SUMMARY OF PROVISIONS

CONTAINED IN H.R. 5542,

THE “TAXPAYER RELIEF ACT OF 2000,"

AS INCORPORATED BY REFERENCE IN

THE CONFERENCE AGREEMENT FOR H.R. 2614

Prepared by the Staff

of the

Joint Committee on Taxation

October 31, 2000

JCX-110-00
(i)

CONTENTS

Page

INTRODUCTION .................................................... 1

TITLE I. REPEAL OF FOREIGN SALES CORPORATION PROVISIONS

AND EXCLUSION FOR EXTRATERRITORIAL INCOME ............. 2

TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS ............... 3

A. Extension of the Work Opportunity Tax Credit (“WOTC”) ............... 3

B. Increase the Maximum Dollar Amount of Reforestation Expenditures

Eligible for Amortization and Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

C. Capital Gains Treatment Under Section 631(b) to Apply to Outright Sales of

Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

D. Increase Section 179 Expensing .................................... 3

E. Increase Deduction for Business Meals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

F. Increased Deduction for Business Meals While Operating Under Department of

Transportation Hours of Service Limitations ........................... 3

G. Repeal of Modification of Installment Method ......................... 4

H. Coordinate Farmers and Fisherman Income Averaging and the Alternative

Minimum Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I. Repeal Special Occupational Taxes on Producers and Marketers of Alcoholic

Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

J. Exclusion from Gross Income for Certain Forgiven Mortgage Obligations . . . 4

K. Clarification of Cash Accounting Rules for Small Businesses . . . . . . . . . . . . . 5

L. Authorize Payment of Interest on Business Checking Accounts ............ 5
(ii)

TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE

PROVISIONS ..................................................... 6

A. Accelerate 100-Percent Self-Employed Health Insurance Deduction ........ 6

B. Above-the-Line Deduction for Health Insurance Expenses ................ 6

C. Provisions Relating to Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Above-the-line deduction for long-term care insurance .................. 6

Revision of consumer protection provisions applicable to long-term care

insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Deduction for providing long-term care to household members ............ 6

D. Medical Savings Accounts (“MSAs”) ................................ 7

TITLE IV. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT

PROVISIONS ..................................................... 8

Subtitle A. Individual Retirement Arrangements ("IRAs") ................ 8

Increase in IRA contribution limit .................................... 8

Catch-up contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Increase AGI limits for deductible IRA contributions ..................... 8

Roth IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Deemed IRAs under employer plans .................................. 8

Tax-free withdrawals for charitable purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Subtitle B. Expanding Coverage ...................................... 8

Increase in benefit and contribution limits ............................. 8

Plans loans for S corporation shareholders, partners, and sole proprietors . . . 9

Modification of top-heavy rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Elective deferrals not taken into account for purposes of deduction

limits ..................................................... 9

Repeal of coordination requirements for deferred compensation plans of 

State and local governments and tax-exempt organizations . . . . . . . . . . . 9

Eliminate IRS user fees for certain determine letter requests regarding employer

plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Deduction limits ................................................. 9

Option to treat elective deferrals as after-tax contributions . . . . . . . . . . . . . . . . 9
(iii)

Subtitle C. Enhancing Fairness for Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Additional salary reduction catch-up contributions . . . . . . . . . . . . . . . . . . . . . . 10

Equitable treatment for contributions of employees to defined contribution 

plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Faster vesting of employer matching contributions . . . . . . . . . . . . . . . . . . . . . . 10

Simplify and update the minimum distribution rules . . . . . . . . . . . . . . . . . . . . 10

Clarification of tax treatment of division of section 457 plan benefits upon 

divorce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Modifications of safe harbor relief for hardship withdrawals from 401(k)

plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Pension coverage for domestic and similar workers . . . . . . . . . . . . . . . . . . . . . 11

Subtitle D. Increasing Portability for Participants . . . . . . . . . . . . . . . . . . . . . . 11

Rollovers of retirement plan and IRA distributions . . . . . . . . . . . . . . . . . . . . . . 11

Waiver of 60-day rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Treatment of forms of distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Rationalization of restrictions on distributions . . . . . . . . . . . . . . . . . . . . . . . . . 11

Purchase of service credit under governmental pension plans . . . . . . . . . . . . . . 11

Employers may disregard rollovers for purposes of cash-out rules . . . . . . . . . . 11

Subtitle E. Strengthening Pension Security and Enforcement . . . . . . . . . . . . . 12

Phase in repeal of 155 percent of current liability funding limit; deduction 

for contributions to fund termination liability . . . . . . . . . . . . . . . . . . . . . 12

Excise tax relief for sound pension funding . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Notice of significant reduction in plan benefit accruals . . . . . . . . . . . . . . . . . . . 12

Modification to section 415 limits for multiemployer plans . . . . . . . . . . . . . . . 12

Investment of employee contributions in 401(k) plans . . . . . . . . . . . . . . . . . . . 12

Periodic pension benefit statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Prohibited allocation of stock in an S corporation ESOP . . . . . . . . . . . . . . . . . 12

Subtitle F. Reducing Regulatory Burdens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Modification of timing of plan valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ESOP dividends may be reinvested without loss of dividend deduction . . . . . 13

Repeal transition rule relating to certain highly compensated employees . . . . 13

Employees of tax-exempt entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Treatment of employer-provided retirement advice . . . . . . . . . . . . . . . . . . . . . . 13

Reporting simplification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Improvement to employee plans compliance resolution system . . . . . . . . . . . . 13

Repeal of the multiple use test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(iv)

Flexibility in nondiscrimination, coverage, and line of business rules . . . . . . . 13

Extension to all governmental plans of moratorium on application of certain .

nondiscrimination rules applicable to state and local government plans . . . . . . . . . 14

Notice and consent period regarding distributions; disclosure of optional

forms of benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Annual report dissemination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Modifications to the SAVER Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Subtitle G: Other ERISA Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Extension of PBGC missing participants program . . . . . . . . . . . . . . . . . . . . . . 14

Reduce PBGC premiums for small and new plans . . . . . . . . . . . . . . . . . . . . . . 14

Authorization for PBGC to pay interest on premium overpayment

refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Rules for substantial owner benefits in terminated plans . . . . . . . . . . . . . . . . . 14

Multiemployer plan benefits guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Civil penalties for breach of fiduciary responsibility . . . . . . . . . . . . . . . . . . . . . 15

Benefit suspension notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Subtitle H: Provisions Relating to Plan Amendments . . . . . . . . . . . . . . . . . . . 15

TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION 

AND MODERNIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

TITLE VI. COMMUNITY RENEWAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 17

A. Renewal Community Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

B. Empowerment Zone Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

C. New Markets Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

D. Increase the Low-Income Housing Tax Credit Cap and Make Other 

Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

E. Accelerate Scheduled Increase in State Volume Limits on Tax-Exempt Private

Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

F. Extension and Modification to Expensing of Environmental Remediation Costs 19

G. Extension of District of Columbia Homebuyer Tax Credit . . . . . . . . . . . . . . . . 19
(v)

TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL

CORRECTIONS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Subtitle A. Administrative Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

A. Exempt Certain Reports From Elimination Under the Federal Reports

Elimination and Sunset Act of 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

B. Extension of Deadlines for IRS Compliance with Certain Notice Requirements 20

C. Extension of Authority for Undercover Operations . . . . . . . . . . . . . . . . . . . . . . 20

D. Competent Authority and Pre-Filing Agreements . . . . . . . . . . . . . . . . . . . . . . . 20

E. Increase in Joint Committee on Taxation Refund Review Threshold . . . . . . . . 20

F. Clarify the Allowance of Certain Tax Benefits With Respect to Kidnapped

Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

G. Conforming Changes to Accommodate Reduced Issuances of 52-Week Treasury

Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

H. Authorization of Agencies to Use Corrected Consumer Price Index (“CPI”) . . 21

I. Prevent Duplication or Acceleration of Loss Through Assumption of Certain

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Subtitle B. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway Barge

Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

B. Repeal of Reduction of Deductions for Mutual Life Insurance

Companies and of Policyholder Surplus Accounts of Life Insurance

Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

C. Tax-Credit Bonds for the National Railroad Passenger Corporation ("Amtrak")

and the Alaska Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

D. Farm, Fish, and Ranch Risk Management Accounts (“FFARRM Accounts”) . 22

E. Extension and Modification of Enhanced Deduction for Corporate Donations of

Computer Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(vi)

F. Settlement of Certain Discrimination Claims Brought by Farmers Against

the Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

G. Extension of the Adoption Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

H. Study of Tax Treatment With Respect to Certain Offshore Insurance Companies

24

I. Treatment of Indian Tribes as Non-Profit Organizations and State and Local

Governments for Purposes of the Federal Unemployment Tax (“FUTA”) . . . . 24

Subtitle C. Technical Corrections Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Subtitle D. Exclusion From PAYGO Scorecard . . . . . . . . . . . . . . . . . . . . . . . . 24
1

 This document may be cited as follows: Joint Committee on Taxation, Summary of

Provisions Contained in H.R. 5542, the “Taxpayer Relief Act of 2000," As Incorporated by

Reference in the Conference Agreement for H.R. 2614 (JCX-110-00), October 31, 2000.

-1-

INTRODUCTION

This document,1

 prepared by the staff of the Joint Committee on Taxation, contains a

summary of the provisions in H.R. 5542, the Taxpayer Relief Act of 2000. The provisions of

H.R. 5542 have been incorporated by reference in the conference agreement for H.R. 2614, the

Certified Development Company Program Improvements Act of 2000.
-2-

TITLE I. REPEAL OF FOREIGN SALES CORPORATION PROVISIONS AND

EXCLUSION FOR EXTRATERRITORIAL INCOME

The bill repeals the present-law rules for foreign sales corporations and replaces them

with an exclusion for certain extraterritorial income. The bill generally is effective for

transactions entered into after September 30, 2000. No corporation may elect to be a foreign

sales corporation after September 30, 2000. The bill provides certain transition rules for existing

foreign sales corporations and for binding contractual agreements, and for certain corporations

electing to be treated as a domestic corporation under the bill.
-3-

TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS

A. Extension of the Work Opportunity Tax Credit (“WOTC”)

The bill extends the WOTC for 30 months (through June 30, 2004). The provision is

effective for wages paid to, or incurred with respect to, qualified individuals who begin work for

the employer on or after January 1, 2002, and before July 1, 2004.

B. Increase the Maximum Dollar Amount of Reforestation Expenditures

Eligible for Amortization and Credit

The bill increases the amount of reforestation expenditures eligible for seven-year

amortization and the reforestation credit from $10,000 to $25,000 per taxable year. For taxable

years beginning in 2001 through 2003, the bill removes the limitation on the amount of

expenditures eligible for seven-year amortization. The provision is effective for expenditures

paid or incurred in taxable years beginning after December 31, 2000. For taxable years

beginning in 2001, 2002, and 2003, the amount of reforestation expenditures eligible for the

credit is limited to $25,000 and no limit applies to the amount of expenditures eligible for sevenyear amortization. For taxable years beginning after 2003, the amount of reforestation

expenditures eligible for seven-year amortization and for the credit is limited to $25,000.

C. Capital Gains Treatment Under Section 631(b) to Apply to Outright Sales of Timber

The bill provides that outright sales of timber by the landowner will qualify for capital

gains treatment. The provision is effective for sales of timber after the date of enactment.

D. Increase Section 179 Expensing

Present law provides that, in lieu of depreciation, a taxpayer with a sufficiently small

amount of annual investment may elect to deduct up to $20,000 (for taxable years beginning in

2000) of the cost of qualifying property placed in service for the taxable year (sec. 179). Under

the bill, the maximum dollar amount that may be deducted under section 179 is increased to

$35,000 for taxable years beginning in 2001 and thereafter.

E. Increased Deduction for Business Meals

The bill increases the percentage of the cost of business meals that is deductible from the

present-law 50 percent to 70 percent for taxable years beginning after December 31, 2000.

F. Increased Deduction for Business Meals While Operating under

Department of Transportation Hours of Service Limitations

The bill accelerates the scheduled phased-in increase in the deduction for the cost of food
-4-

and beverages consumed while away from home by an individual during, or incident to, a period

of duty subject to the hours of service limitations of the Department of Transportation so that it

becomes 80 percent in 2001 and thereafter.

G. Repeal of Modification of Installment Method

Present law prohibits the use of the installment method of accounting for a transaction

that would otherwise be required to be reported using the accrual method of accounting, effective

for dispositions on or after December 17, 1999. The pledge rule of present law generally

provides that if an installment obligation is pledged as security for any debt, the net proceeds of

the debt are treated as a payment on the obligation, triggering the recognition of income. A 1999

modification to the pledge rule provides that the right to satisfy a loan with an installment

obligation is treated as a pledge of the installment obligation, effective for dispositions on or after

December 17, 1999. The bill repeals the prohibition on the use of the installment method of

accounting for disposition of property that would otherwise be reported using the accrual method

of accounting. The provision of the bill is effective for sales or dispositions on or after

December 17, 1999. The bill leaves unchanged the 1999 modification to the pledge rule.

H. Coordinate Farmers and Fisherman Income Averaging and

the Alternative Minimum Tax

The bill extends to individuals engaged in the trade or business of fishing the same

election to income average that is available to farmers. The bill also coordinates farmers and

fishermen income averaging with the alternative minimum tax. Under the bill, a farmer or

fisherman owes alternative minimum tax only to the extent he or she would owe alternative

minimum tax had averaging not been elected. The provision is effective for taxable years

beginning after December 31, 2000.

I. Repeal Special Occupational Taxes on Producers and Marketers of Alcoholic Beverages

The bill repeals the special occupational taxes on producers and marketers of alcoholic

beverages, effective on July 1, 2001.

J. Exclusion from Gross Income for Certain Forgiven Mortgage Obligations

The bill permits eligible individuals to elect to exclude income from the discharge of

indebtedness to the extent such income is attributable to the sale of real property securing

qualified residential indebtedness. Qualified residential indebtedness is defined as indebtedness

incurred or assumed by the taxpayer for the acquisition, construction, reconstruction, or

substantial improvement of the taxpayer’s principal residence (within the meaning of section

121) and which is secured by such residence. Refinanced indebtedness qualifies for the

exclusion only to the extent that the principal amount of the refinanced indebtedness does not

exceed the principal amount of the indebtedness before the refinancing. The exclusion does not
-5-

apply to qualified farm indebtedness or qualified real property business indebtedness. The

provision is effective for discharges of indebtedness after December 31, 2000.

K. Clarification of Cash Accounting Rules for Small Businesses

The bill provides that, notwithstanding any other provision of the Code, a taxpayer is not

required to use an accrual method of accounting if the average annual gross receipts of the

taxpayer (or any predecessor) do not exceed $2.5 million for all prior taxable years beginning

after October 31, 1999 (including the prior taxable years of any predecessor). The bill also

provides that a taxpayer meeting the average annual gross receipts test is not required to account

for inventories under section 471. Under the bill, if a taxpayer elects not to treat inventory under

section 471, the taxpayer is required to treat such property as a material or supply that is not

incidental. The provision is effective for taxable years beginning after the date of enactment.

L. Authorize Payment of Interest on Business Checking Accounts

The bill eliminates the Federal prohibition on depository institutions paying interest on

demand deposits, effective two years after the date of enactment. A transition rule allows

depository institutions to offer business customers checking accounts that allow the funds in the

account to be swept into an interest-bearing account on a daily basis.
-6-

TITLE III. HEALTH INSURANCE AND

LONG-TERM CARE INSURANCE PROVISIONS

A. Accelerate 100-Percent Self-Employed Health Insurance Deduction

Beginning in 2000, the bill increases the deduction for health insurance expenses (and

qualified long-term care insurance expenses) of self-employed individuals to 100 percent. The

bill also provides that the deduction is not available in any month in which the taxpayer

participates in an employer-subsidized health plan.

B. Above-the-Line Deduction for Health Insurance Expenses

 The bill provides an above-the-line deduction for a percentage of the amount paid during

the year for health insurance for the taxpayer and his or her spouse or dependents. The deduction

is not available to an individual unless the individual pays for at least 50 percent of the cost of

the insurance. The deduction is not available with respect to certain limited types of coverage,

such as dental and vision coverage. The deductible percentage is 25 percent in 2001-2003, 35

percent in 2004, 65 percent in 2005, and 100 percent in 2006 and thereafter. 

C. Provisions Relating to Long-Term Care

Above-the-line deduction for long-term care insurance.--The bill provides an above-theline deduction for a percentage of the amount paid during the year for long-term care insurance

which constitutes medical care (as defined in sec. 213) for the taxpayer and his or her spouse or

dependents. The deduction is not available to an individual unless the individual pays for at least

50 percent of the cost of the insurance. The deductible percentage is 25 percent in 2001-2003, 35

percent in 2004, 65 percent in 2005, and 100 percent in 2006 and thereafter. 

Revision of consumer protection provisions applicable to long-tem care insurance.--The

bill adopts additional consumer protection requirements that must be satisfied in order for longterm care insurance to qualified for purposes of the Code. Under the bill, a qualified long-term

care insurance contract must satisfy the NAIC model act and regulation provisions relating to

contingent nonforfeiture benefits. In addition, issuers of qualified long-term care contracts must

satisfy the NAIC requirements regarding suitability and disclosure of rating practices. The bill

also updates present-law references to the NAIC model regulations to reflect current provisions. 

The provisions are effective with respect to policies issued more than 1 year after the date of

enactment.

Deduction for providing long-term care to household members.--The bill provides

taxpayers with a deduction for each qualifying individual with long-term care needs who lives for

the entire year in a household maintained by the taxpayer. The deduction is available regardless

of the amount of long-term care expenses incurred by the taxpayer in the care of the qualifying

individual. The deduction does not reduce adjusted gross income, but is available regardless of

whether the taxpayer itemizes deductions. The deductible amount is reduced by amounts

received under a long-term care contract covering the qualifying individual. The deduction is
-7-

phased out for higher income taxpayers in the same manner as the personal exemption amount. 

The maximum deductible amount is $3,000 in 2001, and increases by $1,000 each year thereafter

until the maximum deductible amount is $10,000 in 2008 and thereafter.

D. Extension of Medical Savings Account Program

The bill extends the present-law medical savings account program for two years, through

2002. The provision is effective on the date of enactment.
-8-

TITLE IV. PENSION AND INDIVIDUAL RETIREMENT

ARRANGEMENT PROVISIONS

Subtitle A. Individual Retirement Arrangements (“IRAs”)

Increase in IRA contribution limit.—The bill increases the annual dollar IRA contribution

limit from $2,000 to $3,000 in 2001, $4,000 in 2002, and $5,000 in 2003, with indexing

thereafter.

Catch-up contributions.--The bill provides that individuals age 50 and over may make

additional IRA contributions of $500 in 2001, $1,000 in 2002, and $1,500 in 2003. In 2004 and

thereafter, the $1,500 amount is indexed for inflation in $500 increments.

Increase AGI limits for deductible IRA contributions.--The bill evens out the scheduled

increases in the AGI limits for deductible IRA contributions. The bill also conforms the phaseout range for married taxpayers filing separately to the phase-out range for single taxpayers. The

provisions are effective for taxable years beginning after December 31, 2000.

Roth IRAs.--The bill increases the income phase-out range for Roth IRA contributions to

$190,000-$220,000 for married couples filing a joint return and applies to married taxpayers

filing a separate return the same phase-out range that applies to single taxpayers. The income

limit for conversions of traditional IRAs to Roth IRAs is $200,000 for married couples filing a

joint return. For all other taxpayers, the limit is $100,000. The provisions are effective for

taxable years beginning after December 31, 2000.

Deemed IRAs under employer plans.--Beginning in 2001, the bill provides that, if an

eligible retirement plan permits employees to make voluntary employee contributions to a

separate account or annuity that (1) is established under the plan and (2) meets the requirements

applicable to traditional or Roth IRAs, then the separate account or annuity is deemed to be a

traditional or Roth IRA, as applicable.

Tax-free withdrawals for charitable purposes.--Effective for taxable years after

December 31, 2000, the bill provides an exclusion from gross income for qualified charitable

distributions made from an IRA to an organization to which deductible contributions can be

made.

Subtitle B. Expanding Coverage

Increase in benefit and contribution limits.—Beginning in 2001, the bill increases the

dollar limit on annual elective deferrals under section 401(k) plans, section 403(b) annuities and

salary reduction SEPs in $1,000 annual increments until the limits reach $15,000 in 2005. 

Beginning in 2001, the bill increases the maximum annual elective deferrals that may be made to

a SIMPLE plan in $1,000 annual increments until the limit reaches $10,000 in 2004. The

$15,000 and $10,000 dollar limits are indexed in $500 increments, as under present law. The bill

increases the dollar limit on deferrals under a section 457 plan to $11,000 in 2001, $12,000 in

2002, $13,000 in 2003, $14,000 in 2004, and $15,000 in 2005. After 2005, the limit is indexed

in $500 increments. The limit is twice the otherwise applicable dollar limit in the three years

prior to retirement. Effective in 2001, the bill: increases the $135,000 annual benefit limit for

defined benefit plans to $160,000 (indexed in $5,000 increments) and lowers the early retirement

age to 62 and the normal retirement age to 65 for purposes of applying the limit; increases the
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$30,000 annual contribution limit for defined contribution plans to $40,000 (indexed in $1,000

increments); and increases the limit on compensation that may be taken into account under a plan

to $200,000 (indexed in $5,000 increments).

Plan loans for S corporation shareholders, partners, and sole proprietors.—The bill

generally eliminates the special present-law rules relating to plan loans made to an owneremployee. Thus, the general statutory exemption applies to such transactions. Present law

applies with respect to IRAs. The provision is effective for years beginning after December 31,

2000.

Modification of top-heavy rules.—The bill provides that a safe-harbor section 401(k) plan

is not a top-heavy plan and that matching contributions may be taken into account in satisfying

the minimum contribution requirements. In addition, the bill simplifies the definition of key

employee and the determination of top-heavy and status and repeals the family attribution rule

used to determine whether an individual is a key employee by reason of being a 5-percent owner

of the employer. The provision is effective for years beginning after December 31, 2000.

Elective deferrals not taken into account for purposes of deduction limits.—The bill

provides that the elective deferral contributions are not subject to the qualified plan deduction

limits, and the application of a deduction limitation to any other employer contribution to a

qualified retirement plan does not take into account elective deferral contributions. The

provision is effective for years beginning after December 31, 2000.

Repeal of coordination requirements for deferred compensation plans of State and local

governments and tax-exempt organizations.—For years beginning after December 31, 2000, the

bill repeals the rules coordinating the section 457 dollar limit with contributions under other

types of plans.

Eliminate IRS user fees for certain determination letter requests regarding employer

plans.—Under the bill, an employer with no more than 100 employees is not required to pay a

user fee for any determination letter request made during the first 5 plan years or prior to the end

of a remedial amendment period beginning within the first 5 plan years with respect to the

qualified status of a retirement plan that the employer maintains. The provision is effective for

determination letter requests made after December 31, 2000.

Deduction limits.—The bill provides that for purposes of the qualified plan deduction

limit the compensation otherwise paid or accrued during the employer’s taxable year to the

beneficiaries under the plan includes elective deferrals under a section 401(k) plan or a section

403(b) annuity, elective contributions under a section 457 plan, and salary reductions under a

section 125 plan. In addition, the bill increases the limit on deductible contributions under a

profit-sharing or stock bonus plan from 15 percent to 25 percent of the compensation of the

employees covered by the plan. Also, except to the extent provided in regulations, a money

purchase pension plan is treated like a profit-sharing or stock bonus plan for purposes of the

deduction rules. The provision is effective for years beginning after December 31, 2000.

Option to treat elective deferrals as after-tax contributions.—The bill provides that a

section 401(k) plan or a section 403(b) annuity may permit a participant to elect to have all or a

portion of the participant’s elective deferrals under the plan treated as designated Roth

contributions, which are not excludable from the participant’s gross income. A qualified

distribution from a participant’s designated Roth contributions account is not includible in the

participant’s gross income. Designated Roth contributions are generally otherwise treated the

same as elective deferrals for purposes of the qualified plan rules. The provision is effective for

taxable years beginning after December 31, 2000.
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Subtitle C. Enhancing Fairness for Women

Additional salary reduction catch-up contributions.—The bill permits individuals who

are age 50 or older to make additional contributions to a section 401(k) (or similar plan). The

maximum permitted additional contribution is $5,000 (indexed in 2006 and thereafter). Catch-up

contributions to a section 401(k) (or similar) plan are not subject to any other contribution limits

and are not taken into account in applying other contribution limits. Catch-up contributions are 

subject to nondiscrimination rules, but a plan will not be treated as failing to provide benefits,

rights, and features in a nondiscriminatory manner if the plan allows all eligible participants to

make the same election with respect to catch-up contributions. The provision is effective for

taxable years beginning after December 31, 2000.

Equitable treatment for contributions of employees to defined contribution plans.—The

bill (1) increases the 25 percent of compensation limitation on annual additions under a defined

contribution plan to 100 percent, (2) conforms the limits on contributions to a tax-sheltered

annuity to the limits applicable to tax-qualified plans, and (3) increases the 33-1/3 percent of

compensation limitation on deferrals under a section 457 plan to 100 percent of compensation. 

The provision is effective for years beginning after December 31, 2000.

Faster vesting of employer matching contributions.—Under the bill, employer matching

contributions have to vest at least as rapidly as under 3-year cliff vesting or under 6-year graded

vesting that provides for a nonforfeitable right to 20 percent of employer matching contributions

for each year of service beginning with the participant’s second year of service and ending with

100 percent after 6 years of service. The provision is effective for plan years beginning after

December 31, 2000, with a delayed effective date for plans maintained pursuant to a collective

bargaining agreement.

Simplify and update the minimum distribution rules.—The bill generally applies the

present-law rules applicable if the participant dies before distribution of minimum benefits has

begun to all post-death distributions. The bill reduces the excise tax on failures to satisfy the

minimum distribution rules to 10 percent of the amount that was required to be distributed but

was not distributed. The Treasury is directed to update, simplify, and finalize the regulations

relating to the minimum distribution rules. The bill repeals the special minimum distribution

rules applicable to section 457 plans. The provision is effective for years beginning after

December 31, 2000.

Clarification of tax treatment of division of section 457 plan benefits upon divorce.—The

bill applies the taxation rules for qualified plan distributions pursuant to a QDRO to distributions

made pursuant to a domestic relations order from a section 457 plan. In addition, a section 457

plan is not treated as violating the restrictions on distributions from such plans due to payments

to an alternate payee under a QDRO. The provision is effective for transfers, distributions and

payments made after December 31, 2000.

Modification of safe harbor relief for hardship withdrawals from 401(k) plans.—The bill

directs the Secretary of the Treasury to revise the applicable regulations, effective for years

beginning after December 31, 2000, to reduce from 12 months to 6 months the period during

which an employee must be prohibited from making elective contributions and employee

contributions in order for a distribution to be deemed necessary to satisfy an immediate and

heavy financial need. The bill also provides that any hardship distribution made pursuant to the

terms of a plan is not an eligible rollover distribution, effective for distributions after December

31, 2000.
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Pension coverage for domestic and similar workers.–The bill provides that the 10-percent

excise tax on nondeductible contributions does not apply to contributions to a SIMPLE IRA or

plan, SEP, or qualified plan which are not deductible solely because the contributions are not

made in connection with a trade or business of the taxpayer, e.g., contributions on behalf of

household workers. The provision is effective for taxable years beginning after December 31,

2000.

Subtitle D. Increasing Portability for Participants

Rollovers of retirement plan and IRA distributions.—The bill provides that eligible

rollover distributions from qualified retirement plans, section 403(b) annuities, IRAs and

governmental section 457 plans generally can be rolled over to any of such plans or

arrangements. The direct rollover and withholding rules are extended to distributions from a

section 457 plan. The bill provides that employee after-tax contributions can be rolled over into

another qualified plan or a traditional IRA. In the case of a rollover from a qualified plan to

another qualified plan, the rollover can be accomplished only through a direct rollover. The bill

provides that surviving spouses can roll over distributions to a qualified plan, section 403(b)

annuity, or governmental section 457 plan in which the spouse participates. The provision is

effective for distributions made after December 31, 2000, except that the provisions allowing

after-tax contributions to be rolled over is effective for distributions after December 31, 2001.

Waiver of 60-day rule.—The bill provides that the Secretary may waive the 60-day

rollover period if the failure to waive such requirement would be against equity or good

conscience, including cases of casualty, disaster, or other events beyond the reasonable control of

the individual subject to such requirement. The provision applies to distributions made after

December 31, 2000.

Treatment of forms of distribution.—Under the bill, if certain requirements are satisfied, a

defined contribution plan may eliminate optional forms of benefit (1) in connection with certain

transfers of benefits, or (2) if a single sum distribution is offered. In addition, the Secretary is to

provide for circumstances under which early retirement benefits, retirement-type subsidies, or an

optional form of benefit may be reduced or eliminated if the rights of participants are not

adversely affected in more than a de minimis manner. The provision is effective for years

beginning after December 31, 2000.

Rationalization of restrictions on distributions.—The bill modifies the distribution

restrictions applicable to section 401(k) plans, section 403(b) annuities, and section 457 plans to

provide that distribution may occur upon severance from employment rather than separation from

service. The provision is effective for distributions after December 31, 2000.

Purchase of service credit under governmental pension plans.—Under the bill a

participant in a State or local governmental plan is not required to include in gross income a

direct trustee-to-trustee transfer to a governmental defined benefit plan from a section 403(b)

annuity or a section 457 plan if the transferred amount is used (1) to purchase permissive service

credits under the plan, or (2) to repay certain contributions. The provision is effective for

transfers after December 31, 2000.

Employers may disregard rollovers for purposes of cash-out rules.—Under the bill a plan

is permitted to disregard benefits attributable to rollover contributions for purposes of the cashout rules. The provision is effective for distributions after December 31, 2000.
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Subtitle E. Strengthening Pension Security And Enforcement

Phase in repeal of 155-percent of current liability full funding limit; deduction for

contributions to fund termination liability.—Under the bill, the current liability full funding limit

is 160 percent of current liability for plan years beginning in 2001, 165 percent for plan years

beginning in 2002, and 170 percent for plan years beginning in 2003. The current liability full

funding limit is repealed for plan years beginning in 2004 and thereafter. The special rule

allowing a deduction for unfunded current liability generally is extended to all defined benefit

pension plans covered by the PBGC. The provision is effective for years beginning after

December 31, 2000.

Excise tax relief for sound pension funding.—Under the bill if an employer elects,

contributions in excess of the current liability full funding limit are not subject to the excise tax

on nondeductible contributions. The provision is effective for years beginning after December

31, 2000.

Notice of significant reduction in plan benefit accruals.— The bill generally requires the

plan administrator of a pension plan (other than governmental plans and certain church plans) to

notify plan participants in advance of an amendment that significantly reduces the rate of future

benefit accruals or eliminates or reduces an early retirement benefit or retirement-type subsidy. 

The notice must include sufficient information to allow participants to understand the effect of

the amendment. An excise tax applies if the required notice is not provided. The bill also directs

the Secretary of the Treasury to report on the effects of conversions of traditional defined benefit

plans to cash balance or hybrid formula plans. The provision generally is effective for plan

amendments taking effect on or after the date of enactment.

Modifications to section 415 limits for multiemployer plans.—The bill modifies the

section 415 limits for multiemployer plans. The provision is effective for years beginning after

December 31, 2000.

Investment of employee contributions in 401(k) Plans.–The bill modifies the effective

date of the rule excluding certain elective deferrals (and earnings thereon) from the definition of

individual account plan. The provision is effective as if included in the Taxpayer Relief Act of

1997.

Periodic pension benefit statements.–The bill generally requires defined contribution

plans and defined benefit plans to furnish benefit statement to each participant periodically rather

only upon written request. The provision is effective for plan years beginning after December

31, 2000.

Prohibited allocations of stock in an S Corporation ESOP.--Under the bill, if there is a

nonallocation year with respect to an ESOP of an S corporation: (1) the amount allocated in a

prohibited allocation to an individual who is a disqualified person is treated as distributed to such

individual (i.e., the value of the prohibited allocation is includible in gross income); (2) an excise

tax is imposed on the S corporation equal to 50 percent of the amount involved in a prohibited

allocation; and (3) an excise tax is imposed on the S corporation with respect to any synthetic

equity owned by a disqualified person. The provision is generally effective with respect to plan

years beginning after December 31, 2001. 
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Subtitle F. Reducing Regulatory Burdens

Modification of timing of plan valuations.—The bill permits a defined benefit plan with

assets of at least 125 percent of current liability to use a valuation date within the prior plan year. 

The provision is effective for plan years beginning after December 31, 2000.

ESOP dividends may be reinvested without loss of dividend deduction.—Under the bill,

an employer is entitled to deduct dividends that, at the election of plan participants or their

beneficiaries, are paid to the plan and reinvested in employer securities. The provision is

effective for taxable years beginning after December 31, 2000.

Repeal transition rule relating to certain highly compensated employees.—The bill

repeals the special definition of highly compensated employee under the Tax Reform Act of

1986. The provision is effective for plan years beginning after December 31, 2000.

Employees of tax-exempt entities.—The bill directs the Treasury Department to revise its

regulations under section 410(b) to provide that, if certain requirements are satisfied, employees

of a tax-exempt charitable organization who are eligible to make salary reduction contributions

under a section 403(b) annuity may be treated as excludable employees for purposes of testing a

section 401(k) plan.

Treatment of employer-provided retirement advice.— Under the bill, qualified retirement

planning services provided to an employee and his or her spouse by an employer maintaining a

qualified plan are generally excludable from income and wages. The provision is effective with

respect to taxable years beginning after December 31, 2000.

Reporting simplification.—Effective January 1, 2001, the bill directs the Secretary of the

Treasury to provide for an exemption from the annual return requirement for a plan that covers

only the sole owner of a business that maintains the plan (and such owner’s spouse), or partners

in a partnership that maintains the plan (and such partners’ spouses), if the total value of the plan

assets as of the end of the plan year and all prior plan years does not exceed $250,000 and the

plan meets certain other requirements. In addition, the Secretary of the Treasury is directed to

provide simplified reporting requirements for plan years beginning after December 31, 2001, for

certain plans with fewer than 25 employees.

Improvement to Employee Plans Compliance Resolution System.—The bill directs the

Secretary of the Treasury to continue to update and improve EPCRS, giving special attention to

(1) increasing the awareness and knowledge of small employers concerning the availability and

use of EPCRS, (2) taking into account special concerns and circumstances that small employers

face with respect to compliance and correction of compliance failures, (3) extending the duration

of the self-correction period under APRSC for significant compliance failures, (4) expanding the

availability to correct insignificant compliance failures under APRSC during audit, and (5)

assuring that any tax, penalty, or sanction that is imposed by reason of a compliance failure is not

excessive and bears a reasonable relationship to the nature, extent, and severity of the failure. 

The provision is effective on the date of enactment.

Repeal of the multiple use test.—The bill repeals the multiple use test, effective for years

beginning after December 31, 2000.

Flexibility in nondiscrimination, coverage, and line of business rules.—The bill directs

the Secretary of the Treasury to provide by regulation circumstances under which plans can use

the prior-law facts and circumstances test to satisfy the nondiscrimination, coverage, and line of

business rules. used to determine compliance. The provision is effective on the date of

enactment.
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Extension to all governmental plans of moratorium on application of certain

nondiscrimination rules applicable to State and local government plans.—Under the bill, a plan

maintained by any governmental entity is exempt from the nondiscrimination and minimum

participation rules. The provision is effective for plan years beginning after December 31, 2000.

Notice and consent period regarding distributions.—Under the bill, a qualified retirement

plan is required to provide the applicable distribution notice no less than 30 days and no more

than six months before the date distribution commences. The Secretary of the Treasury is

directed to modify the applicable regulations to reflect the extension of the notice period to six

months and to provide that the description of a participant’s right, if any, to defer receipt of a

distribution shall also describe the consequences of failing to defer such receipt. In addition, the

bill directs the Secretary to provide for additional disclosure requirements for a plan that offers

both a qualified joint and survivor annuity and a single sum option form of benefit if the

distributable amount under the single sum option is less than the present value of the qualified

joint and survivor annuity option. The provision is effective for years beginning after December

31, 2000.

Annual report dissemination.–The bill provides that the requirement that a summary

annual report be provided to participants and beneficiaries is satisfied if the report is reasonably

available through electronic means or other new technology. The provision is effective for

reports for years beginning after December 31, 1999.

Modifications to the SAVER Act.–The bill makes certain modifications to future National

Summits on Retirement Savings required by the Savings Are Vital to Everyone’s Retirement

(“SAVER”) Act.

Studies.–The bill directs the Secretary of the Treasury to report to the Senate Committees

on Finance Health, Education, Labor, and Pensions and the House Committees on Ways and

Means and Education and the Workforce regarding the effect of the bill on pension coverage.

Subtitle G. Other ERISA Provisions

Extension of PBGC missing participants program.–The bill extends the PBGC missing

participant program to multiemployer plans, defined contribution plans, and defined benefit plans

that are not covered by the PBGC. The provision is effective for distributions from terminating

plans that occur after the PBGC adopts final regulations implementing the provision.

Reduce PBGC premiums for small and new plans.–Under the bill, for the first five plan

years of a new single-employer plan of a small employer, the flat-rate Pension Benefit Guaranty

Corporation (“PBGC”) premium is $5 per plan participant. The provision also provides that the

variable premium is phased in for new defined benefit plans over a six-year period starting with

the plan’s first plan year. In addition, the bill provides that, in the case of any plan (not just a

new plan) of an employer with 25 or fewer employees, the variable-rate premium is no more than

$5 multiplied by the number of plan participants. The provisions relating to new plans is

effective for plans established after December 31, 2000. The provision reducing the PBGC

premium for small plans is effective for years beginning after December 31, 2000.

Authorization for PBGC to pay interest on premium overpayment refunds.–The bill

allows the PBGC to pay interest on overpayments by premium payors. The provision is effective

with respect to interest accruing for periods beginning not earlier than the date of enactment.

Rules for substantial owner benefits in terminated plans.–The bill increases the PBGC

guarantee for certain substantial owners. The provision is effective for plan terminations with
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respect to which notices of intent to terminate are provided, or for which proceedings for

termination are instituted by the PBGC after December 31, 2000.

Multiemployer plan benefits guarantee.–The bill adjusts the amount guaranteed in

multiemployer plans to account for changes in the social security wage index since 1980. The

provision generally applies to benefits payable after the date of enactment.

Civil penalties for breach of fiduciary responsibility.–The bill makes the assessment of

the penalty for breach of fiduciary responsibility under ERISA discretionary with the Secretary of

Labor. The provision generally applies to a breach occurring on or after the date of enactment.

Benefit suspension notice.–The bill directs the Secretary of Labor to revise the regulations

relating to the benefit suspension notice required under ERISA to generally permit the required

notice contents to be included in the summary plan description. The provision applies to plan

years beginning after December 31, 2000.

Subtitle H. Provisions Relating to Plan Amendments

If certain requirements are satisfied, any amendments to a plan or annuity contract

required to be made by the bill (or made pursuant to the bill) are not required to be made before

the last day of the first plan year beginning on or after January 1, 2003. In the case of a

governmental plan, the date for amendments is extended to the first plan year beginning on or

after January 1, 2004. The provision is effective on the date of enactment.
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TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION

AND MODERNIZATION

The bill extends authority to issue qualified zone academy bonds (“QZABs”) for two

additional years, through December 31, 2003, with certain modifications. The bill also extends

authority to issue QZABs, with certain modifications, for public school construction. The bill

authorizes up to $5 billion per year of school construction QZABs in 2001, 2002 and 2003, 

allocated among the States on the following basis: 50 percent based on population and 50 percent

based on population that lives in poverty. The State allocations are subject to a “small State

floor” of $25 million per state. For school districts with school age populations in excess of

40,000, the bill provides a minimum allocation in an amount equal to the percentage of the

State’s total population that resides in the school district. An additional one-time authorization

of $200 million of school construction QZABs is provided for public schools operated by or for

the benefit of Indian tribes. Under the bill, QZABs issued after December 31, 2000, and school

construction QZABs are subject to certain modified administrative rules. These provisions apply

to bonds issued in calendar years beginning after December 31, 2000.

The bill expands the small governmental unit exception to the tax-exempt bond arbitrage

rebate requirements to allow small governmental units to issue up to $15 million of

governmental bonds in a calendar year without rebating arbitrage profits provided that at least

$10 million of the bonds are used to finance public school construction expenditures. This

provision apples to bonds issued in calendar years beginning after December 31, 2000.

To take into account recent State constitutional amendments, the bill conforms the Tax

Reform Act 1984 exception to the arbitrage restrictions for the pledge of income from

investments in a fund established under a provision of a State constitution adopted in 1876 as

security for a limited amount of tax-exempt bonds. The bill permits the continued applicability

of the 1984 exception. This provision takes effect on January 1, 2001.

The bill liberalizes the arbitrage rebate requirement for certain public school bonds if the

proceeds are spent within 48 months and intermediate spending levels are met. The provision

applies to bonds issued after December 31, 2000.

The bill expands the private activities for which tax-exempt bonds may be issued to

include elementary and secondary public schools that are owned by private, for-profit

corporations pursuant to public-private partnership agreements with a State or local educational

agency. These provisions are effective for bonds issued after December 31, 2000.
-17-

TITLE VI. COMMUNITY RENEWAL PROVISIONS

A. Renewal Communities Provisions

The bill authorizes the Secretary of HUD to designate up to 40 “renewal communities”

from areas nominated by States and local governments. At least 12 of the designated renewal

communities must be in rural areas. In general, nominated areas are ranked based on a formula

that takes into account the area’s poverty rate, median income, and unemployment rate. One

nominated area within the District of Columbia will be treated as having the highest ranking for

purposes of renewal community designation, which would take effect on January 1, 2003.

A nominated area that is designated as a renewal community is eligible for the following

tax incentives: (1) a zero-percent rate for capital gain from the sale of qualifying assets; (2) a 15-

percent wage credit to employers for the first $10,000 of qualified wages; (3) a “commercial

revitalization deduction” that allows taxpayers (to the extent allocated by the appropriate State

agency for the period after December 31, 2001) to deduct either (i) 50 percent of qualifying

expenditures for the taxable year in which a qualified building is placed in service, or (ii) all of

the qualifying expenditures ratably over a 10-year period beginning with the month in which such

building is placed in service; (4) an additional $35,000 of section 179 expensing for qualified

property; and (5) an expansion of the WOTC with respect to individuals who live in a renewal

community.

The 40 renewal communities must be designated by January 1, 2002, and the resulting tax

benefits will be available for the period beginning on January 1, 2002, and ending December 31,

2009.

B. Empowerment Zone Provisions

The bill extends the designation of empowerment zone status for existing empowerment

zones (other than the D.C. Enterprise Zone) through December 31, 2009. The 20-percent wage

credit is made available to all existing empowerment zones beginning in 2002 (and remains at

the 20-percent rate). Under the bill, $35,000 (rather than $20,000) of additional section 179

expensing is available for qualified zone property placed in service in taxable years beginning

after December 31, 2001, by a qualified zone business. Also beginning in 2002, certain

businesses in existing empowerment zones (other than the D.C. Enterprise Zone) become eligible

for more generous tax-exempt bond rules.

The bill authorizes Secretaries of HUD and Agriculture to designate nine additional

empowerment zones (seven to be located in urban areas and two in rural areas) by January 1,

2002. Businesses in the new empowerment zones are eligible for the same tax incentives that,

under the bill, are available to existing zones (i.e., a 20-percent wage credit, $35,000 of

additional section 179 expensing, and the enhanced tax-exempt financing benefits). The new

empowerment zones must be designated by January 1, 2002, and the tax incentives with respect

to the new empowerment zones generally are available during the period beginning on January 1,

2002, and ending on December 31, 2009.
-18-

The bill permits a taxpayer to roll over gain from the sale or exchange of any qualified

empowerment zone asset held for more than 1 year if the taxpayer uses the proceeds to purchase

other qualifying empowerment zone assets (in the same zone) within 60 days of the sale of the

original asset. In general, a qualifying empowerment zone asset refers to a stock or partnership

investment in, or assets acquired by, a qualifying business within an empowerment zone that is

purchased by a taxpayer after the date of enactment of the bill.

The bill increases to 60 percent (from 50 percent) the exclusion of gain from the sale of

qualifying small business stock held more than five years if such stock also satisfies the

requirements of a qualifying business under the empowerment zone rules. The provision is

effective for qualifying stock that is purchased after the date of enactment of the bill.

C. New Markets Tax Credit

The bill creates a new tax credit for qualified equity investments made after December

31, 2000, to acquire stock in a community development entity (“CDE”). The maximum annual

amount of qualifying equity investments is capped as follows:

Calendar Year Maximum Qualifying Equity Investment

2001 $1.0 billion

2002-2003 $1.5 billion per year

2004-2005 $2.0 billion per year

2006-2007 $3.5 billion per year

The amount of the credit allowed to the investor is (1) a five-percent credit for the year in

which the equity interest is purchased from the CDE and for the first two anniversary dates after

the purchase from the CDE, and (2) a six-percent credit on each anniversary date thereafter for

the following four years. The credit is recaptured if the entity fails to continue to be a CDE or the

interest is redeemed within seven years.

A CDE is any domestic corporation or partnership (1) whose primary mission is serving

or providing investment capital for low-income communities or low-income persons, (2) that

maintains accountability to residents of low-income communities through representation on

governing or advisory boards of the CDE, and (3) is certified by the Treasury Department as an

eligible CDE. A qualified equity investment means stock or a similar equity interest acquired

directly from a CDE for cash. Substantially all of the cash must be used by the CDE to make

investments in, or loans to, qualified active businesses located in low-income communities, or

certain financial services to businesses and residents in low-income communities. A “lowincome community” generally is defined as census tracts with either (1) poverty rates of at least

20 percent or (2) median family income which does not exceed 80 percent of the greater of

metropolitan area income or statewide median family income. The Secretary may designate any

area within any census tract as a low-income community provided that (1) the boundary is

continuous, (2) the area would otherwise satisfy the poverty rate and median income

requirements, and (3) an inadequate access to capital exists in the area.
-19-

D. Increase the Low-Income Housing Tax Credit Cap and Make Other Modifications

The bill increases the per-capita low-income housing credit cap from $1.25 per capita to

$1.50 per capita in calendar year 2001 and to $1.75 per capita in calendar year 2002. Beginning

in calendar year 2003, the per-capita portion of the credit cap will be adjusted annually for

inflation. For small States, a minimum annual cap of $2 million is provided for calendar years

2001 and 2002. Beginning in calendar year 2003, the small State minimum is adjusted for

inflation. The bill also makes programmatic changes to the credit. The provisions are generally

effective for calendar years beginning after December 31, 2000, and buildings placed-in-service

after such date in the case of projects that also receive financing with proceeds of tax-exempt

bonds subject to the private activity bond volume limit which are issued after such date.

E. Accelerate Scheduled Increase in State Volume Limits

on Tax-Exempt Private Activity Bonds

The bill increases the State volume limits on tax-exempt private activity bonds from the

greater of $50 per resident or $150 million to the greater of $75 per resident or $225 million

beginning in calendar year 2002. Under the bill, the volume limit is the greater of $62.50 per

resident or $187.5 million in calendar year 2001. Beginning in calendar year 2003, the volume

limit will be adjusted annually for inflation.

F. Extension and Modification to Expensing of Environmental Remediation Costs

The bill extends the expiration date for expenditures for environmental remediation to be

eligible for a current deduction in lieu of capitalization to include those expenditures paid or

incurred before January 1, 2004. The bill eliminates the targeted area requirement, thereby

expanding eligible sites to include any site, other than a site identified on the national priorities

list, containing (or potentially containing) a hazardous substance that is certified by the

appropriate State environmental agency. The provision to expand the class of eligible sites is

effective for expenditures paid or incurred after the date of enactment.

G. Extension of the District of Columbia Homebuyer Tax Credit

The bill extends the $5,000 tax credit that is available to first-time homebuyers of a

principal residence in the District of Columbia for two years (through December 31, 2003).
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TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL

CORRECTIONS PROVISIONS

Subtitle A. Administrative Provisions

A. Exempt Certain Reports From Elimination Under the Federal Reports

Elimination and Sunset Act of 1995

The bill exempts certain reports from elimination and sunset pursuant to the Federal

Reports Elimination and Sunset Act of 1995, effective on the date of enactment.

B. Extension of Deadlines for IRS Compliance with Certain Notice Requirements

The Internal Revenue Service Restructuring and Reform Act of 1998 requires the IRS to

include the following information in each notice imposing a penalty: (1) the name of the penalty,

(2) the Code section under which the penalty is imposed, and (3) a computation of the penalty. 

The Act also requires the IRS to include in notices requiring an amount of interest to be paid by

the taxpayer a detailed computation of the interest charged and a citation to the Code section

under which such interest is imposed. The bill extends the deadlines for the IRS to comply with

the penalty and interest notice requirements from December 31, 2000, to June 30, 2001. For

every taxpayer in an installment agreement, the IRS is required to send an annual statement of (1)

the initial balance owed, (2) the payments made during the year, and (3) the remaining balance. 

The bill extends the deadline for the IRS to comply with this requirement from July 1, 2001, to

September 1, 2001.

C. Extension of Authority for Undercover Operations

The bill extends for five years (through December 31, 2005) the authority of the IRS to

“churn” the income earned from undercover operations to pay additional expenses incurred in the

undercover operation, effective on the date of enactment.

D. Competent Authority and Pre-Filing Agreements

The bill affirms that closing agreements, similar agreements, and related background

information, are confidential return information. Closing agreements and similar agreements

includes pre-filing agreements. The bill also clarifies that information exchanged and

agreements reached pursuant to tax treaties are confidential. The provision is effective for

documents in existence on or created after the date of enactment.

E. Increase in Joint Committee on Taxation Refund Review Threshold

The bill increases the threshold above which refunds must be submitted to the Joint

Committee on Taxation for review from $1,000,000 to $2,000,000, effective on the date of

enactment, except that the higher threshold does not apply to a refund or credit with respect to

which a report was made before the date of enactment.
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F. Clarify the Allowance of Certain Tax Benefits with Respect to Kidnapped Children

The bill clarifies that the dependency exemption, the child credit, the surviving spouse

filing status, the head of household filing status, and the earned income credit are available to an

otherwise qualifying taxpayer with respect to a child who is presumed by law enforcement

authorities to have been kidnapped by someone who is not a member of the family of such child

or the taxpayer. Generally, this treatment continues for all taxable years ending during the period

that the child is kidnapped. However, this treatment ends for the taxable year ending after the

calender year in which it is determined that the child is dead (or, if earlier, the year in which the

child would have attained age 18). The provision is effective for taxable years ending after the

date of enactment.

G. Conforming Changes to Accommodate Reduced Issuances of 52-Week Treasury Bills

The bill changes references to “52-week Treasury bills” in the Code and in certain other

provisions of Federal law to refer instead to “the weekly average one-year constant maturity

Treasury yield, as published by the Board of Governors of the Federal Reserve System.” The

provision is effective on the date of enactment.

H. Authorization of Agencies to Use Corrected Consumer Price Index (“CPI”)

The bill authorizes the Secretary of the Treasury to use the corrected levels of the CPI for

1999 and 2000 for all purposes of the Code to which they might apply. The bill directs the

Secretary to prescribe new tables reflecting the correct levels of the 1999 CPI for the 2000 tax

year. In addition, the bill provides that the Director of the Office of Management and Budget

(“OMB”) shall assess Federal benefit programs to ascertain the extent to which the CPI error has

or will result in a shortfall in program payments to individuals for 2000 and future years and

instruct the head of any Federal agency which administers an affected program to make a

payment or payments to compensate for the shortfall and that such payments are targeted to the

amount of the shortfall experienced by individual beneficiaries. The provision is effective on the

date of enactment.

I. Prevent Duplication or Acceleration of Loss Through Assumption of Certain Liabilities

The bill requires that the basis of stock received in a tax-free incorporation be reduced

(but not below the stock’s fair market value) by the amount of any liability that (1) is assumed in

the exchange for such stock and (2) did not otherwise reduce the transferor’s basis of the stock by

reason of the assumption. Except as provided by the Treasury Department, the provision does

not apply if the trade or business with which the liability associated is transferred to the

corporation as part of the exchange, or if substantially all of the assets with which the liability is

associated are transferred to the corporation as part of the exchange. The Secretary of the

Treasury will prescribe similar rules for transactions involving partnerships. The provision is

effective for assumptions of liabilities on or after October 19, 1999.
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Subtitle B. Miscellaneous Provisions

A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway Barge Fuels

The bill repeals the 4.3-cents-per-gallon General Fund excise tax rates on diesel fuel used

in trains and fuels used in barges operating on the designated inland waterways system. The

provision takes effect on January 1, 2001.

B. Repeal of Reduction of Deductions for Mutual Life Insurance Companies and of

Policyholder Surplus Accounts of Life Insurance Companies

Under present law, a mutual life insurance company is required to reduce its deduction

for policyholder dividends (or for the change in reserves) by the company’s differential earnings

amount (which is intended to represent returns of mutual life insurance companies to

policyholders as customers) (sec. 809). Present law also provides that a life insurance company

must include in income certain tax-deferred amounts that arose under pre-1984 law, if the

amounts are treated as distributed to shareholders and subtracted from the company’s

policyholders surplus account (sec. 815). The bill repeals these rules (secs. 809 and 815),

effective for taxable years beginning after December 31, 2000.

C. Tax-Credit Bonds for the National Railroad Passenger Corporation (“Amtrak”)

and the Alaska Railroad

The bill authorizes Amtrak to issue up to $1 billion per year of tax-credit bonds for new

capital improvements during the period October 1, 2000 - September 30, 2010. The Secretary of

Transportation may allocate a portion of this bond authority to the Alaska Railroad. In general,

tax-credit bonds may only be issued to finance projects with respect to which the State in which

the property will be located has made a matching contribution equal to at least 20 percent of the

project cost. Tax credits on the bonds will be set by reference to a daily corporate interest rate

index prescribed by the Treasury Department to result in Amtrak (or the Alaska Railroad)

bearing no additional interest cost beyond the amount of the credits. 

D. Farm, Fish, and Ranch Risk Management Accounts (“FFARRM Accounts”)

The bill allows taxpayers engaged in an eligible business to establish FFARRM accounts. 

An eligible business is any trade or business of farming in which the taxpayer actively

participates, including the operation of a nursery or sod farm or the raising or harvesting of cropbearing or ornamental trees. An eligible business also is the trade or business of commercial

fishing as that term is defined under section (3) of the Magnuson-Stevens Fishery Conservation

and Management Act (16 U.S.C. 1802) and includes the trade or business of catching, taking or

harvesting fish that are intended to enter commerce through sale, barter or trade.

Contributions to a FFARRM account are deductible and are limited to 20 percent of the

taxable income that is attributable to the eligible business. The deduction is taken into account in

determining adjusted gross income and reduces the income attributable to the eligible business

for all income tax purposes other than the determination of the 20 percent of eligible income
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limitation on contributions to a FFARRM account. Contributions to a FFARRM account do not

reduce earnings from self-employment. Accordingly, distributions are not included in selfemployment income.

A FFARRM account is taxed as a grantor trust and any earnings are required to be

distributed currently. Thus, any income earned in the FFARRM account is taxed currently to the

farmer or fisherman who established the account. Amounts can remain on deposit in a FFARRM

account for up to five years. Any amount that has not been distributed by the close of the fourth

year following the year of deposit is deemed to be distributed and includible in the gross income

of the account owner.

The provision is effective for taxable years beginning after December 31, 2000.

E. Extension and Modification of Enhanced Deduction for

Corporate Donations of Computer Technology

The bill extends the current enhanced deduction for donations of computer technology

and equipment for two years (through December 31, 2003). In addition, the bill expands the

enhanced deduction to include donations to public libraries and to apply to property donated no

later than three years (instead of two years) after the date the taxpayer acquired or substantially

completed the construction of the donated property. The provision is effective for contributions

made after December 31, 2000.

F. Settlement of Certain Discrimination Claims Brought by Farmers

Against the Department of Agriculture

The bill excludes from gross income any cash received by or on behalf of certain

taxpayers or cancellation of indebtedness income of those taxpayers as a result of the settlement

of certain claims brought by certain farmers against the Department of Agriculture for

discrimination in farm credit and benefit programs. The bill is limited to certified members of

the plaintiff class in the settlement of two consolidated class action suits. The two suits are

Pigford, et al. v. Glickman No. 97-1978 (D.D.C.)(PLF) and Brewington, et al. v. Glickman No.

98-1693 (D.D.C.)(PLF).

G. Extension of the Adoption Tax Credit

The bill extends the credit for nonspecial needs adoptions for four years (through

December 31, 2005) and increases the maximum credit by $1,000 per year beginning for taxable

years beginning after December 31, 2000, until the maximum credit reaches $10,000 per year for

taxable years beginning after December 31, 2004. In the case of special needs adoptions, the

maximum credit is increased by $2,000 per year for taxable years beginning after December 31,

2000, until the maximum credit reaches $12,000 per year for taxable years beginning after

December 31, 2002. For taxable years beginning after December 31, 2000, the income limitation

for the credit is increased to $150,000 of modified adjusted gross income, and is phased out

ratably for taxpayers with modified AGI between $150,000 and $190,000.
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H. Study of Tax Treatment with Respect to Certain Offshore Insurance Companies

The bill provides that the Secretary of the Treasury (the “Secretary”) is to conduct a study

on the extent to which U. S. tax on investment income of U.S. insurance companies is being

avoided through the use of affiliated corporations in Bermuda or other offshore locations. In

conducting the study, the Secretary is to address issues concerning the application of current U.S.

tax law in preventing such avoidance, and changes to U.S. tax law that may be needed to prevent

such avoidance, and is to make appropriate recommendations. The Secretary is to submit the

study and recommendations to the House Committee on Ways and Means and the Senate

Committee on Finance no later than December 31, 2001.

I. Treatment of Indian Tribes as Non-profit Organizations and State or

Local Governments for Purposes of the Federal Unemployment Tax (“FUTA”)

The bill provides that an Indian tribe (including any subdivision, subsidiary, or business

enterprise chartered and wholly owned by an Indian tribe) is treated like a non-profit organization

or State or local government for FUTA purposes (i.e., given an election to choose the

reimbursement treatment).

The provision generally is effective with respect to service performed beginning on or

after the date of enactment. Under a transition rule, service performed in the employ of an Indian

tribe is not treated as employment for FUTA purposes if: (1) it is service which is performed

before the date of enactment and with respect to which FUTA tax has not been paid; and (2) such

Indian tribe reimburses a State unemployment fund for unemployment benefits paid for service

attributable to such tribe for such period.

Subtitle C. Technical Corrections

The bill contains technical corrections to recent tax legislation.

Subtitle D. Exclusion From PAYGO Scorecard

The bill provides that, upon enactment, the Director of the Office of Management and

Budget shall not make any estimate of the changes in direct spending outlays and receipts under

section 252(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 resulting

from the enactment of the bill.