< Back to S. 1309 (111th Congress, 2009–2010)

Text of the Responsible Fatherhood and Healthy Families Act of 2009

This bill was introduced on June 19, 2009, in a previous session of Congress, but was not enacted. The text of the bill below is as of Jun 19, 2009 (Introduced).

Source: GPO

II

111th CONGRESS

1st Session

S. 1309

IN THE SENATE OF THE UNITED STATES

June 19, 2009

(for himself, Mrs. Lincoln, and Mr. Burris) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend title IV of the Social Security Act to ensure funding for grants to promote responsible fatherhood and strengthen low-income families, and for other purposes.

1.

Short title; table of contents

(a)

Short title

This Act may be cited as the Responsible Fatherhood and Healthy Families Act of 2009.

(b)

Table of contents

The table of contents of this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Findings.

TITLE I—Promoting Responsible Fatherhood and Strengthening Low-Income Families

Sec. 101. Healthy marriage promotion and responsible fatherhood programs.

Sec. 102. Elimination of separate TANF work participation rate for 2-parent families.

Sec. 103. Ban on recovery of medicaid costs for births.

Sec. 104. Improved collection and distribution of child support.

Sec. 105. Grants to States to conduct demonstration projects to promote economic opportunity for low-income parents.

Sec. 106. State assessments of barriers to employment and financial support of children.

Sec. 107. Collection of child support under the supplemental nutrition assistance program.

Sec. 108. Grants supporting healthy family partnerships for domestic violence intervention and prevention.

Sec. 109. Procedures to address domestic violence prevention.

TITLE II—Revenue provisions

Sec. 201. Modifications to the earned income tax credit.

Sec. 202. Clarification of economic substance doctrine.

Sec. 203. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 204. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.

2.

Findings

Congress makes the following findings:

(1)

The most important factor in a child’s upbringing is whether the child is brought up in a loving, healthy, supportive environment.

(2)

Children who grow up with two parents are, on average, more likely than their peers in single-parent homes to finish high school and be economically self-sufficient.

(3)

Father-child interaction, like mother-child interaction, has been shown to promote the positive physical, social, emotional, and mental development of children.

(4)

Children typically live without both parents when parents are divorced or did not marry. More than 1/3 of all marriages end in divorce, and 60 percent of divorcing couples have children. Almost 4 in 10 births are to unmarried women, however, this figure varies by age. Six in 10 births to women ages 20 to 24, nearly 1 in 10 births to women ages 25 to 28, and 1 in 5 births to women in their 30s are to unmarried women.

(5)

More than 1 in 4 families with children have only 1 parent present, and more than 1 in 5 children live with their mother only.

(6)

Recent studies demonstrate that most unwed fathers in urban areas are highly involved with the mother of their child before and after the child’s birth, with 80 percent involved with their mother’s pregnancy, with 50 percent living with the child’s mother at the time of the child’s birth. When the children of these fathers were 5 years old, 50 percent had seen their fathers 10 or fewer days in the past month, over 35 percent had not seen their fathers at all in the past month, and nearly 23 percent had not seen their fathers at all in the past 2 years.

(7)

An estimated 30 percent of the children who live in households without their father have not seen their father in at least 1 year, and only 40 percent have contact once or more per month.

(8)

The inability of parents to sustain a healthy relationship with their child’s other parent and remain involved in their child's life can have severe negative consequences for the parents, the child, their community, and taxpayers.

(9)

Early parenting has serious consequences for young men and young women, their children, and society. Too-early childbearing makes it harder for young parents to finish their education. Fathers of children born to teen mothers have lower earnings than fathers of children born to mothers who are in their early 20s and children born to teen parents are more likely to end up in poverty than children born to adult parents. Children of teen parents are at increased risk of involvement with the child welfare system and the sons of teen mothers are more likely to end up in prison. The daughters of teen mothers are more likely to end up teen mothers themselves. In addition, teen childbearing costs taxpayers at least $9,100,000,000 annually.

(10)

Single-parent families are 5 times as likely to be poor as married-couple families.

(11)

Children raised in single-parent families are more likely than children raised in 2-parent families to do poorly in school, have emotional and behavioral problems, become teenage parents, commit crimes, smoke cigarettes, abuse drugs and alcohol, and have poverty-level incomes as adults.

(12)

High rates of unemployment and low wages are primary reasons why parents do not marry, why 2-parent families break up, and why fathers fail to remain involved with their children.

(13)

Domestic violence is also a significant problem leading to the non-formation or break-up of 2-parent families.

(14)

According to the National Fatherhood Initiative National Marriage Survey in 2005, 42 percent of women and 9 percent of men cite domestic violence as the reason for their divorces.

(15)

A history of incarceration is a major barrier to employment. Sixty percent of young African-American men who dropped out of high school have served time. When these men leave prison, they often have difficulty finding a job and supporting their children.

(16)

Over ½ of State prison inmates are parents. When noncustodial parents go to prison, their child support obligations continue, even though they have little ability to pay the support. When these parents leave prison, they typically owe more than $20,000 in child support debt. Noncustodial parents leaving prison often re-enter the underground economy because of financial pressures or to avoid the child support system, making it less likely that they will successfully rejoin society and reunite with their families.

(17)

Children should receive the child support paid by their parents, and the government should not keep the money to recover welfare costs. Current pass-through limits on Federal cost-sharing have been a barrier to States choosing to pass through child support. Regular child support income appears to have a greater positive impact on children dollar for dollar than other types of income. Researchers in Wisconsin found that when monthly child support was passed through to families receiving assistance under the Temporary Assistance for Needy Families program established under part A of title IV of the Social Security Act (TANF) and disregarded 100 percent in determining assistance for the families, fathers paid more child support, established their legal relationship with their children more quickly, and worked less in the underground economy. Moreover, the State costs of a full pass-through and disregard of child support were fully offset by increased payments by fathers and decreased public assistance use by families.

(18)

The Department of Health and Human Services National Child Support Enforcement Strategic Plan for fiscal years 2005 through 2009 states that child support is no longer a welfare reimbursement, revenue-producing device for the Federal and State governments; it is a family-first program, intended to ensure families' self-sufficiency by making child support a more reliable source of income.

(19)

Current law permits States to apply the cost of passing through child support to families receiving assistance under the TANF program toward their maintenance of effort (MOE) requirements, but only to the extent that the State disregards the child support payments in determining the amount and type of TANF assistance.

(20)

Programs that increase employment opportunity and reduce barriers by increasing employment opportunity and reducing recidivism will benefit children and families.

(21)

Transitional jobs programs have shown promise in reducing unemployment among chronically unemployed or underemployed population groups, including formerly incarcerated individuals, the homeless, and young African-American men.

(22)

To strengthen families it is important to improve the upward economic mobility of the custodial and noncustodial parent wage-earners, as well as youth at risk of early parenthood or incarceration, by providing the skills and experience necessary to access jobs with family-sustaining wages and benefits. In families in which all the members do not live together, this is important to enable the prompt and consistent payment of adequate child support.

(23)

It is important and useful to foster local and regional economic development and job advancement for workers, especially young custodial and noncustodial parents, by funding local collaborations among business, education, and the community in the development of pathways for preparing disadvantaged citizens to meet the workforce needs of the local and regional economy.

(24)

Employers benefit from working with and being supported by the local education, post-secondary and workforce systems in identifying the academic and occupational skill sets needed to fill the skilled jobs in the changing economy. Local economic and community development is enhanced when residents have access to higher wage employment, thus increasing the tax base, fueling the economy, and contributing to greater family economic security.

(25)

Public-private career pathways partnerships are an important tool for linking employers and workers with the workforce education services they need and for integrating community economic development and workforce education services. Transitional jobs programs can serve as the first step in a career pathway by giving unemployed individuals with multiple barriers to employment, valuable work experience and related services.

(26)

The purpose of child support is to provide necessary income support for and increase the well-being of children living apart from a parent. To improve the ability of low-income noncustodial parents to provide long-term support and care for their children throughout their entire childhood, it is important that child support polices support parental efforts to pursue education and employment and to stay involved with their children.

(27)

Responsible parenthood includes active participation in financial support and child-rearing, as well as the formation and maintenance of a positive, healthy, and nonviolent relationship between parent and child and a cooperative, healthy, and nonviolent relationship between parents.

(28)

States should be encouraged to implement voluntary programs that provide support for responsible parenting, including by increasing the employment and financial security of parents, and, when it is appropriate, with appropriate safeguards related to child abuse and domestic violence, the parental involvement of noncustodial parents.

(29)

Promoting responsible parenthood saves the government money by reducing the need for public assistance, increasing the educational attainment of children, reducing juvenile delinquency and crime, reducing substance abuse, and lowering rates of unemployment.

(30)

Programs to encourage responsible fatherhood or responsible motherhood should promote and provide support services for—

(A)

fostering loving and healthy relationships between parents and children;

(B)

increasing responsibility of noncustodial parents for the long-term care and financial well-being of their children;

(C)

increasing employment of low-income, noncustodial parents and improving compliance with child support obligations; and

(D)

reducing barriers to active 2-parent involvement and cooperative parenting.

(31)

The promotion of healthy marriage and responsible parenthood should not denigrate the standing or parenting efforts of single parents or other caregivers, lessen the protection of children from abusive parents, or compromise the safety or health of the custodial or noncustodial parent, but should increase the chance that children will have 2 caring parents to help them grow up healthy and secure.

I

Promoting Responsible Fatherhood and Strengthening Low-Income Families

101.

Healthy marriage promotion and responsible fatherhood programs

(a)

Ensuring funding for responsible fatherhood programs

Section 403(a)(2)(C) of the Social Security Act (42 U.S.C. 603(a)(2)(C)) is amended—

(1)

in the subparagraph heading, by striking Limitation on use of and inserting Requirement to use certain; and

(2)

in clause (i), by striking may not award more than $50,000,000 and inserting shall award at least $100,000,000.

(b)

Assurance of voluntary participation

Section 403(a)(2)(A)(ii)(II) of the Social Security Act (42 U.S.C. 603(a)(2)(A)(ii)(II)) is amended—

(1)

in item (aa), by striking and at the end;

(2)

in item (bb), by striking the period at the end and inserting a semicolon; and

(3)

by adding at the end the following new items:

(cc)

to not condition the receipt of assistance under the program funded under this part, under a program funded with qualified State expenditures (as defined in section 409(a)(7)(B)(i)), or under any other program funded under this title on enrollment in any such programs or activities; and

(dd)

to permit any individual who has begun to participate in a particular program or activity funded under this paragraph, including an individual whose participation is specified in the individual responsibility plan developed for the individual in accordance with section 408(b), to transfer to another such program or activity funded under this paragraph upon notification to the entity and the State agency responsible for administering the State program funded under this part.

.

(c)

Activities promoting responsible fatherhood

Section 403(a)(2)(C)(ii) of the Social Security Act (42 U.S.C. 603(a)(2)(C)(ii)) is amended—

(1)

in subclause (I), by striking marriage or sustain marriage and insert healthy relationships and healthy marriages or to sustain healthy relationships or healthy marriages;

(2)

in subclause (II), by inserting educating youth who are not yet parents about the economic, social, and family consequences of early parenting, helping participants in fatherhood programs work with their own children to break the cycle of early parenthood, after child support payments,; and

(3)

in subclause (III), by striking fathers and inserting low-income fathers and other low-income noncustodial parents.

(d)

Effective date

The amendments made by this section shall take effect on October 1, 2009.

102.

Elimination of separate TANF work participation rate for 2-parent families

(a)

In General

Section 407 of the Social Security Act (42 U.S.C. 607) is amended—

(1)

in subsection (a)—

(A)

beginning in the heading, by striking Participation Rate Requirements and all that follows through A State in paragraph (1) and inserting Participation Rate Requirements.—A State; and

(B)

by striking paragraph (2);

(2)

in subsection (b)—

(A)

in paragraph (1)(A), by striking subsection (a)(1) and inserting subsection (a);

(B)

in paragraph (2), by striking the paragraph heading and all that follows through A family and inserting Special rule.—A family;

(C)

in paragraph (4), by striking paragraphs (1)(B) and (2)(B) and inserting determining monthly participation rates under paragraph (1)(B); and

(D)

in paragraph (5), by striking rates and inserting rate; and

(3)

in subsection (c)—

(A)

in paragraph (1)(B), in the matter preceding clause (i), by striking subsection (b)(2)(B) and inserting subsection (b)(1)(B)(i); and

(B)

in paragraph (2)(D)—

(i)

by striking paragraphs (1)(B)(i) and (2)(B) of subsection (b) and inserting subsection (b)(1)(B)(i); and

(ii)

by striking and in 2-parent families, respectively,.

(b)

Effective Date

(1)

In general

The amendments made by subsection (a) shall take effect on the date of enactment of this Act and shall apply to the determination of minimum participation rates for months beginning on or after that date.

(2)

Limitation on penalty imposition

Notwithstanding section 409(a)(3) of the Social Security Act, the Secretary of Health and Human Services shall not impose a penalty against a State under that section on the basis of the State's failure to satisfy the participation rate required for fiscal year 2006, 2007, 2008, or 2009 if the State demonstrates that the State would have met such requirement if, with respect to those months of fiscal year 2009 that began prior to or on the date of enactment of this Act, the State were permitted to count 2-parent families that met the requirements of section 407(c)(1)(A) of the Social Security Act (42 U.S.C. 607(c)(1)(A)) in the determination of monthly participation rates under section 407(b)(1)(B)(i) of such Act (42 U.S.C. 607(b)(1)(B)(i)).

103.

Ban on recovery of medicaid costs for births

(a)

Ban on recovery

(1)

In general

Section 454 of the Social Security Act (42 U.S.C. 654), as amended by section 7301 of Public Law 109–171, is amended—

(A)

by striking and at the end of paragraph (33);

(B)

by striking the period at the end of paragraph (34) and inserting a semicolon; and

(C)

by inserting after paragraph (34) the following:

(35)

provide that, except as provided in section 1902(a)(25)(F)(ii), the State shall not use the State program operated under this part to collect any amount owed to the State by reason of costs incurred under the State plan approved under title XIX for the birth of a child for whom support rights have been assigned pursuant to section 471(a)(17) or 1912; and

.

(2)

Rule of construction

Nothing in section 454(35) of the Social Security Act (42 U.S.C. 654(34)), as added by paragraph (1), shall be construed as affecting the application of section 1902(a)(25) of such Act (42 U.S.C. 1396a(a)(25)) with respect to a State (relating to the State Medicaid plan requirement for the State to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the plan).

(b)

Clarification that ban on recovery does not apply with respect to insurance of a parent with an obligation To pay child support

Clause (ii) of section 1902(a)(25)(F) of the Social Security Act (42 U.S.C. 1396a(a)(25)(F)) is amended by inserting only if such third-party liability is derived through insurance, before seek.

(c)

Effective date

(1)

In general

Except as provided in paragraph (2), the amendments made by this section take effect on October 1, 2009.

(2)

Extension of effective date for state law amendment

In the case of a State plan under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) which the Secretary of Health and Human Services determines requires State legislation in order for the plan to meet the additional requirements imposed by the amendments made by this section, the State plan shall not be regarded as failing to comply with the requirements of such title solely on the basis of its failure to meet these additional requirements before the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after the date of enactment of this Act. For purposes of the previous sentence, in the case of a State that has a 2-year legislative session, each year of the session is considered to be a separate regular session of the State legislature.

104.

Improved collection and distribution of child support

(a)

Elimination of pass-through limits and other changes effective beginning with fiscal year 2010

(1)

Elimination of pass-through limits on federal cost-sharing

Section 457(a)(6)(B) of the Social Security Act (42 U.S.C. 657(a)(6)(B)) (as redesignated by clause (iii) of section 7301(b)(1)(B) of the Deficit Reduction Act of 2005), is amended to read as follows:

(B)

Families that currently receive assistance

Notwithstanding paragraph (1), in the case of a family that receives assistance from the State, a State shall not be required to pay to the Federal Government the Federal share of any amount collected on behalf of such family during a month to the extent that—

(i)

the State pays the amount to the family; and

(ii)

the amount is disregarded in determining the amount and type of assistance provided to the family under such program.

.

(2)

Child support state plan amendment

Section 454 of the Social Security Act (42 U.S.C. 654), as amended by section 103(a)(1), is amended by adding at the end the following new paragraph:

(36)

provide that a State shall pay all collected child support to the payee, except as provided in section 457, and shall not use the State program operated under this part to retain payments to recover the cost of State-funded assistance or benefits.

.

(3)

Disbursement of support payments

Section 454B(c) of the Social Security Act (42 U.S.C. 654B(c)) is amended by adding at the end the following new paragraph:

(3)

Disbursement to families

The State disbursement unit shall pay all collected child support to the payee, except as otherwise provided in section 457, and may not disburse collections to the State to reimburse the State for assistance or benefits provided under a State-funded program.

.

(4)

State option to condition receipt of TANF on assignment of support

Section 408(a)(3) of the Social Security Act (42 U.S.C. 608(a)(3)) is amended—

(A)

in the paragraph heading, by striking No assistance for families not and inserting State option to condition assistance for families on; and

(B)

by striking shall and inserting may.

(5)

Inclusion of distributions to former TANF families in determination of TANF maintenance of effort

Section 409(a)(7)(B)(i)(V) of the Social Security Act (42 U.S.C. 609(a)(7)(B)(i)(V)) is amended by inserting , including the State share of child support distributed to former TANF families under an election by the State under section 454(34) (as in effect on the day before the date of enactment of the Responsible Fatherhood and Healthy Families Act of 2009) to apply the amendments made by subsection (b)(1) of section 7301 of the Deficit Reduction Act of 2005 (as so in effect) after 401(a).

(6)

State option To discontinue older support assignments

Section 457(b) of the Social Security Act (42 U.S.C. 657(b)) is amended to read as follows:

(b)

Continuation of assignments

(1)

In general

Any rights to support obligations assigned to a State as a condition of receiving assistance from the State under parts A and E and in effect on September 30, 2009 (or such earlier date as the State may choose), may be discontinued after such date.

(2)

Distribution of amounts after assignment discontinuation

If a State chooses to discontinue the assignment of a support obligation described in paragraph (1), the State may treat amounts collected pursuant to the assignment as if the amounts had never been assigned and may distribute the amounts to the family in accordance with subsections (a) and (c).

.

(7)

Effective date

The amendments and repeal made by this subsection take effect on October 1, 2009, and shall apply to payments under parts A and D of title IV of the Social Security Act for calendar quarters beginning on or after that date, and without regard to whether regulations to implement the amendments are promulgated by such date.

(b)

Reform of rules for distribution of child support collected on behalf of children in foster care beginning with fiscal year 2011

(1)

In general

Section 457 of such Act (42 U.S.C. 657) is amended—

(A)

by striking subsections (d) and (e);

(B)

by redesignating subsection (c) as subsection (d); and

(C)

by inserting after subsection (b) the following:

(c)

Amounts collected for child for whom foster care maintenance payments are made

Amounts collected by a State as child support for months in any period on behalf of a child for whom a public agency is making foster care maintenance payments under part E shall be paid to the public agency responsible for supervising the placement of the child and used in the manner such public agency determines will serve the best interests of the child, which may include depositing the funds in a child asset account for the child's future needs or making all or a part thereof available to the individual responsible for meeting the child’s day-to-day needs. A State shall not be required to pay to the Federal Government the Federal share of any amounts collected on behalf of a child and used by the public agency in the best interests of the child in accordance with this subsection.

.

(2)

Foster care state plan amendment

Section 471(a)(17) of the Social Security Act (42 U.S.C. 671(a)(17)) is amended—

(A)

by inserting and consistent with the child's case plan after where appropriate; and

(B)

by striking secure an assignment to the State of any rights to support and inserting establish paternity and establish, modify, and enforce child support obligations.

(3)

Effective date

The amendments made by this subsection take effect on October 1, 2010, and shall apply to collections made on behalf of children who are receiving foster care maintenance payments under part E of title IV of the Social Security Act for calendar quarters beginning on or after that date, and without regard to whether regulations to implement the amendments are promulgated by such date.

(c)

Full distribution of child support collected and other changes beginning with fiscal year 2015

(1)

Full distribution of child support collected

(A)

In general

Section 457 of the Social Security Act (42 U.S.C. 657) is amended by striking subsection (a) and inserting the following:

(a)

Full distribution of amounts collected on behalf of any child

Subject to subsection (c), the entire amount collected on behalf of any child as support by a State pursuant to a plan approved under this part shall be paid by the State to the family (or, in the case of a child receiving assistance under part E, to the public agency responsible for supervising the child’s placement), and shall not be retained by the State to reimburse costs of assistance provided under part A, part E, or any State-funded assistance or benefits.

.

(B)

Conforming amendments

(i)

Section 409(a)(7)(B)(i)(I)(aa) of such Act (42 U.S.C. 609(a)(7)(B)(i)(I)(aa)) is amended by striking 457(a)(1)(B) and inserting 457(a).

(ii)

Section 454(5) of such Act (42 U.S.C. 654(5)) is amended by striking (A) in any case and all that follows through (B).

(iii)

Section 454 of such Act (42 U.S.C. 654) is amended by striking paragraph (34).

(iv)

Section 457 of such Act (42 U.S.C. 657), as amended by subsection (b)(1)(3) of this Act, is amended by striking subsection (d).

(C)

Repeal of dra amendments

The amendments made by subsections (a) and (b) of section 7301 the Deficit Reduction Act (Public Law 109–171; 120 Stat. 141) are repealed.

(2)

Requirement To disregard percentage of child support collected in determining amount and type of TANF assistance

Section 408(a) of the Social Security Act (42 U.S.C. 608(a)) is amended by adding at the end the following new paragraph:

(12)

Requirement to disregard percentage of child support collected in determining amount and type of TANF assistance

A State to which a grant is made under section 403 shall disregard at least the same percentage of amounts collected as support on behalf of a family as the percentage of earned income that the State disregards in determining the amount or type of assistance provided to the family under the State program funded under this part or under a program funded with qualified State expenditures (as defined in section 409(a)(7)(B)(i)).

.

(3)

Effective date

The amendments and repeal made by this subsection take effect on October 1, 2014, and shall apply to payments under parts A and D of title IV of the Social Security Act for calendar quarters beginning on or after that date, and without regard to whether regulations to implement the amendments are promulgated by such date.

(d)

Immediate elimination of certain changes made by the Deficit Reduction Act of 2005 and other improvements

(1)

Immediate restoration of certain dra changes

(A)

Restoration of Federal matching of certain state spending

(i)

In general

Section 2104 of division B of the American Recovery and Reinvestment Act of 2009 (Public Law 111–5) is amended to read as follows:

2104.

Resumption of prior child support law

Effective October 1, 2008, section 455(a)(1) of the Social Security Act (42 U.S.C. 655(a)(1)) is amended by striking from amounts paid to the State under section 458 or.

.

(ii)

Repeal of dra amendment

The amendment made by section 7309 of the Deficit Reduction Act of 2005 (Public Law 109–171; 120 Stat. 147) is repealed.

(B)

Repeal of mandatory fee for child support collection

(i)

Elimination of dra amendments

Section 454(6)(B) of such Act (42 U.S.C. 654(6)(B)) is amended—

(I)

by striking clause (ii);

(II)

by striking (i) after (B); and

(III)

by redesignating subclauses (I) and (II) as clauses (i) and (ii), respectively, and realigning the left margins of such clauses accordingly.

(ii)

Conforming amendment

Effective as if enacted on October 1, 2009, section 457(a) of the Social Security Act, as amended by section 7301(b)(1)(A) of the Deficit Reduction Act of 2005, is amended by striking paragraph (4).

(iii)

Repeal of dra amendments

The amendments made by section 7310 of the Deficit Reduction Act of 2005 (Public Law 109–171, 120 Stat. 147) are repealed.

(C)

Conforming amendment

Section 466(a)(3)(B) of such Act (42 U.S.C. 666(a)(3)(B)) is amended by striking in accordance with and all that follows through the semicolon and inserting after deduction of any fees imposed by the State to cover the costs of collection, in accordance with section 457;.

(2)

Other immediate improvements

(A)

Prohibition on considering a period of incarceration voluntary unemployment

Section 466(a) of the Social Security Act (42 U.S.C. 666(a)) is amended by inserting after paragraph (19) the following new paragraph:

(20)

Procedures relating to periods of incarceration of noncustodial parents

(A)

In general

Procedures which require that, in determining or modifying the amount of, or terms and conditions of, any support obligation of a noncustodial parent, the State—

(i)

shall not consider any period of incarceration of such parent as a period of voluntary unemployment that disqualifies the parent from obtaining a modification of the support obligation consistent with the parent's ability to pay child support; and

(ii)

subject to subparagraph (B) in the case of an incarcerated parent, may—

(I)

temporarily suspend any support obligation on the parent and the enforcement of any support obligation of the parent existing prior to the period of incarceration; and

(II)

temporarily prohibit the accrual of any interest on any support obligation of the parent existing prior to the period of incarceration during any such period.

(B)

Notice and opportunity to challenge suspension

Such procedures shall require the State to provide a custodial parent with—

(i)

notice of any suspension of review, adjustment, or enforcement of a support obligation and of any prohibition on interest accrual on such obligation that is imposed in accordance with subparagraph (A)(ii); and

(ii)

an opportunity to request that the suspension or prohibition be terminated or modified on the basis that the noncustodial parent has sufficient income or resources to continue payment of the support obligation during the noncustodial parent's period of incarceration.

.

(B)

Forgiving or other modification of child support arrearages assigned to the State

Section 466(a)(9) of the Social Security Act (42 U.S.C. 666(a)(9)) is amended in the flush matter following subparagraph (C), by inserting the following new sentence at the end: Nothing in this paragraph shall be construed as prohibiting a State from forgiving, compromising, reducing or waiving arrearages permanently assigned to the State under part A or E or under title XIX..

(C)

Review and adjustment of child support arrearages upon request

Section 466(a)(10) of the Social Security Act (42 U.S.C. 666(a)(10)) is amended by adding at the end the following new subparagraph:

(d)

Review and adjustment of arrearages

Procedures which require the State to review, and if appropriate, reduce the balance of arrearages permanently assigned to the State under part A or E, or under title XIX, pursuant to standards and procedures established by the State, in cases where the obligor lacks sufficient ability to pay the arrears, adjustment will promote timely payment of current support, or barriers, such as incarceration, may have limited the ability of the obligor to timely seek a modification of the order, and it is in the best interests of the child to make such reduction. Nothing in the preceding sentence shall be construed as affecting arrearages that have not been permanently assigned to the State under such part or title.

.

(D)

Update of title IV–D purposes

Section 451 of the Social Security Act (42 U.S.C. 651) is amended by striking purpose of and all that follows through for whom such assistance is requested, and inserting purposes of enforcing the support obligations owed by noncustodial parents to their children and the spouse (or former spouse) with whom such children are living, locating parents, establishing paternity, providing assistance in obtaining child and spousal support to all children for whom such assistance is requested (whether or not eligible for assistance under a State program funded under part A), obtaining health care coverage for children participating in the State child support program, and carrying out other activities that improve child well-being by increasing the ability of parents to support their children financially and emotionally,.

(3)

Effective date

Except as provided in paragraph (1)(B)(ii), the amendments and repeals made by this subsection shall take effect on the date of enactment of this Act, or October 1, 2009 (whichever is earlier), and shall apply to payments under parts A and D of title IV of the Social Security Act for calendar quarters beginning on or after that date, and without regard to whether regulations to implement the amendments are promulgated by such date.

(e)

Study and report

Not later than October 1, 2010, the Secretary of Health and Human Services shall study and submit a report to Congress regarding the following:

(1)

The effect of age eligibility restrictions for the earned income tax credit established under section 32 of the Internal Revenue Code of 1986 for individuals without qualifying children on—

(A)

the ability of young parents to pay child support;

(B)

compliance with child support orders; and

(C)

the relationship between young noncustodial parents and their children.

(2)

The impact of State earned income tax credit programs, especially such programs with targeted benefits for noncustodial parents, on—

(A)

the ability of noncustodial parents to pay child support;

(B)

compliance with child support orders; and

(C)

the relationship between noncustodial parents and their children.

(3)

The challenges faced by legal immigrants and individuals for whom English is not their primary language in fulfilling child support and other noncustodial parenting obligations.

105.

Grants to States to conduct demonstration projects to promote economic opportunity for low-income parents

(a)

Court-Supervised or IV–D agency-Supervised employment programs for noncustodial parents

(1)

In general

To assist States in implementing section 466(a)(15) of the Social Security Act (42 U.S.C. 666(a)(15)), the Secretary of Health and Human Services shall award grants to States to establish, in coordination with counties and other local or tribal governments, court-supervised or IV–D agency supervised-employment programs for noncustodial parents who have barriers to employment and a history of nonpayment of child support obligations, as determined by a court or the IV–D agency, and who are determined by the court or agency to be in need of employment services or placement in order to pay such child support obligations. A noncustodial parent described in the preceding sentence who is an ex-offender shall be eligible to participate in a program established under this subsection.

(2)

Requirements

(A)

Option to participate prior to contempt finding

A State shall not be eligible to receive a grant under this subsection unless any program established with funds made available under the grant provides noncustodial parents described in paragraph (1) with an option to participate in the program prior to the court or agency entering a finding that the noncustodial parent is in contempt for failure to pay a child support obligation and, potentially subject to criminal penalties.

(B)

Program goals

An employment program established with funds made available under a grant awarded under this subsection shall be designed to do the following:

(i)

To assist noncustodial parents described in paragraph (1) obtain and maintain unsubsidized employment.

(ii)

To increase the amount of financial support received by children.

(iii)

To help noncustodial parents described in paragraph (1) improve relationships with their children and their children's custodial parent.

(C)

6 months of continuous, timely payments

An employment program established with funds made available under this subsection shall not permit a noncustodial parent placed in the program to graduate from the program and avoid penalties for failure to pay a child support obligation until the noncustodial parent completes at least 6 months of continuous, timely payment of the parent’s child support obligations.

(D)

Use of funds

(i)

Services provided under an employment program established with funds made available under a grant made under this subsection must include the following:

(I)

Job placement, including job development and supervised job search as necessary.

(II)

Case management, including educational assessment and advising, vocational assessment and career exploration services, and court liaison services.

(III)

Counseling on responsible parenthood.

(IV)

Referral for support and educational services.

(V)

Employment retention services.

(ii)

Services provided under an employment program established with funds made available under a grant made under this subsection may include the following:

(I)

Remedial education services or educational referral.

(II)

Support funds for services such as transportation, child care, or job readiness training.

(III)

Transitional jobs programs.

(IV)

Public-private career pathway partnerships established in accordance with subsection (b)(2).

(V)

Occupational skill training, including college credit programs.

(VI)

Curricula development.

(E)

Administration

A State that receives a grant under this subsection may contract with a public or private nonprofit organization, including a faith-based or community-based organization, to administer (in conjunction with the court of jurisdiction or the IV–D agency) the court-supervised or IV–D agency-supervised employment program.

(b)

Transitional jobs and career pathways partnership grants

The Secretary of Labor shall award grants to States to conduct demonstration projects to carry out one or more of the projects described in paragraphs (1) and (2).

(1)

Transitional jobs grants

(A)

In general

The Secretary of Labor may award grants under this subsection to establish and expand transitional jobs programs for eligible individuals, including such programs conducted by local governments, State employment agencies, nonprofit organizations, and faith-based or community-based organizations or intermediaries, that—

(i)

combine time-limited employment in transitional jobs that may be subsidized with public funds, with activities that promote skill development and remove barriers to employment, such as case management services and education, training, child support-related services, and other activities, pursuant to individual plans; and

(ii)

provide such individuals with—

(I)

transitional jobs placements and job placement assistance, to help the individuals make the transition from subsidized employment in transitional jobs to stable unsubsidized employment; and

(II)

retention services after the transition to unsubsidized employment.

(B)

Eligible individuals

For purposes of this paragraph, the term eligible individuals means individuals within any of the following categories of disproportionately chronically unemployed individuals:

(i)

Individuals who have attained age 16, but not attained age 36, and who have documented barriers to employment such as lack of a high school diploma, limited English proficiency, aging out of foster care, or offender status, particularly such individuals who are parents or expectant parents.

(ii)

Formerly incarcerated individuals.

(iii)

Homeless or formerly homeless individuals.

(iv)

Individuals with disabilities.

(v)

Individuals designated by a court or the IV–D agency to participate in transitional jobs programs.

(C)

Limitations on use of funds

(i)

Allowable activities

A State that receives a grant under this paragraph (or a subgrantee of such State) (referred to in this paragraph as the program operator) shall use the funds made available under the grant to operate a transitional jobs program for eligible individuals consistent with the following requirements:

(I)

Jobs

The program operator shall place eligible individuals in temporary jobs, the incomes from which may be subsidized in whole or in part with public funds. An eligible individual placed in such a job (referred to in this paragraph as a participant) shall perform work directly for the program operator or another public, nonprofit, or private sector organization (which operator or organization may be referred to in this paragraph as a worksite employer) within the community involved.

(II)

Hours

(aa)

In general

Subject to item (bb), the transitional jobs program shall provide a participant with not less than 30, and not more than 40, hours per week of a combination of paid employment and the services described in subclauses (III), (IV), and (V).

(bb)

Accommodation of special circumstances

The number of hours per week required under item (aa) may be adjusted in the case of a participant who requires a modified work week to accommodate special circumstances.

(III)

Job preparation and services

The program operator shall—

(aa)

develop an individual plan for each participant, which shall contain a goal that focuses on preparation of the participant for unsubsidized jobs in demand in the local economy that offer the potential for advancement and growth (including increases in wages and benefits);

(bb)

develop transitional jobs placements for participants that will best prepare them for jobs described in item (aa) or participation in the public-private career pathway partnerships established in accordance with paragraph (2); and

(cc)

provide case management services and ensure that appropriate education, training, and other activities are available to participants, consistent with each participant’s individual plan.

(IV)

Job placement assistance and retention services

The program operator shall provide job placement assistance to help participants obtain unsubsidized employment and shall provide retention services to the participants for a minimum of 6 months after entry into the unsubsidized employment.

(V)

Education or training

In any workweek in which a participant is scheduled to work at least 30 hours in the program, not less than 20 percent of the scheduled hours and not more than 50 percent of the scheduled hours shall involve participation in—

(aa)

education or training activities designed to improve the participant’s employability and potential earnings;

(bb)

other activities designed to reduce or eliminate any barriers that may impede the participant’s ability to secure and advance in unsubsidized employment; or

(cc)

activities designed to promote financial literacy and the use of products and services that increase personal savings and build financial assets for family support, education, homeownership, and retirement.

(VI)

Duration

(aa)

In general

Subject to item (bb), the duration of any placement in the program shall be for a minimum period of 3 consecutive months.

(bb)

3-month extension

A program placement may be extended for up to 2 additional consecutive 3-month periods upon the conclusion of the original 3-month placement period if such extension would be consistent with the individual’s plan for transition to unsubsidized employment.

(VII)

Supervision

The worksite employer or program operator shall supervise program participants, consistent with the goal of addressing the limited work experience and skills of the participants.

(D)

Reports

Not later than 120 days after the end of the grant period, the State shall submit a report to the Secretary of Labor that contains information on the number of participants in the program who have entered unsubsidized employment, the percentage of program participants who are employed during the second quarter after exit, the percentage of program participants who are employed during the fourth quarter after exit, the median earnings of program participants during the second quarter after exit, the percentage of program participants who obtain an education or training credential during participation or within one year of exit, and demographic information regarding the participants.

(E)

Technical assistance

The Secretary of Labor shall enter into contracts with entities with demonstrated experience in the provision of transitional jobs to provide technical assistance to the program operators and worksite employers for the programs assisted under this paragraph.

(2)

Public-private career pathways partnerships

(A)

In general

To allow workforce education providers representing career pathway partnerships—

(i)

to create or expand career pathways, with groups of employers in specific industry or occupational sectors, for disadvantaged workers, which may include any mix of such employers’ existing lower wage employees, new hires or potential hires; or

(ii)

to fill in gaps in career pathways in particular localities or regions as needed to ensure that career pathways are accessible to unemployed disadvantaged workers and at risk youth who have lower skills or limited English proficiency, including through the creation of workforce education services, such as bridge programs that contextualize basic skills, English language, or college remedial education services to specific career pathways, and efforts to create opportunities for gaining work experience in a career pathway.

(B)

Use of funds

Funds made available under a grant under this paragraph may be used by career pathways partnerships for any expense reasonably related to the accomplishment of the specific objectives of the partnership and the purpose described in this paragraph, including any of the activities described in subsection (a)(2)(D).

(C)

Limitations

(i)

In general

Of the funds made available to a career pathway partnership to carry out the purpose described in this paragraph—

(I)

not more than 30 percent of such funds may be used to pay or subsidize wages during a period of work experience or internship, not to exceed 90 days; and

(II)

not more than 10 percent of such funds may be used for administrative purposes, but this limitation shall not apply to activities related to building and maintaining partnerships, including such activities as conducting workforce needs assessments, brokering public-private and interagency agreements, creating customized curricula, and developing work experience opportunities.

(ii)

Prohibition on subsidizing wages of current employees

No funds made available to carry out this paragraph shall be used to subsidize the wages of any individual who, as of the date of the establishment of the career pathway partnership, is an employee of any employer participating in the partnership.

(D)

Requirements for awarding of subgrants

(i)

In general

Funds shall be made available to career pathway partnerships to carry out the purpose described in this paragraph based on a performance-based accountability system that includes the following measures of performance:

(I)

The number of individuals to be trained.

(II)

The percentage of such individuals who complete the program.

(III)

The percentage of such individuals who enter or advance in employment.

(IV)

The wage and benefit gains of individuals who complete the program before and within 6 months after their program completion, including the extent to which the individuals achieved economic self-sufficiency.

(V)

The percentage of individuals who complete the program and enter employment who retain employment for at least 6 months.

(VI)

Where applicable, the percentage of individuals who owe child support and complete the program who improve in their payment of child support within 6 months after their program completion.

In establishing goals for such measures, due consideration shall be given to the education, work experience, and job readiness of the individuals expected to participate in the program; the barriers of such individuals to employment, and the local job market.
(ii)

Considerations for funding renewals

A subgrantee's level of success in achieving employment, advancement, wage, and employment retention goals shall be a primary consideration for determining whether to renew a grant made to such entity and the funding level for such grant.

(iii)

Priorities for awards of subgrants

In awarding subgrants under this paragraph, a State shall give priority to applications that—

(I)

propose to serve areas of high poverty, high youth unemployment, high drop out rates, or high rates of low-income single-parent families;

(II)

include a substantial cash or in-kind match by all employers, including joint labor-management programs where applicable, in the partnerships, such as paid release time for employed workforce education participants;

(III)

use instructional materials and instructors directly used in the specific business or industry sectors of the partnership employers;

(IV)

link successful completion of workforce education services to wage increases, promotions or job hires;

(V)

will result in attainment of employer-recognized occupational and educational credentials;

(VI)

address career guidance and adult basic education and English language needs as well as job-specific skills;

(VII)

demonstrate a blending of resources from partner agencies in the workforce system and other sectors and Federal programs, including superior procedures for coordinating responsible fatherhood promotion activities, where appropriate, to support the development of high quality pathways;

(VIII)

identify how the subgrantee will maximize services to unemployed disadvantaged workers who also face other barriers in the labor market, such as high school dropout, offender status, aging out of foster care, low basic skill level, including limited English proficiency, learning disabilities, physical, emotional or behavior disabilities, or substance abuse recovery, which may be through direct relationships with local providers of transitional jobs programs under which in appropriate circumstances transitional jobs participants may access career pathways programs upon completion of the transitional jobs program; and

(IX)

support collaboration, as appropriate, between employers and labor organizations and other workforce development professionals, including joint labor management training and education programs where appropriate.

(E)

Definitions

In this paragraph:

(i)

Adult education

The term adult education has the meaning given that term in section 203 of the Workforce Investment Act of 1998 (20 U.S.C. 9202).

(ii)

Career pathway

The term career pathway means a linked set of workforce education and job opportunities within a specific industry sector, or for an occupational sector that cuts across multiple business and industry sectors, which begins at the lowest skill and English language levels, and extends through for-credit college opportunities such as earning relevant associate or bachelor’s degrees, and prepares individuals for advancement in jobs in demand in the local or regional labor market.

(iii)

Community-based provider

The term community-based provider means a not-for-profit organization, with local boards of directors, that directly provides workforce education services.

(iv)

Institution of higher education

The term institution of higher education has the meaning given that term in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001).

(v)

Charter school

The term charter school has the meaning given that term in section 5210 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 7221i).

(vi)

Area vocational education school

The term area vocational and technical education school has the meaning given that term in section 3 of the Carl D. Perkins Vocational and Technical Education Act of 1998 (20 U.S.C. 2302).

(vii)

Disadvantaged workers

The term disadvantaged workers means unemployed individuals in low-income households or employed individuals in low-income households with wages at or below 2/3 of the median wage for the State or region applying for the grant.

(viii)

Career pathway partnership

The term career pathway partnership means collaborations of 1 or more workforce education providers, 1 or more employers, 1 or more labor organizations, where applicable, as a result of such organization's representation of employees at the worksite who have skills in which the training or employment programs are proposed, and may include optional additional entities as needed to provide a comprehensive range of workforce education and ancillary support services.

(ix)

Workforce education

The term workforce education means a set of career guidance and exploration services, adult education and English language services, job training, registered apprenticeship programs, and credit and non-credit postsecondary education services aimed at preparing individuals to enter and sustain employment in specific occupations and to have the sufficient skills to respond to shifting employment opportunities.

(x)

Workforce education provider

The term workforce education provider means community-based providers, institutions of higher education, area vocational and technical education schools, charter schools, and other public nonprofit entities that have a demonstrated capacity to provide quality workforce education services.

(c)

Matching requirement

(1)

In general

The Secretary of Health and Human Services and the Secretary of Labor may not award a grant to a State under this section unless the State agrees that, with respect to the costs to be incurred by the State in conducting a demonstration project with funds provided under the grant, the State will make available non-Federal contributions in an amount equal to 10 percent of the amount of Federal funds paid to the State under such grant.

(2)

Non-federal contributions

In this subsection, the term non-Federal contributions includes contributions by the State and by public and private entities that may be in cash or in kind, but does not include any amounts provided by the Federal Government, or services assisted or subsidized to any significant extent by the Federal Government, or any amount expended by a State before October 1, 2009.

(d)

Worker protections and labor standards

(1)

Rate of pay; benefits and working conditions

(A)

In general

A worksite employer of a participant in a program or activity funded under this section shall pay the participant at the rate paid to employees of the worksite employer who are not participants in such program or activity and who perform comparable work at the worksite, including periodic increases where appropriate. If no other employees of the worksite employer perform comparable work at the worksite, the worksite employer shall pay the participant not less than the applicable Federal or State minium wage, whichever is higher.

(B)

Benefits and conditions

An individual employed through participation in a program or activity funded under this section shall be provided with benefits and working conditions at the same level and to the same extent as such benefits and conditions are provided to other employees of the employer of the individual who have worked a similar length of time and perform the same work.

(2)

Nonduplication

(A)

In general

Funds provided through a grant made under this paragraph shall be used only for a program or activity that does not duplicate, and is in addition to, a program or activity otherwise available in the locality of the program or activity funded under this section.

(B)

Private, nonprofit entity

Funds provided through a grant made under this section shall not be provided to a private nonprofit entity to conduct programs or activities that are the same as or substantially equivalent to activities provided by a State or local government agency in the area in which such entity is located, unless the requirements of paragraph (3) are met.

(3)

Nondisplacement

(A)

In general

A worksite employer shall not displace an employee or position (including partial displacement such as reduction in hours, wages, or employment benefits) or impair contracts for services or collective bargaining agreements, as a result of the use by such employer of a participant in a program or activity funded under this section, and no participant in the program or activity shall be assigned to fill any established unfilled position vacancy.

(B)

Job opportunities

A job opportunity shall not be created under this paragraph that will infringe in any manner on the promotional opportunity of an employed individual.

(C)

Limitation on services

(i)

Supplantation of hiring

A participant in any program or activity funded under this section shall not perform any services or duties, or engage in activities, that will supplant the hiring of employees that are not participants in the program or activity.

(ii)

Duties formerly performed by another employee

A participant in any program or activity funded under this section shall not perform services or duties, or engage in activities, that are services, duties, or activities that had been performed by or were assigned to any employee who recently resigned or was discharged, who is subject to a reduction in force, who has recall rights pursuant to a collective bargaining agreement or applicable personnel procedures, who is on leave (such as terminal, temporary, vacation, emergency, or sick leave), who is on strike, or who is being locked out.

(D)

Concurrence of local labor organization

No placement shall be made under a program or activity funded under this section until the entity conducting the program or activity has obtained the written concurrence of any local labor organization representing employees who are engaged in the same or substantially similar work as that proposed to be carried out for the worksite employer with whom a participant is to be placed under the program or activity.

(4)

No impact on union organizing

A State conducting a demonstration project funded under this section and any entity conducting a program or activity funded under this section shall provide the Secretary with a certified assurance that none of such funds shall be used to assist or deter union organizing.

(5)

Accountability

(A)

In general

Funds provided under this section shall not be used to subsidize training or employment with an employer that has a demonstrable record of noncompliance with Federal labor, civil rights, workplace safety, or related laws.

(B)

Certified satisfactory record

Employers who receive training or wage subsidies under programs or activities funded under this section shall have a satisfactory record in labor relations and employment practices, as certified by the Secretary of Labor.

(C)

Application of worker protection laws

A participant in a program or activity funded under this section shall be considered to be an employee of any employer that the participant is placed with for all purposes under Federal and State law, including laws relating to health and safety, civil rights, and worker’s compensation.

(D)

Other job quality standards

Employers who receive training or wage subsidies under programs or activities funded under this section shall meet all applicable State or local job or employer quality standards regarding such issues as wages, benefits, advancement opportunities, and turnover rates established for programs funded under the Workforce Investment Act of 1998 (29 U.S.C. 2801 et seq.).

(6)

Grievance procedure

An entity conducting a program or activity funded under this section shall establish and maintain a procedure for the filing and adjudication of grievances by employees of worksite employers who are not participants in the program, or such employees’ representatives, or by participants in such a program or activity alleging a violation of a provision of this subsection that is similar to the grievance procedure established by a State for purposes of section 407(f)(3) of the Social Security Act (42 U.S.C. 607(f)(3)).

(7)

Nonpreemption of state law

The provisions of this subsection shall not be construed to preempt any provision of State law that affords greater protections to employees or participants than are afforded by this subsection.

(8)

Treatment of amounts paid to participants

Amounts paid to a participant in a program or activity funded under this section shall be—

(A)

considered earned income for purpose of determining the participant's eligibility for the child tax credit established under section 24 of the Internal Revenue Code of 1986, the earned income tax credit established under section 32 of such Code, and any other tax benefit established under such Code the eligibility for which is based on earned income; and

(B)

disregarded for purposes of determining the participant's, the participant's family's, or the participant's household's eligibility for, or amount of, assistance or benefits provided under any means-tested program funded in whole or in part with Federal funds.

(e)

Application

(1)

Requirements for all applications

(A)

In general

A State desiring to receive a grant to conduct a demonstration project under this section shall submit an application—

(i)

to the Secretary of Health and Human Services, in the case of a grant under subsection (a); or

(ii)

to the Secretary of Labor, in the case of a grant under subsection (b);

at such time, in such manner, and containing such information or assurances as the Secretary of Health and Human Services or the Secretary of Labor, as appropriate, may require.
(B)

Compliance with worker protections and labor standards

The application shall include an assurance that the State and any entity conducting a program or activity under the project shall comply with the worker protections and labor standards established in accordance with such protections under subsection (d).

(C)

Nondiscrimination

The application shall include an assurance that the State and any entity conducting a program or activity under the demonstration project shall comply with section 188(a)(2) of the Workforce Investment Act of 1998 (29 U.S.C. 2938(a)(2)) to the same extent that such section would apply to the entity if the program or activity conducted under the demonstration project was considered to be funded or otherwise financially assisted under that Act.

(D)

Assurance grant will supplement, not supplant, other State funding

The application shall include an assurance from the chief executive officer of the State that funds made available under the grant will supplement, and not supplant, other funds used by the State to establish or support employment placements for low-income parents.

(2)

Specific demonstration project requirements

(A)

Court-supervised or IV–D agency-supervised employment programs for noncustodial parents

In order to conduct a demonstration project described in subsection (a), a State shall include in the application submitted to the Secretary of Health and Human Services the following:

(i)

Evidence of an agreement between the State and 1 or more counties to establish an employment program that meets the requirements of subsection (a).

(ii)

The number of potential noncustodial parents to be served by the program.

(iii)

The purposes specific to that State’s program.

(iv)

The median income of the target population.

(B)

Public-private career pathways partnerships

In order to conduct a demonstration project described in paragraph (2) of subsection (b), a State shall include in the application submitted to the Secretary of Labor a description of—

(i)

the number, characteristics, and employment and earnings status of disadvantaged individuals in the State or applicable region where the program is to be conducted;

(ii)

which business and industry sectors, or occupational clusters that cut across sectors, will be targeted by the career pathways partnership, based on overall economic benefit to the community, the current and future demand for workers, the advancement opportunities for workers, the wages at each step of the career pathway, and availability of worker benefits;

(iii)

the interventions that will be put in place to address any educational deficits, limited English proficiency, or learning disabilities of individuals who participate in the program and to ensure that such individuals have the academic, technical, communications, and other job skills to function in the jobs targeted by the partnership;

(iv)

how the members of the partnership will collaborate on the development of curriculum and delivery of training that will provide the necessary occupational, academic and other work-related skills and credentialing needed for the specific labor market areas;

(v)

the supports that will be used to provide counseling, mentoring or other support to individuals while in training or to assist them in navigating in complicated work environments;

(vi)

the set of career exposure activities that will be put in place to provide hands-on experience such as work experience, on the job training, internships, or work-study;

(vii)

the agreements that are in place with employers, industry groups, and labor organizations, where applicable, to ensure access to jobs and advancement opportunities in the targeted businesses, industry or occupations;

(viii)

how the workforce education providers in the partnership will assess the employment barriers and needs of local disadvantaged individuals who participate in the program and will identify resources for meeting those needs;

(ix)

how the workforce education providers will work with partnership employers, business and industry groups, labor organizations, where applicable, and local economic development organizations to identify the priority workforce needs of the local industry;

(x)

how the partnerships will ensure that the appropriate program delivery models and formal agreements are in place to ensure maximum benefits to the individuals receiving career pathway partnership services and to the employers and labor organizations, where applicable, in the partnership and the industries or businesses they represent;

(xi)

how partnership employers and labor organizations, where applicable, will be actively involved in identifying specific workforce education needs, planning the curriculum, assisting in training activities, providing job opportunities, and coordinating job retention for individuals hired after training through the program and follow-up support; and

(xii)

how the partnership will build on existing career pathways programs, where applicable, to serve the targeted population.

(3)

Applications by Indian tribes or tribal organizations

The Secretary of Health and Human Services and the Secretary of Labor may exempt an Indian tribe or tribal organization from any requirement of this section that the Secretary of Health and Human Services or the Secretary of Labor determines would be inappropriate to apply to the Indian tribe or tribal organization, taking into account the resources, needs, and other circumstances of the Indian tribe or tribal organization.

(f)

Priorities and requirements for awarding grants

(1)

In general

Subject to paragraphs (2) and (3), the Secretary of Health and Human Services (in the case of a grant under subsection (a)) and the Secretary of Labor (in the case of a grant under subsection (b)) shall give priority to making grants under this section to entities that—

(A)

demonstrate success with respect to meeting the goals of quality job placement, long-term unsubsidized job retention, and, where applicable, increasing child support payments, decreasing unpaid child support arrearages, and increasing the involvement of low-income noncustodial parents with their children through their participation in responsible fatherhood activities, including participation in programs that provide culturally relevant curricula in core subjects including—

(i)

conducting activities with children;

(ii)

improving communication skills;

(iii)

child support management;

(iv)

providing financially for the family's security and well-being;

(v)

managing stress and anger, as well as domestic violence intervention services when appropriate;

(vi)

maintaining physical and mental health;

(vii)

parenting and relationship skills;

(viii)

child development; and

(ix)

barriers to responsible parenthood, including substance abuse, unemployment, criminal justice system involvement, and inadequate housing; and

(B)

coordinate with, and link individuals as applicable to, other public and private benefits and employment services for low-income adults among the different systems or programs in which such adults are involved, including the criminal justice system, the State programs funded under each part of title IV of the Social Security Act (42 U.S.C. 601 et seq.) (including programs and activities funded under section 403(a)(2) of the Social Security Act (42 U.S.C. 603(a)(2))), educational assistance and student aid programs, and job training or employment programs, including State employment agencies.

(2)

Performance measures

In making grants under this section, the Secretary of Health and Human Services (in the case of a grant under subsection (a)) and the Secretary of Labor (in the case of a grant under subsection (b)) shall ensure that grantees demonstrate a plan for implementing measures to track their performance with respect to meeting the goals of quality job placement, long-term unsubsidized job retention, and, where applicable, increasing child support payments, decreasing child support arrearages, and increasing the involvement of low-income noncustodial parents with their children when determined to be appropriate.

(3)

Reflective of target populations

In making grants under this section, the Secretary of Health and Human Services (in the case of a grant under subsection (a)) and the Secretary of Labor (in the case of a grant under subsection (b)) shall give priority to States with proposed demonstration projects that are designed to target low-income adults, including custodial and noncustodial parents, and low-income married couples.

(4)

Substantial funding for each of the purposes

In making grants under subsection (b), the Secretary of Labor shall ensure that a substantial share of the amount appropriated under subsection (j) for a fiscal year is used for carrying out each of the projects described in paragraphs (1) and (2) of subsection (b).

(g)

Regulatory and policy flexibility

The Secretary of Labor and the Secretary of Health and Human Services, in coordination with the Secretary of Education and the Attorney General, shall work with grantees under this section to resolve policy barriers that may impede blending of federal resources to support these demonstration projects.

(h)

Evaluation

The Secretary of Health and Human Services (in the case of a grant under subsection (a)) and the Secretary of Labor (in the case of a grant under subsection (b)) shall provide for an independent and rigorous evaluation of the demonstration projects conducted under this section that includes, to the maximum extent feasible, random assignment or other appropriate statistical techniques, in order to assess the effectiveness of the projects.

(i)

General Definitions

In this section:

(1)

State

The term State means each of the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American Samoa, and includes an Indian tribe or tribal organization.

(2)

IV–D agency

The term IV–D agency means the State or local agency responsible for administering the State program established under part D of title IV of the Social Security Act (42 U.S.C. 651 et seq.).

(3)

Indian tribe; tribal organization

The terms Indian tribe and tribal organization have the meaning given such terms in section 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b).

(j)

Appropriation

Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated to carry out this section—

(1)

for programs administered by the Secretary of Health and Human Services under subsection (a), $15,000,000 for each of fiscal years 2010 through 2013; and

(2)

for programs administered by the Secretary of Labor under subsection (b), $35,000,000 for each of fiscal years 2010 through 2013.

106.

State assessments of barriers to employment and financial support of children

(a)

State assessments and reports

As a condition of the continued approval of a State plan under part D of title IV of the Social Security Act (42 U.S.C. 651 et seq.), each State with an approved such plan, acting through the appropriate State agencies, shall assess the State policies with respect to the issues described in subsection (b) and submit a report to the Secretary of Health and Human Services on the results of such assessment not later than March 15, 2010.

(b)

Issues described

For purposes of subsection (a), the issues described in this subsection are the following:

(1)

The process of setting and modifying child support obligations, particularly with respect to low-income parents, including—

(A)

the role and criteria for using imputed income in determining child support obligations;

(B)

the process of modifying obligations;

(C)

the consideration of income and employment status, including efforts to identify unreported income;

(D)

the consideration of incarceration;

(E)

the consideration of disability;

(F)

the treatment of arrearages, including interest charged, and laws or procedures that interfere with forgiveness, adjustment, waiver, or compromise of arrears owed to the State by low-income noncustodial parents who lack sufficient ability to pay such arrearages;

(G)

the procedures related to retroactive support; and

(H)

State pass-through and disregard policies for recipients of means tested public benefits.

(2)

The impact of state criminal laws and law enforcement practices on the employment acquisition, retention, and advancement prospects of individuals following arrest, conviction, or incarceration, including—

(A)

any efforts, including counseling or employment support, to assist ex-prisoners with reentry to a community and successful reunification with their families; and

(B)

an assessment of any efforts to seal or expunge arrest and conviction records and any efforts to grant certificates or other acknowledgments of rehabilitation to ex-prisoners, and to examine State occupational licensing and certification procedures.

(3)

An assessment of the impact of debt on employment retention, including child support and non-child support debts imposed to recover costs related to welfare and criminal justice.

(4)

An assessment of State practices related to providing prisoners and ex-prisoners with valid identification documents upon release from prison.

(5)

Identification of any other barriers to healthy family formation or sustainable economic opportunity for custodial and noncustodial parents that are created or exacerbated by Federal or State laws, policies, or procedures, including an examination of the rules of Federal and State means-tested programs, the operation of the State workforce system, the availability of financial education services, and the availability of domestic violence services and child support procedures to help victims of domestic violence stay safe and obtain the child support they are owed.

(c)

Grants to states for commissions on state law improvements in the best interest of children and families

The Secretary of Health and Human Services shall award grants to States to establish or support commissions to review the State assessment conducted in accordance with subsection (a) and to make recommendations on ways to improve State law in the best interest of children and families.

(d)

Appropriations

Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated to the Secretary of Health and Human Services for the period of fiscal years 2010 through 2011, $3,000,000, to remain available until expended, for the purpose of making—

(1)

payments to States to offset all or a portion of the costs of conducting the State assessments and reports required under subsection (a); and

(2)

grants to States under subsection (c).

107.

Collection of child support under the supplemental nutrition assistance program

(a)

Encouragement of collection of child support

Section 5 of the Food and Nutrition Act of 2008 (7 U.S.C. 2014) is amended—

(1)

in subsection (e)—

(A)

by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively;

(B)

in paragraph (4)(B), by striking paragraph (6) and inserting paragraph (7); and

(C)

by inserting after paragraph (4) the following:

(5)

Deduction for child support received

(A)

In general

A household shall be allowed a deduction of 20 percent of all legally obligated child support payments received from an identified or putative parent of a child in the household if that parent is not a household member.

(B)

Order of determining deductions

A deduction under this paragraph shall be determined before the computation of the excess shelter deduction under paragraph (7).

; and

(2)

in subsection (k)(4)(B), by striking subsection (e)(6) and inserting subsection (e)(7).

(b)

Simplified verification of child support payments

Section 5(n) of the Food and Nutrition Act of 2008 (7 U.S.C. 2014(n)) is amended—

(1)

in the subsection heading, by striking State options to simplify, and inserting Simplified; and

(2)

by striking Regardless of whether and inserting the following:

(1)

In general

A household that is paying legally obligated child support through the program under part D of title IV of the Social Security Act (42 U.S.C. 651 et seq.) shall receive—

(A)

a deduction under subsection (e)(4); or

(B)

an exclusion for paid child support under subsection (d)(6).

(2)

State options

Regardless of whether

.

(c)

Inclusion of economic opportunities programs in definition of work program

Section 6(o)(2) of the Food and Nutrition Act of 2008 (7 U.S.C. 2015(o)(2)) is amended—

(1)

in subparagraph (C), by striking or at the end;

(2)

in subparagraph (D), by striking the period at the end and inserting ; or; and

(3)

by adding at the end the following:

(E)

participate in and comply with the requirements of a demonstration project under section 106 of the Responsible Fatherhood and Healthy Families Act of 2009;

.

(d)

Effective date

(1)

In general

This section and the amendments made by this section take effect on October 1, 2009.

(2)

State option

A State may implement the amendments made by subsections (a) and (b) for participating households at the first recertification of the households that occurs on or after October 1, 2009.

108.

Grants supporting healthy family partnerships for domestic violence intervention and prevention

Section 403(a) of the Social Security Act (42 U.S.C. 603(a)) is amended by adding at the end the following new paragraph:

(6)

Grants supporting healthy family partnerships for domestic violence intervention and prevention

(A)

In general

The Secretary shall award grants on a competitive basis to healthy family partnerships to—

(i)

develop and implement promising practices for assessing and providing services to individuals and families affected by domestic violence, including through caseworker training, the provision of technical assistance to community partners, and the implementation of safe visitation and exchange programs; or

(ii)

develop and implement promising practices for preventing domestic violence, particularly as a barrier to economic security, and fostering healthy relationships.

(B)

Education services

In awarding grants under subparagraph (A), the Secretary shall ensure that 10 percent of the funds made available under such grants are used for high schools and other secondary educational institutions and institutions of higher education to provide education services on the value of healthy relationships, responsible parenting, and healthy marriages characterized by mutual respect and non-violence, and the importance of building relationships skills such as communication, conflict resolution, and budgeting.

(C)

Application

The respective entity and organization of a healthy family partnership entered into for purposes of receiving a grant under this paragraph shall submit a joint application to the Secretary, at such time and in such manner as the Secretary shall specify, containing—

(i)

a description of how the partnership intends to carry out the activities described in subparagraph (A);

(ii)

an assurance that funds made available under the grant shall be used to supplement, and not supplant, other funds used by the entity or organization to carry out programs, activities, or services described in subparagraph (A) or (B); and

(iii)

such other information as the Secretary may require.

(D)

General rules governing use of funds

The rules of section 404, other than subsection (b) of that section, shall not apply to a grant made under this paragraph.

(E)

Definitions

In this paragraph:

(i)

Domestic violence

The term domestic violence has the meaning given that term in section 402(a)(7)(B).

(ii)

Healthy family partnership

The term healthy family partnership means a partnership between—

(I)

an entity receiving funds under a grant made under paragraph (2) to promote healthy marriage or responsible fatherhood; and

(II)

an organization or organizations with demonstrated expertise working with survivors of domestic violence.

(F)

Appropriation

Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for each of fiscal years 2010 through 2012, $25,000,000 for purposes of awarding grants to healthy family partnerships under this paragraph.

.

109.

Procedures to address domestic violence prevention

(a)

Requirements To ensure procedures To address domestic violence prevention

Section 403(a)(2) of the Social Security Act (42 U.S.C. 603(a)(2)), as amended by section 101, is amended—

(1)

by redesignating subparagraph (D) as subparagraph (F); and

(2)

by inserting after subparagraph (C) the following new subparagraphs:

(D)

Requirements for receipt of funds

An entity may not be awarded a grant under this paragraph unless the entity, as a condition of receiving funds under such a grant—

(i)

identifies in its application the domestic violence experts at the local, State, or national level with whom it will consult in the development and implementation of its programs and activities;

(ii)

upon an award of funds, and in consultation with such domestic violence experts, develops a written protocol which describes—

(I)

how the entity will identify instances or risks of domestic violence;

(II)

the procedures for responding to such instances or risk, including making service referrals and providing protections and appropriate assistance for identified individuals and families;

(III)

how confidentiality issues will be addressed; and

(IV)

the domestic violence training that will be provided to ensure effective and consistent implementation of the protocol; and

(iii)

in its annual report to the Secretary, includes a description such domestic violence protocols and a description of any implementation issues identified with respect to domestic violence and how such issues were addressed.

(E)

Domestic violence defined

In this paragraph, the term domestic violence has the meaning given that term in section 402(a)(7)(B).

.

(b)

Conforming amendments

Section 403(a)(2) of such Act (42 U.S.C. 603(a)(2)), as so amended, is amended—

(1)

in subparagraph (A)(i)—

(A)

by striking (B) and (C) and inserting (B), (C), and (D); and

(B)

by striking subparagraph (D) and inserting subparagraph (F);

(2)

in subparagraphs (B)(i) and (C)(i), by striking (D) each place it appears and inserting (F); and

(3)

in subparagraph (F) (as redesignated by subsection (a)(1)), by striking $150,000,000 for each of fiscal years 2006 through 2010 and inserting $150,000,000 for each of fiscal years 2006 through 2008 and $200,000,000 for each of fiscal years 2009 through 2014.

II

Revenue provisions

201.

Modifications to the earned income tax credit

(a)

Increase in earned income credit for workers with no qualifying children

(1)

Earned income amount

(A)

In general

The table under section 32(b)(2)(A) of the Internal Revenue Code of 1986 is amended by striking $4,220 and inserting $7,250.

(B)

Transition for earned income amount

Section 32(b)(2) of such Code is amended by adding at the end the following new subparagraph:

(C)

Transition for earned income amount

For purposes of subparagraph (A), in lieu of the earned income amount specified for eligible individuals with no qualifying children, the earned income amount for such individuals for 2010 is $5,900, for 2011 is $6,200, for 2012 is $6,500, and for 2013 is $6,900.

.

(2)

Phaseout amount

(A)

In general

The table under section 32(b)(2)(A) of the Internal Revenue Code of 1986 is amended by striking $5,280 and inserting phaseout amount % of annual minimum wage.

(B)

Phaseout amount percentage

Section 32(b)(2) of such Code, as amended by this Act, is amended by adding at the end the following new subparagraph:

(D)

Phaseout amount percentage

For purposes of subparagraph (A), the phaseout amount percentage is 70 percent for 2010, 72 percent for 2011, 75 percent for 2012, 85 percent in 2013, and 100 percent in 2014 and thereafter.

.

(3)

Annual minimum wage

Section 32(b)(2) of such Code, as amended by this Act, is amended by adding at the end the following new subparagraph:

(E)

Annual minimum wage

For purposes of subparagraph (A), the annual minimum wage for any calendar year is an amount equal to the product of 2,000 and the minimum hourly wage effective on January 1 of such year under section 6(a)(1) of the Fair Labor Standards Act of 1938.

.

(4)

Inflation adjustment

(A)

In general

Section 32(j) of such Code is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:

(2)

Earned income amount and phaseout amount for individuals with no qualifying children

In the case of any taxable year beginning after calendar year 2014, the earned income amount and the phaseout amount in effect for an eligible individual with no qualifying children in subsection (b)(2)(A) shall be increased by an amount equal to—

(A)

such amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof.

.

(B)

Conforming amendments

(i)

Section 32(j)(1)(B)(i) of such Code is amended by inserting (other than the amount described in paragraph (2)) after subsections (b)(2)(A).

(ii)

Section 32(b)(3)(B)(iii) of such Code is amended by striking subsection (j)(2) and inserting subsection (j)(3).

(5)

Conforming amendment

Section 32(b)(2)(A) of such Code is amended by striking Subject to subparagraph (B) and inserting Except as otherwise provided in this paragraph.

(6)

Effective date

The amendments made by this subsection shall apply to taxable years beginning after December 31, 2009.

(b)

Enhanced credit for certain workers with no qualifying children

(1)

In general

Section 32 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(n)

Additional credit for certain workers

(1)

In general

In the case of a qualified individual, the credit allowed under subsection (a) shall be increased by an amount equal to 100 percent of the amount of the credit allowed under this section (without regard to this subsection).

(2)

Qualified individual

For purposes of this subsection, the term qualified individual means an eligible individual who—

(A)

is described in clause (ii) of subsection (c)(1)(A),

(B)

is the parent of a child and is required to make child support payments with respect to such child pursuant to an order which—

(i)

is in effect during the taxable year of such individual, and

(ii)

is enforced during such taxable year by a State agency responsible for administering the State plan under part D of title IV of the Social Security Act, and

(C)

has paid child support during the taxable year in an amount not less than the amount of current child support for such taxable year for every order requiring the individual to make child support payments.

For purposes of subparagraph (C), a child support payment will be considered to have been made during the taxable year if such payment is withheld from or attributable to a pay period beginning in such taxable year and is made no later than 30 days after the date on which such taxable year ends.
(3)

Regulations

The Secretary shall establish regulations to carry out the purposes of this subsection, including regulations which provide for the verification of the payment of child support in accordance with paragraph (2)(D).

.

(2)

Verification of payment

(A)

In general

The Secretary of Health and Human Services, in consultation with the Secretary of the Treasury and the States, shall establish such procedures as are appropriate to ensure that the Secretary of the Treasury has the information that the Secretary of the Treasury determines necessary to allow for verification of the status of individuals as qualified individuals (as defined under section 32(n) of the Internal Revenue Code of 1986, as added by paragraph (1)) and of payment of child support obligations in a timely fashion.

(B)

Authority to use Federal case registry

The Secretary of Health and Human Services may include in the Federal Case Registry of Child Support Orders established under section 453(h) of the Social Security Act (42 U.S.C. 653(h)) such information as the Secretary determines appropriate to allow for the verification described in subparagraph (A).

(C)

State procedures

The Secretary of Health and Human Services, in consultation with the States, shall establish procedures for informing a noncustodial parent in a timely fashion when the parent has paid the amount of child support owed by the parent for a taxable year so that the parent may determine the extent to which the parent is a qualified individual for purposes of qualifying for the additional credit established under section 32(n) of the Internal Revenue Code of 1986, as added by paragraph (1).

(3)

Information sharing

Subsection (j) of section 453 of the Social Security Act (42 U.S.C. 653(j)) is amended by adding at the end the following new paragraph:

(12)

Administration of Federal tax laws

In addition to the access provided under subsections (h)(3) and (i)(3), the Secretary of the Treasury shall have access to such information maintained under this chapter as the Secretary of the Treasury determines is necessary to verify eligibility for the credit allowed under section 32(n) of the Internal Revenue Code of 1986, under procedures established pursuant to such section.

.

(4)

Effective date

The amendments made by paragraphs (1) and (3) shall apply to taxable years beginning after December 31, 2009.

(c)

Marriage penalty relief

(1)

In general

Section 32(b)(2)(B) of the Internal Revenue Code of 1986 is amended—

(A)

by striking after 2007 in clause (iii) and inserting in 2008,

(B)

by striking and at the end of clause (ii),

(C)

by striking the period at the end of clause (iii) and inserting , and, and

(D)

by adding at the end the following new clauses:

(iv)

the amount determined under paragraph (3)(B) in the case of taxable years beginning in 2009 and 2010, and

(v)

$4,000 in the case of taxable years beginning after 2010.

.

(2)

Inflation adjustment

Section 32(j)(1)(B)(ii) of such Code is amended—

(A)

by striking and at the end of clause (i),

(B)

by striking the period at the end of clause (ii) and inserting , and, and

(C)

by adding at the end the following new clause:

(iii)

in the case of the $4,000 amount in subsection (b)(2)(B)(v), by substituting calendar year 2010 for calendar year 1992 in subparagraph (B) of such section 1.

.

(3)

Effective date

The amendments made by this subsection shall apply to taxable years beginning after December 31, 2009.

202.

Clarification of economic substance doctrine

(a)

In general

Section 7701 of the Internal Revenue Code of 1986 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:

(o)

Clarification of Economic Substance Doctrine; etc

(1)

General rules

(A)

In general

In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction (or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.

(B)

Definition of economic substance

For purposes of subparagraph (A)—

(i)

In general

A transaction has economic substance only if—

(I)

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

(II)

subject to clause (iii), the taxpayer has a substantial purpose (other than a Federal tax purpose) for entering into such transaction.

(ii)

Special rule where taxpayer relies on profit potential

A transaction shall not be treated as having economic substance solely by reason of having a potential for profit unless the present value of the reasonably expected pre-Federal tax profit from the transaction is substantial in relation to the present value of the expected net Federal tax benefits that would be allowed if the transaction were respected. In determining pre-Federal tax profit, there shall be taken into account fees and other transaction expenses and to the extent provided by the Secretary, foreign taxes.

(iii)

Special rules for determining whether non-federal tax purpose

For purposes of clause (i)(II)—

(I)

a purpose of achieving a financial accounting benefit shall not be taken into account in determining whether a transaction has a substantial purpose (other than a Federal tax purpose) if the origin of such financial accounting benefit is a reduction of Federal tax, and

(II)

the taxpayer shall not be treated as having a substantial purpose (other than a Federal tax purpose) with respect to a transaction if the only such purpose is the reduction of non-Federal taxes and the transaction will result in a reduction of Federal taxes substantially equal to, or greater than, the reduction in non-Federal taxes because of similarities between the laws imposing the taxes.

(2)

Definitions and special rules

For purposes of this subsection—

(A)

Economic substance doctrine

The term economic substance doctrine means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.

(B)

Exception for personal transactions of individuals

In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.

(3)

Other provisions not affected

Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law or provision of this title, and the requirements of this subsection shall be construed as being in addition to any such other rule of law or provision of this title.

(4)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.

.

(b)

Effective Date

The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

203.

Penalty for understatements attributable to transactions lacking economic substance, etc

(a)

In General

Subchapter A of chapter 68 of the Internal Revenue Code of 1986 is amended by inserting after section 6662A the following new section:

6662B.

Penalty for understatements attributable to transactions lacking economic substance, etc

(a)

Imposition of Penalty

If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 30 percent of the amount of such understatement.

(b)

Reduction of Penalty for Disclosed Transactions

Subsection (a) shall be applied by substituting 20 percent for 30 percent with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.

(c)

Noneconomic Substance Transaction Understatement

For purposes of this section—

(1)

In general

The term noneconomic substance transaction understatement means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.

(2)

Noneconomic substance transaction

The term noneconomic substance transaction means any transaction if there is a lack of economic substance (within the meaning of section 7701(o)(1)(B)) for the transaction giving rise to the claimed benefit.

(d)

Rules Applicable To Assertion, Compromise, and Collection of Penalty

(1)

In general

Only the Chief Counsel for the Internal Revenue Service may assert a penalty imposed under this section or may compromise all or any portion of such penalty. The Chief Counsel may delegate the authority under this paragraph only to an individual holding the position of chief of a branch within the Office of the Chief Counsel for the Internal Revenue Service.

(2)

Specific requirements

(A)

Assertion of penalty

The Chief Counsel for the Internal Revenue Service (or the Chief Counsel's delegate under paragraph (1)) shall not assert a penalty imposed under this section unless, before the assertion of the penalty, the taxpayer is provided—

(i)

a notice of intent to assert the penalty, and

(ii)

an opportunity to provide to the Commissioner (or the Chief Counsel's delegate under paragraph (1)) a written response to the proposed penalty within a reasonable period of time after such notice.

(B)

Compromise of penalty

A compromise shall not result in a reduction in the penalty imposed by this section in an amount greater than the amount which bears the same ratio to the amount of the penalty determined without regard to the compromise as—

(i)

the reduction under the compromise in the noneconomic substance transaction understatement to which the penalty relates, bears to

(ii)

the amount of the noneconomic substance transaction understatement determined without regard to the compromise.

(3)

Rules relating to relevancy requirement

(A)

Determination of relevance by chief counsel

The Chief Counsel for the Internal Revenue Service (or the Chief Counsel's delegate under paragraph (1)) may assert, compromise, or collect a penalty imposed by this section with respect to a noneconomic substance transaction even if there has not been a court determination that the economic substance doctrine was relevant for purposes of this title to the transaction if the Chief Counsel (or delegate) determines that either was so relevant.

(B)

Final order of court

If there is a final order of a court that determines that the economic substance doctrine was not relevant for purposes of this title to a transaction (or series of transactions), any penalty imposed under this section with respect to the transaction (or series of transactions) shall be rescinded.

(4)

Applicable rules

The rules of paragraphs (2) and (3) of section 6707A(d) shall apply to a compromise under paragraph (1).

(e)

Coordination With Other Penalties

Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.

(f)

Cross References

(1)

For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).

(2)

For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).

.

(b)

Coordination With Other Understatements and Penalties

(1)

The second sentence of section 6662(d)(2)(A) of the Internal Revenue Code of 1986 is amended by inserting and without regard to items with respect to which a penalty is imposed by section 6662B before the period at the end.

(2)

Subsection (e) of section 6662A of such Code is amended—

(A)

in paragraph (1), by inserting and noneconomic substance transaction understatements after reportable transaction understatements both places it appears,

(B)

in paragraph (2)(A)—

(i)

by inserting 6662B or before 6663 in the text, and

(ii)

by striking penalty in the heading and inserting and economic substance penalties,

(C)

in paragraph (2)(B)—

(i)

by inserting and section 6662B after This section, and

(ii)

by striking penalty in the heading and inserting and economic substance penalties,

(D)

in paragraph (3), by inserting or noneconomic substance transaction understatement after reportable transaction understatement, and

(E)

by adding at the end the following new paragraph:

(4)

Noneconomic substance transaction understatement

For purposes of this subsection, the term noneconomic substance transaction understatement has the meaning given such term by section 6662B(c).

.

(3)

Subsection (e) of section 6707A of such Code is amended—

(A)

by striking or at the end of subparagraph (B), and

(B)

by striking subparagraph (C) and inserting the following new subparagraphs:

(C)

is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or

(D)

is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(B)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or to penalty under section 6662B,

.

(c)

Clerical Amendment

The table of sections for part II of subchapter A of chapter 68 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 6662A the following new item:

Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.

.

(d)

Effective Date

The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

204.

Denial of deduction for interest on underpayments attributable to noneconomic substance transactions

(a)

In General

Section 163(m) of the Internal Revenue Code of 1986 (relating to interest on unpaid taxes attributable to nondisclosed reportable transactions) is amended—

(1)

by striking attributable and all that follows and inserting the following:

attributable to—

(1)

the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, or

(2)

any noneconomic substance transaction understatement (as defined in section 6662B(c)).

, and

(2)

by inserting and Noneconomic Substance Transactions in the heading thereof after Transactions.

(b)

Effective Date

The amendments made by this section shall apply to transactions after the date of the enactment of this Act in taxable years ending after such date.