of a trade or business within the United States shall not be treated as income from sources within any such possession or as effectively connected with the conduct of a trade or business within any such possession.

"(c) REPORTING REQUIREMENT.—

"(1) IN GENERAL.-If, for any taxable year, an individual takes the position for United States income tax reporting purposes that the individual became, or ceases to be, a bona fide resident of a possession specified in subsection (a)(1), such individual shall file with the Secretary, at such time and in such manner as the Secretary may prescribe, notice of such position.

“(2) TRANSITION RULE.-If, for any of an individual's 3 taxable years ending before the individual's first taxable year ending after the date of the enactment of this subsection, the individual took a position described in paragraph (1), the individual shall file with the Secretary, at such time and in such manner as the Secretary may prescribe, notice of such position.".

(b) PENALTY.-Section 6688 is amended—

(1) by inserting "under section 937(c) or" before "by regulations", and

(2) by striking "$100" and inserting "$1,000".

(c) CONFORMING AND CLERICAL AMENDMENTS.—

(1) Section 931(d) is amended to read as follows:

“(d) EMPLOYEES OF THE UNITED STATES.-Amounts paid for services performed as an employee of the United States (or any agency thereof) shall be treated as not described in paragraph (1) or (2) of subsection (a).".

(2) Section 932 is amended by striking "at the close of the taxable year" and inserting "during the entire taxable year" each place it appears.

(3) Section 934(b)(4) is amended by striking "the Virgin Islands or" each place it appears.

(4) Section 935, as in effect before the effective date of its repeal, is amended

(A) by striking "for the taxable year who" in subsection (a) and inserting "who, during the entire taxable year", (B) by inserting "bona fide" before "resident" in subsection (a)(1),

(C) in subsection (b)(1)—

(i) by inserting "(other a bona fide resident of Guam during the entire taxable year)" after "United States" in subparagraph (A), and

(ii) by inserting "bona fide" before "resident" in subparagraph (B), and

(D) in subsection (b)(2) by striking "residence and". (5) Section 957(c) is amended

(A) in paragraph (2)(B) by striking "conduct of an active" and inserting "active conduct of a", and

(B) in the last sentence by striking "derived from sources within a possession, was effectively connected with the conduct of a trade or business within a possession,

or".

(6) The table of sections of subpart D of part III of subchapter N of chapter 1 is amended by adding at the end the following new item:

"Sec. 937. Residence and source rules involving possessions.". (d) EFFECTIVE DATE.

(1) IN GENERAL.-Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(2) 183-DAY RULE.-Section 937(a)(1) of the Internal Revenue Code of 1986 (as added by this section) shall apply to taxable years beginning after the date of the enactment of this Act.

(3) SOURCING.-Section 937(b)(2) of such Code (as so added) shall apply to income earned after the date of the enactment of this Act.

SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY
REGULATORY COMMISSION OR STATE ELECTRIC
RESTRUCTURING POLICY.

(a) IN GENERAL.-Section 451 (relating to general rule for taxable year of inclusion) is amended by adding at the end the following new subsection:

"(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.—

"(1) IN GENERAL.-In the case of any qualifying electric transmission transaction for which the taxpayer elects the application of this section, qualified gain from such transaction shall be recognized

"(A) in the taxable year which includes the date of such transaction to the extent the amount realized from such transaction exceeds―

"(i) the cost of exempt utility property which is purchased by the taxpayer during the 4-year period beginning on such date, reduced (but not below zero) by

"(ii) any portion of such cost previously taken into account under this subsection, and

"(B) ratably over the 8-taxable year period beginning with the taxable year which includes the date of such transaction, in the case of any such gain not recognized under subparagraph (A).

“(2) QUALIFIED GAIN.-For purposes of this subsection, the term 'qualified gain' means, with respect to any qualifying electric transmission transaction in any taxable year

“(A) any ordinary income derived from such transaction which would be required to be recognized under section 1245 or 1250 for such taxable year (determined without regard to this subsection), and

"(B) any income derived from such transaction in excess of the amount described in subparagraph (A) which is required to be included in gross income for such taxable year (determined without regard to this subsection). "(3) QUALIFYING ELECTRIC TRANSMISSION TRANSACTION.— For purposes of this subsection, the term 'qualifying electric

26 USC 937 note.

transmission transaction' means any sale or other disposition before January 1, 2007, of

"(A) property used in the trade or business of providing electric transmission services, or

"(B) any stock or partnership interest in a corporation or partnership, as the case may be, whose principal trade or business consists of providing electric transmission services, but only if such sale or disposition is to an independent transmission company.

"(4) INDEPENDENT TRANSMISSION COMPANY.-For purposes of this subsection, the term 'independent transmission company'

means

"(A) an independent transmission provider approved by the Federal Energy Regulatory Commission,

“(B) a person—

"(i) who the Federal Energy Regulatory Commission determines in its authorization of the transaction under section 203 of the Federal Power Act (16 U.S.C. 824b) or by declaratory order is not a market participant within the meaning of such Commission's rules applicable to independent transmission providers, and

"(ii) whose transmission facilities to which the election under this subsection applies are under the operational control of a Federal Energy Regulatory Commission-approved independent transmission provider before the close of the period specified in such authorization, but not later than the close of the period applicable under subsection (a)(2)(B) as extended under paragraph (2), or

(C) in the case of facilities subject to the jurisdiction of the Public Utility Commission of Texas

"(i) a person which is approved by that Commission as consistent with Texas State law regarding an independent transmission provider, or

"(ii) a political subdivision or affiliate thereof whose transmission facilities are under the operational control of a person described in clause (i).

“(5) EXEMPT UTILITY PROPERTY.-For purposes of this subsection:

"(A) IN GENERAL.-The term 'exempt utility property' means property used in the trade or business of

"(i) generating, transmitting, distributing, or selling electricity, or

"(ii) producing, transmitting, distributing, or selling natural gas.

"(B) NONRECOGNITION OF GAIN BY REASON OF ACQUISITION OF STOCK.-Acquisition of control of a corporation shall be taken into account under this subsection with respect to a qualifying electric transmission transaction only if the principal trade or business of such corporation is a trade or business referred to in subparagraph (A). "(6) SPECIAL RULE FOR CONSOLIDATED GROUPS.-In the case of a corporation which is a member of an affiliated group filing a consolidated return, any exempt utility property purchased by another member of such group shall be treated

as purchased by such corporation for purposes of applying paragraph (1)(A).

"(7) TIME FOR ASSESSMENT OF DEFICIENCIES.-If the taxpayer has made the election under paragraph (1) and any gain is recognized by such taxpayer as provided in paragraph (1)(B), then

"(A) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on the transaction is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of the purchase of exempt utility property or of an intention not to purchase such property, and

"(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding any law or rule of law which would otherwise prevent such assess

ment.

"(8) PURCHASE. For purposes of this subsection, the taxpayer shall be considered to have purchased any property if the unadjusted basis of such property is its cost within the meaning of section 1012.

“(9) ELECTION.-An election under paragraph (1) shall be made at such time and in such manner as the Secretary may require and, once made, shall be irrevocable.

SALES TREAT

"(10) NONAPPLICATION OF INSTALLMENT MENT.-Section 453 shall not apply to any qualifying electric transmission transaction with respect to which an election to apply this subsection is made.".

(b) EFFECTIVE DATE.-The amendments made by this section 26 USC 451 note. shall apply to transactions occurring after the date of the enactment

of this Act, in taxable years ending after such date.

SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.

(a) IN GENERAL.-Section 179(b) (relating to limitations) is amended by adding at the end the following new paragraph:

"(6) LIMITATION ON COST TAKEN INTO ACCOUNT FOR CERTAIN

PASSENGER VEHICLES.

“(A) IN GENERAL.-The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.

"(B) SPORT UTILITY VEHICLE.-For purposes of subparagraph (A)

“(i) IN GENERAL.-The term 'sport utility vehicle' means any 4-wheeled vehicle

"(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),

"(II) which is not subject to section 280F, and "(III) which is rated at not more than 14,000 pounds gross vehicle weight.

"(ii) CERTAIN VEHICLES EXCLUDED.-Such term does not include any vehicle which

"(I) is designed to have a seating capacity of more than 9 persons behind the driver's seat,

26 USC 179 note.

"(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or

"(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.".

(b) EFFECTIVE DATE.-The amendment made by this section shall apply to property placed in service after the date of the enactment of this Act.

Approved October 22, 2004.

LEGISLATIVE HISTORY-H.R. 4520:

HOUSE REPORTS: Nos. 108-548, Pt. 1 (Comm. on Ways and Means) and 108-755

(Comm. of Conference).

CONGRESSIONAL RECORD, Vol. 150 (2004):

June 17, considered and passed House.

July 15, considered and passed Senate, amended.

Oct. 7, House agreed to conference report.

Oct. 8-11, Senate considered and agreed to conference report.