HR 4351
12-12-07, Bill Passed House 226-193
Received in Senate

110th CONGRESS
1st Session

H. R. 4351

AN ACT

To amend the Internal Revenue Code of 1986 to provide individuals temporary relief from the alternative minimum tax, and for other purposes.

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

SECTION 1. SHORT TITLE, ETC.

(a) Short Title- This Act may be cited as the `AMT Relief Act of 2007'.

(b) Reference- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

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

Sec. 1. Short title, etc.

TITLE I--INDIVIDUAL TAX RELIEF

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.

Sec. 102. Extension of increased alternative minimum tax exemption amount.

Sec. 103. Increase of AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability, etc.

Sec. 104. Refundable child credit.

TITLE II--REVENUE PROVISIONS

Subtitle A--Nonqualified Deferred Compensation From Certain Tax Indifferent Parties

Sec. 201. Nonqualified deferred compensation from certain tax indifferent parties.

Subtitle B--Codification of Economic Substance Doctrine

Sec. 211. Codification of economic substance doctrine.

Sec. 212. Penalties for underpayments.

Subtitle C--Other Provisions

Sec. 221. Delay in application of worldwide allocation of interest.

Sec. 222. Modification of penalty for failure to file partnership returns.

Sec. 223. Penalty for failure to file S corporation returns.

Sec. 224. Increase in minimum penalty on failure to file a return of tax.

Sec. 225. Time for payment of corporate estimated taxes.

TITLE I--INDIVIDUAL TAX RELIEF

SEC. 101. EXTENSION OF ALTERNATIVE MINIMUM TAX RELIEF FOR NONREFUNDABLE PERSONAL CREDITS.

(a) In General- Paragraph (2) of section 26(a) (relating to special rule for taxable years 2000 through 2006) is amended--

(1) by striking `or 2006' and inserting `2006, or 2007', and

(2) by striking `2006' in the heading thereof and inserting `2007'.

(b) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

SEC. 102. EXTENSION OF INCREASED ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT.

(a) In General- Paragraph (1) of section 55(d) (relating to exemption amount) is amended--

(1) by striking `($62,550 in the case of taxable years beginning in 2006)' in subparagraph (A) and inserting `($66,250 in the case of taxable years beginning in 2007)', and

(2) by striking `($42,500 in the case of taxable years beginning in 2006)' in subparagraph (B) and inserting `($44,350 in the case of taxable years beginning in 2007)'.

(b) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

SEC. 103. INCREASE OF AMT REFUNDABLE CREDIT AMOUNT FOR INDIVIDUALS WITH LONG-TERM UNUSED CREDITS FOR PRIOR YEAR MINIMUM TAX LIABILITY, ETC.

(a) In General- Paragraph (2) of section 53(e) is amended to read as follows:

`(2) AMT REFUNDABLE CREDIT AMOUNT- For purposes of paragraph (1), the term `AMT refundable credit amount' means, with respect to any taxable year, the amount (not in excess of the long-term unused minimum tax credit for such taxable year) equal to the greater of--

`(A) 50 percent of the long-term unused minimum tax credit for such taxable year, or

`(B) the amount (if any) of the AMT refundable credit amount determined under this paragraph for the taxpayer's preceding taxable year.'.

(b) Treatment of Certain Underpayments, Interest, and Penalties Attributable to the Treatment of Incentive Stock Options- Section 53 is amended by adding at the end the following new subsection:

`(f) Treatment of Certain Underpayments, Interest, and Penalties Attributable to the Treatment of Incentive Stock Options-

`(1) ABATEMENT- Any underpayment of tax outstanding on the date of the enactment of this subsection which is attributable to the application of section 56(b)(3) for any taxable year ending before January 1, 2007 (and any interest or penalty with respect to such underpayment which is outstanding on such date of enactment), is hereby abated. No credit shall be allowed under this section with respect to any amount abated under this paragraph.

`(2) INCREASE IN CREDIT FOR CERTAIN INTEREST AND PENALTIES ALREADY PAID- Any interest or penalty paid before the date of the enactment of this subsection which would (but for such payment) have been abated under paragraph (1) shall be treated for purposes of this section as an amount of adjusted net minimum tax imposed for the taxable year of the underpayment to which such interest or penalty relates.'.

(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, 2006.

(2) ABATEMENT- Section 53(f)(1) of the Internal Revenue Code of 1986, as added by subsection (b), shall take effect on the date of the enactment of this Act.

SEC. 104. REFUNDABLE CHILD CREDIT.

(a) Modification of Threshold Amount- Clause (i) of section 24(d)(1)(B) is amended by inserting `($8,500 in the case of taxable years beginning in 2008)' after `$10,000'.

(b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2007.

TITLE II--REVENUE PROVISIONS

Subtitle A--Nonqualified Deferred Compensation From Certain Tax Indifferent Parties

SEC. 201. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX INDIFFERENT PARTIES.

(a) In General- Subpart B of part II of subchapter E of chapter 1 (relating to taxable year for which items of gross income included) is amended by inserting after section 457 the following new section:

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

`(a) In General- Any compensation which is deferred under a nonqualified deferred compensation plan of a nonqualified entity shall be taken into account for purposes of this chapter when there is no substantial risk of forfeiture of the rights to such compensation.

`(b) Nonqualified Entity- For purposes of this section, the term `nonqualified entity' means--

`(1) any foreign corporation unless substantially all of its income is--

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

`(B) subject to a comprehensive foreign income tax, and

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

`(A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, and

`(B) organizations which are exempt from tax under this title.

`(c) Ascertainability of Amounts of Compensation-

`(1) IN GENERAL- If the amount of any compensation is not ascertainable at the time that such compensation is otherwise to be taken into account under subsection (a)--

`(A) such amount shall be so taken into account when ascertainable, and

`(B) the tax imposed under this chapter for the taxable year in which such compensation is taken into account under subparagraph (A) shall be increased by the sum of--

`(i) the amount of interest determined under paragraph (2), and

`(ii) an amount equal to 20 percent of the amount of such compensation.

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

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

`(1) SUBSTANTIAL RISK OF FORFEITURE-

`(A) IN GENERAL- The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person's rights to such compensation are conditioned upon the future performance of substantial services by any individual.

`(B) EXCEPTION FOR COMPENSATION BASED ON GAIN RECOGNIZED ON AN INVESTMENT ASSET-

`(i) IN GENERAL- To the extent provided in regulations prescribed by the Secretary, if compensation is determined solely by reference to the amount of gain recognized on the disposition of an investment asset, such compensation shall be treated as subject to a substantial risk of forfeiture until the date of such disposition.

`(ii) INVESTMENT ASSET- For purposes of clause (i), the term `investment asset' means any single asset (other than an investment fund or similar entity)--

`(I) acquired directly by an investment fund or similar entity,

`(II) with respect to which such entity does not (nor does any person related to such entity) participate in the active management of such asset (or if such asset is an interest in an entity, in the active management of the activities of such entity), and

`(III) substantially all of any gain on the disposition of which (other than such deferred compensation) is allocated to investors in such entity.

`(iii) COORDINATION WITH SPECIAL RULE FOR SHORT-TERM DEFERRALS OF COMPENSATION- Paragraph (3)(B) shall not apply to any compensation to which clause (i) applies.

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

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

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

Such term shall not include any tax unless such tax includes rules for the deductibility of deferred compensation which are similar to the rules of this title.

`(3) NONQUALIFIED DEFERRED COMPENSATION PLAN-

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

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

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

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

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

(b) Conforming Amendment- Section 26(b)(2) is amended by striking `and' at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting `, and', and by adding at the end the following new subparagraph:

`(U) section 457A(c)(1)(B) (relating to ascertainability of amounts of compensation).'.

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

`Sec. 457A. Nonqualified deferred compensation from certain tax indifferent parties.'.

(d) Effective Date-

(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts deferred which are attributable to services performed after December 31, 2007.

(2) APPLICATION TO EXISTING DEFERRALS- In the case of any amount deferred to which the amendments made by this section do not apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2008, to the extent such amount is not includible in gross income in a taxable year beginning before 2017, such amounts shall be includible in gross income in the later of--

(A) the last taxable year beginning before 2017, or

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

(3) ACCELERATED PAYMENTS- No later than 60 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2007, may, without violating the requirements of section 409A(a) of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income.

(4) CERTAIN BACK-TO-BACK ARRANGEMENTS- If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2007, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection.

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

Subtitle B--Codification of Economic Substance Doctrine

SEC. 211. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

`(p) Clarification of Economic Substance Doctrine-

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

`(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer's economic position, and

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

`(2) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL-

`(A) IN GENERAL- The potential for profit of a transaction shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of paragraph (1) are met with respect to the transaction only if the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected.

`(B) TREATMENT OF FEES AND FOREIGN TAXES- Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (A).

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

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

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

`(C) OTHER COMMON LAW DOCTRINES NOT AFFECTED- Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.

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

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

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

SEC. 212. PENALTIES FOR UNDERPAYMENTS.

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

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

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

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

`(i) Increase in Penalty in Case of Nondisclosed Noneconomic Substance Transactions-

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

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

`(3) SPECIAL RULE FOR AMENDED RETURNS- Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.'.

(3) CONFORMING AMENDMENT- Subparagraph (B) of section 6662A(e)(2) is amended--

(A) by striking `section 6662(h)' and inserting `subsection (h) or (i) of section 6662', and

(B) by striking `GROSS VALUATION MISSTATEMENT PENALTY' in the heading and inserting `CERTAIN INCREASED UNDERPAYMENT PENALTIES'.

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

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

(2) by striking `paragraph (2)' in paragraph (4), as so redesignated, and inserting `paragraph (3)', and

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

`(2) EXCEPTION FOR NONECONOMIC SUBSTANCE TRANSACTIONS, TAX SHELTERS, AND CERTAIN LARGE CORPORATIONS- Paragraph (1) shall not apply--

`(A) to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)) or transactions described in section 6662(b)(6), and

`(B) to any taxpayer if such taxpayer is a specified large corporation (as defined in section 6662(d)(2)(D)(ii)).'.

(c) Application of Penalty for Erroneous Claim for Refund or Credit to Noneconomic Substance Transactions- Section 6676 is amended by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:

`(c) Noneconomic Substance Transactions Treated as Lacking Reasonable Basis- For purposes of this section, any excessive amount which is attributable to any transaction described in section 6662(b)(6) shall not be treated as having a reasonable basis.'.

(d) Special Understatement Reduction Rule for Certain Large Corporations-

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

`(D) SPECIAL REDUCTION RULE FOR CERTAIN LARGE CORPORATIONS-

`(i) IN GENERAL- In the case of any specified large corporation--

`(I) subparagraph (B) shall not apply, and

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

`(ii) SPECIFIED LARGE CORPORATION-

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

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

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

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

Subtitle C--Other Provisions

SEC. 221. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST.

(a) In General- Paragraphs (5)(D) and (6) of section 864(f) are each amended by striking `December 31, 2008' and inserting `December 31, 2017'.

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

SEC. 222. MODIFICATION OF PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURNS.

(a) Extension of Time Limitation- Subsection (a) of section 6698 (relating to general rule) is amended by striking `5 months' and inserting `12 months'.

(b) Increase in Penalty Amount- Paragraph (1) of section 6698(b) is amended by striking `$50' and inserting `$100'.

(c) Effective Date- The amendments made by this section shall apply to returns required to be filed after the date of the enactment of this Act.

SEC. 223. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.

(a) In General- Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end the following new section:

`SEC. 6699A. FAILURE TO FILE S CORPORATION RETURN.

`(a) General Rule- In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or pay tax), if any S corporation required to file a return under section 6037 for any taxable year--

`(1) fails to file such return at the time prescribed therefor (determined with regard to any extension of time for filing), or

`(2) files a return which fails to show the information required under section 6037,

such S corporation shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such failure continues (but not to exceed 12 months), unless it is shown that such failure is due to reasonable cause.

`(b) Amount Per Month- For purposes of subsection (a), the amount determined under this subsection for any month is the product of--

`(1) $100, multiplied by

`(2) the number of persons who were shareholders in the S corporation during any part of the taxable year.

`(c) Assessment of Penalty- The penalty imposed by subsection (a) shall be assessed against the S corporation.

`(d) Deficiency Procedures Not To Apply- Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).'.

(b) Clerical Amendment- The table of sections for part I of subchapter B of chapter 68 is amended by adding at the end the following new item:

`Sec. 6699A. Failure to file S corporation return.'.

(c) Effective Date- The amendments made by this section shall apply to returns required to be filed after the date of the enactment of this Act.

SEC. 224. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A RETURN OF TAX.

(a) In General- Subsection (a) of section 6651 is amended by striking `$100' in the last sentence and inserting `$150'.

(b) Effective Date- The amendment made by this section shall apply to returns the due date for the filing of which (including extensions) is after December 31, 2007.

SEC. 225. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

The percentage under subparagraph (B) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this Act is increased by 52.5 percentage points.

Passed the House of Representatives December 12, 2007.

Attest:

Clerk.

110th CONGRESS

1st Session

H. R. 4351

AN ACT

To amend the Internal Revenue Code of 1986 to provide individuals temporary relief from the alternative minimum tax, and for other purposes.

END