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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3286 Reported in Senate (RS)]

104th CONGRESS
  2d Session
                                H. R. 3286

                          [Report No. 104-279]

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                              May 13, 1996

     Received; read twice and referred to the Committee on Finance

                              May 23, 1996

Ordered, if and when reported by the Committee on Finance the bill then 
   be referred to the Committee on Indian Affairs for the purpose of 
 considering title 3, for a period of 10 days of session, to report or 
                             be discharged

                             June 13, 1996

  Reported by Mr. Roth, with amendments; referred to the Committee on 
          Indian Affairs pursuant to the order of May 23, 1996
  [Omit the part struck through and insert the part printed in italic]

_______________________________________________________________________

                                 AN ACT

 
To help families defray adoption costs, and to promote the adoption of 
                           minority children.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Adoption Promotion and Stability Act 
of 1996''.

SEC. 2. TABLE OF CONTENTS.

    The table of contents of this Act is as follows:

Sec. 1. Short title.
Sec. 2. Table of contents.
                 TITLE I--CREDIT FOR ADOPTION EXPENSES

Sec. 101. Credit for adoption expenses.
                     TITLE II--INTERETHNIC ADOPTION

Sec. 201. Removal of barriers to interethnic adoption.
   TITLE III--CHILD CUSTODY PROCEEDINGS AFFECTED BY THE INDIAN CHILD 
                          WELFARE ACT OF 1978

Sec. 301. Inapplicability of the Indian Child Welfare Act of 1978 to 
                            child custody proceedings involving a child 
                            whose parents do not maintain affiliation 
                            with their Indian tribe.
Sec. 302. Membership and child custody proceedings.
Sec. 303. Effective date.
                       TITLE IV--REVENUE OFFSETS

Sec. 400. Amendment of 1986 Code.
   <DELETED>Subtitle A--Exclusion for Energy Conservation Subsidies 
          Limited to Subsidies With Respect to Dwelling Units

<DELETED>Sec. 401. Exclusion for energy conservation subsidies limited 
                            to subsidies with respect to dwelling 
                            units.
           <DELETED>Subtitle B--Foreign Trust Tax Compliance

<DELETED>Sec. 411. Improved information reporting on foreign trusts.
<DELETED>Sec. 412. Comparable penalties for failure to file return 
                            relating to transfers to foreign entities.
<DELETED>Sec. 413. Modifications of rules relating to foreign trusts 
                            having one or more United States 
                            beneficiaries.
<DELETED>Sec. 414. Foreign persons not to be treated as owners under 
                            grantor trust rules.
<DELETED>Sec. 415. Information reporting regarding foreign gifts.
<DELETED>Sec. 416. Modification of rules relating to foreign trusts 
                            which are not grantor trusts.
<DELETED>Sec. 417. Residence of trusts, etc.
</DELETED>Sec. 401. Repeal of bad debt reserve method for thrift 
                            savings associations.
Sec. 402. Depreciation under income forecast method.

        <DELETED>TITLE I--CREDIT FOR ADOPTION EXPENSES</DELETED>

<DELETED>SEC. 101. CREDIT FOR ADOPTION EXPENSES.</DELETED>

<DELETED>    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 (relating to 
nonrefundable personal credits) is amended by inserting after section 
22 the following new section:</DELETED>

<DELETED>``SEC. 23. ADOPTION EXPENSES.</DELETED>

<DELETED>    ``(a) Allowance of Credit.--In the case of an individual, 
there shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year the amount of the qualified adoption 
expenses paid or incurred by the taxpayer during such taxable 
year.</DELETED>
<DELETED>    ``(b) Limitations.--</DELETED>
        <DELETED>    ``(1) Dollar limitation.--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 
        $5,000.</DELETED>
        <DELETED>    ``(2) Income limitation.--The amount allowable as 
        a credit under subsection (a) for any taxable year shall be 
        reduced (but not below zero) by an amount which bears the same 
        ratio to the amount so allowable (determined without regard to 
        this paragraph but with regard to paragraph (1)) as--</DELETED>
                <DELETED>    ``(A) the amount (if any) by which the 
                taxpayer's adjusted gross income (determined without 
                regard to sections 911, 931, and 933) exceeds $75,000, 
                bears to</DELETED>
                <DELETED>    ``(B) $40,000.</DELETED>
        <DELETED>    ``(3) Denial of double benefit.--</DELETED>
                <DELETED>    ``(A) In general.--No credit shall be 
                allowed under subsection (a) for any expense for which 
                a deduction or credit is allowable under any other 
                provision of this chapter.</DELETED>
                <DELETED>    ``(B) Grants.--No credit shall be allowed 
                under subsection (a) for any expense to the extent that 
                funds for such expense are received under any Federal, 
                State, or local program. The preceding sentence shall 
                not apply to expenses for the adoption of a child with 
                special needs.</DELETED>
                <DELETED>    ``(C) Reimbursement.--No credit shall be 
                allowed under subsection (a) for any expense to the 
                extent that such expense is reimbursed and the 
                reimbursement is excluded from gross income under 
                section 137.</DELETED>
<DELETED>    ``(c) Carryforwards of Unused Credit.--If the credit 
allowable under subsection (a) for any taxable year exceeds the 
limitation imposed by section 26(a) for such taxable year reduced by 
the sum of the credits allowable under this subpart (other than this 
section), such excess shall be carried to the succeeding taxable year 
and added to the credit allowable under subsection (a) for such taxable 
year. No credit may be carried forward under this subsection to any 
taxable year following the fifth taxable year after the taxable year in 
which the credit arose. For purposes of the preceding sentence, credits 
shall be treated as used on a first-in first-out basis.</DELETED>
<DELETED>    ``(d) Definitions.--For purposes of this section--
</DELETED>
        <DELETED>    ``(1) Qualified adoption expenses.--The term 
        `qualified adoption expenses' means reasonable and necessary 
        adoption fees, court costs, attorney fees, and other expenses--
        </DELETED>
                <DELETED>    ``(A) which are directly related to, and 
                the principal purpose of which is for, the legal 
                adoption of an eligible child by the taxpayer, 
                and</DELETED>
                <DELETED>    ``(B) which are not incurred in violation 
                of State or Federal law or in carrying out any 
                surrogate parenting arrangement.</DELETED>
        <DELETED>    ``(2) Expenses for adoption of spouse's child not 
        eligible.--The term `qualified adoption expenses' shall not 
        include any expenses in connection with the adoption by an 
        individual of a child who is the child of such individual's 
        spouse.</DELETED>
        <DELETED>    ``(3) Eligible child.--The term `eligible child' 
        means any individual--</DELETED>
                <DELETED>    ``(A) who has not attained age 18 as of 
                the time of the adoption, or</DELETED>
                <DELETED>    ``(B) who is physically or mentally 
                incapable of caring for himself.</DELETED>
        <DELETED>    ``(4) Child with special needs.--The term `child 
        with special needs' means any child if--</DELETED>
                <DELETED>    ``(A) a State has determined that the 
                child cannot or should not be returned to the home of 
                his parents, and</DELETED>
                <DELETED>    ``(B) such State has determined that there 
                exists with respect to the child a specific factor or 
                condition (such as his ethnic background, age, or 
                membership in a minority or sibling group, or the 
                presence of factors such as medical conditions or 
                physical, mental, or emotional handicaps) because of 
                which it is reasonable to conclude that such child 
                cannot be placed with adoptive parents without 
                providing adoption assistance.</DELETED>
<DELETED>    ``(e) Special Rules for Foreign Adoptions.--In the case of 
a foreign adoption--</DELETED>
        <DELETED>    ``(1) subsection (a) shall not apply to any 
        qualified adoption expense with respect to such adoption unless 
        such adoption becomes final, and</DELETED>
        <DELETED>    ``(2) any such expense which is paid or incurred 
        before the taxable year in which such adoption becomes final 
        shall be taken into account under this section as if such 
        expense were paid or incurred during such year.</DELETED>
<DELETED>    ``(f) Married Couples Must File Joint Returns.--Rules 
similar to the rules of paragraphs (2), (3), and (4) of section 21(e) 
shall apply for purposes of this section.</DELETED>
<DELETED>    ``(g) Basis Adjustments.--For purposes of this subtitle, 
if a credit is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such property 
which would (but for this subsection) result from such expenditure 
shall be reduced by the amount of the credit so allowed.</DELETED>
<DELETED>    ``(h) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section and section 
137, including regulations which treat unmarried individuals who pay or 
incur qualified adoption expenses with respect to the same child as 1 
taxpayer for purposes of applying the dollar limitation in subsection 
(b)(1) of this section and in section 137(b)(1).''.</DELETED>
<DELETED>    (b) Exclusion of Amounts Received Under Employer's 
Adoption Assistance Programs.--Part III of subchapter B of chapter 1 of 
such Code (relating to items specifically excluded from gross income) 
is amended by redesignating section 137 as section 138 and by inserting 
after section 136 the following new section:</DELETED>

<DELETED>``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.</DELETED>

<DELETED>    ``(a) In General.--Gross income of an employee does not 
include amounts paid or expenses incurred by the employer for qualified 
adoption expenses in connection with the adoption of a child by an 
employee if such amounts are furnished pursuant to an adoption 
assistance program.</DELETED>
<DELETED>    ``(b) Limitations.--</DELETED>
        <DELETED>    ``(1) Dollar limitation.--The aggregate amount 
        excludable from gross income under subsection (a) for all 
        taxable years with respect to the adoption of a child by the 
        taxpayer shall not exceed $5,000.</DELETED>
        <DELETED>    ``(2) Income limitation.--The amount excludable 
        from gross income under subsection (a) for any taxable year 
shall be reduced (but not below zero) by an amount which bears the same 
ratio to the amount so excludable (determined without regard to this 
paragraph but with regard to paragraph (1)) as--</DELETED>
                <DELETED>    ``(A) the amount (if any) by which the 
                taxpayer's adjusted gross income exceeds $75,000, bears 
                to</DELETED>
                <DELETED>    ``(B) $40,000.</DELETED>
        <DELETED>    ``(3) Determination of adjusted gross income.--For 
        purposes of paragraph (2), adjusted gross income shall be 
        determined--</DELETED>
                <DELETED>    ``(A) without regard to this section and 
                sections 911, 931, and 933, and</DELETED>
                <DELETED>    ``(B) after the application of sections 
                86, 135, 219, and 469.</DELETED>
<DELETED>    ``(c) Adoption Assistance Program.--For purposes of this 
section, an adoption assistance program is a plan of an employer--
</DELETED>
        <DELETED>    ``(1) under which the employer provides employees 
        with adoption assistance, and</DELETED>
        <DELETED>    ``(2) which meets requirements similar to the 
        requirements of paragraphs (2), (3), and (5) of section 
        127(b).</DELETED>
<DELETED>An adoption reimbursement program operated under section 1052 
of title 10, United States Code (relating to armed forces) or section 
514 of title 14, United States Code (relating to members of the Coast 
Guard) shall be treated as an adoption assistance program for purposes 
of this section.</DELETED>
<DELETED>    ``(d) Qualified Adoption Expenses.--For purposes of this 
section, the term `qualified adoption expenses' has the meaning given 
such term by section 23(d).</DELETED>
<DELETED>    ``(e) Certain Rules To Apply.--Rules similar to the rules 
of subsections (e) and (g) of section 23 shall apply for purposes of 
this section.''.</DELETED>
<DELETED>    (c) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Sections 86(b)(2)(A) and 135(c)(4)(A) of such 
        Code are each amended by inserting ``137,'' before 
        ``911''.</DELETED>
        <DELETED>    (2) Clause (i) of section 219(g)(3)(A) of such 
        Code is amended by inserting ``, 137,'' before ``and 
        911''.</DELETED>
        <DELETED>    (3) Clause (ii) of section 469(i)(3)(E) of such 
        Code is amended to read as follows:</DELETED>
                        <DELETED>    ``(ii) the amounts excludable from 
                        gross income under sections 135 and 
                        137,''.</DELETED>
        <DELETED>    (4) Subsection (a) of section 1016 of such Code is 
        amended by striking ``and'' at the end of paragraph (24), by 
        striking the period at the end of paragraph (25) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:</DELETED>
        <DELETED>    ``(26) to the extent provided in sections 23(g) 
        and 137(e).''</DELETED>
        <DELETED>    (5) The table of sections for subpart A of part IV 
        of subchapter A of chapter 1 of such Code is amended by 
        inserting after the item relating to section 22 the following 
        new item:</DELETED>

<DELETED>``Sec. 23. Adoption expenses.''.
        <DELETED>    (6) The table of sections for part III of 
        subchapter B of chapter 1 of such Code is amended by striking 
        the item relating to section 137 and inserting the 
        following:</DELETED>

<DELETED>``Sec. 137. Adoption assistance programs.
<DELETED>``Sec. 138. Cross reference to other Acts.''.
<DELETED>    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
1996.</DELETED>

                 TITLE I--CREDIT FOR ADOPTION EXPENSES

SEC. 101. CREDIT FOR ADOPTION EXPENSES.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 22 the 
following new section:

``SEC. 23. ADOPTION EXPENSES.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year the amount of the qualified adoption expenses paid 
or incurred by the taxpayer during such taxable year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--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 $5,000 
        ($6,000, in the case of a child with special needs).
            ``(2) Income limitation.--
                    ``(A) In general.--The amount allowable as a credit 
                under subsection (a) for any taxable year shall be 
                reduced (but not below zero) by an amount which bears 
                the same ratio to the amount so allowable (determined 
                without regard to this paragraph but with regard to 
                paragraph (1)) as--
                            ``(i) the amount (if any) by which the 
                        taxpayer's adjusted gross income exceeds 
                        $75,000, bears to
                            ``(ii) $40,000.
                    ``(B) Determination of adjusted gross income.--For 
                purposes of subparagraph (A), adjusted gross income 
                shall be determined--
                            ``(i) without regard to sections 911, 931, 
                        and 933, and
                            ``(ii) after the application of sections 
                        86, 135, 137, 219, and 469.
            ``(3) Denial of double benefit.--
                    ``(A) In general.--No credit shall be allowed under 
                subsection (a) for any expense for which a deduction or 
                credit is allowed under any other provision of this 
                chapter.
                    ``(B) Grants.--No credit shall be allowed under 
                subsection (a) for any expense to the extent that funds 
                for such expense are received under any Federal, State, 
                or local program.
    ``(c) Carryforwards of Unused Credit.--If the credit allowable 
under subsection (a) for any taxable year exceeds the limitation 
imposed by section 26(a) for such taxable year reduced by the sum of 
the credits allowable under this subpart (other than this section), 
such excess shall be carried to the succeeding taxable year and added 
to the credit allowable under subsection (a) for such taxable year. No 
credit may be carried forward under this subsection to any taxable year 
following the fifth taxable year after the taxable year in which the 
credit arose. For purposes of the preceding sentence, credits shall be 
treated as used on a first-in first-out basis.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified adoption expenses.--The term `qualified 
        adoption expenses' means reasonable and necessary adoption 
        fees, court costs, attorney fees, and other expenses--
                    ``(A) which are directly related to, and the 
                principal purpose of which is for, the legal adoption 
                of an eligible child by the taxpayer,
                    ``(B) which are not incurred in violation of State 
                or Federal law or in carrying out any surrogate 
                parenting arrangement,
                    ``(C) which are not expenses in connection with the 
                adoption by an individual of a child who is the child 
                of such individual's spouse, and
                    ``(D) which are not reimbursed under an employer 
                program or otherwise.
            ``(2) Eligible child.--The term `eligible child' means any 
        individual--
                    ``(A) who--
                            ``(i) has not attained age 18, or
                            ``(ii) is physically or mentally incapable 
                        of caring for himself, and
                    ``(B) in the case of qualified adoption expenses 
                paid or incurred after December 31, 2000, who is a 
                child with special needs.
            ``(4) Child with special needs.--The term `child with 
        special needs' means any child if--
                    ``(A) a State has determined that the child cannot 
                or should not be returned to the home of his parents, 
                and
                    ``(B) such State has determined that there exists 
                with respect to the child a specific factor or 
                condition (such as his ethnic background, age, or 
                membership in a minority or sibling group, or the 
                presence of factors such as medical conditions or 
                physical, mental, or emotional handicaps) because of 
                which it is reasonable to conclude that such child 
                cannot be placed with adoptive parents without 
                providing adoption assistance.
    ``(e) Special Rules for Foreign Adoptions.--In the case of an 
adoption of a child who is not a citizen or resident of the United 
States (as defined in section 217(h)(3))--
            ``(1) subsection (a) shall not apply to any qualified 
        adoption expense with respect to such adoption unless such 
        adoption becomes final, and
            ``(2) any such expense which is paid or incurred before the 
        taxable year in which such adoption becomes final shall be 
        taken into account under this section as if such expense were 
        paid or incurred during such year.
    ``(f) Married Couples Must File Joint Returns.--Rules similar to 
the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply 
for purposes of this section.
    ``(g) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section and section 137, 
including regulations which treat unmarried individuals who pay or 
incur qualified adoption expenses with respect to the same child as 1 
taxpayer for purposes of applying the dollar limitation in subsection 
(b)(1) of this section and in section 137(b)(1).''
    (b) Exclusion of Amounts Received Under Employer's Adoption 
Assistance Programs.--Part III of subchapter B of chapter 1 of such 
Code (relating to items specifically excluded from gross income) is 
amended by redesignating section 137 as section 138 and by inserting 
after section 136 the following new section:

``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

    ``(a) In General.--Gross income of an employee does not include 
amounts paid or expenses incurred by the employer for qualified 
adoption expenses in connection with the adoption of a child by an 
employee if such amounts are furnished pursuant to an adoption 
assistance program.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount excludable 
        from gross income under subsection (a) for all taxable years 
        with respect to the adoption of a child by the taxpayer shall 
        not exceed $5,000 ($6,000, in the case of a child with special 
        needs).
            ``(2) Income limitation.--The amount excludable from gross 
        income under subsection (a) for any taxable year shall be 
        reduced (but not below zero) by an amount which bears the same 
        ratio to the amount so excludable (determined without regard to 
        this paragraph but with regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the taxpayer's 
                adjusted gross income exceeds $75,000, bears to
                    ``(B) $40,000.
            ``(3) Determination of adjusted gross income.--For purposes 
        of paragraph (2), adjusted gross income shall be determined--
                    ``(A) without regard to this section and sections 
                911, 931, and 933, and
                    ``(B) after the application of sections 86, 135, 
                219, and 469.
    ``(c) Adoption Assistance Program.--For purposes of this section, 
an adoption assistance program is a separate written plan of an 
employer for the exclusive benefit of such employer's employees--
            ``(1) under which the employer provides such employees with 
        adoption assistance, and
            ``(2) which meets requirements similar to the requirements 
        of paragraphs (2), (3), (5), and (6) of section 127(b).
An adoption reimbursement program operated under section 1052 of title 
10, United States Code (relating to armed forces) or section 514 of 
title 14, United States Code (relating to members of the Coast Guard) 
shall be treated as an adoption assistance program for purposes of this 
section.
    ``(d) Qualified Adoption Expenses.--For purposes of this section, 
the term `qualified adoption expenses' has the meaning given such term 
by section 23(d).
    ``(e) Certain Rules To Apply.--Rules similar to the rules of 
subsections (e), (f), and (g) of section 23 shall apply for purposes of 
this section.
    ``(f) Termination.--This section shall not apply to amounts paid or 
expenses incurred after December 31, 2000.''
    (c) Conforming Amendments.--
            (1) Subparagraph (C) of section 25(e)(1) of such Code is 
        amended by inserting ``and section 23'' after ``this section''.
            (2) Sections 86(b)(2)(A) and 135(c)(4)(A) of such Code are 
        each amended by inserting ``137,'' before ``911''.
            (3) Clause (i) of section 219(g)(3)(A) of such Code is 
        amended by inserting ``, 137,'' before ``and 911''.
            (4) Clause (ii) of section 469(i)(3)(E) of such Code is 
        amended to read as follows:
                            ``(ii) the amounts excludable from gross 
                        income under sections 135 and 137,''.
            (5) Subsection (a) of section 1016 of such Code is amended 
        by striking ``and'' at the end of paragraph (24), by striking 
        the period at the end of paragraph (25) and inserting ``, 
        and'', and by adding at the end the following new paragraph:
            ``(26) to the extent provided in sections 23(g) and 
        137(e).''
            (6) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 22 the following new item:

``Sec. 23. Adoption expenses.''
            (7) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 137 and inserting the following:

``Sec. 137. Adoption assistance programs.
``Sec. 138. Cross reference to other Acts.''
    (d) Study and Report.--The Secretary of the Treasury shall study 
the effect on adoptions of the tax credit and gross income exclusion 
established by the amendments made by this section and shall submit a 
report regarding the study to the Committee on Finance of the Senate 
and the Committee on Ways and Means of the House of Representatives not 
later than January 1, 2000.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

           <DELETED>TITLE II--INTERETHNIC ADOPTION</DELETED>

<DELETED>SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC 
              ADOPTION.</DELETED>

<DELETED>    (a) State Plan Requirements.--Section 471(a) of the Social 
Security Act (42 U.S.C 671(a)) is amended--</DELETED>
        <DELETED>    (1) by striking ``and'' at the end of paragraph 
        (16);</DELETED>
        <DELETED>    (2) by striking the period at the end of paragraph 
        (17) and inserting ``; and''; and</DELETED>
        <DELETED>    (3) by adding at the end the following:</DELETED>
        <DELETED>    ``(18) not later than January 1, 1997, provides 
        that neither the State nor any other entity in the State that 
        receives funds from the Federal Government and is involved in 
        adoption or foster care placements may--</DELETED>
                <DELETED>    ``(A) deny to any person the opportunity 
                to become an adoptive or a foster parent, on the basis 
                of the race, color, or national origin of the person, 
                or of the child, involved; or</DELETED>
                <DELETED>    ``(B) delay or deny the placement of a 
                child for adoption or into foster care, on the basis of 
                the race, color, or national origin of the adoptive or 
                foster parent, or the child, involved.''.</DELETED>
<DELETED>    (b) Enforcement.--Section 474 of such Act (42 U.S.C. 674) 
is amended by adding at the end the following:</DELETED>
<DELETED>    ``(d)(1) If a State's program operated under this part is 
found, as a result of a review conducted under section 1123, to have 
violated section 471(a)(18) during a quarter with respect to any 
person, then, notwithstanding subsection (a) of this section and any 
regulations promulgated under section 1123(b)(3), the Secretary shall 
reduce the amount otherwise payable to the State under this part, for 
the quarter and for each subsequent quarter before the 1st quarter for 
which the State program is found, as a result of such a review, not to 
have violated section 471(a)(18) with respect to any person, by--
</DELETED>
        <DELETED>    ``(A) 2 percent of such otherwise payable amount, 
        in the case of the 1st such finding with respect to the 
        State;</DELETED>
        <DELETED>    ``(B) 5 percent of such otherwise payable amount, 
        in the case of the 2nd such finding with respect to the State; 
        or</DELETED>
        <DELETED>    ``(C) 10 percent of such otherwise payable amount, 
        in the case of the 3rd or subsequent such finding with respect 
        to the State.</DELETED>
<DELETED>    ``(2) Any other entity which is in a State that receives 
funds under this part and which violates section 471(a)(18) during a 
quarter with respect to any person shall remit to the Secretary all 
funds that were paid by the State to the entity during the quarter from 
such funds.</DELETED>
<DELETED>    ``(3)(A) Any individual who is aggrieved by a violation of 
section 471(a)(18) by a State or other entity may bring an action 
seeking relief from the State or other entity in any United States 
district court.</DELETED>
<DELETED>    ``(B) An action under this paragraph may not be brought 
more than 2 years after the date the alleged violation 
occurred.</DELETED>
<DELETED>    ``(4) This subsection shall not be construed to affect the 
application of the Indian Child Welfare Act of 1978.''.</DELETED>
<DELETED>    (c) Civil Rights.--</DELETED>
        <DELETED>    (1) Prohibited conduct.--A person or government 
        that is involved in adoption or foster care placements may 
        not--</DELETED>
                <DELETED>    (A) deny to any individual the opportunity 
                to become an adoptive or a foster parent, on the basis 
                of the race, color, or national origin of the 
                individual, or of the child, involved; or</DELETED>
                <DELETED>    (B) delay or deny the placement of a child 
                for adoption or into foster care, on the basis of the 
                race, color, or national origin of the adoptive or 
                foster parent, or the child, involved.</DELETED>
        <DELETED>    (2) Enforcement.--Noncompliance with paragraph (1) 
        is deemed a violation of title VI of the Civil Rights Act of 
        1964.</DELETED>
        <DELETED>    (3) No effect on the indian child welfare act of 
        1978.--This subsection shall not be construed to affect the 
        application of the Indian Child Welfare Act of 1978.</DELETED>
<DELETED>    (d) Conforming Repeal.--Section 553 of the Howard M. 
Metzenbaum Multiethnic Placement Act of 1994 (42 U.S.C. 5115a) is 
repealed.</DELETED>

                     TITLE II--INTERETHNIC ADOPTION

SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION.

    (a) State Plan Requirements.--Section 471(a) of the Social Security 
Act (42 U.S.C 671(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (16);
            (2) by striking the period at the end of paragraph (17) and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(18) not later than January 1, 1997, provides that 
        neither the State nor any other entity in the State that 
        receives funds from the Federal Government and is involved in 
        adoption or foster care placements may--
                    ``(A) deny to any person the opportunity to become 
                an adoptive or a foster parent, on the basis of the 
                race, color, or national origin of the person, or of 
                the child, involved; or
                    ``(B) delay or deny the placement of a child for 
                adoption or into foster care, on the basis of the race, 
                color, or national origin of the adoptive or foster 
                parent, or the child, involved.''.
    (b) Enforcement.--Section 474 of such Act (42 U.S.C. 674) is 
amended by adding at the end the following:
    ``(d) Penalties for Violations of Interethnic Adoption 
Requirements.--
            ``(1) State violations.--If, during a fiscal year, a 
        State's program operated under this part is found, as a result 
        of a completed review under section 1123A, including the 
        completion of any administrative appeal or judicial review 
        conducted under subsection (c) of such section, to have 
        violated section 471(a)(18) during a quarter of such fiscal 
        year with respect to a person, then, notwithstanding subsection 
        (a) of this section and any regulations promulgated under 
        section 1123A(b)(3), the Secretary shall reduce the amount 
        otherwise payable to the State under this part, for that fiscal 
        year quarter and for any subsequent quarter of such fiscal 
        year, until the State program is found, as a result of a 
        subsequent review under section 1123A, not to have violated 
        section 471(a)(18) with respect to such person, or no penalty 
        remains to be carried forward under paragraph (2)(B).
            ``(2) Amount of reduction.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the amount otherwise payable to a State under this part 
                shall be reduced as follows:
                            ``(i) 2 percent of such otherwise payable 
                        amount, in the case of the 1st such finding for 
                        the fiscal year with respect to the State.
                            ``(ii) 5 percent of such otherwise payable 
                        amount, in the case of the 2nd such finding for 
                        the fiscal year with respect to the State.
                            ``(iii) 10 percent of such otherwise 
                        payable amount, in the case of the 3rd or 
                        subsequent such finding for the fiscal year 
                        with respect to the State.
                    ``(B) Limitation on amount of penalty.--
                            ``(i) In general.--In imposing the 
                        penalties described in this subsection, the 
                        Secretary shall not reduce any quarterly 
                        payment to a State by more than 25 percent.
                            ``(ii) Carryforward of unrecovered 
                        penalties.--To the extent that clause (i) 
                        prevents the Secretary from recovering during a 
                        fiscal year the full amount of all penalties 
                        imposed on a State under this subsection for 
                        such fiscal year, the Secretary shall apply any 
                        remaining amount of such penalties to the 
                        amount payable to the State under this part for 
                        the immediately succeeding fiscal year quarter.
            ``(3) Private violations.--Any other entity which is in a 
        State that receives funds under this part and which violates 
        section 471(a)(18) during a fiscal year quarter with respect to 
        any person shall remit to the Secretary all funds that were 
        paid by the State to the entity during such quarter from such 
        funds.
            ``(4) Private cause of action.--
                    ``(A) In general.--Any individual who is aggrieved 
                by a violation of section 471(a)(18) by a State or 
                other entity may bring an action seeking relief from 
                the State or other entity in any United States district 
                court.
                    ``(B) Statute of limitations.--An action under this 
                paragraph may not be brought more than 2 years after 
                the date the alleged violation occurred.
            ``(5) Rule of construction.--This subsection shall not be 
        construed to affect the application of the Indian Child Welfare 
        Act of 1978.''.
    (c) Civil Rights.--
            (1) Prohibited conduct.--A person or government that is 
        involved in adoption or foster care placements may not--
                    (A) deny to any individual the opportunity to 
                become an adoptive or a foster parent, on the basis of 
                the race, color, or national origin of the individual, 
                or of the child, involved; or
                    (B) delay or deny the placement of a child for 
                adoption or into foster care, on the basis of the race, 
                color, or national origin of the adoptive or foster 
                parent, or the child, involved.
            (2) Enforcement.--Noncompliance with paragraph (1) is 
        deemed a violation of title VI of the Civil Rights Act of 1964.
            (3) No effect on the indian child welfare act of 1978.--
        This subsection shall not be construed to affect the 
        application of the Indian Child Welfare Act of 1978.
    (d) Conforming Amendments.--
            (1) Repeal.--Section 553 of the Howard M. Metzenbaum 
        Multiethnic Placement Act of 1994 (42 U.S.C. 5115a) is 
        repealed.
            (2) Redesignation of section 1123.--The Social Security Act 
        is amended by redesignating section 1123, the second place it 
        appears (42 U.S.C. 1320a-1a), as section 1123A.

   TITLE III--CHILD CUSTODY PROCEEDINGS AFFECTED BY THE INDIAN CHILD 
                          WELFARE ACT OF 1978

SEC. 301. INAPPLICABILITY OF THE INDIAN CHILD WELFARE ACT OF 1978 TO 
              CHILD CUSTODY PROCEEDINGS INVOLVING A CHILD WHOSE PARENTS 
              DO NOT MAINTAIN AFFILIATION WITH THEIR INDIAN TRIBE.

    Title I of the Indian Child Welfare Act of 1978 (25 U.S.C. 1911 et 
seq.) is amended by adding at the end the following:
    ``Sec. 114. (a) This title does not apply to any child custody 
proceeding involving a child who does not reside or is not domiciled 
within a reservation unless--
            ``(1) at least one of the child's biological parents is of 
        Indian descent; and
            ``(2) at least one of the child's biological parents 
        maintains significant social, cultural, or political 
        affiliation with the Indian tribe of which either parent is a 
        member.
    ``(b) The factual determination as to whether a biological parent 
maintains significant social, cultural, or political affiliation with 
the Indian tribe of which either parent is a member shall be based on 
such affiliation as of the time of the child custody proceeding.
    ``(c) The determination that this title does not apply pursuant to 
subsection (a) is final, and, thereafter, this title shall not be the 
basis for determining jurisdiction over any child custody proceeding 
involving the child.''.

SEC. 302. MEMBERSHIP AND CHILD CUSTODY PROCEEDINGS.

    Title I of the Indian Child Welfare Act of 1978 (25 U.S.C. 1911 et 
seq.), as amended by section 301 of this title, is further amended by 
adding at the end the following:
    ``Sec. 115. (a) A person who attains the age of 18 years before 
becoming a member of an Indian tribe may become a member of an Indian 
tribe only upon the person's written consent.
    ``(b) For the purposes of any child custody proceeding involving an 
Indian child, membership in an Indian tribe shall be effective from the 
actual date of admission to membership in the Indian tribe and shall 
not be given retroactive effect.''.

SEC. 303. EFFECTIVE DATE.

    The amendments made by this title shall take effect on the date of 
the enactment of this Act and shall apply with respect to any child 
custody proceeding in which a final decree has not been entered as of 
such date.

                       TITLE IV--REVENUE OFFSETS

SEC. 400. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title 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.

   <DELETED>Subtitle A--Exclusion for Energy Conservation Subsidies 
     Limited to Subsidies With Respect to Dwelling Units</DELETED>

<DELETED>SEC. 401. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED 
              TO SUBSIDIES WITH RESPECT TO DWELLING UNITS.</DELETED>

<DELETED>    (a) In General.--Paragraph (1) of section 136(c) (defining 
energy conservation measure) is amended by striking ``energy demand--'' 
and all that follows and inserting ``energy demand with respect to a 
dwelling unit.''</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Subsection (a) of section 136 is amended to 
        read as follows:</DELETED>
<DELETED>    ``(a) Exclusion.--Gross income shall not include the value 
of any subsidy provided (directly or indirectly) by a public utility to 
a customer for the purchase or installation of any energy conservation 
measure.''</DELETED>
        <DELETED>    (2) Paragraph (2) of section 136(c) is amended--
        </DELETED>
                <DELETED>    (A) by striking subparagraph (A) and by 
                redesignating subparagraphs (B) and (C) as 
                subparagraphs (A) and (B), respectively, and</DELETED>
                <DELETED>    (B) by striking ``and special rules'' in 
                the paragraph heading.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to amounts received after December 31, 1996, unless 
received pursuant to a written binding contract in effect on September 
13, 1995, and at all times thereafter.</DELETED>

      <DELETED>Subtitle B--Foreign Trust Tax Compliance</DELETED>

<DELETED>SEC. 411. IMPROVED INFORMATION REPORTING ON FOREIGN 
              TRUSTS.</DELETED>

<DELETED>    (a) In General.--Section 6048 (relating to returns as to 
certain foreign trusts) is amended to read as follows:</DELETED>

<DELETED>``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN 
              TRUSTS.</DELETED>

<DELETED>    ``(a) Notice of Certain Events.--</DELETED>
        <DELETED>    ``(1) General rule.--On or before the 90th day (or 
        such later day as the Secretary may prescribe) after any 
        reportable event, the responsible party shall provide written 
        notice of such event to the Secretary in accordance with 
        paragraph (2).</DELETED>
        <DELETED>    ``(2) Contents of notice.--The notice required by 
        paragraph (1) shall contain such information as the Secretary 
        may prescribe, including--</DELETED>
                <DELETED>    ``(A) the amount of money or other 
                property (if any) transferred to the trust in 
                connection with the reportable event, and</DELETED>
                <DELETED>    ``(B) the identity of the trust and of 
                each trustee and beneficiary (or class of 
                beneficiaries) of the trust.</DELETED>
        <DELETED>    ``(3) Reportable event.--For purposes of this 
        subsection--</DELETED>
                <DELETED>    ``(A) In general.--The term `reportable 
                event' means--</DELETED>
                        <DELETED>    ``(i) the creation of any foreign 
                        trust by a United States person,</DELETED>
                        <DELETED>    ``(ii) the transfer of any money 
                        or property (directly or indirectly) to a 
                        foreign trust by a United States person, 
                        including a transfer by reason of death, 
                        and</DELETED>
                        <DELETED>    ``(iii) the death of a citizen or 
                        resident of the United States if--</DELETED>
                                <DELETED>    ``(I) the decedent was 
                                treated as the owner of any portion of 
                                a foreign trust under the rules of 
                                subpart E of part I of subchapter J of 
                                chapter 1, or</DELETED>
                                <DELETED>    ``(II) any portion of a 
                                foreign trust was included in the gross 
                                estate of the decedent.</DELETED>
                <DELETED>    ``(B) Exceptions.--</DELETED>
                        <DELETED>    ``(i) Fair market value sales.--
                        Subparagraph (A)(ii) shall not apply to any 
                        transfer of property to a trust in exchange for 
                        consideration of at least the fair market value 
                        of the transferred property. For purposes of 
                        the preceding sentence, consideration other 
                        than cash shall be taken into account at its 
                        fair market value and the rules of section 
                        679(a)(3) shall apply.</DELETED>
                        <DELETED>    ``(ii) Deferred compensation and 
                        charitable trusts.--Subparagraph (A) shall not 
                        apply with respect to a trust which is--
                        </DELETED>
                                <DELETED>    ``(I) described in section 
                                402(b), 404(a)(4), or 404A, 
                                or</DELETED>
                                <DELETED>    ``(II) determined by the 
                                Secretary to be described in section 
                                501(c)(3).</DELETED>
        <DELETED>    ``(4) Responsible party.--For purposes of this 
        subsection, the term `responsible party' means--</DELETED>
                <DELETED>    ``(A) the grantor in the case of the 
                creation of an inter vivos trust,</DELETED>
                <DELETED>    ``(B) the transferor in the case of a 
                reportable event described in paragraph (3)(A)(ii) 
                other than a transfer by reason of death, and</DELETED>
                <DELETED>    ``(C) the executor of the decedent's 
                estate in any other case.</DELETED>
<DELETED>    ``(b) United States Grantor of Foreign Trust.--</DELETED>
        <DELETED>    ``(1) In general.--If, at any time during any 
        taxable year of a United States person, such person is treated 
        as the owner of any portion of a foreign trust under the rules 
        of subpart E of part I of subchapter J of chapter 1, such 
        person shall be responsible to ensure that--</DELETED>
                <DELETED>    ``(A) such trust makes a return for such 
                year which sets forth a full and complete accounting of 
                all trust activities and operations for the year, the 
                name of the United States agent for such trust, and 
                such other information as the Secretary may prescribe, 
                and</DELETED>
                <DELETED>    ``(B) such trust furnishes such 
                information as the Secretary may prescribe to each 
                United States person (i) who is treated as the owner of 
                any portion of such trust or (ii) who receives 
                (directly or indirectly) any distribution from the 
                trust.</DELETED>
        <DELETED>    ``(2) Trusts not having united states agent.--
        </DELETED>
                <DELETED>    ``(A) In general.--If the rules of this 
                paragraph apply to any foreign trust, the determination 
                of amounts required to be taken into account with 
                respect to such trust by a United States person under 
                the rules of subpart E of part I of subchapter J of 
                chapter 1 shall be determined by the 
                Secretary.</DELETED>
                <DELETED>    ``(B) United states agent required.--The 
                rules of this paragraph shall apply to any foreign 
                trust to which paragraph (1) applies unless such trust 
                agrees (in such manner, subject to such conditions, and 
                at such time as the Secretary shall prescribe) to 
                authorize a United States person to act as such trust's 
                limited agent solely for purposes of applying sections 
                7602, 7603, and 7604 with respect to--</DELETED>
                        <DELETED>    ``(i) any request by the Secretary 
                        to examine records or produce testimony related 
                        to the proper treatment of amounts required to 
                        be taken into account under the rules referred 
                        to in subparagraph (A), or</DELETED>
                        <DELETED>    ``(ii) any summons by the 
                        Secretary for such records or 
                        testimony.</DELETED>
                <DELETED>The appearance of persons or production of 
                records by reason of a United States person being such 
                an agent shall not subject such persons or records to 
                legal process for any purpose other than determining 
                the correct treatment under this title of the amounts 
                required to be taken into account under the rules 
                referred to in subparagraph (A). A foreign trust which 
                appoints an described in this subparagraph shall not be 
                considered to have an office or a permanent 
                establishment in the United States, or to be engaged in 
                a trade or business in the United States, solely 
                because of the activities of such agent pursuant to 
                this subsection.</DELETED>
                <DELETED>    ``(C) Other rules to apply.--Rules similar 
                to the rules of paragraphs (2) and (4) of section 
                6038A(e) shall apply for purposes of this 
                paragraph.</DELETED>
<DELETED>    ``(c) Reporting by United States Beneficiaries of Foreign 
Trusts.--</DELETED>
        <DELETED>    ``(1) In general.--If any United States person 
        receives (directly or indirectly) during any taxable year of 
        such person any distribution from a foreign trust, such person 
shall make a return with respect to such trust for such year which 
includes--</DELETED>
                <DELETED>    ``(A) the name of such trust,</DELETED>
                <DELETED>    ``(B) the aggregate amount of the 
                distributions so received from such trust during such 
                taxable year, and</DELETED>
                <DELETED>    ``(C) such other information as the 
                Secretary may prescribe.</DELETED>
        <DELETED>    ``(2) Inclusion in income if records not 
        provided.--</DELETED>
                <DELETED>    ``(A) In general.--If adequate records are 
                not provided to the Secretary to determine the proper 
                treatment of any distribution from a foreign trust, 
                such distribution shall be treated as an accumulation 
                distribution includible in the gross income of the 
                distributee under chapter 1. To the extent provided in 
                regulations, the preceding sentence shall not apply if 
                the foreign trust elects to be subject to rules similar 
                to the rules of subsection (b)(2)(B).</DELETED>
                <DELETED>    ``(B) Application of accumulation 
                distribution rules.--For purposes of applying section 
                668 in a case to which subparagraph (A) applies, the 
                applicable number of years for purposes of section 
                668(a) shall be </DELETED>\<DELETED>1/2</DELETED>\ 
                <DELETED>of the number of years the trust has been in 
                existence.</DELETED>
<DELETED>    ``(d) Special Rules.--</DELETED>
        <DELETED>    ``(1) Determination of whether united states 
        person makes transfer or receives distribution.--For purposes 
        of this section, in determining whether a United States person 
        makes a transfer to, or receives a distribution from, a foreign 
        trust, the fact that a portion of such trust is treated as 
        owned by another person under the rules of subpart E of part I 
        of subchapter J of chapter 1 shall be disregarded.</DELETED>
        <DELETED>    ``(2) Domestic trusts with foreign activities.--To 
        the extent provided in regulations, a trust which is a United 
        States person shall be treated as a foreign trust for purposes 
        of this section and section 6677 if such trust has substantial 
        activities, or holds substantial property, outside the United 
        States.</DELETED>
        <DELETED>    ``(3) Time and manner of filing information.--Any 
        notice or return required under this section shall be made at 
        such time and in such manner as the Secretary shall 
        prescribe.</DELETED>
        <DELETED>    ``(4) Modification of return requirements.--The 
        Secretary is authorized to suspend or modify any requirement of 
        this section if the Secretary determines that the United States 
        has no significant tax interest in obtaining the required 
        information.''.</DELETED>
<DELETED>    (b) Increased Penalties.--Section 6677 (relating to 
failure to file information returns with respect to certain foreign 
trusts) is amended to read as follows:</DELETED>

<DELETED>``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO 
              CERTAIN FOREIGN TRUSTS.</DELETED>

<DELETED>    ``(a) Civil Penalty.--In addition to any criminal penalty 
provided by law, if any notice or return required to be filed by 
section 6048--</DELETED>
        <DELETED>    ``(1) is not filed on or before the time provided 
        in such section, or</DELETED>
        <DELETED>    ``(2) does not include all the information 
        required pursuant to such section or includes incorrect 
        information,</DELETED>
<DELETED>the person required to file such notice or return shall pay a 
penalty equal to 35 percent of the gross reportable amount. If any 
failure described in the preceding sentence continues for more than 90 
days after the day on which the Secretary mails notice of such failure 
to the person required to pay such penalty, such person shall pay a 
penalty (in addition to the amount determined under the preceding 
sentence) of $10,000 for each 30-day period (or fraction thereof) 
during which such failure continues after the expiration of such 90-day 
period. In no event shall the penalty under this subsection with 
respect to any failure exceed the gross reportable amount.</DELETED>
<DELETED>    ``(b) Special Rules for Returns Under Section 6048(b).--In 
the case of a return required under section 6048(b)--</DELETED>
        <DELETED>    ``(1) the United States person referred to in such 
        section shall be liable for the penalty imposed by subsection 
        (a), and</DELETED>
        <DELETED>    ``(2) subsection (a) shall be applied by 
        substituting `5 percent' for `35 percent'.</DELETED>
<DELETED>    ``(c) Gross Reportable Amount.--For purposes of subsection 
(a), the term `gross reportable amount' means--</DELETED>
        <DELETED>    ``(1) the gross value of the property involved in 
        the event (determined as of the date of the event) in the case 
        of a failure relating to section 6048(a),</DELETED>
        <DELETED>    ``(2) the gross value of the portion of the 
        trust's assets at the close of the year treated as owned by the 
        United States person in the case of a failure relating to 
        section 6048(b)(1), and</DELETED>
        <DELETED>    ``(3) the gross amount of the distributions in the 
        case of a failure relating to section 6048(c).</DELETED>
<DELETED>    ``(d) Reasonable Cause Exception.--No penalty shall be 
imposed by this section on any failure which is shown to be due to 
reasonable cause and not due to willful neglect. The fact that a 
foreign jurisdiction would impose a civil or criminal penalty on the 
taxpayer (or any other person) for disclosing the required information 
is not reasonable cause.</DELETED>
<DELETED>    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of 
chapter 63 (relating to deficiency procedures for income, estate, gift, 
and certain excise taxes) shall not apply in respect of the assessment 
or collection of any penalty imposed by subsection (a).''.</DELETED>
<DELETED>    (c) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Paragraph (2) of section 6724(d) is amended by 
        striking ``or'' at the end of subparagraph (S), by striking the 
        period at the end of subparagraph (T) and inserting ``, or'', 
        and by inserting after subparagraph (T) the following new 
        subparagraph:</DELETED>
                <DELETED>    ``(U) section 6048(b)(1)(B) (relating to 
                foreign trust reporting requirements).''.</DELETED>
        <DELETED>    (2) The table of sections for subpart B of part 
        III of subchapter A of chapter 61 is amended by striking the 
        item relating to section 6048 and inserting the following new 
        item:</DELETED>

<DELETED>``Sec. 6048. Information with respect to certain foreign 
                            trusts.''.
        <DELETED>    (3) The table of sections for part I of subchapter 
        B of chapter 68 is amended by striking the item relating to 
        section 6677 and inserting the following new item:</DELETED>

<DELETED>``Sec. 6677. Failure to file information with respect to 
                            certain foreign trusts.''.
<DELETED>    (d) Effective Dates.--</DELETED>
        <DELETED>    (1) Reportable events.--To the extent related to 
        subsection (a) of section 6048 of the Internal Revenue Code of 
        1986, as amended by this section, the amendments made by this 
        section shall apply to reportable events (as defined in such 
        section 6048) occurring after the date of the enactment of this 
        Act.</DELETED>
        <DELETED>    (2) Grantor trust reporting.--To the extent 
        related to subsection (b) of such section 6048, the amendments 
        made by this section shall apply to taxable years of United 
        States persons beginning after December 31, 1995.</DELETED>
        <DELETED>    (3) Reporting by united states beneficiaries.--To 
        the extent related to subsection (c) of such section 6048, the 
        amendments made by this section shall apply to distributions 
        received after the date of the enactment of this Act.</DELETED>

<DELETED>SEC. 412. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN 
              RELATING TO TRANSFERS TO FOREIGN ENTITIES.</DELETED>

<DELETED>    (a) In General.--Section 1494 is amended by adding at the 
end the following new subsection:</DELETED>
<DELETED>    ``(c) Penalty.--In the case of any failure to file a 
return required by the Secretary with respect to any transfer described 
in section 1491, the person required to file such return shall be 
liable for the penalties provided in section 6677 in the same manner as 
if such failure were a failure to file a notice under section 
6048(a).''.</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to transfers after the date of the enactment of this 
Act.</DELETED>

<DELETED>SEC. 413. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS 
              HAVING ONE OR MORE UNITED STATES BENEFICIARIES.</DELETED>

<DELETED>    (a) Treatment of Trust Obligations, Etc.--</DELETED>
        <DELETED>    (1) Paragraph (2) of section 679(a) is amended by 
        striking subparagraph (B) and inserting the 
        following:</DELETED>
                <DELETED>    ``(B) Transfers at fair market value.--To 
                any transfer of property to a trust in exchange for 
                consideration of at least the fair market value of the 
                transferred property. For purposes of the preceding 
                sentence, consideration other than cash shall be taken 
                into account at its fair market value.''.</DELETED>
        <DELETED>    (2) Subsection (a) of section 679 (relating to 
        foreign trusts having one or more United States beneficiaries) 
        is amended by adding at the end the following new 
        paragraph:</DELETED>
        <DELETED>    ``(3) Certain obligations not taken into account 
        under fair market value exception.--</DELETED>
                <DELETED>    ``(A) In general.--In determining whether 
                paragraph (2)(B) applies to any transfer by a person 
                described in clause (ii) or (iii) of subparagraph (C), 
                there shall not be taken into account--</DELETED>
                        <DELETED>    ``(i) except as provided in 
                        regulations, any obligation of a person 
                        described in subparagraph (C), and</DELETED>
                        <DELETED>    ``(ii) to the extent provided in 
                        regulations, any obligation which is guaranteed 
                        by a person described in subparagraph 
                        (C).</DELETED>
                <DELETED>    ``(B) Treatment of principal payments on 
                obligation.--Principal payments by the trust on any 
                obligation referred to in subparagraph (A) shall be 
                taken into account on and after the date of the payment 
                in determining the portion of the trust attributable to 
                the property transferred.</DELETED>
                <DELETED>    ``(C) Persons described.--The persons 
                described in this subparagraph are--</DELETED>
                        <DELETED>    ``(i) the trust,</DELETED>
                        <DELETED>    ``(ii) any grantor or beneficiary 
                        of the trust, and</DELETED>
                        <DELETED>    ``(iii) any person who is related 
                        (within the meaning of section 643(i)(2)(B)) to 
                        any grantor or beneficiary of the 
                        trust.''.</DELETED>
<DELETED>    (b) Exemption of Transfers to Charitable Trusts.--
Subsection (a) of section 679 is amended by striking ``section 
404(a)(4) or 404A'' and inserting ``section 
6048(a)(3)(B)(ii)''.</DELETED>
<DELETED>    (c) Other Modifications.--Subsection (a) of section 679 is 
amended by adding at the end the following new paragraphs:</DELETED>
        <DELETED>    ``(4) Special rules applicable to foreign grantor 
        who later becomes a united states person.--</DELETED>
                <DELETED>    ``(A) In general.--If a nonresident alien 
                individual has a residency starting date within 5 years 
                after directly or indirectly transferring property to a 
                foreign trust, this section and section 6048 shall be 
                applied as if such individual transferred to such trust 
                on the residency starting date an amount equal to the 
                portion of such trust attributable to the property 
                transferred by such individual to such trust in such 
                transfer.</DELETED>
                <DELETED>    ``(B) Treatment of undistributed income.--
                For purposes of this section, undistributed net income 
                for periods before such individual's residency starting 
                date shall be taken into account in determining the 
                portion of the trust which is attributable to property 
                transferred by such individual to such trust but shall 
                not otherwise be taken into account.</DELETED>
                <DELETED>    ``(C) Residency starting date.--For 
                purposes of this paragraph, an individual's residency 
                starting date is the residency starting date determined 
                under section 7701(b)(2)(A).</DELETED>
        <DELETED>    ``(5) Outbound trust migrations.--If--</DELETED>
                <DELETED>    ``(A) an individual who is a citizen or 
                resident of the United States transferred property to a 
                trust which was not a foreign trust, and</DELETED>
                <DELETED>    ``(B) such trust becomes a foreign trust 
                while such individual is alive,</DELETED>
        <DELETED>then this section and section 6048 shall be applied as 
        if such individual transferred to such trust on the date such 
        trust becomes a foreign trust an amount equal to the portion of 
        such trust attributable to the property previously transferred 
        by such individual to such trust. A rule similar to the rule of 
        paragraph (4)(B) shall apply for purposes of this 
        paragraph.''.</DELETED>
<DELETED>    (d) Modifications Relating to Whether Trust Has United 
States Beneficiaries.--Subsection (c) of section 679 is amended by 
adding at the end the following new paragraph:</DELETED>
        <DELETED>    ``(3) Certain united states beneficiaries 
        disregarded.--A beneficiary shall not be treated as a United 
        States person in applying this section with respect to any 
        transfer of property to foreign trust if such beneficiary first 
        became a United States person more than 5 years after the date 
        of such transfer.''.</DELETED>
<DELETED>    (e) Technical Amendment.--Subparagraph (A) of section 
679(c)(2) is amended to read as follows:</DELETED>
                <DELETED>    ``(A) in the case of a foreign 
                corporation, such corporation is a controlled foreign 
                corporation (as defined in section 
                957(a)),''.</DELETED>
<DELETED>    (f) Regulations.--Section 679 is amended by adding at the 
end the following new subsection:</DELETED>
<DELETED>    ``(d) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.</DELETED>
<DELETED>    (g) Effective Date.--The amendments made by this section 
shall apply to transfers of property after February 6, 1995.</DELETED>

<DELETED>SEC. 414. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER 
              GRANTOR TRUST RULES.</DELETED>

<DELETED>    (a) General Rule.--</DELETED>
        <DELETED>    (1) Subsection (f) of section 672 (relating to 
        special rule where grantor is foreign person) is amended to 
        read as follows:</DELETED>
<DELETED>    ``(f) Subpart Not To Result in Foreign Ownership.--
</DELETED>
        <DELETED>    ``(1) In general.--Notwithstanding any other 
        provision of this subpart, this subpart shall apply only to the 
        extent such application results in an amount (if any) being 
        currently taken into account (directly or through 1 or more 
        entities) under this chapter in computing the income of a 
        citizen or resident of the United States or a domestic 
        corporation.</DELETED>
        <DELETED>    ``(2) Exceptions.--</DELETED>
                <DELETED>    ``(A) Certain revocable and irrevocable 
                trusts.--Paragraph (1) shall not apply to any portion 
                of a trust if--</DELETED>
                        <DELETED>    ``(i) the power to revest 
                        absolutely in the grantor title to the trust 
                        property to which such portion is attributable 
                        is exercisable solely by the grantor without 
                        the approval or consent of any other person or 
                        with the consent of a related or subordinate 
                        party who is subservient to the grantor, 
                        or</DELETED>
                        <DELETED>    ``(ii) the only amounts 
                        distributable from such portion (whether income 
                        or corpus) during the lifetime of the grantor 
                        are amounts distributable to the grantor or the 
                        spouse of the grantor.</DELETED>
                <DELETED>    ``(B) Compensatory trusts.--Except as 
                provided in regulations, paragraph (1) shall not apply 
                to any portion of a trust distributions from which are 
                taxable as compensation for services 
                rendered.</DELETED>
        <DELETED>    ``(3) Special rules.--Except as otherwise provided 
        in regulations prescribed by the Secretary--</DELETED>
                <DELETED>    ``(A) a controlled foreign corporation (as 
                defined in section 957) shall be treated as a domestic 
                corporation for purposes of paragraph (1), 
                and</DELETED>
                <DELETED>    ``(B) paragraph (1) shall not apply for 
                purposes of applying section 1296.</DELETED>
        <DELETED>    ``(4) Recharacterization of purported gifts.--In 
        the case of any transfer directly or indirectly from a 
        partnership or foreign corporation which the transferee treats 
        as a gift or bequest, the Secretary may recharacterize such 
        transfer in such circumstances as the Secretary determines to 
        be appropriate to prevent the avoidance of the purposes of this 
        subsection.</DELETED>
        <DELETED>    ``(5) Special rule where grantor is foreign 
        person.--If--</DELETED>
                <DELETED>    ``(A) but for this subsection, a foreign 
                person would be treated as the owner of any portion of 
                a trust, and</DELETED>
                <DELETED>    ``(B) such trust has a beneficiary who is 
                a United States person,</DELETED>
        <DELETED>such beneficiary shall be treated as the grantor of 
        such portion to the extent such beneficiary or any member of 
        such beneficiary's family (within the meaning of section 
        267(c)(4)) has made (directly or indirectly) transfers of 
        property (other than in a sale for full and adequate 
        consideration) to such foreign person. For purposes of the 
        preceding sentence, any gift shall not be taken into account to 
        the extent such gift would be excluded from taxable gifts under 
        section 2503(b).</DELETED>
        <DELETED>    ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to carry 
        out the purposes of this subsection, including regulations 
        providing that paragraph (1) shall not apply in appropriate 
        cases.''.</DELETED>
        <DELETED>    (2) The last sentence of subsection (c) of section 
        672 of such Code is amended by inserting ``subsection (f) and'' 
        before ``sections 674''.</DELETED>
<DELETED>    (b) Credit for Certain Taxes.--</DELETED>
        <DELETED>    (1) Paragraph (2) of section 665(d) is amended by 
        adding at the end the following new sentence: ``Under rules or 
        regulations prescribed by the Secretary, in the case of any 
        foreign trust of which the settlor or another person would be 
        treated as owner of any portion of the trust under subpart E 
        but for section 672(f), the term `taxes imposed on the trust' 
        includes the allocable amount of any income, war profits, and 
        excess profits taxes imposed by any foreign country or 
        possession of the United States on the settlor or such other 
        person in respect of trust income.''.</DELETED>
        <DELETED>    (2) Paragraph (5) of section 901(b) is amended by 
        adding at the end the following new sentence: ``Under rules or 
        regulations prescribed by the Secretary, in the case of any 
        foreign trust of which the settlor or another person would be 
        treated as owner of any portion of the trust under subpart E 
        but for section 672(f), the allocable amount of any income, war 
        profits, and excess profits taxes imposed by any foreign 
        country or possession of the United States on the settlor or 
        such other person in respect of trust income.''.</DELETED>
<DELETED>    (c) Distributions by Certain Foreign Trusts Through 
Nominees.--</DELETED>
        <DELETED>    (1) Section 643 is amended by adding at the end 
        the following new subsection:</DELETED>
<DELETED>    ``(h) Distributions by Certain Foreign Trusts Through 
Nominees.--For purposes of this part, any amount paid to a United 
States person which is derived directly or indirectly from a foreign 
trust of which the payor is not the grantor shall be deemed in the year 
of payment to have been directly paid by the foreign trust to such 
United States person.''.</DELETED>
        <DELETED>    (2) Section 665 is amended by striking subsection 
        (c).</DELETED>
<DELETED>    (d) Effective Date.--</DELETED>
        <DELETED>    (1) In general.--Except as provided by paragraph 
        (2), the amendments made by this section shall take effect on 
        the date of the enactment of this Act.</DELETED>
        <DELETED>    (2) Exception for certain trusts.--The amendments 
        made by this section shall not apply to any trust--</DELETED>
                <DELETED>    (A) which is treated as owned by the 
                grantor under section 676 or 677 (other than subsection 
                (a)(3) thereof) of the Internal Revenue Code of 1986, 
                and</DELETED>
                <DELETED>    (B) which is in existence on September 19, 
                1995.</DELETED>
        <DELETED>The preceding sentence shall not apply to the portion 
        of any such trust attributable to any transfer to such trust 
        after September 19, 1995.</DELETED>
<DELETED>    (e) Transitional Rule.--If--</DELETED>
        <DELETED>    (1) by reason of the amendments made by this 
        section, any person other than a United States person ceases to 
        be treated as the owner of a portion of a domestic trust, 
        and</DELETED>
        <DELETED>    (2) before January 1, 1997, such trust becomes a 
        foreign trust, or the assets of such trust are transferred to a 
        foreign trust,</DELETED>
<DELETED>no tax shall be imposed by section 1491 of the Internal 
Revenue Code of 1986 by reason of such trust becoming a foreign trust 
or the assets of such trust being transferred to a foreign 
trust.</DELETED>

<DELETED>SEC. 415. INFORMATION REPORTING REGARDING FOREIGN 
              GIFTS.</DELETED>

<DELETED>    (a) In General.--Subpart A of part III of subchapter A of 
chapter 61 is amended by inserting after section 6039E the following 
new section:</DELETED>

<DELETED>``SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN 
              PERSONS.</DELETED>

<DELETED>    ``(a) In General.--If the value of the aggregate foreign 
gifts received by a United States person (other than an organization 
described in section 501(c) and exempt from tax under section 501(a)) 
during any taxable year exceeds $10,000, such United States person 
shall furnish (at such time and in such manner as the Secretary shall 
prescribe) such information as the Secretary may prescribe regarding 
each foreign gift received during such year.</DELETED>
<DELETED>    ``(b) Foreign Gift.--For purposes of this section, the 
term `foreign gift' means any amount received from a person other than 
a United States person which the recipient treats as a gift or bequest. 
Such term shall not include any qualified transfer (within the meaning 
of section 2503(e)(2)) or any distribution properly disclosed in a 
return under section 6048(c).</DELETED>
<DELETED>    ``(c) Penalty for Failure To File Information.--</DELETED>
        <DELETED>    ``(1) In general.--If a United States person fails 
        to furnish the information required by subsection (a) with 
        respect to any foreign gift within the time prescribed therefor 
        (including extensions)--</DELETED>
                <DELETED>    ``(A) the tax consequences of the receipt 
                of such gift shall be determined by the Secretary, 
                and</DELETED>
                <DELETED>    ``(B) such United States person shall pay 
                (upon notice and demand by the Secretary and in the 
                same manner as tax) an amount equal to 5 percent of the 
                amount of such foreign gift for each month for which 
                the failure continues (not to exceed 25 percent of such 
                amount in the aggregate).</DELETED>
        <DELETED>    ``(2) Reasonable cause exception.--Paragraph (1) 
        shall not apply to any failure to report a foreign gift if the 
        United States person shows that the failure is due to 
        reasonable cause and not due to willful neglect.</DELETED>
<DELETED>    ``(d) Cost-of-Living Adjustment.--In the case of any 
taxable year beginning after December 31, 1996, the $10,000 amount 
under subsection (a) shall be increased by an amount equal to the 
product of such amount and the cost-of-living adjustment for such 
taxable year under section 1(f)(3), except that subparagraph (B) 
thereof shall be applied by substituting `1995' for `1992'.</DELETED>
<DELETED>    ``(e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.</DELETED>
<DELETED>    (b) Clerical Amendment.--The table of sections for such 
subpart is amended by inserting after the item relating to section 
6039E the following new item:</DELETED>

<DELETED>``Sec. 6039F. Notice of large gifts received from foreign 
                            persons.''.
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to amounts received after the date of the enactment of this 
Act in taxable years ending after such date.</DELETED>

<DELETED>SEC. 416. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS 
              WHICH ARE NOT GRANTOR TRUSTS.</DELETED>

<DELETED>    (a) Modification of Interest Charge on Accumulation 
Distributions.--Subsection (a) of section 668 (relating to interest 
charge on accumulation distributions from foreign trusts) is amended to 
read as follows:</DELETED>
<DELETED>    ``(a) General Rule.--For purposes of the tax determined 
under section 667(a)--</DELETED>
        <DELETED>    ``(1) Interest determined using underpayment 
        rates.--The interest charge determined under this section with 
        respect to any distribution is the amount of interest which 
        would be determined on the partial tax computed under section 
        667(b) for the period described in paragraph (2) using the 
        rates and the method under section 6621 applicable to 
        underpayments of tax.</DELETED>
        <DELETED>    ``(2) Period.--For purposes of paragraph (1), the 
        period described in this paragraph is the period which begins 
        on the date which is the applicable number of years before the 
        date of the distribution and which ends on the date of the 
        distribution.</DELETED>
        <DELETED>    ``(3) Applicable number of years.--For purposes of 
        paragraph (2)--</DELETED>
                <DELETED>    ``(A) In general.--The applicable number 
                of years with respect to a distribution is the number 
                determined by dividing--</DELETED>
                        <DELETED>    ``(i) the sum of the products 
                        described in subparagraph (B) with respect to 
                        each undistributed income year, by</DELETED>
                        <DELETED>    ``(ii) the aggregate undistributed 
                        net income.</DELETED>
                <DELETED>The quotient determined under the preceding 
                sentence shall be rounded under procedures prescribed 
                by the Secretary.</DELETED>
                <DELETED>    ``(B) Product described.--For purposes of 
                subparagraph (A), the product described in this 
                subparagraph with respect to any undistributed income 
                year is the product of--</DELETED>
                        <DELETED>    ``(i) the undistributed net income 
                        for such year, and</DELETED>
                        <DELETED>    ``(ii) the sum of the number of 
                        taxable years between such year and the taxable 
                        year of the distribution (counting in each case 
                        the undistributed income year but not counting 
                        the taxable year of the 
                        distribution).</DELETED>
        <DELETED>    ``(4) Undistributed income year.--For purposes of 
        this subsection, the term `undistributed income year' means any 
        prior taxable year of the trust for which there is 
        undistributed net income, other than a taxable year during all 
        of which the beneficiary receiving the distribution was not a 
        citizen or resident of the United States.</DELETED>
        <DELETED>    ``(5) Determination of undistributed net income.--
        Notwithstanding section 666, for purposes of this subsection, 
        an accumulation distribution from the trust shall be treated as 
        reducing proportionately the undistributed net income for 
        undistributed income years.</DELETED>
        <DELETED>    ``(6) Periods before 1996.--Interest for the 
        portion of the period described in paragraph (2) which occurs 
        before January 1, 1996, shall be determined--</DELETED>
                <DELETED>    ``(A) by using an interest rate of 6 
                percent, and</DELETED>
                <DELETED>    ``(B) without compounding until January 1, 
                1996.''.</DELETED>
<DELETED>    (b) Abusive Transactions.--Section 643(a) is amended by 
inserting after paragraph (6) the following new paragraph:</DELETED>
        <DELETED>    ``(7) Abusive transactions.--The Secretary shall 
        prescribe such regulations as may be necessary or appropriate 
        to carry out the purposes of this part, including regulations 
        to prevent avoidance of such purposes.''.</DELETED>
<DELETED>    (c) Treatment of Loans From Trusts.--</DELETED>
        <DELETED>    (1) In general.--Section 643 (relating to 
        definitions applicable to subparts A, B, C, and D) is amended 
        by adding at the end the following new subsection:</DELETED>
<DELETED>    ``(i) Loans From Foreign Trusts.--For purposes of subparts 
B, C, and D--</DELETED>
        <DELETED>    ``(1) General rule.--Except as provided in 
        regulations, if a foreign trust makes a loan of cash or 
        marketable securities directly or indirectly to--</DELETED>
                <DELETED>    ``(A) any grantor or beneficiary of such 
                trust who is a United States person, or</DELETED>
                <DELETED>    ``(B) any United States person not 
                described in subparagraph (A) who is related to such 
                grantor or beneficiary,</DELETED>
        <DELETED>the amount of such loan shall be treated as a 
        distribution by such trust to such grantor or beneficiary (as 
        the case may be).</DELETED>
        <DELETED>    ``(2) Definitions and special rules.--For purposes 
        of this subsection--</DELETED>
                <DELETED>    ``(A) Cash.--The term `cash' includes 
                foreign currencies and cash equivalents.</DELETED>
                <DELETED>    ``(B) Related person.--</DELETED>
                        <DELETED>    ``(i) In general.--A person is 
                        related to another person if the relationship 
                        between such persons would result in a 
                        disallowance of losses under section 267 or 
                        707(b). In applying section 267 for purposes of 
                        the preceding sentence, section 267(c)(4) shall 
                        be applied as if the family of an individual 
                        includes the spouses of the members of the 
                        family.</DELETED>
                        <DELETED>    ``(ii) Allocation.--If any person 
                        described in paragraph (1)(B) is related to 
                        more than one person, the grantor or 
                        beneficiary to whom the treatment under this 
                        subsection applies shall be determined under 
                        regulations prescribed by the 
                        Secretary.</DELETED>
                <DELETED>    ``(C) Exclusion of tax-exempts.--The term 
                `United States person' does not include any entity 
                exempt from tax under this chapter.</DELETED>
                <DELETED>    ``(D) Trust not treated as simple trust.--
                Any trust which is treated under this subsection as 
                making a distribution shall be treated as not described 
                in section 651.</DELETED>
        <DELETED>    ``(3) Subsequent transactions regarding loan 
        principal.--If any loan is taken into account under paragraph 
        (1), any subsequent transaction between the trust and the 
        original borrower regarding the principal of the loan (by way 
        of complete or partial repayment, satisfaction, cancellation, 
        discharge, or otherwise) shall be disregarded for purposes of 
        this title.''.</DELETED>
        <DELETED>    (2) Technical amendment.--Paragraph (8) of section 
        7872(f) is amended by inserting ``, 643(i),'' before ``or 
        1274'' each place it appears.</DELETED>
<DELETED>    (d) Effective Dates.--</DELETED>
        <DELETED>    (1) Interest charge.--The amendment made by 
        subsection (a) shall apply to distributions after the date of 
        the enactment of this Act.</DELETED>
        <DELETED>    (2) Abusive transactions.--The amendment made by 
        subsection (b) shall take effect on the date of the enactment 
        of this Act.</DELETED>
        <DELETED>    (3) Loans from trusts.--The amendment made by 
        subsection (c) shall apply to loans of cash or marketable 
        securities made after September 19, 1995.</DELETED>

<DELETED>SEC. 417. RESIDENCE OF TRUSTS, ETC.</DELETED>

<DELETED>    (a) Treatment as United States Person.--</DELETED>
        <DELETED>    (1) In general.--Paragraph (30) of section 7701(a) 
        is amended by striking ``and'' at the end of subparagraph (C) 
        and by striking subparagraph (D) and by inserting the following 
        new subparagraphs:</DELETED>
                <DELETED>    ``(D) any estate (other than a foreign 
                estate, within the meaning of paragraph (31)), 
                and</DELETED>
                <DELETED>    ``(E) any trust if--</DELETED>
                        <DELETED>    ``(i) a court within the United 
                        States is able to exercise primary supervision 
                        over the administration of the trust, 
                        and</DELETED>
                        <DELETED>    ``(ii) one or more United States 
                        fiduciaries have the authority to control all 
                        substantial decisions of the 
                        trust.''.</DELETED>
        <DELETED>    (2) Conforming amendment.--Paragraph (31) of 
        section 7701(a) is amended to read as follows:</DELETED>
        <DELETED>    ``(31) Foreign estate or trust.--</DELETED>
                <DELETED>    ``(A) Foreign estate.--The term `foreign 
                estate' means an estate the income of which, from 
                sources without the United States which is not 
                effectively connected with the conduct of a trade or 
                business within the United States, is not includible in 
                gross income under subtitle A.</DELETED>
                <DELETED>    ``(B) Foreign trust.--The term `foreign 
                trust' means any trust other than a trust described in 
                subparagraph (E) of paragraph (30).''.</DELETED>
        <DELETED>    (3) Effective date.--The amendments made by this 
        subsection shall apply--</DELETED>
                <DELETED>    (A) to taxable years beginning after 
                December 31, 1996, or</DELETED>
                <DELETED>    (B) at the election of the trustee of a 
                trust, to taxable years ending after the date of the 
                enactment of this Act.</DELETED>
        <DELETED>Such an election, once made, shall be 
        irrevocable.</DELETED>
<DELETED>    (b) Domestic Trusts Which Become Foreign Trusts.--
</DELETED>
        <DELETED>    (1) In general.--Section 1491 (relating to 
        imposition of tax on transfers to avoid income tax) is amended 
        by adding at the end the following new flush 
        sentence:</DELETED>
<DELETED>``If a trust which is not a foreign trust becomes a foreign 
trust, such trust shall be treated for purposes of this section as 
having transferred, immediately before becoming a foreign trust, all of 
its assets to a foreign trust.''.</DELETED>
        <DELETED>    (2) Effective date.--The amendment made by this 
        subsection shall take effect on the date of the enactment of 
        this Act.</DELETED>

SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
              ASSOCIATIONS.

    (a) In General.--Section 593 (relating to reserves for losses on 
loans) is amended by adding at the end the following new subsections:
    ``(f) Termination of Reserve Method.--Subsections (a), (b), (c), 
and (d) shall not apply to any taxable year beginning after December 
31, 1995.
    ``(g) 6-Year Spread of Adjustments.--
            ``(1) In general.--In the case of any taxpayer who is 
        required by reason of subsection (f) to change its method of 
        computing reserves for bad debts--
                    ``(A) such change shall be treated as a change in a 
                method of accounting,
                    ``(B) such change shall be treated as initiated by 
                the taxpayer and as having been made with the consent 
                of the Secretary, and
                    ``(C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 
                481(a)--
                            ``(i) shall be determined by taking into 
                        account only applicable excess reserves, and
                            ``(ii) as so determined, shall be taken 
                        into account ratably over the 6-taxable year 
                        period beginning with the first taxable year 
                        beginning after December 31, 1995.
            ``(2) Applicable excess reserves.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `applicable excess reserves' means the excess 
                (if any) of--
                            ``(i) the balance of the reserves described 
                        in subsection (c)(1) (other than the 
                        supplemental reserve) as of the close of the 
                        taxpayer's last taxable year beginning before 
                        January 1, 1996, over
                            ``(ii) the lesser of--
                                    ``(I) the balance of such reserves 
                                as of the close of the taxpayer's last 
                                taxable year beginning before January 
                                1, 1988, or
                                    ``(II) the balance of the reserves 
                                described in subclause (I), reduced in 
                                the same manner as under section 
                                585(b)(2)(B)(ii) on the basis of the 
                                taxable years described in clause (i) 
                                and this clause.
                    ``(B) Special rule for thrifts which become small 
                banks.--In the case of a bank (as defined in section 
                581) which was not a large bank (as defined in section 
                585(c)(2)) for its first taxable year beginning after 
                December 31, 1995--
                            ``(i) the balance taken into account under 
                        subparagraph (A)(ii) shall not be less than the 
                        amount which would be the balance of such 
                        reserves as of the close of its last taxable 
                        year beginning before such date if the 
                        additions to such reserves for all taxable 
                        years had been determined under section 
                        585(b)(2)(A), and
                            ``(ii) the opening balance of the reserve 
                        for bad debts as of the beginning of such first 
                        taxable year shall be the balance taken into 
                        account under subparagraph (A)(ii) (determined 
                        after the application of clause (i) of this 
                        subparagraph).
                The preceding sentence shall not apply for purposes of 
                paragraphs (5) and (6) or subsection (e)(1).
            ``(3) Recapture of pre-1988 reserves where taxpayer ceases 
        to be bank.--If, during any taxable year beginning after 
        December 31, 1995, a taxpayer to which paragraph (1) applied is 
        not a bank (as defined in section 581), paragraph (1) shall 
        apply to the reserves described in paragraph (2)(A)(ii) and the 
        supplemental reserve; except that such reserves shall be taken 
        into account ratably over the 6-taxable year period beginning 
        with such taxable year.
            ``(4) Suspension of recapture if residential loan 
        requirement met.--
                    ``(A) In general.--In the case of a bank which 
                meets the residential loan requirement of subparagraph 
                (B) for the first taxable year beginning after December 
                31, 1995, or for the following taxable year--
                            ``(i) no adjustment shall be taken into 
                        account under paragraph (1) for such taxable 
                        year, and
                            ``(ii) such taxable year shall be 
                        disregarded in determining--
                                    ``(I) whether any other taxable 
                                year is a taxable year for which an 
                                adjustment is required to be taken into 
                                account under paragraph (1), and
                                    ``(II) the amount of such 
                                adjustment.
                    ``(B) Residential loan requirement.--A taxpayer 
                meets the residential loan requirement of this 
                subparagraph for any taxable year if the principal 
                amount of the residential loans made by the taxpayer 
                during such year is not less than the base amount for 
                such year.
                    ``(C) Residential loan.--For purposes of this 
                paragraph, the term `residential loan' means any loan 
                described in clause (v) of section 7701(a)(19)(C) but 
                only if such loan is incurred in acquiring, 
                constructing, or improving the property described in 
                such clause.
                    ``(D) Base amount.--For purposes of subparagraph 
                (B), the base amount is the average of the principal 
                amounts of the residential loans made by the taxpayer 
                during the 6 most recent taxable years beginning on or 
                before December 31, 1995. At the election of the 
                taxpayer who made such loans during each of such 6 
                taxable years, the preceding sentence shall be applied 
                without regard to the taxable year in which such 
                principal amount was the highest and the taxable year 
                in such principal amount was the lowest. Such an 
                election may be made only for the first taxable year 
                beginning after such date, and, if made for such 
                taxable year, shall apply to the succeeding taxable 
                year unless revoked with the consent of the Secretary.
                    ``(E) Controlled groups.--In the case of a taxpayer 
                which is a member of any controlled group of 
                corporations described in section 1563(a)(1), 
                subparagraph (B) shall be applied with respect to such 
                group.
            ``(5) Continued application of fresh start under section 
        585 transitional rules.--In the case of a taxpayer to which 
        paragraph (1) applied and which was not a large bank (as 
        defined in section 585(c)(2)) for its first taxable year 
        beginning after December 31, 1995:
                    ``(A) In general.--For purposes of determining the 
                net amount of adjustments referred to in section 
                585(c)(3)(A)(iii), there shall be taken into account 
                only the excess (if any) of the reserve for bad debts 
                as of the close of the last taxable year before the 
                disqualification year over the balance taken into 
                account by such taxpayer under paragraph (2)(A)(ii) of 
                this subsection.
                    ``(B) Treatment under elective cut-off method.--For 
                purposes of applying section 585(c)(4)--
                            ``(i) the balance of the reserve taken into 
                        account under subparagraph (B) thereof shall be 
                        reduced by the balance taken into account by 
                        such taxpayer under paragraph (2)(A)(ii) of 
                        this subsection, and
                            ``(ii) no amount shall be includible in 
                        gross income by reason of such reduction.
            ``(6) Suspended reserve included as section 381(c) items.--
        The balance taken into account by a taxpayer under paragraph 
        (2)(A)(ii) of this subsection and the supplemental reserve 
        shall be treated as items described in section 381(c).
            ``(7) Conversions to credit unions.--In the case of a 
        taxpayer to which paragraph (1) applied which becomes a credit 
        union described in section 501(c) and exempt from taxation 
        under section 501(a)--
                    ``(A) any amount required to be included in the 
                gross income of the credit union by reason of this 
                subsection shall be treated as derived from an 
                unrelated trade or business (as defined in section 
                513), and
                    ``(B) for purposes of paragraph (3), the credit 
                union shall not be treated as if it were a bank.
            ``(8) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out this subsection 
        and subsection (e), including regulations providing for the 
        application of such subsections in the case of acquisitions, 
        mergers, spin-offs, and other reorganizations.''
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 50 is amended by adding at 
        the end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to 
in paragraph (1) of this subsection shall not apply to any taxable year 
beginning after December 31, 1995.''
            (2) Subsection (e) of section 52 is amended by striking 
        paragraph (1) and by redesignating paragraphs (2) and (3) as 
        paragraphs (1) and (2), respectively.
            (3) Subsection (a) of section 57 is amended by striking 
        paragraph (4).
            (4) Section 246 is amended by striking subsection (f).
            (5) Clause (i) of section 291(e)(1)(B) is amended by 
        striking ``or to which section 593 applies''.
            (6) Subparagraph (A) of section 585(a)(2) is amended by 
        striking ``other than an organization to which section 593 
        applies''.
            (7)(A) The material preceding subparagraph (A) of section 
        593(e)(1) is amended by striking ``by a domestic building and 
        loan association or an institution that is treated as a mutual 
        savings bank under section 591(b)'' and inserting ``by a 
        taxpayer having a balance described in subsection 
        (g)(2)(A)(ii)''.
            (B) Subparagraph (B) of section 593(e)(1) is amended to 
        read as follows:
                    ``(B) then out of the balance taken into account 
                under subsection (g)(2)(A)(ii) (properly adjusted for 
                amounts charged against such reserves for taxable years 
                beginning after December 31, 1987),''.
            (C) The second sentence of section 593(e)(1) is amended by 
        striking ``the association or an institution that is treated as 
        a mutual savings bank under section 591(b)'' and inserting ``a 
        taxpayer having a balance described in subsection 
        (g)(2)(A)(ii)''.
            (D) The third sentence of section 593(e)(1) is amended by 
        striking ``an association'' and inserting ``a taxpayer having a 
        balance described in subsection (g)(2)(A)(ii)''.
            (E) Paragraph (1) of section 593(e) is amended by adding at 
        the end the following new sentence: ``This paragraph shall not 
        apply to any distribution of all of the stock of a bank (as 
        defined in section 581) to another corporation if, immediately 
        after the distribution, such bank and such other corporation 
        are members of the same affiliated group (as defined in section 
        1504) and the provisions of section 5(e) of the Federal Deposit 
        Insurance Act (as in effect on December 31, 1995) or similar 
        provisions are in effect.''
            (8) Section 595 is hereby repealed.
            (9) Section 596 is hereby repealed.
            (10) Subsection (a) of section 860E is amended--
                    (A) by striking ``Except as provided in paragraph 
                (2), the'' in paragraph (1) and inserting ``The'',
                    (B) by striking paragraphs (2) and (4) and 
                redesignating paragraphs (3) and (5) as paragraphs (2) 
                and (3), respectively, and
                    (C) by striking in paragraph (2) (as so 
                redesignated) all that follows ``subsection'' and 
                inserting a period.
            (11) Paragraph (3) of section 992(d) is amended by striking 
        ``or 593''.
            (12) Section 1038 is amended by striking subsection (f).
            (13) Clause (ii) of section 1042(c)(4)(B) is amended by 
        striking ``or 593''.
            (14) Subsection (c) of section 1277 is amended by striking 
        ``or to which section 593 applies''.
            (15) Subparagraph (B) of section 1361(b)(2) is amended by 
        striking ``or to which section 593 applies''.
            (16) The table of sections for part II of subchapter H of 
        chapter 1 is amended by striking the items relating to sections 
        595 and 596.
    (c) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 1995.
            (2) Subsection (b)(7)(B).--The amendments made by 
        subsection (b)(7)(B) shall not apply to any distribution with 
        respect to preferred stock if--
                    (A) such stock is outstanding at all times after 
                October 31, 1995, and before the distribution, and
                    (B) such distribution is made before the date which 
                is 1 year after the date of the enactment of this Act 
                (or, in the case of stock which may be redeemed, if 
                later, the date which is 30 days after the earliest 
                date that such stock may be redeemed).
            (3) Subsection (b)(8).--The amendment made by subsection 
        (b)(8) shall apply to property acquired in taxable years 
        beginning after December 31, 1995.
            (4) Subsection (b)(10).--The amendments made by subsection 
        (b)(10) shall not apply to any residual interest held by a 
        taxpayer if such interest has been held by such taxpayer at all 
        times after October 31, 1995.

SEC. 402. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) General Rule.--Section 167 (relating to depreciation) is 
amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Depreciation Under Income Forecast Method.--
            ``(1) In general.--If the depreciation deduction allowable 
        under this section to any taxpayer with respect to any property 
        is determined under the income forecast method or any similar 
        method--
                    ``(A) the income from the property to be taken into 
                account in determining the depreciation deduction under 
                such method shall be equal to the amount of income 
                earned in connection with the property before the close 
                of the 10th taxable year following the taxable year in 
                which the property was placed in service,
                    ``(B) the adjusted basis of the property shall only 
                include amounts with respect to which the requirements 
                of section 461(h) are satisfied,
                    ``(C) the depreciation deduction under such method 
                for the 10th taxable year beginning after the taxable 
                year in which the property was placed in service shall 
                be equal to the adjusted basis of such property as of 
                the beginning of such 10th taxable year, and
                    ``(D) such taxpayer shall pay (or be entitled to 
                receive) interest computed under the look-back method 
                of paragraph (2) for any recomputation year.
            ``(2) Look-back method.--The interest computed under the 
        look-back method of this paragraph for any recomputation year 
        shall be determined by--
                    ``(A) first determining the depreciation deductions 
                under this section with respect to such property which 
                would have been allowable for prior taxable years if 
                the determination of the amounts so allowable had been 
                made on the basis of the sum of the following (instead 
                of the estimated income from such property)--
                            ``(i) the actual income earned in 
                        connection with such property for periods 
                        before the close of the recomputation year, and
                            ``(ii) an estimate of the future income to 
                        be earned in connection with such property for 
                        periods after the recomputation year and before 
                        the close of the 10th taxable year following 
                        the taxable year in which the property was 
                        placed in service,
                    ``(B) second, determining (solely for purposes of 
                computing such interest) the overpayment or 
                underpayment of tax for each such prior taxable year 
                which would result solely from the application of 
                subparagraph (A), and
                    ``(C) then using the adjusted overpayment rate (as 
                defined in section 460(b)(7)), compounded daily, on the 
                overpayment or underpayment determined under 
                subparagraph (B).
        For purposes of the preceding sentence, any cost incurred after 
        the property is placed in service (which is not treated as a 
        separate property under paragraph (5)) shall be taken into 
        account by discounting (using the Federal mid-term rate 
        determined under section 1274(d) as of the time such cost is 
        incurred) such cost to its value as of the date the property is 
        placed in service. The taxpayer may elect with respect to any 
        property to have the preceding sentence not apply to such 
        property.
            ``(3) Exception from look-back method.--Paragraph (1)(D) 
        shall not apply with respect to any property which had a cost 
        basis of $100,000 or less.
            ``(4) Recomputation year.--For purposes of this subsection, 
        except as provided in regulations, the term `recomputation 
        year' means, with respect to any property, the 3d and the 10th 
        taxable years beginning after the taxable year in which the 
        property was placed in service, unless the actual income earned 
        in connection with the property for the period before the close 
        of such 3d or 10th taxable year is within 10 percent of the 
        income earned in connection with the property for such period 
        which was taken into account under paragraph (1)(A).
            ``(5) Special rules.--
                    ``(A) Certain costs treated as separate property.--
                For purposes of this subsection, the following costs 
                shall be treated as separate properties:
                            ``(i) Any costs incurred with respect to 
                        any property after the 10th taxable year 
                        beginning after the taxable year in which the 
                        property was placed in service.
                            ``(ii) Any costs incurred after the 
                        property is placed in service and before the 
                        close of such 10th taxable year if such costs 
                        are significant and give rise to a significant 
                        increase in the income from the property which 
                        was not included in the estimated income from 
                        the property.
                    ``(B) Syndication income from television series.--
                In the case of property which is 1 or more episodes in 
                a television series, income from syndicating such 
                series shall not be required to be taken into account 
                under this subsection before the earlier of--
                            ``(i) the 4th taxable year beginning after 
                        the date the first episode in such series is 
                        placed in service, or
                            ``(ii) the earliest taxable year in which 
                        the taxpayer has an arrangement relating to the 
                        future syndication of such series.
                    ``(C) Special rules for financial exploitation of 
                characters, etc.--For purposes of this subsection, in 
                the case of television and motion picture films, the 
                income from the property shall include income from the 
exploitation of characters, designs, scripts, scores, and other 
incidental income associated with such films, but only to the extent 
that such income is earned in connection with the ultimate use of such 
items by, or the ultimate sale of merchandise to, persons who are not 
related persons (within the meaning of section 267(b)) to the taxpayer.
                    ``(D) Collection of interest.--For purposes of 
                subtitle F (other than sections 6654 and 6655), any 
                interest required to be paid by the taxpayer under 
                paragraph (1) for any recomputation year shall be 
                treated as an increase in the tax imposed by this 
                chapter for such year.
                    ``(E) Determinations.--For purposes of paragraph 
                (2), determinations of the amount of income earned in 
                connection with any property shall be made in the same 
                manner as for purposes of applying the income forecast 
                method; except that any income from the disposition of 
                such property shall be taken into account.
                    ``(F) Treatment of pass-thru entities.--Rules 
                similar to the rules of section 460(b)(4) shall apply 
                for purposes of this subsection.''
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to property placed in service after September 13, 1995.
            (2) Binding contracts.--The amendment made by subsection 
        (a) shall not apply to any property produced or acquired by the 
        taxpayer pursuant to a written contract which was binding on 
        September 13, 1995, and at all times thereafter before such 
        production or acquisition.
            (3) Underpayments of income tax.--No addition to tax shall 
        be made under--
                    (A) section 6654 or 6655 of the Internal Revenue 
                Code of 1986 (relating to failure to pay estimated tax) 
                with respect to any underpayment of an installment 
                required to be paid before the date of the enactment of 
                this Act, or
                    (B) section 6662 of such Code as a result of the 
                application of subsection (d) of that section (relating 
                to substantial understatements of income tax) with 
                respect to any underpayment of income tax for any 
                taxable year ending before such date of enactment,
        to the extent such underpayment was created or increased by the 
        amendments made by subsection (a).
                                 <all>
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