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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3286 Referral Instructions Senate (RIS)]

104th CONGRESS
  2d Session
                                H. R. 3286

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                              May 13, 1996

     Received; read twice and referred to the Committee on Finance

                              May 23, 1996

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

_______________________________________________________________________

                                 AN ACT

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

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

SECTION 1. SHORT TITLE.

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

SEC. 2. TABLE OF CONTENTS.

    The table of contents of this Act is as follows:

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

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

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

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

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

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

Sec. 411. Improved information reporting on foreign trusts.
Sec. 412. Comparable penalties for failure to file return relating to 
                            transfers to foreign entities.
Sec. 413. Modifications of rules relating to foreign trusts having one 
                            or more United States beneficiaries.
Sec. 414. Foreign persons not to be treated as owners under grantor 
                            trust rules.
Sec. 415. Information reporting regarding foreign gifts.
Sec. 416. Modification of rules relating to foreign trusts which are 
                            not grantor trusts.
Sec. 417. Residence of trusts, etc.

                 TITLE I--CREDIT FOR ADOPTION EXPENSES

SEC. 101. CREDIT FOR ADOPTION EXPENSES.

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

``SEC. 23. ADOPTION EXPENSES.

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

``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

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

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

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

                     TITLE II--INTERETHNIC ADOPTION

SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION.

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

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

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

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

SEC. 302. MEMBERSHIP AND CHILD CUSTODY PROCEEDINGS.

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

SEC. 303. EFFECTIVE DATE.

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

                       TITLE IV--REVENUE OFFSETS

SEC. 400. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

  Subtitle A--Exclusion for Energy Conservation Subsidies Limited to 
                Subsidies With Respect to Dwelling Units

SEC. 401. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO 
              SUBSIDIES WITH RESPECT TO DWELLING UNITS.

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

                Subtitle B--Foreign Trust Tax Compliance

SEC. 411. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

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

``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.

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

``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
              FOREIGN TRUSTS.

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

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

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

SEC. 412. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN RELATING TO 
              TRANSFERS TO FOREIGN ENTITIES.

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

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

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

SEC. 414. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR 
              TRUST RULES.

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

SEC. 415. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

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

``SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN PERSONS.

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

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

SEC. 416. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE 
              NOT GRANTOR TRUSTS.

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

SEC. 417. RESIDENCE OF TRUSTS, ETC.

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