SA 3674. Mr. GREGG submitted an amendment intended to be proposed by him to the bill H.R. 2419, to provide for the continuation of agricultural programs through fiscal year 2012, and for other purposes; which was ordered to lie on the table; as follows:

At the appropriate place, insert the following:
SEC. __X. DISCHARGES OF INDEBTEDNESS ON PRINCIPAL RESIDENCE EXCLUDED FROM GROSS INCOME.
(a) In General.--Paragraph (1) of section 108(a) is amended by striking ``or'' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ``, or'', and by inserting after subparagraph (D) the following new subparagraph:
``(E) the indebtedness is qualified principal residence indebtedness which is discharged before January 1, 2010.''.
(b) Special Rules Relating to Qualified Principal Residence Indebtedness.--Section 108 is amended by adding at the end the following new subsection:
``(h) Special Rules Relating to Qualified Principal Residence Indebtedness.--
``(1) BASIS REDUCTION.--The amount excluded from gross income by reason of subsection (a)(1)(E) shall be applied to reduce (but not below zero) the basis of the principal residence of the taxpayer.
``(2) QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.--For purposes of this section, the term `qualified principal residence indebtedness' means acquisition indebtedness (within the meaning of section 163(h)(3)(B)).
``(3) EXCEPTION FOR CERTAIN DISCHARGES NOT RELATED TO TAXPAYER'
S FINANCIAL CONDITION.--Subsection (a)(1)(E) shall not apply to the discharge of a loan if the discharge is on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer.

``(4) ORDERING RULE.--If any loan is discharged, in whole or in part, and only a portion of such loan is qualified principal residence indebtedness, subsection (a)(1)(E) shall apply only to so much of the amount discharged as exceeds the amount of the loan (as determined immediately before such discharge) which is not qualified principal residence indebtedness.
``(5) PRINCIPAL RESIDENCE.--For purposes of this subsection, the term `principal residence' has the same meaning as when used in section 121.''.
(c) Coordination.--
(1) Subparagraph (A) of section 108(a)(2) is amended by striking ``and (D)'' and inserting ``(D), and (E)''.
(2) Paragraph (2) of section 108(a) is amended by adding at the end the following new subparagraph:
``(C) PRINCIPAL RESIDENCE EXCLUSION TAKES PRECEDENCE OVER INSOLVENCY EXCLUSION UNLESS ELECTED OTHERWISE.--Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(E) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).''.
(d) Effective Date.--The amendments made by this section shall apply to discharges of indebtedness on or after January 1, 2007.


(As printed in the Congressional Record for the Senate on Nov 14, 2007.)