104TH CONGRESS

2D SESSION H. R. 3448

AN ACT

To provide tax relief for small businesses, to protect

overtime requirements under that Act.employers in complying with minimum wage andand to prevent job loss by providing flexibility toAct of 1938 to increase the minimum wage ratehicles, and to amend the Fair Labor Standardswages to employees who use employer owned vePortal Act of 1947 relating to the payment ofhome pay of workers, to amend the Portal-tojobs, to create opportunities, to increase the take
104TH CONGRESS

2D SESSION H. R. 3448

AN ACT

To provide tax relief for small businesses, to protect jobs,

to create opportunities, to increase the take home pay

of workers, to amend the Portal-to-Portal Act of 1947

relating to the payment of wages to employees who use

employer owned vehicles, and to amend the Fair Labor

Standards Act of 1938 to increase the minimum wage

rate and to prevent job loss by providing flexibility to
2

•HR 3448 EH

employers in complying with minimum wage and overtime requirements under that Act.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Small Business Job Protection Act of 1996’’.

6 (b) TABLE OF CONTENTS.—

TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.

Sec. 1102. Underpayments of estimated tax.

Subtitle A—Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.

Sec. 1112. Treatment of employee tips.

Sec. 1113. Treatment of storage of product samples.

Sec. 1114. Treatment of certain charitable risk pools.

Sec. 1115. Treatment of dues paid to agricultural or horticultural organizations.

Sec. 1116. Clarification of employment tax status of certain fishermen; information reporting.

Subtitle B—Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.

Sec. 1202. Employer-provided educational assistance programs.

Sec. 1203. FUTA exemption for alien agricultural workers.

Subtitle C—Provisions Relating to S Corporations

Sec. 1301. S corporations permitted to have 75 shareholders.

Sec. 1302. Electing small business trusts.

Sec. 1303. Expansion of post-death qualification for certain trusts.

Sec. 1304. Financial institutions permitted to hold safe harbor debt.

Sec. 1305. Rules relating to inadvertent terminations and invalid elections.

Sec. 1306. Agreement to terminate year.

Sec. 1307. Expansion of post-termination transition period.

Sec. 1308. S corporations permitted to hold subsidiaries.

Sec. 1309. Treatment of distributions during loss years.

Sec. 1310. Treatment of S corporations under subchapter C.

Sec. 1311. Elimination of certain earnings and profits.

Sec. 1312. Carryover of disallowed losses and deductions under at-risk rules allowed.

Sec. 1313. Adjustments to basis of inherited S stock to reflect certain items of

income.
3

•HR 3448 EH

Sec. 1314. S corporations eligible for rules applicable to real property subdivided for sale by noncorporate taxpayers.

Sec. 1315. Effective date.

Subtitle D—Pension Simplification

CHAPTER 1—SIMPLIFIED DISTRIBUTION RULES

Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.

Sec. 1402. Repeal of $5,000 exclusion of employees’ death benefits.

Sec. 1403. Simplified method for taxing annuity distributions under certain employer plans.

Sec. 1404. Required distributions.

CHAPTER 2—INCREASED ACCESS TO PENSION PLANS

SUBCHAPTER A—SIMPLE SAVINGS PLANS

Sec. 1421. Establishment of savings incentive match plans for employees of

small employers.

Sec. 1422. Extension of simple plan to 401(k) arrangements.

SUBCHAPTER B—OTHER PROVISIONS

Sec. 1426. Tax-exempt organizations eligible under section 401(k).

CHAPTER 3—NONDISCRIMINATION PROVISIONS

Sec. 1431. Definition of highly compensated employees; repeal of family aggregation.

Sec. 1432. Modification of additional participation requirements.

Sec. 1433. Nondiscrimination rules for qualified cash or deferred arrangements

and matching contributions.

Sec. 1434. Definition of compensation for section 415 purposes.

CHAPTER 4—MISCELLANEOUS PROVISIONS

Sec. 1441. Plans covering self-employed individuals.

Sec. 1442. Elimination of special vesting rule for multiemployer plans.

Sec. 1443. Distributions under rural cooperative plans.

Sec. 1444. Treatment of governmental plans under section 415.

Sec. 1445. Uniform retirement age.

Sec. 1446. Contributions on behalf of disabled employees.

Sec. 1447. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

Sec. 1448. Trust requirement for deferred compensation plans of State and

local governments.

Sec. 1449. Transition rule for computing maximum benefits under section 415

limitations.

Sec. 1450. Modifications of section 403(b).

Sec. 1451. Waiver of minimum period for joint and survivor annuity explanation before annuity starting date.

Sec. 1452. Repeal of limitation in case of defined benefit plan and defined contribution plan for same employee; excess distributions.

Sec. 1453. Tax on prohibited transactions.

Sec. 1454. Treatment of leased employees.

Sec. 1455. Uniform penalty provisions to apply to certain pension reporting requirements.
4

•HR 3448 EH

Sec. 1456. Retirement benefits of ministers not subject to tax on net earnings

from self-employment.

Sec. 1457. Date for adoption of plan amendments.

Subtitle E—Foreign Simplification

Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive assets.

Subtitle F—Revenue Offsets

Sec. 1601. Termination of Puerto Rico and possession tax credit.

Sec. 1602. Repeal of exclusion for interest on loans used to acquire employer

securities.

Sec. 1603. Certain amounts derived from foreign corporations treated as unrelated business taxable income.

Sec. 1604. Depreciation under income forecast method.

Sec. 1605. Repeal of exclusion for punitive damages and for damages not attributable to physical injuries or sickness.

Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered automobiles and light trucks.

Subtitle G—Technical Corrections

Sec. 1701. Coordination with other subtitles.

Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.

Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.

Sec. 1704. Miscellaneous provisions.

TITLE II—PAYMENT OF WAGES

Section 1. Short title.

Sec. 2. Proper compensation for use of employer vehicles.

Sec. 3. Effective date.

Sec. 4. Minimum wage increase.

Sec. 5. Fair Labor Standards Act Amendments.

1 TITLE I—SMALL BUSINESS AND

2 OTHER TAX PROVISIONS

3 SEC. 1101. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.
5

•HR 3448 EH

1 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

2 No addition to the tax shall be made under section

3 6654 or 6655 of the Internal Revenue Code of 1986 (relat4 ing to failure to pay estimated tax) with respect to any

5 underpayment of an installment required to be paid before

6 the date of the enactment of this Act to the extent such

7 underpayment was created or increased by any provision

8 of this title.

9 Subtitle A—Expensing; Etc.

10 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

11 BUSINESSES.

12 (a) GENERAL RULE.—Paragraph (1) of section

13 179(b) (relating to dollar limitation) is amended to read

14 as follows:

15 ‘‘(1) DOLLAR LIMITATION.—The aggregate cost

16 which may be taken into account under subsection

17 (a) for any taxable year shall not exceed the follow18 ing applicable amount:

‘‘If the taxable year The applicable

begins in: amount is:

1996 ....................................................................... $18,500

1997 ....................................................................... 19,000

1998 ....................................................................... 20,000

1999 ....................................................................... 21,000

2000 ....................................................................... 22,000

2001 ....................................................................... 23,000

2002 ....................................................................... 23,500

2003 or thereafter ................................................. 25,000.’’.

19 (b) EFFECTIVE DATE.—The amendment made by

20 subsection (a) shall apply to taxable years beginning after

21 December 31, 1995.
6

•HR 3448 EH

1 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

2 (a) EMPLOYEE CASH TIPS.—

3 (1) REPORTING REQUIREMENT NOT CONSID4 ERED.—Subparagraph (A) of section 45B(b)(1) (re5 lating to excess employer social security tax) is

6 amended by inserting ‘‘(without regard to whether

7 such tips are reported under section 6053)’’ after

8 ‘‘section 3121(q)’’.

9 (2) TAXES PAID.—Subsection (d) of section

10 13443 of the Revenue Reconciliation Act of 1993 is

11 amended by inserting ‘‘, with respect to services per12 formed before, on, or after such date’’ after ‘‘1993’’.

13 (3) EFFECTIVE DATE.—The amendments made

14 by this subsection shall take effect as if included in

15 the amendments made by, and the provisions of, sec16 tion 13443 of the Revenue Reconciliation Act of

17 1993.

18 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR

19 BEVERAGES.—

20 (1) IN GENERAL.—Paragraph (2) of section

21 45B(b) is amended to read as follows:

22 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV23 ERAGES TAKEN INTO ACCOUNT.—In applying para24 graph (1), there shall be taken into account only tips

25 received from customers in connection with the deliv26 ering or serving of food or beverages for consump-
7

•HR 3448 EH

1 tion if the tipping of employees delivering or serving

2 food or beverages by customers is customary.’’

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall apply to tips received for

5 services performed after December 31, 1996.

6 SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAM7 PLES.

8 (a) IN GENERAL.—Paragraph (2) of section 280A(c)

9 is amended by striking ‘‘inventory’’ and inserting ‘‘inven10 tory or product samples’’.

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to taxable years beginning after

13 December 31, 1995.

14 SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK

15 POOLS.

16 (a) GENERAL RULE.—Section 501 (relating to ex17 emption from tax on corporations, certain trusts, etc.) is

18 amended by redesignating subsection (n) as subsection (o)

19 and by inserting after subsection (m) the following new

20 subsection:

21 ‘‘(n) CHARITABLE RISK POOLS.—

22 ‘‘(1) IN GENERAL.—For purposes of this title—

23 ‘‘(A) a qualified charitable risk pool shall

24 be treated as an organization organized and op25 erated exclusively for charitable purposes, and
8

•HR 3448 EH

1 ‘‘(B) subsection (m) shall not apply to a

2 qualified charitable risk pool.

3 ‘‘(2) QUALIFIED CHARITABLE RISK POOL.—For

4 purposes of this subsection, the term ‘qualified char5 itable risk pool’ means any organization—

6 ‘‘(A) which is organized and operated sole7 ly to pool insurable risks of its members (other

8 than risks related to medical malpractice) and

9 to provide information to its members with re10 spect to loss control and risk management,

11 ‘‘(B) which is comprised solely of members

12 that are organizations described in subsection

13 (c)(3) and exempt from tax under subsection

14 (a), and

15 ‘‘(C) which meets the organizational re16 quirements of paragraph (3).

17 ‘‘(3) ORGANIZATIONAL REQUIREMENTS.—An

18 organization (hereinafter in this subsection referred

19 to as the ‘risk pool’) meets the organizational re20 quirements of this paragraph if—

21 ‘‘(A) such risk pool is organized as a non22 profit organization under State law provisions

23 authorizing risk pooling arrangements for chari24 table organizations,
9

•HR 3448 EH

1 ‘‘(B) such risk pool is exempt from any in2 come tax imposed by the State (or will be so ex3 empt after such pool qualifies as an organiza4 tion exempt from tax under this title),

5 ‘‘(C) such risk pool has obtained at least

6 $1,000,000 in startup capital from nonmember

7 charitable organizations,

8 ‘‘(D) such risk pool is controlled by a

9 board of directors elected by its members, and

10 ‘‘(E) the organizational documents of such

11 risk pool require that—

12 ‘‘(i) each member of such pool shall at

13 all times be an organization described in

14 subsection (c)(3) and exempt from tax

15 under subsection (a),

16 ‘‘(ii) any member which receives a

17 final determination that it no longer quali18 fies as an organization described in sub19 section (c)(3) shall immediately notify the

20 pool of such determination and the effec21 tive date of such determination, and

22 ‘‘(iii) each policy of insurance issued

23 by the risk pool shall provide that such

24 policy will not cover the insured with re25 spect to events occurring after the date
10

•HR 3448 EH

1 such final determination was issued to the

2 insured.

3 An organization shall not cease to qualify as a quali4 fied charitable risk pool solely by reason of the fail5 ure of any of its members to continue to be an orga6 nization described in subsection (c)(3) if, within a

7 reasonable period of time after such pool is notified

8 as required under subparagraph (C)(ii), such pool

9 takes such action as may be reasonably necessary to

10 remove such member from such pool.

11 ‘‘(4) OTHER DEFINITIONS.—For purposes of

12 this subsection—

13 ‘‘(A) STARTUP CAPITAL.—The term ‘start14 up capital’ means any capital contributed to,

15 and any program-related investments (within

16 the meaning of section 4944(c)) made in, the

17 risk pool before such pool commences oper18 ations.

19 ‘‘(B) NONMEMBER CHARITABLE ORGANI20 ZATION.—The term ‘nonmember charitable or21 ganization’ means any organization which is de22 scribed in subsection (c)(3) and exempt from

23 tax under subsection (a) and which is not a

24 member of the risk pool and does not benefit
11

•HR 3448 EH

1 (directly or indirectly) from the insurance cov2 erage provided by the pool to its members.’’

3 (b) EFFECTIVE DATE.—The amendment made by

4 subsection (a) shall apply to taxable years beginning after

5 the date of the enactment of this Act.

6 SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL

7 OR HORTICULTURAL ORGANIZATIONS.

8 (a) GENERAL RULE.—Section 512 (defining unre9 lated business taxable income) is amended by adding at

10 the end thereof the following new subsection:

11 ‘‘(d) TREATMENT OF DUES OF AGRICULTURAL OR

12 HORTICULTURAL ORGANIZATIONS.—

13 ‘‘(1) IN GENERAL.—If—

14 ‘‘(A) an agricultural or horticultural orga15 nization described in section 501(c)(5) requires

16 annual dues to be paid in order to be a member

17 of such organization, and

18 ‘‘(B) the amount of such required annual

19 dues does not exceed $100,

20 in no event shall any portion of such dues be treated

21 as derived by such organization from an unrelated

22 trade or business by reason of any benefits or privi23 leges to which members of such organization are en24 titled.
12

•HR 3448 EH

1 ‘‘(2) INDEXATION OF $100 AMOUNT.—In the

2 case of any taxable year beginning in a calendar

3 year after 1995, the $100 amount in paragraph (1)

4 shall be increased by an amount equal to—

5 ‘‘(A) $100, multiplied by

6 ‘‘(B) the cost-of-living adjustment deter7 mined under section 1(f)(3) for the calendar

8 year in which the taxable year begins, by sub9 stituting ‘calendar year 1994’ for ‘calendar year

10 1992’ in subparagraph (B) thereof.

11 ‘‘(3) DUES.—For purposes of this subsection,

12 the term ‘dues’ includes any payment required to be

13 made in order to be recognized by the organization

14 as a member of the organization.’’.

15 (b) EFFECTIVE DATE.—The amendment made by

16 subsection (a) shall apply to taxable years beginning after

17 December 31, 1994.

18 SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS

19 OF CERTAIN FISHERMEN; INFORMATION RE20 PORTING.

21 (a) CLARIFICATION OF EMPLOYMENT TAX STA22 TUS.—

23 (1) AMENDMENTS OF INTERNAL REVENUE

24 CODE OF 1986.—
13

•HR 3448 EH

1 (A) DETERMINATION OF SIZE OF CREW.—

2 Subsection (b) of section 3121 (defining em3 ployment) is amended by adding at the end

4 thereof the following new sentence:

5 ‘‘For purposes of paragraph (20), the operating crew of

6 a boat shall be treated as normally made up of fewer than

7 10 individuals if the average size of the operating crew

8 on trips made during the preceding 4 calendar quarters

9 consisted of fewer than 10 individuals.’’.

10 (B) CERTAIN CASH REMUNERATION PER11 MITTED.—Subparagraph (A) of section

12 3121(b)(20) is amended to read as follows:

13 ‘‘(A) such individual does not receive any

14 cash remuneration other than as provided in

15 subparagraph (B) and other than cash remu16 neration—

17 ‘‘(i) which does not exceed $100 per

18 trip;

19 ‘‘(ii) which is contingent on a mini20 mum catch; and

21 ‘‘(iii) which is paid solely for addi22 tional duties (such as mate, engineer, or

23 cook) for which additional cash remunera24 tion is traditional in the industry,’’.
14

•HR 3448 EH

1 (C) CONFORMING AMENDMENT.—Section

2 6050A(a) is amended by striking ‘‘and’’ at the

3 end of paragraph (3), by striking the period at

4 the end of paragraph (4) and inserting ‘‘; and’’,

5 and by adding at the end thereof the following

6 new paragraph:

7 ‘‘(5) any cash remuneration described in section

8 3121(b)(20)(A).’’.

9 (2) AMENDMENT OF SOCIAL SECURITY ACT.—

10 (A) DETERMINATION OF SIZE OF CREW.—

11 Subsection (a) of section 210 of the Social Se12 curity Act is amended by adding at the end

13 thereof the following new sentence:

14 ‘‘For purposes of paragraph (20), the operating crew of

15 a boat shall be treated as normally made up of fewer than

16 10 individuals if the average size of the operating crew

17 on trips made during the preceding 4 calendar quarters

18 consisted of fewer than 10 individuals.’’.

19 (B) CERTAIN CASH REMUNERATION PER20 MITTED.—Subparagraph (A) of section

21 210(a)(20) of such Act is amended to read as

22 follows:

23 ‘‘(A) such individual does not receive any

24 additional compensation other than as provided
15

•HR 3448 EH

1 in subparagraph (B) and other than cash remu2 neration—

3 ‘‘(i) which does not exceed $100 per

4 trip;

5 ‘‘(ii) which is contingent on a mini6 mum catch; and

7 ‘‘(iii) which is paid solely for addi8 tional duties (such as mate, engineer, or

9 cook) for which additional cash remunera10 tion is traditional in the industry,’’.

11 (3) EFFECTIVE DATE.—

12 (A) IN GENERAL.—The amendments made

13 by this subsection shall apply to remuneration

14 paid after December 31, 1996.

15 (B) SPECIAL RULE.—The amendments

16 made by this subsection (other than paragraph

17 (1)(C)) shall also apply to remuneration paid

18 after December 31, 1984, and before January

19 1, 1997, unless the payor treated such remu20 neration (when paid) as being subject to tax

21 under chapter 21 of the Internal Revenue Code

22 of 1986.

23 (b) INFORMATION REPORTING.—

24 (1) IN GENERAL.—Subpart B of part III of

25 subchapter A of chapter 68 (relating to information
16

•HR 3448 EH

1 concerning transactions with other persons) is

2 amended by adding at the end the following new sec3 tion:

4 ‘‘SEC. 6050Q. RETURNS RELATING TO CERTAIN PURCHASES

5 OF FISH.

6 ‘‘(a) REQUIREMENT OF REPORTING.—Every per7 son—

8 ‘‘(1) who is engaged in the trade or business of

9 purchasing fish for resale from any person engaged

10 in the trade or business of catching fish; and

11 ‘‘(2) who makes payments in cash in the course

12 of such trade or business to such a person of $600

13 or more during any calendar year for the purchase

14 of fish,

15 shall make a return (at such times as the Secretary may

16 prescribe) described in subsection (b) with respect to each

17 person to whom such a payment was made during such

18 calendar year.

19 ‘‘(b) RETURN.—A return is described in this sub20 section if such return—

21 ‘‘(1) is in such form as the Secretary may pre22 scribe, and

23 ‘‘(2) contains—

24 ‘‘(A) the name, address, and TIN of each

25 person to whom a payment described in sub-
17

•HR 3448 EH

1 section (a)(2) was made during the calendar

2 year;

3 ‘‘(B) the aggregate amount of such pay4 ments made to such person during such cal5 endar year and the date and amount of each

6 such payment, and

7 ‘‘(C) such other information as the Sec8 retary may require.

9 ‘‘(c) STATEMENT TO BE FURNISHED WITH RE10 SPECT TO WHOM INFORMATION IS REQUIRED.—Every

11 person required to make a return under subsection (a)

12 shall furnish to each person whose name is required to

13 be set forth in such return a written statement showing—

14 ‘‘(1) the name and address of the person re15 quired to make such a return, and

16 ‘‘(2) the aggregate amount of payments to the

17 person required to be shown on the return.

18 The written statement required under the preceding sen19 tence shall be furnished to the person on or before Janu20 ary 31 of the year following the calendar year for which

21 the return under subsection (a) is required to be made.

22 ‘‘(d) DEFINITIONS.—For purposes of this section:

23 ‘‘(1) CASH.—The term ‘cash’ has the meaning

24 given such term by section 6050I(d).
18

•HR 3448 EH

1 ‘‘(2) FISH.—The term ‘fish’ includes other

2 forms of aquatic life.’’.

3 (2) TECHNICAL AMENDMENTS.—

4 (A) Subparagraph (A) of section

5 6724(d)(1) is amended by striking ‘‘or’’ at the

6 end of clause (vi), by striking ‘‘and’’ at the end

7 of clause (vii) and inserting ‘‘or’’, and by add8 ing at the end the following new clause:

9 ‘‘(viii) section 6050Q (relating to re10 turns relating to certain purchases of fish),

11 and’’.

12 (B) Paragraph (2) of section 6724(d) is

13 amended by redesignating subparagraphs (Q)

14 through (T) as subparagraphs (R) through (U),

15 respectively, and by inserting after subpara16 graph (P) the following new subparagraph:

17 ‘‘(Q) section 6050Q(c) (relating to returns

18 relating to certain purchases of fish),’’.

19 (C) The table of sections for subpart B of

20 part III of subchapter A of chapter 68 is

21 amended by adding at the end the following

22 new item:

‘‘Sec. 6050Q. Returns relating to certain purchases of fish.’’.

23 (3) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to payments made

25 after December 31, 1996.
19

•HR 3448 EH

1 Subtitle B—Extension of Certain

2 Expiring Provisions

3 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

4 (a) AMOUNT OF CREDIT.—Subsection (a) of section

5 51 (relating to amount of credit) is amended by striking

6 ‘‘40 percent’’ and inserting ‘‘35 percent’’.

7 (b) MEMBERS OF TARGETED GROUPS.—Subsection

8 (d) of section 51 is amended to read as follows:

9 ‘‘(d) MEMBERS OF TARGETED GROUPS.—For pur10 poses of this subpart—

11 ‘‘(1) IN GENERAL.—An individual is a member

12 of a targeted group if such individual is—

13 ‘‘(A) a qualified IV–A recipient,

14 ‘‘(B) a qualified veteran,

15 ‘‘(C) a qualified ex-felon,

16 ‘‘(D) a high-risk youth,

17 ‘‘(E) a vocational rehabilitation referral, or

18 ‘‘(F) a qualified summer youth employee.

19 ‘‘(2) QUALIFIED IV–A RECIPIENT.—

20 ‘‘(A) IN GENERAL.—The term ‘qualified

21 IV–A recipient’ means any individual who is

22 certified by the designated local agency as being

23 a member of a family receiving assistance under

24 a IV–A program for at least a 9-month period
20

•HR 3448 EH

1 ending during the 9-month period ending on the

2 hiring date.

3 ‘‘(B) IV–A PROGRAM.—For purposes of

4 this paragraph, the term ‘IV–A program’ means

5 any program providing assistance under a State

6 plan approved under part A of title IV of the

7 Social Security Act (relating to assistance for

8 needy families with minor children) and any

9 successor of such program.

10 ‘‘(3) QUALIFIED VETERAN.—

11 ‘‘(A) IN GENERAL.—The term ‘qualified

12 veteran’ means any veteran who is certified by

13 the designated local agency as being—

14 ‘‘(i) a member of a family receiving

15 assistance under a IV–A program (as de16 fined in paragraph (2)(B)) for at least a 9-

17 month period ending during the 12-month

18 period ending on the hiring date, or

19 ‘‘(ii) a member of a family receiving

20 assistance under a food stamp program

21 under the Food Stamp Act of 1977 for at

22 least a 3-month period ending during the

23 12-month period ending on the hiring date.

24 ‘‘(B) VETERAN.—For purposes of subpara25 graph (A), the term ‘veteran’ means any indi-
21

•HR 3448 EH

1 vidual who is certified by the designated local

2 agency as—

3 ‘‘(i)(I) having served on active duty

4 (other than active duty for training) in the

5 Armed Forces of the United States for a

6 period of more than 180 days, or

7 ‘‘(II) having been discharged or re8 leased from active duty in the Armed

9 Forces of the United States for a service10 connected disability, and

11 ‘‘(ii) not having any day during the

12 60-day period ending on the hiring date

13 which was a day of extended active duty in

14 the Armed Forces of the United States.

15 For purposes of clause (ii), the term ‘extended

16 active duty’ means a period of more than 90

17 days during which the individual was on active

18 duty (other than active duty for training).

19 ‘‘(4) QUALIFIED EX-FELON.—The term ‘quali20 fied ex-felon’ means any individual who is certified

21 by the designated local agency—

22 ‘‘(A) as having been convicted of a felony

23 under any statute of the United States or any

24 State,
22

•HR 3448 EH

1 ‘‘(B) as having a hiring date which is not

2 more than 1 year after the last date on which

3 such individual was so convicted or was released

4 from prison, and

5 ‘‘(C) as being a member of a family which

6 had an income during the 6 months imme7 diately preceding the earlier of the month in

8 which such income determination occurs or the

9 month in which the hiring date occurs, which,

10 on an annual basis, would be 70 percent or less

11 of the Bureau of Labor Statistics lower living

12 standard.

13 Any determination under subparagraph (C) shall be

14 valid for the 45-day period beginning on the date

15 such determination is made.

16 ‘‘(5) HIGH-RISK YOUTH.—

17 ‘‘(A) IN GENERAL.—The term ‘high-risk

18 youth’ means any individual who is certified by

19 the designated local agency—

20 ‘‘(i) as having attained age 18 but not

21 age 25 on the hiring date, and

22 ‘‘(ii) as having his principal place of

23 abode within an empowerment zone or en24 terprise community.
23

•HR 3448 EH

1 ‘‘(B) YOUTH MUST CONTINUE TO RESIDE

2 IN ZONE.—In the case of a high-risk youth, the

3 term ‘qualified wages’ shall not include wages

4 paid or incurred for services performed while

5 such youth’s principal place of abode is outside

6 an empowerment zone or enterprise community.

7 ‘‘(6) VOCATIONAL REHABILITATION REFER8 RAL.—The term ‘vocational rehabilitation referral’

9 means any individual who is certified by the des10 ignated local agency as—

11 ‘‘(A) having a physical or mental disability

12 which, for such individual, constitutes or results

13 in a substantial handicap to employment, and

14 ‘‘(B) having been referred to the employer

15 upon completion of (or while receiving) rehabili16 tative services pursuant to—

17 ‘‘(i) an individualized written rehabili18 tation plan under a State plan for voca19 tional rehabilitation services approved

20 under the Rehabilitation Act of 1973, or

21 ‘‘(ii) a program of vocational rehabili22 tation carried out under chapter 31 of title

23 38, United States Code.

24 ‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
24

•HR 3448 EH

1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 summer youth employee’ means any individ3 ual—

4 ‘‘(i) who performs services for the em5 ployer between May 1 and September 15,

6 ‘‘(ii) who is certified by the designated

7 local agency as having attained age 16 but

8 not 18 on the hiring date (or if later, on

9 May 1 of the calendar year involved),

10 ‘‘(iii) who has not been an employee

11 of the employer during any period prior to

12 the 90-day period described in subpara13 graph (B)(i), and

14 ‘‘(iv) who is certified by the des15 ignated local agency as having his principal

16 place of abode within an empowerment

17 zone or enterprise community.

18 ‘‘(B) SPECIAL RULES FOR DETERMINING

19 AMOUNT OF CREDIT.—For purposes of applying

20 this subpart to wages paid or incurred to any

21 qualified summer youth employee—

22 ‘‘(i) subsection (b)(2) shall be applied

23 by substituting ‘any 90-day period between

24 May 1 and September 15’ for ‘the 1-year
25

•HR 3448 EH

1 period beginning with the day the individ2 ual begins work for the employer’, and

3 ‘‘(ii) subsection (b)(3) shall be applied

4 by substituting ‘$3,000’ for ‘$6,000’.

5 The preceding sentence shall not apply to an in6 dividual who, with respect to the same em7 ployer, is certified as a member of another tar8 geted group after such individual has been a

9 qualified summer youth employee.

10 ‘‘(C) YOUTH MUST CONTINUE TO RESIDE

11 IN ZONE.—Paragraph (5)(B) shall apply for

12 purposes of this paragraph.

13 ‘‘(8) HIRING DATE.—The term ‘hiring date’

14 means the day the individual is hired by the em15 ployer.

16 ‘‘(9) DESIGNATED LOCAL AGENCY.—The term

17 ‘designated local agency’ means a State employment

18 security agency established in accordance with the

19 Act of June 6, 1933, as amended (29 U.S.C. 49-

20 49n).

21 ‘‘(10) SPECIAL RULES FOR CERTIFICATIONS.—

22 ‘‘(A) IN GENERAL.—An individual shall

23 not be treated as a member of a targeted group

24 unless—
26

•HR 3448 EH

1 ‘‘(i) on or before the day on which

2 such individual begins work for the em3 ployer, the employer has received a certifi4 cation from a designated local agency that

5 such individual is a member of a targeted

6 group, or

7 ‘‘(ii)(I) on or before the day the indi8 vidual is offered employment with the em9 ployer, a pre-screening notice is completed

10 by the employer with respect to such indi11 vidual, and

12 ‘‘(II) not later than the 14th day after

13 the individual begins work for the em14 ployer, the employer submits such notice,

15 signed by the employer and the individual

16 under penalties of perjury, to the des17 ignated local agency as part of a written

18 request for such a certification from such

19 agency.

20 For purposes of this paragraph, the term ‘pre21 screening notice’ means a document (in such

22 form as the Secretary shall prescribe) which

23 contains information provided by the individual

24 on the basis of which the employer believes that

25 the individual is a member of a targeted group.
27

•HR 3448 EH

1 ‘‘(B) INCORRECT CERTIFICATIONS.—If—

2 ‘‘(i) an individual has been certified

3 by a designated local agency as a member

4 of a targeted group, and

5 ‘‘(ii) such certification is incorrect be6 cause it was based on false information

7 provided by such individual,

8 the certification shall be revoked and wages

9 paid by the employer after the date on which

10 notice of revocation is received by the employer

11 shall not be treated as qualified wages.

12 ‘‘(C) EXPLANATION OF DENIAL OF RE13 QUEST.—If a designated local agency denies a

14 request for certification of membership in a tar15 geted group, such agency shall provide to the

16 person making such request a written expla17 nation of the reasons for such denial.’’.

18 (c) MINIMUM EMPLOYMENT PERIOD.—Paragraph

19 (3) of section 51(i) (relating to certain individuals ineli20 gible) is amended to read as follows:

21 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM22 PLOYMENT PERIOD.—No wages shall be taken into

23 account under subsection (a) with respect to any in24 dividual unless such individual either—
28

•HR 3448 EH

1 ‘‘(A) is employed by the employer at least

2 180 days (20 days in the case of a qualified

3 summer youth employee), or

4 ‘‘(B) has completed at least 500 hours

5 (120 hours in the case of a qualified summer

6 youth employee) of services performed for the

7 employer.’’.

8 (d) TERMINATION.—Paragraph (4) of section 51(c)

9 (relating to wages defined) is amended to read as follows:

10 ‘‘(4) TERMINATION.—The term ‘wages’ shall

11 not include any amount paid or incurred to an indi12 vidual who begins work for the employer—

13 ‘‘(A) after December 31, 1994, and before

14 July 1, 1996, or

15 ‘‘(B) after June 30, 1997.’’.

16 (e) REDESIGNATION OF CREDIT.—

17 (1) Sections 38(b)(2) and 51(a) are each

18 amended by striking ‘‘targeted jobs credit’’ and in19 serting ‘‘work opportunity credit’’.

20 (2) The subpart heading for subpart F of part

21 IV of subchapter A of chapter 1 is amended by

22 striking ‘‘Targeted Jobs Credit’’ and inserting

23 ‘‘Work Opportunity Credit’’.
29

•HR 3448 EH

1 (3) The table of subparts for such part IV is

2 amended by striking ‘‘targeted jobs credit’’ and in3 serting ‘‘work opportunity credit’’.

4 (4) The heading for paragraph (3) of section

5 1396(c) is amended by striking ‘‘TARGETED JOBS

6 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED7 IT’’.

8 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec9 tion 51(c) is amended by striking ‘‘, subsection

10 (d)(8)(D),’’.

11 (g) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to individuals who begin work for

13 the employer after June 30, 1996.

14 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST15 ANCE PROGRAMS.

16 (a) EXTENSION.—Subsection (d) of section 127 (re17 lating to educational assistance programs) is amended by

18 striking ‘‘December 31, 1994’’ and inserting ‘‘December

19 31, 1996’’.

20 (b) LIMITATION TO EDUCATION BELOW GRADUATE

21 LEVEL.—The last sentence of section 127(c)(1) is amend22 ed by inserting before the period ‘‘or at the graduate

23 level’’.

24 (c) EFFECTIVE DATES.—
30

•HR 3448 EH

1 (1) EXTENSION.—The amendment made by

2 subsection (a) shall apply to taxable years beginning

3 after December 31, 1994.

4 (2) LIMITATION.—The amendment made by

5 subsection (b) shall apply to taxable years beginning

6 after December 31, 1995.

7 (3) EXPEDITED PROCEDURES.—The Secretary

8 of the Treasury shall establish expedited procedures

9 for the refund of any overpayment of taxes imposed

10 by chapter 24 of the Internal Revenue Code of 1986

11 which is attributable to amounts excluded from

12 gross income during 1995 or 1996 under section

13 127 of such Code, including procedures waiving the

14 requirement that an employer obtain an employee’s

15 signature where the employer demonstrates to the

16 satisfaction of the Secretary that any refund col17 lected by the employer on behalf of the employee will

18 be paid to the employee.

19 SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL

20 WORKERS.

21 (a) IN GENERAL.—Subparagraph (B) of section

22 3306(c)(1) (defining employment) is amended by striking

23 ‘‘before January 1, 1995,’’.
31

•HR 3448 EH

1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to services performed after De3 cember 31, 1994.

4 Subtitle C—Provisions Relating to

5 S Corporations

6 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

7 SHAREHOLDERS.

8 Subparagraph (A) of section 1361(b)(1) (defining

9 small business corporation) is amended by striking ‘‘35

10 shareholders’’ and inserting ‘‘75 shareholders’’.

11 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

12 (a) GENERAL RULE.—Subparagraph (A) of section

13 1361(c)(2) (relating to certain trusts permitted as share14 holders) is amended by inserting after clause (iv) the fol15 lowing new clause:

16 ‘‘(v) An electing small business

17 trust.’’.

18 (b) CURRENT BENEFICIARIES TREATED AS SHARE19 HOLDERS.—Subparagraph (B) of section 1361(c)(2) is

20 amended by adding at the end the following new clause:

21 ‘‘(v) In the case of a trust described

22 in clause (v) of subparagraph (A), each po23 tential current beneficiary of such trust

24 shall be treated as a shareholder; except

25 that, if for any period there is no potential
32

•HR 3448 EH

1 current beneficiary of such trust, such

2 trust shall be treated as the shareholder

3 during such period.’’.

4 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

5 Section 1361 (defining S corporation) is amended by add6 ing at the end the following new subsection:

7 ‘‘(e) ELECTING SMALL BUSINESS TRUST DE8 FINED.—

9 ‘‘(1) ELECTING SMALL BUSINESS TRUST.—For

10 purposes of this section—

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

12 subparagraph (B), the term ‘electing small

13 business trust’ means any trust if—

14 ‘‘(i) such trust does not have as a

15 beneficiary any person other than (I) an

16 individual, (II) an estate, or (III) an orga17 nization described in paragraph (2), (3),

18 (4), or (5) of section 170(c) which holds a

19 contingent interest and is not a potential

20 current beneficiary,

21 ‘‘(ii) no interest in such trust was ac22 quired by purchase, and

23 ‘‘(iii) an election under this subsection

24 applies to such trust.
33

•HR 3448 EH

1 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—

2 The term ‘electing small business trust’ shall

3 not include—

4 ‘‘(i) any qualified subchapter S trust

5 (as defined in subsection (d)(3)) if an elec6 tion under subsection (d)(2) applies to any

7 corporation the stock of which is held by

8 such trust, and

9 ‘‘(ii) any trust exempt from tax under

10 this subtitle.

11 ‘‘(C) PURCHASE.—For purposes of sub12 paragraph (A), the term ‘purchase’ means any

13 acquisition if the basis of the property acquired

14 is determined under section 1012.

15 ‘‘(2) POTENTIAL CURRENT BENEFICIARY.—For

16 purposes of this section, the term ‘potential current

17 beneficiary’ means, with respect to any period, any

18 person who at any time during such period is enti19 tled to, or at the discretion of any person may re20 ceive, a distribution from the principal or income of

21 the trust. If a trust disposes of all of the stock which

22 it holds in an S corporation, then, with respect to

23 such corporation, the term ‘potential current bene24 ficiary’ does not include any person who first met

25 the requirements of the preceding sentence during
34

•HR 3448 EH

1 the 60-day period ending on the date of such dis2 position.

3 ‘‘(3) ELECTION.—An election under this sub4 section shall be made by the trustee. Any such elec5 tion shall apply to the taxable year of the trust for

6 which made and all subsequent taxable years of such

7 trust unless revoked with the consent of the Sec8 retary.

9 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’.

10 (d) TAXATION OF ELECTING SMALL BUSINESS

11 TRUSTS.—Section 641 (relating to imposition of tax on

12 trusts) is amended by adding at the end the following new

13 subsection:

14 ‘‘(d) SPECIAL RULES FOR TAXATION OF ELECTING

15 SMALL BUSINESS TRUSTS.—

16 ‘‘(1) IN GENERAL.—For purposes of this chap17 ter—

18 ‘‘(A) the portion of any electing small busi19 ness trust which consists of stock in 1 or more

20 S corporations shall be treated as a separate

21 trust, and

22 ‘‘(B) the amount of the tax imposed by

23 this chapter on such separate trust shall be de-
35

•HR 3448 EH

1 termined with the modifications of paragraph

2 (2).

3 ‘‘(2) MODIFICATIONS.—For purposes of para4 graph (1), the modifications of this paragraph are

5 the following:

6 ‘‘(A) Except as provided in section 1(h),

7 the amount of the tax imposed by section 1(e)

8 shall be determined by using the highest rate of

9 tax set forth in section 1(e).

10 ‘‘(B) The exemption amount under section

11 55(d) shall be zero.

12 ‘‘(C) The only items of income, loss, deduc13 tion, or credit to be taken into account are the

14 following:

15 ‘‘(i) The items required to be taken

16 into account under section 1366.

17 ‘‘(ii) Any gain or loss from the dis18 position of stock in an S corporation.

19 ‘‘(iii) To the extent provided in regu20 lations, State or local income taxes or ad21 ministrative expenses to the extent alloca22 ble to items described in clauses (i) and

23 (ii).

24 No deduction or credit shall be allowed for any

25 amount not described in this paragraph, and no
36

•HR 3448 EH

1 item described in this paragraph shall be appor2 tioned to any beneficiary.

3 ‘‘(D) No amount shall be allowed under

4 paragraph (1) or (2) of section 1211(b).

5 ‘‘(3) TREATMENT OF REMAINDER OF TRUST

6 AND DISTRIBUTIONS.—For purposes of determin7 ing—

8 ‘‘(A) the amount of the tax imposed by

9 this chapter on the portion of any electing small

10 business trust not treated as a separate trust

11 under paragraph (1), and

12 ‘‘(B) the distributable net income of the

13 entire trust,

14 the items referred to in paragraph (2)(C) shall be

15 excluded. Except as provided in the preceding sen16 tence, this subsection shall not affect the taxation of

17 any distribution from the trust.

18 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

19 WHERE TERMINATION OF SEPARATE TRUST.—If a

20 portion of an electing small business trust ceases to

21 be treated as a separate trust under paragraph (1),

22 any carryover or excess deduction of the separate

23 trust which is referred to in section 642(h) shall be

24 taken into account by the entire trust.
37

•HR 3448 EH

1 ‘‘(5) ELECTING SMALL BUSINESS TRUST.—For

2 purposes of this subsection, the term ‘electing small

3 business trust’ has the meaning given such term by

4 section 1361(e)(1).’’.

5 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec6 tion 1366(a) is amended by inserting ‘‘, or of a trust or

7 estate which terminates,’’ after ‘‘who dies’’.

8 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

9 FOR CERTAIN TRUSTS.

10 Subparagraph (A) of section 1361(c)(2) (relating to

11 certain trusts permitted as shareholders) is amended—

12 (1) by striking ‘‘60-day period’’ each place it

13 appears in clauses (ii) and (iii) and inserting ‘‘2-year

14 period’’, and

15 (2) by striking the last sentence in clause (ii).

16 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

17 SAFE HARBOR DEBT.

18 Clause (iii) of section 1361(c)(5)(B) (defining

19 straight debt) is amended by striking ‘‘or a trust described

20 in paragraph (2)’’ and inserting ‘‘a trust described in

21 paragraph (2), or a person which is actively and regularly

22 engaged in the business of lending money’’.
38

•HR 3448 EH

1 SEC. 1305. RULES RELATING TO INADVERTENT TERMI2 NATIONS AND INVALID ELECTIONS.

3 (a) GENERAL RULE.—Subsection (f) of section 1362

4 (relating to inadvertent terminations) is amended to read

5 as follows:

6 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI7 NATIONS.—If—

8 ‘‘(1) an election under subsection (a) by any

9 corporation—

10 ‘‘(A) was not effective for the taxable year

11 for which made (determined without regard to

12 subsection (b)(2)) by reason of a failure to meet

13 the requirements of section 1361(b) or to ob14 tain shareholder consents, or

15 ‘‘(B) was terminated under paragraph (2)

16 or (3) of subsection (d),

17 ‘‘(2) the Secretary determines that the cir18 cumstances resulting in such ineffectiveness or ter19 mination were inadvertent,

20 ‘‘(3) no later than a reasonable period of time

21 after discovery of the circumstances resulting in

22 such ineffectiveness or termination, steps were

23 taken—

24 ‘‘(A) so that the corporation is a small

25 business corporation, or
39

•HR 3448 EH

1 ‘‘(B) to acquire the required shareholder

2 consents, and

3 ‘‘(4) the corporation, and each person who was

4 a shareholder in the corporation at any time during

5 the period specified pursuant to this subsection,

6 agrees to make such adjustments (consistent with

7 the treatment of the corporation as an S corpora8 tion) as may be required by the Secretary with re9 spect to such period,

10 then, notwithstanding the circumstances resulting in such

11 ineffectiveness or termination, such corporation shall be

12 treated as an S corporation during the period specified

13 by the Secretary.’’.

14 (b) LATE ELECTIONS, ETC.—Subsection (b) of sec15 tion 1362 is amended by adding at the end the following

16 new paragraph:

17 ‘‘(5) AUTHORITY TO TREAT LATE ELECTIONS,

18 ETC., AS TIMELY.—If—

19 ‘‘(A) an election under subsection (a) is

20 made for any taxable year (determined without

21 regard to paragraph (3)) after the date pre22 scribed by this subsection for making such elec23 tion for such taxable year or no such election is

24 made for any taxable year, and
40

•HR 3448 EH

1 ‘‘(B) the Secretary determines that there

2 was reasonable cause for the failure to timely

3 make such election,

4 the Secretary may treat such an election as timely

5 made for such taxable year (and paragraph (3) shall

6 not apply).’’.

7 (c) EFFECTIVE DATE.—The amendments made by

8 subsection (a) and (b) shall apply with respect to elections

9 for taxable years beginning after December 31, 1982.

10 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

11 Paragraph (2) of section 1377(a) (relating to pro

12 rata share) is amended to read as follows:

13 ‘‘(2) ELECTION TO TERMINATE YEAR.—

14 ‘‘(A) IN GENERAL.—Under regulations

15 prescribed by the Secretary, if any shareholder

16 terminates the shareholder’s interest in the cor17 poration during the taxable year and all af18 fected shareholders and the corporation agree

19 to the application of this paragraph, paragraph

20 (1) shall be applied to the affected shareholders

21 as if the taxable year consisted of 2 taxable

22 years the first of which ends on the date of the

23 termination.

24 ‘‘(B) AFFECTED SHAREHOLDERS.—For

25 purposes of subparagraph (A), the term ‘af-
41

•HR 3448 EH

1 fected shareholders’ means the shareholder

2 whose interest is terminated and all sharehold3 ers to whom such shareholder has transferred

4 shares during the taxable year. If such share5 holder has transferred shares to the corpora6 tion, the term ‘affected shareholders’ shall in7 clude all persons who are shareholders during

8 the taxable year.’’.

9 SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION

10 PERIOD.

11 (a) IN GENERAL.—Paragraph (1) of section 1377(b)

12 (relating to post-termination transition period) is amended

13 by striking ‘‘and’’ at the end of subparagraph (A), by re14 designating subparagraph (B) as subparagraph (C), and

15 by inserting after subparagraph (A) the following new sub16 paragraph:

17 ‘‘(B) the 120-day period beginning on the

18 date of any determination pursuant to an audit

19 of the taxpayer which follows the termination of

20 the corporation’s election and which adjusts a

21 subchapter S item of income, loss, or deduction

22 of the corporation arising during the S period

23 (as defined in section 1368(e)(2)), and’’.

24 (b) DETERMINATION DEFINED.—Paragraph (2) of

25 section 1377(b) is amended by striking subparagraphs (A)
42

•HR 3448 EH

1 and (B), by redesignating subparagraph (C) as subpara2 graph (B), and by inserting before subparagraph (B) (as

3 so redesignated) the following new subparagraph:

4 ‘‘(A) a determination as defined in section

5 1313(a), or’’.

6 (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR

7 SUBCHAPTER S ITEMS.—

8 (1) GENERAL RULE.—Subchapter D of chapter

9 63 (relating to tax treatment of subchapter S items)

10 is hereby repealed.

11 (2) CONSISTENT TREATMENT REQUIRED.—Sec12 tion 6037 (relating to return of S corporation) is

13 amended by adding at the end the following new

14 subsection:

15 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST16 ENT WITH CORPORATE RETURN OR SECRETARY NOTI17 FIED OF INCONSISTENCY.—

18 ‘‘(1) IN GENERAL.—A shareholder of an S cor19 poration shall, on such shareholder’s return, treat a

20 subchapter S item in a manner which is consistent

21 with the treatment of such item on the corporate re22 turn.

23 ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT24 MENT.—
43

•HR 3448 EH

1 ‘‘(A) IN GENERAL.—In the case of any

2 subchapter S item, if—

3 ‘‘(i)(I) the corporation has filed a re4 turn but the shareholder’s treatment on

5 his return is (or may be) inconsistent with

6 the treatment of the item on the corporate

7 return, or

8 ‘‘(II) the corporation has not filed a

9 return, and

10 ‘‘(ii) the shareholder files with the

11 Secretary a statement identifying the in12 consistency,

13 paragraph (1) shall not apply to such item.

14 ‘‘(B) SHAREHOLDER RECEIVING INCOR15 RECT INFORMATION.—A shareholder shall be

16 treated as having complied with clause (ii) of

17 subparagraph (A) with respect to a subchapter

18 S item if the shareholder—

19 ‘‘(i) demonstrates to the satisfaction

20 of the Secretary that the treatment of the

21 subchapter S item on the shareholder’s re22 turn is consistent with the treatment of the

23 item on the schedule furnished to the

24 shareholder by the corporation, and
44

•HR 3448 EH

1 ‘‘(ii) elects to have this paragraph

2 apply with respect to that item.

3 ‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any

4 case—

5 ‘‘(A) described in subparagraph (A)(i)(I)

6 of paragraph (2), and

7 ‘‘(B) in which the shareholder does not

8 comply with subparagraph (A)(ii) of paragraph

9 (2),

10 any adjustment required to make the treatment of

11 the items by such shareholder consistent with the

12 treatment of the items on the corporate return shall

13 be treated as arising out of mathematical or clerical

14 errors and assessed according to section 6213(b)(1).

15 Paragraph (2) of section 6213(b) shall not apply to

16 any assessment referred to in the preceding sen17 tence.

18 ‘‘(4) SUBCHAPTER S ITEM.—For purposes of

19 this subsection, the term ‘subchapter S item’ means

20 any item of an S corporation to the extent that reg21 ulations prescribed by the Secretary provide that, for

22 purposes of this subtitle, such item is more appro23 priately determined at the corporation level than at

24 the shareholder level.
45

•HR 3448 EH

1 ‘‘(5) ADDITION TO TAX FOR FAILURE TO COM2 PLY WITH SECTION.—

‘‘For addition to tax in the case of a shareholder’s

negligence in connection with, or disregard of, the

requirements of this section, see part II of subchapter A of chapter 68.’’.

3 (3) CONFORMING AMENDMENTS.—

4 (A) Section 1366 is amended by striking

5 subsection (g).

6 (B) Subsection (b) of section 6233 is

7 amended to read as follows:

8 ‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part9 nership return is filed for any taxable year but it is deter10 mined that there is no entity for such taxable year, to the

11 extent provided in regulations, rules similar to the rules

12 of subsection (a) shall apply.’’.

13 (C) The table of subchapters for chapter

14 63 is amended by striking the item relating to

15 subchapter D.

16 SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUB17 SIDIARIES.

18 (a) IN GENERAL.—Paragraph (2) of section 1361(b)

19 (defining ineligible corporation) is amended by striking

20 subparagraph (A) and by redesignating subparagraphs

21 (B), (C), (D), and (E) as subparagraphs (A), (B), (C),

22 and (D), respectively.
46

•HR 3448 EH

1 (b) TREATMENT OF CERTAIN WHOLLY OWNED S

2 CORPORATION SUBSIDIARIES.—Section 1361(b) (defining

3 small business corporation) is amended by adding at the

4 end the following new paragraph:

5 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

6 SUBSIDIARIES.—

7 ‘‘(A) IN GENERAL.—For purposes of this

8 title—

9 ‘‘(i) a corporation which is a qualified

10 subchapter S subsidiary shall not be treat11 ed as a separate corporation, and

12 ‘‘(ii) all assets, liabilities, and items of

13 income, deduction, and credit of a qualified

14 subchapter S subsidiary shall be treated as

15 assets, liabilities, and such items (as the

16 case may be) of the S corporation.

17 ‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI18 ARY.—For purposes of this paragraph, the term

19 ‘qualified subchapter S subsidiary’ means any

20 domestic corporation which is not an ineligible

21 corporation (as defined in paragraph (2)), if—

22 ‘‘(i) 100 percent of the stock of such

23 corporation is held by the S corporation,

24 and
47

•HR 3448 EH

1 ‘‘(ii) the S corporation elects to treat

2 such corporation as a qualified subchapter

3 S subsidiary.

4 ‘‘(C) TREATMENT OF TERMINATIONS OF

5 QUALIFIED SUBCHAPTER S SUBSIDIARY STA6 TUS.—For purposes of this title, if any corpora7 tion which was a qualified subchapter S subsidi8 ary ceases to meet the requirements of subpara9 graph (B), such corporation shall be treated as

10 a new corporation acquiring all of its assets

11 (and assuming all of its liabilities) immediately

12 before such cessation from the S corporation in

13 exchange for its stock.’’.

14 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

15 INVESTMENT INCOME.—Paragraph (3) of section 1362(d)

16 is amended by adding at the end the following new sub17 paragraph:

18 ‘‘(F) TREATMENT OF CERTAIN DIVI19 DENDS.—If an S corporation holds stock in a

20 C corporation meeting the requirements of sec21 tion 1504(a)(2), the term ‘passive investment

22 income’ shall not include dividends from such C

23 corporation to the extent such dividends are at24 tributable to the earnings and profits of such C
48

•HR 3448 EH

1 corporation derived from the active conduct of

2 a trade or business.’’.

3 (d) CONFORMING AMENDMENTS.—

4 (1) Subsection (c) of section 1361 is amended

5 by striking paragraph (6).

6 (2) Subsection (b) of section 1504 (defining in7 cludible corporation) is amended by adding at the

8 end the following new paragraph:

9 ‘‘(8) An S corporation.’’.

10 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

11 YEARS.

12 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

13 ACCOUNT BEFORE LOSSES.—

14 (1) Subparagraph (A) of section 1366(d)(1)

15 (relating to losses and deductions cannot exceed

16 shareholder’s basis in stock and debt) is amended by

17 striking ‘‘paragraph (1)’’ and inserting ‘‘paragraphs

18 (1) and (2)(A)’’.

19 (2) Subsection (d) of section 1368 (relating to

20 certain adjustments taken into account) is amended

21 by adding at the end the following new sentence:

22 ‘‘In the case of any distribution made during any taxable

23 year, the adjusted basis of the stock shall be determined

24 with regard to the adjustments provided in paragraph (1)

25 of section 1367(a) for the taxable year.’’.
49

•HR 3448 EH

1 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para2 graph (1) of section 1368(e) (relating to accumulated ad3 justments account) is amended by adding at the end the

4 following new subparagraph:

5 ‘‘(C) NET LOSS FOR YEAR DISREGARDED.—

6 ‘‘(i) IN GENERAL.—In applying this section

7 to distributions made during any taxable year,

8 the amount in the accumulated adjustments ac9 count as of the close of such taxable year shall

10 be determined without regard to any net nega11 tive adjustment for such taxable year.

12 ‘‘(ii) NET NEGATIVE ADJUSTMENT.—For

13 purposes of clause (i), the term ‘net negative

14 adjustment’ means, with respect to any taxable

15 year, the excess (if any) of—

16 ‘‘(I) the reductions in the account for

17 the taxable year (other than for distribu18 tions), over

19 ‘‘(II) the increases in such account for

20 such taxable year.’’.

21 (c) CONFORMING AMENDMENTS.—Subparagraph (A)

22 of section 1368(e)(1) is amended—

23 (1) by striking ‘‘as provided in subparagraph

24 (B)’’ and inserting ‘‘as otherwise provided in this

25 paragraph’’, and
50

•HR 3448 EH

1 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in2 serting ‘‘section 1367(a)(2)’’.

3 SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB4 CHAPTER C.

5 Subsection (a) of section 1371 (relating to applica6 tion of subchapter C rules) is amended to read as follows:

7 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex8 cept as otherwise provided in this title, and except to the

9 extent inconsistent with this subchapter, subchapter C

10 shall apply to an S corporation and its shareholders.’’.

11 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND

12 PROFITS.

13 (a) IN GENERAL.—If—

14 (1) a corporation was an electing small business

15 corporation under subchapter S of chapter 1 of the

16 Internal Revenue Code of 1986 for any taxable year

17 beginning before January 1, 1983, and

18 (2) such corporation is an S corporation under

19 subchapter S of chapter 1 of such Code for its first

20 taxable year beginning after December 31, 1996,

21 the amount of such corporation’s accumulated earnings

22 and profits (as of the beginning of such first taxable year)

23 shall be reduced by an amount equal to the portion (if

24 any) of such accumulated earnings and profits which were

25 accumulated in any taxable year beginning before January
51

•HR 3448 EH

1 1, 1983, for which such corporation was an electing small

2 business corporation under such subchapter S.

3 (b) CONFORMING AMENDMENTS.—

4 (1) Paragraph (3) of section 1362(d), as

5 amended by section 1308, is amended—

6 (A) by striking ‘‘SUBCHAPTER C’’ in the

7 paragraph heading and inserting ‘‘ACCUMU8 LATED’’,

9 (B) by striking ‘‘subchapter C’’ in sub10 paragraph (A)(i)(I) and inserting ‘‘accumu11 lated’’, and

12 (C) by striking subparagraph (B) and re13 designating the following subparagraphs accord14 ingly.

15 (2)(A) Subsection (a) of section 1375 is amend16 ed by striking ‘‘subchapter C’’ in paragraph (1) and

17 inserting ‘‘accumulated’’.

18 (B) Paragraph (3) of section 1375(b) is amend19 ed to read as follows:

20 ‘‘(3) PASSIVE INVESTMENT INCOME, ETC.—The

21 terms ‘passive investment income’ and ‘gross re22 ceipts’ have the same respective meanings as when

23 used in paragraph (3) of section 1362(d).’’.
52

•HR 3448 EH

1 (C) The section heading for section 1375 is

2 amended by striking ‘‘SUBCHAPTER C’’ and insert3 ing ‘‘ACCUMULATED’’.

4 (D) The table of sections for part III of sub5 chapter S of chapter 1 is amended by striking ‘‘sub6 chapter C’’ in the item relating to section 1375 and

7 inserting ‘‘accumulated’’.

8 (3) Clause (i) of section 1042(c)(4)(A) is

9 amended by striking ‘‘section 1362(d)(3)(D)’’ and

10 inserting ‘‘section 1362(d)(3)(C)’’.

11 SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE12 DUCTIONS UNDER AT-RISK RULES ALLOWED.

13 Paragraph (3) of section 1366(d) (relating to carry14 over of disallowed losses and deductions to post-termi15 nation transition period) is amended by adding at the end

16 the following new subparagraph:

17 ‘‘(D) AT-RISK LIMITATIONS.—To the ex18 tent that any increase in adjusted basis de19 scribed in subparagraph (B) would have in20 creased the shareholder’s amount at risk under

21 section 465 if such increase had occurred on

22 the day preceding the commencement of the

23 post-termination transition period, rules similar

24 to the rules described in subparagraphs (A)
53

•HR 3448 EH

1 through (C) shall apply to any losses disallowed

2 by reason of section 465(a).’’.

3 SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK

4 TO REFLECT CERTAIN ITEMS OF INCOME.

5 (a) IN GENERAL.—Subsection (b) of section 1367

6 (relating to adjustments to basis of stock of shareholders,

7 etc.) is amended by adding at the end the following new

8 paragraph:

9 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

10 STOCK.—

11 ‘‘(A) IN GENERAL.—If any person acquires

12 stock in an S corporation by reason of the

13 death of a decedent or by bequest, devise, or in14 heritance, section 691 shall be applied with re15 spect to any item of income of the S corpora16 tion in the same manner as if the decedent had

17 held directly his pro rata share of such item.

18 ‘‘(B) ADJUSTMENTS TO BASIS.—The basis

19 determined under section 1014 of any stock in

20 an S corporation shall be reduced by the por21 tion of the value of the stock which is attrib22 utable to items constituting income in respect

23 of the decedent.’’.
54

•HR 3448 EH

1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply in the case of decedents dying

3 after the date of the enactment of this Act.

4 SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLI5 CABLE TO REAL PROPERTY SUBDIVIDED FOR

6 SALE BY NONCORPORATE TAXPAYERS.

7 (a) IN GENERAL.—Subsection (a) of section 1237

8 (relating to real property subdivided for sale) is amended

9 by striking ‘‘other than a corporation’’ in the material pre10 ceding paragraph (1) and inserting ‘‘other than a C cor11 poration’’.

12 (b) CONFORMING AMENDMENT.—Subparagraph (A)

13 of section 1237(a)(2) is amended by inserting ‘‘an S cor14 poration which included the taxpayer as a shareholder,’’

15 after ‘‘controlled by the taxpayer,’’.

16 SEC. 1315. EFFECTIVE DATE.

17 (a) IN GENERAL.—Except as otherwise provided in

18 this subtitle, the amendments made by this subtitle shall

19 apply to taxable years beginning after December 31, 1996.

20 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

21 PRIOR LAW.—For purposes of section 1362(g) of the In22 ternal Revenue Code of 1986 (relating to election after

23 termination), any termination under section 1362(d) of

24 such Code in a taxable year beginning before January 1,

25 1997, shall not be taken into account.
55

•HR 3448 EH

1 Subtitle D—Pension Simplification

2 CHAPTER 1—SIMPLIFIED DISTRIBUTION

3 RULES

4 SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR

5 LUMP-SUM DISTRIBUTIONS.

6 (a) IN GENERAL.—Subsection (d) of section 402 (re7 lating to taxability of beneficiary of employees’ trust) is

8 amended to read as follows:

9 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

10 FOREIGN SITUS TRUSTS.—For purposes of subsections

11 (a), (b), and (c), a stock bonus, pension, or profit-sharing

12 trust which would qualify for exemption from tax under

13 section 501(a) except for the fact that it is a trust created

14 or organized outside the United States shall be treated

15 as if it were a trust exempt from tax under section

16 501(a).’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Subparagraph (D) of section 402(e)(4) (re19 lating to other rules applicable to exempt trusts) is

20 amended to read as follows:

21 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur22 poses of this paragraph—

23 ‘‘(i) IN GENERAL.—The term ‘lump

24 sum distribution’ means the distribution or

25 payment within one taxable year of the re-
56

•HR 3448 EH

1 cipient of the balance to the credit of an

2 employee which becomes payable to the re3 cipient—

4 ‘‘(I) on account of the employee’s

5 death,

6 ‘‘(II) after the employee attains

age 591 7 ⁄2,

8 ‘‘(III) on account of the employ9 ee’s separation from service, or

10 ‘‘(IV) after the employee has be11 come disabled (within the meaning of

12 section 72(m)(7)),

13 from a trust which forms a part of a plan

14 described in section 401(a) and which is

15 exempt from tax under section 501 or from

16 a plan described in section 403(a). Sub17 clause (III) of this clause shall be applied

18 only with respect to an individual who is

19 an employee without regard to section

20 401(c)(1), and subclause (IV) shall be ap21 plied only with respect to an employee

22 within the meaning of section 401(c)(1).

23 For purposes of this clause, a distribution

24 to two or more trusts shall be treated as

25 a distribution to one recipient. For pur-
57

•HR 3448 EH

1 poses of this paragraph, the balance to the

2 credit of the employee does not include the

3 accumulated deductible employee contribu4 tions under the plan (within the meaning

5 of section 72(o)(5)).

6 ‘‘(ii) AGGREGATION OF CERTAIN

7 TRUSTS AND PLANS.—For purposes of de8 termining the balance to the credit of an

9 employee under clause (i)—

10 ‘‘(I) all trusts which are part of

11 a plan shall be treated as a single

12 trust, all pension plans maintained by

13 the employer shall be treated as a sin14 gle plan, all profit-sharing plans main15 tained by the employer shall be treat16 ed as a single plan, and all stock

17 bonus plans maintained by the em18 ployer shall be treated as a single

19 plan, and

20 ‘‘(II) trusts which are not quali21 fied trusts under section 401(a) and

22 annuity contracts which do not satisfy

23 the requirements of section 404(a)(2)

24 shall not be taken into account.
58

•HR 3448 EH

1 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

2 The provisions of this paragraph shall be

3 applied without regard to community prop4 erty laws.

5 ‘‘(iv) AMOUNTS SUBJECT TO PEN6 ALTY.—This paragraph shall not apply to

7 amounts described in subparagraph (A) of

8 section 72(m)(5) to the extent that section

9 72(m)(5) applies to such amounts.

10 ‘‘(v) BALANCE TO CREDIT OF EM11 PLOYEE NOT TO INCLUDE AMOUNTS PAY12 ABLE UNDER QUALIFIED DOMESTIC RELA13 TIONS ORDER.—For purposes of this para14 graph, the balance to the credit of an em15 ployee shall not include any amount pay16 able to an alternate payee under a quali17 fied domestic relations order (within the

18 meaning of section 414(p)).

19 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

20 ARRANGEMENT NOT TREATED AS DIS21 TRIBUTION.—For purposes of this para22 graph, the balance to the credit of an em23 ployee under a defined contribution plan

24 shall not include any amount transferred

25 from such defined contribution plan to a
59

•HR 3448 EH

1 qualified cost-of-living arrangement (within

2 the meaning of section 415(k)(2)) under a

3 defined benefit plan.

4 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

5 ALTERNATE PAYEES.—If any distribution

6 or payment of the balance to the credit of

7 an employee would be treated as a lump8 sum distribution, then, for purposes of this

9 paragraph, the payment under a qualified

10 domestic relations order (within the mean11 ing of section 414(p)) of the balance to the

12 credit of an alternate payee who is the

13 spouse or former spouse of the employee

14 shall be treated as a lump-sum distribu15 tion. For purposes of this clause, the bal16 ance to the credit of the alternate payee

17 shall not include any amount payable to

18 the employee.’’.

19 (2) Section 402(c) (relating to rules applicable

20 to rollovers from exempt trusts) is amended by strik21 ing paragraph (10).

22 (3) Paragraph (1) of section 55(c) (defining

23 regular tax) is amended by striking ‘‘shall not in24 clude any tax imposed by section 402(d) and’’.
60

•HR 3448 EH

1 (4) Paragraph (8) of section 62(a) (relating to

2 certain portion of lump-sum distributions from pen3 sion plans taxed under section 402(d)) is hereby re4 pealed.

5 (5) Section 401(a)(28)(B) (relating to coordina6 tion with distribution rules) is amended by striking

7 clause (v).

8 (6) Subparagraph (B)(ii) of section 401(k)(10)

9 (relating to distributions that must be lump-sum dis10 tributions) is amended to read as follows:

11 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

12 purposes of this subparagraph, the term

13 ‘lump-sum distribution’ has the meaning

14 given such term by section 402(e)(4)(D)

15 (without regard to subclauses (I), (II),

16 (III), and (IV) of clause (i) thereof).’’.

17 (7) Section 406(c) (relating to termination of

18 status as deemed employee not to be treated as sep19 aration from service for purposes of limitation of

20 tax) is hereby repealed.

21 (8) Section 407(c) (relating to termination of

22 status as deemed employee not to be treated as sep23 aration from service for purposes of limitation of

24 tax) is hereby repealed.
61

•HR 3448 EH

1 (9) Section 691(c) (relating to deduction for es2 tate tax) is amended by striking paragraph (5).

3 (10) Paragraph (1) of section 871(b) (relating

4 to imposition of tax) is amended by striking ‘‘section

5 1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or

6 55’’.

7 (11) Subsection (b) of section 877 (relating to

8 alternative tax) is amended by striking ‘‘section 1,

9 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

10 (12) Section 4980A(c)(4) is amended—

11 (A) by striking ‘‘to which an election under

12 section 402(d)(4)(B) applies’’ and inserting

13 ‘‘(as defined in section 402(e)(4)(D)) with re14 spect to which the individual elects to have this

15 paragraph apply’’,

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

17 flush sentence:

18 ‘‘An individual may elect to have this paragraph

19 apply to only one lump-sum distribution.’’, and

20 (C) by striking the heading and inserting:

21 ‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.

22 (13) Section 402(e) is amended by striking

23 paragraph (5).

24 (c) EFFECTIVE DATES.—
62

•HR 3448 EH

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

2 this section shall apply to taxable years beginning

3 after December 31, 1998.

4 (2) RETENTION OF CERTAIN TRANSITION

5 RULES.—Notwithstanding any other provision of

6 this section, the amendments made by this section

7 shall not apply to any distribution for which the tax8 payer elects the benefits of section 1122 (h)(3) or

9 (h)(5) of the Tax Reform Act of 1986. For purposes

10 of the preceding sentence, the rules of sections

11 402(c)(10) and 402(d) of the Internal Revenue Code

12 of 1986 (as in effect before the amendments made

13 by this Act) shall apply.

14 SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’

15 DEATH BENEFITS.

16 (a) IN GENERAL.—Subsection (b) of section 101 is

17 hereby repealed.

18 (b) CONFORMING AMENDMENTS.—

19 (1) Subsection (c) of section 101 is amended by

20 striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub21 section (a)’’.

22 (2) Sections 406(e) and 407(e) are each amend23 ed by striking paragraph (2) and by redesignating

24 paragraph (3) as paragraph (2).
63

•HR 3448 EH

1 (3) Section 7701(a)(20) is amended by striking

2 ‘‘, for the purpose of applying the provisions of sec3 tion 101(b) with respect to employees’ death bene4 fits’’.

5 (c) EFFECTIVE DATE.—The amendments made by

6 this section shall apply with respect to decedents dying

7 after the date of the enactment of this Act.

8 SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS9 TRIBUTIONS UNDER CERTAIN EMPLOYER

10 PLANS.

11 (a) GENERAL RULE.—Subsection (d) of section 72

12 (relating to annuities; certain proceeds of endowment and

13 life insurance contracts) is amended to read as follows:

14 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

15 RETIREMENT PLANS.—

16 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

17 PAYMENTS.—

18 ‘‘(A) IN GENERAL.—In the case of any

19 amount received as an annuity under a quali20 fied employer retirement plan—

21 ‘‘(i) subsection (b) shall not apply,

22 and

23 ‘‘(ii) the investment in the contract

24 shall be recovered as provided in this para25 graph.
64

•HR 3448 EH

1 ‘‘(B) METHOD OF RECOVERING INVEST2 MENT IN CONTRACT.—

3 ‘‘(i) IN GENERAL.—Gross income

4 shall not include so much of any monthly

5 annuity payment under a qualified em6 ployer retirement plan as does not exceed

7 the amount obtained by dividing—

8 ‘‘(I) the investment in the con9 tract (as of the annuity starting date),

10 by

11 ‘‘(II) the number of anticipated

12 payments determined under the table

13 contained in clause (iii) (or, in the

14 case of a contract to which subsection

15 (c)(3)(B) applies, the number of

16 monthly annuity payments under such

17 contract).

18 ‘‘(ii) CERTAIN RULES MADE APPLICA19 BLE.—Rules similar to the rules of para20 graphs (2) and (3) of subsection (b) shall

21 apply for purposes of this paragraph.

22 ‘‘(iii) NUMBER OF ANTICIPATED PAY23 MENTS.—
65

•HR 3448 EH

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

Not more than 55 ................................ 360

More than 55 but not more than 60 ... 310

More than 60 but not more than 65 ... 260

More than 65 but not more than 70 ... 210

More than 70 ....................................... 160.

1 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

2 NOT APPLICABLE.—For purposes of this para3 graph, investment in the contract shall be de4 termined under subsection (c)(1) without re5 gard to subsection (c)(2).

6 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

7 PAID IN CONNECTION WITH COMMENCEMENT

8 OF ANNUITY PAYMENTS.—If, in connection with

9 the commencement of annuity payments under

10 any qualified employer retirement plan, the tax11 payer receives a lump sum payment—

12 ‘‘(i) such payment shall be taxable

13 under subsection (e) as if received before

14 the annuity starting date, and

15 ‘‘(ii) the investment in the contract

16 for purposes of this paragraph shall be de17 termined as if such payment had been so

18 received.

19 ‘‘(E) EXCEPTION.—This paragraph shall

20 not apply in any case where the primary annu21 itant has attained age 75 on the annuity start-
66

•HR 3448 EH

1 ing date unless there are fewer than 5 years of

2 guaranteed payments under the annuity.

3 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY4 MENTS NOT ON MONTHLY BASIS.—In any case

5 where the annuity payments are not made on a

6 monthly basis, appropriate adjustments in the

7 application of this paragraph shall be made to

8 take into account the period on the basis of

9 which such payments are made.

10 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

11 PLAN.—For purposes of this paragraph, the

12 term ‘qualified employer retirement plan’ means

13 any plan or contract described in paragraph

14 (1), (2), or (3) of section 4974(c).

15 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBU16 TIONS UNDER DEFINED CONTRIBUTION PLANS.—

17 For purposes of this section, employee contributions

18 (and any income allocable thereto) under a defined

19 contribution plan may be treated as a separate con20 tract.’’.

21 (b) EFFECTIVE DATE.—The amendment made by

22 this section shall apply in cases where the annuity starting

23 date is after the 90th day after the date of the enactment

24 of this Act.
67

•HR 3448 EH

1 SEC. 1404. REQUIRED DISTRIBUTIONS.

2 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re3 quired beginning date) is amended to read as follows:

4 ‘‘(C) REQUIRED BEGINNING DATE.—For

5 purposes of this paragraph—

6 ‘‘(i) IN GENERAL.—The term ‘re7 quired beginning date’ means April 1 of

8 the calendar year following the later of—

9 ‘‘(I) the calendar year in which

the employee attains age 701 10 ⁄2, or

11 ‘‘(II) the calendar year in which

12 the employee retires.

13 ‘‘(ii) EXCEPTION.—Subclause (II) of

14 clause (i) shall not apply—

15 ‘‘(I) except as provided in section

16 409(d), in the case of an employee

17 who is a 5-percent owner (as defined

18 in section 416) with respect to the

19 plan year ending in the calendar year

20 in which the employee attains age

701 21 ⁄2, or

22 ‘‘(II) for purposes of section 408

23 (a)(6) or (b)(3).

24 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

25 the case of an employee to whom clause

26 (i)(II) applies who retires in a calendar
68

•HR 3448 EH

1 year after the calendar year in which the

employee attains age 701 2 ⁄2, the employee’s

3 accrued benefit shall be actuarially in4 creased to take into account the period

after age 701 5 ⁄2 in which the employee was

6 not receiving any benefits under the plan.

7 ‘‘(iv) EXCEPTION FOR GOVERN8 MENTAL AND CHURCH PLANS.—Clauses

9 (ii) and (iii) shall not apply in the case of

10 a governmental plan or church plan. For

11 purposes of this clause, the term ‘church

12 plan’ means a plan maintained by a church

13 for church employees, and the term

14 ‘church’ means any church (as defined in

15 section 3121(w)(3)(A)) or qualified church16 controlled organization (as defined in sec17 tion 3121(w)(3)(B)).’’.

18 (b) EFFECTIVE DATE.—The amendment made by

19 subsection (a) shall apply to years beginning after Decem20 ber 31, 1996.
69

•HR 3448 EH

1 CHAPTER 2—INCREASED ACCESS TO

2 PENSION PLANS

3 Subchapter A—Simple Savings Plans

4 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE

5 MATCH PLANS FOR EMPLOYEES OF SMALL

6 EMPLOYERS.

7 (a) IN GENERAL.—Section 408 (relating to individual

8 retirement accounts) is amended by redesignating sub9 section (p) as subsection (q) and by inserting after sub10 section (o) the following new subsection:

11 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

12 ‘‘(1) IN GENERAL.—For purposes of this title,

13 the term ‘simple retirement account’ means an indi14 vidual retirement plan (as defined in section

15 7701(a)(37))—

16 ‘‘(A) with respect to which the require17 ments of paragraphs (3), (4), and (5) are met;

18 and

19 ‘‘(B) with respect to which the only con20 tributions allowed are contributions under a

21 qualified salary reduction arrangement.

22 ‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE23 MENT.—

24 ‘‘(A) IN GENERAL.—For purposes of this

25 subsection, the term ‘qualified salary reduction
70

•HR 3448 EH

1 arrangement’ means a written arrangement of

2 an eligible employer under which—

3 ‘‘(i) an employee eligible to participate

4 in the arrangement may elect to have the

5 employer make payments—

6 ‘‘(I) as elective employer con7 tributions to a simple retirement ac8 count on behalf of the employee, or

9 ‘‘(II) to the employee directly in

10 cash,

11 ‘‘(ii) the amount which an employee

12 may elect under clause (i) for any year is

13 required to be expressed as a percentage of

14 compensation and may not exceed a total

15 of $6,000 for any year,

16 ‘‘(iii) the employer is required to make

17 a matching contribution to the simple re18 tirement account for any year in an

19 amount equal to so much of the amount

20 the employee elects under clause (i)(I) as

21 does not exceed the applicable percentage

22 of compensation for the year, and

23 ‘‘(iv) no contributions may be made

24 other than contributions described in

25 clause (i) or (iii).
71

•HR 3448 EH

1 ‘‘(B) EMPLOYER MAY ELECT 2-PERCENT

2 NONELECTIVE CONTRIBUTION.—An employer

3 shall be treated as meeting the requirements of

4 subparagraph (A)(iii) for any year if, in lieu of

5 the contributions described in such clause, the

6 employer elects to make nonelective contribu7 tions of 2 percent of compensation for each em8 ployee who is eligible to participate in the ar9 rangement and who has at least $5,000 of com10 pensation from the employer for the year. If an

11 employer makes an election under this subpara12 graph for any year, the employer shall notify

13 employees of such election within a reasonable

14 period of time before the 30-day period for such

15 year under paragraph (5)(C).

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

17 subsection—

18 ‘‘(i) ELIGIBLE EMPLOYER.—The term

19 ‘eligible employer’ means an employer who

20 employs 100 or fewer employees on any

21 day during the year.

22 ‘‘(ii) APPLICABLE PERCENTAGE.—

23 ‘‘(I) IN GENERAL.—The term

24 ‘applicable percentage’ means 3 per25 cent.
72

•HR 3448 EH

1 ‘‘(II) ELECTION OF LOWER PER2 CENTAGE.—An employer may elect to

3 apply a lower percentage (not less

4 than 1 percent) for any year for all

5 employees eligible to participate in the

6 plan for such year if the employer no7 tifies the employees of such lower per8 centage within a reasonable period of

9 time before the 30-day election period

10 for such year under paragraph (5)(C).

11 An employer may not elect a lower

12 percentage under this subclause for

13 any year if that election would result

14 in the applicable percentage being

15 lower than 3 percent in more than 2

16 of the years in the 5-year period end17 ing with such year.

18 ‘‘(III) SPECIAL RULE FOR YEARS

19 ARRANGEMENT NOT IN EFFECT.—If

20 any year in the 5-year period de21 scribed in subclause (II) is a year

22 prior to the first year for which any

23 qualified salary reduction arrange24 ment is in effect with respect to the

25 employer (or any predecessor), the
73

•HR 3448 EH

1 employer shall be treated as if the

2 level of the employer matching con3 tribution was at 3 percent of com4 pensation for such prior year.

5 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN

6 OF EMPLOYER.—

7 ‘‘(i) IN GENERAL.—An arrangement

8 shall not be treated as a qualified salary

9 reduction arrangement for any year if the

10 employer (or any predecessor employer)

11 maintained a qualified plan with respect to

12 which contributions were made, or benefits

13 were accrued, for service in any year in the

14 period beginning with the year such ar15 rangement became effective and ending

16 with the year for which the determination

17 is being made.

18 ‘‘(ii) QUALIFIED PLAN.—For purposes

19 of this subparagraph, the term ‘qualified

20 plan’ means a plan, contract, pension, or

21 trust described in subparagraph (A) or (B)

22 of section 219(g)(5).

23 ‘‘(E) COST-OF-LIVING ADJUSTMENT.—The

24 Secretary shall adjust the $6,000 amount under

25 subparagraph (A)(ii) at the same time and in
74

•HR 3448 EH

1 the same manner as under section 415(d), ex2 cept that the base period taken into account

3 shall be the calendar quarter ending September

4 30, 1995, and any increase under this subpara5 graph which is not a multiple of $500 shall be

6 rounded to the next lower multiple of $500.

7 ‘‘(3) VESTING REQUIREMENTS.—The require8 ments of this paragraph are met with respect to a

9 simple retirement account if the employee’s rights to

10 any contribution to the simple retirement account

11 are nonforfeitable. For purposes of this paragraph,

12 rules similar to the rules of subsection (k)(4) shall

13 apply.

14 ‘‘(4) PARTICIPATION REQUIREMENTS.—

15 ‘‘(A) IN GENERAL.—The requirements of

16 this paragraph are met with respect to any sim17 ple retirement account for a year only if, under

18 the qualified salary reduction arrangement, all

19 employees of the employer who—

20 ‘‘(i) received at least $5,000 in com21 pensation from the employer during any 2

22 preceding years, and

23 ‘‘(ii) are reasonably expected to re24 ceive at least $5,000 in compensation dur25 ing the year,
75

•HR 3448 EH

1 are eligible to make the election under para2 graph (2)(A)(i) or receive the nonelective con3 tribution described in paragraph (2)(B).

4 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em5 ployer may elect to exclude from the require6 ment under subparagraph (A) employees de7 scribed in section 410(b)(3).

8 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The

9 requirements of this paragraph are met with respect

10 to any simplified retirement account if, under the

11 qualified salary reduction arrangement—

12 ‘‘(A) an employer must—

13 ‘‘(i) make the elective employer con14 tributions under paragraph (2)(A)(i) not

15 later than the close of the 30-day period

16 following the last day of the month with

17 respect to which the contributions are to

18 be made, and

19 ‘‘(ii) make the matching contributions

20 under paragraph (2)(A)(iii) or the

21 nonelective contributions under paragraph

22 (2)(B) not later than the date described

23 in section 404(m)(2)(B),

24 ‘‘(B) an employee may elect to terminate

25 participation in such arrangement at any time
76

•HR 3448 EH

1 during the year, except that if an employee so

2 terminates, the arrangement may provide that

3 the employee may not elect to resume participa4 tion until the beginning of the next year, and

5 ‘‘(C) each employee eligible to participate

6 may elect, during the 30-day period before the

7 beginning of any year (and the 30-day period

8 before the first day such employee is eligible to

9 participate), to participate in the arrangement,

10 or to modify the amounts subject to such ar11 rangement, for such year.

12 ‘‘(6) DEFINITIONS.—For purposes of this sub13 section—

14 ‘‘(A) COMPENSATION.—

15 ‘‘(i) IN GENERAL.—The term ‘com16 pensation’ means amounts described in

17 paragraphs (3) and (8) of section 6051(a).

18 ‘‘(ii) SELF-EMPLOYED.—In the case

19 of an employee described in subparagraph

20 (B), the term ‘compensation’ means net

21 earnings from self-employment determined

22 under section 1402(a) without regard to

23 any contribution under this subsection.
77

•HR 3448 EH

1 ‘‘(B) EMPLOYEE.—The term ‘employee’ in2 cludes an employee as defined in section

3 401(c)(1).

4 ‘‘(C) YEAR.—The term ‘year’ means the

5 calendar year.’’.

6 (b) TAX TREATMENT OF SIMPLE RETIREMENT AC7 COUNTS.—

8 (1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM9 PLOYEES.—

10 (A) Section 219(b) (relating to maximum

11 amount of deduction) is amended by adding at

12 the end the following new paragraph:

13 ‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT

14 ACCOUNTS.—This section shall not apply with re15 spect to any amount contributed to a simple retire16 ment account established under section 408(p).’’.

17 (B) Section 219(g)(5)(A) (defining active

18 participant) is amended by striking ‘‘or’’ at the

19 end of clause (iv) and by adding at the end the

20 following new clause:

21 ‘‘(vi) any simple retirement account

22 (within the meaning of section 408(p)),

23 or’’.

24 (2) DEDUCTIBILITY OF EMPLOYER CONTRIBU25 TIONS.—Section 404 (relating to deductions for con-
78

•HR 3448 EH

1 tributions of an employer to pension, etc. plans) is

2 amended by adding at the end the following new

3 subsection:

4 ‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC5 COUNTS.—

6 ‘‘(1) IN GENERAL.—Employer contributions to

7 a simple retirement account shall be treated as if

8 they are made to a plan subject to the requirements

9 of this section.

10 ‘‘(2) TIMING.—

11 ‘‘(A) DEDUCTION.—Contributions de12 scribed in paragraph (1) shall be deductible in

13 the taxable year of the employer with or within

14 which the calendar year for which the contribu15 tions were made ends.

16 ‘‘(B) CONTRIBUTIONS AFTER END OF

17 YEAR.—For purposes of this subsection, con18 tributions shall be treated as made for a taxable

19 year if they are made on account of the taxable

20 year and are made not later than the time pre21 scribed by law for filing the return for the tax22 able year (including extensions thereof).’’.

23 (3) CONTRIBUTIONS AND DISTRIBUTIONS.—
79

•HR 3448 EH

1 (A) Section 402 (relating to taxability of

2 beneficiary of employees’ trust) is amended by

3 adding at the end the following new subsection:

4 ‘‘(k) TREATMENT OF SIMPLE RETIREMENT AC5 COUNTS.—Rules similar to the rules of paragraphs (1)

6 and (3) of subsection (h) shall apply to contributions and

7 distributions with respect to a simple retirement account

8 under section 408(p).’’.

9 (B) Section 408(d)(3) is amended by add10 ing at the end the following new subparagraph:

11 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

12 This paragraph shall not apply to any amount

13 paid or distributed out of a simple retirement

14 account (as defined in section 408(p)) unless—

15 ‘‘(i) it is paid into another simple re16 tirement account, or

17 ‘‘(ii) in the case of any payment or

18 distribution to which section 72(t)(8) does

19 not apply, it is paid into an individual re20 tirement plan.’’.

21 (C) Clause (i) of section 457(c)(2)(B) is

22 amended by striking ‘‘section 402(h)(1)(B)’’

23 and inserting ‘‘section 402(h)(1)(B) or (k)’’.

24 (4) PENALTIES.—
80

•HR 3448 EH

1 (A) EARLY WITHDRAWALS.—Section 72(t)

2 (relating to additional tax in early distribu3 tions), as amended by this Act, is amended by

4 adding at the end the following new paragraph:

5 ‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT

6 ACCOUNTS.—In the case of any amount received

7 from a simple retirement account (within the mean8 ing of section 408(p)) during the 2-year period be9 ginning on the date such individual first participated

10 in any qualified salary reduction arrangement main11 tained by the individual’s employer under section

12 408(p)(2), paragraph (1) shall be applied by sub13 stituting ‘25 percent’ for ‘10 percent’.’’.

14 (B) FAILURE TO REPORT.—Section 6693

15 is amended by redesignating subsection (c) as

16 subsection (d) and by inserting after subsection

17 (b) the following new subsection:

18 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

19 ACCOUNTS.—

20 ‘‘(1) EMPLOYER PENALTIES.—An employer who

21 fails to provide 1 or more notices required by section

22 408(l)(2)(C) shall pay a penalty of $50 for each day

23 on which such failures continue.

24 ‘‘(2) TRUSTEE PENALTIES.—A trustee who

25 fails—
81

•HR 3448 EH

1 ‘‘(A) to provide 1 or more statements re2 quired by the last sentence of section 408(i)

3 shall pay a penalty of $50 for each day on

4 which such failures continue, or

5 ‘‘(B) to provide 1 or more summary de6 scriptions required by section 408(l)(2)(B) shall

7 pay a penalty of $50 for each day on which

8 such failures continue.

9 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No

10 penalty shall be imposed under this subsection with

11 respect to any failure which the taxpayer shows was

12 due to reasonable cause.’’.

13 (5) REPORTING REQUIREMENTS.—

14 (A) Section 408(l) is amended by adding

15 at the end the following new paragraph:

16 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

17 ‘‘(A) NO EMPLOYER REPORTS.—Except as

18 provided in this paragraph, no report shall be

19 required under this section by an employer

20 maintaining a qualified salary reduction ar21 rangement under subsection (p).

22 ‘‘(B) SUMMARY DESCRIPTION.—The trust23 ee of any simple retirement account established

24 pursuant to a qualified salary reduction ar25 rangement under subsection (p) shall provide to
82

•HR 3448 EH

1 the employer maintaining the arrangement,

2 each year a description containing the following

3 information:

4 ‘‘(i) The name and address of the em5 ployer and the trustee.

6 ‘‘(ii) The requirements for eligibility

7 for participation.

8 ‘‘(iii) The benefits provided with re9 spect to the arrangement.

10 ‘‘(iv) The time and method of making

11 elections with respect to the arrangement.

12 ‘‘(v) The procedures for, and effects

13 of, withdrawals (including rollovers) from

14 the arrangement.

15 ‘‘(C) EMPLOYEE NOTIFICATION.—The em16 ployer shall notify each employee immediately

17 before the period for which an election de18 scribed in subsection (p)(5)(C) may be made of

19 the employee’s opportunity to make such elec20 tion. Such notice shall include a copy of the de21 scription described in subparagraph (B).’’.

22 (B) Section 408(l) is amended by striking

23 ‘‘An employer’’ and inserting the following:

24 ‘‘(1) IN GENERAL.—An employer’’.
83

•HR 3448 EH

1 (6) REPORTING REQUIREMENTS.—Section

2 408(i) is amended by adding at the end the following

3 new flush sentence:

4 ‘‘In the case of a simple retirement account under sub5 section (p), only one report under this subsection shall be

6 required to be submitted each calendar year to the Sec7 retary (at the time provided under paragraph (2)) but, in

8 addition to the report under this subsection, there shall

9 be furnished, within 30 days after each calendar year, to

10 the individual on whose behalf the account is maintained

11 a statement with respect to the account balance as of the

12 close of, and the account activity during, such calendar

13 year.’’.

14 (7) EXEMPTION FROM TOP-HEAVY PLAN

15 RULES.—Section 416(g)(4) (relating to special rules

16 for top-heavy plans) is amended by adding at the

17 end the following new subparagraph:

18 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

19 The term ‘top-heavy plan’ shall not include a

20 simple retirement account under section

21 408(p).’’.

22 (8) EMPLOYMENT TAXES.—

23 (A) Paragraph (5) of section 3121(a) is

24 amended by striking ‘‘or’’ at the end of sub25 paragraph (F), by inserting ‘‘or’’ at the end of
84

•HR 3448 EH

1 subparagraph (G), and by adding at the end

2 the following new subparagraph:

3 ‘‘(H) under an arrangement to which sec4 tion 408(p) applies, other than any elective con5 tributions under paragraph (2)(A)(i) thereof,’’.

6 (B) Section 209(a)(4) of the Social Security

7 Act is amended by inserting ‘‘, or (J) under an ar8 rangement to which section 408(p) of such Code ap9 plies, other than any elective contributions under

10 paragraph (2)(A)(i) thereof’’ before the semicolon at

11 the end thereof.

12 (C) Paragraph (5) of section 3306(b) is amend13 ed by striking ‘‘or’’ at the end of subparagraph (F),

14 by inserting ‘‘or’’ at the end of subparagraph (G),

15 and by adding at the end the following new subpara16 graph:

17 ‘‘(H) under an arrangement to which sec18 tion 408(p) applies, other than any elective con19 tributions under paragraph (2)(A)(i) thereof,’’.

20 (D) Paragraph (12) of section 3401(a) is

21 amended by adding the following new subparagraph:

22 ‘‘(D) under an arrangement to which sec23 tion 408(p) applies; or’’.

24 (9) CONFORMING AMENDMENTS.—
85

•HR 3448 EH

1 (A) Section 280G(b)(6) is amended by

2 striking ‘‘or’’ at the end of subparagraph (B),

3 by striking the period at the end of subpara4 graph (C) and inserting ‘‘, or’’ and by adding

5 after subparagraph (C) the following new sub6 paragraph:

7 ‘‘(D) a simple retirement account described

8 in section 408(p).’’.

9 (B) Section 402(g)(3) is amended by strik10 ing ‘‘and’’ at the end of subparagraph (B), by

11 striking the period at the end of subparagraph

12 (C) and inserting ‘‘, and’’, and by adding after

13 subparagraph (C) the following new subpara14 graph:

15 ‘‘(D) any elective employer contribution

16 under section 408(p)(2)(A)(i).’’.

17 (C) Subsections (b), (c), (m)(4)(B), and

18 (n)(3)(B) of section 414 are each amended by

19 inserting ‘‘408(p),’’ after ‘‘408(k),’’.

20 (D) Section 4972(d)(1)(A) is amended by

21 striking ‘‘and’’ at the end of clause (ii), by

22 striking the period at the end of clause (iii) and

23 inserting ‘‘, and’’, and by adding after clause

24 (iii) the following new clause:
86

•HR 3448 EH

1 ‘‘(iv) any simple retirement account

2 (within the meaning of section 408(p)).’’.

3 (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM4 PLOYEE PENSIONS.—Section 408(k)(6) is amended by

5 adding at the end the following new subparagraph:

6 ‘‘(H) TERMINATION.—This paragraph

7 shall not apply to years beginning after Decem8 ber 31, 1996. The preceding sentence shall not

9 apply to a simplified employee pension if the

10 terms of such pension, as in effect on December

11 31, 1996, provide that an employee may make

12 the election described in subparagraph (A).’’.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR17 RANGEMENTS.

18 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

19 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (re20 lating to cash or deferred arrangements) is amended by

21 adding at the end the following new paragraph:

22 ‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET

23 NONDISCRIMINATION TESTS.—

24 ‘‘(A) IN GENERAL.—A cash or deferred ar25 rangement maintained by an eligible employer
87

•HR 3448 EH

1 shall be treated as meeting the requirements of

2 paragraph (3)(A)(ii) if such arrangement

3 meets—

4 ‘‘(i) the contribution requirements of

5 subparagraph (B),

6 ‘‘(ii) the exclusive benefit require7 ments of subparagraph (C), and

8 ‘‘(iii) the vesting requirements of sec9 tion 408(p)(3).

10 ‘‘(B) CONTRIBUTION REQUIREMENTS.—

11 ‘‘(i) IN GENERAL.—The requirements

12 of this subparagraph are met if, under the

13 arrangement—

14 ‘‘(I) an employee may elect to

15 have the employer make elective con16 tributions for the year on behalf of

17 the employee to a trust under the plan

18 in an amount which is expressed as a

19 percentage of compensation of the em20 ployee but which in no event exceeds

21 $6,000,

22 ‘‘(II) the employer is required to

23 make a matching contribution to the

24 trust for the year in an amount equal

25 to so much of the amount the em-
88

•HR 3448 EH

1 ployee elects under subclause (I) as

2 does not exceed 3 percent of com3 pensation for the year, and

4 ‘‘(III) no other contributions may

5 be made other than contributions de6 scribed in subclause (I) or (II).

7 ‘‘(ii) EMPLOYER MAY ELECT 2-PER8 CENT NONELECTIVE CONTRIBUTION.—An

9 employer shall be treated as meeting the

10 requirements of clause (i)(II) for any year

11 if, in lieu of the contributions described in

12 such clause, the employer elects (pursuant

13 to the terms of the arrangement) to make

14 nonelective contributions of 2 percent of

15 compensation for each employee who is eli16 gible to participate in the arrangement and

17 who has at least $5,000 of compensation

18 from the employer for the year. If an em19 ployer makes an election under this sub20 paragraph for any year, the employer shall

21 notify employees of such election within a

22 reasonable period of time before the 30th

23 day before the beginning of such year.

24 ‘‘(C) EXCLUSIVE BENEFIT.—The require25 ments of this subparagraph are met for any
89

•HR 3448 EH

1 year to which this paragraph applies if no con2 tributions were made, or benefits were accrued,

3 for services during such year under any quali4 fied plan of the employer on behalf of any em5 ployee eligible to participate in the cash or de6 ferred arrangement, other than contributions

7 described in subparagraph (B).

8 ‘‘(D) DEFINITIONS AND SPECIAL RULE.—

9 ‘‘(i) DEFINITIONS.—For purposes of

10 this paragraph, any term used in this

11 paragraph which is also used in section

12 408(p) shall have the meaning given such

13 term by such section.

14 ‘‘(ii) COORDINATION WITH TOP-HEAVY

15 RULES.—A plan meeting the requirements

16 of this paragraph for any year shall not be

17 treated as a top-heavy plan under section

18 416 for such year.’’.

19 (b) ALTERNATIVE METHODS OF SATISFYING SEC20 TION 401(m) NONDISCRIMINATION TESTS.—Section

21 401(m) (relating to nondiscrimination test for matching

22 contributions and employee contributions) is amended by

23 redesignating paragraph (10) as paragraph (11) and by

24 adding after paragraph (9) the following new paragraph:
90

•HR 3448 EH

1 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

2 TESTS.—A defined contribution plan shall be treated

3 as meeting the requirements of paragraph (2) with

4 respect to matching contributions if the plan—

5 ‘‘(A) meets the contribution requirements

6 of subparagraph (B) of subsection (k)(11),

7 ‘‘(B) meets the exclusive benefit require8 ments of subsection (k)(11)(C), and

9 ‘‘(C) meets the vesting requirements of

10 section 408(p)(3).’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to plan years beginning after De13 cember 31, 1996.

14 Subchapter B—Other Provisions

15 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

16 SECTION 401(k).

17 (a) IN GENERAL.—Subparagraph (B) of section

18 401(k)(4) is amended to read as follows:

19 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

20 GOVERNMENTS AND TAX-EXEMPT ORGANIZA21 TIONS.—

22 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Ex23 cept as provided in clause (ii), any organi24 zation exempt from tax under this subtitle

25 may include a qualified cash or deferred
91

•HR 3448 EH

1 arrangement as part of a plan maintained

2 by it.

3 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

4 cash or deferred arrangement shall not be

5 treated as a qualified cash or deferred ar6 rangement if it is part of a plan main7 tained by a State or local government or

8 political subdivision thereof, or any agency

9 or instrumentality thereof. This clause

10 shall not apply to a rural cooperative plan

11 or to a plan of an employer described in

12 clause (iii).

13 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

14 GOVERNMENTS.—An employer which is an

15 Indian tribal government (as defined in

16 section 7701(a)(40)), a subdivision of an

17 Indian tribal government (determined in

18 accordance with section 7871(d)), an agen19 cy or instrumentality of an Indian tribal

20 government or subdivision thereof, or a

21 corporation chartered under Federal,

22 State, or tribal law which is owned in

23 whole or in part by any of the foregoing

24 shall be treated as an organization exempt
92

•HR 3448 EH

1 from tax under this subtitle for purposes

2 of clause (i).’’.

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to plan years beginning after De5 cember 31, 1996, but shall not apply to any cash or de6 ferred arrangement to which clause (i) of section

7 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

8 CHAPTER 3—NONDISCRIMINATION

9 PROVISIONS

10 SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EM11 PLOYEES; REPEAL OF FAMILY AGGREGATION.

12 (a) IN GENERAL.—Paragraph (1) of section 414(q)

13 (defining highly compensated employee) is amended to

14 read as follows:

15 ‘‘(1) IN GENERAL.—The term ‘highly com16 pensated employee’ means any employee who—

17 ‘‘(A) was a 5-percent owner at any time

18 during the year or the preceding year, or

19 ‘‘(B) for the preceding year—

20 ‘‘(i) had compensation from the em21 ployer in excess of $80,000, and

22 ‘‘(ii) was in the top-paid group of the

23 employer.

24 The Secretary shall adjust the $80,000 amount

25 under subparagraph (B) at the same time and in the
93

•HR 3448 EH

1 same manner as under section 415(d), except that

2 the base period shall be the calendar quarter ending

3 September 30, 1996.’’.

4 (b) REPEAL OF FAMILY AGGREGATION RULES.—

5 (1) IN GENERAL.—Paragraph (6) of section

6 414(q) is hereby repealed.

7 (2) COMPENSATION LIMIT.—Paragraph (17)(A)

8 of section 401(a) is amended by striking the last

9 sentence.

10 (3) DEDUCTION.—Subsection (l) of section 404

11 is amended by striking the last sentence.

12 (c) CONFORMING AMENDMENTS.—

13 (1)(A) Subsection (q) of section 414 is amended

14 by striking paragraphs (2), (5), (8), and (12) and by

15 redesignating paragraphs (3), (4), (7), (9), (10), and

16 (11) as paragraphs (2) through (7), respectively.

17 (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),

18 408(k)(2)(C), and 416(i)(1)(D) are each amended

19 by striking ‘‘section 414(q)(7)’’ and inserting ‘‘sec20 tion 414(q)(4)’’.

21 (C) Section 416(i)(1)(A) is amended by striking

22 ‘‘section 414(q)(8)’’ and inserting ‘‘section

23 414(r)(9)’’.

24 (2)(A) Section 414(r) is amended by adding at

25 the end the following new paragraph:
94

•HR 3448 EH

1 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

2 this subsection, the following employees shall be ex3 cluded:

4 ‘‘(A) Employees who have not completed 6

5 months of service.

6 ‘‘(B) Employees who normally work less

than 171 7 ⁄2 hours per week.

8 ‘‘(C) Employees who normally work not

9 more than 6 months during any year.

10 ‘‘(D) Employees who have not attained the

11 age of 21.

12 ‘‘(E) Except to the extent provided in reg13 ulations, employees who are included in a unit

14 of employees covered by an agreement which

15 the Secretary of Labor finds to be a collective

16 bargaining agreement between employee rep17 resentatives and the employer.

18 Except as provided by the Secretary, the employer

19 may elect to apply subparagraph (A), (B), (C), or

20 (D) by substituting a shorter period of service,

21 smaller number of hours or months, or lower age for

22 the period of service, number of hours or months, or

23 age (as the case may be) specified in such subpara24 graph.’’.
95

•HR 3448 EH

1 (B) Subparagraph (A) of section 414(r)(2) is

2 amended by striking ‘‘subsection (q)(8)’’ and insert3 ing ‘‘paragraph (9)’’.

4 (3) Section 1114(c)(4) of the Tax Reform Act

5 of 1986 is amended by adding at the end the follow6 ing new sentence: ‘‘Any reference in this paragraph

7 to section 414(q) shall be treated as a reference to

8 such section as in effect on the day before the date

9 of the enactment of the Small Business Job Protec10 tion Act of 1996.’’.

11 (d) EFFECTIVE DATE.—

12 (1) IN GENERAL.—The amendments made by

13 this section shall apply to years beginning after De14 cember 31, 1996, except that in determining wheth15 er an employee is a highly compensated employee for

16 years beginning in 1997, such amendments shall be

17 treated as having been in effect for years beginning

18 in 1996.

19 (2) FAMILY AGGREGATION.—The amendments

20 made by subsection (b) shall apply to years begin21 ning after December 31, 1996.
96

•HR 3448 EH

1 SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION

2 REQUIREMENTS.

3 (a) GENERAL RULE.—Section 401(a)(26)(A) (relat4 ing to additional participation requirements) is amended

5 to read as follows:

6 ‘‘(A) IN GENERAL.—In the case of a trust

7 which is a part of a defined benefit plan, such

8 trust shall not constitute a qualified trust under

9 this subsection unless on each day of the plan

10 year such trust benefits at least the lesser of—

11 ‘‘(i) 50 employees of the employer, or

12 ‘‘(ii) the greater of—

13 ‘‘(I) 40 percent of all employees

14 of the employer, or

15 ‘‘(II) 2 employees (or if there is

16 only 1 employee, such employee).’’.

17 (b) SEPARATE LINE OF BUSINESS TEST.—Section

18 401(a)(26)(G) (relating to separate line of business) is

19 amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para20 graph (2)(A) or (7)’’.

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to years beginning after December

23 31, 1996.
97

•HR 3448 EH

1 SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED

2 CASH OR DEFERRED ARRANGEMENTS AND

3 MATCHING CONTRIBUTIONS.

4 (a) ALTERNATIVE METHODS OF SATISFYING SEC5 TION 401(k) NONDISCRIMINATION TESTS.—Section

6 401(k) (relating to cash or deferred arrangements), as

7 amended by section 1422, is amended by adding at the

8 end the following new paragraph:

9 ‘‘(12) ALTERNATIVE METHODS OF MEETING

10 NONDISCRIMINATION REQUIREMENTS.—

11 ‘‘(A) IN GENERAL.—A cash or deferred ar12 rangement shall be treated as meeting the re13 quirements of paragraph (3)(A)(ii) if such ar14 rangement—

15 ‘‘(i) meets the contribution require16 ments of subparagraph (B) or (C), and

17 ‘‘(ii) meets the notice requirements of

18 subparagraph (D).

19 ‘‘(B) MATCHING CONTRIBUTIONS.—

20 ‘‘(i) IN GENERAL.—The requirements

21 of this subparagraph are met if, under the

22 arrangement, the employer makes match23 ing contributions on behalf of each em24 ployee who is not a highly compensated

25 employee in an amount equal to—
98

•HR 3448 EH

1 ‘‘(I) 100 percent of the elective

2 contributions of the employee to the

3 extent such elective contributions do

4 not exceed 3 percent of the employee’s

5 compensation, and

6 ‘‘(II) 50 percent of the elective

7 contributions of the employee to the

8 extent that such elective contributions

9 exceed 3 percent but do not exceed 5

10 percent of the employee’s compensa11 tion.

12 ‘‘(ii) RATE FOR HIGHLY COM13 PENSATED EMPLOYEES.—The require14 ments of this subparagraph are not met if,

15 under the arrangement, the rate of match16 ing contribution with respect to any elec17 tive contribution of a highly compensated

18 employee at any rate of elective contribu19 tion is greater than that with respect to an

20 employee who is not a highly compensated

21 employee.

22 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

23 If the rate of any matching contribution

24 with respect to any rate of elective con25 tribution is not equal to the percentage re-
99

•HR 3448 EH

1 quired under clause (i), an arrangement

2 shall not be treated as failing to meet the

3 requirements of clause (i) if—

4 ‘‘(I) the rate of an employer’s

5 matching contribution does not in6 crease as an employee’s rate of elec7 tive contributions increase, and

8 ‘‘(II) the aggregate amount of

9 matching contributions at such rate of

10 elective contribution is at least equal

11 to the aggregate amount of matching

12 contributions which would be made if

13 matching contributions were made on

14 the basis of the percentages described

15 in clause (i).

16 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

17 The requirements of this subparagraph are met

18 if, under the arrangement, the employer is re19 quired, without regard to whether the employee

20 makes an elective contribution or employee con21 tribution, to make a contribution to a defined

22 contribution plan on behalf of each employee

23 who is not a highly compensated employee and

24 who is eligible to participate in the arrangement
100

•HR 3448 EH

1 in an amount equal to at least 3 percent of the

2 employee’s compensation.

3 ‘‘(D) NOTICE REQUIREMENT.—An ar4 rangement meets the requirements of this para5 graph if, under the arrangement, each employee

6 eligible to participate is, within a reasonable pe7 riod before any year, given written notice of the

8 employee’s rights and obligations under the ar9 rangement which—

10 ‘‘(i) is sufficiently accurate and com11 prehensive to appraise the employee of

12 such rights and obligations, and

13 ‘‘(ii) is written in a manner calculated

14 to be understood by the average employee

15 eligible to participate.

16 ‘‘(E) OTHER REQUIREMENTS.—

17 ‘‘(i) WITHDRAWAL AND VESTING RE18 STRICTIONS.—An arrangement shall not be

19 treated as meeting the requirements of

20 subparagraph (B) or (C) of this paragraph

21 unless the requirements of subparagraphs

22 (B) and (C) of paragraph (2) are met with

23 respect to all employer contributions (in24 cluding matching contributions) taken into

25 account in determining whether the re-
101

•HR 3448 EH

1 quirements of subparagraphs (B) and (C)

2 of this paragraph are met.

3 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

4 CONTRIBUTIONS NOT TAKEN INTO AC5 COUNT.—An arrangement shall not be

6 treated as meeting the requirements of

7 subparagraph (B) or (C) unless such re8 quirements are met without regard to sub9 section (l), and, for purposes of subsection

10 (l), employer contributions under subpara11 graph (B) or (C) shall not be taken into

12 account.

13 ‘‘(F) OTHER PLANS.—An arrangement

14 shall be treated as meeting the requirements

15 under subparagraph (A)(i) if any other plan

16 maintained by the employer meets such require17 ments with respect to employees eligible under

18 the arrangement.’’.

19 (b) ALTERNATIVE METHODS OF SATISFYING SEC20 TION 401(m) NONDISCRIMINATION TESTS.—Section

21 401(m) (relating to nondiscrimination test for matching

22 contributions and employee contributions), as amended by

23 this Act, is amended by redesignating paragraph (11) as

24 paragraph (12) and by adding after paragraph (10) the

25 following new paragraph:
102

•HR 3448 EH

1 ‘‘(11) ALTERNATIVE METHOD OF SATISFYING

2 TESTS.—

3 ‘‘(A) IN GENERAL.—A defined contribution

4 plan shall be treated as meeting the require5 ments of paragraph (2) with respect to match6 ing contributions if the plan—

7 ‘‘(i) meets the contribution require8 ments of subparagraph (B) or (C) of sub9 section (k)(12),

10 ‘‘(ii) meets the notice requirements of

11 subsection (k)(12)(D), and

12 ‘‘(iii) meets the requirements of sub13 paragraph (B).

14 ‘‘(B) LIMITATION ON MATCHING CON15 TRIBUTIONS.—The requirements of this sub16 paragraph are met if—

17 ‘‘(i) matching contributions on behalf

18 of any employee may not be made with re19 spect to an employee’s contributions or

20 elective deferrals in excess of 6 percent of

21 the employee’s compensation,

22 ‘‘(ii) the rate of an employer’s match23 ing contribution does not increase as the

24 rate of an employee’s contributions or elec25 tive deferrals increase, and
103

•HR 3448 EH

1 ‘‘(iii) the matching contribution with

2 respect to any highly compensated em3 ployee at any rate of an employee contribu4 tion or rate of elective deferral is not

5 greater than that with respect to an em6 ployee who is not a highly compensated

7 employee.’’.

8 (c) YEAR FOR COMPUTING NONHIGHLY COM9 PENSATED EMPLOYEE PERCENTAGE.—

10 (1) CASH OR DEFERRED ARRANGEMENTS.—

11 Clause (ii) of section 401(k)(3)(A) is amended—

12 (A) by striking ‘‘such year’’ and inserting

13 ‘‘the plan year’’,

14 (B) by striking ‘‘for such plan year’’ and

15 inserting ‘‘for the preceding plan year’’, and

16 (C) by adding at the end the following new

17 sentence: ‘‘An arrangement may apply this

18 clause by using the plan year rather than the

19 preceding plan year if the employer so elects,

20 except that if such an election is made, it may

21 not be changed except as provided by the Sec22 retary.’’.

23 (2) MATCHING AND EMPLOYEE CONTRIBU24 TIONS.—Section 401(m)(2)(A) is amended—
104

•HR 3448 EH

1 (A) by inserting ‘‘for such plan year’’ after

2 ‘‘highly compensated employees’’,

3 (B) by inserting ‘‘for the preceding plan

4 year’’ after ‘‘eligible employees’’ each place it

5 appears in clause (i) and clause (ii), and

6 (C) by adding at the end the following

7 flush sentence: ‘‘This subparagraph may be ap8 plied by using the plan year rather than the

9 preceding plan year if the employer so elects,

10 except that if such an election is made, it may

11 not be changed except as provided the Sec12 retary.’’.

13 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE14 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

15 (1) Paragraph (3) of section 401(k) is amended

16 by adding at the end the following new subpara17 graph:

18 ‘‘(E) For purposes of this paragraph, in

19 the case of the first plan year of any plan

20 (other than a successor plan), the amount taken

21 into account as the actual deferral percentage

22 of nonhighly compensated employees for the

23 preceding plan year shall be—

24 ‘‘(i) 3 percent, or
105

•HR 3448 EH

1 ‘‘(ii) if the employer makes an election

2 under this subclause, the actual deferral

3 percentage of nonhighly compensated em4 ployees determined for such first plan

5 year.’’.

6 (2) Paragraph (3) of section 401(m) is amend7 ed by adding at the end the following: ‘‘Rules similar

8 to the rules of subsection (k)(3)(E) shall apply for

9 purposes of this subsection.’’.

10 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

11 EXCESS AGGREGATE CONTRIBUTIONS.—

12 (1) Subparagraph (C) of section 401(k)(8) (re13 lating to arrangement not disqualified if excess con14 tributions distributed) is amended by striking ‘‘on

15 the basis of the respective portions of the excess con16 tributions attributable to each of such employees’’

17 and inserting ‘‘on the basis of the amount of con18 tributions by, or on behalf of, each of such employ19 ees’’.

20 (2) Subparagraph (C) of section 401(m)(6) (re21 lating to method of distributing excess aggregate

22 contributions) is amended by striking ‘‘on the basis

23 of the respective portions of such amounts attrib24 utable to each of such employees’’ and inserting ‘‘on
106

•HR 3448 EH

1 the basis of the amount of contributions on behalf

2 of, or by, each such employee’’.

3 (f) EFFECTIVE DATES.—

4 (1) IN GENERAL.—The amendments made by

5 this section shall apply to years beginning after De6 cember 31, 1998.

7 (2) EXCEPTIONS.—The amendments made by

8 subsections (c), (d), and (e) shall apply to years be9 ginning after December 31, 1996.

10 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

11 415 PURPOSES.

12 (a) GENERAL RULE.—Section 415(c)(3) (defining

13 participant’s compensation) is amended by adding at the

14 end the following new subparagraph:

15 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—

16 The term ‘participant’s compensation’ shall in17 clude—

18 ‘‘(i) any elective deferral (as defined

19 in section 402(g)(3)), and

20 ‘‘(ii) any amount which is contributed

21 by the employer at the election of the em22 ployee and which is not includible in the

23 gross income of the employee under section

24 125 or 457.’’.

25 (b) CONFORMING AMENDMENTS.—
107

•HR 3448 EH

1 (1) Section 414(q)(4), as redesignated by sec2 tion 1431, is amended to read as follows:

3 ‘‘(4) COMPENSATION.—For purposes of this

4 subsection, the term ‘compensation’ has the meaning

5 given such term by section 415(c)(3).’’.

6 (2) Section 414(s)(2) is amended by inserting

7 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to years beginning after December

10 31, 1997.

11 CHAPTER 4—MISCELLANEOUS

12 PROVISIONS

13 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID14 UALS.

15 (a) AGGREGATION RULES.—Section 401(d) (relating

16 to additional requirements for qualification of trusts and

17 plans benefiting owner-employees) is amended to read as

18 follows:

19 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY20 EES.—A trust forming part of a pension or profit-sharing

21 plan which provides contributions or benefits for employ22 ees some or all of whom are owner-employees shall con23 stitute a qualified trust under this section only if, in addi24 tion to meeting the requirements of subsection (a), the

25 plan provides that contributions on behalf of any owner-
108

•HR 3448 EH

1 employee may be made only with respect to the earned

2 income of such owner-employee which is derived from the

3 trade or business with respect to which such plan is estab4 lished.’’.

5 (b) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to years beginning after December

7 31, 1996.

8 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

9 MULTIEMPLOYER PLANS.

10 (a) IN GENERAL.—Paragraph (2) of section 411(a)

11 (relating to minimum vesting standards) is amended—

12 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

13 and inserting ‘‘subparagraph (A) or (B)’’; and

14 (2) by striking subparagraph (C).

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to plan years beginning on or after

17 the earlier of—

18 (1) the later of—

19 (A) January 1, 1997, or

20 (B) the date on which the last of the col21 lective bargaining agreements pursuant to

22 which the plan is maintained terminates (deter23 mined without regard to any extension thereof

24 after the date of the enactment of this Act), or

25 (2) January 1, 1999.
109

•HR 3448 EH

1 Such amendments shall not apply to any individual who

2 does not have more than 1 hour of service under the plan

3 on or after the 1st day of the 1st plan year to which such

4 amendments apply.

5 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

6 PLANS.

7 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A

8 CERTAIN AGE.—Section 401(k)(7) is amended by adding

9 at the end the following new subparagraph:

10 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS11 TRIBUTIONS.—A rural cooperative plan which

12 includes a qualified cash or deferred arrange13 ment shall not be treated as violating the re14 quirements of section 401(a) or of paragraph

15 (2) merely by reason of a hardship distribution

16 or a distribution to a participant after attainment of age 591 17 ⁄2. For purposes of this section,

18 the term ‘hardship distribution’ means a dis19 tribution described in paragraph (2)(B)(i)(IV)

20 (without regard to the limitation of its applica21 tion to profit-sharing or stock bonus plans).’’.

22 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of sec23 tion 401(k)(7)(B) (defining rural cooperative) is amended

24 to read as follows:

25 ‘‘(i) any organization which—
110

•HR 3448 EH

1 ‘‘(I) is engaged primarily in pro2 viding electric service on a mutual or

3 cooperative basis, or

4 ‘‘(II) is engaged primarily in pro5 viding electric service to the public in

6 its area of service and which is ex7 empt from tax under this subtitle or

8 which is a State or local government

9 (or an agency or instrumentality

10 thereof), other than a municipality (or

11 an agency or instrumentality there12 of),’’.

13 (c) EFFECTIVE DATES.—

14 (1) DISTRIBUTIONS.—The amendments made

15 by subsection (a) shall apply to distributions after

16 the date of the enactment of this Act.

17 (2) RURAL COOPERATIVE.—The amendments

18 made by subsection (b) shall apply to plan years be19 ginning after December 31, 1996.

20 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

21 SECTION 415.

22 (a) COMPENSATION LIMIT.—Subsection (b) of sec23 tion 415 is amended by adding immediately after para24 graph (10) the following new paragraph:
111

•HR 3448 EH

1 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN2 MENTAL PLANS.—In the case of a governmental

3 plan (as defined in section 414(d)), subparagraph

4 (B) of paragraph (1) shall not apply.’’.

5 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

6 PLANS.—

7 (1) IN GENERAL.—Section 415 is amended by

8 adding at the end the following new subsection:

9 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

10 EXCESS BENEFIT ARRANGEMENTS.—

11 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—

12 In determining whether a governmental plan (as de13 fined in section 414(d)) meets the requirements of

14 this section, benefits provided under a qualified gov15 ernmental excess benefit arrangement shall not be

16 taken into account. Income accruing to a govern17 mental plan (or to a trust that is maintained solely

18 for the purpose of providing benefits under a quali19 fied governmental excess benefit arrangement) in re20 spect of a qualified governmental excess benefit ar21 rangement shall constitute income derived from the

22 exercise of an essential governmental function upon

23 which such governmental plan (or trust) shall be ex24 empt from tax under section 115.
112

•HR 3448 EH

1 ‘‘(2) TAXATION OF PARTICIPANT.—For pur2 poses of this chapter—

3 ‘‘(A) the taxable year or years for which

4 amounts in respect of a qualified governmental

5 excess benefit arrangement are includible in

6 gross income by a participant, and

7 ‘‘(B) the treatment of such amounts when

8 so includible by the participant,

9 shall be determined as if such qualified govern10 mental excess benefit arrangement were treated as a

11 plan for the deferral of compensation which is main12 tained by a corporation not exempt from tax under

13 this chapter and which does not meet the require14 ments for qualification under section 401.

15 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN16 EFIT ARRANGEMENT.—For purposes of this sub17 section, the term ‘qualified governmental excess ben18 efit arrangement’ means a portion of a governmental

19 plan if—

20 ‘‘(A) such portion is maintained solely for

21 the purpose of providing to participants in the

22 plan that part of the participant’s annual bene23 fit otherwise payable under the terms of the

24 plan that exceeds the limitations on benefits im25 posed by this section,
113

•HR 3448 EH

1 ‘‘(B) under such portion no election is pro2 vided at any time to the participant (directly or

3 indirectly) to defer compensation, and

4 ‘‘(C) benefits described in subparagraph

5 (A) are not paid from a trust forming a part

6 of such governmental plan unless such trust is

7 maintained solely for the purpose of providing

8 such benefits.’’.

9 (2) COORDINATION WITH SECTION 457.—Sub10 section (e) of section 457 is amended by adding at

11 the end the following new paragraph:

12 ‘‘(14) TREATMENT OF QUALIFIED GOVERN13 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub14 sections (b)(2) and (c)(1) shall not apply to any

15 qualified governmental excess benefit arrangement

16 (as defined in section 415(m)(3)), and benefits pro17 vided under such an arrangement shall not be taken

18 into account in determining whether any other plan

19 is an eligible deferred compensation plan.’’.

20 (3) CONFORMING AMENDMENT.—Paragraph (2)

21 of section 457(f) is amended by striking ‘‘and’’ at

22 the end of subparagraph (C), by striking the period

23 at the end of subparagraph (D) and inserting ‘‘,

24 and’’, and by inserting immediately thereafter the

25 following new subparagraph:
114

•HR 3448 EH

1 ‘‘(E) a qualified governmental excess bene2 fit arrangement described in section 415(m).’’.

3 (c) EXEMPTION FOR SURVIVOR AND DISABILITY

4 BENEFITS.—Paragraph (2) of section 415(b) is amended

5 by adding at the end the following new subparagraph:

6 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS7 ABILITY BENEFITS PROVIDED UNDER GOVERN8 MENTAL PLANS.—Subparagraph (C) of this

9 paragraph and paragraph (5) shall not apply

10 to—

11 ‘‘(i) income received from a govern12 mental plan (as defined in section 414(d))

13 as a pension, annuity, or similar allowance

14 as the result of the recipient becoming dis15 abled by reason of personal injuries or

16 sickness, or

17 ‘‘(ii) amounts received from a govern18 mental plan by the beneficiaries, survivors,

19 or the estate of an employee as the result

20 of the death of the employee.’’.

21 (d) REVOCATION OF GRANDFATHER ELECTION.—

22 (1) IN GENERAL.—Subparagraph (C) of section

23 415(b)(10) is amended by adding at the end the fol24 lowing new clause:
115

•HR 3448 EH

1 ‘‘(ii) REVOCATION OF ELECTION.—An

2 election under clause (i) may be revoked

3 not later than the last day of the third

4 plan year beginning after the date of the

5 enactment of this clause. The revocation

6 shall apply to all plan years to which the

7 election applied and to all subsequent plan

8 years. Any amount paid by a plan in a tax9 able year ending after the revocation shall

10 be includible in income in such taxable

11 year under the rules of this chapter in ef12 fect for such taxable year, except that, for

13 purposes of applying the limitations im14 posed by this section, any portion of such

15 amount which is attributable to any tax16 able year during which the election was in

17 effect shall be treated as received in such

18 taxable year.’’.

19 (2) CONFORMING AMENDMENT.—Subparagraph

20 (C) of section 415(b)(10) is amended by striking

21 ‘‘This’’ and inserting:

22 ‘‘(i) IN GENERAL.—This’’.

23 (e) EFFECTIVE DATE.—

24 (1) IN GENERAL.—The amendments made by

25 subsections (a), (b), and (c) shall apply to years be-
116

•HR 3448 EH

1 ginning after December 31, 1994. The amendments

2 made by subsection (d) shall apply with respect to

3 revocations adopted after the date of the enactment

4 of this Act.

5 (2) TREATMENT FOR YEARS BEGINNING BE6 FORE JANUARY 1, 1995.—Nothing in the amend7 ments made by this section shall be construed to

8 infer that a governmental plan (as defined in section

9 414(d) of the Internal Revenue Code of 1986) fails

10 to satisfy the requirements of section 415 of such

11 Code for any taxable year beginning before January

12 1, 1995.

13 SEC. 1445. UNIFORM RETIREMENT AGE.

14 (a) DISCRIMINATION TESTING.—Paragraph (5) of

15 section 401(a) (relating to special rules relating to non16 discrimination requirements) is amended by adding at the

17 end the following new subparagraph:

18 ‘‘(F) SOCIAL SECURITY RETIREMENT

19 AGE.—For purposes of testing for discrimina20 tion under paragraph (4)—

21 ‘‘(i) the social security retirement age

22 (as defined in section 415(b)(8)) shall be

23 treated as a uniform retirement age, and

24 ‘‘(ii) subsidized early retirement bene25 fits and joint and survivor annuities shall
117

•HR 3448 EH

1 not be treated as being unavailable to em2 ployees on the same terms merely because

3 such benefits or annuities are based in

4 whole or in part on an employee’s social

5 security retirement age (as so defined).’’

6 (b) EFFECTIVE DATE.—The amendment made by

7 this section shall apply to years beginning after December

8 31, 1996.

9 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM10 PLOYEES.

11 (a) ALL DISABLED PARTICIPANTS RECEIVING CON12 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

13 at the end the following: ‘‘If a defined contribution plan

14 provides for the continuation of contributions on behalf

15 of all participants described in clause (i) for a fixed or

16 determinable period, this subparagraph shall be applied

17 without regard to clauses (ii) and (iii).’’.

18 (b) EFFECTIVE DATE.—The amendment made by

19 this section shall apply to years beginning after December

20 31, 1996.
118

•HR 3448 EH

1 SEC. 1447. TREATMENT OF DEFERRED COMPENSATION

2 PLANS OF STATE AND LOCAL GOVERNMENTS

3 AND TAX-EXEMPT ORGANIZATIONS.

4 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

5 Paragraph (9) of section 457(e) (relating to other defini6 tions and special rules) is amended to read as follows:

7 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL8 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

9 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500

10 OR LESS.—The total amount payable to a par11 ticipant under the plan shall not be treated as

12 made available merely because the participant

13 may elect to receive such amount (or the plan

14 may distribute such amount without the partici15 pant’s consent) if—

16 ‘‘(i) such amount does not exceed

17 $3,500, and

18 ‘‘(ii) such amount may be distributed

19 only if—

20 ‘‘(I) no amount has been deferred

21 under the plan with respect to such

22 participant during the 2-year period

23 ending on the date of the distribution,

24 and

25 ‘‘(II) there has been no prior dis26 tribution under the plan to such par-
119

•HR 3448 EH

1 ticipant to which this subparagraph

2 applied.

3 A plan shall not be treated as failing to meet

4 the distribution requirements of subsection (d)

5 by reason of a distribution to which this sub6 paragraph applies.

7 ‘‘(B) ELECTION TO DEFER COMMENCE8 MENT OF DISTRIBUTIONS.—The total amount

9 payable to a participant under the plan shall

10 not be treated as made available merely because

11 the participant may elect to defer commence12 ment of distributions under the plan if—

13 ‘‘(i) such election is made after

14 amounts may be available under the plan

15 in accordance with subsection (d)(1)(A)

16 and before commencement of such dis17 tributions, and

18 ‘‘(ii) the participant may make only 1

19 such election.’’.

20 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE21 FERRAL AMOUNT.—Subsection (e) of section 457, as

22 amended by section 1444(b)(2) (relating to governmental

23 plans), is amended by adding at the end the following new

24 paragraph:
120

•HR 3448 EH

1 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI2 MUM DEFERRAL AMOUNT.—The Secretary shall ad3 just the $7,500 amount specified in subsections

4 (b)(2) and (c)(1) at the same time and in the same

5 manner as under section 415(d), except that the

6 base period shall be the calendar quarter ending

7 September 30, 1994, and any increase under this

8 paragraph which is not a multiple of $500 shall be

9 rounded to the next lowest multiple of $500.’’.

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM14 PENSATION PLANS OF STATE AND LOCAL

15 GOVERNMENTS.

16 (a) IN GENERAL.—Section 457 is amended by adding

17 at the end the following new subsection:

18 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET19 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

20 ‘‘(1) IN GENERAL.—A plan maintained by an

21 eligible employer described in subsection (e)(1)(A)

22 shall not be treated as an eligible deferred com23 pensation plan unless all assets and income of the

24 plan described in subsection (b)(6) are held in trust
121

•HR 3448 EH

1 for the exclusive benefit of participants and their

2 beneficiaries.

3 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI4 PANTS.—For purposes of this title—

5 ‘‘(A) a trust described in paragraph (1)

6 shall be treated as an organization exempt from

7 taxation under section 501(a), and

8 ‘‘(B) notwithstanding any other provision

9 of this title, amounts in the trust shall be in10 cludible in the gross income of participants and

11 beneficiaries only to the extent, and at the time,

12 provided in this section.

13 ‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—

14 For purposes of this subsection, custodial accounts

15 and contracts described in section 401(f) shall be

16 treated as trusts under rules similar to the rules

17 under section 401(f).’’.

18 (b) CONFORMING AMENDMENT.—Paragraph (6) of

19 section 457(b) is amended by inserting ‘‘except as pro20 vided in subsection (g),’’ before ‘‘which provides that’’.

21 (c) EFFECTIVE DATES.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section

24 shall apply to assets and income described in section

25 457(b)(6) of the Internal Revenue Code of 1986
122

•HR 3448 EH

1 held by a plan on and after the date of the enact2 ment of this Act.

3 (2) TRANSITION RULE.—In the case of assets

4 and income described in paragraph (1) held by a

5 plan on the date of the enactment of this Act, a

6 trust need not be established by reason of the

7 amendments made by this section before January 1,

8 1999.

9 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

10 BENEFITS UNDER SECTION 415 LIMITATIONS.

11 (a) IN GENERAL.—Subparagraph (A) of section

12 767(d)(3) of the Uruguay Round Agreements Act is

13 amended to read as follows:

14 ‘‘(A) EXCEPTION.—A plan that was adopt15 ed and in effect before December 8, 1994, shall

16 not be required to apply the amendments made

17 by subsection (b) with respect to benefits ac18 crued before the earlier of—

19 ‘‘(i) the later of the date a plan

20 amendment applying such amendment is

21 adopted or made effective, or

22 ‘‘(ii) the first day of the first limita23 tion year beginning after December 31,

24 1999.
123

•HR 3448 EH

1 Determinations under section 415(b)(2)(E) of

2 the Internal Revenue Code of 1986 before such

3 earlier date shall be made with respect to such

4 benefits on the basis of such section as in effect

5 on December 7, 1994 (except that the modifica6 tion made by section 1449(b) of the Small

7 Business Job Protection Act of 1996 shall be

8 taken into account), and the provisions of the

9 plan as in effect on December 7, 1994, but only

10 if such provisions of the plan meet the require11 ments of such section (as so in effect).’’.

12 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR

13 ADJUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

14 EARLY RETIREES.—Subparagraph (E) of section

15 415(b)(2) (relating to limitation on certain assumptions)

16 is amended—

17 (1) by striking ‘‘Except as provided in clause

18 (ii), for purposes of adjusting any benefit or limita19 tion under subparagraph (B) or (C),’’ in clause (i)

20 and inserting ‘‘For purposes of adjusting any limita21 tion under subparagraph (C) and, except as provided

22 in clause (ii), for purposes of adjusting any benefit

23 under subparagraph (B),’’, and

24 (2) by striking ‘‘For purposes of adjusting the

25 benefit or limitation of any form of benefit subject
124

•HR 3448 EH

1 to section 417(e)(3),’’ in clause (ii) and inserting

2 ‘‘For purposes of adjusting any benefit under sub3 paragraph (B) for any form of benefit subject to sec4 tion 417(e)(3),’’.

5 (c) EFFECTIVE DATE.—The amendments made by

6 this section shall take effect as if included in the provisions

7 of section 767 of the Uruguay Round Agreements Act.

8 (d) TRANSITIONAL RULE.—In the case of a plan that

9 was adopted and in effect before December 8, 1994, if—

10 (1) a plan amendment was adopted or made ef11 fective on or before the date of the enactment of this

12 Act applying the amendments made by section 767

13 of the Uruguay Round Agreements Act, and

14 (2) within 1 year after the date of the enact15 ment of this Act, a plan amendment is adopted

16 which repeals the amendment referred to in para17 graph (1),

18 the amendment referred to in paragraph (1) shall not be

19 taken into account in applying section 767(d)(3)(A) of the

20 Uruguay Round Agreements Act, as amended by sub21 section (a).

22 SEC. 1450. MODIFICATIONS OF SECTION 403(b).

23 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

24 PERMITTED.—
125

•HR 3448 EH

1 (1) GENERAL RULE.—For purposes of section

2 403(b) of the Internal Revenue Code of 1986, the

3 frequency that an employee is permitted to enter

4 into a salary reduction agreement, the salary to

5 which such an agreement may apply, and the ability

6 to revoke such an agreement shall be determined

7 under the rules applicable to cash or deferred elec8 tions under section 401(k) of such Code.

9 (2) EFFECTIVE DATE.—This subsection shall

10 apply to taxable years beginning after December 31,

11 1995.

12 (b) TREATMENT OF INDIAN TRIBAL GOVERN13 MENTS.—

14 (1) IN GENERAL.—In the case of any contract

15 purchased in a plan year beginning before January

16 1, 1995, section 403(b) of the Internal Revenue

17 Code of 1986 shall be applied as if any reference to

18 an employer described in section 501(c)(3) of the In19 ternal Revenue Code of 1986 which is exempt from

20 tax under section 501 of such Code included a ref21 erence to an employer which is an Indian tribal gov22 ernment (as defined by section 7701(a)(40) of such

23 Code), a subdivision of an Indian tribal government

24 (determined in accordance with section 7871(d) of

25 such Code), an agency or instrumentality of an In-
126

•HR 3448 EH

1 dian tribal government or subdivision thereof, or a

2 corporation chartered under Federal, State, or tribal

3 law which is owned in whole or in part by any of the

4 foregoing.

5 (2) ROLLOVERS.—Solely for purposes of apply6 ing section 403(b)(8) of such Code to a contract to

7 which paragraph (1) applies, a qualified cash or de8 ferred arrangement under section 401(k) of such

9 Code shall be treated as if it were a plan or contract

10 described in clause (ii) of section 403(b)(8)(A) of

11 such Code.

12 (c) ELECTIVE DEFERRALS.—

13 (1) IN GENERAL.—Subparagraph (E) of section

14 403(b)(1) is amended to read as follows:

15 ‘‘(E) in the case of a contract purchased

16 under a salary reduction agreement, the con17 tract meets the requirements of section

18 401(a)(30),’’.

19 (2) EFFECTIVE DATE.—The amendment made

20 by this subsection shall apply to years beginning

21 after December 31, 1995, except a contract shall not

22 be required to meet any change in any requirement

23 by reason of such amendment before the 90th day

24 after the date of the enactment of this Act.
127

•HR 3448 EH

1 SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND

2 SURVIVOR ANNUITY EXPLANATION BEFORE

3 ANNUITY STARTING DATE.

4 (a) GENERAL RULE.—For purposes of section

5 417(a)(3)(A) of the Internal Revenue Code of 1986 (relat6 ing to plan to provide written explanations), the minimum

7 period prescribed by the Secretary of the Treasury be8 tween the date that the explanation referred to in such

9 section is provided and the annuity starting date shall not

10 apply if waived by the participant and, if applicable, the

11 participant’s spouse.

12 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

13 plan years beginning after December 31, 1996.

14 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

15 BENEFIT PLAN AND DEFINED CONTRIBUTION

16 PLAN FOR SAME EMPLOYEE; EXCESS DIS17 TRIBUTIONS.

18 (a) IN GENERAL.—Section 415(e) is repealed.

19 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

20 amended by adding at the end the following new sub21 section:

22 ‘‘(g) LIMITATION ON APPLICATION.—This section

23 shall not apply to distributions during years beginning

24 after December 31, 1995, and before January 1, 1999,

25 and such distributions shall be treated as made first from

26 amounts not described in subsection (f).’’.
128

•HR 3448 EH

1 (c) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 415(a) is amend3 ed—

4 (A) by adding ‘‘or’’ at the end of subpara5 graph (A),

6 (B) by striking ‘‘, or’’ at the end of sub7 paragraph (B) and inserting a period, and

8 (C) by striking subparagraph (C).

9 (2) Subparagraph (B) of section 415(b)(5) is

10 amended by striking ‘‘and subsection (e)’’.

11 (3) Paragraph (1) of section 415(f) is amended

12 by striking ‘‘subsections (b), (c), and (e)’’ and in13 serting ‘‘subsections (b) and (c)’’.

14 (4) Subsection (g) of section 415 is amended by

15 striking ‘‘subsections (e) and (f)’’ in the last sen16 tence and inserting ‘‘subsection (f)’’.

17 (5) Clause (i) of section 415(k)(2)(A) is amend18 ed to read as follows:

19 ‘‘(i) any contribution made directly by

20 an employee under such an arrangement

21 shall not be treated as an annual addition

22 for purposes of subsection (c), and’’.

23 (6) Clause (ii) of section 415(k)(2)(A) is

24 amended by striking ‘‘subsections (c) and (e)’’ and

25 inserting ‘‘subsection (c)’’.
129

•HR 3448 EH

1 (7) Section 416 is amended by striking sub2 section (h).

3 (d) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply to limitation years beginning after De7 cember 31, 1998.

8 (2) EXCESS DISTRIBUTIONS.—The amendment

9 made by subsection (b) shall apply to years begin10 ning after December 31, 1995.

11 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

12 (a) IN GENERAL.—Section 4975(a) is amended by

13 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to prohibited transactions occur16 ring after the date of the enactment of this Act.

17 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

18 (a) GENERAL RULE.—Subparagraph (C) of section

19 414(n)(2) (defining leased employee) is amended to read

20 as follows:

21 ‘‘(C) such services are performed under

22 primary direction or control by the recipient.’’.

23 (b) EFFECTIVE DATE.—The amendment made by

24 subsection (a) shall apply to years beginning after Decem25 ber 31, 1996, but shall not apply to any relationship deter-
130

•HR 3448 EH

1 mined under an Internal Revenue Service ruling issued be2 fore the date of the enactment of this Act pursuant to

3 section 414(n)(2)(C) of the Internal Revenue Code of

4 1986 (as in effect on the day before such date) not to

5 involve a leased employee.

6 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

7 CERTAIN PENSION REPORTING REQUIRE8 MENTS.

9 (a) PENALTIES.—

10 (1) STATEMENTS.—Paragraph (1) of section

11 6724(d) is amended by striking ‘‘and’’ at the end of

12 subparagraph (A), by striking the period at the end

13 of subparagraph (B) and inserting ‘‘, and’’, and by

14 inserting after subparagraph (B) the following new

15 subparagraph:

16 ‘‘(C) any statement of the amount of pay17 ments to another person required to be made to

18 the Secretary under—

19 ‘‘(i) section 408(i) (relating to reports

20 with respect to individual retirement ac21 counts or annuities), or

22 ‘‘(ii) section 6047(d) (relating to re23 ports by employers, plan administrators,

24 etc.).’’.
131

•HR 3448 EH

1 (2) REPORTS.—Paragraph (2) of section

2 6724(d), as amended by section 1116, is amended

3 by striking ‘‘or’’ at the end of subparagraph (T), by

4 striking the period at the end of subparagraph (U)

5 and inserting a comma, and by inserting after sub6 paragraph (U) the following new subparagraphs:

7 ‘‘(V) section 408(i) (relating to reports

8 with respect to individual retirement plans) to

9 any person other than the Secretary with re10 spect to the amount of payments made to such

11 person, or

12 ‘‘(W) section 6047(d) (relating to reports

13 by plan administrators) to any person other

14 than the Secretary with respect to the amount

15 of payments made to such person.’’.

16 (b) MODIFICATION OF REPORTABLE DESIGNATED

17 DISTRIBUTIONS.—

18 (1) SECTION 408.—Subsection (i) of section 408

19 (relating to individual retirement account reports) is

20 amended by inserting ‘‘aggregating $10 or more in

21 any calendar year’’ after ‘‘distributions’’.

22 (2) SECTION 6047.—Paragraph (1) of section

23 6047(d) (relating to reports by employers, plan ad24 ministrators, etc.) is amended by adding at the end

25 the following new sentence: ‘‘No return or report
132

•HR 3448 EH

1 may be required under the preceding sentence with

2 respect to distributions to any person during any

3 year unless such distributions aggregate $10 or

4 more.’’.

5 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec6 tion 6652(i) is amended—

7 (1) by striking ‘‘the $10’’ and inserting

8 ‘‘$100’’, and

9 (2) by striking ‘‘$5,000’’ and inserting

10 ‘‘$50,000’’.

11 (d) CONFORMING AMENDMENTS.—

12 (1) Paragraph (1) of section 6047(f) is amend13 ed to read as follows:

‘‘(1) For provisions relating to penalties for failures to file returns and reports required under this

section, see sections 6652(e), 6721, and 6722.’’.

14 (2) Subsection (e) of section 6652 is amended

15 by adding at the end the following new sentence:

16 ‘‘This subsection shall not apply to any return or

17 statement which is an information return described

18 in section 6724(d)(1)(C)(ii) or a payee statement de19 scribed in section 6724(d)(2)(W).’’.

20 (3) Subsection (a) of section 6693 is amended

21 by adding at the end the following new sentence:

22 ‘‘This subsection shall not apply to any report which

23 is an information return described in section
133

•HR 3448 EH

1 6724(d)(1)(C)(i) or a payee statement described in

2 section 6724(d)(2)(V).’’.

3 (e) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to returns, reports, and other

5 statements the due date for which (determined without re6 gard to extensions) is after December 31, 1996.

7 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB8 JECT TO TAX ON NET EARNINGS FROM SELF9 EMPLOYMENT.

10 (a) IN GENERAL.—Section 1402(a)(8) (defining net

11 earning from self-employment) is amended by inserting ‘‘,

12 but shall not include in such net earnings from self-em13 ployment the rental value of any parsonage (whether or

14 not excludable under section 107) provided after the indi15 vidual retires, or any other retirement benefit received by

16 such individual from a church plan (as defined in section

17 414(e)) after the individual retires’’ before the semicolon

18 at the end.

19 (b) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to years beginning before, on, or

21 after December 31, 1994.

22 SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

23 If any amendment made by this subtitle requires an

24 amendment to any plan or annuity contract, such amend25 ment shall not be required to be made before the first day
134

•HR 3448 EH

1 of the first plan year beginning on or after January 1,

2 1997, if—

3 (1) during the period after such amendment

4 takes effect and before such first plan year, the plan

5 or contract is operated in accordance with the re6 quirements of such amendment, and

7 (2) such amendment applies retroactively to

8 such period.

9 In the case of a governmental plan (as defined in section

10 414(d) of the Internal Revenue Code of 1986), this section

11 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.

12 Subtitle E—Foreign Simplification

13 SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS

14 INVESTED IN EXCESS PASSIVE ASSETS.

15 (a) IN GENERAL.—

16 (1) REPEAL OF INCLUSION.—Paragraph (1) of

17 section 951(a) (relating to amounts included in

18 gross income of United States shareholders) is

19 amended by striking subparagraph (C), by striking

20 ‘‘; and’’ at the end of subparagraph (B) and insert21 ing a period, and by adding ‘‘and’’ at the end of

22 subparagraph (A).

23 (2) REPEAL OF INCLUSION AMOUNT.—Section

24 956A (relating to earnings invested in excess passive

25 assets) is repealed.
135

•HR 3448 EH

1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 956(b) is amended

3 to read as follows:

4 ‘‘(1) APPLICABLE EARNINGS.—For purposes of

5 this section, the term ‘applicable earnings’ means,

6 with respect to any controlled foreign corporation,

7 the sum of—

8 ‘‘(A) the amount (not including a deficit)

9 referred to in section 316(a)(1), and

10 ‘‘(B) the amount referred to in section

11 316(a)(2),

12 but reduced by distributions made during the tax13 able year.’’.

14 (2) Paragraph (3) of section 956(b) is amended

15 to read as follows:

16 ‘‘(3) SPECIAL RULE WHERE CORPORATION

17 CEASES TO BE CONTROLLED FOREIGN CORPORA18 TION.—If any foreign corporation ceases to be a

19 controlled foreign corporation during any taxable

20 year—

21 ‘‘(A) the determination of any United

22 States shareholder’s pro rata share shall be

23 made on the basis of stock owned (within the

24 meaning of section 958(a)) by such shareholder

25 on the last day during the taxable year on
136

•HR 3448 EH

1 which the foreign corporation is a controlled

2 foreign corporation,

3 ‘‘(B) the average referred to in subsection

4 (a)(1)(A) for such taxable year shall be deter5 mined by only taking into account quarters end6 ing on or before such last day, and

7 ‘‘(C) in determining applicable earnings,

8 the amount taken into account by reason of

9 being described in paragraph (2) of section

10 316(a) shall be the portion of the amount so

11 described which is allocable (on a pro rata

12 basis) to the part of such year during which the

13 corporation is a controlled foreign corpora14 tion.’’.

15 (3) Subsection (a) of section 959 (relating to

16 exclusion from gross income of previously taxed

17 earnings and profits) is amended by adding ‘‘or’’ at

18 the end of paragraph (1), by striking ‘‘or’’ at the

19 end of paragraph (2), and by striking paragraph (3).

20 (4) Subsection (a) of section 959 is amended by

21 striking ‘‘paragraphs (2) and (3)’’ in the last sen22 tence and inserting ‘‘paragraph (2)’’.

23 (5) Subsection (c) of section 959 is amended by

24 adding at the end the following flush sentence:
137

•HR 3448 EH

1 ‘‘References in this subsection to section 951(a)(1)(C) and

2 subsection (a)(3) shall be treated as references to such

3 provisions as in effect on the day before the date of the

4 enactment of the Small Business Job Protection Act of

5 1996.’’.

6 (6) Paragraph (1) of section 959(f) is amended

7 to read as follows:

8 ‘‘(1) IN GENERAL.—For purposes of this sec9 tion, amounts that would be included under subpara10 graph (B) of section 951(a)(1) (determined without

11 regard to this section) shall be treated as attrib12 utable first to earnings described in subsection

13 (c)(2), and then to earnings described in subsection

14 (c)(3).’’.

15 (7) Paragraph (2) of section 959(f) is amended

16 by striking ‘‘subparagraphs (B) and (C) of section

17 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

18 (8) Subsection (b) of section 989 is amended by

19 striking ‘‘subparagraph (B) or (C) of section

20 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

21 (9) Paragraph (9) of section 1297(b) is amend22 ed by striking ‘‘subparagraph (B) or (C) of section

23 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
138

•HR 3448 EH

1 (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of

2 section 1297 are each amended by striking ‘‘or sec3 tion 956A’’.

4 (c) CLERICAL AMENDMENT.—The table of sections

5 for subpart F of part III of subchapter N of chapter 1

6 is amended by striking the item relating to section 956A.

7 (d) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years of foreign corpora9 tions beginning after December 31, 1996, and to taxable

10 years of United States shareholders within which or with

11 which such taxable years of foreign corporations end.

12 Subtitle F—Revenue Offsets

13 SEC. 1601. TERMINATION OF PUERTO RICO AND POSSES14 SION TAX CREDIT.

15 (a) IN GENERAL.—Section 936 is amended by adding

16 at the end the following new subsection:

17 ‘‘(j) TERMINATION.—

18 ‘‘(1) IN GENERAL.—Except as otherwise pro19 vided in this subsection, this section shall not apply

20 to any taxable year beginning after December 31,

21 1995.

22 ‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS

23 INCOME CREDIT.—Except as provided in paragraph

24 (3)—
139

•HR 3448 EH

1 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

2 case of an existing credit claimant—

3 ‘‘(i) with respect to a possession other

4 than Puerto Rico, and

5 ‘‘(ii) to which subsection (a)(4)(B)

6 does not apply,

7 the credit determined under subsection

8 (a)(1)(A) shall be allowed for taxable years be9 ginning after December 31, 1995, and before

10 January 1, 2002.

11 ‘‘(B) SPECIAL RULE FOR REDUCED CRED12 IT.—

13 ‘‘(i) IN GENERAL.—In the case of an

14 existing credit claimant to which sub15 section (a)(4)(B) applies, the credit deter16 mined under subsection (a)(1)(A) shall be

17 allowed for taxable years beginning after

18 December 31, 1995, and before January 1,

19 1998.

20 ‘‘(ii) ELECTION IRREVOCABLE AFTER

21 1997.—An election under subsection

22 (a)(4)(B)(iii) which is in effect for the tax23 payer’s last taxable year beginning before

24 1997 may not be revoked unless it is re25 voked for the taxpayer’s first taxable year
140

•HR 3448 EH

1 beginning in 1997 and all subsequent tax2 able years.

3 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

4 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

5 ‘‘(3) ADDITIONAL RESTRICTED CREDIT.—

6 ‘‘(A) IN GENERAL.—In the case of an ex7 isting credit claimant—

8 ‘‘(i) the credit under subsection

9 (a)(1)(A) shall be allowed for the period

10 beginning with the first taxable year after

11 the last taxable year to which subpara12 graph (A) or (B) of paragraph (2), which13 ever is appropriate, applied and ending

14 with the last taxable year beginning before

15 January 1, 2006, except that

16 ‘‘(ii) the aggregate amount of taxable

17 income taken into account under sub18 section (a)(1)(A) for any such taxable year

19 shall not exceed the adjusted base period

20 income of such claimant.

21 ‘‘(B) COORDINATION WITH SUBSECTION

22 (a)(4).—The amount of income described in sub23 section (a)(1)(A) which is taken into account in
141

•HR 3448 EH

1 applying subsection (a)(4) shall be such income

2 as reduced under this paragraph.

3 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

4 purposes of paragraph (3)—

5 ‘‘(A) IN GENERAL.—The term ‘adjusted

6 base period income’ means the average of the

7 inflation-adjusted possession incomes of the cor8 poration for each base period year.

9 ‘‘(B) INFLATION-ADJUSTED POSSESSION

10 INCOME.—For purposes of subparagraph (A),

11 the inflation-adjusted possession income of any

12 corporation for any base period year shall be an

13 amount equal to the sum of—

14 ‘‘(i) the possession income of such

15 corporation for such base period year, plus

16 ‘‘(ii) such possession income multi17 plied by the inflation adjustment percent18 age for such base period year.

19 ‘‘(C) INFLATION ADJUSTMENT PERCENT20 AGE.—For purposes of subparagraph (B), the

21 inflation adjustment percentage for any base

22 period year means the percentage (if any) by

23 which—

24 ‘‘(i) the CPI for 1995, exceeds
142

•HR 3448 EH

1 ‘‘(ii) the CPI for the calendar year in

2 which the base period year for which the

3 determination is being made ends.

4 For purposes of the preceding sentence, the

5 CPI for any calendar year is the CPI (as de6 fined in section 1(f)(5)) for such year under

7 section 1(f)(4).

8 ‘‘(D) INCREASE IN INFLATION ADJUST9 MENT PERCENTAGE FOR GROWTH DURING BASE

10 YEARS.—The inflation adjustment percentage

11 (determined under subparagraph (C) without

12 regard to this subparagraph) for each of the 5

13 taxable years referred to in paragraph (5)(A)

14 shall be increased by—

15 ‘‘(i) 5 percentage points in the case of

16 a taxable year ending during the 1-year pe17 riod ending on October 13, 1995;

18 ‘‘(ii) 10.25 percentage points in the

19 case of a taxable year ending during the 1-

20 year period ending on October 13, 1994;

21 ‘‘(iii) 15.76 percentage points in the

22 case of a taxable year ending during the 1-

23 year period ending on October 13, 1993;

24 ‘‘(iv) 21.55 percentage points in the

25 case of a taxable year ending during the 1-
143

•HR 3448 EH

1 year period ending on October 13, 1992;

2 and

3 ‘‘(v) 27.63 percentage points in the

4 case of a taxable year ending during the 1-

5 year period ending on October 13, 1991.

6 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

7 subsection—

8 ‘‘(A) IN GENERAL.—The term ‘base period

9 year’ means each of 3 taxable years which are

10 among the 5 most recent taxable years of the

11 corporation ending before October 14, 1995, de12 termined by disregarding—

13 ‘‘(i) one taxable year for which the

14 corporation had the largest inflation-ad15 justed possession income, and

16 ‘‘(ii) one taxable year for which the

17 corporation had the smallest inflation-ad18 justed possession income.

19 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI20 CANT POSSESSION INCOME THROUGHOUT 5-

21 YEAR PERIOD.—

22 ‘‘(i) IN GENERAL.—If a corporation

23 does not have significant possession income

24 for each of the most recent 5 taxable years

25 ending before October 14, 1995, then, in
144

•HR 3448 EH

1 lieu of applying subparagraph (A), the

2 term ‘base period year’ means only those

3 taxable years (of such 5 taxable years) for

4 which the corporation has significant pos5 session income; except that, if such cor6 poration has significant possession income

7 for 4 of such 5 taxable years, the rule of

8 subparagraph (A)(ii) shall apply.

9 ‘‘(ii) SPECIAL RULE.—If there is no

10 year (of such 5 taxable years) for which a

11 corporation has significant possession in12 come—

13 ‘‘(I) the term ‘base period year’

14 means the first taxable year ending on

15 or after October 14, 1995, but

16 ‘‘(II) the amount of possession

17 income for such year which is taken

18 into account under paragraph (4)

19 shall be the amount which would be

20 determined if such year were a short

21 taxable year ending on September 30,

22 1995.

23 ‘‘(iii) SIGNIFICANT POSSESSION IN24 COME.—For purposes of this subpara25 graph, the term ‘significant possession in-
145

•HR 3448 EH

1 come’ means possession income which ex2 ceeds 2 percent of the possession income of

3 the taxpayer for the taxable year (of the

4 period of 6 taxable years ending with the

5 first taxable year ending on or after Octo6 ber 14, 1995) having the greatest posses7 sion income.

8 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

9 YEAR.—

10 ‘‘(i) IN GENERAL.—At the election of

11 the taxpayer, the term ‘base period year’

12 means—

13 ‘‘(I) only the last taxable year of

14 the corporation ending in calendar

15 year 1992, or

16 ‘‘(II) a deemed taxable year

17 which includes the first ten months of

18 calendar year 1995.

19 ‘‘(ii) BASE PERIOD INCOME FOR

20 1995.—In determining the adjusted base

21 period income of the corporation for the

22 deemed taxable year under clause (i)(II),

23 the possession income shall be annualized

24 and shall be determined without regard to

25 any extraordinary item.
146

•HR 3448 EH

1 ‘‘(iii) ELECTION.—An election under

2 this subparagraph by any possession cor3 poration may be made only for the cor4 poration’s first taxable year beginning

5 after December 31, 1995, for which it is a

6 possession corporation. The rules of sub7 clauses (II) and (III) of subsection

8 (a)(4)(B)(iii) shall apply to the election

9 under this subparagraph.

10 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

11 Rules similar to the rules of subparagraphs (A)

12 and (B) of section 41(f)(3) shall apply for pur13 poses of this subsection.

14 ‘‘(6) POSSESSION INCOME.—For purposes of

15 this subsection, the term ‘possession income’ means,

16 with respect to any possession, the income referred

17 to in subsection (a)(1)(A) determined with respect to

18 that possession. In no event shall possession income

19 be treated as being less than zero.

20 ‘‘(7) SHORT YEARS.—If the current year or a

21 base period year is a short taxable year, the applica22 tion of this subsection shall be made with such

23 annualizations as the Secretary shall prescribe.

24 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES25 SIONS.—
147

•HR 3448 EH

1 ‘‘(A) IN GENERAL.—In the case of an ex2 isting credit claimant with respect to an appli3 cable possession, this section (other than the

4 preceding paragraphs of this subsection) shall

5 apply to such claimant with respect to such ap6 plicable possession for taxable years beginning

7 after December 31, 1995, and before January

8 1, 2006.

9 ‘‘(B) APPLICABLE POSSESSION.—For pur10 poses of this paragraph, the term ‘applicable

11 possession’ means Guam, American Samoa, and

12 the Commonwealth of the Northern Mariana Is13 lands.

14 ‘‘(9) EXISTING CREDIT CLAIMANT.—For pur15 poses of this subsection—

16 ‘‘(A) IN GENERAL.—The term ‘existing

17 credit claimant’ means a corporation—

18 ‘‘(i) which was actively conducting a

19 trade or business in a possession on Octo20 ber 13, 1995, and

21 ‘‘(ii) with respect to which an election

22 under this section is in effect for the cor23 poration’s taxable year which includes Oc24 tober 13, 1995.
148

•HR 3448 EH

1 ‘‘(B) NEW LINES OF BUSINESS PROHIB2 ITED.—If, after October 13, 1995, a corpora3 tion which would (but for this subparagraph) be

4 an existing credit claimant adds a substantial

5 new line of business, such corporation shall

6 cease to be treated as an existing credit claim7 ant as of the close of the taxable year ending

8 before the date of such addition.

9 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

10 on October 13, 1995, and at all times there11 after, there is in effect with respect to a cor12 poration a binding contract for the acquisition

13 of assets to be used in, or for the sale of assets

14 to be produced from, a trade or business, the

15 corporation shall be treated for purposes of this

16 paragraph as actively conducting such trade or

17 business on October 13, 1995. The preceding

18 sentence shall not apply if such trade or busi19 ness is not actively conducted before January 1,

20 1996.

21 ‘‘(10) SEPARATE APPLICATION TO EACH POS22 SESSION.—For purposes of determining—

23 ‘‘(A) whether a taxpayer is an existing

24 credit claimant, and
149

•HR 3448 EH

1 ‘‘(B) the amount of the credit allowed

2 under this section,

3 this subsection (and so much of this section as re4 lates to this subsection) shall be applied separately

5 with respect to each possession.’’.

6 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO

7 RICO.—

8 (1) IN GENERAL.—Subpart B of part IV of

9 subchapter A of chapter 1 is amended by adding at

10 the end the following new section:

11 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

12 ‘‘(a) ALLOWANCE OF CREDIT.—

13 ‘‘(1) IN GENERAL.—Except as otherwise pro14 vided in this section, if the conditions of both para15 graph (1) and paragraph (2) of subsection (b) are

16 satisfied with respect to a qualified domestic cor17 poration, there shall be allowed as a credit against

18 the tax imposed by this chapter an amount equal to

19 the portion of the tax which is attributable to the

20 taxable income, from sources without the United

21 States, from—

22 ‘‘(A) the active conduct of a trade or busi23 ness within Puerto Rico, or
150

•HR 3448 EH

1 ‘‘(B) the sale or exchange of substantially

2 all of the assets used by the taxpayer in the ac3 tive conduct of such trade or business.

4 In the case of any taxable year beginning after De5 cember 31, 2001, the aggregate amount of taxable

6 income taken into account under the preceding sen7 tence (and in applying subsection (d)) shall not ex8 ceed the adjusted base period income of such cor9 poration, as determined in the same manner as

10 under section 936(j).

11 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—

12 For purposes of paragraph (1), the term ‘qualified

13 domestic corporation’ means a domestic corpora14 tion—

15 ‘‘(A) which is an existing credit claimant

16 with respect to Puerto Rico, and

17 ‘‘(B) with respect to which section

18 936(a)(4)(B) does not apply for the taxable

19 year.

20 ‘‘(3) SEPARATE APPLICATION.—For purposes of

21 determining—

22 ‘‘(A) whether a taxpayer is an existing

23 credit claimant with respect to Puerto Rico, and

24 ‘‘(B) the amount of the credit allowed

25 under this section,
151

•HR 3448 EH

1 this section (and so much of section 936 as relates

2 to this section) shall be applied separately with re3 spect to Puerto Rico.

4 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—

5 The conditions referred to in subsection (a) are—

6 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

7 the gross income of the qualified domestic corpora8 tion for the 3-year period immediately preceding the

9 close of the taxable year (or for such part of such

10 period immediately preceding the close of such tax11 able year as may be applicable) was derived from

12 sources within a possession (determined without re13 gard to section 904(f)).

14 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

15 more of the gross income of the qualified domestic

16 corporation for such period or such part thereof was

17 derived from the active conduct of a trade or busi18 ness within a possession.

19 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

20 TAXES.—The credit provided by subsection (a) shall not

21 be allowed against the tax imposed by—

22 ‘‘(1) section 59A (relating to environmental

23 tax),

24 ‘‘(2) section 531 (relating to the tax on accu25 mulated earnings),
152

•HR 3448 EH

1 ‘‘(3) section 541 (relating to personal holding

2 company tax), or

3 ‘‘(4) section 1351 (relating to recoveries of for4 eign expropriation losses).

5 ‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSI6 NESS INCOME.—The amount of the credit determined

7 under subsection (a) for any taxable year shall not exceed

8 the sum of the following amounts:

9 ‘‘(1) 60 percent of the sum of—

10 ‘‘(A) the aggregate amount of the qualified

11 domestic corporation’s qualified possession

12 wages for such taxable year, plus

13 ‘‘(B) the allocable employee fringe benefit

14 expenses of the qualified domestic corporation

15 for such taxable year.

16 ‘‘(2) The sum of—

17 ‘‘(A) 15 percent of the deprecation allow18 ances for the taxable year with respect to short19 life qualified tangible property,

20 ‘‘(B) 40 percent of the depreciation allow21 ances for the taxable year with respect to me22 dium-life qualified tangible property, and

23 ‘‘(C) 65 percent of the depreciation allow24 ances for the taxable year with respect to long25 life qualified tangible property.
153

•HR 3448 EH

1 ‘‘(3) If the qualified domestic corporation does

2 not have an election to use the method described in

3 section 936(h)(5)(C)(ii) (relating to profit split) in

4 effect for the taxable year, the amount of the quali5 fied possession income taxes for the taxable year al6 locable to nonsheltered income.

7 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

8 this title—

9 ‘‘(1) the provisions of section 936 (including

10 any applicable election thereunder) shall apply in the

11 same manner as if the credit under this section were

12 a credit under section 936(a)(1)(A) for a domestic

13 corporation to which section 936(a)(4)(A) applies,

14 ‘‘(2) the credit under this section shall be treat15 ed in the same manner as the credit under section

16 936, and

17 ‘‘(3) a corporation to which this section applies

18 shall be treated in the same manner as if it were a

19 corporation electing the application of section 936.

20 ‘‘(f) DEFINITIONS.—For purposes of this section, any

21 term used in this section which is also used in section 936

22 shall have the same meaning given such term by section

23 936.
154

•HR 3448 EH

1 ‘‘(g) APPLICATION OF SECTION.—This section shall

2 apply to taxable years beginning after December 31, 1995,

3 and before January 1, 2006.’’.

4 (2) CONFORMING AMENDMENTS.—

5 (A) Paragraph (1) of section 55(c) is

6 amended by striking ‘‘and the section 936 cred7 it allowable under section 27(b)’’ and inserting

8 ‘‘, the section 936 credit allowable under section

9 27(b), and the Puerto Rican economic activity

10 credit under section 30A’’.

11 (B) Subclause (I) of section 56(g)(4)(C)(ii)

12 is amended—

13 (i) by inserting ‘‘30A,’’ before ‘‘936’’,

14 and

15 (ii) by striking ‘‘and (i)’’ and inserting

16 ‘‘, (i), and (j)’’.

17 (C) Clause (iii) of section 56(g)(4)(C) is

18 amended by adding at the end the following

19 new subclause:

20 ‘‘(VI) APPLICATION TO SECTION

21 30A CORPORATIONS.—References in

22 this clause to section 936 shall be

23 treated as including references to sec24 tion 30A.’’.
155

•HR 3448 EH

1 (D) Subsection (b) of section 59 is amend2 ed by striking ‘‘section 936,’’ and all that fol3 lows and inserting ‘‘section 30A or 936, alter4 native minimum taxable income shall not in5 clude any income with respect to which a credit

6 is determined under section 30A or 936.’’.

7 (E) The table of sections for subpart B of

8 part IV of subchapter A of chapter 1 is amend9 ed by adding at the end the following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’.

10 (F)(i) The heading for subpart B of part

11 IV of subchapter A of chapter 1 is amended to

12 read as follows:

13 ‘‘Subpart B—Other Credits’’.

14 (ii) The table of subparts for part IV of

15 subchapter A of chapter 1 is amended by strik16 ing the item relating to subpart B and inserting

17 the following new item:

‘‘Subpart B. Other credits.’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to taxable years beginning after

20 December 31, 1995.
156

•HR 3448 EH

1 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

2 LOANS USED TO ACQUIRE EMPLOYER SECU3 RITIES.

4 (a) IN GENERAL.—Section 133 (relating to interest

5 on certain loans used to acquire employer securities) is

6 hereby repealed.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subparagraph (B) of section 291(e)(1) is

9 amended by striking clause (iv) and by redesignating

10 clause (v) as clause (iv).

11 (2) Section 812 is amended by striking sub12 section (g).

13 (3) Paragraph (5) of section 852(b) is amended

14 by striking subparagraph (C).

15 (4) Paragraph (2) of section 4978(b) is amend16 ed by striking subparagraph (A) and all that follows

17 and inserting the following:

18 ‘‘(A) first from qualified securities to

19 which section 1042 applied acquired during the

20 3-year period ending on the date of the disposi21 tion, beginning with the securities first so ac22 quired, and

23 ‘‘(B) then from any other employer securi24 ties.

25 If subsection (d) applies to a disposition, the disposi26 tion shall be treated as made from employer securi-
157

•HR 3448 EH

1 ties in the opposite order of the preceding sen2 tence.’’.

3 (5)(A) Section 4978B (relating to tax on dis4 position of employer securities to which section 133

5 applied) is hereby repealed.

6 (B) The table of sections for chapter 43 is

7 amended by striking the item relating to section

8 4978B.

9 (6) Subsection (e) of section 6047 is amended

10 by striking paragraphs (1), (2), and (3) and insert11 ing the following new paragraphs:

12 ‘‘(1) any employer maintaining, or the plan ad13 ministrator (within the meaning of section 414(g))

14 of, an employee stock ownership plan which holds

15 stock with respect to which section 404(k) applies to

16 dividends paid on such stock, or

17 ‘‘(2) both such employer or plan adminis18 trator,’’.

19 (7) Subsection (f) of section 7872 is amended

20 by striking paragraph (12).

21 (8) The table of sections for part III of sub22 chapter B of chapter 1 is amended by striking the

23 item relating to section 133.

24 (c) EFFECTIVE DATE.—
158

•HR 3448 EH

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

2 this section shall apply to loans made after October

3 13, 1995.

4 (2) REFINANCINGS.—The amendments made by

5 this section shall not apply to loans made after Octo6 ber 13, 1995, to refinance securities acquisition

7 loans (determined without regard to section

8 133(b)(1)(B) of the Internal Revenue Code of 1986,

9 as in effect on the day before the date of the enact10 ment of this Act) made on or before such date or

11 to refinance loans described in this paragraph if—

12 (A) the refinancing loans meet the require13 ments of section 133 of such Code (as so in ef14 fect),

15 (B) immediately after the refinancing the

16 principal amount of the loan resulting from the

17 refinancing does not exceed the principal

18 amount of the refinanced loan (immediately be19 fore the refinancing), and

20 (C) the term of such refinancing loan does

21 not extend beyond the last day of the term of

22 the original securities acquisition loan.

23 For purposes of this paragraph, the term ‘‘securities

24 acquisition loan’’ includes a loan from a corporation
159

•HR 3448 EH

1 to an employee stock ownership plan described in

2 section 133(b)(3) of such Code (as so in effect).

3 (3) EXCEPTION.—Any loan made pursuant to a

4 binding written contract in effect on October 13,

5 1995, and at all times thereafter before such loan is

6 made, shall be treated for purposes of paragraphs

7 (1) and (2) as a loan made before such date.

8 SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN

9 CORPORATIONS TREATED AS UNRELATED

10 BUSINESS TAXABLE INCOME.

11 (a) GENERAL RULE.—Subsection (b) of section 512

12 (relating to modifications) is amended by adding at the

13 end the following new paragraph:

14 ‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE15 RIVED FROM FOREIGN CORPORATIONS.—

16 ‘‘(A) IN GENERAL.—Notwithstanding para17 graph (1), any amount included in gross income

18 under section 951(a)(1)(A) shall be included as

19 an item of gross income derived from an unre20 lated trade or business to the extent the

21 amount so included is attributable to insurance

22 income (as defined in section 953) which, if de23 rived directly by the organization, would be

24 treated as gross income from an unrelated

25 trade or business. There shall be allowed all de-
160

•HR 3448 EH

1 ductions directly connected with amounts in2 cluded in gross income under the preceding sen3 tence.

4 ‘‘(B) EXCEPTION.—Subparagraph (A)

5 shall not apply to income attributable to a pol6 icy of insurance or reinsurance with respect to

7 which the person (directly or indirectly) insured

8 is—

9 ‘‘(i) such organization,

10 ‘‘(ii) an affiliate of such organization

11 which is exempt from tax under section

12 501(a), or

13 ‘‘(iii) a director or officer of, or an in14 dividual who (directly or indirectly) per15 forms services for, such organization or af16 filiate but only if the insurance covers pri17 marily risks associated with the perform18 ance of services in connection with such or19 ganization or affiliate.

20 For purposes of this subparagraph, the deter21 mination as to whether an entity is an affiliate

22 of an organization shall be made under rules

23 similar to the rules of section 168(h)(4)(B).

24 ‘‘(C) REGULATIONS.—The Secretary shall

25 prescribe such regulations as may be necessary
161

•HR 3448 EH

1 or appropriate to carry out the purposes of this

2 paragraph, including regulations for the appli3 cation of this paragraph in the case of income

4 paid through 1 or more entities or between 2 or

5 more chains of entities.’’.

6 (b) EFFECTIVE DATE.—The amendment made by

7 this section shall apply to amounts included in gross in8 come in any taxable year beginning after December 31,

9 1995.

10 SEC. 1604. DEPRECIATION UNDER INCOME FORECAST

11 METHOD.

12 (a) GENERAL RULE.—Section 167 (relating to depre13 ciation) is amended by redesignating subsection (g) as

14 subsection (h) and by inserting after subsection (f) the

15 following new subsection:

16 ‘‘(g) DEPRECIATION UNDER INCOME FORECAST

17 METHOD.—

18 ‘‘(1) IN GENERAL.—If the depreciation deduc19 tion allowable under this section to any taxpayer

20 with respect to any property is determined under the

21 income forecast method or any similar method—

22 ‘‘(A) the income from the property to be

23 taken into account in determining the deprecia24 tion deduction under such method shall be

25 equal to the amount of income earned in con-
162

•HR 3448 EH

1 nection with the property before the close of the

2 10th taxable year following the taxable year in

3 which the property was placed in service,

4 ‘‘(B) the adjusted basis of the property

5 shall only include amounts with respect to

6 which the requirements of section 461(h) are

7 satisfied,

8 ‘‘(C) the depreciation deduction under such

9 method for the 10th taxable year beginning

10 after the taxable year in which the property was

11 placed in service shall be equal to the adjusted

12 basis of such property as of the beginning of

13 such 10th taxable year, and

14 ‘‘(D) such taxpayer shall pay (or be enti15 tled to receive) interest computed under the

16 look-back method of paragraph (2) for any re17 computation year.

18 ‘‘(2) LOOK-BACK METHOD.—The interest com19 puted under the look-back method of this paragraph

20 for any recomputation year shall be determined by—

21 ‘‘(A) first determining the depreciation de22 ductions under this section with respect to such

23 property which would have been allowable for

24 prior taxable years if the determination of the

25 amounts so allowable had been made on the
163

•HR 3448 EH

1 basis of the sum of the following (instead of the

2 estimated income from such property)—

3 ‘‘(i) the actual income earned in con4 nection with such property for periods be5 fore the close of the recomputation year,

6 and

7 ‘‘(ii) an estimate of the future income

8 to be earned in connection with such prop9 erty for periods after the recomputation

10 year and before the close of the 10th tax11 able year following the taxable year in

12 which the property was placed in service,

13 ‘‘(B) second, determining (solely for pur14 poses of computing such interest) the overpay15 ment or underpayment of tax for each such

16 prior taxable year which would result solely

17 from the application of subparagraph (A), and

18 ‘‘(C) then using the adjusted overpayment

19 rate (as defined in section 460(b)(7)),

20 compounded daily, on the overpayment or

21 underpayment determined under subparagraph

22 (B).

23 For purposes of the preceding sentence, any cost in24 curred after the property is placed in service (which

25 is not treated as a separate property under para-
164

•HR 3448 EH

1 graph (5)) shall be taken into account by discount2 ing (using the Federal mid-term rate determined

3 under section 1274(d) as of the time such cost is in4 curred) such cost to its value as of the date the

5 property is placed in service. The taxpayer may elect

6 with respect to any property to have the preceding

7 sentence not apply to such property.

8 ‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—

9 Paragraph (1)(D) shall not apply with respect to

10 any property which, when placed in service by the

11 taxpayer, had a basis of $100,000 or less.

12 ‘‘(4) RECOMPUTATION YEAR.—For purposes of

13 this subsection, except as provided in regulations,

14 the term ‘recomputation year’ means, with respect to

15 any property, the 3d and the 10th taxable years be16 ginning after the taxable year in which the property

17 was placed in service, unless the actual income

18 earned in connection with the property for the pe19 riod before the close of such 3d or 10th taxable year

20 is within 10 percent of the income earned in connec21 tion with the property for such period which was

22 taken into account under paragraph (1)(A).

23 ‘‘(5) SPECIAL RULES.—

24 ‘‘(A) CERTAIN COSTS TREATED AS SEPA25 RATE PROPERTY.—For purposes of this sub-
165

•HR 3448 EH

1 section, the following costs shall be treated as

2 separate properties:

3 ‘‘(i) Any costs incurred with respect

4 to any property after the 10th taxable year

5 beginning after the taxable year in which

6 the property was placed in service.

7 ‘‘(ii) Any costs incurred after the

8 property is placed in service and before the

9 close of such 10th taxable year if such

10 costs are significant and give rise to a sig11 nificant increase in the income from the

12 property which was not included in the es13 timated income from the property.

14 ‘‘(B) SYNDICATION INCOME FROM TELE15 VISION SERIES.—In the case of property which

16 is an episode in a television series, income from

17 syndicating such series shall not be required to

18 be taken into account under this subsection be19 fore the earlier of—

20 ‘‘(i) the 4th taxable year beginning

21 after the date the first episode in such se22 ries is placed in service, or

23 ‘‘(ii) the earliest taxable year in which

24 the taxpayer has an arrangement relating

25 to the future syndication of such series.
166

•HR 3448 EH

1 ‘‘(C) SPECIAL RULES FOR FINANCIAL EX2 PLOITATION OF CHARACTERS, ETC.—For pur3 poses of this subsection, in the case of television

4 and motion picture films, the income from the

5 property shall include income from the exploi6 tation of characters, designs, scripts, scores,

7 and other incidental income associated with

8 such films, but only to the extent that such in9 come is earned in connection with the ultimate

10 use of such items by, or the ultimate sale of

11 merchandise to, persons who are not related

12 persons (within the meaning of section 267(b))

13 to the taxpayer.

14 ‘‘(D) COLLECTION OF INTEREST.—For

15 purposes of subtitle F (other than sections

16 6654 and 6655), any interest required to be

17 paid by the taxpayer under paragraph (1) for

18 any recomputation year shall be treated as an

19 increase in the tax imposed by this chapter for

20 such year.

21 ‘‘(E) DETERMINATIONS.—For purposes of

22 paragraph (2), determinations of the amount of

23 income earned in connection with any property

24 shall be made in the same manner as for pur25 poses of applying the income forecast method;
167

•HR 3448 EH

1 except that any income from the disposition of

2 such property shall be taken into account.

3 ‘‘(F) TREATMENT OF PASS-THRU ENTI4 TIES.—Rules similar to the rules of section

5 460(b)(4) shall apply for purposes of this sub6 section.’’.

7 (b) EFFECTIVE DATE.—

8 (1) IN GENERAL.—The amendment made by

9 subsection (a) shall apply to property placed in serv10 ice after September 13, 1995.

11 (2) BINDING CONTRACTS.—The amendment

12 made by subsection (a) shall not apply to any prop13 erty produced or acquired by the taxpayer pursuant

14 to a written contract which was binding on Septem15 ber 13, 1995, and at all times thereafter before such

16 production or acquisition.

17 SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES

18 AND FOR DAMAGES NOT ATTRIBUTABLE TO

19 PHYSICAL INJURIES OR SICKNESS.

20 (a) IN GENERAL.—Paragraph (2) of section 104(a)

21 (relating to compensation for injuries or sickness) is

22 amended to read as follows:

23 ‘‘(2) the amount of any damages (other than

24 punitive damages) received (whether by suit or

25 agreement and whether as lump sums or as periodic
168

•HR 3448 EH

1 payments) on account of personal physical injuries

2 or physical sickness;’’.

3 (b) EMOTIONAL DISTRESS AS SUCH TREATED AS

4 NOT PHYSICAL INJURY OR PHYSICAL SICKNESS.—Sec5 tion 104(a) is amended by striking the last sentence and

6 inserting the following new sentence: ‘‘For purposes of

7 paragraph (2), emotional distress shall not be treated as

8 a physical injury or physical sickness. The preceding sen9 tence shall not apply to an amount of damages not in ex10 cess of the amount paid for medical care (described in sub11 paragraph (A) or (B) of section 213(d)(1)) attributable

12 to emotional distress.’’.

13 (c) APPLICATION OF PRIOR LAW FOR STATES IN

14 WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN

15 WRONGFUL DEATH ACTIONS.—Section 104 is amended

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

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

18 ‘‘(c) APPLICATION OF PRIOR LAW IN CERTAIN

19 CASES.—The phrase ‘(other than punitive damages)’ shall

20 not apply to punitive damages awarded in a civil action—

21 ‘‘(1) which is a wrongful death action, and

22 ‘‘(2) with respect to which applicable State law

23 (as in effect on September 13, 1995 and without re24 gard to any modification after such date) provides,

25 or has been construed to provide by a court of com-
169

•HR 3448 EH

1 petent jurisdiction pursuant to a decision issued on

2 or before September 13, 1995, that only punitive

3 damages may be awarded in such an action.

4 This subsection shall cease to apply to any civil action filed

5 on or after the first date on which the applicable State

6 law ceases to provide (or is no longer construed to provide)

7 the treatment described in paragraph (2).’’.

8 (d) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section

11 shall apply to amounts received after June 30, 1996,

12 in taxable years ending after such date.

13 (2) EXCEPTION.—The amendments made by

14 this section shall not apply to any amount received

15 under a written binding agreement, court decree, or

16 mediation award in effect on (or issued on or before)

17 September 13, 1995.

18 SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR19 CHASERS OF DIESEL-POWERED AUTO20 MOBILES AND LIGHT TRUCKS.

21 (a) IN GENERAL.—Section 6427 (relating to fuels

22 not used for taxable purposes) is amended by striking sub23 section (g).

24 (b) CONFORMING AMENDMENTS.—
170

•HR 3448 EH

1 (1) Paragraph (3) of section 34(a) is amended

2 to read as follows:

3 ‘‘(3) under section 6427 with respect to fuels

4 used for nontaxable purposes or resold during the

5 taxable year (determined without regard to section

6 6427(k)).’’.

7 (2) Paragraphs (1) and (2)(A) of section

8 6427(i) are each amended—

9 (A) by striking ‘‘(g),’’, and

10 (B) by striking ‘‘(or a qualified diesel pow11 ered highway vehicle purchased)’’ each place it

12 appears.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to vehicles purchased after the date

15 of the enactment of this Act.

16 Subtitle G—Technical Corrections

17 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

18 For purposes of applying the amendments made by

19 any subtitle of this title other than this subtitle, the provi20 sions of this subtitle shall be treated as having been en21 acted immediately before the provisions of such other sub22 titles.

23 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC24 ONCILIATION ACT OF 1990.

25 (a) AMENDMENTS RELATED TO SUBTITLE A.—
171

•HR 3448 EH

1 (1) Subparagraph (B) of section 59(j)(3) is

2 amended by striking ‘‘section 1(i)(3)(B)’’ and insert3 ing ‘‘section 1(g)(3)(B)’’.

4 (2) Clause (i) of section 151(d)(3)(C) is amend5 ed by striking ‘‘joint of a return’’ and inserting

6 ‘‘joint return’’.

7 (b) AMENDMENTS RELATED TO SUBTITLE B.—

8 (1) Paragraph (1) of section 11212(e) of the

9 Revenue Reconciliation Act of 1990 is amended by

10 striking ‘‘Paragraph (1) of section 6724(d)’’ and in11 serting ‘‘Subparagraph (B) of section 6724(d)(1)’’.

12 (2)(A) Subparagraph (B) of section 4093(c)(2),

13 as in effect before the amendments made by the

14 Revenue Reconciliation Act of 1993, is amended by

15 inserting before the period ‘‘unless such fuel is sold

16 for exclusive use by a State or any political subdivi17 sion thereof’’.

18 (B) Paragraph (4) of section 6427(l), as in ef19 fect before the amendments made by the Revenue

20 Reconciliation Act of 1993, is amended by inserting

21 before the period ‘‘unless such fuel was used by a

22 State or any political subdivision thereof’’.

23 (3) Paragraph (1) of section 6416(b) is amend24 ed by striking ‘‘chapter 32 or by section 4051’’ and

25 inserting ‘‘chapter 31 or 32’’.
172

•HR 3448 EH

1 (4) Section 7012 is amended—

2 (A) by striking ‘‘production or importation

3 of gasoline’’ in paragraph (3) and inserting

4 ‘‘taxes on gasoline and diesel fuel’’, and

5 (B) by striking paragraph (4) and redesig6 nating paragraphs (5) and (6) as paragraphs

7 (4) and (5), respectively.

8 (5) Subsection (c) of section 5041 is amended

9 by striking paragraph (6) and by inserting the fol10 lowing new paragraphs:

11 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

12 ‘‘(A) wine produced by any person would

13 be eligible for any credit under paragraph (1)

14 if removed by such person during the calendar

15 year,

16 ‘‘(B) wine produced by such person is re17 moved during such calendar year by any other

18 person (hereafter in this paragraph referred to

19 as the ‘transferee’) to whom such wine was

20 transferred in bond and who is liable for the tax

21 imposed by this section with respect to such

22 wine, and

23 ‘‘(C) such producer holds title to such wine

24 at the time of its removal and provides to the

25 transferee such information as is necessary to
173

•HR 3448 EH

1 properly determine the transferee’s credit under

2 this paragraph,

3 then, the transferee (and not the producer) shall be

4 allowed the credit under paragraph (1) which would

5 be allowed to the producer if the wine removed by

6 the transferee had been removed by the producer on

7 that date.

8 ‘‘(7) REGULATIONS.—The Secretary may pre9 scribe such regulations as may be necessary to carry

10 out the purposes of this subsection, including regula11 tions—

12 ‘‘(A) to prevent the credit provided in this

13 subsection from benefiting any person who pro14 duces more than 250,000 wine gallons during a

15 calendar year, and

16 ‘‘(B) to assure proper reduction of such

17 credit for persons producing more than 150,000

18 wine gallons of wine during a calendar year.’’.

19 (6) Paragraph (3) of section 5061(b) is amend20 ed to read as follows:

21 ‘‘(3) section 5041(f),’’.

22 (7) Section 5354 is amended by inserting ‘‘(tak23 ing into account the appropriate amount of credit

24 with respect to such wine under section 5041(c))’’

25 after ‘‘any one time’’.
174

•HR 3448 EH

1 (c) AMENDMENTS RELATED TO SUBTITLE C.—

2 (1) Paragraph (4) of section 56(g) is amended

3 by redesignating subparagraphs (I) and (J) as sub4 paragraphs (H) and (I), respectively.

5 (2) Subparagraph (B) of section 6724(d)(1) is

6 amended—

7 (A) by striking ‘‘or’’ at the end of clause

8 (xii), and

9 (B) by striking the period at the end of

10 clause (xiii) and inserting ‘‘, or’’.

11 (3) Subsection (g) of section 6302 is amended

12 by inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

13 (4) The earnings and profits of any insurance

14 company to which section 11305(c)(3) of the Reve15 nue Reconciliation Act of 1990 applies shall be de16 termined without regard to any deduction allowed

17 under such section; except that, for purposes of ap18 plying sections 56 and 902, and subpart F of part

19 III of subchapter N of chapter 1 of the Internal

20 Revenue Code of 1986, such deduction shall be

21 taken into account.

22 (5) Subparagraph (D) of section 6038A(e)(4) is

23 amended—
175

•HR 3448 EH

1 (A) by striking ‘‘any transaction to which

2 the summons relates’’ and inserting ‘‘any af3 fected taxable year’’, and

4 (B) by adding at the end thereof the fol5 lowing new sentence: ‘‘For purposes of this sub6 paragraph, the term ‘affected taxable year’

7 means any taxable year if the determination of

8 the amount of tax imposed for such taxable

9 year is affected by the treatment of the trans10 action to which the summons relates.’’.

11 (6) Subparagraph (A) of section 6621(c)(2) is

12 amended by adding at the end thereof the following

13 new flush sentence:

14 ‘‘The preceding sentence shall be applied with15 out regard to any such letter or notice which is

16 withdrawn by the Secretary.’’.

17 (7) Clause (i) of section 6621(c)(2)(B) is

18 amended by striking ‘‘this subtitle’’ and inserting

19 ‘‘this title’’.

20 (d) AMENDMENTS RELATED TO SUBTITLE D.—

21 (1) Notwithstanding section 11402(c) of the

22 Revenue Reconciliation Act of 1990, the amendment

23 made by section 11402(b)(1) of such Act shall apply

24 to taxable years ending after December 31, 1989.
176

•HR 3448 EH

1 (2) Clause (ii) of section 143(m)(4)(C) is

2 amended—

3 (A) by striking ‘‘any month of the 10-year

4 period’’ and inserting ‘‘any year of the 4-year

5 period’’,

6 (B) by striking ‘‘succeeding months’’ and

7 inserting ‘‘succeeding years’’, and

8 (C) by striking ‘‘over the remainder of

9 such period (or, if lesser, 5 years)’’ and insert10 ing ‘‘to zero over the succeeding 5 years’’.

11 (e) AMENDMENTS RELATED TO SUBTITLE E.—

12 (1)(A) Clause (ii) of section 56(d)(1)(B) is

13 amended to read as follows:

14 ‘‘(ii) appropriate adjustments in the

15 application of section 172(b)(2) shall be

16 made to take into account the limitation of

17 subparagraph (A).’’.

18 (B) For purposes of applying sections 56(g)(1)

19 and 56(g)(3) of the Internal Revenue Code of 1986

20 with respect to taxable years beginning in 1991 and

21 1992, the reference in such sections to the alter22 native tax net operating loss deduction shall be

23 treated as including a reference to the deduction

24 under section 56(h) of such Code as in effect before
177

•HR 3448 EH

1 the amendments made by section 1915 of the En2 ergy Policy Act of 1992.

3 (2) Clause (i) of section 613A(c)(3)(A) is

4 amended by striking ‘‘the table contained in’’.

5 (3) Section 6501 is amended—

6 (A) by striking subsection (m) (relating to

7 deficiency attributable to election under section

8 44B) and by redesignating subsections (n) and

9 (o) as subsections (m) and (n), respectively, and

10 (B) by striking ‘‘section 40(f) or 51(j)’’ in

11 subsection (m) (as redesignated by subpara12 graph (A)) and inserting ‘‘section 40(f), 43, or

13 51(j)’’.

14 (4) Subparagraph (C) of section 38(c)(2) (as in

15 effect on the day before the date of the enactment

16 of the Revenue Reconciliation Act of 1990) is

17 amended by inserting before the period at the end

18 of the first sentence the following: ‘‘and without re19 gard to the deduction under section 56(h)’’.

20 (5) The amendment made by section

21 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

22 shall apply to taxable years beginning after Decem23 ber 31, 1990.

24 (f) AMENDMENTS RELATED TO SUBTITLE F.—
178

•HR 3448 EH

1 (1)(A) Section 2701(a)(3) is amended by add2 ing at the end thereof the following new subpara3 graph:

4 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

5 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

6 case of an applicable retained interest which is

7 described in subparagraph (B)(i) but not sub8 paragraph (B)(ii), the value of the distribution

9 right shall be determined without regard to this

10 section.’’.

11 (B) Section 2701(a)(3)(B) is amended by in12 serting ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the head13 ing thereof.

14 (C) Sections 2701 (d)(1) and (d)(4) are each

15 amended by striking ‘‘subsection (a)(3)(B)’’ and in16 serting ‘‘subsection (a)(3) (B) or (C)’’.

17 (2) Clause (i) of section 2701(a)(4)(B) is

18 amended by inserting ‘‘(or, to the extent provided in

19 regulations, the rights as to either income or cap20 ital)’’ after ‘‘income and capital’’.

21 (3)(A) Section 2701(b)(2) is amended by add22 ing at the end thereof the following new subpara23 graph:

24 ‘‘(C) APPLICABLE FAMILY MEMBER.—For

25 purposes of this subsection, the term ‘applicable
179

•HR 3448 EH

1 family member’ includes any lineal descendant

2 of any parent of the transferor or the transfer3 or’s spouse.’’.

4 (B) Section 2701(e)(3) is amended—

5 (i) by striking subparagraph (B), and

6 (ii) by striking so much of paragraph (3)

7 as precedes ‘‘shall be treated as holding’’ and

8 inserting:

9 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS

10 AND TRANSFERS.—An individual’’.

11 (C) Section 2704(c)(3) is amended by striking

12 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

13 2701(e)(3)’’.

14 (4) Clause (i) of section 2701(c)(1)(B) is

15 amended to read as follows:

16 ‘‘(i) a right to distributions with re17 spect to any interest which is junior to the

18 rights of the transferred interest,’’.

19 (5)(A) Clause (i) of section 2701(c)(3)(C) is

20 amended to read as follows:

21 ‘‘(i) IN GENERAL.—Payments under

22 any interest held by a transferor which

23 (without regard to this subparagraph) are

24 qualified payments shall be treated as

25 qualified payments unless the transferor
180

•HR 3448 EH

1 elects not to treat such payments as quali2 fied payments. Payments described in the

3 preceding sentence which are held by an

4 applicable family member shall be treated

5 as qualified payments only if such member

6 elects to treat such payments as qualified

7 payments.’’.

8 (B) The first sentence of section

9 2701(c)(3)(C)(ii) is amended to read as follows: ‘‘A

10 transferor or applicable family member holding any

11 distribution right which (without regard to this sub12 paragraph) is not a qualified payment may elect to

13 treat such right as a qualified payment, to be paid

14 in the amounts and at the times specified in such

15 election.’’.

16 (C) The time for making an election under the

17 second sentence of section 2701(c)(3)(C)(i) of the

18 Internal Revenue Code of 1986 (as amended by sub19 paragraph (A)) shall not expire before the due date

20 (including extensions) for filing the transferor’s re21 turn of the tax imposed by section 2501 of such

22 Code for the first calendar year ending after the

23 date of enactment.

24 (6) Section 2701(d)(3)(A)(iii) is amended by

25 striking ‘‘the period ending on the date of’’.
181

•HR 3448 EH

1 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

2 amended by inserting ‘‘or the exclusion under sec3 tion 2503(b),’’ after ‘‘section 2523,’’.

4 (8) Section 2701(e)(5) is amended—

5 (A) by striking ‘‘such contribution to cap6 ital or such redemption, recapitalization, or

7 other change’’ in subparagraph (A) and insert8 ing ‘‘such transaction’’, and

9 (B) by striking ‘‘the transfer’’ in subpara10 graph (B) and inserting ‘‘such transaction’’.

11 (9) Section 2701(d)(4) is amended by adding at

12 the end thereof the following new subparagraph:

13 ‘‘(C) TRANSFER TO TRANSFERORS.—In

14 the case of a taxable event described in para15 graph (3)(A)(ii) involving a transfer of an ap16 plicable retained interest from an applicable

17 family member to a transferor, this subsection

18 shall continue to apply to the transferor during

19 any period the transferor holds such interest.’’.

20 (10) Section 2701(e)(6) is amended by insert21 ing ‘‘or to reflect the application of subsection (d)’’

22 before the period at the end thereof.

23 (11)(A) Section 2702(a)(3)(A) is amended—

24 (i) by striking ‘‘to the extent’’ and insert25 ing ‘‘if’’ in clause (i),
182

•HR 3448 EH

1 (ii) by striking ‘‘or’’ at the end of clause

2 (i),

3 (iii) by striking the period at the end of

4 clause (ii) and inserting ‘‘, or’’, and

5 (iv) by adding at the end thereof the fol6 lowing new clause:

7 ‘‘(iii) to the extent that regulations

8 provide that such transfer is not inconsist9 ent with the purposes of this section.’’.

10 (B)(i) Section 2702(a)(3) is amended by strik11 ing ‘‘incomplete transfer’’ each place it appears and

12 inserting ‘‘incomplete gift’’.

13 (ii) The heading for section 2702(a)(3)(B) is

14 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

15 inserting ‘‘INCOMPLETE GIFT’’.

16 (g) AMENDMENTS RELATED TO SUBTITLE G.—

17 (1)(A) Subsection (a) of section 1248 is

18 amended—

19 (i) by striking ‘‘, or if a United States per20 son receives a distribution from a foreign cor21 poration which, under section 302 or 331, is

22 treated as an exchange of stock’’ in paragraph

23 (1), and

24 (ii) by adding at the end thereof the follow25 ing new sentence: ‘‘For purposes of this section,
183

•HR 3448 EH

1 a United States person shall be treated as hav2 ing sold or exchanged any stock if, under any

3 provision of this subtitle, such person is treated

4 as realizing gain from the sale or exchange of

5 such stock.’’.

6 (B) Paragraph (1) of section 1248(e) is amend7 ed by striking ‘‘, or receives a distribution from a

8 domestic corporation which, under section 302 or

9 331, is treated as an exchange of stock’’.

10 (C) Subparagraph (B) of section 1248(f)(1) is

11 amended by striking ‘‘or 361(c)(1)’’ and inserting

12 ‘‘355(c)(1), or 361(c)(1)’’.

13 (D) Paragraph (1) of section 1248(i) is amend14 ed to read as follows:

15 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

16 percent corporate shareholder of a foreign corpora17 tion exchanges stock of the 10-percent corporate

18 shareholder for stock of the foreign corporation,

19 such 10-percent corporate shareholder shall recog20 nize gain in the same manner as if the stock of the

21 foreign corporation received in such exchange had

22 been—

23 ‘‘(A) issued to the 10-percent corporate

24 shareholder, and
184

•HR 3448 EH

1 ‘‘(B) then distributed by the 10-percent

2 corporate shareholder to such shareholder in re3 demption or liquidation (whichever is appro4 priate).

5 The amount of gain recognized by such 10-percent

6 corporate shareholder under the preceding sentence

7 shall not exceed the amount treated as a dividend

8 under this section.’’.

9 (2) Section 897 is amended by striking sub10 section (f).

11 (3) Paragraph (13) of section 4975(d) is

12 amended by striking ‘‘section 408(b)’’ and inserting

13 ‘‘section 408(b)(12)’’.

14 (4) Clause (iii) of section 56(g)(4)(D) is

15 amended by inserting ‘‘, but only with respect to

16 taxable years beginning after December 31, 1989’’

17 before the period at the end thereof.

18 (5)(A) Paragraph (11) of section 11701(a) of

19 the Revenue Reconciliation Act of 1990 (and the

20 amendment made by such paragraph) are hereby re21 pealed, and section 7108(r)(2) of the Revenue Rec22 onciliation Act of 1989 shall be applied as if such

23 paragraph (and amendment) had never been en24 acted.
185

•HR 3448 EH

1 (B) Subparagraph (A) shall not apply to any

2 building if the owner of such building establishes to

3 the satisfaction of the Secretary of the Treasury or

4 his delegate that such owner reasonably relied on the

5 amendment made by such paragraph (11).

6 (h) AMENDMENTS RELATED TO SUBTITLE H.—

7 (1)(A) Clause (vi) of section 168(e)(3)(B) is

8 amended by striking ‘‘or’’ at the end of subclause

9 (I), by striking the period at the end of subclause

10 (II) and inserting ‘‘, or’’, and by adding at the end

11 thereof the following new subclause:

12 ‘‘(III) is described in section

13 48(l)(3)(A)(ix) (as in effect on the

14 day before the date of the enactment

15 of the Revenue Reconciliation Act of

16 1990).’’.

17 (B) Subparagraph (B) of section 168(e)(3) (re18 lating to 5-year property) is amended by adding at

19 the end the following flush sentence:

20 ‘‘Nothing in any provision of law shall be con21 strued to treat property as not being described

22 in clause (vi)(I) (or the corresponding provi23 sions of prior law) by reason of being public

24 utility property (within the meaning of section

25 48(a)(3)).’’.
186

•HR 3448 EH

1 (C) Subparagraph (K) of section 168(g)(4) is

2 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

3 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

4 day before the date of the enactment of the Revenue

5 Reconciliation Act of 1990)’’.

6 (2) Clause (ii) of section 172(b)(1)(E) is

7 amended by striking ‘‘subsection (m)’’ and inserting

8 ‘‘subsection (h)’’.

9 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

10 and 832(b)(5)(D)(ii)(II) are each amended by strik11 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

12 (4) Subparagraph (A) of section 243(b)(3) is

13 amended by inserting ‘‘of’’ after ‘‘In the case’’.

14 (5) The subsection heading for subsection (a) of

15 section 280F is amended by striking ‘‘INVESTMENT

16 TAX CREDIT AND’’.

17 (6) Clause (i) of section 1504(c)(2)(B) is

18 amended by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

19 (7) Paragraph (3) of section 341(f) is amended

20 by striking ‘‘351, 361, 371(a), or 374(a)’’ and in21 serting ‘‘351, or 361’’.

22 (8) Paragraph (2) of section 243(b) is amended

23 to read as follows:

24 ‘‘(2) AFFILIATED GROUP.—For purposes of this

25 subsection:
187

•HR 3448 EH

1 ‘‘(A) IN GENERAL.—The term ‘affiliated

2 group’ has the meaning given such term by sec3 tion 1504(a), except that for such purposes sec4 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

5 not apply.

6 ‘‘(B) GROUP MUST BE CONSISTENT IN

7 FOREIGN TAX TREATMENT.—The requirements

8 of paragraph (1)(A) shall not be treated as

9 being met with respect to any dividend received

10 by a corporation if, for any taxable year which

11 includes the day on which such dividend is re12 ceived—

13 ‘‘(i) 1 or more members of the affili14 ated group referred to in paragraph (1)(A)

15 choose to any extent to take the benefits of

16 section 901, and

17 ‘‘(ii) 1 or more other members of such

18 group claim to any extent a deduction for

19 taxes otherwise creditable under section

20 901.’’.

21 (9) The amendment made by section

22 11813(b)(17) of the Revenue Reconciliation Act of

23 1990 shall be applied as if the material stricken by

24 such amendment included the closing parenthesis

25 after ‘‘section 48(a)(5)’’.
188

•HR 3448 EH

1 (10) Paragraph (1) of section 179(d) is amend2 ed by striking ‘‘in a trade or business’’ and inserting

3 ‘‘a trade or business’’.

4 (11) Subparagraph (E) of section 50(a)(2) is

5 amended by striking ‘‘section 48(a)(5)(A)’’ and in6 serting ‘‘section 48(a)(5)’’.

7 (12) The amendment made by section

8 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

9 of 1990 shall be applied as if it struck ‘‘Section

10 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

11 (13) Subparagraph (B) of section 424(c)(3) is

12 amended by striking ‘‘a qualified stock option, an in13 centive stock option, an option granted under an em14 ployee stock purchase plan, or a restricted stock op15 tion’’ and inserting ‘‘an incentive stock option or an

16 option granted under an employee stock purchase

17 plan’’.

18 (14) Subparagraph (E) of section 1367(a)(2) is

19 amended by striking ‘‘section 613A(c)(13)(B)’’ and

20 inserting ‘‘section 613A(c)(11)(B)’’.

21 (15) Subparagraph (B) of section 460(e)(6) is

22 amended by striking ‘‘section 167(k)’’ and inserting

23 ‘‘section 168(e)(2)(A)(ii)’’.
189

•HR 3448 EH

1 (16) Subparagraph (C) of section 172(h)(4) is

2 amended by striking ‘‘subsection (b)(1)(M)’’ and in3 serting ‘‘subsection (b)(1)(E)’’.

4 (17) Section 6503 is amended—

5 (A) by redesignating the subsection relat6 ing to extension in case of certain summonses

7 as subsection (j), and

8 (B) by redesignating the subsection relat9 ing to cross references as subsection (k).

10 (18) Paragraph (4) of section 1250(e) is hereby

11 repealed.

12 (i) EFFECTIVE DATE.—Except as otherwise expressly

13 provided—

14 (1) the amendments made by this section shall

15 be treated as amendments to the Internal Revenue

16 Code of 1986 as amended by the Revenue Reconcili17 ation Act of 1993; and

18 (2) any amendment made by this section shall

19 apply to periods before the date of the enactment of

20 this section in the same manner as if it had been in21 cluded in the provision of the Revenue Reconciliation

22 Act of 1990 to which such amendment relates.
190

•HR 3448 EH

1 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC2 ONCILIATION ACT OF 1993.

3 (a) AMENDMENT RELATED TO SECTION 13114.—

4 Paragraph (2) of section 1044(c) is amended to read as

5 follows:

6 ‘‘(2) PURCHASE.—The taxpayer shall be consid7 ered to have purchased any property if, but for sub8 section (d), the unadjusted basis of such property

9 would be its cost within the meaning of section

10 1012.’’.

11 (b) AMENDMENTS RELATED TO SECTION 13142.—

12 (1) Subparagraph (B) of section 13142(b)(6) of

13 the Revenue Reconciliation Act of 1993 is amended

14 to read as follows:

15 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU16 THORITY, AND PROHIBITED DISCRIMINATION.—

17 The amendments made by paragraphs (2), (3),

18 and (4) shall take effect on the date of the en19 actment of this Act.’’.

20 (2) Subparagraph (C) of section 13142(b)(6) of

21 such Act is amended by striking ‘‘paragraph (2)’’

22 and inserting ‘‘paragraph (5)’’.

23 (c) AMENDMENT RELATED TO SECTION 13161.—

24 (1) IN GENERAL.—Subsection (e) of section

25 4001 (relating to inflation adjustment) is amended

26 to read as follows:
191

•HR 3448 EH

1 ‘‘(e) INFLATION ADJUSTMENT.—

2 ‘‘(1) IN GENERAL.—The $30,000 amount in

3 subsection (a) and section 4003(a) shall be increased

4 by an amount equal to—

5 ‘‘(A) $30,000, multiplied by

6 ‘‘(B) the cost-of-living adjustment under

7 section 1(f)(3) for the calendar year in which

8 the vehicle is sold, determined by substituting

9 ‘calendar year 1990’ for ‘calendar year 1992’ in

10 subparagraph (B) thereof.

11 ‘‘(2) ROUNDING.—If any amount as adjusted

12 under paragraph (1) is not a multiple of $2,000,

13 such amount shall be rounded to the next lowest

14 multiple of $2,000.’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect on the date of the

17 enactment of this Act.

18 (d) AMENDMENT RELATED TO SECTION 13201.—

19 Clause (ii) of section 135(b)(2)(B) is amended by insert20 ing before the period at the end thereof the following: ‘‘,

21 determined by substituting ‘calendar year 1989’ for ‘cal22 endar year 1992’ in subparagraph (B) thereof’’.

23 (e) AMENDMENTS RELATED TO SECTION 13203.—

24 Subsection (a) of section 59 is amended—
192

•HR 3448 EH

1 (1) by striking ‘‘the amount determined under

2 section 55(b)(1)(A)’’ in paragraph (1)(A) and

3 (2)(A)(i) and inserting ‘‘the pre-credit tentative min4 imum tax’’,

5 (2) by striking ‘‘specified in section

6 55(b)(1)(A)’’ in paragraph (1)(C) and inserting

7 ‘‘specified in subparagraph (A)(i) or (B)(i) of section

8 55(b)(1) (whichever applies)’’,

9 (3) by striking ‘‘which would be determined

10 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

11 and inserting ‘‘which would be the pre-credit ten12 tative minimum tax’’, and

13 (4) by adding at the end thereof the following

14 new paragraph:

15 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

16 For purposes of this subsection, the term ‘pre-credit

17 tentative minimum tax’ means—

18 ‘‘(A) in the case of a taxpayer other than

19 a corporation, the amount determined under the

20 first sentence of section 55(b)(1)(A)(i), or

21 ‘‘(B) in the case of a corporation, the

22 amount determined under section

23 55(b)(1)(B)(i).’’.

24 (f) AMENDMENT RELATED TO SECTION 13221.—

25 Sections 1201(a) and 1561(a) are each amended by strik-
193

•HR 3448 EH

1 ing ‘‘last sentence’’ each place it appears and inserting

2 ‘‘last 2 sentences’’.

3 (g) AMENDMENTS RELATED TO SECTION 13222.—

4 (1) Subparagraph (B) of section 6033(e)(1) is

5 amended by adding at the end thereof the following

6 new clause:

7 ‘‘(iii) COORDINATION WITH SECTION

8 527(f).—This subsection shall not apply to

9 any amount on which tax is imposed by

10 reason of section 527(f).’’.

11 (2) Clause (i) of section 6033(e)(1)(B) is

12 amended by striking ‘‘this subtitle’’ and inserting

13 ‘‘section 501’’.

14 (h) AMENDMENT RELATED TO SECTION 13225.—

15 Paragraph (3) of section 6655(g) is amended by striking

16 all that follows ‘‘ ‘3rd month’ ’’ in the sentence following

17 subparagraph (C) and inserting ‘‘, subsection (e)(2)(A)

18 shall be applied by substituting ‘2 months’ for ‘3 months’

19 in clause (i)(I), the election under clause (i) of subsection

20 (e)(2)(C) may be made separately for each installment,

21 and clause (ii) of subsection (e)(2)(C) shall not apply.’’.

22 (i) AMENDMENTS RELATED TO SECTION 13231.—

23 (1) Subparagraph (G) of section 904(d)(3) is

24 amended by striking ‘‘section 951(a)(1)(B)’’ and in-
194

•HR 3448 EH

1 serting ‘‘subparagraph (B) or (C) of section

2 951(a)(1)’’.

3 (2) Paragraph (1) of section 956A(b) is amend4 ed to read as follows:

5 ‘‘(1) the amount (not including a deficit) re6 ferred to in section 316(a)(1) to the extent such

7 amount was accumulated in prior taxable years be8 ginning after September 30, 1993, and’’.

9 (3) Subsection (f) of section 956A is amended

10 by inserting before the period at the end thereof:

11 ‘‘and regulations coordinating the provisions of sub12 sections (c)(3)(A) and (d)’’.

13 (4) Subsection (b) of section 958 is amended by

14 striking ‘‘956(b)(2)’’ each place it appears and in15 serting ‘‘956(c)(2)’’.

16 (5)(A) Subparagraph (A) of section 1297(d)(2)

17 is amended by striking ‘‘The adjusted basis of any

18 asset’’ and inserting ‘‘The amount taken into ac19 count under section 1296(a)(2) with respect to any

20 asset’’.

21 (B) The paragraph heading of paragraph (2) of

22 section 1297(d) is amended to read as follows:

23 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.
195

•HR 3448 EH

1 (6) Subsection (e) of section 1297 is amended

2 by inserting ‘‘For purposes of this part—’’ after the

3 subsection heading.

4 (j) AMENDMENT RELATED TO SECTION 13241.—

5 Subparagraph (B) of section 40(e)(1) is amended to read

6 as follows:

7 ‘‘(B) for any period before January 1,

8 2001, during which the rates of tax under sec9 tion 4081(a)(2)(A) are 4.3 cents per gallon.’’.

10 (k) AMENDMENT RELATED TO SECTION 13261.—

11 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec12 onciliation Act of 1993 is amended by striking ‘‘by the

13 taxpayer’’ and inserting ‘‘by the taxpayer or a related

14 person’’.

15 (l) AMENDMENT RELATED TO SECTION 13301.—

16 Subparagraph (B) of section 1397B(d)(5) is amended by

17 striking ‘‘preceding’’.

18 (m) CLERICAL AMENDMENTS.—

19 (1) Subsection (d) of section 39 is amended—

20 (A) by striking ‘‘45’’ in the heading of

21 paragraph (5) and inserting ‘‘45A’’, and

22 (B) by striking ‘‘45’’ in the heading of

23 paragraph (6) and inserting ‘‘45B’’.
196

•HR 3448 EH

1 (2) Subparagraph (A) of section 108(d)(9) is

2 amended by striking ‘‘paragraph (3)(B)’’ and insert3 ing ‘‘paragraph (3)(C)’’.

4 (3) Subparagraph (C) of section 143(d)(2) is

5 amended by striking the period at the end thereof

6 and inserting a comma.

7 (4) Clause (ii) of section 163(j)(6)(E) is amend8 ed by striking ‘‘which is a’’ and inserting ‘‘which is’’.

9 (5) Subparagraph (A) of section 1017(b)(4) is

10 amended by striking ‘‘subsection (b)(2)(D)’’ and in11 serting ‘‘subsection (b)(2)(E)’’.

12 (6) So much of section 1245(a)(3) as precedes

13 subparagraph (A) thereof is amended to read as

14 follows:

15 ‘‘(3) SECTION 1245 PROPERTY.—For purposes

16 of this section, the term ‘section 1245 property’

17 means any property which is or has been property

18 of a character subject to the allowance for deprecia19 tion provided in section 167 and is either—’’.

20 (7) Paragraph (2) of section 1394(e) is amend21 ed—

22 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

23 and

24 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.
197

•HR 3448 EH

1 (8) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘or

3 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

4 (9)(A) The section 6714 added by section

5 13242(b)(1) of the Revenue Reconciliation Act of

6 1993 is hereby redesignated as section 6715.

7 (B) The table of sections for part I of sub8 chapter B of chapter 68 is amended by striking

9 ‘‘6714’’ in the item added by such section

10 13242(b)(2) of such Act and inserting ‘‘6715’’.

11 (10) Paragraph (2) of section 9502(b) is

12 amended by inserting ‘‘and before’’ after ‘‘1982,’’.

13 (11) Subsection (a)(3) of section 13206 of the

14 Revenue Reconciliation Act of 1993 is amended by

15 striking ‘‘this section’’ and inserting ‘‘this sub16 section’’.

17 (12) Paragraph (1) of section 13215(c) of the

18 Revenue Reconciliation Act of 1993 is amended by

19 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

20 Law 98–21’’.

21 (13) Paragraph (2) of section 13311(e) of the

22 Revenue Reconciliation Act of 1993 is amended by

23 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

24 1393(a)(2)’’.
198

•HR 3448 EH

1 (14) Subparagraph (B) of section 117(d)(2) is

2 amended by striking ‘‘section 132(f)’’ and inserting

3 ‘‘section 132(h)’’.

4 (n) EFFECTIVE DATE.—Any amendment made by

5 this section shall take effect as if included in the provision

6 of the Revenue Reconciliation Act of 1993 to which such

7 amendment relates.

8 SEC. 1704. MISCELLANEOUS PROVISIONS.

9 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

10 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

11 1990.—Except as otherwise expressly provided, whenever

12 in title XII of the Omnibus Budget Reconciliation Act of

13 1990 an amendment or repeal is expressed in terms of

14 an amendment to, or repeal of, a section or other provi15 sion, the reference shall be considered to be made to a

16 section or other provision of the Internal Revenue Code

17 of 1986.

18 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

19 HEDGE BOND RULES.—

20 (1) Clause (iii) of section 149(g)(3)(B) is

21 amended to read as follows:

22 ‘‘(iii) AMOUNTS HELD PENDING REIN23 VESTMENT OR REDEMPTION.—Amounts

24 held for not more than 30 days pending re25 investment or bond redemption shall be
199

•HR 3448 EH

1 treated as invested in bonds described in

2 clause (i).’’.

3 (2) The amendment made by paragraph (1)

4 shall take effect as if included in the amendments

5 made by section 7651 of the Omnibus Budget Rec6 onciliation Act of 1989.

7 (c) TREATMENT OF CERTAIN DISTRIBUTIONS

8 UNDER SECTION 1445.—

9 (1) IN GENERAL.—Paragraph (3) of section

10 1445(e) is amended by adding at the end thereof

11 the following new sentence: ‘‘Rules similar to the

12 rules of the preceding provisions of this paragraph

13 shall apply in the case of any distribution to which

14 section 301 applies and which is not made out of the

15 earnings and profits of such a domestic corpora16 tion.’’.

17 (2) EFFECTIVE DATE.—The amendment made

18 by paragraph (1) shall apply to distributions after

19 the date of the enactment of this Act.

20 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC21 TION 469.—

22 (1) IN GENERAL.—Subparagraph (B) of section

23 469(c)(3) is amended by adding at the end thereof

24 the following new sentence: ‘‘If the preceding sen25 tence applies to the net income from any property
200

•HR 3448 EH

1 for any taxable year, any credits allowable under

2 subpart B (other than section 27(a)) or D of part

3 IV of subchapter A for such taxable year which are

4 attributable to such property shall be treated as

5 credits not from a passive activity to the extent the

6 amount of such credits does not exceed the regular

7 tax liability of the taxpayer for the taxable year

8 which is allocable to such net income.’’.

9 (2) EFFECTIVE DATE.—The amendment made

10 by paragraph (1) shall apply to taxable years begin11 ning after December 31, 1986.

12 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

13 LOSS RULES.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 469(g)(1) is amended to read as follows:

16 ‘‘(A) IN GENERAL.—If all gain or loss real17 ized on such disposition is recognized, the ex18 cess of—

19 ‘‘(i) any loss from such activity for

20 such taxable year (determined after the ap21 plication of subsection (b)), over

22 ‘‘(ii) any net income or gain for such

23 taxable year from all other passive activi24 ties (determined after the application of

25 subsection (b)),
201

•HR 3448 EH

1 shall be treated as a loss which is not from a

2 passive activity.’’.

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall apply to taxable years begin5 ning after December 31, 1986.

6 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN

7 PROVISIONS.—

8 (1) COORDINATION OF UNIFIED ESTATE TAX

9 CREDIT WITH TREATIES.—Subparagraph (A) of sec10 tion 2102(c)(3) is amended by adding at the end

11 thereof the following new sentence: ‘‘For purposes

12 of the preceding sentence, property shall not be

13 treated as situated in the United States if such

14 property is exempt from the tax imposed by this

15 subchapter under any treaty obligation of the United

16 States.’’.

17 (2) TREATMENT OF CERTAIN INTEREST PAID

18 TO RELATED PERSON.—

19 (A) Subparagraph (B) of section 163(j)(1)

20 is amended by inserting before the period at the

21 end thereof the following: ‘‘(and clause (ii) of

22 paragraph (2)(A) shall not apply for purposes

23 of applying this subsection to the amount so

24 treated)’’.
202

•HR 3448 EH

1 (B) Subsection (j) of section 163 is amend2 ed by redesignating paragraph (7) as paragraph

3 (8) and by inserting after paragraph (6) the

4 following new paragraph:

5 ‘‘(7) COORDINATION WITH PASSIVE LOSS

6 RULES, ETC.—This subsection shall be applied be7 fore sections 465 and 469.’’.

8 (C) The amendments made by this para9 graph shall apply as if included in the amend10 ments made by section 7210(a) of the Revenue

11 Reconciliation Act of 1989.

12 (3) TREATMENT OF INTEREST ALLOCABLE TO

13 EFFECTIVELY CONNECTED INCOME.—

14 (A) IN GENERAL.—

15 (i) Subparagraph (B) of section

16 884(f)(1) is amended by striking ‘‘to the

17 extent’’ and all that follows down through

18 ‘‘subparagraph (A)’’ and inserting ‘‘to the

19 extent that the allocable interest exceeds

20 the interest described in subparagraph

21 (A)’’.

22 (ii) The second sentence of section

23 884(f)(1) is amended by striking ‘‘reason24 ably expected’’ and all that follows down

25 through the period at the end thereof and
203

•HR 3448 EH

1 inserting ‘‘reasonably expected to be alloca2 ble interest.’’

3 (iii) Paragraph (2) of section 884(f) is

4 amended to read as follows:

5 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

6 this subsection, the term ‘allocable interest’ means

7 any interest which is allocable to income which is ef8 fectively connected (or treated as effectively con9 nected) with the conduct of a trade or business in

10 the United States.’’.

11 (B) EFFECTIVE DATE.—The amendments

12 made by subparagraph (A) shall take effect as

13 if included in the amendments made by section

14 1241(a) of the Tax Reform Act of 1986.

15 (4) CLARIFICATION OF SOURCE RULE.—

16 (A) IN GENERAL.—Paragraph (2) of sec17 tion 865(b) is amended by striking ‘‘863(b)’’

18 and inserting ‘‘863’’.

19 (B) EFFECTIVE DATE.—The amendment

20 made by subparagraph (A) shall take effect as

21 if included in the amendments made by section

22 1211 of the Tax Reform Act of 1986.

23 (5) REPEAL OF OBSOLETE PROVISIONS.—

24 (A) Paragraph (1) of section 6038(a) is

25 amended by striking ‘‘, and’’ at the end of sub-
204

•HR 3448 EH

1 paragraph (E) and inserting a period, and by

2 striking subparagraph (F).

3 (B) Subsection (b) of section 6038A is

4 amended by adding ‘‘and’’ at the end of para5 graph (2), by striking ‘‘, and’’ at the end of

6 paragraph (3) and inserting a period, and by

7 striking paragraph (4).

8 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

9 CERTAIN BOND-FINANCED FACILITIES.—

10 (1) IN GENERAL.—Subparagraph (A) of section

11 1317(3) of the Tax Reform Act of 1986 is amended

12 by adding at the end thereof the following new sen13 tence: ‘‘A facility shall not fail to be treated as de14 scribed in this subparagraph by reason of an assign15 ment (or an agreement to an assignment) by the

16 governmental unit on whose behalf the bonds are is17 sued of any part of its interest in the property fi18 nanced by such bonds to another governmental

19 unit.’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall take effect as if included in

22 such section 1317 on the date of the enactment of

23 the Tax Reform Act of 1986.

24 (h) CLARIFICATION OF TREATMENT OF MEDICARE

25 ENTITLEMENT UNDER COBRA PROVISIONS.—
205

•HR 3448 EH

1 (1) IN GENERAL.—

2 (A) Subclause (V) of section

3 4980B(f)(2)(B)(i) is amended to read as

4 follows:

5 ‘‘(V) MEDICARE ENTITLEMENT

6 FOLLOWED BY QUALIFYING EVENT.—

7 In the case of a qualifying event de8 scribed in paragraph (3)(B) that oc9 curs less than 18 months after the

10 date the covered employee became en11 titled to benefits under title XVIII of

12 the Social Security Act, the period of

13 coverage for qualified beneficiaries

14 other than the covered employee shall

15 not terminate under this clause before

16 the close of the 36-month period be17 ginning on the date the covered em18 ployee became so entitled.’’.

19 (B) Clause (v) of section 602(2)(A) of the

20 Employee Retirement Income Security Act of

21 1974 is amended to read as follows:

22 ‘‘(v) MEDICARE ENTITLEMENT FOL23 LOWED BY QUALIFYING EVENT.—In the

24 case of a qualifying event described in sec25 tion 603(2) that occurs less than 18
206

•HR 3448 EH

1 months after the date the covered em2 ployee became entitled to benefits under

3 title XVIII of the Social Security Act, the

4 period of coverage for qualified bene5 ficiaries other than the covered employee

6 shall not terminate under this subpara7 graph before the close of the 36-month pe8 riod beginning on the date the covered em9 ployee became so entitled.’’.

10 (C) Clause (iv) of section 2202(2)(A) of

11 the Public Health Service Act is amended to

12 read as follows:

13 ‘‘(iv) MEDICARE ENTITLEMENT FOL14 LOWED BY QUALIFYING EVENT.—In the

15 case of a qualifying event described in sec16 tion 2203(2) that occurs less than 18

17 months after the date the covered em18 ployee became entitled to benefits under

19 title XVIII of the Social Security Act, the

20 period of coverage for qualified bene21 ficiaries other than the covered employee

22 shall not terminate under this subpara23 graph before the close of the 36-month pe24 riod beginning on the date the covered em25 ployee became so entitled.’’.
207

•HR 3448 EH

1 (2) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to plan years begin3 ning after December 31, 1989.

4 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

5 (1) IN GENERAL.—Subsection (a) of section

6 860E is amended by adding at the end thereof the

7 following new paragraph:

8 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

9 purposes of part VI of subchapter A of this

10 chapter—

11 ‘‘(A) the reference in section 55(b)(2) to

12 taxable income shall be treated as a reference

13 to taxable income determined without regard to

14 this subsection,

15 ‘‘(B) the alternative minimum taxable in16 come of any holder of a residual interest in a

17 REMIC for any taxable year shall in no event

18 be less than the excess inclusion for such tax19 able year, and

20 ‘‘(C) any excess inclusion shall be dis21 regarded for purposes of computing the alter22 native tax net operating loss deduction.

23 The preceding sentence shall not apply to any orga24 nization to which section 593 applies, except to the
208

•HR 3448 EH

1 extent provided in regulations prescribed by the Sec2 retary under paragraph (2).’’.

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall take effect as if included in

5 the amendments made by section 671 of the Tax Re6 form Act of 1986 unless the taxpayer elects to apply

7 such amendment only to taxable years beginning

8 after the date of the enactment of this Act.

9 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

10 FOR CERTAIN PASSENGERS.—

11 (1) IN GENERAL.—Subparagraph (D) of section

12 4462(b)(1) (relating to special rule for Alaska, Ha13 waii, and possessions) is amended by inserting be14 fore the period the following: ‘‘, or passengers trans15 ported on United States flag vessels operating solely

16 within the State waters of Alaska or Hawaii and ad17 jacent international waters’’.

18 (2) EFFECTIVE DATE.—The amendment made

19 by paragraph (1) shall take effect as if included in

20 the amendments made by section 1402(a) of the

21 Harbor Maintenance Revenue Act of 1986.

22 (k) AMENDMENTS RELATED TO REVENUE PROVI23 SIONS OF ENERGY POLICY ACT OF 1992.—

24 (1) Effective with respect to taxable years be25 ginning after December 31, 1990, subclause (II) of
209

•HR 3448 EH

1 section 53(d)(1)(B)(iv) is amended to read as

2 follows:

3 ‘‘(II) the adjusted net minimum

4 tax for any taxable year is the amount

5 of the net minimum tax for such year

6 increased in the manner provided in

7 clause (iii).’’.

8 (2) Subsection (g) of section 179A is redesig9 nated as subsection (f).

10 (3) Subparagraph (E) of section 6724(d)(3) is

11 amended by striking ‘‘section 6109(f)’’ and inserting

12 ‘‘section 6109(h)’’.

13 (4)(A) Subsection (d) of section 30 is amend14 ed—

15 (i) by inserting ‘‘(determined without re16 gard to subsection (b)(3))’’ before the period at

17 the end of paragraph (1) thereof, and

18 (ii) by adding at the end thereof the follow19 ing new paragraph:

20 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No

21 credit shall be allowed under subsection (a) for any

22 vehicle if the taxpayer elects to not have this section

23 apply to such vehicle.’’.
210

•HR 3448 EH

1 (B) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘sec3 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

4 (5) Subclause (III) of section 501(c)(21)(D)(ii)

5 is amended by striking ‘‘section 101(6)’’ and insert6 ing ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and

7 inserting ‘‘1752(7)’’.

8 (6) Paragraph (1) of section 1917(b) of the En9 ergy Policy Act of 1992 shall be applied as if ‘‘at a

10 rate’’ appeared instead of ‘‘at the rate’’ in the mate11 rial proposed to be stricken.

12 (7) Paragraph (2) of section 1921(b) of the En13 ergy Policy Act of 1992 shall be applied as if a

14 comma appeared after ‘‘(2)’’ in the material pro15 posed to be stricken.

16 (8) Subsection (a) of section 1937 of the En17 ergy Policy Act of 1992 shall be applied as if ‘‘Sub18 part B’’ appeared instead of ‘‘Subpart C’’.

19 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

20 PLAN.—

21 (1) IN GENERAL.—Subparagraph (F) of section

22 3(37) of the Employee Retirement Income Security

23 Act of 1974 (29 U.S.C. 1002(37)(F)) is amended by

24 redesignating clause (ii) as clause (iii) and by insert25 ing after clause (i) the following new clause:
211

•HR 3448 EH

1 ‘‘(ii) For purposes of the Internal Revenue Code of

2 1986—

3 ‘‘(I) clause (i) shall apply, and

4 ‘‘(II) a qualified football coaches plan shall be

5 treated as a multiemployer collectively bargained

6 plan.’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by paragraph (1) shall apply to years beginning

9 after December 22, 1987.

10 (m) DETERMINATION OF UNRECOVERED INVEST11 MENT IN ANNUITY CONTRACT.—

12 (1) IN GENERAL.—Subparagraph (A) of section

13 72(b)(4) is amended by inserting ‘‘(determined with14 out regard to subsection (c)(2))’’ after ‘‘contract’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect as if included in

17 the amendments made by section 1122(c) of the Tax

18 Reform Act of 1986.

19 (n) MODIFICATIONS TO ELECTION TO INCLUDE

20 CHILD’S INCOME ON PARENT’S RETURN.—

21 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

22 section 1(g)(7)(A) (relating to election to include

23 certain unearned income of child on parent’s return)

24 is amended to read as follows:
212

•HR 3448 EH

1 ‘‘(ii) such gross income is more than

2 the amount described in paragraph

3 (4)(A)(ii)(I) and less than 10 times the

4 amount so described,’’.

5 (2) COMPUTATION OF TAX.—Subparagraph (B)

6 of section 1(g)(7) (relating to income included on

7 parent’s return) is amended—

8 (A) by striking ‘‘$1,000’’ in clause (i) and

9 inserting ‘‘twice the amount described in para10 graph (4)(A)(ii)(I)’’, and

11 (B) by amending subclause (II) of clause

12 (ii) to read as follows:

13 ‘‘(II) for each such child, 15 per14 cent of the lesser of the amount de15 scribed in paragraph (4)(A)(ii)(I) or

16 the excess of the gross income of such

17 child over the amount so described,

18 and’’.

19 (3) MINIMUM TAX.—Subparagraph (B) of sec20 tion 59(j)(1) is amended by striking ‘‘$1,000’’ and

21 inserting ‘‘twice the amount in effect for the taxable

22 year under section 63(c)(5)(A)’’.

23 (4) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to taxable years begin25 ning after December 31, 1995.
213

•HR 3448 EH

1 (o) TREATMENT OF CERTAIN VETERANS’ REEM2 PLOYMENT RIGHTS.—

3 (1) IN GENERAL.—Section 414 is amended by

4 adding at the end the following new subsection:

5 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ RE6 EMPLOYMENT RIGHTS UNDER USERRA.—

7 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

8 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

9 RIGHTS.—If any contribution is made by an em10 ployer or an employee under an individual account

11 plan with respect to an employee, or by an employee

12 to a defined benefit plan that provides for employee

13 contributions, and such contribution is required by

14 reason of such employee’s rights under chapter 43 of

15 title 38, United States Code, resulting from qualified

16 military service, then—

17 ‘‘(A) such contribution shall not be subject

18 to any otherwise applicable limitation contained

19 in section 402(g), 402(h), 403(b), 404(a),

20 404(h), 408, 415, or 457, and shall not be

21 taken into account in applying such limitations

22 to other contributions or benefits under such

23 plan or any other plan, with respect to the year

24 in which the contribution is made,
214

•HR 3448 EH

1 ‘‘(B) such contribution shall be subject to

2 the limitations referred to in subparagraph (A)

3 with respect to the year to which the contribu4 tion relates (in accordance with rules prescribed

5 by the Secretary), and

6 ‘‘(C) such plan shall not be treated as fail7 ing to meet the requirements of section

8 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),

9 401(k)(12), 401(m), 403(b)(12), 408(k)(3),

10 408(k)(6), 408(p), 410(b), or 416 by reason of

11 the making of (or the right to make) such con12 tribution.

13 For purposes of the preceding sentence, any elective

14 deferral or employee contribution made under para15 graph (2) shall be treated as required by reason of

16 the employee’s rights under such chapter 43.

17 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

18 WITH RESPECT TO ELECTIVE DEFERRALS.—

19 ‘‘(A) IN GENERAL.—For purposes of this

20 subchapter and section 457, if an employee is

21 entitled to the benefits of chapter 43 of title 38,

22 United States Code, with respect to any plan

23 which provides for elective deferrals, the em24 ployer sponsoring the plan shall be treated as

25 meeting the requirements of such chapter 43
215

•HR 3448 EH

1 with respect to such elective deferrals only if

2 such employer—

3 ‘‘(i) permits such employee to make

4 additional elective deferrals under such

5 plan (in the amount determined under sub6 paragraph (B) or such lesser amount as is

7 elected by the employee) during the period

8 which begins on the date of the reemploy9 ment of such employee with such employer

10 and has the same length as the lesser of—

11 ‘‘(I) the product of 3 and the pe12 riod of qualified military service which

13 resulted in such rights, and

14 ‘‘(II) 5 years, and

15 ‘‘(ii) makes a matching contribution

16 with respect to any additional elective de17 ferral made pursuant to clause (i) which

18 would have been required had such defer19 ral actually been made during the period of

20 such qualified military service.

21 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—

22 The amount determined under this subpara23 graph with respect to any plan is the maximum

24 amount of the elective deferrals that the indi25 vidual would have been permitted to make
216

•HR 3448 EH

1 under the plan in accordance with the limita2 tions referred to in paragraph (1)(A) during the

3 period of qualified military service if the indi4 vidual had continued to be employed by the em5 ployer during such period and received com6 pensation as determined under paragraph (7).

7 Proper adjustment shall be made to the amount

8 determined under the preceding sentence for

9 any elective deferrals actually made during the

10 period of such qualified military service.

11 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

12 of this paragraph, the term ‘elective deferral’

13 has the meaning given such term by section

14 402(g)(3); except that such term shall include

15 any deferral of compensation under an eligible

16 deferred compensation plan (as defined in sec17 tion 457(b)).

18 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU19 TIONS.—References in subparagraphs (A) and

20 (B) to elective deferrals shall be treated as in21 cluding references to employee contributions.

22 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS

23 NOT REQUIRED.—For purposes of this subchapter

24 and subchapter E, no provision of chapter 43 of title
217

•HR 3448 EH

1 38, United States Code, shall be construed as re2 quiring—

3 ‘‘(A) any crediting of earnings to an em4 ployee with respect to any contribution before

5 such contribution is actually made, or

6 ‘‘(B) any allocation of any forfeiture with

7 respect to the period of qualified military serv8 ice.

9 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER10 MITTED.—If any plan suspends the obligation to

11 repay any loan made to an employee from such plan

12 for any part of any period during which such em13 ployee is performing service in the uniformed serv14 ices (as defined in chapter 43 of title 38, United

15 States Code), whether or not qualified military serv16 ice, such suspension shall not be taken into account

17 for purposes of section 72(p), 401(a), or 4975(d)(1).

18 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur19 poses of this subsection, the term ‘qualified military

20 service’ means any service in the uniformed services

21 (as defined in chapter 43 of title 38, United States

22 Code) by any individual if such individual is entitled

23 to reemployment rights under such chapter with re24 spect to such service.
218

•HR 3448 EH

1 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For pur2 poses of this subsection, the term ‘individual account

3 plan’ means any defined contribution plan (including

4 any tax-sheltered annuity plan under section 403(b),

5 any simplified employee pension under section

6 408(k), any qualified salary reduction arrangement

7 under section 408(p), and any eligible deferred com8 pensation plan (as defined in section 457(b)).

9 ‘‘(7) COMPENSATION.—For purposes of sections

10 403(b)(3), 415(c)(3), and 457(e)(5), an employee

11 who is in qualified military service shall be treated

12 as receiving compensation from the employer during

13 such period of qualified military service equal to—

14 ‘‘(A) the compensation the employee would

15 have received during such period if the em16 ployee were not in qualified military service, de17 termined based on the rate of pay the employee

18 would have received from the employer but for

19 absence during the period of qualified military

20 service, or

21 ‘‘(B) if the compensation the employee

22 would have received during such period was not

23 reasonably certain, the employee’s average com24 pensation from the employer during the 12-

25 month period immediately preceding the quali-
219

•HR 3448 EH

1 fied military service (or, if shorter, the period of

2 employment immediately preceding the qualified

3 military service).

4 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

5 RETIREMENT PLANS.—For purposes of this sub6 chapter and section 457, an employer sponsoring a

7 retirement plan shall be treated as meeting the re8 quirements of chapter 43 of title 38, United States

9 Code, only if each of the following requirements is

10 met:

11 ‘‘(A) An individual reemployed under such

12 chapter is treated with respect to such plan as

13 not having incurred a break in service with the

14 employer maintaining the plan by reason of

15 such individual’s period of qualified military

16 service.

17 ‘‘(B) Each period of qualified military

18 service served by an individual is, upon reem19 ployment under such chapter, deemed with re20 spect to such plan to constitute service with the

21 employer maintaining the plan for the purpose

22 of determining the nonforfeitability of the indi23 vidual’s accrued benefits under such plan and

24 for the purpose of determining the accrual of

25 benefits under such plan.
220

•HR 3448 EH

1 ‘‘(C) An individual reemployed under such

2 chapter is entitled to accrued benefits that are

3 contingent on the making of, or derived from,

4 employee contributions or elective deferrals only

5 to the extent the individual makes payment to

6 the plan with respect to such contributions or

7 deferrals. No such payment may exceed the

8 amount the individual would have been per9 mitted or required to contribute had the indi10 vidual remained continuously employed by the

11 employer throughout the period of qualified

12 military service. Any payment to such plan shall

13 be made during the period beginning with the

14 date of reemployment and whose duration is 3

15 times the period of the qualified military service

16 (but not greater than 5 years).

17 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

18 subsection shall not apply to any retirement plan to

19 which chapter 43 of title 38, United States Code,

20 does not apply.

21 ‘‘(10) REFERENCES.—For purposes of this sec22 tion, any reference to chapter 43 of title 38, United

23 States Code, shall be treated as a reference to such

24 chapter as in effect on December 12, 1994 (without

25 regard to any subsequent amendment).’’.
221

•HR 3448 EH

1 (2) EFFECTIVE DATE.—The amendment made

2 by this subsection shall be effective as of December

3 12, 1994.

4 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

5 (1) IN GENERAL.—Paragraph (3) of section

6 6045(e) (relating to prohibition of separate charge

7 for filing return) is amended by adding at the end

8 the following new sentence: ‘‘Nothing in this para9 graph shall be construed to prohibit the real estate

10 reporting person from taking into account its cost of

11 complying with such requirement in establishing its

12 charge (other than a separate charge for complying

13 with such requirement) to any customer for perform14 ing services in the case of a real estate trans15 action.’’.

16 (2) EFFECTIVE DATE.—The amendment made

17 by paragraph (1) shall take effect as if included in

18 section 1015(e)(2)(A) of the Technical and Mis19 cellaneous Revenue Act of 1988.

20 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

21 STOCK REDEMPTION EXPENSES.

22 (1) IN GENERAL.—Paragraph (1) of section

23 162(k) is amended by striking ‘‘the redemption of

24 its stock’’ and inserting ‘‘the reacquisition of its
222

•HR 3448 EH

1 stock or of the stock of any related person (as de2 fined in section 465(b)(3)(C))’’.

3 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub4 paragraph (A) of section 162(k)(2) is amended by

5 striking ‘‘or’’ at the end of clause (i), by redesignat6 ing clause (ii) as clause (iii), and by inserting after

7 clause (i) the following new clause:

8 ‘‘(ii) deduction for amounts which are

9 properly allocable to indebtedness and am10 ortized over the term of such indebtedness,

11 or’’.

12 (3) CLERICAL AMENDMENT.—The subsection

13 heading for subsection (k) of section 162 is amended

14 by striking ‘‘REDEMPTION’’ and inserting ‘‘REAC15 QUISITION’’.

16 (4) EFFECTIVE DATE.—

17 (A) IN GENERAL.—Except as provided in

18 subparagraph (B), the amendments made by

19 this subsection shall apply to amounts paid or

20 incurred after September 13, 1995, in taxable

21 years ending after such date.

22 (B) PARAGRAPH (2).—The amendment

23 made by paragraph (2) shall take effect as if

24 included in the amendment made by section

25 613 of the Tax Reform Act of 1986.
223

•HR 3448 EH

1 (r) CLERICAL AMENDMENT TO SECTION 404.—

2 (1) IN GENERAL.—Paragraph (1) of section

3 404(j) is amended by striking ‘‘(10)’’ and inserting

4 ‘‘(9)’’.

5 (2) EFFECTIVE DATE.—The amendment made

6 by paragraph (1) shall take effect as if included in

7 the amendments made by section 713(d)(4)(A) of

8 the Deficit Reduction Act of 1984.

9 (s) PASSIVE INCOME NOT TO INCLUDE FSC IN10 COME, ETC.—

11 (1) IN GENERAL.—Paragraph (2) of section

12 1296(b) is amended by striking ‘‘or’’ at the end of

13 subparagraph (B), by striking the period at the end

14 of subparagraph (C) and inserting ‘‘, or’’, and by in15 serting after subparagraph (C) the following new

16 subparagraph:

17 ‘‘(D) which is foreign trade income of a

18 FSC or export trade income of an export trade

19 corporation (as defined in section 971).’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall take effect as if included in

22 the amendments made by section 1235 of the Tax

23 Reform Act of 1986.

24 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—
224

•HR 3448 EH

1 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

2 amended by striking ‘‘of the subclause’’ and insert3 ing ‘‘of subclause’’.

4 (2) Paragraph (2) of section 72(m) is amended

5 by inserting ‘‘and’’ at the end of subparagraph (A),

6 by striking subparagraph (B), and by redesignating

7 subparagraph (C) as subparagraph (B).

8 (3) Paragraph (2) of section 86(b) is amended

9 by striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

10 (4)(A) The heading for section 112 is amended

11 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COM12 BAT ZONE COMPENSATION’’.

13 (B) The item relating to section 112 in the

14 table of sections for part III of subchapter B of

15 chapter 1 is amended by striking ‘‘combat pay’’ and

16 inserting ‘‘combat zone compensation’’.

17 (C) Paragraph (1) of section 3401(a) is amend18 ed by striking ‘‘combat pay’’ and inserting ‘‘combat

19 zone compensation’’.

20 (5) Clause (i) of section 172(h)(3)(B) is amend21 ed by striking the comma at the end thereof and in22 serting a period.

23 (6) Clause (ii) of section 543(a)(2)(B) is

24 amended by striking ‘‘section 563(c)’’ and inserting

25 ‘‘section 563(d)’’.
225

•HR 3448 EH

1 (7) Paragraph (1) of section 958(a) is amended

2 by striking ‘‘sections 955(b)(1) (A) and (B),

3 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec4 tion 960(a)(1)’’.

5 (8) Subsection (g) of section 642 is amended by

6 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

7 section 2621(a)(2)’’.

8 (9) Section 1463 is amended by striking ‘‘this

9 subsection’’ and inserting ‘‘this section’’.

10 (10) Subsection (k) of section 3306 is amended

11 by inserting a period at the end thereof.

12 (11) The item relating to section 4472 in the

13 table of sections for subchapter B of chapter 36 is

14 amended by striking ‘‘and special rules’’.

15 (12) Paragraph (3) of section 5134(c) is

16 amended by striking ‘‘section 6662(a)’’ and inserting

17 ‘‘section 6665(a)’’.

18 (13) Paragraph (2) of section 5206(f) is

19 amended by striking ‘‘section 5(e)’’ and inserting

20 ‘‘section 105(e)’’.

21 (14) Paragraph (1) of section 6050B(c) is

22 amended by striking ‘‘section 85(c)’’ and inserting

23 ‘‘section 85(b)’’.

24 (15) Subsection (k) of section 6166 is amended

25 by striking paragraph (6).
226

•HR 3448 EH

1 (16) Subsection (e) of section 6214 is amended

2 to read as follows:

3 ‘‘(e) CROSS REFERENCE.—

‘‘For provision giving Tax Court jurisdiction to

order a refund of an overpayment and to award

sanctions, see section 6512(b)(2).’’.

4 (17) The section heading for section 6043 is

5 amended by striking the semicolon and inserting a

6 comma.

7 (18) The item relating to section 6043 in the

8 table of sections for subpart B of part III of sub9 chapter A of chapter 61 is amended by striking the

10 semicolon and inserting a comma.

11 (19) The table of sections for part I of sub12 chapter A of chapter 68 is amended by striking the

13 item relating to section 6662.

14 (20)(A) Section 7232 is amended—

15 (i) by striking ‘‘LUBRICATING OIL,’’ in

16 the heading, and

17 (ii) by striking ‘‘lubricating oil,’’ in the

18 text.

19 (B) The table of sections for part II of sub20 chapter A of chapter 75 is amended by striking ‘‘lu21 bricating oil,’’ in the item relating to section 7232.

22 (21) Paragraph (1) of section 6701(a) of the

23 Omnibus Budget Reconciliation Act of 1989 is
227

•HR 3448 EH

1 amended by striking ‘‘subclause (IV)’’ and inserting

2 ‘‘subclause (V)’’.

3 (22) Clause (ii) of section 7304(a)(2)(D) of

4 such Act is amended by striking ‘‘subsection (c)(2)’’

5 and inserting ‘‘subsection (c)’’.

6 (23) Paragraph (1) of section 7646(b) of such

7 Act is amended by striking ‘‘section 6050H(b)(1)’’

8 and inserting ‘‘section 6050H(b)(2)’’.

9 (24) Paragraph (10) of section 7721(c) of

10 such Act is amended by striking ‘‘section

11 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

12 6661(b)(2)(C)(ii)’’.

13 (25) Subparagraph (A) of section 7811(i)(3) of

14 such Act is amended by inserting ‘‘the first place it

15 appears’’ before ‘‘in clause (i)’’.

16 (26) Paragraph (10) of section 7841(d) of

17 such Act is amended by striking ‘‘section 381(a)’’

18 and inserting ‘‘section 381(c)’’.

19 (27) Paragraph (2) of section 7861(c) of such

20 Act is amended by inserting ‘‘the second place it ap21 pears’’ before ‘‘and inserting’’.

22 (28) Paragraph (1) of section 460(b) is amend23 ed by striking ‘‘the look-back method of paragraph

24 (3)’’ and inserting ‘‘the look-back method of para25 graph (2)’’.
228

•HR 3448 EH

1 (29) Subparagraph (C) of section 50(a)(2) is

2 amended by striking ‘‘subsection (c)(4)’’ and insert3 ing ‘‘subsection (d)(5)’’.

4 (30) Subparagraph (B) of section 172(h)(4) is

5 amended by striking the material following the head6 ing and preceding clause (i) and inserting ‘‘For pur7 poses of subsection (b)(2)—’’.

8 (31) Subparagraph (A) of section 355(d)(7) is

9 amended by inserting ‘‘section’’ before ‘‘267(b)’’.

10 (32) Subparagraph (C) of section 420(e)(1) is

11 amended by striking ‘‘mean’’ and inserting ‘‘means’’.

12 (33) Paragraph (4) of section 537(b) is amend13 ed by striking ‘‘section 172(i)’’ and inserting ‘‘sec14 tion 172(f)’’.

15 (34) Subparagraph (B) of section 613(e)(1) is

16 amended by striking the comma at the end thereof

17 and inserting a period.

18 (35) Paragraph (4) of section 856(a) is amend19 ed by striking ‘‘section 582(c)(5)’’ and inserting

20 ‘‘section 582(c)(2)’’.

21 (36) Sections 904(f)(2)(B)(i) and

22 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

23 in effect on the day before the date of the enactment

24 of the Revenue Reconciliation Act of 1990)’’ after

25 ‘‘section 172(h)’’.
229

•HR 3448 EH

1 (37) Subsection (b) of section 936 is amended

2 by striking ‘‘subparagraphs (D)(ii)(I)’’ and inserting

3 ‘‘subparagraphs (D)(ii)’’.

4 (38) Subsection (c) of section 2104 is amended

5 by striking ‘‘subparagraph (A), (C), or (D) of

6 section 861(a)(1)’’ and inserting ‘‘section

7 861(a)(1)(A)’’.

8 (39) Subparagraph (A) of section 280A(c)(1) is

9 amended to read as follows:

10 ‘‘(A) as the principal place of business for

11 any trade or business of the taxpayer,’’.

12 (40) Section 6038 is amended by redesignating

13 the subsection relating to cross references as sub14 section (f).

15 (41) Clause (iv) of section 6103(e)(1)(A) is

16 amended by striking all that follows ‘‘provisions of’’

17 and inserting ‘‘section 1(g) or 59(j);’’.

18 (42) The subsection (f) of section 6109 of the

19 Internal Revenue Code of 1986 which was added by

20 section 2201(d) of Public Law 101–624 is redesig21 nated as subsection (g).

22 (43) Subsection (b) of section 7454 is amended

23 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec24 tion 4955(f)(2)’’.
230

•HR 3448 EH

1 (44) Subsection (d) of section 11231 of the

2 Revenue Reconciliation Act of 1990 shall be applied

3 as if ‘‘comma’’ appeared instead of ‘‘period’’ and as

4 if the paragraph (9) proposed to be added ended

5 with a comma.

6 (45) Paragraph (1) of section 11303(b) of the

7 Revenue Reconciliation Act of 1990 shall be applied

8 as if ‘‘paragraph’’ appeared instead of ‘‘subpara9 graph’’ in the material proposed to be stricken.

10 (46) Subsection (f) of section 11701 of the Rev11 enue Reconciliation Act of 1990 is amended by in12 serting ‘‘(relating to definitions)’’ after ‘‘section

13 6038(e)’’.

14 (47) Subsection (i) of section 11701 of the Rev15 enue Reconciliation Act of 1990 shall be applied as

16 if ‘‘subsection’’ appeared instead of ‘‘section’’ in the

17 material proposed to be stricken.

18 (48) Subparagraph (B) of section 11801(c)(2)

19 of the Revenue Reconciliation Act of 1990 shall be

20 applied as if ‘‘section 56(g)’’ appeared instead of

21 ‘‘section 59(g)’’.

22 (49) Subparagraph (C) of section 11801(c)(8)

23 of the Revenue Reconciliation Act of 1990 shall be

24 applied as if ‘‘reorganizations’’ appeared instead of
231

•HR 3448 EH

1 ‘‘reorganization’’ in the material proposed to be

2 stricken.

3 (50) Subparagraph (H) of section 11801(c)(9)

4 of the Revenue Reconciliation Act of 1990 shall be

5 applied as if ‘‘section 1042(c)(1)(B)’’ appeared in6 stead of ‘‘section 1042(c)(2)(B)’’.

7 (51) Subparagraph (F) of section 11801(c)(12)

8 of the Revenue Reconciliation Act of 1990 shall be

9 applied as if ‘‘and (3)’’ appeared instead of ‘‘and

10 (E)’’.

11 (52) Subparagraph (A) of section 11801(c)(22)

12 of the Revenue Reconciliation Act of 1990 shall be

13 applied as if ‘‘chapters 21’’ appeared instead of

14 ‘‘chapter 21’’ in the material proposed to be strick15 en.

16 (53) Paragraph (3) of section 11812(b) of the

17 Revenue Reconciliation Act of 1990 shall be applied

18 by not executing the amendment therein to the

19 heading of section 42(d)(5)(B).

20 (54) Clause (i) of section 11813(b)(9)(A) of the

21 Revenue Reconciliation Act of 1990 shall be applied

22 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the

23 material proposed to be stricken.

24 (55) Subparagraph (F) of section 11813(b)(13)

25 of the Revenue Reconciliation Act of 1990 shall be
232

•HR 3448 EH

1 applied as if ‘‘tax’’ appeared after ‘‘investment’’ in

2 the material proposed to be stricken.

3 (56) Paragraph (19) of section 11813(b) of the

4 Revenue Reconciliation Act of 1990 shall be applied

5 as if ‘‘Paragraph (20) of section 1016(a), as redesig6 nated by section 11801,’’ appeared instead of ‘‘Para7 graph (21) of section 1016(a)’’.

8 (57) Paragraph (5) section 8002(a) of the Sur9 face Transportation Revenue Act of 1991 shall be

10 applied as if ‘‘4481(e)’’ appeared instead of

11 ‘‘4481(c)’’.

12 (58) Section 7872 is amended—

13 (A) by striking ‘‘foregone’’ each place it

14 appears in subsections (a) and (e)(2) and in15 serting ‘‘forgone’’, and

16 (B) by striking ‘‘FOREGONE’’ in the head17 ing for subsection (e) and the heading for para18 graph (2) of subsection (e) and inserting ‘‘FOR19 GONE’’.

20 (59) Paragraph (7) of section 7611(h) is

21 amended by striking ‘‘approporiate’’ and inserting

22 ‘‘appropriate’’.

23 (60) The heading of paragraph (3) of section

24 419A(c) is amended by striking ‘‘SEVERENCE’’ and

25 inserting ‘‘SEVERANCE’’.
233

•HR 3448 EH

1 (61) Clause (ii) of section 807(d)(3)(B) is

2 amended by striking ‘‘Commissoners’ ’’ and insert3 ing ‘‘Commissioners’ ’’.

4 (62) Subparagraph (B) of section 1274A(c)(1)

5 is amended by striking ‘‘instument’’ and inserting

6 ‘‘instrument’’.

7 (63) Subparagraph (B) of section 724(d)(3) by

8 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara9 graph’’.

10 (64) The last sentence of paragraph (2) of sec11 tion 42(c) is amended by striking ‘‘of 1988’’.

12 (65) Paragraph (1) of section 9707(d) is

13 amended by striking ‘‘diligence,’’ and inserting ‘‘dili14 gence’’.

15 (66) Subsection (c) of section 4977 is amended

16 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘sec17 tion 132(h)’’.

18 (67) The last sentence of section 401(a)(20) is

19 amended by striking ‘‘section 211’’ and inserting

20 ‘‘section 521’’.

21 (68) Subparagraph (A) of section 402(g)(3) is

22 amended by striking ‘‘subsection (a)(8)’’ and insert23 ing ‘‘subsection (e)(3)’’.
234

•HR 3448 EH

1 (69) The last sentence of section 403(b)(10) is

2 amended by striking ‘‘an direct’’ and inserting ‘‘a

3 direct’’.

4 (70) Subparagraph (A) of section 4973(b)(1) is

5 amended by striking ‘‘sections 402(c)’’ and inserting

6 ‘‘section 402(c)’’.

7 (71) Paragraph (12) of section 3405(e) is

8 amended by striking ‘‘(b)(3)’’ and inserting

9 ‘‘(b)(2)’’.

10 (72) Paragraph (41) of section 521(b) of the

11 Unemployment Compensation Amendments of 1992

12 shall be applied as if ‘‘section’’ appeared instead of

13 ‘‘sections’’ in the material proposed to be stricken.

14 (73) Paragraph (27) of section 521(b) of the

15 Unemployment Compensation Amendments of 1992

16 shall be applied as if ‘‘Section 691(c)(5)’’ appeared

17 instead of ‘‘Section 691(c)’’.

18 (74) Paragraph (5) of section 860F(a) is

19 amended by striking ‘‘paragraph (1)’’ and inserting

20 ‘‘paragraph (2)’’.

21 (75) Paragraph (1) of section 415(k) is amend22 ed by adding ‘‘or’’ at the end of subparagraph (C),

23 by striking subparagraphs (D) and (E), and by re24 designating subparagraph (F) as subparagraph (D).
235

•HR 3448 EH

1 (76) Paragraph (2) of section 404(a) is amend2 ed by striking ‘‘(18),’’.

3 (77) Clause (ii) of section 72(p)(4)(A) is

4 amended to read as follows:

5 ‘‘(ii) SPECIAL RULE.—The term

6 ‘qualified employer plan’ shall not include

7 any plan which was (or was determined to

8 be) a qualified employer plan or a govern9 ment plan.’’.

10 (78) Sections 461(i)(3)(C) and

11 1274(b)(3)(B)(i) are each amended by striking ‘‘sec12 tion 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

13 6662(d)(2)(C)(iii)’’.

14 (79) Subsection (a) of section 164 is amended

15 by striking the paragraphs relating to the genera16 tion-skipping tax and the environmental tax imposed

17 by section 59A and by inserting after paragraph (3)

18 the following new paragraphs:

19 ‘‘(4) The GST tax imposed on income distribu20 tions.

21 ‘‘(5) The environmental tax imposed by section

22 59A.’’.

23 (u) CERTAIN PROPERTY NOT TREATED AS SECTION

24 179 PROPERTY.—
236

•HR 3448 EH

1 (1) IN GENERAL.—Paragraph (1) of section

2 179(d) is amended by adding at the end thereof the

3 following new sentence: ‘‘Such term shall not include

4 any property described in section 50(b) and shall not

5 include air conditioning or heating units and

6 horses.’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by paragraph (1) shall apply to property placed in

9 service after May 14, 1996.

10 TITLE II—PAYMENT OF WAGES

11 SECTION 1. SHORT TITLE.

12 This Act may be cited as the ‘‘Employee Commuting

13 Flexibility Act of 1996’’.

14 SEC. 2. PROPER COMPENSATION FOR USE OF EMPLOYER

15 VEHICLES.

16 Section 4(a) of the Portal-to-Portal Act of 1947 (29

17 U.S.C. 254(a)) is amended by adding at the end the fol18 lowing: ‘‘For purposes of this subsection, the use of an

19 employer’s vehicle for travel by an employee and activities

20 performed by an employee which are incidental to the use

21 of such vehicle for commuting shall not be considered part

22 of the employee’s principal activities if the use of such ve23 hicle for travel is within the normal commuting area for

24 the employer’s business or establishment and the use of

25 the employer’s vehicle is subject to an agreement on the
237

•HR 3448 EH

1 part of the employer and the employee or representative

2 of such employee.’’.

3 SEC. 3. EFFECTIVE DATE.

4 The amendment made by section 1 shall take effect

5 on the date of the enactment of this Act and shall apply

6 in determining the application of section 4 of the Portal7 to-Portal Act of 1947 to an employee in any civil action

8 brought before such date of enactment but pending on

9 such date.

10 SEC. 4. MINIMUM WAGE INCREASE.

11 (a) SHORT TITLE.—This section may be cited as the

12 ‘‘Minimum Wage Increase Act of 1996’’.

13 (b) AMENDMENT.—Paragraph (1) of section 6(a) of

14 the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a))

15 is amended to read as follows:

16 ‘‘(1) except as otherwise provided in this sec17 tion, not less than $4.25 an hour during the period

18 ending on June 30, 1996, not less than $4.75 an

19 hour during the year beginning on July 1, 1996, and

20 not less than $5.15 an hour after the expiration of

21 such year;’’.

22 SEC. 5. FAIR LABOR STANDARDS ACT AMENDMENTS.

23 (a) COMPUTER PROFESSIONALS.—Section 13(a) of

24 the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a))

25 is amended by striking the period at the end of paragraph
238

•HR 3448 EH

1 (16) and inserting ‘‘; or’’ and by adding after that para2 graph the following:

3 ‘‘(17) any employee who is a computer systems

4 analyst, computer programmer, software engineer,

5 or other similarly skilled worker, whose primary duty

6 is—

7 ‘‘(A) the application of systems analysis

8 techniques and procedures, including consulting

9 with users, to determine hardware, software, or

10 system functional specifications;

11 ‘‘(B) the design, development, documenta12 tion, analysis, creation, testing, or modification

13 of computer systems or programs, including

14 prototypes, based on and related to user or sys15 tem design specifications;

16 ‘‘(C) the design, documentation, testing,

17 creation, or modification of computer programs

18 related to machine operating systems; or

19 ‘‘(D) a combination of duties described in

20 subparagraphs (A), (B), and (C) the perform21 ance of which requires the same level of skills,

22 and

23 who, in the case of an employee who is compensated

24 on an hourly basis, is compensated at a rate of not

25 less than $27.63 an hour.’’.
239

•HR 3448 EH

1 (b) TIP CREDIT.—The next to last sentence of sec2 tion 3(m) of the Fair Labor Standards Act of 1938 (29

3 U.S.C. 203(m)) is amended to read as follows: ‘‘In deter4 mining the wage an employer is required to pay a tipped

5 employee, the amount paid such employee by the employ6 ee’s employer shall be an amount equal to—

7 ‘‘(1) the cash wage paid such employee which

8 for purposes of such determination shall be not less

9 than the cash wage required to be paid such an em10 ployee on the date of the enactment of this para11 graph; and

12 ‘‘(2) an additional amount on account of the

13 tips received by such employee which amount is

14 equal to the difference between the wage specified in

15 paragraph (1) and the cash wage in effect under sec16 tion 6(a)(1).

17 The additional amount on account of tips may not exceed

18 the value of the tips actually received by an employee.’’.

19 (c) OPPORTUNITY WAGE.—Section 6 of the Fair

20 Labor Standards Act of 1938 (29 U.S.C. 206) is amended

21 by adding at the end the following:

22 ‘‘(g)(1) In lieu of the rate prescribed by subsection

23 (a)(1), any employer may pay any employee of such em24 ployer, during the first 90 consecutive calendar days after
240

•HR 3448 EH

1 such employee is initially employed by such employer, a

2 wage which is not less than $4.25 an hour.

3 ‘‘(2) No employer may take any action to displace

4 employees (including partial displacements such as reduc5 tion in hours, wages, or employment benefits) for purposes

6 of hiring individuals at the wage authorized in paragraph

7 (1).

8 ‘‘(3) Any employer who violates this subsection shall

9 be considered to have violated section 15(a)(3).

10 ‘‘(4) This subsection shall only apply to an employee

11 who has not attained the age of 20 years.’’.

Passed the House of Representatives May 22, 1996.

Attest:

Clerk.