)(D)(ii) is amended by striking ‘(determined without regard to the last sentence of section 11(b)(1))’.CommentsClose CommentsPermalink





(2) Section 1201(a) is amended--CommentsClose CommentsPermalink





(A) by striking ‘35 percent’ each place it appears and inserting ‘the applicable percentage then in effect under section 11(b)(3)’, andCommentsClose CommentsPermalink





(B) by striking ‘(determined without regard to the last 2 sentences of section 11(b)(1))’.CommentsClose CommentsPermalink





(3) Subparagraphs (A) and (B)(ii) of section 1201(b)(1), as added by the Heartland, Habitat, Harvest, and Horticulture Act of 2008, are each amended by striking ‘35 percent’ and inserting ‘the applicable percentage then in effect under section 11(b)(3)’.CommentsClose CommentsPermalink





(4)(A) Paragraph (1) of section 1445(e) is amended by striking ‘35 percent’ and inserting ‘the applicable percentage in effect under section 11(b)(3) on the 1st day of the calendar year in which the disposition occurs’.CommentsClose CommentsPermalink





(B) Paragraph (2) of section 1445(e) is amended by striking ‘35 percent’ and inserting ‘the applicable percentage (in effect under section 11(b)(3) on the 1st day of the calendar year in which the distribution occurs)’CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008; except that the amendments made by subsection (c)(4) shall take effect on January 1, 2009.CommentsClose CommentsPermalink

SEC. 102. MODIFICATIONS OF DEDUCTION FOR INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

(a) Deduction Limited to Taxpayers Other Than C Corporations- Section 199(a)(1) (relating to allowance of deduction for income attributable to domestic production activities) is amended by striking ‘There’ and inserting ‘In the case of a taxpayer other than a C corporation, there’.CommentsClose CommentsPermalink





(b) Increase in Amount of Deduction- Section 199(a) is amended--CommentsClose CommentsPermalink





(1) by striking ‘9 percent’ in paragraph (1) and inserting ‘12 percent’, andCommentsClose CommentsPermalink





(2) in paragraph (2)--CommentsClose CommentsPermalink





(A) by striking ‘before 2010’ and inserting ‘before 2011’, andCommentsClose CommentsPermalink





(B) by striking the table and inserting the following:CommentsClose CommentsPermalink

‘For taxable years beginning in:CommentsClose CommentsPermalink

2005 or 2006CommentsClose CommentsPermalink

3CommentsClose CommentsPermalink

2007 or 2008CommentsClose CommentsPermalink

6CommentsClose CommentsPermalink

2009 or 2010CommentsClose CommentsPermalink

9’.CommentsClose CommentsPermalink

(c) Conforming Amendments-CommentsClose CommentsPermalink





(1) Section 199(c)(4) is amended by striking subparagraph (D).CommentsClose CommentsPermalink





(2) Section 199(c)(7)(B) is amended to read as follows:CommentsClose CommentsPermalink





‘(B) RELATED PERSON- For purposes of subparagraph (A), a person shall be treated as related to another person if such persons are treated as a single employer under section 52(b) or subsection (m) or (o) of section 414, except that any determination under section 52(b) shall be made without regard to section 1563(b).’.CommentsClose CommentsPermalink





(3) Section 199(d)(4) is repealed.CommentsClose CommentsPermalink





(4) Section 199(d)(6) is amended to read as follows:CommentsClose CommentsPermalink





‘(6) COORDINATION WITH MINIMUM TAX- For purposes of determining alternative minimum taxable income under section 55, qualified production activities income shall be determined without regard to any adjustments under sections 56 through 59.’.CommentsClose CommentsPermalink





(5) Section 163(j)(6)(A)(i) is amended by inserting ‘and’ at the end of subclause (II), by striking subclause (III), and by redesignating subclause (IV) as subclause (III).CommentsClose CommentsPermalink





(6) Section 170(b)(2)(C) is amended by inserting ‘and’ at the end of clause (iii), by striking clause (iv), and by redesignating clause (v) as clause (iv).CommentsClose CommentsPermalink





(7) Section 246(b)(1) is amended by striking ‘199,’.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink

SEC. 103. SMALL BUSINESS EXPENSING PROVISIONS MADE PERMANENT.

(a) Increase in Small Business Expensing Made Permanent- Subsection (b) of section 179 is amended--CommentsClose CommentsPermalink





(1) by striking ‘$25,000 ($125,000 in the case of taxable years beginning after 2006 and before 2011)’ in paragraph (1) and inserting ‘$125,000’, andCommentsClose CommentsPermalink





(2) by striking ‘$200,000 ($500,000 in the case of taxable years beginning after 2006 and before 2011)’ in paragraph (2) and inserting ‘$500,000’.CommentsClose CommentsPermalink





(b) Expensing for Computer Software Made Permanent- Clause (ii) of section 179(d)(1)(A) is amended--CommentsClose CommentsPermalink





(1) by striking ‘, to which’ and inserting ‘and to which’, andCommentsClose CommentsPermalink





(2) by striking ‘and which is placed in service in a taxable year beginning after 2002 and before 2011,’.CommentsClose CommentsPermalink





(c) Inflation Adjustment- Subparagraph (A) of section 179(b)(5) is amended by striking ‘and before 2011’.CommentsClose CommentsPermalink





(d) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink





(2) COMPUTER SOFTWARE- The amendment made by subsection (b) shall apply to property placed in service after December 31, 2008.CommentsClose CommentsPermalink

SEC. 104. REPEAL OF IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE TO VENDORS BY GOVERNMENT ENTITIES.

Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, and the amendment made by such section, are repealed, and the Internal Revenue Code of 1986 shall be applied and administered as if such amendment had never been enacted.CommentsClose CommentsPermalink

SEC. 105. REPEAL OF CERTAIN MODIFICATIONS TO EXCLUSION FOR CITIZENS LIVING ABROAD.

(a) Modification of Housing Cost Amount-CommentsClose CommentsPermalink





(1) HOUSING COST FLOOR- Clause (i) of section 911(c)(1)(B) (relating to housing cost amount) is amended to read as follows:CommentsClose CommentsPermalink





‘(i) 16 percent of the salary (computed on a daily basis) of an employee of the United States who is compensated at a rate equal to the annual rate for step 1 of grade GS-14, multiplied by’.CommentsClose CommentsPermalink





(2) MAXIMUM AMOUNT OF EXCLUSION-CommentsClose CommentsPermalink





(A) IN GENERAL- Section 911(c) is amended--CommentsClose CommentsPermalink





(i) in paragraph (1)(A), by striking ‘to the extent such expenses do not exceed the amount determined under paragraph (2)’, andCommentsClose CommentsPermalink





(ii) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.CommentsClose CommentsPermalink





(B) CONFORMING AMENDMENTS-CommentsClose CommentsPermalink





(i) Section 911(d)(4) is amended by striking ‘, (c)(1)(B)(ii), and (c)(2)(A)(ii)’ and inserting ‘and (c)(1)(B)(ii)’.CommentsClose CommentsPermalink





(ii) Section 911(d)(7) is amended by striking ‘subsection (c)(4)’ and inserting ‘subsection (c)(3)’.CommentsClose CommentsPermalink





(b) Rates of Tax Applicable to Nonexcluded Income- Section 911 (relating to exclusion of earned income of citizens and residents of the United States living abroad) is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink

TITLE II--ELIMINATION OF TAX INCENTIVES TO MOVE JOBS AND PROFITS OVERSEASCommentsClose CommentsPermalink

Subtitle A--Foreign Tax Credit ModificationsCommentsClose CommentsPermalink

SEC. 201. INCLUSION OF ALL FOREIGN-SOURCE ROYALTIES IN PASSIVE CATEGORY INCOME IN APPLYING FOREIGN TAX CREDIT LIMITATION.

(a) In General- Clause (i) of section 904(d)(2)(B) (defining passive income) is amended to read as follows:CommentsClose CommentsPermalink





‘(i) IN GENERAL- Except as otherwise provided in this subparagraph, the term ‘passive income’ means--CommentsClose CommentsPermalink





‘(I) any income received or accrued by any person which is of a kind which would be foreign personal holding company income (as defined in section 954(c)), andCommentsClose CommentsPermalink





‘(II) any royalties received or accrued by any person which are not described in subclause (I).’.CommentsClose CommentsPermalink





(b) Look-Thru Rules Not To Apply to Royalties- Section 904(d)(3) (relating to look-thru in the case of controlled foreign corporations) is amended--CommentsClose CommentsPermalink





(1) by striking ‘rents, and royalties’ in subparagraph (A) and inserting ‘and rents’, andCommentsClose CommentsPermalink





(2) in subparagraph (C)--CommentsClose CommentsPermalink





(A) by striking ‘, rent, or royalty’ and inserting ‘or rent’, andCommentsClose CommentsPermalink





(B) by striking ‘RENTS, AND ROYALTIES’ in the heading and inserting ‘AND RENTS’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink

SEC. 202. SEPARATE APPLICATION OF FOREIGN TAX CREDIT LIMITATION TO FINANCIAL SERVICES INCOME.

(a) In General- Section 904(d)(1) (relating to separate application of section with respect to certain categories of income) is amended by striking ‘and’ at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph:CommentsClose CommentsPermalink





‘(B) financial services category income, and’.CommentsClose CommentsPermalink





(b) Financial Services Category Income-CommentsClose CommentsPermalink





(1) IN GENERAL- Section 904(d)(2)(A) (relating to categories of income) is amended--CommentsClose CommentsPermalink





(A) by redesignating clause (ii) as clause (iii) and inserting after clause (i) the following new clause:CommentsClose CommentsPermalink





‘(ii) FINANCIAL SERVICES CATEGORY INCOME- The term ‘financial services category income’ means income described in subparagraph (C).’, andCommentsClose CommentsPermalink





(B) by inserting ‘or financial services category income’ before the period at the end of clause (iii) (as redesignated by subparagraph (A)).CommentsClose CommentsPermalink





(2) COORDINATION WITH PASSIVE INCOME- Clause (iii) of section 904(d)(2)(B) (relating to exceptions) is amended by striking ‘and’ at the end of subclause (I), by striking the period at the end of subclause (II) and inserting ‘, and’, and by adding at the end the following new subclause:CommentsClose CommentsPermalink





‘(III) any financial services category income.’.CommentsClose CommentsPermalink





(3) FINANCIAL SERVICES CATEGORY INCOME DEFINED- So much of section 904(d)(2)(C) as precedes clause (ii) thereof is amended to read as follows:CommentsClose CommentsPermalink





‘(C) FINANCIAL SERVICES CATEGORY INCOME-CommentsClose CommentsPermalink





‘(i) IN GENERAL- Financial services income shall be treated as financial services category income in the case of--CommentsClose CommentsPermalink





‘(I) a member of a financial services group, orCommentsClose CommentsPermalink





‘(II) any other person if such person is predominantly engaged in the active conduct of a banking, insurance, financing, or similar business.CommentsClose CommentsPermalink





Notwithstanding the preceding sentence, if any portion of any financial services income consists of any royalties received or accrued by any person, then such portion shall be treated as passive category income.’.CommentsClose CommentsPermalink





(4) CONFORMING AMENDMENTS-CommentsClose CommentsPermalink





(A) Section 904(d)(2)(H)(i) is amended by striking ‘paragraph (1)(B)’ and inserting ‘paragraph (1)(C), except that in the case of taxable years beginning after December 31, 2008, the taxpayer may elect to treat such tax as tax imposed on income described in subparagraph (B) or (C) of paragraph (1)’.CommentsClose CommentsPermalink





(B) Section 904(d)(3) is amended--CommentsClose CommentsPermalink





(i) in subparagraph (A), by striking ‘passive category income’ and inserting ‘income in a separate category’,CommentsClose CommentsPermalink





(ii) in subparagraph (B)--CommentsClose CommentsPermalink





(I) by striking ‘passive category income’ the first place it appears and inserting ‘income in a separate category’, andCommentsClose CommentsPermalink





(II) by striking ‘passive category income’ the second place it appears and inserting ‘income in such category’,CommentsClose CommentsPermalink





(iii) in subparagraph (C)--CommentsClose CommentsPermalink





(I) by striking ‘passive category income’ the first place it appears and inserting ‘income in a separate category’, andCommentsClose CommentsPermalink





(II) by striking ‘passive category income of the controlled foreign corporation’ and inserting ‘income of the controlled foreign corporation in such category’,CommentsClose CommentsPermalink





(iv) in subparagraph (D)--CommentsClose CommentsPermalink





(I) by striking ‘passive category income’ the first place it appears and inserting ‘income in a separate category’, andCommentsClose CommentsPermalink





(II) by striking ‘passive category income’ the second place it appears and inserting ‘income in such category’,CommentsClose CommentsPermalink





(v) in subparagraph (E)--CommentsClose CommentsPermalink





(I) by striking ‘passive category income’ each place it appears and inserting ‘income in a separate category’, andCommentsClose CommentsPermalink





(II) by striking ‘financial services income’ and inserting ‘financial services category income’, andCommentsClose CommentsPermalink





(vi) by striking subparagraph (F) and inserting the following new subparagraph:CommentsClose CommentsPermalink





‘(F) SEPARATE CATEGORY; COORDINATION WITH HIGH-TAXED INCOME PROVISIONS- For purposes of this paragraph--CommentsClose CommentsPermalink





‘(i) IN GENERAL- Except as provided in clause (ii), the term ‘separate category’ means any category of income described in subparagraph (A) or (B) of paragraph (1).CommentsClose CommentsPermalink





‘(ii) COORDINATION WITH HIGH-TAXED INCOME PROVISIONS-CommentsClose CommentsPermalink





‘(I) In determining whether any income of a controlled foreign corporation is in a separate category, subclause (II) of paragraph (2)(B)(iii) shall not apply.CommentsClose CommentsPermalink





‘(II) Any income of the taxpayer which is treated as income in a separate category under this paragraph shall be so treated notwithstanding any provision of paragraph (2); except that the determination of whether any amount is high-taxed income shall be made after the application of this paragraph.’.CommentsClose CommentsPermalink





(c) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink





(2) TRANSITION RULES- The Secretary shall prescribe such rules or guidance as may be necessary or appropriate to provide for the proper treatment of items of income, gain, deductions, losses, and taxes arising in taxable years beginning before January 1, 2009, which are properly allocable to a different category of income for taxable years beginning on or after such date by reason of the amendments made by this section.CommentsClose CommentsPermalink

Subtitle B--Classification of Foreign EntitiesCommentsClose CommentsPermalink

SEC. 211. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN THE UNITED STATES AS DOMESTIC CORPORATIONS.

(a) In General- Section 7701 (relating to definitions), as amended by section 311, is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:CommentsClose CommentsPermalink





‘(q) Certain Publicly-Traded Corporations Managed and Controlled in the United States Treated as Domestic for Income Tax-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Notwithstanding subsection (a)(4), in the case of a corporation the stock of which is regularly traded on an established securities market, if--CommentsClose CommentsPermalink





‘(A) the corporation would not otherwise be treated as a domestic corporation for purposes of this title, butCommentsClose CommentsPermalink





‘(B) the management and control of the corporation occurs primarily within the United States,CommentsClose CommentsPermalink





then, solely for purposes of chapter 1 (and any other provision of this title relating to chapter 1), the corporation shall be treated as a domestic corporation.CommentsClose CommentsPermalink





‘(2) MANAGEMENT AND CONTROL- The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as primarily occurring within the United States. Such regulations shall provide that--CommentsClose CommentsPermalink





‘(A) the management and control of a corporation shall be treated as primarily occurring within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are primarily located within the United States, andCommentsClose CommentsPermalink





‘(B) individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to day responsibilities of the corporation described in subparagraph (A).’.CommentsClose CommentsPermalink





(b) Effective Date- The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 212. ENTITIES WITH SINGLE OWNER TREATED AS CORPORATIONS.

(a) In General- Section 7701 (relating to definitions), as amended by sections 211 and 311, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection:CommentsClose CommentsPermalink





‘(r) Special Rules for Entities With Single Owners-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Notwithstanding this section or any regulation issued thereunder, a business entity shall be treated as a corporation if the corporation is created or organized under the laws of any foreign country and has a single owner.CommentsClose CommentsPermalink





‘(2) REGULATORY AUTHORITY-CommentsClose CommentsPermalink





‘(A) APPLICATION TO DOMESTIC ENTITIES- The Secretary may issue regulations which apply the rule of paragraph (1) to a domestic business entity in cases where the single owner is a controlled foreign corporation (as defined in section 957(a)).CommentsClose CommentsPermalink





‘(B) OTHER AUTHORITY- The Secretary may issue such regulations as are necessary or appropriate to carry out the purposes of this section, including regulations which treat a business entity with more than one owner as having a single owner to the extent necessary to prevent the avoidance of the purposes of this section.’.CommentsClose CommentsPermalink





(b) Effective Dates-CommentsClose CommentsPermalink





(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink





(2) TRANSITION RULE FOR CERTAIN EXISTING ENTITIES- In the case of an entity in existence on the date of the enactment of this Act which is not treated as a corporation for purposes of the Internal Revenue Code of 1986 for the taxable year which includes such date, the amendments made by this section shall apply to taxable years of such corporation beginning on or after the date which is 1 year after such date of enactment.CommentsClose CommentsPermalink

Subtitle C--Proper Treatment and Allocation of Income and DeductionsCommentsClose CommentsPermalink

SEC. 221. LIMITATION ON TREATY BENEFITS FOR CERTAIN DEDUCTIBLE PAYMENTS.

(a) In General- Section 894 (relating to income affected by treaty) is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(d) Limitation on Treaty Benefits for Certain Deductible Payments-CommentsClose CommentsPermalink





‘(1) IN GENERAL- In the case of any deductible related-party payment, any withholding tax imposed under chapter 3 (and any tax imposed under subpart A or B of this part) with respect to such payment may not be reduced under any treaty of the United States unless any such withholding tax would be reduced under a treaty of the United States if such payment were made directly to the foreign parent corporation.CommentsClose CommentsPermalink





‘(2) DEDUCTIBLE RELATED-PARTY PAYMENT- For purposes of this subsection, the term ‘deductible related-party payment’ means any payment made, directly or indirectly, by any person to any other person if the payment is allowable as a deduction under this chapter and both persons are members of the same foreign controlled group of entities.CommentsClose CommentsPermalink





‘(3) FOREIGN CONTROLLED GROUP OF ENTITIES- For purposes of this subsection--CommentsClose CommentsPermalink





‘(A) IN GENERAL- The term ‘foreign controlled group of entities’ means a controlled group of entities the common parent of which is a foreign corporation.CommentsClose CommentsPermalink





‘(B) CONTROLLED GROUP OF ENTITIES- The term ‘controlled group of entities’ means a controlled group of corporations as defined in section 1563(a)(1), except that--CommentsClose CommentsPermalink





‘(i) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein, andCommentsClose CommentsPermalink





‘(ii) the determination shall be made without regard to subsections (a)(4) and (b)(2) of section 1563.CommentsClose CommentsPermalink





A partnership or any other entity (other than a corporation) shall be treated as a member of a controlled group of entities if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence).CommentsClose CommentsPermalink





‘(4) FOREIGN PARENT CORPORATION- For purposes of this subsection, the term ‘foreign parent corporation’ means, with respect to any deductible related-party payment, the common parent of the foreign controlled group of entities referred to in paragraph (3)(A).CommentsClose CommentsPermalink





‘(5) REGULATIONS- The Secretary may prescribe such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provide for--CommentsClose CommentsPermalink





‘(A) the treatment of two or more persons as members of a foreign controlled group of entities if such persons would be the common parent of such group if treated as one corporation, andCommentsClose CommentsPermalink





‘(B) the treatment of any member of a foreign controlled group of entities as the common parent of such group if such treatment is appropriate taking into account the economic relationships among such entities.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to payments made after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 222. REPEAL OF SPECIAL SOURCE RULES FOR INVENTORY PROPERTY.

(a) In General- The following provisions are repealed:CommentsClose CommentsPermalink





(1) Section 861(a)(6).CommentsClose CommentsPermalink





(2) Section 862(a)(6).CommentsClose CommentsPermalink





(3) Section 865(b).CommentsClose CommentsPermalink





(b) Special Rules for Determining Source- The last sentence of section 863(b) is amended to read as follows: ‘Gains, profits, and income from services rendered partly within and partly without the United States shall be treated as derived partly from sources within and partly from sources without the United States.’.CommentsClose CommentsPermalink





(c) Conforming Amendments-CommentsClose CommentsPermalink





(1) Section 865 is amended by striking ‘(b),’ in subsection (e).CommentsClose CommentsPermalink





(2) Section 865(i)(1) is repealed.CommentsClose CommentsPermalink





(3) Section 954(d)(4) is amended--CommentsClose CommentsPermalink





(A) by striking subparagraph (A) and inserting the following new subparagraph:CommentsClose CommentsPermalink





‘(A) the sale of any unprocessed timber which is a softwood and was cut from an area in the United States, or’, andCommentsClose CommentsPermalink





(B) by adding at the end the following new sentence: ‘For purposes of subparagraph (A), the term ‘unprocessed timber’ means any log, cant, or similar form of timber.’.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink

SEC. 223. CLARIFICATION OF DETERMINATION OF FOREIGN OIL AND GAS EXTRACTION INCOME.

(a) In General- Paragraph (1) of section 907(c) is amended by redesignating subparagraph (B) as subparagraph (C), by striking ‘or’ at the end of subparagraph (A), and by inserting after subparagraph (A) the following new subparagraph:CommentsClose CommentsPermalink





‘(B) so much of any transportation of such minerals as occurs before the fair market value event, or’.CommentsClose CommentsPermalink





(b) Fair Market Value Event- Subsection (c) of section 907 is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(6) FAIR MARKET VALUE EVENT- For purposes of this section, the term ‘fair market value event’ means, with respect to any mineral, the first point in time at which such mineral--CommentsClose CommentsPermalink





‘(A) has a fair market value which can be determined on the basis of a transfer, which is an arm’s length transaction, of such mineral from the taxpayer to a person who is not related (within the meaning of section 482) to such taxpayer, orCommentsClose CommentsPermalink





‘(B) is at a location at which the fair market value is readily ascertainable by reason of transactions among unrelated third parties with respect to the same mineral (taking into account source, location, quality, and chemical composition).’.CommentsClose CommentsPermalink





(c) Special Rule for Certain Petroleum Taxes- Subsection (c) of section 907, as amended by subsection (b), is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(7) OIL AND GAS TAXES- In the case of any tax imposed by a foreign country which is limited in its application to taxpayers engaged in oil or gas activities--CommentsClose CommentsPermalink





‘(A) the term ‘oil and gas extraction taxes’ shall include such tax,CommentsClose CommentsPermalink





‘(B) the term ‘foreign oil and gas extraction income’ shall include any taxable income which is taken into account in determining such tax (or is directly attributable to the activity to which such tax relates), andCommentsClose CommentsPermalink





‘(C) the term ‘foreign oil related income’ shall not include any taxable income which is treated as foreign oil and gas extraction income under subparagraph (B).’.CommentsClose CommentsPermalink





(d) Conforming Amendments-CommentsClose CommentsPermalink





(1) Subparagraph (C) of section 907(c)(1), as redesignated by this section, is amended by inserting ‘or used by the taxpayer in the activity described in subparagraph (B)’ before the period at the end.CommentsClose CommentsPermalink





(2) Subparagraph (B) of section 907(c)(2) is amended to read as follows:CommentsClose CommentsPermalink





‘(B) so much of the transportation of such minerals or primary products as is not taken into account under paragraph (1)(B),’.CommentsClose CommentsPermalink





(e) Effective Date- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 224. MODIFICATIONS OF LIMITATION ON EXCESS INTEREST DEDUCTIONS OF CERTAIN CORPORATIONS.

(a) Corporations to Which Limitation Applies- Section 163(j)(2) (relating to corporations to which subsection applies) is amended to read as follows:CommentsClose CommentsPermalink





‘(2) CORPORATIONS TO WHICH SUBSECTION APPLIES-CommentsClose CommentsPermalink





‘(A) IN GENERAL- This subsection shall apply to any corporation for any taxable year if such corporation has excess interest expense for the taxable year.CommentsClose CommentsPermalink





‘(B) EXCESS INTEREST EXPENSE- For purposes of this subsection, the term ‘excess interest expense’ means the excess (if any) of--CommentsClose CommentsPermalink





‘(i) the corporation’s net interest expense, overCommentsClose CommentsPermalink





‘(ii) 25 percent of the adjusted taxable income of the corporation.’.CommentsClose CommentsPermalink





(b) Modification of Carryforward of Disallowed Interest- Subparagraph (B) of section 163(j)(1) is amended to read as follows:CommentsClose CommentsPermalink





‘(B) DISALLOWED AMOUNT CARRIED TO SUCCEEDING TAXABLE YEAR-CommentsClose CommentsPermalink





‘(i) IN GENERAL- Except as provided in clause (ii), any amount disallowed under subparagraph (A) for any taxable year shall be treated as disqualified interest paid or accrued in the succeeding taxable year.CommentsClose CommentsPermalink





‘(ii) 10-year CARRYFORWARD LIMIT- Any disqualified interest disallowed under subparagraph (A) shall not be carried forward under clause (i) to any taxable year beginning after the 10th taxable year following the taxable year in which the interest was paid or accrued (determined without regard to this subparagraph). For purposes of the preceding sentence, any deduction under this section with respect to disqualified interest for which a deduction was previously disallowed under subparagraph (A) shall be allocated to such interest on a first-in, first-out basis.’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to interest paid or accrued in taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink

SEC. 225. SENSE OF SENATE REGARDING CERTAIN REINSURANCE TRANSACTIONS WITH FOREIGN RELATED PERSONS.

It is the sense of the Senate that Congress should enact legislation as soon as possible to address the tax treatment of reinsurance transactions with related persons (and other similar transactions), including the transfer offshore by reinsurance or otherwise of assets and earnings related to insurance of United States risks. In enacting such legislation, Congress should consider the effects of such practices on--CommentsClose CommentsPermalink





(1) the tax base of the United States, andCommentsClose CommentsPermalink





(2) the competitiveness of insurers and reinsurers based in the United States.CommentsClose CommentsPermalink

SEC. 226. STUDY ON EFFECTIVENESS OF TRANSFER PRICING RULES WITH RESPECT TO INBOUND TRANSACTIONS.

(a) In General- The Secretary of the Treasury or the Secretary’s delegate shall conduct a study of the effectiveness of the transfer pricing rules under section 482 of the Internal Revenue Code of 1986 in properly allocating items of income and deduction in cases involving foreign persons conducting business within the United States or foreign persons selling goods and services into the United States. Such study shall include an analysis of the effectiveness of such rules in preventing income shifting, preventing the understatement of United States business profits, and ensuring taxation of income effectively connected with the United States.CommentsClose CommentsPermalink





(b) Report- The Secretary shall, not later than the date which is 1 year after the date of the enactment of this Act, report the results of the study conducted under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives, including any specific recommendations for changes in legislation which the Secretary considers appropriate.CommentsClose CommentsPermalink

Subtitle D--Other ProvisionsCommentsClose CommentsPermalink

SEC. 231. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX INDIFFERENT PARTIES.

(a) In General- Subpart B of part II of subchapter E of chapter 1 is amended by inserting after section 457 the following new section:CommentsClose CommentsPermalink

‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX INDIFFERENT PARTIES.

‘(a) In General- Any compensation which is deferred under a nonqualified deferred compensation plan of a nonqualified entity shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation.CommentsClose CommentsPermalink





‘(b) Nonqualified Entity- For purposes of this section, the term ‘nonqualified entity’ means--CommentsClose CommentsPermalink





‘(1) any foreign corporation unless substantially all of its income is--CommentsClose CommentsPermalink





‘(A) effectively connected with the conduct of a trade or business in the United States, orCommentsClose CommentsPermalink





‘(B) subject to a comprehensive foreign income tax, andCommentsClose CommentsPermalink





‘(2) any partnership unless substantially all of its income is allocated to persons other than--CommentsClose CommentsPermalink





‘(A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, andCommentsClose CommentsPermalink





‘(B) organizations which are exempt from tax under this title.CommentsClose CommentsPermalink





‘(c) Determinability of Amounts of Compensation-CommentsClose CommentsPermalink





‘(1) IN GENERAL- If the amount of any compensation is not determinable at the time that such compensation is otherwise includible in gross income under subsection (a)--CommentsClose CommentsPermalink





‘(A) such amount shall be so includible in gross income when determinable, andCommentsClose CommentsPermalink





‘(B) the tax imposed under this chapter for the taxable year in which such compensation is includible in gross income shall be increased by the sum of--CommentsClose CommentsPermalink





‘(i) the amount of interest determined under paragraph (2), andCommentsClose CommentsPermalink





‘(ii) an amount equal to 20 percent of the amount of such compensation.CommentsClose CommentsPermalink





‘(2) INTEREST- For purposes of paragraph (1)(B)(i), the interest determined under this paragraph for any taxable year is the amount of interest at the underpayment rate under section 6621 plus 1 percentage point on the underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.CommentsClose CommentsPermalink





‘(d) Other Definitions and Special Rules- For purposes of this section--CommentsClose CommentsPermalink





‘(1) SUBSTANTIAL RISK OF FORFEITURE- The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual.CommentsClose CommentsPermalink





‘(2) COMPREHENSIVE FOREIGN INCOME TAX- The term ‘comprehensive foreign income tax’ means, with respect to any foreign person, the income tax of a foreign country if--CommentsClose CommentsPermalink





‘(A) such person is eligible for the benefits of a comprehensive income tax treaty between such foreign country and the United States, orCommentsClose CommentsPermalink





‘(B) such person demonstrates to the satisfaction of the Secretary that such foreign country has a comprehensive income tax.CommentsClose CommentsPermalink





‘(3) NONQUALIFIED DEFERRED COMPENSATION PLAN-CommentsClose CommentsPermalink





‘(A) IN GENERAL- The term ‘nonqualified deferred compensation plan’ has the meaning given such term under section 409A(d), except that such term shall include any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient.CommentsClose CommentsPermalink





‘(B) EXCEPTION- Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 12 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.CommentsClose CommentsPermalink





‘(4) EXCEPTION FOR CERTAIN COMPENSATION WITH RESPECT TO EFFECTIVELY CONNECTED INCOME- In the case a foreign corporation with income which is taxable under section 882, this section shall not apply to compensation which, had such compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture, would have been deductible by such foreign corporation against such income.CommentsClose CommentsPermalink





‘(5) APPLICATION OF RULES- Rules similar to the rules of paragraphs (5) and (6) of section 409A(d) shall apply.CommentsClose CommentsPermalink





‘(e) Regulations- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.’.CommentsClose CommentsPermalink





(b) Conforming Amendment- Section 26(b)(2) is amended by striking ‘and’ at the end of subparagraph (U), by striking the period at the end of subparagraph (V) and inserting ‘, and’, and by adding at the end the following new subparagraph:CommentsClose CommentsPermalink





‘(W) section 457A(c)(1)(B) (relating to determinability of amounts of compensation).’.CommentsClose CommentsPermalink





(c) Clerical Amendment- The table of sections of subpart B of part II of subchapter E of chapter 1 is amended by inserting after the item relating to section 457 the following new item:CommentsClose CommentsPermalink





‘Sec. 457A. Nonqualified deferred compensation from certain tax indifferent parties.’.CommentsClose CommentsPermalink





(d) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts deferred which are attributable to services performed after December 31, 2008.CommentsClose CommentsPermalink





(2) APPLICATION TO EXISTING DEFERRALS- In the case of any amount deferred to which the amendments made by this section do not apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2009, to the extent such amount is not includible in gross income in a taxable year beginning before 2018, such amounts shall be includible in gross income in the later of--CommentsClose CommentsPermalink





(A) the last taxable year beginning before 2018, orCommentsClose CommentsPermalink





(B) the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation (determined in the same manner as determined for purposes of section 457A of the Internal Revenue Code of 1986, as added by this section).CommentsClose CommentsPermalink





(3) ACCELERATED PAYMENTS- No later than 120 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2008, may, without violating the requirements of section 409A(a) of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income.CommentsClose CommentsPermalink





(4) CERTAIN BACK-TO-BACK ARRANGEMENTS- If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2008, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection.CommentsClose CommentsPermalink





(5) ACCELERATED PAYMENT NOT TREATED AS MATERIAL MODIFICATION- Any amendment to a nonqualified deferred compensation arrangement made pursuant to paragraph (3) or (4) shall not be treated as a material modification of the arrangement for purposes of section 409A of the Internal Revenue Code of 1986.CommentsClose CommentsPermalink

SEC. 232. RESTRICTIONS ON REFUNDABLE CHILD TAX CREDIT TO TAXPAYERS OUTSIDE THE UNITED STATES.

(a) In General- Section 24(d) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(4) APPLICATION TO TAXPAYERS OUTSIDE OF THE UNITED STATES- This subsection shall not apply to any taxpayer who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2008.CommentsClose CommentsPermalink





(c) Application of EGTRRA Sunset- The amendment made by this section shall be subject to title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 in the same manner and to the same extent as such title applies to the amendments made by section 201(c) of such Act.CommentsClose CommentsPermalink

TITLE III--OTHER REVENUE MEASURESCommentsClose CommentsPermalink

Subtitle A--Accounting ProvisionsCommentsClose CommentsPermalink

SEC. 301. REPEAL OF LOWER OF COST OR MARKET METHOD OF INVENTORY.

(a) In General- Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:CommentsClose CommentsPermalink





‘(c) Inventories Taken Into Account at Cost- A method of determining inventories shall not be treated as clearly reflecting income unless such method provides that inventories shall be taken into account at cost.’.CommentsClose CommentsPermalink





(b) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink





(2) CHANGE IN METHOD OF ACCOUNTING- In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after the date of the enactment of this Act--CommentsClose CommentsPermalink





(A) such change shall be treated as initiated by the taxpayer,CommentsClose CommentsPermalink





(B) such change shall be treated as made with the consent of the Secretary of the Treasury, andCommentsClose CommentsPermalink





(C) if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 is positive, such amount shall be taken into account over a period of 8 years beginning with such first taxable year.CommentsClose CommentsPermalink

SEC. 302. REPEAL OF PERCENTAGE DEPLETION.

(a) In General- Section 613 (relating to percentage depletion) is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(f) Termination- This section shall not apply to any taxable year beginning after December 31, 2008.’.CommentsClose CommentsPermalink





(b) Limitations on Percentage Depletion in Case of Oil and Gas Wells- Section 613A (relating to limitations on percentage depletion in case of oil and gas wells) is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(f) Termination- This section shall not apply to any taxable year beginning after December 31, 2008.’.CommentsClose CommentsPermalink

SEC. 303. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES.

(a) In General- Subsection (a) of section 197 (relating to general rule) is amended by striking ‘15-year’ and inserting ‘20-year’.CommentsClose CommentsPermalink





(b) Certain Interests or Rights Acquired Separately- Clause (i) of section 197(e)(4)(D) is amended by striking ‘15 years’ and inserting ‘20 years’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to property acquired after the date of the enactment of this Act.CommentsClose CommentsPermalink

Subtitle B--Codification of Economic Substance DoctrineCommentsClose CommentsPermalink

SEC. 311. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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





‘(p) Clarification of Economic Substance Doctrine-CommentsClose CommentsPermalink





‘(1) APPLICATION OF DOCTRINE- In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if--CommentsClose CommentsPermalink





‘(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, andCommentsClose CommentsPermalink





‘(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.CommentsClose CommentsPermalink





‘(2) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL-CommentsClose CommentsPermalink





‘(A) IN GENERAL- The potential for profit of a transaction shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of paragraph (1) are met with respect to the transaction only if 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.CommentsClose CommentsPermalink





‘(B) 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 (A).CommentsClose CommentsPermalink





‘(3) STATE AND LOCAL TAX BENEFITS- For purposes of paragraph (1), any State or local income tax effect which is related to a Federal income tax effect shall be treated in the same manner as a Federal income tax effect.CommentsClose CommentsPermalink





‘(4) FINANCIAL ACCOUNTING BENEFITS- For purposes of paragraph (1)(B), achieving a financial accounting benefit shall not be taken into account as a purpose for entering into a transaction if such transaction results in a Federal income tax benefit.CommentsClose CommentsPermalink





‘(5) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection--CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(B) EXCEPTION FOR PERSONAL TRANSACTIONS OF INDIVIDUALS- In the case of an individual, paragraph (1) shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.CommentsClose CommentsPermalink





‘(C) 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.CommentsClose CommentsPermalink





‘(D) DETERMINATION OF APPLICATION OF DOCTRINE NOT AFFECTED- The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.CommentsClose CommentsPermalink





‘(6) 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.’.CommentsClose CommentsPermalink





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

SEC. 312. PENALTIES FOR UNDERPAYMENTS.

(a) Penalty for Underpayments Attributable to Transactions Lacking Economic Substance-CommentsClose CommentsPermalink





(1) IN GENERAL- Subsection (b) of section 6662 is amended by inserting after paragraph (5) the following new paragraph:CommentsClose CommentsPermalink





‘(6) Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(p)) or failing to meet the requirements of any similar rule of law.’.CommentsClose CommentsPermalink





(2) INCREASED PENALTY FOR NONDISCLOSED TRANSACTIONS- Section 6662 is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(i) Increase in Penalty in Case of Nondisclosed Noneconomic Substance Transactions-CommentsClose CommentsPermalink





‘(1) IN GENERAL- To the extent that a portion of the underpayment to which this section applies is attributable to one or more nondisclosed noneconomic substance transactions, subsection (a) shall be applied with respect to such portion by substituting ‘40 percent’ for ‘20 percent’.CommentsClose CommentsPermalink





‘(2) NONDISCLOSED NONECONOMIC SUBSTANCE TRANSACTIONS- For purposes of this subsection, the term ‘nondisclosed noneconomic substance transaction’ means any portion of a transaction described in subsection (b)(6) with respect to which the relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement attached to the return.CommentsClose CommentsPermalink





‘(3) SPECIAL RULE FOR AMENDED RETURNS- Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection 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.’.CommentsClose CommentsPermalink





(3) CONFORMING AMENDMENT- Subparagraph (B) of section 6662A(e)(2) is amended by striking ‘section 6662(h)’ and inserting ‘subsection (h) or (i) of section 6662’.CommentsClose CommentsPermalink





(b) Reasonable Cause Exception Not Applicable to Noneconomic Substance Transactions, Tax Shelters, and Certain Large Corporations- Section 6664(c) is amended--CommentsClose CommentsPermalink





(1) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively,CommentsClose CommentsPermalink





(2) by striking ‘paragraph (2)’ in paragraph (4), as so redesignated, and inserting ‘paragraph (3)’, andCommentsClose CommentsPermalink





(3) by inserting after paragraph (1) the following new paragraph:CommentsClose CommentsPermalink





‘(2) EXCEPTION- Paragraph (1) shall not apply to--CommentsClose CommentsPermalink





‘(A) any portion of an underpayment to which is attributable to one or more transactions described in section 6662(b)(6),CommentsClose CommentsPermalink





‘(B) to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)), orCommentsClose CommentsPermalink





‘(C) to any taxpayer if such taxpayer is a specified large corporation (as defined in section 6662(d)(2)(D)(ii)).’.CommentsClose CommentsPermalink





(c) Special Understatement Reduction Rule for Certain Large Corporations-CommentsClose CommentsPermalink





(1) IN GENERAL- Paragraph (2) of section 6662(d) is amended by adding at the end the following new subparagraph:CommentsClose CommentsPermalink





‘(D) SPECIAL REDUCTION RULE FOR CERTAIN LARGE CORPORATIONS-CommentsClose CommentsPermalink





‘(i) IN GENERAL- In the case of any specified large corporation--CommentsClose CommentsPermalink





‘(I) subparagraph (B) shall not apply, andCommentsClose CommentsPermalink





‘(II) the amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to any item with respect to which the taxpayer has a reasonable belief that the tax treatment of such item by the taxpayer is more likely than not the proper tax treatment of such item.CommentsClose CommentsPermalink





‘(ii) SPECIFIED LARGE CORPORATION-CommentsClose CommentsPermalink





‘(I) IN GENERAL- For purposes of this subparagraph, the term ‘specified large corporation’ means any corporation with gross receipts in excess of $100,000,000 for the taxable year involved.CommentsClose CommentsPermalink





‘(II) AGGREGATION RULE- All persons treated as a single employer under section 52(a) shall be treated as one person for purposes of subclause (I).’.CommentsClose CommentsPermalink





(2) CONFORMING AMENDMENT- Subparagraph (C) of section 6662(d)(2) is amended by striking ‘Subparagraph (B)’ and inserting ‘Subparagraphs (B) and (D)(i)(II)’.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink

Subtitle C--Extension of Certain Expiring ProvisionsCommentsClose CommentsPermalink

SEC. 321. EXTENSION OF FUTA TAX.

Section 3301 of the Internal Revenue Code of 1986 (relating to rate of tax) is amended--CommentsClose CommentsPermalink





(1) by striking ‘2008’ in paragraph (1) and inserting ‘2018’, andCommentsClose CommentsPermalink





(2) by striking ‘2009’ in paragraph (2) and inserting ‘2019’.CommentsClose CommentsPermalink

SEC. 322. PERMANENT EXTENSION OF CUSTOM USER FEES.

(a) In General- Section 13031(j)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended to read as follows:CommentsClose CommentsPermalink





‘(3) In any fiscal year for which fees under paragraphs (1) through (8) of subsection (a) are authorized--CommentsClose CommentsPermalink





‘(A) the Secretary of the Treasury shall charge fees under each such paragraph in amounts that are reasonably related to the costs of providing customs services in connection with the activity or item for which the fee is charged under such paragraph, except that in no case may the fee charged under any such paragraph exceed by more than 10 percent the amount otherwise prescribed by such paragraph;CommentsClose CommentsPermalink





‘(B) the amount of fees collected under such paragraphs may not exceed, in the aggregate, the amounts paid in that fiscal year for the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fees are charged under such paragraphs;CommentsClose CommentsPermalink





‘(C) a fee may not be collected under any such paragraph except to the extent such fee will be expended to pay the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fee is charged under such paragraph; andCommentsClose CommentsPermalink





‘(D) any fee collected under any such paragraph shall be available for expenditure only to pay the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fee is charged under such paragraph.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to fees charged after December 31, 2008.CommentsClose CommentsPermalink