To provide funding for infrastructure investment to restore the United States economy and to enhance the security of transportation and environmental facilities throughout the United States.

To provide funding for infrastructure investment to restore the United States economy and to enhance the security of transportation and environmental facilities throughout the United States.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Rebuild America Act of 2003'.

(b) TABLE OF CONTENTS-

Sec. 1. Short title; table of contents.

Sec. 2. Findings and purposes.

TITLE I--HIGHWAY INFRASTRUCTURE INVESTMENT

Sec. 101. Federal-aid highway program obligation ceiling.

TITLE II--TRANSIT INFRASTRUCTURE INVESTMENT

Sec. 201. Additional authorizations for formula grants.

Sec. 202. Federal transit program obligation ceiling.

TITLE III--AVIATION INFRASTRUCTURE INVESTMENT

Sec. 301. Increased funding for airport planning and development.

Sec. 302. Airport security improvement projects.

TITLE IV--RAIL INFRASTRUCTURE INVESTMENT

Subtitle A--Credit for Amtrak Bonds

Sec. 401. Credit to holders of qualified Amtrak bonds.

Subtitle B--High-Speed Rail Provisions

Sec. 411. Department of transportation approval for qualified Amtrak projects.

Sec. 412. Multiyear capital spending plan and oversight.

Sec. 413. Issuance of regulations.

Sec. 414. Sense of Congress regarding effect on Amtrak funding.

Sec. 415. Effective date.

Subtitle C--Amtrak Capital Investment

Sec. 421. Authorization of appropriations.

Subtitle D--Capital Investment for Railroad Rehabilitation

Sec. 431. Capital grants for railroad track.

Sec. 432. Regulatory procedure amendments.

TITLE V--PORT SECURITY INFRASTRUCTURE INVESTMENT

Sec. 501. Authorization of appropriations for grants to implement security plans.

TITLE VI--ENVIRONMENTAL INFRASTRUCTURE INVESTMENT

Sec. 601. General authority for capitalization grants.

Sec. 602. Capitalization grants agreements.

Sec. 603. Water pollution control revolving funds.

Sec. 604. Authorization of appropriations for clean water State revolving funds.

Sec. 605. Wet weather.

Sec. 606. Safe drinking water State revolving funds.

TITLE VII--WATER RESOURCES INFRASTRUCTURE INVESTMENT

Sec. 701. Increased funding for Corps of Engineers projects.

TITLE VIII--ECONOMIC DEVELOPMENT INFRASTRUCTURE INVESTMENT

Sec. 801. Public works and economic development.

Sec. 802. Appalachian regional development.

Sec. 803. Delta regional development.

Sec. 804. Northern Great Plains regional development.

TITLE IX--PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT

Sec. 901. Security enhancements for GSA properties.

TITLE X--GENERAL PROVISIONS

Sec. 1001. Priority consideration for security projects.

Sec. 1002. Temporary waiver of non-Federal share.

Sec. 1003. Maintenance of effort.

Sec. 1004. Labor standards.

Sec. 1005. Buy America.

TITLE XI--REVENUE OFFSETS

Sec. 1100. Amendment of 1986 code.

Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 1101. Clarification of economic substance doctrine.

Sec. 1102. Penalty for failing to disclose reportable transaction.

Sec. 1103. Accuracy-related penalty for listed transactions and other reportable transactions having a significant tax avoidance purpose.

Sec. 1104. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 1105. Modifications of substantial understatement penalty for nonreportable transactions.

Sec. 1106. Tax shelter exception to confidentiality privileges relating to taxpayer communications.

Sec. 1107. Disclosure of reportable transactions.

Sec. 1108. Modifications to penalty for failure to register tax shelters.

Sec. 1109. Modification of penalty for failure to maintain lists of investors.

Sec. 1110. Modification of actions to enjoin certain conduct related to tax shelters and reportable transactions.

Sec. 1111. Understatement of taxpayer's liability by income tax return preparer.

Sec. 1112. Penalty on failure to report interests in foreign financial accounts.

Sec. 1113. Frivolous tax submissions.

Sec. 1114. Regulation of individuals practicing before the Department of Treasury.

Sec. 1115. Penalty on promoters of tax shelters.

Sec. 1116. Statute of limitations for taxable years for which listed transactions not reported.

Sec. 1117. Denial of deduction for interest on underpayments attributable to nondisclosed reportable and noneconomic substance transactions.

Subtitle B--OTHER PROVISIONS

Sec. 1121. Limitation on transfer or importation of built-in losses.

Sec. 1122. Disallowance of certain partnership loss transfers.

Sec. 1123. No reduction of basis under section 734 in stock held by partnership in corporate partner.

Sec. 1124. Repeal of special rules for FASITs.

Sec. 1125. Expanded disallowance of deduction for interest on convertible debt.

Sec. 1126. Expanded authority to disallow tax benefits under section 269.

Sec. 1127. Modifications of certain rules relating to controlled foreign corporations.

Sec. 1128. Basis for determining loss always reduced by nontaxed portion of dividends.

Sec. 1129. Affirmation of consolidated return regulation authority.

Sec. 1130. Extension of customs user fees.

Subtitle C--Prevention of Corporate Expatriation To Avoid United States Income Tax

Sec. 1131. Prevention of corporate expatriation to avoid United States income tax.

SEC. 2. FINDINGS AND PURPOSES.

(a) FINDINGS- Congress finds the following:

(1) Since January 2001, the unemployment rate has increased from 4.2 percent to 6.1 percent, the highest level since July 1994.

(2) Since January 2001, the number of unemployed people increased from 5,950,000 people to 9,000,000, an increase of more than 3,000,000, or more than 50 percent.

(3) The increase in unemployment of the last two and one-half years has had a disproportionate effect on people of color. The rate of unemployment for African Americans is 10.8 percent, twice the rate for whites. The unemployment rate for Hispanic Americans is 8.2 percent, more than 50 percent higher than the rate for whites.

(4) The number of unemployed private construction workers is 715,000, an 80 percent increase over the comparable period in calendar year 2000. The unemployment rate for construction workers is 8.4 percent, 68 percent higher than the rate in May 2000.

(5) Similarly, the number of unemployed manufacturing workers is nearly 1,200,000, an increase of more than 25 percent since January 2001. In January 2003, the number of production workers in manufacturing dropped below 11,000,000 for the first time since February 1946, and the number continues to fall.

(6) Moreover, after workers have lost their jobs, they have had more trouble finding new jobs. The average length of unemployment is almost 20 weeks, the longest it has been in almost 2 decades. In the past 2 years, the number of workers who are unemployed for longer than 6 months has increased by 1,300,000 to more than 1,900,000, an increase of more than 206 percent. One-half of the unemployed are out of work for more than 10 weeks and one in 5 have been out of work for more than 6 months.

(7) In addition, 4,600,000 people seeking full-time employment are working only part-time. An additional 5,500,000 have completely dropped out of the labor force because they cannot find work, and therefore are not counted as unemployed.

(8) As labor markets tightened in the late 1990's, even low- and middle-income workers seemed to gain some wage bargaining power. But, with the Bush recession, family incomes are falling across the board, and falling most rapidly among lower-income workers.

(9) In 75 urban areas, highway congestion alone costs travelers 3,600,000,000 hours of delay, 5,700,000,000 gallons of wasted fuel, and $67,500,000,000 in lost productivity and wasted fuel each year (more than three times the $22,000,000,000 cost in 1982).

(10) Similarly, States indicate that 40 percent of assessed waters, or 20,000 discrete areas of the Nation's lakes, rivers, streams, and coastal waters, do not meet State water quality standards.

(11) States, cities, transit authorities, airport authorities, and other entities have thousands of ready-to-go infrastructure projects, which will create long-term capital assets for the United States and which can help stimulate the Nation's economy.

(12) Each $1,000,000,000 of Federal funding invested in infrastructure construction creates approximately 47,500 jobs and $6,200,000,000 in economic activity.

(b) PURPOSES- The purposes of this Act are as follows:

(1) To invest in the Nation's infrastructure to enhance the safety, security, and efficiency of highway, transit, aviation, rail, port, environmental, water resources, and public buildings infrastructure.

(2) To create jobs and economic activity to put people back to work and stimulate the Nation's economy.

(3) To create long-term capital assets for the Nation that will help the United States address its enormous infrastructure needs and improve its economic productivity.

(4) To demonstrate the commitment of the Federal Government to economic recovery, thereby increasing the confidence of consumers and businesses.

SEC. 101. FEDERAL-AID HIGHWAY PROGRAM OBLIGATION CEILING.

Section 1102 of the Transportation Equity Act for the 21st Century (112 Stat. 115) is amended by adding at the end the following:

`(j) INCREASE IN OBLIGATION LIMIT FOR FISCAL YEAR 2003- Notwithstanding any other provision of law, limitations on obligations imposed by subsection (a) for fiscal year 2003 shall be $36,600,000,000. Such sum shall be distributed in accordance with this section, except that a program subject to a reduction in funds under subsection (f) shall receive an amount of obligation authority equal to the amount of contract authority available for such program in such fiscal year.'.

SEC. 201. ADDITIONAL AUTHORIZATIONS FOR FORMULA GRANTS.

(a) FROM THE TRUST FUND- Section 5338(a)(2)(A)(v) of title 49, United States Code, is amended by striking `$3,071,200,000' and inserting `$5,471,200,000'.

(b) FROM THE GENERAL FUND- Section 5338(a)(2)(B)(v) of title 49, United States Code, is amended by striking `$767,800,000' and inserting `$1,367,800,000'.

(c) AVAILABILITY OF AMOUNTS- Notwithstanding sections 5307(k)(2) and section 5336(i), any increase in the amounts apportioned to a recipient attributable to the amendments made by subsections (a) and (b) of this section may be obligated by the recipient for 1 year after the last day of the fiscal year in which the amount is apportioned. Not later than 30 days after the end of the 1-year period, an amount that is not obligated at the end of that period shall be added to the amount that may be apportioned under the urbanized area formula program of section 5336 of title 49, United States Code.

SEC. 202. FEDERAL TRANSIT PROGRAM OBLIGATION CEILING.

Section 3040(5) of the Transportation Equity Act for the 21st Century (112 Stat. 394) is amended by striking `$7,226,000,000' and inserting `$10,226,000,000'.

SEC. 301. INCREASED FUNDING FOR AIRPORT PLANNING AND DEVELOPMENT.

(a) IN GENERAL- Section 48103(5) of title 49, United States Code, is amended by striking `$3,400,000,000' and inserting `$5,400,000,000.'.

SEC. 302. AIRPORT SECURITY IMPROVEMENT PROJECTS.

(a) GRANT AUTHORITY- Subject to the requirements of this section, the Under Secretary for Border and Transportation Security shall make grants to airport sponsors--

(1) for projects to replace baggage conveyer systems related to aviation security;

(2) for projects to reconfigure terminal baggage areas as needed to install explosive detection systems; and

(3) for such other airport security improvement projects as the Under Secretary determines appropriate.

(b) APPLICATIONS- A sponsor seeking a grant under this section shall submit to the Under Secretary an application in such form and containing such information as the Under Secretary prescribes.

(c) APPROVAL- The Under Secretary may approve an application of a sponsor for a grant under this section only if the Under Secretary determines that the project will improve security at an airport or improve the efficiency of the airport without lessening security.

(d) LETTERS OF INTENT-

(1) ISSUANCE- The Under Secretary may issue a letter of intent to a sponsor committing to obligate from future budget authority an amount, not more than the Federal Government's share of the project's cost, for an airport security improvement project (including interest costs and costs of formulating the project).

(2) SCHEDULE- A letter of intent under this subsection shall establish a schedule under which the Under Secretary will reimburse the sponsor for the Government's share of the project's costs, as amounts become available, if the sponsor, after the Under Secretary issues the letter, carries out the project without receiving amounts under this section.

(3) PRIORITY- In making grants under this section in a fiscal year, the Under Secretary shall fulfill intentions to obligate under this subsection.

(4) NOTICE TO UNDER SECRETARY- A sponsor that has been issued a letter of intent under this subsection shall notify the Under Secretary of the sponsors's intent to carry out an airport security improvement project before the project begins.

(5) NOTICE TO CONGRESS- The Under Secretary shall transmit to the Committees on Appropriations and Transportation and Infrastructure of the House of Representatives and the Committees on Appropriations and Commerce, Science and Transportation of the Senate a written notification at least 3 days before the issuance of a letter of intent under this section.

(6) LIMITATIONS- A letter of intent issued under this subsection is not an obligation of the Government under section 1501 of title 31, and the letter is not deemed to be an administrative commitment for financing. An obligation or administrative commitment may be made only as amounts are provided in authorization and appropriations laws.

(7) APPLICABILITY OF CERTAIN REQUIREMENTS- The requirements that apply to grants and letters of intent issued under chapter 471 shall apply to grants and letters of intent issued under this section.

(8) STATUTORY CONSTRUCTION- Nothing in this subsection shall be construed to prohibit the obligation of amounts pursuant to a letter of intent under this subsection in the same fiscal year as the letter of intent is issued.

(e) FEDERAL SHARE- The Government's share of the cost of a project under this section shall be 90 percent for a project at an airport having at least 0.25 percent of the total number of passenger boardings each year at all airports and 95 percent for a project at any other airport.

(f) SPONSOR DEFINED- In this section, the term `sponsor' has the meaning given that term in section 47102.

(g) AUTHORIZATION OF APPROPRIATIONS- There is authorized to be appropriated $1,000,000,000 for fiscal year 2003 to carry out this section.

SEC. 401. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

(a) IN GENERAL- Part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to credits against tax) is amended by adding at the end the following new subpart:

`Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

`SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

`(a) ALLOWANCE OF CREDIT- In the case of a taxpayer who holds a qualified Amtrak bond on a credit allowance date of such bond which occurs during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for such taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to credit allowance dates during such year on which the taxpayer holds such bond.

`(b) AMOUNT OF CREDIT-

`(1) IN GENERAL- The amount of the credit determined under this subsection with respect to any credit allowance date for a qualified Amtrak bond is 25 percent of the annual credit determined with respect to such bond.

`(2) ANNUAL CREDIT- The annual credit determined with respect to any qualified Amtrak bond is the product of--

`(A) the applicable credit rate, multiplied by

`(B) the outstanding face amount of the bond.

`(3) APPLICABLE CREDIT RATE- For purposes of paragraph (2), the applicable credit rate with respect to an issue is the rate equal to an average market yield (as of the day before the date of sale of the issue) on outstanding long-term corporate debt obligations (determined under regulations prescribed by the Secretary).

`(4) CREDIT ALLOWANCE DATE- For purposes of this section, the term `credit allowance date' means--

`(A) March 15,

`(B) June 15,

`(C) September 15, and

`(D) December 15.

Such term includes the last day on which the bond is outstanding.

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

`(c) LIMITATION BASED ON AMOUNT OF TAX-

`(1) IN GENERAL- The credit allowed under subsection (a) for any taxable year shall not exceed the excess of--

`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(B) the sum of the credits allowable under this part (other than this subpart and subpart C).

`(2) CARRYOVER OF UNUSED CREDIT- If the credit allowable under subsection (a) exceeds the limitation imposed by paragraph (1) for such taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.

`(d) CREDIT INCLUDED IN GROSS INCOME- Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)) and the amount so included shall be treated as interest income.

`(e) QUALIFIED AMTRAK BOND- For purposes of this part, the term `qualified Amtrak bond' means any bond issued as part of an issue if--

`(1) 95 percent or more of the proceeds from the sale of such issue are to be used for expenditures incurred after the date of the enactment of this section for any qualified project,

`(2) the bond is issued by the National Railroad Passenger Corporation, is in registered form, and meets the bond limitation requirements under subsection (f),

`(3) the issuer designates such bond for purposes of this section,

`(4) the issuer certifies that it meets the State contribution requirement of subsection (k) with respect to such project, as in effect on the date of the enactment of this section,

`(5) the issuer certifies that it has obtained the written approval of the Secretary of Transportation for such project in accordance with section 26301 of title 49, United States Code, as in effect on the date of the enactment of this section,

`(6) the term of each bond which is part of such issue does not exceed 20 years,

`(7) the payment of principal with respect to such bond is the obligation of the National Railroad Passenger Corporation, and

`(8) the issue meets the requirements of subsection (g) (relating to arbitrage).

`(f) LIMITATIONS ON AMOUNT OF BONDS DESIGNATED-

`(1) IN GENERAL- There is a qualified Amtrak bond limitation for each fiscal year. Such limitation is--

`(A) $1,400,000,000 for each of the fiscal years 2003 through 2012, and

`(B) zero after fiscal year 2012.

`(2) LIMITS ON BONDS FOR NORTHEAST RAIL CORRIDOR AND INDIVIDUAL STATES-

`(A) NORTHEAST RAIL CORRIDOR- Not more than $3,000,000,000 of the limitation under paragraph (1) may be designated for qualified projects on the northeast rail corridor between Washington, D.C., and Boston, Massachusetts.

`(B) INDIVIDUAL STATES- Not more than $3,000,000,000 of the limitation under paragraph (1) may be designated for any individual State. The dollar limitation under this subparagraph is in addition to the dollar limitation for the qualified projects described in subparagraph (A).

`(3) LIMIT ON BONDS FOR OTHER PROJECTS- Not more than $100,000,000 of the limitation under paragraph (1) for any fiscal year may be designated for all qualified projects described in subsection (j)(1)(C).

`(4) CARRYOVER OF UNUSED LIMITATION- If for any fiscal year--

`(A) the limitation amount under paragraph (1), exceeds

`(B) the amount of bonds issued during such year which are designated under subsection (e)(3),

the limitation amount under paragraph (1) for the following fiscal year (through fiscal year 2016) shall be increased by the amount of such excess.

`(g) SPECIAL RULES RELATING TO ARBITRAGE-

`(1) IN GENERAL- Subject to paragraph (2), an issue shall be treated as meeting the requirements of this subsection if as of the date of issuance, the issuer reasonably expects--

`(A) to spend at least 95 percent of the proceeds from the sale of the issue for 1 or

`(B) to incur a binding commitment with a third party to spend at least 10 percent of the proceeds from the sale of the issue, or to commence construction, with respect to such projects within the 6-month period beginning on such date, and

`(C) to proceed with due diligence to complete such projects and to spend the proceeds from the sale of the issue.

`(2) RULES REGARDING CONTINUING COMPLIANCE AFTER 3-YEAR DETERMINATION- If at least 95 percent of the proceeds from the sale of the issue is not expended for 1 or more qualified projects within the 3-year period beginning on the date of issuance, but the requirements of paragraph (1) are otherwise met, an issue shall be treated as continuing to meet the requirements of this subsection if either--

`(A) the issuer uses all unspent proceeds from the sale of the issue to redeem bonds of the issue within 90 days after the end of such 3-year period, or

`(B) the following requirements are met:

`(i) The issuer spends at least 75 percent of the proceeds from the sale of the issue for 1 or more qualified projects within the 3-year period beginning on the date of issuance.

`(ii) Either--

`(I) the issuer spends at least 95 percent of the proceeds from the sale of the issue for 1 or more qualified projects within the 4-year period beginning on the date of issuance, or

`(II) the issuer pays to the Federal Government any earnings on the proceeds from the sale of the issue that accrue after the end of the 3-year period beginning on the date of issuance and uses all unspent proceeds from the sale of the issue to redeem bonds of the issue within 90 days after the end of the 4-year period beginning on the date of issuance.

`(h) RECAPTURE OF PORTION OF CREDIT WHERE CESSATION OF COMPLIANCE-

`(1) IN GENERAL- If any bond which when issued purported to be a qualified Amtrak bond ceases to be such a qualified bond, the issuer shall pay to the United States (at the time required by the Secretary) an amount equal to the sum of--

`(A) the aggregate of the credits allowable under this section with respect to such bond (determined without regard to subsection (c)) for taxable years ending during the calendar year in which such cessation occurs and the 2 preceding calendar years, and

`(B) interest at the underpayment rate under section 6621 on the amount determined under subparagraph (A) for each calendar year for the period beginning on the first day of such calendar year.

`(2) FAILURE TO PAY- If the issuer fails to timely pay the amount required by paragraph (1) with respect to such bond, the tax imposed by this chapter on each holder of any such bond which is part of such issue shall be increased (for the taxable year of the holder in which such cessation occurs) by the aggregate decrease in the credits allowed under this section to such holder for taxable years beginning in such 3 calendar years which would have resulted solely from denying any credit under this section with respect to such issue for such taxable years.

`(3) SPECIAL RULES-

`(A) TAX BENEFIT RULE- The tax for the taxable year shall be increased under paragraph (2) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.

`(B) NO CREDITS AGAINST TAX- Any increase in tax under paragraph (2) shall not be treated as a tax imposed by this chapter for purposes of determining--

`(i) the amount of any credit allowable under this part, or

`(ii) the amount of the tax imposed by section 55.

`(i) TRUST ACCOUNT-

`(1) IN GENERAL- The following amounts shall be held in a trust account by a trustee independent of the National Railroad Passenger Corporation:

`(A) The proceeds from the sale of all bonds designated for purposes of this section.

`(B) The amount of any matching contributions with respect to such bonds.

`(C) The temporary period investment earnings on proceeds from the sale of such bonds.

`(D) Any earnings on any amounts described in subparagraph (A), (B), or (C).

`(2) USE OF FUNDS- Amounts in the trust account may be used only to pay costs of qualified projects and redeem qualified Amtrak bonds, except that amounts withdrawn from the trust account to pay costs of qualified projects may not exceed the aggregate proceeds from the sale of all qualified Amtrak bonds issued under this section.

`(3) USE OF REMAINING FUNDS IN TRUST ACCOUNT- Upon the redemption of all qualified Amtrak bonds issued under this section, any remaining amounts in the trust account described in paragraph (1) shall be available to the issuer for any qualified project.

`(j) QUALIFIED PROJECT- For purposes of this section--

`(1) IN GENERAL- The term `qualified project' means--

`(A) the acquisition, financing, or refinancing of equipment, rolling stock, and other capital improvements (including the introduction of new high-speed technologies such as magnetic levitation systems), including track or signal improvements or the elimination of grade crossings, for the northeast rail corridor between Washington, D.C., and Boston, Massachusetts,

`(B) the acquisition, financing, or refinancing of equipment, rolling stock, and other capital improvements (including the introduction of new high-speed technologies such as magnetic levitation systems), including development of intermodal facilities, track or signal improvements, or the elimination of grade crossings, for the improvement of train speeds or safety (or both) on the high-speed rail corridors designated under section 104(d)(2) of title 23, United States Code, as in effect on the date of the enactment of this section, and

`(C) the acquisition, financing, or refinancing of equipment, rolling stock, and other

`(2) REFINANCING RULES- For purposes of paragraph (1), a refinancing shall constitute a qualified project only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred by the issuer--

`(A) after the date of the enactment of this section,

`(B) for a term of not more than 3 years,

`(C) to finance or acquire capital improvements described in paragraph (1), and

`(D) in anticipation of being refinanced with proceeds of a qualified Amtrak bond.

`(k) STATE CONTRIBUTION REQUIREMENTS-

`(1) IN GENERAL- For purposes of subsection (e)(4), the State contribution requirement of this subsection is met with respect to any qualified project if the National Railroad Passenger Corporation has received from 1 or more States, not later than the date of issuance of the bond, matching contributions of not less than 20 percent of the cost of the qualified project.

`(2) NO STATE CONTRIBUTION REQUIREMENT FOR CERTAIN QUALIFIED PROJECTS- The State contribution requirement of this subsection is zero with respect to the following projects:

`(A) Any qualified project for the acquisition and installation of platform facilities, performance of railroad force account work necessary to complete improvements below street grade, and any other necessary improvements related to construction at the railroad station at the James A. Farley Post Office Building in New York City, New York.

`(B) Any project described in subsection (j)(1)(C) for the Alaska Railroad.

`(3) STATE MATCHING CONTRIBUTIONS MAY NOT INCLUDE FEDERAL FUNDS- For purposes of this subsection, State matching contributions shall not be derived, directly or indirectly, from Federal funds, including any transfers from the Highway Trust Fund under section 9503.

`(l) OTHER DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) BOND- The term `bond' includes any obligation.

`(2) TREATMENT OF CHANGES IN USE- For purposes of subsection (e)(1), the proceeds from the sale of an issue shall not be treated as used for a qualified project to the extent that the issuer takes any action within its control which causes such proceeds not to be used for a qualified project. The Secretary shall prescribe regulations specifying remedial actions that may be taken (including conditions to taking such remedial actions) to prevent an action described in the preceding sentence from causing a bond to fail to be a qualified Amtrak bond.

`(3) PARTNERSHIP; S CORPORATION; AND OTHER PASS-THRU ENTITIES- Under regulations prescribed by the Secretary, in the case of a partnership, trust, S corporation, or other pass-thru entity, rules similar to the rules of section 41(g) shall apply with respect to the credit allowable under subsection (a).

`(4) BONDS HELD BY REGULATED INVESTMENT COMPANIES- If any qualified Amtrak bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary.

`(5) REPORTING- Issuers of qualified Amtrak bonds shall submit reports similar to the reports required under section 149(e).'.

(b) AMENDMENTS TO OTHER CODE SECTIONS-

(1) REPORTING- Subsection (d) of section 6049 of the Internal Revenue Code of 1986 (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

`(8) REPORTING OF CREDIT ON QUALIFIED AMTRAK BONDS-

`(A) IN GENERAL- For purposes of subsection (a), the term `interest' includes amounts includible in gross income under section 54(d) and such amounts shall be treated as paid on the credit allowance date (as defined in section 54(b)(4)).

`(B) REPORTING TO CORPORATIONS, ETC- Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A), subsection (b)(4) shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i) of such subsection.

`(C) REGULATORY AUTHORITY- The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.'.

(2) TREATMENT FOR ESTIMATED TAX PURPOSES-

(A) INDIVIDUAL- Section 6654 of such Code (relating to failure by individual to pay estimated income tax) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

`(m) SPECIAL RULE FOR HOLDERS OF QUALIFIED AMTRAK BONDS- For purposes of this section, the credit allowed by section 54 to a taxpayer by reason of holding a qualified Amtrak bond on a credit allowance date shall be treated as if it were a payment of estimated tax made by the taxpayer on such date.'.

(B) CORPORATE- Section 6655 of such Code (relating to failure by corporation to pay estimated income tax) is amended by adding at

`(5) SPECIAL RULE FOR HOLDERS OF QUALIFIED AMTRAK BONDS- For purposes of this section, the credit allowed by section 54 to a taxpayer by reason of holding a qualified Amtrak bond on a credit allowance date shall be treated as if it were a payment of estimated tax made by the taxpayer on such date.'.

(3) EXCLUSION FROM GROSS INCOME OF CONTRIBUTIONS BY AMTRAK TO OTHER RAIL CARRIERS-

(A) IN GENERAL- Section 118 of the Internal Revenue Code of 1986 (relating to contributions to the capital of a corporation) is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection:

`(d) SPECIAL RULE FOR CONTRIBUTIONS BY AMTRAK TO OTHER RAIL CARRIERS- For purposes of this section, the term `contribution to the capital of the taxpayer' does not include any contribution by the National Railroad Passenger Corporation of personal or real property funded by the proceeds of qualified Amtrak bonds under section 54.'.

(B) CONFORMING AMENDMENT- Subsection (b) of such section 118 is amended by striking `subsection (c)' and inserting `subsections (c) and (d)'.

(4) PROTECTION OF HIGHWAY TRUST FUND- Section 9503 of such Code (relating to Highway Trust Fund) is amended by adding at the end the following new subsection:

`(g) SPECIAL RULE RELATING TO NATIONAL RAILROAD PASSENGER CORPORATION- Except as provided in subsection (c), as in effect on the date of the enactment of this subsection, amounts in the Highway Trust Fund may not be used to provide funds to the National Railroad Passenger Corporation for any purpose, including issuance of any qualified Amtrak bond pursuant to section 54. The preceding sentence may not be waived by any provision of law which is not contained or referenced in this title, whether such provision of law is a subsequently enacted provision or directly or indirectly seeks to waive the application of such sentence.'.

(c) CLERICAL AMENDMENTS-

(1) The table of subparts for part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:

(2) Section 6401(b)(1) is amended by striking `and G' and inserting `G, and H'.

(d) ANNUAL REPORT BY TREASURY ON AMTRAK TRUST ACCOUNT- The Secretary of the Treasury shall annually report to Congress as to whether the amount deposited in the trust account established by the National Railroad Passenger Corporation under section 54(i) of the Internal Revenue Code of 1986, as added by this section, is sufficient to fully repay at maturity the principal of any outstanding qualified Amtrak bonds issued pursuant to section 54 of such Code (as so added), together with amounts expected to be deposited into such account, as certified by the National Railroad Passenger Corporation in accordance with procedures prescribed by the Secretary of the Treasury.

(e) ISSUANCE OF REGULATIONS- The Secretary of the Treasury shall issue regulations required under section 54 of the Internal Revenue Code of 1986 (as added by this section) not later than 90 days after the date of the enactment of this Act.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to obligations issued after the date of enactment of this Act.

SEC. 411. DEPARTMENT OF TRANSPORTATION APPROVAL FOR QUALIFIED AMTRAK PROJECTS.

(a) AMENDMENT- Part D of subtitle V of title 49, United States Code, is amended by adding at the end the following new chapter:

`CHAPTER 263--HIGH-SPEED RAIL INITIATIVES

`Sec.

`26301. Department of Transportation approval for qualified high-speed rail projects.

`26302. Qualified projects.

`26303. State contribution requirements.'.

`Sec. 26301. Department of Transportation approval for qualified high-speed rail projects

`(a) IN GENERAL- The written approval of a qualified project by the Secretary of Transportation required for purposes of subsection (e)(5) of section 54 of the Internal Revenue Code of 1986 (relating to credit to holders of qualified Amtrak bonds) shall include--

`(1) the finding by the Inspector General of the Department of Transportation described in subsection (b);

`(2) the certification by the Secretary of Transportation described in subsection (c); and

`(3) the agreement by the National Railroad Passenger Corporation described in subsection (d).

`(b) FINDING BY INSPECTOR GENERAL- For purposes of subsection (a), the finding described in this subsection is a finding by the Inspector General of the Department of Transportation that there is a reasonable likelihood that the proposed project will result in a positive financial contribution to the National Railroad Passenger Corporation and that the investment evaluation process includes consideration of a return on investment, leveraging of funds (including State capital and operating contributions), cost effectiveness, safety improvement, mobility improvement, and feasibility.

`(c) CERTIFICATION- For purposes of subsection (a), the certification described in this subsection is a certification by the Secretary of Transportation that the issuer of the qualified Amtrak bond--

`(1) except with respect to projects described in section 54(j)(1)(C) of the Internal Revenue Code of 1986, has entered into a written agreement with the owners of rail properties which are to be improved by the project to be funded by the qualified Amtrak

`(2) has met the State contribution requirements described in section 26303.

The National Railroad Passenger Corporation shall not exercise its rights under section 24308(a)(2) to resolve disputes with respect to a project to be funded by a qualified Amtrak bond, or with respect to the cost of such a project, unless the project is intended to result in railroad speeds of 79 miles per hour or less.

`(d) AGREEMENT BY AMTRAK TO ISSUE ADDITIONAL BONDS FOR PROJECTS OF OTHER CARRIERS-

`(1) IN GENERAL- For purposes of subsection (a), the agreement described in this subsection is an agreement by the National Railroad Passenger Corporation with the Secretary of Transportation to issue bonds which meet the requirements of section 54 of the Internal Revenue Code of 1986 for use in financing projects described in paragraph (2).

`(2) PROJECTS COVERED- For purposes of paragraph (1), the projects described in this paragraph are any project described in subsection (j)(1)(B) or (j)(1)(C) of section 54 of the Internal Revenue Code of 1986 for an intercity rail passenger carrier other than the National Railroad Passenger Corporation or for the Alaska Railroad.

`(3) ADDITIONAL REQUIREMENTS- Any project financed by bonds referred to in paragraph (1) shall be carried out by the intercity rail passenger carrier other than the National Railroad Passenger Corporation, through a contract entered into by the National Railroad Passenger Corporation with such carrier. Such other intercity rail passenger carrier, in carrying out the project, shall be subject to the provisions of this subtitle governing the National Railroad Passenger Corporation.

`(4) DEFINITION- For purposes of this subsection, the term `intercity rail passenger carrier' means any rail carrier (as such term is defined in section 24102(7)) that is part of the interstate system of rail transportation and that provides intercity rail passenger transportation (as such term is defined in section 24102(5)).

`(e) ADDITIONAL SELECTION CRITERIA- In determining projects to be approved under this section (other than projects for the Alaska Railroad), or to be included in an agreement under subsection (d), the Secretary of Transportation shall give preference to--

`(1) any project with a State matching contribution rate exceeding 20 percent;

`(2) projects expected to have a significant impact on air traffic congestion;

`(3) projects expected to also improve commuter rail operations;

`(4) projects that anticipate fares designed to recover costs and generate a return on investment; and

`(5) projects that promote regional balance in infrastructure investment and the national interest in ensuring the development of a nationwide high-speed rail transportation network.

`Sec. 26302. Qualified projects

`For purposes of this chapter:

`(1) IN GENERAL- The term `qualified project' means--

`(A) the acquisition, financing, or refinancing of equipment, rolling stock, and other capital improvements (including the introduction of new high-speed technologies such as magnetic levitation systems), including track or signal improvements or the elimination of grade crossings, for the northeast rail corridor between Washington, D.C., and Boston, Massachusetts;

`(B) the acquisition, financing, or refinancing of equipment, rolling stock, and other capital improvements (including the introduction of new high-speed technologies such as magnetic levitation systems), including development of intermodal facilities, track or signal improvements, or the elimination of grade crossings, for the improvement of train speeds or safety (or both) on the high-speed rail corridors designated under section 104(d)(2) of title 23, United States Code, as in effect on the date of the enactment of this section; and

`(C) the acquisition, financing, or refinancing of equipment, rolling stock, and other capital improvements, including station rehabilitation or construction, development of intermodal facilities, track or signal improvements, or the elimination of grade crossings, for the improvement of train speeds or safety (or both) for other intercity passenger rail corridors and for the Alaska Railroad.

`(2) REFINANCING RULES- For purposes of paragraph (1), a refinancing shall constitute a qualified project only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred by the issuer--

`(A) after the date of the enactment of this section;

`(B) for a term of not more than 3 years;

`(C) to finance or acquire capital improvements described in paragraph (1); and

`(D) in anticipation of being refinanced with proceeds of a qualified Amtrak bond.

`Sec. 26303. State contribution requirements

`(a) IN GENERAL- For purposes of section 26301(c)(2), the State contribution requirement of this section is met with respect to any qualified project if the National Railroad Passenger Corporation has received from 1 or more States, not later than the date of issuance of the bond, matching contributions of not less than 20 percent of the cost of the qualified project.

`(b) NO STATE CONTRIBUTION REQUIREMENT FOR CERTAIN QUALIFIED PROJECTS- The State contribution requirement of this section is zero with respect to the following projects:

`(1) Any qualified project for the acquisition and installation of platform facilities, performance of

`(2) Any project described in subsection (j)(1)(C) of section 54 of the Internal Revenue Code of 1986 for the Alaska Railroad.

`(c) STATE MATCHING CONTRIBUTIONS MAY NOT INCLUDE FEDERAL FUNDS- For purposes of this section, State matching contributions shall not be derived, directly or indirectly, from Federal funds, including any transfers from the Highway Trust Fund under section 9503 of the Internal Revenue Code of 1986.'.

(b) TABLE OF CHAPTERS AMENDMENT- The table of chapters of subtitle V of title 49, United States Code, is amended by inserting after the item relating to chapter 261 the following new item:

SEC. 412. MULTIYEAR CAPITAL SPENDING PLAN AND OVERSIGHT.

(a) AMENDMENT- Chapter 243 of title 49, United States Code, is amended by adding at the end the following new section:

`Sec. 24316. Multiyear capital spending plan and oversight

`(a) AMTRAK CAPITAL SPENDING PLAN-

`(1) IN GENERAL- The National Railroad Passenger Corporation shall annually submit to the President and Congress a multiyear capital spending plan, as approved by the Board of Directors of the Corporation.

`(2) CONTENTS OF PLAN- Such plan shall identify the capital investment needs of the Corporation over a period of not less than 5 years and the funding sources available to finance such needs and shall prioritize such needs according to corporate goals and strategies.

`(3) INITIAL SUBMISSION DATE- The first plan shall be submitted before the issuance of any qualified Amtrak bonds by the National Railroad Passenger Corporation pursuant to section 54 of the Internal Revenue Code of 1986.

`(b) OVERSIGHT OF QUALIFIED PROJECTS- The Secretary of Transportation shall contract for an annual independent assessment of the costs and benefits of the qualified projects financed by qualified Amtrak bonds pursuant to section 54 of the Internal Revenue Code of 1986, including an assessment of the investment evaluation process of the Corporation. The annual assessment shall be included in the plan submitted under subsection (a).'.

(b) TABLE OF SECTIONS AMENDMENT- The table of sections of chapter 243 of title 49, United States Code, is amended by adding after the item relating to section 24315 the following new item:

`24316. Multiyear capital spending plan and oversight.'.

SEC. 413. ISSUANCE OF REGULATIONS.

The Secretary of Transportation shall issue regulations for carrying out chapter 263 of title 49, United States Code (as added by section 411 of this Act), not later than 90 days after the date of the enactment of this Act.

SEC. 414. SENSE OF CONGRESS REGARDING EFFECT ON AMTRAK FUNDING.

It is the sense of the Congress that the proceeds of qualified Amtrak bonds issued under section 54 of the Internal Revenue Code of 1986 are intended to finance the construction of qualified projects (as defined in section 26302 of title 49, United States Code, as added by section 411 of this Act) and are not intended to meet the regular, ongoing capital funding needs of the National Railroad Passenger Corporation.

SEC. 415. EFFECTIVE DATE.

The amendments made by this subtitle shall apply to obligations issued after the date of the enactment of this Act.

SEC. 421. AUTHORIZATION OF APPROPRIATIONS.

Section 24104(a) of title 49, United States Code, is amended--

(1) by inserting `(1)' after `IN GENERAL- ';

(2) by redesignating paragraphs (1) through (5) as subparagraphs (A) through (E), respectively; and

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

`(2) There are authorized to be appropriated to the Secretary of Transportation $2,500,000,000 for fiscal year 2003 for the benefit of Amtrak for capital expenditures including--

`(A) New York, Washington, D.C., and Baltimore tunnel life safety projects;

`(B) bridges, tracks, and other improvements to increase the capacity and reliability of rail passenger transportation; and

`(C) equipment, including acquisition of trainsets and rolling stock, for operation in federally designated corridors.

At least 2/3 of amounts expended under subparagraph (C) shall be for operations outside the Northeast Corridor.'.

SEC. 431. CAPITAL GRANTS FOR RAILROAD TRACK.

(a) CHAPTER 223-

(1) AMENDMENT- Chapter 223 of title 49, United States Code, is amended to read as follows:

`CHAPTER 223--CAPITAL GRANTS FOR RAILROAD TRACK

`Sec.

`22301. Capital grants for railroad track.

`Sec. 22301. Capital grants for railroad track

`(a) ESTABLISHMENT OF PROGRAM-

`(1) ESTABLISHMENT- The Secretary of Transportation shall establish a program of capital grants for the rehabilitation, preservation, or improvement of railroad track (including roadbed, bridges, and related track structures) of class II and class III railroads. Such grants shall be for rehabilitating, preserving, or improving track used primarily for freight transportation to a standard ensuring that the track can be operated safely and efficiently,

`(A) directly to the class II or class III railroad; or

`(B) with the concurrence of the class II or class III railroad, to a State or local government.

`(2) STATE COOPERATION- Class II and class III railroad applicants for a grant under this chapter are encouraged to utilize the expertise and assistance of State transportation agencies in applying for and administering such grants. State transportation agencies are encouraged to provide such expertise and assistance to such railroads.

`(3) INTERIM REGULATIONS- Not later than December 31, 2003, the Secretary shall issue temporary regulations to implement the program under this section. Subchapter II of chapter 5 of title 5 does not apply to a temporary regulation issued under this paragraph or to an amendment to such a temporary regulation.

`(4) FINAL REGULATIONS- Not later than October 1, 2004, the Secretary shall issue final regulations to implement the program under this section.

`(b) MAXIMUM FEDERAL SHARE- The maximum Federal share for carrying out a project under this section shall be 80 percent of the project cost. The non-Federal share may be provided by any non-Federal source in cash, equipment, or supplies. Other in-kind contributions may be approved by the Secretary on a case by case basis consistent with this chapter.

`(c) PROJECT ELIGIBILITY- For a project to be eligible for assistance under this section the track must have been operated or owned by a class II or class III railroad as of the date of the enactment of this section.

`(d) USE OF FUNDS- Grants provided under this section shall be used to implement track capital projects as soon as possible. In no event shall grant funds be contractually obligated for a project later than the end of the third Federal fiscal year following the year in which the grant was awarded. Any funds not so obligated by the end of such fiscal year shall be returned to the Secretary for reallocation.

`(e) ADDITIONAL PURPOSE- In addition to making grants for projects as provided in subsection (a), the Secretary may also make grants to supplement direct loans or loan guarantees made under title V of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 821 et seq.), for projects described in the last sentence of section 502(d) of such title. Grants made under this subsection may be used, in whole or in part, for paying credit risk premiums, lowering rates of interest, or providing for a holiday on principal payments. Credit risk premiums funded under this section shall be exempt from the non-Federal source requirement of section 502(f)(1) of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)(1)).

`(f) EMPLOYEE PROTECTION- The Secretary shall require as a condition of any grant made under this section that the recipient railroad provide a fair arrangement at least as protective of the interests of employees who are affected by the project to be funded with the grant as the terms imposed under section 11326(a), as in effect on the date of the enactment of this section.

`(g) LABOR STANDARDS-

`(1) PREVAILING WAGES- The Secretary shall ensure that laborers and mechanics employed by contractors and subcontractors in construction work financed by a grant made under this section will be paid wages not less than those prevailing on similar construction in the locality, as determined by the Secretary of Labor under section 3142 of title 40 (known as the Davis-Bacon Act). The Secretary shall make a grant under this section only after being assured that required labor standards will be maintained on the construction work.

`(2) WAGE RATES- Wage rates in a collective bargaining agreement negotiated under the Railway Labor Act (45 U.S.C. 151 et seq.) are deemed for purposes of this subsection to comply with section 3142 of title 40 (known as the Davis-Bacon Act).

`(h) AUTHORIZATION OF APPROPRIATIONS- There is authorized to be appropriated to the Secretary of Transportation $500,000,000 for fiscal year 2003 for carrying out this section.'.

(2) CONFORMING AMENDMENT- The item relating to chapter 223 in the table of chapters of subtitle V of title 49, United States Code, is amended to read as follows:

(b) RAILROAD REHABILITATION AND IMPROVEMENT FINANCING- Section 502 of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(d)) is amended--

(1) in subsection (d)--

(A) by striking `$3,500,000,000' and inserting `$5,000,000,000'; and

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

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

`(i) GRANTS- The Secretary may make grants to supplement direct loans or loan guarantees made under this title. Grants made under this subsection may be used, in whole or in part, for paying credit risk premiums, lowering rates of interest, or providing for a holiday on principal payments. Credit risk premiums funded under this subsection shall be exempt from the non-Federal source requirement of subsection (f)(1). There is authorized to be appropriated to the Secretary for fiscal year 2003 for carrying out this subsection $250,000,000.'.

SEC. 432. REGULATORY PROCEDURE AMENDMENTS.

(a) COHORTS OF LOANS- Section 502(f) of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)) is amended--

(1) in paragraph (2)--

(A) by striking `and' at the end of subparagraph (D);

(B) by redesignating subparagraph (E) as subparagraph (F); and

(C) by adding after subparagraph (D) the following new subparagraph:

`(E) the size and characteristics of the cohort of which the loan or loan guarantee is a member; and'; and

(2) by adding at the end of paragraph (4) the following: `A cohort may include loans and loan guarantees. The Secretary shall not establish any limit on the proportion of a cohort that may be used for 1 loan or loan guarantee.'.

(b) CONDITIONS OF ASSISTANCE- Section 502 of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822) is amended--

(1) in subsection (f)(2)(A), by inserting `, if any' after `collateral offered'; and

(2) by adding at the end of subsection (h) the following:

`The Secretary shall not require an applicant for a direct loan or loan guarantee under this section to provide collateral. The Secretary shall not require that an applicant for a direct loan or loan guarantee under this section have previously sought the financial assistance requested from another source. The Secretary shall require recipients of direct loans or loan guarantees under this section to apply the standards of section 26106(a)(5) of title 49, United States Code, to their projects, except for projects primarily benefiting Class III freight railroads.'.

(c) TIME LIMIT FOR APPROVAL OR DISAPPROVAL- Section 502 of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822), as amended by this Act, is further amended by adding at the end the following new subsection:

`(j) TIME LIMIT FOR APPROVAL OR DISAPPROVAL- Not later than 30 days after receiving a complete application for a direct loan or loan guarantee under this section, the Secretary shall approve or disapprove the application.'.

(d) FEES AND CHARGES- Section 503 of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 823) is amended by adding at the end the following new subsection:

`(l) FEES AND CHARGES- Except as provided in this title, the Secretary may not assess any fees, including user fees, or charges in connection with a direct loan or loan guarantee provided under section 502.'.

(e) SUBSTANTIVE CRITERIA AND STANDARDS- Not later than 30 days after the date of the enactment of this Act, the Secretary of Transportation shall publish in the Federal Register and post on the Department of Transportation web site the substantive criteria and standards used by the Secretary to determine whether to approve or disapprove applications submitted under section 502 of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822).

SEC. 501. AUTHORIZATION OF APPROPRIATIONS FOR GRANTS TO IMPLEMENT SECURITY PLANS.

For grants under section 70107 of title 46, United States Code, there is authorized to be appropriated to the Secretary of Transportation (in addition to any amounts appropriated before the date of the enactment of this Act) $2,500,000,000 for fiscal year 2003.

SEC. 601. GENERAL AUTHORITY FOR CAPITALIZATION GRANTS.

Section 601(a) of the Federal Water Pollution Control Act (33 U.S.C. 1381(a)) is amended by striking `(1) for construction' and all that follows through the period at the end and inserting `to accomplish the objectives, goals, and policies of this Act.'.

SEC. 602. CAPITALIZATION GRANTS AGREEMENTS.

(a) REQUIREMENTS FOR CONSTRUCTION OF TREATMENT WORKS- Section 602(b)(6) of the Federal Water Pollution Control Act (33 U.S.C. 1382(b)(6)) is amended--

(1) by striking `treatment works' the first place it appears and inserting `activities';

(2) by striking `before fiscal year 1995' and all that follows through `section 205(m) of this Act' and inserting `with funds made available from a State water pollution control revolving fund under this title'; and

(3) by striking `201(b)' and all that follows through `218' and inserting `204(b)(1), 211'.

(b) ASSISTANCE FOR SMALL TREATMENT WORKS- Section 602 of the Federal Water Pollution Control Act (33 U.S.C. 1382) is amended by adding at the end the following:

`(c) ASSISTANCE FOR SMALL TREATMENT WORKS-

`(1) SIMPLIFIED PROCEDURES- Not later than 1 year after the date of the enactment of this subsection, the Administrator shall assist the States in establishing simplified procedures for small treatment works to obtain assistance under this title.

`(2) PUBLICATION OF MANUAL- Not later than 2 years after the date of the enactment of this subsection, and after providing notice and opportunity for public comment, the Administrator shall publish a manual to assist small treatment works in obtaining assistance under this title and publish in the Federal Register notice of the availability of the manual.

`(3) SMALL TREATMENT WORKS DEFINED- For purposes of this title, the term `small treatment works' means treatment works for which a municipality or intermunicipal, interstate, or State agency seeks assistance under this title and which serves a population of 20,000 or fewer.'.

SEC. 603. WATER POLLUTION CONTROL REVOLVING FUNDS.

(a) PROJECTS AND ACTIVITIES ELIGIBLE FOR ASSISTANCE- Section 603(c) of the Federal Water Pollution Control Act (33 U.S.C. 1383(c)) is amended to read as follows:

`(c) PROJECTS AND ACTIVITIES ELIGIBLE FOR ASSISTANCE-

`(1) IN GENERAL- The amounts of funds available to each State water pollution control revolving fund shall be used only for providing financial assistance--

`(A) to a municipality, intermunicipal agency, interstate agency, or State agency for construction of a publicly owned treatment works (as defined in section 212 of this Act);

`(B) for implementation of lake protection programs and projects under section 314;

`(C) for implementation of a management program established under section 319;

`(D) for implementation of a conservation and management plan established under section 320;

`(E) for restoration or protection of publicly or privately owned riparian areas, including acquisition of property rights;

`(F) to a municipality, intermunicipal agency, interstate agency, or State agency for implementation of measures to improve the efficiency of public water use;

`(G) for development and implementation of plans by a public recipient to prevent water pollution;

`(H) for acquisition of lands necessary to meet any mitigation requirements related to construction of a publicly owned treatment works; and

`(I) for measures to increase the security of publicly owned treatment works.

`(2) FUND AMOUNTS- The water pollution control revolving fund of a State shall be established, maintained, and credited with repayments, and the fund balance shall be available in perpetuity for providing financial assistance for activities described in paragraph (1). Fees charged by a State to recipients of such assistance may be deposited in the fund for the purpose of financing the cost of administration of this title.'.

(b) EXTENDED REPAYMENT PERIOD- Section 603(d)(1) of the Federal Water Pollution Control Act (33 U.S.C. 1383(d)(1)) is amended--

(1) in subparagraph (A) by striking `20 years' and inserting `the lesser of 30 years or the expected life of the project to be financed with the proceeds of the loan'; and

(2) in subparagraph (B) by striking `not later than 20 years after project completion' and inserting `upon the expiration of the term of the loan'.

(c) ADMINISTRATIVE EXPENSES- Section 603(d)(7) of the Federal Water Pollution Control Act (33 U.S.C. 1383(d)(7)) is amended by inserting before the period at the end the following: `or $400,000 per year, or 1/5 percent per year of the current valuation of the fund, whichever is greatest, plus the amount of any fees collected by the State for such purpose regardless of the source'.

(d) TECHNICAL AND PLANNING ASSISTANCE FOR SMALL SYSTEMS- Section 603(d) of the Federal Water Pollution Control Act (33 U.S.C. 1383(d)) is amended--

(1) by striking `and' at the end of paragraph (6);

(2) by striking the period at the end of paragraph (7) and inserting `; and'; and

(3) by adding at the end the following:

`(8) to provide to owners and operators of small treatment works (as defined in section 602(c)) with technical and planning assistance and assistance in financial management, user fee analysis, budgeting, capital improvement planning, facility operation and maintenance, repair schedules, and other activities to improve wastewater treatment plant operations; except that such amounts shall not exceed 2 percent of all grant awards to such fund under this title.'.

(e) ADDITIONAL SUBSIDIZATION- Section 603 of the Federal Water Pollution Control Act is amended by adding at the end the following:

`(i) ADDITIONAL SUBSIDIZATION-

`(1) IN GENERAL- In any case in which a State provides assistance to a municipality or intermunicipal, interstate, or State agency under subsection (d), the State may provide additional subsidization, including forgiveness of principal and negative interest loans--

`(A) to benefit a municipality that--

`(i) meets the State's affordability criteria established under paragraph (2); or

`(ii) does not meet the State's affordability criteria if the recipient--

`(I) seeks additional subsidization to benefit individual ratepayers in the residential user rate class;

`(II) demonstrates to the State that such ratepayers will experience a significant hardship from the increase in rates necessary to finance the project or activity for which assistance is sought; and

`(III) ensures, as part of an assistance agreement between the State and the recipient, that the additional subsidization provided under this paragraph is directed through a user charge rate system (or other appropriate method) to such ratepayers; or

`(B) to implement alternative processes, materials, and techniques (including nonstructural protection of surface waters, new or improved methods of waste treatment, and pollutant trading) that may result in increased environmental benefit when compared to standard processes, materials, and techniques.

`(2) AFFORDABILITY CRITERIA-

`(A) ESTABLISHMENT- On or before September 30, 2004, and after providing notice and an opportunity for public comment, a State shall establish affordability criteria to assist in identifying municipalities that would experience a significant hardship raising the revenue necessary to finance a project or activity eligible for assistance under section 603(c)(1) if additional subsidization is not provided. Such criteria shall be based on income data, population trends, and other data determined relevant by the State.

`(B) EXISTING CRITERIA- If a State has previously established, after providing notice and an opportunity for public comment, affordability criteria that meet the requirements of subparagraph (A), the State may use the criteria for the purposes of this subsection. For purposes of this Act, any such criteria shall be treated as affordability criteria established under this paragraph.

`(C) INFORMATION TO ASSIST STATES- The Administrator may publish information to assist States in establishing affordability criteria under subparagraph (A).

`(3) PRIORITY- A State may give priority to a recipient for a project or activity eligible for funding under section 603(c)(1) if the recipient meets the State's affordability criteria.'.

SEC. 604. AUTHORIZATION OF APPROPRIATIONS FOR CLEAN WATER STATE REVOLVING FUNDS.

Section 607 of the Federal Water Pollution Control Act (33 U.S.C. 1387) is amended--

(1) by striking `and' at the end of paragraph (4);

(2) by striking the period at the end of paragraph (5) and inserting `; and'; and

(3) by adding at the end the following:

`(6) $8,500,000,000 for fiscal year 2003.'.

SEC. 605. WET WEATHER.

Section 221(f) of the Federal Water Pollution Control Act (33 U.S.C. 1301(f)) is amended by inserting after

SEC. 606. SAFE DRINKING WATER STATE REVOLVING FUNDS.

Section 1452(m) of title XIV of the Public Health Service Act (commonly known as the `Safe Drinking Water Act') (42 U.S.C. 300j-12(m)) is amended by inserting after the first sentence the following: `In addition, there is authorized to be appropriated to carry out this section an additional $1,500,000,000 for fiscal year 2003.'.

SEC. 701. INCREASED FUNDING FOR CORPS OF ENGINEERS PROJECTS.

In addition to other amounts authorized to be appropriated, there are authorized to be appropriated to the Secretary of the Army $1,500,000,000 for fiscal year 2003, of which such sums as are necessary may be derived from the Harbor Maintenance Trust Fund and the Inland Wterways Trust Fund, to carry out construction, operation, and maintenance activities for authorized civil functions under the supervision of the Chief of Engineers. Such sums shall remain available until September 30, 2004.

SEC. 801. PUBLIC WORKS AND ECONOMIC DEVELOPMENT.

Section 701 of the Public Works and Economic Development Act of 1965 (42 U.S.C. 3231) is amended--

(1) by inserting `(a) IN GENERAL- ' before `There are authorized'; and

(2) by adding at the end the following:

`(b) ADDITIONAL AUTHORIZATION- In addition to amounts authorized by subsection (a), there are authorized to be appropriated to carry out this Act $1,025,000,000 for fiscal year 2003. Such sums shall remain available until September 30, 2004.'.

SEC. 802. APPALACHIAN REGIONAL DEVELOPMENT.

Section 401 of the Appalachian Regional Development Act of 1965 (40 U.S.C. App.) is amended by adding at the end the following:

`(c) ADDITIONAL AUTHORIZATION- In addition to amounts authorized by subsection (a), there are authorized to be appropriated to the Commission to carry out this Act $175,000,000 for fiscal year 2003. Such sums shall remain available until September 30, 2004.'.

SEC. 803. DELTA REGIONAL DEVELOPMENT.

Section 382M of the Consolidated Farm and Rural Development Act (7 U.S.C. 2009aa-12) is amended--

(1) by redesignating subsection (b) as subsection (c);

(2) by inserting after subsection (a) the following:

`(b) ADDITIONAL AUTHORIZATION- In addition to amounts authorized by subsection (a), there are authorized to be appropriated to the Authority to carry out this subtitle $175,000,000 for fiscal year 2003. Such sums shall remain available until September 30, 2004.'; and

(3) in subsection (c) (as so redesignated) by striking `subsection (a)' and inserting `subsections (a) and (b)'.

SEC. 804. NORTHERN GREAT PLAINS REGIONAL DEVELOPMENT.

Section 383M of the Consolidated Farm and Rural Development Act (7 U.S.C. 2009bb-12) is amended--

(1) in subsection (b) by striking `subsection (a)' and inserting `this section'; and

(2) by adding at the end the following:

`(d) ADDITIONAL AUTHORIZATION FOR FISCAL YEAR 2003- In addition to amounts authorized by subsection (a), there is authorized to be appropriated to the Authority to carry out this subtitle $175,000,000 for fiscal year 2003. Such sums shall remain available until September 30, 2004.'.

SEC. 901. SECURITY ENHANCEMENTS FOR GSA PROPERTIES.

(a) AUTHORIZATION OF APPROPRIATIONS- In addition to other amounts credited to the Federal Buildings Fund established pursuant to section 210(f) of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 490(f)), there is authorized to be appropriated $500,000,000 for fiscal year 2003 to be credited to the Fund. Such sums shall remain available until September 30, 2004.

(b) USE OF FUNDS- Amounts credited to the Fund under this section shall be available to the Administrator of General Services to carry out projects and activities for enhancing the security of properties under the control of the General Services Administration, including general purpose office space, courthouses, and border crossing stations, and for other repair and alteration purposes.

SEC. 1001. PRIORITY CONSIDERATION FOR SECURITY PROJECTS.

The head of a Federal department or agency may provide financial assistance with any increase in funds authorized or made available by, or with any increase in obligation authority made available by, this Act (including the amendments made by this Act) only if the recipient of such assistance certifies to the head of such department or agency that the recipient will give priority consideration to programs or projects that enhance security, to the extent that such programs or projects are immediately ready to be implemented.

SEC. 1002. TEMPORARY WAIVER OF NON-FEDERAL SHARE.

(a) IN GENERAL- Notwithstanding any other provision of law and subject to subsection (b), in providing financial assistance for a program or project with any increase in funds authorized or made available by, or with any increase in obligation authority made available by, this Act (including the amendments made by this Act (other than subtitle A of title I of this Act)), the head of a Federal department or agency, upon request of the recipient of such assistance, may increase the Federal share of the cost of the program or project to not to exceed 100 percent of such cost.

(b) REPAYMENTS- Before increasing the Federal share of the cost of a program or project under subsection (a), the head of a Federal department or agency shall enter into a legally binding agreement with the recipient of financial assistance for the program or project under which the recipient agrees to repay the United States for the increased Federal share of the program or project on or before September 30, 2005.

SEC. 1003. MAINTENANCE OF EFFORT.

The head of a Federal department or agency may provide financial assistance for a program or project with any increase in funds authorized or made available by, or with any increase in obligation authority made available by, this Act (including the amendments made by this Act) for a fiscal year only if the recipient of such assistance certifies to the head of such department or agency that the aggregate expenditure of funds of the recipient, exclusive of Federal funds, for such program or project will be maintained at a level that does not fall below the average level of such expenditure for the preceding 2 fiscal years of the recipient.

SEC. 1004. LABOR STANDARDS.

(a) PREVAILING WAGES- The head of a Federal department or agency providing financial assistance with any increase in funds authorized or made available by, or with any increase in obligation authority made available by, this Act (including the amendments made by this Act) shall ensure that laborers and mechanics employed by contractors and subcontractors in construction work financed by such financial assistance will be paid wages not less than those prevailing on similar construction in the locality, as determined by section 3142 of title 40, United States Code (known as the Davis-Bacon Act). The head of the department or agency shall provide such financial assistance only after being assured that required labor standards will be maintained on the construction work.

(b) WAGE RATES- Wage rates in a collective bargaining agreement negotiated under the Railway Labor Act (45 U.S.C. 151 et seq.) are deemed for purposes of this section to comply with section 3142 of title 40, United States Code (known as the Davis-Bacon Act).

SEC. 1005. BUY AMERICA.

(a) PREFERENCE- The head of a Federal department or agency may provide financial assistance for a project with any increase in funds authorized or made available by, or with any increase in obligation authority made available by, this Act (including the amendments made by this Act) only if steel and manufactured goods used in the project are produced in the United States.

(b) WAIVER- The head of a Federal department or agency may waive subsection (a) if the head of the Federal department or agency finds that--

(1) applying subsection (a) would be inconsistent with the public interest;

(2) the steel and goods produced in the United States are not produced in a sufficient and reasonably available amount or are not of a satisfactory quality;

(3) when procuring a facility or equipment with any increase in funds or obligation authority described in subsection (a)--

(A) the cost of components and subcomponents produced in the United States is more than 60 percent of the cost of all components of the facility or equipment; and

(B) final assembly of the facility or equipment has occurred in the United States; or

(4) including domestic material will increase the cost of the overall project by more than 25 percent.

(c) LABOR COSTS- In this section, labor costs involved in final assembly are not included in calculating the cost of components.

SEC. 1100. AMENDMENT OF 1986 CODE.

Except as otherwise expressly provided, whenever in this title 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.

SEC. 1101. 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. 1102. 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:

(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. 1103. 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-

(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. 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. 1104. 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

`(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-

(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:

(c) EFFECTIVE DATE- The amendments made by this section shall apply to transactions entered into after February 13, 2003.

SEC. 1105. 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. 1106. 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. 1107. 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:

(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:

(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:

(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. 1108. 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

`(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. 1109. 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. 1110. 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:

(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. 1111. 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. 1112. 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. 1113. 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

(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:

(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. 1114. 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. 1115. 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. 1116. 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. 1117. 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.

SEC. 1121. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

(a) IN GENERAL- Section 362 (relating to basis to corporations) is amended by adding at the end the following new subsection:

`(e) LIMITATIONS ON BUILT-IN LOSSES-

`(1) LIMITATION ON IMPORTATION OF BUILT-IN LOSSES-

`(A) IN GENERAL- If in any transaction described in subsection (a) or (b) there would (but for this subsection) be an importation of a net built-in loss, the basis of each property described in subparagraph (B) which is acquired in such transaction shall (notwithstanding subsections (a) and (b)) be its fair market value immediately after such transaction.

`(B) PROPERTY DESCRIBED- For purposes of subparagraph (A), property is described in this paragraph if--

`(i) gain or loss with respect to such property is not subject to tax under this subtitle in the hands of the transferor immediately before the transfer, and

`(ii) gain or loss with respect to such property is subject to such tax in the hands of the transferee immediately after such transfer.

In any case in which the transferor is a partnership, the preceding sentence shall be applied by treating each partner in such partnership as holding such partner's proportionate share of the property of such partnership.

`(C) IMPORTATION OF NET BUILT-IN LOSS- For purposes of subparagraph (A), there is an importation of a net built-in loss in a transaction if the transferee's aggregate adjusted bases of property described in subparagraph (B) which is transferred in such transaction would (but for this paragraph) exceed the fair market value of such property immediately after such transaction.'

`(2) LIMITATION ON TRANSFER OF BUILT-IN LOSSES IN SECTION 351 TRANSACTIONS-

`(A) IN GENERAL- If--

`(i) property is transferred in any transaction which is described in subsection (a) and which is not described in paragraph (1) of this subsection, and

`(ii) the transferee's aggregate adjusted bases of the property so transferred would (but for this paragraph) exceed the fair market value of such property immediately after such transaction,

then, notwithstanding subsection (a), the transferee's aggregate adjusted bases of the property so transferred shall not exceed the fair market value of such property immediately after such transaction.

`(B) ALLOCATION OF BASIS REDUCTION- The aggregate reduction in basis by reason of subparagraph (A) shall be allocated among the property so transferred in proportion to their respective built-in losses immediately before the transaction.

`(C) EXCEPTION FOR TRANSFERS WITHIN AFFILIATED GROUP- Subparagraph (A) shall not apply to any transaction if the transferor owns stock in the transferee meeting the requirements of section 1504(a)(2). In the case of property to which subparagraph (A) does not apply by reason of the preceding sentence, the transferor's basis in the stock received for such property shall not exceed its fair market value immediately after the transfer.'

(b) COMPARABLE TREATMENT WHERE LIQUIDATION- Paragraph (1) of section 334(b) (relating to liquidation of subsidiary) is amended to read as follows:

`(1) IN GENERAL- If property is received by a corporate distributee in a distribution in a complete liquidation to which section 332 applies (or in a transfer described in section 337(b)(1)), the basis of such property in the hands of such distributee shall be the same as it would be in the hands of the transferor; except that the basis of such property in the hands of such distributee shall be the fair market value of the property at the time of the distribution--

`(A) in any case in which gain or loss is recognized by the liquidating corporation with respect to such property, or

`(B) in any case in which the liquidating corporation is a foreign corporation, the corporate distributee is a domestic corporation, and the corporate distributee's aggregate adjusted bases of property described in section 362(e)(1)(B) which is distributed in such liquidation would (but for this subparagraph) exceed the fair market value of such property immediately after such liquidation.'

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

SEC. 1122. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.

(a) TREATMENT OF CONTRIBUTED PROPERTY WITH BUILT-IN LOSS- Paragraph (1) of section 704(c) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and', and by adding at the end the following:

`(C) if any property so contributed has a built-in loss--

`(i) such built-in loss shall be taken into account only in determining the amount of items allocated to the contributing partner, and

`(ii) except as provided in regulations, in determining the amount of items allocated to other partners, the basis of the contributed property in the hands of the partnership shall be treated as being equal

For purposes of subparagraph (C), the term `built-in loss' means the excess of the adjusted basis of the property (determined without regard to subparagraph (C)(ii)) over its fair market value immediately after the contribution.'

(b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY ON TRANSFER OF PARTNERSHIP INTEREST IF THERE IS SUBSTANTIAL BUILT-IN LOSS-

(1) ADJUSTMENT REQUIRED- Subsection (a) of section 743 (relating to optional adjustment to basis of partnership property) is amended by inserting before the period `or unless the partnership has a substantial built-in loss immediately after such transfer'.

(2) ADJUSTMENT- Subsection (b) of section 743 is amended by inserting `or with respect to which there is a substantial built-in loss immediately after such transfer' after `section 754 is in effect'.

(3) SUBSTANTIAL BUILT-IN LOSS- Section 743 is amended by adding at the end the following new subsection:

`(d) SUBSTANTIAL BUILT-IN LOSS-

`(1) IN GENERAL- For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in a partnership if the transferee partner's proportionate share of the adjusted basis of the partnership property exceeds by more than $250,000 the basis of such partner's interest in the partnership.

`(2) REGULATIONS- The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of paragraph (1) and section 734(d), including regulations aggregating related partnerships and disregarding property acquired by the partnership in an attempt to avoid such purposes.'

(4) CLERICAL AMENDMENTS-

(A) The section heading for section 743 is amended to read as follows:

`SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION 754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.'

(B) The table of sections for subpart C of part II of subchapter K of chapter 1 is amended by striking the item relating to section 743 and inserting the following new item:

(c) ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY IF THERE IS SUBSTANTIAL BASIS REDUCTION-

(1) ADJUSTMENT REQUIRED- Subsection (a) of section 734 (relating to optional adjustment to basis of undistributed partnership property) is amended by inserting before the period `or unless there is a substantial basis reduction'.

(2) ADJUSTMENT- Subsection (b) of section 734 is amended by inserting `or unless there is a substantial basis reduction' after `section 754 is in effect'.

(3) SUBSTANTIAL BASIS REDUCTION- Section 734 is amended by adding at the end the following new subsection:

`(d) SUBSTANTIAL BASIS REDUCTION-

`(1) IN GENERAL- For purposes of this section, there is a substantial basis reduction with respect to a distribution if the sum of the amounts described in subparagraphs (A) and (B) of subsection (b)(2) exceeds $250,000.

`(2) REGULATIONS-

(4) CLERICAL AMENDMENTS-

(A) The section heading for section 734 is amended to read as follows:

`SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS REDUCTION.'

(B) The table of sections for subpart B of part II of subchapter K of chapter 1 is amended by striking the item relating to section 734 and inserting the following new item:

(d) EFFECTIVE DATES-

(1) SUBSECTION (a)- The amendment made by subsection (a) shall apply to contributions made after the date of the enactment of this Act.

(2) SUBSECTION (b)- The amendments made by subsection (b) shall apply to transfers after the date of the enactment of this Act.

(3) SUBSECTION (c)- The amendments made by subsection (c) shall apply to distributions after the date of the enactment of this Act.

SEC. 1123. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY PARTNERSHIP IN CORPORATE PARTNER.

(a) IN GENERAL- Section 755 is amended by adding at the end the following new subsection:

`(c) NO ALLOCATION OF BASIS DECREASE TO STOCK OF CORPORATE PARTNER- In making an allocation under subsection (a) of any decrease in the adjusted basis of partnership property under section 734(b)--

`(1) no allocation may be made to stock in a corporation which is a partner in the partnership, and

`(2) any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (a) to other partnership property.

Gain shall be recognized to the partnership to the extent that the amount required to be allocated under paragraph (2) to other partnership property exceeds the aggregate adjusted basis of such other property immediately before the allocation required by paragraph (2).'

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

SEC. 1124. REPEAL OF SPECIAL RULES FOR FASITS.

(a) IN GENERAL- Part V of subchapter M of chapter 1 (relating to financial asset securitization investment trusts) is hereby repealed.

(b) CONFORMING AMENDMENTS-

(1) Paragraph (6) of section 56(g) is amended by striking `REMIC, or FASIT' and inserting `or REMIC'.

(2) Clause (ii) of section 382(l)(4)(B) is amended by striking `a REMIC to which part IV of subchapter M applies, or a FASIT to which part V of subchapter M applies,' and inserting `or a REMIC to which part IV of subchapter M applies,'.

(3) Paragraph (1) of section 582(c) is amended by striking `, and any regular interest in a FASIT,'.

(4) Subparagraph (E) of section 856(c)(5) is amended by striking the last sentence.

(5) Paragraph (5) of section 860G(a) is amended by adding `and' at the end of subparagraph (B), by striking `, and' at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D).

(6) Subparagraph (C) of section 1202(e)(4) is amended by striking `REMIC, or FASIT' and inserting `or REMIC'.

(7) Subparagraph (C) of section 7701(a)(19) is amended by adding `and' at the end of clause (ix), by striking `, and' at the end of clause (x) and inserting a period, and by striking clause (xi).

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

(c) EFFECTIVE DATE-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2003.

(2) EXCEPTION FOR EXISTING FASITS-

(A) IN GENERAL- Paragraph (1) shall not apply to any FASIT in existence on the date of the enactment of this Act.

(B) TRANSFER OF ADDITIONAL ASSETS NOT PERMITTED- Except as provided in regulations prescribed by the Secretary of the Treasury or the Secretary's delegate, subparagraph (A) shall cease to apply as of the earliest date after the date of the enactment of this Act that any property is transferred to the FASIT.

SEC. 1125. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON CONVERTIBLE DEBT.

(a) IN GENERAL- Paragraph (2) of section 163(l) is amended by striking `or a related party' and inserting `or equity held by the issuer (or any related party) in any other person'.

(b) CONFORMING AMENDMENT- Paragraph (3) of section 163(l) is amended by striking `or a related party' in the material preceding subparagraph (A) and inserting `or any other person'.

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

SEC. 1126. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION 269.

(a) IN GENERAL- Subsection (a) of section 269 (relating to acquisitions made to evade or avoid income tax) is amended to read as follows:

`(a) IN GENERAL- If--

`(1)(A) any person acquires stock in a corporation, or

`(B) any corporation acquires, directly or indirectly, property of another corporation and the basis of such property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation, and

`(2) the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance,

then the Secretary may disallow such deduction, credit, or other allowance.'

(b) EFFECTIVE DATE- The amendment made by this section shall apply to stock and property acquired after February 13, 2003.

SEC. 1127. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED FOREIGN CORPORATIONS.

(a) LIMITATION ON EXCEPTION FROM PFIC RULES FOR UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN CORPORATIONS- Paragraph (2) of section 1297(e) (relating to passive investment company) is amended by adding at the end the following flush sentence:

`Such term shall not include any period if there is only a remote likelihood of an inclusion in gross income under section 951(a)(1)(A)(i) of subpart F income of such corporation for such period.'

(b) DETERMINATION OF PRO RATA SHARE OF SUBPART F INCOME- Subsection (a) of section 951 (relating to amounts included in gross income of United States shareholders) is amended by adding at the end the following new paragraph:

`(4) SPECIAL RULES FOR DETERMINING PRO RATA SHARE OF SUBPART F INCOME- The pro rata share under paragraph (2) shall be determined by disregarding--

`(A) any rights lacking substantial economic effect, and

`(B) stock owned by a shareholder who is a tax-indifferent party (as defined in section 7701(m)(3)) if the amount which would (but for this paragraph) be allocated to such shareholder does not reflect such shareholder's economic share of the earnings and profits of the corporation.'

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years on controlled foreign corporation beginning after February 13, 2003, and to taxable years of United States shareholder in which or with which such taxable years of controlled foreign corporations end.

SEC. 1128. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY NONTAXED PORTION OF DIVIDENDS.

(a) IN GENERAL- Section 1059 (relating to corporate shareholder's basis in stock reduced by nontaxed portion of extraordinary dividends) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

`(g) BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY NONTAXED PORTION OF DIVIDENDS- The basis of stock in a corporation (for purposes of determining loss) shall be reduced by the nontaxed portion of any dividend received with respect to such stock if this section does not otherwise apply to such dividend.'

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

SEC. 1129. 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.

SEC. 1130. EXTENSION OF CUSTOMS USER FEES.

Section 13031(j)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking `September 30, 2003' and inserting `March 31, 2010'.

SEC. 1131. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES INCOME TAX.

(a) IN GENERAL- Paragraph (4) of section 7701(a) (defining domestic) is amended to read as follows:

`(4) DOMESTIC-

`(A) IN GENERAL- Except as provided in subparagraph (B), the term `domestic' when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.

`(B) CERTAIN CORPORATIONS TREATED AS DOMESTIC-

`(i) IN GENERAL- The acquiring corporation in a corporate expatriation transaction shall be treated as a domestic corporation.

`(ii) CORPORATE EXPATRIATION TRANSACTION- For purposes of this subparagraph, the term `corporate expatriation transaction' means any transaction if--

`(I) a nominally foreign corporation (referred to in this subparagraph as the `acquiring corporation') acquires, as a result of such transaction, directly or indirectly substantially all of the properties held directly or indirectly by a domestic corporation, and

`(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation.

`(iii) LOWER STOCK OWNERSHIP REQUIREMENT IN CERTAIN CASES- Subclause (II) of clause (ii) shall be applied by substituting `50 percent' for `80 percent' with respect to any nominally foreign corporation if--

`(I) such corporation does not have substantial business activities (when compared to the total business activities of the expanded affiliated group) in the foreign country in which or under the law of which the corporation is created or organized, and

`(II) the stock of the corporation is publicly traded and the principal market for the public trading of such stock is in the United States.

`(iv) PARTNERSHIP TRANSACTIONS- The term `corporate expatriation transaction' includes any transaction if--

`(I) a nominally foreign corporation (referred to in this subparagraph as the `acquiring corporation') acquires, as a result of such transaction, directly or indirectly properties constituting a trade or business of a domestic partnership,

`(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former partners of the domestic partnership or related foreign partnerships (determined without regard to stock of the acquiring corporation which is sold in a public offering related to the transaction), and

`(III) the acquiring corporation meets the requirements of subclauses (I) and (II) of clause (iii).

`(v) SPECIAL RULES- For purposes of this subparagraph--

`(I) a series of related transactions shall be treated as 1 transaction, and

`(II) stock held by members of the expanded affiliated group which includes the acquiring corporation shall not be taken into account in determining ownership.

`(vi) OTHER DEFINITIONS- For purposes of this subparagraph--

`(I) NOMINALLY FOREIGN CORPORATION- The term `nominally foreign corporation' means any corporation which would (but for this subparagraph) be treated as a foreign corporation.

`(II) EXPANDED AFFILIATED GROUP- The term `expanded affiliated group' means an affiliated group (as defined in section 1504(a) without regard to section 1504(b)).

`(III) RELATED FOREIGN PARTNERSHIP- A foreign partnership is related to a domestic partnership if they are under common control (within the meaning of section 482), or they shared the same trademark or tradename.'

(b) EFFECTIVE DATES-

(1) IN GENERAL- The amendment made by this section shall apply to corporate expatriation transactions completed after September 11, 2001.

(2) SPECIAL RULE- The amendment made by this section shall also apply to corporate expatriation transactions completed on or before September 11, 2001, but only with respect to taxable years of the acquiring corporation beginning after December 31, 2003.