" ! HOUSE OF REPRESENTATIVES 106TH CONGRESS

2d Session

REPORT

106–1004

ENACTMENT OF CERTAIN SMALL BUSINESS,

HEALTH, TAX, AND MINIMUM WAGE PROVISIONS

CONFERENCE REPORT

TO ACCOMPANY

H.R. 2614

OCTOBER 26 (legislative day, OCTOBER 25), 2000.—Ordered to be printed

NACTMENT OF CERTAIN SMALL BUSINESS, HEALTH,

TAX, AND MINIMUM WAGE PROVISIONS

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

67–433

" ! HOUSE OF REPRESENTATIVES 106TH CONGRESS

2d Session

REPORT

2000

106–1004

ENACTMENT OF CERTAIN SMALL BUSINESS,

HEALTH, TAX, AND MINIMUM WAGE PROVISIONS

CONFERENCE REPORT

TO ACCOMPANY

H.R. 2614

OCTOBER 26 (legislative day, OCTOBER 25), 2000.—Ordered to be printed

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 106–1004

ENACTMENT OF CERTAIN SMALL BUSINESS, HEALTH, TAX,

AND MINIMUM WAGE PROVISIONS

OCTOBER 26 (legislative day, OCTOBER 25), 2000.—Ordered to be printed

Mr. ARMEY, from the committee of conference,

submitted the following

CONFERENCE REPORT

[To accompany H.R. 2614]

The committee of conference on the disagreeing votes of the

two Houses on the amendment of the Senate to the bill (H.R. 2614)

to amend the Small Business Investment Act to make improvements to the certified development company program, and for other

purposes, having met, after full and free conference, have agreed

to recommend and do recommend to their respective Houses as follows:

That the House recede from its disagreement to the amendment of the Senate and agree to the same with an amendment as

follows:

In lieu of the matter proposed to be inserted by the Senate

amendment, insert the following:

SECTION 1. ENACTMENT OF OTHER PROVISIONS OF LAW.

The provisions of the following bills of the 106th Congress are

hereby enacted into law:

(1) H.R. 5538, as introduced on October 25, 2000 (the Minimum Wage Act of 2000).

(2) H.R. 5542, as introduced on October 25, 2000 (the Taxpayer Relief Act of 2000).

(3) H.R. 5543, as introduced on October 25, 2000 (the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000).

(4) H.R. 5544, as introduced on October 25, 2000 (the Pain

Relief Promotion Act of 2000).

(5) H.R. 5545, as introduced on October 25, 2000 (the

Small Business Reauthorization Act of 2000).

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SEC. 2. PUBLICATION OF ACT.

In publishing this Act in slip form and in the United States

Statutes at Large pursuant to section 112 of title 1, United States

Code, the Archivist of the United States shall include after the date

of approval appendixes setting forth the texts of the bills referred to

in section 1.

And the Senate agree to the same.

JIM TALENT, DICK ARMEY, Managers on the Part of the House.

CHRISTOPHER BOND,

CONRAD BURNS,

Managers on the Part of the Senate.

(3)

JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF

CONFERENCE

The managers on the part of the House and the Senate at the

conference on the disagreeing votes of the two Houses on the

amendment of the Senate to the bill (H.R. 2614) to amend the

Small Business Investment Act to make improvements to the certified development company program, and for other purposes, submit the following joint statement to the House and the Senate in

explanation of the effect of the action agreed upon by the managers

and recommended in the accompanying conference report:

The Senate amendment struck all of the House bill after the

enacting clause and inserted a substitute text.

The House recedes from its disagreement to the amendment of

the Senate with an amendment that is a substitute for the House

bill and the Senate amendment.

The conference agreement would enact by reference the provisions of five bills introduced on October 25, 2000. Those bills are

the following:

(1) H.R. 5538, the Minimum Wage Act of 2000.

(2) H.R. 5542, the Taxpayer Relief Act of 2000.

(3) H.R. 5543, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000.

(4) H.R. 5544, the Pain Relief Promotion Act of 2000.

(5) H.R. 5545, the Small Business Reauthorization Act of

2000.

This joint statement sets out for convenience the text of each

bill that would be enacted in the conference report by reference.

MINIMUM WAGE ACT OF 2000

The conference agreement would enact the provisions of H.R.

5538, as introduced on October 25, 2000. The text of that bill follows:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Minimum Wage Act of 2000’’.

SEC. 2. MINIMUM WAGE INCREASE.

Paragraph (1) of section 6(a) of the Fair Labor Standards Act

of 1938 (29 U.S.C. 206(a)) is amended to read as follows:

‘‘(1) except as otherwise provided in this section. Not less

than $5.15 an hour during the period ending June 30, 2000,

not less than $5.65 an hour during the year beginning January

1, 2001, and not less than $6.15 an hour beginning January 1,

2002;’’.

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TAXPAYER RELIEF ACT OF 2000

The conference agreement would enact the provisions of H.R.

5542, as introduced on October 25, 2000. The text of that bill follows:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Taxpayer Relief Act of 2000’’.

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly

provided, whenever in this Act an amendment or repeal is expressed

in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or

other provision of the Internal Revenue Code of 1986.

(c) TABLE OF CONTENTS.—

Sec. 1. Short title; amendment of 1986 Code.

TITLE I—FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

Sec. 101. Repeal of foreign sales corporation rules.

Sec. 102. Treatment of extraterritorial income.

Sec. 103. Technical and conforming amendments.

Sec. 104. Effective date.

TITLE II—SMALL BUSINESS TAX RELIEF

Sec. 201. Extension of work opportunity tax credit.

Sec. 202. Increase in amortizable reforestation expenditures, etc.

Sec. 203. Increase in expense treatment for small businesses.

Sec. 204. Increased deduction for meal expenses.

Sec. 205. Increased deductibility of business meal expenses for individuals subject to

Federal limitations on hours of service.

Sec. 206. Repeal of modification of installment method.

Sec. 207. Income averaging not to increase alternative minimum tax liability; income averaging for fishermen.

Sec. 208. Repeal of occupational taxes relating to distilled spirits, wine, and beer.

Sec. 209. Exclusion from gross income for certain forgiven mortgage obligations.

Sec. 210. Clarification of cash accounting rules for small business.

Sec. 211. Amendments relating to demand deposit accounts at depository institutions.

TITLE III—HEALTH INSURANCE AND LONG-TERM CARE INSURANCE

PROVISIONS

Sec. 301. Deduction for 100 percent of health insurance costs of self-employed individuals.

Sec. 302. Deduction for health and long-term care insurance costs of individuals not

participating in employer-subsidized health plans.

Sec. 303. 2-year extension of availability of medical savings accounts.

Sec. 304. Additional consumer protections for long-term care insurance.

Sec. 305. Deduction for providing long-term care in the home to household members.

TITLE IV—PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT

PROVISIONS

Sec. 400. Short title.

Subtitle A—Individual Retirement Accounts

Sec. 401. Modification of IRA contribution limits.

Sec. 402. Deemed IRAs under employer plans.

Sec. 403. Tax-free distributions from individual retirement accounts for charitable

purposes.

Sec. 404. Modification of AGI limits for Roth IRAs.

Subtitle B—Expanding Coverage

Sec. 411. Increase in benefit and contribution limits.

Sec. 412. Plan loans for subchapter S owners, partners, and sole proprietors.

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Sec. 413. Modification of top-heavy rules.

Sec. 414. Elective deferrals not taken into account for purposes of deduction limits.

Sec. 415. Repeal of coordination requirements for deferred compensation plans of

State and local governments and tax-exempt organizations.

Sec. 416. Elimination of user fee for requests to IRS regarding pension plans.

Sec. 417. Deduction limits.

Sec. 418. Option to treat elective deferrals as after-tax Roth contributions.

Subtitle C—Enhancing Fairness for Women

Sec. 421. Catch-up contributions for individuals age 50 or over.

Sec. 422. Equitable treatment for contributions of employees to defined contribution

plans.

Sec. 423. Faster vesting of certain employer matching contributions.

Sec. 424. Simplify and update the minimum distribution rules.

Sec. 425. Clarification of tax treatment of division of section 457 plan benefits upon

divorce.

Sec. 426. Provisions relating to hardship distributions.

Sec. 427. Waiver of tax on nondeductible contributions for domestic or similar workers.

Subtitle D—Increasing Portability for Participants

Sec. 431. Rollovers allowed among various types of plans.

Sec. 432. Rollovers of IRAs into workplace retirement plans.

Sec. 433. Rollovers of after-tax contributions.

Sec. 434. Hardship exception to 60-day rule.

Sec. 435. Treatment of forms of distribution.

Sec. 436. Rationalization of restrictions on distributions.

Sec. 437. Purchase of service credit in governmental defined benefit plans.

Sec. 438. Employers may disregard rollovers for purposes of cash-out amounts.

Sec. 439. Minimum distribution and inclusion requirements for section 457 plans.

Subtitle E—Strengthening Pension Security and Enforcement

Sec. 441. Repeal of 155 percent of current liability funding limit.

Sec. 442. Maximum contribution deduction rules modified and applied to all defined benefit plans.

Sec. 443. Excise tax relief for sound pension funding.

Sec. 444. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals.

Sec. 445. Treatment of multiemployer plans under section 415.

Sec. 446. Protection of investment of employee contributions to 401(k) plans.

Sec. 447. Periodic pension benefits statements.

Sec. 448. Prohibited allocations of stock in S corporation ESOP.

Subtitle F—Reducing Regulatory Burdens

Sec. 451. Modification of timing of plan valuations.

Sec. 452. ESOP dividends may be reinvested without loss of dividend deduction.

Sec. 453. Repeal of transition rule relating to certain highly compensated employees.

Sec. 454. Employees of tax-exempt entities.

Sec. 455. Clarification of treatment of employer-provided retirement advice.

Sec. 456. Reporting simplification.

Sec. 457. Improvement of employee plans compliance resolution system.

Sec. 458. Repeal of the multiple use test.

Sec. 459. Flexibility in nondiscrimination, coverage, and line of business rules.

Sec. 460. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans.

Sec. 461. Notice and consent period regarding distributions.

Sec. 462. Annual report dissemination.

Sec. 463. Technical corrections to SAVER Act.

Sec. 464. Study of pension coverage.

Subtitle G—Other ERISA Provisions

Sec. 471. Missing participants.

Sec. 472. Reduced PBGC premium for new plans of small employers.

Sec. 473. Reduction of additional PBGC premium for new and small plans.

Sec. 474. Authorization for PBGC to pay interest on premium overpayment refunds.

Sec. 475. Substantial owner benefits in terminated plans.

Sec. 476. Multiemployer plan benefits guarantee.

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Sec. 477. Civil penalties for breach of fiduciary responsibility.

Sec. 478. Benefit suspension notice.

Subtitle H—Plan Amendments

Sec. 481. Provisions relating to plan amendments.

TITLE V—SCHOOL CONSTRUCTION PROVISIONS

Sec. 501. Additional increase in arbitrage rebate exception for governmental bonds

used to finance educational facilities.

Sec. 502. Modification of arbitrage rebate rules applicable to public school construction bonds.

Sec. 503. Modification of special arbitrage rule for certain funds.

Sec. 504. Treatment of qualified public educational facility bonds as exempt facility

bonds.

Sec. 505. Expansion of qualified zone academy bond program.

TITLE VI—COMMUNITY REVITALIZATION

Subtitle A—Tax Incentives for Renewal Communities

Sec. 601. Designation of and tax incentives for renewal communities.

Sec. 602. Work opportunity credit for hiring youth residing in renewal communities.

Subtitle B—Extension and Expansion of Empowerment Zone Incentives

Sec. 611. Authority to designate 9 additional empowerment zones.

Sec. 612. Extension of empowerment zone treatment through 2009.

Sec. 613. 20 percent employment credit for all empowerment zones.

Sec. 614. Increased expensing under section 179.

Sec. 615. Higher limits on tax-exempt empowerment zone facility bonds.

Sec. 616. Nonrecognition of gain on rollover of empowerment zone investments.

Sec. 617. Increased exclusion of gain on sale of empowerment zone stock.

Subtitle C—New Markets Tax Credit

Sec. 621. New markets tax credit.

Subtitle D—Improvements in Low-Income Housing Credit

Sec. 631. Modification of State ceiling on low-income housing credit.

Sec. 632. Modification of criteria for allocating housing credits among projects.

Sec. 633. Additional responsibilities of housing credit agencies.

Sec. 634. Modifications to rules relating to basis of building which is eligible for

credit.

Sec. 635. Other modifications.

Sec. 636. Carryforward rules.

Sec. 637. Effective date.

Subtitle E—Other Community Renewal and New Markets Assistance

Sec. 641. Transfer of unoccupied and substandard HUD-held housing to local governments and community development corporations.

Sec. 642. Transfer of HUD assets in revitalization areas.

Sec. 643. Risk-sharing demonstration.

Sec. 644. Prevention and treatment of substance abuse; services provided through religious organizations.

Subtitle F—Other Provisions

Sec. 651. Acceleration of phase-in of increase in volume cap on private activity

bonds.

Sec. 652. Modifications to expensing of environmental remediation costs.

Sec. 653. Extension of DC homebuyer tax credit.

TITLE VII—ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL

PROVISIONS

Subtitle A—Administrative Provisions

Sec. 701. Exemption of certain reporting requirements.

Sec. 702. Extension of deadlines for IRS compliance with certain notice requirements.

Sec. 703. Extension of authority for undercover operations.

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Sec. 704. Confidentiality of certain documents relating to closing and similar agreements and to agreements with foreign governments.

Sec. 705. Increase in threshold for Joint Committee reports on refunds and credits.

Sec. 706. Treatment of missing children with respect to certain tax benefits.

Sec. 707. Amendments to statutes referencing yield on 52-week Treasury bills.

Sec. 708. Adjustments for Consumer Price Index error.

Sec. 709. Prevention of duplication of loss through assumption of liabilities giving

rise to a deduction.

Subtitle B—Miscellaneous Provisions

Sec. 710. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund.

Sec. 711. Repeal of reduction of deductions for mutual life insurance companies.

Sec. 712. Repeal of policyholders surplus account provisions.

Sec. 713. Credit to holders of qualified Amtrak bonds.

Sec. 714. Farm, fishing, and ranch risk management accounts.

Sec. 715. Extension of enhanced deduction for corporate donations of computer technology.

Sec. 716. Relief from Federal tax liability arising with respect to certain claims

against the Department of Agriculture for discrimination in farm credit

and benefit programs.

Sec. 717. Expansion of credit for adoption expenses.

Sec. 718. Study concerning United States insurance companies with certain offshore

reinsurance affiliates.

Sec. 719. Treatment of Indian tribal governments under Federal Unemployment Tax

Act.

Subtitle C—Technical Corrections

Sec. 721. Amendments related to Ticket to Work and Work Incentives Improvement

Act of 1999.

Sec. 722. Amendments related to Tax and Trade Relief Extension Act of 1998.

Sec. 723. Amendments related to Internal Revenue Service Restructuring and Reform Act of 1998.

Sec. 724. Amendments related to Taxpayer Relief Act of 1997.

Sec. 725. Amendments related to Balanced Budget Act of 1997.

Sec. 726. Amendments related to Small Business Job Protection Act of 1996.

Sec. 727. Amendment related to Revenue Reconciliation Act of 1990.

Sec. 728. Other technical corrections.

Sec. 729. Clerical changes.

Subtitle D—Pay-Go Adjustments

Sec. 731. Avoidance of a Pay-Go sequestration for fiscal year 2001.

TITLE I—FSC REPEAL AND

EXTRATERRITORIAL INCOME EXCLUSION

SEC. 101. REPEAL OF FOREIGN SALES CORPORATION RULES.

Subpart C of part III of subchapter N of chapter 1 (relating to

taxation of foreign sales corporations) is hereby repealed.

SEC. 102. TREATMENT OF EXTRATERRITORIAL INCOME.

(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by

inserting before section 115 the following new section:

‘‘SEC. 114. EXTRATERRITORIAL INCOME.

‘‘(a) EXCLUSION.—Gross income does not include extraterritorial

income.

‘‘(b) EXCEPTION.—Subsection (a) shall not apply to

extraterritorial income which is not qualifying foreign trade income

as determined under subpart E of part III of subchapter N.

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‘‘(c) DISALLOWANCE OF DEDUCTIONS.— ‘‘(1) IN GENERAL.—Any deduction of a taxpayer allocated

under paragraph (2) to extraterritorial income of the taxpayer

excluded from gross income under subsection (a) shall not be allowed.

‘‘(2) ALLOCATION.—Any deduction of the taxpayer properly

apportioned and allocated to the extraterritorial income derived

by the taxpayer from any transaction shall be allocated on a

proportionate basis between—

‘‘(A) the extraterritorial income derived from such

transaction which is excluded from gross income under

subsection (a), and

‘‘(B) the extraterritorial income derived from such

transaction which is not so excluded.

‘‘(d) DENIAL OF CREDITS FOR CERTAIN FOREIGN TAXES.—Notwithstanding any other provision of this chapter, no credit shall be

allowed under this chapter for any income, war profits, and excess

profits taxes paid or accrued to any foreign country or possession of

the United States with respect to extraterritorial income which is excluded from gross income under subsection (a).

‘‘(e) EXTRATERRITORIAL INCOME.—For purposes of this section,

the term ‘extraterritorial income’ means the gross income of the taxpayer attributable to foreign trading gross receipts (as defined in

section 942) of the taxpayer.’’.

(b) QUALIFYING FOREIGN TRADE INCOME.—Part III of subchapter N of chapter 1 is amended by inserting after subpart D the

following new subpart:

‘‘Subpart E—Qualifying Foreign Trade Income

‘‘Sec. 941. Qualifying foreign trade income.

‘‘Sec. 942. Foreign trading gross receipts.

‘‘Sec. 943. Other definitions and special rules.

‘‘SEC. 941. QUALIFYING FOREIGN TRADE INCOME.

‘‘(a) QUALIFYING FOREIGN TRADE INCOME.—For purposes of this

subpart and section 114—

‘‘(1) IN GENERAL.—The term ‘qualifying foreign trade income’ means, with respect to any transaction, the amount of

gross income which, if excluded, will result in a reduction of the

taxable income of the taxpayer from such transaction equal to

the greatest of—

‘‘(A) 30 percent of the foreign sale and leasing income

derived by the taxpayer from such transaction,

‘‘(B) 1.2 percent of the foreign trading gross receipts derived by the taxpayer from the transaction, or

‘‘(C) 15 percent of the foreign trade income derived by

the taxpayer from the transaction.

In no event shall the amount determined under subparagraph

(B) exceed 200 percent of the amount determined under subparagraph (C).

‘‘(2) ALTERNATIVE COMPUTATION.—A taxpayer may compute

its qualifying foreign trade income under a subparagraph of

paragraph (1) other than the subparagraph which results in the

greatest amount of such income.

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‘‘(3) LIMITATION ON USE OF FOREIGN TRADING GROSS RECEIPTS METHOD.—If any person computes its qualifying foreign

trade income from any transaction with respect to any property

under paragraph (1)(B), the qualifying foreign trade income of

such person (or any related person) with respect to any other

transaction involving such property shall be zero.

‘‘(4) RULES FOR MARGINAL COSTING.—The Secretary shall

prescribe regulations setting forth rules for the allocation of expenditures in computing foreign trade income under paragraph

(1)(C) in those cases where a taxpayer is seeking to establish or

maintain a market for qualifying foreign trade property.

‘‘(5) PARTICIPATION IN INTERNATIONAL BOYCOTTS, ETC.—

Under regulations prescribed by the Secretary, the qualifying

foreign trade income of a taxpayer for any taxable year shall be

reduced (but not below zero) by the sum of—

‘‘(A) an amount equal to such income multiplied by the

international boycott factor determined under section 999,

and

‘‘(B) any illegal bribe, kickback, or other payment

(within the meaning of section 162(c)) paid by or on behalf

of the taxpayer directly or indirectly to an official, employee, or agent in fact of a government.

‘‘(b) FOREIGN TRADE INCOME.—For purposes of this subpart—

‘‘(1) IN GENERAL.—The term ‘foreign trade income’ means

the taxable income of the taxpayer attributable to foreign trading gross receipts of the taxpayer.

‘‘(2) SPECIAL RULE FOR COOPERATIVES.—In any case in

which an organization to which part I of subchapter T applies

which is engaged in the marketing of agricultural or horticultural products sells qualifying foreign trade property, in

computing the taxable income of such cooperative, there shall

not be taken into account any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).

‘‘(c) FOREIGN SALE AND LEASING INCOME.—For purposes of this

section—

‘‘(1) IN GENERAL.—The term ‘foreign sale and leasing income’ means, with respect to any transaction—

‘‘(A) foreign trade income properly allocable to activities which—

‘‘(i) are described in paragraph (2)(A)(i) or (3) of

section 942(b), and

‘‘(ii) are performed by the taxpayer (or any person

acting under a contract with such taxpayer) outside the

United States, or

‘‘(B) foreign trade income derived by the taxpayer in

connection with the lease or rental of qualifying foreign

trade property for use by the lessee outside the United

States.

‘‘(2) SPECIAL RULES FOR LEASED PROPERTY.—

‘‘(A) SALES INCOME.—The term ‘foreign sale and leasing income’ includes any foreign trade income derived by

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the taxpayer from the sale of property described in paragraph (1)(B).

‘‘(B) LIMITATION IN CERTAIN CASES.—Except as provided in regulations, in the case of property which—

‘‘(i) was manufactured, produced, grown, or extracted by the taxpayer, or

‘‘(ii) was acquired by the taxpayer from a related

person for a price which was not determined in accordance with the rules of section 482,

the amount of foreign trade income which may be treated

as foreign sale and leasing income under paragraph (1)(B)

or subparagraph (A) of this paragraph with respect to any

transaction involving such property shall not exceed the

amount which would have been determined if the taxpayer

had acquired such property for the price determined in accordance with the rules of section 482.

‘‘(3) SPECIAL RULES.—

‘‘(A) EXCLUDED PROPERTY.—Foreign sale and leasing

income shall not include any income properly allocable to

excluded property described in subparagraph (B) of section

943(a)(3) (relating to intangibles).

‘‘(B) ONLY DIRECT EXPENSES TAKEN INTO ACCOUNT.—

For purposes of this subsection, any expense other than a

directly allocable expense shall not be taken into account in

computing foreign trade income.

‘‘SEC. 942. FOREIGN TRADING GROSS RECEIPTS.

‘‘(a) FOREIGN TRADING GROSS RECEIPTS.—

‘‘(1) IN GENERAL.—Except as otherwise provided in this section, for purposes of this subpart, the term ‘foreign trading

gross receipts’ means the gross receipts of the taxpayer which

are—

‘‘(A) from the sale, exchange, or other disposition of

qualifying foreign trade property,

‘‘(B) from the lease or rental of qualifying foreign trade

property for use by the lessee outside the United States,

‘‘(C) for services which are related and subsidiary to—

‘‘(i) any sale, exchange, or other disposition of

qualifying foreign trade property by such taxpayer, or

‘‘(ii) any lease or rental of qualifying foreign trade

property described in subparagraph (B) by such taxpayer,

‘‘(D) for engineering or architectural services for construction projects located (or proposed for location) outside

the United States, or

‘‘(E) for the performance of managerial services for a

person other than a related person in furtherance of the

production of foreign trading gross receipts described in

subparagraph (A), (B), or (C).

Subparagraph (E) shall not apply to a taxpayer for any taxable

year unless at least 50 percent of its foreign trading gross receipts (determined without regard to this sentence) for such taxable year is derived from activities described in subparagraph

(A), (B), or (C).

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‘‘(2) CERTAIN RECEIPTS EXCLUDED ON BASIS OF USE; SUBSIDIZED RECEIPTS EXCLUDED.—The term ‘foreign trading gross

receipts’ shall not include receipts of a taxpayer from a transaction if—

‘‘(A) the qualifying foreign trade property or services—

‘‘(i) are for ultimate use in the United States, or

‘‘(ii) are for use by the United States or any instrumentality thereof and such use of qualifying foreign

trade property or services is required by law or regulation, or

‘‘(B) such transaction is accomplished by a subsidy

granted by the government (or any instrumentality thereof)

of the country or possession in which the property is manufactured, produced, grown, or extracted.

‘‘(3) ELECTION TO EXCLUDE CERTAIN RECEIPTS.—The term

‘foreign trading gross receipts’ shall not include gross receipts

of a taxpayer from a transaction if the taxpayer elects not to

have such receipts taken into account for purposes of this subpart.

‘‘(b) FOREIGN ECONOMIC PROCESS REQUIREMENTS.—

‘‘(1) IN GENERAL.—Except as provided in subsection (c), a

taxpayer shall be treated as having foreign trading gross receipts from any transaction only if economic processes with respect to such transaction take place outside the United States

as required by paragraph (2).

‘‘(2) REQUIREMENT.—

‘‘(A) IN GENERAL.—The requirements of this paragraph

are met with respect to the gross receipts of a taxpayer derived from any transaction if—

‘‘(i) such taxpayer (or any person acting under a

contract with such taxpayer) has participated outside

the United States in the solicitation (other than advertising), the negotiation, or the making of the contract

relating to such transaction, and

‘‘(ii) the foreign direct costs incurred by the taxpayer attributable to the transaction equal or exceed 50

percent of the total direct costs attributable to the

transaction.

‘‘(B) ALTERNATIVE 85-PERCENT TEST.—A taxpayer shall

be treated as satisfying the requirements of subparagraph

(A)(ii) with respect to any transaction if, with respect to

each of at least 2 subparagraphs of paragraph (3), the foreign direct costs incurred by such taxpayer attributable to

activities described in such subparagraph equal or exceed

85 percent of the total direct costs attributable to activities

described in such subparagraph.

‘‘(C) DEFINITIONS.—For purposes of this paragraph—

‘‘(i) TOTAL DIRECT COSTS.—The term ‘total direct

costs’ means, with respect to any transaction, the total

direct costs incurred by the taxpayer attributable to activities described in paragraph (3) performed at any location by the taxpayer or any person acting under a

contract with such taxpayer.

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‘‘(ii) FOREIGN DIRECT COSTS.—The term ‘foreign direct costs’ means, with respect to any transaction, the

portion of the total direct costs which are attributable

to activities performed outside the United States.

‘‘(3) ACTIVITIES RELATING TO QUALIFYING FOREIGN TRADE

PROPERTY.—The activities described in this paragraph are any

of the following with respect to qualifying foreign trade

property—

‘‘(A) advertising and sales promotion,

‘‘(B) the processing of customer orders and the arranging for delivery,

‘‘(C) transportation outside the United States in connection with delivery to the customer,

‘‘(D) the determination and transmittal of a final invoice or statement of account or the receipt of payment, and

‘‘(E) the assumption of credit risk.

‘‘(4) ECONOMIC PROCESSES PERFORMED BY RELATED PERSONS.—A taxpayer shall be treated as meeting the requirements

of this subsection with respect to any sales transaction involving any property if any related person has met such requirements in such transaction or any other sales transaction involving such property.

‘‘(c) EXCEPTION FROM FOREIGN ECONOMIC PROCESS REQUIREMENT.—

‘‘(1) IN GENERAL.—The requirements of subsection (b) shall

be treated as met for any taxable year if the foreign trading

gross receipts of the taxpayer for such year do not exceed

$5,000,000.

‘‘(2) RECEIPTS OF RELATED PERSONS AGGREGATED.—All related persons shall be treated as one person for purposes of

paragraph (1), and the limitation under paragraph (1) shall be

allocated among such persons in a manner provided in regulations prescribed by the Secretary.

‘‘(3) SPECIAL RULE FOR PASS-THRU ENTITIES.—In the case of

a partnership, S corporation, or other pass-thru entity, the limitation under paragraph (1) shall apply with respect to the partnership, S corporation, or entity and with respect to each partner, shareholder, or other owner.

‘‘SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.

‘‘(a) QUALIFYING FOREIGN TRADE PROPERTY.—For purposes of

this subpart—

‘‘(1) IN GENERAL.—The term ‘qualifying foreign trade property’ means property—

‘‘(A) manufactured, produced, grown, or extracted within or outside the United States,

‘‘(B) held primarily for sale, lease, or rental, in the ordinary course of trade or business for direct use, consumption, or disposition outside the United States, and

‘‘(C) not more than 50 percent of the fair market value

of which is attributable to—

‘‘(i) articles manufactured, produced, grown, or extracted outside the United States, and

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‘‘(ii) direct costs for labor (determined under the

principles of section 263A) performed outside the

United States.

For purposes of subparagraph (C), the fair market value of any

article imported into the United States shall be its appraised

value, as determined by the Secretary under section 402 of the

Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its importation, and the direct costs for labor under clause (ii) do not

include costs that would be treated under the principles of section 263A as direct labor costs attributable to articles described

in clause (i).

‘‘(2) U.S. TAXATION TO ENSURE CONSISTENT TREATMENT.—

Property which (without regard to this paragraph) is qualifying

foreign trade property and which is manufactured, produced,

grown, or extracted outside the United States shall be treated

as qualifying foreign trade property only if it is manufactured,

produced, grown, or extracted by—

‘‘(A) a domestic corporation,

‘‘(B) an individual who is a citizen or resident of the

United States,

‘‘(C) a foreign corporation with respect to which an

election under subsection (e) (relating to foreign corporations electing to be subject to United States taxation) is in

effect, or

‘‘(D) a partnership or other pass-thru entity all of the

partners or owners of which are described in subparagraph

(A), (B), or (C).

Except as otherwise provided by the Secretary, tiered partnerships or pass-thru entities shall be treated as described in subparagraph (D) if each of the partnerships or entities is directly

or indirectly wholly owned by persons described in subparagraph (A), (B), or (C).

‘‘(3) EXCLUDED PROPERTY.—The term ‘qualifying foreign

trade property’ shall not include—

‘‘(A) property leased or rented by the taxpayer for use

by any related person,

‘‘(B) patents, inventions, models, designs, formulas, or

processes whether or not patented, copyrights (other than

films, tapes, records, or similar reproductions, and other

than computer software (whether or not patented), for commercial or home use), goodwill, trademarks, trade brands,

franchises, or other like property,

‘‘(C) oil or gas (or any primary product thereof),

‘‘(D) products the transfer of which is prohibited or curtailed to effectuate the policy set forth in paragraph (2)(C)

of section 3 of Public Law 96–72, or

‘‘(E) any unprocessed timber which is a softwood.

For purposes of subparagraph (E), the term ‘unprocessed timber’ means any log, cant, or similar form of timber.

‘‘(4) PROPERTY IN SHORT SUPPLY.—If the President determines that the supply of any property described in paragraph

(1) is insufficient to meet the requirements of the domestic economy, the President may by Executive order designate the property as in short supply. Any property so designated shall not be

14

treated as qualifying foreign trade property during the period

beginning with the date specified in the Executive order and

ending with the date specified in an Executive order setting

forth the President’s determination that the property is no

longer in short supply.

‘‘(b) OTHER DEFINITIONS AND RULES.—For purposes of this

subpart—

‘‘(1) TRANSACTION.—

‘‘(A) IN GENERAL.—The term ‘transaction’ means—

‘‘(i) any sale, exchange, or other disposition,

‘‘(ii) any lease or rental, and

‘‘(iii) any furnishing of services.

‘‘(B) GROUPING OF TRANSACTIONS.—To the extent provided in regulations, any provision of this subpart which,

but for this subparagraph, would be applied on a transaction-by-transaction basis may be applied by the taxpayer

on the basis of groups of transactions based on product

lines or recognized industry or trade usage. Such regulations may permit different groupings for different purposes.

‘‘(2) UNITED STATES DEFINED.—The term ‘United States’ includes the Commonwealth of Puerto Rico. The preceding sentence shall not apply for purposes of determining whether a corporation is a domestic corporation.

‘‘(3) RELATED PERSON.—A person shall be related to another person if such persons are treated as a single employer

under subsection (a) or (b) of section 52 or subsection (m) or (o)

of section 414, except that determinations under subsections (a)

and (b) of section 52 shall be made without regard to section

1563(b).

‘‘(4) GROSS AND TAXABLE INCOME.—Section 114 shall not be

taken into account in determining the amount of gross income

or foreign trade income from any transaction.

‘‘(c) SOURCE RULE.—Under regulations, in the case of qualifying foreign trade property manufactured, produced, grown, or extracted within the United States, the amount of income of a taxpayer from any sales transaction with respect to such property

which is treated as from sources without the United States shall not

exceed—

‘‘(1) in the case of a taxpayer computing its qualifying foreign trade income under section 941(a)(1)(B), the amount of the

taxpayer’s foreign trade income which would (but for this subsection) be treated as from sources without the United States if

the foreign trade income were reduced by an amount equal to

4 percent of the foreign trading gross receipts with respect to the

transaction, and

‘‘(2) in the case of a taxpayer computing its qualifying foreign trade income under section 941(a)(1)(C), 50 percent of the

amount of the taxpayer’s foreign trade income which would (but

for this subsection) be treated as from sources without the

United States.

‘‘(d) TREATMENT OF WITHHOLDING TAXES.—

‘‘(1) IN GENERAL.—For purposes of section 114(d), any withholding tax shall not be treated as paid or accrued with respect

to extraterritorial income which is excluded from gross income

15

under section 114(a). For purposes of this paragraph, the term

‘withholding tax’ means any tax which is imposed on a basis

other than residence and for which credit is allowable under

section 901 or 903.

‘‘(2) EXCEPTION.—Paragraph (1) shall not apply to any taxpayer with respect to extraterritorial income from any transaction if the taxpayer computes its qualifying foreign trade income with respect to the transaction under section 941(a)(1)(A).

‘‘(e) ELECTION TO BE TREATED AS DOMESTIC CORPORATION.—

‘‘(1) IN GENERAL.—An applicable foreign corporation may

elect to be treated as a domestic corporation for all purposes of

this title if such corporation waives all benefits to such corporation granted by the United States under any treaty. No election

under section 1362(a) may be made with respect to such corporation.

‘‘(2) APPLICABLE FOREIGN CORPORATION.—For purposes of

paragraph (1), the term ‘applicable foreign corporation’ means

any foreign corporation if—

‘‘(A) such corporation manufactures, produces, grows,

or extracts property in the ordinary course of such corporation’s trade or business, or

‘‘(B) substantially all of the gross receipts of such corporation are foreign trading gross receipts.

‘‘(3) PERIOD OF ELECTION.—

‘‘(A) IN GENERAL.—Except as otherwise provided in this

paragraph, an election under paragraph (1) shall apply to

the taxable year for which made and all subsequent taxable

years unless revoked by the taxpayer. Any revocation of

such election shall apply to taxable years beginning after

such revocation.

‘‘(B) TERMINATION.—If a corporation which made an

election under paragraph (1) for any taxable year fails to

meet the requirements of subparagraph (A) or (B) of paragraph (2) for any subsequent taxable year, such election

shall not apply to any taxable year beginning after such

subsequent taxable year.

‘‘(C) EFFECT OF REVOCATION OR TERMINATION.—If a

corporation which made an election under paragraph (1)

revokes such election or such election is terminated under

subparagraph (B), such corporation (and any successor corporation) may not make such election for any of the 5 taxable years beginning with the first taxable year for which

such election is not in effect as a result of such revocation

or termination.

‘‘(4) SPECIAL RULES.—

‘‘(A) REQUIREMENTS.—This subsection shall not apply

to an applicable foreign corporation if such corporation

fails to meet the requirements (if any) which the Secretary

may prescribe to ensure that the taxes imposed by this

chapter on such corporation are paid.

‘‘(B) EFFECT OF ELECTION, REVOCATION, AND TERMINATION.—

‘‘(i) ELECTION.—For purposes of section 367, a foreign corporation making an election under this subVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00019 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
16

section shall be treated as transferring (as of the first

day of the first taxable year to which the election applies) all of its assets to a domestic corporation in connection with an exchange to which section 354 applies.

‘‘(ii) REVOCATION AND TERMINATION.—For purposes

of section 367, if—

‘‘(I) an election is made by a corporation under

paragraph (1) for any taxable year, and

‘‘(II) such election ceases to apply for any subsequent taxable year,

such corporation shall be treated as a domestic corporation

transferring (as of the 1st day of the first such subsequent

taxable year to which such election ceases to apply) all of

its property to a foreign corporation in connection with an

exchange to which section 354 applies.

‘‘(C) ELIGIBILITY FOR ELECTION.—The Secretary may by

regulation designate one or more classes of corporations

which may not make the election under this subsection.

‘‘(f) RULES RELATING TO ALLOCATIONS OF QUALIFYING FOREIGN

TRADE INCOME FROM SHARED PARTNERSHIPS.—

‘‘(1) IN GENERAL.—If—

‘‘(A) a partnership maintains a separate account for

transactions (to which this subpart applies) with each partner,

‘‘(B) distributions to each partner with respect to such

transactions are based on the amounts in the separate account maintained with respect to such partner, and

‘‘(C) such partnership meets such other requirements as

the Secretary may by regulations prescribe,

then such partnership shall allocate to each partner items of income, gain, loss, and deduction (including qualifying foreign

trade income) from any transaction to which this subpart applies on the basis of such separate account.

‘‘(2) SPECIAL RULES.—For purposes of this subpart, in the

case of a partnership to which paragraph (1) applies—

‘‘(A) any partner’s interest in the partnership shall not

be taken into account in determining whether such partner

is a related person with respect to any other partner, and

‘‘(B) the election under section 942(a)(3) shall be made

separately by each partner with respect to any transaction

for which the partnership maintains separate accounts for

each partner.

‘‘(g) EXCLUSION FOR PATRONS OF AGRICULTURAL AND HORTICULTURAL COOPERATIVES.—Any amount described in paragraph (1)

or (3) of section 1385(a)—

‘‘(1) which is received by a person from an organization to

which part I of subchapter T applies which is engaged in the

marketing of agricultural or horticultural products, and

‘‘(2) which is allocable to qualifying foreign trade income

and designated as such by the organization in a written notice

mailed to its patrons during the payment period described in

section 1382(d),

shall be treated as qualifying foreign trade income of such person

for purposes of section 114. The taxable income of the organization

17

shall not be reduced under section 1382 by reason of any amount

to which the preceding sentence applies.

‘‘(h) SPECIAL RULE FOR DISCS.—Section 114 shall not apply to

any taxpayer for any taxable year if, at any time during the taxable

year, the taxpayer is a member of any controlled group of corporations (as defined in section 927(d)(4), as in effect before the date of

the enactment of this subsection) of which a DISC is a member.’’

SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.

(1) The second sentence of section 56(g)(4)(B)(i) is amended

by inserting before the period ‘‘or under section 114’’.

(2) Section 275(a) is amended—

(A) by striking ‘‘or’’ at the end of paragraph (4)(A), by

striking the period at the end of paragraph (4)(B) and inserting ‘‘, or’’, and by adding at the end of paragraph (4)

the following new subparagraph:

‘‘(C) such taxes are paid or accrued with respect to

qualifying foreign trade income (as defined in section

941).’’; and

(B) by adding at the end the following the following

new sentence: ‘‘A rule similar to the rule of section 943(d)

shall apply for purposes of paragraph (4)(C).’’.

(3) Paragraph (3) of section 864(e) is amended—

(A) by striking ‘‘For purposes of’’ and inserting:

‘‘(A) IN GENERAL.—For purposes of’’; and

(B) by adding at the end the following new subparagraph:

‘‘(B) ASSETS PRODUCING EXEMPT EXTRATERRITORIAL IN- COME.—For purposes of allocating and apportioning any

interest expense, there shall not be taken into account any

qualifying foreign trade property (as defined in section

943(a)) which is held by the taxpayer for lease or rental in

the ordinary course of trade or business for use by the lessee outside the United States (as defined in section

943(b)(2)).’’.

(4) Section 903 is amended by striking ‘‘164(a)’’ and inserting ‘‘114, 164(a),’’.

(5) Section 999(c)(1) is amended by inserting ‘‘941(a)(5),’’

after ‘‘908(a),’’.

(6) The table of sections for part III of subchapter B of

chapter 1 is amended by inserting before the item relating to

section 115 the following new item:

‘‘Sec. 114. Extraterritorial income.’’.

(7) The table of subparts for part III of subchapter N of

chapter 1 is amended by striking the item relating to subpart

E and inserting the following new item:

‘‘Subpart E. Qualifying foreign trade income.’’.

(8) The table of subparts for part III of subchapter N of

chapter 1 is amended by striking the item relating to subpart

C.

SEC. 104. EFFECTIVE DATE.

(a) IN GENERAL.—The amendments made by this title shall

apply to transactions after September 30, 2000.

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(b) NO NEW FSCS; TERMINATION OF INACTIVE FSCS.—

(1) NO NEW FSCS.—No corporation may elect after September 30, 2000, to be a FSC (as defined in section 922 of the

Internal Revenue Code of 1986, as in effect before the amendments made by this Act).

(2) TERMINATION OF INACTIVE FSCS.—If a FSC has no foreign trade income (as defined in section 923(b) of such Code, as

so in effect) for any period of 5 consecutive taxable years beginning after December 31, 2001, such FSC shall cease to be treated as a FSC for purposes of such Code for any taxable year beginning after such period.

(c) TRANSITION PERIOD FOR EXISTING FOREIGN SALES CORPORATIONS.—

(1) IN GENERAL.—In the case of a FSC (as so defined) in

existence on September 30, 2000, and at all times thereafter, the

amendments made by this Act shall not apply to any transaction in the ordinary course of trade or business involving a

FSC which occurs—

(A) before January 1, 2002; or

(B) after December 31, 2001, pursuant to a binding

contract—

(i) which is between the FSC (or any related person) and any person which is not a related person; and

(ii) which is in effect on September 30, 2000, and

at all times thereafter.

For purposes of this paragraph, a binding contract shall include a purchase option, renewal option, or replacement option

which is included in such contract and which is enforceable

against the seller or lessor.

(2) ELECTION TO HAVE AMENDMENTS APPLY EARLIER.—A

taxpayer may elect to have the amendments made by this Act

apply to any transaction by a FSC or any related person to

which such amendments would apply but for the application of

paragraph (1). Such election shall be effective for the taxable

year for which made and all subsequent taxable years, and,

once made, may be revoked only with the consent of the Secretary of the Treasury.

(3) EXCEPTION FOR OLD EARNINGS AND PROFITS OF CERTAIN

CORPORATIONS.—

(A) IN GENERAL.—In the case of a foreign corporation

to which this paragraph applies—

(i) earnings and profits of such corporation accumulated in taxable years ending before October 1,

2000, shall not be included in the gross income of the

persons holding stock in such corporation by reason of

section 943(e)(4)(B)(i), and

(ii) rules similar to the rules of clauses (ii), (iii),

and (iv) of section 953(d)(4)(B) shall apply with respect

to such earnings and profits.

The preceding sentence shall not apply to earnings and

profits acquired in a transaction after September 30, 2000,

to which section 381 applies unless the distributor or transferor corporation was immediately before the transaction a

foreign corporation to which this paragraph applies.

19

(B) EXISTING FSCS.—This paragraph shall apply to

any controlled foreign corporation (as defined in section

957) if—

(i) such corporation is a FSC (as so defined) in existence on September 30, 2000,

(ii) such corporation is eligible to make the election

under section 943(e) by reason of being described in

paragraph (2)(B) of such section, and

(iii) such corporation makes such election not later

than for its first taxable year beginning after December

31, 2001.

(C) OTHER CORPORATIONS.—This paragraph shall

apply to any controlled foreign corporation (as defined in

section 957), and such corporation shall (notwithstanding

any provision of section 943(e)) be treated as an applicable

foreign corporation for purposes of section 943(e), if—

(i) such corporation is in existence on September

30, 2000,

(ii) as of such date, such corporation is wholly

owned (directly or indirectly) by a domestic corporation

(determined without regard to any election under section 943(e)),

(iii) for each of the 3 taxable years preceding the

first taxable year to which the election under section

943(e) by such controlled foreign corporation applies—

(I) all of the gross income of such corporation

is subpart F income (as defined in section 952), including by reason of section 954(b)(3)(B), and

(II) in the ordinary course of such corporation’s trade or business, such corporation regularly

sold (or paid commissions) to a FSC which on September 30, 2000, was a related person to such corporation,

(iv) such corporation has never made an election

under section 922(a)(2) (as in effect before the date of

the enactment of this paragraph) to be treated as a

FSC, and

(v) such corporation makes the election under section 943(e) not later than for its first taxable year beginning after December 31, 2001.

The preceding sentence shall cease to apply as of the date

that the domestic corporation referred to in clause (ii)

ceases to wholly own (directly or indirectly) such controlled

foreign corporation.

(4) RELATED PERSON.—For purposes of this subsection, the

term ‘‘related person’’ has the meaning given to such term by

section 943(b)(3).

(5) SECTION REFERENCES.—Except as otherwise expressly

provided, any reference in this subsection to a section or other

provision shall be considered to be a reference to a section or

other provision of the Internal Revenue Code of 1986, as

amended by this title.

(d) SPECIAL RULES RELATING TO LEASING TRANSACTIONS.—

20

(1) SALES INCOME.—If foreign trade income in connection

with the lease or rental of property described in section

927(a)(1)(B) of such Code (as in effect before the amendments

made by this Act) is treated as exempt foreign trade income for

purposes of section 921(a) of such Code (as so in effect), such

property shall be treated as property described in section

941(c)(1)(B) of such Code (as added by this Act) for purposes of

applying section 941(c)(2) of such Code (as so added) to any

subsequent transaction involving such property to which the

amendments made by this Act apply.

(2) LIMITATION ON USE OF GROSS RECEIPTS METHOD.—If

any person computed its foreign trade income from any transaction with respect to any property on the basis of a transfer

price determined under the method described in section

925(a)(1) of such Code (as in effect before the amendments

made by this Act), then the qualifying foreign trade income (as

defined in section 941(a) of such Code, as in effect after such

amendment) of such person (or any related person) with respect

to any other transaction involving such property (and to which

the amendments made by this Act apply) shall be zero.

TITLE II—SMALL BUSINESS TAX RELIEF

SEC. 201. EXTENSION OF WORK OPPORTUNITY TAX CREDIT.

(a) IN GENERAL.—Section 51(c)(4)(B) is amended by striking

‘‘December 31, 2001’’ and inserting ‘‘June 30, 2004’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to individuals who begin work for the employer after December 31, 2001.

SEC. 202. INCREASE IN AMORTIZABLE REFORESTATION EXPENDITURES, ETC.

(a) INCREASE IN DOLLAR LIMITATION.—Paragraph (1) of section

194(b) (relating to amortization of reforestation expenditures) is

amended by striking ‘‘$10,000 ($5,000’’ and inserting ‘‘$25,000

($12,500’’.

(b) TEMPORARY SUSPENSION OF INCREASED DOLLAR LIMITATION.—

(1) IN GENERAL.—Subsection (b) of section 194 (relating to

amortization of reforestation expenditures) is amended by adding at the end the following new paragraph:

‘‘(5) SUSPENSION OF DOLLAR LIMITATION.—Paragraph (1)

shall not apply to taxable years beginning after December 31,

2000, and before January 1, 2004.’’.

(2) CONFORMING AMENDMENT.—Paragraph (1) of section

48(b) is amended by striking ‘‘section 194(b)(1)’’ and inserting

‘‘section 194(b)(1) and without regard to section 194(b)(5)’’.

(c) CAPITAL GAIN TREATMENT UNDER SECTION 631(b) TO APPLY

TO OUTRIGHT SALES BY LAND OWNER.—

(1) IN GENERAL.—The first sentence of section 631(b) (relating to disposal of timber with a retained economic interest) is

amended by striking ‘‘retains an economic interest in such timber’’ and inserting ‘‘either retains an economic interest in such

timber or makes an outright sale of such timber’’.

21

(2) CONFORMING AMENDMENT.—The third sentence of section 631(b) is amended by striking ‘‘The date of disposal’’ and

inserting ‘‘In the case of disposal of timber with a retained economic interest, the date of disposal’’.

(d) EFFECTIVE DATES.—

(1) SUBSECTIONS (a) AND (b).—The amendments made by

subsections (a) and (b) shall apply to taxable years beginning

after December 31, 2000.

(2) SUBSECTION (c).—The amendment made by subsection

(c) shall apply to sales after the date of the enactment of this

Act.

SEC. 203. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

(a) IN GENERAL.—Paragraph (1) of section 179(b) (relating to

dollar limitation) is amended to read as follows:

‘‘(1) DOLLAR LIMITATION.—The aggregate cost which may be

taken into account under subsection (a) for any taxable year

shall not exceed $35,000.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 204. INCREASED DEDUCTION FOR MEAL EXPENSES.

(a) IN GENERAL.—Paragraph (1) of section 274(n) (relating to

only 50 percent of meal and entertainment expenses allowed as deduction) is amended by striking ‘‘50 percent’’ in the text and inserting ‘‘the allowable percentage’’.

(b) ALLOWABLE PERCENTAGE.—Subsection (n) of section 274 is

amended by redesignating paragraphs (2) and (3) as paragraphs (3)

and (4), respectively, and by inserting after paragraph (1) the following new paragraph:

‘‘(2) ALLOWABLE PERCENTAGE.—For purposes of paragraph

(1), the allowable percentage is—

‘‘(A) in the case of amounts for items described in paragraph (1)(B), 50 percent, and

‘‘(B) in the case of expenses for food or beverages, 70

percent.’’.

(c) CONFORMING AMENDMENT.—The heading for subsection (n)

of section 274 is amended by striking ‘‘50 PERCENT’’ and inserting

‘‘LIMITED PERCENTAGES’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 205. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES

FOR INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS

ON HOURS OF SERVICE.

(a) IN GENERAL.—Paragraph (4) of section 274(n) (relating to

limited percentages of meal and entertainment expenses allowed as

deduction), as redesignated by section 204, is amended to read as

follows:

‘‘(4) SPECIAL RULE FOR INDIVIDUALS SUBJECT TO FEDERAL

HOURS OF SERVICE.—In the case of any expenses for food or beverages consumed while away from home (within the meaning of

section 162(a)(2)) by an individual during, or incident to, the

period of duty subject to the hours of service limitations of the

22

Department of Transportation, paragraph (2)(B) shall be applied by substituting ‘80 percent’ for ‘70 percent’.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 206. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

(a) IN GENERAL.—Subsection (a) of section 536 of the Ticket to

Work and Work Incentives Improvement Act of 1999 (relating to

modification of installment method and repeal of installment method for accrual method taxpayers) is repealed effective with respect

to sales and other dispositions occurring on or after the date of the

enactment of such Act.

(b) APPLICABILITY.—The Internal Revenue Code of 1986 shall be

applied and administered as if that subsection (and the amendments made by that subsection) had not been enacted.

SEC. 207. INCOME AVERAGING NOT TO INCREASE ALTERNATIVE MINIMUM TAX LIABILITY; INCOME AVERAGING FOR FISHERMEN.

(a) IN GENERAL.—Section 55(c) (defining regular tax) is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following:

‘‘(2) COORDINATION WITH INCOME AVERAGING FOR FARMERS

AND FISHERMEN.—Solely for purposes of this section, section

1301 (relating to averaging of farm and fishing income) shall

not apply in computing the regular tax.’’.

(b) ALLOWING INCOME AVERAGING FOR FISHERMEN.—

(1) IN GENERAL.—Section 1301(a) is amended by striking

‘‘farming business’’ and inserting ‘‘farming business or fishing

business’’.

(2) DEFINITION OF ELECTED FARM INCOME.—

(A) IN GENERAL.—Clause (i) of section 1301(b)(1)(A) is

amended by inserting ‘‘or fishing business’’ before the semicolon.

(B) CONFORMING AMENDMENT.—Subparagraph (B) of

section 1301(b)(1) is amended by inserting ‘‘or fishing business’’ after ‘‘farming business’’ both places it occurs.

(3) DEFINITION OF FISHING BUSINESS.—Section 1301(b) is

amended by adding at the end the following new paragraph:

‘‘(4) FISHING BUSINESS.—The term ‘fishing business’ means

the conduct of commercial fishing as defined in section 3 of the

Magnuson-Stevens Fishery Conservation and Management Act

(16 U.S.C. 1802).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 208. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED

SPIRITS, WINE, AND BEER.

(a) REPEAL OF OCCUPATIONAL TAXES.—

(1) IN GENERAL.—The following provisions of part II of subchapter A of chapter 51 (relating to occupational taxes) are

hereby repealed:

(A) Subpart A (relating to proprietors of distilled spirits plants, bonded wine cellars, etc.).

(B) Subpart B (relating to brewer).

23

(C) Subpart D (relating to wholesale dealers) (other

than sections 5114 and 5116).

(D) Subpart E (relating to retail dealers) (other than

section 5124).

(E) Subpart G (relating to general provisions) (other

than sections 5142, 5143, 5145, and 5146).

(2) NONBEVERAGE DOMESTIC DRAWBACK.—Section 5131 is

amended by striking ‘‘, on payment of a special tax per

annum,’’.

(3) INDUSTRIAL USE OF DISTILLED SPIRITS.—Section 5276 is

hereby repealed.

(b) CONFORMING AMENDMENTS.—

(1)(A) The heading for part II of subchapter A of chapter

51 and the table of subparts for such part are amended to read

as follows:

‘‘PART II—MISCELLANEOUS PROVISIONS

‘‘Subpart A. Manufacturers of stills.

‘‘Subpart B. Nonbeverage domestic drawback claimants.

‘‘Subpart C. Recordkeeping by dealers.

‘‘Subpart D. Other provisions.’’.

(B) The table of parts for such subchapter A is amended by

striking the item relating to part II and inserting the following

new item:

‘‘Part II. Miscellaneous provisions.’’.

(2) Subpart C of part II of such subchapter (relating to

manufacturers of stills) is redesignated as subpart A.

(3)(A) Subpart F of such part II (relating to nonbeverage

domestic drawback claimants), as amended by paragraph (5),

is redesignated as subpart B and sections 5131 through 5134

are redesignated as sections 5111 through 5114, respectively.

(B) The table of sections for such subpart B, as so redesignated, is amended—

(i) by redesignating the items relating to sections 5131

through 5134 as relating to sections 5111 through 5114, respectively, and

(ii) by striking ‘‘and rate of tax’’ in the item relating to

section 5111, as so redesignated.

(C) Section 5111, as redesignated by subparagraph (A), is

amended—

(i) by striking ‘‘AND RATE OF TAX’’ in the section

heading,

(ii) by striking ‘‘(a) ELIGIBILITY FOR DRAWBACK.—’’,

and

(iii) by striking subsection (b).

(4) Part II of subchapter A of chapter 51 is amended by

adding after subpart B, as redesignated by paragraph (3), the

following new subpart:

‘‘Subpart C—Recordkeeping by Dealers

‘‘Sec. 5121. Recordkeeping by wholesale dealers.

24

‘‘Sec. 5122. Recordkeeping by retail dealers.

‘‘Sec. 5123. Preservation and inspection of records, and entry of

premises for inspection.’’.

(5)(A) Section 5114 (relating to records) is moved to subpart

C of such part II and inserted after the table of sections for such

subpart.

(B) Section 5114 is amended—

(i) by striking the section heading and inserting the following new heading:

‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’,

and

(ii) by redesignating subsection (c) as subsection (d)

and by inserting after subsection (b) the following new subsection:

‘‘(c) WHOLESALE DEALERS.—For purposes of this part—

‘‘(1) WHOLESALE DEALER IN LIQUORS.—The term ‘wholesale

dealer in liquors’ means any dealer (other than a wholesale

dealer in beer) who sells, or offers for sale, distilled spirits,

wines, or beer, to another dealer.

‘‘(2) WHOLESALE DEALER IN BEER.—The term ‘wholesale

dealer in beer’ means any dealer who sells, or offers for sale,

beer, but not distilled spirits or wines, to another dealer.

‘‘(3) DEALER.—The term ‘dealer’ means any person who

sells, or offers for sale, any distilled spirits, wines, or beer.

‘‘(4) PRESUMPTION IN CASE OF SALE OF 20 WINE GALLONS OR

MORE.—The sale, or offer for sale, of distilled spirits, wines, or

beer, in quantities of 20 wine gallons or more to the same person at the same time, shall be presumptive evidence that the

person making such sale, or offer for sale, is engaged in or carrying on the business of a wholesale dealer in liquors or a

wholesale dealer in beer, as the case may be. Such presumption

may be overcome by evidence satisfactorily showing that such

sale, or offer for sale, was made to a person other than a dealer.’’.

(C) Paragraph (3) of section 5121(d), as so redesignated, is

amended by striking ‘‘section 5146’’ and inserting ‘‘section

5123’’.

(6)(A) Section 5124 (relating to records) is moved to subpart

C of part II of subchapter A of chapter 51 and inserted after

section 5121.

(B) Section 5124 is amended—

(i) by striking the section heading and inserting the following new heading:

‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’,

(ii) by striking ‘‘section 5146’’ in subsection (c) and inserting ‘‘section 5123’’, and

(iii) by redesignating subsection (c) as subsection (d)

and inserting after subsection (b) the following new subsection:

‘‘(c) RETAIL DEALERS.—For purposes of this section—

‘‘(1) RETAIL DEALER IN LIQUORS.—The term ‘retail dealer in

liquors’ means any dealer (other than a retail dealer in beer)

25

who sells, or offers for sale, distilled spirits, wines, or beer, to

any person other than a dealer.

‘‘(2) RETAIL DEALER IN BEER.—The term ‘retail dealer in

beer’ means any dealer who sells, or offers for sale, beer, but not

distilled spirits or wines, to any person other than a dealer.

‘‘(3) DEALER.—The term ‘dealer’ has the meaning given

such term by section 5121(c)(3).’’.

(7) Section 5146 is moved to subpart C of part II of subchapter A of chapter 51, inserted after section 5122, and redesignated as section 5123.

(8) Part II of subchapter A of chapter 51 is amended by inserting after subpart C the following new subpart:

‘‘Subpart D—Other Provisions

‘‘Sec. 5131. Packaging distilled spirits for industrial uses.

‘‘Sec. 5132. Prohibited purchases by dealers.’’.

(9) Section 5116 is moved to subpart D of part II of subchapter A of chapter 51, inserted after the table of sections, redesignated as section 5131, and amended by inserting ‘‘(as defined in section 5121(c))’’ after ‘‘dealer’’ in subsection (a).

(10) Subpart D of part II of subchapter A of chapter 51 is

amended by adding at the end the following new section:

‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

‘‘(a) IN GENERAL.—Except as provided in regulations prescribed

by the Secretary, it shall be unlawful for a dealer to purchase distilled spirits from any person other than a wholesale dealer in liquors who is required to keep the records prescribed by section 5121.

‘‘(b) PENALTY AND FORFEITURE.—

‘‘For penalty and forfeiture provisions applicable to violations of

subsection (a), see sections 5687 and 7302.’’.

(11) Subsection (b) of section 5002 is amended—

(A) by striking ‘‘section 5112(a)’’ and inserting ‘‘section

5121(c)(3)’’,

(B) by striking ‘‘section 5112’’ and inserting ‘‘section

5121(c)’’, and

(C) by striking ‘‘section 5122’’ and inserting ‘‘section

5122(c)’’.

(12) Subparagraph (A) of section 5010(c)(2) is amended by

striking ‘‘section 5134’’ and inserting ‘‘section 5114’’.

(13) Subsection (d) of section 5052 is amended to read as

follows:

‘‘(d) BREWER.—For purposes of this chapter, the term ‘brewer’

means any person who brews beer or produces beer for sale. Such

term shall not include any person who produces only beer exempt

from tax under section 5053(e).’’.

(14) The text of section 5182 is amended to read as follows:

‘‘For provisions requiring recordkeeping by wholesale liquor dealers, see section 5112, and by retail liquor dealers, see section 5122.’’.

(15) Subsection (b) of section 5402 is amended by striking

‘‘section 5092’’ and inserting ‘‘section 5052(d)’’.

(16) Section 5671 is amended by striking ‘‘or 5091’’.

26

(17)(A) Part V of subchapter J of chapter 51 is hereby repealed.

(B) The table of parts for such subchapter J is amended by

striking the item relating to part V.

(18)(A) Sections 5142, 5143, and 5145 are moved to subchapter D of chapter 52, inserted after section 5731, redesignated as sections 5732, 5733, and 5734, respectively, and

amended—

(i) by striking ‘‘this part’’ each place it appears and inserting ‘‘this subchapter’’, and

(ii) by striking ‘‘this subpart’’ in section 5732(c)(2) (as

so redesignated) and inserting ‘‘this subchapter’’.

(B) Section 5732, as redesignated by subparagraph (A), is

amended by striking ‘‘(except the tax imposed by section 5131)’’

each place it appears.

(C) Subsection (c) of section 5733, as redesignated by subparagraph (A), is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

(D) The table of sections for subchapter D of chapter 52 is

amended by adding at the end thereof the following:

‘‘Sec. 5732. Payment of tax.

‘‘Sec. 5733. Provisions relating to liability for occupational taxes.

‘‘Sec. 5734. Application of State laws.’’.

(E) Section 5731 is amended by striking subsection (c) and

by redesignating subsection (d) as subsection (c).

(19) Subsection (c) of section 6071 is amended by striking

‘‘section 5142’’ and inserting ‘‘section 5732’’.

(20) Paragraph (1) of section 7652(g) is amended—

(A) by striking ‘‘subpart F’’ and inserting ‘‘subpart B’’,

and

(B) by striking ‘‘section 5131(a)’’ and inserting ‘‘section

5111(a)’’.

(21) The table of sections for subchapter D of chapter 51 is

amended by striking the item relating to section 5276.

(c) EFFECTIVE DATE.—The amendments made by this section

shall take effect on July 1, 2001, but shall not apply to taxes imposed for periods before such date.

SEC. 209. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN

MORTGAGE OBLIGATIONS.

(a) IN GENERAL.—Paragraph (1) of section 108(a) (relating to

exclusion from gross income) is amended by striking ‘‘or’’ at the end

of both subparagraphs (A) and (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) in the case of an individual, the indebtedness discharged is qualified residential indebtedness.’’.

(b) QUALIFIED RESIDENTIAL INDEBTEDNESS.—Section 108 (relating to discharge of indebtedness) is amended by adding at the end

the following new subsection:

‘‘(h) QUALIFIED RESIDENTIAL INDEBTEDNESS.—

‘‘(1) LIMITATIONS.—The amount excluded under subparagraph (E) of subsection (a)(1) with respect to any qualified residential indebtedness shall not exceed the excess (if any) of—

27

‘‘(A) the outstanding principal amount of such indebtedness (immediately before the discharge), over

‘‘(B) the sum of—

‘‘(i) the amount realized from the sale of the real

property securing such indebtedness reduced by the

cost of such sale, and

‘‘(ii) the outstanding principal amount of any other

indebtedness secured by such property.

‘‘(2) QUALIFIED RESIDENTIAL INDEBTEDNESS.—

‘‘(A) IN GENERAL.—The term ‘qualified residential indebtedness’ means indebtedness which—

‘‘(i) was incurred or assumed by the taxpayer in

connection with real property used as the principal residence (within the meaning of section 121) of the taxpayer and is secured by such real property,

‘‘(ii) was incurred or assumed to acquire, construct,

reconstruct, or substantially improve such real property, and

‘‘(iii) with respect to which such taxpayer makes an

election to have this paragraph apply.

‘‘(B) REFINANCED INDEBTEDNESS.—Such term shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (A)(ii), but only to the extent

the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

‘‘(C) EXCEPTIONS.—Such term shall not include qualified farm indebtedness or qualified real property business

indebtedness.’’.

(c) CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 108(a) is amended—

(A) in subparagraph (A) by striking ‘‘and (D)’’ and inserting ‘‘(D), and (E)’’, and

(B) by amending subparagraph (B) to read as follows:

‘‘(B) INSOLVENCY EXCLUSION TAKES PRECEDENCE OVER

QUALIFIED FARM EXCLUSION, QUALIFIED REAL PROPERTY

BUSINESS EXCLUSION, AND QUALIFIED RESIDENTIAL INDEBTEDNESS EXCLUSION.—Subparagraphs (C), (D), and (E) of

paragraph (1) shall not apply to a discharge to the extent

the taxpayer is insolvent.’’.

(2) Paragraph (1) of section 108(b) is amended by striking

‘‘or (C)’’ and inserting ‘‘(C), or (E)’’.

(3) Subsection (c) of section 121 is amended by adding at

the end the following new paragraph:

‘‘(3) SPECIAL RULE RELATING TO DISCHARGE OF INDEBTEDNESS.—The amount of gain which (but for this paragraph)

would be excluded from gross income under subsection (a) with

respect to a principal residence shall be reduced by the amount

excluded from gross income under section 108(a)(1)(E) with respect to such residence.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to discharges after December 31, 2000.

28

SEC. 210. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL

BUSINESS.

(a) CASH ACCOUNTING PERMITTED.—Section 446 (relating to

general rule for methods of accounting) is amended by adding at the

end the following new subsection:

‘‘(g) SMALL BUSINESS TAXPAYERS PERMITTED TO USE CASH ACCOUNTING METHOD WITHOUT LIMITATION.—

‘‘(1) IN GENERAL.—Notwithstanding any other provision of

this title, an eligible taxpayer shall not be required to use an

accrual method of accounting for any taxable year.

‘‘(2) ELIGIBLE TAXPAYER.—For purposes of this subsection—

‘‘(A) IN GENERAL.—A taxpayer is an eligible taxpayer

with respect to any taxable year if, for all prior taxable

years beginning after October 31, 1999, the taxpayer (or

any predecessor) met the gross receipts test of subparagraph

(B).

‘‘(B) GROSS RECEIPTS TEST.—A taxpayer meets the

gross receipts test of this subparagraph for any prior taxable year if the average annual gross receipts of the taxpayer (or any predecessor) for the 3-taxable-year period

ending with such prior taxable year does not exceed

$2,500,000. The rules of paragraphs (2) and (3) of section

448(c) shall apply for purposes of the preceding sentence.’’

(b) CLARIFICATION OF INVENTORY RULES FOR SMALL BUSINESS.—Section 471 (relating to general rule for inventories) is

amended by redesignating subsection (c) as subsection (d) and by

inserting after subsection (b) the following new subsection:

‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED TO USE INVENTORIES.—

‘‘(1) IN GENERAL.—An eligible taxpayer shall not be required to use inventories under this section for a taxable year.

‘‘(2) TREATMENT OF TAXPAYERS NOT USING INVENTORIES.—

If an eligible taxpayer elects not to use inventories with respect

to any property for any taxable year beginning after the date of

the enactment of this section, such property shall be treated as

a material or supply which is not incidental.

‘‘(3) ELIGIBLE TAXPAYER.—For purposes of this subsection,

the term ‘eligible taxpayer’ has the meaning given such term by

section 446(g)(2).’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section

shall apply to taxable years beginning after the date of the enactment of this Act.

(2) CHANGE IN METHOD OF ACCOUNTING.—In the case of

any taxpayer required by the amendments made by this section

to change its method of accounting for any taxable year—

(A) such change shall be treated as initiated by the taxpayer,

(B) such change shall be treated as made with the consent of the Secretary of the Treasury, and

(C) the net amount of the adjustments required to be

taken into account by the taxpayer under section 481 of the

Internal Revenue Code of 1986 shall be taken into account

29

over a period (not greater than 4 taxable years) beginning

with such taxable year.

SEC. 211. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS

AT DEPOSITORY INSTITUTIONS.

(a) INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED.—

(1) FEDERAL RESERVE ACT.—Section 19(i) of the Federal Reserve Act (12 U.S.C. 371a) is amended by inserting at the end

the following: ‘‘Notwithstanding any other provision of this section, a member bank may permit the owner of any deposit, any

account which is a deposit, or any account on which interest or

dividends are paid to make up to 24 transfers per month (or

such greater number as the Board may determine by rule or

order), for any purpose, to a demand deposit account of the

owner in the same institution. With respect to an escrow account maintained in connection with a loan, a lender or

servicer shall pay interest on such account only if such payments are required by contract between the lender or servicer

and the borrower, or a specific statutory provision of the law of

the State in which the security property is located requires the

lender or servicer to make such payments. Nothing in this subsection shall be construed to prevent an account offered pursuant to this subsection from being considered a transaction account for purposes of this Act.’’.

(2) HOME OWNERS’ LOAN ACT.—

(A) IN GENERAL.—Section 5(b)(1) of the Home Owners’

Loan Act (12 U.S.C. 1464 (b)(1)) is amended by adding at

the end the following new subparagraph:

‘‘(G) TRANSFERS.—Notwithstanding any other provision of this paragraph, a Federal savings association may

permit the owner of any deposit or share, any account

which is a deposit or share, or any account on which interest or dividends are paid to make up to 24 transfers per

month (or such greater number as the Board of Governors

of the Federal Reserve System may determine by rule or

order under section 19(i) to be permissible for member

banks), for any purpose, to a demand deposit account of the

owner in the same institution. With respect to an escrow account maintained in connection with a loan, a lender or

servicer shall pay interest on such account only if such payments are required by contract between the lender or

servicer and the borrower, or a specific statutory provision

of the law of the State in which the security property is located requires the lender or servicer to make such payments. Nothing in this subsection shall be construed to prevent an account offered pursuant to this subsection from

being considered a transaction account (as defined in section 19(b) of the Federal Reserve Act) for purposes of the

Federal Reserve Act.’’.

(B) REPEAL.—Effective on at the end of the 2-year period beginning on the date of enactment of this Act, section

5(b)(1) of the Home Owners’ Loan Act (12 U.S.C. 1464

(b)(1)) is amended by striking subparagraph (G).

30

(3) FEDERAL DEPOSIT INSURANCE ACT.—Section 18(g) of the

Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended

by adding at the end the following new paragraph:

‘‘(3) TRANSFERS.—Notwithstanding any other provision of

this subsection, an insured nonmember bank or insured State

savings association may permit the owner of any deposit or

share, any account which is a deposit or share, or any account

on which interest or dividends are paid to make up to 24 transfers per month (or such greater number as the Board of Governors of the Federal Reserve System may determine by rule or

order under section 19(i) to be permissible for member banks),

for any purpose, to a demand deposit account of the owner in

the same institution. With respect to an escrow account maintained in connection with a loan, a lender or servicer shall pay

interest on such account only if such payments are required by

contract between the lender or servicer and the borrower, or a

specific statutory provision of the law of the State in which the

security property is located requires the lender or servicer to

make such payments. Nothing in this subsection shall be construed to prevent an account offered pursuant to this subsection

from being considered a transaction account (as defined in section 19(b) of the Federal Reserve Act) for purposes of the Federal Reserve Act.’’.

(b) REPEAL OF PROHIBITION ON PAYMENT OF INTEREST ON DE- MAND DEPOSITS.— (1) FEDERAL RESERVE ACT.—Section 19(i) of the Federal Reserve Act (12 U.S.C. 371a) is amended to read as follows:

‘‘(i) [Repealed]’’.

(2) HOME OWNERS’ LOAN ACT.—The 1st sentence of section

5(b)(1)(B) of the Home Owners’ Loan Act (12 U.S.C.

1464(b)(1)(B)) is amended by striking ‘‘savings association may

not—’’ and all that follows through ‘‘(ii) permit any’’ and inserting ‘‘savings association may not permit any’’.

(3) FEDERAL DEPOSIT INSURANCE ACT.—Section 18(g) of the

Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended

to read as follows:

‘‘(g) [Repealed]’’.

(c) EFFECTIVE DATE.—The amendments made by subsection (b)

shall take effect at the end of the 2-year period beginning on the

date of the enactment of this Act.

TITLE III—HEALTH INSURANCE AND

LONG-TERM CARE INSURANCE PROVISIONS

SEC. 301. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE

COSTS OF SELF-EMPLOYED INDIVIDUALS.

(a) IN GENERAL.—Paragraph (1) of section 162(l) is amended to

read as follows:

‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of an individual who is an employee within the meaning of section

401(c)(1), there shall be allowed as a deduction under this section an amount equal to 100 percent of the amount paid during

31

the taxable year for insurance which constitutes medical care

for the taxpayer and the taxpayer’s spouse and dependents.’’.

(b) CLARIFICATION OF LIMITATIONS ON OTHER COVERAGE.—The

first sentence of section 162(l)(2)(B) is amended to read as follows:

‘‘Paragraph (1) shall not apply to any taxpayer for any calendar

month for which the taxpayer participates in any subsidized health

plan maintained by any employer (other than an employer described

in section 401(c)(4)) of the taxpayer or the spouse of the taxpayer.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 302. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE COSTS OF INDIVIDUALS NOT PARTICIPATING IN EMPLOYER-SUBSIDIZED HEALTH PLANS.

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 is

amended by redesignating section 222 as section 223 and by inserting after section 221 the following new section:

‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

‘‘(a) IN GENERAL.—In the case of an individual, there shall be

allowed as a deduction an amount equal to the applicable percentage of the amount paid during the taxable year for insurance which

constitutes medical care for the taxpayer and the taxpayer’s spouse

and dependents.

‘‘(b) APPLICABLE PERCENTAGE.—For purposes of subsection (a),

the applicable percentage shall be determined in accordance with

the following table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2001, 2002, and 2003 ....................................................................... 25

2004 ................................................................................................... 35

2005 ................................................................................................... 65

2006 and thereafter .......................................................................... 100.

‘‘(c) LIMITATION BASED ON OTHER COVERAGE.—

‘‘(1) COVERAGE UNDER CERTAIN SUBSIDIZED EMPLOYER

PLANS.—

‘‘(A) IN GENERAL.—Subsection (a) shall not apply to

any taxpayer for any calendar month for which the taxpayer participates in any health plan maintained by any

employer of the taxpayer or of the spouse of the taxpayer if

for such month 50 percent or more of the cost of coverage

under such plan (determined under section 4980B and

without regard to payments made with respect to any coverage described in subsection (e)) is paid or incurred by the

employer.

‘‘(B) EMPLOYER CONTRIBUTIONS TO CAFETERIA PLANS,

FLEXIBLE SPENDING ARRANGEMENTS, AND MEDICAL SAVINGS

ACCOUNTS.—Employer contributions to a cafeteria plan, a

flexible spending or similar arrangement, or a medical savings account which are excluded from gross income under

section 106 shall be treated for purposes of subparagraph

(A) as paid by the employer.

‘‘(C) AGGREGATION OF PLANS OF EMPLOYER.—A health

plan which is not otherwise described in subparagraph (A)

shall be treated as described in such subparagraph if such

plan would be so described if all health plans of persons

32

treated as a single employer under subsection (b), (c), (m),

or (o) of section 414 were treated as one health plan.

‘‘(D) SEPARATE APPLICATION TO HEALTH INSURANCE

AND LONG-TERM CARE INSURANCE.—Subparagraphs (A) and

(C) shall be applied separately with respect to—

‘‘(i) plans which include primarily coverage for

qualified long-term care services or are qualified longterm care insurance contracts, and

‘‘(ii) plans which do not include such coverage and

are not such contracts.

‘‘(2) COVERAGE UNDER CERTAIN FEDERAL PROGRAMS.—

‘‘(A) IN GENERAL.—Subsection (a) shall not apply to

any amount paid for any coverage for an individual for any

calendar month if, as of the first day of such month, the

individual is covered under any medical care program described in—

‘‘(i) title XVIII, XIX, or XXI of the Social Security

Act,

‘‘(ii) chapter 55 of title 10, United States Code,

‘‘(iii) chapter 17 of title 38, United States Code,

‘‘(iv) chapter 89 of title 5, United States Code, or

‘‘(v) the Indian Health Care Improvement Act.

‘‘(B) EXCEPTIONS.—

‘‘(i) QUALIFIED LONG-TERM CARE.—Subparagraph

(A) shall not apply to amounts paid for coverage under

a qualified long-term care insurance contract.

‘‘(ii) CONTINUATION COVERAGE OF FEHBP.—Subparagraph (A)(iv) shall not apply to coverage which is

comparable to continuation coverage under section

4980B.

‘‘(d) LONG-TERM CARE DEDUCTION LIMITED TO QUALIFIED

LONG-TERM CARE INSURANCE CONTRACTS.—In the case of a qualified long-term care insurance contract, only eligible long-term care

premiums (as defined in section 213(d)(10)) may be taken into account under subsection (a).

‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF ANCILLARY

COVERAGE PREMIUMS.—Any amount paid as a premium for insurance which provides for—

‘‘(1) coverage for accidents, disability, dental care, vision

care, or a specified illness, or

‘‘(2) making payments of a fixed amount per day (or other

period) by reason of being hospitalized,

shall not be taken into account under subsection (a).

‘‘(f ) SPECIAL RULES.—

‘‘(1) COORDINATION WITH DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.—The amount

taken into account by the taxpayer in computing the deduction

under section 162(l) shall not be taken into account under this

section.

‘‘(2) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—

The amount taken into account by the taxpayer in computing

the deduction under this section shall not be taken into account

under section 213.

33

‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out this section, including regulations requiring employers to report to their employees and the

Secretary such information as the Secretary determines to be appropriate.’’.

(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER

ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 is

amended by inserting after paragraph (17) the following new item:

‘‘(18) HEALTH AND LONG-TERM CARE INSURANCE COSTS.—

The deduction allowed by section 222.’’.

(c) CLERICAL AMENDMENT.—The table of sections for part VII of

subchapter B of chapter 1 is amended by striking the last item and

inserting the following new items:

‘‘Sec. 222. Health and long-term care insurance costs.

‘‘Sec. 223. Cross reference.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 303. 2-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS

ACCOUNTS.

(a) IN GENERAL.—Paragraphs (2) and (3)(B) of section 220(i)

(defining cut-off year) are each amended by striking ‘‘2000’’ each

place it appears and inserting ‘‘2002’’.

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 220(j) is amended—

(A) by striking ‘‘1998 or 1999’’ each place it appears

and inserting ‘‘1998, 1999, 2000, or 2001’’, and

(B) by striking ‘‘600,000 (750,000 in the case of 1999)’’

and inserting ‘‘750,000 (600,000 in the case of 1998)’’.

(2) Subparagraph (A) of section 220(j)(4) is amended by

striking ‘‘, 1998, and 1999’’ and inserting ‘‘and of each calendar

year after 1997 and before 2002’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall take effect on the date of the enactment of this Act.

SEC. 304. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM

CARE INSURANCE.

(a) ADDITIONAL PROTECTIONS APPLICABLE TO LONG-TERM CARE

INSURANCE.—Subparagraph (A) of section 7702B(g)(2) (relating to

requirements of model regulation and Act) is amended to read as

follows:

‘‘(A) IN GENERAL.—The requirements of this paragraph

are met with respect to any contract if such contract

meets—

‘‘(i) MODEL REGULATION.—The following requirements of the model regulation:

‘‘(I) Section 6A (relating to guaranteed renewal

or noncancellability), and the requirements of section 6B of the model Act relating to such section

6A.

‘‘(II) Section 6B (relating to prohibitions on

limitations and exclusions).

‘‘(III) Section 6C (relating to extension of benefits).

34

‘‘(IV) Section 6D (relating to continuation or

conversion of coverage).

‘‘(V) Section 6E (relating to discontinuance

and replacement of policies).

‘‘(VI) Section 7 (relating to unintentional

lapse).

‘‘(VII) Section 8 (relating to disclosure), other

than section 8F thereof.

‘‘(VIII) Section 11 (relating to prohibitions

against post-claims underwriting).

‘‘(IX) Section 12 (relating to minimum standards).

‘‘(X) Section 13 (relating to requirement to

offer inflation protection), except that any requirement for a signature on a rejection of inflation protection shall permit the signature to be on an application or on a separate form.

‘‘(XI) Section 25 (relating to prohibition

against preexisting conditions and probationary

periods in replacement policies or certificates).

‘‘(XII) The provisions of section 26 relating to

contingent nonforfeiture benefits, if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).

‘‘(ii) MODEL ACT.—The following requirements of

the model Act:

‘‘(I) Section 6C (relating to preexisting conditions).

‘‘(II) Section 6D (relating to prior hospitalization).

‘‘(III) The provisions of section 8 relating to

contingent nonforfeiture benefits, if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).

‘‘(B) DEFINITIONS.—For purposes of this paragraph—

‘‘(i) MODEL PROVISIONS.—The terms ‘model regulation’ and ‘model Act’ mean the long-term care insurance model regulation, and the long-term care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as

adopted as of September 2000).

‘‘(ii) COORDINATION.—Any provision of the model

regulation or model Act listed under clause (i) or (ii) of

subparagraph (A) shall be treated as including any

other provision of such regulation or Act necessary to

implement the provision.

‘‘(iii) DETERMINATION.—For purposes of this section and section 4980C, the determination of whether

any requirement of a model regulation or the model Act

has been met shall be made by the Secretary.’’

(b) EXCISE TAX.—Paragraph (1) of section 4980C(c) (relating to

requirements of model provisions) is amended to read as follows:

‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—

35

‘‘(A) MODEL REGULATION.—The following requirements

of the model regulation must be met:

‘‘(i) Section 9 (relating to required disclosure of rating practices to consumer).’’

‘‘(ii) Section 14 (relating to application forms and

replacement coverage).

‘‘(iii) Section 15 (relating to reporting requirements), except that the issuer shall also report at least

annually the number of claims denied during the reporting period for each class of business (expressed as

a percentage of claims denied), other than claims denied for failure to meet the waiting period or because

of any applicable preexisting condition.

‘‘(iv) Section 22 (relating to filing requirements for

marketing).

‘‘(v) Section 23 (relating to standards for marketing), including inaccurate completion of medical

histories, other than paragraphs (1), (6), and (9) of section 23C, except that—

‘‘(I) in addition to such requirements, no person shall, in selling or offering to sell a qualified

long-term care insurance contract, misrepresent a

material fact; and

‘‘(II) no such requirements shall include a requirement to inquire or identify whether a prospective applicant or enrollee for long-term care insurance has accident and sickness insurance.

‘‘(vi) Section 24 (relating to suitability).

‘‘(vii) Section 29 (relating to standard format outline of coverage).

‘‘(viii) Section 30 (relating to requirement to deliver

shopper’s guide).

The requirements referred to in clause (vi) shall not include

those portions of the personal worksheet described in Appendix B relating to consumer protection requirements not

imposed by section 4980C or 7702B.

‘‘(B) MODEL ACT.—The following requirements of the

model Act must be met:

‘‘(i) Section 6F (relating to right to return), except

that such section shall also apply to denials of applications and any refund shall be made within 30 days of

the return or denial.

‘‘(ii) Section 6G (relating to outline of coverage).

‘‘(iii) Section 6H (relating to requirements for certificates under group plans).

‘‘(iv) Section 6I (relating to policy summary).

‘‘(v) Section 6J (relating to monthly reports on accelerated death benefits).

‘‘(vi) Section 7 (relating to incontestability period).

‘‘(C) DEFINITIONS.—For purposes of this paragraph, the

terms ‘model regulation’ and ‘model Act’ have the meanings

given such terms by section 7702B(g)(2)(B).’’

36

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to policies issued more than 1 year after the date of the

enactment of this Act.

SEC. 305. DEDUCTION FOR PROVIDING LONG-TERM CARE IN THE

HOME TO HOUSEHOLD MEMBERS.

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 is

amended by redesignating section 223 as section 224 and by inserting after section 222 the following new section:

‘‘SEC. 223. PROVISION OF LONG-TERM CARE IN THE HOME TO HOUSEHOLD MEMBERS.

‘‘(a) DEDUCTION ALLOWED.—

‘‘(1) IN GENERAL.—There shall be allowed as a deduction

for the taxable year an amount equal to the applicable amount

multiplied by the number of qualified family members of the

taxpayer for the taxable year.

‘‘(2) APPLICABLE AMOUNT.—For purposes of paragraph (1),

the applicable amount for a taxable year shall be the amount

determined in accordance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2001 ............................................................................................. $3,000

2002 ............................................................................................. $4,000

2003 ............................................................................................. $5,000

2004 ............................................................................................. $6,000

2005 ............................................................................................. $7,000

2006 ............................................................................................. $8,000

2007 ............................................................................................. $9,000

2008 and thereafter .................................................................... $10,000.

‘‘(b) LIMITATIONS.—

‘‘(1) REDUCTION FOR AMOUNTS RECEIVED UNDER LONG-TERM

CARE INSURANCE POLICY.—The amount of the deduction allowable under subsection (a) with respect to a qualified family

member shall be reduced (but not below zero) by the amount received for the taxable year under a long-term care insurance

policy (whether or not such policy is a qualified long-term care

insurance contract under section 7702B) with respect to which

the insured is the qualified family member.

‘‘(2) PHASEOUT.—The amount of the deduction allowable

under subsection (a) (after the application of paragraph (1))

shall be reduced in the same manner as the exemption amount

is reduced under section 151(d)(3).

‘‘(c) QUALIFIED FAMILY MEMBER.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘qualified family member’

means, with respect to any taxable year, any individual—

‘‘(A) who is—

‘‘(i) the taxpayer’s spouse, or

‘‘(ii) an individual who bears a relationship to the

taxpayer described in any of paragraphs (1) through

(8) of section 152(a),

‘‘(B) who is a member for the entire taxable year of the

household maintained by the taxpayer,

‘‘(C) whose gross income for the calendar year in which

the taxable year of the taxpayer begins is less than the sum

of—

37

‘‘(i) the exemption amount (as defined in section

151(d)), and

‘‘(ii) the standard deduction, and

‘‘(D) who has been certified, before the due date for filing the return of tax for the taxable year (without extensions), by a physician (as defined in section 1861(r)(1) of

the Social Security Act) as being an individual described in

paragraph (3) for a period—

‘‘(i) which is at least 180 consecutive days, and

‘‘(ii) a portion of which occurs within the taxable

year.

‘‘(2) SPECIAL RULES.—

‘‘(A) FREQUENCY OF CERTIFICATION.—The term ‘qualified family member’ shall not include any individual otherwise meeting the requirements of paragraph (1)(D) unless

the certification is made within the 391⁄2 month period ending on the due date (or such other period as the Secretary

prescribes).

‘‘(B) GROSS INCOME TEST NOT TO APPLY TO CERTAIN INDIVIDUALS.—Paragraph (1)(C) shall not apply to—

‘‘(i) the spouse of the taxpayer,

‘‘(ii) any child of the taxpayer described in section

151(c)(1)(B), and

‘‘(iii) any gross income which is not taken into account under paragraph (1)(B) of section 151(c) by reason of paragraph (5) thereof.

‘‘(3) INDIVIDUALS WITH LONG-TERM CARE NEEDS.—An individual is described in this paragraph if the individual meets

any of the following requirements:

‘‘(A) The individual is at least 6 years of age and—

‘‘(i) is unable to perform (without substantial assistance from another individual) at least 3 activities of

daily living (as defined in section 7702B(c)(2)(B)) due

to a loss of functional capacity, or

‘‘(ii) requires substantial supervision to protect

such individual from threats to health and safety due

to severe cognitive impairment, and

‘‘(I) is unable to perform, without reminding or

cuing assistance, at least 1 activity of daily living

(as so defined), or

‘‘(II) to the extent provided in regulations prescribed by the Secretary (in consultation with the

Secretary of Health and Human Services), is unable to engage in age appropriate activities.

‘‘(B) The individual is at least 2 but not 6 years of age

and is unable due to a loss of functional capacity to perform (without substantial assistance from another individual) at least 2 of the following activities: eating, transferring, or mobility.

‘‘(C) The individual is under 2 years of age and requires specific durable medical equipment by reason of a

severe health condition or requires a skilled practitioner

trained to address the individual’s condition to be available

if the individual’s parents or guardians are absent.

38

‘‘(d) SPECIAL RULES.—

‘‘(1) IDENTIFICATION REQUIREMENT.—No deduction shall be

allowed under this section to a taxpayer with respect to any

qualified family member unless the taxpayer includes the name

and taxpayer identification number of such member, and the

identification number of the physician certifying such member,

on the return of tax for the taxable year.

‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE YEAR.—No deduction shall be allowable under this section in the case of a

taxable year covering a period of less than 12 months, except

that in the case of a taxable year closed by the death of a taxpayer a ratable portion of the deduction shall be allowable.

‘‘(3) SPECIAL RULES.—Rules similar to the rules of paragraphs (1), (2), (3), (4), and (5) of section 21(e) shall apply for

purposes of this subsection.’’.

(b) DEDUCTION ALLOWABLE WHETHER OR NOT TAXPAYER

ITEMIZES OTHER DEDUCTIONS.—

(1) Subsection (b) of section 63 is amended by striking

‘‘and’’ at the end of paragraph (1), by striking the period at the

end of paragraph (2) and inserting ‘‘, and’’, and by adding at

the end the following new paragraph:

‘‘(3) the deduction allowed by section 223.’’

(2) Subsection (d) of section 63 is amended by striking

‘‘and’’ at the end of paragraph (1), by striking the period at the

end of paragraph (2) and inserting ‘‘, and’’, and by adding at

the end the following new paragraph:

‘‘(3) the deduction allowed by section 223.’’

(c) CONFORMING AMENDMENTS.—

(1) Section 6213(g)(2) is amended by striking ‘‘and’’ at the

end of subparagraph (K), by striking the period at the end of

subparagraph (L) and inserting ‘‘, and’’, and by inserting after

subparagraph (L) the following new subparagraph:

‘‘(M) an omission of a correct TIN or physician identification number required under section 223(d)(1) (relating

to deduction for provision of long-term care in the home to

household members) to be included on a return.’’

(2) The table of sections for part VII of subchapter B of

chapter 1 is amended by striking the last item and inserting the

following new items:

‘‘Sec. 223. Provision of long-term care in the home to household members.

‘‘Sec. 224. Cross reference.’’

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

TITLE IV—PENSION AND INDIVIDUAL

RETIREMENT ARRANGEMENT PROVISIONS

SEC. 400. SHORT TITLE.

This title may be cited as the ‘‘Retirement Savings and Pension

Coverage Act of 2000’’.

39

Subtitle A—Individual Retirement Accounts

SEC. 401. MODIFICATION OF IRA CONTRIBUTION LIMITS.

(a) INCREASE IN CONTRIBUTION LIMIT.— (1) IN GENERAL.—Paragraph (1)(A) of section 219(b) (relating to maximum amount of deduction) is amended by striking

‘‘$2,000’’ and inserting ‘‘the deductible amount’’.

(2) DEDUCTIBLE AMOUNT.—Section 219(b) is amended by

adding at the end the following new paragraph:

‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of paragraph

(1)(A)—

‘‘(A) IN GENERAL.—The deductible amount shall be determined in accordance with the following table:

‘‘For taxable years The deductible

beginning in: amount is:

2001 ............................................................................................. $3,000

2002 ............................................................................................. $4,000

2003 and thereafter .................................................................... $5,000.

‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR

OLDER.—‘‘(i) IN GENERAL.—In the case of an individual who

has attained the age of 50 before the close of the taxable year, the deductible amount for such taxable year

(determined without regard to this subparagraph)

shall be increased by the applicable catch-up amount.

‘‘(ii) APPLICABLE CATCH-UP AMOUNT.—For purposes

of clause (i), the applicable catch-up amount shall be

the amount determined in accordance with the following table:

‘‘For taxable years The applicable catch-up

beginning in: amount is:

2001 ............................................................................................. $500

2002 ............................................................................................. $1,000

2003 and thereafter .................................................................... $1,500.

‘‘(C) COST-OF-LIVING ADJUSTMENT.—

‘‘(i) IN GENERAL.—In the case of any taxable year

beginning in a calendar year after 2003, the $5,000

amount under subparagraph (A) and the $1,500

amount under subparagraph (B) shall each be increased by an amount equal to—

‘‘(I) such dollar amount, multiplied by

‘‘(II) the cost-of-living adjustment determined

under section 1(f)(3) for the calendar year in which

the taxable year begins, determined by substituting

‘calendar year 2002’ for ‘calendar year 1992’ in

subparagraph (B) thereof.

‘‘(ii) ROUNDING RULES.—If any amount after adjustment under clause (i) is not a multiple of $500,

such amount shall be rounded to the next lower multiple of $500.’’.

(b) INCREASE IN AGI LIMITS FOR ACTIVE PARTICIPANTS.—

(1) JOINT RETURNS.—The table in clause (i) of section

219(g)(3)(B) (relating to applicable dollar amount) is amended

to read as follows:

40

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ............................................................................................. $56,000

2002 ............................................................................................. $60,000

2003 ............................................................................................. $64,000

2004 ............................................................................................. $68,000

2005 ............................................................................................. $72,000

2006 ............................................................................................. $76,000

2007 or thereafter ....................................................................... $80,000.’’.

(2) OTHER TAXPAYERS.—Section 219(g)(3)(B) (relating to applicable dollar amount) is amended by striking clauses (ii) and

(iii) and inserting the following:

‘‘(ii) In the case of any other taxpayer:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ............................................................................................. $36,000

2002 ............................................................................................. $40,000

2003 ............................................................................................. $44,000

2004 ............................................................................................. $48,000

2005 or thereafter ....................................................................... $50,000.’’.

(c) CONFORMING AMENDMENTS.—

(1) Section 408(a)(1) is amended by striking ‘‘in excess of

$2,000 on behalf of any individual’’ and inserting ‘‘on behalf of

any individual in excess of the amount in effect for such taxable

year under section 219(b)(1)(A)’’.

(2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’

and inserting ‘‘the dollar amount in effect under section

219(b)(1)(A)’’.

(3) Section 408(b) is amended by striking ‘‘$2,000’’ in the

matter following paragraph (4) and inserting ‘‘the dollar

amount in effect under section 219(b)(1)(A)’’.

(4) Section 408(j) is amended by striking ‘‘$2,000’’.

(5) Section 408(p)(8) is amended by striking ‘‘$2,000’’ and

inserting ‘‘the dollar amount in effect under section

219(b)(1)(A)’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 402. DEEMED IRAS UNDER EMPLOYER PLANS.

(a) IN GENERAL.—Section 408 (relating to individual retirement

accounts) is amended by redesignating subsection (q) as subsection

(r) and by inserting after subsection (p) the following new subsection:

‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.—

‘‘(1) GENERAL RULE.—If—

‘‘(A) a qualified employer plan elects to allow employees

to make voluntary employee contributions to a separate account or annuity established under the plan, and

‘‘(B) under the terms of the qualified employer plan,

such account or annuity meets the applicable requirements

of this section or section 408A for an individual retirement

account or annuity,

then such account or annuity shall be treated for purposes of

this title in the same manner as an individual retirement plan

and not as a qualified employer plan (and contributions to such

41

account or annuity as contributions to an individual retirement

plan and not to the qualified employer plan). For purposes of

subparagraph (B), the requirements of subsection (a)(5) shall

not apply.

‘‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For

purposes of this title, a qualified employer plan shall not fail

to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1).

‘‘(3) DEFINITIONS.—For purposes of this subsection—

‘‘(A) QUALIFIED EMPLOYER PLAN.—The term ‘qualified

employer plan’ has the meaning given such term by section

72(p)(4); except such term shall only include an eligible deferred compensation plan (as defined in section 457(b))

which is maintained by an eligible employer described in

section 457(e)(1)(A).

‘‘(B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The term

‘voluntary employee contribution’ means any contribution

(other than a mandatory contribution within the meaning

of section 411(c)(2)(C))—

‘‘(i) which is made by an individual as an employee under a qualified employer plan which allows

employees to elect to make contributions described in

paragraph (1), and

‘‘(ii) with respect to which the individual has designated the contribution as a contribution to which this

subsection applies.’’.

(b) AMENDMENT OF ERISA.—

(1) IN GENERAL.—Section 4 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the end the following new subsection:

‘‘(c) If a pension plan allows an employee to elect to make voluntary employee contributions to accounts and annuities as provided in section 408(q) of the Internal Revenue Code of 1986, such

accounts and annuities (and contributions thereto) shall not be

treated as part of such plan (or as a separate pension plan) for purposes of any provision of this title other than section 403(c), 404, or

405 (relating to exclusive benefit, and fiduciary and co-fiduciary responsibilities).’’.

(2) CONFORMING AMENDMENT.—Section 4(a) of such Act (29

U.S.C. 1003(a)) is amended by inserting ‘‘or (c)’’ after ‘‘subsection (b)’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plan years beginning after December 31, 2001.

SEC. 403. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

ACCOUNTS FOR CHARITABLE PURPOSES.

(a) IN GENERAL.—Subsection (d) of section 408 (relating to individual retirement accounts) is amended by adding at the end the

following new paragraph:

‘‘(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES.—

‘‘(A) IN GENERAL.—In the case of a qualified charitable

distribution, no amount shall be includible in the gross income of the account holder or beneficiary.

‘‘(B) QUALIFIED CHARITABLE DISTRIBUTION.—For purposes of this paragraph, the term ‘qualified charitable disVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00045 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
42

tribution’ means any distribution from an individual retirement account—

‘‘(i) which is made on or after the date that the individual for whose benefit the account is maintained

has attained age 701⁄2, and

‘‘(ii) which is a charitable contribution (as defined

in section 170(c)) made directly from the account to an

organization or entity described in section 170(c).

‘‘(C) DENIAL OF DEDUCTION.—The amount allowable as

a deduction to the taxpayer for the taxable year under section 170 (before the application of section 170(b)) for qualified charitable distributions shall be reduced (but not below

zero) by the sum of the amounts of the qualified charitable

distributions during such year which (but for this paragraph) would have been includible in the gross income of

the taxpayer for such year.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to taxable years beginning after December 31, 2000.

SEC. 404. MODIFICATION OF AGI LIMITS FOR ROTH IRAS.

(a) INCREASE IN AGI LIMIT FOR ROTH IRA CONTRIBUTIONS.—

(1) IN GENERAL.—Section 408A(c)(3)(C)(ii) (relating to limits based on modified adjusted gross income) is amended to

read as follows:

‘‘(ii) the applicable dollar amount is—

‘‘(I) in the case of a taxpayer filing a joint return, $190,000, and

‘‘(II) in the case of any other taxpayer,

$95,000.’’.

(2) PHASEOUT AMOUNT.—Clause (ii) of section 408A(c)(3)(A)

is amended to read as follows:

‘‘(ii) $15,000 ($30,000 in the case of a joint return).’’.

(b) INCREASE IN AGI LIMIT FOR ROTH IRA CONVERSIONS.—Section 408A(c)(3)(B) (relating to rollover from IRA) is amended by

striking ‘‘relates’’ and all that follows and inserting ‘‘relates, the taxpayer’s adjusted gross income exceeds $100,000 ($200,000 in the

case of a joint return).’’.

(c) CONFORMING AMENDMENT.—Section 408A(c)(3) is amended

by striking subparagraph (D).

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

Subtitle B—Expanding Coverage

SEC. 411. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

(a) DEFINED BENEFIT PLANS.—

(1) DOLLAR LIMIT.—

(A) Subparagraph (A) of section 415(b)(1) (relating to

limitation for defined benefit plans) is amended by striking

‘‘$90,000’’ and inserting ‘‘$160,000’’.

(B) Subparagraphs (C) and (D) of section 415(b)(2) are

each amended by striking ‘‘$90,000’’ each place it appears

in the headings and the text and inserting ‘‘$160,000’’.

43

(C) Paragraph (7) of section 415(b) (relating to benefits

under certain collectively bargained plans) is amended by

striking ‘‘the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for

‘$90,000’ ’’ and inserting ‘‘one-half the amount otherwise applicable for such year under paragraph (1)(A) for

‘$160,000’ ’’.

(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE

62.—Subparagraph (C) of section 415(b)(2) is amended by striking ‘‘the social security retirement age’’ each place it appears in

the heading and text and inserting ‘‘age 62’’ and by striking the

second sentence.

(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE

65.—Subparagraph (D) of section 415(b)(2) is amended by striking ‘‘the social security retirement age’’ each place it appears in

the heading and text and inserting ‘‘age 65’’.

(4) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 415 (related to cost-of-living adjustments) is amended—

(A) by striking ‘‘$90,000’’ in paragraph (1)(A) and inserting ‘‘$160,000’’; and

(B) in paragraph (3)(A)—

(i) by striking ‘‘$90,000’’ in the heading and inserting ‘‘$160,000’’; and

(ii) by striking ‘‘October 1, 1986’’ and inserting

‘‘July 1, 2000’’.

(5) CONFORMING AMENDMENTS.—

(A) Section 415(b)(2) is amended by striking subparagraph (F).

(B) Section 415(b)(9) is amended to read as follows:

‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—

In the case of any participant who is a commercial airline

pilot, if, as of the time of the participant’s retirement, regulations prescribed by the Federal Aviation Administration

require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or

after age 60 and before age 62, paragraph (2)(C) shall be

applied by substituting such age for age 62.’’.

(C) Section 415(b)(10)(C)(i) is amended by striking ‘‘applied without regard to paragraph (2)(F)’’.

(b) DEFINED CONTRIBUTION PLANS.—

(1) DOLLAR LIMIT.—Subparagraph (A) of section 415(c)(1)

(relating to limitation for defined contribution plans) is amended by striking ‘‘$30,000’’ and inserting ‘‘$40,000’’.

(2) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 415 (related to cost-of-living adjustments) is amended—

(A) by striking ‘‘$30,000’’ in paragraph (1)(C) and inserting ‘‘$40,000’’; and

(B) in paragraph (3)(D)—

(i) by striking ‘‘$30,000’’ in the heading and inserting ‘‘$40,000’’; and

(ii) by striking ‘‘October 1, 1993’’ and inserting

‘‘July 1, 2000’’.

(3) CONFORMING AMENDMENTS.—

44

(A) IN GENERAL.—Section 664(g)(3)(E) (relating to plan

requirements) is amended by striking ‘‘limitations under

section 415(c)(1)’’ and inserting ‘‘applicable limitation

under paragraph (7)’’.

(B) APPLICABLE LIMITATION.—Section 664(g) (relating

to qualified gratuitous transfer of qualified employer securities) is amended by adding at the end the following new

paragraph:

‘‘(7) APPLICABLE LIMITATION.—

‘‘(A) IN GENERAL.—For purposes of paragraph (3)(E),

the applicable limitation under this paragraph with respect

to a participant is an amount equal to the lesser of—

‘‘(i) $30,000, or

‘‘(ii) 25 percent of the participant’s compensation

(as defined in section 415(c)(3)).

‘‘(B) COST-OF-LIVING ADJUSTMENT.—The Secretary

shall adjust annually the $30,000 amount under subparagraph (A)(i) at the same time and in the same manner as

under section 415(d), except that the base period shall be

the calendar quarter beginning October 1, 1993, and any

increase under this subparagraph which is not a multiple

of $5,000 shall be rounded to the next lowest multiple of

$5,000.’’.

(c) QUALIFIED TRUSTS.—

(1) COMPENSATION LIMIT.—Sections 401(a)(17), 404(l),

408(k), and 505(b)(7) are each amended by striking ‘‘$150,000’’

each place it appears and inserting ‘‘$200,000’’.

(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUSTMENT.—Subparagraph (B) of section 401(a)(17) is amended—

(A) by striking ‘‘October 1, 1993’’ and inserting ‘‘July 1,

2000’’; and

(B) by striking ‘‘$10,000’’ both places it appears and in- serting ‘‘$5,000’’.

(d) ELECTIVE DEFERRALS.— (1) IN GENERAL.—Paragraph (1) of section 402(g) (relating

to limitation on exclusion for elective deferrals) is amended to

read as follows:

‘‘(1) IN GENERAL.— ‘‘(A) LIMITATION.—Notwithstanding subsections (e)(3)

and (h)(1)(B), the elective deferrals of any individual for

any taxable year shall be included in such individual’s

gross income to the extent the amount of such deferrals for

the taxable year exceeds the applicable dollar amount.

‘‘(B) APPLICABLE DOLLAR AMOUNT.—For purposes of

subparagraph (A), the applicable dollar amount shall be

the amount determined in accordance with the following

table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ............................................................................................. $11,000

2002 ............................................................................................. $12,000

2003 ............................................................................................. $13,000

2004 ............................................................................................. $14,000

2005 or thereafter ....................................................................... $15,000.’’.

45

(2) COST-OF-LIVING ADJUSTMENT.—Paragraph (5) of section

402(g) is amended to read as follows:

‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case of taxable

years beginning after December 31, 2005, the Secretary shall

adjust the $15,000 amount under paragraph (1)(B) at the same

time and in the same manner as under section 415(d), except

that the base period shall be the calendar quarter beginning

July 1, 2004, and any increase under this paragraph which is

not a multiple of $500 shall be rounded to the next lowest multiple of $500.’’.

(3) CONFORMING AMENDMENTS.— (A) Section 402(g) (relating to limitation on exclusion

for elective deferrals), as amended by paragraphs (1) and

(2), is further amended by striking paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively.

(B) Paragraph (2) of section 457(c) is amended by striking ‘‘402(g)(8)(A)(iii)’’ and inserting ‘‘402(g)(7)(A)(iii)’’.

(C) Clause (iii) of section 501(c)(18)(D) is amended by

striking ‘‘(other than paragraph (4) thereof)’’.

(e) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL

GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.—

(1) IN GENERAL.—Section 457 (relating to deferred compensation plans of State and local governments and tax-exempt

organizations) is amended—

(A) in subsections (b)(2)(A) and (c)(1) by striking

‘‘$7,500’’ each place it appears and inserting ‘‘the applicable

dollar amount’’; and

(B) in subsection (b)(3)(A) by striking ‘‘$15,000’’ and inserting ‘‘twice the dollar amount in effect under subsection

(b)(2)(A)’’.

(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—Paragraph (15) of section 457(e) is amended to read as

follows:

‘‘(15) APPLICABLE DOLLAR AMOUNT.—

‘‘(A) IN GENERAL.—The applicable dollar amount shall

be the amount determined in accordance with the following

table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ............................................................................................. $11,000

2002 ............................................................................................. $12,000

2003 ............................................................................................. $13,000

2004 ............................................................................................. $14,000

2005 or thereafter ....................................................................... $15,000.

‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In the case of taxable years beginning after December 31, 2005, the Secretary

shall adjust the $15,000 amount under subparagraph (A)

at the same time and in the same manner as under section

415(d), except that the base period shall be the calendar

quarter beginning July 1, 2004, and any increase under

this paragraph which is not a multiple of $500 shall be

rounded to the next lowest multiple of $500.’’.

(f) SIMPLE RETIREMENT ACCOUNTS.—

46

(1) LIMITATION.—Clause (ii) of section 408(p)(2)(A) (relating

to general rule for qualified salary reduction arrangement) is

amended by striking ‘‘$6,000’’ and inserting ‘‘the applicable dollar amount’’.

(2) APPLICABLE DOLLAR AMOUNT.—Subparagraph (E) of

408(p)(2) is amended to read as follows:

‘‘(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—

‘‘(i) IN GENERAL.—For purposes of subparagraph

(A)(ii), the applicable dollar amount shall be the

amount determined in accordance with the following

table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ......................................................................................... $7,000

2002 ......................................................................................... $8,000

2003 ......................................................................................... $9,000

2004 or thereafter ................................................................... $10,000.

‘‘(ii) COST-OF-LIVING ADJUSTMENT.—In the case of

a year beginning after December 31, 2004, the Secretary shall adjust the $10,000 amount under clause (i)

at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1,

2003, and any increase under this subparagraph which

is not a multiple of $500 shall be rounded to the next

lower multiple of $500.’’.

(3) CONFORMING AMENDMENTS.—

(A) Subclause (I) of section 401(k)(11)(B)(i) is amended

by striking ‘‘$6,000’’ and inserting ‘‘the amount in effect

under section 408(p)(2)(A)(ii)’’.

(B) Section 401(k)(11) is amended by striking subparagraph (E).

(g) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS AND

DEFINED CONTRIBUTION PLANS.—Paragraph (4) of section 415(d) is

amended to read as follows:

‘‘(4) ROUNDING.—

‘‘(A) $160,000 AMOUNT.—Any increase under subparagraph (A) of paragraph (1) which is not a multiple of

$5,000 shall be rounded to the next lowest multiple of

$5,000.

‘‘(B) $40,000 AMOUNT.—Any increase under subparagraph (C) of paragraph (1) which is not a multiple of

$1,000 shall be rounded to the next lowest multiple of

$1,000.’’.

(h) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 412. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND

SOLE PROPRIETORS.

(a) IN GENERAL.—Subparagraph (B) of section 4975(f)(6) (relating to exemptions not to apply to certain transactions) is amended

by adding at the end the following new clause:

47

‘‘(iii) LOAN EXCEPTION.—For purposes of subparagraph (A)(i), the term ‘owner-employee’ shall only include a person described in subclause (II) or (III) of

clause (i).’’.

(b) AMENDMENT OF ERISA.—Section 408(d)(2) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is

amended by adding at the end the following new subparagraph:

‘‘(C) For purposes of paragraph (1)(A), the term ‘owner-employee’ shall only include a person described in clause (ii) or (iii) of

subparagraph (A).’’.

(c) EFFECTIVE DATE.—The amendment made by this section

shall apply to years beginning after December 31, 2000.

SEC. 413. MODIFICATION OF TOP-HEAVY RULES.

(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE.— (1) IN GENERAL.—Section 416(i)(1)(A) (defining key employee) is amended—

(A) by striking ‘‘or any of the 4 preceding plan years’’

in the matter preceding clause (i);

(B) by striking clause (i) and inserting the following:

‘‘(i) an officer of the employer having an annual compensation greater than $115,000,’’;

(C) by striking clause (ii) and redesignating clauses

(iii) and (iv) as clauses (ii) and (iii), respectively; and

(D) by striking the second sentence in the matter following clause (iii), as redesignated by subparagraph (C).

(2) COST-OF-LIVING ADJUSTMENT.—Section 416(i)(1) is

amended by adding at the end the following new subparagraph:

‘‘(E) COST-OF-LIVING ADJUSTMENT.—In the case of a

year beginning after December 31, 2001, the Secretary shall

adjust the $115,000 amount under subparagraph (A)(i) at

the same time and in the same manner as under section

415(d), except that the base period taken into account shall

be the calendar quarter beginning July 1, 2000, and any

increase under this subparagraph which is not a multiple

of $5,000 shall be rounded to the next lower multiple of

$5,000.’’.

(3) CONFORMING AMENDMENT.—Section 416(i)(1)(B)(iii) is

amended by striking ‘‘and subparagraph (A)(ii)’’.

(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MIN- IMUM CONTRIBUTION REQUIREMENTS.—Section 416(c)(2)(A) (relating

to defined contribution plans) is amended by adding at the end the

following: ‘‘Employer matching contributions (as defined in section

401(m)(4)(A)) shall be taken into account for purposes of this subparagraph.’’.

(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION

DATE TAKEN INTO ACCOUNT.—

(1) IN GENERAL.—Paragraph (3) of section 416(g) is amended to read as follows:

‘‘(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT.—

‘‘(A) IN GENERAL.—For purposes of determining—

‘‘(i) the present value of the cumulative accrued

benefit for any employee, or

‘‘(ii) the amount of the account of any employee,

48

such present value or amount shall be increased by the aggregate distributions made with respect to such employee

under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply

to distributions under a terminated plan which if it had

not been terminated would have been required to be included in an aggregation group.

‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION.—In the case of any distribution made for a reason

other than separation from service, death, or disability,

subparagraph (A) shall be applied by substituting ‘5-year

period’ for ‘1-year period’.’’.

(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Subparagraph

(E) of section 416(g)(4) is amended—

(A) by striking ‘‘LAST 5 YEARS’’ in the heading and inserting ‘‘LAST YEAR BEFORE DETERMINATION DATE’’; and

(B) by striking ‘‘5-year period’’ and inserting ‘‘1-year period’’.

(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph (4) of section

416(g) (relating to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:

‘‘(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS.—The term ‘top-heavy plan’ shall not include

a plan which consists solely of—

‘‘(i) a cash or deferred arrangement which meets

the requirements of section 401(k)(12), and

‘‘(ii) matching contributions with respect to which

the requirements of section 401(m)(11) are met.

If, but for this subparagraph, a plan would be treated as

a top-heavy plan because it is a member of an aggregation

group which is a top-heavy group, contributions under the

plan may be taken into account in determining whether

any other plan in the group meets the requirements of subsection (c)(2).’’.

(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIREMENT.—Subparagraph (C) of section 416(c)(1) (relating to defined

benefit plans) is amended—

(A) by striking ‘‘clause (ii)’’ in clause (i) and inserting

‘‘clause (ii) or (iii)’’; and

(B) by adding at the end the following:

‘‘(iii) EXCEPTION FOR FROZEN PLAN.—For purposes

of determining an employee’s years of service with the

employer, any service with the employer shall be disregarded to the extent that such service occurs during

a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key

employee.’’.

(f) ELIMINATION OF FAMILY ATTRIBUTION.—Section 416(i)(1)(B)

(defining 5-percent owner) is amended by adding at the end the following new clause:

‘‘(iv) FAMILY ATTRIBUTION DISREGARDED.—Solely

for purposes of applying this paragraph (and not for

purposes of any provision of this title which incorVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00052 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
49

porates by reference the definition of a key employee or

5-percent owner under this paragraph), section 318

shall be applied without regard to subsection (a)(1)

thereof in determining whether any person is a 5-percent owner.’’.

(g) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 414. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS.

(a) IN GENERAL.—Section 404 (relating to deduction for contributions of an employer to an employees’ trust or annuity plan and

compensation under a deferred payment plan) is amended by adding at the end the following new subsection:

‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in

paragraph (3), (7), or (9) of subsection (a), and such elective deferrals shall not be taken into account in applying any such limitation

to any other contributions.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to years beginning after December 31, 2000.

SEC. 415. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED

COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

(a) IN GENERAL.—Subsection (c) of section 457 (relating to deferred compensation plans of State and local governments and taxexempt organizations), as amended by section 411, is amended to

read as follows:

‘‘(c) LIMITATION.—The maximum amount of the compensation of

any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under

subsection (b)(2)(A) (as modified by any adjustment provided under

subsection (b)(3)).’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to years beginning after December 31, 2000.

SEC. 416. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION PLANS.

(a) ELIMINATION OF CERTAIN USER FEES.—The Secretary of the

Treasury or the Secretary’s delegate shall not require payment of

user fees under the program established under section 10511 of the

Revenue Act of 1987 for requests to the Internal Revenue Service for

determination letters with respect to the qualified status of a pension benefit plan maintained solely by one or more eligible employers or any trust which is part of the plan. The preceding sentence

shall not apply to any request—

(1) made after the later of—

(A) the fifth plan year the pension benefit plan is in existence; or

(B) the end of any remedial amendment period with respect to the plan beginning within the first 5 plan years; or

(2) made by the sponsor of any prototype or similar plan

which the sponsor intends to market to participating employers.

50

(b) PENSION BENEFIT PLAN.—For purposes of this section, the

term ‘‘pension benefit plan’’ means a pension, profit-sharing, stock

bonus, annuity, or employee stock ownership plan.

(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term

‘‘eligible employer’’ has the same meaning given such term in section

408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The determination of whether an employer is an eligible employer under this

section shall be made as of the date of the request described in subsection (a).

(d) DETERMINATION OF AVERAGE FEES CHARGED.—For purposes

of any determination of average fees charged, any request to which

subsection (a) applies shall not be taken into account.

(e) EFFECTIVE DATE.—The provisions of this section shall apply

with respect to requests made after December 31, 2000.

SEC. 417. DEDUCTION LIMITS.

(a) MODIFICATION OF LIMITS.— (1) STOCK BONUS AND PROFIT SHARING TRUSTS.— (A) IN GENERAL.—Subclause (I) of section

404(a)(3)(A)(i) (relating to stock bonus and profit sharing

trusts) is amended by striking ‘‘15 percent’’ and inserting

‘‘25 percent’’.

(B) CONFORMING AMENDMENT.—Subparagraph (C) of

section 404(h)(1) is amended by striking ‘‘15 percent’’ each

place it appears and inserting ‘‘25 percent’’.

(2) DEFINED CONTRIBUTION PLANS.— (A) IN GENERAL.—Clause (v) of section 404(a)(3)(A) (relating to stock bonus and profit sharing trusts) is amended

to read as follows:

‘‘(v) DEFINED CONTRIBUTION PLANS SUBJECT TO

THE FUNDING STANDARDS.—Except as provided by the

Secretary, a defined contribution plan which is subject

to the funding standards of section 412 shall be treated

in the same manner as a stock bonus or profit-sharing

plan for purposes of this subparagraph.’’.

(B) CONFORMING AMENDMENTS.— (i) Section 404(a)(1)(A) is amended by inserting

‘‘(other than a trust to which paragraph (3) applies)’’

after ‘‘pension trust’’.

(ii) Section 404(h)(2) is amended by striking ‘‘stock

bonus or profit-sharing trust’’ and inserting ‘‘trust subject to subsection (a)(3)(A)’’.

(iii) The heading of section 404(h)(2) is amended

by striking ‘‘STOCK BONUS AND PROFIT-SHARING TRUST’’

and inserting ‘‘CERTAIN TRUSTS’’.

(b) COMPENSATION.—

(1) IN GENERAL.—Section 404(a) (relating to general rule) is

amended by adding at the end the following:

‘‘(12) DEFINITION OF COMPENSATION.—For purposes of

paragraphs (3), (7), (8), and (9), the term ‘compensation’ shall

include amounts treated as participant’s compensation under

subparagraph (C) or (D) of section 415(c)(3).’’.

(2) CONFORMING AMENDMENTS.—

(A) Subparagraph (B) of section 404(a)(3) is amended

by striking the last sentence thereof.

51

(B) Clause (i) of section 4972(c)(6)(B) is amended by

striking ‘‘(within the meaning of section 404(a))’’ and inserting ‘‘(within the meaning of section 404(a) and as adjusted

under section 404(a)(12))’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 418. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX

ROTH CONTRIBUTIONS.

(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 1 (relating to deferred compensation, etc.) is amended by inserting after section 402 the following new section:

‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH

CONTRIBUTIONS.

‘‘(a) GENERAL RULE.—If an applicable retirement plan includes

a qualified Roth contribution program—

‘‘(1) any designated Roth contribution made by an employee

pursuant to the program shall be treated as an elective deferral

for purposes of this chapter, except that such contribution shall

not be excludable from gross income, and

‘‘(2) such plan (and any arrangement which is part of such

plan) shall not be treated as failing to meet any requirement of

this chapter solely by reason of including such program.

‘‘(b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—For purposes

of this section—

‘‘(1) IN GENERAL.—The term ‘qualified Roth contribution

program’ means a program under which an employee may elect

to make designated Roth contributions in lieu of all or a portion

of elective deferrals the employee is otherwise eligible to make

under the applicable retirement plan.

‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A program shall

not be treated as a qualified Roth contribution program unless

the applicable retirement plan—

‘‘(A) establishes separate accounts (‘designated Roth accounts’) for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and

‘‘(B) maintains separate recordkeeping with respect to

each account.

‘‘(c) DEFINITIONS AND RULES RELATING TO DESIGNATED ROTH

CONTRIBUTIONS.—For purposes of this section—

‘‘(1) DESIGNATED ROTH CONTRIBUTION.—The term ‘designated Roth contribution’ means any elective deferral which—

‘‘(A) is excludable from gross income of an employee

without regard to this section, and

‘‘(B) the employee designates (at such time and in such

manner as the Secretary may prescribe) as not being so excludable.

‘‘(2) DESIGNATION LIMITS.—The amount of elective deferrals

which an employee may designate under paragraph (1) shall

not exceed the excess (if any) of—

‘‘(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year

(without regard to this section), over

52

‘‘(B) the aggregate amount of elective deferrals of the

employee for the taxable year which the employee does not

designate under paragraph (1).

‘‘(3) ROLLOVER CONTRIBUTIONS.—

‘‘(A) IN GENERAL.—A rollover contribution of any payment or distribution from a designated Roth account which

is otherwise allowable under this chapter may be made

only if the contribution is to—

‘‘(i) another designated Roth account of the individual from whose account the payment or distribution

was made, or

‘‘(ii) a Roth IRA of such individual.

‘‘(B) COORDINATION WITH LIMIT.—Any rollover contribution to a designated Roth account under subparagraph

(A) shall not be taken into account for purposes of paragraph (1).

‘‘(d) DISTRIBUTION RULES.—For purposes of this title—

‘‘(1) EXCLUSION.—Any qualified distribution from a designated Roth account shall not be includible in gross income.

‘‘(2) QUALIFIED DISTRIBUTION.—For purposes of this

subsection—

‘‘(A) IN GENERAL.—The term ‘qualified distribution’ has

the meaning given such term by section 408A(d)(2)(A)

(without regard to clause (iv) thereof).

‘‘(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—A

payment or distribution from a designated Roth account

shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of—

‘‘(i) the first taxable year for which the individual

made a designated Roth contribution to any designated

Roth account established for such individual under the

same applicable retirement plan, or

‘‘(ii) if a rollover contribution was made to such

designated Roth account from a designated Roth account previously established for such individual under

another applicable retirement plan, the first taxable

year for which the individual made a designated Roth

contribution to such previously established account.

‘‘(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND CONTRIBUTIONS AND EARNINGS THEREON.—The term ‘qualified

distribution’ shall not include any distribution of any excess deferral under section 402(g)(2) or any excess contribution under section 401(k)(8), and any income on the excess

deferral or contribution.

‘‘(3) TREATMENT OF DISTRIBUTIONS OF CERTAIN EXCESS DEFERRALS.—Notwithstanding section 72, if any excess deferral

under section 402(g)(2) attributable to a designated Roth contribution is not distributed on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall—

‘‘(A) not be treated as investment in the contract, and

‘‘(B) be included in gross income for the taxable year in

which such excess is distributed.

53

‘‘(4) AGGREGATION RULES.—Section 72 shall be applied separately with respect to distributions and payments from a designated Roth account and other distributions and payments

from the plan.

‘‘(e) OTHER DEFINITIONS.—For purposes of this section—

‘‘(1) APPLICABLE RETIREMENT PLAN.—The term ‘applicable

retirement plan’ means—

‘‘(A) an employees’ trust described in section 401(a)

which is exempt from tax under section 501(a), and

‘‘(B) a plan under which amounts are contributed by

an individual’s employer for an annuity contract described

in section 403(b).

‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective deferral’

means any elective deferral described in subparagraph (A) or

(C) of section 402(g)(3).’’.

(b) EXCESS DEFERRALS.—Section 402(g) (relating to limitation

on exclusion for elective deferrals) is amended—

(1) by adding at the end of paragraph (1)(A) (as added by

section 201(d)(1)) the following new sentence: ‘‘The preceding

sentence shall not apply to the portion of such excess as does not

exceed the designated Roth contributions of the individual for

the taxable year.’’; and

(2) by inserting ‘‘(or would be included but for the last sentence thereof)’’ after ‘‘paragraph (1)’’ in paragraph (2)(A).

(c) ROLLOVERS.—Subparagraph (B) of section 402(c)(8) is

amended by adding at the end the following:

‘‘If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth

account (as defined in section 402A), an eligible retirement

plan with respect to such portion shall include only another

designated Roth account and a Roth IRA.’’.

(d) REPORTING REQUIREMENTS.—

(1) W–2 INFORMATION.—Section 6051(a)(8) is amended by

inserting ‘‘, including the amount of designated Roth contributions (as defined in section 402A)’’ before the comma at the end.

(2) INFORMATION.—Section 6047 is amended by redesignating subsection (f) as subsection (g) and by inserting after

subsection (e) the following new subsection:

‘‘(f) DESIGNATED ROTH CONTRIBUTIONS.—The Secretary shall

require the plan administrator of each applicable retirement plan

(as defined in section 402A) to make such returns and reports regarding designated Roth contributions (as defined in section 402A)

to the Secretary, participants and beneficiaries of the plan, and

such other persons as the Secretary may prescribe.’’.

(e) CONFORMING AMENDMENTS.—

(1) Section 408A(e) is amended by adding after the first

sentence the following new sentence: ‘‘Such term includes a rollover contribution described in section 402A(c)(3)(A).’’.

(2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by inserting after the item

relating to section 402 the following new item:

‘‘Sec. 402A. Optional treatment of elective deferrals as Roth contributions.’’.

54

(f) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

Subtitle C—Enhancing Fairness For

Women

SEC. 421. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR

OVER.

(a) IN GENERAL.—Section 414 (relating to definitions and special rules) is amended by adding at the end the following new subsection:

‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR

OVER.—

‘‘(1) IN GENERAL.—An applicable employer plan shall not be

treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.

‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—

‘‘(A) IN GENERAL.—A plan shall not permit additional

elective deferrals under paragraph (1) for any year in an

amount greater than the lesser of—

‘‘(i) the applicable deferral amount, or

‘‘(ii) the excess (if any) of—

‘‘(I) the participant’s compensation for the

year, over

‘‘(II) any other elective deferrals of the participant for such year which are made without regard

to this subsection.

‘‘(B) APPLICABLE DEFERRAL AMOUNT; COST-OF-LIVING

ADJUSTMENT.—

‘‘(i) IN GENERAL.—For purposes of subparagraph

(A)(i), the applicable deferral amount shall be the

amount determined in accordance with the following

table:

‘‘For taxable years The applicable

beginning in deferral amount:

calendar year:

2001 ......................................................................................... $1,000

2002 ......................................................................................... $2,000

2003 ......................................................................................... $3,000

2004 ......................................................................................... $4,000

2005 or thereafter ................................................................... $5,000.

‘‘(ii) COST-OF-LIVING ADJUSTMENT.—In the case of

a year beginning after December 31, 2005, the Secretary shall adjust the $5,000 amount under clause (i)

at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1,

2004, and any increase under this subparagraph which

is not a multiple of $500 shall be rounded to the next

lower multiple of $500.

‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the case of any

contribution to a plan under paragraph (1), such contribution

55

shall not, with respect to the year in which the contribution is

made—

‘‘(A) be subject to any otherwise applicable limitation

contained in section 402(g), 402(h)(2), 404(a), 404(h),

408(p)(2)(A)(ii), 415, or 457, or

‘‘(B) be taken into account in applying such limitations

to other contributions or benefits under such plan or any

other such plan.

‘‘(4) APPLICATION OF NONDISCRIMINATION RULES.—

‘‘(A) IN GENERAL.—An applicable employer plan shall

not be treated as failing to meet the nondiscrimination requirements under section 401(a)(4) with respect to benefits,

rights, and features if the plan allows all eligible participants to make the same election with respect to the additional elective deferrals under this subsection.

‘‘(B) AGGREGATION.—For purposes of subparagraph

(A), all plans maintained by employers who are treated as

a single employer under subsection (b), (c), (m), or (o) of

section 414 shall be treated as 1 plan.

‘‘(5) ELIGIBLE PARTICIPANT.—For purposes of this subsection, the term ‘eligible participant’ means, with respect to any

plan year, a participant in a plan—

‘‘(A) who has attained the age of 50 before the close of

the plan year, and

‘‘(B) with respect to whom no other elective deferrals

may (without regard to this subsection) be made to the plan

for the plan year by reason of the application of any limitation or other restriction described in paragraph (3) or any

comparable limitation contained in the terms of the plan.

‘‘(6) OTHER DEFINITIONS AND RULES.—For purposes of this

subsection—

‘‘(A) APPLICABLE EMPLOYER PLAN.—The term ‘applicable employer plan’ means—

‘‘(i) an employees’ trust described in section 401(a)

which is exempt from tax under section 501(a),

‘‘(ii) a plan under which amounts are contributed

by an individual’s employer for an annuity contract described in section 403(b),

‘‘(iii) an eligible deferred compensation plan under

section 457 of an eligible employer as defined in section

457(e)(1)(A), and

‘‘(iv) an arrangement meeting the requirements of

section 408 (k) or (p).

‘‘(B) ELECTIVE DEFERRAL.—The term ‘elective deferral’

has the meaning given such term by subsection (u)(2)(C).

‘‘(C) EXCEPTION FOR SECTION 457 PLANS.—This subsection shall not apply to an applicable employer plan described in subparagraph (A)(iii) for any year to which section 457(b)(3) applies.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to contributions in taxable years beginning after December 31, 2000.

56

SEC. 422. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS.

(a) EQUITABLE TREATMENT.—

(1) IN GENERAL.—Subparagraph (B) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended

by striking ‘‘25 percent’’ and inserting ‘‘100 percent’’.

(2) APPLICATION TO SECTION 403(b).—Section 403(b) is

amended—

(A) by striking ‘‘the exclusion allowance for such taxable year’’ in paragraph (1) and inserting ‘‘the applicable

limit under section 415’’;

(B) by striking paragraph (2); and

(C) by inserting ‘‘or any amount received by a former

employee after the fifth taxable year following the taxable

year in which such employee was terminated’’ before the period at the end of the second sentence of paragraph (3).

(3) CONFORMING AMENDMENTS.—

(A) Subsection (f) of section 72 is amended by striking

‘‘section 403(b)(2)(D)(iii))’’ and inserting ‘‘section

403(b)(2)(D)(iii), as in effect before the enactment of the Retirement Savings and Pension Coverage Act of 2000)’’.

(B) Section 404(a)(10)(B) is amended by striking ‘‘, the

exclusion allowance under section 403(b)(2),’’.

(C) Section 415(a)(2) is amended by striking ‘‘, and the

amount of the contribution for such portion shall reduce the

exclusion allowance as provided in section 403(b)(2)’’.

(D) Section 415(c)(3) is amended by adding at the end

the following new subparagraph:

‘‘(E) ANNUITY CONTRACTS.—In the case of an annuity

contract described in section 403(b), the term ‘participant’s

compensation’ means the participant’s includible compensation determined under section 403(b)(3).’’.

(E) Section 415(c) is amended by striking paragraph

(4).

(F) Section 415(c)(7) is amended to read as follows:

‘‘(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT

TREATED AS EXCEEDING LIMIT.—

‘‘(A) IN GENERAL.—Notwithstanding any other provision of this subsection, at the election of a participant who

is an employee of a church or a convention or association

of churches, including an organization described in section

414(e)(3)(B)(ii), contributions and other additions for an

annuity contract or retirement income account described in

section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of

paragraph (1) if such annual addition is not in excess of

$10,000.

‘‘(B) $40,000 AGGREGATE LIMITATION.—The total

amount of additions with respect to any participant which

may be taken into account for purposes of this subparagraph for all years may not exceed $40,000.

57

‘‘(C) ANNUAL ADDITION.—For purposes of this paragraph, the term ‘annual addition’ has the meaning given

such term by paragraph (2).’’.

(G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 201(d)(3)(A)) is amended by inserting before the period at the end the following: ‘‘(as in effect before

the enactment of the Retirement Savings and Pension Coverage Act of 2000)’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to years beginning after December 31, 2000.

(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—

(1) IN GENERAL.—Subsection (k) of section 415 is amended

by adding at the end the following new paragraph:

‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For purposes of this section, any annuity contract described in section

403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under

subsection (b) or (c) of section 414 (as modified by subsection

(h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual

for a taxable year shall be treated as an employer contribution

to a defined contribution plan for such individual for such

year.’’.

(2) EFFECTIVE DATE.—

(A) IN GENERAL.—The amendment made by paragraph

(1) shall apply to limitation years beginning after December

31, 1999.

(B) EXCLUSION ALLOWANCE.—Effective for limitation

years beginning in 2000, in the case of any annuity contract described in section 403(b) of the Internal Revenue

Code of 1986, the amount of the contribution disqualified

by reason of section 415(g) of such Code shall reduce the exclusion allowance as provided in section 403(b)(2) of such

Code.

(3) MODIFICATION OF 403(b) EXCLUSION ALLOWANCE TO CONFORM TO 415 MODIFICATION.—The Secretary of the Treasury

shall modify the regulations regarding the exclusion allowance

under section 403(b)(2) of the Internal Revenue Code of 1986 to

render void the requirement that contributions to a defined benefit pension plan be treated as previously excluded amounts for

purposes of the exclusion allowance. For taxable years beginning after December 31, 1999, such regulations shall be applied

as if such requirement were void.

(c) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL

GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.—

(1) IN GENERAL.—Subparagraph (B) of section 457(b)(2) (relating to salary limitation on eligible deferred compensation

plans) is amended by striking ‘‘331⁄3 percent’’ and inserting ‘‘100

percent’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to years beginning after December 31, 2000.

58

SEC. 423. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

(a) IN GENERAL.—Section 411(a) (relating to minimum vesting

standards) is amended—

(1) in paragraph (2), by striking ‘‘A plan’’ and inserting

‘‘Except as provided in paragraph (12), a plan’’; and

(2) by adding at the end the following:

‘‘(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In

the case of matching contributions (as defined in section

401(m)(4)(A)), paragraph (2) shall be applied—

‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subparagraph (A), and

‘‘(B) by substituting the following table for the table

contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 ................................................................................................... 20

3 ................................................................................................... 40

4 ................................................................................................... 60

5 ................................................................................................... 80

6 ................................................................................................... 100.’’.

(b) AMENDMENT OF ERISA.—Section 203(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is

amended—

(1) in paragraph (2), by striking ‘‘A plan’’ and inserting

‘‘Except as provided in paragraph (4), a plan’’, and

(2) by adding at the end the following:

‘‘(4) In the case of matching contributions (as defined in

section 401(m)(4)(A) of the Internal Revenue Code of 1986),

paragraph (2) shall be applied—

‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subparagraph (A), and

‘‘(B) by substituting the following table for the table

contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 ................................................................................................... 20

3 ................................................................................................... 40

4 ................................................................................................... 60

5 ................................................................................................... 80

6 ................................................................................................... 100.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to contributions

for plan years beginning after December 31, 2000.

(2) COLLECTIVE BARGAINING AGREEMENTS.—In the case of a

plan maintained pursuant to one or more collective bargaining

agreements between employee representatives and one or more

employers ratified by the date of the enactment of this Act, the

amendments made by this section shall not apply to contributions on behalf of employees covered by any such agreement for

plan years beginning before the earlier of—

(A) the later of—

(i) the date on which the last of such collective bargaining agreements terminates (determined without reVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00062 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
59

gard to any extension thereof on or after such date of

the enactment); or

(ii) January 1, 2001; or

(B) January 1, 2005.

(3) SERVICE REQUIRED.—With respect to any plan, the

amendments made by this section shall not apply to any employee before the date that such employee has 1 hour of service

under such plan in any plan year to which the amendments

made by this section apply.

SEC. 424. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

(a) SIMPLIFICATION AND FINALIZATION OF MINIMUM DISTRIBU- TION REQUIREMENTS.— (1) IN GENERAL.—The Secretary of the Treasury shall—

(A) simplify and finalize the regulations relating to

minimum distribution requirements under sections

401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of

the Internal Revenue Code of 1986; and

(B) modify such regulations to—

(i) reflect current life expectancy; and

(ii) revise the required distribution methods so

that, under reasonable assumptions, the amount of the

required minimum distribution does not decrease over

a participant’s life expectancy.

(2) FRESH START.—Notwithstanding subparagraph (D) of

section 401(a)(9) of such Code, during the first year that regulations are in effect under this subsection, required distributions

for future years may be redetermined to reflect changes under

such regulations. Such redetermination shall include the opportunity to choose a new designated beneficiary and to elect a new

method of calculating life expectancy.

(3) DATE FOR REGULATIONS.—Not later than December 31,

2001, the Secretary shall issue final regulations described in

paragraph (1) and such regulations shall apply without regard

to whether an individual had previously begun receiving minimum distributions.

(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD BEGUN BE- FORE DEATH OCCURS.— (1) IN GENERAL.—Subparagraph (B) of section 401(a)(9) is

amended by striking clause (i) and redesignating clauses (ii),

(iii), and (iv) as clauses (i), (ii), and (iii), respectively.

(2) CONFORMING CHANGES.—

(A) Clause (i) of section 401(a)(9)(B) (as so redesignated) is amended—

(i) by striking ‘‘FOR OTHER CASES’’ in the heading;

and

(ii) by striking ‘‘the distribution of the employee’s

interest has begun in accordance with subparagraph

(A)(ii)’’ and inserting ‘‘his entire interest has been distributed to him’’.

(B) Clause (ii) of section 401(a)(9)(B) (as so redesignated) is amended by striking ‘‘clause (ii)’’ and inserting

‘‘clause (i)’’.

(C) Clause (iii) of section 401(a)(9)(B) (as so redesignated) is amended—

60

(i) by striking ‘‘clause (iii)(I)’’ and inserting ‘‘clause

(ii)(I)’’;

(ii) by striking ‘‘clause (iii)(III)’’ in subclause (I)

and inserting ‘‘clause (ii)(III)’’;

(iii) by striking ‘‘the date on which the employee

would have attained age 701⁄2,’’ in subclause (I) and inserting ‘‘April 1 of the calendar year following the calendar year in which the spouse attains 701⁄2,’’; and

(iv) by striking ‘‘the distributions to such spouse

begin,’’ in subclause (II) and inserting ‘‘his entire interest has been distributed to him,’’.

(3) EFFECTIVE DATE.— (A) IN GENERAL.—Except as provided in subparagraph

(B), the amendments made by this subsection shall apply to

years beginning after December 31, 2000.

(B) DISTRIBUTIONS TO SURVIVING SPOUSE.— (i) IN GENERAL.—In the case of an employee described in clause (ii), distributions to the surviving

spouse of the employee shall not be required to commence prior to the date on which such distributions

would have been required to begin under section

401(a)(9)(B) of the Internal Revenue Code of 1986 (as

in effect on the day before the date of the enactment of

this Act).

(ii) CERTAIN EMPLOYEES.—An employee is described in this clause if such employee dies before—

(I) the date of the enactment of this Act, and

(II) the required beginning date (within the

meaning of section 401(a)(9)(C) of the Internal

Revenue Code of 1986) of the employee.

(c) REDUCTION IN EXCISE TAX.—

(1) IN GENERAL.—Subsection (a) of section 4974 is amended

by striking ‘‘50 percent’’ and inserting ‘‘10 percent’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to years beginning after December 31, 2000.

SEC. 425. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 PLAN BENEFITS UPON DIVORCE.

(a) IN GENERAL.—Section 414(p)(11) (relating to application of

rules to governmental and church plans) is amended—

(1) by inserting ‘‘or an eligible deferred compensation plan

(within the meaning of section 457(b))’’ after ‘‘subsection (e))’’;

and

(2) in the heading, by striking ‘‘GOVERNMENTAL AND

CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER PLANS’’.

(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—Paragraph (10) of section 414(p) is amended by striking ‘‘and section

409(d)’’ and inserting ‘‘section 409(d), and section 457(d)’’.

(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457

PLAN.—Subsection (p) of section 414 is amended by redesignating

paragraph (12) as paragraph (13) and inserting after paragraph

(11) the following new paragraph:

‘‘(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457

PLAN.—If a distribution or payment from an eligible deferred

compensation plan described in section 457(b) is made pursuVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00064 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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ant to a qualified domestic relations order, rules similar to the

rules of section 402(e)(1)(A) shall apply to such distribution or

payment.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to transfers, distributions, and payments made after December 31, 2000.

SEC. 426. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

(a) SAFE HARBOR RELIEF.—

(1) IN GENERAL.—The Secretary of the Treasury shall revise

the regulations relating to hardship distributions under section

401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide that the period an employee is prohibited from making

elective and employee contributions in order for a distribution

to be deemed necessary to satisfy financial need shall be equal

to 6 months.

(2) EFFECTIVE DATE.—The revised regulations under this

subsection shall apply to years beginning after December 31,

2000.

(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELIGIBLE ROLLOVER DISTRIBUTIONS.—

(1) MODIFICATION OF DEFINITION OF ELIGIBLE ROLLOVER.—

Section 402(c)(4)(C) (relating to eligible rollover distribution) is

amended by striking ‘‘described in section 401(k)(2)(B)(i)(IV)’’

and inserting ‘‘under the terms of the plan’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to distributions made after December 31,

2001, unless a plan administrator elects to apply such amendment to distributions made after December 31, 2000.

SEC. 427. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR

DOMESTIC OR SIMILAR WORKERS.

(a) IN GENERAL.—Section 4972(c)(6) (relating to exceptions to

nondeductible contributions), as amended by section 442(b), is

amended by striking ‘‘or’’ at the end of subparagraph (A), by striking the period and inserting ‘‘, or’’ at the end of subparagraph (B),

and by inserting after subparagraph (B) the following new subparagraph:

‘‘(C) so much of the contributions to a qualified employer plan which are not deductible when contributed solely because such contributions are not made in connection

with a trade or business of the employer.’’.

(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Section

4972(c)(6), as amended by subsection (a), is amended by adding at

the end the following new sentence: ‘‘Subparagraph (C) shall not

apply to contributions made on behalf of the employer or a member

of the employer’s family (as defined in section 447(e)(1)).’’.

(c) NO INFERENCE.—Nothing in the amendments made by this

section shall be construed to infer the proper treatment of nondeductible contributions under the laws in effect before such amendments.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

62

Subtitle D—Increasing Portability For

Participants

SEC. 431. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

(a) ROLLOVERS FROM AND TO SECTION 457 PLANS.— (1) ROLLOVERS FROM SECTION 457 PLANS.— (A) IN GENERAL.—Section 457(e) (relating to other definitions and special rules) is amended by adding at the end

the following:

‘‘(16) ROLLOVER AMOUNTS.— ‘‘(A) GENERAL RULE.—In the case of an eligible deferred

compensation plan established and maintained by an employer described in subsection (e)(1)(A), if—

‘‘(i) any portion of the balance to the credit of an

employee in such plan is paid to such employee in an

eligible rollover distribution (within the meaning of

section 402(c)(4) without regard to subparagraph (C)

thereof),

‘‘(ii) the employee transfers any portion of the property such employee receives in such distribution to an

eligible retirement plan described in section

402(c)(8)(B), and

‘‘(iii) in the case of a distribution of property other

than money, the amount so transferred consists of the

property distributed,

then such distribution (to the extent so transferred) shall

not be includible in gross income for the taxable year in

which paid.

‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of

paragraphs (2) through (7) and (9) of section 402(c) and

section 402(f) shall apply for purposes of subparagraph (A).

‘‘(C) REPORTING.—Rollovers under this paragraph

shall be reported to the Secretary in the same manner as

rollovers from qualified retirement plans (as defined in section 4974(c)).’’.

(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO

ROLLOVER AMOUNTS.—Section 457(b)(2) (defining eligible

deferred compensation plan) is amended by inserting

‘‘(other than rollover amounts)’’ after ‘‘taxable year’’.

(C) DIRECT ROLLOVER.—Paragraph (1) of section

457(d) is amended by striking ‘‘and’’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘‘, and’’, and by inserting after subparagraph (B) the following:

‘‘(C) in the case of a plan maintained by an employer

described in subsection (e)(1)(A), the plan meets requirements similar to the requirements of section 401(a)(31).

Any amount transferred in a direct trustee-to-trustee transfer in

accordance with section 401(a)(31) shall not be includible in

gross income for the taxable year of transfer.’’.

(D) WITHHOLDING.—

(i) Paragraph (12) of section 3401(a) is amended

by adding at the end the following:

63

‘‘(E) under or to an eligible deferred compensation plan

which, at the time of such payment, is a plan described in

section 457(b) maintained by an employer described in section 457(e)(1)(A), or’’.

(ii) Paragraph (3) of section 3405(c) is amended to

read as follows:

‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of

this subsection, the term ‘eligible rollover distribution’ has the

meaning given such term by section 402(f)(2)(A).’’.

(iii) LIABILITY FOR WITHHOLDING.—Subparagraph

(B) of section 3405(d)(2) is amended by striking ‘‘or’’ at

the end of clause (ii), by striking the period at the end

of clause (iii) and inserting ‘‘, or’’, and by adding at the

end the following:

‘‘(iv) section 457(b) and which is maintained by an

eligible employer described in section 457(e)(1)(A).’’.

(2) ROLLOVERS TO SECTION 457 PLANS.—

(A) IN GENERAL.—Section 402(c)(8)(B) (defining eligible

retirement plan) is amended by striking ‘‘and’’ at the end

of clause (iii), by striking the period at the end of clause (iv)

and inserting ‘‘, and’’, and by inserting after clause (iv) the

following new clause:

‘‘(v) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A).’’.

(B) SEPARATE ACCOUNTING.—Section 402(c) is amended by adding at the end the following new paragraph:

‘‘(11) SEPARATE ACCOUNTING.—Unless a plan described in

clause (v) of paragraph (8)(B) agrees to separately account for

amounts rolled into such plan from eligible retirement plans

not described in such clause, the plan described in such clause

may not accept transfers or rollovers from such retirement

plans.’’.

(C) 10 PERCENT ADDITIONAL TAX.—Subsection (t) of section 72 (relating to 10-percent additional tax on early distributions from qualified retirement plans) is amended by

adding at the end the following new paragraph:

‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.—

For purposes of this subsection, a distribution from an eligible

deferred compensation plan (as defined in section 457(b)) of an

eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described

in 4974(c)(1) to the extent that such distribution is attributable

to an amount transferred to an eligible deferred compensation

plan from a qualified retirement plan (as defined in section

4974(c)).’’.

(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS.—

(1) ROLLOVERS FROM SECTION 403(b) PLANS.—Section

403(b)(8)(A)(ii) (relating to rollover amounts) is amended by

striking ‘‘such distribution’’ and all that follows and inserting

‘‘such distribution to an eligible retirement plan described in

section 402(c)(8)(B), and’’.

(2) ROLLOVERS TO SECTION 403(b) PLANS.—Section

402(c)(8)(B) (defining eligible retirement plan), as amended by

64

subsection (a), is amended by striking ‘‘and’’ at the end of

clause (iv), by striking the period at the end of clause (v) and

inserting ‘‘, and’’, and by inserting after clause (v) the following

new clause:

‘‘(vi) an annuity contract described in section

403(b).’’.

(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section 402(f) (relating to written explanation to recipients of distributions eligible for rollover treatment) is amended by striking ‘‘and’’ at the end of subparagraph (C),

by striking the period at the end of subparagraph (D) and inserting

‘‘, and’’, and by adding at the end the following new subparagraph:

‘‘(E) of the provisions under which distributions from

the eligible retirement plan receiving the distribution may

be subject to restrictions and tax consequences which are

different from those applicable to distributions from the

plan making such distribution.’’.

(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relating to rollover

where spouse receives distribution after death of employee) is

amended by striking ‘‘; except that’’ and all that follows up to the

end period.

(e) CONFORMING AMENDMENTS.—

(1) Section 72(o)(4) is amended by striking ‘‘and 408(d)(3)’’

and inserting ‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.

(2) Section 219(d)(2) is amended by striking ‘‘or 408(d)(3)’’

and inserting ‘‘408(d)(3), or 457(e)(16)’’.

(3) Section 401(a)(31)(B) is amended by striking ‘‘and

403(a)(4)’’ and inserting ‘‘, 403(a)(4), 403(b)(8), and 457(e)(16)’’.

(4) Subparagraph (A) of section 402(f)(2) is amended by

striking ‘‘or paragraph (4) of section 403(a)’’ and inserting ‘‘,

paragraph (4) of section 403(a), subparagraph (A) of section

403(b)(8), or subparagraph (A) of section 457(e)(16)’’.

(5) Paragraph (1) of section 402(f) is amended by striking

‘‘from an eligible retirement plan’’.

(6) Subparagraphs (A) and (B) of section 402(f)(1) are

amended by striking ‘‘another eligible retirement plan’’ and inserting ‘‘an eligible retirement plan’’.

(7) Subparagraph (B) of section 403(b)(8) is amended to

read as follows:

‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of

paragraphs (2) through (7) and (9) of section 402(c) and

section 402(f) shall apply for purposes of subparagraph (A),

except that section 402(f) shall be applied to the payor in

lieu of the plan administrator.’’.

(8) Section 408(a)(1) is amended by striking ‘‘or 403(b)(8),’’

and inserting ‘‘403(b)(8), or 457(e)(16)’’.

(9) Subparagraphs (A) and (B) of section 415(b)(2) are each

amended by striking ‘‘and 408(d)(3)’’ and inserting ‘‘403(b)(8),

408(d)(3), and 457(e)(16)’’.

(10) Section 415(c)(2) is amended by striking ‘‘and

408(d)(3)’’ and inserting ‘‘408(d)(3), and 457(e)(16)’’.

(11) Section 4973(b)(1)(A) is amended by striking ‘‘or

408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.

(f) EFFECTIVE DATE; SPECIAL RULES.—

65

(1) EFFECTIVE DATE.—Except as provided in paragraph (2),

the amendments made by this section shall apply to distributions after December 31, 2000.

(2) REASONABLE NOTICE.—No penalty shall be imposed on

a plan for the failure to provide the information required by the

amendment made by subsection (c) with respect to any distribution made before January 1, 2002, if the administrator of such

plan makes a reasonable attempt to comply with such requirement.

(3) SPECIAL RULE.—Notwithstanding any other provision of

law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an

eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of

any amendment made by this section.

SEC. 432. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

(a) IN GENERAL.—Subparagraph (A) of section 408(d)(3) (relating to rollover amounts) is amended by adding ‘‘or’’ at the end of

clause (i), by striking clauses (ii) and (iii), and by adding at the end

the following:

‘‘(ii) the entire amount received (including money

and any other property) is paid into an eligible retirement plan for the benefit of such individual not later

than the 60th day after the date on which the payment

or distribution is received, except that the maximum

amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to

this paragraph).

For purposes of clause (ii), the term ‘eligible retirement

plan’ means an eligible retirement plan described in clause

(iii), (iv), (v), or (vi) of section 402(c)(8)(B).’’.

(b) CONFORMING AMENDMENTS.— (1) Paragraph (1) of section 403(b) is amended by striking

‘‘section 408(d)(3)(A)(iii)’’ and inserting ‘‘section 408(d)(3)(A)(ii)’’.

(2) Clause (i) of section 408(d)(3)(D) is amended by striking

‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i) or (ii)’’.

(3) Subparagraph (G) of section 408(d)(3) is amended to

read as follows:

‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of

any payment or distribution out of a simple retirement account (as defined in subsection (p)) to which section 72(t)(6)

applies, this paragraph shall not apply unless such payment or distribution is paid into another simple retirement

account.’’.

(c) EFFECTIVE DATE; SPECIAL RULE.—

(1) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions after December 31, 2000.

(2) SPECIAL RULE.—Notwithstanding any other provision of

law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an

eligible retirement plan (as defined in clause (iii) or (iv) of secVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00069 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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tion 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of

the amendments made by this section.

SEC. 433. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph (2) of section 402(c) (relating to maximum amount which may be rolled over)

is amended by adding at the end the following: ‘‘The preceding sentence shall not apply to such distribution to the extent—

‘‘(A) such portion is transferred in a direct trustee-totrustee transfer to a qualified trust which is part of a plan

which is a defined contribution plan and which agrees to

separately account for amounts so transferred, including

separately accounting for the portion of such distribution

which is includible in gross income and the portion of such

distribution which is not so includible, or

‘‘(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph

(8)(B).’’.

(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DIS- TRIBUTIONS.—Subparagraph (B) of section 401(a)(31) (relating to

limitation) is amended by adding at the end the following: ‘‘The preceding sentence shall not apply to such distribution if the plan to

which such distribution is transferred—

‘‘(i) agrees to separately account for amounts so

transferred, including separately accounting for the

portion of such distribution which is includible in

gross income and the portion of such distribution

which is not so includible, or

‘‘(ii) is an eligible retirement plan described in

clause (i) or (ii) of section 402(c)(8)(B).’’.

(c) RULES FOR APPLYING SECTION 72 TO IRAS.—Paragraph (3)

of section 408(d) (relating to special rules for applying section 72)

is amended by inserting at the end the following:

‘‘(H) APPLICATION OF SECTION 72.— ‘‘(i) IN GENERAL.—If—

‘‘(I) a distribution is made from an individual

retirement plan, and

‘‘(II) a rollover contribution is made to an eligible retirement plan described in section

402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all

or part of such distribution,

then, notwithstanding paragraph (2), the rules of

clause (ii) shall apply for purposes of applying section

72.

‘‘(ii) APPLICABLE RULES.—In the case of a distribution described in clause (i)—

‘‘(I) section 72 shall be applied separately to

such distribution,

‘‘(II) notwithstanding the pro rata allocation of

income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan

described in clause (i) shall be treated as from inVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00070 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
67

come on the contract (to the extent of the aggregate

income on the contract from all individual retirement plans of the distributee), and

‘‘(III) appropriate adjustments shall be made

in applying section 72 to other distributions in

such taxable year and subsequent taxable years.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions made after December 31, 2001.

SEC. 434. HARDSHIP EXCEPTION TO 60-DAY RULE.

(a) EXEMPT TRUSTS.—Paragraph (3) of section 402(c) (relating

to transfer must be made within 60 days of receipt) is amended to

read as follows:

‘‘(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on

which the distributee received the property distributed.

‘‘(B) HARDSHIP EXCEPTION.—The Secretary may waive

the 60-day requirement under subparagraph (A) where the

failure to waive such requirement would be against equity

or good conscience, including casualty, disaster, or other

events beyond the reasonable control of the individual subject to such requirement.’’.

(b) IRAS.—Paragraph (3) of section 408(d) (relating to rollover

contributions), as amended by section 433, is amended by adding

after subparagraph (H) the following new subparagraph:

‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—The Secretary

may waive the 60-day requirement under subparagraphs

(A) and (D) where the failure to waive such requirement

would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions after December 31, 2000.

SEC. 435. TREATMENT OF FORMS OF DISTRIBUTION.

(a) PLAN TRANSFERS.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph

(6) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by adding at the end the

following:

‘‘(D) PLAN TRANSFERS.—

‘‘(i) IN GENERAL.—A defined contribution plan (in

this subparagraph referred to as the ‘transferee plan’)

shall not be treated as failing to meet the requirements

of this subsection merely because the transferee plan

does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the

‘transferor plan’) to the extent that—

‘‘(I) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the

68

transferor plan that was transferred from the

transferor plan to the transferee plan pursuant to

a direct transfer rather than pursuant to a distribution from the transferor plan,

‘‘(II) the terms of both the transferor plan and

the transferee plan authorize the transfer described

in subclause (I),

‘‘(III) the transfer described in subclause (I)

was made pursuant to a voluntary election by the

participant or beneficiary whose account was

transferred to the transferee plan,

‘‘(IV) the election described in subclause (III)

was made after the participant or beneficiary received a notice describing the consequences of making the election, and

‘‘(V) the transferee plan allows the participant

or beneficiary described in subclause (III) to receive any distribution to which the participant or

beneficiary is entitled under the transferee plan in

the form of a single sum distribution.

‘‘(ii) SPECIAL RULE FOR MERGERS; ETC.—Clause (i)

shall apply to plan mergers and other transactions

having the effect of a direct transfer, including consolidations of benefits attributable to different employers

within a multiple employer plan.

‘‘(E) ELIMINATION OF FORM OF DISTRIBUTION.—Except

to the extent provided in regulations, a defined contribution

plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of

a form of distribution previously available thereunder. This

subparagraph shall not apply to the elimination of a form

of distribution with respect to any participant unless—

‘‘(i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and

‘‘(ii) such single sum payment is based on the same

or greater portion of the participant’s account as the

form of distribution being eliminated.’’.

(2) AMENDMENT OF ERISA.—Section 204(g) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is

amended by adding at the end the following:

‘‘(4)(A) A defined contribution plan (in this subparagraph referred to as the ‘transferee plan’) shall not be treated as failing to

meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution

previously available under another defined contribution plan (in

this subparagraph referred to as the ‘transferor plan’) to the extent

that—

‘‘(i) the forms of distribution previously available under the

transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the

transferor plan to the transferee plan pursuant to a direct

transfer rather than pursuant to a distribution from the transferor plan;

69

‘‘(ii) the terms of both the transferor plan and the transferee

plan authorize the transfer described in clause (i);

‘‘(iii) the transfer described in clause (i) was made pursuant

to a voluntary election by the participant or beneficiary whose

account was transferred to the transferee plan;

‘‘(iv) the election described in clause (iii) was made after the

participant or beneficiary received a notice describing the consequences of making the election; and

‘‘(v) the transferee plan allows the participant or beneficiary

described in clause (iii) to receive any distribution to which the

participant or beneficiary is entitled under the transferee plan

in the form of a single sum distribution.

‘‘(B) Subparagraph (A) shall apply to plan mergers and other

transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

‘‘(5) Except to the extent provided in regulations promulgated by

the Secretary of the Treasury, a defined contribution plan shall not

be treated as failing to meet the requirements of this subsection

merely because of the elimination of a form of distribution previously available thereunder. This paragraph shall not apply to the

elimination of a form of distribution with respect to any participant

unless—

‘‘(A) a single sum payment is available to such participant

at the same time or times as the form of distribution being

eliminated; and

‘‘(B) such single sum payment is based on the same or

greater portion of the participant’s account as the form of distribution being eliminated.’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to years beginning after December 31, 2000.

(b) REGULATIONS.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph

(6)(B) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by inserting after the second sentence the following new sentence: ‘‘The Secretary shall

by regulations provide that this subparagraph shall not apply

to any plan amendment which reduces or eliminates benefits or

subsidies which create significant burdens or complexities for

the plan and plan participants and does not adversely affect the

rights of any participant in a more than de minimis manner.’’.

(2) AMENDMENT OF ERISA.—Section 204(g)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C.

1054(g)(2)) is amended by inserting before the last sentence the

following new sentence: ‘‘The Secretary of the Treasury shall by

regulations provide that this paragraph shall not apply to any

plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the

plan and plan participants and does not adversely affect the

rights of any participant in a more than de minimis manner.’’.

(3) SECRETARY DIRECTED.—Not later than December 31,

2002, the Secretary of the Treasury is directed to issue regulations under section 411(d)(6) of the Internal Revenue Code of

1986 and section 204(g) of the Employee Retirement Income SeVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00073 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
70

curity Act of 1974, including the regulations required by the

amendment made by this subsection. Such regulations shall

apply to plan years beginning after December 31, 2002, or such

earlier date as is specified by the Secretary of the Treasury.

SEC. 436. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

(a) MODIFICATION OF SAME DESK EXCEPTION.—

(1) SECTION 401(k).—

(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash

or deferred arrangements) is amended by striking ‘‘separation from service’’ and inserting ‘‘severance from employment’’.

(B) Subparagraph (A) of section 401(k)(10) (relating to

distributions upon termination of plan or disposition of assets or subsidiary) is amended to read as follows:

‘‘(A) IN GENERAL.—An event described in this subparagraph is the termination of the plan without establishment

or maintenance of another defined contribution plan (other

than an employee stock ownership plan as defined in section 4975(e)(7)).’’.

(C) Section 401(k)(10) is amended—

(i) in subparagraph (B)—

(I) by striking ‘‘An event’’ in clause (i) and inserting ‘‘A termination’’; and

(II) by striking ‘‘the event’’ in clause (i) and inserting ‘‘the termination’’;

(ii) by striking subparagraph (C); and

(iii) by striking ‘‘OR DISPOSITION OF ASSETS OR

SUBSIDIARY’’ in the heading.

(2) SECTION 403(b).—

(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b)

are each amended by striking ‘‘separates from service’’ and

inserting ‘‘has a severance from employment’’.

(B) The heading for paragraph (11) of section 403(b) is

amended by striking ‘‘SEPARATION FROM SERVICE’’ and inserting ‘‘SEVERANCE FROM EMPLOYMENT’’.

(3) SECTION 457.—Clause (ii) of section 457(d)(1)(A) is

amended by striking ‘‘is separated from service’’ and inserting

‘‘has a severance from employment’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions after December 31, 2000.

SEC. 437. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT PLANS.

(a) 403(b) PLANS.—Subsection (b) of section 403 is amended by

adding at the end the following new paragraph:

‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT.—No amount shall be includible in

gross income by reason of a direct trustee-to-trustee transfer to

a defined benefit governmental plan (as defined in section

414(d)) if such transfer is—

‘‘(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

‘‘(B) a repayment to which section 415 does not apply

by reason of subsection (k)(3) thereof.’’.

71

(b) 457 PLANS.—Subsection (e) of section 457 is amended by

adding after paragraph (16) the following new paragraph:

‘‘(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PER- MISSIVE SERVICE CREDIT.—No amount shall be includible in

gross income by reason of a direct trustee-to-trustee transfer to

a defined benefit governmental plan (as defined in section

414(d)) if such transfer is—

‘‘(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

‘‘(B) a repayment to which section 415 does not apply

by reason of subsection (k)(3) thereof.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to trustee-to-trustee transfers after December 31, 2000.

SEC. 438. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES

OF CASH-OUT AMOUNTS.

(a) QUALIFIED PLANS.— (1) AMENDMENT OF INTERNAL REVENUE CODE.—Section

411(a)(11) (relating to restrictions on certain mandatory distributions) is amended by adding at the end the following:

‘‘(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.—A

plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of

the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to

rollover contributions (and earnings allocable thereto). For

purposes of this subparagraph, the term ‘rollover contributions’ means any rollover contribution under sections

402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and

457(e)(16).’’.

(2) AMENDMENT OF ERISA.—Section 203(e) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is

amended by adding at the end the following:

‘‘(4) A plan shall not fail to meet the requirements of this subsection if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions

(and earnings allocable thereto). For purposes of this subparagraph,

the term ‘rollover contributions’ means any rollover contribution

under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and

457(e)(16) of the Internal Revenue Code of 1986.’’.

(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—Clause (i) of

section 457(e)(9)(A) is amended by striking ‘‘such amount’’ and inserting ‘‘the portion of such amount which is not attributable to rollover contributions (as defined in section 411(a)(11)(D))’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions after December 31, 2000.

SEC. 439. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS

FOR SECTION 457 PLANS.

(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Paragraph (2) of

section 457(d) (relating to distribution requirements) is amended to

read as follows:

‘‘(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets

the minimum distribution requirements of this paragraph if

such plan meets the requirements of section 401(a)(9).’’.

72

(b) INCLUSION IN GROSS INCOME.—

(1) YEAR OF INCLUSION.—Subsection (a) of section 457 (relating to year of inclusion in gross income) is amended to read

as follows:

‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—

‘‘(1) IN GENERAL.—Any amount of compensation deferred

under an eligible deferred compensation plan, and any income

attributable to the amounts so deferred, shall be includible in

gross income only for the taxable year in which such compensation or other income—

‘‘(A) is paid to the participant or other beneficiary, in

the case of a plan of an eligible employer described in subsection (e)(1)(A), and

‘‘(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible

employer described in subsection (e)(1)(B).

‘‘(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent

provided in section 72(t)(9), section 72(t) shall apply to any

amount includible in gross income under this subsection.’’.

(2) CONFORMING AMENDMENTS.—

(A) So much of paragraph (9) of section 457(e) as precedes subparagraph (A) is amended to read as follows:

‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT

TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC.—In the case of an eligible deferred compensation

plan of an employer described in subsection (e)(1)(B)—’’.

(B) Section 457(d) is amended by adding at the end the

following new paragraph:

‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions after December 31, 2000.

Subtitle E—Strengthening Pension Security

and Enforcement

SEC. 441. REPEAL OF 155 PERCENT OF CURRENT LIABILITY FUNDING

LIMIT.

(a) AMENDMENTS OF INTERNAL REVENUE CODE.—Section

412(c)(7) (relating to full-funding limitation) is amended—

(1) by striking ‘‘the applicable percentage’’ in subparagraph

(A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’; and

(2) by amending subparagraph (F) to read as follows:

‘‘(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

‘‘In the case of any plan The applicable

year beginning in— percentage is—

2001 ............................................................................................. 160

73

‘‘In the case of any plan The applicable

year beginning in— percentage is—

2002 ............................................................................................. 165

2003 ............................................................................................. 170.’’.

(b) AMENDMENT OF ERISA.—Section 302(c)(7) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is

amended—

(1) by striking ‘‘the applicable percentage’’ in subparagraph

(A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’; and

(2) by amending subparagraph (F) to read as follows:

‘‘(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

‘‘In the case of any plan The applicable

year beginning in— percentage is—

2001 ............................................................................................. 160

2002 ............................................................................................. 165

2003 ............................................................................................. 170.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plan years beginning after December 31, 2000.

SEC. 442. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED

AND APPLIED TO ALL DEFINED BENEFIT PLANS.

(a) IN GENERAL.—Subparagraph (D) of section 404(a)(1) (relating to special rule in case of certain plans) is amended to read as

follows:

‘‘(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—

‘‘(i) IN GENERAL.—In the case of any defined benefit plan, except as provided in regulations, the maximum amount deductible under the limitations of this

paragraph shall not be less than the unfunded termination liability (determined as if the proposed termination date referred to in section 4041(b)(2)(A)(i)(II) of

the Employee Retirement Income Security Act of 1974

were the last day of the plan year).

‘‘(ii) PLANS WITH LESS THAN 100 PARTICIPANTS.—

For purposes of this subparagraph, in the case of a

plan which has less than 100 participants for the plan

year, termination liability shall not include the liability attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2

years before the termination date.

‘‘(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS.—For purposes of determining whether a plan

has more than 100 participants, all defined benefit

plans maintained by the same employer (or any member of such employer’s controlled group (within the

meaning of section 412(l)(8)(C))) shall be treated as one

plan, but only employees of such member or employer

shall be taken into account.

‘‘(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE

EMPLOYERS.—Clause (i) shall not apply to a plan deVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00077 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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scribed in section 4021(b)(13) of the Employee Retirement Income Security Act of 1974.’’.

(b) CONFORMING AMENDMENT.—Paragraph (6) of section

4972(c) is amended to read as follows:

‘‘(6) EXCEPTIONS.—In determining the amount of nondeductible contributions for any taxable year, there shall not be

taken into account so much of the contributions to one or more

defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed

the greater of—

‘‘(A) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a))

paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or

‘‘(B) the sum of—

‘‘(i) the amount of contributions described in section 401(m)(4)(A), plus

‘‘(ii) the amount of contributions described in section 402(g)(3)(A).

For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to

a defined benefit plan and then to amounts described in subparagraph (B).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plan years beginning after December 31, 2000.

SEC. 443. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

(a) IN GENERAL.—Subsection (c) of section 4972 (relating to

nondeductible contributions) is amended by adding at the end the

following new paragraph:

‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In determining

the amount of nondeductible contributions for any taxable year,

an employer may elect for such year not to take into account

any contributions to a defined benefit plan except to the extent

that such contributions exceed the full-funding limitation (as

defined in section 412(c)(7), determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the

deductible limits under section 404(a)(7) shall first be applied

to amounts contributed to defined contribution plans and then

to amounts described in this paragraph. If an employer makes

an election under this paragraph for a taxable year, paragraph

(6) shall not apply to such employer for such taxable year.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to years beginning after December 31, 2000.

SEC. 444. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED

BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—

(1) IN GENERAL.—Chapter 43 (relating to qualified pension,

etc., plans) is amended by adding at the end the following new

section:

75

‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on the

failure of any applicable pension plan to meet the requirements of

subsection (e) with respect to any applicable individual.

‘‘(b) AMOUNT OF TAX.—

‘‘(1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period

with respect to such failure.

‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of this section,

the term ‘noncompliance period’ means, with respect to any failure, the period beginning on the date the failure first occurs

and ending on the date the notice to which the failure relates

is provided or the failure is otherwise corrected.

‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED

AND REASONABLE DILIGENCE EXERCISED.—No tax shall be imposed by subsection (a) on any failure during any period for

which it is established to the satisfaction of the Secretary that

any person subject to liability for the tax under subsection (d)

did not know that the failure existed and exercised reasonable

diligence to meet the requirements of subsection (e).

‘‘(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30

DAYS.—No tax shall be imposed by subsection (a) on any failure

if—

‘‘(A) any person subject to liability for the tax under

subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and

‘‘(B) such person provides the notice described in subsection (e) during the 30-day period beginning on the first

date such person knew, or exercising reasonable diligence

would have known, that such failure existed.

‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—

‘‘(A) IN GENERAL.—If the person subject to liability for

tax under subsection (d) exercised reasonable diligence to

meet the requirements of subsection (e), the tax imposed by

subsection (a) for failures during the taxable year of the

employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all

multiemployer plans of which the same trust forms a part

shall be treated as 1 plan.

‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this paragraph, if all

persons who are treated as a single employer for purposes

of this section do not have the same taxable year, the taxable years taken into account shall be determined under

principles similar to the principles of section 1561.

‘‘(4) WAIVER BY SECRETARY.—In the case of a failure which

is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection

(a) to the extent that the payment of such tax would be excessive

or otherwise inequitable relative to the failure involved.

76

‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the

tax imposed by subsection (a):

‘‘(1) In the case of a plan other than a multiemployer plan,

the employer.

‘‘(2) In the case of a multiemployer plan, the plan.

‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING BENEFIT ACCRUALS.—

‘‘(1) IN GENERAL.—If an applicable pension plan is amended to provide for a significant reduction in the rate of future

benefit accrual, the plan administrator shall provide written

notice to each applicable individual (and to each employee organization representing applicable individuals).

‘‘(2) NOTICE.—The notice required by paragraph (1) shall

be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information

(as determined in accordance with regulations prescribed by the

Secretary) to allow applicable individuals to understand the effect of the plan amendment. The Secretary may provide a simplified form of notice for, or exempt from any notice requirement, a plan—

‘‘(A) which has fewer than 100 participants who have

accrued a benefit under the plan, or

‘‘(B) which offers participants the option to choose between the new benefit formula and the old benefit formula.

‘‘(3) TIMING OF NOTICE.—Except as provided in regulations,

the notice required by paragraph (1) shall be provided within

a reasonable time before the effective date of the plan amendment.

‘‘(4) DESIGNEES.—Any notice under paragraph (1) may be

provided to a person designated, in writing, by the person to

which it would otherwise be provided.

‘‘(5) NOTICE BEFORE ADOPTION OF AMENDMENT.—A plan

shall not be treated as failing to meet the requirements of paragraph (1) merely because notice is provided before the adoption

of the plan amendment if no material modification of the

amendment occurs before the amendment is adopted.

‘‘(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section—

‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means, with respect to any plan amendment—

‘‘(A) each participant in the plan, and

‘‘(B) any beneficiary who is an alternate payee (within

the meaning of section 414(p)(8)) under an applicable

qualified domestic relations order (within the meaning of

section 414(p)(1)(A)),

whose rate of future benefit accrual under the plan may

reasonably be expected to be significantly reduced by such

plan amendment.

‘‘(2) APPLICABLE PENSION PLAN.—The term ‘applicable pension plan’ means—

‘‘(A) any defined benefit plan, or

‘‘(B) an individual account plan which is subject to the

funding standards of section 412.

77

Such term shall not include a governmental plan (within the

meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided

by section 410(d) has not been made.

‘‘(3) EARLY RETIREMENT.—A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of section

411(d)(6)(B)(i)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.

‘‘(g) NEW TECHNOLOGIES.—The Secretary may by regulations

allow any notice under paragraph (1) or (2) of subsection (e) to be

provided by using new technologies.’’

(2) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended by adding at the end the following new item:

‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals to

satisfy notice requirements.’’.

(b) AMENDMENT OF ERISA.—Section 204(h) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1054(h)) is

amended by adding at the end the following new paragraphs:

‘‘(3)(A) An applicable pension plan to which paragraph (1) applies shall not be treated as meeting the requirements of such paragraph unless, in addition to any notice required to be provided to

an individual or organization under such paragraph, the plan administrator provides the notice described in subparagraph (B) to

each applicable individual (and to each employee organization representing applicable individuals).

‘‘(B) The notice required by subparagraph (A) shall be written

in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary of the Treasury) to allow applicable individuals to understand the effect of the

plan amendment. The Secretary of the Treasury may provide a simplified form of notice for, or exempt from any notice requirement, a

plan—

‘‘(i) which has fewer than 100 participants who have accrued a benefit under the plan, or

‘‘(ii) which offers participants the option to choose between

the new benefit formula and the old benefit formula.

‘‘(C) Except as provided in regulations prescribed by the Secretary of the Treasury, the notice required by subparagraph (A)

shall be provided within a reasonable time before the effective date

of the plan amendment.

‘‘(D) Any notice under subparagraph (A) may be provided to a

person designated, in writing, by the person to which it would otherwise be provided.

‘‘(E) A plan shall not be treated as failing to meet the requirements of subparagraph (A) merely because notice is provided before

the adoption of the plan amendment if no material modification of

the amendment occurs before the amendment is adopted.

‘‘(F) The Secretary of the Treasury may by regulations allow

any notice under subparagraph (A) or (B) to be provided by using

new technologies.

‘‘(4) For purposes of paragraph (3)—

78

‘‘(A) The term ‘applicable individual’ means, with respect to

any plan amendment—

‘‘(i) each participant in the plan; and

‘‘(ii) any beneficiary who is an alternate payee (within

the meaning of section 206(d)(3)(K)) under an applicable

qualified domestic relations order (within the meaning of

section 206(d)(3)(B)(i)),

whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan

amendment.

‘‘(B) The term ‘applicable pension plan’ means—

‘‘(i) any defined benefit plan; or

‘‘(ii) an individual account plan which is subject to the

funding standards of section 412 of the Internal Revenue

Code of 1986.

‘‘(C) A plan amendment which eliminates or significantly

reduces any early retirement benefit or retirement-type subsidy

(within the meaning of subsection (g)(2)(A)) shall be treated as

having the effect of significantly reducing the rate of future benefit accrual.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section

shall apply to plan amendments taking effect on or after the

date of the enactment of this Act.

(2) TRANSITION.—Until such time as the Secretary of the

Treasury issues regulations under sections 4980F(e)(2) and (3)

of the Internal Revenue Code of 1986 and section 204(h)(3) of

the Employee Retirement Income Security Act of 1974 (as added

by the amendments made by this section), a plan shall be treated as meeting the requirements of such sections if it makes a

good faith effort to comply with such requirements.

(3) SPECIAL NOTICE RULES.—

(A) IN GENERAL.—The period for providing any notice

required by the amendments made by this section shall not

end before the date which is 3 months after the date of the

enactment of this Act.

(B) REASONABLE NOTICE.—The amendments made by

this section shall not apply to any plan amendment taking

effect on or after the date of the enactment of this Act if,

before October 25, 2000, notice was provided to participants

and beneficiaries adversely affected by the plan amendment

(or their representatives) which was reasonably expected to

notify them of the nature and effective date of the plan

amendment.

(d) STUDY.—The Secretary of the Treasury shall prepare a report on the effects of conversions of traditional defined benefit plans

to cash balance or hybrid formula plans. Such study shall examine

the effect of such conversions on longer service participants, including the incidence and effects of ‘‘wear away’’ provisions under which

participants earn no additional benefits for a period of time after

the conversion. As soon as practicable, but not later than 60 days

after the date of the enactment of this Act, the Secretary shall submit such report, together with recommendations thereon, to the

Committee on Ways and Means and the Committee on Education

79

and the Workforce of the House of Representatives and the Committee on Finance and the Committee on Health, Education, Labor,

and Pensions of the Senate.

SEC. 445. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION

415.

(a) COMPENSATION LIMIT.— (1) IN GENERAL.—Paragraph (11) of section 415(b) (relating

to limitation for defined benefit plans) is amended to read as

follows:

‘‘(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND

MULTIEMPLOYER PLANS.—In the case of a governmental plan (as

defined in section 414(d)) or a multiemployer plan (as defined

in section 414(f)), subparagraph (B) of paragraph (1) shall not

apply.’’.

(2) CONFORMING AMENDMENT.—Section 415(b)(7) (relating

to benefits under certain collectively bargained plans) is amended by inserting ‘‘(other than a multiemployer plan)’’ after ‘‘defined benefit plan’’ in the matter preceding subparagraph (A).

(b) COMBINING AND AGGREGATION OF PLANS.— (1) COMBINING OF PLANS.—Subsection (f) of section 415 (relating to combining of plans) is amended by adding at the end

the following:

‘‘(3) EXCEPTION FOR MULTIEMPLOYER PLANS.—Notwithstanding paragraph (1) and subsection (g), a multiemployer

plan (as defined in section 414(f)) shall not be combined or

aggregated—

‘‘(A) with any other plan which is not a multiemployer

plan for purposes of applying subsection (b)(1)(B) to such

other plan, or

‘‘(B) with any other multiemployer plan for purposes of

applying the limitations established in this section.’’.

(2) CONFORMING AMENDMENT FOR AGGREGATION OF

PLANS.—Subsection (g) of section 415 (relating to aggregation of

plans) is amended by striking ‘‘The Secretary’’ and inserting

‘‘Except as provided in subsection (f)(3), the Secretary’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 446. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) PLANS.

(a) IN GENERAL.—Section 1524(b) of the Taxpayer Relief Act of

1997 is amended to read as follows:

‘‘(b) EFFECTIVE DATE.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to elective deferrals for plan years beginning after December 31, 1998.

‘‘(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROPERTY.—The amendments made by this section shall not apply

to any elective deferral which is invested in assets consisting of

qualifying employer securities, qualifying employer real property, or both, if such assets were acquired before January 1,

1999.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply as if included in the provision of the Taxpayer Relief Act

of 1997 to which it relates.

80

SEC. 447. PERIODIC PENSION BENEFITS STATEMENTS.

(a) IN GENERAL.—Section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025 (a)) is amended to read

as follows:

‘‘(a)(1) Except as provided in paragraph (2)—

‘‘(A) the administrator of an individual account plan shall

furnish a pension benefit statement—

‘‘(i) to a plan participant at least once annually, and

‘‘(ii) to a plan beneficiary upon written request, and

‘‘(B) the administrator of a defined benefit plan shall furnish a pension benefit statement—

‘‘(i) at least once every 3 years to each participant with

a nonforfeitable accrued benefit who is employed by the employer maintaining the plan at the time the statement is

furnished to participants, and

‘‘(ii) to a plan participant or plan beneficiary of the

plan upon written request.

‘‘(2) Notwithstanding paragraph (1), the administrator of a

plan to which more than 1 unaffiliated employer is required to contribute shall only be required to furnish a pension benefit statement

under paragraph (1) upon the written request of a participant or

beneficiary of the plan.

‘‘(3) A pension benefit statement under paragraph (1)—

‘‘(A) shall indicate, on the basis of the latest available

information—

‘‘(i) the total benefits accrued, and

‘‘(ii) the nonforfeitable pension benefits, if any, which

have accrued, or the earliest date on which benefits will become nonforfeitable,

‘‘(B) shall be written in a manner calculated to be understood by the average plan participant, and

‘‘(C) may be provided in written, electronic, telephonic, or

other appropriate form.

‘‘(4)(A) In the case of a defined benefit plan, the requirements

of paragraph (1)(B)(i) shall be treated as met with respect to a participant if the administrator provides the participant at least once

each year with notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. Such notice shall be provided in written, electronic, telephonic, or other appropriate form, and may be included with other

communications to the participant if done in a manner reasonably

designed to attract the attention of the participant.

‘‘(B) The Secretary may provide that years in which no employee

or former employee benefits (within the meaning of section 410(b) of

the Internal Revenue Code of 1986) under the plan need not be

taken into account in determining the 3-year period under paragraph (1)(B)(i).’’.

(b) CONFORMING AMENDMENTS.—

(1) Section 105 of the Employee Retirement Income Security

Act of 1974 (29 U.S.C. 1025) is amended by striking subsection

(d).

(2) Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended to read as follows:

81

‘‘(b) In no case shall a participant or beneficiary of a plan be

entitled to more than one statement described in subsection (a)(1)(A)

or (a)(1)(B)(ii), whichever is applicable, in any 12-month period.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plan years beginning after December 31, 2001.

SEC. 448. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION

ESOP.

(a) IN GENERAL.—Section 409 (relating to qualifications for tax

credit employee stock ownership plans) is amended by redesignating

subsection (p) as subsection (q) and by inserting after subsection (o)

the following new subsection:

‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORATION.—

‘‘(1) IN GENERAL.—An employee stock ownership plan holding employer securities consisting of stock in an S corporation

shall provide that no portion of the assets of the plan attributable to (or allocable in lieu of) such employer securities may,

during a nonallocation year, accrue (or be allocated directly or

indirectly under any plan of the employer meeting the requirements of section 401(a)) for the benefit of any disqualified person.

‘‘(2) FAILURE TO MEET REQUIREMENTS.—

‘‘(A) IN GENERAL.—If a plan fails to meet the requirements of paragraph (1), the plan shall be treated as having

distributed to any disqualified person the amount allocated

to the account of such person in violation of paragraph (1)

at the time of such allocation.

‘‘(B) CROSS REFERENCE.—

‘‘For excise tax relating to violations of paragraph (1) and ownership of synthetic equity, see section 4979A.

‘‘(3) NONALLOCATION YEAR.—For purposes of this

subsection—

‘‘(A) IN GENERAL.—The term ‘nonallocation year’ means

any plan year of an employee stock ownership plan if, at

any time during such plan year—

‘‘(i) such plan holds employer securities consisting

of stock in an S corporation, and

‘‘(ii) disqualified persons own at least 50 percent of

the number of shares of stock in the S corporation.

‘‘(B) ATTRIBUTION RULES.—For purposes of subparagraph (A)—

‘‘(i) IN GENERAL.—The rules of section 318(a) shall

apply for purposes of determining ownership, except

that—

‘‘(I) in applying paragraph (1) thereof, the

members of an individual’s family shall include

members of the family described in paragraph

(4)(D), and

‘‘(II) paragraph (4) thereof shall not apply.

‘‘(ii) DEEMED-OWNED SHARES.—Notwithstanding

the employee trust exception in section 318(a)(2)(B)(i),

an individual shall be treated as owning deemedowned shares of the individual.

82

Solely for purposes of applying paragraph (5), this subparagraph shall be applied after the attribution rules of

paragraph (5) have been applied.

‘‘(4) DISQUALIFIED PERSON.—For purposes of this

subsection—

‘‘(A) IN GENERAL.—The term ‘disqualified person’

means any person if—

‘‘(i) the aggregate number of deemed-owned shares

of such person and the members of such person’s family is at least 20 percent of the number of deemedowned shares of stock in the S corporation, or

‘‘(ii) in the case of a person not described in clause

(i), the number of deemed-owned shares of such person

is at least 10 percent of the number of deemed-owned

shares of stock in such corporation.

‘‘(B) TREATMENT OF FAMILY MEMBERS.—In the case of

a disqualified person described in subparagraph (A)(i), any

member of such person’s family with deemed-owned shares

shall be treated as a disqualified person if not otherwise

treated as a disqualified person under subparagraph (A).

‘‘(C) DEEMED-OWNED SHARES.—

‘‘(i) IN GENERAL.—The term ‘deemed-owned shares’

means, with respect to any person—

‘‘(I) the stock in the S corporation constituting

employer securities of an employee stock ownership

plan which is allocated to such person under the

plan, and

‘‘(II) such person’s share of the stock in such

corporation which is held by such plan but which

is not allocated under the plan to participants.

‘‘(ii) PERSON’S SHARE OF UNALLOCATED STOCK.—

For purposes of clause (i)(II), a person’s share of

unallocated S corporation stock held by such plan is

the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as

the most recent stock allocation under the plan.

‘‘(D) MEMBER OF FAMILY.—For purposes of this paragraph, the term ‘member of the family’ means, with respect

to any individual—

‘‘(i) the spouse of the individual,

‘‘(ii) an ancestor or lineal descendant of the individual or the individual’s spouse,

‘‘(iii) a brother or sister of the individual or the individual’s spouse and any lineal descendant of the

brother or sister, and

‘‘(iv) the spouse of any individual described in

clause (ii) or (iii).

A spouse of an individual who is legally separated from

such individual under a decree of divorce or separate maintenance shall not be treated as such individual’s spouse for

purposes of this subparagraph.

‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For purposes of

paragraphs (3) and (4), in the case of a person who owns synVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00086 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
83

thetic equity in the S corporation, except to the extent provided

in regulations, the shares of stock in such corporation on which

such synthetic equity is based shall be treated as outstanding

stock in such corporation and deemed-owned shares of such

person if such treatment of synthetic equity of 1 or more such

persons results in—

‘‘(A) the treatment of any person as a disqualified person, or

‘‘(B) the treatment of any year as a nonallocation year.

For purposes of this paragraph, synthetic equity shall be treated

as owned by a person in the same manner as stock is treated

as owned by a person under the rules of paragraphs (2) and (3)

of section 318(a). If, without regard to this paragraph, a person

is treated as a disqualified person or a year is treated as a nonallocation year, this paragraph shall not be construed to result

in the person or year not being so treated.

‘‘(6) DEFINITIONS.—For purposes of this subsection—

‘‘(A) EMPLOYEE STOCK OWNERSHIP PLAN.—The term

‘employee stock ownership plan’ has the meaning given

such term by section 4975(e)(7).

‘‘(B) EMPLOYER SECURITIES.—The term ‘employer security’ has the meaning given such term by section 409(l).

‘‘(C) SYNTHETIC EQUITY.—The term ‘synthetic equity’

means any stock option, warrant, restricted stock, deferred

issuance stock right, or similar interest or right that gives

the holder the right to acquire or receive stock of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation

right, phantom stock unit, or similar right to a future cash

payment based on the value of such stock or appreciation

in such value.

‘‘(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this

subsection.’’.

(b) COORDINATION WITH SECTION 4975(e)(7).—The last sentence

of section 4975(e)(7) (defining employee stock ownership plan) is

amended by inserting ‘‘, section 409(p),’’ after ‘‘409(n)’’.

(c) EXCISE TAX.—

(1) APPLICATION OF TAX.—Subsection (a) of section 4979A

(relating to tax on certain prohibited allocations of employer securities) is amended—

(A) by striking ‘‘or’’ at the end of paragraph (1); and

(B) by striking all that follows paragraph (2) and inserting the following:

‘‘(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year

described in subsection (e)(2)(C) with respect to an employee

stock ownership plan, or

‘‘(4) any synthetic equity is owned by a disqualified person

in any nonallocation year,

there is hereby imposed a tax on such allocation or ownership equal

to 50 percent of the amount involved.’’.

(2) LIABILITY.—Section 4979A(c) (defining liability for tax)

is amended to read as follows:

84

‘‘(c) LIABILITY FOR TAX.—The tax imposed by this section shall

be paid—

‘‘(1) in the case of an allocation referred to in paragraph (1)

or (2) of subsection (a), by—

‘‘(A) the employer sponsoring such plan, or

‘‘(B) the eligible worker-owned cooperative,

which made the written statement described in section

664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),

and

‘‘(2) in the case of an allocation or ownership referred to in

paragraph (3) or (4) of subsection (a), by the S corporation the

stock in which was so allocated or owned.’’.

(3) DEFINITIONS.—Section 4979A(e) (relating to definitions)

is amended to read as follows:

‘‘(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section—

‘‘(1) DEFINITIONS.—Except as provided in paragraph (2),

terms used in this section have the same respective meanings as

when used in sections 409 and 4978.

‘‘(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON

OF PARAGRAPH (3) OR (4) OF SUBSECTION (a).—

‘‘(A) PROHIBITED ALLOCATIONS.—The amount involved

with respect to any tax imposed by reason of subsection

(a)(3) is the amount allocated to the account of any person

in violation of section 409(p)(1).

‘‘(B) SYNTHETIC EQUITY.—The amount involved with

respect to any tax imposed by reason of subsection (a)(4) is

the value of the shares on which the synthetic equity is

based.

‘‘(C) SPECIAL RULE DURING FIRST NONALLOCATION

YEAR.—For purposes of subparagraph (A), the amount involved for the first nonallocation year of any employee stock

ownership plan shall be determined by taking into account

the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

‘‘(D) STATUTE OF LIMITATIONS.—The statutory period

for the assessment of any tax imposed by this section by

reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of—

‘‘(i) the allocation or ownership referred to in such

paragraph giving rise to such tax, or

‘‘(ii) the date on which the Secretary is notified of

such allocation or ownership.’’.

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section

shall apply to plan years beginning after December 31, 2001.

(2) EXCEPTION FOR CERTAIN PLANS.—In the case of any—

(A) employee stock ownership plan established after

July 11, 2000; or

(B) employee stock ownership plan established on or

before such date if employer securities held by the plan consist of stock in a corporation with respect to which an election under section 1362(a) of the Internal Revenue Code of

1986 is not in effect on such date,

85

the amendments made by this section shall apply to plan years

ending after July 11, 2000.

Subtitle F—Reducing Regulatory Burdens

SEC. 451. MODIFICATION OF TIMING OF PLAN VALUATIONS.

(a) IN GENERAL.—Paragraph (9) of section 412(c) (relating to

annual valuation) is amended to read as follows:

‘‘(9) ANNUAL VALUATION.—

‘‘(A) IN GENERAL.—For purposes of this section, a determination of experience gains and losses and a valuation of

the plan’s liability shall be made not less frequently than

once every year, except that such determination shall be

made more frequently to the extent required in particular

cases under regulations prescribed by the Secretary.

‘‘(B) VALUATION DATE.—

‘‘(i) CURRENT YEAR.—Except as provided in clause

(ii), the valuation referred to in subparagraph (A) shall

be made as of a date within the plan year to which the

valuation refers or within one month prior to the beginning of such year.

‘‘(ii) ELECTION TO USE PRIOR YEAR VALUATION.—

The valuation referred to in subparagraph (A) may be

made as of a date within the plan year prior to the

year to which the valuation refers if—

‘‘(I) an election is in effect under this clause

with respect to the plan, and

‘‘(II) as of such date, the value of the assets of

the plan are not less than 125 percent of the plan’s

current liability (as defined in paragraph (7)(B)).

‘‘(iii) ADJUSTMENTS.—Information under clause (ii)

shall, in accordance with regulations, be actuarially

adjusted to reflect significant differences in participants.

‘‘(iv) ELECTION.—An election under clause (ii), once

made, shall be irrevocable without the consent of the

Secretary.’’.

(b) AMENDMENT OF ERISA.—Paragraph (9) of section 302(c) of

the Employee Retirement Income Security Act of 1974 (29 U.S.C.

1053(c)) is amended—

(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and

(2) by adding at the end the following:

‘‘(B)(i) Except as provided in clause (ii), the valuation referred

to in subparagraph (A) shall be made as of a date within the plan

year to which the valuation refers or within one month prior to the

beginning of such year.

‘‘(ii) The valuation referred to in subparagraph (A) may be

made as of a date within the plan year prior to the year to which

the valuation refers if—

‘‘(I) an election is in effect under this clause with respect to

the plan; and

86

‘‘(II) as of such date, the value of the assets of the plan are

not less than 125 percent of the plan’s current liability (as defined in paragraph (7)(B)).

‘‘(iii) Information under clause (ii) shall, in accordance with

regulations, be actuarially adjusted to reflect significant differences

in participants.

‘‘(iv) An election under clause (ii), once made, shall be irrevocable without the consent of the Secretary of the Treasury.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plan years beginning after December 31, 2000.

SEC. 452. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF

DIVIDEND DEDUCTION.

(a) IN GENERAL.—Section 404(k)(2)(A) (defining applicable dividends) is amended by striking ‘‘or’’ at the end of clause (ii), by redesignating clause (iii) as clause (iv), and by inserting after clause (ii)

the following new clause:

‘‘(iii) is, at the election of such participants or their

beneficiaries—

‘‘(I) payable as provided in clause (i) or (ii), or

‘‘(II) paid to the plan and reinvested in qualifying employer securities, or’’.

(b) STANDARD FOR DISALLOWANCE.—Section 404(k)(5)(A) (relating to disallowance of deduction) is amended by inserting ‘‘avoidance or’’ before ‘‘evasion’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 453. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY COMPENSATED EMPLOYEES.

(a) IN GENERAL.—Paragraph (4) of section 1114(c) of the Tax

Reform Act of 1986 is hereby repealed.

(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall

apply to plan years beginning after December 31, 2000.

SEC. 454. EMPLOYEES OF TAX-EXEMPT ENTITIES.

(a) IN GENERAL.—The Secretary of the Treasury shall modify

Treasury Regulations section 1.410(b)–6(g) to provide that employees

of an organization described in section 403(b)(1)(A)(i) of the Internal

Revenue Code of 1986 who are eligible to make contributions under

section 403(b) of such Code pursuant to a salary reduction agreement may be treated as excludable with respect to a plan under section 401(k) or (m) of such Code that is provided under the same general arrangement as a plan under such section 401(k), if—

(1) no employee of an organization described in section

403(b)(1)(A)(i) of such Code is eligible to participate in such section 401(k) plan or section 401(m) plan; and

(2) 95 percent of the employees who are not employees of an

organization described in section 403(b)(1)(A)(i) of such Code

are eligible to participate in such plan under such section

401(k) or (m).

(b) EFFECTIVE DATE.—The modification required by subsection

(a) shall apply as of the same date set forth in section 1426(b) of

the Small Business Job Protection Act of 1996.

87

SEC. 455. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED

RETIREMENT ADVICE.

(a) IN GENERAL.—Subsection (a) of section 132 (relating to exclusion from gross income) is amended by striking ‘‘or’’ at the end

of paragraph (5), by striking the period at the end of paragraph (6)

and inserting ‘‘, or’’, and by adding at the end the following new

paragraph:

‘‘(7) qualified retirement planning services.’’.

(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED.—

Section 132 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following:

‘‘(m) QUALIFIED RETIREMENT PLANNING SERVICES.—

‘‘(1) IN GENERAL.—For purposes of this section, the term

‘qualified retirement planning services’ means any retirement

planning advice or information provided to an employee and

his spouse by an employer maintaining a qualified employer

plan.

‘‘(2) NONDISCRIMINATION RULE.—Subsection (a)(7) shall

apply in the case of highly compensated employees only if such

services are available on substantially the same terms to each

member of the group of employees normally provided education

and information regarding the employer’s qualified employer

plan.

‘‘(3) QUALIFIED EMPLOYER PLAN.—For purposes of this subsection, the term ‘qualified employer plan’ means a plan, contract, pension, or account described in section 219(g)(5).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 456. REPORTING SIMPLIFICATION.

(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR OWNERS AND

THEIR SPOUSES.—

(1) IN GENERAL.—The Secretary of the Treasury shall modify the requirements for filing annual returns with respect to

one-participant retirement plans to ensure that such plans with

assets of $250,000 or less as of the close of the plan year need

not file a return for that year.

(2) ONE-PARTICIPANT RETIREMENT PLAN DEFINED.—For purposes of this subsection, the term ‘‘one-participant retirement

plan’’ means a retirement plan that—

(A) on the first day of the plan year—

(i) covered only the employer (and the employer’s

spouse) and the employer owned the entire business

(whether or not incorporated); or

(ii) covered only one or more partners (and their

spouses) in a business partnership (including partners

in an S or C corporation);

(B) meets the minimum coverage requirements of section 410(b) of the Internal Revenue Code of 1986 without

being combined with any other plan of the business that

covers the employees of the business;

(C) does not provide benefits to anyone except the employer (and the employer’s spouse) or the partners (and

their spouses);

88

(D) does not cover a business that is a member of an

affiliated service group, a controlled group of corporations,

or a group of businesses under common control; and

(E) does not cover a business that leases employees.

(3) OTHER DEFINITIONS.—Terms used in paragraph (2)

which are also used in section 414 of the Internal Revenue Code

of 1986 shall have the respective meanings given such terms by

such section.

(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS WITH

FEWER THAN 25 EMPLOYEES.—In the case of plan years beginning

after December 31, 2001, the Secretary of the Treasury shall provide

for the filing of a simplified annual return for any retirement plan

which covers less than 25 employees on the first day of a plan year

and meets the requirements described in subparagraphs (B), (D),

and (E) of subsection (a)(2).

(c) EFFECTIVE DATE.—The provisions of this section shall take

effect on January 1, 2001.

SEC. 457. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

The Secretary of the Treasury shall continue to update and improve the Employee Plans Compliance Resolution System (or any

successor program) giving special attention to—

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

(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 the Administrative Policy Regarding Self-Correction for

significant compliance failures;

(4) expanding the availability to correct insignificant compliance failures under the Administrative Policy Regarding

Self-Correction 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.

SEC. 458. REPEAL OF THE MULTIPLE USE TEST.

(a) IN GENERAL.—Paragraph (9) of section 401(m) is amended

to read as follows:

‘‘(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this

subsection and subsection (k), including regulations permitting

appropriate aggregation of plans and contributions.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to years beginning after December 31, 2000.

SEC. 459. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE

OF BUSINESS RULES.

(a) NONDISCRIMINATION.—

(1) IN GENERAL.—The Secretary of the Treasury shall, by

regulation, provide that a plan shall be deemed to satisfy the

requirements of section 401(a)(4) of the Internal Revenue Code

of 1986 if such plan satisfies the facts and circumstances test

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under section 401(a)(4) of such Code, as in effect before January

1, 1994, but only if—

(A) the plan satisfies conditions prescribed by the Secretary to appropriately limit the availability of such test;

and

(B) the plan is submitted to the Secretary for a determination of whether it satisfies such test.

Subparagraph (B) shall only apply to the extent provided by the

Secretary.

(2) EFFECTIVE DATES.—

(A) REGULATIONS.—The regulation required by paragraph (1) shall apply to years beginning after December 31,

2002.

(B) CONDITIONS OF AVAILABILITY.—Any condition of

availability prescribed by the Secretary under paragraph

(1)(A) shall not apply before the first year beginning not

less than 120 days after the date on which such condition

is prescribed.

(b) COVERAGE TEST.—

(1) IN GENERAL.—Section 410(b)(1) (relating to minimum

coverage requirements) is amended by adding at the end the following:

‘‘(D) In the case that the plan fails to meet the requirements of subparagraphs (A), (B) and (C), the plan—

‘‘(i) satisfies subparagraph (B), as in effect immediately before the enactment of the Tax Reform Act of

1986,

‘‘(ii) is submitted to the Secretary for a determination of whether it satisfies the requirement described in

clause (i), and

‘‘(iii) satisfies conditions prescribed by the Secretary by regulation that appropriately limit the availability of this subparagraph.

Clause (ii) shall apply only to the extent provided by the

Secretary.’’.

(2) EFFECTIVE DATES.—

(A) IN GENERAL.—The amendment made by paragraph

(1) shall apply to years beginning after December 31, 2002.

(B) CONDITIONS OF AVAILABILITY.—Any condition of

availability prescribed by the Secretary under regulations

prescribed by the Secretary under section 410(b)(1)(D) of the

Internal Revenue Code of 1986 shall not apply before the

first year beginning not less than 120 days after the date

on which such condition is prescribed.

(c) LINE OF BUSINESS RULES.—The Secretary of the Treasury

shall, on or before December 31, 2002, modify the existing regulations issued under section 414(r) of the Internal Revenue Code of

1986 in order to expand (to the extent that the Secretary determines

appropriate) the ability of a pension plan to demonstrate compliance

with the line of business requirements based upon the facts and circumstances surrounding the design and operation of the plan, even

though the plan is unable to satisfy the mechanical tests currently

used to determine compliance.

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SEC. 460. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON APPLICATION OF CERTAIN NONDISCRIMINATION

RULES APPLICABLE TO STATE AND LOCAL PLANS.

(a) IN GENERAL.—

(1) Subparagraph (G) of section 401(a)(5) and subparagraph (H) of section 401(a)(26) are each amended by striking

‘‘section 414(d))’’ and all that follows and inserting ‘‘section

414(d)).’’.

(2) Subparagraph (G) of section 401(k)(3) and paragraph

(2) of section 1505(d) of the Taxpayer Relief Act of 1997 are

each amended by striking ‘‘maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof)’’.

(b) CONFORMING AMENDMENTS.—

(1) The heading for subparagraph (G) of section 401(a)(5)

is amended to read as follows: ‘‘GOVERNMENTAL PLANS’’.

(2) The heading for subparagraph (H) of section 401(a)(26)

is amended to read as follows: ‘‘EXCEPTION FOR GOVERNMENTAL

PLANS’’.

(3) Subparagraph (G) of section 401(k)(3) is amended by inserting ‘‘GOVERNMENTAL PLANS.—’’ after ‘‘(G)’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to years beginning after December 31, 2000.

SEC. 461. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

(a) EXPANSION OF PERIOD.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—

(A) IN GENERAL.—Subparagraph (A) of section

417(a)(6) is amended by striking ‘‘90-day’’ and inserting

‘‘180-day’’.

(B) MODIFICATION OF REGULATIONS.—The Secretary of

the Treasury shall modify the regulations under sections

402(f), 411(a)(11), and 417 of the Internal Revenue Code of

1986 to substitute ‘‘180 days’’ for ‘‘90 days’’ each place it appears in Treasury Regulations sections 1.402(f)–1, 1.411(a)–

11(c), and 1.417(e)–1(b).

(2) AMENDMENT OF ERISA.—Section 205(c)(7)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C.

1055(c)(7)(A)) is amended by striking ‘‘90-day’’ and inserting

‘‘180-day’’.

(3) EFFECTIVE DATE.—The amendments made by paragraph (1)(A) and (2) and the modifications required by paragraph (1)(B) shall apply to years beginning after December 31,

2000.

(b) CONSENT REGULATION INAPPLICABLE TO CERTAIN DISTRIBUTIONS.—

(1) IN GENERAL.—The Secretary of the Treasury shall modify the regulations under section 411(a)(11) of the Internal Revenue Code of 1986 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.

(2) EFFECTIVE DATE.—The modifications required by paragraph (1) shall apply to years beginning after December 31,

2000.

(c) DISCLOSURE OF OPTIONAL FORMS OF BENEFITS.—

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(1) REGULATIONS.—

(A) IN GENERAL.—The Secretary of the Treasury shall,

not later than December 31, 2001, issue final regulations

under section 417(a)(3) of the Internal Revenue Code of

1986 which provide that if—

(i) a defined benefit plan offers both a qualified

joint and survivor annuity and a single sum optional

form of benefit, and

(ii) the distributable amount under such single

sum option is less than the present value (determined

in accordance with section 417(e) of such Code) of the

qualified joint and survivor annuity commencing as of

the same annuity starting date, the written explanation

required by section 417(a)(3)(A) of such Code shall include sufficient information to allow the participant to

understand the difference between the amount of the

single sum and such present value.

(B) UNMARRIED PARTICIPANTS.—If the plan offers an

unmarried participant one or more annuity options that are

substantially more valuable than the qualified joint and

survivor annuity offered by the plan, the comparison required under subparagraph (A) shall be made between the

single sum option and the most valuable of the other annuity options offered by the plan.

(C) FORM.—Any information required under this paragraph shall be provided in a manner calculated to be reasonably understood by the average plan participant.

(2) EFFECTIVE DATE.—Regulations issued under paragraph

(1) shall only apply to distributions made not earlier than 6

months after the date such regulations are issued.

SEC. 462. ANNUAL REPORT DISSEMINATION.

(a) REPORT AVAILABLE THROUGH ELECTRONIC MEANS.—Section

104(b)(3) of the Employee Retirement Income Security Act of 1974

(29 U.S.C. 1024(b)(3)) is amended by adding at the end the following new sentence: ‘‘The requirement to furnish information under

the previous sentence shall be satisfied if the administrator makes

such information reasonably available through electronic means or

other new technology.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to reports for years beginning after December 31, 1999.

SEC. 463. TECHNICAL CORRECTIONS TO SAVER ACT.

Section 517 of the Employee Retirement Income Security Act of

1974 (29 U.S.C. 1147) is amended—

(1) in subsection (a), by striking ‘‘2001 and 2005 on or after

September 1 of each year involved’’ and inserting ‘‘2001, 2005,

and 2009 in the month of September of each year involved’’;

(2) in subsection (b), by adding at the end the following

new sentence: ‘‘To effectuate the purposes of this paragraph, the

Secretary may enter into a cooperative agreement, pursuant to

the Federal Grant and Cooperative Agreement Act of 1977 (31

U.S.C. 6301 et seq.), with the American Savings Education

Council.’’;

(3) in subsection (e)(2)—

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(A) by striking ‘‘Committee on Labor and Human Resources’’ in subparagraph (D) and inserting ‘‘Committee on

Health, Education, Labor, and Pensions’’;

(B) by striking subparagraph (F) and inserting the following:

‘‘(F) the Chairman and Ranking Member of the Subcommittee on Labor, Health and Human Services, and

Education of the Committee on Appropriations of the House

of Representatives and the Chairman and Ranking Member

of the Subcommittee on Labor, Health and Human Services, and Education of the Committee on Appropriations of

the Senate;’’;

(C) by redesignating subparagraph (G) as subparagraph (J); and

(D) by inserting after subparagraph (F) the following

new subparagraphs:

‘‘(G) the Chairman and Ranking Member of the Committee on Finance of the Senate;

‘‘(H) the Chairman and Ranking Member of the Committee on Ways and Means of the House of Representatives;

‘‘(I) the Chairman and Ranking Member of the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce of the House of Representatives; and’’;

(4) in subsection (e)(3)(A)—

(A) by striking ‘‘There shall be no more than 200 additional participants.’’ and inserting ‘‘The participants in the

National Summit shall also include additional participants

appointed under this subparagraph.’’;

(B) by striking ‘‘one-half shall be appointed by the

President,’’ in clause (i) and inserting ‘‘not more than 100

participants shall be appointed under this clause by the

President,’’, and by striking ‘‘and’’ at the end of clause (i);

(C) by striking ‘‘one-half shall be appointed by the

elected leaders of Congress’’ in clause (ii) and inserting ‘‘not

more than 100 participants shall be appointed under this

clause by the elected leaders of Congress’’, and by striking

the period at the end of clause (ii) and inserting ‘‘; and’’;

(D) by adding at the end the following new clause:

‘‘(iii) The President, in consultation with the elected leaders of Congress referred to in subsection (a),

may appoint under this clause additional participants

to the National Summit. The number of such additional participants appointed under this clause may

not exceed the lesser of 3 percent of the total number

of all additional participants appointed under this

paragraph, or 10. Such additional participants shall

be appointed from persons nominated by the organization referred to in subsection (b)(2) which is made up

of private sector businesses and associations partnered

with Government entities to promote long term financial security in retirement through savings and with

which the Secretary is required thereunder to consult

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and cooperate and shall not be Federal, State, or local

government employees.’’;

(5) in subsection (e)(3)(B), by striking ‘‘January 31, 1998’’

in subparagraph (B) and inserting ‘‘May 1, 2001, May 1, 2005,

and May 1, 2009, for each of the subsequent summits, respectively’’;

(6) in subsection (f)(1)(C), by inserting ‘‘, no later than 90

days prior to the date of the commencement of the National

Summit,’’ after ‘‘comment’’ in paragraph (1)(C);

(7) in subsection (g), by inserting ‘‘, in consultation with

the congressional leaders specified in subsection (e)(2),’’ after

‘‘report’’;

(8) in subsection (i)—

(A) by striking ‘‘beginning on or after October 1, 1997’’

in paragraph (1) and inserting ‘‘2001, 2005, and 2009’’;

and

(B) by adding at the end the following new paragraph:

‘‘(3) RECEPTION AND REPRESENTATION AUTHORITY.—The

Secretary is hereby granted reception and representation authority limited specifically to the events at the National Summit. The Secretary shall use any private contributions accepted

in connection with the National Summit prior to using funds

appropriated for purposes of the National Summit pursuant to

this paragraph.’’; and

(9) in subsection (k)—

(A) by striking ‘‘shall enter into a contract on a solesource basis’’ and inserting ‘‘may enter into a contract on

a sole-source basis’’; and

(B) by striking ‘‘fiscal year 1998’’ and inserting ‘‘fiscal

years 2001, 2005, and 2009’’.

SEC. 464. STUDY OF PENSION COVERAGE.

Not later than 5 years after the date of the enactment of this

Act, the Secretary of the Treasury shall submit a report to the Committee on Ways and Means of the House of Representatives and the

Committee on Finance of the Senate a report on the effect of the provisions of the Retirement Savings and Pension Coverage Act of 2000

on pension coverage, including—

(1) any expansion of coverage for low- and middle-income

workers;

(2) levels of pension benefits;

(3) quality of pension coverage;

(4) worker’s access to and participation in plans; and

(5) retirement security.

Subtitle G—Other ERISA Provisions

SEC. 471. MISSING PARTICIPANTS.

(a) IN GENERAL.—Section 4050 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsection:

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‘‘(c) MULTIEMPLOYER PLANS.—The corporation shall prescribe

rules similar to the rules in subsection (a) for multiemployer plans

covered by this title that terminate under section 4041A.

‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

‘‘(1) TRANSFER TO CORPORATION.—The plan administrator

of a plan described in paragraph (4) may elect to transfer a

missing participant’s benefits to the corporation upon termination of the plan.

‘‘(2) INFORMATION TO THE CORPORATION.—To the extent

provided in regulations, the plan administrator of a plan described in paragraph (4) shall, upon termination of the plan,

provide the corporation information with respect to benefits of

a missing participant if the plan transfers such benefits—

‘‘(A) to the corporation, or

‘‘(B) to an entity other than the corporation or a plan

described in paragraph (4)(B)(ii).

‘‘(3) PAYMENT BY THE CORPORATION.—If benefits of a missing participant were transferred to the corporation under paragraph (1), the corporation shall, upon location of the participant or beneficiary, pay to the participant or beneficiary the

amount transferred (or the appropriate survivor benefit)

either—

‘‘(A) in a single sum (plus interest), or

‘‘(B) in such other form as is specified in regulations of

the corporation.

‘‘(4) PLANS DESCRIBED.—A plan is described in this paragraph if—

‘‘(A) the plan is a pension plan (within the meaning of

section 3(2))—

‘‘(i) to which the provisions of this section do not

apply (without regard to this subsection), and

‘‘(ii) which is not a plan described in paragraphs

(2) through (11) of section 4021(b), and

‘‘(B) at the time the assets are to be distributed upon

termination, the plan—

‘‘(i) has missing participants, and

‘‘(ii) has not provided for the transfer of assets to

pay the benefits of all missing participants to another

pension plan (within the meaning of section 3(2)).

‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—Subsections (a)(1)

and (a)(3) shall not apply to a plan described in paragraph

(4).’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to distributions made after final regulations implementing subsections (c) and (d) of section 4050 of the Employee Retirement Income Security Act of 1974 (as added by subsection (a)),

respectively, are prescribed.

SEC. 472. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

(a) IN GENERAL.—Subparagraph (A) of section 4006(a)(3) of the

Employee Retirement Income Security Act of 1974 (29 U.S.C.

1306(a)(3)(A)) is amended—

95

(1) in clause (i), by inserting ‘‘other than a new single-employer plan (as defined in subparagraph (F)) maintained by a

small employer (as so defined),’’ after ‘‘single-employer plan,’’,

(2) in clause (iii), by striking the period at the end and inserting ‘‘, and’’, and

(3) by adding at the end the following new clause:

‘‘(iv) in the case of a new single-employer plan (as defined

in subparagraph (F)) maintained by a small employer (as so defined) for the plan year, $5 for each individual who is a participant in such plan during the plan year.’’.

(b) DEFINITION OF NEW SINGLE-EMPLOYER PLAN.—Section

4006(a)(3) of the Employee Retirement Income Security Act of 1974

(29 U.S.C. 1306(a)(3)) is amended by adding at the end the following new subparagraph:

‘‘(F)(i) For purposes of this paragraph, a single-employer plan

maintained by a contributing sponsor shall be treated as a new single-employer plan for each of its first 5 plan years if, during the 36-

month period ending on the date of the adoption of such plan, the

sponsor or any member of such sponsor’s controlled group (or any

predecessor of either) did not establish or maintain a plan to which

this title applies with respect to which benefits were accrued for substantially the same employees as are in the new single-employer

plan.

‘‘(ii)(I) For purposes of this paragraph, the term ‘small employer’ means an employer which on the first day of any plan year

has, in aggregation with all members of the controlled group of such

employer, 100 or fewer employees.

‘‘(II) In the case of a plan maintained by two or more contributing sponsors that are not part of the same controlled group, the

employees of all contributing sponsors and controlled groups of such

sponsors shall be aggregated for purposes of determining whether

any contributing sponsor is a small employer.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to plans established after December 31, 2000.

SEC. 473. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND

SMALL PLANS.

(a) NEW PLANS.—Subparagraph (E) of section 4006(a)(3) of the

Employee Retirement Income Security Act of 1974 (29 U.S.C.

1306(a)(3)(E)) is amended by adding at the end the following new

clause:

‘‘(v) In the case of a new defined benefit plan, the amount determined under clause (ii) for any plan year shall be an amount equal

to the product of the amount determined under clause (ii) and the

applicable percentage. For purposes of this clause, the term ‘applicable percentage’ means—

‘‘(I) 0 percent, for the first plan year.

‘‘(II) 20 percent, for the second plan year.

‘‘(III) 40 percent, for the third plan year.

‘‘(IV) 60 percent, for the fourth plan year.

‘‘(V) 80 percent, for the fifth plan year.

For purposes of this clause, a defined benefit plan (as defined in section 3(35)) maintained by a contributing sponsor shall be treated as

a new defined benefit plan for each of its first 5 plan years if, during the 36-month period ending on the date of the adoption of the

96

plan, the sponsor and each member of any controlled group including the sponsor (or any predecessor of either) did not establish or

maintain a plan to which this title applies with respect to which

benefits were accrued for substantially the same employees as are in

the new plan.’’.

(b) SMALL PLANS.—Paragraph (3) of section 4006(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)),

as amended by section 472(b), is amended—

(1) by striking ‘‘The’’ in subparagraph (E)(i) and inserting

‘‘Except as provided in subparagraph (G), the’’, and

(2) by inserting after subparagraph (F) the following new

subparagraph:

‘‘(G)(i) In the case of an employer who has 25 or fewer employees on the first day of the plan year, the additional premium determined under subparagraph (E) for each participant shall not exceed

$5 multiplied by the number of participants in the plan as of the

close of the preceding plan year.

‘‘(ii) For purposes of clause (i), whether an employer has 25 or

fewer employees on the first day of the plan year is determined taking into consideration all of the employees of all members of the contributing sponsor’s controlled group. In the case of a plan maintained by two or more contributing sponsors, the employees of all

contributing sponsors and their controlled groups shall be aggregated for purposes of determining whether the 25-or-fewer-employees

limitation has been satisfied.’’.

(c) EFFECTIVE DATES.—

(1) SUBSECTION (a).—The amendments made by subsection

(a) shall apply to plans established after December 31, 2000.

(2) SUBSECTION (b).—The amendments made by subsection

(b) shall apply to plan years beginning after December 31, 2000.

SEC. 474. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM

OVERPAYMENT REFUNDS.

(a) IN GENERAL.—Section 4007(b) of the Employment Retirement Income Security Act of 1974 (29 U.S.C. 1307(b)) is amended—

(1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’, and

(2) by inserting at the end the following new paragraph:

‘‘(2) The corporation is authorized to pay, subject to regulations

prescribed by the corporation, interest on the amount of any overpayment of premium refunded to a designated payor. Interest under

this paragraph shall be calculated at the same rate and in the same

manner as interest is calculated for underpayments under paragraph (1).’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to interest accruing for periods beginning not earlier

than the date of the enactment of this Act.

SEC. 475. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

(a) MODIFICATION OF PHASE-IN OF GUARANTEE.—Section

4022(b)(5) of the Employee Retirement Income Security Act of 1974

(29 U.S.C. 1322(b)(5)) is amended to read as follows:

‘‘(5)(A) For purposes of this paragraph, the term ‘majority

owner’ means an individual who, at any time during the 60-month

period ending on the date the determination is being made—

97

‘‘(i) owns the entire interest in an unincorporated trade or

business,

‘‘(ii) in the case of a partnership, is a partner who owns,

directly or indirectly, 50 percent or more of either the capital interest or the profits interest in such partnership, or

‘‘(iii) in the case of a corporation, owns, directly or indirectly, 50 percent or more in value of either the voting stock of

that corporation or all the stock of that corporation.

For purposes of clause (iii), the constructive ownership rules of section 1563(e) of the Internal Revenue Code of 1986 shall apply (determined without regard to section 1563(e)(3)(C)).

‘‘(B) In the case of a participant who is a majority owner, the

amount of benefits guaranteed under this section shall equal the

product of—

‘‘(i) a fraction (not to exceed 1) the numerator of which is

the number of years from the later of the effective date or the

adoption date of the plan to the termination date, and the denominator of which is 10, and

‘‘(ii) the amount of benefits that would be guaranteed under

this section if the participant were not a majority owner.’’.

(b) MODIFICATION OF ALLOCATION OF ASSETS.—

(1) Section 4044(a)(4)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended

by striking ‘‘section 4022(b)(5)’’ and inserting ‘‘section

4022(b)(5)(B)’’.

(2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is

amended—

(A) by striking ‘‘(5)’’ in paragraph (2) and inserting

‘‘(4), (5),’’, and

(B) by redesignating paragraphs (3) through (6) as

paragraphs (4) through (7), respectively, and by inserting

after paragraph (2) the following new paragraph:

‘‘(3) If assets available for allocation under paragraph (4)

of subsection (a) are insufficient to satisfy in full the benefits of

all individuals who are described in that paragraph, the assets

shall be allocated first to benefits described in subparagraph

(A) of that paragraph. Any remaining assets shall then be allocated to benefits described in subparagraph (B) of that paragraph. If assets allocated to such subparagraph (B) are insufficient to satisfy in full the benefits described in that subparagraph, the assets shall be allocated pro rata among individuals

on the basis of the present value (as of the termination date) of

their respective benefits described in that subparagraph.’’.

(c) CONFORMING AMENDMENTS.—

(1) Section 4021 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1321) is amended—

(A) in subsection (b)(9), by striking ‘‘as defined in section 4022(b)(6)’’, and

(B) by adding at the end the following new subsection:

‘‘(d) For purposes of subsection (b)(9), the term ‘substantial

owner’ means an individual who, at any time during the 60-month

period ending on the date the determination is being made—

‘‘(1) owns the entire interest in an unincorporated trade or

business,

98

‘‘(2) in the case of a partnership, is a partner who owns, directly or indirectly, more than 10 percent of either the capital

interest or the profits interest in such partnership, or

‘‘(3) in the case of a corporation, owns, directly or indirectly, more than 10 percent in value of either the voting stock

of that corporation or all the stock of that corporation.

For purposes of paragraph (3), the constructive ownership rules of

section 1563(e) of the Internal Revenue Code of 1986 shall apply

(determined without regard to section 1563(e)(3)(C)).’’.

(2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) is

amended by striking ‘‘section 4022(b)(6)’’ and inserting ‘‘section

4021(d)’’.

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to plan

terminations—

(A) under section 4041(c) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1341(c)) with respect to which notices of intent to terminate are provided

under section 4041(a)(2) of such Act (29 U.S.C. 1341(a)(2))

after December 31, 2000, and

(B) under section 4042 of such Act (29 U.S.C. 1342)

with respect to which proceedings are instituted by the corporation after such date.

(2) CONFORMING AMENDMENTS.—The amendments made by

subsection (c) shall take effect on January 1, 2001.

SEC. 476. MULTIEMPLOYER PLAN BENEFITS GUARANTEE.

(a) IN GENERAL.—Section 4022A(c) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1322A(c)) is amended—

(1) by striking ‘‘$5’’ each place it appears in paragraph (1)

and inserting ‘‘$11’’,

(2) by striking ‘‘$15’’ in paragraph (1) and inserting ‘‘$33’’,

and

(3) by striking paragraphs (2), (5), and (6) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.

(b) CONFORMING AMENDMENT.—Section 4244(e)(4) of such Act

(29 U.S.C. 1424(e)(4)) is amended by striking ‘‘and without regard

to section 4022A(c)(2)’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to benefits payable after the date of the enactment of this

Act, except that such amendments shall not apply to any multiemployer plan that has received financial assistance (within the meaning of section 4261 of the Employee Retirement Income Security Act

of 1974) within the 1-year period ending on the date of the enactment of this Act.

SEC. 477. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY.

(a) IMPOSITION AND AMOUNT OF PENALTY MADE DISCRETIONARY.—Section 502(l)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132(l)(1)) is amended—

(1) by striking ‘‘shall’’ and inserting ‘‘may’’, and

(2) by striking ‘‘equal to’’ and inserting ‘‘not greater than’’.

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(b) APPLICABLE RECOVERY AMOUNT.—Section 502(l)(2) of such

Act (29 U.S.C. 1132(l)(2)) is amended to read as follows:

‘‘(2) For purposes of paragraph (1), the term ‘applicable recovery

amount’ means any amount which is recovered from any fiduciary

or other person (or from any other person on behalf of any such fiduciary or other person) with respect to a breach or violation described in paragraph (1) on or after the 30th day following receipt

by such fiduciary or other person of written notice from the Secretary of the violation, whether paid voluntarily or by order of a

court in a judicial proceeding instituted by the Secretary under subsection (a)(2) or (a)(5). The Secretary may, in the Secretary’s sole

discretion, extend the 30-day period described in the preceding sentence.’’.

(c) OTHER RULES.—Section 502(l) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1132(l)) is amended by adding at the end the following new paragraph:

‘‘(5) A person shall be jointly and severally liable for the penalty

described in paragraph (1) to the same extent that such person is

jointly and severally liable for the applicable recovery amount on

which the penalty is based.

‘‘(6) No penalty shall be assessed under this subsection unless

the person against whom the penalty is assessed is given notice and

opportunity for a hearing with respect to the violation and applicable recovery amount.’’.

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section

shall apply to any breach of fiduciary responsibility or other

violation of part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 occurring on or after the date

of enactment of this Act.

(2) TRANSITION RULE.—In applying the amendment made

by subsection (b) (relating to applicable recovery amount), a

breach or other violation occurring before the date of enactment

of this Act which continues after the 180th day after such date

(and which may have been discontinued at any time during its

existence) shall be treated as having occurred after such date of

enactment.

SEC. 478. BENEFIT SUSPENSION NOTICE.

(a) MODIFICATION OF REGULATION.—The Secretary of Labor

shall modify the regulation under section 203(a)(3)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C.

1053(a)(3)(B)) to provide that the notification required by such

regulation—

(1) in the case of an employee who returns to work for a

former employer after commencement of payment of benefits

under the plan shall—

(A) be made during the first calendar month or payroll

period in which the plan withholds payments, and

(B) if a reduced rate of future benefit accruals will

apply to the returning employee (as of the first date of participation in the plan by the employee after returning to

work), include a statement that the rate of future benefit accruals will be reduced, and

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(2) in the case of any employee who is not described in

paragraph (1)—

(A) may be included in the summary plan description

for the plan furnished in accordance with section 104(b) of

such Act (29 U.S.C. 1024(b)), rather than in a separate notice, and

(B) need not include a copy of the relevant plan provisions.

(b) EFFECTIVE DATE.—The modification made under this section shall apply to plan years beginning after December 31, 2000.

Subtitle H—Plan Amendments

SEC. 481. PROVISIONS RELATING TO PLAN AMENDMENTS.

(a) IN GENERAL.—If this section applies to any plan or contract

amendment—

(1) such plan or contract shall be treated as being operated

in accordance with the terms of the plan during the period described in subsection (b)(2)(A); and

(2) except as provided by the Secretary of the Treasury,

such plan shall not fail to meet the requirements of section

411(d)(6) of the Internal Revenue Code of 1986 or section 204(g)

of the Employee Retirement Income Security Act of 1974 by reason of such amendment.

(b) AMENDMENTS TO WHICH SECTION APPLIES.—

(1) IN GENERAL.—This section shall apply to any amendment to any plan or annuity contract which is made—

(A) pursuant to any amendment made by this title, or

pursuant to any regulation issued under this title; and

(B) on or before the last day of the first plan year beginning on or after January 1, 2003.

In the case of a governmental plan (as defined in section 414(d)

of the Internal Revenue Code of 1986), this paragraph shall be

applied by substituting ‘‘2005’’ for ‘‘2003’’.

(2) CONDITIONS.—This section shall not apply to any

amendment unless—

(A) during the period—

(i) beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes

effect (or in the case of a plan or contract amendment

not required by such legislative or regulatory amendment, the effective date specified by the plan); and

(ii) ending on the date described in paragraph

(1)(B) (or, if earlier, the date the plan or contract

amendment is adopted),

the plan or contract is operated as if such plan or contract

amendment were in effect; and

(B) such plan or contract amendment applies retroactively for such period.

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TITLE V—SCHOOL CONSTRUCTION

PROVISIONS

SEC. 501. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION

FOR GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL FACILITIES.

(a) IN GENERAL.—Section 148(f )(4)(D)(vii) (relating to increase

in exception for bonds financing public school capital expenditures)

is amended by striking ‘‘$5,000,000’’ the second place it appears and

inserting ‘‘$10,000,000’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to obligations issued after December 31, 2000.

SEC. 502. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE

TO PUBLIC SCHOOL CONSTRUCTION BONDS.

(a) IN GENERAL.—Subparagraph (C) of section 148(f )(4) is

amended by adding at the end the following new clause:

‘‘(xviii) 4-YEAR SPENDING REQUIREMENT FOR PUBLIC SCHOOL CONSTRUCTION ISSUE.—

‘‘(I) IN GENERAL.—In the case of a public

school construction issue, the spending requirements of clause (ii) shall be treated as met if at

least 10 percent of the available construction proceeds of the construction issue are spent for the

governmental purposes of the issue within the 1-

year period beginning on the date the bonds are

issued, 30 percent of such proceeds are spent for

such purposes within the 2-year period beginning

on such date, 60 percent of such proceeds are spent

for such purposes within the 3-year period beginning on such date, and 100 percent of such proceeds are spent for such purposes within the 4-year

period beginning on such date.

‘‘(II) PUBLIC SCHOOL CONSTRUCTION ISSUE.—

For purposes of this clause, the term ‘public school

construction issue’ means any construction issue if

no bond which is part of such issue is a private activity bond and all of the available construction

proceeds of such issue are to be used for the construction (as defined in clause (iv)) of public school

facilities to provide education or training below the

postsecondary level or for the acquisition of land

that is functionally related and subordinate to

such facilities.

‘‘(III) OTHER RULES TO APPLY.—Rules similar

to the rules of the preceding provisions of this subparagraph which apply to clause (ii) also apply to

this clause.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to obligations issued after December 31, 2000.

SEC. 503. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN

FUNDS.

(a) IN GENERAL.—Paragraph (1) of section 648 of the Tax Reform Act of 1984 is amended to read as follows:

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‘‘(1) such securities or obligations are held in a fund—

‘‘(A) which, except to the extent of the investment earnings on such securities or obligations, cannot be used,

under State constitutional or statutory restrictions continuously in effect since October 9, 1969, through the date of

issue of the bond issue, to pay debt service on the bond

issue or to finance the facilities that are to be financed with

the proceeds of the bonds, or

‘‘(B) the annual distributions from which cannot exceed

7 percent of the average fair market value of the assets held

in such fund except to the extent distributions are necessary

to pay debt service on the bond issue,’’.

(b) CONFORMING AMENDMENT.—Paragraph (3) of such section

is amended by striking ‘‘the investment earnings of’’ and inserting

‘‘distributions from’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall take effect on January 1, 2001.

SEC. 504. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY

BONDS AS EXEMPT FACILITY BONDS.

(a) TREATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of

section 142 (relating to exempt facility bond) is amended by striking

‘‘or’’ at the end of paragraph (11), by striking the period at the end

of paragraph (12) and inserting ‘‘, or’’, and by adding at the end

the following:

‘‘(13) qualified public educational facilities.’’

(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—Section 142

(relating to exempt facility bond) is amended by adding at the end

the following new subsection:

‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—

‘‘(1) IN GENERAL.—For purposes of subsection (a)(13), the

term ‘qualified public educational facility’ means any school facility which is—

‘‘(A) part of a public elementary school or a public secondary school, and

‘‘(B) owned by a private, for-profit corporation pursuant to a public-private partnership agreement with a State

or local educational agency described in paragraph (2).

‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT DESCRIBED.—A public-private partnership agreement is described

in this paragraph if it is an agreement—

‘‘(A) under which the corporation agrees—

‘‘(i) to do 1 or more of the following: construct, rehabilitate, refurbish, or equip a school facility, and

‘‘(ii) at the end of the term of the agreement, to

transfer the school facility to such agency for no additional consideration, and

‘‘(B) the term of which does not exceed the term of the

issue to be used to provide the school facility.

‘‘(3) SCHOOL FACILITY.—For purposes of this subsection, the

term ‘school facility’ means—

‘‘(A) school buildings,

‘‘(B) functionally related and subordinate facilities and

land with respect to such buildings, including any stadium

or other facility primarily used for school events, and

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‘‘(C) any property, to which section 168 applies (or

would apply but for section 179), for use in the facility.

‘‘(4) PUBLIC SCHOOLS.—For purposes of this subsection, the

terms ‘elementary school’ and ‘secondary school’ have the meanings given such terms by section 14101 of the Elementary and

Secondary Education Act of 1965 (20 U.S.C. 8801), as in effect

on the date of the enactment of this subsection.

‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-EXEMPT FINANCING.—

‘‘(A) IN GENERAL.—An issue shall not be treated as an

issue described in subsection (a)(13) if the aggregate face

amount of bonds issued by the State pursuant thereto

(when added to the aggregate face amount of bonds previously so issued during the calendar year) exceeds an

amount equal to the greater of—

‘‘(i) $10 multiplied by the State population, or

‘‘(ii) $5,000,000.

‘‘(B) ALLOCATION RULES.—

‘‘(i) IN GENERAL.—Except as otherwise provided in

this subparagraph, the State may allocate in a calendar year the amount described in subparagraph (A)

for such year in such manner as the State determines

appropriate.

‘‘(ii) RULES FOR CARRYFORWARD OF UNUSED

AMOUNT.—With respect to any calendar year, a State

may make an election under rules similar to the rules

of section 146(f), except that the sole carryforward purpose with respect to such election is the issuance of exempt facility bonds described in section 142(a)(13).’’

(c) EXEMPTION FROM GENERAL STATE VOLUME CAPS.—Paragraph (3) of section 146(g) (relating to exception for certain bonds)

is amended—

(1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or (13)’’, and

(2) by striking ‘‘and environmental enhancements of hydroelectric generating facilities’’ and inserting ‘‘environmental enhancements of hydroelectric generating facilities, and qualified

public educational facilities’’.

(d) EXEMPTION FROM LIMITATION ON USE FOR LAND ACQUISITION.—Section 147(h) (relating to certain rules not to apply to mortgage revenue bonds, qualified student loan bonds, and qualified

501(c)(3) bonds) is amended by adding at the end the following new

paragraph:

‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not apply to any exempt

facility bond issued as part of an issue described in section

142(a)(13) (relating to qualified public-private schools).’’

(e) CONFORMING AMENDMENT.—The heading of section 147(h) is

amended by striking ‘‘MORTGAGE REVENUE BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED 501(c)(3) BONDS’’ in the heading

and inserting ‘‘CERTAIN BONDS’’.

(f) EFFECTIVE DATE.—The amendments made by this section

shall apply to obligations issued after December 31, 2000.

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SEC. 505. EXPANSION OF QUALIFIED ZONE ACADEMY BOND PROGRAM.

(a) IN GENERAL.—So much of part IV of subchapter U of chapter 1 (relating to incentives for education zones) as precedes subsection (d) of section 1397E is amended to read as follows:

‘‘PART IV—EDUCATION BOND PROVISIONS

‘‘Sec. 1397E. Credit to holders of qualified zone academy bonds.

‘‘Sec. 1397F. Qualified zone academy bond defined.

‘‘Sec. 1397G. Authorization of additional qualified zone academy

bonds without targeting and private partnership requirements.

‘‘SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY

BONDS.

‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligible taxpayer

who holds a qualified zone academy bond on a credit allowance

date of such bond which occurs during the taxable year, there shall

be allowed as a credit against the tax imposed by this chapter for

such taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to credit allowance dates

during such year on which the taxpayer holds such bond.

‘‘(b) AMOUNT OF CREDIT.— ‘‘(1) IN GENERAL.—The amount of the credit determined

under this subsection with respect to any credit allowance date

for a qualified zone academy bond is 25 percent of the annual

credit determined with respect to such bond.

‘‘(2) ANNUAL CREDIT.—The annual credit determined with

respect to any qualified zone academy bond is the product of—

‘‘(A) the applicable credit rate, multiplied by

‘‘(B) the outstanding face amount of the bond.

‘‘(3) APPLICABLE CREDIT RATE.—For purposes of paragraph

(1), the applicable credit rate with respect to an issue is the rate

equal to an average market yield (as of the day before the day

that the issue is sold) on outstanding long-term corporate debt

obligations (determined under regulations prescribed by the

Secretary).

‘‘(4) SPECIAL RULE FOR ISSUANCE AND REDEMPTION.—In the

case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during

which the bond is outstanding. A similar rule shall apply when

the bond is redeemed.

‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.— ‘‘(1) IN GENERAL.—The credit allowed under subsection (a)

for any taxable year shall not exceed the excess of—

‘‘(A) the sum of the regular tax liability (as defined in

section 26(b)) plus the tax imposed by section 55, over

‘‘(B) the sum of the credits allowable under part IV of

subchapter A (other than subpart C thereof, relating to refundable credits).

‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the credit allowable under subsection (a) exceeds the limitation imposed by

paragraph (1) for such taxable year, such excess shall be carVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00108 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
105

ried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.

‘‘(d) DEFINITIONS.—For purposes of this section—

‘‘(1) QUALIFIED ZONE ACADEMY BOND.—The term ‘qualified

zone academy bond’ has the meaning given to such term by section 1397F; except that such term shall also include any bond

treated as a qualified zone academy bond under section 1397G.

Such term shall not include any bond which is part of an issue

unless such issue meets the requirements of subsection (g).

‘‘(2) CREDIT ALLOWANCE DATE.—The term ‘credit allowance

date’ means—

‘‘(A) March 15,

‘‘(B) June 15,

‘‘(C) September 15, and

‘‘(D) December 15.

Such term includes the last day on which the bond is outstanding.

‘‘(3) ELIGIBLE TAXPAYER.—The term ‘eligible taxpayer’

means—

‘‘(A) a bank (within the meaning of section 581),

‘‘(B) an insurance company to which subchapter L applies,

‘‘(C) a corporation actively engaged in the business of

lending money, and

‘‘(D) any other C corporation.

‘‘(e) OTHER DEFINITIONS.—For purposes of this subchapter—

‘‘(1) LOCAL EDUCATIONAL AGENCY.—The term ‘local educational agency’ has the meaning given to such term by section

14101 of the Elementary and Secondary Education Act of 1965.

Such term includes the local educational agency that serves the

District of Columbia, but does not include any other State agency.

‘‘(2) BOND.—The term ‘bond’ includes any obligation.

‘‘(3) STATE.—The term ‘State’ includes the District of Columbia and any possession of the United States.

‘‘(4) PUBLIC SCHOOL FACILITY.—The term ‘public school facility’ shall not include—

‘‘(A) any stadium or other facility primarily used for

athletic contests or exhibitions or other events for which admission is charged to the general public, or

‘‘(B) any facility which is not owned by a State or local

government or any agency or instrumentality of a State or

local government.

‘‘(5) PERMITTED PURPOSE.—The term ‘permitted purpose’

means—

‘‘(A) in the case of a bond which is a qualified zone

academy bond without regard to section 1397G, any qualified purpose (as defined in section 1397F(a)(4)), and

‘‘(B) in the case of a bond which is a qualified zone

academy bond solely by reason of section 1397G, the purpose described in section 1397G(a)(2).

‘‘(f) SPECIAL RULES.—

‘‘(1) ONLY CERTAIN REFINANCINGS PERMITTED.—A refinancing of indebtedness (other than a qualified zone academy

106

bond) shall be treated as a qualified zone academy bond only

if such indebtedness was originally incurred by the issuer—

‘‘(A) after the date of the enactment of this section,

‘‘(B) for a term of not more than 1 year,

‘‘(C) to finance an expenditure which is a permitted

purpose to be financed by a qualified zone academy bond,

and

‘‘(D) in anticipation of being refinanced with proceeds

of a qualified zone academy bond.

‘‘(2) SINKING FUNDS.—Rules similar to the rules under section 148 on replacement proceeds shall apply for purposes of

this section. Such replacement proceeds shall be invested in

noninterest-bearing State and Local Government Series obligations issued by the Secretary.

‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—

‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, an issue shall be treated as meeting the requirements

of this subsection if the issue meets the spending requirements

of subclause (I) of section 148(f)(4)(C)(xviii).

‘‘(2) RULES REGARDING COMPLIANCE DURING 4-YEAR PERIOD.—If an issue fails to meet such spending requirements

during the 4-year period beginning on the date of issuance, the

issuer shall pay to the United States amounts which would be

required to be paid to the United States under section 148(f)(2)

were such issue required to meet the requirements of such section. Rules similar to the rules of clause (iii) of section

148(f)(4)(C) shall apply for purposes of the preceding sentence.

‘‘(3) RULES REGARDING CONTINUING COMPLIANCE AFTER 4-

YEAR DETERMINATION.—If at least 95 percent of the proceeds of

the issue is not expended for 1 or more permitted purposes within the 4-year period beginning on the date of issuance, an issue

shall be treated as continuing to meet the requirements of this

subsection if the issuer uses all unspent proceeds of the issue to

redeem bonds of the issue within 90 days after the end of such

4-year period.

‘‘(4) SMALL ISSUER EXCEPTION.—Paragraph (1) shall not

apply to an issue issued by a governmental unit with general

taxing powers if the requirements of paragraphs (2) and (3) of

section 148(f) would be treated as met by reason of subparagraph (D) of section 148(f)(4) if such issue were treated as a taxexempt bond and taken into account under such subparagraph,

and such issue shall be so treated for purposes of determining

whether such requirements are met with respect to tax-exempt

bonds.

‘‘(h) RECAPTURE OF PORTION OF CREDIT WHERE CESSATION OF

COMPLIANCE.—

‘‘(1) IN GENERAL.—If any bond which when issued purported to be a qualified zone academy bond ceases to be a qualified zone academy bond, the issuer shall pay to the United

States (at the time required by the Secretary) an amount equal

to the sum of—

‘‘(A) the aggregate of the credits allowable under this

section with respect to such bond (determined without regard to subsection (c)) for taxable years ending during the

107

calendar year in which such cessation occurs and the 2 preceding calendar years, and

‘‘(B) interest at the underpayment rate under section

6621 on the amount determined under subparagraph (A)

for each calendar year for the period beginning on the first

day of such calendar year.

‘‘(2) FAILURE TO PAY.—If the issuer fails to timely pay the

amount required by paragraph (1) with respect to such bond,

the tax imposed by this chapter on each holder of any such

bond which is part of such issue shall be increased (for the taxable year of the holder in which such cessation occurs) by the

aggregate decrease in the credits allowed under this section to

such holder for taxable years beginning in such 3 calendar

years which would have resulted solely from denying any credit

under this section with respect to such issue for such taxable

years.

‘‘(3) SPECIAL RULES.—

‘‘(A) TAX BENEFIT RULE.—The tax for the taxable year

shall be increased under paragraph (2) only with respect to

credits allowed by reason of this section which were used

to reduce tax liability. In the case of credits not so used to

reduce tax liability, the carryforwards and carrybacks

under section 39 shall be appropriately adjusted.

‘‘(B) NO CREDITS AGAINST TAX.—Any increase in tax

under paragraph (2) shall not be treated as a tax imposed

by this chapter for purposes of determining—

‘‘(i) the amount of any credit allowable under this

part, or

‘‘(ii) the amount of the tax imposed by section 55.

‘‘(i) CREDIT INCLUDED IN GROSS INCOME.—Gross income includes the amount of the credit allowed to the taxpayer under this

section (determined without regard to subsection (c)) and the

amount so included shall be treated as interest income.

‘‘(j) TREATMENT FOR ESTIMATED TAX PURPOSES.—Solely for

purposes of sections 6654 and 6655, the credit allowed by this section to a taxpayer by reason of holding a qualified zone academy

bond on a credit allowance date shall be treated as if it were a payment of estimated tax made by the taxpayer on such date.

‘‘(k) REPORTING.—Issuers of qualified zone academy bonds shall

submit reports similar to the reports required under section 149(e).

‘‘(l) TERMINATION.—This section shall not apply to any bond

issued after December 31, 2005.

‘‘SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.’’

(b) EXTENSION OF QUALIFIED ZONE ACADEMY BOND PROVISIONS.—

(1) Subsections (d) and (e) of section 1397E (as in effect on

the day before the date of the enactment of this Act) are hereby

moved and inserted after the section heading for section 1397F

(as added by subsection (a)) and redesignated as subsections (a)

and (b).

(2) Subsection (b) of section 1397F (as so redesignated) is

amended to read as follows:

‘‘(b) LIMITATIONS ON AMOUNT OF BONDS DESIGNATED.—

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‘‘(1) IN GENERAL.—There is a national zone academy bond

limitation for each calendar year. Such limitation is—

‘‘(A) $400,000,000 for 1998,

‘‘(B) $400,000,000 for 1999,

‘‘(C) $400,000,000 for 2000,

‘‘(D) $400,000,000 for 2001,

‘‘(E) $400,000,000 for 2002,

‘‘(F) $400,000,000 for 2003, and

‘‘(G) except as provided in paragraph (3), zero after

2003.

‘‘(2) ALLOCATION OF LIMITATION.—

‘‘(A) IN GENERAL.—The national zone academy bond

limitation for a calendar year shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by

the Office of Management and Budget). The limitation

amount allocated to a State under the preceding sentence

shall be allocated by the State to qualified zone academies

within such State.

‘‘(B) DESIGNATION SUBJECT TO LIMITATION AMOUNT.—

The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) with respect to any qualified zone academy shall

not exceed the limitation amount allocated to such academy

under subparagraph (A) for such calendar year.

‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If for any calendar year—

‘‘(A) the limitation amount under this subsection for

any State, exceeds

‘‘(B) the amount of bonds issued during such year

which are designated under subsection (a) (or the corresponding provisions of prior law) with respect to qualified

zone academies within such State,

the limitation amount under this subsection for such State for

the following calendar year shall be increased by the amount of

such excess. Any carryforward of a limitation amount may be

carried only to the first 2 years (3 years for carryforwards from

1998 or 1999) following the unused limitation year. For purposes of the preceding sentence, a limitation amount shall be

treated as used on a first-in first-out basis.’’

(3) Subsection (a) of section 1397F (as so redesignated) is

amended—

(A) by striking ‘‘For purposes of this section—’’ in the

material preceding paragraph (1) and inserting ‘‘For purposes of this part—’’,

(B) by striking ‘‘an eligible local’’ in paragraphs (1)(A)

and (3)(A) (as redesignated by this paragraph) and inserting ‘‘a local’’,

(C) by striking ‘‘the maximum term permitted under

paragraph (3)’’ in paragraph (1)(D) and inserting ‘‘15

years’’, and

(D) by striking paragraphs (3) and (6) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4),

respectively.

109

(4) Paragraph (3) of section 1397F(a) (as so redesignated)

is amended—

(A) by striking ‘‘(4)’’ and all that follows through ‘‘The

term’’ and inserting the following:

‘‘(4) QUALIFIED ZONE ACADEMY.—The term’’,

(B) by striking subparagraph (B),

(C) by redesignating clauses (i) through (iv) as subparagraphs (A) through (D), respectively, and

(D) by redesignating subclauses (I) and (II) of subparagraph (D) (as so redesignated) as clauses (i) and (ii), respectively.

(c) AUTHORIZATION OF ADDITIONAL QUALIFIED ZONE ACADEMY

BONDS WITHOUT TARGETING AND PRIVATE PARTNERSHIP REQUIREMENTS.—Part IV of subchapter U of chapter 1 is amended by adding at the end the following new section:

‘‘SEC. 1397G. AUTHORIZATION OF ADDITIONAL QUALIFIED ZONE ACADEMY BONDS WITHOUT TARGETING AND PRIVATE PARTNERSHIP REQUIREMENTS.

‘‘(a) IN GENERAL.—For purposes of this part, the term ‘qualified

zone academy bond’ also includes any bond issued by a State or

local government as part of an issue if—

‘‘(1) the issuer designates such bond for purpose of this section, and

‘‘(2) the requirements of subparagraphs (A), (B), and (D) of

paragraph (1) of section 1397F(a) are met with respect to such

issue, determined—

‘‘(A) by treating any public school facility as being a

qualified zone academy, and

‘‘(B) by applying paragraph (4) thereof as if the only

qualified purpose were constructing, rehabilitating, or repairing a public school facility or acquiring the land which

is functionally related and subordinate to the public school

facility which is to be constructed with part of the proceeds

of such issue.

‘‘(b) LIMITATION ON AMOUNT OF BONDS DESIGNATED.—The

maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) by any

issuer shall not exceed the limitation amount allocated under subsection (d) for such calendar year to such issuer.

‘‘(c) NATIONAL LIMITATION ON AMOUNT OF BONDS DESIGNATED.—There is a national additional qualified zone academy

bond limitation for each calendar year. Such limitation is—

‘‘(1) $5,000,000,000 for 2001,

‘‘(2) $5,000,000,000 for 2002, and

‘‘(3) $5,000,000,000 for 2003,

‘‘(4) except as provided in subsection (e), zero after 2003.

‘‘(d) LIMITATION ALLOCATED AMONG STATES.—

‘‘(1) IN GENERAL.—

‘‘(A) ALLOCATION ON THE BASIS OF POPULATION.—50

percent of the limitation applicable under subsection (c) for

any calendar year shall be allocated before such calendar

year by the Secretary among the States on the basis of their

respective populations.

110

‘‘(B) ALLOCATION ON THE BASIS OF POVERTY.—50 percent of the limitation applicable under subsection (c) for

any calendar year shall be allocated before such calendar

year by the Secretary among the States on the basis of their

respective populations of individuals below the poverty line

(as defined by the Office of Management and Budget).

‘‘(C) MINIMUM ALLOCATIONS TO SMALL STATES.—The

Secretary shall adjust the allocations under this subsection

for any calendar year for each State to the extent necessary

to ensure that the amount allocated to such State under

this subsection for such year is not less than $25,000,000.

‘‘(D) USE OF CENSUS DATA.—Determinations under this

subsection shall be made on the basis of the most recently

available census data.

‘‘(2) ALLOCATION WITHIN THE STATE.—

‘‘(A) IN GENERAL.—Except as otherwise provided in

subparagraph (B), the limitation allocated to any State

may be allocated among governmental units in such State

having authority to issue such bonds as provided by State

law (or, in absence of State law, by the Governor of such

State).

‘‘(B) MINIMUM ALLOCATIONS TO LARGE LOCAL EDUCATIONAL AGENCIES.—In no event may the limitation for

any calendar year allocated to any large local educational

agency in a State be less than the sum of—

‘‘(i) an amount which bears the same ratio to 50

percent of such limitation as the population within the

area under the jurisdiction of such agency bears to the

population of the entire State, and

‘‘(ii) an amount which bears the same ratio to 50

percent of such limitation as the population within the

area under the jurisdiction of such agency below the

poverty line (as defined by the Office of Management

and Budget) bears to such population of the entire

State.

‘‘(3) ALLOCATIONS FOR INDIAN SCHOOLS.—In addition to the

amounts otherwise allocated under this subsection,

$200,000,000 (in the aggregate for calendar years 2001, 2002,

and 2003) shall be allocated by the Secretary (after consultation

with the Secretary of the Interior) for purposes of the construction, rehabilitation, and repair of schools operated by or on behalf of an Indian tribal government (within the meaning of section 7871). In the case of amounts allocated under the preceding sentence, Indian tribal governments (as so defined) shall

be treated as qualified issuers for purposes of this part.

‘‘(4) REQUIRED STATE ALLOCATION PLANS.—

‘‘(A) IN GENERAL.—Notwithstanding any other provision of this section, the limitation for any State shall be

zero unless the limitation is allocated within such State

pursuant to a qualified allocation plan.

‘‘(B) QUALIFIED ALLOCATION PLAN.—For purposes of

subparagraph (A), the term ‘qualified allocation plan’

means any plan which—

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‘‘(i) identifies the State’s needs for public school facilities (including descriptions of the capacity of public

schools in the State to house projected enrollments),

particular financing difficulties being encountered by

local school districts in the State, and health and safety problems at existing facilities, and

‘‘(ii) describes how the State will allocate to local

educational agencies, or otherwise use, its allocation

under this section to address the needs identified under

clause (i), including a description of how it will—

‘‘(I) ensure that the needs of rural, urban, and

suburban areas will be recognized,

‘‘(II) ensure that the needs of localities with the

greatest needs, as demonstrated by inadequate

school facilities coupled with low level of resources,

will be met, and

‘‘(III) give priority to the role of charter schools

in achieving State educational objectives.

‘‘(C) APPLICATION OF PARAGRAPH.—This paragraph

shall apply to allocations after more than 6 months after

the date of the enactment of this paragraph.

‘‘(5) LARGE LOCAL EDUCATIONAL AGENCY.—For purposes of

this section, the term ‘large local educational agency’ means,

with respect to a calendar year, any local educational agency

with at least 40,000 children who have attained age 5 but not

age 18 for the most recent fiscal year ending before such calendar year.

‘‘(e) CARRYOVER OF UNUSED LIMITATION.—

‘‘(1) IN GENERAL.—If for any calendar year—

‘‘(A) the amount allocated under subsection (d) to any

State, exceeds

‘‘(B) the amount of bonds issued during such year

which are designated under subsection (a) pursuant to such

allocation,

the limitation amount under such subsection for such State for

the following calendar year shall be increased by the amount of

such excess.

‘‘(2) 2-YEAR CARRYFORWARD.—Any carryforward of a limitation amount may be carried only to the first 2 years following

the unused limitation year. For purposes of the preceding sentence, a limitation amount shall be treated as used on a firstin first-out basis.

‘‘(3) ALLOCATIONS FOR INDIAN SCHOOLS.—Rules similar to

paragraphs (1) and (2) shall apply to the amounts allocated

under subsection (d)(3); except that 2003 shall be treated as the

unused limitation year.’’

(d) REPORTING.—Subsection (d) of section 6049 (relating to returns regarding payments of interest) is amended by adding at the

end the following new paragraph:

‘‘(8) REPORTING OF CREDIT ON QUALIFIED ZONE ACADEMY

BONDS.—

‘‘(A) IN GENERAL.—For purposes of subsection (a), the

term ‘interest’ includes amounts includible in gross income

under section 1397E(i) and such amounts shall be treated

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as paid on the credit allowance date (as defined in section

1397E(d)(2)).

‘‘(B) REPORTING TO CORPORATIONS, ETC.—Except as

otherwise provided in regulations, in the case of any interest described in subparagraph (A) of this paragraph, subsection (b)(4) of this section shall be applied without regard

to subparagraphs (A), (H), (I), (J), (K), and (L)(i).

‘‘(C) REGULATORY AUTHORITY.—The Secretary may prescribe such regulations as are necessary or appropriate to

carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.’’

(e) CONFORMING AMENDMENTS.—

(1) Subsections (f), (g), and (h) of section 1397E (as in effect

on the day before the date of the enactment of this Act) are hereby repealed.

(2) Subchapter U of chapter 1 of such Code is amended by

redesignating section 1397F (as in effect on the day before the

date of the enactment of this Act) as section 1397H.

(3) The table of parts of subchapter U of chapter 1 of such

Code is amended by striking the item relating to part IV and

inserting the following item:

‘‘Part IV. Education bond provisions.’’

(f) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to obligations issued after December 31, 2000.

(2) MODIFICATION OF RESTRICTION ON ZONE ACADEMY BOND

HOLDERS.—In the case of bonds to which section 1397E of the

Internal Revenue Code of 1986 (as in effect before the date of

the enactment of this Act) applies, the limitation of such section

to corporations actively engaged in the business of lending

money shall not apply after the date of the enactment of this

Act.

TITLE VI—COMMUNITY

REVITALIZATION

Subtitle A—Tax Incentives for Renewal

Communities

SEC. 601. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL COMMUNITIES.

(a) IN GENERAL.—Chapter 1 is amended by adding at the end

the following new subchapter:

‘‘Subchapter X—Renewal Communities

‘‘Part I. Designation.

‘‘Part II. Renewal community capital gain; renewal community

business.

‘‘Part III. Additional incentives.

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‘‘PART I—DESIGNATION

‘‘Sec. 1400E. Designation of renewal communities.

‘‘SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

‘‘(a) DESIGNATION.—

‘‘(1) DEFINITIONS.—For purposes of this title, the term ‘renewal community’ means any area—

‘‘(A) which is nominated by 1 or more local governments and the State or States in which it is located for designation as a renewal community (hereafter in this section

referred to as a ‘nominated area’), and

‘‘(B) which the Secretary of Housing and Urban Development designates as a renewal community, after consultation with—

‘‘(i) the Secretaries of Agriculture, Commerce,

Labor, and the Treasury; the Director of the Office of

Management and Budget, and the Administrator of the

Small Business Administration, and

‘‘(ii) in the case of an area on an Indian reservation, the Secretary of the Interior.

‘‘(2) NUMBER OF DESIGNATIONS.—

‘‘(A) IN GENERAL.—Not more than 40 nominated areas

may be designated as renewal communities.

‘‘(B) MINIMUM DESIGNATION IN RURAL AREAS.—Of the

areas designated under paragraph (1), at least 12 must be

areas—

‘‘(i) which are within a local government jurisdiction or jurisdictions with a population of less than

50,000,

‘‘(ii) which are outside of a metropolitan statistical

area (within the meaning of section 143(k)(2)(B)), or

‘‘(iii) which are determined by the Secretary of

Housing and Urban Development, after consultation

with the Secretary of Commerce, to be rural areas.

One of such 12 areas shall be an area within Mississippi,

to be designated by the State of Mississippi, that includes

at least 1 census tract within Madison County, Mississippi.

‘‘(3) AREAS DESIGNATED BASED ON DEGREE OF POVERTY,

ETC.—

‘‘(A) IN GENERAL.—Except as otherwise provided in this

section, the nominated areas designated as renewal communities under this subsection shall be those nominated areas

with the highest average ranking with respect to the criteria described in subparagraphs (B), (C), and (D) of subsection (c)(3). For purposes of the preceding sentence, an

area shall be ranked within each such criterion on the

basis of the amount by which the area exceeds such criterion, with the area which exceeds such criterion by the

greatest amount given the highest ranking.

‘‘(B) EXCEPTION WHERE INADEQUATE COURSE OF ACTION, ETC.—An area shall not be designated under subparagraph (A) if the Secretary of Housing and Urban DeVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00117 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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velopment determines that the course of action described in

subsection (d)(2) with respect to such area is inadequate.

‘‘(C) PREFERENCE FOR ENTERPRISE COMMUNITIES AND

EMPOWERMENT ZONES.—With respect to the first 20 designations made under this section, a preference shall be

provided to those nominated areas which are enterprise

communities or empowerment zones (and are otherwise eligible for designation under this section).

‘‘(4) LIMITATION ON DESIGNATIONS.—

‘‘(A) PUBLICATION OF REGULATIONS.—The Secretary of

Housing and Urban Development shall prescribe by regulation no later than 4 months after the date of the enactment

of this section, after consultation with the officials described in paragraph (1)(B)—

‘‘(i) the procedures for nominating an area under

paragraph (1)(A),

‘‘(ii) the parameters relating to the size and population characteristics of a renewal community, and

‘‘(iii) the manner in which nominated areas will be

evaluated based on the criteria specified in subsection

(d).

‘‘(B) TIME LIMITATIONS.—The Secretary of Housing and

Urban Development may designate nominated areas as renewal communities only during the period beginning on the

first day of the first month following the month in which

the regulations described in subparagraph (A) are prescribed and ending on December 31, 2001.

‘‘(C) PROCEDURAL RULES.—The Secretary of Housing

and Urban Development shall not make any designation of

a nominated area as a renewal community under paragraph (2) unless—

‘‘(i) the local governments and the States in which

the nominated area is located have the authority—

‘‘(I) to nominate such area for designation as

a renewal community,

‘‘(II) to make the State and local commitments

described in subsection (d), and

‘‘(III) to provide assurances satisfactory to the

Secretary of Housing and Urban Development that

such commitments will be fulfilled,

‘‘(ii) a nomination regarding such area is submitted in such a manner and in such form, and contains such information, as the Secretary of Housing

and Urban Development shall by regulation prescribe,

and

‘‘(iii) the Secretary of Housing and Urban Development determines that any information furnished is reasonably accurate.

‘‘(5) NOMINATION PROCESS FOR INDIAN RESERVATIONS.—For

purposes of this subchapter, in the case of a nominated area on

an Indian reservation, the reservation governing body (as determined by the Secretary of the Interior) shall be treated as being

both the State and local governments with respect to such area.

‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EFFECT.—

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‘‘(1) IN GENERAL.—Any designation of an area as a renewal

community shall remain in effect during the period beginning

on January 1, 2002, and ending on the earliest of—

‘‘(A) December 31, 2009,

‘‘(B) the termination date designated by the State and

local governments in their nomination, or

‘‘(C) the date the Secretary of Housing and Urban Development revokes such designation.

‘‘(2) REVOCATION OF DESIGNATION.—The Secretary of Housing and Urban Development may revoke the designation under

this section of an area if such Secretary determines that the

local government or the State in which the area is located—

‘‘(A) has modified the boundaries of the area, or

‘‘(B) is not complying substantially with, or fails to

make progress in achieving, the State or local commitments, respectively, described in subsection (d).

‘‘(3) EARLIER TERMINATION OF CERTAIN BENEFITS IF EARLIER TERMINATION OF DESIGNATION.—If the designation of an

area as a renewal community terminates before December 31,

2009, the day after the date of such termination shall be substituted for ‘January 1, 2010’ each place it appears in sections

1400F and 1400J with respect to such area.

‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—

‘‘(1) IN GENERAL.—The Secretary of Housing and Urban

Development may designate a nominated area as a renewal

community under subsection (a) only if the area meets the requirements of paragraphs (2) and (3) of this subsection.

‘‘(2) AREA REQUIREMENTS.—A nominated area meets the requirements of this paragraph if—

‘‘(A) the area is within the jurisdiction of one or more

local governments,

‘‘(B) the boundary of the area is continuous, and

‘‘(C) the area—

‘‘(i) has a population of not more than 200,000 and

at least—

‘‘(I) 4,000 if any portion of such area (other

than a rural area described in subsection

(a)(2)(B)(i)) is located within a metropolitan statistical area (within the meaning of section

143(k)(2)(B)) which has a population of 50,000 or

greater, or

‘‘(II) 1,000 in any other case, or

‘‘(ii) is entirely within an Indian reservation (as

determined by the Secretary of the Interior).

‘‘(3) ELIGIBILITY REQUIREMENTS.—A nominated area meets

the requirements of this paragraph if the State and the local

governments in which it is located certify in writing (and the

Secretary of Housing and Urban Development, after such review of supporting data as he deems appropriate, accepts such

certification) that—

‘‘(A) the area is one of pervasive poverty, unemployment, and general distress;

‘‘(B) the unemployment rate in the area, as determined

by the most recent available data, was at least 11⁄2 times

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the national unemployment rate for the period to which

such data relate;

‘‘(C) the poverty rate for each population census tract

within the nominated area is at least 20 percent; and

‘‘(D) in the case of an urban area, at least 70 percent

of the households living in the area have incomes below 80

percent of the median income of households within the jurisdiction of the local government (determined in the same

manner as under section 119(b)(2) of the Housing and

Community Development Act of 1974).

‘‘(4) CONSIDERATION OF OTHER FACTORS.—The Secretary of

Housing and Urban Development, in selecting any nominated

area for designation as a renewal community under this

section—

‘‘(A) shall take into account—

‘‘(i) the extent to which such area has a high incidence of crime, or

‘‘(ii) if such area has census tracts identified in the

May 12, 1998, report of the General Accounting Office

regarding the identification of economically distressed

areas, and

‘‘(B) with respect to 1 of the areas to be designated

under subsection (a)(2)(B), may, in lieu of any criteria described in paragraph (3), take into account the existence of

outmigration from the area.

‘‘(d) REQUIRED STATE AND LOCAL COMMITMENTS.—

‘‘(1) IN GENERAL.—The Secretary of Housing and Urban

Development may designate any nominated area as a renewal

community under subsection (a) only if—

‘‘(A) the local government and the State in which the

area is located agree in writing that, during any period

during which the area is a renewal community, such governments will follow a specified course of action which

meets the requirements of paragraph (2) and is designed to

reduce the various burdens borne by employers or employees in such area, and

‘‘(B) the economic growth promotion requirements of

paragraph (3) are met.

‘‘(2) COURSE OF ACTION.—

‘‘(A) IN GENERAL.—A course of action meets the requirements of this paragraph if such course of action is a written document, signed by a State (or local government) and

neighborhood organizations, which evidences a partnership

between such State or government and community-based

organizations and which commits each signatory to specific

and measurable goals, actions, and timetables. Such course

of action shall include at least 4 of the following:

‘‘(i) A reduction of tax rates or fees applying within

the renewal community.

‘‘(ii) An increase in the level of efficiency of local

services within the renewal community.

‘‘(iii) Crime reduction strategies, such as crime prevention (including the provision of crime prevention

services by nongovernmental entities).

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‘‘(iv) Actions to reduce, remove, simplify, or streamline governmental requirements applying within the renewal community.

‘‘(v) Involvement in the program by private entities,

organizations, neighborhood organizations, and community groups, particularly those in the renewal community, including a commitment from such private entities to provide jobs and job training for, and technical, financial, or other assistance to, employers, employees, and residents from the renewal community.

‘‘(vi) The gift (or sale at below fair market value)

of surplus real property (such as land, homes, and

commercial or industrial structures) in the renewal

community to neighborhood organizations, community

development corporations, or private companies.

‘‘(B) RECOGNITION OF PAST EFFORTS.—For purposes of

this section, in evaluating the course of action agreed to by

any State or local government, the Secretary of Housing

and Urban Development shall take into account the past efforts of such State or local government in reducing the various burdens borne by employers and employees in the area

involved.

‘‘(3) ECONOMIC GROWTH PROMOTION REQUIREMENTS.—The

economic growth promotion requirements of this paragraph are

met with respect to a nominated area if the local government

and the State in which such area is located certify in writing

that such government and State (respectively) have repealed or

reduced, will not enforce, or will reduce within the nominated

area at least 4 of the following:

‘‘(A) Licensing requirements for occupations that do not

ordinarily require a professional degree.

‘‘(B) Zoning restrictions on home-based businesses

which do not create a public nuisance.

‘‘(C) Permit requirements for street vendors who do not

create a public nuisance.

‘‘(D) Zoning or other restrictions that impede the formation of schools or child care centers.

‘‘(E) Franchises or other restrictions on competition for

businesses providing public services, including taxicabs, jitneys, cable television, or trash hauling.

This paragraph shall not apply to the extent that such regulation of businesses and occupations is necessary for and well-tailored to the protection of health and safety.

‘‘(e) COORDINATION WITH TREATMENT OF EMPOWERMENT ZONES

AND ENTERPRISE COMMUNITIES.—For purposes of this title, the designation under section 1391 of any area as an empowerment zone

or enterprise community shall cease to be in effect as of the date

that the designation of any portion of such area as a renewal community takes effect.

‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For purposes of this

subchapter—

‘‘(1) GOVERNMENTS.—If more than one government seeks to

nominate an area as a renewal community, any reference to, or

requirement of, this section shall apply to all such governments.

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‘‘(2) LOCAL GOVERNMENT.—The term ‘local government’

means—

‘‘(A) any county, city, town, township, parish, village,

or other general purpose political subdivision of a State,

and

‘‘(B) any combination of political subdivisions described in subparagraph (A) recognized by the Secretary of

Housing and Urban Development.

‘‘(3) APPLICATION OF RULES RELATING TO CENSUS TRACTS.—

The rules of section 1392(b)(4) shall apply.

‘‘(4) CENSUS DATA.—Population and poverty rate shall be

determined by using 1990 census data.

‘‘(g) PRIORITY FOR DISTRICT OF COLUMBIA NOMINATED AREA.—

For purposes of this subchapter—

‘‘(1) IN GENERAL.—One nominated area within the District

of Columbia shall be treated for purposes of subsection (a)(3) as

having the highest average with respect to the criteria described

in subparagraphs (B), (C), and (D) of subsection (c)(3).

‘‘(2) DATE OF DESIGNATION.—Notwithstanding subsection

(b)(1), the designation of a nominated area within the District

of Columbia as a renewal community shall take effect on January 1, 2003.

‘‘(3) NOMINATION.—The District of Columbia shall be treated as being both a State and local government with respect to

such area.

‘‘PART II—RENEWAL COMMUNITY CAPITAL

GAIN; RENEWAL COMMUNITY BUSINESS

‘‘Sec. 1400F. Renewal community capital gain.

‘‘Sec. 1400G. Renewal community business defined.

‘‘SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

‘‘(a) GENERAL RULE.—Gross income does not include any qualified capital gain from the sale or exchange of a qualified community

asset held for more than 5 years.

‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes of this

section—

‘‘(1) IN GENERAL.—The term ‘qualified community asset’

means—

‘‘(A) any qualified community stock,

‘‘(B) any qualified community partnership interest, and

‘‘(C) any qualified community business property.

‘‘(2) QUALIFIED COMMUNITY STOCK.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), the term ‘qualified community stock’ means any stock

in a domestic corporation if—

‘‘(i) such stock is acquired by the taxpayer after December 31, 2001, and before January 1, 2010, at its

original issue (directly or through an underwriter)

from the corporation solely in exchange for cash,

‘‘(ii) as of the time such stock was issued, such corporation was a renewal community business (or, in the

case of a new corporation, such corporation was being

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organized for purposes of being a renewal community

business), and

‘‘(iii) during substantially all of the taxpayer’s

holding period for such stock, such corporation qualified as a renewal community business.

‘‘(B) REDEMPTIONS.—A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph.

‘‘(3) QUALIFIED COMMUNITY PARTNERSHIP INTEREST.—The

term ‘qualified community partnership interest’ means any capital or profits interest in a domestic partnership if—

‘‘(A) such interest is acquired by the taxpayer after December 31, 2001, and before January 1, 2010, from the

partnership solely in exchange for cash,

‘‘(B) as of the time such interest was acquired, such

partnership was a renewal community business (or, in the

case of a new partnership, such partnership was being organized for purposes of being a renewal community business), and

‘‘(C) during substantially all of the taxpayer’s holding

period for such interest, such partnership qualified as a renewal community business.

A rule similar to the rule of paragraph (2)(B) shall apply for

purposes of this paragraph.

‘‘(4) QUALIFIED COMMUNITY BUSINESS PROPERTY.—

‘‘(A) IN GENERAL.—The term ‘qualified community

business property’ means tangible property if—

‘‘(i) such property was acquired by the taxpayer by

purchase (as defined in section 179(d)(2)) after December 31, 2001, and before January 1, 2010,

‘‘(ii) the original use of such property in the renewal community commences with the taxpayer, and

‘‘(iii) during substantially all of the taxpayer’s

holding period for such property, substantially all of

the use of such property was in a renewal community

business of the taxpayer.

‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IMPROVEMENTS.—

The requirements of clauses (i) and (ii) of subparagraph (A)

shall be treated as satisfied with respect to—

‘‘(i) property which is substantially improved by

the taxpayer before January 1, 2010, and

‘‘(ii) any land on which such property is located.

The determination of whether a property is substantially

improved shall be made under clause (ii) of section

1400B(b)(4)(B), except that ‘December 31, 2001’ shall be

substituted for ‘December 31, 1997’ in such clause.

‘‘(c) QUALIFIED CAPITAL GAIN.—For purposes of this section—

‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, the term ‘qualified capital gain‘ means any gain recognized on the sale or exchange of—

‘‘(A) a capital asset, or

‘‘(B) property used in the trade or business (as defined

in section 1231(b)).

‘‘(2) GAIN BEFORE 2002 OR AFTER 2014 NOT QUALIFIED.—The

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utable to periods before January 1, 2002, or after December 31,

2014.

‘‘(3) CERTAIN RULES TO APPLY.—Rules similar to the rules

of paragraphs (3), (4), and (5) of section 1400B(e) shall apply

for purposes of this subsection.

‘‘(d) CERTAIN RULES TO APPLY.—For purposes of this section,

rules similar to the rules of paragraphs (5), (6), and (7) of subsection (b), and subsections (f ) and (g), of section 1400B shall apply;

except that for such purposes section 1400B(g)(2) shall be applied by

substituting ‘January 1, 2002’ for ‘January 1, 1998’ and ‘December

31, 2014’ for ‘December 31, 2007’.

‘‘(e) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section,

including regulations to prevent the avoidance of the purposes of

this section.

‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

‘‘For purposes of this subchapter, the term ‘renewal community

business’ means any entity or proprietorship which would be a

qualified business entity or qualified proprietorship under section

1397C if references to renewal communities were substituted for references to empowerment zones in such section.

‘‘PART III—ADDITIONAL INCENTIVES

‘‘Sec. 1400H. Renewal community employment credit.

‘‘Sec. 1400I. Commercial revitalization deduction.

‘‘Sec. 1400J. Increase in expensing under section 179.

‘‘SEC. 1400H. RENEWAL COMMUNITY EMPLOYMENT CREDIT.

‘‘(a) IN GENERAL.—Subject to the modification in subsection (b),

a renewal community shall be treated as an empowerment zone for

purposes of section 1396 with respect to wages paid or incurred

after December 31, 2001.

‘‘(b) MODIFICATION.—In applying section 1396 with respect to

renewal communities—

‘‘(1) the applicable percentage shall be 15 percent, and

‘‘(2) subsection (c) thereof shall be applied by substituting

‘$10,000’ for ‘$15,000’ each place it appears.

‘‘SEC. 1400I. COMMERCIAL REVITALIZATION DEDUCTION.

‘‘(a) GENERAL RULE.—At the election of the taxpayer, either—

‘‘(1) one-half of any qualified revitalization expenditures

chargeable to capital account with respect to any qualified revitalization building shall be allowable as a deduction for the

taxable year in which the building is placed in service, or

‘‘(2) a deduction for all such expenditures shall be allowable ratably over the 120-month period beginning with the

month in which the building is placed in service.

‘‘(b) QUALIFIED REVITALIZATION BUILDINGS AND EXPENDITURES.—For purposes of this section—

‘‘(1) QUALIFIED REVITALIZATION BUILDING.—The term

‘qualified revitalization building’ means any building (and its

structural components) if—

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‘‘(A) the building is placed in service by the taxpayer in

a renewal community and the original use of the building

begins with the taxpayer, or

‘‘(B) in the case of such building not described in subparagraph (A), such building—

‘‘(i) is substantially rehabilitated (within the meaning of section 47(c)(1)(C)) by the taxpayer, and

‘‘(ii) is placed in service by the taxpayer after the

rehabilitation in a renewal community.

‘‘(2) QUALIFIED REVITALIZATION EXPENDITURE.—

‘‘(A) IN GENERAL.—The term ‘qualified revitalization

expenditure’ means any amount properly chargeable to capital account for property for which depreciation is allowable

under section 168 (without regard to this section) and

which is—

‘‘(i) nonresidential real property (as defined in section 168(e)), or

‘‘(ii) section 1250 property (as defined in section

1250(c)) which is functionally related and subordinate

to property described in clause (i).

‘‘(B) CERTAIN EXPENDITURES NOT INCLUDED.—

‘‘(i) ACQUISITION COST.—In the case of a building

described in paragraph (1)(B), the cost of acquiring the

building or interest therein shall be treated as a qualified revitalization expenditure only to the extent that

such cost does not exceed 30 percent of the aggregate

qualified revitalization expenditures (determined without regard to such cost) with respect to such building.

‘‘(ii) CREDITS.—The term ‘qualified revitalization

expenditure’ does not include any expenditure which

the taxpayer may take into account in computing any

credit allowable under this title unless the taxpayer

elects to take the expenditure into account only for purposes of this section.

‘‘(c) DOLLAR LIMITATION.—The aggregate amount which may be

treated as qualified revitalization expenditures with respect to any

qualified revitalization building shall not exceed the lesser of—

‘‘(1) $10,000,000, or

‘‘(2) the commercial revitalization expenditure amount allocated to such building under this section by the commercial revitalization agency for the State in which the building is located.

‘‘(d) COMMERCIAL REVITALIZATION EXPENDITURE AMOUNT.—

‘‘(1) IN GENERAL.—The aggregate commercial revitalization

expenditure amount which a commercial revitalization agency

may allocate for any calendar year is the amount of the State

commercial revitalization expenditure ceiling determined under

this paragraph for such calendar year for such agency.

‘‘(2) STATE COMMERCIAL REVITALIZATION EXPENDITURE

CEILING.—The State commercial revitalization expenditure ceiling applicable to any State—

‘‘(A) for each calendar year after 2001 and before 2010

is $12,000,000 for each renewal community in the State,

and

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‘‘(B) for each calendar year thereafter is zero.

‘‘(3) COMMERCIAL REVITALIZATION AGENCY.—For purposes

of this section, the term ‘commercial revitalization agency’

means any agency authorized by a State to carry out this section.

‘‘(4) TIME AND MANNER OF ALLOCATIONS.—Allocations

under this section shall be made at the same time and in the

same manner as under paragraphs (1) and (7) of section 42(h).

‘‘(e) RESPONSIBILITIES OF COMMERCIAL REVITALIZATION AGENCIES.—

‘‘(1) PLANS FOR ALLOCATION.—Notwithstanding any other

provision of this section, the commercial revitalization expenditure amount with respect to any building shall be zero unless—

‘‘(A) such amount was allocated pursuant to a qualified

allocation plan of the commercial revitalization agency

which is approved (in accordance with rules similar to the

rules of section 147(f )(2) (other than subparagraph (B)(ii)

thereof)) by the governmental unit of which such agency is

a part; and

‘‘(B) such agency notifies the chief executive officer (or

its equivalent) of the local jurisdiction within which the

building is located of such allocation and provides such individual a reasonable opportunity to comment on the allocation.

‘‘(2) QUALIFIED ALLOCATION PLAN.—For purposes of this

subsection, the term ‘qualified allocation plan’ means any

plan—

‘‘(A) which sets forth selection criteria to be used to determine priorities of the commercial revitalization agency

which are appropriate to local conditions,

‘‘(B) which considers—

‘‘(i) the degree to which a project contributes to the

implementation of a strategic plan that is devised for

a renewal community through a citizen participation

process,

‘‘(ii) the amount of any increase in permanent, fulltime employment by reason of any project, and

‘‘(iii) the active involvement of residents and nonprofit groups within the renewal community, and

‘‘(C) which provides a procedure that the agency (or its

agent) will follow in monitoring compliance with this section.

‘‘(f) SPECIAL RULES.—

‘‘(1) DEDUCTION IN LIEU OF DEPRECIATION.—The deduction

provided by this section for qualified revitalization expenditures

shall—

‘‘(A) with respect to the deduction determined under

subsection (a)(1), be in lieu of any depreciation deduction

otherwise allowable on account of one-half of such expenditures, and

‘‘(B) with respect to the deduction determined under

subsection (a)(2), be in lieu of any depreciation deduction

otherwise allowable on account of all of such expenditures.

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‘‘(2) BASIS ADJUSTMENT, ETC.—For purposes of sections

1016 and 1250, the deduction under this section shall be treated in the same manner as a depreciation deduction. For purposes of section 1250(b)(5), the straight line method of adjustment shall be determined without regard to this section.

‘‘(3) SUBSTANTIAL REHABILITATIONS TREATED AS SEPARATE

BUILDINGS.—A substantial rehabilitation (within the meaning

of section 47(c)(1)(C)) of a building shall be treated as a separate building for purposes of subsection (a).

‘‘(4) CLARIFICATION OF ALLOWANCE OF DEDUCTION UNDER

MINIMUM TAX.—Notwithstanding section 56(a)(1), the deduction

under this section shall be allowed in determining alternative

minimum taxable income under section 55.

‘‘(g) TERMINATION.—This section shall not apply to any building

placed in service after December 31, 2009.

‘‘SEC. 1400J. INCREASE IN EXPENSING UNDER SECTION 179.

‘‘(a) IN GENERAL.—For purposes of section 1397A—

‘‘(1) a renewal community shall be treated as an empowerment zone,

‘‘(2) a renewal community business shall be treated as an

enterprise zone business, and

‘‘(3) qualified renewal property shall be treated as qualified

zone property.

‘‘(b) QUALIFIED RENEWAL PROPERTY.—For purposes of this

section—

‘‘(1) IN GENERAL.—The term ‘qualified renewal property’

means any property to which section 168 applies (or would

apply but for section 179) if—

‘‘(A) such property was acquired by the taxpayer by

purchase (as defined in section 179(d)(2)) after December

31, 2001, and before January 1, 2010, and

‘‘(B) such property would be qualified zone property (as

defined in section 1397D) if references to renewal communities were substituted for references to empowerment zones

in section 1397D.

‘‘(2) CERTAIN RULES TO APPLY.—The rules of subsections

(a)(2) and (b) of section 1397D shall apply for purposes of this

section.’’.

(b) EXCEPTION FOR COMMERCIAL REVITALIZATION DEDUCTION

FROM PASSIVE LOSS RULES.— (1) Paragraph (3) of section 469(i) is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D),

(E), and (F), respectively, and by inserting after subparagraph

(B) the following new subparagraph:

‘‘(C) EXCEPTION FOR COMMERCIAL REVITALIZATION DEDUCTION.—Subparagraph (A) shall not apply to any portion of the passive activity loss for any taxable year which

is attributable to the commercial revitalization deduction

under section 1400I.’’.

(2) Subparagraph (E) of section 469(i)(3), as redesignated

by subparagraph (A), is amended to read as follows:

‘‘(E) ORDERING RULES TO REFLECT EXCEPTIONS AND

SEPARATE PHASE-OUTS.—If subparagraph (B), (C), or (D)

applies for a taxable year, paragraph (1) shall be applied—

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‘‘(i) first to the portion of the passive activity loss

to which subparagraph (C) does not apply,

‘‘(ii) second to the portion of the passive activity

credit to which subparagraph (B) or (D) does not

apply,

‘‘(iii) third to the portion of such credit to which

subparagraph (B) applies,

‘‘(iv) fourth to the portion of such loss to which

subparagraph (C) applies, and

‘‘(v) then to the portion of such credit to which subparagraph (D) applies.’’.

(3)(A) Subparagraph (B) of section 469(i)(6) is amended by

striking ‘‘or’’ at the end of clause (i), by striking the period at

the end of clause (ii) and inserting ‘‘, or’’, and by adding at the

end the following new clause:

‘‘(iii) any deduction under section 1400I (relating

to commercial revitalization deduction).’’.

(B) The heading for such subparagraph (B) is amended by

striking ‘‘OR REHABILITATION CREDIT’’ and inserting ‘‘, REHABILITATION CREDIT, OR COMMERCIAL REVITALIZATION DEDUCTION’’.

(c) AUDIT AND REPORT.—Not later than January 31 of 2004,

2007, and 2010, the Comptroller General of the United States shall,

pursuant to an audit of the renewal community program established under section 1400E of the Internal Revenue Code of 1986 (as

added by subsection (a)) and the empowerment zone and enterprise

community program under subchapter U of chapter 1 of such Code,

report to Congress on such program and its effect on poverty, unemployment, and economic growth within the designated renewal communities, empowerment zones, and enterprise communities.

(d) CLERICAL AMENDMENT.—The table of subchapters for chapter 1 is amended by adding at the end the following new item:

‘‘Subchapter X. Renewal Communities.’’.

SEC. 602. WORK OPPORTUNITY CREDIT FOR HIRING YOUTH RESIDING

IN RENEWAL COMMUNITIES.

(a) HIGH-RISK YOUTH.—Subparagraphs (A)(ii) and (B) of section 51(d)(5) are each amended by striking ‘‘empowerment zone or

enterprise community’’ and inserting ‘‘empowerment zone, enterprise

community, or renewal community’’.

(b) QUALIFIED SUMMER YOUTH EMPLOYEE.—Clause (iv) of section 51(d)(7)(A) is amended by striking ‘‘empowerment zone or enterprise community’’ and inserting ‘‘empowerment zone, enterprise community, or renewal community’’.

(c) HEADINGS.—Paragraphs (5)(B) and (7)(C) of section 51(d)

are each amended by inserting ‘‘OR COMMUNITY’’ in the heading

after ‘‘ZONE’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to individuals who begin work for the employer after December 31, 2001.

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Subtitle B—Extension and Expansion of

Empowerment Zone Incentives

SEC. 611. AUTHORITY TO DESIGNATE 9 ADDITIONAL EMPOWERMENT

ZONES.

Section 1391 is amended by adding at the end the following

new subsection:

‘‘(h) ADDITIONAL DESIGNATIONS PERMITTED.—

‘‘(1) IN GENERAL.—In addition to the areas designated

under subsections (a) and (g), the appropriate Secretaries may

designate in the aggregate an additional 9 nominated areas as

empowerment zones under this section, subject to the availability of eligible nominated areas. Of that number, not more

than seven may be designated in urban areas and not more

than 2 may be designated in rural areas.

‘‘(2) PERIOD DESIGNATIONS MAY BE MADE AND TAKE EFFECT.—A designation may be made under this subsection after

the date of the enactment of this subsection and before January

1, 2002. Subject to subparagraphs (B) and (C) of subsection

(d)(1), such designations shall remain in effect during the period beginning on January 1, 2002, and ending on December

31, 2009.

‘‘(3) MODIFICATIONS TO ELIGIBILITY CRITERIA, ETC.—The

rules of subsection (g)(3) shall apply to designations under this

subsection.’’.

SEC. 612. EXTENSION OF EMPOWERMENT ZONE TREATMENT

THROUGH 2009.

Subparagraph (A) of section 1391(d)(1) (relating to period for

which designation is in effect) is amended to read as follows:

‘‘(A)(i) in the case of an empowerment zone, December

31, 2009, or

‘‘(ii) in the case of an enterprise community, the close

of the 10th calendar year beginning on or after such date

of designation,’’.

SEC. 613. 20 PERCENT EMPLOYMENT CREDIT FOR ALL EMPOWERMENT

ZONES

(a) 20 PERCENT CREDIT.—Subsection (b) of section 1396 (relating to empowerment zone employment credit) is amended to read as

follows:

‘‘(b) APPLICABLE PERCENTAGE.—For purposes of this section, the

applicable percentage is 20 percent.’’.

(b) ALL EMPOWERMENT ZONES ELIGIBLE FOR CREDIT.—Section

1396 is amended by striking subsection (e).

(c) CONFORMING AMENDMENT.—Subsection (d) of section 1400

is amended to read as follows:

‘‘(d) SPECIAL RULE FOR APPLICATION OF EMPLOYMENT CREDIT.—With respect to the DC Zone, section 1396(d)(1)(B) (relating to

empowerment zone employment credit) shall be applied by substituting ‘the District of Columbia’ for ‘such empowerment zone’.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to wages paid or incurred after December 31, 2001.

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SEC. 614. INCREASED EXPENSING UNDER SECTION 179.

(a) IN GENERAL.—Subparagraph (A) of section 1397A(a)(1) is

amended by striking ‘‘$20,000’’ and inserting ‘‘$35,000’’.

(b) EXPENSING FOR PROPERTY USED IN DEVELOPABLE SITES.—

Section 1397A is amended by striking subsection (c).

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2001.

SEC. 615. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT ZONE FACILITY BONDS.

(a) IN GENERAL.—Paragraph (3) of section 1394(f) (relating to

bonds for empowerment zones designated under section 1391(g)) is

amended to read as follows:

‘‘(3) EMPOWERMENT ZONE FACILITY BOND.—For purposes of

this subsection, the term ‘empowerment zone facility bond’

means any bond which would be described in subsection (a) if—

‘‘(A) in the case of obligations issued before January 1,

2002, only empowerment zones designated under section

1391(g) were taken into account under sections 1397C and

1397D, and

‘‘(B) in the case of obligations issued after December 31,

2001, all empowerment zones (other than the District of Columbia) were taken into account under sections 1397C and

1397D.’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall apply to obligations issued after December 31, 2001.

SEC. 616. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE INVESTMENTS.

(a) IN GENERAL.—Part III of subchapter U of chapter 1 is

amended—

(1) by redesignating subpart C as subpart D;

(2) by redesignating sections 1397B and 1397C as sections

1397C and 1397D, respectively; and

(3) by inserting after subpart B the following new subpart:

‘‘Subpart C—Nonrecognition of Gain on Rollover of

Empowerment Zone Investments

‘‘Sec. 1397B. Nonrecognition of Gain on Rollover of Empowerment

Zone Investments.

‘‘SEC. 1397B. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE INVESTMENTS.

‘‘(a) NONRECOGNITION OF GAIN.—In the case of any sale of a

qualified empowerment zone asset held by the taxpayer for more

than 1 year and with respect to which such taxpayer elects the application of this section, gain from such sale shall be recognized

only to the extent that the amount realized on such sale exceeds—

‘‘(1) the cost of any qualified empowerment zone asset (with

respect to the same zone as the asset sold) purchased by the taxpayer during the 60-day period beginning on the date of such

sale, reduced by

‘‘(2) any portion of such cost previously taken into account

under this section.

‘‘(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section—

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‘‘(1) QUALIFIED EMPOWERMENT ZONE ASSET.—

‘‘(A) IN GENERAL.—The term ‘qualified empowerment

zone asset’ means any property which would be a qualified

community asset (as defined in section 1400F) if in section

1400F—

‘‘(i) references to empowerment zones were substituted for references to renewal communities,

‘‘(ii) references to enterprise zone businesses (as defined in section 1397C) were substituted for references

to renewal community businesses, and

‘‘(iii) the date of the enactment of this paragraph

were substituted for ‘December 31, 2001’ each place it

appears.

‘‘(B) TREATMENT OF DC ZONE.—The District of Columbia Enterprise Zone shall not be treated as an empowerment zone for purposes of this section.

‘‘(2) CERTAIN GAIN NOT ELIGIBLE FOR ROLLOVER.—This section shall not apply to—

‘‘(A) any gain which is treated as ordinary income for

purposes of this subtitle, and

‘‘(B) any gain which is attributable to real property, or

an intangible asset, which is not an integral part of an enterprise zone business.

‘‘(3) PURCHASE.—A taxpayer shall be treated as having purchased any property if, but for paragraph (4), the unadjusted

basis of such property in the hands of the taxpayer would be its

cost (within the meaning of section 1012).

‘‘(4) BASIS ADJUSTMENTS.—If gain from any sale is not recognized by reason of subsection (a), such gain shall be applied

to reduce (in the order acquired) the basis for determining gain

or loss of any qualified empowerment zone asset which is purchased by the taxpayer during the 60-day period described in

subsection (a). This paragraph shall not apply for purposes of

section 1202.

‘‘(5) HOLDING PERIOD.—For purposes of determining whether the nonrecognition of gain under subsection (a) applies to

any qualified empowerment zone asset which is sold—

‘‘(A) the taxpayer’s holding period for such asset and

the asset referred to in subsection (a)(1) shall be determined

without regard to section 1223, and

‘‘(B) only the first year of the taxpayer’s holding period

for the asset referred to in subsection (a)(1) shall be taken

into account for purposes of paragraphs (2)(A)(iii), (3)(C),

and (4)(A)(iii) of section 1400F(b).’’.

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (23) of section 1016(a) is amended—

(A) by striking ‘‘or 1045’’ and inserting ‘‘1045, or

1397B’’, and

(B) by striking ‘‘or 1045(b)(4)’’ and inserting

‘‘1045(b)(4), or 1397B(b)(4)’’.

(2) Paragraph (15) of section 1223 is amended to read as

follows:

‘‘(15) Except for purposes of sections 1202(a)(2),

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riod for which the taxpayer has held property the acquisition of

which resulted under section 1045 or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, there shall be included the period for which such other

property has been held as of the date of such sale.’’.

(3) Paragraph (2) of section 1394(b) is amended—

(A) by striking ‘‘section 1397C’’ and inserting ‘‘section

1397D’’, and

(B) by striking ‘‘section 1397C(a)(2)’’ and inserting ‘‘section 1397D(a)(2)’’.

(4) Paragraph (3) of section 1394(b) is amended—

(A) by striking ‘‘section 1397B’’ each place it appears

and inserting ‘‘section 1397C’’, and

(B) by striking ‘‘section 1397B(d)’’ and inserting ‘‘section 1397C(d)’’.

(5) Sections 1400(e) and 1400B(c) are each amended by

striking ‘‘section 1397B’’ each place it appears and inserting

‘‘section 1397C’’.

(6) The table of subparts for part III of subchapter U of

chapter 1 is amended by striking the last item and inserting the

following new items:

‘‘Subpart C. Nonrecognition of gain on rollover of empowerment zone

investments.

‘‘Subpart D. General provisions.’’.

(7) The table of sections for subpart D of such part III is

amended to read as follows:

‘‘Sec. 1397C. Enterprise zone business defined.

‘‘Sec. 1397D. Qualified zone property defined.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to qualified empowerment zone assets acquired after the

date of the enactment of this Act.

SEC. 617. INCREASED EXCLUSION OF GAIN ON SALE OF EMPOWERMENT ZONE STOCK.

(a) IN GENERAL.—Subsection (a) of section 1202 is amended to

read as follows:

‘‘(a) EXCLUSION.—

‘‘(1) IN GENERAL.—In the case of a taxpayer other than a

corporation, gross income shall not include 50 percent of any

gain from the sale or exchange of qualified small business stock

held for more than 5 years.

‘‘(2) EMPOWERMENT ZONE BUSINESSES.—

‘‘(A) IN GENERAL.—In the case of qualified small business stock acquired after the date of the enactment of this

paragraph in a corporation which is a qualified business

entity (as defined in section 1397C(b)) during substantially

all of the taxpayer’s holding period for such stock, paragraph (1) shall be applied by substituting ‘60 percent’ for

‘50 percent’.

‘‘(B) CERTAIN RULES TO APPLY.—Rules similar to the

rules of paragraphs (5) and (7) of section 1400B(b) shall

apply for purposes of this paragraph.

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‘‘(C) GAIN AFTER 2014 NOT QUALIFIED.—Subparagraph

(A) shall not apply to gain attributable to periods after December 31, 2014.

‘‘(D) TREATMENT OF DC ZONE.—The District of Columbia Enterprise Zone shall not be treated as an empowerment zone for purposes of this paragraph.’’.

(b) CONFORMING AMENDMENT.—Paragraph (8) of section 1(h) is

amended by striking ‘‘means’’ and all that follows and inserting

‘‘means the excess of—

‘‘(A) the gain which would be excluded from gross income under section 1202 but for the percentage limitation

in section 1202(a), over

‘‘(B) the gain excluded from gross income under section

1202.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to stock acquired after the date of the enactment of this

Act.

Subtitle C—New Markets Tax Credit

SEC. 621. NEW MARKETS TAX CREDIT.

(a) IN GENERAL.—Subpart D of part IV of subchapter A of

chapter 1 (relating to business-related credits) is amended by adding at the end the following new section:

‘‘SEC. 45D. NEW MARKETS TAX CREDIT.

‘‘(a) ALLOWANCE OF CREDIT.—

‘‘(1) IN GENERAL.—For purposes of section 38, in the case of

a taxpayer who holds a qualified equity investment on a credit

allowance date of such investment which occurs during the taxable year, the new markets tax credit determined under this section for such taxable year is an amount equal to the applicable

percentage of the amount paid to the qualified community development entity for such investment at its original issue.

‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph

(1), the applicable percentage is—

‘‘(A) 5 percent with respect to the first 3 credit allowance dates, and

‘‘(B) 6 percent with respect to the remainder of the credit allowance dates.

‘‘(3) CREDIT ALLOWANCE DATE.—For purposes of paragraph

(1), the term ‘credit allowance date’ means, with respect to any

qualified equity investment—

‘‘(A) the date on which such investment is initially

made, and

‘‘(B) each of the 6 anniversary dates of such date thereafter.

‘‘(b) QUALIFIED EQUITY INVESTMENT.—For purposes of this

section—

‘‘(1) IN GENERAL.—The term ‘qualified equity investment’

means any equity investment in a qualified community development entity if—

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‘‘(A) such investment is acquired by the taxpayer at its

original issue (directly or through an underwriter) solely in

exchange for cash,

‘‘(B) substantially all of such cash is used by the qualified community development entity to make qualified lowincome community investments, and

‘‘(C) such investment is designated for purposes of this

section by the qualified community development entity.

Such term shall not include any equity investment issued by a

qualified community development entity more than 5 years after

the date that such entity receives an allocation under subsection

(f). Any allocation not used within such 5-year period may be

reallocated by the Secretary under subsection (f).

‘‘(2) LIMITATION.—The maximum amount of equity investments issued by a qualified community development entity

which may be designated under paragraph (1)(C) by such entity

shall not exceed the portion of the limitation amount allocated

under subsection (f) to such entity.

‘‘(3) SAFE HARBOR FOR DETERMINING USE OF CASH.—The requirement of paragraph (1)(B) shall be treated as met if at least

85 percent of the aggregate gross assets of the qualified community development entity are invested in qualified low-income

community investments.

‘‘(4) TREATMENT OF SUBSEQUENT PURCHASERS.—The term

‘qualified equity investment’ includes any equity investment

which would (but for paragraph (1)(A)) be a qualified equity investment in the hands of the taxpayer if such investment was

a qualified equity investment in the hands of a prior holder.

‘‘(5) REDEMPTIONS.—A rule similar to the rule of section

1202(c)(3) shall apply for purposes of this subsection.

‘‘(6) EQUITY INVESTMENT.—The term ‘equity investment’

means—

‘‘(A) any stock (other than nonqualified preferred stock

as defined in section 351(g)(2)) in an entity which is a corporation, and

‘‘(B) any capital interest in an entity which is a partnership.

‘‘(c) QUALIFIED COMMUNITY DEVELOPMENT ENTITY.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘qualified community development entity’ means any domestic corporation or partnership if—

‘‘(A) the primary mission of the entity is serving, or

providing investment capital for, low-income communities

or low-income persons,

‘‘(B) the entity maintains accountability to residents of

low-income communities through their representation on

any governing board of the entity or on any advisory board

to the entity, and

‘‘(C) the entity is certified by the Secretary for purposes

of this section as being a qualified community development

entity.

‘‘(2) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—The requirements of paragraph (1) shall be treated as met by—

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‘‘(A) any specialized small business investment company (as defined in section 1044(c)(3)), and

‘‘(B) any community development financial institution

(as defined in section 103 of the Community Development

Banking and Financial Institutions Act of 1994 (12 U.S.C.

4702)).

‘‘(d) QUALIFIED LOW-INCOME COMMUNITY INVESTMENTS.—For

purposes of this section—

‘‘(1) IN GENERAL.—The term ‘qualified low-income community investment’ means—

‘‘(A) any equity investment in, or loan to, any qualified

active low-income community business,

‘‘(B) the purchase from another community development entity of any loan made by such entity which is a

qualified low-income community investment,

‘‘(C) financial counseling and other services specified in

regulations prescribed by the Secretary to businesses located in, and residents of, low-income communities, and

‘‘(D) any equity investment in, or loan to, any qualified

community development entity.

‘‘(2) QUALIFIED ACTIVE LOW-INCOME COMMUNITY BUSINESS.—

‘‘(A) IN GENERAL.—For purposes of paragraph (1), the

term ‘qualified active low-income community business’

means, with respect to any taxable year, any corporation

(including a nonprofit corporation) or partnership if for

such year—

‘‘(i) at least 50 percent of the total gross income of

such entity is derived from the active conduct of a

qualified business within any low-income community,

‘‘(ii) a substantial portion of the use of the tangible

property of such entity (whether owned or leased) is

within any low-income community,

‘‘(iii) a substantial portion of the services performed for such entity by its employees are performed

in any low-income community,

‘‘(iv) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is

attributable to collectibles (as defined in section

408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of

such business, and

‘‘(v) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is

attributable to nonqualified financial property (as defined in section 1397C(e)).

‘‘(B) PROPRIETORSHIP.—Such term shall include any

business carried on by an individual as a proprietor if such

business would meet the requirements of subparagraph (A)

were it incorporated.

‘‘(C) PORTIONS OF BUSINESS MAY BE QUALIFIED ACTIVE

LOW-INCOME COMMUNITY BUSINESS.—The term ‘qualified

active low-income community business’ includes any trades

or businesses which would qualify as a qualified active

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low-income community business if such trades or businesses were separately incorporated.

‘‘(3) QUALIFIED BUSINESS.—For purposes of this subsection,

the term ‘qualified business’ has the meaning given to such

term by section 1397C(d); except that—

‘‘(A) in lieu of applying paragraph (2)(B) thereof, the

rental to others of real property located in any low-income

community shall be treated as a qualified business if there

are substantial improvements located on such property, and

‘‘(B) paragraph (3) thereof shall not apply.

‘‘(e) LOW-INCOME COMMUNITY.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘low-income community’ means

any population census tract if—

‘‘(A) the poverty rate for such tract is at least 20 percent, or

‘‘(B)(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does

not exceed 80 percent of statewide median family income,

or

‘‘(ii) in the case of a tract located within a metropolitan

area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family

income or the metropolitan area median family income.

‘‘(2) TARGETED AREAS.—The Secretary may designate any

area within any census tract as a low-income community if—

‘‘(A) the boundary of such area is continuous,

‘‘(B) the area would satisfy the requirements of paragraph (1) if it were a census tract, and

‘‘(C) an inadequate access to investment capital exists

in such area.

‘‘(3) AREAS NOT WITHIN CENSUS TRACTS.—In the case of an

area which is not tracted for population census tracts, the

equivalent county divisions (as defined by the Bureau of the

Census for purposes of defining poverty areas) shall be used for

purposes of determining poverty rates and median family income.

‘‘(f) NATIONAL LIMITATION ON AMOUNT OF INVESTMENTS DESIGNATED.—

‘‘(1) IN GENERAL.—There is a new markets tax credit limitation for each calendar year. Such limitation is—

‘‘(A) $1,000,000,000 for 2001,

‘‘(B) $1,500,000,000 for 2002 and 2003,

‘‘(C) $2,000,000,000 for 2004 and 2005, and

‘‘(D) $3,500,000,000 for 2006 and 2007.

‘‘(2) ALLOCATION OF LIMITATION.—The limitation under

paragraph (1) shall be allocated by the Secretary among qualified community development entities selected by the Secretary.

In making allocations under the preceding sentence, the Secretary shall give priority to any entity—

‘‘(A) with a record of having successfully provided capital or technical assistance to disadvantaged businesses or

communities, or

‘‘(B) which intends to satisfy the requirement under

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munity investments in 1 or more businesses in which persons unrelated to such entity (within the meaning of section

267(b) or 707(b)(1)) hold the majority equity interest.

‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If the new markets tax credit limitation for any calendar year exceeds the aggregate amount allocated under paragraph (2) for such year,

such limitation for the succeeding calendar year shall be increased by the amount of such excess. No amount may be carried under the preceding sentence to any calendar year after

2014.

‘‘(g) RECAPTURE OF CREDIT IN CERTAIN CASES.—

‘‘(1) IN GENERAL.—If, at any time during the 7-year period

beginning on the date of the original issue of a qualified equity

investment in a qualified community development entity, there

is a recapture event with respect to such investment, then the

tax imposed by this chapter for the taxable year in which such

event occurs shall be increased by the credit recapture amount.

‘‘(2) CREDIT RECAPTURE AMOUNT.—For purposes of paragraph (1), the credit recapture amount is an amount equal to

the sum of—

‘‘(A) the aggregate decrease in the credits allowed to the

taxpayer under section 38 for all prior taxable years which

would have resulted if no credit had been determined under

this section with respect to such investment, plus

‘‘(B) interest at the underpayment rate established

under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior

taxable year involved.

No deduction shall be allowed under this chapter for interest

described in subparagraph (B).

‘‘(3) RECAPTURE EVENT.—For purposes of paragraph (1),

there is a recapture event with respect to an equity investment

in a qualified community development entity if—

‘‘(A) such entity ceases to be a qualified community development entity,

‘‘(B) the proceeds of the investment cease to be used as

required of subsection (b)(1)(B), or

‘‘(C) such investment is redeemed by such entity.

‘‘(4) SPECIAL RULES.—

‘‘(A) TAX BENEFIT RULE.—The tax for the taxable year

shall be increased under paragraph (1) only with respect to

credits allowed by reason of this section which were used

to reduce tax liability. In the case of credits not so used to

reduce tax liability, the carryforwards and carrybacks

under section 39 shall be appropriately adjusted.

‘‘(B) NO CREDITS AGAINST TAX.—Any increase in tax

under this subsection shall not be treated as a tax imposed

by this chapter for purposes of determining the amount of

any credit under this chapter or for purposes of section 55.

‘‘(h) BASIS REDUCTION.—The basis of any qualified equity investment shall be reduced by the amount of any credit determined

under this section with respect to such investment. This subsection

shall not apply for purposes of sections 1202, 1400B, and 1400F.

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‘‘(i) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out this section, including

regulations—

‘‘(1) which limit the credit for investments which are directly or indirectly subsidized by other Federal tax benefits (including the credit under section 42 and the exclusion from gross

income under section 103),

‘‘(2) which prevent the abuse of the purposes of this section,

‘‘(3) which provide rules for determining whether the requirement of subsection (b)(1)(B) is treated as met,

‘‘(4) which impose appropriate reporting requirements, and

‘‘(5) which apply the provisions of this section to newly

formed entities.’’.

(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT.—

(1) IN GENERAL.—Subsection (b) of section 38 is amended

by striking ‘‘plus’’ at the end of paragraph (11), by striking the

period at the end of paragraph (12) and inserting ‘‘, plus’’, and

by adding at the end the following new paragraph:

‘‘(13) the new markets tax credit determined under section

45D(a).’’.

(2) LIMITATION ON CARRYBACK.—Subsection (d) of section

39 is amended by adding at the end the following new paragraph:

‘‘(9) NO CARRYBACK OF NEW MARKETS TAX CREDIT BEFORE

JANUARY 1, 2001.—No portion of the unused business credit for

any taxable year which is attributable to the credit under section 45D may be carried back to a taxable year ending before

January 1, 2001.’’.

(c) DEDUCTION FOR UNUSED CREDIT.—Subsection (c) of section

196 is amended by striking ‘‘and’’ at the end of paragraph (7), by

striking the period at the end of paragraph (8) and inserting ‘‘,

and’’, and by adding at the end the following new paragraph:

‘‘(9) the new markets tax credit determined under section

45D(a).’’.

(d) CLERICAL AMENDMENT.—The table of sections for subpart D

of part IV of subchapter A of chapter 1 is amended by adding at

the end the following new item:

‘‘Sec. 45D. New markets tax credit.’’.

(e) EFFECTIVE DATE.—The amendments made by this section

shall apply to investments made after December 31, 2000.

(f) GUIDANCE ON ALLOCATION OF NATIONAL LIMITATION.—Not

later than 120 days after the date of the enactment of this Act, the

Secretary of the Treasury or the Secretary’s delegate shall issue

guidance which specifies—

(1) how entities shall apply for an allocation under section

45D(f)(2) of the Internal Revenue Code of 1986, as added by

this section;

(2) the competitive procedure through which such allocations are made; and

(3) the actions that such Secretary or delegate shall take to

ensure that such allocations are properly made to appropriate

entities.

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(g) AUDIT AND REPORT.—Not later than January 31 of 2004,

2007, and 2010, the Comptroller General of the United States shall,

pursuant to an audit of the new markets tax credit program established under section 45D of the Internal Revenue Code of 1986 (as

added by subsection (a)), report to Congress on such program, including all qualified community development entities that receive an

allocation under the new markets credit under such section.

Subtitle D—Improvements in Low-Income

Housing Credit

SEC. 631. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

(a) IN GENERAL.—Clauses (i) and (ii) of section 42(h)(3)(C) (relating to State housing credit ceiling) are amended to read as follows:

‘‘(i) the unused State housing credit ceiling (if any)

of such State for the preceding calendar year,

‘‘(ii) the greater of—

‘‘(I) $1.75 ($1.50 for 2001) multiplied by the

State population, or

‘‘(II) $2,000,000,’’.

(b) ADJUSTMENT OF STATE CEILING FOR INCREASES IN COST-OFLIVING.—Paragraph (3) of section 42(h) (relating to housing credit

dollar amount for agencies) is amended by adding at the end the

following new subparagraph:

‘‘(H) COST-OF-LIVING ADJUSTMENT.—

‘‘(i) IN GENERAL.—In the case of a calendar year

after 2002, the $2,000,000 and $1.75 amounts in subparagraph (C) shall each be increased by an amount

equal to—

‘‘(I) such dollar amount, multiplied by

‘‘(II) the cost-of-living adjustment determined

under section 1(f)(3) for such calendar year by substituting ‘calendar year 2001’ for ‘calendar year

1992’ in subparagraph (B) thereof.

‘‘(ii) ROUNDING.—

‘‘(I) In the case of the $2,000,000 amount, any

increase under clause (i) which is not a multiple of

$5,000 shall be rounded to the next lowest multiple

of $5,000.

‘‘(II) In the case of the $1.75 amount, any increase under clause (i) which is not a multiple of

5 cents shall be rounded to the next lowest multiple of 5 cents.’’.

(c) CONFORMING AMENDMENTS.—

(1) Section 42(h)(3)(C), as amended by subsection (a), is

amended—

(A) by striking ‘‘clause (ii)’’ in the matter following

clause (iv) and inserting ‘‘clause (i)’’; and

(B) by striking ‘‘clauses (i)’’ in the matter following

clause (iv) and inserting ‘‘clauses (ii)’’.

(2) Section 42(h)(3)(D)(ii) is amended—

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(A) by striking ‘‘subparagraph (C)(ii)’’ and inserting

‘‘subparagraph (C)(i)’’; and

(B) by striking ‘‘clauses (i)’’ in subclause (II) and inserting ‘‘clauses (ii)’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to calendar years after 2000.

SEC. 632. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING

CREDITS AMONG PROJECTS.

(a) SELECTION CRITERIA.—Subparagraph (C) of section

42(m)(1) (relating to certain selection criteria must be used) is

amended—

(1) by inserting ‘‘, including whether the project includes

the use of existing housing as part of a community revitalization plan’’ before the comma at the end of clause (iii); and

(2) by striking clauses (v), (vi), and (vii) and inserting the

following new clauses:

‘‘(v) tenant populations with special housing needs,

‘‘(vi) public housing waiting lists,

‘‘(vii) tenant populations of individuals with children, and

‘‘(viii) projects intended for eventual tenant ownership.’’.

(b) PREFERENCE FOR COMMUNITY REVITALIZATION PROJECTS

LOCATED IN QUALIFIED CENSUS TRACTS.—Clause (ii) of section

42(m)(1)(B) is amended by striking ‘‘and’’ at the end of subclause (I),

by adding ‘‘and’’ at the end of subclause (II), and by inserting after

subclause (II) the following new subclause:

‘‘(III) projects which are located in qualified

census tracts (as defined in subsection (d)(5)(C))

and the development of which contributes to a concerted community revitalization plan,’’.

SEC. 633. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.

(a) MARKET STUDY; PUBLIC DISCLOSURE OF RATIONALE FOR

NOT FOLLOWING CREDIT ALLOCATION PRIORITIES.—Subparagraph

(A) of section 42(m)(1) (relating to responsibilities of housing credit

agencies) is amended by striking ‘‘and’’ at the end of clause (i), by

striking the period at the end of clause (ii) and inserting a comma,

and by adding at the end the following new clauses:

‘‘(iii) a comprehensive market study of the housing

needs of low-income individuals in the area to be

served by the project is conducted before the credit allocation is made and at the developer’s expense by a disinterested party who is approved by such agency, and

‘‘(iv) a written explanation is available to the general public for any allocation of a housing credit dollar

amount which is not made in accordance with established priorities and selection criteria of the housing

credit agency.’’.

(b) SITE VISITS.—Clause (iii) of section 42(m)(1)(B) (relating to

qualified allocation plan) is amended by inserting before the period

‘‘and in monitoring for noncompliance with habitability standards

through regular site visits’’.

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SEC. 634. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH IS ELIGIBLE FOR CREDIT.

(a) ADJUSTED BASIS TO INCLUDE PORTION OF CERTAIN BUILDINGS USED BY LOW-INCOME INDIVIDUALS WHO ARE NOT TENANTS

AND BY PROJECT EMPLOYEES.—Paragraph (4) of section 42(d) (relating to special rules relating to determination of adjusted basis) is

amended—

(1) by striking ‘‘subparagraph (B)’’ in subparagraph (A)

and inserting ‘‘subparagraphs (B) and (C)’’;

(2) by redesignating subparagraph (C) as subparagraph

(D); and

(3) by inserting after subparagraph (B) the following new

subparagraph:

‘‘(C) INCLUSION OF BASIS OF PROPERTY USED TO PROVIDE SERVICES FOR CERTAIN NONTENANTS.—

‘‘(i) IN GENERAL.—The adjusted basis of any building located in a qualified census tract (as defined in

paragraph (5)(C)) shall be determined by taking into

account the adjusted basis of property (of a character

subject to the allowance for depreciation and not otherwise taken into account) used throughout the taxable

year in providing any community service facility.

‘‘(ii) LIMITATION.—The increase in the adjusted

basis of any building which is taken into account by

reason of clause (i) shall not exceed 10 percent of the

eligible basis of the qualified low-income housing

project of which it is a part. For purposes of the preceding sentence, all community service facilities which

are part of the same qualified low-income housing

project shall be treated as one facility.

‘‘(iii) COMMUNITY SERVICE FACILITY.—For purposes

of this subparagraph, the term ‘community service facility’ means any facility designed to serve primarily

individuals whose income is 60 percent or less of area

median income (within the meaning of subsection

(g)(1)(B)).’’.

(b) CERTAIN NATIVE AMERICAN HOUSING ASSISTANCE DISREGARDED IN DETERMINING WHETHER BUILDING IS FEDERALLY

SUBSIDIZED FOR PURPOSES OF THE LOW-INCOME HOUSING CREDIT.—Subparagraph (E) of section 42(i)(2) (relating to determination

of whether building is federally subsidized) is amended—

(1) in clause (i), by inserting ‘‘or the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C.

4101 et seq.) (as in effect on October 1, 1997)’’ after ‘‘this subparagraph)’’; and

(2) in the subparagraph heading, by inserting ‘‘OR NATIVE

AMERICAN HOUSING ASSISTANCE’’ after ‘‘HOME ASSISTANCE’’.

SEC. 635. OTHER MODIFICATIONS.

(a) ALLOCATION OF CREDIT LIMIT TO CERTAIN BUILDINGS.—

(1) The first sentence of section 42(h)(1)(E)(ii) is amended

by striking ‘‘(as of’’ the first place it appears and inserting ‘‘(as

of the later of the date which is 6 months after the date that

the allocation was made or’’.

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(2) The last sentence of section 42(h)(3)(C) is amended by

striking ‘‘project which’’ and inserting ‘‘project which fails to

meet the 10 percent test under paragraph (1)(E)(ii) on a date

after the close of the calendar year in which the allocation was

made or which’’.

(b) DETERMINATION OF WHETHER BUILDINGS ARE LOCATED IN

HIGH COST AREAS.—The first sentence of section 42(d)(5)(C)(ii)(I) is

amended—

(1) by inserting ‘‘either’’ before ‘‘in which 50 percent’’; and

(2) by inserting before the period ‘‘or which has a poverty

rate of at least 25 percent’’.

SEC. 636. CARRYFORWARD RULES.

(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(D) (relating to

unused housing credit carryovers allocated among certain States) is

amended by striking ‘‘the excess’’ and all that follows and inserting

‘‘the excess (if any) of—

‘‘(I) the unused State housing credit ceiling for

the year preceding such year, over

‘‘(II) the aggregate housing credit dollar

amount allocated for such year.’’.

(b) CONFORMING AMENDMENT.—The second sentence of section

42(h)(3)(C) (relating to State housing credit ceiling) is amended by

striking ‘‘clauses (i) and (iii)’’ and inserting ‘‘clauses (i) through

(iv)’’.

SEC. 637. EFFECTIVE DATE.

Except as otherwise provided in this title, the amendments

made by this title shall apply to—

(1) housing credit dollar amounts allocated after December

31, 2000; and

(2) buildings placed in service after such date to the extent

paragraph (1) of section 42(h) of the Internal Revenue Code of

1986 does not apply to any building by reason of paragraph (4)

thereof, but only with respect to bonds issued after such date.

Subtitle E—Other Community Renewal and

New Markets Assistance

SEC. 641. TRANSFER OF UNOCCUPIED AND SUBSTANDARD HUD-HELD

HOUSING TO LOCAL GOVERNMENTS AND COMMUNITY DEVELOPMENT CORPORATIONS.

Section 204 of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–11a) is amended—

(1) by striking ‘‘FLEXIBLE AUTHORITY.—’’ and inserting

‘‘DISPOSITION OF HUD-OWNED PROPERTIES. (a) FLEXIBLE AU- THORITY FOR MULTIFAMILY PROJECTS.—’’; and

(2) by adding at the end the following new subsection:

‘‘(b) TRANSFER OF UNOCCUPIED AND SUBSTANDARD HOUSING TO

LOCAL GOVERNMENTS AND COMMUNITY DEVELOPMENT CORPORA- TIONS.—‘‘(1) TRANSFER AUTHORITY.—Notwithstanding the authority

under subsection (a) and the last sentence of section 204(g) of

the National Housing Act (12 U.S.C. 1710(g)), the Secretary of

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Housing and Urban Development shall transfer ownership of

any qualified HUD property, subject to the requirements of this

section, to a unit of general local government having jurisdiction for the area in which the property is located or to a community development corporation which operates within such a

unit of general local government in accordance with this subsection, but only to the extent that units of general local government and community development corporations consent to

transfer and the Secretary determines that such transfer is

practicable.

‘‘(2) QUALIFIED HUD PROPERTIES.—For purposes of this subsection, the term ‘qualified HUD property’ means any property

for which, as of the date that notification of the property is first

made under paragraph (3)(B), not less than 6 months have

elapsed since the later of the date that the property was acquired by the Secretary or the date that the property was determined to be unoccupied or substandard, that is owned by the

Secretary and is—

‘‘(A) an unoccupied multifamily housing project;

‘‘(B) a substandard multifamily housing project; or

‘‘(C) an unoccupied single family property that—

‘‘(i) has been determined by the Secretary not to be

an eligible asset under section 204(h) of the National

Housing Act (12 U.S.C. 1710(h)); or

‘‘(ii) is an eligible asset under such section 204(h),

but—

‘‘(I) is not subject to a specific sale agreement

under such section; and

‘‘(II) has been determined by the Secretary to

be inappropriate for continued inclusion in the

program under such section 204(h) pursuant to

paragraph (10) of such section.

‘‘(3) TIMING.—The Secretary shall establish procedures that

provide for—

‘‘(A) time deadlines for transfers under this subsection;

‘‘(B) notification to units of general local government

and community development corporations of qualified HUD

properties in their jurisdictions;

‘‘(C) such units and corporations to express interest in

the transfer under this subsection of such properties;

‘‘(D) a right of first refusal for transfer of qualified

HUD properties to units of general local government and

community development corporations, under which—

‘‘(i) the Secretary shall establish a period during

which the Secretary may not transfer such properties

except to such units and corporations;

‘‘(ii) the Secretary shall offer qualified HUD properties that are single family properties for purchase by

units of general local government at a cost of $1 for

each property, but only to the extent that the costs to

the Federal Government of disposal at such price do

not exceed the costs to the Federal Government of disposing of property subject to the procedures for single

family property established by the Secretary pursuant

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to the authority under the last sentence of section

204(g) of the National Housing Act (12 U.S.C. 1710(g));

‘‘(iii) the Secretary may accept an offer to purchase

a property made by a community development corporation only if the offer provides for purchase on a cost recovery basis; and

‘‘(iv) the Secretary shall accept an offer to purchase

such a property that is made during such period by

such a unit or corporation and that complies with the

requirements of this paragraph;

‘‘(E) a written explanation, to any unit of general local

government or community development corporation making

an offer to purchase a qualified HUD property under this

subsection that is not accepted, of the reason that such offer

was not acceptable.

‘‘(4) OTHER DISPOSITION.—With respect to any qualified

HUD property, if the Secretary does not receive an acceptable

offer to purchase the property pursuant to the procedure established under paragraph (3), the Secretary shall dispose of the

property to the unit of general local government in which property is located or to community development corporations located in such unit of general local government on a negotiated,

competitive bid, or other basis, on such terms as the Secretary

deems appropriate.

‘‘(5) SATISFACTION OF INDEBTEDNESS.—Before transferring

ownership of any qualified HUD property pursuant to this subsection, the Secretary shall satisfy any indebtedness incurred in

connection with the property to be transferred, by canceling the

indebtedness.

‘‘(6) DETERMINATION OF STATUS OF PROPERTIES.—To ensure

compliance with the requirements of this subsection, the Secretary shall take the following actions:

‘‘(A) UPON ENACTMENT.—Upon the enactment of this

subsection, the Secretary shall promptly assess each residential property owned by the Secretary to determine

whether such property is a qualified HUD property.

‘‘(B) UPON ACQUISITION.—Upon acquiring any residential property, the Secretary shall promptly determine

whether the property is a qualified HUD property.

‘‘(C) UPDATES.—The Secretary shall periodically reassess the residential properties owned by the Secretary to determine whether any such properties have become qualified

HUD properties.

‘‘(7) TENANT LEASES.—This subsection shall not affect the

terms or the enforceability of any contract or lease entered into

with respect to any residential property before the date that

such property becomes a qualified HUD property.

‘‘(8) USE OF PROPERTY.—Property transferred under this

subsection shall be used only for appropriate neighborhood revitalization efforts, including homeownership, rental units, commercial space, and parks, consistent with local zoning regulations, local building codes, and subdivision regulations and restrictions of record.

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‘‘(9) INAPPLICABILITY TO PROPERTIES MADE AVAILABLE FOR

HOMELESS.—Notwithstanding any other provision of this subsection, this subsection shall not apply to any properties that

the Secretary determines are to be made available for use by the

homeless pursuant to subpart E of part 291 of title 24, Code of

Federal Regulations, during the period that the properties are

so available.

‘‘(10) PROTECTION OF EXISTING CONTRACTS.—This subsection may not be construed to alter, affect, or annul any legally binding obligations entered into with respect to a qualified HUD property before the property becomes a qualified HUD

property.

‘‘(11) DEFINITIONS.—For purposes of this subsection, the following definitions shall apply:

‘‘(A) COMMUNITY DEVELOPMENT CORPORATION.—The

term ‘community development corporation’ means a nonprofit organization whose primary purpose is to promote

community development by providing housing opportunities

for low-income families.

‘‘(B) COST RECOVERY BASIS.—The term ‘cost recovery

basis’ means, with respect to any sale of a residential property by the Secretary, that the purchase price paid by the

purchaser is equal to or greater than the sum of: (i) the appraised value of the property, as determined in accordance

with such requirements as the Secretary shall establish;

and (ii) the costs incurred by the Secretary in connection

with such property during the period beginning on the date

on which the Secretary acquires title to the property and

ending on the date on which the sale is consummated.

‘‘(C) MULTIFAMILY HOUSING PROJECT.—The term ‘multifamily housing project’ has the meaning given the term in

section 203 of the Housing and Community Development

Amendments of 1978.

‘‘(D) RESIDENTIAL PROPERTY.—The term ‘residential

property’ means a property that is a multifamily housing

project or a single family property.

‘‘(E) SECRETARY.—The term ‘Secretary’ means the Secretary of Housing and Urban Development.

‘‘(F) SEVERE PHYSICAL PROBLEMS.—The term ‘severe

physical problems’ means, with respect to a dwelling unit,

that the unit—

‘‘(i) lacks hot or cold piped water, a flush toilet, or

both a bathtub and a shower in the unit, for the exclusive use of that unit;

‘‘(ii) on not less than three separate occasions during the preceding winter months, was uncomfortably

cold for a period of more than 6 consecutive hours due

to a malfunction of the heating system for the unit;

‘‘(iii) has no functioning electrical service, exposed

wiring, any room in which there is not a functioning

electrical outlet, or has experienced three or more

blown fuses or tripped circuit breakers during the preceding 90-day period;

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‘‘(iv) is accessible through a public hallway in

which there are no working light fixtures, loose or

missing steps or railings, and no elevator; or

‘‘(v) has severe maintenance problems, including

water leaks involving the roof, windows, doors, basement, or pipes or plumbing fixtures, holes or open

cracks in walls or ceilings, severe paint peeling or broken plaster, and signs of rodent infestation.

‘‘(G) SINGLE FAMILY PROPERTY.—The term ‘single family property’ means a 1- to 4-family residence.

‘‘(H) SUBSTANDARD.—The term ‘substandard’ means,

with respect to a multifamily housing project, that 25 percent or more of the dwelling units in the project have severe

physical problems.

‘‘(I) UNIT OF GENERAL LOCAL GOVERNMENT.—The term

‘unit of general local government’ has the meaning given

such term in section 102(a) of the Housing and Community

Development Act of 1974.

‘‘(J) UNOCCUPIED.—The term ‘unoccupied’ means, with

respect to a residential property, that the unit of general

local government having jurisdiction over the area in which

the project is located has certified in writing that the property is not inhabited.

‘‘(12) REGULATIONS.—

‘‘(A) INTERIM.—Not later than 30 days after the date of

the enactment of this subsection, the Secretary shall issue

such interim regulations as are necessary to carry out this

subsection.

‘‘(B) FINAL.—Not later than 60 days after the date of

the enactment of this subsection, the Secretary shall issue

such final regulations as are necessary to carry out this

subsection.’’.

SEC. 642. TRANSFER OF HUD ASSETS IN REVITALIZATION AREAS.

In carrying out the program under section 204(h) of the National Housing Act (12 U.S.C. 1710(h)), upon the request of the chief

executive officer of a county or the government of appropriate jurisdiction and not later than 60 days after such request is made, the

Secretary of Housing and Urban Development shall designate as a

revitalization area all portions of such county that meet the criteria

for such designation under paragraph (3) of such section.

SEC. 643. RISK-SHARING DEMONSTRATION.

Section 249 of the National Housing Act (12 U.S.C. 1715z–14)

is amended—

(1) by striking the section heading and inserting the following:

‘‘RISK-SHARING DEMONSTRATION’’;

(2) by striking ‘‘reinsurance’’ each place such term appears

and insert ‘‘risk-sharing’’;

(3) in subsection (a)—

(A) in the first sentence, by inserting ‘‘and with insured

community development financial institutions’’ after ‘‘private mortgage insurers’’;

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(B) in the second sentence—

(i) by striking ‘‘two’’ and inserting ‘‘four’’; and

(ii) by striking ‘‘March 15, 1988’’ and inserting

‘‘the expiration of the 5-year period beginning on the

date of the enactment of the Taxpayer Relief Act of

2000’’; and

(C) in the third sentence—

(i) by striking ‘‘insured’’ and inserting ‘‘for which

risk of nonpayment is shared’’; and

(ii) by striking ‘‘10 percent’’ and inserting ‘‘20 percent’’;

(4) in subsection (b)—

(A) in the first sentence—

(i) by striking ‘‘to provide’’ and inserting ‘‘, in providing’’;

(ii) by striking ‘‘through’’ and inserting ‘‘, to enter

into’’; and

(iii) by inserting ‘‘and with insured community development financial institutions’’ before the period at

the end;

(B) in the second sentence, by inserting ‘‘and insured

community development financial institutions’’ after ‘‘private mortgage insurance companies’’;

(C) by striking paragraph (1) and inserting the following new paragraph:

‘‘(1) assume a secondary percentage of loss on any mortgage

insured pursuant to section 203(b), 234, or 245 covering a oneto four-family dwelling, which percentage of loss shall be set

forth in the risk-sharing contract, with the first percentage of

loss to be borne by the Secretary;’’; and

(D) in paragraph (2)—

(i) by striking ‘‘carry out (under appropriate delegation) such’’ and inserting ‘‘perform or delegate underwriting,’’;

(ii) by striking ‘‘function as the Secretary pursuant

to regulations,’’ and inserting ‘‘functions as the Secretary’’; and

(iii) by inserting before the period at the end the

following: ‘‘and shall set forth in the risk-sharing contract’’;

(5) in subsection (c)—

(A) in the first sentence—

(i) by striking ‘‘of’’ the first place it appears and inserting ‘‘for’’;

(ii) by inserting ‘‘received by the Secretary with a

private mortgage insurer or insured community development financial institution’’ after ‘‘sharing of premiums’’

(iii) by striking ‘‘insurance reserves’’ and inserting

‘‘loss reserves’’;

(iv) by striking ‘‘such insurance’’ and inserting

‘‘such risk-sharing contract’’; and

(v) by striking ‘‘right’’ and inserting ‘‘rights’’; and

(B) in the second sentence—

144

(i) by inserting ‘‘or insured community development financial institution’’ after ‘‘private mortgage insurance company’’; and

(ii) by striking ‘‘for insurance’’ and inserting ‘‘for

risk-sharing’’;

(6) in subsection (d), by inserting ‘‘or insured community

development financial institution’’ after ‘‘private mortgage insurance company’’; and

(7) by adding at the end the following new subsection:

‘‘(e) INSURED COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION.—For purposes of this section, the term ‘insured community development financial institution’ means a community development financial institution, as such term is defined in section 103 of Reigle

Community Development and Regulatory Improvement Act of 1994

(12 U.S.C. 4702) that is an insured depository institution (as such

term is defined in section 3 of the Federal Deposit Insurance Act (12

U.S.C. 1813)) or an insured credit union (as such term is defined

in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)).’’.

SEC. 644. PREVENTION AND TREATMENT OF SUBSTANCE ABUSE; SERVICES PROVIDED THROUGH RELIGIOUS ORGANIZATIONS.

Title V of the Public Health Service Act (42 U.S.C. 290aa et

seq.) is amended by adding at the end the following part:

‘‘PART G—SERVICES PROVIDED THROUGH RELIGIOUS

ORGANIZATIONS

‘‘SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.

‘‘(a) DESIGNATED PROGRAMS.—Subject to subsection (b), this

part applies to discretionary and formula grant programs administered by the Substance Abuse and Mental Health Services Administration that make awards of financial assistance to public or private

entities for the purpose of carrying out activities to prevent or treat

substance abuse (in this part referred to as a ‘designated program’).

Designated programs include the program under subpart II of part

B of title XIX (relating to formula grants to the States).

‘‘(b) LIMITATION.—This part does not apply to any award of financial assistance under a designated program for a purpose other

than the purpose specified in subsection (a).

‘‘(c) DEFINITIONS.—For purposes of this part (and subject to

subsection (b)):

‘‘(1) The term ‘designated program’ has the meaning given

such term in subsection (a).

‘‘(2) The term ‘financial assistance’ means a grant, cooperative agreement, or contract.

‘‘(3) The term ‘program beneficiary’ means an individual

who receives program services.

‘‘(4) The term ‘program participant’ means a public or private entity that has received financial assistance under a designated program.

‘‘(5) The term ‘program services’ means treatment for substance abuse, or preventive services regarding such abuse, provided pursuant to an award of financial assistance under a

designated program.

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‘‘(6) The term ‘religious organization’ means a nonprofit religious organization.

‘‘SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PARTICIPANTS.

‘‘(a) IN GENERAL.—Notwithstanding any other provision of law,

a religious organization, on the same basis as any other nonprofit

private provider—

‘‘(1) may receive financial assistance under a designated

program; and

‘‘(2) may be a provider of services under a designated program.

‘‘(b) RELIGIOUS ORGANIZATIONS.—The purpose of this section is

to allow religious organizations to be program participants on the

same basis as any other nonprofit private provider without impairing the religious character of such organizations, and without diminishing the religious freedom of program beneficiaries.

‘‘(c) NONDISCRIMINATION AGAINST RELIGIOUS ORGANIZA- TIONS.—‘‘(1) ELIGIBILITY AS PROGRAM PARTICIPANTS.—Religious organizations are eligible to be program participants on the same

basis as any other nonprofit private organization as long as the

programs are implemented consistent with the Establishment

Clause and Free Exercise Clause of the First Amendment to the

United States Constitution. Nothing in this Act shall be construed to restrict the ability of the Federal Government, or a

State or local government receiving funds under such programs,

to apply to religious organizations the same eligibility conditions in designated programs as are applied to any other nonprofit private organization.

‘‘(2) NONDISCRIMINATION.—Neither the Federal Government

nor a State or local government receiving funds under designated programs shall discriminate against an organization

that is or applies to be a program participant on the basis that

the organization has a religious character.

‘‘(d) RELIGIOUS CHARACTER AND FREEDOM.— ‘‘(1) RELIGIOUS ORGANIZATIONS.—Except as provided in this

section, any religious organization that is a program participant shall retain its independence from Federal, State, and

local government, including such organization’s control over the

definition, development, practice, and expression of its religious

beliefs.

‘‘(2) ADDITIONAL SAFEGUARDS.—Neither the Federal Government nor a State shall require a religious organization to—

‘‘(A) alter its form of internal governance; or

‘‘(B) remove religious art, icons, scripture, or other symbols,

in order to be a program participant.

‘‘(e) EMPLOYMENT PRACTICES.—Nothing in this section shall be

construed to modify or affect the provisions of any other Federal or

State law or regulation that relates to discrimination in employment. A religious organization’s exemption provided under section

702 of the Civil Rights Act of 1964 regarding employment practices

shall not be affected by its participation in, or receipt of funds from,

a designated program.

‘‘(f) RIGHTS OF PROGRAM BENEFICIARIES.—

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‘‘(1) IN GENERAL.—If an individual who is a program beneficiary or a prospective program beneficiary objects to the religious character of a program participant, within a reasonable

period of time after the date of such objection such program

participant shall refer such individual to, and the appropriate

Federal, State, or local government that administers a designated program or is a program participant shall provide to

such individual (if otherwise eligible for such services), program

services that—

‘‘(A) are from an alternative provider that is accessible

to, and has the capacity to provide such services to, such

individual; and

‘‘(B) have a value that is not less than the value of the

services that the individual would have received from the

program participant to which the individual had such objection.

Upon referring a program beneficiary to an alternative provider, the program participant shall notify the appropriate Federal, State, or local government agency that administers the

program of such referral.

‘‘(2) NOTICES.—Program participants, public agencies that

refer individuals to designated programs, and the appropriate

Federal, State, or local governments that administer designated

programs or are program participants shall ensure that notice

is provided to program beneficiaries or prospective program

beneficiaries of their rights under this section.

‘‘(3) ADDITIONAL REQUIREMENTS.—A program participant

making a referral pursuant to paragraph (1) shall—

‘‘(A) prior to making such referral, consider any list

that the State or local government makes available of entities in the geographic area that provide program services;

and

‘‘(B) ensure that the individual makes contact with the

alternative provider to which the individual is referred.

‘‘(4) NONDISCRIMINATION.—A religious organization that is

a program participant shall not in providing program services

or engaging in outreach activities under designated programs

discriminate against a program beneficiary or prospective program beneficiary on the basis of religion or religious belief.

‘‘(g) FISCAL ACCOUNTABILITY.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

any religious organization that is a program participant shall

be subject to the same regulations as other recipients of awards

of Federal financial assistance to account, in accordance with

generally accepted auditing principles, for the use of the funds

provided under such awards.

‘‘(2) LIMITED AUDIT.—With respect to the award involved, a

religious organization that is a program participant shall segregate Federal amounts provided under award into a separate

account from non-Federal funds. Only the award funds shall be

subject to audit by the government.

‘‘(h) COMPLIANCE.—With respect to compliance with this section

by an agency, a religious organization may obtain judicial review

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of agency action in accordance with chapter 7 of title 5, United

States Code.

‘‘SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN PURPOSES.

‘‘No funds provided under a designated program shall be expended for sectarian worship, instruction, or proselytization.

‘‘SEC. 584. EDUCATIONAL REQUIREMENTS FOR PERSONNEL IN DRUG

TREATMENT PROGRAMS.

‘‘(a) FINDINGS.—The Congress finds that—

‘‘(1) establishing unduly rigid or uniform educational qualification for counselors and other personnel in drug treatment

programs may undermine the effectiveness of such programs;

and

‘‘(2) such educational requirements for counselors and other

personnel may hinder or prevent the provision of needed drug

treatment services.

‘‘(b) NONDISCRIMINATION.—In determining whether personnel of

a program participant that has a record of successful drug treatment for the preceding three years have satisfied State or local requirements for education and training, a State or local government

shall not discriminate against education and training provided to

such personnel by a religious organization, so long as such education and training includes basic content substantially equivalent

to the content provided by nonreligious organizations that the State

or local government would credit for purposes of determining whether the relevant requirements have been satisfied.’’.

Subtitle F—Other Provisions

SEC. 651. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP

ON PRIVATE ACTIVITY BONDS.

(a) IN GENERAL.—Paragraphs (1) and (2) of section 146(d) (relating to State ceiling) are amended to read as follows:

‘‘(1) IN GENERAL.—The State ceiling applicable to any State

for any calendar year shall be the greater of—

‘‘(A) an amount equal to $75 ($62.50 in the case of calendar year 2001) multiplied by the State population, or

‘‘(B) $225,000,000 ($187,500,000 in the case of calendar

year 2001).

‘‘(2) COST-OF-LIVING ADJUSTMENT.—In the case of a calendar year after 2002, each of the dollar amounts contained in

paragraph (1) shall be increased by an amount equal to—

‘‘(A) such dollar amount, multiplied by

‘‘(B) the cost-of-living adjustment determined under

section 1(f)(3) for such calendar year by substituting ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph

(B) thereof.

If any increase determined under the preceding sentence is not

a multiple of $5 ($5,000 in the case of the dollar amount in

paragraph (1)(B)), such increase shall be rounded to the nearest

multiple thereof.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to calendar years after 2000.

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SEC. 652. MODIFICATIONS TO EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

(a) EXPENSING NOT LIMITED TO SITES IN TARGETED AREAS.—

Subsection (c) of section 198 is amended to read as follows:

‘‘(c) QUALIFIED CONTAMINATED SITE.—For purposes of this

section—

‘‘(1) IN GENERAL.—The term ‘qualified contaminated site’

means any area—

‘‘(A) which is held by the taxpayer for use in a trade

or business or for the production of income, or which is

property described in section 1221(a)(1) in the hands of the

taxpayer, and

‘‘(B) at or on which there has been a release (or threat

of release) or disposal of any hazardous substance.

‘‘(2) NATIONAL PRIORITIES LISTED SITES NOT INCLUDED.—

Such term shall not include any site which is on, or proposed

for, the national priorities list under section 105(a)(8)(B) of the

Comprehensive Environmental Response, Compensation, and

Liability Act of 1980 (as in effect on the date of the enactment

of this section).

‘‘(3) TAXPAYER MUST RECEIVE STATEMENT FROM STATE ENVIRONMENTAL AGENCY.—An area shall be treated as a qualified

contaminated site with respect to expenditures paid or incurred

during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such

area is located that such area meets the requirement of paragraph (1)(B).

‘‘(4) APPROPRIATE STATE AGENCY.—For purposes of paragraph (3), the chief executive officer of each State may, in consultation with the Administrator of the Environmental Protection Agency, designate the appropriate State environmental

agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated

an appropriate environmental agency within such 60-day period, the appropriate environmental agency for such State shall

be designated by the Administrator of the Environmental Protection Agency.’’.

(b) EXTENSION OF TERMINATION DATE.—Subsection (h) of section 198 is amended by striking ‘‘2001’’ and inserting ‘‘2003’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to expenditures paid or incurred after the date of the enactment of this Act.

SEC. 653. EXTENSION OF DC HOMEBUYER TAX CREDIT.

Section 1400C(i) (relating to application of section) is amended

by striking ‘‘2002’’ and inserting ‘‘2004’’.

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TITLE VII—ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

Subtitle A—Administrative Provisions

SEC. 701. EXEMPTION OF CERTAIN REPORTING REQUIREMENTS.

Section 3003(a)(1) of the Federal Reports Elimination and Sunset Act of 1995 (31 U.S.C. 1113 note) shall not apply to any report

required to be submitted under any of the following provisions of

law:

(1) Section 13031(f) of the Consolidated Omnibus Budget

Reconciliation Act of 1985 (19 U.S.C. 58c(f)).

(2) Section 16(c) of the Foreign Trade Zones Act (19 U.S.C.

81p(c)).

(3) The following provisions of the Tariff Act of 1930:

(A) Section 330(c)(1) (19 U.S.C. 1330(c)(1)).

(B) Section 607(c) (19 U.S.C. 1607(c)).

(4) Section 5 of the International Coffee Agreement Act of

1980 (19 U.S.C. 1356n).

(5) Section 351(a)(2) of the Trade Expansion Act of 1962

(19 U.S.C. 1981(a)(2)).

(6) Section 502 of the Automotive Products Trade Act of

1965 (19 U.S.C. 2032).

(7) Section 3131 of the Customs Enforcement Act of 1986

(19 U.S.C. 2081).

(8) The following provisions of the Trade Act of 1974 (19

U.S.C. 2101 et seq.):

(A) Section 102(b)(4)(A)(ii)(I) (19 U.S.C.

2112(b)(4)(A)(ii)(I)).

(B) Section 102(e)(1) (19 U.S.C. 2112(e)(1)).

(C) Section 102(e)(2) (19 U.S.C. 2112(e)(2)).

(D) Section 104(d) (19 U.S.C. 2114(d)).

(E) Section 125(e) (19 U.S.C. 2135(e)).

(F) Section 135(e)(1) (19 U.S.C. 2155(e)(1)).

(G) Section 141(c) (19 U.S.C. 2171(c)).

(H) Section 162 (19 U.S.C. 2212).

(I) Section 163(b) (19 U.S.C. 2213(b)).

(J) Section 163(c) (19 U.S.C. 2213(c)).

(K) Section 203(b) (19 U.S.C. 2253(b)).

(L) Section 302(b)(2)(C) (19 U.S.C. 2412(b)(2)(C)).

(M) Section 303 (19 U.S.C. 2413).

(N) Section 309 (19 U.S.C. 2419).

(O) Section 407(a) (19 U.S.C. 2437(a)).

(P) Section 502(f) (19 U.S.C. 2462(f)).

(Q) Section 504 (19 U.S.C. 2464).

(9) The following provisions of the Trade Agreements Act of

1979 (19 U.S.C. 2501 et seq.):

(A) Section 2(b) (19 U.S.C. 2503(b)).

(B) Section 3(c) (19 U.S.C. 2504(c)).

(C) Section 305(c) (19 U.S.C. 2515(c)).

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(10) Section 303(g)(1) of the Convention on Cultural Property Implementation Act (19 U.S.C. 2602(g)(1)).

(11) The following provisions of the Caribbean Basin Economic Recovery Act (19 U.S.C. 2701 et seq.):

(A) Section 212(a)(1)(A) (19 U.S.C. 2702(a)(1)(A)).

(B) Section 212(a)(2) (19 U.S.C. 2702(a)(2)).

(12) The following provisions of the Omnibus Trade and

Competitiveness Act of 1988 (19 U.S.C. 2901 et seq.):

(A) Section 1102 (19 U.S.C. 2902).

(B) Section 1103 (19 U.S.C. 2903).

(C) Section 1206(b) (19 U.S.C. 3006(b)).

(13) Section 123(a) of the Customs and Trade Act of 1990

(Public Law 101–382) (19 U.S.C. 2083).

(14) Section 243(b)(2) of the Caribbean Basin Economic Recovery Expansion Act of 1990 (Public Law 101–382).

(15) The following provisions of the Internal Revenue Code

of 1986:

(A) Section 6103(p)(5).

(B) Section 7608.

(C) Section 7802(f)(3).

(D) Section 8022(3).

(E) Section 9602(a).

(16) The following provisions relating to the revenue laws

of the United States:

(A) Section 1552(c) of the Tax Reform Act of 1986 (100

Stat. 2753).

(B) Section 231 of the Deficit Reduction Act of 1984 (26

U.S.C. 801 note).

(C) Section 208 of the Tax Treatment Extension Act of

1977 (26 U.S.C. 911 note).

(D) Section 7105 of the Technical and Miscellaneous

Revenue Act of 1988 (45 U.S.C. 369).

(17) Section 4008 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1308).

(18) Section 426 of the Black Lung Benefits Act (30 U.S.C.

936(b)).

(19) Section 7502(g) of title 31, United States Code.

(20) The following provisions of the Social Security Act:

(A) Section 215(i)(2)(C)(i) (42 U.S.C. 415(i)(2)(C)(i)).

(B) Section 221(i)(2) (42 U.S.C. 421(i)(2)).

(C) Section 221(i)(3) (42 U.S.C. 421(i)(3)).

(D) Section 233(e)(1) (42 U.S.C. 433(e)(1)).

(E) Section 452(a)(10) (42 U.S.C. 652(a)(10)).

(F) Section 452(g)(3)(B) (42 U.S.C. 652(g)(3)(B)).

(G) Section 506(a)(1) (42 U.S.C. 706(a)).

(H) Section 908 (42 U.S.C. 1108).

(I) Section 1114(f) (42 U.S.C. 1314(f)).

(J) Section 1120 (42 U.S.C. 1320).

(K) Section 1161 (42 U.S.C. 1320c–10).

(L) Section 1875(b) (42 U.S.C. 1395ll(b)).

(M) Section 1881 (42 U.S.C. 1395rr).

(N) Section 1882 (42 U.S.C. 1395ss(f)(2)).

(21) Section 104(b) of the Social Security Independence and

Program Improvements Act of 1994 (42 U.S.C. 904 note).

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(22) Section 10 of the Railroad Retirement Act of 1937 (45

U.S.C. 231f).

(23) The following provisions of the Railroad Retirement

Act of 1974:

(A) Section 22(a)(1) (45 U.S.C. 231u(a)(1)).

(B) Section 22(b)(1) (45 U.S.C. 231u(b)(1)).

(24) Section 502 of the Railroad Retirement Solvency Act of

1983 (45 U.S.C. 231f–1).

(25) Section 47121(c) of title 49, United States Code.

(26) The following provisions of the Omnibus Budget Reconciliation Act of 1987 (Public Law 100–203; 101 Stat. 1330–

182):

(A) Section 4007(c)(4) (42 U.S.C. 1395ww note).

(B) Section 4079 (42 U.S.C. 1395mm note).

(C) Section 4205 (42 U.S.C. 1395i–3 note).

(D) Section 4215 (42 U.S.C. 1396r note).

(27) The following provisions of the Inspector General Act

of 1978 (Public Law 95–452):

(A) Section 5(b).

(B) Section 5(d).

(28) The following provisions of the Public Health Service

Act:

(A) In section 308(a) (42 U.S.C. 242m(a)), subparagraphs (A), (B), (C), and (D) of paragraph (1).

(B) Section 403 (42 U.S.C. 283).

(29) Section 404 of the Health Services and Centers Amendments of 1978 (42 U.S.C. 242p) (Public Law 95–626).

(30) The following provisions of the Older Americans Act of

1965:

(A) Section 206(d) (42 U.S.C. 3017(d)).

(B) Section 207 (42 U.S.C. 3018).

(31) Section 308 of the Age Discrimination Act of 1975 (42

U.S.C. 6106a(b)).

(32) Section 509(c)(3) of the Americans with Disabilities Act

0f 1990 (42 U.S.C. 12209(c)(3)).

(33) Section 4207(f) of the Omnibus Budget Reconciliation

Act of 1990 (42 U.S.C. 1395b–1 note).

SEC. 702. EXTENSION OF DEADLINES FOR IRS COMPLIANCE WITH CERTAIN NOTICE REQUIREMENTS.

(a) ANNUAL INSTALLMENT AGREEMENT NOTICE.—Section 3506

of the Internal Revenue Service Restructuring and Reform Act of

1998 is amended by striking ‘‘July 1, 2000’’ and inserting ‘‘September 1, 2001’’.

(b) NOTICE REQUIREMENTS RELATING TO COMPUTATION OF

PENALTY.—Subsection (c) of section 3306 of the Internal Revenue

Service Restructuring and Reform Act of 1998 is amended—

(1) by striking ‘‘December 31, 2000’’ and inserting ‘‘June 30,

2001’’, and

(2) by adding at the end the following: ‘‘In the case of any

notice of penalty issued after June 30, 2001, and before July 1,

2003, the requirements of section 6751(a) of the Internal Revenue Code of 1986 shall be treated as met if such notice contains a telephone number at which the taxpayer can request a

152

copy of the taxpayer’s assessment and payment history with respect to such penalty.’’.

(c) NOTICE REQUIREMENTS RELATING TO INTEREST IMPOSED.—

Subsection (c) of section 3308 of the Internal Revenue Service Restructuring and Reform Act of 1998 is amended—

(1) by striking ‘‘December 31, 2000’’ and inserting ‘‘June 30,

2001’’, and

(2) by adding at the end the following: ‘‘In the case of any

notice issued after June 30, 2001, and before July 1, 2003, to

which section 6631 of the Internal Revenue Code of 1986 applies, the requirements of section 6631 of such Code shall be

treated as met if such notice contains a telephone number at

which the taxpayer can request a copy of the taxpayer’s payment

history relating to interest amounts included in such notice.’’.

SEC. 703. EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

Paragraph (6), and the last sentence, of section 7608(c) are each

amended by striking ‘‘January 1, 2001’’ and inserting ‘‘January 1,

2006’’.

SEC. 704. CONFIDENTIALITY OF CERTAIN DOCUMENTS RELATING TO

CLOSING AND SIMILAR AGREEMENTS AND TO AGREEMENTS WITH FOREIGN GOVERNMENTS.

(a) CLOSING AND SIMILAR AGREEMENTS TREATED AS RETURN

INFORMATION.—Paragraph (2) of section 6103(b) (defining return

information) is amended by striking ‘‘and’’ at the end of subparagraph (B), by inserting ‘‘and’’ at the end of subparagraph (C), and

by inserting after subparagraph (C) the following new subparagraph:

‘‘(D) any agreement under section 7121, and any similar agreement, and any background information related to

such an agreement or request for such an agreement,’’.

(b) AGREEMENTS WITH FOREIGN GOVERNMENTS.—

(1) IN GENERAL.—Subchapter B of chapter 61 (relating to

miscellaneous provisions) is amended by inserting after section

6104 the following new section:

‘‘SEC. 6105. CONFIDENTIALITY OF INFORMATION ARISING UNDER

TREATY OBLIGATIONS.

‘‘(a) IN GENERAL.—Tax convention information shall not be disclosed.

‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply—

‘‘(1) to the disclosure of tax convention information to persons or authorities (including courts and administrative bodies)

which are entitled to such disclosure pursuant to a tax convention,

‘‘(2) to any generally applicable procedural rules regarding

applications for relief under a tax convention, or

‘‘(3) in any case not described in paragraph (1) or (2), to the

disclosure of any tax convention information not relating to a

particular taxpayer if the Secretary determines, after consultation with each other party to the tax convention, that such disclosure would not impair tax administration.

‘‘(c) DEFINITIONS.—For purposes of this section—

‘‘(1) TAX CONVENTION INFORMATION.—The term ‘tax convention information’ means any—

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‘‘(A) agreement entered into with the competent authority of one or more foreign governments pursuant to a tax

convention,

‘‘(B) application for relief under a tax convention,

‘‘(C) any background information related to such agreement or application,

‘‘(D) document implementing such agreement, and

‘‘(E) any other information exchanged pursuant to a tax

convention which is treated as confidential or secret under

the tax convention.

‘‘(2) TAX CONVENTION.—The term ‘tax convention’ means—

‘‘(A) any income tax or gift and estate tax convention,

or

‘‘(B) any other convention or bilateral agreement (including multilateral conventions and agreements and any

agreement with a possession of the United States) providing

for the avoidance of double taxation, the prevention of fiscal

evasion, nondiscrimination with respect to taxes, the exchange of tax relevant information with the United States,

or mutual assistance in tax matters.

‘‘(d) CROSS REFERENCES.—

‘‘For penalties for the unauthorized disclosure of tax convention

information which is return or return information, see sections 7213,

7213A, and 7431.’’.

(2) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 61 is amended by inserting after the item

relating to section 6104 the following new item:

‘‘Sec. 6105. Confidentiality of information arising under treaty obligations.’’.

(c) EXCEPTION FROM PUBLIC INSPECTION AS WRITTEN DETERMINATION.—

(1) CLOSING AND SIMILAR AGREEMENTS.—Paragraph (1) of

section 6110(b) is amended to read as follows:

‘‘(1) WRITTEN DETERMINATION.—

‘‘(A) IN GENERAL.—The term ‘written determination’

means a ruling, determination letter, technical advice

memorandum, or Chief Counsel advice.

‘‘(B) EXCEPTIONS.—Such term shall not include any

matter referred to in subparagraph (C) or (D) of section

6103(b)(2).’’.

(2) AGREEMENTS WITH FOREIGN GOVERNMENTS.—Paragraph (1) of section 6110(l) is amended by inserting ‘‘or 6105’’

after ‘‘6104’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall take effect on the date of the enactment of this Act.

SEC. 705. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS

ON REFUNDS AND CREDITS.

(a) GENERAL RULE.—Subsections (a) and (b) of section 6405 are

each amended by striking ‘‘$1,000,000’’ and inserting ‘‘$2,000,000’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall take effect on the date of the enactment of this Act, except that

such amendment shall not apply with respect to any refund or credit with respect to a report that has been made before such date of

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the enactment under section 6405 of the Internal Revenue Code of

1986.

SEC. 706. TREATMENT OF MISSING CHILDREN WITH RESPECT TO CERTAIN TAX BENEFITS.

(a) IN GENERAL.—Subsection (c) of section 151 (relating to additional exemption for dependents) is amended by adding at the end

the following new paragraph:

‘‘(6) TREATMENT OF MISSING CHILDREN.— ‘‘(A) IN GENERAL.—Solely for the purposes referred to in

subparagraph (B), a child of the taxpayer—

‘‘(i) 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,

and

‘‘(ii) who was (without regard to this paragraph)

the dependent of the taxpayer for the portion of the taxable year before the date of the kidnapping,

shall be treated as a dependent of the taxpayer for all taxable years ending during the period that the child is kidnapped.

‘‘(B) PURPOSES.—Subparagraph (A) shall apply solely

for purposes of determining—

‘‘(i) the deduction under this section,

‘‘(ii) the credit under section 24 (relating to child

tax credit), and

‘‘(iii) whether an individual is a surviving spouse

or a head of a household (such terms are defined in

section 2).

‘‘(C) COMPARABLE TREATMENT FOR EARNED INCOME

CREDIT.—For purposes of section 32, an individual—

‘‘(i) who is presumed by law enforcement authorities to have been kidnapped by someone who is not a

member of the family of such individual or the taxpayer, and

‘‘(ii) who had, for the taxable year in which the

kidnapping occurred, the same principal place of abode

as the taxpayer for more than one-half of the portion

of such year before the date of the kidnapping,

shall be treated as meeting the requirement of section

32(c)(3)(A)(ii) with respect to a taxpayer for all taxable

years ending during the period that the individual is kidnapped.

‘‘(D) TERMINATION OF TREATMENT.—Subparagraphs

(A) and (C) shall cease to apply as of the first taxable year

of the taxpayer beginning after the calendar year in which

there is a determination that the child is dead (or, if earlier, in which the child would have attained age 18).’’

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years ending after the date of the enactment

of this Act.

SEC. 707. AMENDMENTS TO STATUTES REFERENCING YIELD ON 52-

WEEK TREASURY BILLS.

(a) AMENDMENT TO THE ACT OF FEBRUARY 26, 1931.—Section

6 of the Act of February 26, 1931 (40 U.S.C. 258e–1) (relating to the

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interest rate on compensation owed for takings of property) is

amended—

(1) in paragraph (1), by striking ‘‘the coupon issue yield

equivalent (as determined by the Secretary of the Treasury) of

the average accepted auction price for the last auction of 52

week United States Treasury bills settled immediately before’’

and inserting ‘‘the weekly average 1-year constant maturity

Treasury yield, as published by the Board of Governors of the

Federal Reserve System, for the calendar week preceding’’; and

(2) in paragraph (2), by striking ‘‘the coupon issue yield

equivalent (as determined by the Secretary of the Treasury) of

the average accepted auction price for the last auction of 52

week United States Treasury bills settled immediately before’’

and inserting ‘‘the weekly average 1-year constant maturity

Treasury yield, as published by the Board of Governors of the

Federal Reserve System, for the calendar week preceding’’.

(b) AMENDMENT TO TITLE 18, UNITED STATES CODE.—Section

3612(f)(2)(B) of title 18, United States Code (relating to the interest

rate on unpaid criminal fines and penalties of more than $2,500)

is amended by striking ‘‘the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled before’’ and inserting ‘the weekly average 1-year

constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding.’’.

(c) AMENDMENT TO THE INTERNAL REVENUE CODE.—Section

995(f)(4) (relating to the interest rate on tax-deferred liability of

shareholders of domestic international sales corporations) is amended by striking ‘‘the average investment yield of United States Treasury bills with maturities of 52 weeks which were auctioned during

the 1-year period’’ and inserting ‘‘the average of the 1-year constant

maturity Treasury yields, as published by the Board of Governors

of the Federal Reserve System, for the 1-year period’’.

(d) AMENDMENTS TO TITLE 28, UNITED STATES CODE.—

(1) AMENDMENT TO SECTION 1961.—Section 1961(a) of title

28, United States Code (relating to the interest rate on money

judgments in civil cases recovered in Federal district court) is

amended by striking ‘‘the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United

States Treasury bills settled immediately prior to’’ and inserting

‘‘the weekly average 1-year constant maturity Treasury yield, as

published by the Board of Governors of the Federal Reserve

System, for the calendar week preceding.’’.

(2) AMENDMENT TO SECTION 2516.—Section 2516(b) of title

28, United States Code (relating to the interest rate on a judgment against the United States affirmed by the Supreme Court

after review on petition of the United States) is amended by

striking ‘‘the coupon issue yield equivalent (as determined by

the Secretary of the Treasury) of the average accepted auction

price for the last auction of fifty-two week United States Treasury bills settled immediately before’’ and inserting ‘‘the weekly

average 1-year constant maturity Treasury yield, as published

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by the Board of Governors of the Federal Reserve System, for

the calendar week preceding’’.

SEC. 708. ADJUSTMENTS FOR CONSUMER PRICE INDEX ERROR.

(a) DETERMINATIONS BY OMB.—As soon as practicable after the

date of the enactment of this Act, the Director of the Office of Management and Budget shall determine with respect to each applicable

Federal benefit program whether the CPI computation error for

1999 has or will result in a shortfall in payments to beneficiaries

under such program (as compared to payments that would have

been made if the error had not occurred). As soon as practicable

after the date of the enactment of this Act, but not later than 60

days after such date, the Director shall direct the head of the Federal agency which administers such program to make a payment or

payments that, insofar as the Director finds practicable and

feasible—

(1) are targeted to the amount of the shortfall experienced

by individual beneficiaries, and

(2) compensate for the shortfall.

(b) COORDINATION WITH FEDERAL AGENCIES.—As soon as practicable after the date of the enactment of this Act, each Federal

agency that administers an applicable Federal benefit program

shall, in accordance with such guidelines as are issued by the Director pursuant to this section, make an initial determination of whether, and the extent to which, the CPI computation error for 1999 has

or will result in a shortfall in payments to beneficiaries of an applicable Federal benefit program administered by such agency. Not

later than 30 days after such date, the head of such agency shall

submit a report to the Director and to each House of the Congress

of such determination, together with a complete description of the

nature of the shortfall.

(c) IMPLEMENTATION PURSUANT TO AGENCY REPORTS.—Upon

receipt of the report submitted by a Federal agency pursuant to subsection (b), the Director shall review the initial determination of the

agency, the agency’s description of the nature of the shortfall, and

the compensation payments proposed by the agency. Prior to directing payment of such payments pursuant to subsection (a), the Director shall make appropriate adjustments (if any) in the compensation

payments proposed by the agency that the Director determines are

necessary to comply with the requirements of subsection (a) and

transmit to the agency a summary report of the review, indicating

any adjustments made by the Director. The agency shall make the

compensation payments as directed by the Director pursuant to subsection (a) in accordance with the Director’s summary report.

(d) INCOME DISREGARD UNDER FEDERAL MEANS-TESTED BENEFIT PROGRAMS.—A payment made under this section to compensate

for a shortfall in benefits shall, in accordance with guidelines issued

by the Director pursuant to this section, be disregarded in determining income under title VIII of the Social Security Act or any applicable Federal benefit program that is means-tested.

(e) FUNDING.—Funds otherwise available under each applicable

Federal benefit program for making benefit payments under such

program are hereby made available for making compensation payments under this section in connection with such program.

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(f) NO JUDICIAL REVIEW.—No action taken pursuant to this section shall be subject to judicial review.

(g) DIRECTOR’S REPORT.—Not later than April 1, 2001, the Director shall submit to each House of the Congress a report on the

activities performed by the Director pursuant to this section.

(h) DEFINITIONS.—For purposes of this section:

(1) APPLICABLE FEDERAL BENEFIT PROGRAM.—The term ‘‘applicable Federal benefit program’’ means any program of the

Government of the United States providing for regular or periodic payments or cash assistance paid directly to individual

beneficiaries, as determined by the Director of the Office of

Management and Budget.

(2) FEDERAL AGENCY.—The term ‘‘Federal agency’’ means a

department, agency, or instrumentality of the Government of the

United States.

(3) CPI COMPUTATION ERROR FOR 1999.—The term ‘‘CPI

computation error for 1999’’ means the error in the computation

of the Consumer Price Index announced by the Bureau of Labor

Statistics on September 28, 2000.

(i) TAX PROVISIONS.—If any Consumer Price Index (as defined

in section 1(f)(5) of the Internal Revenue Code of 1986) reflects the

CPI computation error for 1999—

(1) the correct amount of such Index shall (in such manner

and to such extent as the Secretary of the Treasury determines

to be appropriate) be taken into account for purposes of such

Code, and

(2) tables prescribed under section 1(f) of such Code to reflect such correct amount shall apply in lieu of any tables that

were prescribed based on the erroneous amount.

SEC. 709. PREVENTION OF DUPLICATION OF LOSS THROUGH ASSUMPTION OF LIABILITIES GIVING RISE TO A DEDUCTION.

(a) IN GENERAL.—Section 358 (relating to basis to distributees)

is amended by adding at the end the following new subsection:

‘‘(h) SPECIAL RULES FOR ASSUMPTION OF LIABILITIES TO WHICH

SUBSECTION (d) DOES NOT APPLY.—

‘‘(1) IN GENERAL.—If, after application of the other provisions of this section to an exchange or series of exchanges, the

basis of property to which subsection (a)(1) applies exceeds the

fair market value of such property, then such basis shall be reduced (but not below such fair market value) by the amount

(determined as of the date of the exchange) of any liability—

‘‘(A) which is assumed in exchange for such property,

and

‘‘(B) with respect to which subsection (d)(1) does not

apply to the assumption.

‘‘(2) EXCEPTIONS.—Except as provided by the Secretary,

paragraph (1) shall not apply to any liability if—

‘‘(A) the trade or business with which the liability is associated is transferred to the person assuming the liability

as part of the exchange, or

‘‘(B) substantially all of the assets with which the liability is associated are transferred to the person assuming

the liability as part of the exchange.

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‘‘(3) LIABILITY.—For purposes of this subsection, the term

‘liability’ shall include any fixed or contingent obligation to

make payment, without regard to whether the obligation is otherwise taken into account for purposes of this title.’’

(b) DETERMINATION OF AMOUNT OF LIABILITY ASSUMED.—Section 357(d)(1) is amended by inserting ‘‘section 358(h),’’ after ‘‘section 358(d),’’.

(c) APPLICATION OF COMPARABLE RULES TO PARTNERSHIPS AND

S CORPORATIONS.—The Secretary of the Treasury or his delegate—

(1) shall prescribe rules which provide appropriate adjustments under subchapter K of chapter 1 of the Internal Revenue

Code of 1986 to prevent the acceleration or duplication of losses

through the assumption of (or transfer of assets subject to) liabilities described in section 358(h)(3) of such Code (as added

by subsection (a)) in transactions involving partnerships, and

(2) may prescribe rules which provide appropriate adjustments under subchapter S of chapter 1 of such Code in transactions described in paragraph (1) involving S corporations

rather than partnerships.

(d) EFFECTIVE DATES.— (1) IN GENERAL.—The amendments made by this section

shall apply to assumptions of liability after October 18, 1999.

(2) RULES.—The rules prescribed under subsection (c) shall

apply to assumptions of liability after October 18, 1999, or such

later date as may be prescribed in such rules.

Subtitle B—Miscellaneous Provisions

SEC. 710. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND INLAND WATERWAY TRANSPORTATION

WHICH REMAIN IN GENERAL FUND.

(a) TAXES ON TRAINS.— (1) IN GENERAL.—Subparagraph (A) of section 4041(a)(1) is

amended by striking ‘‘or a diesel-powered train’’ each place it

appears and by striking ‘‘or train’’.

(2) CONFORMING AMENDMENTS.—

(A) Subparagraph (C) of section 4041(a)(1) is amended

by striking clause (ii) and by redesignating clause (iii) as

clause (ii).

(B) Subparagraph (C) of section 4041(b)(1) is amended

by striking all that follows ‘‘section 6421(e)(2)’’ and inserting a period.

(C) Subsection (d) of section 4041 is amended by redesignating paragraph (3) as paragraph (4) and by inserting

after paragraph (2) the following new paragraph:

‘‘(3) DIESEL FUEL USED IN TRAINS.—There is hereby imposed a tax of 0.1 cent per gallon on any liquid other than gasoline (as defined in section 4083)—

‘‘(A) sold by any person to an owner, lessee, or other operator of a diesel-powered train for use as a fuel in such

train, or

‘‘(B) used by any person as a fuel in a diesel-powered

train unless there was a taxable sale of such fuel under

subparagraph (A).

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No tax shall be imposed by this paragraph on the sale or use

of any liquid if tax was imposed on such liquid under section

4081.’’

(D) Subsection (e) of section 4082 is amended by striking ‘‘section 4041(a)(1)’’ and inserting ‘‘subsections (d)(3)

and (a)(1) of section 4041, respectively’’.

(E) Paragraph (3) of section 4083(a) is amended by

striking ‘‘or a diesel-powered train’’.

(F) Paragraph (3) of section 6421(f) is amended to read

as follows:

‘‘(3) GASOLINE USED IN TRAINS.—In the case of gasoline

used as a fuel in a train, this section shall not apply with respect to the Leaking Underground Storage Tank Trust Fund financing rate under section 4081.’’

(G) Paragraph (3) of section 6427(l) is amended to read

as follows:

‘‘(3) REFUND OF CERTAIN TAXES ON FUEL USED IN DIESEL- POWERED TRAINS.—For purposes of this subsection, the term

‘nontaxable use’ includes fuel used in a diesel-powered train.

The preceding sentence shall not apply to the tax imposed by

section 4041(d) and the Leaking Underground Storage Tank

Trust Fund financing rate under section 4081 except with respect to fuel sold for exclusive use by a State or any political

subdivision thereof.’’

(b) FUEL USED ON INLAND WATERWAYS.—

(1) IN GENERAL.—Paragraph (1) of section 4042(b) is

amended by adding ‘‘and’’ at the end of subparagraph (A), by

striking ‘‘, and’’ at the end of subparagraph (B) and inserting

a period, and by striking subparagraph (C).

(2) CONFORMING AMENDMENT.—Paragraph (2) of section

4042(b) is amended by striking subparagraph (C).

(c) EFFECTIVE DATE.—The amendments made by this section

shall take effect on January 1, 2001.

SEC. 711. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE

INSURANCE COMPANIES.

(a) IN GENERAL.—Section 809 (relating to reductions in certain

deductions of mutual life insurance companies) is hereby repealed.

(b) CONFORMING AMENDMENTS RELATED TO REPEAL OF SECTION 809.—

(1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 are

each amended by striking ‘‘the sum of (i)’’ and by striking ‘‘plus

(ii) any excess described in section 809(a)(2) for the taxable

year,’’.

(2)(A) The last sentence of section 807(d)(1) is amended by

striking ‘‘(as defined in section 809(b)(4)(B))’’.

(B) Subsection (d) of section 807 is amended by adding at

the end the following new paragraph:

‘‘(6) STATUTORY RESERVES.—For purposes of this subsection, the term ‘statutory reserves’ means the aggregate

amount set forth in the annual statement with respect to items

described in subsection (c). Such term shall not include any reserve attributable to a deferred and uncollected premium if the

establishment of such reserve is not permitted under section

811(c).’’

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(3) Subsection (c) of section 808 is amended to read as follows:

‘‘(c) AMOUNT OF DEDUCTION.—The deduction for policyholder

dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year.’’

(4) Subparagraph (A) of section 812(b)(3) is amended by

striking ‘‘sections 808 and 809’’ and inserting ‘‘section 808’’.

(5) Subsection (c) of section 817 is amended by striking

‘‘(other than section 809)’’.

(6) Subsection (c) of section 842 is amended by striking

paragraph (3) and by redesignating paragraph (4) as paragraph (3).

(7) The table of sections for subpart C of part I of subchapter L of chapter 1 is amended by striking the item relating

to section 809.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 712. REPEAL OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

(a) REPEAL.—Section 815 (relating to distributions to shareholders from pre-1984 policyholders surplus accounts) is hereby repealed.

(b) CONFORMING AMENDMENTS.— (1) Section 801 is amended by striking subsection (c).

(2) The table of sections for subpart D of part I of subchapter L of chapter 1 is amended by striking the item relating

to section 815.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 713. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

(a) IN GENERAL.—Part IV of subchapter A of chapter 1 (relating

to credits against tax) is amended by adding at the end the following new subpart:

‘‘Subpart H—Nonrefundable Credit for Holders of

Qualified Amtrak Bonds

‘‘Sec. 54. Credit to holders of qualified Amtrak bonds.

‘‘SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

‘‘(a) ALLOWANCE OF CREDIT.—In the case of a taxpayer who

holds a qualified Amtrak bond on a credit allowance date of such

bond which occurs during the taxable year, there shall be allowed

as a credit against the tax imposed by this chapter for such taxable

year an amount equal to the sum of the credits determined under

subsection (b) with respect to credit allowance dates during such

year on which the taxpayer holds such bond.

‘‘(b) AMOUNT OF CREDIT.—

‘‘(1) IN GENERAL.—The amount of the credit determined

under this subsection with respect to any credit allowance date

for a qualified Amtrak bond is 25 percent of the annual credit

determined with respect to such bond.

‘‘(2) ANNUAL CREDIT.—The annual credit determined with

respect to any qualified Amtrak bond is the product of—

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‘‘(A) the applicable credit rate, multiplied by

‘‘(B) the outstanding face amount of the bond.

‘‘(3) APPLICABLE CREDIT RATE.—For purposes of paragraph

(2), the applicable credit rate with respect to an issue is the rate

equal to an average market yield (as of the day before the date

of sale of the issue) on outstanding long-term corporate debt obligations (determined under regulations prescribed by the Secretary).

‘‘(4) SPECIAL RULE FOR ISSUANCE AND REDEMPTION.—In the

case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during

which the bond is outstanding. A similar rule shall apply when

the bond is redeemed.

‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—

‘‘(1) IN GENERAL.—The credit allowed under subsection (a)

for any taxable year shall not exceed the excess of—

‘‘(A) the sum of the regular tax liability (as defined in

section 26(b)) plus the tax imposed by section 55, over

‘‘(B) the sum of the credits allowable under this part

(other than this subpart and subpart C).

‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the credit allowable under subsection (a) exceeds the limitation imposed by

paragraph (1) for such taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.

‘‘(d) QUALIFIED AMTRAK BOND.—For purposes of this part—

‘‘(1) IN GENERAL.—The term ‘qualified Amtrak bond’ means

any bond issued as part of an issue if—

‘‘(A) 95 percent or more of the proceeds of such issue

are to be used for any qualified project,

‘‘(B) the bond is issued by the National Railroad Passenger Corporation,

‘‘(C) the issuer—

‘‘(i) designates such bond for purposes of this section,

‘‘(ii) certifies that it meets the State contribution requirement of paragraph (3) with respect to such project

and that it has received the required State contribution

payment before the issuance of such bond, and

‘‘(iii) certifies that it has obtained the written approval of the Secretary of Transportation for such

project, including a finding by the Inspector General of

the Department of Transportation that there is a reasonable likelihood that the proposed program will result in a positive incremental financial contribution to

the National Railroad Passenger Corporation and that

the investment evaluation process includes a return on

investment, leveraging of funds (including State capital and operating contributions), cost effectiveness,

safety improvement, mobility improvement, and feasibility,

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‘‘(D) the term of each bond which is part of such issue

does not exceed 20 years,

‘‘(E) the payment of principal with respect to such bond

is the obligation of the National Railroad Passenger Corporation (regardless of the establishment of the trust account under subsection (j)), and

‘‘(F) the issue meets the requirements of subsection (h).

‘‘(2) TREATMENT OF CHANGES IN USE.—For purposes of

paragraph (1)(A), the proceeds of an issue shall not be treated

as used for a qualified project to the extent that the issuer takes

any action within its control which causes such proceeds not to

be used for a qualified project. The Secretary shall prescribe

regulations specifying remedial actions that may be taken (including conditions to taking such remedial actions) to prevent

an action described in the preceding sentence from causing a

bond to fail to be a qualified Amtrak bond.

‘‘(3) STATE CONTRIBUTION REQUIREMENT.—

‘‘(A) IN GENERAL.—For purposes of paragraph

(1)(C)(ii), the State contribution requirement of this paragraph is met with respect to any qualified project if the National Railroad Passenger Corporation has a written binding commitment from 1 or more States to make matching

contributions not later than the date of issuance of the issue

of not less than 20 percent of the cost of the qualified

project.

‘‘(B) USE OF STATE MATCHING CONTRIBUTIONS.—The

matching contributions described in subparagraph (A) with

respect to each qualified project shall be used—

‘‘(i) as necessary to redeem bonds which are a part

of the issue with respect to such project, and

‘‘(ii) in the case of any remaining amount, at the

election of the National Railroad Passenger Corporation and the contributing State—

‘‘(I) to fund a qualified project,

‘‘(II) to redeem other qualified Amtrak bonds,

or

‘‘(III) for the purposes of subclauses (I) and

(II).

‘‘(C) STATE MATCHING CONTRIBUTIONS MAY NOT INCLUDE FEDERAL FUNDS.—For purposes of this paragraph,

State matching contributions shall not be derived, directly

or indirectly, from Federal funds, including any transfers

from the Highway Trust Fund under section 9503.

‘‘(D) NO STATE CONTRIBUTION REQUIREMENT FOR CERTAIN QUALIFIED PROJECTS.—With respect to any qualified

project described in paragraph (2)(B) or (4) of subsection

(e), the State contribution requirement of this paragraph is

zero.

‘‘(4) QUALIFIED PROJECT.—

‘‘(A) IN GENERAL.—The term ‘qualified project’ means—

‘‘(i) the acquisition, financing, or refinancing of

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163

ington, D.C. and Boston, Massachusetts (including the

project described in subsection (e)(2)(B)),

‘‘(ii) the acquisition, financing, or refinancing of

equipment, rolling stock, and other capital improvements for the improvement of train speeds or safety (or

both) on the high-speed rail corridors designated under

section 104(d)(2) of title 23, United States Code, and

‘‘(iii) the acquisition, financing, or refinancing of

equipment, rolling stock, and other capital improvements for other intercity passenger rail corridors, including station rehabilitation or construction, track or

signal improvements, or the elimination of grade crossings.

‘‘(B) REFINANCING RULES.—For purposes of subparagraph (A), a refinancing shall constitute a qualified project

only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred by the National Railroad

Passenger Corporation—

‘‘(i) after the date of the enactment of this section,

‘‘(ii) for a term of not more than 3 years,

‘‘(iii) to finance or acquire capital improvements

described in subparagraph (A), and

‘‘(iv) in anticipation of being refinanced with proceeds of a qualified Amtrak bond.

‘‘(e) LIMITATIONS ON AMOUNT OF BONDS DESIGNATED.—

‘‘(1) IN GENERAL.—There is a qualified Amtrak bond limitation for each fiscal year. Such limitation is—

‘‘(A) $1,000,000,000 for each of the fiscal years 2001

through 2010, and

‘‘(B) except as provided in paragraph (5), zero after fiscal year 2010.

‘‘(2) BONDS FOR RAIL CORRIDORS.—

‘‘(A) IN GENERAL.—Not more than $3,000,000,000 of

the limitation under paragraph (1) may be designated for

any 1 rail corridor described in clause (i) or (ii) of subsection (d)(4)(A).

‘‘(B) SPECIFIC QUALIFIED PROJECT ALLOCATION.—Of the

amount described in subparagraph (A), the Secretary of

Transportation shall allocate $92,000,000 for the acquisition and installation of platform facilities, performance of

railroad force account work necessary to complete improvements below street grade, and any other necessary improvements related to construction at the railroad station at the

James A. Farley Post Office Building in New York City,

New York.

‘‘(3) BONDS FOR OTHER PROJECTS.—Not more than 10 percent of the limitation under paragraph (1) for any fiscal year

may be allocated to qualified projects described in subsection

(d)(4)(A)(iii).

‘‘(4) BONDS FOR ALASKA RAILROAD.—The Secretary of

Transportation may allocate to the Alaska Railroad a portion

of the qualified Amtrak limitation for any fiscal year in order

to allow the Alaska Railroad to issue bonds which meet the reVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00167 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
164

quirements of this section for use in financing any project described in subsection (d)(4)(A)(iii). For purposes of this section,

the Alaska Railroad shall be treated in the same manner as the

National Railroad Passenger Corporation.

‘‘(5) CARRYOVER OF UNUSED LIMITATION.—If for any fiscal

year—

‘‘(A) the limitation amount under paragraph (1), exceeds

‘‘(B) the amount of bonds issued during such year

which are designated under subsection (d)(1)(C)(i),

the limitation amount under paragraph (1) for the following fiscal year (through fiscal year 2014) shall be increased by the

amount of such excess.

‘‘(6) PREFERENCE FOR GREATER STATE PARTICIPATION.—In

selecting qualified projects for allocation of the qualified Amtrak bond limitation under this subsection, the Secretary of

Transportation shall give preference to any project with a State

matching contribution rate exceeding 20 percent.

‘‘(f) OTHER DEFINITIONS.—For purposes of this subpart—

‘‘(1) BOND.—The term ‘bond’ includes any obligation.

‘‘(2) CREDIT ALLOWANCE DATE.—The term ‘credit allowance

date’ means—

‘‘(A) March 15,

‘‘(B) June 15,

‘‘(C) September 15, and

‘‘(D) December 15.

Such term includes the last day on which the bond is outstanding.

‘‘(3) STATE.—The term ‘State’ means the several States and

the District of Columbia, and any subdivision thereof.

‘‘(4) PROGRAM.—The term ‘program’ means 1 or more

projects implemented over 1 or more years to support the development of intercity passenger rail corridors.

‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross income includes the amount of the credit allowed to the taxpayer under this

section (determined without regard to subsection (c)) and the

amount so included shall be treated as interest income.

‘‘(h) SPECIAL RULES RELATING TO ARBITRAGE.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), an issue shall

be treated as meeting the requirements of this subsection if as

of the date of issuance, the issuer reasonably expects—

‘‘(A) to spend at least 95 percent of the proceeds of the

issue for 1 or more qualified projects within the 3-year period beginning on such date,

‘‘(B) to incur a binding commitment with a third party

to spend at least 10 percent of the proceeds of the issue, or

to commence construction, with respect to such projects

within the 6-month period beginning on such date, and

‘‘(C) to proceed with due diligence to complete such

projects and to spend the proceeds of the issue.

‘‘(2) RULES REGARDING CONTINUING COMPLIANCE AFTER 3-

YEAR DETERMINATION.—If at least 95 percent of the proceeds of

the issue is not expended for 1 or more qualified projects within

the 3-year period beginning on the date of issuance, an issue

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shall be treated as continuing to meet the requirements of this

subsection if either—

‘‘(A) the issuer uses all unspent proceeds of the issue to

redeem bonds of the issue within 90 days after the end of

such 3-year period, or

‘‘(B) the following requirements are met:

‘‘(i) The issuer spends at least 75 percent of the

proceeds of the issue for 1 or more qualified projects

within the 3-year period beginning on the date of

issuance.

‘‘(ii) The issuer has proceeded with due diligence to

spend the proceeds of the issue within such 3-year period and continues to proceed with due diligence to

spend such proceeds.

‘‘(iii) The issuer pays to the Federal Government

any earnings on the proceeds of the issue that accrue

after the end of such 3-year period.

‘‘(iv) Either—

‘‘(I) at least 95 percent of the proceeds of the

issue is expended for 1 or more qualified projects

within the 4-year period beginning on the date of

issuance, or

‘‘(II) the issuer uses all unspent proceeds of the

issue to redeem bonds of the issue within 90 days

after the end of such 4-year period.

‘‘(i) RECAPTURE OF PORTION OF CREDIT WHERE CESSATION OF

COMPLIANCE.—

‘‘(1) IN GENERAL.—If any bond which when issued purported to be a qualified Amtrak bond ceases to be a qualified

Amtrak bond, the issuer shall pay to the United States (at the

time required by the Secretary) an amount equal to the sum

of—

‘‘(A) the aggregate of the credits allowable under this

section with respect to such bond (determined without regard to subsection (c)) for taxable years ending during the

calendar year in which such cessation occurs and the 2 preceding calendar years, and

‘‘(B) interest at the underpayment rate under section

6621 on the amount determined under subparagraph (A)

for each calendar year for the period beginning on the first

day of such calendar year.

‘‘(2) FAILURE TO PAY.—If the issuer fails to timely pay the

amount required by paragraph (1) with respect to such bond,

the tax imposed by this chapter on each holder of any such

bond which is part of such issue shall be increased (for the taxable year of the holder in which such cessation occurs) by the

aggregate decrease in the credits allowed under this section to

such holder for taxable years beginning in such 3 calendar

years which would have resulted solely from denying any credit

under this section with respect to such issue for such taxable

years.

‘‘(3) SPECIAL RULES.—

‘‘(A) TAX BENEFIT RULE.—The tax for the taxable year

shall be increased under paragraph (2) only with respect to

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credits allowed by reason of this section which were used

to reduce tax liability. In the case of credits not so used to

reduce tax liability, the carryforwards and carrybacks

under section 39 shall be appropriately adjusted.

‘‘(B) NO CREDITS AGAINST TAX.—Any increase in tax

under paragraph (2) shall not be treated as a tax imposed

by this chapter for purposes of determining —

‘‘(i) the amount of any credit allowable under this

part, or

‘‘(ii) the amount of the tax imposed by section 55.

‘‘(j) USE OF TRUST ACCOUNT.—

‘‘(1) IN GENERAL.—The amount of any matching contribution with respect to a qualified project described in subsection

(d)(3)(B)(i) or (d)(3)(B)(ii)(II) and the temporary period investment earnings on proceeds of the issue with respect to such

project, and any earnings thereon, shall be held in a trust account by a trustee independent of the National Railroad Passenger Corporation to be used to the extent necessary to redeem

bonds which are part of such issue.

‘‘(2) USE OF REMAINING FUNDS IN TRUST ACCOUNT.—Upon

the repayment of the principal of all qualified Amtrak bonds

issued under this section, any remaining funds in the trust account described in paragraph (1) shall be available—

‘‘(A) to the trustee described in paragraph (1), to meet

any remaining obligations under any guaranteed investment contract used to secure earnings sufficient to repay

the principal of such bonds, and

‘‘(B) to the issuer, for any qualified project.

‘‘(k) OTHER SPECIAL RULES.—

‘‘(1) PARTNERSHIP; S CORPORATION; AND OTHER PASS-THRU

ENTITIES.—Under regulations prescribed by the Secretary, in

the case of a partnership, trust, S corporation, or other passthru entity, rules similar to the rules of section 41(g) shall apply

with respect to the credit allowable under subsection (a).

‘‘(2) BONDS HELD BY REGULATED INVESTMENT COMPANIES.—

If any qualified Amtrak bond is held by a regulated investment

company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary.

‘‘(3) CREDITS MAY BE STRIPPED.—Under regulations prescribed by the Secretary—

‘‘(A) IN GENERAL.—There may be a separation (including at issuance) of the ownership of a qualified Amtrak

bond and the entitlement to the credit under this section

with respect to such bond. In case of any such separation,

the credit under this section shall be allowed to the person

who on the credit allowance date holds the instrument evidencing the entitlement to the credit and not to the holder

of the bond.

‘‘(B) CERTAIN RULES TO APPLY.—In the case of a separation described in subparagraph (A), the rules of section

1286 shall apply to the qualified Amtrak bond as if it were

a stripped bond and to the credit under this section as if

it were a stripped coupon.

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‘‘(4) TREATMENT FOR ESTIMATED TAX PURPOSES.—Solely for

purposes of sections 6654 and 6655, the credit allowed by this

section to a taxpayer by reason of holding a qualified Amtrak

bond on a credit allowance date shall be treated as if it were

a payment of estimated tax made by the taxpayer on such date.

‘‘(5) CREDIT MAY BE TRANSFERRED.—Nothing in any law or

rule of law shall be construed to limit the transferability of the

credit allowed by this section through sale and repurchase

agreements.

‘‘(6) REPORTING.—Issuers of qualified Amtrak bonds shall

submit reports similar to the reports required under section

149(e).’’.

(b) REPORTING.—Subsection (d) of section 6049 (relating to returns regarding payments of interest), as amended by section

505(d), is amended by adding at the end the following new paragraph:

‘‘(9) REPORTING OF CREDIT ON QUALIFIED AMTRAK BONDS.—

‘‘(A) IN GENERAL.—For purposes of subsection (a), the

term ‘interest’ includes amounts includible in gross income

under section 54(g) and such amounts shall be treated as

paid on the credit allowance date (as defined in section

54(f)(2)).

‘‘(B) REPORTING TO CORPORATIONS, ETC.—Except as

otherwise provided in regulations, in the case of any interest described in subparagraph (A) of this paragraph, subsection (b)(4) of this section shall be applied without regard

to subparagraphs (A), (H), (I), (J), (K), and (L)(i).

‘‘(C) REGULATORY AUTHORITY.—The Secretary may prescribe such regulations as are necessary or appropriate to

carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.’’.

(c) CLERICAL AMENDMENTS.—

(1) The table of subparts for part IV of subchapter A of

chapter 1 is amended by adding at the end the following new

item:

‘‘Subpart H. Nonrefundable Credit for Holders of Qualified Amtrak

Bonds.’’.

(2) Section 6401(b)(1) is amended by striking ‘‘and G’’ and

inserting ‘‘G, and H’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to obligations issued after September 30, 2000.

(e) MULTI-YEAR CAPITAL SPENDING PLAN AND OVERSIGHT.—

(1) AMTRAK CAPITAL SPENDING PLAN.—

(A) IN GENERAL.—The National Railroad Passenger

Corporation shall annually submit to the President and

Congress a multi-year capital spending plan, as approved

by the Board of Directors of the Corporation.

(B) CONTENTS OF PLAN.—Such plan shall identify the

capital investment needs of the Corporation over a period

of not less than 5 years and the funding sources available

to finance such needs and shall prioritize such needs according to corporate goals and strategies.

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(C) INITIAL SUBMISSION DATE.—The first plan shall be

submitted before the issuance of any qualified Amtrak

bonds by the National Railroad Passenger Corporation

pursuant to section 54 of the Internal Revenue Code of 1986

(as added by this section).

(2) OVERSIGHT OF AMTRAK TRUST ACCOUNT AND QUALIFIED

PROJECTS.—

(A) TRUST ACCOUNT OVERSIGHT.—The Secretary of the

Treasury shall annually report to Congress as to whether

the amount deposited in the trust account established by

the National Railroad Passenger Corporation under section

54(i) of such Code (as so added) is sufficient to fully repay

at maturity the principal of any outstanding qualified Amtrak bonds issued pursuant to section 54 of such Code (as

so added), together with amounts expected to be deposited

into such account, as certified by the National Railroad

Passenger Corporation in accordance with procedures prescribed by the Secretary of the Treasury.

(B) PROJECT OVERSIGHT.—The National Railroad Passenger Corporation shall contract for an annual independent assessment of the costs and benefits of the qualified projects financed by such qualified Amtrak bonds, including an assessment of the investment evaluation process

of the Corporation. The annual assessment shall be included in the plan submitted under paragraph (1).

(C) OVERSIGHT FUNDING.—Not more than 0.5 percent

of the amounts made available through the issuance of

qualified Amtrak bonds by the National Railroad Passenger Corporation pursuant to section 54 of such Code (as

so added) may be used by the National Railroad Passenger

Corporation for assessments described in subparagraph (B).

(f) PROTECTION OF HIGHWAY TRUST FUND.—

(1) CERTIFICATION BY THE SECRETARY OF THE TREASURY.—

The issuance of any qualified Amtrak bonds by the National

Railroad Passenger Corporation or the Alaska Railroad pursuant to section 54 of the Internal Revenue Code of 1986 (as

added by this section) is conditioned on certification by the Secretary of the Treasury, after consultation with the Secretary of

Transportation, within 30 days of a request by the issuer, that

with respect to funds of the Highway Trust Fund described

under paragraph (2), the issuer either—

(A) has not received such funds during fiscal years

commencing with fiscal year 2001 and ending before the

fiscal year the bonds are issued, or

(B) has repaid to the Highway Trust Fund any such

funds which were received during such fiscal years.

(2) APPLICABILITY.—This subsection shall apply to funds received directly, or indirectly from a State or local transit authority, from the Highway Trust Fund established under section

9503 of the Internal Revenue Code of 1986, except for funds authorized to be expended under section 9503(c) of such Code, as

in effect on the date of the enactment of this Act.

(3) NO RETROACTIVE EFFECT.—Nothing in this subsection

shall adversely affect the entitlement of the holders of qualified

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Amtrak bonds to the tax credit allowed pursuant to section 54

of the Internal Revenue Code of 1986 (as so added) or to repayment of principal upon maturity.

SEC. 714. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

(a) IN GENERAL.—Subpart C of part II of subchapter E of chapter 1 (relating to taxable year for which deductions taken) is amended by inserting after section 468B the following new section:

‘‘SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

‘‘(a) DEDUCTION ALLOWED.—In the case of an individual engaged in an eligible farming business or commercial fishing, there

shall be allowed as a deduction for any taxable year the amount

paid in cash by the taxpayer during the taxable year to a Farm,

Fishing, and Ranch Risk Management Account (hereinafter referred

to as the ‘FFARRM Account’).

‘‘(b) LIMITATION.—

‘‘(1) CONTRIBUTIONS.—The amount which a taxpayer may

pay into the FFARRM Account for any taxable year shall not

exceed 20 percent of so much of the taxable income of the taxpayer (determined without regard to this section) which is attributable (determined in the manner applicable under section

1301) to any eligible farming business or commercial fishing.

‘‘(2) DISTRIBUTIONS.—Distributions from a FFARRM Account may not be used to purchase, lease, or finance any new

fishing vessel, add capacity to any fishery, or otherwise contribute to the overcapitalization of any fishery. The Secretary of

Commerce shall implement regulations to enforce this paragraph.

‘‘(c) ELIGIBLE BUSINESSES.—For purposes of this section—

‘‘(1) ELIGIBLE FARMING BUSINESS.—The term ‘eligible farming business’ means any farming business (as defined in section

263A(e)(4)) which is not a passive activity (within the meaning

of section 469(c)) of the taxpayer.

‘‘(2) COMMERCIAL FISHING.—The term ‘commercial fishing’

has the meaning given such term by section (3) of the Magnuson-Stevens Fishery Conservation and Management Act (16

U.S.C. 1802) but only if such fishing is not a passive activity

(within the meaning of section 469(c)) of the taxpayer.

‘‘(d) FFARRM ACCOUNT.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘FFARRM Account’ means a

trust created or organized in the United States for the exclusive

benefit of the taxpayer, but only if the written governing instrument creating the trust meets the following requirements:

‘‘(A) No contribution will be accepted for any taxable

year in excess of the amount allowed as a deduction under

subsection (a) for such year.

‘‘(B) The trustee is a bank (as defined in section 408(n))

or another person who demonstrates to the satisfaction of

the Secretary that the manner in which such person will

administer the trust will be consistent with the requirements of this section.

‘‘(C) The assets of the trust consist entirely of cash or

of obligations which have adequate stated interest (as deVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00173 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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fined in section 1274(c)(2)) and which pay such interest not

less often than annually.

‘‘(D) All income of the trust is distributed currently to

the grantor.

‘‘(E) The assets of the trust will not be commingled

with other property except in a common trust fund or common investment fund.

‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—The grantor of a

FFARRM Account shall be treated for purposes of this title as

the owner of such Account and shall be subject to tax thereon

in accordance with subpart E of part I of subchapter J of this

chapter (relating to grantors and others treated as substantial

owners).

‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

there shall be includible in the gross income of the taxpayer for

any taxable year—

‘‘(A) any amount distributed from a FFARRM Account

of the taxpayer during such taxable year, and

‘‘(B) any deemed distribution under—

‘‘(i) subsection (f )(1) (relating to deposits not distributed within 5 years),

‘‘(ii) subsection (f )(2) (relating to cessation in eligible farming business), and

‘‘(iii) subparagraph (B) or (C) of subsection (f )(3)

(relating to prohibited transactions and pledging account as security).

‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not apply to—

‘‘(A) any distribution to the extent attributable to income of the Account, and

‘‘(B) the distribution of any contribution paid during a

taxable year to a FFARRM Account to the extent that such

contribution exceeds the limitation applicable under subsection (b) if requirements similar to the requirements of

section 408(d)(4) are met.

For purposes of subparagraph (A), distributions shall be treated

as first attributable to income and then to other amounts.

‘‘(f ) SPECIAL RULES.—

‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

‘‘(A) IN GENERAL.—If, at the close of any taxable year,

there is a nonqualified balance in any FFARRM Account—

‘‘(i) there shall be deemed distributed from such

Account during such taxable year an amount equal to

such balance, and

‘‘(ii) the taxpayer’s tax imposed by this chapter for

such taxable year shall be increased by 10 percent of

such deemed distribution.

The preceding sentence shall not apply if an amount equal

to such nonqualified balance is distributed from such Account to the taxpayer before the due date (including extensions) for filing the return of tax imposed by this chapter

for such year (or, if earlier, the date the taxpayer files such

return for such year).

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‘‘(B) NONQUALIFIED BALANCE.—For purposes of subparagraph (A), the term ‘nonqualified balance’ means any

balance in the Account on the last day of the taxable year

which is attributable to amounts deposited in such Account

before the 4th preceding taxable year.

‘‘(C) ORDERING RULE.—For purposes of this paragraph,

distributions from a FFARRM Account (other than distributions of current income) shall be treated as made from

deposits in the order in which such deposits were made, beginning with the earliest deposits.

‘‘(2) CESSATION IN ELIGIBLE BUSINESS.—At the close of the

first disqualification period after a period for which the taxpayer was engaged in an eligible farming business or commercial fishing, there shall be deemed distributed from the

FFARRM Account of the taxpayer an amount equal to the balance in such Account (if any) at the close of such disqualification period. For purposes of the preceding sentence, the term

‘disqualification period’ means any period of 2 consecutive taxable years for which the taxpayer is not engaged in an eligible

farming business or commercial fishing.

‘‘(3) CERTAIN RULES TO APPLY.—Rules similar to the following rules shall apply for purposes of this section:

‘‘(A) Section 220(f )(8) (relating to treatment on death).

‘‘(B) Section 408(e)(2) (relating to loss of exemption of

account where individual engages in prohibited transaction).

‘‘(C) Section 408(e)(4) (relating to effect of pledging account as security).

‘‘(D) Section 408(g) (relating to community property

laws).

‘‘(E) Section 408(h) (relating to custodial accounts).

‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—For purposes of

this section, a taxpayer shall be deemed to have made a payment to a FFARRM Account on the last day of a taxable year

if such payment is made on account of such taxable year and

is made on or before the due date (without regard to extensions)

for filing the return of tax for such taxable year.

‘‘(5) INDIVIDUAL.—For purposes of this section, the term ‘individual’ shall not include an estate or trust.

‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EMPLOYMENT

TAX.—The deduction allowable by reason of subsection (a) shall

not be taken into account in determining an individual’s net

earnings from self-employment (within the meaning of section

1402(a)) for purposes of chapter 2.

‘‘(g) REPORTS.—The trustee of a FFARRM Account shall make

such reports regarding such Account to the Secretary and to the person for whose benefit the Account is maintained with respect to contributions, distributions, and such other matters as the Secretary

may require under regulations. The reports required by this subsection shall be filed at such time and in such manner and furnished to such persons at such time and in such manner as may

be required by such regulations.’’.

(b) TAX ON EXCESS CONTRIBUTIONS.—

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(1) Subsection (a) of section 4973 (relating to tax on excess

contributions to certain tax-favored accounts and annuities) is

amended by striking ‘‘or’’ at the end of paragraph (3), by redesignating paragraph (4) as paragraph (5), and by inserting after

paragraph (3) the following new paragraph:

‘‘(4) a FFARRM Account (within the meaning of section

468C(d)), or’’.

(2) Section 4973 is amended by adding at the end the following new subsection:

‘‘(g) EXCESS CONTRIBUTIONS TO FFARRM ACCOUNTS.—For

purposes of this section, in the case of a FFARRM Account (within

the meaning of section 468C(d)), the term ‘excess contributions’

means the amount by which the amount contributed for the taxable

year to the Account exceeds the amount which may be contributed

to the Account under section 468C(b) for such taxable year. For purposes of this subsection, any contribution which is distributed out

of the FFARRM Account in a distribution to which section

468C(e)(2)(B) applies shall be treated as an amount not contributed.’’.

(3) The section heading for section 4973 is amended to read

as follows:

‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES, ETC.’’.

(4) The table of sections for chapter 43 is amended by striking the item relating to section 4973 and inserting the following

new item:

‘‘Sec. 4973. Excess contributions to certain accounts, annuities, etc.’’.

(c) TAX ON PROHIBITED TRANSACTIONS.—

(1) Subsection (c) of section 4975 (relating to tax on prohibited transactions) is amended by adding at the end the following new paragraph:

‘‘(6) SPECIAL RULE FOR FFARRM ACCOUNTS.—A person for

whose benefit a FFARRM Account (within the meaning of section 468C(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning

such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to

be a FFARRM Account by reason of the application of section

468C(f )(3)(A) to such account.’’.

(2) Paragraph (1) of section 4975(e) is amended by redesignating subparagraphs (E) and (F) as subparagraphs (F) and

(G), respectively, and by inserting after subparagraph (D) the

following new subparagraph:

‘‘(E) a FFARRM Account described in section

468C(d),’’.

(d) FAILURE TO PROVIDE REPORTS ON FFARRM ACCOUNTS.—

Paragraph (2) of section 6693(a) (relating to failure to provide reports on certain tax-favored accounts or annuities) is amended by

redesignating subparagraphs (C) and (D) as subparagraphs (D) and

(E), respectively, and by inserting after subparagraph (B) the following new subparagraph:

‘‘(C) section 468C(g) (relating to FFARRM Accounts),’’.

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(e) CLERICAL AMENDMENT.—The table of sections for subpart C

of part II of subchapter E of chapter 1 is amended by inserting after

the item relating to section 468B the following new item:

‘‘Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.’’.

(f ) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 715. EXTENSION OF ENHANCED DEDUCTION FOR CORPORATE

DONATIONS OF COMPUTER TECHNOLOGY.

(a) EXPANSION OF COMPUTER TECHNOLOGY DONATIONS TO PUBLIC LIBRARIES.—

(1) IN GENERAL.—Paragraph (6) of section 170(e) (relating

to special rule for contributions of computer technology and

equipment for elementary or secondary school purposes) is

amended by striking ‘‘qualified elementary or secondary educational contribution’’ each place it occurs in the headings and

text and inserting ‘‘qualified computer contribution’’.

(2) EXPANSION OF ELIGIBLE DONEES.—Clause (i) of section

170(e)(6)(B) (relating to qualified elementary or secondary educational contribution) is amended by striking ‘‘or’’ at the end of

subclause (I), by adding ‘‘or’’ at the end of subclause (II), and

by inserting after subclause (II) the following new subclause:

‘‘(III) a public library (within the meaning of

section 213(2)(A) of the Library Services and Technology Act (20 U.S.C. 9122(2)(A)), as in effect on

the date of the enactment of the Community Renewal and New Markets Act of 2000, established

and maintained by an entity described in subsection (c)(1),’’.

(3) EXTENSION OF DONATION PERIOD.—Clause (ii) of section

170(e)(6)(B) is amended by striking ‘‘2 years’’ and inserting ‘‘3

years’’.

(b) CONFORMING AMENDMENTS.—

(1) Section 170(e)(6)(B)(iv) is amended by striking ‘‘in any

grades of the K–12’’.

(2) The heading of paragraph (6) of section 170(e) is

amended by striking ‘‘ELEMENTARY OR SECONDARY SCHOOL PURPOSES’’ and inserting ‘‘EDUCATIONAL PURPOSES’’.

(c) EXTENSION OF DEDUCTION.—Section 170(e)(6)(F) (relating to

termination) is amended by striking ‘‘December 31, 2000’’ and inserting ‘‘December 31, 2003’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to contributions made after December 31, 2000.

SEC. 716. RELIEF FROM FEDERAL TAX LIABILITY ARISING WITH RESPECT TO CERTAIN CLAIMS AGAINST THE DEPARTMENT

OF AGRICULTURE FOR DISCRIMINATION IN FARM CREDIT

AND BENEFIT PROGRAMS.

Notwithstanding any provision of the Internal Revenue Code of

1986, in the case of a person who is certified to be a member of the

plaintiff class in the settlement of the consolidated actions entitled

‘‘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), gross

income for purposes of subtitle A of such Code shall not include—

174

(1) any cash payment received before, on, or after the date

of the enactment of this Act by, or made on behalf of, a person

under such settlement, and

(2) any amount which (but for this section) would be includible in gross income by reason of the discharge of indebtedness pursuant to such settlement.

SEC. 717. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

(a) INCREASE IN EXPENSES ALLOWABLE FOR ADOPTION.—Paragraph (1) of section 23(b) (relating to dollar limitation) is amended

to read as follows:

‘‘(1) DOLLAR LIMITATION.—

‘‘(A) IN GENERAL.—The aggregate amount of qualified

adoption expenses which may be taken into account under

subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed the applicable amount.

‘‘(B) APPLICABLE AMOUNT.—For purposes of subparagraph (A)—

‘‘(i) CHILD WITH SPECIAL NEEDS.—In the case of a

child with special needs, the applicable amount for a

taxable year shall be the amount determined in accordance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2001 ............................................................................................. $8,000

2002 ............................................................................................. $10,000

2003 and thereafter .................................................................... $12,000.

‘‘(ii) OTHER CHILDREN.—In the case of a child who

is not a child with special needs, the applicable

amount for a taxable year shall be the amount determined in accordance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2001 ............................................................................................. $6,000

2002 ............................................................................................. $7,000

2003 ............................................................................................. $8,000

2004 ............................................................................................. $9,000

2005 and thereafter .................................................................... $10,000.’’.

(b) INCREASE IN INCOME LIMITATION.—Clause (i) of section

23(b)(2)(A) (relating to income limitation) is amended by striking

‘‘$75,000’’ and inserting ‘‘$150,000’’.

(c) EXTENSION OF SUNSET.—Subparagraph (B) of section

23(d)(2) (relating to eligible child) is amended by striking ‘‘2001’’

and inserting ‘‘2005’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2000.

SEC. 718. STUDY CONCERNING UNITED STATES INSURANCE COMPANIES WITH CERTAIN OFFSHORE REINSURANCE AFFILIATES.

(a) STUDY.—The Secretary of the Treasury shall conduct a

study on the extent to which United States tax on investment income

of United States insurance companies is being avoided through the

use of affiliated corporations in Bermuda or other offshore locations.

In conducting such study, the Secretary shall—

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(1) address issues concerning the application of current

United States tax law in preventing such avoidance,

(2) examine changes to United States tax law which may

be needed to prevent such avoidance, and

(3) make such recommendations as the Secretary considers

appropriate.

(b) SUBMISSION OF STUDY TO CONGRESS.—Not later than December 31, 2001, the Secretary shall submit the study conducted

under subsection (a), together with recommendations thereon, to the

Committee on Ways and Means of the House of Representatives and

the Committee on Finance of the Senate.

SEC. 719. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER FEDERAL UNEMPLOYMENT TAX ACT.

(a) IN GENERAL.—Section 3306(c)(7) (defining employment) is

amended—

(1) by inserting ‘‘or in the employ of an Indian tribe,’’ after

‘‘service performed in the employ of a State, or any political subdivision thereof,’’; and

(2) by inserting ‘‘or Indian tribes’’ after ‘‘wholly owned by

one or more States or political subdivisions’’.

(b) PAYMENTS IN LIEU OF CONTRIBUTIONS.—Section 3309 (relating to State law coverage of services performed for nonprofit organizations or governmental entities) is amended—

(1) in subsection (a)(2) by inserting ‘‘, including an Indian

tribe,’’ after ‘‘the State law shall provide that a governmental

entity’’;

(2) in subsection (b)(3)(B) by inserting ‘‘, or of an Indian

tribe’’ after ‘‘of a State or political subdivision thereof’’;

(3) in subsection (b)(3)(E) by inserting ‘‘or tribal’’ after ‘‘the

State’’; and

(4) in subsection (b)(5) by inserting ‘‘or of an Indian tribe’’

after ‘‘an agency of a State or political subdivision thereof’’.

(c) STATE LAW COVERAGE.—Section 3309 (relating to State law

coverage of services performed for nonprofit organizations or governmental entities) is amended by adding at the end the following new

subsection:

‘‘(d) ELECTION BY INDIAN TRIBE.—The State law shall provide

that an Indian tribe may make contributions for employment as if

the employment is within the meaning of section 3306 or make payments in lieu of contributions under this section, and shall provide

that an Indian tribe may make separate elections for itself and each

subdivision, subsidiary, or business enterprise wholly owned by

such Indian tribe. State law may require a tribe to post a payment

bond or take other reasonable measures to assure the making of

payments in lieu of contributions under this section. Notwithstanding the requirements of section 3306(a)(6), if, within 90 days

of having received a notice of delinquency, a tribe fails to make contributions, payments in lieu of contributions, or payment of penalties or interest (at amounts or rates comparable to those applied

to all other employers covered under the State law) assessed with

respect to such failure, or if the tribe fails to post a required payment bond, then service for the tribe shall not be excepted from employment under section 3306(c)(7) until any such failure is corrected. This subsection shall apply to an Indian tribe within the

176

meaning of section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)).’’.

(d) DEFINITIONS.—Section 3306 (relating to definitions) is

amended by adding at the end the following new subsection:

‘‘(u) INDIAN TRIBE.—For purposes of this chapter, the term ‘Indian tribe’ has the meaning given to such term by section 4(e) of the

Indian Self-Determination and Education Assistance Act (25 U.S.C.

450b(e)), and includes any subdivision, subsidiary, or business enterprise wholly owned by such an Indian tribe.’’.

(e) EFFECTIVE DATE; TRANSITION RULE.—

(1) EFFECTIVE DATE.—The amendments made by this section shall apply to service performed on or after the date of the

enactment of this Act.

(2) TRANSITION RULE.—For purposes of the Federal Unemployment Tax Act, service performed in the employ of an Indian

tribe (as defined in section 3306(u) of the Internal Revenue

Code of 1986 (as added by this section)) shall not be treated as

employment (within the meaning of section 3306 of such Code)

if—

(A) it is service which is performed before the date of

the enactment of this Act and with respect to which the tax

imposed under the Federal Unemployment Tax Act has not

been paid, and

(B) 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

SEC. 721. AMENDMENTS RELATED TO TICKET TO WORK AND WORK INCENTIVES IMPROVEMENT ACT OF 1999.

(a) AMENDMENTS RELATED TO SECTION 502 OF THE ACT.—

(1) Section 280C(c)(1) is amended by striking ‘‘or credit’’

after ‘‘deduction’’ each place it appears.

(2) Section 30A is amended by redesignating subsections (f)

and (g) as subsections (g) and (h), respectively, and by inserting

after subsection (e) the following new subsection:

‘‘(f) DENIAL OF DOUBLE BENEFIT.—Any wages or other expenses

taken into account in determining the credit under this section may

not be taken into account in determining the credit under section

41.’’

(b) AMENDMENT RELATED TO SECTION 545 OF THE ACT.—

Clause (ii) of section 857(b)(7)(B) is amended to read as follows:

‘‘(ii) EXCEPTION FOR CERTAIN AMOUNTS.—Clause

(i) shall not apply to amounts received directly or indirectly by a real estate investment trust—

‘‘(I) for services furnished or rendered by a taxable REIT subsidiary that are described in paragraph (1)(B) of section 856(d), or

‘‘(II) from a taxable REIT subsidiary that are

described in paragraph (7)(C)(ii) of such section.’’

(c) CLARIFICATION RELATED TO SECTION 538 OF THE ACT.—The

reference to section 332(b)(1) of the Internal Revenue Code of 1986

177

in Treasury Regulation section 1.1502-34 shall be deemed to include

a reference to section 732(f) of such Code.

(d) EFFECTIVE DATE.—Subsection (c) and the amendments

made by this section shall take effect as if included in the provisions

of the Ticket to Work and Work Incentives Improvement Act of 1999

to which they relate.

SEC. 722. AMENDMENTS RELATED TO TAX AND TRADE RELIEF EXTENSION ACT OF 1998.

(a) AMENDMENT RELATED TO SECTION 1004(b) OF THE ACT.— Subsection (d) of section 6104 is amended by adding at the end the

following new paragraph:

‘‘(6) APPLICATION TO NONEXEMPT CHARITABLE TRUSTS AND

NONEXEMPT PRIVATE FOUNDATIONS.—The organizations referred

to in paragraphs (1) and (2) of section 6033(d) shall comply

with the requirements of this subsection relating to annual returns filed under section 6033 in the same manner as the organizations referred to in paragraph (1).’’.

(b) AMENDMENT RELATED TO SECTION 4003 OF THE ACT.—Subsection (b) of section 4003 of the Tax and Trade Relief Extension Act

of 1998 is amended by inserting ‘‘(7)(A)(i)(II),’’ after ‘‘(5)(A)(ii)(I),’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in the provisions of the Tax and

Trade Relief Extension Act of 1998 to which they relate.

SEC. 723. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE

RESTRUCTURING AND REFORM ACT OF 1998.

(a) AMENDMENTS RELATED TO INNOCENT SPOUSE RELIEF.— (1) ELECTION MAY BE MADE ANY TIME AFTER DEFICIENCY

ASSERTED.—Subparagraph (B) of section 6015(c)(3) is amended

by striking ‘‘shall be made’’ and inserting ‘‘may be made at any

time after a deficiency for such year is asserted but’’.

(2) CLARIFICATION REGARDING DISALLOWANCE OF REFUNDS

AND CREDITS UNDER SECTION 6015(c).—

(A) IN GENERAL.—Section 6015 is amended by redesignating subsection (g) as subsection (h) and by inserting

after subsection (f) the following new subsection:

‘‘(g) CREDITS AND REFUNDS.— ‘‘(1) IN GENERAL.—Except as provided in paragraphs (2)

and (3), notwithstanding any other law or rule of law (other

than section 6511, 6512(b), 7121, or 7122), credit or refund

shall be allowed or made to the extent attributable to the application of this section.

‘‘(2) RES JUDICATA.—In the case of any election under subsection (b) or (c), if a decision of a court in any prior proceeding

for the same taxable year has become final, such decision shall

be conclusive except with respect to the qualification of the individual for relief which was not an issue in such proceeding. The

exception contained in the preceding sentence shall not apply if

the court determines that the individual participated meaningfully in such prior proceeding.

‘‘(3) CREDIT AND REFUND NOT ALLOWED UNDER SUBSECTION

(c).—No credit or refund shall be allowed as a result of an election under subsection (c).’’.

(B) CONFORMING AMENDMENT.—Paragraph (3) of section 6015(e) is amended to read as follows:

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‘‘(3) LIMITATION ON TAX COURT JURISDICTION.—If a suit for

refund is begun by either individual filing the joint return pursuant to section 6532—

‘‘(A) the Tax Court shall lose jurisdiction of the individual’s action under this section to whatever extent jurisdiction is acquired by the district court or the United States

Court of Federal Claims over the taxable years that are the

subject of the suit for refund, and

‘‘(B) the court acquiring jurisdiction shall have jurisdiction over the petition filed under this subsection.’’.

(3) CLARIFICATIONS REGARDING REVIEW BY TAX COURT.—

(A) Paragraph (1) of section 6015(e) is amended in the

matter preceding subparagraph (A) by inserting after ‘‘individual’’ the following: ‘‘against whom a deficiency has been

asserted and’’.

(B) Subparagraph (A) of section 6015(e)(1) is amended

to read as follows:

‘‘(A) IN GENERAL.—In addition to any other remedy

provided by law, the individual may petition the Tax Court

(and the Tax Court shall have jurisdiction) to determine

the appropriate relief available to the individual under this

section if such petition is filed—

‘‘(i) at any time after the earlier of—

‘‘(I) the date the Secretary mails, by certified

or registered mail to the taxpayer’s last known address, notice of the Secretary’s final determination

of relief available to the individual, or

‘‘(II) the date which is 6 months after the date

such election is filed with the Secretary, and

‘‘(ii) not later than the close of the 90th day after

the date described in clause (i)(I).’’.

(C) Subparagraph (B)(i) of section 6015(e)(1) is

amended—

(i) by striking ‘‘until the expiration of the 90-day

period described in subparagraph (A)’’ and inserting

‘‘until the close of the 90th day referred to in subparagraph (A)(ii)’’, and

(ii) by inserting ‘‘under subparagraph (A)’’ after

‘‘filed with the Tax Court’’.

(D)(i) Subsection (e) of section 6015 is amended by

adding at the end the following new paragraph:

‘‘(5) WAIVER.—An individual who elects the application of

subsection (b) or (c) (and who agrees with the Secretary’s determination of relief) may waive in writing at any time the restrictions in paragraph (1)(B) with respect to collection of the outstanding assessment (whether or not a notice of the Secretary’s

final determination of relief has been mailed).’’.

(ii) Paragraph (2) of section 6015(e) is amended to read

as follows:

‘‘(2) SUSPENSION OF RUNNING OF PERIOD OF LIMITATIONS.—

The running of the period of limitations in section 6502 on the

collection of the assessment to which the petition under paragraph (1)(A) relates shall be suspended—

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‘‘(A) for the period during which the Secretary is prohibited by paragraph (1)(B) from collecting by levy or a

proceeding in court and for 60 days thereafter, and

‘‘(B) if a waiver under paragraph (5) is made, from the

date the claim for relief was filed until 60 days after the

waiver is filed with the Secretary.’’.

(b) AMENDMENTS RELATED TO PROCEDURE AND ADMINISTRATION.—

(1) DISPUTES INVOLVING $50,000 OR LESS.—Section 7463 is

amended by adding at the end the following new subsection:

‘‘(f) ADDITIONAL CASES IN WHICH PROCEEDINGS MAY BE CONDUCTED UNDER THIS SECTION.—At the option of the taxpayer concurred in by the Tax Court or a division thereof before the hearing

of the case, proceedings may be conducted under this section (in the

same manner as a case described in subsection (a)) in the case of—

‘‘(1) a petition to the Tax Court under section 6015(e) in

which the amount of relief sought does not exceed $50,000, and

‘‘(2) an appeal under section 6330(d)(1)(A) to the Tax Court

of a determination in which the unpaid tax does not exceed

$50,000.’’.

(2) AUTHORITY TO ENJOIN COLLECTION ACTIONS.—

(A) Section 6330(e)(1) is amended by adding at the end

the following: ‘‘Notwithstanding the provisions of section

7421(a), the beginning of a levy or proceeding during the

time the suspension under this paragraph is in force may

be enjoined by a proceeding in the proper court, including

the Tax Court. The Tax Court shall have no jurisdiction

under this paragraph to enjoin any action or proceeding

unless a timely appeal has been filed under subsection

(d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates.’’.

(B) Section 7421(a) is amended by inserting

‘‘6330(e)(1),’’ after ‘‘6246(b),’’.

(3) CLARIFICATION.—Paragraph (3) of section 6331(k) is

amended by striking ‘‘(3), (4), and (5)’’ and inserting ‘‘(3) and

(4)’’.

(c) AMENDMENT RELATED TO SECTION 1103 OF THE ACT.—Paragraph (6) of section 6103(k) is amended—

(1) by inserting ‘‘and an officer or employee of the Office of

Treasury Inspector General for Tax Administration’’ after ‘‘internal revenue officer or employee’’, and

(2) by striking ‘‘INTERNAL REVENUE’’ in the heading and inserting ‘‘CERTAIN’’.

(d) AMENDMENT RELATED TO SECTION 3401 OF THE ACT.—Section 6330(d)(1)(A) is amended by striking ‘‘to hear’’ and inserting

‘‘with respect to’’.

(e) AMENDMENT RELATED TO SECTION 3509 OF THE ACT.—Subparagraph (A) of section 6110(g)(5) is amended by inserting ‘‘, any

Chief Counsel advice,’’ after ‘‘technical advice memorandum’’.

(f) EFFECTIVE DATES.—The amendments made by subsections

(a) and (b) shall take effect on the date of the enactment of this Act.

The amendments made by subsections (c), (d), and (e) shall take efVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00183 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
180

fect as if included in the provisions of the Internal Revenue Service

Restructuring and Reform Act of 1998 to which they relate.

SEC. 724. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

(a) AMENDMENT RELATED TO SECTION 101 OF THE ACT.—Paragraph (4) of section 6211(b) is amended by striking ‘‘sections 32 and

34’’ and inserting ‘‘sections 24(d), 32, and 34’’.

(b) AMENDMENT RELATED TO SECTION 302 OF THE ACT.—The

last sentence of section 3405(e)(1)(B) is amended by inserting ‘‘(other

than a Roth IRA)’’ after ‘‘individual retirement plan’’.

(c) AMENDMENT TO SECTION 311 OF THE ACT.—Paragraph (3)

of section 311(e) of the Taxpayer Relief Act of 1997 (relating to election to recognize gain on assets held on January 1, 2001) is amended by adding at the end the following new sentence: ‘‘Such an election shall not apply to any asset which is disposed of (in a transaction in which gain or loss is recognized in whole or in part) before

the close of the 1-year period beginning on the date that the asset

would have been treated as sold under such election.’’

(d) AMENDMENT RELATED TO SECTION 402 OF THE ACT.—The

flush sentence at the end of clause (ii) of section 56(a)(1)(A) is

amended by inserting before ‘‘or to any other property’’ the following:

‘‘(and the straight line method shall be used for such 1250 property)’’.

(e) AMENDMENTS RELATED TO SECTION 1072 OF THE ACT.—

(1) Clause (ii) of section 415(c)(3)(D) and subparagraph (B)

of section 403(b)(3) are each amended by striking ‘‘section 125

or’’ and inserting ‘‘section 125, 132(f)(4), or’’.

(2) Paragraph (2) of section 414(s) is amended by striking

‘‘section 125, 402(e)(3)’’ and inserting ‘‘section 125, 132(f)(4),

402(e)(3)’’.

(f) AMENDMENT RELATED TO SECTION 1454 OF THE ACT.—Subsection (a) of section 7436 is amended by inserting before the period

at the end of the first sentence ‘‘and the proper amount of employment tax under such determination’’.

(g) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in the provisions of the Taxpayer Relief of 1997 to which they relate.

SEC. 725. AMENDMENTS RELATED TO BALANCED BUDGET ACT OF 1997.

(a) AMENDMENTS RELATED TO SECTION 9302 OF THE ACT.—

(1) Paragraph (1) of section 9302(j) of the Balanced Budget

Act of 1997 is amended by striking ‘‘tobacco products and cigarette papers and tubes’’ and inserting ‘‘cigarettes’’.

(2)(A) Subsection (h) of section 5702 is amended to read as

follows:

‘‘(h) MANUFACTURER OF CIGARETTE PAPERS AND TUBES.—‘Manufacturer of cigarette papers and tubes’ means any person who manufactures cigarette paper, or makes up cigarette paper into tubes, except for his own personal use or consumption.’’

(B) Section 5702, as amended by subparagraph (A), is

amended by striking subsection (f) and by redesignating subsections (g) through (p) as subsections (f) through (o), respectively.

(3) Subsection (c) of section 5761 is amended by adding at

the end the following: ‘‘This subsection and section 5754 shall

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not apply to any person who relands or receives tobacco products in the quantity allowed entry free of tax and duty under

chapter 98 of the Harmonized Tariff Schedule of the United

States, and such person may voluntarily relinquish to the Secretary at the time of entry any excess of such quantity without

incurring the penalty under this subsection. No quantity of tobacco products other than the quantity referred to in the preceding sentence may be relanded or received as a personal use

quantity.’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in section 9302 of the Balanced

Budget Act of 1997.

SEC. 726. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 1996.

(a) AMENDMENT RELATED TO SECTION 1201 OF THE ACT.—Subparagraph (B) of section 51(d)(2) is amended—

(1) by striking ‘‘plan approved’’ and inserting ‘‘program

funded’’, and

(2) by striking ‘‘(relating to assistance for needy families

with minor children)’’.

(b) AMENDMENT RELATED TO SECTION 1302 OF THE ACT.—

Clause (i) of section 1361(e)(1)(A) is amended by striking ‘‘or’’ before

‘‘(III)’’ and by adding at the end the following: ‘‘or (IV) an organization described in section 170(c)(1) which holds a contingent interest

in such trust and is not a potential current beneficiary,’’.

(c) AMENDMENT RELATED TO SECTION 1401 OF THE ACT.—

Clause (ii) of section 401(k)(10)(B) is amended by adding at the end

the following new sentence: ‘‘Such term includes a distribution of an

annuity contract from—

‘‘(I) a trust which forms a part of a plan described in section 401(a) and which is exempt from

tax under section 501(a), or

‘‘(II) an annuity plan described in section

403(a).’’.

(d) AMENDMENT RELATED TO SECTION 1427 OF THE ACT.—

Clause (ii) of section 219(c)(1)(B) is amended by striking ‘‘and’’ at

the end of subclause (I), by redesignating subclause (II) as subclause

(III), and by inserting after subclause (I) the following new subclause:

‘‘(II) the amount of any designated nondeductible contribution (as defined in section 408(o)) on

behalf of such spouse for such taxable year, and’’.

(e) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in the provisions of the Small Business Job Protection Act of 1996 to which they relate.

SEC. 727. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT

OF 1990.

(a) AMENDMENT RELATED TO SECTION 11511 OF THE ACT.—

Subparagraph (C) of section 43(c)(1) is amended—

(1) by inserting ‘‘(as defined in section 193(b))’’ after ‘‘expenses’’, and

(2) by striking ‘‘under section 193’’.

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(b) EFFECTIVE DATE.—The amendment made by this section

shall take effect as if included in section 11511 of the Revenue Reconciliation Act of 1990.

SEC. 728. OTHER TECHNICAL CORRECTIONS.

(a) MODIFIED ENDOWMENT CONTRACTS.—

(1) Paragraph (2) of section 7702A(a) is amended by inserting ‘‘or this paragraph’’ before the period.

(2) Clause (ii) of section 7702A(c)(3)(A) is amended by striking ‘‘under the contract’’ and inserting ‘‘under the old contract’’.

(3) The amendments made by this subsection shall take effect as if included in the amendments made by section 5012 of

the Technical and Miscellaneous Revenue Act of 1988.

(b) AFFILIATED CORPORATIONS IN CONTEXT OF WORTHLESS SECURITIES.—

(1) Subparagraph (A) of section 165(g)(3) is amended to

read as follows:

‘‘(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504(a)(2), and’’.

(2) Paragraph (3) of section 165(g) is amended by striking

the last sentence.

(3) The amendments made by this subsection shall apply to

taxable years beginning after December 31, 1984.

(c) CERTAIN ANNUITIES ISSUED BY TAX-EXEMPT ORGANIZATIONS

NOT TREATED AS DEBT INSTRUMENTS UNDER ORIGINAL ISSUE DISCOUNT RULES.—

(1) Clause (ii) of section 1275(a)(1)(B) is amended by striking ‘‘subchapter L’’ and inserting ‘‘subchapter L (or by an entity

described in section 501(c) and exempt from tax under section

501(a) which would be subject to tax under subchapter L were

it not so exempt)’’.

(2) The amendment made by this subsection shall take effect as if included in the amendments made by section 41 of the

Tax Reform Act of 1984.

(d) TENTATIVE CARRYBACK ADJUSTMENTS OF LOSSES FROM

SECTION 1256 CONTRACTS.—

(1) Subsection (a) of section 6411 is amended by striking

‘‘section 1212(a)(1)’’ and inserting ‘‘subsection (a)(1) or (c) of section 1212’’.

(2) The amendment made by paragraph (1) shall take effect

as if included in the amendments made by section 504 of the

Economic Recovery Tax Act of 1981.

(e) CORRECTION OF CALCULATION OF AMOUNTS TO BE DEPOSITED IN HIGHWAY TRUST FUND.—

(1) Subsection (b) of section 9503 is amended by striking

paragraph (5) and redesignating paragraph (6) as paragraph

(5).

(2) The amendment made by paragraph (1) shall apply

with respect to taxes received in the Treasury after the date of

the enactment of this Act.

(f) EXPENDITURES FROM VACCINE INJURY COMPENSATION

TRUST FUND.—Section 9510(c)(1)(A) is amended by striking ‘‘December 31, 1999’’ and inserting ‘‘October 18, 2000’’.

183

SEC. 729. CLERICAL CHANGES.

(1) Clause (i) of section 45(d)(7)(A) is amended by striking

‘‘paragraph (3)(A)’’ and inserting ‘‘subsection (c)(3)(A)’’.

(2) Subsection (f) of section 67 is amended by striking ‘‘the

last sentence’’ and inserting ‘‘the second sentence’’.

(3) The heading for paragraph (5) of section 408(d) is

amended to read as follows:

‘‘(5) DISTRIBUTIONS OF EXCESS CONTRIBUTIONS AFTER DUE

DATE FOR TAXABLE YEAR AND CERTAIN EXCESS ROLLOVER CONTRIBUTIONS.—’’.

(4) Paragraph (3) of section 475(g) is amended by striking

‘‘267(b) of’’ and inserting ‘‘267(b) or’’.

(5) The heading for subparagraph (B) of section 529(e)(3) is

amended by striking ‘‘UNDER GUARANTEED PLANS’’.

(6) Clause (iii) of section 530(d)(4)(B) is amended by striking ‘‘; or’’ at the end and inserting ‘‘, or’’.

(7) Paragraphs (1)(C) and (2)(C) of section 664(d) are each

amended by striking the period after ‘‘subsection (g))’’.

(8)(A) Subsection (e) of section 678 is amended by striking

‘‘an electing small business corporation’’ and inserting ‘‘an S

corporation’’.

(B) Clause (v) of section 6103(e)(1)(D) is amended to read

as follows:

‘‘(v) if the corporation was an S corporation, any

person who was a shareholder during any part of the

period covered by such return during which an election

under section 1362(a) was in effect, or’’.

(9) Paragraph (7) of section 856(c) is amended by striking

‘‘paragraph (4)(B)(ii)(III)’’ and inserting ‘‘paragraph

(4)(B)(iii)(III)’’

(10) Subparagraph (A) of section 856(l)(4) is amended by

striking ‘‘paragraph (9)(D)(ii)’’ and inserting ‘‘subsection

(d)(9)(D)(ii)’’.

(11) Subparagraph (B) of section 871(f)(2) is amended by

striking ‘‘19 U.S.C.’’ and inserting ‘‘(19 U.S.C.’’.

(12) Subparagraph (B) of section 995(b)(3) is amended by

striking ‘‘the Military Security Act of 1954 (22 U.S.C. 1934)’’

and inserting ‘‘section 38 of the International Security Assistance and Arms Export Control Act of 1976 (22 U.S.C. 2778)’’.

(13) Section 1391(g)(3)(C) is amended by striking ‘‘paragraph (1)(B)’’ and inserting ‘‘paragraph (1)’’.

(14)(A) Paragraph (2) of section 2035(c) is amended by

striking ‘‘paragraph (1)’’ and inserting ‘‘subsection (a)’’.

(B) Subsection (d) of section 2035 is amended by inserting

‘‘and paragraph (1) of subsection (c)’’ after ‘‘Subsection (a)’’.

(15) Paragraph (5) of section 3121(a) is amended by striking the semicolon at the end of subparagraph (G) and inserting

a comma.

(16) Subparagraph (B) of section 4946(c)(3) is amended by

striking ‘‘the lowest rate of compensation prescribed for GS–16

of the General Schedule under section 5332’’ and inserting ‘‘the

lowest rate of basic pay for the Senior Executive Service under

section 5382’’.

(17) Subsection (p) of section 6103 is amended—

184

(A) in paragraph (4), in the matter preceding subparagraph (A)—

(i) by striking the second comma after ‘‘(13)’’, and

(ii) by striking ‘‘(7)’’ and all that follows through

‘‘shall, as a condition’’ and inserting ‘‘(7), (8), (9), (12),

(15), or (16) or any other person described in subsection

(l)(16) shall, as a condition’’, and

(B) in paragraph (4)(F)(ii), by striking the second

comma after ‘‘(14)’’.

(18) Paragraph (5) of section 6166(k) is amended by striking ‘‘2035(d)(4)’’ and inserting ‘‘2035(c)(2)’’.

(19) Subsection (a) of section 6512 is amended by striking

‘‘; and’’ at the end of paragraphs (1), (2), and (5) and inserting

‘‘, and’’.

(20) Paragraph (1) of section 6611(g) is amended by striking the comma after ‘‘(b)(3)’’.

(21) Subparagraphs (A) and (B) of section 6655(e)(5) are

amended by striking ‘‘subsections (d)(5) and (l)(3)(B)’’ and inserting ‘‘subsection (d)(5)’’.

(22) The subchapter heading for subchapter D of chapter 67

is amended by capitalizing the first letter of the second word.

(23)(A) Section 6724(d)(1)(B) is amended by striking

clauses (xiv) through (xvii) and inserting the following:

‘‘(xiv) subparagraph (A) or (C) of subsection (c)(4)

of section 4093 (relating to information reporting with

respect to tax on diesel and aviation fuels),

‘‘(xv) section 4101(d) (relating to information reporting with respect to fuels taxes),

‘‘(xvi) subparagraph (C) of section 338(h)(10) (relating to information required to be furnished to the

Secretary in case of elective recognition of gain or loss),

or

‘‘(xvii) section 264(f)(5)(A)(iv) (relating to reporting

with respect to certain life insurance and annuity contracts), and’’.

(B) Section 6010(o)(4)(C) of the Internal Revenue Service

Restructuring and Reform Act of 1998 is amended by striking

‘‘inserting ‘or’, and by adding at the end’’ and inserting ‘‘inserting ‘, or’, and by adding after subparagraph (Z)’’.

(24) Subsection (a) of section 7421 is amended by striking

‘‘6672(b)’’ and inserting ‘‘6672(c)’’.

(25) Paragraph (3) of section 7430(c) is amended—

(A) in the paragraph heading, by striking ‘‘ATTORNEYS’’

and inserting ‘‘ATTORNEYS’ ’’, and

(B) in subparagraph (B), by striking ‘‘attorneys fees’’

each place it appears and inserting ‘‘attorneys’ fees’’.

(26) Paragraph (2) of section 7603(b) is amended by striking the semicolon at the end of subparagraphs (A), (B), (C), (D),

(E), (F), and (G) and inserting a comma.

(27) Clause (ii) of section 7802(b)(2)(B) is amended by striking ‘‘; and’’ at the end and inserting ‘‘, and’’.

(28) Paragraph (3) of section 7811(a) is amended by striking ‘‘taxpayer assistance order’’ and inserting ‘‘Taxpayer Assistance Order’’.

185

(29) Paragraph (1) of section 7811(d) is amended by striking ‘‘Ombudsman’s’’ and inserting ‘‘National Taxpayer Advocate’s’’.

(30) Paragraph (3) of section 7872(f) is amended by striking

‘‘foregoing’’ and inserting ‘‘forgoing’’.

Subtitle D—Pay-Go Adjustment

SEC. 731. AVOIDANCE OF A PAY-GO SEQUESTRATION FOR FISCAL YEAR

2001.

(a) PAY-GO ADJUSTMENTS.—(1) In preparing the final sequestration report required by section 254(f)(3) of the Balanced Budget

and Emergency Deficit Control Act of 1985 for fiscal year 2001, in

addition to the information required by that section, the Director of

the Office of Management and Budget shall change any balance of

direct spending and receipts legislation for fiscal year 2001 under

section 252 of that Act to zero.

(2) Notwithstanding Rule 3 of the Budget Scorekeeping Guidelines set forth in the joint explanatory statement of the committee of

conference accompanying the conference report on the bill H.R. 2015

of the 105th Congress (House Report No. 105–217, filed July 30,

1997), the legislation enacted in sections 504 and 505 of the Department of Transportation and Related Agencies Appropriations Act,

2001, section 312 of the Legislative Branch Appropriations Act,

2001, and section 1003 of division B of H.R. 4516 (106th Congress),

as enacted, that would have been estimated by the Office of Management and Budget as changing direct spending or receipts under section 252 of the Balanced Budget and Emergency Deficit Control Act

of 1985 were it included in an Act other than an appropriations Act

shall be treated as direct spending or receipts legislation, as appropriate, under section 252 of the Balanced Budget and Emergency

Deficit Control Act of 1985.

(b) EXEMPTION OF CERTAIN BUDGETARY REPORTS FROM TERMINATION.—Section 3003(a)(1) of the Federal Reports Elimination and

Sunset Act of 1995 (31 U.S.C. 1113 note) does not apply to any report required to be submitted under any of the following provisions

of law:

(1) Sections 1105(a), 1106(a) and (b), and 1109(a) of title

31, United States Code, and any other law relating to the budget of the United States Government.

(2) The Balanced Budget and Emergency Deficit Control

Act of 1985 (2 U.S.C. 900 et seq.).

(3) Sections 202(e)(1) and (3) of the Congressional Budget

Act of 1974 (2 U.S.C. 602(e)(1) and (3)).

(4) Section 1014(e) of the Congressional Budget and Impoundment Control Act of 1974 (2 U.S.C. 685(e)).

Following is explanatory language for H.R. 5542 as introduced

on October 25, 2000. References in the following to the ‘‘conference

agreement’’ refer to the text of that bill.

(187)

C O N T E N T S

Page

TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION . 191

TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS ............................... 212

A. Extension of the Work Opportunity Tax Credit ........................................ 212

B. Increase the Maximum Dollar Amount of Reforestation Expenditures

Eligible for Amortization and Credit ....................................................... 213

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

Sales of Timber .......................................................................................... 214

D. Increase Section 179 Expensing ................................................................. 215

E. Increase Deduction for Business Meals ..................................................... 216

F. Increased Deduction for Business Meals While Operating Under Department of Transportation Hours of Service Limitations .................... 217

G. Repeal of Modification of Installment Method .......................................... 218

H. Coordinate Farmers and Fisherman Income Averaging and the Alternative Minimum Tax ................................................................................. 220

I. Repeal Special Occupational Taxes on Producers and Marketers of

Alcoholic Beverages ................................................................................... 220

J. Exclusion From Gross Income for Certain Forgiven Mortgage Obligations ............................................................................................................ 221

K. Clarification of Cash Accounting Rules for Small Businesses ................. 222

L. Authorize Payment of Interest on Business Checking Accounts ............. 223

TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE

PROVISIONS ....................................................................................................... 224

A. Accelerate 100-Percent Self-Employed Health Insurance Deduction ..... 224

B. Above-the-Line Deduction for Health Insurance Expenses ..................... 225

C. Above-the-Line Deduction for Long-Term Care Expenses ....................... 228

D. Medical Savings Accounts (‘‘MSAs’’) ......................................................... 230

E. Deduction for Providing Long-Term Care to Household Members ......... 232

TITLE IV. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT

PROVISIONS ....................................................................................................... 235

SUBTITLE A: INDIVIDUAL RETIREMENT ARRANGEMENTS (‘‘IRAS’’) ......................... 235

SUBTITLE B: EXPANDING COVERAGE ....................................................................... 242

A. Increase in Benefit and Contribution Limits ............................................ 242

B. Plans Loans for S Corporation Shareholders, Partners, and Sole Proprietors ....................................................................................................... 244

C. Modification of Top-Heavy Rules ............................................................... 246

D. Elective Deferrals Not Taken Into Account for Purposes of Deduction

Limits ......................................................................................................... 249

E. Repeal of Coordination Requirements for Deferred Compensation

Plans of State and Local Governments and Tax-Exempt Organizations ............................................................................................................ 250

F. Eliminate IRS User Fees for Certain Requests Regarding Employer

Plans ........................................................................................................... 251

G. Deduction Limits ........................................................................................ 252

H. Option to Treat Elective Deferrals as After-Tax Contributions ............. 254

SUBTITLE C: ENHANCING FAIRNESS FOR WOMEN ................................................... 257

A. Additional Catch-Up Contributions ........................................................... 257

B. Equitable Treatment for Contributions of Employees to Defined Contribution Plans ........................................................................................... 259

C. Faster Vesting of Employer Matching Contributions .............................. 261

D. Simplify and Update the Minimum Distribution Rules .......................... 262

E. Clarification of Tax Treatment of Division of Section 457 Plan Benefits

Upon Divorce ............................................................................................. 265

F. Modifications Relating to Hardship Withdrawals Plans ......................... 266

G. Pension Coverage for Domestic and Similar Workers ............................. 268

188

SUBTITLE D: INCREASING PORTABILITY FOR PARTICIPANTS ................................... 269

A. Rollovers of Retirement Plan and IRA Distributions .............................. 269

B. Waiver of 60-Day Rule ................................................................................ 273

C. Treatment of Forms of Distribution .......................................................... 274

D. Rationalization of Restrictions on Distributions ...................................... 278

E. Purchase of Service Credit Under Governmental Pension Plans ........... 279

F. Employers May Disregard Rollovers for Purposes of Cash-Out Rules ... 280

G. Minimum Distribution and Inclusion Requirements for Section 457

Plans ........................................................................................................... 281

SUBTITLE E: STRENGTHENING PENSION SECURITY AND ENFORCEMENT ............... 282

A. Phase in Repeal of 155 Percent of Current Liability Funding Limit;

Deduction for Contributions to Fund Termination Liability ................. 282

B. Excise Tax Relief for Sound Pension Funding ......................................... 284

C. Notice of Significant Reduction in Plan Benefit Accruals ....................... 285

D. Modification to Section 415 Limits for Multiemployer Plans ................. 293

E. Prohibited Allocation of Stock in an S Corporation ESOP ...................... 294

F. Investment of Employee Contributions in 401(k) Plans .......................... 295

G. Periodic Pension Benefit Statements ........................................................ 297

SUBTITLE F: REDUCING REGULATORY BURDENS ..................................................... 300

A. Modification of Timing of Plan Valuations ............................................... 300

B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction .............................................................................................................. 300

C. Repeal Transition Rule Relating to Certain Highly Compensated Employees ........................................................................................................ 301

D. Employees of Tax-Exempt Entities ........................................................... 302

E. Treatment of Employer-Provided Retirement Advice .............................. 303

F. Reporting Simplification ............................................................................. 304

G. Improvement to Employee Plans Compliance Resolution System .......... 306

H. Repeal of the Multiple Use Test ................................................................ 307

I. Flexibility in Nondiscrimination, Coverage, and Line of Business

Rules ........................................................................................................... 309

J. Extension to All Governmental Plans of Moratorium on Application

of Certain Nondiscrimination Rules Applicable to State and Local

Government ............................................................................................... 310

K. Notice and Consent Period Regarding Distributions; Disclosure of Optional Forms of (sec. 611 of the House bill and sec. 611 of the

Senate amendment) .................................................................................. 311

L. Annual Report Dissemination .................................................................... 313

M. Modifications to the SAVER Act ............................................................... 313

N. Studies ......................................................................................................... 314

SUBTITLE G: OTHER ERISA PROVISIONS ................................................................ 315

A. Extension of PBGC Missing Participants Program ................................. 315

B. Reduce PBGC Premiums for Small and New Plans ................................ 316

C. Authorization for PBGC To Pay Interest on Premium Overpayment

Refunds ...................................................................................................... 318

D. Rules for Substantial Owner Benefits in Terminated Plans ................... 318

E. Multiemployer Plan Benefits Guarantee .................................................. 319

F. Civil Penalties for Breach of Fiduciary Responsibility ............................ 320

G. Benefit Suspension Notice ......................................................................... 321

SUBTITLE H: PROVISIONS RELATING TO PLAN AMENDMENTS ................................ 322

TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND

MODERNIZATION .............................................................................................. 323

TITLE VI. COMMUNITY RENEWAL PROVISIONS .......................................... 330

A. Renewal Community Provisions ................................................................ 330

B. Empowerment Zone Tax Incentives .......................................................... 336

1. Extension and expansion of empowerment zones .............................. 336

2. Rollover of gain from the sale of qualified empowerment zone

incentives ............................................................................................ 340

3. Increased exclusion of gain from the sale of qualifying empowerment zone stock .................................................................................. 340

C. New Markets Tax Credit ............................................................................ 341

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

Modifications .............................................................................................. 345

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

Private Activity Bonds .............................................................................. 350

F. Extension and Modification to Expensing of Environmental Remediation Costs ................................................................................................. 351

189

G. Expansion of District of Columbia Homebuyer Tax Credit ..................... 352

TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL

CORRECTIONS PROVISIONS .......................................................................... 353

SUBTITLE A. ADMINISTRATIVE PROVISIONS ............................................................. 353

A. Exempt Certain Reports From Elimination Under the Federal Reports

Elimination and Sunset Act of 1995 ........................................................ 353

B. Extension of Deadlines for IRS Compliance With Certain Notice Requirements ................................................................................................. 354

C. Extension of Authority for Undercover Operations ................................. 355

D. Competent Authority and Pre-Filing Agreements ................................... 355

E. Increase in Joint Committee on Taxation Refund Review Threshold .... 363

F. Clarify the Allowance of Certain Tax Benefits With Respect to Kidnapped Children ........................................................................................ 364

G. Conforming Changes to Accommodate Reduced Issuances of Certain

Treasury Securities ................................................................................... 365

H. Authorization of Agencies To Use Corrected Consumer Price Index ..... 366

I. Prevent Duplication or Acceleration of Loss Through Assumption of

Certain Liabilities ..................................................................................... 368

SUBTITLE B. MISCELLANEOUS PROVISIONS ............................................................. 371

A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway Barge Fuels ........................................................................................ 371

B. Repeal of Reduction of Deductions for Mutual Life Insurance Companies and of Policyholder Surplus Accounts of Life Insurance Companies ............................................................................................................. 371

C. Tax-Credit Bonds for the National Railroad Passenger Corporation

(‘‘Amtrak’’) and the Alaska Railroad ........................................................ 374

D. Farm, Fish, and Ranch Risk Management Accounts (‘‘FFARRM Accounts’’) ....................................................................................................... 378

E. Extension and Modification of Enhanced Deduction for Corporate Donations of Computer Technology .............................................................. 379

F. Settlement of Certain Discrimination Claims Brought by Certain

Farmers Against the Department of Agriculture ................................... 381

G. Extension of the Adoption Tax Credit ...................................................... 382

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

Companies .................................................................................................. 383

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

or Local Governments for Purposes of the Federal Unemployment

Tax (‘‘FUTAS’’) ........................................................................................... 384

SUBTITLE C. TECHNICAL CORRECTIONS PROVISIONS .............................................. 385

TITLE VIII. EXCLUSION FROM PAYGO SCORECARD ................................... 394

TAX COMPLEXITY ANALYSIS ............................................................................ 394

(191)

1 A variety of anti-deferral regimes impose current U.S. tax on income earned by a U.S. person

through a foreign corporation. The Internal Revenue Code of 1986, as amended, (the ‘‘Code’’)

sets forth the following anti-deferral regimes: the controlled foreign corporation rules of subpart

F (secs. 951–954), the passive foreign investment company rules (secs. 1291–1298), the foreign

personal holding company rules (secs. 551–558), the personal holding company rules (secs. 541–

547), the accumulated earnings tax rules (secs. 531–537), and the foreign investment company

rules (sec. 1246). Detailed rules for coordination among the anti-deferral regimes are provided

to prevent a U.S. person from being subject to U.S. tax on the same item of income under multiple regimes.

TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME

EXCLUSION

REPEAL OF FSC PROVISIONS AND EXCLUSION FOR EXTRA- TERRITORIAL INCOME (secs. 101–104 of the bill and secs. 114,

921–927, and 941–943 of the Code)

PRESENT LAW

Summary of U.S. income taxation of foreign persons

Income earned by a foreign corporation from its foreign operations generally is subject to U.S. tax only when such income is

distributed to a U.S. person that holds stock in such corporation.

Accordingly, a U.S. person that conducts foreign operations through

a foreign corporation generally is subject to U.S. tax on the income

from those operations when the income is repatriated to the United

States through a dividend distribution to the U.S. person.1 The income is reported on the U.S. person’s tax return for the year the

distribution is received, and the United States imposes tax on such

income at that time. An indirect foreign tax credit may reduce the

U.S. tax imposed on such income.

Foreign sales corporations

The income of an eligible foreign sales corporation (‘‘FSC’’) is

partially subject to U.S. income tax and partially exempt from U.S.

income tax. In addition, a U.S. corporation generally is not subject

to U.S. income tax on dividends distributed from the FSC out of

certain earnings.

A FSC must be located and managed outside the United

States, and must perform certain economic processes outside the

United States. A FSC is often owned by a U.S. corporation that

produces goods in the United States. The U.S. corporation either

supplies goods to the FSC for resale abroad or pays the FSC a commission in connection with such sales. The income of the FSC, a

portion of which is exempt from U.S. income tax under the FSC

rules, equals the FSC’s gross markup or gross commission income

less the expenses incurred by the FSC. The gross markup or the

gross commission is determined according to specified pricing rules.

A FSC generally is not subject to U.S. income tax on its exempt foreign trade income. The exempt foreign trade income of a

FSC is treated as foreign-source income that is not effectively conVerDate 11-MAY-2000 22:34 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00195 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm02 PsN: HR1004
192

nected with the conduct of a trade or business within the United

States.

Foreign trade income, other than exempt foreign trade income,

generally is treated as U.S.-source income effectively connected

with the conduct of a trade or business conducted through a permanent establishment within the United States. Thus, a FSC’s income, other than exempt foreign trade income, generally is subject

to U.S. tax currently and is treated as U.S.-source income for purposes of the foreign tax credit limitation.

Foreign trade income of a FSC is defined as the FSC’s gross

income attributable to foreign trading gross receipts. Foreign trading gross receipts generally are the gross receipts attributable to

the following types of transactions: the sale of export property; the

lease or rental of export property; services related and subsidiary

to such a sale or lease of export property; engineering and architectural services for projects outside the United States; and export

management services. Investment income and carrying charges are

excluded from the definition of foreign trading gross receipts.

The term ‘‘export property’’ generally means property (1) which

is manufactured, produced, grown or extracted in the United States

by a person other than a FSC; (2) which is held primarily for sale,

lease, or rental in the ordinary course of a trade or business for direct use or consumption outside the United States; and (3) not

more than 50 percent of the fair market value of which is attributable to articles imported into the United States. The term ‘‘export

property’’ does not include property leased or rented by a FSC for

use by any member of a controlled group of which the FSC is a

member; patents, copyrights (other than films, tapes, records, similar reproductions, and other than computer software, whether or

not patented), and other intangibles; oil or gas (or any primary

product thereof); unprocessed softwood timber; or products the export of which is prohibited or curtailed. Export property also excludes property designated by the President as being in short supply.

If export property is sold to a FSC by a related person (or a

commission is paid by a related person to a FSC with respect to

export property), the income with respect to the export transaction

must be allocated between the FSC and the related person. The

taxable income of the FSC and the taxable income of the related

person are computed based upon a transfer price determined under

section 482 or under one of two formulas specified in the FSC provisions.

The portion of a FSC’s foreign trade income that is treated as

exempt foreign trade income depends on the pricing rule used to

determine the income of the FSC. If the amount of income earned

by the FSC is based on section 482 pricing, the exempt foreign

trade income generally is 30 percent of the foreign trade income

the FSC derives from a transaction. If the income earned by the

FSC is determined under one of the two formulas specified in the

FSC provisions, the exempt foreign trade income generally is 15/23

of the foreign trade income the FSC derives from the transaction.

A FSC is not required or deemed to make distributions to its

shareholders. Actual distributions are treated as being made first

out of earnings and profits attributable to foreign trade income,

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and then out of any other earnings and profits. A U.S. corporation

generally is allowed a 100 percent dividends-received deduction for

amounts distributed from a FSC out of earnings and profits attributable to foreign trade income. The 100 percent dividends-received

deduction is not allowed for nonexempt foreign trade income determined under section 482 pricing. Any distribution made by a FSC

out of earnings and profits attributable to foreign trade income to

a foreign shareholder is treated as U.S.-source income that is effectively connected with a business conducted through a permanent

establishment of the shareholder within the United States. Thus,

the foreign shareholder is subject to U.S. tax on such a distribution.

HOUSE BILL

No provision. However, H.R. 4986, as passed by the House, repeals the present-law FSC rules and replaces them with an exclusion for extraterritorial income.

SENATE AMENDMENT

No provision. However, the Senate Finance Committee reported favorably an amended version of H.R. 4986 to the Senate

(the ‘‘Senate Finance Committee amendment’’). The Senate has

taken no action with respect to the Senate Finance Committee

amendment. The Senate Finance Committee amendment generally

follows H.R. 4986, as passed by the House, with one amendment

to strike a provision providing for a dividends-received deduction

for certain dividends allocable to qualifying foreign trade income.

Like H.R. 4986, the Senate Finance Committee amendment repeals

the present-law FSC rules and replaces them with an exclusion for

extraterritorial income.

CONFERENCE AGREEMENT

The conference agreement generally follows H.R. 4986, as

passed by the House, and the Senate Finance Committee amendment, with some modifications. The conference agreement, like the

Senate Finance Committee amendment, does not include the provision in the House bill that provides a dividends-received deduction

for certain dividends allocable to qualifying foreign trade income.

Repeal of the FSC rules

The conference agreement repeals the present-law FSC rules

found in sections 921 through 927 of the Code.

Exclusion of extraterritorial income

The conference agreement provides that gross income for U.S.

tax purposes does not include extraterritorial income. Because the

exclusion of such extraterritorial income is a means of avoiding

double taxation, no foreign tax credit is allowed for income taxes

paid with respect to such excluded income. Extraterritorial income

is eligible for the exclusion to the extent that it is ‘‘qualifying foreign trade income.’’ Because U.S. income tax principles generally

deny deductions for expenses related to exempt income, otherwise

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2The term ‘‘transaction’’ means (1) any sale, exchange, or other disposition; (2) any lease or

rental; and (3) any furnishing of services. 3For an example of these calculations, see the General Example, below.

4Persons are considered to be related if they are treated as a single employer under section

52(a) or (b) (determined without taking into account section 1563(b), thus including foreign corporations) or section 414(m) or (o).

deductible expenses that are allocated to qualifying foreign trade

income generally are disallowed.

The conference agreement applies in the same manner with respect to both individuals and corporations who are U.S. taxpayers.

In addition, the exclusion from gross income applies for individual

and corporate alternative minimum tax purposes.

Qualifying foreign trade income

Under the conference agreement, qualifying foreign trade income is the amount of gross income that, if excluded, would result

in a reduction of taxable income by the greatest of (1) 1.2 percent

of the ‘‘foreign trading gross receipts’’ derived by the taxpayer from

the transaction,2 (2) 15 percent of the ‘‘foreign trade income’’ derived by the taxpayer from the transaction, or (3) 30 percent of the

‘‘foreign sale and leasing income’’ derived by the taxpayer from the

transaction. The amount of qualifying foreign trade income determined using 1.2 percent of the foreign trading gross receipts is limited to 200 percent of the qualifying foreign trade income that

would result using 15 percent of the foreign trade income. Notwithstanding the general rule that qualifying foreign trade income is

based on one of the three calculations that results in the greatest

reduction in taxable income, a taxpayer may choose instead to use

one of the other two calculations that does not result in the greatest reduction in taxable income. Although these calculations are determined by reference to a reduction of taxable income (a net income concept), qualifying foreign trade income is an exclusion from

gross income. Hence, once a taxpayer determines the appropriate

reduction of taxable income, that amount must be ‘‘grossed up’’ for

related expenses in order to determine the amount of gross income

excluded.3

If a taxpayer uses 1.2 percent of foreign trading gross receipts

to determine the amount of qualifying foreign trade income with

respect to a transaction, the taxpayer or any other related persons

will be treated as having no qualifying foreign trade income with

respect to any other transaction involving the same property.4 For

example, assume that a manufacturer and a distributor of the

same product are related persons. The manufacturer sells the product to the distributor at an arm’s-length price of $80 (generating

$30 of profit) and the distributor sells the product to an unrelated

customer outside of the United States for $100 (generating $20 of

profit). If the distributor chooses to calculate its qualifying foreign

trade income on the basis of 1.2 percent of foreign trading gross receipts, then the manufacturer will be considered to have no qualifying foreign trade income and, thus, would have no excluded income. The distributor’s qualifying foreign trade income would be

1.2 percent of $100, and the manufacturer’s qualifying foreign

trade income would be zero. This limitation is intended to prevent

a duplication of exclusions from gross income because the distributor’s $100 of gross receipts includes the $80 of gross receipts of the

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5 The manufacturer also could compute qualifying foreign trade income based on 30 percent

of foreign sale and leasing income. 6 By reference to Standard Industrial Classification codes, the conferees intend to include industries as defined in the North American Industrial Classification System.

manufacturer. Absent this limitation, $80 of gross receipts would

have been double counted for purposes of the exclusion. If both persons were permitted to use 1.2 percent of their foreign trading

gross receipts in this example, then the related-person group would

have an exclusion based on $180 of foreign trading gross receipts

notwithstanding that the related-person group really only generated $100 of gross receipts from the transaction. However, if the

distributor chooses to calculate its qualifying foreign trade income

on the basis of 15 percent of foreign trade income (15 percent of

$20 of profit), then the manufacturer would also be eligible to calculate its qualifying foreign trade income in the same manner (15

percent of $30 of profit).5 Thus, in the second case, each related

person may exclude an amount of income based on their respective

profits. The total foreign trade income of the related-person group

is $50. Accordingly, allowing each person to calculate the exclusion

based on their respective foreign trade income does not result in

duplication of exclusions.

Under the conference agreement, a taxpayer may determine

the amount of qualifying foreign trade income either on a transaction-by-transaction basis or on an aggregate basis for groups of

transactions, so long as the groups are based on product lines or

recognized industry or trade usage. Under the grouping method,

the conferees intend that taxpayers be given reasonable flexibility

to identify product lines or groups on the basis of recognized industry or trade usage. In general, provided that the taxpayer’s grouping is not unreasonable, it will not be rejected merely because the

grouped products fall within more than one of the two-digit Standard Industrial Classification codes.6 The Secretary of the Treasury

is granted authority to prescribe rules for grouping transactions in

determining qualifying foreign trade income.

Qualifying foreign trade income must be reduced by illegal

bribes, kickbacks and similar payments, and by a factor for operations in or related to a country associated in carrying out an international boycott, or participating or cooperating with an international boycott.

In addition, the conference agreement directs the Secretary of

the Treasury to prescribe rules for marginal costing in those cases

in which a taxpayer is seeking to establish or maintain a market

for qualifying foreign trade property.

Foreign trading gross receipts

Under the conference agreement, ‘‘foreign trading gross receipts’’ are gross receipts derived from certain activities in connection with ‘‘qualifying foreign trade property’’ with respect to which

certain ‘‘economic processes’’ take place outside of the United

States. Specifically, the gross receipts must be (1) from the sale, exchange, or other disposition of qualifying foreign trade property; (2)

from the lease or rental of qualifying foreign trade property for use

by the lessee outside of the United States; (3) for services which

are related and subsidiary to the sale, exchange, disposition, lease,

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7The Taxpayer Relief Act of 1997, Public Law 105–34.

8The foreign direct costs attributable to the transaction generally must exceed 50 percent of

the total direct costs attributable to the transaction, but the requirement also will be satisfied

if, with respect to at least two categories of direct costs, the foreign direct costs equal or exceed

85 percent of the total direct costs attributable to each category.

or rental of qualifying foreign trade property (as described above);

(4) for engineering or architectural services for construction

projects located outside of the United States; or (5) for the performance of certain managerial services for unrelated persons. Gross receipts from the lease or rental of qualifying foreign trade property

include gross receipts from the license of qualifying foreign trade

property. Consistent with the policy adopted in the Taxpayer Relief

Act of 1997,7 this includes the license of computer software for reproduction abroad.

Foreign trading gross receipts do not include gross receipts

from a transaction if the qualifying foreign trade property or services are for ultimate use in the United States, or for use by the

United States (or an instrumentality thereof) and such use is required by law or regulation. Foreign trading gross receipts also do

not include gross receipts from a transaction that is accomplished

by a subsidy granted by the government (or any instrumentality

thereof) of the country or possession in which the property is manufactured.

A taxpayer may elect to treat gross receipts from a transaction

as not foreign trading gross receipts. As a consequence of such an

election, the taxpayer could utilize any related foreign tax credits

in lieu of the exclusion as a means of avoiding double taxation. It

is intended that this election be accomplished by the taxpayer’s

treatment of such items on its tax return for the taxable year. Provided that the taxpayer’s taxable year is still open under the statute of limitations for making claims for refund under section 6511,

a taxpayer can make redeterminations as to whether the gross receipts from a transaction constitute foreign trading gross receipts.

Foreign economic processes

Under the conference agreement, gross receipts from a transaction are foreign trading gross receipts only if certain economic

processes take place outside of the United States. The foreign economic processes requirement is satisfied if the taxpayer (or any

person acting under a contract with the taxpayer) participates outside of the United States in the solicitation (other than advertising), negotiation, or making of the contract relating to such

transaction and incurs a specified amount of foreign direct costs attributable to the transaction.8 For this purpose, foreign direct costs

include only those costs incurred in the following categories of activities: (1) advertising and sales promotion; (2) the processing of

customer orders and the arranging for delivery; (3) transportation

outside of the United States in connection with delivery to the customer; (4) the determination and transmittal of a final invoice or

statement of account or the receipt of payment; and (5) the assumption of credit risk. An exception from the foreign economic

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9For this purpose, the receipts of related persons are aggregated and, in the case of passthrough entities, the determination of whether the foreign trading gross receipts exceed $5 million is made both at the entity and at the partner/shareholder level. 10 In addition, consistent with the policy adopted in the Taxpayer Relief Act of 1997, computer

software licensed for reproduction is considered as property held primarily for sale, lease, or

rental. 11 ‘‘United States’’ includes Puerto Rico for these purposes because Puerto Rico is included in

the customs territory of the United States. 12For this purpose, the fair market value of any article imported into the United States is

its appraised value as determined under the Tariff Act of 1930. In addition, direct labor costs

are determined under the principles of section 263A and do not include costs that would be

treated as direct labor costs attributable to ‘‘articles,’’ again applying principles of section 263A.

processes requirement is provided for taxpayers with foreign trading gross receipts for the year of $5 million or less.9

The foreign economic processes requirement must be satisfied

with respect to each transaction and, if so, any gross receipts from

such transaction could be considered as foreign trading gross receipts. For example, all of the lease payments received with respect

to a multi-year lease contract, which contract met the foreign economic processes requirement at the time it was entered into, would

be considered as foreign trading gross receipts. On the other hand,

a sale of property that was formerly a leased asset, which was not

sold pursuant to the original lease agreement, generally would be

considered a new transaction that must independently satisfy the

foreign economic processes requirement.

A taxpayer’s foreign economic processes requirement is treated

as satisfied with respect to a sales transaction (solely for the purpose of determining whether gross receipts are foreign trading

gross receipts) if any related person has satisfied the foreign economic processes requirement in connection with another sales

transaction involving the same qualifying foreign trade property.

Qualifying foreign trade property

Under the conference agreement, the threshold for determining

if gross receipts will be treated as foreign trading gross receipts is

whether the gross receipts are derived from a transaction involving

‘‘qualifying foreign trade property.’’ Qualifying foreign trade property is property manufactured, produced, grown, or extracted

(‘‘manufactured’’) within or outside of the United States that is held

primarily for sale, lease, or rental,10 in the ordinary course of a

trade or business, for direct use, consumption, or disposition outside of the United States.11 In addition, not more than 50 percent

of the fair market value of such property can be attributable to the

sum of (1) the fair market value of articles manufactured outside

of the United States plus (2) the direct costs of labor performed

outside of the United States.12

The conferees understand that under current industry practice,

the purchaser of an aircraft contracts separately for the aircraft engine and the airframe, albeit contracting with the airframe manufacturer to attach the separately purchased engine. The conferees

intend that an aircraft engine be qualifying foreign trade property

(assuming that all other requirements are satisfied) if (1) it is specifically designed to be separated from the airframe to which it is

attached without significant damage to either the engine or the airframe, (2) it is reasonably expected to be separated from the airframe in the ordinary course of business (other than by reason of

198

13See, e.g., sections 927(a)(1)(B) and 993(c)(1)(B). 14The intangibles that are treated as excluded property under the bill are: patents, inventions,

models, designs, formulas, or processes whether or not patented, copyrights (other than films,

tapes, records, or similar reproductions, and other than computer software (whether or not patented), for commercial or home use), goodwill, trademarks, trade brands, franchises, or other

like property. Computer software that is licensed for reproduction outside of the United States

is not excluded from the definition of qualifying foreign trade property. 15 Except as provided by the Secretary of the Treasury, tiered partnerships or pass-through

entities will be considered as partnerships or pass-through entities for purposes of this rule if

each of the partnerships or entities is directly or indirectly wholly-owned by persons described

in (1), (2), or (3) above.

temporary separation for servicing, maintenance, or repair) before

the end of the useful life of either the engine or the airframe,

whichever is shorter, and (3) the terms under which the aircraft

engine was sold were directly and separately negotiated between

the manufacturer of the aircraft engine and the person to whom

the aircraft will be ultimately delivered. By articulating this application of the foreign destination test in the case of certain separable aircraft engines, the conferees intend no inference with respect to the application of any destination test under present law

or with respect to any other rule of law outside the conference

agreement. 13

The conference agreement excludes certain property from the

definition of qualifying foreign trade property. The excluded property is (1) property leased or rented by the taxpayer for use by a

related person, (2) certain intangibles,14 (3) oil and gas (or any primary product thereof), (4) unprocessed softwood timber, (5) certain

products the transfer of which are prohibited or curtailed to effectuate the policy set forth in Public Law 96–72, and (6) property

designated by Executive order as in short supply. In addition, it is

the intention of the conferees that property that is leased or licensed to a related person who is the lessor, licensor, or seller of

the same property in a sublease, sublicense, sale, or rental to an

unrelated person for the ultimate and predominate use by the unrelated person outside of the United States is not excluded property

by reason of such lease or license to a related person.

With respect to property that is manufactured outside of the

United States, rules are provided to ensure consistent U.S. tax

treatment with respect to manufacturers. The conference agreement requires that property manufactured outside of the United

States be manufactured by (1) a domestic corporation, (2) an individual who is a citizen or resident of the United States, (3) a foreign corporation that elects to be subject to U.S. taxation in the

same manner as a U.S. corporation, or (4) a partnership or other

pass-through entity all of the partners or owners of which are described in (1), (2), or (3) above.15

Foreign trade income

Under the conference agreement, ‘‘foreign trade income’’ is the

taxable income of the taxpayer (determined without regard to the

exclusion of qualifying foreign trade income) attributable to foreign

trading gross receipts. Certain dividends-paid deductions of cooperatives are disregarded in determining foreign trade income for

this purpose.

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16For this purpose, such a lease includes a lease that gave rise to exempt foreign trade income

under the FSC provisions.

Foreign sale and leasing income

Under the conference agreement, ‘‘foreign sale and leasing income’’ is the amount of the taxpayer’s foreign trade income (with

respect to a transaction) that is properly allocable to activities that

constitute foreign economic processes (as described above). For example, a distribution company’s profit from the sale of qualifying

foreign trade property that is associated with sales activities, such

as solicitation or negotiation of the sale, advertising, processing

customer orders and arranging for delivery, transportation outside

of the United States, and other enumerated activities, would constitute foreign sale and leasing income.

Foreign sale and leasing income also includes foreign trade income derived by the taxpayer in connection with the lease or rental

of qualifying foreign trade property for use by the lessee outside of

the United States. Income from the sale, exchange, or other disposition of qualifying foreign trade property that is or was subject

to such a lease 16 (i.e., the sale of the residual interest in the leased

property) gives rise to foreign sale and leasing income. Except as

provided in regulations, a special limitation applies to leased property that (1) is manufactured by the taxpayer or (2) is acquired by

the taxpayer from a related person for a price that was other than

arm’s length. In such cases, foreign sale and leasing income may

not exceed the amount of foreign sale and leasing income that

would have resulted if the taxpayer had acquired the leased property in a hypothetical arm’s-length purchase and then engaged in

the actual sale or lease of such property. For example, if a manufacturer leases qualifying foreign trade property that it manufactured, the foreign sale and leasing income derived from that lease

may not exceed the amount of foreign sale and leasing income that

the manufacturer would have earned with respect to that lease had

it purchased the property for an arm’s-length price on the day that

the manufacturer entered into the lease. For purposes of calculating the limit on foreign sale and leasing income, the manufacturer’s basis and, thus, depreciation would be based on this hypothetical arm’s-length price. This limitation is intended to prevent

foreign sale and leasing income from including profit associated

with manufacturing activities.

For purposes of determining foreign sale and leasing income,

only directly allocable expenses are taken into account in calculating the amount of foreign trade income. In addition, income

properly allocable to certain intangibles is excluded for this purpose.

General example

The following is an example of the calculation of qualifying foreign trade income.

XYZ Corporation, a U.S. corporation, manufactures property

that is sold to unrelated customers for use outside of the United

States. XYZ Corporation satisfies the foreign economic processes requirement through conducting activities such as solicitation, negotiation, transportation, and other sales-related activities outside of

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18Overhead expenses must be apportioned in a reasonable manner that does not result in a material distortion of income. In this example, the apportionment of the $500 of overhead expenses on the basis of gross income is assumed not to result in a material distortion of income

and is assumed to be a reasonable method of apportionment. Thus, $25 ($500 of total overhead

expenses multiplied by 5 percent, i.e., $400 of gross income from the sale of qualifying foreign

trade property divided by $8,000 of total gross income) is apportioned to qualifying foreign trading gross receipts. The remaining $475 ($500 of total overhead expenses less the $25 apportioned to qualifying income) is apportioned to XYZ Corporation’s other income.

the United States with respect to its transactions. During the year,

qualifying foreign trade property was sold for gross proceeds totaling $1,000. The cost of this qualifying foreign trade property was

$600. XYZ Corporation incurred $275 of costs that are directly related to the sale and distribution of qualifying foreign trade property. XYZ Corporation paid $40 of income tax to a foreign jurisdiction related to the sale and distribution of the qualifying foreign

trade property. XYZ Corporation also generated gross income of

$7,600 (gross receipts of $24,000 and cost of goods sold of $16,400)

and direct expenses of $4,225 that relate to the manufacture and

sale of products other than qualifying foreign trade property. XYZ

Corporation also incurred $500 of overhead expenses. XYZ Corporation’s financial information for the year is summarized as follows:

Total Other property QFTP 17

Gross receipts ......................................................................................................... $25,000.00 $24,000.00 $1,000.00

Cost of goods sold .................................................................................................. 17,000.00 16,400.00 600.00

Gross income .......................................................................................................... 8,000.00 7,600.00 400.00

Direct expenses ....................................................................................................... 4,500.00 4,225.00 275.00

Overhead expenses ................................................................................................. 500.00

Net income .............................................................................................................. 3,000.00

17 ‘‘QFTP’’ refers to qualifying foreign trade property.

Illustrated below is the computation of the amount of qualifying foreign trade income that is excluded from XYZ Corporation’s

gross income and the amount of related expenses that are disallowed. In order to calculate qualifying foreign trade income, the

amount of foreign trade income first must be determined. Foreign

trade income is the taxable income (determined without regard to

the exclusion of qualifying foreign trade income) attributable to foreign trading gross receipts. In this example, XYZ Corporation’s foreign trading gross receipts equal $1,000. This amount of gross receipts is reduced by the related cost of goods sold, the related direct

expenses, and a portion of the overhead expenses in order to arrive

at the related taxable income.18 Thus, XYZ Corporation’s foreign

trade income equals $100, calculated as follows:

Foreign trading gross receipts .............................................................. $1,000.00

Cost of goods sold ................................................................................... 600.00

Gross income .......................................................................................... 400.00

Direct expenses ...................................................................................... 275.00

Apportioned overhead expenses ............................................................ 25.00

Foreign trade income ............................................................................. 100.00

Foreign sale and leasing income is defined as an amount of foreign trade income (calculated taking into account only directly-related expenses) that is properly allocable to certain specified forVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00204 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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19 Note that XYZ Corporation could choose to use one of the other two methods notwithstanding that they would result in a smaller exclusion. 20The $300 of allocable expenses includes both the $275 of direct expenses and the $25 of

overhead expenses. Thus, the $45 of disallowed expenses represents the sum of $41.25 of direct

expenses plus $3.75 of overhead expenses. If qualifying foreign trade income were determined

Continued

eign activities. Assume for purposes of this example that of the

$125 of foreign trade income ($400 of gross income from the sale

of qualifying foreign trade property less only the direct expenses of

$275), $35 is properly allocable to such foreign activities (e.g., solicitation, negotiation, advertising, foreign transportation, and other

enumerated sales-like activities) and, therefore, is considered to be

foreign sale and leasing income.

Qualifying foreign trade income is the amount of gross income

that, if excluded, will result in a reduction of taxable income equal

to the greatest of (1) 30 percent of foreign sale and leasing income,

(2) 1.2 percent of foreign trading gross receipts, or (3) 15 percent

of foreign trade income. Thus, in order to calculate the amount that

is excluded from gross income, taxable income must be determined

and then ‘‘grossed up’’ for allocable expenses in order to arrive at

the appropriate gross income figure. First, for each method of calculating qualifying foreign trade income, the reduction in taxable

income is determined. Then, the $275 of direct and $25 of overhead

expenses, totaling $300, attributable to foreign trading gross receipts is apportioned to the reduction in taxable income based on

the proportion of the reduction in taxable income to foreign trade

income. This apportionment is done for each method of calculating

qualifying foreign trade income. The sum of the taxable income reduction and the apportioned expenses equals the respective qualifying foreign trade income (i.e., the amount of gross income excluded) under each method, as follows:

1.2%

FTGR 1

15%

FTI 2

30%

FS&LI 3

Reduction of taxable income:

1.2% of FTGR (1.2% * $1,000) ............................................................................................ 12.00

15% of FTI (15% * $100) .................................................................................................... 15.00

30% of FS&LI (30% * $35) .................................................................................................. 10.50

Gross-up for disallowed expenses:

$300 * ($12/$100) ................................................................................................................ 36.00

$300 * ($15/$100) ................................................................................................................ 45.00

$275 * ($10.50/$100) 4 ......................................................................................................... 28.88

Qualifying foreign trade income ....................................................................................... 48.00 60.00 39.38

1 ‘‘FTGR’’ refers to foreign trading gross receipts.

2 ‘‘FTI’’ refers to foreign trade income.

3 ‘‘FS&LI’’ refers to foreign sale and leasing income.

4 Because foreign sale and leasing income only takes into account direct expenses, it is appropriate to take into account only such ex- penses for purposes of this calculation.

In the example, the $60 of qualifying foreign trade income is

excluded from XYZ Corporation’s gross income (determined based

on 15 percent of foreign trade income).19 In connection with excluding $60 of gross income, certain expenses that are allocable to this

income are not deductible for U.S. Federal income tax purposes.

Thus, $45 ($300 of related expenses multiplied by 15 percent, i.e.,

$60 of qualifying foreign trade income divided by $400 of gross income from the sale of qualifying foreign trade property) of expenses

are disallowed.20

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using 30 percent of foreign sale and leasing income, the disallowed expenses would include only

the appropriate portion of the direct expenses.

Other property QFTP Excluded/

disallowed Total

Gross receipts ................................................................................ $24,000.00 $1,000.00

Cost of goods sold ......................................................................... 16,400.00 600.00

Gross income ................................................................................. 7,600.00 400.00 (60.00) 7,940.00

Direct expenses .............................................................................. 4,225.00 275.00 (41.25) 4,458.75

Overhead expenses ........................................................................ 475.00 25.00 (3.75) 496.25

Taxable income .............................................................................. 2,985.00

XYZ Corporation paid $40 of income tax to a foreign jurisdiction related to the sale and distribution of the qualifying foreign

trade property. A portion of this $40 of foreign income tax is treated as paid with respect to the qualifying foreign trade income and,

therefore, is not creditable for U.S. foreign tax credit purposes. In

this case, $6 of such taxes paid ($40 of foreign taxes multiplied by

15 percent, i.e., $60 of qualifying foreign trade income divided by

$400 of gross income from the sale of qualifying foreign trade property) is treated as paid with respect to the qualifying foreign trade

income and, thus, is not creditable.

The results in this example are the same regardless of whether

XYZ Corporation manufactures the property within the United

States or outside of the United States through a foreign branch. If

XYZ Corporation were an S corporation or limited liability company, the results also would be the same, and the exclusion would

pass through to the S corporation owners or limited liability company owners as the case may be.

Other rules

Foreign-source income limitation

The conference agreement provides a limitation with respect to

the sourcing of taxable income applicable to certain sale transactions giving rise to foreign trading gross receipts. This limitation

only applies with respect to sale transactions involving property

that is manufactured within the United States. The special source

limitation does not apply when qualifying foreign trade income is

determined using 30 percent of the foreign sale and leasing income

from the transaction.

This foreign-source income limitation is determined in one of

two ways depending on whether the qualifying foreign trade income is calculated based on 1.2 percent of foreign trading gross receipts or on 15 percent of foreign trade income. If the qualifying

foreign trade income is calculated based on 1.2 percent of foreign

trading gross receipts, the related amount of foreign- source income

may not exceed the amount of foreign trade income that (without

taking into account this special foreign-source income limitation)

would be treated as foreign-source income if such foreign trade income were reduced by 4 percent of the related foreign trading gross

receipts.

For example, assume that foreign trading gross receipts are $2,000 and foreign trade income is $100. Assume also that the taxpayer chooses to determine qualifying foreign trade income based

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21The foreign-source income limitation provisions also apply when source is determined solely

in accordance with section 862 (e.g., a distributor of qualifying foreign trade property that is

manufactured in the United States by an unrelated person and sold for use outside of the

United States).

on 1.2 percent of foreign trading gross receipts. Taxable income

after taking into account the exclusion of the qualifying foreign

trade income and the disallowance of related deductions is $76. Assume that the taxpayer manufactured its qualifying foreign trade

property in the United States and that title to such property

passed outside of the United States. Absent a special sourcing rule,

under section 863(b) (and the regulations thereunder) the $76 of

taxable income would be sourced as $38 U.S. source and $38 foreign source. Under the special sourcing rule, the amount of foreignsource income may not exceed the amount of the foreign trade income that otherwise would be treated as foreign source if the foreign trade income were reduced by 4 percent of the related foreign

trading gross receipts. Reducing foreign trade income by 4 percent

of the foreign trading gross receipts (4 percent of $2,000, or $80)

would result in $20 ($100 foreign trade income less $80). Applying

section 863(b) to the $20 of reduced foreign trade income would result in $10 of foreign-source income and $10 of U.S.-source income.

Accordingly, the limitation equals $10. Thus, although under the

general sourcing rule $38 of the $76 taxable income would be treated as foreign source, the special sourcing rule limits foreign-source

income in this example to $10 (with the remaining $66 being treated as U.S.-source income).

If the qualifying foreign trade income is calculated based on 15

percent of foreign trade income, the amount of related foreignsource income may not exceed 50 percent of the foreign trade income that (without taking into account this special foreign-source

income limitation) would be treated as foreign-source income.

For example, assume that foreign trade income is $100 and the

taxpayer chooses to determine its qualifying foreign trade income

based on 15 percent of foreign trade income. Taxable income after

taking into account the exclusion of the qualifying foreign trade income and the disallowance of related deductions is $85. Assume

that the taxpayer manufactured its qualifying foreign trade property in the United States and that title to such property passed

outside of the United States. Absent a special sourcing rule, under

section 863(b) the $85 of taxable income would be sourced as

$42.50 U.S. source and $42.50 foreign source. Under the special

sourcing rule, the amount of foreign-source income may not exceed

50 percent of the foreign trade income that otherwise would be

treated as foreign source. Applying section 863(b) to the $100 of

foreign trade income would result in $50 of foreign-source income

and $50 of U.S.-source income. Accordingly, the limitation equals

$25, which is 50 percent of the $50 foreign-source income. Thus, although under the general sourcing rule $42.50 of the $85 taxable

income would be treated as foreign source, the special sourcing rule

limits foreign-source income in this example to $25 (with the remaining $60 being treated as U.S.-source income).21

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22With respect to the withholding taxes that are paid or accrued (a prerequisite to the taxes

being otherwise creditable), the provision in the bill treats such taxes as not being paid or accrued with respect to qualifying foreign trade income. 23This also would apply to any withholding tax that is creditable for U.S. foreign tax credit

purposes under an applicable treaty. 24The waiver of treaty benefits applies to the corporation itself and not, for example, to employees of or independent contractors associated with the corporation. 25For example, the Secretary of the Treasury may prescribe rules to prevent ‘‘per se’’ corporations under the entity-classification rules from making such an election.

Treatment of withholding taxes

The conference agreement generally provides that no foreign

tax credit is allowed for foreign taxes paid or accrued with respect

to qualifying foreign trade income (i.e., excluded extraterritorial income). In determining whether foreign taxes are paid or accrued

with respect to qualifying foreign trade income, foreign withholding

taxes generally are treated as not paid or accrued with respect to

qualifying foreign trade income.22 Accordingly, the conference

agreement’s denial of foreign tax credits would not apply to such

taxes. For this purpose, the term ‘‘withholding tax’’ refers to any

foreign tax that is imposed on a basis other than residence and

that is otherwise a creditable foreign tax under sections 901 or

903.23 It is intended that such taxes would be similar in nature to

the gross-basis taxes described in sections 871 and 881.

If, however, qualifying foreign trade income is determined

based on 30 percent of foreign sale and leasing income, the special

rule for withholding taxes is not applicable. Thus, in such cases foreign withholding taxes may be treated as paid or accrued with respect to qualifying foreign trade income and, accordingly, are not

creditable under the conference agreement.

Election to be treated as a U.S. corporation

The conference agreement provides that certain foreign corporations may elect, on an original return, to be treated as domestic corporations. The election applies to the taxable year when

made and all subsequent taxable years unless revoked by the taxpayer or terminated for failure to qualify for the election. Such

election is available for a foreign corporation (1) that manufactures

property in the ordinary course of such corporation’s trade or business, or (2) if substantially all of the gross receipts of such corporation are foreign trading gross receipts. For this purpose, ‘‘substantially all’’ is based on the relevant facts and circumstances.

In order to be eligible to make this election, the foreign corporation must waive all benefits granted to such corporation by the

United States pursuant to a treaty.24 Absent such a waiver, it

would be unclear, for example, whether the permanent establishment article of a relevant tax treaty would override the electing

corporation’s treatment as a domestic corporation under this provision. A foreign corporation that elects to be treated as a domestic

corporation is not permitted to make an S corporation election. The

Secretary is granted authority to prescribe rules to ensure that the

electing foreign corporation pays its U.S. income tax liabilities and

to designate one or more classes of corporations that may not make

such an election.25 If such an election is made, for purposes of section 367 the foreign corporation is treated as transferring (as of the

first day of the first taxable year to which the election applies) all

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26The sourcing limitation described above would not apply to this example because the property is manufactured outside of the United States.

of its assets to a domestic corporation in connection with an exchange to which section 354 applies.

If a corporation fails to meet the applicable requirements, described above, for making the election to be treated as a domestic

corporation for any taxable year beginning after the year of the

election, the election will terminate. In addition, a taxpayer, at its

option and at any time, may revoke the election to be treated as

a domestic corporation. In the case of either a termination or a revocation, the electing foreign corporation will not be considered as

a domestic corporation effective beginning on the first day of the

taxable year following the year of such termination or revocation.

For purposes of section 367, if the election to be treated as a domestic corporation is terminated or revoked, such corporation is

treated as a domestic corporation transferring (as of the first day

of the first taxable year to which the election ceases to apply) all

of its property to a foreign corporation in connection with an exchange to which section 354 applies. Moreover, once a termination

occurs or a revocation is made, the former electing corporation may

not again elect to be taxed as a domestic corporation under the provisions of the conference agreement for a period of five tax years

beginning with the first taxable year that begins after the termination or revocation.

For example, assume a U.S. corporation owns 100 percent of

a foreign corporation. The foreign corporation manufactures outside

of the United States and sells what would be qualifying foreign

trade property were it manufactured by a person subject to U.S.

taxation. Such foreign corporation could make the election under

this provision to be treated as a domestic corporation. As a result,

its earnings no longer would be deferred from U.S. taxation. However, by electing to be subject to U.S. taxation, a portion of its income would be qualifying foreign trade income.26 The requirement

that the foreign corporation be treated as a domestic corporation

(and, therefore, subject to U.S. taxation) is intended to provide parity between U.S. corporations that manufacture abroad in branch

form and U.S. corporations that manufacture abroad through foreign subsidiaries. The election, however, is not limited to U.S.-

owned foreign corporations. A foreign-owned foreign corporation

that wishes to qualify for the treatment provided under the conference agreement could avail itself of such election (unless otherwise precluded from doing so by Treasury regulations).

Shared partnerships

The conference agreement provides rules relating to allocations

of qualifying foreign trade income by certain shared partnerships.

To the extent that such a partnership (1) maintains a separate account for transactions involving foreign trading gross receipts with

each partner, (2) makes distributions to each partner based on the

amounts in the separate account, and (3) meets such other requirements as the Treasury Secretary may prescribe by regulations,

such partnership then would allocate to each partner items of income, gain, loss, and deduction (including qualifying foreign trade

206

income) from such transactions on the basis of the separate accounts. It is intended that with respect to, and only with respect

to, such allocations and distributions (i.e., allocations and distributions related to transactions between the partner and the shared

partnership generating foreign trading gross receipts), these rules

would apply in lieu of the otherwise applicable partnership allocation rules such as those in section 704(b). For this purpose, a partnership is a foreign or domestic entity that is considered to be a

partnership for U.S. Federal income tax purposes.

Under the conference agreement, any partner’s interest in the

shared partnership is not taken into account in determining whether such partner is a ‘‘related person’’ with respect to any other

partner for purposes of the conference agreement’s provisions. Also,

the election to exclude certain gross receipts from foreign trading

gross receipts must be made separately by each partner with respect to any transaction for which the shared partnership maintains a separate account.

Certain assets not taken into account for purposes of interest

expense allocation

The conference agreement also provides that qualifying foreign

trade property that is held for lease or rental, in the ordinary

course of a trade or business, for use by the lessee outside of the

United States is not taken into account for interest allocation purposes.

Distributions of qualifying foreign trade income by cooperatives

Agricultural and horticultural producers often market their

products through cooperatives, which are member-owned corporations formed under Subchapter T of the Code. At the cooperative

level, the conference agreement provides the same treatment of foreign trading gross receipts derived from products marketed

through cooperatives as it provides for foreign trading gross receipts of other taxpayers. That is, the qualifying foreign trade income attributable to those foreign trading gross receipts is excluded

from the gross income of the cooperative. Absent a special rule,

however, patronage dividends or per-unit retain allocations attributable to qualifying foreign trade income paid to members of cooperatives would be taxable in the hands of those members. The

conferees believe that this would disadvantage agricultural and

horticultural producers who choose to market their products

through cooperatives relative to those individuals who market their

products directly or through pass-through entities such as partnerships, limited liability companies, or S corporations. Accordingly,

the conference agreement provides that the amount of any patronage dividends or per-unit retain allocations paid to a member of an

agricultural or horticultural cooperative (to which Part I of Subchapter T applies), which is allocable to qualifying foreign trade income of the cooperative, is treated as qualifying foreign trade income of the member (and, thus, excludable from such member’s

gross income). In order to qualify, such amount must be designated

by the organization as allocable to qualifying foreign trade income

in a written notice mailed to its patrons not later than the payment

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27See, e.g., Treas. Reg. sec. 1.924(d)–1(c)(5) and (e); Temp. Treas. Reg. sec. 1.925(a)–1T(c)(8);

Temp. Treas. Reg. sec. 1.925(b)–1T. 28See Temp. Treas. Reg. sec. 1.927(a)–1T(f)(2)(i). The bill also provides that oil or gas or primary products from oil or gas are excluded from the definition of qualifying foreign trade property. It is intended that similar principles under present-law regulations apply for these purposes. Thus, for this purpose, petrochemicals, medicinal products, insecticides, and alcohols are

not considered primary products from oil or gas and, thus, are not treated as excluded property.

See Temp. Treas. Reg. sec. 1.927(a)–1T(g)(2)(iv).

period described in section 1382(d). The cooperative cannot reduce

its income (e.g., cannot claim a ‘‘dividends-paid deduction’’) under

section 1382 for such amounts.

Gap period before administrative guidance is issued

The conferees recognize that there may be a gap in time between the enactment of the bill and the issuance of detailed administrative guidance. It is intended that during this gap period before

administrative guidance is issued, taxpayers and the Internal Revenue Service may apply the principles of present-law regulations

and other administrative guidance under sections 921 through 927

to analogous concepts under the conference agreement. Some examples of the application of the principles of present-law regulations

to the conference agreement are described below. These limited examples are intended to be merely illustrative and are not intended

to imply any limitation regarding the application of the principles

of other analogous rules or concepts under present law.

Marginal costing and grouping

Under the conference agreement, the Secretary of the Treasury

is provided authority to prescribe rules for using marginal costing

and for grouping transactions in determining qualifying foreign

trade income. It is intended that similar principles under presentlaw regulations apply for these purposes.27

Excluded property

The conference agreement provides that qualifying foreign

trade property does not include property leased or rented by the

taxpayer for use by a related person. It is intended that similar

principles under present-law regulations apply for this purpose.

Thus, excluded property does not apply, for example, to property

leased by the taxpayer to a related person if the property is held

for sublease, or is subleased, by the related person to an unrelated

person and the property is ultimately used by such unrelated person predominantly outside of the United States.28 In addition, consistent with the policy adopted in the Taxpayer Relief Act of 1997,

computer software that is licensed for reproduction outside of the

United States is not excluded property. Accordingly, the license of

computer software to a related person for reproduction outside of

the United States for sale, sublicense, lease, or rental to an unrelated person for use outside of the United States is not treated as

excluded property by reason of the license to the related person.

Foreign trading gross receipts

Under the conference agreement, foreign trading gross receipts

are gross receipts from, among other things, the sale, exchange, or

other disposition of qualifying foreign trade property, and from the

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29See Temp. Treas. Reg. sec. 1.924(a)–1T(a)(2). 30Foreign trading gross receipts eligible for exclusion from the tax base do not include gross

receipts from a transaction if the qualifying foreign trade property is for ultimate use in the

United States. 31See Temp. Treas. Reg. sec. 1.927(a)–1T(d)(4)(ii). 32See Temp. Treas. Reg. sec. 1.927(a)–1T(d)(4)(iii), (iv), and (v). 33See Temp. Treas. Reg. sec. 1.927(a)–1T(d)(4)(vi). 34 Id. 35 Id.

lease of qualifying foreign trade property for use by the lessee outside of the United States. It is intended that the principles of

present-law regulations that define foreign trading gross receipts

apply for this purpose. For example, a sale includes an exchange

or other disposition and a lease includes a rental or sublease and

a license or a sublicense.29

Foreign use requirement

Under the conference agreement, property constitutes qualifying foreign trade property if, among other things, the property is

held primarily for lease, sale, or rental, in the ordinary course of

business, for direct use, consumption, or disposition outside of the

United States.30 It is intended that the principles of the presentlaw regulations apply for purposes of this foreign use requirement.

For example, for purposes of determining whether property is sold

for use outside of the United States, property that is sold to an unrelated person as a component to be incorporated into a second

product which is produced, manufactured, or assembled outside of

the United States will not be considered to be used in the United

States (even if the second product ultimately is used in the United

States), provided that the fair market value of such seller’s components at the time of delivery to the purchaser constitutes less than

20 percent of the fair market value of the second product into

which the components are incorporated (determined at the time of

completion of the production, manufacture, or assembly of the second product).31

In addition, for purposes of the foreign use requirement, property is considered to be used by a purchaser or lessee outside of the

United States during a taxable year if it is used predominantly outside of the United States.32 For this purpose, property is considered

to be used predominantly outside of the United States for any period if, during that period, the property is located outside of the

United States more than 50 percent of the time.33 An aircraft or

other property used for transportation purposes (e.g., railroad rolling stock, a vessel, a motor vehicle, or a container) is considered

to be used outside of the United States for any period if, for the

period, either the property is located outside of the United States

more than 50 percent of the time or more than 50 percent of the

miles traveled in the use of the property are traveled outside of the

United States.34 An orbiting satellite is considered to be located

outside of the United States for these purposes.35

Foreign economic processes

Under the conference agreement, gross receipts from a transaction are foreign trading gross receipts eligible for exclusion from

the tax base only if certain economic processes take place outside

of the United States. The foreign economic processes requirement

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36The mere entering into of a single transaction, such as a lease, would not, in and of itself,

prevent the transaction from being in the ordinary course of business.

compares foreign direct costs to total direct costs. It is intended

that the principles of the present-law regulations apply during the

gap period for purposes of the foreign economic processes requirement including the measurement of direct costs. The conferees recognize that the measurement of foreign direct costs under the

present-law regulations often depend on activities conducted by the

FSC, which is a separate entity. The conferees are aware that some

of these concepts will have to be modified when new guidance is

promulgated as a result of the conference agreement’s elimination

of the requirement for a separate entity.

Effective date

In general

The conference agreement is effective for transactions entered

into after September 30, 2000. In addition, no corporation may

elect to be a FSC after September 30, 2000.

The conference agreement also provides a rule requiring the

termination of a dormant FSC when the FSC has been inactive for

a specified period of time. Under this rule, a FSC that generates

no foreign trade income for any five consecutive years beginning

after December 31, 2001, will cease to be treated as a FSC.

Transition rules

Winding down existing FSCs and binding contract relief

The conference agreement provides a transition period for existing FSCs and for binding contractual agreements. The new rules

do not apply to transactions in the ordinary course of business 36

involving a FSC before January 1, 2002. Furthermore, the new

rules do not apply to transactions in the ordinary course of business after December 31, 2001, if such transactions are pursuant to

a binding contract between a FSC (or a person related to the FSC

on September 30, 2000) and any other person (that is not a related

person) and such contract is in effect on September 30, 2000, and

all times thereafter. For this purpose, binding contracts include

purchase options, renewal options, and replacement options that

are enforceable against a lessor or seller (provided that the options

are a part of a contract that is binding and in effect on September

30, 2000).

Old earnings and profits of corporations electing to be treated as domestic corporations

A transition rule also is provided for certain corporations electing to be treated as a domestic corporation under the bill. In the

case of a corporation to which this transition rule applies, the corporation’s earnings and profits accumulated in taxable years ending before October 1, 2000 are not included in the gross income of

the shareholder by reason of the deemed asset transfer for section

367 purposes that the bill provides. Thus, although the electing

corporation may be treated as transferring all of its assets to a domestic corporation in a reorganization described in section

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37 It is anticipated that ordering rules similar to those that have been applied in guidance

under section 953(d) would apply to distributions from the electing corporation. See Notice 89–

79, 1989–2 C.B. 392. 38See the rules of section 953(d)(4)(ii), (iii) and (iv).

368(a)(1)(F), the earnings and profits amount that would otherwise

be treated as a deemed dividend to the U.S. shareholder under the

regulations under section 367(b) will not include the earnings and

profits accumulated in taxable years ending before October 1, 2000.

This treatment is similar to the treatment of earnings and profits

of a foreign insurance company that makes the election to be treated as a domestic corporation under section 953(d), which election

was a model for the election to be treated as a domestic corporation

under the bill. Under section 953(d), earnings and profits accumulated in taxable years beginning before January 1, 1988 were not

included in the earnings and profits amount that would be a

deemed dividend for section 367(b) purposes.

Like the pre-1988 earnings and profits of a domesticating foreign insurance company under section 953(d), the earnings and

profits to which this transition rule applies would continue to be

treated as earnings and profits of a foreign corporation even after

the corporation elects to be treated as a domestic corporation.

Thus, a distribution out of earnings and profits of an electing corporation accumulated in taxable years ending before October 1,

2000 would be treated as a distribution made by a foreign corporation.37 Rules similar to those applicable to corporations making the

section 953(d) election that prevent the repatriation of pre-election

period earnings and profits without current U.S. taxation apply for

this purpose. Thus, for example, the earnings and profits accumulated in taxable years beginning before October 1, 2000 would continue to be taken into account for section 1248 purposes.38

The earnings and profits to which the transition rule applies

are the earnings and profits accumulated by the electing corporation in taxable years ending before October 1, 2000. The transition

rule will not apply to earnings and profits accumulated before that

date that are succeeded to after that date by the electing corporation in a transaction to which section 381 applies unless, like the

electing corporation, the distributor or transferor (from whom the

electing corporation acquired the earnings and profits) could have

itself made the election under the bill to be treated as a domestic

corporation and would have been eligible for the transition relief.

The transition rule for old earnings and profits applies to two

classes of taxpayers. The first class is FSCs in existence on September 30, 2000 that make an election to be treated as a domestic

corporation because they satisfy the requirement that substantially

all of their gross receipts are foreign trading gross receipts. To be

eligible for the transition relief, the election must be made not later

than for the FSC’s first taxable year beginning after December 31,

2001.

The second class of corporations to which this transition relief

applies is certain controlled foreign corporations (as defined in section 957). Notwithstanding other requirements for making the election to be treated as a domestic corporation provided under the

bill’s general provisions, such controlled foreign corporations are eligible under the transition rule to make the election to be treated

211

39The ultimate owner must be an actual domestic corporation, not a corporation that elects

to be treated as a domestic corporation under the bill. In addition, although the controlled foreign corporation must be wholly owned for this purpose, it is intended that the mere nominal

ownership of an insignificant number of shares of insignificant value (which may, for example,

be required by foreign law) by someone unrelated to the domestic parent would not cause the

controlled foreign corporation to fail to be wholly owned for these purposes. 40 It is intended that, if the controlled foreign corporation’s and related FSC’s taxable years

are still open under the statute of limitations for claims for refund under section 6511, redeterminations with respect to sales or commissions paid to the FSC are permitted for this purpose.

See Temp. Treas. Reg. sec. 1.925(a)–1T(d)(4).

as a domestic corporation and will not have the resulting deemed

asset transfer cause a deemed inclusion of earnings and profits for

earnings and profits accumulated in taxable years ending before

October 1, 2000. To be eligible for the transition relief, such a controlled foreign corporation must be in existence on September 30,

2000. The controlled foreign corporation must be wholly owned, directly or indirectly, by a domestic corporation.39 The controlled foreign corporation must never have made an election to be treated

as a FSC and must make the election to be treated as a domestic

corporation not later than for its first taxable year beginning after

December 31, 2001. In addition, the controlled foreign corporation

must satisfy certain tests with respect to its income and activities.

For administrative convenience, these tests are limited to the three

taxable years preceding the first taxable year for which the election

to be treated as a domestic corporation applies. First, during that

three-year period, all of the controlled foreign corporation’s gross

income must be subpart F income. Thus, the income was subject

to full inclusion to the U.S. shareholder and, accordingly, subject

to current U.S. taxation. Second, during that three-year period, the

controlled foreign corporation must have, in the ordinary course of

its trade or business, entered into transactions in which it regularly sold or paid commissions to a related FSC (which also was in

existence on September 30, 2000).40 If an electing corporation in

this second class ceases to be (directly or indirectly) wholly owned

by the domestic corporation that owns it on September 30, 2000,

the election to be treated as a domestic corporation is terminated.

Limitation on use of the gross receipts method

Similar to the limitation on use of the gross receipts method

under the conference agreement’s operative provisions, the conference agreement provides a rule that limits the use of the gross

receipts method for transactions after the effective date of the conference agreement if that same property generated foreign trade income to a FSC using the gross receipts method. Under the rule, if

any person used the gross receipts method under the FSC regime,

neither that person nor any related person will have qualifying foreign trade income with respect to any other transaction involving

the same item of property.

Coordination of new regime with prior law

Notwithstanding the transition period, FSCs (or related persons) may elect to have the rules of the conference agreement apply

in lieu of the rules applicable to FSCs. Thus, for transactions to

which the transition rules apply (i.e., transactions after September

30, 2000 that occur (1) before January 1, 2002 or (2) after December 31, 2001 pursuant to a binding contract which is in effect on

212

September 30, 2000), taxpayers may choose to apply either the FSC

rules or the amendments made by this bill, but not both. In addition, a taxpayer would not be able to avail itself of the rules of the

conference agreement in addition to the rules applicable to domestic international sales corporations because the conference agreement provides that the exclusion of extraterritorial income will not

apply if a taxpayer is a member of any controlled group of which

a domestic international sales corporation is a member.

TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS

A. EXTENSION OF THE WORK OPPORTUNITY TAX CREDIT (sec. 201 of

the bill and sec. 51 of the Code)

PRESENT LAW

The work opportunity tax credit (‘‘WOTC’’) is available on an

elective basis for employers hiring individuals from one or more of

eight targeted groups. The credit generally is equal to 25 percent

of qualified first-year wages for employment of at least 120 hours

but less than 400 hours and 40 percent of qualified first-year wages

for employment of 400 hours or more. Qualified first-year wages

consist of wages attributable to service rendered by a member of

a targeted group during the one-year period beginning with the day

the individual begins work for the employer.

No more than $6,000 of wages during the first year of employment is permitted to be taken into account with respect to any individual. Thus, the maximum credit per individual is $2,400. With

respect to qualified summer youth employees, the maximum credit

is 40 percent of up to $3,000 of qualified first-year wages, for a

maximum credit of $1,200. The credit is only effective for wages

paid to, or incurred with respect to, qualified individuals who begin

work for the employer before January 1, 2002.

The employer’s deduction for wages is reduced by the amount

of the credit.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, permanently extends the WOTC.

Effective date.—The provision is effective for wages paid to, or

incurred with respect to, qualified individuals who begin work for

the employer on or after July 1, 1999. Subsequent to Senate passage of H.R. 833, Public Law 106–170 extended the WOTC for 30

months (through December 31, 2001) and clarified the definition of

the first year of employment for purposes of the WOTC.

CONFERENCE AGREEMENT

The conference agreement extends the WOTC for 30 months

(through June 30, 2004). It 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.

213

41 Under the half-year convention, all reforestation expenditures are considered to be incurred

on the first day of the first month of the second half of the taxable year. Thus, an amortization

deduction equal to 6⁄84 of the expenditures for the year is allowed in the first and eighth years

and an amortization deduction equal to 1⁄7 (12⁄84) of such expenditures is allowed in the second

through seventh years. 42Sec. 301(a) of the Multiemployer Pension Plan Amendments Act of 1980. 43Treas. Reg. sec. 1.194–3(a). 44Sec. 1245(b)(7); Treas. Reg. sec. 1.194–1(c).

B. INCREASE THE MAXIMUM DOLLAR AMOUNT OF REFORESTATION

EXPENDITURES ELIGIBLE FOR AMORTIZATION AND CREDIT (sec. 202

of the bill and secs. 48(b) and 194 of the Code)

PRESENT LAW

Amortization of reforestation costs (sec. 194)

A taxpayer may elect to amortize up to $10,000 ($5,000 in the

case of a separate return by a married individual) of qualifying reforestation expenditures incurred during the taxable year with respect to qualifying timber property. Amortization is taken over 84

months (seven years) and is subject to a mandatory half-year convention.41 In the case of an individual, the amortization deduction

is allowed in determining adjusted gross income (i.e., an ‘‘abovethe-line deduction’’) rather than as an itemized deduction. The

amount eligible for amortization has not been increased since the

election was added to the Code in 1980.42

Qualifying reforestation expenditures are the direct costs a

taxpayer incurs in connection with the forestation or reforestation

of a site by planting or seeding, and include costs for the preparation of the site, the cost of the seed or seedlings, and the cost of

the labor and tools (including depreciation of long lived assets such

as tractors and other machines) used in the reforestation activity.

Qualifying reforestation expenditures do not include expenditures

that would otherwise be deductible and do not include costs for

which the taxpayer has been reimbursed under a governmental

cost sharing program, unless the amount of the reimbursement is

also included in the taxpayer’s gross income.

Qualifying timber property includes any woodlot or other site

that is located in the United States that will contain trees in significant commercial quantities and that is held by the taxpayer for

the planting, cultivating, caring for, and cutting of trees for sale or

use in the commercial production of timber products. The regulations require that the site consist of at least one acre that is devoted to such activities.43 A taxpayer may hold qualifying timber

property in fee or by lease. Where the property is held by one person for life with the remainder to another person, the life tenant

is considered the owner of the property for this purpose.

Reforestation amortization is subject to recapture as ordinary

income on sale of qualifying timber property within 10 years of the

year in which the qualifying reforestation expenditures were incurred.44

Reforestation tax credit (sec. 48(b))

A tax credit is allowed equal to 10 percent of the reforestation

expenditures incurred during the year that are properly elected to

be amortized. An amount allowed as a credit is subject to recapture

214

if the qualifying timber property to which the expenditure relates

is disposed of within five years.

HOUSE BILL

No provision, but H.R. 3081 as passed by the House increases

the amount of reforestation expenditures eligible for seven-year

amortization and the reforestation credit from $10,000 to $25,000

per taxable year (from $5,000 to $12,500 in the case of a separate

return by a married individual).

For taxable years beginning in 2001 through 2003, H.R. 3081

removes the limitation on the amount of expenditures eligible for

seven-year amortization.

Effective date.—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 seven-year amortization. For taxable years beginning after

2003, the amount of reforestation expenditures eligible for sevenyear amortization and for the credit is limited to $25,000.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 3081.

C. CAPITAL GAINS TREATMENT UNDER SECTION 631(b) TO APPLY TO

OUTRIGHT SALES OF TIMBER (sec. 202(c) of the bill and sec. 631(b)

of the Code)

PRESENT LAW

Gain on the cutting and sale of timber generally is eligible for

capital gains treatment, provided the growing timber has been held

for more than one year. If the taxpayer sells the timber at the time

it is cut, the capital gain is measured as the difference between the

sales price of the timber less cost of sales and any unrecovered

costs of growing the timber.

If the taxpayer sells the timber prior to its being cut, a special

rule allows the taxpayer to treat the sale as a capital gain, provided the taxpayer retains an economic interest in the timber and

holds the timber for more than one year prior to the date of disposal. The date of disposal is deemed to be the date the timber is

cut, unless the taxpayer receives payment for the timber prior to

the date it is cut and elects to treat the date of payment as the

date of disposal.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

215

CONFERENCE AGREEMENT

In the case of a sale of timber by the owner of the land from

which the timber is cut, the requirement that a taxpayer retain an

economic interest in the timber in order to treat gains on sales

prior to the time the timber is cut as capital gains does not apply.

Outright sales of timber by the landowner will qualify for capital

gains treatment in the same manner as sales with a retained economic interest qualify under present law, except that the date-ofdisposal rule will not apply.

Effective date.—The provision is effective for sales of timber

after the date of enactment.

D. INCREASE SECTION 179 EXPENSING (sec. 1203 of the bill and sec.

179 of the Code)

PRESENT LAW

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). In general, qualifying property is defined as depreciable

tangible personal property that is purchased for use in the active

conduct of a trade or business. The $20,000 amount is reduced (but

not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $200,000. In

addition, the amount eligible to be expensed for a taxable year may

not exceed the taxable income for a taxable year that is derived

from the active conduct of a trade or business (determined without

regard to this provision). Any amount that is not allowed as a deduction because of the taxable income limitation may be carried

forward to succeeding taxable years (subject to similar limitations).

The $20,000 amount is increased to $25,000 for taxable years

beginning in 2003 and thereafter. The increase is phased in as follows: for taxable years beginning in 2001 or 2002, the amount is

$24,000; and for taxable years beginning in 2003 and thereafter,

the amount is $25,000.

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House,

provides that the maximum dollar amount that may be deducted

under section 179 is increased to $30,000 for taxable years beginning in 2001 and thereafter.

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

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, includes a provision identical to the provision of H.R. 3081, as passed

by the House.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 3081

and H.R. 833, with a modification. Under the conference agreeVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00219 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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ment, 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. INCREASE DEDUCTION FOR BUSINESS MEALS (sec. 204 of the bill

and sec. 274(n) of the Code)

PRESENT LAW

Ordinary and necessary business expenses, as well as expenses

incurred for the production of income, are generally deductible,

subject to a number of restrictions and limitations (secs. 162 and

212). No deduction generally is allowed for personal, living, or family expenses (sec. 262).

Meal and entertainment expenses incurred for business reasons or for the production of income are deductible if certain legal

and substantiation requirements are met. Generally, the amount

allowable as a deduction for business meal and entertainment expenses is limited to 50 percent of the otherwise deductible amount

(sec. 274(n)). Exceptions to this 50-percent rule are provided for

food and beverages provided to crew members of certain vessels

and off-shore oil or gas platforms or drilling rigs, as well as to individuals subject to the hours of service limitations of the Department of Transportation. No deduction is allowed for meal or beverage expenses unless they are not lavish or extravagant under the

circumstances (sec. 274(k)(1)(A)). In addition, no deduction is allowed for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose

(sec. 274(a)(3)).

An expense for food or beverages is not deductible unless the

taxpayer establishes that the item was directly related to the ‘‘active conduct’’ of the taxpayer’s trade or business or, in the case of

an item directly preceding or following a substantial and bona fide

business discussion, that the item was ‘‘associated with’’ the active

conduct of the taxpayer’s trade or business (sec. 274(a)(1)(A)). Accordingly, a business meal expense generally is not deductible unless there is a substantial and bona fide business discussion during, directly preceding, or directly following the meal. Also, the taxpayer or an employee of the taxpayer must be present at the meal

(sec. 274(k)(1)(B)).

Separate requirements apply to deductions with respect to individuals who are traveling away from home in pursuit of a trade

or business. The absence of a business discussion is irrelevant for

purposes of the ‘‘active conduct’’ and ‘‘associated with’’ tests described above if the individual either has the meal alone or has the

meal with other persons provided that no deduction is claimed with

respect to those other persons.

No deduction is allowed with respect to business meal and entertainment expenses unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s

own statement (1) the amount of the expense, (2) the time and

place of the expense, (3) the business purpose of the expense, and

(4) the business relationship of the taxpayer to the persons entertained (sec. 274(d)). The Code authorizes the IRS to provide simpler rules for amounts below a threshold specified by the IRS. AcVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00220 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
217

cordingly, the IRS provides standard meal allowances (generally

$30 per day, but higher in specified high-cost areas and for employees ‘‘in the transportation industry’’) that taxpayers who are traveling away from home on business may utilize as an alternative to

the substantiation procedures specified above (Treas. Reg. sec.

1.274(d)–1T).

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House, increases the business meals deduction from the present-law 50 percent to 55 percent for taxable years beginning in 2001 and to 60

percent for taxable years beginning in 2002 and thereafter. The bill

does not alter the 50-percent limitation with respect to the business entertainment deduction.

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

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate,

phases in an increase from 50 percent to 80 percent in the deductible percentage of business meal expense for small businesses. The

present-law 50 percent limitation continues to apply to entertainment expenses. The increase in the deductible percentage is phased

in according to the following schedule:

Deductible

Taxable years beginning in: percentage:

2001 .......................................................................................................... 55

2002 .......................................................................................................... 60

2003 .......................................................................................................... 65

2004 .......................................................................................................... 70

2005 .......................................................................................................... 75

2006 and thereafter ................................................................................. 80

Effective date.—The provision is effective for taxable years beginning after 2000.

CONFERENCE AGREEMENT

The conference agreement increases the business meals deduction from the present-law 50 percent to 70 percent for taxable years

beginning after December 31, 2000.

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

F. INCREASED DEDUCTION FOR BUSINESS MEALS WHILE OPERATING

UNDER DEPARTMENT OF TRANSPORTATION HOURS OF SERVICE

LIMITATIONS (sec. 205 of the bill and sec. 274(n) of the Code)

PRESENT LAW

Ordinary and necessary business expenses, as well as expenses

incurred for the production of income, are generally deductible,

subject to a number of restrictions and limitations. Generally, the

amount allowable as a deduction for food and beverage is limited

to 50 percent of the otherwise deductible amount. Exceptions to

this 50 percent rule are provided for food and beverages provided

218

to crew members of certain vessels and offshore oil or gas platforms

or drilling rigs.

The 1997 Act increased to 80 percent the deductible percentage

of the cost of food 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.

Individuals subject to the hours of service limitations of the

Department of Transportation include:

(1) certain air transportation employees such as pilots, crew,

dispatchers, mechanics, and control tower operators pursuant to

Federal Aviation Administration regulations,

(2) interstate truck operators and interstate bus drivers pursuant to Department of Transportation regulations,

(3) certain railroad employees such as engineers, conductors,

train crews, dispatchers and control operations personnel pursuant

to Federal Railroad Administration regulations, and

(4) certain merchant mariners pursuant to Coast Guard regulations.

The increase in the deductible percentage is phased in according to the following schedule:

Deductible

Taxable years beginning in: percentage:

1998, 1999 ................................................................................................ 55

2000, 2001 ................................................................................................ 60

2002, 2003 ................................................................................................ 65

2004, 2005 ................................................................................................ 70

2006, 2007 ................................................................................................ 75

2008 and thereafter ................................................................................. 80

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House, accelerates the increase in the deduction for business meals while operating under Department of Transportation hours of service limitations so that it becomes 80 percent in 2001 and thereafter.

Effective date.—The provision is effective for taxable years beginning after 2000.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 3081.

G. REPEAL OF MODIFICATION OF INSTALLMENT METHOD (sec. 206 of

the bill and secs. 453 and 453A of the Code)

PRESENT LAW

The installment method of accounting allows a taxpayer to

defer the recognition of income from the disposition of certain property until payment is received. Sales to customers in the ordinary

course of business are not eligible for the installment method, except for sales of property that is used or produced in the trade or

business of farming and sales of timeshares and residential lots if

an election to pay interest under section 453(l)(2)(B) is made. SecVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00222 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
219

45The net proceeds equal the gross loan proceeds less the direct expenses of obtaining the

loan.

tion 536(a) of the Ticket to Work and Work Incentives Improvement Act of 1999 prohibited the use of the installment method for

a transaction that would otherwise be required to be reported using

the accrual method of accounting, effective for dispositions occurring on or after December 17, 1999.

A pledge rule provides that if an installment obligation is

pledged as security for any indebtedness, the net proceeds 45 of

such indebtedness are treated as a payment on the obligation, triggering the recognition of income. Actual payments received on the

installment obligation subsequent to the receipt of the loan proceeds are not taken into account until such subsequent payments

exceed the loan proceeds that were treated as payments. The

pledge rule does not apply to sales of property used or produced in

the trade or business of farming, to sales of timeshares and residential lots where the taxpayer elects to pay interest under section

453(l)(2)(B), or to dispositions where the sales price does not exceed

$150,000. The Ticket to Work and Work Incentives Improvement

Act of 1999 provided that the right to satisfy a loan with an installment obligation will be treated as a pledge of the installment obligation, effective for dispositions occurring on or after December 17,

1999.

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House, repeals the prohibition on the use of the installment method of accounting for dispositions of property that would otherwise be reported for Federal income tax purposes using the accrual method

of accounting. Accordingly, any disposition of property that otherwise qualifies to be reported using the installment method of accounting may be reported using that method without regard to

whether the disposition would otherwise be reported using the accrual method of accounting.

The provision leaves unchanged the rule added by section

536(b) of the Ticket to Work and Work Incentives Improvement Act

of 1999 that modified the installment method pledge rule.

Effective date.—The provision is effective for sales or other dispositions on or after December 17, 1999.

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, contains the provisions enacted in the Ticket to Work and Work Incentives Improvement Act of 1999 prohibiting the use of the installment method for a transaction that would otherwise be required to

be reported using the accrual method of accounting and expanding

the pledge rule.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 3081.

220

H. COORDINATE FARMERS AND FISHERMAN INCOME AVERAGING AND

THE ALTERNATIVE MINIMUM TAX (sec. 207 of the bill and secs. 55

and 1301 of the Code)

PRESENT LAW

An individual taxpayer engaged in a farming business as defined by section 263A(e)(4) may elect to compute his or her current

year tax liability by averaging, over the prior three-year period, all

or portion of his or her taxable income from the trade or business

of farming. The averaging election is not coordinated with the alternative minimum tax. Thus, some farmers may become subject to

the alternative minimum tax solely as a result of the averaging

election.

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House, extends to individuals engaged in the trade or business of fishing the

same election to income average that is available to farmers. For

this purpose, the trade or business of fishing is the conduct of commercial fishing as defined in 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.

The bill also coordinates farmers and fishermen income averaging with the alternative minimum tax. Under the bill, a farmer

or fisherman will owe alternative minimum tax only to the extent

he or she will owe alternative minimum tax had averaging not

been elected. This result is achieved by excluding the impact of the

election to average farm and fishing income from the calculation of

both regular tax and tentative minimum tax, solely for the purpose

of determining alternative minimum tax.

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

SENATE AMENDMENT

No provision. However, the provision of H.R. 3081 is included

in S. 3152.

CONFERENCE AGREEMENT

The conference agreement follows H.R. 3081 and S. 3152.

I. REPEAL SPECIAL OCCUPATIONAL TAXES ON PRODUCERS AND MARKETERS OF ALCOHOLIC BEVERAGES (sec. 208 of the bill and secs.

5081, 5091, 5111, 5121, 5131, and 5276 of the Code)

PRESENT LAW

Under present law, special occupational taxes are imposed on

producers and others engaged in the marketing of distilled spirits,

wine, and beer. These excise taxes are imposed as part of a broader

Federal tax and regulatory engine governing the production and

marketing of alcoholic beverages. The special occupational taxes

221

are payable annually, on July 1 of each year. The present tax rates

are as follows:

Producers: Distilled spirits and wines (sec. 5081)—$1,000 per

year, per premise; Brewers (sec. 5091)—$1,000 per year, per

premise.

Wholesale dealers (sec. 5111): Liquors, wines, or beer—$500

per year.

Retail dealers (sec. 5121): Liquors, wines, or beer—$250 per

year.

Nonbeverage use of distilled spirits (sec. 5131)—$500 per year.

Industrial use of distilled spirits (sec. 5276)—$250 per year.

HOUSE BILL

No provision, but H.R., 3081, as passed by the House repeals

the special occupational taxes on producers and marketers of alcoholic beverages. The provision is effective on July 1, 2001. The provision does not affect liability for taxes imposed with respect to periods before July 1, 2001.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement includes the provision of H.R. 3081,

as passed by the House.

J. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN MORTGAGE OBLIGATIONS (sec. 209 of the bill and sec. 108 of the Code)

PRESENT LAW

Gross income includes all income from whatever source derived, including income from the discharge of indebtedness. However, gross income does not include discharge of indebtedness income if: (1) the discharge occurs in a Title 11 case; (2) the discharge occurs when the taxpayer is insolvent; (3) the indebtedness

discharged is qualified farm indebtedness; or (4) except in the case

of a C corporation, the indebtedness discharged is qualified real

property business indebtedness. No exclusion is provided under

present law for qualified residential indebtedness.

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House,

permits eligible individuals to elect an exclusion from discharge of

indebtedness income 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. For this purpose, 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 excluVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00225 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
222

46Treas. Reg. sec. 1.446–1(c)(2)

sion does not apply to qualified farm indebtedness or qualified real

property business indebtedness.

Effective date.—The provision is effective for discharges of indebtedness after December 31, 2000.

SENATE AMENDMENT

No provision. However, the provision of H.R. 3081 is included

in S. 3152.

CONFERENCE AGREEMENT

The conference agreement follows H.R. 3081 and S. 3152.

K. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL

BUSINESSES (sec. 210 of the bill and sec. 446 of the Code)

PRESENT LAW

Section 446(c) of the Code generally allows a taxpayer to select

the method of accounting it will use to compute its taxable income

if such method clearly reflects the income of the taxpayer. A taxpayer is entitled to adopt any one of the permissible methods for

each separate trade or business, subject to certain restrictions. The

regulations under section 446 require that a taxpayer use an accrual method of accounting with regard to purchases and sales of

merchandise whenever section 471 requires the taxpayer to account

for such items as inventory. 46 In general, section 471 provides that

whenever, in the opinion of the Secretary of the Treasury, the use

of inventories is necessary to clearly determine the income of the

taxpayer, inventories must be taken by the taxpayer. Treas. Reg.

sec. 1.471–1 requires a taxpayer to account for inventories when

the production, purchase, or sale of merchandise is an income-producing factor in the taxpayer’s business. Treas. Reg. sec. 1.162–3

requires taxpayers carrying materials and supplies (other than incidental materials and supplies) on hand to deduct the cost of materials and supplies only in the amount that they are actually consumed and used in operations during the tax year.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement 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). Thus, even if the production, purchase, or sale of merchandise is an income-producing

factor in the taxpayer’s business, the taxpayer is not required to

223

47See Treas. Reg. sec. 1.162–3. 48 1999–52 I.R.B. 725.

use an accrual method of accounting with regard to such purchases

and sales if the average annual gross receipts of the taxpayer do

not exceed $2.5 million.

The provision also provides that a taxpayer meeting the average annual gross receipts test is not required to account for inventories under section 471. If a taxpayer elects not to account for inventory under section 471, the taxpayer is required to treat such

inventory in the same manner as a material or supply that is not

incidental. It is the intention of the conferees that a taxpayer that

elects to treat inventory as a material or supply is to include in expense the charges for materials and supplies only in the amount

that they are actually consumed and used in operation during the

taxable year for which the return is made, provided that the costs

of such materials and supplies have not been deducted in determining the net income or loss or taxable income for any previous

year.47

Average annual gross receipts are determined by averaging the

gross receipts of the three taxable year period ending with such

prior taxable year.

For example, assume a calendar year entity had gross receipts

of $1.5 million in 1998, $2.5 million in 1999, $3.5 million in 2000,

and $4.5 million in 2001. In addition, the sale of inventory is an

income-producing factor in the taxpayer’s business. Average annual

gross receipts are $2.5 million in 2000 and $3.5 million in 2001. In

calendar year 2001, the entity may use the cash method of accounting notwithstanding that the production, purchase, or sale of merchandise is an income-producing factor in the taxpayer’s trade or

business, because it had average annual gross receipts of $2.5 million or less for all prior taxable years. In calendar year 2002, the

entity may not use the cash method of accounting with regard to

purchases and sales of merchandise, because average annual gross

receipts for a prior taxable year (2001) exceed $2.5 million.

In addition, the rules of paragraph (2) and (3) section 448(c)

(regarding the aggregation of related taxpayers, taxpayers not in

existence for the entire three year period, short taxable years, definition of gross receipts, and treatment of predecessors) shall apply

for purposes of determining the average annual gross receipts test.

Effective date.—The provision is effective for taxable years beginning after date of enactment. Any change in the taxpayer’s

method of accounting permitted as a result of the provision is treated as a voluntary change initiated by the taxpayer with the consent

of the Secretary of the Treasury. Any required section 481(a) adjustment is to be taken into account over a period not to exceed

four years under principles consistent with those in Rev. Proc. 99–

49.48

L. AUTHORIZE PAYMENT OF INTEREST ON BUSINESS CHECKING

ACCOUNTS (sec. 211 of the bill)

The bill would eliminate the Federal prohibition on depository

institutions paying interest on demand deposits. Thus, under the

224

bill, depository institutions would be permitted to pay interest on

business checking accounts.

Effective date.—The repeal of the prohibition on the payment

of interest would be effective two years after the date of enactment.

During the two year period beginning on the date of enactment, the

bill would permit 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.

TITLE III. HEALTH INSURANCE AND LONG-TERM CARE

INSURANCE PROVISIONS

A. ACCELERATE 100-PERCENT SELF-EMPLOYED HEALTH INSURANCE

DEDUCTION (sec. 301 of the bill and sec. 162(l) of the Code)

PRESENT LAW

Under present law, the individual income tax treatment of

health insurance expenses depends on the individual’s circumstances. Self-employed individuals may deduct a portion of

health insurance expenses for the individual and his or her spouse

and dependents. The deductible percentage of health insurance expenses of a self-employed individual is 60 percent in 2000 through

2001, 70 percent in 2002, and 100 percent in 2003 and thereafter.

The deduction for health insurance expenses of self-employed individuals is not available for any month in which the taxpayer is eligible to participate in a subsidized health plan maintained by the

employer of the taxpayer or the taxpayer’s spouse.

Employees can exclude from income 100 percent of employerprovided health insurance.

Individuals who itemize deductions may deduct their health insurance expenses only to the extent that the total medical expenses

of the individual exceed 7.5 percent of adjusted gross income (sec.

213). Subject to certain dollar limitations, premiums for qualified

long-term care insurance are treated as medical expenses for purposes of the itemized deduction for medical expenses (sec. 213). The

amount of qualified long-term care insurance premiums that may

be taken into account for 2000 is as follows: $220 in the case of an

individual 40 years old or less; $410 in the case of an individual

who is over 40 but not more than 50; $820 in the case of an individual who is more than 50 but not more than 60; $2,220 in the

case of an individual who is more than 60 but not more than 70;

and $2,750 in the case of an individual who is more than 70. These

dollar limits are indexed for inflation.

The self-employed health deduction also applies to qualified

long-term care insurance premiums treated as medical care for

purposes of the itemized deduction for medical expenses.

HOUSE BILL

No provision. However, H.R. 3081, as passed by the House, increases the deduction for health insurance expenses (and qualified

long-term care insurance expenses) of self-employed individuals to

100 percent beginning in 2001. H.R. 3081 also provides that the deduction is not available in any month in which the taxpayer participates in an employer-subsidized health plan.

225

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

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, increases the deduction for health insurance expenses (and qualified

long-term care insurance expenses) of self-employed individuals to

100 percent beginning in 2001.

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

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 3081.

B. ABOVE-THE-LINE DEDUCTION FOR HEALTH INSURANCE EXPENSES

(sec. 302 of the bill and new sec. 222 of the Code)

PRESENT LAW

Under present law, the individual income tax treatment of

health insurance expenses depends on the individual’s circumstances. Self-employed individuals may deduct a portion of

health insurance expenses for the individual and his or her spouse

and dependents. The deductible percentage of health insurance expenses of a self-employed individual is 60 percent in 2000 and

2001; 70 percent in 2002; and 100 percent in 2003 and thereafter.

The deduction for health insurance expenses of self-employed individuals is not available for any month in which the taxpayer is eligible to participate in a subsidized health plan maintained by the

employer of the taxpayer or the taxpayer’s spouse. The deduction

applies to qualified long-term care insurance premiums treated as

medical expenses under the itemized deduction for medical expenses, described below.

Employees can exclude from income 100 percent of employerprovided health insurance or qualified long-term care insurance.

Individuals who itemize deductions may deduct their health insurance expenses only to the extent that the total medical expenses

of the individual exceed 7.5 percent of adjusted gross income (sec.

213). Subject to certain dollar limitations, premiums for qualified

long-term care insurance are treated as medical expenses for purposes of the itemized deduction for medical expenses (sec. 213). The

amount of qualified long-term care insurance premiums that may

be taken into account for 2000 is as follows: $220 in the case of an

individual 40 years old or less; $410 in the case of an individual

who is more than 40 but not more than 50; $820 in the case of an

individual who is more than 50 but not more than 60; $2,200 in

the case of an individual who is more than 60 but not more than

70; and $2,750 in the case of an individual who is more than 70.

These dollar limits are indexed for inflation.

HOUSE BILL

No provision.

226

49The deduction only applies to health insurance that constitutes medical care; it does not

apply to medical expenses. The deduction applies to self-insured arrangements (provided such

arrangements constitute insurance, e.g., there is appropriate risk-shifting) and coverage under

employer plans treated as insurance under section 104. Another provision of the bill provides

a similar deduction for qualified long-term care insurance expenses. 50This rule is applied separately with respect to qualified long-term care insurance. 51 Excludable employer contributions to a health flexible spending arrangement or medical

savings account (including salary reduction contributions) are also considered amounts paid by

the employer for health insurance that constitutes medical care. Salary reduction contributions

are not considered to be amounts paid by the employee. 52This rule does not prevent individuals covered by the FEHBP from deducting premiums for

health care continuation coverage, provided the requirements for the deduction are otherwise

met.

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, provides an above-the-line deduction for a percentage of the amount

paid during the year for insurance which constitutes medical care

(as defined under sec. 213, other than long-term care insurance

treated as medical care under sec. 213) for the taxpayer and his or

her spouse and dependents.49 The deductible percentage is: 25 percent in 2002, 2003, and 2004; 35 percent in 2005; 65 percent in

2006; and 100 percent in 2007 and thereafter.

The deduction is not available to an individual for any month

in which the individual is covered under an employer-sponsored

health plan if at least 50 percent of the cost of the coverage is paid

or incurred by the employer.50 Thus, the individual must pay for

more than 50 percent of the cost of the coverage in order to be eligible for the deduction. For purposes of this rule, any amount excludable from the gross income of the employee under the exclusion

for employer-provided health coverage is treated as paid or incurred by the employer; thus, for example, health insurance purchased by an employee through a cafeteria plan with salary reduction amounts is considered to be paid for by the employer.51 In determining whether the 50-percent threshold is met, all health plans

of the employer in which the employee participates are treated as

a single plan. If the employer pays for less than 50 percent of the

cost of all health plans in which the individual participates, the deduction is available only with respect to each plan with respect to

which the employer subsidy is less than 50 percent. Cost is determined as under the health care continuation rules.

The deduction is not available with respect to insurance providing coverage for accidents, disability, dental care, vision care, or

a specific disease or making payments of a fixed amount per day

(or other period) on account of hospitalization. Such insurance and

employer payments for such insurance are not taken into account

in determining whether the employee pays for more than 50 percent of the cost of health insurance.

The deduction is not available to individuals enrolled in Medicare, Medicaid, the Federal Employees Health Benefit Program

(‘‘FEHBP’’),52 Champus, VA, Indian Health Service, or Children’s

Health Insurance programs. Thus, for example, the deduction is

not available with respect to Medigap coverage, because such coverage is provided to individuals enrolled in Medicare.

The provision authorizes the Secretary to prescribe rules necessary to carry out the provision, including appropriate reporting

requirements for employers.

227

53 Under another provision of the bill, a deduction is available with respect to A’s qualified

long-term care insurance premiums.

Effective date.—The provision is effective for taxable years beginning after December 31, 2001.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 833,

except that the deductible percentage is 25 percent in 2001 through

2003, 35 percent in 2004, 65 percent in 2005, and 100 percent in

2006 and thereafter.

The following examples illustrate the application of the rule

denying the deduction if the employer pays 50 percent or more of

the cost of the coverage.

Example 1: Employee A participates in an employer-sponsored

health plan. The annual cost for single coverage is $3,000, and the

annual additional cost for coverage for A’s spouse and dependents

is $1,000. The employer pays 100 percent of the cost of individual

coverage, but does not pay any additional amount for family coverage. A chooses family coverage. The total amount the employer

pays for the insurance is $3,000, which is 75 percent of the total

cost of the coverage ($4,000). A also purchases qualified long-term

care insurance under an employer-sponsored plan, and pays for 100

percent of the cost of this coverage on an after-tax basis. The deduction is not available with respect to A’s expenses for health insurance.53

Example 2: Employee B participates in two employer-sponsored

health plans. One plan provides major medical coverage. The cost

of this plan is $2,000 per year. The employer pays one-half of the

cost of this plan. The second plan provides only dental insurance.

The cost of the dental plan is $300 per year, which is paid by the

employee. In determining whether B is entitled to the deduction,

the dental plan is disregarded. Thus, the total cost of the health

plans in which B participates is $2,000. The employer pays for 50

percent of this total cost. B may not deduct her share of the premium for the major medical plan, nor the cost of the dental insurance.

Example 3: Employee C participates in an employer-sponsored

health plan. The cost of the plan is $4,000. The employer pays

$1,000 of the cost of the plan directly, and Employee C pays the

remainder of the $3,000 cost of the plan by salary reduction

through a cafeteria plan. The $1,000 employer contribution and the

$3,000 salary reduction contributions are all employer payments.

Thus, the employer pays for the entire cost of the plan, and the deduction is not available.

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

228

54These provisions apply for all provisions of the Code relating to qualified long-term care contracts, not only the above-the-line deduction.

C. ABOVE-THE-LINE DEDUCTION FOR LONG-TERM CARE INSURANCE

EXPENSES (secs. 1302 and 1304 of the bill and new sec. 222 of

the Code)

PRESENT LAW

Under present law, the individual income tax treatment of

health insurance expenses depends on the individual’s circumstances. Self-employed individuals may deduct a portion of

health insurance expenses for the individual and his or her spouse

and dependents. The deductible percentage of health insurance expenses of a self-employed individual is 60 percent in 2000 and

2001; 70 percent in 2002; and 100 percent in 2003 and thereafter.

The deduction for health insurance expenses of self-employed individuals is not available for any month in which the taxpayer is eligible to participate in a subsidized health plan maintained by the

employer of the taxpayer or the taxpayer’s spouse. The deduction

applies to qualified long-term care insurance premiums treated as

medical expenses under the itemized deduction for medical expenses, described below.

Employees can exclude from income 100 percent of employerprovided health insurance or qualified long-term care insurance.

Individuals who itemize deductions may deduct their health insurance expenses only to the extent that the total medical expenses

of the individual exceed 7.5 percent of adjusted gross income (sec.

213). Subject to certain dollar limitations, premiums for qualified

long-term care insurance are treated as medical expenses for purposes of the itemized deduction for medical expenses (sec. 213). The

amount of qualified long-term care insurance premiums that may

be taken into account for 2000 is as follows: $220 in the case of an

individual 40 years old or less; $410 in the case of an individual

who is more than 40 but not more than 50; $820 in the case of an

individual who is more than 50 but not more than 60; $2,200 in

the case of an individual who is more than 60 but not more than

70; and $2,750 in the case of an individual who is more than 70.

These dollar limits are indexed for inflation.

In order for a long-term care contract to be qualified for purposes of the Code, the contract must satisfy certain consumer protection provisions of the long-term care insurance model act and

regulations promulgated by the National Association of Insurance

Commissioners (‘‘NAIC’’) adopted as of January 1993. In addition,

issuers of qualified long-term care contracts are required to satisfy

certain disclosure requirements. An excise tax is imposed with respect to the failure to meet the applicable disclosure requirements.54

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, H.R. 833, as passed by the Senate, provides an above-the-line deduction for a percentage of the amount

229

55The deduction only applies to insurance that constitutes medical care; it does not apply to

long-term care expenses. The deduction applies to self-insured arrangements (provided such arrangements constitute insurance, e.g., there is appropriate risk-shifting) and coverage under employer plans treated as insurance under section 104. Another provision of the bill provides a

similar deduction for health insurance expenses. 56This rule is applied separately with respect to health insurance. 57See the description of the above-the-line deduction for health insurance expenses for examples of the operation of the rule denying the deduction if the employer pays for 50 percent or

more of the cost of the coverage.

paid during the year for qualified long-term care insurance for the

taxpayer and his or her spouse and dependents, subject to the

present-law premium limitations.55 The deductible percentage is:

25 percent in 2002, 2003, and 2004; 35 percent in 2005; 65 percent

in 2006; and 100 percent in 2007 and thereafter.

The deduction is not available to an individual for any month

in which the individual is covered under an employer-sponsored

long-term care plan if at least 50 percent of the cost of the coverage

is paid or incurred by the employer.56 For purposes of this rule,

any amounts excludable from the gross income of the employee

with respect to qualified long-term care insurance are treated as

paid or incurred by the employer. In determining whether the 50-

percent threshold is met, all plans of the employer providing longterm care insurance in which the employee participates are treated

as a single plan. If the employer pays less than 50 percent of the

cost of all long-term care plans in which the individual participates,

the deduction is available only with respect to each plan with respect to which the employer pays for less than 50 percent of the

cost. Cost is determined as under the health care continuation

rules.

The provision authorizes the Secretary to prescribe rules necessary to carry out the provision, including appropriate reporting

requirements for employers.

Effective date.—The provision is effective for taxable years beginning after December 31, 2001.

CONFERENCE AGREEMENT

The conference agreement includes the provision in H.R. 833,

except that the deductible percentage is 25 percent in 2001 through

2003, 35 percent in 2004, 65 percent in 2005, and 100 percent in

2006 and thereafter.57

The conference agreement adds additional consumer protection

provisions for qualified long-term care contracts. In order to be a

qualified contract for purposes of the Code, a long-term care insurance contract must satisfy the NAIC model act and regulations relating to contingent nonforfeiture benefits, if the policyholder declines the offer of a nonforfeiture provision. In addition, the conference agreement modifies the disclosure requirements applicable

to issuers of long-term care contracts by adding the NAIC requirements regarding suitability and disclosure of rating practices. The

conference agreement also updates present-law references to the

NAIC model act and regulations to reflect current provisions.

Effective date.—The above-the-line deduction is effective for

taxable years beginning after December 31, 2000. The consumer

protection provisions are effective with respect to policies issued

more than 1 year after the date of enactment.

230

58 In general, an MSA is a trust or custodial account created exclusively for the benefit of the

account holder and is subject to rules similar to those applicable to individual retirement arrangements. The trustee of an MSA can be a bank, insurance company, or other person who

demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with applicable requirements. 59Self-employed individuals include more than 2-percent shareholders of S corporations who

are treated as partners for purposes of fringe benefit rules pursuant to section 1372. Self-employed individuals are eligible for an MSA regardless of the size of the entity for which the individual performs services. 60These dollar amounts are for 2000. These amounts are indexed for inflation in $50 increments.

D. MEDICAL SAVINGS ACCOUNTS (‘‘MSAS’’) (sec. 303 of the bill and

sec. 220 of the Code)

PRESENT LAW

Within limits, contributions to a medical savings account

(‘‘MSA’’) 58 are deductible in determining adjusted gross income

(‘‘AGI’’) if made by an eligible individual and are excludable from

gross income and wages for employment tax purposes if made by

the employer of an eligible individual. Earnings on amounts in an

MSA are not currently taxable. Distributions from an MSA for

medical expenses are not taxable. Distributions not used for medical expenses are taxable. In addition, distributions not used for

medical expenses are subject to an additional 15-percent tax unless

the distribution is made after age 65, death, or disability.

MSAs are available to self-employed individuals 59 and to employees covered under an employer-sponsored high deductible plan

of a small employer. An employer is a small employer if it employed, on average, no more than 50 employees on business days

during either the preceding or the second preceding year.

In order for an employee of a small employer to be eligible to

make MSA contributions (or to have employer contributions made

on his or her behalf), the employee must be covered under an employer-sponsored high deductible health plan (see the definition

below) and must not be covered under any other health plan (other

than a plan that provides certain permitted coverage).

Similarly, in order to be eligible to make contributions to an

MSA, a self-employed individual must be covered under a high deductible health plan and no other health plan (other than a plan

that provides certain permitted coverage, described below). A selfemployed individual is not an eligible individual (by reason of being

self-employed) if the high deductible plan under which the individual is covered is established or maintained by an employer of

the individual (or the individual’s spouse).

The maximum annual contribution that can be made to an

MSA for a year is 65 percent of the deductible under the high deductible plan in the case of individual coverage and 75 percent of

the deductible in the case of family coverage.

A high deductible plan is a health plan with an annual deductible of at least $1,550 and no more than $2,350 in the case of individual coverage and at least $3,100 and no more than $4,650 in the

case of family coverage. In addition, the maximum out-of-pocket expenses with respect to allowed costs (including the deductible) must

be no more than $3,100 in the case of individual coverage and no

more than $5,700 in the case of family coverage.60 A plan does not

fail to qualify as a high deductible plan merely because it does not

231

61Permitted coverage, as described above, does not constitute coverage under a health insurance plan for this purpose.

have a deductible for preventive care as required by State law. A

plan does not qualify as a high deductible health plan if substantially all of the coverage under the plan is for permitted coverage

(as described above). In the case of a self-insured plan, the plan

must in fact be insurance (e.g., there must be appropriate risk

shifting) and not merely a reimbursement arrangement.

The number of taxpayers benefiting annually from an MSA

contribution is limited to a threshold level (generally 750,000 taxpayers). If it is determined in a year that the threshold level has

been exceeded (called a ‘‘cut-off’’ year) then, in general, for succeeding years during the 4-year pilot period 1997–2000, only those

individuals who (1) made an MSA contribution or had an employer

MSA contribution for the year or a preceding year (i.e., are active

MSA participants) or (2) are employed by a participating employer,

is eligible for an MSA contribution. In determining whether the

threshold for any year has been exceeded, MSAs of individuals who

were not covered under a health insurance plan for the six month

period ending on the date on which coverage under a high deductible plan commences would not be taken into account.61 However,

if the threshold level is exceeded in a year, previously uninsured

individuals are subject to the same restriction on contributions in

succeeding years as other individuals. That is, they would not be

eligible for an MSA contribution for a year following a cut-off year

unless they are an active MSA participant (i.e., had an MSA contribution for the year or a preceding year) or are employed by a

participating employer.

The number of MSAs established has not exceeded the threshold level.

After December 31, 2000, no new contributions may be made

to MSAs except by or on behalf of individuals who previously had

MSA contributions and employees who are employed by a participating employer. An employer is a participating employer if (1) the

employer made any MSA contributions for any year to an MSA on

behalf of employees or (2) at least 20 percent of the employees covered under a high deductible plan made MSA contributions of at

least $100 in the year 2000.

Self-employed individuals who made contributions to an MSA

during the period 1997–2000 also may continue to make contributions after 2000.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement extends the MSA program through

2002. The same rules that apply to the limit on MSAs for 1999

apply to 2000 and 2001. Thus, for example, the threshold level in

those years is 750,000 taxpayers.

232

Effective date.—The provision is effective on the date of enactment.

E. DEDUCTION FOR PROVIDING LONG-TERM CARE TO HOUSEHOLD

MEMBERS (sec. 305 of the bill and new sec. 223 of the Code)

PRESENT LAW

Under present law, the individual income tax treatment of

health insurance expenses depends on the individual’s circumstances. Self-employed individuals may deduct a portion of

health insurance expenses for the individual and his or her spouse

and dependents. The deductible percentage of health insurance expenses of a self-employed individual is 60 percent in 2000 and

2001; 70 percent in 2002; and 100 percent in 2003 and thereafter.

The deduction for health insurance expenses of self-employed individuals is not available for any month in which the taxpayer is eligible to participate in a subsidized health plan maintained by the

employer of the taxpayer or the taxpayer’s spouse. The deduction

applies to qualified long-term care insurance premiums treated as

medical expenses under the itemized deduction for medical expenses, described below.

Employees can exclude from income 100 percent of employerprovided health insurance or qualified long-term care insurance.

Individuals who itemize deductions may deduct their health insurance expenses only to the extent that the total medical expenses

of the individual exceed 7.5 percent of adjusted gross income (sec.

213). Subject to certain dollar limitations, premiums for qualified

long-term care insurance are treated as medical expenses for purposes of the itemized deduction for medical expenses (sec. 213). The

amount of qualified long-term care insurance premiums that may

be taken into account for 2000 is as follows: $220 in the case of an

individual 40 years old or less; $410 in the case of an individual

who is more than 40 but not more than 50; $820 in the case of an

individual who is more than 50 but not more than 60; $2,200 in

the case of an individual who is more than 60 but not more than

70; and $2,750 in the case of an individual who is more than 70.

These dollar limits are indexed for inflation.

To qualify as a dependent under present law, an individual

must: (1) be a specified relative or member of the taxpayer’s household; (2) be a citizen or resident of the U.S. or resident of Canada

or Mexico; (3) not be required to file a joint tax return with his or

her spouse; (4) have gross income below the dependent exemption

amount ($2,800 in 2000) if not the taxpayer’s child; and (5) receive

over half of his or her support from the taxpayer. If no one person

contributes over half the support of an individual, the taxpayer is

treated as meeting the support requirement if: (1) over half the

support is received from persons each of whom, but for the fact

that he or she did not provide over half such support, could claim

the individual as a dependent; (2) the taxpayer contributes over 10

percent of such support; and (3) other caregivers who provide over

10 percent of the support file written declarations stating that they

will not claim the individual as a dependent.

233

62The deduction is added to the taxpayer’s personal exemptions for purposes of the personal

exemption phaseout. For 2000, the personal exemption amount phases out over the following

ranges of adjusted gross income: $193,400–$315,900 for married taxpayers filing a joint return;

$161,150–$283,650 for taxpayers filing as heads of households; and $128,950–$251,450 for unmarried taxpayers.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement provides taxpayers who maintain a

household including one or more qualifying individuals a deduction

with respect to each qualifying individual with long-term care

needs, regardless of the expenses incurred in the care of the qualifying dependent. The deduction does not reduce adjusted gross income (i.e., is not ‘‘above-the-line’’); however, the deduction is available whether or not the taxpayer itemizes deductions. The deductible amount is reduced by amounts received under a long-term care

contract (whether or not qualified and including contracts that pay

on a per diem or similar basis) covering the qualifying dependent.

The deduction is phased out for higher income taxpayers in the

same manner as the personal exemption amount.62 The deduction

is taken into account in determining alternative minimum taxable

income.

The deductible amount is $3,000 in 2001 and increases by

$1,000 each year thereafter until the limit is $10,000 in 2010 and

thereafter.

An individual is a qualifying individual with respect to a taxpayer if the individual (1) is the spouse of the taxpayer or a relative of the taxpayer determined under the rules relating to the dependency exemption, and (2) lives in a household maintained by

the taxpayer for the entire taxable year. In addition, if the individual is not the taxpayer’s spouse or a child of the taxpayer (as

determined under the dependency rules), the individual’s gross income for the year must be less than the sum of the personal exemption amount, the standard deduction for a single taxpayer and,

if applicable, the additional deduction for the elderly and blind.

A qualifying individual must be certified before the due date

for the return for the taxable year (without regard to extensions)

as having long-term care needs (as described below based on the

age of the individual) for at least 180 consecutive days. Some portion of the 180-day period must fall within the taxable year. The

deduction is not available unless the certification was made no

more than 391⁄2 months before the due date for the return (or such

other time as specified by the Secretary).

In general, an individual who is at least six years of age is considered to have long-term care needs if the individual is unable to

perform at least three activities of daily living (‘‘ADLs’’) without

substantial assistance due to a loss of functional capacity including

individuals born with a condition that is comparable to a loss of

functional capacity. As under the present-law rules relating to

234

63The regulations are to be prescribed by the Secretary, in consultation with the Secretary

of Health and Human Services.

long-term care, ADLs are eating, toileting, transferring, bathing,

dressing and continence. Substantial assistance includes both

hands-on assistance (that is, the physical assistance of another person without which the individual would be unable to perform the

ADL) and stand-by assistance (that is, the presence of another person within arm’s reach of the individual that is necessary to prevent, by physical intervention, injury to the individual when performing the ADL).

As an alternative to the two-ADL test, an individual is considered to have long-term care needs if the individual (1) requires substantial supervision to protect the individual from threats to health

and safety due to severe cognitive impairment and (2) is unable to

perform, without reminding or cuing assistance, at least one ADL

or to the extent provided in regulations,63 is unable to engage in

age appropriate activities.

A child between the ages of two and six is considered to have

long-term care needs if the child requires substantial assistance

with two of the following ADLs: eating, transferring, and mobility.

A child under the age of two is considered to have long-term

care needs if the child requires specific durable medical equipment

(e.g., a respirator) by reason of a severe health condition or requires a skilled practitioner to address the child’s condition when

the parents are absent.

For purposes of the provision, a taxpayer would be considered

to be maintaining a household for any period only if over one-half

the cost of maintaining the household for the period is provided by

the taxpayer (or, if married, the taxpayer and his or her spouse).

If the taxpayer is married at the end of the taxable year, the deduction is available only if the taxpayer and his or her spouse file

a joint return. An individual legally separated is not considered

married. An individual is not considered married if the individual

(1) files a separate return for the year, (2) maintains a household

which constitutes the principal place of abode for a qualifying individual for more than one-half of the year, and (3) during the last

six months of the year the individual’s spouse is not a member of

the individual’s household.

The deduction is not available unless the taxpayer identification number of the qualifying individual is included on the taxpayer’s return for the year. In addition, the deduction is not available unless the taxpayer includes on the return a physician identification number (e.g., the Unique Physician Identification Number

currently required for Medicare billing). The IRS is authorized to

use mathematical error procedures to deny claims for the deduction

during return processing if the taxpayer does not provide valid taxpayer identification numbers and physician identification numbers.

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

235

1The provisions of the bill as passed by the House and the Senate did not contain provisions

relating to pensions and individual retirement arrangements. Provisions described under the

House bill refer to the provisions of H.R. 1102, the ‘‘Comprehensive Retirement Security and

Pension Reform Act of 2000,’’ as passed by the House. For legislative history, see H.R. Rep. No.

106–753. Provisions described under the Senate amendment refer to the provisions of H.R. 1102,

the ‘‘Retirement Security and Savings Act of 2000,’’ as reported by the Senate Committee on

Finance on September 13, 2000. For legislative history, see S.Rep. No. 106–411.

TITLE IV. PENSION AND INDIVIDUAL RETIREMENT

ARRANGEMENT PROVISIONS 1

Subtitle A. Individual Retirement Arrangements (‘‘IRAs’’) (sec. 401–

404 of the bill) (sec. 101 of the House bill, secs. 101–104 of the

Senate amendment, and secs. 219, 408, and 408A of the Code)

PRESENT LAW

In general

There are two general types of individual retirement arrangements (‘‘IRAs’’) under present law: traditional IRAs, to which both

deductible and nondeductible contributions may be made, and Roth

IRAs. The Federal income tax rules regarding each type of IRA

(and IRA contribution) differ.

Traditional IRAs

Under present law, an individual may make deductible con- tributions to an IRA up to the lesser of $2,000 or the individual’s

compensation if neither the individual nor the individual’s spouse

is an active participant in an employer-sponsored retirement plan.

In the case of a married couple, deductible IRA contributions of up

to $2,000 can be made for each spouse (including, for example, a

homemaker who does not work outside the home), if the combined

compensation of both spouses is at least equal to the contributed

amount. If the individual (or the individual’s spouse) is an active

participant in an employer-sponsored retirement plan, the $2,000

deduction limit is phased out for taxpayers with modified adjusted

gross income (‘‘AGI’’) over certain levels for the taxable year.

The AGI phase-out limits for taxpayers who are active participants in employer-sponsored plans are as follows:

Single Taxpayers

AGI Phase-out range

Taxable years beginning in:

2000 ................................................................................................. $32,000–42,000

2001 ................................................................................................. 33,000–43,000

2002 ................................................................................................. 34,000–44,000

2003 ................................................................................................. 40,000–50,000

2004 ................................................................................................. 45,000–55,000

2005 and thereafter ........................................................................ 50,000–60,000

Taxpayers Filing Joint Returns

Phase-out range

Taxable years beginning in:

2000 ................................................................................................. $52,000–62,000

2001 ................................................................................................. 53,000–63,000

2002 ................................................................................................. 54,000–64,000

2003 ................................................................................................. 60,000–70,000

2004 ................................................................................................. 65,000–75,000

2005 ................................................................................................. 70,000–80,000

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Taxpayers Filing Joint Returns—Continued

Phase-out range

2006 ................................................................................................. 75,000–85,000

2007 and thereafter ........................................................................ 80,000–100,000

The AGI phase-out range for married taxpayers filing a separate return is $0 to $10,000.

If the individual is not an active participant in an employersponsored retirement plan, but the individual’s spouse is, the

$2,000 deduction limit is phased out for taxpayers with AGI between $150,000 and $160,000.

To the extent an individual cannot or does not make deductible

contributions to an IRA or contributions to a Roth IRA, the individual may make nondeductible contributions to a traditional IRA.

Amounts held in a traditional IRA are includible in income

when withdrawn (except to the extent the withdrawal is a return

of nondeductible contributions). Includible amounts withdrawn

prior to attainment of age 591⁄2 are subject to an additional 10-percent early withdrawal tax, unless the withdrawal is due to death

or disability, is made in the form of certain periodic payments, is

used to pay medical expenses in excess of 7.5 percent of AGI, is

used to purchase health insurance for an unemployed individual, is

used for education expenses, or is used for first-time homebuyer expenses of up to $10,000.

Roth IRAs

Individuals with AGI below certain levels may make nondeductible contributions to a Roth IRA. The maximum annual contribution that may be made to a Roth IRA is the lesser of $2,000

or the individual’s compensation for the year. The contribution

limit is reduced to the extent an individual makes contributions to

any other IRA for the same taxable year. As under the rules relating to IRAs generally, a contribution of up to $2,000 for each

spouse may be made to a Roth IRA provided the combined compensation of the spouses is at least equal to the contributed

amount. The maximum annual contribution that can be made to a

Roth IRA is phased out for single taxpayers with AGI between

$95,000 and $110,000 and for taxpayers filing a joint return with

AGI between $150,000 and $160,000. For married taxpayers filing

a separate return, the phase-out range is $0 to $10,000.

Taxpayers with modified AGI of $100,000 or less generally may

convert a traditional IRA into a Roth IRA. The amount converted

is includible in income as if a withdrawal had been made, except

that the 10-percent early withdrawal tax does not apply and, if the

conversion occurred in 1998, the income inclusion may be spread

ratably over 4 years. Married taxpayers who file separate returns

cannot convert a traditional IRA into a Roth IRA.

Amounts held in a Roth IRA that are withdrawn as a qualified

distribution are neither includible in income, nor subject to the additional 10-percent tax on early withdrawals. A qualified distribution is a distribution that (1) is made after the 5-taxable year period beginning with the first taxable year for which the individual

made a contribution to a Roth IRA, and (2) which is made after attainment of age 591⁄2, on account of death or disability, or is made

for first-time homebuyer expenses of up to $10,000.

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2 Early distribution of converted amounts may also accelerate income inclusion of converted

amounts that are taxable under the 4-year rule applicable to 1998 conversions.

To the extent attributable to earnings, distributions from a

Roth IRA that are not qualified distributions are includible in income and subject to the 10-percent early withdrawal tax (unless an

exception applies).2 The same exceptions to the early withdrawal

tax that apply to IRAs apply to Roth IRAs.

Taxation of charitable contributions

Generally, a taxpayer who itemizes deductions may deduct

cash contributions to charity, as well as the fair market value of

contributions of property. The amount of the deduction otherwise

allowable for the taxable year with respect to a charitable contribution may be reduced, depending on the type of property contributed, the type of charitable organization to which the property is

contributed, and the income of the taxpayer.

For donations of cash by individuals, total deductible contributions to public charities may not exceed 50 percent of a taxpayer’s

AGI for a taxable year. To the extent a taxpayer has not exceeded

the 50-percent limitation, contributions of cash to private foundations and certain other nonprofit organizations and contributions of

capital gain property to public charities generally may be deducted

up to 30 percent of the taxpayer’s AGI. If a taxpayer makes a contribution in one year which exceeds the applicable 50-percent or 30-

percent limitation, the excess amount of the contribution may be

carried over and deducted during the next five taxable years.

In addition to the percentage limitations imposed specifically

on charitable contributions, present law imposes a reduction on

most itemized deductions, including charitable contribution deductions, for taxpayers with AGI in excess of a threshold amount,

which is indexed annually for inflation. The threshold amount for

2000 is $128,950 ($64,475 for married individuals filing separate

returns). For those deductions that are subject to the reduction, the

total amount of itemized deductions is reduced by 3 percent of AGI

over the threshold amount, but not by more than 80 percent of

itemized deductions subject to the reduction. The effect of this reduction may be to limit a taxpayer’s ability to deduct charitable

contributions.

HOUSE BILL

Increase in annual contribution limits

The House bill increases the maximum annual dollar contribution limit for IRA contributions from $2,000 to $3,000 in 2001,

$4,000 in 2002, and $5,000 in 2003. The limit is indexed for inflation in $500 increments in 2004 and thereafter.

Additional catch-up contributions

In the case of individuals who have attained age 50 before the end of the taxable year, the IRA contribution limit is $5,000, beginning in 2001.

Increase in AGI limits for deductible IRA contributions

No provision.

238

Roth IRAs

No provision.

Deemed IRAs under employer plans

No provision.

Tax-free IRA withdrawals for charitable purposes

No provision.

Effective date

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

SENATE AMENDMENT

Increase in annual contribution limits

The Senate amendment is the same as the House bill.

Additional catch-up contributions

The bill provides that individuals who have attained age 50

may make additional catch-up IRA contributions. The otherwise

maximum contribution limit (before application of the AGI phaseout limits) for an individual who has attained age 50 before the end

of the taxable year is increased by 50 percent.

Increase in AGI limits for deductible IRA contributions

Under the bill, the increases in the AGI phase-out limits for

active participants in an employer-sponsored plan are evened out.

In addition, the phase-out range for married taxpayers filing separately is conformed to the phase-out range for single taxpayers.

The AGI phase-out limits under the bill are as follows.

Taxpayers Filing Returns Other Than Joint Returns

AGI Phase-out range

Taxable years beginning in:

2001 ................................................................................................. $36,000–46,000

2002 ................................................................................................. 40,000–50,000

2003 ................................................................................................. 44,000–54,000

2004 ................................................................................................. 48,000–58,000

2005 and thereafter ........................................................................ 50,000–60,000

Taxpayers Filing Joint Returns

AGI Phase-out range

Taxable years beginning in:

2001 ................................................................................................. $56,000–66,000

2002 ................................................................................................. 60,000–70,000

2003 ................................................................................................. 64,000–74,000

2004 ................................................................................................. 68,000–78,000

2005 ................................................................................................. 72,000–82,000

2006 ................................................................................................. 76,000–86,000

2007 and thereafter ........................................................................ 80,000–100,000

The present-law income phase-out range for an individual who

is not an active participant in an employer-sponsored plan, but

whose spouse is, remains at $150,000 to $160,000.

239

Roth IRAs

The bill increases the income phase-out range for Roth IRA contributions to $190,000 to $220,000 for married couples filing a

joint return. In addition, the bill applies to married taxpayers filing

a separate return the same phase-out range that applies to single

taxpayers.

Under the bill, 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 (including married taxpayers filing a

separate return), the limit is $100,000.

Deemed IRAs under employer plans

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 either traditional IRAs or

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

a traditional IRA or a Roth IRA, as applicable, for all purposes of

the Code. For example, the reporting requirements applicable to

IRAs apply. The deemed IRA, and contributions thereto, are not

subject to the Code rules pertaining to the eligible retirement plan.

In addition, the deemed IRA, and contributions thereto, are not

taken into account in applying such rules to any other contributions under the plan. The deemed IRA, and contributions thereto,

are subject to the exclusive benefit and fiduciary rules of ERISA to

the extent otherwise applicable to the plan, but are not subject to

the ERISA reporting and disclosure, participation, vesting, funding,

and enforcement requirements that apply to the eligible retirement

plan. An eligible retirement plan is a qualified plan (sec. 401(a)),

tax-sheltered annuity (sec. 403(b)), or a governmental section 457

plan.

Tax-free IRA withdrawals for charitable purposes

The bill provides an exclusion from gross income for qualified

charitable distributions from an IRA: (1) to an organization to

which deductible contributions can be made; (2) to a charitable remainder annuity trust or charitable remainder unitrust; (3) to a

pooled income fund (as defined in sec. 642(c)(5)); or (4) for the

issuance of a charitable gift annuity. The exclusion applies with respect to distributions described in (2), (3), or (4) only if no person

holds an income interest in the trust, fund, or annuity attributable

to such distributions other than the IRA owner, his or her spouse,

or a charitable organization.

In determining the character of distributions from a charitable

remainder annuity trust or a charitable remainder unitrust to

which a qualified charitable distribution from an IRA is made, the

charitable remainder trust is required to treat as ordinary income

the portion of the distribution from the IRA to the trust which

would have been includible in income but for the provision, and is

required to treat any remaining portion of the distribution as corpus. Similarly, in determining the amount includible in gross income by reason of a payment from a charitable gift annuity purchased with a qualified charitable distribution from an IRA, the

taxpayer is not permitted to treat the portion of the distribution

240

3 It is intended that, in the case of transfer to a trust, fund, or annuity, the full amount distributed from an IRA will meet the definition of a qualified charitable distribution if the charitable organization’s interest in the distribution would qualify as a charitable contribution under

section 170.

from the IRA that would have been taxable but for the provision

and which is used to purchase the annuity as an investment in the

annuity contract.

A qualified charitable distribution is any distribution from an

IRA which (1) is made after age 701⁄2 of the account holder, (2)

qualifies as a charitable contribution (within the meaning of sec.

170(c)), and (3) is made directly to the organization or to a charitable remainder annuity trust, charitable remainder unitrust,

pooled income fund, or charitable gift annuity (as described

above). 3 A taxpayer is not permitted to claim a charitable contribution deduction for amounts transferred from his or her IRA to a

charity or to a trust, fund, or annuity that, because of the provision, are excluded from the taxpayer’s income. Conversely, if the

amounts transferred would otherwise be nontaxable, e.g., a qualified distribution from a Roth IRA, the regularly applicable deduction rules would apply.

Effective date

The provisions are generally effective for taxable years beginning after December 31, 2000. The provision relating to deemed

IRAs under employer plans is effective for plan years beginning

after December 31, 2001.

CONFERENCE AGREEMENT

Increase in annual contribution limits

The conference agreement follows the House bill and the Senate amendment.

Additional catch-up contributions

The conference agreement follows the Senate amendment, with

modifications. Under the conference agreement, the maximum

catch-up amount is phased in over the same period as the increase

in the IRA contribution limit. The maximum catch-up contribution

is $500 in 2001, $1,000 in 2002, and $1,500 in 2003. The $1,500

amount is indexed for inflation beginning after 2003 (when the indexing of the $5,000 basic contribution limit begins).

Increase in AGI limits for deductible IRA contributions

The conference agreement follows the Senate amendment.

Roth IRAs

The conference agreement follows the Senate amendment.

Deemed IRAs under employer plans

The conference agreement follows the Senate amendment. As

under the Senate amendment, 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 either traditional IRAs or

241

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

a traditional IRA or a Roth IRA, as applicable, for all purposes of

the Code. For example, the IRA reporting requirements apply. The

deemed IRA, and contributions thereto, are not subject to the Code

rules pertaining to the eligible retirement plan. In addition, the

deemed IRA, and contributions thereto, are not taken into account

in applying such rules to any other contributions under the plan.

The deemed IRA, and contributions thereto, are subject to the exclusive benefit and fiduciary rules of ERISA to the extent otherwise

applicable to the plan, but are not subject to the ERISA reporting

and disclosure, participation, vesting, funding, and enforcement requirements that apply to the eligible retirement plan. Except as

otherwise specified, the provision does not affect the treatment of

the deemed IRA as part of the qualified plan.

Tax-free IRA withdrawals for charitable purposes

The conference agreement follows the Senate amendment, with

the modification that the tax-free treatment is available only for a

distribution made to an organization to which charitable contributions (as defined in sec. 170(c)) can be made, and not for distributions to charitable remainder trusts, pooled income funds, or for

the issuance of charitable gift annuities. The conferees clarify that

the exclusion does not apply unless the distribution meets the requirements generally applicable to deductible contributions (other

than the percentage limits on such deductions). Thus, for example,

the substantiation rules and the rule limiting the deductible

amount of a contribution to the excess, if any, of the value of the

contribution over the value of any benefit received by the donor,

would apply. It is intended that the Secretary will issue such rules

as are necessary to apply to distributions made to organizations

pursuant to the provision.

The conference agreement also clarifies that amounts that

would have been includible in gross income but for the provision

are not deductible in any year. In addition, such amounts are not

taken into account in determining the deductible amount for any

year.

Except as provided in the provision, a distribution under the

provision is treated the same as other IRA distributions. Thus, for

example, the distribution is taken into account in determining

whether the minimum distribution requirements are satisfied.

Effective date

The provisions are generally effective for taxable years beginning after December 31, 2000. The provision relating to deemed

IRAs under employer plans is effective for plan years beginning

after December 31, 2001.

242

Subtitle B. Expanding Coverage (secs. 411–418 of the bill)

A. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS (sec. 201 of the

House bill, sec. 201 of the Senate amendment, and secs.

401(a)(17), 402(g), 408(p), 415, and 457 of the Code)

PRESENT LAW

In general

Under present law, limits apply to contributions and benefits

under qualified plans (sec. 415), the amount of compensation that

may be taken into account under a plan for determining benefits

(sec. 401(a)(17)), the maximum amount of elective deferrals that an

individual may make to a salary reduction plan or tax sheltered

annuity (sec. 402(g)), and deferrals under an eligible deferred compensation plan of a tax-exempt organization or a State or local government (sec. 457).

Limitations on contributions and benefits

Under present law, the limits on contributions and benefits

under qualified plans are based on the type of plan. Under a defined contribution plan, the qualification rules limit the annual additions to the plan with respect to each plan participant to the lesser of (1) 25 percent of compensation or (2) $30,000 (for 2000). Annual additions are the sum of employer contributions, employee

contributions, and forfeitures with respect to an individual under

all defined contribution plans of the same employer. The $30,000

limit is indexed for inflation in $5,000 increments.

Under a defined benefit plan, the maximum annual benefit

payable at retirement is generally the lesser of (1) 100 percent of

average compensation, or (2) $135,000 (for 2000). The dollar limit

is adjusted for inflation in $5,000 increments.

Under present law, in general, the dollar limit on annual benefits is reduced if benefits under the plan begin before the social security retirement age (currently, age 65) and increased if benefits

begin after social security retirement age.

Compensation limitation

Under present law, the annual compensation of each participant that may be taken into account for purposes of determining

contributions and benefits under a plan, applying the deduction

rules, and for nondiscrimination testing purposes is limited to

$170,000 (for 2000). The compensation limit is indexed for inflation

in $10,000 increments.

Elective deferral limitations

Under present law, under certain salary reduction arrangements, an employee may elect to have the employer make payments as contributions to a plan on behalf of the employee, or to

the employee directly in cash. Contributions made at the election

of the employee are called elective deferrals.

The maximum annual amount of elective deferrals that an individual may make to a qualified cash or deferred arrangement (a

‘‘section 401(k) plan’’), a tax-sheltered annuity (‘‘section 403(b) annuity’’) or a salary reduction simplified employee pension plan

243

4The 25 percent of compensation limitation is increased to 100 percent of compensation under

another provision of the House bill.

(‘‘SEP’’) is $10,500 (for 2000). The maximum annual amount of

elective deferrals that an individual may make to a SIMPLE plan

is $6,000. These limits are indexed for inflation in $500 increments.

Section 457 plans

The maximum annual deferral under a deferred compensation

plan of a State or local government or a tax-exempt organization

(a ‘‘section 457 plan’’) is the lesser of (1) $8,000 (for 2000) or (2)

331⁄2 percent of compensation. The $8,000 limit is indexed for inflation in $500 increments. Under a special catch-up rule, the section

457 plan may provide that, for one or more of the participant’s last

3 years before retirement, the otherwise applicable limit is increased to the lesser of (1) $15,000 or (2) the sum of the otherwise

applicable limit for the year plus the amount by which the limit applicable in preceding years of participation exceeded the deferrals

for that year.

HOUSE BILL

Limits on contributions and benefits

The House bill increases the $30,000 annual addition limit for

defined contribution plans to $40,000. This amount is indexed for

inflation in $1,000 increments.4

The House bill increases the $135,000 annual benefit limit

under a defined benefit plan to $160,000. The dollar limit is reduced for benefit commencement before age 62 and increased for

benefit commencement after age 65.

Compensation limitation

The House bill increases the limit on compensation that may

be taken into account under a plan to $200,000. This amount is indexed for inflation in $5,000 increments.

Elective deferral limitations

The House bill increases the dollar limit on annual elective deferrals under section 401(k) plans, section 403(b) annuities and salary reduction SEPs to $11,000 in 2001, and in $1,000 annual increments thereafter until the limits reach $15,000 in 2005. The

$15,000 limit is indexed for inflation in $500 increments beginning

in 2006. Beginning in 2001, the House 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 $10,000 limit is indexed for inflation in $500 increments beginning in 2005.

Section 457 plans

The House bill increases the dollar limit on deferrals under a

section 457 plan to conform to the elective deferral limitation.

Thus, the limit is $11,000 in 2001, and is increased in $1,000 annual increments thereafter until the limit reaches $15,000 in 2005.

The $15,000 limit is indexed for inflation in $500 increments beginVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00247 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
244

5 Another provision of the House bill increases the 331⁄3 percentage of compensation limit to

100 percent. 6Title I of the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’), also

contains prohibited transaction rules. The Code and ERISA provisions are substantially similar,

although not identical.

ning in 2006. The limit is twice the otherwise applicable dollar

limit in the three years prior to retirement.5

Effective date

The House bill is effective for years beginning after December

31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

with respect to the provision relating to the defined contribution

plan dollar limit. The Senate amendment retains the present-law

$30,000 limit, and indexes the limit for inflation in $1,000 increments.

Effective date.—Same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill. In adopting

rules regarding the application of the increase in the defined benefit plan limits under the bill, the conferees intend that the Secretary will apply rules similar to those adopted in Notice 99–44 regarding benefit increases due to the repeal of the combined plan

limit under former section 415(e). Thus, for example, a defined benefit plan could provide for benefit increases to reflect the provisions

of the bill for a current or former employee who has commenced

benefits under the plan prior to the effective date of the bill if the

employee or former employee has an accrued benefit under the

plan (other than an accrued benefit resulting from a benefit increase solely as a result of the increases in the section 415 limits

under the bill). As under the notice, the maximum amount of permitted increase is generally the amount that could have been provided had the provisions of the bill been in effect at the time of the

commencement of benefit. In no case can benefits reflect increases

that could not be paid prior to the effective date because of the limits in effect under present law. In addition, in no case can plan

amendments providing increased benefits under the relevant provision of the bill be effective prior to the effective date of the provision.

B. PLAN LOANS FOR S CORPORATION SHAREHOLDERS, PARTNERS,

AND SOLE PROPRIETORS (sec. 202 of the House bill, sec. 202 of the

Senate amendment, and sec. 4975 of the Code)

PRESENT LAW

The Internal Revenue Code prohibits certain transactions

(‘‘prohibited transactions’’) between a qualified plan and a disqualified person in order to prevent persons with a close relationship to

the qualified plan from using that relationship to the detriment of

plan participants and beneficiaries.6 Certain types of transactions

are exempted from the prohibited transaction rules, including loans

245

7 Certain transactions involving a plan and S corporation shareholders are permitted.

8The Senate amendment also amends the corresponding provisions of ERISA.

from the plan to plan participants, if certain requirements are satisfied. In addition, the Secretary of Labor can grant an administrative exemption from the prohibited transaction rules if she finds

the exemption is administratively feasible, in the interest of the

plan and plan participants and beneficiaries, and protective of the

rights of participants and beneficiaries of the plan. Pursuant to this

exemption process, the Secretary of Labor grants exemptions both

with respect to specific transactions and classes of transactions.

The statutory exemptions to the prohibited transaction rules

do not apply to certain transactions in which the plan makes a loan

to an owner-employee.7 Loans to participants other than owner-employees are permitted if loans are available to all participants on

a reasonably equivalent basis, are not made available to highly

compensated employees, are made in accordance with specific provisions in the plan, bear a reasonable rate of interest, and are adequately secured. In addition, the Code places limits on the amount

of loans and the repayment terms.

For purposes of the prohibited transaction rules, an owner-employee means (1) a sole proprietor, (2) a partner who owns more

than 10 percent of either the capital interest or the profits interest

in the partnership, (3) an employee or officer of an S corporation

who owns more than 5 percent of the outstanding stock of the corporation, and (4) the owner of an individual retirement arrangement (‘‘IRA’’). The term owner-employee also includes certain family members of an owner-employee and certain corporations owned

by an owner-employee.

Under the Internal Revenue Code, a two-tier excise tax is imposed on disqualified persons who engage in a prohibited transaction. The first level tax is equal to 15 percent of the amount involved in the transaction. The second level tax is imposed if the

prohibited transaction is not corrected within a certain period, and

is equal to 100 percent of the amount involved.

HOUSE BILL

The House bill generally eliminates the special present-law

rules relating to plan loans made to an owner-employee (other than

the owner of an IRA). Thus, the general statutory exemption applies to such transactions. Present law continues to apply with respect to IRAs.

Effective date.—The House bill is effective with respect to loans

made after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.8

Effective date.—The Senate amendment is effective for years

beginning after December 31, 2000.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

246

Effective date.—The conference agreement follows the Senate

amendment. Thus, as under the Senate amendment, a loan that is

a prohibited transaction solely because of the present-law restriction would cease to be a prohibited transaction on January 1, 2000.

However, the loan would continue to be a prohibited transaction

prior to January 1, 2000.

C. MODIFICATION OF TOP-HEAVY RULES (sec. 203 of the House bill,

sec. 203 of the Senate amendment, and sec. 416 of the Code)

PRESENT LAW

In general

Under present law, additional qualification requirements apply

to plans that primarily benefit an employer’s key employees (‘‘topheavy plans’’). These additional requirements provide (1) more

rapid vesting for plan participants who are non-key employees and

(2) minimum nonintegrated employer contributions or benefits for

plan participants who are non-key employees.

Definition of top-heavy plan

In general, a top-heavy plan is a plan under which more than

60 percent of the contributions or benefits are provided to key employees.

For purposes of determining whether a plan is a top-heavy

plan, benefits derived both from employer and employee contributions, including employee elective contributions, are taken into account. In addition, the accrued benefit of a participant in a defined

benefit plan and the account balance of a participant in a defined

contribution plan includes any amount distributed within the 5-

year period ending on the determination date.

An individual’s accrued benefit or account balance is not taken

into account in determining whether a plan is top-heavy if the individual has not performed services for the employer during the 5-

year period ending on the determination date.

SIMPLE plans are not subject to the top-heavy rules.

Definition of key employee

A key employee is an employee who, during the plan year containing the determination date for the plan year in question or any

of the 4 preceding plan years, is (1) an officer earning over one-half

of the defined benefit plan dollar limitation of section 415 ($67,500

for 2000), (2) a 5-percent owner of the employer, (3) a 1-percent

owner of the employer earning over $150,000, or (4) one of the 10

employees earning more than the defined contribution plan dollar

limit ($30,000 for 2000) with the largest ownership interests in the

employer. A family ownership attribution rule applies to the determination of 1-percent owner status, 5-percent owner status, and

largest ownership interest. Under this attribution rule, an individual is treated as owning stock owned by the individual’s spouse,

children, grandchildren, or parents.

Minimum benefit for non-key employees

A minimum benefit generally must be provided to all non-key

employees in a top-heavy plan. In general, a top-heavy defined benVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00250 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
247

9Tres. Reg. sec. 1.416–1 Q&A M–19.

10 Benefits under a plan that is not top heavy must vest at least as rapidly as under one of

the following schedules: (1) 5-year cliff vesting; and (2) 3–7 year graded vesting, which provides

for 20 percent vesting after 3 years of service and 20 percent more each year thereafter so that

a participant is fully vested after 7 years of service.

efit plan must provide a minimum benefit equal to the lesser of (1)

2 percent of compensation multiplied by the employee’s years of

service, or (2) 20 percent of compensation. A top-heavy defined contribution plan must provide a minimum annual contribution equal

to the lesser of (1) 3 percent of compensation, or (2) the percentage

of compensation at which contributions were made for key employees (including employee elective contributions made by key employees and employer matching contributions).

For purposes of the minimum benefit rules, only benefits derived from employer contributions (other than amounts employees

have elected to defer) to the plan are taken into account, and an

employee’s social security benefits are disregarded (i.e., the minimum benefit is nonintegrated). Employer matching contributions

may be used to satisfy the minimum contribution requirement;

however, in such a case the contributions are not treated as matching contributions for purposes of applying the special nondiscrimination requirements applicable to employee elective contributions and matching contributions under sections 401 (k) and

(m). Thus, such contributions would have to meet the general nondiscrimination test of section 401(a)(4).9

Top-heavy vesting

Benefits under a top-heavy plan must vest at least as rapidly

as under one of the following schedules: (1) 3-year cliff vesting,

which provides for 100 percent vesting after 3 years of service; and

(2) 2–6 year graded vesting, which provides for 20 percent vesting

after 2 years of service, and 20 percent more each year thereafter

so that a participant is fully vested after 6 years of service.10

Qualified cash or deferred arrangements

Under a qualified cash or deferred arrangement (a ‘‘section

401(k) plan’’), an employee may elect to have the employer make

payments as contributions to a qualified plan on behalf of the employee, or to the employee directly in cash. Contributions made at

the election of the employee are called elective deferrals. A special

nondiscrimination test applies to elective deferrals under cash or

deferred arrangements, which compares the elective deferrals of

highly compensated employees with elective deferrals of nonhighly

compensated employees. (This test is called the actual deferral percentage test or the ‘‘ADP’’ test). Employer matching contributions

under qualified defined contribution plans are also subject to a

similar nondiscrimination test. (This test is called the actual contribution percentage test or the ‘‘ACP’’ test.)

Under a design-based safe harbor, a cash or deferred arrangement is deemed to satisfy the ADP test if the plan satisfies one of

two contribution requirements and satisfies a notice requirement.

248

11This provision is not intended to preclude the use of nonelective contributions that are used

to satisfy the safe harbor rules from being used to satisfy other qualified retirement plan nondiscrimination rules, including those involving cross-testing. 12Thus, this provision overrides the provision in Treasury regulations that, if matching contributions are used to satisfy the minimum benefit requirement, then they are not treated as

matching contributions for purposes of the section 401(m) nondiscrimination rules.

HOUSE BILL

Definition of top-heavy plan

The provision provides that a plan consisting of a cash-or-deferred arrangement that satisfies the design-based safe harbor for

such plans and matching contributions that satisfy the safe harbor

rule for such contributions is not a top-heavy plan. Matching or

nonelective contributions provided under such a plan may be taken

into account in satisfying the minimum contribution requirements

applicable to top-heavy plans.11

In determining whether a plan is top-heavy, the provision provides that distributions during the year ending on the date the topheavy determination is being made are taken into account; however, the present-law 5-year rule applies with respect to in-service

distributions. Similarly, the provision provides that an individual’s

accrued benefit or account balance is not taken into account if the

individual has not performed services for the employer during the

1-year period ending on the date the top-heavy determination is

being made.

Definition of key employee

The provision (1) provides that an employee is not considered

a key employee by reason of officer status unless the employee

earns more than $150,000 in compensation for the year, and (2) repeals the top-10 owner key employee category.

The provision repeals the 4-year lookback rule for determining

key employee status and provides that an employee is a key employee only if he or she is a key employee during the plan year containing the determination date for the plan year in question.

The family ownership attribution rule no longer applies in determining whether an individual is a 5-percent owner of the employer for purposes of the top-heavy rules only. The family ownership attribution rule continues to apply to other provisions that

cross reference the top-heavy rules, such as the definition of highly

compensated employee and the definition of 1-percent owner under

the top-heavy rules.

Minimum benefit for non-key employees

Under the provision, matching contributions are taken into account in determining whether the minimum benefit requirement

has been satisfied.12

The provision provides that, in determining the minimum benefit required under a defined benefit plan, a year of service does

not include any year in which no employee benefits under the plan

(as determined under sec. 410).

Effective date

The provision is effective for years beginning after December

31, 2000.

249

SENATE AMENDMENT

The Senate amendment follows the House bill, with the following modifications.

Under the Senate amendment, an employee is considered a key

employee if, during the prior year, the employee was (1) an officer

with compensation in excess of $85,000 (for 2000), (2) a 5-percent

owner, or (3) a 1-percent owner with compensation in excess of

$150,000. The present-law limits on the number of officers treated

as key employees under (1) continue to apply. An employee who

was not an employee in the preceding plan year, or who was an

employee only for part of the year, is treated as a key employee if

it can be reasonably anticipated that the employee will meet the

definition of a key employee for current plan year.

The Senate amendment provides that, in determining the minimum benefit required under a defined benefit plan, a year of service does not include any year in which no key employee or former

key employee benefits under the plan (as determined under sec.

410).

Effective date.—The Senate amendment is effective for years

beginning after December 31, 2000.

CONFERENCE AGREEMENT

The conference agreement follows the House bill, with the following modifications. Under the conference agreement, an employee is a key employee if, during the plan year containing the determination date for the plan year in question, the employee was

(1) an officer with compensation in excess of $115,000 (indexed for

inflation after 2001), (2) a 5-percent owner, or (3) a 1-percent owner

with compensation in excess of $150,000. The present-law limits on

the number of officers treated as key employees under (1) continue

to apply. As under the House bill, the family ownership attribution

rule no longer applies in determining whether an individual is a 5-

percent owner of the employer for purposes of the top-heavy rules

only. The family ownership attribution rule continues to apply to

other provisions that cross reference the top-heavy rules, such as

the definition of highly compensated employee and the definition of

1-percent owner under the top-heavy rules.

The conference agreement follows the Senate amendment in

providing that, in determining the minimum benefit required under

a defined benefit plan, a year of service does not include any year

in which no key employee or former key employee benefits under

the plan (as determined under sec. 410).

Effective date.—The conference agreement is effective for years

beginning after December 31, 2000.

D. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES

OF DEDUCTION LIMITS (sec. 204 of the House bill, sec. 204 of the

Senate amendment, and sec. 404 of the Code)

PRESENT LAW

Employer contributions to one or more qualified retirement

plans are deductible subject to certain limits. In general, the deduction limit depends on the kind of plan.

250

In the case of a defined benefit pension plan or a money purchase pension plan, the employer generally may deduct the amount

necessary to satisfy the minimum funding cost of the plan for the

year. If a defined benefit pension plan has more than 100 participants, the maximum amount deductible is at least equal to the

plan’s unfunded current liabilities.

In the case of a profit-sharing or stock bonus plan, the employer generally may deduct an amount equal to 15 percent of compensation of the employees covered by the plan for the year.

If an employer sponsors both a defined benefit pension plan

and a defined contribution plan that covers some of the same employees (or a money purchase pension plan and another kind of defined contribution plan), the total deduction for all plans for a plan

year generally is limited to the greater of (1) 25 percent of compensation or (2) the contribution necessary to meet the minimum

funding requirements of the defined benefit pension plan for the

year (or the amount of the plan’s unfunded current liabilities, in

the case of a plan with more than 100 participants).

For purposes of the deduction limits, employee elective deferral

contributions to a section 401(k) plan are treated as employer contributions and, thus, are subject to the generally applicable deduction limits.

Subject to certain exceptions, nondeductible contributions are

subject to a 10-percent excise tax.

HOUSE BILL

Under the House bill, elective deferral contributions are not

subject to the 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.

Effective date.—The House bill is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

E. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAXEXEMPT ORGANIZATIONS (sec. 205 of the House bill, sec. 205 of

the Senate amendment, and sec. 457 of the Code)

PRESENT LAW

Compensation deferred under an eligible deferred compensation plan of a tax-exempt or State and local government employer

(a ‘‘section 457 plan’’) is not includible in gross income until paid

or made available. In general, the maximum permitted annual deferral under such a plan is the lesser of (1) $8,000 (in 2000) or (2)

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13The limits on deferrals under a section 457 plan are modified under other provisions of the

House bill. 14 Authorization for the user fees was originally enacted in section 10511 of the Revenue Act

of 1987 (Pub. L. No. 100–203, December 22, 1987). The authorization was extended through September 30, 2003, by Public Law Number 104–117 (An Act to provide that members of the Armed

Forces preforming services for the peacekeeping efforts in Bosnia and Herzegovina, Croatia, and

Macedonia shall be entitled to tax benefits in the same manner as if such services were performed in a combat zone, and for other purposes (March 20, 1996)).

331⁄3 percent of compensation. The $8,000 limit is indexed for infla- tion in $500 increments.

The $8,000 limit (as modified under the catch-up rule), applies

to all deferrals under all section 457 plans in which the individual

participates. In addition, in applying the $8,000 limit, contributions

under a tax-sheltered annuity (‘‘section 403(b) annuity’’), elective

deferrals under a qualified cash or deferred arrangement (‘‘section

401(k) plan’’), salary reduction contributions under a simplified employee pension plan (‘‘SEP’’), and contributions under a SIMPLE

plan are taken into account. Further, the amount deferred under

a section 457 plan is taken into account in applying a special catchup rule for section 403(b) annuities.

HOUSE BILL

The House bill repeals the rules coordinating the section 457

dollar limit with contributions under other types of plans.13

Effective date.—The House bill is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

F. ELIMINATE IRS USER FEES FOR CERTAIN REQUESTS REGARDING

EMPLOYER PLANS (sec. 206 of the House bill)

PRESENT LAW

An employer that maintains a retirement plan for the benefit

of its employees may request from the Internal Revenue Service

(‘‘IRS’’) a determination as to whether the form of the plan satisfies

the requirements applicable to tax-qualified plans (sec. 401(a)). In

order to obtain a determination letter on the qualified status of the

plan, the employer must pay a user fee. The Secretary determines

the user fee to be made for various types of requests, subject to

statutory minimum requirements for average fees based on the category of the request. The user fee for a employee plan determination letter request may range from $125 to $1,250, depending upon

the scope of the request and the type and format of the plan.14

In general, a qualified plan which does not meet the qualification requirements as a result of a disqualifying provision may be

amended retroactively to comply with such requirements if the necessary amendments are adopted within the remedial amendment

period. The remedial amendment period with respect to plan

amendments needed to reflect changes in the law generally ends by

252

15See, e.g., Rev. Proc. 99–23, 1999–16 IRB 6.

the due date for the employer’s tax return for the taxable year in

which the change in the law occurs. The Secretary is authorized to

extend the otherwise applicable remedial amendment period. Pursuant to this authority, the Secretary has provided extended remedial amendment periods with respect to recent legislation affecting

qualified plans.15

HOUSE BILL

Under the House bill, a small employer (100 or fewer employees) is not required to pay a user fee for any determination letter

request with respect to the qualified status of a retirement plan

that the employer maintains, if the request is made within the first

5 plan years of the plan. The House bill applies only to requests

by employers for determination letters concerning the qualified retirement plans they maintain. Therefore, a sponsor of a prototype

plan is required to pay a user fee for a request for a notification

letter, opinion letter, or similar ruling. A small employer that

adopts a prototype plan, however, is not required to pay a user fee

for a determination letter request with respect to the employer’s

plan.

Effective date.—The House bill is effective for determination

letter requests made after December 31, 2000.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement follows the House bill, with the following modification. Under the conference agreement, a small employer also is not required to pay a user fee for a determination letter request made prior to the end of a remedial amendment period

beginning within the first 5 plan years of the plan. In addition, determination letter requests for which user fees are not required

under the conference agreement are not taken into account in determining average user fees.

G. DEDUCTION LIMITS (sec. 207 of the House bill, sec. 206 of the

Senate amendment, and sec. 404 of the Code)

PRESENT LAW

Employer contributions to one or more qualified retirement

plans are deductible subject to certain limits. In general, the deduction limit depends on the kind of plan. Subject to certain exceptions, nondeductible contributions are subject to a 10-percent excise

tax.

In the case of a defined benefit pension plan or a money purchase pension plan, the employer generally may deduct the amount

necessary to satisfy the minimum funding cost of the plan for the

year. If a defined benefit pension plan has more than 100 participants, the maximum amount deductible is at least equal to the

plan’s unfunded current liabilities.

253

16 Another provision in the House bill provides that elective deferrals are not subject to the

deduction limits.

In some cases, the amount of deductible contributions is limited by compensation. In the case of a profit-sharing or stock bonus

plan, the employer generally may deduct an amount equal to 15

percent of compensation of the employees covered by the plan for

the year.

If an employer sponsors both a defined benefit pension plan

and a defined contribution plan that covers some of the same employees (or a money purchase pension plan and another kind of defined contribution plan), the total deduction for all plans for a plan

year generally is limited to the greater of (1) 25 percent of compensation or (2) the contribution necessary to meet the minimum

funding requirements of the defined benefit pension plan for the

year (or the amount of the plan’s unfunded current liabilities, in

the case of a plan with more than 100 participants).

In the case of an employee stock ownership plan (‘‘ESOP’’),

principal payments on a loan used to acquire qualifying employer

securities are deductible up to 25 percent of compensation.

For purposes of the deduction limits, employee elective deferral

contributions to a qualified cash or deferred arrangement (‘‘section

401(k) plan’’) are treated as employer contributions and, thus, are

subject to the generally applicable deduction limits.16

For purposes of the deduction rules, compensation generally includes only taxable compensation, and thus does not include salary

reduction amounts, such as elective deferrals under a section

401(k) plan or a tax-sheltered annuity (‘‘section 403(b) annuity’’),

elective contributions under a deferred compensation plan of a taxexempt organization or a State or local government (‘‘section 457

plan’’), and salary reduction contributions under a section 125 cafeteria plan. For purposes of the contribution limits under section

415, compensation does include such salary reduction amounts.

HOUSE BILL

Under the House bill, the definition of compensation for purposes of the deduction rules includes salary reduction amounts

treated as compensation under section 415. In addition, the annual

limitation on the amount of deductible contributions to a profitsharing or stock bonus plan is increased from 15 percent to 20 percent of compensation of the employees covered by the plan for the

year.

Effective date.—The House bill is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

Under the Senate amendment, the definition of compensation

for purposes of the deduction rules includes salary reduction

amounts treated as compensation under section 415. In addition,

the annual limitation on the amount of deductible contributions to

a profit-sharing or stock bonus plan is increased from 15 percent

to 25 percent of compensation of the employees covered by the plan

for the year. Also, the Senate amendment provides that, except to

the extent provided in regulations, a money purchase pension plan

254

17The limit on elective deferrals is $10,500 for 2000. This limit is increased under another

provision of the bill.

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

the deduction rules.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment. The

conferees intend that the Treasury regulations authorized by the

conference agreement will address the need for an appropriate increase of the annual limitation on the amount of deductible contributions to a money purchase pension plan by an amount that

equals the minimum funding requirement attributable to the prior

plan year, but only to the extent that such amount was not deductible for the prior taxable year because the amount was not contributed prior to the due date of the employer’s federal income tax return for the prior taxable year (even though the amount was contributed within 81⁄2 months after the end of the prior plan year and

therefore satisfied the minimum funding requirement).

H. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX CONTRIBUTIONS (sec. 208 of the House bill, sec. 207 of the Senate

amendment, and new sec. 402A of the Code)

PRESENT LAW

A qualified cash or deferred arrangement (‘‘section 401(k)

plan’’) or a tax-sheltered annuity (‘‘section 403(b) annuity’’) may

permit a participant to elect to have the employer make payments

as contributions to the plan or to the participant directly in cash.

Contributions made to the plan at the election of a participant are

elective deferrals. Elective deferrals must be nonforfeitable and are

subject to an annual dollar limitation (sec. 402(g)) 17 and distribution restrictions. In addition, elective deferrals under a section

401(k) plan are subject to special nondiscrimination rules. Elective

deferrals that do not exceed the annual dollar limitation (and earnings attributable thereto) are not includible in a participant’s gross

income until distributed from the plan.

Elective deferrals for a taxable year that exceed the annual

dollar limitation (‘‘excess deferrals’’) are includible in gross income

for the taxable year. If an employee makes elective deferrals under

a plan (or plans) of a single employer that exceed the annual dollar

limitation (‘‘excess deferrals’’), then the plan may provide for the

distribution of the excess deferrals, with earnings thereon. If the

excess deferrals are made to more than one plan of unrelated employers, then the plan may permit the individual to allocate excess

deferrals among the various plans, no later than the March 1

(April 15 under the applicable regulations) following the end of the

taxable year. If excess deferrals are distributed not later than April

15 following the end of the taxable year, along with earnings attributable to the excess deferrals, then the excess deferrals are not

again includible in income when distributed. The earnings are includible in income in the year distributed. If excess deferrals (and

income thereon) are not distributed by the applicable April 15, then

the excess deferrals (and income thereon) are includible in income

255

18 Early distributions of converted amounts may also accelerate income inclusion of converted

amounts that are taxable under the 4-year rule applicable to 1998 conversions. 19 A qualified special purpose distribution, as defined under the rules relating to Roth IRAs,

does not qualify as a tax-free distribution from a designated plus contributions account.

when received by the participant. Thus, excess deferrals that are

not distributed by the applicable April 15th are taxable both in the

taxable year when the deferral was made and in the year the participant receives a distribution of the excess deferral.

Individuals with adjusted gross income below certain levels

generally may make nondeductible contributions to a Roth IRA and

may convert a deductible or nondeductible IRA into a Roth IRA.

Amounts held in a Roth IRA that are withdrawn as a qualified distribution are not includible in income, nor subject to the additional

10-percent tax on early withdrawals. A qualified distribution is a

distribution that (1) is made after the 5-taxable year period beginning with the first taxable year for which the individual made a

contribution to a Roth IRA, and (2) is made after attainment of age

591⁄2, is made on account of death or disability, or is a qualified

special purpose distribution (i.e., for first-time homebuyer expenses

of up to $10,000). A distribution from a Roth IRA that is not a

qualified distribution is includible in income to the extent attributable to earnings, and is subject to the 10-percent tax on early

withdrawals (unless an exception applies).18

HOUSE BILL

A section 401(k) plan or a section 403(b) annuity is permitted

to include a ‘‘qualified plus contribution program’’ that permits a

participant to elect to have all or a portion of the participant’s elective deferrals under the plan treated as designated plus contributions. Designated plus contributions are elective deferrals that the

participant designates as not excludable from the participant’s

gross income.

The annual dollar limitation on a participant’s designated plus

contributions is the section 402(g) annual limitation on elective deferrals, reduced by the participant’s elective deferrals that the participant does not designate as designated plus contributions. Designated plus contributions are treated as any other elective deferral

for purposes of nonforfeitability requirements and distribution restrictions. Under a section 401(k) plan, designated plus contributions also are treated as any other elective deferral for purposes of

the special nondiscrimination requirements.

The plan is required to establish a separate account, and maintain separate recordkeeping, for a participant’s designated plus

contributions (and earnings allocable thereto). A qualified distribution from a participant’s designated plus contributions account is

not includible in the participant’s gross income. A qualified distribution is a distribution that is made after the end of a specified

nonexclusion period and that is (1) made on or after the date on

which the participant attains age 591⁄2, (2) made to a beneficiary

(or to the estate of the participant) on or after the death of the participant, or (3) attributable to the participant’s being disabled.19

The nonexclusion period is the 5-year-taxable period beginning

with the earlier of (1) the first taxable year for which the participant made a designated plus contribution to any designated plus

256

contribution account established for the participant under the plan,

or (2) if the participant has made a rollover contribution to the designated plus contribution account that is the source of the distribution from a designated plus contribution account established for the

participant under another plan, the first taxable year for which the

participant made a designated plus contribution to the previously

established account.

A distribution from a designated plus contributions account

that is a corrective distribution of an elective deferral (and income

allocable thereto) that exceeds the section 402(g) annual limit on

elective deferrals is not a qualified distribution.

A participant is permitted to roll over a distribution from a

designated plus contributions account only to another designated

plus contributions account or a Roth IRA of the participant.

The Secretary of the Treasury is directed to require the plan

administrator of each section 401(k) plan or section 403(b) annuity

that permits participants to make designated plus contributions to

make such returns and reports regarding designated plus contributions to the Secretary, plan participants and beneficiaries, and

other persons that the Secretary may designate.

Effective date.—The House bill is effective for taxable years beginning after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

that the Senate amendment refers to designated plus contributions

as ‘‘Roth contributions.’’

The Senate amendment also includes additional clarifications

in the legislative history. The Senate amendment provides that it

is intended that the Secretary generally will not permit retroactive

designations of elective deferrals as Roth contributions. The Senate

amendment also clarifies that Roth contributions to a section

403(b) annuity are treated the same as other salary reduction contributions to the annuity (except that Roth contributions are includible in gross income). The Senate amendment provides that it

is intended that the Secretary will provide ordering rules regarding

the return of excess contributions under the special nondiscrimination rules (pursuant to sec. 401(k)(8)) in the event a participant has

made both Roth contributions and regular elective contributions. It

is intended that such rules will generally permit a plan to allow

participants to designate which contributions are returned first or

to permit the plan to specify which contributions are returned first.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment. The

conference agreement clarifies the treatment of excess deferrals to

the extent attributable to excess Roth contributions. In general, the

conference agreement conforms the treatment of excess Roth contributions to the treatment of excess deferrals attributable to nonRoth elective deferrals. If excess Roth contributions (including

earnings thereon) are distributed no later than the April 15th following the taxable year, then the Roth contributions are not includible in gross income as a result of the distribution, because such

contributions are includible in gross income when made. Earnings

257

on such excess contributions are treated the same as earnings on

excess deferrals distributed no later than April 15th, i.e., they are

includible in income when distributed. If excess Roth contributions

are not distributed no later than the applicable April 15th, then

such contributions (and earnings thereon) are taxable when distributed. Thus, as is the case with excess elective deferrals that are not

distributed by the applicable April 15th, the contributions are includible in income in the year when made and again when distributed from the plan. Earnings on such contributions are taxable

when received.

It is intended that the Secretary will provide ordering rules regarding the return of excess deferrals in the event a participant

has made both Roth contributions and regular contributions to the

plan. It is intended that such rules will generally permit a plan to

allow participants to designate which contributions are returned

first or to permit the plan to specify which contributions are returned first. It is also intended that the Secretary will provide ordering rules to determine the extent to which a distribution consists of excess Roth contributions.

Subtitle C. Enhancing Fairness for Women (secs. 421–427 of the

bill)

A. ADDITIONAL SALARY REDUCTION CATCH-UP CONTRIBUTIONS (sec.

301 of the House bill, sec. 301 of the Senate amendment, and sec.

414 of the Code)

PRESENT LAW

Elective deferral limitations

Under present law, under certain salary reduction arrangements, an employee may elect to have the employer make payments as contributions to a plan on behalf of the employee, or to

the employee directly in cash. Contributions made at the election

of the employee are called elective deferrals.

The maximum annual amount of elective deferrals that an individual may make to a qualified cash or deferred arrangement (a

‘‘401(k) plan’’), a tax-sheltered annuity (‘‘section 403(b) annuity’’) or

a salary reduction simplified employee pension plan (‘‘SEP’’) is

$10,500 (for 2000). The maximum annual amount of elective deferrals that an individual may make to a SIMPLE plan is $6,000.

These limits are indexed for inflation in $500 increments.

Section 457 plans

The maximum annual deferral under a deferred compensation

plan of a State or local government or a tax-exempt organization

(a ‘‘section 457 plan’’) is the lesser of (1) $8,000 (for 2000) or (2)

331⁄3 percent of compensation. The $8,000 dollar limit is indexed for

inflation in $500 increments. Under a special catch-up rule, the

section 457 plan may provide that, for one or more of the participant’s last 3 years before retirement, the otherwise applicable limit

is increased to the lesser of (1) $15,000 or (2) the sum of the otherwise applicable limit for the year plus the amount by which the

limit applicable in preceding years of participation exceeded the deferrals for that year.

258

20 Another provision of the bill increases the dollar limit on elective deferrals under such arrangements. 21 In the case of a section 457 plan, this catch-up rule does not apply during the participant’s

last 3 years before retirement (in those years, the regularly applicable dollar limit is doubled). 22 Another provision of the bill provides that elective contributions are deductible without regard to the otherwise applicable deduction limits. 23 Another provision of the bill provides for catch-up contributions to IRAs. 24 A plan is not required to permit participants to make catch-up contributions.

HOUSE BILL

The provision provides that the otherwise applicable dollar

limit on elective deferrals under a section 401(k) plan, section

403(b) annuity, or SIMPLE, or deferrals under a section 457 plan

are increased for individuals who have attained age 50 by the end

of the year.20 Additional contributions are permitted to be made by

an individual who has attained age 50 before the end of the plan

year and with respect to whom no other elective deferrals may otherwise be made to the plan for the year because of the application

of any limitation of the Code (e.g., the annual limit on elective deferrals) or of the plan. Under the provision, the additional amount

of elective contributions that are permitted to be made by an eligible individual participating in such a plan is the lesser of (1)

$5,000, or (2) the participant’s compensation for the year reduced

by any other elective deferrals of the participant for the year.21

This $5,000 amount is indexed for inflation in $500 increments in

2006 and thereafter.

Catch-up contributions made under the provision are not subject to any other contribution limits and are not taken into account

in applying other contribution limits. Such contributions are subject to applicable nondiscrimination rules.22

An employer is permitted to make matching contributions with

respect to catch-up contributions. Any such matching contributions

are subject to the normally applicable rules.

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

SENATE AMENDMENT

The bill provides that individuals who have attained age 50

may be permitted to make additional catch-up elective contributions to employer-sponsored retirement plans.23

In the case of employer-sponsored retirement plans, the provision applies to elective deferrals under a section 401(k) plan, section 403(b) annuity, SIMPLE, or a section 457 plan. Additional contributions may be made by an individual who has attained age 50

before the end of the plan year and with respect to whom no other

elective deferrals may otherwise be made to the plan for the year

because of the application of any limitation of the Code (e.g., the

annual limit on elective deferrals) or of the plan.24 Under the bill,

the additional amount of elective contributions that could be made

by an eligible individual participating in such a plan is the lesser

of (1) the applicable percent of the maximum dollar amount of elective deferrals otherwise excludable from the gross income of the

participant for the year (under sec. 402(g)) or (2) the participant’s

compensation for the year reduced by any other elective deferrals

259

25 In the case of a section 457 plans, this catch-up rule does not apply during the participant’s

last 3 years before retirement. Under another provision in the bill, in those years, the regularly

applicable dollar limit is doubled.

of the participant for the year.25 The applicable percent is 10 percent in 2001, and increases by 10 percentage points until the applicable percent is 50 in 2005 and thereafter.

Catch-up contributions made under the bill are not subject to

any other contribution limits and are not taken into account in applying other contribution limits. In addition, such contributions are

not subject to otherwise applicable nondiscrimination rules or the

top-heavy rules.

An employer is permitted to make matching contributions with

respect to catch-up contributions. Any such matching contributions

are subject to the normally applicable rules.

Effective date.—The provision is effective for contributions in

taxable years beginning after December 31, 2000.

CONFERENCE AGREEMENT

The conference agreement follows the House bill, with a modification. Although catch-up contributions are subject to applicable

nondiscrimination rules, a plan will not be treated as failing to

meet the applicable nondiscrimination requirements under section

401(a)(4) with respect to benefits, rights, and features if the plan

allows all eligible individuals participating in the plan to make the

same election with respect to catch-up contributions. For purposes

of this rule, all plans of related employers are treated as a single

plan.

B. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO

DEFINED CONTRIBUTION PLANS (sec. 302 of the House bill, sec.

302 of the Senate amendment and secs. 413(b), 415, and 452 of

the Code)

PRESENT LAW

Present law imposes limits on the contributions that may be

made to tax-favored retirement plans.

Defined contribution plans

In the case of a tax-qualified defined contribution plan, the

limit on annual additions that can be made to the plan on behalf

of an employee is the lesser of $30,000 (for 2000) or 25 percent of

the employee’s compensation (sec. 415(c)). Annual additions include

employer contributions, including contributions made at the election of the employee (i.e., employee elective deferrals), after-tax employee contributions, and any forfeitures allocated to the employee.

For this purpose, compensation means taxable compensation of the

employee, plus elective deferrals, and similar salary reduction contributions. A separate limit applies to benefits under a defined benefit plan.

For years before January 1, 2000, an overall limit applies if an

employee is a participant in both a defined contribution plan and

a defined benefit plan of the same employer.

260

Tax-sheltered annuities

In the case of a tax-sheltered annuity (a ‘‘section 403(b) annuity’’), the annual contribution generally cannot exceed the lesser of

the exclusion allowance or the section 415(c) defined contribution

limit. The exclusion allowance for a year is equal to 20 percent of

the employee’s includible compensation, multiplied by the employee’s years of service, minus excludable contributions for prior years

under qualified plans, tax-sheltered annuities or section 457 plans

of the employer.

In addition to this general rule, employees of nonprofit educational institutions, hospitals, home health service agencies,

health and welfare service agencies, and churches may elect application of one of several special rules that increase the amount of

the otherwise permitted contributions. The election of a special rule

is irrevocable; an employee may not elect to have more than one

special rule apply.

Under one special rule, in the year the employee separates

from service, the employee may elect to contribute up to the exclusion allowance, without regard to the 25 percent of compensation

limit under section 415. Under this rule, the exclusion allowance

is determined by taking into account no more than 10 years of

service.

Under a second special rule, the employee may contribute up

to the lesser of: (1) the exclusion allowance; (2) 25 percent of the

participant’s includible compensation; or (3) $15,000.

Under a third special rule, the employee may elect to contribute up to the section 415(c) limit, without regard to the exclusion allowance. If this option is elected, then contributions to other

plans of the employer are also taken into account in applying the

limit.

For purposes of determining the contribution limits applicable

to section 403(b) annuities, includible compensation means the

amount of compensation received from the employer for the most

recent period which may be counted as a year of service under the

exclusion allowance. In addition, includible compensation includes

elective deferrals and similar salary reduction amounts.

Treasury regulations include provisions regarding application

of the exclusion allowance in cases where the employee participates

in a section 403(b) annuity and a defined benefit plan. The Taxpayer Relief Act of 1997 directed the Secretary of the Treasury to

revise these regulations, effective for years beginning after December 31, 1999, to reflect the repeal of the overall limit on contributions and benefits.

Section 457 plans

Compensation deferred under an eligible deferred compensation plan of a tax-exempt or State and local governmental employer

(a ‘‘section 457 plan’’) is not includible in gross income until paid

or made available. In general, the maximum permitted annual deferral under such a plan is the lesser of (1) $8,000 (in 2000) or (2)

331⁄3 percent of compensation. The $8,000 limit is increased for inflation in $500 increments.

261

26 Another provision of the bill increases the defined contribution plan dollar limit.

HOUSE BILL

Increase in defined contribution plan limit

The bill increases the 25 percent of compensation limitation on

annual additions under a defined contribution plan to 100 percent.26

Conforming limits on tax-sheltered annuities

The bill repeals the exclusion allowance applicable to contributions to tax-sheltered annuities. Thus, such annuities are subject to

the limits applicable to tax-qualified plans.

The bill also directs the Secretary of the Treasury to revise the

regulations relating to the exclusion allowance under section

403(b)(2) to render void the requirement that contributions to a defined benefit plan be treated as previously excluded amounts for

purposes of the exclusion allowance. For taxable years beginning

after December 31, 1999, the regulatory provisions regarding the

exclusion allowance are to be applied as if the requirement that

contributions to a defined benefit plan be treated as previously excluded amounts for purposes of the exclusion allowance were void.

Section 457 plans

The bill increases the 331⁄3 percent of compensation limitation

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

Effective date

The provision generally is effective for years beginning after

December 31, 2000. The provision regarding the regulations under

section 403(b)(2) is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

C. FASTER VESTING OF EMPLOYER MATCHING CONTRIBUTIONS (sec.

303 of the House bill, sec. 303 of the Senate amendment, and sec.

411 of the Code)

PRESENT LAW

Under present law, a plan is not a qualified plan unless a participant’s employer-provided benefit vests at least as rapidly as

under one of two alternative minimum vesting schedules. A plan

satisfies the first schedule if a participant acquires a nonforfeitable

right to 100 percent of the participant’s accrued benefit derived

from employer contributions upon the completion of 5 years of service. A plan satisfies the second schedule if a participant has a nonforfeitable right to at least 20 percent of the participant’s accrued

benefit derived from employer contributions after 3 years of service,

262

27The minimum vesting requirements are also contained in Title I of the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’).

40 percent after 4 years of service, 60 percent after 5 years of service, 80 percent after 6 years of service, and 100 percent after 7

years of service.27

HOUSE BILL

The bill applies faster vesting schedules to employer matching

contributions. Under the provision, employer matching contributions must vest at least as rapidly as under one of the following

two alternative minimum vesting schedules. A plan satisfies the

first schedule if a participant acquires a nonforfeitable right to 100

percent of employer matching contributions upon the completion of

3 years of service. A plan satisfies the second schedule if a participant has 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.

Effective date.—The provision is effective for contributions for

plan years beginning after December 31, 2000, with a delayed effective date for plans maintained pursuant to a collective bargaining agreement. The provision does not apply to any employee

until the employee has an hour of service after the effective date.

In applying the new vesting schedule, service before the effective

date must be taken into account.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

D. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES (sec.

304 of the House bill, sec. 304 of the Senate amendment, and

secs. 401(a)19 and 457 of the Code)

PRESENT LAW

In general

Minimum distribution rules apply to all types of tax-favored

retirement vehicles, including qualified plans, individual retirement arrangements (‘‘IRAs’’), tax-sheltered annuities (‘‘section

403(b) annuities’’), and eligible deferred compensation plans of taxexempt and State and local government employers (‘‘section 457

plans’’). In general, under these rules, distribution of minimum

benefits must begin no later than the required beginning date.

Minimum distribution rules also apply to benefits payable with respect to a plan participant who has died. Failure to comply with

the minimum distribution rules results in an excise tax imposed on

the individual plan participant equal to 50 percent of the required

minimum distribution not distributed for the year. The excise tax

can be waived if the individual establishes to the satisfaction of the

263

28State and local government plans and church plans are not required to actuarially increase

benefits that begin after age 701⁄2.

Secretary that the shortfall in the amount distributed was due to

reasonable error and reasonable steps are being taken to remedy

the shortfall.

Distributions prior to the death of the individual

In the case of distributions prior to the death of the plan participant, the minimum distribution rules are satisfied if either (1)

the participant’s entire interest in the plan is distributed by the required beginning date, or (2) the participant’s interest in the plan

is to be distributed (in accordance with regulations), beginning not

later than the required beginning date, over a permissible period.

The permissible periods are (1) the life of the participant, (2) the

lives of the participant and a designated beneficiary, (3) the life expectancy of the participant, or (4) the joint life and last survivor

expectancy of the participant and a designated beneficiary. In calculating minimum required distributions, life expectancies of the

participant and the participant’s spouse may be recomputed annually.

In the case of qualified plans, tax-sheltered annuities, and section 457 plans, the required beginning date is the April 1 of the

calendar year following the later of (1) the calendar year in which

the employee attains age 701⁄2 or (2) the calendar year in which the

employee retires. However, in the case of a 5-percent owner of the

employer, distributions are required to begin no later than the

April 1 of the calendar year following the year in which the 5-percent owner attains age 701⁄2. If commencement of benefits is delayed beyond age 701⁄2 from a defined benefit plan, then the accrued benefit of the employee must be actuarially increased to take

into account the period after age 701⁄2 in which the employee was

not receiving benefits under the plan.28 In the case of distributions

from an IRA other than a Roth IRA, the required beginning date

is the April 1 following the calendar year in which the IRA owner

attains age 701⁄2. The pre-death minimum distribution rules do not

apply to Roth IRAs.

In general, under proposed regulations, in order to satisfy the

minimum distribution rules, annuity payments under a defined

benefit plan must be paid in periodic payments made at intervals

not longer than one year over a permissible period, and must be

nonincreasing, or increase only as a result of the following: (1) costof-living adjustments; (2) cash refunds of employee contributions;

(3) benefit increases under the plan; or (4) an adjustment due to

death of the employee’s beneficiary. In the case of a defined contribution plan, the minimum required distribution is determined by

dividing the employee’s benefit by the applicable life expectancy.

Distributions after the death of the plan participant

The minimum distribution rules also apply to distributions to

beneficiaries of deceased participants. In general, if the participant

dies after minimum distributions have begun, the remaining interest must be distributed at least as rapidly as under the minimum

distribution method being used as of the date of death. If the parVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00267 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
264

ticipant dies before minimum distributions have begun, then the

entire remaining interest must generally be distributed within 5

years of the participant’s death. The 5-year rule does not apply if

distributions begin within 1 year of the participant’s death and are

payable over the life of a designated beneficiary or over the life expectancy of a designated beneficiary. A surviving spouse beneficiary

is not required to begin distribution until the date the deceased

participant would have attained age 701⁄2.

HOUSE BILL

Modification of post-death distribution rules

The provision applies the present-law rules applicable if the

participant dies before distribution of minimum benefits has begun

to all post-death distributions. Thus, in general, if the employee

dies before his or her entire interest has been distributed, distribution of the remaining interest is required to be made within 5 years

of the date of death, or begin within one year of the date of death

and paid over the life or life expectancy of a designated beneficiary.

In the case of a surviving spouse, distributions are not required to

begin until the April 1 of the calendar year following the year in

which the surviving spouse attains age 701⁄2. Minimum distributions that have already begun could be recalculated under the new

rule.

Reduction in excise tax

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.

Treasury regulations

The Secretary of the Treasury is directed to update, simplify,

and finalize the regulations relating to the minimum distribution

rules and to reflect in such regulations current life expectancies

and to revise the required distribution methods so that, under reasonable assumptions, the amount of the required distribution does

not decrease over time. The regulations are to permit recalculation

of distributions for future years to reflect the change in the regulations, and to permit the election of a new designated beneficiary

and method of calculating life expectancy. The regulations are to

be effective for years beginning after December 31, 2000, and are

to apply to individuals regardless of whether minimum distributions had begun.

Effective date

In general, the provision is effective for years beginning after

December 31, 2000. The provision regarding Treasury regulations

is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

that the Senate amendment provides that final Treasury regulations are to be issued no later than December 31, 2001, and the

265

Senate amendment does not require that such regulations are to be

effective for years beginning after December 31, 2000.

Effective date.—Same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment.

Effective date.—In general, the provision is effective for years

beginning after December 31, 2000. The provision regarding Treasury regulations is effective on the date of enactment. The conference agreement also provides a transition rule with respect to

the provision providing that the required beginning date in the

case of a surviving spouse is no earlier than April 1 of the calendar

year after the surviving spouse attains age 701⁄2. The conference

agreement provides that, in the case of an individual who died before the date of enactment and prior to his or her required beginning date and whose beneficiary is the surviving spouse, minimum

distributions to the surviving spouse are not required to begin earlier than the date distributions would have been required to begin

under present law.

E. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457

PLAN BENEFITS UPON DIVORCE (sec. 305 of the House bill, sec.

305 of the Senate amendment, and sec. 457 of the Code)

PRESENT LAW

Under present law, benefits provided under a qualified retirement plan for a participant may not be assigned or alienated to

creditors of the participant, except in very limited circumstances.

One exception to the prohibition on assignment or alienation rule

is a qualified domestic relations order (‘‘QDRO’’). A QDRO is a domestic relations order that creates or recognizes a right of an alternate payee to any plan benefit payable with respect to a participant, and that meets certain procedural requirements.

Under present law, a distribution from a governmental plan or

a church plan is treated as made pursuant to a QDRO if it is made

pursuant to a domestic relations order that creates or recognizes a

right of an alternate payee to any plan benefit payable with respect

to a participant. Such distributions are not required to meet the

procedural requirements that apply with respect to distributions

from qualified plans.

Under present law, amounts distributed from a qualified plan

generally are taxable to the participant in the year of distribution.

However, if amounts are distributed to the spouse (or former

spouse) of the participant by reason of a QDRO, the benefits are

taxable to the spouse (or former spouse). Amounts distributed pursuant to a QDRO to an alternate payee other than the spouse (or

former spouse) are taxable to the plan participant.

Section 457 of the Internal Revenue Code provides rules for deferral of compensation by an individual participating in an eligible

deferred compensation plan (‘‘section 457 plan’’) of a tax-exempt or

State and local government employer. The QDRO rules do not

apply to section 457 plans.

266

29Treas. Reg. sec. 1.401(k)–1.

HOUSE BILL

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 special rule applicable to governmental plans and

church plans applies for purposes of determining whether a distribution is pursuant to a QDRO.

Effective date.—The provision is effective for transfers, distributions, and payments made after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, with a

modification to the effective date.

Effective date.—The provision relating to taxation of distributions is effective for transfers, distributions, and payments made

after December 31, 2000. The other provisions are effective on January 1, 2001, except that, in the case of a domestic relations order

entered into before such date, the plan administrator (1) shall treat

such order as a QDRO if the administrator is paying benefits pursuant to the order and (2) may treat any other such order entered

into before the effective date as a QDRO.

CONFERENCE AGREEMENT

The conference agreement follows the House bill.

F. MODIFICATIONS RELATING TO HARDSHIP WITHDRAWALS (sec. 306

of the House bill, sec. 306 of the Senate amendment and secs.

401(k) and 402 of the Code)

PRESENT LAW

Elective deferrals under a qualified cash or deferred arrangement (a ‘‘section 401(k) plan’’) may not be distributable prior to the

occurrence of one or more specified events. One event upon which

distribution is permitted is the financial hardship of the employee.

Applicable Treasury regulations 29 provide that a distribution is

made on account of hardship only if the distribution is made on account of an immediate and heavy financial need of the employee

and is necessary to satisfy the heavy need.

The Treasury regulations provide a safe harbor under which a

distribution may be deemed necessary to satisfy an immediate and

heavy financial need. One requirement of this safe harbor is that

the employee be prohibited from making elective contributions and

employee contributions to the plan and all other plans maintained

by the employer for at least 12 months after receipt of the hardship

distribution.

Under present law, hardship withdrawals of elective deferrals

from a qualified cash or deferred arrangement (or 403(b) annuity)

are not eligible rollover distributions. Other types of hardship distributions, e.g., employer matching contributions distributed on acVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00270 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
267

count of hardship, are eligible rollover distributions. Different withholding rules apply to distributions that are eligible rollover distributions and to distributions that are not eligible rollover distributions. Eligible rollover distributions that are not directly rolled

over are subject to withholding at a flat rate of 20-percent. Distributions that are not eligible rollover distributions are subject to

elective withholding. Periodic distributions are subject to withholding as if the distribution were wages; nonperiodic distributions

are subject to withholding at a rate of 10 percent. In either case,

the individual may elect not to have withholding apply.

HOUSE BILL

The Secretary of the Treasury is directed to revise the applicable regulations 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 revised regulations are to be effective for years beginning after December 31, 2000.

Effective date.—The provision is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

that the Senate amendment also provides that any hardship distribution made pursuant to the terms of a plan is not an eligible

rollover distribution. Thus, such distributions may not be rolled

over, and are subject to the withholding rules applicable to distributions that are not eligible rollover distributions. The bill does

not modify the rules under which hardship distributions may be

made. For example, as under present law, hardship distributions of

qualified employer matching contributions may only be made under

the rules applicable to elective deferrals.

Effective date.—The provision directing the Secretary to revise

the rules relating to safe harbor hardship distributions is effective

on the date of enactment.

The provision providing that hardship distributions are not eligible rollover distributions is effective for distributions made after

December 31, 2000. The Secretary has the authority to issue transitional guidance with respect to this provision to provide sufficient

time for plans to implement the new rule.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment.

Effective date.—The provision directing the Secretary to revise

the regulations relating to safe harbor hardship distributions is effective on the date of enactment. The provision relating to rollover

of hardship distributions is generally effective for distributions

after December 31, 2001. For distributions occurring during calendar year 2001, a plan may treat a distribution that is a hardship

distribution under the terms of the plan as not an eligible rollover

distribution for all purposes of the Code. Thus, for example, if a

plan treats a hardship distribution made in 2001 as not an eligible

268

rollover distribution, the distribution could not be rolled over and

the withholding rules applicable to distributions that are not eligible rollover distributions would apply.

G. PENSION COVERAGE FOR DOMESTIC AND SIMILAR WORKERS (sec.

307 of the Senate amendment and sec. 4972 of the Code)

PRESENT LAW

Under present law, within limits, employers may make deductible contributions to qualified retirement plans for employees. Subject to certain exceptions, a 10-percent excise tax applies to nondeductible contributions to such plans.

Employers of household workers may establish a pension plan

for such workers. Contributions to such plans are not deductible

because they are not made in connection with a trade or business

of the employer.

HOUSE BILL

No provision.

SENATE AMENDMENT

Under the provision, the 10-percent excise tax on nondeductible contributions does not apply to contributions to a SIMPLE plan

or a SIMPLE IRA which are nondeductible solely because the contributions are not a trade or business expense under section 162

because they are not made in connection with a trade or business

of the employer. Thus, for example, employers of household workers could make contributions to such plans without imposition of

the excise tax. As under present law, the contributions are not deductible. The present-law rules applicable to such plans, e.g., contribution limits and nondiscrimination rules, continue to apply. The

provision does not apply with respect to contributions on behalf of

the employer and members of his or her family.

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

CONFERENCE AGREEMENT

The conference follows the Senate amendment, except that the

conference agreement does not limit the waiver of the excise tax to

contributions to a SIMPLE plan or SIMPLE IRA. The conference

agreement 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. Thus, for example, employers of household

workers could make contributions to such plans without imposition

of the excise tax. As under present law, the contributions are not

deductible. The present-law rules applicable to such plans, e.g.,

contribution limits and nondiscrimination rules, continue to apply.

The provision does not apply with respect to contributions on behalf of the employer and members of his or her family. For this

purpose, family members include the individual, the individual’s

brothers and sisters, the brothers and sisters of the individual’s

269

30 A ‘‘traditional’’ IRA refers to IRAs other than Roth IRAs or SIMPLE IRAs. All references

to IRAs in the description of this provision refer only to traditional IRAs. 31 An eligible rollover distribution may either be rolled over by the distributee within 60 days

of the date of the distribution or, as described below, directly rolled over by the distributing

plan.

parents and grandparents, and ancestors and lineal descendants of

the foregoing, and a spouse of any of the foregoing.

No inference is intended with respect to application of the excise tax under present law to contributions that are not deductible

because they are not made in connection with a trade or business

of the employer.

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

Subtitle D. Increasing Portability for Participants (secs. 431–439 of

the bill)

A. ROLLOVERS OF RETIREMENT PLAN AND IRA DISTRIBUTIONS (secs.

401–403 of the House bill, sec. 401–403 of the Senate amendment and secs. 401, 402, 403(b), 408, 457, and 3405 of the Code)

PRESENT LAW

In general

Present law permits the rollover of funds from a tax-favored

retirement plan to another tax-favored retirement plan. The rules

that apply depend on the type of plan involved. Similarly, the rules

regarding the tax treatment of amounts that are not rolled over depend on the type of plan involved.

Distributions from qualified plans

Under present law, an ‘‘eligible rollover distribution’’ from a

tax-qualified employer-sponsored retirement plan may be rolled

over tax free to a traditional individual retirement arrangement

(‘‘IRA’’) 30 or another qualified plan.31 An ‘‘eligible rollover distribution’’ means any distribution to an employee of all or any portion

of the balance to the credit of the employee in a qualified plan, except the term does not include (1) any distribution which is one of

a series of substantially equal periodic payments made (a) for the

life (or life expectancy) of the employee or the joint lives (or joint

life expectancies) of the employee and the employee’s designated

beneficiary, or (b) for a specified period of 10 years or more, (2) any

distribution to the extent such distribution is required under the

minimum distribution rules, and (3) certain hardship distributions.

The maximum amount that can be rolled over is the amount of the

distribution includible in income, i.e., after-tax employee contributions cannot be rolled over. Qualified plans are not required to accept rollovers.

Distributions from tax-sheltered annuities

Eligible rollover distributions from a tax-sheltered annuity

(‘‘section 403(b) annuity’’) may be rolled over into an IRA or another section 403(b) annuity. Distributions from a section 403(b)

annuity cannot be rolled over into a tax-qualified plan. Section

403(b) annuities are not required to accept rollovers.

270

32Distributions from qualified plans and section 403(b) annuities that are not eligible rollover

distributions are subject to elective withholding. Periodic distributions are subject to withholding as if the distribution were wages; nonperiodic distributions are subject to withholding

at a rate of 10 percent. In either case, the individual may elect not to have withholding apply.

IRA distributions

Distributions from a traditional IRA, other than minimum required distributions, can be rolled over into another IRA. In general, distributions from an IRA cannot be rolled over into a qualified plan or section 403(b) annuity. An exception to this rule applies in the case of so-called ‘‘conduit IRAs.’’ Under the conduit IRA

rule, amounts can be rolled from a qualified plan into an IRA and

then subsequently rolled back to another qualified plan if the

amounts in the IRA are attributable solely to rollovers from a

qualified plan. Similarly, an amount may be rolled over from a section 403(b) annuity to an IRA and subsequently rolled back into a

section 403(b) annuity if the amounts in the IRA are attributable

solely to rollovers from a section 403(b) annuity.

Distributions from section 457 plans

A ‘‘section 457 plan’’ is an eligible deferred compensation plan

of a State or local government or tax-exempt employer that meets

certain requirements. In some cases, different rules apply under

section 457 to governmental plans and plans of tax-exempt employers. For example, governmental section 457 plans are like qualified

plans in that plan assets are required to be held in a trust for the

exclusive benefit of plan participants and beneficiaries. In contrast,

benefits under a section 457 plan of a tax-exempt employer are unfunded, like nonqualified deferred compensation plans of private

employers.

Section 457 benefits can be transferred to another section 457

plan. Distributions from a section 457 plan cannot be rolled over

to another section 457 plan, a qualified plan, a section 403(b) annuity, or an IRA.

Rollovers by surviving spouses

A surviving spouse that receives an eligible rollover distribution may roll over the distribution into an IRA, but not a qualified

plan or section 403(b) annuity.

Direct rollovers and withholding requirements

Qualified plans and section 403(b) annuities are required to

provide that a plan participant has the right to elect that an eligible rollover distribution be directly rolled over to another eligible

retirement plan. If the plan participant does not elect the direct

rollover option, then withholding is required on the distribution at

a 20-percent rate.32

The direct rollover rules do not apply to section 457 plans. Distributions from a section 457 plan are subject to wage withholding.

Notice of eligible rollover distribution

The plan administrator of a qualified plan or a section 403(b)

annuity is required to provide a written explanation of rollover

rules to individuals who receive a distribution eligible for rollover.

In general, the notice is to be provided within a reasonable period

271

33The elective withholding rules applicable to distributions from qualified plans and section

403(b) annuities that are not eligible rollover distributions are also extended to distributions

from governmental section 457 plans. Thus, periodic distributions from governmental section

457 plans that are not eligible rollover distributions are subject to withholding as if the distribution were wages and nonperiodic distributions from such plans that are not eligible rollover distributions are subject to withholding at a 10-percent rate. In either case, the individual may

elect not to have withholding apply.

of time before making the distribution and is to include an explanation of (1) the provisions under which the individual may have

the distribution directly rolled over to another eligible retirement

plan, (2) the provision that requires withholding if the distribution

is not directly rolled over, (3) the provision under which the distribution may be rolled over within 60 days of receipt, and (4) if

applicable, certain other rules that may apply to the distribution.

The Secretary has provided more specific guidance regarding timing and content of the notice and has issued a safe harbor notice

that is deemed to satisfy the requirements regarding the content

of the notice.

Taxation of distributions

As is the case with the rollover rules, different rules regarding

taxation of benefits apply to different types of tax-favored arrangements. In general, distributions from a qualified plan, section

403(b) annuity, or IRA are includible in income in the year received. In certain cases, distributions from qualified plans are eligible for capital gains treatment and averaging. These rules do not

apply to distributions from another type of plan. Distributions from

a qualified plan, IRA, and section 403(b) annuity generally are subject to an additional 10-percent early withdrawal tax if made before

age 591⁄2. There are a number of exceptions to the early withdrawal

tax. Some of the exceptions apply to all three types of plans, and

others apply only to certain types of plans. For example, the 10-

percent early withdrawal tax does not apply to IRA distributions

for educational expenses, but does apply to similar distributions

from qualified plans and section 403(b) annuities. Benefits under a

section 457 plan are generally includible in income when paid or

made available. The 10-percent early withdrawal tax does not

apply to section 457 plans.

HOUSE BILL

In general

The bill provides that eligible rollover distributions from qualified retirement plans, section 403(b) annuities, and governmental

section 457 plans generally may be rolled over to any of such plans

or arrangements. Similarly, distributions from an IRA generally

may be rolled over into a qualified plan, section 403(b) annuity, or

governmental section 457 plan. The direct rollover and withholding

rules are extended to distributions from a governmental section

457 plan, and such plans are required to provide the written notification regarding eligible rollover distributions.33 The rollover notice

(with respect to all plans) is required to include a description of the

provisions under which distributions from the plan to which the

distribution is rolled over may be subject to restrictions and tax

consequences different than those applicable to distributions from

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the distributing plan. Qualified plans, section 403(b) annuities, and

section 457 plans are not required to accept rollovers.

Some special rules apply in certain cases. A distribution from

a qualified plan is not eligible for capital gains or averaging treatment if there was a rollover to the plan that would not have been

permitted under present law. Thus, in order to preserve capital

gains and averaging treatment for a qualified plan distribution

that is rolled over, the rollover must be made to a ‘‘conduit IRA’’

as under present law, and then rolled back into a qualified plan.

Amounts distributed from a section 457 plan are subject to the

early withdrawal tax to the extent the distribution consists of

amounts attributable to rollovers from another type of plan. Section

457 plans are required to separately account for such amounts.

Rollover of after-tax contributions

The bill provides that employee after-tax contributions may 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 may be accomplished only through a direct rollover. In

addition, a qualified plan is permitted to accept rollovers of aftertax contributions only if the plan provides separate accounting for

such contributions (and earnings thereon). After-tax contributions

(including nondeductible contributions to an IRA) may not be rolled

over from an IRA into a qualified plan, tax-sheltered annuity, or

section 457 plan.

In the case of a distribution from a traditional IRA that is

rolled over into an eligible rollover plan that is not an IRA, the distribution is attributed first to amounts other than after-tax contributions.

Expansion of spousal rollovers

The bill provides that surviving spouses may roll over distributions to a qualified plan, section 403(b) annuity, or governmental

section 457 plan in which the surviving spouse participates.

Treasury regulations

The Secretary is directed to prescribe rules necessary to carry

out the provisions. Such rules may include, for example, reporting

requirements and mechanisms to address mistakes relating to rollovers. It is expected that the IRS will develop forms to assist individuals who roll over after-tax contributions to an IRA in keeping

track of such contributions. Such forms could, for example, expand

Form 8606—Nondeductible IRAs, to include information regarding

after-tax contributions.

Effective date

The provisions are effective for distributions after December

31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

Effective date.—The provisions are effective for distributions

after December 31, 2001.

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CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment. The conferees intend that the Secretary will revise

the safe harbor rollover notice that plans may use to satisfy the

rollover requirements. Until issuance of a new notice, the conferees

intend that a plan will be treated as complying with the notice requirement if the plan makes a reasonable, good faith effort to comply. For example, the bill requires that the rollover notice include

a description of the provisions under which distributions from the

eligible retirement plan receiving the distribution may be subject

to restrictions and tax consequences which are different from those

applicable to distributions from the plan making the distribution.

A plan will be treated as making a reasonable good faith effort to

comply with this requirement if the notice states that distributions

from the plan to which the rollover is made may be subject to different restrictions and tax consequences than those that apply to

distributions from the plan from which the rollover is made.

Effective date.—The provisions are effective for distributions

after December 31, 2000, except that the provision allowing aftertax contributions to be rolled over is effective for distributions after

December 31, 2001.

B. WAIVER OF 60-DAY RULE (sec. 404 of the House bill, sec. 404 of

the Senate amendment, and secs. 402 and 408 of the Code)

PRESENT LAW

Under present law, amounts received from an IRA or qualified

plan may be rolled over tax free if the rollover is made within 60

days of the date of the distribution. The Secretary does not have

the authority to waive the 60-day requirement.

HOUSE BILL

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.

Effective date.—The provision applies to distributions made

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

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34 A similar provision is contained in Title I of ERISA. 35Treas. reg. sec. 1.411(d)–4, Q&A–3, paragraph (b). 36Treas. reg. sec. 1.411(d)–4, Q&A–2, paragraph (e).

C. TREATMENT OF FORMS OF DISTRIBUTION (sec. 405 of the House

bill, sec. 405 of the Senate amendment, and sec. 411(d)(6) of the

Code)

PRESENT LAW

An amendment of a qualified retirement plan may not decrease

the accrued benefit of a plan participant. An amendment is treated

as reducing an accrued benefit if, with respect to benefits accrued

before the amendment is adopted, the amendment has the effect of

either (1) eliminating or reducing an early retirement benefit or a

retirement-type subsidy, or (2) except as provided by Treasury regulations, eliminating an optional form of benefit (sec. 411(d)(6)).34

The Treasury Department has recently issued final regulations

specifying situations in which optional forms of benefit may be

eliminated. These regulations provide that, if certain requirements

are satisfied, optional forms of benefit may be eliminated or reduced in connection with the voluntary transfer of benefits between

defined contribution plans in connection with an asset or stock acquisition, merger, or other similar transaction involving a change

in employer or in connection with the participant’s change in employment status to an employment status with respect to which the

participant is not entitled to additional allocations under the transferor plan.35 The regulations also permit defined contribution plans

to eliminate or restrict optional forms of benefit if the participant

is entitled to receive a single-sum distribution that is otherwise

identical to the optional form of benefit that is being eliminated or

restricted.36

A plan that is a transferee of a plan that is subject to the joint

and survivor rules is also subject to those rules.

HOUSE BILL

Transfers between defined contribution plans

A defined contribution plan to which benefits are transferred

is not treated as reducing a participant’s or beneficiary’s accrued

benefit even though it does not provide all of the forms of distribution previously available under the transferor plan if (1) the plan

receives from another defined contribution plan a direct transfer of

the participant’s or beneficiary’s benefit accrued under the transferor plan, or the plan results from a merger or other transaction

that has the effect of a direct transfer (including consolidations of

benefits attributable to different employers within a multiple employer plan), (2) the terms of both the transferor plan and the

transferee plan authorize the transfer, (3) the transfer occurs pursuant to a voluntary election by the participant or beneficiary that

is made after the participant or beneficiary received a notice describing the consequences of making the election, (4) in the case of

a plan that provides for an annuity as the normal form of distribution in accordance with the joint and survivor rules (sec. 417), the

participant’s spouse (if any) consents to the transfer in a manner

similar to the consent required by section 417, and (5) the transVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00278 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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feree plan allows the participant or beneficiary to receive distribution of his or her benefit under the transferee plan in the form of

a single sum distribution. The bill does not modify the rules relating to survivor annuities under section 417. Thus, as under present

law, a plan that is a transferee of a plan subject to the joint and

survivor rules is also subject to those rules.

Elimination of optional forms of benefit in the case of defined contribution plans offering a single-sum distribution

Except to the extent provided by the Secretary of the Treasury

in regulations, a defined contribution plan is not treated as reducing a participant’s accrued benefit if (1) a plan amendment eliminates a form of distribution previously available under the plan, (2)

a single sum distribution is available to the participant at the same

time or times as the form of distribution eliminated by the amendment, and (3) the single sum distribution is based on the same or

greater portion of the participant’s accrued benefit as the form of

distribution eliminated by the amendment.

Early retirement benefits, retirement-type subsidies, and optional

forms of benefit

The provision directs the Secretary of the Treasury to provide

by regulations that the prohibitions against eliminating or reducing

an early retirement benefit, a retirement-type subsidy, or an optional form of benefit shall not apply to plan amendments that do

not adversely affect the rights of participants in a material manner

but that do eliminate or reduce early retirement benefits, retirement-type subsidies, and optional forms of benefit that create significant burdens and complexities for a plan and its participants.

It is intended that the factors to be considered in determining

whether an amendment has a materially adverse effect on a participant would include (1) all of the participant’s early retirement benefits, retirement-type subsidies, and optional forms of benefits that

are reduced or eliminated by the amendment, (2) the extent to

which early retirement benefits, retirement-type subsidies, and optional forms of benefit in effect with respect to a participant after

the amendment effective date provide rights that are comparable

to the rights that are reduced or eliminated by the plan amendment, (3) the number of years before the participant attains normal

retirement age under the plan (or early retirement age, as applicable), (4) the size of the participant’s benefit that is affected by the

plan amendment, in relation to the amount of the participant’s

compensation, and (5) the number of years before the plan amendment is effective.

Treasury regulations

The Secretary is directed to issue, not later than December 31,

2001, final regulations under section 411(d)(6), including regulations required under the provision.

Effective date

The provision is effective for years beginning after December

31, 2000, except that the direction to the Secretary is effective on

the date of enactment.

276

37 In determining the amount of any subsidy under the provision, it is expected that the regulations will value the subsidy by reference to the date on which it would be the most valuable

with respect to the participant.

SENATE AMENDMENT

Transfers between defined contribution plans

The Senate amendment provision regarding transfers of defined contribution plan benefits is the same as the House bill, except that the Senate amendment does not include the requirement

that, in the case of a plan with an annuity as the normal form of

distribution, the spouse, if any, must consent to the transfer. As

under present law, a plan that is a transferee of a plan subject to

the joint and survivor rules is subject to the joint and survivor

rules.

Elimination of optional forms of benefit in the case of defined contribution plans offering a single-sum distribution

The Senate amendment does not include the provision regarding elimination of forms of distribution in the case of plans offering

a lump sum.

Early retirement benefits, retirement-type subsidies, and optional

forms of benefit

The Senate amendment directs the Secretary of the Treasury

to provide by regulations that the prohibitions against eliminating

or reducing an early retirement benefit, a retirement-type subsidy,

or an optional form of benefit do not apply to plan amendments

that eliminate or reduce early retirement benefits, retirement-type

subsidies, and optional forms of benefit that create significant burdens and complexities for a plan and its participants, but only if

such an amendment does not adversely affect the rights of any participant in more than a de minimis manner.

For this purpose, the factors to be considered in determining

whether an amendment has more than a de minimis adverse effect

on any participant include (1) all of the participant’s early retirement benefits, retirement-type subsidies, and optional forms of benefits that are reduced or eliminated by the amendment, (2) the extent to which early retirement benefits, retirement-type subsidies,

and optional forms of benefit in effect with respect to a participant

after the amendment effective date provide rights that are comparable to the rights that are reduced or eliminated by the plan

amendment, (3) the number of years before the participant attains

normal retirement age under the plan (or early retirement age, as

applicable), (4) the amount of the participant’s benefit that is affected by the plan amendment, in relation to the amount of the

participant’s compensation,37 and (5) the number of years before

the plan amendment is effective.

Treasury regulations

The provision regarding issuance of Treasury regulations is the

same as the House bill.

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38The Senate amendment also amends the corresponding provisions of ERISA. 39 In determining the amount of any subsidy under the provision, it is expected that the regulations will value the subsidy by reference to the date on which it would be the most valuable

with respect to the participant. 40 Another provision of the bill provides that rollover amounts are not taken into account for

purposes of the cash-out rules.

Effective date

The effective date of the Senate amendment provision is the

same as the House bill.38

CONFERENCE AGREEMENT

Transfers between defined contribution plans

The conference agreement follows the Senate amendment.

Elimination of optional forms of benefit in the case of defined contribution plans offering a single-sum distribution

The conference agreement follows the House bill.

Early retirement benefits, retirement-type subsidies, and optional

forms of benefit

The conference agreement follows the Senate amendment. As

under the Senate amendment, the Secretary is directed to provide

by regulation that the prohibitions against eliminating or reducing

an early retirement benefit, a retirement-type subsidy, or an optional form of benefit do not apply to plan amendments that eliminate or reduce early retirement benefits, retirement-type subsidies,

and optional forms of benefit that create significant burdens and

complexities for a plan and its participants and that do not adversely affect the rights of any participant in more than a de minimis manner.

For this purpose, the factors to be considered in determining

whether an amendment has more than a de minimis adverse effect

on any participant include (1) all of the participant’s early retirement benefits, retirement-type subsidies, and optional forms of benefits that are reduced or eliminated by the amendment, (2) the extent to which early retirement benefits, retirement-type subsidies,

and optional forms of benefit in effect with respect to a participant

after the amendment effective date provide rights that are comparable to the rights that are reduced or eliminated by the plan

amendment, (3) the number of years before the participant attains

normal retirement age under the plan (or early retirement age, as

applicable), (4) the amount of the participant’s benefit that is affected by the plan amendment, in relation to the amount of the

participant’s compensation,39 and (5) the number of years before

the plan amendment is effective.

This provision of the bill does not affect the rules relating to

involuntary cash outs (sec. 411(a)(11)) 40 or survivor annuity requirements (sec. 417). Accordingly, if a participant is entitled to

protections of the joint and survivor rules, those protections may

not be eliminated. The intent of the provision authorizing regulations is solely to permit the elimination of early retirement benefits, retirement-type subsidies, or optional forms of benefit that

have no more than a de minimis effect on any participant but creVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00281 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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ate disproportionate burdens and complexities for a plan and its

participants.

For example, assume the following. Employer A acquires employer B and merges B’s defined benefit plan into A’s defined benefit plan. The defined benefit plan maintained by B before the

merger provides an early retirement subsidy for individuals age 55

with a specified number of years of service. E1 and E2 are employees of B and who transfer to A in connection with the merger. E1

is 25 years old and has compensation of $40,000. The present value

of E’s early retirement subsidy under B’s plan is $75. E2 is 50

years old and also has compensation of $40,000. The present value

of Y’s early retirement subsidy under B’s plan is $10,000.

Assume that A’s plan has an early retirement subsidy for individuals who have attained age 50 with a specified number of years

of service, but the subsidy is not the same as under B’s plan. Under

A’s plan, the present value of E2’s early retirement subsidy is

$9,500. Maintenance of both subsidies would create burdens for the

plan and complexities for the plan and its participants.

Treasury regulations could permit E1’s early retirement subsidy under B’s plan to be eliminated entirely (i.e., even if A’s plan

did not have an early retirement subsidy). Taking into account all

relevant factors, including the value of the benefit, E1’s compensation, and the number of years until E1 would be eligible to receive

the subsidy, the subsidy is de minimis. Treasury regulations could

permit E2’s early retirement subsidy under B’s plan to be eliminated as to be replaced by the subsidy under A’s plan, because the

difference in the subsidies is de minimis. However, A’s subsidy

could not be entirely eliminated.

Treasury regulations

The conference agreement follows the House bill and the Senate amendment, except that the conference agreement provides

that the Secretary is to issue the required regulations not later

than December 31, 2002. Such regulations are to be effective for

plan years beginning after December 31, 2002, or such earlier date

as is specified by the Secretary.

Effective date

The provision is effective for years beginning after December

31, 2000, except that the direction to the Secretary is effective on

the date of enactment.

D. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS (sec. 406

of the House bill, sec. 406 of the Senate amendment, and secs.

401(k), 403(b), and 457 of the Code)

PRESENT LAW

Elective deferrals under a qualified cash or deferred arrangement (‘‘section 401(k) plan’’), tax-sheltered annuity (‘‘section 403(b)

annuity’’), or an eligible deferred compensation plan of a tax-exempt organization or State or local government (‘‘section 457

plan’’), may not be distributable prior to the occurrence of one or

more specified events. These permissible distributable events include ‘‘separation from service.’’

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41 Rev. Rul. 79–336, 1979–2 C.B. 187.

A separation from service occurs only upon a participant’s

death, retirement, resignation or discharge, and not when the employee continues on the same job for a different employer as a result of the liquidation, merger, consolidation or other similar corporate transaction. A severance from employment occurs when a

participant ceases to be employed by the employer that maintains

the plan. Under a so-called ‘‘same desk rule,’’ a participant’s severance from employment does not necessarily result in a separation

from service.41

In addition to separation from service and other events, a section 401(k) plan that is maintained by a corporation may permit

distributions to certain employees who experience a severance from

employment with the corporation that maintains the plan but does

not experience a separation from service because the employee continues on the same job for a different employer as a result of a corporate transaction. If the corporation disposes of substantially all

of the assets used by the corporation in a trade or business, a distributable event occurs with respect to the accounts of the employees who continue employment with the corporation that acquires

the assets. If the corporation disposes of its interest in a subsidiary, a distributable event occurs with respect to the accounts of

the employees who continue employment with the subsidiary.

HOUSE BILL

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. In addition, the provisions for distribution from a section 401(k) plan based upon a corporation’s disposition of its assets or a subsidiary is repealed; this

special rule is no longer necessary as a result of the changes made

by the provision.

Effective date.—The provision is effective for distributions after

December 31, 2000, regardless of when the severance of employment occurred.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

E. PURCHASE OF SERVICE CREDIT UNDER GOVERNMENTAL PENSION

PLANS (sec. 407 of the House bill, sec. 407 of the Senate amendment, and secs. 403(b) and 457 of the Code)

PRESENT LAW

A qualified retirement plan maintained by a State or local government employer may provide that a participant may make aftertax employee contributions in order to purchase permissive service

credit, subject to certain limits (sec. 415). Permissive service credit

280

means credit for a period of service recognized by the governmental

plan only if the employee voluntarily contributes to the plan an

amount (as determined by the plan) that does not exceed the

amount necessary to fund the benefit attributable to the period of

service and that is in addition to the regular employee contributions, if any, under the plan.

In the case of any repayment of contributions and earnings to

a governmental plan with respect to an amount previously refunded upon a forfeiture of service credit under the plan (or another plan maintained by a State or local government employer

within the same State), any such repayment is not taken into account for purposes of the section 415 limits on contributions and

benefits. Also, service credit obtained as a result of such a repayment is not considered permissive service credit for purposes of the

section 415 limits.

A participant may not use a rollover or direct transfer of benefits from a tax-sheltered annuity (‘‘section 403(b) annuity’’) or an eligible deferred compensation plan of a tax-exempt organization of

a State or local government (‘‘section 457 plan’’) to purchase permissive service credits or repay contributions and earnings with respect to a forfeiture of service credit.

HOUSE 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 contributions and earnings with respect to an amount previously refunded under a forfeiture of service credit under the plan

(or another plan maintained by a State or local government employer within the same State).

Effective date.—The provision is effective for transfers after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

F. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF

CASH-OUT RULES (sec. 408 of the House bill, sec. 408 of the Senate amendment, and sec. 411(a)(11) of the Code)

PRESENT LAW

If a qualified retirement plan participant ceases to be employed

by the employer that maintains the plan, the plan may distribute

the participant’s nonforfeitable accrued benefit without the consent

of the participant and, if applicable, the participant’s spouse, if the

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42 A similar provision is contained in Title I of ERISA. 43Other provisions of the bill expand the kinds of plans to which benefits may be rolled over. 44This rule of inclusion does not apply to amounts deferred under a tax-qualified retirement

plan or similar plans.

turns to employment covered by the plan, then service taken into

account in computing benefits payable under the plan after the return need not include service with respect to which a benefit was

involuntarily distributed unless the employee repays the benefit.42

Generally, a participant may roll over an involuntary distribution from a qualified plan to an IRA or to another qualified plan.43

HOUSE BILL

For purposes of the cash-out rule, a plan is permitted to provide that the present value of a participant’s nonforfeitable accrued

benefit is determined without regard to the portion of such benefit

that is attributable to rollover contributions (and any earnings allocable thereto).

Effective date.—The provision is effective for distributions after

December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

G. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR

SECTION 457 PLANS (sec. 409 of the House bill, sec. 409 of the

Senate amendment, and sec. 457 of the Code)

PRESENT LAW

A ‘‘section 457 plan’’ is an eligible deferred compensation plan

of a State or local government or tax-exempt employer that meets

certain requirements. For example, amounts deferred under a section 457 plan cannot exceed certain limits. Amounts deferred under

a section 457 plan are generally includible in income when paid or

made available. Amounts deferred under a plan of deferred compensation of a State or local government or tax-exempt employer

that does not meet the requirements of section 457 are includible

in income when the amounts are not subject to a substantial risk

of forfeiture, regardless of whether the amounts have been paid or

made available.44

Section 457 plans are subject to the minimum distribution

rules applicable to tax-qualified pension plans. In addition, such

plans are subject to additional minimum distribution rules (sec.

457(d)(2)(B)).

The limits on section 457 plans were first applied to plans of

tax-exempt employers pursuant to the Tax Reform Act of 1986 (the

‘‘1986 Act’’), generally effective for taxable years beginning after

December 31, 1986. The limitations of section 457 do not apply to

amounts deferred under a plan of a tax-exempt employer by an individual covered under such a plan on August 16, 1986, if the

282

amounts (1) were deferred from taxable years beginning before

January 1, 1987, or (2) are deferred from taxable years beginning

after December 31, 1986, pursuant to an agreement that was in

writing on August 16, 1986, and on such date provided for a deferral for each taxable year covered by the agreement of a fixed

amount or of an amount determined pursuant to a fixed formula.

The provision in (2) ceases to apply if there is any modification to

the agreement or formula.

HOUSE BILL

The House bill provides that amounts deferred under a section

457 plan of a State or local government are includible in income

when paid.

The House bill also repeals the special minimum distribution

rules applicable to section 457 plans. Thus, such plans are subject

to the minimum distribution rules applicable to qualified plans.

Effective date.—The provision is effective for distributions after

December 31, 2000.

SENATE AMENDMENT

The Senate amendment includes the House bill provisions.

In addition, the Senate amendment modifies the transition

rule adopted in the 1986 Act relating to deferred compensation

plans of tax-exempt employers. Under the bill, the transition rule

applies to agreements providing cost-of-living adjustments to

amounts that otherwise satisfy the requirements of the transition

rule. The grandfather does not apply to the extent that the annual

amount provided under such an agreement exceeds the annual

grandfathered amount multiplied by the cumulative increase in the

Consumer Price Index (as published by the Department of Labor).

Effective date.—The provision is generally effective for distributions after December 31, 2000. The provision relating to plans of

tax-exempt organizations is effective for taxable years ending after

the date of enactment for cost-of-living increases after September

1993.

CONFERENCE AGREEMENT

The conference agreement follows the House bill.

Subtitle E. Strengthening Pension Security and Enforcement (secs.

441–448 of the bill)

A. PHASE IN REPEAL OF 155 PERCENT OF CURRENT LIABILITY FUND- ING LIMIT; DEDUCTION FOR CONTRIBUTIONS TO FUND TERMI- NATION LIABILITY (secs. 501 and 502 of the House bill, secs. 501

and 502 of the Senate amendment, and secs. 404(a)(1), 412(c)(7),

and 4972(c) of the Code)

PRESENT LAW

Under present law, defined benefit pension plans are subject to

minimum funding requirements designed to ensure that pension

plans have sufficient assets to pay benefits. A defined benefit pension plan is funded using one of a number of acceptable actuarial

cost methods.

283

45The minimum funding requirements, including the full funding limit, are also contained in

title I of ERISA. 46 As originally enacted in the Pension Protection Act of 1997, the current liability full funding

limit was 150 percent of current liability. The Taxpayer Relief Act of 1997 increased the current

liability full funding limit to 155 percent in 1999 and 2000, and adopted the scheduled increases

described in the text. 47The PBGC termination insurance program does not cover plans of professional service employers that have fewer than 25 participants.

No contribution is required under the minimum funding rules

in excess of the full funding limit. The full funding limit is generally defined as the excess, if any, of (1) the lesser of (a) the accrued liability under the plan (including normal cost) or (b) 155

percent of the plan’s current liability, over (2) the value of the

plan’s assets (sec. 412(c)(7)).45 In general, current liability is all liabilities to plan participants and beneficiaries accrued to date,

whereas the accrued liability full funding limit is based on projected benefits. The current liability full funding limit is scheduled

to increase as follows: 160 percent for plan years beginning in 2001

or 2002, 165 percent for plan years beginning in 2003 and 2004,

and 170 percent for plan years beginning in 2005 and thereafter.46

In no event is a plan’s full funding limit less than 90 percent of

the plan’s current liability over the value of the plan’s assets.

An employer sponsoring a defined benefit pension plan generally may deduct amounts contributed to satisfy the minimum

funding standard for the plan year. Contributions in excess of the

full funding limit generally are not deductible. Under a special

rule, an employer that sponsors a defined benefit pension plan

(other than a multiemployer plan) which has more than 100 participants for the plan year may deduct amounts contributed of up

to 100 percent of the plan’s unfunded current liability.

HOUSE BILL

Current liability full funding limit

The bill gradually increases and then repeals the current liability full funding limit. 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.

Thus, in 2004 and thereafter, the full funding limit will be the excess, if any, of (1) the accrued liability under the plan (including

normal cost), over (2) the value of the plan’s assets.

Deduction for contributions to fund termination liability

The special rule allowing a deduction for unfunded current liability generally is extended to all defined benefit pension plans,

i.e., the provision applies to multiemployer plans and plans with

100 or fewer participants. The special rule does not apply to plans

not covered by the PBGC termination insurance program.47

The bill also modifies the rule by providing that the deduction

is for up to 100 percent of unfunded termination liability, determined as if the plan terminated at the end of the plan year. In the

case of a plan with less than 100 participants for the plan year,

termination liability does not include the liability attributable to

benefit increases for highly compensated employees resulting from

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48 As originally enacted in the Pension Protection Act of 1997, the current liability full funding

limit was 150 percent of current liability. The Taxpayer Relief Act of 1997 increased the current

liability full funding limit to 155 percent in 1999 and 2000, and adopted the scheduled increases

described in the text. Another proposal would gradually increase and then repeal the current

liability full funding limit.

a plan amendment which was made or became effective, whichever

is later, within the last two years.

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

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

B. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING (sec. 503 of

the House bill, sec. 503 of the Senate amendment, and sec. 4972

of the Code)

PRESENT LAW

Under present law, defined benefit pension plans are subject to

minimum funding requirements designed to ensure that pension

plans have sufficient assets to pay benefits. A defined benefit pension plan is funded using one of a number of acceptable actuarial

cost methods.

No contribution is required under the minimum funding rules

in excess of the full funding limit. The full funding limit is generally defined as the excess, if any, of (1) the lesser of (a) the accrued liability under the plan (including normal cost) or (b) 155

percent of the plan’s current liability, over (2) the value of the

plan’s assets (sec. 412(c)(7)). In general, current liability is all liabilities to plan participants and beneficiaries accrued to date,

whereas the accrued liability full funding limit is based on projected benefits. The current liability full funding limit is scheduled

to increase as follows: 160 percent for plan years beginning in 2001

or 2002, 165 percent for plan years beginning in 2003 and 2004,

and 170 percent for plan years beginning in 2005 and thereafter.48

In no event is a plan’s full funding limit less than 90 percent of

the plan’s current liability over the value of the plan’s assets.

An employer sponsoring a defined benefit pension plan generally may deduct amounts contributed to satisfy the minimum

funding standard for the plan year. Contributions in excess of the

full funding limit generally are not deductible. Under a special

rule, an employer that sponsors a defined benefit pension plan

(other than a multiemployer plan) which has more than 100 participants for the plan year may deduct amounts contributed of up

to 100 percent of the plan’s unfunded current liability.

Present law also provides that contributions to defined contribution plans are deductible, subject to certain limitations.

Subject to certain exceptions, an employer that makes nondeductible contributions to a plan is subject to an excise tax equal

to 10 percent of the amount of the nondeductible contributions for

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49Treas. Reg. sec. 1.411(d)–6.

the year. The 10-percent excise tax does not apply to contributions

to certain terminating defined benefit plans. The 10-percent excise

tax also does not apply to contributions of up to 6 percent of compensation to a defined contribution plan for employer matching and

employee elective deferrals.

HOUSE BILL

In determining the amount of nondeductible contributions, the

employer is permitted to elect not to take into account contributions to a defined benefit pension plan except to the extent they exceed the accrued liability full funding limit. Thus, if an employer

elects, contributions in excess of the current liability full funding

limit are not subject to the excise tax on nondeductible contributions. An employer making such an election for a year is not permitted to take advantage of the present-law exceptions for certain

terminating plans and certain contributions to defined contribution

plans. The provision applies to terminated plans as well as ongoing

plans.

Effective date.—The provision is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

C. NOTICE OF SIGNIFICANT REDUCTION IN PLAN BENEFIT ACCRUALS

(sec. 504 of the House bill, secs. 521–523 of the Senate amendment, and secs. 411(d) and 417(e) and new sec. 4980F of the

Code)

PRESENT LAW

Section 204(h) of Title I of ERISA provides that a defined benefit pension plan or a money purchase pension plan may not be

amended so as to provide for a significant reduction in the rate of

future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan

amendment, the plan administrator provides a written notice (‘‘section 204(h) notice’’), setting forth the plan amendment (or a summary of the amendment written in a manner calculated to be understood by the average plan participant) and its effective date.

The plan administrator must provide the section 204(h) notice to

each plan participant, each alternate payee under an applicable

qualified domestic relations order (‘‘QDRO’’), and each employee organization representing participants in the plan. The applicable

Treasury regulations 49 provide, however, that a plan administrator

need not provide the section 204(h) notice to any participant or alternate payee whose rate of future benefit accrual is reasonably expected not to be reduced by the amendment, nor to an employee

organization that does not represent a participant to whom the secVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00289 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
286

tion 204(h) notice must be provided. In addition, the regulations

provide that the rate of future benefit accrual is determined without regard to optional forms of benefit, early retirement benefits,

retirement-type subsidiaries, ancillary benefits, and certain other

rights and features.

A covered amendment generally will not become effective with

respect to any participants and alternate payees whose rate of future benefit accrual is reasonably expected to be reduced by the

amendment but who do not receive a section 204(h) notice. An

amendment will become effective with respect to all participants

and alternate payees to whom the section 204(h) notice was required to be provided if the plan administrator (1) has made a good

faith effort to comply with the section 204(h) notice requirements,

(2) has provided a section 204(h) notice to each employee organization that represents any participant to whom a section 204(h) notice was required to be provided, (3) has failed to provide a section

204(h) notice to no more than a de minimis percentage of participants and alternate payees to whom a section 204(h) notice was required to be provided, and (4) promptly upon discovering the oversight, provides a section 204(h) notice to each omitted participant

and alternate payee.

The Internal Revenue Code does not require any notice concerning a plan amendment that provides for a significant reduction

in the rate of future benefit accrual.

The Internal Revenue Code prohibits the reduction of a participant’s accrued benefit by plan amendment (sec. 411(d)(6)), and, for

this purpose, except to the extent set forth in Treasury regulations,

treats the elimination or reduction of an early retirement benefit

or retirement-type subsidy or an optional form of benefit as a reduction of a participant’s accrued benefit. However, this prohibition

does not prevent a plan amendment from ceasing or reducing future accruals.

In the case of a pension plan that is subject to the joint and

survivor annuity rules, the Internal Revenue Code (sec. 417(e)) restricts distributions before normal retirement age without the consent of the participant and the participant’s spouse unless the

value of the distribution does not exceed a dollar limit ($5,000

under sec. 411(a)(11)(A)). For this purpose, under Treasury regulations, a specific interest rate and mortality table are prescribed for

purposes of determining whether the distribution exceeds the dollar limit and prohibits a lump sum distribution of an amount less

than the amount determined under the applicable interest rate and

mortality table even if the distribution exceeds the dollar limit.

HOUSE BILL

The provision adds to the Internal Revenue Code a requirement that the plan administrator of a defined benefit pension plan

or a money purchase pension plan with more than 100 participants

furnish a written notice concerning a plan amendment that provides for a significant reduction in the rate of future benefit accrual. The plan administrator is required to provide in this notice,

in a manner calculated to be understood by the average plan participant, sufficient information (as defined in Treasury regulations)

to allow participants to understand the effect of the amendment.

287

The notice requirement does not apply to governmental plans

or church plans with respect to which an election to have the qualified plan participation, vesting, and funding rules apply has not

been made (sec. 410(d)).

The plan administrator is required to provide this notice to

each affected participant, each affected alternate payee, and each

employee organization representing affected participants. For purposes of the provision, an affected participant or alternate payee is

a participant or alternate payee to whom the significant reduction

in the rate of future benefit accrual is reasonably expected to apply.

Except to the extent provided by Treasury regulations, the

plan administrator is required to provide the notice within a reasonable time before the effective date of the plan amendment.

The provision imposes on a plan administrator that fails to comply with the notice requirement an excise tax equal to $100 per

day per omitted participant and alternate payee. For failures due

to reasonable cause and not to willful neglect, the total excise tax

imposed during a taxable year of the employer will not exceed

$500,000. Furthermore, in the case of a failure due to reasonable

cause and not to willful neglect, the Secretary of the Treasury is

authorized to waive the excise tax to the extent that the payment

of the tax would be excessive relative to the failure involved.

It is intended that the Secretary will issue the necessary regulations with respect to disclosure within 90 days of enactment. It

is also intended that such guidance may be relatively detailed because of the need to provide for alternative disclosures rather than

a single disclosure methodology that may not fit all situations, and

the need to consider the complex actuarial calculations and assumptions involved in providing necessary disclosures.

In addition, the provision directs the Secretary of the Treasury

to prepare a report on the effects of conversions of traditional defined benefit plans to cash balance or hybrid formula plans. Such

study is to examine the effect of such conversions on longer service

participants, including the incidence and effects of ‘‘wear away’’

provisions under which participants earn no additional benefits for

a period of time after the conversion. The Secretary is directed to

submit such report, together with recommendations thereon, to the

Committee on Ways and Means of the House of Representatives

and the Committee on Finance of the Senate as soon as practicable,

but not later than 60 days after the date of enactment.

Effective date.—The provision is effective for plan amendments

taking effect on or after the date of enactment. The period for providing any notice required under the provision will not end before

the last day of the 3-month period following the date of enactment.

Prior to the issuance of Treasury regulations, a plan will be treated

as meeting the requirements of the provision if the plan makes a

good faith effort to comply with such requirements.

SENATE AMENDMENT

The provision adds to the Internal Revenue Code a requirement that the plan administrator of a pension plan furnish a written notice concerning a plan amendment that provides for a significant reduction in the rate of future benefit accrual, including any

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288

50The provision also modifies the present-law notice requirement contained in section 204(h)

of Title I of ERISA to provide that an applicable pension plan may not be amended to provide

for a significant reduction in the rate of future benefit accrual in the event of an egregious failure by the plan administrator to comply with a notice requirement similar to the notice requirement that the provision adds to the Internal Revenue Code. In addition, the provision expands

the current ERISA notice requirement regarding significant reductions in normal retirement

benefit accrual rates to early retirement benefits and retirement-type subsidies.

ment-type subsidy.50 The notice is required to set forth: (1) a summary of the amendment and the effective date of the amendment;

(2) a statement that the amendment is expected to significantly reduce the rate of future benefit accrual; (3) a description of the

classes of employees reasonably expected to be affected by the reduction in the rate of future benefit accrual; (4) examples illustrating the plan changes for these classes of employees; (5) in the

event of an amendment that results in a conversion of a traditional

defined benefit plan to a cash balance plan (described below), a notice that the plan administrator will provide, generally no later

than 15 days prior to the effective date of the amendment, a ‘‘benefit estimation tool kit’’ (described below) that will enable affected

participants who have completed at least 1 year of participation to

personalize the illustrative examples; and (6) notice of each affected

participant’s right to request, and of the procedures for requesting,

an annual benefit statement as provided under present law. The

plan administrator is required to provide the notice not less than

45 days before the effective date of the plan amendment.

The notice requirement does not apply to plans to which

ERISA sec. 204(h) does not apply, including governmental plans or

church plans with respect to which an election to have the qualified

plan participation, vesting, and funding rules apply has not been

made (sec. 410(d)).

The plan administrator is required to provide this generalized

notice to each affected participant and each affected alternate

payee. For purposes of the provision, an affected participant or alternate payee is a participant or alternate payee to whom the reduction in the rate of future benefit accrual, including any elimination or significant reduction in early retirement benefit or retirement-type subsidy, is reasonably expected to apply.

As noted above, the provision requires the plan administrator

to provide a benefit estimation tool kit, no later than 15 days prior

to the amendment effective date, to a participant for whom the

amendment may reasonably be expected to produce a significant

reduction in the rate of future benefit accrual if the amendment

has the effect of converting a traditional defined benefit plan to a

cash balance plan. The plan administrator is not required to provide this benefit estimation tool kit to any participant who has less

than 1 year of participation in the plan. For purposes of the provision, a ‘‘cash balance plan’’ means a defined benefit plan under

which the accrued benefit is determined as an amount other than

an annual benefit commencing at normal retirement age, and any

defined benefit plan, or portion of such a plan, that has an effect

similar to a defined benefit plan under which the accrued benefit

is determined as an amount other than an annual benefit commencing at normal retirement age (as determined under Treasury

regulations). If the benefits of 2 or more defined benefit plans established or maintained by an employer are coordinated in such a

289

manner as to have the effect of a conversion to a cash balance plan,

the provision treats the sponsor of the plan or plans providing for

such coordination as having adopted such a conversion as of the

date such coordination begins. If a plan sponsor represents in communications to participants and beneficiaries that a plan amendment has an effect equivalent to a cash balance conversion, such

amendment is (to the extent provided in Treasury regulations)

treated as a cash balance conversion. In addition, the provision provides for the Secretary of the Treasury to issue regulations to prevent avoidance of the requirements of the provision through the

use of 2 or more plan amendments rather than a single amendment.

The benefit estimation tool kit is designed to enable participants to estimate benefits under the old and new plan provisions.

The provision permits the tool kit to be in the form of software (for

use at home, at a workplace kiosk, or on a company intranet),

worksheets, or calculation instructions, or other formats to be determined by the Secretary of the Treasury. The tool kit is required

to include any necessary actuarial assumptions and formulas and

to permit the participant to estimate both a single life annuity at

appropriate ages and, when available, a lump sum distribution.

The tool kit is required to disclose the interest rate used to compute a lump sum distribution and whether the value of early retirement benefits is included in the lump sum distribution.

The provision requires the benefit estimation tool kit to accommodate employee-provided variables with respect to age, years of

service, retirement age, covered compensation, and interest rate

(when variable rates apply). The tool kit is required to permit employees to recalculate estimated benefits by changing the values of

these variables. The provision does not require the tool kit to accommodate employee variables with respect to qualified domestic

relations orders, factors that result in unusual patterns of credited

service (such as extended time away from the job), special benefit

formulas for unusual situations, offsets from other plans, and forms

of annuity distributions.

In the case of a cash balance conversion that occurs in connection with a business disposition or acquisition transaction and

within 1 year following the date of the transaction, the provision

requires the plan administrator to provide the benefit estimation

tool kit prior to the end of the 2-year period following the date of

the transaction to the affected participants who become participants as a result of the transaction.

The provision permits a plan administrator to provide any notice required under the provision to a person designated in writing

by the individual to whom it would otherwise be provided. In addition, the provision authorizes the Secretary of the Treasury to

allow any notice required under the provision to be provided by

using new technologies.

The provision imposes on a plan administrator that fails to

comply with the notice requirement an excise tax equal to $100 per

day per omitted participant and alternate payee. No excise tax

shall be imposed during any period during which any person subject to liability for the tax did not know that the failure existed and

exercised reasonable diligence to meet the notice requirement. Also,

290

no excise tax shall be imposed on any failure if any person subject

to liability for the tax exercised reasonable diligence to meet the

notice requirement and such person provides the required notice

during the 30-day period beginning on the first date such person

knew, or exercising reasonable diligence would have known, that

the failure existed. If the person subject to liability for the excise

tax exercised reasonable diligence to meet the notice requirement,

the total excise tax imposed during a taxable year of the employer

will not exceed $500,000. Furthermore, in the case of a failure due

to reasonable cause and not to willful neglect, the Secretary of the

Treasury is authorized to waive the excise tax to the extent that

the payment of the tax is excessive or otherwise inequitable relative to the failure involved.

The provision adds to the Internal Revenue Code and ERISA

requirements designed to prevent the use of ‘‘wear away’’ provisions under which participants earn no additional benefits for a period of time after a conversion of a traditional defined benefit plan

to a cash balance plan. These requirements are in addition to the

other provisions of the Internal Revenue Code that prohibit the reduction of a participant’s accrued benefit by plan amendment (sec.

411(d)(6)). In the event of a conversion of a traditional defined benefit plan to a cash balance plan, the provision applies a minimum

benefit requirement. This minimum benefit requirement requires a

participant’s accrued benefit under the cash balance plan to equal

not less than (1) the benefit accrued for years of service prior to

the conversion under the traditional defined benefit plan formula

(not taking into account any early retirement benefit or retirementtype subsidy), plus (2) any benefit accrued for years of service after

the conversion under the cash balance plan benefit formula. If the

amendment provides that the accrued benefit initially credited to

a participant’s accumulation account (or its equivalent) on the effective date of the amendment satisfies the present value rules described below, the plan will not be treated as failing to provide to

the participant an accrued benefit that includes such pre-conversion accrued benefit at any time after the effective date of the

amendment merely because of a fluctuation in interest rates. The

provision does not apply the minimum benefit requirement designed to prevent ‘‘wear away’’ to a cash balance conversion amendment to the extent that the amendment permits a participant to

continue to accrue benefits in the same manner as under the terms

of the plan in effect prior to the amendment (for example, by providing for the participant to receive the greater of the old or new

formulas).

Under the provision, a plan is treated as satisfying the minimum benefit requirement designed to prevent ‘‘wear away’’ if a

plan amendment provides that the present value of a participant’s

benefit accrued under a traditional defined benefit plan formula

prior to a cash balance conversion is not less than the greater of

(1) the present value determined using the applicable mortality

table and the applicable interest rate in effect under the plan on

the effective date of the cash balance conversion, or (2) the amount

of the lump sum distribution that would be payable as of such effective date if the participant were eligible to receive a distribution

under the terms of the plan as in effect immediately before such

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51 Another provision provides that rollover amounts are not taken into account for purposes

of the cash-out rules.

effective date, but not taking into account any early retirement

benefit or retirement-type subsidy.

Except as provided in regulations, the provision generally requires the present value of the accrued benefit of any participant

under a cash balance plan to be equal to the balance in the participant’s accumulation account (or its equivalent) as of the time of the

present value determination. This requirement will not apply to

any portion of the participant’s benefit accrued prior to a cash balance conversion except to the extent the plan provides that the

amount initially credited to a participant’s accumulation account

(or its equivalent) on the effective date of the conversion is not less

than the benefit accrued for years of service prior to the conversion

under the traditional defined benefit formula (not taking into account any early retirement benefit or retirement-type subsidy).

This provision is solely intended to permit plan sponsors to provide

interest credits in an amount greater than the amount currently

permitted under the Internal Revenue Code. Regulations may condition satisfaction of this requirement on the plan crediting interest

at rates not in excess of a maximum and not less than a minimum

specified in the regulations.

Failure to comply with the requirements of the provision designed to prevent ‘‘wear away’’ results in the disqualification of the

plan.

The provision directs the Secretary of the Treasury to define

in regulations, within 12 months after the date of enactment, the

terms ‘‘early retirement benefit’’ and ‘‘retirement-type subsidy.’’ In

addition, with respect to a participant who is eligible to accrue benefits under the terms of a defined benefit plan as in effect either

before or after an amendment that results in a conversion to a cash

balance plan, the provision directs the Secretary of the Treasury to

prescribe regulations under which (1) the plan will be treated as

meeting the requirements of sec. 411(b)(1)(A), (B), or (C) if such requirements are met separately with respect to each of the plan’s

methods of accruing benefits, and (2) the plan will not be treated

as failing to meet the requirements of sec. 401(a)(4) merely because

only participants as of the effective date of the amendment are so

eligible, if the plan met the requirements of sec. 401(a)(4) under

the terms of the plan as in effect before the amendment (subject

to the terms and conditions provided by the regulations).

Under the provision, no inference is intended with respect to

the proper treatment of cash balance plans or conversions to cash

balance plans under the laws in effect prior to the effective date of

the provision or under laws not affected by the provision. In addition, the provision is not intended to result in the treatment of a

cash balance plan as a defined contribution plan, or to affect the

rules relating to involuntary cash outs (sec. 411(a)(11)) 51 or survivor annuity requirements (sec. 417).

Effective date.—The provision is effective for plan amendments

taking effect on or after the date of enactment, with a delayed effective date for plans maintained pursuant to a collective bargaining agreement. The period for providing any notice required

292

52The conference agreement also modifies the present-law notice requirement contained in

section 204(h) of Title I of ERISA to provide that an applicable pension plan may not be amended to provide for a significant reduction in the rate of future benefit accrual in the event of a

failure by the plan administrator to comply with a notice requirement similar to the notice requirement that the conference agreement adds to the Internal Revenue Code. In addition, the

conference agreement expands the current ERISA notice requirement regarding significant reductions in normal retirement benefit accrual rates to reductions in early retirement benefits

and retirement-type subsidies.

under the provision will not end before the last day of the 3-month

period following the date of enactment. The notice requirements

under the provision do not apply to any plan amendment taking effect on or after the date of enactment if, before September 5, 2000,

notice is provided to participants and beneficiaries adversely affected by the plan amendment (or their representatives) that is

reasonably expected to notify them of the nature and effective date

of the plan amendment.

CONFERENCE AGREEMENT

The conference agreement follows the House bill, with the following modifications.52 The conference agreement also requires a

notice with respect to the elimination or reduction of an early retirement benefit or retirement-type subsidy. In addition, the conference agreement authorizes the Secretary of the Treasury to provide a simplified notice requirement or an exemption from the notice requirement for plans with less than 100 participants and to

allow any notice required under the conference agreement to be

provided by using new technologies. The conference agreement also

authorizes the Secretary to provide a simplified notice requirement

or an exemption from the notice requirement if participants are

given the option to choose between benefits under the new plan formula and the old plan formula. In such cases, the conferees understand that the fiduciary rules applicable to pension plans may require appropriate disclosure to participants, even if no disclosure is

required under the provision. With respect to the amount of the excise tax for failure to comply with the notice requirement, the conference agreement provides that no excise tax shall be imposed

during any period during which any person subject to liability for

the tax did not know that the failure existed and exercised reasonable diligence to meet the notice requirement. The conference

agreement also provides that no excise tax shall be imposed on any

failure if any person subject to liability for the tax exercised reasonable diligence to meet the notice requirement and such person

provides the required notice during the 30-day period beginning on

the first date such person knew, or exercising reasonable diligence

would have known, that the failure existed. Furthermore, the conference agreement provides that if the person subject to liability for

the excise tax exercised reasonable diligence to meet the notice requirement, the total excise tax imposed during a taxable year of

the employer will not exceed $500,000.

Effective date.—The conference agreement is effective for plan

amendments taking effect on or after the date of enactment. The

period for providing any notice required under the conference

agreement will not end before the last day of the 3-month period

following the date of enactment. Prior to the issuance of Treasury

regulations, a plan will be treated as meeting the requirements of

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53 Another provision of the bill increases this limit to 100 percent of compensation. 54Treas. reg. sec. 1.415–8(e).

the conference agreement if the plan makes a good faith effort to

comply with such requirements. The notice requirement under the

conference agreement does not apply to any plan amendment taking effect on or after the date or enactment if, before October 24,

2000, notice is provided to participants and beneficiaries adversely

affected by the plan amendment (or their representatives) that is

reasonably expected to notify them of the nature and effective date

of the plan amendment.

D. MODIFICATIONS TO SECTION 415 LIMITS FOR MULTIEMPLOYER

PLANS (sec. 505 of the House bill, sec. 504 of the Senate amendment, and sec. 415 of the Code)

PRESENT LAW

Under present law, limits apply to contributions and benefits

under qualified plans (sec. 415). The limits on contributions and

benefits under qualified plans are based on the type of plan.

Under a defined benefit plan, the maximum annual benefit

payable at retirement is generally the lesser of (1) 100 percent of

average compensation for the highest three years, or (2) $135,000

(for 2000). The dollar limit is adjusted for cost-of-living increases

in $5,000 increments. The dollar limit is reduced in the case of retirement before the social security retirement age and increased in

the case of retirement after the social security retirement age.

A special rule applies to governmental defined benefit plans. In

the case of such plans, the defined benefit dollar limit is reduced

in the case of retirement before age 62 and increased in the case

of retirement after age 65. In addition, there is a floor on early retirement benefits. Pursuant to this floor, the minimum benefit payable at age 55 is $75,000.

In the case of a defined contribution plan, the limit on annual

is additions if the lesser of (1) 25 percent of compensation 53 or (2)

$30,000 (for 2000).

In applying these limits, plans of the same employer are aggregated. That is, all defined benefit plans of the same employer are

treated as a single plan, and all defined contribution plans of the

same employer are treated as a single plan. Under Treasury regulations, multiemployer plans are not aggregated with other multiemployer plans. However, if an employer maintains both a plan

that is not a multiemployer plan and a mulitemployer plan, the

plan that is not a multiemployer plan is aggregated with the multiemployer plan to the extent that benefits provided under the multiemployer plan are provided with respect to a common participant.54

HOUSE BILL

Under the House bill, the 100 percent of compensation defined

benefit plan limit does not apply to multiemployer plans. In addition, multiemployer plans are not aggregated with any other plan

maintained by the same employer, except for purposes of applying

the dollar limitation on defined plans and the limits on annual additions to a plan that is not a multiemployer plan.

294

Effective date.—The provision is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill with respect to waiver of the 100 percent of compensation limit.

With respect to aggregation of multiemployer plans with other

plans, the Senate amendment provides that multiemployer plans

are not aggregated with single-employer defined benefit plans

maintained by an employer contributing to the multiemployer plan

for purposes of applying the 100 percent of compensation limit to

such single-employer plan.

Effective date.—Same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment with respect to the 100-percent of compensation

limitation. Thus, the 100-percent of compensation defined benefit

plan limit does not apply to multiemployer plans.

The conference agreement follows the Senate amendment with

respect to the aggregation of multiemployer plans with other plans,

with modifications.

E. INVESTMENT OF EMPLOYEE CONTRIBUTIONS IN 401(k) PLANS (sec.

505 of the Senate amendment and sec. 1524(b) of the Taxpayer

Relief Act of 1997)

PRESENT LAW

The Employee Retirement Income Security Act of 1974, as

amended (‘‘ERISA’’) prohibits certain employee benefit plans from

acquiring securities or real property of the employer who sponsors

the plan if, after the acquisition, the fair market value of such securities and property exceeds 10 percent of the fair market value

of plan assets. The 10-percent limitation does not apply to any ‘‘eligible individual account plans’’ that specifically authorize such investments. Generally, eligible individual account plans are defined

contribution plans, including plans containing a cash or deferred

arrangement (‘‘401(k) plans’’).

The term ‘‘eligible individual account plan’’ does not include

the portion of a plan that consists of elective deferrals (and earnings on the elective deferrals) made under section 401(k) if elective

deferrals equal to more than 1 percent of any employee’s eligible

compensation are required to be invested in employer securities

and employer real property. Eligible compensation is compensation

that is eligible to be deferred under the plan. The portion of the

plan that consists of elective deferrals (and earnings thereon) is

still treated as an individual account plan, and the 10-percent limitation does not apply, as long as elective deferrals (and earnings

thereon) are not required to be invested in employer securities or

employer real property.

The rule excluding elective deferrals (and earnings thereon)

from the definition of individual account plan does not apply if individual account plans are a small part of the employer’s retirement plans. In particular, that rule does not apply to an individual

295

account plan for a plan year if the value of the assets of all individual account plans maintained by the employer do not exceed 10

percent of the value of the assets of all pension plans maintained

by the employer (determined as of the last day of the preceding

plan year). Multiemployer plans are not taken into account in determining whether the value of the assets of all individual account

plans maintained by the employer exceed 10 percent of the value

of the assets of all pension plans maintained by the employer. The

rule excluding elective deferrals (and earnings thereon) from the

definition of individual account plan does not apply to an employee

stock ownership plan as defined in section 4975(e)(7) of the Internal Revenue Code.

The rule excluding elective deferrals (and earnings thereon)

from the definition of individual account plan applies to elective deferrals for plan years beginning after December 31, 1998 (and earnings thereon). It does not apply with respect to earnings on elective

deferrals for plan years beginning before January 1, 1999.

HOUSE BILL

No provision.

SENATE AMENDMENT

The provision modifies the effective date of the rule excluding

certain elective deferrals (and earnings thereon) from the definition

of individual account plan by providing that the rule does not apply

to any elective deferral used to acquire employer securities or employer real property acquired before January 1, 1999.

Effective date.—The provision is effective as if included in the

section of the Taxpayer Relief Act of 1997 that contained the rule

excluding certain elective deferrals (and earnings thereon) from the

definition of individual account plan.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment.

F. PERIODIC PENSION BENEFIT STATEMENTS (sec. 506 of the Senate

amendment and sec. 105(a) of ERISA)

PRESENT LAW

Title I of ERISA provides that a pension plan administrator

must furnish a benefit statement to any participant or beneficiary

who makes a written request for such a statement. This statement

must indicate, on the basis of the latest available information, (1)

the participant’s or beneficiary’s total accrued benefit, and (2) the

participant’s or beneficiary’s vested accrued benefit or the earliest

date on which the accrued benefit will become vested. A participant

or beneficiary is not entitled to receive more than 1 benefit statement during any 12-month period. The plan administrator must

furnish the benefit statement no later than 60 days after receipt

of the request or, if later, 120 days after the close of the immediately preceding plan year.

In addition, the plan administrator must furnish a benefit

statement to each participant whose employment terminates or

296

55 A multiple employer plan is a plan that is maintained by 2 or more unrelated employers

but that is not maintained pursuant to a collective-bargaining agreement (sec. 413(c)).

who has a 1-year break in service. For purposes of this benefit

statement requirement, a ‘‘1-year break in service’’ is a calendar

year, plan year, or other 12-month period designated by the plan

during which the participant does not complete more than 500

hours of service for the employer. A participant is not entitled to

receive more than 1 benefit statement with respect to consecutive

breaks in service. The plan administrator must provide a benefit

statement required upon termination of employment or a break in

service no later than 180 days after the end of the plan year in

which the termination of employment or break in service occurs.

HOUSE BILL

No provision.

SENATE AMENDMENT

A plan administrator of a defined contribution plan generally

is required to furnish a benefit statement to each participant at

least once annually and to a beneficiary upon written request.

In addition to providing a benefit statement to a participant or

beneficiary upon written request, the plan administrator of a defined benefit plan generally is required either (1) to furnish a benefit statement at least once every 3 years to each participant who

has a vested accrued benefit and who is employed by the employer

at the time the plan administrator furnishes the benefit statements

to participants, or (2) to annually furnish written, electronic, telephonic, or other appropriate notice to each participant of the availability of and the manner in which the participant may obtain the

benefit statement.

The plan administrator of a multiemployer plan or a multiple

employer plan is required to furnish a benefit statement only upon

written request of a participant or beneficiary.55

The plan administrator is required to write the benefit statement in a manner calculated to be understood by the average plan

participant and is permitted to furnish the statement in written,

electronic, telephonic, or other appropriate form.

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

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

the following modifications. The conference agreement authorizes

the Secretary of Labor to provide that years in which no employee

or former employee benefits under a plan need not be taken into

account in determining the applicable 3-year period.

Effective date.—The conference agreement is effective for plan

years beginning after December 31, 2001.

297

56The plan is not disqualified merely because an excise tax is imposed under the provision.

G. PROHIBITED ALLOCATIONS OF STOCK IN AN S CORPORATION

ESOP (sec. 506 of the House bill, sec. 507 of the Senate amendment, and secs. 409 and 4979A of the Code)

PRESENT LAW

The Small Business Job Protection Act of 1996 allowed qualified retirement plan trusts described in section 401(a) to own stock

in an S corporation. That Act treated the plan’s share of the S corporation’s income (and gain on the disposition of the stock) as includible in full in the trust’s unrelated business taxable income

(‘‘UBTI’’).

The Tax Relief Act of 1997 repealed the provision treating

items of income or loss of an S corporation as UBTI in the case of

an employee stock ownership plan (‘‘ESOP’’). Thus, the income of

an S corporation allocable to an ESOP is not subject to current taxation.

Present law provides a deferral of income on the sales of certain employer securities to an ESOP (sec. 1042). A 50-percent excise tax is imposed on certain prohibited allocations of securities

acquired by an ESOP in a transaction to which section 1042 applies. In addition, such allocations are currently includible in the

gross income of the individual receiving the prohibited allocation.

HOUSE BILL

In general

Under the provision, if there is a nonallocation year with respect to an ESOP maintained by 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 the gross income of the individual receiving the prohibited allocation); (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.56

It is intended that the provision will limit the establishment of

ESOPs by S corporations to those that provide broad-based employee coverage and that benefit rank-and-file employees as well as

highly compensated employees and historical owners.

Definition of nonallocation year

A nonallocation year means any plan year of an ESOP holding

shares in an S corporation if, at any time during the plan year, disqualified persons own at least 50 percent of the number of outstanding shares of the S corporation.

A person is a disqualified person if the person is either (1) a

member of a ‘‘deemed 20-percent shareholder group’’ or (2) a

‘‘deemed 10-percent shareholder.’’ A person is a member of a

‘‘deemed 20-percent shareholder group’’ if the aggregate number of

deemed-owned shares of the person and his or her family members

is at least 20 percent of the number of deemed-owned shares of

298

57 A family member of a member of a ‘‘deemed 20-percent shareholder group’’ with deemed

owned shares also is treated as a disqualified person. 58These attribution rules also apply to stock treated as owned by reason of the ownership of

synthetic equity. 59 As under section 318, an individual’s spouse is not treated as a member of the individual’s

family if the spouses are legally separated. 60The provisions relating to synthetic equity do not modify the rules relating to S corporations, e.g., the circumstances in which options or similar interests are treated as creating a second class of stock.

stock in the S corporation.57 A person is a deemed 10-percent

shareholder if the person is not a member of a deemed 20-percent

shareholder group and the number of the person’s deemed-owned

shares is at least 10 percent of the number of deemed-owned

shares of stock of the corporation.

In general, ‘‘deemed-owned shares’’ means: (1) stock allocated

to the account of an individual under the ESOP, and (2) an individual’s share of unallocated stock held by the ESOP. An individual’s

share of unallocated stock held by an ESOP is determined in the

same manner as the most recent allocation of stock under the

terms of the plan.

For purposes of determining whether there is a nonallocation

year, ownership of stock generally is attributed under the rules of

section 318,58 except that: (1) the family attribution rules are modified to include certain other family members, as described below,

(2) option attribution does not apply (but instead special rules relating to synthetic equity described below apply), and (3) ‘‘deemedowned shares’’ held by the ESOP are treated as held by the individual with respect to whom they are deemed owned.

Under the provision, family members of an individual include

(1) the spouse 59 of the individual, (2) an ancestor or lineal descendant of the individual or his or her spouse, (3) a sibling of the individual (or the individual’s spouse) and any lineal descendant of the

brother or sister, and (4) the spouse of any person described in (2)

or (3).

The provision contains special rules applicable to synthetic equity interests. Except to the extent provided in regulations, the

stock on which a synthetic equity interest is based is treated as

outstanding stock of the S corporation and as deemed-owned shares

of the person holding the synthetic equity interest if such treatment would result in the treatment of any person as a disqualified

person or the treatment of any year as a nonallocation year. Thus,

for example, disqualified persons for a year include those individuals who are disqualified persons under the general rule (i.e., treating only those shares held by the ESOP as deemed-owned shares)

and those individuals who are disqualified individuals if synthetic

equity interests are treated as deemed-owned shares.

‘‘Synthetic equity’’ means any stock option, warrant, restricted

stock, deferred issuance stock right, or similar interest that gives

the holder the right to acquire or receive stock of the S corporation

in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom

stock unit, or similar right to a future cash payment based on the

value of such stock or appreciation in such value.60

Ownership of synthetic equity is attributed in the same manner as stock is attributed under the provision (as described above).

299

In addition, ownership of synthetic equity is attributed under the

rules of section 318(a)(2) and (3) in the same manner as stock.

Definition of prohibited allocation

An ESOP of an S corporation is required to provide that no

portion of the assets of the plan attributable to (or allocable in lieu

of) S corporation stock may, during a nonallocation year, accrue (or

be allocated directly or indirectly under any qualified plan of the

S corporation) for the benefit of a disqualified person. A ‘‘prohibited

allocation’’ refers to violations of this provision. A prohibited allocation occurs, for example, if income on S corporation stock held by

an ESOP is allocated to the account of an individual who is a disqualified person.

Application of excise tax

In the case of a prohibited allocation, the S corporation is liable

for an excise tax equal to 50 percent of the amount of the allocation. For example, if S corporation stock is allocated in a prohibited

allocation, the excise tax is equal to 50 percent of the fair market

value of such stock.

A special rule applies in the case of the first nonallocation

year, regardless of whether there is a prohibited allocation. In that

year, the excise tax also applies to the fair market value of the

deemed-owned shares of any disqualified person held by the ESOP,

even though those shares are not allocated to the disqualified person in that year.

As mentioned above, the S corporation also is liable for an excise tax with respect to any synthetic equity interest owned by any

disqualified person in a nonallocation year. The excise tax is 50

percent of the value of the shares on which synthetic equity is

based.

Treasury regulations

The Treasury Department is given the authority to prescribe

such regulations as may be necessary to carry out the purposes of

the provision.

Effective date

The provision generally is effective with respect to plan years

beginning after December 31, 2001. In the case of an ESOP established after July 11, 2000, or an ESOP established on or before

such date if the employer maintaining the plan was not an S corporation on such date, the proposal is effective with respect to plan

years ending after July 11, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

300

61Prop. reg. sec. 1.412(c)(9)–1(b)(1). 62The Senate amendment also amends the corresponding provisions of ERISA. 63The conference agreement also amends the corresponding provisions of ERISA.

Subtitle F. Reducing Regulatory Burdens (secs. 451–464 of the bill)

A. MODIFICATION OF TIMING OF PLAN VALUATIONS (sec. 601 of the

House bill, sec. 601 of the Senate amendment, and sec. 412 of the

Code)

PRESENT LAW

Under present law, plan valuations are generally required annually for plans subject to the minimum funding rules. Under proposed Treasury regulations, except as provided by the Commissioner, the valuation must be as of a date within the plan year to

which the valuation refers or within the month prior to the beginning of that year.61

HOUSE BILL

The provision incorporates into the statute the proposed regulation regarding the date of valuations. The provision also provides,

as an exception to this general rule, that the valuation date with

respect to a plan year may be any date within the immediately preceding plan year if, as of such date, plan assets are not less than

125 percent of the plan’s current liability. Information determined

as of such date is required to be adjusted actuarially, in accordance

with Treasury regulations, to reflect significant differences in plan

participants. An election to use a prior plan year valuation date,

once made, may only be revoked with the consent of the Secretary.

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

SENATE AMENDMENT

The Senate amendment is the same as the House bill.62

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.63

B. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND DEDUCTION (sec. 602 of the House bill, sec. 602 of the Senate amendment, and sec. 404 of the Code)

PRESENT LAW

An employer is entitled to deduct certain dividends paid in

cash during the employer’s taxable year with respect to stock of the

employer that is held by an employee stock ownership plan

(‘‘ESOP’’). The deduction is allowed with respect to dividends that,

in accordance with plan provisions, are (1) paid in cash directly to

the plan participants or their beneficiaries, (2) paid to the plan and

subsequently distributed to the participants or beneficiaries in cash

no later than 90 days after the close of the plan year in which the

dividends are paid to the plan, or (3) used to make payments on

loans (including payments of interest as well as principal) that

301

64 An employee includes a self-employed individual.

were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.

The Secretary may disallow the deduction for any ESOP dividend if he determines that the dividend constitutes, in substance,

an evasion of taxation (sec. 404(k)(5)).

HOUSE BILL

In addition to the deductions permitted under present law for

dividends paid with respect to employer securities that are held by

an ESOP, an employer is entitled to deduct dividends that, at the

election of plan participants or their beneficiaries, are (1) payable

in cash directly to plan participants or beneficiaries, (2) paid to the

plan and subsequently distributed to the participants or beneficiaries in cash no later than 90 days after the close of the plan

year in which the dividends are paid to the plan, or (3) paid to the

plan and reinvested in qualifying employer securities.

As under present law, the Secretary may disallow the deduction for any ESOP dividend if he determines that the dividend constitutes, in substance, an evasion of taxation (sec. 404(k)(5)).

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

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment, with the following modification. The conference

agreement permits the Secretary of the Treasury to disallow the

deduction for any ESOP dividend in the case of any dividend that

constitutes the avoidance or evasion of taxation. For example, it is

intended that the Secretary will disallow the deduction as an

avoidance or evasion of taxation in circumstances similar to those

that would result in a nonallocation year under the provision of the

bill relating to S corporation ESOPs. The dividends deductible

under the provision are treated the same as other plan earnings,

i.e., they are not subject to the limits on elective deferrals or the

special nondiscrimination rules applicable to section 401(k) plans,

and are not treated as annual additions for purposes of the section

415 limits on contributions.

C. REPEAL TRANSITION RULE RELATING TO CERTAIN HIGHLY COM- PENSATED EMPLOYEES (sec. 603 of the House bill, sec. 603 of the

Senate amendment, and sec. 1114(c)(4) of the Tax Reform Act of

1986)

PRESENT LAW

Under present law, for purposes of the rules relating to qualified plans, a highly compensated employee is generally defined as

an employee 64 who (1) was a 5-percent owner of the employer at

any time during the year or the preceding year or (2) either (a) had

compensation for the preceding year in excess of $85,000 (for 2000)

302

65Treas. Reg. sec. 1.410(b)–6(g).

or (b) at the election of the employer, had compensation in excess

of $85,000 for the preceding year and was in the top 20 percent of

employees by compensation for such year.

Under a rule enacted in the Tax Reform Act of 1986, a special

definition of highly compensated employee applies for purposes of

the nondiscrimination rules relating to qualified cash or deferred

arrangements (‘‘section 401(k) plans’’) and matching contributions.

This special definition applies to an employer incorporated on December 15, 1924, that meets certain specific requirements.

HOUSE BILL

The provision repeals the special definition of highly compensated employee under the Tax Reform Act of 1986. Thus, the

present-law definition applies.

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

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

D. EMPLOYEES OF TAX-EXEMPT ENTITIES (sec. 604 of the House bill

and sec. 604 of the Senate amendment)

PRESENT LAW

The Tax Reform Act of 1986 provided that nongovernmental

tax-exempt employers were not permitted to maintain a qualified

cash or deferred arrangement (‘‘section 401(k) plan’’). This prohibition was repealed, effective for years beginning after December 31,

1996, by the Small Business Job Protection Act of 1996.

Treasury regulations provide that, in applying the nondiscrimination rules to a section 401(k) plan (or a section 401(m)

plan that is provided under the same general arrangement as the

section 401(k) plan), the employer may treat as excludable those

employees of a tax-exempt entity who could not participate in the

arrangement due to the prohibition on maintenance of a section

401(k) plan by such entities. Such employees may be disregarded

only if more than 95 percent of the employees who could participate in the section 401(k) plan benefit under the plan for the plan

year.65

Tax-exempt charitable organizations may maintain a tax-sheltered annuity (a ‘‘section 403(b) annuity’’) that allows employees to

make salary reduction contributions.

HOUSE BILL

The Treasury Department is directed to revise its regulations

under section 410(b) to provide that employees of a tax-exempt

charitable organization who are eligible to make salary reduction

303

66The exclusion does not apply with respect to graduate-level courses.

contributions under a section 403(b) annuity may be treated as excludable employees for purposes of testing a section 401(k) plan, or

a section 401(m) plan that is provided under the same general arrangement as the section 401(k) plan of the employer, if (1) no employee of such tax-exempt entity is eligible to participate in the section 401(k) or 401(m) plan and (2) at least 95 percent of the employees who are not employees of the charitable employer are eligible to participate in such section 401(k) plan or section 401(m)

plan.

The revised regulations are to be effective for years beginning

after December 31, 1996.

Effective date.—The provision is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

E. TREATMENT OF EMPLOYER-PROVIDED RETIREMENT ADVICE (sec.

605 of the House bill, sec. 605 of the Senate amendment, and sec.

132 of the Code)

PRESENT LAW

Under present law, certain employer-provided fringe benefits

are excludable from gross income (sec. 132) and wages for employment tax purposes. These excludable fringe benefits include working condition fringe benefits and de minimis fringes. In general, a

working condition fringe benefit is any property or services provided by an employer to an employee to the extent that, if the employee paid for such property or services, such payment would be

allowable as a deduction as a business expense. A de minimis

fringe benefit is any property or services provided by the employer

the value of which, after taking into account the frequency with

which similar fringes are provided, is so small as to make accounting for it unreasonable or administratively impracticable. In addition, if certain requirements are satisfied, up to $5,250

annually of employer-provided educational assistance is excludable

from gross income (sec. 127) and wages. This exclusion expires with

respect to courses beginning after December 31, 2001.66 Education

not excludable under section 127 may be excludable as a working

condition fringe.

There is no specific exclusion under present law for employerprovided retirement planning services. However, such services may

be excludable as employer-provided educational assistance or a

fringe benefit.

HOUSE BILL

Qualified retirement planning services provided to an employee

and his or her spouse by an employer maintaining a qualified plan

304

67Treas. Reg. sec. 301.6058–1(a).

are excludable from income and wages. Qualified retirement planning services are advice and information regarding retirement

planning. The exclusion is not limited to information regarding the

qualified plan, and, thus, for example, applies to advice and information regarding retirement income planning for an individual and

his or her spouse and how the employer’s plan fits into the individual’s overall retirement income plan. On the other hand, the exclusion does not apply to services that may be related to retirement

planning, such as tax preparation, accounting, legal, or brokerage

services.

The exclusion does not apply with respect to highly compensated employees unless the services are available on substantially the same terms to each member of the group of employees

normally provided education and information regarding the employer’s qualified plan.

Effective date.—The provision is effective with respect to years

beginning after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment. The conferees intend that the provision will clarify

the treatment of retirement advice provided in a nondiscriminatory

manner. It is intended that the Secretary, in determining the application of the exclusion to highly compensated employees, may permit employers to take into consideration employee circumstances

other than compensation and position in providing advice to classifications of employees. Thus, for example, the Secretary may permit employers to limit certain advice to individuals nearing retirement age under the plan.

F. REPORTING SIMPLIFICATION (sec. 606 of the House bill and sec.

606 of the Senate amendment)

PRESENT LAW

A plan administrator of a pension, annuity, stock bonus, profitsharing or other funded plan of deferred compensation generally

must file with the Secretary of the Treasury an annual return for

each plan year containing certain information with respect to the

qualification, financial condition, and operation of the plan. Title I

of ERISA also may require the plan administrator to file annual reports concerning the plan with the Department of Labor and the

Pension Benefit Guaranty Corporation (‘‘PBGC’’). The plan administrator must use the Form 5500 series as the format for the required annual return.67 The Form 5500 series annual return/report, which consists of a primary form and various schedules, includes the information required to be filed with all three agencies.

The plan administrator satisfies the reporting requirement with respect to each agency by filing the Form 5500 series annual return/

305

report with the Department of Labor, which forwards the form to

the Internal Revenue Service and the PBGC.

The Form 5500 series consists of 3 different forms: Form 5500,

Form 5500–C/R, and Form 5500–EZ. Form 5500 is the most comprehensive of the forms and requires the most detailed financial information. Form 5500–C/R requires less information than Form

5500, and Form 5500–EZ, which consists of only 1 page, is the simplest of the forms.

The size of the plan determines which form a plan administrator must file. If the plan has more than 100 participants at the

beginning of the plan year, the plan administrator generally must

file Form 5500. If the plan has fewer than 100 participants at the

beginning of the plan year, the plan administrator generally may

file Form 5500–C/R. A plan administrator generally may file Form

5500–EZ if (1) the only participants in the plan are 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), (2) the plan is not aggregated with another plan

in order to satisfy the minimum coverage requirements of section

410(b), (3) the employer is not a member of a related group of employers, and (4) the employer does not receive the services of leased

employees. If the plan satisfies the eligibility requirements for

Form 5500–EZ and the total value of the plan assets as of the end

of the plan year and all prior plan years does not exceed $100,000,

the plan administrator is not required to file a return.

HOUSE BILL

The Secretary of the Treasury is directed to provide for the filing of a simplified annual return substantially similar to the Form

5500–EZ by a plan that (1) covers less than 25 employees on the

first day of the plan year, (2) is not aggregated with another plan

in order to satisfy the minimum coverage requirements of section

410(b), (3) is maintained by an employer that is not a member of

a related group of employers, and (4) is maintained by an employer

that does not receive the services of leased employees.

In addition, the Secretary is directed to modify the annual return filing requirements with respect to plans that satisfy the eligibility requirements for Form 5500–EZ to provide that if the total

value of the plan assets of such a plan as of the end of the plan

year and all prior plan years does not exceed $250,000, the plan

administrator is not required to file a return.

Effective date.—The provision is effective on January 1, 2001.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

that the Senate amendment does not include the provision relating

to annual returns for plans that cover less than 25 employees.

CONFERENCE AGREEMENT

The conference agreement follows the Senate bill, with the following modification. The conference agreement directs the Secretary of the Treasury to provide simplified reporting requirements

306

68 Rev. Proc. 98–22, 1998–12 I.R.B. 11, as modified by Rev. Proc. 99–13, 1999–5, I.R.B. 52.

for plan years beginning after December 31, 2001, for certain plans

with fewer than 25 employees.

G. IMPROVEMENT TO EMPLOYEE PLANS COMPLIANCE RESOLUTION

SYSTEM (sec. 607 of the House bill and sec. 607 of the Senate

amendment)

PRESENT LAW

A retirement plan that is intended to be a tax-qualified plan

provides retirement benefits on a tax-favored basis if the plan satisfies all of the requirements of section 401(a). Similarly, an annuity that is intended to be a tax-sheltered annuity provides retirement benefits on a tax-favored basis if the program satisfies all of

the requirements of section 403(b). Failure to satisfy all of the applicable requirements of section 401(a) or section 403(b) may disqualify a plan or annuity for the intended tax-favored treatment.

The Internal Revenue Service (‘‘IRS’’) has established the Employee Plans Compliance Resolution System (‘‘EPCRS’’), which is a

comprehensive system of correction programs for sponsors of retirement plans and annuities that are intended, but have failed, to satisfy the requirements of section 401(a) and section 403(b), as applicable.68 EPCRS permits employers to correct compliance failures

and continue to provide their employees with retirement benefits

on a tax-favored basis.

The IRS has designed EPCRS to (1) encourage operational and

formal compliance, (2) promote voluntary and timely correction of

compliance failures, (3) provide sanctions for compliance failures

identified on audit that are reasonable in light of the nature, extent, and severity of the violation, (4) provide consistent and uniform administration of the correction programs, and (5) permit employers to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their retirement plans

and annuities.

The basic elements of the programs that comprise EPCRS are

self-correction, voluntary correction with IRS approval, and correction on audit. The Administrative Policy Regarding Self-Correction

(‘‘APRSC’’) permits a plan sponsor that has established compliance

practices to correct certain insignificant failures at any time (including during an audit), and certain significant failures within a

2–year period, without payment of any fee or sanction. The Voluntary Compliance Resolution (‘‘VCR’’) program, the Walk-In Closing Agreement Program (‘‘Walk-In CAP’’), and the Tax-Sheltered

Annuity Voluntary Correction (‘‘TVC’’) program permit an employer, at any time before an audit, to pay a limited fee and receive

IRS approval of a correction. For a failure that is discovered on

audit and corrected, the Audit Closing Agreement Program (‘‘Audit

CAP’’) provides for a sanction that bears a reasonable relationship

to the nature, extent, and severity of the failure and that takes into

account the extent to which correction occurred before audit.

The IRS has expressed its intent that EPCRS will be updated

and improved periodically in light of experience and comments

from those who use it.

307

HOUSE BILL

The Secretary of the Treasury is directed 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.

Effective date.—The provision is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

H. REPEAL OF THE MULTIPLE USE TEST (sec. 608 of the House bill,

sec. 608 of the Senate amendment, and sec. 401(m) of the Code)

PRESENT LAW

Elective deferrals under a qualified cash or deferred arrangement (‘‘section 401(k) plan’’) are subject to a special annual nondiscrimination test (‘‘ADP test’’). The ADP test compares the actual

deferral percentages (‘‘ADPs’’) of the highly compensated employee

group and the nonhighly compensated employee group. The ADP

for each group generally is the average of the deferral percentages

separately calculated for the employees in the group who are eligible to make elective deferrals for all or a portion of the relevant

plan year. Each eligible employee’s deferral percentage generally is

the employee’s elective deferrals for the year divided by the employee’s compensation for the year.

The plan generally satisfies the ADP test if the ADP of the

highly compensated employee group for the current plan year is either (1) not more than 125 percent of the ADP of the nonhighly

compensated employee group for the prior plan year, or (2) not

more than 200 percent of the ADP of the nonhighly compensated

employee group for the prior plan year and not more than 2 percentage points greater than the ADP of the nonhighly compensated

employee group for the prior plan year.

Employer matching contributions and after-tax employee contributions under a defined contribution plan also are subject to a

special annual nondiscrimination test (‘‘ACP test’’). The ACP test

compares the actual deferral percentages (‘‘ACPs’’) of the highly

compensated employee group and the nonhighly compensated employee group. The ACP for each group generally is the average of

the contribution percentages separately calculated for the employVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00311 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
308

ees in the group who are eligible to make after-tax employee contributions or who are eligible for an allocation of matching contributions for all or a portion of the relevant plan year. Each eligible employee’s contribution percentage generally is the employee’s

aggregate after-tax employee contributions and matching contributions for the year divided by the employee’s compensation for the

year.

The plan generally satisfies the ACP test if the ACP of the

highly compensated employee group for the current plan year is either (1) not more than 125 percent of the ACP of the nonhighly

compensated employee group for the prior plan year, or (2) not

more than 200 percent of the ACP of the nonhighly compensated

employee group for the prior plan year and not more than 2 percentage points greater than the ACP of the nonhighly compensated

employee group for the prior plan year.

For any year in which (1) at least one highly compensated employee is eligible to participate in an employer’s plan or plans that

are subject to both the ADP test and the ACP test, (2) the plan

subject to the ADP test satisfies the ADP test but the ADP of the

highly compensated employee group exceeds 125 percent of the

ADP of the nonhighly compensated employee group, and (3) the

plan subject to the ACP test satisfies the ACP test but the ACP of

the highly compensated employee group exceeds 125 percent of the

ACP of the nonhighly compensated employee group, an additional

special nondiscrimination test (‘‘multiple use test’’) applies to the

elective deferrals, employer matching contributions, and after-tax

employee contributions. The plan or plans generally satisfy the

multiple use test if the sum of the ADP and the ACP of the highly

compensated employee group does not exceed the greater of (1) the

sum of (A) 1.25 times the greater of the ADP or the ACP of the

nonhighly compensated employee group, and (B) 2 percentage

points plus (but not more than 2 times) the lesser of the ADP or

the ACP of the nonhighly compensated employee group, or (2) the

sum of (A) 1.25 times the lesser of the ADP or the ACP of the nonhighly compensated employee group, and (B) 2 percentage points

plus (but not more than 2 times) the greater of the ADP or the

ACP of the nonhighly compensated employee group.

HOUSE BILL

The provision repeals the multiple use test.

Effective date.—The provision is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

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69 Any conditions prescribed by the Secretary cannot be effective before the first year beginning not less than 120 days after the date on which the condition is prescribed. 70 Any conditions prescribed by the Secretary cannot be effective before the first year beginning not less than 120 days after the date on which the condition is prescribed.

I. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF

BUSINESS RULES (sec. 609 of the House bill, sec. 609 of the Senate amendment and secs. 401(a)(4), 410(b), and 414(r) of the

Code)

PRESENT LAW

A plan is not a qualified retirement plan if the contributions

or benefits provided under the plan discriminate in favor of highly

compensated employees (sec. 401(a)(4)). The applicable Treasury

regulations set forth the exclusive rules for determining whether a

plan satisfies the nondiscrimination requirement. These regulations state that the form of the plan and the effect of the plan in

operation determine whether the plan is nondiscriminatory and

that intent is irrelevant.

Similarly, a plan is not a qualified retirement plan if the plan

does not benefit a minimum number of employees (sec. 410(b)). A

plan satisfies this minimum coverage requirement if and only if it

satisfies one of the tests specified in the applicable Treasury regulations. If an employer is treated as operating separate lines of

business, the employer may apply the minimum coverage requirements to a plan separately with respect to the employees in each

separate line of business (sec. 414(r)). Under a so-called ‘‘gateway’’

requirement, however, the plan must benefit a classification of employees that does not discriminate in favor of highly compensated

employees in order for the employer to apply the minimum coverage requirements separately for the employees in each separate

line of business. A plan satisfies this gateway requirement only if

it satisfies one of the tests specified in the applicable Treasury regulations.

HOUSE BILL

The Secretary of the Treasury is directed to provide by regulation applicable to years beginning after December 31, 2000, that a

plan is deemed to satisfy the nondiscrimination requirements of

section 401(a)(4) if the plan satisfies the pre-1994 facts and circumstances test, satisfies the conditions prescribed by the Secretary to appropriately limit the availability of such test,69 and is

submitted to the Secretary for a determination of whether it satisfies such test (to the extent provided by the Secretary).

Similarly, a plan complies with the minimum coverage requirement of section 410(b) if the plan satisfies the pre-1989 coverage

rules, is submitted to the Secretary for a determination of whether

it satisfies the pre-1989 coverage rules (to the extent provided by

the Secretary), and satisfies conditions prescribed by the Secretary

by regulation that appropriately limit the availability of the pre1989 coverage rules.70

The Secretary of the Treasury is directed to modify, on or before December 31, 2000, the existing regulations issued under section 414(r) in order to expand (to the extent that the Secretary may

determine to be appropriate) the ability of a plan to demonstrate

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compliance with the line of business requirements based upon the

facts and circumstances surrounding the design and operation of

the plan, even though the plan is unable to satisfy the mechanical

tests currently used to determine compliance.

Effective date.—The provision is effective on the date of enactment.

SENATE AMENDMENT

The Senate amendment is the same as the House bill, with the

following modification. The Senate amendment provides that the

regulations required with respect to the nondiscrimination requirements of section 401(a)(4), the minimum coverage requirements of

section 410(b), and the line of business requirements of section

414(r) are to be issued or effective, whichever is applicable, by December 31, 2001.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

the following modification. The conference agreement provides that

the regulations required with respect to the nondiscrimination requirements of section 401(a)(4), the minimum coverage requirements of section 410(b), and the line of business requirements of

section 414(r) are to be issued or effective, whichever is applicable,

by December 31, 2002.

J. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON

APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE

TO STATE AND LOCAL GOVERNMENT PLANS (sec. 610 of the House

bill, sec. 610 of the Senate amendment, and sec. 1505 of the Taxpayer Relief Act of 1997, and secs. 401(a) and 401(k) of the Code)

PRESENT LAW

All governmental plans are exempt from the minimum coverage requirements (sec. 410(b)). A qualified retirement plan maintained by a State or local government is exempt from the rules concerning nondiscrimination (sec. 401(a)(4)) and minimum participation (sec. 401(a)(26)). All other governmental plans are not exempt

from the nondiscrimination and minimum participation rules.

HOUSE BILL

The provision exempts all governmental plans (as defined in

sec. 414(d)) from the nondiscrimination and minimum participation

rules.

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

SENATE AMENDMENT

The Senate amendment is the same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the House bill and the Senate amendment.

311

71Similar provisions are contained in Title I of ERISA.

K. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS; DIS- CLOSURE OF OPTIONAL FORMS OF BENEFIT (sec. 611 of the House

bill, sec. 611 of the Senate amendment, and secs. 402(f), 411, and

417 of the Code)

PRESENT LAW

Notice and consent requirements apply to certain distributions

from qualified retirement plans. These requirements relate to the

content and timing of information that a plan must provide to a

participant prior to a distribution, and to whether the plan must

obtain the participant’s consent to the distribution. The nature and

extent of the notice and consent requirements applicable to a distribution depend upon the value of the participant’s vested accrued

benefit and whether the joint and survivor annuity requirements

(sec. 417) apply to the participant.71

If the present value of the participant’s vested accrued benefit exceeds $5,000, the plan may not distribute the participant’s benefit without the written consent of the participant. The participant’s consent to a distribution is not valid unless the participant

has received from the plan a notice that contains a written explanation of (1) the material features and the relative values of the

optional forms of benefit available under the plan, (2) the participant’s right, if any, to have the distribution directly transferred to

another retirement plan or IRA, and (3) the rules concerning the

taxation of a distribution. If the joint and survivor annuity requirements apply to the participant, this notice also must contain a

written explanation of (1) the terms and conditions of the qualified

joint and survivor annuity (‘‘QJSA’’), (2) the participant’s right to

make, and the effect of, an election to waive the QJSA, (3) the

rights of the participant’s spouse with respect to a participant’s

waiver of the QJSA, and (4) the right to make, and the effect of,

a revocation of a waiver of the QJSA. The plan generally must provide this notice to the participant no less than 30 and no more than

90 days before the date distribution commences.

If the participant’s vested accrued benefit does not exceed $5,000, the terms of the plan may provide for distribution without

the participant’s consent. The plan generally is required, however,

to provide to the participant a notice that contains a written explanation of (1) the participant’s right, if any, to have the distribution

directly transferred to another retirement plan or IRA, and (2) the

rules concerning the taxation of a distribution. The plan generally

must provide this notice to the participant no less than 30 and no

more than 90 days before the date distribution commences.

The plan administrator is required to provide to the distributee

of an eligible rollover distribution an explanation of the rollover

and withholding rules applicable to the distribution. This notice

must generally be provided no less than 30 days and not more than

90 days before the date of the distribution.

HOUSE BILL

A qualified retirement plan is required to provide the applicable distribution notice no less than 30 days and no more than 180

312

days 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 180 days 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.

Effective date.—The provision is effective for years beginning

after December 31, 2000.

SENATE AMENDMENT

The Senate amendment is the same as the House bill with respect to the notice and consent period regarding distributions.

In addition, the Senate amendment requires that plan participants be notified of the existence of certain differences between the

values of optional forms of benefit. If a plan provides optional forms

of benefits and the present values of such optional forms of benefits

are not actuarially equivalent as of the annuity starting date, then

the plan is required to provide certain information regarding such

benefits in the notice required to be provided regarding joint and

survivor annuities. The information must be sufficient (as determined in accordance with Treasury regulations) to allow the participant to understand the differences in the present values of the optional forms of benefits and the effect the participant’s election as

to the form of benefit will have on the value of the benefits provided under the plan. The information must be provided in a manner calculated to be reasonably understood by the average plan

participant.

Effective date.—Same as the House bill.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

the following modification. With respect to the disclosure of the differences between the values of optional forms of benefits, the conference agreement directs the Secretary of the Treasury to issue,

not later than December 31, 2001, final regulations under section

417(a)(3). These regulations are to provide that, if a defined benefit

plan offers both a qualified joint and survivor annuity and a single

sum optional form of benefit, and the distributable amount under

such single sum option is less than the present value (determined

in accordance with section 417(e)) of the qualified joint and survivor annuity commencing as of the same annuity starting date,

the applicable distribution notice shall include sufficient information to permit the participant to understand the difference between

the present value of the qualified joint and survivor annuity and

the amount of the single sum. If the plan offers an unmarried participant one or more annuity options that are substantially more

valuable than the qualified joint and survivor annuity offered by

the plan, the required comparison shall be made between the single

sum option and the most valuable of the other annuity options. The

conference agreement provides that the regulations shall apply to

distributions made not earlier than 6 months after the date the

regulations are issued.

313

72Pub. L. No. 105–92.

L. ANNUAL REPORT DISSEMINATION (sec. 612 of the Senate

amendment and sec. 104(b)(3) of ERISA)

PRESENT LAW

Title I of ERISA generally requires the plan administrator of

each employee pension benefit plan and each employee welfare

benefit plan to file an annual report concerning the plan with the

Secretary of Labor within seven months after the end of the plan

year. Within nine months after the end of the plan year, the plan

administrator generally must provide to each participant and to

each beneficiary receiving benefits under the plan a summary of

the annual report filed with the Secretary of Labor for the plan

year.

HOUSE BILL

No provision.

SENATE AMENDMENT

Within nine months after the end of each plan year, the plan

administrator is required to make available for examination a summary of the annual report filed with the Secretary of Labor for the

plan year. In addition, the plan administrator is required to furnish

the summary to a participant, or to a beneficiary receiving benefits

under the plan, upon request.

Effective date.—The provision is effective for reports for years

beginning after December 31, 1999.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

the following modification. The conference agreement provides that

the requirement that the summary annual report be provided to

participants and beneficiaries is satisfied if the report is reasonably

available through electronic means or other new technology.

M. MODIFICATIONS TO THE SAVER ACT (sec. 613 of the Senate

amendment and sec. 517 of ERISA)

PRESENT LAW

The Savings Are Vital to Everyone’s Retirement (‘‘SAVER’’)

Act 72 initiated a public-private partnership to educate American

workers about retirement savings and directed the Department of

Labor to maintain an ongoing program of public information and

outreach. The Act also convened a National Summit on Retirement

Savings held June 4–5, 1998, and to be held again in 2001 and

2005, co-hosted by the President and the bipartisan Congressional

leadership. The National Summit brings together experts in the

fields of employee benefits and retirement savings, key leaders of

government, and interested parties from the private sector and

general public. The delegates are selected by the Congressional

leadership and the President. The National Summit is a public-private partnership, receiving substantial funding from private sector

314

contributions. The goals of the National Summits are to: (1) advance the public’s knowledge and understanding of retirement savings and facilitate the development of a broad-based, public education program; (2) identify the barriers which hinder workers from

setting aside adequate savings for retirement and impede employers, especially small employers, from assisting their workers in accumulating retirement savings; and (3) develop specific recommendations for legislative, executive, and private sector actions

to promote retirement income savings among American workers.

HOUSE BILL

No provision.

SENATE AMENDMENT

The provision clarifies that future National Summits on Retirement Savings are to be held in the month of September in 2001

and 2005, and would add an additional National Summit in 2009.

To facilitate the administration of future National Summits, the

Department of Labor is given authority to enter into cooperative

agreements (pursuant to the Federal Grant and Cooperative Agreement Act of 1977) with its 1999 summit partner, the American

Savings Education Council.

Six new statutory delegates are added to future National Summits: the Chairman and Ranking Member of the House Ways and

Means Committee, the Senate Finance Committee, and the Subcommittee on Employer-Employee Relations of the House Committee on Education and the Workforce. Further, the President, in

consultation with the Congressional leadership, may appoint up to

three percent of the delegates (not to exceed 10) from a list of nominees provided by the private sector partner in Summit administration. The provision also clarifies that new delegates are to be appointed for each future National Summit (as was the intent of the

original legislation) and sets deadlines for their appointment.

The provision also sets deadlines for the Department of Labor

to publish the Summit agenda, gives the Department of Labor limited reception and representation authority, and mandates that the

Department of Labor consult with the Congressional leadership in

drafting the post-Summit report.

Effective date.—The provision is effective on the date of enactment.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment.

N. STUDIES (sec. 614 of the Senate amendment)

PRESENT LAW

No provision.

HOUSE BILL

No provision.

315

SENATE AMENDMENT

Report on pension coverage

The bill directs the Secretary to report to the Senate Committee on Finance and the House Committee on Ways and Means

regarding the effect of the bill on pension coverage, including any

expansion of coverage for low- and moderate-income workers, levels

of pension benefits, quality of coverage, worker’s access to and participation in plans, and retirement security. This report is required

to be submitted no later than five years after the date of enactment.

Studies of preretirement uses of benefits and investment decisions

The bill directs the Secretary to conduct a study of the presentlaw rules that permit individuals to access their IRA or qualified

retirement plan benefits prior to retirement, including an analysis

of the use of the existing rules and the extent to which such rules

undermine the goal of accumulating adequate resources for retirement. In addition, the Secretary of the Treasury is directed to conduct a study of the types of investment decisions made by IRA

owners and participants in self-directed qualified retirement plans,

including an analysis of the existing restrictions on investments

and the extent to which additional restrictions would facilitate the

accumulation of adequate income for retirement. The studies are

required to be submitted to the Senate Committee on Finance and

the House Committee on Ways and Means no later than January

1, 2002.

Effective date

The provisions are effective on the date of enactment.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

the following modification. The conference agreement does not direct the Secretary to conduct the study relating to pre-retirement

access to IRA or qualified retirement plan assets or the study relating to the types of investment decisions made by IRA owners and

participants in self-directed qualified retirement plans.

Subtitle G. Other ERISA Provisions (secs. 471–478 of the bill)

A. EXTENSION OF PBGC MISSING PARTICIPANTS PROGRAM (secs.

206(f) and 4050 of ERISA)

PRESENT LAW

The plan administrator of a single-employer defined benefit

pension plan that is subject to Title IV of ERISA and terminates

under a standard termination is required to distribute the assets

of the plan. With respect to a participant whom the plan administrator cannot locate after a diligent search, the plan administrator

satisfies the distribution requirement only by purchasing irrevocable commitments from an insurer to provide all benefit liabilities under the plan or transferring the participant’s designated

benefit to the Pension Benefit Guaranty Corporation (‘‘PBGC’’),

316

which holds the benefit of the missing participant as trustee until

the PBGC locates the missing participant and distributes the benefit.

The PBGC missing participant program is not available to

multiemployer plans or defined contribution plans and other plans

not covered by Title IV of ERISA.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The PBGC is directed to prescribe for terminating multiemployer plans rules similar to the present-law missing participant

rules applicable to terminating single employer plans that are subject to Title IV of ERISA.

In addition, plan administrators of certain types of plans not

subject to the PBGC termination insurance program under present

law are permitted, but not required, to elect to transfer missing

participants’ benefits to the PBGC upon plan termination. Specifically, the provision extends the missing participants program to defined contribution plans, defined benefit plans that have no more

than 25 active participants and are maintained by professional

service employers, and the portion of defined benefit plans that

provide benefits based upon the separate accounts of participants

and therefor are treated as defined contribution plans under

ERISA.

Effective date.—The provision is effective for distributions

made after final regulations under the provision are prescribed.

B. REDUCE PBGC PREMIUMS FOR SMALL AND NEW PLANS (sec. 4006

of ERISA)

PRESENT LAW

Under present law, the Pension Benefit Guaranty Corporation

(‘‘PBGC’’) provides insurance protection for participants and beneficiaries under certain defined benefit pension plans by guaranteeing certain basic benefits under the plan in the event the plan

is terminated with insufficient assets to pay benefits promised

under the plan. The guaranteed benefits are funded in part by premium payments from employers who sponsor defined benefit plans.

The amount of the required annual PBGC premium for a singleemployer plan is generally a flat rate premium of $19 per participant and an additional variable-rate premium based on a charge

of $9 per $1,000 of unfunded vested benefits. Unfunded vested benefits under a plan generally means (1) the unfunded current liability for vested benefits under the plan, over (2) the value of the

plan’s assets, reduced by any credit balance in the funding standard account. No variable-rate premium is imposed for a year if contributions to the plan were at least equal to the full funding limit.

317

The PBGC guarantee is phased in ratably in the case of plans

that have been in effect for less than 5 years, and with respect to

benefit increases from a plan amendment that was in effect for less

than 5 years before termination of the plan.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

Reduced flat-rate premiums for new plans of small employers

Under the conference agreement, for the first five plan years

of a new single-employer plan of a small employer, the flat-rate

PBGC premium is $5 per plan participant.

A small employer is a contributing sponsor that, on the first

day of the plan year, has 100 or fewer employees. For this purpose,

all employees of the members of the controlled group of the contributing sponsor are taken into account. In the case of a plan to which

more than one unrelated contributing sponsor contributes, employees of all contributing sponsors (and their controlled group members) are taken into account in determining whether the plan is a

plan of a small employer.

A new plan means a defined benefit plan maintained by a contributing sponsor if, during the 36-month period ending on the date

of adoption of the plan, such contributing sponsor (or controlled

group member or a predecessor of either) has not established or

maintained a plan subject to PBGC coverage with respect to which

benefits were accrued for substantially the same employees as are

in the new plan.

Reduced variable-rate PBGC premium for new plans

The provision provides that the variable-rate premium is

phased in for new defined benefit plans over a six-year period

starting with the plan’s first plan year. The amount of the variablerate premium is a percentage of the variable premium otherwise

due, as follows: 0 percent of the otherwise applicable variable-rate

premium in the first plan year; 20 percent in the second plan year;

40 percent in the third plan year; 60 percent in the fourth plan

year; 80 percent in the fifth plan year; and 100 percent in the sixth

plan year (and thereafter).

A new defined benefit plan is defined as described above under

the flat-rate premium provision relating to new small employer

plans.

Reduced variable-rate PBGC premium for small plans

In the case of a plan of a small employer, the variable-rate premium is no more than $5 multiplied by the number of plan participants in the plan at the end of the preceding plan year. For purposes of this provision, a small employer is a contributing sponsor

that, on the first day of the plan year, has 25 or fewer employees.

For this purpose, all employees of the members of the controlled

318

group of the contributing sponsor are taken into account. In the

case of a plan to which more than one unrelated contributing sponsor contributes, employees of all contributing sponsors (and their

controlled group members) are taken into account in determining

whether the plan is a plan of a small employer.

Effective date

The reduction of the flat-rate premium for new plans of small

employers and the reduction of the variable-rate premium for new

plans are effective with respect to plans established after December

31, 2000. The reduction of the variable-rate premium for small

plans is effective with respect to plan years beginning after December 31, 2000.

C. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM

OVERPAYMENT REFUNDS (sec. 4007(b) of ERISA)

PRESENT LAW

The PBGC charges interest on underpayments of premiums,

but is not authorized to pay interest on overpayments.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement allows the PBGC to pay interest on

overpayments made by premium payors. Interest paid on overpayments is to be calculated at the same rate and in the same manner

as interest is charged on premium underpayments.

Effective date.—The provision is effective with respect to interest accruing for periods beginning not earlier than the date of enactment.

D. RULES FOR SUBSTANTIAL OWNER BENEFITS IN TERMINATED

PLANS (secs. 4021, 4022, 4043 and 4044 of ERISA)

PRESENT LAW

Under present law, the PBGC provides participants and beneficiaries in a defined benefit pension plan with certain guarantees

as to the receipt of benefits under the plan in case of plan termination. The employer sponsoring the defined benefit pension plan

is required to pay premiums to the PBGC to provide insurance for

the guaranteed benefits. In general, the PBGC will guarantee all

basic benefits which are payable in periodic installments for the life

(or lives) of the participant and his or her beneficiaries and are

non-forfeitable at the time of plan termination. The amount of the

guaranteed benefit is subject to certain limitations. One limitation

is that the plan (or an amendment to the plan which increases benefits) must be in effect for 60 months before termination for the

PBGC to guarantee the full amount of basic benefits for a plan parVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00322 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
319

ticipant, other than a substantial owner. In the case of a substantial owner, the guaranteed basic benefit is phased in over 30 years

beginning with participation in the plan. A substantial owner is

one who owns the entire interest in an unincorporated trade or

business, or who owns, directly or indirectly, more than 10 percent

of the voting stock of a corporation or all the stock of a corporation,

or, in the case of a partnership, one who owns, directly or indirectly, more than 10 percent of either the capital interest or profits

interest. Special rules restricting the amount of benefit guaranteed

and the allocation of assets also apply to substantial owners.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The provision provides that the 60 month phase-in of guaranteed benefits applies to a substantial owner with less than a 50

percent ownership interest. For a substantial owner with a 50 percent or more ownership interest (‘‘majority owner’’), the phase-in

occurs over a 10–year period and depends on the number of years

the plan has been in effect. The majority owner’s guaranteed benefit is limited so that it may not be more than the amount phased

in over 60 months for other participants. The rules regarding allocation of assets apply to substantial owners, other than majority

owners, in the same manner as other participants.

Effective date.—The provision is effective for plan terminations

with 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.

E. MULTIEMPLOYER PLAN BENEFITS GUARANTEE (sec. 4022A of

ERISA)

PRESENT LAW

The PBGC guarantees benefits of workers in multiemployer

plans. The monthly guarantee is equal to the participant’s years of

service multiplied by the sum of (1) 100 percent of the first $5 of

the monthly benefit accrual rate, and (2) 75 percent of the next $15

of the accrual rate. The level of benefits guaranteed by the PBGC

under the multiemployer program has not increased since 1980.

For a retiree with 30 years of service, the maximum guaranteed

annual benefit is $5,850. The maximum guarantee under the

PBGC’s single-employer program is adjusted each year to reflect

changes in the social security wage index.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

320

CONFERENCE AGREEMENT

The conference agreement adjusts the amount guaranteed in

multiemployer plans to account for changes in the social security

wage index since 1980. Under the conference agreement, the PBGC

guarantees a monthly benefit equal to the participant’s years of

service multiplied by the sum of (1) 100 percent of the first $11 of

the monthly benefit accrual rate, and (2) 75 percent of the next $33

of the accrual rate. Thus, the conference agreement increases the

maximum annual guarantee for a retiree with 30 years of service

to $12,870.

Effective date.—The provision applies to benefits payable after

the date of enactment, except that the provision does not apply to

benefits under any multiemployer plan that has received financial

assistance from the PBGC under section 4261 of ERISA within the

1-year period ending on the date of enactment.

F. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY

(sec. 502 of ERISA)

PRESENT LAW

Present law requires the Secretary of Labor to assess a civil

penalty against (1) a fiduciary who breaches a fiduciary responsibility under, or commits a violation of, part 4 of Title I of ERISA,

or (2) any other person who knowingly participates in such a

breach or violation. The penalty is equal to 20 percent of the ‘‘applicable recovery amount’’ that is paid pursuant to a settlement agreement with the Secretary of Labor or that a court orders to be paid

in a judicial proceeding brought by the Secretary of Labor to enforce ERISA’s fiduciary responsibility provisions. The Secretary of

Labor may waive or reduce the penalty only if the Secretary finds

in writing that either (1) the fiduciary or other person acted reasonably and in good faith, or (2) it is reasonable to expect that the

fiduciary or other person cannot restore all the losses without severe financial hardship unless the waiver or reduction is granted.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement makes the assessment of the penalty discretionary with the Secretary of Labor, rather than mandatory. This change will allow the Secretary to refrain from imposing

the penalty in certain cases as well as to assess a penalty of less

than 20 percent of the applicable recovery amount. The requirement of a settlement agreement is also eliminated. The applicable

recovery amount is any amount recovered by a plan or by a participant or beneficiary more than 30 days after the fiduciary’s or other

person’s receipt of a written notice of the violation from the Department of Labor (‘‘DOL’’). Payments made after the 30-day grace peVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00324 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
321

73The 30-day period may be extended by the Secretary of Labor.

riod,73 whether they are made pursuant to a settlement agreement,

or simply to discourage the DOL from bringing a legal action, are

subject to the penalty, as are amounts recovered pursuant to a

court order. ERISA section 502(l) is also amended to clarify that

the term ‘‘applicable recovery amount’’ includes payments by third

parties that are made on behalf of the relevant fiduciary or other

persons liable for the amount that is recovered, including those

who did not actually pay. These changes prevent avoidance of the

penalty by having an unrelated third party pay the recovery

amount.

Effective date.—The provision applies to any breach of fiduciary responsibility or other violation of part 4 of Title I of ERISA

occurring on or after the date of enactment. The change with respect to ‘‘applicable recovery amount’’ includes a transition rule

whereby a breach or other violation occurring before the date of enactment which continues past the 180th day from enactment (and

which may have been discontinued during that period) is treated

as having occurred after the date of enactment (to avoid having to

make a complex determination regarding how much of the applicable recovery amount for such continuing violations should be attributed to the post-enactment part of the violation).

G. BENEFIT SUSPENSION NOTICE (sec. 203 of ERISA)

PRESENT LAW

Under present law (ERISA sec. 203(a)(3)(B)), a plan will not

fail to satisfy the vesting requirements with respect to a participant by reason of suspending payment of the participant’s benefits

while such participant is employed. Under the applicable Department of Labor (‘‘DOL’’) regulations, such a suspension is only permissible if the plan notifies the participant during the first calendar month or payroll period in which the plan withholds benefit

payments. Such notice must provide certain information and must

also include a copy of the plan’s provisions relating to the suspension of payments.

In the case of a plan that does not pay benefits to active participants upon attainment of normal retirement age, the employer

must monitor plan participants to determine when any participant

who is still employed attains normal retirement age. In order to

suspend payment of such a participant’s benefits, generally a plan

must, as noted above, promptly provide the participant with a suspension notice.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement directs the Secretary of Labor to revise the regulations relating to the benefit suspension notice to

322

generally permit the information currently required to be set forth

in a suspension notice to be included in the summary plan description. The provision also directs the Secretary of Labor to eliminate

the requirement that the notice include a copy of relevant plan provisions. However, individuals reentering the workforce to resume

work with a former employer after they have begun to receive benefits will still receive the notification of the suspension of benefits

(and a copy of the plan’s provisions relating to suspension of payments). In addition, if a reduced rate of future benefit accruals will

apply to a returning employee (as of his or her first date of participation in the plan after returning to work) who has begun to receive benefits, the notice must include a statement that the rate of

future benefit accruals will be reduced.

Effective date.—The provision applies to plan years beginning

after December 31, 2000.

Subtitle H. Provisions Relating to Plan Amendments (sec. 481 of

the bill) (sec. 701 of the House bill and sec. 701 of the Senate

amendment)

PRESENT LAW

Plan amendments to reflect amendments to the law generally

must be made by the time prescribed for filing the income tax return of the employer for the employer’s taxable year in which the

change in the law occurs.

A plan amendment may not decrease the accrued benefit of a

plan participant (sec. 411(d)(6)).

HOUSE BILL

The House bill permits certain plan amendments made pursuant to the changes made by the bill (or regulations issued under

the provisions of the bill) to be retroactively effective. If the plan

amendment meets the requirements of the bill, then the plan is

treated as being operated in accordance with its terms and the

amendment does not violate the prohibition of reductions of accrued benefits. In order for this treatment to apply, the plan

amendment must be made on or before the last day of the first

plan year beginning on or after January 1, 2003 (January 1, 2005,

in the case of a governmental plan). If the amendment is required

to be made to retain qualified status as a result of the changes in

the bill (or regulations) the amendment must be made retroactively

effective as of the date on which the change became effective with

respect to the plan and the plan must be operated in compliance

until the amendment is made. Amendments that are not required

to retain qualified status but that are made pursuant to the

changes made by the bill (or applicable regulations) may be made

retroactive as of the first day the plan was operated in accordance

with the amendment.

Effective date.—The provision is effective on the date of enactment.

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SENATE AMENDMENT

The Senate amendment is the same as the House bill, except

that the Senate amendment does not provide relief from the prohibition on reductions of accrued benefits.

CONFERENCE AGREEMENT

The conference agreement follows the House bill, with the

modification described below. As under the House bill, the provision applies to plan amendments required to maintain qualified

status, as well as other amendments pursuant to the provisions of

the bill (or applicable regulations). A plan amendment is not considered to be pursuant to the bill (or applicable regulations) if it

has an effective date before the effective date of the provision of the

bill (or regulations) to which it relates. Similarly, the provision

does not provide relief from section 411(d)(6) for periods prior to

the effective date of the relevant provision of the bill (or regulations) or the plan amendment.

The conference agreement provides that the Secretary is given

authority to provide exceptions to the relief from the prohibition on

reductions in accrued benefits. It is intended that the Secretary

will not permit inappropriate reductions in contributions or benefits that are not directly related to the provisions of the bill. For

example, it is intended that a plan that incorporates the section

415 limits by reference could be retroactively amended to impose

the section 415 limits in effect before the bill. On the other hand,

suppose a plan that incorporates the section 401(a)(17) limit on

compensation by reference provides for an employer contribution of

3 percent of compensation. It is expected that the Secretary would

provide that the plan could not be amended retroactively to reduce

the contribution percentage, even though the reduction will result

in the same dollar level of contributions for some participants because of the increase in compensation taken into account under the

plan. As another example, suppose that under present law a plan

is top-heavy and therefore a minimum benefit is required under

the plan, and that under the provisions of the bill, the plan would

not be considered to be top heavy. It is expected that the Secretary

would generally permit plans to be retroactively amended to reflect

the new top-heavy provisions of the bill.

TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND MODERNIZATION (secs. 501–505 of the bill and

secs. 103, 148, 1397E and new secs. 1397F and 1397G of the

Code)

PRESENT LAW

Tax-exempt bonds

In general

Interest on debt incurred by States or local governments is excluded from income if the proceeds of the borrowing are used to

carry out governmental functions of those entities or the debt is repaid with governmental funds (sec. 103). Like other activities carried out and paid for by States and local governments, the conVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00327 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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1 Another provision of the conference agreement accelerates this increase in the volume limits

in 2002.

struction, renovation, and operation of public schools is an activity

eligible for financing with the proceeds of tax-exempt bonds.

Interest on bonds that nominally are issued by States or local

governments, but the proceeds of which are used (directly or indirectly) by a private person and payment of which is derived from

funds of such a private person is taxable unless the purpose of the

borrowing is approved specifically in the Code or in a non-Code

provision of a revenue Act. These bonds are called ‘‘private activity

bonds.’’ The term ‘‘private person’’ includes the Federal Government and all other individuals and entities other than States or

local governments.

Private activities eligible for financing with tax-exempt private activity bonds

The Code includes several exceptions permitting States or local

governments to act as conduits providing tax-exempt financing for

private activities. Both capital expenditures and limited working

capital expenditures of charitable organizations described in section

501(c)(3) of the Code—including elementary, secondary, and postsecondary schools—may be financed with tax-exempt private activity bonds (‘‘qualified 501(c)(3) bonds’’).

In most cases, the volume of tax-exempt private activity bonds

is restricted by aggregate annual limits imposed on bonds issued

by issuers within each State. These annual volume limits equal $50

per resident of the State, or $150 million if greater. The annual

State private activity bond volume limits are scheduled to increase

to the greater of $75 per resident of the State or $225 million in

calendar year 2007. The increase will be phased in ratably beginning in calendar year 2003.1 This increase was enacted by the Tax

and Trade Relief Extension Act of 1998. Qualified 501(c)(3) bonds

are among the tax-exempt private activity bonds that are not subject to these volume limits.

Private activity tax-exempt bonds may not be used to finance

schools owned or operated by private, for-profit businesses.

Arbitrage restrictions on tax-exempt bonds

The Federal income tax does not apply to income of States and

local governments that is derived from the exercise of an essential

governmental function. To prevent these tax-exempt entities from

issuing more Federally subsidized tax-exempt bonds than is necessary for the activity being financed or from issuing such bonds

earlier than necessary, the Code includes arbitrage restrictions limiting the ability to profit from investment of tax-exempt bond proceeds. In general, arbitrage profits may be earned only during specified periods (e.g., defined ‘‘temporary periods’’) before funds are

needed for the purpose of the borrowing or on specified types of investments (e.g., ‘‘reasonably required reserve or replacement

funds’’). Subject to limited exceptions, investment profits that are

earned during these periods or on such investments must be rebated to the Federal Government.

325

The Code includes three exceptions applicable to education-related bonds. First, issuers of all types of tax-exempt bonds are not

required to rebate arbitrage profits if all of the proceeds of the

bonds are spent for the purpose of the borrowing within six months

after issuance. In the case of governmental bonds (including bonds

to finance public schools) the six-month expenditure exception is

treated as satisfied if at least 95 percent of the proceeds is spent

within six months and the remaining five percent is spent within

12 months after the bonds are issued.

Second, in the case of bonds to finance certain construction activities, including school construction and renovation, the sixmonth period is extended to 24 months for construction proceeds.

Arbitrage profits earned on construction proceeds are not required

to be rebated if all such proceeds (other than certain retainage

amounts) are spent by the end of the 24-month period and prescribed intermediate spending percentages are satisfied.

Third, governmental bonds issued by ‘‘small’’ governments are

not subject to the rebate requirement. Small governments are defined as general purpose governmental units that issue no more

than $5 million of tax-exempt governmental bonds in a calendar

year. The $5 million limit is increased to $10 million if at least $5

million of the bonds are used to finance public schools.

Another exception to the arbitrage restriction, enacted as part

of the Tax Reform Act of 1984, provides that 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 will not cause interest on those bonds to be

taxable. The terms of this exception are limited to State constitutional or statutory restrictions in effect as of October 9, 1969. The

Fund consists of certain State lands that were set aside for the

benefit of higher education, the income from mineral rights to these

lands, and certain other earnings on Fund assets. The State constitution directs that monies held in the Fund are to be invested

in interest-bearing obligations and other securities. The State constitution does not permit the expenditure or mortgage of the Fund

for any purpose. Income from the Fund is apportioned between two

university systems operated by the State. Tax-exempt bonds issued

by the two university systems are secured by and payable from the

income of the Fund. These bonds are used to finance buildings and

other permanent improvements for the universities.

The General Assembly of the State approved proposed constitutional amendments regarding the manner in which amounts in

the Fund are paid for the benefit of the two university systems.

These amendments were voted on and passed by the State’s citizens in November 1999. The State constitutional amendments have

the effect of permitting the Fund to make annual distributions

similar to standard university endowment funds, rather than the

previous practice, which tied distributions to annual income performance, creating a variable pattern of distributions. Since these

amendments were not in effect as of October 9, 1969, the amendments eliminate the benefits of the 1984 exception from the tax-exempt bond arbitrage restrictions.

326

Qualified Zone Academy Bonds (‘‘QZABs’’)

As an alternative to traditional tax-exempt bonds, certain

States and local governments are given the authority to issue

‘‘qualified zone academy bonds.’’ Under present law, $400 million

of qualified zone academy bonds may be issued per year in 1998,

1999, 2000, and 2001. The $400 million bond authority is allocated

each year among the States according to their respective populations of individuals below the poverty line. Each State, in turn,

allocates the credit to qualified zone academies within such State.

A State may carry over any unused allocation into subsequent

years (the first two years following the unused limitation year;

three years for carryforwards from 1998 or 1999).

To be a qualified zone academy bond, a bond must satisfy several requirements. First, the bond must be issued pursuant to an

allocation of bond authority from the issuer’s State educational

agency. Second, at least 95 percent of the bond proceeds must be

used for an eligible purpose at a qualified zone academy. Eligible

purposes include renovating school facilities, acquiring equipment,

developing course materials, or training teachers. A qualified zone

academy is a public school (or an academic program within a public

school) that is designed in cooperation with business and is either

(1) located in an empowerment zone or enterprise community or (2)

attended by students at least 35 percent of whom are estimated to

be eligible for free or reduced-cost lunches under the National

School Lunch Act. Finally, private businesses must have promised

to contribute to the qualified zone academy certain property or

services with a present value equal to at least 10 percent of the

bond proceeds.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

Extension of authority to issue present-law QZABs

The conference agreement extends authority to issue QZABs

for two additional years, through December 31, 2003. Except as described below, present-law requirements for these bonds are retained.

Extension of modified QZAB authority to school construction

The conference agreement extends authority to issue QZABs,

with modifications, to public school construction. The agreement

authorizes issuance of up to $5 billion per year of school construction QZABs in 2001, 2002, and 2003. The $5 billion of annual authority will be allocated to the States (including the District of Columbia and U.S. possessions) by the Treasury Department on the

following basis: 50 percent of the aggregate annual amount is allocated to the States based on population and 50 percent is allocated

based on the portion of the State’s population that lives in poverty.

These allocations are to be based on the most recently available

327

Census Bureau data. The State allocations are subject to a ‘‘small

State floor’’ of $25 million per State.

Unissued tax-credit bond authority may be carried forward for

up to two years. As is true under the current QZAB allocation

rules, bond authority is treated as allocated on a ‘‘FIFO’’ basis.

Subject to a special rule for certain larger school districts, Governors are granted interim authority to allocate their State’s authorized school construction QZAB issuance among school districts

in the State unless State legislatures prescribe different allocation

rules. For larger local school districts, defined as districts having

school age populations in excess of 40,000, the conference agreement provides a minimum allocation (which cannot be overridden

by State action) in an amount equal to the percentage of the State’s

total population that resides in the school district. The term ‘‘school

age population’’ is defined as children ages five through seventeen.

In addition to the $5 billion general aggregate annual bond authority, the conference agreement authorizes up to $200 million of

school construction QZABs to be issued to finance public schools operated by or for the benefit of Indian tribes. This $200 million of

additional authority is a one-time authorization which may be allocated by the Treasury Department among Indian tribes at any time

during the five-year period when school construction QZABs and

present-law QZABs may be issued. Both the allocation authority

and the authority to issue these bonds expires after December 31,

2005.

School construction is defined as capital expenditures for new

construction, renovation, or repair or public schools (real property

of a character subject to the allowance for depreciation), including

charter schools, and the acquisition of functionally related and subordinate land. Unlike present-law QZABs, contributions by private

businesses are optional, but not required, for schools receiving

school construction QZAB financing. Additionally, the school construction QZABs are not limited to schools within an empowerment

zone or enterprise community, or to schools satisfying the free or

reduced-cost lunch criteria.

Rules applicable to QZABs issued after December 31, 2000 and to

school construction QZABs

The following administrative rules apply to QZABs issued after

December 31, 2000, and to the new modified QZABs for school construction:

(1) The maximum term of the bonds is 15 years.

(2) Information reporting requirements similar to the requirements that apply under present law to tax-exempt bonds (sec.

149(e)) are extended to these bonds.

(3) Eligible recipients of the tax credits are expanded to include

all C corporations (but not S corporations or individuals).

(4) Credits accrue to holders on a quarterly basis (rather than

annually as under the present-law QZAB program).

(5) Credit rates are set by reference to the daily corporate rate

index established by the Treasury Department, and the credit rate

for each bond issue is set as of the day before the date the bonds

are issued (i.e., sold).

328

(6) As under the present-law QZAB program, credits are includible in the bondholder’s gross income, but tax credits may be

claimed against both regular income tax and the alternative minimum tax.

(7) All property financed with tax-credit bonds must be owned

by a State or local government. Further, all such property must be

used for a qualified public school purpose during the entire period

that the bonds are outstanding. Failure to use the property for a

qualified purpose results in termination of tax credits beginning on

the later of (a) the date of bond issuance of (b) three years before

the change in use occurs. Issuers are obligated to pay the Federal

Government an amount equal to all credits accruing after the stated date (plus interest); bondholders are secondarily liable for this

amount.

(8) Tax-credit bonds may not be issued to refinance any outstanding debt except certain ‘‘bridge financing,’’ defined as construction period financing that (a) is issued after the date of the

conference agreement’s enactment; (b) has a term not exceeding

one year and (c) is issued for a project identified for tax-credit bond

financing before issuance of the bridge financing.

(9) Arbitrage restrictions similar to those that apply to tax-exempt bonds (as modified by the conference agreement) are extended

to present-law QZABs and school construction QZABs.

Bond proceeds must be spent for the purpose of the borrowing

within 48 months after bonds are issued, with intermediate spending requirements being prescribed:

Within Must spend at least

12 months ................................................................................ 10 percent.

24 months ................................................................................ 30 percent.

36 months ................................................................................ 60 percent.

48 months ................................................................................ 100 percent (less present-law retainage amounts (not exceeding 5 percent) which must be spent within 60

months).

Issuers failing to satisfy the intermediate 12, 24, or 36-month

expenditure requirements must pay the Federal Government an

amount equal to the investment earnings on all proceeds of the

bond issue.

Issuers failing to satisfy the 48-month or 60-month expenditure requirements must redeem an amount of bonds having a face

amount equal to the unspent proceeds.

A ‘‘small governmental unit’’ exception is provided to these arbitrage restrictions. This exception is coordinated with the presentlaw tax-exempt bond exception for these units (as that exception is

modified by the agreement) to ensure that issuers do not claim

double benefits.

Rules similar to the tax-exempt bond sinking fund restrictions

are extended to tax- credit bonds. Under these rules, all replacement funds constituting a sinking fund under the tax-exempt bond

rules must be invested in non-interest-bearing State and Local

Government Series (‘‘SLGS’’) obligations issued by the Treasury.

(10) A State must allocate its school construction QZAB authority in accordance with a qualified allocation plan. A qualified

allocation plan is to contain, among other things: (a) an identificaVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00332 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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tion of the State’s needs for public school facilities, and (b) a description of how the State will make allocations to address those

needs, including how the State will ensure the needs of both rural,

suburban, and urban areas will be recognized, ensure that the

needs of localities with the greatest needs will be met and give priority to the role of charter schools in achieving State educational

objectives. This requirement applies to allocations of tax-credit

bond authority made on the date that is six months after the date

the conference agreement is enacted.

Effective date.—These provisions apply to bonds issued in calendar years beginning after December 31, 2000.

Increase in the amount of governmental bonds that may be issued

by governments qualifying for the ‘‘small governmental unit’’ arbitrage rebate exception

The additional amount of governmental bonds for public

schools that small governmental units may issue without being

subject to the arbitrage rebate requirement is increased from $5

million to $10 million. Thus, these governmental units may issue

up to $15 million of governmental bonds in a calendar year provided that at least $10 million of the bonds are used to finance

public school construction expenditures. This exception is coordinated with the tax- credit bond exception for these units to ensure

that issuers do not claim double benefits, i.e., both tax-credit bonds

and tax-exempt bonds are taken into account for purposes of this

limitation.

Effective date.—The provision applies to bonds issued in calendar years beginning after December 31, 2000.

Conform provisions relating to arbitrage treatment to reflect state

constitutional amendments

The conference agreement conforms the 1984 exception to the

State constitutional amendments to permit its continued applicability to bonds of the two university systems. Limitations on the aggregate amount of bonds which may benefit from the exception are

not modified.

Effective date.—The provision takes effect on January 1, 2001.

Construction bond expenditure rule for governmental bonds for public schools

The present-law 24-month expenditure exception to the arbitrage rebate requirement is liberalized for certain public school

bonds. Under the agreement, no rebate is required with respect to

earnings on available construction proceeds of public school bonds

if the proceeds are spent within 48 months after the bonds are

issued and the following intermediate spending levels are satisfied:

Within Must spend at least

12 months ................................................................................ 10 percent.

24 months ................................................................................ 30 percent.

36 months ................................................................................ 60 percent.

48 months ................................................................................ 100 percent (less present-law retainage amounts (not exceeding 5 percent) which must be spent within 60

months).

330

Effective date.—The provision applies to bonds issued after December 31, 2000.

Issuance of tax-exempt private activity bonds for certain public

school facilities

The private activities for which tax-exempt bonds may be

issued are expanded to include elementary and secondary public

school facilities which are owned by private, for-profit corporations

pursuant to public-private partnership agreements with a State or

local educational agency. The term school facility includes school

buildings and functionally related and subordinate land (including

stadiums or other athletic facilities primarily used for school

events) and depreciable personal property used in the school facility. The school facilities for which these bonds are issued must be

operated by a public educational agency as part of a system of public schools.

A public-private partnership agreement is defined as an arrangement pursuant to which the for-profit corporate party constructs, rehabilitates, refurbishes or equips a school facility. The

agreement must provide that, at the end of the contract term, ownership of the bond-financed property is transferred to the public

school agency party to the agreement for no additional consideration.

Issuance of these bonds is subject to a separate annual perState volume limit equal to the greater of $10 per resident ($5 million, if greater) in lieu of the present-law State private activity

bond volume limits. As with the present-law State private activity

bond volume limits, States decide how to allocate the bond authority to State and local government agencies. Bond authority that is

unused in the year in which it arises may be carried forward for

up to three years for public school projects under rules similar to

the carryforward rules of the present-law private activity bond volume limits.

Effective date.—These provisions are effective for bonds issued

after December 31, 2000.

TITLE VI. COMMUNITY RENEWAL PROVISIONS

A. RENEWAL COMMUNITY PROVISIONS (secs. 601–602 of the bill and

secs. 51, 469, and new secs. 1400E–J of the Code)

PRESENT LAW

In recent years, provisions have been added to the Internal

Revenue Code that target specific geographic areas for special Federal income tax treatment. For example, empowerment zones and

enterprise communities generally provide tax incentives for businesses that locate within certain geographic areas designated by

the Secretaries of Housing and Urban Development (‘‘HUD’’) and

Agriculture.

HOUSE BILL

No provision. However, H.R. 4923, as passed by the House, authorizes the designation of 40 ‘‘renewal communities’’ within which

special tax incentives will be available. The following is a descripVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00334 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
331

2 In making the designations, the Secretary of HUD must consult with the Secretaries of Agriculture, Commerce, Labor, Treasury, the Director of the Office of Management and Budget; and

the Administrator of the Small Business Administration (and the Secretary of the Interior in

the case of an area on an Indian reservation). 3Determined using 1990 census data.

4The designation of a nominated area within the District of Columbia as a renewal community becomes effective on January 1, 2003 (upon the expiration of the designation of the District

of Columbia Enterprise Zone).

tion of the designation process and the tax incentives that would

be available within the renewal communities.

Designation process

Designation of 40 renewal communities.—The Secretary of

HUD,2 is authorized to designate up to 40 ‘‘renewal communities’’

from areas nominated by States and local governments. At least

eight of the designated communities must be in rural areas. The

Secretary of HUD is required to publish (within four months after

enactment) regulations describing the nomination and selection

process. Designations of renewal communities are to be made within 24 months after the regulations are published. The designation

of an area as a renewal community generally will be effective on

July 1, 2001, and will terminate after December 31, 2009.

Eligibility criteria.—To be designated as a renewal community,

a nominated area must meet the following criteria: (1) each census

tract must have a poverty rate of at least 20 percent; 3 (2) in the

case of an urban area, at least 70 percent of the households have

incomes below 80 percent of the median income of households within the local government jurisdiction; (3) the unemployment rate is

at least 1.5 times the national unemployment rate; and (4) the area

is one of pervasive poverty, unemployment, and general distress.

Those areas with the highest average ranking of eligibility factors

(1), (2), and (3) above would be designated as renewal communities.

A nominated area within the District of Columbia becomes a renewal community (without regard to its ranking of eligibility factors) provided that it satisfies the area and eligibility requirements

and the required State and local commitments described below.4

The Secretary of HUD shall take into account in selecting areas for

designation the extent to which such areas have a high incidence

of crime, as well as whether the area has census tracts identified

in the May 12, 1998, report of the General Accounting Office regarding the identification of economically distressed areas.

There are no geographic size limitations placed on renewal

communities. Instead, the boundary of a renewal community must

be continuous. In addition, the renewal community must have a

minimum population of 4,000 if the community is located within a

metropolitan statistical area (at least 1,000 in all other cases), and

a maximum population of not more than 200,000. The population

limitations do not apply to any renewal community that is entirely

within an Indian reservation.

Required State and local commitments.—In order for an area

to be designated as a renewal community, State and local governments are required to submit a written course of action in which

the State and local governments promise to take at least four of the

following governmental actions within the nominated area: (1) a reduction of tax rates or fees; (2) an increase in the level of efficiency

332

5 An ‘‘enterprise zone business’’ is defined in section 1397B and is described in connection with

the expansion of the empowerment zone benefits.

of local services; (3) crime reduction strategies; (4) actions to remove or streamline governmental requirements; (5) involvement by

private entities and community groups, such as to provide jobs and

job training and financial assistance; and (6) the gift (or sale at

below fair market value) of surplus realty by the State or local government to community organizations or private companies.

In addition, the nominating State and local governments must

promise to promote economic growth in the nominated area by repealing or not enforcing four of the following: (1) licensing requirements for occupations that do not ordinarily require a professional

degree; (2) zoning restrictions on home-based businesses that do

not create a public nuisance; (3) permit requirements for street

vendors who do not create a public nuisance; (4) zoning or other restrictions that impede the formation of schools or child care centers; and (5) franchises or other restrictions on competition for

businesses providing public services, including but not limited to

taxicabs, jitneys, cable television, or trash hauling, unless such regulations are necessary for and well-tailored to the protection of

health and safety.

Empowerment zones and enterprise communities seeking designation as renewal communities.—An empowerment zone or enterprise community can apply for designation as a renewal community. If a renewal community designation is granted, then an area’s

designation as an empowerment zone or enterprise community

ceases as of the date the area’s designation as a renewal community takes effect.

Tax incentives for renewal communities

Under H.R. 4923, the following tax incentives are available

during the period beginning July 1, 2001, and ending December 31,

2009.

Zero-percent capital gain rate.—H.R. 4923 provides a zero-percent capital gains rate for gain from the sale of a qualified community asset acquired after June 30, 2001, and before January 1,

2010, and held for more than five years. A ‘‘qualified community

asset’’ includes: (1) qualified community stock (meaning originalissue stock purchased for cash in a renewal community business);

(2) a qualified community partnership interest (meaning a partnership interest acquired for cash in a renewal community business);

and (3) qualified community business property (meaning tangible

property originally used in a renewal community business by the

taxpayer) that is purchased or substantially improved after June

30, 2001.

A ‘‘renewal community business’’ is similar to the present-law

definition of an enterprise zone business.5 Property will continue to

be a qualified community asset if sold (or otherwise transferred) to

a subsequent purchaser, provided that the property continues to

represent an interest in (or tangible property used in) a renewal

community business. The termination of an area’s status as a renewal community will not affect whether property is a qualified

community asset, but any gain attributable to the period before

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July 1, 2001, or after December 31, 2014, will not be eligible for

the exclusion.

Renewal community employment credit.—Under H.R. 4923, a

15-percent wage credit is available to employers for the first

$10,000 of qualified wages paid to each employee who (1) is a resident of the renewal community, and (2) performs substantially all

employment services within the renewal community in a trade or

business of the employer. The wage credit rate applies to qualifying

wages paid after June 30, 2001, and before January 1, 2010.

Wages that qualify for the credit are wages that are considered

‘‘qualified zone wages’’ for purposes of the empowerment zone wage

credit (including coordination with the Work Opportunity Tax

Credit). In general, any taxable business carrying out activities in

the renewal community may claim the wage credit.

Commercial revitalization deduction.—H.R. 4923 allows each

State to allocate up to $12 million of ‘‘commercial revitalization expenditures’’ to each renewal community located within the State for

each calendar year after 2001 and before 2010 ($6 million for the

period of July 1, 2001 through December 31, 2001). The appropriate State agency will make the allocations pursuant to a qualified allocation plan.

A ‘‘commercial revitalization expenditure’’ means the cost of a

new building or the cost of substantially rehabilitating an existing

building. The building must be used for commercial purposes and

be located in a renewal community. In the case of the rehabilitation

of an existing building, the cost of acquiring the building will be

treated as qualifying expenditures only to the extent that such

costs do not exceed 30 percent of the other rehabilitation expenditures. The qualifying expenditures for any building cannot exceed

$10 million.

A taxpayer can elect either to (a) deduct one-half of the commercial revitalization expenditures for the taxable year the building is placed in service or (b) amortize all the expenditures ratably

over the 120-month period beginning with the month the building

is placed in service. No depreciation is allowed for amounts deducted under this provision. The adjusted basis is reduced by the

amount of the commercial revitalization deduction, and the deduction is treated as a depreciation deduction in applying the depreciation recapture rules (e.g., sec. 1250).

The commercial revitalization deduction is treated in the same

manner as the low-income housing credit in applying the passive

loss rules (sec. 469). Thus, up to $25,000 of deductions (together

with the other deductions and credits not subject to the passive

loss limitation by reason of section 469(i)) are allowed to an individual taxpayer regardless of the taxpayer’s adjusted gross income.

The commercial revitalization deduction is allowed in computing a

taxpayer’s alternative minimum taxable income.

Additional section 179 expensing.—Under H.R. 4923, a renewal

community business is allowed an additional $35,000 of section 179

expensing for qualified renewal property placed in service after

June 30, 2001, and before January 1, 2010. The section 179 expensing allowed to a taxpayer is phased out by the amount by which

50 percent of the cost of qualified renewal property placed in service during the year by the taxpayer exceeds $200,000. The term

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‘‘qualified renewal property’’ is similar to the definition of ‘‘qualified

zone property’’ used in connection with empowerment zones.

Expensing of environmental remediation costs (‘‘brownfields’’).— Under H.R. 4923, a renewal community is treated as a ‘‘targeted

area’’ under section 198 (which permits the expensing of environmental remediation costs). Thus, taxpayers can elect to treat certain environmental remediation expenditures that otherwise would

be capitalized as deductible in the year paid or incurred. This provision applies to expenditures incurred after June 30, 2001, and before January 1, 2010.

Extension of work opportunity tax credit (‘‘WOTC’’).—H.R. 4923

expands the high-risk youth and qualified summer youth categories

in the WOTC to include qualified individuals who live in a renewal

community.

Effective date.—Renewal communities must be designated

within 24 months after publication of regulations by HUD. The tax

benefits available in renewal communities are effective for the period beginning July 1, 2001, and ending December 31, 2009.

SENATE AMENDMENT

No provision. However, S. 3152 authorizes the Secretaries of

HUD and Agriculture to designate up to 30 renewal zones from

areas nominated by States and local governments. At least six of

the designated renewal zones must be in rural areas. The Secretary

of HUD is required to publish (within four months after enactment)

regulations describing the nomination and selection process. Designations of renewal zones must be made before January 1, 2002,

and the designations are effective for the period beginning on January 1, 2002 through December 31, 2009.

The eligibility criteria (as well as the population and geographic limitations) are similar to those for renewal communities

in the House bill, except that S. 3152 provides that any State without any empowerment zone would be given priority in the designation process. Also, the designations of renewal zones must result in

(after taking into account existing empowerment zones) each State

having at least one zone designation (empowerment or renewal

zone). In addition, S. 3152 provides that, in lieu of the poverty, income, and unemployment criteria, outmigration may be taken into

account in the designation of one rural renewal zone. Under a separate provision in S. 3152, the designation of the District of Columbia Enterprise Zone would be extended through December 31,

2006.

In order for an area to be designated as a renewal zone, State

and local governments are required to submit a written course of

action in which the State and local governments promise to take

at least four of the governmental actions described in H.R. 4923.

However, S. 3152 does not contain any of the economic growth provision requirements described in connection with renewal communities.

Tax incentives for renewal zones.—Under S. 3152, businesses in

renewal zones would be eligible for the following tax incentives

during the period beginning January 1, 2002 and ending December

31, 2009: (1) a zero-percent capital gains rate for qualifying assets

limited to an aggregate amount not to exceed $25 million of gain

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6 Any gain attributable to the period before January 1, 2002, or after December 31, 2014,

would not be eligible for the zero-percent capital gains rate. 7 Under the conference agreement, renewal communities are not ‘‘targeted areas’’ for purposes

of permitting expensing of certain environmental remediation costs. Another provision described

below extends the brownfields provision for two years and eliminates the targeted area requirement. 8 If a renewal community designation is terminated prior to December 31, 2009, the tax incentives would cease to be available as of the termination date.

per taxpayer; 6 (2) a 15-percent wage credit for the first $15,000 of

qualifying wages; (3) $35,000 in additional 179 expensing for qualifying property; (4) and the enhanced tax-exempt bond rules that

currently apply to businesses in the Round II empowerment zones.

GAO report.—The General Accounting Office will audit and report to Congress every three years (beginning on January 31, 2004)

on the renewal zone program and its effect on poverty, unemployment, and economic growth within the designated renewal zones.

Effective date.—The 30 new renewal zones must be designated

by January 1, 2002, and the resulting tax benefits are available for

the period beginning January 1, 2002, and ending December 31,

2009.

CONFERENCE AGREEMENT

The conference agreement follows the provisions of H.R. 4923

with certain modifications to the designation process for renewal

communities. The conference agreement authorizes the designation

of 40 renewal communities, of which at least 12 must be in rural

areas. Of the 12 rural renewal communities, one shall be an area

within Mississippi, designated by the State of Mississippi, that includes at least one census tract within Madison County, Mississippi.

The tax incentives are the same as those described in H.R.

4923—i.e., (1) a zero-percent capital gains rate for capital gain from

the sale of qualifying assets held for more than five years; (2) a 15

percent wage credit to employers for the first $10,000 of qualified

wages paid to qualifying employees; (3) a commercial revitalization

expenditure; (4) an additional $35,000 of section 179 expensing for

qualified renewal property; and (5) an expansion of the Work Opportunity Tax Credit with respect to qualified individuals who live

in a renewal community.7 The 40 renewal communities must be

designated by January 1, 2002, and the resulting tax benefits are

available for the period beginning January 1, 2002, and ending December 31, 2009.8

The conference agreement provides that, with respect to the

first 20 designations of nominated areas as renewal communities,

preference will be given to nominated areas that are enterprise

communities and empowerment zones under present law that otherwise meet the requirements for designation as a renewal community.

The conference agreement includes the priority designation

with respect to the District of Columbia Enterprise Zone (as contained in H.R. 4923). The conference agreement also includes the

provision from S. 3152 that, in lieu of the poverty, income, and unemployment criteria, outmigration may be taken into account in

the designation of one rural renewal community.

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9For wages paid in calendar years during the period 1994 through 2001, the credit rate is

20 percent. The credit rate is reduced to 15 percent for calendar year 2002, 10 percent for calendar year 2003, and 5 percent for calendar year 2004. No wage credit is available after 2004

in the original nine empowerment zones. 10For purposes of these tax incentives, a qualifying business does not include a trade or business consisting predominantly of the development or holding of intangibles for sale or license

(sec. 1397B(d)(4)). While the provision does not modify the definition of a qualifying business,

the sponsors of the legislation intend to review this issue. 11 Except for the wage credit, which is reduced to 15 percent for calendar year 2005, and then

reduced by five percentage points in each year in 2006 and 2007, with no wage credit available

after 2007.

The General Accounting Office will audit and report to Congress on January 31, 2004, and again in 2007 and 2010, on the renewal community program and its effect on poverty, unemployment, and economic growth within the designated renewal communities.

Effective date.—The 40 renewal communities must be designated by January 1, 2002, and the resulting tax benefits will be

available for the period beginning January 1, 2002, and ending December 31, 2009.

B. EMPOWERMENT ZONE TAX INCENTIVES

1. Extension and expansion of empowerment zones (secs. 611–615

of the bill and secs. 1391, 1394, 1396, and 1397A of the Code)

PRESENT LAW

Round I empowerment zones

The Omnibus Budget Reconciliation Act of 1993 (‘‘OBRA 1993’’)

authorized the designation of nine empowerment zones (‘‘Round I

empowerment zones’’) to provide tax incentives for businesses to locate within targeted areas designated by the Secretaries of HUD

and Agriculture. The Taxpayer Relief Act of 1997 (‘‘1997 Act’’) authorized the designation of two additional Round I urban empowerment zones.

Businesses in the 11 Round I empowerment zones qualify for

the following tax incentives: (1) a 20-percent wage credit for the

first $15,000 of wages paid to a zone resident who works in the empowerment zone,9 (2) an additional $20,000 of section 179 expensing for qualifying zone property, and (3) tax-exempt financing for

certain qualifying zone facilities.10 The tax incentives with respect

to the empowerment zones designated by OBRA 1993 generally are

available during the 10-year period of 1995 through 2004. The tax

incentives with respect to the two additional Round I empowerment zones generally are available during the 10-year period of

2000 through 2009.11

Round II empowerment zones

The 1997 Act also authorized the designation of 20 additional

empowerment zones (‘‘Round II empowerment zones’’), of which 15

are located in urban areas and five are located in rural areas. Businesses in the Round II empowerment zones are not eligible for the

wage credit, but are eligible to receive up to $20,000 of additional

section 179 expensing. Businesses in the Round II empowerment

zones also are eligible for more generous tax-exempt financing benefits than those available in the Round I empowerment zones. SpeVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00340 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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12 As previously discussed, under H.R. 4923, the District of Columbia Enterprise Zone is given

a priority designation as a renewal community effective January 1, 2003. 13The additional $35,000 of section 179 expensing is available throughout all areas that are

part of a designated empowerment zone, including the non-contiguous ‘‘developable sites’’ that

were allowed to be part of the designated Round II empowerment zones under the 1997 Act. 14The D.C. Enterprise Zone is scheduled to terminate on December 31, 2002. 15The present-law rules of sections 1394 and 1400A continue to apply with respect to the D.C.

Enterprise Zone through its scheduled expiration of December 31, 2002.

cifically, the tax-exempt financing benefits for the Round II empowerment zones are not subject to the State private activity bond

volume caps (but are subject to separate per-zone volume limitations), and the per-business size limitations that apply to the

Round I empowerment zones and enterprise communities (i.e., $3

million for each qualified enterprise zone business with a maximum of $20 million for each principal user for all zones and communities) do not apply to qualifying bonds issued for Round II empowerment zones. The tax incentives with respect to the Round II

empowerment zones generally are available during the 10-year period of 1999 through 2008.

HOUSE BILL

No provision. However, as described in greater detail below,

H.R. 4923 conforms and enhances the tax incentives for the Round

I and Round II empowerment zones and extends their designations

through December 31, 2009. H.R. 4923 also authorizes the designation of nine new empowerment zones (‘‘Round III empowerment

zones’’).

Extension of tax incentives for Round I and Round II empowerment

zones

The designation of empowerment zone status for Round I and

II empowerment zones (other than the District of Columbia Enterprise Zone) 12 is extended through December 31, 2009. In addition,

the 20-percent wage credit is made available in all Round I and II

empowerment zones for qualifying wages paid or incurred after December 31, 2001. The credit rate remains at 20 percent (rather

than being phased down) through December 31, 2009, in Round I

and Round II empowerment zones. In addition, $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 business in any of the empowerment zones.13 Businesses

in the D.C. Enterprise Zone are entitled to the additional section

179 expensing until the termination of the D.C. zone designation.14

The bill also extends an empowerment zone’s status as a ‘‘targeted

area’’ under section 198 (thus permitting expensing of environmental remediation costs). The bill applies to expenses incurred

after December 31, 2001, and before January 1, 2010.

Businesses located in Round I empowerment zones (other than

the D.C. Enterprise Zone) 15 also are eligible for the more generous

tax-exempt bond rules that apply under present law to businesses

in the Round II empowerment zones (sec. 1394(f)). The bill applies

to tax-exempt bonds issued after December 31, 2001. Bonds that

have been issued by businesses in Round I zones before January

1, 2002, are not taken into account in applying the limitations on

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the amount of new empowerment zone facility bonds that can be

issued under the bill.

Nine new empowerment zones

The Secretaries of HUD and Agriculture are authorized to designate nine additional empowerment zones (‘‘Round III empowerment zones’’). Seven of the Round III empowerment zones will be

located in urban areas, and two will be located in rural areas.

The eligibility and selection criteria for the Round III empowerment zones are the same as the criteria that applied to the

Round II empowerment zones. The Round III empowerment zones

must be designated by January 1, 2002, and the tax incentives

with respect to the Round III empowerment zones generally are

available during the period beginning on January 1, 2002, and ending on December 31, 2009.

Businesses in the Round III empowerment zones are eligible

for the same tax incentives that, under the bill, are available to

Round I and Round II empowerment zones (i.e., a 20-percent wage

credit, an additional $35,000 of section 179 expensing, and the enhanced tax-exempt financing benefits presently available to Round

II empowerment zones). The Round III empowerment zones also

are considered ‘‘targeted areas’’ for purposes of permitting expensing of certain environmental remediation costs under section 198.

Effective date

The extension of the existing empowerment zone designations

is effective after the date of enactment. The extension of the tax

benefits to existing empowerment zones (i.e., the expanded wage

credit, the additional section 179 expensing, the brownfields designation, and the more generous tax-exempt bond rules) generally

is effective after December 31, 2001.

The new Round III empowerment zones must be designated by

January 1, 2002, and the tax incentives with respect to the Round

III empowerment zones generally are available during the period

beginning on January 1, 2002, and ending on December 31, 2009.

SENATE AMENDMENT

No provision. However, S. 3152 contains a provision that conforms and enhances incentives for existing empowerment zones.

Specifically, the provision extends the designation of empowerment

zone status for Round I and II empowerment zones through December 31, 2009. In addition, a 15-percent wage credit is made available in all Round I and II empowerment zones, effective in 2002

(except in the case of the two additional Round I empowerment

zones added by the 1997 Act, for which the 15-percent wage credit

takes effect in 2005 as scheduled under present law). For all the

empowerment zones, the 15-percent wage credit expires on December 31, 2009.

In addition, $35,000 (rather than $20,000) of additional section

179 expensing is available for qualified zone property placed in

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16The additional $35,000 of section 179 expensing is available throughout all areas that are

part of a designated empowerment zone, including the non-contiguous ‘‘developable sites’’ that

were allowed to be part of the designated Round II empowerment zones under the 1997 Act. 17 Another provision described below extends the brownfields provision for two years and

eliminates the targeted area requirement.

service in taxable years beginning after December 31, 2001, by a

qualified business in any of the empowerment zones.16

Under S. 3152, businesses located in Round I empowerment

zones are eligible for the more generous tax-exempt bond rules that

apply under present law to businesses in the Round II empowerment zones (sec. 1394(f)). The proposal applies to tax-exempt bonds

issued after December 31, 2001. Bonds that have been issued by

businesses in Round I zones before January 1, 2002, are not taken

into account in applying the limitations on the amount of new empowerment zone facility bonds that can be issued under the provision.

Businesses located in any empowerment zone also qualify for

a zero-percent capital gains rate for gain from the sale of a qualifying zone assets acquired after date of enactment and before January 1, 2010, and held for more than five years. Assets that qualify

for this incentive are similar to the types of assets that qualify for

the present-law zero percent capital gains rate for qualifying D.C.

Zone assets. The zero-percent capital gains rate is limited to an aggregate amount not to exceed $25 million of gain per taxpayer.

Gain attributable to the period before the date of enactment or

after December 31, 2014, is not eligible for the zero-percent rate.

Effective date.—The extension of the existing empowerment

zone designations is effective after the date of enactment. The additional section 179 expensing and the more generous tax-exempt

bond rules for the existing empowerment zones is effective after

December 31, 2001. The zero-percent capital gains rate applies to

qualifying property purchased after the date of enactment. The 15-

percent wage credit generally is effective for qualifying wages paid

after December 31, 2001. With respect to the two additional Round

I empowerment zones, however, the wage credit is effective for

qualifying wages paid after December 31, 2004.

CONFERENCE AGREEMENT

The conference agreement follows the provisions in H.R. 4923

with the following modifications. The conference agreement does

not extend the empowerment zones’ status as a ‘‘targeted area’’ for

purposes of permitting expensing of certain environmental remediation costs under section 198.17 In addition, the conference agreement provides that the General Accounting Office will audit and

report to Congress on January 31, 2004, and again in 2007 and

2010, on the empowerment zone and enterprise community program and its effect on poverty, unemployment, and economic

growth within the designated areas.

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18See section 1045 for rollover of qualified small business stock to other small business stock. 19 However, a qualifying D.C. Zone asset held for more than five years is eligible for a 100–

percent capital gains exclusion (sec. 1400B). 20The portion of the capital gain included in income is subject to a maximum regular tax rate

of 28 percent, and 42 percent of the excluded gain is a minimum tax preference.

2. Rollover of gain from the sale of qualified empowerment zone investments (sec. 616 of the bill and new sec. 1397B of the Code)

PRESENT LAW

In general, gain or loss is recognized on any sale, exchange, or

other disposition of property. A taxpayer (other than a corporation)

may elect to roll over without payment of tax any capital gain realized upon the sale of qualified small business stock held for more

than six months where the taxpayer uses the proceeds to purchase

other qualified small business stock within 60 days of the sale of

the original stock.

HOUSE BILL

No provision. However, under H.R. 4923, a taxpayer can elect

to roll over capital gain from the sale or exchange of any qualified

empowerment zone asset purchased after the date of enactment

and held for more than one year (‘‘original zone asset’’) where the

taxpayer uses the proceeds to purchase other qualifying empowerment zone assets in the same zone (‘‘replacement zone asset’’) within 60 days of the sale of the original zone asset. The holding period

of the replacement zone asset includes the holding period of the

original zone asset, except that the replacement asset must actually be held for more than one year to qualify for another tax-free

rollover. The basis of the replacement zone asset is reduced by the

gain not recognized on the rollover. However, if the replacement

zone asset is qualified small business stock (as defined in sec.

1202), the exclusion under section 1202 would not apply to gain accrued on the original zone asset.18 A ‘‘qualified empowerment zone

asset’’ means an asset that would be a qualified community asset

if the empowerment zone were a renewal community (and the asset

is acquired after the date of enactment of the bill). Assets in the

D.C. Enterprise Zone are not eligible for the tax-free rollover treatment.19

Effective date.—The provision is effective for qualifying assets

purchased after the date of enactment.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement follows the provision in H.R. 4923.

3. Increased exclusion of gain from the sale of qualifying empowerment zone stock (sec. 617 of the bill and sec. 1202 of the Code)

PRESENT LAW

Under present law, an individual, subject to limitations, may

exclude 50 percent of the gain 20 from the sale of qualifying small

business stock held more than five years (sec. 1202).

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21Thus, a credit would be available on the date on which the investment is made and for each

of the six anniversary dates thereafter.

HOUSE BILL

No provision. However, H.R. 4923 includes a provision that

would increase the exclusion for small business stock to 60 percent

for stock purchased after the date of enactment in a corporation

that is a qualified business entity and that is held for more than

five years. A ‘‘qualified business entity’’ means a corporation that

satisfies the requirements of a qualifying business under the empowerment zone rules during substantially all the taxpayer’s holding period.

Effective date.—The provision is effective for qualified stock

purchased after the date of enactment.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement follows the provision in H.R. 4923.

C. NEW MARKETS TAX CREDIT (sec. 621 of the bill and new sec. 45D

of the Code)

PRESENT LAW

Some tax incentives are available to taxpayers making investments and loans in low-income communities. For example, tax incentives are available to taxpayers that invest in specialized small

business investment companies licensed by the Small Business Administration to make loans to, or equity investments in, small businesses owned by persons who are socially or economically disadvantaged.

HOUSE BILL

No provision. However, H.R. 4923 includes a provision that

creates a new tax credit for qualified equity investments made to

acquire stock in a selected 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 new tax credit to the investor (either the

original purchaser or a subsequent holder) is (1) a five-percent

credit for the year in which the equity interest is purchased from

the CDE and the first two anniversary dates after the interest is

purchased from the CDE, and (2) a six percent credit on each anniversary date thereafter for the following four years.21 The taxpayer’s basis in the investment is reduced by the amount of the

credit (other than for purposes of calculating the capital gain excluVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00345 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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22 A specialized small business investment company and a community development financial

institution are treated as satisfying the requirements for a CDE. 23 If at least 85 percent of the aggregate gross assets of the CDE are invested (directly or indirectly) in equity interests in, or loans to, qualified active businesses located in low-income communities, then there would be no need to trace the use of the proceeds from the particular stock

(or other equity ownership) issuance with respect to which the credit is claimed.

sion under sections 1202, 1400B, and 1400F). The credit is subject

to the general business credit rules.

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

primary mission is serving or providing investment capital for lowincome communities or low-income persons, (2) that maintains accountability to residents of low-income communities through representation on governing or advisory boards, or otherwise and (3)

is certified by the Treasury Department as an eligible CDE.22 No

later than 60 days after enactment, the Treasury Department shall

issue regulations that specify objective criteria to be used by the

Treasury to allocate the credits among eligible CDEs. In allocating

the credits, the Treasury Department will give priority to entities

with records of having successfully provided capital or technical assistance to disadvantaged businesses or communities.

If a CDE fails to sell equity interests to investors up to the

amount authorized within five years of the authorization, then the

remaining authorization is canceled. The Treasury Department can

authorize another CDE to issue equity interests for the unused portion. No authorization can be made after 2014.

A ‘‘qualified equity investment’’ is defined as stock or a similar

equity interest acquired directly from a CDE in exchange for cash.

Substantially all of the investment proceeds must be used by the

CDE to make ‘‘qualified low-income community investments,’’

meaning equity investments in, or loans to, qualified active businesses located in low-income communities, certain financial counseling and other services specified in regulations to businesses and

residents in low-income communities.23

The stock or equity interest cannot be redeemed (or otherwise

cashed out) by the CDE for at least seven years. If an entity fails

to be a CDE during the seven-year period following the taxpayer’s

investment, or if the equity interest is redeemed by the issuing

CDE during that seven-year period, then any credits claimed with

respect to the equity interest are recaptured (with interest) and no

further credits are allowed.

A ‘‘low-income community’’ is defined as census tracts with either (1) poverty rates of at least 20 percent (based on the most recent census data), or (2) median family income which does not exceed 80 percent of the greater of metropolitan area income or statewide median family income (for a non-metropolitan census tract, 80

percent of non-metropolitan statewide median family income).

A ‘‘qualified active business’’ is defined as a business which

satisfies the following requirements: (1) at least 50 percent of the

total gross income of the business is derived from the active conduct of trade or business activities in low-income communities; (2)

a substantial portion of the use of the tangible property of such

business is used within low-income communities; (3) a substantial

portion of the services performed for such business by its employees is performed in low-income communities; and (4) less than 5

percent of the average aggregate of unadjusted bases of the propVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00346 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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24 A record of having successfully provided capital or technical assistance to disadvantaged

businesses or communities could be demonstrated by the past actions of the CDE itself or an

affiliate (e.g., in the case where a new CDE is established by a nonprofit organization with a

history of providing assistance to disadvantaged communities).

erty of such business is attributable to certain financial property or

to collectibles (other than collectibles held for sale to customers).

There is no requirement that employees of the business be residents of the low-income community.

Rental of improved commercial real estate located in a low-income community is a qualified active business, regardless of the

characteristics of the commercial tenants of the property. The purchase and holding of unimproved real estate is not a qualified active business. In addition, a qualified active business does not include (a) any business consisting predominantly of the development

or holding of intangibles for sale or license; (b) operation of any facility described in sec. 144(c)(6)(B); or (c) any business if a significant equity interest in such business is held by a person who also

holds a significant equity interest in the CDE. A qualified active

business can include an organization that is organized on a nonprofit basis.

Effective date.—The provision is effective for qualified investments made after December 31, 2000.

SENATE AMENDMENT

No provision. However, S. 3152 includes a provision that creates a new markets tax credit that is similar to the provision in

H.R. 4923. Under S. 3152, the maximum annual amount of qualifying equity investments is capped as follows:

Calendar year Maximum qualifying equity investment

2002 .................................................................................................................................... $1.0 billion.

2003–2006 ......................................................................................................................... $1.5 billion per year.

S. 3152 defines a CDE in the same manner as in H.R. 4923,

except that the accountability requirement is clarified to provide

that the CDE must maintain accountability to residents of low-income communities through the representation of the residents on

governing or advisory boards of the CDE. No later than 120 days

after enactment, the Treasury Department will issue guidance that

specifies objective criteria to be used by the Treasury to allocate

the credits among eligible CDEs. In allocating the credits, the

Treasury Department will give priority to entities with records of

having successfully provided capital or technical assistance to disadvantaged businesses or communities,24 as well as to entities that

intend to invest substantially all of the proceeds they receive from

their investors in businesses in which persons unrelated to the

CDE hold the majority equity interest.

Under S. 3152, if a CDE fails to sell equity interests to investors up to the amount authorized within five years of the authorization, then the remaining authorization is canceled. The Treasury

Department can authorize another CDE to issue equity interests

for the unused portion. No authorization can be made after 2013.

Substantially all of the investment proceeds must be used by

the CDE to make ‘‘qualified low-income community investments.’’

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25Thus, a qualified low-income community investment may include an investment in a qualifying business in which the CDE (or a related party) holds a significant interest. However, as

previously mentioned, in allocating the credits among eligible CDEs, the Treasury Department

will give priority to CDEs that intend to invest substantially all of the proceeds they receive

from their investors in businesses in which persons unrelated to the CDE hold the majority of

the equity interest. For purposes of this provision, persons are related to each other if they are

described in sections 267(b) or 707(b)(1). 26 If at least 85 percent of the aggregate gross assets of the CDE are invested (directly or indirectly) in equity interests in, or loans to, qualified active businesses located in low-income communities, then there would be no need to trace the use of the proceeds from the particular stock

(or other equity ownership) issuance with respect to which the credit is claimed. 27 It is intended that the continuous boundary that delineates the portion of the census tract

as a ‘‘low-income community’’ should be a pre-existing boundary (such as an established neighborhood, political, or geographic boundary). 28 A low-income community is defined as census tracts with either (1) poverty rates of at least

20 percent (based on the most recent census data), or (2) median family income which does not

exceed 80 percent of the greater of metropolitan area income or statewide median family income

(for a non-metropolitan census tract, 80 percent of non-metropolitan statewide median family

income). 29 A record of having successfully provided capital or technical assistance to disadvantaged

businesses or communities could be demonstrated by the past actions of the CDE itself or an

affiliate (e.g., in the case where a new CDE is established by a nonprofit organization with a

history of providing assistance to disadvantaged communities).

Qualified low-income community investments include: (1) capital or

equity investments in, or loans to, qualified active businesses located in low-income communities,25 (2) certain financial counseling

and other services specified in regulations to businesses and residents in low-income communities, (3) the purchase from another

CDE of any loan made by such entity that is a qualified low income

community investment, or (4) an equity investment in, or loans to,

another CDE.26 Treasury Department regulations will provide

guidance with respect to the ‘‘substantially all’’ standard.

The definition of a ‘‘low-income community’’ is the same as in

H.R. 4923, except that under S. 3152, the Secretary may designate

any area within any census tract as a ‘‘low income community’’ provided that (1) the boundary of the area is continuous,27 (2) the area

(if it were a census tract) would satisfy the poverty rate or median

income requirements set forth above 28 within the targeted area,

and (3) an inadequate access to investment capital exists in the

area.

The definition of a ‘‘qualified active business’’ is the same as

in H.R. 4923, except that S. 3152 clarifies that a qualified active

business can include an organization that is organized on a nonprofit basis.

The General Accounting Office will audit and report to Congress by January 31, 2004 (and again by January 31, 2007) on the

new markets tax credit program, including on all qualified community development entities that receive an allocation under the new

markets tax credit.

Effective date.—The provision is effective for qualified investments made after December 31, 2001.

CONFERENCE AGREEMENT

The conference agreement follows H.R. 4923 with some modifications.

The definition of a CDE includes the clarification in S. 3152 regarding the accountability requirement, as well as the priority allocation to CDEs with records of having successfully provided capital

or technical assistance to disadvantaged businesses or communities,29 as well as to entities that intend to invest substantially all

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of their investment proceeds in businesses in which persons unrelated to the CDE hold the majority equity interest.

The conference agreement adopts S. 3152’s definitions of

‘‘qualified low-income community investment’’ (which permits investments in related businesses) and ‘‘low-income community’’

(which provides discretion to designate targeted population areas).

In addition, the definition of a ‘‘qualified active business’’ includes

an organization that is organized on a non-profit basis.

Under the conference agreement, the General Accounting Office will audit and report to Congress by January 31, 2004, and

again in 2007 and 2010, on the new markets tax credit program,

including on all qualified community development entities that receive an allocation under the new markets tax credit program.

D. INCREASE THE LOW-INCOME HOUSING TAX CREDIT CAP AND

MAKE OTHER MODIFICATIONS (secs. 631–637 of the bill and sec.

42 of the Code)

PRESENT LAW

In general

The low-income housing tax credit may be claimed over a 10-

year period for the cost of rental housing occupied by tenants having incomes below specified levels. The credit percentage for newly

constructed or substantially rehabilitated housing that is not Federally subsidized is adjusted monthly by the Internal Revenue

Service so that the 10 annual installments have a present value of

70 percent of the total qualified expenditures. The credit percentage for new substantially rehabilitated housing that is Federally

subsidized and for existing housing that is substantially rehabilitated is calculated to have a present value of 30 percent qualified

expenditures.

Credit cap

The aggregate credit authority provided annually to each State is $1.25 per resident, except in the case of projects that also receive

financing with proceeds of tax-exempt bonds issued subject to the

private activity bond volume limit and certain carry-over amounts,

Expenditure test

Generally, the building must be placed in service in the year

in which it receives an allocation to qualify for the credit. An exception is provided in the case where the taxpayer has expended an

amount equal to 10-percent or more of the taxpayer’s reasonably

expected basis in the building by the end of the calendar year in

which the allocation is received and certain other requirements are

met.

Basis of building eligible for the credit

Buildings receiving assistance under the HOME investment

partnerships act (‘‘HOME’’) are not eligible for the enhanced credit

for buildings located in high cost areas (i.e., qualified census tracts

and difficult development areas). Under the enhanced credit, the

70-percent and 30-percent credit are increased to a 91-percent and

39-percent credit, respectfully.

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30For example, constitutional home rule cities in Illinois are guaranteed their proportionate

share of the $1.25 amount, based on their population relative to that of the State as a whole. 31 A State’s population, for these purposes, is the most recent estimate of the State’s population released by the Bureau of the Census before the beginning of the year to which the limitation applies. Also, for these purposes, the District of Columbia and the U.S. possessions (i.e.,

Puerto Rico, the Virgin Islands, Guam, the Northern Marianas and American Samoa) are treated as States. 32The unused State housing credit ceiling is the amount (if positive) of the previous year’s

annual credit limitation plus credit returns less the credit actually allocated in that year. 33 Credit returns are the sum of any amounts allocated to projects within a State which fail

to become a qualified low-income housing project within the allowable time period plus any

amounts allocated to a project within a State under an allocation which is canceled by mutual

consent of the housing credit agency and the allocation recipient.

Eligible basis is generally limited to the portion of the building

used by qualified low-income tenants for residential living and

some common areas.

State allocation plans

Each State must develop a plan for allocating credits and such

plan must include certain allocation criteria including: (1) project

location; (2) housing needs characteristics; (3) project characteristics; (4) sponsor characteristics; (5) participation of local tax-exempts; (6) tenant populations with special needs; and (7) public

housing waiting lists. The State allocation plan must also give preference to housing projects: (1) that serve the lowest income tenants; and (2) that are obligated to serve qualified tenants for the

longest periods.

Credit administration

There are no explicit requirements that housing credit agencies

perform a comprehensive market study of the housing needs of the

low-income individuals in the area to be served by the project, nor

that such agency conduct site visits to monitor for compliance with

habitability standards.

Stacking rule

Authority to allocate credits remains at the State (as opposed

to local) government level unless State law provides otherwise.30

Generally, credits may be allocated only from volume authority

arising during the calendar year in which the building is placed in

service, except in the case of: (1) credits claimed on additions to

qualified basis; (2) credits allocated in a later year pursuant to an

earlier binding commitment made no later than the year in which

the building is placed in service; and (3) carryover allocations.

Each State annually receives low-income housing credit au- thority equal to $1.25 per State resident for allocation to qualified

low-income projects.31 In addition to this $1.25 per resident

amount, each State’s ‘‘housing credit ceiling’’ includes the following

amounts: (1) the unused State housing credit ceiling (if any) of

such State for the preceding calendar year; 32 (2) the amount of the

State housing credit ceiling (if any) returned in the calendar

year; 33 and (3) the amount of the national pool (if any) allocated

to such State by the Treasury Department.

The national pool consists of States’ unused housing credit

carryovers. For each State, the unused housing credit carryover for

a calendar year consists of the excess (if any) of the unused State

housing credit ceiling for such year over the excess (if any) of the

347

aggregate housing credit dollar amount allocated for such year over

the sum of $1.25 per resident and the credit returns for such year.

The amounts in the national pool are allocated only to a State

which allocated its entire housing credit ceiling for the preceding

calendar year, and requested a share in the national pool not later

than May 1 of the calendar year. The national pool allocation to

qualified States is made on a pro rata basis equivalent to the fraction that a State’s population enjoys relative to the total population

of all qualified States for that year.

The present-law stacking rule provides that a State is treated

as using its annual allocation of credit authority ($1.25 per State

resident) and any returns during the calendar year followed by any

unused credits carried forward from the preceding year’s credit

ceiling and finally any applicable allocations from the National

pool.

HOUSE BILL

Credit cap

No provision. However, H.R. 4923 increases the $1.25 per capita cap to $1.75 per capita. This increase is phased-in over six

years. Also, beginning in 2001 the per capita cap for each State is

modified so that small population State are given a minimum of $2

million of annual credit cap. Therefore the credit cap would be the

greater of: $1.35 per capita or $2 million in calendar year 2001;

$1.45 per capita or $2 million in calendar 2002; $1.55 per capita

or $2 million in calendar year 2003; $1.65 per capita or $2 million

in calendar year 2004; $1.70 per capita or $2 million in calendar

year 2005; and $1.75 per capita or $2 million in calendar year

2006. The $1.75 per capita credit cap and $2 million amount are

indexed for inflation beginning in 2007.

Expenditure test

The provisions of H.R. 4923 allow a building which receives an

allocation in the second half of a calendar to qualify under the 10-

percent test if the taxpayer expends an amount equal to 10-percent

or more of the taxpayer’s reasonably expected basis in the building

within six months of receiving the allocation regardless of whether

the 10-percent test is met by the end of the calendar year.

Basis of building eligible for the credit

The provisions of H.R. 4923 make three changes to the basis

rules of the credit. First, the definition of qualified census tracts for

purposes of the enhanced credit is expanded to include any census

tracts with a poverty rate of 25 percent or more. Second, H.R. 4923

extends the credit to a portion of the building used as a community

service facility not in excess of 10 percent of the total eligible basis

in the building. A community service facility is defined as any facility designed to serve primarily individuals whose income is 60 percent or less of area median income. Third, H.R. 4923 provides that

assistance received under the Native American Housing Assistance

and Self-Determination Act of 1996 is not taken into account in determining whether a building is Federally subsidized for purposes

of the credit. This allows such buildings to qualify for something

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other than the 30-percent credit generally applicable to Federally

subsidized buildings.

State allocation plans

The provisions of H.R. 4923 strikes the plan criteria relating

to participation of local tax-exempts, replacing it with two other

criteria: tenant populations of individuals with children and

projects intended for eventual tenant ownership. It also provides

that the present-law criteria relating to sponsor characteristics include whether the project involves the use of existing housing as

part of a community revitalization plan. Also, H.R. 4923 adds a

third category of housing projects to the preferential list. That

third category is for projects located in qualified census tracts

which contribute to a concerted community revitalization plan.

Credit administration

The provisions of H.R. 4923 require a comprehensive market

study of the housing needs of the low-income individuals in the

area to be served by the project and a written explanation available

to the general public for any allocation not made in accordance

with the established priorities and selection criteria of the housing

credit agency. They also require site inspections by the housing

credit agency to monitor compliance with habitability standards applicable to the project.

Stacking rule

The provisions of H.R. 4923 modify the stacking rule so that

each State would be treated as using its allocation of the unused

State housing credit ceiling (if any) from the preceding calendar before the current year’s allocation of credit (including any credits returned to the State) and then finally any National pool allocations.

Effective date

In general, H.R. 4923 is 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. The increase and indexing of the credit cap is effective for calendar years after December 31, 2000.

SENATE AMENDMENT

Credit cap

No provision. However, S. 3152 increases the annual State

credit caps from $1.25 to $1.75 per resident beginning in 2001.

Also, beginning in 2001 the per capita cap for each State is modified so that small population State are given a minimum of $2 million of annual credit cap. The $1.75 per capita cap and the $2 million amount are indexed for inflation beginning in calendar 2002.

Expenditure test

No provision.

349

Basis of building eligible for the credit

The provision in S. 3152 relating to the treatment of buildings

receiving assistance under the Native American Housing Assistance and Self-Determination Act of 1996 is the same as one of the

provisions in H.R. 4923. The other provisions in H.R. 4923 relating

to the basis of building eligible for the credit are not part of S.

3152.

State allocation plans

No provision.

Credit administration

No provision.

Stacking rule

The provision of H.R. 4923 is included in S. 3152.

Effective date

The provisions are 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 which are issued after such date subject to the

private activity bond volume limit.

CONFERENCE AGREEMENT

Credit cap

The conference agreement follows the provisions of H.R. 4923

and S. 3152 with a modification increasing 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.

Expenditure test

The conference agreement follows the provision of H.R. 4923.

Basis of building eligible for the credit

The conference agreement includes all three of the changes to

the credit basis rules included in H.R. 4923.

State allocation plans

The conference agreement includes the provision of H.R. 4923.

Credit administration

The conference agreement includes the provision of H.R. 4923.

Stacking rule

The conference agreement follows the provisions of H.R. 4923

and the S. 3152.

350

Effective date

The provision is 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 (sec. 651 of the bill and

sec. 146 of the Code)

PRESENT LAW

Interest on bonds issued by States and local governments is excluded from income if the proceeds of the bonds are used to finance

activities conducted and paid for by the governmental units (sec.

103). Interest on bonds issued by these governmental units to finance activities carried out and paid for by private persons (‘‘private activity bonds’’) is taxable unless the activities are specified in

the Internal Revenue Code. Private activity bonds on which interest may be tax-exempt include bonds for privately operated transportation facilities (airports, docks and wharves, mass transit, and

high speed rail facilities), privately owned and/or provided municipal services (water, sewer, solid waste disposal, and certain electric and heating facilities), economic development (small manufacturing facilities and redevelopment in economically depressed

areas), and certain social programs (low-income rental housing,

qualified mortgage bonds, student loan bonds, and exempt activities of charitable organizations described in sec. 501(c)(3)).

The volume of tax-exempt private activity bonds that States

and local governments may issue for most of these purposes in each

calendar year is limited by State-wide volume limits. The current

annual volume limits are $50 per resident of the State or $150 million if greater. The volume limits do not apply to private activity

bonds to finance airports, docks and wharves, certain governmentally owned, but privately operated solid waste disposal facilities, certain high speed rail facilities, and to certain types of private activity tax-exempt bonds that are subject to other limits on

their volume (qualified veterans’ mortgage bonds and certain ‘‘new’’

empowerment zone and enterprise community bonds).

The current annual volume limits that apply to private activity tax-exempt bonds increase to $75 per resident of each State or

$225 million, if greater, beginning in calendar year 2007. The increase is, ratably phased in, beginning with $55 per capita or $165

million, if greater, in calendar year 2003.

HOUSE BILL

No provision. However, H.R. 4923 accelerates the scheduled increase in the present-law annual State private activity bond volume limits to $75 per resident of each State, or $225 million (if

greater) beginning in calendar year 2007. The increase is phased

in as follows, beginning in calendar year 2001:

Calendar year Volume limit

2001 .......................................................................... $55 per resident ($165 million if greater).

351

Calendar year Volume limit

2002 .......................................................................... $60 per resident ($180 million if greater).

2003 .......................................................................... $65 per resident ($195 million if greater).

2004, 2005, and 2006 ............................................. $70 per resident ($210 million if greater).

2007 and thereafter ................................................. $75 per resident ($225 million if greater).

Effective date.—The provision is effective beginning in calendar

year 2001 and is fully effective in calendar year 2007 and thereafter.

SENATE AMENDMENT

No provision. However, S. 3152 increases the present-law an- nual State private activity bond volume limits to $75 per resident

of each State or $225 million (if greater) beginning in calendar year

2001. In addition, the $75 per resident and the $225 million State

limit will be indexed for inflation beginning in calendar year 2002.

Effective date.—The provisions are effective in calender years

beginning after December 31, 2000.

CONFERENCE AGREEMENT

The conference agreement follows the provisions of H.R. 4923

and S. 3152 with a modification increasing the State volume limits

from the greater of $50 per resident or $150 million to the greater

of $62.50 per resident or $187.5 million in calendar year 2001. The

volume limit will increase further, to the greater of $75 per resident or $225 million in calendar year 2002. Beginning in calendar

year 2003, the volume limit will be adjusted annually for inflation.

F. EXTENSION AND MODIFICATION TO EXPENSING OF ENVIRON- MENTAL REMEDIATION COSTS (sec. 652 of the bill and sec. 198 of

the Code)

PRESENT LAW

Taxpayers can elect to treat certain environmental remediation

expenditures that would otherwise be chargeable to capital account

as deductible in the year paid or incurred (sec. 198). The deduction

applies for both regular and alternative minimum tax purposes.

The expenditure must be incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.

A ‘‘qualified contaminated site’’ generally is any property that

(1) is held for use in a trade or business, for the production of income, or as inventory; (2) is certified by the appropriate State environmental agency to be located within a targeted area; and (3) contains (or potentially contains) a hazardous substance (so-called

‘‘brownfields’’). Targeted areas are defined as: (1) empowerment

zones and enterprise communities as designated under present law;

(2) sites announced before February 1997, as being subject to one

of the 76 Environmental Protection Agency (‘‘EPA’’) Brownfields Pilots; (3) any population census tract with a poverty rate of 20 percent or more; and (4) certain industrial and commercial areas that

are adjacent to tracts described in (3) above. However, sites that

are identified on the national priorities list under the Comprehensive Environmental Response, Compensation, and Liability Act of

1980 cannot qualify as targeted areas.

352

34 Also see provisions above relating to empowerment zones and renewal communities.

Eligible expenditures are those paid or incurred before January

1, 2002.

HOUSE BILL

No provision. However, H.R. 4923 as passed by the House extends an empowerment zone’s status as a ‘‘targeted area’’ under

section 198. In addition, H.R. 4923 provides that renewal communities (as defined in H.R. 4923) also constitute a ‘‘targeted area’’

under section 198.34

Effective date.—The provision is effective for expenditures incurred after June 30, 2001, and before January 1, 2010.

SENATE AMENDMENT

No provision. However, S. 3152 extends the expiration date for

eligible expenditures to include those paid or incurred before January 1, 2004.

In addition, S. 3152 eliminates the targeted area requirement,

thereby, expanding eligible sites to include any site containing (or

potentially containing) a hazardous substance that is certified by

the appropriate State environmental agency. However, expenditures undertaken at sites that are identified on the national priorities list under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 would continue to not qualify

as eligible expenditures.

Effective date.—The provision to extend the expiration date is

effective upon the date of enactment. The provision to expand the

class of eligible sites is effective for expenditures paid or incurred

after the date of enactment.

CONFERENCE AGREEMENT

The conference agreement follows S. 3152. By extending and

expanding section 198, the conferees do not intend to displace the

general tax law principle regarding expensing versus capitalization

of expenditures which continues to apply to environmental remediation efforts not specifically covered under section 198.

G. EXTENSION OF DISTRICT OF COLUMBIA HOMEBUYER TAX CREDIT

(sec. 653 of the bill and sec. 1400C of the Code)

PRESENT LAW

First-time homebuyers of a principal residence in the District

of Columbia are eligible for a nonrefundable tax credit of up to

$5,000 of the amount of the purchase price. The $5,000 maximum

credit applies both to individuals and married couples. Married individuals filing separately can claim a maximum credit of $2,500

each. The credit phases out for individual taxpayers with adjusted

gross income between $70,000 and $90,000 ($110,000–$130,000 for

joint filers). For purposes of eligibility, ‘‘first-time homebuyer’’

means any individual if such individual did not have a present

ownership interest in a principal residence in the District of Columbia in the one year period ending on the date of the purchase

353

of the residence to which the credit applies. The credit is scheduled

to expire for residences purchased after December 31, 2001.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, S. 3152 includes a provision that extends the first-time homebuyer credit for two years, through December 31, 2003. The provision also extends the phase-out range

for married individuals filing a joint return so that it is twice that

of individuals. Thus, under the provision, the District of Columbia

homebuyer credit is phased out for joint filers with adjusted gross

income between $140,000 and $180,000.

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

CONFERENCE AGREEMENT

The conference agreement follows the provision in S. 3152 with

respect to the extension of the first-time homebuyer credit for two

years (through December 31, 2003). The conference agreement does

not include the provision regarding the phase-out range.

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 (sec. 701

of the bill)

PRESENT LAW

Section 303 of the Federal Reports Elimination and Sunset Act

of 1995 eliminates many periodic Federal reporting requirements,

effective May 15, 2000.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement exempts certain reports from elimination and sunset pursuant to the Federal Reports Elimination and

Sunset Act of 1995.

354

35Sec. 6715(a). 36P.L. 105–206, sec. 3306. 37Secs. 6715(a) and 6631.

B. EXTENSION OF DEADLINES FOR IRS COMPLIANCE WITH CERTAIN

NOTICE REQUIREMENTS (sec. 702 of the bill, secs. 6631 and

6751(a) of the Code)

PRESENT LAW

The Internal Revenue Service Restructuring and Reform Act of

1998 (‘‘IRS Restructuring Act of 1998’’) imposed several notice requirements relating to penalties, interest and installment agreements. Section 6715 of the Code, added by section 3306 of the IRS

Restructuring Act of 1998, requires that each notice imposing a

penalty include the name of the penalty, the Code section under

which the penalty is imposed, and a computation of the penalty.35

This requirement applies to notices issued, and penalties assessed,

after December 31, 2000.36

Section 6631 of the Code, added by section 3308 of the IRS Restructuring Act of 1998, requires that every IRS notice sent to an

individual taxpayer that includes an amount of interest required to

be paid by the taxpayer also include a detailed computation of the

interest charged and a citation to the Code section under which

such interest is imposed. The provision is effective for notices

issued after December 31, 2000.

Section 3506 of the IRS Restructuring Act of 1998 requires the

IRS to send every taxpayer in an installment agreement an annual

statement of the initial balance owed, the payments made during

the year, and the remaining balance. The provision became effective on July 1, 2000.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

It is the understanding of the conferees that due to the need

for substantial systems modifications, and Year 2000 programming

priorities, the IRS will be unable to fully comply with certain notice

requirements in accordance with deadlines imposed by the IRS Restructuring Act of 1998. The conference agreement extends the

deadlines for complying with the penalty, interest, and installment

agreement notice requirements. Specifically, the annual installment agreement notice requirement is extended from July 1, 2000,

to September 1, 2001. The deadlines for complying with the notice

requirements relating to the computation of penalties and interest 37 are both extended to June 30, 2001. In addition, for penalty

notices issued after June 30, 2001, and before July 1, 2003, the notice requirements will be treated as met if the notice contains a

telephone number at which the taxpayer can request a copy of the

taxpayer’s assessment and payment history with respect to such

penalty. Similarly, for interest notices issued after June 30, 2001,

355

and before July 1, 2003, the notice requirements will be treated as

met if such notice contains a telephone number at which the taxpayer can request a copy of the taxpayer’s payment history relating

to interest amounts included in such notice.

Effective date.—The provision is effective on the date of enactment.

C. EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS (sec.

703 of the bill and sec. 7608 of the Code)

PRESENT LAW

The Anti-Drug Abuse Act of 1988 exempted IRS undercover operations from the otherwise applicable statutory restrictions controlling the use of Government funds (which generally provide that

all receipts must be deposited in the general fund of the Treasury

and all expenses be paid out of appropriated funds). In general, the

exemption permits the IRS to ‘‘churn’’ the income earned by an undercover operation to pay additional expenses incurred in the undercover operation. The IRS is required to conduct a detailed financial audit of large undercover operations in which the IRS is churning funds and to provide an annual audit report to the Congress

on all such large undercover operations. The exemption originally

expired on December 31, 1989, and was extended by the Comprehensive Crime Control Act of 1990 to December 31, 1991. In the

Taxpayer Bill of Rights II (Public Law 104–168), the authority to

churn funds from undercover operations was extended for five

years, through 2000.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement extends the authority of the IRS to

‘‘churn’’ the income earned from undercover operations for an additional five years, through 2005.

Effective date.—The provision is effective on the date of enactment.

D. COMPETENT AUTHORITY AND PRE-FILING AGREEMENTS (sec. 704

of the bill and secs. 6103, 6110, and new sec. 6105 of the Code)

PRESENT LAW

Section 6103

Section 6103 of the Code sets forth the general rule that returns and return information are confidential. A return is any tax

return, information return, declaration of estimated tax, or claim

for refund filed under the Code on behalf of or with respect to any

person. The term return also includes any amendment or supplement, including supporting schedules or attachments or lists, which

356

38Sec. 6103(b)(2)(A). 39Sec. 6103(b)(2)(B). 40The U.S. competent authority is the Secretary of the Treasury or his delegate. The U.S.

competent authority function has been delegated to the Commissioner of Internal Revenue, who

has redelegated the authority to the Director, International. On interpretive issues, the latter

acts with the concurrence of the Associate Chief Counsel (International) of the IRS.

are supplemental to or are part of a filed return. Return information is defined broadly. It includes the following information:

A taxpayer’s identity, the nature, source or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments;

Whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing;

Any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return

or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense; 38

Any part of any written determination or any background

file document relating to such written determination which is

not open to public inspection under section 6110; 39 and

Any advance pricing agreement entered into by a taxpayer

and the Secretary and any background information related to

the agreement or any application for an advance pricing agreement.

The term ‘‘return information’’ does not include data in a form

that cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer.

Secrecy of information exchanged under tax treaties

U.S. tax treaties typically contain articles governing the exchange of information. These articles generally provide for the exchange of information between the tax authorities of the two countries when such information is necessary for carrying out provisions of the treaty or of the countries’ domestic tax laws. Individuals referred to as ‘‘competent authorities’’ are designated by each

country to make written requests for information and to receive information.40

The exchange of information articles typically cover information relating to taxes to which the treaty applies, but can also

apply to other taxes (e.g., excise taxes) not covered by the treaty.

Many of the treaties permit the exchange of information even if the

taxpayer involved is not a resident of one of the treaty countries.

The exchange of information articles may be similar to, or represent a variation on, Article 26 of the 1996 U.S. model income tax

treaty.

Information that is received under the exchange of information

articles is subject to secrecy clauses contained in the treaties. In

this regard, the country requesting information under the treaties

typically is required to treat any information received as secret in

the same manner as information obtained under its domestic laws.

In general, disclosure is not permitted other than to persons or authorities involved in the administration, assessment, collection or

357

41Sections 274(h)(6)(C) and 927(e)(3) specifically provide the Secretary of the Treasury the authority to enter into tax information exchange agreements. This eliminates the need for Senate

ratification, which is required for a tax treaty. In addition, all tax information exchange agreements are required to include specific non-disclosure provisions which provide that ‘‘information

received by either country will be disclosed only to persons or authorities (including courts and

administrative bodies) involved in the administration or oversight of, or in the determination

of appeals in respect of, taxes of the United States, or the beneficiary country and will be used

by such persons or authorities only for such purposes.’’

Sec. 274(h)(6)(C)(i).

42The U.S. Senate ratified the Multilateral Mutual Assistance Convention, subject to certain

reservations, in September 1990. The Multilateral Mutual Assistance Convention entered into

force on April 1, 1995, and has been signed by the following countries: Denmark, Finland, Iceland, the Netherlands, Norway, Sweden, and the United States. 43For rulings, determination letters and technical advice memoranda, section 6110(c) provides

the following exemptions from disclosure:

(1) The names, addresses, and other identifying details of the person to whom the written

determination pertains and of any other person, other than a person with respect to whom a

notation is made under subsection (d)(1) (relating to third party contacts), identified in the written determination or any background file document;

(2) Information specifically authorized under criteria established by an Executive order to

be kept secret in the interest of national defense or foreign policy, and which is in fact properly

classified pursuant to such Executive order;

(3) Information specifically exempted from disclosure by any statute (other than [Title 26])

which is applicable to the Internal Revenue Service;

(4) Trade secrets and commercial or financial information obtained from a person and privileged or confidential;

Continued

enforcement of taxes to which the treaty applies. For example, disclosure generally can be made to legislative bodies, such as the taxwriting committees of the Congress, and the General Accounting

Office for purposes of overseeing the administration of U.S. tax

laws.

In addition to the exchange of information articles in U.S. tax

treaties, exchange of information provisions are contained in tax information exchange agreements entered into between the United

States and another country.41 In addition, information may be exchanged pursuant to the Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and

the Organization for Economic Cooperation and Development (the

‘‘Multilateral Mutual Assistance Convention’’), which limits the use

of exchanged information and permits disclosure of such information only with the prior authorization of the competent authority

of the country providing the information.42 The United States has

also entered into a number of implementation and coordination

agreements with possessions that provide for the exchange of tax

information. Moreover, the United States has entered into various

mutual legal assistance treaties with other countries, some of

which can be used to obtain tax information in criminal investigations.

Both the confidentiality provisions of section 6103, as well as

treaty secrecy provisions can cover return information.

Section 6110 and section 7121

Section 6110 of the Code provides for disclosure of written determinations. With certain exceptions, section 6110 makes the text

of any written determination the Internal Revenue Service (‘‘IRS’’)

issues available for public inspection. A written determination is

any ruling, determination letter, technical advice memorandum, or

Chief Counsel advice. The IRS is required to redact certain material before making these documents publicly available.43 Among the

358

(5) Information the disclosure of which would constitute a clearly unwarranted invasion of

personal privacy;

(6) Information contained in or related to examination, operating, or condition reports prepared by, or on behalf of, or for use of an agency responsible for the regulation or supervision

of financial institutions; and

(7) Geological and geophysical information and data, including maps, concerning wells.

For Chief Counsel Advice, paragraphs 2 through 7 do not apply, however, material may be

deleted in accordance with subsections (b) and (c) of the FOIA (except that in applying Exemption 3 of the FOIA, no statutory provision of the Code is to be taken into account.) See sec.

6110(i)(3). 44 H.R. Rep. 94–658, at 315 (1976). 45 Id. at 316.

information to be redacted is information specifically exempted

from disclosure by any statute (other than Title 26) that is applicable to the IRS. Once the IRS makes the written determination publicly available, the background file documents associated with such

written determination are available for public inspection upon written request. Section 6110 defines ‘‘background file documents’’ as

any written material submitted by the taxpayer or other requester

in support of the request. Background file documents also include

any communications between the IRS and persons outside the IRS

concerning such written determination that occur before the IRS

issues the determination.

Section 6110 was added to the Code in 1976. The legislative

history provided that a written determination would not be considered a ruling, technical advice memorandum, or determination letter, unless the document satisfies three criteria:

(1) The document recites the relevant facts;

(2) The document explains the applicable provisions of law;

and

(3) The document shows the application of law to the

facts.44

The legislative history further provided that section 6110 ‘‘does

not require public disclosure of a closing agreement entered into

between the IRS and a taxpayer which finally determines the taxpayer’s tax liability with respect to a taxable year * * * Your committee understands that a closing agreement is generally the result

of a negotiated settlement and, as such, does not necessarily represent the IRS view of the law. Your committee intends, however,

that the closing agreement exception is not to be used as a means

of avoiding public disclosure of determinations which, under

present practice, would be issued in a form which would be open

to public inspection [under the bill].’’ 45

Closing agreements are entered into under the authority of

section 7121. Closing agreements finally and conclusively settle a

tax issue between the IRS and a taxpayer. Closing agreements

may: (1) determine a taxpayer’s entire tax liability for a previous

tax period; or (2) fix the tax treatment of one or more specific items

affecting tax liability for any tax period. Thus, closing agreements

may settle the treatment of a specific item for periods ending after

the execution of the agreement. A single closing agreement may

cover both the determination of a taxpayer’s entire tax liability for

a previous tax period and fix the tax treatment of specific items for

any tax period.

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46 5 U.S.C. sec. 552(b)(3). 47The initial FOIA request of March 14, 2000, covered all competent authority agreements

executed for the United States from January 1, 1990, to date. In response to a request from

the Department of Treasury, by letter dated April 17, 2000, the FOIA request was narrowed

to cover competent authority agreements executed between 1997 and 1999. The right to pursue

the 1990 through 1996 agreements, however, was reserved. 48Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997). 49Tax Analysts v. IRS, No. 94–CV–923 (GK) (D.D.C.).

Freedom of Information Act

The Freedom of Information Act (‘‘FOIA’’), enacted in 1966, established a statutory right to access government information. While

the purpose of section 6103 is to restrict access to returns and return information, the basic purpose of the FOIA is to ensure that

the public has access to government documents. In general, the

FOIA provides that any person has a right of access to Federal

agency records, except to the extent that such records (or portions

thereof) are protected from disclosure by one of nine exemptions or

by one of three special law enforcement record exclusions. Exemption 3 of the FOIA allows the withholding of information prohibited

from disclosure by another statute if certain requirements are

met.46 The right of access is enforceable in court.

Pending FOIA requests and litigation involving IRS records

Records covered by treaty secrecy clauses

A publisher of tax related material and commentary has made

a FOIA request for the disclosure of competent authority agreements. The request has been pending since March 14, 2000.47 The

IRS has not denied the request, nor has it produced any documents

responsive to the request. At this time, no suit has been filed to

compel disclosure of these documents, although such a suit may be

brought in the future.

In connection with a separate request, the IRS was sued under

the FOIA to compel disclosure of Field Service Advice memoranda

(‘‘FSAs’’).48 FSAs are prepared by attorneys in the IRS National Office of the Office of Chief Counsel. They are prepared in response

to requests from IRS field personnel for legal guidance, usually

with respect to issues relating to a particular taxpayer. FSAs usually contain a statement of issues, facts, legal analysis and conclusions. The primary purpose of FSAs is to ensure that IRS field personnel apply the law correctly and uniformly. The D.C. Circuit determined that FSAs are subject to disclosure. However, the court

remanded the case to district court to address assertions of privilege, including those based on treaty secrecy. A decision on this

issue by the district court is still pending.49

Pre-filing agreements

On February 11, 2000, the IRS issued Notice 2000–12, in

which the IRS established a pilot program for ‘‘Pre-filing Agreements.’’ Under this program, large businesses may request a review and resolution of specific issues relating to tax returns they

expect to file between September and December of 2000. The purpose of the program is to enable taxpayers and the IRS to resolve

issues that are likely to be disputed in post-filing audits. Examples

of such issues include: (1) asset valuation and the allocation of a

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business’s purchase or sale price among the assets acquired or sold;

(2) the identification and documentation of hedging transactions;

and (3) the determination of ‘‘market’’ for taxpayers using the lower

of cost or market method of inventory valuation in situations involving inactive markets. The program is intended to address

issues for which the law is settled.

In Notice 2000–12, the IRS stated that pre-filing agreements

are closing agreements entered into pursuant to section 7121. As

such, the notice provides that the information generated or received by the IRS during the pre-filing agreement process constitutes return information. The notice further provides that pre-filing agreements are not written determinations as defined in section 6110, nor are they subject to disclosure under the FOIA.

Several pre-filing agreements have been completed. A FOIA request for these agreements has not been made.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The provision affirms that closing and similar agreements, and

information exchanged and agreements reached pursuant to a tax

treaty, are confidential. Further, the provision clarifies that such

protected documents are not to be disclosed under the FOIA or section 6110.

Clarification that return information includes closing agreements

and similar dispute resolution agreements

Protection for closing agreements, pre-filing agreements and

similar agreements not containing an exposition of the

tax law

The bill provides that agreements entered into under section

7121 or similar agreements are confidential return information.

Similar agreements are intended to include negotiated agreements

that (1) are the result of an alternative dispute resolution or dispute avoidance process relating to liability of any person under the

Code for any tax, penalty, interest, fine or forfeiture or other imposition or offense and (2) do not establish, set forth, or resolve the

government’s interpretation of the relevant tax law. This is not

meant to preclude citation, or repetition of, the Code, Treasury regulations, or other published rules.

It is intended that pre-filing agreements be covered by this

provision. It is the understanding of the conferees that pre-filing

agreements do not explain the applicable provisions of law or otherwise contain any exposition of the tax law or the position of the

IRS. In addition, it is not intended that the closing and similar

agreement exception be used as a means of avoiding public disclosure of determinations that, under present law, would be issued in

a form that would be open to public inspection. Thus, technical advice memoranda, chief counsel advice or other material clearly

361

50The D.C. Circuit recently remanded to the district court for factual development the issue

of whether the closing agreement in that case was submitted in support of an exemption application, and therefore, subject to disclosure under section 6104. Tax Analysts v. IRS, 214 F.3d

179 (D.C. Cir 2000), vacating and remanding 99–2 U.S.T.C. (CCH) 794 (D.D.C. 1999). 51See e.g., Appendix A of Rev. Proc. 2000–38 which is a model ‘‘Closing Agreement on Final

Determination Covering Specific Matters’’ regarding method of accounting for distributor commissions. Rev. Proc. 2000–38, 2000–40 I.R.B. 314–315 (October 2, 2000). That model agreement

does not identify any particular taxpayer but sets forth the substance of the agreement.

available to the public under present law section 6110, would not

be exempt from disclosure by virtue of the fact that such material

is contained in a background file for a closing agreement. For example, if a revenue agent seeks technical advice in connection with

a pre-filing agreement, such technical advice would remain subject

to the requirements of section 6110. Since the pre-filing agreement

program involves only settled issues of law, it is the understanding

of the conferees that documents of this nature generally would not

be generated in the pre-filing agreement process.

The provision is not intended to foreclose the disclosure of taxexempt organization closing agreements to the extent such disclosure is authorized under section 6104.50 Since section 6103 permits

the disclosure of return information as authorized by Title 26, a

disclosure authorized by section 6104 is permissible, notwithstanding the fact that a closing agreement is return information.

Report on pre-filing agreement program

It is intended that the Secretary make publicly available an

annual report relating to the pre-filing agreement program operations for the preceding calendar year. The annual reporting requirement is for five years, or the duration of the program, whichever is shorter. The report is to include (1) the number of pre-filing

agreements completed, (2) the number of applications received, (3)

the number of applications withdrawn, (4) the types of issues which

are resolved by completed agreements, (5) whether the program is

being utilized by taxpayers who were previously subject to audit by

the IRS, (6) the average length of time required to complete an

agreement, (7) the number, if any, and subject of technical advice

and chief counsel advice memoranda issued to address issues arising in connection with any pre-filing agreement, (8) any model

agreements,51 and (9) any other information the Secretary deems

appropriate. The first report, covering the calendar year 2000, is to

be issued no later than March 30, 2001. The information required

for the annual report is subject to the restrictions of section 6103.

Therefore, the Secretary will disclose information only in a form

that cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer. The Joint Committee on Taxation

periodically may review pre-filing agreements to determine whether they contain legal interpretations that should be disclosed to the

public.

Clarification that information protected by treaty is confidential

Protection for agreements and information exchanged pursuant to tax treaty

The provision adds a new Code section 6105, which provides

that tax convention information, with limited exceptions, cannot be

disclosed. Thus, the provision confirms that agreements concluded

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under, and information received pursuant to, a tax convention are

confidential and can only be disclosed as provided in such tax convention.

Under the provision, a tax convention is defined to include any

income tax or gift and estate tax convention, or any other convention or bilateral agreement (including multilateral conventions and

agreements and any agreement with a possession of the United

States) providing for the avoidance of double taxation, the prevention of fiscal evasion, nondiscrimination with respect to taxes, the

exchange of tax relevant information with the United States, or

mutual assistance in tax matters.

It is the understanding of the conferees that competent authority agreements (also referred to as mutual agreements) generally

do not contain an explanation of the law or application of law to

facts. Instead, such agreements are negotiated arrangements to resolve issues of double taxation. Thus, the term tax convention information for purposes of the provision includes: (1) any agreement

entered into with the competent authority of one or more foreign

governments pursuant to a tax convention; (2) an application for

relief under a tax convention (sought by either a taxpayer or another competent authority); (3) any background information related

to such agreement or application; (4) documents implementing such

agreement; and (5) any other information exchanged pursuant to a

tax convention that is treated as confidential or secret under such

tax convention. The conferees intend that tax convention information would include documents and any other information that reflects tax convention information, including the association of a

particular treaty partner with a specific issue or matter.

The general rule that tax convention information cannot be

disclosed does not apply to the disclosure of tax convention information to persons or authorities (including courts and administrative bodies) that are entitled to disclosure under the tax convention. It also does not apply to any generally applicable procedural

rules regarding applications for relief under a tax convention. This

exception is intended to ensure that there is no restriction on the

release by the Secretary of publicly available procedural rules concerning matters such as how or when to make a request for competent authority assistance. Thus, certain material generated by

IRS, i.e., its Competent Authority procedures (primarily reflected in

Rev. Proc. 96–13), or similar material produced by a treaty partner

(for example, an Information Circular produced and published by

the Canadian tax authority) may be made available to the public.

The general rule does not apply to the disclosure of information not

relating to a particular taxpayer if, after consultation with the parties to a tax convention, the Secretary determines that such disclosure would not impair tax administration. This is consistent with

current practice. An example of a general agreement that could be

disclosed under this provision is the agreement between the competent authorities of Mexico and the United States regarding the

maquiladora industry. That agreement, which was not taxpayer

specific, was publicized by press release IR–INT–1999–13. The conferees intend that the ‘‘impairment of tax administration’’ for purposes of this provision include, but not be limited to, the release

of documents that would adversely affect the working relationship

363

of the treaty partners. Under the provision, except as otherwise

provided, taxpayer-specific tax convention information could not be

publicly disclosed, even if it would not impair tax administration.

A taxpayer-specific competent authority agreement that relates

to the existence or possible existence of liability (or amount thereof)

of any person for any tax, penalty, interest, fine, forfeiture, or other

imposition or offense under the Code is return information under

section 6103. It is also an agreement pursuant to a tax convention

under section 6105. Return information, including taxpayer-specific

competent authority agreements, remains subject to the confidentiality provisions of section 6103. Thus, civil and criminal penalties

for the unauthorized disclosure of returns and return information

continue to apply to return information that is also covered by section 6105. However, tax convention information that is return information may only be disclosed to the extent provided in, and subject to the terms and conditions of, the relevant tax convention.

Interaction with FOIA and section 6110

Under the provision, closing agreements and similar agreements would not be considered written determinations for purposes

of section 6110 and, thus, would not be subject to public disclosure.

Such agreements would be defined as return information under

section 6103 and, therefore, such documents would be protected

from disclosure pursuant to Exemption 3 of the FOIA in conjunction with section 6103.

In addition, under the provision, section 6110 would not apply

to material covered by section 6105. In the litigation over FSAs,

there has been some dispute as to whether treaties qualify as statutes for purposes of withholding information pursuant to Exemption 3 of the FOIA. The conferees believe that treaties are the

equivalent of statutes for purposes of Exemption 3 of the FOIA.

Section 6105 satisfies Exemption 3 of the FOIA. Taxpayer-specific

tax convention information concerning a taxpayer’s tax liability,

such as taxpayer-specific competent authority agreements, would

be exempt from the FOIA as both return information under section

6103 and information protected from disclosure by tax convention

under section 6105. Agreements not relating to a particular taxpayer, and other tax convention information related to such agreements, could be disclosed under FOIA if it is determined that the

disclosure would not impair tax administration.

EFFECTIVE DATE

The provision applies to disclosures on, or after, the date of enactment, and thus, applies to all documents in existence on, or created after, the date of enactment.

E. INCREASE JOINT COMMITTEE ON TAXATION REFUND REVIEW

THRESHOLD TO $2 MILLION (sec. 705 of the bill and sec. 6405 of

the Code)

PRESENT LAW

No refund or credit in excess of $1,000,000 of any income tax,

estate or gift tax, or certain other specified taxes, may be made

until 30 days after the date a report on the refund is provided to

364

the Joint Committee on Taxation (sec. 6405). A report is also required in the case of certain tentative refunds. Additionally, the

staff of the Joint Committee on Taxation conducts post-audit reviews of large deficiency cases and other select issues.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement 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. The staff of the Joint Committee on Taxation would continue to exercise its existing statutory

authority to conduct a program of expanded post-audit reviews of

large deficiency cases and other select issues, and the IRS is expected to cooperate fully in this expanded program.

Effective date.—The provision is 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.

F. CLARIFYING THE ALLOWANCE OF CERTAIN TAX BENEFITS WITH

RESPECT TO KIDNAPPED CHILDREN (sec. 706 of the bill and secs.

2, 24, 32, and 151 of the Code)

PRESENT LAW

The Code generally requires that a taxpayer provide over onehalf of the support for each individual claimed as that taxpayer’s

dependent. Similarly, the child credit, the surviving spouse filing

status, and the head of household filing status require that a taxpayer satisfy certain requirements with regard to individuals that

qualify as the taxpayer’s dependent(s). Finally, the earned income

credit for taxpayers with qualifying children generally is available

only if the taxpayer has the same principal place of abode for more

than one-half the taxable year with an otherwise qualifying child.

Recently published IRS guidance first denied a dependency exemption to certain taxpayers with kidnapped children (TAM

200034029), then allowed such tax benefits to such taxpayers (TAM

200038059).

HOUSE BILL

No provision. However, H.R. 5117 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

365

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

if earlier, in which the child would have attained age 18).

Effective date.—The provision is effective for taxable years ending after the date of enactment.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement follows the provision of H.R. 5117.

G. CONFORMING CHANGES TO ACCOMMODATE REDUCED ISSUANCES

OF CERTAIN TREASURY SECURITIES (sec. 707 of the bill and sec.

995(f)(4) of the Code)

PRESENT LAW

Code section 995(f)(4) dealing with the interest charge on the

deferred tax liability of the shareholders of a domestic international sales corporation provides that the interest rate be determined by reference to the average investment yield on United

States Treasury bills with maturities of 52 weeks. In addition, provisions of Federal law relating to interest on monetary judgments

in civil cases recovered in Federal district court and on a judgment

against the United States affirmed by the Supreme Court (Title

28), interest on certain unpaid criminal fines and penalties (Title

18), and interest on compensation for certain takings of property

(Title 40) determine the applicable interest rate by reference to 52-

week Treasury bills.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conferees understand that, as a result of prior Congressional efforts at budgetary control, current and projected Federal

budget surpluses are reducing the need of the Treasury Department to issue certain securities. The Treasury Department has informed the Congress that on grounds of efficient debt management,

and predictability and liquidity for the financial markets, the

Treasury Department has announced it is likely to cease issuing

52-week Treasury bills. The conference agreement modifies the

Code (sec. 995(f)(4)) and certain other parts of Federal law relating

to interest on monetary judgments in civil cases recovered in Federal district court and on a judgment against the United States affirmed by the Supreme Court (Title 28), interest on certain unpaid

criminal fines and penalties (Title 18), and interest on compensation for certain takings of property (Title 40) that make specific reference to yields on 52-week Treasury bills. The conference agreement generally replaces the reference to 52-week Treasury bills

with a reference to the weekly average one-year constant maturity

366

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

Effective date.—The provision is effective upon the date of enactment.

H. AUTHORIZATION OF AGENCIES TO USE CORRECTED CONSUMER

PRICE INDEX (sec. 708 of the bill)

PRESENT LAW

Code section 1(f) provides for adjustments in the tax tables so

that inflation will not result in tax increases. Numerous other provisions of the Code are indexed as well. Section 1(f) provides that

inflation is measured by changes in the consumer price index

(‘‘CPI’’) for the preceding year as published by the Department of

Labor compared to the CPI for the calendar year 1992. Section 1(f)

directs the Secretary to publish tables with applicable tax rates

based upon calculated inflation adjustments by December 15 of the

year before the year to which the tables are to apply.

In addition, payments made under Social Security, certain Federal employee retirement programs, and certain payments to individuals under various welfare and income support programs are

adjusted annually by changes in the CPI.

On September 28, 2000, the Bureau of Labor Statistics (‘‘BLS’’)

announced that the agency had discovered a computational error in

quality adjustments of air conditioning as a part of the cost of

housing resulting in errors in the reported CPI between January

1999 and August 2000. The BLS reported that the CPI levels starting in January 1999 have been either 0.0, 0.1, or 0.2 index points

lower than the levels that would have been published without the

error. Consistent with agency guidelines and past practice, the BLS

announced that it is revising the reported CPI back to January

2000 to the fully correct levels. The BLS will make no change to

reported levels for January through December 1999. However, the

BLS will make the corrected levels of the CPI for 1999 available

upon request.

HOUSE BILL

No provision.

SENATE BILL

No provision.

CONFERENCE AGREEMENT

The conference agreement 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 conference agreement directs the Secretary to prescribe new tables reflecting the correct levels of the 1999 CPI for the 2000 tax year.

In addition, the conference agreement 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. The conference agreement diVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00370 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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52For example, John M. Berry, ‘‘Inflation Higher Than Reported,’’ The Washington Post, September 27, 2000, p. E–1, John M. Berry, ‘‘Rent Error Leads to Revision Of the CPI,’’ The Washington Post, September 29, 2000, p. E–3, Nicholas Kulish, ‘‘Major Price Index Is Revised Upward As Result of Error,’’ The Wall Street Journal, September 28, 2000, p. A2, and Nicholas

Kulish, ‘‘Second-Period GDP Rose at 5.6% Annual Rate,’’ The Wall Street Journal, September

29, 2000, p. A2. The conferees observe that these press reports highlight the potential confusion

for the public regarding these data. The Washington Post reported that ‘‘the CPI figures for

1999 were not revised’’ (September 29, 2000 story) while The Wall Street Journal reported that

‘‘[t]he BLS said a complete revision of all the data sets would be released’’ (September 28, 2000

story) and ‘‘it [BLS] announced that it would revise the index’’ (September 29, 2000 story).

rects the Director to issue guidelines to agency administrators to

determine the extent, if any, of such shortfalls in payments to individuals. The agency administrators are to report their findings to

the Director and to Congress within 30 days. The conference agreement provides that, within 60 days of the date of enactment, the

Director 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.

Applicable Federal benefit programs include the old-age and survivors insurance program, the disability insurance program and the

supplemental security income program under the Social Security

Act and other programs as determined by the Director. The conference agreement directs the Director to report to the Congress on

the activities performed pursuant to this provision by April 1, 2001.

The conferees recognize that the error in the CPI was computational in nature. The conferees support the BLS’s policy to incorporate methodological changes only on a prospective basis. The conferees also understand that BLS policy provides that published indices generally not be revised except for those found to be in error

for the year in which the error was discovered or within the past

twelve months. The conferees recognize that the errors in the CPI

date to as long as 20 months prior to the announcement of the

error. The conferees recognize that the BLS’s policy of not publishing corrected index numbers, beyond those provided as described above, has been applied in those rare cases where an error

has been discovered in the past. However, the conferees understand

that in the past 25 years the few errors that have been discovered

have involved sub-indices and have not affected the level of the CPI

itself. The last time the U.S. City Average All Items CPI was revised was in December 1974, when the values for the months of

April through October 1974 were recalculated and released with

issuance of the November CPI. Therefore, past precedent does not

strictly apply to the present situation.

The conferees believe that integrity of official government data

is vital to policymakers and private individuals and businesses

throughout the country. The conferees emphasize that the CPI

plays an important role in economic planning. For this reason the

conferees are concerned that, while the BLS has published corrected CPI numbers for 2000, the BLS does not intend to publish

corrected CPI numbers for 1999 as part of the official CPI series.

To its credit, the BLS announced the error publicly. The national

press reported the error.52 In the absence of a correction to the official CPI series, the Federal government will be left in the position

of maintaining, as an official data series, index numbers that the

Federal government has admitted are incorrect. The conferees beVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00371 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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53The assumption of liabilities is treated as boot if it can be shown that ‘‘the principal purpose’’ of the assumption is tax avoidance on the exchange, or is a non-bona fide business purpose

(sec. 357(b)).

lieve that the public’s trust in the integrity of official government

data is a paramount goal and the conferees strongly encourage the

Commissioner of the Bureau of Labor Statistics to review carefully

the agency’s current policy with respect to publishing as part of an

official series corrections to data found to be in error for reasons

of computational error. The conferees believe such a review should

be made both with respect to the error announced on September

28, 2000, and as a matter for the future for those rare circumstances where such a similar computational error might once

again arise.

Effective date.—The provision is effective on the date of enactment.

I. PREVENT DUPLICATION OR ACCELERATION OF LOSS THROUGH ASSUMPTION OF CERTAIN LIABILITIES (sec. 709 of the bill and sec.

358 of the Code)

PRESENT LAW

Generally, no gain or loss is recognized when one or more persons transfer property to a corporation in exchange for stock and

immediately after the exchange such person or persons control the

corporation. However, a transferor recognizes gain to the extent it

receives money or other property (‘‘boot’’) as part of the exchange

(sec. 351).

The assumption of liabilities by the controlled corporation generally is not treated as boot received by the transferor,53 except

that the transferor recognizes gain to the extent that the liabilities

assumed exceed the total of the adjusted basis of the property

transferred to the controlled corporation pursuant to the exchange

(sec. 357(c)).

The assumption of liabilities by the controlled corporation generally reduces the transferor’s basis in the stock of the controlled

corporation that assumed the liabilities. The transferor’s basis in

the stock of the controlled corporation is the same as the basis of

the property contributed to the controlled corporation, increased by

the amount of any gain (or dividend) recognized by the transferor

on the exchange, and reduced by the amount of any money or property received, and by the amount of any loss recognized by the

transferor (sec. 358). For this purpose, the assumption of a liability

is treated as money received by the transferor.

An exception to the general treatment of assumptions of liabilities applies to assumptions of liabilities that would give rise to a

deduction, provided the incurrence of such liabilities did not result

in the creation or increase of basis of any property. The assumption

of such liabilities is not treated as money received by the transferor

in determining whether the transferor has gain on the exchange.

Similarly, the transferor’s basis in the stock of the controlled corporation is not reduced by the assumption of such liabilities. The

Internal Revenue Service has ruled that the assumption by an acVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00372 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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54 Rev. Rul. 95–74, 1995–2 C.B. 36. The ruling addressed a parent corporation’s transfer to

a subsidiary of substantially all the assets of a manufacturing business, in exchange for stock

and the assumption of liabilities associated with the business, including certain contingent environmental remediation liabilities. These liabilities arose due to contamination of land during the

parent corporation’s operation of the manufacturing business. The transferor had no plan or intention to dispose of (or to have the subsidiary issue) any subsidiary stock. The IRS ruled that

the contingent liabilities would not reduce the transferor’s basis in the stock of the subsidiary

because the liabilities had not been taken into account by the transferor prior to the transfer

and had not given rise to deductions or basis for the transferor.

crual basis corporation of certain contingent liabilities for soil and

groundwater remediation would be covered by this exception.54

HOUSE BILL

No provision. However, the conference agreement to the Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included an earlier version of the legislation, effective for assumptions of liabilities

after July 14, 1999.

SENATE AMENDMENT

No provision. However, the conference agreement to the Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included an earlier version of the legislation, effective for assumptions of liabilities

after July 14, 1999. In addition, on October 20, 1999, the Senate

Finance Committee reported a bill (S. 1792) that contains a provision that limits the acceleration or duplication of losses through assumptions of liabilities. On April 4, 2000, Senators Roth and Moynihan introduced a bill that contains the same provision (S. 2354).

Effective date.—The provision in S. 2354 is effective for assumptions of liabilities on or after October 19, 1999. Except as provided by the Secretary, the rules addressing transactions involving

partnerships are effective with the same effective date. Any rules

addressing transactions involving S corporations may likewise be

effective for assumptions of liabilities on or after October 19, 1999

or such later date as may be prescribed in such rules.

CONFERENCE AGREEMENT

The conference agreement adopts the provision in S. 2354.

Under the conference agreement, if the basis of stock (determined without regard to this provision) received by a transferor as

part of a tax-free exchange with a controlled corporation exceeds

the fair market value of the stock, then the basis of the stock received is reduced (but not below the fair market value) by the

amount (determined as of the date of the exchange) of any liability

that (1) is assumed in 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 Secretary of the Treasury,

this provision does not apply where the trade or business with

which the liability is associated is transferred to the corporation as

part of the exchange, or where substantially all the assets with

which the liability is associated are transferred to the corporation

as part of the exchange.

The exceptions for transfers of a trade or business, or of substantially all the assets, with which a liability is associated, are intended to obviate the need for valuation or basis reduction in such

cases. The exceptions are not intended to apply to situations involvVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00373 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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55Section 357(d)(2) contains a limitation in the case of certain nonrecourse liabilities. Also,

under section 357, regulations, if issued, may provide for different results.

ing the selective transfer of assets that may bear some relationship

to the liability, but that do not represent the full scope of the trade

or business, (or substantially all the assets) with which the liability

is associated.

For purposes of the provision, the term ‘‘liability’’ includes any

fixed or contingent obligation to make payment, without regard to

whether such obligation or potential obligation is otherwise taken

into account under the Code. The determination whether a liability

(as more broadly defined for purposes of this provision) has been

assumed is made in accordance with the provisions of section

357(d)(1) of the Code. Under the standard of 357(d)(1), a recourse

liability is treated as assumed if, based on all the facts and circumstances, the transferee has agreed to and is expected to satisfy

such liability (or portion thereof), whether or not the transferor has

been relieved of the liability. For example, if a transferee corporation does not formally assume a recourse obligation or potential obligation of the transferor, but instead agrees and is expected to indemnify the transferor with respect to all or a portion of a such an

obligation, then the amount that is agreed to be indemnified is

treated as assumed for purposes of the provision, whether or not

the transferor has been relieved of such liability. Similarly, a nonrecourse liability is treated as assumed by the transferee of any

asset subject to such liability.55

The application of the provision is illustrated in the following

example: Assume a taxpayer transfers assets with an adjusted

basis and fair market value of $100 to its wholly-owned corporation

and the corporation assumes $40 of liabilities (the payment of

which would give rise to a deduction). Thus, the value of the stock

received by the transferor is $60. Under present law, the basis of

the stock would be $100. The provision requires that the basis of

the stock be reduced to $60 (i.e., a reduction of $40). Except as provided by the Secretary, no basis reduction is required if the transferred assets consisted of the trade or business, or substantially all

the assets, with which the liability is associated.

The provision does not change the tax treatment with respect

to the transferee corporation.

The Secretary of the Treasury is directed to prescribe rules

providing appropriate adjustments to prevent the acceleration or

duplication of losses through the assumption of liabilities (as defined in the provision) in transactions involving partnerships. The

Secretary may also provide appropriate adjustments in the case of

transactions involving S corporations. In the case of S corporations,

such rules may be applied instead of the otherwise applicable basis

reduction rules.

Effective date.—The provision is effective for assumptions of liabilities on or after October 19, 1999. Except as provided by the

Secretary, the rules addressing transactions involving partnerships

are effective with the same effective date any rules addressing

transactions involving S corporations may likewise be effective for

assumptions of liabilities on or after October 19, 1999, or such later

date as may be prescribed in such rules.

371

Subtitle B. Miscellaneous Provisions

A. REPEAL CERTAIN EXCISE TAXES ON RAIL DIESEL FUEL AND INLAND WATERWAY BARGE FUELS (sec. 710 of the bill and secs.

4041 and 4042 of the Code)

PRESENT LAW

Under present law, diesel fuel used in trains is subject to a 4.3-

cents-per gallon General Fund excise tax. Similarly, fuels used in

barges operating on the designated inland waterways system is

subject to a 4.3-cents-per-gallon General Fund excise tax. In both

cases, the 4.3-cents- per-gallon excise tax rates are permanent.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

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 is repealed.

Effective date.—The provision takes effect on January 1, 2001.

B. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE INSUR- ANCE COMPANIES AND OF POLICYHOLDER SURPLUS ACCOUNTS OF

LIFE INSURANCE COMPANIES (secs. 711–712 of the bill and secs.

809 and 815 of the Code)

PRIOR AND PRESENT LAW

Reduction in deductions for policyholder dividends and reserves of

mutual life insurance companies (sec. 809)

In general, a corporation may not deduct amounts distributed

to shareholders with respect to the corporation’s stock. The Deficit

Reduction Act of 1984 added a provision to the rules governing insurance companies that was intended to remedy the failure of prior

law to distinguish between amounts returned by mutual life insurance companies to policyholders as customers, and amounts distributed to them as owners of the mutual company.

Under the provision, section 809, a mutual life insurance company is required to reduce its deduction for policyholder dividends

by the company’s differential earnings amount. If the company’s

differential earnings amount exceeds the amount of its deductible

policyholder dividends, the company is required to reduce its deduction for changes in its reserves by the excess of its differential

earnings amount over the amount of its deductible policyholder

dividends. The differential earnings amount is the product of the

differential earnings rate and the average equity base of a mutual

life insurance company.

The differential earnings rate is based on the difference between the average earnings rate of the 50 largest stock life insurance companies and the earnings rate of all mutual life insurance

372

56The legislative history to the Life Insurance Company Tax Act of 1959 states that ‘‘[t]his

50 percent reduction in underwriting gains is made because of the claim that it is difficult to

establish with certainty the actual annual income of life insurance companies. It has been pointed out that because of the long-term nature of their contracts, amounts, which may appear as

income in the current year and as proper additions to surplus, may, as a result of subsequent

events, be needed to fulfill life insurance contracts. Because of this difficulty in arriving at true

underwriting gains on an annual basis, the bill provides for the taxation of only 50 percent of

this gain on a current basis.’’ Report of the Committee on Ways and Means to accompany H.R.

4245, H. Rep. No. 34, 86th Cong., 1st Sess. at 13 (1959). Similarly, the Senate report provides,

‘‘Although it is believed desirable to subject this underwriting income to tax, it is stated that

because of the long-term nature of insurance contracts it is difficult, if not impossible, to determine the true income of life insurance companies otherwise than by ascertaining over a long

period of time the income derived from a contract or block of contracts. Because of this, the bill

as amended by your committee, like the bill as passed by the House, does not attempt to tax

on an annual basis all of what might appear to be income. In both the House and your committee’s bill, half of the underwriting income is taxed as it accrues each year. The other half of

the underwriting income is taxed when it is paid out in a distribution to shareholders after the

taxed income has been distributed, or when it is voluntarily segregated and held for the benefit

of the shareholders. This other half of the underwriting income also is taxed if the cumulative

amount exceeds certain prescribed limits or if for a specified period of time the company ceases

to be a life insurance company.’’ Report of the Committee on Finance to accompany H.R. 4245,

S. Rep. No. 291, 86th Cong., 1st Sess. at 7 (1959).

companies. The mutual earnings rate applied under the provision

is the rate for the second calendar year preceding the calendar year

in which the taxable year begins. Under present law, the differential earnings rate cannot be a negative number.

A company’s equity base equals the sum of: (1) its surplus and

capital increased by 50 percent of the amount of any provision for

policyholder dividends payable in the following taxable year; (2) the

amount of its nonadmitted financial assets; (3) the excess of its

statutory reserves over its tax reserves; and (4) the amount of any

mandatory security valuation reserves, deficiency reserves, and voluntary reserves. A company’s average equity base is the average of

the company’s equity base at the end of the taxable year and its

equity base at the end of the preceding taxable year.

A recomputation or ‘‘true-up’’ in a subsequent year is required

if the differential earnings amount for the taxable year either exceeds, or is less than, the recomputed differential earnings amount.

The recomputed differential earnings amount is calculated taking

into account the average mutual earnings rate for the calendar

year (rather than the second preceding calendar year, as above).

The amount of the true-up for any taxable year is added to, or deducted from, the mutual company’s income for the succeeding taxable year.

Distributions to shareholders from policyholders surplus account

(sec. 815)

Under the law in effect from 1959 through 1983, a life insurance company was subject to a three-phase taxable income computation under Federal tax law. Under the three-phase system, a

company was taxed on the lesser of its gain from operations or its

taxable investment income (Phase I) and, if its gain from operations exceeded its taxable investment income, 50 percent of such

excess (Phase II). Federal income tax on the other 50 percent of the

gain from operations 56 was deferred, and was accounted for as part

of a policyholder’s surplus account and, subject to certain limitations, taxed only when distributed to stockholders or upon corporate dissolution (Phase III). To determine whether amounts had

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57Other events are treated as a subtraction from the policyholders surplus account. If for any

taxable year the taxpayer is not an insurance company, or for any 2 taxable years the company

is not a life insurance company, then the balance in the policyholder surplus account at the close

of the preceding taxable year is taken into income (former sec. 815(d)(2) as in effect prior to

the 1984 Act, which is referred to in present-law sec. 815(f)). Further, the policyholder surplus

account is reduced by the excess of the account over the greatest of 3 amounts related to reserves: (1) 15 percent of life insurance reserves at the end of the taxable year; (2) 25 percent

of the amount by which the life insurance reserves at the end of the taxable year exceed the

life insurance reserve at the end of 1958; or (3) 50 percent of the net amount of the premiums

and other consideration taken into account for the taxable year (former sec. 815(d)(4)(A)–(C),

as in effect prior to the 1984 Act, which is referred to in present-law sec. 815(f)). 58Section 815. 59Section 815(b).

come that would be available for distribution to shareholders.57

Distributions to shareholders were treated as being first out of the

shareholders surplus account, then out of the policyholders surplus

account, and finally out of other accounts.

The Deficit Reduction Act of 1984 included provisions that, for

1984 and later years, eliminated further deferral of tax on amounts

(described above) that previously would have been deferred under

the three-phase system. Although for taxable years after 1983, life

insurance companies may not enlarge their policyholders surplus

account, the companies are not taxed on previously deferred

amounts unless the amounts are treated as distributed to shareholders or subtracted from the policyholders surplus account (sec.

815).

Under present law, any direct or indirect distribution to shareholders from an existing policyholders surplus account of a stock

life insurance company is subject to tax at the corporate rate in the

taxable year of the distribution.58 Present law (like prior law) provides that any distribution to shareholders is treated as made (1)

first out of the shareholders surplus account, to the extent thereof,

(2) then out of the policyholders surplus account, to the extent

thereof, and (3) finally, out of other accounts.59

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

Reduction in deductions for policyholder dividends and reserves of

mutual life insurance companies (sec. 809)

The conference agreement repeals the rules requiring reduction in certain deductions of mutual life insurance companies (sec.

809) for taxable years beginning after December 31, 2000.

Effective date.—The repeal is effective for taxable years beginning after December 31, 2000.

Distributions to shareholders from policyholders surplus account

(sec. 815)

The conference agreement repeals the rules relating to distributions to shareholders from the policyholders surplus account of

a life insurance company (sec. 815) for taxable years beginning

after December 31, 2000.

374

Effective date.—The repeal is effective for taxable years beginning after December 31, 2000.

C. TAX-CREDIT BONDS FOR THE NATIONAL RAILROAD PASSENGER

CORPORATION (‘‘AMTRAK’’) AND THE ALASKA RAILROAD (sec. 713 of

the bill and new sec. 54 of the Code)

PRESENT LAW

Present law does not authorize the issuance by any private,

for-profit corporation of bonds the interest on which is tax-exempt

or eligible for an income tax credit. Tax-exempt bonds may be

issued by States or local governments to finance their governmental activities or to finance certain capital expenditures of private businesses or loans to individuals. Additionally, States or local

governments may issue tax-credit bonds to finance the operation of

‘‘qualified zone academies.’’

Tax-exempt bonds

Interest on bonds issued by States or local governments to finance direct activities of those governmental units is excluded from

tax (sec. 103). In addition, interest on certain bonds (‘‘private activity bonds’’) issued by States or local governments acting as conduits

to provide financing for private businesses or individuals is excluded from income if the purpose of the borrowing is specifically

approved in the Code (sec. 141). Examples of approved private activities for which States or local governments may provide tax-exempt financing include transportation facilities (airports, ports,

mass commuting facilities, and certain high speed intercity rail facilities); public works facilities such as water, sewer, and solid

waste disposal; and certain social welfare programs such as low-income rental housing, student loans, and mortgage loans to certain

first-time homebuyers. High speed intercity rail facilities eligible

for tax-exempt financing include land, rail, and stations (but not

rolling stock) for fixed guideway rail transportation of passengers

and their baggage using vehicles that are reasonably expected to

operate at speeds in excess of 150 miles per hour between scheduled stops.

Issuance of most private activity bonds is subject to annual

State volume limits of $50 per resident ($150 million if greater).

These volume limits are scheduled to increase to $75 per resident

($225 million if greater) over the period 2003 through 2007.

Investment earnings on all tax-exempt bonds, including earnings on invested sinking funds associated with such bonds is restricted by the Code to prevent the issuance of bonds earlier or in

a greater amount than necessary for the purpose of the borrowing.

In general, all profits on investment of such proceeds must be rebated to the Federal Government. Interest on bonds associated

with invested sinking funds is taxable.

Tax-credit bonds for qualified zone academies

As an alternative to traditional tax-exempt bonds, certain

States or local governments are given authority to issue ‘‘qualified

zone academy bonds.’’ A total of $400 million of qualified zone

academy bonds is authorized to be issued in each year of 1998

375

60 $92 million of Amtrak’s tax-credit bond authority for Northeast Corridor projects is set aside

for the acquisition and installation of platform facilities, performance of railroad force account

work necessary to complete improvements below grade, and any other necessary improvements

related to construction at the new railroad station at the James A. Farley Post Office Building

in New York City. Projects finance with this $92 million of tax-credit bonds are not subject to

the Senate contribution requirement, described below.

through 2001. The $400 million is allocated to States according to

their respective populations of individuals below the poverty line.

Qualified zone academy bonds are taxable bonds with respect

to which the investor receives an income tax credit equal to an assumed interest rate set by the Treasury Department to allow

issuance of the bonds without discount and without interest cost to

the issuer. The bonds may be used for renovating, providing equipment to, developing course materials for, or training teachers in eligible schools. Eligible schools are elementary and secondary schools

with respect to which private entities make contributions equaling

at least 10 percent of the bond proceeds.

Only financial institutions are eligible to claim the credits on

qualified zone academy bonds. The amount of the credit is taken

into income. The credit may be claimed against both regular income tax and AMT liability.

There are no arbitrage restrictions applicable to investment

earnings on qualified zone academy bond proceeds.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision, but S. 3152, authorizes the National Railroad

Passenger Corporation (‘‘Amtrak’’) and the Alaska Railroad to issue

an aggregate amount of $10 billion of tax-credit bonds to finance

its capital projects. Annual issuance of the bonds may not exceed

$1 billion per year (plus any authorized amount that was not

issued in previous years) during the ten Fiscal Year period, 2001–

2010. Unused bond authority could be carried forward to succeeding years until used, subject to a limitation that no tax-credit

bonds could be issued after fiscal year 2015.

Projects eligible for tax-credit bond financing are defined as the

acquisition, construction of equipment, rolling stock, and other capital improvements for (1) the northeast rail corridor between Washington, D.C. and Boston, Massachusetts; 60 (2) high-speed rail corridors designated under section 104(d)(2) of Title 23 of the United

States Code; and (3) other intercity passenger rail corridors, including station rehabilitation or construction, track or signal improvements, or grade crossing elimination. Item 3 is limited to a maximum of 10 percent of the proceeds of any bond issue. At least 70

percent of the authorized tax-credit bonds must be issued for

projects described in (2) and (3). No more than $3 billion of the

bonds may be designated for any one high-speed rail corridor.

As with qualified zone academy bonds, the interest rate on

Amtrak/Alaska Railroad tax-credit bonds will be set to allow

issuance of the bonds at par, i.e., without any interest cost to Amtrak or the Alaska Railroad. In general, proceeds of Amtrak/Alaska

Railroad tax-credit bonds would have to be spent within 36 months

376

after the bonds are issued. As of the date the bonds were issued,

Amtrak or the Alaska Railroad must certify that it reasonably

expects—

(1) to incur a binding obligation with a third party to spend at

least 10 percent of the bond proceeds within six months (or in the

case of self-constructed property, to have commenced construction

or preliminary engineering studies within six months);

(2) to spend the bond proceeds with due diligence; and

(3) to spend at least 95 percent of the proceeds for qualifying

capital costs within three years.

Amtrak/Alaska Railroad tax-credit bonds may only be issued

for projects that are approved by the Department of Transportation

and, in the case of Amtrak, with respect to which there are binding

commitments from one or more States to make matching contributions of at least 20 percent of the project cost. Projects having State

matching contributions in excess of 20 percent are given a preference. The State matching contributions, along with earnings on

investment of the tax-credit bond proceeds must be invested in a

trust account (i.e., a sinking fund) and used along with earnings on

the trust account for repayment of the principal amount of the

bonds.

Amtrak/Alaska Railroad tax-credit bonds can be owned (and

income tax credits claimed) by any taxpayer. The amount of the

credit will be included in the bondholder’s income. Additionally,

provisions are included in the proposal to allow the credits to be

stripped and sold to different investors than the investors in the

bond principal.

The required State matching contribution may not be derived

from Federal monies. Any Federal Highway Trust Fund monies

transferred to the States are treated as Federal monies for this

purpose. During the period when tax-credit bonds are authorized,

Amtrak and the Alaska Railroad are not allowed to receive any

Highway Trust Fund monies other than those authorized on the

date of the provision’s enactment.

Amtrak is required annually to submit a five-year capital plan

to Congress, and to satisfy independent oversight requirements

with respect to the management of tax-credit-bond-financed

projects. Finally, the Treasury Department is required to certify

annually that funds deposited in the escrow accounts for repayment of tax-credit bonds issued by Amtrak (with actual and projected earnings thereon) are sufficient to ensure full repayment of

the bond principal.

Effective date.—The provision is effective for tax credit bonds

issued by Amtrak or the Alaska Railroad after September 30, 2000.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment, with

several modifications and clarifications.

First, the expenditure requirements applicable to these tax

credit bonds are modified to add an actual expenditure requirement

to the Senate amendment’s reasonable expectations test. Under the

actual expenditure requirement, unless at least 95 percent of the

bond proceeds is spent within 3 years after the bonds are issued,

unspent proceeds must be used to redeem bonds within 90 days

377

after the end of the period. An exception allows the expenditure period to be extended to four years if (1) at least 75 percent of the

proceeds are spent within the initial three year period, (2) the

issuer has proceeded with due diligence to spend the proceeds within the initial three-year period, and (3) the issuer pays to the Federal Government all earnings on unspent proceeds that accrue after

the end of the initial three-year period. If the issuer qualifies for

the exception, but fails to satisfy its spending requirements,

unspent proceeds must be used to redeem bonds within 90 days

after the end of the four-year period.

Second, the definition of qualified expenditures is modified to

preclude the use of bond proceeds to refinance outstanding debt except for ‘‘bridge’’ and similar financing incurred for a qualified

project pending issuance of tax-credit bonds. Qualified bridge financing is defined as financing that (1) is issued after the date of

enactment of the provision, (2) has a term of not more than three

years, (3) is used to finance or acquire capital improvements that

qualify for tax-credit bond financing, and (4) is issued in anticipation of being refinanced with proceeds of tax-credit bonds.

Third, provisions are added requiring that tax-credit-bond-financed property be continuously used for a qualified purpose

throughout the term of the bonds.

Fourth, clarification is provided that the use of tax-credit bond

proceeds to redeem bonds (except as required above and except

with regard to not more than five percent of the bond proceeds) is

not a qualified expenditure. A further modification allows Amtrak

to treat as a qualified project expenditure, expenditure of not more

than 0.5 percent of bond proceeds for costs of complying with the

oversight requirements imposed on that railroad by the conference

agreement.

Fifth, clarification is provided that the tax credit rate is determined on the date the bonds are sold (rather than the actual

issuance date, if different).

Sixth, the Senate amendment is modified to require actual deposit in to the Trust Account securing repayment of the bonds of

the required State contributions before any tax-credit bonds are

issued.

Seventh, for bonds issued by Amtrak, the Senate amendment

is modified to require (in addition to approval by the Secretary of

Transportation) a finding by the Inspector General of the Department of Transportation that there is ‘‘a reasonable likelihood’’ that

the proposed projects will result ‘‘in a positive incremental financial

contribution’’ to Amtrak and to specify criteria to be used in making this determination.

Return on investment.—The measurements used to evaluate

the amount of return on investment shall include (1) the positive

incremental financial contribution to Amtrak, including all systemwide impacts and (2) the value of the net cash flow to Amtrak produced over the life of the program, discounted to current dollars.

Such net cash flow should take into consideration operating efficiencies produced as a result of the total capital investment as well

as incremental passenger related, mail and express, State and

other revenue as a result of the total capital investment.

378

Leveraging of funds.—The measurements used to evaluate the

leveraging of funds shall include (1) the amount of public and private match provided for the program, (2) the percentage of public

and private match provided for the program relative to Amtrak’s

contribution and (3) the stability or reliability of state and local

capital and operating support.

Cost effectiveness.—The measurement used to evaluate cost effectiveness is the incremental cost to Amtrak per incremental passenger or the incremental cost to Amtrak per incremental revenue

generated as a result of the capital investment.

Safety improvement.—The measurements used to evaluate

safety improvement shall include (1) the prevention or reduction of

customer or third party injuries and (2) the prevention or reduction

of employee injuries.

Mobility improvement.—The measurements used to evaluate

the level of mobility improvement shall include (1) travel time savings and (2) low income households served.

Feasibility.—The measurements used to evaluate feasibility

shall include (1) timing of program implementation, (2) technical

feasibility and (3) likelihood of public and private participation.

Eighth, clarification is provided that the tax-credit bonds are

the obligation of the issuing railroad notwithstanding the existence

of the Trust Account securing their repayment. As in the case of

other tax-preferred debt, no implied Federal Guarantee arises by

virtue of the availability of tax credits on these bonds.

Ninth, the Senate amendment is modified to provide that

funds in the Trust Account that are not required to redeem bonds

may be used for additional qualified projects.

D. FARM, FISH, AND RANCH RISK MANAGEMENT ACCOUNTS

(‘‘FFARRM ACCOUNTS’’) (sec. 714 of the bill and new sec. 468C

of the Code)

PRESENT LAW

There is no provision in present law allowing the elective deferral of farm or fishing income.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, S. 3152 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 crop-bearing 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 deterVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00382 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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mining 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 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 self-employment 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.

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

CONFERENCE AGREEMENT

The conference agreement follows the provision of S. 3152.

E. EXTENSION AND MODIFICATION OF ENHANCED DEDUCTION FOR

CORPORATE DONATIONS OF COMPUTER TECHNOLOGY (sec. 715 of

the bill and sec. 170 (e)(6) of the Code)

PRESENT LAW

The maximum charitable contribution deduction that may be

claimed by a corporation for any one taxable year is limited to 10

percent of the corporation’s taxable income for that year (disregarding charitable contributions and with certain other modifications) (sec. 170(b)(2)). Corporations also are subject to certain limitations based on the type of property contributed. In the case of a

charitable contribution of short-term gain property, inventory, or

other ordinary income property, the amount of the deduction generally is limited to the taxpayer’s basis (generally, cost) in the property. However, special rules in the Code provide an augmented deduction for certain corporate contributions. Under these special

rules, the amount of the augmented deduction is equal to the lesser

of (1) the basis of the donated property plus one-half of the amount

of ordinary income that would have been realized if the property

had been sold, or (2) twice the basis of the donated property.

Section 170(e)(6) allows corporate taxpayers an augmented deduction for qualified contributions of computer technology and

equipment (i.e., computer software, computer or peripheral equipment, and fiber optic cable related to computer use) to be used

within the United States for educational purposes in grades K–12.

Eligible donees are: (1) any educational organization that normally

maintains a regular faculty and curriculum and has a regularly enrolled body of pupils in attendance at the place where its educational activities are regularly carried on; and (2) tax-exempt

charitable organizations that are organized primarily for purposes

of supporting elementary and secondary education. A private foundation also is an eligible donee, provided that, within 30 days after

receipt of the contribution, the private foundation contributes the

property to an eligible donee described above.

380

Qualified contributions are limited to gifts made no later than

two years after the date the taxpayer acquired or substantially

completed the construction of the donated property. In addition, the

original use of the donated property must commence with the

donor or the donee. Accordingly, qualified contributions generally

are limited to property that is no more than two years old. Such

donated property could be computer technology or equipment that

is inventory or depreciable trade or business property in the hands

of the donor.

Donee organizations are not permitted to transfer the donated

property for money or services (e.g., a donee organization cannot

sell the computers). However, a donee organization may transfer

the donated property in furtherance of its exempt purposes and be

reimbursed for shipping, installation, and transfer costs. For example, if a corporation contributes computers to a charity that subsequently distributes the computers to several elementary schools in

a given area, the charity could be reimbursed by the elementary

schools for shipping, transfer, and installation costs.

The special treatment applies only to donations made by C corporations. S corporations, personal holding companies, and service

organizations are not eligible donors.

The provision is scheduled to expire for contributions made in

taxable years beginning after December 31, 2000.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, S. 3152 includes a provision that extends the current enhanced deduction for donations of computer

technology and equipment through December 31, 2003. In addition,

S. 3152 expands the enhanced deduction to include donations to

public libraries.

Effective date.—The provision is effective upon the date of enactment.

CONFERENCE AGREEMENT

The conference agreement follows S. 3152 with a modification

that qualified contributions include gifts made no later than three

years after the date the taxpayer acquired or substantially completed the construction of the donated property.

Effective date.—The provision is effective for contributions

made after December 31, 2000.

381

61Section 61.

F. SETTLEMENT OF CERTAIN DISCRIMINATION CLAIMS BROUGHT BY

FARMERS AGAINST THE DEPARTMENT OF AGRICULTURE (sec. 716 of

the bill)

PRESENT LAW

Income tax

Gross income means ‘‘income from whatever source derived’’

except for certain items specifically excluded by statute.61 Sources

of income include compensation for services, interest, dividends,

capital gains, rents, royalties, gross profits from a trade or business, income from the discharge of indebtedness, and income from

S corporations, partnerships, trusts, and estates. In determining

taxable income, a taxpayer’s gross income is reduced by exemptions

and deductions. Absent any applicable exemption or exclusion, an

amount received by an individual in the settlement of a lawsuit

generally is includible in gross income.

HOUSE BILL

No provision. However, H.R. 2233 excludes from gross income

any cash received or cancellation of indebtedness income 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 further provides that such

amounts are not included in the gross estate of any qualified person for estate tax purposes. Finally, the bill provides that these

amounts are not to be (1) considered income or resources in determining eligibility for, (2) used to deny or reduce funds under, or (3)

used as a basis for determining the amount of assistance under,

any program funded in whole or in part with Federal funds. 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).

Effective date.—The provision is effective after the date of enactment.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement follows the provision of H.R. 2233,

with modifications. The conference agreement provision provides

an exclusion of certain amounts from gross income for purposes of

Subtitle A of the Internal Revenue Code. This exclusion applies to

any (1) cash payment received before, on, or after the date of enactment by or made on behalf of, a person under the settlement of

these two claims or (2) cancellation of indebtedness income pursuant to the settlement of these two claims. The conference agreement does not include the provision of H.R. 2233 that provides an

exclusion of amounts from the gross estate of any qualified person,

for estate tax purposes. Further, the conference agreement does not

382

include the provision of H.R. 2233 providing that amounts are not

to be (1) considered income or resources in determining eligibility

for, (2) used to deny or reduce funds under, or (3) used as a basis

for determining the amount of assistance under, any program funded in whole or in part with Federal funds.

G. EXTENSION OF THE ADOPTION TAX CREDIT (sec. 717 of the bill

and sec. 23 of the Code)

PRESENT LAW

Taxpayers are entitled to a maximum nonrefundable credit

against income tax liability of $5,000 per child for qualified adoption expenses paid or incurred by the taxpayer (sec. 23). In the case

of a special needs adoption, the maximum credit amount is $6,000.

A special needs child is a child who is a citizen or resident of the

United States and who the State has determined: (1) cannot or

should not be returned to the home of the birth parents, and (2)

has a specific factor or condition because of which the child cannot

be placed with adoptive parents without adoption assistance. The

adoption of a child who is not a citizen or a resident of the United

States is a foreign adoption.

Qualified adoption expenses are reasonable and necessary

adoption fees, court costs, attorneys’ fees, and other expenses that

are directly related to the legal adoption of an eligible child. All

reasonable and necessary expenses required by a State as a condition of adoption are qualified adoption expenses. Otherwise qualified adoption expenses paid or incurred in one taxable year are not

taken into account for purposes of the credit until the next taxable

year unless the expenses are paid or incurred in the year the adoption becomes final.

An eligible child is an individual (1) who has not attained age

18 or (2) who is physically or mentally incapable of caring for himself or herself. After December 31, 2001, the credit will be available

only for special needs adoptions.

No credit is allowed for expenses incurred (1) in violation of

State or Federal law, (2) in carrying out any surrogate parenting

arrangement, (3) in connection with the adoption of a child of the

taxpayer’s spouse, (4) that are reimbursed under an employer adoption assistance program or otherwise, or (5) for a foreign adoption

that is not finalized.

The credit is phased out ratably for taxpayers with modified

AGI above $75,000, and is fully phased out at $115,000 of modified

AGI. For these purposes modified AGI is computed by increasing

the taxpayer’s AGI by the amount otherwise excluded from gross

income under Code sections 911, 931, or 933.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision. However, S. 3152 extends the adoption credit for

the adoption of nonspecial needs children for two years through December 31, 2003.

383

62 H.R. 4192 (106th Cong., 2d. Sess.,) introduced April 5, 2000, would modify these rules relating to reinsurance transactions. That bill would provide that if a domestic person directly or

indirectly reinsurances a U.S. risk with a related foreign reinsurer, then the investment income

of the domestic person would be increased by the product of (1) the reserves or liabilities related

to the U.S. risk ceded to the foreign reinsurer, and (2) the average applicable Federal mid-term

rate.

Effective date.—The provision is effective on the date of enactment.

CONFERENCE AGREEMENT

The conference agreement extends the credit for nonspecial

needs adoptions to include qualified adoption expenses paid or incurred prior to December 31, 2005, and increases the maximum

credit by $1,000 per year beginning for taxable years beginning

after December 31, 2000 and 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.

Additionally, for taxable years beginning after December 31,

2000, the income limitation for the credit is increased to $150,000

of modified AGI, and is phased out ratably for taxpayers with

modified AGI between $150,000 and $190,000.

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

H. STUDY OF TAX TREATMENT WITH RESPECT TO CERTAIN

OFFSHORE INSURANCE COMPANIES (sec. 718 of the bill)

PRESENT LAW

Under present law, under the rules of subchapter L of the

Code, a life insurance company is subject to tax on its life insurance company taxable income. Similarly, a property and casualty

insurance company is subject to tax on its taxable income, which

is calculated by taking into account the company’s underwriting income and investment income, as well as gains and other income

items. An insurance company may enter into a reinsurance contract or agreement with another insurer, whereby risks, or portions

of risks, are transferred from one insurer to another or are shared

or allocated among insurers.

Present law provides rules governing allocation in the case of

reinsurance agreements that involve tax avoidance or evasion.

Under this rule, in the case of two or more related persons that are

parties to a reinsurance agreement (or an agent of a party to a reinsurance agreement), the Treasury Secretary may allocate between or among such persons income (whether investment income,

premium or otherwise), deductions, assets, reserves, credits, and

other items related to the agreement. The Treasury Secretary may

also recharacterize any such items or make any other adjustment.

The Secretary may make the allocation, recharacterization or adjustment if he determines that it is necessary to reflect the proper

source and character of the taxable income (or other item) of each

related person or agent.62

384

Other rules also provide for the allocation of income and deductions among taxpayers. In any case of two or more organizations

owned or controlled directly or indirectly by the same interests, the

Treasury Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among the organizations, if he determines that it is necessary in order to prevent evasion of taxes or clearly to reflect the income of the organizations.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement provides that the Secretary of the

Treasury 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 Treasury Secretary is

to address issues concerning the application of current U.S. tax law

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

needed to prevent such avoidance, and is to make appropriate recommendations. The Treasury 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’’) (sec. 719 of the bill and sec.

3306 of the Code)

PRESENT LAW

Present law imposes a net tax on employers equal to 0.8

percent of the first $7,000 paid annually to each employee. The

current gross FUTA tax is 6.2 percent, but employers in States

meeting certain requirements and having no delinquent loans are

eligible for a 5.4 percent credit making the net Federal tax rate 0.8

percent. Both non-profit organizations and State and local governments are not required to pay FUTA taxes. Instead they may elect

to reimburse the unemployment compensation system for unemployment compensation benefits actually paid to their former employees. Generally, Indian tribes are not eligible for the reimbursement treatment allowable to non-profit organizations and State

and local governments.

HOUSE BILL

No provision.

385

63 In addition to other tax technical corrections, the bill contains the technical corrections contained in H.R. 2488, the Financial Freedom Act of 1999 (106th Cong., 1st Sess., reported by the

House Committee on Ways and Means, H. Rept. 106–238, July 16, 1999, 393–397), as passed

by the House, and S. 1429, the Taxpayer Refund Act of 1999 (reported by the Senate Committee

on Finance, S. Rept. 106–120, July 23, 1999, 221–225), as passed by the Senate. (The technical

corrections were not included in the conference agreement to H.R. 2488, the Taxpayer Refund

and Relief Act of 1999 (106th Cong., 1st Sess., H. Rept. 106–289, Aug. 4, 1999, 542–543). The

Taxpayer Refund and Relief Act of 1999 was vetoed by President Clinton.) However, the bill

does not include the following provisions enacted in other legislation: sections 1601(b)(2) and (c)

of H.R. 2488 (and section 504(c) of S. 1429), relating to the Vaccine Trust Fund, which were

enacted in the ‘‘Ticket to Work and Work Incentives Improvement Act of 1999’’ (P.L. 106–170,

sec. 523(b)).

SENATE AMENDMENT

No provision. However, S. 3152 provides that an Indian tribe

(including any subdivision, subsidiary, or business enterprise chartered and wholly owned by an Indian tribe) is treated like a nonprofit organization or State or local government for FUTA purposes

(i.e., given an election to choose the reimbursement treatment).

Effective date.—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.

CONFERENCE AGREEMENT

The conference agreement follows the provision of S. 3152.

Subtitle C. Tax Technical Corrections

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement includes tax technical corrections.63

Except as otherwise provided, the technical corrections contained in

the bill generally are effective as if included in the originally enacted related legislation. The provisions under the IRS Restructuring Act of 1998 relating to innocent spouse and to procedural

and administrative issues (other than the provision relating to clarification of Tax Court authority to issue appealable decisions) are

effective upon the date of enactment of the bill.

Amendments relating to the Ticket to Work and Work Incentives Improvement Act of 1999 (sec. 721 of the bill)

Research credit.—The provision clarifies the anti-double dip

rule coordinating the research credit (sec. 41) and the Puerto Rico

economic activity credit (sec. 30A). It is arguable that the presentlaw provisions could be construed so that the amount of wages on

386

which a taxpayer could claim the section 30A credit is reduced only

by the amount of credit claimed under section 41, rather than by

the amount of wages upon which the section 41 credit is based.

This result is inconsistent with the legislative history of the original provisions. The provision deletes the words ‘‘or credit’’ after ‘‘deduction’’ in section 280C(c)(1), and adds a new subsection in section

30A specifying that wages or other expenses taken into account for

section 30A may not be taken into account for section 41.

Taxable REIT subsidiaries.—The provision clarifies that a

REIT’s redetermined rents (described in sec. 857(b)(7)(B)) that are

subject to tax under section 857(b)(7)(A) do not include amounts received from a taxable REIT subsidiary that would be excluded from

unrelated business taxable income (under sec. 512(b)(3), relating to

certain rents, if received by certain types of organizations described

in sec. 511(a)(2)).

Partnership basis adjustments.—The provision provides that

the rule in the consolidated return regulations (Treas. Reg. sec.

1.1502–34) aggregating stock ownership for purposes of section 332

(relating to complete liquidation of a subsidiary that is a controlled

corporation) also applies for purposes of section 732(f) (relating to

basis adjustments to assets of a controlled corporation received in

a partnership distribution).

Amendments related to the Tax and Trade Relief Extension Act of

1998 (sec. 722 of the bill)

Exempt organizations.—The provision clarifies that nonexempt

charitable trusts and nonexempt private foundations are subject to

the public disclosure requirements of section 6104(d).

Capital gains.—The provision clarifies that if (1) a charitable

remainder trust sold section 1250 property after July 28, 1997, and

before January 1, 1998, (2) the property was held more than one

year but not more than 18 months, and (3) the capital gain is distributed after December 31, 1997, then any capital gain attributable to depreciation will be taxed at 25 percent (rather than 28

percent). Treasury has published a notice (Notice 99–17, 1999–14

I.R.B., April 5, 1999) providing that the gain is taxed at 25 percent.

Amendments related to the Internal Revenue Service Restructuring

and Reform Act of 1998 (sec. 723 of the bill)

Innocent spouse

Timing of request for relief.—Confusion currently exists as to

the appropriate point at which a request for innocent spouse relief

should be made by the taxpayer and considered by the IRS. Some

have read the statute to prohibit consideration by the IRS of requests for relief until after an assessment has been made, i.e., after

the examination has been concluded, and if challenged, judicially

determined. Others have read the statute to permit claims for relief

from deficiencies to be made upon the filing of the return before

any preliminary determination as to whether a deficiency exists or

whether the return will be examined. The consideration of innocent

spouse relief requires that the IRS focus on the particular items

causing a deficiency; until such items are identified, the IRS cannot

consider these claims. Congress did not intend that taxpayers be

387

prohibited from seeking innocent spouse relief until after an assessment has been made; Congress intended the proper time to raise

and have the IRS consider a claim to be at the same point where

a deficiency is being considered and asserted by the IRS. This is

the least disruptive for both the taxpayer and the IRS since it allows both to focus on the innocent spouse issue while also focusing

on the items that might cause a deficiency. It also permits every

issue, including the innocent spouse issue, to be resolved in single

administrative and judicial process. The bill clarifies the intended

time by permitting the election under (b) and (c) to be made at any

point after a deficiency has been asserted by the IRS. A deficiency

is considered to have been asserted by the IRS at the time the IRS

states that additional taxes may be owed. Most commonly, this occurs during the Examination process. It does not require an assessment to have been made, nor does it require the exhaustion of administrative remedies in order for a taxpayer to be permitted to request innocent spouse relief.

Allowance of refunds.—The current placement in the statute of

the provision for allowance of refunds may inappropriately suggest

that the provision applies only to the United States Tax Court,

whereas it was intended to apply administratively and in all

courts. The bill clarifies this by moving the provision to its own

subsection.

Non-exclusivity of judicial remedy.—Some have suggested that

the IRS Restructuring Act administrative and judicial process for

innocent spouse relief was intended to be the exclusive avenue by

which relief could be sought. The bill clarifies Congressional intent

that the procedures of section 6015(e) were intended to be additional, non-exclusive avenues by which innocent spouse relief could

be considered.

Time for filing a petition with the Tax Court.—As enacted, the

time period for seeking a redetermination in the Tax Court of innocent spouse relief begins on the date of the determination as opposed to the day after the determination. This period is one day

shorter than that generally applicable to petition the Tax Court

with respect to a deficiency notice (sec. 6213) and the period during

which collection activities are prohibited and the limitations period

is suspended. The bill clarifies the computation of this period and

conforms it to the generally applicable 90–day period for petitioning the Tax Court. Conforming amendments are made as to the

period for which collection activities are prohibited and collection

limitations suspended.

Waiver of final determination upon agreement as to relief.—

Congress intended in enacting section 6015 to provide a simple and

efficient procedure by which the IRS could consider relief, and if relief was denied (in whole or in part) and the spouse requesting

such relief did not agree with such denial, such issue could be considered by the Tax Court. Congress did not intend to require a

rigid formal process when the IRS and the spouse requesting relief

agreed on the extent of relief to be granted. However, the provisions of section 6015(e) have been interpreted as requiring the

issuance in all circumstances of a formal ‘‘Notice of Determination,’’

which contains a statement of the time period within which a petition may be filed with the Tax Court and which delays final resoluVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00391 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
388

tion of the request for relief until the expiration of the period for

filing a petition with the Tax Court. The issuance of the Notice of

Determination is confusing to the taxpayer when the requested relief was fully granted or when the IRS and the taxpayer otherwise

agreed on the application of the innocent spouse provisions to the

taxpayer’s case. It also may cause unnecessary filings with the Tax

Court and delay the closing of the case until the time for filing with

the Tax Court expires.

Congress has addressed the analogous situation in the deficiency context in section 6213(d). In such situations, upon written

agreement, the IRS may adjust the taxpayer’s liability as agreed,

and no additional formal notice is necessary. The bill reflects that

an analogous waiver was intended to apply in the innocent spouse

context. The bill consequently permits taxpayers and the IRS to

enter into a similar written agreement in innocent spouse cases,

which allows for the taxpayer’s liability to be immediately adjusted

as agreed, and makes unnecessary a formal Notice of Determination or Tax Court review. This written agreement is to specify the

details of the agreement between the IRS and the taxpayer as to

the nature and extent of innocent spouse relief that will be provided. Conforming amendments are made as to the period for

which collection activities are prohibited and collection limitations

suspended.

Procedural and administrative issues

Disputes involving $50,000 or less.—The provision clarifies that

the small case procedures of the Tax Court are available with respect to innocent spouse disputes and disputes continuing from the

pre-levy administrative due process hearing. The small case procedures provide an accessible forum for taxpayers who have small

claims with less formal rules of evidence and procedure. Use of the

procedure is optional to the taxpayer, with the concurrence of the

Tax Court. In view of the recent enactment of the innocent spouse

and pre-levy administrative due process hearing provisions, it is

anticipated that the Tax Court will give careful consideration to (1)

a motion by the Commissioner of Internal Revenue to remove the

small case designation (as authorized by Rules 172 and 173 of the

Tax Court Rules) when the orderly conduct of the work of the

Court or the administration of the tax laws would be better served

by a regular trial of the case, as well as (2) the financial impact

upon the taxpayer, including additional legal fees and costs, of not

utilizing small case treatment. For example, removing the small

case designation may be appropriate when a decision in the case

will provide a precedent for the disposition of a substantial number

of other cases. It is anticipated that motions by the Commissioner

to remove the small case designation will be made infrequently.

Authority to enjoin collection actions.—While a dispute is pending under the pre-levy administrative due process hearing procedures, levy action is statutorily suspended for that period. The Tax

Court and district courts are expressly granted authority to enjoin

improper levy action in general, but that authority does not explicitly extend to improper levy action that occurs during the period

when levy action is statutorily suspended under the administrative

due process provisions. The provision clarifies the ability of the

389

courts (including the Tax Court) to enjoin levy during the period

that levy is required to be suspended with respect to a dispute

under the pre-levy administrative due process hearing procedures.

Clarification of permissible extension of limitations period for

installment agreements.—Uncertainty exists as to whether the permissible extension of the period of limitations in the context of installment agreements is governed by reference to an agreement of

the parties pursuant to section 6502 or by reference to the period

of time during which the installment agreement is in effect pursuant to sections 6331(k)(3) and (i)(5). The provision clarifies that the

permissible extension of the period of limitations in the context of

installment agreements is governed by the pertinent provisions of

section 6502.

Clarification of Tax Court authority to issue appealable decisions.—The statutory provision for judicial review of a dispute concerning the pre-levy administrative due process hearing may be unclear as to whether a determination of the Tax Court is an appealable decision. The provision clarifies that the determination of the

Tax Court (other than under the small case procedures) in a dispute concerning the pre-levy administrative due process hearing is

a decision of the Tax Court and would be reviewable as such.

Other issues

IRS restructuring.—When the Office of the Chief Inspector was

replaced by the Treasury Inspector General for Tax Administration

(TIGTA) under the IRS Restructuring and Reform Act of 1998, Inspection’s responsibilities were assigned to the TIGTA. TIGTA personnel are Treasury, rather than IRS, personnel. TIGTA personnel

still need to make investigative disclosures to carry out the duties

they took over from Inspection and their additional tax administration responsibilities. However, section 6103(k)(6) refers only to ‘‘internal revenue’’ personnel. The provision clarifies that section

6103(k)(6) permits TIGTA personnel to make investigative disclosures.

Compliance.—Section 3509 of the IRS Restructuring and Reform Act of 1998 expanded the disclosure rules of section 6110 to

also cover Chief Counsel advice (sec. 6110(i)). This is a conforming

change related to ongoing investigations. The provision adds to section 6110(g)(5)(A), after the words technical advice memorandum,

‘‘or Chief Counsel advice.’’

Amendments related to the Taxpayer Relief Act of 1997 (sec. 724 of

the bill)

Deficiency created by overstatement of refundable child credit.—

The provision treats the refundable portion of the child credit

under section 24(d) as part of a ‘‘deficiency.’’ Thus, the usual assessment procedures applicable to income taxes will apply to both

the nonrefundable and the refundable portions of the child credit.

(This will reverse the conclusion reached by Internal Revenue Service Chief Counsel Memorandum 199948027 interpreting present

law.)

Roth IRAs.—Code section 3405 provides for withholding with

respect to designated distributions from certain tax-favored arrangements, including IRAs. In general, section 3405(e)(1)(B)(ii) exVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00393 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
390

cludes from the definition of a designated distribution the portion

of any distribution which it is reasonable to believe is excludable

from gross income. However, all distributions from IRAs are treated as includible in income. The exception was consistent with prior

law when all IRA distributions were taxable, but does not account

for the tax-free nature of certain Roth IRA distributions. The provision extends the exception to Roth IRAs.

Capital gain election.—The provision provides that an election

to recognize gain or loss made pursuant to section 311(e) of the

Taxpayer Relief Act of 1997 does not apply to assets disposed of in

a recognition transaction within one year of the date the election

would otherwise have been effective. Thus, for example, if an asset

is sold in 2001, no election may be made with respect to that asset.

In addition, it is clarified that the deemed sale and repurchase by

reason of the election is not taken into account in applying the

wash sale rules of section 1091.

Straight-line depreciation under AMT.—The provision clarifies

that the Taxpayer Relief Act of 1997 did not change the requirement that the straight-line method of depreciation be used in computing the alternative minimum tax (‘‘AMT’’) depreciation allowance for section 1250 property. It is arguable that the changes

made by that Act could be read as inadvertently allowing accelerated depreciation under the AMT for section 1250 property which

is allowed accelerated depreciation under the regular tax.

Transportation benefits.—Under present law, salary reduction

amounts are generally treated as compensation for purposes of the

limits on contributions and benefits under qualified plans. In addition, an employer can elect whether or not to include such amounts

for nondiscrimination testing purposes. The IRS Reform Act permitted employers to offer a cash option in lieu of qualified transportation benefits. The provision treats salary reduction amounts

used for qualified transportation benefits the same as other salary

reduction amounts for purposes of defining compensation under the

qualified plan rules.

Tax Court jurisdiction.—The Tax Court recently held that its

jurisdiction pursuant to section 7436 extends only to employment

status, not to the amount of employment tax in dispute (Henry

Randolph Consulting v. Comm’r, 112 T.C. #1, Jan. 6, 1999). The

provision provides that the Tax Court also has jurisdiction over the

amount.

Amendments related to the Balanced Budget Act of 1997 (sec. 725

of the bill)

Tobacco floor stocks tax.—The provision clarifies that the floor

stocks taxes imposed on January 1, 2000, and January 1, 2002,

apply only to cigarettes rather than to all tobacco products. As enacted, the law could be construed as ambiguous, referring to imposition on all tobacco products but imposing liability only with respect to cigarettes.

Tobacco excise tax.—Conforming amendments are provided to

two provisions to reflect the fact that the tax on cigarette papers

is not imposed on ‘‘books’’ of papers since January 1, 2000.

Coordination of trade rules and tobacco excise tax.—Clarification is provided that the penalty on reimporting cigarettes other

391

than for return to a manufacturer (effective January 1, 2000) does

not apply to cigarettes re-imported by individuals to the extent

those cigarettes can be entered into the U.S. without duty or tax

under the Harmonized Tariff Schedule.

Amendment related to the Small Business Job Protection Act of

1996 (sec. 726 of the bill)

Work opportunity tax credit.—Section 51(d)(2) refers to eligibility for the work opportunity tax credit with respect to certain

welfare recipients without taking into account the enactment of the

temporary assistance for needy families (‘‘TANF’’) program. The

provisions conform references in the work opportunity tax credit to

the operation of TANF.

Electing small business trusts holding S corporation stock.—

The provision allows an electing small business trust (sec. 1361(e))

to have an organization described in section 170(c)(1) (relating to

State and local governments) as a beneficiary if the organization

holds a contingent interest and is not a potential current beneficiary.

Definition of lump-sum distribution.—Section 1401(b) of the

Small Business Job Protection Act of 1996 Act repealed 5-year

averaging for lump-sum distributions. The definition of lump-sum

distribution was preserved for other provisions, primarily those relating to NUA in employer securities. The definition was moved

from section 402(d)(4)(A) to section 402(e)(4)(D)(i). This definition

included the following sentence: ‘‘A distribution of an annuity contract from a trust or annuity plan referred to in the first sentence

of this subparagraph shall be treated as a lump sum distribution.’’

The provision adds this language back into the definition of lumpsum distribution. The sentence is relevant to section 401(k)(10)(B),

which permits certain distributions if made as a ‘‘lump-sum distribution.’’

IRAs for nonworking spouses.—Section 1427 of the Small Business Job Protection Act of 1996 expanded the IRA deduction for

nonworking spouses. The maximum permitted IRA contributions is

generally limited by the individual’s earned income. However,

under present law, it is possible for a nonworking (or lesser earning) spouse to make IRA contributions in excess of the couple’s

combined earned income. The following example illustrates present

law.

Example: Suppose H and W retire in the middle of January, 1999. In that year, H earns $1,000 and W earns $500.

Both are active participants in an employer-sponsored retirement plan. Their modified AGI is $60,000. They make no Roth

IRA contributions. Before application of the income phase-out

rules, the maximum deductible IRA contribution that H can

make is $1,000 (sec. 219(b)(1)). After application of the income

phase-out rule in section 219(g), H’s maximum contribution is

$200, and H contributes that amount to an IRA. Under

408(o)(2)(B), H can make nondeductible contributions of $800

($1,000¥$200).

W’s maximum permitted deductible contribution under

section 219(c)(1)(B), before the income phase-out, is $1,300 (the

sum of H and W’s earned income ($1,500), less H’s deductible

392

IRA contribution ($200)). Under the income phase-out, W’s deductible contribution is limited to $200, and she can make a

nondeductible contribution of $1,000 ($1,300¥$200).

The total permitted contributions for H and W are $2,300

($1,000 for H plus $1,300 for W). The combined contribution

should be limited to $1,500, their combined earned income.

The provision provides that the contributions for the spouse

with the lesser income cannot exceed the combined earned income

of the spouses.

Amendment related to the Revenue Reconciliation Act of 1990 (sec.

727 of the bill)

Qualified tertiary injectant expenses.—The provision clarifies

that the enhanced oil recovery credit (sec. 43) applies with respect

to qualified tertiary injectant expenses described in section 193(b)

that are paid or incurred in connection with a qualified enhanced

oil recovery project, and that are deductible for the taxable year

(regardless of the provision allowing the deduction). Purchased and

self-produced injectants are treated the same for purposes of the

section 43 credit.

Amendments to other acts (sec. 728 of the bill)

Insurance.—The legislative history of section 7702A(a) (enacted

in the Technical and Miscellaneous Revenue Act of 1988) indicated

that if a life insurance contract became a modified endowment contract (‘‘MEC’’), then the MEC status could not be eliminated by exchanging the MEC for another contract. Section 7702A(a)((2), however, arguably might be read to allow a policyholder to exchange

a MEC for a contract that does not fail the 7-pay test of section

7702A(b), then exchange the second contract for a third contract,

which would not literally have been received in exchange for a contract that failed to meet the 7-pay test. The provision clarifies section 7702A(a)(2) to correspond to the legislative history, effective as

if enacted with the Technical and Miscellaneous Revenue Act of

1988 (generally, for contracts entered into on or after June 21,

1988).

Insurance.—Under section 7702A, if a life insurance contract

that is not a modified endowment contract is actually or deemed

exchanged for a new life insurance contract, then the 7-pay limit

under the new contract is first be computed without reference to

the premium paid using the cash surrender value of the old contract, and then would be reduced by 1⁄7 of the premium paid taking

into account the cash surrender value of the old contract. For example, if the old contract had a cash surrender value of $14,000

and the 7-pay premium on the new contract would equal $10,000

per year but for the fact that there was an exchange, the 7-pay premium on the new contract would equal $8,000 ($10,000–$14,000/7).

However, section 7702A(c)(3)(A) arguably might be read to suggest

that if the cash surrender value on the new contract was $0 in the

first two years (due to surrender charges), then the 7-pay premium

might be $10,000 in this example, unintentionally permitting policyholders to engage in a series of ‘‘material changes’’ to circumvent

the premium limitations in section 7702A. The provision clarifies

section 7702A(c)(3)(A) to refer to the cash surrender value of the

393

old contract, effective as if enacted with the Technical and Miscellaneous Revenue Act of 1988 (generally, for contracts entered

into on or after June 21, 1988).

Worthless securities.—Section 165(g)(3) provides a special rule

for worthless securities of an affiliated corporation. The test for affiliation in section 165(g)(3)(A) is the 80-percent vote test for affiliated groups under section 1504(a) that was in effect prior to 1984.

When section 1504(a) was amended in the Deficit Reduction Act of

1984 to adopt the vote and value test of present law, no corresponding change was made to section 165(g)(3)(A), even though

the tests had been identical until then. The provision conforms the

affiliation test of section 165(g)(3)(A) to the test in section

1504(a)(2), effective for taxable years beginning after December 31,

1984.

Exception for certain annuities under OID rules.—The Deficit

Reduction Act of 1984 expanded the prior-law rules for inclusion in

income of original issue discount (‘‘OID’’) on debt instruments. That

Act provided an exception from the definition of a debt instrument

for certain annuity contracts, including any annuity contract to

which section 72 applies and that is issued by an insurance company subject to tax under subchapter L of the Code (and meets certain other requirements) (sec. 1275(a)(1)(B)(ii)). The provision clarifies that an annuity contract otherwise meeting the applicable requirements also comes within the exception of section

1275(a)(1)(B)(ii) if it is issued by an entity described in section

501(c) and exempt from tax under section 501(a), that would be

subject to tax as an insurance company under subchapter L if it

were not exempt under section 501(a). For example, the provision

clarifies that an annuity contract otherwise meeting the requirements that is issued by a fraternal beneficiary society which is exempt from Federal income tax under section 501(a), and which is

described in section 501(c)(8), comes within the exception under

section 1275(a)(1)(B)(ii). However, an annuity contract issued by a

foreign insurer that is not subject to tax in the U.S. as an insurance company under subchapter L with respect to the contract does

not come within the exception under section 1275(a)(1)(B)(ii). It is

understood that charitable gift annuities (as defined in sec. 501(m))

depend (in whole or in substantial part) on the life expectancy of

one or more individuals, and thus come within the exception under

section 1275(a)(1)(B)(i). The provision is effective as if included

with section 41 of the Deficit Reduction Act of 1984 (i.e., for taxable

years ending after July 18, 1984).

Losses from section 1256 contracts.—Section 6411 allows tentative refunds for NOL carrybacks, business credit carrybacks and,

for corporations only, capital loss carrybacks. Individuals normally

cannot carry back a capital loss. However, section 1212(c) does

allow a carryback of section 1256 losses, if elected by the taxpayer.

The provision amends section 6411(a) by including a reference to

section 1212(c), effective as if included with section 504 of the Economic Recovery Tax Act of 1981.

Highway Trust Fund.—The provision modifies administrative

procedures of the Highway Trust Fund to conform to the 1993 repeal of the special tax rate applicable to ethanol prior to 1994. The

provision is effective for taxes received after the date of enactment.

394

This ensures that retroactive adjustments, if any, are not made to

the Highway Trust Fund.

Conforming amendment for expenditures from Vaccine Injury

Compensation Trust Fund.—The provision makes a conforming

amendment to the expenditure purposes of the Vaccine Injury

Compensation Trust Fund to enable certain payments to be made

from the Trust Fund.

Clerical changes (sec. 729 of the bill)

The bill makes a number of clerical and typographical amendments to the Code.

EXCLUSION FROM PAYGO SCORECARD

PRESENT LAW

Under the Balanced Budget and Emergency Deficit Control Act

of 1985, as amended, tax reduction legislation is subject to a ‘‘payas-you-go’’ (PAYGO) requirement. The PAYGO system tracks legislation that may increase budget deficits using a ‘‘scorecard’’ (estimated by the Office of Management and Budget). Any revenue loss

would have to be offset by other revenue increases, reductions in

direct spending or a combination of the two.

HOUSE BILL

No provision.

SENATE AMENDMENT

No provision.

CONFERENCE AGREEMENT

The conference agreement provides that, upon enactment of

the Act, 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 Act.

TAX COMPLEXITY ANALYSIS

The following tax complexity analysis is provided pursuant to

section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998, which requires the staff of the Joint Committee on Taxation (in consultation with the Internal Revenue

Service (‘‘IRS’’) and the Treasury Department) to provide a complexity analysis of tax legislation reported by the House Committee

on Ways and Means, the Senate Committee on Finance, or a Conference Report containing tax provisions. The complexity analysis

is required to report on the complexity and administrative issues

raised by provisions that directly or indirectly amend the Internal

Revenue Code and that have widespread applicability to individuals or small businesses. For each such provision identified by the

staff of the Joint Committee on Taxation, a summary description

of the provision is provided, along with an estimate of the number

of affected taxpayers, and a discussion regarding the relevant comVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00398 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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plexity and administrative issues. Time constraints prevented the

staff of the Joint Committee on Taxation from consulting with the

IRS regarding the provisions in the conference agreement that

have widespread applicability.

1. Increase deduction for business meals (sec. 204 of the conference

agreement)

Summary description of provision

The provision increases the deductible percentage of business

meal (food and beverage) expenses to 70 percent, effective for taxable years beginning after December 31, 2000.

Number of affected taxpayers

It is estimated that almost all small businesses will be affected

by the provision.

Discussion

Because the provision increases the percentage deduction only

with respect to meals and not entertainment, small businesses may

have to keep additional records to distinguish between the two

types of expenditures. The provision may lead to additional disputes between small businesses and the IRS regarding the nature

of an expenditure, particularly in business situations where the

meal and entertainment is provided as a package for a single price.

No new regulatory changes would be needed to implement the provision (although a conforming change to regulations to reflect the

increasing percentage would be appropriate).

2. Accelerate 100-percent self-employed health insurance deduction

(sec. 301 of the conference agreement)

Summary description of provision

The provision accelerates the increase in the deduction for

health insurance expenses of self-employed individuals so that the

deduction is 100 percent in years beginning after December 31,

2000.

Number of affected taxpayers

It is estimated that the provision will affect three million small

businesses.

Discussion

It is not anticipated that individuals or small businesses will

need to keep additional records due to the provision. It is not anticipated that the provision will result in an increase in disputes

with the IRS, or increase tax return preparation costs. It is not anticipated that regulatory guidance will be needed to implement the

provision. Accelerating the 100-percent deduction may simplify the

preparation of tax returns for self-employed individuals, because

they will no longer need to keep track of the percent of health insurance expenses that are deductible, and will need to perform one

less calculation.

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397

398

399

400

401

402

403

404

405

406

MEDICARE, MEDICAID, AND SCHIP BENEFITS IMPROVEMENT AND

PROTECTION ACT OF 2000

The conference agreement would enact the provisions of H.R.

5543, as introduced on October 25, 2000. The text of that bill follows:

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT;

REFERENCES TO OTHER ACTS; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Medicare,

Medicaid, and SCHIP Benefits Improvement and Protection Act of

2000’’.

(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except as otherwise specifically provided, whenever in this Act an amendment is

expressed in terms of an amendment to or repeal of a section or

other provision, the reference shall be considered to be made to that

section or other provision of the Social Security Act.

(c) REFERENCES TO OTHER ACTS.—In this Act:

(1) BALANCED BUDGET ACT OF 1997.—The term ‘‘BBA’’

means the Balanced Budget Act of 1997 (Public Law 105–33;

111 Stat. 251).

(2) MEDICARE, MEDICAID, AND SCHIP BALANCED BUDGET REFINEMENT ACT OF 1999.—The term ‘‘BBRA’’ means the Medicare,

Medicaid, and SCHIP Balanced Budget Refinement Act of 1999

(Appendix F, 113 Stat. 1501A–321), as enacted into law by section 1000(a)(6) of Public Law 106–113.

(d) TABLE OF CONTENTS.—The table of contents of this Act is

as follows:

Sec. 1. Short title; amendments to Social Security Act; references to other Acts; table

of contents.

TITLE I—MEDICARE BENEFICIARY IMPROVEMENTS

Subtitle A—Improved Preventive Benefits

Sec. 101. Coverage of biennial screening pap smear and pelvic exams.

Sec. 102. Coverage of screening for glaucoma.

Sec. 103. Coverage of screening colonoscopy for average risk individuals.

Sec. 104. Modernization of screening mammography benefit.

Sec. 105. Coverage of medical nutrition therapy services for beneficiaries with diabetes or a renal disease.

Subtitle B—Other Beneficiary Improvements

Sec. 111. Acceleration of reduction of beneficiary copayment for hospital outpatient

department services.

Sec. 112. Preservation of coverage of drugs and biologicals under part B of the medicare program.

Sec. 113. Elimination of time limitation on medicare benefits for immunosuppressive drugs.

Sec. 114. Imposition of billing limits on prescription drugs.

Subtitle C—Demonstration Projects and Studies

Sec. 121. Demonstration project for disease management for severely chronically ill

medicare beneficiaries.

Sec. 122. Cancer prevention and treatment demonstration for ethnic and racial minorities.

Sec. 123. Study on medicare coverage of routine thyroid screening.

Sec. 124. MedPAC study on consumer coalitions.

Sec. 125. Study on limitation on State payment for medicare cost-sharing affecting

access to services for qualified medicare beneficiaries.

407

Sec. 126. Institute of Medicine study on waiver of 24-month waiting period for medicare disability eligibility for amyotrophic lateral sclerosis (ALS) and

other devastating diseases.

Sec. 127. Studies on preventive interventions in primary care for older Americans.

Sec. 128. MedPAC study and report on medicare coverage of cardiac and pulmonary

rehabilitation therapy services.

TITLE II—RURAL HEALTH CARE IMPROVEMENTS

Subtitle A—Critical Access Hospital Provisions

Sec. 201. Clarification of no beneficiary cost-sharing for clinical diagnostic laboratory tests furnished by critical access hospitals.

Sec. 202. Assistance with fee schedule payment for professional services under allinclusive rate.

Sec. 203. Exemption of critical access hospital swing beds from SNF PPS.

Sec. 204. Payment in critical access hospitals for emergency room on-call physicians.

Sec. 205. Treatment of ambulance services furnished by certain critical access hospitals.

Sec. 206. GAO study on certain eligibility requirements for critical access hospitals.

Subtitle B—Other Rural Hospitals Provisions

Sec. 211. Equitable treatment for rural disproportionate share hospitals.

Sec. 212. Option to base eligibility for medicare dependent, small rural hospital program on discharges during 2 of the 3 most recently audited cost reporting periods.

Sec. 213. Extension of option to use rebased target amounts to all sole community

hospitals.

Sec. 214. MedPAC analysis of impact of volume on per unit cost of rural hospitals

with psychiatric units.

Subtitle C—Other Rural Provisions

Sec. 221. Assistance for providers of ambulance services in rural areas.

Sec. 222. Payment for certain physician assistant services.

Sec. 223. Revision of medicare reimbursement for telehealth services.

Sec. 224. Expanding access to rural health clinics.

Sec. 225. MedPAC study on low-volume, isolated rural health care providers.

TITLE III—PROVISIONS RELATING TO PART A

Subtitle A—Inpatient Hospital Services

Sec. 301. Revision of acute care hospital payment update for 2001.

Sec. 302. Additional modification in transition for indirect medical education (IME)

percentage adjustment.

Sec. 303. Decrease in reductions for disproportionate share hospital (DSH) payments.

Sec. 304. Wage index improvements.

Sec. 305. Payment for inpatient services of rehabilitation hospitals.

Sec. 306. Payment for inpatient services of psychiatric hospitals.

Sec. 307. Payment for inpatient services of long-term care hospitals.

Subtitle B—Adjustments to PPS Payments for Skilled Nursing Facilities

Sec. 311. Elimination of reduction in skilled nursing facility (SNF) market basket

update in 2001.

Sec. 312. Increase in nursing component of PPS Federal rate.

Sec. 313. Application of SNF consolidated billing requirement limited to part A covered stays.

Sec. 314. Adjustment of rehabilitation RUGs to correct anomaly in payment rates.

Sec. 315. Establishment of process for geographic reclassification.

Subtitle C—Hospice Care

Sec. 321. Full market basket increase for 2001.

Sec. 322. Clarification of physician certification.

Sec. 323. MedPAC report on access to, and use of, hospice benefit.

408

Subtitle D—Other Provisions

Sec. 331. Relief from medicare part A late enrollment penalty for group buy-in for

State and local retirees.

Sec. 332. Posting of information on nursing facility staffing.

TITLE IV—PROVISIONS RELATING TO PART B

Subtitle A—Hospital Outpatient Services

Sec. 401. Revision of hospital outpatient PPS payment update.

Sec. 402. Clarifying process and standards for determining eligibility of devices for

pass-through payments under hospital outpatient PPS.

Sec. 403. Application of OPD PPS transitional corridor payments to certain hospitals that did not submit a 1996 cost report.

Sec. 404. Application of rules for determining provider-based status for certain entities.

Sec. 405. Treatment of children’s hospitals under prospective payment system.

Sec. 406. Inclusion of temperature monitored cryoablation in transitional passthrough for certain medical devices, drugs, and biologicals under OPD

PPS.

Subtitle B—Provisions Relating to Physicians’ Services

Sec. 411. GAO studies relating to physicians’ services.

Sec. 412. Physician group practice demonstration.

Sec. 413. Study on enrollment procedures for groups that retain independent contractor physicians.

Subtitle C—Other Services

Sec. 421. 1-year extension of moratorium on therapy caps; report on standards for

supervision of physical therapy assistants.

Sec. 422. Update in renal dialysis composite rate.

Sec. 423. Payment for ambulance services.

Sec. 424. Ambulatory surgical centers.

Sec. 425. Full update for durable medical equipment.

Sec. 426. Full update for orthotics and prosthetics.

Sec. 427. Establishment of special payment provisions and requirements for prosthetics and certain custom fabricated orthotic items.

Sec. 428. Replacement of prosthetic devices and parts.

Sec. 429. Revised part B payment for drugs and biologicals and related services.

Sec. 430. Contrast enhanced diagnostic procedures under hospital prospective payment system.

Sec. 431. Qualifications for community mental health centers.

Sec. 432. Modification of medicare billing requirements for certain Indian providers.

Sec. 433. GAO study on coverage of surgical first assisting services of certified registered nurse first assistants.

Sec. 434. MedPAC study and report on medicare reimbursement for services provided by certain providers.

Sec. 435. MedPAC study and report on medicare coverage of services provided by

certain nonphysician providers.

Sec. 436. GAO study and report on the costs of emergency and medical transportation services.

Sec. 437. GAO studies and reports on medicare payments.

Sec. 438. MedPAC study on access to outpatient pain management services.

TITLE V—PROVISIONS RELATING TO PARTS A AND B

Subtitle A—Home Health Services

Sec. 501. 1-year additional delay in application of 15 percent reduction on payment

limits for home health services.

Sec. 502. Restoration of full home health market basket update for home health

services for fiscal year 2001.

Sec. 503. Temporary two-month extension of periodic interim payments.

Sec. 504. Use of telehealth in delivery of home health services.

Sec. 505. Study on costs to home health agencies of purchasing nonroutine medical

supplies.

Sec. 506. Treatment of branch offices; GAO study on supervision of home health care

provided in isolated rural areas.

409

Sec. 507. Clarification of the homebound definition under the medicare home health

benefit.

Subtitle B—Direct Graduate Medical Education

Sec. 511. Increase in floor for direct graduate medical education payments.

Sec. 512. Change in distribution formula for Medicare+Choice-related nursing and

allied health education costs.

Subtitle C—Changes in Medicare Coverage and Appeals Process

Sec. 521. Revisions to medicare appeals process.

Sec. 522. Revisions to medicare coverage process.

Subtitle D—Improving Access to New Technologies

Sec. 531. Reimbursement improvements for new clinical laboratory tests and durable medical equipment.

Sec. 532. Retention of HCPCS level III codes.

Sec. 533. Recognition of new medical technologies under inpatient hospital PPS.

Subtitle E—Other Provisions

Sec. 541. Increase in reimbursement for bad debt.

Sec. 542. Treatment of certain physician pathology services under medicare.

Sec. 543. Extension of advisory opinion authority.

Sec. 544. Change in annual MedPAC reporting.

Sec. 545. Development of patient assessment instruments.

Sec. 546. GAO report on impact of the Emergency Medical Treatment and Active

Labor Act (EMTALA) on hospital emergency departments.

TITLE VI—PROVISIONS RELATING TO PART C (MEDICARE+CHOICE

PROGRAM) AND OTHER MEDICARE MANAGED CARE PROVISIONS

Subtitle A—Medicare+Choice Payment Reforms

Sec. 601. Increase in minimum payment amount.

Sec. 602. Increase in minimum percentage increase.

Sec. 603. 10-year phase-in of risk adjustment.

Sec. 604. Transition to revised Medicare+Choice payment rates.

Sec. 605. Revision of payment rates for ESRD patients enrolled in Medicare+Choice

plans.

Sec. 606. Permitting premium reductions as additional benefits under

Medicare+Choice plans.

Sec. 607. Full implementation of risk adjustment for congestive heart failure enrollees for 2001.

Sec. 608. Expansion of application of Medicare+Choice new entry bonus.

Sec. 609. Report on inclusion of certain costs of the Department of Veterans Affairs

and military facility services in calculating Medicare+Choice payment

rates.

Subtitle B—Other Medicare+Choice Reforms

Sec. 611. Payment of additional amounts for new benefits covered during a contract

term.

Sec. 612. Restriction on implementation of significant new regulatory requirements

mid-year.

Sec. 613. Timely approval of marketing material that follows model marketing language.

Sec. 614. Avoiding duplicative regulation.

Sec. 615. Election of uniform local coverage policy for Medicare+Choice plan covering multiple localities.

Sec. 616. Eliminating health disparities in Medicare+Choice program.

Sec. 617. Medicare+Choice program compatibility with employer or union group

health plans.

Sec. 618. Special medigap enrollment antidiscrimination provision for certain beneficiaries.

Sec. 619. Restoring effective date of elections and changes of elections of

Medicare+Choice plans.

Sec. 620. Permitting ESRD beneficiaries to enroll in another Medicare+Choice plan

if the plan in which they are enrolled is terminated.

410

Sec. 621. Providing choice for skilled nursing facility services under the

Medicare+Choice program.

Sec. 622. Providing for accountability of Medicare+Choice plans.

Subtitle C—Other Managed Care Reforms

Sec. 631. 1-year extension of social health maintenance organization (SHMO) demonstration project.

Sec. 632. Revised terms and conditions for extension of medicare community nursing

organization (CNO) demonstration project.

Sec. 633. Extension of medicare municipal health services demonstration projects.

Sec. 634. Service area expansion for medicare cost contracts during transition period.

TITLE VII—MEDICAID

Sec. 701. DSH payments.

Sec. 702. New prospective payment system for Federally-qualified health centers and

rural health clinics.

Sec. 703. Streamlined approval of continued State-wide section 1115 Medicaid waivers.

Sec. 704. Medicaid county-organized health systems.

Sec. 705. Deadline for issuance of final regulation relating to Medicaid upper payment limits.

Sec. 706. Alaska FMAP.

TITLE VIII—STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Sec. 801. Special rule for redistribution and availability of unused fiscal year 1998

and 1999 SCHIP allotments.

Sec. 802. Authority to pay Medicaid expansion SCHIP costs from title XXI appropriation.

TITLE IX—OTHER PROVISIONS

Subtitle A—PACE Program

Sec. 901. Extension of transition for current waivers.

Sec. 902. Continuing of certain operating arrangements permitted.

Sec. 903. Flexibility in exercising waiver authority.

Subtitle B—Outreach to Eligible Low-Income Medicare Beneficiaries

Sec. 911. Outreach on availability of Medicare cost-sharing assistance to eligible

low-income Medicare beneficiaries.

Subtitle C—Maternal and Child Health Block Grant

Sec. 921. Increase in authorization of appropriations for the maternal and child

health services block grant.

Subtitle D—Diabetes

Sec. 931. Increase in appropriations for special diabetes programs for type I diabetes

and Indians.

Sec. 932. Appropriations for Ricky Ray Hemophilia Relief Fund.

TITLE I—MEDICARE BENEFICIARY

IMPROVEMENTS

Subtitle A—Improved Preventive Benefits

SEC. 101. COVERAGE OF BIENNIAL SCREENING PAP SMEAR AND PELVIC EXAMS.

(a) IN GENERAL.—

(1) BIENNIAL SCREENING PAP SMEAR.—Section 1861(nn)(1)

(42 U.S.C. 1395x(nn)(1)) is amended by striking ‘‘3 years’’ and

inserting ‘‘2 years’’.

411

(2) BIENNIAL SCREENING PELVIC EXAM.—Section

1861(nn)(2) (42 U.S.C. 1395x(nn)(2)) is amended by striking ‘‘3

years’’ and inserting ‘‘2 years’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

apply to items and services furnished on or after July 1, 2001.

SEC. 102. COVERAGE OF SCREENING FOR GLAUCOMA.

(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is

amended—

(1) by striking ‘‘and’’ at the end of subparagraph (S);

(2) by inserting ‘‘and’’ at the end of subparagraph (T); and

(3) by adding at the end the following:

‘‘(U) screening for glaucoma (as defined in subsection (uu))

for individuals determined to be at high risk for glaucoma, individuals with a family history of glaucoma and individuals

with diabetes;’’.

(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x) is

amended by adding at the end the following new subsection:

‘‘Screening for Glaucoma

‘‘(uu) The term ‘screening for glaucoma’ means a dilated eye examination with an intraocular pressure measurement, and a direct

ophthalmoscopy or a slit-lamp biomicroscopic examination for the

early detection of glaucoma which is furnished by or under the direct supervision of an optometrist or ophthalmologist who is legally

authorized to furnish such services under State law (or the State

regulatory mechanism provided by State law) of the State in which

the services are furnished, as would otherwise be covered if furnished by a physician or as an incident to a physician’s professional

service, if the individual involved has not had such an examination

in the preceding year.’’.

(c) CONFORMING AMENDMENT.—Section 1862(a)(1)(F) (42

U.S.C. 1395y(a)(1)(F)) is amended—

(1) by striking ‘‘and,’’; and

(2) by adding at the end the following: ‘‘and, in the case of

screening for glaucoma, which is performed more frequently

than is provided under section 1861(uu),’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to services furnished on or after January 1, 2002.

SEC. 103. COVERAGE OF SCREENING COLONOSCOPY FOR AVERAGE

RISK INDIVIDUALS.

(a) IN GENERAL.—Section 1861(pp) (42 U.S.C. 1395x(pp)) is

amended—

(1) in paragraph (1)(C), by striking ‘‘In the case of an individual at high risk for colorectal cancer, screening colonoscopy’’

and inserting ‘‘Screening colonoscopy’’; and

(2) in paragraph (2), by striking ‘‘In paragraph (1)(C), an’’

and inserting ‘‘An’’.

(b) FREQUENCY LIMITS FOR SCREENING COLONOSCOPY.—Section

1834(d) (42 U.S.C. 1395m(d)) is amended—

(1) in paragraph (2)(E)(ii), by inserting before the period at

the end the following: ‘‘or, in the case of an individual who is

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formed within the 119 months after a previous screening

colonoscopy’’;

(2) in paragraph (3)—

(A) in the heading by striking ‘‘FOR INDIVIDUALS AT

HIGH RISK FOR COLORECTAL CANCER’’;

(B) in subparagraph (A), by striking ‘‘for individuals at

high risk for colorectal cancer (as defined in section

1861(pp)(2))’’;

(C) in subparagraph (E), by inserting before the period

at the end the following: ‘‘or for other individuals if the procedure is performed within the 119 months after a previous

screening colonoscopy or within 47 months after a previous

screening flexible sigmoidoscopy’’.

(c) EFFECTIVE DATE.—The amendments made by this section

apply to colorectal cancer screening services provided on or after

July 1, 2001.

SEC. 104. MODERNIZATION OF SCREENING MAMMOGRAPHY BENEFIT.

(a) INCLUSION IN PHYSICIAN FEE SCHEDULE.—Section 1848(j)(3)

(42 U.S.C. 1395w–4(j)(3)) is amended by inserting ‘‘(13),’’ after ‘‘(4),’’.

(b) CONFORMING AMENDMENT.—Section 1834(c) (42 U.S.C.

1395m(c)) is amended to read as follows:

‘‘(c) PAYMENT AND STANDARDS FOR SCREENING MAMMOG- RAPHY.—‘‘(1) IN GENERAL.—With respect to expenses incurred for

screening mammography (as defined in section 1861(jj)), payment may be made only—

‘‘(A) for screening mammography conducted consistent

with the frequency permitted under paragraph (2); and

‘‘(B) if the screening mammography is conducted by a

facility that has a certificate (or provisional certificate)

issued under section 354 of the Public Health Service Act.

‘‘(2) FREQUENCY COVERED.— ‘‘(A) IN GENERAL.—Subject to revision by the Secretary

under subparagraph (B)—

‘‘(i) no payment may be made under this part for

screening mammography performed on a woman under

35 years of age;

‘‘(ii) payment may be made under this part for only

one screening mammography performed on a woman

over 34 years of age, but under 40 years of age; and

‘‘(iii) in the case of a woman over 39 years of age,

payment may not be made under this part for screening mammography performed within 11 months following the month in which a previous screening mammography was performed.

‘‘(B) REVISION OF FREQUENCY.—

‘‘(i) REVIEW.—The Secretary, in consultation with

the Director of the National Cancer Institute, shall review periodically the appropriate frequency for performing screening mammography, based on age and

such other factors as the Secretary believes to be pertinent.

‘‘(ii) REVISION OF FREQUENCY.—The Secretary, taking into consideration the review made under clause

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(i), may revise from time to time the frequency with

which screening mammography may be paid for under

this subsection.’’.

(c) EFFECTIVE DATE.—The amendments made by subsections (a)

and (b) apply with respect to screening mammographies furnished

on or after January 1, 2002.

(d) PAYMENT FOR NEW TECHNOLOGIES.—

(1) TESTS FURNISHED IN 2001.—

(A) SCREENING.—For a screening mammography (as

defined in section 1861(jj) of the Social Security Act (42

U.S.C. 1395(jj))) furnished during the period beginning on

April 1, 2001, and ending on December 31, 2001, that uses

a new technology, payment for such screening mammography shall be made as follows:

(i) In the case of a technology which directly takes

a digital image (without involving film) and subsequently analyzes such resulting image with software to

identify possible problem areas, in an amount equal to

150 percent of the amount of payment under section

1848 of such Act (42 U.S.C. 1395w–4) for a bilateral

diagnostic mammography (under HCPCS code 76091)

for such year.

(ii) In the case of a technology which allows conversion of a standard film mammogram into a digital

image and subsequently analyzes such resulting image

with software to identify possible problem areas, in an

amount equal to the limit that would otherwise be applied under section 1834(c)(3) of such Act (42 U.S.C.

1395m(c)(3)) for 2001, increased by $15.

(B) BILATERAL DIAGNOSTIC MAMMOGRAPHY.—For a bilateral diagnostic mammography (under HCPCS code

76091) furnished during the period beginning on April 1,

2001, and ending on December 31, 2001, that uses a new

technology described in subparagraph (A)(i), payment for

such mammography shall be the amount of payment provided for under such subparagraph.

The Secretary of Health and Human Services may implement

the provisions of this paragraph by program memorandum or

otherwise.

(2) CONSIDERATION OF NEW HCPCS CODE FOR NEW TECHNOLOGIES AFTER 2001.—The Secretary shall determine, for such

screening mammographies performed after 2001, whether the

assignment of a new HCPCS code is appropriate for screening

mammography that uses a new technology. If the Secretary determines that a new code is appropriate for such screening

mammography, the Secretary shall provide for such new code

for such tests furnished after 2001.

(3) NEW TECHNOLOGY DESCRIBED.—For purposes of this

subsection, a new technology with respect to a screening mammography is an advance in technology with respect to the test

or equipment that results in the following:

(A) A significant increase or decrease in the resources

used in the test or in the manufacture of the equipment.

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(B) A significant improvement in the performance of

the test or equipment.

(C) A significant advance in medical technology that is

expected to significantly improve the treatment of medicare

beneficiaries.

(4) HCPCS CODE DEFINED.—The term ‘‘HCPCS code’’

means an alphanumeric code under the Health Care Financing

Administration Common Procedure Coding System (HCPCS).

SEC. 105. COVERAGE OF MEDICAL NUTRITION THERAPY SERVICES FOR

BENEFICIARIES WITH DIABETES OR A RENAL DISEASE.

(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as

amended by section 102(a), is amended—

(1) in subparagraph (T), by striking ‘‘and’’ at the end;

(2) in subparagraph (U), by inserting ‘‘and’’ at the end; and

(3) by adding at the end the following new subparagraph:

‘‘(V) medical nutrition therapy services (as defined in subsection (vv)(1)) in the case of a beneficiary with diabetes or a

renal disease who—

‘‘(i) has not received diabetes outpatient self-management training services within a time period determined by

the Secretary; and

‘‘(ii) meets such other criteria determined by the Secretary after consideration of protocols established by dietitian or nutrition professional organizations;’’.

(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x), as

amended by section 102(b), is amended by adding at the end the following:

‘‘Medical Nutrition Therapy Services; Registered Dietitian or

Nutrition Professional

‘‘(vv)(1) The term ‘medical nutrition therapy services’ means nutritional diagnostic, therapy, and counseling services for the purpose

of disease management which are furnished by a registered dietitian

or nutrition professional (as defined in paragraph (2)) pursuant to

a referral by a physician (as defined in subsection (r)(1)).

‘‘(2) Subject to paragraph (3), the term ‘registered dietitian or

nutrition professional’ means an individual who—

‘‘(A) holds a baccalaureate or higher degree granted by a regionally accredited college or university in the United States (or

an equivalent foreign degree) with completion of the academic

requirements of a program in nutrition or dietetics, as accredited by an appropriate national accreditation organization recognized by the Secretary for this purpose;

‘‘(B) has completed at least 900 hours of supervised dietetics

practice under the supervision of a registered dietitian or nutrition professional; and

‘‘(C)(i) is licensed or certified as a dietitian or nutrition professional by the State in which the services are performed; or

‘‘(ii) in the case of an individual in a State that does not

provide for such licensure or certification, meets such other criteria as the Secretary establishes.

‘‘(3) Subparagraphs (A) and (B) of paragraph (2) shall not

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ment of this subsection, is licensed or certified as a dietitian or nutrition professional by the State in which medical nutrition therapy

services are performed.’’.

(c) PAYMENT.—Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is

amended—

(1) by striking ‘‘and’’ before ‘‘(S)’’; and

(2) by inserting before the semicolon at the end the following: ‘‘, and (T) with respect to medical nutrition therapy

services (as defined in section 1861(vv)), the amount paid shall

be 80 percent of the lesser of the actual charge for the services

or 85 percent of the amount determined under the fee schedule

established under section 1848(b) for the same services if furnished by a physician’’.

(d) APPLICATION OF LIMITS ON BILLING.—Section 1842(b)(18)(C)

(42 U.S.C. 1395u(b)(18)(C)) is amended by adding at the end the

following new clause:

‘‘(vi) A registered dietitian or nutrition professional.’’.

(e) EFFECTIVE DATE.—The amendments made by this section

apply to services furnished on or after January 1, 2002.

(f) STUDY.—Not later than July 1, 2003, the Secretary of Health

and Human Services shall submit to Congress a report that contains recommendations with respect to the expansion to other medicare beneficiary populations of the medical nutrition therapy services benefit (furnished under the amendments made by this section).

Subtitle B—Other Beneficiary

Improvements

SEC. 111. ACCELERATION OF REDUCTION OF BENEFICIARY COPAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

(a) REDUCING THE UPPER LIMIT ON BENEFICIARY COPAYMENT.—

(1) IN GENERAL.—Section 1833(t)(8)(C) (42 U.S.C.

1395l(t)(8)(C)) is amended to read as follows:

‘‘(C) LIMITATION ON COPAYMENT AMOUNT.—

‘‘(i) TO INPATIENT HOSPITAL DEDUCTIBLE

AMOUNT.—In no case shall the copayment amount for

a procedure performed in a year exceed the amount of

the inpatient hospital deductible established under section 1813(b) for that year.

‘‘(ii) TO SPECIFIED PERCENTAGE.—The Secretary

shall reduce the national unadjusted copayment

amount for a covered OPD service (or group of such

services) furnished in a year in a manner so that the

effective copayment rate (determined on a national

unadjusted basis) for that service in the year does not

exceed the following percentage:

‘‘(I) For procedures performed in 2001, 60 percent.

‘‘(II) For procedures performed in 2002 or

2003, 55 percent.

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‘‘(III) For procedures performed in 2004, 50

percent.

‘‘(IV) For procedures performed in 2005, 45

percent.

‘‘(V) For procedures performed in 2006 and

thereafter, 40 percent.’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies with respect to services furnished on or after January 1, 2001.

(b) CONSTRUCTION REGARDING LIMITING INCREASES IN COST- SHARING.—Nothing in this Act or the Social Security Act shall be

construed as preventing a hospital from waiving the amount of any

coinsurance for outpatient hospital services under the medicare program under title XVIII of the Social Security Act that may have

been increased as a result of the implementation of the prospective

payment system under section 1833(t) of the Social Security Act (42

U.S.C. 1395l(t)).

(c) GAO STUDY OF REDUCTION IN MEDIGAP PREMIUM LEVELS

RESULTING FROM REDUCTIONS IN COINSURANCE.—The Comptroller

General of the United States shall work, in concert with the National Association of Insurance Commissioners, to evaluate the extent to which the premium levels for medicare supplemental policies

reflect the reductions in coinsurance resulting from the amendment

made by subsection (a). Not later than April 1, 2004, the Comptroller General shall submit to Congress a report on such evaluation

and the extent to which the reductions in beneficiary coinsurance effected by such amendment have resulted in actual savings to medicare beneficiaries.

SEC. 112. PRESERVATION OF COVERAGE OF DRUGS AND BIOLOGICALS

UNDER PART B OF THE MEDICARE PROGRAM.

(a) IN GENERAL.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is

amended, in each of subparagraphs (A) and (B), by striking ‘‘(including drugs and biologicals which cannot, as determined in accordance with regulations, be self-administered)’’ and inserting ‘‘(including drugs and biologicals which are not usually self-administered by the patient)’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to drugs and biologicals administered on or after the date

of the enactment of this Act.

SEC. 113. ELIMINATION OF TIME LIMITATION ON MEDICARE BENEFITS

FOR IMMUNOSUPPRESSIVE DRUGS.

(a) IN GENERAL.—Section 1861(s)(2)(J) (42 U.S.C.

1395x(s)(2)(J)) is amended by striking ‘‘, but only’’ and all that follows up to the semicolon at the end.

(b) CONFORMING AMENDMENTS.—

(1) EXTENDED COVERAGE.—Section 1832 (42 U.S.C. 1395k)

is amended—

(A) by striking subsection (b); and

(B) by redesignating subsection (c) as subsection (b).

(2) PASS-THROUGH; REPORT.—Section 227 of BBRA is

amended by striking subsection (d).

(c) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to drugs furnished on or after the date of the enactment

of this Act.

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SEC. 114. IMPOSITION OF BILLING LIMITS ON PRESCRIPTION DRUGS.

(a) IN GENERAL.—Section 1842(o) (42 U.S.C. 1395u(o)) is

amended by adding at the end the following new paragraph:

‘‘(3)(A) Payment for a charge for any drug or biological for

which payment may be made under this part may be made under

this part only on an assignment-related basis.

‘‘(B) The provisions of subsection (b)(18)(B) shall apply to

charges for such drugs or biologicals in the same manner as they

apply to services furnished by a practitioner described in subsection

(b)(18)(C).’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to items furnished on or after January 1, 2001.

Subtitle C—Demonstration Projects and

Studies

SEC. 121. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR

SEVERELY CHRONICALLY ILL MEDICARE BENEFICIARIES.

(a) IN GENERAL.—The Secretary of Health and Human Services

shall conduct a demonstration project under this section (in this section referred to as the ‘‘project’’) to demonstrate the impact on costs

and health outcomes of applying disease management to medicare

beneficiaries with diagnosed, advanced-stage congestive heart failure, diabetes, or coronary heart disease. In no case may the number

of participants in the project exceed 30,000 at any time.

(b) VOLUNTARY PARTICIPATION.—

(1) ELIGIBILITY.—Medicare beneficiaries are eligible to participate in the project only if—

(A) they meet specific medical criteria demonstrating

the appropriate diagnosis and the advanced nature of their

disease;

(B) their physicians approve of participation in the

project; and

(C) they are not enrolled in a Medicare+Choice plan.

(2) BENEFITS.—A beneficiary who is enrolled in the project

shall be eligible—

(A) for disease management services related to their

chronic health condition; and

(B) for payment for all costs for prescription drugs

without regard to whether or not they relate to the chronic

health condition, except that the project may provide for

modest cost-sharing with respect to prescription drug coverage.

(c) CONTRACTS WITH DISEASE MANAGEMENT ORGANIZATIONS.—

(1) IN GENERAL.—The Secretary of Health and Human

Services shall carry out the project through contracts with up

to three disease management organizations. The Secretary shall

not enter into such a contract with an organization unless the

organization demonstrates that it can produce improved health

outcomes and reduce aggregate medicare expenditures consistent with paragraph (2).

(2) CONTRACT PROVISIONS.—Under such contracts—

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(A) such an organization shall be required to provide

for prescription drug coverage described in subsection

(b)(2)(B);

(B) such an organization shall be paid a fee negotiated

and established by the Secretary in a manner so that (taking into account savings in expenditures under parts A and

B of the medicare program under title XVIII of the Social

Security Act) there will be a net reduction in expenditures

under the medicare program as a result of the project; and

(C) such an organization shall guarantee, through an

appropriate arrangement with a reinsurance company or

otherwise, the net reduction in expenditures described in

subparagraph (B).

(3) PAYMENTS.—Payments to such organizations shall be

made in appropriate proportion from the Trust Funds established under title XVIII of the Social Security Act.

(d) APPLICATION OF MEDIGAP PROTECTIONS TO DEMONSTRATION

PROJECT ENROLLEES.—(1) Subject to paragraph (2), the provisions

of section 1882(s)(3) (other than clauses (i) through (iv) of subparagraph (B)) and 1882(s)(4) of the Social Security Act shall apply to

enrollment (and termination of enrollment) in the demonstration

project under this section, in the same manner as they apply to enrollment (and termination of enrollment) with a Medicare+Choice

organization in a Medicare+Choice plan.

(2) In applying paragraph (1)—

(A) any reference in clause (v) or (vi) of section 1882(s)(3)(B)

of such Act to 12 months is deemed a reference to the period of

the demonstration project; and

(B) the notification required under section 1882(s)(3)(D) of

such Act shall be provided in a manner specified by the Secretary of Health and Human Services.

(e) DURATION.—The project shall last for not longer than 3

years.

(f) WAIVER.—The Secretary of Health and Human Services

shall waive such provisions of title XVIII of the Social Security Act

as may be necessary to provide for payment for services under the

project in accordance with subsection (c)(3).

(g) REPORT.—The Secretary of Health and Human Services

shall submit to Congress an interim report on the project not later

than 2 years after the date it is first implemented and a final report

on the project not later than 6 months after the date of its completion. Such reports shall include information on the impact of the

project on costs and health outcomes and recommendations on the

cost-effectiveness of extending or expanding the project.

SEC. 122. CANCER PREVENTION AND TREATMENT DEMONSTRATION

FOR ETHNIC AND RACIAL MINORITIES.

(a) DEMONSTRATION.—

(1) IN GENERAL.—The Secretary of Health and Human

Services (in this section referred to as the ‘‘Secretary’’) shall conduct demonstration projects (in this section referred to as ‘‘demonstration projects’’) for the purpose of developing models and

evaluating methods that—

419

(A) improve the quality of items and services provided

to target individuals in order to facilitate reduced disparities in early detection and treatment of cancer;

(B) improve clinical outcomes, satisfaction, quality of

life, and appropriate use of medicare-covered services and

referral patterns among those target individuals with cancer;

(C) eliminate disparities in the rate of preventive cancer screening measures, such as pap smears and prostate

cancer screenings, among target individuals; and

(D) promote collaboration with community-based organizations to ensure cultural competency of health care professionals and linguistic access for persons with limited

English proficiency.

(2) TARGET INDIVIDUAL DEFINED.—In this section, the term

‘‘target individual’’ means an individual of a racial and ethnic

minority group, as defined by section 1707 of the Public Health

Service Act, who is entitled to benefits under part A, and enrolled under part B, of title XVIII of the Social Security Act.

(b) PROGRAM DESIGN.—

(1) INITIAL DESIGN.—Not later than 1 year after the date of

the enactment of this Act, the Secretary shall evaluate best

practices in the private sector, community programs, and academic research of methods that reduce disparities among individuals of racial and ethnic minority groups in the prevention

and treatment of cancer and shall design the demonstration

projects based on such evaluation.

(2) NUMBER AND PROJECT AREAS.—Not later than 2 years

after the date of the enactment of this Act, the Secretary shall

implement at least 9 demonstration projects, including the following:

(A) 2 projects for each of the 4 major racial and ethnic

minority groups (American Indians (including Alaska Natives, Eskimos, and Aleuts); Asian Americans and Pacific

Islanders; Blacks; and Hispanics. The 2 projects must target different ethnic subpopulations.

(B) 1 project within the Pacific Islands.

(C) At least 1 project each in a rural area and innercity area.

(3) EXPANSION OF PROJECTS; IMPLEMENTATION OF DEMONSTRATION PROJECT RESULTS.—If the initial report under subsection (c) contains an evaluation that demonstration projects—

(A) reduce expenditures under the medicare program

under title XVIII of the Social Security Act; or

(B) do not increase expenditures under the medicare

program and reduce racial and ethnic health disparities in

the quality of health care services provided to target individuals and increase satisfaction of beneficiaries and

health care providers;

the Secretary shall continue the existing demonstration projects

and may expand the number of demonstration projects.

(c) REPORT TO CONGRESS.—

(1) IN GENERAL.—Not later than 2 years after the date the

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annually thereafter, the Secretary shall submit to Congress a

report regarding the demonstration projects.

(2) CONTENTS OF REPORT.—Each report under paragraph

(1) shall include the following:

(A) A description of the demonstration projects.

(B) An evaluation of—

(i) the cost-effectiveness of the demonstration

projects;

(ii) the quality of the health care services provided

to target individuals under the demonstration projects;

and

(iii) beneficiary and health care provider satisfaction under the demonstration projects.

(C) Any other information regarding the demonstration

projects that the Secretary determines to be appropriate.

(d) WAIVER AUTHORITY.—The Secretary shall waive compliance

with the requirements of title XVIII of the Social Security Act to

such extent and for such period as the Secretary determines is necessary to conduct demonstration projects.

(e) FUNDING.— (1) DEMONSTRATION PROJECTS.—

(A) STATE PROJECTS.—Except as provided in subparagraph (B), the Secretary shall provide for the transfer from

the Federal Hospital Insurance Trust Fund and the Federal Supplementary Insurance Trust Fund under title

XVIII of the Social Security Act, in such proportions as the

Secretary determines to be appropriate, of such funds as

are necessary for the costs of carrying out the demonstration projects.

(B) TERRITORY PROJECTS.—In the case of a demonstration project described in subsection (b)(2)(B), amounts shall

be available only as provided in any Federal law making

appropriations for the territories.

(2) LIMITATION.—In conducting demonstration projects, the

Secretary shall ensure that the aggregate payments made by the

Secretary do not exceed the sum of the amount which the Secretary would have paid under the program for the prevention

and treatment of cancer if the demonstration projects were not

implemented, plus $25,000,000.

SEC. 123. STUDY ON MEDICARE COVERAGE OF ROUTINE THYROID

SCREENING.

(a) STUDY.—The Secretary of Health and Human Services shall

request the National Academy of Sciences, and as appropriate in

conjunction with the United States Preventive Services Task Force,

to conduct a study on the addition of coverage of routine thyroid

screening using a thyroid stimulating hormone test as a preventive

benefit provided to medicare beneficiaries under title XVIII of the

Social Security Act for some or all medicare beneficiaries. In conducting the study, the Academy shall consider the short-term and

long-term benefits, and costs to the medicare program, of such addition.

(b) REPORT.—Not later than 2 years after the date of the enactment of this Act, the Secretary of Health and Human Services shall

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section (a) to the Committee on Ways and Means and the Committee

on Commerce of the House of Representatives and the Committee on

Finance of the Senate.

SEC. 124. MEDPAC STUDY ON CONSUMER COALITIONS.

(a) STUDY.—The Medicare Payment Advisory Commission shall

conduct a study that examines the use of consumer coalitions in the

marketing of Medicare+Choice plans under the medicare program

under title XVIII of the Social Security Act. The study shall

examine—

(1) the potential for increased efficiency in the medicare

program through greater beneficiary knowledge of their health

care options, decreased marketing costs of Medicare+Choice organizations, and creation of a group market;

(2) the implications of Medicare+Choice plans and medicare supplemental policies (under section 1882 of the Social Security Act (42 U.S.C. 1395ss)) offering medicare beneficiaries in

the same geographic location different benefits and premiums

based on their affiliation with a consumer coalition;

(3) how coalitions should be governed, how they should be

accountable to the Secretary of Health and Human Services,

and how potential conflicts of interest in the activities of consumer coalitions should be avoided; and

(4) how such coalitions should be funded.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Commission shall submit to Congress a report

on the study conducted under subsection (a). The report shall include a recommendation on whether and how a demonstration

project might be conducted for the operation of consumer coalitions

under the medicare program.

(c) CONSUMER COALITION DEFINED.—For purposes of this section, the term ‘‘consumer coalition’’ means a nonprofit, communitybased group of organizations that—

(1) provides information to medicare beneficiaries about

their health care options under the medicare program; and

(2) negotiates benefits and premiums for medicare beneficiaries who are members or otherwise affiliated with the group

of organizations with Medicare+Choice organizations offering

Medicare+Choice plans, issuers of medicare supplemental policies, issuers of long-term care coverage, and pharmacy benefit

managers.

SEC. 125. STUDY ON LIMITATION ON STATE PAYMENT FOR MEDICARE

COST-SHARING AFFECTING ACCESS TO SERVICES FOR

QUALIFIED MEDICARE BENEFICIARIES.

(a) IN GENERAL.—The Secretary of Health and Human Services

shall conduct a study to determine if access to certain services (including mental health services) for qualified medicare beneficiaries

has been affected by limitations on a State’s payment for medicare

cost-sharing for such beneficiaries under section 1902(n) of the Social Security Act (42 U.S.C. 1396a(n)). As part of such study, the

Secretary shall analyze the effect of such payment limitation on providers who serve a disproportionate share of such beneficiaries.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Secretary shall submit to Congress a report on

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ommendations regarding any changes that should be made to the

State payment limits under section 1902(n) for qualified medicare

beneficiaries to ensure appropriate access to services.

SEC. 126. INSTITUTE OF MEDICINE STUDY ON WAIVER OF 24-MONTH

WAITING PERIOD FOR MEDICARE DISABILITY ELIGIBILITY

FOR AMYOTROPHIC LATERAL SCLEROSIS (ALS) AND

OTHER DEVASTATING DISEASES.

(a) STUDY.—The Secretary of Health and Human Services shall

enter into a contract with the Institute of Medicine to conduct a

study that examines the appropriateness of waiving the 24-month

waiting period for eligibility for benefits under the medicare program under title XVIII of the Social Security Act applicable under

section 226(b) of such Act (42 U.S.C. 426(b)) for individuals with a

devastating disease. For purposes of this section, the term ‘‘devastating disease’’ means amyotrophic lateral sclerosis (ALS) and includes any other disease that is as rapidly debilitating as ALS.

(b) REPORT.—The contract shall provide for the submission to

Congress and the Secretary of a report on the study conducted

under subsection (a) by not later than 18 months after the date of

the enactment of this Act.

SEC. 127. STUDIES ON PREVENTIVE INTERVENTIONS IN PRIMARY

CARE FOR OLDER AMERICANS.

(a) STUDIES.—The Secretary of Health and Human Services,

acting through the United States Preventive Services Task Force,

shall conduct a series of studies designed to identify preventive

interventions that can be delivered in the primary care setting and

that are most valuable to older Americans.

(b) MISSION STATEMENT.—The mission statement of the United

States Preventive Services Task Force is amended to include the

evaluation of services that are of particular relevance to older Americans.

(c) REPORT.—Not later than 1 year after the date of the enactment of this Act, and annually thereafter, the Secretary of Health

and Human Services shall submit to Congress a report on the conclusions of the studies conducted under subsection (a), together with

recommendations for such legislation and administrative actions as

the Secretary considers appropriate.

SEC. 128. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF

CARDIAC AND PULMONARY REHABILITATION THERAPY

SERVICES.

(a) STUDY.—

(1) IN GENERAL.—The Medicare Payment Advisory Commission shall conduct a study on coverage of cardiac and pulmonary rehabilitation therapy services under the medicare program under title XVIII of the Social Security Act.

(2) FOCUS.—In conducting the study under paragraph (1),

the Commission shall focus on the appropriate—

(A) qualifying diagnoses required for coverage of cardiac and pulmonary rehabilitation therapy services;

(B) level of physician direct involvement and supervision in furnishing such services; and

(C) level of reimbursement for such services.

(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Commission shall submit to Congress a reVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00426 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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port on the study conducted under subsection (a) together with such

recommendations for legislation and administrative action as the

Commission determines appropriate.

TITLE II—RURAL HEALTH CARE

IMPROVEMENTS

Subtitle A—Critical Access Hospital

Provisions

SEC. 201. CLARIFICATION OF NO BENEFICIARY COST-SHARING FOR

CLINICAL DIAGNOSTIC LABORATORY TESTS FURNISHED

BY CRITICAL ACCESS HOSPITALS.

(a) PAYMENT CLARIFICATION.—Section 1834(g) (42 U.S.C.

1395m(g)) is amended by adding at the end the following new paragraph:

‘‘(4) NO BENEFICIARY COST-SHARING FOR CLINICAL DIAGNOSTIC LABORATORY SERVICES.—No coinsurance, deductible, copayment, or other cost-sharing otherwise applicable under this

part shall apply with respect to clinical diagnostic laboratory

services furnished as an outpatient critical access hospital service. Nothing in this title shall be construed as providing for

payment for clinical diagnostic laboratory services furnished as

part of outpatient critical access hospital services, other than on

the basis described in this subsection.’’.

(b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Paragraphs (1)(D)(i) and (2)(D)(i) of section 1833(a) (42

U.S.C. 1395l(a)) are each amended by striking ‘‘or which are

furnished on an outpatient basis by a critical access hospital’’.

(2) Section 403(d)(2) of BBRA (113 Stat. 1501A–371) is

amended by striking ‘‘The amendment made by subsection (a)

shall apply’’ and inserting ‘‘Paragraphs (1) through (3) of section 1834(g) of the Social Security Act (as amended by paragraph (1)) apply’’.

(c) EFFECTIVE DATES.—The amendment made—

(1) by subsection (a) applies to services furnished on or

after the date of the enactment of BBRA;

(2) by subsection (b)(1) applies as if included in the enactment of section 403(e)(1) of BBRA (113 Stat. 1501A–371); and

(3) by subsection (b)(2) applies as if included in the enactment of section 403(d)(2) of BBRA (113 Stat. 1501A–371).

SEC. 202. ASSISTANCE WITH FEE SCHEDULE PAYMENT FOR PROFESSIONAL SERVICES UNDER ALL-INCLUSIVE RATE.

(a) IN GENERAL.—Section 1834(g)(2)(B) (42 U.S.C.

1395m(g)(2)(B)) is amended by inserting ‘‘115 percent of’’ before

‘‘such amounts’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies with respect to items and services furnished on or after April

1, 2001.

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SEC. 203. EXEMPTION OF CRITICAL ACCESS HOSPITAL SWING BEDS

FROM SNF PPS.

(a) IN GENERAL.—Section 1888(e)(7) (42 U.S.C. 1395yy(e)(7)) is

amended—

(1) in the heading, by striking ‘‘TRANSITION FOR’’ and inserting ‘‘TREATMENT OF’’;

(2) in subparagraph (A), by striking ‘‘IN GENERAL.—The’’

and inserting ‘‘TRANSITION.—Subject to subparagraph (C), the’’;

(3) in subparagraph (A), by inserting ‘‘(other than critical

access hospitals)’’ after ‘‘facilities described in subparagraph

(B)’’;

(4) in subparagraph (B), by striking ‘‘, for which payment’’

and all that follows before the period; and

(5) by adding at the end the following new subparagraph:

‘‘(C) EXEMPTION FROM PPS OF SWING-BED SERVICES

FURNISHED IN CRITICAL ACCESS HOSPITALS.—The prospective payment system established under this subsection shall

not apply to services furnished by a critical access hospital

pursuant to an agreement under section 1883.’’.

(b) PAYMENT ON A REASONABLE COST BASIS FOR SWING BED

SERVICES FURNISHED BY CRITICAL ACCESS HOSPITALS.—Section

1883(a) (42 U.S.C. 1395tt(a)) is amended—

(1) in paragraph (2)(A), by inserting ‘‘(other than a critical

access hospital)’’ after ‘‘any hospital’’; and

(2) by adding at the end the following new paragraph:

‘‘(3) Notwithstanding any other provision of this title, a critical

access hospital shall be paid for covered skilled nursing facility

services furnished under an agreement entered into under this section on the basis of the reasonable costs of such services (as determined under section 1861(v)).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to cost reporting periods beginning on or after the date

of the enactment of this Act.

SEC. 204. PAYMENT IN CRITICAL ACCESS HOSPITALS FOR EMERGENCY

ROOM ON-CALL PHYSICIANS.

(a) IN GENERAL.—Section 1834(g) (42 U.S.C. 1395m(g)), as

amended by section 201(a), is further amended by adding at the end

the following new paragraph:

‘‘(5) COVERAGE OF COSTS FOR EMERGENCY ROOM ON-CALL

PHYSICIANS.—In determining the reasonable costs of outpatient

critical access hospital services under paragraphs (1) and

(2)(A), the Secretary shall recognize as allowable costs, amounts

(as defined by the Secretary) for reasonable compensation and

related costs for emergency room physicians who are on-call (as

defined by the Secretary) but who are not present on the premises of the critical access hospital involved, and are not otherwise furnishing physicians’ services and are not on-call at any

other provider or facility.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to cost reporting periods beginning on or after October 1,

2001.

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SEC. 205. TREATMENT OF AMBULANCE SERVICES FURNISHED BY CERTAIN CRITICAL ACCESS HOSPITALS.

(a) IN GENERAL.—Section 1834(l) (42 U.S.C. 1395m(l)) is

amended by adding at the end the following new paragraph:

‘‘(8) SERVICES FURNISHED BY CRITICAL ACCESS HOSPITALS.—Notwithstanding any other provision of this subsection, the Secretary shall pay the reasonable costs incurred in

furnishing ambulance services if such services are furnished—

‘‘(A) by a critical access hospital (as defined in section

1861(mm)(1)), or

‘‘(B) by an entity that is owned and operated by a critical access hospital,

but only if the critical access hospital or entity is the only provider or supplier of ambulance services that is located within

a 35-mile drive of such critical access hospital.’’.

(b) CONFORMING AMENDMENT.—Section 1833(a)(1)(R) (42

U.S.C. 1395l(a)(1)(R)) is amended—

(1) by striking ‘‘ambulance service,’’ and inserting ‘‘ambulance services, (i)’’; and

(2) by inserting before the comma at the end the following:

‘‘and (ii) with respect to ambulance services described in section

1834(l)(8), the amounts paid shall be the amounts determined

under section 1834(g) for outpatient critical access hospital

services’’.

(c) EFFECTIVE DATE.—The amendments made by this section

apply to services furnished on or after the date of the enactment of

this Act.

SEC. 206. GAO STUDY ON CERTAIN ELIGIBILITY REQUIREMENTS FOR

CRITICAL ACCESS HOSPITALS.

(a) STUDY.—The Comptroller General of the United States shall

conduct a study on the eligibility requirements for critical access

hospitals under section 1820(c) of the Social Security Act (42 U.S.C.

1395i–4(c)) with respect to limitations on average length of stay and

number of beds in such a hospital, including an analysis of—

(1) the feasibility of having a distinct part unit as part of

a critical access hospital for purposes of the medicare program

under title XVIII of such Act, and

(2) the effect of seasonal variations in patient admissions

on critical access hospital eligibility requirements with respect

to limitations on average annual length of stay and number of

beds.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Comptroller General shall submit to Congress

a report on the study conducted under subsection (a) together with

recommendations regarding—

(1) whether distinct part units should be permitted as part

of a critical access hospital under the medicare program;

(2) if so permitted, the payment methodologies that should

apply with respect to services provided by such units;

(3) whether, and to what extent, such units should be included in or excluded from the bed limits applicable to critical

access hospitals under the medicare program; and

(4) any adjustments to such eligibility requirements to account for seasonal variations in patient admissions.

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Subtitle B—Other Rural Hospitals

Provisions

SEC. 211. EQUITABLE TREATMENT FOR RURAL DISPROPORTIONATE

SHARE HOSPITALS.

(a) APPLICATION OF UNIFORM THRESHOLD.—Section

1886(d)(5)(F)(v) (42 U.S.C. 1395ww(d)(5)(F)(v)) is amended—

(1) in subclause (II), by inserting ‘‘(or 15 percent, for discharges occurring on or after April 1, 2001)’’ after ‘‘30 percent’’;

(2) in subclause (III), by inserting ‘‘(or 15 percent, for discharges occurring on or after April 1, 2001)’’ after ‘‘40 percent’’;

and

(3) in subclause (IV), by inserting ‘‘(or 15 percent, for discharges occurring on or after April 1, 2001)’’ after ‘‘45 percent’’.

(b) ADJUSTMENT OF PAYMENT FORMULAS.—

(1) SOLE COMMUNITY HOSPITALS.—Section 1886(d)(5)(F) (42

U.S.C. 1395ww(d)(5)(F)) is amended—

(A) in clause (iv)(VI), by inserting after ‘‘10 percent’’ the

following: ‘‘or, for discharges occurring on or after April 1,

2001, is equal to the percent determined in accordance with

clause (x)’’; and

(B) by adding at the end the following new clause:

‘‘(x) For purposes of clause (iv)(VI) (relating to sole community

hospitals), in the case of a hospital for a cost reporting period with

a disproportionate patient percentage (as defined in clause (vi))

that—

‘‘(I) is less than 17.3, the disproportionate share adjustment

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5;

‘‘(II) is equal to or exceeds 17.3, but is less than 30.0, such

adjustment percentage is equal to 4 percent; or

‘‘(III) is equal to or exceeds 40, such adjustment percentage

is equal to 5 percent,

where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).’’.

(2) RURAL REFERRAL CENTERS.—Such section is further

amended—

(A) in clause (iv)(V), by inserting after ‘‘clause (viii)’’

the following: ‘‘or, for discharges occurring on or after April

1, 2001, is equal to the percent determined in accordance

with clause (xi)’’; and

(B) by adding at the end the following new clause:

‘‘(xi) For purposes of clause (iv)(V) (relating to rural referral

centers), in the case of a hospital for a cost reporting period with

a disproportionate patient percentage (as defined in clause (vi))

that—

‘‘(I) is less than 17.3, the disproportionate share adjustment

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5;

‘‘(II) is equal to or exceeds 17.3, but is less than 30.0, such

adjustment percentage is equal to 4 percent; or

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‘‘(III) is equal to or exceeds 30, such adjustment percentage

is determined in accordance with the following formula: (P–

30)(.6) + 4,

where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).’’.

(3) SMALL RURAL HOSPITALS GENERALLY.—Such section is

further amended—

(A) in clause (iv)(III), by inserting after ‘‘4 percent’’ the

following: ‘‘or, for discharges occurring on or after April 1,

2001, is equal to the percent determined in accordance with

clause (xii)’’; and

(B) by adding at the end the following new clause:

‘‘(xii) For purposes of clause (iv)(III) (relating to small rural

hospitals generally), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in clause

(vi)) that—

‘‘(I) is less than 17.3, the disproportionate share adjustment

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5;

‘‘(II) is equal to or exceeds 17.3, such adjustment percentage

is equal to 4 percent,

where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).’’.

(4) HOSPITALS THAT ARE BOTH SOLE COMMUNITY HOSPITALS

AND RURAL REFERRAL CENTERS.—Such section is further

amended, in clause (iv)(IV), by inserting after ‘‘clause (viii)’’ the

following: ‘‘or, for discharges occurring on or after April 1,

2001, the greater of the percentages determined under clause (x)

or (xi)’’.

(5) URBAN HOSPITALS WITH LESS THAN 100 BEDS.—Such section is further amended—

(A) in clause (iv)(II), by inserting after ‘‘5 percent’’ the

following: ‘‘or, for discharges occurring on or after April 1,

2001, is equal to the percent determined in accordance with

clause (xiii)’’; and

(B) by adding at the end the following new clause:

‘‘(xiii) For purposes of clause (iv)(II) (relating to urban hospitals

with less than 100 beds), in the case of a hospital for a cost reporting period with a disproportionate patient percentage (as defined in

clause (vi)) that—

‘‘(I) is less than 17.3, the disproportionate share adjustment

percentage is determined in accordance with the following formula: (P–15)(.65) + 2.5;

‘‘(II) is equal to or exceeds 17.3, but is less than 40.0, such

adjustment percentage is equal to 4 percent; or

‘‘(III) is equal to or exceeds 40, such adjustment percentage

is equal to 5 percent,

where ‘P’ is the hospital’s disproportionate patient percentage (as defined in clause (vi)).’’.

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SEC. 212. OPTION TO BASE ELIGIBILITY FOR MEDICARE DEPENDENT,

SMALL RURAL HOSPITAL PROGRAM ON DISCHARGES DURING 2 OF THE 3 MOST RECENTLY AUDITED COST REPORTING PERIODS.

(a) IN GENERAL.—Section 1886(d)(5)(G)(iv)(IV) (42 U.S.C.

1395ww(d)(5)(G)(iv)(IV)) is amended by inserting ‘‘, or 2 of the 3

most recently audited cost reporting periods for which the Secretary

has a settled cost report,’’ after ‘‘1987’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply with respect to cost reporting periods beginning on or

after April 1, 2001.

SEC. 213. EXTENSION OF OPTION TO USE REBASED TARGET AMOUNTS

TO ALL SOLE COMMUNITY HOSPITALS.

(a) IN GENERAL.—Section 1886(b)(3)(I)(i) (42 U.S.C.

1395ww(b)(3)(I)(i)) is amended—

(1) in the matter preceding subclause (I), by striking ‘‘that

for its cost reporting period beginning during 1999’’ and all

that follows through ‘‘for such target amount’’ and inserting

‘‘there shall be substituted for the amount otherwise determined

under subsection (d)(5)(D)(i), if such substitution results in a

greater amount of payment under this section for the hospital’’;

(2) in subclause (I), by striking ‘‘target amount otherwise

applicable’’ and all that follows through ‘‘target amount’)’’ and

inserting ‘‘the amount otherwise applicable to the hospital

under subsection (d)(5)(D)(i) (referred to in this clause as the

‘subsection (d)(5)(D)(i) amount’)’’; and

(3) in each of subclauses (II) and (III), by striking ‘‘subparagraph (C) target amount’’ and inserting ‘‘subsection

(d)(5)(D)(i) amount’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in the enactment of section 405 of

BBRA (113 Stat. 1501A–372).

SEC. 214. MEDPAC ANALYSIS OF IMPACT OF VOLUME ON PER UNIT

COST OF RURAL HOSPITALS WITH PSYCHIATRIC UNITS.

The Medicare Payment Advisory Commission, in its study conducted pursuant to subsection (a) of section 411 of BBRA (113 Stat.

1501A–377), shall include—

(1) in such study an analysis of the impact of volume on

the per unit cost of rural hospitals with psychiatric units; and

(2) in its report under subsection (b) of such section a recommendation on whether special treatment for such hospitals

may be warranted.

Subtitle C—Other Rural Provisions

SEC. 221. ASSISTANCE FOR PROVIDERS OF AMBULANCE SERVICES IN

RURAL AREAS.

(a) TRANSITIONAL ASSISTANCE IN CERTAIN MILEAGE RATES.—

Section 1834(l) (42 U.S.C. 1395m(l)) is amended by adding at the

end the following new paragraph:

‘‘(8) TRANSITIONAL ASSISTANCE FOR RURAL PROVIDERS.—In

the case of ground ambulance services furnished on or after the

date on which the Secretary implements the fee schedule under

this subsection and before January 1, 2004, for which the transVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00432 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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portation originates in a rural area (as defined in section

1886(d)(2)(D)) or in a rural census tract of a metropolitan statistical area (as determined under the most recent modification

of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 Fed. Reg. 6725)), the fee

schedule established under this subsection shall provide that,

with respect to the payment rate for mileage for a trip above 17

miles, and up to 50 miles, the rate otherwise established shall

be increased by not less than 1⁄2 of the additional payment per

mile established for the first 17 miles of such a trip originating

in a rural area.’’.

(b) GAO STUDIES ON THE COSTS OF AMBULANCE SERVICES

FURNISHED IN RURAL AREAS.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study on each of the matters described in paragraph (2).

(2) MATTERS DESCRIBED.—The matters referred to in paragraph (1) are the following:

(A) The cost of efficiently providing ambulance services

for trips originating in rural areas, with special emphasis

on collection of cost data from rural providers.

(B) The means by which rural areas with low population densities can be identified for the purpose of designating areas in which the cost of providing ambulance

services would be expected to be higher than similar services provided in more heavily populated areas because of

low usage. Such study shall also include an analysis of the

additional costs of providing ambulance services in areas

designated under the previous sentence.

(3) REPORT.—Not later than June 30, 2002, the Comptroller General shall submit to Congress a report on the results

of the studies conducted under paragraph (1) and shall include

recommendations on steps that should be taken to assure access

to ambulance services in rural areas.

(c) ADJUSTMENT IN RURAL RATES.—In providing for adjustments under subparagraph (D) of section 1834(l)(2) of the Social Security Act (42 U.S.C. 1395m(l)(2)) for years beginning with 2004,

the Secretary of Health and Human Services shall take into consideration the recommendations contained in the report under subsection (b)(2) and shall adjust the fee schedule payment rates under

such section for ambulance services provided in low density rural

areas based on the increased cost (if any) of providing such services

in such areas.

(d) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to services furnished on or after the date the Secretary implements the fee schedule under section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)). In applying such amendment to services furnished on or after such date and before January 1, 2002, the

amount of the rate increase provided under such amendment shall

be equal to $1.25 per mile.

SEC. 222. PAYMENT FOR CERTAIN PHYSICIAN ASSISTANT SERVICES.

(a) PAYMENT FOR CERTAIN PHYSICIAN ASSISTANT SERVICES.—

Section 1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amended—

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(1) by striking ‘‘for such services provided before January

1, 2003,’’; and

(2) by striking the semicolon at the end and inserting a

comma.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

shall take effect on the date of the enactment of this Act.

SEC. 223. REVISION OF MEDICARE REIMBURSEMENT FOR TELEHEALTH

SERVICES.

(a) TIME LIMIT FOR BBA PROVISION.—Section 4206(a) of BBA

(42 U.S.C. 1395l note) is amended by striking ‘‘Not later than January 1, 1999’’ and inserting ‘‘For services furnished on and after January 1, 1999, and before July 1, 2001’’.

(b) EXPANSION OF MEDICARE PAYMENT FOR TELEHEALTH SERVICES.—Section 1834 (42 U.S.C. 1395m) is amended by adding at the

end the following new subsection:

‘‘(m) PAYMENT FOR TELEHEALTH SERVICES.—

‘‘(1) IN GENERAL.—The Secretary shall pay for telehealth

services that are furnished via a telecommunications system by

a physician (as defined in section 1861(r)) or a practitioner (described in section 1842(b)(18)(C)) to an eligible telehealth individual enrolled under this part notwithstanding that the individual physician or practitioner providing the telehealth service

is not at the same location as the beneficiary. For purposes of

the preceding sentence, in the case of any Federal telemedicine

demonstration program conducted in Alaska or Hawaii, the

term ‘telecommunications system’ includes store-and-forward

technologies that provide for the asynchronous transmission of

health care information in single or multimedia formats.

‘‘(2) PAYMENT AMOUNT.—

‘‘(A) DISTANT SITE.—The Secretary shall pay to a physician or practitioner located at a distant site that furnishes a telehealth service to an eligible telehealth individual an amount equal to the amount that such physician

or practitioner would have been paid under this title had

such service been furnished without the use of a telecommunications system.

‘‘(B) FACILITY FEE FOR ORIGINATING SITE.—With respect

to a telehealth service, subject to section 1833(a)(1)(U), there

shall be paid to the originating site a facility fee equal to—

‘‘(i) for the period beginning on July 1, 2001, and

ending on December 31, 2001, and for 2002, $20; and

‘‘(ii) for a subsequent year, the facility fee specified

in clause (i) or this clause for the preceding year increased by the percentage increase in the MEI (as defined in section 1842(i)(3)) for such subsequent year.

‘‘(C) TELEPRESENTER NOT REQUIRED.—Nothing in this

subsection shall be construed as requiring an eligible telehealth individual to be presented by a physician or practitioner at the originating site for the furnishing of a service

via a telecommunications system, unless it is medically necessary (as determined by the physician or practitioner at

the distant site).

‘‘(3) LIMITATION ON BENEFICIARY CHARGES.—

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‘‘(A) PHYSICIAN AND PRACTITIONER.—The provisions of

section 1848(g) and subparagraphs (A) and (B) of section

1842(b)(18) shall apply to a physician or practitioner receiving payment under this subsection in the same manner

as they apply to physicians or practitioners under such sections.

‘‘(B) ORIGINATING SITE.—The provisions of section

1842(b)(18) shall apply to originating sites receiving a facility fee in the same manner as they apply to practitioners

under such section.

‘‘(4) DEFINITIONS.—For purposes of this subsection:

‘‘(A) DISTANT SITE.—The term ‘distant site’ means the

site at which the physician or practitioner is located at the

time the service is provided via a telecommunications system.

‘‘(B) ELIGIBLE TELEHEALTH INDIVIDUAL.—The term ‘eligible telehealth individual’ means an individual enrolled

under this part who receives a telehealth service furnished

at an originating site.

‘‘(C) ORIGINATING SITE.—

‘‘(i) IN GENERAL.—The term ‘originating site’

means only those sites described in clause (ii) at which

the eligible telehealth individual is located at the time

the service is furnished via a telecommunications system and only if such site is located—

‘‘(I) in an area that is designated as a rural

health professional shortage area under section

332(a)(1)(A) of the Public Health Service Act (42

U.S.C. 254e(a)(1)(A));

‘‘(II) in a county that is not included in a Metropolitan Statistical Area; or

‘‘(III) from an entity that participates in a Federal telemedicine demonstration project that has

been approved by (or receives funding from) the

Secretary of Health and Human Services as of December 31, 2000.

‘‘(ii) SITES DESCRIBED.—The sites referred to in

clause (i) are the following sites:

‘‘(I) The office of a physician or practitioner.

‘‘(II) A critical access hospital (as defined in

section 1861(mm)(1)).

‘‘(III) A rural health clinic (as defined in section 1861(aa)(s)).

‘‘(IV) A Federally qualified health center (as

defined in section 1861(aa)(4)).

‘‘(V) A hospital (as defined in section 1861(e)).

‘‘(D) PHYSICIAN.—The term ‘‘physician’’ has the

meaning given that term in section 1861(r).

‘‘(E) PRACTITIONER.—The term ‘practitioner’ has

the meaning given that term in section 1842(b)(18)(C).

‘‘(F) TELEHEALTH SERVICE.—

‘‘(i) IN GENERAL.—The term ‘telehealth service’

means professional consultations, office visits, and office psychiatry services (identified as of July 1, 2000,

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by HCPCS codes 99241–99275, 99201–99215, 90804–

90809, and 90862 (and as subsequently modified by

the Secretary)), and any additional service specified by

the Secretary.

‘‘(ii) YEARLY UPDATE.—The Secretary shall establish a process that provides, on an annual basis, for

the addition or deletion of services (and HCPCS codes),

as appropriate, to those specified in clause (i) for authorized payment under paragraph (1).’’.

(c) CONFORMING AMENDMENT.—Section 1833(a)(1) (42 U.S.C.

1395l(1)), as amended by section 105(c), is further amended—

(1) by striking ‘‘and (T)’’ and inserting ‘‘(T)’’; and

(2) by inserting before the semicolon at the end the following: ‘‘, and (U) with respect to facility fees described in section 1834(m)(2)(B), the amounts paid shall be 80 percent of the

lesser of the actual charge or the amounts specified in such section’’.

(d) STUDY AND REPORT ON ADDITIONAL COVERAGE.—

(1) STUDY.—The Secretary of Health and Human Services

shall conduct a study to identify—

(A) settings and sites for the provision of telehealth

services that are in addition to those permitted under section 1834(m) of the Social Security Act, as added by subsection (b);

(B) practitioners that may be reimbursed under such

section for furnishing telehealth services that are in addition to the practitioners that may be reimbursed for such

services under such section; and

(C) geographic areas in which telehealth services may

be reimbursed that are in addition to the geographic areas

where such services may be reimbursed under such section.

(2) REPORT.—Not later than 2 years after the date of the

enactment of this Act, the Secretary shall submit to Congress a

report on the study conducted under paragraph (1) together

with such recommendations for legislation that the Secretary

determines are appropriate.

(e) EFFECTIVE DATE.—The amendments made by subsections (b)

and (c) shall be effective for services furnished on or after July 1,

2001.

SEC. 224. EXPANDING ACCESS TO RURAL HEALTH CLINICS.

(a) IN GENERAL.—The matter in section 1833(f) (42 U.S.C.

1395l(f)) preceding paragraph (1) is amended by striking ‘‘rural hospitals’’ and inserting ‘‘hospitals’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to services furnished on or after July 1, 2001.

SEC. 225. MEDPAC STUDY ON LOW-VOLUME, ISOLATED RURAL HEALTH

CARE PROVIDERS.

(a) STUDY.—The Medicare Payment Advisory Commission shall

conduct a study on the effect of low patient and procedure volume

on the financial status of low-volume, isolated rural health care providers participating in the medicare program under title XVIII of

the Social Security Act.

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(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Commission shall submit to Congress a report on the study conducted under subsection (a) indicating—

(1) whether low-volume, isolated rural health care providers are having, or may have, significantly decreased medicare margins or other financial difficulties resulting from any

of the payment methodologies described in subsection (c);

(2) whether the status as a low-volume, isolated rural

health care provider should be designated under the medicare

program and any criteria that should be used to qualify for

such a status; and

(3) any changes in the payment methodologies described in

subsection (c) that are necessary to provide appropriate reimbursement under the medicare program to low-volume, isolated

rural health care providers (as designated pursuant to paragraph (2)).

(c) PAYMENT METHODOLOGIES DESCRIBED.—The payment methodologies described in this subsection are the following:

(1) The prospective payment system for hospital outpatient

department services under section 1833(t) of the Social Security

Act (42 U.S.C. 1395l(t)).

(2) The fee schedule for ambulance services under section

1834(l) of such Act (42 U.S.C. 1395m(l)).

(3) The prospective payment system for inpatient hospital

services under section 1886 of such Act (42 U.S.C. 1395ww).

(4) The prospective payment system for routine service costs

of skilled nursing facilities under section 1888(e) of such Act (42

U.S.C. 1395yy(e)).

(5) The prospective payment system for home health services under section 1895 of such Act (42 U.S.C. 1395fff).

TITLE III—PROVISIONS RELATING TO

PART A

Subtitle A—Inpatient Hospital Services

SEC. 301. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATE FOR

2001.

(a) IN GENERAL.—Section 1886(b)(3)(B)(i) (42 U.S.C.

1395ww(b)(3)(B)(i)) is amended—

(1) in subclause (XVI), by striking ‘‘minus 1.1 percentage

points for hospitals (other than sole community hospitals) in all

areas, and the market basket percentage increase for sole community hospitals,’’ and inserting ‘‘for hospitals in all areas,’’;

(2) in subclause (XVII)—

(A) by striking ‘‘minus 1.1 percentage points’’ and inserting ‘‘minus 0.55 percentage points; and

(B) by striking ‘‘and’’ at the end;

(3) by redesignating subclause (XVIII) as subclause (XIX);

(4) in subclause (XIX), as so redesignated, by striking ‘‘fiscal year 2003’’ and inserting ‘‘fiscal year 2004’’; and

(5) by inserting after subclause (XVII) the following new

subclause:

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‘‘(XVIII) for fiscal year 2003, the market basket percentage

increase minus 0.55 percentage points for hospitals in all areas,

and’’.

(b) SPECIAL RULE FOR PAYMENT FOR FISCAL YEAR 2001.—Notwithstanding the amendment made by subsection (a), for purposes

of making payments for fiscal year 2001 for inpatient hospital services furnished by subsection (d) hospitals (as defined in section

1886(d)(1)(B) of the Social Security Act (42 U.S.C.

1395ww(d)(1)(B)), the ‘‘applicable percentage increase’’ referred to in

section 1886(b)(3)(B)(i) of such Act (42 U.S.C. 1395ww(b)(3)(B)(i))—

(1) for discharges occurring on or after October 1, 2000,

and before April 1, 2001, shall be determined in accordance

with subclause (XVI) of such section as in effect on the day before the date of the enactment of this Act; and

(2) for discharges occurring on or after April 1, 2001, and

before October 1, 2001, shall be equal to—

(A) the market basket percentage increase plus 1.1 percentage points for hospitals (other than sole community

hospitals) in all areas; and

(B) the market basket percentage increase for sole community hospitals.

(c) CONSIDERATION OF PRICE OF BLOOD AND BLOOD PRODUCTS

IN MARKET BASKET INDEX.—The Secretary of Health and Human

Services shall, when next (after the date of the enactment of this

Act) rebasing and revising the hospital market basket index (as defined in section 1886(b)(3)(B)(iii) of the Social Security Act (42

U.S.C. 1395ww(b)(3)(B)(iii))), consider the prices of blood and blood

products purchased by hospitals and determine whether those prices

are adequately reflected in such index.

(d) MEDPAC STUDY AND REPORT REGARDING CERTAIN HOSPITAL COSTS.—

(1) STUDY.—The Medicare Payment Advisory Commission

shall conduct a study on—

(A) any increased costs incurred by subsection (d) hospitals (as defined in paragraph (1)(B) of section 1886(d) of

the Social Security Act (42 U.S.C. 1395ww(d))) in providing

inpatient hospital services to medicare beneficiaries under

title XVIII of such Act during the period beginning on October 1, 1983, and ending on September 30, 1999, that were

attributable to—

(i) complying with new blood safety measure requirements; and

(ii) providing such services using new technologies;

(B) the extent to which the prospective payment system

for such services under such section provides adequate and

timely recognition of such increased costs;

(C) the prospects for (and to the extent practicable, the

magnitude of) cost increases that hospitals will incur in

providing such services that are attributable to complying

with new blood safety measure requirements and providing

such services using new technologies during the 10 years

after the date of the enactment of this Act; and

(D) the feasibility and advisability of establishing

mechanisms under such payment system to provide for

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more timely and accurate recognition of such cost increases

in the future.

(2) CONSULTATION.—In conducting the study under this

subsection, the Commission shall consult with representatives of

the blood community, including—

(A) hospitals;

(B) organizations involved in the collection, processing,

and delivery of blood; and

(C) organizations involved in the development of new

blood safety technologies.

(3) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Commission shall submit to Congress

a report on the study conducted under paragraph (1) together

with such recommendations for legislation and administrative

action as the Commission determines appropriate.

(e) ADJUSTMENT FOR INPATIENT CASE MIX CHANGES.— (1) IN GENERAL.—Section 1886(d)(3)(A) (42 U.S.C.

1395ww(d)(3)(A)) is amended by adding at the end the following new clause:

‘‘(vi) Insofar as the Secretary determines that the adjustments under paragraph (4)(C)(i) for a previous fiscal year (or

estimates that such adjustments for a future fiscal year) did (or

are likely to) result in a change in aggregate payments under

this subsection during the fiscal year that are a result of

changes in the coding or classification of discharges that do not

reflect real changes in case mix, the Secretary may adjust the

average standardized amounts computed under this paragraph

for subsequent fiscal years so as to eliminate the effect of such

coding or classification changes.’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies to discharges occurring on or after October 1, 2001.

SEC. 302. ADDITIONAL MODIFICATION IN TRANSITION FOR INDIRECT

MEDICAL EDUCATION (IME) PERCENTAGE ADJUSTMENT.

(a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42 U.S.C.

1395ww(d)(5)(B)(ii)) is amended—

(1) in subclause (V) by striking ‘‘and’’ at the end;

(2) by redesignating subclause (VI) as subclause (VII);

(3) in subclause (VII) as so redesignated, by striking ‘‘2001’’

and inserting ‘‘2002’’; and

(4) by inserting after subclause (V) the following new subclause:

‘‘(VI) during fiscal year 2002, ‘c’ is equal to 1.57; and’’.

(b) SPECIAL RULE FOR PAYMENT FOR FISCAL YEAR 2001.—Notwithstanding paragraph (5)(B)(ii)(V) of section 1886(d) of the Social

Security Act (42 U.S.C. 1395ww(d)(5)(B)(ii)(V)), for purposes of

making payments for subsection (d) hospitals (as defined in paragraph (1)(B) of such section) with indirect costs of medical education, the indirect teaching adjustment factor referred to in paragraph (5)(B)(ii) of such section shall be determined, for discharges

occurring on or after April 1, 2001, and before October 1, 2001, as

if ‘‘c’’ in paragraph (5)(B)(ii)(V) of such section equalled 1.66 rather

than 1.54.

(c) CONFORMING AMENDMENT RELATING TO DETERMINATION OF

STANDARDIZED AMOUNT.—Section 1886(d)(2)(C)(i) (42 U.S.C.

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1395ww(d)(2)(C)(i)) is amended by inserting ‘‘or of section 302 of the

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000’’ after ‘‘Balanced Budget Refinement Act of 1999’’.

(d) CLERICAL AMENDMENTS.—Section 1886(d)(5)(B) (42 U.S.C.

1395ww(d)(5)(B)), as amended by subsection (a), is further amended

by moving the indentation of each of the following 2 ems to the left:

(1) Clauses (ii), (v), and (vi).

(2) Subclauses (I), (II), (III), (IV), (V), and (VII) of clause

(ii).

(3) Subclauses (I) and (II) of clause (vi) and the flush sentence at the end of such clause.

SEC. 303. DECREASE IN REDUCTIONS FOR DISPROPORTIONATE SHARE

HOSPITAL (DSH) PAYMENTS.

(a) IN GENERAL.—Section 1886(d)(5)(F)(ix) (42 U.S.C.

1395ww(d)(5)(F)(ix)) is amended—

(1) in subclause (III), by striking ‘‘each of’’ and by inserting

‘‘and 2 percent, respectively’’ after ‘‘3 percent’’; and

(2) in subclause (IV), by striking ‘‘4 percent’’ and inserting

‘‘3 percent’’.

(b) SPECIAL RULE FOR PAYMENT FOR FISCAL YEAR 2001.—Notwithstanding the amendment made by subsection (a)(1), for purposes of making disproportionate share payments for subsection (d)

hospitals (as defined in section 1886(d)(1)(B) of the Social Security

Act (42 U.S.C. 1395ww(d)(1)(B))) for fiscal year 2001, the additional

payment amount otherwise determined under clause (ii) of section

1886(d)(5)(F) of the Social Security Act (42 U.S.C.

1395ww(d)(5)(F))—

(1) for discharges occurring on or after October 1, 2000,

and before April 1, 2001, shall be adjusted as provided by

clause (ix)(III) of such section as in effect on the day before the

date of the enactment of this Act; and

(2) for discharges occurring on or after April 1, 2001, and

before October 1, 2001, shall, instead of being reduced by 3 percent as provided by clause (ix)(III) of such section as in effect

after the date of the enactment of this Act, be reduced by 1 percent.

(c) CONFORMING AMENDMENTS RELATING TO DETERMINATION

OF STANDARDIZED AMOUNT.—Section 1886(d)(2)(C)(iv) (42 U.S.C.

1395ww(d)(2)(C)(iv)), is amended—

(1) by striking ‘‘1989 or’’ and inserting ‘‘1989,’’; and

(2) by inserting ‘‘, or the enactment of section 303 of the

Medicare, Medicaid, and SCHIP Benefits Improvement and

Protection Act of 2000’’ after ‘‘Omnibus Budget Reconciliation

Act of 1990’’.

(d) TECHNICAL AMENDMENT.—

(1) IN GENERAL.—Section 1886(d)(5)(F)(i) (42 U.S.C.

1395ww(d)(5)(F)(i)) is amended by striking ‘‘and before October

1, 1997,’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) is effective as if included in the enactment of BBA.

(e) REFERENCE TO CHANGES IN DSH FOR RURAL HOSPITALS.—

For additional changes in the DSH program for rural hospitals, see

section 211.

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SEC. 304. WAGE INDEX IMPROVEMENTS.

(a) DURATION OF WAGE INDEX RECLASSIFICATION; USE OF 3-

YEAR WAGE DATA.—Section 1886(d)(10)(D) (42 U.S.C.

1395ww(d)(10)(D)) is amended by adding at the end the following

new clauses:

‘‘(v) Any decision of the Board to reclassify a subsection (d) hospital for purposes of the adjustment factor described in subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year thereafter

shall be effective for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to terminate such reclassification before the end of

such period.

‘‘(vi) Such guidelines shall provide that, in making decisions on

applications for reclassification for the purposes described in clause

(v) for fiscal year 2003 and any succeeding fiscal year, the Board

shall base any comparison of the average hourly wage for the hospital with the average hourly wage for hospitals in an area on—

‘‘(I) an average of the average hourly wage amount for the

hospital from the most recently published hospital wage survey

data of the Secretary (as of the date on which the hospital applies for reclassification) and such amount from each of the two

immediately preceding surveys; and

‘‘(II) an average of the average hourly wage amount for hospitals in such area from the most recently published hospital

wage survey data of the Secretary (as of the date on which the

hospital applies for reclassification) and such amount from

each of the two immediately preceding surveys.’’.

(b) PROCESS TO PERMIT STATEWIDE WAGE INDEX CALCULATION

AND APPLICATION.—

(1) IN GENERAL.—The Secretary of Health and Human

Services shall establish a process (based on the voluntary process utilized by the Secretary of Health and Human Services

under section 1848 of the Social Security Act (42 U.S.C. 1395w–

4) for purposes of computing and applying a statewide geographic wage index) under which an appropriate statewide entity may apply to have all the geographic areas in a State treated

as a single geographic area for purposes of computing and applying the area wage index under section 1886(d)(3)(E) of such

Act (42 U.S.C. 1395ww(d)(3)(E)). Such process shall be established by October 1, 2001, for reclassifications beginning in fiscal year 2003.

(2) PROHIBITION ON INDIVIDUAL HOSPITAL RECLASSIFICATION.—Notwithstanding any other provision of law, if the Secretary applies a statewide geographic wage index under paragraph (1) with respect to a State, any application submitted by

a hospital in that State under section 1886(d)(10) of the Social

Security Act (42 U.S.C. 1395ww(d)(10)) for geographic reclassification shall not be considered.

(c) COLLECTION OF INFORMATION ON OCCUPATIONAL MIX.—

(1) IN GENERAL.—The Secretary of Health and Human

Services shall provide for the collection of data every 3 years on

occupational mix for employees of each subsection (d) hospital

(as defined in section 1886(d)(1)(D) of the Social Security Act

(42 U.S.C. 1395ww(d)(1)(D))) in the provision of inpatient hosVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00441 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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pital services, in order to construct an occupational mix adjustment in the hospital area wage index applied under section

1886(d)(3)(E) of such Act (42 U.S.C. 1395ww(d)(3)(E)).

(2) APPLICATION.—The third sentence of section

1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)) is amended by striking ‘‘To the extent determined feasible by the Secretary, such

survey shall measure’’ and inserting ‘‘Not less often than once

every 3 years the Secretary (through such survey or otherwise)

shall measure’’.

(3) EFFECTIVE DATE.—By not later than September 30,

2003, for application beginning October 1, 2004, the Secretary

shall first complete—

(A) the collection of data under paragraph (1); and

(B) the measurement under the third sentence of section 1886(d)(3)(E), as amended by paragraph (2).

SEC. 305. PAYMENT FOR INPATIENT SERVICES OF REHABILITATION

HOSPITALS.

(a) ASSISTANCE WITH ADMINISTRATIVE COSTS ASSOCIATED

WITH COMPLETION OF PATIENT ASSESSMENT.—Section 1886(j)(3)(B)

(42 U.S.C. 1395ww(j)(3)(B)) is amended by striking ‘‘98 percent’’

and inserting ‘‘98 percent for fiscal year 2001 and 100 percent for

fiscal year 2002’’.

(b) ELECTION TO APPLY FULL PROSPECTIVE PAYMENT RATE

WITHOUT PHASE-IN.— (1) IN GENERAL.—Paragraph (1) of section 1886(j) (42

U.S.C. 1395ww(j)) is amended—

(A) in subparagraph (A), by inserting ‘‘other than a facility making an election under subparagraph (F)’’ before

‘‘in a cost reporting period’’;

(B) in subparagraph (B), by inserting ‘‘or, in the case

of a facility making an election under subparagraph (F),

for any cost reporting period described in such subparagraph,’’ after ‘‘2002,’’; and

(C) by adding at the end the following new subparagraph:

‘‘(F) ELECTION TO APPLY FULL PROSPECTIVE PAYMENT

SYSTEM.—A rehabilitation facility may elect, not later than

30 days before its first cost reporting period for which the

payment methodology under this subsection applies to the

facility, to have payment made to the facility under this

subsection under the provisions of subparagraph (B) (rather than subparagraph (A)) for each cost reporting period to

which such payment methodology applies.’’.

(2) CLARIFICATION.—Paragraph (3)(B) of such section is

amended by inserting ‘‘but not taking into account any payment

adjustment resulting from an election permitted under paragraph (1)(F)’’ after ‘‘paragraphs (4) and (6)’’.

(c) EFFECTIVE DATE.—The amendments made by this section

take effect as if included in the enactment of BBA.

SEC. 306. PAYMENT FOR INPATIENT SERVICES OF PSYCHIATRIC HOSPITALS.

With respect to hospitals described in clause (i) of section

1886(d)(1)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B))

and psychiatric units described in the matter following clause (v) of

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such section, in making incentive payments to such hospitals under

section 1886(b)(1)(A) of such Act (42 U.S.C. 1395ww(b)(1)(A)) for

cost reporting periods beginning on or after October 1, 2000, and before October 1, 2001, the Secretary of Health and Human Services,

in clause (ii) of such section, shall substitute ‘‘3 percent’’ for ‘‘2 percent’’.

SEC. 307. PAYMENT FOR INPATIENT SERVICES OF LONG-TERM CARE

HOSPITALS.

(a) INCREASED TARGET AMOUNTS AND CAPS FOR LONG-TERM

CARE HOSPITALS BEFORE IMPLEMENTATION OF THE PROSPECTIVE

PAYMENT SYSTEM.— (1) IN GENERAL.—Section 1886(b)(3) (42 U.S.C.

1395ww(b)(3)) is amended—

(A) in subparagraph (H)(ii)(III), by inserting ‘‘subject to

subparagraph (J),’’ after ‘‘2002,’’; and

(B) by adding at the end the following new subparagraph:

‘‘(J) For cost reporting periods beginning during fiscal year

2001, for a hospital described in subsection (d)(1)(B)(iv)—

‘‘(i) the limiting or cap amount otherwise determined under

subparagraph (H) shall be increased by 2 percent; and

‘‘(ii) the target amount otherwise determined under subparagraph (A) shall be increased by 25 percent (subject to the

limiting or cap amount determined under subparagraph (H), as

increased by clause (i)).’’.

(2) APPLICATION.—The amendments made by subsection (a)

and by section 122 of BBRA (113 Stat. 1501A–331) shall not be

taken into account in the development and implementation of

the prospective payment system under section 123 of BBRA (113

Stat. 1501A–331).

(b) IMPLEMENTATION OF PROSPECTIVE PAYMENT SYSTEM FOR

LONG-TERM CARE HOSPITALS.—

(1) MODIFICATION OF REQUIREMENT.—In developing the

prospective payment system for payment for inpatient hospital

services provided in long-term care hospitals described in section 1886(d)(1)(B)(iv) of the Social Security Act (42 U.S.C.

1395ww(d)(1)(B)(iv)) under the medicare program under title

XVIII of such Act required under section 123 of BBRA, the Secretary of Health and Human Services shall examine the feasibility and the impact of basing payment under such a system

on the use of existing (or refined) hospital diagnosis-related

groups (DRGs) that have been modified to account for different

resource use of long-term care hospital patients as well as the

use of the most recently available hospital discharge data. The

Secretary shall examine and may provide for appropriate adjustments to the long-term hospital payment system, including

adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment consistent with section 1886(d)(5)(F)

of the Social Security Act (42 U.S.C. 1395ww(d)(5)(F)).

(2) DEFAULT IMPLEMENTATION OF SYSTEM BASED ON EXISTING DRG METHODOLOGY.—If the Secretary is unable to implement the prospective payment system under section 123 of the

BBRA by October 1, 2002, the Secretary shall implement a proVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00443 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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spective payment system for such hospitals that bases payment

under such a system using existing hospital diagnosis-related

groups (DRGs), modified where feasible to account for resource

use of long-term care hospital patients using the most recently

available hospital discharge data for such services furnished on

or after that date.

Subtitle B—Adjustments to PPS Payments

for Skilled Nursing Facilities

SEC. 311. ELIMINATION OF REDUCTION IN SKILLED NURSING FACILITY (SNF) MARKET BASKET UPDATE IN 2001.

(a) IN GENERAL.—Section 1888(e)(4)(E)(ii) (42 U.S.C.

1395yy(e)(4)(E)(ii)) is amended—

(1) by redesignating subclauses (II) and (III) as subclauses

(III) and (IV), respectively;

(2) in subclause (III), as so redesignated—

(A) by striking ‘‘each of fiscal years 2001 and 2002’’

and inserting ‘‘each of fiscal years 2002 and 2003’’; and

(B) by striking ‘‘minus 1 percentage point’’ and inserting ‘‘minus 0.5 percentage points’’; and

(3) by inserting after subclause (I) the following new subclause:

‘‘(II) for fiscal year 2001, the rate computed for

the previous fiscal year increased by the skilled

nursing facility market basket percentage change

for the fiscal year;’’.

(b) SPECIAL RULE FOR PAYMENT FOR FISCAL YEAR 2001.—Notwithstanding the amendments made by subsection (a), for purposes

of making payments for covered skilled nursing facility services

under section 1888(e) of the Social Security Act (42 U.S.C.

1395yy(e)) for fiscal year 2001, the Federal per diem rate referred

to in paragraph (4)(E)(ii) of such section—

(1) for the period beginning on October 1, 2000, and ending

on March 31, 2001, shall be the rate determined in accordance

with the law as in effect on the day before the date of the enactment of this Act; and

(2) for the period beginning on April 1, 2001, and ending

on September 30, 2001, shall be the rate that would have been

determined under such section if ‘‘plus 1 percentage point’’ had

been substituted for ‘‘minus 1 percentage point’’ under subclause

(II) of such paragraph (as in effect on the day before the date

of the enactment of this Act).

(c) RELATION TO TEMPORARY INCREASE IN BBRA.—The increases provided under section 101 of BBRA (113 Stat. 1501A–325)

shall be in addition to any increase resulting from the amendments

made by subsection (a).

(d) GAO REPORT ON ADEQUACY OF SNF PAYMENT RATES.—Not

later than July 1, 2002, the Comptroller General of the United

States shall submit to Congress a report on the adequacy of medicare payment rates to skilled nursing facilities and the extent to

which medicare contributes to the financial viability of such facilities. Such report shall take into account the role of private payors,

441

medicaid, and case mix on the financial performance of these facilities, and shall include an analysis (by specific RUG classification)

of the number and characteristics of such facilities.

(e) HCFA STUDY OF CLASSIFICATION SYSTEMS FOR SNF RESIDENTS.—

(1) STUDY.—The Secretary of Health and Human Services

shall conduct a study of the different systems for categorizing

patients in medicare skilled nursing facilities in a manner that

accounts for the relative resource utilization of different patient

types.

(2) REPORT.—Not later than January 1, 2005, the Secretary

shall submit to Congress a report on the study conducted under

subsection (a). Such report shall include such recommendations

regarding changes in law as may be appropriate.

SEC. 312. INCREASE IN NURSING COMPONENT OF PPS FEDERAL RATE.

(a) IN GENERAL.—The Secretary of Health and Human Services

shall increase by 16.66 percent the nursing component of the casemix adjusted Federal prospective payment rate specified in Tables

3 and 4 of the final rule published in the Federal Register by the

Health Care Financing Administration on July 31, 2000 (65 Fed.

Reg. 46770), effective for services furnished on or after April 1,

2001, and before October 1, 2002.

(b) GAO AUDIT OF NURSING STAFF RATIOS.—

(1) AUDIT.—The Comptroller General of the United States

shall conduct an audit of nursing staffing ratios in a representative sample of medicare skilled nursing facilities. Such sample

shall cover selected States and shall include broad representation with respect to size, ownership, location, and medicare volume. Such audit shall include an examination of payroll

records and medicaid cost reports of individual facilities.

(2) REPORT.—Not later than August 1, 2002, the Comptroller General shall submit to Congress a report on the audits

conducted under paragraph (1). Such report shall include an

assessment of the impact of the increased payments under this

subtitle on increased nursing staff ratios and shall make recommendations as to whether increased payments under subsection (a) should be continued.

SEC. 313. APPLICATION OF SNF CONSOLIDATED BILLING REQUIREMENT LIMITED TO PART A COVERED STAYS.

(a) IN GENERAL.—Section 1862(a)(18) (42 U.S.C. 1395y(a)(18))

is amended by striking ‘‘or of a part of a facility that includes a

skilled nursing facility (as determined under regulations),’’ and inserting ‘‘during a period in which the resident is provided covered

post-hospital extended care services (or, for services described in section 1861(s)(2)(D), which are furnished to such an individual without regard to such period),’’.

(b) CONFORMING AMENDMENTS.—(1) Section 1842(b)(6)(E) (42

U.S.C. 1395u(b)(6)(E)) is amended—

(A) by inserting ‘‘by, or under arrangements made by, a

skilled nursing facility’’ after ‘‘furnished’’;

(B) by striking ‘‘or of a part of a facility that includes a

skilled nursing facility (as determined under regulations)’’; and

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(C) by striking ‘‘(without regard to whether or not the item

or service was furnished by the facility, by others under arrangement with them made by the facility, under any other contracting or consulting arrangement, or otherwise)’’.

(2) Section 1842(t) (42 U.S.C. 1395u(t)) is amended by striking

‘‘by a physician’’ and ‘‘or of a part of a facility that includes a

skilled nursing facility (as determined under regulations),’’.

(3) Section 1866(a)(1)(H)(ii)(I) (42 U.S.C. 1395cc(a)(1)(H)(ii)(I))

is amended by inserting after ‘‘who is a resident of the skilled nursing facility’’ the following: ‘‘during a period in which the resident

is provided covered post-hospital extended care services (or, for services described in section 1861(s)(2)(D), that are furnished to such an

individual without regard to such period)’’.

(c) EFFECTIVE DATE.—The amendments made by subsections (a)

and (b) apply to services furnished on or after January 1, 2001.

(d) OVERSIGHT.—The Secretary of Health and Human Services,

through the Office of the Inspector General in the Department of

Health and Human Services or otherwise, shall monitor payments

made under part B of the title XVIII of the Social Security Act for

items and services furnished to residents of skilled nursing facilities

during a time in which the residents are not being provided medicare covered post-hospital extended care services to ensure that there

is not duplicate billing for services or excessive services provided.

SEC. 314. ADJUSTMENT OF REHABILITATION RUGS TO CORRECT

ANOMALY IN PAYMENT RATES.

(a) ADJUSTMENT FOR REHABILITATION RUGS.—

(1) IN GENERAL.—For purposes of computing payments for

covered skilled nursing facility services under paragraph (1) of

section 1888(e) of the Social Security Act (42 U.S.C. 1395yy(e))

for such services furnished on or after April 1, 2001, and before

the date described in section 101(c)(2) of BBRA (113 Stat.

1501A–324), the Secretary of Health and Human Services shall

increase by 6.7 percent the adjusted Federal per diem rate otherwise determined under paragraph (4) of such section (but for

this section) for covered skilled nursing facility services for

RUG–III rehabilitation groups described in paragraph (2) furnished to an individual during the period in which such individual is classified in such a RUG–III category.

(2) REHABILITATION GROUPS DESCRIBED.—The RUG–III rehabilitation groups for which the adjustment described in paragraph (1) applies are RUC, RUB, RUA, RVC, RVB, RVA, RHC,

RHB, RHA, RMC, RMB, RMA, RLB, and RLA, as specified in

Tables 3 and 4 of the final rule published in the Federal Register by the Health Care Financing Administration on July 31,

2000 (65 Fed. Reg. 46770).

(b) CORRECTION WITH RESPECT TO REHABILITATION RUGS.—

(1) IN GENERAL.—Section 101(b) of BBRA (113 Stat.

1501A–324) is amended by striking ‘‘CA1, RHC, RMC, and

RMB’’ and inserting ‘‘and CA1’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies to services furnished on or after April 1, 2001.

(c) REVIEW BY OFFICE OF INSPECTOR GENERAL.—The Inspector

General of the Department of Health and Human Services shall review the medicare payment structure for services classified within

443

rehabilitation resource utilization groups (RUGs) (as in effect after

the date of the enactment of the BBRA) to assess whether payment

incentives exist for the delivery of inadequate care. Not later than

October 1, 2001, the Inspector General shall submit to Congress a

report on such review.

SEC. 315. ESTABLISHMENT OF PROCESS FOR GEOGRAPHIC RECLASSIFICATION.

(a) IN GENERAL.—The Secretary of Health and Human Services

may establish a procedure for the geographic reclassification of a

skilled nursing facility for purposes of payment for covered skilled

nursing facility services under the prospective payment system established under section 1888(e) of the Social Security Act (42 U.S.C.

1395yy(e)). Such procedure may be based upon the method for geographic reclassifications for inpatient hospitals established under

section 1886(d)(10) of the Social Security Act (42 U.S.C.

1395ww(d)(10)).

(b) REQUIREMENT FOR SKILLED NURSING FACILITY WAGE

DATA.—In no case may the Secretary implement the procedure

under subsection (a) before such time as the Secretary has collected

data necessary to establish an area wage index for skilled nursing

facilities based on wage data from such facilities.

Subtitle C—Hospice Care

SEC. 321. FULL MARKET BASKET INCREASE FOR 2001.

(a) IN GENERAL.—Section 1814(i)(1)(C)(ii) (42 U.S.C.

1395f(i)(1)(C)(ii)) is amended—

(1) by redesignating subclause (VII) as subclause (IX);

(2) in subclause (VI)—

(A) by striking ‘‘through 2002’’ and inserting ‘‘through

2000’’; and

(B) by striking ‘‘and’’ at the end; and

(3) by inserting after subclause (VI) the following new subclauses:

‘‘(VII) for fiscal year 2001, the market basket percentage increase for the fiscal year;

‘‘(VIII) for fiscal year 2002, the market basket percentage

increase for the fiscal year minus 0.25 percentage points; and’’.

(b) TRANSITION DURING FISCAL YEAR 2001.—Notwithstanding

the amendments made by subsection (a), for purposes of making

payments for hospice care under section 1814(i) of the Social Security Act (42 U.S.C. 1395f(i)) for fiscal year 2001, the payment rates

referred to in paragraph (1)(C) of such section—

(1) for the period beginning on October 1, 2000, and ending

on March 31, 2001, shall be the rate determined in accordance

with the law as in effect on the day before the date of the enactment of this Act; and

(2) for the period beginning on April 1, 2001, and ending

on September 30, 2001, shall be the rate that would have been

determined under paragraph (1) if ‘‘plus 1.0 percentage points’’

were substituted for ‘‘minus 1.0 percentage points’’ under paragraph (1)(C)(ii)(VI) of such section for fiscal year 2001.

(c) CONFORMING AMENDMENTS TO BBRA.—

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(1) IN GENERAL.—Section 131 of BBRA (113 Stat. 1501A–

333) is repealed.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) shall take effect as if included in the enactment of BBRA.

(d) TECHNICAL AMENDMENT.—Section 1814(a)(7)(A)(ii) (42

U.S.C. 1395f(a)(7)(A)(ii)) is amended by striking the period at the

end and inserting a semicolon.

SEC. 322. CLARIFICATION OF PHYSICIAN CERTIFICATION.

(a) CERTIFICATION BASED ON NORMAL COURSE OF ILLNESS.—

(1) IN GENERAL.—Section 1814(a) (42 U.S.C. 1395f(a)) is

amended by adding at the end the following new sentence: ‘‘The

certification regarding terminal illness of an individual under

paragraph (7) shall be based on the physician’s or medical director’s clinical judgment regarding the normal course of the individual’s illness.’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies to certifications made on or after the date of the enactment of this Act.

(b) STUDY AND REPORT ON PHYSICIAN CERTIFICATION REQUIREMENT FOR HOSPICE BENEFITS.—

(1) STUDY.—The Secretary of Health and Human Services

shall conduct a study to examine the appropriateness of the certification regarding terminal illness of an individual under section 1814(a)(7) of the Social Security Act (42 U.S.C. 1395f(a)(7))

that is required in order for such individual to receive hospice

benefits under the medicare program under title XVIII of such

Act. In conducting such study, the Secretary shall take into account the effect of the amendment made by subsection (a).

(2) REPORT.—Not later than 2 years after the date of the

enactment of this Act, the Secretary of Health and Human Services shall submit to Congress a report on the study conducted

under paragraph (1), together with any recommendations for

legislation that the Secretary deems appropriate.

SEC. 323. MEDPAC REPORT ON ACCESS TO, AND USE OF, HOSPICE BENEFIT.

(a) IN GENERAL.—The Medicare Payment Advisory Commission

shall conduct a study to examine the factors affecting the use of hospice benefits under the medicare program under title XVIII of the

Social Security Act, including a delay in the time (relative to death)

of entry into a hospice program, and differences in such use between

urban and rural hospice programs and based upon the presenting

condition of the patient.

(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Commission shall submit to Congress a report on the study conducted under subsection (a), together with any

recommendations for legislation that the Commission deems appropriate.

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Subtitle D—Other Provisions

SEC. 331. RELIEF FROM MEDICARE PART A LATE ENROLLMENT PENALTY FOR GROUP BUY-IN FOR STATE AND LOCAL RETIREES.

(a) IN GENERAL.—Section 1818 (42 U.S.C. 1395i–2) is

amended—

(1) in subsection (c)(6), by inserting before the semicolon at

the end the following: ‘‘and shall be subject to reduction in accordance with subsection (d)(6)’’; and

(2) by adding at the end of subsection (d) the following new

paragraph:

‘‘(6)(A) In the case where a State, a political subdivision of a

State, or an agency or instrumentality of a State or political subdivision thereof determines to pay, for the life of each individual,

the monthly premiums due under paragraph (1) on behalf of each

of the individuals in a qualified State or local government retiree

group who meets the conditions of subsection (a), the amount of any

increase otherwise applicable under section 1839(b) (as applied and

modified by subsection (c)(6) of this section) with respect to the

monthly premium for benefits under this part for an individual who

is a member of such group shall be reduced by the total amount of

taxes paid under section 3101(b) of the Internal Revenue Code of

1986 by such individual and under section 3111(b) by the employers

of such individual on behalf of such individual with respect to employment (as defined in section 3121(b) of such Code).

‘‘(B) For purposes of this paragraph, the term ‘qualified State

or local government retiree group’ means all of the individuals who

retire prior to a specified date that is before January 1, 2002, from

employment in 1 or more occupations or other broad classes of employees of—

‘‘(i) the State;

‘‘(ii) a political subdivision of the State; or

‘‘(iii) an agency or instrumentality of the State or political

subdivision of the State.’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

apply to premiums for months beginning with July 1, 2001.

SEC. 332. POSTING OF INFORMATION ON NURSING FACILITY STAFFING.

(a) MEDICARE.—Section 1819(b) (42 U.S.C. 1395i–3(b)) is

amended by adding at the end the following new paragraph:

‘‘(8) INFORMATION ON NURSE STAFFING.— ‘‘(A) IN GENERAL.—A skilled nursing facility shall post

daily for each shift the current number of licensed and unlicensed nursing staff directly responsible for resident care

in the facility. The information shall be displayed in a uniform manner (as specified by the Secretary) and in a clearly visible place.

‘‘(B) PUBLICATION OF DATA.—A skilled nursing facility

shall, upon request, make available to the public the nursing staff data described in subparagraph (A).’’.

(b) MEDICAID.—Section 1919(b) (42 U.S.C. 1395r(b)) is amended by adding at the end the following new paragraph:

‘‘(8) INFORMATION ON NURSE STAFFING.—

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‘‘(A) IN GENERAL.—A nursing facility shall post daily

for each shift the current number of licensed and unlicensed nursing staff directly responsible for resident care in

the facility. The information shall be displayed in a uniform manner (as specified by the Secretary) and in a clearly visible place.

‘‘(B) PUBLICATION OF DATA.—A nursing facility shall,

upon request, make available to the public the nursing staff

data described in subparagraph (A).’’.

TITLE IV—PROVISIONS RELATING TO

PART B

Subtitle A—Hospital Outpatient Services

SEC. 401. REVISION OF HOSPITAL OUTPATIENT PPS PAYMENT UPDATE.

(a) IN GENERAL.—Section 1833(t)(3)(C)(iii) (42 U.S.C.

1395l(t)(3)(C)(iii)) is amended by striking ‘‘in each of 2000, 2001,

and 2002’’ and inserting ‘‘in each of 2000 and 2002’’.

(b) ADJUSTMENT FOR CASE MIX CHANGES.— (1) IN GENERAL.—Section 1833(t)(3)(C) (42 U.S.C.

1395l(t)(3)(C)) is amended—

(A) by redesignating clause (iii) as clause (iv); and

(B) by inserting after clause (ii) the following new

clause:

‘‘(iii) ADJUSTMENT FOR SERVICE MIX CHANGES.—Insofar as the Secretary determines that the adjustments

for service mix under paragraph (2) for a previous year

(or estimates that such adjustments for a future year)

did (or are likely to) result in a change in aggregate

payments under this subsection during the year that

are a result of changes in the coding or classification

of covered OPD services that do not reflect real changes

in service mix, the Secretary may adjust the conversion

factor computed under this subparagraph for subsequent years so as to eliminate the effect of such coding

or classification changes.’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall take effect as if included in the enactment of

BBA.

SEC. 402. CLARIFYING PROCESS AND STANDARDS FOR DETERMINING

ELIGIBILITY OF DEVICES FOR PASS-THROUGH PAYMENTS

UNDER HOSPITAL OUTPATIENT PPS.

(a) IN GENERAL.—Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is

amended—

(1) by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively; and

(2) by striking subparagraph (B) and inserting the following new subparagraphs:

‘‘(B) USE OF CATEGORIES IN DETERMINING ELIGIBILITY

OF A DEVICE FOR PASS-THROUGH PAYMENTS.—The following

provisions apply for purposes of determining whether a

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medical device qualifies for additional payments under

clause (ii) or (iv) of subparagraph (A):

‘‘(i) ESTABLISHMENT OF INITIAL CATEGORIES.—The

Secretary shall initially establish under this clause categories of medical devices based on type of device by

April 1, 2001. Such categories shall be established in

a manner such that each medical device that meets the

requirements of clause (ii) or (iv) of subparagraph (A)

as of as of January 1, 2001, is included in such a category and no such device is included in more than one

category. For purposes of the preceding sentence,

whether a medical device meets such requirements as

of such date shall be determined on the basis of the

program memoranda issued before such date or if the

Secretary determines the medical device would have

been included in the program memoranda but for the

requirement of subparagraph (A)(iv)(I). The categories

may be established under this clause by program

memorandum or otherwise, after consultation with

groups representing hospitals, manufacturers of medical devices, and other affected parties.

‘‘(ii) ESTABLISHING CRITERIA FOR ADDITIONAL CATEGORIES.—

‘‘(I) IN GENERAL.—The Secretary shall establish criteria that will be used for creation of additional categories (other than those established

under clause (i)) through rulemaking (which may

include use of an interim final rule with comment

period).

‘‘(II) STANDARD.—Such categories shall be established under this clause in a manner such that

no medical device is described by more than one

category. Such criteria shall include a test of

whether the average cost of devices that would be

included in a category and are in use at the time

the category is established is not insignificant, as

described in subparagraph (A)(iv)(II).

‘‘(III) DEADLINE.—Criteria shall first be established under this clause by July 1, 2001. The Secretary may establish in compelling circumstances

categories under this clause before the date such

criteria are established.

‘‘(IV) ADDING CATEGORIES.—The Secretary

shall promptly establish a new category of medical

devices under this clause for any medical device

that meets the requirements of subparagraph

(A)(iv) and for which none of the categories in effect (or that were previously in effect) is appropriate.

‘‘(iii) PERIOD FOR WHICH CATEGORY IS IN EFFECT.—

A category of medical devices established under clause

(i) or clause (ii) shall be in effect for a period of at least

2 years, but not more than 3 years, that begins—

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‘‘(I) in the case of a category established under

clause (i), on the first date on which payment was

made under this paragraph for any device described by such category (including payments

made during the period before April 1, 2001); and

‘‘(II) in the case of any other category, on the

first date on which payment is made under this

paragraph for any medical device that is described

by such category.

‘‘(iv) REQUIREMENTS TREATED AS MET.—A medical

device shall be treated as meeting the requirements of

subparagraph (A)(iv) if—

‘‘(I) the device is described by a category established and in effect under clause (i); or

‘‘(II) the device is described by a category established and in effect under clause (ii) and an application under section 515 of the Federal Food,

Drug, and Cosmetic Act has been approved with

respect to the device, or the device has been cleared

for market under section 510(k) of such Act, or the

device is exempt from the requirements of section

510(k) of such Act pursuant to subsection (l) or (m)

of section 510 of such Act or section 520(g) of such

Act.

Nothing in this clause shall be construed as requiring

an application or prior approval (other than that described in subclause (II)) in order for a covered device

to qualify for payment under this paragraph.

‘‘(C) LIMITED PERIOD OF PAYMENT.—

‘‘(i) DRUGS AND BIOLOGICALS.—The payment under

this paragraph with respect to a drug or biological

shall only apply during a period of at least 2 years, but

not more than 3 years, that begins—

‘‘(I) on the first date this subsection is implemented in the case of a drug or biological described in clause (i), (ii), or (iii) of subparagraph

(A) and in the case of a drug or biological described in subparagraph (A)(iv) and for which payment under this part is made as an outpatient hospital service before such first date; or

‘‘(II) in the case of a drug or biological described in subparagraph (A)(iv) not described in

subclause (I), on the first date on which payment

is made under this part for the drug or biological

as an outpatient hospital service.

‘‘(ii) MEDICAL DEVICES.—Payment shall be made

under this paragraph with respect to a medical device

only if such device—

‘‘(I) is described by a category of medical devices established and in effect under subparagraph

(B); and

‘‘(II) is provided as part of a service (or group

of services) paid for under this subsection and proVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00452 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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vided during the period for which such category is

in effect under such subparagraph.’’.

(b) CONFORMING AMENDMENTS.—Section 1833(t) (42 U.S.C.

1395l(t)) is further amended—

(1) in paragraph (6)(A)(iv)(II), by striking ‘‘the cost of the

device, drug, or biological’’ and inserting ‘‘the cost of the drug

or biological or the average cost of the category of devices’’;

(2) in paragraph (6)(D) (as redesignated by subsection

(a)(1)), by striking ‘‘subparagraph (D)(iii)’’ in the matter preceding clause (i) and inserting ‘‘subparagraph (E)(iii)’’; and

(3) in paragraph (12)(E), by striking ‘‘additional payments

(consistent with paragraph (6)(B))’’ and inserting ‘‘additional

payments, the determination and deletion of initial and new

categories (consistent with subparagraphs (B) and (C) of paragraph (6))’’.

(c) EFFECTIVE DATE.—The amendments made by this section

take effect on the date of the enactment of this Act.

(d) TRANSITION.—

(1) IN GENERAL.—In the case of a medical device provided

as part of a service (or group of services) furnished during the

period before initial categories are implemented under subparagraph (B)(i) of section 1833(t)(6) of the Social Security Act (as

amended by subsection (a)), payment shall be made for such device under such section in accordance with the provisions in effect before the date of the enactment of this Act, except that, beginning on the date that is 30 days after the date of the enactment of this Act, payment shall also be made for such a device

that is not included in a program memorandum described in

such subparagraph if the Secretary of Health and Human Services determines that the device is likely to be described by such

an initial category or would have been included in such program memoranda but for the requirement of subparagraph

(A)(iv)(I) of that section.

(2) APPLICATION OF CURRENT PROCESS.—Notwithstanding

any other provision of law, the Secretary shall continue to accept applications with respect to medical devices under the process established pursuant to paragraph (6) of section 1833(t) of

the Social Security Act (as in effect on the day before the date

of the enactment of this Act) through December 1, 2000, and

any device—

(A) with respect to which an application was submitted

(pursuant to such process) on or before such date; and

(B) that meets the requirements of clause (ii) or (iv) of

subparagraph (A) of such paragraph (as determined pursuant to such process),

shall be treated as a device with respect to which an initial category is required to be established under subparagraph (B)(i) of

such paragraph (as amended by subsection (a)(2)).

SEC. 403. APPLICATION OF OPD PPS TRANSITIONAL CORRIDOR PAYMENTS TO CERTAIN HOSPITALS THAT DID NOT SUBMIT A

1996 COST REPORT.

(a) IN GENERAL.—Section 1833(t)(7)(F)(ii)(I) (42 U.S.C.

1395l(t)(7)(F)(ii)(I)) is amended by inserting ‘‘(or in the case of a

hospital that did not submit a cost report for such period, during

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the first subsequent cost reporting period ending before 2001 for

which the hospital submitted a cost report)’’ after ‘‘1996’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall take effect as if included in the enactment of BBRA.

SEC. 404. APPLICATION OF RULES FOR DETERMINING PROVIDERBASED STATUS FOR CERTAIN ENTITIES.

(a) GRANDFATHER.—Notwithstanding any other provision of

law, for purposes of making determinations of provider-based status

under title XVIII of the Social Security Act on or after October 1,

2000, any facility or organization that is treated as provider-based

in relation to a hospital or critical access hospital under such title

as of October 1, 2000—

(1) shall continue to be treated as provider-based in relation to such hospital or critical access hospital under such title

during the 2-year period beginning on October 1, 2000; and

(2) the requirements, limitations, and exclusions specified

in paragraphs (d), (e), (f), and (h) of section 413.65 of title 42,

Code of Federal Regulations shall not apply to such facility or

organization in relation to such hospital or critical access hospital until after the end of such 2-year period.

(b) TEMPORARY CRITERIA.—For purposes of title XVIII of the

Social Security Act—

(1) a facility or organization for which a determination of

provider-based status in relation to a hospital or critical access

hospital is requested on or after October 1, 2000, and before October 1, 2002, may not be treated as not having provider-based

status in relation to such a hospital for any period before a determination is made with respect to such status pursuant to

such request; and

(2) in making a determination with respect to such status

for any facility or organization in relationship to such a hospital on or after October 1, 2000, the following rules apply:

(A) The facility or organization shall be treated as satisfying any requirements and standards for geographic location in relation to such a hospital if the facility or

organization—

(i) satisfies the requirements of section 413.65(d)(7)

of title 42, Code of Federal Regulations; or

(ii) is located not more than 35 miles from the

main campus of the hospital or critical access hospital.

(B) The facility or organization shall be treated as satisfying any of the requirements and standards for geographic location in relation to such a hospital if the facility

or organization is owned and operated by a hospital or critical access hospital that—

(i) is owned or operated by a unit of State or local

government, is a public or private nonprofit corporation that is formally granted governmental powers by

a unit of State or local government, or is a private hospital that has a contract with a State or local government that includes the operation of clinics located off

the main campus of the hospital to assure access in a

well-defined service area to health care services for lowincome individuals who are not entitled to benefits

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under title XVIII (or medical assistance under a State

plan under title XIX) of such Act; and

(ii) has a disproportionate share adjustment percentage (as determined under section 1886(d)(5)(F) of

such Act (42 U.S.C. 1395ww(d)(5)(F))) greater than

11.75 percent or is described in clause (i)(II) of such

section.

(c) DEFINITIONS.—For purposes of this section, the terms ‘‘hospital’’ and ‘‘critical access hospital’’ have the meanings given such

terms in subsections (e) and (mm)(1), respectively, of section 1861 of

the Social Security Act (42 U.S.C. 1395x).

SEC. 405. TREATMENT OF CHILDREN’S HOSPITALS UNDER PROSPECTIVE PAYMENT SYSTEM.

(a) IN GENERAL.—Section 1833(t) (42 U.S.C. 1395l(t)) is

amended—

(1) in the heading of paragraph (7)(D)(ii), by inserting ‘‘AND

CHILDREN’S HOSPITALS’’ after ‘‘CANCER HOSPITALS’’; and

(2) in paragraphs (7)(D)(ii) and (11), by striking ‘‘section

1886(d)(1)(B)(v)’’ and inserting ‘‘clause (iii) or (v) of section

1886(d)(1)(B)’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

apply as if included in the enactment of section 202 of BBRA (113

Stat. 1501A–342).

SEC. 406. INCLUSION OF TEMPERATURE MONITORED CRYOABLATION

IN TRANSITIONAL PASS-THROUGH FOR CERTAIN MEDICAL

DEVICES, DRUGS, AND BIOLOGICALS UNDER OPD PPS.

(a) IN GENERAL.—Section 1833(t)(6)(A)(ii) (42 U.S.C.

1395l(t)(6)(A)(ii)) is amended by inserting ‘‘or temperature monitored cryoablation’’ after ‘‘device of brachytherapy’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to devices furnished on or after April 1, 2001.

Subtitle B—Provisions Relating to

Physicians’ Services

SEC. 411. GAO STUDIES RELATING TO PHYSICIANS’ SERVICES.

(a) STUDY OF SPECIALIST PHYSICIANS’ SERVICES FURNISHED IN

PHYSICIANS’ OFFICES AND HOSPITAL OUTPATIENT DEPARTMENT

SERVICES.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study to examine the appropriateness of furnishing in physicians’ offices specialist physicians’ services

(such as gastrointestinal endoscopic physicians’ services) which

are ordinarily furnished in hospital outpatient departments. In

conducting this study, the Comptroller General shall—

(A) review available scientific and clinical evidence

about the safety of performing procedures in physicians’ offices and hospital outpatient departments;

(B) assess whether resource-based practice expense relative values established by the Secretary of Health and

Human Services under the medicare physician fee schedule

under section 1848 of the Social Security Act (42 U.S.C.

1395w–4) for such specialist physicians’ services furnished

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in physicians’ offices and hospital outpatient departments

create an incentive to furnish such services in physicians’

offices instead of hospital outpatient departments; and

(C) assess the implications for access to care for medicare beneficiaries if the medicare program were not to cover

such services in physicians’ offices.

(2) REPORT.—Not later than July 1, 2001, the Comptroller

General shall submit to Congress a report on such study and

include such recommendations as the Comptroller General determines to be appropriate.

(b) STUDY OF THE RESOURCE-BASED PRACTICE EXPENSE SYSTEM.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study on the refinements to the practice expense

relative value units during the transition to a resource-based

practice expense system for physician payments under the medicare program under title XVIII of the Social Security Act. Such

study shall examine how the Secretary of Health and Human

Services has accepted and used the practice expense data submitted under section 212 of BBRA (113 Stat. 1501A–350).

(2) REPORT.—Not later than July 1, 2001, the Comptroller

General shall submit to Congress a report on the study conducted under paragraph (1) together with recommendations

regarding—

(A) improvements in the process for acceptance and use

of practice expense data under section 212 of BBRA;

(B) any change or adjustment that is appropriate to ensure full access to a spectrum of care for beneficiaries under

the medicare program; and

(C) the appropriateness of payments to physicians.

SEC. 412. PHYSICIAN GROUP PRACTICE DEMONSTRATION.

(a) IN GENERAL.—Title XVIII is amended by inserting after section 1866 the following new sections:

‘‘DEMONSTRATION OF APPLICATION OF PHYSICIAN VOLUME INCREASES

TO GROUP PRACTICES

‘‘SEC. 1866A. (a) DEMONSTRATION PROGRAM AUTHORIZED.—

‘‘(1) IN GENERAL.—The Secretary shall conduct demonstration projects to test and, if proven effective, expand the use of

incentives to health care groups participating in the program

under this title that—

‘‘(A) encourage coordination of the care furnished to individuals under the programs under parts A and B by institutional and other providers, practitioners, and suppliers

of health care items and services;

‘‘(B) encourage investment in administrative structures

and processes to ensure efficient service delivery; and

‘‘(C) reward physicians for improving health outcomes.

Such projects shall focus on the efficiencies of furnishing health

care in a group-practice setting as compared to the efficiencies

of furnishing health care in other health care delivery systems.

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‘‘(2) ADMINISTRATION BY CONTRACT.—Except as otherwise

specifically provided, the Secretary may administer the program

under this section in accordance with section 1866B.

‘‘(3) DEFINITIONS.—For purposes of this section, terms have

the following meanings:

‘‘(A) PHYSICIAN.—Except as the Secretary may otherwise provide, the term ‘physician’ means any individual

who furnishes services which may be paid for as physicians’ services under this title.

‘‘(B) HEALTH CARE GROUP.—The term ‘health care

group’ means a group of physicians (as defined in subparagraph (A)) organized at least in part for the purpose of providing physicians’ services under this title. As the Secretary

finds appropriate, a health care group may include a hospital and any other individual or entity furnishing items or

services for which payment may be made under this title

that is affiliated with the health care group under an arrangement structured so that such individual or entity participates in a demonstration under this section and will

share in any bonus earned under subsection (d).

‘‘(b) ELIGIBILITY CRITERIA.—

‘‘(1) IN GENERAL.—The Secretary is authorized to establish

criteria for health care groups eligible to participate in a demonstration under this section, including criteria relating to

numbers of health care professionals in, and of patients served

by, the group, scope of services provided, and quality of care.

‘‘(2) PAYMENT METHOD.—A health care group participating

in the demonstration under this section shall agree with respect

to services furnished to beneficiaries within the scope of the

demonstration (as determined under subsection (c))—

‘‘(A) to be paid on a fee-for-service basis; and

‘‘(B) that payment with respect to all such services furnished by members of the health care group to such beneficiaries shall (where determined appropriate by the Secretary) be made to a single entity.

‘‘(3) DATA REPORTING.—A health care group participating

in a demonstration under this section shall report to the Secretary such data, at such times and in such format as the Secretary requires, for purposes of monitoring and evaluation of

the demonstration under this section.

‘‘(c) PATIENTS WITHIN SCOPE OF DEMONSTRATION.—

‘‘(1) IN GENERAL.—The Secretary shall specify, in accordance with this subsection, the criteria for identifying those patients of a health care group who shall be considered within the

scope of the demonstration under this section for purposes of

application of subsection (d) and for assessment of the effectiveness of the group in achieving the objectives of this section.

‘‘(2) OTHER CRITERIA.—The Secretary may establish additional criteria for inclusion of beneficiaries within a demonstration under this section, which may include frequency of contact

with physicians in the group or other factors or criteria that the

Secretary finds to be appropriate.

‘‘(3) NOTICE REQUIREMENTS.—In the case of each beneficiary determined to be within the scope of a demonstration

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under this section with respect to a specific health care group,

the Secretary shall ensure that such beneficiary is notified of

the incentives, and of any waivers of coverage or payment rules,

applicable to such group under such demonstration.

‘‘(d) INCENTIVES.—

‘‘(1) PERFORMANCE TARGET.—The Secretary shall establish

for each health care group participating in a demonstration

under this section—

‘‘(A) a base expenditure amount, equal to the average

total payments under parts A and B for patients served by

the health care group on a fee-for-service basis in a base period determined by the Secretary; and

‘‘(B) an annual per capita expenditure target for patients determined to be within the scope of the demonstration, reflecting the base expenditure amount adjusted for

risk and expected growth rates.

‘‘(2) INCENTIVE BONUS.—The Secretary shall pay to each

participating health care group (subject to paragraph (4)) a

bonus for each year under the demonstration equal to a portion

of the medicare savings realized for such year relative to the

performance target.

‘‘(3) ADDITIONAL BONUS FOR PROCESS AND OUTCOME IMPROVEMENTS.—At such time as the Secretary has established

appropriate criteria based on evidence the Secretary determines

to be sufficient, the Secretary shall also pay to a participating

health care group (subject to paragraph (4)) an additional

bonus for a year, equal to such portion as the Secretary may

designate of the saving to the program under this title resulting

from process improvements made by and patient outcome improvements attributable to activities of the group.

‘‘(4) LIMITATION.—The Secretary shall limit bonus payments under this section as necessary to ensure that the aggregate expenditures under this title (inclusive of bonus payments)

with respect to patients within the scope of the demonstration

do not exceed the amount which the Secretary estimates would

be expended if the demonstration projects under this section

were not implemented.

‘‘PROVISIONS FOR ADMINISTRATION OF DEMONSTRATION PROGRAM

‘‘SEC. 1866B. (a) GENERAL ADMINISTRATIVE AUTHORITY.—

‘‘(1) BENEFICIARY ELIGIBILITY.—Except as otherwise provided by the Secretary, an individual shall only be eligible to

receive benefits under the program under section 1866A (in this

section referred to as the ‘demonstration program’) if such

individual—

‘‘(A) is enrolled in under the program under part B and

entitled to benefits under part A; and

‘‘(B) is not enrolled in a Medicare+Choice plan under

part C, an eligible organization under a contract under section 1876 (or a similar organization operating under a

demonstration project authority), an organization with an

agreement under section 1833(a)(1)(A), or a PACE program

under section 1894.

455

‘‘(2) SECRETARY’S DISCRETION AS TO SCOPE OF PROGRAM.—

The Secretary may limit the implementation of the demonstration program to—

‘‘(A) a geographic area (or areas) that the Secretary

designates for purposes of the program, based upon such

criteria as the Secretary finds appropriate;

‘‘(B) a subgroup (or subgroups) of beneficiaries or individuals and entities furnishing items or services (otherwise

eligible to participate in the program), selected on the basis

of the number of such participants that the Secretary finds

consistent with the effective and efficient implementation of

the program;

‘‘(C) an element (or elements) of the program that the

Secretary determines to be suitable for implementation; or

‘‘(D) any combination of any of the limits described in

subparagraphs (A) through (C).

‘‘(3) VOLUNTARY RECEIPT OF ITEMS AND SERVICES.—Items

and services shall be furnished to an individual under the demonstration program only at the individual’s election.

‘‘(4) AGREEMENTS.—The Secretary is authorized to enter

into agreements with individuals and entities to furnish health

care items and services to beneficiaries under the demonstration

program.

‘‘(5) PROGRAM STANDARDS AND CRITERIA.—The Secretary

shall establish performance standards for the demonstration

program including, as applicable, standards for quality of

health care items and services, cost-effectiveness, beneficiary

satisfaction, and such other factors as the Secretary finds appropriate. The eligibility of individuals or entities for the initial

award, continuation, and renewal of agreements to provide

health care items and services under the program shall be conditioned, at a minimum, on performance that meets or exceeds

such standards.

‘‘(6) ADMINISTRATIVE REVIEW OF DECISIONS AFFECTING INDIVIDUALS AND ENTITIES FURNISHING SERVICES.—An individual

or entity furnishing services under the demonstration program

shall be entitled to a review by the program administrator (or,

if the Secretary has not contracted with a program administrator, by the Secretary) of a decision not to enter into, or to terminate, or not to renew, an agreement with the entity to provide

health care items or services under the program.

‘‘(7) SECRETARY’S REVIEW OF MARKETING MATERIALS.—An

agreement with an individual or entity furnishing services

under the demonstration program shall require the individual

or entity to guarantee that it will not distribute materials that

market items or services under the program without the Secretary’s prior review and approval.

‘‘(8) PAYMENT IN FULL.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), an individual or entity receiving payment from the Secretary under a contract or agreement under the demonstration program shall agree to accept such payment as payment in full, and such payment shall be in lieu of any payVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00459 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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ments to which the individual or entity would otherwise be

entitled under this title.

‘‘(B) COLLECTION OF DEDUCTIBLES AND COINSURANCE.—Such individual or entity may collect any applicable deductible or coinsurance amount from a beneficiary.

‘‘(b) CONTRACTS FOR PROGRAM ADMINISTRATION.—

‘‘(1) IN GENERAL.—The Secretary may administer the demonstration program through a contract with a program administrator in accordance with the provisions of this subsection.

‘‘(2) SCOPE OF PROGRAM ADMINISTRATOR CONTRACTS.—The

Secretary may enter into such contracts for a limited geographic

area, or on a regional or national basis.

‘‘(3) ELIGIBLE CONTRACTORS.—The Secretary may contract

for the administration of the program with—

‘‘(A) an entity that, under a contract under section 1816

or 1842, determines the amount of and makes payments for

health care items and services furnished under this title; or

‘‘(B) any other entity with substantial experience in

managing the type of program concerned.

‘‘(4) CONTRACT AWARD, DURATION, AND RENEWAL.—

‘‘(A) IN GENERAL.—A contract under this subsection

shall be for an initial term of up to three years, renewable

for additional terms of up to three years.

‘‘(B) NONCOMPETITIVE AWARD AND RENEWAL FOR ENTITIES ADMINISTERING PART A OR PART B PAYMENTS.—The

Secretary may enter or renew a contract under this subsection with an entity described in paragraph (3)(A) without regard to the requirements of section 5 of title 41,

United States Code.

‘‘(5) APPLICABILITY OF FEDERAL ACQUISITION REGULATION.—

The Federal Acquisition Regulation shall apply to program administration contracts under this subsection.

‘‘(6) PERFORMANCE STANDARDS.—The Secretary shall establish performance standards for the program administrator including, as applicable, standards for the quality and cost-effectiveness of the program administered, and such other factors as

the Secretary finds appropriate. The eligibility of entities for the

initial award, continuation, and renewal of program administration contracts shall be conditioned, at a minimum, on performance that meets or exceeds such standards.

‘‘(7) FUNCTIONS OF PROGRAM ADMINISTRATOR.—A program

administrator shall perform any or all of the following functions, as specified by the Secretary:

‘‘(A) AGREEMENTS WITH ENTITIES FURNISHING HEALTH

CARE ITEMS AND SERVICES.—Determine the qualifications of

entities seeking to enter or renew agreements to provide

services under the demonstration program, and as appropriate enter or renew (or refuse to enter or renew) such

agreements on behalf of the Secretary.

‘‘(B) ESTABLISHMENT OF PAYMENT RATES.—Negotiate or

otherwise establish, subject to the Secretary’s approval, payment rates for covered health care items and services.

457

‘‘(C) PAYMENT OF CLAIMS OR FEES.—Administer payments for health care items or services furnished under the

program.

‘‘(D) PAYMENT OF BONUSES.—Using such guidelines as

the Secretary shall establish, and subject to the approval of

the Secretary, make bonus payments as described in subsection (c)(2)(A)(ii) to entities furnishing items or services

for which payment may be made under the program.

‘‘(E) OVERSIGHT.—Monitor the compliance of individuals and entities with agreements under the program with

the conditions of participation.

‘‘(F) ADMINISTRATIVE REVIEW.—Conduct reviews of adverse determinations specified in subsection (a)(6).

‘‘(G) REVIEW OF MARKETING MATERIALS.—Conduct a review of marketing materials proposed by an entity furnishing services under the program.

‘‘(H) ADDITIONAL FUNCTIONS.—Perform such other

functions as the Secretary may specify.

‘‘(8) LIMITATION OF LIABILITY.—The provisions of section

1157(b) shall apply with respect to activities of contractors and

their officers, employees, and agents under a contract under this

subsection.

‘‘(9) INFORMATION SHARING.—Notwithstanding section 1106

and section 552a of title 5, United States Code, the Secretary

is authorized to disclose to an entity with a program administration contract under this subsection such information (including medical information) on individuals receiving health care

items and services under the program as the entity may require

to carry out its responsibilities under the contract.

‘‘(c) RULES APPLICABLE TO BOTH PROGRAM AGREEMENTS AND

PROGRAM ADMINISTRATION CONTRACTS.—

‘‘(1) RECORDS, REPORTS, AND AUDITS.—The Secretary is authorized to require entities with agreements to provide health

care items or services under the demonstration program, and

entities with program administration contracts under subsection (b), to maintain adequate records, to afford the Secretary access to such records (including for audit purposes), and

to furnish such reports and other materials (including audited

financial statements and performance data) as the Secretary

may require for purposes of implementation, oversight, and

evaluation of the program and of individuals’ and entities’ effectiveness in performance of such agreements or contracts.

‘‘(2) BONUSES.—Notwithstanding any other provision of

law, but subject to subparagraph (B)(ii), the Secretary may

make bonus payments under the demonstration program from

the Federal Health Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund in amounts that do

not exceed the amounts authorized under the program in accordance with the following:

‘‘(A) PAYMENTS TO PROGRAM ADMINISTRATORS.—The

Secretary may make bonus payments under the program to

program administrators.

‘‘(B) PAYMENTS TO ENTITIES FURNISHING SERVICES.—

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‘‘(i) IN GENERAL.—Subject to clause (ii), the Secretary may make bonus payments to individuals or entities furnishing items or services for which payment

may be made under the demonstration program, or

may authorize the program administrator to make

such bonus payments in accordance with such guidelines as the Secretary shall establish and subject to the

Secretary’s approval.

‘‘(ii) LIMITATIONS.—The Secretary may condition

such payments on the achievement of such standards

related to efficiency, improvement in processes or outcomes of care, or such other factors as the Secretary determines to be appropriate.

‘‘(3) ANTIDISCRIMINATION LIMITATION.—The Secretary shall

not enter into an agreement with an entity to provide health

care items or services under the demonstration program, or

with an entity to administer the program, unless such entity

guarantees that it will not deny, limit, or condition the coverage

or provision of benefits under the program, for individuals eligible to be enrolled under such program, based on any health status-related factor described in section 2702(a)(1) of the Public

Health Service Act.

‘‘(d) LIMITATIONS ON JUDICIAL REVIEW.—The following actions

and determinations with respect to the demonstration program shall

not be subject to review by a judicial or administrative tribunal:

‘‘(1) Limiting the implementation of the program under

subsection (a)(2).

‘‘(2) Establishment of program participation standards

under subsection (a)(5) or the denial or termination of, or refusal to renew, an agreement with an entity to provide health

care items and services under the program.

‘‘(3) Establishment of program administration contract performance standards under subsection (b)(6), the refusal to

renew a program administration contract, or the noncompetitive

award or renewal of a program administration contract under

subsection (b)(4)(B).

‘‘(5) Establishment of payment rates, through negotiation or

otherwise, under a program agreement or a program administration contract.

‘‘(6) A determination with respect to the program (where

specifically authorized by the program authority or by subsection (c)(2))—

‘‘(A) as to whether cost savings have been achieved, and

the amount of savings; or

‘‘(B) as to whether, to whom, and in what amounts bonuses will be paid.

‘‘(e) APPLICATION LIMITED TO PARTS A AND B.—None of the provisions of this section or of the demonstration program shall apply

to the programs under part C.

‘‘(f) REPORTS TO CONGRESS.—Not later than two years after the

date of the enactment of this section, and biennially thereafter for

six years, the Secretary shall report to Congress on the use of authorities under the demonstration program. Each report shall adVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00462 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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dress the impact of the use of those authorities on expenditures, access, and quality under the programs under this title.’’.

(b) GAO REPORT.—Not later than 2 years after the date on

which the demonstration project under section 1866A of the Social

Security Act, as added by subsection (a), is implemented, the Comptroller General of the United States shall submit to Congress a report on such demonstration project. The report shall include such

recommendations with respect to changes to the demonstration

project that the Comptroller General determines appropriate.

SEC. 413. STUDY ON ENROLLMENT PROCEDURES FOR GROUPS THAT

RETAIN INDEPENDENT CONTRACTOR PHYSICIANS.

(a) IN GENERAL.—The Comptroller General of the United States

shall conduct a study of the current medicare enrollment process for

groups that retain independent contractor physicians with particular emphasis on hospital-based physicians, such as emergency

department staffing groups. In conducting the evaluation, the

Comptroller General shall consult with groups that retain independent contractor physicians and shall—

(1) review the issuance of individual medicare provider

numbers and the possible medicare program integrity

vulnerabilities of the current process;

(2) review direct and indirect costs associated with the current process incurred by the medicare program and groups that

retain independent contractor physicians;

(3) assess the effect on program integrity by the enrollment

of groups that retain independent contractor hospital-based

physicians; and

(4) develop suggested procedures for the enrollment of these

groups.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Comptroller General shall submit to Congress

a report on the study conducted under subsection (a).

Subtitle C—Other Services

SEC. 421. 1-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; REPORT ON STANDARDS FOR SUPERVISION OF PHYSICAL

THERAPY ASSISTANTS.

(a) IN GENERAL.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is

amended by striking ‘‘2000 and 2001.’’ and inserting ‘‘2000, 2001,

and 2002.’’.

(b) CONFORMING AMENDMENT TO CONTINUE FOCUSED MEDICAL

REVIEWS OF CLAIMS DURING MORATORIUM PERIOD.—Section

221(a)(2) of BBRA (113 Stat. 1501A–351) is amended by striking

‘‘(under the amendment made by paragraph (1)(B))’’.

(c) STUDY ON STANDARDS FOR SUPERVISION OF PHYSICAL THERAPIST ASSISTANTS.—

(1) STUDY.—The Secretary of Health and Human Services

shall conduct a study of the implications—

(A) of eliminating the ‘‘in the room’’ supervision requirement for medicare payment for services of physical

therapy assistants who are supervised by physical therapists; and

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(B) of such requirement on the cap imposed under section 1833(g) of the Social Security Act (42 U.S.C. 1395l(g))

on physical therapy services.

(2) REPORT.—Not later than 18 months after the date of the

enactment of this Act, the Secretary shall submit to Congress a

report on the study conducted under paragraph (1).

SEC. 422. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

(a) UPDATE.— (1) IN GENERAL.—The last sentence of section 1881(b)(7) (42

U.S.C. 1395rr(b)(7)) is amended by striking ‘‘for such services

furnished on or after January 1, 2001, by 1.2 percent’’ and inserting ‘‘for such services furnished on or after January 1, 2001,

by 2.4 percent’’.

(2) PROHIBITION ON EXEMPTIONS.— (A) IN GENERAL.—Subject to subparagraph (B), the

Secretary of Health and Human Services may not provide

for an exception under section 1881(b)(7) of the Social Security Act (42 U.S.C. 1395rr(b)(7)) on or after December 31,

2000.

(B) SPECIAL RULES FOR 2000.— (i) IN GENERAL.—Any exemption rate under such

section 1881(b)(7) in effect on December 31, 2000, shall

continue in effect so long as such rate is greater than

the composite rate as updated by the amendment made

by paragraph (1).

(ii) RESUBMISSION OF CERTAIN APPLICATIONS.—In

the case of an application for an exemption rate under

such section that was filed by a facility during 2000

that was not approved by the Secretary of Health and

Human Services, the facility may submit an application for an exemption rate for that year by not later

than July 1, 2001.

(b) DEVELOPMENT OF ESRD MARKET BASKET.— (1) DEVELOPMENT.—The Secretary of Health and Human

Services shall collect data and develop an ESRD market basket

whereby the Secretary can estimate, before the beginning of a

year, the percentage by which the costs for the year of the mix

of labor and nonlabor goods and services included in the ESRD

composite rate under section 1881(b)(7) of the Social Security

Act (42 U.S.C. 1395rr(b)(7)) will exceed the costs of such mix of

goods and services for the preceding year. In developing such

index, the Secretary may take into account measures of changes

in—

(A) technology used in furnishing dialysis services;

(B) the manner or method of furnishing dialysis services; and

(C) the amounts by which the payments under such

section for all services billed by a facility for a year exceed

the aggregate allowable audited costs of such services for

such facility for such year.

(2) REPORT.—The Secretary of Health and Human Services

shall submit to Congress a report on the index developed under

paragraph (1) no later than July 1, 2002, and shall include in

the report recommendations on the appropriateness of an anVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00464 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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nual or periodic update mechanism for renal dialysis services

under the medicare program under title XVIII of the Social Security Act based on such index.

(c) INCLUSION OF ADDITIONAL SERVICES IN COMPOSITE RATE.—

(1) DEVELOPMENT.—The Secretary of Health and Human

Services shall develop a system which includes, to the maximum extent feasible, in the composite rate used for payment

under section 1881(b)(7) of the Social Security Act (42 U.S.C.

1395rr(b)(7)), payment for clinical diagnostic laboratory tests

and drugs (including drugs paid under section 1881(b)(11)(B)

of such Act (42 U.S.C. 1395rr(b)(11)(B)) that are routinely used

in furnishing dialysis services to medicare beneficiaries but

which are currently separately billable by renal dialysis facilities.

(2) REPORT.—The Secretary shall include, as part of the report submitted under subsection (b)(2), a report on the system

developed under paragraph (1) and recommendations on the

appropriateness of incorporating the system into medicare payment for renal dialysis services.

(d) GAO STUDY ON ACCESS TO SERVICES.—

(1) STUDY.—The Comptroller General of the United States

shall study access of medicare beneficiaries to renal dialysis

services. Such study shall include whether there is a sufficient

supply of facilities to furnish needed renal dialysis services,

whether medicare payment levels are appropriate, taking into

account audited costs of facilities for all services furnished, to

ensure continued access to such services, and improvements in

access (and quality of care) that may result in the increased use

of long nightly and short daily hemodialysis modalities.

(2) REPORT.—Not later than January 1, 2003, the Comptroller General shall submit to Congress a report on the study

conducted under paragraph (1).

SEC. 423. PAYMENT FOR AMBULANCE SERVICES.

(a) RESTORATION OF FULL CPI INCREASE FOR 2001.—Section

1834(l)(3) (42 U.S.C. 1395m(l)(3)) is amended by striking ‘‘reduced

in the case of 2001 and 2002’’ each place it appears and inserting

‘‘reduced in the case of 2002’’.

(b) MILEAGE PAYMENTS.—Section 1834(l)(2)(E) (42 U.S.C.

1395m(l)(2)(E)) is amended by inserting before the period at the end

the following: ‘‘, except that, beginning on the date on which the Secretary implements such fee schedule, such phase-in shall provide for

full payment of any national mileage rate for ambulance services

provided by suppliers that are paid by carriers in any of the 50

States where payment by a carrier for such services for all such suppliers in such State did not, prior to the implementation of the fee

schedule, include a separate amount for all mileage within the

county from which the beneficiary is transported’’.

(c) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to services furnished on or after the date on which the Secretary of Health and Human Services implements the fee schedule

under section 1834(l) of the Social Security Act (42 U.S.C.

1395m(l)).

462

SEC. 424. AMBULATORY SURGICAL CENTERS.

(a) DELAY IN IMPLEMENTATION OF PROSPECTIVE PAYMENT SYSTEM.—The Secretary of Health and Human Services may not implement a revised prospective payment system for services of ambulatory surgical facilities under section 1833(i) of the Social Security

Act (42 U.S.C. 1395l(i)) before January 1, 2002.

(b) EXTENDING PHASE-IN TO 4 YEARS.—Section 226 of the

BBRA (113 Stat. 1501A–354) is amended by striking paragraphs (1)

and (2) and inserting the following:

‘‘(1) in the first year of its implementation, only a proportion (specified by the Secretary and not to exceed 1⁄4) of the payment for such services shall be made in accordance with such

system and the remainder shall be made in accordance with

current regulations; and

‘‘(2) in each of the following 2 years a proportion (specified

by the Secretary and not to exceed 1⁄2, and 3⁄4, respectively) of

the payment for such services shall be made under such system

and the remainder shall be made in accordance with current

regulations.’’.

(c) DEADLINE FOR USE OF 1999 OR LATER COST SURVEYS.—Section 226 of BBRA (113 Stat. 1501A–354) is amended by adding at

the end the following:

‘‘By not later than January 1, 2003, the Secretary shall incorporate

data from a 1999 medicare cost survey or a subsequent cost survey

for purposes of implementing or revising such system.’’.

SEC. 425. FULL UPDATE FOR DURABLE MEDICAL EQUIPMENT.

(a) IN GENERAL.—Section 1834(a)(14) (42 U.S.C. 1395m(a)(14))

is amended—

(1) by redesignating subparagraph (D) as subparagraph

(F);

(2) in subparagraph (C)—

(A) by striking ‘‘through 2002’’ and inserting ‘‘through

2000’’; and

(B) by striking ‘‘and’’ at the end; and

(3) by inserting after subparagraph (C) the following new

subparagraphs:

‘‘(D) for 2001, the percentage increase in the Consumer

Price Index for all urban consumers (U.S. city average) for

the 12-month period ending with June 2000;

‘‘(E) for 2002, 0 percentage points; and’’.

(b) CONFORMING AMENDMENTS TO BBRA.—Subsection (a) of

section 228 of BBRA (113 Stat. 1501A–356) is amended—

(1) in the matter preceding paragraph (1), by striking ‘‘for

such items’’;

(2) in paragraph (1), by inserting ‘‘oxygen and oxygen

equipment for’’ after ‘‘(1)’’; and

(3) in paragraph (2), by inserting ‘‘all such covered items

for’’ after ‘‘(2)’’.

(c) EFFECTIVE DATE.—The amendments made by subsection (b)

shall take effect as if included in the enactment of BBRA.

SEC. 426. FULL UPDATE FOR ORTHOTICS AND PROSTHETICS.

Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended—

(1) by redesignating clause (vi) as clause (viii);

463

(2) in clause (v)—

(A) by striking ‘‘through 2002’’ and inserting ‘‘through

2000’’; and

(B) by striking ‘‘and’’ at the end; and

(3) by inserting after clause (v) the following new clause:

‘‘(vi) for 2001, the percentage increase in the consumer price index for all urban consumers (U.S. city

average) for the 12-month period ending with June

2000;

‘‘(vii) for 2002, 1 percent; and’’.

SEC. 427. ESTABLISHMENT OF SPECIAL PAYMENT PROVISIONS AND

REQUIREMENTS FOR PROSTHETICS AND CERTAIN CUSTOM FABRICATED ORTHOTIC ITEMS.

(a) IN GENERAL.—Section 1834(h)(1) (42 U.S.C. 1395m(h)(1)) is

amended by adding at the end the following:

‘‘(F) SPECIAL PAYMENT RULES FOR CERTAIN PROSTHETICS AND CUSTOM FABRICATED ORTHOTICS.—

‘‘(i) IN GENERAL.—No payment shall be made

under this subsection for an item of custom fabricated

orthotics described in clause (ii) or for an item of prosthetics unless such item is—

‘‘(I) furnished by a qualified practitioner; and

‘‘(II) fabricated by a qualified practitioner or a

qualified supplier at a facility that meets such criteria as the Secretary determines appropriate.

‘‘(ii) DESCRIPTION OF CUSTOM FABRICATED ITEM.—

‘‘(I) IN GENERAL.—An item described in this

clause is an item of custom fabricated orthotics

that requires education, training, and experience to

custom fabricate and that is included in a list established by the Secretary in subclause (II). Such

an item does not include shoes and shoe inserts.

‘‘(II) LIST OF ITEMS.—The Secretary, in consultation with appropriate experts in orthotics (including national organizations representing manufacturers of orthotics), shall establish and update

as appropriate a list of items to which this subparagraph applies. No item may be included in

such list unless the item is individually fabricated

for the patient over a positive model of the patient.

‘‘(iii) QUALIFIED PRACTITIONER DEFINED.—In this

subparagraph, the term ‘qualified practitioner’ means a

physician or other individual who—

‘‘(I) is a qualified physical therapist or a qualified occupational therapist;

‘‘(II) in the case of a State that provides for the

licensing of orthotics and prosthetics, is licensed in

orthotics or prosthetics by the State in which the

item is supplied; or

‘‘(III) in the case of a State that does not provide for the licensing of orthotics and prosthetics,

is specifically trained and educated to provide or

manage the provision of prosthetics and custom-designed or fabricated orthotics, and is certified by

464

the American Board for Certification in Orthotics

and Prosthetics, Inc. or by the Board for Orthotist/

Prosthetist Certification, or is credentialed and approved by a program that the Secretary determines, in consultation with appropriate experts in

orthotics and prosthetics, has training and education standards that are necessary to provide

such prosthetics and orthotics.

‘‘(iv) QUALIFIED SUPPLIER DEFINED.—In this subparagraph, the term ‘qualified supplier’ means any entity that is accredited by the American Board for Certification in Orthotics and Prosthetics, Inc. or by the

Board for Orthotist/Prosthetist Certification, or accredited and approved by a program that the Secretary determines has accreditation and approval standards

that are essentially equivalent to those of such Board.’’.

(b) EFFECTIVE DATE.—Not later than 1 year after the date of

the enactment of this Act, the Secretary of Health and Human Services shall promulgate revised regulations to carry out the amendment made by subsection (a) using a negotiated rulemaking process

under subchapter III of chapter 5 of title 5, United States Code.

(c) GAO STUDY AND REPORT.— (1) STUDY.—The Comptroller General of the United States

shall conduct a study on HCFA Ruling 96–1, issued on September 1, 1996, with respect to distinguishing orthotics from

durable medical equipment under the medicare program under

title XVIII of the Social Security Act. The study shall assess the

following matters:

(A) The compliance of the Secretary of Health and

Human Services with the Administrative Procedures Act

(under chapter 5 of title 5, United States Code) in making

such ruling.

(B) The potential impact of such ruling on the health

care furnished to medicare beneficiaries under the medicare

program, especially those beneficiaries with degenerative

musculoskeletal conditions.

(C) The potential for fraud and abuse under the medicare program if payment were provided for orthotics used

as a component of durable medical equipment only when

made under the special payment provision for certain prosthetics and custom fabricated orthotics under section

1834(h)(1)(F) of the Social Security Act, as added by subsection (a) and furnished by qualified practitioners under

that section.

(D) The impact on payments under titles XVIII and

XIX of the Social Security Act if such ruling were overturned.

(2) REPORT.—Not later than 6 months after the date of the

enactment of this Act, the Comptroller General shall submit to

Congress a report on the study conducted under paragraph (1).

SEC. 428. REPLACEMENT OF PROSTHETIC DEVICES AND PARTS.

(a) IN GENERAL.—Section 1834(h)(1) (42 U.S.C. 1395m(h)(1)),

as amended by section 427(a), is further amended by adding at the

end the following new subparagraph:

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‘‘(G) REPLACEMENT OF PROSTHETIC DEVICES AND

PARTS.—

‘‘(i) IN GENERAL.—Payment shall be made for the

replacement of prosthetic devices which are artificial

limbs, or for the replacement of any part of such devices, without regard to continuous use or useful lifetime restrictions if an ordering physician determines

that the provision of a replacement device, or a replacement part of such a device, is necessary because of any

of the following:

‘‘(I) A change in the physiological condition of

the patient.

‘‘(II) An irreparable change in the condition of

the device, or in a part of the device.

‘‘(III) The condition of the device, or the part

of the device, requires repairs and the cost of such

repairs would be more than 60 percent of the cost

of a replacement device, or, as the case may be, of

the part being replaced.

‘‘(ii) CONFIRMATION MAY BE REQUIRED IF REPLACEMENT DEVICE OR PART IS LESS THAN 3 YEARS OLD.—If

a physician determines that a replacement device, or a

replacement part, is necessary pursuant to clause (i)—

‘‘(I) such determination shall be controlling;

and

‘‘(II) such replacement device or part shall be

deemed to be reasonable and necessary for purposes of section 1862(a)(1)(A);

except that if the device, or part, being replaced is less

than 3 years old (calculated from the date on which the

beneficiary began to use the device or part), the Secretary may also require confirmation of necessity of the

replacement device, or, as the case may be, the replacement part.’’.

(b) PREEMPTION OF RULE.—The provisions of section

1834(h)(1)(G) as added by subsection (a) shall supersede any rule

that as of the date of the enactment of this Act may have applied

a 5-year replacement rule with regard to prosthetic devices.

(c) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to items replaced on or after April 1, 2001.

SEC. 429. REVISED PART B PAYMENT FOR DRUGS AND BIOLOGICALS

AND RELATED SERVICES.

(a) RECOMMENDATIONS FOR REVISED PAYMENT METHODOLOGY

FOR DRUGS AND BIOLOGICALS.—

(1) STUDY.—

(A) IN GENERAL.—The Comptroller General of the

United States shall conduct a study on the reimbursement

for drugs and biologicals under the current medicare payment methodology (provided under section 1842(o) of the

Social Security Act (42 U.S.C. 1395u(o)) and for related

services under part B of title XVIII of such Act. In the

study, the Comptroller General shall—

466

(i) identify the average prices at which such drugs

and biologicals are acquired by physicians and other

suppliers;

(ii) quantify the difference between such average

prices and the reimbursement amount under such section; and

(iii) determine the extent to which (if any) payment

under such part is adequate to compensate physicians,

providers of services, or other suppliers of such drugs

and biologicals for costs incurred in the administration, handling, or storage of such drugs or biologicals.

(B) CONSULTATION.—In conducting the study under

subparagraph (A), the Comptroller General shall consult

with physicians, providers of services, and suppliers of

drugs and biologicals under the medicare program under

title XVIII of such Act, as well as other organizations involved in the distribution of such drugs and biologicals to

such physicians, providers of services, and suppliers.

(2) REPORT.—Not later than 9 months after the date of the

enactment of this Act, the Comptroller General shall submit to

Congress and to the Secretary of Health and Human Services

a report on the study conducted under this subsection, and

shall include in such report recommendations for revised payment methodologies described in paragraph (3).

(3) RECOMMENDATIONS FOR REVISED PAYMENT METHODOLOGIES.—

(A) IN GENERAL.—The Comptroller General shall provide specific recommendations for revised payment methodologies for reimbursement for drugs and biologicals and

for related services under the medicare program. The

Comptroller General may include in the

recommendations—

(i) proposals to make adjustments under subsection

(c) of section 1848 of the Social Security Act (42 U.S.C.

1395w–4) for the practice expense component of the

physician fee schedule under such section for the costs

incurred in the administration, handling, or storage of

certain categories of such drugs and biologicals, if appropriate; and

(ii) proposals for new payments to providers of

services or suppliers for such costs, if appropriate.

(B) ENSURING PATIENT ACCESS TO CARE.—In making

recommendations under this paragraph, the Comptroller

General shall ensure that any proposed revised payment

methodology is designed to ensure that medicare beneficiaries continue to have appropriate access to health care

services under the medicare program.

(C) MATTERS CONSIDERED.—In making recommendations under this paragraph, the Comptroller General shall

consider—

(i) the method and amount of reimbursement for

similar drugs and biologicals made by large group

health plans;

467

(ii) as a result of any revised payment methodology, the potential for patients to receive inpatient or

outpatient hospital services in lieu of services in a physician’s office; and

(iii) the effect of any revised payment methodology

on the delivery of drug therapies by hospital outpatient

departments.

(D) COORDINATION WITH BBRA STUDY.—In making recommendations under this paragraph, the Comptroller General shall conclude and take into account the results of the

study provided for under section 213(a) of BBRA (113 Stat.

1501A–350).

(b) IMPLEMENTATION OF NEW PAYMENT METHODOLOGY.— (1) IN GENERAL.—Notwithstanding any other provision of

law, based on the recommendations contained in the report

under subsection (a), the Secretary of Health and Human Services, subject to paragraph (2), shall revise the payment methodology under section 1842(o) of the Social Security Act (42 U.S.C.

1395u(o)) for drugs and biologicals furnished under part B of

the medicare program. To the extent the Secretary determines

appropriate, the Secretary may provide for the adjustments to

payments amounts referred to in subsection (a)(3)(A)(i) or additional payments referred to in subsection (a)(2)(A)(ii).

(2) LIMITATION.—In revising the payment methodology

under paragraph (1), in no case may the estimated aggregate

payments for drugs and biologicals under the revised system

(including additional payments referred to in subsection

(a)(3)(A)(ii)) exceed the aggregate amount of payment for such

drugs and biologicals, as projected by the Secretary, that would

have been made under the payment methodology in effect under

such section 1842(o).

(c) TEMPORARY INJUNCTION AGAINST REDUCTIONS IN PAYMENT

RATES.—Notwithstanding any other provision of law, the Administrator of the Health Care Financing Administration may not directly or indirectly increase or decrease the rates of reimbursement

(in effect on September 1, 2000) for drugs and biologicals under the

current medicare payment methodology (provided under section

1842(o) of such Act (42 U.S.C. 1395u(o)) until such time as the Secretary has reviewed the report submitted under subsection (a)(2).

SEC. 430. CONTRAST ENHANCED DIAGNOSTIC PROCEDURES UNDER

HOSPITAL PROSPECTIVE PAYMENT SYSTEM.

(a) SEPARATE CLASSIFICATION.—Section 1833(t)(2) (42 U.S.C.

1395l(t)(2)) is amended—

(1) by striking ‘‘and’’ at the end of subparagraph (E);

(2) by striking the period at the end of subparagraph (F)

and inserting ‘‘; and’’; and

(3) by inserting after subparagraph (F) the following new

subparagraph:

‘‘(G) the Secretary shall create additional groups of covered OPD services that classify separately those procedures

that utilize contrast media from those that do not.’’.

(b) CONFORMING AMENDMENT.—Section 1861(t)(1) (42 U.S.C.

1395x(t)(1)) is amended by inserting ‘‘(including contrast agents)’’

after ‘‘only such drugs’’.

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(c) EFFECTIVE DATE.—The amendments made by this section

apply to items and services furnished on or after January 1, 2001.

SEC. 431. QUALIFICATIONS FOR COMMUNITY MENTAL HEALTH CENTERS.

(a) MEDICARE PROGRAM.—Section 1861(ff)(3)(B) (42 U.S.C.

1395x(ff)(3)(B)) is amended by striking ‘‘entity’’ and all that follows

and inserting the following: ‘‘entity that—

‘‘(i)(I) provides the mental health services described in section 1913(c)(1) of the Public Health Service Act; or

‘‘(II) in the case of an entity operating in a State that by

law precludes the entity from providing itself the service described in subparagraph (E) of such section, provides for such

service by contract with an approved organization or entity (as

determined by the Secretary);

‘‘(ii) meets applicable licensing or certification requirements

for community mental health centers in the State in which it is

located; and

‘‘(iii) meets such additional conditions as the Secretary

shall specify to ensure (I) the health and safety of individuals

being furnished such services, (II) the effective and efficient furnishing of such services, and (III) the compliance of such entity

with the criteria described in section 1931(c)(1) of the Public

Health Service Act.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies with respect to community mental health centers with respect to services furnished on or after the first day of the third

month beginning after the date of the enactment of this Act.

SEC. 432. MODIFICATION OF MEDICARE BILLING REQUIREMENTS FOR

CERTAIN INDIAN PROVIDERS.

(a) IN GENERAL.—Section 1880(a) (42 U.S.C. 1395qq(a)) is

amended by adding at the end the following new sentence: ‘‘A hospital or a free-standing ambulatory care clinic (as defined by the

Secretary), whether operated by the Indian Health Service or by an

Indian tribe or tribal organization (as those terms are defined in

section 4 of the Indian Health Care Improvement Act), shall be eligible for payments for services for which payment is made pursuant

to section 1848, notwithstanding sections 1814(c) and 1835(d), if

and for so long as it meets all of the requirements which are applicable generally to such payments, services, hospitals, and clinics.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to services furnished on or after January 1, 2001.

SEC. 433. GAO STUDY ON COVERAGE OF SURGICAL FIRST ASSISTING

SERVICES OF CERTIFIED REGISTERED NURSE FIRST ASSISTANTS.

(a) STUDY.—The Comptroller General of the United States shall

conduct a study on the effect on the medicare program under title

XVIII of the Social Security Act and on medicare beneficiaries of

coverage under the program of surgical first assisting services of

certified registered nurse first assistants. The Comptroller General

shall consider the following when conducting the study:

(1) Any impact on the quality of care furnished to medicare

beneficiaries by reason of such coverage.

469

(2) Appropriate education and training requirements for

certified registered nurse first assistants who furnish such first

assisting services.

(3) Appropriate rates of payment under the program to such

certified registered nurse first assistants for furnishing such

services, taking into account the costs of compensation, overhead, and supervision attributable to certified registered nurse

first assistants.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Comptroller General shall submit to Congress

a report on the study conducted under subsection (a).

SEC. 434. MEDPAC STUDY AND REPORT ON MEDICARE REIMBURSEMENT FOR SERVICES PROVIDED BY CERTAIN PROVIDERS.

(a) STUDY.—The Medicare Payment Advisory Commission shall

conduct a study on the appropriateness of the current payment rates

under the medicare program under title XVIII of the Social Security

Act for services provided by a—

(1) certified nurse-midwife (as defined in subsection (gg)(2)

of section 1861 of such Act (42 U.S.C. 1395x);

(2) physician assistant (as defined in subsection (aa)(5)(A)

of such section);

(3) nurse practitioner (as defined in such subsection); and

(4) clinical nurse specialist (as defined in subsection

(aa)(5)(B) of such section).

(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Commission shall submit to Congress a report on the study conducted under subsection (a), together with any

recommendations for legislation that the Commission determines to

be appropriate as a result of such study.

SEC. 435. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF

SERVICES PROVIDED BY CERTAIN NONPHYSICIAN PROVIDERS.

(a) STUDY.— (1) IN GENERAL.—The Medicare Payment Advisory Commission shall conduct a study to determine the appropriateness

of providing coverage under the medicare program under title

XVIII of the Social Security Act for services provided by a—

(A) surgical technologist;

(B) marriage counselor;

(C) marriage and family therapist;

(D) pastoral care counselor; and

(E) licensed professional counselor of mental health.

(2) COSTS TO PROGRAM.—The study shall consider the

short-term and long-term benefits, and costs to the medicare

program, of providing the coverage described in paragraph (1).

(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Commission shall submit to Congress a report on the study conducted under subsection (a), together with any

recommendations for legislation that the Commission determines to

be appropriate as a result of such study.

SEC. 436. GAO STUDY AND REPORT ON THE COSTS OF EMERGENCY

AND MEDICAL TRANSPORTATION SERVICES.

(a) STUDY.—The Comptroller General of the United States shall

conduct a study on the costs of providing emergency and medical

470

transportation services across the range of acuity levels of conditions

for which such transportation services are provided.

(b) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Comptroller General shall submit to Congress a report on the study conducted under subsection (a), together

with recommendations for any changes in methodology or payment

level necessary to fairly compensate suppliers of emergency and

medical transportation services and to ensure the access of beneficiaries under the medicare program under title XVIII of the Social

Security Act.

SEC. 437. GAO STUDIES AND REPORTS ON MEDICARE PAYMENTS.

(a) GAO STUDY ON HCFA POST-PAYMENT AUDIT PROCESS.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study on the post-payment audit process under

the medicare program under title XVIII of the Social Security

Act as such process applies to physicians, including the proper

level of resources that the Health Care Financing Administration should devote to educating physicians regarding—

(A) coding and billing;

(B) documentation requirements; and

(C) the calculation of overpayments.

(2) REPORT.—Not later than 18 months after the date of the

enactment of this Act, the Comptroller General shall submit to

Congress a report on the study conducted under paragraph (1)

together with specific recommendations for changes or improvements in the post-payment audit process described in such

paragraph.

(b) GAO STUDY ON ADMINISTRATION AND OVERSIGHT.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study on the aggregate effects of regulatory,

audit, oversight, and paperwork burdens on physicians and

other health care providers participating in the medicare program under title XVIII of the Social Security Act.

(2) REPORT.—Not later than 18 months after the date of the

enactment of this Act, the Comptroller General shall submit to

Congress a report on the study conducted under paragraph (1)

together with recommendations regarding any area in which—

(A) a reduction in paperwork, an ease of administration, or an appropriate change in oversight and review may

be accomplished; or

(B) additional payments or education are needed to assist physicians and other health care providers in understanding and complying with any legal or regulatory requirements.

SEC. 438. MEDPAC STUDY ON ACCESS TO OUTPATIENT PAIN MANAGEMENT SERVICES.

(a) STUDY.—The Medicare Payment Advisory Commission shall

conduct a study on the barriers to coverage and payment for outpatient interventional pain medicine procedures under the medicare

program under title XVIII of the Social Security Act. Such study

shall examine—

(1) the specific barriers imposed under the medicare program on the provision of pain management procedures in hosVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00474 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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pital outpatient departments, ambulatory surgery centers, and

physicians’ offices; and

(2) the consistency of medicare payment policies for pain

management procedures in those different settings.

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Commission shall submit to Congress a report

on the study.

TITLE V—PROVISIONS RELATING TO

PARTS A AND B

Subtitle A—Home Health Services

SEC. 501. 1-YEAR ADDITIONAL DELAY IN APPLICATION OF 15 PERCENT

REDUCTION ON PAYMENT LIMITS FOR HOME HEALTH

SERVICES.

(a) IN GENERAL.—Section 1895(b)(3)(A)(i) (42 U.S.C.

1395fff(b)(3)(A)(i)) is amended—

(1) by redesignating subclause (II) as subclause (III);

(2) in subclause (III), as redesignated, by striking ‘‘described in subclause (I)’’ and inserting ‘‘described in subclause

(II)’’; and

(3) by inserting after subclause (I) the following new subclause:

‘‘(II) For the 12-month period beginning after

the period described in subclause (I), such amount

(or amounts) shall be equal to the amount (or

amounts) determined under subclause (I), updated

under subparagraph (B).’’.

(b) CHANGE IN REPORT.—Section 302(c) of BBRA (113 Stat.

1501A–360) is amended—

(1) by striking ‘‘Not later than’’ and all that follows through

‘‘(42 U.S.C. 1395fff)’’ and inserting ‘‘Not later than April 1,

2002’’; and

(2) by striking ‘‘Secretary’’ and inserting ‘‘Comptroller General of the United States’’.

(c) CASE MIX ADJUSTMENT CORRECTIONS.—

(1) IN GENERAL.—Section 1895(b)(3)(B) (42 U.S.C.

1395fff(b)(3)(B)) is amended by adding at the end the following

new clause:

‘‘(iv) ADJUSTMENT FOR CASE MIX CHANGES.—Insofar as the Secretary determines that the adjustments

under paragraph (4)(A)(i) for a previous fiscal year (or

estimates that such adjustments for a future fiscal

year) did (or are likely to) result in a change in aggregate payments under this subsection during the fiscal

year that are a result of changes in the coding or classification of different units of services that do not reflect real changes in case mix, the Secretary may adjust

the standard prospective payment amount (or amounts)

under paragraph (3) for subsequent fiscal years so as

to eliminate the effect of such coding or classification

changes.’’.

472

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies to episodes concluding on or after October 1, 2001.

SEC. 502. RESTORATION OF FULL HOME HEALTH MARKET BASKET UPDATE FOR HOME HEALTH SERVICES FOR FISCAL YEAR

2001.

(a) IN GENERAL.—Section 1861(v)(1)(L)(x) (42 U.S.C.

1395x(v)(1)(L)(x)) is amended—

(1) by striking ‘‘2001,’’; and

(2) by adding at the end the following: ‘‘With respect to cost

reporting periods beginning during fiscal year 2001, the update

to any limit under this subparagraph shall be the home health

market basket index.’’.

(b) SPECIAL RULE FOR PAYMENT FOR FISCAL YEAR 2001 BASED

ON ADJUSTED PROSPECTIVE PAYMENT AMOUNTS.—

(1) IN GENERAL.—Notwithstanding the amendments made

by subsection (a), for purposes of making payments under section 1895(b) of the Social Security Act (42 U.S.C. 1395fff(b)) for

home health services for fiscal year 2001, the Secretary of

Health and Human Services shall—

(A) with respect to episodes and visits ending on or

after October 1, 2000, and before April 1, 2001, use the

final standardized and budget neutral prospective payment

amounts for 60 day episodes and standardized average per

visit amounts for fiscal year 2001 as published by the Secretary in the Federal Register of the July 3, 2000 (65 Federal Register 41128–41214); and

(B) with respect to episodes and visits ending on or

after April 1, 2001, and before October 1, 2001, use such

amounts increased by 2.2 percent.

(2) NO EFFECT ON OTHER PAYMENTS OR DETERMINATIONS.—

The Secretary shall not take the provisions of paragraph (1)

into account for purposes of payments, determinations, or budget neutrality adjustments under section 1895 of the Social Security Act.

SEC. 503. TEMPORARY TWO-MONTH EXTENSION OF PERIODIC INTERIM

PAYMENTS.

(a) TEMPORARY EXTENSION.—Notwithstanding subsection (d) of

section 4603 of BBA (42 U.S.C. 1395fff note), as amended by section

5101(c)(2) of the Tax and Trade Relief Extension Act of 1998 (contained in division J of Public Law 105–277)), the amendments

made by subsection (b) of such section 4603 shall not take effect

until December 1, 2000, in the case of a home health agency that

was receiving periodic interim payments under section 1815(e)(2) as

of September 30, 2000.

(b) PAYMENT RULE.—The amount of such periodic interim payment made to a home health agency by reason of subsection (a) during each of November and December, 2000, shall be equal to the

amount of such payment made to the agency in their last full

monthly periodic interim payment. Such amount of payment shall

be included in the tentative settlement of the last cost report for the

home health agency under the payment system in effect prior to the

implementation of the prospective payment system under section

1895(b) of the Social Security Act (42 U.S.C. 1395fff(b)).

473

SEC. 504. USE OF TELEHEALTH IN DELIVERY OF HOME HEALTH SERVICES.

Section 1895 (42 U.S.C. 1395fff) is amended by adding at the

end the following new subsection:

‘‘(e) CONSTRUCTION RELATED TO HOME HEALTH SERVICES.—

‘‘(1) TELECOMMUNICATIONS.—Nothing in this section shall

be construed as preventing a home health agency furnishing a

home health unit of service for which payment is made under

the prospective payment system established by this section for

such units of service from furnishing services via a telecommunication system if such services—

‘‘(A) do not substitute for in-person home health services ordered as part of a plan of care certified by a physician pursuant to section 1814(a)(2)(C) or section

1835(a)(2)(A); and

‘‘(B) are not considered a home health visit for purposes of eligibility or payment under this title.

‘‘(2) PHYSICIAN CERTIFICATION.—Nothing in this section

shall be construed as waiving the requirement for a physician

certification under section 1814(a)(2)(C) or section 1835(a)(2)(A)

of such Act (42 U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) for the

payment for home health services, whether or not furnished via

a telecommunications system.’’.

SEC. 505. STUDY ON COSTS TO HOME HEALTH AGENCIES OF PURCHASING NONROUTINE MEDICAL SUPPLIES.

(a) STUDY.—The Comptroller General of the United States shall

conduct a study on variations in prices paid by home health agencies furnishing home health services under the medicare program

under title XVIII of the Social Security Act in purchasing nonroutine medical supplies, including ostomy supplies, and volumes if

such supplies used, shall determine the effect (if any) of variations

on prices and volumes in the provision of such services.

(b) REPORT.—Not later than October 1, 2001, the Comptroller

General shall submit to Congress a report on the study conducted

under subsection (a), and shall include in the report recommendations respecting whether payment for nonroutine medical supplies

furnished in connection with home health services should be made

separately from the prospective payment system for such services.

SEC. 506. TREATMENT OF BRANCH OFFICES; GAO STUDY ON SUPERVISION OF HOME HEALTH CARE PROVIDED IN ISOLATED

RURAL AREAS.

(a) TREATMENT OF BRANCH OFFICES.—

(1) IN GENERAL.—Notwithstanding any other provision of

law, in determining for purposes of title XVIII of the Social Security Act whether an office of a home health agency constitutes

a branch office or a separate home health agency, neither the

time nor distance between a parent office of the home health

agency and a branch office shall be the sole determinant of a

home health agency’s branch office status.

(2) CONSIDERATION OF FORMS OF TECHNOLOGY IN DEFINITION OF SUPERVISION.—The Secretary of Health and Human

Services may include forms of technology in determining what

constitutes ‘‘supervision’’ for purposes of determining a home

heath agency’s branch office status under paragraph (1).

474

(b) GAO STUDY.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study of the provision of adequate supervision

to maintain quality of home health services delivered under the

medicare program under title XVIII of the Social Security Act

in isolated rural areas. The study shall evaluate the methods

that home health agency branches and subunits use to maintain adequate supervision in the delivery of services to clients

residing in those areas, how these methods of supervision compare to requirements that subunits independently meet medicare conditions of participation, and the resources utilized by

subunits to meet such conditions.

(2) REPORT.—Not later than January 1, 2002, the Comptroller General shall submit to Congress a report on the study

conducted under paragraph (1). The report shall include recommendations on whether exceptions are needed for subunits

and branches of home health agencies under the medicare program to maintain access to the home health benefit or whether

alternative policies should be developed to assure adequate supervision and access and recommendations on whether a national standard for supervision is appropriate.

SEC. 507. CLARIFICATION OF THE HOMEBOUND DEFINITION UNDER

THE MEDICARE HOME HEALTH BENEFIT.

(a) CLARIFICATION.—

(1) IN GENERAL.—Sections 1814(a) and 1835(a) (42 U.S.C.

1395f(a) and 1395n(a)) are each amended—

(A) in the last sentence, by striking ‘‘, and that absences

of the individual from home are infrequent or of relatively

short duration, or are attributable to the need to receive

medical treatment’’; and

(B) by adding at the end the following new sentences:

‘‘Any absence of an individual from the home attributable

to the need to receive health care treatment, including regular absences for the purpose of participating in therapeutic, psychosocial, or medical treatment in an adult daycare program that is licensed or certified by a State, or accredited, to furnish adult day-care services in the State

shall not disqualify an individual from being considered to

be ‘confined to his home’. Any other absence of an individual from the home shall not so disqualify an individual

if the absence is of infrequent or of relatively short duration. For purposes of the preceding sentence, any absence

for the purpose of attending a religious service shall be

deemed to be an absence of infrequent or short duration.’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall apply to items and services provided on or after

the date of enactment of this Act.

(b) STUDY.—

(1) IN GENERAL.—The Comptroller General of the United

States shall conduct an evaluation of the effect of the amendment on the cost of and access to home health services under

the medicare program under title XVIII of the Social Security

Act.

475

(2) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Comptroller General shall submit to

Congress a report on the study conducted under paragraph (1).

Subtitle B—Direct Graduate Medical

Education

SEC. 511. INCREASE IN FLOOR FOR DIRECT GRADUATE MEDICAL EDUCATION PAYMENTS.

Section 1886(h)(2)(D)(iii) (42 U.S.C. 1395ww(h)(2)(D)(iii)) is

amended—

(1) in the heading, by striking ‘‘IN FISCAL YEAR 2001 AT 70

PERCENT OF’’ and inserting ‘‘FOR’’; and

(2) by inserting after ‘‘70 percent’’ the following: ‘‘, and for

the cost reporting period beginning during fiscal year 2002

shall not be less than 85 percent,’’.

SEC. 512. CHANGE IN DISTRIBUTION FORMULA FOR

MEDICARE+CHOICE-RELATED NURSING AND ALLIED

HEALTH EDUCATION COSTS.

(a) IN GENERAL.—Section 1886(l)(2)(C) (42 U.S.C.

1395ww(l)(2)(C)) is amended by striking all that follows ‘‘multiplied

by’’ and inserting the following: ‘‘the ratio of—

‘‘(i) the product of (I) the Secretary’s estimate of the

ratio of the amount of payments made under section

1861(v) to the hospital for nursing and allied health

education activities for the hospital’s cost reporting period ending in the second preceding fiscal year, to the

hospital’s total inpatient days for such period, and (II)

the total number of inpatient days (as established by

the Secretary) for such period which are attributable to

services furnished to individuals who are enrolled

under a risk sharing contract with an eligible organization under section 1876 and who are entitled to benefits under part A or who are enrolled with a

Medicare+Choice organization under part C; to

‘‘(ii) the sum of the products determined under

clause (i) for such cost reporting periods.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to portions of cost reporting periods occurring on or after

January 1, 2001.

Subtitle C—Changes in Medicare Coverage

and Appeals Process

SEC. 521. REVISIONS TO MEDICARE APPEALS PROCESS.

(a) CONDUCT OF RECONSIDERATIONS OF DETERMINATIONS BY

INDEPENDENT CONTRACTORS.—Section 1869 (42 U.S.C. 1395ff) is

amended to read as follows:

‘‘DETERMINATIONS; APPEALS

‘‘SEC. 1869. (a) INITIAL DETERMINATIONS.—

476

‘‘(1) PROMULGATIONS OF REGULATIONS.—The Secretary

shall promulgate regulations and make initial determinations

with respect to benefits under part A or part B in accordance

with those regulations for the following:

‘‘(A) The initial determination of whether an individual

is entitled to benefits under such parts.

‘‘(B) The initial determination of the amount of benefits

available to the individual under such parts.

‘‘(C) Any other initial determination with respect to a

claim for benefits under such parts, including an initial determination by the Secretary that payment may not be

made, or may no longer be made, for an item or service

under such parts, an initial determination made by a utilization and quality control peer review organization under

section 1154(a)(2), and an initial determination made by

an entity pursuant to a contract (other than a contract

under section 1852) with the Secretary to administer provisions of this title or title XI.

‘‘(2) DEADLINES FOR MAKING INITIAL DETERMINATIONS.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), in promulgating regulations under paragraph (1), initial determinations shall be concluded by not later than the 45-day

period beginning on the date the fiscal intermediary or the

carrier, as the case may be, receives a claim for benefits

from an individual as described in paragraph (1). Notice of

such determination shall be mailed to the individual filing

the claim before the conclusion of such 45-day period.

‘‘(B) CLEAN CLAIMS.—Subparagraph (A) shall not

apply with respect to any claim that is subject to the requirements of section 1816(c)(2) or section 1842(c)(2).

‘‘(3) REDETERMINATIONS.—

‘‘(A) IN GENERAL.—In promulgating regulations under

paragraph (1) with respect to initial determinations, such

regulations shall provide for a fiscal intermediary or a carrier to make a redetermination with respect to a claim for

benefits that is denied in whole or in part.

‘‘(B) LIMITATIONS.—

‘‘(i) APPEALS RIGHTS.—No initial determination

may be reconsidered or appealed under subsection (b)

unless the fiscal intermediary or carrier has made a redetermination of that initial determination under this

paragraph.

‘‘(ii) DECISION MAKER.—No redetermination may

be made by any individual involved in the initial determination.

‘‘(C) DEADLINES.—

‘‘(i) FILING FOR REDETERMINATION.—A redetermination under subparagraph (A) shall be available

only if notice is filed with the Secretary to request the

redetermination by not later than the end of the 120-

day period beginning on the date the individual receives notice of the initial determination under paragraph (2).

477

‘‘(ii) CONCLUDING REDETERMINATIONS.—Redeterminations shall be concluded by not later than the 30-day period

beginning on the date the fiscal intermediary or the carrier,

as the case may be, receives a request for a redetermination.

Notice of such determination shall be mailed to the individual filing the claim before the conclusion of such 30-day

period.

‘‘(D) CONSTRUCTION.—For purposes of the succeeding

provisions of this section a redetermination under this

paragraph shall be considered to be part of the initial determination.

‘‘(b) APPEAL RIGHTS.—

‘‘(1) IN GENERAL.—

‘‘(A) RECONSIDERATION OF INITIAL DETERMINATION.—

Subject to subparagraph (D), any individual dissatisfied

with any initial determination under subsection (a)(1) shall

be entitled to reconsideration of the determination, and,

subject to subparagraphs (D) and (E), a hearing thereon by

the Secretary to the same extent as is provided in section

205(b) and to judicial review of the Secretary’s final decision after such hearing as is provided in section 205(g). For

purposes of the preceding sentence, any reference to the

‘Commissioner of Social Security’ or the ‘Social Security

Administration’ in subsection (g) or (l) of section 205 shall

be considered a reference to the ‘Secretary’ or the ‘Department of Health and Human Services’, respectively.

‘‘(B) REPRESENTATION BY PROVIDER OR SUPPLIER.—

‘‘(i) IN GENERAL.—Sections 206(a), 1102, and 1871

shall not be construed as authorizing the Secretary to

prohibit an individual from being represented under

this section by a person that furnishes or supplies the

individual, directly or indirectly, with services or

items, solely on the basis that the person furnishes or

supplies the individual with such a service or item.

‘‘(ii) MANDATORY WAIVER OF RIGHT TO PAYMENT

FROM BENEFICIARY.—Any person that furnishes services

or items to an individual may not represent an individual under this section with respect to the issue described in section 1879(a)(2) unless the person has

waived any rights for payment from the beneficiary

with respect to the services or items involved in the appeal.

‘‘(iii) PROHIBITION ON PAYMENT FOR REPRESENTATION.—If a person furnishes services or items to an individual and represents the individual under this section, the person may not impose any financial liability

on such individual in connection with such representation.

‘‘(iv) REQUIREMENTS FOR REPRESENTATIVES OF A

BENEFICIARY.—The provisions of section 205(j) and section 206 (other than subsection (a)(4) of such section)

regarding representation of claimants shall apply to

representation of an individual with respect to appeals

478

under this section in the same manner as they apply to

representation of an individual under those sections.

‘‘(C) SUCCESSION OF RIGHTS IN CASES OF ASSIGN- MENT.—The right of an individual to an appeal under this

section with respect to an item or service may be assigned

to the provider of services or supplier of the item or service

upon the written consent of such individual using a standard form established by the Secretary for such an assignment.

‘‘(D) TIME LIMITS FOR FILING APPEALS.— ‘‘(i) RECONSIDERATIONS.—Reconsideration under

subparagraph (A) shall be available only if the individual described in subparagraph (A) files notice with

the Secretary to request reconsideration by not later

than the end of the 180-day period beginning on the

date the individual receives notice of the redetermination under subsection (a)(3), or within such additional

time as the Secretary may allow.

‘‘(ii) HEARINGS CONDUCTED BY THE SECRETARY.— The Secretary shall establish in regulations time limits

for the filing of a request for a hearing by the Secretary

in accordance with provisions in sections 205 and 206.

‘‘(E) AMOUNTS IN CONTROVERSY.—

‘‘(i) IN GENERAL.—A hearing (by the Secretary)

shall not be available to an individual under this section if the amount in controversy is less than $100, and

judicial review shall not be available to the individual

if the amount in controversy is less than $1,000.

‘‘(ii) AGGREGATION OF CLAIMS.—In determining the

amount in controversy, the Secretary, under regulations, shall allow two or more appeals to be aggregated

if the appeals involve—

‘‘(I) the delivery of similar or related services

to the same individual by one or more providers of

services or suppliers, or

‘‘(II) common issues of law and fact arising

from services furnished to two or more individuals

by one or more providers of services or suppliers.

‘‘(F) EXPEDITED PROCEEDINGS.—

‘‘(i) EXPEDITED DETERMINATION.—In the case of an

individual who has received notice by a provider of

services that the provider of services plans—

‘‘(I) to terminate services provided to an individual and a physician certifies that failure to continue the provision of such services is likely to

place the individual’s health at significant risk, or

‘‘(II) to discharge the individual from the provider of services,

the individual may request, in writing or orally, an expedited determination or an expedited reconsideration

of an initial determination made under subsection

(a)(1), as the case may be, and the Secretary shall provide such expedited determination or expedited reconsideration.

479

‘‘(ii) EXPEDITED HEARING.—In a hearing by the

Secretary under this section, in which the moving party

alleges that no material issues of fact are in dispute,

the Secretary shall make an expedited determination as

to whether any such facts are in dispute and, if not,

shall render a decision expeditiously.

‘‘(G) REOPENING AND REVISION OF DETERMINATIONS.—

The Secretary may reopen or revise any initial determination or reconsidered determination described in this subsection under guidelines established by the Secretary in

regulations.

‘‘(c) CONDUCT OF RECONSIDERATIONS BY INDEPENDENT CONTRACTORS.—

‘‘(1) IN GENERAL.—The Secretary shall enter into contracts

with qualified independent contractors to conduct reconsiderations of initial determinations made under subparagraphs (B)

and (C) of subsection (a)(1). Contracts shall be for an initial

term of three years and shall be renewable on a triennial basis

thereafter.

‘‘(2) QUALIFIED INDEPENDENT CONTRACTOR.—For purposes

of this subsection, the term ‘qualified independent contractor’

means an entity or organization that is independent of any organization under contract with the Secretary that makes initial

determinations under subsection (a)(1), and that meets the requirements established by the Secretary consistent with paragraph (3).

‘‘(3) REQUIREMENTS.—Any qualified independent contractor

entering into a contract with the Secretary under this subsection shall meet the all of the following requirements:

‘‘(A) IN GENERAL.—The qualified independent contractor shall perform such duties and functions and assume such responsibilities as may be required by the Secretary to carry out the provisions of this subsection, and

shall have sufficient training and expertise in medical

science and legal matters to make reconsiderations under

this subsection.

‘‘(B) RECONSIDERATIONS.—

‘‘(i) IN GENERAL.—The qualified independent contractor shall review initial determinations. In the case

an initial determination made with respect to whether

an item or service is reasonable and necessary for the

diagnosis or treatment of illness or injury (under section 1862(a)(1)(A)), such review shall include consideration of the facts and circumstances of the initial determination by a panel of physicians or other appropriate

health care professionals and any decisions with respect to the reconsideration shall be based on applicable information, including clinical experience and medical, technical, and scientific evidence.

‘‘(ii) EFFECT OF NATIONAL AND LOCAL COVERAGE

DETERMINATIONS.—

‘‘(I) NATIONAL COVERAGE DETERMINATIONS.—If

the Secretary has made a national coverage determination pursuant to the requirements established

480

under the third sentence of section 1862(a), such

determination shall be binding on the qualified

independent contractor in making a decision with

respect to a reconsideration under this section.

‘‘(II) LOCAL COVERAGE DETERMINATIONS.—If

the Secretary has made a local coverage determination, such determination shall not be binding

on the qualified independent contractor in making

a decision with respect to a reconsideration under

this section. Notwithstanding the previous sentence, the qualified independent contractor shall

consider the local coverage determination in making such decision.

‘‘(III) ABSENCE OF NATIONAL OR LOCAL COVERAGE DETERMINATION.—In the absence of such a

national coverage determination or local coverage

determination, the qualified independent contractor shall make a decision with respect to the

reconsideration based on applicable information,

including clinical experience and medical, technical, and scientific evidence.

‘‘(C) DEADLINES FOR DECISIONS.—

‘‘(i) RECONSIDERATIONS.—Except as provided in

clauses (iii) and (iv), the qualified independent contractor shall conduct and conclude a reconsideration

under subparagraph (B), and mail the notice of the decision with respect to the reconsideration by not later

than the end of the 30-day period beginning on the

date a request for reconsideration has been timely filed.

‘‘(ii) CONSEQUENCES OF FAILURE TO MEET DEADLINE.—In the case of a failure by the qualified independent contractor to mail the notice of the decision by

the end of the period described in clause (i) or to provide notice by the end of the period described in clause

(iii), as the case may be, the party requesting the reconsideration or appeal may request a hearing before the

Secretary, notwithstanding any requirements for a reconsidered determination for purposes of the party’s

right to such hearing.

‘‘(iii) EXPEDITED RECONSIDERATIONS.—The qualified independent contractor shall perform an expedited

reconsideration under subsection (b)(1)(F) as follows:

‘‘(I) DEADLINE FOR DECISION.—Notwithstanding section 216(j) and subject to clause (iv),

not later than the end of the 72-hour period beginning on the date the qualified independent contractor has received a request for such reconsideration and has received such medical or other

records needed for such reconsideration, the qualified independent contractor shall provide notice (by

telephone and in writing) to the individual and the

provider of services and attending physician of the

individual of the results of the reconsideration.

Such reconsideration shall be conducted regardless

481

of whether the provider of services or supplier will

charge the individual for continued services or

whether the individual will be liable for payment

for such continued services.

‘‘(II) CONSULTATION WITH BENEFICIARY.—In

such reconsideration, the qualified independent

contractor shall solicit the views of the individual

involved.

‘‘(III) SPECIAL RULE FOR HOSPITAL DISCHARGES.—A reconsideration of a discharge from a

hospital shall be conducted under this clause in

accordance with the provisions of paragraphs (2),

(3), and (4) of section 1154(e) as in effect on the

date that precedes the date of the enactment of this

subparagraph.

‘‘(iv) EXTENSION.—An individual requesting a reconsideration under this subparagraph may be granted

such additional time as the individual specifies (not to

exceed 14 days) for the qualified independent contractor to conclude the reconsideration. The individual

may request such additional time in orally or in writing.

‘‘(D) LIMITATION ON INDIVIDUAL REVIEWING DETERMINATIONS.—

‘‘(i) PHYSICIANS AND HEALTH CARE PROFESSIONAL.—No physician or health care professional

under the employ of a qualified independent contractor

may review—

‘‘(I) determinations regarding health care services furnished to a patient if the physician or

health care professional was directly responsible

for furnishing such services; or

‘‘(II) determinations regarding health care

services provided in or by an institution, organization, or agency, if the physician or any member of

the family of the physician or health care professional has, directly or indirectly, a significant financial interest in such institution, organization,

or agency.

‘‘(ii) FAMILY DESCRIBED.—For purposes of this

paragraph, the family of a physician or health care

professional includes the spouse (other than a spouse

who is legally separated from the physician or health

care professional under a decree of divorce or separate

maintenance), children (including stepchildren and legally adopted children), grandchildren, parents, and

grandparents of the physician or health care professional.

‘‘(E) EXPLANATION OF DECISION.—Any decision with respect to a reconsideration of a qualified independent contractor shall be in writing, and shall include a detailed explanation of the decision as well as a discussion of the pertinent facts and applicable regulations applied in making

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482

er an item or service is reasonable and necessary for the diagnosis or treatment of illness or injury (under section

1862(a)(1)(A)) an explanation of the medical and scientific

rational for the decision.

‘‘(F) NOTICE REQUIREMENTS.—Whenever a qualified

independent contractor makes a decision with respect to a

reconsideration under this subsection, the qualified independent contractor shall promptly notify the entity responsible for the payment of claims under part A or part B of

such decision.

‘‘(G) DISSEMINATION OF DECISIONS ON RECONSIDERATIONS.—Each qualified independent contractor shall make

available all decisions with respect to reconsiderations of

such qualified independent contractors to fiscal intermediaries (under section 1816), carriers (under section

1842), peer review organizations (under part B of title XI),

Medicare+Choice organizations offering Medicare+Choice

plans under part C, other entities under contract with the

Secretary to make initial determinations under part A or

part B or title XI, and to the public. The Secretary shall establish a methodology under which qualified independent

contractors shall carry out this subparagraph.

‘‘(H) ENSURING CONSISTENCY IN DECISIONS.—Each

qualified independent contractor shall monitor its decisions

with respect to reconsiderations to ensure the consistency of

such decisions with respect to requests for reconsideration

of similar or related matters.

‘‘(I) DATA COLLECTION.—

‘‘(i) IN GENERAL.—Consistent with the requirements of clause (ii), a qualified independent contractor

shall collect such information relevant to its functions,

and keep and maintain such records in such form and

manner as the Secretary may require to carry out the

purposes of this section and shall permit access to and

use of any such information and records as the Secretary may require for such purposes.

‘‘(ii) TYPE OF DATA COLLECTED.—Each qualified

independent contractor shall keep accurate records of

each decision made, consistent with standards established by the Secretary for such purpose. Such records

shall be maintained in an electronic database in a

manner that provides for identification of the following:

‘‘(I) Specific claims that give rise to appeals.

‘‘(II) Situations suggesting the need for increased education for providers of services, physicians, or suppliers.

‘‘(III) Situations suggesting the need for

changes in national or local coverage policy.

‘‘(IV) Situations suggesting the need for

changes in local medical review policies.

‘‘(iii) ANNUAL REPORTING.—Each qualified independent contractor shall submit annually to the Secretary (or otherwise as the Secretary may request)

483

records maintained under this paragraph for the previous year.

‘‘(J) HEARINGS BY THE SECRETARY.—The qualified

independent contractor shall (i) prepare such information

as is required for an appeal of a decision of the contractor

with respect to a reconsideration to the Secretary for a

hearing, including as necessary, explanations of issues involved in the decision and relevant policies, and (ii) participate in such hearings as required by the Secretary.

‘‘(4) NUMBER OF QUALIFIED INDEPENDENT CONTRACTORS.—

The Secretary shall enter into contracts with not fewer than 12

qualified independent contractors under this subsection.

‘‘(5) LIMITATION ON QUALIFIED INDEPENDENT CONTRACTOR

LIABILITY.—No qualified independent contractor having a contract with the Secretary under this subsection and no person

who is employed by, or who has a fiduciary relationship with,

any such qualified independent contractor or who furnishes

professional services to such qualified independent contractor,

shall be held by reason of the performance of any duty, function, or activity required or authorized pursuant to this subsection or to a valid contract entered into under this subsection,

to have violated any criminal law, or to be civilly liable under

any law of the United States or of any State (or political subdivision thereof) provided due care was exercised in the performance of such duty, function, or activity.

‘‘(d) DEADLINES FOR HEARINGS BY THE SECRETARY.—

‘‘(1) HEARING BY ADMINISTRATIVE LAW JUDGE.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), an administrative law judge shall conduct and conclude a hearing on a decision of a qualified independent

contractor under subsection (c) and render a decision on

such hearing by not later than the end of the 90-day period

beginning on the date a request for hearing has been timely

filed.

‘‘(B) WAIVER OF DEADLINE BY PARTY SEEKING HEARING.—The 90-day period under subparagraph (A) shall not

apply in the case of a motion or stipulation by the party requesting the hearing to waive such period.

‘‘(2) DEPARTMENTAL APPEALS BOARD REVIEW.—

‘‘(A) IN GENERAL.—The Departmental Appeals Board of

the Department of Health and Human Services shall conduct and conclude a review of the decision on a hearing described in paragraph (1) and make a decision or remand

the case to the administrative law judge for reconsideration

by not later than the end of the 90-day period beginning on

the date a request for review has been timely filed.

‘‘(B) DAB HEARING PROCEDURE.—In reviewing a decision on a hearing under this paragraph, the Departmental

Appeals Board shall review the case de novo.

‘‘(3) CONSEQUENCES OF FAILURE TO MEET DEADLINES.—

‘‘(A) HEARING BY ADMINISTRATIVE LAW JUDGE.—In the

case of a failure by an administrative law judge to render

a decision by the end of the period described in paragraph

(1), the party requesting the hearing may request a review

484

by the Departmental Appeals Board of the Department of

Health and Human Services, notwithstanding any requirements for a hearing for purposes of the party’s right to such

a review.

‘‘(B) DEPARTMENTAL APPEALS BOARD REVIEW.—In the

case of a failure by the Departmental Appeals Board to

render a decision by the end of the period described in

paragraph (2), the party requesting the hearing may seek

judicial review, notwithstanding any requirements for a

hearing for purposes of the party’s right to such judicial review.

‘‘(e) ADMINISTRATIVE PROVISIONS.—

‘‘(1) LIMITATION ON REVIEW OF CERTAIN REGULATIONS.—A

regulation or instruction that relates to a method for determining the amount of payment under part B and that was initially issued before January 1, 1981, shall not be subject to judicial review.

‘‘(2) OUTREACH.—The Secretary shall perform such outreach activities as are necessary to inform individuals entitled

to benefits under this title and providers of services and suppliers with respect to their rights of, and the process for, appeals made under this section. The Secretary shall use the tollfree telephone number maintained by the Secretary under section 1804(b) to provide information regarding appeal rights and

respond to inquiries regarding the status of appeals.

‘‘(3) CONTINUING EDUCATION REQUIREMENT FOR QUALIFIED

INDEPENDENT CONTRACTORS AND ADMINISTRATIVE LAW

JUDGES.—The Secretary shall provide to each qualified independent contractor, and, in consultation with the Commissioner

of Social Security, to administrative law judges that decide appeals of reconsiderations of initial determinations or other decisions or determinations under this section, such continuing education with respect to coverage of items and services under this

title or policies of the Secretary with respect to part B of title

XI as is necessary for such qualified independent contractors

and administrative law judges to make informed decisions with

respect to appeals.

‘‘(4) REPORTS.—

‘‘(A) ANNUAL REPORT TO CONGRESS.—The Secretary

shall submit to Congress an annual report describing the

number of appeals for the previous year, identifying issues

that require administrative or legislative actions, and including any recommendations of the Secretary with respect

to such actions. The Secretary shall include in such report

an analysis of determinations by qualified independent contractors with respect to inconsistent decisions and an analysis of the causes of any such inconsistencies.

‘‘(B) SURVEY.—Not less frequently than every 5 years,

the Secretary shall conduct a survey of a valid sample of

individuals entitled to benefits under this title who have

filed appeals of determinations under this section, providers of services, and suppliers to determine the satisfaction of such individuals or entities with the process for appeals of determinations provided for under this section and

485

education and training provided by the Secretary with respect to that process. The Secretary shall submit to Congress a report describing the results of the survey, and shall

include any recommendations for administrative or legislative actions that the Secretary determines appropriate.’’.

(b) APPLICABILITY OF REQUIREMENTS AND LIMITATIONS ON LI- ABILITY OF QUALIFIED INDEPENDENT CONTRACTORS TO

MEDICARE+CHOICE INDEPENDENT APPEALS CONTRACTORS.—Section

1852(g)(4) (42 U.S.C. 1395w–22(g)(4)) is amended by adding at the

end the following: ‘‘The provisions of section 1869(c)(5) shall apply

to independent outside entities under contract with the Secretary

under this paragraph.’’.

(c) CONFORMING AMENDMENT.—Section 1154(e) (42 U.S.C.

1320c–3(e)) is amended by striking paragraphs (2), (3), and (4).

(d) EFFECTIVE DATE.—The amendments made by this section

apply with respect to initial determinations made on or after October 1, 2002.

SEC. 522. REVISIONS TO MEDICARE COVERAGE PROCESS.

(a) REVIEW OF DETERMINATIONS.—Section 1869 (42 U.S.C.

1395ff), as amended by section 521, is further amended by adding

at the end the following new subsection:

‘‘(f) REVIEW OF COVERAGE DETERMINATIONS.— ‘‘(1) NATIONAL COVERAGE DETERMINATIONS.— ‘‘(A) IN GENERAL.—Review of any national coverage determination shall be subject to the following limitations:

‘‘(i) Such a determination shall not be reviewed by

any administrative law judge.

‘‘(ii) Such a determination shall not be held unlawful or set aside on the ground that a requirement of

section 553 of title 5, United States Code, or section

1871(b) of this title, relating to publication in the Federal Register or opportunity for public comment, was

not satisfied.

‘‘(iii) Upon the filing of a complaint by an aggrieved party, such a determination shall be reviewed

by the Departmental Appeals Board of the Department

of Health and Human Services. In conducting such a

review, the Departmental Appeals Board shall review

the record and shall permit discovery and the taking of

evidence to evaluate the reasonableness of the determination, if the Board determines that the record is incomplete or lacks adequate information to support the

validity of the determination. In reviewing such a determination, the Departmental Appeals Board shall

defer only to the reasonable findings of fact, reasonable

interpretations of law, and reasonable applications of

fact to law by the Secretary.

‘‘(iv) A decision of the Departmental Appeals Board

constitutes a final agency action and is subject to judicial review.

‘‘(B) DEFINITION OF NATIONAL COVERAGE DETERMINATION.—For purposes of this section, the term ‘national coverage determination’ means a determination by the Secretary with respect to whether or not a particular item or

486

service is covered nationally under this title, but does not

include a determination of what code, if any, is assigned to

a particular item or service covered under this title or a determination with respect to the amount of payment made

for a particular item or service so covered.

‘‘(2) LOCAL COVERAGE DETERMINATION.— ‘‘(A) IN GENERAL.—Review of any local coverage determination shall be subject to the following limitations:

‘‘(i) Upon the filing of a complaint by an aggrieved

party, such a determination shall be reviewed by an

administrative law judge of the Social Security Administration. The administrative law judge shall review

the record and shall permit discovery and the taking of

evidence to evaluate the reasonableness of the determination, if the administrative law judge determines

that the record is incomplete or lacks adequate information to support the validity of the determination. In

reviewing such a determination, the administrative law

judge shall defer only to the reasonable findings of

fact, reasonable interpretations of law, and reasonable

applications of fact to law by the Secretary.

‘‘(ii) Upon the filing of a complaint by an aggrieved

party, a decision of an administrative law judge under

clause (i) shall be reviewed by the Departmental Appeals Board of the Department of Health and Human

Services.

‘‘(iii) A decision of the Departmental Appeals

Board constitutes a final agency action and is subject

to judicial review.

‘‘(B) DEFINITION OF LOCAL COVERAGE DETERMINATION.—For purposes of this section, the term ‘local coverage

determination’ means a determination by a fiscal intermediary or a carrier under part A or part B, as applicable,

respecting whether or not a particular item or service is

covered on an intermediary- or carrier-wide basis under

such parts, in accordance with section 1862(a)(1)(A).

‘‘(3) NO MATERIAL ISSUES OF FACT IN DISPUTE.—In the case

of a determination that may otherwise be subject to review

under paragraph (1)(A)(iii) or paragraph (2)(A)(i), where the

moving party alleges that—

‘‘(A) there are no material issues of fact in dispute, and

‘‘(B) the only issue of law is the constitutionality of a

provision of this title, or that a regulation, determination,

or ruling by the Secretary is invalid,

the moving party may seek review by a court of competent jurisdiction without filing a complaint under such paragraph and

without otherwise exhausting other administrative remedies.

‘‘(4) PENDING NATIONAL COVERAGE DETERMINATIONS.—

‘‘(A) IN GENERAL.—In the event the Secretary has not

issued a national coverage or noncoverage determination

with respect to a particular type or class of items or services, an aggrieved person (as described in paragraph (5))

may submit to the Secretary a request to make such a determination with respect to such items or services. By not

487

later than the end of the 90-day period beginning on the

date the Secretary receives such a request (notwithstanding

the receipt by the Secretary of new evidence (if any) during

such 90-day period), the Secretary shall take one of the following actions:

‘‘(i) Issue a national coverage determination, with

or without limitations.

‘‘(ii) Issue a national noncoverage determination.

‘‘(iii) Issue a determination that no national coverage or noncoverage determination is appropriate as

of the end of such 90-day period with respect to national coverage of such items or services.

‘‘(iv) Issue a notice that states that the Secretary

has not completed a review of the request for a national

coverage determination and that includes an identification of the remaining steps in the Secretary’s review

process and a deadline by which the Secretary will

complete the review and take an action described in

subclause (I), (II), or (III).

‘‘(B) In the case of an action described in clause (i)(IV),

if the Secretary fails to take an action referred to in such

clause by the deadline specified by the Secretary under

such clause, then the Secretary is deemed to have taken an

action described in clause (i)(III) as of the deadline.

‘‘(C) When issuing a determination under clause (i), the

Secretary shall include an explanation of the basis for the

determination. An action taken under clause (i) (other than

subclause (IV)) is deemed to be a national coverage determination for purposes of review under subparagraph (A).

‘‘(5) STANDING.—An action under this subsection seeking review of a national coverage determination or local coverage determination may be initiated only by individuals entitled to

benefits under part A, or enrolled under part B, or both, who

are in need of the items or services that are the subject of the

coverage determination.

‘‘(6) PUBLICATION ON THE INTERNET OF DECISIONS OF HEARINGS OF THE SECRETARY.—Each decision of a hearing by the

Secretary with respect to a national coverage determination

shall be made public, and the Secretary shall publish each decision on the Medicare Internet site of the Department of Health

and Human Services. The Secretary shall remove from such decision any information that would identify any individual, provider of services, or supplier.

‘‘(7) ANNUAL REPORT ON NATIONAL COVERAGE DETERMINATIONS.—

‘‘(A) IN GENERAL.—Not later than December 1 of each

year, beginning in 2001, the Secretary shall submit to Congress a report that sets forth a detailed compilation of the

actual time periods that were necessary to complete and

fully implement national coverage determinations that were

made in the previous fiscal year for items, services, or medical devices not previously covered as a benefit under this

title, including, with respect to each new item, service, or

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retary to make and implement the necessary coverage, coding, and payment determinations, including the time taken

to complete each significant step in the process of making

and implementing such determinations.

‘‘(B) PUBLICATION OF REPORTS ON THE INTERNET.—The

Secretary shall publish each report submitted under clause

(i) on the medicare Internet site of the Department of

Health and Human Services.

‘‘(8) CONSTRUCTION.—Nothing in this subsection shall be

construed as permitting administrative or judicial review pursuant to this section insofar as such review is explicitly prohibited or restricted under another provision of law.’’.

(b) ESTABLISHMENT OF A PROCESS FOR COVERAGE DETERMINATIONS.—Section 1862(a) (42 U.S.C. 1395y(a)) is amended by adding

at the end the following new sentence: ‘‘In making a national coverage determination (as defined in paragraph (1)(B) of section

1869(f)) the Secretary shall ensure that the public is afforded notice

and opportunity to comment prior to implementation by the Secretary of the determination; meetings of advisory committees established under section 1114(f) with respect to the determination are

made on the record; in making the determination, the Secretary has

considered applicable information (including clinical experience and

medical, technical, and scientific evidence) with respect to the subject matter of the determination; and in the determination, provide

a clear statement of the basis for the determination (including responses to comments received from the public), the assumptions underlying that basis, and make available to the public the data (other

than proprietary data) considered in making the determination.’’.

(c) IMPROVEMENTS TO THE MEDICARE ADVISORY COMMITTEE

PROCESS.—Section 1114 (42 U.S.C. 1314) is amended by adding at

the end the following new subsection:

‘‘(i)(1) Any advisory committee appointed under subsection (f) to

advise the Secretary on matters relating to the interpretation, application, or implementation of section 1862(a)(1) shall assure the full

participation of a nonvoting member in the deliberations of the advisory committee, and shall provide such nonvoting member access

to all information and data made available to voting members of

the advisory committee, other than information that—

‘‘(A) is exempt from disclosure pursuant to subsection (a) of

section 552 of title 5, United States Code, by reason of subsection (b)(4) of such section (relating to trade secrets); or

‘‘(B) the Secretary determines would present a conflict of interest relating to such nonvoting member.

‘‘(2) If an advisory committee described in paragraph (1) organizes into panels of experts according to types of items or services

considered by the advisory committee, any such panel of experts

may report any recommendation with respect to such items or services directly to the Secretary without the prior approval of the advisory committee or an executive committee thereof.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

apply with respect to—

(1) a review of any national or local coverage determination

filed,

(2) a request to make such a determination made,

489

(3) a national coverage determination made,

on or after October 1, 2001.

Subtitle D—Improving Access to New

Technologies

SEC. 531. REIMBURSEMENT IMPROVEMENTS FOR NEW CLINICAL LABORATORY TESTS AND DURABLE MEDICAL EQUIPMENT.

(a) PAYMENT RULE FOR NEW LABORATORY TESTS.—Section

1833(h)(4)(B)(viii) (42 U.S.C. 1395l(h)(4)(B)(viii)) is amended by inserting before the period at the end the following: ‘‘(or 100 percent

of such median in the case of a clinical diagnostic laboratory test

performed on or after January 1, 2001, that the Secretary determines is a new test for which no limitation amount has previously

been established under this subparagraph)’’.

(b) ESTABLISHMENT OF CODING AND PAYMENT PROCEDURES FOR

NEW CLINICAL DIAGNOSTIC LABORATORY TESTS AND OTHER ITEMS

ON A FEE SCHEDULE.—Not later than 1 year after the date of the

enactment of this Act, the Secretary of Health and Human Services

shall establish procedures for coding and payment determinations

for the categories of new clinical diagnostic laboratory tests and new

durable medical equipment under part B of the title XVIII of the Social Security Act that permit public consultation in a manner consistent with the procedures established for implementing coding

modifications for ICD–9–CM.

(c) REPORT ON PROCEDURES USED FOR ADVANCED, IMPROVED

TECHNOLOGIES.—Not later than 1 year after the date of the enactment of this Act, the Secretary of Health and Human Services shall

submit to Congress a report that identifies the specific procedures

used by the Secretary under part B of title XVIII of the Social Security Act to adjust payments for clinical diagnostic laboratory tests

and durable medical equipment which are classified to existing

codes where, because of an advance in technology with respect to the

test or equipment, there has been a significant increase or decrease

in the resources used in the test or in the manufacture of the equipment, and there has been a significant improvement in the performance of the test or equipment. The report shall include such recommendations for changes in law as may be necessary to assure fair

and appropriate payment levels under such part for such improved

tests and equipment as reflects increased costs necessary to produce

improved results.

SEC. 532. RETENTION OF HCPCS LEVEL III CODES.

(a) IN GENERAL.—The Secretary of Health and Human Services

shall maintain and continue the use of level III codes of the HCPCS

coding system (as such system was in effect on August 16, 2000)

through December 31, 2003, and shall make such codes available to

the public.

(b) DEFINITION.—For purposes of this section, the term ‘‘HCPCS

Level III codes’’ means the alphanumeric codes for local use under

the Health Care Financing Administration Common Procedure Coding System (HCPCS).

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SEC. 533. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT HOSPITAL PPS.

(a) EXPEDITING RECOGNITION OF NEW TECHNOLOGIES INTO INPATIENT PPS CODING SYSTEM.—

(1) REPORT.—Not later than April 1, 2001, the Secretary of

Health and Human Services shall submit to Congress a report

on methods of expeditiously incorporating new medical services

and technologies into the clinical coding system used with respect to payment for inpatient hospital services furnished under

the medicare program under title XVIII of the Social Security

Act, together with a detailed description of the Secretary’s preferred methods to achieve this purpose.

(2) IMPLEMENTATION.—Not later than October 1, 2001, the

Secretary shall implement the preferred methods described in

the report transmitted pursuant to paragraph (1).

(b) ENSURING APPROPRIATE PAYMENTS FOR HOSPITALS INCORPORATING NEW MEDICAL SERVICES AND TECHNOLOGIES.—

(1) ESTABLISHMENT OF MECHANISM.—Section 1886(d)(5) (42

U.S.C. 1395ww(d)(5)) is amended by adding at the end the following new subparagraphs:

‘‘(K)(i) Effective for discharges beginning on or after October 1,

2001, the Secretary shall establish a mechanism to recognize the

costs of new medical services and technologies under the payment

system established under this subsection. Such mechanism shall be

established after notice and opportunity for public comment (in the

publications required by subsection (e)(5) for a fiscal year or otherwise).

‘‘(ii) The mechanism established pursuant to clause (i) shall—

‘‘(I) apply to a new medical service or technology if, based

on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this

subsection is inadequate;

‘‘(II) provide for the collection of data with respect to the

costs of a new medical service or technology described in subclause (I) for a period of not less than two years and not more

than three years beginning on the date on which an inpatient

hospital code is issued with respect to the service or technology;

‘‘(III) subject to paragraph (4)(C)(iii), provide for additional

payment to be made under this subsection with respect to discharges involving a new medical service or technology described

in subclause (I) that occur during the period described in subclause (II) in an amount that adequately reflects the estimated

average cost of such service or technology; and

‘‘(IV) provide that discharges involving such a service or

technology that occur after the close of the period described in

subclause (II) will be classified within a new or existing diagnosis-related group with a weighting factor under paragraph

(4)(B) that is derived from cost data collected with respect to

discharges occurring during such period.

‘‘(iii) For purposes of clause (ii)(II), the term ‘inpatient hospital

code’ means any code that is used with respect to inpatient hospital

services for which payment may be made under this subsection and

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sification of Diseases, 9th Revision, Clinical Modification (‘ICD–9–

CM’) and its subsequent revisions.

‘‘(iv) For purposes of clause (ii)(III), the term ‘additional payment’ means, with respect to a discharge for a new medical service

or technology described in clause (ii)(I), an amount that exceeds the

prospective payment rate otherwise applicable under this subsection

to discharges involving such service or technology that would be

made but for this subparagraph.

‘‘(v) The requirement under clause (ii)(III) for an additional

payment may be satisfied by means of a new-technology group (described in subparagraph (L)), an add-on payment, a payment adjustment, or any other similar mechanism for increasing the

amount otherwise payable with respect to a discharge under this

subsection. The Secretary may not establish a separate fee schedule

for such additional payment for such services and technologies, by

utilizing a methodology established under subsection (a) or (h) of

section 1834 to determine the amount of such additional payment,

or by other similar mechanisms or methodologies.

‘‘(vi) For purposes of this subparagraph and subparagraph (L),

a medical service or technology will be considered a ‘new medical

service or technology’ if the service or technology meets criteria established by the Secretary after notice and an opportunity for public

comment.

‘‘(L)(i) In establishing the mechanism under subparagraph (K),

the Secretary may establish new-technology groups into which a

new medical service or technology will be classified if, based on the

estimated average costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate

otherwise applicable to such discharges under this subsection is inadequate.

‘‘(ii) Such groups—

‘‘(I) shall not be based on the costs associated with a specific new medical service or technology; but

‘‘(II) shall, in combination with the applicable standardized

amounts and the weighting factors assigned to such groups

under paragraph (4)(B), reflect such cost cohorts as the Secretary determines are appropriate for all new medical services

and technologies that are likely to be provided as inpatient hospital services in a fiscal year.

‘‘(iii) The methodology for classifying specific hospital discharges within a diagnosis-related group under paragraph (4)(A) or

a new-technology group shall provide that a specific hospital discharge may not be classified within both a diagnosis-related group

and a new-technology group.’’.

(2) PRIOR CONSULTATION.—The Secretary of Health and

Human Services shall consult with groups representing hospitals, physicians, and manufacturers of new medical technologies before publishing the notice of proposed rulemaking required by section 1886(d)(5)(K)(i) of the Social Security Act (as

added by paragraph (1)).

(3) CONFORMING AMENDMENT.—Section 1886(d)(4)(C)(i) (42

U.S.C. 1395ww(d)(4)(C)(i)) is amended by striking ‘‘technology,’’

and inserting ‘‘technology (including a new medical service or

technology under paragraph (5)(K)),’’.

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Subtitle E—Other Provisions

SEC. 541. INCREASE IN REIMBURSEMENT FOR BAD DEBT.

Section 1861(v)(1)(T) (42 U.S.C. 1395x(v)(1)(T)) is amended—

(1) in clause (ii), by striking ‘‘and’’ at the end;

(2) in clause (iii)—

(A) by striking ‘‘during a subsequent fiscal year’’ and

inserting ‘‘during fiscal year 2000’’; and

(B) by striking the period at the end and inserting ‘‘,

and’’; and

(3) by adding at the end the following new clause:

‘‘(iv) for cost reporting periods beginning during a subsequent fiscal year, by 30 percent of such amount otherwise allowable.’’.

SEC. 542. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES

UNDER MEDICARE.

(a) IN GENERAL.—When an independent laboratory furnishes

the technical component of a physician pathology service to a fee-forservice medicare beneficiary who is an inpatient or outpatient of a

covered hospital, the Secretary of Health and Human Services shall

treat such component as a service for which payment shall be made

to the laboratory under section 1848 of the Social Security Act (42

U.S.C. 1395w–4) and not as an inpatient hospital service for which

payment is made to the hospital under section 1886(d) of such Act

(42 U.S.C. 1395ww(d)) or as an outpatient hospital service for

which payment is made to the hospital under section 1833(t) of such

Act (42 U.S.C. 1395l(t)).

(b) DEFINITIONS.—For purposes of this section:

(1) COVERED HOSPITAL.—The term ‘‘covered hospital’’

means, with respect to an inpatient or an outpatient, a hospital

that had an arrangement with an independent laboratory that

was in effect as of July 22, 1999, under which a laboratory furnished the technical component of physician pathology services

to fee-for-service medicare beneficiaries who were hospital inpatients or outpatients, respectively, and submitted claims for payment for such component to a medicare carrier (that has a contract with the Secretary under section 1842 of the Social Security Act, 42 U.S.C. 1395u) and not to such hospital.

(2) FEE-FOR-SERVICE MEDICARE BENEFICIARY.—The term

‘‘fee-for-service medicare beneficiary’’ means an individual

who—

(A) is entitled to benefits under part A, or enrolled

under part B, or both, of such title; and

(B) is not enrolled in any of the following:

(i) A Medicare+Choice plan under part C of such

title.

(ii) A plan offered by an eligible organization

under section 1876 of such Act (42 U.S.C. 1395mm).

(iii) A program of all-inclusive care for the elderly

(PACE) under section 1894 of such Act (42 U.S.C.

1395eee).

(iv) A social health maintenance organization

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tion 4018(b) of the Omnibus Budget Reconciliation Act

of 1987 (Public Law 100–203).

(c) EFFECTIVE DATE.—This section applies to services furnished

during the 2-year period beginning on January 1, 2001.

(d) GAO REPORT.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study of the effects of the previous provisions of

this section on hospitals and laboratories and access of fee-forservice medicare beneficiaries to the technical component of

physician pathology services.

(2) REPORT.—Not later than April 1, 2002, the Comptroller

General shall submit to Congress a report on such study. The

report shall include recommendations about whether such provisions should be extended after the end of the period specified

in subsection (c) for either or both inpatient and outpatient hospital services, and whether the provisions should be extended to

other hospitals.

SEC. 543. EXTENSION OF ADVISORY OPINION AUTHORITY.

Section 1128D(b)(6) (42 U.S.C. 1320a–7d(b)(6)) is amended by

striking ‘‘and before the date which is 4 years after such date of enactment’’.

SEC. 544. CHANGE IN ANNUAL MEDPAC REPORTING.

(a) REVISION OF DEADLINES FOR SUBMISSION OF REPORTS.—

(1) IN GENERAL.—Section 1805(b)(1)(D) (42 U.S.C. 1395b–

6(b)(1)(D)) is amended by striking ‘‘June 1 of each year (beginning with 1998),’’ and inserting ‘‘June 15 of each year,’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) applies beginning with 2001.

(b) REQUIREMENT FOR ON THE RECORD VOTES ON RECOMMENDATIONS.—Section 1805(b) (42 U.S.C. 1395b–6(b)) is amended by adding at the end the following new paragraph:

‘‘(7) VOTING AND REPORTING REQUIREMENTS.—With respect

to each recommendation contained in a report submitted under

paragraph (1), each member of the Commission shall vote on

the recommendation, and the Commission shall include, by

member, the results of that vote in the report containing the recommendation.’’.

SEC. 545. DEVELOPMENT OF PATIENT ASSESSMENT INSTRUMENTS.

(a) DEVELOPMENT.—

(1) IN GENERAL.—Not later than January 1, 2005, the Secretary of Health and Human Services shall submit to the Committee on Ways and Means and the Committee on Commerce of

the House of Representatives and the Committee on Finance of

the Senate a report on the development of standard instruments

for the assessment of the health and functional status of patients, for whom items and services described in subsection (b)

are furnished, and include in the report a recommendation on

the use of such standard instruments for payment purposes.

(2) DESIGN FOR COMPARISON OF COMMON ELEMENTS.—The

Secretary shall design such standard instruments in a manner

such that—

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(A) elements that are common to the items and services

described in subsection (b) may be readily comparable and

are statistically compatible;

(B) only elements necessary to meet program objectives

are collected; and

(C) the standard instruments supersede any other assessment instrument used before that date.

(3) CONSULTATION.—In developing an assessment instrument under paragraph (1), the Secretary shall consult with the

Medicare Payment Advisory Commission, the Agency for

Healthcare Research and Quality, and qualified organizations

representing providers of services and suppliers under title

XVIII.

(b) DESCRIPTION OF SERVICES.—For purposes of subsection (a),

items and services described in this subsection are those items and

services furnished to individuals entitled to benefits under part A,

or enrolled under part B, or both of title XVIII of the Social Security

Act for which payment is made under such title, and include the following:

(1) Inpatient and outpatient hospital services.

(2) Inpatient and outpatient rehabilitation services.

(3) Covered skilled nursing facility services.

(4) Home health services.

(5) Physical or occupational therapy or speech-language pathology services.

(6) Items and services furnished to such individuals determined to have end stage renal disease.

(7) Partial hospitalization services and other mental health

services.

(8) Any other service for which payment is made under

such title as the Secretary determines to be appropriate.

SEC. 546. GAO REPORT ON IMPACT OF THE EMERGENCY MEDICAL

TREATMENT AND ACTIVE LABOR ACT (EMTALA) ON HOSPITAL EMERGENCY DEPARTMENTS.

(a) REPORT.—The Comptroller General of the United States

shall submit a report to the Committee on Commerce and the Committee on Ways and Means of the House of Representatives and the

Committee on Finance of the Senate by May 1, 2001, on the effect

of the Emergency Medical Treatment and Active Labor Act on hospitals, emergency physicians, and physicians covering emergency department call throughout the United States.

(b) REPORT REQUIREMENTS.—The report should evaluate—

(1) the extent to which hospitals, emergency physicians, and

physicians covering emergency department call provide uncompensated services in relation to the requirements of EMTALA;

(2) the extent to which the regulatory requirements and enforcement of EMTALA have expanded beyond the legislation’s

original intent;

(3) estimates for the total dollar amount of EMTALA-related care uncompensated costs to emergency physicians, physicians covering emergency department call, hospital emergency

departments, and other hospital services;

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(4) the extent to which different portions of the United

States may be experiencing different levels of uncompensated

EMTALA-related care;

(5) the extent to which EMTALA would be classified as an

unfunded mandate if it were enacted today;

(6) the extent to which States have programs to provide financial support for such uncompensated care;

(7) possible sources of funds, including medicare hospital

bad debt accounts, that are available to hospitals to assist with

the cost of such uncompensated care; and

(8) the financial strain that illegal immigration populations, the uninsured, and the underinsured place on hospital

emergency departments, other hospital services, emergency physicians, and physicians covering emergency department call.

(c) DEFINITION.—In this section, the terms ‘‘Emergency Medical

Treatment and Active Labor Act’’ and ‘‘EMTALA’’ mean section

1867 of the Social Security Act (42 U.S.C. 1395dd).

TITLE VI—PROVISIONS RELATING TO

PART C (MEDICARE+CHOICE PROGRAM) AND OTHER MEDICARE MANAGED CARE PROVISIONS

Subtitle A—Medicare+Choice Payment

Reforms

SEC. 601. INCREASE IN MINIMUM PAYMENT AMOUNT.

Section 1853(c)(1)(B)(ii) (42 U.S.C. 1395w–23(c)(1)(B)(ii)) is

amended—

(1) by striking ‘‘(ii) For a succeeding year’’ and inserting

‘‘(ii)(I) Subject to subclauses (II) and (III), for a succeeding

year’’; and

(2) by adding at the end the following new subclauses:

‘‘(II) For 2001, for any area in a Metropolitan Statistical Area within any of the 50 States and the District of Columbia with a population of more than

250,000, $525 (and for any other area within any of

the 50 States, $475).

‘‘(III) For 2001, for any area in a Metropolitan Statistical Area outside the 50 States and the District of

Columbia with a population of more than 250,000,

$525 (and for any other area outside the 50 States and

the District of Columbia, $475), but not to exceed 120

percent of the amount determined under this subparagraph for such area for 2000.’’.

SEC. 602. INCREASE IN MINIMUM PERCENTAGE INCREASE.

Section 1853(c)(1)(C)(ii) (42 U.S.C. 1395w–23(c)(1)(C)(ii)) is

amended by inserting ‘‘(or 103 percent in the case of 2001)’’ after

‘‘102 percent’’.

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SEC. 603. 10-YEAR PHASE-IN OF RISK ADJUSTMENT.

Section 1853(a)(3)(C)(ii) (42 U.S.C. 1395w–23(a)(3)(C)(ii)) is

amended—

(1) in subclause (I), by striking ‘‘and 2001’’ and inserting

‘‘and each succeeding year through the first year in which risk

adjustment is based on data from inpatient hospital and ambulatory settings’’; and

(2) by amending subclause (II) to read as follows:

‘‘(II) beginning after such first year, insofar as

such risk adjustment is based on data from inpatient hospital and ambulatory settings, the methodology shall be phased in equal increments over

a 10-year period that begins with such first year.’’.

SEC. 604. TRANSITION TO REVISED MEDICARE+CHOICE PAYMENT

RATES.

(a) ANNOUNCEMENT OF REVISED MEDICARE+CHOICE PAYMENT

RATES.—Within 2 weeks after the date of the enactment of this Act,

the Secretary of Health and Human Services shall determine, and

shall announce (in a manner intended to provide notice to interested

parties) Medicare+Choice capitation rates under section 1853 of the

Social Security Act (42 U.S.C. 1395w–23) for 2001, revised in accordance with the provisions of this Act.

(b) REENTRY INTO PROGRAM PERMITTED FOR

MEDICARE+CHOICE PROGRAMS IN 2000.—A Medicare+Choice organization that provided notice to the Secretary of Health and Human

Services before the date of the enactment of this Act that it was terminating its contract under part C of title XVIII of the Social Security Act or was reducing the service area of a Medicare+Choice plan

offered under such part shall be permitted to continue participation

under such part, or to maintain the service area of such plan, for

2001 if it provides the Secretary with the information described in

section 1854(a)(1) of the Social Security Act (42 U.S.C. 1395w–

24(a)(1)) within 2 weeks after the date revised rates are announced

by the Secretary under subsection (a).

(c) REVISED SUBMISSION OF PROPOSED PREMIUMS AND RELATED

INFORMATION.—If—

(1) a Medicare+Choice organization provided notice to the

Secretary of Health and Human Services as of July 3, 2000,

that it was renewing its contract under part C of title XVIII of

the Social Security Act for all or part of the service area or

areas served under its current contract, and

(2) any part of the service area or areas addressed in such

notice includes a payment area for which the Medicare+Choice

capitation rate under section 1853(c) of such Act (42 U.S.C.

1395w–23(c)) for 2001, as determined under subsection (a), is

higher than the rate previously determined for such year,

such organization shall revise its submission of the information described in section 1854(a)(1) of the Social Security Act (42 U.S.C.

1395w–24(a)(1)), and shall submit such revised information to the

Secretary, within 2 weeks after the date revised rates are announced

by the Secretary under subsection (a). In making such submission,

the organization may only reduce premiums, cost-sharing, enhance

benefits, or utilize the stabilization fund described in section

1854(f)(2) of such Act (42 U.S.C. 1395w–24(f)(2)).

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(d) DISREGARD OF NEW RATE ANNOUNCEMENT IN APPLYING

PASS-THROUGH FOR NEW NATIONAL COVERAGE DETERMINATIONS.— For purposes of applying section 1852(a)(5) of the Social Security

Act (42 U.S.C. 1395w–22(a)(5)), the announcement of revised rates

under subsection (a) shall not be treated as an announcement under

section 1853(b) of such Act (42 U.S.C. 1395w–23(b)).

SEC. 605. REVISION OF PAYMENT RATES FOR ESRD PATIENTS ENROLLED IN MEDICARE+CHOICE PLANS.

(a) IN GENERAL.—Section 1853(a)(1)(B) (42 U.S.C. 1395w–

23(a)(1)(B)) is amended by adding at the end the following: ‘‘In establishing such rates, the Secretary shall provide for appropriate

adjustments to increase each rate to reflect the demonstration rate

(including the risk adjustment methodology associated with such

rate) of the social health maintenance organization end-stage renal

disease capitation demonstrations (established by section 2355 of

the Deficit Reduction Act of 1984, as amended by section 13567(b)

of the Omnibus Budget Reconciliation Act of 1993), and shall compute such rates by taking into account such factors as renal treatment modality, age, and the underlying cause of the end-stage renal

disease.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to payments for months beginning with January 2002.

(c) PUBLICATION.—Not later than 6 months after the date of the

enactment of this Act, the Secretary of Health and Human Services

shall publish for public comment a description of the appropriate

adjustments described in the last sentence of section 1853(a)(1)(B)

of the Social Security Act (42 U.S.C. 1395w–23(a)(1)(B)), as added

by subsection (a). The Secretary shall publish such adjustments in

final form by not later than July 1, 2001, so that the amendment

made by subsection (a) is implemented on a timely basis consistent

with subsection (b).

SEC. 606. PERMITTING PREMIUM REDUCTIONS AS ADDITIONAL BENEFITS UNDER MEDICARE+CHOICE PLANS.

(a) IN GENERAL.— (1) AUTHORIZATION OF PART B PREMIUM REDUCTIONS.—Section 1854(f)(1) (42 U.S.C. 1395w–24(f)(1)) is amended—

(A) by redesignating subparagraph (E) as subparagraph (F); and

(B) by inserting after subparagraph (D) the following

new subparagraph:

‘‘(E) PREMIUM REDUCTIONS.—

‘‘(i) IN GENERAL.—Subject to clause (ii), as part of

providing any additional benefits required under subparagraph (A), a Medicare+Choice organization may

elect a reduction in its payments under section

1853(a)(1)(A) with respect to a Medicare+Choice plan

and the Secretary shall apply such reduction to reduce

the premium under section 1839 of each enrollee in

such plan as provided in section 1840(i).

‘‘(ii) AMOUNT OF REDUCTION.—The amount of the

reduction under clause (i) with respect to any enrollee

in a Medicare+Choice plan—

‘‘(I) may not exceed 125 percent of the premium described under section 1839(a)(3); and

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‘‘(II) shall apply uniformly to each enrollee of

the Medicare+Choice plan to which such reduction

applies.’’.

(2) CONFORMING AMENDMENTS.—

(A) ADJUSTMENT OF PAYMENTS TO MEDICARE+CHOICE

ORGANIZATIONS.—Section 1853(a)(1)(A) (42 U.S.C. 1395w–

23(a)(1)(A)) is amended by inserting ‘‘reduced by the

amount of any reduction elected under section 1854(f)(1)(E)

and’’ after ‘‘for that area,’’.

(B) ADJUSTMENT AND PAYMENT OF PART B PREMIUMS.—

(i) ADJUSTMENT OF PREMIUMS.—Section 1839(a)(2)

(42 U.S.C. 1395r(a)(2)) is amended by striking ‘‘shall’’

and all that follows and inserting the following: ‘‘shall

be the amount determined under paragraph (3), adjusted as required in accordance with subsections (b),

(c), and (f), and to reflect 80 percent of any reduction

elected under section 1854(f)(1)(E).’’.

(ii) PAYMENT OF PREMIUMS.—Section 1840 (42

U.S.C. 1395s) is amended by adding at the end the following new subsection:

‘‘(i) In the case of an individual enrolled in a Medicare+Choice

plan, the Secretary shall provide for necessary adjustments of the

monthly beneficiary premium to reflect 80 percent of any reduction

elected under section 1854(f)(1)(E). This premium adjustment may

be provided directly or as an adjustment to any social security, railroad retirement, and civil service retirement benefits, to the extent

which the Secretary determines that such an adjustment is appropriate with the concurrence of the agencies responsible for the administration of such benefits.’’.

(C) INFORMATION COMPARING PLAN PREMIUMS UNDER

PART C.—Section 1851(d)(4)(B) (42 U.S.C. 1395w–

21(d)(4)(B)) is amended—

(i) by striking ‘‘PREMIUMS.—The’’ and inserting

‘‘PREMIUMS.—

‘‘(i) IN GENERAL.—The’’; and

(ii) by adding at the end the following new clause:

‘‘(ii) REDUCTIONS.—The reduction in part B premiums, if any.’’.

(D) TREATMENT OF REDUCTION FOR PURPOSES OF DETERMINING GOVERNMENT CONTRIBUTION UNDER PART B.—

Section 1844 (42 U.S.C. 1395w) is amended by adding at

the end the following new subsection:

‘‘(c) The Secretary shall determine the Government contribution

under subparagraphs (A) and (B) of subsection (a)(1) without regard to any premium reduction resulting from an election under

section 1854(f)(1)(E).’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

shall apply to years beginning with 2002.

SEC. 607. FULL IMPLEMENTATION OF RISK ADJUSTMENT FOR CONGESTIVE HEART FAILURE ENROLLEES FOR 2001.

(a) IN GENERAL.—Section 1853(a)(3)(C) (42 U.S.C. 1395w–

23(a)(3)(C)) is amended—

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(1) in clause (ii), by striking ‘‘Such risk adjustment’’ and inserting ‘‘Except as provided in clause (iii), such risk adjustment’’; and

(2) by adding at the end the following new clause:

‘‘(iii) FULL IMPLEMENTATION OF RISK ADJUSTMENT

FOR CONGESTIVE HEART FAILURE ENROLLEES FOR

2001.—

‘‘(I) EXEMPTION FROM PHASE-IN.—Subject to

subclause (II), the Secretary shall fully implement

the risk adjustment methodology described in

clause (i) with respect to each individual who has

had a qualifying congestive heart failure inpatient

diagnosis (as determined by the Secretary under

such risk adjustment methodology) during the period beginning on July 1, 1999, and ending on

June 30, 2000, and who is enrolled in a coordinated care plan that is the only coordinated care

plan offered on January 1, 2001, in the service

area of the individual.

‘‘(II) PERIOD OF APPLICATION.—Subclause (I)

shall only apply during the 1-year period beginning on January 1, 2001.’’.

(b) EXCLUSION FROM DETERMINATION OF THE BUDGET NEUTRALITY FACTOR.—Section 1853(c)(5) (42 U.S.C. 1395w–23(c)(5)) is

amended by striking ‘‘subsection (i)’’ and inserting ‘‘subsections

(a)(3)(C)(iii) and (i)’’.

SEC. 608. EXPANSION OF APPLICATION OF MEDICARE+CHOICE NEW

ENTRY BONUS.

(a) IN GENERAL.—Section 1853(i)(1) (42 U.S.C. 1395w–23(i)(1))

is amended in the matter preceding subparagraph (A) by inserting

‘‘, or filed notice with the Secretary as of October 3, 2000, that they

will not be offering such a plan as of January 1, 2001’’ after ‘‘January 1, 2000’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply as if included in the enactment of BBRA.

SEC. 609. REPORT ON INCLUSION OF CERTAIN COSTS OF THE DEPARTMENT OF VETERANS AFFAIRS AND MILITARY FACILITY

SERVICES IN CALCULATING MEDICARE+CHOICE PAYMENT

RATES.

The Secretary of Health and Human Services shall report to

Congress by not later than January 1, 2003, on a method to phasein the costs of military facility services furnished by the Department

of Veterans Affairs, and the costs of military facility services furnished by the Department of Defense, to medicare-eligible beneficiaries in the calculation of an area’s Medicare+Choice capitation

payment. Such report shall include on a county-by-county basis—

(1) the actual or estimated cost of such services to medicareeligible beneficiaries;

(2) the change in Medicare+Choice capitation payment

rates if such costs are included in the calculation of payment

rates;

(3) one or more proposals for the implementation of payment adjustments to Medicare+Choice plans in counties where

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culate the cost of such services to medicare-eligible beneficiaries;

and

(4) a system to ensure that when a Medicare+Choice enrollee receives covered services through a facility of the Department of Veterans Affairs or the Department of Defense there is

an appropriate payment recovery to the medicare program

under title XVIII of the Social Security Act.

Subtitle B—Other Medicare+Choice

Reforms

SEC. 611. PAYMENT OF ADDITIONAL AMOUNTS FOR NEW BENEFITS

COVERED DURING A CONTRACT TERM.

(a) IN GENERAL.—Section 1853(c)(7) (42 U.S.C. 1395w–23(c)(7))

is amended to read as follows:

‘‘(7) ADJUSTMENT FOR NATIONAL COVERAGE DETERMINATIONS AND LEGISLATIVE CHANGES IN BENEFITS.—If the Secretary

makes a determination with respect to coverage under this title

or there is a change in benefits required to be provided under

this part that the Secretary projects will result in a significant

increase in the costs to Medicare+Choice of providing benefits

under contracts under this part (for periods after any period described in section 1852(a)(5)), the Secretary shall adjust appropriately the payments to such organizations under this part.

Such projection and adjustment shall be based on an analysis

by the Chief Actuary of the Health Care Financing Administration of the actuarial costs associated with the new benefits.’’.

(b) CONFORMING AMENDMENT.—Section 1852(a)(5) (42 U.S.C.

1395w–22(a)(5)) is amended—

(1) in the heading, by inserting ‘‘AND LEGISLATIVE CHANGES

IN BENEFITS’’ after ‘‘NATIONAL COVERAGE DETERMINATIONS’’;

(2) by inserting ‘‘or legislative change in benefits required

to be provided under this part’’ after ‘‘national coverage determination’’;

(3) in subparagraph (A), by inserting ‘‘or legislative change

in benefits’’ after ‘‘such determination’’;

(4) in subparagraph (B), by inserting ‘‘or legislative change’’

after ‘‘if such coverage determination’’; and

(5) by adding at the end the following:

‘‘The projection under the previous sentence shall be based on

an analysis by the Chief Actuary of the Health Care Financing

Administration of the actuarial costs associated with the coverage determination or legislative change in benefits.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

are effective on the date of the enactment of this Act and apply to

national coverage determinations and legislative changes in benefits

occurring on or after such date.

SEC. 612. RESTRICTION ON IMPLEMENTATION OF SIGNIFICANT NEW

REGULATORY REQUIREMENTS MIDYEAR.

(a) IN GENERAL.—Section 1856(b) (42 U.S.C. 1395w–26(b)) is

amended by adding at the end the following new paragraph:

‘‘(4) PROHIBITION OF MIDYEAR IMPLEMENTATION OF SIGNIFICANT NEW REGULATORY REQUIREMENTS.—The Secretary may

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not implement, other than at the beginning of a calendar year,

regulations under this section that impose new, significant regulatory requirements on a Medicare+Choice organization or

plan.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

takes effect on the date of the enactment of this Act.

SEC. 613. TIMELY APPROVAL OF MARKETING MATERIAL THAT FOLLOWS MODEL MARKETING LANGUAGE.

(a) IN GENERAL.—Section 1851(h) (42 U.S.C. 1395w–21(h)) is

amended—

(1) in paragraph (1)(A), by inserting ‘‘(or 10 days in the

case described in paragraph (5))’’ after ‘‘45 days’’; and

(2) by adding at the end the following new paragraph:

‘‘(5) SPECIAL TREATMENT OF MARKETING MATERIAL FOLLOWING MODEL MARKETING LANGUAGE.—In the case of marketing material of an organization that uses, without modification, proposed model language specified by the Secretary, the

period specified in paragraph (1)(A) shall be reduced from 45

days to 10 days.’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

apply to marketing material submitted on or after January 1, 2001.

SEC. 614. AVOIDING DUPLICATIVE REGULATION.

(a) IN GENERAL.—Section 1856(b)(3)(B) (42 U.S.C. 1395w–

26(b)(3)(B)) is amended—

(1) in clause (i), by inserting ‘‘(including cost-sharing requirements)’’ after ‘‘Benefit requirements’’; and

(2) by adding at the end the following new clause:

‘‘(iv) Requirements relating to marketing materials

and summaries and schedules of benefits regarding a

Medicare+Choice plan.’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

take effect on the date of the enactment of this Act.

SEC. 615. ELECTION OF UNIFORM LOCAL COVERAGE POLICY FOR

MEDICARE+CHOICE PLAN COVERING MULTIPLE LOCALITIES.

Section 1852(a)(2) (42 U.S.C. 1395w–22(a)(2)) is amended by

adding at the end the following new subparagraph:

‘‘(C) ELECTION OF UNIFORM COVERAGE POLICY.—In the

case of a Medicare+Choice organization that offers a

Medicare+Choice plan in an area in which more than one

local coverage policy is applied with respect to different

parts of the area, the organization may elect to have the

local coverage policy for the part of the area that is most

beneficial to Medicare+Choice enrollees (as identified by the

Secretary) apply with respect to all Medicare+Choice enrollees enrolled in the plan.’’.

SEC. 616. ELIMINATING HEALTH DISPARITIES IN MEDICARE+CHOICE

PROGRAM.

(a) QUALITY ASSURANCE PROGRAM FOCUS ON RACIAL AND ETHNIC MINORITIES.—Subparagraphs (A) and (B) of section 1852(e)(2)

(42 U.S.C. 1395w–22(e)(2)) are each amended by adding at the end

the following:

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‘‘Such program shall include a separate focus (with respect

to all the elements described in this subparagraph) on racial and ethnic minorities.’’.

(b) REPORT.—Section 1852(e) (42 U.S.C. 1395w–22(e)) is

amended by adding at the end the following new paragraph:

‘‘(5) REPORT TO CONGRESS.—

‘‘(A) IN GENERAL.—Not later than 2 years after the date

of the enactment of this paragraph, and biennially thereafter, the Secretary shall submit to Congress a report regarding how quality assurance programs conducted under

this subsection focus on racial and ethnic minorities.

‘‘(B) CONTENTS OF REPORT.—Each such report shall include the following:

‘‘(i) A description of the means by which such programs focus on such racial and ethnic minorities.

‘‘(ii) An evaluation of the impact of such programs

on eliminating health disparities and on improving

health outcomes, continuity and coordination of care,

management of chronic conditions, and consumer satisfaction.

‘‘(iii) Recommendations on ways to reduce clinical

outcome disparities among racial and ethnic minorities.’’.

SEC. 617. MEDICARE+CHOICE PROGRAM COMPATIBILITY WITH EMPLOYER OR UNION GROUP HEALTH PLANS.

(a) IN GENERAL.—Section 1857 (42 U.S.C. 1395w–27) is amended by adding at the end the following new subsection:

‘‘(i) MEDICARE+CHOICE PROGRAM COMPATIBILITY WITH EMPLOYER OR UNION GROUP HEALTH PLANS.—To facilitate the offering

of Medicare+Choice plans under contracts between Medicare+Choice

organizations and employers, labor organizations, or the trustees of

a fund established by 1 or more employers or labor organizations

(or combination thereof) to furnish benefits to the entity’s employees,

former employees (or combination thereof) or members or former

members (or combination thereof) of the labor organizations, the

Secretary may waive or modify requirements that hinder the design

of, the offering of, or the enrollment in such Medicare+Choice

plans.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies with respect to years beginning with 2001.

SEC. 618. SPECIAL MEDIGAP ENROLLMENT ANTIDISCRIMINATION PROVISION FOR CERTAIN BENEFICIARIES.

(a) DISENROLLMENT WINDOW IN ACCORDANCE WITH BENEFICIARY’S CIRCUMSTANCE.—Section 1882(s)(3) (42 U.S.C.

1395ss(s)(3)) is amended—

(1) in subparagraph (A), in the matter following clause (iii),

by striking ‘‘, subject to subparagraph (E), seeks to enroll under

the policy not later than 63 days after the date of the termination of enrollment described in such subparagraph’’ and inserting ‘‘seeks to enroll under the policy during the period specified in subparagraph (E)’’; and

(2) by striking subparagraph (E) and inserting the following new subparagraph:

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‘‘(E) For purposes of subparagraph (A), the time period specified

in this subparagraph is—

‘‘(i) in the case of an individual described in subparagraph

(B)(i), the period beginning on the date the individual receives

a notice of termination or cessation of all supplemental health

benefits (or, if no such notice is received, notice that a claim has

been denied because of such a termination or cessation) and

ending on the date that is 63 days after the applicable notice;

‘‘(ii) in the case of an individual described in clause (ii),

(iii), (v), or (vi) of subparagraph (B) whose enrollment is terminated involuntarily, the period beginning on the date that the

individual receives a notice of termination and ending on the

date that is 63 days after the date the applicable coverage is terminated;

‘‘(iii) in the case of an individual described in subparagraph (B)(iv)(I), the period beginning on the earlier of (I) the

date that the individual receives a notice of termination, a notice of the issuer’s bankruptcy or insolvency, or other such similar notice, if any, and (II) the date that the applicable coverage

is terminated, and ending on the date that is 63 days after the

date the coverage is terminated;

‘‘(iv) in the case of an individual described in clause (ii),

(iii), (iv)(II), (iv)(III), (v), or (vi) of subparagraph (B) who

disenrolls voluntarily, the period beginning on the date that is

60 days before the effective date of the disenrollment and ending on the date that is 63 days after such effective date; and

‘‘(v) in the case of an individual described in subparagraph

(B) but not described in the preceding provisions of this subparagraph, the period beginning on the effective date of the

disenrollment and ending on the date that is 63 days after such

effective date.’’.

(b) EXTENDED MEDIGAP ACCESS FOR INTERRUPTED TRIAL PERIODS.—Section 1882(s)(3) (42 U.S.C. 1395ss(s)(3)), as amended by

subsection (a), is further amended by adding at the end the following new subparagraph:

‘‘(F)(i) Subject to clause (ii), for purposes of this paragraph—

‘‘(I) in the case of an individual described in subparagraph

(B)(v) (or deemed to be so described, pursuant to this subparagraph) whose enrollment with an organization or provider described in subclause (II) of such subparagraph is involuntarily

terminated within the first 12 months of such enrollment, and

who, without an intervening enrollment, enrolls with another

such organization or provider, such subsequent enrollment shall

be deemed to be an initial enrollment described in such subparagraph; and

‘‘(II) in the case of an individual described in clause (vi) of

subparagraph (B) (or deemed to be so described, pursuant to

this subparagraph) whose enrollment with a plan or in a program described in such clause is involuntarily terminated within the first 12 months of such enrollment, and who, without an

intervening enrollment, enrolls in another such plan or program, such subsequent enrollment shall be deemed to be an initial enrollment described in such clause.

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‘‘(ii) For purposes of clauses (v) and (vi) of subparagraph (B),

no enrollment of an individual with an organization or provider described in clause (v)(II), or with a plan or in a program described

in clause (vi), may be deemed to be an initial enrollment under this

clause after the 2-year period beginning on the date on which the

individual first enrolled with such an organization, provider, plan,

or program.’’.

SEC. 619. RESTORING EFFECTIVE DATE OF ELECTIONS AND CHANGES

OF ELECTIONS OF MEDICARE+CHOICE PLANS.

(a) OPEN ENROLLMENT.—Section 1851(f)(2) (42 U.S.C. 1395w–

21(f)(2)) is amended by striking ‘‘, except that if such election or

change is made after the 10th day of any calendar month, then the

election or change shall not take effect until the first day of the second calendar month following the date on which the election or

change is made’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to elections and changes of coverage made on or after

January 1, 2001.

SEC. 620. PERMITTING ESRD BENEFICIARIES TO ENROLL IN ANOTHER

MEDICARE+CHOICE PLAN IF THE PLAN IN WHICH THEY

ARE ENROLLED IS TERMINATED.

(a) IN GENERAL.—Section 1851(a)(3)(B) (42 U.S.C. 1395w–

21(a)(3)(B)) is amended by striking ‘‘except that’’ and all that follows and inserting the following: ‘‘except that—

‘‘(i) an individual who develops end-stage renal

disease while enrolled in a Medicare+Choice plan may

continue to be enrolled in that plan; and

‘‘(ii) in the case of such an individual who is enrolled in a Medicare+Choice plan under clause (i) (or

subsequently under this clause), if the enrollment is

discontinued under circumstances described in section

1851(e)(4)(A), then the individual will be treated as a

‘Medicare+Choice eligible individual’ for purposes of

electing to continue enrollment in another

Medicare+Choice plan.’’.

(b) EFFECTIVE DATE.— (1) IN GENERAL.—The amendment made by subsection (a)

shall apply to terminations and discontinuations occurring on

or after the date of the enactment of this Act.

(2) APPLICATION TO PRIOR PLAN TERMINATIONS.—Clause (ii)

of section 1851(a)(3)(B) of the Social Security Act (as inserted

by subsection (a)) also shall apply to individuals whose enrollment in a Medicare+Choice plan was terminated or discontinued after December 31, 1998, and before the date of the enactment of this Act. In applying this paragraph, such an individual shall be treated, for purposes of part C of title XVIII of

the Social Security Act, as having discontinued enrollment in

such a plan as of the date of the enactment of this Act.

SEC. 621. PROVIDING CHOICE FOR SKILLED NURSING FACILITY SERVICES UNDER THE MEDICARE+CHOICE PROGRAM.

(a) IN GENERAL.—Section 1852 (42 U.S.C. 1395w–22) is amended by adding at the end the following new subsection:

‘‘(l) RETURN TO HOME SKILLED NURSING FACILITIES FOR COVERED POST-HOSPITAL EXTENDED CARE SERVICES.—

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‘‘(1) ENSURING RETURN TO HOME SNF.—

‘‘(A) IN GENERAL.—In providing coverage of post-hospital extended care services, a Medicare+Choice plan shall

provide for such coverage through a home skilled nursing

facility if the following conditions are met:

‘‘(i) ENROLLEE ELECTION.—The enrollee elects to receive such coverage through such facility.

‘‘(ii) SNF AGREEMENT.—The facility has a contract

with the Medicare+Choice organization for the provision of such services, or the facility agrees to accept

substantially similar payment under the same terms

and conditions that apply to similarly situated skilled

nursing facilities that are under contract with the

Medicare+Choice organization for the provision of such

services and through which the enrollee would otherwise receive such services.

‘‘(B) MANNER OF PAYMENT TO HOME SNF.—The organization shall provide payment to the home skilled nursing

facility consistent with the contract or the agreement described in subparagraph (A)(ii), as the case may be.

‘‘(2) NO LESS FAVORABLE COVERAGE.—The coverage provided under paragraph (1) (including scope of services, costsharing, and other criteria of coverage) shall be no less favorable to the enrollee than the coverage that would be provided

to the enrollee with respect to a skilled nursing facility the posthospital extended care services of which are otherwise covered

under the Medicare+Choice plan.

‘‘(3) RULE OF CONSTRUCTION.—Nothing in this subsection

shall be construed to do the following:

‘‘(A) To require coverage through a skilled nursing facility that is not otherwise qualified to provide benefits

under part A for medicare beneficiaries not enrolled in a

Medicare+Choice plan.

‘‘(B) To prevent a skilled nursing facility from refusing

to accept, or imposing conditions upon the acceptance of, an

enrollee for the receipt of post-hospital extended care services.

‘‘(4) DEFINITIONS.—In this subsection:

‘‘(A) HOME SKILLED NURSING FACILITY.—The term

‘home skilled nursing facility’ means, with respect to an enrollee who is entitled to receive post-hospital extended care

services under a Medicare+Choice plan, any of the following skilled nursing facilities:

‘‘(i) SNF RESIDENCE AT TIME OF ADMISSION.—The

skilled nursing facility in which the enrollee resided at

the time of admission to the hospital preceding the receipt of such post-hospital extended care services.

‘‘(ii) SNF IN CONTINUING CARE RETIREMENT COMMUNITY.—A skilled nursing facility that is providing

such services through a continuing care retirement

community (as defined in subparagraph (B)) which

provided residence to the enrollee at the time of such

admission.

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‘‘(iii) SNF RESIDENCE OF SPOUSE AT TIME OF DISCHARGE.—The skilled nursing facility in which the

spouse of the enrollee is residing at the time of discharge from such hospital.

‘‘(B) CONTINUING CARE RETIREMENT COMMUNITY.—The

term ‘continuing care retirement community’ means, with

respect to an enrollee in a Medicare+Choice plan, an arrangement under which housing and health-related services

are provided (or arranged) through an organization for the

enrollee under an agreement that is effective for the life of

the enrollee or for a specified period.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies with respect to contracts entered into or renewed on or after

the date of the enactment of this Act.

(c) MEDPAC STUDY.—

(1) STUDY.—The Medicare Payment Advisory Commission

shall conduct a study analyzing the effects of the amendment

made by subsection (a) on Medicare+Choice organizations. In

conducting such study, the Commission shall examine the effects (if any) such amendment has had on—

(A) the scope of additional benefits provided under the

Medicare+Choice program;

(B) the administrative and other costs incurred by

Medicare+Choice organizations;

(C) the contractual relationships between such organizations and skilled nursing facilities.

(2) REPORT.—Not later than 2 years after the date of the

enactment of this Act, the Commission shall submit to Congress

a report on the study conducted under paragraph (1).

SEC. 622. PROVIDING FOR ACCOUNTABILITY OF MEDICARE+CHOICE

PLANS.

(a) MANDATORY REVIEW OF ACR SUBMISSIONS BY THE CHIEF

ACTUARY OF THE HEALTH CARE FINANCING ADMINISTRATION.—Section 1854(a)(5)(A) (42 U.S.C. 1395w–24(a)(5)(A)) is amended—

(1) by striking ‘‘value’’ and inserting ‘‘values’’; and

(2) by adding at the end the following: ‘‘The Chief Actuary

of the Health Care Financing Administration shall review the

actuarial assumptions and data used by the Medicare+Choice

organization with respect to such rates, amounts, and values so

submitted to determine the appropriateness of such assumptions

and data.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to submissions made on or after January 1, 2001.

Subtitle C—Other Managed Care Reforms

SEC. 631. 1-YEAR EXTENSION OF SOCIAL HEALTH MAINTENANCE ORGANIZATION (SHMO) DEMONSTRATION PROJECT.

Section 4018(b)(1) of the Omnibus Budget Reconciliation Act of

1987, as amended by section 531(a)(1) of BBRA (113 Stat. 1501A–

388), is amended by striking ‘‘18 months’’ and inserting ‘‘30

months’’.

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SEC. 632. REVISED TERMS AND CONDITIONS FOR EXTENSION OF

MEDICARE COMMUNITY NURSING ORGANIZATION (CNO)

DEMONSTRATION PROJECT.

(a) IN GENERAL.—Section 532 of BBRA (113 Stat. 1501A–388)

is amended—

(1) in subsection (a), by striking the second sentence; and

(2) by striking subsection (b) and inserting the following

new subsection:

‘‘(b) TERMS AND CONDITIONS.—

‘‘(1) JANUARY THROUGH SEPTEMBER 2000.—For the 9-month

period beginning with January 2000, any such demonstration

project shall be conducted under the same terms and conditions

as applied to such demonstration during 1999.

‘‘(2) OCTOBER 2000 THROUGH DECEMBER 2001.—For the 15-

month period beginning with October 2000, any such demonstration project shall be conducted under the same terms and

conditions as applied to such demonstration during 1999, except that the following modifications shall apply:

‘‘(A) BASIC CAPITATION RATE.—The basic capitation

rate paid for services covered under the project (other than

case management services) per enrollee per month and furnished during—

‘‘(i) the period beginning with October 1, 2000, and

ending with December 31, 2000, shall be determined by

actuarially adjusting the actual capitation rate paid

for such services in 1999 for inflation, utilization, and

other changes to the CNO service package, and by reducing such adjusted capitation rate by 10 percent in

the case of the demonstration sites located in Arizona,

Minnesota, and Illinois, and 15 percent for the demonstration site located in New York; and

‘‘(ii) 2001 shall be determined by actuarially adjusting the capitation rate determined under clause (i)

for inflation, utilization, and other changes to the CNO

service package.

‘‘(B) TARGETED CASE MANAGEMENT FEE.—Effective October 1, 2000—

‘‘(i) the case management fee per enrollee per

month for—

‘‘(I) the period described in subparagraph

(A)(i) shall be determined by actuarially adjusting

the case management fee for 1999 for inflation;

and

‘‘(II) 2001 shall be determined by actuarially

adjusting the amount determined under subclause

(I) for inflation; and

‘‘(ii) such case management fee shall be paid only

for enrollees who are classified as moderately frail or

frail pursuant to criteria established by the Secretary.

‘‘(C) GREATER UNIFORMITY IN CLINICAL FEATURES

AMONG SITES.—Each project shall implement for each

site—

‘‘(i) protocols for periodic telephonic contact with

enrollees based on—

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‘‘(I) the results of such standardized written

health assessment; and

‘‘(II) the application of appropriate care planning approaches;

‘‘(ii) disease management programs for targeted

diseases (such as congestive heart failure, arthritis, diabetes, and hypertension) that are highly prevalent in

the enrolled populations;

‘‘(iii) systems and protocols to track enrollees

through hospitalizations, including pre-admission

planning, concurrent management during inpatient

hospital stays, and post-discharge assessment, planning, and follow-up; and

‘‘(iv) standardized patient educational materials

for specified diseases and health conditions.

‘‘(D) QUALITY IMPROVEMENT.—Each project shall implement at each site once during the 15-month period—

‘‘(i) enrollee satisfaction surveys; and

‘‘(ii) reporting on specified quality indicators for

the enrolled population.

‘‘(c) EVALUATION.—

‘‘(1) PRELIMINARY REPORT.—Not later than July 1, 2001,

the Secretary of Health and Human Services shall submit to the

Committees on Ways and Means and Commerce of the House

of Representatives and the Committee on Finance of the Senate

a preliminary report that—

‘‘(A) evaluates such demonstration projects for the period beginning July 1, 1997, and ending December 31,

1999, on a site-specific basis with respect to the impact on

per beneficiary spending, specific health utilization measures, and enrollee satisfaction; and

‘‘(B) includes a similar evaluation of such projects for

the portion of the extension period that occurs after September 30, 2000.

‘‘(2) FINAL REPORT.—The Secretary shall submit a final report to such Committees on such demonstration projects not

later than July 1, 2002. Such report shall include the same elements as the preliminary report required by paragraph (1), but

for the period after December 31, 1999.

‘‘(3) METHODOLOGY FOR SPENDING COMPARISONS.—Any

evaluation of the impact of the demonstration projects on per

beneficiary spending included in such reports shall include a

comparison of—

‘‘(A) data for all individuals who—

‘‘(i) were enrolled in such demonstration projects as

of the first day of the period under evaluation; and

‘‘(ii) were enrolled for a minimum of 6 months

thereafter; with

‘‘(B) data for a matched sample of individuals who are

enrolled under part B of title XVIII of the Social Security

Act and are not enrolled in such a project, or in a

Medicare+Choice plan under part C of such title, a plan offered by an eligible organization under section 1876 of such

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Act, or a health care prepayment plan under section

1833(a)(1)(A) of such Act.’’.

(b) EFFECTIVE DATE.—The amendments made by subsection (a)

shall be effective as if included in the enactment of section 532 of

BBRA (113 Stat. 1501A–388).

SEC. 633. EXTENSION OF MEDICARE MUNICIPAL HEALTH SERVICES

DEMONSTRATION PROJECTS.

Section 9215(a) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (42 U.S.C. 1395b–1 note), as amended by section

6135 of the Omnibus Budget Reconciliation Act of 1989, section

13557 of the Omnibus Budget Reconciliation Act of 1993, section

4017 of BBA, and section 534 of BBRA (113 Stat. 1501A–390), is

amended by striking ‘‘December 31, 2002’’ and inserting ‘‘December

31, 2004’’.

SEC. 634. SERVICE AREA EXPANSION FOR MEDICARE COST CONTRACTS DURING TRANSITION PERIOD.

Section 1876(h)(5) (42 U.S.C. 1395mm(h)(5)) is amended—

(1) by redesignating subparagraph (B) as subparagraph

(C); and

(2) by inserting after subparagraph (A), the following new

subparagraph:

‘‘(B) Subject to subparagraph (C), the Secretary shall approve

an application for a modification to a reasonable cost contract

under this section in order to expand the service area of such contract if—

‘‘(i) such application is submitted to the Secretary on or before September 1, 2003; and

‘‘(ii) the Secretary determines that the organization with the

contract continues to meet the requirements applicable to such

organizations and contracts under this section.’’.

TITLE VII—MEDICAID

SEC. 701. DSH PAYMENTS.

(a) MODIFICATIONS TO DSH ALLOTMENTS.—

(1) INCREASED ALLOTMENTS FOR FISCAL YEARS 2001 AND

2002.—

(A) IN GENERAL.—Section 1923(f) (42 U.S.C. 1396r–

4(f)) is amended—

(i) in paragraph (2), by striking ‘‘The DSH allotment’’ and inserting ‘‘Subject to paragraph (4), the

DSH allotment’’;

(ii) by redesignating paragraph (4) as paragraph

(6); and

(iii) by inserting after paragraph (3) the following

new paragraph:

‘‘(4) SPECIAL RULE FOR FISCAL YEARS 2001 AND 2002.—

‘‘(A) IN GENERAL.—Notwithstanding paragraph (2), the

DSH allotment for any State for—

‘‘(i) fiscal year 2001, shall be the DSH allotment

determined under paragraph (2) for fiscal year 2000

increased, subject to subparagraph (B) and paragraph

(5), by the percentage change in the consumer price

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index for all urban consumers (all items; U.S. city average) for fiscal year 2000; and

‘‘(ii) fiscal year 2002, shall be the DSH allotment

determined under clause (i) increased, subject to subparagraph (B) and paragraph (5), by the percentage

change in the consumer price index for all urban consumers (all items; U.S. city average) for fiscal year

2001.

‘‘(B) LIMITATION.—Subparagraph (B) of paragraph (3)

shall apply to subparagraph (A) of this paragraph in the

same manner as that subparagraph (B) applies to paragraph (3)(A).

‘‘(C) NO APPLICATION TO ALLOTMENTS AFTER FISCAL

YEAR 2002.—The DSH allotment for any State for fiscal year

2003 or any succeeding fiscal year shall be determined

under paragraph (3) without regard to the DSH allotments

determined under subparagraph (A) of this paragraph.’’.

(2) SPECIAL RULE FOR MEDICAID DSH ALLOTMENT FOR EXTREMELY LOW DSH STATES.—

(A) IN GENERAL.—Section 1923(f) (42 U.S.C. 1396r–

4(f)), as amended by paragraph (1), is amended by inserting after paragraph (4) the following new paragraph:

‘‘(5) SPECIAL RULE FOR EXTREMELY LOW DSH STATES.—In

the case of a State in which the total expenditures under the

State plan (including Federal and State shares) for disproportionate share hospital adjustments under this section for fiscal

year 1999, as reported to the Administrator of the Health Care

Financing Administration as of August 31, 2000, is greater

than 0 but less than 1 percent of the State’s total amount of expenditures under the State plan for medical assistance during

the fiscal year, the DSH allotment for fiscal year 2001 shall be

increased to 1 percent of the State’s total amount of expenditures under such plan for such assistance during such fiscal

year. In subsequent fiscal years, such increased allotment is

subject to an increase for inflation as provided in paragraph

(3)(A).’’.

(B) CONFORMING AMENDMENT.—Section 1923(f)(3)(A)

(42 U.S.C. 1396r–4(f)(3)(A)) is amended by inserting ‘‘and

paragraph (5)’’ after ‘‘subparagraph (B)’’.

(3) EFFECTIVE DATE.—The amendments made by paragraphs (1) and (2) take effect on the date the final regulation

required under section 705(a) (relating to the application of an

aggregate upper payment limit test for State medicaid spending

for inpatient hospital services, outpatient hospital services,

nursing facility services, intermediate care facility services for

the mentally retarded, and clinic services provided by government facilities that are not State-owned or operated facilities) is

published in the Federal Register.

(b) ASSURING IDENTIFICATION OF MEDICAID MANAGED CARE PATIENTS.—

(1) IN GENERAL.—Section 1932 (42 U.S.C. 1396u–2) is

amended by adding at the end the following new subsection:

‘‘(g) IDENTIFICATION OF PATIENTS FOR PURPOSES OF MAKING

DSH PAYMENTS.—Each contract with a managed care entity under

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section 1903(m) or under section 1905(t)(3) shall require the entity

either—

‘‘(1) to report to the State information necessary to determine the hospital services provided under the contract (and the

identity of hospitals providing such services) for purposes of applying sections 1886(d)(5)(F) and 1923; or

‘‘(2) to include a sponsorship code in the identification card

issued to individuals covered under this title in order that a

hospital may identify a patient as being entitled to benefits

under this title.’’.

(2) CLARIFICATION OF COUNTING MANAGED CARE MEDICAID

PATIENTS.—Section 1923 (42 U.S.C. 1396r–4) is amended—

(A) in subsection (a)(2)(D), by inserting after ‘‘the proportion of low-income and medicaid patients’’ the following:

‘‘(including such patients who receive benefits through a

managed care entity)’’;

(B) in subsection (b)(2), by inserting after ‘‘a State plan

approved under this title in a period’’ the following: ‘‘(regardless of whether such patients receive medical assistance on a fee-for-service basis or through a managed care

entity)’’; and

(C) in subsection (b)(3)(A)(i), by inserting after ‘‘under

a State plan under this title’’ the following: ‘‘(regardless of

whether the services were furnished on a fee-for-service

basis or through a managed care entity)’’.

(3) EFFECTIVE DATES.—

(A) The amendment made by paragraph (1) applies to

contracts as of January 1, 2001.

(B) The amendments made by paragraph (2) apply to

payments made on or after January 1, 2001.

(c) APPLICATION OF MEDICAID DSH TRANSITION RULE TO PUBLIC HOSPITALS IN ALL STATES.—

(1) IN GENERAL.—During the period described in paragraph

(3), with respect to a State, section 4721(e) of the Balanced

Budget Act of 1997 (Public Law 105–33; 111 Stat. 514), as

amended by section 607 of BBRA (113 Stat. 1501A–321) shall

be applied as though—

(A) ‘‘September 30, 2002’’ were substituted for ‘‘July 1,

1997’’ each place it appears;

(B) ‘‘hospitals owned or operated by a State (as defined

for purposes of title XIX of such Act), or by an instrumentality or a unit of government within a State (as so defined)’’ were substituted for ‘‘the State of California’’;

(C) paragraph (3) were redesignated as paragraph (4);

(D) ‘‘and’’ were omitted from the end of paragraph (2);

and

(E) the following new paragraph were inserted after

paragraph (2):

‘‘(3) ‘(as defined in subparagraph (B) but without regard to

clause (ii) of that subparagraph and subject to subsection (d))’

were substituted for ‘(as defined in subparagraph (B))’ in subparagraph (A) of such section; and’’.

(2) SPECIAL RULE.—With respect to California, section

4721(e) of the Balanced Budget Act of 1997 (Public Law 105–

512

33; 111 Stat. 514) shall be applied without regard to paragraph

(1).

(3) PERIOD DESCRIBED.—The period described in this paragraph is the period that begins, with respect to a State, on the

first day of the first State fiscal year that begins after September 30, 2002, and ends on the last day of the succeeding

State fiscal year.

(4) APPLICATION TO WAIVERS.—With respect to a State operating under a waiver of the requirements of title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) under section 1115 of

such Act (42 U.S.C. 1315), the amount by which any payment

adjustment made by the State under title XIX of such Act (42

U.S.C. 1396 et seq.), after the application of section 4721(e) of

the Balanced Budget Act of 1997 under paragraph (1) to such

State, exceeds the costs of furnishing hospital services provided

by hospitals described in such section shall be fully reflected as

an increase in the baseline expenditure limit for such waiver.

(d) ASSISTANCE FOR CERTAIN PUBLIC HOSPITALS.—

(1) IN GENERAL.—Beginning with fiscal year 2002, notwithstanding section 1923(f) of the Social Security Act (42 U.S.C.

1396r–4(f)) and subject to paragraph (3), with respect to a

State, payment adjustments made under title XIX of the Social

Security Act (42 U.S.C. 1396 et seq.) to a hospital described in

paragraph (2) shall be made without regard to the DSH allotment limitation for the State determined under section 1923(f)

of that Act (42 U.S.C. 1396r–4(f)).

(2) HOSPITAL DESCRIBED.—A hospital is described in this

paragraph if the hospital—

(A) is owned or operated by a State (as defined for purposes of title XIX of the Social Security Act), or by an instrumentality or a unit of government within a State (as so

defined);

(B) as of October 1, 2000—

(i) is in existence and operating as a hospital described in subparagraph (A); and

(ii) is not receiving disproportionate share hospital

payments from the State in which it is located under

title XIX of such Act; and

(C) has a low-income utilization rate (as defined in section 1923(b)(3) of the Social Security Act (42 U.S.C. 1396r–

4(b)(3))) in excess of 65 percent.

(3) LIMITATION ON EXPENDITURES.—

(A) IN GENERAL.—With respect to any fiscal year, the

aggregate amount of Federal financial participation that

may be provided for payment adjustments described in

paragraph (1) for that fiscal year for all States may not exceed the amount described in subparagraph (B) for the fiscal year.

(B) AMOUNT DESCRIBED.—The amount described in

this subparagraph for a fiscal year is as follows:

(i) For fiscal year 2002, $15,000,000.

(ii) For fiscal year 2003, $176,000,000.

(iii) For fiscal year 2004, $269,000,000.

(iv) For fiscal year 2005, $330,000,000.

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(v) For fiscal year 2006 and each fiscal year thereafter, $375,000,000.

(e) DSH PAYMENT ACCOUNTABILITY STANDARDS.—Not later

than September 30, 2002, the Secretary of Health and Human Services shall implement accountability standards to ensure that Federal funds provided with respect to disproportionate share hospital

adjustments made under section 1923 of the Social Security Act (42

U.S.C. 1396r–4) are used to reimburse States and hospitals eligible

for such payment adjustments for providing uncompensated health

care to low-income patients and are otherwise made in accordance

with the requirements of section 1923 of that Act.

SEC. 702. NEW PROSPECTIVE PAYMENT SYSTEM FOR FEDERALLYQUALIFIED HEALTH CENTERS AND RURAL HEALTH CLINICS.

(a) IN GENERAL.—Section 1902(a) (42 U.S.C. 1396a(a)) is

amended—

(1) in paragraph (13)—

(A) in subparagraph (A), by adding ‘‘and’’ at the end;

(B) in subparagraph (B), by striking ‘‘and’’ at the end;

and

(C) by striking subparagraph (C); and

(2) by inserting after paragraph (14) the following new

paragraph:

‘‘(15) provide for payment for services described in clause

(B) or (C) of section 1905(a)(2) under the plan in accordance

with subsection (aa);’’.

(b) NEW PROSPECTIVE PAYMENT SYSTEM.—Section 1902 (42

U.S.C. 1396a) is amended by adding at the end the following:

‘‘(aa) PAYMENT FOR SERVICES PROVIDED BY FEDERALLY-QUALIFIED HEALTH CENTERS AND RURAL HEALTH CLINICS.—

‘‘(1) IN GENERAL.—Beginning with fiscal year 2001 and

each succeeding fiscal year, the State plan shall provide for

payment for services described in section 1905(a)(2)(C) furnished by a Federally-qualified health center and services described in section 1905(a)(2)(B) furnished by a rural health

clinic in accordance with the provisions of this subsection.

‘‘(2) FISCAL YEAR 2001.—Subject to paragraph (4), for services furnished during fiscal year 2001, the State plan shall provide for payment for such services in an amount (calculated on

a per visit basis) that is equal to 100 percent of the average of

the costs of the center or clinic of furnishing such services during fiscal years 1999 and 2000 which are reasonable and related to the cost of furnishing such services, or based on such

other tests of reasonableness as the Secretary prescribes in regulations under section 1833(a)(3), or, in the case of services to

which such regulations do not apply, the same methodology

used under section 1833(a)(3), adjusted to take into account any

increase or decrease in the scope of such services furnished by

the center or clinic during fiscal year 2001.

‘‘(3) FISCAL YEAR 2002 AND SUCCEEDING FISCAL YEARS.—

Subject to paragraph (4), for services furnished during fiscal

year 2002 or a succeeding fiscal year, the State plan shall provide for payment for such services in an amount (calculated on

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a per visit basis) that is equal to the amount calculated for such

services under this subsection for the preceding fiscal year—

‘‘(A) increased by the percentage increase in the MEI

(as defined in section 1842(i)(3)) applicable to primary care

services (as defined in section 1842(i)(4)) for that fiscal

year; and

‘‘(B) adjusted to take into account any increase or decrease in the scope of such services furnished by the center

or clinic during that fiscal year.

‘‘(4) ESTABLISHMENT OF INITIAL YEAR PAYMENT AMOUNT

FOR NEW CENTERS OR CLINICS.—In any case in which an entity

first qualifies as a Federally-qualified health center or rural

health clinic after fiscal year 2000, the State plan shall provide

for payment for services described in section 1905(a)(2)(C) furnished by the center or services described in section

1905(a)(2)(B) furnished by the clinic in the first fiscal year in

which the center or clinic so qualifies in an amount (calculated

on a per visit basis) that is equal to 100 percent of the costs of

furnishing such services during such fiscal year based on the

rates established under this subsection for the fiscal year for

other such centers or clinics located in the same or adjacent

area with a similar case load or, in the absence of such a center

or clinic, in accordance with the regulations and methodology

referred to in paragraph (2) or based on such other tests of reasonableness as the Secretary may specify. For each fiscal year

following the fiscal year in which the entity first qualifies as a

Federally-qualified health center or rural health clinic, the

State plan shall provide for the payment amount to be calculated in accordance with paragraph (3).

‘‘(5) ADMINISTRATION IN THE CASE OF MANAGED CARE.—

‘‘(A) IN GENERAL.—In the case of services furnished by

a Federally-qualified health center or rural health clinic

pursuant to a contract between the center or clinic and a

managed care entity (as defined in section 1932(a)(1)(B)),

the State plan shall provide for payment to the center or

clinic by the State of a supplemental payment equal to the

amount (if any) by which the amount determined under

paragraphs (2), (3), and (4) of this subsection exceeds the

amount of the payments provided under the contract.

‘‘(B) PAYMENT SCHEDULE.—The supplemental payment

required under subparagraph (A) shall be made pursuant

to a payment schedule agreed to by the State and the Federally-qualified health center or rural health clinic, but in

no case less frequently than every 4 months.

‘‘(6) ALTERNATIVE PAYMENT METHODOLOGIES.—Notwithstanding any other provision of this section, the State plan may

provide for payment in any fiscal year to a Federally-qualified

health center for services described in section 1905(a)(2)(C) or

to a rural health clinic for services described in section

1905(a)(2)(B) in an amount which is determined under an alternative payment methodology that—

‘‘(A) is agreed to by the State and the center or clinic;

and

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‘‘(B) results in payment to the center or clinic of an

amount which is at least equal to the amount otherwise required to be paid to the center or clinic under this section.’’.

(c) CONFORMING AMENDMENTS.—

(1) Section 4712 of the BBA (Public Law 105–33; 111 Stat.

508) is amended by striking subsection (c).

(2) Section 1915(b) (42 U.S.C. 1396n(b)) is amended by

striking ‘‘1902(a)(13)(C)’’ and inserting ‘‘1902(a)(15), 1902(aa),’’.

(d) GAO STUDY OF FUTURE REBASING.—The Comptroller General of the United States shall provide for a study on the need for,

and how to, rebase or refine costs for making payment under the

medicaid program for services provided by Federally-qualified

health centers and rural health clinics (as provided under the

amendments made by this section). The Comptroller General shall

provide for submittal of a report on such study to Congress by not

later than 4 years after the date of the enactment of this Act.

(e) EFFECTIVE DATE.—The amendments made by this section

take effect on October 1, 2000, and apply to services furnished on

or after such date.

SEC. 703. STREAMLINED APPROVAL OF CONTINUED STATE-WIDE SECTION 1115 MEDICAID WAIVERS.

(a) IN GENERAL.—Section 1115 (42 U.S.C. 1315) is amended by

adding at the end the following new subsection:

‘‘(f) An application by the chief executive officer of a State for

an extension of a waiver project the State is operating under an extension under subsection (e) (in this subsection referred to as the

‘waiver project’) shall be submitted and approved or disapproved in

accordance with the following:

‘‘(1) The application for an extension of the waiver project

shall be submitted to the Secretary at least 120 days prior to

the expiration of the current period of the waiver project.

‘‘(2) Not later than 45 days after the date such application

is received by the Secretary, the Secretary shall notify the State

if the Secretary intends to review the terms and conditions of

the waiver project. A failure to provide such notification shall

be deemed to be an approval of the application.

‘‘(3) Not later than 45 days after the date a notification is

made in accordance with paragraph (2), the Secretary shall inform the State of proposed changes in the terms and conditions

of the waiver project. A failure to provide such information

shall be deemed to be an approval of the application.

‘‘(4) During the 30-day period that begins on the date information described in paragraph (3) is provided to a State, the

Secretary shall negotiate revised terms and conditions of the

waiver project with the State.

‘‘(5)(A) Not later than 120 days after the date an application for an extension of the waiver project is submitted to the

Secretary (or such later date agreed to by the chief executive officer of the State), the Secretary shall—

‘‘(i) approve the application subject to such modifications in the terms and conditions—

‘‘(I) as have been agreed to by the Secretary and

the State; or

516

‘‘(II) in the absence of such agreement, as are determined by the Secretary to be reasonable, consistent

with the overall objectives of the waiver project, and

not in violation of applicable law; or

‘‘(ii) disapprove the application.

‘‘(B) A failure by the Secretary to approve or disapprove an

application submitted under this subsection in accordance with

the requirements of subparagraph (A) shall be deemed to be an

approval of the application subject to such modifications in the

terms and conditions as have been agreed to (if any) by the Secretary and the State.

‘‘(6) An approval of an application for an extension of a

waiver project under this subsection shall be for a period not

to exceed 3 years.

‘‘(7) An extension of a waiver project under this subsection

shall be subject to the final reporting and evaluation requirements of paragraphs (4) and (5) of subsection (e) (taking into

account the extension under this subsection with respect to any

timing requirements imposed under those paragraphs).’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

applies to requests for extensions of demonstration projects pending

or submitted on or after the date of the enactment of this Act.

SEC. 704. MEDICAID COUNTY-ORGANIZED HEALTH SYSTEMS.

(a) IN GENERAL.—Section 9517(c)(3)(C) of the Comprehensive

Omnibus Budget Reconciliation Act of 1985 is amended by striking

‘‘10 percent’’ and inserting ‘‘14 percent’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

takes effect on the date of the enactment of this Act.

SEC. 705. DEADLINE FOR ISSUANCE OF FINAL REGULATION RELATING

TO MEDICAID UPPER PAYMENT LIMITS.

(a) IN GENERAL.—Not later than December 31, 2000, the Secretary of Health and Human Services (in this section referred to as

the ‘‘Secretary’’), notwithstanding any requirement of the Administrative Procedures Act under chapter 5 of title 5, United States

Code, or any other provision of law, shall issue under sections

447.272, 447.304, and 447.321 of title 42, Code of Federal Regulations (and any other section of part 447 of title 42, Code of Federal

Regulations that the Secretary determines is appropriate), a final

regulation based on the proposed rule announced on October 5,

2000, that—

(1) modifies the upper payment limit test applied to State

medicaid spending for inpatient hospital services, outpatient

hospital services, nursing facility services, intermediate care facility services for the mentally retarded, and clinic services by

applying an aggregate upper payment limit to payments made

to government facilities that are not State-owned or operated facilities; and

(2) provides for a transition period in accordance with subsection (b).

(b) TRANSITION PERIOD.—

(1) IN GENERAL.—The final regulation required under subsection (a) shall provide that, with respect to a State described

in paragraph (3), the State shall be considered to be in compliVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00520 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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ance with the final regulation required under subsection (a) so

long as, for each State fiscal year during the period described

in paragraph (4), the State reduces payments under a State

medicaid plan payment provision or methodology described in

paragraph (3), or reduces the actual dollar payment levels described in paragraph (3)(B), so that the amount of the payments

that would otherwise have been made under such provision,

methodology, or payment levels by the State for any State fiscal

year during such period is reduced by 15 percent in the first

such State fiscal year, and by an additional 15 percent in each

of next 5 State fiscal years.

(2) REQUIREMENT.—Notwithstanding paragraph (1), the

final regulation required under subsection (a) shall provide

that, for any period (or portion of a period) that occurs on or

after October 1, 2008, medicaid payments made by a State described in paragraph (3) shall comply with such final regulation.

(3) STATE DESCRIBED.—A State described in this paragraph

is a State with a State medicaid plan payment provision or

methodology which—

(A) was approved, deemed to have been approved, or

was in effect on or before October 1, 1992 (including any

subsequent amendments or successor provisions or methodologies and whether or not a State plan amendment was

made to carry out such provision or methodology after such

date) or under which claims for Federal financial participation were filed and paid on or before such date; and

(B) provides for payments that are in excess of the

upper payment limit test established under the final regulation required under subsection (a) (or which would be noncompliant with such final regulation if the actual dollar

payment levels made under the payment provision or methodology in the State fiscal year which begins during 1999

were continued).

(4) PERIOD DESCRIBED.—The period described in this paragraph is the period that begins on the first State fiscal year that

begins after September 30, 2002, and ends on September 30,

2008.

SEC. 706. ALASKA FMAP.

Notwithstanding the first sentence of section 1905(b) of the Social Security Act (42 U.S.C. 1396d(b)), only with respect to each of

fiscal years 2001 through 2005, for purposes of titles XIX and XXI

of the Social Security Act, the State percentage used to determine

the Federal medical assistance percentage for Alaska shall be that

percentage which bears the same ratio to 45 percent as the square

of the adjusted per capita income of Alaska (determined by dividing

the State’s 3-year average per capita income by 1.05) bears to the

square of the per capita income of the 50 States.

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TITLE VIII—STATE CHILDREN’S HEALTH

INSURANCE PROGRAM

SEC. 801. SPECIAL RULE FOR REDISTRIBUTION AND AVAILABILITY OF

UNUSED FISCAL YEAR 1998 AND 1999 SCHIP ALLOTMENTS.

(a) CHANGE IN RULES FOR REDISTRIBUTION AND RETENTION OF

UNUSED SCHIP ALLOTMENTS FOR FISCAL YEARS 1998 AND 1999.—

Section 2104 (42 U.S.C. 1397dd) is amended by adding at the end

the following new subsection:

‘‘(g) RULE FOR REDISTRIBUTION AND EXTENDED AVAILABILITY

OF FISCAL YEARS 1998 AND 1999 ALLOTMENTS.—

‘‘(1) AMOUNT REDISTRIBUTED.—

‘‘(A) IN GENERAL.—In the case of a State that expends

all of its allotment under subsection (b) or (c) for fiscal year

1998 by the end of fiscal year 2000, or for fiscal year 1999

by the end of fiscal year 2001, the Secretary shall redistribute to the State under subsection (f) (from the fiscal

year 1998 or 1999 allotments of other States, respectively,

as determined by the application of paragraphs (2) and (3)

with respect to the respective fiscal year)) the following

amount:

‘‘(i) STATE.—In the case of 1 of the 50 States or the

District of Columbia, with respect to—

‘‘(I) the fiscal year 1998 allotment, the amount

by which the State’s expenditures under this title

in fiscal years 1998, 1999, and 2000 exceed the

State’s allotment for fiscal year 1998 under subsection (b); or

‘‘(II) the fiscal year 1999 allotment, the

amount by which the State’s expenditures under

this title in fiscal years 1999, 2000, and 2001 exceed the State’s allotment for fiscal year 1999

under subsection (b).

‘‘(ii) TERRITORY.—In the case of a commonwealth

or territory described in subsection (c)(3), an amount

that bears the same ratio to 1.05 percent of the total

amount described in paragraph (2)(B)(i)(I) as the ratio

of the commonwealth’s or territory’s fiscal year 1998 or

1999 allotment under subsection (c) (as the case may

be) bears to the total of all such allotments for such fiscal year under such subsection.

‘‘(B) EXPENDITURE RULES.—An amount redistributed to

a State under this paragraph with respect to fiscal year

1998 or 1999—

‘‘(i) shall not be included in the determination of

the State’s allotment for any fiscal year under this section;

‘‘(ii) notwithstanding subsection (e), shall remain

available for expenditure by the State through the end

of fiscal year 2002; and

‘‘(iii) shall be counted as being expended with respect to a fiscal year allotment in accordance with applicable regulations of the Secretary.

519

‘‘(2) EXTENSION OF AVAILABILITY OF PORTION OF UNEXPENDED FISCAL YEARS 1998 AND 1999 ALLOTMENTS.—

‘‘(A) IN GENERAL.—Notwithstanding subsection (e):

‘‘(i) FISCAL YEAR 1998 ALLOTMENT.—Of the amounts

allotted to a State pursuant to this section for fiscal

year 1998 that were not expended by the State by the

end of fiscal year 2000, the amount specified in subparagraph (B) for fiscal year 1998 for such State shall

remain available for expenditure by the State through

the end of fiscal year 2002.

‘‘(ii) FISCAL YEAR 1999 ALLOTMENT.—Of the

amounts allotted to a State pursuant to this subsection

for fiscal year 1999 that were not expended by the State

by the end of fiscal year 2001, the amount specified in

subparagraph (B) for fiscal year 1999 for such State

shall remain available for expenditure by the State

through the end of fiscal year 2002.

‘‘(B) AMOUNT REMAINING AVAILABLE FOR EXPENDITURE.—The amount specified in this subparagraph for a

State for a fiscal year is equal to—

‘‘(i) the amount by which (I) the total amount

available for redistribution under subsection (f) from

the allotments for that fiscal year, exceeds (II) the total

amounts redistributed under paragraph (1) for that fiscal year; multiplied by

‘‘(ii) the ratio of the amount of such State’s unexpended allotment for that fiscal year to the total

amount described in clause (i)(I) for that fiscal year.

‘‘(C) USE OF UP TO 10 PERCENT OF RETAINED 1998 ALLOTMENTS FOR OUTREACH ACTIVITIES.—Notwithstanding

section 2105(c)(2)(A), with respect to any State described in

subparagraph (A)(i), the State may use up to 10 percent of

the amount specified in subparagraph (B) for fiscal year

1998 for expenditures for outreach activities approved by

the Secretary.

‘‘(3) DETERMINATION OF AMOUNTS.—For purposes of calculating the amounts described in paragraphs (1) and (2) relating

to the allotment for fiscal year 1998 or fiscal year 1999, the Secretary shall use the amounts reported by the States not later

than November 30, 2000, or November 30, 2001, respectively, on

HCFA Form 64 or HCFA Form 21, as approved by the Secretary.’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall take effect as if included in the enactment of section 4901 of

BBA (111 Stat. 552).

SEC. 802. AUTHORITY TO PAY MEDICAID EXPANSION SCHIP COSTS

FROM TITLE XXI APPROPRIATION.

(a) AUTHORITY TO PAY MEDICAID EXPANSION SCHIP COSTS

FROM TITLE XXI APPROPRIATION.—Section 2105(a) (42 U.S.C.

1397ee(a)) is amended—

(1) by redesignating subparagraphs (A) through (D) of

paragraph (2) as clauses (i) through (iv), respectively, and indenting appropriately;

520

(2) by redesignating paragraph (1) as subparagraph (C),

and indenting appropriately;

(3) by redesignating paragraph (2) as subparagraph (D),

and indenting appropriately;

(4) by striking ‘‘(a) IN GENERAL.—’’ and the remainder of

the text that precedes subparagraph (C), as so redesignated,

and inserting the following:

‘‘(a) PAYMENTS.—

‘‘(1) IN GENERAL.—Subject to the succeeding provisions of

this section, the Secretary shall pay to each State with a plan

approved under this title, from its allotment under section 2104,

an amount for each quarter equal to the enhanced FMAP (or,

in the case of expenditures described in subparagraph (B), the

Federal medical assistance percentage (as defined in the first

sentence of section 1905(b))) of expenditures in the quarter—

‘‘(A) for child health assistance under the plan for targeted low-income children in the form of providing medical

assistance for which payment is made on the basis of an

enhanced FMAP under the fourth sentence of section

1905(b);

‘‘(B) for the provision of medical assistance on behalf of

a child during a presumptive eligibility period under section 1920A;’’; and

(5) by adding after subparagraph (D), as so redesignated,

the following new paragraph:

‘‘(2) ORDER OF PAYMENTS.—Payments under paragraph (1)

from a State’s allotment shall be made in the following order:

‘‘(A) First, for expenditures for items described in paragraph (1)(A).

‘‘(B) Second, for expenditures for items described in

paragraph (1)(B).

‘‘(C) Third, for expenditures for items described in

paragraph (1)(C).

‘‘(D) Fourth, for expenditures for items described in

paragraph (1)(D).’’.

(b) ELIMINATION OF REQUIREMENT TO REDUCE TITLE XXI ALLOTMENT BY MEDICAID EXPANSION SCHIP COSTS.—Section 2104

(42 U.S.C. 1397dd) is amended by striking subsection (d).

(c) AUTHORITY TO TRANSFER TITLE XXI APPROPRIATIONS TO

TITLE XIX APPROPRIATION ACCOUNT AS REIMBURSEMENT FOR MEDICAID EXPENDITURES FOR MEDICAID EXPANSION SCHIP SERVICES.—

Notwithstanding any other provision of law, all amounts appropriated under title XXI and allotted to a State pursuant to subsection (b) or (c) of section 2104 of the Social Security Act (42 U.S.C.

1397dd) for fiscal years 1998 through 2000 (including any amounts

that, but for this provision, would be considered to have expired)

and not expended in providing child health assistance or related

services for which payment may be made pursuant to subparagraph

(C) or (D) of section 2105(a)(1) of such Act (42 U.S.C. 1397ee(a)(1))

(as amended by subsection (a)), shall be available to reimburse the

Grants to States for Medicaid account in an amount equal to the

total payments made to such State under section 1903(a) of such Act

(42 U.S.C. 1396b(a)) for expenditures in such years for medical asVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00524 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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sistance described in subparagraphs (A) and (B) of section

2105(a)(1) of such Act (42 U.S.C. 1397ee(a)(1) (as so amended).

(d) CONFORMING AMENDMENTS.— (1) Section 1905(b) (42 U.S.C. 1396d(b)) is amended in the

fourth sentence by striking ‘‘the State’s allotment under section

2104 (not taking into account reductions under section

2104(d)(2)) for the fiscal year reduced by the amount of any

payments made under section 2105 to the State from such allotment for such fiscal year’’ and inserting ‘‘the State’s available

allotment under section 2104’’.

(2) Section 1905(u)(1)(B) (42 U.S.C. 1396d(u)(1)(B)) is

amended by striking ‘‘and section 2104(d)’’.

(3) Section 2104 (42 U.S.C. 1397dd), as amended by subsection (b), is further amended—

(A) in subsection (b)(1), by striking ‘‘and subsection

(d)’’; and

(B) in subsection (c)(1), by striking ‘‘subject to subsection (d),’’.

(4) Section 2105(c) (42 U.S.C. 1397ee(c)) is amended—

(A) in paragraph (2)(A), by striking all that follows

‘‘Except as provided in this paragraph,’’ and inserting ‘‘the

amount of payment that may be made under subsection (a)

for a fiscal year for expenditures for items described in

paragraph (1)(D) of such subsection shall not exceed 10 percent of the total amount of expenditures for which payment

is made under subparagraphs (A), (C), and (D) of paragraph (1) of such subsection.’’;

(B) in paragraph (2)(B), by striking ‘‘described in subsection (a)(2)’’ and inserting ‘‘described in subsection

(a)(1)(D)’’; and

(C) in paragraph (6)(B), by striking ‘‘Except as otherwise provided by law,’’ and inserting ‘‘Except as provided

in subparagraph (A) or (B) of subsection (a)(1) or any other

provision of law,’’.

(5) Section 2110(a) (42 U.S.C. 1397jj(a)) is amended by

striking ‘‘section 2105(a)(2)(A)’’ and inserting ‘‘section

2105(a)(1)(D)(i)’’.

(e) TECHNICAL AMENDMENT.—Section 2105(d)(2)(B)(ii) (42

U.S.C. 1397ee(d)(2)(B)(ii)) is amended by striking ‘‘enhanced FMAP

under section 1905(u)’’ and inserting ‘‘enhanced FMAP under the

fourth sentence of section 1905(b)’’.

(f) EFFECTIVE DATE.—The amendments made by this section

shall be effective as if included in the enactment of section 4901 of

the BBA (111 Stat. 552).

TITLE IX—OTHER PROVISIONS

Subtitle A—PACE Program

SEC. 901. EXTENSION OF TRANSITION FOR CURRENT WAIVERS.

Section 4803(d)(2) of BBA is amended—

(1) in subparagraph (A), by striking ‘‘24 months’’ and inserting ‘‘36 months’’;

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(2) in subparagraph (A), by striking ‘‘the initial effective

date of regulations described in subsection (a)’’ and inserting

‘‘July 1, 2000’’; and

(3) in subparagraph (B), by striking ‘‘3 years’’ and inserting

‘‘4 years’’.

SEC. 902. CONTINUING OF CERTAIN OPERATING ARRANGEMENTS PERMITTED.

(a) IN GENERAL.—Section 1894(f)(2) (42 U.S.C. 1395eee(f)(2)) is

amended by adding at the end the following new subparagraph:

‘‘(C) CONTINUATION OF MODIFICATIONS OR WAIVERS OF

OPERATIONAL REQUIREMENTS UNDER DEMONSTRATION STATUS.—If a PACE program operating under demonstration

authority has contractual or other operating arrangements

which are not otherwise recognized in regulation and which

were in effect on July 1, 2000, the Secretary (in close consultation with, and with the concurrence of, the State administering agency) shall permit any such program to continue such arrangements so long as such arrangements are

found by the Secretary and the State to be reasonably consistent with the objectives of the PACE program.’’.

(b) CONFORMING AMENDMENT.—Section 1934(f)(2) (42 U.S.C.

1396u–4(f)(2)) is amended by adding at the end the following new

subparagraph:

‘‘(C) CONTINUATION OF MODIFICATIONS OR WAIVERS OF

OPERATIONAL REQUIREMENTS UNDER DEMONSTRATION STATUS.—If a PACE program operating under demonstration

authority has contractual or other operating arrangements

which are not otherwise recognized in regulation and which

were in effect on July 1 2000, the Secretary (in close consultation with, and with the concurrence of, the State administering agency) shall permit any such program to continue such arrangements so long as such arrangements are

found by the Secretary and the State to be reasonably consistent with the objectives of the PACE program.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall be effective as included in the enactment of BBA.

SEC. 903. FLEXIBILITY IN EXERCISING WAIVER AUTHORITY.

In applying sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Social Security Act (42 U.S.C. 1395eee(f)(2)(B), 1396u–4(f)(2)(B)), the

Secretary of Health and Human Services—

(1) shall approve or deny a request for a modification or a

waiver of provisions of the PACE protocol not later than 90

days after the date the Secretary receives the request; and

(2) may exercise authority to modify or waive such provisions in a manner that responds promptly to the needs of PACE

programs relating to areas of employment and the use of community-based primary care physicians.

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Subtitle B—Outreach to Eligible LowIncome Medicare Beneficiaries

SEC. 911. OUTREACH ON AVAILABILITY OF MEDICARE COST-SHARING

ASSISTANCE TO ELIGIBLE LOW-INCOME MEDICARE BENEFICIARIES.

(a) OUTREACH.—

(1) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.) is

amended by inserting after section 1143 the following new section:

‘‘OUTREACH EFFORTS TO INCREASE AWARENESS OF THE AVAILABILITY

OF MEDICARE COST-SHARING

‘‘SEC. 1144. (a) OUTREACH.—

‘‘(1) IN GENERAL.—The Commissioner of Social Security (in

this section referred to as the ‘Commissioner’) shall conduct outreach efforts to—

‘‘(A) identify individuals entitled to benefits under the

medicare program under title XVIII who may be eligible for

medical assistance for payment of the cost of medicare costsharing under the medicaid program pursuant to sections

1902(a)(10)(E) and 1933; and

‘‘(B) notify such individuals of the availability of such

medical assistance under such sections.

‘‘(2) CONTENT OF NOTICE.—Any notice furnished under

paragraph (1) shall state that eligibility for medicare cost-sharing assistance under such sections is conditioned upon—

‘‘(A) the individual providing to the State information

about income and resources (in the case of an individual

residing in a State that imposes an assets test for such eligibility); and

‘‘(B) meeting the applicable eligibility criteria.

‘‘(b) COORDINATION WITH STATES.—

‘‘(1) IN GENERAL.—In conducting the outreach efforts under

this section, the Commissioner shall—

‘‘(A) furnish the agency of each State responsible for the

administration of the medicaid program and any other appropriate State agency with information consisting of the

name and address of individuals residing in the State that

the Commissioner determines may be eligible for medical

assistance for payment of the cost of medicare cost-sharing

under the medicaid program pursuant to sections

1902(a)(10)(E) and 1933; and

‘‘(B) update any such information not less frequently

than once per year.

‘‘(2) INFORMATION IN PERIODIC UPDATES.—The periodic updates described in paragraph (1)(B) shall include information

on individuals who are or may be eligible for the medical assistance described in paragraph (1)(A) because such individuals

have experienced reductions in benefits under title II.’’.

(2) AMENDMENT TO TITLE XIX.—Section 1905(p) (42 U.S.C.

1396d(p)) is amended by adding at the end the following new

paragraph:

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‘‘(5) For provisions relating to outreach efforts to increase

awareness of the availability of medicare cost-sharing, see section

1144.’’.

(b) GAO REPORT.—The Comptroller General of the United

States shall conduct a study of the impact of section 1144 of the Social Security Act (as added by subsection (a)(1)) on the enrollment

of individuals for medicare cost-sharing under the medicaid program. Not later than 18 months after the date that the Commissioner of Social Security first conducts outreach under section 1144

of such Act, the Comptroller General shall submit to Congress a report on such study. The report shall include such recommendations

for legislative changes as the Comptroller General deems appropriate.

(c) EFFECTIVE DATE.—The amendments made by subsections (a)

shall take effect one year after the date of the enactment of this Act.

Subtitle C—Maternal and Child Health

Block Grant

SEC. 921. INCREASE IN AUTHORIZATION OF APPROPRIATIONS FOR

THE MATERNAL AND CHILD HEALTH SERVICES BLOCK

GRANT.

(a) IN GENERAL.—Section 501(a) (42 U.S.C. 701(a)) is amended

in the matter preceding paragraph (1) by striking ‘‘$705,000,000 for

fiscal year 1994’’ and inserting ‘‘$850,000,000 for fiscal year 2001’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

takes effect on October 1, 2000.

Subtitle D—Diabetes

SEC. 931. INCREASE IN APPROPRIATIONS FOR SPECIAL DIABETES

PROGRAMS FOR TYPE I DIABETES AND INDIANS.

(a) SPECIAL DIABETES PROGRAMS FOR TYPE I DIABETES.—Section 330B(b) of the Public Health Service Act (42 U.S.C. 254c–2(b))

is amended—

(1) by striking ‘‘Notwithstanding’’ and inserting the following:

‘‘(1) TRANSFERRED FUNDS.—Notwithstanding’’; and

(2) by adding at the end the following:

‘‘(2) APPROPRIATIONS.—For the purpose of making grants

under this section, there is appropriated, out of any funds in the

Treasury not otherwise appropriated—

‘‘(A) $70,000,000 for each of fiscal years 2001 and 2002

(which shall be combined with amounts transferred under

paragraph (1) for each such fiscal years); and

‘‘(B) $100,000,000 for fiscal year 2003.’’.

(b) SPECIAL DIABETES PROGRAMS FOR INDIANS.—Section

330C(c) of such Act (42 U.S.C. 254c–3(c)) is amended—

(1) by striking ‘‘Notwithstanding’’ and inserting the following:

‘‘(1) TRANSFERRED FUNDS.—Notwithstanding’’; and

(2) by adding at the end the following:

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‘‘(2) APPROPRIATIONS.—For the purpose of making grants

under this section, there is appropriated, out of any money in

the Treasury not otherwise appropriated—

‘‘(A) $70,000,000 for each of fiscal years 2001 and 2002

(which shall be combined with amounts transferred under

paragraph (1) for each such fiscal years); and

‘‘(B) $100,000,000 for fiscal year 2003.’’.

(c) EXTENSION OF FINAL REPORT ON GRANT PROGRAMS.—Section 4923(b)(2) of BBA is amended by striking ‘‘2002’’ and inserting

‘‘2003’’.

SEC. 932. APPROPRIATIONS FOR RICKY RAY HEMOPHILIA RELIEF

FUND.

Section 101(e) of the Ricky Ray Hemophilia Relief Fund Act of

1998 (42 U.S.C. 300c–22 note) is amended by adding at the end the

following: ‘‘There is appropriated to the Fund $475,000,000 for fiscal year 2001, to remain available until expended.’’.

Following is explanatory language for H.R. 5543 as introduced

on October 25, 2000.

(527)

STATEMENT OF MANAGERS FOR THE MEDICARE, MEDICAID, AND SCHIP BENEFITS IMPROVEMENT AND PROTECTION ACT OF 2000

TITLE I—MEDICARE BENEFICIARY IMPROVEMENTS

Subtilte A—Improved Preventive Benefits

Section 101. Coverage of biennial screening pap smear and pelvic

exams

The provision modifies current law to provide Medicare coverage for biennial screening pap smears and pelvic exams, effective

July 1, 2001.

Section 102. Coverage of screening for glaucoma

The provision would add Medicare coverage for annual glaucoma screenings, beginning January 1, 2002, for persons determined to be at high risk for glaucoma, individuals with a family

history of glaucoma, and individuals with diabetes. The service

would have to be furnished by or under the supervision of an optometrist or ophthalmologist who is legally authorized to perform

such services in the state where the services are furnished.

Section 103. Coverage of screening colonoscopy for average risk individuals

The provision would authorize coverage for screening

colonoscopies, beginning July 1, 2001, for all individuals, not just

those at high risk. For persons not at high risk, payments could not

be made for such procedures if performed within 10 years of a previous screening colonoscopy or within 4 years of a screening flexible

sigmoidoscopy.

Section 104. Modernization of screening mammography benefit

Beginning in 2002, the provision would eliminate the statutorily prescribed payment rate for mammography payments and

specify that the services are to be paid under the physician fee

schedule. The provision would specify two new payment rates for

mammographies that utilize advanced new technology for the period April 1, 2001 to December 21, 2001. Payment for technologies

that directly take digital images would equal 150% of what would

otherwise be paid for a bilateral diagnostic mammography. For

technologies that convert standard film images to digital form, an

additional payment of fifteen dollars would be authorized. The Secretary would be required to determine whether a new code is required for tests furnished after 2001.

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Section 105. Coverage of medical nutrition therapy services for beneficiaries with diabetes or a renal disease

The provision would establish, effective January 1, 2002, Medicare coverage for medical nutrition therapy services for beneficiaries who have diabetes or a renal disease. Medical nutrition

therapy services would be defined as nutritional diagnostic, therapy and counseling services for the purpose of disease management

which are furnished by a registered dietician or nutrition professional, pursuant to a referral by a physician. The provision would

specify that the amount paid for medical nutrition therapy services

would equal the lesser of the actual charge for the service or 85%

of the amount that would be paid under the physician fee schedule

if such services were provided by a physician. Assignment would be

required for all claims. The Secretary would be required to submit

a report to Congress that contains an evaluation of the effectiveness of services furnished under this provision.

Subtitle B—Other Beneficiary Improvements

Section 111. Acceleration of reduction of beneficiary copayment for

hospital outpatient hospital outpatient department services

Effective January 1, 2001, the provision would modify current

law by limiting the amount of a beneficiary’s copayment for a procedure in a hospital outpatient department to the hospital inpatient deductible applicable in that year.

In addition, starting in January, 2001, the provision would require the Secretary of HHS to reduce the effective copayment rate

for outpatient services to a maximum rate of 60% and then gradually reduce the effective coinsurance rate in 5 percentage point intervals from 2002 through 2006 until the maximum rate is 40% in

2006. As stated in BBA 97, hospitals may waive any increase in coinsurance that may have arisen from the implementation of the

outpatient prospective payment system (PPS).

The Comptroller General would be required to work with the

National Association of Insurance Commissioners (NAIC) to evaluate the extent to which premiums for supplemental policies reflect

the acceleration of the reduction in beneficiary coinsurance for hospital outpatient services and result in savings to beneficiaries and

to report to the Congress by April 1, 2004.

Section 112. Preservation of coverage of drugs and biologicals under

part B of the medicare program

The provision would clarify policy with regard to coverage of

drugs, provided incident to physicians services, that cannot be selfadministered. The provision would specify that such drugs are covered when they are not usually self-administered by the patient.

Section 113. Elimination of time limitation on Medicare benefits for

immunosuppressive drugs

The provision would eliminate the current time limitations on

the coverage of immunosuppressive drugs for beneficiaries who

have received a covered organ transplant. The provision would

apply to drugs furnished, on or after the date enactment.

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Section 114. Imposition of balanced billing limits on prescription

drugs

The provision would specify that payment for drugs under Part

B must be made on the basis of assignment.

Subtitle C—Demonstration Projects and Studies

Section 121. Demonstration project for disease management for severely chronically ill Medicare beneficiaries

The Secretary would be required to conduct a demonstration

project to illustrate the impact on costs and health outcomes of applying disease management to Medicare beneficiaries with diagnosed, advanced-stage congestive heart failure, diabetes, or coronary heart disease. Up to 30,000 beneficiaries would be able to enroll, on a voluntary basis, for disease management services related

to their chronic health condition. In addition, contractors providing

disease management services would be responsible for providing

beneficiaries enrolled in the project with prescription drugs.

Section 122. Cancer prevention and treatment demonstration for

ethnic and racial minorities

The provision would require the Secretary to conduct demonstration projects for the purpose of developing models and evaluating methods that improve the quality of cancer prevention services, improve clinical outcomes, eliminate disparities in the rate of

preventive screening measures, and promote collaboration with

community-based organizations for ethnic and racial minorities.

Section 123. Study on Medicare coverage of routine thyroid screening

The provision would require the Secretary to request the National Academy of Sciences, and as appropriate in conjunction with

the United States Preventive Services Task Force, to analyze the

addition of routine thyroid screening under Medicare. The analysis

would consider the short term and long term benefits, and cost to

Medicare, of adding such coverage for some or all beneficiaries.

Section 124. MedPAC study on consumer coalitions

The provision would require MedPAC to conduct a study that

examines the use of consumer coalitions in the marketing of

Medicare+Choice plans. A consumer coalition would be defined as

a non-profit community-based organization that provides information to beneficiaries about their health options under Medicare and

negotiates with Medicare+Choice plans on benefits and premiums

for beneficiaries who are members of the coalition or otherwise affiliated with it.

Section 125. Study on limitation on state payment for medicare

cost-sharing affecting access to services for qualified medicare

beneficiaries

The provision would require the Secretary of HHS to conduct

a study to determine if access to certain services (including mental

health services) has been affected by a specific provision in law.

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care cost-sharing charges for QMBs to the extent these payments

would result in a total payment in excess of the Medicaid level.

Section 126. Institute of Medicine study on waiver of 24-month

waiting period for Medicare disability eligibility for

amyotrophic lateral sclerosis (ALS) and other devastating diseases

The provision would provide for an Institute of Medicine study

that examines the appropriateness of waiving the 24-month waiting period for Medicare disability eligibility for an individual medically determined to have amyotrophic lateral sclerosis (ALS) or an

other disease that is as rapidly debilitating.

Section 127. Studies on preventive interventions in primary care for

older Americans

The provision would require the Secretary, acting through the

United States Preventive Services Task Force, to conduct a series

of studies designed to identify preventive interventions in primary

care for older Americans.

Section 128. MedPAC study and report on Medicare coverage of cardiac and pulmonary rehabilitation and therapy services

The provision would require MedPAC to conduct a study on

coverage of cardiac and pulmonary rehabilitation therapy services

under Medicare.

TITLE II—RURAL HEALTH CARE IMPROVEMENTS

Subtitle A—Critical Access Hospital Provisions

Section 201. Clarification of no beneficiary cost-sharing for clinical

diagnostic laboratory tests furnished by critical access hospitals

Effective for services furnished on or after the enactment of

BBRA99, Medicare beneficiaries would not be liable for any coinsurance, deductible, copayment, or other cost sharing amount with

respect to clinical diagnostic laboratory services furnished as an

outpatient critical access hospital (CAH) service. Conforming

changes that clarify that CAHs are reimbursed on a reasonable

cost basis for outpatient clinical diagnostic laboratory services are

also included.

Section 202. Assistance with fee schedule payment for professional

services under all-inclusive rate

Effective for items and services furnished on or after April 1,

2001, Medicare would pay a CAH for outpatient services based on

reasonable costs or, at the election of an entity, would pay the CAH

a facility fee based on reasonable costs plus an amount based on

115% of Medicare’s fee schedule for professional services.

Section 203. Exemption of critical access hospital swing beds from

SNF PPS

Swing beds in critical access hospitals (CAHs) would be exempt

from the SNF prospective payment system. CAHs would be paid for

covered SNF services on a reasonable cost basis.

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Section 204. Payment in critical access hospitals for emergency

room on-call physicians

When determining the allowable, reasonable cost of outpatient

CAH services, the Secretary would recognize amounts for the compensation and related costs for on-call emergency room physicians

who are not present on the premises, are not otherwise furnishing

services, and are not on-call at any other provider or facility. The

Secretary would define the reasonable payment amounts and the

meaning of the term ‘‘on-call.’’ The provision would be effective for

cost reporting periods beginning on or after October 1, 2001.

Section 205. Treatment of ambulance services furnished by certain

critical access hospitals

Ambulance services provided by a critical access hospital

(CAH) or provided by an entity that is owned or operated by a CAH

would be paid on a reasonable cost basis if the CAH or entity is

the only provider or supplier of ambulance services that is located

within a 35-mile drive of the CAH. The provision would be effective

for cost reporting periods beginning on or after implementation of

the fee schedule.

Section 206. GAO study on certain eligibility requirements for critical access hospitals

Within one year of enactment, GAO would be required to conduct a study on the eligibility requirements for critical access hospitals (CAHs) with respect to limitations on average length of stay

and number of beds, including an analysis of the feasibility of having a distinct part unit as part of a CAH and the effect of seasonal

variations in CAH eligibility requirements. GAO also would be required to analyze the effect of seasonal variations in patient admissions on critical access hospital eligibility requirements with respect to limits on average annual length of stay and number of

beds.

Subtitle B—Other Rural Hospitals Provisions

Section 211. Equitable treatment for rural disproportionate share

hospitals

For discharges occurring on or after April 1, 2001, all hospitals

would be eligible to receive DSH payments when their DSH percentage (threshold amount) exceeds 15%. The DSH payment formulas for sole community hospitals (SCHs), rural referral centers

(RRCs), rural hospitals that are both SCHs and RRCs, small rural

hospitals and urban hospitals with less than 100 beds would be

modified.

Section 212. Option to base eligibility for Medicare dependent, small

rural hospital program on discharges during 2 of the 3 most recent audited cost reporting periods

An otherwise qualifying small rural hospital would be able to

be classified as an MDH if at least 60% of its days or discharges

were attributable to Medicare Part A beneficiaries in at least two

of the three most recent audited cost reporting periods for which

the Secretary has a settled cost report.

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Section 213. Extension of option to use rebased target amounts to

all sole community hospitals

Any SCH would be able to elect payment based on hospital

specific, updated FY1996 costs if this target amount resulted in

higher Medicare payments. There would be a transition period with

Medicare payment based completely on updated FY1996 hospital

specific costs for discharges occurring after FY2003.

Section 214. MedPAC analysis of impact of volume on per unit cost

of rural hospitals with psychiatric units

MedPAC would be required to report on the impact of volume

on the per unit cost of rural hospitals with psychiatric units and

include in its report a recommendation on whether special treatment is warranted.

Subtitle C—Other Rural Provisions

Section 221. Assistance for providers of ambulance services in rural

areas

The provision would make additional payments to providers of

ground ambulance services for trips, originating in rural areas,

that are greater than 17 miles and up to 50 miles. The payments

would be made for services furnished on or after implementation

of the fee schedule and before January 1, 2004. The provision

would require the Comptroller General to conduct a study to examine both the costs of efficiently providing ambulance services for

trips originating in rural areas and the means by which rural areas

with low population densities can be identified for the purpose of

designating areas in which the costs of ambulance services would

be expected to be higher. The Comptroller General would submit

a report to Congress by June 30, 2002 on the results of the study,

together with recommendations on steps that should be taken to

assure access to ambulance services for trips originating in rural

areas. The Secretary would be required to take these findings into

account when establishing the fee schedule, beginning with 2004.

Section 222. Payment for certain physician assistant services

This provision would give permanent authority to physician assistants who owned rural health clinics that lost their designation

as such to bill Medicare directly.

Section 223. Expansion of Medicare payment for telehealth services

The provision would establish revised payment provisions, effective no later than July 1, 2001, for services that are provided via

a telecommunications system by a physician or practitioner to an

eligible beneficiary in a rural area. The Secretary would be required to make payments for telehealth services to the physician

or practitioner at the distant site in an amount equal to the

amount that would have been paid to such physician or practitioner if the service had been furnished to the beneficiary without

the use of a telecommunications system. A facility fee would be

paid to the originating site. Originating sites would include a physician or practitioner office, a critical access hospital, a rural health

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retary would be required to conduct a study, and submit recommendations to Congress, that identify additional settings, sites,

practitioners and geographic areas that would be appropriate for

telehealth services. Entities participating in Federal demonstration

projects approved by, or receiving funding from, the Secretary as

of December 31, 2000 would be qualified sites.

Section 224. Expanding Access to rural health clinics

All hospitals of less than 50 beds that own rural health clinics

would be exempt from the per visit limit.

Section 225. MedPAC study on low-volume, isolated rural health

providers

MedPAC would be required to study the effect of low patient

and procedure volume on the financial status and Medicare payment methods for hospital outpatient services, ambulance services,

hospital inpatient services, skilled nursing facility services, and

home health services in isolated rural health care providers.

TITLE III—PROVISIONS RELATING TO PART A

Subtitle A—Inpatient Hospital Services

Section 301. Revision of acute care hospital payment update for

2001

All hospitals would receive the full market basket index (MBI)

as an update for FY2001. In order to implement this increase for

hospitals other than sole community hospitals (SCH), those hospitals would receive the MBI minus 1.1 percentage points (the current statutory provision) for discharges occurring on or after October 1, 2000 and before April 1, 2001; these non-SCH hospitals

would receive the MBI plus 1.1 percentage points for discharges occurring on or after April 1, 2001 and before October 1, 2001. For

FY2002 and FY2003, hospitals would receive the MBI minus .55

percentage points. For FY2004 and subsequently, hospitals would

receive the MBI.

The Secretary is directed to consider the prices of blood and

blood products purchased by hospitals in the next rebasing and revision of the hospital market basket to determine whether those

prices are adequately reflected in the market basket index.

MedPAC is directed to conduct a study on increased hospital costs

attributable to complying with new blood safety measures and providing such services using new technologies among other issues.

For discharges occurring on or after October 1, 2001, the Secretary would be able to adjust the standardized amount in future

fiscal years to correct for changes in the aggregate Medicare payments caused by adjustments to the DRG weighting factors in a

previous fiscal year (or estimates that such adjustments for a future fiscal year) that did not take into account coding improvements or changes in discharge classifications and did not accurately represent increases in the resource intensity of patients

treated by PPS hospitals.

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Section 302. Additional modification in transition for indirect medical education (IME) percentage adjustment

Teaching hospitals would receive 6.25% IME payment adjustment (for each 10% increase in teaching intensity) for discharges

occurring on or after October 1, 2000 and before April 1, 2001. The

IME adjustment would increase to 6.75% for discharges on or after

April 1, 2001 and before October 1, 2001, for an average of 6.5%

for FY2001. The IME adjustment would be 6.375% in FY2002 and

5.5% in FY2003 and in subsequent years.

Section 303. Decrease in reductions for disproportionate share hospital (DSH) payments

Reductions in the DSH payment formula amounts would be 2%

in FY2001, 3% in FY2002, and 0% in FY2003 and subsequently. To

implement the FY2001 provision, DSH amounts for discharges occurring on or after October 1, 2000 and before April 1, 2001, would

be reduced by 3% which was the reduction in effect prior to enactment of this provision. DSH amounts for discharges occurring on

or after April 1, 2001 and before October 1, 2001 would be reduced

by only 1 percentage point.

Section 304. Wage index improvements

For FY2001 or any fiscal year thereafter, a Medicare Geographic Classification Review Board (MGCRB) decision to reclassify

a prospective payment system hospital for use of a different area’s

wage index would be effective for 3 fiscal years. The Secretary

would establish procedures whereby a hospital could elect to terminate this reclassification decision before the end of such period. For

FY2003 and subsequently, MGCRB would base any comparison of

the average hourly wage of the hospital with the average hourly

wage for hospitals in the area using data from each of the two immediately preceding surveys as well as data from the most recently

published hospital wage survey.

The Secretary would establish a process which would first be

available for discharges occurring on or after October 1, 2001

where a single wage index would be computed for all geographic

areas in the state. If the Secretary applies a statewide geographic

index, an application by an individual hospital would not be considered. The Secretary would also collect occupational data every

three years in order to construct an occupational mix adjustment

for the hospital area wage index. The first complete data collection

effort would occur no later than September 30, 2003 for application

beginning October 1, 2004.

Section 305. Payment for inpatient services in rehabilitation hospitals

Total payments for rehabilitation hospitals in FY2002 would

equal the amounts of payments that would have been made if the

rehabilitation prospective payment system (PPS) had not been enacted. A rehabilitation facility would be able to make a one-time

election before the start of the PPS to be paid based on a fully

phased-in PPS rate.

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Section 306. Payment for inpatient services of psychiatric hospitals

The provision would increase the incentive payments for psychiatric hospitals and distinct part units to 3% for cost reporting

periods beginning on or after October 1, 2000.

Section 307. Payment for inpatient services of long-term care hospitals

For cost reporting periods beginning during FY 2001, long term

hospitals would have the national cap increased by 2% and the target amount increased by 25%. Neither these payments nor the increased bonus payments provided by BBRA 99 would be factored

into the development of the prospective payment system (PPS) for

long term hospitals. When developing the PPS for inpatient long

term hospitals, the Secretary would be required to examine the feasibility and impact of basing payment on the existing (or refined)

acute hospital DRGs and using the most recently available hospital

discharge data. If the Secretary is unable to implement a long term

hospital PPS by October 1, 2002, the Secretary would be required

to implement a PPS for these hospitals using the existing acute

hospital DRGs that have been modified where feasible.

Subtitle B—Adjustments to PPS Payments for Skilled Nursing

Facilities

Section 311. Elimination of reduction in skilled nursing facility

(SNF) market basket update in 2001

The provision would modify the schedule and rates according

to which federal per diem payments are updated. In FY 2002 and

FY 2003 the updates would be the market basket index increase

minus 0.5 percentage point. The update rate for the period October

1, 2000, through March 31, 2001, would be the market basket

index increase minus 1 percentage point; the update rate for the

period April 1, 2001, through September 30, 2001, would be the

market basket index increase plus one percentage point. Temporary increases in the federal per diem rates provided by BBRA

99 would be in addition to the increases in this provision. By July

1, 2002, the Comptroller General would be required to submit a report to Congress on the adequacy of Medicare payments to SNFs,

taking into account the role of private payers, medicaid, and case

mix on the financial performance of SNFs and including an analysis, by RUG classification, of the number and characteristics of

such facilities. By January 1, 2005, the Secretary would be required to submit a report to Congress on alternatives for classification of SNF patients.

Section 312. Increase in nursing component of PPS federal rate

The provision would increase the nursing component of each

RUG by 16.66 percent over current law for SNF care furnished

after April 1, 2001, and before October 1, 2002.

The Comptroller General would be required to conduct an

audit of nurse staffing ratios in a sample of SNFs and to report to

Congress by August 1, 2002, on the results of the audit of nurse

staffing ratios and recommend whether the additional 16.66 percent payment should be continued.

536

Section 313. Application of SNF consolidated billing requirement

limited to part A covered stays

Effective January 1, 2001, the provision would limit the current law consolidated billing requirement to services and items furnished to SNF residents in a Medicare part A covered stay and to

therapy services furnished in part A and part B covered stays.

The Inspector General of HHS would be required to monitor

part B payments to SNFs on behalf of residents who are not in a

part A covered stay.

Section 314. Adjustment of rehabilitation RUGS to correct anomaly

in payment rates

Effective for skilled nursing facility (SNF) services furnished

on or after April 1, 2002, the provision would increase by 6.7 percent certain federal per diem payments to ensure that Medicare

payments for SNF residents with ‘‘ultra high’’ and ‘‘high’’ rehabilitation therapy needs are appropriate in relation to payments for

residents needing ‘‘medium’’ or ‘‘low’’ levels of therapy. The 20 percent additional payment that was provided in BBRA 99 for certain

RUGS is removed to make this provision budget neutral.

The Inspector General of HHS would be required to review and

report to Congress by October 1, 2001, regarding whether the RUG

payment structure as in effect under the BBRA 99 includes incentives for the delivery of inadequate care.

Section 315. Establishment of process for geographic reclassification

The provision would permit the Secretary to establish a process for geographic reclassification of skilled nursing facilities based

upon the method used for inpatient hospitals. The Secretary may

implement the process upon completion of the data collection necessary to calculate an area wage index for workers in skilled nursing facilities.

Subtitle C—Hospice Care

Section 321. Full market basket increase for 2001

The provision would modify update procedures for Medicare

daily payment rates for hospice care. It would provide an increase

in FY 2001 equal to the full increase in the market basket index.

(The rates would be lower in the period October 1, 2000, through

March 21, 2001, and higher in the period April 1, 2001, through

September 30, 2001.) For FY 2002, payments would be updated by

the market basket index increase minus .25 percentage point. The

temporary increase in payment rates provided in BBRA 99 for FY

2001 and FY 2002 (.5 percent and .75 percent, respectively) would

be included in the base on which updates are computed.

Section 322. Clarification of physician certification

Effective for certifications of terminal illness made on or after

the date of enactment, the provision would modify current law to

specify that the physician’s or hospice medical director’s certification of terminal illness would be based on his/her clinical judgment regarding the normal course of the individual’s illness. The

Secretary would be required to study and report to Congress within

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2 years of enactment on the appropriateness of certification of terminally ill individuals and the effect of this provision on such certification.

Section 323. MedPAC report on access to, and use of, hospice benefit

The provision would require MedPAC to examine the factors

affecting the use of Medicare hospice benefits, including delay of

entry into the hospice program and urban and rural differences in

utilization rates. The provision would require a report on the study

to be submitted to Congress 18 months after enactment.

Section 331. Relief From Medicare Part A late enrollment penalty

for group buy-in for state and local retirees

The provision would exempt certain state and local retirees, retiring prior to January 1, 2002, from the Part A delayed enrollment

penalties. These would be groups of persons for whom the state or

local government elected to pay the delayed Part A enrollment penalty for life. The amount of the delayed enrollment penalty which

would otherwise be assessed would be reduced by an amount equal

to the total amount of Medicare payroll taxes paid by the employee

and the employer on behalf of the employee.

Section 332. Posting of information on nursing facility staffing

The provision would require skilled nursing facilities to post

nurse staffing information daily for each shift in the facility.

TITLE IV—PROVISIONS RELATING TO PART B

Subtitle A—Hospital Outpatient Services

Section 401. Revision of hospital outpatient PPS payment update

Effective as if enacted with the BBRA 99, the provision would

modify the current law update rates applicable to the hospital outpatient PPS by providing in FY 2001 an update equal to the full

rate of increase in the market basket index. As under current law,

the increase in FY 2002 would be the market basket index increase

minus one percentage point.

If the Secretary determines that updates to the adjustment factor used to convert the relative utilization weights under the PPS

into payment amounts have, or are likely to, result in hospitals’

changing their coding or classification of covered services, thereby

changing aggregate payments, the Secretary would be authorized

to adjust the conversion factor in later years to eliminate the effect

of coding or classification changes.

Section 402. Clarifying process and standards for determining eligibility of devices for pass-through payments under hospital outpatient PPS

The provision would modify the procedures and standards by

which certain medical devices are categorized and determined eligible for pass-through payments under the PPS. Through public rulemaking procedures, the Secretary would be required to establish

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gate, through the use of a program memorandum, initial categories

that would encompass each of the individual devices that the Secretary had designated as qualifying for the pass-through payments

to date. In addition, similar devices not so designated because they

were payable under Medicare prior to December 31, 1996, would

also be included in initial categories. The Secretary would be required to create additional new categories in the future to accommodate new technologies meeting the ‘‘not insignificant cost’’ test

established in BBRA 99.

Once the categories were established, pass-through payments

currently authorized under section 1833(t)(b) of the Social Security

Act would proceed on a category-specific, rather than device-specific

basis. These payments would be designated as ‘‘category-based

pass-through payments.’’ These payments would be continued to be

made for the 2 to 3 years payment period originally specified in

BBRA 99, and, for each given category, would begin when the first

such payment is made for any device included in a specified category. At the conclusion of this transitional payment period, categories would sunset and payment for the device would be included

in the underlying PPS payment for the related service.

Section 403. Application of OPD PPS transitional corridor payments to certain hospitals that did not submit a 1996 cost report

Effective as if enacted with BBRA 99, the provision would

modify current law as enacted in BBA 99 to enable all hospitals,

not just those hospitals filing 1996 cost reports, to be eligible for

transitional payments under the PPS.

Section 404. Application of rules for determining provider-based status for certain entities

The provision would grandfather existing arrangements whereby certain entities (such as outpatient clinics, skilled nursing facilities, etc.) are considered ‘‘provider-based’’ entities, meaning they

are affiliated financially and clinically with a main hospital. Existing provider-based status designations would continue for two

years beginning October 1, 2000. If a facility or organization requests approval for provider-based status during the period October

1, 2000, through September 31, 2002, it could not be treated as if

it did not have such status during the period of time the determination is pending. In making such a status determination on or

after October 1, 2000, HCFA would treat the applicant as satisfying any requirements or standards for geographic location if it

satisfied geographic location requirements in regulations or is located not more than 35 miles from the main campus of the hospital.

An applicant facility or organization would be treated as satisfying all requirements for provider-based status if it is owned or

operated by a unit of State or local government or is a public or

private nonprofit corporation that is formally granted governmental

powers by a unit of State or local government, or is a private hospital that, under contract, serves certain low income households or

has a certain disproportionate share adjustment.

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These provisions are in effect during a two-year period beginning on October 1, 2000.

Section 405. Treatment of children’s hospitals under prospective

payment system

The BBRA 99 provides special ‘‘hold harmless’’ payments to ensure that cancer hospitals would receive no less under the hospital

outpatient PPS than they would have received, in aggregate, under

the ‘‘pre-BBA’’ system, that is, the pre-PPS payment system. Effective as if included in the BBRA 99, the provision would extend this

hold harmless protection to children’s hospitals.

Sec 406. Inclusion of temperature monitored cryoablation

The provision would include temperature monitored

cryoablation as part of the transitional pass-through for certain

medical devices, drugs, and biologicals under the hospital outpatient prospective payment system, effective April 1, 2001.

Subtitle B—Provisions Relating to Physicians Services

Section 411. GAO studies relating to physicians’ services

The provision would require the GAO to conduct a study on the

appropriateness of furnishing in physicians offices specialist services (such as gastrointestinal endoscopic physicians services) which

are ordinarily furnished in hospital outpatient departments. The

GAO would also be required to study the refinements to the practice expense relative value units made during the transition to the

resource-based system.

Section 412. Physician group practice demonstration

The provision would require the Secretary to conduct demonstration projects to test, and if proven effective, expand the use

of incentives to health care groups participating under Medicare.

Such incentives would be designed to encourage coordination of

care furnished under Medicare Parts A and B by institutional and

other providers and practitioners; to encourage investment in administrative structures and processes to encourage efficient service

delivery; and to reward physicians for improving health outcomes.

The Secretary would establish for each group participating in a

demonstration, a base expenditure amount and an expenditure target (reflecting base expenditures adjusted for risk and expected

growth rates). The Secretary would pay each group a bonus for

each year equal to a portion of the savings for the year relative to

the target. In addition, at such time as the Secretary had developed

appropriate criteria, the Secretary would pay an additional bonus

related to process and outcome improvements. Total payments

under demonstrations could not exceed what the Secretary estimates would be paid in the absence of the demonstration program.

Section 413. Study on enrollment procedures for groups that retain

independent contractor physicians

The provision would require the Comptroller General to conduct a study of the current Medicare enrollment process for groups

that retain independent contractor physicians; particular emphasis

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would be placed on hospital-based physicians, such as emergency

department staffing groups.

Subtitle C—Other Services

Section 421. One-year extension of moratorium on therapy caps; report on standards for supervision of physical therapy assistants

The provision would extend the moratorium on the physical

therapy and occupational therapy caps for 1 year through 2002; it

would also extend the requirement for focused reviews of therapy

claims for the same period. The Secretary would be required to conduct a study on the implications of eliminating the ‘‘in the room’’

supervision requirement for Medicare payment for physical therapy

assistants who are supervised by physical therapists and the implications of this requirement on the physical therapy cap.

Section 422. Update in renal dialysis composite rate

The provision would specify that the composite rate payment

for renal dialysis services would be increased by 2.4% for 2001. The

provision would require the Secretary to collect data and develop

an end-stage renal disease (ESRD) market basket whereby the Secretary could estimate before the beginning of a year the percentage

increase in costs for the mix of labor and non-labor goods and services included in the composite rate. The Secretary would report to

Congress on the index together with recommendations on the appropriateness of an annual or periodic update mechanism for dialysis services. The Comptroller General would be required to study

the access of beneficiaries to dialysis services. There is a hold

harmless provision for facilities who received exemptions for their

2000 rates, and for facilities that had their applications denied in

2000 but resubmit them by July 1, 2001 and are approved.

Section 423. Payment for ambulance services

The provision would provide for the full inflation update in ambulance payments for 2001. It would also specify that any phasein of the ambulance fee schedule would provide for full payment of

national mileage rates in states where separate mileage payments

were not made prior to implementation of the fee schedule.

Section 424. Ambulatory surgical centers

The provision would delay implementation of proposed regulatory changes to the ambulatory payment classification system,

which are based on 1994 cost data, until January 1, 2002. At that

time, such changes would be phased in over 4 years: in the first

year the payment amounts would be 25 percent of the revised rates

and 75 percent of the prior system rates; in the second year payments would be 50 percent of the revised rates and 50 percent of

the prior system rates, etc. The provision also requires that the revised system, based on 1999 (or later) cost data, be implemented

January 1, 2003. (The phase-in of the revised system and 1994

data would end when the system with 1999 or later data was implemented.)

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Section 425. Full update for durable medical equipment

The provision would modify updates to payments for durable

medical equipment. For 2001, the payments for covered DME

would be increased by the full increase in the consumer price index

for urban consumers during the 12-month period ending June

2000. No increase would be authorized for 2002.

Section 426. Full update for orthotics and prosthetics

The provision would modify updates to payments for orthotics

and prosthetics: in 2000 the rates would be increased by one percent; in 2001, the increase would be equal to the percentage increase in the consumer price index for urban consumers during the

12-month period ending with June, 2000; for 2002, payments would

be increased by one percent over the prior year’s amounts.

Section 427. Establishment of special payment provisions and requirements for prosthetics and certain custom fabricated

orthotic items

Under the provision, certain prosthetics or custom fabricated

orthotics would be covered by Medicare if furnished by a qualified

practitioner and fabricated by a qualified practitioner or qualified

supplier. The Secretary would be required to establish a list of such

items in consultation with experts. Within one year of enactment,

the Secretary would be required to promulgate regulations to provide these items, using negotiated rulemaking procedures.

Not later than 6 months from enactment, the Comptroller General would be required to submit to Congress a report on the Secretary’s compliance with the Administrative Procedures Act with

regard to HCFA Ruling 96–1; certain impacts of that ruling; the

potential for fraud and abuse in provision of prosthetics and

orthotics under special payment rules and for custom fabricated

items; and the effect on Medicare and Medicaid payments if that

ruling were overturned.

Section 428. Replacement of prosthetic devices and parts

The provision would authorize Medicare coverage for replacement of artificial limbs, or replacement parts for such devices, if ordered by a physician for specified reasons. Effective for items furnished on or after enactment, coverage would apply to prosthetic

items 3 or more years old, and would supersede any 5-year age

rules for such items under current law.

Section 429. Revised part B payment for drugs and biologicals and

related services

The provision would require the Comptroller General to study

and submit a report to Congress and the Secretary on the reimbursement for drugs and biologicals and for related services under

Medicare; the report would include specific recommendations for

revised payment methodologies. The Secretary would revise the

current payment methodologies for covered drugs and biologicals

and related services based on these recommendations; however,

total payments under the revised methodologies could not exceed

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porary injunction on changes in payment rates until the Secretary

reviewed the GAO report.

Section 430. Contrast enhanced diagnostic procedures under hospital prospective payment system

The provision would require the Secretary to create under that

hospital outpatient PPS additional and separate groups of covered

services which include procedures that utilize contrast media. The

provision would take effect January 1, 2001. and separate groups

of covered services which include procedures that utilize contrast

media.

Section 431. Qualifications for community mental health centers

The provision would clarify the qualifications for community

mental health centers providing partial hospitalization services

under Medicare.

Section 432. Modification of medicare billing requirements for certain indian providers

The provision would authorize hospitals and free-standing ambulatory care clinics of the Indian Health Service to bill Medicare

for services which are paid for under the physician fee schedule.

Section 433. GAO study on coverage of surgical first assisting services of certified registered nurse first assistants

The provision would require the Comptroller General to conduct a study on the effect on both the program and beneficiaries

of covering surgical first assisting services of certified registered

nurse first assistants.

Section 434. MedPAC study and report on medicare reimbursement

for services provided by certain providers

The provision would require MedPAC to conduct a study on

the appropriateness of current payment rates for services provided

by a certified nurse midwife, physician assistant, nurse practitioner, and clinical nurse specialist.

Section 435. MedPAC study and report on medicare coverage of

services provided by certain non-physician providers

The provision would require MedPAC to conduct a study to determine the appropriateness of Medicare coverage of the services

provided by a surgical technologist, marriage counselor, pastoral

care counselor, and licensed professional counselor of mental

health.

Section 436. GAO study and report on the costs of emergency and

medical transportation services

The provision would require the Comptroller General to conduct a study on the costs of providing emergency and medical

transportation services across the range of acuity levels of conditions for which such transportation services are provided.

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Section 437. GAO studies and reports on medicare payments

The provision would require the Comptroller General to conduct a study on the post-payment audit process for physicians services. The study would include the proper level of resources HCFA

should devote to educating physicians regarding coding and billing,

documentation requirements, and calculation of overpayments. The

Comptroller General would also be required to conduct a study of

the aggregate effects of regulatory, audit, oversight and paperwork

burdens on physicians and other health care providers participating in Medicare.

Section 439. MedPAC study on access to outpatient pain management services

The provision would require MedPAC to conduct a study on

the barriers to coverage and payment for outpatient interventional

pain medicine procedures under Medicare.

TITLE V—PROVISION RELATING TO PARTS A AND B

Subtitle A—Home Health Services

Section 501. 1-Year additional delay in application of 15 percent reduction on payment limits fo home health services

The provision would require that the aggregate amount of

Medicare payments to home health agencies in the second year of

the PPS (FY 2002) shall equal the aggregate payments in the first

year of the PPS, updated by the market basket index (MBI) increase minus 1.1 percentage points. The 15 percent reduction to aggregate PPS amounts, which, under current law, would go into effect October 1, 2001, would be delayed until October 1, 2002.

The Comptroller General (rather than the Secretary) would be

required to submit, by April 1, 2002, a report analyzing the need

for the 15 percent or other reduction.

If the Secretary determines that updates to the PPS system for

a previous fiscal year (or estimates of such adjustments for a future

fiscal year) did (or are likely to) result in a change in aggregate

payments due to changes in coding or classification of beneficiaries’

service needs that do not reflect real changes in case mix, effective

for home health episodes concluding on or after October 1, 2001,

the Secretary may adjust PPS amounts to eliminate the effect of

such coding or classification changes.

Section 502. Restoration of full home health market basket update

for home health services for fiscal year 2001

The provision would modify the home health PPS updates.

During the period October 1, 2000, through March 31, 2001, the

rates promulgated in the home health PPS regulations on July 3,

2000, would apply for 60-day episodes of care (or visits) ending in

that period. For the period April 1, 2001, through September 31,

2001, those rates would be increased by 2.2 percent for 60-day episodes (or visits) ending in that time period.

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Section 503. Temporary two-month extension of periodic interim

payments

The provision would extend applicability of periodic interim

payments provided under current law. Home health agencies that

were receiving such payments as of September 30, 2000, would continue to receive them until December 1, 2000. The payments in

each of November and December 2000 would equal the amount

those agencies received in October 2000. The amounts would be included in the agency’s last settled cost report before implementation of the PPS.

Section 504. Use of telehealth in delivery of home health services

The provision would clarify that the telecommunications provisions should not be construed as preventing a home health agency

from providing a service, for which payment is made under the prospective payment system, via a telecommunications system, provided that the services do not substitute for ‘‘in-person’’ home

health services ordered by a physician as part of a plan of care or

are not considered a home health visit for purposes of eligibility or

payment.

Section 505. Study on costs to home health agencies of purchasing

nonroutine medical supplies

The provision would require that, not later than October 1,

2001, the Comptroller General shall submit to Congress a report

regarding the variation in prices home health agencies pay for nonroutine supplies, the volume of supplies used, and what effect the

variations have on the provision of services. The Secretary would

be required to make recommendations on whether Medicare payment for those supplies should be made separately from the home

health PPS.

Section 506. Treatment of branch offices; GAO study on supervision

of home health care provided in isolated rural areas

The provision would clarify that neither time nor distance between a home health agency parent office and a branch office shall

be the sole determinant of a home health agency’s branch office

status. The Secretary would be authorized to include forms of technology in determining ‘‘supervision’’ for purposes of determining a

home health agency’s branch office status.

Not later than January 1, 2002, the Comptroller General

would be required to submit to Congress a report regarding the

adequacy of supervision and quality of home health services provided by home health agency branch offices and subunits in isolated rural areas and to make recommendations on whether national standards for supervision would be appropriate in assuring

quality.

Section 507. Clarification of the homebound benefit

The provision clarifies that the need for adult day care for patient’s plan of treatment does not preclude appropriate coverage for

home health care for other medical conditions. The provision also

clarifies the ability of homebound beneficiaries to attend religious

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services without being disqualified from receiving home health benefits.

Subtitle B—Direct Graduate Medical Education

Section 511. Increase in floor for direct graduate medical education

payments

A hospital’s approved per resident amount for cost reporting

periods beginning during FY2002 would not be less than 85% of the

locality adjusted national average per resident amount.

Section 512. Change in distribution formula for Medicare+Choicerelated nursing and allied health education costs

A hospital would receive nursing and allied health payments

for Medicare managed care enrollees based on its per day cost of

allied and nursing health programs and number of days attributed

to Medicare enrollees in comparison to that in all other hospitals.

The provision would be effective for portions of cost reporting periods occurring on or after January 1, 2001.

Subtitle C—Changes in Medicare Coverage and Appeals Process

Section 521. Revisions to medicare appeals process

The provision would modify the Medicare appeals process.

Generally, initial determinations by the Secretary would be concluded no later than 45-days from the date the Secretary received

a claim for benefits. Any individual dissatisfied with the initial determination would be entitled to a redetermination by the carrier

or fiscal intermediary who made the initial determination. Such redetermination would be required to be completed within 30 days of

a beneficiary’s request. Beneficiaries could appeal the outcome of a

redetermination by seeking a reconsideration. Generally, a request

for a reconsideration must be initiated no later than 180 days after

the date the individual receives the notice of an adverse redetermination. In addition, if contested amounts are greater than $100,

an individual would be able to appeal an adverse reconsideration

decision by requesting a hearing by the Secretary (first for a hearing by an administrative law judge, then in certain circumstances,

for a hearing before the Department Appeals Board). If the dispute

is not satisfactorily resolved through this administrative process,

and if contested amounts are greater than $1,000, the individual

would be able to request judicial review of the Secretary’s final decision. Aggregation of claims to meet these thresholds would be

permitted.

An expedited determination would be available for a beneficiary who received notice: 1) that a provider plans to terminate

services and a physician certifies that failure to continue the provisions of the services is likely to place the beneficiary’s health at

risk; or 2) that the provider plans to discharge the beneficiary.

The Secretary would enter into 3-year contracts with at least

12 qualified independent contractors (QICs) to conduct reconsiderations. A QIC would promptly notify beneficiaries and Medicare

claims processing contractors of its determinations. A beneficiary

could appeal the decision of a QIC to an ALJ. In cases where the

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ALJ decision is not rendered within the 90-day deadline, the appealing party would be able to request a DAB hearing.

The Secretary would perform outreach activities to inform

beneficiaries, providers, and suppliers of their appeal rights and

procedures. The Secretary would submit to Congress an annual report including information on the number of appeals for the previous year, identifying issues that require administrative or legislative actions, and including recommendations for change as necessary. The report would also contain an analysis of the consistency

of the QIC determinations as well as the cause for any identified

inconsistencies.

Section 522. Revisions to medicare coverage process

The provision would clarify when and under what circumstances Medicare coverage policy could be challenged. An aggrieved party could file a complaint concerning a national coverage

decision. Such complaint would be reviewed by the Department Appeals Board (DAB) of HHS. The provision would also permit an aggrieved party to file a complaint concerning a local coverage determination. In this case, the determination would be reviewed by an

administrative law judge. If unsatisfied, complainants could subsequently seek review of such a local policy by the DAB. In both

cases, a DAB decision would constitute final HHS action, and

would be subject to judicial review. The provision would also permit an affected party to submit a request to the Secretary to issue

a national coverage or noncoverage determination if one has not

been issued. The Secretary would have 90 days to respond. HHS

would be required to prepare an annual report on national coverage determinations.

Subtitle D—Improving Access to New Technologies

Section 531. Reimbursement improvements for new clinical laboratory tests and durable medical equipment

The provision would specify that the national limitation

amount for a new clinical laboratory test would equal 100% of the

national median for such test. The Secretary would be required to

establish procedures that permit public consultation for coding and

payment determinations for new clinical diagnostic laboratory tests

and new durable medical equipment. The Secretary would be required to report to Congress on specific procedures used to adjust

payments for advanced technologies; the report would include recommendations for legislative changes needed to assure fair and appropriate payments.

Section 532. Retention of HCPCS level III codes

The provision would extend the time for the use of local codes

(known as HCPCS level III codes) through December 31, 2003; the

Secretary would be required to make the codes available to the

public.

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Section 533. Recognition of new medical technologies under medicare inpatient hospital PPS

The Secretary would be required to submit a report to Congress no later than April 1, 2001, on potential methods for more

rapidly incorporating new medical services and technologies used

in the inpatient setting in the clinical coding system used with respect to payment for inpatient services. The Secretary would be required to identify the preferred methods for expediting these coding

modifications in her report, and to implement such method by October 1, 2001. Additional hospital payments could be made by

means of a new technology group (DRG), an add-on payment, payment adjustment or other mechanism. However, separate fee

schedules for additional new technology payments would not be

permitted. The Secretary would implement the new mechanism on

a budget neutral basis. The total amount of projected additional

payments under the mechanism would be limited to an amount not

greater than the Secretary’s annual estimation of the costs attributable to the introduction of new technology in the hospital sector

as a whole (as estimated for purposes of the annual hospital update

calculation).

Subtitle E—Other Provisions

Section 541. Increase in reimbursement for bad debt

Effective beginning with cost reports starting in FY2001, the

provision would increase the percentage of the reasonable costs associated with beneficiaries’ bad debt in hospitals that Medicare

would reimburse to 70%.

Section 542. Treatment of certain physician pathology services

under medicare

The provision would permit independent laboratories, under a

grandfather arrangement to continue, for a 2-year period (2001–

2002), direct billing for the technical component of pathology services provided to hospital inpatients and hospital outpatients. The

Comptroller General would be required to conduct a study of the

effect of these provisions on hospitals and laboratories and access

of fee-for-service beneficiaries to the technical component of physician pathology services. The report would include recommendations

on whether the provisions should continue after the 2-year period

for either (or both) inpatient and outpatient hospital services and

whether the provision should be extended to other hospitals.

Section 543. Extension of advisory opinion authority

The Office of the Inspector General’s authority to issue advisory opinions to outside parties who request guidance on the applicability of the anti-kickback statute, safe harbor provisions and

other OIG health care fraud and abuse sanctions would be made

permanent.

Section 544. Change in annual MedPAC reporting

The provision would delay the reporting date for the MedPAC

report on issues affecting the Medicare program by 15 days to June

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tions contained both in this report and the March report on payment policies.

Section 545. Development of patient assessment instruments

The provision would require the Secretary to report to the Congress on the development of standard instruments for the assessment of the health and functional status of patients and make recommendations on the use of such standard instruments for payment purposes.

Section 546. GAO report on impact of the emergency medical treatment and Active Labor Act (EMTALA) on hospital emergency

departments

GAO would be required to evaluate the impact of the Emergency Medical Treatment and Active Labor Act on hospitals, emergency physicians, and on-call physicians covering emergency departments and to submit a report to Congress by May 1, 2001.

TITLE VI—PROVISIONS RELATING TO PART C (MEDICARE+CHOICE

PROGRAM) AND OTHER MEDICARE MANAGED CARE PROVISIONS

Subtitle A—Medicare+Choice Payment Reforms

Section 601. Increase in minimum payment amount

The provision would set the minimum payment amount for

aged enrollees within the 50 states and the District of Columbia in

a Metropolitan Statistical Area with a population of more than

250,000 at $525 in 2001. For all other areas within the 50 States

and the District of Columbia, the minimum would be $475. For any

area outside the 50 States and the District of Columbia, the $525

and $475 minimum amounts would also be applied, except that the

2001 minimum payment amount could not exceed 120% of the 2000

minimum payment amount.

Section 602. Increase in minimum percentage increase

This provision would apply a 3% minimum update in 2001 and

return to the current law minimum update of 2% thereafter.

Section 603. 10-Year phase in of risk adjustment

Until such time that risk adjustment is based on data from inpatient hospital and ambulatory settings, 10% of payments would

be based on risk-adjusted inpatient data built on the 15 principal

inpatient diagnostic cost groups (PIP–DCGs) and 90% would be adjusted solely using the older demographic method. Beginning with

the first year that risk adjustment is based on data from inpatient

hospitals and ambulatory settings, it would be phased in over 10

years, in equal increments. (The Secretary currently plans to implement this new system in 2004.)

Section 604. Transition to revised Medicare+Choice payment rates

Within 2 weeks after the date of enactment of the Act, the Secretary must announce revised M+C capitation rates for 2001, due

to changes from this Act. Plans that previously provided notice of

their intention to terminate contracts or reduce their service area

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for 2001 would have 2 weeks after announcement of the revised

rates to rescind their notice and submit ACR information. Further,

any M+C organization that would receive higher capitation payments as a result of this Act must submit revised ACR information

within 2 weeks after announcement of the revised rates. Plans may

only reduce premiums, reduce cost sharing, enhance benefits, or

utilize stabilization funds. Notwithstanding the issuance of revised

rates, M+C organizations would continue to be paid on a fee-forservice basis for costs associated with new national coverage determinations that are made mid-year.

Section 605. Revision of payment rates for ESRD patients enrolled

in Medicare+Choice plans

This provision would require that the Secretary increase the

M+C payment rates for enrollees with ESRD. The revised rates

would reflect the demonstration rate (including the risk-adjustment

methodology) of social health maintenance organizations’ ESRD

capitation demonstrations. The revised rates would include adjustments for factors such as renal treatment modality, age, and underlying cause of the disease.

Section 606. Permitting premium reductions as additional benefits

under Medicare+Choice plans

This provision would permit M+C plans to offer reduced Medicare Part B premiums to their enrollees as part of providing any

required additional benefits or reduced cost-sharing. An M+C organization could elect a reduction in its M+C payment up to 125% of

the annual Part B premium. However, only 80% of this amount

could be used to reduce an enrollee’s actual Part B premium. This

would have the effect of returning up to 100% of the beneficiary’s

Part B premium. The reduction would apply uniformly to each enrollee of the M+C plan. Plans would include information about Part

B premium reductions as part of the required information that is

provided to enrollees for comparing plan options.

Section 607. Full implementation of risk adjustment for congestive

heart failure enrollees for 2001

This provision would fully implement risk adjustment based on

inpatient hospital diagnoses for an individual who had a qualifying

congestive heart failure inpatient diagnosis between July 1, 1999

and June 30, 2000, if that individual was enrolled in a coordinated

care plan offered on January 1, 2001. This would apply for only 1

year, beginning on January 1, 2001. This payment amount would

be excluded from the determination of the budget neutrality factor.

Section 608. Expansion of application of Medicare+Choice new entry

bonus

This provision would expand the application of the new entry

bonus for M+C plans to include areas for which notification had

been provided, as of October 3, 2000, that no plans would be available January 1, 2001.

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Section 609. Report on inclusion of certain costs of the Department

of Veterans Affairs and Military Facility Services in calculating

Medicare+Choice payment rates

The Secratary shall report to Congress by January 1, 2003, on

a method to phase-in the costs of military facility services furnished by the Department of Veterans Affairs or the Department

of Defense to Medicare-eligible beneficiaries in the calculation of an

area’s M+C capitation payment. This report would include, on a

county-by-county basis: the actual or estimated costs of such services to Medicare-eligible beneficiaries; the change in M+C capitation payment rates if such costs were included in the calculation

of payment rates; one or more proposals for the implementation of

payment adjustments to M+C plans in counties where the payment

rate has been affected due to failure to account for the cost of such

services; and a system to ensure that when a M+C enrollee receives

covered services through a facility of these Departments, there is

an appropriate payment recovery to the Medicare program.

Subtitle B—Other Medicare+Choice Reforms

Section 611. Payments of additional amounts for new benefits covered during a contract term

The provision would require payment adjustments to M+C

plans if a legislative change resulted in significant increased costs,

similar to the current law requirements for adjusting payments due

to significant increased costs resulting from National Coverage Determination (NCDs). In addition, this provision would require that

cost projections and payment adjustments be based on actuarial estimates provided by the Chief Actuary of the Health Care Financing Administration.

Section 612. Restriction on implementation of significant new regulatory requirements mid-year

The provision would preclude the Secretary from implementing, other than at the beginning of a calendar year, regulations that impose new, significant regulatory requirements on M+C

organizations and plans.

Section 613. Timely approval of marketing material that follows

model marketing language

The provision would require the Secretary to make decisions,

within 10 days, approving or modifying marketing material used by

M+C organizations, provided that the organization uses model language specified by the Secretary. This provision would apply to

marketing material submitted on or after January 1, 2001.

Section 614. Avoiding duplicative regulation

This provision would further stipulate when Medicare law preempts State law or regulation from applying to M+C plans, by

specifying that the term benefit requirements includes cost-sharing

requirements. Second, the provision would stipulate that State

laws and regulations affecting marketing materials, and summaries and schedules of benefits regarding an M+C plan, would

also be preempted by Medicare law.

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Section 615. election of uniform local coverage policy for

Medicare+Choice plan covering multiple localities

An M+C organization offering a plan in an area with more

than one local coverage policy would be able to elect to have the

local coverage policy for the part of the area that is most beneficial

to M+C enrollees (as identified by the Secretary) apply to all M+C

enrollees enrolled in the plan.

Section 616. Eliminating health disparities in Medicare+Choice

Program

This provision would expand the M+C quality assurance programs for M+C plans to include a separate focus on racial and ethnic minorities. The Secretary would also be required to report to

Congress how the quality assurance programs focus on racial and

ethnic minorities, within 2 years after enactment and biannually

thereafter.

Section 617. Medicare+Choice Program compatibility with employer

or union group health plans

In order to make the M+C program compatible with employer

or union group health plans, this provision would allow the Secretary to waive or modify requirements that hinder the design of,

offering of, or enrollment in certain M+C plans. Plans included in

the category are M+C plans under contract between M+C organizations and employers, labor organizations, or trustees of a fund established by employers and/or labor organizations.

Section 618. Special Medigap enrollment anti-discrimination provision for certain beneficiaries

This provision would extend the period for Medigap enrollment

for certain M+C enrollees affected by termination of coverage. For

individuals enrolled in an M+C plan during a 12-month trial period, their trial period would begin again if they re-enrolled in another M+C plan because of an involuntary termination. During this

new trial period, they would retain their rights to enroll in a

Medigap policy; however, the total time for a trial period could not

exceed 2 years from the time they first enrolled in an M+C plan.

Section 619. Restoring effective date of elections and changes of elections of Medicare+Choice plans

This provision would allow individuals who enroll in an M+C

plan after the 10th day of the month to receive coverage beginning

on the first day of the next calendar month, effective January 1,

2001.

Section 620. Permitting ESRD beneficiaries to enroll in another

Medicare+Choice plan if the plan in which they are enrolled is

terminated

This provision would permit ESRD beneficiaries to enroll in

another M+C plan if they lost coverage when their plan terminated

its contract or reduced its service area. This provision would also

be retroactive, to include individuals whose enrollment in an M+C

plan was terminated between December 31, 1998 and enactment of

this legislation.

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Section 621. Providing choice for skilled nursing facility services

under the Medicare+Choice program

Effective for M+C contracts entered into or renewed on or after

the date of enactment, the provision would require an M+C plan

to cover post-hospitalization skilled nursing care through an enrollee’s ‘‘home skilled nursing facility’’ if the plan has a contract with

the facility or if the home facility agrees to accept substantially

similar payment under the same terms and conditions that apply

to similarly situated SNFs that are under contract with the plan.

A ‘‘home skilled nursing facility’’ is defined as (a) one in which the

enrollee resided at the time of the hospital admission that triggered eligibility for SNF care upon discharge, or (b) is the facility

that is providing such services through the continuing care retirement community in which the enrollee resided at the time of hospital admission, or (c) is the facility in which the spouse of the enrollee is residing at the time of the enrollee’s hospital discharge.

The beneficiary would be required to receive coverage for SNF care

at the home facility that is no less favorable than he or she would

receive otherwise in another SNF that has a contract with the

plan.

Home skilled nursing facilities are permitted to refuse to accept Medicare+Choice enrollees or to impose conditions on their acceptance of such an enrollee.

The provision would require the Medicare Payment Advisory

Commission (MedPAC) to analyze and, within 2 years of enactment, report to Congress on the effects of this provision on the

scope of benefits, administrative and other costs incurred by M+C

organizations, and the contractual relationships between those

plans and SNFs.

Section 622. Providing for accountability of Medicare+Choice plans

The provision would mandate review of ACR submissions by

the HCFA Chief Actuary with respect to submissions for ACRs

filed for 2001 and thereafter.

Subtitle C—Other Managed Care Reforms

Section 631. 1-Year extension of Social Health Maintenance Organization (SHMO) demonstration project

The provision would extend SHMO waivers until 30 months

after the Secretary submits a report with a plan for integration and

transition of SHMOs into an option under the M+C program. This

30-month extension would supersede the 18-month extension in

BBRA 99.

Section 632. Revised terms and conditions for extension of Medicare

Community Nursing Organization (CNO) demonstration project

Effective as if enacted with BBRA99, the provision would

eliminate the requirement that CNO capitated payments be reduced to ensure budget neutrality. Through December 2001, the

projects would operate under the same terms and conditions applicable during 1999, but with modification to the capitation rates.

From October 1, 2000, through December 31, 2000, the capitation

rates would be adjusted for inflation since 1999 and for changes in

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service packages, but reduced by 10 percent for in projects in Arizona, Minnesota, and Illinois and by 15 percent in New York. In

2001, the rates would be determined by actuarially adjusting the

rates in the prior period for inflation, utilization, and changes to

the service package. Adjustments would be made to case management fees for certain frail enrollees, and requirements would be imposed to create greater uniformity in clinical features among participating sites and to improve quality and enrollee satisfaction.

By July 1, 2001, the Secretary would be required to submit to

the House Committees on Ways and Means and Commerce and the

Senate Committee on Finance a report evaluating the projects for

the period July 1997 through December 1999 and for the extension

period after September 30, 2000. A final report would be required

by July 1, 2002. The provision would require certain methods to be

used to compare spending per beneficiary under the projects.

Section 633. Extension of Medicare municipal health services demonstration projects

The provision would extend the Medicare municipal health

services demonstration projects for 2 additional years, through December 31, 2004.

Section 634. Service area expansion for Medicare cost contracts during transition period

This provision would allow service area expansion for Medicare

cost contracts, if the request was submitted to the Secretary before

September 1, 2003.

TITLE VII—MEDICAID

Section 701. DSH payments

(a) Modifications to DSH allotments

For FY2001, the provision would set each state’s DSH allotment equal to its allotment for FY2000 increased by the percentage

change in the consumer price index for that year, subject to a ceiling that would be equal to 12% of that state’s total medical assistance payments in that year.

For FY2002, the provision would set each state’s DSH allotment equal to its allotment for 2001 as determined above, increased by the percentage change in the consumer price index for

FY2001, subject to a ceiling equal to 12% of that state’s total medical assistance payments in that year.

For extremely low DSH states, states whose FY1999 federal

and state DSH expenditures (as reported to HCFA on August 31,

2000) are greater than zero but less than one percent of the state’s

total medical assistance expenditures during that fiscal year, the

DSH allotments for FY2001 would be equal to 1 percent of the

state’s total amount of expenditures under their plan for such assistance during that fiscal year. For subsequent fiscal years, the allotments for extremely low DSH states would be equal to their allotment for the previous year, increased by the percentage change

in the consumer price index for the previous year, subject to a ceiling of 12% of that state’s total medical assistance payments in that

year.

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Effective on the date that the final regulation for Medicaid

upper payment limits is published in the Federal Register.

(b) Assuring identification of Medicaid managed care patients

Effective for Medicaid managed care contracts in effect on January 1, 2001, the provision would clarify that Medicaid enrollees of

managed care organizations and primary care case management

organizations are to be included for the purposes of calculating the

Medicaid inpatient utilization rate and the low-income utilization

rate. Also effective January 1, 2001, states must include in their

MCO contracts information that allows the state to determine

which hospital services are provided to Medicaid beneficiaries

through managed care, and would also require states to include a

sponsorship code for the managed care entity on the Medicaid

beneficiary’s identification card.

(c) Application of Medicaid DSH transition rule to public hospitals in all states

The provision would revise BBA97, as modified by BBRA 99,

so that the 175% hospital-specific limit, formerly applied only to

certain public hospitals in California, applies to qualifying public

hospitals in all states. The higher limit would apply for two state

fiscal years beginning on the first day of the state fiscal year that

begins after September 30, 2002 and ends on the last day of the

succeeding state fiscal year. Hospitals that would qualify for the

higher hospital-specific limit would be those owned or operated by

a state and meet the minimum federal requirements for disproportionate share hospitals. The permanent ceiling for California would

not be affected.

For states operating under waivers approved under section

1115 of the Social Security Act, increased payments for public hospitals under this provision would be included in the baseline expenditure limit for the purposes of determining budget neutrality.

(d) Assistance for certain public hospitals

The provision would provide additional funds for certain public

hospitals that are: owned or operated by a state (or by an instrumentality or unit of government within a state); are not receiving

DSH payments as of October 1, 2000; and have a low-income utilization rate in excess of 65% as of the same date. Funds are provided in addition to the DSH allotment for any state with eligible

hospitals and the total for all states cannot exceed the following

amounts: $15 million for FY 2002; $176 million for 2003; $269 million for 2004; $330 million for 2005; and for FY 2006 and each fiscal year thereafter; $375 million.

(e) DSH payment accountability standards

The provision would require the Secretary to implement accountability standards to ensure that DSH payments are used to

reimburse States and hospitals that are eligible for such payments

and are otherwise in accordance with Medicaid statutory requirements.

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Section 702. New prospective payment system for federally-qualified

health centers and rural health clinics

The provision would create a new Medicaid prospective payment system for federally qualified health centers (FQHCs) and

rural health centers (RHCs) beginning in FY2001. In FY2001 existing FQHCs and RHCs would be paid per visit payments equal to

100% of the average costs incurred during 1999 and 2000 adjusted

to take into account any increase or decrease in the scope of services furnished. For entities first qualifying as FQHCs or RHCs

after 2000, the per visit payments would begin in the first year

that the center or clinic attains qualification and would be based

on 100% of the costs incurred during that year based on the rates

established for similar centers or clinics with similar caseloads in

the same adjacent geographic area. In the absence of such similar

centers or clinics, the methodology would be based on that used for

developing rates for established FQHCs or RHCs or a methodology

or reasonable specifications as established by the Secretary. For

each fiscal year thereafter, per visit payments for all FQHCs and

RHCs would be equal to amounts for the preceding fiscal year increased by the percentage increase in the Medicare Economic Index

applicable to primary care services for that fiscal year, and adjusted for any increase or decrease in the scope of services furnished during that fiscal year. In managed care contracts, States

must make supplemental payments to the center or clinic that

would be equal to the difference between contracted amounts and

the cost-based amounts. Those payments would be paid on a schedule mutually agreed to by the State and the FQHC or RHC. Alternative payment methods would be permitted only when payments

are at least equal to amounts otherwise provided.

The provision would also direct the Comptroller General to

provide for a study on how to rebase or refine cost payment methods for the services of FQHCs and RHCs. The report would be due

to Congress no later than 4 years after the date of enactment.

Section 703. Streamlined approval of continued state-wide 1115

Medicaid waivers

The provision would define the process for submitting requests

for and receiving extensions of Medicaid demonstration waivers authorized under Section 1115 of the Social Security Act which have

already received initial 3-year extensions. It would require each

state requesting such an extension to submit an application at

least 120 days prior to the expiration date of the existing waiver.

No later than 45 days after the Secretary receives such application,

the Secretary would be required to notify the State if she intends

to review the existing terms and conditions of the project and

would inform the State of proposed changes in the terms and conditions of the waiver. If the Secretary fails to provide such notification, the request would be deemed approved. During the 30-day period beginning after the Secretary provides the proposed terms and

conditions to the state, those terms and conditions would be negotiated. No later than 120 days after the date that the request for

extension was submitted (or such later date as agreed to by the

chief executive officer of the State) the Secretary would be required

to approve the application subject to the agreed upon terms and

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conditions or, in the absence of an agreement, such terms and conditions that are determined by the Secretary to be reasonably consistent with the overall objective of the waiver, or disapprove the

application. If the waiver is not approved or disapproved during

this period, the request would be deemed approved in the terms

and conditions as have been agreed to (if any) by the Secretary and

the State. Approvals would be for periods not to exceed 3 years and

would be subject to the final reporting and evaluation requirements

in current law.

Section 704. Medicaid county-organized health systems

The provision would allow the current exemption for certain

Health Insuring Organizations (HIOs) from certain Medicaid HMO

contracting requirements to apply as long as no more than 14% of

all Medicaid beneficiaries in the state are enrolled in those HIOs.

This provision would be effective as if included in the enactment

of the Consolidated Omnibus Budget Reconciliation Act of 1985.

Sec. 705. Deadline for issuance of final regulation relating to Medicaid upper payment limits

The provision would require the Secretary to issue final regulations governing upper payment limits no later than December 31,

2000. It also requires that the final regulation establish a separate

UPL for non-state-owned or operated government facilities based

on the proposed rule described above.

The provision also requires the final regulation to stipulate a

third set of rules governing the transition period for certain states.

This additional set of rules would apply to states with payment arrangements approved or in effect on or before October 1, 1992, or

under which claims for federal matching were paid on or before

that date, and for which such payments exceed the UPLs established under the final regulation. For these states, a 6-year transition period would apply, beginning with the period that begins on

the first state fiscal year that starts after September 30, 2002 and

ends on September 30, 2008. For each year during the transition

period, applicable states must reduce excess payments by 15%. Full

compliance with final regulations is required by October 1, 2008.

Section 706. Alaska FMAP

The provision would change the formula for calculating the

state percentage and thus the federal matching percentage for

Alaska for fiscal years 2001 through 2005. The state percentage for

Alaska would be calculated by using an adjusted per capita income

instead of the per capita income generally used. The adjusted per

capita income for Alaska would be calculated as the three year average per capita income for the state divided by 1.05.

TITLE VIII—STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Section 801. Special rule for redistribution and availability of unused fiscal year 1998 and 1999 SCHIP allotments

The provision would establish a new method for distributing

unspent FY1998 and FY1999 allotments. States that use all their

SCHIP allotments (for each of those years) would receive an

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amount equal to estimated spending in excess of their original exhausted allotment. Each territory that spends its original allotment

would receive an amount that bears the same ratio to 1.05% of the

total amount available for redistribution as the ratio of its original

allotment to the total allotment for all territories.

States that do not use all their SCHIP allotment would receive

an amount equal to the total amount of unspent funds, less

amounts distributed to states that fully exhausted their original allotments, multiplied by the ratio of a state’s unspent original allotment to the total amount of unspent funds. States may use up to

10% of the retained FY1998 funds for outreach activities.

To calculate the amounts available for redistribution in each

formula described above, the Secretary would use amounts reported by states not later than November 30 of the relevant fiscal

year on HCFA Form 64 or HCFA Form 21, as approved by the Secretary. Redistributed funds would be available through the end of

FY2002.

Section 802. Authority to pay Medicaid expansion SCHIP costs from

title XXI appropriation

This provision provides a technical accounting clarification requested by the Health Care Financing Administration. It would authorize the payment of the costs of SCHIP Medicaid expansions

and costs of benefits provided during periods of presumptive eligibility from the SCHIP appropriation rather than from the Medicaid

appropriation, with a subsequent offset. In addition, the provision

would codify proposed rules regarding the order of payments for

benefits and administrative costs from state-specific SCHIP allotments.

TITLE IX—OTHER PROVISIONS

Subtitle A—PACE Program

Section 901. Extension of transition for current waivers

The provision would permit the Secretary to continue to operate the Program of All-Inclusive Care for the Elderly (PACE) under

waivers for a period of 36 months (rather than 24 months), and

States may do so for 4 years (rather than 3 years). OBRA 86 required the Secretary to grant waivers of certain Medicare and Medicaid requirements to not more than 10 public or non-profit private

community-based organizations to provide health and long-term

care services on a capitated basis to frail elderly persons at risk of

institutionalization. BBA 97 established PACE as a permanent provider under Medicare and as a special benefit under Medicaid.

Section 902. Continuing of certain operating arrangements permitted

If prior to becoming a permanent component of Medicare, a

PACE demonstration project had contractual or other operating arrangements that are not recognized under permanent program regulations, the provision would require the Secretary, in consultation

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ments as long as it is consistent with the objectives of the PACE

program.

Section 903. Flexibility in exercising waiver authority

The provision would enable the Secretary to exercise authority

to modify or waive Medicare or Medicaid requirements to respond

to the needs of PACE programs related to employment and the use

of community care physicians. The Secretary must approve requests for such waivers within 90 days of the date the request for

waiver is received.

Subtitle B—Outreach to Eligible Low-Income Medicare

Beneficiaries

Section 911. Outreach on availability of medicare cost-sharing assistance to eligible low-income Medicare beneficiaries

The provision would require the Commissioner of the Social

Security Administration to conduct outreach efforts to identify individuals who may be eligible for Medicaid payment of Medicare cost

sharing and to notify these persons of the availability of such assistance. The Commissioner would also be required to furnish, at

least annually, a list of such individuals who reside in each state

to that state’s agency responsible for administering the Medicaid

program as well as to any other appropriate state agency. The list

should include the name and address, and whether such individuals have experienced reductions in Social Security benefits. The

provision would also require the General Accounting Office to conduct a study of the impact of the outreach activities of the Commissioner to submit to Congress no later than 18 months after such

outreach begins. The provision would be effective one year after

date of enactment.

Subtitle C—Maternal and Child Health Block Grant

Section 921. Increase in authorization of appropriations for the maternal and child health services block grant

The provision would increase the authorization of appropriations for the Maternal and Child Health Services Block Grant

under Title V from $705,000,000 to $850,000,000 for fiscal year

2001 and each fiscal year thereafter.

Subtitle D—Diabetes

Section 931. Increase in appropriations for special diabetes programs for type I diabetes and Indians

The provision would extend for 1 year, to FY2003, the authority for grants to be made for both the Special Diabetes Program for

Type I Diabetes and for the Special Diabetes Programs for Indians

under the Public Health Service Act. The provision would also expand funding available for these programs. For each grant program, the provision would increase total funding to $100 million

each for FY2001, FY2002 and FY2003. For FY2001 and FY2002,

$30 million of the $100 million for each program would be transferred from SCHIP as set forth in the Balanced Budget Act of 1997;

the remaining $70 million would be drawn from the Treasury out

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of funds not otherwise appropriated. In FY2003, the entire $100

million would be drawn from the Treasury out of funds not otherwise appropriated. In addition, the provision would extend the due

date on final evaluation reports for these two grant programs from

January 1, 2002 to January 1, 2003.

Section 932. Appropriations for Ricky Ray Hemophilia Relief Fund

This provision provides for a direct appropriation of $475 million for FY 2001. Funds would be available until expended.

PAIN RELIEF PROMOTION ACT OF 2000

The conference agreement would enact the provisions of H.R.

5544, as introduced on October 25, 2000. The text of that bill follows:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Pain Relief Promotion Act of

2000.’’

SECTION 2. FINDINGS.

Congress finds that—

(1) in the first decade of the new millennium there should

be a new emphasis on pain management and palliative care;

(2) the use of certain narcotics and other drugs or substances with a potential for abuse is strictly regulated under the

Controlled Substances Act;

(3) the dispensing and distribution of certain controlled

substances by properly registered practitioners for legitimate

medical purposes are permitted under the Controlled Substances Act and implementing regulations;

(4) the dispensing or distribution of certain controlled substances for the purpose of relieving pain and discomfort even if

it increases the risk of death is a legitimate medical purpose

and is permissible under the Controlled Substances Act;

(5) inadequate treatment of pain, especially for chronic diseases and conditions, irreversible diseases such as cancer, and

end-of-life care, is a serious public health problem affecting

hundreds of thousands of patients every year; physicians should

not hesitate to dispense or distribute controlled substances when

medically indicated for these conditions; and

(6) for the reasons set forth in section 101 of the Controlled

Substances Act (21 U.S.C. 801), the dispensing and distribution

of controlled substances for any purpose affect interstate commerce.

TITLE I—PROMOTING PAIN MANAGEMENT AND

PALLIATIVE CARE

SEC. 101. ACTIVITIES OF AGENCY FOR HEALTHCARE RESEARCH AND

QUALITY.

Part A of title IX of the Public Health Service Act (42 U.S.C.

299 et seq.) is amended by adding at the end the following:

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SEC. 903. PROGRAM FOR PAIN MANAGEMENT AND PALLIATIVE CARE

RESEARCH AND QUALITY.

(a) IN GENERAL.—Subject to subsections (e) and (f) of section

902, the Director shall carry out a program to accomplish the following:

(1) Promote and advance scientific understanding of pain

management and palliative care.

(2) Collect and disseminate protocols and evidence-based

practices regarding, pain management and palliative care, with

priority given to pain management for terminally ill patients,

and make such information available to public and private

health care programs and providers, health professions schools,

and hospices, and to the general public.

(b) DEFINITION.—In this section, the term ‘‘pain management

and palliative care’’ means—

(1) the active, total care of patients whose disease or medical condition is not responsive to curative treatment or whose

prognosis is limited due to progressive, far-advanced disease;

and

(2) the evaluation, diagnosis, treatment, and management

of primary and secondary pain, whether acute, chronic, persistent, intractable, or associated with the end of life;

the purpose of which is to diagnose and alleviate pain and other

distressing signs and symptoms and to enhance the quality of life,

not to hasten or postpone death.

SEC. 102. ACTIVITIES OF HEALTH RESOURCES AND SERVICES ADMINISTRATION.

(a) IN GENERAL.—Part D of title VII of the Public Health Service Act (42 U.S.C. 294 et seq.) is amended—

(1) by redesignating sections 754 through 757 as sections

755 through 758, respectively; and

(2) by inserting after section 753 the following:

SEC. 754. PROGRAM FOR EDUCATION AND TRAINING IN PAIN MANAGEMENT AND PALLIATIVE CARE.

(a) IN GENERAL.—The Secretary, in consultation with the Director of the Agency for Healthcare Research and Quality, may award

grants, cooperative agreements, and contracts to health professions

schools, hospices, and other public and private entities for the development and implementation of programs to provide education and

training to health care professionals in pain management and palliative care.

(b) PRIORITY.—In making awards under subsection (a), the Secretary shall give priority to awards for the implementation of programs under such subsection.

(c) CERTAIN TOPICS.—An award may be made under subsection

(a) only if the applicant for the award agrees that the program to

be carried out with the award will include information and education on—

(1) means for diagnosing and alleviating pain and other

distressing signs and symptoms of patients, especially terminally ill patients, including the medically appropriate use of

controlled substances;

(2) applicable laws on controlled substances, including

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ister controlled substances as needed to relieve pain even in

cases where such efforts may unintentionally increase the risk

of death; and

(3) recent findings, developments, and improvements in the

provision of pain management and palliative care.

(d) PROGRAM SITES.—Education and training under subsection

(a) may be provided at or through health professions schools, residency training programs and other graduate programs in the health

professions, entities that provide continuing medical education, hospices, and such other programs or sites as the Secretary determines

to be appropriate.

(e) EVALUATION OF PROGRAMS.—The Secretary shall (directly or

through grants or contracts) provide for the evaluation of programs

implemented under subsection (a) in order to determine the effect of

such programs on knowledge and practice regarding pain management and palliative care.

(f) PEER REVIEW GROUPS.—In carrying out section 799(f) with

respect to this section, the Secretary shall ensure that the membership of each peer review group involved includes individuals with

expertise and experience in pain management and palliative care for

the population of patients whose needs are to be served by the program.

(g) DEFINITION.—In this section, the term ‘‘pain management

and palliative care’’ means—

(1) the active, total care of patients whose disease or medical condition is not responsive to curative treatment or whose

prognosis is limited due to progressive, far-advanced disease;

and

(2) the evaluation, diagnosis, treatment, and management

of primary and secondary pain, whether acute, chronic, persistent, intractable, or associated with the end of life:

the purpose of which is to diagnose and alleviate pain and other

distressing signs and symptoms and to enhance the quality of life,

not to hasten or postpone death.

(b) AUTHORIZATION OF APPROPRIATIONS; ALLOCATION.—

(1) IN GENERAL.—Section 758 of the Public Health Services

Act (as redesignated by subsection (a)(1) of this section) is

amended, in subsection (b)(1)(C), by striking ‘‘sections 753, 754,

and 755’’ and inserting ‘‘sections 753, 754, 755, and 756’’.

(2) AMOUNT.—With respect to section 758 of the Public

Health Service Act (as redesignated by subsection (a)(1) of this

section), the dollar amount specified in subsection (b)(1)(C) of

such section is deemed to be increased by $5,000,000.

SEC. 103. EFFECTIVE DATE.

The amendments made by this title shall take effect on the date

of enactment of this Act.

TITLE II—USE OF CONTROLLED SUBSTANCES

CONSISTENT WITH THE CONTROLLED SUBSTANCES ACT

SEC. 201. REINFORCING EXISTING STANDARD FOR LEGITIMATE USE

OF CONTROLLED SUBSTANCES.

(a) IN GENERAL.—Section 303 of the Controlled Substances Act

(21 U.S.C. 823) is amended by adding at the end the following:

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(i)(1) For purposes of this Act and any regulations to implement this Act, alleviating pain or discomfort in the usual course

of professional practice is a legitimate medical purpose for the

dispensing, distributing, or administering of a controlled substance that is consistent with public health and safety, even if

the use of such a substance may increase the risk of death.

Nothing in this section authorizes intentionally dispensing, distributing, or administering a controlled substance for the purpose of causing death or assisting another person in causing

death.

(2)(A) Notwithstanding any other provision of this Act, in

determining whether a registration is consistent with the public

interest under this Act, the Attorney General shall give no force

and effect to State law authorizing or permitting assisted suicide or euthanasia.

(B) Paragraph (2) applies only to conduct occurring after

the date of enactment of this subsection.

(3) Nothing in this subsection shall be construed to alter

the roles of the Federal and State governments in regulating the

practice of medicine. Regardless of whether the Attorney General determines pursuant to this section that the registration of

a practitioner is inconsistent with the public interest, it remains

solely within the discretion of State authorities to determine

whether action should be taken with respect to the State professional license of the practitioner or State prescribing privileges.

(4) Nothing in the Pain Relief Promotion Act of 2000 (including the amendments made by such Act) shall be

construed—

(A) to modify the Federal requirements that a controlled substance be dispensed only for a legitimate medical

purpose pursuant to paragraph (1); or

(B) to provide the Attorney General with the authority

to issue national standards for pain management and palliative care clinical practice, research, or quality;

except that the Attorney General may take such other actions as

may be necessary to enforce this Act.

(b) PAIN RELIEF.—Section 304(c) of the Controlled Substances

Act (21 U.S.C. 824(c)) is amended—

(1) by striking ‘‘(c) Before’’ and inserting the following:

(c) PROCEDURES.—

(1) ORDER TO SHOW CAUSE.—Before; and

(2) by adding at the end the following:

(2) BURDEN OF PROOF.—At any proceeding under paragraph (1), where the order to show cause is based on the alleged

intentions of the applicant or registrant to cause or assist in

causing death, and the practitioner claims a defense under

paragraph (1) of section 303(i), the Attorney General shall have

the burden of proving, by clear and convincing evidence, that

the practitioner’s intent was to dispense, distribute, or administer a controlled substance for the purpose of causing death or

assisting another person in causing death. In meeting such burden, it shall not be sufficient to prove that the applicant or registrant knew that the use of controlled substance may increase

the risk of death.

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SEC. 202. EDUCATION AND TRAINING PROGRAMS.

Section 502(a) of the Controlled Substances Act (21 U.S.C.

872(a) is amended—

(1) by striking ‘‘and’’ at the end of paragraph (5);

(2) by striking the period at the end of paragraph (6) and

inserting ‘‘; and’’ and

(3) by adding at the end the following:

(7) educational and training programs for Federal, State,

and local personnel, incorporating recommendations, subject to

the provisions of subsection (e) and (f) of section 902 of the Public Health Service Act, by the Secretary of Health and Human

Services, on the means by which investigation and enforcement

actions by law enforcement personnel may better accommodate

the necessary and legitimate use of controlled substances in

pain management and palliative care.

Nothing in this subsection shall be construed to alter the roles of the

Federal and State governments in regulating the practice of medicine.

SEC. 203. FUNDING AUTHORITY.

Notwithstanding any other provision of law, the operation of

the diversion control fee account program of the Drug Enforcement

Administration shall be construed to include carrying out section

303(i) of the Controlled Substances Act (21 U.S.C. 823(i)), as added

by this Act, and subsections (a)(4) and (c)(2) of section 304 of the

Controlled Substances Act (21 U.S.C. 824), as amended by this Act.

SEC. 204. EFFECTIVE DATE.

The amendments made by this title shall take effect on the date

of enactment of this Act.

SMALL BUSINESS REAUTHORIZATION ACT OF 2000

The conference agreement would enact the provisions of H.R.

5545, as introduced on October 25, 2000. The text of that bill follows:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Small Business Reauthorization Act of 2000’’.

(b) TABLE OF CONTENTS.—The table of contents for this Act is

as follows:

Sec. 1. Short title; table of contents.

TITLE I—SMALL BUSINESS INNOVATION RESEARCH PROGRAM

Sec. 101. Short title.

Sec. 102. Findings.

Sec. 103. Extension of SBIR program.

Sec. 104. Annual report.

Sec. 105. Third phase assistance.

Sec. 106. Report on programs for annual performance plan.

Sec. 107. Output and outcome data.

Sec. 108. National Research Council reports.

Sec. 109. Federal agency expenditures for the SBIR program.

Sec. 110. Policy directive modifications.

Sec. 111. Federal and State technology partnership program.

Sec. 112. Mentoring networks.

Sec. 113. Simplified reporting requirements.

Sec. 114. Rural outreach program extension.

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TITLE II—BUSINESS LOAN PROGRAMS

Sec. 201. Short title.

Sec. 202. Levels of participation.

Sec. 203. Loan amounts.

Sec. 204. Interest on defaulted loans.

Sec. 205. Prepayment of loans.

Sec. 206. Guarantee fees.

Sec. 207. Lease terms.

Sec. 208. Appraisals for loans secured by real property.

Sec. 209. Sale of guaranteed loans made for export purposes.

Sec. 210. Microloan program.

TITLE III—CERTIFIED DEVELOPMENT COMPANY PROGRAM

Sec. 301. Short title.

Sec. 302. Women-owned businesses.

Sec. 303. Maximum debenture size.

Sec. 304. Fees.

Sec. 305. Premier certified lenders program.

Sec. 306. Sale of certain defaulted loans.

Sec. 307. Loan liquidation.

TITLE IV—CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF

1958

Sec. 401. Short title.

Sec. 402. Definitions.

Sec. 403. Investment in small business investment companies.

Sec. 404. Subsidy fees.

Sec. 405. Distributions.

Sec. 406. Conforming amendment.

TITLE V—REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

Sec. 501. Short title.

Sec. 502. Reauthorization of small business programs.

Sec. 503. Additional reauthorizations.

Sec. 504. Cosponsorship.

TITLE VI—HUBZONE PROGRAM

Subtitle A—HUBZones in Native America

Sec. 601. Short title.

Sec. 602. HUBZone small business concern.

Sec. 603. Qualified HUBZone small business concern.

Sec. 604. Other definitions.

Subtitle B—Other HUBZone Provisions

Sec. 611. Definitions.

Sec. 612. Eligible contracts.

Sec. 613. HUBZone redesignated areas.

Sec. 614. Community development.

Sec. 615. Reference corrections.

TITLE VII—NATIONAL WOMEN’S BUSINESS COUNCIL REAUTHORIZATION

Sec. 701. Short title.

Sec. 702. Membership of the Council.

Sec. 703. Repeal of procurement project.

Sec. 704. Studies and other research.

Sec. 705. Authorization of appropriations.

TITLE VIII—MISCELLANEOUS PROVISIONS

Sec. 801. Loan application processing.

Sec. 802. Application of ownership requirements.

Sec. 803. Subcontracting preference for veterans.

Sec. 804. Small Business Development Center Program funding.

Sec. 805. Surety bonds.

Sec. 806. Size standards.

Sec. 807. Native Hawaiian organizations under section 8(a).

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Sec. 808. National Veterans Business Development Corporation correction.

Sec. 809. Private sector resources for SCORE.

Sec. 810. Contract data collection.

Sec. 811. Procurement program for women-owned small business concerns.

TITLE IX—COMMUNITY RENEWAL AND NEW MARKETS INITIATIVES

Sec. 901. New markets venture capital program.

Sec. 902. BusinessLINC grants and cooperative agreements.

TITLE I—SMALL BUSINESS INNOVATION

RESEARCH PROGRAM

SECTION 101. SHORT TITLE.

(a) SHORT TITLE.—This title may be cited as the ‘‘Small Business Innovation Research Program Reauthorization Act of 2000’’.

SEC. 102. FINDINGS.

Congress finds that—

(1) the small business innovation research program established under the Small Business Innovation Development Act of

1982, and reauthorized by the Small Business Research and

Development Enhancement Act of 1992 (in this title referred to

as the ‘‘SBIR program’’) is highly successful in involving small

businesses in federally funded research and development;

(2) the SBIR program made the cost-effective and unique

research and development capabilities possessed by the small

businesses of the Nation available to Federal agencies and departments;

(3) the innovative goods and services developed by small

businesses that participated in the SBIR program have produced innovations of critical importance in a wide variety of

high-technology fields, including biology, medicine, education,

and defense;

(4) the SBIR program is a catalyst in the promotion of research and development, the commercialization of innovative

technology, the development of new products and services, and

the continued excellence of this Nation’s high-technology industries; and

(5) the continuation of the SBIR program will provide expanded opportunities for one of the Nation’s vital resources, its

small businesses, will foster invention, research, and technology, will create jobs, and will increase this Nation’s competitiveness in international markets.

SEC. 103. EXTENSION OF SBIR PROGRAM.

Section 9(m) of the Small Business Act (15 U.S.C. 638(m)) is

amended to read as follows:

‘‘(m) TERMINATION.—The authorization to carry out the Small

Business Innovation Research Program established under this section shall terminate on September 30, 2008.’’.

SEC. 104. ANNUAL REPORT.

Section 9(b)(7) of the Small Business Act (15 U.S.C. 638(b)(7))

is amended by striking ‘‘and the Committee on Small Business of

the House of Representatives’’ and inserting ‘‘, and to the Committee

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on Science and the Committee on Small Business of the House of

Representatives,’’.

SEC. 105. THIRD PHASE ASSISTANCE.

Section 9(e)(4)(C)(i) of the Small Business Act (15 U.S.C.

638(e)(4)(C)(i)) is amended by striking ‘‘; and’’ and inserting ‘‘; or’’.

SEC. 106. REPORT ON PROGRAMS FOR ANNUAL PERFORMANCE PLAN.

Section 9(g) of the Small Business Act (15 U.S.C. 638(g)) is

amended—

(1) in paragraph (7), by striking ‘‘and’’ at the end;

(2) in paragraph (8), by striking the period at the end and

inserting a semicolon; and

(3) by adding at the end the following:

‘‘(9) include, as part of its annual performance plan as required by subsections (a) and (b) of section 1115 of title 31,

United States Code, a section on its SBIR program, and shall

submit such section to the Committee on Small Business of the

Senate, and the Committee on Science and the Committee on

Small Business of the House of Representatives; and’’.

SEC. 107. OUTPUT AND OUTCOME DATA.

(a) COLLECTION.—Section 9(g) of the Small Business Act (15

U.S.C. 638(g)), as amended by section 106 of this Act, is further

amended by adding at the end the following:

‘‘(10) collect, and maintain in a common format in accordance with subsection (v), such information from awardees as is

necessary to assess the SBIR program, including information

necessary to maintain the database described in subsection

(k).’’.

(b) REPORT TO CONGRESS.—Section 9(b)(7) of the Small Business Act (15 U.S.C. 638(b)(7)), as amended by section 104 of this

Act, is further amended by inserting before the period at the end ‘‘,

including the data on output and outcomes collected pursuant to

subsections (g)(10) and (o)(9), and a description of the extent to

which Federal agencies are providing in a timely manner information needed to maintain the database described in subsection (k)’’.

(c) DATABASE.—Section 9(k) of the Small Business Act (15

U.S.C. 638(k)) is amended to read as follows:

‘‘(k) DATABASE.—

‘‘(1) PUBLIC DATABASE.—Not later than 180 days after the

date of enactment of the Small Business Innovation Research

Program Reauthorization Act of 2000, the Administrator shall

develop, maintain, and make available to the public a searchable, up-to-date, electronic database that includes—

‘‘(A) the name, size, location, and an identifying number assigned by the Administrator, of each small business

concern that has received a first phase or second phase

SBIR award from a Federal agency;

‘‘(B) a description of each first phase or second phase

SBIR award received by that small business concern,

including—

‘‘(i) an abstract of the project funded by the award,

excluding any proprietary information so identified by

the small business concern;

‘‘(ii) the Federal agency making the award; and

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‘‘(iii) the date and amount of the award;

‘‘(C) an identification of any business concern or subsidiary established for the commercial application of a

product or service for which an SBIR award is made; and

‘‘(D) information regarding mentors and Mentoring

Networks, as required by section 35(d).

‘‘(2) GOVERNMENT DATABASE.—Not later than 180 days

after the date of enactment of the Small Business Innovation

Research Program Reauthorization Act of 2000, the Administrator, in consultation with Federal agencies required to have

an SBIR program pursuant to subsection (f)(1), shall develop

and maintain a database to be used solely for SBIR program

evaluation that—

‘‘(A) contains for each second phase award made by a

Federal agency—

‘‘(i) information collected in accordance with paragraph (3) on revenue from the sale of new products or

services resulting from the research conducted under

the award;

‘‘(ii) information collected in accordance with paragraph (3) on additional investment from any source,

other than first phase or second phase SBIR or STTR

awards, to further the research and development conducted under the award; and

‘‘(iii) any other information received in connection

with the award that the Administrator, in conjunction

with the SBIR program managers of Federal agencies,

considers relevant and appropriate;

‘‘(B) includes any narrative information that a small

business concern receiving a second phase award voluntarily submits to further describe the outputs and outcomes

of its awards;

‘‘(C) includes for each applicant for a first phase or second phase award that does not receive such an award—

‘‘(i) the name, size, and location, and an identifying number assigned by the Administration;

‘‘(ii) an abstract of the project; and

‘‘(iii) the Federal agency to which the application

was made;

‘‘(D) includes any other data collected by or available

to any Federal agency that such agency considers may be

useful for SBIR program evaluation; and

‘‘(E) is available for use solely for program evaluation

purposes by the Federal Government or, in accordance with

policy directives issued by the Administration, by other authorized persons who are subject to a use and nondisclosure

agreement with the Federal Government covering the use of

the database.

‘‘(3) UPDATING INFORMATION FOR DATABASE.—

‘‘(A) IN GENERAL.—A small business concern applying

for a second phase award under this section shall be required to update information in the database established

under this subsection for any prior second phase award received by that small business concern. In complying with

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this paragraph, a small business concern may apportion

sales or additional investment information relating to more

than one second phase award among those awards, if it

notes the apportionment for each award.

‘‘(B) ANNUAL UPDATES UPON TERMINATION.—A small

business concern receiving a second phase award under

this section shall—

‘‘(i) update information in the database concerning

that award at the termination of the award period;

and

‘‘(ii) be requested to voluntarily update such information annually thereafter for a period of 5 years.

‘‘(4) PROTECTION OF INFORMATION.—Information provided

under paragraph (2) shall be considered privileged and confidential and not subject to disclosure pursuant to section 552

of title 5, United States Code.

‘‘(5) RULE OF CONSTRUCTION.—Inclusion of information in

the database under this subsection shall not be considered to be

publication for purposes of subsection (a) or (b) of section 102

of title 35, United States Code.’’.

SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS.

(a) STUDY AND RECOMMENDATIONS.—The head of each agency with a budget of more than $50,000,000 for its SBIR program for

fiscal year 1999, in consultation with the Small Business Administration, shall, not later than 6 months after the date of enactment

of this Act, cooperatively enter into an agreement with the National

Academy of Sciences for the National Research Council to—

(1) conduct a comprehensive study of how the SBIR program has stimulated technological innovation and used small

businesses to meet Federal research and development needs,

including—

(A) a review of the value to the Federal research agencies of the research projects being conducted under the

SBIR program, and of the quality of research being conducted by small businesses participating under the program, including a comparison of the value of projects conducted under the SBIR program to those funded by other

Federal research and development expenditures;

(B) to the extent practicable, an evaluation of the economic benefits achieved by the SBIR program, including

the economic rate of return, and a comparison of the economic benefits, including the economic rate of return,

achieved by the SBIR program with the economic benefits,

including the economic rate of return, of other Federal research and development expenditures;

(C) an evaluation of the noneconomic benefits achieved

by the SBIR program over the life of the program;

(D) a comparison of the allocation for fiscal year 2000

of Federal research and development funds to small businesses with such allocation for fiscal year 1983, and an

analysis of the factors that have contributed to such allocation; and

(E) an analysis of whether Federal agencies, in fulfilling their procurement needs, are making sufficient effort

569

to use small businesses that have completed a second phase

award under the SBIR program; and

(2) make recommendations with respect to—

(A) measures of outcomes for strategic plans submitted

under section 306 of title 5, United States Code, and performance plans submitted under section 1115 of title 31,

United States Code, of each Federal agency participating in

the SBIR program;

(B) whether companies who can demonstrate project

feasibility, but who have not received a first phase award,

should be eligible for second phase awards, and the potential impact of such awards on the competitive selection

process of the program;

(C) whether the Federal Government should be permitted to recoup some or all of its expenses if a controlling

interest in a company receiving an SBIR award is sold to

a foreign company or to a company that is not a small

business concern;

(D) how to increase the use by the Federal Government

in its programs and procurements of technology-oriented

small businesses; and

(E) improvements to the SBIR program, if any are considered appropriate.

(b) PARTICIPATION BY SMALL BUSINESS.—

(1) IN GENERAL.—In a manner consistent with law and

with National Research Council study guidelines and procedures, knowledgeable individuals from the small business community with experience in the SBIR program shall be

included—

(A) in any panel established by the National Research

Council for the purpose of performing the study conducted

under this section; and

(B) among those who are asked by the National Research Council to peer review the study.

(2) CONSULTATION.—To ensure that the concerns of small

business are appropriately considered under this subsection, the

National Research Council shall consult with and consider the

views of the Office of Technology and the Office of Advocacy of

the Small Business Administration and other interested parties,

including entities, organizations, and individuals actively engaged in enhancing or developing the technological capabilities

of small business concerns.

(c) PROGRESS REPORTS.—The National Research Council shall

provide semiannual progress reports on the study conducted under

this section to the Committee on Science and the Committee on

Small Business of the House of Representatives, and to the Committee on Small Business of the Senate.

(d) REPORT.—The National Research Council shall transmit to

the heads of agencies entering into an agreement under this section

and to the Committee on Science and the Committee on Small Business of the House of Representatives, and to the Committee on Small

Business of the Senate—

(1) not later than 3 years after the date of enactment of this

Act, a report including the results of the study conducted under

570

subsection (a)(1) and recommendations made under subsection

(a)(2); and

(2) not later than 6 years after that date of enactment, an

update of such report.

SEC. 109. FEDERAL AGENCY EXPENDITURES FOR THE SBIR PROGRAM.

Section 9(i) of the Small Business Act (15 U.S.C. 638(i)) is

amended—

(1) by striking ‘‘(i) Each Federal’’ and inserting the following:

‘‘(i) ANNUAL REPORTING.—

‘‘(1) IN GENERAL.—Each Federal’’; and

(2) by adding at the end the following:

‘‘(2) CALCULATION OF EXTRAMURAL BUDGET.—

‘‘(A) METHODOLOGY.—Not later than 4 months after the

date of enactment of each appropriations Act for a Federal

agency required by this section to have an SBIR program,

the Federal agency shall submit to the Administrator a report, which shall include a description of the methodology

used for calculating the amount of the extramural budget

of that Federal agency.

‘‘(B) ADMINISTRATOR’S ANALYSIS.—The Administrator

shall include an analysis of the methodology received from

each Federal agency referred to in subparagraph (A) in the

report required by subsection (b)(7).’’.

SEC. 110. POLICY DIRECTIVE MODIFICATIONS.

Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is

amended by adding at the end the following:

‘‘(3) ADDITIONAL MODIFICATIONS.—Not later than 120 days

after the date of enactment of the Small Business Innovation

Research Program Reauthorization Act of 2000, the Administrator shall modify the policy directives issued pursuant to this

subsection—

‘‘(A) to clarify that the rights provided for under paragraph (2)(A) apply to all Federal funding awards under

this section, including the first phase (as described in subsection (e)(4)(A)), the second phase (as described in subsection (e)(4)(B)), and the third phase (as described in subsection (e)(4)(C));

‘‘(B) to provide for the requirement of a succinct commercialization plan with each application for a second

phase award that is moving toward commercialization;

‘‘(C) to require agencies to report to the Administration,

not less frequently than annually, all instances in which an

agency pursued research, development, or production of a

technology developed by a small business concern using an

award made under the SBIR program of that agency, and

determined that it was not practicable to enter into a follow-on non-SBIR program funding agreement with the

small business concern, which report shall include, at a

minimum—

‘‘(i) the reasons why the follow-on funding agreement with the small business concern was not practicable;

571

‘‘(ii) the identity of the entity with which the agency contracted to perform the research, development, or

production; and

‘‘(iii) a description of the type of funding agreement

under which the research, development, or production

was obtained; and

‘‘(D) to implement subsection (v), including establishing

standardized procedures for the provision of information

pursuant to subsection (k)(3).’’.

SEC. 111. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

(a) FINDINGS.—Congress finds that—

(1) programs to foster economic development among small

high-technology firms vary widely among the States;

(2) States that do not aggressively support the development

of small high-technology firms, including participation by small

business concerns in the SBIR program, are at a competitive

disadvantage in establishing a business climate that is conducive to technology development; and

(3) building stronger national, State, and local support for

science and technology research in these disadvantaged States

will expand economic opportunities in the United States, create

jobs, and increase the competitiveness of the United States in

the world market.

(b) FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PRO- GRAM.—The Small Business Act (15 U.S.C. 631 et seq.) is

amended—

(1) by redesignating section 34 as section 36; and

(2) by inserting after section 33 the following:

‘‘SEC. 34. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

‘‘(a) DEFINITIONS.—In this section and section 35, the following

definitions apply:

‘‘(1) APPLICANT.—The term ‘applicant’ means an entity, organization, or individual that submits a proposal for an award

or a cooperative agreement under this section.

‘‘(2) BUSINESS ADVICE AND COUNSELING.—The term ‘business advice and counseling’ means providing advice and assistance on matters described in section 35(c)(2)(B) to small business concerns to guide them through the SBIR and STTR program process, from application to award and successful completion of each phase of the program.

‘‘(3) FAST PROGRAM.—The term ‘FAST program’ means the

Federal and State Technology Partnership Program established

under this section.

‘‘(4) MENTOR.—The term ‘mentor’ means an individual described in section 35(c)(2).

‘‘(5) MENTORING NETWORK.—The term ‘Mentoring Network’

means an association, organization, coalition, or other entity

(including an individual) that meets the requirements of section

35(c).

‘‘(6) RECIPIENT.—The term ‘recipient’ means a person that

receives an award or becomes party to a cooperative agreement

under this section.

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‘‘(7) SBIR PROGRAM.—The term ‘SBIR program’ has the

same meaning as in section 9(e)(4).

‘‘(8) STATE.—The term ‘State’ means each of the several

States, the District of Columbia, the Commonwealth of Puerto

Rico, the Virgin Islands, Guam, and American Samoa.

‘‘(9) STTR PROGRAM.—The term ‘STTR program’ has the

same meaning as in section 9(e)(6).

‘‘(b) ESTABLISHMENT OF PROGRAM.—The Administrator shall

establish a program to be known as the Federal and State Technology Partnership Program, the purpose of which shall be to

strengthen the technological competitiveness of small business concerns in the States.

‘‘(c) GRANTS AND COOPERATIVE AGREEMENTS.—

‘‘(1) JOINT REVIEW.—In carrying out the FAST program

under this section, the Administrator and the SBIR program

managers at the National Science Foundation and the Department of Defense shall jointly review proposals submitted by applicants and may make awards or enter into cooperative agreements under this section based on the factors for consideration

set forth in paragraph (2), in order to enhance or develop in a

State—

‘‘(A) technology research and development by small

business concerns;

‘‘(B) technology transfer from university research to

technology-based small business concerns;

‘‘(C) technology deployment and diffusion benefiting

small business concerns;

‘‘(D) the technological capabilities of small business

concerns through the establishment or operation of consortia comprised of entities, organizations, or individuals,

including—

‘‘(i) State and local development agencies and entities;

‘‘(ii) representatives of technology-based small business concerns;

‘‘(iii) industries and emerging companies;

‘‘(iv) universities; and

‘‘(v) small business development centers; and

‘‘(E) outreach, financial support, and technical assistance to technology-based small business concerns participating in or interested in participating in an SBIR program, including initiatives—

‘‘(i) to make grants or loans to companies to pay a

portion or all of the cost of developing SBIR proposals;

‘‘(ii) to establish or operate a Mentoring Network

within the FAST program to provide business advice

and counseling that will assist small business concerns

that have been identified by FAST program participants, program managers of participating SBIR agencies, the Administration, or other entities that are

knowledgeable about the SBIR and STTR programs as

good candidates for the SBIR and STTR programs,

and that would benefit from mentoring, in accordance

with section 35;

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‘‘(iii) to create or participate in a training program

for individuals providing SBIR outreach and assistance at the State and local levels; and

‘‘(iv) to encourage the commercialization of technology developed through SBIR program funding.

‘‘(2) SELECTION CONSIDERATIONS.—In making awards or

entering into cooperative agreements under this section, the Administrator and the SBIR program managers referred to in

paragraph (1)—

‘‘(A) may only consider proposals by applicants that intend to use a portion of the Federal assistance provided

under this section to provide outreach, financial support, or

technical assistance to technology-based small business concerns participating in or interested in participating in the

SBIR program; and

‘‘(B) shall consider, at a minimum—

‘‘(i) whether the applicant has demonstrated that

the assistance to be provided would address unmet

needs of small business concerns in the community,

and whether it is important to use Federal funding for

the proposed activities;

‘‘(ii) whether the applicant has demonstrated that

a need exists to increase the number or success of small

high-technology businesses in the State, as measured

by the number of first phase and second phase SBIR

awards that have historically been received by small

business concerns in the State;

‘‘(iii) whether the projected costs of the proposed activities are reasonable;

‘‘(iv) whether the proposal integrates and coordinates the proposed activities with other State and local

programs assisting small high-technology firms in the

State; and

‘‘(v) the manner in which the applicant will measure the results of the activities to be conducted.

‘‘(3) PROPOSAL LIMIT.—Not more than 1 proposal may be

submitted for inclusion in the FAST program under this section

to provide services in any one State in any 1 fiscal year.

‘‘(4) PROCESS.—Proposals and applications for assistance

under this section shall be in such form and subject to such

procedures as the Administrator shall establish.

‘‘(d) COOPERATION AND COORDINATION.—In carrying out the

FAST program under this section, the Administrator shall cooperate

and coordinate with—

‘‘(1) Federal agencies required by section 9 to have an SBIR

program; and

‘‘(2) entities, organizations, and individuals actively engaged in enhancing or developing the technological capabilities

of small business concerns, including—

‘‘(A) State and local development agencies and entities;

‘‘(B) State committees established under the Experimental Program to Stimulate Competitive Research of the

National Science Foundation (as established under section

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113 of the National Science Foundation Authorization Act

of 1988 (42 U.S.C. 1862g));

‘‘(C) State science and technology councils; and

‘‘(D) representatives of technology-based small business

concerns.

‘‘(e) ADMINISTRATIVE REQUIREMENTS.—

‘‘(1) COMPETITIVE BASIS.—Awards and cooperative agreements under this section shall be made or entered into, as applicable, on a competitive basis.

‘‘(2) MATCHING REQUIREMENTS.—

‘‘(A) IN GENERAL.—The non-Federal share of the cost of

an activity (other than a planning activity) carried out

using an award or under a cooperative agreement under

this section shall be—

‘‘(i) 50 cents for each Federal dollar, in the case of

a recipient that will serve small business concerns located in one of the 18 States receiving the fewest SBIR

first phase awards (as described in section 9(e)(4)(A));

‘‘(ii) except as provided in subparagraph (B), 1 dollar for each Federal dollar, in the case of a recipient

that will serve small business concerns located in one

of the 16 States receiving the greatest number of such

SBIR first phase awards; and

‘‘(iii) except as provided in subparagraph (B), 75

cents for each Federal dollar, in the case of a recipient

that will serve small business concerns located in a

State that is not described in clause (i) or (ii) that is

receiving such SBIR first phase awards.

‘‘(B) LOW-INCOME AREAS.—The non-Federal share of

the cost of the activity carried out using an award or under

a cooperative agreement under this section shall be 50 cents

for each Federal dollar that will be directly allocated by a

recipient described in subparagraph (A) to serve small business concerns located in a qualified census tract, as that

term is defined in section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986. Federal dollars not so allocated by that

recipient shall be subject to the matching requirements of

subparagraph (A).

‘‘(C) TYPES OF FUNDING.—The non-Federal share of the

cost of an activity carried out by a recipient shall be comprised of not less than 50 percent cash and not more than

50 percent of indirect costs and in-kind contributions, except that no such costs or contributions may be derived

from funds from any other Federal program.

‘‘(D) RANKINGS.—For purposes of subparagraph (A),

the Administrator shall reevaluate the ranking of a State

once every 2 fiscal years, beginning with fiscal year 2001,

based on the most recent statistics compiled by the Administrator.

‘‘(3) DURATION.—Awards may be made or cooperative

agreements entered into under this section for multiple years,

not to exceed 5 years in total.

‘‘(f) REPORTS.—

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‘‘(1) INITIAL REPORT.—Not later than 120 days after the

date of enactment of the Small Business Innovation Research

Program Reauthorization Act of 2000, the Administrator shall

prepare and submit to the Committee on Small Business of the

Senate and the Committee on Science and the Committee on

Small Business of the House of Representatives a report, which

shall include, with respect to the FAST program, including

Mentoring Networks—

‘‘(A) a description of the structure and procedures of the

program;

‘‘(B) a management plan for the program; and

‘‘(C) a description of the merit-based review process to

be used in the program.

‘‘(2) ANNUAL REPORTS.—The Administrator shall submit an

annual report to the Committee on Small Business of the Senate and the Committee on Science and the Committee on Small

Business of the House of Representatives regarding—

‘‘(A) the number and amount of awards provided and

cooperative agreements entered into under the FAST program during the preceding year;

‘‘(B) a list of recipients under this section, including

their location and the activities being performed with the

awards made or under the cooperative agreements entered

into; and

‘‘(C) the Mentoring Networks and the mentoring database, as provided for under section 35, including—

‘‘(i) the status of the inclusion of mentoring information in the database required by section 9(k); and

‘‘(ii) the status of the implementation and description of the usage of the Mentoring Networks.

‘‘(g) REVIEWS BY INSPECTOR GENERAL.—

‘‘(1) IN GENERAL.—The Inspector General of the Administration shall conduct a review of—

‘‘(A) the extent to which recipients under the FAST program are measuring the performance of the activities being

conducted and the results of such measurements; and

‘‘(B) the overall management and effectiveness of the

FAST program.

‘‘(2) REPORT.—During the first quarter of fiscal year 2004,

the Inspector General of the Administration shall submit a report to the Committee on Small Business of the Senate and the

Committee on Science and the Committee on Small Business of

the House of Representatives on the review conducted under

paragraph (1).

‘‘(h) PROGRAM LEVELS.—

‘‘(1) IN GENERAL.—There is authorized to be appropriated to

carry out the FAST program, including Mentoring Networks,

under this section and section 35, $10,000,000 for each of fiscal

years 2001 through 2005.

‘‘(2) MENTORING DATABASE.—Of the total amount made

available under paragraph (1) for fiscal years 2001 through

2005, a reasonable amount, not to exceed a total of $500,000,

may be used by the Administration to carry out section 35(d).

576

‘‘(i) TERMINATION.—The authority to carry out the FAST program under this section shall terminate on September 30, 2005.’’.

(c) COORDINATION OF TECHNOLOGY DEVELOPMENT PROGRAMS.—Section 9 of the Small Business Act (15 U.S.C. 638) is

amended by adding at the end the following:

‘‘(u) COORDINATION OF TECHNOLOGY DEVELOPMENT PROGRAMS.—

‘‘(1) DEFINITION OF TECHNOLOGY DEVELOPMENT PROGRAM.—In this subsection, the term ‘technology development

program’ means—

‘‘(A) the Experimental Program to Stimulate Competitive Research of the National Science Foundation, as established under section 113 of the National Science Foundation Authorization Act of 1988 (42 U.S.C. 1862g);

‘‘(B) the Defense Experimental Program to Stimulate

Competitive Research of the Department of Defense;

‘‘(C) the Experimental Program to Stimulate Competitive Research of the Department of Energy;

‘‘(D) the Experimental Program to Stimulate Competitive Research of the Environmental Protection Agency;

‘‘(E) the Experimental Program to Stimulate Competitive Research of the National Aeronautics and Space Administration;

‘‘(F) the Institutional Development Award Program of

the National Institutes of Health; and

‘‘(G) the National Research Initiative Competitive

Grants Program of the Department of Agriculture.

‘‘(2) COORDINATION REQUIREMENTS.—Each Federal agency

that is subject to subsection (f) and that has established a technology development program may, in each fiscal year, review

for funding under that technology development program—

‘‘(A) any proposal to provide outreach and assistance to

1 or more small business concerns interested in participating in the SBIR program, including any proposal to

make a grant or loan to a company to pay a portion or all

of the cost of developing an SBIR proposal, from an entity,

organization, or individual located in—

‘‘(i) a State that is eligible to participate in that

program; or

‘‘(ii) a State described in paragraph (3); or

‘‘(B) any proposal for the first phase of the SBIR program, if the proposal, though meritorious, is not funded

through the SBIR program for that fiscal year due to funding restraints, from a small business concern located in—

‘‘(i) a State that is eligible to participate in a technology development program; or

‘‘(ii) a State described in paragraph (3).

‘‘(3) ADDITIONALLY ELIGIBLE STATE.—A State referred to in

subparagraph (A)(ii) or (B)(ii) of paragraph (2) is a State in

which the total value of contracts awarded to small business

concerns under all SBIR programs is less than the total value

of contracts awarded to small business concerns in a majority

of other States, as determined by the Administrator in biennial

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fiscal years, beginning with fiscal year 2000, based on the most

recent statistics compiled by the Administrator.’’.

SEC. 112. MENTORING NETWORKS.

The Small Business Act (15 U.S.C. 631 et seq.) is amended by

inserting after section 34, as added by section 111(b)(2) of this Act,

the following:

‘‘SEC. 35. MENTORING NETWORKS.

‘‘(a) FINDINGS.—Congress finds that—

‘‘(1) the SBIR and STTR programs create jobs, increase capacity for technological innovation, and boost international

competitiveness;

‘‘(2) increasing the quantity of applications from all States

to the SBIR and STTR programs would enhance competition

for such awards and the quality of the completed projects; and

‘‘(3) mentoring is a natural complement to the FAST program of reaching out to new companies regarding the SBIR

and STTR programs as an effective and low-cost way to improve the likelihood that such companies will succeed in such

programs in developing and commercializing their research.

‘‘(b) AUTHORIZATION FOR MENTORING NETWORKS.—The recipient of an award or participant in a cooperative agreement under

section 34 may use a reasonable amount of such assistance for the

establishment of a Mentoring Network under this section.

‘‘(c) CRITERIA FOR MENTORING NETWORKS.—A Mentoring Network established using assistance under section 34 shall—

‘‘(1) provide business advice and counseling to high technology small business concerns located in the State or region

served by the Mentoring Network and identified under section

34(c)(1)(E)(ii) as potential candidates for the SBIR or STTR

programs;

‘‘(2) identify volunteer mentors who—

‘‘(A) are persons associated with a small business concern that has successfully completed one or more SBIR or

STTR funding agreements; and

‘‘(B) have agreed to guide small business concerns

through all stages of the SBIR or STTR program process,

including providing assistance relating to—

‘‘(i) proposal writing;

‘‘(ii) marketing;

‘‘(iii) Government accounting;

‘‘(iv) Government audits;

‘‘(v) project facilities and equipment;

‘‘(vi) human resources;

‘‘(vii) third phase partners;

‘‘(viii) commercialization;

‘‘(ix) venture capital networking; and

‘‘(x) other matters relevant to the SBIR and STTR

programs;

‘‘(3) have experience working with small business concerns

participating in the SBIR and STTR programs;

‘‘(4) contribute information to the national database referred to in subsection (d); and

578

‘‘(5) agree to reimburse volunteer mentors for out-of-pocket

expenses related to service as a mentor under this section.

‘‘(d) MENTORING DATABASE.—The Administrator shall—

‘‘(1) include in the database required by section 9(k)(1), in

cooperation with the SBIR, STTR, and FAST programs, information on Mentoring Networks and mentors participating

under this section, including a description of their areas of expertise;

‘‘(2) work cooperatively with Mentoring Networks to maintain and update the database;

‘‘(3) take such action as may be necessary to aggressively

promote Mentoring Networks under this section; and

‘‘(4) fulfill the requirements of this subsection either directly

or by contract.’’.

SEC. 113. SIMPLIFIED REPORTING REQUIREMENTS.

Section 9 of the Small Business Act (15 U.S.C. 638), as amended by this Act, is further amended by adding at the end the following:

‘‘(v) SIMPLIFIED REPORTING REQUIREMENTS.—The Administrator shall work with the Federal agencies required by this section

to have an SBIR program to standardize reporting requirements for

the collection of data from SBIR applicants and awardees, including data for inclusion in the database under subsection (k), taking

into consideration the unique needs of each agency, and to the extent

possible, permitting the updating of previously reported information

by electronic means. Such requirements shall be designed to minimize the burden on small businesses.’’.

SEC. 114. RURAL OUTREACH PROGRAM EXTENSION.

(a) EXTENSION OF TERMINATION DATE.—Section 501(b)(2) of the

Small Business Reauthorization Act of 1997 (15 U.S.C. 638 note;

111 Stat. 2622) is amended by striking ‘‘2001’’ and inserting ‘‘2005’’.

(b) EXTENSION OF AUTHORIZATION OF APPROPRIATIONS.—Section 9(s)(2) of the Small Business Act (15 U.S.C. 638(s)(2)) is

amended by striking ‘‘for fiscal year 1998, 1999, 2000, or 2001’’ and

inserting ‘‘for each of the fiscal years 2000 through 2005,’’.

TITLE II—BUSINESS LOAN PROGRAMS

SEC. 201. SHORT TITLE.

This title may be cited as the ‘‘Small Business Loan Improvement Act of 2000’’.

SEC. 202. LEVELS OF PARTICIPATION.

Section 7(a)(2)(A) of the Small Business Act (15 U.S.C.

636(a)(2)(A)) is amended—

(1) in paragraph (i) by striking ‘‘$100,000’’ and inserting

‘‘$150,000’’; and

(2) in paragraph (ii)—

(A) by striking ‘‘80 percent’’ and inserting ‘‘85 percent’’;

and

(B) by striking ‘‘$100,000’’ and inserting ‘‘$150,000’’.

579

SEC. 203. LOAN AMOUNTS.

Section 7(a)(3)(A) of the Small Business Act (15 U.S.C.

636(a)(3)(A)) is amended by striking ‘‘$750,000,’’ and inserting,

‘‘$1,000,000 (or if the gross loan amount would exceed $2,000,000),’’.

SEC. 204. INTEREST ON DEFAULTED LOANS.

Section 7(a)(4)(B) of the Small Business Act (15 U.S.C.

636(a)(4)(B)) is amended by adding at the end the following:

‘‘(iii) APPLICABILITY.—Clauses (i) and (ii) shall not

apply to loans made on or after October 1, 2000.’’.

SEC. 205. PREPAYMENT OF LOANS.

Section 7(a)(4) of the Small Business Act (15 U.S.C. 636(a)(4))

is further amended—

(1) by striking ‘‘(4) INTEREST RATES AND FEES.—’’ and inserting ‘‘(4) INTEREST RATES AND PREPAYMENT CHARGES.—’’;

and

(2) by adding at the end the following:

‘‘(C) PREPAYMENT CHARGES.—

‘‘(i) IN GENERAL.—A borrower who prepays any

loan guaranteed under this subsection shall remit to

the Administration a subsidy recoupment fee calculated

in accordance with clause (ii) if—

‘‘(I) the loan is for a term of not less than 15

years;

‘‘(II) the prepayment is voluntary;

‘‘(III) the amount of prepayment in any calendar year is more than 25 percent of the outstanding balance of the loan; and

‘‘(IV) the prepayment is made within the first

3 years after disbursement of the loan proceeds.

‘‘(ii) SUBSIDY RECOUPMENT FEE.—The subsidy

recoupment fee charged under clause (i) shall be—

‘‘(I) 5 percent of the amount of prepayment, if

the borrower prepays during the first year after

disbursement;

‘‘(II) 3 percent of the amount of prepayment, if

the borrower prepays during the second year after

disbursement; and

‘‘(III) 1 percent of the amount of prepayment,

if the borrower prepays during the third year after

disbursement.’’.

SEC. 206. GUARANTEE FEES.

Section 7(a)(18) of the Small Business Act (15 U.S.C.

636(a)(18)) is amended to read as follows:

‘‘(18) GUARANTEE FEES.—

‘‘(A) IN GENERAL.—With respect to each loan guaranteed under this subsection (other than a loan that is repayable in 1 year or less), the Administration shall collect a

guarantee fee, which shall be payable by the participating

lender, and may be charged to the borrower, as follows:

‘‘(i) A guarantee fee equal to 2 percent of the deferred participation share of a total loan amount that

is not more than $150,000.

580

‘‘(ii) A guarantee fee equal to 3 percent of the deferred participation share of a total loan amount that

is more than $150,000, but not more than $700,000.

‘‘(iii) A guarantee fee equal to 3.5 percent of the deferred participation share of a total loan amount that

is more than $700,000.

‘‘(B) RETENTION OF CERTAIN FEES.—Lenders participating in the programs established under this subsection

may retain not more than 25 percent of a fee collected

under subparagraph (A)(i).’’.

SEC. 207. LEASE TERMS.

Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is further amended by adding at the end the following:

‘‘(28) LEASING.—In addition to such other lease arrangements as may be authorized by the Administration, a borrower

may permanently lease to one or more tenants not more than

20 percent of any property constructed with the proceeds of a

loan guaranteed under this subsection, if the borrower permanently occupies and uses not less than 60 percent of the total

business space in the property.’’.

SEC. 208. APPRAISALS FOR LOANS SECURED BY REAL PROPERTY.

(a) SMALL BUSINESS ACT.—Section 7(a) of the Small Business

Act (15 U.S.C. 636(a)) is amended by adding at the end the following:

‘‘(29) REAL ESTATE APPRAISALS.—With respect to a loan

under this subsection that is secured by commercial real property, an appraisal of such property by a State licensed or certified appraiser—

‘‘(A) shall be required by the Administration in connection with any such loan for more than $250,000; or

‘‘(B) may be required by the Administration or the

lender in connection with any such loan for $250,000 or

less, if such appraisal is necessary for appropriate evaluation of creditworthiness.’’.

(b) SMALL BUSINESS INVESTMENT ACT OF 1958.—Section

502(3)(E) of the Small Business Investment Act of 1958 (15 U.S.C.

696(3)(E)) is amended—

(1) by striking ‘‘The collateral’’ and inserting the following:

‘‘(i) IN GENERAL.—The collateral’’; and

(2) by adding at the end the following:

‘‘(ii) APPRAISALS.—With respect to commercial real

property provided by the small business concern as collateral, an appraisal of the property by a State licensed

or certified appraiser—

‘‘(I) shall be required by the Administration

before disbursement of the loan if the estimated

value of that property is more than $250,000; or

‘‘(II) may be required by the Administration or

the lender before disbursement of the loan if the estimated value of that property is $250,000 or less,

and such appraisal is necessary for appropriate

evaluation of creditworthiness.’’.

581

SEC. 209. SALE OF GUARANTEED LOANS MADE FOR EXPORT PURPOSES.

Section 5(f)(1)(C) of the Small Business Act (15 U.S.C.

634(f)(1)(C)) is amended to read as follows:

‘‘(C) each loan, except each loan made under section

7(a)(14), shall have been fully disbursed to the borrower prior

to any sale.’’.

SEC. 210. MICROLOAN PROGRAM.

(a) IN GENERAL.—Section 7(m) of the Small Business Act (15

U.S.C. 636(m)) is amended—

(1) in paragraphs (1)(B)(iii) and (3)(E), by striking

‘‘$25,000’’ each place it appears and inserting ‘‘$35,000’’;

(2) in paragraphs (1)(A)(iii)(I), (3)(A)(ii), and (4)(C)(i)(II),

by striking ‘‘$7,500’’ each place it appears and inserting

‘‘$10,000’’;

(3) in paragraph (3)(E), by striking ‘‘$15,000’’ and inserting

‘‘$20,000’’;

(4) in paragraph (5)(A)—

(A) by striking ‘‘25 grants’’ and inserting ‘‘55 grants’’;

and

(B) by striking ‘‘$125,000’’ and inserting ‘‘$200,000’’;

(5) in paragraph (6)(B), by striking ‘‘$10,000’’ and inserting

‘‘$15,000’’; and

(6) in paragraph (7), by striking subparagraph (A) and inserting the following:

‘‘(A) NUMBER OF PARTICIPANTS.—Under the program

authorized by this subsection, the Administration may

fund, on a competitive basis, not more than 300 intermediaries.’’.

(b) CONFORMING AMENDMENTS.—Section 7(m)(11)(B) of the

Small Business Act (15 U.S.C. 636(m)(11)(B)) is amended by striking ‘‘$25,000’’ and inserting ‘‘$35,000’’.

TITLE III—CERTIFIED DEVELOPMENT

COMPANY PROGRAM

SEC. 301. SHORT TITLE.

This title may be cited as the ‘‘Certified Development Company

Program Improvements Act of 2000’’.

SEC. 302. WOMEN-OWNED BUSINESSES.

Section 501(d)(3)(C) of the Small Business Investment Act of

1958 (15 U.S.C. 695(d)(3)(C)) is amended by inserting before the

comma ‘‘or women-owned business development’’.

SEC. 303. MAXIMUM DEBENTURE SIZE.

Section 502(2) of the Small Business Investment Act of 1958 (15

U.S.C. 696(2)) is amended to read as follows:

‘‘(2) Loans made by the Administration under this section

shall be limited to $1,000,000 for each such identifiable small

business concern, except loans meeting the criteria specified in

section 501(d)(3), which shall be limited to $1,300,000 for each

such identifiable small business concern.’’.

582

SEC. 304. FEES.

Section 503(f) of the Small Business Investment Act of 1958 (15

U.S.C. 697(f)) is amended to read as follows:

‘‘(f) EFFECTIVE DATE.—The fees authorized by subsections (b)

and (d) shall apply to financings approved by the Administration

on or after October 1, 1996, but shall not apply to financings approved by the Administration on or after October 1, 2003.’’.

SEC. 305. PREMIER CERTIFIED LENDERS PROGRAM.

Section 217(b) of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103–403, 15

U.S.C. 697 note) (relating to section 508 of the Small Business Investment Act of 1958) is repealed.

SEC. 306. SALE OF CERTAIN DEFAULTED LOANS.

Section 508 of the Small Business Investment Act of 1958 (15

U.S.C. 697e) is amended—

(1) in subsection (a), by striking ‘‘On a pilot program basis,

the’’ and inserting ‘‘The’’;

(2) by redesignating subsections (d) through (i) as subsections (e) through (j), respectively;

(3) in subsection (f) (as redesignated by paragraph (2)), by

striking ‘‘subsection (f)’’ and inserting ‘‘subsection (g)’’;

(4) in subsection (h) (as redesignated by paragraph (2)), by

striking ‘‘subsection (f)’’ and inserting ‘‘subsection (g)’’; and

(5) by inserting after subsection (c) the following:

‘‘(d) SALE OF CERTAIN DEFAULTED LOANS.— ‘‘(1) NOTICE.—If, upon default in repayment, the Administration acquires a loan guaranteed under this section and identifies such loan for inclusion in a bulk asset sale of defaulted

or repurchased loans or other financings, it shall give prior notice thereof to any certified development company which has a

contingent liability under this section. The notice shall be given

to the company as soon as possible after the financing is identified, but not less than 90 days before the date the Administration first makes any records on such financing available for examination by prospective purchasers prior to its offering in a

package of loans for bulk sale.

‘‘(2) LIMITATIONS.—The Administration shall not offer any

loan described in paragraph (1) as part of a bulk sale unless

it—

‘‘(A) provides prospective purchasers with the opportunity to examine the Administration’s records with respect

to such loan; and

‘‘(B) provides the notice required by paragraph (1).’’.

SEC. 307. LOAN LIQUIDATION.

(a) LIQUIDATION AND FORECLOSURE.—Title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 et seq.) is amended by

adding at the end the following:

‘‘SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

‘‘(a) DELEGATION OF AUTHORITY.—In accordance with this section, the Administration shall delegate to any qualified State or

local development company (as defined in section 503(e)) that meets

the eligibility requirements of subsection (b)(1) the authority to foreclose and liquidate, or to otherwise treat in accordance with this

583

section, defaulted loans in its portfolio that are funded with the proceeds of debentures guaranteed by the Administration under section

503.

‘‘(b) ELIGIBILITY FOR DELEGATION.—

‘‘(1) REQUIREMENTS.—A qualified State or local development company shall be eligible for a delegation of authority

under subsection (a) if—

‘‘(A) the company—

‘‘(i) has participated in the loan liquidation pilot

program established by the Small Business Programs

Improvement Act of 1996 (15 U.S.C. 695 note), as in effect on the day before promulgation of final regulations

by the Administration implementing this section;

‘‘(ii) is participating in the Premier Certified Lenders Program under section 508; or

‘‘(iii) during the 3 fiscal years immediately prior to

seeking such a delegation, has made an average of not

less than 10 loans per year that are funded with the

proceeds of debentures guaranteed under section 503;

and

‘‘(B) the company—

‘‘(i) has one or more employees—

‘‘(I) with not less than 2 years of substantive,

decision-making experience in administering the

liquidation and workout of problem loans secured

in a manner substantially similar to loans funded

with the proceeds of debentures guaranteed under

section 503; and

‘‘(II) who have completed a training program

on loan liquidation developed by the Administration in conjunction with qualified State and local

development companies that meet the requirements

of this paragraph; or

‘‘(ii) submits to the Administration documentation

demonstrating that the company has contracted with a

qualified third-party to perform any liquidation activities and secures the approval of the contract by the Administration with respect to the qualifications of the

contractor and the terms and conditions of liquidation

activities.

‘‘(2) CONFIRMATION.—On request the Administration shall

examine the qualifications of any company described in subsection (a) to determine if such company is eligible for the delegation of authority under this section. If the Administration determines that a company is not eligible, the Administration

shall provide the company with the reasons for such ineligibility.

‘‘(c) SCOPE OF DELEGATED AUTHORITY.—

‘‘(1) IN GENERAL.—Each qualified State or local development company to which the Administration delegates authority

under section (a) may with respect to any loan described in subsection (a)—

‘‘(A) perform all liquidation and foreclosure functions,

including the purchase in accordance with this subsection

584

of any other indebtedness secured by the property securing

the loan, in a reasonable and sound manner according to

commercially accepted practices, pursuant to a liquidation

plan approved in advance by the Administration under

paragraph (2)(A);

‘‘(B) litigate any matter relating to the performance of

the functions described in subparagraph (A), except that the

Administration may—

‘‘(i) defend or bring any claim if—

‘‘(I) the outcome of the litigation may adversely

affect the Administration’s management of the loan

program established under section 502; or

‘‘(II) the Administration is entitled to legal

remedies not available to a qualified State or local

development company and such remedies will benefit either the Administration or the qualified State

or local development company; or

‘‘(ii) oversee the conduct of any such litigation; and

‘‘(C) take other appropriate actions to mitigate loan

losses in lieu of total liquidation or foreclosures, including

the restructuring of a loan in accordance with prudent loan

servicing practices and pursuant to a workout plan approved in advance by the Administration under paragraph

(2)(C).

‘‘(2) ADMINISTRATION APPROVAL.—

‘‘(A) LIQUIDATION PLAN.—

‘‘(i) IN GENERAL.—Before carrying out functions described in paragraph (1)(A), a qualified State or local

development company shall submit to the Administration a proposed liquidation plan.

‘‘(ii) ADMINISTRATION ACTION ON PLAN.—

‘‘(I) TIMING.—Not later than 15 business days

after a liquidation plan is received by the Administration under clause (i), the Administration shall

approve or reject the plan.

‘‘(II) NOTICE OF NO DECISION.—With respect to

any plan that cannot be approved or denied within

the 15-day period required by subclause (I), the

Administration shall within such period provide in

accordance with subparagraph (E) notice to the

company that submitted the plan.

‘‘(iii) ROUTINE ACTIONS.—In carrying out functions

described in paragraph (1)(A), a qualified State or

local development company may undertake routine actions not addressed in a liquidation plan without obtaining additional approval from the Administration.

‘‘(B) PURCHASE OF INDEBTEDNESS.—

‘‘(i) IN GENERAL.—In carrying out functions described in paragraph (1)(A), a qualified State or local

development company shall submit to the Administration a request for written approval before committing

the Administration to the purchase of any other indebtedness secured by the property securing a defaulted

loan.

585

‘‘(ii) ADMINISTRATION ACTION ON REQUEST.—

‘‘(I) TIMING.—Not later than 15 business days

after receiving a request under clause (i), the Administration shall approve or deny the request.

‘‘(II) NOTICE OF NO DECISION.—With respect to

any request that cannot be approved or denied

within the 15-day period required by subclause (I),

the Administration shall within such period provide in accordance with subparagraph (E) notice to

the company that submitted the request.

‘‘(C) WORKOUT PLAN.—

‘‘(i) IN GENERAL.—In carrying out functions described in paragraph (1)(C), a qualified State or local

development company shall submit to the Administration a proposed workout plan.

‘‘(ii) ADMINISTRATION ACTION ON PLAN.—

‘‘(I) TIMING.—Not later than 15 business days

after a workout plan is received by the Administration under clause (i), the Administration shall approve or reject the plan.

‘‘(II) NOTICE OF NO DECISION.—With respect to

any workout plan that cannot be approved or denied within the 15-day period required by subclause (I), the Administration shall within such period provide in accordance with subparagraph (E)

notice to the company that submitted the plan.

‘‘(D) COMPROMISE OF INDEBTEDNESS.—In carrying out

functions described in paragraph (1)(A), a qualified State

or local development company may—

‘‘(i) consider an offer made by an obligor to compromise the debt for less than the full amount owing;

and

‘‘(ii) pursuant to such an offer, release any obligor

or other party contingently liable, if the company secures the written approval of the Administration.

‘‘(E) CONTENTS OF NOTICE OF NO DECISION.—Any notice provided by the Administration under subparagraph

(A)(ii)(II), (B)(ii)(II), or (C)(ii)(II)—

‘‘(i) shall be in writing;

‘‘(ii) shall state the specific reason for the Administration’s inability to act on a plan or request;

‘‘(iii) shall include an estimate of the additional

time required by the Administration to act on the plan

or request; and

‘‘(iv) if the Administration cannot act because insufficient information or documentation was provided

by the company submitting the plan or request, shall

specify the nature of such additional information or

documentation.

‘‘(3) CONFLICT OF INTEREST.—In carrying out functions described in paragraph (1), a qualified State or local development

company shall take no action that would result in an actual or

apparent conflict of interest between the company (or any employee of the company) and any third party lender, associate of

586

a third party lender, or any other person participating in a liquidation, foreclosure, or loss mitigation action.

‘‘(d) SUSPENSION OR REVOCATION OF AUTHORITY.—The Administration may revoke or suspend a delegation of authority under this

section to any qualified State or local development company, if the

Administration determines that the company—

‘‘(1) does not meet the requirements of subsection (b)(1);

‘‘(2) has violated any applicable rule or regulation of the

Administration or any other applicable law; or

‘‘(3) fails to comply with any reporting requirement that

may be established by the Administration relating to carrying

out of functions described in paragraph (1).

‘‘(e) REPORT.—

‘‘(1) IN GENERAL.—Based on information provided by qualified State and local development companies and the Administration, the Administration shall annually submit to the Committees on Small Business of the House of Representatives and

of the Senate a report on the results of delegation of authority

under this section.

‘‘(2) CONTENTS.—Each report submitted under paragraph

(1) shall include the following information:

‘‘(A) With respect to each loan foreclosed or liquidated

by a qualified State or local development company under

this section, or for which losses were otherwise mitigated by

the company pursuant to a workout plan under this

section—

‘‘(i) the total cost of the project financed with the

loan;

‘‘(ii) the total original dollar amount guaranteed

by the Administration;

‘‘(iii) the total dollar amount of the loan at the

time of liquidation, foreclosure, or mitigation of loss;

‘‘(iv) the total dollar losses resulting from the liquidation, foreclosure, or mitigation of loss; and

‘‘(v) the total recoveries resulting from the liquidation, foreclosure, or mitigation of loss, both as a percentage of the amount guaranteed and the total cost of

the project financed.

‘‘(B) With respect to each qualified State or local development company to which authority is delegated under this

section, the totals of each of the amounts described in

clauses (i) through (v) of subparagraph (A).

‘‘(C) With respect to all loans subject to foreclosure, liquidation, or mitigation under this section, the totals of each

of the amounts described in clauses (i) through (v) of subparagraph (A).

‘‘(D) A comparison between—

‘‘(i) the information provided under subparagraph

(C) with respect to the 12-month period preceding the

date on which the report is submitted; and

‘‘(ii) the same information with respect to loans

foreclosed and liquidated, or otherwise treated, by the

Administration during the same period.

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‘‘(E) The number of times that the Administration has

failed to approve or reject a liquidation plan in accordance

with subparagraph (A)(i), a workout plan in accordance

with subparagraph (C)(i), or to approve or deny a request

for purchase of indebtedness under subparagraph (B)(i), including specific information regarding the reasons for the

Administration’s failure and any delays that resulted.’’.

(b) REGULATIONS.— (1) IN GENERAL.—Not later than 150 days after the date of

enactment of this Act, the Administrator shall issue such regulations as may be necessary to carry out section 510 of the

Small Business Investment Act of 1958, as added by subsection

(a) of this section.

(2) TERMINATION OF PILOT PROGRAM.—Beginning on the

date on which final regulations are issued under paragraph (1),

section 204 of the Small Business Programs Improvement Act

of 1996 (15 U.S.C. 695 note) shall cease to have effect.

TITLE IV—CORRECTIONS TO THE

SMALL BUSINESS INVESTMENT ACT

OF 1958

SEC. 401. SHORT TITLE.

This title may be cited as the ‘‘Small Business Investment Corrections Act of 2000’’.

SEC. 402. DEFINITIONS.

(a) SMALL BUSINESS CONCERN.—Section 103(5)(A)(i) of the

Small Business Investment Act of 1958 (15 U.S.C. 662(5)(A)(i)) is

amended by inserting before the semicolon at the end the following:

‘‘regardless of the allocation of control during the investment period

under any investment agreement between the business concern and

the entity making the investment’’.

(b) LONG TERM.—Section 103 of the Small Business Investment

Act of 1958 (15 U.S.C. 662) is amended—

(1) in paragraph (15), by striking ‘‘and’’ at the end;

(2) in paragraph (16), by striking the period at the end and

inserting ‘‘; and’’; and

(3) by adding at the end the following:

‘‘(17) the term ‘long term’, when used in connection with equity capital or loan funds invested in any small business concern or smaller enterprise, means any period of time not less

than 1 year.’’.

SEC. 403. INVESTMENT IN SMALL BUSINESS INVESTMENT COMPANIES.

Section 302(b) of the Small Business Investment Act of 1958 (15

U.S.C. 682(b)) is amended—

(1) by striking ‘‘(b) Notwithstanding’’ and inserting the following:

‘‘(b) FINANCIAL INSTITUTION INVESTMENTS.—

‘‘(1) CERTAIN BANKS.—Notwithstanding’’; and

(2) by adding at the end the following:

‘‘(2) CERTAIN SAVINGS ASSOCIATIONS.—Notwithstanding

any other provision of law, any Federal savings association may

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invest in any 1 or more small business investment companies,

or in any entity established to invest solely in small business investment companies, except that in no event may the total

amount of such investments by any such Federal savings association exceed 5 percent of the capital and surplus of the Federal savings association.’’.

SEC. 404. SUBSIDY FEES.

(a) DEBENTURES.—Section 303(b) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)) is amended by striking ‘‘plus

an additional charge of 1 percent per annum which shall be paid

to and retained by the Administration’’ and inserting ‘‘plus, for debentures obligated after September 30, 2000, an additional charge,

in an amount established annually by the Administration, of not

more than 1 percent per year as necessary to reduce to zero the cost

(as defined in section 502 of the Federal Credit Reform Act of 1990

(2 U.S.C. 661a)) to the Administration of purchasing and guaranteeing debentures under this Act, which shall be paid to and retained by the Administration’’.

(b) PARTICIPATING SECURITIES.—Section 303(g)(2) of the Small

Business Investment Act of 1958 (15 U.S.C. 683(g)(2)) is amended

by striking ‘‘plus an additional charge of 1 percent per annum

which shall be paid to and retained by the Administration’’ and inserting ‘‘plus, for participating securities obligated after September

30, 2000, an additional charge, in an amount established annually

by the Administration, of not more than 1 percent per year as necessary to reduce to zero the cost (as defined in section 502 of the

Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to the Administration of purchasing and guaranteeing participating securities

under this Act, which shall be paid to and retained by the Administration’’.

SEC. 405. DISTRIBUTIONS.

Section 303(g)(8) of the Small Business Investment Act of 1958

(15 U.S.C. 683(g)(8)) is amended—

(1) by striking ‘‘subchapter s corporation’’ and inserting

‘‘subchapter S corporation’’;

(2) by striking ‘‘the end of any calendar quarter based on

a quarterly’’ and inserting ‘‘any time during any calendar quarter based on an’’; and

(3) by striking ‘‘quarterly distributions for a calendar year,’’

and inserting ‘‘interim distributions for a calendar year,’’.

SEC. 406. CONFORMING AMENDMENT.

Section 310(c)(4) of the Small Business Investment Act of 1958

(15 U.S.C. 687b(c)(4)) is amended by striking ‘‘five years’’ and inserting ‘‘1 year’’.

TITLE V—REAUTHORIZATION OF SMALL

BUSINESS PROGRAMS

SEC. 501. SHORT TITLE.

This title may be cited as the ‘‘Small Business Programs Reauthorization Act of 2000’’.

589

SEC. 502. REAUTHORIZATION OF SMALL BUSINESS PROGRAMS.

Section 20 of the Small Business Act (15 U.S.C. 631 note) is

amended by adding at the end the following:

‘‘(g) FISCAL YEAR 2001.—

‘‘(1) PROGRAM LEVELS.—The following program levels are

authorized for fiscal year 2001:

‘‘(A) For the programs authorized by this Act, the Administration is authorized to make—

‘‘(i) $45,000,000 in technical assistance grants as

provided in section 7(m); and

‘‘(ii) $60,000,000 in direct loans, as provided in

7(m).

‘‘(B) For the programs authorized by this Act, the Administration is authorized to make $19,050,000,000 in deferred participation loans and other financings. Of such

sum, the Administration is authorized to make—

‘‘(i) $14,500,000,000 in general business loans as

provided in section 7(a);

‘‘(ii) $4,000,000,000 in financings as provided in

section 7(a)(13) of this Act and section 504 of the Small

Business Investment Act of 1958;

‘‘(iii) $500,000,000 in loans as provided in section

7(a)(21); and

‘‘(iv) $50,000,000 in loans as provided in section

7(m).

‘‘(C) For the programs authorized by title III of the

Small Business Investment Act of 1958, the Administration

is authorized to make—

‘‘(i) $2,500,000,000 in purchases of participating

securities; and

‘‘(ii) $1,500,000,000 in guarantees of debentures.

‘‘(D) For the programs authorized by part B of title IV

of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed

$4,000,000,000 of which not more than 50 percent may be

in bonds approved pursuant to section 411(a)(3) of that Act.

‘‘(E) The Administration is authorized to make grants

or enter cooperative agreements for a total amount of

$5,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1).

‘‘(2) ADDITIONAL AUTHORIZATIONS.—

‘‘(A) There are authorized to be appropriated to the Administration for fiscal year 2001 such sums as may be necessary to carry out the provisions of this Act not elsewhere

provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section

7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the

Administration.

‘‘(B) Notwithstanding any other provision of this paragraph, for fiscal year 2001—

‘‘(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21)

except by transfer from another Federal department or

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agency to the Administration, unless the program level

authorized for general business loans under paragraph

(1)(B)(i) is fully funded; and

‘‘(ii) the Administration may not approve loans on

its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms

and conditions other than those specifically authorized

under this Act or the Small Business Investment Act of

1958, except that it may approve loans under section

7(a)(21) of this Act in gross amounts of not more than

$1,250,000.

‘‘(h) FISCAL YEAR 2002.—

‘‘(1) PROGRAM LEVELS.—The following program levels are

authorized for fiscal year 2002:

‘‘(A) For the programs authorized by this Act, the Administration is authorized to make—

‘‘(i) $60,000,000 in technical assistance grants as

provided in section 7(m); and

‘‘(ii) $80,000,000 in direct loans, as provided in

7(m).

‘‘(B) For the programs authorized by this Act, the Administration is authorized to make $20,050,000,000 in deferred participation loans and other financings. Of such

sum, the Administration is authorized to make—

‘‘(i) $15,000,000,000 in general business loans as

provided in section 7(a);

‘‘(ii) $4,500,000,000 in financings as provided in

section 7(a)(13) of this Act and section 504 of the Small

Business Investment Act of 1958;

‘‘(iii) $500,000,000 in loans as provided in section

7(a)(21); and

‘‘(iv) $50,000,000 in loans as provided in section

7(m).

‘‘(C) For the programs authorized by title III of the

Small Business Investment Act of 1958, the Administration

is authorized to make—

‘‘(i) $3,500,000,000 in purchases of participating

securities; and

‘‘(ii) $2,500,000,000 in guarantees of debentures.

‘‘(D) For the programs authorized by part B of title IV

of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed

$5,000,000,000 of which not more than 50 percent may be

in bonds approved pursuant to section 411(a)(3) of that Act.

‘‘(E) The Administration is authorized to make grants

or enter cooperative agreements for a total amount of

$6,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1).

‘‘(2) ADDITIONAL AUTHORIZATIONS.—

‘‘(A) There are authorized to be appropriated to the Administration for fiscal year 2002 such sums as may be necessary to carry out the provisions of this Act not elsewhere

provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section

591

7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the

Administration.

‘‘(B) Notwithstanding any other provision of this paragraph, for fiscal year 2002—

‘‘(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21)

except by transfer from another Federal department or

agency to the Administration, unless the program level

authorized for general business loans under paragraph

(1)(B)(i) is fully funded; and

‘‘(ii) the Administration may not approve loans on

its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms

and conditions other than those specifically authorized

under this Act or the Small Business Investment Act of

1958, except that it may approve loans under section

7(a)(21) of this Act in gross amounts of not more than

$1,250,000.

‘‘(i) FISCAL YEAR 2003.—

‘‘(1) PROGRAM LEVELS.—The following program levels are

authorized for fiscal year 2003:

‘‘(A) For the programs authorized by this Act, the Administration is authorized to make—

‘‘(i) $70,000,000 in technical assistance grants as

provided in section 7(m); and

‘‘(ii) $100,000,000 in direct loans, as provided in

7(m).

‘‘(B) For the programs authorized by this Act, the Administration is authorized to make $21,550,000,000 in deferred participation loans and other financings. Of such

sum, the Administration is authorized to make—

‘‘(i) $16,000,000,000 in general business loans as

provided in section 7(a);

‘‘(ii) $5,000,000,000 in financings as provided in

section 7(a)(13) of this Act and section 504 of the Small

Business Investment Act of 1958;

‘‘(iii) $500,000,000 in loans as provided in section

7(a)(21); and

‘‘(iv) $50,000,000 in loans as provided in section

7(m).

‘‘(C) For the programs authorized by title III of the

Small Business Investment Act of 1958, the Administration

is authorized to make—

‘‘(i) $4,000,000,000 in purchases of participating

securities; and

‘‘(ii) $3,000,000,000 in guarantees of debentures.

‘‘(D) For the programs authorized by part B of title IV

of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed

$6,000,000,000 of which not more than 50 percent may be

in bonds approved pursuant to section 411(a)(3) of that Act.

‘‘(E) The Administration is authorized to make grants

or enter into cooperative agreements for a total amount of

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$7,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1).

‘‘(2) ADDITIONAL AUTHORIZATIONS.—

‘‘(A) There are authorized to be appropriated to the Administration for fiscal year 2003 such sums as may be necessary to carry out the provisions of this Act not elsewhere

provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section

7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the

Administration.

‘‘(B) Notwithstanding any other provision of this paragraph, for fiscal year 2003—

‘‘(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21)

except by transfer from another Federal department or

agency to the Administration, unless the program level

authorized for general business loans under paragraph

(1)(B)(i) is fully funded; and

‘‘(ii) the Administration may not approve loans on

its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms

and conditions other than those specifically authorized

under this Act or the Small Business Investment Act of

1958, except that it may approve loans under section

7(a)(21) of this Act in gross amounts of not more than

$1,250,000.’’.

SEC. 503. ADDITIONAL REAUTHORIZATIONS.

(a) DRUG-FREE WORKPLACE PROGRAM.—Section 27 of the Small

Business Act (15 U.S.C. 654) is amended—

(1) in the section heading, by striking ‘‘DRUG-FREE

WORKPLACE DEMONSTRATION PROGRAM’’ and inserting ‘‘PAUL D. COVERDELL DRUG-FREE WORKPLACE

PROGRAM’’; and

(2) in subsection (g)(1), by striking ‘‘$10,000,000 for fiscal

years 1999 and 2000’’ and inserting ‘‘$5,000,000 for each of fiscal years 2001 through 2003’’.

(b) HUBZONE PROGRAM.—Section 31 of the Small Business Act

(15 U.S.C. 657a) is amended by adding at the end the following:

‘‘(d) AUTHORIZATION OF APPROPRIATIONS.—There is authorized

to be appropriated to carry out the program established by this section $10,000,000 for each of fiscal years 2001 through 2003.’’.

(c) VERY SMALL BUSINESS CONCERNS PROGRAM.—Section 304(i)

of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103–403; 15 U.S.C. 644 note) is

amended by striking ‘‘September 30, 2000’’ and inserting ‘‘September 30, 2003’’.

(d) SOCIALLY AND ECONOMICALLY DISADVANTAGED BUSINESSES

PROGRAM.—Section 7102(c) of the Federal Acquisition Streamlining

Act of 1994 (Public Law 103–355; 15 U.S.C. 644 note) is amended

by striking ‘‘September 30, 2000’’ and inserting ‘‘September 30,

2003’’.

593

(e) SBDC SERVICES.—Section 21(c)(3)(T) of the Small Business

Act (15 U.S.C. 648(c)(3)(T)) is amended by striking ‘‘2000’’ and inserting ‘‘2003’’.

SEC. 504. COSPONSORSHIP.

(a) IN GENERAL.—Section 8(b)(1)(A) of the Small Business Act

(15 U.S.C. 637(b)(1)(A)) is amended to read as follows:

‘‘(1)(A) to provide—

‘‘(i) technical, managerial, and informational aids to

small business concerns—

‘‘(I) by advising and counseling on matters in connection with Government procurement and policies,

principles, and practices of good management;

‘‘(II) by cooperating and advising with—

‘‘(aa) voluntary business, professional, educational, and other nonprofit organizations, associations, and institutions (except that the Administration shall take such actions as it determines

necessary to ensure that such cooperation does not

constitute or imply an endorsement by the Administration of the organization or its products or

services, and shall ensure that it receives appropriate recognition in all printed materials); and

‘‘(bb) other Federal and State agencies;

‘‘(III) by maintaining a clearinghouse for information on managing, financing, and operating small

business enterprises; and

‘‘(IV) by disseminating such information, including

through recognition events, and by other activities that

the Administration determines to be appropriate; and

‘‘(ii) through cooperation with a profit-making concern

(referred to in this paragraph as a ‘cosponsor’), training, information, and education to small business concerns, except

that the Administration shall—

‘‘(I) take such actions as it determines to be appropriate to ensure that—

‘‘(aa) the Administration receives appropriate

recognition and publicity;

‘‘(bb) the cooperation does not constitute or

imply an endorsement by the Administration of

any product or service of the cosponsor;

‘‘(cc) unnecessary promotion of the products or

services of the cosponsor is avoided; and

‘‘(dd) utilization of any 1 cosponsor in a marketing area is minimized; and

‘‘(II) develop an agreement, executed on behalf of

the Administration by an employee of the Administration in Washington, the District of Columbia, that provides, at a minimum, that—

‘‘(aa) any printed material to announce the cosponsorship or to be distributed at the cosponsored

activity, shall be approved in advance by the Administration;

‘‘(bb) the terms and conditions of the cooperation shall be specified;

594

‘‘(cc) only minimal charges may be imposed on

any small business concern to cover the direct costs

of providing the assistance;

‘‘(dd) the Administration may provide to the

cosponsorship mailing labels, but not lists of

names and addresses of small business concerns

compiled by the Administration;

‘‘(ee) all printed materials containing the

names of both the Administration and the cosponsor shall include a prominent disclaimer that the

cooperation does not constitute or imply an endorsement by the Administration of any product or

service of the cosponsor; and

‘‘(ff) the Administration shall ensure that it receives appropriate recognition in all cosponsorship

printed materials.’’.

(b) EXTENSION OF COSPONSORSHIP AUTHORITY.—Section

401(a)(2) of the Small Business Administration Reauthorization

and Amendments Act of 1994 (15 U.S.C. 637 note) is amended by

striking ‘‘September 30, 2000’’ and inserting ‘‘September 30, 2003’’.

TITLE VI—HUBZONE PROGRAM

Subtitle A—HUBZones in Native America

SEC. 601. SHORT TITLE.

This subtitle may be cited as the ‘‘HUBZones in Native America

Act of 2000’’.

SEC. 602. HUBZONE SMALL BUSINESS CONCERN.

Section 3(p)(3) of the Small Business Act (15 U.S.C. 632(p)(3))

is amended to read as follows:

‘‘(3) HUBZONE SMALL BUSINESS CONCERN.—The term

‘HUBZone small business concern’ means—

‘‘(A) a small business concern that is owned and controlled by 1 or more persons, each of whom is a United

States citizen;

‘‘(B) a small business concern that is—

‘‘(i) an Alaska Native Corporation owned and controlled by Natives (as determined pursuant to section

29(e)(1) of the Alaska Native Claims Settlement Act (43

U.S.C. 1626(e)(1))); or

‘‘(ii) a direct or indirect subsidiary corporation,

joint venture, or partnership of an Alaska Native Corporation qualifying pursuant to section 29(e)(1) of the

Alaska Native Claims Settlement Act (43 U.S.C.

1626(e)(1)), if that subsidiary, joint venture, or partnership is owned and controlled by Natives (as determined

pursuant to section 29(e)(2)) of the Alaska Native

Claims Settlement Act (43 U.S.C. 1626(e)(2))); or

‘‘(C) a small business concern—

595

‘‘(i) that is wholly owned by 1 or more Indian tribal governments, or by a corporation that is wholly

owned by 1 or more Indian tribal governments; or

‘‘(ii) that is owned in part by 1 or more Indian

tribal governments, or by a corporation that is wholly

owned by 1 or more Indian tribal governments, if all

other owners are either United States citizens or small

business concerns.’’.

SEC. 603. QUALIFIED HUBZONE SMALL BUSINESS CONCERN.

(a) IN GENERAL.—Section 3(p)(5)(A)(i) of the Small Business

Act (15 U.S.C. 632(p)(5)(A)(i)) is amended by striking subclauses (I)

and (II) and inserting the following:

‘‘(I) it is a HUBZone small business concern—

‘‘(aa) pursuant to subparagraph (A) or (B)

of paragraph (3), and that its principal office

is located in a HUBZone and not fewer than

35 percent of its employees reside in a

HUBZone; or

‘‘(bb) pursuant to paragraph (3)(C), and

not fewer than 35 percent of its employees engaged in performing a contract awarded to the

small business concern on the basis of a preference provided under section 31(b) reside

within any Indian reservation governed by 1

or more of the tribal government owners, or reside within any HUBZone adjoining any such

Indian reservation;

‘‘(II) the small business concern will attempt to

maintain the applicable employment percentage

under subclause (I) during the performance of any

contract awarded to the small business concern on

the basis of a preference provided under section

31(b); and’’.

(b) CLARIFYING AMENDMENT.—Section 3(p)(5)(D)(i) of the Small

Business Act (15 U.S.C. 632(p)(5)(D)(i)) is amended by inserting

‘‘once the Administrator has made the certification required by subparagraph (A)(i) regarding a qualified HUBZone small business

concern and has determined that subparagraph (A)(ii) does not

apply to that concern,’’ before ‘‘include’’.

SEC. 604. OTHER DEFINITIONS.

Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) is

amended by adding at the end the following:

‘‘(6) NATIVE AMERICAN SMALL BUSINESS CONCERNS.—

‘‘(A) ALASKA NATIVE CORPORATION.—The term ‘Alaska

Native Corporation’ has the same meaning as the term ‘Native Corporation’ in section 3 of the Alaska Native Claims

Settlement Act (43 U.S.C. 1602).

‘‘(B) ALASKA NATIVE VILLAGE.—The term ‘Alaska Native

Village’ has the same meaning as the term ‘Native village’

in section 3 of the Alaska Native Claims Settlement Act (43

U.S.C. 1602).

‘‘(C) INDIAN RESERVATION.—The term ‘Indian

reservation’—

596

‘‘(i) has the same meaning as the term ‘Indian

country’ in section 1151 of title 18, United States Code,

except that such term does not include—

‘‘(I) any lands that are located within a State

in which a tribe did not exercise governmental jurisdiction on the date of enactment of this paragraph, unless that tribe is recognized after that

date of enactment by either an Act of Congress or

pursuant to regulations of the Secretary of the Interior for the administrative recognition that an

Indian group exists as an Indian tribe (part 83 of

title 25, Code of Federal Regulations); and

‘‘(II) lands taken into trust or acquired by an

Indian tribe after the date of enactment of this

paragraph if such lands are not located within the

external boundaries of an Indian reservation or

former reservation or are not contiguous to the

lands held in trust or restricted status on that date

of enactment; and

‘‘(ii) in the State of Oklahoma, means lands that—

‘‘(I) are within the jurisdictional areas of an

Oklahoma Indian tribe (as determined by the Secretary of the Interior); and

‘‘(II) are recognized by the Secretary of the Interior as eligible for trust land status under part

151 of title 25, Code of Federal Regulations (as in

effect on the date of enactment of this paragraph).’’.

Subtitle B—Other HUBZone Provisions

SEC. 611. DEFINITIONS.

(a) QUALIFIED CENSUS TRACT.—Section 3(p)(4)(A) of the Small

Business Act (15 U.S.C. 632(p)(4)(A)) is amended by striking ‘‘(I)’’.

(b) QUALIFIED NONMETROPOLITAN COUNTY.—Section 3(p)(4) of

the Small Business Act (15 U.S.C. 632(p)(4)) is amended by striking

subparagraph (B) and inserting the following:

‘‘(B) QUALIFIED NONMETROPOLITAN COUNTY.—The term

‘qualified nonmetropolitan county’ means any county—

‘‘(i) that was not located in a metropolitan statistical area (as defined in section 143(k)(2)(B) of the Internal Revenue Code of 1986) at the time of the most

recent census taken for purposes of selecting qualified

census tracts under section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986; and

‘‘(ii) in which—

‘‘(I) the median household income is less than

80 percent of the nonmetropolitan State median

household income, based on the most recent data

available from the Bureau of the Census of the Department of Commerce; or

‘‘(II) the unemployment rate is not less than

140 percent of the Statewide average unemployVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00600 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
597

ment rate for the State in which the county is located, based on the most recent data available

from the Secretary of Labor.’’.

SEC. 612. ELIGIBLE CONTRACTS.

(a) COMMODITIES CONTRACTS.—Section 31(b)(3) of the Small

Business Act (15 U.S.C. 657a(b)(3)) is amended—

(1) by striking ‘‘In any’’ and inserting the following:

‘‘(A) IN GENERAL.—Subject to subparagraph (B), in

any’’; and

(2) by adding at the end the following:

‘‘(B) PROCUREMENT OF COMMODITIES.—For purchases

by the Secretary of Agriculture of agricultural commodities,

the price evaluation preference shall be—

‘‘(i) 10 percent, for the portion of a contract to be

awarded that is not greater than 25 percent of the total

volume being procured for each commodity in a single

invitation;

‘‘(ii) 5 percent, for the portion of a contract to be

awarded that is greater than 25 percent, but not greater than 40 percent, of the total volume being procured

for each commodity in a single invitation; and

‘‘(iii) zero, for the portion of a contract to be awarded that is greater than 40 percent of the total volume

being procured for each commodity in a single invitation.

‘‘(C) TREATMENT OF PREFERENCE.—A contract awarded

to a HUBZone small business concern under a preference

described in subparagraph (B) shall not be counted toward

the fulfillment of any requirement partially set aside for

competition restricted to small business concerns.’’.

(b) DEFINITIONS.—Section 3(p) of the Small Business Act (15

U.S.C. 632(p)), as amended by this Act, is amended—

(1) in paragraph (5)(A)(i)(III)—

(A) in item (aa), by striking ‘‘and’’ at the end; and

(B) by adding at the end the following:

‘‘(cc) in the case of a contract for the procurement by the Secretary of Agriculture of agricultural commodities, none of the commodity

being procured will be obtained by the prime

contractor through a subcontract for the purchase of the commodity in substantially the

final form in which it is to be supplied to the

Government; and’’; and

(2) by adding at the end the following:

‘‘(7) AGRICULTURAL COMMODITY.—The term ‘agricultural

commodity’ has the same meaning as in section 102 of the Agricultural Trade Act of 1978 (7 U.S.C. 5602).’’.

SEC. 613. HUBZONE REDESIGNATED AREAS.

Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) is

amended—

(1) in paragraph (1)—

(A) in subparagraph (B), by striking ‘‘or’’ at the end;

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(B) in subparagraph (C), by striking the period at the

end and inserting ‘‘; or’’; and

(C) by adding at the end the following:

‘‘(D) redesignated areas.’’; and

(2) in paragraph (4), by adding at the end the following:

‘‘(C) REDESIGNATED AREA.—The term ‘redesignated

area’ means any census tract that ceases to be qualified

under subparagraph (A) and any nonmetropolitan county

that ceases to be qualified under subparagraph (B), except

that a census tract or a nonmetropolitan county may be a

‘redesignated area’ only for the 3-year period following the

date on which the census tract or nonmetropolitan county

ceased to be so qualified.’’.

SEC. 614. COMMUNITY DEVELOPMENT.

Section 3(p) of the Small Business Act (15 U.S.C. 632(p)), as

amended by this Act, is amended—

(1) in paragraph (3)—

(A) in subparagraph (B), by striking ‘‘or’’ at the end;

(B) in subparagraph (C), by striking the period at the

end and inserting ‘‘; or’’; and

(C) by adding at the end the following:

‘‘(D) a small business concern that is—

‘‘(i) wholly owned by a community development

corporation that has received financial assistance

under Part 1 of Subchapter A of the Community Economic Development Act of 1981 (42 U.S.C. 9805 et

seq.); or

‘‘(ii) owned in part by 1 or more community development corporations, if all other owners are either

United States citizens or small business concerns.’’;

and

(2) in paragraph (5)(A)(i)(I)(aa), by striking ‘‘subparagraph

(A) or (B)’’ and inserting ‘‘subparagraph (A), (B), or (D)’’.

SEC. 615. REFERENCE CORRECTIONS.

(a) SECTION 3.—Section 3(p)(5)(C) of the Small Business Act (15

U.S.C. 632(p)(5)(C)) is amended by striking ‘‘subclause (IV) and (V)

of subparagraph (A)(i)’’ and inserting ‘‘items (aa) and (bb) of subparagraph (A)(i)(III)’’.

(b) SECTION 8.—Section 8(d)(4)(D) of the Small Business Act

(15 U.S.C. 637(d)(4)(D)) is amended by inserting ‘‘qualified

HUBZone small business concerns,’’ after ‘‘small business concerns,’’.

TITLE VII—NATIONAL WOMEN’S

BUSINESS COUNCIL REAUTHORIZATION

SEC. 701. SHORT TITLE.

This title may be cited as the ‘‘National Women’s Business

Council Reauthorization Act of 2000’’.

SEC. 702. MEMBERSHIP OF THE COUNCIL.

Section 407 of the Women’s Business Ownership Act of 1988 (15

U.S.C. 631 note) is amended—

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(1) in subsection (a), by striking ‘‘Not later’’ and all that follows through ‘‘the President’’ and inserting ‘‘The President’’;

(2) in subsection (b)—

(A) by striking ‘‘Not later’’ and all that follows through

‘‘the Administrator’’ and inserting ‘‘The Administrator’’;

and

(B) by striking ‘‘the Assistant Administrator of the Office of Women’s Business Ownership and’’;

(3) in subsection (d), by striking ‘‘, except that’’ and all that

follows through the end of the subsection and inserting a period; and

(4) in subsection (h), by striking ‘‘Not later’’ and all that

follows through ‘‘the Administrator’’ and inserting ‘‘The Administrator’’.

SEC. 703. REPEAL OF PROCUREMENT PROJECT.

Section 409 of the Women’s Business Ownership Act of 1988 (15

U.S.C. 631 note) is repealed.

SEC. 704. STUDIES AND OTHER RESEARCH.

Section 410 of the Women’s Business Ownership Act of 1988 (15

U.S.C. 631 note) is amended to read as follows:

‘‘SEC. 409. STUDIES AND OTHER RESEARCH.

‘‘(a) IN GENERAL.—The Council may conduct such studies and

other research relating to the award of Federal prime contracts and

subcontracts to women-owned businesses, to access to credit and investment capital by women entrepreneurs, or to other issues relating

to women-owned businesses, as the Council determines to be appropriate.

‘‘(b) CONTRACT AUTHORITY.—In conducting any study or other

research under this section, the Council may contract with 1 or

more public or private entities.’’.

SEC. 705. AUTHORIZATION OF APPROPRIATIONS.

Section 411 of the Women’s Business Ownership Act of 1988 (15

U.S.C. 631 note) is amended to read as follows:

‘‘SEC. 410. AUTHORIZATION OF APPROPRIATIONS.

‘‘(a) IN GENERAL.—There is authorized to be appropriated to

carry out this title $1,000,000, for each of fiscal years 2001 through

2003, of which $550,000 shall be available in each such fiscal year

to carry out section 409.

‘‘(b) BUDGET REVIEW.—No amount made available under this

section for any fiscal year may be obligated or expended by the

Council before the date on which the Council reviews and approves

the operating budget of the Council to carry out the responsibilities

of the Council for that fiscal year.’’.

TITLE VIII—MISCELLANEOUS

PROVISIONS

SEC. 801. LOAN APPLICATION PROCESSING.

(a) STUDY.—The Administrator of the Small Business Administration shall conduct a study to determine the average time that the

Administration requires to process an application for each type of

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loan or loan guarantee made under the Small Business Act (15

U.S.C. 631 et seq.).

(b) TRANSMITTAL.—Not later than 1 year after the date of enactment of this Act, the Administrator shall transmit to Congress the

results of the study conducted under subsection (a).

SEC. 802. APPLICATION OF OWNERSHIP REQUIREMENTS.

(a) SMALL BUSINESS ACT.—Section 7(a) of the Small Business

Act (15 U.S.C. 636(a)) is amended by adding at the end the following:

‘‘(30) OWNERSHIP REQUIREMENTS.—Ownership requirements to determine the eligibility of a small business concern

that applies for assistance under any credit program under this

Act shall be determined without regard to any ownership interest of a spouse arising solely from the application of the community property laws of a State for purposes of determining marital interests.’’.

(b) SMALL BUSINESS INVESTMENT ACT OF 1958.—Section 502 of

the Small Business Investment Act of 1958 (15 U.S.C. 696) is

amended by adding at the end the following:

‘‘(6) OWNERSHIP REQUIREMENTS.—Ownership requirements

to determine the eligibility of a small business concern that applies for assistance under any credit program under this title

shall be determined without regard to any ownership interest of

a spouse arising solely from the application of the community

property laws of a State for purposes of determining marital interests.’’.

SEC. 803. SUBCONTRACTING PREFERENCE FOR VETERANS.

Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) is

amended—

(1) in paragraph (1), by inserting ‘‘small business concerns

owned and controlled by veterans,’’ after ‘‘small business concerns,’’ the first place that term appears in each of the first and

second sentences;

(2) in paragraph (3)—

(A) in subparagraph (A), by inserting ‘‘small business

concerns owned and controlled by service-disabled veterans,’’ after ‘‘small business concerns owned and controlled

by veterans,’’ in each of the first and second sentences; and

(B) in subparagraph (F), by inserting ‘‘small business

concern owned and controlled by service-disabled veterans,’’

after ‘‘small business concern owned and controlled by veterans,’’; and

(3) in each of paragraphs (4)(D), (4)(E), (6)(A), (6)(C),

(6)(F), and (10)(B), by inserting ‘‘small business concerns owned

and controlled by service-disabled veterans,’’ after ‘‘small business concerns owned and controlled by veterans,’’.

SEC. 804. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM FUNDING.

(a) AUTHORIZATION.—

(1) IN GENERAL.—Section 20(a)(1) of the Small Business

Act (15 U.S.C. 631 note) is amended by striking ‘‘For fiscal year

1985’’ and all that follows through ‘‘expended.’’ and inserting

the following: ‘‘For fiscal year 2000 and each fiscal year thereVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00604 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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after, there are authorized to be appropriated such sums as may

be necessary and appropriate, to remain available until expended, and to be available solely—

‘‘(A) to carry out the Small Business Development Center

Program under section 21, but not to exceed the annual funding

level, as specified in section 21(a);

‘‘(B) to pay the expenses of the National Small Business Development Center Advisory Board, as provided in section 21(i);

‘‘(C) to pay the expenses of the information sharing system,

as provided in section 21(c)(8);

‘‘(D) to pay the expenses of the association referred to in section 21(a)(3)(A) for conducting the certification program, as provided in section 21(k)(2); and

‘‘(E) to pay the expenses of the Administration, including

salaries of examiners, for conducting examinations as part of

the certification program conducted by the association referred

to in section 21(a)(3)(A).’’.

(2) TECHNICAL AMENDMENT.—Section 20(a) of the Small

Business Act (15 U.S.C. 631 note) is amended by moving the

margins of paragraphs (3) and (4), including subparagraphs

(A) and (B) of paragraph (4), 2 ems to the left.

(b) FUNDING FORMULA.—Section 21(a)(4)(C) of the Small Business Act (15 U.S.C. 648(a)(4)(C)) is amended to read as follows:

‘‘(C) FUNDING FORMULA.—

‘‘(i) IN GENERAL.—Subject to clause (iii), the amount of

a formula grant received by a State under this subparagraph shall be equal to an amount determined in accordance with the following formula:

‘‘(I) The annual amount made available under section 20(a) for the Small Business Development Center

Program, less any reductions made for expenses authorized by clause (v) of this subparagraph, shall be divided on a pro rata basis, based on the percentage of

the population of each State, as compared to the population of the United States.

‘‘(II) If the pro rata amount calculated under subclause (I) for any State is less than the minimum funding level under clause (iii), the Administration shall

determine the aggregate amount necessary to achieve

that minimum funding level for each such State.

‘‘(III) The aggregate amount calculated under subclause (II) shall be deducted from the amount calculated under subclause (I) for States eligible to receive

more than the minimum funding level. The deductions

shall be made on a pro rata basis, based on the population of each such State, as compared to the total population of all such States.

‘‘(IV) The aggregate amount deducted under subclause (III) shall be added to the grants of those States

that are not eligible to receive more than the minimum

funding level in order to achieve the minimum funding

level for each such State, except that the eligible

amount of a grant to any State shall not be reduced to

an amount below the minimum funding level.

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‘‘(ii) GRANT DETERMINATION.—The amount of a grant

that a State is eligible to apply for under this subparagraph shall be the amount determined under clause (i),

subject to any modifications required under clause (iii), and

shall be based on the amount available for the fiscal year

in which performance of the grant commences, but not including amounts distributed in accordance with clause (iv).

The amount of a grant received by a State under any provision of this subparagraph shall not exceed the amount of

matching funds from sources other than the Federal Government, as required under subparagraph (A).

‘‘(iii) MINIMUM FUNDING LEVEL.—The amount of the

minimum funding level for each State shall be determined

for each fiscal year based on the amount made available for

that fiscal year to carry out this section, as follows:

‘‘(I) If the amount made available is not less than

$81,500,000 and not more than $90,000,000, the minimum funding level shall be $500,000.

‘‘(II) If the amount made available is less than

$81,500,000, the minimum funding level shall be the

remainder of $500,000 minus a percentage of $500,000

equal to the percentage amount by which the amount

made available is less than $81,500,000.

‘‘(III) If the amount made available is more than

$90,000,000, the minimum funding level shall be the

sum of $500,000 plus a percentage of $500,000 equal

to the percentage amount by which the amount made

available exceeds $90,000,000.

‘‘(iv) DISTRIBUTIONS.—Subject to clause (iii), if any

State does not apply for, or use, its full funding eligibility

for a fiscal year, the Administration shall distribute the remaining funds as follows:

‘‘(I) If the grant to any State is less than the

amount received by that State in fiscal year 2000, the

Administration shall distribute such remaining funds,

on a pro rata basis, based on the percentage of shortage of each such State, as compared to the total

amount of such remaining funds available, to the extent necessary in order to increase the amount of the

grant to the amount received by that State in fiscal

year 2000, or until such funds are exhausted, whichever first occurs.

‘‘(II) If any funds remain after the application of

subclause (I), the remaining amount may be distributed as supplemental grants to any State, as the Administration determines, in its discretion, to be appropriate, after consultation with the association referred

to in subsection (a)(3)(A).

‘‘(v) USE OF AMOUNTS.—

‘‘(I) IN GENERAL.—Of the amounts made available

in any fiscal year to carry out this section—

‘‘(aa) not more than $500,000 may be used by

the Administration to pay expenses enumerated in

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subparagraphs (B) through (D) of section 20(a)(1);

and

‘‘(bb) not more than $500,000 may be used by

the Administration to pay the examination expenses enumerated in section 20(a)(1)(E).

‘‘(II) LIMITATION.—No funds described in subclause (I) may be used for examination expenses under

section 20(a)(1)(E) if the usage would reduce the

amount of grants made available under clause (i)(I) of

this subparagraph to less than $85,000,000 (after excluding any amounts provided in appropriations Acts

for specific institutions or for purposes other than the

general small business development center program) or

would further reduce the amount of such grants below

such amount.

‘‘(vi) EXCLUSIONS.—Grants provided to a State by the

Administration or another Federal agency to carry out subsection (a)(6) or (c)(3)(G), or for supplemental grants set

forth in clause (iv)(II) of this subparagraph, shall not be included in the calculation of maximum funding for a State

under clause (ii) of this subparagraph.

‘‘(vii) AUTHORIZATION OF APPROPRIATIONS.—There is

authorized to be appropriated to carry out this subparagraph $125,000,000 for each of fiscal years 2001, 2002, and

2003.

‘‘(viii) STATE DEFINED.—In this subparagraph, the term

‘State’ means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.’’.

SEC. 805. SURETY BONDS.

(a) CONTRACT AMOUNTS.—Section 411 of the Small Business

Investment Act of 1958 (15 U.S.C. 694b) is amended—

(1) in subsection (a)(1), by striking ‘‘$1,250,000’’ and inserting ‘‘$2,000,000’’; and

(2) in subsection (e)(2), by striking ‘‘$1,250,000’’ and inserting ‘‘$2,000,000’’.

(b) EXTENSION OF CERTAIN AUTHORITY.—Section 207 of the

Small Business Administration Reauthorization and Amendment

Act of 1988 (15 U.S.C. 694b note) is amended by striking ‘‘2000’’

and inserting ‘‘2003’’.

SEC. 806. SIZE STANDARDS.

(a) INDUSTRY CLASSIFICATIONS.—Section 15(a) of the Small

Business Act (15 U.S.C. 644(a)) is amended in the eighth sentence,

by striking ‘‘four-digit standard’’ and all that follows through ‘‘published’’ and inserting ‘‘definition of a ‘United States industry’ under

the North American Industry Classification System, as established’’.

(b) ANNUAL RECEIPTS.—Section 3(a)(1) of the Small Business

Act (15 U.S.C. 632(a)(1)) is amended by striking ‘‘$500,000’’ and inserting ‘‘$750,000’’.

SEC. 807. NATIVE HAWAIIAN ORGANIZATIONS UNDER SECTION 8(a).

Section 8(a)(15)(A) of the Small Business Act (15 U.S.C.

637(a)(15)(A)) is amended to read as follows:

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‘‘(A) is a nonprofit corporation that has filed articles of incorporation with the director (or the designee thereof) of the Hawaii Department of Commerce and Consumer Affairs, or any

successor agency,’’.

SEC. 808. NATIONAL VETERANS BUSINESS DEVELOPMENT CORPORATION CORRECTION.

Section 33(k) of the Small Business Act (15 U.S.C. 657c(k)) is

amended—

(1) by striking paragraph (1) and inserting the following:

‘‘(1) IN GENERAL.—Subject to paragraph (2), there are authorized to be appropriated to the Corporation to carry out this

section—

‘‘(A) $4,000,000 for fiscal year 2001;

‘‘(B) $4,000,000 for fiscal year 2002;

‘‘(C) $2,000,000 for fiscal year 2003; and

‘‘(D) $2,000,000 for fiscal year 2004.’’;

(2) in paragraph (2)(A), by striking ‘‘2001’’ each place it appears and inserting ‘‘2002’’; and

(3) in paragraph (2)(B), by striking ‘‘2002 or 2003’’ and inserting ‘‘2003 or 2004’’.

SEC. 809. PRIVATE SECTOR RESOURCES FOR SCORE.

Section 8(b)(1)(B) of the Small Business Act (15 U.S.C.

637(b)(1)(B)) is amended by adding at the end the following: ‘‘Notwithstanding any other provision of law, SCORE may solicit cash

and in-kind contributions from the private sector to be used to carry

out its functions under this Act, and may use payments made by the

Administration pursuant to this subparagraph for such solicitation.’’.

SEC. 810. CONTRACT DATA COLLECTION.

(a) DEFINITION OF BUNDLED CONTRACT.—Section 3(o)(1) of the

Small Business Act (15 U.S.C. 632(o)(1)) is amended to read as follows:

‘‘(1) BUNDLED CONTRACT.—The term ‘bundled contract’

means a contract, or a modification of an existing contract, that

is entered into to meet—

‘‘(A) requirements that are consolidated in a bundling

of contract requirements regardless of whether the contracting agency has conducted a study of the effects of the

solicitation for the contract on civilian or military personnel of the United States; or

‘‘(B) any procurement requirement that permits the consolidation of 2 or more procurement requirements.’’.

(b) ANALYSIS REQUIRED WITH RESPECT TO BUNDLED CONTRACTS.—Section 15(e)(2)(A) of the Small Business Act (15 U.S.C.

644(e)(2)(A)) is amended—

(1) by striking ‘‘(A) IN GENERAL.—’’ and inserting the following:

‘‘(A) DETERMINATION OF NECESSITY.—

‘‘(i) IN GENERAL.—’’; and

(2) by adding at the end the following:

‘‘(ii) IDENTIFICATION OF DISPLACED PRIME CONTRACTORS.—The market research required by clause (i)

shall identify each small business concern that will be

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displaced as a prime contractor as a result of the

award of a contract described in such clause, and the

Administrator shall maintain such data for a period of

not less than 10 years.

‘‘(iii) BUNDLED CONTRACTS SUBJECT TO RECOMPETITION.—

‘‘(I) IN GENERAL.—Not less than 30 days before

issuing a solicitation to recompete a previously

bundled contract as a contract that continues to

contain the bundling of contract requirements of

the original bundled contract, the head of the

agency shall notify the Administrator and transmit a report to the Administrator containing the

results of the market research required under

clause (i).

‘‘(II) REVIEW AND DETERMINATION.—The Administrator shall, not later than 30 days after notification under subclause (I), review and

determine—

‘‘(aa) the amount of savings and benefits

(in accordance with this subsection) achieved

under the bundling of contract requirements;

and

‘‘(bb) whether such savings and benefits

will continue to be realized if the contract remains bundled and whether such benefits

would be greater if the procurement requirements were divided into separate solicitations

suitable for award to small business concerns.

‘‘(II) APPEAL.—

‘‘(aa) IN GENERAL.—If, after conducting a

review under subclause (II), the Administrator

reaches a conclusion with respect to the savings and benefits of the recompeted bundle different than that reached by the head of the

contracting agency as part of the market analysis required under clause (i) and such head

proceeds with a solicitation for the contract,

the Administrator shall file an appeal with the

Administrator of the Office of Federal Procurement Policy.

‘‘(bb) NOTICE.—If the Administrator files

an appeal under item (aa), the Administrator

shall notify the head of the contracting agency.

‘‘(cc) FILING OF REPORTS.—Not less than 5

calendar days after notice is given under item

(bb), the Administrator shall submit a report

containing information on the Administrator’s

conclusions and determinations under subclause (II), and the head of the contracting

agency shall submit the report described in

subclause (I), to the Administrator of the Office of Federal Procurement Policy.

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‘‘(dd) DECISION.—Not later than 7 calendar days after the submission of reports

under item (cc), the Administrator of the Office

of Federal Procurement Policy shall determine

whether the subject contract shall be recompeted as bundled contract.’’.

(c) ANNUAL REPORT ON CONTRACT BUNDLING.—Section 15 of

the Small Business Act (15 U.S.C. 644) is amended by adding at

the end the following:

‘‘(p) ANNUAL REPORT ON CONTRACT BUNDLING.—

‘‘(1) IN GENERAL.—Not later than 1 year after the date of

enactment of this subsection, and annually in March thereafter,

the Administration shall transmit a report on contract bundling

to the Committees on Small Business of the House of Representatives and the Senate.

‘‘(2) CONTENTS.—Each report transmitted under paragraph

(1) shall include—

‘‘(A) data on the number, arranged by industrial classification, of small business concerns displaced as prime contractors as a result of the award of bundled contracts by

Federal agencies; and

‘‘(B) a description of the activities with respect to previously bundled contracts of each Federal agency during

the preceding year, including—

‘‘(i) data on the number and total dollar amount of

all contract requirements that were bundled; and

‘‘(ii) with respect to each bundled contract, data or

information on—

‘‘(I) the justification for the bundling of contract requirements;

‘‘(II) the cost savings realized by bundling the

contract requirements over the life of the contract;

‘‘(III) the extent to which maintaining the bundled status of contract requirements is projected to

result in continued cost savings;

‘‘(IV) the extent to which the bundling of contract requirements complied with the contracting

agency’s small business subcontracting plan, including the total dollar value awarded to small

business concerns as subcontractors and the total

dollar value previously awarded to small business

concerns as prime contractors; and

‘‘(V) the impact of the bundling of contract requirements on small business concerns unable to

compete as prime contractors for the consolidated

requirements and on the industries of such small

business concerns, including a description of any

changes to the proportion of any such industry

that is composed of small business concerns.’’.

(d) REPORTING OF BUNDLED CONTRACT OPPORTUNITIES.—Section 414(a) of the Small Business Reauthorization Act of 1997 (4

U.S.C. 405 note) is amended—

(1) by striking ‘‘$5,000,000’’ and inserting ‘‘$25,000’’; and

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(2) by striking ‘‘bundling of contract requirements’’ and inserting ‘‘bundled contract’’.

(e) PROVISION OF DATA.—Upon the request of the Administrator

of the Small Business Administration, the head of any contracting

agency shall promptly provide to the Administrator such information as the Administrator determines to be necessary to carry out

this section or the amendments made by this section.

SEC. 811. PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSINESS CONCERNS.

Section 8 of the Small Business Act (15 U.S.C. 637) is amended

by adding at the end the following:

‘‘(m) PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSI- NESS CONCERNS.— ‘‘(1) DEFINITIONS.—In this subsection, the following definitions apply:

‘‘(A) CONTRACTING OFFICER.—The term ‘contracting officer’ has the meaning given such term in section 27(f)(5) of

the Office of Federal Procurement Policy Act (41 U.S.C.

423(f)(5)).

‘‘(B) SMALL BUSINESS CONCERN OWNED AND CON- TROLLED BY WOMEN.—The term ‘small business concern

owned and controlled by women’ has the meaning given

such term in section 3(n), except that ownership shall be determined without regard to any community property law.

‘‘(2) AUTHORITY TO RESTRICT COMPETITION.—In accordance

with this subsection, a contracting officer may restrict competition for any contract for the procurement of goods or services by

the Federal Government to small business concerns owned and

controlled by women, if—

‘‘(A) each of the concerns is not less than 51 percent

owned by 1 or more women who are economically disadvantaged (and such ownership is determined without regard to any community property law);

‘‘(B) the contracting officer has a reasonable expectation

that 2 or more small business concerns owned and controlled by women will submit offers for the contract;

‘‘(C) the contract is for the procurement of goods or

services with respect to an industry identified by the Administrator pursuant to paragraph (3);

‘‘(D) the anticipated award price of the contract (including options) does not exceed—

‘‘(i) $5,000,000, in the case of a contract assigned

an industrial classification code for manufacturing; or

‘‘(ii) $3,000,000, in the case of all other contracts;

‘‘(E) in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price;

and

‘‘(F) each of the concerns—

‘‘(i) is certified by a Federal agency, a State government, or a national certifying entity approved by the

Administrator, as a small business concern owned and

controlled by women; or

‘‘(ii) certifies to the contracting officer that it is a

small business concern owned and controlled by

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women and provides adequate documentation, in accordance with standards established by the Administration, to support such certification.

‘‘(3) WAIVER.—With respect to a small business concern

owned and controlled by women, the Administrator may waive

subparagraph (2)(A) if the Administrator determines that the

concern is in an industry in which small business concerns

owned and controlled by women are substantially underrepresented.

‘‘(4) IDENTIFICATION OF INDUSTRIES.—The Administrator

shall conduct a study to identify industries in which small

business concerns owned and controlled by women are underrepresented with respect to Federal procurement contracting.

‘‘(5) ENFORCEMENT; PENALTIES.—

‘‘(A) VERIFICATION OF ELIGIBILITY.—In carrying out

this subsection, the Administrator shall establish procedures relating to—

‘‘(i) the filing, investigation, and disposition by the

Administration of any challenge to the eligibility of a

small business concern to receive assistance under this

subsection (including a challenge, filed by an interested

party, relating to the veracity of a certification made or

information provided to the Administration by a small

business concern under paragraph (2)(F)); and

‘‘(ii) verification by the Administrator of the accuracy of any certification made or information provided

to the Administration by a small business concern

under paragraph (2)(F).

‘‘(B) EXAMINATIONS.—The procedures established under

subparagraph (A) may provide for program examinations

(including random program examinations) by the Administrator of any small business concern making a certification

or providing information to the Administrator under paragraph (2)(F).

‘‘(C) PENALTIES.—In addition to the penalties described

in section 16(d), any small business concern that is determined by the Administrator to have misrepresented the status of that concern as a small business concern owned and

controlled by women for purposes of this subsection, shall

be subject to—

‘‘(i) section 1001 of title 18, United States Code;

and

‘‘(ii) sections 3729 through 3733 of title 31, United

States Code.

‘‘(6) PROVISION OF DATA.—Upon the request of the Administrator, the head of any Federal department or agency shall

promptly provide to the Administrator such information as the

Administrator determines to be necessary to carry out this subsection.’’.

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TITLE IX—COMMUNITY RENEWAL AND

NEW MARKETS INITIATIVES

SEC. 901. NEW MARKETS VENTURE CAPITAL PROGRAM.

(a) SHORT TITLE.—This section may be cited as the ‘‘New Markets Venture Capital Program Act of 2000’’.

(b) NEW MARKETS VENTURE CAPITAL PROGRAM.—Title III of the

Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) is

amended—

(1) in the heading for the title, by striking ‘‘SMALL BUSINESS INVESTMENT COMPANIES’’ and inserting ‘‘INVESTMENT DIVISION PROGRAMS’’;

(2) by inserting before the heading for section 301 the following:

‘‘PART A—SMALL BUSINESS INVESTMENT COMPANIES’’;

and

(3) by adding at the end the following:

‘‘PART B—NEW MARKETS VENTURE CAPITAL PROGRAM

‘‘SEC. 351. DEFINITIONS.

‘‘In this part, the following definitions apply:

‘‘(1) DEVELOPMENTAL VENTURE CAPITAL.—The term ‘developmental venture capital’ means capital in the form of equity

capital investments in businesses made with a primary objective of fostering economic development in low-income geographic

areas. For the purposes of this paragraph, the term ‘equity capital’ has the same meaning given such term in section 303(g)(4).

‘‘(2) LOW-INCOME INDIVIDUAL.—The term ‘low-income individual’ means an individual whose income (adjusted for family

size) does not exceed—

‘‘(A) for metropolitan areas, 80 percent of the area median income; and

‘‘(B) for nonmetropolitan areas, the greater of—

‘‘(i) 80 percent of the area median income; or

‘‘(ii) 80 percent of the statewide nonmetropolitan

area median income.

‘‘(3) LOW-INCOME GEOGRAPHIC AREA.—The term ‘low-income

geographic area’ means—

‘‘(A) any population census tract (or in the case of an

area that is not tracted for population census tracts, the

equivalent county division, as defined by the Bureau of the

Census of the Department of Commerce for purposes of defining poverty areas), if—

‘‘(i) the poverty rate for that census tract is not less

than 20 percent;

‘‘(ii) in the case of a tract—

‘‘(I) that is located within a metropolitan area,

50 percent or more of the households in that census

tract have an income equal to less than 60 percent

of the area median gross income; or

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‘‘(II) that is not located within a metropolitan

area, the median household income for such tract

does not exceed 80 percent of the statewide median

household income; or

‘‘(iii) as determined by the Administrator based on

objective criteria, a substantial population of low-income individuals reside, an inadequate access to investment capital exists, or other indications of economic

distress exist in that census tract; or

‘‘(B) any area located within—

‘‘(i) a HUBZone (as defined in section 3(p) of the

Small Business Act and the implementing regulations

issued under that section);

‘‘(ii) an urban empowerment zone or urban enterprise community (as designated by the Secretary of

Housing and Urban Development); or

‘‘(iii) a rural empowerment zone or rural enterprise

community (as designated by the Secretary of Agriculture).

‘‘(4) NEW MARKETS VENTURE CAPITAL COMPANY.—The term

‘New Markets Venture Capital company’ means a company

that—

‘‘(A) has been granted final approval by the Administrator under section 354(e); and

‘‘(B) has entered into a participation agreement with

the Administrator.

‘‘(5) OPERATIONAL ASSISTANCE.—The term ‘operational assistance’ means management, marketing, and other technical

assistance that assists a small business concern with business

development.

‘‘(6) PARTICIPATION AGREEMENT.—The term ‘participation

agreement’ means an agreement, between the Administrator

and a company granted final approval under section 354(e),

that—

‘‘(A) details the company’s operating plan and investment criteria; and

‘‘(B) requires the company to make investments in

smaller enterprises at least 80 percent of which are located

in low-income geographic areas.

‘‘(7) SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY.—

The term ‘specialized small business investment company’

means any small business investment company that—

‘‘(A) invests solely in small business concerns that contribute to a well-balanced national economy by facilitating

ownership in such concerns by persons whose participation

in the free enterprise system is hampered because of social

or economic disadvantages;

‘‘(B) is organized or chartered under State business or

nonprofit corporations statutes, or formed as a limited partnership; and

‘‘(C) was licensed under section 301(d), as in effect before September 30, 1996.

‘‘(8) STATE.—The term ‘‘State’’ means each of the several

States, the District of Columbia, the Commonwealth of Puerto

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Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any other

commonwealth, territory, or possession of the United States;

‘‘SEC. 352. PURPOSES.

‘‘The purposes of the New Markets Venture Capital Program established under this part are—

‘‘(1) to promote economic development and the creation of

wealth and job opportunities in low-income geographic areas

and among individuals living in such areas by encouraging developmental venture capital investments in smaller enterprises

primarily located in such areas; and

‘‘(2) to establish a developmental venture capital program,

with the mission of addressing the unmet equity investment

needs of small enterprises located in low-income geographic

areas, to be administered by the Administrator—

‘‘(A) to enter into participation agreements with New

Markets Venture Capital companies;

‘‘(B) to guarantee debentures of New Markets Venture

Capital companies to enable each such company to make

developmental venture capital investments in smaller enterprises in low-income geographic areas; and

‘‘(C) to make grants to New Markets Venture Capital

companies, and to other entities, for the purpose of providing operational assistance to smaller enterprises financed, or expected to be financed, by such companies.

‘‘SEC. 353. ESTABLISHMENT.

‘‘In accordance with this part, the Administrator shall establish

a New Markets Venture Capital Program, under which the Administrator may—

‘‘(1) enter into participation agreements with companies

granted final approval under section 354(e) for the purposes set

forth in section 352;

‘‘(2) guarantee the debentures issued by New Markets Venture Capital companies as provided in section 355; and

‘‘(3) make grants to New Markets Venture Capital companies, and to other entities, under section 358.

‘‘SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.

‘‘(a) ELIGIBILITY.—A company shall be eligible to apply to participate, as a New Markets Venture Capital company, in the program established under this part if—

‘‘(1) the company is a newly formed for-profit entity or a

newly formed for-profit subsidiary of an existing entity;

‘‘(2) the company has a management team with experience

in community development financing or relevant venture capital

financing; and

‘‘(3) the company has a primary objective of economic development of low-income geographic areas.

‘‘(b) APPLICATION.—To participate, as a New Markets Venture

Capital company, in the program established under this part a company meeting the eligibility requirements set forth in subsection (a)

shall submit an application to the Administrator that includes—

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‘‘(1) a business plan describing how the company intends to

make successful developmental venture capital investments in

identified low-income geographic areas;

‘‘(2) information regarding the community development finance or relevant venture capital qualifications and general

reputation of the company’s management;

‘‘(3) a description of how the company intends to work with

community organizations and to seek to address the unmet capital needs of the communities served;

‘‘(4) a proposal describing how the company intends to use

the grant funds provided under this part to provide operational

assistance to smaller enterprises financed by the company, including information regarding whether the company intends to

use licensed professionals, when necessary, on the company’s

staff or from an outside entity;

‘‘(5) with respect to binding commitments to be made to the

company under this part, an estimate of the ratio of cash to inkind contributions;

‘‘(6) a description of the criteria to be used to evaluate

whether and to what extent the company meets the objectives of

the program established under this part;

‘‘(7) information regarding the management and financial

strength of any parent firm, affiliated firm, or any other firm

essential to the success of the company’s business plan; and

‘‘(8) such other information as the Administrator may require.

‘‘(c) CONDITIONAL APPROVAL.—

‘‘(1) IN GENERAL.—From among companies submitting applications under subsection (b), the Administrator shall, in accordance with this subsection, conditionally approve companies

to participate in the New Markets Venture Capital Program.

‘‘(2) SELECTION CRITERIA.—In selecting companies under

paragraph (1), the Administrator shall consider the following:

‘‘(A) The likelihood that the company will meet the

goals of its business plan.

‘‘(B) The experience and background of the company’s

management team.

‘‘(C) The need for developmental venture capital investments in the geographic areas in which the company intends to invest.

‘‘(D) The extent to which the company will concentrate

its activities on serving the geographic areas in which it intends to invest.

‘‘(E) The likelihood that the company will be able to

satisfy the conditions under subsection (d).

‘‘(F) The extent to which the activities proposed by the

company will expand economic opportunities in the geographic areas in which the company intends to invest.

‘‘(G) The strength of the company’s proposal to provide

operational assistance under this part as the proposal relates to the ability of the applicant to meet applicable cash

requirements and properly utilize in-kind contributions, including the use of resources for the services of licensed proVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00616 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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fessionals, when necessary, whether provided by persons on

the company’s staff or by persons outside of the company.

‘‘(H) Any other factors deemed appropriate by the Administrator.

‘‘(3) NATIONWIDE DISTRIBUTION.—The Administrator shall

select companies under paragraph (1) in such a way that promotes investment nationwide.

‘‘(d) REQUIREMENTS TO BE MET FOR FINAL APPROVAL.—The

Administrator shall grant each conditionally approved company a

period of time, not to exceed 2 years, to satisfy the following requirements:

‘‘(1) CAPITAL REQUIREMENT.—Each conditionally approved

company shall raise not less than $5,000,000 of private capital

or binding capital commitments from one or more investors

(other than agencies or departments of the Federal Government)

who meet criteria established by the Administrator.

‘‘(2) NONADMINISTRATION RESOURCES FOR OPERATIONAL ASSISTANCE.—

‘‘(A) IN GENERAL.—In order to provide operational assistance to smaller enterprises expected to be financed by

the company, each conditionally approved company—

‘‘(i) shall have binding commitments (for contribution in cash or in kind)—

‘‘(I) from any sources other than the Small

Business Administration that meet criteria established by the Administrator;

‘‘(II) payable or available over a multiyear period acceptable to the Administrator (not to exceed

10 years); and

‘‘(III) in an amount not less than 30 percent of

the total amount of capital and commitments

raised under paragraph (1);

‘‘(ii) shall have purchased an annuity—

‘‘(I) from an insurance company acceptable to

the Administrator;

‘‘(II) using funds (other than the funds raised

under paragraph (1)) from any source other than

the Administrator; and

‘‘(III) that yields cash payments over a

multiyear period acceptable to the Administrator

(not to exceed 10 years) in an amount not less than

30 percent of the total amount of capital and commitments raised under paragraph (1); or

‘‘(iii) shall have binding commitments (for contributions in cash or in kind) of the type described in

clause (i) and shall have purchased an annuity of the

type described in clause (ii), which in the aggregate

make available, over a multiyear period acceptable to

the Administrator (not to exceed 10 years), an amount

not less than 30 percent of the total amount of capital

and commitments raised under paragraph (1).

‘‘(B) EXCEPTION.—The Administrator may, in the discretion of the Administrator and based upon a showing of

special circumstances and good cause, consider an appliVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00617 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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cant to have satisfied the requirements of subparagraph (A)

if the applicant has—

‘‘(i) a viable plan that reasonably projects the capacity of the applicant to raise the amount (in cash or

in-kind) required under subparagraph (A); and

‘‘(ii) binding commitments in an amount equal to

not less than 20 percent of the total amount required

under paragraph (A).

‘‘(C) LIMITATION.—In order to comply with the requirements of subparagraphs (A) and (B), the total amount of a

company’s in-kind contributions may not exceed 50 percent

of the company’s total contributions.

‘‘(e) FINAL APPROVAL; DESIGNATION.—The Administrator shall,

with respect to each applicant conditionally approved to operate as

a New Markets Venture Capital company under subsection (c),

either—

‘‘(1) grant final approval to the applicant to operate as a

New Markets Venture Capital company under this part and

designate the applicant as such a company, if the applicant—

‘‘(A) satisfies the requirements of subsection (d) on or

before the expiration of the time period described in that

subsection; and

‘‘(B) enters into a participation agreement with the Administrator; or

‘‘(2) if the applicant fails to satisfy the requirements of subsection (d) on or before the expiration of the time period described in that subsection, revoke the conditional approval

granted under that subsection.

‘‘SEC. 355. DEBENTURES.

‘‘(a) IN GENERAL.—The Administrator may guarantee the timely

payment of principal and interest, as scheduled, on debentures

issued by any New Markets Venture Capital company.

‘‘(b) TERMS AND CONDITIONS.—The Administrator may make

guarantees under this section on such terms and conditions as it

deems appropriate, except that the term of any debenture guaranteed under this section shall not exceed 15 years.

‘‘(c) FULL FAITH AND CREDIT OF THE UNITED STATES.—The full

faith and credit of the United States is pledged to pay all amounts

that may be required to be paid under any guarantee under this

part.

‘‘(d) MAXIMUM GUARANTEE.—

‘‘(1) IN GENERAL.—Under this section, the Administrator

may guarantee the debentures issued by a New Markets Venture Capital company only to the extent that the total face

amount of outstanding guaranteed debentures of such company

does not exceed 150 percent of the private capital of the company, as determined by the Administrator.

‘‘(2) TREATMENT OF CERTAIN FEDERAL FUNDS.—For the purposes of paragraph (1), private capital shall include capital that

is considered to be Federal funds, if such capital is contributed

by an investor other than an agency or department of the Federal Government.

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‘‘SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

‘‘(a) ISSUANCE.—The Administrator may issue trust certificates

representing ownership of all or a fractional part of debentures

issued by a New Markets Venture Capital company and guaranteed

by the Administrator under this part, if such certificates are based

on and backed by a trust or pool approved by the Administrator

and composed solely of guaranteed debentures.

‘‘(b) GUARANTEE.—

‘‘(1) IN GENERAL.—The Administrator may, under such

terms and conditions as it deems appropriate, guarantee the

timely payment of the principal of and interest on trust certificates issued by the Administrator or its agents for purposes of

this section.

‘‘(2) LIMITATION.—Each guarantee under this subsection

shall be limited to the extent of principal and interest on the

guaranteed debentures that compose the trust or pool.

‘‘(3) PREPAYMENT OR DEFAULT.—In the event that a debenture in a trust or pool is prepaid, or in the event of default of

such a debenture, the guarantee of timely payment of principal

and interest on the trust certificates shall be reduced in proportion to the amount of principal and interest such prepaid debenture represents in the trust or pool. Interest on prepaid or

defaulted debentures shall accrue and be guaranteed by the Administrator only through the date of payment of the guarantee.

At any time during its term, a trust certificate may be called

for redemption due to prepayment or default of all debentures.

‘‘(c) FULL FAITH AND CREDIT OF THE UNITED STATES.—The full

faith and credit of the United States is pledged to pay all amounts

that may be required to be paid under any guarantee of a trust certificate issued by the Administrator or its agents under this section.

‘‘(d) FEES.—The Administrator shall not collect a fee for any

guarantee of a trust certificate under this section, but any agent of

the Administrator may collect a fee approved by the Administrator

for the functions described in subsection (f)(2).

‘‘(e) SUBROGATION AND OWNERSHIP RIGHTS.—

‘‘(1) SUBROGATION.—In the event the Administrator pays a

claim under a guarantee issued under this section, it shall be

subrogated fully to the rights satisfied by such payment.

‘‘(2) OWNERSHIP RIGHTS.—No Federal, State, or local law

shall preclude or limit the exercise by the Administrator of its

ownership rights in the debentures residing in a trust or pool

against which trust certificates are issued under this section.

‘‘(f) MANAGEMENT AND ADMINISTRATION.—

‘‘(1) REGISTRATION.—The Administrator may provide for a

central registration of all trust certificates issued under this section.

‘‘(2) CONTRACTING OF FUNCTIONS.—

‘‘(A) IN GENERAL.—The Administrator may contract

with an agent or agents to carry out on behalf of the Administrator the pooling and the central registration functions provided for in this section including, notwithstanding any other provision of law—

‘‘(i) maintenance, on behalf of and under the direction of the Administrator, of such commercial bank acVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00619 Fmt 6601 Sfmt 6603 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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counts or investments in obligations of the United

States as may be necessary to facilitate the creation of

trusts or pools backed by debentures guaranteed under

this part; and

‘‘(ii) the issuance of trust certificates to facilitate

the creation of such trusts or pools.

‘‘(B) FIDELITY BOND OR INSURANCE REQUIREMENT.—

Any agent performing functions on behalf of the Administrator under this paragraph shall provide a fidelity bond or

insurance in such amounts as the Administrator determines to be necessary to fully protect the interests of the

United States.

‘‘(3) REGULATION OF BROKERS AND DEALERS.—The Administrator may regulate brokers and dealers in trust certificates

issued under this section.

‘‘(4) ELECTRONIC REGISTRATION.—Nothing in this subsection may be construed to prohibit the use of a book-entry or

other electronic form of registration for trust certificates issued

under this section.

‘‘SEC. 357. FEES.

‘‘Except as provided in section 356(d), the Administrator may

charge such fees as it deems appropriate with respect to any guarantee or grant issued under this part.

‘‘SEC. 358. OPERATIONAL ASSISTANCE GRANTS.

‘‘(a) IN GENERAL.—

‘‘(1) AUTHORITY.—In accordance with this section, the Administrator may make grants to New Markets Venture Capital

companies and to other entities, as authorized by this part, to

provide operational assistance to smaller enterprises financed,

or expected to be financed, by such companies or other entities.

‘‘(2) TERMS.—Grants made under this subsection shall be

made over a multiyear period not to exceed 10 years, under

such other terms as the Administrator may require.

‘‘(3) GRANTS TO SPECIALIZED SMALL BUSINESS INVESTMENT

COMPANIES.—

‘‘(A) AUTHORITY.—In accordance with this section, the

Administrator may make grants to specialized small business investment companies to provide operational assistance to smaller enterprises financed, or expected to be financed, by such companies after the effective date of the

New Markets Venture Capital Program Act of 2000.

‘‘(B) USE OF FUNDS.—The proceeds of a grant made

under this paragraph may be used by the company receiving such grant only to provide operational assistance in

connection with an equity investment (made with capital

raised after the effective date of the New Markets Venture

Capital Program Act of 2000) in a business located in a

low-income geographic area.

‘‘(C) SUBMISSION OF PLANS.—A specialized small business investment company shall be eligible for a grant under

this section only if the company submits to the Administrator, in such form and manner as the Administrator may

require, a plan for use of the grant.

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‘‘(4) GRANT AMOUNT.— ‘‘(A) NEW MARKETS VENTURE CAPITAL COMPANIES.—The

amount of a grant made under this subsection to a New

Markets Venture Capital company shall be equal to the resources (in cash or in kind) raised by the company under

with section 354(d)(2).

‘‘(B) OTHER ENTITIES.—The amount of a grant made

under this subsection to any entity other than a New Markets Venture capital company shall be equal to the resources (in cash or in kind) raised by the entity in accordance with the requirements applicable to New Markets Venture Capital companies set forth in section 354(d)(2).

‘‘(5) PRO RATA REDUCTIONS.—If the amount made available

to carry out this section is insufficient for the Administrator to

provide grants in the amounts provided for in paragraph (4),

the Administrator shall make pro rata reductions in the

amounts otherwise payable to each company and entity under

such paragraph.

‘‘(b) SUPPLEMENTAL GRANTS.— ‘‘(1) IN GENERAL.—The Administrator may make supplemental grants to New Markets Venture Capital companies and

to other entities, as authorized by this part, under such terms

as the Administrator may require, to provide additional operational assistance to smaller enterprises financed, or expected to

be financed, by the companies.

‘‘(2) MATCHING REQUIREMENT.—The Administrator may require, as a condition of any supplemental grant made under

this subsection, that the company or entity receiving the grant

provide from resources (in cash or in kind), other than those

provided by the Administrator, a matching contribution equal

to the amount of the supplemental grant.

‘‘(c) LIMITATION.—None of the assistance made available under

this section may be used for any overhead or general and administrative expense of a New Markets Venture Capital company or a specialized small business investment company.

‘‘SEC. 359. BANK PARTICIPATION.

‘‘(a) IN GENERAL.—Except as provided in subsection (b), any national bank, any member bank of the Federal Reserve System, and

(to the extent permitted under applicable State law) any insured

bank that is not a member of such system, may invest in any New

Markets Venture Capital company, or in any entity established to

invest solely in New Markets Venture Capital companies.

‘‘(b) LIMITATION.—No bank described in subsection (a) may

make investments described in such subsection that are greater than

5 percent of the capital and surplus of the bank.

‘‘SEC. 360. FEDERAL FINANCING BANK.

‘‘Section 318 shall not apply to any debenture issued by a New

Markets Venture Capital company under this part.

‘‘SEC. 361. REPORTING REQUIREMENTS.

‘‘Each New Markets Venture Capital company that participates

in the program established under this part shall provide to the Administrator such information as the Administrator may require,

including—

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‘‘(1) information related to the measurement criteria that

the company proposed in its program application; and

‘‘(2) in each case in which the company under this part

makes an investment in, or a loan or grant to, a business that

is not located in a low-income geographic area, a report on the

number and percentage of employees of the business who reside

in such areas.

‘‘SEC. 362. EXAMINATIONS.

‘‘(a) IN GENERAL.—Each New Markets Venture Capital company that participates in the program established under this part

shall be subject to examinations made at the direction of the Investment Division of the Small Business Administration in accordance

with this section.

‘‘(b) ASSISTANCE OF PRIVATE SECTOR ENTITIES.—Examinations

under this section may be conducted with the assistance of a private

sector entity that has both the qualifications and the expertise necessary to conduct such examinations.

‘‘(c) COSTS.—

‘‘(1) ASSESSMENT.—

‘‘(A) IN GENERAL.—The Administrator may assess the

cost of examinations under this section, including compensation of the examiners, against the company examined.

‘‘(B) PAYMENT.—Any company against which the Administrator assesses costs under this paragraph shall pay

such costs.

‘‘(2) DEPOSIT OF FUNDS.—Funds collected under this section

shall be deposited in the account for salaries and expenses of

the Small Business Administration.

‘‘SEC. 363. INJUNCTIONS AND OTHER ORDERS.

‘‘(a) IN GENERAL.—Whenever, in the judgment of the Administrator, a New Markets Venture Capital company or any other person

has engaged or is about to engage in any acts or practices which

constitute or will constitute a violation of any provision of this Act,

or of any rule or regulation under this Act, or of any order issued

under this Act, the Administrator may make application to the

proper district court of the United States or a United States court

of any place subject to the jurisdiction of the United States for an

order enjoining such acts or practices, or for an order enforcing

compliance with such provision, rule, regulation, or order, and such

courts shall have jurisdiction of such actions and, upon a showing

by the Administrator that such New Markets Venture Capital company or other person has engaged or is about to engage in any such

acts or practices, a permanent or temporary injunction, restraining

order, or other order, shall be granted without bond.

‘‘(b) JURISDICTION.—In any proceeding under subsection (a), the

court as a court of equity may, to such extent as it deems necessary,

take exclusive jurisdiction of the New Market Venture Capital company and the assets thereof, wherever located, and the court shall

have jurisdiction in any such proceeding to appoint a trustee or receiver to hold or administer under the direction of the court the assets so possessed.

‘‘(c) ADMINISTRATOR AS TRUSTEE OR RECEIVER.—

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‘‘(1) AUTHORITY.—The Administrator may act as trustee or

receiver of a New Markets Venture Capital company.

‘‘(2) APPOINTMENT.—Upon request of the Administrator, the

court may appoint the Administrator to act as a trustee or receiver of a New Markets Venture Capital company unless the

court deems such appointment inequitable or otherwise inappropriate by reason of the special circumstances involved.

‘‘SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE.

‘‘(a) IN GENERAL.—With respect to any New Markets Venture

Capital company that violates or fails to comply with any of the provisions of this Act, of any regulation issued under this Act, or of any

participation agreement entered into under this Act, the Administrator may in accordance with this section—

‘‘(1) void the participation agreement between the Administrator and the company; and

‘‘(2) cause the company to forfeit all of the rights and privileges derived by the company from this Act.

‘‘(b) ADJUDICATION OF NONCOMPLIANCE.—

‘‘(1) IN GENERAL.—Before the Administrator may cause a

New Markets Venture Capital company to forfeit rights or privileges under subsection (a), a court of the United States of competent jurisdiction must find that the company committed a violation, or failed to comply, in a cause of action brought for that

purpose in the district, territory, or other place subject to the jurisdiction of the United States, in which the principal office of

the company is located.

‘‘(2) PARTIES AUTHORIZED TO FILE CAUSES OF ACTION.—

Each cause of action brought by the United States under this

subsection shall be brought by the Administrator or by the Attorney General.

‘‘SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY

DUTY.

‘‘(a) PARTIES DEEMED TO COMMIT A VIOLATION.—Whenever any

New Markets Venture Capital company violates any provision of

this Act, of a regulation issued under this Act, or of a participation

agreement entered into under this Act, by reason of its failure to

comply with its terms or by reason of its engaging in any act or

practice that constitutes or will constitute a violation thereof, such

violation shall also be deemed to be a violation and an unlawful act

committed by any person who, directly or indirectly, authorizes, orders, participates in, causes, brings about, counsels, aids, or abets

in the commission of any acts, practices, or transactions that constitute or will constitute, in whole or in part, such violation.

‘‘(b) FIDUCIARY DUTIES.—It shall be unlawful for any officer, director, employee, agent, or other participant in the management or

conduct of the affairs of a New Markets Venture Capital company

to engage in any act or practice, or to omit any act or practice, in

breach of the person’s fiduciary duty as such officer, director, employee, agent, or participant if, as a result thereof, the company suffers or is in imminent danger of suffering financial loss or other

damage.

‘‘(c) UNLAWFUL ACTS.—Except with the written consent of the

Administrator, it shall be unlawful—

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‘‘(1) for any person to take office as an officer, director, or employee of any New Markets Venture Capital company, or to become

an agent or participant in the conduct of the affairs or management

of such a company, if the person—

‘‘(A) has been convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or

‘‘(B) has been found civilly liable in damages, or has

been permanently or temporarily enjoined by an order,

judgment, or decree of a court of competent jurisdiction, by

reason of any act or practice involving fraud, or breach of

trust; and

‘‘(2) for any person continue to serve in any of the capacities

described in paragraph (1), if—

‘‘(A) the person is convicted of a felony, or any other

criminal offense involving dishonesty or breach of trust, or

‘‘(B) the person is found civilly liable in damages, or is

permanently or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction, by reason of any act or practice involving fraud or breach of

trust.

‘‘SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.

‘‘Using the procedures for removing or suspending a director or

an officer of a licensee set forth in section 313 (to the extent such

procedures are not inconsistent with the requirements of this part),

the Administrator may remove or suspend any director or officer of

any New Markets Venture Capital company.

‘‘SEC. 367. REGULATIONS.

‘‘The Administrator may issue such regulations as it deems necessary to carry out the provisions of this part in accordance with its

purposes.

‘‘SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.

‘‘(a) IN GENERAL.—There are authorized to be appropriated for

fiscal years 2001 through 2006, to remain available until expended,

the following sums:

‘‘(1) Such subsidy budget authority as may be necessary to

guarantee $150,000,000 of debentures under this part.

‘‘(2) $30,000,000 to make grants under this part.

‘‘(b) FUNDS COLLECTED FOR EXAMINATIONS.—Funds deposited

under section 362(c)(2) are authorized to be appropriated only for

the costs of examinations under section 362 and for the costs of

other oversight activities with respect to the program established

under this part.’’.

(c) CONFORMING AMENDMENT.—Section 20(e)(1)(C) of the Small

Business Act (15 U.S.C. 631 note) is amended by inserting ‘‘part A

of’’ before ‘‘title III’’.

(d) CALCULATION OF MAXIMUM AMOUNT OF SBIC LEVERAGE.—

(1) MAXIMUM LEVERAGE.—Section 303(b)(2) of the Small

Business Investment Act of 1958 (15 U.S.C. 683(b)(2)) is

amended to read as follows:

‘‘(2) MAXIMUM LEVERAGE.—

‘‘(A) IN GENERAL.—After March 31, 1993, the maximum amount of outstanding leverage made available to a

company licensed under section 301(c) of this Act shall be

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determined by the amount of such company’s private

capital—

‘‘(i) if the company has private capital of not more

than $15,000,000, the total amount of leverage shall

not exceed 300 percent of private capital;

‘‘(ii) if the company has private capital of more

than $15,000,000 but not more than $30,000,000, the

total amount of leverage shall not exceed $45,000,000

plus 200 percent of the amount of private capital over

$15,000,000; and

‘‘(iii) if the company has private capital of more

than $30,000,000, the total amount of leverage shall

not exceed $75,000,000 plus 100 percent of the amount

of private capital over $30,000,000 but not to exceed an

additional $15,000,000.

‘‘(B) ADJUSTMENTS.—

‘‘(i) IN GENERAL.—The dollar amounts in clauses

(i), (ii), and (iii) of subparagraph (A) shall be adjusted

annually to reflect increases in the Consumer Price

Index established by the Bureau of Labor Statistics of

the Department of Labor.

(ii) INITIAL ADJUSTMENTS.—The initial adjustments made under this subparagraph after the date of

the enactment of the Small Business Reauthorization

Act of 1997 shall reflect only increases from March 31,

1993.

‘‘(C) INVESTMENTS IN LOW-INCOME GEOGRAPHIC

AREAS.—In calculating the outstanding leverage of a company for the purposes of subparagraph (A), the Administrator shall not include the amount of the cost basis of any

equity investment made by the company in a smaller enterprise located in a low-income geographic area (as defined

in section 351), to the extent that the total of such amounts

does not exceed 50 percent of the company’s private capital.’’.

(2) MAXIMUM AGGREGATE LEVERAGE.—Section 303(b)(4) of

the Small Business Investment Act of 1958 (15 U.S.C. 683(b)(4))

is amended by adding at the end the following new subparagraph:

‘‘(D) INVESTMENTS IN LOW-INCOME GEOGRAPHIC

AREAS.—In calculating the aggregate outstanding leverage

of a company for the purposes of subparagraph (A), the Administrator shall not include the amount of the cost basis

of any equity investment made by the company in a smaller

enterprise located in a low-income geographic area (as defined in section 351), to the extent that the total of such

amounts does not exceed 50 percent of the company’s private capital.’’.

(e) BANKRUPTCY EXEMPTION FOR NEW MARKETS VENTURE CAPITAL COMPANIES.—Section 109(b)(2) of title 11, United States Code,

is amended by inserting ‘‘a New Markets Venture Capital company

as defined in section 351 of the Small Business Investment Act of

1958,’’ after ‘‘homestead association,’’.

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(f) FEDERAL SAVINGS ASSOCIATIONS.—Section 5(c)(4) of the

Home Owners’ Loan Act (12 U.S.C. 1464(c)(4)) is amended by adding at the end the following:

‘‘(F) NEW MARKETS VENTURE CAPITAL COMPANIES.—A

Federal savings association may invest in stock, obligations, or other securities of any New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958, except that a Federal savings

association may not make any investment under this subparagraph if its aggregate outstanding investment under

this subparagraph would exceed 5 percent of the capital

and surplus of such savings association.’’.

SEC. 902. BUSINESSLINC GRANTS AND COOPERATIVE AGREEMENTS.

Section 8 of the Small Business Act (15 U.S.C. 637) is amended

by adding at the end the following:

‘‘(n) BUSINESSLINC GRANTS AND COOPERATIVE AGREEMENTS.— ‘‘(1) IN GENERAL.—In accordance with this subsection, the

Administrator may make grants to and enter into cooperative

agreements with any coalition of private entities, public entities,

or any combination of private and public entities—

‘‘(A) to expand business-to-business relationships between large and small businesses; and

‘‘(B) to provide businesses, directly or indirectly, with

online information and a database of companies that are

interested in mentor-prote ́ge ́ programs or community-based,

statewide, or local business development programs.

‘‘(2) MATCHING REQUIREMENT.—Subject to subparagraph

(B), the Administrator may make a grant to a coalition under

paragraph (1) only if the coalition provides for activities described in paragraph (1)(A) or (1)(B) an amount, either in kind

or in cash, equal to the grant amount.

‘‘(3) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to be appropriated to carry out this subsection $6,600,000,

to remain available until expended, for each of fiscal years 2001

through 2006.’’.

Following is explanatory language for H.R. 5545, as introduced

on October 25, 2000. References in the following to the ‘‘conference

agreement’’ refer to the text of that bill.

(623)

JOINT STATEMENT OF MANAGERS OF H.R. 2614—SMALL

BUSINESS REAUTHORIZATION

TITLE I—SMALL BUSINESS INNOVATION RESEARCH PROGRAM

The Small Business Innovation Research Program Reauthorization Act of 2000 (H.R. 2392) was introduced on June 30, 1999,

and referred to the House Committees on Small Business and

Science. Both Committees held hearings and the House Committee

on Small Business reported H.R. 2392 on September 23, 1999 (H.

Rept. 106–329). In the interest of moving the bill to the floor of the

House of Representatives promptly, the Committee on Science

agreed not to exercise its right to report the legislation, provided

that the House Committee on Small Business agreed to add the selected portions of the Science Committee version of the legislation,

as Sections 8 through 11 of the House floor text of H.R. 2392. H.R.

2392 passed the House without further amendment on September

27. The Science Committee provisions were explained in floor statements by Congressmen Sensenbrenner, Morella, and Mark Udall.

On March 21, 2000, the Senate Committee marked-up H.R.

2392 and on May 10, 2000, reported the bill (S. Rept. 106–289).

The Senate Committee struck several of the sections originating

from the House Committee on Science and added sections not in

the House-passed legislation, including a requirement that Federal

agencies with Small Business Innovation Research (SBIR) programs report their methodology for calculating their SBIR budgets

to the Small Business Administration (SBA) and a program to assist states in the development of small high-technology businesses.

Negotiations then began among the leadership of the Senate and

House Committees on Small Business and the House Committee on

Science (hereinafter referred to as the three committees). The resultant compromise text contains all major House and Senate provisions, some of which have been amended to reflect a compromise

position. A section-by-section explanation of the revised text follows. For purposes of this statement, the bill passed by the House

of Representatives is referred to as the ‘‘House version’’ and the bill

reported by the Senate Committee on Small Business is referred to

as the ‘‘Senate version.’’

Section 101. Short title; table of contents

The compromise text uses the Senate short title: ‘‘Small Business Innovation Research Program Reauthorization Act of 2000.’’

The table of contents lists the sections in the compromise text.

Section 102. Findings

The House and Senate versions of the findings are very similar. The compromise text uses the House version of the findings.

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Section 103. Extension of the SBIR program

The House version extends the SBIR program for seven years

through September 30, 2007. The Senate version extends the program for ten years through September 30, 2010. The compromise

text extends the program for eight years through September 30,

2008.

Section 104. Annual report

The House version provides for the annual report on the SBIR

program prepared by the SBA to be sent to the Committee on

Science, as well as to the House and Senate Committees on Small

Business that currently receive it. The Senate version did not include this section. The compromise text adopts the House language.

Section 105. Third phase assistance

The compromise text of this technical amendment is identical

to both the House and Senate versions.

Section 106. Report on programs for annual performance plan

This section requires each agency that participates in the SBIR

program to submit to Congress a performance plan consistent with

the Government Performance and Results Act. The House and Senate versions have the same intent. The compromise text uses the

House version.

Section 107. Output and outcome data

Both the House and Senate versions contain sections enabling

the collection and maintenance of information from awardees as is

necessary to assess the SBIR program. Both the Senate and House

versions require the SBA to maintain a public database at SBA

containing information on awardees from all SBIR agencies. The

Senate version adds paragraphs to the public database section

dealing with database identification of businesses or subsidiaries

established for the commercial application of SBIR products or

services and the inclusion of information regarding mentors and

mentoring networks. The House version further requires the SBA

to establish and maintain a government database, which is exempt

from the Freedom of Information Act and is to be used solely for

program evaluation. Outside individuals must sign a non-disclosure

agreement before gaining access to the database. The compromise

text contains each of these provisions, with certain modifications

and clarifications, which are addressed below.

With respect to the public database, the compromise text

makes clear that proprietary information, so identified by a small

business concern, will not be included in the public database. With

respect to the government database, the compromise text clarifies

that the inclusion of information in the government database is not

to be considered publication for purposes of patent law. The compromise text further permits the SBA to include in the government

database any information received in connection with an SBIR

award the SBA Administrator, in conjunction with the SBIR agency program managers, consider to be relevant and appropriate or

that the Federal agency considers to be useful to SBIR program

evaluation.

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With respect to small business reporting for the government

database, the compromise text directs that when a small business

applies for a second phase award it is required to update information in the government database. If an applicant for a second phase

award receives the award, it shall update information in the database concerning the award at the termination of the award period

and will be requested to voluntarily update the information annually for an additional period of five years. This reporting procedure

is similar to current Department of Defense requirements for the

reporting of such information. When sales or additional investment

information is related to more than one second phase award is involved, the compromise text permits a small business to apportion

the information among the awards in any way it chooses, provided

the apportionment is noted on all awards so apportioned.

The three committees understand that receiving complete commercialization data on the SBIR program is difficult, regardless of

any reasonable time frame that could be established for the reporting of such data. Commercialization may occur many years following the receipt of a research grant and research from an award,

while not directly resulting in a marketable product, may set the

groundwork for additional research that leads to such a product.

Nevertheless, the three committees believe that the government

database will provide useful information for program evaluation.

Section 108. National research council reports

The House version requires the four largest SBIR program

agencies to enter into an agreement with the National Research

Council (NRC) to conduct a comprehensive study of how the SBIR

program has stimulated technological innovation and used small

businesses to meet Federal research and development needs and to

make recommendations on potential improvements to the program.

The Senate version contains no similar provision. The study was

designed to answer questions remaining from the House Committees’ reviews of these programs and to make sure that a current

evaluation of the program is available when the program next

comes up for reauthorization.

The compromise text makes several changes to the House text.

The compromise text adds the National Science Foundation to the

agencies entering the agreement with the NRC and requires the

agencies to consult with the SBA in entering such agreement. It

also expands on the House version, which requires a review of the

quality of SBIR research, to require a comparison of the value of

projects conducted under SBIR with those funded by other Federal

research and development expenditures. The compromise text further broadens the House version’s review of the economic rate of

return of the SBIR program to require an evaluation of the economic benefits of the SBIR program, including economic rate of return, and a comparison of the economic benefits of the SBIR program with that of other Federal research and development expenditures. The compromise text allows the NRC to choose an appropriate time-frame for such analysis that results in a fair comparison.

The three committees believe that a comprehensive report on

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penditures will be useful in program oversight and will provide

Congress with an understanding of the effects of extramural Federal research and development funding provided to large and small

businesses and universities. The three committees understand,

however, that measuring the direct benefits to the nation’s economy from the SBIR program and other Federal research expenditures may be difficult to calculate and may not provide a complete

portrayal of the benefits achieved by the SBIR program. Accordingly, the legislation requires the NRC also to review the non-economic benefits of the SBIR program, which may include, among

other matters, the increase in scientific knowledge that has resulted from the program. The paragraph in the compromise text

calling for recommendations remains the same as the House

version, except that the bill now asks the NRC to make recommendations, should there be any.

While the study is to be carried out within National Research

Council study guidelines and procedures, the compromise text requires the NRC to take the steps necessary to ensure that individuals from the small business community with expertise in the

SBIR program are well-represented in the panel established for

performing the study and among the peer reviewers of the study.

The NRC is to consult with and consider the views of the SBA’s

Office of Technology and the SBA’s Office of Advocacy and to conduct the study in an open manner that makes sure that the views

and experiences of small businesses involved in the program are

carefully considered in the design and execution of the study. Extension of the SBIR program for eight years rather than the five

being contemplated when the House study provision was initially

written has necessitated some adjustments in the study. The report

is now required three years rather than four years after the date

of enactment of the Act and the NRC is to update the report within

six years of enactment. The update is intended to bring current,

any information from the study relevant to the reauthorization of

the SBIR program. It is not intended to be a second full-fledged

study. In addition, semiannual progress reports by NRC to the

three committees are required.

Section 109. Federal agency expenditures for the SBIR program

The Senate version requires each Federal agency with an SBIR

program to provide the SBA with a report describing its methodology for calculating its extramural budget for purposes of SBIR

program set-aside and requires the Administrator of the SBA to include an analysis of the methodology from each agency in its annual report to the Congress. The House version has no similar provision. The compromise text follows the Senate text except that it

specifies that each agency, rather than the agency’s comptroller,

shall submit the agency’s report to the Administrator. The three

committees intend that each agency’s methodology include an

itemization of each research program that is excluded from the calculation of its extramural budget for SBIR purposes as well as a

brief explanation of why the agency feels each excluded program

meets a particular exemption.

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Section 110. Policy directive modifications

The House version includes policy directive modifications in

Section 9 and the requirement of a second phase commercial plan

in Section 10. The Senate version includes policy directive modifications in Section 6. The Senate version and now the compromise

text require the Administrator to make modifications to SBA’s policy directives 120 days after the date of enactment rather than the

30 days contained in the House version. The compromise text drops

the House policy directive dealing with awards exceeding statutory

dollar amounts and time limits because this flexibility is already

being provided administratively. Addressed below is a description

of the policy directive modifications contained in the compromise

text that were not included in both the Senate version and the

House version.

Section 10 of the House version requires the SBA to modify its

policy directives to require that small businesses provide a commercial plan with each application for a second-phase award. The

Senate version does not contain a similar provision. The compromise text requires the SBA to modify its policy directives to require that small businesses provide a ‘‘succinct commercialization

plan for each second phase award moving towards commercialization.’’ The three committees acknowledge that commercialization is

a current element of the SBIR program. The statutory definition of

SBIR, which is not amended by H.R. 2392, includes ‘‘a second

phase, to further develop proposals which meet particular program

needs, in which awards shall be made based on the scientific and

technical merit and feasibility of the proposals, as evidenced by the

first phase, considering among other things the proposal’s commercial potential . . .’’, and lists evidence of commercial potential as

the small business’s commercialization record, private sector funding commitments, SBIR Phase III commitments, and the presence

of other indicators of the commercial potential. The three committees do not intend that the addition of a commercialization plan either increase or decrease the emphasis an agency places on the

commercialization when reviewing second-phase proposals. Rather,

the commercialization plan will give SBIR agencies a means of determining the seriousness with which individual applicants approach commercialization.

The commercialization plan, while concise, should show that

the business has thought through both the steps it must take to

prepare for the fruits of the SBIR award to enter the commercial

marketplace or government procurement and the steps to build

business expertise as needed during the SBIR second phase time

period. The three committees intend that agencies take into consideration the stage of development of the product or process in deciding whether an appropriate commercialization plan has been submitted. In those instances when at the time of the SBIR Phase II

proposal, the grantee cannot identify either a product or process

with the potential eventually to enter either the commercial or the

government marketplace, no commercialization plan is required.

The compromise text also adds new provisions that were not

contained in either the Senate version or the House version. Current law (Section 9(j)(3)(C) of the Small Business Act) requires that

the Administrator put in place procedures to ensure, to the extent

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practicable, that an agency which intends to pursue research, development or production of a technology developed by a small business concern under an SBIR program enter into follow-on, nonSBIR funding agreements with the small business concern for such

research, development, or production.

The three committees are concerned that agencies sometimes

provide these follow-on activities to large companies who are in incumbent positions or through contract bundling without written

justification or without the statutorily required documentation of

the impracticability of using the small business for the work. So

that the SBA and the Congress can track the extent of this problem, the compromise text requires agencies to record and report

each such occurrence and to describe in writing why it is impractical to provide the research project to the original SBIR company.

Additionally, the compromise text directs the SBA to develop policy

directives to implement the new subsection (v), Simplified Reporting Requirements. This subsection requires that the directives regarding collection of data be designed to minimize the burden on

small businesses; to permit the updating the database by electronic

means; and to use standardized procedures for the collection and

reporting of data.

Section 103(a)(2) of P.L. 102–564, which reauthorized the SBIR

program in 1992, added language to the description of a third

phase award which made it clear that the third phase is intended

to be a logical conclusion of research projects selected through competitive procedures in phases one and two. The Report of the House

Committee on Small Business (H.Rpt. 102–554, Pt. I) provides that

the purpose of that clarification was to indicate the Committee’s intent that an agency which wishes to fund an SBIR project in phase

three (with non-SBIR monies) or enter into a follow-on procurement contract with an SBIR company, need not conduct another

competition in order to satisfy the Federal Competition in Contracting Act (CICA). Rather, by phase three the project has survived two competitions and thus has already satisfied the requirements of CICA, set forth in section 2302(2)(E) of that Act, as they

apply to the SBIR program. As there has been confusion among

SBIR agencies regarding the intent of this change, the three committees reemphasize the intent initially set forth in H.Rpt. 102–

554, Pt. 1, including the clarification that follow-on phase III procurement contracts with an SBIR company may include procurement of products, services, research, or any combination intended

for use by the Federal government.

Section 111. Federal and state technology partnership program

This section establishes the FAST program from the Senate

version, which is a competitive matching grant program to encourage states to assist in the development of high-technology businesses. The House version does not contain a similar provision. The

most significant changes from the Senate version in the compromise text are an extension of the maximum duration of awards

from three years to five and the lowering of the matching requirement for funds assisting businesses in low income areas to 50 cents

per federal dollar, as advocated by Ranking Member Velazquez of

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bines the definitions found in the Senate version of this section and

the mentoring networks section.

Section 112. Mentoring networks

The Senate version sets forth criteria for mentoring networks

that organizations are encouraged to establish with matching funds

from the FAST program and creates a database of small businesses

willing to act as mentors. The compromise text, except for relocating the program definitions to Section 111, is the same as the

Senate text. The House version did not contain a similar provision.

Section 113. Simplified reporting requirements

This section is not in either the House or the Senate versions.

It requires the SBA Administrator to work with SBIR program

agencies on standardizing SBIR reporting requirements with the

ultimate goal of making the SBA’s SBIR database more user

friendly. This provision requires the SBA to consider the needs of

each agency when establishing and maintaining the database. Additionally, it requires the SBA to take measures to reduce the administrative burden on SBIR program participants whenever possible including, for example, permitting updating by electronic

means.

Section 114. Rural Outreach Program extension

This provision, which was not in either the House or the Senate versions, extends the life and authorization for appropriations

for the Rural Outreach Program of the Small Business Administration for four additional years through fiscal year 2005. It is the intent of the three committees that this program be evaluated on the

same schedule and in the same manner as the FAST program.

Among other things, the evaluation should examine the extent to

which the programs complement or duplicate each other. The evaluation should also include recommendations for improvements to

the program, if any.

TITLE II—BUSINESS LOAN PROGRAMS

SECTION 7(a) PROGRAM

The Conferees have been concerned that the availability of

smaller 7(a) guaranteed business loans has not been keeping pace

with the demands of the small business community. In 1994, SBA

initiated the LowDoc pilot loan program to make loans of $100,000

and less more readily available. In 1995, the Congress established

a guarantee level of 80% for LowDoc loans. As requested in the Administration’s 2001 Budget, during consideration of H.R. 2615 in

the House of Representatives, the 80% guarantee was extended up

to loans of $150,000. The Senate and the House both acted to increase the size of the LowDoc loans. In addition, both Houses

agreed to increase the guaranteed percentage from 80% to 85% in

anticipation that small business lenders will be more willing to

focus on the smaller sized loans.

In 1988, the Congress acted to establish the maximum 7(a)

loan guarantee amount at $750,000. In order to keep up with inflation, the Committee bill increases the maximum guaranteed

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amount to $1 million. Although a strict inflationary increase in the

maximum guaranteed amount would be closer to $1.25 million, the

Conferees believe it is prudent to limit the increase to $1 million,

which will leave sufficient resources in the program for smaller

loans.

The Conference Report also establishes a ceiling on the maximum loan size of $2 million. It has been reported to the Committee that the 7(a) guarantee has been used in conjunction with

large loans in excess of $2 million. Under the Federal Credit Reform Act of 1991, appropriated subsidy dollars are used based on

the gross amount of the loan. In these cases, the SBA loan guarantee is a relatively small portion of the loan, and the Conferees

have questioned whether these loans meet the ‘‘credit elsewhere’’

standard for 7(a) loans and whether this is a good use of appropriated subsidy dollars. Therefore, the Committee agrees with the

House of Representatives and has approved a ceiling of $2 million

for the gross amount of a 7(a) loan.

In an effort to reduce the size of the credit subsidy rate, in

1997 Congress adopted a provision to reduce SBA’s liability for accrued interest on 7(a) loans that are in default. Section 501 deletes

this provision since the intended savings from this provision have

failed to materialize.

For the past three years, the House and Senate Committees on

Small Business have received reports about the increased number

of early prepayments of large, long term SBA-guaranteed 7(a)

loans. Previously, as the result of an increase in prepayments, the

credit subsidy rate was adjusted upwards for Fiscal Year 1998.

Subsequently, the number of prepayments continued to climb. In

some cases, it has been reported that some small businesses were

using the 7(a) program for short term bridge financing, when the

program is designed to help small businesses obtain long term

credit at a reasonable interest rate. The effect of early prepayments

is to reduce the availability of long term 7(a) loans to small businesses that cannot obtain credit elsewhere.

The prepayment penalty approved by the Conferees would assess a fee to the borrower for early prepayment of any 7(a) loan

with a term of 15 years or more. A penalty or fee will be assessed

against any prepayment in excess of 25% of the outstanding

amount of the loan during any of the first three years after disbursement. Five percent will be assessed in the first year, three

percent in the second year, and one percent in the third year. If

a prepayment in excess of 25% is made, the penalty will be assessed against the entire outstanding balance of the loan.

In 1995, Congress increased the guarantee fees charged to 7(a)

borrowers in order to reduce the credit subsidy rate for the 7(a)

program. The Senate agrees with provision, suggested by SBA and

adopted by the House of Representatives, which simplifies the

guarantee fee schedule. For loans totaling $150,000 or less, the

guarantee fee would be two percent of the guarantee amount; for

loans greater than $150,000 but less than $700,000, the fee would

be three percent; and for loans of $700,000 or more, the guarantee

fee would be three and 1⁄2 percent. In addition, the Conferees approved a new provision designed to be an incentive for lenders to

631

focus more on smaller loans. This provision allows a lender to retain 25% of the guarantee fee for loans of $150,000 or less.

In 1997, Congress approved a new provision for the 504 Certified Development Company program which allows borrowers to

lease out 20% of the property being financed so long as the remaining 80% is occupied by the borrower. The Conferees have approved

a similar provision for 7(a) borrowers. This new provision permits

the property to be financed with a 7(a) loan 20 percent or less of

the business space will be rented to tenants with the borrower occupying 60% of the remaining space.

MICROLOAN PROGRAM

This section makes programmatic and technical changes to the

Small Business Administration’s microloan program to make it

more flexible to meet credit needs, more accessible to micro entrepreneurs across the nation, and more streamlined for lenders to

make loans and provide management assistance. The Senate Committee on Small Business worked closely with industry and the

SBA to develop these changes.

Congress created the microloan program as a pilot in 1991

(Public Law 102–140) to reach very small businesses that were not

being served by traditional lenders or SBA’s credit programs. Often

minorities, women, and low-income individuals, these microentrepreneurs needed very little money to launch a business, but they

could not get loans because they were considered unreliable or

risky borrowers by traditional credit markets. Their often weak or

non-existent credit histories or limited business experience caused

traditional commercial lenders to shy away from making such

loans. To fill this credit need, the Microloan program was designed

to provide loans to non-profit intermediary lenders, who in turn

provide fixed-rate loans of not more than $25,000, and on average,

loans less than $10,000, to very small businesses. In addition, lending intermediaries receive an annual grant from the SBA to provide on-going technical assistance to small businesses. The technical assistance is fundamental to this program because it teaches

microentrepreneurs how to manage a successful business, and running a successful business is key to loan repayment.

As industry experts and micro borrowers have testified numerous times regarding the link between financing and technical assistance, it is critical to the success of micro enterprise, in general,

and the SBA microloan program, in particular. The low default

rates of loans are evidence of the tremendous success of this program. Since the first microloan was made in 1992, the Federal government has had only one default in its loans to the intermediary

loan providers. Equally impressive, the lending intermediaries have

had losses of only three to five percent from small businesses, and

the losses are fully covered by the mandatory loss reserve that each

intermediary must maintain. Because of this successful track

record, in 1997 the Congress voted to transform the Microloan program from a demonstration program to a permanent part of the

array of SBA credit assistance programs.

There are currently 156 intermediaries and 19 non-lending

technical assistance providers in the SBA Microloan Program. To

date, the lending intermediaries have made 10,230 loans worth

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some $105 million. The SBA reports that for every microloan, 1.7

jobs are created. The average loan to a microentrepreneur is about

$10,000, with interest rates averaging 11 percent and an average

term of 39 months.

Since the microloan program was started in 1991, it has grown

from 35 to 156 intermediaries. The market has also changed. Thus,

as the Senate Committee on Small Business reviewed the program

for reauthorization, it worked with trade associations representing

microlenders, the Small Business Administration, and individual

microlenders to craft legislation that would meet market needs and

foster the success of the program.

Chief among those changes, in large part to reflect inflation, is

increasing the maximum loan amount and average loan sizes. The

maximum loan amount would increase from $25,000 to $35,000;

the average loan size for each intermediary’s portfolio would increase from $10,000 to $15,000. For speciality lenders, those making smaller loans and receiving additional technical assistance to

make them, this legislation would raise their average loan size

from $7,500 to $10,000.

There are 156 intermediaries out of the 200 Congressionally

authorized. Three states—Alaska, Louisiana and Wyoming—do not

have any intermediaries, though they are working to find appropriate participants. While the need for more technical assistance is

partially to blame for the inability of the program to grow and add

intermediaries, the industry groups, local economic development

leaders and the SBA have asked Congress to expand the program.

This Conference Report not only increases the appropriation for direct microloans and technical assistance for each of the next three

years to allow the program to expand, but it also takes a balanced

approach to increasing the number of intermediaries authorized.

The House and Senate Conferees agreed to increase the number of

intermediaries from 200 to 300.

TITLE III—CERTIFIED DEVELOPMENT COMPANY PROGRAM

Under the Small Business Investment Act of 1958, 504 guaranteed loans for the following public policy goals are eligible for loans

guarantees up to $1,000,000:

Business district revitalization;

Expansion of exports;

Expansion of minority business development;

Rural development;

Enhanced economic competition;

Changes necessitated by Federal budget cutbacks; and

Business restructuring arising from Federal mandated standards or policies affecting the environment or the safety and health

of employees.

Both the House and Senate bill add loans to women-owned

small businesses to the current list of public policy goals specified

under the Act.

In August 1988, Congress approved legislation (P.L. 100–418)

to increase the 504 loan guarantee ceiling to $750,000 from

$500,000, except for a limited number of loans meeting the special

public policy purposes. In order to adjust this amount to reflect inflation, the loan guarantee ceiling would need to be increased to

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approximately $1,250,000. Therefore, the Senate agreed with the

position taken by the House and approved an increase to

$1,000,000. The House and Senate further agreed to increase the

maximum guaranteed amount on loans made to meet the public

policy purposes to $1,300,000 from $1,000,000.

PROGRAM FEES

In 1995, at the urging of the SBA and the National Association

of Development Companies (NADCO), the trade organization that

represents the 504 lenders and Certified Development Companies

(CDCs), both the House and Senate agreed to legislation mandating that the 504 program be supported entirely by fees paid by

the private sector. These new fees were imposed beginning in FY

1996. Subsequently, the SBA undertook an extensive review of the

performance of the 504 program, and the credit subsidy rate, which

determines the amount of money that must be maintained in the

loss reserve account for this program, was increased from 0.57% to

6.85%, an increase of 1200%. Since the 504 program was being

funded only by fees paid by the private sector, the fees paid by the

borrower in FY 1997 were increased from 0.125% to 0.875%, which

placed a financial burden on 504 borrowers. The Conferees are

pleased to note that since FY 1997 the credit subsidy rate estimate

has dropped resulting in a decrease in borrower fees from 0.875%

to 0.472% for FY 2001. The bill authorizes SBA to collect these fees

to offset the credit subsidy cost through September 30, 2003.

PREMIER CERTIFIED LENDERS PROGRAM

In October 1994, Congress approved the Premier Certified

Lenders Program on a pilot basis (P.L. 103–403). In December

1997, this pilot program was extended by Congress, and the limitation on the number of CDCs that could participate in the PCLP

was removed (P.L. 105–135). The Senate noted the success of the

program and has agreed with the House of Representatives to

make the PCLP a permanent part of the 504 program. In making

the PCLP pilot a permanent part of the 504 program, the Conferees expect the SBA to continue its efforts to work with the CDC

community to take complete advantage of the strengths of the most

successful and well-run CDCs.

ASSET SALES

In response to the plans by the SBA to undertake the sale of

assets held by the Agency, both the Senate and House approved a

provision that requires the SBA to notify CDCs prior to including

a 504 loan in an asset sale. The Committee adopted this section in

order to insure there is an open dialogue and cooperation between

the Agency and the relevant CDCs. For the past four years, the

Committee has encouraged the SBA to move forward with its asset

sales program; however, we do not believe this step forward should

necessarily harm its lending partners.

LOAN LIQUIDATION PROGRAM

In response to reports about low recoveries after the default of

a 504 loan, the Congress approved legislation in 1996 to establish

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the Loan Liquidation Pilot Program (P.L. 104–208). The pilot liquidation program allowed up to 20 qualified CDCs to liquidate

loans that they originated. It was implemented by the SBA in June

1997. The results to date for the pilot program are encouraging,

and the Conferees have concluded that it is in the best interest of

the 504 program to allow additional CDCs to conduct their own liquidation and foreclosure activities. The Committee is pleased to

note that the recovery estimate for FY 2001 has increased for the

first time since 1995. The Administration’s estimate for FY 2001 is

31 percent, and the assumptions used by OMB and the SBA do not

include an increase in recoveries that should result from making

the Loan Liquidation Program permanent. The Conferees urge the

SBA to continue its efforts and to make maximum use of the Loan

Liquidation Program so that the recovery level will increase further.

A number of CDCs have demonstrated the ability through the

pilot program and other lending programs in which they participate, to perform such activities, and have indicated a willingness

to perform such functions to supplement SBA’s activities in this

area. Accordingly, the Conference Report makes the pilot liquidation program permanent and requires SBA to permit certain CDCs

to foreclose and liquidate defaulted loans that they have originated

under the 504 loan program.

In order to participate in the loan liquidation program, a CDC

must have made at least 10 loans per year for the past three fiscal

years, and it must have at least one employee with two years of

liquidation experience or be a member of the Accredited Lenders

Program with at least one employee with two years of liquidation

experience. Representatives of either group must complete a training program developed by SBA. Participants in the pilot liquidation

program and Premier Certified Lenders automatically qualify for

the permanent liquidation program.

CDCs eligible to participate in liquidation activities are required to perform all liquidation and foreclosure functions pursuant

to a liquidation plan approved by SBA. The Conference Report also

authorizes CDCs to take other actions, in lieu of full liquidation or

foreclosure, to mitigate loan losses pursuant to a workout plan.

Prior to a CDC commencing liquidation or foreclosure activities and

prior to engaging in other actions to mitigate loan losses, a CDC

is required to provide the SBA with a liquidation plan or workout

plan, as the case may be, for approval. The SBA has 15 days to approve a liquidation plan or a workout plan. The legislation further

permits CDCs to litigate matters relating to their liquidation activities subject to SBA monitoring of such litigation.

SBA is authorized to suspend or revoke the authority of a CDC

to liquidate loans if the CDC either does not meet the eligibility requirements or fails to comply with any statutory or regulatory requirement relating to the foreclosure or liquidation of loans or any

other applicable provision of law. CDCs are also prohibited from

taking any action that would result in an actual or apparent conflict of interest in connection with the liquidation of their loans.

The bill requires the SBA to submit annually to Congress a report on the results of the delegation of authority to CDCs to liqVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00638 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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uidate and foreclose loans and a comparison of such results to

SBA’s liquidation performance.

TITLE IV—CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT

OF 1958

DEFINITIONS

The provisions generally make some technical improvements to

the operations of the SBIC Program. Under current law, national

banks, member banks of the Federal Reserve, and nonmember insured banks as permitted by State law are allowed to invest in

SBICs. The Senate and House Committees approved a provision to

allow any Federal Savings Association to make similar investments

in SBICs.

The Committees also approved a provision to clarify what is

meant by the term ‘‘long-term’’ as found in Section 103 of the Small

Business Investment Act. It is the Committees’ understanding that

the SBA has construed ‘‘long term’’ to mean a minimum of five

years for all SBIC investments other than those made to ‘‘disadvantaged businesses,’’ when ‘‘long term’’ is construed to mean

four years. The Committee believes the Agency’s interpretation of

‘‘long-term’’ to be overly restrictive. Under the Generally Accepted

Accounting Principles (GAAP), the accounting principles that govern business commerce in the United States, the term ‘‘long-term’’

is defined as any period of time greater than one year. Therefore,

the Conferees have adopted a definition of ‘‘long-term’’ to be a period of time of not less than one year.

SUBSIDY FEES

The President’s FY 2001 budget request for SBA, as amended,

included a ‘‘0’’ credit subsidy rate for the SBIC Debenture program.

The House and Senate Committees have been informed by SBA

staff that the income generated by fees paid by the SBICs to SBA

will actually exceed the amounts needed to fund the reserve account required under the Federal Credit Reform Act of 1990 (2

U.S.C. 661a). The Conferees believe it is important that the SBICs

should not be required to pay more in fees than is necessary to

bring the credit subsidy rate to ‘‘0.’’ Therefore, the Conferees have

adopted a provision, similar to the one it adopted for the 504 Development Company Program in 1996, which directs the SBA to reduce the annual fee paid by the SBIC from 1 percent to the amount

necessary to reduce the credit subsidy rate to ‘‘0.’’ The new provision applies to the SBIC Debenture and Participating Securities

programs.

DISTRIBUTIONS

The Senate Committee approved a technical change that permits a qualifying SBIC to make a quarterly tax distribution any

time during the applicable calendar quarter. The House passed a

similar provision in H.R. 3845. Conferees concur with this provision. Under current law, SBICs may make prioritized payment distributions, profit distributions, and other optional distributions on

any date with prior SBA approval. Tax distributions, however, may

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munity has informed the Senate Committee that the practical impact of this restriction is that SBICs are forced to delay otherwise

permitted interim distributions (including tax distributions) to the

end of a quarter or split their distributions into two distributions.

Postponing an entire distribution to the end of a quarter has negative cash flow and internal rate of return (IRR) implications. Consequently, most SBICs decide to split their distributions, making

tax distributions at the end of the calendar quarter, while making

all other distributions at any time during the quarter. Splitting distributions requires the preparation, submission, and SBA review of

two sets of documents. The result is an inefficient use of time and

resources by SBA and the SBICs.

TITLE V—REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

Sec. 502. Reauthorization of Small Business Programs

Title I of the bill authorizes appropriations for SBA’s business

loan programs and certain other SBA programs. Included among

the loan programs are Section 7(a) Guaranteed Business Loans,

504 Development Company Loans, Microloans, Disaster Loans, and

Small Business Investment Company Debentures and Participating

Securities.

Funding for these SBA programs is detailed in the following

chart. As indicated, the bill is a three year authorization. The Conferees have carefully considered the Administration’s funding request for each program as well as recommendations from small

business owners, individual entrepreneurs, the lending community,

and members of this Conference.

PROGRAM LEVELS FOR SBA REAUTHORIZATION BILL

[In millions of dollars unless otherwise noted]

Program Current level FY00 FY01 budget re- quest SBA 3 year authorization request 01/02/03 Reauthorization bill 2001 Reauthorization bill 2002–2003 Reauthorization bill

7(a) (in billions) .......................................................................................................................... $9.8 $11.5 $14.5/15/16 $14.5 $15 $16504 (in billions) .......................................................................................................................... $3.5 $3.75 $5/5.25/5.5 $4 $4.5 $5SBIC:

Debentures ......................................................................................................................... $800 $500 $1,000/1,200/1,400 $1,500 $2,500 $3,000

Participating Securities ...................................................................................................... $1,350 $2,000 $2,000/2,500/3,000 $2,500 $3,500 $4,000

Microloan:

Technical Assistance .......................................................................................................... $23.2 $45.0 $59/80/100 $45 $60 $70Direct Loans ....................................................................................................................... $29 $60 $75/80/85 $60 $80 $100Guaranteed Loans .............................................................................................................. carryover $0 $40/40/40 $50 $50 $50

Delta ............................................................................................................................................ $1,000 $0/0/0 $500 $500 $500Surety Bond Guarantee:

General Program ................................................................................................................ $1,800 $1,700 $2,000/2,000/2,000 $4,000 $5,000 $6,000Preferred Program .............................................................................................................. ........................ ........................ .................................... 50% of total 50% of total 50% of total

SCORE .......................................................................................................................................... $3.5 $5.0 $5.9/8/8.5 $5 $6 $7SBDC ........................................................................................................................................... $84.5 $85 $95/95/95 $125 $125 $125HUBZone ...................................................................................................................................... $2.0 $5.0 $6/6/6 $10 $10 $10

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DRUG-FREE WORKPLACE PROGRAM

In 1998, the Congress enacted the Drug-Free Workplace Demonstration Program under the leadership of Senator Paul Coverdell

of Georgia. The purpose of the program is to provide financial and

technical assistance to small business concerns seeking to establish

a drug-free workplace program. The law authorized $10 million in

FY 1999 and 2000. Section 809 extends the Drug-Free Workplace

Program for FY 2001, 2002 and 2003 and authorizes $5 million for

each in the period. The Conference Report recognizes the important

work of Senator Coverdell and names the program in his honor.

HUBZONE PROGRAM

This subsection would increase the annual authorization for

the HUBZone Program to $10,000,000 for fiscal years 2001, 2002,

and 2003. It is the Conferees intention that funds appropriated

under the authorization in this subsection shall be used for direct

HUBZone Program expenses and should not be diverted by the

SBA for any other program or account that is not part of the

HUBZone Program.

VERY SMALL BUSINESS PROGRAM

This section would extend the Very Small Business Program

pilot. The pilot program is targeted at firms seeking to do business

with the Federal government with 15 or fewer employees and with

less than $1 million in annual receipts. To date, SBA has had insufficient experience and data to evaluate the program, which SBA

failed to implement until March 4, 1999, more than four years after

Congress enacted the program. The Conferees anticipate that new

reporting requirements set forth in the Federal Procurement Data

System will provide SBA with sufficient data to evaluate the program over the next three years.

SOCIALLY AND ECONOMICALLY DISADVANTAGED BUSINESSES PROGRAM

The Federal Acquisition Streamlining Act of 1994 (P.L. 103–

355; 15 U.S.C. 644 note) establishes procurement procedures to

help small business concerns owned and controlled by socially and

economically disadvantaged individuals to meet certain Federal

procurement goals. The procurement procedures are scheduled to

terminate on September 30, 2000. The Conference Report approved

an extension of the program for three years, through September 30,

2003.

COSPONSORSHIP

This program provides a means of leveraging the scarce resources at SBA, the Agency engages in a variety of cosponsorships

with public and private sector organizations. Current statutory language refers only to training as a permitted cosponsored activity

with for-profit entities. SBA defines training as being limited to

narrower topics of interest to relatively small numbers of business

owners or those in certain types of businesses. There are, however,

broader business-related topics, such as the effective use of technology, e-commerce, exporting/importing, about which all small

businesses should be informed and educated.

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The SBA has recommended that the terms ‘‘information and

education’’ be added to the types of assistance that can be provided

to small businesses. SBA believes this change will give it the flexibility in the types of assistance that can be provided to small businesses. The Conferees agreed with the SBA’s recommendation, concluding that while traditional training in these areas may also be

offered, the need to reach broader audiences with timely, updated

information and education is vital to the success of the largest

number of small businesses.

TITLE VI: HUBZONE PROGRAM

The HUBZone program aims to direct portions of Federal contracting dollars into areas of the country that in the past have been

out of the economic mainstream. HUBZone areas, which include

qualified census tracts, poor rural counties, and Indian reservations, often are relatively out-of-the-way places that the stream of

commerce passes by, and thus tend to be in low or moderate income areas. These areas can also include certain rural communities

and tend, generally, to be low-traffic areas that do not have a reliable customer base to support business development. As a result,

business has been reluctant to move into these areas. It simply has

not been profitable, without a customer base to keep them operating.

The HUBZone Act seeks to overcome this problem by making

it possible for the Federal government to become a customer for

small businesses that locate in HUBZones. While a small business

works to establish its regular customer base, a Federal contract can

help it stabilize its revenues and remain profitable. This gives

small business a chance to get a foothold and provides jobs to these

areas. New business and new jobs mean new life and hope for

these communities.

Since the HUBZone Act was adopted in the Small Business Reauthorization Act of 1997, the Small Business Administration has

been implementing the program. On March 22, 1999, SBA began

accepting applications from interested firms. Experience to date

has revealed several difficulties with implementation, which the

Senate Committee has sought to rectify in this legislation.

Subtitle A—HUBZones in Native America Act

One such problem was an unintended consequence of wording

in the 1997 legislation that inadvertently excluded Indian Tribal

enterprises and Alaska Native Corporations from participation. The

definition of ‘‘HUBZone small business concern’’ specified that eligible small businesses must be 100% owned and controlled by U.S.

citizens. This provision sought to insure that HUBZone benefits, financed by the American taxpayer, should be available only for U.S.

beneficiaries.

However, since citizens are ‘‘born or naturalized’’ under the

Fourteenth Amendment, ownership by citizens implies ownership

by individual flesh-and-blood human beings. Corporate owners and

Tribal government owners are not ‘‘born or naturalized’’ in the

usual meanings of those terms. Thus, the Small Business Administration found that it had no authority to certify small businesses

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owned wholly or partly by Alaska Native Corporations and Tribal

governments.

Since Native American communities were always intended to

benefit from HUBZone opportunities, the Committee has included

language to make such firms eligible. On many reservations, particularly the isolated ones, the only investment resources available

are the Tribal governments. Excluding those governments from investing in their own reservations means, in practical terms, excluding those reservations from the HUBZone program entirely. Similarly, Alaska Native Corporations have corporate resources that are

necessary to make real investments in rural Alaska and to provide

jobs to Alaska Natives who currently have no hope of getting them.

The Senate Committee was guided by three broad principles in

crafting this legislation. First, no firm should be made eligible solely by virtue of who it is. For example, Alaska Native Corporations

will not be eligible solely because they are Alaska Native Corporations. Instead, Alaska Native Corporations and Indian Tribal enterprises should be eligible only if they agree to advance the goals of

the HUBZone program: job creation and economic development in

the areas that need it most.

Second, the Senate Committee sought to make the HUBZone

program conform to existing Native American policy. The Committee is aware of controversy over whether to change Alaska Native policy so that Alaska Natives exercise governmental jurisdiction over their lands, just like Tribes in the Lower 48 States do on

both their reservations and trust lands. The Alaska Native Claims

Settlement Act (ANCSA) of 1971 deliberately refrained from creating Alaska Native jurisdictions in Alaska, and this Committee’s

legislation is intended to conform to existing practice in ANCSA.

The third principle underlying this bill is that Alaska Natives

and Indian Tribes should participate on as even a playing field as

possible. Exact equivalence is not possible because the Federal relationship with Alaska Natives differs significantly from the relationship with Indian Tribes, and also because Alaska is a very different State from the Lower 48. However, ANCSA provided that

Alaska Natives should be eligible to participate in Federal Indian

programs ‘‘on the same basis as other Native Americans.’’ The

House Conferees have agreed to adopt the Senate provision.

Subtitle B—Other HUBZone Provisions

Subtitle B contains several technical changes to clarify interpretive issues concerning the original HUBZone Act, as well as new

language to correct an unforeseen situation regarding procurement

of commodities. Subtitle B makes a further amendment to the categories of eligible HUBZone firms, to include the HUBZone program as one of the tools Community Development Corporations can

use in rebuilding their communities and neighborhoods.

The Conference Report includes a technical correction to the

definition of ‘‘qualified census tract.’’ It also makes two major substantive changes to the definition of ‘‘qualified nonmetropolitan

county.’’

First, the definition is clarified to ensure that nonmetropolitan

counties in the HUBZone program are those that were considered

to be such as of the time of the last decennial (10 year) census. The

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HUBZone program relies on census tracts selected in metropolitan

areas based on the last census, so that a metropolitan county—in

order to have such census tracts—must have been considered metropolitan at that time. A nonmetropolitan county may be eligible

as a HUBZone based on income data collected during the census

or on unemployment data produced annually by the Bureau of

Labor Statistics.

During the ten-year period between each census, some counties

become so integrated into the commercial activities of a metropolitan area that they are moved from the nonmetropolitan category

to the metropolitan category. Such counties would become ineligible

for HUBZone participation. They would not have been metropolitan

counties at the time of the last census, so no qualified census tracts

would have been selected there. They would also no longer be nonmetropolitan counties, so the income and unemployment tests

available to such counties would no longer apply. Thus, counties

that change from nonmetropolitan to metropolitan, in the period

between each census, would become ineligible until the next census

is taken. The Conference Report corrects this problem by freezing,

for HUBZone purposes, the categories of metropolitan and nonmetropolitan counties as they stood at the time of the last census.

The second major change to the definition of ‘‘qualified nonmetropolitan county’’ is the addition of a grandfathering clause. Because the Bureau of Labor Statistics (BLS) issues new county-level

unemployment data annually, nonmetropolitan counties may shift

into and out of eligibility on a yearly basis. The Committee believes

that this type of movement is too fluid for a program that should

be stable in its first few years. Companies will be confused about

the merits of the program if firms lose and gain eligibility from

year to year. A company will not want to invest in such a county

only to have it suddenly become ineligible, due to new BLS data,

before the company has even had the opportunity to recoup its investment by participating in the HUBZone program.

The legislation seeks to stabilize this situation by looking at

the unemployment picture over a three-year period for nonmetropolitan counties. It also provides that companies in such a county

will have a one year period to pursue HUBZone opportunities and

wrap up its activities under the program, after such a county becomes ineligible due to new BLS data. A similar one year period

is provided for changes that may result due to enactment of this

legislation.

COMMODITIES PROCUREMENT

In 1999, the Senate Committee became aware of potential implementation problems in HUBZone procurements of certain commodities, particularly food-aid commodities purchased by the Department of Agriculture (USDA), that could lead to unintended and

anti-competitive results. Because bids for commodities generally

tend to fall within a narrow range of prices, the 10% price evaluation preference that currently exists could be overwhelmingly decisive. In such purchases, a handful of HUBZone firms could secure

significant portions of these markets. This, in turn, could prompt

other vendors to abandon these markets, thus reducing USDA’s

vendor base and reducing competition. These are results that

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would be contrary to the goals set forth in § 2 of the Small Business

Act.

To prevent irreparable harm to USDA’s vendor base until the

matter could be addressed more comprehensively in this legislation, Senator Bond sponsored a proviso in the Fiscal 2000 Agriculture Appropriations Act. As adopted in the conference report,

§ 751 of that Act limited the price evaluation preference to 5% for

up to half of the total dollar value of each commodity in a particular tender (solicitation). It also prohibited contract awards to a

HUBZone firm that would be of such magnitude as to require the

firm to subcontract to purchase the commodity being procured,

since such a scenario would simply allow these firms to purchase

commodities from subcontractors and in turn sell them to the Government at inflated prices.

The legislation seeks to address this issue on a more permanent basis. The Conferees are aware that USDA relies upon a complex computer program to evaluate commodities bids, and thus the

Conference Report seeks to set a long-term policy that will not require frequent and expensive changes to this software. Although

the legislation reduces the level of HUBZone program incentives

that otherwise would be available under the HUBZone Act, the bill

still seeks to ensure substantial awards to HUBZone concerns,

while protecting existing incentives available to other types of

small business concerns. The Conferees intend that these incentives help commodities procurements contribute their fair share toward achieving the Government-wide goal of 23% of prime contract

dollars to small business concerns, but without the anti-competitive

effects of awarding overwhelming shares of the market to

HUBZone firms.

COMMUNITY DEVELOPMENT CORPORATIONS

For reasons similar to the problems preventing HUBZone program participation by Indian Tribal enterprises and Alaska Native

Corporations, small businesses owned by Community Development

Corporations were also inadvertently made ineligible by the original HUBZone Act. The Conference Report has included a provision

to correct this problem. As with Tribal enterprises and Alaska Native Corporations, addressed in Subtitle A of this Title, Community

Development Corporations are not made automatically eligible.

These firms must agree to advance the job-creation goals of the

HUBZone program. Specifically, as other businesses must do, these

enterprises must maintain their principal office in a HUBZone and

employ 35% of their workforce from one or more HUBZones.

TITLE VII: NATIONAL WOMEN’S BUSINESS COUNCIL

REAUTHORIZATION

The Senate bill would re-authorize the National Women’s Business Council for three years, from FY 2001 to 2003, and to increase

the annual appropriation from $600,000 to $1 million. The increase

in funding will allow the Council to: support new and ongoing research; produce and distribute reports and recommendations prepared by the Council; and create an infrastructure to assist states

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mits and establish an interstate communication network. The

House Conferees agree in part with the Senate’s title.

The increase will also be used to assist Federal agencies meet

the procurement goal for women-owned businesses established by

Congress in 1994 under section 15(g) of the Small Business Act. By

law, Federal agencies must strive to award women-owned small

businesses at least 5 percent of the total amount of Federal prime

contract dollars. The Conferees feel strongly that Federal agencies

should meet the five-percent goal, and it supports the Council’s

plan to expand its efforts to increase the percentage of prime contracts that go to women-owned businesses. Based on current data,

women are not receiving awards proportionate to their presence in

the economy. For example, women-owned businesses make up 38

percent of all small businesses, yet women-owned businesses received only 2.42 percent of the $189 billion in Federal prime contracts in FY1999.

According to the National Foundation for Women Business

Owners, over the past decade the number of women-owned businesses in this country has grown by 103 percent to an estimated

9.1 million firms. They generate almost $3.6 trillion in sales annually and employ more than 27.5 million workers. With the impact

of women-owned businesses on our economy increasing at an unprecedented rate, Congress relies on the Council to serve as its

eyes and ears as it anticipates the needs of this burgeoning entrepreneurial sector. Since it was established in 1988, the Council,

which is bi-partisan, has provided important unbiased advice and

counsel to Congress.

This Conference Report allows the Council to continue to perform its duties at the level it has done so far, as well as expand

its activities to support initiatives that are creating the infrastructure for women’s entrepreneurship at the state and local level.

TITLE VIII: MISCELLANEOUS PROVISIONS

LOAN APPLICATION PROCESSING

The Senate Conferees agreed with the House provision directing the SBA to conduct a study in one year from the date of enactment to determine the average time SBA requires to process an

SBA-guaranteed loan.

APPLICATION OF OWNERSHIP REQUIREMENTS

The Conferees agreed to a provision to clarify the impact of

community property state laws to determine the eligibility for applicants for assistance under SBA’s credit programs. The new provision applies to the Small Business Act and the Small Business

Investment Act of 1958. It states that eligibility of an applicant

under the SBA’s credit programs will be determine without regard

to any ownership interest of a spouse arising solely from the application of the community property laws of a State for purposes of

determining marital interests.

SUBCONTRACTING PREFERENCE FOR VETERANS

The House Conferees agreed with the Senate provision to clarify that service-disabled veterans are on the same preference level

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as small disadvantaged businesses (SDBs) and women-owned small

businesses for Federal contracting opportunities. When the Congress enacted the Veterans Entrepreneurship and Small Business

Development Act (P.L. 106–50), it was not absolutely clear that the

contracting preferences were to apply specifically to service-disabled veterans. The Conferees intend for this section to clear up

any misunderstandings that might remain.

SMALL BUSINESS DEVELOPMENT CENTER PROGRAM FUNDING

The House Conferees agreed with the Senate provision to clarify the funding formula for States to receive funds under the Small

Business Development Center (SBDC) program. This funding formula was developed in close consultation with the SBA and the

SBDC association. Importantly, the formula sets forth how the

minimum funding level will be applied. The Conference Agreement

assures that each SBDC will receive a minimum of $500,000 annually unless the annual appropriation from Congress is less than

$81,500,000. If the annual appropriation is more than $90,000,000,

the minimum annual amount shall be $500,000 plus a percentage

amount equal to the percentage amount by which the appropriation

exceeds $90,000,000.

NATIONAL VETERANS BUSINESS DEVELOPMENT CORPORATION

CORRECTION

The Conferees have agreed to a technical change that defers

for one year the requirement that the National Veterans Business

Development Corporation provide matching funds. The authorization level for the Corporation to receive Federal funds has been adjusted to the following: $4,000,000 in fiscal years 2001 and 2002,

and $2,000,000 in fiscal years 2003 and 2004.

PRIVATE SECTOR RESOURCES FOR SCORE

The Committees on Small Business for the Senate and House

of Representatives have followed the success and growth of the

SCORE program over the past five years. Much of the success or

the program is tied to its ability to obtain in-kind and monetary

contributions from the private sector to supplement the annual

Congressional appropriation. Companies have donated computers

and Internet services to support the efforts of 14,000 SCORE volunteers to provide counseling to small businesses throughout the

United States. The section approved by the Conferees makes it

clear that SCORE may solicit cash and in-kind contributions from

the private sector to carry out its functions under the Small Business Act.

CONTRACT DATA COLLECTION

The Senate Conferees agreed with the House Conferees to include a new section that makes improvements in the collection of

data on the growing practice by Federal agencies to bundle multiple contract requirements into one large contract. This practice

has had a detrimental impact on the ability of small businesses to

compete for Federal contracts. The new section clarifies the definition of a bundled contract and requires the SBA to prepare an anVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00648 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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nual report for the House and Senate Committees on Small Business. The section also strengthens the ability of the Administrator

of SBA to challenge an agency decision to bundle multiple contract

requirements.

PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSINESS

CONCERNS

The Senate Conferees agreed with the House Conferees to include a new section to give Federal agencies the authority to restrict competition for any contract for the procurement of goods or

services by the Federal government to small businesses owned and

controlled by women who are economically disadvantaged. The SBA

Administrator may waive the requirement that the businesses

must be owned by women who are economically disadvantaged if

it is determined the business is in an industry in which small business concerns owned and controlled by women are substantially

under represented.

The purpose of H.R. 5545 the ‘‘New Markets Venture Capital

Program Act of 2000,’’ is to promote economic development, wealth

and job opportunities in low income (LI) areas by encouraging venture capital investments and offering technical assistance to small

enterprises. The central goal of the legislation is to fulfill the

unmet equity investment needs of small enterprises primarily located in LI areas.

The bill creates a developmental venture capital program by

amending the Small Business Investment Act to authorize the U.S.

Small Business Administration (SBA) to enter into participation

agreements with 10 to 20 New Markets Venture Capital (NMVC)

companies in a public/private partnership. It further authorizes

SBA to guarantee debentures of NMVC companies to enable them

to make venture capital investments in smaller enterprises in LI

areas. And it authorizes SBA to make grants to NMVC companies,

and to other entities, for the purpose of providing technical assistance to smaller enterprises that are financed, or expected to be financed, by such companies.

The Act will also enhance the ability of existing Small Business Investment Companies (SBICs) to invest in LI areas. It allows

them to have access to the leverage capital authorized under the

program, without entering into a participation agreement with

SBA to act as an NMVC company.

Finally, enhances the ability of existing Specialized Small

Business Investment Companies (SSBICs) to invest in LI areas. It

allows them to have access to the operational assistance grant

funds authorized under the program, also without entering into a

participation agreement with SBA to act as an NMVC company.

Despite our unprecedented economic prosperity, there remain

places in America that have yet to reap the benefits of this prosperity. Although many Americans enjoy strong income and wage

growth, millions in underserved areas still do not have access to

jobs or entrepreneurial opportunities.

For example, between 1997 and 1998, the median income for

the nation’s households rose 3.5 percent in real terms. Yet 12.7 percent of Americans (34.5 million people) still live below the poverty

level. These 34.5 million people live in the inner cities and rural

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areas of America, where jobs are scarce and there is little to attract

would-be small business investors.

The overall poverty rate for the U.S. in 1998 was 12.7 percent,

but the poverty rate among both African American and Latino populations was 26 percent—double the national average. In rural

communities, poverty remains a persistent problem. Job growth is

well below the national average, with unemployment hovering at or

above 14%. Additionally, the unemployment levels in many urban

communities range from 7.5% for African Americans to 6.4% for

Hispanics. Both are nearly double the national average.

It is not enough to merely create jobs in these pockets of poverty. Rather, we must create a small business backbone, an economic infrastructure to enable these communities to develop their

full potential and participate fully in the economic mainstream.

H.R. 5545 uses SBA resources targeted to corporations and

small businesses that want to do business in the untapped markets

of our underserved communities. It is a wise investment in the

hopes of millions of families who are not sharing in the American

Dream.

There is a pressing need for this legislation. There are virtually no institutional sources of equity capital in distressed communities. The national venture capital industry for community development comprises only 25 firms managing approximately $157

million. Only 14 of those are capitalized at $5 million or more—the

absolute minimum for economic viability.

H.R. 5545 will tap unrealized resources in our nation, thus

benefiting our economy as a whole. It will increase the

attractiveness of investment in places with high unemployment

and too few businesses. The more the business community knows

about these new markets, the more likely they will invest in

them—and the more businesses that invest in these new markets,

the more these areas will share in our nation’s economic prosperity.

This legislation provides a road map for the next generation to succeed, and it makes good sense from both a public policy and business standpoint.

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

Designates the bill as the ‘‘New Markets Venture Capital Program Act of 2000.’’

Section 2. New Markets Venture Capital Program

This Section amends Title III of the Small Business Investment Act of 1958 by adding new Sections 351 through 368 to establish the ‘‘New Markets Venture Capital Program.’’

H.R. 5545 will add the following new sections to the Small

Business Investment Act:

Section 351. Definitions

Establishes definitions for developmental venture capital, New

Markets Venture Capital Companies, low- or moderate-income geographic area, operational assistance, participation agreement, and

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Specialized Small Business Investment Companies as used in the

legislation.

‘‘Developmental venture capital’’ is defined as equity capital invested in small businesses, with a primary objective of fostering

economic development in low income geographic areas. For the purposes of this Act, the Committee considers equity capital investments to mean stock of any class in a corporation, stock options,

warrants, limited partnership interests, membership interests in a

limited liability company, joint venture interests, or subordinated

debt with equity features if such debt provides only for interest

payments contingent upon earnings. Such investments must not require amortization. They may be guaranteed; but neither the Equity capital investment nor the guarantee may be secured.

A ‘‘New Markets Venture Capital Company’’ is defined as a

company that has been approved by the Administration to operate

under the New Markets Venture Capital Program, and has entered

into a participation agreement with the Administration to make equity investments and provide technical assistance to small enterprises located in low- or moderate-income areas.

The term ‘‘low income geographic area’’ means a census tract,

or the equivalent county division as defined by the Bureau of the

Census for purposes of defining poverty areas, in which the poverty

rate is not less than 20 percent. In those areas in a metropolitan

area 50 percent or more of the households must have an income

equal to less than 60 percent of the median income for the area.

In rural areas the median household income for a tract must not

exceed 80 percent of the statewide median household income. This

definition also includes any area located within a HUBZone, an

Urban Empowerment Zone or an Urban Enterprise Community, or

a rural Empowerment Zone or a Rural Enterprise Community.

The term ‘‘low income individual’’ is included for the purpose

of allowing waivers of the low income area requirement for areas

of significant economic disadvantage that may not otherwise qualify. A low income individual is defined as someone whose income

does not exceed 80 percent of the area median income in metropolitan areas, or 80 percent of either the area or statewide median income in rural areas.

The term ‘‘operational assistance’’ is defined as management,

marketing, and other technical assistance that assists a small business concern with business development.

‘‘Participation agreement’’ is defined as an agreement between

the Administration and an NMVC Company detailing the company’s operating plan and investment criteria; and requiring that

investments be made in smaller enterprises at least 80 percent of

which are located in low income geographic areas.

‘‘Specialized Small Business Investment Company’’ means any

small business investment company that was licensed under section 301(d) as in effect before September 30, 1996.

Section 352. Purposes

Describes the purposes of the Act, which are:

(1) to promote economic development and the creation of

wealth and job opportunities in low- or moderate-income geographic areas and among individuals living in such areas by

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encouraging developmental venture capital investments in

smaller enterprises primarily located in such areas; and

(2) to establish a developmental venture capital program,

with the mission of addressing the unmet equity investment

needs of small entrepreneurs located in low- or moderate-income areas; to be administered by the Small Business Administration; to enter into a participation agreement with NMVC

companies; to guarantee debentures of NMVC companies to enable each such company to make developmental venture capital investments in smaller enterprises in low- or moderate-income geographic areas; and to make grants to NMVC companies for the purpose of providing operational assistance to

smaller enterprises financed, or expected to be financed, by

such companies.

Section 353. Establishment

Authorizes the SBA to establish the NMVC Program, under

which the SBA may form New Markets Venture Capital companies

by entering into participation agreements with firms that are

granted final approval under the requirements set forth in Section

354 and formed for the purposes outlined in Section 352.

This Section also authorizes SBA to guarantee the debentures

issued by the NMVC Companies as provided in Section 355; and

to make operational assistance grants to NMVC Companies and

other entities in accordance with Section 358.

Section 354. Selection of the New Markets Venture Capital Companies

Establishes the criteria to be followed by SBA in selecting the

NMVC Companies. This section provides for specific selection criteria to be developed by the SBA—based on the criteria enumerated in this legislation—and designed to ensure that a variety of

investment models are chosen and that appropriate public policy

goals are addressed. Geographic dispersion must also be taken into

account in the selection process.

H.R. 5545 requires Program participants to satisfy the following application requirements:

(1) Each NMVC must be a newly formed, for-profit entity

with at least $5 million of contributed capital or binding capital commitments from non-Federal investors, and with the primary objective of economic development in low- or moderateincome geographic areas.

(2) Each NMVC’s management team must be experienced

in some form of community development or venture capital financing.

(3) Each NMVC must concentrate its activities on serving

its investment areas, and submit a proposal that will expand

economic opportunities and address the unmet capital needs

within the investment areas.

(4) Each applicant must submit a strong proposal to provide operational assistance, including the possible use of outside, licensed professionals.

(5) Each NMVC must have binding commitments (in cash

or in-kind) for operational assistance and overhead, payable or

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available over a multi-year period not to exceed 10 years, in an

amount equal to 30% of its committed and contributed capital.

These commitments may be from any non-SBA source and the

cash portion may be invested in an annuity payable semi-annually over a multi-year period not to exceed 10 years.

The Committee is well aware that it will be difficult for some

NMVCs to raise their entire operational assistance match during

the application stage. Those NMVCs that are unable to raise the

required match, but have submitted a reasonable plan to the Administrator to meet the requirement, may be granted a conditional

approval from the Administrator and be allowed to draw one dollar

of federal matching funds for every dollar of private funds raised

provided that (for the purpose of final approval) they raise at least

20 percent of the required matching funds, and have at least 20

percent of the match on hand when applying for additional grant

funds.

The Committee believes that it is important to give NMVCs

the flexibility to obtain the required private operational assistance

funds, however, from a safety and soundness standpoint, federal

assistance funds should not be placed at greater risk than private

assistance funds.

This conditional approval shall be made with the expectation

that the required capital funding commitments will be obtained

within two years of the conditional approval.

The bill also authorizes SBA to select firms that have experience with investing in enterprises located in low income areas to

participate as NMVCs. SBA will enter into an agreement with each

NMVC setting forth the specific terms of that firm’s participation

in the program. Each agreement will be tailored to the particular

NMVC’s operations and will be based on the NMVC’s own proposal,

submitted as part of the NMVC’s application form. The agreement

will require that investments be made by the NMVC in smaller enterprises, at least 80% of which are located in low income geographic areas.

In order for an investment to be counted toward the 80% goal

under H.R. 5545, the investment must be made in a small business

concern located in an LI area. This ensures that the New Markets

Venture Capital Company Program will focus investment capital

where it is most needed, rather than duplicating existing SBA programs.

The Committee believes that the targeting of low-income communities is the most important element of H.R. 4530. If Congress

and the Administration are serious about helping our nation’s lowincome cities, towns, and rural areas we should demonstrate our

commitment by ensuring that this bill is focused on these areas.

The Committee has accomplished this by requiring that 80% of all

investment will concentrate on those needing this help the most.

By clearly focusing this legislation on the communities that

need assistance the most, the Committee has maximized the impact of this program. It is also the Committee’s view that by investing the majority of funds in low income communities, we will not

only provide the benefit of increased opportunities for working families, but H.R. 4530 will also provide the benefit of improving the

physical community. This double benefit ensures that the resources

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spent under H.R. 4530 will provide the maximum economic impact

on the low- or moderate-income communities to which this bill is

targeted.

The Committee recognizes that the legislation may offer some

benefits to working families located outside of the LMI areas as defined by the legislation. To address this concern, up to 20% of a

New Markets Venture Capital Company’s investments are permitted in those businesses that are in need of equity investment,

but fall outside the LMI areas as defined by the legislation. However, it is the Committee’s strong opinion that to reduce the targeting below 80% would significantly diminish the impact in the

LMI areas, and would be contrary to the intent of the program. In

addition, the Act includes a provision allowing the Administrator

to waive the low income designation requirements for areas of significant economic distress that would not otherwise qualify.

Section 355. Debentures

Authorizes SBA to guarantee debentures issued by NMVC

companies. The terms of the guaranteed debentures issued under

this section may not exceed 15 years and the maximum total guarantee for any NMVC company shall not exceed 150 percent of a

company’s private capital.

Section 356. Issuance and guarantee of trust certificates

Authorizes SBA to issue and guarantee trust certificates representing ownership of all or part of the debentures issued by an

NMVC company and guaranteed by the Administration. Each guarantee issued under this section is limited to the amount of the

principal and interest on the guaranteed debentures that compose

the trust or pool of certificates.

This section grants SBA subrogation and ownership rights over

the trust certificates guaranteed under this section, but prohibits

SBA from collecting a fee for any guarantee of a trust certificate

issued under this section. Finally, this section allows SBA to contract with an agent to carry out the pooling and central registration functions for the trust certificates issued.

Section 357. Fees

Authorizes SBA to charge such fees as it deems appropriate

with respect to any guarantee or grant issued to an NMVC company.

This authorization is subject to the prohibition contained in

Section 356 that prohibits SBA from collecting a fee for any guarantee of a trust certificate issued under that section.

Section 358. Operational assistance grants

Authorizes SBA to make operational assistance grants to New

Markets Venture Capital Companies established under the legislation and to certain Specialized Small Business Investment Companies.

Each NMVC is eligible for one or more grants, on a matching

basis, in an amount equal to the amount the NMVC makes available for operational assistance. The operational assistance grant

will be made available to the NMVC semi-annually over a multiVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00654 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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year period not to exceed 10 years. SBA is also authorized to provide supplemental grants to NMVCs.

This section of the bill also allows Specialized Small Business

Investment Companies (‘‘SSBICs’’) access to the operational assistance grant funds authorized under the program without entering

into a participation agreement with SBA to act as an NMVC company. The participation of the SSBICs, however, is limited only to

investments they make in LMI areas after the date of enactment,

and they must match the operational assistance funds to one LMI

investment.

This section of the bill explicitly prohibits NMVCs and SSBICs

from using operational assistance grants, both the federal contribution and the match, to supplement their own bottom line. This prohibition includes items that are not aimed at directly benefiting the

small enterprises, such as, but not limited to—the purchase of furniture, office supplies, physical improvements to the NMVCs’ or

SSBICs’ places of business, and marketing services. The Committee

included this limitation to ensure that the investments made

through this program will be for the benefit of small businesses located in LMI areas, which is the intent of the legislation.

It is the Committee’s view that this provision does allow for

operational assistance funds under the legislation to be used for

salaries of those NMVC or SSBIC employees that are providing direct technical assistance to the small enterprise. NMVCs and

SSBICs that use their own staff to provide the necessary direct assistance to smaller enterprises may be reimbursed for the direct

cost of staff out of grant funds, but only to the extent such costs

are allocable to the operational assistance.

This section also requires the NMVC companies to document

in their operation plan the extent to which they intend to use licensed professionals (e.g., licensed attorneys and Certified Public

Accountants) when providing technical assistance that requires

such expertise. This ensures that the NMVC companies will provide the best assistance possible to the small business concerns. It

is not meant to be construed as requirement that licensed professionals are sole persons to provide such assistance, but their use

is encouraged in highly technical situations.

Evidence presented to the Congress by the community development venture capital advocates indicates that providing technical

assistance to a small business dramatically increases that business’

chance of success. The Congress wishes to ensure that all small

businesses receiving technical assistance under this program will

receive the best technical assistance available. We believe this will

further increase the businesses’ chances of success.

Section 359. Bank participation

Allows any national bank, and any member bank of the Federal Reserve System to invest in an NMVC company formed under

this legislation so long as the investment would not exceed 5 percent of the capital and surplus of the bank.

Banks that are not members of the Federal Reserve System

are allowed to invest in an NMVC company formed under this legislation so long as such investment is allowed under applicable

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State law, and so long as the investment would not exceed 5 percent of the capital and surplus of the bank.

Section 360. Federal financing bank

Establishes that Section 318 of the Small Business Investment

Act does not apply to any NMVC company created under this legislation.

Section 361. Reporting requirements

Establishes reporting requirements for the NMVC companies.

Specifically, the NMVC companies are required to provide to SBA

such information as the Administration requires, including: information related to the measurement criteria that the NMVC proposed in its program application; and, for each case in which the

NMVC makes an investment or a grant to a business located outside of an LMI area, a report on the number and percentage of employees of the business who reside in an LMI area.

Section 362. Examinations

Requires that each NMVC company shall be subjected to examinations made at the direction of the Investment Division of

SBA. This section allows for examinations to be conducted with the

assistance of a private sector entity that has both the necessary

qualifications and expertise.

It is the intent of the Committee that the oversight of the

NMVC program be modeled after that developed for the SBIC program and administered by SBA’s Investment Division. Oversight

should include a close working relationship between SBA analysts

and NMVC management teams, detailed reporting requirements,

frequent on-site examinations to evaluate performance and conformance with the operating plan, and careful analysis of the firm’s

economic impact.

Section 363. Injunctions and other orders

Grants SBA the power of injunction over NMVC companies

and the authority to act as a trustee or receiver of a company if

appointed by a court.

This section of the legislation closely tracks the existing injunction provision (Section 311) of the Small Business Investment Act

of 1958. Again, it is the Committee’s intent that oversight of the

NMVC program be modeled after that developed for the SBIC program and administered by SBA’s Investment Division. This oversight should include a close working relationship between SBA analysts and NMVC management teams, detailed reporting requirements, frequent on-site examinations to evaluate performance and

conformance with the operating plan, and careful analysis of the

firm’s economic impact.

Section 364. Additional penalties for noncompliance

Grants SBA or the Attorney General the authority to file a

cause of action against an NMVC company for noncompliance.

Should a court find that a company violated or failed to comply

with provisions of this legislation or other provisions of the Small

Business Investment Act of 1958, this section grants SBA the auVerDate 11-MAY-2000 19:19 Oct 30, 2000 Jkt 067433 PO 00000 Frm 00656 Fmt 6601 Sfmt 6601 E:\HR\OC\HR1004.XXX pfrm04 PsN: HR1004
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thority to void the participation agreement between the company

and the SBA.

Section 365. Unlawful acts and omissions; breach of fiduciary duty

Defines what is to be considered as a violation of this legislation, who is considered to have a fiduciary duty, and who is ineligible to serve as an officer, director, or employee of any NMVC

company because of unlawful acts.

This section of the legislation closely tracks the unlawful acts

provision (Section 314) of the Small Business Investment Act of

1958. It is the Committee’s intent to grant SBA the same authority

over NMVC companies that it has over Small Business Investment

Companies with respect to unlawful acts and the breach of fiduciary responsibility.

Section 366. Removal or suspension of directors or officers

Grants SBA the authority to use the procedures set forth in

Section 313 of the Small Business Investment Act of 1958 to remove or suspend any director or officer of an NMVC company.

Section 367. Regulations

Authorizes the Small Business Administration to issue such

regulations as it deems necessary to carry out the provisions of the

legislation.

Section 368. Authorization of appropriations

Authorizes appropriations for the Program for Fiscal Years

2001 through 2006. This section authorizes such subsidy budget

authority as necessary to guarantee $150,000,000 of debentures

and $30,000,000 to make operational assistance grants.

The Committee estimates that the Program will only require

a one-time appropriation of $45 million—$15 million for loan guarantees and $30 million for operational assistance grants. This $15

million will allow SBA to back $150 million in loans to small business in low- or moderate-income areas.

Section 368(c). Conforming amendment

Makes a conforming change to the Small Business Investment

Act of 1958 to account for the changes made by this legislation.

Section 368(d). Calculation of maximum amount of SBIC leverage

Allows Small Business Investment Companies (‘‘SBICs’’) to obtain additional access to leverage outside the statutory caps. The

exemption of the SBICs, however, is limited only to investments

they make in LMI areas.

This section provides that investments made in LMI areas will

not apply against the leverage cap of the individual SBIC as long

as the total amount invested through the program does not exceed

50% of the SBIC’s paid-in capital.

Section 368(e). Bankruptcy exemption for new markets venture capital companies

Adds NMVC companies to the list of entities that may not be

considered a debtor under a Title 11 bankruptcy proceeding.

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Section 368(f). Federal savings associations

Amends the ‘‘Home Owners Loan Act’’ to allow federal savings

associations to invest in an NMVC company formed under this legislation so long as the investment would not exceed 5 percent of the

capital and surplus of the savings association.

BUSINESSLINC

H.R. 5545, also establishes the BusinessLINC program, designed to promote business growth in inner cities and economically

distressed rural areas by matching large and small firms into business-to-business partnering and mentoring relationships.

BusinessLinc would accomplish this by providing seed funding to

third party entities such as local Chambers of Commerce to promote such relationships. In addition to seed funding, such entities

will also receive funds for technical assistance programs to small

businesses to supplement the mentor-prote ́ge ́ relationships established as a result of BusinessLINC.

BusinessLINC helps businesses by providing online information and a database of companies that are interested in mentorprote ́

ge ́ programs.

Grants may be made to a coalition/combination of private and

public entities only if the coalition/combination provides an

amount, either in kind or in cash, equal to the grant amount for

the purposes above.

Despite the unprecedented economic prosperity we are experiencing in this country, there are several areas of the country that

have still not achieved parity. These areas are primarily inner cities, rural areas, and Native American communities. BusinessLINC

will enable business opportunities for small businesses who would

otherwise have no access to outside larger markets. While these

small businesses have strong potential, they are located in communities where corporate America would not necessarily look.

BusinessLINC will break that barrier. When the BusinessLINC

model has been applied in the past, small businesses have seen

growth as much as 45 percent. With this assistance, the local community will be charting its own path to recovery. The ‘‘LINC’’ in

BusinessLINC stands for ‘‘Learning, Information, Networking, and

Collaboration.’’

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

Designates the bill as the ‘‘BusinessLINC Act of 2000.’’

Section 2. Authorization

This Section amends the Small Business Act by Adding a new

paragraph (m), ‘‘BusinessLINC grants and cooperative agreements.’’

Paragraph (1) allows the Administrator to make grants or

enter into cooperative agreements with any coalition/combination of

private and/or public entities to (a) promote business-to-business

relationships between large and small businesses and (b) to provide

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online information and a database of companies that are interested

in mentor-prote ́ge ́ programs.

It is the opinion of the Conference that private and/or public

entities eligible for grants should be limited to chambers of commerce and other not-for-profit business organizations. The Conferees intend that grant money be provided to large businesses.

Further, if a grant is made to a combination of entities, one entity

must take a lead position.

It is further the opinion of the Conference that promotion of

business-to-business relationships between large and small businesses referenced in paragraph (a) above should include the facilitation of such relationships as mentor-prote ́

ge ́, prime/subcontractor,

and teaming.

The Conference intends that an element to be considered by

the Administrator when evaluating a grant proposal, shall be the

training of small businesses or ‘‘proteges.’’ An additional evaluation

element intended by the Conference shall be measurable goals to

be achieved through the business-to-business partnerships.

The Conference further intends that the online database referenced in paragraph (b) above, should make use of the SBA’s current PRO-Net database to the greatest extent practicable. The Conference is concerned that online privacy issues should also be addressed by the SBA in the implementation of the databases. Further, it is the Committee’s opinion that the databases should be

vigilantly maintained by the SBA to ensure that only firms eligible

to be mentors should be included in the mentor database, and only

those firms eligible to serve as intermediaries should be included

in the intermediary database.

Paragraph (2) specifies that the Administrator may make

grants as long as the coalition/combination of public and/or private

entities provides an amount, either in kind or in cash, equal to the

grant amount for the purposes delineated in paragraph (1) above.

The Conference is well aware that it may be difficult for some

entities to raise their entire match during the application stage.

Those entities that are unable to raise the required match, but

have submitted to the Administrator a reasonable plan to meet the

requirement, may be granted a conditional approval from the Administrator and be allowed to draw one dollar of federal matching

funds for every dollar of private funds raised. This conditional approval shall be made with the expectation that the required funding commitments will be obtained within two years of the conditional approval.

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The Conference believes that it is important to give entities the

flexibility to obtain the required private operational assistance

funds, however, from a safety and soundness standpoint, federal

funds should not be placed at greater risk than private capital.

Paragraph (3) specifies the authorization for the program for

fiscal years 2001 through 2003. This amount shall be $6,600,000

for each of the three fiscal years.

JIM TALENT, DICK ARMEY, Managers on the Part of the House.

CHRISTOPHER BOND,

CONRAD BURNS,

Managers on the Part of the Senate.

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