“TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS” published by the Congressional Record on April 2, 2004

Volume 150, No. 45 covering the 2nd Session of the 108th Congress (2003 - 2004) was published by the Congressional Record.

The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.

“TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS” mentioning the Environmental Protection Agency was published in the House of Representatives section on pages H2076-H2122 on April 2, 2004.

The publication is reproduced in full below:

TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS

The SPEAKER pro tempore (Mr. Shaw). Pursuant to House Resolution 593 and rule XVIII, the Chair declares the House in the Committee of the Whole House on the State of the Union for the further consideration of the bill, H.R. 3550.

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In the Committee of the Whole

Accordingly, the House resolved itself into the Committee of the Whole House on the State of the Union for the further consideration of the bill (H.R. 3550) to authorize funds for Federal-aid highways, highway safety programs, and transit programs, and for other purposes, with Mr. Nethercutt (Chairman pro tempore) in the chair.

The Clerk read the title of the bill.

The CHAIRMAN pro tempore. When the Committee of the Whole rose earlier today, a request for a recorded vote on amendment No. 23 by the gentleman from Georgia. (Mr. Isakson) had been postponed.

Pursuant to the order of the House of today, it is now in order for a period of final debate on the bill. The gentleman from Alaska (Mr. Young) and the gentleman from Minnesota (Mr. Oberstar) each will control 5 minutes.

The Chair recognizes the gentleman from Alaska (Mr. Young).

Mr. YOUNG of Alaska. Mr. Chairman, I yield myself such time as I may consume.

I hope everybody that is standing around will listen for a few moments as a matter of courtesy, because I have to refer back to one of the former speakers from New Jersey who said we had plenty of time on this bill, and we should have done better. I can tell my colleagues, we have done everything we could possibly do, because we had to really write three different bills, which is very difficult to do, because the numbers kept changing and kept floating. But every time we had to change, the staffs on both sides, on this side and that side, majority and minority, had to go back and rewrite most of the legislation each time.

So at this time I would like to acknowledge not just the work of the gentleman from Minnesota (Mr. Oberstar) and the gentleman from Illinois

(Mr. Lipinski) and the gentleman from Wisconsin (Mr. Petri), but those who really did the work: Levon Boyagian, Graham Hill, Jim Tyman, Joyce Rose, Mike Lamm, Sharon Barkeloo, Melissa Theriault, and Ryan Young. He is not my son, either; he is no relation.

Also, Debbie Gephardt, not the daughter of the gentleman from Missouri (Mr. Gephardt), either; Patrick Mullane on the gentleman from Wisconsin's (Mr. Petri) staff. They were the real behind-the-

organization workers.

Also my chief of staff, Lloyd Jones; Liz Megginson; Charlie Ziegler; Mark Zachares; and Fraser Verrusio, Debbie Callis and John Bressler.

I would also like to thank the minority staff. I can tell my colleagues with sincerity that the minority staff, because the majority staff would come to me and say, the minority staff is not working with us; and the minority would say the majority staff is not working with us but, in the long run, we all got together and solved, I think, a lot of very serious, contentious problems and philosophies and where this bill was headed.

I also want to thank David Heymsfeld, Ward McCarrager, Clyde Woodall, Ken House, Katherine Donnelly, and Art Chan. On the staff of the gentleman from Illinois (Mr. Lipinski), Jason Tai.

There are many others, and would I like to thank all of the members of this committee that worked with me and have stood by me; and those that object to provisions in this bill, they have my assurance that I am going to try to make sure that we solve those problems in conference. I have been one that does not weaken very easily when it comes to working with the other body. And if we stand shoulder to shoulder, I think we can solve those problems that have been brought to the floor. We hope to do so. I am confident we can.

Again, I am extremely grateful for those who put all the time in, 4 o'clock in the morning, 5 o'clock in the morning, and back here, like today, at 9 o'clock in the morning. This is a large legislative package, and we could not have done it without the hard work and dedication of professional people, I want to stress that, professional people; and for that, I extend my sincerest thanks.

Mr. Chairman, I reserve the balance of my time.

Mr. OBERSTAR. Mr. Chairman, I yield myself 1 minute to join with the chairman in complimenting the staff on both sides and expressing deep gratitude. As a former staff member myself, I am well sensitive to the long hours that staff put in.

On our side, Davis Heymsfeld, Ward McCarrager, Kathie Donnelly, Clyde Woodle, Ken House, Art Chan, John Upchurch, Eric Van Scandle, and Jason Tai, all have worked those long hours the chairman talked about. While we were recharging our batteries, they were running theirs sometimes on practically empty. But we also must express our appreciation to the legislative counsels from the House Legislative Counsel's Office who have provided such skilled draftsmanship for both sides, to David Mendelsohn, Curt Haensel, and Rosemary Gallagher.

Mr. Chairman, I reserve the balance of my time.

Mr. YOUNG of Alaska. Mr. Chairman, I yield 1 minute to the gentleman from Wisconsin (Mr. Petri), the chairman of the subcommittee, who has done an outstanding job traveling across this country explaining our bill.

Mr. PETRI. Mr. Chairman, I would just like to concur in the commendation that our chairman extended to the working staff on both sides of the aisle, and to say to my colleagues that this is a work in progress.

This is an important milestone, but this is not the end of the process by any means. We will be working on this and voting on it over the coming months, and then we will be back under the terms of this bill in about 18 months to readdress the needs of our Nation in the transportation area.

So this is not a one-time snapshot that is set. This is a work in progress; and I hope that, as we continue with this work in progress, we will work together to meet the transportation needs of our country, which are enormous.

Mr. OBERSTAR. Mr. Chairman, I yield 1 minute to the distinguished gentleman from Oregon (Mr. Blumenauer).

Mr. BLUMENAUER. Mr. Chairman, while we are decompressing for a moment and in a congratulatory mode, I would add my congratulations as well, but I would have just one little footnote.

Before we are through today, there will be an opportunity for Members of this Chamber to make a vote towards the level that was crafted by our distinguished chairman and ranking member. We are not going to get the $375 billion yet; some day we will, but we will have a motion by the gentleman from Tennessee (Mr. Davis) that will permit us to at least vote on the $318 billion that was approved by the other body. It has no new user fees or taxes on gas; it is fully paid for, and it includes money that Americans are already paying for transportation.

I sincerely hope that we will be able to have an ``aye'' vote for this motion to recommit to keep faith with the broadest coalition that we have seen supporting American transportation, allow not just an empty gesture, but a House standing up for the future of America's communities.

Mr. YOUNG of Alaska. Mr. Chairman, I reserve the balance of my time.

Mr. OBERSTAR. Mr. Chairman, I yield 1 minute to the gentleman from Illinois (Mr. Lipinski), the ranking member of the Subcommittee on Surface Transportation.

Mr. LIPINSKI. Mr. Chairman, I want to take this opportunity to thank the gentleman from Wisconsin (Mr. Petri), the gentleman from Minnesota

(Mr. Oberstar), and the gentleman from Alaska (Mr. Young) for involving me in this process very thoroughly, very completely. This truly has been a bipartisan effort. I have been astonished by the willingness of the gentleman from Alaska (Chairman Young) to involve this side of the aisle in the deliberations, the planning, the execution of what we have in this bill.

This is a bill that was approved unanimously by the very large Committee on Transportation and Infrastructure. Not one single negative vote was cast against this bill in committee. And that is a testament to the leadership of the gentleman from Alaska (Mr. Young) of involving everyone. But it was not only the big four that was involved in this bill; every single member of this committee, every single Member of this House had the opportunity to participate in this bill. That is a tribute to the gentleman from Alaska (Chairman Young), and I thank him for it.

Mr. YOUNG of Alaska. Mr. Chairman, I yield myself such time as I may consume.

Again, we are about to close this very long 2 days. We will have a series of three votes: the Bradley amendment vote, the Kennedy amendment vote, the Isakson amendment vote, and motion to recommit, and then final passage. Again, I can suggest to most of the Members of this House that this has been a long, trying time, but one which I take great pride in.

Regardless of what my colleagues read in the two rag sheets in this body, and they are constantly reporting and trying to divide this House, to try to pit one against the other in different fashions, we have overcome that and I think have come out with a very good piece of bipartisan legislation.

Yes, there are some that do not agree with it, and I understand that. But overall, if we believe in the national transportation system, and I want to stress, the national transportation system, H.R. 3550, the $275 billion does not completely do the job, but it is the nearest thing we can do at this time.

I will say right up front, a motion to recommit is very attractive, but it should not be done because it does break the budget against the budget resolution that passed the House; and it does, in fact, send a message to the Senate, but it does not accomplish the goals that I am trying to achieve, and that is to pass legislation so we can make a step forward, a step forward to the progress that is necessary to get our country moving, to keep this country moving, to make sure our people and our products move.

Mr. Chairman, I yield back the balance of my time.

Mr. OBERSTAR. Mr. Chairman, I yield myself the balance of the time.

Mr. Chairman, we will soon be voting on one amendment held over from last night. I want to remind Members that that is a heavy-trucks amendment. The position of our committee is no on heavy trucks. Vote

``no'' on the Bradley amendment. Vote ``no'' on this misguided Kennedy amendment dealing with tolls on existing highways, expanding that authority, and vote ``no'' on the Isakson amendment.

Let me restate, under TEA LU, every State gains. Look at your revenues, not at some arcane formula, a percentage of this and a percentage of that, and some percentage that is missing, like missing matter from the universe. There is no missing money; it is all there. It all goes to the States, and all States grow in their revenues under this bill.

Let me just point out, however, that under the introduced bill of last year, which the gentleman from Alaska and I and all, virtually all of the other, all but one other member of the committee supported, we have vastly increased funding. That is the direction we need to go. That is where we ought to be making the investment. That bill will put 475,000 jobs on the work sites of America by Labor Day. We would have

$80 billion of additional economic activity in the workplace by Labor Day. We would have an economy rising instead of one that is stagnating. But we are not there.

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We have done a fair job with this legislation, taking every State from the level of 90.5 percent return of their contribution of the trust fund to 95 percent over the 6 years of this bill. That was the goal. That is where we started. Everybody wanted to do that. We checked with Members on both sides of the aisle. That is what we do with this bill.

Let us not get bogged down into ``I get a little more percentage of this and my State gets a little more percentage of that.'' Remember, we are one Nation, one highway system, one sense of mobility. Let us move America together ahead with TEA LU, not backwards with these destructive amendments.

Mr. MICHAUD. Mr. Chairman, it is vitally important that we continue our efforts to fund the Nation's highway and transit systems, and that we find new ways to invest in these systems. I think we are seeing a consensus within the transportation committee, and an impressive unity in our committee's fine leaders, on the need to increase the level of highway and transit investments.

These are extremely worthwhile investments. According to the Federal Highway Administration, each $1 billion of Federal funds invested in infrastructure creates approximately 47,500 jobs and $6.1 billion in economic activity.

Today, America finds itself in a struggling economy. Maine is suffering as badly as anyone, with unemployment in my hometown soaring. People are looking for answers. Well--here is an answer, loud and clear. We need new investment, we need new jobs, and we need the highway and transit program to reach new levels of funding.

Many transportation committee members, including myself, had supported a bill with even more robust funding, and we will be voting during today for a version of the bill with an additional $100 billion in funding over 6 years. The fact that this is not the version that will be on the floor is disappointing.

Despite wide-ranging support from construction, engineering, trade, and labor groups for its job-creating impact, this $375 billion version of the bill has been blocked by a veto threat from the administration. This leads me to ask--what is it about jobs and economic growth that they object to?

Still, while today's bill is less than we would want, it does represent the best we could do given the constraints, and it is a testament to bipartisan cooperation and commitment to moving our economy forward. Many would have preferred a bill with greater investment in transportation, because this country needs jobs, and transportation investment is the best way to do it. But given the choice of stalling the process or supporting a bill with lower investment levels, I suspect the most members will vote in favor of the bill today, because of all the good things it does achieve. It increases overall funding, creates vital new programs to improve walking and biking routes, fund projects of regional and national security, and increase border safety. It is good for the country, and it is great for Maine.

I am particularly pleased with some of the project funding that will be included in this bill for Maine. Among the most important is the

``Wood Composite Materials Demonstration Project'' that is aimed at the University of Maine and its Advanced Wood Composites Laboratory. This vital funding to demonstrate the durability and effectiveness of wood composite materials in multimodal transportation facilities promises to increase the efficiency and value of our transportation infrastructure and find valuable new uses for our natural resources.

I believe that we will all work together in the coming months to make the good start we are getting today into an even better final bill.

Mr. SMITH of Michigan. Mr. Chairman, this bill has several problems. The people of Michigan get even less money for their dollar than they did before. Currently, Michigan taxpayers get 88 cents back for every gas tax dollar that we pay to Washington for highway funding. Under this new bill, that falls to 79 cents. That's unacceptable. Today, people in Michigan pay 18.4 cents in federal gas taxes and 20 cents in state gas taxes. All of the state gas taxes stay in Michigan, but only 79 percent of the federal gas taxes will be returned to Michigan.

President Bush's budget requested $256 billion over 6 years for a transportation bill. H.R. 3550 has been estimated to cost $284 billion. That's a 30 percent increase above the previous transportation bill of

$218 billion. And the reopener provision is going to force us to increase spending in the future.

Much of this money is not even spent on transportation projects. There is $3 million for a park in Alabama and $1.5 million for

``streetscape improvements'' in Long Beach, California. There are $1.2 billion for bike paths and more set asides for hiking trails, nature centers, obesity programs for children and battlefield preservation. There are 2,800 earmarks in this bill, 1,000 more than in the last transportation bill. And the Manager's amendment added $1 billion in projects to encourage people to support the bill.

Mr. ISTOOK. Mr. Chairman, I oppose the TEA-LU highway authorization bill today, which will significantly reduce Oklahoma and many other states' share of highway funds over the next 6 years.

For years, I've been fighting to reverse Oklahoma's donor state status. Instead of helping, this bill will cause Oklahoma to slide backwards, becoming more of a donor state than we already are.

Under the formula adopted by TEA-LU, Oklahoma will receive $2.8 billion over the next 6 years--which is about $250 million less than it would have under the formula provided in the TEA-21 6-year authorization that it replaces. People should not be confused by talk that this bill ``preserves'' any state at a 90.5 percent funding guarantee. It applies that guarantee against a significantly-lowered base number, which has now been set at 90.5 percent of 84 percent, rather than 90.5 percent of 93 percent of highway funding provided in TEA-21.

The House of Representatives had a chance today to ensure fairness for all states in this bill when my good friend Johnny Isakson of Georgia introduced his amendment that would restore the base number to the 93 percent level. I strongly supported that amendment and encouraged others, especially in the Oklahoma delegation, to do so as well. Unfortunately, it was not the will of the House to support Mr. Isakson's amendment and provide the funding fairness that mine, and other states, deserve.

Consequently, I cannot support a bill that takes one step forward and two steps back. I worked to make sure the bill funds important projects for my district, like $34 million for the Oklahoma City Crosstown Expressway. But I also worked toward fair treatment for all of Oklahoma. In the long run this bill hurts Oklahoma more than it helps us by changing the formula and costing Oklahoma hundreds of millions over the next 6 years.

Mr. YOUNG of Alaska. Mr. Chairman, I want to assure my colleagues from Hawaii that pertaining to section 1812, I continue to be willing to work with them to find an alternative resolution of the issues addressed in that section.

We worked on legislative language last fall that would have transferred the dry-dock back to the Federal Government and compensated TDX for its costs and that would have ended all lawsuits. I am still interested in this framework for a legislative solution to these debilitating lawsuits.

Once again, I remain committed to working out a mutually acceptable solution to this problem with my friends from Hawaii and others, in conference or elsewhere.

Mr. LEVIN. Mr. Chairman, it is unfortunate that the House does not have a better transportation bill before it today. As it is currently written, the bill has a number of genuine shortcomings which are inequitable to my home state of Michigan and a large number of other donor states. Let me make it clear that these shortcomings will have to be addressed.

I also want to underscore that this transportation reauthorization is seriously behind schedule. Renewal of the highway bill was supposed to be completed last year. The states need Congress to complete our work and pass a long-term transportation bill in order to plan and implement their road and transit projects. The inability of the House to effectively deal with this legislation is negatively affecting the economy and jobs.

The House is in this unenviable position because the Republican Leadership and the White House cannot agree on the size and shape of the highway bill. The White House has indicated the President may well veto the bill that the Majority has brought to the Floor today. The President's ``my way or the highway'' approach to this bill is the single largest obstacle to providing equity to donor states in this legislation.

But we simply cannot keep putting this off and passing short-term extensions. We have got to break the impasse. Our country's roads and transit are too important to maintain the status quo. It is time to approve a multi-year reauthorization, move it to conference with the Senate, and have all parties sit down and work through the difficult issues that need to be addressed.

Primary among those issues is the need to address donor state equity. By maintaining the current 90.5 percent minimum guaranteed return on Federal highway dollars, this bill does nothing to improve the status of donor states like Michigan. I worked with other concerned Members in each of the past few highway funding reauthorization bills to increase Michigan's rate of return. Along with so many of my colleagues, I have cosponsored legislation in this session of Congress to increase this return once more by requiring a minimum return of 95 percent. The House Leadership has agreed to address this concern when this bill goes to conference.

The bill before the House today simply does not provide an adequate level of funding to meet the needs of our states' transportation infrastructure. The Senate has approved legislation providing $318 billion over 6 years, while we are considering a $275 billion measure. I very much support the Senate-passed funding level, which would provide $1.65 billion more for Michigan. I hope that we can move closer to the Senate-passed funding level in conference.

I will vote for this legislation today to get the bill to conference so that these shortcomings can be negotiated and addressed. Let me be clear: My vote on the final version of this legislation will depend on how these matters are addressed by the conferees.

Mr. STUPAK. Mr. Chairman, I have decided to vote in support for H.R. 3550 or the TEA-LU highway/transit reauthorization bill, but with reservations and with the hope that it will be addressed during the House-Senate conference.

I am pleased that this highway and transit reauthorization contains my requests on the may critically needed transportation projects for the First District.

However, this $275 billion bill still shortchanges Michigan in overall funding. It fails to include enough funding to ensure my state receives its fair share of highway funding.

Under the current highway authorization law, TEA-21, Michigan is a

``donor'' state. That means for every dollar Michigan taxpayers pay into the federal highway/transit fund--the state gets back only 90.5 cents in federal highway funding. The new reauthorization bill, TEA-LU, does not narrow this gap. Instead, it actually makes it worse by making the pot of money where this formula applies even smaller.

The $318 billion Senate bill, however, would gradually increase Michigan's rate of return on the dollar up to 95 cents by the end of FY 2009. That would be a vast improvement from the House version and I urge the joint House-Senate conference committee to accept the Senate version.

Congress needs to address this inequity to ensure Michigan receives a more equitable share of funding so it can better address and upgrade its highway and transit system as well as create much needed jobs in Michigan. For every $1 billion in highway and transit funding, that creates 47,500 new jobs and $6.2 billion in economic activity, according to the House Budget Committee Minority Office.

Mr. CARSON of Oklahoma. Mr. Chairman, as a member of the Transportation and Infrastructure Committee, I would like to thank the Chairman and the Ranking Member for their leadership and tireless efforts to bring this important bill to the House floor today.

This bill makes significant improvements over the previous legislation and I strongly support it. Though there is much work behind us, there is still more that can be done to continue to improve our nation's transportation systems. As a representative of the state that leads the nation in the highest percentage of bridges considered structurally deficient, we must recognize the importance of investing in our nation's infrastructure both for our economic well being, as well as public safety.

This bill makes valuable improvements in programs of importance to many Oklahomans. The Indian Reservation Roads program has a significant impact in Oklahoma and allows tribal governments to partner with local communities to improve roads for all Oklahomans. Bridge improvement money will hopefully take Oklahoma out of the top position in this perilous category by providing funds for the state to improve our many deficient bridges. These improvements and repairs will then allow commerce, such as our state's wheat harvest, to again use the most direct routes to get their products to market. There are transit programs, which take rural Oklahomans to jobs and healthcare, that they would otherwise have no access to without this legislation. This bill is truly good government at work.

This legislation will put Americans to work like no other legislation brought to the floor during my time in Congress. For every $1 billion invested in federal highway and transit programs, 47,500 jobs are created here in the United States. These are jobs in small businesses, in rural communities and cities alike. Investing in our Nation's infrastructure is one of the best investments we can make, both for the economic benefits as well as our transportation safety on roads and transit systems all Americans use everyday.

Again I thank the Chairman and Ranking Member, as well as Mr. Petri and Mr. Lipinski for their dedication to this legislation. I urge my colleagues to support this important bill.

Mr. BACA. Mr. Chairman. I rise in opposition to the Graves amendment to H.R. 3550. Don't be fooled by this amendment. This amendment is bad for my district and bad for California.

My State is a destination State. Tourists come to visit and see the sights and cities of Southern California. Sometimes these tourists rent cars. And sometimes they get into accidents. California passed a vicarious liability law that protects innocent bystanders from rental car companies that rent to uninsured drivers. When people get hurt by these uninsured drivers, there is no place to turn for compensation. This law allows those that get hurt to ask for compensation from the rental car companies. The State saw a need for such a law, so they passed one.

The Graves amendment attempts to tell California what type of law it needs. It will cancel California's law and hurt their citizens. What makes Washington Congressmen think they know what's best for my district and for California? California, 14 other States and the District of Columbia know that vicarious liability laws are good for their citizens. They know that when push comes to shove this will help keep their citizens safe. That is why I oppose the Graves amendment and support California's right to determine what best serves the interests of its citizens.

Mr. RUSH. Mr. Chairman, I am pleased that we are voting on H.R. 3550,

``The Transportation Equity Act: A Legacy For Users'' (TEA-LU), a much needed legislation that will fund our Nation's critical transportation infrastructure. H.R. 3550 would not only repair our roads and alleviate traffic congestion but it would also create and sustain 1.7 million new jobs throughout all 50 states over the next 6 years. This bill addresses many problems that plague our Nation's transportation infrastructure. For example, TEA-LU creates a congestion relief program which requires states to focus on the congestion resources that affect their roadways. TEA-LU provides 28 percent increase in funding for NHTSA highway safety formula grants that supports state safety programs. This is extremely important because it is well known that 42,000 Americans are killed and 3.3 million die from our Nation's highways due to substandard road conditions and roadside hazards. More importantly, H.R. 3550 recognizes that transportation in the 21st century cannot exist without adequate resources for public transportation. I am also pleased that TEA-LU provides $51 billion for public transportation infrastructure programs. However, I am disappointed that the funding level for this bill is well below the Senate highway bill. Originally, this bill was to be funded at $318 billion but because of pressures from the White House it was scaled back to $275 billion. This is quite unfortunate. H.R. 3550 may be the only job creating measure considered by Congress this year, as every $1 billion invested in federal highway and transit creates 47,500 jobs. These well paying jobs would go a long way in my district.

Mr. RODRIGUEZ. Mr. Chairman, I rise in support of H.R. 3550, the Transportation Equity Act: A Legacy for Users. Today, we have a historic opportunity to reinvest in our Nation's infrastructure and promote sound economic development policy.

Highways make traveling the distances of our great State of Texas feasible and affordable. These roads traverse our lands, connect people together, and allow them to travel quickly and efficiently. They facilitate the transfer of commerce and enable the delivery of goods across state lines, and the construction and maintenance of these roads are an important source of employment for Texas residents.

While highways perform valuable services, they are merely an afterthought for the average person. However without timely maintenance and construction, highways may become unsafe and overly congested. Current economic problems have delayed critical maintenance and expansion projects causing increased congestion, air pollution, and accidents. The U.S. Department of Transportation reports that $375 billion is needed for highway and transit improvements.

NAFTA has brought numerous new economic and trade benefits to South Texas and the Nation; however, this increased trade is straining our current transportation infrastructure and causing an increase in air pollution and chemical runoff. Funds for transportation projects are urgently needed to offset and improve the many longstanding transportation and infrastructure needs of San Antonio and South Texas. I firmly believe that South Texas should not have to bear the burden of increased international trade traffic alone. If we do not invest in the region now, the flow of international trade will be negatively impacted in the future.

Last April, I had the opportunity to speak before the House Transportation and Infrastructure Committee and testified on the pressing transportation needs in South Texas. I would like to take a moment to thank the Chairman and Ranking Member and their staff for their leadership and understanding of the complexity of our Nation's transportation problems. As I mentioned a moment ago, South Texas has many outstanding needs that will impact the Nation if not addressed in the very near future.

I am pleased that the Committee included six projects for which I had submitted requests. The legislation authorizes $4 million for Mission Trails Packages 4 and 5, which would complete a project that is vital to the revitalization of the South Side of San Antonio. The Mission Trails project is a transportation enhancement project that upon completion will be approximately 12 miles of picturesque, tree lined hike and bike trails, improved well-lit roadways, and rest areas for people to enjoy.

An additional $4 million authorization level was included for the Anzalduas Bridge Connector Road in Hidalgo County and $3 million for the Hidalgo County Loop. These projects are integral towards improving our Nation's gateway to trade and alleviating congestion in the Lower Rio Grande Valley. I would like to thank Congressman Lloyd Doggett for his steadfast support and work on these projects.

A $6 million authorization level was also included for construction of KellyUSA's 36th Street Extension Road. I would like to thank Congressman Charlie Gonzalez for his role in supporting this project. The 36th Street Extension Road is a critical component of the KellyUSA base conversion plan which includes new gateways and an expanded road access system. As a former military base, Kelly was originally built as a closed access facility. The 36th Street Extension Road will provide a new southern access point and expand community and commercial truck access to the facility.

I am pleased that the bill contained a $4 million authorization level for planning, design and engineering along the I-35 corridor in central Texas. These funds will support an ongoing multi-modal transportation project to improve the Austin-San Antonio corridor.

Lastly, I would like to thank the Committee for including language to authorize $4.5 million for the Arkansas Avenue railroad grade separation project in Laredo to improve public safety and overall mobility by connecting north and south Laredo. The project will also alleviate congestion along major trade corridors and allow traffic to flow in the event of an emergency or evacuation.

I also strongly support critical funding for the VIA Metropolitan Transit Authority that was championed by Congressman Gonzalez. A $7 million authorization level was included for VIA to purchase new buses to replace the aging bus fleet and paratransit vans as well as upgrade their bus maintenance facility. VIA provides critical services to the greater San Antonio area and I thank them for all that they do.

As you know, funding for the Transportation Equity Act for the 21st Century (TEA-21) expired in 2003. I fully supported the House Transportation Committee's original reauthorization bill, which authorized a $375 billion level, and I'm disappointed that the President's veto threat of this jobs bill ultimately reduced the amount to $275 billion. I hope that Americans understand that this means fewer jobs in an already stagnant job market. For every $1 billion invested in federal highway and transit spending, 47,500 jobs--over half of which are in the construction industry--are created or sustained. This is a jobs bill--it is about investment in our communities and our economy.

Mr. Chairman, while I believe we should continue to push for additional funds, we must also face the harsh economic reality that recent tax cuts and a skyrocketing deficit have left us with less money to invest in our infrastructure. This bill that we have before us today is a start, and I urge my colleagues to vote in favor of H.R. 3550. Let's start reinvesting in our Nation.

Mr. KIND. Mr. Chairman, I rise in support of H.R. 3550, the Transportation Equity Act. I want to acknowledge the work of the Transportation Committee on this complex bill and especially thank my friend and colleague from Wisconsin, Mr. Petri, for his leadership on the legislation; the Wisconsin delegation is lucky to have such a strong advocate for our citizens.

We all know that transportation bills are job bills, and now is certainly the time that we need more jobs throughout the country. Over 8 million Americans are looking for jobs, and last month only 21,000 new jobs were created, none of which was a private-sector job. I consistently hear from constituents who are searching for work; who have sent out dozens of resumes and updated their skills but remain unemployed. Each billion dollars spent on highway funding creates not only safer and better roads: It also creates an estimated 47,500 new jobs. An investment in highway funding is an investment for steady work for those in Wisconsin and around the Nation.

Furthermore, I am pleased that the bill recognizes the importance of funding crucial highways, transit centers, and bridges in Wisconsin's Third Congressional District. Specifically, the inclusion of funding for the Stillwater Bridge, which connects Houlton, Wisconsin and Stillwater, Minnesota is great news for those of us who have been working on this project for years. The bridge is only one example of an important project that will provide the Nation with safer roads, shorter commutes, and better jobs. I urge my colleagues to support the bill.

Sequential Votes Postponed In Committee of The Whole

The CHAIRMAN pro tempore (Mr. Nethercutt). Pursuant to clause 6 of rule XVIII, proceedings will now resume on those amendments on which further proceedings were postponed in the following order:

Amendment number 20 by Mr. Bradley of New Hampshire, amendment number 22 by Mr. Kennedy of Minnesota, amendment number 23 by Mr. Isakson of Georgia.

The first electronic vote will be conducted as a 15-minute vote. Remaining electronic votes will be conducted as 5-minute votes.

Amendment No. 20 Offered by Mr. Bradley of New Hampshire

The CHAIRMAN pro tempore. The unfinished business is the demand for a recorded vote on the amendment offered by the gentleman from New Hampshire (Mr. Bradley) on which further proceedings were postponed and on which the noes prevailed by voice vote.

The Clerk will redesignate the amendment.

The text of the amendment is as follows:

Amendment No. 20 offered by Mr. Bradley of New Hampshire:

Add at the end the following new section:

SECTION . VEHICLE WEIGHT LIMITATIONS.

(a) The next to the last sentence of section 127(a) of title 23, United States Code, is amended by striking

``Interstate Route 95'' and inserting ``Interstate Routes 89, 93, and 95''.

(b)(1) In General.--In consultation with the Secretary of Transportation, the State of New Hampshire shall conduct a study analyzing the economic, safety, and infrastructure impacts of the exemption provided by the amendment made by subsection (a), including the impact of not having such an exemption. In preparing the study, the State shall provide adequate opportunity for public comment.

(2) Funding.--There is authorized to be appropriated from the Highway Trust Fund (other than the Mass Transit Account)

$250,000 for fiscal year 2004 to carry out the study.

(3) Applicability of Title 23, United States Code.--Funds authorized by this section shall be available for obligation in the same manner as if such funds were apportioned under chapter 1 of title 23, United States Code; except that such funds shall remain available until expended.

Recorded Vote

The CHAIRMAN pro tempore. A recorded vote has been demanded.

A recorded vote was ordered.

The vote was taken by electronic device, and there were--ayes 90, noes 334, not voting 10, as follows:

AYES--90

AderholtAkinAllenBarrett (SC)Bartlett (MD)BassBeauprezBilirakisBishop (UT)BlackburnBluntBoehnerBonnerBradley (NH)BurnsBurrBuyerCalvertCannonCantorCastleChocolaCoxDeal (GA)DeLayDiaz-Balart, M.DreierEverettFeeneyFlakeFossellaFranks (AZ)FrelinghuysenGarrett (NJ)GingreyGoodeGrangerGreenwoodHallHarrisHastertHayesHayworthHensarlingHergerHostettlerHoughtonHunterJohnson (CT)KellerKennedy (MN)King (IA)KlineLathamLewis (KY)ManzulloMcIntyreMichaudMiller (FL)MusgraveMyrickNethercuttNeugebauerNorwoodNunesPaulPearcePencePittsPryce (OH)RehbergRogers (AL)Ryun (KS)SessionsShadeggSherwoodShimkusSimmonsSimpsonSmith (MI)SouderStenholmSweeneyTancredoTaylor (NC)TerryThornberryWalshWhitfieldWilson (SC)

NOES--334

AbercrombieAckermanAlexanderAndrewsBacaBachusBairdBakerBaldwinBallanceBallengerBarton (TX)BecerraBellBereuterBerkleyBermanBerryBiggertBishop (GA)Bishop (NY)BlumenauerBoehlertBonillaBonoBoozmanBoswellBoucherBoydBrady (PA)Brady (TX)Brown (OH)Brown (SC)Brown, CorrineBrown-Waite, GinnyBurgessBurton (IN)CampCapitoCappsCapuanoCardinCardozaCarson (IN)Carson (OK)CarterCaseChabotChandlerClayClyburnCobleColeCollinsConyersCooperCostelloCramerCraneCrenshawCrowleyCubinCummingsCunninghamDavis (AL)Davis (CA)Davis (FL)Davis (IL)Davis (TN)Davis, Jo AnnDavis, TomDeFazioDeGetteDelahuntDeLauroDeutschDiaz-Balart, L.DicksDingellDoggettDooley (CA)DoolittleDoyleDuncanDunnEdwardsEhlersEmanuelEmersonEngelEnglishEshooEtheridgeEvansFarrFattahFergusonFilnerFoleyForbesFordFrank (MA)FrostGalleglyGerlachGibbonsGilchrestGillmorGonzalezGoodlatteGordonGossGravesGreen (TX)Green (WI)GrijalvaGutierrezGutknechtHarmanHartHastings (FL)Hastings (WA)HefleyHillHincheyHinojosaHobsonHoeffelHoekstraHoldenHoltHondaHooley (OR)HoyerHydeInsleeIsaksonIsraelIssaIstookJackson (IL)Jackson-Lee (TX)JeffersonJenkinsJohnJohnson (IL)Johnson, E. B.Johnson, SamJones (NC)Jones (OH)KanjorskiKapturKellyKennedy (RI)KildeeKilpatrickKindKing (NY)KingstonKirkKleczkaKnollenbergKolbeKucinichLaHoodLampsonLangevinLantosLarsen (WA)Larson (CT)LaTouretteLeachLeeLevinLewis (CA)Lewis (GA)LinderLipinskiLoBiondoLofgrenLoweyLucas (KY)Lucas (OK)LynchMajetteMaloneyMarkeyMarshallMathesonMatsuiMcCarthy (MO)McCarthy (NY)McCollumMcCotterMcCreryMcDermottMcGovernMcHughMcInnisMcKeonMcNultyMeehanMeek (FL)Meeks (NY)MenendezMicaMillender-McDonaldMiller (MI)Miller (NC)Miller, GaryMollohanMooreMoran (KS)Moran (VA)MurphyMurthaNadlerNapolitanoNeal (MA)NeyNorthupNussleOberstarObeyOlverOrtizOsborneOseOtterOwensOxleyPallonePascrellPastorPaynePelosiPeterson (MN)Peterson (PA)PetriPickeringPlattsPomboPomeroyPorterPortmanPrice (NC)PutnamQuinnRadanovichRahallRamstadRangelRegulaRenziReynoldsRodriguezRogers (KY)Rogers (MI)RohrabacherRos-LehtinenRossRothmanRoybal-AllardRoyceRuppersbergerRushRyan (OH)Ryan (WI)SaboSanchez, Linda T.Sanchez, LorettaSandersSandlinSaxtonSchakowskySchiffSchrockScott (GA)Scott (VA)SensenbrennerSerranoShawShaysShermanShusterSkeltonSlaughterSmith (NJ)Smith (TX)Smith (WA)SnyderSolisSprattStarkStearnsStricklandStupakSullivanTauscherTaylor (MS)ThomasThompson (CA)Thompson (MS)TiahrtTiberiTierneyToomeyTownsTurner (OH)Turner (TX)Udall (CO)Udall (NM)UptonVan HollenVelazquezViscloskyVitterWalden (OR)WampWatersWatsonWattWeinerWeldon (PA)WellerWexlerWickerWilson (NM)WolfWoolseyWuWynnYoung (AK)Young (FL)

NOT VOTING--10

CulbersonDeMintGephardtHulshofMiller, GeorgeReyesTannerTauzinWaxmanWeldon (FL)

{time} 1109

Ms. CARSON of Indiana, and Messrs. GERLACH, LUCAS of Kentucky, McHUGH, DICKS, HILL, VITTER, LEVIN and MATSUI changed their vote from

``aye'' to ``no.''

Mr. PENCE and Mrs. MYRICK changed their vote from ``no'' to ``aye.''

So the amendment was rejected.

The result of the vote was announced as above recorded.

Announcement By The Chairman Pro Tempore

The CHAIRMAN pro tempore (Mr. Nethercutt). Pursuant to clause 6 of rule XVIII, the remaining votes in this series will be conducted as 5-

minute votes.

Amendment No. 22 Offered by Mr. Kennedy of Minnesota

The CHAIRMAN pro tempore. The pending business is the demand for a recorded vote on the amendment offered by the gentleman from Minnesota

(Mr. Kennedy) on which further proceedings were postponed and on which the noes prevailed by voice vote.

The Clerk will redesignate the amendment.

The Clerk redesignated the amendment.

Recorded Vote

The CHAIRMAN pro tempore. A recorded vote has been demanded.

A recorded vote was ordered.

The CHAIRMAN pro tempore. This will be a 5-minute vote.

The vote was taken by electronic device, and there were--ayes 231, noes 193, not voting 10, as follows:

AYES--231

AderholtAkinAlexanderBachusBakerBallengerBarrett (SC)Bartlett (MD)BassBeauprezBereuterBerkleyBilirakisBishop (GA)Bishop (UT)BlackburnBluntBoehlertBoehnerBonnerBonoBoozmanBoydBradley (NH)Brady (TX)Brown (OH)Brown (SC)Brown-Waite, GinnyBurnsBurrBurton (IN)BuyerCalvertCampCannonCantorCapitoCardinCardozaCarterChabotChocolaCobleColeCollinsCoxCraneCrenshawCubinCunninghamDavis (TN)Davis, TomDeal (GA)DeLayDeutschDiaz-Balart, L.Diaz-Balart, M.DoggettDoolittleDreierDuncanDunnEhlersEmersonEngelEnglishEverettFeeneyFergusonFlakeFoleyForbesFossellaFranks (AZ)FrelinghuysenGalleglyGarrett (NJ)GerlachGibbonsGilchrestGillmorGingreyGonzalezGoodeGravesGreen (TX)Green (WI)GutknechtHallHarrisHartHastertHastings (WA)HayesHayworthHefleyHensarlingHergerHillHincheyHinojosaHobsonHoekstraHostettlerHoughtonHunterHydeIsaksonIssaIstookJenkinsJohnJohnson (IL)Johnson, SamJones (NC)Jones (OH)KellerKellyKennedy (MN)KindKing (IA)King (NY)KingstonKlineKnollenbergKolbeLaHoodLathamLaTouretteLeachLewis (GA)Lewis (KY)LinderLoBiondoLucas (KY)ManzulloMcCotterMcHughMcIntyreMicaMiller (FL)Miller (MI)Miller, GaryMooreMoran (KS)MurphyMusgraveMyrickNethercuttNeugebauerNeyNorthupNorwoodNunesNussleObeyOrtizOsborneOseOtterOxleyPaulPearcePencePeterson (PA)PickeringPitts PlattsPomboPorterPortmanPryce (OH)PutnamQuinnRadanovichRamstadRegulaRehbergRenziReynoldsRogers (AL)Rogers (KY)Rogers (MI)Ros-LehtinenRossRoyceRyan (WI)Ryun (KS)SandlinSaxtonSchrockScott (GA)SensenbrennerSessionsShadeggShawSherwoodShimkusShusterSimpsonSmith (MI)Smith (NJ)Smith (TX)Smith (WA)SouderStearnsStenholmStricklandStupakSullivanSweeneyTancredoTaylor (NC)TerryThornberryTiahrtTiberiToomeyTurner (OH)Turner (TX)UptonVitterWalden (OR)WalshWampWeldon (PA)WellerWhitfieldWickerWilson (NM)Wilson (SC)

NOES--193

AbercrombieAckermanAllenAndrewsBacaBairdBaldwinBallanceBarton (TX)BecerraBellBermanBerryBiggertBishop (NY)BlumenauerBonillaBoswellBoucherBrady (PA)Brown, CorrineBurgessCappsCapuanoCarson (IN)Carson (OK)CaseCastleChandlerClayClyburnConyersCooperCostelloCramerCrowleyCummingsDavis (AL)Davis (CA)Davis (FL)Davis (IL)Davis, Jo AnnDeFazioDeGetteDelahuntDeLauroDicksDingellDooley (CA)DoyleEdwardsEmanuelEshooEtheridgeEvansFarrFattahFilnerFordFrank (MA)FrostGoodlatteGordonGossGrangerGreenwoodGrijalvaGutierrezHarmanHastings (FL)HoeffelHoldenHoltHondaHooley (OR)HoyerInsleeIsraelJackson (IL)Jackson-Lee (TX)JeffersonJohnson (CT)Johnson, E. B.KanjorskiKapturKennedy (RI)KildeeKilpatrickKirkKleczkaKucinichLampsonLangevinLantosLarsen (WA)Larson (CT)LeeLevinLewis (CA)LipinskiLofgrenLoweyLucas (OK)LynchMajetteMaloneyMarkeyMarshallMathesonMatsuiMcCarthy (MO)McCarthy (NY)McCollumMcCreryMcDermottMcGovernMcInnisMcKeonMcNultyMeehanMeek (FL)Meeks (NY)MenendezMichaudMillender-McDonaldMiller (NC)MollohanMoran (VA)MurthaNadlerNapolitanoNeal (MA)OberstarOlverOwensPallonePascrellPastorPaynePelosiPeterson (MN)PetriPomeroyPrice (NC)RahallRangelRodriguezRohrabacherRothmanRoybal-AllardRuppersbergerRushRyan (OH)SaboSanchez, Linda T.Sanchez, LorettaSandersSchakowskySchiffScott (VA)SerranoShaysShermanSimmonsSkeltonSlaughterSnyderSolisSprattStarkTauscherTaylor (MS)ThomasThompson (CA)Thompson (MS)TierneyTownsUdall (CO)Udall (NM)Van HollenVelazquezViscloskyWatersWatsonWattWeinerWexlerWolfWoolseyWuWynnYoung (AK)Young (FL)

NOT VOTING--10

CulbersonDeMintGephardtHulshofMiller, GeorgeReyesTannerTauzinWaxmanWeldon (FL)

Announcement by the Chairman Pro Tempore

The CHAIRMAN pro tempore (during the vote). Members are advised there are 2 minutes remaining in this vote.

{time} 1118

Ms. BERKLEY changed her vote from ``no'' to ``aye.''

Mr. MEEKS of New York and Mr. FORD changed their vote from ``aye'' to

``no.''

So the amendment was agreed to.

The result of the vote was announced as above recorded.

Amendment No. 23 Offered by Mr. Isakson

The CHAIRMAN pro tempore (Mr. Nethercutt). The pending business is the demand for a recorded vote on amendment No. 23 offered by the gentleman from Georgia (Mr. Isakson) on which further proceedings were postponed and on which the noes prevailed by voice vote.

The Clerk will redesignate the amendment.

The Clerk redesignated the amendment.

Recorded Vote

A recorded vote has been demanded.

A recorded vote was ordered.

The vote was taken by electronic device, and there were--ayes 170, noes 254, not voting 9, as follows:

AYES--170

AkinBachusBallanceBallengerBarrett (SC)Bartlett (MD)Barton (TX)BeauprezBellBilirakisBishop (GA)BlackburnBluntBoehnerBonillaBoydBrady (TX)Brown (SC)Brown-Waite, GinnyBurgessBurnsBurrBurton (IN)BuyerCampCantorCarson (IN)Carson (OK)CarterChabotChandlerChocolaCobleColeCollinsConyersCrenshawCunninghamDavis (AL)Davis (FL)Davis, Jo AnnDavis, TomDeal (GA)DeGetteDeLayDeutschDiaz-Balart, L.Diaz-Balart, M.DingellDoggettDuncanEdwardsEhlersEmersonEtheridgeFeeneyFergusonFlakeFoleyForbesFranks (AZ)FrelinghuysenFrostGarrett (NJ)GingreyGonzalezGoodeGoodlatteGossGrangerGreen (TX)GutknechtHallHarrisHastings (FL)HayesHayworthHefleyHensarlingHillHoekstraHunterIsaksonIstookJackson-Lee (TX)JeffersonJenkinsJohnson, E. B.Johnson, SamJones (NC)KellerKennedy (MN)KildeeKilpatrickKing (IA)KingstonKlineKnollenbergKolbeLampsonLeachLevinLewis (GA)Lewis (KY)LinderLucas (KY)Lucas (OK)MajetteMarshallMcCotterMcInnisMcIntyreMeek (FL)MicaMiller (FL)Miller (MI)Miller (NC)MusgraveMyrickNeugebauerNorthupNorwoodNussleOtterPaulPencePortmanPrice (NC)PutnamRamstadRenziRodriguezRogers (KY)Rogers (MI)Ros-LehtinenSandlinSchrockScott (GA)Scott (VA)SessionsShadeggShawSimpsonSmith (MI)Smith (TX)SouderSprattStearnsStenholmStricklandStupakSullivanTancredoTaylor (NC)TerryThornberryTiahrtTiberiTurner (TX)Udall (CO)UptonViscloskyWampWattWeldon (FL)WexlerWhitfieldWilson (SC)WolfYoung (FL)

NOES--254

AbercrombieAckermanAderholtAlexanderAllenAndrewsBacaBairdBakerBaldwinBassBecerraBereuterBerkleyBermanBerryBiggertBishop (NY)Bishop (UT)BlumenauerBoehlertBonnerBonoBoozmanBoswellBoucherBradley (NH)Brady (PA)Brown (OH)Brown, CorrineCalvertCannonCapitoCappsCapuanoCardinCardozaCaseCastleClayClyburnCooperCostelloCoxCramerCraneCrowleyCubinCummingsDavis (CA)Davis (IL)Davis (TN)DeFazioDelahuntDeLauroDicksDooley (CA)DoolittleDoyleDreierDunnEmanuelEngelEnglishEshooEvansEverettFarrFattahFilnerFordFossellaFrank (MA)GalleglyGerlachGibbonsGilchrestGillmorGordonGravesGreen (WI)GreenwoodGrijalvaGutierrezHarmanHartHastings (WA)HergerHincheyHinojosaHobsonHoeffelHoldenHoltHondaHooley (OR)HostettlerHoughtonHoyerHydeInsleeIsraelIssaJackson (IL)JohnJohnson (CT)Johnson (IL)Jones (OH)KanjorskiKapturKellyKennedy (RI)KindKing (NY)KirkKleczkaKucinichLaHoodLangevinLantosLarsen (WA)Larson (CT)LathamLaTouretteLeeLewis (CA)LipinskiLoBiondoLofgrenLoweyLynchMaloneyManzulloMarkeyMathesonMatsuiMcCarthy (MO)McCarthy (NY)McCollumMcCreryMcDermottMcGovernMcHughMcKeonMcNultyMeehanMeeks (NY)MenendezMichaudMillender-McDonaldMiller, GaryMollohanMooreMoran (KS)Moran (VA)MurphyMurthaNadlerNapolitanoNeal (MA)NethercuttNeyNunesOberstarObeyOlverOrtizOsborneOseOwensOxleyPallonePascrellPastorPaynePearcePelosiPeterson (MN)Peterson (PA)PetriPickeringPittsPlattsPomboPomeroyPorterPryce (OH)QuinnRadanovichRahallRangelRegulaRehbergReynoldsRogers (AL)RohrabacherRossRothmanRoybal-AllardRoyceRuppersbergerRushRyan (OH)Ryan (WI)Ryun (KS)SaboSanchez, Linda T.Sanchez, LorettaSandersSaxtonSchakowskySchiffSensenbrennerSerranoShaysShermanSherwoodShimkusShusterSimmonsSkeltonSlaughterSmith (NJ)Smith (WA)SnyderSolisStarkSweeneyTauscherTaylor (MS)ThomasThompson (CA)Thompson (MS)TierneyToomeyTownsTurner (OH)Udall (NM)Van HollenVelazquezVitterWalden (OR)WalshWatersWatsonWeinerWeldon (PA)WellerWickerWilson (NM)WoolseyWuWynnYoung (AK)

NOT VOTING--9

CulbersonDeMintGephardtHulshofMiller, GeorgeReyesTannerTauzinWaxman

Announcement by the Chairman Pro Tempore

The CHAIRMAN pro tempore (during the vote). Members are advised there are 2 minutes remaining in this vote.

{time} 1126

So the amendment was rejected.

The result of the vote was announced as above recorded.

The CHAIRMAN pro tempore. Under the rule, the Committee rises.

Accordingly, the Committee rose; and the Speaker pro tempore (Mr. Thornberry) having assumed the chair, Mr. Nethercutt, Chairman pro tempore of the Committee of the Whole House on the State of the Union, reported that that Committee, having had under consideration the bill

(H.R. 3550) to authorize funds for Federal-aid highways, highway safety programs, and transit programs, and for other purposes, pursuant to House Resolution 593, he reported the bill, as amended pursuant to that rule, back to the House with further sundry amendments adopted by the Committee of the Whole.

The SPEAKER pro tempore. Under the rule, the previous question is ordered.

The committee amendment in the nature of a substitute, modified by the amendments printed in part A of House Report 108-456, is adopted.

Is a separate vote demanded on any further amendment reported from the Committee of the Whole? If not, the Chair will put them en gros.

The amendments were agreed to.

The SPEAKER pro tempore. The question is on the engrossment and third reading of the bill.

The bill was ordered to be engrossed and read a third time, and was read the third time.

Motion to Recommit Offered by Mr. Davis of Tennessee

Mr. DAVIS of Tennessee. Mr. Speaker, I offer a motion to recommit.

The SPEAKER pro tempore. Is the gentleman opposed to the bill?

Mr. DAVIS of Tennessee. Yes, in its present form, Mr. Speaker.

The SPEAKER pro tempore. The Clerk will report the motion to recommit.

The Clerk read as follows:

Mr. Davis of Tennessee moves to recommit the bill H.R. 3550 to the Committee on Transportation and Infrastructure with instructions to report the same back to the House forthwith with the following amendments:

In section 1101(a)(1) of the bill, strike

``$4,323,076,000'' and all that follows through

``$4,891,164,000'' and insert ``$5,076,187,293 for fiscal year 2004, $4,953,445,477 for fiscal year 2005,

$5,171,212,959 for fiscal year 2006, $5,263,571,478 for fiscal year 2007, $5,556,536,840 for fiscal year 2008, and

$6,654,739,293''.

In section 1101(a)(2) of the bill, strike

``$5,187,691,000'' and all that follows through

``$5,869,396,000'' and insert ``$6,091,424,517 for fiscal year 2004, $5,944,133,902 for fiscal year 2005,

$6,205,455,095 for fiscal year 2006, $6,316,285,773 for fiscal year 2007, $6,667,843,743 for fiscal year 2008, and

$7,985,686,064''.

In section 1101(a)(3) of the bill, strike

``$3,709,440,000'' and all that follows through

``$4,196,891,000'' and insert ``$4,355,651,438 for fiscal year 2004, $4,250,332,027 for fiscal year 2005,

$4,437,189,163 for fiscal year 2006, $4,516,437,339 for fiscal year 2007, $4,767,818,482 for fiscal year 2008, and

$5,710,136,779''.

In section 1101(a)(5) of the bill, strike

``$6,052,306,000'' and all that follows through

``$6,847,629,000'' and insert ``$7,106,661,741 for fiscal year 2004, $6,934,823,445 for fiscal year 2005,

$7,239,697,231 for fiscal year 2006, $7,369,000,069 for fiscal year 2007, $7,779,151,809 for fiscal year 2008, and

$9,316,634,194''.

In section 1101(a)(6) of the bill, strike

``$1,469,846,000'' and all that follows through

``$1,662,996,000'' and insert ``$1,725,903,868 for fiscal year 2004, $1,684,171,440 for fiscal year 2005,

$1,758,212,543 for fiscal year 2006, $1,789,614,076 for fiscal year 2007, $1,889,222,762 for fiscal year 2008, and

$2,262,611,686''.

In section 1102(a) of the bill, strike paragraphs (2) through (6) and insert the following:

(2) $37,900,000,000 for fiscal year 2005;

(3) $39,100,000,000 for fiscal year 2006;

(4) $39,100,000,000 for fiscal year 2007;

(5) $39,400,000,000 for fiscal year 2008; and

(6) $44,400,000,000 for fiscal year 2009.

In the matter proposed to be inserted as section 5338(a)(2)(A) of title 49, United States Code, by section 3034 of the bill, strike clauses (i) through (vi) and insert the following:

``(i) $5,081,125,000 for fiscal year 2005;

``(ii) $5,283,418,000 for fiscal year 2006;

``(iii) $5,550,420,000 for fiscal year 2007;

``(iv) $6,176,172,500 for fiscal year 2008; and

``(v) $6,834,667,500 for fiscal year 2009.

In section 3043 of the bill, strike paragraphs (2) through

(6) and insert the following:

(2) $8,650,000,000 for fiscal year 2005;

(3) $9,085,123,000 for fiscal year 2006;

(4) $9,600,000,000 for fiscal year 2007;

(5) $10,490,000,000 for fiscal year 2008; and

(6) $11,430,000,000 for fiscal year 2009.

Add at the end the following new title:

TITLE IX--HIGHWAY REAUTHORIZATION AND EXCISE TAX SIMPLIFICATION

SEC. 9000. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) Short Title.--This title may be cited as the ``Highway reauthorization and excise tax simplification Act of 2004''.

(b) 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.

Subtitle A--Trust Fund Reauthorization

SEC. 9001. EXTENSION OF HIGHWAY TRUST FUND AND AQUATIC

RESOURCES TRUST FUND EXPENDITURE AUTHORITY AND

RELATED TAXES.

(a) Highway Trust Fund Expenditure Authority.--

(1) Highway account.--Paragraph (1) of section 9503(c)

(relating to transfers from Highway Trust Fund for certain repayments and credits) is amended--

(A) in the matter before subparagraph (A), by striking

``May 1, 2004'' and inserting ``October 1, 2009'',

(B) by striking ``or'' at the end of subparagraph (F),

(C) by striking the period at the end of subparagraph (G) and inserting ``, or'',

(D) by inserting after subparagraph (G), the following new subparagraph:

``(H) authorized to be paid out of the Highway Trust Fund under the Highway reauthorization and excise tax simplification Act of 2004.'', and

(E) in the matter after subparagraph (G), as added by subparagraph (D), by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway reauthorization and excise tax simplification Act of 2004''.

(2) Mass transit account.--Paragraph (3) of section 9503(e)

(relating to establishment of Mass Transit Account) is amended--

(A) in the matter before subparagraph (A), by striking

``May 1, 2004'' and inserting ``October 1, 2009'',

(B) by striking ``or'' at the end of subparagraph (D),

(C) by striking the period at the end of subparagraph (E) and inserting ``, or'',

(D) by inserting after subparagraph (E), the following new subparagraph:

``(F) the Highway reauthorization and excise tax simplification Act of 2004,'', and

(E) in the matter after subparagraph (E), as added by subparagraph (D), by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway reauthorization and excise tax simplification Act of 2004''.

(3) Exception to limitation on transfers.--Subparagraph (B) of section 9503(b)(5) (relating to limitation on transfers to Highway Trust Fund) is amended by striking ``May 1, 2004'' and inserting ``October 1, 2009''.

(b) Aquatic Resources Trust Fund Expenditure Authority.--

(1) Sport fish restoration account.--Paragraph (2) of section 9504(b) (relating to Sport Fish Restoration Account) is amended by striking ``Surface Transportation Extension Act of 2004'' each place it appears and inserting ``Highway reauthorization and excise tax simplification Act of 2004''.

(2) Boat safety account.--Section 9504(c) (relating to expenditures from Boat Safety Account) is amended--

(A) by striking ``May 1, 2004'' and inserting ``October 1, 2009'', and

(B) by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway reauthorization and excise tax simplification Act of 2004''.

(3) Exception to limitation on transfers.--Paragraph (2) of section 9504(d) (relating to limitation on transfers to Aquatic Resources Trust Fund) is amended by striking ``May 1, 2004'' and inserting ``October 1, 2009''.

(4) Technical correction.--The last sentence of paragraph

(2) of section 9504(b) is amended by striking ``subparagraph

(B)'', and inserting ``subparagraph (C)''.

(c) Extension of Taxes.--

(1) In general.--The following provisions are each amended by striking ``2005'' each place it appears and inserting

``2009'':

(A) Section 4041(a)(1)(C)(iii)(I) (relating to rate of tax on certain buses).

(B) Section 4041(a)(2)(B) (relating to rate of tax on special motor fuels).

(C) Section 4041(m)(1)(A) (relating to certain alcohol fuels produced from natural gas).

(D) Section 4051(c) (relating to termination of tax on heavy trucks and trailers).

(E) Section 4071(d) (relating to termination of tax on tires).

(F) Section 4081(d)(1) (relating to termination of tax on gasoline, diesel fuel, and kerosene).

(G) Section 4481(e) (relating to period tax in effect).

(H) Section 4482(c)(4) (relating to taxable period).

(I) Section 4482(d) (relating to special rule for taxable period in which termination date occurs).

(2) Floor stocks refunds.--Section 6412(a)(1) (relating to floor stocks refunds) is amended--

(A) by striking ``2005'' each place it appears and inserting ``2009'', and

(B) by striking ``2006'' each place it appears and inserting ``2010''.

(d) Extension of Certain Exemptions.--The following provisions are each amended by striking ``2005'' and inserting ``2009'':

(1) Section 4221(a) (relating to certain tax-free sales).

(2) Section 4483(g) (relating to termination of exemptions for highway use tax).

(e) Extension of Deposits Into, and Certain Transfers From, Trust Fund.--

(1) In general.--Subsections (b), (c)(2), (c)(3),

(c)(4)(A)(i), and (c)(5)(A) of section 9503 (relating to the Highway Trust Fund) are amended--

(A) by striking ``2005'' each place it appears and inserting ``2009'', and

(B) by striking ``2006'' each place it appears and inserting ``2010''.

(2) Conforming amendments to land and water conservation fund.--Section 201(b) of the Land and Water Conservation Fund Act of 1965 (16 U.S.C. 460l-11(b)) is amended--

(A) by striking ``2003'' and inserting ``2007'', and

(B) by striking ``2004'' each place it appears and inserting ``2008''.

(f) Extension of Tax Benefits for Qualified Methanol and Ethanol Fuel Produced From Coal.--Section 4041(b)(2)

(relating to qualified methanol and ethanol fuel) is amended--

(1) by striking ``2007'' in subparagraph (C)(ii) and inserting ``2010'', and

(2) by striking ``October 1, 2007'' in subparagraph (D) and inserting ``January 1, 2011''.

(g) Prohibition on Use of Highway Account for Rail Projects.--Section 9503(c) (relating to transfers from Highway Trust Fund for certain repayments and credits) is amended by adding at the end the following new paragraph:

``(6) Prohibition on use of highway account for certain rail projects.--With respect to rail projects beginning after the date of the enactment of this paragraph, no amount shall be available from the Highway Account (as defined in subsection (e)(5)(B)) for any rail project, except for any rail project involving publicly owned rail facilities or any rail project yielding a public benefit.''.

(h) Highway Trust Fund Expenditures for Highway Use Tax Evasion Projects.--Section 9503(c), as amended by subsection

(g), is amended to add at the end the following new paragraph:

``(7) Highway use tax evasion projects.--From amounts available in the Highway Trust Fund, there is authorized to be expended--

``(A) for each fiscal year after 2003 to the Internal Revenue Service--

``(i) $30,000,000 for enforcement of fuel tax compliance, including the per-certification of tax-exempt users,

``(ii) $10,000,000 for Xstars, and

``(iii) $10,000,000 for xfirs, and

``(B) for each fiscal year after 2003 to the Federal Highway Administration, $50,000,000 to be allocated

$1,000,000 to each State to combat fuel tax evasion on the State level.''.

(i) Effective Date.--The amendments made by and provisions of this section shall take effect on the date of the enactment of this Act.

SEC. 9002. FULL ACCOUNTING OF FUNDS RECEIVED BY THE HIGHWAY

TRUST FUND.

(a) In General.--Section 9503(c) (relating to transfers from Highway Trust Fund for certain repayments and credits), as amended by section 9001 of this Act, is amended by striking paragraph (2) and redesignating paragraphs (3), (4),

(5), (6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.

(b) Interest on Unexpended Balances Credited to Trust Fund.--Section 9503 (relating to the Highway Trust Fund) is amended by striking subsection (f).

(c) Conforming Amendments.--

(1) Section 9503(b)(4)(D) is amended by striking

``paragraph (4)(D) or (5)(B)'' and inserting ``paragraph

(3)(D) or (4)(B)''.

(2) Paragraph (2) of section 9503(c) (as redesignated by subsection (a)) is amended by adding at the end the following new sentence: ``The amounts payable from the Highway Trust Fund under this paragraph shall be determined by taking into account only the portion of the taxes which are deposited into the Highway Trust Fund.''.

(3) Section 9504(a)(2) is amended by striking ``section 9503(c)(4), section 9503(c)(5)'' and inserting ``section 9503(c)(3), section 9503(c)(4)''.

(4) Paragraph (2) of section 9504(b), as amended by section 9001 of this Act, is amended by striking ``section 9503(c)(5)'' and inserting ``section 9503(c)(4)''.

(5) Section 9504(e) is amended by striking ``section 9503(c)(4)'' and inserting ``section 9503(c)(3)''.

(d) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid for which no transfer from the Highway Trust Fund has been made before April 1, 2004.

(2) Interest credited.--The amendment made by subsection

(b) shall take effect on the date of the enactment of this Act.

SEC. 9003. MODIFICATION OF ADJUSTMENTS OF APPORTIONMENTS.

(a) In General.--Section 9503(d) (relating to adjustments for apportionments) is amended--

(1) by striking ``24-month'' in paragraph (1)(B) and inserting ``48-month'', and

(2) by striking ``2 years' '' in the heading for paragraph

(3) and inserting ``4 years' ''.

(b) Measurement of Net Highway Receipts.--Section 9503(d) is amended by redesignating paragraph (6) as paragraph (7) and by inserting after paragraph (5) the following new paragraph:

``(6) Measurement of net highway receipts.--For purposes of making any estimate under paragraph (1) of net highway receipts for periods ending after the date specified in subsection (b)(1), the Secretary shall treat--

``(A) each expiring provision of subsection (b) which is related to appropriations or transfers to the Highway Trust Fund to have been extended through the end of the 48-month period referred to in paragraph (1)(B), and

``(B) with respect to each tax imposed under the sections referred to in subsection (b)(1), the rate of such tax during the 48-month period referred to in paragraph (1)(B) to be the same as the rate of such tax as in effect on the date of such estimate.''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

Subtitle B--Volumetric Ethanol Excise Tax Credit

SEC. 9101. SHORT TITLE.

This subtitle may be cited as the ``Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2004''.

SEC. 9102. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND

EXTENSION OF ALCOHOL FUELS INCOME TAX CREDIT.

(a) In General.--Subchapter B of chapter 65 (relating to rules of special application) is amended by inserting after section 6425 the following new section:

``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.

``(a) Allowance of Credits.--There shall be allowed as a credit against the tax imposed by section 4081 an amount equal to the sum of--

``(1) the alcohol fuel mixture credit, plus

``(2) the biodiesel mixture credit.

``(b) Alcohol Fuel Mixture Credit.--

``(1) In general.--For purposes of this section, the alcohol fuel mixture credit is the product of the applicable amount and the number of gallons of alcohol used by the taxpayer in producing any alcohol fuel mixture for sale or use in a trade or business of the taxpayer.

``(2) Applicable amount.--For purposes of this subsection--

``(A) In general.--Except as provided in subparagraph (B), the applicable amount is 52 cents (51 cents in the case of any sale or use after 2004).

``(B) Mixtures not containing ethanol.--In the case of an alcohol fuel mixture in which none of the alcohol consists of ethanol, the applicable amount is 60 cents.

``(3) Alcohol fuel mixture.--For purposes of this subsection, the term `alcohol fuel mixture' means a mixture of alcohol and a taxable fuel which--

``(A) is sold by the taxpayer producing such mixture to any person for use as a fuel,

``(B) is used as a fuel by the taxpayer producing such mixture, or

``(C) is removed from the refinery by a person producing such mixture.

``(4) Other definitions.--For purposes of this subsection--

``(A) Alcohol.--The term `alcohol' includes methanol and ethanol but does not include--

``(i) alcohol produced from petroleum, natural gas, or coal

(including peat), or

``(ii) alcohol with a proof of less than 190 (determined without regard to any added denaturants).

Such term also includes an alcohol gallon equivalent of ethyl tertiary butyl ether or other ethers produced from such alcohol.

``(B) Taxable fuel.--The term `taxable fuel' has the meaning given such term by section 4083(a)(1).

``(5) Termination.--This subsection shall not apply to any sale, use, or removal for any period after December 31, 2010.

``(c) Biodiesel Mixture Credit.--

``(1) In general.--For purposes of this section, the biodiesel mixture credit is the product of the applicable amount and the number of gallons of biodiesel used by the taxpayer in producing any biodiesel mixture for sale or use in a trade or business of the taxpayer.

``(2) Applicable amount.--For purposes of this subsection--

``(A) In general.--Except as provided in subparagraph (B), the applicable amount is 50 cents.

``(B) Amount for agri-biodiesel.--In the case of any biodiesel which is agri-biodiesel, the applicable amount is

$1.00.

``(3) Biodiesel mixture.--For purposes of this section, the term `biodiesel mixture' means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which--

``(A) is sold by the taxpayer producing such mixture to any person for use as a fuel,

``(B) is used as a fuel by the taxpayer producing such mixture, or

``(C) is removed from the refinery by a person producing such mixture.

``(4) Certification for biodiesel.--No credit shall be allowed under this section unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.

``(5) Other definitions.--Any term used in this subsection which is also used in section 40A shall have the meaning given such term by section 40A.

``(6) Termination.--This subsection shall not apply to any sale, use, or removal for any period after December 31, 2006.

``(d) Mixture not Used as a Fuel, Etc.--

``(1) Imposition of tax.--If--

``(A) any credit was determined under this section with respect to alcohol or biodiesel used in the production of any alcohol fuel mixture or biodiesel mixture, respectively, and

``(B) any person--

``(i) separates the alcohol or biodiesel from the mixture, or

``(ii) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the applicable amount and the number of gallons of such alcohol or biodiesel.

``(2) Applicable laws.--All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under paragraph (1) as if such tax were imposed by section 4081 and not by this section.

``(e) Coordination With Exemption From Excise Tax.--Rules similar to the rules under section 40(c) shall apply for purposes of this section.''.

(b) Registration Requirement.--Section 4101(a)(1) (relating to registration), as amended by sections 9211 and 9242 of this Act, is amended by inserting ``and every person producing or importing biodiesel (as defined in section 40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))'' after ``4081''.

(c) Additional Amendments.--

(1) Section 40(c) is amended by striking ``subsection

(b)(2), (k), or (m) of section 4041, section 4081(c), or section 4091(c)'' and inserting ``section 4041(b)(2), section 6426, or section 6427(e)''.

(2) Paragraph (4) of section 40(d) is amended to read as follows:

``(4) Volume of alcohol.--For purposes of determining under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), the volume of alcohol shall include the volume of any denaturant

(including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 5 percent of the volume of such alcohol

(including denaturants).''.

(3) Section 40(e)(1) is amended--

(A) by striking ``2007'' in subparagraph (A) and inserting

``2010'', and

(B) by striking ``2008'' in subparagraph (B) and inserting

``2011''.

(4) Section 40(h) is amended--

(A) by striking ``2007'' in paragraph (1) and inserting

``2010'', and

(B) by striking ``, 2006, or 2007'' in the table contained in paragraph (2) and inserting ``through 2010''.

(5) Section 4041(b)(2)(B) is amended by striking ``a substance other than petroleum or natural gas'' and inserting

``coal (including peat)''.

(6) Section 4041 is amended by striking subsection (k).

(7) Section 4081 is amended by striking subsection (c).

(8) Paragraph (2) of section 4083(a) is amended to read as follows:

``(2) Gasoline.--The term `gasoline'--

``(A) includes any gasoline blend, other than qualified methanol or ethanol fuel (as defined in section 4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as defined in section 4041(m)(2)), or a denatured alcohol, and

``(B) includes, to the extent prescribed in regulations--

``(i) any gasoline blend stock, and

``(ii) any product commonly used as an additive in gasoline

(other than alcohol).

For purposes of subparagraph (B)(i), the term `gasoline blend stock' means any petroleum product component of gasoline.''.

(9) Section 6427 is amended by inserting after subsection

(d) the following new subsection:

``(e) Alcohol or Biodiesel Used to Produce Alcohol Fuel and Biodiesel Mixtures or Used as Fuels.--Except as provided in subsection (k)--

``(1) Used to produce a mixture.--If any person produces a mixture described in section 6426 in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit or the biodiesel mixture credit with respect to such mixture.

``(2) Used as fuel.--If alcohol (as defined in section 40(d)(1)) or biodiesel (as defined in section 40A(d)(1)) or agri-biodiesel (as defined in section 40A(d)(2)) which is not in a mixture described in section 6426--

``(A) is used by any person as a fuel in a trade or business, or

``(B) is sold by any person at retail to another person and placed in the fuel tank of such person's vehicle,

the Secretary shall pay (without interest) to such person an amount equal to the alcohol credit (as determined under section 40(b)(2)) or the biodiesel credit (as determined under section 40A(b)(2)) with respect to such fuel.

``(3) Coordination with other repayment provisions.--No amount shall be payable under paragraph (1) with respect to any mixture with respect to which an amount is allowed as a credit under section 6426.

``(4) Termination.--This subsection shall not apply with respect to--

``(A) any alcohol fuel mixture (as defined in section 6426(b)(3)) or alcohol (as so defined) sold or used after December 31, 2010, and

``(B) any biodiesel mixture (as defined in section 6426(c)(3)) or biodiesel (as so defined) or agri-biodiesel

(as so defined) sold or used after December 31, 2006.''.

(10) Section 6427(i)(3) is amended--

(A) by striking ``subsection (f)'' both places it appears in subparagraph (A) and inserting ``subsection (e)(1)'',

(B) by striking ``gasoline, diesel fuel, or kerosene used to produce a qualified alcohol mixture (as defined in section 4081(c)(3))'' in subparagraph (A) and inserting ``a mixture described in section 6426'',

(C) by adding at the end of subparagraph (A) the following new flush sentence: ``In the case of an electronic claim, this subparagraph shall be applied without regard to clause

(i).'',

(D) by striking ``subsection (f)(1)'' in subparagraph (B) and inserting ``subsection (e)(1)'',

(E) by striking ``20 days of the date of the filing of such claim'' in subparagraph (B) and inserting ``45 days of the date of the filing of such claim (20 days in the case of an electronic claim)'', and

(F) by striking ``alcohol mixture'' in the heading and inserting ``alcohol fuel and biodiesel mixture''.

(11) Section 9503(b)(1) is amended by adding at the end the following new flush sentence: ``For purposes of this paragraph, taxes received under sections 4041 and 4081 shall be determined without reduction for credits under section 6426.''.

(12) Section 9503(b)(4), as amended by section 9101 of this Act, is amended--

(A) by adding ``or'' at the end of subparagraph (C),

(B) by striking the comma at the end of subparagraph

(D)(iii) and inserting a period, and

(C) by striking subparagraphs (E) and (F).

(13) The table of sections for subchapter B of chapter 65 is amended by inserting after the item relating to section 6425 the following new item:

``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.

(14) Tariff schedule.--Headings 9901.00.50 and 9901.00.52 of the Harmonized Tariff Schedule of the United States (19 U.S.C. 3007) are each amended in the effective period column by striking ``10/1/2007'' each place it appears and inserting

``1/1/2011''.

(d) Effective Dates.--

(1) In general.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to fuel sold or used after September 30, 2004.

(2) Registration requirement.--The amendment made by subsection (b) shall take effect on April 1, 2005.

(3) Extension of alcohol fuels credit.--The amendments made by paragraphs (3), (4), and (14) of subsection (c) shall take effect on the date of the enactment of this Act.

(4) Repeal of general fund retention of certain alcohol fuels taxes.--The amendments made by subsection (c)(12) shall apply to fuel sold or used after September 30, 2003.

(e) Format for Filing.--The Secretary of the Treasury shall describe the electronic format for filing claims described in section 6427(i)(3)(B) of the Internal Revenue Code of 1986

(as amended by subsection (c)(10)(C)) not later than September 30, 2004.

SEC. 9103. BIODIESEL INCOME TAX CREDIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by inserting after section 40 the following new section:

``SEC. 40A. BIODIESEL USED AS FUEL.

``(a) General Rule.--For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of--

``(1) the biodiesel mixture credit, plus

``(2) the biodiesel credit.

``(b) Definition of Biodiesel Mixture Credit and Biodiesel Credit.--For purposes of this section--

``(1) Biodiesel mixture credit.--

``(A) In general.--The biodiesel mixture credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.

``(B) Qualified biodiesel mixture.--The term `qualified biodiesel mixture' means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which--

``(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

``(ii) is used as a fuel by the taxpayer producing such mixture.

``(C) Sale or use must be in trade or business, etc.--Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account--

``(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and

``(ii) for the taxable year in which such sale or use occurs.

``(D) Casual off-farm production not eligible.--No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.

``(2) Biodiesel credit.--

``(A) In general.--The biodiesel credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel which is not in a mixture with diesel fuel and which during the taxable year--

``(i) is used by the taxpayer as a fuel in a trade or business, or

``(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person's vehicle.

``(B) User credit not to apply to biodiesel sold at retail.--No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).

``(3) Credit for agri-biodiesel.--In the case of any biodiesel which is agri-biodiesel, paragraphs (1)(A) and

(2)(A) shall be applied by substituting `$1.00' for `50 cents'.

``(4) Certification for biodiesel.--No credit shall be allowed under this section unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.

``(c) Coordination With Credit Against Excise Tax.--The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427(e).

``(d) Definitions and Special Rules.--For purposes of this section--

``(1) Biodiesel.--The term `biodiesel' means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet--

``(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

``(B) the requirements of the American Society of Testing and Materials D6751.

``(2) Agri-biodiesel.--The term `agri-biodiesel' means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats.

``(3) Mixture or biodiesel not used as a fuel, etc.--

``(A) Mixtures.--If--

``(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and

``(ii) any person--

``(I) separates the biodiesel from the mixture, or

``(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(1)(A) and the number of gallons of such biodiesel in such mixture.

``(B) Biodiesel.--If--

``(i) any credit was determined under this section with respect to the retail sale of any biodiesel, and

``(ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(2)(A) and the number of gallons of such biodiesel.

``(C) Applicable laws.--All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by section 4081 and not by this chapter.

``(4) Pass-thru in the case of estates and trusts.--Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

``(e) Termination.--This section shall not apply to any sale or use after December 31, 2006.''.

(b) Credit Treated as Part of General Business Credit.--Section 38(b) (relating to current year business credit) is amended by striking ``plus'' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting ``, plus'', and by adding at the end the following new paragraph:

``(16) the biodiesel fuels credit determined under section 40A(a).''.

(c) Conforming Amendments.--

(1) Section 39(d) is amended by adding at the end the following new paragraph:

``(11) No carryback of biodiesel fuels credit before effective date.--No portion of the unused business credit for any taxable year which is attributable to the biodiesel fuels credit determined under section 40A may be carried back to a taxable year ending on or before September 30, 2004.''.

(2)(A) Section 87 is amended to read as follows:

``SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.

``Gross income includes--

``(1) the amount of the alcohol fuels credit determined with respect to the taxpayer for the taxable year under section 40(a), and

``(2) the biodiesel fuels credit determined with respect to the taxpayer for the taxable year under section 40A(a).''.

(B) The item relating to section 87 in the table of sections for part II of subchapter B of chapter 1 is amended by striking ``fuel credit'' and inserting ``and biodiesel fuels credits''.

(3) Section 196(c) is amended by striking ``and'' at the end of paragraph (9), by striking the period at the end of paragraph (10) and inserting ``, and'', and by adding at the end the following new paragraph:

``(11) the biodiesel fuels credit determined under section 40A(a).''.

(4) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding after the item relating to section 40 the following new item:

``Sec. 40A. Biodiesel used as fuel.''.

(d) Effective Date.--The amendments made by this section shall apply to fuel produced, and sold or used, after September 30, 2004, in taxable years ending after such date.

Subtitle C--Fuel Fraud Prevention

SEC. 9200. SHORT TITLE.

This subtitle may be cited as the ``Fuel Fraud Prevention Act of 2004''.

PART I--AVIATION JET FUEL

SEC. 9211. TAXATION OF AVIATION-GRADE KEROSENE.

(a) Rate of Tax.--

(1) In general.--Subparagraph (A) of section 4081(a)(2) is amended by striking ``and'' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting

``, and'', and by adding at the end the following new clause:

``(iv) in the case of aviation-grade kerosene, 21.8 cents per gallon.''.

(2) Commercial aviation.--Paragraph (2) of section 4081(a) is amended by adding at the end the following new subparagraph:

``(C) Taxes imposed on fuel used in commercial aviation.--In the case of aviation-grade kerosene which is removed from any refinery or terminal directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax under subparagraph (A)(iv) shall be 4.3 cents per gallon.''.

(3) Nontaxable uses.--

(A) In general.--Section 4082 is amended by redesignating subsections (e) and (f) as subsections (f) and (g), respectively, and by inserting after subsection (d) the following new subsection:

``(e) Aviation-Grade Kerosene.--In the case of aviation-grade kerosene which is exempt from the tax imposed by section 4041(c) (other than by reason of a prior imposition of tax) and which is removed from any refinery or terminal directly into the fuel tank of an aircraft, the rate of tax under section 4081(a)(2)(A)(iv) shall be zero.''.

(B) Conforming amendments.--

(i) Subsection (b) of section 4082 is amended by adding at the end the following new flush sentence: ``The term

`nontaxable use' does not include the use of aviation-grade kerosene in an aircraft.''.

(ii) Section 4082(d) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.

(4) Nonaircraft use of aviation-grade kerosene.--

(A) In general.--Subparagraph (B) of section 4041(a)(1) is amended by adding at the end the following new sentence:

``This subparagraph shall not apply to aviation-grade kerosene.''.

(B) Conforming amendment.--The heading for paragraph (1) of section 4041(a) is amended by inserting ``and kerosene'' after ``diesel fuel''.

(b) Commercial Aviation.--Section 4083 is amended redesignating subsections (b) and (c) as subsections (c) and

(d), respectively, and by inserting after subsection (a) the following new subsection:

``(b) Commercial Aviation.--For purposes of this subpart, the term `commercial aviation' means any use of an aircraft in a business of transporting persons or property for compensation or hire by air, unless properly allocable to any transportation exempt from the taxes imposed by section 4261 and 4271 by reason of section 4281 or 4282 or by reason of section 4261(h).''.

(c) Refunds.--

(1) In general.--Paragraph (4) of section 6427(l) is amended to read as follows:

``(4) Refunds for aviation-grade kerosene.--

``(A) No refund of certain taxes on fuel used in commercial aviation.--In the case of aviation-grade kerosene used in commercial aviation (as defined in section 4083(b)) (other than supplies for vessels or aircraft within the meaning of section 4221(d)(3)), paragraph (1) shall not apply to so much of the tax imposed by section 4081 as is attributable to--

``(i) the Leaking Underground Storage Tank Trust Fund financing rate imposed by such section, and

``(ii) so much of the rate of tax specified in section 4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.

``(B) Payment to ultimate, registered vendor.--With respect to aviation-grade kerosene, if the ultimate purchaser of such kerosene waives (at such time and in such form and manner as the Secretary shall prescribe) the right to payment under paragraph (1) and assigns such right to the ultimate vendor, then the Secretary shall pay the amount which would be paid under paragraph (1) to such ultimate vendor, but only if such ultimate vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).''.

(2) Time for filing claims.--Paragraph (4) of section 6427(i) is amended by striking ``subsection (l)(5)'' and inserting ``paragraph (4)(B) or (5) of subsection (l)''.

(3) Conforming amendment.--Subparagraph (B) of section 6427(l)(2) is amended to read as follows:

``(B) in the case of aviation-grade kerosene--

``(i) any use which is exempt from the tax imposed by section 4041(c) other than by reason of a prior imposition of tax, or

``(ii) any use in commercial aviation (within the meaning of section 4083(b)).''.

(d) Repeal of Prior Taxation of Aviation Fuel.--

(1) In general.--Part III of subchapter A of chapter 32 is amended by striking subpart B and by redesignating subpart C as subpart B.

(2) Conforming amendments.--

(A) Section 4041(c) is amended to read as follows:

``(c) Aviation-Grade Kerosene.--

``(1) In general.--There is hereby imposed a tax upon aviation-grade kerosene--

``(A) sold by any person to an owner, lessee, or other operator of an aircraft for use in such aircraft, or

``(B) used by any person in an aircraft unless there was a taxable sale of such fuel under subparagraph (A).

``(2) Exemption for previously taxed fuel.--No tax shall be imposed by this subsection on the sale or use of any aviation-grade kerosene if tax was imposed on such liquid under section 4081 and the tax thereon was not credited or refunded.

``(3) Rate of tax.--The rate of tax imposed by this subsection shall be the rate of tax specified in section 4081(a)(2)(A)(iv) which is in effect at the time of such sale or use.''.

(B) Section 4041(d)(2) is amended by striking ``section 4091'' and inserting ``section 4081''.

(C) Section 4041 is amended by striking subsection (e).

(D) Section 4041 is amended by striking subsection (i).

(E) Section 4041(m)(1) is amended to read as follows:

``(1) In general.--In the case of the sale or use of any partially exempt methanol or ethanol fuel, the rate of the tax imposed by subsection (a)(2) shall be--

``(A) after September 30, 1997, and before September 30, 2009--

``(i) in the case of fuel none of the alcohol in which consists of ethanol, 9.15 cents per gallon, and

``(ii) in any other case, 11.3 cents per gallon, and

``(B) after September 30, 2009--

``(i) in the case of fuel none of the alcohol in which consists of ethanol, 2.15 cents per gallon, and

``(ii) in any other case, 4.3 cents per gallon.''.

(F) Sections 4101(a), 4103, 4221(a), and 6206 are each amended by striking ``, 4081, or 4091'' and inserting ``or 4081''.

(G) Section 6416(b)(2) is amended by striking ``4091 or''.

(H) Section 6416(b)(3) is amended by striking ``or 4091'' each place it appears.

(I) Section 6416(d) is amended by striking ``or to the tax imposed by section 4091 in the case of refunds described in section 4091(d)''.

(J) Section 6427 is amended by striking subsection (f).

(K) Section 6427(j)(1) is amended by striking ``, 4081, and 4091'' and inserting ``and 4081''.

(L)(i) Section 6427(l)(1) is amended to read as follows:

``(1) In general.--Except as otherwise provided in this subsection and in subsection (k), if any diesel fuel or kerosene on which tax has been imposed by section 4041 or 4081 is used by any person in a nontaxable use, the Secretary shall pay (without interest) to the ultimate purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel under section 4041 or 4081, as the case may be, reduced by any refund paid to the ultimate vendor under paragraph (4)(B).''.

(ii) Paragraph (5)(B) of section 6427(l) is amended by striking ``Paragraph (1)(A) shall not apply to kerosene'' and inserting ``Paragraph (1) shall not apply to kerosene (other than aviation-grade kerosene)''.

(M) Subparagraph (B) of section 6724(d)(1) is amended by striking clause (xv) and by redesignating the succeeding clauses accordingly.

(N) Paragraph (2) of section 6724(d) is amended by striking subparagraph (W) and by redesignating the succeeding subparagraphs accordingly.

(O) Paragraph (1) of section 9502(b) is amended by adding

``and'' at the end of subparagraph (B) and by striking subparagraphs (C) and (D) and inserting the following new subparagraph:

``(C) section 4081 with respect to aviation gasoline and aviation-grade kerosene, and''.

(P) The last sentence of section 9502(b) is amended to read as follows: ``There shall not be taken into account under paragraph (1) so much of the taxes imposed by section 4081 as are determined at the rate specified in section 4081(a)(2)(B).''.

(Q) Subsection (b) of section 9508 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

(R) Section 9508(c)(2)(A) is amended by striking ``sections 4081 and 4091'' and inserting ``section 4081''.

(S) The table of subparts for part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart A. motor and aviation fuels

``Subpart B. special provisions applicable to fuels tax''.

(T) The heading for subpart A of part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart A--Motor and Aviation Fuels''.

(U) The heading for subpart B of part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart B--Special Provisions Applicable to Fuels Tax''.

(e) Effective Date.--The amendments made by this section shall apply to aviation-grade kerosene removed, entered, or sold after September 30, 2004.

(f) Floor Stocks Tax.--

(1) In general.--There is hereby imposed on aviation-grade kerosene held on October 1, 2004, by any person a tax equal to--

(A) the tax which would have been imposed before such date on such kerosene had the amendments made by this section been in effect at all times before such date, reduced by

(B) the tax imposed before such date under section 4091 of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act.

(2) Liability for tax and method of payment.--

(A) Liability for tax.--The person holding the kerosene on October 1, 2004, to which the tax imposed by paragraph (1) applies shall be liable for such tax.

(B) Method and time for payment.--The tax imposed by paragraph (1) shall be paid at such time and in such manner as the Secretary of the Treasury shall prescribe, including the nonapplication of such tax on de minimis amounts of kerosene.

(3) Transfer of floor stock tax revenues to trust funds.--For purposes of determining the amount transferred to any trust fund, the tax imposed by this subsection shall be treated as imposed by section 4081 of the Internal Revenue Code of 1986--

(A) at the Leaking Underground Storage Tank Trust Fund financing rate under such section to the extent of 0.1 cents per gallon, and

(B) at the rate under section 4081(a)(2)(A)(iv) to the extent of the remainder.

(4) Held by a person.--For purposes of this section, kerosene shall be considered as held by a person if title thereto has passed to such person (whether or not delivery to the person has been made).

(5) Other laws applicable.--All provisions of law, including penalties, applicable with respect to the tax imposed by section 4081 of such Code shall, insofar as applicable and not inconsistent with the provisions of this subsection, apply with respect to the floor stock tax imposed by paragraph (1) to the same extent as if such tax were imposed by such section.

SEC. 9212. TRANSFER OF CERTAIN AMOUNTS FROM THE AIRPORT AND

AIRWAY TRUST FUND TO THE HIGHWAY TRUST FUND TO

REFLECT HIGHWAY USE OF JET FUEL.

(a) In General.--Section 9502(d) is amended by adding at the end the following new paragraph:

``(7) Transfers from the trust fund to the highway trust fund.--

``(A) In general.--The Secretary shall pay annually from the Airport and Airway Trust Fund into the Highway Trust Fund an amount (as determined by him) equivalent to amounts received in the Airport and Airway Trust Fund which are attributable to fuel that is used primarily for highway transportation purposes.

``(B) Amounts transferred to mass transit account.--The Secretary shall transfer 11 percent of the amounts paid into the Highway Trust Fund under subparagraph (A) to the Mass Transit Account established under section 9503(e).''.

(b) Conforming Amendments.--

(1) Subsection (a) of section 9503 is amended--

(A) by striking ``appropriated or credited'' and inserting

``paid, appropriated, or credited'', and

(B) by striking ``or section 9602(b)'' and inserting ``, section 9502(d)(7), or section 9602(b)''.

(2) Subsection (e)(1) of section 9503 is amended by striking ``or section 9602(b)'' and inserting ``, section 9502(d)(7), or section 9602(b)''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

PART II--DYED FUEL

SEC. 9221. DYE INJECTION EQUIPMENT.

(a) In General.--Section 4082(a)(2) (relating to exemptions for diesel fuel and kerosene) is amended by inserting ``by mechanical injection'' after ``indelibly dyed''.

(b) Dye Injector Security.--Not later than June 30, 2004, the Secretary of the Treasury shall issue regulations regarding mechanical dye injection systems described in the amendment made by subsection (a), and such regulations shall include standards for making such systems tamper resistant.

(c) Penalty for Tampering With or Failing to Maintain Security Requirements for Mechanical Dye Injection Systems.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties) is amended by adding after section 6715 the following new section:

``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY

REQUIREMENTS FOR MECHANICAL DYE INJECTION

SYSTEMS.

``(a) Imposition of Penalty.--

``(1) Tampering.--If any person tampers with a mechanical dye injection system used to indelibly dye fuel for purposes of section 4082, then such person shall pay a penalty in addition to the tax (if any).

``(2) Failure to maintain security requirements.--If any operator of a mechanical dye injection system used to indelibly dye fuel for purposes of section 4082 fails to maintain the security standards for such system as established by the Secretary, then such operator shall pay a penalty.

``(b) Amount of Penalty.--The amount of the penalty under subsection (a) shall be--

``(1) for each violation described in paragraph (1), the greater of--

``(A) $25,000, or

``(B) $10 for each gallon of fuel involved, and

``(2) for each--

``(A) failure to maintain security standards described in paragraph (2), $1,000, and

``(B) failure to correct a violation described in paragraph

(2), $1,000 per day for each day after which such violation was discovered or such person should have reasonably known of such violation.

``(c) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by adding after the item related to section 6715 the following new item:

``Sec. 6715A. Tampering with or failing to maintain security requirements for mechanical dye injection systems.''.

(d) Effective Date.--The amendments made by subsections (a) and (c) shall take effect 180 days after the date on which the Secretary issues the regulations described in subsection

(b).

SEC. 9222. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE

USE OF DYED FUEL.

(a) In General.--Section 6715 is amended by inserting at the end the following new subsection:

``(e) No Administrative Appeal for Third and Subsequent Violations.--In the case of any person who is found to be subject to the penalty under this section after a chemical analysis of such fuel and who has been penalized under this section at least twice after the date of the enactment of this subsection, no administrative appeal or review shall be allowed with respect to such finding except in the case of a claim regarding--

``(1) fraud or mistake in the chemical analysis, or

``(2) mathematical calculation of the amount of the penalty.''.

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

SEC. 9223. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL

MIXTURES.

(a) In General.--Section 6715(a) (relating to dyed fuel sold for use or used in taxable use, etc.) is amended by striking ``or'' in paragraph (2), by inserting ``or'' at the end of paragraph (3), and by inserting after paragraph (3) the following new paragraph:

``(4) any person who has knowledge that a dyed fuel which has been altered as described in paragraph (3) sells or holds for sale such fuel for any use which the person knows or has reason to know is not a nontaxable use of such fuel,''.

(b) Conforming Amendment.--Section 6715(a)(3) is amended by striking ``alters, or attempts to alter,'' and inserting

``alters, chemically or otherwise, or attempts to so alter,''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9224. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.

(a) In General.--Paragraph (3) of section 4082(b) (relating to nontaxable use) is amended to read as follows:

``(3) any use described in section 4041(a)(1)(C)(iii)(II).''.

(b) Ultimate Vendor Refund.--Subsection (b) of section 6427 is amended by adding at the end the following new paragraph:

``(4) Refunds for use of diesel fuel in certain intercity buses.--

``(A) In general.--With respect to any fuel to which paragraph (2)(A) applies, if the ultimate purchaser of such fuel waives (at such time and in such form and manner as the Secretary shall prescribe) the right to payment under paragraph (1) and assigns such right to the ultimate vendor, then the Secretary shall pay the amount which would be paid under paragraph (1) to such ultimate vendor, but only if such ultimate vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).

``(B) Credit cards.--For purposes of this paragraph, if the sale of such fuel is made by means of a credit card, the person extending credit to the ultimate purchaser shall be deemed to be the ultimate vendor.''.

(c) Payment of Refunds.--Subparagraph (A) of section 6427(i)(4), as amended by section 9211 of this Act, is amended by inserting ``subsections (b)(4) and'' after ``filed under''.

(b) Effective Date.--The amendments made by this section shall apply to fuel sold after September 30, 2004.

PART III--MODIFICATION OF INSPECTION OF RECORDS PROVISIONS

SEC. 9231. AUTHORITY TO INSPECT ON-SITE RECORDS.

(a) In General.--Section 4083(d)(1)(A) (relating to administrative authority), as amended by section 9211 of this Act, is amended by striking ``and'' at the end of clause (i) and by inserting after clause (ii) the following new clause:

``(iii) inspecting any books and records and any shipping papers pertaining to such fuel, and''.

(b) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9232. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.

(a) In General.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9221 of this Act, is amended by adding at the end the following new section:

``SEC. 6717. REFUSAL OF ENTRY.

``(a) In General.--In addition to any other penalty provided by law, any person who refuses to admit entry or refuses to permit any other action by the Secretary authorized by section 4083(d)(1) shall pay a penalty of

$1,000 for such refusal.

``(b) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(b) Conforming Amendments.--

(1) Section 4083(d)(3), as amended by section 9211 of this Act, is amended--

(A) by striking ``entry.--The penalty'' and inserting:

``entry.--

``(A) Forfeiture.--The penalty'', and

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

``(B) Assessable penalty.--For additional assessable penalty for the refusal to admit entry or other refusal to permit an action by the Secretary authorized by paragraph

(1), see section 6717.''.

(2) The table of sections for part I of subchapter B of chapter 68, as amended by section 9221 of this Act, is amended by adding at the end the following new item:

``Sec. 6717. Refusal of entry.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

PART IV--REGISTRATION AND REPORTING REQUIREMENTS

SEC. 9241. REGISTRATION OF PIPELINE OR VESSEL OPERATORS

REQUIRED FOR EXEMPTION OF BULK TRANSFERS TO

REGISTERED TERMINALS OR REFINERIES.

(a) In General.--Section 4081(a)(1)(B) (relating to exemption for bulk transfers to registered terminals or refineries) is amended--

(1) by inserting ``by pipeline or vessel'' after

``transferred in bulk'', and

(2) by inserting ``, the operator of such pipeline or vessel,'' after ``the taxable fuel''.

(b) Civil Penalty for Carrying Taxable Fuels by Nonregistered Pipelines or Vessels.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9232 of this Act, is amended by adding at the end the following new section:

``SEC. 6718. CARRYING TAXABLE FUELS BY NONREGISTERED

PIPELINES OR VESSELS.

``(a) Imposition of Penalty.--If any person knowingly transfers any taxable fuel (as defined in section 4083(a)(1)) in bulk pursuant to section 4081(a)(1)(B) to an unregistered, such person shall pay a penalty in addition to the tax (if any).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraph (2), the amount of the penalty under subsection (a) on each act shall be an amount equal to the greater of--

``(A) $10,000, or

``(B) $1 per gallon.

``(2) Multiple violations.--In determining the penalty under subsection (a) on any person, paragraph (1) shall be applied by increasing the amount in paragraph (1) by the product of such amount and the number of prior penalties (if any) imposed by this section on such person (or a related person or any predecessor of such person or related person).

``(c) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.

``(d) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9232 of this Act, is amended by adding at the end the following new item:

``Sec. 6718. Carrying taxable fuels by nonregistered pipelines or vessels.''.

(c) Publication of Registered Persons.--Not later than June 30, 2004, the Secretary of the Treasury shall publish a list of persons required to be registered under section 4101 of the Internal Revenue Code of 1986.

(d) Effective Date.--The amendments made by subsections (a) and (b) shall take effect on October 1, 2004.

SEC. 9242. DISPLAY OF REGISTRATION.

(a) In General.--Subsection (a) of section 4101 (relating to registration) is amended--

(1) by striking ``Every'' and inserting the following:

``(1) In general.--Every'', and

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

``(2) Display of registration.--Every operator of a vessel required by the Secretary to register under this section shall display proof of registration through an electronic identification device prescribed by the Secretary on each vessel used by such operator to transport any taxable fuel.''.

(b) Civil Penalty for Failure to Display Registration.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9241 of this Act, is amended by adding at the end the following new section:

``SEC. 6719. FAILURE TO DISPLAY REGISTRATION OF VESSEL.

``(a) Failure to Display Registration.--Every operator of a vessel who fails to display proof of registration pursuant to section 4101(a)(2) shall pay a penalty of $500 for each such failure. With respect to any vessel, only one penalty shall be imposed by this section during any calendar month.

``(b) Multiple Violations.--In determining the penalty under subsection (a) on any person, subsection (a) shall be applied by increasing the amount in subsection (a) by the product of such amount and the number of prior penalties (if any) imposed by this section on such person (or a related person or any predecessor of such person or related person).

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9241 of this Act, is amended by adding at the end the following new item:

``Sec. 6719. Failure to display registration of vessel.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9243. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE

ZONES, ETC.

(a) In General.--Section 4101(a), as amended by section 9242 of this Act, is amended by redesignating paragraph (2) as paragraph (3), and by inserting after paragraph (1) the following new paragraph:

``(2) Registration of persons within foreign trade zones, etc.--The Secretary shall require registration by any person which--

``(A) operates a terminal or refinery within a foreign trade zone or within a customs bonded storage facility, or

``(B) holds an inventory position with respect to a taxable fuel in such a terminal.''.

(b) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9244. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO

REPORT.

(a) Increased Penalty.--Subsection (a) of section 7272

(relating to penalty for failure to register) is amended by inserting ``($10,000 in the case of a failure to register under section 4101)'' after ``$50''.

(b) Increased Criminal Penalty.--Section 7232 (relating to failure to register under section 4101, false representations of registration status, etc.) is amended by striking

``$5,000'' and inserting ``$10,000''.

(c) Assessable Penalty for Failure to Register.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9242 of this Act, is amended by adding at the end the following new section:

``SEC. 6720. FAILURE TO REGISTER.

``(a) Failure to Register.--Every person who is required to register under section 4101 and fails to do so shall pay a penalty in addition to the tax (if any).

``(b) Amount of Penalty.--The amount of the penalty under subsection (a) shall be--

``(1) $10,000 for each initial failure to register, and

``(2) $1,000 for each day thereafter such person fails to register.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9242 of this Act, is amended by adding at the end the following new item:

``Sec. 6720. Failure to register.''.

(d) Assessable Penalty for Failure to Report.--

(1) In general.--Part II of subchapter B of chapter 68

(relating to assessable penalties) is amended by adding at the end the following new section:

``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION

4101.

``(a) In General.--In the case of each failure described in subsection (b) by any person with respect to a vessel or facility, such person shall pay a penalty of $10,000 in addition to the tax (if any).

``(b) Failures Subject to Penalty.--For purposes of subsection (a), the failures described in this subsection are--

``(1) any failure to make a report under section 4101(d) on or before the date prescribed therefor, and

``(2) any failure to include all of the information required to be shown on such report or the inclusion of incorrect information.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part II of subchapter B of chapter 68 is amended by adding at the end the following new item:

``Sec. 6725. Failure to report information under section 4101.''.

(e) Effective Date.--The amendments made by this section shall apply to failures pending or occurring after September 30, 2004.

SEC. 9245. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN

TAX BENEFITS.

(a) In General.--Subpart C of part III of subchapter A of chapter 32 is amended by adding at the end the following new section:

``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING

CERTAIN TAX BENEFITS.

``(a) In General.--The Secretary shall require any person claiming tax benefits--

``(1) under the provisions of section 34, 40, and 40A to file a return at the time such person claims such benefits

(in such manner as the Secretary may prescribe), and

``(2) under the provisions of section 4041(b)(2), 6426, or 6427(e) to file a monthly return (in such manner as the Secretary may prescribe).

``(b) Contents of Return.--Any return filed under this section shall provide such information relating to such benefits and the coordination of such benefits as the Secretary may require to ensure the proper administration and use of such benefits.

``(c) Enforcement.--With respect to any person described in subsection (a) and subject to registration requirements under this title, rules similar to rules of section 4222(c) shall apply with respect to any requirement under this section.''.

(b) Conforming Amendment.--The table of sections for subpart C of part III of subchapter A of chapter 32 is amended by adding at the end the following new item:

``Sec. 4104. Information reporting for persons claiming certain tax benefits.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9246. ELECTRONIC REPORTING.

(a) In General.--Section 4101(d), as amended by section 9273 of this Act, is amended by adding at the end the following new sentence: ``Any person who is required to report under this subsection and who has 25 or more reportable transactions in a month shall file such report in electronic format.''.

(b) Effective Date.--The amendments made by this section shall apply on October 1, 2004.

PART V--IMPORTS

SEC. 9251. TAX AT POINT OF ENTRY WHERE IMPORTER NOT

REGISTERED.

(a) Tax at Point of Entry Where Importer not Registered.--

(1) In general.--Subpart C of part III of subchapter A of chapter 31, as amended by section 9245 of this Act, is amended by adding at the end the following new section:

``SEC. 4105. TAX AT ENTRY WHERE IMPORTER NOT REGISTERED.

``(a) In General.--Any tax imposed under this part on any person not registered under section 4101 for the entry of a fuel into the United States shall be imposed at the time and point of entry.

``(b) Enforcement of Assessment.--If any person liable for any tax described under subsection (a) has not paid the tax or posted a bond, the Secretary may--

``(1) seize the fuel on which the tax is due, or

``(2) detain any vehicle transporting such fuel,

until such tax is paid or such bond is filed.

``(c) Levy of Fuel.--If no tax has been paid or no bond has been filed within 5 days from the date the Secretary seized fuel pursuant to subsection (b), the Secretary may sell such fuel as provided under section 6336.''.

(2) Conforming amendment.--The table of sections for subpart C of part III of subchapter A of chapter 31 of the Internal Revenue Code of 1986, as amended by section 9245 of this Act, is amended by adding after the last item the following new item:

``Sec. 4105. Tax at entry where importer not registered.''.

(b) Denial of Entry Where Tax not Paid.--The Secretary of Homeland Security is authorized to deny entry into the United States of any shipment of a fuel which is taxable under section 4081 of the Internal Revenue Code of 1986 if the person entering such shipment fails to pay the tax imposed under such section or post a bond in accordance with the provisions of section 4105 of such Code.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9252. RECONCILIATION OF ON-LOADED CARGO TO ENTERED

CARGO.

(a) In General.--Subsection (a) of section 343 of the Trade Act of 2002 is amended by inserting at the end the following new paragraph:

``(4) In general.--Subject to paragraphs (2) and (3), not later than 1 year after the enactment of this paragraph, the Secretary of Homeland Security, together with the Secretary of the Treasury, shall promulgate regulations providing for the transmission to the Internal Revenue Service, through an electronic data interchange system, of information pertaining to cargo of taxable fuels (as defined in section 4083 of the Internal Revenue Code of 1986) destined for importation into the United States prior to such importation.''.

(b) Effective Date.--The amendment made by this section shall take effect on the date of the enactment of this Act.

PART VI--MISCELLANEOUS PROVISIONS

SEC. 9261. TAX ON SALE OF DIESEL FUEL WHETHER SUITABLE FOR

USE OR NOT IN A DIESEL-POWERED VEHICLE OR

TRAIN.

(a) In General.--Section 4083(a)(3) is amended--

(1) by striking ``The term'' and inserting the following:

``(A) In general.--The term'', and

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

``(B) Liquid sold as diesel fuel.--The term `diesel fuel' includes any liquid which is sold as or offered for sale as a fuel in a diesel-powered highway vehicle or a diesel-powered train.''.

(b) Conforming Amendments.--

(1) Section 40A(b)(1)(B), as amended by section 9103 of this Act, is amended by striking ``4083(a)(3)'' and inserting

``4083(a)(3)(A)''.

(2) Section 6426(c)(3), as added by section 5102 of this Act, is amended by striking ``4083(a)(3)'' and inserting

``4083(a)(3)(A)''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9262. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH

RESPECT TO FARMING.

(a) In General.--

(1) Refunds.--Section 6427(l) is amended by adding at the end the following new paragraph:

``(6) Registered vendors permitted to administer certain claims for refund of diesel fuel and kerosene sold to farmers.--

``(A) In general.--In the case of diesel fuel or kerosene used on a farm for farming purposes (within the meaning of section 6420(c)), paragraph (1) shall not apply to the aggregate amount of such diesel fuel or kerosene if such amount does not exceed 500 gallons (as determined under subsection (i)(5)(A)(iii)).

``(B) Payment to ultimate vendor.--The amount which would

(but for subparagraph (A)) have been paid under paragraph (1) with respect to any fuel shall be paid to the ultimate vendor of such fuel, if such vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).''.

(2) Filing of claims.--Section 6427(i) is amended by inserting at the end the following new paragraph:

``(5) Special rule for vendor refunds with respect to farmers.--

``(A) In general.--A claim may be filed under subsection

(l)(6) by any person with respect to fuel sold by such person for any period--

``(i) for which $200 or more ($100 or more in the case of kerosene) is payable under subsection (l)(6),

``(ii) which is not less than 1 week, and

``(iii) which is for not more than 500 gallons for each farmer for which there is a claim.

Notwithstanding subsection (l)(1), paragraph (3)(B) shall apply to claims filed under the preceding sentence.

``(B) Time for filing claim.--No claim filed under this paragraph shall be allowed unless filed on or before the last day of the first quarter following the earliest quarter included in the claim.''.

(3) Conforming amendments.--

(A) Section 6427(l)(5)(A) is amended to read as follows:

``(A) In general.--Paragraph (1) shall not apply to diesel fuel or kerosene used by a State or local government.''.

(B) The heading for section 6427(l)(5) is amended by striking ``farmers and''.

(b) Effective Date.--The amendment made by this section shall apply to fuels sold for nontaxable use after the date of the enactment of this Act.

SEC. 9263. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

(a) In General.--Paragraph (4) of section 6416(a) (relating to abatements, credits, and refunds) is amended to read as follows:

``(4) Registered ultimate vendor to administer credits and refunds of gasoline tax.--

``(A) In general.--For purposes of this subsection, if an ultimate vendor purchases any gasoline on which tax imposed by section 4081 has been paid and sells such gasoline to an ultimate purchaser described in subparagraph (C) or (D) of subsection (b)(2) (and such gasoline is for a use described in such subparagraph), such ultimate vendor shall be treated as the person (and the only person) who paid such tax, but only if such ultimate vendor is registered under section 4101. For purposes of this subparagraph, if the sale of gasoline is made by means of a credit card, the person extending the credit to the ultimate purchaser shall be deemed to be the ultimate vendor.

``(B) Timing of claims.--The procedure and timing of any claim under subparagraph (A) shall be the same as for claims under section 6427(i)(4), except that the rules of section 6427(i)(3)(B) regarding electronic claims shall not apply unless the ultimate vendor has certified to the Secretary for the most recent quarter of the taxable year that all ultimate purchasers of the vendor are certified and entitled to a refund under subparagraph (C) or (D) of subsection (b)(2).''.

(b) Credit Card Purchases of Diesel Fuel or Kerosene by State and Local Governments.--Section 6427(l)(5)(C) (relating to nontaxable uses of diesel fuel, kerosene, and aviation fuel), as amended by section 9252 of this Act, is amended by adding at the end the following new sentence: ``For purposes of this subparagraph, if the sale of diesel fuel or kerosene is made by means of a credit card, the person extending the credit to the ultimate purchaser shall be deemed to be the ultimate vendor.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9264. TWO-PARTY EXCHANGES.

(a) In General.--Subpart C of part III of subchapter A of chapter 32, as amended by section 9251 of this Act, is amended by adding at the end the following new section:

``SEC. 4106. TWO-PARTY EXCHANGES.

``(a) In General.--In a two-party exchange, the delivering person shall not be liable for the tax imposed under of section 4081(a)(1)(A)(ii).

``(b) Two-Party Exchange.--The term `two-party exchange' means a transaction, other than a sale, in which taxable fuel is transferred from a delivering person registered under section 4101 as a taxable fuel registrant to a receiving person who is so registered where all of the following occur:

``(1) The transaction includes a transfer from the delivering person, who holds the inventory position for taxable fuel in the terminal as reflected in the records of the terminal operator.

``(2) The exchange transaction occurs before or contemporaneous with completion of removal across the rack from the terminal by the receiving person.

``(3) The terminal operator in its books and records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction to the Secretary.

``(4) The transaction is the subject of a written contract.''.

(b) Conforming Amendment.--The table of sections for subpart C of part III of subchapter A of chapter 32, as amended by section 9251 of this Act, is amended by adding after the last item the following new item:

``Sec. 4106. Two-party exchanges.''.

(c) Effective Date.--The amendment made by this section shall take effect on the date of the enactment of this Act.

SEC. 9265. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

(a) No Proration of Tax Unless Vehicle Is Destroyed or Stolen.--

(1) In general.--Section 4481(c) (relating to proration of tax) is amended to read as follows:

``(c) Proration of Tax Where Vehicle Sold, Destroyed, or Stolen.--

``(1) In general.--If in any taxable period a highway motor vehicle is sold, destroyed, or stolen before the first day of the last month in such period and not subsequently used during such taxable period, the tax shall be reckoned proportionately from the first day of the month in such period in which the first use of such highway motor vehicle occurs to and including the last day of the month in which such highway motor vehicle was sold, destroyed, or stolen.

``(2) Destroyed.--For purposes of paragraph (1), a highway motor vehicle is destroyed if such vehicle is damaged by reason of an accident or other casualty to such an extent that it is not economic to rebuild.''.

(2) Conforming amendments.--

(A) Section 6156 (relating to installment payment of tax on use of highway motor vehicles) is repealed.

(B) The table of sections for subchapter A of chapter 62 is amended by striking the item relating to section 6156.

(b) Display of Tax Certificate.--Paragraph (2) of section 4481(d) (relating to one tax liability for period) is amended to read as follows:

``(2) Display of tax certificate.--Every taxpayer which pays the tax imposed under this section with respect to a highway motor vehicle shall, not later than 1 month after the due date of the return of tax with respect to each taxable period, receive and display on such vehicle an electronic identification device prescribed by the Secretary.''.

(c) Electronic Filing.--Section 4481, as amended by section 9001 of this Act, is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:

``(e) Electronic Filing.--Any taxpayer who files a return under this section with respect to 25 or more vehicles for any taxable period shall file such return electronically.''.

(d) Repeal of Reduction in Tax for Certain Trucks.--Section 4483 of the Internal Revenue Code of 1986 is amended by striking subsection (f).

(e) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable periods beginning after the date of the enactment of this Act.

(2) Subsection (b).--The amendment made by subsection (b) shall take effect on October 1, 2005.

SEC. 9266. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO

THE HIGHWAY TRUST FUND.

(a) In General.--Subsection (b) of section 9503 (relating to transfer to Highway Trust Fund of amounts equivalent to certain taxes), as amended by section 9001 of this Act, is amended by redesignating paragraph (5) as paragraph (6) and inserting after paragraph (4) the following new paragraph:

``(5) Certain penalties.--There are hereby appropriated to the Highway Trust Fund amounts equivalent to the penalties assessed under sections 6715, 6715A, 6717, 6718, 6719, 6720, 6725, 7232, and 7272 (but only with regard to penalties under such section related to failure to register under section 4101).''.

(b) Conforming Amendments.--

(1) The heading of subsection (b) of section 9503 is amended by inserting ``and Penalties'' after ``Taxes''.

(2) The heading of paragraph (1) of section 9503(b) is amended by striking ``In general'' and inserting ``Certain taxes''.

(c) Effective Date.--The amendments made by this section shall apply to penalties assessed after October 1, 2004.

SEC. 9267. NONAPPLICATION OF EXPORT EXEMPTION TO DELIVERY OF

FUEL TO MOTOR VEHICLES REMOVED FROM UNITED

STATES.

(a) In General.--Section 4221(d)(2) (defining export) is amended by adding at the end the following new sentence:

``Such term does not include the delivery of a taxable fuel

(as defined in section 4083(a)(1)) into a fuel tank of a motor vehicle which is shipped or driven out of the United States.''.

(b) Conforming Amendments.--

(1) Section 4041(g) (relating to other exemptions) is amended by adding at the end the following new sentence:

``Paragraph (3) shall not apply to the sale for delivery of a liquid into a fuel tank of a motor vehicle which is shipped or driven out of the United States.''.

(2) Clause (iv) of section 4081(a)(1)(A) (relating to tax on removal, entry, or sale) is amended by inserting ``or at a duty-free sales enterprise (as defined in section 555(b)(8) of the Tariff Act of 1930)'' after ``section 4101''.

(c) Effective Date.--The amendments made by this section shall apply to sales or deliveries made after the date of the enactment of this Act.

PART VII--TOTAL ACCOUNTABILITY

SEC. 9271. TOTAL ACCOUNTABILITY.

(a) Taxation of Reportable Liquids.--

(1) In general.--Section 4081(a), as amended by this Act, is amended--

(A) by inserting ``or reportable liquid'' after ``taxable fuel'' each place it appears, and

(B) by inserting ``such liquid'' after ``such fuel'' in paragraph (1)(A)(iv).

(2) Rate of tax.--Subparagraph (A) of section 4081(a)(2), as amended by section 9211 of this Act, is amended by striking ``and'' at the end of clause (iii), by striking the period at the end of clause (iv) and inserting ``, and'', and by adding at the end the following new clause:

``(v) in the case of reportable liquids, the rate determined under section 4083(c)(2).''.

(3) Exemption.--Section 4081(a)(1) is amended by adding at the end the following new subparagraph:

``(C) Exemption for registered transfers of reportable liquids.--The tax imposed by this paragraph shall not apply to any removal, entry, or sale of a reportable liquid if--

``(i) such removal, entry, or sale is to a registered person who certifies that such liquid will not be used as a fuel or in the production of a fuel, or

``(ii) the sale is to the ultimate purchaser of such liquid.''.

(4) Reportable liquids.--Section 4083, as amended by this Act, is amended by redesignating subsections (c) and (d) (as redesignated by section 5211 of this Act) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new section:

``(c) Reportable Liquid.--For purposes of this subpart--

``(1) In general.--The term `reportable liquid' means any petroleum-based liquid other than a taxable fuel.

``(2) Taxation.--

``(A) Gasoline blend stocks and additives.--Gasoline blend stocks and additives which are reportable liquids (as defined in paragraph (1)) shall be subject to the rate of tax under clause (i) of section 4081(a)(2)(A).

``(B) Other reportable liquids.--Any reportable liquid (as defined in paragraph (1)) not described in subparagraph (A) shall be subject to the rate of tax under clause (iii) of section 4081(a)(2)(A).''.

(5) Conforming amendments.--

(A) Section 4081(e) is amended by inserting ``or reportable liquid'' after ``taxable fuel''.

(B) Section 4083(d) (relating to certain use defined as removal), as redesignated by paragraph (4), is amended by inserting ``or reportable liquid'' after ``taxable fuel''.

(C) Section 4083(e)(1) (relating to administrative authority), as redesignated by paragraph (4), is amended--

(i) in subparagraph (A)--

(I) by inserting ``or reportable liquid'' after ``taxable fuel'', and

(II) by inserting ``or such liquid'' after ``such fuel'' each place it appears, and

(ii) in subparagraph (B), by inserting ``or any reportable liquid'' after ``any taxable fuel''.

(D) Section 4101(a)(2), as added by section 5243 of this Act, is amended by inserting ``or a reportable liquid'' after

``taxable fuel''.

(E) Section 4101(a)(3), as added by section 5242 of this Act and redesignated by section 5243 of this Act, is amended by inserting ``or any reportable liquid'' before the period at the end.

(F) Section 4102 is amended by inserting ``or any reportable liquid'' before the period at the end.

(G)(i) Section 6718, as added by section 5241 of this Act, is amended--

(I) in subsection (a), by inserting ``or any reportable liquid (as defined in section 4083(c)(1))'' after `` section 4083(a)(1))'', and

(II) in the heading, by inserting ``or reportable liquids'' after ``taxable fuel''.

(ii) The item relating to section 6718 in table of sections for part I of subchapter B of chapter 68, as added by section 5241 of this Act, is amended by inserting ``or reportable liquids'' after ``taxable fuels''.

(H) Section 6427(h) is amended to read as follows:

``(h) Gasoline Blend Stocks or Additives and Reportable Liquids.--Except as provided in subsection (k)--

``(1) if any gasoline blend stock or additive (within the meaning of section 4083(a)(2)) is not used by any person to produce gasoline and such person establishes that the ultimate use of such gasoline blend stock or additive is not to produce gasoline, or

``(2) if any reportable liquid (within the meaning of section 4083(c)(1)) is not used by any person to produce a taxable fuel and such person establishes that the ultimate use of such reportable liquid is not to produce a taxable fuel,

then the Secretary shall pay (without interest) to such person an amount equal to the aggregate amount of the tax imposed on such person with respect to such gasoline blend stock or additive or such reportable fuel.''.

(I) Section 7232, as amended by this Act, is amended by inserting ``or reportable liquid (within the meaning of section 4083(c)(1))'' after ``section 4083)''.

(J) Section 343 of the Trade Act of 2002, as amended by section 9252 of this Act, is amended by inserting ``and reportable liquids (as defined in section 4083(c)(1) of such Code)'' after ``Internal Revenue Code of 1986)''.

(b) Dyed Diesel.--Section 4082(a) is amended by striking

``and'' at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting ``and'', and by inserting after paragraph (3) the following new paragraph:

``(4) which is removed, entered, or sold by a person registered under section 4101.''.

(c) Effective Date.--The amendments made by this section shall apply to reportable liquids (as defined in section 4083(c) of the Internal Revenue Code) and fuel sold or used after September 30, 2004.

SEC. 9272. EXCISE TAX REPORTING.

(a) In General.--Part II of subchapter A of chapter 61 is amended by adding at the end the following new subpart:

``Subpart E--Excise Tax Reporting

``SEC. 6025. RETURNS RELATING TO FUEL TAXES.

``(a) In General.--The Secretary shall require any person liable for the tax imposed under Part III of subchapter A of chapter 32 to file a return of such tax on a monthly basis.

``(b) Information Included With Return.--The Secretary shall require any person filing a return under subsection (a) to provide information regarding any refined product (whether or not such product is taxable under this title) removed from a terminal during the period for which such return applies.''.

(b) Conforming Amendment.--The table of parts for subchapter A of chapter 61 is amended by adding at the end the following new item:

``Subpart E--Excise tax reporting''.

(c) Effective Date.--The amendments made by this section shall apply to fuel sold or used after September 30, 2004.

SEC. 9273. INFORMATION REPORTING.

(a) In General.--Section 4101(d) is amended by adding at the end the following new flush sentence: ``The Secretary shall require reporting under the previous sentence with respect to taxable fuels removed, entered, or transferred from any refinery, pipeline, or vessel which is registered under this section.''.

(b) Effective Date.--The amendment made by this section shall apply on October 1, 2004.

Subtitle D--Definition of Highway Vehicle

SEC. 9301. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE

MACHINERY.

(a) Exemption From Tax on Heavy Trucks and Trailers Sold at Retail.--

(1) In general.--Section 4053 (relating to exemptions) is amended by adding at the end the following new paragraph:

``(8) Mobile machinery.--Any vehicle which consists of a chassis--

``(A) to which there has been permanently mounted (by welding, bolting, riveting, or other means) machinery or equipment to perform a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation if the operation of the machinery or equipment is unrelated to transportation on or off the public highways,

``(B) which has been specially designed to serve only as a mobile carriage and mount (and a power source, where applicable) for the particular machinery or equipment involved, whether or not such machinery or equipment is in operation, and

``(C) which, by reason of such special design, could not, without substantial structural modification, be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis.''.

(2) Effective date.--The amendment made by this subsection shall take effect on the day after the date of the enactment of this Act.

(b) Exemption From Tax on Use of Certain Vehicles.--

(1) In general.--Section 4483 (relating to exemptions) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

``(g) Exemption for Mobile Machinery.--No tax shall be imposed by section 4481 on the use of any vehicle described in section 4053(8).''.

(2) Effective date.--The amendments made by this subsection shall take effect on the day after the date of the enactment of this Act.

(d) Exemption From Fuel Taxes.--

(1) In general.--Section 6421(e)(2) (defining off-highway business use) is amended by adding at the end the following new subparagraph:

``(C) Uses in mobile machinery.--

``(i) In general.--The term `off-highway business use' shall include any use in a vehicle which meets the requirements described in clause (ii).

``(ii) Requirements for mobile machinery.--The requirements described in this clause are--

``(I) the design-based test, and

``(II) the use-based test.

``(iii) Design-based test.--For purposes of clause (ii)(I), the design-based test is met if the vehicle consists of a chassis--

``(I) to which there has been permanently mounted (by welding, bolting, riveting, or other means) machinery or equipment to perform a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation if the operation of the machinery or equipment is unrelated to transportation on or off the public highways,

``(II) which has been specially designed to serve only as a mobile carriage and mount (and a power source, where applicable) for the particular machinery or equipment involved, whether or not such machinery or equipment is in operation, and

``(III) which, by reason of such special design, could not, without substantial structural modification, be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis.

``(iv) Use-based test.--For purposes of clause (ii)(II), the use-based test is met if the use of the vehicle on public highways was less than 5,000 miles during the taxpayer's taxable year.

``(v) Special rule for use by certain tax-exempt organizations.--In the case of any use in a vehicle by an organization which is described in section 501(c) and exempt from tax under section 501(a), clause (ii) shall be applied without regard to subclause (II) thereof.''.

(2) Annual refund of tax paid.--Section 6427(i)(2)

(relating to exceptions) is amended by adding at the end the following new subparagraph:

``(C) Nonapplication of paragraph.--This paragraph shall not apply to any fuel used in any off-highway business use described in section 6421(e)(2)(C).''.

(3) Effective date.--The amendments made by this subsection shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 9302. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.

(a) In General.--Section 7701(a) (relating to definitions) is amended by adding at the end the following new paragraph:

``(48) Off-highway vehicles.--

``(A) Off-highway transportation vehicles.--

``(i) In general.--A vehicle shall not be treated as a highway vehicle if such vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design such vehicle's capability to transport a load over the public highway is substantially limited or impaired.

``(ii) Determination of vehicle's design.--For purposes of clause (i), a vehicle's design is determined solely on the basis of its physical characteristics.

``(iii) Determination of substantial limitation or impairment.--For purposes of clause (i), in determining whether substantial limitation or impairment exists, account may be taken of factors such as the size of the vehicle, whether such vehicle is subject to the licensing, safety, and other requirements applicable to highway vehicles, and whether such vehicle can transport a load at a sustained speed of at least 25 miles per hour. It is immaterial that a vehicle can transport a greater load off the public highway than such vehicle is permitted to transport over the public highway.

``(B) Nontransportation trailers and semitrailers.--A trailer or semitrailer shall not be treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for the carrying on of an off-highway function at an off-highway site.''.

(c) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendment made by this section shall take effect on the date of the enactment of this Act.

(2) Fuel taxes.--With respect to taxes imposed under subchapter B of chapter 31 and part III of subchapter A of chapter 32, the amendment made by this section shall apply to taxable periods beginning after the date of the enactment of this Act.

Subtitle E--Miscellaneous Provisions

SEC. 9401. DEDICATION OF GAS GUZZLER TAX TO HIGHWAY TRUST

FUND.

(a) In General.--Section 9503(b)(1) (relating to transfer to Highway Trust Fund of amounts equivalent to certain taxes), as amended by section 9101 of this Act, is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B) the following new subparagraph:

``(C) section 4064 (relating to gas guzzler tax),''.

(b) Uniform Application of Tax.--Subparagraph (A) of section 4064(b)(1) (defining automobile) is amended by striking the second sentence.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9402. MOTOR FUEL TAX ENFORCEMENT ADVISORY COMMISSION.

(a) Establishment.--There is established a Motor Fuel Tax Enforcement Advisory Commission (in this section referred to as the ``Commission'').

(b) Function.--The Commission shall--

(1) review motor fuel revenue collections, historical and current;

(2) review the progress of investigations;

(3) develop and review legislative proposals with respect to motor fuel taxes;

(4) monitor the progress of administrative regulation projects relating to motor fuel taxes;

(5) review the results of Federal and State agency cooperative efforts regarding motor fuel taxes;

(6) review the results of Federal interagency cooperative efforts regarding motor fuel taxes; and

(7) evaluate and make recommendations regarding--

(A) the effectiveness of existing Federal enforcement programs regarding motor fuel taxes,

(B) enforcement personnel allocation, and

(C) proposals for regulatory projects, legislation, and funding.

(c) Membership.--

(1) Appointment.--The Commission shall be composed of the following representatives appointed by the Chairmen and the Ranking Members of the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives:

(A) At least 1 representative from each of the following Federal entities: the Department of Homeland Security, the Department of Transportation--Office of Inspector General, the Federal Highway Administration, the Department of Defense, and the Department of Justice.

(B) At least 1 representative from the Federation of State Tax Administrators.

(C) At least 1 representative from any State department of transportation.

(D) 2 representatives from the highway construction industry.

(E) 5 representatives from industries relating to fuel distribution -- refiners (2 representatives), distributors (1 representative), pipelines (1 representative), and terminal operators (2 representatives).

(F) 1 representative from the retail fuel industry.

(G) 2 representatives from the staff of the Committee on Finance of the Senate and 2 representatives from the staff of the Committee on Ways and Means of the House of Representatives.

(2) Terms.--Members shall be appointed for the life of the Commission.

(3) Vacancies.--A vacancy in the Commission shall be filled in the manner in which the original appointment was made.

(4) Travel expenses.--Members shall serve without pay but shall receive travel expenses, including per diem in lieu of subsistence, in accordance with sections 5702 and 5703 of title 5, United States Code.

(5) Chairman.--The Chairman of the Commission shall be elected by the members.

(d) Funding.--Such sums as are necessary shall be available from the Highway Trust fund for the expenses of the Commission.

(e) Consultation.--Upon request of the Commission, representatives of the Department of the Treasury and the Internal Revenue Service shall be available for consultation to assist the Commission in carrying out its duties under this section.

(f) Obtaining Data.--The Commission may secure directly from any department or agency of the United States, information (other than information required by any law to be kept confidential by such department or agency) necessary for the Commission to carry out its duties under this section. Upon request of the Commission, the head of that department or agency shall furnish such nonconfidential information to the Commission. The Commission shall also gather evidence through such means as it may deem appropriate, including through holding hearings and soliciting comments by means of Federal Register notices.

(g) Termination.--The Commission shall terminate after September 30, 2009.

SEC. 9403. TREASURY STUDY OF FUEL TAX COMPLIANCE AND

INTERAGENCY COOPERATION.

(a) In General.--Not later than January 31, 2006, the Secretary of the Treasury shall submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives a report regarding fuel tax enforcement which shall include the information and analysis specified in subsections (b) and (c) and any other information and recommendations the Secretary of the Treasury may deem appropriate.

(b) Audits.--With respect to audits conducted by the Internal Revenue Service, the report required under subsection (a) shall include--

(1) the number and geographic distribution of audits conducted annually, by fiscal year, between October 1, 2001, and September 30, 2005;

(2) the total volume involved for each of the taxable fuels covered by such audits and a comparison to the annual production of such fuels;

(3) the staff hours and number of personnel devoted to the audits per year; and

(4) the results of such audits by year, including total tax collected, total penalties collected, and number of referrals for criminal prosecution.

(c) Enforcement Activities.--With respect to enforcement activities, the report required under subsection (a) shall include--

(1) the number and geographic distribution of criminal investigations and prosecutions annually, by fiscal year, between October 1, 2001, and September 30, 2005, and the results of such investigations and prosecutions;

(2) to the extent such investigations and prosecutions involved other agencies, State or Federal, a breakdown by agency of the number of joint investigations involved;

(3) an assessment of the effectiveness of joint action and cooperation between the Department of the Treasury and other Federal and State agencies, including a discussion of the ability and need to share information across agencies for both civil and criminal Federal tax enforcement and enforcement of State or Federal laws relating to fuels;

(4) the staff hours and number of personnel devoted to criminal investigations and prosecutions per year;

(5) the staff hours and number of personnel devoted to administrative collection of fuel taxes; and

(6) the results of administrative collection efforts annually, by fiscal year, between October 1, 2001, and September 30, 2005.

SEC. 9404. TREASURY STUDY OF HIGHWAY FUELS USED BY TRUCKS FOR

NON-TRANSPORTATION PURPOSES.

(a) Study.--The Secretary of the Treasury shall conduct a study regarding the use of highway motor fuel by trucks that is not used for the propulsion of the vehicle. As part of such study--

(1) in the case of vehicles carrying equipment that is unrelated to the transportation function of the vehicle--

(A) the Secretary of the Treasury, in consultation with the Secretary of Transportation, and with public notice and comment, shall determine the average annual amount of tax paid fuel consumed per vehicle, by type of vehicle, used by the propulsion engine to provide the power to operate the equipment attached to the highway vehicle, and

(B) the Secretary of the Treasury shall review the technical and administrative feasibility of exempting such nonpropulsive use of highway fuels for the highway motor fuels excise taxes,

(2) in the case where non-transportation equipment is run by a separate motor--

(A) the Secretary of the Treasury shall determine the annual average amount of fuel exempted from tax in the use of such equipment by equipment type, and

(B) the Secretary of the Treasury shall review issues of administration and compliance related to the present-law exemption provided for such fuel use, and

(3) the Secretary of the Treasury shall--

(A) estimate the amount of taxable fuel consumed by trucks and the emissions of various pollutants due to the long-term idling of diesel engines, and

(B) determine the cost of reducing such long-term idling through the use of plug-ins at truck stops, auxiliary power units, or other technologies.

(b) Report.--Not later than January 1, 2006, the Secretary of the Treasury shall report the findings of the study required under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives.

SEC. 9405. TREATMENT OF EMPLOYER-PROVIDED TRANSIT AND VAN

POOLING BENEFITS.

(a) In General.--Subparagraph (A) of section 132(f)(2)

(relating to limitation on exclusion) is amended by striking

``$100'' and inserting ``$120''.

(b) Inflation Adjustment Conforming Amendments.--The last sentence of section 132(f)(6)(A) (relating to inflation adjustment) is amended--

(1) by striking ``2002'' and inserting ``2005'', and

(2) by striking ``2001'' and inserting ``2004''.

(c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

SEC. 9406. STUDY OF INCENTIVES FOR PRODUCTION OF BIODIESEL.

(a) Study.--The General Comptroller of the United States shall conduct a study related to biodiesel fuels and the tax credit for biodiesel fuels established under this Act. Such study shall include--

(1) an assessment on whether such credit provides sufficient assistance to the producers of biodiesel fuel to establish the fuel as a viable energy alternative in the current market place,

(2) an assessment on how long such credit or similar subsidy would have to remain in effect before biodiesel fuel can compete in the market place without such assistance,

(3) a cost-benefit analysis of such credit, comparing the cost of the credit in forgone revenue to the benefits of lower fuel costs for consumers, increased profitability for the biodiesel industry, increased farm income, reduced program outlays from the Department of Agriculture, and the improved environmental conditions through the use of biodiesel fuel, and

(4) an assessment on whether such credit results in any unintended consequences for unrelated industries, including the impact, if any, on the glycerin market.

(b) Report.--Not later than 2 years after the date of the enactment of this Act, the Comptroller General of the United States shall report the findings of the study required under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives.

Subtitle F--Provisions Designed to Curtail Tax Shelters

SEC. 9501. 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. 9502. PENALTY FOR FAILING TO DISCLOSE REPORTABLE

TRANSACTION.

(a) In General.--Part I of subchapter B of chapter 68

(relating to assessable penalties) is amended by inserting after section 6707 the following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE

TRANSACTION INFORMATION WITH RETURN OR

STATEMENT.

``(a) Imposition of Penalty.--Any person who fails to include on any return or statement any information with respect to a reportable transaction which is required under section 6011 to be included with such return or statement shall pay a penalty in the amount determined under subsection

(b).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraphs (2) and

(3), the amount of the penalty under subsection (a) shall be

$50,000.

``(2) Listed transaction.--The amount of the penalty under subsection (a) with respect to a listed transaction shall be

$100,000.

``(3) Increase in penalty for large entities and high net worth individuals.--

``(A) In general.--In the case of a failure under subsection (a) by--

``(i) a large entity, or

``(ii) a high net worth individual,

the penalty under paragraph (1) or (2) shall be twice the amount determined without regard to this paragraph.

``(B) Large entity.--For purposes of subparagraph (A), the term `large entity' means, with respect to any taxable year, a person (other than a natural person) with gross receipts in excess of $10,000,000 for the taxable year in which the reportable transaction occurs or the preceding taxable year. Rules similar to the rules of paragraph (2) and subparagraphs

(B), (C), and (D) of paragraph (3) of section 448(c) shall apply for purposes of this subparagraph.

``(C) High net worth individual.--For purposes of subparagraph (A), the term `high net worth individual' means, with respect to a reportable transaction, a natural person whose net worth exceeds $2,000,000 immediately before the transaction.

``(c) Definitions.--For purposes of this section--

``(1) Reportable transaction.--The term `reportable transaction' means any transaction with respect to which information is required to be included with a return or statement because, as determined under regulations prescribed under section 6011, such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.

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

``(d) Authority to Rescind Penalty.--

``(1) In general.--The Commissioner of Internal Revenue may rescind all or any portion of any penalty imposed by this section with respect to any violation if--

``(A) the violation is with respect to a reportable transaction other than a listed transaction,

``(B) the person on whom the penalty is imposed has a history of complying with the requirements of this title,

``(C) it is shown that the violation is due to an unintentional mistake of fact;

``(D) imposing the penalty would be against equity and good conscience, and

``(E) rescinding the penalty would promote compliance with the requirements of this title and effective tax administration.

``(2) Discretion.--The exercise of authority under paragraph (1) shall be at the sole discretion of the Commissioner and may be delegated only to the head of the Office of Tax Shelter Analysis. The Commissioner, in the Commissioner's sole discretion, may establish a procedure to determine if a penalty should be referred to the Commissioner or the head of such Office for a determination under paragraph (1).

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

``(4) Records.--If a penalty is rescinded under paragraph

(1), the Commissioner shall place in the file in the Office of the Commissioner the opinion of the Commissioner or the head of the Office of Tax Shelter Analysis with respect to the determination, including--

``(A) the facts and circumstances of the transaction,

``(B) the reasons for the rescission, and

``(C) the amount of the penalty rescinded.

``(5) Report.--The Commissioner shall each year report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate--

``(A) a summary of the total number and aggregate amount of penalties imposed, and rescinded, under this section, and

``(B) a description of each penalty rescinded under this subsection and the reasons therefor.

``(e) Penalty Reported to SEC.--In the case of a person--

``(1) which is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 or is required to be consolidated with another person for purposes of such reports, and

``(2) which--

``(A) is required to pay a penalty under this section with respect to a listed transaction,

``(B) is required to pay a penalty under section 6662A with respect to any reportable transaction at a rate prescribed under section 6662A(c), or

``(C) is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction,

the requirement to pay such penalty shall be disclosed in such reports filed by such person for such periods as the Secretary shall specify. Failure to make a disclosure in accordance with the preceding sentence shall be treated as a failure to which the penalty under subsection (b)(2) applies.

``(f) Coordination With Other Penalties.--The penalty imposed by this section is in addition to any penalty imposed under this title.''.

(b) Conforming Amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by inserting after the item relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to include reportable transaction information with return or statement.''.

(c) Effective Date.--The amendments made by this section shall apply to returns and statements the due date for which is after the date of the enactment of this Act.

SEC. 9503. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS

AND OTHER REPORTABLE TRANSACTIONS HAVING A

SIGNIFICANT TAX AVOIDANCE PURPOSE.

(a) In General.--Subchapter A of chapter 68 is amended by inserting after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON

UNDERSTATEMENTS WITH RESPECT TO REPORTABLE

TRANSACTIONS.

``(a) Imposition of Penalty.--If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20 percent of the amount of such understatement.

``(b) Reportable Transaction Understatement.--For purposes of this section--

``(1) In general.--The term `reportable transaction understatement' means the sum of--

``(A) the product of--

``(i) the amount of the increase (if any) in taxable income which results from a difference between the proper tax treatment of an item to which this section applies and the taxpayer's treatment of such item (as shown on the taxpayer's return of tax), and

``(ii) the highest rate of tax imposed by section 1

(section 11 in the case of a taxpayer which is a corporation), and

``(B) the amount of the decrease (if any) in the aggregate amount of credits determined under subtitle A which results from a difference between the taxpayer's treatment of an item to which this section applies (as shown on the taxpayer's return of tax) and the proper tax treatment of such item.

For purposes of subparagraph (A), any reduction of the excess of deductions allowed for the taxable year over gross income for such year, and any reduction in the amount of capital losses which would (without regard to section 1211) be allowed for such year, shall be treated as an increase in taxable income.

``(2) Items to which section applies.--This section shall apply to any item which is attributable to--

``(A) any listed transaction, and

``(B) any reportable transaction (other than a listed transaction) if a significant purpose of such transaction is the avoidance or evasion of Federal income tax.

``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance Transactions.--

``(1) In general.--Subsection (a) shall be applied by substituting `30 percent' for `20 percent' with respect to the portion of any reportable transaction understatement with respect to which the requirement of section 6664(d)(2)(A) is not met.

``(2) Rules applicable to compromise of penalty.--

``(A) In general.--If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which paragraph (1) applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

``(B) Applicable rules.--The rules of paragraphs (3), (4), and (5) of section 6707A(d) shall apply for purposes of subparagraph (A).

``(d) Definitions of Reportable and Listed Transactions.--For purposes of this section, the terms `reportable transaction' and `listed transaction' have the respective meanings given to such terms by section 6707A(c).

``(e) Special Rules.--

``(1) Coordination with penalties, etc., on other understatements.--In the case of an understatement (as defined in section 6662(d)(2))--

``(A) the amount of such understatement (determined without regard to this paragraph) shall be increased by the aggregate amount of reportable transaction understatements and noneconomic substance transaction understatements for purposes of determining whether such understatement is a substantial understatement under section 6662(d)(1), and

``(B) the addition to tax under section 6662(a) shall apply only to the excess of the amount of the substantial understatement (if any) after the application of subparagraph

(A) over the aggregate amount of reportable transaction understatements and noneconomic substance transaction understatements.

``(2) Coordination with other penalties.--

``(A) Application of fraud penalty.--References to an underpayment in section 6663 shall be treated as including references to a reportable transaction understatement and a noneconomic substance transaction understatement.

``(B) No double penalty.--This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6662B or 6663.

``(3) Special rule for amended returns.--Except as provided in regulations, in no event shall any tax treatment included with an amendment or supplement to a return of tax be taken into account in determining the amount of any reportable transaction understatement or noneconomic substance transaction understatement if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.

``(4) Noneconomic substance transaction understatement.--For purposes of this subsection, the term `noneconomic substance transaction understatement' has the meaning given such term by section 6662B(c).

``(5) Cross reference.--For reporting of section 6662A(c) penalty to the Securities and Exchange Commission, see section 6707A(e).''

(b) Determination of Other Understatements.--Subparagraph

(A) of section 6662(d)(2) is amended by adding at the end the following flush sentence: ``The excess under the preceding sentence shall be determined without regard to items to which section 6662A applies and without regard to items with respect to which a penalty is imposed by section 6662B.''

(c) Reasonable Cause Exception.--

(1) In general.--Section 6664 is amended by adding at the end the following new subsection:

``(d) Reasonable Cause Exception for Reportable Transaction Understatements.--

``(1) In general.--No penalty shall be imposed under section 6662A with respect to any portion of a reportable transaction understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.

``(2) Special rules.--Paragraph (1) shall not apply to any reportable transaction understatement unless--

``(A) the relevant facts affecting the tax treatment of the item are adequately disclosed in accordance with the regulations prescribed under section 6011,

``(B) there is or was substantial authority for such treatment, and

``(C) the taxpayer reasonably believed that such treatment was more likely than not the proper treatment.

A taxpayer failing to adequately disclose in accordance with section 6011 shall be treated as meeting the requirements of subparagraph (A) if the penalty for such failure was rescinded under section 6707A(d).

``(3) Rules relating to reasonable belief.--For purposes of paragraph (2)(C)--

``(A) In general.--A taxpayer shall be treated as having a reasonable belief with respect to the tax treatment of an item only if such belief--

``(i) is based on the facts and law that exist at the time the return of tax which includes such tax treatment is filed, and

``(ii) relates solely to the taxpayer's chances of success on the merits of such treatment and does not take into account the possibility that a return will not be audited, such treatment will not be raised on audit, or such treatment will be resolved through settlement if it is raised.

``(B) Certain opinions may not be relied upon.--

``(i) In general.--An opinion of a tax advisor may not be relied upon to establish the reasonable belief of a taxpayer if--

``(I) the tax advisor is described in clause (ii), or

``(II) the opinion is described in clause (iii).

``(ii) Disqualified tax advisors.--A tax advisor is described in this clause if the tax advisor--

``(I) is a material advisor (within the meaning of section 6111(b)(1)) who participates in the organization, management, promotion, or sale of the transaction or who is related

(within the meaning of section 267(b) or 707(b)(1)) to any person who so participates,

``(II) is compensated directly or indirectly by a material advisor with respect to the transaction,

``(III) has a fee arrangement with respect to the transaction which is contingent on all or part of the intended tax benefits from the transaction being sustained, or

``(IV) as determined under regulations prescribed by the Secretary, has a continuing financial interest with respect to the transaction.

``(iii) Disqualified opinions.--For purposes of clause (i), an opinion is disqualified if the opinion--

``(I) is based on unreasonable factual or legal assumptions

(including assumptions as to future events),

``(II) unreasonably relies on representations, statements, findings, or agreements of the taxpayer or any other person,

``(III) does not identify and consider all relevant facts, or

``(IV) fails to meet any other requirement as the Secretary may prescribe.''

(2) Conforming amendment.--The heading for subsection (c) of section 6664 is amended by inserting ``for Underpayments'' after ``Exception''.

(d) Conforming Amendments.--

(1) Subparagraph (C) of section 461(i)(3) is amended by striking ``section 6662(d)(2)(C)(iii)'' and inserting

``section 1274(b)(3)(C)''.

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

(A) by striking ``(as defined in section 6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and

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

``(C) Tax shelter.--For purposes of subparagraph (B), the term `tax shelter' means--

``(i) a partnership or other entity,

``(ii) any investment plan or arrangement, or

``(iii) any other plan or arrangement,

if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax.''

(3) Section 6662(d)(2) is amended by striking subparagraphs

(C) and (D).

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

(5) Subsection (b) of section 7525 is amended by striking

``section 6662(d)(2)(C)(iii)'' and inserting ``section 1274(b)(3)(C)''.

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

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON

UNDERPAYMENTS. ''

(B) The table of sections for part II of subchapter A of chapter 68 is amended by striking the item relating to section 6662 and inserting the following new items:

``Sec. 6662. Imposition of accuracy-related penalty on underpayments.

``Sec. 6662A. Imposition of accuracy-related penalty on understatements with respect to reportable transactions.''

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

SEC. 9504. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO

TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

(a) In General.--Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO

TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

``(a) Imposition of Penalty.--If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.

``(b) Reduction of Penalty for Disclosed Transactions.--Subsection (a) shall be applied by substituting `20 percent' for `40 percent' with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.

``(c) Noneconomic Substance Transaction Understatement.--For purposes of this section--

``(1) In general.--The term `noneconomic substance transaction understatement' means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.

``(2) Noneconomic substance transaction.--The term

`noneconomic substance transaction' means any transaction if--

``(A) there is a lack of economic substance (within the meaning of section 7701(m)(1)) for the transaction giving rise to the claimed tax benefit or the transaction was not respected under section 7701(m)(2), or

``(B) the transaction fails to meet the requirements of any similar rule of law.

``(d) Rules Applicable to Compromise of Penalty.--

``(1) In general.--If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

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

``(e) Coordination With Other Penalties.--Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.

``(f) Cross References.--

``(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).

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

(b) Clerical Amendment.--The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.''

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

SEC. 9505. 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. 9506. 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. 9507. DISCLOSURE OF REPORTABLE TRANSACTIONS.

(a) In General.--Section 6111 (relating to registration of tax shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

``(a) In General.--Each material advisor with respect to any reportable transaction shall make a return (in such form as the Secretary may prescribe) setting forth--

``(1) information identifying and describing the transaction,

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

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

Such return shall be filed not later than the date specified by the Secretary.

``(b) Definitions.--For purposes of this section--

``(1) Material advisor.--

``(A) In general.--The term `material advisor' means any person--

``(i) who provides any material aid, assistance, or advice with respect to organizing, promoting, selling, implementing, or carrying out any reportable transaction, and

``(ii) who directly or indirectly derives gross income in excess of the threshold amount for such aid, assistance, or advice.

``(B) Threshold amount.--For purposes of subparagraph (A), the threshold amount is--

``(i) $50,000 in the case of a reportable transaction substantially all of the tax benefits from which are provided to natural persons, and

``(ii) $250,000 in any other case.

``(2) Reportable transaction.--The term `reportable transaction' has the meaning given to such term by section 6707A(c).

``(c) Regulations.--The Secretary may prescribe regulations which provide--

``(1) that only 1 person shall be required to meet the requirements of subsection (a) in cases in which 2 or more persons would otherwise be required to meet such requirements,

``(2) exemptions from the requirements of this section, and

``(3) such rules as may be necessary or appropriate to carry out the purposes of this section.''

(b) Conforming Amendments.--

(1) The item relating to section 6111 in the table of sections for subchapter B of chapter 61 is amended to read as follows:

``Sec. 6111. Disclosure of reportable transactions.''

(2)(A) So much of section 6112 as precedes subsection (c) thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS

MUST KEEP LISTS OF ADVISEES.

``(a) In General.--Each material advisor (as defined in section 6111) with respect to any reportable transaction (as defined in section 6707A(c)) shall maintain, in such manner as the Secretary may by regulations prescribe, a list--

``(1) identifying each person with respect to whom such advisor acted as such a material advisor with respect to such transaction, and

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

This section shall apply without regard to whether a material advisor is required to file a return under section 6111 with respect to such transaction.''

(B) Section 6112 is amended by redesignating subsection (c) as subsection (b).

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

(i) by inserting ``written'' before ``request'' in paragraph (1)(A), and

(ii) by striking ``shall prescribe'' in paragraph (2) and inserting ``may prescribe''.

(D) The item relating to section 6112 in the table of sections for subchapter B of chapter 61 is amended to read as follows:

``Sec. 6112. Material advisors of reportable transactions must keep lists of advisees.''

(3)(A) The heading for section 6708 is amended to read as follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH

RESPECT TO REPORTABLE TRANSACTIONS. ''

(B) The item relating to section 6708 in the table of sections for part I of subchapter B of chapter 68 is amended to read as follows:

``Sec. 6708. Failure to maintain lists of advisees with respect to reportable transactions.''

(c) Effective Date.--The amendments made by this section shall apply to transactions with respect to which material aid, assistance, or advice referred to in section 6111(b)(1)(A)(i) of the Internal Revenue Code of 1986 (as added by this section) is provided after the date of the enactment of this Act.

SEC. 9508. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER

TAX SHELTERS.

(a) In General.--Section 6707 (relating to failure to furnish information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING

REPORTABLE TRANSACTIONS.

``(a) In General.--If a person who is required to file a return under section 6111(a) with respect to any reportable transaction--

``(1) fails to file such return on or before the date prescribed therefor, or

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

such person shall pay a penalty with respect to such return in the amount determined under subsection (b).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraph (2), the penalty imposed under subsection (a) with respect to any failure shall be $50,000.

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

``(A) $200,000, or

``(B) 50 percent of the gross income derived by such person with respect to aid, assistance, or advice which is provided with respect to the reportable transaction before the date the return including the transaction is filed under section 6111.

Subparagraph (B) shall be applied by substituting `75 percent' for `50 percent' in the case of an intentional failure or act described in subsection (a).

``(c) Rescission Authority.--The provisions of section 6707A(d) (relating to authority of Commissioner to rescind penalty) shall apply to any penalty imposed under this section.

``(d) Reportable and Listed Transactions.--The terms

`reportable transaction' and `listed transaction' have the respective meanings given to such terms by section 6707A(c).''.

(b) Clerical Amendment.--The item relating to section 6707 in the table of sections for part I of subchapter B of chapter 68 is amended by striking ``tax shelters'' and inserting ``reportable transactions''.

(c) Effective Date.--The amendments made by this section shall apply to returns the due date for which is after the date of the enactment of this Act.

SEC. 9509. 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. 9510. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT

RELATED TO TAX SHELTERS AND REPORTABLE

TRANSACTIONS.

(a) In General.--Section 7408 (relating to action to enjoin promoters of abusive tax shelters, etc.) is amended by redesignating subsection (c) as subsection (d) and by striking subsections (a) and (b) and inserting the following new subsections:

``(a) Authority to Seek Injunction.--A civil action in the name of the United States to enjoin any person from further engaging in specified conduct may be commenced at the request of the Secretary. Any action under this section shall be brought in the district court of the United States for the district in which such person resides, has his principal place of business, or has engaged in specified conduct. The court may exercise its jurisdiction over such action (as provided in section 7402(a)) separate and apart from any other action brought by the United States against such person.

``(b) Adjudication and Decree.--In any action under subsection (a), if the court finds--

``(1) that the person has engaged in any specified conduct, and

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

the court may enjoin such person from engaging in such conduct or in any other activity subject to penalty under this title.

``(c) Specified Conduct.--For purposes of this section, the term `specified conduct' means any action, or failure to take action, subject to penalty under section 6700, 6701, 6707, or 6708.''

(b) Conforming Amendments.--

(1) The heading for section 7408 is amended to read as follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO

TAX SHELTERS AND REPORTABLE TRANSACTIONS. ''

(2) The table of sections for subchapter A of chapter 67 is amended by striking the item relating to section 7408 and inserting the following new item:

``Sec. 7408. Actions to enjoin specified conduct related to tax shelters and reportable transactions.''

(c) Effective Date.--The amendment made by this section shall take effect on the day after the date of the enactment of this Act.

SEC. 9511. 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. 9512. 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. 9513. FRIVOLOUS TAX SUBMISSIONS.

(a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay a penalty of $5,000 if--

``(1) such person files what purports to be a return of a tax imposed by this title but which--

``(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

``(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and

``(2) the conduct referred to in paragraph (1)--

``(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

``(B) reflects a desire to delay or impede the administration of Federal tax laws.

``(b) Civil Penalty for Specified Frivolous Submissions.--

``(1) Imposition of penalty.--Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.

``(2) Specified frivolous submission.--For purposes of this section--

``(A) Specified frivolous submission.--The term `specified frivolous submission' means a specified submission if any portion of such submission--

``(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

``(ii) reflects a desire to delay or impede the administration of Federal tax laws.

``(B) Specified submission.--The term `specified submission' means--

``(i) a request for a hearing under--

``(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or

``(II) section 6330 (relating to notice and opportunity for hearing before levy), and

``(ii) an application under--

``(I) section 6159 (relating to agreements for payment of tax liability in installments),

``(II) section 7122 (relating to compromises), or

``(III) section 7811 (relating to taxpayer assistance orders).

``(3) Opportunity to withdraw submission.--If the Secretary provides a person with notice that a submission is a specified frivolous submission and such person withdraws such submission within 30 days after such notice, the penalty imposed under paragraph (1) shall not apply with respect to such submission.

``(c) Listing of Frivolous Positions.--The Secretary shall prescribe (and periodically revise) a list of positions which the Secretary has identified as being frivolous for purposes of this subsection. The Secretary shall not include in such list any position that the Secretary determines meets the requirement of section 6662(d)(2)(B)(ii)(II).

``(d) Reduction of Penalty.--The Secretary may reduce the amount of any penalty imposed under this section if the Secretary determines that such reduction would promote compliance with and administration of the Federal tax laws.

``(e) Penalties in Addition to Other Penalties.--The penalties imposed by this section shall be in addition to any other penalty provided by law.''

(b) Treatment of Frivolous Requests for Hearings Before Levy.--

(1) Frivolous requests disregarded.--Section 6330 (relating to notice and opportunity for hearing before levy) is amended by adding at the end the following new subsection:

``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any other provision of this section, if the Secretary determines that any portion of a request for a hearing under this section or section 6320 meets the requirement of clause

(i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.''

(2) Preclusion from raising frivolous issues at hearing.--Section 6330(c)(4) is amended--

(A) by striking ``(A)'' and inserting ``(A)(i)'';

(B) by striking ``(B)'' and inserting ``(ii)'';

(C) by striking the period at the end of the first sentence and inserting ``; or''; and

(D) by inserting after subparagraph (A)(ii) (as so redesignated) the following:

``(B) the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).''

(3) Statement of grounds.--Section 6330(b)(1) is amended by striking ``under subsection (a)(3)(B)'' and inserting ``in writing under subsection (a)(3)(B) and states the grounds for the requested hearing''.

(c) Treatment of Frivolous Requests for Hearings Upon Filing of Notice of Lien.--Section 6320 is amended--

(1) in subsection (b)(1), by striking ``under subsection

(a)(3)(B)'' and inserting ``in writing under subsection

(a)(3)(B) and states the grounds for the requested hearing'', and

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

(d) Treatment of Frivolous Applications for Offers-In-Compromise and Installment Agreements.--Section 7122 is amended by adding at the end the following new subsection:

``(e) Frivolous Submissions, Etc.--Notwithstanding any other provision of this section, if the Secretary determines that any portion of an application for an offer-in-compromise or installment agreement submitted under this section or section 6159 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.''

(e) Clerical Amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6702 and inserting the following new item:

``Sec. 6702. Frivolous tax submissions.''

(f) Effective Date.--The amendments made by this section shall apply to submissions made and issues raised after the date on which the Secretary first prescribes a list under section 6702(c) of the Internal Revenue Code of 1986, as amended by subsection (a).

SEC. 9514. 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. 9515. 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. 9516. 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. 9517. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS

ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND

NONECONOMIC SUBSTANCE TRANSACTIONS.

(a) In General.--Section 163 (relating to deduction for interest) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

``(m) Interest on Unpaid Taxes Attributable to Nondisclosed Reportable Transactions and Noneconomic Substance Transactions.--No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to--

``(1) the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, or

``(2) any noneconomic substance transaction understatement

(as defined in section 6662B(c)).''

(b) Effective Date.--The amendments made by this section shall apply to transactions after the date of the enactment of this Act in taxable years ending after such date.

Subtitle G--Other Provisions

SEC. 9601. 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. 9602. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS

TRANSFERS.

(a) Treatment of Contributed Property With Built-In Loss.--Paragraph (1) of section 704(c) is amended by striking

``and'' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ``, and'', and by adding at the end the following:

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

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

``(ii) except as provided in regulations, in determining the amount of items allocated to other partners, the basis of the contributed property in the hands of the partnership shall be treated as being equal to its fair market value immediately after the contribution.

For purposes of subparagraph (C), the term `built-in loss' means the excess of the adjusted basis of the property

(determined without regard to subparagraph (C)(ii)) over its fair market value 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:

``Sec. 743. Adjustment to basis of partnership property where section

754 election or substantial built-in loss.''

(c) Adjustment to Basis of Undistributed Partnership Property If There Is Substantial Basis Reduction.--

(1) Adjustment required.--Subsection (a) of section 734

(relating to optional adjustment to basis of undistributed partnership property) is amended by inserting before the period ``or unless there is a substantial basis reduction''.

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

(3) Substantial basis reduction.--Section 734 is amended by adding at the end the following new subsection:

``(d) Substantial Basis Reduction.--

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

``(2) Regulations.--For regulations to carry out this subsection, see section 743(d)(2).''

(4) Clerical amendments.--

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

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP

PROPERTY WHERE SECTION 754 ELECTION OR

SUBSTANTIAL BASIS REDUCTION. ''

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

``Sec. 734. Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction.''

(d) Effective Dates.--

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

(2) Subsection (b).--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. 9603. 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. 9604. 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. 9605. 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. 9606. 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. 9607. 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. 9608. 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. 9609. 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 section 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. 9610. 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 ``March 1, 2005'' and inserting ``March 31, 2010''.

Subtitle H--Prevention of Corporate Expatriation to Avoid United States

Income Tax

SEC. 9701. 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.

Mr. DAVIS of Tennessee (during the reading). Mr. Speaker, I ask unanimous consent that the motion to recommit be considered as read and printed in the Record.

The SPEAKER pro tempore. Is there objection to the request of the gentleman from Tennessee?

There was no objection.

Mr. NUSSLE. Mr. Speaker, I reserve a point of order against the gentleman's motion to recommit.

The SPEAKER pro tempore. The gentleman reserves a point of order. The gentleman from Tennessee (Mr. Davis) will be recognized for 5 minutes on his motion to recommit.

Mr. DAVIS of Tennessee. Mr. Speaker, do we have opposition on the point of order? On the point of order, may I continue with my motion to recommit?

The SPEAKER pro tempore. The Chair will entertain a point of order after the gentleman's debate on his motion to recommit. At this point, the point of order is reserved.

Mr. DAVIS of Tennessee. Mr. Speaker, I would ask the gentleman to reconsider his point of order on my offering of this amendment. My amendment increases the funds in the bill to the Senate-passed level of

$318 billion, and I believe that the House should be allowed to vote on this amendment.

The SPEAKER pro tempore. If the gentleman will suspend. The gentleman is recognized for 5 minutes to debate his motion to recommit.

Mr. DAVIS of Tennessee. Mr. Speaker, today I rise with the gentleman from New Jersey (Mr. Menendez), the gentleman from Oregon (Mr. Blumenauer), and the gentleman from Washington (Mr. Baird) to offer this motion to recommit.

The amendment increases highway and transit investment by $37.8 billion, a level of funding equal to the Senate/House-passed TEA 21 reauthorization bill, includes the Senate-passed Highway Trust Fund financing mechanisms, which includes no tax increases, and fully offsets these investments by cracking down on abusive corporate tax shelters, such as those enjoyed by Enron, and prevents American corporations from avoiding paying U.S. taxes by moving to a foreign country, and by extending customs user fees.

{time} 1130

The amendment is paid for by drawing down from the highway trust fund and eliminating subsidies such as ethanol. We should continue to promote the use of ethanol, but we should keep the highway trust fund for truly highway-related activities.

A recent national survey found that transportation construction contractors hire employees within 3 weeks of obtaining a contract. Employees begin receiving paychecks within 2 weeks of hiring. In addition, this infrastructure investment will increase business productivity by reducing the costs of producing goods in virtually every industrial sector of our economy, which results in increased demand for labor, capital and raw materials and generally leads to lower product prices and increased sales.

Mr. Speaker, this investment will help create jobs for almost 3 million Americans who have lost their jobs in the last 3 years and will specifically help the more than 1 million unemployed construction workers. The number of unemployed private sector construction workers in 2003 averaged 810,000. The unemployment rate for these workers averaged 9.3 percent. We can invest in a future that our children and grandchildren will benefit from rather than continue to create debt for the future for our children.

Mr. Speaker, I yield back the balance of my time.

Point of Order

The SPEAKER pro tempore (Mr. Thornberry). Does the gentleman from Iowa wish to make his point of order?

Mr. NUSSLE. I do, Mr. Speaker.

I make a point of order against the motion to recommit because it is in violation of section 302(f) of the Congressional Budget Act of 1974. A motion that would cause any increase in new budget authority will breach the allocation made under section 302(a) to the applicable committee and is not permitted under 302(f) of the act. This motion causes such an increase in new budget authority and, therefore, is not in order.

I insist on my point of order.

The SPEAKER pro tempore. Does the gentleman from Tennessee wish to be heard on the point of order?

Mr. DAVIS of Tennessee. No.

The SPEAKER pro tempore. Does the gentleman concede the point of order?

Mr. DAVIS of Tennessee. Mr. Speaker, I concede the point of order.

The SPEAKER pro tempore. The point of order is therefore sustained.

Motion to Recommit Offered by Mr. Davis of Tennessee

Mr. DAVIS of Tennessee. Mr. Speaker, I offer a motion to recommit.

The SPEAKER pro tempore. The Clerk will report the motion to recommit.

The Clerk read as follows:

Mr. DAVIS of Tennessee moves to recommit the bill H.R. 3550 to the Committee on Transportation and Infrastructure with instructions to report the same back to the House promptly with the following amendments:

In section 1101(a)(1) of the bill, strike

``$4,323,076,000'' and all that follows through

``$4,891,164,000'' and insert ``$5,076,187,293 for fiscal year 2004, $4,953,445,477 for fiscal year 2005,

$5,171,212,959 for fiscal year 2006, $5,263,571,478 for fiscal year 2007, $5,556,536,840 for fiscal year 2008, and

$6,654,739,293''.

In section 1101(a)(2) of the bill, strike

``$5,187,691,000'' and all that follows through

``$5,869,396,000'' and insert ``$6,091,424,517 for fiscal year 2004, $5,944,133,902 for fiscal year 2005,

$6,205,455,095 for fiscal year 2006, $6,316,285,773 for fiscal year 2007, $6,667,843,743 for fiscal year 2008, and

$7,985,686,064''.

In section 1101(a)(3) of the bill, strike

``$3,709,440,000'' and all that follows through

``$4,196,891,000'' and insert ``$4,355,651,438 for fiscal year 2004, $4,250,332,027 for fiscal year 2005,

$4,437,189,163 for fiscal year 2006, $4,516,437,339 for fiscal year 2007, $4,767,818,482 for fiscal year 2008, and

$5,710,136,779''.

In section 1101(a)(5) of the bill, strike

``$6,052,306,000'' and all that follows through

``$6,847,629,000'' and insert ``$7,106,661,741 for fiscal year 2004, $6,934,823,445 for fiscal year 2005,

$7,239,697,231 for fiscal year 2006, $7,369,000,069 for fiscal year 2007, $7,779,151,809 for fiscal year 2008, and

$9,316,634,194''.

In section 1101(a)(6) of the bill, strike

``$1,469,846,000'' and all that follows through

``$1,662,996,000'' and insert ``$1,725,903,868 for fiscal year 2004, $1,684,171,440 for fiscal year 2005,

$1,758,212,543 for fiscal year 2006, $1,789,614,076 for fiscal year 2007, $1,889,222,762 for fiscal year 2008, and

$2,262,611,686''.

In section 1102(a) of the bill, strike paragraphs (2) through (6) and insert the following:

(2) $37,900,000,000 for fiscal year 2005;

(3) $39,100,000,000 for fiscal year 2006;

(4) $39,100,000,000 for fiscal year 2007;

(5) $39,400,000,000 for fiscal year 2008; and

(6) $44,400,000,000 for fiscal year 2009.

In the matter proposed to be inserted as section 5338(a)(2)(A) of title 49, United States Code, by section 3034 of the bill, strike clauses (i) through (vi) and insert the following:

``(i) $5,081,125,000 for fiscal year 2005;

``(ii) $5,283,418,000 for fiscal year 2006;

``(iii) $5,550,420,000 for fiscal year 2007;

``(iv) $6,176,172,500 for fiscal year 2008; and

``(v) $6,834,667,500 for fiscal year 2009.

In section 3043 of the bill, strike paragraphs (2) through

(6) and insert the following:

(2) $8,650,000,000 for fiscal year 2005;

(3) $9,085,123,000 for fiscal year 2006;

(4) $9,600,000,000 for fiscal year 2007;

(5) $10,490,000,000 for fiscal year 2008; and

(6) $11,430,000,000 for fiscal year 2009.

Strike the revenue title (other than the small business benefits) and insert the following:

TITLE IX--HIGHWAY REAUTHORIZATION AND EXCISE TAX SIMPLIFICATION

SECTION 9000. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) Short Title.--This title may be cited as the ``Highway Reauthorization and Excise Tax Simplification Act of 2004''.

(b) 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.

Subtitle A--Trust Fund Reauthorization

SEC. 9001. EXTENSION OF HIGHWAY TRUST FUND AND AQUATIC

RESOURCES TRUST FUND EXPENDITURE AUTHORITY AND

RELATED TAXES.

(a) Highway Trust Fund Expenditure Authority.--

(1) Highway account.--Paragraph (1) of section 9503(c)

(relating to transfers from Highway Trust Fund for certain repayments and credits) is amended--

(A) in the matter before subparagraph (A), by striking

``May 1, 2004'' and inserting ``October 1, 2009'',

(B) by striking ``or'' at the end of subparagraph (F),

(C) by striking the period at the end of subparagraph (G) and inserting ``, or'',

(D) by inserting after subparagraph (G), the following new subparagraph:

``(H) authorized to be paid out of the Highway Trust Fund under the Highway Reauthorization and Excise Tax Simplification Act of 2004.'', and

(E) in the matter after subparagraph (G), as added by subparagraph (D), by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway Reauthorization and Excise Tax Simplification Act of 2004''.

(2) Mass transit account.--Paragraph (3) of section 9503(e)

(relating to establishment of Mass Transit Account) is amended--

(A) in the matter before subparagraph (A), by striking

``May 1, 2004'' and inserting ``October 1, 2009'',

(B) by striking ``or'' at the end of subparagraph (D),

(C) by striking the period at the end of subparagraph (E) and inserting ``, or'',

(D) by inserting after subparagraph (E), the following new subparagraph:

``(F) the Highway Reauthorization and Excise Tax Simplification Act of 2004,'', and

(E) in the matter after subparagraph (E), as added by subparagraph (D), by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway Reauthorization and Excise Tax Simplification Act of 2004''.

(3) Exception to limitation on transfers.--Subparagraph (B) of section 9503(b)(5) (relating to limitation on transfers to Highway Trust Fund) is amended by striking ``May 1, 2004'' and inserting ``October 1, 2009''.

(b) Aquatic Resources Trust Fund Expenditure Authority.--

(1) Sport fish restoration account.--Paragraph (2) of section 9504(b) (relating to Sport Fish Restoration Account) is amended by striking ``Surface Transportation Extension Act of 2004'' each place it appears and inserting ``Highway Reauthorization and Excise Tax Simplification Act of 2004''.

(2) Boat safety account.--Section 9504(c) (relating to expenditures from Boat Safety Account) is amended--

(A) by striking ``May 1, 2004'' and inserting ``October 1, 2009'', and

(B) by striking ``Surface Transportation Extension Act of 2004'' and inserting ``Highway Reauthorization and Excise Tax Simplification Act of 2004''.

(3) Exception to limitation on transfers.--Paragraph (2) of section 9504(d) (relating to limitation on transfers to Aquatic Resources Trust Fund) is amended by striking ``May 1, 2004'' and inserting ``October 1, 2009''.

(4) Technical correction.--The last sentence of paragraph

(2) of section 9504(b) is amended by striking ``subparagraph

(B)'', and inserting ``subparagraph (C)''.

(c) Extension of Taxes.--

(1) In general.--The following provisions are each amended by striking ``2005'' each place it appears and inserting

``2009'':

(A) Section 4041(a)(1)(C)(iii)(I) (relating to rate of tax on certain buses).

(B) Section 4041(a)(2)(B) (relating to rate of tax on special motor fuels).

(C) Section 4041(m)(1)(A) (relating to certain alcohol fuels produced from natural gas).

(D) Section 4051(c) (relating to termination of tax on heavy trucks and trailers).

(E) Section 4071(d) (relating to termination of tax on tires).

(F) Section 4081(d)(1) (relating to termination of tax on gasoline, diesel fuel, and kerosene).

(G) Section 4481(e) (relating to period tax in effect).

(H) Section 4482(c)(4) (relating to taxable period).

(I) Section 4482(d) (relating to special rule for taxable period in which termination date occurs).

(2) Floor stocks refunds.--Section 6412(a)(1) (relating to floor stocks refunds) is amended--

(A) by striking ``2005'' each place it appears and inserting ``2009'', and

(B) by striking ``2006'' each place it appears and inserting ``2010''.

(d) Extension of Certain Exemptions.--The following provisions are each amended by striking ``2005'' and inserting ``2009'':

(1) Section 4221(a) (relating to certain tax-free sales).

(2) Section 4483(g) (relating to termination of exemptions for highway use tax).

(e) Extension of Deposits Into, and Certain Transfers From, Trust Fund.--

(1) In general.--Subsections (b), (c)(2), (c)(3),

(c)(4)(A)(i), and (c)(5)(A) of section 9503 (relating to the Highway Trust Fund) are amended--

(A) by striking ``2005'' each place it appears and inserting ``2009'', and

(B) by striking ``2006'' each place it appears and inserting ``2010''.

(2) Conforming amendments to land and water conservation fund.--Section 201(b) of the Land and Water Conservation Fund Act of 1965 (16 U.S.C. 460l-11(b)) is amended--

(A) by striking ``2003'' and inserting ``2007'', and

(B) by striking ``2004'' each place it appears and inserting ``2008''.

(f) Extension of Tax Benefits for Qualified Methanol and Ethanol Fuel Produced From Coal.--Section 4041(b)(2)

(relating to qualified methanol and ethanol fuel) is amended--

(1) by striking ``2007'' in subparagraph (C)(ii) and inserting ``2010'', and

(2) by striking ``October 1, 2007'' in subparagraph (D) and inserting ``January 1, 2011''.

(g) Prohibition on Use of Highway Account for Rail Projects.--Section 9503(c) (relating to transfers from Highway Trust Fund for certain repayments and credits) is amended by adding at the end the following new paragraph:

``(6) Prohibition on use of highway account for certain rail projects.--With respect to rail projects beginning after the date of the enactment of this paragraph, no amount shall be available from the Highway Account (as defined in subsection (e)(5)(B)) for any rail project, except for any rail project involving publicly owned rail facilities or any rail project yielding a public benefit.''.

(h) Highway Trust Fund Expenditures for Highway Use Tax Evasion Projects.--Section 9503(c), as amended by subsection

(g), is amended to add at the end the following new paragraph:

``(7) Highway use tax evasion projects.--From amounts available in the Highway Trust Fund, there is authorized to be expended--

``(A) for each fiscal year after 2003 to the Internal Revenue Service--

``(i) $30,000,000 for enforcement of fuel tax compliance, including the per-certification of tax-exempt users,

``(ii) $10,000,000 for Xstars, and

``(iii) $10,000,000 for xfirs, and

``(B) for each fiscal year after 2003 to the Federal Highway Administration, $50,000,000 to be allocated

$1,000,000 to each State to combat fuel tax evasion on the State level.''.

(i) Effective Date.--The amendments made by and provisions of this section shall take effect on the date of the enactment of this Act.

SEC. 9002. FULL ACCOUNTING OF FUNDS RECEIVED BY THE HIGHWAY

TRUST FUND.

(a) In General.--Section 9503(c) (relating to transfers from Highway Trust Fund for certain repayments and credits), as amended by section 9001 of this Act, is amended by striking paragraph (2) and redesignating paragraphs (3), (4),

(5), (6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.

(b) Interest on Unexpended Balances Credited to Trust Fund.--Section 9503 (relating to the Highway Trust Fund) is amended by striking subsection (f).

(c) Conforming Amendments.--

(1) Section 9503(b)(4)(D) is amended by striking

``paragraph (4)(D) or (5)(B)'' and inserting ``paragraph

(3)(D) or (4)(B)''.

(2) Paragraph (2) of section 9503(c) (as redesignated by subsection (a)) is amended by adding at the end the following new sentence: ``The amounts payable from the Highway Trust Fund under this paragraph shall be determined by taking into account only the portion of the taxes which are deposited into the Highway Trust Fund.''.

(3) Section 9504(a)(2) is amended by striking ``section 9503(c)(4), section 9503(c)(5)'' and inserting ``section 9503(c)(3), section 9503(c)(4)''.

(4) Paragraph (2) of section 9504(b), as amended by section 9001 of this Act, is amended by striking ``section 9503(c)(5)'' and inserting ``section 9503(c)(4)''.

(5) Section 9504(e) is amended by striking ``section 9503(c)(4)'' and inserting ``section 9503(c)(3)''.

(d) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid for which no transfer from the Highway Trust Fund has been made before April 1, 2004.

(2) Interest credited.--The amendment made by subsection

(b) shall take effect on the date of the enactment of this Act.

SEC. 9003. MODIFICATION OF ADJUSTMENTS OF APPORTIONMENTS.

(a) In General.--Section 9503(d) (relating to adjustments for apportionments) is amended--

(1) by striking ``24-month'' in paragraph (1)(B) and inserting ``48-month'', and

(2) by striking ``2 years' '' in the heading for paragraph

(3) and inserting ``4 years' ''.

(b) Measurement of Net Highway Receipts.--Section 9503(d) is amended by redesignating paragraph (6) as paragraph (7) and by inserting after paragraph (5) the following new paragraph:

``(6) Measurement of net highway receipts.--For purposes of making any estimate under paragraph (1) of net highway receipts for periods ending after the date specified in subsection (b)(1), the Secretary shall treat--

``(A) each expiring provision of subsection (b) which is related to appropriations or transfers to the Highway Trust Fund to have been extended through the end of the 48-month period referred to in paragraph (1)(B), and

``(B) with respect to each tax imposed under the sections referred to in subsection (b)(1), the rate of such tax during the 48-month period referred to in paragraph (1)(B) to be the same as the rate of such tax as in effect on the date of such estimate.''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

Subtitle B--Volumetric Ethanol Excise Tax Credit

SEC. 9101. SHORT TITLE.

This subtitle may be cited as the ``Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2004''.

SEC. 9102. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND

EXTENSION OF ALCOHOL FUELS INCOME TAX CREDIT.

(a) In General.--Subchapter B of chapter 65 (relating to rules of special application) is amended by inserting after section 6425 the following new section:

``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.

``(a) Allowance of Credits.--There shall be allowed as a credit against the tax imposed by section 4081 an amount equal to the sum of--

``(1) the alcohol fuel mixture credit, plus

``(2) the biodiesel mixture credit.

``(b) Alcohol Fuel Mixture Credit.--

``(1) In general.--For purposes of this section, the alcohol fuel mixture credit is the product of the applicable amount and the number of gallons of alcohol used by the taxpayer in producing any alcohol fuel mixture for sale or use in a trade or business of the taxpayer.

``(2) Applicable amount.--For purposes of this subsection--

``(A) In general.--Except as provided in subparagraph (B), the applicable amount is 52 cents (51 cents in the case of any sale or use after 2004).

``(B) Mixtures not containing ethanol.--In the case of an alcohol fuel mixture in which none of the alcohol consists of ethanol, the applicable amount is 60 cents.

``(3) Alcohol fuel mixture.--For purposes of this subsection, the term `alcohol fuel mixture' means a mixture of alcohol and a taxable fuel which--

``(A) is sold by the taxpayer producing such mixture to any person for use as a fuel,

``(B) is used as a fuel by the taxpayer producing such mixture, or

``(C) is removed from the refinery by a person producing such mixture.

``(4) Other definitions.--For purposes of this subsection--

``(A) Alcohol.--The term `alcohol' includes methanol and ethanol but does not include--

``(i) alcohol produced from petroleum, natural gas, or coal

(including peat), or

``(ii) alcohol with a proof of less than 190 (determined without regard to any added denaturants).

Such term also includes an alcohol gallon equivalent of ethyl tertiary butyl ether or other ethers produced from such alcohol.

``(B) Taxable fuel.--The term `taxable fuel' has the meaning given such term by section 4083(a)(1).

``(5) Termination.--This subsection shall not apply to any sale, use, or removal for any period after December 31, 2010.

``(c) Biodiesel Mixture Credit.--

``(1) In general.--For purposes of this section, the biodiesel mixture credit is the product of the applicable amount and the number of gallons of biodiesel used by the taxpayer in producing any biodiesel mixture for sale or use in a trade or business of the taxpayer.

``(2) Applicable amount.--For purposes of this subsection--

``(A) In general.--Except as provided in subparagraph (B), the applicable amount is 50 cents.

``(B) Amount for agri-biodiesel.--In the case of any biodiesel which is agri-biodiesel, the applicable amount is

$1.00.

``(3) Biodiesel mixture.--For purposes of this section, the term `biodiesel mixture' means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which--

``(A) is sold by the taxpayer producing such mixture to any person for use as a fuel,

``(B) is used as a fuel by the taxpayer producing such mixture, or

``(C) is removed from the refinery by a person producing such mixture.

``(4) Certification for biodiesel.--No credit shall be allowed under this section unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.

``(5) Other definitions.--Any term used in this subsection which is also used in section 40A shall have the meaning given such term by section 40A.

``(6) Termination.--This subsection shall not apply to any sale, use, or removal for any period after December 31, 2006.

``(d) Mixture not Used as a Fuel, Etc.--

``(1) Imposition of tax.--If--

``(A) any credit was determined under this section with respect to alcohol or biodiesel used in the production of any alcohol fuel mixture or biodiesel mixture, respectively, and

``(B) any person--

``(i) separates the alcohol or biodiesel from the mixture, or

``(ii) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the applicable amount and the number of gallons of such alcohol or biodiesel.

``(2) Applicable laws.--All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under paragraph (1) as if such tax were imposed by section 4081 and not by this section.

``(e) Coordination With Exemption From Excise Tax.--Rules similar to the rules under section 40(c) shall apply for purposes of this section.''.

(b) Registration Requirement.--Section 4101(a)(1) (relating to registration), as amended by sections 9211 and 9242 of this Act, is amended by inserting ``and every person producing or importing biodiesel (as defined in section 40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))'' after ``4081''.

(c) Additional Amendments.--

(1) Section 40(c) is amended by striking ``subsection

(b)(2), (k), or (m) of section 4041, section 4081(c), or section 4091(c)'' and inserting ``section 4041(b)(2), section 6426, or section 6427(e)''.

(2) Paragraph (4) of section 40(d) is amended to read as follows:

``(4) Volume of alcohol.--For purposes of determining under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), the volume of alcohol shall include the volume of any denaturant

(including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 5 percent of the volume of such alcohol

(including denaturants).''.

(3) Section 40(e)(1) is amended--

(A) by striking ``2007'' in subparagraph (A) and inserting

``2010'', and

(B) by striking ``2008'' in subparagraph (B) and inserting

``2011''.

(4) Section 40(h) is amended--

(A) by striking ``2007'' in paragraph (1) and inserting

``2010'', and

(B) by striking ``, 2006, or 2007'' in the table contained in paragraph (2) and inserting ``through 2010''.

(5) Section 4041(b)(2)(B) is amended by striking ``a substance other than petroleum or natural gas'' and inserting

``coal (including peat)''.

(6) Section 4041 is amended by striking subsection (k).

(7) Section 4081 is amended by striking subsection (c).

(8) Paragraph (2) of section 4083(a) is amended to read as follows:

``(2) Gasoline.--The term `gasoline'--

``(A) includes any gasoline blend, other than qualified methanol or ethanol fuel (as defined in section 4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as defined in section 4041(m)(2)), or a denatured alcohol, and

``(B) includes, to the extent prescribed in regulations--

``(i) any gasoline blend stock, and

``(ii) any product commonly used as an additive in gasoline

(other than alcohol).

For purposes of subparagraph (B)(i), the term `gasoline blend stock' means any petroleum product component of gasoline.''.

(9) Section 6427 is amended by inserting after subsection

(d) the following new subsection:

``(e) Alcohol or Biodiesel Used to Produce Alcohol Fuel and Biodiesel Mixtures or Used as Fuels.--Except as provided in subsection (k)--

``(1) Used to produce a mixture.--If any person produces a mixture described in section 6426 in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit or the biodiesel mixture credit with respect to such mixture.

``(2) Used as fuel.--If alcohol (as defined in section 40(d)(1)) or biodiesel (as defined in section 40A(d)(1)) or agri-biodiesel (as defined in section 40A(d)(2)) which is not in a mixture described in section 6426--

``(A) is used by any person as a fuel in a trade or business, or

``(B) is sold by any person at retail to another person and placed in the fuel tank of such person's vehicle,

the Secretary shall pay (without interest) to such person an amount equal to the alcohol credit (as determined under section 40(b)(2)) or the biodiesel credit (as determined under section 40A(b)(2)) with respect to such fuel.

``(3) Coordination with other repayment provisions.--No amount shall be payable under paragraph (1) with respect to any mixture with respect to which an amount is allowed as a credit under section 6426.

``(4) Termination.--This subsection shall not apply with respect to--

``(A) any alcohol fuel mixture (as defined in section 6426(b)(3)) or alcohol (as so defined) sold or used after December 31, 2010, and

``(B) any biodiesel mixture (as defined in section 6426(c)(3)) or biodiesel (as so defined) or agri-biodiesel

(as so defined) sold or used after December 31, 2006.''.

(10) Section 6427(i)(3) is amended--

(A) by striking ``subsection (f)'' both places it appears in subparagraph (A) and inserting ``subsection (e)(1)'',

(B) by striking ``gasoline, diesel fuel, or kerosene used to produce a qualified alcohol mixture (as defined in section 4081(c)(3))'' in subparagraph (A) and inserting ``a mixture described in section 6426'',

(C) by adding at the end of subparagraph (A) the following new flush sentence: ``In the case of an electronic claim, this subparagraph shall be applied without regard to clause

(i).'',

(D) by striking ``subsection (f)(1)'' in subparagraph (B) and inserting ``subsection (e)(1)'',

(E) by striking ``20 days of the date of the filing of such claim'' in subparagraph (B) and inserting ``45 days of the date of the filing of such claim (20 days in the case of an electronic claim)'', and

(F) by striking ``alcohol mixture'' in the heading and inserting ``alcohol fuel and biodiesel mixture''.

(11) Section 9503(b)(1) is amended by adding at the end the following new flush sentence: ``For purposes of this paragraph, taxes received under sections 4041 and 4081 shall be determined without reduction for credits under section 6426.''.

(12) Section 9503(b)(4), as amended by section 9101 of this Act, is amended--

(A) by adding ``or'' at the end of subparagraph (C),

(B) by striking the comma at the end of subparagraph

(D)(iii) and inserting a period, and

(C) by striking subparagraphs (E) and (F).

(13) The table of sections for subchapter B of chapter 65 is amended by inserting after the item relating to section 6425 the following new item:

``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.

(d) Effective Dates.--

(1) In general.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to fuel sold or used after September 30, 2004.

(2) Registration requirement.--The amendment made by subsection (b) shall take effect on April 1, 2005.

(3) Extension of alcohol fuels credit.--The amendments made by paragraphs (3), (4), and (14) of subsection (c) shall take effect on the date of the enactment of this Act.

(4) Repeal of general fund retention of certain alcohol fuels taxes.--The amendments made by subsection (c)(12) shall apply to fuel sold or used after September 30, 2003.

(e) Format for Filing.--The Secretary of the Treasury shall describe the electronic format for filing claims described in section 6427(i)(3)(B) of the Internal Revenue Code of 1986

(as amended by subsection (c)(10)(C)) not later than September 30, 2004.

SEC. 9103. BIODIESEL INCOME TAX CREDIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by inserting after section 40 the following new section:

``SEC. 40A. BIODIESEL USED AS FUEL.

``(a) General Rule.--For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of--

``(1) the biodiesel mixture credit, plus

``(2) the biodiesel credit.

``(b) Definition of Biodiesel Mixture Credit and Biodiesel Credit.--For purposes of this section--

``(1) Biodiesel mixture credit.--

``(A) In general.--The biodiesel mixture credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.

``(B) Qualified biodiesel mixture.--The term `qualified biodiesel mixture' means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which--

``(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

``(ii) is used as a fuel by the taxpayer producing such mixture.

``(C) Sale or use must be in trade or business, etc.--Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account--

``(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and

``(ii) for the taxable year in which such sale or use occurs.

``(D) Casual off-farm production not eligible.--No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.

``(2) Biodiesel credit.--

``(A) In general.--The biodiesel credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel which is not in a mixture with diesel fuel and which during the taxable year--

``(i) is used by the taxpayer as a fuel in a trade or business, or

``(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person's vehicle.

``(B) User credit not to apply to biodiesel sold at retail.--No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).

``(3) Credit for agri-biodiesel.--In the case of any biodiesel which is agri-biodiesel, paragraphs (1)(A) and

(2)(A) shall be applied by substituting `$1.00' for `50 cents'.

``(4) Certification for biodiesel.--No credit shall be allowed under this section unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.

``(c) Coordination With Credit Against Excise Tax.--The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427(e).

``(d) Definitions and Special Rules.--For purposes of this section--

``(1) Biodiesel.--The term `biodiesel' means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet--

``(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

``(B) the requirements of the American Society of Testing and Materials D6751.

``(2) Agri-biodiesel.--The term `agri-biodiesel' means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats.

``(3) Mixture or biodiesel not used as a fuel, etc.--

``(A) Mixtures.--If--

``(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and

``(ii) any person--

``(I) separates the biodiesel from the mixture, or

``(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(1)(A) and the number of gallons of such biodiesel in such mixture.

``(B) Biodiesel.--If--

``(i) any credit was determined under this section with respect to the retail sale of any biodiesel, and

``(ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(2)(A) and the number of gallons of such biodiesel.

``(C) Applicable laws.--All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by section 4081 and not by this chapter.

``(4) Pass-thru in the case of estates and trusts.--Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

``(e) Termination.--This section shall not apply to any sale or use after December 31, 2006.''.

(b) Credit Treated as Part of General Business Credit.--Section 38(b) (relating to current year business credit) is amended by striking ``plus'' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting ``, plus'', and by adding at the end the following new paragraph:

``(16) the biodiesel fuels credit determined under section 40A(a).''.

(c) Conforming Amendments.--

(1) Section 39(d) is amended by adding at the end the following new paragraph:

``(11) No carryback of biodiesel fuels credit before effective date.--No portion of the unused business credit for any taxable year which is attributable to the biodiesel fuels credit determined under section 40A may be carried back to a taxable year ending on or before September 30, 2004.''.

(2)(A) Section 87 is amended to read as follows:

``SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.

``Gross income includes--

``(1) the amount of the alcohol fuels credit determined with respect to the taxpayer for the taxable year under section 40(a), and

``(2) the biodiesel fuels credit determined with respect to the taxpayer for the taxable year under section 40A(a).''.

(B) The item relating to section 87 in the table of sections for part II of subchapter B of chapter 1 is amended by striking ``fuel credit'' and inserting ``and biodiesel fuels credits''.

(3) Section 196(c) is amended by striking ``and'' at the end of paragraph (9), by striking the period at the end of paragraph (10) and inserting ``, and'', and by adding at the end the following new paragraph:

``(11) the biodiesel fuels credit determined under section 40A(a).''.

(4) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding after the item relating to section 40 the following new item:

``Sec. 40A. Biodiesel used as fuel.''

(d) Effective Date.--The amendments made by this section shall apply to fuel produced, and sold or used, after September 30, 2004, in taxable years ending after such date.

Subtitle C--Fuel Fraud Prevention

SEC. 9200. SHORT TITLE.

This subtitle may be cited as the ``Fuel Fraud Prevention Act of 2004''.

PART I--AVIATION JET FUEL

SEC. 9211. TAXATION OF AVIATION-GRADE KEROSENE.

(a) Rate of Tax.--

(1) In general.--Subparagraph (A) of section 4081(a)(2) is amended by striking ``and'' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting

``, and'', and by adding at the end the following new clause:

``(iv) in the case of aviation-grade kerosene, 21.8 cents per gallon.''.

(2) Commercial aviation.--Paragraph (2) of section 4081(a) is amended by adding at the end the following new subparagraph:

``(C) Taxes imposed on fuel used in commercial aviation.--In the case of aviation-grade kerosene which is removed from any refinery or terminal directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax under subparagraph (A)(iv) shall be 4.3 cents per gallon.''.

(3) Nontaxable uses.--

(A) In general.--Section 4082 is amended by redesignating subsections (e) and (f) as subsections (f) and (g), respectively, and by inserting after subsection (d) the following new subsection:

``(e) Aviation-Grade Kerosene.--In the case of aviation-grade kerosene which is exempt from the tax imposed by section 4041(c) (other than by reason of a prior imposition of tax) and which is removed from any refinery or terminal directly into the fuel tank of an aircraft, the rate of tax under section 4081(a)(2)(A)(iv) shall be zero.''.

(B) Conforming amendments.--

(i) Subsection (b) of section 4082 is amended by adding at the end the following new flush sentence: ``The term

`nontaxable use' does not include the use of aviation-grade kerosene in an aircraft.''.

(ii) Section 4082(d) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.

(4) Nonaircraft use of aviation-grade kerosene.--

(A) In general.--Subparagraph (B) of section 4041(a)(1) is amended by adding at the end the following new sentence: ``This subparagraph shall not apply to aviation-grade kerosene.''.

(B) Conforming amendment.--The heading for paragraph (1) of section 4041(a) is amended by inserting ``and kerosene'' after ``diesel fuel''.

(b) Commercial Aviation.--Section 4083 is amended redesignating subsections (b) and (c) as subsections (c) and

(d), respectively, and by inserting after subsection (a) the following new subsection:

``(b) Commercial Aviation.--For purposes of this subpart, the term `commercial aviation' means any use of an aircraft in a business of transporting persons or property for compensation or hire by air, unless properly allocable to any transportation exempt from the taxes imposed by section 4261 and 4271 by reason of section 4281 or 4282 or by reason of section 4261(h).''.

(c) Refunds.--

(1) In general.--Paragraph (4) of section 6427(l) is amended to read as follows:

``(4) Refunds for aviation-grade kerosene.--

``(A) No refund of certain taxes on fuel used in commercial aviation.--In the case of aviation-grade kerosene used in commercial aviation (as defined in section 4083(b)) (other than supplies for vessels or aircraft within the meaning of section 4221(d)(3)), paragraph (1) shall not apply to so much of the tax imposed by section 4081 as is attributable to--

``(i) the Leaking Underground Storage Tank Trust Fund financing rate imposed by such section, and

``(ii) so much of the rate of tax specified in section 4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.

``(B) Payment to ultimate, registered vendor.--With respect to aviation-grade kerosene, if the ultimate purchaser of such kerosene waives (at such time and in such form and manner as the Secretary shall prescribe) the right to payment under paragraph (1) and assigns such right to the ultimate vendor, then the Secretary shall pay the amount which would be paid under paragraph (1) to such ultimate vendor, but only if such ultimate vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).''.

(2) Time for filing claims.--Paragraph (4) of section 6427(i) is amended by striking ``subsection (l)(5)'' and inserting ``paragraph (4)(B) or (5) of subsection (l)''.

(3) Conforming amendment.--Subparagraph (B) of section 6427(l)(2) is amended to read as follows:

``(B) in the case of aviation-grade kerosene--

``(i) any use which is exempt from the tax imposed by section 4041(c) other than by reason of a prior imposition of tax, or

``(ii) any use in commercial aviation (within the meaning of section 4083(b)).''.

(d) Repeal of Prior Taxation of Aviation Fuel.--

(1) In general.--Part III of subchapter A of chapter 32 is amended by striking subpart B and by redesignating subpart C as subpart B.

(2) Conforming amendments.--

(A) Section 4041(c) is amended to read as follows:

``(c) Aviation-Grade Kerosene.--

``(1) In general.--There is hereby imposed a tax upon aviation-grade kerosene--

``(A) sold by any person to an owner, lessee, or other operator of an aircraft for use in such aircraft, or

``(B) used by any person in an aircraft unless there was a taxable sale of such fuel under subparagraph (A).

``(2) Exemption for previously taxed fuel.--No tax shall be imposed by this subsection on the sale or use of any aviation-grade kerosene if tax was imposed on such liquid under section 4081 and the tax thereon was not credited or refunded.

``(3) Rate of tax.--The rate of tax imposed by this subsection shall be the rate of tax specified in section 4081(a)(2)(A)(iv) which is in effect at the time of such sale or use.''.

(B) Section 4041(d)(2) is amended by striking ``section 4091'' and inserting ``section 4081''.

(C) Section 4041 is amended by striking subsection (e).

(D) Section 4041 is amended by striking subsection (i).

(E) Section 4041(m)(1) is amended to read as follows:

``(1) In general.--In the case of the sale or use of any partially exempt methanol or ethanol fuel, the rate of the tax imposed by subsection (a)(2) shall be--

``(A) after September 30, 1997, and before September 30, 2009--

``(i) in the case of fuel none of the alcohol in which consists of ethanol, 9.15 cents per gallon, and

``(ii) in any other case, 11.3 cents per gallon, and

``(B) after September 30, 2009--

``(i) in the case of fuel none of the alcohol in which consists of ethanol, 2.15 cents per gallon, and

``(ii) in any other case, 4.3 cents per gallon.''.

(F) Sections 4101(a), 4103, 4221(a), and 6206 are each amended by striking ``, 4081, or 4091'' and inserting ``or 4081''.

(G) Section 6416(b)(2) is amended by striking ``4091 or''.

(H) Section 6416(b)(3) is amended by striking ``or 4091'' each place it appears.

(I) Section 6416(d) is amended by striking ``or to the tax imposed by section 4091 in the case of refunds described in section 4091(d)''.

(J) Section 6427 is amended by striking subsection (f).

(K) Section 6427(j)(1) is amended by striking ``, 4081, and 4091'' and inserting ``and 4081''.

(L)(i) Section 6427(l)(1) is amended to read as follows:

``(1) In general.--Except as otherwise provided in this subsection and in subsection (k), if any diesel fuel or kerosene on which tax has been imposed by section 4041 or 4081 is used by any person in a nontaxable use, the Secretary shall pay (without interest) to the ultimate purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel under section 4041 or 4081, as the case may be, reduced by any refund paid to the ultimate vendor under paragraph (4)(B).''.

(ii) Paragraph (5)(B) of section 6427(l) is amended by striking ``Paragraph (1)(A) shall not apply to kerosene'' and inserting ``Paragraph (1) shall not apply to kerosene (other than aviation-grade kerosene)''.

(M) Subparagraph (B) of section 6724(d)(1) is amended by striking clause (xv) and by redesignating the succeeding clauses accordingly.

(N) Paragraph (2) of section 6724(d) is amended by striking subparagraph (W) and by redesignating the succeeding subparagraphs accordingly.

(O) Paragraph (1) of section 9502(b) is amended by adding

``and'' at the end of subparagraph (B) and by striking subparagraphs (C) and (D) and inserting the following new subparagraph:

``(C) section 4081 with respect to aviation gasoline and aviation-grade kerosene, and''.

(P) The last sentence of section 9502(b) is amended to read as follows: ``There shall not be taken into account under paragraph (1) so much of the taxes imposed by section 4081 as are determined at the rate specified in section 4081(a)(2)(B).''.

(Q) Subsection (b) of section 9508 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

(R) Section 9508(c)(2)(A) is amended by striking ``sections 4081 and 4091'' and inserting ``section 4081''.

(S) The table of subparts for part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart A. motor and aviation fuels

``Subpart B. special provisions applicable to fuels tax''.

(T) The heading for subpart A of part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart A--Motor and Aviation Fuels''.

(U) The heading for subpart B of part III of subchapter A of chapter 32 is amended to read as follows:

``Subpart B--Special Provisions Applicable to Fuels Tax''.

(e) Effective Date.--The amendments made by this section shall apply to aviation-grade kerosene removed, entered, or sold after September 30, 2004.

(f) Floor Stocks Tax.--

(1) In general.--There is hereby imposed on aviation-grade kerosene held on October 1, 2004, by any person a tax equal to--

(A) the tax which would have been imposed before such date on such kerosene had the amendments made by this section been in effect at all times before such date, reduced by

(B) the tax imposed before such date under section 4091 of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act.

(2) Liability for tax and method of payment.--

(A) Liability for tax.--The person holding the kerosene on October 1, 2004, to which the tax imposed by paragraph (1) applies shall be liable for such tax.

(B) Method and time for payment.--The tax imposed by paragraph (1) shall be paid at such time and in such manner as the Secretary of the Treasury shall prescribe, including the nonapplication of such tax on de minimis amounts of kerosene.

(3) Transfer of floor stock tax revenues to trust funds.--For purposes of determining the amount transferred to any trust fund, the tax imposed by this subsection shall be treated as imposed by section 4081 of the Internal Revenue Code of 1986--

(A) at the Leaking Underground Storage Tank Trust Fund financing rate under such section to the extent of 0.1 cents per gallon, and

(B) at the rate under section 4081(a)(2)(A)(iv) to the extent of the remainder.

(4) Held by a person.--For purposes of this section, kerosene shall be considered as held by a person if title thereto has passed to such person (whether or not delivery to the person has been made).

(5) Other laws applicable.--All provisions of law, including penalties, applicable with respect to the tax imposed by section 4081 of such Code shall, insofar as applicable and not inconsistent with the provisions of this subsection, apply with respect to the floor stock tax imposed by paragraph (1) to the same extent as if such tax were imposed by such section.

SEC. 9212. TRANSFER OF CERTAIN AMOUNTS FROM THE AIRPORT AND

AIRWAY TRUST FUND TO THE HIGHWAY TRUST FUND TO

REFLECT HIGHWAY USE OF JET FUEL.

(a) In General.--Section 9502(d) is amended by adding at the end the following new paragraph:

``(7) Transfers from the trust fund to the highway trust fund.--

``(A) In general.--The Secretary shall pay annually from the Airport and Airway Trust Fund into the Highway Trust Fund an amount (as determined by him) equivalent to amounts received in the Airport and Airway Trust Fund which are attributable to fuel that is used primarily for highway transportation purposes.

``(B) Amounts transferred to mass transit account.--The Secretary shall transfer 11 percent of the amounts paid into the Highway Trust Fund under subparagraph (A) to the Mass Transit Account established under section 9503(e).''.

(b) Conforming Amendments.--

(1) Subsection (a) of section 9503 is amended--

(A) by striking ``appropriated or credited'' and inserting

``paid, appropriated, or credited'', and

(B) by striking ``or section 9602(b)'' and inserting ``, section 9502(d)(7), or section 9602(b)''.

(2) Subsection (e)(1) of section 9503 is amended by striking ``or section 9602(b)'' and inserting ``, section 9502(d)(7), or section 9602(b)''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

PART II--DYED FUEL

SEC. 9221. DYE INJECTION EQUIPMENT.

(a) In General.--Section 4082(a)(2) (relating to exemptions for diesel fuel and kerosene) is amended by inserting ``by mechanical injection'' after ``indelibly dyed''.

(b) Dye Injector Security.--Not later than June 30, 2004, the Secretary of the Treasury shall issue regulations regarding mechanical dye injection systems described in the amendment made by subsection (a), and such regulations shall include standards for making such systems tamper resistant.

(c) Penalty for Tampering With or Failing to Maintain Security Requirements for Mechanical Dye Injection Systems.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties) is amended by adding after section 6715 the following new section:

``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY

REQUIREMENTS FOR MECHANICAL DYE INJECTION

SYSTEMS.

``(a) Imposition of Penalty.--

``(1) Tampering.--If any person tampers with a mechanical dye injection system used to indelibly dye fuel for purposes of section 4082, then such person shall pay a penalty in addition to the tax (if any).

``(2) Failure to maintain security requirements.--If any operator of a mechanical dye injection system used to indelibly dye fuel for purposes of section 4082 fails to maintain the security standards for such system as established by the Secretary, then such operator shall pay a penalty.

``(b) Amount of Penalty.--The amount of the penalty under subsection (a) shall be--

``(1) for each violation described in paragraph (1), the greater of--

``(A) $25,000, or

``(B) $10 for each gallon of fuel involved, and

``(2) for each--

``(A) failure to maintain security standards described in paragraph (2), $1,000, and

``(B) failure to correct a violation described in paragraph

(2), $1,000 per day for each day after which such violation was discovered or such person should have reasonably known of such violation.

``(c) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by adding after the item related to section 6715 the following new item:

``Sec. 6715A. Tampering with or failing to maintain security requirements for mechanical dye injection systems.''.

(d) Effective Date.--The amendments made by subsections (a) and (c) shall take effect 180 days after the date on which the Secretary issues the regulations described in subsection

(b).

SEC. 9222. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE

USE OF DYED FUEL.

(a) In General.--Section 6715 is amended by inserting at the end the following new subsection:

``(e) No Administrative Appeal for Third and Subsequent Violations.--In the case of any person who is found to be subject to the penalty under this section after a chemical analysis of such fuel and who has been penalized under this section at least twice after the date of the enactment of this subsection, no administrative appeal or review shall be allowed with respect to such finding except in the case of a claim regarding--

``(1) fraud or mistake in the chemical analysis, or

``(2) mathematical calculation of the amount of the penalty.''.

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

SEC. 9223. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL

MIXTURES.

(a) In General.--Section 6715(a) (relating to dyed fuel sold for use or used in taxable use, etc.) is amended by striking ``or'' in paragraph (2), by inserting ``or'' at the end of paragraph (3), and by inserting after paragraph (3) the following new paragraph:

``(4) any person who has knowledge that a dyed fuel which has been altered as described in paragraph (3) sells or holds for sale such fuel for any use which the person knows or has reason to know is not a nontaxable use of such fuel,''.

(b) Conforming Amendment.--Section 6715(a)(3) is amended by striking ``alters, or attempts to alter,'' and inserting

``alters, chemically or otherwise, or attempts to so alter,''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9224. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.

(a) In General.--Paragraph (3) of section 4082(b) (relating to nontaxable use) is amended to read as follows:

``(3) any use described in section 4041(a)(1)(C)(iii)(II).''.

(b) Ultimate Vendor Refund.--Subsection (b) of section 6427 is amended by adding at the end the following new paragraph:

``(4) Refunds for use of diesel fuel in certain intercity buses.--

``(A) In general.--With respect to any fuel to which paragraph (2)(A) applies, if the ultimate purchaser of such fuel waives (at such time and in such form and manner as the Secretary shall prescribe) the right to payment under paragraph (1) and assigns such right to the ultimate vendor, then the Secretary shall pay the amount which would be paid under paragraph (1) to such ultimate vendor, but only if such ultimate vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).

``(B) Credit cards.--For purposes of this paragraph, if the sale of such fuel is made by means of a credit card, the person extending credit to the ultimate purchaser shall be deemed to be the ultimate vendor.''.

(c) Payment of Refunds.--Subparagraph (A) of section 6427(i)(4), as amended by section 9211 of this Act, is amended by inserting ``subsections (b)(4) and'' after ``filed under''.

(b) Effective Date.--The amendments made by this section shall apply to fuel sold after September 30, 2004.

PART III--MODIFICATION OF INSPECTION OF RECORDS PROVISIONS

SEC. 9231. AUTHORITY TO INSPECT ON-SITE RECORDS.

(a) In General.--Section 4083(d)(1)(A) (relating to administrative authority), as amended by section 9211 of this Act, is amended by striking ``and'' at the end of clause (i) and by inserting after clause (ii) the following new clause:

``(iii) inspecting any books and records and any shipping papers pertaining to such fuel, and''.

(b) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9232. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.

(a) In General.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9221 of this Act, is amended by adding at the end the following new section:

``SEC. 6717. REFUSAL OF ENTRY.

``(a) In General.--In addition to any other penalty provided by law, any person who refuses to admit entry or refuses to permit any other action by the Secretary authorized by section 4083(d)(1) shall pay a penalty of

$1,000 for such refusal.

``(b) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(b) Conforming Amendments.--

(1) Section 4083(d)(3), as amended by section 9211 of this Act, is amended--

(A) by striking ``entry.--The penalty'' and inserting:

``entry.--

``(A) Forfeiture.--The penalty'', and

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

``(B) Assessable penalty.--For additional assessable penalty for the refusal to admit entry or other refusal to permit an action by the Secretary authorized by paragraph

(1), see section 6717.''.

(2) The table of sections for part I of subchapter B of chapter 68, as amended by section 9221 of this Act, is amended by adding at the end the following new item:

``Sec. 6717. Refusal of entry.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

PART IV--REGISTRATION AND REPORTING REQUIREMENTS

SEC. 9241. REGISTRATION OF PIPELINE OR VESSEL OPERATORS

REQUIRED FOR EXEMPTION OF BULK TRANSFERS TO

REGISTERED TERMINALS OR REFINERIES.

(a) In General.--Section 4081(a)(1)(B) (relating to exemption for bulk transfers to registered terminals or refineries) is amended--

(1) by inserting ``by pipeline or vessel'' after

``transferred in bulk'', and

(2) by inserting ``, the operator of such pipeline or vessel,'' after ``the taxable fuel''.

(b) Civil Penalty for Carrying Taxable Fuels by Nonregistered Pipelines or Vessels.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9232 of this Act, is amended by adding at the end the following new section:

``SEC. 6718. CARRYING TAXABLE FUELS BY NONREGISTERED

PIPELINES OR VESSELS.

``(a) Imposition of Penalty.--If any person knowingly transfers any taxable fuel (as defined in section 4083(a)(1)) in bulk pursuant to section 4081(a)(1)(B) to an unregistered, such person shall pay a penalty in addition to the tax (if any).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraph (2), the amount of the penalty under subsection (a) on each act shall be an amount equal to the greater of--

``(A) $10,000, or

``(B) $1 per gallon.

``(2) Multiple violations.--In determining the penalty under subsection (a) on any person, paragraph (1) shall be applied by increasing the amount in paragraph (1) by the product of such amount and the number of prior penalties (if any) imposed by this section on such person (or a related person or any predecessor of such person or related person).

``(c) Joint and Several Liability.--

``(1) In general.--If a penalty is imposed under this section on any business entity, each officer, employee, or agent of such entity or other contracting party who willfully participated in any act giving rise to such penalty shall be jointly and severally liable with such entity for such penalty.

``(2) Affiliated groups.--If a business entity described in paragraph (1) is part of an affiliated group (as defined in section 1504(a)), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section.

``(d) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9232 of this Act, is amended by adding at the end the following new item:

``Sec. 6718. Carrying taxable fuels by nonregistered pipelines or vessels.''.

(c) Publication of Registered Persons.--Not later than June 30, 2004, the Secretary of the Treasury shall publish a list of persons required to be registered under section 4101 of the Internal Revenue Code of 1986.

(d) Effective Date.--The amendments made by subsections (a) and (b) shall take effect on October 1, 2004.

SEC. 9242. DISPLAY OF REGISTRATION.

(a) In General.--Subsection (a) of section 4101 (relating to registration) is amended--

(1) by striking ``Every'' and inserting the following:

``(1) In general.--Every'', and

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

``(2) Display of registration.--Every operator of a vessel required by the Secretary to register under this section shall display proof of registration through an electronic identification device prescribed by the Secretary on each vessel used by such operator to transport any taxable fuel.''.

(b) Civil Penalty for Failure to Display Registration.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9241 of this Act, is amended by adding at the end the following new section:

``SEC. 6719. FAILURE TO DISPLAY REGISTRATION OF VESSEL.

``(a) Failure to Display Registration.--Every operator of a vessel who fails to display proof of registration pursuant to section 4101(a)(2) shall pay a penalty of $500 for each such failure. With respect to any vessel, only one penalty shall be imposed by this section during any calendar month.

``(b) Multiple Violations.--In determining the penalty under subsection (a) on any person, subsection (a) shall be applied by increasing the amount in subsection (a) by the product of such amount and the number of prior penalties (if any) imposed by this section on such person (or a related person or any predecessor of such person or related person).

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9241 of this Act, is amended by adding at the end the following new item:

``Sec. 6719. Failure to display registration of vessel.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9243. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE

ZONES, ETC.

(a) In General.--Section 4101(a), as amended by section 9242 of this Act, is amended by redesignating paragraph (2) as paragraph (3), and by inserting after paragraph (1) the following new paragraph:

``(2) Registration of persons within foreign trade zones, etc.--The Secretary shall require registration by any person which--

``(A) operates a terminal or refinery within a foreign trade zone or within a customs bonded storage facility, or

``(B) holds an inventory position with respect to a taxable fuel in such a terminal.''.

(b) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9244. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO

REPORT.

(a) Increased Penalty.--Subsection (a) of section 7272

(relating to penalty for failure to register) is amended by inserting ``($10,000 in the case of a failure to register under section 4101)'' after ``$50''.

(b) Increased Criminal Penalty.--Section 7232 (relating to failure to register under section 4101, false representations of registration status, etc.) is amended by striking

``$5,000'' and inserting ``$10,000''.

(c) Assessable Penalty for Failure to Register.--

(1) In general.--Part I of subchapter B of chapter 68

(relating to assessable penalties), as amended by section 9242 of this Act, is amended by adding at the end the following new section:

``SEC. 6720. FAILURE TO REGISTER.

``(a) Failure to Register.--Every person who is required to register under section 4101 and fails to do so shall pay a penalty in addition to the tax (if any).

``(b) Amount of Penalty.--The amount of the penalty under subsection (a) shall be--

``(1) $10,000 for each initial failure to register, and

``(2) $1,000 for each day thereafter such person fails to register.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part I of subchapter B of chapter 68, as amended by section 9242 of this Act, is amended by adding at the end the following new item:

``Sec. 6720. Failure to register.''.

(d) Assessable Penalty for Failure to Report.--

(1) In general.--Part II of subchapter B of chapter 68

(relating to assessable penalties) is amended by adding at the end the following new section:

``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION

4101.

``(a) In General.--In the case of each failure described in subsection (b) by any person with respect to a vessel or facility, such person shall pay a penalty of $10,000 in addition to the tax (if any).

``(b) Failures Subject to Penalty.--For purposes of subsection (a), the failures described in this subsection are--

``(1) any failure to make a report under section 4101(d) on or before the date prescribed therefor, and

``(2) any failure to include all of the information required to be shown on such report or the inclusion of incorrect information.

``(c) Reasonable Cause Exception.--No penalty shall be imposed under this section with respect to any failure if it is shown that such failure is due to reasonable cause.''.

(2) Clerical amendment.--The table of sections for part II of subchapter B of chapter 68 is amended by adding at the end the following new item:

``Sec. 6725. Failure to report information under section 4101.''.

(e) Effective Date.--The amendments made by this section shall apply to failures pending or occurring after September 30, 2004.

SEC. 9245. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN

TAX BENEFITS.

(a) In General.--Subpart C of part III of subchapter A of chapter 32 is amended by adding at the end the following new section:

``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING

CERTAIN TAX BENEFITS.

``(a) In General.--The Secretary shall require any person claiming tax benefits--

``(1) under the provisions of section 34, 40, and 40A to file a return at the time such person claims such benefits

(in such manner as the Secretary may prescribe), and

``(2) under the provisions of section 4041(b)(2), 6426, or 6427(e) to file a monthly return (in such manner as the Secretary may prescribe).

``(b) Contents of Return.--Any return filed under this section shall provide such information relating to such benefits and the coordination of such benefits as the Secretary may require to ensure the proper administration and use of such benefits.

``(c) Enforcement.--With respect to any person described in subsection (a) and subject to registration requirements under this title, rules similar to rules of section 4222(c) shall apply with respect to any requirement under this section.''.

(b) Conforming Amendment.--The table of sections for subpart C of part III of subchapter A of chapter 32 is amended by adding at the end the following new item:

``Sec. 4104. Information reporting for persons claiming certain tax benefits.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9246. ELECTRONIC REPORTING.

(a) In General.--Section 4101(d), as amended by section 9273 of this Act, is amended by adding at the end the following new sentence: ``Any person who is required to report under this subsection and who has 25 or more reportable transactions in a month shall file such report in electronic format.''.

(b) Effective Date.--The amendments made by this section shall apply on October 1, 2004.

PART V--IMPORTS

SEC. 9251. TAX AT POINT OF ENTRY WHERE IMPORTER NOT

REGISTERED.

(a) Tax at Point of Entry Where Importer not Registered.--

(1) In general.--Subpart C of part III of subchapter A of chapter 31, as amended by section 9245 of this Act, is amended by adding at the end the following new section:

``SEC. 4105. TAX AT ENTRY WHERE IMPORTER NOT REGISTERED.

``(a) In General.--Any tax imposed under this part on any person not registered under section 4101 for the entry of a fuel into the United States shall be imposed at the time and point of entry.

``(b) Enforcement of Assessment.--If any person liable for any tax described under subsection (a) has not paid the tax or posted a bond, the Secretary may--

``(1) seize the fuel on which the tax is due, or

``(2) detain any vehicle transporting such fuel,until such tax is paid or such bond is filed.

``(c) Levy of Fuel.--If no tax has been paid or no bond has been filed within 5 days from the date the Secretary seized fuel pursuant to subsection (b), the Secretary may sell such fuel as provided under section 6336.''.

(2) Conforming amendment.--The table of sections for subpart C of part III of subchapter A of chapter 31 of the Internal Revenue Code of 1986, as amended by section 9245 of this Act, is amended by adding after the last item the following new item:

``Sec. 4105. Tax at entry where importer not registered.''.

(b) Denial of Entry Where Tax not Paid.--The Secretary of Homeland Security is authorized to deny entry into the United States of any shipment of a fuel which is taxable under section 4081 of the Internal Revenue Code of 1986 if the person entering such shipment fails to pay the tax imposed under such section or post a bond in accordance with the provisions of section 4105 of such Code.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

PART VI--MISCELLANEOUS PROVISIONS

SEC. 9261. TAX ON SALE OF DIESEL FUEL WHETHER SUITABLE FOR

USE OR NOT IN A DIESEL-POWERED VEHICLE OR

TRAIN.

(a) In General.--Section 4083(a)(3) is amended--

(1) by striking ``The term'' and inserting the following:

``(A) In general.--The term'', and

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

``(B) Liquid sold as diesel fuel.--The term `diesel fuel' includes any liquid which is sold as or offered for sale as a fuel in a diesel-powered highway vehicle or a diesel-powered train.''.

(b) Conforming Amendments.--

(1) Section 40A(b)(1)(B), as amended by section 9103 of this Act, is amended by striking ``4083(a)(3)'' and inserting

``4083(a)(3)(A)''.

(2) Section 6426(c)(3), as added by section 5102 of this Act, is amended by striking ``4083(a)(3)'' and inserting

``4083(a)(3)(A)''.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9262. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH

RESPECT TO FARMING.

(a) In General.--

(1) Refunds.--Section 6427(l) is amended by adding at the end the following new paragraph:

``(6) Registered vendors permitted to administer certain claims for refund of diesel fuel and kerosene sold to farmers.--

``(A) In general.--In the case of diesel fuel or kerosene used on a farm for farming purposes (within the meaning of section 6420(c)), paragraph (1) shall not apply to the aggregate amount of such diesel fuel or kerosene if such amount does not exceed 500 gallons (as determined under subsection (i)(5)(A)(iii)).

``(B) Payment to ultimate vendor.--The amount which would

(but for subparagraph (A)) have been paid under paragraph (1) with respect to any fuel shall be paid to the ultimate vendor of such fuel, if such vendor--

``(i) is registered under section 4101, and

``(ii) meets the requirements of subparagraph (A), (B), or

(D) of section 6416(a)(1).''.

(2) Filing of claims.--Section 6427(i) is amended by inserting at the end the following new paragraph:

``(5) Special rule for vendor refunds with respect to farmers.--

``(A) In general.--A claim may be filed under subsection

(l)(6) by any person with respect to fuel sold by such person for any period--

``(i) for which $200 or more ($100 or more in the case of kerosene) is payable under subsection (l)(6),

``(ii) which is not less than 1 week, and

``(iii) which is for not more than 500 gallons for each farmer for which there is a claim.Notwithstanding subsection (l)(1), paragraph (3)(B) shall apply to claims filed under the preceding sentence.

``(B) Time for filing claim.--No claim filed under this paragraph shall be allowed unless filed on or before the last day of the first quarter following the earliest quarter included in the claim.''.

(3) Conforming amendments.--

(A) Section 6427(l)(5)(A) is amended to read as follows:

``(A) In general.--Paragraph (1) shall not apply to diesel fuel or kerosene used by a State or local government.''.

(B) The heading for section 6427(l)(5) is amended by striking ``farmers and''.

(b) Effective Date.--The amendment made by this section shall apply to fuels sold for nontaxable use after the date of the enactment of this Act.

SEC. 9263. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

(a) In General.--Paragraph (4) of section 6416(a) (relating to abatements, credits, and refunds) is amended to read as follows:

``(4) Registered ultimate vendor to administer credits and refunds of gasoline tax.--

``(A) In general.--For purposes of this subsection, if an ultimate vendor purchases any gasoline on which tax imposed by section 4081 has been paid and sells such gasoline to an ultimate purchaser described in subparagraph (C) or (D) of subsection (b)(2) (and such gasoline is for a use described in such subparagraph), such ultimate vendor shall be treated as the person (and the only person) who paid such tax, but only if such ultimate vendor is registered under section 4101. For purposes of this subparagraph, if the sale of gasoline is made by means of a credit card, the person extending the credit to the ultimate purchaser shall be deemed to be the ultimate vendor.

``(B) Timing of claims.--The procedure and timing of any claim under subparagraph (A) shall be the same as for claims under section 6427(i)(4), except that the rules of section 6427(i)(3)(B) regarding electronic claims shall not apply unless the ultimate vendor has certified to the Secretary for the most recent quarter of the taxable year that all ultimate purchasers of the vendor are certified and entitled to a refund under subparagraph (C) or (D) of subsection (b)(2).''.

(b) Credit Card Purchases of Diesel Fuel or Kerosene by State and Local Governments.--Section 6427(l)(5)(C) (relating to nontaxable uses of diesel fuel, kerosene, and aviation fuel), as amended by section 9252 of this Act, is amended by adding at the end the following new sentence: ``For purposes of this subparagraph, if the sale of diesel fuel or kerosene is made by means of a credit card, the person extending the credit to the ultimate purchaser shall be deemed to be the ultimate vendor.''.

(c) Effective Date.--The amendments made by this section shall take effect on October 1, 2004.

SEC. 9264. TWO-PARTY EXCHANGES.

(a) In General.--Subpart C of part III of subchapter A of chapter 32, as amended by section 9251 of this Act, is amended by adding at the end the following new section:

``SEC. 4106. TWO-PARTY EXCHANGES.

``(a) In General.--In a two-party exchange, the delivering person shall not be liable for the tax imposed under of section 4081(a)(1)(A)(ii).

``(b) Two-Party Exchange.--The term `two-party exchange' means a transaction, other than a sale, in which taxable fuel is transferred from a delivering person registered under section 4101 as a taxable fuel registrant to a receiving person who is so registered where all of the following occur:

``(1) The transaction includes a transfer from the delivering person, who holds the inventory position for taxable fuel in the terminal as reflected in the records of the terminal operator.

``(2) The exchange transaction occurs before or contemporaneous with completion of removal across the rack from the terminal by the receiving person.

``(3) The terminal operator in its books and records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction to the Secretary.

``(4) The transaction is the subject of a written contract.''.

(b) Conforming Amendment.--The table of sections for subpart C of part III of subchapter A of chapter 32, as amended by section 9251 of this Act, is amended by adding after the last item the following new item:

``Sec. 4106. Two-party exchanges.''.

(c) Effective Date.--The amendment made by this section shall take effect on the date of the enactment of this Act.

SEC. 9265. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

(a) No Proration of Tax Unless Vehicle Is Destroyed or Stolen.--

(1) In general.--Section 4481(c) (relating to proration of tax) is amended to read as follows:

``(c) Proration of Tax Where Vehicle Sold, Destroyed, or Stolen.--

``(1) In general.--If in any taxable period a highway motor vehicle is sold, destroyed, or stolen before the first day of the last month in such period and not subsequently used during such taxable period, the tax shall be reckoned proportionately from the first day of the month in such period in which the first use of such highway motor vehicle occurs to and including the last day of the month in which such highway motor vehicle was sold, destroyed, or stolen.

``(2) Destroyed.--For purposes of paragraph (1), a highway motor vehicle is destroyed if such vehicle is damaged by reason of an accident or other casualty to such an extent that it is not economic to rebuild.''.

(2) Conforming amendments.--

(A) Section 6156 (relating to installment payment of tax on use of highway motor vehicles) is repealed.

(B) The table of sections for subchapter A of chapter 62 is amended by striking the item relating to section 6156.

(b) Display of Tax Certificate.--Paragraph (2) of section 4481(d) (relating to one tax liability for period) is amended to read as follows:

``(2) Display of tax certificate.--Every taxpayer which pays the tax imposed under this section with respect to a highway motor vehicle shall, not later than 1 month after the due date of the return of tax with respect to each taxable period, receive and display on such vehicle an electronic identification device prescribed by the Secretary.''.

(c) Electronic Filing.--Section 4481, as amended by section 9001 of this Act, is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:

``(e) Electronic Filing.--Any taxpayer who files a return under this section with respect to 25 or more vehicles for any taxable period shall file such return electronically.''.

(d) Repeal of Reduction in Tax for Certain Trucks.--Section 4483 of the Internal Revenue Code of 1986 is amended by striking subsection (f).

(e) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable periods beginning after the date of the enactment of this Act.

(2) Subsection (b).--The amendment made by subsection (b) shall take effect on October 1, 2005.

SEC. 9266. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO

THE HIGHWAY TRUST FUND.

(a) In General.--Subsection (b) of section 9503 (relating to transfer to Highway Trust Fund of amounts equivalent to certain taxes), as amended by section 9001 of this Act, is amended by redesignating paragraph (5) as paragraph (6) and inserting after paragraph (4) the following new paragraph:

``(5) Certain penalties.--There are hereby appropriated to the Highway Trust Fund amounts equivalent to the penalties assessed under sections 6715, 6715A, 6717, 6718, 6719, 6720, 6725, 7232, and 7272 (but only with regard to penalties under such section related to failure to register under section 4101).''.

(b) Conforming Amendments.--

(1) The heading of subsection (b) of section 9503 is amended by inserting ``and Penalties'' after ``Taxes''.

(2) The heading of paragraph (1) of section 9503(b) is amended by striking ``In general'' and inserting ``Certain taxes''.

(c) Effective Date.--The amendments made by this section shall apply to penalties assessed after October 1, 2004.

SEC. 9267. NONAPPLICATION OF EXPORT EXEMPTION TO DELIVERY OF

FUEL TO MOTOR VEHICLES REMOVED FROM UNITED

STATES.

(a) In General.--Section 4221(d)(2) (defining export) is amended by adding at the end the following new sentence:

``Such term does not include the delivery of a taxable fuel

(as defined in section 4083(a)(1)) into a fuel tank of a motor vehicle which is shipped or driven out of the United States.''.

(b) Conforming Amendments.--

(1) Section 4041(g) (relating to other exemptions) is amended by adding at the end the following new sentence:

``Paragraph (3) shall not apply to the sale for delivery of a liquid into a fuel tank of a motor vehicle which is shipped or driven out of the United States.''.

(2) Clause (iv) of section 4081(a)(1)(A) (relating to tax on removal, entry, or sale) is amended by inserting ``or at a duty-free sales enterprise (as defined in section 555(b)(8) of the Tariff Act of 1930)'' after ``section 4101''.

(c) Effective Date.--The amendments made by this section shall apply to sales or deliveries made after the date of the enactment of this Act.

PART VII--TOTAL ACCOUNTABILITY

SEC. 9271. TOTAL ACCOUNTABILITY.

(a) Taxation of Reportable Liquids.--

(1) In general.--Section 4081(a), as amended by this Act, is amended--

(A) by inserting ``or reportable liquid'' after ``taxable fuel'' each place it appears, and

(B) by inserting ``such liquid'' after ``such fuel'' in paragraph (1)(A)(iv).

(2) Rate of tax.--Subparagraph (A) of section 4081(a)(2), as amended by section 9211 of this Act, is amended by striking ``and'' at the end of clause (iii), by striking the period at the end of clause (iv) and inserting ``, and'', and by adding at the end the following new clause:

``(v) in the case of reportable liquids, the rate determined under section 4083(c)(2).''.

(3) Exemption.--Section 4081(a)(1) is amended by adding at the end the following new subparagraph:

``(C) Exemption for registered transfers of reportable liquids.--The tax imposed by this paragraph shall not apply to any removal, entry, or sale of a reportable liquid if--

``(i) such removal, entry, or sale is to a registered person who certifies that such liquid will not be used as a fuel or in the production of a fuel, or

``(ii) the sale is to the ultimate purchaser of such liquid.''.

(4) Reportable liquids.--Section 4083, as amended by this Act, is amended by redesignating subsections (c) and (d) (as redesignated by section 5211 of this Act) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new section:

``(c) Reportable Liquid.--For purposes of this subpart--

``(1) In general.--The term `reportable liquid' means any petroleum-based liquid other than a taxable fuel.

``(2) Taxation.--

``(A) Gasoline blend stocks and additives.--Gasoline blend stocks and additives which are reportable liquids (as defined in paragraph (1)) shall be subject to the rate of tax under clause (i) of section 4081(a)(2)(A).

``(B) Other reportable liquids.--Any reportable liquid (as defined in paragraph (1)) not described in subparagraph (A) shall be subject to the rate of tax under clause (iii) of section 4081(a)(2)(A).''.

(5) Conforming amendments.--

(A) Section 4081(e) is amended by inserting ``or reportable liquid'' after ``taxable fuel''.

(B) Section 4083(d) (relating to certain use defined as removal), as redesignated by paragraph (4), is amended by inserting ``or reportable liquid'' after ``taxable fuel''.

(C) Section 4083(e)(1) (relating to administrative authority), as redesignated by paragraph (4), is amended--

(i) in subparagraph (A)--

(I) by inserting ``or reportable liquid'' after ``taxable fuel'', and

(II) by inserting ``or such liquid'' after ``such fuel'' each place it appears, and

(ii) in subparagraph (B), by inserting ``or any reportable liquid'' after ``any taxable fuel''.

(D) Section 4101(a)(2), as added by section 5243 of this Act, is amended by inserting ``or a reportable liquid'' after

``taxable fuel''.

(E) Section 4101(a)(3), as added by section 5242 of this Act and redesignated by section 5243 of this Act, is amended by inserting ``or any reportable liquid'' before the period at the end.

(F) Section 4102 is amended by inserting ``or any reportable liquid'' before the period at the end.

(G)(i) Section 6718, as added by section 5241 of this Act, is amended--

(I) in subsection (a), by inserting ``or any reportable liquid (as defined in section 4083(c)(1))'' after `` section 4083(a)(1))'', and

(II) in the heading, by inserting ``or reportable liquids'' after ``taxable fuel''.

(ii) The item relating to section 6718 in table of sections for part I of subchapter B of chapter 68, as added by section 5241 of this Act, is amended by inserting ``or reportable liquids'' after ``taxable fuels''.

(H) Section 6427(h) is amended to read as follows:

``(h) Gasoline Blend Stocks or Additives and Reportable Liquids.--Except as provided in subsection (k)--

``(1) if any gasoline blend stock or additive (within the meaning of section 4083(a)(2)) is not used by any person to produce gasoline and such person establishes that the ultimate use of such gasoline blend stock or additive is not to produce gasoline, or

``(2) if any reportable liquid (within the meaning of section 4083(c)(1)) is not used by any person to produce a taxable fuel and such person establishes that the ultimate use of such reportable liquid is not to produce a taxable fuel,

then the Secretary shall pay (without interest) to such person an amount equal to the aggregate amount of the tax imposed on such person with respect to such gasoline blend stock or additive or such reportable fuel.''.

(I) Section 7232, as amended by this Act, is amended by inserting ``or reportable liquid (within the meaning of section 4083(c)(1))'' after ``section 4083)''.

(b) Dyed Diesel.--Section 4082(a) is amended by striking

``and'' at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting ``and'', and by inserting after paragraph (3) the following new paragraph:

``(4) which is removed, entered, or sold by a person registered under section 4101.''.

(c) Effective Date.--The amendments made by this section shall apply to reportable liquids (as defined in section 4083(c) of the Internal Revenue Code) and fuel sold or used after September 30, 2004.

SEC. 9272. EXCISE TAX REPORTING.

(a) In General.--Part II of subchapter A of chapter 61 is amended by adding at the end the following new subpart:

``Subpart E--Excise Tax Reporting

``SEC. 6025. RETURNS RELATING TO FUEL TAXES.

``(a) In General.--The Secretary shall require any person liable for the tax imposed under Part III of subchapter A of chapter 32 to file a return of such tax on a monthly basis.

``(b) Information Included With Return.--The Secretary shall require any person filing a return under subsection (a) to provide information regarding any refined product (whether or not such product is taxable under this title) removed from a terminal during the period for which such return applies.''.

(b) Conforming Amendment.--The table of parts for subchapter A of chapter 61 is amended by adding at the end the following new item:

``Subpart E--Excise tax reporting''.

(c) Effective Date.--The amendments made by this section shall apply to fuel sold or used after September 30, 2004.

SEC. 9273. INFORMATION REPORTING.

(a) In General.--Section 4101(d) is amended by adding at the end the following new flush sentence: ``The Secretary shall require reporting under the previous sentence with respect to taxable fuels removed, entered, or transferred from any refinery, pipeline, or vessel which is registered under this section.''.

(b) Effective Date.--The amendment made by this section shall apply on October 1, 2004.

Subtitle D--Definition of Highway Vehicle

SEC. 9301. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE

MACHINERY.

(a) Exemption From Tax on Heavy Trucks and Trailers Sold at Retail.--

(1) In general.--Section 4053 (relating to exemptions) is amended by adding at the end the following new paragraph:

``(8) Mobile machinery.--Any vehicle which consists of a chassis--

``(A) to which there has been permanently mounted (by welding, bolting, riveting, or other means) machinery or equipment to perform a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation if the operation of the machinery or equipment is unrelated to transportation on or off the public highways,

``(B) which has been specially designed to serve only as a mobile carriage and mount (and a power source, where applicable) for the particular machinery or equipment involved, whether or not such machinery or equipment is in operation, and

``(C) which, by reason of such special design, could not, without substantial structural modification, be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis.''.

(2) Effective date.--The amendment made by this subsection shall take effect on the day after the date of the enactment of this Act.

(b) Exemption From Tax on Use of Certain Vehicles.--

(1) In general.--Section 4483 (relating to exemptions) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

``(g) Exemption for Mobile Machinery.--No tax shall be imposed by section 4481 on the use of any vehicle described in section 4053(8).''.

(2) Effective date.--The amendments made by this subsection shall take effect on the day after the date of the enactment of this Act.

(d) Exemption From Fuel Taxes.--

(1) In general.--Section 6421(e)(2) (defining off-highway business use) is amended by adding at the end the following new subparagraph:

``(C) Uses in mobile machinery.--

``(i) In general.--The term `off-highway business use' shall include any use in a vehicle which meets the requirements described in clause (ii).

``(ii) Requirements for mobile machinery.--The requirements described in this clause are--

``(I) the design-based test, and

``(II) the use-based test.

``(iii) Design-based test.--For purposes of clause (ii)(I), the design-based test is met if the vehicle consists of a chassis--

``(I) to which there has been permanently mounted (by welding, bolting, riveting, or other means) machinery or equipment to perform a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation if the operation of the machinery or equipment is unrelated to transportation on or off the public highways,

``(II) which has been specially designed to serve only as a mobile carriage and mount (and a power source, where applicable) for the particular machinery or equipment involved, whether or not such machinery or equipment is in operation, and

``(III) which, by reason of such special design, could not, without substantial structural modification, be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis.

``(iv) Use-based test.--For purposes of clause (ii)(II), the use-based test is met if the use of the vehicle on public highways was less than 5,000 miles during the taxpayer's taxable year.

``(v) Special rule for use by certain tax-exempt organizations.--In the case of any use in a vehicle by an organization which is described in section 501(c) and exempt from tax under section 501(a), clause (ii) shall be applied without regard to subclause (II) thereof.''.

(2) Annual refund of tax paid.--Section 6427(i)(2)

(relating to exceptions) is amended by adding at the end the following new subparagraph:

``(C) Nonapplication of paragraph.--This paragraph shall not apply to any fuel used in any off-highway business use described in section 6421(e)(2)(C).''.

(3) Effective date.--The amendments made by this subsection shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 9302. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.

(a) In General.--Section 7701(a) (relating to definitions) is amended by adding at the end the following new paragraph:

``(48) Off-highway vehicles.--

``(A) Off-highway transportation vehicles.--

``(i) In general.--A vehicle shall not be treated as a highway vehicle if such vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design such vehicle's capability to transport a load over the public highway is substantially limited or impaired.

``(ii) Determination of vehicle's design.--For purposes of clause (i), a vehicle's design is determined solely on the basis of its physical characteristics.

``(iii) Determination of substantial limitation or impairment.--For purposes of clause (i), in determining whether substantial limitation or impairment exists, account may be taken of factors such as the size of the vehicle, whether such vehicle is subject to the licensing, safety, and other requirements applicable to highway vehicles, and whether such vehicle can transport a load at a sustained speed of at least 25 miles per hour. It is immaterial that a vehicle can transport a greater load off the public highway than such vehicle is permitted to transport over the public highway.

``(B) Nontransportation trailers and semitrailers.--A trailer or semitrailer shall not be treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for the carrying on of an off-highway function at an off-highway site.''.

(c) Effective Dates.--

(1) In general.--Except as provided in paragraph (2), the amendment made by this section shall take effect on the date of the enactment of this Act.

(2) Fuel taxes.--With respect to taxes imposed under subchapter B of chapter 31 and part III of subchapter A of chapter 32, the amendment made by this section shall apply to taxable periods beginning after the date of the enactment of this Act.

Subtitle E--Miscellaneous Provisions

SEC. 9401. DEDICATION OF GAS GUZZLER TAX TO HIGHWAY TRUST

FUND.

(a) In General.--Section 9503(b)(1) (relating to transfer to Highway Trust Fund of amounts equivalent to certain taxes), as amended by section 9101 of this Act, is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B) the following new subparagraph:

``(C) section 4064 (relating to gas guzzler tax),''.

(b) Uniform Application of Tax.--Subparagraph (A) of section 4064(b)(1) (defining automobile) is amended by striking the second sentence.

(c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 9402. MOTOR FUEL TAX ENFORCEMENT ADVISORY COMMISSION.

(a) Establishment.--There is established a Motor Fuel Tax Enforcement Advisory Commission (in this section referred to as the ``Commission'').

(b) Function.--The Commission shall--

(1) review motor fuel revenue collections, historical and current;

(2) review the progress of investigations;

(3) develop and review legislative proposals with respect to motor fuel taxes;

(4) monitor the progress of administrative regulation projects relating to motor fuel taxes;

(5) review the results of Federal and State agency cooperative efforts regarding motor fuel taxes;

(6) review the results of Federal interagency cooperative efforts regarding motor fuel taxes; and

(7) evaluate and make recommendations regarding--

(A) the effectiveness of existing Federal enforcement programs regarding motor fuel taxes,

(B) enforcement personnel allocation, and

(C) proposals for regulatory projects, legislation, and funding.

(c) Membership.--

(1) Appointment.--The Commission shall be composed of the following representatives appointed by the Chairmen and the Ranking Members of the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives:

(A) At least 1 representative from each of the following Federal entities: the Department of Homeland Security, the Department of Transportation--Office of Inspector General, the Federal Highway Administration, the Department of Defense, and the Department of Justice.

(B) At least 1 representative from the Federation of State Tax Administrators.

(C) At least 1 representative from any State department of transportation.

(D) 2 representatives from the highway construction industry.

(E) 5 representatives from industries relating to fuel distribution -- refiners (2 representatives), distributors (1 representative), pipelines (1 representative), and terminal operators (2 representatives).

(F) 1 representative from the retail fuel industry.

(G) 2 representatives from the staff of the Committee on Finance of the Senate and 2 representatives from the staff of the Committee on Ways and Means of the House of Representatives.

(2) Terms.--Members shall be appointed for the life of the Commission.

(3) Vacancies.--A vacancy in the Commission shall be filled in the manner in which the original appointment was made.

(4) Travel expenses.--Members shall serve without pay but shall receive travel expenses, including per diem in lieu of subsistence, in accordance with sections 5702 and 5703 of title 5, United States Code.

(5) Chairman.--The Chairman of the Commission shall be elected by the members.

(d) Funding.--Such sums as are necessary shall be available from the Highway Trust fund for the expenses of the Commission.

(e) Consultation.--Upon request of the Commission, representatives of the Department of the Treasury and the Internal Revenue Service shall be available for consultation to assist the Commission in carrying out its duties under this section.

(f) Obtaining Data.--The Commission may secure directly from any department or agency of the United States, information (other than information required by any law to be kept confidential by such department or agency) necessary for the Commission to carry out its duties under this section. Upon request of the Commission, the head of that department or agency shall furnish such nonconfidential information to the Commission. The Commission shall also gather evidence through such means as it may deem appropriate, including through holding hearings and soliciting comments by means of Federal Register notices.

(g) Termination.--The Commission shall terminate after September 30, 2009.

SEC. 9403. TREASURY STUDY OF FUEL TAX COMPLIANCE AND

INTERAGENCY COOPERATION.

(a) In General.--Not later than January 31, 2006, the Secretary of the Treasury shall submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives a report regarding fuel tax enforcement which shall include the information and analysis specified in subsections (b) and (c) and any other information and recommendations the Secretary of the Treasury may deem appropriate.

(b) Audits.--With respect to audits conducted by the Internal Revenue Service, the report required under subsection (a) shall include--

(1) the number and geographic distribution of audits conducted annually, by fiscal year, between October 1, 2001, and September 30, 2005;

(2) the total volume involved for each of the taxable fuels covered by such audits and a comparison to the annual production of such fuels;

(3) the staff hours and number of personnel devoted to the audits per year; and

(4) the results of such audits by year, including total tax collected, total penalties collected, and number of referrals for criminal prosecution.

(c) Enforcement Activities.--With respect to enforcement activities, the report required under subsection (a) shall include--

(1) the number and geographic distribution of criminal investigations and prosecutions annually, by fiscal year, between October 1, 2001, and September 30, 2005, and the results of such investigations and prosecutions;

(2) to the extent such investigations and prosecutions involved other agencies, State or Federal, a breakdown by agency of the number of joint investigations involved;

(3) an assessment of the effectiveness of joint action and cooperation between the Department of the Treasury and other Federal and State agencies, including a discussion of the ability and need to share information across agencies for both civil and criminal Federal tax enforcement and enforcement of State or Federal laws relating to fuels;

(4) the staff hours and number of personnel devoted to criminal investigations and prosecutions per year;

(5) the staff hours and number of personnel devoted to administrative collection of fuel taxes; and

(6) the results of administrative collection efforts annually, by fiscal year, between October 1, 2001, and September 30, 2005.

SEC. 9404. TREASURY STUDY OF HIGHWAY FUELS USED BY TRUCKS FOR

NON-TRANSPORTATION PURPOSES.

(a) Study.--The Secretary of the Treasury shall conduct a study regarding the use of highway motor fuel by trucks that is not used for the propulsion of the vehicle. As part of such study--

(1) in the case of vehicles carrying equipment that is unrelated to the transportation function of the vehicle--

(A) the Secretary of the Treasury, in consultation with the Secretary of Transportation, and with public notice and comment, shall determine the average annual amount of tax paid fuel consumed per vehicle, by type of vehicle, used by the propulsion engine to provide the power to operate the equipment attached to the highway vehicle, and

(B) the Secretary of the Treasury shall review the technical and administrative feasibility of exempting such nonpropulsive use of highway fuels for the highway motor fuels excise taxes,

(2) in the case where non-transportation equipment is run by a separate motor--

(A) the Secretary of the Treasury shall determine the annual average amount of fuel exempted from tax in the use of such equipment by equipment type, and

(B) the Secretary of the Treasury shall review issues of administration and compliance related to the present-law exemption provided for such fuel use, and

(3) the Secretary of the Treasury shall--

(A) estimate the amount of taxable fuel consumed by trucks and the emissions of various pollutants due to the long-term idling of diesel engines, and

(B) determine the cost of reducing such long-term idling through the use of plug-ins at truck stops, auxiliary power units, or other technologies.

(b) Report.--Not later than January 1, 2006, the Secretary of the Treasury shall report the findings of the study required under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives.

SEC. 9405. TREATMENT OF EMPLOYER-PROVIDED TRANSIT AND VAN

POOLING BENEFITS.

(a) In General.--Subparagraph (A) of section 132(f)(2)

(relating to limitation on exclusion) is amended by striking

``$100'' and inserting ``$120''.

(b) Inflation Adjustment Conforming Amendments.--The last sentence of section 132(f)(6)(A) (relating to inflation adjustment) is amended--

(1) by striking ``2002'' and inserting ``2005'', and

(2) by striking ``2001'' and inserting ``2004''.

(c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

SEC. 9406. STUDY OF INCENTIVES FOR PRODUCTION OF BIODIESEL.

(a) Study.--The General Comptroller of the United States shall conduct a study related to biodiesel fuels and the tax credit for biodiesel fuels established under this Act. Such study shall include--

(1) an assessment on whether such credit provides sufficient assistance to the producers of biodiesel fuel to establish the fuel as a viable energy alternative in the current market place,

(2) an assessment on how long such credit or similar subsidy would have to remain in effect before biodiesel fuel can compete in the market place without such assistance,

(3) a cost-benefit analysis of such credit, comparing the cost of the credit in forgone revenue to the benefits of lower fuel costs for consumers, increased profitability for the biodiesel industry, increased farm income, reduced program outlays from the Department of Agriculture, and the improved environmental conditions through the use of biodiesel fuel, and

(4) an assessment on whether such credit results in any unintended consequences for unrelated industries, including the impact, if any, on the glycerin market.

(b) Report.--Not later than 2 years after the date of the enactment of this Act, the Comptroller General of the United States shall report the findings of the study required under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives.

Subtitle F--Provisions Designed to Curtail Tax Shelters

SEC. 9501. 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. 9502. PENALTY FOR FAILING TO DISCLOSE REPORTABLE

TRANSACTION.

(a) In General.--Part I of subchapter B of chapter 68

(relating to assessable penalties) is amended by inserting after section 6707 the following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE

TRANSACTION INFORMATION WITH RETURN OR

STATEMENT.

``(a) Imposition of Penalty.--Any person who fails to include on any return or statement any information with respect to a reportable transaction which is required under section 6011 to be included with such return or statement shall pay a penalty in the amount determined under subsection

(b).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraphs (2) and

(3), the amount of the penalty under subsection (a) shall be

$50,000.

``(2) Listed transaction.--The amount of the penalty under subsection (a) with respect to a listed transaction shall be

$100,000.

``(3) Increase in penalty for large entities and high net worth individuals.--

``(A) In general.--In the case of a failure under subsection (a) by--

``(i) a large entity, or

``(ii) a high net worth individual,the penalty under paragraph (1) or (2) shall be twice the amount determined without regard to this paragraph.

``(B) Large entity.--For purposes of subparagraph (A), the term `large entity' means, with respect to any taxable year, a person (other than a natural person) with gross receipts in excess of $10,000,000 for the taxable year in which the reportable transaction occurs or the preceding taxable year. Rules similar to the rules of paragraph (2) and subparagraphs

(B), (C), and (D) of paragraph (3) of section 448(c) shall apply for purposes of this subparagraph.

``(C) High net worth individual.--For purposes of subparagraph (A), the term `high net worth individual' means, with respect to a reportable transaction, a natural person whose net worth exceeds $2,000,000 immediately before the transaction.

``(c) Definitions.--For purposes of this section--

``(1) Reportable transaction.--The term `reportable transaction' means any transaction with respect to which information is required to be included with a return or statement because, as determined under regulations prescribed under section 6011, such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.

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

``(d) Authority to Rescind Penalty.--

``(1) In general.--The Commissioner of Internal Revenue may rescind all or any portion of any penalty imposed by this section with respect to any violation if--

``(A) the violation is with respect to a reportable transaction other than a listed transaction,

``(B) the person on whom the penalty is imposed has a history of complying with the requirements of this title,

``(C) it is shown that the violation is due to an unintentional mistake of fact;

``(D) imposing the penalty would be against equity and good conscience, and

``(E) rescinding the penalty would promote compliance with the requirements of this title and effective tax administration.

``(2) Discretion.--The exercise of authority under paragraph (1) shall be at the sole discretion of the Commissioner and may be delegated only to the head of the Office of Tax Shelter Analysis. The Commissioner, in the Commissioner's sole discretion, may establish a procedure to determine if a penalty should be referred to the Commissioner or the head of such Office for a determination under paragraph (1).

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

``(4) Records.--If a penalty is rescinded under paragraph

(1), the Commissioner shall place in the file in the Office of the Commissioner the opinion of the Commissioner or the head of the Office of Tax Shelter Analysis with respect to the determination, including--

``(A) the facts and circumstances of the transaction,

``(B) the reasons for the rescission, and

``(C) the amount of the penalty rescinded.

``(5) Report.--The Commissioner shall each year report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate--

``(A) a summary of the total number and aggregate amount of penalties imposed, and rescinded, under this section, and

``(B) a description of each penalty rescinded under this subsection and the reasons therefor.

``(e) Penalty Reported to SEC.--In the case of a person--

``(1) which is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 or is required to be consolidated with another person for purposes of such reports, and

``(2) which--

``(A) is required to pay a penalty under this section with respect to a listed transaction,

``(B) is required to pay a penalty under section 6662A with respect to any reportable transaction at a rate prescribed under section 6662A(c), or

``(C) is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction,the requirement to pay such penalty shall be disclosed in such reports filed by such person for such periods as the Secretary shall specify. Failure to make a disclosure in accordance with the preceding sentence shall be treated as a failure to which the penalty under subsection (b)(2) applies.

``(f) Coordination With Other Penalties.--The penalty imposed by this section is in addition to any penalty imposed under this title.''.

(b) Conforming Amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by inserting after the item relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to include reportable transaction information with return or statement.''.

(c) Effective Date.--The amendments made by this section shall apply to returns and statements the due date for which is after the date of the enactment of this Act.

SEC. 9503. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS

AND OTHER REPORTABLE TRANSACTIONS HAVING A

SIGNIFICANT TAX AVOIDANCE PURPOSE.

(a) In General.--Subchapter A of chapter 68 is amended by inserting after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON

UNDERSTATEMENTS WITH RESPECT TO REPORTABLE

TRANSACTIONS.

``(a) Imposition of Penalty.--If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20 percent of the amount of such understatement.

``(b) Reportable Transaction Understatement.--For purposes of this section--

``(1) In general.--The term `reportable transaction understatement' means the sum of--

``(A) the product of--

``(i) the amount of the increase (if any) in taxable income which results from a difference between the proper tax treatment of an item to which this section applies and the taxpayer's treatment of such item (as shown on the taxpayer's return of tax), and

``(ii) the highest rate of tax imposed by section 1

(section 11 in the case of a taxpayer which is a corporation), and

``(B) the amount of the decrease (if any) in the aggregate amount of credits determined under subtitle A which results from a difference between the taxpayer's treatment of an item to which this section applies (as shown on the taxpayer's return of tax) and the proper tax treatment of such item.

For purposes of subparagraph (A), any reduction of the excess of deductions allowed for the taxable year over gross income for such year, and any reduction in the amount of capital losses which would (without regard to section 1211) be allowed for such year, shall be treated as an increase in taxable income.

``(2) Items to which section applies.--This section shall apply to any item which is attributable to--

``(A) any listed transaction, and

``(B) any reportable transaction (other than a listed transaction) if a significant purpose of such transaction is the avoidance or evasion of Federal income tax.

``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance Transactions.--

``(1) In general.--Subsection (a) shall be applied by substituting `30 percent' for `20 percent' with respect to the portion of any reportable transaction understatement with respect to which the requirement of section 6664(d)(2)(A) is not met.

``(2) Rules applicable to compromise of penalty.--

``(A) In general.--If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which paragraph (1) applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

``(B) Applicable rules.--The rules of paragraphs (3), (4), and (5) of section 6707A(d) shall apply for purposes of subparagraph (A).

``(d) Definitions of Reportable and Listed Transactions.--For purposes of this section, the terms `reportable transaction' and `listed transaction' have the respective meanings given to such terms by section 6707A(c).

``(e) Special Rules.--

``(1) Coordination with penalties, etc., on other understatements.--In the case of an understatement (as defined in section 6662(d)(2))--

``(A) the amount of such understatement (determined without regard to this paragraph) shall be increased by the aggregate amount of reportable transaction understatements and noneconomic substance transaction understatements for purposes of determining whether such understatement is a substantial understatement under section 6662(d)(1), and

``(B) the addition to tax under section 6662(a) shall apply only to the excess of the amount of the substantial understatement (if any) after the application of subparagraph

(A) over the aggregate amount of reportable transaction understatements and noneconomic substance transaction understatements.

``(2) Coordination with other penalties.--

``(A) Application of fraud penalty.--References to an underpayment in section 6663 shall be treated as including references to a reportable transaction understatement and a noneconomic substance transaction understatement.

``(B) No double penalty.--This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6662B or 6663.

``(3) Special rule for amended returns.--Except as provided in regulations, in no event shall any tax treatment included with an amendment or supplement to a return of tax be taken into account in determining the amount of any reportable transaction understatement or noneconomic substance transaction understatement if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.

``(4) Noneconomic substance transaction understatement.--For purposes of this subsection, the term `noneconomic substance transaction understatement' has the meaning given such term by section 6662B(c).

``(5) Cross reference.--

``For reporting of section 6662A(c) penalty to the Securities and

Exchange Commission, see section 6707A(e).''

(b) Determination of Other Understatements.--Subparagraph

(A) of section 6662(d)(2) is amended by adding at the end the following flush sentence: ``The excess under the preceding sentence shall be determined without regard to items to which section 6662A applies and without regard to items with respect to which a penalty is imposed by section 6662B.''

(c) Reasonable Cause Exception.--

(1) In general.--Section 6664 is amended by adding at the end the following new subsection:

``(d) Reasonable Cause Exception for Reportable Transaction Understatements.--

``(1) In general.--No penalty shall be imposed under section 6662A with respect to any portion of a reportable transaction understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.

``(2) Special rules.--Paragraph (1) shall not apply to any reportable transaction understatement unless--

``(A) the relevant facts affecting the tax treatment of the item are adequately disclosed in accordance with the regulations prescribed under section 6011,

``(B) there is or was substantial authority for such treatment, and

``(C) the taxpayer reasonably believed that such treatment was more likely than not the proper treatment.

A taxpayer failing to adequately disclose in accordance with section 6011 shall be treated as meeting the requirements of subparagraph (A) if the penalty for such failure was rescinded under section 6707A(d).

``(3) Rules relating to reasonable belief.--For purposes of paragraph (2)(C)--

``(A) In general.--A taxpayer shall be treated as having a reasonable belief with respect to the tax treatment of an item only if such belief--

``(i) is based on the facts and law that exist at the time the return of tax which includes such tax treatment is filed, and

``(ii) relates solely to the taxpayer's chances of success on the merits of such treatment and does not take into account the possibility that a return will not be audited, such treatment will not be raised on audit, or such treatment will be resolved through settlement if it is raised.

``(B) Certain opinions may not be relied upon.--

``(i) In general.--An opinion of a tax advisor may not be relied upon to establish the reasonable belief of a taxpayer if--

``(I) the tax advisor is described in clause (ii), or

``(II) the opinion is described in clause (iii).

``(ii) Disqualified tax advisors.--A tax advisor is described in this clause if the tax advisor--

``(I) is a material advisor (within the meaning of section 6111(b)(1)) who participates in the organization, management, promotion, or sale of the transaction or who is related

(within the meaning of section 267(b) or 707(b)(1)) to any person who so participates,

``(II) is compensated directly or indirectly by a material advisor with respect to the transaction,

``(III) has a fee arrangement with respect to the transaction which is contingent on all or part of the intended tax benefits from the transaction being sustained, or

``(IV) as determined under regulations prescribed by the Secretary, has a continuing financial interest with respect to the transaction.

``(iii) Disqualified opinions.--For purposes of clause (i), an opinion is disqualified if the opinion--

``(I) is based on unreasonable factual or legal assumptions

(including assumptions as to future events),

``(II) unreasonably relies on representations, statements, findings, or agreements of the taxpayer or any other person,

``(III) does not identify and consider all relevant facts, or

``(IV) fails to meet any other requirement as the Secretary may prescribe.''

(2) Conforming amendment.--The heading for subsection (c) of section 6664 is amended by inserting ``for Underpayments'' after ``Exception''.

(d) Conforming Amendments.--

(1) Subparagraph (C) of section 461(i)(3) is amended by striking ``section 6662(d)(2)(C)(iii)'' and inserting

``section 1274(b)(3)(C)''.

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

(A) by striking ``(as defined in section 6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and

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

``(C) Tax shelter.--For purposes of subparagraph (B), the term `tax shelter' means--

``(i) a partnership or other entity,

``(ii) any investment plan or arrangement, or

``(iii) any other plan or arrangement,

if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax.''

(3) Section 6662(d)(2) is amended by striking subparagraphs

(C) and (D).

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

(5) Subsection (b) of section 7525 is amended by striking

``section 6662(d)(2)(C)(iii)'' and inserting ``section 1274(b)(3)(C)''.

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

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON

UNDERPAYMENTS. ''

(B) The table of sections for part II of subchapter A of chapter 68 is amended by striking the item relating to section 6662 and inserting the following new items:

``Sec. 6662. Imposition of accuracy-related penalty on underpayments.

``Sec. 6662A. Imposition of accuracy-related penalty on understatements with respect to reportable transactions.''

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

SEC. 9504. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO

TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

(a) In General.--Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO

TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

``(a) Imposition of Penalty.--If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.

``(b) Reduction of Penalty for Disclosed Transactions.--Subsection (a) shall be applied by substituting `20 percent' for `40 percent' with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.

``(c) Noneconomic Substance Transaction Understatement.--For purposes of this section--

``(1) In general.--The term `noneconomic substance transaction understatement' means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.

``(2) Noneconomic substance transaction.--The term

`noneconomic substance transaction' means any transaction if--

``(A) there is a lack of economic substance (within the meaning of section 7701(m)(1)) for the transaction giving rise to the claimed tax benefit or the transaction was not respected under section 7701(m)(2), or

``(B) the transaction fails to meet the requirements of any similar rule of law.

``(d) Rules Applicable to Compromise of Penalty.--

``(1) In general.--If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

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

``(e) Coordination With Other Penalties.--Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.

``(f) Cross References.--

``(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).

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

(b) Clerical Amendment.--The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.''

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

SEC. 9505. 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. 9506. 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. 9507. DISCLOSURE OF REPORTABLE TRANSACTIONS.

(a) In General.--Section 6111 (relating to registration of tax shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

``(a) In General.--Each material advisor with respect to any reportable transaction shall make a return (in such form as the Secretary may prescribe) setting forth--

``(1) information identifying and describing the transaction,

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

``(3) such other information as the Secretary may prescribe.Such return shall be filed not later than the date specified by the Secretary.

``(b) Definitions.--For purposes of this section--

``(1) Material advisor.--

``(A) In general.--The term `material advisor' means any person--

``(i) who provides any material aid, assistance, or advice with respect to organizing, promoting, selling, implementing, or carrying out any reportable transaction, and

``(ii) who directly or indirectly derives gross income in excess of the threshold amount for such aid, assistance, or advice.

``(B) Threshold amount.--For purposes of subparagraph (A), the threshold amount is--

``(i) $50,000 in the case of a reportable transaction substantially all of the tax benefits from which are provided to natural persons, and

``(ii) $250,000 in any other case.

``(2) Reportable transaction.--The term `reportable transaction' has the meaning given to such term by section 6707A(c).

``(c) Regulations.--The Secretary may prescribe regulations which provide--

``(1) that only 1 person shall be required to meet the requirements of subsection (a) in cases in which 2 or more persons would otherwise be required to meet such requirements,

``(2) exemptions from the requirements of this section, and

``(3) such rules as may be necessary or appropriate to carry out the purposes of this section.''

(b) Conforming Amendments.--

(1) The item relating to section 6111 in the table of sections for subchapter B of chapter 61 is amended to read as follows:

``Sec. 6111. Disclosure of reportable transactions.''

(2)(A) So much of section 6112 as precedes subsection (c) thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS

MUST KEEP LISTS OF ADVISEES.

``(a) In General.--Each material advisor (as defined in section 6111) with respect to any reportable transaction (as defined in section 6707A(c)) shall maintain, in such manner as the Secretary may by regulations prescribe, a list--

``(1) identifying each person with respect to whom such advisor acted as such a material advisor with respect to such transaction, and

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

This section shall apply without regard to whether a material advisor is required to file a return under section 6111 with respect to such transaction.''

(B) Section 6112 is amended by redesignating subsection (c) as subsection (b).

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

(i) by inserting ``written'' before ``request'' in paragraph (1)(A), and

(ii) by striking ``shall prescribe'' in paragraph (2) and inserting ``may prescribe''.

(D) The item relating to section 6112 in the table of sections for subchapter B of chapter 61 is amended to read as follows:

``Sec. 6112. Material advisors of reportable transactions must keep lists of advisees.''

(3)(A) The heading for section 6708 is amended to read as follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH

RESPECT TO REPORTABLE TRANSACTIONS. ''

(B) The item relating to section 6708 in the table of sections for part I of subchapter B of chapter 68 is amended to read as follows:

``Sec. 6708. Failure to maintain lists of advisees with respect to reportable transactions.''

(c) Effective Date.--The amendments made by this section shall apply to transactions with respect to which material aid, assistance, or advice referred to in section 6111(b)(1)(A)(i) of the Internal Revenue Code of 1986 (as added by this section) is provided after the date of the enactment of this Act.

SEC. 9508. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER

TAX SHELTERS.

(a) In General.--Section 6707 (relating to failure to furnish information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING

REPORTABLE TRANSACTIONS.

``(a) In General.--If a person who is required to file a return under section 6111(a) with respect to any reportable transaction--

``(1) fails to file such return on or before the date prescribed therefor, or

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

such person shall pay a penalty with respect to such return in the amount determined under subsection (b).

``(b) Amount of Penalty.--

``(1) In general.--Except as provided in paragraph (2), the penalty imposed under subsection (a) with respect to any failure shall be $50,000.

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

``(A) $200,000, or

``(B) 50 percent of the gross income derived by such person with respect to aid, assistance, or advice which is provided with respect to the reportable transaction before the date the return including the transaction is filed under section 6111.

Subparagraph (B) shall be applied by substituting `75 percent' for `50 percent' in the case of an intentional failure or act described in subsection (a).

``(c) Rescission Authority.--The provisions of section 6707A(d) (relating to authority of Commissioner to rescind penalty) shall apply to any penalty imposed under this section.

``(d) Reportable and Listed Transactions.--The terms

`reportable transaction' and `listed transaction' have the respective meanings given to such terms by section 6707A(c).''.

(b) Clerical Amendment.--The item relating to section 6707 in the table of sections for part I of subchapter B of chapter 68 is amended by striking ``tax shelters'' and inserting ``reportable transactions''.

(c) Effective Date.--The amendments made by this section shall apply to returns the due date for which is after the date of the enactment of this Act.

SEC. 9509. 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. 9510. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT

RELATED TO TAX SHELTERS AND REPORTABLE

TRANSACTIONS.

(a) In General.--Section 7408 (relating to action to enjoin promoters of abusive tax shelters, etc.) is amended by redesignating subsection (c) as subsection (d) and by striking subsections (a) and (b) and inserting the following new subsections:

``(a) Authority to Seek Injunction.--A civil action in the name of the United States to enjoin any person from further engaging in specified conduct may be commenced at the request of the Secretary. Any action under this section shall be brought in the district court of the United States for the district in which such person resides, has his principal place of business, or has engaged in specified conduct. The court may exercise its jurisdiction over such action (as provided in section 7402(a)) separate and apart from any other action brought by the United States against such person.

``(b) Adjudication and Decree.--In any action under subsection (a), if the court finds--

``(1) that the person has engaged in any specified conduct, and

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

the court may enjoin such person from engaging in such conduct or in any other activity subject to penalty under this title.

``(c) Specified Conduct.--For purposes of this section, the term `specified conduct' means any action, or failure to take action, subject to penalty under section 6700, 6701, 6707, or 6708.''

(b) Conforming Amendments.--

(1) The heading for section 7408 is amended to read as follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO

TAX SHELTERS AND REPORTABLE TRANSACTIONS. ''

(2) The table of sections for subchapter A of chapter 67 is amended by striking the item relating to section 7408 and inserting the following new item:

``Sec. 7408. Actions to enjoin specified conduct related to tax shelters and reportable transactions.''

(c) Effective Date.--The amendment made by this section shall take effect on the day after the date of the enactment of this Act.

SEC. 9511. 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. 9512. 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. 9513. FRIVOLOUS TAX SUBMISSIONS.

(a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay a penalty of $5,000 if--

``(1) such person files what purports to be a return of a tax imposed by this title but which--

``(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

``(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and

``(2) the conduct referred to in paragraph (1)--

``(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

``(B) reflects a desire to delay or impede the administration of Federal tax laws.

``(b) Civil Penalty for Specified Frivolous Submissions.--

``(1) Imposition of penalty.--Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.

``(2) Specified frivolous submission.--For purposes of this section--

``(A) Specified frivolous submission.--The term `specified frivolous submission' means a specified submission if any portion of such submission--

``(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

``(ii) reflects a desire to delay or impede the administration of Federal tax laws.

``(B) Specified submission.--The term `specified submission' means--

``(i) a request for a hearing under--

``(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or

``(II) section 6330 (relating to notice and opportunity for hearing before levy), and

``(ii) an application under--

``(I) section 6159 (relating to agreements for payment of tax liability in installments),

``(II) section 7122 (relating to compromises), or

``(III) section 7811 (relating to taxpayer assistance orders).

``(3) Opportunity to withdraw submission.--If the Secretary provides a person with notice that a submission is a specified frivolous submission and such person withdraws such submission within 30 days after such notice, the penalty imposed under paragraph (1) shall not apply with respect to such submission.

``(c) Listing of Frivolous Positions.--The Secretary shall prescribe (and periodically revise) a list of positions which the Secretary has identified as being frivolous for purposes of this subsection. The Secretary shall not include in such list any position that the Secretary determines meets the requirement of section 6662(d)(2)(B)(ii)(II).

``(d) Reduction of Penalty.--The Secretary may reduce the amount of any penalty imposed under this section if the Secretary determines that such reduction would promote compliance with and administration of the Federal tax laws.

``(e) Penalties in Addition to Other Penalties.--The penalties imposed by this section shall be in addition to any other penalty provided by law.''

(b) Treatment of Frivolous Requests for Hearings Before Levy.--

(1) Frivolous requests disregarded.--Section 6330 (relating to notice and opportunity for hearing before levy) is amended by adding at the end the following new subsection:

``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any other provision of this section, if the Secretary determines that any portion of a request for a hearing under this section or section 6320 meets the requirement of clause

(i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.''

(2) Preclusion from raising frivolous issues at hearing.--Section 6330(c)(4) is amended--

(A) by striking ``(A)'' and inserting ``(A)(i)'';

(B) by striking ``(B)'' and inserting ``(ii)'';

(C) by striking the period at the end of the first sentence and inserting ``; or''; and

(D) by inserting after subparagraph (A)(ii) (as so redesignated) the following:

``(B) the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).''

(3) Statement of grounds.--Section 6330(b)(1) is amended by striking ``under subsection (a)(3)(B)'' and inserting ``in writing under subsection (a)(3)(B) and states the grounds for the requested hearing''.

(c) Treatment of Frivolous Requests for Hearings Upon Filing of Notice of Lien.--Section 6320 is amended--

(1) in subsection (b)(1), by striking ``under subsection

(a)(3)(B)'' and inserting ``in writing under subsection

(a)(3)(B) and states the grounds for the requested hearing'', and

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

(d) Treatment of Frivolous Applications for Offers-In-Compromise and Installment Agreements.--Section 7122 is amended by adding at the end the following new subsection:

``(e) Frivolous Submissions, Etc.--Notwithstanding any other provision of this section, if the Secretary determines that any portion of an application for an offer-in-compromise or installment agreement submitted under this section or section 6159 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.''

(e) Clerical Amendment.--The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6702 and inserting the following new item:

``Sec. 6702. Frivolous tax submissions.''

(f) Effective Date.--The amendments made by this section shall apply to submissions made and issues raised after the date on which the Secretary first prescribes a list under section 6702(c) of the Internal Revenue Code of 1986, as amended by subsection (a).

SEC. 9514. 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. 9515. 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. 9516. 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. 9517. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS

ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND

NONECONOMIC SUBSTANCE TRANSACTIONS.

(a) In General.--Section 163 (relating to deduction for interest) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

``(m) Interest on Unpaid Taxes Attributable to Nondisclosed Reportable Transactions and Noneconomic Substance Transactions.--No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to--

``(1) the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, or

``(2) any noneconomic substance transaction understatement

(as defined in section 6662B(c)).''

(b) Effective Date.--The amendments made by this section shall apply to transactions after the date of the enactment of this Act in taxable years ending after such date.

Subtitle G--Other Provisions

SEC. 9601. 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. 9602. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS

TRANSFERS.

(a) Treatment of Contributed Property With Built-In Loss.--Paragraph (1) of section 704(c) is amended by striking

``and'' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ``, and'', and by adding at the end the following:

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

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

``(ii) except as provided in regulations, in determining the amount of items allocated to other partners, the basis of the contributed property in the hands of the partnership shall be treated as being equal to its fair market value immediately after the contribution.

For purposes of subparagraph (C), the term `built-in loss' means the excess of the adjusted basis of the property

(determined without regard to subparagraph (C)(ii)) over its fair market value 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:

``Sec. 743. Adjustment to basis of partnership property where section

754 election or substantial built-in loss.''

(c) Adjustment to Basis of Undistributed Partnership Property If There Is Substantial Basis Reduction.--

(1) Adjustment required.--Subsection (a) of section 734

(relating to optional adjustment to basis of undistributed partnership property) is amended by inserting before the period ``or unless there is a substantial basis reduction''.

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

(3) Substantial basis reduction.--Section 734 is amended by adding at the end the following new subsection:

``(d) Substantial Basis Reduction.--

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

``(2) Regulations.--For regulations to carry out this subsection, see section 743(d)(2).''

(4) Clerical amendments.--

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

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP

PROPERTY WHERE SECTION 754 ELECTION OR

SUBSTANTIAL BASIS REDUCTION. ''

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

``Sec. 734. Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction.''

(d) Effective Dates.--

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

(2) Subsection (b).--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. 9603. 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. 9604. 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. 9605. 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. 9606. 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. 9607. 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. 9608. 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. 9609. 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 section 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. 9610. FEES FOR CERTAIN CUSTOMS SERVICES.

(a) In General.--Subtitle A of the Internal Revenue Code of 1986 is amended by inserting after chapter 55 the following new chapter:

``CHAPTER 56--FEES FOR CERTAIN CUSTOMS SERVICES

``Sec. 5896. Imposition of fees.

``SEC. 5896. IMPOSITION OF FEES.

``(a) In General.--The Secretary shall charge and collect fees under this title which are equivalent to the fees which would be imposed by section 13031 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c) were such section in effect after March 1, 2005.

``(b) Collection and Disposition of Fees, Etc.--References in such section 13031 to fees thereunder shall be treated as including references to the fees charged under this section.''

(b) Clerical Amendment.--The table of chapters for subtitle A of such Code is amended by adding at the end the following new item:

``Chapter 56. Fees for certain customs services.''

(c) Effective date.--The amendments made by this section shall take effect on March 1, 2005.

Subtitle H--Prevention of Corporate Expatriation to Avoid United States

Income Tax

SEC. 9701. 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.

Mr. DAVIS of Tennessee (during the reading). Mr. Speaker, I ask unanimous consent that the motion to recommit be considered as read and printed in the Record.

The SPEAKER pro tempore. Is there objection to the request of the gentleman from Tennessee?

Mr. NUSSLE. Mr. Speaker, reserving the right to object, my understanding is that the only difference between the motion to recommit that the gentleman just offered and we struck with a point of order and the one that he is now offering is the difference between the words ``forthwith'' and ``promptly.''

Is that the gentleman's understanding?

Mr. DAVIS of Tennessee. Mr. Speaker, will the gentleman yield?

Mr. NUSSLE. I yield to the gentleman from Tennessee.

Mr. DAVIS of Tennessee. No, there are other changes and they have been cleared by the Parliamentarian.

Mr. NUSSLE. Mr. Speaker, then, continuing to reserve the right to object, I would ask what the gentleman's changes are. Because my understanding is that the only difference is between ``forthwith'' and

``promptly.'' The first four pages are increases in spending to the level purported to be the level of the Senate, and then from page 4, 5, 6, 7, 8, 9, 10, 11 and on and on and on and on are increases in taxes, on and on from page 4 all the way, increasing taxes, not gas taxes, but all the way to page 174 are increases in taxes.

I would ask the gentleman, did he strike the tax increases from page 4 all the way to 174 in the motion to recommit?

Mr. DAVIS of Tennessee. One of the differences in this bill is that it changes the part where we would report back promptly changes in this bill.

Mr. NUSSLE. Mr. Speaker, I will not object to the dispensing of the reading, but at this point I would like certainly to hear from the gentleman why it is that there are four pages of spending and then 170 pages of tax increases in this motion to recommit.

Mr. Speaker, I withdraw my reservation of objection.

The SPEAKER pro tempore. Is there objection to the request of the gentleman from Tennessee?

There was no objection.

The SPEAKER pro tempore. The gentleman from Tennessee is recognized for 5 minutes in support of his motion to recommit.

Mr. DAVIS of Tennessee. Mr. Speaker, I include for the Record a State by State chart of the total highway/transit investment increases and new jobs that would be created under this new motion to recommit.

TOTAL HIGHWAY/TRANSIT INVESTMENT INCREASES AND NEW JOBS CREATED UNDER DAVIS MOTION TO RECOMMIT

[6-Year Comparison of Funding Levels H.R. 3550 vs. Davis Motion--April 2, 2004]

----------------------------------------------------------------------------------------------------------------

New Jobs

State Highway Transit Total Increase Created

----------------------------------------------------------------------------------------------------------------

Alabama....................................... 641,930,651 32,286,503 674,217,154 32,025

Alaska........................................ 377,354,764 7,453,434 384,808,198 18,278

Arizona....................................... 546,862,745 66,315,929 613,178,674 29,126

Arkansas...................................... 418,494,826 19,120,008 437,614,834 20,787

California.................................... 2,983,161,532 790,817,798 3,773,979,330 179,264

Colorado...................................... 453,677,165 68,286,399 521,963,564 24,793

Connecticut................................... 480,949,177 62,125,892 543,075,069 25,796

Delaware...................................... 140,110,573 9,373,749 149,484,322 7,101

Dist. of Col.................................. 125,288,749 89,914,881 215,203,630 10,222

Florida....................................... 1,496,429,489 234,032,310 1,730,461,799 82,197

Georgia....................................... 1,111,763,461 103,762,256 1,215,525,717 57,737

Hawaii........................................ 163,958,507 36,371,827 200,330,334 9,516

Idaho......................................... 224,433,409 12,426,693 256,860,102 12,201

Illinois...................................... 1,243,912,775 300,674,181 1,544,586,956 73,368

Indiana....................................... 811,474,429 59,165,463 870,639,892 41,355

Iowa.......................................... 390,912,140 25,359,777 416,271,917 19,773

Kansas........................................ 371,083,992 20,121,040 391,205,032 18,582

Kentucky...................................... 549,959,335 36,390,607 586,349,942 27,852

Louisiana..................................... 503,561,959 48,157,903 551,719,862 26,207

Maine......................................... 166,682,176 8,575,838 175,258,014 8,325

Maryland...................................... 508,890,726 95,994,478 604,885,204 28,732

Massachusetts................................. 590,275,962 168,290,084 758,566,046 36,032

Michigan...................................... 1,033,958,948 105,045,881 1,139,004,829 54,103

Minnesota..................................... 627,515,527 66,401,515 693,917,042 32,961

Mississippi................................... 385,937,487 16,939,799 402,877,286 19,137

Missouri...................................... 747,900,357 61,777,797 809,678,154 38,460

Montana....................................... 314,457,025 8,659,265 323,116,290 15,348

Nebraska...................................... 246,016,937 16,462,238 262,479,175 12,468

Nevada........................................ 229,548,244 34,397,627 263,945,871 12,537

New Hampshire................................. 163,515,119 9,350,337 172,865,456 8,211

New Jersey.................................... 834,127,766 285,310,078 1,119,437,844 53,173

New Mexico.................................... 313,031,850 18,897,469 331,929,319 15,767

New York...................................... 1,635,087,852 730,759,129 2,365,846,981 112,378

North Carolina................................ 909,717,121 69,621,070 979,338,191 46,519

North Dakota.................................. 207,537,203 7,340,286 214,877,489 10,207

Ohio.......................................... 1,251,348,467 134,180,702 1,385,529,169 65,813

Oklahoma...................................... 488,328,418 28,477,592 516,806,010 24,548

Oregon........................................ 385,842,475 54,595,630 440,438,195 20,921

Pennsylvania.................................. 1,579,949,401 217,311,252 1,797,260,653 85,370

Rhode Island.................................. 188,693,217 12,832,952 201,526,169 9,572

South Carolina................................ 515,224,483 28,955,485 544,179,968 25,849

South Dakota.................................. 226,412,858 7,484,682 233,897,540 11,110

Tennessee..................................... 717,211,581 50,666,878 767,878,459 36,474

Texas......................................... 2,507,570,916 287,128,089 2,794,699,005 132,748

Utah.......................................... 248,012,183 41,168,296 289,180,479 13,736

Vermont....................................... 144,829,487 3,704,577 148,534,064 7,055

Virginia...................................... 817,694,519 81,898,909 899,593,428 42,731

Washington.................................... 569,305,588 131,298,248 700,603,836 33,279

West Virginia................................. 358,479,108 12,771,895 371,251,003 17,634

Wisconsin..................................... 630,750,942 63,268,811 694,019,753 32,966

Wyoming....................................... 220,142,087 4,665,881 224,807,968 10,678

-----------------------------------------------------------------

All States................................ 32,177,385,058 4,854,102,917 37,031,487,975 1,758,996

----------------------------------------------------------------------------------------------------------------

Total funding lvels calculated by the Federal Highway Administration and the Federal Transit Administration,

U.S. Department of Transportation.

Mr. Speaker, I yield 2 minutes to the gentleman from New Jersey (Mr. Menendez).

(Mr. MENENDEZ asked and was given permission to revise and extend his remarks.)

Mr. MENENDEZ. Mr. Speaker, the Davis motion to recommit increases the funding in this bill to the Senate level of $318 billion, and it does something about donor-donee issues which we have heard a lot about here. Unlike the previous objection that was originally heard, the Senate bill, which is in essence the way in which the gentleman from Tennessee has constructed this, is a fiscally responsible bill. There is no new gas tax in it, so let us not be deceived.

That increase to rise to the 318 is fully offset by what? By cracking down on abusive tax shelters and by preventing American companies from avoiding paying U.S. taxes by moving to a foreign country. It is not only fiscally responsible; it is responsible national economic development policy. It is going to create 1.8 million more additional jobs, and God knows we need those jobs in this country. And it is about national security policy.

The bill is supposed to be about a legacy. Do we want it to be a legacy of congestion and deteriorating infrastructure? Or do we want it to be about increased productivity and more good-paying jobs? About a Nation that has the redundancy and multiplicity of transportation infrastructure to respond to national emergencies on the scale of what happened on September 11 where after so many different modes of transportation were shut down, there is still one available to get people out of downtown Manhattan over to New Jersey into hospitals?

If you want more money to go to your State, if you do not want just to stop the decay of the Nation's infrastructure, but dramatically improve it; if you want to help create good-paying jobs, 1.8 million more jobs for the people of this country; if you want to have multiple avenues to evacuate people and for first responders to reach the site, God forbid, of the next national emergency, then you will vote for the Davis motion to recommit. It is fiscally responsible. It is about creating jobs. It is about the national security of the United States.

Mr. DAVIS of Tennessee. Mr. Speaker, as a graduate from my hometown school, I traveled on an interstate called Interstate 40. It was about one-third finished. My grandchildren travel that today. With this bill, with this increase with this motion to recommit and the suggestion of increasing it to $318 billion, all of our children and grandchildren to come will have an infrastructure that will be the seed that is needed for economic growth and investment for the future.

Mr. Speaker, I yield the balance of my time to the gentleman from Oregon (Mr. Blumenauer).

The SPEAKER pro tempore. The gentleman from Oregon is recognized for 1\1/2\ minutes.

Mr. BLUMENAUER. Mr. Speaker, we have extolled the leadership of our committee chair and ranking member and the subcommittee chair and ranking member. I think that is appropriate because they have taken a difficult task and have given us a good bill. But it falls far short of the needs that have been identified by our own Department of Transportation.

One of the reasons we have had the trauma about the donor-donee over the course of the last 2 weeks is simply because we are not right-

sizing this bill. Every day we are losing the battle to congestion, pollution, and bridges that are crumbling faster than we can fix them. This motion will get us one-third of the way that was envisioned by our committee leadership. It is, in fact, paid for and it will provide extra money for States large like California, Texas and New York, small States; and more important than the money in this time of economic concern are the jobs.

We have seen the good work by the committee leadership and we have not really acknowledged the leadership of Speaker Hastert and Leader Pelosi who understand that the President is wrong to draw the line here for the first time in his administration to exercise fiscal responsibility, so to speak, at the needs of our infrastructure.

Now it is time for the leadership here. We on this floor have the opportunity to do our part as Members of Congress. We can vote for this motion to recommit. We can vote to make sure that the Federal Government is a better partner with our communities to make them more livable, to make our families safe, healthy and more economically secure.

I strongly urge support for the Davis motion.

The SPEAKER pro tempore. The time of the gentleman from Tennessee has expired.

Mr. YOUNG of Alaska. Mr. Speaker, I claim the time in opposition to the motion to recommit.

The SPEAKER pro tempore. The gentleman from Alaska is recognized for 5 minutes.

Mr. YOUNG of Alaska. Mr. Speaker, we have spent 2 good days of very legitimate debate. I was hoping we could avoid some of the things being said now. Although it may sound clear and true, I can say we face reality. This bill came out of our committee unanimously with the gentleman from Minnesota (Mr. Oberstar) supporting it. We want to go forth. The 318 figure coming from the Senate side, very frankly, I do not think is true. What we have to do is try to find the real dollars, and we are going to attempt to do that in conference.

Mr. Speaker, I yield such time as he may consume to the gentleman from California (Mr. Thomas).

Mr. THOMAS. I thank the gentleman for yielding me this time.

Mr. Speaker, we really do have to decide whether we want to try to make law or score political points. The first motion that was offered was obviously a ruse because it would have killed the bill. You then say changing ``forthwith'' to ``promptly'' makes this a serious offer. You need to know that the reason they dropped ``forthwith'' to

``promptly'' and dropped various portions of the bill was to make it germane under the rules. In dropping those portions to make it germane, we have no idea what the revenue consequences of this bill are. There is no score available.

I will tell you this, that the old provision was $38 billion in revenue. If anyone knows how the Senate works, it is very simple. The way you get the votes to pass anything is to ask whoever would possibly vote for something, what do they want. It is an additive process. What we have here is the sum and substance of a bill that passed the Senate, which means there is no rationale to anything in the revenue portion.

Let me give you one brief example. Turn to page 108 and to raise the revenue that is in this bill, which is not directly applicable to the highway bill in about two-thirds of it, the effective date of the provisions ending on page 108 shall apply to transactions entered into after February 13, 2003.

{time} 1145

What was good law on February 13 last year, retroactively, will not be good law if you vote for this measure. And if you think there is nothing worse than the government's saying one can do something and then, after they did it when it was legal, saying, no, now it is not, then understand that is the way the Senate legislates. If you want to make law, let us stick with the dollar amounts we have.

Announcement by the Speaker Pro Tempore

The SPEAKER pro tempore (Mr. Thornberry). The Chair would first remind all Members that it is inappropriate to characterize actions in the other body, and all Members should remember that admonishment in making their comments on the floor.

Mr. THOMAS. Mr. Speaker, I accept that admonition. The other body has no problem changing the law after the fact. We should not.

Point of Order

Mr. FRANK of Massachusetts. Point of order, Mr. Speaker.

The SPEAKER pro tempore. The gentleman from Massachusetts will state his point of order.

Mr. FRANK of Massachusetts. Mr. Speaker, simply not using the word

``Senate'' does not alter the impact of the rule. The gentleman is in violation of the rule.

The SPEAKER pro tempore. The Chair will repeat that it is inappropriate to characterize actions in the other body, regardless of what one calls them.

The gentleman from Alaska (Mr. Young) has 2 minutes remaining.

Mr. YOUNG of Alaska. Mr. Speaker, I yield the other body 1 minute.

Mr. THOMAS. Mr. Speaker, in referring to those that I cannot refer to, in examining the legislation offered as a motion to recommit, simply look at page 108. What was legal will not be legal. Someone who took actions by virtue of something that if it were criminal would be unconstitutional is in this legislation.

Let us make law. Let us not make political points. Vote down this motion to recommit, and together let us move solid legislation that we can turn into law, much-needed law, as soon as possible.

I thank the gentleman for yielding me this time.

Mr. YOUNG of Alaska. Mr. Speaker, I thank the gentleman for his remarks.

Let us move forward. Let us try to legislate. Let us do our job.

Mr. Speaker, I yield back the balance of my time.

The SPEAKER pro tempore. Without objection, the previous question is ordered on the motion to recommit.

There was no objection.

The SPEAKER pro tempore. The question is on the motion to recommit.

The question was taken; and the Speaker pro tempore announced that the noes appeared to have it.

Recorded Vote

Mr. DAVIS of Tennessee. Mr. Speaker, I demand a recorded vote.

A recorded vote was ordered.

The SPEAKER pro tempore. Pursuant to clause 9 of rule XX, this 15-

minute vote on the motion to recommit will be followed by a 5-minute vote, if ordered, on passage and, without objection, by a 5-minute vote, if ordered, on a nondebatable concurrent resolution to adjourn.

There was no objection.

The vote was taken by electronic device, and there were--ayes 198, noes 225, not voting 10, as follows:

AYES--198

AbercrombieAckermanAlexanderAllenAndrewsBacaBairdBaldwinBallanceBecerraBellBerkleyBermanBerryBishop (GA)Bishop (NY)BlumenauerBoswellBoucherBoydBrady (PA)Brown (OH)Brown, CorrineCappsCapuanoCardinCardozaCarson (IN)Carson (OK)CaseChandlerClayClyburnConyersCooperCostelloCramerCrowleyCummingsDavis (AL)Davis (CA)Davis (FL)Davis (IL)Davis (TN)DeFazioDeGetteDelahuntDeLauroDeutschDicksDingellDoggettDooley (CA)DoyleEdwardsEmanuelEngelEshooEtheridgeEvansFarrFattahFilnerFordFrank (MA)FrostGephardtGonzalezGordonGreen (TX)GrijalvaGutierrezHarmanHastings (FL)HillHincheyHinojosaHoeffelHoldenHoltHondaHooley (OR)HoyerInsleeIsraelJackson (IL)Jackson-Lee (TX)JeffersonJohnJohnson, E. B.Jones (OH)KanjorskiKapturKennedy (RI)KildeeKilpatrickKindKleczkaKucinichLampsonLangevinLantosLarsen (WA)Larson (CT)LeeLevinLewis (GA)LipinskiLofgrenLoweyLucas (KY)LynchMajetteMaloneyMarkeyMathesonMatsuiMcCarthy (MO)McCarthy (NY)McCollumMcDermottMcGovernMcIntyreMcNultyMeehanMeek (FL)Meeks (NY)MenendezMichaudMillender-McDonaldMiller (NC)MollohanMooreMoran (VA)MurthaNadlerNapolitanoNeal (MA)OberstarObeyOlverOrtizOwensPallonePascrellPastorPaynePelosiPomeroyPrice (NC)RahallRangelRodriguezRossRothmanRoybal-AllardRuppersbergerRushRyan (OH)SaboSanchez, Linda T.Sanchez, LorettaSandersSandlinSchakowskySchiffScott (GA)Scott (VA)ShermanSkeltonSlaughterSmith (WA)SnyderSolisSprattStarkStricklandStupakTauscherTaylor (MS)Thompson (CA)Thompson (MS)TierneyTownsTurner (TX)Udall (CO)Udall (NM)Van HollenVelazquezViscloskyWatersWatsonWattWeinerWexlerWoolseyWuWynn

NOES--225

AderholtAkinBachusBakerBallengerBarrett (SC)Bartlett (MD)Barton (TX)BassBeauprezBereuterBiggertBilirakisBishop (UT)BlackburnBluntBoehlertBoehnerBonillaBonnerBonoBoozmanBradley (NH)Brady (TX)Brown (SC)Brown-Waite, GinnyBurgessBurnsBurrBurton (IN)BuyerCalvertCampCannonCantorCapitoCarterCastleChabotChocolaCobleColeCollinsCoxCraneCrenshawCubinCunninghamDavis, Jo AnnDavis, TomDeal (GA)DeLayDiaz-Balart, L.Diaz-Balart, M.DoolittleDreierDuncanDunnEhlersEmersonEnglishEverettFeeneyFergusonFlakeFoleyForbesFossellaFranks (AZ)FrelinghuysenGalleglyGarrett (NJ)GerlachGibbonsGilchrestGillmorGingreyGoodeGoodlatteGossGrangerGravesGreen (WI)GreenwoodGutknechtHallHarrisHartHastings (WA)HayesHayworthHefleyHensarlingHergerHobsonHoekstraHostettlerHoughtonHunterHydeIsaksonIstookJenkinsJohnson (CT)Johnson (IL)Johnson, SamJones (NC)KellerKellyKennedy (MN)King (IA)King (NY)KingstonKirkKlineKnollenbergKolbeLaHoodLathamLaTouretteLeachLewis (CA)Lewis (KY)LinderLoBiondoLucas (OK)ManzulloMarshallMcCotterMcCreryMcHughMcInnisMcKeonMicaMiller (FL)Miller (MI)Miller, GaryMoran (KS)MurphyMusgraveMyrickNethercuttNeugebauerNeyNorthupNorwoodNunesNussleOsborneOseOtterOxleyPaulPearcePencePeterson (MN)Peterson (PA)PetriPickeringPittsPlattsPomboPorterPortmanPryce (OH)PutnamQuinnRadanovichRamstadRegulaRehbergRenziReynoldsRogers (AL)Rogers (KY)Rogers (MI)RohrabacherRos-LehtinenRoyceRyan (WI)Ryun (KS)SaxtonSchrockSensenbrennerSessionsShadeggShawShaysSherwoodShimkusShusterSimmonsSimpsonSmith (MI)Smith (NJ)Smith (TX)SouderStearnsStenholmSullivanSweeneyTancredoTaylor (NC)TerryThomasThornberryTiahrtTiberiToomeyTurner (OH)UptonVitterWalden (OR)WalshWampWeldon (FL)Weldon (PA)WellerWhitfieldWickerWilson (NM)Wilson (SC)WolfYoung (AK)Young (FL)

NOT VOTING--10

CulbersonDeMintHulshofIssaMiller, GeorgeReyesSerranoTannerTauzinWaxman

{time} 1207

Mr. GUTIERREZ changed his vote from ``no'' to ``aye.''

So the motion to recommit was rejected.

The result of the vote was announced as above recorded.

The SPEAKER pro tempore (Mr. Thornberry). The question is on the passage of the bill.

The question was taken; and the Speaker pro tempore announced that the ayes appeared to have it.

Mr. YOUNG of Alaska. Mr. Speaker, on that I demand the yeas and nays.

The yeas and nays were ordered.

The SPEAKER pro tempore. This will be a 5-minute vote, to be followed by a 5-minute vote on H. Con. Res. 404, if ordered.

The vote was taken by electronic device, and there were--yeas 357, nays 65, not voting 11, as follows:

YEAS--357

AbercrombieAckermanAderholtAlexanderAllenAndrewsBacaBachusBairdBakerBaldwinBallanceBallengerBartlett (MD)BassBeauprezBecerraBellBereuterBerkleyBermanBerryBiggertBishop (GA)Bishop (NY)Bishop (UT)BlackburnBlumenauerBoehlertBonilla BonnerBonoBoozmanBoswellBoucherBradley (NH)Brady (PA)Brown (OH)Brown (SC)Brown, CorrineBurgessBurrBurton (IN)BuyerCalvertCampCannonCapitoCappsCapuanoCardinCardozaCarson (IN)Carson (OK)CarterCaseChabotChandlerChocolaClayClyburnCobleCollinsConyersCooperCostelloCoxCramerCraneCrowleyCubinCummingsCunninghamDavis (AL)Davis (CA)Davis (IL)Davis (TN)Davis, Jo AnnDavis, TomDeFazioDeGetteDelahuntDeLauroDeLayDicksDingellDoggettDooley (CA)DoolittleDoyleDreierDuncanDunnEdwardsEhlersEmanuelEmersonEngelEnglishEshooEtheridgeEvansEverettFarrFattahFergusonFilnerForbesFordFossellaFrank (MA)FrelinghuysenFrostGalleglyGarrett (NJ)GephardtGerlachGibbonsGilchrestGillmorGonzalezGoodeGoodlatteGordonGrangerGravesGreen (TX)GreenwoodGrijalvaGutierrezHallHarmanHartHastings (WA)HayesHayworthHefleyHergerHincheyHinojosaHobsonHoeffelHoekstraHoldenHoltHondaHooley (OR)HostettlerHoughtonHoyerHydeInsleeIsraelIssaJackson (IL)Jackson-Lee (TX)JeffersonJenkinsJohnJohnson (CT)Johnson (IL)Johnson, E. B.Jones (OH)KanjorskiKapturKellyKennedy (MN)Kennedy (RI)KildeeKilpatrickKindKing (IA)King (NY)KirkKleczkaKnollenbergKucinichLaHoodLampsonLangevinLantosLarsen (WA)Larson (CT)LathamLaTouretteLeachLeeLevinLewis (CA)Lewis (GA)Lewis (KY)LipinskiLoBiondoLofgrenLoweyLucas (KY)LynchMajetteMaloneyManzulloMarkeyMarshallMathesonMatsuiMcCarthy (MO)McCarthy (NY)McCollumMcCotterMcCreryMcDermottMcGovernMcHughMcInnisMcIntyreMcKeonMcNultyMeehanMeek (FL)Meeks (NY)MenendezMicaMichaudMillender-McDonaldMiller (MI)Miller (NC)Miller, GaryMollohanMooreMoran (KS)Moran (VA)MurphyMurthaMusgraveNadlerNapolitanoNeal (MA)NethercuttNeugebauerNeyNorthupNunesNussleOberstarObeyOlverOrtizOsborneOseOwensOxleyPallonePascrellPastorPaynePearcePelosiPeterson (MN)Peterson (PA)PetriPickeringPittsPlattsPomboPomeroyPorterPortmanPrice (NC)Pryce (OH)QuinnRadanovichRahallRamstadRangelRegulaRehbergRenziReynoldsRodriguezRogers (AL)Rogers (KY)RohrabacherRossRothmanRoybal-AllardRoyceRuppersbergerRushRyan (OH)Ryun (KS)SaboSanchez, Linda T.Sanchez, LorettaSandersSandlinSchakowskySchiffSchrockScott (GA)Scott (VA)SerranoSessionsShaysShermanSherwoodShimkusShusterSimmonsSkeltonSlaughterSmith (NJ)Smith (TX)Smith (WA)SnyderSolisSprattStenholmStricklandStupakSweeneyTauscherTaylor (MS)Taylor (NC)TerryThomasThompson (CA)Thompson (MS)TiahrtTiberiTierneyTownsTurner (OH)Turner (TX)Udall (CO)Udall (NM)UptonVan HollenVelazquezViscloskyVitterWalden (OR)WalshWampWatersWatsonWattWeinerWeldon (PA)WellerWhitfieldWickerWilson (NM)Wilson (SC)WolfWoolseyWuWynnYoung (AK)

NAYS--65

AkinBarrett (SC)Barton (TX)BilirakisBluntBoehnerBoydBrady (TX)Brown-Waite, GinnyBurnsCantorCastleColeCrenshawDavis (FL)Deal (GA)DeutschDiaz-Balart, L.Diaz-Balart, M.FeeneyFlakeFoleyFranks (AZ)GingreyGossGreen (WI)GutknechtHarrisHastings (FL)HensarlingHillIsaksonIstookJohnson, SamJones (NC)KellerKingstonKlineKolbeLinderLucas (OK)Miller (FL)MyrickNorwoodOtterPaulPencePutnamRogers (MI)Ros-LehtinenRyan (WI)SensenbrennerShadeggShawSimpsonSmith (MI)SouderStearnsSullivanTancredoThornberryToomeyWeldon (FL)WexlerYoung (FL)

NOT VOTING--11

CulbersonDeMintHulshofHunterMiller, GeorgeReyesSaxtonStarkTannerTauzinWaxman

{time} 1215

Mr. DAVIS of Florida changed his vote from ``yea'' to ``nay.''

So the bill was passed.

The result of the vote was announced as above recorded.

A motion to reconsider was laid on the table.

Stated for:

Mr. STARK. Mr. Speaker, earlier today during the vote on final passage of H.R. 3550, I was called off the floor to receive a phone call from my office. In my distraction, I thought I had voted in favor of H.R. 3550 when in actual fact I had not cast my vote. Had I not been distracted, I would have voted `Aye' on final passage of H.R. 3550.

____________________

SOURCE: Congressional Record Vol. 150, No. 45