Pub.L. 108-028 Concerning participation of Taiwan in the World Health Organization. <> ...

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                                appears and by substituting `120-day 
                                period' for `90-day period'), or

[[Page 117 STAT. 761]]

                                    ``(II) to the extent that the 
                                taxpayer is under an obligation (whether 
                                pursuant to a short sale or otherwise) 
                                to make related payments with respect to 
                                positions in substantially similar or 
                                related property.
                    ``(C) Qualified foreign corporations.--
                          ``(i) In general.--Except as otherwise 
                      provided in this paragraph, the term `qualified 
                      foreign corporation' means any foreign corporation 
                      if--
                                    ``(I) such corporation is 
                                incorporated in a possession of the 
                                United States, or
                                    ``(II) such corporation is eligible 
                                for benefits of a comprehensive income 
                                tax treaty with the United States which 
                                the Secretary determines is satisfactory 
                                for purposes of this paragraph and which 
                                includes an exchange of information 
                                program.
                          ``(ii) Dividends on stock readily tradable on 
                      united states securities market.--A foreign 
                      corporation not otherwise treated as a qualified 
                      foreign corporation under clause (i) shall be so 
                      treated with respect to any dividend paid by such 
                      corporation if the stock with respect to which 
                      such dividend is paid is readily tradable on an 
                      established securities market in the United 
                      States.
                          ``(iii) Exclusion of dividends of certain 
                      foreign corporations.--Such term shall not include 
                      any foreign corporation which for the taxable year 
                      of the corporation in which the dividend was paid, 
                      or the preceding taxable year, is a foreign 
                      personal holding company (as defined in section 
                      552), a foreign investment company (as defined in 
                      section 1246(b)), or a passive foreign investment 
                      company (as defined in section 1297).
                          ``(iv) Coordination 
                      with <<NOTE: Applicability.>> foreign tax credit 
                      limitation.--Rules similar to the rules of section 
                      904(b)(2)(B) shall apply with respect to the 
                      dividend rate differential under this paragraph.
                    ``(D) Special rules.--
                          ``(i) Amounts taken into account as investment 
                      income.--Qualified dividend income shall not 
                      include any amount which the taxpayer takes into 
                      account as investment income under section 
                      163(d)(4)(B).
                          ``(ii) Extraordinary dividends.--If an 
                      individual receives, with respect to any share of 
                      stock, qualified dividend income from 1 or more 
                      dividends which are extraordinary dividends 
                      (within the meaning of section 1059(c)), any loss 
                      on the sale or exchange of such share shall, to 
                      the extent of such dividends, be treated as long-
                      term capital loss.
                          ``(iii) Treatment of dividends from regulated 
                      investment companies and real estate investment 
                      trusts.--A dividend received from a regulated 
                      investment company or a real estate investment 
                      trust shall be subject to the limitations 
                      prescribed in sections 854 and 857.''.

[[Page 117 STAT. 762]]

    (b) Exclusion of Dividends From Investment Income.--Subparagraph (B) 
of <<NOTE: 26 USC 163.>> section 163(d)(4) (defining net investment 
income) is amended by adding at the end the following flush sentence:
                ``Such term shall include qualified dividend income (as 
                defined in section 1(h)(11)(B)) only to the extent the 
                taxpayer elects to treat such income as investment 
                income for purposes of this subsection.''.

    (c) Treatment of Dividends From Regulated Investment Companies.--
            (1) Subsection (a) of section 854 (relating to dividends 
        received from regulated investment companies) is amended by 
        inserting ``section 1(h)(11) (relating to maximum rate of tax on 
        dividends) and'' after ``For purposes of''.
            (2) Paragraph (1) of section 854(b) (relating to other 
        dividends) is amended by redesignating subparagraph (B) as 
        subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) Maximum rate under section 1(h).--
                          ``(i) In general.--
                      If <<NOTE: Applicability.>> the aggregate 
                      dividends received by a regulated investment 
                      company during any taxable year are less than 95 
                      percent of its gross income, then, in computing 
                      the maximum rate under section 1(h)(11), rules 
                      similar to the rules of subparagraph (A) shall 
                      apply.
                          ``(ii) Gross income.--For purposes of clause 
                      (i), in the case of 1 or more sales or other 
                      dispositions of stock or securities, the term 
                      `gross income' includes only the excess of--
                                    ``(I) the net short-term capital 
                                gain from such sales or dispositions, 
                                over
                                    ``(II) the net long-term capital 
                                loss from such sales or dispositions.
                          ``(iii) Dividends from real estate investment 
                      trusts.--For purposes of clause (i)--
                                    ``(I) paragraph (3)(B)(ii) shall not 
                                apply, and
                                    ``(II) in the case of a distribution 
                                from a trust described in such 
                                paragraph, the amount of such 
                                distribution which is a dividend shall 
                                be subject to the limitations under 
                                section 857(c).
                          ``(iv) Dividends from qualified foreign 
                      corporations.--For purposes of clause (i), 
                      dividends received from qualified foreign 
                      corporations (as defined in section 1(h)(11)) 
                      shall also be taken into account in computing 
                      aggregate dividends received.''.
            (3) Subparagraph (C) of section 854(b)(1), as redesignated 
        by paragraph (2), is amended by striking ``subparagraph (A)'' 
        and inserting ``subparagraph (A) or (B)''.
            (4) Paragraph (2) of section 854(b) is amended by inserting 
        ``the maximum rate under section 1(h)(11) and'' after ``for 
        purposes of''.
            (5) Subsection (b) of section 854 is amended by adding at 
        the end the following new paragraph:
            ``(5) Coordination with section 1(h)(11).--For purposes of 
        paragraph (1)(B), an amount shall be treated as a dividend only 
        if the amount is qualified dividend income (within the meaning 
        of section 1(h)(11)(B)).''.

[[Page 117 STAT. 763]]

    (d) Treatment of Dividends Received From Real Estate Investment 
Trusts.--Section 857(c) (relating <<NOTE: 26 USC 857.>> to restrictions 
applicable to dividends received from real estate investment trusts) is 
amended to read as follows:

    ``(c) Restrictions Applicable to Dividends Received From Real Estate 
Investment Trusts.--
            ``(1) Section 243.--For purposes of section 243 (relating to 
        deductions for dividends received by corporations), a dividend 
        received from a real estate investment trust which meets the 
        requirements of this part shall not be considered a dividend.
            ``(2) Section 1(h)(11).--For purposes of section 1(h)(11) 
        (relating to maximum rate of tax on dividends)--
                    ``(A) <<NOTE: Applicability.>> rules similar to the 
                rules of subparagraphs (B) and (C) of section 854(b)(1) 
                shall apply to dividends received from a real estate 
                investment trust which meets the requirements of this 
                part, and
                    ``(B) for purposes of such rules, such a trust shall 
                be treated as receiving qualified dividend income during 
                any taxable year in an amount equal to the sum of--
                          ``(i) the excess of real estate investment 
                      trust taxable income computed under section 
                      857(b)(2) for the preceding taxable year over the 
                      tax payable by the trust under section 857(b)(1) 
                      for such preceding taxable year, and
                          ``(ii) the excess of the income subject to tax 
                      by reason of the application of the regulations 
                      under section 337(d) for the preceding taxable 
                      year over the tax payable by the trust on such 
                      income for such preceding taxable year.''.

    (e) Conforming Amendments.--
            (1) Paragraph (3) of section 1(h), as redesignated by 
        section 301, is amended to read as follows:
            ``(3) Adjusted net capital gain.--For purposes of this 
        subsection, the term `adjusted net capital gain' means the sum 
        of--
                    ``(A) net capital gain (determined without regard to 
                paragraph (11)) reduced (but not below zero) by the sum 
                of--
                          ``(i) unrecaptured section 1250 gain, and
                          ``(ii) 28-percent rate gain, plus
                    ``(B) qualified dividend income (as defined in 
                paragraph (11)).''.
            (2) Subsection (f) of section 301 is amended adding at the 
        end the following new paragraph:
            ``(4) For taxation of dividends received by individuals at 
        capital gain rates, see section 1(h)(11).''.
            (3) Paragraph (1) of section 306(a) is amended by adding at 
        the end the following new subparagraph:
                    ``(D) Treatment as dividend.--For purposes of 
                section 1(h)(11) and such other provisions as the 
                Secretary may specify, any amount treated as ordinary 
                income under this paragraph shall be treated as a 
                dividend received from the corporation.''.
            (4)(A) Subpart C of part II of subchapter C of chapter 1 
        (relating to collapsible <<NOTE: 26 USC 341.>> corporations) is 
        repealed.
            (B)(i) Section 338(h) is amended by striking paragraph (14).

[[Page 117 STAT. 764]]

            (ii) Sections 467(c)(5)(C), 1255(b)(2), and 
        1257(d) <<NOTE: 26 USC 467, 1255, 1257.>> are each amended by 
        striking ``, 341(e)(12),''.
            (iii) The table of subparts for part II of subchapter C of 
        chapter 1 is amended by striking the item related to subpart C.
            (5) Section 531 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to 15 percent of the 
        accumulated taxable income.''.
            (6) Section 541 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to 15 percent of the 
        undistributed personal holding company income.''.
            (7) Section 584(c) is amended by adding at the end the 
        following new flush sentence:

``The proportionate share of each participant in the amount of dividends 
received by the common trust fund and to which section 1(h)(11) applies 
shall be considered for purposes of such paragraph as having been 
received by such participant.''.
            (8) Paragraph (5) of section 702(a) is amended to read as 
        follows:
            ``(5) dividends with respect to which section 1(h)(11) or 
        part VIII of subchapter B applies,''.

    (f) Effective <<NOTE: Applicability. 26 USC 1 note.>> Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2002.
            (2) Regulated investment companies and real estate 
        investment trusts.--In the case of a regulated investment 
        company or a real estate investment trust, the amendments made 
        by this section shall apply to taxable years ending after 
        December 31, 2002; except that dividends received by such a 
        company or trust on or before such date shall not be treated as 
        qualified dividend income (as defined in section 1(h)(11)(B) of 
        the Internal Revenue Code of 1986, as added by this Act).

SEC. 303. <<NOTE: 26 USC 1 note.>> SUNSET OF TITLE.

    All provisions of, and amendments made by, this title shall not 
apply to taxable years beginning after December 31, 2008, and the 
Internal Revenue Code of 1986 shall be applied and administered to such 
years as if such provisions and amendments had never been enacted.

                 TITLE IV--TEMPORARY STATE FISCAL RELIEF

SEC. 401. <<NOTE: 42 USC 1396d note.>> TEMPORARY STATE FISCAL RELIEF.

    (a) $10,000,000,000 for a Temporary Increase of the Medicaid FMAP.--
            (1) Permitting maintenance of fiscal year 2002 fmap for last 
        2 calendar quarters of fiscal year 2003.--Subject to paragraph 
        (5), if the FMAP determined without regard to this subsection 
        for a State for fiscal year 2003 is less than the FMAP as so 
        determined for fiscal year 2002, the FMAP for the State for 
        fiscal year 2002 shall be substituted for the State's FMAP for 
        the third and fourth calendar quarters of fiscal year 2003, 
        before the application of this subsection.

[[Page 117 STAT. 765]]

            (2) Permitting maintenance of fiscal year 2003 fmap for 
        first 3 quarters of fiscal year 2004.--Subject to paragraph (5), 
        if the FMAP determined without regard to this subsection for a 
        State for fiscal year 2004 is less than the FMAP as so 
        determined for fiscal year 2003, the FMAP for the State for 
        fiscal year 2003 shall be substituted for the State's FMAP for 
        the first, second, and third calendar quarters of fiscal year 
        2004, before the application of this subsection.
            (3) General 2.95 percentage points increase for last 2 
        calendar quarters of fiscal year 2003 and first 3 calendar 
        quarters of fiscal year 2004.--Subject to paragraphs (5), (6), 
        and (7), for each State for the third and fourth calendar 
        quarters of fiscal year 2003 and for the first, second, and 
        third calendar quarters of fiscal year 2004, the FMAP (taking 
        into account the application of paragraphs (1) and (2)) shall be 
        increased by 2.95 percentage points.
            (4) Increase in cap on medicaid payments to territories.--
        Subject to paragraphs (6) and (7), with respect to the third and 
        fourth calendar quarters of fiscal year 2003 and the first, 
        second, and third calendar quarters of fiscal year 2004, the 
        amounts otherwise determined for Puerto Rico, the Virgin 
        Islands, Guam, the Northern Mariana Islands, and American Samoa 
        under subsections (f) and (g) of section 1108 of the Social 
        Security Act (42 U.S.C. 1308) shall each be increased by an 
        amount equal to 5.90 percent of such amounts.
            (5) Scope of application.--The increases in the FMAP for a 
        State under this subsection shall apply only for purposes of 
        title XIX of the Social Security Act and shall not apply with 
        respect to--
                    (A) disproportionate share hospital payments 
                described in section 1923 of such Act (42 U.S.C. 1396r-
                4);
                    (B) payments under title IV or XXI of such Act (42 
                U.S.C. 601 et seq. and 1397aa et seq.); or
                    (C) any payments under XIX of such Act that are 
                based on the enhanced FMAP described in section 2105(b) 
                of such Act (42 U.S.C. 1397ee(b)).
            (6) State eligibility.--
                    (A) In general.--Subject to subparagraph (B), a 
                State is eligible for an increase in its FMAP under 

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