S. 1921 (109th): A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, ...

...abolishing the Internal Revenue Service, and replacing such taxes with a national sales tax and a business tax.

109th Congress, 2005–2006. Text as of Oct 26, 2005 (Introduced).

Status & Summary | PDF | Source: GPO

S 1921 IS

109th CONGRESS

1st Session

S. 1921

To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and replacing such taxes with a national sales tax and a business tax.

IN THE SENATE OF THE UNITED STATES

October 26, 2005

Mr. DEMINT (for himself and Mr. GRAHAM) introduced the following bill; which was read twice and referred to the Committee on Finance


A BILL

To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and replacing such taxes with a national sales tax and a business tax.

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

SECTION 1. TABLE OF CONTENTS.

    The table of contents for this Act is as follows:

      Sec. 1. Table of Contents.

      Sec. 2. Congressional findings.

TITLE I--REPEAL OF THE INCOME TAX AND ESTATE AND GIFT TAXES

      Sec. 101. Income taxes repealed.

      Sec. 102. Estate and gift taxes repealed.

      Sec. 103. Effective dates; other matters.

TITLE II--GENERAL MATTERS

      Sec. 201. General matters.

`Subtitle A--General Matters

`Chapter 1--Principles of Interpretation; Definitions

      `Sec. 1. Principles of interpretation.

      `Sec. 2. Definitions.

TITLE III--SALES TAX ENACTED

      Sec. 301. Sales tax.

`Subtitle B--Sales Tax

`Chapter 1--Imposition of Tax; General Rules, Etc.

      `Sec. 101. Imposition of sales tax.

      `Sec. 102. Intermediate and export sales.

      `Sec. 103. Rules relating to collection and remittance of tax.

`Chapter 2--Credits; Refunds

      `Sec. 201. Credits and refunds.

      `Sec. 202. Business use conversion credit.

      `Sec. 203. Intermediate and export sales credit.

      `Sec. 204. Administration credit.

      `Sec. 205. Bad debt credit.

      `Sec. 206. Insurance proceeds credit.

      `Sec. 207. Refunds.

      `Sec. 208. Previously taxed property credit.

`Chapter 3--Family Consumption Allowance

      `Sec. 301. Family consumption allowance.

      `Sec. 302. Qualified family.

      `Sec. 303. Monthly poverty level.

      `Sec. 304. Rebate mechanism.

      `Sec. 305. Change in family circumstances.

`Chapter 4--State and Federal Cooperative Tax Administration

      `Sec. 401. Authority for States to collect tax.

      `Sec. 402. Federal administrative support for States.

      `Sec. 403. Federal-State conferences.

      `Sec. 404. Federal administration in certain States.

      `Sec. 405. Interstate allocation and destination determination.

      `Sec. 406. General administrative matters.

      `Sec. 407. Jurisdiction.

`Chapter 5--Special Rules

      `Sec. 501. Hobby activities.

      `Sec. 502. Gaming activities.

      `Sec. 503. Government purchases.

      `Sec. 504. Government enterprises.

      `Sec. 505. Mixed use property.

      `Sec. 506. Not-for-profit organizations.

`Chapter 6--Financial Intermediation Services

      `Sec. 601. Determination of financial intermediation services amount.

      `Sec. 602. Bad debts.

      `Sec. 603. Timing of tax on financial intermediation services.

      `Sec. 604. Financing leases.

      `Sec. 605. Basic interest rate.

      `Sec. 606. Foreign financial intermediation services.

TITLE IV--BUSINESS TAX ENACTED

      Sec. 401. Business tax.

`Subtitle C--Business Tax

`Chapter 1--Imposition of Tax

      `Sec. 1101. Tax imposed.

`Chapter 2--Basic Rules for Business Tax

      `Sec. 1201. Gross profits.

      `Sec. 1202. Taxable receipts.

      `Sec. 1203. Deductible amounts.

      `Sec. 1204. Cost of business purchases.

      `Sec. 1205. Business entity and business activity.

      `Sec. 1206. Loss carryover deduction.

`Chapter 3--Capital Contributions, Mergers, Acquisitions, and Distributions

      `Sec. 1301. Contributions to a business entity.

      `Sec. 1302. Distributions of property.

      `Sec. 1303. Asset acquisitions.

      `Sec. 1304. Mergers and stock acquisitions.

      `Sec. 1305. Spinoffs, splitoff, etc.

      `Sec. 1306. Allocation of certain tax attributes.

`Chapter 4--Land and Rental Property

      `Sec. 1401. No deduction for land purchased for nonbusiness use.

      `Sec. 1402. Taxable receipts for land held for nonbusiness use.

      `Sec. 1403. Certain rental property.

`Chapter 5--Insurance and Financial Products

      `Sec. 1501. General rules.

      `Sec. 1502. Fees for financial intermediation services.

      `Sec. 1503. Deductible insurance premiums.

      `Sec. 1504. Nondeductible insurance premiums.

      `Sec. 1505. Certain implicit fees for financial intermediation services.

`Chapter 6--Financial Intermediation and Financial Institutions

      `Sec. 1601. Activities constituting a financial intermediation business.

      `Sec. 1602. General rule for taxation.

      `Sec. 1603. Special rule for banks.

      `Sec. 1604. Insurance companies.

      `Sec. 1605. Financial pass-thru entities.

`Chapter 7--Tax-Exempt Organizations

      `Sec. 1701. Exemption for governmental entities.

      `Sec. 1702. Taxable activity of governmental entities.

      `Sec. 1703. Tax-exempt organizations.

      `Sec. 1704. Special rules for (c)(3) organizations.

      `Sec. 1705. Tax on unrelated business activity.

      `Sec. 1706. Unrelated business activity.

`Chapter 8--Cooperatives

      `Sec. 1801. Patronage dividends of cooperatives.

`Chapter 9--Sourcing Rules

      `Sec. 1901. Exports of property or services.

      `Sec. 1902. Imports of property or services.

      `Sec. 1903. Import or export of services.

      `Sec. 1904. International transportation services.

      `Sec. 1905. International communications.

      `Sec. 1906. Insurance.

      `Sec. 1907. Banking services.

`Chapter 10--Import Tax

      `Sec. 2001. Imposition of tax on import of property.

      `Sec. 2002. Imposition of tax on import of services.

      `Sec. 2003. General rules for the import tax.

TITLE V--TAX ADMINISTRATION AND TRANSITION

      Sec. 501. Tax administration and transition.

`Subtitle D--Administration and Transition Matters

`Chapter 1--Other Administrative Provisions

      `Sec. 2501. Reports and payments.

      `Sec. 2502. Registration.

      `Sec. 2503. Accounting.

      `Sec. 2504. Registration certificates.

      `Sec. 2505. Penalties.

      `Sec. 2506. Burden of persuasion and burden of production.

      `Sec. 2507. Attorneys and accountancy fees.

      `Sec. 2508. Summons, examinations, audits, etc.

      `Sec. 2509. Records.

      `Sec. 2510. Tax to be separately stated and charged.

      `Sec. 2511. Coordination with title 11.

      `Sec. 2512. Applicable interest rate.

`Chapter 2--Collection; Appeals; Taxpayer Rights

      `Sec. 2601. Collections.

      `Sec. 2602. Power to levy, etc.

      `Sec. 2603. Problem resolution offices.

      `Sec. 2604. Appeals.

      `Sec. 2605. Taxpayer rights.

      `Sec. 2606. Installment agreements; compromises.

`Chapter 3--Accounting Method Rules

      `Sec. 2701. General accounting rules.

      `Sec. 2702. Use of the cash method of accounting.

      `Sec. 2703. Taxable year.

      `Sec. 2704. Long-term contracts.

      `Sec. 2705. Post-sale price adjustments and refunds.

      `Sec. 2706. Bad debts.

      `Sec. 2707. Consolidated returns.

      `Sec. 2708. Transition rules.

`Chapter 4--Transition Rules

      `Sec. 2801. Amortization of transition basis.

      `Sec. 2802. Sales of transition basis property.

      `Sec. 2803. Carryovers.

      `Sec. 2804. Transition inventory credit.

`Chapter 5--Additional Matters

      `Sec. 2901. Additional matters.

      `Sec. 2902. Wages To Be reported to Social Security Administration.

      `Sec. 2903. Trust fund revenues.

TITLE VI--OTHER MATTERS

      Sec. 601. Phase-out of administration repealed Federal taxes.

      Sec. 602. Administration of other Federal taxes.

      Sec. 603. Sales tax inclusive Social Security benefits indexation.

      Sec. 604. Conforming and technical amendments.

TITLE VII--INDIVIDUAL DEVELOPMENT ACCOUNTS

      Sec. 701. Short title.

      Sec. 702. Purposes.

      Sec. 703. Definitions.

      Sec. 704. Structure and administration of qualified individual development account programs.

      Sec. 705. Procedures for opening and maintaining an individual development account and qualifying for matching funds.

      Sec. 706. Deposits by qualified individual development account programs.

      Sec. 707. Withdrawal procedures.

      Sec. 708. Certification and termination of qualified individual development account programs.

      Sec. 709. Reporting, monitoring, and evaluation.

      Sec. 710. Authorization of appropriations.

      Sec. 711. Matching funds for individual development accounts provided for qualified financial institutions.

SEC. 2. CONGRESSIONAL FINDINGS.

    (a) Congress finds that the income tax--

      (1) retards economic growth and has reduced the standard of living of the American public;

      (2) impedes the international competitiveness of the United States industry;

      (3) reduces savings and investment in the United States by taxing them multiple times;

      (4) slows the capital formation necessary for real wages to steadily increase;

      (5) lowers productivity;

      (6) imposes unacceptable and unnecessary administrative and compliance costs on individual and business taxpayers;

      (7) is unfair and inequitable;

      (8) unnecessarily intrudes upon the privacy and civil rights of United States citizens;

      (9) hides the true cost of government by embedding taxes in the costs of everything we buy;

      (10) is not being complied with at satisfactory levels and therefore raises the tax burden on law abiding citizens; and

      (11) impedes upward social mobility.

    (b) Congress finds further that the estate and gift taxes--

      (1) force family businesses and farms to be sold out of the family to pay tax;

      (2) discourage capital formation and entrepreneurship;

      (3) foster the continued dominance of large enterprises over small family-owned companies and farms; and

      (4) impose unacceptably high tax planning costs on small businesses and farms.

    (c) Congress finds further that a broad-based national sales tax on goods and services purchased for final consumption--

      (1) is similar in many respects to the sales and use taxes in place in 45 of the 50 States;

      (2) will promote savings and investment;

      (3) will promote fairness;

      (4) will promote economic growth;

      (5) will raise the standard of living of the American people;

      (6) will increase investment;

      (7) will enhance productivity and international competitiveness;

      (8) will reduce administrative burdens on the American taxpayer;

      (9) will improve upward social mobility; and

      (10) will respect the privacy interests and civil rights of taxpayers.

    (d) Congress finds that a business tax which imposes the same tax burden on foreign and United States produced goods and services and is not biased against investment--

      (1) will promote savings and investment;

      (2) will promote fairness;

      (3) will promote economic growth;

      (4) will raise the standard of living of the American people;

      (5) will increase investment;

      (6) will enhance productivity and international competitiveness;

      (7) will reduce administrative burdens on the American taxpayer; and

      (8) will improve upward social mobility.

    (e) Congress further finds that--

      (1) most of the practical experience administering sales taxes is found at the State governmental level;

      (2) it is desirable to harmonize Federal and State collection and enforcement efforts to the maximum extent possible;

      (3) it is sound tax administration policy to foster administration and collection of the Federal sales tax at the State level in return for a reasonable administration fee to the States; and

      (4) businesses that must collect and remit taxes should receive reasonable compensation for the cost of doing so.

TITLE I--REPEAL OF THE INCOME TAX AND ESTATE AND GIFT TAXES

SEC. 101. INCOME TAXES REPEALED.

    Subtitle A of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes) is hereby repealed.

SEC. 102. ESTATE AND GIFT TAXES REPEALED.

    Subtitle B of the Internal Revenue Code of 1986 (relating to estate and gift taxes) is hereby repealed.

SEC. 103. EFFECTIVE DATES; OTHER MATTERS.

    (a) Subtitle H of the Internal Revenue Code of 1986 (relating to Financing of Presidential Election Campaigns) is hereby repealed.

    (b) Subtitle C (relating to employment taxes) is redesignated as subtitle E.

    (c) Subtitle D (relating to miscellaneous excise taxes) is redesignated as subtitle F.

    (d) Subtitle E (relating to Alcohol, Tobacco and Certain Other Excise Taxes) is redesignated as subtitle G.

    (e) Subtitle F (relating to Procedure and Administration) is redesignated as subtitle H.

    (f) Subtitle G (relating to the Joint Committee on Taxation) is redesignated as subtitle L.

    (g) References to provisions repealed by this Act shall be treated as references to such provisions as in effect on the day before the date of the enactment of this Act.

    (h) EFFECTIVE DATES- The amendments made by this Act shall take effect on January 1, 2007. The Internal Revenue Code of 1986 enacted October 22, 1986 as heretofore, hereby, or hereafter amended may be cited as the `Internal Revenue Code of 2005'.

TITLE II--GENERAL MATTERS

SEC. 201. GENERAL MATTERS.

    (a) IN GENERAL- The Internal Revenue Code of 1986 is amended by inserting at the beginning the following new subtitle:

`Subtitle A--General Matters

`Chapter 1--Principles of interpretation; definitions.

`CHAPTER 1--PRINCIPLES OF INTERPRETATION; DEFINITIONS

`Sec. 1. Principles of interpretation.

`Sec. 2. Definitions.

`SEC. 1. PRINCIPLES OF INTERPRETATION.

    `(a) IN GENERAL- Any court, the Secretary and any sales tax administering authority shall consider the purposes of this title (as set forth in subsection (b)) as the primary aid in statutory construction.

    `(b) PURPOSES-

      `(1) A purpose of this title is to raise revenue needed by the Federal Government in a manner consistent with the title's other purposes.

      `(2) A purpose of this title is to tax consumption of goods and services in the United States by means of the sales tax and the business tax.

      `(3) A purpose of this title is to prevent double, multiple or cascading taxation.

      `(4) A purpose of this title is to simplify the tax law and reduce the administration costs of, and the costs of compliance with, the tax law.

      `(5) A purpose of this title is to provide for the administration of the tax law in a manner that respects--

        `(A) privacy,

        `(B) due process,

        `(C) individual rights when interacting with the Government,

        `(D) the presumption of innocence in criminal proceedings, and

        `(E) the presumption of lawful behavior in civil proceedings.

      `(6) A purpose of this title is to increase the role of State governments in Federal tax administration because of State government expertise in sales tax administration.

      `(7) A purpose of this title is to enhance generally cooperation and coordination among State tax administrators and to enhance cooperation and coordination among State and Federal tax administrators, consistent with the principle of intergovernmental tax immunity.

    `(c) SECONDARY AIDS TO STATUTORY CONSTRUCTION- As a secondary aid in statutory construction, any court, the Secretary and any sales tax administering authority shall--

      `(1) consider the common law canons of statutory construction,

      `(2) consider the meaning and construction of concepts and terms used in the Internal Revenue Code of 1986 as in force prior to the date of the enactment of this subtitle, and

      `(3) construe any ambiguities in this title in favor of reserving powers to the States respectively, or to the people.

`SEC. 2. DEFINITIONS.

    `(a) AFFILIATED FIRMS- A firm is affiliated with another if 1 firm owns 50 percent or more of--

      `(1) the voting shares in a corporation, or

      `(2) the capital interests of a business firm that is not a corporation.

    `(b) BUSINESS PURPOSE- The term `business purpose' means a purpose reasonably designed or calculated to further the profitability of a trade or business, including without limitation for the purpose of using a good or service in that trade or business--

      `(1) for resale,

      `(2) to produce, provide, render or sell taxable property or services, or

      `(3) in furtherance of other bona fide business purposes.

    `(c) CONFORMING STATE SALES TAX- The term `conforming State sales tax' means a sales tax imposed by a State that adopts the same definition of taxable property and services as the tax imposed by this title.

    `(d) DESIGNATED COMMERCIAL PRIVATE COURIER SERVICE- The term `designated commercial private courier service' means a firm designated as such by the Secretary or any sales tax administering authority. The Secretary or any sales tax administering authority shall designate a firm as a designated commercial private courier service upon application of the firm provided that the firm--

      `(1) provides its services to the general public,

      `(2) records electronically to its data base kept in the regular course of its business the date on which an item was given to such firm for delivery, and

      `(3) has been operating for at least 1 year.

    `(e) EDUCATIONAL EXPENSES-

      `(1) IN GENERAL- The term `educational expenses' means expenses directly related to--

        `(A) primary, secondary, college or university level instruction or course work, or

        `(B) employment or career related training or instruction by or under qualified instructors in a structured program.

      `(2) EXCLUSION- Such term does not include room, board, sports activities, recreational activities, hobbies, games, arts or crafts or cultural activities.

    `(f) FAMILY MEMBER- The term `family member' has the meaning given such term by section 302(b).

    `(g) FEDERAL SHORT TERM RATE- The term `Federal short term rate' has the meaning given such term by section 2512(b).

    `(h) GROSS PAYMENTS- The term `gross payments' means payments for the taxable property or services (excluding Federal taxes imposed by subtitle B).

    `(i) IMPORT TAX- The term `import tax' means any tax imposed by chapter 10 of subtitle C.

    `(j) INTANGIBLE PROPERTY-

      `(1) IN GENERAL- The term `intangible property' includes copyrights, trademarks, patents, goodwill, financial instruments, securities, commercial paper, debts, notes and bonds and other property deemed intangible at common law. The Secretary shall promulgate regulations to resolve differences among the common law of the several States.

      `(2) CERTAIN TYPES OF PROPERTY- Such term does not include tangible personal property (or rents or leaseholds of any term thereon), real property (or rents or leaseholds of any term thereon) and computer software.

      `(3) CROSS REFERENCE- For anti avoidance rules relating to intangible property, see section 2901(a).

    `(k) INVESTMENT PURPOSES- The term `investment purposes' means for purposes of appreciation or the production of income but not entailing more than minor personal efforts.

    `(l) PERSON- The term `person' means any natural person, and unless the context clearly does not allow it, any corporation, partnership, limited liability company, trust, estate, government, agency, administration, organization, association or other legal entity (foreign or domestic).

    `(m) PRODUCE, PROVIDE, RENDER, OR SELL TAXABLE PROPERTY OR SERVICES-

      `(1) IN GENERAL- Taxable property or services are used to produce, provide, render or sell a taxable property or service if such property or service is purchased by a person engaged in a trade or business for the purpose of employing or using such taxable property or service in the production, provision, rendering or sale of other taxable property or services in the ordinary course of that trade or business.

      `(2) RESEARCH, EXPERIMENTATION, TESTING, AND DEVELOPMENT- Taxable property or services used in a trade or business for the purpose of research, experimentation, testing and development shall be treated as used to produce, provide, render or sell taxable property or services.

      `(3) INSURANCE PAYMENTS- Taxable property or services purchased by an insurer on behalf of an insured shall be treated as used to produce, provide, render or sell taxable property or services if the premium for the insurance contract giving rise to the insurer's obligation was subject to tax pursuant to section 601 (relating to financial intermediation services).

      `(4) EDUCATION AND TRAINING- Educational expenses shall be treated as services used to produce, provide, render or sell taxable property or services.

    `(n) PURCHASER'S RECEIPT- The term `purchaser's receipt' means the receipt required by section 2510.

    `(o) REGISTERED SELLER- The term `registered seller' means a person registered pursuant to section 2502.

    `(p) SAVINGS ASSETS- The term `savings assets' means financial assets held for an investment purpose.

    `(q) SALES TAX ADMINISTERING AUTHORITY- The term `sales tax administering authority' means--

      `(1) in an administering State, the State agency designated to collect and administer the sales tax imposed by subtitle B, or

      `(2) the Secretary, in a State that neither--

        `(A) is an administering States, nor

        `(B) has elected to have its sales tax administered by an administering State, or

      `(3) in a State that has elected pursuant to section 401(g) to have another State administer the sales tax, the State agency designated to collect and administer the sales tax imposed by this subtitle.

    `(r) SECRETARY- The term `Secretary' means the Secretary of the Treasury.

    `(s) TAXABLE EMPLOYERS-

      `(1) IN GENERAL- The term `taxable employers' means employers that are not--

        `(A) engaged in a trade or business,

        `(B) a not-for-profit organization (as defined in section 506), or

        `(C) a Government enterprise (as defined in section 504).

      `(2) EXAMPLES- Such term includes--

        `(A) households employing domestic servants (including cooks, gardeners, maids, laborers, child care providers, and nurses), and

        `(B) government except for Government enterprises as defined in section 504.

      `(3) CROSS REFERENCE- For rules relating to collection and remittance of tax on wages by taxable employers, see section 103.

    `(t) TAXABLE PROPERTY OR SERVICES-

      `(1) GENERAL RULE- For purposes of subtitle B, the term `taxable property or service' means--

        `(A) any property (including leaseholds of any term or rents with respect to such property) other than intangible property (as defined in subsection (j)), and

        `(B) any service (including any financial intermediation services as determined by section 601).

      `(2) SERVICES- For purposes of subparagraph (1), the term `services' does not include services performed by an employee for which the employee is paid wages or a salary (as defined in subsection (w))--

        `(A) for an employer in the regular course of the employer's trade or business,

        `(B) for an employer that is a not-for-profit organization (as defined in section 506), and

        `(C) for an employer that is a Government enterprise (as defined in section 504).

      `(3) WAGES AND SALARY PAID BY TAXABLE EMPLOYERS-

        `(A) GENERAL RULE- The term `services' includes wages and salary paid by taxable employers (as defined in subsection (l)).

        `(B) EDUCATIONAL SERVICES- The term `services' does not include wages or salary paid by taxable employers to employees whose work is directly related to--

          `(i) providing primary, secondary, college or university level instruction or course work, or

          `(ii) employment or career related training or instruction by or under qualified instructors in a structured program.

        The term `services' includes wages or salary paid by taxable employers to employees whose work is related to providing room, board, sports activities, recreational activities, hobbies, games, arts or crafts or cultural activities.

    `(u) UNITED STATES- The term `United States', when used in the geographical sense, means the 50 States, the District of Columbia, and any commonwealth, territory or possession of the United States.

    `(v) USED PROPERTY- The term `used property' means--

      `(1) property on which the tax imposed by section 101 has been collected and for which no credit has been allowed under section 203, and

      `(2) property that was held other than for a business purpose (as defined in section 2) on December 31, 2006.

    `(w) WAGES, SALARY, OR COMPENSATION- The term `wages and salary' means all compensation paid for employment service including cash compensation, employee benefits, disability insurance or wage replacement insurance payments, unemployment compensation insurance, workers compensation insurance and the fair market value of any other consideration paid by an employer to an employee in consideration for employment services rendered.

    `(x) WHOLESALE SELLER-

      `(1) IN GENERAL- The term `wholesale seller' means a registered seller for whom, in the previous calendar year, more than 80 percent of gross payments received were from sales to registered sellers.

      `(2) FIRST YEAR- Firms may petition the sales tax administering authority to be deemed wholesaler sellers for calendar year 2007. The sales tax administering authority may require reasonable documentation relating to whether more than 80 percent of the gross payments received by the firm were from sales to persons that would have been registered sellers in the year 2006 had the sales tax been in effect.'.

TITLE III--SALES TAX ENACTED

SEC. 301. SALES TAX.

    (a) IN GENERAL- The Internal Revenue Code of 1986 is amended by inserting after subtitle A the following new subtitle:

`Subtitle B--Sales Tax

`Chapter 1. Imposition of tax; general rules, etc.

`Chapter 2. Credits; refunds.

`Chapter 3. Family consumption allowance.

`Chapter 4. State and Federal cooperative tax administration.

`Chapter 5. Special rules.

`Chapter 6. Financial intermediation services.

`CHAPTER 1--IMPOSITION OF TAX; GENERAL RULES, ETC.

`Sec. 101. Imposition of sales tax.

`Sec. 102. Intermediate and export sales.

`Sec. 103. Rules relating to collection and remittance of tax.

`SEC. 101. IMPOSITION OF SALES TAX.

    `(a) IN GENERAL- There is hereby imposed a tax at the rate of 8.4 percent on the use or consumption in the United States of taxable property or services (as defined in section 2).

    `(b) COORDINATION WITH IMPORT DUTIES AND BUSINESS TAX- The tax imposed by this section is in addition to any import duties imposed by chapter 4 of title 19 and the tax imposed by subtitle C. The Secretary shall provide by regulation that, to the maximum extent practicable, the tax imposed by this section on certain imported taxable property and services is collected and administered in conjunction with any applicable import duties imposed by the United States and with any applicable business tax imposed by subtitle C.

    `(c) LIABILITY FOR TAX- The person using or consuming taxable property or services in the United States is liable for the tax imposed by this section, except as provided by subsection (d) of this section.

    `(d) EXCEPTION FROM LIABILITY FOR TAX- A person using or consuming a taxable property or service in the United States is not liable for the tax imposed by this section if the person pays the tax to a person selling the taxable property or service and receives from such person a purchaser's receipt (as defined in section 2).

`SEC. 102. INTERMEDIATE AND EXPORT SALES.

    `(a) BUSINESS PURPOSE- No tax shall be imposed under section 101 on any taxable property or service purchased for a business purpose in a trade or business, provided that the purchaser provided the seller with a registration certificate.

    `(b) EXPORTS- No tax shall be imposed under section 101 on any taxable property or service purchased for export from the United States for use or consumption outside the United States, provided that the purchaser provided the seller with a registration certificate.

    `(c) PURCHASES FOR INVESTMENT EXEMPT FROM TAX- No tax shall be imposed under section 101 on any taxable property or service purchased for an investment purpose (as defined in section 2) and held exclusively for an investment purpose.

`SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.

    `(a) LIABILITY FOR COLLECTION AND REMITTANCE OF THE TAX- Any tax imposed by this subtitle shall be collected and remitted by the seller of taxable property or services (including financial intermediation services), except as provided otherwise by this section.

    `(b) TAX TO BE REMITTED BY PURCHASER IN CERTAIN CIRCUMSTANCES-

      `(1) IN GENERAL- In the case of taxable property or services purchased outside of the United States and imported into the United States for use or consumption in the United States, the purchaser shall remit the tax imposed by section 101.

      `(2) CERTAIN WAGES OR SALARY- In the case of wages or salary (as defined in section 2) paid by a taxable employer (as defined in section 2) for taxable services (within the meaning of section 2), the employer shall remit the tax imposed by section 101.

    `(c) CONVERSION OF BUSINESS OR EXPORT PROPERTY OR SERVICES- Property or services purchased for a business purpose, for export or an investment purpose (sold untaxed pursuant to section 102) that is subsequently converted to personal use shall be deemed purchased at the time of conversion and shall be subject to the tax imposed by section 101 at the fair market value of the converted property as of the date of conversion. The tax shall be due as if the property had been sold at the fair market value during the month of conversion. The person using or consuming the converted property is liable for and shall remit the tax.

    `(d) SELLER RELIEVED OF LIABILITY IN CERTAIN CASES- In the case of any taxable property or service which is sold untaxed pursuant to section 102, the seller shall be relieved of the duty to collect and remit the tax imposed under section 101 on such purchase if the seller--

      `(1) received in good faith, and retains on file for the period set forth in section 2509, a copy of a registration certificate from the purchaser, and

      `(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 2502.

    `(e) PURCHASER LIABLE TO COLLECT AND REMIT IN CERTAIN CASES- In the case of any taxable property or service which is sold untaxed pursuant to section 102, if the seller is relieved by virtue of subsection (d) of the duty to collect and remit the tax imposed by section 101, then the duty to pay any tax due shall rest with the purchaser.

    `(f) BARTER TRANSACTIONS- If gross payment for taxable property or services is made by a means other than money, then the person responsible for collecting and remitting the tax shall remit the tax to the sales tax administering authority in money as if the gross payment had been made in money at the fair market value of the taxable property or services purchased.

    `(g) INTERCOMPANY SALES- Firms that make purchases from or sales to affiliated firms (as defined in section 2) that are untaxed pursuant to section 102 shall not need to comply with the requirements of subsection (d) (relating to certificates) for such purchases or sales to remain untaxed.

    `(h) ELECTION WITH RESPECT TO PRIMARY RESIDENCE-

      `(1) IN GENERAL- A purchaser may elect, in a form prescribed by the Secretary, to pay the tax imposed by section 101 ratably over 30 years (together with interest at the applicable interest rate (as defined in section 2512)) if the taxable property is the primary residence of the purchaser.

      `(2) SPECIAL RULES- If property with respect to which an election has been made under paragraph (1) ceases to be the primary residence of the purchaser or is sold, then the remaining tax (and any accrued interest) shall be paid within 5 days of such sale or such residence ceasing to be the purchaser's primary residence.

`CHAPTER 2--CREDITS; REFUNDS

`Sec. 201. Credits and refunds.

`Sec. 202. Business use conversion credit.

`Sec. 203. Intermediate and export sales credit.

`Sec. 204. Administration credit.

`Sec. 205. Bad debt credit.

`Sec. 206. Insurance proceeds credit.

`Sec. 207. Refunds.

`Sec. 208. Previously taxed property credit.

`SEC. 201. CREDITS AND REFUNDS.

    `(a) IN GENERAL- Each person shall be allowed a credit with respect to the taxes imposed by section 101 for each month in an amount equal to the sum of--

      `(1) such person's business use conversion credit pursuant to section 202 for such month,

      `(2) such person's intermediate and export sales credit pursuant to section 203 for such month,

      `(3) the administration credit pursuant to section 204 for such month,

      `(4) the bad debt credit pursuant to section 205 for such month,

      `(5) the insurance proceeds credit pursuant to section 206 for such month,

      `(6) the transitional inventory credit pursuant to section 2804,

      `(7) the previously taxed property credit pursuant to section 208, and

      `(8) any amount paid in excess of the amount due.

    `(b) CREDITS NOT ADDITIVE- Except for the administration credit allowed by section 204, only 1 credit allowed by chapter 2 may be taken with respect to any particular gross payment.

`SEC. 202. BUSINESS USE CONVERSION CREDIT.

    `(a) In GENERAL- For purposes of section 201, a person's business use conversion credit for any month is the aggregate of the amounts determined under subsection (b) with respect to taxable property and services--

      `(1) on which tax was imposed by section 101 (and actually paid), and

      `(2) which commenced to be 95 percent or more used during such month for business purposes (within the meaning of section 2).

    `(b) AMOUNT OF CREDIT- The amount determined under this paragraph with respect to any taxable property or service is the lesser of--

      `(1) the product of--

        `(A) the rate imposed by section 101, and

        `(B) the fair market value of the property or service when its use is converted, or

      `(2) the amount of tax paid with respect to such taxable property or service, including the amount, if any, determined in accordance with section 505 (relating to mixed use property).

    `(c) CREDIT PROVIDED TO PERSON CONVERTING PROPERTY- The credit provided by subsection (a) shall be provided to the person converting the property to business use. The credit shall only be available to registered persons.

    `(d) CERTIFICATION- The Secretary shall provide a form whereby a consumer may certify under penalty of perjury that a consumer good had been subject to the tax imposed by section 101. Such certification shall be sufficient to meet the requirements of subsection (a)(1).

    `(e) PURCHASES FROM NON-REGISTERED PERSON- In the case of property purchased by a registered person from a non-registered person, the purchase price of the property shall be the fair market value for purposes of subsection (b).

`SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT.

    `For purposes of section 201, a person's intermediate and export sales credit is the amount of sales tax paid on the purchase of any taxable property or service purchased for--

      `(1) a business purpose in a trade or business (as defined in section 2), or

      `(2) export from the United States for use or consumption outside the United States.

`SEC. 204. ADMINISTRATION CREDIT.

    `(a) Every person filing a timely monthly report (with regard to extensions) in compliance with section 2501 shall be entitled to a taxpayer administrative credit equal to the greater of--

      `(1) $200, or

      `(2) one-quarter of 1 percent of the tax remitted.

    `(b) The credit afforded by this section shall not exceed 20 percent of the tax due to be remitted prior to the application of any credit or credits permitted by section 201.

`SEC. 205. BAD DEBT CREDIT.

    `(a) FINANCIAL INTERMEDIATION SERVICES- Any person who has experienced a bad debt (other than unpaid invoices within the meaning of subsection (b)) shall be entitled to a credit equal to the product of--

      `(1) the rate imposed by section 101, and

      `(2) the amount of the bad debt (as defined in section 2).

    `(b) UNPAID INVOICES- Any person electing the accrual method of accounting that has with respect to a transaction--

      `(1) invoiced the tax imposed by section 101,

      `(2) remitted the invoiced tax,

      `(3) actually delivered the taxable property or performed the taxable services invoiced, and

      `(4) not been paid 180 days after the date the invoice was due to be paid shall be entitled to a credit equal to the amount of tax remitted and unpaid by the purchaser.

    `(c) SUBSEQUENT PAYMENT- Any payment made with respect to a transaction subsequent to a section 205 credit being taken with respect to that transaction shall be subject to tax in the month the payment was received as if a sale of taxable property and services in the amount of the payment had been made.

    `(d) PARTIAL PAYMENTS- Partial payments shall be treated as pro rata payments of the underlying obligation and shall be allocated proportionately--

      `(1) for fully taxable payments, between payment for the taxable property and service and tax, or

      `(2) for partially taxable payments, among payment for the taxable property and service, tax and other payment.

    `(e) RELATED PARTIES- The credit provided by this section shall not be available with respect to sales made to related parties. For purposes of this section, the term `related party' means affiliated firms (as defined in section 2) and family members (as defined in section 2).

`SEC. 206. INSURANCE PROCEEDS CREDIT.

    `(a) IN GENERAL- A person receiving a payment from an insurer by virtue of an insurance contract shall be entitled to a credit in an amount determined by subsection (b), less any amount paid to the insured by the insurer pursuant to subsection (c), provided that the entire premium (except that portion allocable to the investment account of the underlying policy) for the insurance contract giving rise to the insurer's obligation to make a payment to the insured was subject to the tax imposed by section 101 and such tax was paid.

    `(b) CREDIT AMOUNT- The amount of the credit shall be the product of--

      `(1) the rate imposed by section 101, and

      `(2) the amount of the payment made by the insurer to the insured.

    `(c) ADMINISTRATIVE OPTION- The credit determined in accordance with subsection (b) shall be paid by the insurer to the insured and the insurer shall be entitled to the credit in lieu of the insured provided, however, that the insurer may elect, in a form prescribed by the Secretary, to not pay the credit and require the insured to make application for the credit. In the event of such election, the insurer shall provide to the Secretary and the insured the name and tax identification number of the insurer and of the insured and indicate the proper amount of the credit.

    `(d) COORDINATION WITH RESPECT TO EXEMPTION- If taxable property or services purchased by an insurer on behalf of an insured are purchased free of tax, then the credit provided by this section shall not be available with respect to that purchase.

    `(e) INSURANCE CONTRACT- For purposes of subsection (a), the term `insurance contract' includes a life insurance contract, a health insurance contract, a property and casualty loss insurance contract, a general liability insurance contract, a marine insurance contract, a fire insurance contract, an accident insurance contract, a disability insurance contract, a long-term care insurance contract and an insurance contract that provides a combination of these types of insurance.

`SEC. 207. REFUNDS.

    `(a) REGISTERED SELLERS- If a registered seller files a monthly tax report with an overpayment, then, upon application by the registered seller in a form prescribed by the sales tax administering authority, the overpayment shown on the report shall be refunded to the registered seller within 60 days of receipt of such application. In the absence of such application, the overpayment may be carried forward, without interest, by the person entitled to the credit.

    `(b) OTHER PERSONS- If a person other than a registered seller has an overpayment for any month, then, upon application by the person in a form prescribed by the sales tax administering authority, the credit balance due shall be refunded to the person within 60 days of receipt of such application.

    `(c) INTEREST- No interest shall be paid on any balance due from the sales tax administering authority under this subsection for any month if such balance due is paid within 60 days after the application for refund is received. Balances due not paid within 60 days after the application for refund is received shall bear interest from the date of application. Interest shall be paid at the Federal short term rate (as defined in section 2512).

`SEC. 208. PREVIOUSLY TAXED PROPERTY CREDIT.

    `(a) GENERAL RULE- A seller of used property (within the meaning of section 2(v)) shall be entitled to a previously taxed property credit. The previously taxed property credit amount shall be the lesser of--

      `(1) the amount of tax due and paid by virtue of the present sales transactions (without regard to any credits), or

      `(2) the most recent prior tax imposed by section 101 with respect to such property (without regard to any credits).

    `(b) TRANSITIONAL DEEMED PAID RULE FOR PROPERTY OWNED ON EFFECTIVE DATE OF ACT- In the case of property which was acquired by the seller before December 31, 2006, the amount of the previously taxed property credit allowable pursuant to section (a)(2) shall be 8.4 percent of the fair market value of the property as of December 31, 2006. The seller shall be entitled to rely on the local government real property tax assessment of the property, or such other means as may be permitted by the Secretary, to establish fair market value.

`CHAPTER 3--FAMILY CONSUMPTION ALLOWANCE

`Sec. 301. Family consumption allowance.

`Sec. 302. Qualified family.

`Sec. 303. Monthly poverty level.

`Sec. 304. Rebate mechanism.

`Sec. 305. Change in family circumstances.

`SEC. 301. FAMILY CONSUMPTION ALLOWANCE.

    `Each qualified family (as defined in section 302) shall be eligible to receive a sales tax rebate each month. The sales tax rebate shall be in an amount equal to the product of--

      `(1) the rate of tax imposed by section 101, and

      `(2) the monthly poverty level (as defined in section 303).

`SEC. 302. QUALIFIED FAMILY.

    `(a) GENERAL RULE- For purposes of this section, the term `qualified family' means 1 or more family members sharing a common residence. All family members sharing a common residence shall be considered as part of 1 qualified family.

    `(b) FAMILY SIZE DETERMINATION-

      `(1) IN GENERAL- To determine the size of a qualified family for purposes of this chapter, the term `family member' means--

        `(A) an individual,

        `(B) the individual's spouse,

        `(C) all lineal ancestors and descendants of such individual (and such individual's spouse),

        `(D) all legally adopted children of such individual (and such individual's spouse), and

        `(E) all children under legal guardianship of such individual (or such individual's spouse).

      `(2) In order for a person to be counted as a member of the family for purposes of determining the size of the qualified family, such person must--

        `(A) have a bona fide social security number, and

        `(B) be a lawful resident of the United States.

    `(c) CHILDREN LIVING AWAY FROM HOME-

      `(1) MEMBERS LIVING AWAY FROM HOME- Any person who is a registered student during no fewer than 5 months in a calendar year while living away from the common residence of a qualified family but who receives over 50 percent of his or her support during the calendar year from members of the qualified family shall be included as a member of the family unit whose members provided such support for purposes of this section.

      `(2) CHILDREN OF DIVORCED OR SEPARATED PARENTS- If a child's parents are divorced or legally separated, a child for purposes of this section shall be treated as a member of the qualified family of the custodial parent. In cases of joint custody, the custodial parent for purposes of this section shall be the parent that has custody of the child for more than one half of the time during a given calendar year. In the event that both parents have custody of the child for equal time during a given calendar year, then they may by agreement in a form prescribed by the Secretary determine which parent is the custodial parent for purposes of this section. In the event that both parents have custody of the child for equal time during a given calendar year and they have not agreed pursuant to the previous sentence, then the mother shall be treated as the custodial parent in even years and the father as the custodial parent in odd years for purposes of this section. A parent entitled to treat a child as a member of the parent's qualified family pursuant to this subparagraph may release this claim to the other parent provided that such release is in writing.

    `(d) ANNUAL REGISTRATION- In order to receive the family consumption allowance provided by section 301, a qualified family must register with the sales tax administering authority (as defined in section 2) in a form prescribed by the Secretary. The annual registration form shall provide--

      `(1) the name of each family member who shared the qualified family's residence on the family determination date (as defined in subsection (m)),

      `(2) the social security number of each family member who shared the qualified family's residence on the family determination date,

      `(3) the family member or family members to whom the family consumption allowance should be paid,

      `(4) a certification that all listed family members are lawful residents of the United States,

      `(5) a certification that all family members sharing the common residence are listed,

      `(6) a certification that no family members were incarcerated on the family determination date (within the meaning of subsection (l)), and

      `(7) the address of the qualified family.

    Such registration shall be signed by all members of the qualified family that have attained the age of 21 years as the date of filing.

    `(e) REGISTRATION NOT MANDATORY- Registration is not mandatory for any qualified family.

    `(f) EFFECT OF FAILURE TO PROVIDE ANNUAL REGISTRATION- Any qualified family that fails to register in accordance with this section within 30 days of the family determination date shall cease receiving the monthly family consumption allowance in the month beginning 90 days after the family determination date.

    `(g) EFFECT OF CURING FAILURE TO PROVIDE ANNUAL REGISTRATION- Any qualified family that failed to timely make its annual registration in accordance with this section but subsequently cures its failure to register, shall be entitled to up to 6 months of lapsed sales tax rebate payments. No interest on lapsed payment amounts shall be paid.

    `(h) EFFECTIVE DATE OF ANNUAL REGISTRATIONS- An annual registration shall take effect for the month beginning 90 days after the family registration date.

    `(i) EFFECTIVE DATE OF REVISED REGISTRATIONS- A revised registration made pursuant to section 305 shall take effect for the first month beginning 60 days after the revised registration was filed. The existing registration shall remain in effect until the effective date of the revised registration.

    `(j) DETERMINATION OF REGISTRATION FILING DATE- An annual or revised registration shall be deemed filed when--

      `(1) deposited in the United States mail, postage prepaid, to the address of the sales tax administering authority,

      `(2) delivered and accepted at the offices of the sales tax administering authority, or

      `(3) provided to a designated commercial private courier service (as defined in section 2) for delivery within 2 days to the sales tax administering authority at the address of the sales tax administering authority.

    `(k) PROPOSED REGISTRATION TO BE PROVIDED- 30 or more days before the family determination date, the sales tax administering authority shall mail to the address shown on the most recent rebate registration or change of address notice filed pursuant to section 305(d) a proposed registration that may be simply signed by the appropriate family members if family circumstances have not changed.

    `(l) INCARCERATED INDIVIDUALS- An individual shall not be eligible under this section to be included as a member of any qualified family if that individual--

      `(1) is incarcerated in a local, State or Federal jail, prison, mental hospital or other institution on the family determination date, and

      `(2) is scheduled to be incarcerated for 6 months or more in the 12 month period following the effective date of the annual registration or the revised registration of such qualified family.

    `(m) FAMILY DETERMINATION DATE- The family determination date is a date assigned to each family by the Secretary for purposes of determining qualified family size and other information necessary for the administration of this Chapter. The Secretary shall promulgate regulations regarding the issuance of family determination dates. In the absence of any regulations, the family determination date for all families shall be October 1st. The Secretary may assign family determination dates for administrative convenience. Permissible means of assigning family determination dates include a method based on the birth dates of family members.

`SEC. 303. MONTHLY POVERTY LEVEL.

    `The monthly poverty level for any particular month shall be the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 (All States and the District of Columbia) for families of a particular size divided by 12.

`SEC. 304. REBATE MECHANISM.

    `(a) GENERAL RULE- The Social Security Administration shall provide a monthly sales tax rebate to duly registered qualified families in an amount determined in accordance with section 301.

    `(b) PERSONS RECEIVING REBATE- The payments shall be made to an individual designated by the qualifying family in the annual or revised registration for each qualified family in effect with respect to the month for which payment is being made. Payments may only be made to persons 18 years or older.

    `(c) HOW REBATE PROVIDED- In the case of employed persons, the rebate shall be provided (1) by reducing the amount of Social Security and Medicare payroll taxes withheld from the individual's compensation and (2) reducing the amount that the employer must remit. In the case of persons that are not employed, the rebate shall be in the form of a check mailed monthly or provided by smartcard or by direct electronic deposit (at the election of the rebate recipient).

    `(d) WHEN REBATES MAILED- Rebates shall be mailed on or before the first business day of the month for which the rebate is being provided.

    `(e) SMARTCARDS AND DIRECT ELECTRONIC DEPOSIT PERMISSIBLE- The Social Security Administration may provide rebates in the form of smartcards that carry cash balances in their memory for use in making purchases at retail establishments or by direct electronic deposit. The Social Security Administration shall provide that, at the request of the designated individual, rebates will be transferred to the individual development account of such individual in an amount specified by such individual.

`SEC. 305. CHANGE IN FAMILY CIRCUMSTANCES.

    `(a) GENERAL RULE- In the absence of the filing of a revised registration in accordance with this section, the common residence of the qualified family, marital status and number of persons in a qualified family on the family determination date shall govern determinations required to be made under this subchapter for purposes of the following year.

    `(b) NO DOUBLE COUNTING- In no event shall any person be considered part of more than 1 qualified family.

    `(c) REVISED REGISTRATION PERMISSIBLE- A qualified family may file a revised registration for purposes of section 302(d) to reflect a change in family circumstances. A revised registration form shall provide--

      `(1) the name of each family member who shared the qualified family's residence on the filing date of the revised registration,

      `(2) the social security number of each family member who shared the qualified family's residence on the filing date of the revised registration,

      `(3) the family member or family members to whom the family consumption allowance should be paid,

      `(4) a certification that all listed family members are lawful residents of the United States,

      `(5) a certification that all family members sharing the common residence are listed,

      `(6) a certification that no family members were incarcerated on the family determination date (within the meaning of section 302(l)), and

      `(7) the address of the qualified family.

    Such revised registration shall be signed by all members of the qualified family that have attained the age of 21 years as of the filing date of the revised registration.

    `(d) CHANGE OF ADDRESS- A change of address for a qualified family may be filed with the sales tax administering authority at any time and shall not constitute a revised registration.

    `(e) REVISED REGISTRATION NOT MANDATORY- Revised registrations reflecting changes in family status are not mandatory.

`CHAPTER 4--STATE AND FEDERAL COOPERATIVE TAX ADMINISTRATION

`Sec. 401. Authority for States to collect tax.

`Sec. 402. Federal administrative support for States.

`Sec. 403. Federal-State conferences.

`Sec. 404. Federal administration in certain States.

`Sec. 405. Interstate allocation and destination determination.

`Sec. 406. General administrative matters.

`Sec. 407. Jurisdiction.

`SEC. 401. AUTHORITY FOR STATES TO COLLECT TAX.

    `(a) IN GENERAL- The tax imposed by section 101 on gross payments for the use or consumption of taxable property or services within a State shall be administered, collected, and remitted to the United States Treasury by such State if the State is an `administering State' (as defined in subsection (b)).

    `(b) ADMINISTERING STATE- For purposes of this section, the term `administering State' means any State--

      `(1) which maintains a sales tax, and

      `(2) which enters into a cooperative agreement with the Secretary governing the administration by such State of the taxes imposed by this chapter and the remittance to the United States in a timely manner of taxes collected under this chapter.

    `(c) COOPERATIVE AGREEMENTS- The agreement under subsection (b)(2) shall include provisions for the expeditious transfer of funds, contact officers, dispute resolution (including agreement to abide by the arbitration process for resolving disputes among States provided in section 405(i)), information exchange, confidentiality, taxpayer rights and other matters of importance. The agreement shall not contain extraneous matters.

    `(d) TIMELY REMITTANCE OF TAX-

      `(1) IN GENERAL- Administering States shall remit and pay over taxes collected under this subtitle on behalf of the United States (less the administration fee allowable under paragraph (2)) no later than 5 days after receipt. Interest at 150 percent of the Federal short-term rate shall be paid with respect to amounts remitted after the due date.

      `(2) ADMINISTRATION FEE- An administering State may retain an administration fee equal to one-quarter of 1 percent of the amounts otherwise required to be remitted to the United States under this chapter by the administering State.

    `(e) LIMITATION ON ADMINISTRATION OF TAX BY UNITED STATES- The Secretary may administer the tax imposed by this subtitle in an administering State only if--

      `(1)(A) such State has failed on a regular basis to timely remit to the United States taxes collected under this chapter on behalf of the United States, or

      `(B) such State has on a regular basis otherwise materially breached the agreement referred to in subsection (b)(2),

      `(2) the State has failed to cure such alleged failures and breaches within a reasonable time,

      `(3) the Secretary provides such State with written notice of such alleged failures and breaches, and

      `(4) a District Court of the United States within such State, upon application of the Secretary, has rendered a decision--

        `(A) making findings of fact that--

          `(i) such State has failed on a regular basis to timely remit to the United States taxes collected under this chapter on behalf of the United States, or such State has on a regular basis otherwise materially breached the agreement referred to in subsection (b)(2), and

          `(ii) the Secretary has provided such State with written notice of such alleged failures and breaches, and

          `(iii) the State has failed to cure such alleged failures and breaches within a reasonable time, and

        `(B) making a determination that it is in the best interest of the citizens of the United States that the administering State's authority to administer the tax imposed by this subtitle be revoked and such tax be administered directly by the Secretary.

      The order of the District Court revoking the authority of an administering State shall contain provisions governing the orderly transfer of authority to the Secretary.

    `(f) REINSTITUTION- A State that has had its authority revoked pursuant to subsection (e) shall not be an administering State for a period of not less than 5 years after the date of the order of revocation. For the first calendar year commencing 8 years after the date of the order of revocation, the State shall be regarded without prejudice as eligible to become an administering State.

    `(g) THIRD STATE ADMINISTRATION PERMISSIBLE- It shall be permissible for a State to contract with an administering State to administer the State's sales tax for an agreed fee. In this case, the agreement contemplated by subsection (c) shall have both States and the Federal Government as parties.

    `(h) INVESTIGATIONS AND AUDITS- Administering States shall not conduct investigations or audits at facilities in other administering States in connection with the tax imposed by section 101 or conforming State sales tax but shall instead cooperate with other administering States using the mechanisms established by section 402 of this chapter, by compact or by other agreement.

`SEC. 402. FEDERAL ADMINISTRATIVE SUPPORT FOR STATES.

    `(a) The Secretary shall administer a program to facilitate information sharing among administering States.

    `(b) The Secretary shall facilitate, and may be a party to, a compact among the States for purposes of facilitating the taxation of interstate sales and for other purposes that may facilitate implementation of this subtitle.

    `(c) The Secretary shall enter into an agreement among conforming States enabling conforming States to collect conforming State sales tax on sales made by sellers without a particular conforming State to a destination within that particular conforming State.

    `(d) The Secretary shall have the authority to promulgate regulations, to provide guidelines, to assist States in administering the national sales tax, to provide for uniformity in the administration of the tax and to provide guidance to the public.

`SEC. 403. FEDERAL-STATE CONFERENCES.

    `No less than once annually, the Secretary shall host a conference with the sales tax administrators from the various administering States to evaluate the state of a national sales tax system, to address issues of mutual concern and to develop and consider legislative, regulatory and administrative proposals to improve the tax system.

`SEC. 404. FEDERAL ADMINISTRATION IN CERTAIN STATES.

    `The Secretary shall directly administer the tax imposed by this subtitle in any State or other United States jurisdiction that has not--

      `(1) become an administering State, or

      `(2) elected to have another State administer its tax in accordance with section 401(g).

`SEC. 405. INTERSTATE ALLOCATION AND DESTINATION DETERMINATION.

    `(a) DESTINATION GENERALLY- The tax imposed by this subtitle is a destination principle tax. This section shall govern for purposes of determining--

      `(1) whether the destination of taxable property and services is within or without the United States, and

      `(2) which State or territory within the United States is the destination of taxable property and services.

    `(b) TANGIBLE PERSONAL PROPERTY- Except as provided in subsection (g) (relating to certain leases), the destination of tangible personal property shall be the State or territory in which the property was first delivered to the purchaser (including the purchaser's agents and authorized representatives).

    `(c) REAL PROPERTY- The destination of real property, or rents or leaseholds on real property, shall be the State or territory in which the real property is located.

    `(d) OTHER PROPERTY- The destination of any other taxable property shall be the residence of the purchaser.

    `(e) SERVICES-

      `(1) GENERAL RULE- The destination of services shall be the State or territory in which the use or consumption of the services occurred. Allocation of services relating to more than 1 jurisdiction shall be on the basis of time or another method determined by regulation.

      `(2) TELECOMMUNICATIONS SERVICES- The destination of telecommunications services shall be the residence of the purchaser. The term `telecommunications services' includes telephone, telegraph, beeper, radio, cable television, satellite and computer online or network services.

      `(3) DOMESTIC TRANSPORTATION SERVICES- For transportation services where all of the final destinations are within the United States, the destination of transportation services shall be the final destination of the trip (in the case of round or multiple trip fares, the services amount shall be equally allocated among each final destination).

      `(4) INTERNATIONAL TRANSPORTATION SERVICES- For transportation services where the final destination or origin of the trip is without the United States, the service amount shall be deemed 50 percent attributable to the United States destination or origin.

      `(5) ELECTRICAL SERVICE- The destination of electrical services shall be the residence of the purchaser.

    `(f) FINANCIAL INTERMEDIATION SERVICES- The destination of financial intermediation services shall be the residence of the purchaser.

    `(g) RENTS PAID FOR THE LEASE OF TANGIBLE PROPERTY-

      `(1) GENERAL RULE- Except as provided in subparagraph (2), the destination of rents paid for the lease of tangible property and leaseholds on such property shall be where the property is located while in use.

      `(2) LAND VEHICLES; AIRCRAFT; WATER CRAFT- The destination of rental and lease payments on land vehicles, aircraft and water craft shall be--

        `(A) in the case of rentals and leases of a term 1 month or less, the location where the land vehicle, aircraft or water craft was originally delivered to the renter or lessee, and

        `(B) in the case of rentals and leases of a term greater than 1 month, the residence of the renter or lessee.

    `(h) ALLOCATION RULES- Tax revenue from taxes imposed by this subtitle or from conforming State sales taxes shall be allocated between or among States by reference to which State or States are the destination of the taxable property or service.

    `(i) FEDERAL OFFICE OF REVENUE ALLOCATION- The Secretary shall establish an Office of Revenue Allocation to arbitrate any claims or disputes among administering States as to the destination of taxable property and services for purposes of allocating revenue between or among the States from taxes imposed by this subtitle. The determination of the Administrator of the Office of Revenue Allocation shall be subject to judicial review in any Federal court with competent jurisdiction provided: The standard of such judicial review shall be abuse of discretion.

`SEC. 406. GENERAL ADMINISTRATIVE MATTERS.

    `(a) IN GENERAL- The Secretary and each sales tax administering authority may employ such persons as may be necessary for the administration of this title and may delegate to employees the authority to conduct interviews, hearings, prescribe rules, promulgate regulations and perform such other duties as are required by this subtitle.

    `(b) RESOLUTION OF ANY INCONSISTENT RULES AND REGULATIONS- In the event that the Secretary and any sales tax administering authority have issued inconsistent rules or regulations, any lawful rule or regulation issued by the Secretary shall govern.

    `(c) ADEQUATE NOTICE TO BE PROVIDED- Except in the case of an emergency declared by the Secretary (and not his designee), no rule or regulation issued by the Secretary with respect to any internal revenue law shall take effect before 90 days have elapsed after its publication in the Federal Register. Upon issuance, the Secretary shall provide copies of all rules or regulations issued under this title to each sales tax administering authority.

    `(d) NO RULES, RULINGS OR REGULATIONS WITH RETROACTIVE EFFECT- No rule, ruling or regulation issued or promulgated by the Secretary relating to any internal revenue law or by a sales tax administering authority shall apply to a period prior to its publication in the Federal Register (or State equivalent) except that a regulation may take retroactive effect to prevent abuse.

    `(e) REVIEW OF IMPACT OF REGULATIONS, RULES AND RULINGS ON SMALL BUSINESS-

      `(1) SUBMISSION TO SMALL BUSINESS ADMINISTRATION- After publication of any proposed or temporary regulation by the Secretary relating to internal revenue laws, the Secretary shall submit such regulation to the Chief Counsel for Advocacy of the Small Business Administration for comment on the impact of such regulation on small businesses. Not later than the date 30 days after the date of such submission, the Chief Counsel for Advocacy of the Small Business Administration shall submit comments on such regulation to the Secretary.

      `(2) CONSIDERATION OF COMMENTS- In prescribing any final regulation which supersedes a proposed or temporary regulation which had been submitted under this subsection to the Chief Counsel for Advocacy of the Small Business Administration the Secretary shall--

        `(A) consider the comments of the Chief Counsel for Advocacy of the Small Business Administration on such proposed or temporary regulation, and

        `(B) in promulgating such final regulation, include a narrative that describes the response to such comments.

      `(3) SUBMISSION OF CERTAIN FINAL REGULATION- In the case of promulgation by the Secretary of any final regulations (other than a temporary regulation) which do not supersede a proposed regulation, the requirements of paragraphs (1) and (2) shall apply, except that the submission under paragraph (1) shall be made at least 30 days before the date of such promulgation, and the consideration and discussion required under paragraph (2) shall be made in connection with the promulgation of such final regulation.

    `(f) SMALL BUSINESS REGULATORY SAFEGUARDS- The Small Business Regulatory Enforcement Fairness Act, Public Law No. 104-121, 110 Stat. 857 (`SBREFA') and the Regulatory Flexibility Act, 5 U.S.C. 601-612 (`RFA') shall apply to regulations promulgated under this subtitle.

`SEC. 407. JURISDICTION.

    `(a) STATE JURISDICTION- A sales tax administering authority shall have jurisdiction over any gross payments made which have a destination (as determined in accordance with section 405) within the State of such sales tax administering authority. This grant of jurisdiction is not exclusive of other jurisdiction that such sales tax administering authority may have.

    `(b) FEDERAL JURISDICTION- The grant of jurisdiction in subsection (a) shall not be in derogation of Federal jurisdiction over the same matter. The Federal Government shall have the right to exercise pre-emptive jurisdiction over matters relating to the taxes imposed by this subtitle.

`CHAPTER 5--SPECIAL RULES

`Sec. 501. Hobby activities.

`Sec. 502. Gaming activities.

`Sec. 503. Government purchases.

`Sec. 504. Government enterprises.

`Sec. 505. Mixed use property.

`Sec. 506. Not-for-profit organizations.

`SEC. 501. HOBBY ACTIVITIES.

    `(a) IN GENERAL- Neither the exemption afforded by section 102 for intermediate sales nor the credits available pursuant to sections 202 or 203 shall be available for any taxable property or service purchased for use in an activity if that activity is not engaged in for profit.

    `(b) TREATMENT OF CERTAIN BUSINESS ACTIVITY- If the activity has received gross payments for the sale of taxable property or services that exceed the sum of--

      `(1) taxable property and services purchased,

      `(2) wages and salary paid, and

      `(3) taxes (of any type) paid

    in 2 or more of the most recent 3 calendar years during which it operated, then the business activity shall be conclusively deemed to be engaged in for profit.

`SEC. 502. GAMING ACTIVITIES.

    `(a) REGISTRATION- Any person engaging in the trade or business of selling 1 or more chances (as defined in subsection (b)) is a gaming sponsor and shall register, in a form prescribed by the Secretary, with the sales tax administering authority as a gaming sponsor.

    `(b) CHANCE DEFINED- For purposes of this section, the term `chance' means a lottery ticket, a raffle ticket, chip, other token, a bet placed, a wager placed or any similar device where the purchase of the right gives rise to an obligation by the gaming sponsor to pay upon the occurrence of--

      `(1) a random or unpredictable event, or

      `(2) an event over which neither the gaming sponsor nor the person purchasing the chance has any substantial degree of control over the outcome.

    `(c) TAXABLE PROPERTY OR SERVICE- A chance is taxable property or services for purposes of section 101.

    `(d) IN GENERAL- A person receiving a gaming payment from a gaming sponsor because of the purchase of a chance that was taxed pursuant to section 101 shall be entitled to a credit in an amount determined by subsection (e). The gaming sponsor shall pay the credit to the person receiving such gaming payment. The gaming sponsor shall reduce the amount of sales tax remitted to the sales tax administering authority by the amount of any credits paid.

    `(e) CREDIT AMOUNT- The amount of the credit shall be the product of--

      `(1) the rate imposed by section 101, and

      `(2) the amount of the payment made by the gaming sponsor to the person.

    `(f) ILLEGAL OPERATIONS- The credit afforded by this section shall be available only if--

      `(1) the sale or purchase of the chance giving rise to the payment was lawful under Federal and State law where and when sold and purchased, and

      `(2) the payment by the gaming sponsor to the person seeking the credit was lawful under Federal and State law where and when paid.

    `(g) FOREIGN GAMING PAYMENTS- The credit afforded by this section shall not be available unless--

      `(1) the gaming payment is made in the United States, and

      `(2) the gaming services were provided in the United States.

    `(h) GAMING PAYMENTS OTHER THAN MONEY- A person who receives a gaming payment other than money shall not be entitled to a credit under this section.

    `(i) GAMING PAYMENTS IN CASES WHERE CONSIDERATION NOT PROVIDED- Gaming payments and prizes received by a person who did not provide consideration for the right to receive the gaming payment or prize shall be treated as a taxable proxy purchase or provision within the meaning of section 2901.

`SEC. 503. GOVERNMENT PURCHASES.

    `(a) GOVERNMENT PURCHASES-

      `(1) PURCHASES BY THE FEDERAL GOVERNMENT- Purchases by the Federal Government of taxable property and services shall be subject to the tax imposed by section 101.

      `(2) PURCHASES BY STATE GOVERNMENTS AND THEIR POLITICAL SUBDIVISIONS- Purchases by State governments and their political subdivisions shall be subject to the tax imposed by section 101 unless--

        `(A) the purchase directly relates to an inherently governmental activity within the meaning of section 1702, or

        `(B) the purchase would have been exempt if made by a tax-exempt organization.

    `(b) CROSS REFERENCES- For purchases by Government enterprises see section 504.

`SEC. 504. GOVERNMENT ENTERPRISES.

    `(a) GOVERNMENT ENTERPRISES TO COLLECT AND REMIT TAXES ON SALES- Nothing in this subtitle shall be construed to exempt any Federal, State, or local governmental entity (whether or not the State is an administering State) engaged in any business activity from collecting and remitting tax imposed by this subtitle on any sale of taxable property or services. Government entities shall comply with all duties imposed by this subtitle and shall be liable for penalties and subject to enforcement action in the same manner as private persons.

    `(b) GOVERNMENT ENTERPRISE- Any entity owned or operated by a Federal, State, or local governmental unit or political subdivision that receives gross payments from non-governmental persons is a Government enterprise provided, however, that a Government-owned entity shall not become a Government enterprise for purposes of this section unless in any quarter it has revenues from selling taxable property or services that exceed $2,500.

    `(c) GOVERNMENT ENTERPRISES INTERMEDIATE SALES-

      `(1) Government enterprises shall not be subject to tax on purchases that would not be subject to tax pursuant to section 102 if the Government enterprise were a private enterprise.

      `(2) Government enterprises may not use the exemption afforded by section 102 to serve as a conduit for tax free purchases by Government units that would otherwise be subject to taxation on purchases pursuant to section 503. If taxable property or services purchased exempt from tax by a Government enterprise are transferred by a Government enterprise to such Government unit then the Government enterprise shall remit tax as if a taxable sale were made on the date of the transfer at the fair market value of the taxable property or service transferred.

    `(d) SEPARATE BOOKS OF ACCOUNT- Any Government enterprise must maintain books of account, separate from the non-enterprise Government accounts, maintained in accordance with generally accepted accounting principles.

    `(e) TRADE OR BUSINESS- A Government enterprise shall be treated as a trade or business for purposes of this subtitle.

    `(f) ENTERPRISE SUBSIDIES CONSTITUTE TAXABLE PURCHASE- A transfer of funds to a Government enterprise by a Government entity without full consideration shall constitute a taxable Government purchase within the meaning of section 503 (to the extent that the transfer of funds exceeds the fair market value of the consideration).

`SEC. 505. MIXED USE PROPERTY.

    `(a) MIXED USE PROPERTY OR SERVICE-

      `(1) MIXED USE PROPERTY OR SERVICE- Mixed Use Property or Service is a taxable property or taxable service used for both--

        `(A) taxable use or consumption, and

        `(B) for a purpose that would not be subject to tax pursuant to section 102.

      `(2) TAXABLE THRESHOLD- Mixed Use Property or Service shall be subject to tax notwithstanding section 102 unless such property or service is used more than 95 percent for purposes that would give rise to an exemption pursuant to section 102 during each calendar year (or portions thereof) it is owned.

      `(3) MIXED USE PROPERTY OR SERVICES CREDIT- A person registered pursuant to section 2502 is entitled to a business use conversion credit (pursuant to section 202) equal to the product of--

        `(A) the mixed use property amount,

        `(B) the business use ratio, and

        `(C) the rate of tax imposed by section 101.

      `(4) MIXED USE PROPERTY AMOUNT- The mixed use property amount for each month (or fraction thereof) in which the property was owned shall be--

        `(A) one-three-hundred-sixtieth of the gross payments for real property for 360 months or until the property is sold,

        `(B) one-eighty-fourth of the gross payments for tangible personal property (other than vehicles) for 84 months or until the property is sold,

        `(C) one-sixtieth of the gross payments for vehicles for 60 months or until the property is sold, or

        `(D) for other types of taxable property or services, a reasonable amount or in accordance with regulations prescribed by the Secretary.

      `(5) BUSINESS USE RATIO- The business use ratio is the ratio of business use to total use for a particular calendar month (or portion thereof if the property was owned for only part of such calendar month). For vehicles, the business use ratio will be the ratio of business purpose miles to total miles in a particular calendar month. For real property, the business use ratio is the ratio of floor space used primarily for business purposes to total floor space in a particular calendar month. For tangible personal property (except for vehicles), the business use ratio is the ratio of total time used for business purposes to total time used in a particular calendar year. For other property or services, the business ratio shall be calculated using a reasonable method. Reasonable records must be maintained to support a person's business use of the mixed use property or service.

    `(b) TIMING OF BUSINESS USE CONVERSION CREDIT ARISING OUT OF OWNERSHIP OF MIXED USE PROPERTY- A person entitled to a credit pursuant to subsection (a)(3) arising out of the ownership of mixed use property must account for the mixed use on a calendar year basis, and may file for the credit with respect to mixed use property in any month following the calendar year giving rise to the credit.

    `(c) CROSS REFERENCES- For business use conversion credit, see section 202.

`SEC. 506. NOT-FOR-PROFIT ORGANIZATIONS.

    `(a) NOT-FOR-PROFIT ORGANIZATIONS- Dues, contributions and similar payments to--

      `(1) organizations described in section 1703, or

      `(2) organizations that are--

        `(A) civic leagues,

        `(B) social welfare organizations, or

        `(C) fraternal beneficiary societies, orders or associations, no part of the net earnings of which inures to the benefit of any private shareholder or individual,

    shall not be considered gross payments for taxable property or services for purposes of this subtitle.

    `(b) QUALIFICATION CERTIFICATES FOR QUALIFIED NOT-FOR-PROFIT ORGANIZATIONS- Upon application in a form prescribed by the Secretary, the sales tax administering authority shall provide qualification certificates to qualified not-for-profit organizations.

    `(c) TREATMENT OF PROPERTY AND SERVICES PROVIDED IN CONNECTION WITH CONTRIBUTIONS- If an organization described in subsection (a) provides taxable property or services in connection with contributions, dues or similar payments to the organization, then it shall be required to treat the provision of such taxable property or services as a purchase taxable pursuant to this subtitle at the fair market value of such taxable property or services.

    `(d) NOT-FOR-PROFIT ORGANIZATION ENTERPRISE INTERMEDIATE SALES-

      `(1) Not-for-profit organization enterprises shall not be subject to tax on purchases that would not be subject to tax pursuant to section 102 if the not-for-profit organization enterprise were a private enterprise.

      `(2) Not-for-profit organization enterprises may not use the exemption afforded by section 102 to serve as a conduit for tax free purchases by the not-for-profit organization that would otherwise be subject to taxation. If taxable property or services purchased exempt from tax by a not-for-profit organization enterprise are transferred by such enterprise to the not-for-profit organization then the not-for-profit organization enterprise shall remit tax as if a taxable sale were made on the date of the transfer at the fair market value of the taxable property or service transferred.

    `(e) TRADE OR BUSINESS- The determination of whether an activity engaged in by a not-for-profit organization is a trade or business shall be made without regard to--

      `(1) the fact that it is engaged in by a not-for-profit organization, and

      `(2) the destination or use of the revenue or profits of the activity engaged in.

`CHAPTER 6--FINANCIAL INTERMEDIATION SERVICES

`Sec. 601. Determination of financial intermediation services amount.

`Sec. 602. Bad debts.

`Sec. 603. Timing of tax on financial intermediation services.

`Sec. 604. Financing leases.

`Sec. 605. Basic interest rate.

`Sec. 606. Foreign financial intermediation services.

`SEC. 601. DETERMINATION OF FINANCIAL INTERMEDIATION SERVICES AMOUNT.

    `(a) FINANCIAL INTERMEDIATION SERVICES- For purposes of this subtitle--

      `(1) IN GENERAL- The term `financial intermediation services' means the sum of--

        `(A) explicitly charged fees for financial intermediation services, and

        `(B) implicitly charged fees for financial intermediation services.

      `(2) EXPLICITLY CHARGED FEES FOR FINANCIAL INTERMEDIATION SERVICES- The term `explicitly charged fees' has the meaning given such term by section 1502(c).

      `(3) Implicitly charged fees for financial intermediation services-

        `(A) IN GENERAL- The term `implicitly charged fees for financial intermediation services' includes the gross imputed amount with respect to any underlying interest bearing investment, account or debt.

        `(B) GROSS IMPUTED AMOUNT- For purposes of subparagraph (A), the term `gross imputed amount' means--

          `(i) with respect to any underlying interest bearing investment or account, the product of--

            `(I) the excess (if any) of the basic interest rate (as defined in section 605) over the rate paid on such investment, and

            `(II) the amount of the investment or account, and

          `(ii) with respect to any underlying interest bearing debt, the product of--

            `(I) the excess (if any) of the rate paid on such debt over the basic interest rate (as defined in section 605), and

            `(II) the amount of the debt.

    `(b) PERSONS TREATED AS SELLERS- For purposes of section 103(a), the seller of financial intermediation services shall be--

      `(1) in the case of explicitly charged fees for financial intermediation services (as defined in subsection (a)(2)), the seller shall be the person who receives the gross payments for the charged financial intermediation services,

      `(2) in the case of implicitly charged fees for financial intermediation services (as defined in subsection (a)(3)) with respect to any underlying interest bearing investment or account, the person making the interest payments on the interest bearing investment or account, and

      `(3) in the case of implicitly charged fees for financial intermediation services (as defined in subsection (a)(3)) with respect to any interest bearing debt, the person receiving the interest payments on the interest bearing debt.

`SEC. 602. BAD DEBTS.

    `(a) For purposes of section 205(a), a bad debt shall be a business loan or debt that becomes wholly or partially worthless to the payee.

    `(b) For purposes of subsection (a), a business loan or debt is a bona fide loan or debt made for a business purpose that both parties intended to be repaid.

    `(c) No loan or debt shall be considered wholly or partially worthless unless it has been in arrears for 180 days or more, provided, however, that if a debt is discharged wholly or partially in bankruptcy before 180 days has elapsed, then it shall be deemed wholly or partially worthless on the date of discharge.

    `(d) A loan or debt that has been in arrears for 180 days or more may be deemed wholly or partially worthless by the holder unless a payment schedule has been entered into between the debtor and the lender.

    `(e) CROSS REFERENCE- See section 205(c) for tax on subsequent payments.

`SEC. 603. TIMING OF TAX ON FINANCIAL INTERMEDIATION SERVICES.

    `The tax on financial intermediation services within the meaning of section 601 with respect to an underlying investment account or debt shall be imposed and collected with the same frequency that statements are rendered by the financial institution in connection with the investment account or debt but not less frequently than quarterly.

`SEC. 604. FINANCING LEASES.

    `(a) DEFINED- For purposes of this section, a financing lease shall be any lease under which the lessee has the right to acquire the property for 50 percent or less of its fair market value at the end of the lease term.

    `(b) IN GENERAL- Financing leases shall be taxed using the method set forth in this section.

    `(c) DETERMINATION OF PRINCIPAL AND INTEREST COMPONENTS OF FINANCING LEASE- The Secretary shall promulgate rules for disaggregating the principal and interest components of a financing lease. The principal amount shall be determined to the extent possible by examination of the contemporaneous sales price or prices of property the same or similar as the leased property.

    `(d) ALTERNATIVE METHOD- In the event that contemporaneous sales prices of property the same or similar as the leased property are not available, the principal and interest components of a financing lease shall be disaggregating using the applicable interest rate (as defined in section 2512) plus 4 percent.

    `(e) PRINCIPAL COMPONENT- The principal component of the financing lease shall be subject to tax as if a purchase in the amount of the principal component had been made on the day on which such lease was executed.

    `(f) INTEREST COMPONENT- The financial intermediation services amount with respect to the interest component of the financing lease shall be subject to tax under this subtitle.

    `(g) COORDINATION-

      `(1) IN GENERAL- If the principal component and financial intermediation services amount with respect to the interest component of a lease have been taxed pursuant to this section, then the gross lease or rental payments shall not be subject to additional tax.

      `(2) CROSS REFERENCE- For the definition of taxable property and services, including as it relates to leases, see section 2.

`SEC. 605. BASIC INTEREST RATE.

    `For purposes of this subchapter, the basic interest rate with respect to a debt instrument, investment, financing lease or account shall be the applicable interest rate (as determined in section 2512). For debt instruments, investments or accounts of contractually fixed interest, the applicable interest rate of the month of issuance shall apply. For debt instruments, investments or accounts of variable interest rates and which have no reference interest rate, the applicable interest rate shall be the Federal short-term interest rate for each month. For debt instruments, investments or accounts of variable interest rates and which have a reference interest rate, the applicable interest rate shall be the reference interest rate for each month.

`SEC. 606. FOREIGN FINANCIAL INTERMEDIATION SERVICES.

    `(a) SPECIAL RULES RELATING TO INTERNATIONAL FINANCIAL INTERMEDIATION SERVICES- Financial intermediation services shall be deemed as used or consumed within the United States if the person (or any affiliated firm as defined in section 2 or a person's spouse) purchasing the services is a resident of the United States.

    `(b) DESIGNATION OF UNITED STATES TAX REPRESENTATIVE- Any person that provides financial intermediation services to United States residents must, as a condition of lawfully providing such services, designate, in a form prescribed by the Secretary, a United States tax representative for purposes of this subtitle. This United States tax representative and the person providing financial intermediation services shall be responsible for ensuring that the taxes imposed by this chapter are collected and remitted and shall be jointly and severally liable for collecting and remitting these taxes. The Secretary may require reasonable bond of the United States tax representative. The Secretary or a sales tax administering authority may bring an action seeking a temporary restraining order, an injunction, or such other order as may be appropriate to enforce this section.'.

TITLE IV--BUSINESS TAX ENACTED

SEC. 401. BUSINESS TAX.

    The Internal Revenue Code of 1986 is amended by inserting after subtitle B the following new subtitle:

`Subtitle C--Business Tax

`Chapter 1. Imposition of tax.

`Chapter 2. Basic rules for business tax.

`Chapter 3. Capital contributions, mergers, acquisitions, and distributions.

`Chapter 4. Land and rental property.

`Chapter 5. Insurance and financial products.

`Chapter 6. Financial intermediation and financial institutions.

`Chapter 7. Tax-exempt organizations.

`Chapter 8. Cooperatives.

`Chapter 9. Sourcing rules.

`Chapter 10. Import tax.

`CHAPTER 1--IMPOSITION OF TAX

`Sec. 1101. Tax imposed.

`SEC. 1101. TAX IMPOSED.

    `(a) TAXABLE BUSINESS ACTIVITY- A business tax is imposed on the sale of taxable property and services in the United States by a business entity.

    `(b) BUSINESS TAX- The `business tax' imposed on a business entity that sells or leases property or sells services in the United States equals 8.4 percent of the gross profit of the business entity for the taxable year.

    `(c) TAXABLE EMPLOYERS- A tax is hereby imposed on taxable employers (as defined by section 2(s)) equal to 8.4 percent of the wages and salary (as defined by section 2(w)) paid by such taxable employer. The tax imposed by this subsection is in addition to any tax imposed by subtitle B.

    `(d) IMPORT TAX- For rules relating to the import tax imposed by this chapter, see section 2001.

`CHAPTER 2--BASIC RULES FOR BUSINESS TAX

`Sec. 1201. Gross profits.

`Sec. 1202. Taxable receipts.

`Sec. 1203. Deductible amounts.

`Sec. 1204. Cost of business purchases.

`Sec. 1205. Business entity and business activity.

`Sec. 1206. Loss carryover deduction.

`SEC. 1201. GROSS PROFITS.

    `The term `gross profits' means for a taxable year of a business entity the amount by which--

      `(1) the taxable receipts of the business entity for the taxable year exceed,

      `(2) the deductible amounts for the business entity for the taxable year.

`SEC. 1202. TAXABLE RECEIPTS.

    `(a) IN GENERAL- The term `taxable receipts' means all receipts from the sale of taxable property and services.

    `(b) GAMES OF CHANCE- Amounts received by business entities engaging in the activity of providing games of chance shall be treated as receipts from the sale of property or services.

    `(c) IN-KIND RECEIPTS- The taxable receipts attributable to the receipt of property, use of property or services in whole or partial exchange for property, use of property or services shall equal the fair market value of the services or property received, plus any cash received.

    `(d) TAXES- The term `taxable receipts' does not include any excise tax, sales tax, custom duty, or other separately stated levy imposed by a Federal, State, or local government received by a business entity in connection with the sale of property or services or the use of property.

    `(e) FINANCIAL RECEIPTS-

      `(1) IN GENERAL- Except as provided in chapter 6 of this subtitle (relating to financial intermediation and financial institutions), taxable receipts do not include financial receipts.

      `(2) FINANCIAL RECEIPTS- The term `financial receipts' includes--

        `(A) interest,

        `(B) dividends and other distributions by a business entity,

        `(C) proceeds from the sale of stock, other ownership interests in business entities, or other financial instruments (as defined in chapter 6 of this subtitle),

        `(D) proceeds from life insurance policies,

        `(E) proceeds from annuities,

        `(F) proceeds from currency hedging or exchanges, and

        `(G) proceeds from other financial transactions.

    `(f) CROSS REFERENCES-

      `(1) FINANCIAL INTERMEDIATION- See chapters 5 and 6 of this subtitle for rules relating to financial intermediation.

      `(2) EXPORTS, SALES IN THE UNITED STATES- See section 1901 for the exclusion from gross receipts for export sales and for rules on sales of property and services in the United States.

      `(3) INSURANCE PROCEEDS- See section chapter 5 of this subtitle for rules on the inclusion of certain insurance proceeds in taxable receipts.

`SEC. 1203. DEDUCTIBLE AMOUNTS.

    `(a) IN GENERAL- The term `deductible amounts' for a business entity in a taxable year includes--

      `(1) the cost of business purchases in the taxable year (as determined under section 1204),

      `(2) such entity's loss carryover deduction (as determined under section 1206), and

      `(3) the transition basis deduction (as determined under section 2801).

    `(b) FINANCIAL INTERMEDIATION- See chapters 5 and 6 for special rules for business entities engaging in financial intermediation.

`SEC. 1204. COST OF BUSINESS PURCHASES.

    `(a) BUSINESS PURCHASES-

      `(1) IN GENERAL- The term `business purchases' means the acquisition of--

        `(A) property,

        `(B) the use of property, or

        `(C) services,

      for a business purpose in connection with a trade or business in the United States.

      `(2) EXAMPLES- Business purchases include (without limitation) the--

        `(A) purchase or rental of real property,

        `(B) purchase or rental of capital equipment,

        `(C) purchase of supplies and inventory,

        `(D) purchase of services from independent contractors (who are registered sellers),

        `(E) purchase of financial intermediation services, and

        `(F) imports for use in a business activity in the United States.

      `(3) EXCLUSIONS- The term `business purchases' does not include--

        `(A) payments for use of money or capital, such as interest or dividends (except to the extent that a portion so paid is a fee for financial intermediation services),

        `(B) premiums for life insurance,

        `(C) the acquisition of savings assets or financial instruments,

        `(D) property acquired outside the United States (but such property shall be taken into account as an import if imported),

        `(E) services performed outside the United States (unless treated as imported into the United States),

        `(F) compensation expenses for an individual (other than amounts paid to an individual in his capacity as a business entity), or

        `(G) taxes (except as provided in subsection (b)(2) relating to product taxes).

      `(4) COMPENSATION EXPENSES- The term `compensation expenses' means--

        `(A) wages, salaries, or other cash payable for services by employees,

        `(B) any taxes imposed on the recipient that are withheld by the business entity,

        `(C) the cost of property purchased to provide employees with compensation (other than property incidental to the provision of fringe benefits that are excluded from income under the individual tax),

        `(D) the cost of fringe benefits which are provided in connection with the services performed by the employee, partner or proprietor in their capacity as such, including (without limitation)--

          `(i) contributions to retirement and severance benefit plans,

          `(ii) premiums for the cost of life, health, accident, disability and other insurance policies for which the service provider, members of his family, or persons designated by him or members of his family are the beneficiaries,

          `(iii) the cost of providing parking to employees (unless the parking space is used for a vehicle that is regularly used in a business activity),

          `(iv) employer-paid educational benefits,

          `(v) employer-paid housing (other than housing provided for the convenience of the employer), and

          `(vi) employer-paid meals (other than meals provided for the convenience of the employer).

    `(b) COST OF BUSINESS PURCHASES-

      `(1) IN GENERAL- The term `cost of a business purchase' is the amount paid or to be paid for the business purchase.

      `(2) TAXES-

        `(A) IN GENERAL- The term `cost of business purchases' includes any product taxes paid or to be paid with respect to the property or services purchased.

        `(B) PRODUCT TAX- The term `product tax' means any excise tax, sales or use tax, custom duty, or other separately stated levy imposed by a Federal, State, or local government on the production, severance or consumption of property or on the provision of services, whether or not separately stated, and including any such taxes that are technically imposed on the seller of property or services.

        `(C) TAXES NOT PRODUCT TAXES- The term `product taxes' does not include--

          `(i) the import tax (imposed by chapter 10),

          `(ii) State and local property taxes,

          `(iii) franchise or income taxes,

          `(iv) payroll taxes and self-employment taxes, or

          `(v) the business tax (imposed by section 1101).

      `(3) IMPORTS- In the case of an import by a business entity, the cost of the import is the import price for purposes of the import tax. The import tax is not part of the cost of the import.

    `(c) PROPERTY AND SERVICES ACQUIRED FOR PROPERTY- If a business entity receives property or services from a business entity in whole or partial exchange for property or services, the property or services acquired shall be treated as if such property and services were purchased for an amount equal to the fair market value of the services or property received, plus any cash received. For purposes of this section, property includes stock and other equity interests in business other than stock or an equity interest in the business entity acquiring the property or services. See chapter 3 for rules on property or services received in exchange for an equity interest in the recipient.

    `(d) GAMBLING PAYMENTS- In the case of a business involving gambling, lotteries, or other games of chance, business purchases include amounts paid to winners.

    `(e) MIXED USE PROPERTY OR SERVICES- Deductions for property or services used both for a business purpose and otherwise shall be allowable only in proportion to the business use ratio as determined in accordance with section 505(a)(5), provided however that if property or services are used 95 percent or more for a business purpose during a taxable year, then the property or service shall be deemed used exclusively for a business purpose.

    `(f) CROSS REFERENCES-

      `(1) FINANCIAL INTERMEDIATION AND INSURANCE- For rules relating to fees for financial intermediation services and insurance, see subchapter F.

      `(2) LAND- For special rules relating to the acquisition of land, see subchapter E.

      `(3) OUTSIDE THE UNITED STATES- For special rules relating to services performed outside the United States but used inside the United States and international services, see chapter 9.

`SEC. 1205. BUSINESS ENTITY AND BUSINESS ACTIVITY.

    `(a) BUSINESS ENTITY- For purposes of the business tax, the term `business entity' means any corporation, unincorporated association, partnership, limited liability company, proprietorship, independent contractor, individual, or any other person engaging in business activity in the United States. An individual shall be considered a business entity only with respect to the individual's business activities.

    `(b) BUSINESS ACTIVITY- The term `business activity' means the sale of property or services, the leasing of property, the development of property or services for subsequent sale or use in producing property or services for subsequent sale. Such term does not include--

      `(1) casual or occasional sales of property used by an individual (other than in a business activity), such as the sale by an individual of a vehicle used by the individual, or

      `(2) sales by a business entity with gross revenues of $1,200 annually or less.

    `(c) EXCEPTION FOR CERTAIN EMPLOYEES-

      `(1) IN GENERAL- The term `business activity' does not include--

        `(A) the performance of services by an employee for an employer that is a business entity with respect to the activity in which the employee is engaged, or

        `(B) the performance of regular domestic household services (including babysitting, housecleaning, and lawn cutting)--

          `(i) by an employee that is compensated in an amount less than $5,000 annually, or

          `(ii) by an employer that is an individual or family.

      `(2) EMPLOYEE DEFINED- For purposes of this subsection, the term `employee' includes an individual partner who provides services to a partnership, an individual member who provides services to a limited liability company, or a proprietor with respect to compensation for services from his proprietorship.

`SEC. 1206. LOSS CARRYOVER DEDUCTION.

    `(a) DEDUCTION- The loss carryover deduction for a taxable year is the lesser of--

      `(1) the business entity's gross profits for the taxable year (determined without the loss carryover deduction), or

      `(2) the amount of the loss carryover to the taxable year.

    `(b) LOSS CARRYOVER-

      `(1) GENERAL RULE- A loss for any taxable year may be a loss carryover to each of the 10 taxable years following the taxable year of the loss.

      `(2) LOSS CARRYOVERS TO A TAXABLE YEAR- The loss carryover to a taxable year is the sum of the loss carryovers from all prior taxable years beginning on or after January 1, 2007, that can be carried over to the taxable year.

      `(3) REDUCTION OF LOSS CARRYOVERS AS A RESULT OF THE DEDUCTION- A business entity's loss carryovers shall be reduced each year by the amount of the loss carryover deduction for the year. Loss carryovers shall be reduced in the order that such carryovers arose.

    `(c) LOSS FOR TAXABLE YEAR- A business entity's loss (if any) for the taxable year equals the excess (if any) of--

      `(1) the sum of--

        `(A) the cost of business purchases for the taxable year, and

        `(B) the transition basis adjustment for the taxable year, over

      `(2) taxable receipts for the taxable year.

    `(d) SPECIAL RULES-

      `(1) CONSOLIDATED RETURNS- In the case of a consolidated return, the loss for a taxable year shall be determined on a consolidated group basis. In the case of a deconsolidation, the loss carryovers from the consolidated group shall be allocated in accordance with rules to be prescribed by the Secretary.

      `(2) LOSS CARRYOVERS OF ACQUIRED BUSINESS ENTITY-

        `(A) IN GENERAL- If a business entity acquires another business entity in a transaction that is considered the acquisition of a business entity and the 2 entities file a consolidated return or if 2 business entities merge, the loss carryovers will survive and can be applied against the taxable receipts attributable to the business activities carried on (or in the case of a merger formerly carried on) by either entity.

        `(B) ASSET ACQUISITION- If a business entity acquires all or substantially all of the assets of another entity in a transaction that is considered an asset acquisition rather than the acquisition of a business entity, the acquirer will be treated as if it acquired the loss carryovers of the selling entity. For purposes of this rule, the assets of a business entity include ownership interests in other business entities.

        `(C) SUBSTANTIALLY ALL- For purposes of this paragraph, the term `substantially all' means more than 80 percent of the fair market value of a business entity's net assets. Under rules prescribed by the Secretary, the parties to a transaction may elect to treat acquisitions in excess of 70 percent of the fair market value of a business entity's net assets as acquisitions of `substantially all' of a business entity's net assets.

`CHAPTER 3--CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND DISTRIBUTIONS

`Sec. 1301. Contributions to a business.

`Sec. 1302. Distributions of property.

`Sec. 1303. Asset acquisitions.

`Sec. 1304. Mergers and stock acquisitions.

`Sec. 1305. Spinoffs, splitoff, etc.

`Sec. 1306. Allocation of certain tax attributes.

`SEC. 1301. CONTRIBUTIONS TO A BUSINESS ENTITY.

    `(a) BY BUSINESS ENTITY-

      `(1) CASH- If a business entity contributes cash to a business entity of which it is or becomes a partial or full owner, the amount contributed is not a deductible amount to the contributor or a taxable receipt to the recipient.

      `(2) PROPERTY OR SERVICES- If a business entity contributes property or services to a business entity of which it is or becomes a partial or full owner, the transaction will not result in taxable receipts to the contributor or a deduction for a business purchase for the recipient and will not constitute a sale resulting in taxable receipts to the contributor.

    `(b) BY INDIVIDUAL-

      `(1) CASH- If an individual contributes cash to a business entity, the cash received is not a taxable receipt.

      `(2) NEW PROPERTY- If an individual contributes to a business entity property that the individual purchased for the business entity and which was not used by any person after its purchase, the property shall be considered purchased by such business entity from the person from whom the individual purchased the property and the basis of such property in the hands of the business entity shall be the such basis in the hands of the individual.

      `(3) PERSONAL USE PROPERTY-

        `(A) IN GENERAL- If an individual contributes personal use property to a business entity in which the individual has an ownership interest or for which the individual receives an ownership interest, the business entity shall not be permitted to deduct the value of the property received as a business expense. The business entity will have a tax basis in the contributed property equal to the contributor's basis.

        `(B) PERSONAL USE PROPERTY- The term `personal use property' means any property used by an individual at any time other than in a business activity.

      `(4) SERVICES- If an individual contributes services to a business entity in which the individual has an ownership interest or receives an ownership interest, the business entity shall not be permitted to deduct the value of the services received (or the value of the equity interest provided to the services provider).

`SEC. 1302. DISTRIBUTIONS OF PROPERTY.

    `(a) DISTRIBUTIONS OTHER THAN TO CONTROLLING BUSINESS- If a business entity distributes all or a portion of its assets to its owners (other than a controlling business entity), the business entity will be treated as if it sold the assets to its owners at fair market value. The fair market value will be determined by the distributing corporation and those determinations, unless unreasonable, will be binding on the recipients.

    `(b) DISTRIBUTIONS TO A CONTROLLING BUSINESS- If a business entity distributes all or a portion of its assets to a controlling business, the controlling business will assume the distributing entity's tax attributes with respect to the assets and neither entity will have taxable receipts or a deduction as a result of the transaction.

    `(c) CONTROLLING BUSINESS ENTITY- A business entity is a `controlling business entity' with respect to another business entity if it owns directly or indirectly more than 50 percent of the profits or capital interest in the other business entity.

    `(d) APPLICATION OF THIS SECTION- This section applies to both liquidating and nonliquidating distributions. Property shall be treated as distributed if the property is used for a nonbusiness purpose for more than an insubstantial period of time during a taxable year. See chapter 4 for rules relating to certain rental property.

`SEC. 1303. ASSET ACQUISITIONS.

    `(a) IN GENERAL- If a business entity transfers some or all of its assets, the consideration received for such assets shall be allocated among the assets transferred in the same manner as was required by section 1060 of the Internal Revenue Code of 1986. If the transferee and transferor agree in writing on the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferor and transferee unless the Secretary determines that such allocation (or fair market value) is not appropriate.

    `(b) TAX CONSEQUENCES- The tax consequences of an asset acquisition shall be determined in accordance with the rules of this chapter and shall be dependent upon allocations made under subsection (a). In general, consideration allocable to savings assets, such as stock in another business entity, would not be included in taxable receipts of the transferor and would not be a business purchase of the purchaser, but consideration allocable to the sale of tangible property and intangible property (other than savings assets) will constitute taxable receipts to the seller and a business purchase by the purchaser.

    `(c) ELECTION TO TREAT ASSET ACQUISITION AS A STOCK ACQUISITION- In the case of the sale of substantially all of the assets of a business entity or substantially all of the assets of a line of business or a separately standing business of a business entity, the transferee and transferor can jointly elect to treat the acquisition as if it were an acquisition of the stock of a business entity holding the assets so transferred. In such case, the rules of section 1304 shall apply.

    `(d) AUTHORITY TO REQUIRE ALLOCATION AGREEMENT AND NOTICE TO THE SECRETARY- If the Secretary determines that certain types of asset acquisitions have significant possibilities of tax avoidance, the Secretary may require--

      `(1) parties to such types of acquisitions to enter into agreements allocating consideration,

      `(2) parties to acquisitions involving certain kinds of assets to enter into agreements allocating part of the consideration to those assets, or

      `(3) parties to certain acquisitions to report information to the Secretary.

    `(e) ASSET ACQUISITION RULES DO NOT APPLY IF CONSIDERATION INCLUDES EQUITY IN PURCHASER-

      `(1) IN GENERAL- If a business entity issues its own equity or equity in a subsidiary or other controlled entity as part of the consideration for the transfer of assets to it, the transaction shall not be treated as an asset acquisition and the rules of section 1304 shall apply.

      `(2) EQUITY- For purposes of this subsection, the term `equity' means--

        `(A) stock, in the case of a corporation,

        `(B) a partnership or similar interest, in the case of a partnership or limited liability company, and

        `(C) an ownership interest or interest in profits in the case of any other business entity.

`SEC. 1304. MERGERS AND STOCK ACQUISITIONS.

    `(a) MERGERS- A merger of 1 business entity into another or 2 businesses entities into a 3rd business entity or any other similar transaction shall have no direct consequences under the business tax. The surviving entity shall assume the tax attributes of the merged corporations, including any loss carryovers and credit carryovers.

    `(b) STOCK ACQUISITION- The acquisition of all or substantially all of the ownership interest in 1 business entity either for cash or in exchange for ownership in the acquiring entity or an entity controlled by the acquired entity shall have no direct consequences under the business tax.

`SEC. 1305. SPINOFFS, SPLITOFF, ETC.

    `A spinoff, splitoff, or splitup of a business entity shall have no direct tax consequences under the business tax.

`SEC. 1306. ALLOCATION OF CERTAIN TAX ATTRIBUTES.

    `The Secretary shall prescribe rules for allocation of loss carryovers in cases of substantial shifts of assets from 1 business entity to another business entity. Under such rules, a portion of a business entity's carryovers may be deemed transferred when assets are transferred.

`CHAPTER 4--LAND AND RENTAL PROPERTY

`Sec. 1401. No deduction for land purchased for nonbusiness use.

`Sec. 1402. Taxable receipts for land held for nonbusiness use.

`Sec. 1403. Certain rental property.

`SEC. 1401. NO DEDUCTION FOR LAND PURCHASED FOR NONBUSINESS USE.

    `(a) IN GENERAL- The acquisition of unimproved land shall not constitute a business purchase if the unimproved land is not acquired to be used in a business activity or if the land is acquired for use in compensating employees.

    `(b) UNIMPROVED LAND- The term `unimproved land' means--

      `(1) land with no buildings on it,

      `(2) land with improvements if the value of the improvements is relatively small in comparison to the value of the land and it is anticipated that the improvements will be demolished and not used, or

      `(3) land in excess of the amount reasonably needed for the buildings located on it.

    `(c) CONVERSION TO BUSINESS USE- If the acquisition of land is not treated as a business purchase by reason of subsection (a) and the land is subsequently used in a manner for which it could have been treated as a business purchase, the cost of the land will be treated as a business purchase when the improvements on the land are placed in service (or in the case of construction for sale, substantially completed and advertised for sale).

`SEC. 1402. TAXABLE RECEIPTS FOR LAND HELD FOR NONBUSINESS USE.

    `(a) TAX BASIS- A business entity shall have a tax basis in land equal to the cost of the land if such cost is not deductible by reason of section 1401.

    `(b) TAXABLE RECEIPTS OF A LAND SALE- The taxable receipts from the sale of land (or portion thereof) in which a business entity has a tax basis by reason of subsection (a) shall be the amount by which the proceeds exceed the basis of such land (or portion thereof).

`SEC. 1403. CERTAIN RENTAL PROPERTY.

    `(a) IN GENERAL- Except as provided in subsection (b), the activity of rental of real estate is a business activity to which the business tax applies.

    `(b) NOT RENTAL PROPERTY-

      `(1) IN GENERAL- If the owners of property use the property for at least 14 days during the taxable year for a nonbusiness purpose and rent the property for no more than 14 days during the taxable year, the property shall not be considered rental property or used in the activity of rental of real estate during the taxable year for purposes of the business tax.

      `(2) NONBUSINESS USE- For purposes of this section, the term `use for a nonbusiness purpose' means use other than--

        `(A) use for which fair rent is paid,

        `(B) use in connection with the preparation of the property for rental, or

        `(C) use that serves a clear business purpose.

      Use during any part of a day shall constitute use for that day.

    `(c) RENTAL PROPERTY BECOMES NONRENTAL PROPERTY- If property which is considered rental property for purposes of subsection (a) in 1 taxable year ceases to be rental property (by reason of subsection (b)) in the following taxable year, the property (and any associated debt) shall be treated as distributed by the business entity to its owners. Section 1302 shall apply to such distribution.

`CHAPTER 5--INSURANCE AND FINANCIAL PRODUCTS

`Sec. 1501. General rules.

`Sec. 1502. Fees for financial intermediation services.

`Sec. 1501. Deductible insurance premiums.

`Sec. 1501. Nondeductible insurance premiums.

`Sec. 1501. Certain implicit fees for financial intermediation services.

`SEC. 1501. GENERAL RULES.

    `(a) TAXABLE RECEIPTS- Except in the case of a financial intermediation business, taxable receipts do not include financial receipts (as defined in section 1202(e)(2)).

    `(b) BUSINESS PURCHASES- Except in the case of a financial intermediation business, business purchases do not include the cost of financial instruments (as defined in section 1602(b)(3)) or payments for use of money or capital, other than fees for financial intermediation services.

`SEC. 1502. FEES FOR FINANCIAL INTERMEDIATION SERVICES.

    `(a) BUSINESS PURCHASES- Business purchases include explicit fees and implicit fees (within the meaning of section 603(a)(3)) for financial intermediation services (except to the extent that such fees are for services treated as performed outside the United States and not imported into the United States or for services treated as exported.).

    `(b) FINANCIAL INTERMEDIATION SERVICES- The definition of `financial intermediation service' in section 1601 applies for purposes of this section.

    `(c) EXPLICIT FEES-

      `(1) IN GENERAL- The term `explicit fees for financial intermediation services' means separately stated fees for services provided by a business entity in the financial intermediation business. Explicit fees do not include fees for use of money or capital.

      `(2) EXAMPLES- Explicit fees for financial intermediation services include (without limitation)--

        `(A) separately listed maintenance and service charges of providers of financial intermediation services,

        `(B) loan documentation fees,

        `(C) brokerage fees,

        `(D) safe deposit box fees,

        `(E) mutual fund sales, management or exit fees,

        `(F) loan origination, processing, documentation, or similar fees,

        `(G) underwriting fees,

        `(H) trustees' fees, and

        `(I) fees for credit checks.

      `(3) EXCLUSIONS- Explicit fees for financial intermediation services do not include prepaid interest and other fees for use of money or capital even if such fees are separately stated or are labeled as service fees.

`SEC. 1503. DEDUCTIBLE INSURANCE PREMIUMS.

    `(a) IN GENERAL- The cost of insurance premiums on business loss policies to the extent that such policies insure risks in the United States constitute costs of business purchases. Proceeds from such policies constitute taxable receipts.

    `(b) BUSINESS LOSS POLICY- A `business loss policy' is an insurance policy--

      `(1) owned by a business entity,

      `(2) the beneficiary of which is the business entity or another business entity doing business with the owner of the policy,

      `(3) that has no inside buildup or other savings component,

      `(4) that covers losses on a loss incurred or claims made basis during the term of the policy,

      `(5) that has a term of not more than 2 years,

      `(6) that is not a direct or indirect form of compensation, and

      `(7) that covers direct losses of the business, such as--

        `(A) damage to or theft of property used in the business activity,

        `(B) tort claims against the business,

        `(C) loss of use of business premises or services,

        `(D) malpractice, or

        `(E) alleged or actual breach of fiduciary obligations.

`SEC. 1504. NONDEDUCTIBLE INSURANCE PREMIUMS.

    `(a) NONDEDUCTIBILITY- The cost of insurance policies that are not business loss policy policies are not deductible costs of business purchases.

    `(b) PROCEEDS OF NONDEDUCTIBLE POLICIES- Insurance proceeds from policies described in subsection (a) do not constitute taxable receipts.

    `(c) APPLICATION OF THIS SECTION TO CERTAIN INSURANCE- This section shall apply to life insurance policies.

`SEC. 1505. CERTAIN IMPLICIT FEES FOR FINANCIAL INTERMEDIATION SERVICES.

    `(a) DEDUCTIBILITY OF FEES- If a financial intermediation business (as defined in section 1601) elects to determine implicit fees for financial intermediation services pursuant to this section and notify its business customers of their share of the implicit fees in accordance with this section, a business entity which receives such notice may treat the amount reported in the notice as an implicit fee for financial intermediation services in the calendar year to which such notice relates.

    `(b) ALLOCATION AND REPORTING-

      `(1) IN GENERAL- A financial intermediation business may--

        `(A) allocate fees received for services for which no separately stated fees are charged among recipients of such services on a reasonable and consistent basis, and

        `(B) report to each recipient not later than February 15th of each year the amount so allocated to it with respect to the immediately preceding calendar year.

      `(2) MAXIMUM FEES ALLOCATED- The maximum amount that may be allocated by a financial intermediation business for a calendar year is the excess of--

        `(A) the gross profits of the financial intermediation business for the calendar year (as reasonably estimated by the financial intermediation business), over

        `(B) the explicit fees for financial intermediation services received by the financial intermediation business.

      `(3) REASONABLE ALLOCATION- An allocation will not be considered reasonable unless it takes into account and allocates fees to--

        `(A) both services provided to business entities and services provided to individuals (other than in a business capacity), and

        `(B) both persons who receive money from the financial intermediation business and persons who pay money to the financial intermediation business (even though amounts allocated to the former do not constitute implicit fees).

      `(4) REGULATIONS- The Secretary shall prescribe regulations relating to the allocations under this subsection, including regulations addressing--

        `(A) rules for timing of deductions of implicit fees paid by fiscal year recipients,

        `(B) subsequent year adjustments if a financial intermediation business allocates too much in a calendar year,

        `(C) rules for advance approval from the Secretary for allocation procedures, and

        `(D) safe-harbor alternatives to the allocation procedures described in this subsection.

    `(c) NOT APPLICABLE TO LENDING SERVICES- This section shall not apply to lending services.

`CHAPTER 6--FINANCIAL INTERMEDIATION AND FINANCIAL INSTITUTIONS

`Sec. 1601. Activities constituting a financial intermediation business.

`Sec. 1602. General rule for taxation.

`Sec. 1603. Special rule for banks.

`Sec. 1604. Insurance companies.

`Sec. 1605. Financial pass-thru entities.

`SEC. 1601. ACTIVITIES CONSTITUTING A FINANCIAL INTERMEDIATION BUSINESS.

    `(a) FINANCIAL INTERMEDIATION BUSINESS- The providing of financial intermediation services shall be considered a business activity. The gross profit of a business entity providing financial intermediation services shall be determined by taking into account the rules of this subchapter.

    `(b) SEPARATE BUSINESS ACTIVITY- The provision of financial intermediation services for unrelated persons shall be considered a separate business activity and a business shall be considered a separate entity with respect to such activity. An entity engaging in such business is referred to in this chapter as a `financial intermediation business'.

    `(c) INTERNAL FINANCIAL INTERMEDIATION BY A BUSINESS- A business entity that provides financial intermediation services for itself and related parties but generally does not provide such services for unrelated parties is not a financial intermediation business.

    `(d) DEFINITIONS-

      `(1) FINANCIAL INTERMEDIATION SERVICES- The term `financial intermediation services' includes--

        `(A) lending services,

        `(B) insurance services,

        `(C) market-making and dealer services, and

        `(D) any other service provided as business activity in which a person acts as an intermediary in--

          `(i) the transfer of property, services, or financial assets, liabilities, risks or instruments (or income or expense derived therefrom) between 2 or more persons, or

          `(ii) the pooling of economic risk among other persons and derives all or a portion of such person's gross receipts from streams of income or expense, discounts, or other financial flows associated with the matter with respect to which such person is acting as an intermediary.

      `(2) LENDING SERVICES- The term `lending services' means the regular making of loans and providing credit to, or taking deposits from customers, but does not include an installment or delayed payment arrangement provided by a seller of property or services under which additional charges or fees are imposed by the seller for the late payment.

      `(3) MARKET-MAKING OR DEALER SERVICES- The term `market-making or dealer services' means services provided by a person who--

        `(A) regularly purchases financial instruments from or sells financial instruments to customers in the ordinary course of a trade or business, or

        `(B) regularly offers to enter into, assume, offset, assign, or otherwise terminate positions in financial instruments with customers in the ordinary course of a trade or business.

`SEC. 1602. GENERAL RULE FOR TAXATION.

    `(a) IN GENERAL- In the case of a financial intermediation business, gross profits shall be computed by--

      `(1) substituting financial receipts for taxable receipts, and

      `(2) including financial expenses as business purchases.

    `(b) DEFINITIONS-

      `(1) FINANCIAL RECEIPTS- The term `financial receipts' means all receipts other than amounts received as contributions to capital.

      `(2) FINANCIAL EXPENSES- The term `financial expenses' includes--

        `(A) payments for principal and interest that is properly allocable to the provision of financial intermediation services,

        `(B) the cost of and payments under financial instruments (other than financial instruments of the person subject to the tax imposed under this chapter and any person related to such person),

        `(C) claims and cash surrender values paid in connection with insurance or reinsurance services, and

        `(D) amounts paid for reinsurance.

      `(3) FINANCIAL INSTRUMENT- The term `financial instrument' means any--

        `(A) share of stock in a corporation,

        `(B) equity ownership in any widely held or publicly traded partnership, trust, or other business entity,

        `(C) note, bond, debenture, or other evidence of indebtedness,

        `(D) interest rate, currency, or equity notional principal contract,

        `(E) evidence or interest in, or a derivative financial instrument in, any financial instrument described in subparagraph (A), (B), (C), or (D), or any currency, including any option, forward contract, short position, and any similar financial instrument in such a financial instrument or currency, and

        `(F) a position which--

          `(i) is not a financial instrument described in subparagraph (A), (B), (C), (D) or (E),

          `(ii) is a hedge with respect to such a financial instrument, and

          `(iii) is clearly identified in the dealer's records as being described in this subparagraph before the close of the day on which it was acquired or entered into.

    `(c) INTERNATIONAL MATTERS- For purposes of this section in the case of a financial intermediation business with activity in and outside the United States--

      `(1) INCLUSION REGARDLESS OF SOURCE-

        `(A) Financial receipts shall be determined without regard to whether such receipts are received for property or service provided in or outside the United States, except that financial receipts do not include amounts that--

          `(i) are not taxable receipts (as determined without regard to this section), but

          `(ii) would have been taxable receipts (as determined without regard to this section) if such receipts had been received for services or property in the United States.

        `(B) Financial expenses shall be determined without regard to whether such expenses are received for property or services acquired in or outside the United States.

      `(2) ALLOCATION- Under regulations prescribed by the Secretary, gross profits (as determined without regard to this paragraph) shall be reduced by the amount of financial intermediation gross profit attributable to financial intermediation activity provided outside the United States.

      `(3) GROSS PROFIT ATTRIBUTABLE TO FINANCIAL INTERMEDIATION ACTIVITY- The term `gross profits attributable to financial intermediation activity' means the excess of--

        `(A) gross profits as determined under this section (but without regard to paragraph (2)), over

        `(B) gross profits as determined without regard to this subchapter.

`SEC. 1603. SPECIAL RULE FOR BANKS.

    `(a) IN GENERAL- In the case of a bank, gross profits shall be determined in accordance with section 1602, except that--

      `(1) FINANCIAL RECEIPTS- Financial receipts shall include only--

        `(A) taxable receipts (as determined without regard to this subchapter),

        `(B) interest on loans made or acquired by the bank,

        `(C) gain on the sale of loans,

        `(D) discount points received, and

        `(E) any explicit fees for financial or fiduciary services not included in subparagraphs (A) through (D).

      `(2) FINANCIAL EXPENSES- Financial expenses shall include only--

        `(A) interest paid to depositors and on other funds borrowed by the bank, and

        `(B) reasonable additions to reserves for bad debts.

      `(3) FORECLOSURE PROPERTY- Gross profits shall properly take into account proceeds from the operation or sale of foreclosure property.

    `(b) BANK-

      `(1) IN GENERAL- The term `bank' means a bank or trust company incorporated and doing business under the laws of the United States, the District of Columbia, or any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those exercised by national banks under the authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State or Federal authority having supervision over banking institutions or credit unions. Such term includes domestic building and loan associations and credit unions.

      `(2) OTHER ACTIVITIES- If a bank is engaged in significant amounts of activities other than those described in paragraph (1), the bank shall be considered as a separate business entity with respect to such other activity.

`SEC. 1604. INSURANCE COMPANIES.

    `(a) IN GENERAL- In the case of companies providing insurance services, gross profits shall be determined in accordance with section 1602, except--

      `(1) subsection (c) of section 1602 (relating to international operations) shall not apply, and

      `(2) the rules of chapter 9 (sourcing rules) shall apply to determine financial receipts and financial expenses.

    `(b) RESULT INCONSISTENT WITH STATUTORY INTENT- If an insurance company determines that the application of subsection (a) produces results inconsistent with the territorial approach of the business tax, it may apply to the Secretary for permission to apply section 1602 in lieu of subsection (a).

`SEC. 1605. FINANCIAL PASS-THRU ENTITIES.

    `(a) IN GENERAL- In the case of a financial pass-thru entity, gross profits shall be determined in accordance with section 1602.

    `(b) PASS-THRU ENTITY-

      `(1) IN GENERAL- The term `pass-thru entity' means a business entity that is intended to serve as a conduit. The Secretary shall prescribe regulations defining pass-thru entity. Such term shall include--

        `(A) entities that would qualify as regulated investment companies under the Internal Revenue Code of 1986,

        `(B) entities that would qualify as real estate investment trusts under the Internal Revenue Code of 1986,

        `(C) entities that would qualify as REMICs under the Internal Revenue Code of 1986, and

        `(D) partnerships whose purposes are to invest the funds of the partners in financial instruments, distribute or reinvest the income from such investments, and distribute or reinvest the proceeds from the sale of such instruments.

      `(2) ENGAGEMENT IN BUSINESS ACTIVITY- An entity will not qualify as a pass-thru entity if it engages in more than an insubstantial amount of business activity (other than investing in and selling financial instruments). The preceding sentence will not apply if the business entity treats the business activity as engaged in by a separate business entity (separately subject to tax under this chapter).

`CHAPTER 7--TAX-EXEMPT ORGANIZATIONS

`Sec. 1701. Exemption for governmental entities.

`Sec. 1702. Taxable activity of governmental entities.

`Sec. 1703. Tax-exempt organizations.

`Sec. 1704. Special rules for (c)(3) organizations.

`Sec. 1705. Tax on unrelated business activity.

`Sec. 1706. Unrelated business activity.

`SEC. 1701. EXEMPTION FOR GOVERNMENTAL ENTITIES.

    `Except as provided in section 1702, a State, political subdivision thereof, the District of Columbia and the government of any possession of the United States shall be exempt from taxation under this subtitle on any gross profits derived from the exercise of any inherently governmental function.

`SEC. 1702. TAXABLE ACTIVITY OF GOVERNMENTAL ENTITIES.

    `(a) NOT INHERENTLY GOVERNMENTAL FUNCTION- A governmental entity engaged in any business activity that is not an inherently government function and shall be subject to tax. The Secretary shall by regulation prescribe rules for differentiating inherently governmental functions in accordance with this section.

    `(b) CERTAIN ACTIVITIES TAXABLE- For purposes of subsection (a), business activity of a type frequently provided by business entities subject to tax under this subtitle include (without limitation) the--

      `(1) provision of transportation services,

      `(2) provision of travel and tour services,

      `(3) provision of public utility services,

      `(4) provision of refuse collection and recycling services,

      `(5) provision of athletic and recreational services,

      `(6) provision of hospital services,

      `(7) provision of printing services,

      `(8) provision of water, sanitation and sewer services,

      `(9) provision of food and restaurant services,

      `(10) provision of music, theater and entertainment, and

      `(11) provision of mail and delivery services.

    `(c) CERTAIN ACTIVITIES INHERENTLY GOVERNMENTAL- For purposes of subsection (a), activities that are inherently governmental shall include (without limitation) the provision of public safety services (including fire, police and defense services) and the provision of justice and courts.

    `(d) PARITY WITH TAX-EXEMPT ORGANIZATIONS- No governmental entity shall be subject to tax if it would not be subject to tax pursuant to section 1703 were it a private organization.

`SEC. 1703. TAX-EXEMPT ORGANIZATIONS.

    `(a) EXEMPTION FROM TAXATION- An organization described in subsection (c) shall be exempt from taxation under this chapter.

    `(b) TAX ON UNRELATED BUSINESS ACTIVITY- An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in sections 1705 and 1706, but shall be considered a tax-exempt organization for purposes of any law that refers to tax-exempt organizations.

    `(c) LIST OF EXEMPT ORGANIZATIONS- The following organizations are referred to in subsection (a):

      `(1) TITLE HOLDING COMPANIES- Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt under this section.

      `(2) RELIGIOUS AND APOSTOLIC ORGANIZATIONS- Religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members, but only if such activity is treated as unrelated business activity.

      `(3) CHARITABLE, RELIGIOUS, AND EDUCATIONAL ORGANIZATIONS- Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

      `(4) QUALIFIED BENEFIT PLAN OR TRUST- A corporation, trust, or other organization described in any of the following paragraphs of section 501(c) of the Internal Revenue Code of 1986--

        `(A) paragraph (9) (relating to voluntary employees' beneficiary associations),

        `(B) paragraph (11) (relating to teachers' retirement funds),

        `(C) paragraph (17) (relating to supplemental unemployment compensation benefits),

        `(D) paragraph (18) (certain grandfathered pension trusts),

        `(E) paragraph (21) (relating to Black Lung Act trusts),

        `(F) paragraph (22) (relating to certain multiemployer trusts), or

        `(G) paragraph (24) (relating to certain grandfathered ERISA trusts).

`SEC. 1704. SPECIAL RULES FOR (C)(3) ORGANIZATIONS.

    `(a) NEW ORGANIZATIONS MUST NOTIFY SECRETARY- Except as provided in subsection (b), an organization shall not be treated as an organization described in section 1703(c)(3)--

      `(1) unless such organization has given notice to the Secretary, in such manner as the Secretary may prescribe, that it is applying for recognition of such status, or

      `(2) for any period before giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection.

    `(b) EXCEPTIONS- Subsection (a) shall not apply to--

      `(1) organizations which obtained recognition of tax-exempt status under section 501(c)(3) of the Internal Revenue Code of 1986,

      `(2) churches, their integrated auxiliaries, and conventions and associations of churches,

      `(3) any organization the gross receipts of which in each taxable year are not more than $50,000, or

      `(4) such other classes of organizations which the Secretary may exempt.

`SEC. 1705. TAX ON UNRELATED BUSINESS ACTIVITY.

    `(a) IN GENERAL- Each organization described in subsection (b) shall be subject to the business tax under section 1101 on its gross profits from its unrelated business activity.

    `(b) ORGANIZATIONS SUBJECT TO TAX- This section shall apply to organizations exempt from the business tax under section 1703.

`SEC. 1706. UNRELATED BUSINESS ACTIVITY.

    `(a) IN GENERAL- The term `unrelated business activity' means any regularly carried on trade or business the conduct of which is not substantially related (aside from the need of such organization for income or funds or the use it makes of the profits derived) to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 1703

    `(b) ADVERTISING, ETC., ACTIVITIES- For purposes of this section, the term `trade or business' includes any activity which is carried on for the production of income from the sale of goods or the performance of services. For purposes of the preceding sentence, an activity does not lose identity as a trade or business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may, or may not, be related to the exempt purposes of the organization. Where an activity carried on for profit constitutes an unrelated trade or business, no part of such trade or business shall be excluded from such classification merely because it does not result in profit.

    `(c) CERTAIN BUSINESS ACTIVITIES- The conduct of certain trades or business shall be deemed per se unrelated to an exempt purpose. These include (without limitation) the--

      `(1) provision of travel and tour services,

      `(2) provision of public utility services,

      `(3) provision of refuse collection and recycling services,

      `(4) provision of athletic and recreational services,

      `(5) provision of hospital services,

      `(6) provision of water, sanitation and sewer services,

      `(7) provision of food and restaurant services,

      `(8) provision of map-making services,

      `(9) provision of laundry services,

      `(10) provision of music, theater, and entertainment, and

      `(11) provision of mail and delivery services.

`CHAPTER 8--COOPERATIVES

`Sec. 1801. Patronage dividends of cooperatives.

`SEC. 1801. PATRONAGE DIVIDENDS OF COOPERATIVES.

    `(a) PATRONAGE DIVIDENDS PAID BY SUPPLY COOPERATIVES- A qualified patronage dividend paid by a supply cooperative to a patron shall be treated as if it is a refund of a portion of the amounts paid by the patron for goods, services, or use of capital. In general, if the supply cooperative included the amount received from the patron in taxable receipts, the dividend shall reduce taxable receipts in the year incurred. If the recipient of the dividend is a business entity which deducted the cost of business purchases to which the dividend related, the recipient will reduce its cost of business purchases by the amount of the dividend in the year the dividend is paid or incurred.

    `(b) PATRONAGE DIVIDENDS PAID BY MARKETING COOPERATIVES- A qualified patronage dividend paid to a patron by a marketing cooperative shall be treated as an upward price adjustment in the amount received by the patron for its goods marketed by the cooperative. In general, the cooperative will increase its cost of business purchases by the amount of the qualified patronage dividend and the recipient will increase its taxable receipts by the amount of the qualified patronage dividend.

    `(c) DIVIDEND TREATMENT- Only the portion of a patronage dividend that is not a qualified patronage dividend shall be treated as a dividend under this chapter and chapter 1.

    `(d) DEFINITIONS-

      `(1) QUALIFIED PATRONAGE DIVIDEND- The term `qualified patronage dividend' means that part of a patronage dividend that is attributable to the patron's allocable share of patronage earnings of a marketing cooperative or a supply cooperative.

      `(2) SUPPLY COOPERATIVE- The term `supply cooperative' means a cooperative that sells goods or services to patrons and provided patronage dividends with respect to the quantity of purchases of the patrons.

      `(3) MARKETING COOPERATIVE- The term `marketing cooperative' means a cooperative that sells goods produced by its members and provides patronage dividends to the members based on the quantities of goods sold or provided for sale.

    `(e) SPECIAL RULES-

      `(1) NOTICES OF ALLOCATION AND PER-UNIT RETAIN CERTIFICATES- Except as provided in paragraph (2), a notice of allocation, per-unit retain certificate, or other similar document shall not be treated as a patronage dividend until it is redeemed in cash or property.

      `(2) OPPORTUNITY TO RECEIVE CASH- If a patron is given an opportunity to receive a patronage dividend in cash, but instead chooses to accept a per-unit retain certificate or a qualified notice of allocation, the patron will be treated as receiving cash and simultaneously contributing to the capital of the cooperative.

      `(3) APPLICATION LIMITED TO QUALIFIED COOPERATIVES- Under rules to be prescribed by the Secretary, this section shall apply only to cooperatives to which 1 of the following provisions of the Internal Revenue Code of 1986 would have applied:

        `(A) Section 501(c)(12) (relating to cooperative telephone companies and similar organizations).

        `(B) Section 501(c)(14) (relating to certain cooperative banks).

        `(C) Section 521 (relating to farm cooperatives).

        `(D) Section 1381 (relating to cooperatives generally).

      `(4) REGULATIONS- The Secretary shall prescribe regulations for the application of this section. The regulations shall generally be consistent with subchapter T of chapter 1 of the Internal Revenue Code of 1986 except to the extent that such rules are inconsistent with provisions of this chapter.

`CHAPTER 9--SOURCING RULES

`Sec. 1901. Exports of property or services.

`Sec. 1902. Imports of property or services.

`Sec. 1903. Import or export of services.

`Sec. 1904. International transportation services.

`Sec. 1905. International communications.

`Sec. 1906. Insurance.

`Sec. 1907. Banking services.

`SEC. 1901. EXPORTS OF PROPERTY OR SERVICES.

    `(a) GENERAL RULE- Taxable receipts do not include amounts received for property or services exported from the United States by the exporter thereof for use or consumption outside the United States.

    `(b) EXPORT THROUGH NONBUSINESS ENTITY- For purposes of subsection (a), if property or services are sold to a governmental entity or a tax-exempt organization for export and are exported other than in an activity of such entity which is subject to the business tax, then the seller of such property or services is deemed to be the exporter thereof.

    `(c) EXPORT OF SERVICES- See section 1903 for rules for determining whether services are exported or imported.

`SEC. 1902. IMPORTS OF PROPERTY OR SERVICES.

    `(a) IN GENERAL- The import of property or services for consumption in the United States shall constitute a business purchase if such property or service is to be used in a business activity in the United States. Property being held for sale or retail by a business entity that is in the business of selling goods shall be considered held for use in a business activity.

    `(b) AMOUNT OF BUSINESS PURCHASE-

      `(1) IN GENERAL- The cost of business purchases with respect to the import of property or services for use or consumption in the United States is the customs value, price, or other amount used for purposes of determining the import tax under chapter 10.

      `(2) IMPORT TAX- The cost of business purchases does not include any import tax paid. No deduction shall be allowed with respect to property or service imported by a business entity unless the import tax is paid with respect to such import.

`SEC. 1903. IMPORT OR EXPORT OF SERVICES.

    `(a) IN GENERAL- Except as otherwise provided in this subchapter or in rules prescribed under chapter 6 (relating to financial intermediation business), services shall not be treated as imported or exported from the location in which such services are performed.

    `(b) IMPORT OF SERVICES- A business entity shall be treated as importing a service if the benefit will be realized solely in connection with the United States business activities of the business entity.

    `(c) EXPORT OF SERVICES- A business will be treated as exporting a service if the benefit will be realized solely in connection with the activities of the purchaser occurring outside the United States.

    `(d) SERVICES ACQUIRED FROM SERVICE PROVIDER THAT PROVIDES SERVICES IN AND OUTSIDE THE UNITED STATES-

      `(1) IN GENERAL- If a business entity acquires services from a service provider that provides services both in and outside the United States and the service provider shows on the invoice where the services are provided--

        `(A) the business entity shall treat the services as provided where stated on the invoice, and

        `(B) the service provider shall treat as taxable receipts any services listed as provided in the United States.

      `(2) NO INVOICE- If a business entity acquires services from a service provider that provides services both in and outside the United States and the service provider does not show on an invoice where such services are provided--

        `(A) the business entity shall treat the services as if provided in the location to which payment is sent, and

        `(B) the service provider shall treat as taxable receipts any payments received in the United States.

    `(e) SPECIAL RULES PREVAIL- See sections 1904 and 1905 for special rules relating to transportation and communication services.

`SEC. 1904. INTERNATIONAL TRANSPORTATION SERVICES.

    `(a) TRANSPORTATION OF PROPERTY-

      `(1) TAXABLE RECEIPTS-

        `(A) EXPORTS- Taxable receipts do not include receipts from the transportation of property exported from the United States.

        `(B) IMPORTS- Taxable receipts include receipts from transportation of property imported into the United States only if such costs are not taken into account in determining the import tax.

        `(C) PRESUMPTIONS- The Secretary shall prescribe regulations describing situations in which a transporter of property must presume that no import tax has been paid on the cost of its services.

      `(2) BUSINESS PURCHASES-

        `(A) EXPORTS- Business purchases do not include amounts paid or incurred for the cost of transportation of property exported from the United States.

        `(B) IMPORTS- Amounts paid or incurred for transportation of goods imported into the United States shall constitute a cost of business purchase only to the extent that such amounts are taken into account in determining the customs value for purposes of the import tax.

    `(b) TRANSPORTATION OF PASSENGERS-

      `(1) TAXABLE RECEIPTS- Taxable receipts--

        `(A) include receipts from the transportation of passengers from the United States to a destination outside the United States, but

        `(B) do not include receipts from the transportation of passengers from outside the United States to a destination in the United States.

      `(2) BUSINESS PURCHASES- Business purchases--

        `(A) include amounts paid or incurred in a business activity for the transportation of passengers from the United States to a destination outside the United States, but

        `(B) do not include amounts paid or incurred for transportation of passengers from outside the United States to a destination in the United States.

      `(3) SIMPLIFYING RULES- The Secretary may provide rules that simplify this subsection, including rules under which--

        `(A) half of receipts attributable to transportation to or from the United States are treated as taxable receipts,

        `(B) half of the cost for business trips to and from the United States are treated as business purchases, and

        `(C) all transportation expenses of a business entity that has no regular business outside the United States are treated as business purchases.

`SEC. 1905. INTERNATIONAL COMMUNICATIONS.

    `(a) IN GENERAL- For purposes of section 1902, communications services shall be treated as provided at the point of origin of the communications and shall not be treated as imported or exported.

    `(b) COMMUNICATIONS SERVICES- Communications services include--

      `(1) telephone communications services,

      `(2) courier services (except in the case of transportation of property that is imported or exported),

      `(3) satellite transmission services,

      `(4) telegraph services,

      `(5) facsimile transmission services, and

      `(6) other similar services.

`SEC. 1906. INSURANCE.

    `(a) IN GENERAL- Insurance services will be treated as provided at the location of the insurance company providing the services. Except as the Secretary may prescribe by regulations, insurance companies will be treated as providing services at the location to which insurance payments are made.

    `(b) INSURED RISKS IN THE UNITED STATES- If insurance services are provided outside the United States and the insured risk is located in the United States--

      `(1) the insurance service shall be treated as imported,

      `(2) the insurance premiums shall be subject to the import tax, and

      `(3) payments of insurance benefits shall not be treated as imported.

    `(c) INSURED RISK OUTSIDE THE UNITED STATES- If insurance services are provided inside the United States and the insured risk is located outside the United States--

      `(1) insurance services shall be treated as exported, and

      `(2) payments of insurance benefits shall be treated as payments for services outside the United States, and shall not be deducted as business purchases.

    `(d) INSURANCE SERVICES- The term `insurance services' means the provision of insurance and services related to insurance other than insurance that is treated as a savings asset within the meaning of section 2(p).

`SEC. 1907. BANKING SERVICES.

    `The Secretary shall prescribe regulations on the location of banking services and the extent to which such services are to be treated as imported or exported.

`CHAPTER 10--IMPORT TAX

`Sec. 2001. Imposition of tax on import of property.

`Sec. 2002. Imposition of tax on import of services.

`Sec. 2003. General rules for the import tax.

`SEC. 2001. IMPOSITION OF TAX ON IMPORT OF PROPERTY.

    `(a) GENERAL RULE- There is hereby imposed a tax equal to 8.4 percent of the customs value of all property entered into the United States for consumption, use or warehousing.

    `(b) LIABILITY FOR TAX- The tax imposed on the import of property by subsection (a) shall be paid by the person entering the property into the United States for consumption, use or warehousing. Such tax shall be due and payable at the time of import.

    `(c) IMPORTS OF PREVIOUSLY EXPORTED PROPERTY- In the case of any article that is classified under a heading or subheading of subchapter I or II of chapter 98 of the Tariff Schedules of the United States, the tax under this section shall be imposed only on that portion of the customs value of such article that is dutiable under such heading or subheading.

    `(d) IMPORTS FOR PERSONAL CONSUMPTION- The import tax imposed by this section shall not apply to the first $400 of goods imported per calendar year by a person who (1) is not a business entity or (2) if a business entity, imported such goods for a non-business purpose.

`SEC. 2002. IMPOSITION OF TAX ON IMPORT OF SERVICES.

    `(a) GENERAL RULE- There is hereby imposed a tax equal to 8.4 percent of the cost of all services treated as imported into the United States during the taxable year of the service recipient.

    `(b) LIABILITY FOR THE TAX- The tax on the import of services imposed by subsection (a) shall be paid by the person who receives the imported services. The tax shall be payable as if it were an addition to the business tax imposed by section 1101.

    `(c) IMPORTED SERVICES- For purposes of this section, services shall be treated as imported if such services are treated as imported under section 1903 (general rules on import of services) or section 1906 (related to insurance).

    `(d) SPECIAL RULE FOR INSURANCE- The seller of insurance that is treated as imported under section 1906 shall be liable for the collection of the tax imposed by subsection (a) on the insurance and for paying such tax to the Secretary. The first sentence of subsection (b) (relating to the person liable for the tax) shall apply to insurance only to the extent that the seller of the insurance services does not collect such tax.

`SEC. 2003. GENERAL RULES FOR THE IMPORT TAX.

    `(a) IMPORT TAX- The term `import tax' means the tax imposed by section 2001 on the import of property and the tax imposed by section 2002 on the import of services.

    `(b) NO CREDITS- No credits shall be allowed against the import tax, other than credit for prior overpayment or credits for deposits of the import tax.'.

TITLE V--TAX ADMINISTRATION AND TRANSITION

SEC. 501. TAX ADMINISTRATION AND TRANSITION.

    The Internal Revenue Code of 1986 is amended by inserting after subtitle C the following new subtitle:

`Subtitle D--Administration and Transition Matters

`Chapter 1. Other administrative provisions.

`Chapter 2. Collection; appeals; taxpayer rights.

`Chapter 3. Accounting method rules.

`Chapter 4. Transition rules.

`Chapter 5. Additional matters.

`CHAPTER 1--OTHER ADMINISTRATIVE PROVISIONS

`Sec. 2501. Reports and payments.

`Sec. 2502. Registration.

`Sec. 2503. Accounting.

`Sec. 2504. Registration certificates.

`Sec. 2505. Penalties.

`Sec. 2506. Burden of persuasion and burden of production.

`Sec. 2507. Attorneys and accountancy fees.

`Sec. 2508. Summons, examinations, audits, etc.

`Sec. 2509. Records.

`Sec. 2510. Tax to be separately stated and charged.

`Sec. 2511. Coordination with title 11.

`Sec. 2512. Applicable interest rate.

`SEC. 2501. REPORTS AND PAYMENTS.

    `(a) IN GENERAL-

      `(1) SALES TAX REPORTS AND FILING DATES- On or before the 15th day of each month, each person who is liable to collect and remit the tax imposed by subtitle B by reason of section 103(a), or liable to pay tax imposed by subtitle B which is not collected pursuant to section 103(a) shall submit to the appropriate sales tax administering authority (in a form prescribed by the Secretary) a report relating to the previous calendar month that sets forth--

        `(A) the gross payments referred to in section 101,

        `(B) the tax collected under this chapter in connection with such payments,

        `(C) the amount and type of any credit claimed, and

        `(D) other information reasonably required by the Secretary or the sales tax administering authority for the administration, collection and remittance of the tax imposed by subtitle B.

      `(2) BUSINESS TAX REPORTS AND FILING DATES- On or before the 15th day of April of each year, each person that is liable to remit tax pursuant to subtitle C shall file a tax return in the form prescribed by the Secretary.

    `(b) TAX PAYMENTS DATE-

      `(1) SALES TAX- The tax imposed by subtitle B during any calendar month is due and shall be paid to the appropriate sales tax administering authority on or before the 15th day of the succeeding month. Both Federal tax imposed by subtitle B and conforming State sales tax (as defined in section 2) (if any) shall be paid in 1 aggregate payment.

      `(2) BUSINESS TAX- Business entities shall pay estimated taxes equal to no less than 100 percent of their estimated tax due under subtitle C within 15 days of the end of their taxable quarter. Any additional tax due shall be paid along with the business entities annual tax return.

      `(3) CROSS REFERENCE- See subsection (e) relating to remitting of separate segregated funds for sellers that are not small sellers.

    `(c) EXTENSIONS FOR FILING REPORTS-

      `(1) AUTOMATIC EXTENSIONS FOR NOT MORE THAN 30 DAYS- On application, an extension of not more than 30 days to file reports or returns required by this section shall be automatically granted.

      `(2) OTHER EXTENSIONS- On application, extensions of 30 to 60 days to file such reports or returns shall be liberally granted by the sales tax administering authority or the Secretary, as the case may be, for reasonable cause. Extensions greater than 60 days may be granted by the sales tax administering authority or the Secretary, as the case may be, to avoid hardship.

      `(3) NO EXTENSION FOR PAYMENT OF TAXES- Notwithstanding paragraphs (1) and (2), no extension shall be granted with respect to the time for paying or remitting the taxes under subtitle B or subtitle C.

    `(d) TELEPHONE REPORTING OF VIOLATIONS- The Secretary shall establish a system whereby violation of the this title can be brought to the attention of the sales tax administering authority for investigation through the use of a toll-free telephone number and otherwise.

    `(e) SEPARATE SEGREGATED ACCOUNTS-

      `(1) DEPOSIT REQUIREMENT- Any registered seller that is a not a small seller shall deposit all sales taxes collected pursuant to section 103 in a particular week in a separate segregated account maintained at a bank or other financial institution within 3 business days of the end of such week. Such registered seller shall also maintain in that account sufficient funds to meet the bank or financial institution minimum balance requirements, if any, and to pay account fees and costs.

      `(2) SMALL SELLER DEFINED- For purposes of this subsection, a small seller is any person that has not collected $20,000 or more of the taxes imposed by subtitle B in any of the previous 12 months.

      `(3) LARGE SELLERS- Any seller that has collected $100,000 or more of the taxes imposed by subtitle B in any of the previous 12 months is a large seller. A large seller shall remit to the sales tax administering authority the entire balance of deposited taxes in its separate segregated account on the first business day following the end of the calendar week. The Secretary may by regulation require the electronic transfer of funds due from large sellers.

      `(4) WEEK DEFINED- For purposes of this subsection, the term `week' shall mean the 7-day period ending on a Friday.

    `(f) DETERMINATION OF REPORT FILING DATE- A report filed pursuant to subsection (a) shall be deemed filed when--

      `(1) deposited in the United States mail, postage prepaid, addressed to the sales tax administering authority,

      `(2) delivered and accepted at the offices of the sales tax administering authority,

      `(3) provided to a designated commercial private courier service (as defined in section 2) for delivery within 2 days to the sales tax administering authority at the address of the sales tax administering authority, or

      `(4) by other means permitted by the Secretary.

    `(g) SECURITY REQUIREMENTS- A large seller (within the meaning of subsection (e)(3)) shall be required to provide security in an amount equal to the greater of $100,000 or one and one-half times the seller's average monthly tax liability during the previous 6 calendar months. Security may be a cash bond, a bond from a surety company approved by the Secretary, a certificate of deposit, or a State or United States Treasury bond. A bond qualifying under this subsection must be a continuing instrument for each calendar year (or portion thereof) that the bond is in effect. The bond must remain in effect until the surety or sureties are released and discharged. Failure to provide security in accordance with this section shall result in revocation of the seller's section 2502 registration. The security or part of the security, as the case may be, may be forfeited in favor of the Secretary to the extent of such tax due (plus interest if any) if a person who has provided security pursuant to this subsection--

      `(1) fails to pay an amount indicated in a final notice of amount due under this subtitle (within the meaning of section 2605(d)), and

      `(2) no Taxpayer Assistance Order is in effect relating to the amount due, and

      `(3) either the time for filing an appeal pursuant to section 2604 has passed or the appeal was denied, and

      `(4) the amount due is not being litigated in any judicial forum.

    `(h) REWARDS PROGRAM- The Secretary is authorized to maintain a program of awards wherein individuals that assist the Secretary or sales tax administering authorities in discovering or prosecuting tax fraud may be remunerated.

    `(i) CROSS REFERENCE- For interest due on taxes remitted late, see section 6601.

`SEC. 2502. REGISTRATION.

    `(a) IN GENERAL- Any person liable to collect and remit taxes pursuant to subtitle B or any business entity subject to the tax imposed by subtitle C who is engaged in a trade or business shall register as a seller with the sales tax administering authority and as a business taxpayer with the Secretary.

    `(b) AFFILIATED FIRMS- Affiliated firms (as defined in section 2) shall be treated as 1 person for purposes of this section. Affiliated firms may elect, upon giving notice to the Secretary in a form prescribed by the Secretary, to treat separate firms as separate persons for purposes of this subtitle.

    `(c) DESIGNATION OF TAX MATTERS PERSON- Every person registered pursuant to subsection (a) shall designate a tax matters person who shall be an individual whom the sales tax administering authority may contact regarding tax matters. Each person registered must provide notice of a change in the identity of the tax matters person within 30 days of such change.

    `(d) CERTIFICATES OF REGISTRATION- The sales tax administering authority and the Secretary shall issue certificates of registration to registered sellers.

    `(e) EFFECT OF FAILURE TO REGISTER- Any person that is required to register and who fails to do so is hereby prohibited from selling taxable property or services. The Secretary or a sales tax administering authority may bring an action seeking a temporary restraining order, an injunction, or such other order as may be appropriate to enforce this section.

`SEC. 2503. ACCOUNTING.

    `(a) CASH METHOD TO BE USED GENERALLY- For purposes of subtitle B and subtitle C, persons shall report transactions using the cash method of accounting unless an election to use the accrual method of accounting is made pursuant to subsection (b) is made in the form prescribed by the Secretary.

    `(b) ELECTION TO USE ACCRUAL METHOD- A person may elect, in the form prescribed by the Secretary, with respect to a taxable year to remit taxes and report transactions using the accrual method of accounting.

`SEC. 2504. REGISTRATION CERTIFICATES.

    `The sales tax administering authority and the Secretary shall issue certificates of registration to registered sellers and such other certificates as are necessary or may prove useful in the administration of the tax imposed by subtitle B or subtitle C.

`SEC. 2505. PENALTIES.

    `(a) FAILURE TO REGISTER- Each person who is required to register pursuant to section 2502 but fails to do so prior to notification by the sales tax administering authority shall be liable for a penalty of $500.

    `(b) RECKLESS OR WILLFUL FAILURE TO COLLECT TAX-

      `(1) CIVIL PENALTY; FRAUD- Each person who is required to collect taxes imposed by subtitle B as part of a trade or business and recklessly or willfully fails to do so shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not collected.

      `(2) CRIMINAL PENALTY- Each person who is required to collect taxes imposed by subtitle B as part of a trade or business and willfully fails to do so may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 1 year or both.

    `(c) RECKLESS OR WILLFUL ASSERTION OF INVALID EXEMPTION-

      `(1) CIVIL PENALTY; FRAUD- Each person who recklessly or willfully asserts an invalid intermediate or export sales exemption from the taxes imposed by subtitle B shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not collected or remitted.

      `(2) CRIMINAL PENALTY- Each person who willfully asserts an invalid intermediate or export sales exemption from the taxes imposed by subtitle B may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 1 year or both.

    `(d) RECKLESS OR WILLFUL FAILURE TO REMIT TAX COLLECTED-

      `(1) CIVIL PENALTY; FRAUD- Each person who is required to remit taxes actually collected pursuant to subtitle B and who recklessly or willfully fails to do so shall be liable for a penalty equal to the greater of $1,000 or 40 percent of the tax not remitted.

      `(2) CRIMINAL PENALTY- Each person who is required to remit taxes actually collected pursuant to subtitle B and willfully fails to do so may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 2 years or both.

    `(e) RECKLESS OR WILLFUL FAILURE TO PAY TAX- Each person who is required to pay taxes imposed by subtitle B or C and recklessly or willfully fails to do so shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not paid.

    `(f) PENALTY FOR LATE FILING-

      `(1) IN GENERAL- In the case of a failure by any person who is required to file a report or return required by subtitle B or C on or before the due date for such report (determined with regard to any extension) and fails to do so, such person shall pay a penalty for each month or fraction thereof that such report is late equal to the greater of--

        `(A) $50, or

        `(B) 0.5 percent of the gross payments (or, in the case of the business tax, gross profits or the value of the imported good or service) that is required to be shown on the report.

      `(2) INCREASED PENALTY ON RETURNS FILED AFTER WRITTEN INQUIRY- The amount of the penalty under paragraph (1) shall be doubled with respect to any report filed after a written inquiry with respect to such report is received by the taxpayer from the sales tax administering authority.

      `(3) The penalty imposed pursuant to this subsection shall not exceed 12 percent.

      `(4) EXCEPTIONS-

        `(A) REASONABLE CAUSE- No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause.

        `(B) OTHER WAIVER AUTHORITY- In addition to penalties not imposed by reason of subparagraph (A), the sales tax administering authority, on application, shall waive the penalty imposed by paragraph (1) once per registered person per 24 month period. The preceding sentence shall not apply to a penalty determined under paragraph (2).

    `(g) PENALTY FOR WILLFULLY OR RECKLESSLY ACCEPTING A FALSE INTERMEDIATE OR EXPORT SALES CERTIFICATE- A person who willfully or recklessly accepts a false intermediate or export sales certificate shall pay a penalty equal to 20 percent of the tax not collected by reason of such acceptance.

    `(h) PENALTY FOR LATE REMITTANCE OR PAYMENT OF TAXES-

      `(1) IN GENERAL- A person who is required to timely remit or pay taxes imposed by subtitle B or subtitle C and remits or pays taxes more than 1 month after they are due shall pay a penalty equal to 1 percent per month (or fraction thereof) that the remittance or payment is late provided, however, that the penalty imposed pursuant to this subsection shall not exceed 24 percent.

      `(2) EXCEPTIONS FOR REASONABLE CAUSE- No penalty shall be imposed under paragraph (1) with respect to any late remittance if it is shown that such late remittance is due to reasonable cause.

    `(i) PENALTY FOR FILING FALSE REBATE CLAIM-

      `(1) CIVIL PENALTY; FRAUD- A person who willfully or recklessly files a false claim for a Family Consumption Allowance rebate shall--

        `(A) pay a penalty equal to the greater of $500 or 50 percent of the claimed annual rebate amount not actually due, and

        `(B) repay any rebates received as a result of the false rebate claim (together with interest).

      `(2) CRIMINAL PENALTY- A person who willfully files a false claim for a Family Consumption Allowance rebate may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period not more than 1 year or both.

    `(j) PENALTY FOR BAD CHECK- If any check or money order in payment of any amount due under this subtitle is not duly paid, in addition to other penalties provided by law, the person who tendered such check shall pay a penalty equal to the greater of--

      `(1) $25, or

      `(2) 2 percent of the amount of such check.

    `(k) PENALTY FOR FAILURE TO MAINTAIN A SEPARATE SEGREGATED ACCOUNT- Any person required to maintain a separate segregated account pursuant to section 2501(e) who fails to maintain such a separate segregated account shall pay a penalty of $500.

    `(l) PENALTY FOR FAILURE TO DEPOSIT COLLECTED TAXES IN A SEPARATE SEGREGATED ACCOUNT- Any person required to deposit collected taxes into a separate segregated account maintained pursuant to section 2501(e) who fails to timely deposit such taxes into the separate segregated account shall pay a penalty equal to 1 percent of the amount required to be deposited. The penalty imposed by the previous sentence shall be tripled unless such taxes have been deposited in the separate segregated account or remitted to the sales tax administering authority within 16 days of the date such deposit was due.

    `(m) PENALTY FOR INSUFFICIENT ESTIMATED TAX PAYMENTS- A business entity that does not make estimated tax payments with respect to the business tax equal to at least 90 percent of the actual tax due shall be subject to a penalty equal to 5 percent of such underpayment. A business entity that does not make estimated tax payments with respect to the business tax equal to at least 80 percent of the actual tax due shall be subject to a penalty equal to 10 percent of such underpayment, such penalty to be in lieu of the penalty imposed by the previous sentence.

    `(n) JOINT AND SEVERAL LIABILITY FOR TAX MATTERS PERSON AND RESPONSIBLE OFFICERS- The tax matters person (designated pursuant to section 2502(c)) and responsible officers or partners of a firm shall be jointly and severally liable for the tax imposed by this subtitle and penalties imposed by this subtitle.

    `(o) RIGHT OF CONTRIBUTION- If more than 1 person is liable with respect to any tax or penalty imposed by this subtitle, each person who paid such tax or penalty shall be entitled to recover from other persons who are liable for such tax or penalty an amount equal to the excess of the amount paid by such person over such person's proportionate share of the tax or penalty.

    `(p) CIVIL PENALTIES AND CRIMINAL FINES NOT EXCLUSIVE-

      `(1) The fact that a civil penalty has been imposed shall not prevent the imposition of a criminal fine.

      `(2) The fact that a criminal fine has been imposed shall not prevent the imposition of a civil penalty.

    `(q) FALSE CERTIFICATION- A person making a false certification under section 202(d) shall pay a penalty equal to the greater of $500 or 20 percent of the business use conversion credit falsely taken.

    `(r) CIVIL PENALTIES NOT ADDITIVE- More than 1 civil penalty may not be imposed pursuant to this section as a result of the same act or omission.

    `(s) CONFIDENTIALITY- Any person who violates the requirements relating to confidentiality of tax information (as provided in section 2605(f)) may be fined up to $10,000 or imprisoned for a period of not more than 1 year or both.

    `(t) CROSS REFERENCE- For interest due on late payments, see section 6601.

`SEC. 2506. BURDEN OF PERSUASION AND BURDEN OF PRODUCTION.

    `In all disputes concerning taxes imposed by this title, the person engaged in a dispute with the sales tax administering authority or the Secretary, as the case may be, shall have the burden of production of documents and records but the sales tax administering authority or the Secretary shall have the burden of persuasion. In all disputes concerning an exemption claimed by a purchaser, if the seller has on file an intermediate sale or export sale certificate from the purchaser and did not have reasonable cause to believe that the certificate was improperly provided by the purchaser with respect to such purchase (within the meaning of section 103), then the burden of production of documents and records relating to that exemption shall rest with the purchaser and not with the seller.

`SEC. 2507. ATTORNEYS AND ACCOUNTANCY FEES.

    `In all disputes concerning taxes imposed by this title, the person engaged in a dispute with the sales tax administering authority or the Secretary, as the case may be, shall be entitled to reasonable attorneys fees, accountancy fees and other reasonable professional fees incurred in direct relation to the dispute unless the sales tax administering authority or the Secretary establishes that its position was substantially justified.

`SEC. 2508. SUMMONS, EXAMINATIONS, AUDITS, ETC.

    `(a) Persons are subject to administrative summons by the sales tax administering authority and the Secretary for records, books, papers, documents and effects required to accurately determine liability for tax under this subtitle. A summons shall be served by the sales tax administering authority or the Secretary by an attested copy delivered in hand to the person to whom it is directed or left at his last known address. The summons shall describe with reasonable certainty what is sought.

    `(b) The sales tax administering authority and the Secretary have the authority to conduct at a reasonable time and place examinations and audits of persons who are or may be liable to collect and remit tax imposed by this subtitle and to examine the records, books, papers, documents and effects of such persons which may be relevant and material to the determination of tax due.

    `(c) No administrative summons may be issued by the sales tax administering authority or the Secretary and no action may be commenced to enforce an administrative summons with respect to any person if a Justice Department referral or referral to a State Attorney General's Office is in effect with respect to such person relating to a tax imposed by this subtitle (or relating to a conforming State sales tax). Such referral is in effect with respect to any person if the sales tax administering authority or the Secretary has recommended to the Justice Department or a State Attorney General's Office a grand jury investigation of such person or a criminal prosecution of such person that contemplates criminal sanctions under this title. A referral shall be terminated when--

      `(1) the Justice Department or a State Attorney General's Office notifies the sales tax administering authority or the Secretary that such Department of Office will not--

        `(A) prosecute such person for any offense connected with the internal revenue laws (or a conforming State sales tax),

        `(B) authorize a grand jury investigation of such person with respect to such offense, or

        `(C) continue such a grand jury investigation, or

      `(2) a final disposition has been made of any criminal proceeding connected with the internal revenue laws, or conforming State sales tax, against such person.

`SEC. 2509. RECORDS.

    `Any person liable to remit taxes pursuant to subtitle B or C shall keep records (including a record of all section 2510 receipts provided, complete records of intermediate and export sales, including purchaser's intermediate and export sales certificates and tax number and the net of tax amount of purchase) sufficient to determine the amounts reported, collected, and remitted for a period of 5 years after the latter of the filing of the report for which the records formed the basis or the date the report was due to be filed. Any purchaser who purchased taxable property or services but did not pay tax by reason of asserting an intermediate and export sales exemption shall keep records sufficient to determine whether such exemption was valid for a period of 6 years after the purchase of the taxable property or services.

`SEC. 2510. TAX TO BE SEPARATELY STATED AND CHARGED.

    `(a) IN GENERAL- For each purchase of taxable property or services for which a tax is imposed pursuant to section 101 and 1101, the seller shall charge the tax imposed by section 101 separately from the purchase. For purchase of taxable property or services for which a tax is imposed pursuant to section 101, the seller shall provide to the purchaser a receipt for each transaction that includes at least the following information--

      `(1) the price of the property or services exclusive of tax,

      `(2) the amount of tax paid (including both the tax imposed by section 101 and the tax imposed by section 1101),

      `(3) the price of the property or service inclusive of tax,

      `(4) the sales tax rate and the business tax rate,

      `(5) the date that the good or service was sold,

      `(6) the name of the vendor, and

      `(7) the vendor registration number.

    `(b) VENDING MACHINE EXCEPTION- The requirements of subsection (a) shall be inapplicable in the case of sales by vending machines. For purposes of this subsection, the term `vending machines' means machines--

      `(1) that dispense taxable property in exchange for coins or currency, and

      `(2) that sell no single item exceeding $10 per unit in price.

    `(c) FINANCIAL INTERMEDIATION SERVICES EXCEPTION- The requirements of subsection (a) shall be inapplicable in the case of sales of financial intermediation service. With respect to financial intermediation services, receipts shall be issued when the tax is imposed.

`SEC. 2511. COORDINATION WITH TITLE 11.

    `No addition to tax shall be made under section 2505 with respect to a period during which a case is pending under title 11 of the United States Code--

      `(1) if such tax was incurred by the estate and the failure occurred pursuant to an order of the court finding probable insufficiency of funds of the estate to pay administrative expenses, or

      `(2) if--

        `(A) such tax was incurred by the debtor before the earlier of the order for relief or (in the involuntary case) the appointment of a trustee, and

        `(B) the petition was filed before the due date prescribed by law (including extensions) for filing a return of such tax, or the date for making the addition to tax occurs on or after the date the petition was filed.

`SEC. 2512. APPLICABLE INTEREST RATE.

    `(a) IN GENERAL-

      `(1) In the case of a debt instrument, investment, financing lease or account with a term of not over 3 years, the applicable interest rate is the Federal short-term rate.

      `(2) In the case of a debt instrument, investment, financing lease or account with a term of over 3 years but not over 9 years, the applicable interest rate is the Federal mid-term rate.

      `(3) In the case of a debt instrument, investment, financing lease or account with a term of over 9 years, the applicable interest rate is the Federal long-term rate.

    `(b) FEDERAL SHORT-TERM RATE- The Federal short-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any 1 month) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 years or fewer.

    `(c) FEDERAL MID-TERM RATE- The Federal mid-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any 1 month) on outstanding marketable obligations of the United States with remaining periods to maturity of more than 3 years and not over 9 years.

    `(d) FEDERAL LONG-TERM RATE- The Federal long-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any 1 month) on outstanding marketable obligations of the United States with remaining periods to maturity of over 9 years.

    `(e) DETERMINATION OF RATES- During each calendar month, the Secretary shall determine the Federal short-term rate, the Federal mid-term rate and the Federal long-term rate which shall apply during the following calendar month.

`CHAPTER 2--COLLECTIONS; APPEALS; TAXPAYER RIGHTS

`Sec. 2601. Collections.

`Sec. 2602. Power to levy, etc.

`Sec. 2603. Problem resolution offices.

`Sec. 2604. Appeals.

`Sec. 2605. Taxpayer rights.

`Sec. 2606. Installment agreements; compromises.

`SEC. 2601. COLLECTIONS.

    `The sales tax administering authority (as defined by section 2) shall collect the taxes imposed by subtitle B and the Secretary shall collect the taxes imposed by subtitle C.

`SEC. 2602. POWER TO LEVY, ETC.

    `(a) IN GENERAL- The sales tax administering authority and the Secretary may levy and seize property, garnish wages or salary and file liens to collect amounts due under this title, pursuant to enforcement of--

      `(1) a judgment duly rendered by a court of law,

      `(2) an amount due if the taxpayer has failed to exercise his appeals rights under section 2604, or

      `(3) an amount due if the appeals process determined that an amount remained due and the taxpayer has failed to timely petition the Tax Court for relief.

    `(b) EXEMPTION FROM LEVY, SEIZURE AND GARNISHMENT- There shall be exempt from levy, seizure and garnishment or penalty in connection with any tax imposed by this title--

      `(1) wearing apparel, school books, fuel, provisions, furniture, personal effects, tools of a trade or profession, and livestock in a household up to an aggregate value of $15,000, and

      `(2) monthly money income equal to 150 percent of the monthly poverty level (as defined in section 303).

    `(c) LIENS TO BE TIMELY RELEASED- Subject to such reasonable regulations as the Secretary may provide, any lien imposed with respect to a tax imposed by this title shall be released not later than 30 days after--

      `(1) the liability was satisfied or became unenforceable, or

      `(2) a bond was accepted as security.

`SEC. 2603. PROBLEM RESOLUTION OFFICES.

    `(a) PROBLEM RESOLUTION OFFICE TO BE ESTABLISHED- Each sales tax administering authority and the Secretary shall establish an independent Problem Resolution Office and appoint an adequate number of Problem Resolution Officers. The head of the Problem Resolution Office must be appointed by, and serve at the pleasure of, either the governor of the administering State or the President of the United States.

    `(b) AUTHORITY OF PROBLEM RESOLUTION OFFICERS- Problem Resolution Officers shall have the authority to investigate complaints and issue Taxpayer Assistance Orders to administratively enjoin any collection activity (by the sales tax administering authority if appointed by the governor and by the Secretary if appointed by the President) if, in the opinion of the Problem Resolution Officer, such collection activity is reasonably likely to not be in compliance with law or to prevent hardship (other than by reason of having to pay taxes lawfully due). Problem Resolution Officers shall also have the authority to issue Taxpayer Assistance Orders releasing or returning property that has been levied upon or seized and ordering that a lien be released or that garnished wages be returned. Such Taxpayer Assistance Order may only be rescinded or modified by the Problem Resolution Officer that issued it, by either the highest official in the relevant sales tax administering authority or by its General Counsel (or by the Secretary or his designated counsel) upon a finding that the collection activity is justified by clear and convincing evidence. The authority to reverse this taxpayer assistance order may not be delegated.

    `(c) FORM OF REQUEST FOR TAXPAYER ASSISTANCE ORDER- The Secretary shall establish a form and procedure to aid persons requesting the assistance of the Problem Resolution Office and to aid the Problem Resolution Office in understanding the needs of the person seeking assistance. The use of this form, however, shall not be a prerequisite to a Problem Resolution Officer taking action, including issuing a Taxpayer Assistance Order.

    `(d) CONTENT OF TAXPAYER ASSISTANCE ORDER- A Taxpayer Assistance Order shall contain the name of the Problem Resolution Officer, any provision relating to the running of any applicable period of limitation, the name of the person that the Taxpayer Assistance Order assists, the Government office (or employee or officer of such Government office) to whom it is directed and the action or cessation of action that the Taxpayer Assistance Order requires of such Government office (or employee or officer of such Government office). The Taxpayer Assistance Order need not contain findings of fact or its legal basis; however, the Problem Resolution Officer must provide findings of fact and the legal basis for the issuance of the Taxpayer Assistance Order to the sales tax administering authority upon the request of an officer of such authority within 2 weeks of the receipt of such request.

    `(e) INDEPENDENCE PROTECTED- Problem Resolution Officers shall not be disciplined or adversely affected for the issuance of administrative injunctions unless a pattern of issuing injunctions that are unreasonable is proven in an administrative hearing by a preponderance of the evidence.

    `(f) OTHER RIGHTS NOT LIMITED- Nothing in this section shall limit the authority of the sales tax administering authority, the Secretary, the registered person or other person from pursuing any legal remedy in any court of competent jurisdiction.

    `(g) LIMITATIONS- The running of any applicable period of limitation shall be suspended for a period of 8 weeks following the issuance of a Taxpayer Assistance Order or, if specified, for a longer period set forth in the Taxpayer Assistance Order, provided, however, that such suspension may not exceed 6 months.

`SEC. 2604. APPEALS.

    `(a) ADMINISTRATIVE APPEALS- The sales tax administering authority and the Secretary shall establish an administrative appeals process wherein a registered person, business entity or other person in disagreement with a decision of the sales tax administering authority or the Secretary asserting liability for tax is provided a full and fair hearing in connection with any disputes such person has with the sales tax administering authority or the Secretary.

    `(b) TIMING OF ADMINISTRATIVE APPEALS- Such administrative appeal must be made within 60 days of receiving a final notice of amount due pursuant to section 2605(d) unless leave for an extension is granted by the appeals officer in a form prescribed by the Secretary. Leave shall be granted to avoid hardship.

`SEC. 2605. TAXPAYER RIGHTS.

    `(a) RIGHTS TO BE DISCLOSED- The sales tax administering authority or the Secretary shall provide to any person against whom it has--

      `(1) commenced an audit or investigation,

      `(2) issued a final notice of amount due,

      `(3) filed an administrative lien, levy or garnishment,

      `(4) commenced other collection action,

      `(5) commenced an action for civil penalties, or

      `(6) any other legal action,

    a document setting forth in plain English the rights of such person. The document shall explain the administrative appeals process, the authority of the Problem Resolution Office (established pursuant to section 2603) and how to contact that office, the burden of production and persuasion that the person and the sales tax administering authority (or the Secretary as the case may be) bear (pursuant to section 2506), the right of the person to professional fees (pursuant to section 2507), the right to record interviews and such other rights as the person may posses under this title. Such document will also set forth the procedures for entering into an installment agreement.

    `(b) RIGHT TO PROFESSIONAL ASSISTANCE- In all dealings with the sales tax administering authority (or the Secretary as the case may be), a person shall have the right to assistance, at the person's own expense, of 1 or more professional advisors.

    `(c) RIGHT TO RECORD INTERVIEWS- Any person who is interviewed by an agent of the sales tax administering authority (or the Secretary as the case may be) shall have the right to video or audio tape the interview at the person's own expense.

    `(d) RIGHT TO FINAL NOTICE OF AMOUNT DUE- No collection or enforcement action will be commenced against a person until 30 days after they have been provided with a final notice of amount due under subtitle B or C by the sales tax administering authority (or the Secretary as the case may be). Such final notice of amount due shall set forth the amount of tax due (along with any interest and penalties due) and the factual and legal basis for such amounts being due with sufficient specificity that such basis can be understood by a reasonable person who is not a tax professional. Such final notice shall be sent by certified mail, return receipt requested, to--

      `(1) the address last provided by a registered seller, business entity or other person, or

      `(2) in the case where an address was not provided, the best available address with respect to such person.

    `(f) CONFIDENTIALITY OF TAX INFORMATION-

      `(1) IN GENERAL- All reports and report information (related to any internal revenue law) shall be confidential and except as authorized by this title--

        `(A) no officer or employee (including former officers and employees) of the United States,

        `(B) no officer or employee (including former officers and employees) of any State or local agency who has had access to returns or return information, and

        `(C) no other person who has had access to returns or return information,

      shall disclose any report or report information obtained by him in any manner in connection with his service as such officer or employee or otherwise.

      `(2) DESIGNEES- The sales tax administering authority may, subject to such requirements as the Secretary may impose, disclose the report and report information of a person to that person or persons as that person may designate to receive such information or return.

      `(3) OTHER SALES TAX ADMINISTERING AUTHORITIES- A sales tax administering authority may, subject to such requirements as the Secretary may impose, disclose report and report information to another sales tax administering authority or the Secretary.

      `(4) INCOMPETENCY- A sales tax administering authority or the Secretary may, subject to such requirements as the Secretary may impose, disclose report and report information to the committee, trustee or guardian of a person who is incompetent.

      `(5) DECEASED PERSONS- A sales tax administering authority or the Secretary may, subject to such requirements as the Secretary may impose, disclose report and report information to the decedent's

        `(A) administrator, executor, estate trustee, or

        `(B) heir at law, next of kin or beneficiary under a will who has a material interest that will be affected by the report and report information.

      `(6) BANKRUPTCY- A sales tax administering authority or the Secretary may, subject to such requirements as the Secretary may impose, disclose report and report information to a person's trustee in bankruptcy.

      `(7) CONGRESS- Upon written request from the Chairman of the Committee on Ways and Means, the Chairman of the Committee on Finance of the Senate, or the Chairman or Chief of Staff of the Joint Committee on Taxation, a sales tax administering authority or the Secretary shall disclose report and report information provided, however, that any report or report information that can be associated with or otherwise identify a particular person shall be furnished to such Committee only when sitting in closed executive session unless such person otherwise consents in writing to such disclosure.

      `(8) WAIVER OF PRIVACY RIGHTS- A person may waive confidentiality rights provided by this section. Such waiver must be in writing.

      `(9) INTERNAL USE- Disclosure of report or report information by officers or employees of a sales tax administering authority (or the Secretary, as the case may be) to other officers or employees of a sales tax administering authority (or the Secretary, as the case may be) in the ordinary course of tax administration activities shall not constitute unlawful disclosure of report or report information.

      `(10) STATISTICAL USE- Upon request in writing by the Secretary of Commerce, the Secretary shall furnish such reports and report information to officers and employees of the Department of Commerce as the Secretary may prescribe by regulation for the purposes of, and only to the extent necessary in, the structuring of censuses and national economic accounts and conducting related statistical activities authorized by law.

      `(11) DEPARTMENT OF THE TREASURY- Returns and return information shall be open for inspection by officers and employees of the Department of the Treasury whose official duties require such inspection or disclosure for the purpose of, and only to the extent necessary for, preparing economic or financial forecasts, projections, analyses or estimates. Such inspection or disclosure shall be permitted only upon written request that sets forth the reasons why such inspection or disclosure is necessary and is signed by the head of the bureau or office of the Department of the Treasury requesting the inspection or disclosure.

`SEC. 2606. INSTALLMENT AGREEMENTS; COMPROMISES.

    `The sales tax administering authority (or the Secretary, as the case may be) is authorized to enter into written agreements with any person under which the person is allowed to satisfy liability for payment of any tax under this subtitle (and penalties and interest relating thereto) in installments payments if the sales tax administering authority (or the Secretary, as the case may be) determines that such agreement will facilitate the collection of such liability. The agreement shall remain in effect for the term of the agreement unless the information that the person provided to the sales tax administering authority or the Secretary was materially inaccurate or incomplete. The sales tax administering authority (or the Secretary, as the case may be) may compromise any amounts alleged to be due.

`CHAPTER 3--ACCOUNTING METHOD RULES

`Sec. 2701. General accounting rules.

`Sec. 2702. Use of the cash method of accounting.

`Sec. 2703. Taxable year.

`Sec. 2704. Long-term contracts.

`Sec. 2705. Post-sale price adjustments and refunds.

`Sec. 2706. Bad debts.

`Sec. 2707. Consolidated returns.

`Sec. 2708. Transition rules.

`SEC. 2701. GENERAL ACCOUNTING RULES.

    `(a) IN GENERAL- Except as provided in section 2702, a business entity shall use an accrual method of accounting for purposes of determining the timing of recognition of taxable receipts and deductions of business purchases. All business purchases shall be deducted when incurred (in the case of a business entity using an accrual method of accounting) or when paid (in the case of a business entity using the cash receipts and disbursements method of accounting) without regard to whether the business purchases are for or relate to--

      `(1) inventory,

      `(2) assets with a useful life of more than 1 year, or

      `(3) property that will be used to produce other property.

    `(b) ECONOMIC PERFORMANCE- For purposes of determining whether an amount has been incurred, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs.

    `(c) CHANGE IN ACCOUNTING METHODS- Except as otherwise expressly provided in this chapter, a business entity shall secure the consent of the Secretary before changing the method of accounting by which it determines gross profits. This provision shall not apply to changes required by the adoption of the business tax.

`SEC. 2702. USE OF THE CASH METHOD OF ACCOUNTING.

    `(a) IN GENERAL- A business entity that was permitted to use and used the cash receipts and disbursements method of accounting under the Internal Revenue Code of 1986 shall be permitted to continue to use the cash receipts and disbursements method of accounting. A business entity that has gross receipts of less than $10 million annually shall be permitted to use the cash receipts and disbursements method of accounting.

    `(b) NEW BUSINESS ENTITIES- A new business entity shall be permitted to use the cash receipts and disbursements method of accounting if permitted to under regulations prescribed by the Secretary.

    `(c) CHANGE OR EXPANSION OF BUSINESS- Subsection (a) shall cease to apply to a business entity that changes or expands its business such that under regulations prescribed by the Secretary it is no longer eligible to use the cash receipts and disbursements method of accounting.

    `(d) REGULATIONS-

      `(1) USE OF CASH RECEIPTS AND DISBURSEMENTS METHOD- The Secretary shall prescribe regulations defining which business entities may use the cash receipts and disbursements method of accounting. In general, those regulations shall be consistent with the rules under sections 447 and 448 of the Internal Revenue Code of 1986, except that all corporations shall be treated as C corporations were treated under those sections.

      `(2) CHANGE IN ACCOUNTING METHOD- The Secretary shall prescribe regulations to prevent double counting of taxable receipts and deductible expenses in the case of a change in accounting method.

`SEC. 2703. TAXABLE YEAR.

    `(a) COMPUTATION OF GROSS PROFITS- Gross profits shall be computed on the basis of a business entity's taxable year.

    `(b) TAXABLE YEAR- The term `taxable year' means--

      `(1) the taxpayer's annual accounting period, if it is a calendar year or a fiscal year,

      `(2) the calendar year, if subsection (g) applies, or

      `(3) the period for which the return is made if the return is made for a period of less than 12 months.

    `(c) ANNUAL ACCOUNTING PERIOD- The term `annual accounting period' means the annual period on the basis of which the business entity regularly keeps its books.

    `(d) CALENDAR YEAR- The term `calendar year' means a period of 12 months ending on December 31.

    `(e) FISCAL YEAR- The term `fiscal year' means a period of 12 months ending on the last day of any month other than December. In the case of any business entity that has made the election provided by subsection (f), the term means the annual period (varying from 52 to 53 weeks) so elected.

    `(f) ELECTION OF 52- to 53-WEEK YEAR-

      `(1) GENERAL RULE- A business entity which, in keeping its books, regularly computes its income or profits on a basis of an annual period which varies from 52 to 53 weeks and ends always on the same day of the week and ends always--

        `(A) on whatever date such same day of the week last occurs in a calendar month, or

        `(B) on whatever date such same day of the week falls which is nearest to the last day of a calendar month, may elect to compute its gross profits on the basis of such annual period.

      `(2) REGULATIONS- The Secretary shall prescribe such regulations as he deems necessary for the application of this subsection, including regulations relating to the application of effective dates to taxpayers using a 52- to 53-week year.

    `(g) CALENDAR YEAR REQUIRED-

      `(1) NO ACCOUNTING PERIOD- A business entity's taxable year shall be the calendar year if the business entity does not have an annual accounting period or has an annual accounting period that does not qualify as a fiscal year.

      `(2) NEW BUSINESS ENTITY- The taxable year of a business entity that begins business activity after December 31, 2006, shall be the calendar year (or a 52- to 53-week fiscal year ending in December) unless the business entity can demonstrate a business reason for selecting an accounting period other than the calendar year.

    `(h) TRANSITION RULE FOR BUSINESS ENTITIES WITH A FISCAL YEAR-

      `(1) IN GENERAL- A business entity with a taxable year that is not the calendar year shall have a short taxable year ending on December 31, 2006, and a subsequent taxable year beginning on January 1, 2007, and ending on the day immediately preceding the beginning of the business entity's next fiscal year.

      `(2) BUSINESS ENTITIES WITH 52- TO 53-WEEK YEAR ENDING IN DECEMBER-

        `(A) IN GENERAL- If a business entity has a 52- to 53-week taxable year (under the Internal Revenue Code of 1986) that ends in December 2006, it may elect to begin its first taxable year for the business tax on the first day immediately following the last day of such taxable year.

        `(B) NO ELECTION- If a business entity that has a 52- to 53-week taxable year that ends in December 2006, does not make the election under subparagraph (A) or is prohibited from making such election by subparagraph (C), the business entity's taxable year under the Internal Revenue Code of 1986 that would end in December 2006 shall end on December 31, 2006.

        `(C) ANTI-ABUSE RULE- Subparagraph (A) shall not apply to any taxpayer that enters into business transactions in 2006 following the scheduled end of its fiscal year with business entities that are not subject to the business tax at the time of such transactions if such transactions deviate from the normal course of business in order to achieve some tax benefit.

`SEC. 2704. LONG-TERM CONTRACTS.

    `(a) IN GENERAL- In the case of a long-term contract--

      `(1) CONTRACTOR EXPENSES- The contractor shall be entitled to deduct its business purchases when paid or incurred.

      `(2) CONTRACTOR RECEIPTS- The contractor shall recognize taxable receipts--

        `(A) in the case of a project in which the acquirer has no ownership interest in the project until delivery--

          `(i) upon delivery of the project, in the case of an accrual basis contractor, or

          `(ii) upon the later of delivery of the project or the receipt of payment, in the case of a cash-basis contractor, and

        `(B) in the case of a project in which the acquirer obtains an ownership interest as the project is constructed--

          `(i) when the contractor has the right to payments, in the case of an accrual basis contractor, or

          `(ii) upon the later of when the contractor receives the cash or has the right to payments, in the case of a cash basis contractor.

      `(3) ACQUIRER EXPENSES- The acquirer that is a business entity shall be entitled to deduct its costs of the business purchase--

        `(A) in the case of a cash-basis acquirer, at such time as a cash basis contractor would be required to treat the amounts paid as taxable receipts, or

        `(B) in the case of an accrual-basis acquirer, at such time as an accrual basis contractor would be required to treat the amounts paid or due as taxable receipts.

    `(b) RIGHT TO PAYMENTS-

      `(1) IN GENERAL- A contractor shall be treated as having a right to payments with respect to a project at any time to the extent that the contractor would not be required to return payments received (or would be entitled to collect payments not yet received) if the project were terminated at such time by the contractor.

      `(2) CONTRACTUAL PROVISIONS- If a long-term contract includes a procedure for paying the contractor as work is completed (for example, by reason of a draw down from a trust account), the contractual provisions shall generally govern when a contractor has a right to payment.

      `(3) PERCENTAGE COMPLETION METHOD OF ACCOUNTING- If a long-term contract does not include a mechanism for paying the contractor as work is completed, the percentage-of-completion method of accounting shall be used to determine the timing of taxable receipts of the contractor and business purchases of the acquirer.

    `(c) LONG-TERM CONTRACT-

      `(1) IN GENERAL- The term `long-term contract' means--

        `(A) any contract that covers service or production through parts of 2 different calendar years if the contract includes a formal deposit and draw-down mechanism, and

        `(B) any contract for the manufacture, building, installation, or construction of property if such contract is not completed within the taxable year of the contractor in which such contract is entered into.

      `(2) EXCEPTION- A contract for the manufacture of property shall not be treated as a long-term contract unless such contract involves the manufacture of--

        `(A) any unique item of a type which is not normally included in the finished goods inventory of the taxpayer, or

        `(B) any item which normally requires more than 12 calendar months to complete.

    `(d) CONSISTENCY- The Secretary may require business entities to file statements containing such information with respect to long-term contracts as the Secretary may prescribe to ensure consistency in reporting.

    `(e) FOREIGN CONTRACTS- This section shall not be construed to permit a deduction for a business purchase for the cost of property produced outside the United States pursuant to a long-term contract at any time prior to the import of such property into the United States.

`SEC. 2705. POST-SALE PRICE ADJUSTMENTS AND REFUNDS.

    `(a) RECEIPT OF PRICE ADJUSTMENT- In the case of a post-sale price adjustment attributable to a business purchase which was taken into account in computing gross profits for a prior taxable year, the amount of such adjustment shall be treated as a reduction or increase, as the case may be, in the cost of business purchases for the taxable year in which the adjustment is made or incurred.

    `(b) ISSUANCE OF PRICE ADJUSTMENT- In the case of a post-sale price adjustment attributable to a sale the receipts from which were taken into account in determining taxable receipts for a prior taxable year, the amount of such adjustment shall be treated as a reduction or increase, as the case may be, in taxable receipts for the taxable year in which the adjustment is made or incurred.

    `(c) POST-SALE PRICE ADJUSTMENT- The term `post-sale price adjustment' means a refund, rebate, or other price allowance attributable to a sale of property or services or an upward adjustment in price that was not previously taken into account under the business entity's method of accounting.

`SEC. 2706. BAD DEBTS.

    `(a) SELLER- If an amount owed to an accrual basis business entity for property or services sold--

      `(1) was taken into account as a taxable receipt in a prior taxable year, and

      `(2) becomes wholly or partially uncollectible during the taxable year,

    then the seller shall treat the amount as a reduction in taxable receipts for the taxable year in which it becomes wholly or partially uncollectible.

    `(b) NOTICE REQUIREMENT- No reduction shall be allowed under subsection (a) unless the seller notifies the purchaser of the amount which the seller has treated as wholly or partially uncollectible.

    `(c) SUBSEQUENT COLLECTION- If an amount which was treated as uncollectible under subsection (a) is subsequently collected, it shall be treated as a taxable receipt when collected.

    `(d) PURCHASER- If a purchaser receives notice under subsection (b) from a seller and the purchaser has treated the amount labeled uncollectible as a business purchase in a prior taxable year, then the purchaser shall treat such amount as a reduction in the cost of business purchases in the taxable year to which the notice relates. If the purchaser subsequently repays such amount, the repayment shall constitute the cost of a business purchase.

`SEC. 2707. CONSOLIDATED RETURNS.

    `(a) IN GENERAL- Business entities may file consolidated returns of business tax if such entities would have been permitted to file consolidated returns under section 1501 of the Internal Revenue Code of 1986 and such section was applied by treating each business entity as a corporation and its owners or partners as shareholders.

    `(b) FINANCIAL INSTITUTIONS- Financial intermediation businesses may be included in consolidated returns, but each financial intermediation business must compute its gross profits separately.

    `(c) INTERCOMPANY TRANSACTIONS- In computing the gross profits of a consolidated group, intercompany transactions can be taken into account, or at the election of the filer, be disregarded (except in the case of transactions with financial intermediation businesses).

`SEC. 2708. TRANSITION RULES.

    `(a) NO DOUBLE DEDUCTIONS- A business entity shall not be entitled to treat as a `cost of business purchase' any amount that the business entity deducted in computing taxable income under the income tax in effect prior to the effective date of the business tax.

    `(b) NO DOUBLE INCLUSION- A business entity shall not be required to include in taxable receipts any receipt that the business entity took into account in computing taxable income under the income tax in effect prior to the effect date of the business tax.

    `(c) NO LOSS OF DEDUCTION- An expense which--

      `(1) a business entity would have been able to deduct as a cost of a business purchase in an accounting period before the effective date of the business tax if the business tax had been in effect in such period, and

      `(2) the business entity would have been able to deduct as an expense in computing taxable income in a period after the business tax is effective if the income tax had continued in effect,

    shall be treated as a cost of a business purchase incurred or paid at the time that it would have been paid or incurred under the income tax if the income tax had continued in effect. This subsection shall not apply to any amount which is to be taken into account under chapter 4 (relating to amortization of transition basis, and inventory costs), any amounts which would have been deducted under the income tax through loss carryover deductions, or any deductions deferred by the uniform capitalization rules under section 263A of the Internal Revenue Code of 1986.

    `(d) ALL TAXABLE RECEIPTS TAXED- A receipt which--

      `(1) a business entity would have been required to treat as a taxable receipt in an accounting period before the effective date of the business tax if the business tax had been in effect in such period, and

      `(2) the business entity would have been required to include in gross income in a period after the business tax is effective if the income tax had continued in effect,

    shall be treated as a taxable receipt at the time that it would have been included in income if the income tax had continued in effect.

`CHAPTER 4--TRANSITION RULES

`Sec. 2801. Amortization of transition basis.

`Sec. 2802. Sales of transition basis property.

`Sec. 2803. Carryovers.

`Sec. 2804. Transition inventory credit.

`CHAPTER 4--TRANSITION RULES

`SEC. 2801. AMORTIZATION OF TRANSITION BASIS.

    `(a) TRANSITION BASIS DEDUCTION- The `transition basis deduction' for a taxable year is the sum of the amortization allowance determined under this section for the taxable year using either--

      `(1) the 1986 Internal Revenue Code Method, or

      `(2) the simplified method.

    `(b) AMORTIZATION RULES- For purposes of the simplified method, the amortization allowance for each category of amortizable basis shall be determined by amortizing the amortizable basis of such category ratably over the amortization period determined in subsection (c) for the category beginning January 1, 2007.

    `(c) AMORTIZATION PERIOD- The amortization periods shall be determined in accordance with the following table:

`In the case of:

--The amortization period is:

          Category I basis

--8 years.

          Category II basis

--20 years.

          Category III basis

--30 years.

          Unrecovered inventory costs

-- 2 years.

    `(d) CATEGORIES-

      `(1) CATEGORY I BASIS- The term `Category I basis' is the sum of the unrecovered bases as of January 1, 2007, of all depreciable property placed in service prior to January 1, 2007, and the unamortized portion of amortizable costs incurred before January 1, 2007, if--

        `(A) cost recovery or amortization began before January 1, 2007, and

        `(B) the remaining recovery period or amortization period as of January 1, 2007, is less than 15 years.

      `(2) CATEGORY II BASIS- The term `Category II basis' is the sum of the unrecovered bases as of January 1, 2007, of all depreciable property placed in service prior to January 1, 2007, and the unamortized portion of amortizable costs incurred before January 1, 2007, if--

        `(A) cost recovery or amortization began before January 1, 2007, and

        `(B) the remaining recovery period or amortization period as of January 1, 2007, is 15 years or more.

      `(3) CATEGORY III BASIS- The term `Category III basis' is the sum of the adjusted basis of each asset satisfying the following requirements:

        `(A) The asset was placed in service prior to January 1, 2007.

        `(B) The asset was used in a business activity in 2007.

        `(C) The cost of the asset was capitalized and not depreciable or otherwise recoverable under the Internal Revenue Code of 1986.

        `(D) The cost of the asset would have constituted deductible expenses under the business tax if such cost had been incurred after 2006.

      `(4) UNRECOVERED INVENTORY COSTS- The term `unrecovered inventory costs' means the cost of goods sold (as determined under the Internal Revenue Code of 1986) determined as if a business entity sold all of its inventory (including inventory being produced) on the effective date of the business tax.

    `(e) RULES OF APPLICATION-

      `(1) REMAINING RECOVERY PERIOD-

        `(A) TIME OF MEASURE- The remaining recovery period shall be determined as of December 31, 2006, and shall include each taxable year ending after such date in which a deduction would have been allowed under the Internal Revenue Code of 1986.

        `(B) ACCOUNTING METHOD- The remaining recovery period shall be determined using the cost recovery method and rules applicable for determining taxable income under the Internal Revenue Code of 1986.

      `(2) DEPLETABLE ASSETS- Under rules prescribed by the Secretary, this section shall apply to the remaining cost basis of depletable property and to other property for which a cost recovery method other than one based on time is used.

    `(f) 1986 Internal Revenue Code Method- The `transition basis deduction' for a taxable year using the `1986 Internal Revenue Code Method' shall be determined by determining the capital cost recovery, amortization and depletion deductions that would have been allowed for property placed in service prior to the date of the enactment of this section as if the Internal Revenue Code of 1986 were still in place.

    `(g) IRREVOCABLE ELECTION- A taxpayer must make an irrevocable election with the first business tax return filed after the date of the enactment of this section (relating to the tax imposed by section 1101) to use either the simplified method or the 1986 Internal Revenue Code Method for determining the transition basis deduction.

`SEC. 2802. SALES OF TRANSITION BASIS PROPERTY.

    `(a) IN GENERAL- Except as provided in subsection (b), for purposes of determining the tax consequences of a sale, retirement, casualty or conversion to personal use of an asset whose basis or cost is taken into account under section 2801, the amount to be amortized shall be treated as fully deducted upon the adoption of the business tax.

    `(b) SUBSTANTIAL SALES-

      `(1) IN GENERAL- In the case of a substantial sale of assets to which the amortization rules of section 2801 apply, the purchaser and seller may jointly elect to have the purchaser assume the amortization deductions attributable to such assets, in which case--

        `(A) the seller's taxable receipts from such sale shall be reduced by the amount of unamortized basis or cost assumed by the purchaser,

        `(B) the purchaser may treat as a cost of a business purchase only the portion of the purchase price in excess of the amount of unamortized basis or cost assumed, and

        `(C) the unamortized basis or cost assumed shall continue to be amortized in the manner amortized by the seller.

      `(2) SUBSTANTIAL SALE- A sale of assets by a business entity to another business entity is a substantial sale if--

        `(A) more than 20 percent (in fair market value or in original cost) of the assets of the seller are sold,

        `(B) the total consideration for the sale exceeds $1,000,000 or 20 percent of the taxable receipts of the seller for the taxable year preceding the year of the sale, or

        `(C) the sale satisfies other criteria established by the Secretary to prevent distortions in gross profits resulting from asset sales.

`SEC. 2803. CARRYOVERS.

    `(a) NO LOSS CARRYOVERS- No deduction shall be allowed under the business tax for net operating loss carryovers, capital loss carryovers, or any other loss carryovers from the income tax under the Internal Revenue Code of 1986.

    `(b) NO CREDIT CARRYOVERS- No credits shall be allowed under the business tax for business credit carryovers, minimum tax credit carryovers, or any other credit carryovers from the income tax under the Internal Revenue Code of 1986.

`SEC. 2804. TRANSITION INVENTORY CREDIT.

    `(a) INVENTORY-

      `(1) QUALIFIED INVENTORY- Inventory held by a trade or business on the close of business December 31, 2006 shall be qualified inventory if it is sold--

        `(A) before December 31, 2008,

        `(B) by a registered person, and

        `(C) subject to the tax imposed by section 101 (or incorporated into taxable property or services subject to the tax imposed by section 101).

      `(2) COST- For purposes of this section, qualified inventory shall have the cost that it had for Federal income tax purposes for the trade or business as of December 31, 2006 (including any amounts capitalized by virtue of Internal Revenue Code section 263A as in effect on December 31, 2006).

      `(3) TRANSITIONAL INVENTORY CREDIT- The trade or business which held the qualified inventory on the close of business on December 31, 2006 shall be entitled to a transitional inventory credit equal to the cost of the qualified inventory (determined in accordance with subparagraph (2)) times the rate of tax imposed by section 101. The business entitled to the transitional inventory credit may sell the right to receive such transitional inventory credit.

      `(4) TIMING OF CREDIT- The credit provided under subparagraph (3) shall be allowed with respect to the month when the inventory is sold subject to the tax imposed by this subtitle. Such credit shall be reported as an intermediate and export sales credit and the person claiming such credit shall attach supporting schedules in the form that the Secretary may prescribe.

    `(b) WORK-IN-PROCESS- For purposes of this section, inventory shall include work-in-process.

    `(c) QUALIFIED INVENTORY HELD BY BUSINESSES NOT SELLING SUCH QUALIFIED INVENTORY AT RETAIL-

      `(1) IN GENERAL- Qualified inventory held by a business that sells such qualified inventory not subject to tax pursuant to section 102(a) shall be eligible for the transitional inventory credit only if that business (or a business that has successor rights pursuant to paragraph (2)) receives certification in a form satisfactory to the Secretary that the qualified inventory was subsequently sold subject to the tax imposed by this subtitle (or incorporated into taxable property or services sold subject to the tax imposed by section 101).

      `(2) TRANSITIONAL INVENTORY CREDIT RIGHT MAY BE SOLD- Any purchaser of such qualified inventory (or taxable property or services into which the qualified inventory has been incorporated) may sell the right to such transitional inventory credit to a subsequent purchaser of such qualified inventory (or taxable property or services into which the qualified inventory has been incorporated).

`CHAPTER 5--ADDITIONAL MATTERS

`Sec. 2901. Additional matters.

`Sec. 2902. Wages to be reported to Social Security Administration.

`Sec. 2903. Trust Fund revenues.

`SEC. 2901. ADDITIONAL MATTERS.

    `(a) INTANGIBLE PROPERTY ANTI AVOIDANCE RULE- Notwithstanding section 2, the sale of a copyright or trademark shall be treated as the sale of taxable property or services (within the meaning of section 102) if the substance of such sale of copyright or trademark constituted the sale of the services that produced the copyrighted material or the trademark.

    `(b) DE MINIMIS PAYMENTS- Up to $400 of aggregate gross payments per calendar year shall be exempt from the tax imposed by section 101 if--

      `(1) made by a person not in connection with a trade or business, and

      `(2) made to purchase any taxable property or service which is imported into the United States by such person for use or consumption by such person (or their family within the meaning of section 302(b)) in the United States.

    `(c) DE MINIMIS SALES- Up to $1,200 per calendar year of gross payments received by a person shall be exempt from the tax imposed by section 101 if received by a person not in connection with a trade or business, and in connection with casual or isolated sales.

    `(d) DE MINIMIS SALE OF FINANCIAL INTERMEDIATION SERVICES- Up to $10,000 per calendar year of gross payments received by a person from the sale of financial intermediation services (as determined in accordance with section 601) shall be exempt from the tax imposed by section 101. The exemption provided by this subsection is in addition to other exemptions afforded by this chapter. The exemption provided by this subsection shall not be available to large sellers (as defined in section 2501(e)(3)).

    `(e) PROXY PURCHASE OR PROVISION TAXABLE- The purchase for, or provision to, a person by a registered person of taxable property or services as a gift, prize, reward, remuneration for employment or for a similar purpose, such taxable property or services having not previously been subject to tax pursuant to section 101, shall be deemed the conversion of such taxable property or services to personal use subject to tax pursuant to section 103(c) at the fair market value of such taxable property or services (as defined in section 2) and the registered person shall remit the tax as if a taxable sale were made on the date of conversion.

    `(f) SUBSTANCE OVER FORM- The substance of a transaction will prevail over its form if the transaction has no bona fide economic purpose and is designed to evade tax imposed by subtitle B or C.

    `(g) CERTAIN EMPLOYEE DISCOUNTS TAXABLE-

      `(1) EMPLOYEE DISCOUNT- The term `employee discount' means when an employer offers taxable property or services for sale to its employees or their families (within the meaning of section 302(b)) for less than such taxable property or services are offered to the general public.

      `(2) EMPLOYEE DISCOUNT AMOUNT- The employee discount amount is the amount by which taxable property or services are sold pursuant to an employee discount (as defined in paragraph 1) below the amount for which such taxable property or services would have been sold to the general public.

      `(3) TAXABLE AMOUNT- If the employee discount amount exceeds 20 percent of the price that the taxable property or services would have been sold to the general public, then the sale of such taxable property or services by the employer shall be deemed the conversion of such taxable property or services to personal use and tax shall be imposed on the taxable employee discount amount. The taxable employee discount amount shall be--

        `(A) the employee discount amount, less

        `(B) 20 percent of the amount for which such taxable property or services would have been sold to the general public.

    `(h) SATURDAY, SUNDAY, OR LEGAL HOLIDAY- When the last day prescribed for performing any act required by this title falls on a Saturday, Sunday or legal holiday (in the jurisdiction where the return is to be filed), the performance of such act shall be considered timely if it is performed on the next day which is not a Saturday, Sunday or legal holiday (in the jurisdiction where the return is to be filed).

`SEC. 2902. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.

    `(a) IN GENERAL- Employers shall submit such information to the Social Security Administration as is required by the Social Security Administration to calculate social security benefits under the Social Security Act, including wages paid, in a form prescribed by the Secretary. A copy of the employer submission to the Social Security Administration relating to each employee shall be provided to each employee by the employer.

    `(b) WAGES- For purposes of this section, the term `wages' means all cash remuneration for employment (including tips to an employee by third parties provided that the employer or employee maintains records documenting such tips) including self-employment income (as defined in subsection (c)), except that such term shall not include--

      `(1) any insurance benefits received (including death benefits),

      `(2) pension or annuity benefits received,

      `(3) tips received by an employee over $5,000 per year, or

      `(4) benefits received under a Government entitlement program (including social security benefits, and unemployment compensation benefits).

    `(c) SELF-EMPLOYMENT INCOME- For purposes of subsection (b), the term `self-employment income' means gross payments received for taxable property or services less the sum of--

      `(1) gross payments made for taxable property or services (without regard to whether tax was paid pursuant to section 101 on such taxable property or services), and

      `(2) wages (as defined in subsection (b)) paid by the self-employed person to employees of the self-employed person.

`SEC. 2903. TRUST FUND REVENUES.

    `(a) IN GENERAL- The Secretary shall allocate the revenue received by virtue of the tax imposed by section 101 in accordance with this section. The revenue shall be allocated first to--

      `(1) the old-age and survivors insurance trust fund, until it has received the amount of money it would have received in absence of the rebate provided by chapter 3 of subtitle B, then to

      `(2) the disability insurance trust fund, until it has received the amount of money it would have received in absence of the rebate provided by chapter 3 of subtitle B, then to

      `(3) the hospital insurance trust fund, until it has received the amount of money it would have received in absence of the rebate provided by chapter 3 of subtitle B, then to

      `(4) the Federal supplementary medical insurance trust fund, until it has received the amount of money it would have received in absence of the rebate provided by chapter 3 of subtitle B, then to the general revenue. If the amount received by a fund is not reduced by virtue of the rebate provided by chapter 3 of subtitle B then the amount received by such fund shall remain the same.

    `(b) MAINTENANCE OF TRANSFERS TO PAYOR FUND AND HOSPITAL INSURANCE TRUST FUND- There are hereby appropriated to the payor fund (as defined in section 121(e)(3)(A) of the Social Security Amendments of 1983) and the Hospital Insurance Trust Fund established under section 1817 of the Social Security Act amounts equal to the reduction in revenues to the Treasury by reason of the repeal of sections 86 and 871(a)(3) of the Internal Revenue Code of 1986 as in effect on the day before the date of the enactment of this section. Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such payor fund and Trust Fund had such repeal not been enacted.'.

TITLE VI--OTHER MATTERS

SEC. 601. PHASE-OUT OF ADMINISTRATION REPEALED FEDERAL TAXES.

    (a) APPROPRIATIONS- Appropriations for any expenses of the Internal Revenue Service, including those for processing income tax returns for years prior to the repeal of the taxes repealed by title II of this Act, revenue accounting, management, and transfer of payroll and wage data to the Social Security Administration and otherwise, for years after fiscal year 2010 are not authorized.

    (b) FEDERAL RECORDS- Federal records related to the administration of taxes repealed by Title II of this Act shall be destroyed by the end of fiscal year 2010 provided, however, that any records necessary to calculate social security benefits shall be retained by the Social Security Administration and further provided that any records necessary to support ongoing litigation with respect to taxes owed or refunds due shall be retained until final disposition of such litigation.

SEC. 602. ADMINISTRATION OF OTHER FEDERAL TAXES.

    (a) TAX BUREAUS- Section 7801 is amended by adding the following new subsections:

    `(d) EXCISE TAX BUREAU- There shall be in the Department of the Treasury an Excise Tax Bureau to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco, and Firearms.

    `(e) SALES TAX BUREAU- There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating the national sales tax (including those required by sections 402, 403 and 405(i). The Office of Revenue Allocation shall be within the Sales Tax Bureau.'.

    (b) ASSISTANT GENERAL COUNSELS- Section 7801(b)(2) is amended to read as follows:

      `(2) ASSISTANT GENERAL COUNSELS- The Secretary of the Treasury may appoint, without regard to the provisions of the civil service laws, and fix the duties of not more than 5 Assistant General Counsels.'.

SEC. 603. SALES TAX INCLUSIVE SOCIAL SECURITY BENEFITS INDEXATION.

    Subparagraph (D) of section 215(i)(1) of the Social Security Act (relating to cost-of-living increases in social security benefits) is amended to read as follows:

        `(D)(i) IN GENERAL- The term `CPI increase percentage', with respect to a base quarter or cost-of-living quarter in any calendar year, means the percentage (rounded to the nearest one-tenth of 1 percent) by which the Consumer Price Index for that quarter (as prepared by the Department of Labor) exceeds such index for the most recent prior calendar quarter which was a base quarter under paragraph (A)(ii) or, if later, the most recent cost-of-living computation quarter under subparagraph (B).

        `(ii) RULE IF CPI NOT SALES TAX INCLUSIVE- If the Consumer Price Index (as prepared by the Department of Labor) does not include the national sales tax paid, then the term `CPI increase percentage' with respect to a base quarter or cost-of-living quarter in any calendar year, means the percentage (rounded to the nearest one-tenth of 1 percent) by which the product of--

          `(I) the Consumer Price Index for that quarter (as prepared by the Department of Labor), and

          `(II) the national sales tax factor,

        exceeds such index for the most recent prior calendar quarter which was a base quarter under paragraph (A)(ii) or, if later, the most recent cost-of-living computation quarter under subparagraph (B).

        `(iii) NATIONAL SALES TAX FACTOR- For purposes of this subparagraph, the `national sales tax factor' is equal to 1 plus the quotient that is--

          `(I) the sales tax rate imposed by section 101 of the Internal Revenue Code of 2005, divided by

          `(II) the quantity that is 1 minus such sales tax rate.'

SEC. 604. CONFORMING AND TECHNICAL AMENDMENTS.

    (1) Subchapter A of chapter 61 of redesignated subtitle D (relating to information and returns) is hereby repealed.

    (2) Sections 6103 through 6116 of subchapter B of chapter 61 of redesignated subtitle D is hereby repealed.

    (3) Subsection (b) of section 6151 is hereby repealed and subsection (c) of section 6151 is redesignated as subsection (b).

    (4) Section 6157 (relating to unemployment taxes) is hereby repealed.

    (5) Section 6161 is amended to read as follows:

`SEC. 6161. EXTENSION OF TIME FOR PAYING TAX.

    `The Secretary, except as otherwise provided in this title, may extend the time for payment of the amount of the tax shown or required to be shown on any return, report or declaration required under authority of this title for a reasonable period not to exceed 6 months (12 months in the case of a taxpayer who is abroad).'.

    (6) Section 6163 (relating to estate taxes) is hereby repealed.

    (7) Section 6164 (relating to corporate taxes) is hereby repealed.

    (8) Section 6166 (relating to estate taxes) is hereby repealed.

    (9) Section 6167 (relating to foreign expropriation losses) is hereby repealed.

    (10) Section 6201, 6205, and 6207 (relating to assessments) are hereby repealed.

    (11) Section 6211(a) is amended by striking `income, estate, and gift taxes imposed by subtitles A and B and'.

    (12) Section 6211(b) is amended by repealing paragraphs (1), (3), and (4) and by striking the paragraph designation `(2)' and `subtitle A or B or'.

    (13) Section 6212 is amended by striking `Income and gift taxes and'.

    (14) Sections 6212(b)(2) and 6212(b)(3) are hereby repealed.

    (15) Subchapter C of chapter 63 of redesignated subtitle D (relating to tax treatment of partnership items) is hereby repealed.

    (16) Section 6302(b) is amended by striking `21'.

    (17) Section 6305 (relating to collections of certain liabilities) is hereby repealed.

    (18) Sections 6314, 6315, 6316, and 6317 (relating to payments of repealed taxes) are hereby repealed.

    (19) Sections 6324, 6324A, and 6324B (relating to liens for estate and gift taxes) are hereby repealed.

    (20) Section 6325(c) (relating to estate and gift tax liens) is hereby repealed and subsections (d) through (h) of section 6325 are redesignated subsections (c) through (g), respectively.

    (21) Section 6344 (relating to cross references) is hereby repealed.

    (22) Section 6402(j) (relating to affiliated groups of corporations) is hereby repealed.

    (23) Section 6411 (relating to carrybacks) is hereby repealed.

    (24) Section 6414 (relating to withheld income taxes) is hereby repealed.

    (25) Section 6422 (relating to cross references) is hereby repealed.

    (26) Section 6425 (relating to overpayment of corporate estimated taxes) is hereby repealed.

    (27) Section 6501 is amended--

      (A) by striking `except tax imposed by chapter 3, 21, or 24,' in subsection (b)(1),

      (B) by striking paragraph (2) of subsection (b) and by redesignating paragraphs (3) and (4) of subsection (b) as paragraphs (2) and (3), respectively.

    (28) Section 6501(c)(5) through (c)(9) are hereby repealed.

    (29) Sections 6501(e)(1) and (e)(2) (relating to income tax and estate taxes) are hereby repealed.

    (30) Sections 6501(f) through 6501(k) and sections 6501(m) and 6501(n) are hereby repealed and section 6501(l) is redesignated as section 6501(f).

    (31) Section 6503(a)(1) is amended by striking `(1) GENERAL RULE' and `income, estate, gift and'.

    (32) Paragraph (2) of section 6503(a) is hereby repealed.

    (33) Subsections (e), (f), (i), and (k) of section 6503 are hereby repealed and subsections (g) through (j) of such section are redesignated as subsections (e) through (g), respectively.

    (34) Section 6504 (relating to cross references) is hereby repealed.

    (35) Sections 6511(d) (relating to income taxes) and 6511(g) (relating to partnership items) are hereby repealed; subsections (f) and (h) of section 6511 are redesignated as subsections (d) and (e), respectively.

    (36) Section 6512(b)(1) is amended by striking `of income tax for the same taxable year, of gift tax for the same calendar year or calendar quarter, of estate tax in respect of the taxable estate of the same decedent or'.

    (37) Subsections (b) through (e) of section 6513 are hereby repealed and section 6513(a) is amended by striking `(a) EARLY RETURN OR ADVANCE PAYMENT OF TAX- '.

    (38) Chapter 67 (relating to interest) is hereby repealed and a new section 6601 is hereby inserted as follows:

`SEC. 6601. INTEREST ON OVERPAYMENTS AND UNDERPAYMENTS.

    `(a) UNDERPAYMENTS- If any amount of tax imposed by this title is not paid on or before the last date prescribed for payment, interest on such amount at the Federal short-term rate (as defined in section 2512(b)) shall be paid from such last date to the date paid.

    `(b) OVERPAYMENTS- Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the Federal short-term rate (as defined in section 2512(b)) from 60 days after the date of the overpayment until the date the overpayment is refunded.'.

    (39) Section 6651(a)(1) is amended by striking `subchapter A of chapter 61 (other than part III thereof),'.

    (40) Section 6652 (relating to failure to file certain information returns) is hereby repealed.

    (41) Sections 6654 and 6655 (relating to failure to payment estimated income tax) are hereby repealed.

    (42) Section 6656(c) (relating to deposit of employment taxes) is hereby repealed and subsection (d) of section 6656 is redesignated as subsection (c).

    (43) Section 6662 (relating to penalties) is hereby repealed.

    (44) Section 6663(c) (relating joint returns) is hereby repealed.

    (45) Paragraphs (2) and (3) of section 6664(c) are hereby repealed and Section 6664(c)(1) is amended by striking `(1) IN GENERAL'.

    (46) Sections 6677 through 6711 (relating to income tax related penalties) are hereby repealed.

    (47) Part II of subchapter B of chapter 68 (relating to certain information returns) is hereby repealed.

    (48) Part I of subchapter A of chapter 70 (relating to termination of taxable year) is hereby repealed.

    (49) Section 6864 (relating to certain carrybacks) is hereby repealed.

    (50) Subchapter A of chapter 72 (relating to licensing) is hereby repealed and chapter 72 is amended by striking `SUBCHAPTER B- Registration'.

    (51) Section 7103 (relating to cross references) is hereby repealed.

    (52) Section 7211 (relating certain statements) is hereby repealed.

    (53) Section 7231 (relating to failure to obtain certain licenses) is hereby repealed.

    (54) Section 7270 (relating to insurance policies) is hereby repealed.

    (55) Section 7404 (relating to estate taxes) is hereby repealed.

    (56) Section 7407 (relating to income tax preparers) is hereby repealed.

    (57) Section 7408 (relating to income tax shelters) is hereby repealed.

    (58) Section 7409 (relating to 501(c)(3) organizations) is hereby repealed.

    (59) Sections 7422(h) and 7422(i) are hereby repealed.

    (60) Section 7427 (relating to income tax preparers) is hereby repealed.

    (61) Section 7428 (relating to 501(c)(3) organizations) is hereby repealed.

    (62) Section 7451 is amended to read as follows:

`SEC. 7451. FEE FOR FILING PETITION.

    `The Tax Court is authorized to impose a fee in an amount not in excess of $60 to be fixed by the Tax Court for the filing of any petition for the redetermination of a deficiency.'.

    (63) Subsection (b) of section 7454 (relating to foundation managers) is hereby repealed and subsection (c) is redesignated as subsection (b).

    (64) Paragraph (2) (relating to estate taxes) and paragraph (3) (relating to gift taxes) of subsection 7463(a) are hereby repealed.

    (65) Paragraph (4) of subsection 7463(a) is redesignated as paragraph (2) and such paragraph (4) is amended by striking `D' and inserting `B'.

    (66) Section 7463(c) is amended by striking `sections 6214(a) and' and inserting `section'.

    (67) Section 7463(e) is amended by striking `, to the extent that the procedures described in subchapter B of chapter 63 apply'.

    (68) Section 7476 (relating to declaratory judgments relating to retirement plans) is hereby repealed.

    (69) Section 7478 (relating to declaratory judgments relating to certain tax-exempt obligations) is hereby repealed.

    (70) Section 7481(d) (relating to estate taxes) is hereby repealed.

    (71) Section 7508 (relating to postponing time for certain actions required by the income, estate, and gift tax) is hereby repealed.

    (72) Section 7517 (relating to estate and gift tax evaluation) is hereby repealed.

    (73) Section 7518 (relating to Merchant Marine tax incentives) is hereby repealed.

    (74) Section 7519 (relating to taxable years) is hereby repealed.

    (75) Section 7520 (relating to insurance and annuity valuation tables) is hereby repealed.

    (76) Section 7523 (relating to reporting Federal income and outlays on Form 1040s) is hereby repealed.

    (77) Section 7608 is amended by striking `subtitle E' each place it appears and inserting `subtitle C'.

    (78) Section 7611 (relating to church income tax exemptions and church unrelated business income tax inquiries) is hereby repealed.

    (79) Section 7654 (relating to possessions' income taxes) is hereby repealed.

    (80) Section 7655 (relating to cross references) is hereby repealed.

    (81) Section 7701(a)(16) is hereby repealed.

    (82) Section 7701(a)(19) is hereby repealed.

    (83) Section 7701(a)(20) is hereby repealed.

    (84) Section 7701(a)(29) is amended by striking `1986' and inserting `1998'.

    (85) Paragraphs (32) through (38) of subsection 7701(a) are hereby repealed.

    (86) Paragraphs (41) through (46) of subsection 7701(a) are hereby repealed.

    (87) Section 7701(b) is hereby repealed.

    (88) Sections 7701(e) through 7701(m) are hereby repealed.

    (89) Section 7702 (relating to life insurance contracts) is hereby repealed.

    (90) Section 7702A (relating to modified endowment contracts) is hereby repealed.

    (91) Section 7702B (relating to long-term care insurance) is hereby repealed.

    (92) Section 7703 (relating to the determination of marital status) is hereby repealed.

    (93) Section 7704 (relating to publicly traded partnerships) is hereby repealed.

    (94) Section 7804 is hereby repealed.

    (95) Section 7805 is hereby repealed.

    (96) Section 7809(c)(1) and 7809(c)(4) are hereby repealed and paragraphs (2) and (3) of section 7809(c) are redesignated as paragraphs (1) and (2), respectively.

    (97) Section 7851 is hereby repealed.

    (98) Sections 7871(a)(1) and 7871(a)(3) through 7871(a)(6) are hereby repealed.

    (99) Section 7871(c) is hereby repealed.

    (100) Section 7872 is hereby repealed.

    (101) Section 7873 is hereby repealed.

    (102) Section 8021(a) is hereby repealed and subsections (b) through (d) are redesignated as subsection (a) through (c), respectively.

    (103) Section 8022(2)(A) is amended by striking `, particularly the income tax'.

    (104) Section 8023 is amended by striking `Internal Revenue Service' each place it appears and inserting `Treasury Department'.

    (105) Section 9501(b)(2) is amended by striking `described in section 501(c)(21)'.

    (106) Section 9702(a)(4) is hereby repealed.

    (107) Section 9705(a)(4) is hereby repealed.

    (108) Section 9706(d)(2) is amended by striking `, including section 6103'.

    (109) Section 9706(g) is amended by striking `6103' and inserting `605(f)'.

    (110) Section 9707(f) is hereby repealed.

    (111) Section 9712(d)(5) is hereby repealed.

    (112) Section 9803(a) is amended by striking `(as defined in section 414(f))'.

    (113) Section 1441 is amended to read as follows:

`SEC. 1441. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.

    `(a) IN GENERAL- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States), having control, receipt, custody, disposal, or payment of any income to the extent such income constitute gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 16.4 percent thereof.

    `(b) EXCEPTION- No tax shall be required to be deducted from interest on portfolio debt investments.

    `(c) TREATY COUNTRIES- In the case of payments to nonresident alien individuals, foreign partnerships or foreign corporations that have a residence in (or the nationality of a country) that has entered into a tax treaty with the United States, then the rate of withholding tax prescribed by the treaty shall govern.'.

TITLE VII--INDIVIDUAL DEVELOPMENT ACCOUNTS

SEC. 701. SHORT TITLE.

    This title may be cited as the `Savings for Working Families Act of 2005'.

SEC. 702. PURPOSES.

    The purposes of this title are to provide for the establishment of individual development account programs that will--

      (1) provide individuals and families with limited means an opportunity to accumulate assets and to enter the financial mainstream,

      (2) promote education, homeownership, and the development of small businesses,

      (3) stabilize families and build communities, and

      (4) support continued United States economic expansion.

SEC. 703. DEFINITIONS.

    As used in this title:

      (1) ELIGIBLE INDIVIDUAL- The term `eligible individual' means, with respect to any calendar year, an individual if--

        (A) such individual is a member of a qualified family (as defined in section 302 of the Internal Revenue Code of 2005) who is entitled to a rebate under section 301 of such Code for any month of such year,

        (B) the income of such family for the immediately preceding calendar year does not exceed an amount equal to twice the poverty level, and

        (C) such individual is designated under section 304 to receive the rebate payment under section 301 for such family.

      (2) INDIVIDUAL DEVELOPMENT ACCOUNT- The term `Individual Development Account' means an account established for an eligible individual as part of a qualified individual development account program, but only if the written governing instrument creating the account meets the following requirements:

        (A) The owner of the account is the individual for whom the account was established.

        (B) No contribution will be accepted unless it is in cash.

        (C) The trustee of the account is a qualified financial institution.

        (D) The assets of the account will not be commingled with other property except in a common trust fund or common investment fund.

        (E) Except as provided in section 707(b), any amount in the account may be paid out only for the purpose of paying the qualified expenses of the account owner.

      (3) PARALLEL ACCOUNT- The term `parallel account' means a separate, parallel individual or pooled account for all matching funds and earnings dedicated to an Individual Development Account owner as part of a qualified individual development account program, the trustee of which is a qualified financial institution.

      (4) QUALIFIED FINANCIAL INSTITUTION-

        (A) IN GENERAL- The term `qualified financial institution' means a bank or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.

        (B) BANK- For purposes of subparagraph (A), the term `bank' means--

          (i) any bank (as defined in section 581),

          (ii) an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act), or

          (iii) a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.

      (5) QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAM- The term `qualified individual development account program' means a program established upon approval of the Secretary under section 704 after December 31, 2005, under which--

        (A) Individual Development Accounts and parallel accounts are held in trust by a qualified financial institution, and

        (B) additional activities determined by the Secretary, in consultation with the Secretary of Health and Human Services, as necessary to responsibly develop and administer accounts, including recruiting, providing financial education and other training to Account owners, and regular program monitoring, are carried out by the qualified financial institution.

      (6) QUALIFIED EXPENSE DISTRIBUTION-

        (A) IN GENERAL- The term `qualified expense distribution' means any amount paid (including through electronic payments) or distributed out of an Individual Development Account or a parallel account established for an eligible individual if such amount--

          (i) is used exclusively to pay the qualified expenses of the Individual Development Account owner or such owner's spouse or dependents,

          (ii) is paid by the qualified financial institution--

            (I) except as otherwise provided in this clause, directly to the unrelated third party to whom the amount is due,

            (II) in the case of any qualified rollover, directly to another Individual Development Account and parallel account, or

            (III) in the case of a qualified final distribution, directly to the spouse, dependent, or other named beneficiary of the deceased Account owner, and

          (iii) is paid after the Account owner has completed a financial education course if required under section 705(b).

        (B) QUALIFIED EXPENSES-

          (i) IN GENERAL- The term `qualified expenses' means any of the following expenses approved by the qualified financial institution:

            (I) Qualified higher education expenses.

            (II) Qualified first-time homebuyer costs.

            (III) Qualified business capitalization or expansion costs.

            (IV) Qualified rollovers.

            (V) Qualified final distribution.

          (ii) QUALIFIED HIGHER EDUCATION EXPENSES-

            (I) IN GENERAL- The term `qualified higher education expenses' means--

(aa) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of the designated individual or a family member at an eligible educational institution, and

(bb) in the case of a special needs beneficiary, expenses for special needs services which are incurred in connection with such enrollment or attendance.

            (II) ROOM AND BOARD INCLUDED FOR STUDENTS WHO ARE AT LEAST HALF-TIME-

(aa) IN GENERAL- In the case of an individual who is an eligible student for any academic period, such term shall also include reasonable costs for such period (as determined under the qualified tuition program) incurred by the designated beneficiary for room and board while attending such institution.

(bb) LIMITATION- The amount treated as qualified higher education expenses by reason of this subclause shall not exceed the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or, if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.

(cc) ELIGIBLE STUDENT- For purposes of this subclause, the term `eligible student' means, with respect to any academic period, a student who meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.

          (iii) QUALIFIED FIRST-TIME HOMEBUYER COSTS-

            (I) IN GENERAL- The term `qualified first-time homebuyer costs' means qualified acquisition costs with respect to a principal residence for a qualified first-time homebuyer.

            (II) QUALIFIED ACQUISITION COSTS- For purposes of this clause, the term `qualified acquisition costs' means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.

            (III) FIRST-TIME HOMEBUYER- For purposes of this clause, the term `first-time homebuyer' means any individual if--

(aa) such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and

(bb) subsection (h) or (k) of section 1034 (as in effect on the day before the date of the enactment of this section) did not suspend the running of any period of time specified in section 1034 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A).

            (IV) DATE OF ACQUISITION- The term `date of acquisition' means the date--

(aa) on which a binding contract to acquire the principal residence to which subparagraph (A) applies is entered into, or

(bb) on which construction or reconstruction of such a principal residence is commenced.

            (V) SPECIAL RULE WHERE DELAY IN ACQUISITION- If any distribution fails to meet the requirements of subclause (I) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be recontributed to an Individual Development Account of the individual.

          (iv) QUALIFIED BUSINESS CAPITALIZATION OR EXPANSION COSTS-

            (I) IN GENERAL- The term `qualified business capitalization or expansion costs' means qualified expenditures for the capitalization or expansion of a qualified business pursuant to a qualified business plan.

            (II) QUALIFIED EXPENDITURES- The term `qualified expenditures' means expenditures normally associated with starting or expanding a business and included in a qualified business plan, including costs for capital, plant, and equipment, inventory expenses, and attorney and accounting fees.

            (III) QUALIFIED BUSINESS- The term `qualified business' means any business that does not contravene any law.

            (IV) QUALIFIED BUSINESS PLAN- The term `qualified business plan' means a business plan which has been approved by the qualified financial institution and which meets such requirements as the Secretary may specify.

          (v) QUALIFIED ROLLOVERS- The term `qualified rollover' means the complete distribution of the amounts in an Individual Development Account and parallel account to another Individual Development Account and parallel account established in another qualified financial institution for the benefit of the Account owner.

          (vi) QUALIFIED FINAL DISTRIBUTION- The term `qualified final distribution' means, in the case of a deceased Account owner, the complete distribution of the amounts in the Individual Development Account and parallel account directly to the spouse, any dependent, or other named beneficiary of the deceased.

      (7) SECRETARY- The term `Secretary' means the Secretary of the Treasury.

SEC. 704. STRUCTURE AND ADMINISTRATION OF QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

    (a) ESTABLISHMENT OF QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS- Any qualified financial institution may apply to the Secretary for approval to establish 1 or more qualified individual development account programs which meet the requirements of this title and for payments under section 711.

    (b) BASIC PROGRAM STRUCTURE-

      (1) IN GENERAL- All qualified individual development account programs shall consist of the following 2 components for each participant:

        (A) An Individual Development Account to which an eligible individual may contribute cash in accordance with section 705.

        (B) A parallel account to which all matching funds shall be deposited in accordance with section 706.

      (2) TAILORED IDA PROGRAMS- A qualified financial institution may tailor its qualified individual development account program to allow matching funds to be spent on 1 or more of the categories of qualified expenses.

    (c) COORDINATION WITH PUBLIC HOUSING AGENCY INDIVIDUAL SAVINGS ACCOUNTS- Section 3(e)(2) of the United States Housing Act of 1937 (42 U.S.C. 1437a(e)(2)) is amended by inserting `or in any Individual Development Account established under the Savings for Working Families Act of 2005' after `subsection'.

SEC. 705. PROCEDURES FOR OPENING AND MAINTAINING AN INDIVIDUAL DEVELOPMENT ACCOUNT AND QUALIFYING FOR MATCHING FUNDS.

    (a) OPENING AN ACCOUNT- An eligible individual may open an Individual Development Account with a qualified financial institution upon certification that such individual has never maintained any other Individual Development Account (other than an Individual Development Account to be terminated by a qualified rollover).

    (b) REQUIRED COMPLETION OF FINANCIAL EDUCATION COURSE-

      (1) IN GENERAL- Before becoming eligible to withdraw funds to pay for qualified expenses, owners of Individual Development Accounts must complete 1 or more financial education courses specified in the qualified individual development account program.

      (2) STANDARD AND APPLICABILITY OF COURSE- The Secretary, in consultation with representatives of qualified individual development account programs and financial educators, shall, not later than January 1, 2007, establish minimum quality standards for the contents of financial education courses and providers of such courses described in paragraph (1) and a protocol to exempt individuals from the requirement under paragraph (1) in the case of hardship, lack of need, or a qualified final distribution.

    (c) PROOF OF STATUS AS AN ELIGIBLE INDIVIDUAL- Any evidence of eligibility which may be required by a qualified financial institution shall be presented to such institution at the time of the establishment of the Individual Development Account and in any calendar year in which contributions are made to the Account to qualify for matching funds under section 706(b)(1)(A).

SEC. 706. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

    (a) PARALLEL ACCOUNTS- The qualified financial institution shall deposit all matching funds for each Individual Development Account into a parallel account at a qualified financial institution.

    (b) REGULAR DEPOSITS OF MATCHING FUNDS-

      (1) IN GENERAL- Subject to paragraph (2), the qualified financial institution shall deposit into the parallel account with respect to each eligible individual the following amounts:

        (A) A dollar-for-dollar match for the first $500 contributed by the eligible individual into an Individual Development Account with respect to any calendar year of such individual.

        (B) Any matching funds provided by State, local, or private sources in accordance with the matching ratio set by those sources.

      (2) TIMING OF DEPOSITS- A deposit of the amounts described in paragraph (1) shall be made into a parallel account--

        (A) in the case of amounts described in paragraph (1)(A), not later than 30 days after the end of the calendar quarter during which the contribution described in such paragraph was made, and

        (B) in the case of amounts described in paragraph (1)(B), not later than 2 business days after such amounts were provided.

    (c) UNIFORM ACCOUNTING REGULATIONS- To ensure proper recordkeeping and determination of the payments under section 711, the Secretary shall prescribe regulations with respect to accounting for matching funds in the parallel accounts.

    (d) REGULAR REPORTING OF ACCOUNTS- Any qualified financial institution shall report the balances in any Individual Development Account and parallel account of an individual on not less than an annual basis to such individual.

SEC. 707. WITHDRAWAL PROCEDURES.

    (a) WITHDRAWALS FOR QUALIFIED EXPENSES-

      (1) IN GENERAL- An Individual Development Account owner may withdraw funds in order to pay qualified expense distributions from such individual's--

        (A) Individual Development Account, but only from funds which have been on deposit in such Account for at least 1 year, and

        (B) parallel account, but only--

          (i) from matching funds which have been on deposit in such parallel account for at least 1 year,

          (ii) from earnings in such parallel account, after all matching funds described in clause (i) have been withdrawn, and

          (iii) to the extent such withdrawal does not result in a remaining balance in such parallel account which is less than the remaining balance in the Individual Development Account after such withdrawal.

      (2) PROCEDURE- Upon receipt of a withdrawal request which meets the requirements of paragraph (1), the qualified financial institution shall directly transfer the funds electronically to the distributees described in section 703(6)(A)(ii). If a distributee is not equipped to receive funds electronically, the qualified financial institution may issue such funds by paper check to the distributee.

    (b) WITHDRAWALS FOR NONQUALIFIED EXPENSES- An Individual Development Account owner may withdraw any amount of funds from the Individual Development Account for purposes other than to pay qualified expense distributions, but if, after such withdrawal, the amount in the parallel account of such owner (excluding earnings on matching funds) exceeds the amount remaining in such Individual Development Account, then such owner shall forfeit to the United States from the parallel account the lesser of such excess or the amount withdrawn.

    (c) WITHDRAWALS FROM ACCOUNTS OF NONELIGIBLE INDIVIDUALS- If the individual for whose benefit an Individual Development Account is established ceases to be an eligible individual, such account shall remain an Individual Development Account, but such individual shall not be eligible for any further matching funds under section 706(b)(1)(A) for contributions which are made to the Account during any calendar year when such individual is not an eligible individual.

    (d) EFFECT OF PLEDGING ACCOUNT AS SECURITY- If, during any calendar year of the individual for whose benefit an Individual Development Account is established, that individual uses the Account, the individual's parallel account, or any portion thereof as security for a loan, the portion so used shall be treated as a withdrawal of such portion from the Individual Development Account for purposes other than to pay qualified expenses.

SEC. 708. CERTIFICATION AND TERMINATION OF QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

    (a) CERTIFICATION PROCEDURES- Upon establishing a qualified individual development account program under section 704, a qualified financial institution shall certify to the Secretary at such time and in such manner as may be prescribed by the Secretary and accompanied by any documentation required by the Secretary, that--

      (1) the accounts described in subparagraphs (A) and (B) of section 704(b)(1) are operating pursuant to all the provisions of this title, and

      (2) the qualified financial institution agrees to implement an information system necessary to monitor the cost and outcomes of the qualified individual development account program.

    (b) AUTHORITY TO TERMINATE QUALIFIED IDA PROGRAM- If the Secretary determines that a qualified financial institution under this title is not operating a qualified individual development account program in accordance with the requirements of this title (and has not implemented any corrective recommendations directed by the Secretary), the Secretary shall terminate such institution's authority to conduct the program. If the Secretary is unable to identify a qualified financial institution to assume the authority to conduct such program, then any funds in a parallel account established for the benefit of any individual under such program shall be deposited into the Individual Development Account of such individual as of the first day of such termination.

SEC. 709. REPORTING, MONITORING, AND EVALUATION.

    (a) RESPONSIBILITIES OF QUALIFIED FINANCIAL INSTITUTIONS-

      (1) IN GENERAL- Each qualified financial institution that operates a qualified individual development account program under section 704 shall report annually to the Secretary within 90 days after the end of each calendar year on--

        (A) the number of individuals making contributions into Individual Development Accounts and the amounts contributed,

        (B) the amounts contributed into Individual Development Accounts by eligible individuals and the amounts deposited into parallel accounts for matching funds,

        (C) the amounts withdrawn from Individual Development Accounts and parallel accounts, and the purposes for which such amounts were withdrawn,

        (D) the balances remaining in Individual Development Accounts and parallel accounts, and

        (E) such other information needed to help the Secretary monitor the effectiveness of the qualified individual development account program (provided in a nonindividually-identifiable manner).

      (2) ADDITIONAL REPORTING REQUIREMENTS- Each qualified financial institution that operates a qualified individual development account program under section 704 shall report at such time and in such manner as the Secretary may prescribe any additional information that the Secretary requires to be provided for purposes of administering and supervising the qualified individual development account program. This additional data may include, without limitation, identifying information about Individual Development Account owners, their Accounts, additions to the Accounts, and withdrawals from the Accounts.

    (b) RESPONSIBILITIES OF THE SECRETARY-

      (1) MONITORING PROTOCOL- Not later than 12 months after the date of the enactment of this Act, the Secretary, in consultation with the Secretary of Health and Human Services, shall develop and implement a protocol and process to monitor the cost and outcomes of the qualified individual development account programs established under section 704.

      (2) ANNUAL REPORTS- For each year after 2006, the Secretary shall submit a progress report to Congress on the status of such qualified individual development account programs. Such report shall, to the extent data are available, include from a representative sample of qualified individual development account programs information on--

        (A) the characteristics of participants, including age, gender, marital status, number of children, employment status, and monthly income,

        (B) deposits, withdrawals, balances, uses of Individual Development Accounts, and participant characteristics,

        (C) the characteristics of qualified individual development account programs, including match rate, economic education requirements, permissible uses of accounts, staffing of programs in full-time employees, and the total costs of programs, and

        (D) process information on program implementation and administration, especially on problems encountered and how problems were solved.

      (3) REAUTHORIZATION REPORT ON COST AND OUTCOMES OF IDAS-

        (A) IN GENERAL- Not later than July 1, 2011, the Secretary of the Treasury shall submit a report to Congress and the chairmen and ranking members of the Committee on Finance, the Committee on Banking, Housing, and Urban Affairs, and the Committee on Health, Education, Labor, and Pensions of the Senate and the Committee on Ways and Means, the Committee on Banking and Financial Services, and the Committee on Education and the Workforce of the House of Representatives, in which the Secretary shall--

          (i) summarize the previously submitted annual reports required under paragraph (2),

          (ii) from a representative sample of qualified individual development account programs, include an analysis of--

            (I) the economic, social, and behavioral outcomes,

            (II) the changes in savings rates, asset holdings, and household debt, and overall changes in economic stability,

            (III) the changes in outlooks, attitudes, and behavior regarding savings strategies, investment, education, and family,

            (IV) the integration into the financial mainstream, including decreased reliance on alternative financial services and increase in acquisition of mainstream financial products, and

            (V) the involvement in civic affairs, including neighborhood schools and associations,

          associated with participation in qualified individual development account programs,

          (iii) from a representative sample of qualified individual development account programs, include a comparison of outcomes associated with such programs with outcomes associated with other Federal Government social and economic development programs, including asset building programs, and

          (iv) make recommendations regarding the reauthorization of the qualified individual development account programs, including--

            (I) recommendations regarding reforms that will improve the cost and outcomes of the such programs, including the ability to help low-income families save and accumulate productive assets,

            (II) recommendations regarding the appropriate levels of subsidies to provide effective incentives to financial institutions and Account owners under such programs, and

            (III) recommendations regarding how such programs should be integrated into other Federal poverty reduction, asset building, and community development policies and programs.

        (B) AUTHORIZATION- There is authorized to be appropriated $2,500,000, for carrying out the purposes of this paragraph.

      (4) USE OF ACCOUNTS IN RURAL AREAS ENCOURAGED- The Secretary shall develop methods to encourage the use of Individual Development Accounts in rural areas.

SEC. 710. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to the Secretary such sums as may be necessary for the purposes of implementing this title, including the reporting, monitoring, and evaluation required under section 709, to remain available until expended.

SEC. 711. MATCHING FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS PROVIDED FOR QUALIFIED FINANCIAL INSTITUTIONS.

    (a) IN GENERAL- Each qualified financial institution shall be entitled, for each calendar year, to a payment from the Secretary in an amount equal to the individual development account investment provided by such institution during such year under an individual development account program established under section 704.

    (b) INDIVIDUAL DEVELOPMENT ACCOUNT INVESTMENT- For purposes of this section, the term `individual development account investment' means, with respect to an individual development account program in any calendar year, an amount equal to the sum of--

      (1) the aggregate amount of dollar-for-dollar matches under such program under section 706(b)(1)(A) for such calendar year, plus

      (2) $50 with respect to each Individual Development Account maintained as of the end of such calendar year, with a balance of not less than $100 (other than the calendar year in which such Account is opened).

    (c) REGULATIONS- The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a repayment of any amount paid under this section (notwithstanding any termination date described in subsection (d)) in cases where there is a forfeiture under section 707(b) in a subsequent calendar year of any amount which was taken into account in determining the amount of such payment.

    (d) APPLICATION OF SECTION- This section shall apply to any expenditure made in calendar years after 2005.