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H.R. 4297 (109th): Tax Increase Prevention and Reconciliation Act of 2005

The text of the bill below is as of Dec 8, 2005 (Passed the House).

Source: GPO

HR 4297 EH

109th CONGRESS

1st Session

H. R. 4297

AN ACT

To provide for reconciliation pursuant to section 201(b) of the concurrent resolution on the budget for fiscal year 2006.

    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 `Tax Relief Extension Reconciliation Act of 2005'.

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

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

      Sec. 1. Short title, etc.

TITLE I--EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006

      Sec. 101. Allowance of nonrefundable personal credits against regular and minimum tax liability.

      Sec. 102. Tax incentives for business activities on Indian reservations.

      Sec. 103. Work opportunity credit.

      Sec. 104. Welfare-to-work credit.

      Sec. 105. Deduction for corporate donations of computer technology and equipment.

      Sec. 106. Availability of medical savings accounts.

      Sec. 107. 15-year cost recovery for leasehold improvements.

      Sec. 108. 15-year cost recovery for restaurant improvements.

      Sec. 109. Taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.

      Sec. 110. District of Columbia Enterprise Zone.

      Sec. 111. Possession tax credit with respect to American Samoa.

      Sec. 112. Parity in the application of certain limits to mental health benefits.

      Sec. 113. Research credit.

      Sec. 114. Qualified Zone Academy Bonds.

      Sec. 115. Certain expenses of elementary and secondary school teachers.

      Sec. 116. Qualified tuition and related expenses.

      Sec. 117. State and local general sales taxes.

TITLE II--EXTENSIONS OF CERTAIN PROVISIONS FOR 2 ADDITIONAL YEARS AND OTHER MODIFICATIONS

      Sec. 201. Expensing of environmental remediation costs.

      Sec. 202. Controlled foreign corporations.

      Sec. 203. Capital gains and dividends rates.

      Sec. 204. Saver's credit.

      Sec. 205. Increased expensing for small business.

TITLE III--OTHER PROVISIONS

      Sec. 301. Clarification of taxation of certain settlement funds.

      Sec. 302. Modification of active business definition under section 355.

      Sec. 303. Veterans' mortgage bonds.

      Sec. 304. Capital gains treatment for certain self-created musical works.

      Sec. 305. Vessel tonnage limit.

      Sec. 306. Modification of special arbitrage rule for certain funds.

TITLE I--EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006

SEC. 101. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR AND MINIMUM TAX LIABILITY.

    (a) In General- Paragraph (2) of section 26(a) (relating to special rule for taxable years 2000 through 2005) is amended--

      (1) in the text by striking `or 2005' and inserting `2005, or 2006', and

      (2) in the heading by striking `2005' and inserting `2006'.

    (b) Conforming Provisions-

      (1) Subsection (i) of section 904 (relating to coordination with nonrefundable personal credits) is amended by striking `or 2005' and inserting `2005, or 2006'.

      (2) The amendments made by sections 201(b), 202(f), and 618(b) of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to taxable years beginning during 2006.

    (c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

SEC. 102. TAX INCENTIVES FOR BUSINESS ACTIVITIES ON INDIAN RESERVATIONS.

    (a) Indian Employment Tax Credit-

      (1) IN GENERAL- Subsection (f) of section 45A (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 2005.

    (b) Accelerated Depreciation for Business Property on Indian Reservations-

      (1) IN GENERAL- Paragraph (8) of section 168(j) (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply with respect to property placed in service after December 31, 2005.

SEC. 103. WORK OPPORTUNITY CREDIT.

    (a) In General- Subparagraph (B) of section 51(c)(4) (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

    (b) Increase in Age Limit for Food Stamp Recipients- Clause (i) of section 51(d)(8)(A) (relating to qualified food stamp recipient) is amended by striking `25' and inserting `35'.

    (c) Effective Date- The amendments made by this section shall apply to individuals who begin work for the employer after December 31, 2005.

SEC. 104. WELFARE-TO-WORK CREDIT.

    (a) In General- Subsection (f) of section 51A (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to individuals who begin work for the employer after December 31, 2005.

SEC. 105. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT.

    (a) In General- Subparagraph (G) of section 170(e)(6) (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to contributions made in taxable years beginning after December 31, 2005.

SEC. 106. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

    (a) In General- Paragraphs (2) and (3)(B) of section 220(i) (defining cut-off year) are each amended by striking `2005' each place it appears in the text and headings and inserting `2006'.

    (b) Conforming Amendments-

      (1) Paragraph (2) of section 220(j) is amended--

        (A) in the text by striking `or 2004' each place it appears and inserting `2004, or 2005', and

        (B) in the heading by striking `OR 2004' and inserting `2004, OR 2005'.

      (2) Subparagraph (A) of section 220(j)(4) is amended by striking `and 2004' and inserting `2004, and 2005'.

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

    (d) Time for Filing Reports, Etc-

      (1) The report required by section 220(j)(4) of the Internal Revenue Code of 1986 to be made on August 1, 2005, shall be treated as timely if made before the close of the 90-day period beginning on the date of the enactment of this Act.

      (2) The determination and publication required by section 220(j)(5) of such Code with respect to calendar year 2005 shall be treated as timely if made before the close of the 120-day period beginning on the date of the enactment of this Act. If the determination under the preceding sentence is that 2005 is a cut-off year under section 220(i) of such Code, the cut-off date under such section 220(i) shall be the last day of such 120-day period.

SEC. 107. 15-YEAR COST RECOVERY FOR LEASEHOLD IMPROVEMENTS.

    (a) In General- Clause (iv) of section 168(e)(3)(E) (relating to 15-year property) is amended by striking `January 1, 2006' and inserting `January 1, 2007'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to property placed in service after December 31, 2005.

SEC. 108. 15-YEAR COST RECOVERY FOR RESTAURANT IMPROVEMENTS.

    (a) In General- Clause (v) of section 168(e)(3)(E) (relating to 15-year property) is amended by striking `January 1, 2006' and inserting `January 1, 2007'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to property placed in service after December 31, 2005.

SEC. 109. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.

    (a) In General- Subparagraph (H) of section 613A(c)(6) (relating to oil and natural gas produced from marginal properties) is amended by striking `January 1, 2006' and inserting `January 1, 2007'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.

SEC. 110. DISTRICT OF COLUMBIA ENTERPRISE ZONE.

    (a) Period for Which Designation Applicable- Subsection (f) of section 1400 (relating to time for which designation applicable) is amended by striking `December 31, 2005' both places it appears and inserting `December 31, 2006'.

    (b) Tax-Exempt Economic Development Bonds- Subsection (b) of section 1400A (relating to period of applicability) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

    (c) Zero Percent Capital Gains Rate-

      (1) IN GENERAL- Subsection (b) of section 1400B (relating to DC Zone Asset) is amended by striking `January 1, 2006' each place it appears and inserting `January 1, 2007'.

      (2) CONFORMING AMENDMENTS-

        (A) Paragraph (2) of section 1400B(e) (relating to gain before 1998 and after 2010 not qualified) is amended--

          (i) by striking `December 31, 2010' and inserting `December 31, 2011', and

          (ii) by striking `2010' in the heading and inserting `2011'.

        (B) Paragraph (2) of section 1400B(g) (relating to sales and exchanges of interests in partnerships and S corporations which are DC Zone businesses) is amended by striking `December 31, 2010' and inserting `December 31, 2011'.

        (C) Subsection (d) of section 1400F (relating to certain rules to apply) is amended by striking `December 31, 2010' and inserting `December 31, 2011'.

    (d) First-Time Homebuyer Credit for District of Columbia- Subsection (i) of section 1400C (relating to application of section) is amended by striking `January 1, 2006' and inserting `January 1, 2007'.

    (e) Effective Dates-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall take effect on January 1, 2006.

      (2) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS- The amendment made by subsection (b) shall apply to obligations issued after the date of the enactment of this Act.

SEC. 111. POSSESSION TAX CREDIT WITH RESPECT TO AMERICAN SAMOA.

    (a) In General- Subparagraph (A) of section 936(j)(8) (relating to special rules for certain possessions) is amended by inserting before the period at the end the following: `(before January 1, 2007, in the case of American Samoa)'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.

SEC. 112. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH BENEFITS.

    (a) In General- Paragraph (3) of section 9812(f) (relating to application of section) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

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

SEC. 113. RESEARCH CREDIT.

    (a) Extension-

      (1) IN GENERAL- Subparagraph (B) of section 41(h)(1) (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

      (2) CONFORMING AMENDMENT- Subparagraph (D) of section 45C(b)(1) (relating to special rule) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall apply to amounts paid or incurred after December 31, 2005.

    (b) Increase in Rates of Alternative Incremental Credit-

      (1) IN GENERAL- Subparagraph (A) of section 41(c)(4) (relating to election of alternative incremental credit) is amended--

        (A) by striking `2.65 percent' and inserting `3 percent',

        (B) by striking `3.2 percent' and inserting `4 percent', and

        (C) by striking `3.75 percent' and inserting `5 percent'.

      (2) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.

    (c) Alternative Simplified Credit for Qualified Research Expenses-

      (1) IN GENERAL- Subsection (c) of section 41 (relating to base amount) is amended by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph:

      `(5) ELECTION OF ALTERNATIVE SIMPLIFIED CREDIT-

        `(A) IN GENERAL- At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to 12 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined.

        `(B) SPECIAL RULE IN CASE OF NO QUALIFIED RESEARCH EXPENSES IN ANY OF 3 PRECEDING TAXABLE YEARS-

          `(i) TAXPAYERS TO WHICH SUBPARAGRAPH APPLIES- The credit under this paragraph shall be determined under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined.

          `(ii) CREDIT RATE- The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year.

        `(C) ELECTION- An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary. An election under this paragraph may not be made for any taxable year to which an election under paragraph (4) applies.'.

      (2) COORDINATION WITH ELECTION OF ALTERNATIVE INCREMENTAL CREDIT-

        (A) IN GENERAL- Section 41(c)(4)(B) (relating to election) is amended by adding at the end the following: `An election under this paragraph may not be made for any taxable year to which an election under paragraph (5) applies.'.

        (B) TRANSITION RULE- In the case of an election under section 41(c)(4) of the Internal Revenue Code of 1986 which applies to the taxable year which includes the date of the enactment of this Act, such election shall be treated as revoked with the consent of the Secretary of the Treasury if the taxpayer makes an election under section 41(c)(5) of such Code (as added by subsection (a)) for such year.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 114. QUALIFIED ZONE ACADEMY BONDS.

    (a) In General- Paragraph (1) of section 1397E(e) (relating to national limit) is amended by striking `and 2005' and inserting `2005, and 2006'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to obligations issued after December 31, 2005.

SEC. 115. CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

    (a) In General- Subparagraph (D) of section 62(a)(2) (relating to certain expenses of elementary and secondary school teachers) is amended by striking `or 2005' and inserting `2005, or 2006'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to expenses paid or incurred in taxable years beginning after December 31, 2005.

SEC. 116. QUALIFIED TUITION AND RELATED EXPENSES.

    (a) In General- Subsection (e) of section 222 (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2006'.

    (b) Limitations- Paragraph (2) of section 222(b) (relating to applicable dollar limit) is amended by striking subparagraphs (A) and (B), by redesignating subparagraph (C) as subparagraph (B), and by inserting before subparagraph (B) (as so redesignated) the following:

        `(A) 2006- In the case of a taxable year beginning in 2006, the applicable dollar amount shall be equal to--

          `(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000,

          `(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and

          `(iii) in the case of any other taxpayer, zero.'.

    (c) Effective Date- The amendments made by this section shall apply to payments made in taxable years beginning after December 31, 2005.

SEC. 117. STATE AND LOCAL GENERAL SALES TAXES.

    (a) In General- Subparagraph (I) of section 164(b)(5) (relating to application of paragraph) is amended by striking `January 1, 2006' and inserting `January 1, 2007'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.

TITLE II--EXTENSIONS OF CERTAIN PROVISIONS FOR 2 ADDITIONAL YEARS AND OTHER MODIFICATIONS

SEC. 201. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Extension of Termination Date- Subsection (h) of section 198 (relating to termination) is amended by striking `December 31, 2005' and inserting `December 31, 2007'.

    (b) Petroleum Products Treated as Hazardous Substance- Paragraph (1) of section 198(d) (relating to hazardous substance) 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 new subparagraph:

        `(C) any petroleum product (as defined in section 4612(a)(3)).'.

    (c) Effective Date- The amendments made by this section shall apply to expenditures paid or incurred after December 31, 2005.

SEC. 202. CONTROLLED FOREIGN CORPORATIONS.

    (a) Subpart F Exception for Active Financing-

      (1) EXEMPT INSURANCE INCOME- Paragraph (10) of section 953(e) (relating to application) is amended--

        (A) by striking `January 1, 2007' and inserting `January 1, 2009', and

        (B) by striking `December 31, 2006' and inserting `December 31, 2008'.

      (2) EXCEPTION TO TREATMENT AS FOREIGN PERSONAL HOLDING COMPANY INCOME- Paragraph (9) of section 954(h) (relating to application) is amended by striking `January 1, 2007' and inserting `January 1, 2009'.

    (b) Look-Through Treatment of Payments Between Related Controlled Foreign Corporations Under the Foreign Personal Holding Company Rules- Subsection (c) of section 954 (relating to foreign personal holding company income) is amended by adding at the end the following new paragraph:

      `(6) LOOK-THRU RULE FOR RELATED CONTROLLED FOREIGN CORPORATIONS-

        `(A) IN GENERAL- For purposes of this subsection, dividends, interest, rents, and royalties received or accrued from a controlled foreign corporation which is a related person shall not be treated as foreign personal holding company income to the extent attributable or properly allocable (determined under rules similar to the rules of subparagraphs (C) and (D) of section 904(d)(3)) to income of the related person which is not subpart F income. For purposes of this subparagraph, interest shall include factoring income which is treated as income equivalent to interest for purposes of paragraph (1)(E). The Secretary shall prescribe such regulations as may be appropriate to prevent the abuse of the purposes of this paragraph.

        `(B) APPLICATION- Subparagraph (A) shall apply to taxable years of foreign corporations beginning after December 31, 2005, and before January 1, 2009, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.'.

SEC. 203. CAPITAL GAINS AND DIVIDENDS RATES.

    Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is amended by striking `December 31, 2008' and inserting `December 31, 2010'.

SEC. 204. SAVER'S CREDIT.

    Subsection (h) of section 25B (relating to elective deferrals and IRA contributions by certain individuals) is amended by striking `December 31, 2006' and inserting `December 31, 2008'.

SEC. 205. INCREASED EXPENSING FOR SMALL BUSINESS.

    Subsections (b)(1), (b)(2), (b)(5), (c)(2), and (d)(1)(A)(ii) of section 179(b) (relating to election to expense certain depreciable business assets) are each amended by striking `2008' and inserting `2010'.

TITLE III--OTHER PROVISIONS

SEC. 301. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT FUNDS.

    (a) In General- Subsection (g) of section 468B (relating to clarification of taxation of certain funds) is amended to read as follows:

    `(g) Clarification of Taxation of Certain Funds-

      `(1) IN GENERAL- Except as provided in paragraph (2), nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.

      `(2) EXEMPTION FROM TAX FOR CERTAIN SETTLEMENT FUNDS- An escrow account, settlement fund, or similar fund shall be treated as beneficially owned by the United States and shall be exempt from taxation under this subtitle if--

        `(A) it is established pursuant to a consent decree entered by a judge of a United States District Court,

        `(B) it is created for the receipt of settlement payments as directed by a government entity for the sole purpose of resolving or satisfying one or more claims asserting liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,

        `(C) the authority and control over the expenditure of funds therein (including the expenditure of contributions thereto and any net earnings thereon) is with such government entity, and

        `(D) upon termination, any remaining funds will be disbursed to such government entity for use in accordance with applicable law.

      For purposes of this paragraph, the term `government entity' means the United States, any State or political subdivision thereof, the District of Columbia, any possession of the United States, and any agency or instrumentality of any of the foregoing.

      `(3) TERMINATION- Paragraph (2) shall not apply to accounts and funds established after December 31, 2010.'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to accounts and funds established after the date of the enactment of this Act.

SEC. 302. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.

    Subsection (b) of section 355 (defining active conduct of a trade or business) is amended by adding at the end the following new paragraph:

      `(3) SPECIAL RULE RELATING TO ACTIVE BUSINESS REQUIREMENT-

        `(A) IN GENERAL- In the case of any distribution made after the date of the enactment of this paragraph and before December 31, 2010, a corporation shall be treated as meeting the requirement of paragraph (2)(A) if and only if such corporation is engaged in the active conduct of a trade or business.

        `(B) AFFILIATED GROUP RULE- For purposes of subparagraph (A), all members of such corporation's separate affiliated group shall be treated as one corporation. For purposes of the preceding sentence, a corporation's separate affiliated group is the affiliated group which would be determined under section 1504(a) if such corporation were the common parent and section 1504(b) did not apply.

        `(C) TRANSITION RULE- Subparagraph (A) shall not apply to any distribution pursuant to a transaction which is--

          `(i) made pursuant to an agreement which was binding on the date of the enactment of this paragraph and at all times thereafter,

          `(ii) described in a ruling request submitted to the Internal Revenue Service on or before such date, or

          `(iii) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.

        The preceding sentence shall not apply if the distributing corporation elects not to have such sentence apply to distributions of such corporation. Any such election, once made, shall be irrevocable.

        `(D) SPECIAL RULE FOR CERTAIN PRE-ENACTMENT DISTRIBUTIONS- For purposes of determining the continued qualification under paragraph (2)(A) of distributions made before the date of the enactment of this paragraph as a result of an acquisition, disposition, or other restructuring after such date and before December 31, 2010, such distribution shall be treated as made after the date of the enactment of this paragraph for purposes of applying subparagraphs (A) through (C) of this paragraph.'.

SEC. 303. VETERANS' MORTGAGE BONDS.

    (a) All Veterans Eligible for State Home Loan Programs Funded by Qualified Veterans' Mortgage Bonds-

      (1) IN GENERAL- Paragraph (4) of section 143(l) (defining qualified veteran) is amended--

        (A) by striking `at some time before January 1, 1977' in subparagraph (A), and

        (B) by striking subparagraph (B) and inserting the following:

        `(B) who applied for the financing before the date 25 years after the last date on which such veteran left active service.'.

      (2) EFFECTIVE DATE- The amendments made by this subsection shall apply to financing provided after the date of the enactment of this Act.

    (b) Revision of State Veterans Limit-

      (1) IN GENERAL- Subparagraph (B) of section 143(l)(3) (relating to volume limitation) is amended to read as follows:

        `(B) STATE VETERANS LIMIT-

          `(i) IN GENERAL- A State veterans limit for any calendar year is the amount equal to--

            `(I) $53,750,000 for the State of Texas,

            `(II) $66,250,000 for the State of California,

            `(III) $25,000,000 for the State of Oregon,

            `(IV) $25,000,000 for the State of Wisconsin, and

            `(V) $25,000,000 for the State of Alaska.

          `(ii) PHASEIN- In the case of calendar years beginning before 2010, clause (i) shall be applied by substituting for each of the dollar amounts therein by the applicable percentage. For purposes of the preceding sentence, the applicable percentage shall be determined in accordance with the following table:

Applicable

`Calendar Year:

percentage is:

2006

20 percent

2007

40 percent

2008

60 percent

2009

80 percent.

          `(iii) TERMINATION- The State veterans limit for any calendar year after 2010 is zero.'.

      (2) EFFECTIVE DATE- The amendment made by this subsection shall apply to bonds issued after December 31, 2005.

SEC. 304. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED MUSICAL WORKS.

    (a) In General- Subsection (b) of section 1221 (relating to capital asset defined) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:

      `(3) SALE OR EXCHANGE OF SELF-CREATED MUSICAL WORKS- At the election of the taxpayer, paragraphs (1) and (3) of subsection (a) shall not apply with respect to any sale or exchange before January 1, 2011, of musical compositions or copyrights in musical works by a taxpayer described in subsection (a)(3).'.

    (b) Limitation on Charitable Contributions- Subparagraph (A) of section 170(e)(1) is amended by inserting `(determined without regard to section 1221(b)(3))' after `long-term capital gain'.

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

SEC. 305. VESSEL TONNAGE LIMIT.

    (a) In General- Paragraph (4) of section 1355(a) (relating to qualifying vessel) is amended by inserting `(6,000, in the case of taxable years beginning after December 31, 2005, and ending before January 1, 2011)' after `10,000'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.

SEC. 306. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    In the case of bonds issued after the date of the enactment of this Act and before August 31, 2009--

      (1) the requirement of paragraph (1) of section 648 of the Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated as met with respect to the securities or obligations referred to in such section if such securities or obligations are held in a fund the annual distributions from which cannot exceed 7 percent of the average fair market value of the assets held in such fund except to the extent distributions are necessary to pay debt service on the bond issue, and

      (2) paragraph (3) of such section shall be applied by substituting `distributions from' for `the investment earnings of' both places it appears.

Passed the House of Representatives December 8, 2005.

Attest:

Clerk.