Pub.L. 107-017 To extend for 4 additional months the period for which chapter 12 of title 11 of the United States Code is reenacted. <> ...

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                      to employees of the taxpayer.
                    ``(B) Fair market value.--The term `qualified child 
                care expenditures' shall not include expenses in excess 
                of the fair market value of such care.
            ``(2) Qualified child care facility.--
                    ``(A) In general.--The term `qualified child care 
                facility' means a facility--
                          ``(i) the principal use of which is to provide 
                      child care assistance, and
                          ``(ii) which meets the requirements of all 
                      applicable laws and regulations of the State or 
                      local government in which it is located, including 
                      the licensing of the facility as a child care 
                      facility.

[[Page 115 STAT. 51]]

                Clause (i) shall not apply to a facility which is the 
                principal residence (within the meaning of section 121) 
                of the operator of the facility.
                    ``(B) Special rules with respect to a taxpayer.--A 
                facility shall not be treated as a qualified child care 
                facility with respect to a taxpayer unless--
                          ``(i) enrollment in the facility is open to 
                      employees of the taxpayer during the taxable year,
                          ``(ii) if the facility is the principal trade 
                      or business of the taxpayer, at least 30 percent 
                      of the enrollees of such facility are dependents 
                      of employees of the taxpayer, and
                          ``(iii) the use of such facility (or the 
                      eligibility to use such facility) does not 
                      discriminate in favor of employees of the taxpayer 
                      who are highly compensated employees (within the 
                      meaning of section 414(q)).
            ``(3) Qualified child care resource and referral 
        expenditure.--
                    ``(A) In general.--The term `qualified child care 
                resource and referral expenditure' means any amount paid 
                or incurred under a contract to provide child care 
                resource and referral services to an employee of the 
                taxpayer.
                    ``(B) Nondiscrimination.--The services shall not be 
                treated as qualified unless the provision of such 
                services (or the eligibility to use such services) does 
                not discriminate in favor of employees of the taxpayer 
                who are highly compensated employees (within the meaning 
                of section 414(q)).

    ``(d) Recapture of Acquisition and Construction Credit.--
            ``(1) In general.--If, as of the close of any taxable year, 
        there is a recapture event with respect to any qualified child 
        care facility of the taxpayer, then the tax of the taxpayer 
        under this chapter for such taxable year shall be increased by 
        an amount equal to the product of--
                    ``(A) the applicable recapture percentage, and
                    ``(B) the aggregate decrease in the credits allowed 
                under section 38 for all prior taxable years which would 
                have resulted if the qualified child care expenditures 
                of the taxpayer described in subsection (c)(1)(A) with 
                respect to such facility had been zero.
            ``(2) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

                                                          The applicable
                                                               recapture
            ``If the recapture event 
            occurs in:                                    percentage is:
                Years 1-3.....................................  100     
                Year 4........................................   85     
                Year 5........................................   70     
                Year 6........................................   55     
                Year 7........................................   40     
                Year 8........................................   25     
                Years 9 and 10................................   10     
                Years 11 and thereafter.......................    0.    

                    ``(B) Years.--For purposes of subparagraph (A), year 
                1 shall begin on the first day of the taxable year in 
                which the qualified child care facility is placed in 
                service by the taxpayer.

[[Page 115 STAT. 52]]

            ``(3) Recapture event defined.--For purposes of this 
        subsection, the term `recapture event' means--
                    ``(A) Cessation of operation.--The cessation of the 
                operation of the facility as a qualified child care 
                facility.
                    ``(B) Change in ownership.--
                          ``(i) In general.--Except as provided in 
                      clause (ii), the disposition of a taxpayer's 
                      interest in a qualified child care facility with 
                      respect to which the credit described in 
                      subsection (a) was allowable.
                          ``(ii) Agreement to assume recapture 
                      liability.--Clause (i) shall not apply if the 
                      person acquiring such interest in the facility 
                      agrees in writing to assume the recapture 
                      liability of the person disposing of such interest 
                      in effect immediately before such disposition. In 
                      the event of such an assumption, the person 
                      acquiring the interest in the facility shall be 
                      treated as the taxpayer for purposes of assessing 
                      any recapture liability (computed as if there had 
                      been no change in ownership).
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under subpart A, B, or D of this 
                part.
                    ``(C) No recapture by reason of casualty loss.--The 
                increase in tax under this subsection shall not apply to 
                a cessation of operation of the facility as a qualified 
                child care facility by reason of a casualty loss to the 
                extent such loss is restored by reconstruction or 
                replacement within a reasonable period established by 
                the Secretary.

    ``(e) Special Rules.--For purposes of this section--
            ``(1) Aggregation rules.--All persons which are treated as a 
        single employer under subsections (a) and (b) of section 52 
        shall be treated as a single taxpayer.
            ``(2) <<NOTE: Regulations. Applicability.>>  Pass-thru in 
        the case of estates and trusts.--Under regulations prescribed by 
        the Secretary, rules similar to the rules of subsection (d) of 
        section 52 shall apply.
            ``(3) Allocation in the case of partnerships.--In the case 
        of partnerships, the credit shall be allocated among partners 
        under regulations prescribed by the Secretary.

    ``(f ) No Double Benefit.--
            ``(1) Reduction in basis.--For purposes of this subtitle--
                    ``(A) In general.--If a credit is determined under 
                this section with respect to any property by reason of 
                expenditures described in subsection (c)(1)(A), the 
                basis of such property shall be reduced by the amount of 
                the credit so determined.
                    ``(B) Certain dispositions.--If, during any taxable 
                year, there is a recapture amount determined with 
                respect to any property the basis of which was reduced 
                under

[[Page 115 STAT. 53]]

                subparagraph (A), the basis of such property 
                (immediately before the event resulting in such 
                recapture) shall be increased by an amount equal to such 
                recapture amount. For purposes of the preceding 
                sentence, the term `recapture amount' means any increase 
                in tax (or adjustment in carrybacks or carryovers) 
                determined under subsection (d).
            ``(2) Other deductions and credits.--No deduction or credit 
        shall be allowed under any other provision of this chapter with 
        respect to the amount of the credit determined under this 
        section.''.

    (b) Conforming Amendments.--
            (1) Section 38(b), <<NOTE: 26 USC 38.>>  as amended by 
        section 619, is amended by striking ``plus'' at the end of 
        paragraph (13), by striking the period at the end of paragraph 
        (14) and inserting ``, plus'', and by adding at the end the 
        following:
            ``(15) the employer-provided child care credit determined 
        under section 45F.''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following:
                ``Sec. 45F. Employer-provided child care credit.''.

            (3) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (26), by striking the period at the end of 
        paragraph (27) and inserting ``, and'', and by adding at the end 
        the following:
            ``(28) in the case of a facility with respect to which a 
        credit was allowed under section 45F, to the extent provided in 
        section 45F(f )(1).''.

    (c) <<NOTE: Applicability. 26 USC 38 note.>>  Effective Date.--The 
amendments made by this section shall apply to taxable years beginning 
after December 31, 2001.

                   TITLE III--MARRIAGE PENALTY RELIEF

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and inserting 
        ``the applicable percentage of the dollar amount in effect under 
        subparagraph (C) for the taxable year'';
            (2) by adding ``or'' at the end of subparagraph (B);
            (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.''; and
            (4) by striking subparagraph (D).

    (b) Applicable Percentage.--Section 63(c) (relating to standard 
deduction) is amended by adding at the end the following new paragraph:
            ``(7) Applicable percentage.--For purposes of paragraph (2), 
        the applicable percentage shall be determined in accordance with 
        the following table:

                ``For taxable years beginning             The applicable
                  in calendar year--                     percentage is--
                    2005........................................    174 
                    2006........................................    184 
                    2007........................................    187 
                    2008........................................    190 
                    2009 and thereafter......................... 200.''.


[[Page 115 STAT. 54]]



    (c) Technical Amendments.--
            (1) Subparagraph (B) of section 1(f )(6) <<NOTE: 26 USC 
        1.>>  is amended by striking ``(other than with'' and all that 
        follows through ``shall be applied'' and inserting ``(other than 
        with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be 
        applied''.
            (2) Paragraph (4) of section 63(c) is amended by adding at 
        the end the following flush sentence:
        ``The preceding sentence shall not apply to the amount referred 
        to in paragraph (2)(A).''.

    (d) <<NOTE: Applicability. 26 USC 1 note.>>  Effective Date.--The 
amendments made by this section shall apply to taxable years beginning 
after December 31, 2004.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

    (a) In General.--Section 1(f ) (relating to adjustments in tax 
tables so that inflation will not result in tax increases) is amended by 
adding at the end the following new paragraph:
            ``(8) Phaseout of marriage penalty in 15-percent bracket.--
                    ``(A) In general.--With respect to taxable years 
                beginning after December 31, 2004, in prescribing the 
                tables under paragraph (1)--
                          ``(i) the maximum taxable income in the 15-
                      percent rate bracket in the table contained in 
                      subsection (a) (and the minimum taxable income in 
                      the next higher taxable income bracket in such 
                      table) shall be the applicable percentage of the 
                      maximum taxable income in the 15-percent rate 
                      bracket in the table contained in subsection (c) 
                      (after any other adjustment under this 
                      subsection), and
                          ``(ii) the comparable taxable income amounts 
                      in the table contained in subsection (d) shall be 
                      \1/2\ of the amounts determined under clause (i).
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

                ``For taxable years beginning             The applicable
                  in calendar year--                     percentage is--
                    2005........................................    180 
                    2006........................................    187 
                    2007........................................    193 
                    2008 and thereafter.........................    200.

                    ``(C) Rounding.--If any amount determined under 
                subparagraph (A)(i) is not a multiple of $50, such 
                amount shall be rounded to the next lowest multiple of 
                $50.''.

    (b) Technical Amendments.--
            (1) Subparagraph (A) of section 1(f )(2) is amended by 
        inserting ``except as provided in paragraph (8),'' before ``by 
        increasing''.
            (2) The heading for subsection (f ) of section 1 is amended 
        by inserting ``Phaseout of Marriage Penalty in 15-Percent 
        Bracket;'' before ``Adjustments''.

    (c) <<NOTE: Applicability. 26 USC 1 note.>>  Effective Date.--The 
amendments made by this section shall apply to taxable years beginning 
after December 31, 2004.

[[Page 115 STAT. 55]]

SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED 
            INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME; 
            SIMPLIFICATION OF EARNED INCOME CREDIT.

    (a) Increased Phaseout Amount.--
            (1) In general.--Section 32(b)(2) <<NOTE: 26 USC 32.>>  
        (relating to amounts) is amended--
                    (A) by striking ``Amounts.--The earned'' and 
                inserting ``Amounts.--
                    ``(A) In general.--Subject to subparagraph (B), the 

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