In the Senate of the United States,

July 9, 1996.

Resolved, That the bill from the House of Representatives (H.R. 3448) entitled ‘‘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 Portalto-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 employers in complying with minimum wage and overtime

requirements under that Act.’’, do pass with the following

AMENDMENTS:

1 Ω1æPage 2, strike out all after line 5, over to and includ2 ing line 9 on page 236 and insert:

3 (b) TABLE OF CONTENTS.—
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Sec. 1. Short title; 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 dues paid to agricultural or horticultural organizations.

Sec. 1114. Clarification of employment tax status of certain fishermen.

Sec. 1115. Modifications of tax-exempt bond rules for first-time farmers.

Sec. 1116. Newspaper distributors treated as direct sellers.

Sec. 1117. Application of involuntary conversion rules to presidentially declared

disasters.

Sec. 1118. Class life for gas station convenience stores and similar structures.

Sec. 1119. Treatment of abandonment of lessor improvements at termination of

lease.

Sec. 1120. Deductibility of business meal expenses for certain seafood processing

facilities.

Sec. 1121. Clarification of tax treatment of hard cider.

Sec. 1122. Special rules relating to determination whether individuals are employees for purposes of employment taxes.

Sec. 1123. Treatment of housing provided to employees by academic health centers.

Subtitle B—Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.

Sec. 1202. Employer-provided educational assistance programs.

Sec. 1203. Research credit.

Sec. 1204. Orphan drug tax credit.

Sec. 1205. Contributions of stock to private foundations.

Sec. 1206. Extension of binding contract date for biomass and coal facilities.

Sec. 1207. Moratorium for excise tax on diesel fuel sold for use or used in dieselpowered motorboats.

Sec. 1208. Extension of transition rule for certain publicly traded partnerships.

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.
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Sec. 1314. S corporations eligible for rules applicable to real property subdivided

for sale by noncorporate taxpayers.

Sec. 1315. Financial institutions.

Sec. 1316. Certain exempt organizations allowed to be shareholders.

Sec. 1317. 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 RETIREMENT 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).

Sec. 1427. Homemakers eligible for full IRA deduction.

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. Missing participants.

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

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

from self-employment.

Sec. 1457. Model forms for spousal consent and qualified domestic relations

forms.

Sec. 1458. Treatment of length of service awards to volunteers performing fire

fighting or prevention services, emergency medical services, or

ambulance services.

Sec. 1459. Alternative nondiscrimination rules for certain plans that provide for

early participation.

Sec. 1460. Modifications of joint and survivor annuity requirements.

Sec. 1461. Clarification of application of ERISA to insurance company general

accounts.

Sec. 1462. Special rules for chaplains and self-employed ministers.

Sec. 1463. Definition of highly compensated employee for pre-ERISA church

plans.

Sec. 1464. Rule relating to investment in contract not to apply to foreign missionaries.

Sec. 1465. Increase in guaranteed amount of multi-employer plan benefits.

Sec. 1466. Waiver of excise tax on failure to pay liquidity shortfall.

Sec. 1467. Treatment of multiemployer plans under section 415.

Sec. 1468. Payment of lump-sum credit for former spouses of Federal employees.

Sec. 1469. Date for adoption of plan amendments.

Subtitle E—Revenue Offsets

PART I—GENERAL PROVISIONS

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

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

Sec. 1603. Repeal of exclusion for punitive damages.

Sec. 1604. Extension and phasedown of luxury passenger automobile tax.

Sec. 1605. Termination of future tax-exempt bond financing for local furnishers

of electricity and gas.

Sec. 1606. Repeal of financial institution transition rule to interest allocation

rules.

Sec. 1607. Extension of airport and airway trust fund excise taxes.

Sec. 1608. Basis adjustment to property held by corporation where stock in corporation is replacement property under involuntary conversion

rules.

Sec. 1609. Extension of withholding to certain gambling winnings.

Sec. 1610. Treatment of certain insurance contracts on retired lives.

Sec. 1611. Treatment of contributions in aid of construction.

Sec. 1612. Election to cease status as qualified scholarship funding corporation.

Sec. 1613. Certain tax benefits denied to individuals failing to provide taxpayer

identification numbers.

PART II—FINANCIAL ASSET SECURITIZATION INVESTMENTS

Sec. 1621. Financial asset securitization investment trusts.

PART III—TREATMENT OF INDIVIDUALS WHO EXPATRIATE

Sec. 1631. Revision of tax rules on expatriation.

Sec. 1632. Information on individuals expatriating.
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Sec. 1633. Report on tax compliance by United States citizens and residents living abroad.

Subtitle F—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.

Subtitle G—Other Provisions

Sec. 1801. Exemption from diesel fuel dyeing requirements with respect to certain

States.

Sec. 1802. Treatment of certain university accounts.

Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.

Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration facility.

Sec. 1805. Nonrecognition treatment for certain transfers by common trust funds

to regulated investment companies.

Sec. 1806. Qualified State tuition programs.

TITLE II—PAYMENT OF WAGES

Sec. 2101. Short title.

Sec. 2102. Proper compensation for use of employer vehicles.

Sec. 2103. Effective date.

Sec. 2104. Minimum wage increase.

Sec. 2105. 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 of

6 an amendment to, or repeal of, a section or other provision,

7 the reference shall be considered to be made to a section or

8 other provision of the Internal Revenue Code of 1986.

9 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

10 No addition to the tax shall be made under section

11 6654 or 6655 of the Internal Revenue Code of 1986 (relating

12 to failure to pay estimated tax) with respect to any under13 payment of an installment required to be paid before the
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1 date of the enactment of this Act to the extent such under2 payment was created or increased by any provision of this

3 title.

4 Subtitle A—Expensing; Etc.

5 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

6 BUSINESSES.

7 (a) GENERAL RULE.—Paragraph (1) of section 179(b)

8 (relating to dollar limitation) is amended to read as follows:

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

10 which may be taken into account under subsection (a)

11 for any taxable year shall not exceed the following ap12 plicable amount:

‘‘If the taxable year The applicable

begins in: amount is:

1997 ............................................................................ 18,000

1998 ............................................................................ 18,500

1999 ............................................................................ 19,000

2000 ............................................................................ 20,000

2001 ............................................................................ 24,000

2002 ............................................................................ 24,000

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

13 (b) EFFECTIVE DATE.—The amendment made by sub14 section (a) shall apply to taxable years beginning after De15 cember 31, 1996.

16 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

17 (a) EMPLOYEE CASH TIPS.—

18 (1) REPORTING REQUIREMENT NOT CONSID19 ERED.—Subparagraph (A) of section 45B(b)(1) (re20 lating to excess employer social security tax) is

21 amended by inserting ‘‘(without regard to whether
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1 such tips are reported under section 6053)’’ after ‘‘sec2 tion 3121(q)’’.

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

4 13443 of the Revenue Reconciliation Act of 1993 is

5 amended by inserting ‘‘, with respect to services per6 formed before, on, or after such date’’ after ‘‘1993’’.

7 (3) EFFECTIVE DATE.—The amendments made

8 by this subsection shall take effect as if included in

9 the amendments made by, and the provisions of, sec10 tion 13443 of the Revenue Reconciliation Act of 1993.

11 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEV12 ERAGES.—

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

14 45B(b) is amended to read as follows:

15 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV16 ERAGES TAKEN INTO ACCOUNT.—In applying para17 graph (1), there shall be taken into account only tips

18 received from customers in connection with the deliv19 ering or serving of food or beverages for consumption

20 if the tipping of employees delivering or serving food

21 or beverages by customers is customary.’’.

22 (2) EFFECTIVE DATE.—The amendment made by

23 paragraph (1) shall apply to tips received for services

24 performed after December 31, 1996.
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1 SEC. 1113. TREATMENT OF DUES PAID TO AGRICULTURAL

2 OR HORTICULTURAL ORGANIZATIONS.

3 (a) GENERAL RULE.—Section 512 (defining unrelated

4 business taxable income) is amended by adding at the end

5 the following new subsection:

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

7 HORTICULTURAL ORGANIZATIONS.—

8 ‘‘(1) IN GENERAL.—If—

9 ‘‘(A) an agricultural or horticultural orga10 nization described in section 501(c)(5) requires

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

12 of such organization, and

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

14 dues does not exceed $100,

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

16 as derived by such organization from an unrelated

17 trade or business by reason of any benefits or privi18 leges to which members of such organization are enti19 tled.

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

21 of any taxable year beginning in a calendar year

22 after 1995, the $100 amount in paragraph (1) shall

23 be increased by an amount equal to—

24 ‘‘(A) $100, multiplied by

25 ‘‘(B) the cost-of-living adjustment deter26 mined under section 1(f)(3) for the calendar year
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1 in which the taxable year begins, by substituting

2 ‘calendar year 1994’ for ‘calendar year 1992’ in

3 subparagraph (B) thereof.

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

5 term ‘dues’ means any payment (whether or not des6 ignated as dues) which is required to be made in

7 order to be recognized by the organization as a mem8 ber of the organization.’’.

9 (b) EFFECTIVE DATES.—

10 (1) IN GENERAL.—The amendment made by this

11 section shall apply to taxable years beginning after

12 December 31, 1986.

13 (2) TRANSITIONAL RULE.—If—

14 (A) for purposes of applying part III of

15 subchapter F of chapter 1 of the Internal Reve16 nue Code of 1986 to any taxable year beginning

17 before January 1, 1987, an agricultural or horti18 cultural organization did not treat any portion

19 of membership dues received by it as income de20 rived in an unrelated trade or business, and

21 (B) such organization had a reasonable

22 basis for not treating such dues as income de23 rived in an unrelated trade or business,

24 then, for purposes of applying such part III to any

25 such taxable year, in no event shall any portion of
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1 such dues be treated as derived in an unrelated trade

2 or business.

3 (3) REASONABLE BASIS.—For purposes of para4 graph (2), an organization shall be treated as having

5 a reasonable basis for not treating membership dues

6 as income derived in an unrelated trade or business

7 if the taxpayer’s treatment of such dues was in rea8 sonable reliance on any of the following:

9 (A) Judicial precedent, published rulings,

10 technical advice with respect to the organization,

11 or a letter ruling to the organization.

12 (B) A past Internal Revenue Service audit

13 of the organization in which there was no assess14 ment attributable to the reclassification of mem15 bership dues for purposes of the tax on unrelated

16 business income.

17 (C) Long-standing recognized practice of

18 agricultural or horticultural organizations.

19 SEC. 1114. CLARIFICATION OF EMPLOYMENT TAX STATUS

20 OF CERTAIN FISHERMEN.

21 (a) CLARIFICATION OF EMPLOYMENT TAX STATUS.—

22 (1) AMENDMENTS OF INTERNAL REVENUE CODE

23 OF 1986.—

24 (A) DETERMINATION OF SIZE OF CREW.—

25 Subsection (b) of section 3121 (defining employ-
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1 ment) is amended by adding at the end the fol2 lowing new sentence:

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

4 boat shall be treated as normally made up of fewer than

5 10 individuals if the average size of the operating crew on

6 trips made during the preceding 4 calendar quarters con7 sisted of fewer than 10 individuals.’’.

8 (B) CERTAIN CASH REMUNERATION PER9 MITTED.—Subparagraph (A) of section

10 3121(b)(20) is amended to read as follows:

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

12 cash remuneration other than as provided in

13 subparagraph (B) and other than cash remu14 neration—

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

16 trip;

17 ‘‘(ii) which is contingent on a mini18 mum catch; and

19 ‘‘(iii) which is paid solely for addi20 tional duties (such as mate, engineer, or

21 cook) for which additional cash remunera22 tion is traditional in the industry,’’.

23 (C) CONFORMING AMENDMENT.—Section

24 6050A(a) is amended by striking ‘‘and’’ at the

25 end of paragraph (3), by striking the period at
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1 the end of paragraph (4) and inserting ‘‘; and’’,

2 and by adding at the end the following new

3 paragraph:

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

5 3121(b)(20)(A).’’.

6 (2) AMENDMENT OF SOCIAL SECURITY ACT.—

7 (A) DETERMINATION OF SIZE OF CREW.—

8 Subsection (a) of section 210 of the Social Secu9 rity Act is amended by adding at the end the fol10 lowing new sentence:

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

12 boat shall be treated as normally made up of fewer than

13 10 individuals if the average size of the operating crew on

14 trips made during the preceding 4 calendar quarters con15 sisted of fewer than 10 individuals.’’.

16 (B) CERTAIN CASH REMUNERATION PER17 MITTED.—Subparagraph (A) of section

18 210(a)(20) of such Act is amended to read as fol19 lows:

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

21 additional compensation other than as provided

22 in subparagraph (B) and other than cash remu23 neration—

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

25 trip;
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1 ‘‘(ii) which is contingent on a mini2 mum catch; and

3 ‘‘(iii) which is paid solely for addi4 tional duties (such as mate, engineer, or

5 cook) for which additional cash remunera6 tion is traditional in the industry,’’.

7 (b) EFFECTIVE DATES.—

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

9 this section shall apply to remuneration paid—

10 (A) after December 31, 1994, and

11 (B) after December 31, 1984, and before

12 January 1, 1995, unless the payor treated such

13 remuneration (when paid) as being subject to tax

14 under chapter 21 of the Internal Revenue Code

15 of 1986.

16 (2) REPORTING REQUIREMENT.—The amend17 ment made by subsection (a)(1)(C) shall apply to re18 muneration paid after December 31, 1996.

19 SEC. 1115. MODIFICATIONS OF TAX-EXEMPT BOND RULES

20 FOR FIRST-TIME FARMERS.

21 (a) ACQUISITION FROM RELATED PERSON AL22 LOWED.—Section 147(c)(2) (relating to exception for first23 time farmers) is amended by adding at the end the follow24 ing new subparagraph:
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1 ‘‘(G) ACQUISITION FROM RELATED PER2 SON.—For purposes of this paragraph and sec3 tion 144(a), the acquisition by a first-time farm4 er of land or personal property from a related

5 person (within the meaning of section 144(a)(3))

6 shall not be treated as an acquisition from a re7 lated person, if—

8 ‘‘(i) the acquisition price is for the fair

9 market value of such land or property, and

10 ‘‘(ii) subsequent to such acquisition,

11 the related person does not have a financial

12 interest in the farming operation with re13 spect to which the bond proceeds are to be

14 used.’’.

15 (b) SUBSTANTIAL FARMLAND AMOUNT DOUBLED.—

16 Clause (i) of section 147(c)(2)(E) (defining substantial

17 farmland) is amended by striking ‘‘15 percent’’ and insert18 ing ‘‘30 percent’’.

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

20 section shall apply to bonds issued after the date of the en21 actment of this Act.

22 SEC. 1116. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT

23 SELLERS.

24 (a) IN GENERAL.—Section 3508(b)(2)(A) is amended

25 by striking ‘‘or’’ at the end of clause (i), by inserting ‘‘or’’
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1 at the end of clause (ii), and by inserting after clause (ii)

2 the following new clause:

3 ‘‘(iii) is engaged in the trade or busi4 ness of the delivering or distribution of

5 newspapers or shopping news (including

6 any services directly related to such trade or

7 business),’’.

8 (b) EFFECTIVE DATE.—The amendments made by this

9 section shall apply to services performed after December 31,

10 1995.

11 SEC. 1117. APPLICATION OF INVOLUNTARY CONVERSION

12 RULES TO PRESIDENTIALLY DECLARED DIS13 ASTERS.

14 (a) IN GENERAL.—Section 1033(h) is amended by re15 designating paragraphs (2) and (3) as paragraphs (3) and

16 (4) and by inserting after paragraph (1) the following new

17 paragraph:

18 ‘‘(2) TRADE OR BUSINESS AND INVESTMENT

19 PROPERTY.—If a taxpayer’s property held for produc20 tive use in a trade or business or for investment is

21 compulsorily or involuntarily converted as a result of

22 a Presidentially declared disaster, tangible property

23 of a type held for productive use in a trade or busi24 ness shall be treated for purposes of subsection (a) as
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1 property similar or related in service or use to the

2 property so converted.’’.

3 (b) CONFORMING AMENDMENTS.—Section 1033(h) is

4 amended—

5 (1) by striking ‘‘residence’’ in paragraph (3) (as

6 redesignated by subsection (a)) and inserting ‘‘prop7 erty’’,

8 (2) by striking ‘‘PRINCIPAL RESIDENCES’’ in the

9 heading and inserting ‘‘PROPERTY’’, and

10 (3) by striking ‘‘(1) IN GENERAL.—’’ and insert11 ing ‘‘(1) PRINCIPAL RESIDENCES.—’’.

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

13 section shall apply to disasters declared after December 31,

14 1994, in taxable years ending after such date.

15 SEC. 1118. CLASS LIFE FOR GAS STATION CONVENIENCE

16 STORES AND SIMILAR STRUCTURES.

17 (a) IN GENERAL.—Section 168(e)(3)(E) (classifying

18 certain property as 15-year property) is amended by strik19 ing ‘‘and’’ at the end of clause (i), by striking the period

20 at the end of clause (ii) and inserting ‘‘, and’’, and by add21 ing at the end the following new clause:

22 ‘‘(iii) any section 1250 property which

23 is a retail motor fuels outlet (whether or not

24 food or other convenience items are sold at

25 the outlet).’’.
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1 (b) CONFORMING AMENDMENT.—Subparagraph (B) of

2 section 168(g)(3) is amended by inserting after the item re3 lating to subparagraph (E)(ii) in the table contained there4 in the following new item:

‘‘(E)(iii) . . . . . . . . . . . . . . . . . 20’’.

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

6 section shall apply to property which is placed in service

7 on or after the date of the enactment of this Act and to

8 which section 168 of the Internal Revenue Code of 1986 ap9 plies after the amendment made by section 201 of the Tax

10 Reform Act of 1986. A taxpayer may elect (in such form

11 and manner as the Secretary of the Treasury may pre12 scribe) to have such amendments apply with respect to any

13 property placed in service before such date and to which

14 such section so applies.

15 SEC. 1119. TREATMENT OF ABANDONMENT OF LESSOR IM16 PROVEMENTS AT TERMINATION OF LEASE.

17 (a) IN GENERAL.—Paragraph (8) of section 168(i) is

18 amended to read as follows:

19 ‘‘(8) TREATMENT OF LEASEHOLD IMPROVE20 MENTS.—

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

22 building erected (or improvements made) on

23 leased property, if such building or improvement

24 is property to which this section applies, the de-
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1 preciation deduction shall be determined under

2 the provisions of this section.

3 ‘‘(B) TREATMENT OF LESSOR IMPROVE4 MENTS WHICH ARE ABANDONED AT TERMINATION

5 OF LEASE.—An improvement—

6 ‘‘(i) which is made by the lessor of

7 leased property for the lessee of such prop8 erty, and

9 ‘‘(ii) which is irrevocably disposed of

10 or abandoned by the lessor at the termi11 nation of the lease by such lessee,

12 shall be treated for purposes of determining gain

13 or loss under this title as disposed of by the les14 sor when so disposed of or abandoned.’’.

15 (b) EFFECTIVE DATE.—Subparagraph (B) of section

16 168(i)(8) of the Internal Revenue Code of 1986, as added

17 by the amendment made by subsection (a), shall apply to

18 improvements disposed of or abandoned after June 12,

19 1996.

20 SEC. 1120. DEDUCTIBILITY OF BUSINESS MEAL EXPENSES

21 FOR CERTAIN SEAFOOD PROCESSING FACILI22 TIES.

23 (a) IN GENERAL.—Subparagraph (E) of section

24 274(n)(2) is amended by striking ‘‘or’’ at the end of clause

25 (iii), by striking the period at the end of clause (iv) and
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1 inserting ‘‘, or’’, and by inserting after clause (iv) the fol2 lowing new clause:

3 ‘‘(v) provided at a remote seafood proc4 essing facility located in the United States

5 north of 53 degrees north latitude.’’.

6 (b) EFFECTIVE DATE.—The amendments made by this

7 section shall apply to taxable years beginning after Decem8 ber 31, 1996.

9 SEC. 1121. CLARIFICATION OF TAX TREATMENT OF HARD

10 CIDER.

11 (a) HARD CIDER CONTAINING NOT MORE THAN 7

12 PERCENT ALCOHOL TAXED AS WINE.—Subsection (b) of

13 section 5041 (relating to imposition and rate of tax) is

14 amended by striking ‘‘and’’ at the end of paragraph (4),

15 by striking the period at the end of paragraph (5) and in16 serting ‘‘; and’’, and by adding at the end the following

17 new paragraph:

18 ‘‘(6) On hard cider derived primarily from ap19 ples or apple concentrate and water, containing no

20 other fruit product, and containing at least one-half

21 of 1 percent and not more than 7 percent of alcohol

22 by volume, 22.6 cents per wine gallon.’’.

23 (b) EXCLUSION FROM SMALL PRODUCER CREDIT.—

24 Paragraph (1) of section 5041(c) (relating to credit for

25 small domestic producers) is amended by striking ‘‘sub-
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1 section (b)(4)’’ and inserting ‘‘paragraphs (4) and (6) of

2 subsection (b)’’.

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

4 section shall take effect on January 1, 1997.

5 SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION

6 WHETHER INDIVIDUALS ARE EMPLOYEES

7 FOR PURPOSES OF EMPLOYMENT TAXES.

8 (a) IN GENERAL.—Section 530 of the Revenue Act of

9 1978 is amended by adding at the end the following new

10 subsection:

11 ‘‘(e) SPECIAL RULES FOR APPLICATION OF SEC12 TION.—

13 ‘‘(1) NOTICE REQUIREMENTS.—

14 ‘‘(A) WRITTEN AGREEMENT REQUIRED BE15 TWEEN TAXPAYER AND INDIVIDUAL.—The provi16 sions of subsection (a)(1) shall not apply with

17 respect to a taxpayer and any individual unless

18 such taxpayer and individual sign a statement

19 (at such time and in such form as the Secretary

20 may prescribe) which provides that such individ21 ual will not be treated as an employee of the tax22 payer for purposes of employment taxes.

23 ‘‘(B) NOTICE OF AVAILABILITY OF SEC24 TION.—An officer or employee of the Internal

25 Revenue Service shall, before or at the commence-
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1 ment of any audit relating to the employment

2 status of one or more individuals who perform

3 services for the taxpayer, provide the taxpayer

4 with a written notice of the provisions of this

5 section.

6 ‘‘(2) RULES RELATING TO STATUTORY STAND7 ARDS.—For purposes of subsection (a)(2)—

8 ‘‘(A) a taxpayer may not rely on an audit

9 commenced after December 31, 1996, for pur10 poses of subparagraph (B) thereof unless such

11 audit included an examination for employment

12 tax purposes of whether the individual involved

13 (or any individual holding a position substan14 tially similar to the position held by the individ15 ual involved) should be treated as an employee of

16 the taxpayer,

17 ‘‘(B) in no event shall the significant seg18 ment requirement of subparagraph (C) thereof be

19 construed to require a reasonable showing of the

20 practice of more than 25 percent of the industry

21 (determined by not taking into account the tax22 payer), and

23 ‘‘(C) in applying the long-standing recog24 nized practice requirement of subparagraph (C)

25 thereof—
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1 ‘‘(i) such requirement shall not be con2 strued as requiring the practice to have con3 tinued for more than 10 years, and

4 ‘‘(ii) a practice shall not fail to be

5 treated as long-standing merely because

6 such practice began after 1978.

7 ‘‘(3) AVAILABILITY OF SAFE HARBORS.—Nothing

8 in this section shall be construed to provide that sub9 section (a) only applies where the individual involved

10 is otherwise an employee of the taxpayer.

11 ‘‘(4) BURDEN OF PROOF.—

12 ‘‘(A) IN GENERAL.—If—

13 ‘‘(i) a taxpayer establishes a prima

14 facie case that it was reasonable not to treat

15 an individual as an employee for purposes

16 of this section, and

17 ‘‘(ii) the taxpayer has fully cooperated

18 with reasonable requests from the Secretary

19 of the Treasury or his delegate,

20 then the burden of proof with respect to such

21 treatment shall be on the Secretary.

22 ‘‘(B) EXCEPTION FOR OTHER REASONABLE

23 BASIS.—In the case of any issue involving

24 whether the taxpayer had a reasonable basis not

25 to treat an individual as an employee for pur-
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1 poses of this section, subparagraph (A) shall only

2 apply for purposes of determining whether the

3 taxpayer meets the requirements of subparagraph

4 (A), (B), or (C) of subsection (a)(2).

5 ‘‘(5) PRESERVATION OF PRIOR PERIOD SAFE

6 HARBOR.—If—

7 ‘‘(A) an individual would (but for the treat8 ment referred to in subparagraph (B)) be deemed

9 not to be an employee of the taxpayer under sub10 section (a) for any prior period, and

11 ‘‘(B) such individual is treated by the tax12 payer as an employee for employment tax pur13 poses for any subsequent period,

14 then, for purposes of applying such taxes for such

15 prior period with respect to the taxpayer, the individ16 ual shall be deemed not to be an employee.

17 ‘‘(6) SUBSTANTIALLY SIMILAR POSITION.—For

18 purposes of this section, the determination as to

19 whether an individual holds a position substantially

20 similar to a position held by another individual shall

21 include consideration of the relationship between the

22 taxpayer and such individuals.’’.

23 (b) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendment made by this

2 section shall apply to periods after December 31,

3 1996.

4 (2) NOTICE REQUIREMENTS.—

5 (A) WRITTEN AGREEMENT.—In the case of

6 individuals who first perform services for a tax7 payer before January 1, 1997, the requirements

8 of section 530(e)(1)(A) of the Revenue Act of

9 1978 (as added by subsection (a)) shall not

10 apply before January 1, 1998, unless the tax11 payer elects to apply such requirements before

12 such date.

13 (B) NOTICE BY INTERNAL REVENUE SERV14 ICE.—Section 530(e)(1)(B) of the Revenue Act of

15 1978 (as added by subsection (a)) shall apply to

16 audits which commence after December 31, 1996.

17 (3) BURDEN OF PROOF.—

18 (A) IN GENERAL.—Section 530(e)(4) of the

19 Revenue Act of 1978 (as added by subsection (a))

20 shall apply to disputes involving periods after

21 December 31, 1996.

22 (B) NO INFERENCE.—Nothing in the

23 amendments made by this section shall be con24 strued to infer the proper treatment of the bur-
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1 den of proof with respect to disputes involving

2 periods before January 1, 1997.

3 SEC. 1123. TREATMENT OF HOUSING PROVIDED TO EM4 PLOYEES BY ACADEMIC HEALTH CENTERS.

5 (a) IN GENERAL.—Paragraph (4) of section 119(d)

6 (relating to lodging furnished by certain educational insti7 tutions to employees) is amended to read as follows:

8 ‘‘(4) EDUCATIONAL INSTITUTION.—For purposes

9 of this subsection—

10 ‘‘(A) IN GENERAL.—The term ‘educational

11 institution’ means—

12 ‘‘(i) an institution described in section

13 170(b)(1)(A)(ii), or

14 ‘‘(ii) an academic health center.

15 ‘‘(B) ACADEMIC HEALTH CENTER.—For

16 purposes of subparagraph (A), the term ‘aca17 demic health center’ means an entity—

18 ‘‘(i) which is described in section

19 170(b)(1)(A)(iii),

20 ‘‘(ii) which receives (during the cal21 endar year in which the taxable year of the

22 taxpayer begins) payments under subsection

23 (d)(5)(B) or (h) of section 1886 of the So24 cial Security Act (relating to graduate med25 ical education), and
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1 ‘‘(iii) which has as one of its principal

2 purposes or functions the providing and

3 teaching of basic and clinical medical

4 science and research with the entity’s own

5 faculty.’’.

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

7 section shall apply to taxable years beginning after Decem8 ber 31, 1995.

9 Subtitle B—Extension of Certain

10 Expiring Provisions

11 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

12 (a) AMOUNT OF CREDIT.—Subsection (a) of section 51

13 (relating to amount of credit) is amended by striking ‘‘40

14 percent’’ and inserting ‘‘35 percent’’.

15 (b) MEMBERS OF TARGETED GROUPS.—Subsection (d)

16 of section 51 is amended to read as follows:

17 ‘‘(d) MEMBERS OF TARGETED GROUPS.—For purposes

18 of this subpart—

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

20 of a targeted group if such individual is—

21 ‘‘(A) a qualified IV–A recipient,

22 ‘‘(B) a qualified veteran,

23 ‘‘(C) a qualified ex-felon,

24 ‘‘(D) a high-risk youth,

25 ‘‘(E) a vocational rehabilitation referral,
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1 ‘‘(F) a qualified summer youth employee, or

2 ‘‘(G) a qualified food stamp recipient.

3 ‘‘(2) QUALIFIED IV–A RECIPIENT.—

4 ‘‘(A) IN GENERAL.—The term ‘qualified IV–

5 A recipient’ means any individual who is cer6 tified by the designated local agency as being a

7 member of a family receiving assistance under a

8 IV–A program for at least a 9-month period end9 ing during the 9-month period ending on the

10 hiring date.

11 ‘‘(B) IV–A PROGRAM.—For purposes of this

12 paragraph, the term ‘IV–A program’ means any

13 program providing assistance under a State

14 plan approved under part A of title IV of the So15 cial Security Act (relating to assistance for

16 needy families with minor children) and any

17 successor of such program.

18 ‘‘(3) QUALIFIED VETERAN.—

19 ‘‘(A) IN GENERAL.—The term ‘qualified vet20 eran’ means any veteran who is certified by the

21 designated local agency as being—

22 ‘‘(i) a member of a family receiving as23 sistance under a IV–A program (as defined

24 in paragraph (2)(B)) for at least a 9-month
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1 period ending during the 12-month period

2 ending on the hiring date, or

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

4 assistance under a food stamp program

5 under the Food Stamp Act of 1977 for at

6 least a 3-month period ending during the

7 12-month period ending on the hiring date.

8 ‘‘(B) VETERAN.—For purposes of subpara9 graph (A), the term ‘veteran’ means any individ10 ual who is certified by the designated local agen11 cy as—

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

13 (other than active duty for training) in the

14 Armed Forces of the United States for a pe15 riod of more than 180 days, or

16 ‘‘(II) having been discharged or re17 leased from active duty in the Armed Forces

18 of the United States for a service-connected

19 disability, and

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

21 60-day period ending on the hiring date

22 which was a day of extended active duty in

23 the Armed Forces of the United States.

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

25 active duty’ means a period of more than 90
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1 days during which the individual was on active

2 duty (other than active duty for training).

3 ‘‘(4) QUALIFIED EX-FELON.—The term ‘qualified

4 ex-felon’ means any individual who is certified by the

5 designated local agency—

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

7 under any statute of the United States or any

8 State,

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

10 more than 1 year after the last date on which

11 such individual was so convicted or was released

12 from prison, and

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

14 had an income during the 6 months immediately

15 preceding the earlier of the month in which such

16 income determination occurs or the month in

17 which the hiring date occurs, which, on an an18 nual basis, would be 70 percent or less of the Bu19 reau of Labor Statistics lower living standard.

20 Any determination under subparagraph (C) shall be

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

22 such determination is made.

23 ‘‘(5) HIGH-RISK YOUTH.—
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1 ‘‘(A) IN GENERAL.—The term ‘high-risk

2 youth’ means any individual who is certified by

3 the designated local agency—

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

5 age 25 on the hiring date, and

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

7 abode within an empowerment zone or en8 terprise community.

9 ‘‘(B) YOUTH MUST CONTINUE TO RESIDE IN

10 ZONE.—In the case of a high-risk youth, the term

11 ‘qualified wages’ shall not include wages paid or

12 incurred for services performed while such

13 youth’s principal place of abode is outside an

14 empowerment zone or enterprise community.

15 ‘‘(6) VOCATIONAL REHABILITATION REFERRAL.—

16 The term ‘vocational rehabilitation referral’ means

17 any individual who is certified by the designated

18 local agency as—

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

20 which, for such individual, constitutes or results

21 in a substantial handicap to employment, and

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

23 upon completion of (or while receiving) rehabili24 tative services pursuant to—
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1 ‘‘(i) an individualized written rehabili2 tation plan under a State plan for voca3 tional rehabilitation services approved

4 under the Rehabilitation Act of 1973, or

5 ‘‘(ii) a program of vocational rehabili6 tation carried out under chapter 31 of title

7 38, United States Code.

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

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

10 summer youth employee’ means any individ11 ual—

12 ‘‘(i) who performs services for the em13 ployer between May 1 and September 15,

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

15 local agency as having attained age 16 but

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

17 May 1 of the calendar year involved),

18 ‘‘(iii) who has not been an employee of

19 the employer during any period prior to the

20 90-day period described in subparagraph

21 (B)(i), and

22 ‘‘(iv) who is certified by the designated

23 local agency as having his principal place

24 of abode within an empowerment zone or

25 enterprise community.
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1 ‘‘(B) SPECIAL RULES FOR DETERMINING

2 AMOUNT OF CREDIT.—For purposes of applying

3 this subpart to wages paid or incurred to any

4 qualified summer youth employee—

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

6 by substituting ‘any 90-day period between

7 May 1 and September 15’ for ‘the 1-year

8 period beginning with the day the individ9 ual begins work for the employer’, and

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

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

12 The preceding sentence shall not apply to an in13 dividual who, with respect to the same employer,

14 is certified as a member of another targeted

15 group after such individual has been a qualified

16 summer youth employee.

17 ‘‘(C) YOUTH MUST CONTINUE TO RESIDE IN

18 ZONE.—Paragraph (5)(B) shall apply for pur19 poses of subparagraph (A)(iv).

20 ‘‘(8) QUALIFIED FOOD STAMP RECIPIENT.—

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

22 food stamp recipient’ means any individual who

23 is certified by the designated local agency—

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

25 age 25 on the hiring date, and
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1 ‘‘(ii) as being a member of a family re2 ceiving assistance under a food stamp pro3 gram under the Food Stamp Act of 1977 for

4 the 3-month period ending on the hiring

5 date.

6 ‘‘(B) PARTICIPATION INFORMATION.—Not7 withstanding any other provision of law, the

8 Secretary of the Treasury and the Secretary of

9 Agriculture shall enter into an agreement to pro10 vide information to designated local agencies

11 with respect to participation in the food stamp

12 program.

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

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

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

17 ‘designated local agency’ means a State employment

18 security agency established in accordance with the Act

19 of June 6, 1933, as amended (29 U.S.C. 49–49n).

20 ‘‘(11) SPECIAL RULES FOR CERTIFICATIONS.—

21 ‘‘(A) IN GENERAL.—An individual shall not

22 be treated as a member of a targeted group un23 less—

24 ‘‘(i) on or before the day on which such

25 individual begins work for the employer, the
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1 employer has received a certification from a

2 designated local agency that such individual

3 is a member of a targeted group, or

4 ‘‘(ii)(I) on or before the day the indi5 vidual is offered employment with the em6 ployer, a pre-screening notice is completed

7 by the employer with respect to such indi8 vidual, and

9 ‘‘(II) not later than the 21st day after

10 the individual begins work for the employer,

11 the employer submits such notice, signed by

12 the employer and the individual under pen13 alties of perjury, to the designated local

14 agency as part of a written request for such

15 a certification from such agency.

16 For purposes of this paragraph, the term ‘pre17 screening notice’ means a document (in such

18 form as the Secretary shall prescribe) which con19 tains information provided by the individual on

20 the basis of which the employer believes that the

21 individual is a member of a targeted group.

22 ‘‘(B) INCORRECT CERTIFICATIONS.—If—

23 ‘‘(i) an individual has been certified by

24 a designated local agency as a member of a

25 targeted group, and
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1 ‘‘(ii) such certification is incorrect be2 cause it was based on false information pro3 vided by such individual,

4 the certification shall be revoked and wages paid

5 by the employer after the date on which notice

6 of revocation is received by the employer shall

7 not be treated as qualified wages.

8 ‘‘(C) EXPLANATION OF DENIAL OF RE9 QUEST.—If a designated local agency denies a

10 request for certification of membership in a tar11 geted group, such agency shall provide to the per12 son making such request a written explanation

13 of the reasons for such denial.’’.

14 (c) MINIMUM EMPLOYMENT PERIOD.—Paragraph (3)

15 of section 51(i) (relating to certain individuals ineligible)

16 is amended to read as follows:

17 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM18 PLOYMENT PERIOD.—No wages shall be taken into ac19 count under subsection (a) with respect to any indi20 vidual unless such individual either—

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

22 180 days (20 days in the case of a qualified

23 summer youth employee), or

24 ‘‘(B) has completed at least 375 hours (120

25 hours in the case of a qualified summer youth
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1 employee) of services performed for the em2 ployer.’’.

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

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

5 ‘‘(4) TERMINATION.—The term ‘wages’ shall not

6 include any amount paid or incurred to an individ7 ual who begins work for the employer—

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

9 October 1, 1996, or

10 ‘‘(B) after September 30, 1997.’’.

11 (e) REDESIGNATION OF CREDIT.—

12 (1) Sections 38(b)(2) and 51(a) are each amend13 ed by striking ‘‘targeted jobs credit’’ and inserting

14 ‘‘work opportunity credit’’.

15 (2) The subpart heading for subpart F of part IV

16 of subchapter A of chapter 1 is amended by striking

17 ‘‘Targeted Jobs Credit’’ and inserting ‘‘Work

18 Opportunity Credit’’.

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

20 amended by striking ‘‘targeted jobs credit’’ and insert21 ing ‘‘work opportunity credit’’.

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

23 1396(c) is amended by striking ‘‘TARGETED JOBS

24 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED25 IT’’.
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1 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec2 tion 51(c) is amended by striking ‘‘, subsection (d)(8)(D),’’.

3 (g) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to individuals who begin work for the

5 employer after September 30, 1996.

6 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST7 ANCE PROGRAMS.

8 (a) EXTENSION.—Subsection (d) of section 127 (relat9 ing to educational assistance programs) is amended by

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

11 1997’’.

12 (b) EFFECTIVE DATES.—

13 (1) EXTENSION.—The amendment made by sub14 section (a) shall apply to taxable years beginning

15 after December 31, 1994.

16 (2) EXPEDITED PROCEDURES.—The Secretary of

17 the Treasury shall establish expedited procedures for

18 the refund of any overpayment of taxes imposed by

19 the Internal Revenue Code of 1986 which is attrib20 utable to amounts excluded from gross income during

21 1995 or 1996 under section 127 of such Code, includ22 ing procedures waiving the requirement that an em23 ployer obtain an employee’s signature where the em24 ployer demonstrates to the satisfaction of the Sec-
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1 retary that any refund collected by the employer on

2 behalf of the employee will be paid to the employee.

3 SEC. 1203. RESEARCH CREDIT.

4 (a) IN GENERAL.—Subsection (h) of section 41 (relat5 ing to credit for research activities) is amended to read as

6 follows:

7 ‘‘(h) TERMINATION.—

8 ‘‘(1) IN GENERAL.—This section shall not apply

9 to any amount paid or incurred—

10 ‘‘(A) after June 30, 1995, and before July

11 1, 1996, or

12 ‘‘(B) after December 31, 1997.

13 Notwithstanding the preceding sentence, in the case of

14 a taxpayer making an election under subsection (c)(4)

15 for its first taxable year beginning after June 30,

16 1996, and before July 1, 1997, this section shall

17 apply to amounts paid or incurred during such first

18 taxable year and the first 6 months of the succeeding

19 taxable year.’’

20 ‘‘(2) COMPUTATION OF BASE AMOUNT.—In the

21 case of any taxable year with respect to which this

22 section applies to a number of days which is less than

23 the total number of days in such taxable year, the

24 base amount with respect to such taxable year shall

25 be the amount which bears the same ratio to the base
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1 amount for such year (determined without regard to

2 this paragraph) as the number of days in such tax3 able year to which this section applies bears to the

4 total number of days in such taxable year.’’.

5 (b) BASE AMOUNT FOR START-UP COMPANIES.—

6 Clause (i) of section 41(c)(3)(B) (relating to start-up com7 panies) is amended to read as follows:

8 ‘‘(i) TAXPAYERS TO WHICH SUBPARA9 GRAPH APPLIES.—The fixed-base percentage

10 shall be determined under this subpara11 graph if—

12 ‘‘(I) the first taxable year in

13 which a taxpayer had both gross re14 ceipts and qualified research expenses

15 begins after December 31, 1983, or

16 ‘‘(II) there are fewer than 3 tax17 able years beginning after December

18 31, 1983, and before January 1, 1989,

19 in which the taxpayer had both gross

20 receipts and qualified research ex21 penses.’’.

22 (c) ELECTION OF ALTERNATIVE INCREMENTAL CRED23 IT.—Subsection (c) of section 41 is amended by redesignat24 ing paragraphs (4) and (5) as paragraphs (5) and (6), re-
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1 spectively, and by inserting after paragraph (3) the follow2 ing new paragraph:

3 ‘‘(4) ELECTION OF ALTERNATIVE INCREMENTAL

4 CREDIT.—

5 ‘‘(A) IN GENERAL.—At the election of the

6 taxpayer, the credit determined under subsection

7 (a)(1) shall be equal to the sum of—

8 ‘‘(i) 1.65 percent of so much of the

9 qualified research expenses for the taxable

10 year as exceeds 1 percent of the average de11 scribed in subsection (c)(1)(B) but does not

12 exceed 1.5 percent of such average,

13 ‘‘(ii) 2.2 percent of so much of such ex14 penses as exceeds 1.5 percent of such average

15 but does not exceed 2 percent of such aver16 age, and

17 ‘‘(iii) 2.75 percent of so much of such

18 expenses as exceeds 2 percent of such aver19 age.

20 ‘‘(B) ELECTION.—An election under this

21 paragraph may be made only for the first tax22 able year of the taxpayer beginning after June

23 30, 1996. Such an election shall apply to the

24 taxable year for which made and all succeeding
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1 taxable years unless revoked with the consent of

2 the Secretary.’’.

3 (d) INCREASED CREDIT FOR CONTRACT RESEARCH

4 EXPENSES WITH RESPECT TO CERTAIN RESEARCH CON5 SORTIA.—Paragraph (3) of section 41(b) is amended by

6 adding at the end the following new subparagraph:

7 ‘‘(C) AMOUNTS PAID TO CERTAIN RESEARCH

8 CONSORTIA.—

9 ‘‘(i) IN GENERAL.—Subparagraph (A)

10 shall be applied by substituting ‘75 percent’

11 for ‘65 percent’ with respect to amounts

12 paid or incurred by the taxpayer to a quali13 fied research consortium for qualified re14 search on behalf of the taxpayer and 1 or

15 more unrelated taxpayers. For purposes of

16 the preceding sentence, all persons treated

17 as a single employer under subsection (a) or

18 (b) of section 52 shall be treated as related

19 taxpayers.

20 ‘‘(ii) QUALIFIED RESEARCH CONSOR21 TIUM.—The term ‘qualified research consor22 tium’ means any organization which—

23 ‘‘(I) is described in section

24 501(c)(3) or 501(c)(6) and is exempt

25 from tax under section 501(a),
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1 ‘‘(II) is organized and operated

2 primarily to conduct scientific re3 search, and

4 ‘‘(III) is not a private founda5 tion.’’.

6 (e) CONFORMING AMENDMENT.—Subparagraph (D) of

7 section 28(b)(1) is amended by inserting ‘‘, and before July

8 1, 1996, and periods after December 31, 1997’’ after ‘‘June

9 30, 1995’’.

10 (f) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall

13 apply to taxable years ending after June 30, 1996.

14 (2) SUBSECTIONS (c) AND (d).—The amendments

15 made by subsections (c) and (d) shall apply to taxable

16 years beginning after June 30, 1996.

17 (3) ESTIMATED TAX.—The amendments made by

18 this section shall not be taken into account under sec19 tion 6654 or 6655 of the Internal Revenue Code of

20 1986 (relating to failure to pay estimated tax) in de21 termining the amount of any installment required to

22 be paid before October 1, 1996.

23 SEC. 1204. ORPHAN DRUG TAX CREDIT.

24 (a) RECATEGORIZED AS A BUSINESS CREDIT.—
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1 (1) IN GENERAL.—Section 28 (relating to clini2 cal testing expenses for certain drugs for rare diseases

3 or conditions) is transferred to subpart D of part IV

4 of subchapter A of chapter 1, inserted after section

5 45B, and redesignated as section 45C.

6 (2) CONFORMING AMENDMENT.—Subsection (b)

7 of section 38 (relating to general business credit) is

8 amended by striking ‘‘plus’’ at the end of paragraph

9 (10), by striking the period at the end of paragraph

10 (11) and inserting ‘‘, plus’’, and by adding at the end

11 the following new paragraph:

12 ‘‘(12) the orphan drug credit determined under

13 section 45C(a).’’.

14 (3) CLERICAL AMENDMENTS.—

15 (A) The table of sections for subpart B of

16 such part IV is amended by striking the item re17 lating to section 28.

18 (B) The table of sections for subpart D of

19 such part IV is amended by adding at the end

20 the following new item:

‘‘Sec. 45C. Clinical testing expenses for certain drugs for rare diseases or

conditions.’’.

21 (b) CREDIT TERMINATION.—Subsection (e) of section

22 45C, as redesignated by subsection (a)(1), is amended to

23 read as follows:
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1 ‘‘(e) TERMINATION.—This section shall not apply to

2 any amount paid or incurred—

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

4 July 1, 1996, or

5 ‘‘(B) after December 31, 1997.’’.

6 (c) NO PRE-JULY 1, 1996 CARRYBACKS.—Subsection

7 (d) of section 39 (relating to carryback and carryforward

8 of unused credits) is amended by adding at the end the fol9 lowing new paragraph:

10 ‘‘(7) NO CARRYBACK OF SECTION 45C CREDIT BE11 FORE JULY 1, 1996.—No portion of the unused busi12 ness credit for any taxable year which is attributable

13 to the orphan drug credit determined under section

14 45C may be carried back to a taxable year ending be15 fore July 1, 1996.’’.

16 (d) ADDITIONAL CONFORMING AMENDMENTS.—

17 (1) Section 45C(a), as redesignated by subsection

18 (a)(1), is amended by striking ‘‘There shall be allowed

19 as a credit against the tax imposed by this chapter

20 for the taxable year’’ and inserting ‘‘For purposes of

21 section 38, the credit determined under this section

22 for the taxable year is’’.

23 (2) Section 45C(d), as so redesignated, is amend24 ed by striking paragraph (2) and by redesignating
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1 paragraphs (3), (4), and (5) as paragraphs (2), (3),

2 and (4).

3 (3) Section 29(b)(6)(A) is amended by striking

4 ‘‘sections 27 and 28’’ and inserting ‘‘section 27’’.

5 (4) Section 30(b)(3)(A) is amended by striking

6 ‘‘sections 27, 28, and 29’’ and inserting ‘‘sections 27

7 and 29’’.

8 (5) Section 53(d)(1)(B) is amended—

9 (A) by striking ‘‘or not allowed under sec10 tion 28 solely by reason of the application of sec11 tion 28(d)(2)(B),’’ in clause (iii), and

12 (B) by striking ‘‘or not allowed under sec13 tion 28 solely by reason of the application of sec14 tion 28(d)(2)(B)’’ in clause (iv)(II).

15 (6) Section 55(c)(2) is amended by striking

16 ‘‘28(d)(2),’’.

17 (7) Section 280C(b) is amended—

18 (A) by striking ‘‘section 28(b)’’ in para19 graph (1) and inserting ‘‘section 45C(b)’’,

20 (B) by striking ‘‘section 28’’ in paragraphs

21 (1) and (2)(A) and inserting ‘‘section 45C(b)’’,

22 and

23 (C) by striking ‘‘subsection (d)(2) thereof’’

24 in paragraphs (1) and (2)(A) and inserting ‘‘sec25 tion 38(c)’’.
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1 (e) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to amounts paid or incurred in taxable

3 years ending after June 30, 1996.

4 SEC. 1205. CONTRIBUTIONS OF STOCK TO PRIVATE FOUN5 DATIONS.

6 (a) IN GENERAL.—Subparagraph (D) of section

7 170(e)(5) (relating to special rule for contributions of stock

8 for which market quotations are readily available) is

9 amended to read as follows:

10 ‘‘(D) TERMINATION.—This paragraph shall

11 not apply to contributions made—

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

13 July 1, 1996, or

14 ‘‘(B) after December 31, 1997.’’.

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

16 section shall apply to contributions made after June 30,

17 1996.

18 SEC. 1206. EXTENSION OF BINDING CONTRACT DATE FOR

19 BIOMASS AND COAL FACILITIES.

20 (a) IN GENERAL.—Subparagraph (A) of section

21 29(g)(1) (relating to extension of certain facilities) is

22 amended by striking ‘‘January 1, 1997’’ and inserting

23 ‘‘January 1, 1999’’ and by striking ‘‘January 1, 1996’’ and

24 inserting ‘‘the date which is 6 months after the date of the
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1 enactment of the Small Business Job Protection Act of

2 1996’’.

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

4 section shall take effect on the date of the enactment of this

5 Act.

6 SEC. 1207. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL

7 SOLD FOR USE OR USED IN DIESEL-POWERED

8 MOTORBOATS.

9 Subparagraph (D) of section 4041(a)(1) (relating to

10 the imposition of tax on diesel fuel and special motor fuels)

11 is amended by redesignating clauses (i) and (ii) as clauses

12 (ii) and (iii), respectively, and by inserting before clause

13 (ii) (as redesignated) the following new clause:

14 ‘‘(i) no tax shall be imposed by sub15 section (a) or (d)(1) during the period be16 ginning on the date which is 7 days after

17 the date of the enactment of the Small Busi18 ness Job Protection Act of 1996 and ending

19 on December 31, 1997.’’.

20 SEC. 1208. EXTENSION OF TRANSITION RULE FOR CERTAIN

21 PUBLICLY TRADED PARTNERSHIPS.

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

23 10211(c)(1) of the Revenue Act of 1987 (Public Law 100–

24 203) is amended by striking ‘‘December 31, 1997’’ and in25 serting ‘‘December 31, 1999’’.
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1 (b) CONFORMING AMENDMENT.—Subparagraph (C)(i)

2 of section 10211(c)(2) of the Revenue Act of 1987, as added

3 by section 2004(f)(2) of the Technical and Miscellaneous

4 Revenue Act of 1988, is amended by striking ‘‘December 31,

5 1997’’ and inserting ‘‘December 31, 1999’’.

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

7 section shall take effect as if included in the provisions of

8 section 10211 of the Revenue Act of 1987.

9 Subtitle C—Provisions Relating to

10 S Corporations

11 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

12 SHAREHOLDERS.

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

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

15 shareholders’’ and inserting ‘‘75 shareholders’’.

16 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

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

18 1361(c)(2) (relating to certain trusts permitted as share19 holders) is amended by inserting after clause (iv) the follow20 ing new clause:

21 ‘‘(v) An electing small business trust.’’.

22 (b) CURRENT BENEFICIARIES TREATED AS SHARE23 HOLDERS.—Subparagraph (B) of section 1361(c)(2) is

24 amended by adding at the end the following new clause:
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1 ‘‘(v) In the case of a trust described in

2 clause (v) of subparagraph (A), each poten3 tial current beneficiary of such trust shall

4 be treated as a shareholder; except that, if

5 for any period there is no potential current

6 beneficiary of such trust, such trust shall be

7 treated as the shareholder during such pe8 riod.’’.

9 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

10 Section 1361 (defining S corporation) is amended by add11 ing at the end the following new subsection:

12 ‘‘(e) ELECTING SMALL BUSINESS TRUST DEFINED.—

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

14 purposes of this section—

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

16 subparagraph (B), the term ‘electing small busi17 ness trust’ means any trust if—

18 ‘‘(i) such trust does not have as a bene19 ficiary any person other than (I) an indi20 vidual, (II) an estate, or (III) an organiza21 tion described in paragraph (2), (3), (4), or

22 (5) of section 170(c) which holds a contin23 gent interest and is not a potential current

24 beneficiary,
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1 ‘‘(ii) no interest in such trust was ac2 quired by purchase, and

3 ‘‘(iii) an election under this subsection

4 applies to such trust.

5 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—The

6 term ‘electing small business trust’ shall not in7 clude—

8 ‘‘(i) any qualified subchapter S trust

9 (as defined in subsection (d)(3)) if an elec10 tion under subsection (d)(2) applies to any

11 corporation the stock of which is held by

12 such trust, and

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

14 this subtitle.

15 ‘‘(C) PURCHASE.—For purposes of subpara16 graph (A), the term ‘purchase’ means any acqui17 sition if the basis of the property acquired is de18 termined under section 1012.

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

20 purposes of this section, the term ‘potential current

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

22 person who at any time during such period is entitled

23 to, or at the discretion of any person may receive, a

24 distribution from the principal or income of the trust.

25 If a trust disposes of all of the stock which it holds
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1 in an S corporation, then, with respect to such cor2 poration, the term ‘potential current beneficiary’ does

3 not include any person who first met the requirements

4 of the preceding sentence during the 60-day period

5 ending on the date of such disposition.

6 ‘‘(3) ELECTION.—An election under this sub7 section shall be made by the trustee. Any such election

8 shall apply to the taxable year of the trust for which

9 made and all subsequent taxable years of such trust

10 unless revoked with the consent of the Secretary.

11 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’.

12 (d) TAXATION OF ELECTING SMALL BUSINESS

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

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

15 subsection:

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

17 SMALL BUSINESS TRUSTS.—

18 ‘‘(1) IN GENERAL.—For purposes of this chap19 ter—

20 ‘‘(A) the portion of any electing small busi21 ness trust which consists of stock in 1 or more

22 S corporations shall be treated as a separate

23 trust, and
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1 ‘‘(B) the amount of the tax imposed by this

2 chapter on such separate trust shall be deter3 mined with the modifications of paragraph (2).

4 ‘‘(2) MODIFICATIONS.—For purposes of para5 graph (1), the modifications of this paragraph are the

6 following:

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

8 amount of the tax imposed by section 1(e) shall

9 be determined by using the highest rate of tax set

10 forth in section 1(e).

11 ‘‘(B) The exemption amount under section

12 55(d) shall be zero.

13 ‘‘(C) The only items of income, loss, deduc14 tion, or credit to be taken into account are the

15 following:

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

17 into account under section 1366.

18 ‘‘(ii) Any gain or loss from the disposi19 tion of stock in an S corporation.

20 ‘‘(iii) To the extent provided in regula21 tions, State or local income taxes or admin22 istrative expenses to the extent allocable to

23 items described in clauses (i) and (ii).

24 No deduction or credit shall be allowed for any

25 amount not described in this paragraph, and no
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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 AND

6 DISTRIBUTIONS.—For purposes of determining—

7 ‘‘(A) the amount of the tax imposed by this

8 chapter on the portion of any electing small

9 business trust not treated as a separate trust

10 under paragraph (1), and

11 ‘‘(B) the distributable net income of the en12 tire trust,

13 the items referred to in paragraph (2)(C) shall be ex14 cluded. Except as provided in the preceding sentence,

15 this subsection shall not affect the taxation of any dis16 tribution from the trust.

17 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

18 WHERE TERMINATION OF SEPARATE TRUST.—If a

19 portion of an electing small business trust ceases to

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

21 any carryover or excess deduction of the separate

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

23 taken into account by the entire trust.

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

25 purposes of this subsection, the term ‘electing small
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1 business trust’ has the meaning given such term by

2 section 1361(e)(1).’’.

3 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec4 tion 1366(a) is amended by inserting ‘‘, or of a trust or

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

6 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

7 FOR CERTAIN TRUSTS.

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

9 certain trusts permitted as shareholders) is amended—

10 (1) by striking ‘‘60-day period’’ each place it ap11 pears in clauses (ii) and (iii) and inserting ‘‘2-year

12 period’’, and

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

14 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

15 SAFE HARBOR DEBT.

16 Clause (iii) of section 1361(c)(5)(B) (defining straight

17 debt) is amended by striking ‘‘or a trust described in para18 graph (2)’’ and inserting ‘‘a trust described in paragraph

19 (2), or a person which is actively and regularly engaged

20 in the business of lending money’’.

21 SEC. 1305. RULES RELATING TO INADVERTENT TERMI22 NATIONS AND INVALID ELECTIONS.

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

24 (relating to inadvertent terminations) is amended to read

25 as follows:
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1 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI2 NATIONS.—If—

3 ‘‘(1) an election under subsection (a) by any cor4 poration—

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

6 for which made (determined without regard to

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

8 the requirements of section 1361(b) or to obtain

9 shareholder consents, or

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

11 or (3) of subsection (d),

12 ‘‘(2) the Secretary determines that the cir13 cumstances resulting in such ineffectiveness or termi14 nation were inadvertent,

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

16 after discovery of the circumstances resulting in such

17 ineffectiveness or termination, steps were taken—

18 ‘‘(A) so that the corporation is a small busi19 ness corporation, or

20 ‘‘(B) to acquire the required shareholder

21 consents, and

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

23 a shareholder in the corporation at any time during

24 the period specified pursuant to this subsection, agrees

25 to make such adjustments (consistent with the treat-
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1 ment of the corporation as an S corporation) as may

2 be required by the Secretary with respect to such pe3 riod,

4 then, notwithstanding the circumstances resulting in such

5 ineffectiveness or termination, such corporation shall be

6 treated as an S corporation during the period specified by

7 the Secretary.’’.

8 (b) LATE ELECTIONS, ETC.—Subsection (b) of section

9 1362 is amended by adding at the end the following new

10 paragraph:

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

12 ETC., AS TIMELY.—If—

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

14 made for any taxable year (determined without

15 regard to paragraph (3)) after the date pre16 scribed by this subsection for making such elec17 tion for such taxable year or no such election is

18 made for any taxable year, and

19 ‘‘(B) the Secretary determines that there

20 was reasonable cause for the failure to timely

21 make such election,

22 the Secretary may treat such an election as timely

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

24 not apply).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by sub2 section (a) and (b) shall apply with respect to elections for

3 taxable years beginning after December 31, 1982.

4 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

5 Paragraph (2) of section 1377(a) (relating to pro rata

6 share) is amended to read as follows:

7 ‘‘(2) ELECTION TO TERMINATE YEAR.—

8 ‘‘(A) IN GENERAL.—Under regulations pre9 scribed by the Secretary, if any shareholder ter10 minates the shareholder’s interest in the corpora11 tion during the taxable year and all affected

12 shareholders and the corporation agree to the ap13 plication of this paragraph, paragraph (1) shall

14 be applied to the affected shareholders as if the

15 taxable year consisted of 2 taxable years the first

16 of which ends on the date of the termination.

17 ‘‘(B) AFFECTED SHAREHOLDERS.—For

18 purposes of subparagraph (A), the term ‘affected

19 shareholders’ means the shareholder whose inter20 est is terminated and all shareholders to whom

21 such shareholder has transferred shares during

22 the taxable year. If such shareholder has trans23 ferred shares to the corporation, the term ‘af24 fected shareholders’ shall include all persons who

25 are shareholders during the taxable year.’’.
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1 SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION

2 PERIOD.

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

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

5 by striking ‘‘and’’ at the end of subparagraph (A), by redes6 ignating subparagraph (B) as subparagraph (C), and by

7 inserting after subparagraph (A) the following new sub8 paragraph:

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

10 date of any determination pursuant to an audit

11 of the taxpayer which follows the termination of

12 the corporation’s election and which adjusts a

13 subchapter S item of income, loss, or deduction

14 of the corporation arising during the S period

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

16 (b) DETERMINATION DEFINED.—Paragraph (2) of sec17 tion 1377(b) is amended by striking subparagraphs (A) and

18 (B), by redesignating subparagraph (C) as subparagraph

19 (B), and by inserting before subparagraph (B) (as so redes20 ignated) the following new subparagraph:

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

22 1313(a), or’’.

23 (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR SUB24 CHAPTER S ITEMS.—
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1 (1) GENERAL RULE.—Subchapter D of chapter

2 63 (relating to tax treatment of subchapter S items)

3 is hereby repealed.

4 (2) CONSISTENT TREATMENT REQUIRED.—Sec5 tion 6037 (relating to return of S corporation) is

6 amended by adding at the end the following new sub7 section:

8 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSISTENT

9 WITH CORPORATE RETURN OR SECRETARY NOTIFIED OF

10 INCONSISTENCY.—

11 ‘‘(1) IN GENERAL.—A shareholder of an S cor12 poration shall, on such shareholder’s return, treat a

13 subchapter S item in a manner which is consistent

14 with the treatment of such item on the corporate re15 turn.

16 ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT17 MENT.—

18 ‘‘(A) IN GENERAL.—In the case of any sub19 chapter S item, if—

20 ‘‘(i)(I) the corporation has filed a re21 turn but the shareholder’s treatment on his

22 return is (or may be) inconsistent with the

23 treatment of the item on the corporate re24 turn, or
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1 ‘‘(II) the corporation has not filed a re2 turn, and

3 ‘‘(ii) the shareholder files with the Sec4 retary a statement identifying the inconsist5 ency,

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

7 ‘‘(B) SHAREHOLDER RECEIVING INCORRECT

8 INFORMATION.—A shareholder shall be treated as

9 having complied with clause (ii) of subpara10 graph (A) with respect to a subchapter S item if

11 the shareholder—

12 ‘‘(i) demonstrates to the satisfaction of

13 the Secretary that the treatment of the sub14 chapter S item on the shareholder’s return

15 is consistent with the treatment of the item

16 on the schedule furnished to the shareholder

17 by the corporation, and

18 ‘‘(ii) elects to have this paragraph

19 apply with respect to that item.

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

21 case—

22 ‘‘(A) described in subparagraph (A)(i)(I) of

23 paragraph (2), and

24 ‘‘(B) in which the shareholder does not com25 ply with subparagraph (A)(ii) of paragraph (2),
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1 any adjustment required to make the treatment of the

2 items by such shareholder consistent with the treat3 ment of the items on the corporate return shall be

4 treated as arising out of mathematical or clerical er5 rors and assessed according to section 6213(b)(1).

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

7 any assessment referred to in the preceding sentence.

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

9 subsection, the term ‘subchapter S item’ means any

10 item of an S corporation to the extent that regula11 tions prescribed by the Secretary provide that, for

12 purposes of this subtitle, such item is more appro13 priately determined at the corporation level than at

14 the shareholder level.

15 ‘‘(5) ADDITION TO TAX FOR FAILURE TO COMPLY

16 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.’’.

17 (3) CONFORMING AMENDMENTS.—

18 (A) Section 1366 is amended by striking

19 subsection (g).

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

21 amended to read as follows:

22 ‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part23 nership return is filed for any taxable year but it is deter-
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1 mined that there is no entity for such taxable year, to the

2 extent provided in regulations, rules similar to the rules

3 of subsection (a) shall apply.’’.

4 (C) The table of subchapters for chapter 63

5 is amended by striking the item relating to sub6 chapter D.

7 SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDI8 ARIES.

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

10 (defining ineligible corporation) is amended by striking

11 subparagraph (A) and by redesignating subparagraphs (B),

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

13 respectively.

14 (b) TREATMENT OF CERTAIN WHOLLY OWNED S COR15 PORATION SUBSIDIARIES.—Section 1361(b) (defining small

16 business corporation) is amended by adding at the end the

17 following new paragraph:

18 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

19 SUBSIDIARIES.—

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

21 title—

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

23 subchapter S subsidiary shall not be treated

24 as a separate corporation, and
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1 ‘‘(ii) all assets, liabilities, and items of

2 income, deduction, and credit of a qualified

3 subchapter S subsidiary shall be treated as

4 assets, liabilities, and such items (as the

5 case may be) of the S corporation.

6 ‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI7 ARY.—For purposes of this paragraph, the term

8 ‘qualified subchapter S subsidiary’ means any

9 domestic corporation which is not an ineligible

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

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

12 corporation is held by the S corporation,

13 and

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

15 such corporation as a qualified subchapter

16 S subsidiary.

17 ‘‘(C) TREATMENT OF TERMINATIONS OF

18 QUALIFIED SUBCHAPTER S SUBSIDIARY STA19 TUS.—For purposes of this title, if any corpora20 tion which was a qualified subchapter S subsidi21 ary ceases to meet the requirements of subpara22 graph (B), such corporation shall be treated as

23 a new corporation acquiring all of its assets

24 (and assuming all of its liabilities) immediately
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1 before such cessation from the S corporation in

2 exchange for its stock.

3 ‘‘(D) ELECTION AFTER TERMINATION.—If a

4 corporation’s status as a qualified subchapter S

5 subsidiary terminates, such corporation (and

6 any successor corporation) shall not be eligible to

7 make—

8 ‘‘(i) an election under subparagraph

9 (B)(ii) to be treated as a qualified sub10 chapter S subsidiary, or

11 ‘‘(ii) an election under section 1362(a)

12 to be treated as an S corporation,

13 before its 5th taxable year which begins after the

14 1st taxable year for which such termination was

15 effective, unless the Secretary consents to such

16 election.’’.

17 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

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

19 amended by adding at the end the following new subpara20 graph:

21 ‘‘(F) TREATMENT OF CERTAIN DIVI22 DENDS.—If an S corporation holds stock in a C

23 corporation meeting the requirements of section

24 1504(a)(2), the term ‘passive investment income’

25 shall not include dividends from such C corpora-
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1 tion to the extent such dividends are attributable

2 to the earnings and profits of such C corporation

3 derived from the active conduct of a trade or

4 business.’’.

5 (d) CONFORMING AMENDMENTS.—

6 (1) Subsection (c) of section 1361 is amended by

7 striking paragraph (6).

8 (2) Subsection (b) of section 1504 (defining in9 cludible corporation) is amended by adding at the

10 end the following new paragraph:

11 ‘‘(8) An S corporation.’’.

12 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

13 YEARS.

14 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

15 ACCOUNT BEFORE LOSSES.—

16 (1) Subparagraph (A) of section 1366(d)(1) (re17 lating to losses and deductions cannot exceed share18 holder’s basis in stock and debt) is amended by strik19 ing ‘‘paragraph (1)’’ and inserting ‘‘paragraphs (1)

20 and (2)(A)’’.

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

22 certain adjustments taken into account) is amended

23 by adding at the end the following new sentence:

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

25 year, the adjusted basis of the stock shall be determined with
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1 regard to the adjustments provided in paragraph (1) of sec2 tion 1367(a) for the taxable year.’’.

3 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para4 graph (1) of section 1368(e) (relating to accumulated ad5 justments account) is amended by adding at the end the

6 following new subparagraph:

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

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

9 to distributions made during any taxable year,

10 the amount in the accumulated adjustments ac11 count as of the close of such taxable year shall

12 be determined without regard to any net negative

13 adjustment for such taxable year.

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

15 purposes of clause (i), the term ‘net negative ad16 justment’ means, with respect to any taxable

17 year, the excess (if any) of—

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

19 the taxable year (other than for distribu20 tions), over

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

22 such taxable year.’’.

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

24 of section 1368(e)(1) is amended—
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1 (1) by striking ‘‘as provided in subparagraph

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

3 paragraph’’, and

4 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in5 serting ‘‘section 1367(a)(2)’’.

6 SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB7 CHAPTER C.

8 Subsection (a) of section 1371 (relating to application

9 of subchapter C rules) is amended to read as follows:

10 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex11 cept as otherwise provided in this title, and except to the

12 extent inconsistent with this subchapter, subchapter C shall

13 apply to an S corporation and its shareholders.’’.

14 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROF15 ITS.

16 (a) IN GENERAL.—If—

17 (1) a corporation was an electing small business

18 corporation under subchapter S of chapter 1 of the

19 Internal Revenue Code of 1986 for any taxable year

20 beginning before January 1, 1983, and

21 (2) such corporation is an S corporation under

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

23 taxable year beginning after December 31, 1996,

24 the amount of such corporation’s accumulated earnings and

25 profits (as of the beginning of such first taxable year) shall
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1 be reduced by an amount equal to the portion (if any) of

2 such accumulated earnings and profits which were accumu3 lated in any taxable year beginning before January 1, 1983,

4 for which such corporation was an electing small business

5 corporation under such subchapter S.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Paragraph (3) of section 1362(d), as amend8 ed by section 1308, is amended—

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

10 paragraph heading and inserting ‘‘ACCUMU11 LATED’’,

12 (B) by striking ‘‘subchapter C’’ in subpara13 graph (A)(i)(I) and inserting ‘‘accumulated’’,

14 and

15 (C) by striking subparagraph (B) and re16 designating the following subparagraphs accord17 ingly.

18 (2)(A) Subsection (a) of section 1375 is amended

19 by striking ‘‘subchapter C’’ in paragraph (1) and in20 serting ‘‘accumulated’’.

21 (B) Paragraph (3) of section 1375(b) is amended

22 to read as follows:

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

24 terms ‘passive investment income’ and ‘gross receipts’
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1 have the same respective meanings as when used in

2 paragraph (3) of section 1362(d).’’.

3 (C) The section heading for section 1375 is

4 amended by striking ‘‘SUBCHAPTER C’’ and insert5 ing ‘‘ACCUMULATED’’.

6 (D) The table of sections for part III of sub7 chapter S of chapter 1 is amended by striking ‘‘sub8 chapter C’’ in the item relating to section 1375 and

9 inserting ‘‘accumulated’’.

10 (3) Clause (i) of section 1042(c)(4)(A) is amend11 ed by striking ‘‘section 1362(d)(3)(D)’’ and inserting

12 ‘‘section 1362(d)(3)(C)’’.

13 SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE14 DUCTIONS UNDER AT-RISK RULES ALLOWED.

15 Paragraph (3) of section 1366(d) (relating to carryover

16 of disallowed losses and deductions to post-termination

17 transition period) is amended by adding at the end the fol18 lowing new subparagraph:

19 ‘‘(D) AT-RISK LIMITATIONS.—To the extent

20 that any increase in adjusted basis described in

21 subparagraph (B) would have increased the

22 shareholder’s amount at risk under section 465 if

23 such increase had occurred on the day preceding

24 the commencement of the post-termination tran25 sition period, rules similar to the rules described
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1 in subparagraphs (A) through (C) shall apply to

2 any losses disallowed by reason of section

3 465(a).’’.

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

5 TO REFLECT CERTAIN ITEMS OF INCOME.

6 (a) IN GENERAL.—Subsection (b) of section 1367 (re7 lating to adjustments to basis of stock of shareholders, etc.)

8 is amended by adding at the end the following new para9 graph:

10 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

11 STOCK.—

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

13 stock in an S corporation by reason of the death

14 of a decedent or by bequest, devise, or inherit15 ance, section 691 shall be applied with respect to

16 any item of income of the S corporation in the

17 same manner as if the decedent had held directly

18 his pro rata share of such item.

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

20 determined under section 1014 of any stock in

21 an S corporation shall be reduced by the portion

22 of the value of the stock which is attributable to

23 items constituting income in respect of the dece24 dent.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply in the case of decedents dying after

3 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 (re8 lating to real property subdivided for sale) is amended by

9 striking ‘‘other than a corporation’’ in the material preced10 ing paragraph (1) and inserting ‘‘other than a C corpora11 tion’’.

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

13 section 1237(a)(2) is amended by inserting ‘‘an S corpora14 tion which included the taxpayer as a shareholder,’’ after

15 ‘‘controlled by the taxpayer,’’.

16 SEC. 1315. FINANCIAL INSTITUTIONS.

17 Subparagraph (A) of section 1361(b)(2) (defining in18 eligible corporation), as redesignated by section 1308(a), is

19 amended to read as follows:

20 ‘‘(A) a financial institution which uses the

21 reserve method of accounting for bad debts de22 scribed in section 585 or 593,’’.

23 SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO

24 BE SHAREHOLDERS.

25 (a) ELIGIBILITY TO BE SHAREHOLDERS.—
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1 (1) IN GENERAL.—Subparagraph (B) of section

2 1361(b)(1) (defining small business corporation) is

3 amended to read as follows:

4 ‘‘(B) have as a shareholder a person (other

5 than an estate, a trust described in subsection

6 (c)(2), or an organization described in subsection

7 (c)(7)) who is not an individual,’’.

8 (2) ELIGIBLE EXEMPT ORGANIZATIONS.—Section

9 1361(c) (relating to special rules for applying sub10 section (b)) is amended by adding at the end the fol11 lowing new paragraph:

12 ‘‘(7) CERTAIN EXEMPT ORGANIZATIONS PER13 MITTED AS SHAREHOLDERS.—For purposes of sub14 section (b)(1)(B), an organization which is—

15 ‘‘(A) described in section 401(a) or

16 501(c)(3), and

17 ‘‘(B) exempt from taxation under section

18 501(a),

19 may be a shareholder in an S corporation.’’.

20 (b) CONTRIBUTIONS OF S CORPORATION STOCK.—Sec21 tion 170(e)(1) (relating to certain contributions of ordinary

22 income and capital gain property) is amended by adding

23 at the end the following new sentence: ‘‘For purposes of ap24 plying this paragraph in the case of a charitable contribu25 tion of stock in an S corporation, rules similar to the rules
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1 of section 751 shall apply in determining whether gain on

2 such stock would have been long-term capital gain if such

3 stock were sold by the taxpayer.’’

4 (c) TREATMENT OF INCOME.—Section 512 (relating to

5 unrelated business taxable income), as amended by section

6 1113, is amended by adding at the end the following new

7 subsection:

8 ‘‘(e) SPECIAL RULES APPLICABLE TO S CORPORA9 TIONS.—If an organization described in section 1361(c)(7)

10 holds stock in an S corporation—

11 ‘‘(1) such interest shall be treated as an interest

12 in an unrelated trade or business; and

13 ‘‘(2) notwithstanding any other provision of this

14 part, all items of income, loss, deduction, or credit

15 taken into account under section 1366(a) and any

16 gain or loss on the disposition of the stock in the S

17 corporation shall be taken into account in computing

18 the unrelated business taxable income of such organi19 zation.’’.

20 (d) CERTAIN BENEFITS NOT APPLICABLE TO S COR21 PORATIONS.—

22 (1) CONTRIBUTION TO ESOPS.—Paragraph (9) of

23 section 404(a) (relating to certain contributions to

24 employee ownership plans) is amended by inserting

25 at the end the following new subparagraph:
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1 ‘‘(C) S CORPORATIONS.—This paragraph

2 shall not apply to an S corporation.’’.

3 (2) DIVIDENDS ON EMPLOYER SECURITIES.—

4 Paragraph (1) of section 404(k) (relating to deduction

5 for dividends on certain employer securities) is

6 amended by striking ‘‘a corporation’’ and inserting

7 ‘‘a C corporation’’.

8 (3) EXCHANGE TREATMENT.—Subparagraph (A)

9 of section 1042(c)(1) (defining qualified securities) is

10 amended by striking ‘‘domestic corporation’’ and in11 serting ‘‘domestic C corporation’’.

12 (e) CONFORMING AMENDMENT.—Clause (i) of section

13 1361(e)(1)(A), as added by section 1302, is amended by

14 striking ‘‘which holds a contingent interest and is not a

15 potential current beneficiary’’.

16 (f) EFFECTIVE DATE.—The amendments made by this

17 section shall apply to taxable years beginning after Decem18 ber 31, 1997.

19 SEC. 1317. EFFECTIVE DATE.

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

21 this subtitle, the amendments made by this subtitle shall

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

23 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

24 PRIOR LAW.—For purposes of section 1362(g) of the Inter25 nal Revenue Code of 1986 (relating to election after termi-
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1 nation), any termination under section 1362(d) of such

2 Code in a taxable year beginning before January 1, 1997,

3 shall not be taken into account.

4 Subtitle D—Pension Simplification

5 CHAPTER 1—SIMPLIFIED DISTRIBUTION

6 RULES

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

8 LUMP-SUM DISTRIBUTIONS.

9 (a) IN GENERAL.—Subsection (d) of section 402 (relat10 ing to taxability of beneficiary of employees’ trust) is

11 amended to read as follows:

12 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOR13 EIGN SITUS TRUSTS.—For purposes of subsections (a), (b),

14 and (c), a stock bonus, pension, or profit-sharing trust

15 which would qualify for exemption from tax under section

16 501(a) except for the fact that it is a trust created or orga17 nized outside the United States shall be treated as if it were

18 a trust exempt from tax under section 501(a).’’.

19 (b) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (D) of section 402(e)(4) (relat21 ing to other rules applicable to exempt trusts) is

22 amended to read as follows:

23 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur24 poses of this paragraph—
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1 ‘‘(i) IN GENERAL.—The term ‘lump

2 sum distribution’ means the distribution or

3 payment within one taxable year of the re4 cipient of the balance to the credit of an em5 ployee which becomes payable to the recipi6 ent—

7 ‘‘(I) on account of the employee’s

8 death,

9 ‘‘(II) after the employee attains

age 591 10 ⁄2,

11 ‘‘(III) on account of the employ12 ee’s separation from service, or

13 ‘‘(IV) after the employee has be14 come disabled (within the meaning of

15 section 72(m)(7)),

16 from a trust which forms a part of a plan

17 described in section 401(a) and which is ex18 empt from tax under section 501 or from a

19 plan described in section 403(a). Subclause

20 (III) of this clause shall be applied only

21 with respect to an individual who is an em22 ployee without regard to section 401(c)(1),

23 and subclause (IV) shall be applied only

24 with respect to an employee within the

25 meaning of section 401(c)(1). For purposes
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1 of this clause, a distribution to two or more

2 trusts shall be treated as a distribution to

3 one recipient. For purposes of this para4 graph, the balance to the credit of the em5 ployee does not include the accumulated de6 ductible employee contributions under the

7 plan (within the meaning of section

8 72(o)(5)).

9 ‘‘(ii) AGGREGATION OF CERTAIN

10 TRUSTS AND PLANS.—For purposes of deter11 mining the balance to the credit of an em12 ployee under clause (i)—

13 ‘‘(I) all trusts which are part of a

14 plan shall be treated as a single trust,

15 all pension plans maintained by the

16 employer shall be treated as a single

17 plan, all profit-sharing plans main18 tained by the employer shall be treated

19 as a single plan, and all stock bonus

20 plans maintained by the employer

21 shall be treated as a single plan, and

22 ‘‘(II) trusts which are not quali23 fied trusts under section 401(a) and

24 annuity contracts which do not satisfy
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1 the requirements of section 404(a)(2)

2 shall not be taken into account.

3 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

4 The provisions of this paragraph shall be

5 applied without regard to community prop6 erty laws.

7 ‘‘(iv) AMOUNTS SUBJECT TO PEN8 ALTY.—This paragraph shall not apply to

9 amounts described in subparagraph (A) of

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

11 72(m)(5) applies to such amounts.

12 ‘‘(v) BALANCE TO CREDIT OF EM13 PLOYEE NOT TO INCLUDE AMOUNTS PAY14 ABLE UNDER QUALIFIED DOMESTIC RELA15 TIONS ORDER.—For purposes of this para16 graph, the balance to the credit of an em17 ployee shall not include any amount pay18 able to an alternate payee under a qualified

19 domestic relations order (within the mean20 ing of section 414(p)).

21 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

22 ARRANGEMENT NOT TREATED AS DISTRIBU23 TION.—For purposes of this paragraph, the

24 balance to the credit of an employee under

25 a defined contribution plan shall not in-
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1 clude any amount transferred from such de2 fined contribution plan to a qualified cost3 of-living arrangement (within the meaning

4 of section 415(k)(2)) under a defined benefit

5 plan.

6 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

7 ALTERNATE PAYEES.—If any distribution

8 or payment of the balance to the credit of

9 an employee would be treated as a lump10 sum distribution, then, for purposes of this

11 paragraph, the payment under a qualified

12 domestic relations order (within the mean13 ing of section 414(p)) of the balance to the

14 credit of an alternate payee who is the

15 spouse or former spouse of the employee

16 shall be treated as a lump-sum distribution.

17 For purposes of this clause, the balance to

18 the credit of the alternate payee shall not

19 include any amount payable to the em20 ployee.’’.

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

22 rollovers from exempt trusts) is amended by striking

23 paragraph (10).
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1 (3) Paragraph (1) of section 55(c) (defining reg2 ular tax) is amended by striking ‘‘shall not include

3 any tax imposed by section 402(d) and’’.

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

5 certain portion of lump-sum distributions from pen6 sion plans taxed under section 402(d)) is hereby re7 pealed.

8 (5) Section 401(a)(28)(B) (relating to coordina9 tion with distribution rules) is amended by striking

10 clause (v).

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

12 (relating to distributions that must be lump-sum dis13 tributions) is amended to read as follows:

14 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

15 purposes of this subparagraph, the term

16 ‘lump-sum distribution’ has the meaning

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

18 (without regard to subclauses (I), (II), (III),

19 and (IV) of clause (i) thereof).’’.

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

21 status as deemed employee not to be treated as sepa22 ration from service for purposes of limitation of tax)

23 is hereby repealed.

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

25 status as deemed employee not to be treated as sepa-
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1 ration from service for purposes of limitation of tax)

2 is hereby repealed.

3 (9) Section 691(c) (relating to deduction for es4 tate tax) is amended by striking paragraph (5).

5 (10) Paragraph (1) of section 871(b) (relating to

6 imposition of tax) is amended by striking ‘‘section 1,

7 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

8 (11) Subsection (b) of section 877 (relating to al9 ternative tax) is amended by striking ‘‘section 1, 55,

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

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

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

13 section 402(d)(4)(B) applies’’ and inserting ‘‘(as

14 defined in section 402(e)(4)(D)) with respect to

15 which the individual elects to have this para16 graph apply’’,

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

18 flush sentence:

19 ‘‘An individual may elect to have this paragraph

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

21 (C) by striking the heading and inserting:

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

23 (13) Section 402(e) is amended by striking para24 graph (5).

25 (c) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxable years beginning

3 after December 31, 1999.

4 (2) RETENTION OF CERTAIN TRANSITION

5 RULES.—The amendments made by this section shall

6 not apply to any distribution for which the taxpayer

7 is eligible to elect the benefits of section 1122 (h)(3)

8 or (h)(5) of the Tax Reform Act of 1986. Notwith9 standing the preceding sentence, individuals who elect

10 such benefits after December 31, 1999, shall not be eli11 gible for 5-year averaging under section 402(d) of the

12 Internal Revenue Code of 1986 (as in effect imme13 diately before such amendments).

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 amended

23 by striking paragraph (2) and by redesignating para24 graph (3) as paragraph (2).
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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 benefits’’.

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

5 section shall apply with respect to decedents dying after the

6 date of the enactment of this Act.

7 SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS8 TRIBUTIONS UNDER CERTAIN EMPLOYER

9 PLANS.

10 (a) GENERAL RULE.—Subsection (d) of section 72 (re11 lating to annuities; certain proceeds of endowment and life

12 insurance contracts) is amended to read as follows:

13 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RE14 TIREMENT PLANS.—

15 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

16 PAYMENTS.—

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

18 amount received as an annuity under a qualified

19 employer retirement plan—

20 ‘‘(i) subsection (b) shall not apply, and

21 ‘‘(ii) the investment in the contract

22 shall be recovered as provided in this para23 graph.

24 ‘‘(B) METHOD OF RECOVERING INVESTMENT

25 IN CONTRACT.—
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1 ‘‘(i) IN GENERAL.—Gross income shall

2 not include so much of any monthly annu3 ity payment under a qualified employer re4 tirement plan as does not exceed the amount

5 obtained by dividing—

6 ‘‘(I) the investment in the con7 tract (as of the annuity starting date),

8 by

9 ‘‘(II) the number of anticipated

10 payments determined under the table

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

12 case of a contract to which subsection

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

14 monthly annuity payments under such

15 contract).

16 ‘‘(ii) CERTAIN RULES MADE APPLICA17 BLE.—Rules similar to the rules of para18 graphs (2) and (3) of subsection (b) shall

19 apply for purposes of this paragraph.

20 ‘‘(iii) NUMBER OF ANTICIPATED PAY21 MENTS.—

‘‘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
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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 deter4 mined under subsection (c)(1) without regard to

5 subsection (c)(2).

6 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

7 PAID IN CONNECTION WITH COMMENCEMENT OF

8 ANNUITY PAYMENTS.—If, in connection with the

9 commencement of annuity payments under any

10 qualified employer retirement plan, the taxpayer

11 receives a lump sum payment—

12 ‘‘(i) such payment shall be taxable

13 under subsection (e) as if received before the

14 annuity starting date, and

15 ‘‘(ii) the investment in the contract for

16 purposes of this paragraph shall be deter17 mined as if such payment had been so re18 ceived.

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

20 not apply in any case where the primary annu21 itant has attained age 75 on the annuity start22 ing date unless there are fewer than 5 years of

23 guaranteed payments under the annuity.
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1 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY2 MENTS NOT ON MONTHLY BASIS.—In any case

3 where the annuity payments are not made on a

4 monthly basis, appropriate adjustments in the

5 application of this paragraph shall be made to

6 take into account the period on the basis of

7 which such payments are made.

8 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

9 PLAN.—For purposes of this paragraph, the term

10 ‘qualified employer retirement plan’ means any

11 plan or contract described in paragraph (1), (2),

12 or (3) of section 4974(c).

13 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS

14 UNDER DEFINED CONTRIBUTION PLANS.—For pur15 poses of this section, employee contributions (and any

16 income allocable thereto) under a defined contribution

17 plan may be treated as a separate contract.’’.

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

19 section shall apply in cases where the annuity starting date

20 is after the 90th day after the date of the enactment of this

21 Act.

22 SEC. 1404. REQUIRED DISTRIBUTIONS.

23 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re24 quired beginning date) is amended to read as follows:
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1 ‘‘(C) REQUIRED BEGINNING DATE.—For

2 purposes of this paragraph—

3 ‘‘(i) IN GENERAL.—The term ‘required

4 beginning date’ means April 1 of the cal5 endar year following the later of—

6 ‘‘(I) the calendar year in which

the employee attains age 701 7 ⁄2, or

8 ‘‘(II) the calendar year in which

9 the employee retires.

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

11 clause (i) shall not apply—

12 ‘‘(I) except as provided in section

13 409(d), in the case of an employee who

14 is a 5-percent owner (as defined in sec15 tion 416) with respect to the plan year

16 ending in the calendar year in which

the employee attains age 701 17 ⁄2, or

18 ‘‘(II) for purposes of section 408

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

20 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

21 the case of an employee to whom clause

22 (i)(II) applies who retires in a calendar

23 year after the calendar year in which the

employee attains age 701 24 ⁄2, the employee’s

25 accrued benefit shall be actuarially in-
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1 creased to take into account the period after

age 701 2 ⁄2 in which the employee was not re3 ceiving any benefits under the plan.

4 ‘‘(iv) EXCEPTION FOR GOVERNMENTAL

5 AND CHURCH PLANS.—Clauses (ii) and (iii)

6 shall not apply in the case of a govern7 mental plan or church plan. For purposes

8 of this clause, the term ‘church plan’ means

9 a plan maintained by a church for church

10 employees, and the term ‘church’ means any

11 church (as defined in section

12 3121(w)(3)(A)) or qualified church-con13 trolled organization (as defined in section

14 3121(w)(3)(B)).’’.

15 (b) EFFECTIVE DATE.—The amendment made by sub16 section (a) shall apply to years beginning after December

17 31, 1996.

18 CHAPTER 2—INCREASED ACCESS TO

19 RETIREMENT PLANS

20 Subchapter A—Simple Savings Plans

21 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH

22 PLANS FOR EMPLOYEES OF SMALL EMPLOY23 ERS.

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

25 retirement accounts) is amended by redesignating sub-
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1 section (p) as subsection (q) and by inserting after sub2 section (o) the following new subsection:

3 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

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

5 term ‘simple retirement account’ means an individual

6 retirement plan (as defined in section 7701(a)(37))—

7 ‘‘(A) with respect to which the requirements

8 of paragraphs (3), (4), and (5) are met; and

9 ‘‘(B) with respect to which the only con10 tributions allowed are contributions under a

11 qualified salary reduction arrangement.

12 ‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE13 MENT.—

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

15 subsection, the term ‘qualified salary reduction

16 arrangement’ means a written arrangement of

17 an eligible employer under which—

18 ‘‘(i) an employee eligible to participate

19 in the arrangement may elect to have the

20 employer make payments—

21 ‘‘(I) as elective employer contribu22 tions to a simple retirement account on

23 behalf of the employee, or

24 ‘‘(II) to the employee directly in

25 cash,
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1 ‘‘(ii) the amount which an employee

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

3 required to be expressed as a percentage of

4 compensation and may not exceed a total of

5 $6,000 for any year,

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

7 a matching contribution to the simple re8 tirement account for any year in an

9 amount equal to so much of the amount the

10 employee elects under clause (i)(I) as does

11 not exceed the applicable percentage of com12 pensation for the year, and

13 ‘‘(iv) no contributions may be made

14 other than contributions described in clause

15 (i) or (iii).

16 ‘‘(B) EMPLOYER MAY ELECT 2-PERCENT

17 NONELECTIVE CONTRIBUTION.—

18 ‘‘(i) IN GENERAL.—An employer shall

19 be treated as meeting the requirements of

20 subparagraph (A)(iii) for any year if, in

21 lieu of the contributions described in such

22 clause, the employer elects to make nonelec23 tive contributions of 2 percent of compensa24 tion for each employee who is eligible to

25 participate in the arrangement and who
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1 has at least $5,000 of compensation from

2 the employer for the year. If an employer

3 makes an election under this subparagraph

4 for any year, the employer shall notify em5 ployees of such election within a reasonable

6 period of time before the 60-day period for

7 such year under paragraph (5)(C).

8 ‘‘(ii) COMPENSATION LIMITATION.—

9 The compensation taken into account under

10 clause (i) for any year shall not exceed the

11 limitation in effect for such year under sec12 tion 401(a)(17).

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

14 subsection—

15 ‘‘(i) ELIGIBLE EMPLOYER.—

16 ‘‘(I) IN GENERAL.—The term ‘eli17 gible employer’ means, with respect to

18 any year, an employer which had no

19 more than 100 employees who received

20 at least $5,000 of compensation from

21 the employer for the preceding year.

22 ‘‘(II) 2-YEAR GRACE PERIOD.—An

23 eligible employer who establishes and

24 maintains a plan under this subsection

25 for 1 or more years and who fails to be
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1 an eligible employer for any subsequent

2 year shall be treated as an eligible em3 ployer for the 2 years following the last

4 year the employer was an eligible em5 ployer. If such failure is due to any ac6 quisition, disposition, or similar trans7 action involving an eligible employer,

8 the preceding sentence shall apply only

9 in accordance with rules similar to the

10 rules of section 410(b)(6)(C)(i).

11 ‘‘(ii) APPLICABLE PERCENTAGE.—

12 ‘‘(I) IN GENERAL.—The term ‘ap13 plicable percentage’ means 3 percent.

14 ‘‘(II) ELECTION OF LOWER PER15 CENTAGE.—An employer may elect to

16 apply a lower percentage (not less than

17 1 percent) for any year for all employ18 ees eligible to participate in the plan

19 for such year if the employer notifies

20 the employees of such lower percentage

21 within a reasonable period of time be22 fore the 60-day election period for such

23 year under paragraph (5)(C). An em24 ployer may not elect a lower percent25 age under this subclause for any year
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1 if that election would result in the ap2 plicable percentage being lower than 3

3 percent in more than 2 of the years in

4 the 5-year period ending with such

5 year.

6 ‘‘(III) SPECIAL RULE FOR YEARS

7 ARRANGEMENT NOT IN EFFECT.—If

8 any year in the 5-year period de9 scribed in subclause (II) is a year

10 prior to the first year for which any

11 qualified salary reduction arrangement

12 is in effect with respect to the employer

13 (or any predecessor), the employer

14 shall be treated as if the level of the

15 employer matching contribution was at

16 3 percent of compensation for such

17 prior year.

18 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN OF

19 EMPLOYER.—

20 ‘‘(i) IN GENERAL.—An arrangement

21 shall not be treated as a qualified salary re22 duction arrangement for any year if the

23 employer (or any predecessor employer)

24 maintained a qualified plan with respect to

25 which contributions were made, or benefits
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1 were accrued, for service in any year in the

2 period beginning with the year such ar3 rangement became effective and ending with

4 the year for which the determination is

5 being made.

6 ‘‘(ii) QUALIFIED PLAN.—For purposes

7 of this subparagraph, the term ‘qualified

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

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

10 of section 219(g)(5).

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

12 Secretary shall adjust the $6,000 amount under

13 subparagraph (A)(ii) at the same time and in

14 the same manner as under section 415(d), except

15 that the base period taken into account shall be

16 the calendar quarter ending September 30, 1996,

17 and any increase under this subparagraph which

18 is not a multiple of $500 shall be rounded to the

19 next lower multiple of $500.

20 ‘‘(3) VESTING REQUIREMENTS.—The require21 ments of this paragraph are met with respect to a

22 simple retirement account if the employee’s rights to

23 any contribution to the simple retirement account are

24 nonforfeitable. For purposes of this paragraph, rules

25 similar to the rules of subsection (k)(4) shall apply.
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1 ‘‘(4) PARTICIPATION REQUIREMENTS.—

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

3 this paragraph are met with respect to any sim4 ple retirement account for a year only if, under

5 the qualified salary reduction arrangement, all

6 employees of the employer who—

7 ‘‘(i) received at least $5,000 in com8 pensation from the employer during any 2

9 preceding years, and

10 ‘‘(ii) are reasonably expected to receive

11 at least $5,000 in compensation during the

12 year,

13 are eligible to make the election under paragraph

14 (2)(A)(i) or receive the nonelective contribution

15 described in paragraph (2)(B).

16 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em17 ployer may elect to exclude from the requirement

18 under subparagraph (A) employees described in

19 section 410(b)(3).

20 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The re21 quirements of this paragraph are met with respect to

22 any simplified retirement account if, under the quali23 fied salary reduction arrangement—

24 ‘‘(A) an employer must—
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1 ‘‘(i) make the elective employer con2 tributions under paragraph (2)(A)(i) not

3 later than the close of the 30-day period fol4 lowing the last day of the month with re5 spect to which the contributions are to be

6 made, and

7 ‘‘(ii) make the matching contributions

8 under paragraph (2)(A)(iii) or the nonelec9 tive contributions under paragraph (2)(B)

10 not later than the date described in section

11 404(m)(2)(B),

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

13 participation in such arrangement at any time

14 during the year, except that if an employee so

15 terminates, the arrangement may provide that

16 the employee may not elect to resume participa17 tion until the beginning of the next year, and

18 ‘‘(C) each employee eligible to participate

19 may elect, during the 60-day period before the

20 beginning of any year (and the 60-day period

21 before the first day such employee is eligible to

22 participate), to participate in the arrangement,

23 or to modify the amounts subject to such ar24 rangement, for such year.
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1 ‘‘(6) DEFINITIONS.—For purposes of this sub2 section—

3 ‘‘(A) COMPENSATION.—

4 ‘‘(i) IN GENERAL.—The term ‘com5 pensation’ means amounts described in

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

7 ‘‘(ii) SELF-EMPLOYED.—In the case of

8 an employee described in subparagraph (B),

9 the term ‘compensation’ means net earnings

10 from self-employment determined under sec11 tion 1402(a) without regard to any con12 tribution under this subsection.

13 ‘‘(B) EMPLOYEE.—The term ‘employee’ in14 cludes an employee as defined in section

15 401(c)(1).

16 ‘‘(C) YEAR.—The term ‘year’ means the cal17 endar year.

18 ‘‘(7) USE OF DESIGNATED FINANCIAL INSTITU19 TION.—A plan shall not be treated as failing to sat20 isfy the requirements of this subsection or any other

21 provision of this title merely because the employer

22 makes all contributions to the individual retirement

23 accounts or annuities of a designated trustee or is24 suer. The preceding sentence shall not apply unless

25 each plan participant is notified in writing (either
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1 separately or as part of the notice under subsection

2 (l)(2)(C)) that the participant’s balance may be

3 transferred without cost or penalty to another indi4 vidual account or annuity in accordance with section

5 408(d)(3)(G).’’.

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 respect

15 to any amount contributed to a simple retirement ac16 count 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)), or’’.

23 (2) DEDUCTIBILITY OF EMPLOYER CONTRIBU24 TIONS.—Section 404 (relating to deductions for con25 tributions of an employer to pension, etc. plans) is
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1 amended by adding at the end the following new sub2 section:

3 ‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC4 COUNTS.—

5 ‘‘(1) IN GENERAL.—Employer contributions to a

6 simple retirement account shall be treated as if they

7 are made to a plan subject to the requirements of this

8 section.

9 ‘‘(2) TIMING.—

10 ‘‘(A) DEDUCTION.—Contributions described

11 in paragraph (1) shall be deductible in the tax12 able year of the employer with or within which

13 the calendar year for which the contributions

14 were made ends.

15 ‘‘(B) CONTRIBUTIONS AFTER END OF

16 YEAR.—For purposes of this subsection, contribu17 tions shall be treated as made for a taxable year

18 if they are made on account of the taxable year

19 and are made not later than the time prescribed

20 by law for filing the return for the taxable year

21 (including extensions thereof).’’.

22 (3) CONTRIBUTIONS AND DISTRIBUTIONS.—

23 (A) Section 402 (relating to taxability of

24 beneficiary of employees’ trust) is amended by

25 adding at the end the following new subsection:
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1 ‘‘(k) TREATMENT OF SIMPLE RETIREMENT AC2 COUNTS.—Rules similar to the rules of paragraphs (1) and

3 (3) of subsection (h) shall apply to contributions and dis4 tributions with respect to a simple retirement account

5 under section 408(p).’’.

6 (B) Section 408(d)(3) is amended by add7 ing at the end the following new subparagraph:

8 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

9 This paragraph shall not apply to any amount

10 paid or distributed out of a simple retirement

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

12 ‘‘(i) it is paid into another simple re13 tirement account, or

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

15 distribution to which section 72(t)(6) does

16 not apply, it is paid into an individual re17 tirement plan.’’.

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

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

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

21 (4) PENALTIES.—

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

23 (relating to additional tax in early distribu24 tions) is amended by adding at the end the fol25 lowing new paragraph:
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1 ‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT

2 ACCOUNTS.—In the case of any amount received from

3 a simple retirement account (within the meaning of

4 section 408(p)) during the 2-year period beginning on

5 the date such individual first participated in any

6 qualified salary reduction arrangement maintained

7 by the individual’s employer under section 408(p)(2),

8 paragraph (1) shall be applied by substituting ‘25

9 percent’ for ‘10 percent’.’’.

10 (B) FAILURE TO REPORT.—Section 6693 is

11 amended by redesignating subsection (c) as sub12 section (d) and by inserting after subsection (b)

13 the following new subsection:

14 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

15 ACCOUNTS.—

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

17 fails to provide 1 or more notices required by section

18 408(l)(2)(C) shall pay a penalty of $50 for each day

19 on which such failures continue.

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

21 fails—

22 ‘‘(A) to provide 1 or more statements re23 quired by the last sentence of section 408(i) shall

24 pay a penalty of $50 for each day on which such

25 failures continue, or
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1 ‘‘(B) to provide 1 or more summary de2 scriptions required by section 408(l)(2)(B) shall

3 pay a penalty of $50 for each day on which such

4 failures continue.

5 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen6 alty shall be imposed under this subsection with re7 spect to any failure which the taxpayer shows was

8 due to reasonable cause.’’.

9 (5) REPORTING REQUIREMENTS.—

10 (A) Section 408(l) is amended by adding at

11 the end the following new paragraph:

12 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

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

14 provided in this paragraph, no report shall be

15 required under this section by an employer

16 maintaining a qualified salary reduction ar17 rangement under subsection (p).

18 ‘‘(B) SUMMARY DESCRIPTION.—The trustee

19 of any simple retirement account established

20 pursuant to a qualified salary reduction ar21 rangement under subsection (p) shall provide to

22 the employer maintaining the arrangement, each

23 year a description containing the following in24 formation:
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1 ‘‘(i) The name and address of the em2 ployer and the trustee.

3 ‘‘(ii) The requirements for eligibility

4 for participation.

5 ‘‘(iii) The benefits provided with re6 spect to the arrangement.

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

8 elections with respect to the arrangement.

9 ‘‘(v) The procedures for, and effects of,

10 withdrawals (including rollovers) from the

11 arrangement.

12 ‘‘(C) EMPLOYEE NOTIFICATION.—The em13 ployer shall notify each employee immediately

14 before the period for which an election described

15 in subsection (p)(5)(C) may be made of the em16 ployee’s opportunity to make such election. Such

17 notice shall include a copy of the description de18 scribed in subparagraph (B).’’.

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

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

21 ‘‘(1) IN GENERAL.—An employer’’.

22 (6) REPORTING REQUIREMENTS.—Section 408(i)

23 is amended by adding at the end the following new

24 flush sentence:
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1 ‘‘In the case of a simple retirement account under sub2 section (p), only one report under this subsection shall be

3 required to be submitted each calendar year to the Secretary

4 (at the time provided under paragraph (2)) but, in addition

5 to the report under this subsection, there shall be furnished,

6 within 30 days after each calendar year, to the individual

7 on whose behalf the account is maintained a statement with

8 respect to the account balance as of the close of, and the

9 account activity during, such calendar year.’’.

10 (7) EXEMPTION FROM TOP-HEAVY PLAN

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

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

13 the following new subparagraph:

14 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—The

15 term ‘top-heavy plan’ shall not include a simple

16 retirement account under section 408(p).’’.

17 (8) EMPLOYMENT TAXES.—

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

19 amended by striking ‘‘or’’ at the end of subpara20 graph (F), by inserting ‘‘or’’ at the end of sub21 paragraph (G), and by adding at the end the fol22 lowing new subparagraph:

23 ‘‘(H) under an arrangement to which sec24 tion 408(p) applies, other than any elective con25 tributions under paragraph (2)(A)(i) thereof,’’.
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1 (B) Section 209(a)(4) of the Social Security

2 Act is amended by inserting ‘‘; or (J) under an

3 arrangement to which section 408(p) of such

4 Code applies, other than any elective contribu5 tions under paragraph (2)(A)(i) thereof’’ before

6 the semicolon at the end thereof.

7 (C) Paragraph (5) of section 3306(b) is

8 amended by striking ‘‘or’’ at the end of subpara9 graph (F), by inserting ‘‘or’’ at the end of sub10 paragraph (G), and by adding at the end the fol11 lowing new subparagraph:

12 ‘‘(H) under an arrangement to which sec13 tion 408(p) applies, other than any elective con14 tributions under paragraph (2)(A)(i) thereof,’’.

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

16 amended by adding the following new subpara17 graph:

18 ‘‘(D) under an arrangement to which sec19 tion 408(p) applies; or’’.

20 (9) CONFORMING AMENDMENTS.—

21 (A) Section 280G(b)(6) is amended by strik22 ing ‘‘or’’ at the end of subparagraph (B), by

23 striking the period at the end of subparagraph

24 (C) and inserting ‘‘, or’’ and by adding after
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1 subparagraph (C) the following new subpara2 graph:

3 ‘‘(D) a simple retirement account described

4 in section 408(p).’’.

5 (B) Section 402(g)(3) is amended by strik6 ing ‘‘and’’ at the end of subparagraph (B), by

7 striking the period at the end of subparagraph

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

9 subparagraph (C) the following new subpara10 graph:

11 ‘‘(D) any elective employer contribution

12 under section 408(p)(2)(A)(i).’’.

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

14 (n)(3)(B) of section 414 are each amended by in15 serting ‘‘408(p),’’ after ‘‘408(k),’’.

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

17 striking ‘‘and’’ at the end of clause (ii), by strik18 ing the period at the end of clause (iii) and in19 serting ‘‘, and’’, and by adding after clause (iii)

20 the following new clause:

21 ‘‘(iv) any simple retirement account

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

23 (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM24 PLOYEE PENSIONS.—Section 408(k)(6) is amended by add25 ing at the end the following new subparagraph:
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1 ‘‘(H) TERMINATION.—This paragraph shall

2 not apply to years beginning after December 31,

3 1996. The preceding sentence shall not apply to

4 a simplified employee pension if the terms of

5 such pension, as in effect on December 31, 1996,

6 provide that an employee may make the election

7 described in subparagraph (A).’’.

8 (d) MODIFICATIONS OF ERISA.—

9 (1) REPORTING REQUIREMENTS.—Section 101 of

10 the Employee Retirement Income Security Act of

11 1974 (29 U.S.C. 1021) is amended by redesignating

12 subsection (g) as subsection (h) and by inserting after

13 subsection (f) the following new subsection:

14 ‘‘(g) SIMPLE RETIREMENT ACCOUNTS.—

15 ‘‘(1) NO EMPLOYER REPORTS.—Except as pro16 vided in this subsection, no report shall be required

17 under this section by an employer maintaining a

18 qualified salary reduction arrangement under section

19 408(p) of the Internal Revenue Code of 1986.

20 ‘‘(2) SUMMARY DESCRIPTION.—The trustee of

21 any simple retirement account established pursuant

22 to a qualified salary reduction arrangement under

23 section 408(p) of such Code shall provide to the em24 ployer maintaining the arrangement each year a de25 scription containing the following information:
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1 ‘‘(A) The name and address of the employer

2 and the trustee.

3 ‘‘(B) The requirements for eligibility for

4 participation.

5 ‘‘(C) The benefits provided with respect to

6 the arrangement.

7 ‘‘(D) The time and method of making elec8 tions with respect to the arrangement.

9 ‘‘(E) The procedures for, and effects of,

10 withdrawals (including rollovers) from the ar11 rangement.

12 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

13 shall notify each employee immediately before the pe14 riod for which an election described in section

15 408(p)(5)(C) of such Code may be made of the em16 ployee’s opportunity to make such election. Such no17 tice shall include a copy of the description described

18 in paragraph (2).’’

19 (2) FIDUCIARY DUTIES.—Section 404(c) of such

20 Act (29 U.S.C. 1104(c)) is amended by inserting

21 ‘‘(1)’’ after ‘‘(c)’’, by redesignating paragraphs (1)

22 and (2) as subparagraphs (A) and (B), respectively,

23 and by adding at the end the following new para24 graph:
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1 ‘‘(2) In the case of a simple retirement account

2 established pursuant to a qualified salary reduction

3 arrangement under section 408(p) of the Internal

4 Revenue Code of 1986, a participant or beneficiary

5 shall, for purposes of paragraph (1), be treated as ex6 ercising control over the assets in the account upon

7 the earliest of—

8 ‘‘(A) an affirmative election with respect to

9 the initial investment of any contribution,

10 ‘‘(B) a rollover to any other simple retire11 ment account or individual retirement plan, or

12 ‘‘(C) one year after the simple retirement

13 account is established.

14 No reports, other than those required under section

15 101(g), shall be required with respect to a simple re16 tirement account established pursuant to such a

17 qualified salary reduction arrangement.’’.

18 (e) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to taxable years beginning after Decem20 ber 31, 1996.

21 SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR22 RANGEMENTS.

23 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

24 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat-
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1 ing to cash or deferred arrangements) is amended by adding

2 at the end the following new paragraph:

3 ‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET NON4 DISCRIMINATION TESTS.—

5 ‘‘(A) IN GENERAL.—A cash or deferred ar6 rangement maintained by an eligible employer

7 shall be treated as meeting the requirements of

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

9 meets—

10 ‘‘(i) the contribution requirements of

11 subparagraph (B),

12 ‘‘(ii) the exclusive plan requirements of

13 subparagraph (C), and

14 ‘‘(iii) the vesting requirements of sec15 tion 408(p)(3).

16 ‘‘(B) CONTRIBUTION REQUIREMENTS.—

17 ‘‘(i) IN GENERAL.—The requirements

18 of this subparagraph are met if, under the

19 arrangement—

20 ‘‘(I) an employee may elect to

21 have the employer make elective con22 tributions for the year on behalf of the

23 employee to a trust under the plan in

24 an amount which is expressed as a

25 percentage of compensation of the em-
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1 ployee but which in no event exceeds

2 $6,000,

3 ‘‘(II) the employer is required to

4 make a matching contribution to the

5 trust for the year in an amount equal

6 to so much of the amount the employee

7 elects under subclause (I) as does not

8 exceed 3 percent of compensation for

9 the year, and

10 ‘‘(III) no other contributions may

11 be made other than contributions de12 scribed in subclause (I) or (II).

13 ‘‘(ii) EMPLOYER MAY ELECT 2-PER14 CENT NONELECTIVE CONTRIBUTION.—An

15 employer shall be treated as meeting the re16 quirements of clause (i)(II) for any year if,

17 in lieu of the contributions described in

18 such clause, the employer elects (pursuant to

19 the terms of the arrangement) to make non20 elective contributions of 2 percent of com21 pensation for each employee who is eligible

22 to participate in the arrangement and who

23 has at least $5,000 of compensation from

24 the employer for the year. If an employer

25 makes an election under this subparagraph
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1 for any year, the employer shall notify em2 ployees of such election within a reasonable

3 period of time before the 60th day before the

4 beginning of such year.

5 ‘‘(C) EXCLUSIVE PLAN REQUIREMENT.—The

6 requirements of this subparagraph are met for

7 any year to which this paragraph applies if no

8 contributions were made, or benefits were ac9 crued, for services during such year under any

10 qualified plan of the employer on behalf of any

11 employee eligible to participate in the cash or de12 ferred arrangement, other than contributions de13 scribed in subparagraph (B).

14 ‘‘(D) DEFINITIONS AND SPECIAL RULE.—

15 ‘‘(i) DEFINITIONS.—For purposes of

16 this paragraph, any term used in this para17 graph which is also used in section 408(p)

18 shall have the meaning given such term by

19 such section.

20 ‘‘(ii) COORDINATION WITH TOP-HEAVY

21 RULES.—A plan meeting the requirements

22 of this paragraph for any year shall not be

23 treated as a top-heavy plan under section

24 416 for such year.’’.
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1 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

2 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re3 lating to nondiscrimination test for matching contributions

4 and employee contributions) is amended by redesignating

5 paragraph (10) as paragraph (11) and by adding after

6 paragraph (9) the following new paragraph:

7 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

8 TESTS.—A defined contribution plan shall be treated

9 as meeting the requirements of paragraph (2) with re10 spect to matching contributions if the plan—

11 ‘‘(A) meets the contribution requirements of

12 subparagraph (B) of subsection (k)(11),

13 ‘‘(B) meets the exclusive plan requirements

14 of subsection (k)(11)(C), and

15 ‘‘(C) meets the vesting requirements of sec16 tion 408(p)(3).’’.

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

18 section shall apply to plan years beginning after December

19 31, 1996.

20 Subchapter B—Other Provisions

21 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

22 SECTION 401(k).

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

24 401(k)(4) is amended to read as follows:
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1 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

2 GOVERNMENTS AND TAX-EXEMPT ORGANIZA3 TIONS.—

4 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Except

5 as provided in clause (ii), any organization

6 exempt from tax under this subtitle may in7 clude a qualified cash or deferred arrange8 ment as part of a plan maintained by it.

9 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

10 cash or deferred arrangement shall not be

11 treated as a qualified cash or deferred ar12 rangement if it is part of a plan main13 tained by a State or local government or

14 political subdivision thereof, or any agency

15 or instrumentality thereof. This clause shall

16 not apply to a rural cooperative plan or to

17 a plan of an employer described in clause

18 (iii).

19 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

20 GOVERNMENTS.—An employer which is an

21 Indian tribal government (as defined in sec22 tion 7701(a)(40)), a subdivision of an In23 dian tribal government (determined in ac24 cordance with section 7871(d)), an agency

25 or instrumentality of an Indian tribal gov-
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1 ernment or subdivision thereof, or a cor2 poration chartered under Federal, State, or

3 tribal law which is owned in whole or in

4 part by any of the foregoing may include a

5 qualified cash or deferred arrangement as

6 part of a plan maintained by the em7 ployer.’’.

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

9 section shall apply to plan years beginning after December

10 31, 1996, but shall not apply to any cash or deferred ar11 rangement to which clause (i) of section 1116(f)(2)(B) of

12 the Tax Reform Act of 1986 applies.

13 SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUC14 TION.

15 (a) SPOUSAL IRA COMPUTED ON BASIS OF COM16 PENSATION OF BOTH SPOUSES.—Subsection (c) of section

17 219 (relating to special rules for certain married individ18 uals) is amended to read as follows:

19 ‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVID20 UALS.—

21 ‘‘(1) IN GENERAL.—In the case of an individual

22 to whom this paragraph applies for the taxable year,

23 the limitation of paragraph (1) of subsection (b) shall

24 be equal to the lesser of—
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1 ‘‘(A) the dollar amount in effect under sub2 section (b)(1)(A) for the taxable year, or

3 ‘‘(B) the sum of—

4 ‘‘(i) the compensation includible in

5 such individual’s gross income for the tax6 able year, plus

7 ‘‘(ii) the compensation includible in

8 the gross income of such individual’s spouse

9 for the taxable year reduced by the amount

10 allowed as a deduction under subsection (a)

11 to such spouse for such taxable year.

12 ‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1) AP13 PLIES.—Paragraph (1) shall apply to any individual

14 if—

15 ‘‘(A) such individual files a joint return for

16 the taxable year, and

17 ‘‘(B) the amount of compensation (if any)

18 includible in such individual’s gross income for

19 the taxable year is less than the compensation

20 includible in the gross income of such individ21 ual’s spouse for the taxable year.’’.

22 (b) CONFORMING AMENDMENTS.—

23 (1) Paragraph (2) of section 219(f) (relating to

24 other definitions and special rules) is amended by
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1 striking ‘‘subsections (b) and (c)’’ and inserting ‘‘sub2 section (b)’’.

3 (2) Section 219(g)(1) is amended by striking

4 ‘‘(c)(2)’’ and inserting ‘‘(c)(1)(A)’’.

5 (3) Section 408(d)(5) is amended by striking

6 ‘‘$2,250’’ and inserting ‘‘the dollar amount in effect

7 under section 219(b)(1)(A)’’.

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

9 section shall apply to taxable years beginning after Decem10 ber 31, 1996.

11 CHAPTER 3—NONDISCRIMINATION

12 PROVISIONS

13 SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOY14 EES; REPEAL OF FAMILY AGGREGATION.

15 (a) IN GENERAL.—Paragraph (1) of section 414(q)

16 (defining highly compensated employee) is amended to read

17 as follows:

18 ‘‘(1) IN GENERAL.—The term ‘highly com19 pensated employee’ means any employee who—

20 ‘‘(A) was a 5-percent owner at any time

21 during the year or the preceding year, or

22 ‘‘(B) for the preceding year had compensa23 tion from the employer in excess of $80,000.

24 The Secretary shall adjust the $80,000 amount under

25 subparagraph (B) at the same time and in the same
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1 manner as under section 415(d), except that the base

2 period shall be the calendar quarter ending September

3 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 sen9 tence.

10 (3) DEDUCTION.—Subsection (l) of section 404 is

11 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), (4), (5), (8), and (12)

15 and by redesignating paragraphs (3), (7), (9), (10),

16 and (11) as paragraphs (2) through (6), 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 by

19 striking ‘‘section 414(q)(7)’’ and inserting ‘‘section

20 414(q)(3)’’.

21 (C) Section 416(i)(1)(A) is amended by striking

22 ‘‘section 414(q)(8)’’ and inserting ‘‘section 414(r)(9)’’.

23 (2)(A) Section 414(r) is amended by adding at

24 the end the following new paragraph:
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1 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

2 paragraph (2)(A), 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 regu13 lations, employees who are included in a unit of

14 employees covered by an agreement which the

15 Secretary of Labor finds to be a collective bar16 gaining agreement between employee representa17 tives and the employer.

18 Except as provided by the Secretary, the employer

19 may elect to apply subparagraph (A), (B), (C), or (D)

20 by substituting a shorter period of service, smaller

21 number of hours or months, or lower age for the pe22 riod of service, number of hours or months, or age (as

23 the case may be) specified in such subparagraph.’’.
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1 (B) Subparagraph (A) of section 414(r)(2) is

2 amended by striking ‘‘subsection (q)(8)’’ and inserting

3 ‘‘paragraph (9)’’.

4 (3) Section 1114(c)(4) of the Tax Reform Act of

5 1986 is amended by adding at the end the following

6 new sentence: ‘‘Any reference in this paragraph to

7 section 414(q) shall be treated as a reference to such

8 section as in effect on the day before the date of the

9 enactment of the Small Business Job Protection Act

10 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 whether

15 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 in

18 1996.

19 (2) FAMILY AGGREGATION.—The amendments

20 made by subsection (b) shall apply to years beginning

21 after December 31, 1996.
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1 SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION

2 REQUIREMENTS.

3 (a) GENERAL RULE.—Section 401(a)(26)(A) (relating

4 to additional participation requirements) is amended to

5 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 of

14 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 this

22 section shall apply to years beginning after December 31,

23 1996.
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1 SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED

2 CASH OR DEFERRED ARRANGEMENTS AND

3 MATCHING CONTRIBUTIONS.

4 (a) ALTERNATIVE METHODS OF SATISFYING SECTION

5 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat6 ing to cash or deferred arrangements), as amended by sec7 tion 1422, is amended by adding at the end the following

8 new paragraph:

9 ‘‘(12) ALTERNATIVE METHODS OF MEETING NON10 DISCRIMINATION 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 matching

23 contributions on behalf of each employee

24 who is not a highly compensated employee

25 in an amount equal to—
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1 ‘‘(I) 100 percent of the elective

2 contributions of the employee to the ex3 tent such elective contributions do not

4 exceed 3 percent of the employee’s com5 pensation, and

6 ‘‘(II) 50 percent of the elective

7 contributions of the employee to the ex8 tent that such elective contributions ex9 ceed 3 percent but do not exceed 5 per10 cent of the employee’s compensation.

11 ‘‘(ii) RATE FOR HIGHLY COMPENSATED

12 EMPLOYEES.—The requirements of this sub13 paragraph are not met if, under the ar14 rangement, the rate of matching contribu15 tion with respect to any elective contribu16 tion of a highly compensated employee at

17 any rate of elective contribution is greater

18 than that with respect to an employee who

19 is not a highly compensated employee.

20 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

21 If the rate of any matching contribution

22 with respect to any rate of elective contribu23 tion is not equal to the percentage required

24 under clause (i), an arrangement shall not
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1 be treated as failing to meet the require2 ments of clause (i) if—

3 ‘‘(I) the rate of an employer’s

4 matching contribution does not in5 crease as an employee’s rate of elective

6 contributions increase, and

7 ‘‘(II) the aggregate amount of

8 matching contributions at such rate of

9 elective contribution is at least equal to

10 the aggregate amount of matching con11 tributions which would be made if

12 matching contributions were made on

13 the basis of the percentages described in

14 clause (i).

15 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—The

16 requirements of this subparagraph are met if,

17 under the arrangement, the employer is required,

18 without regard to whether the employee makes an

19 elective contribution or employee contribution, to

20 make a contribution to a defined contribution

21 plan on behalf of each employee who is not a

22 highly compensated employee and who is eligible

23 to participate in the arrangement in an amount

24 equal to at least 3 percent of the employee’s com25 pensation.
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1 ‘‘(D) NOTICE REQUIREMENT.—An arrange2 ment meets the requirements of this paragraph

3 if, under the arrangement, each employee eligible

4 to participate is, within a reasonable period be5 fore any year, given written notice of the em6 ployee’s rights and obligations under the ar7 rangement which—

8 ‘‘(i) is sufficiently accurate and com9 prehensive to appraise the employee of such

10 rights and obligations, and

11 ‘‘(ii) is written in a manner calculated

12 to be understood by the average employee el13 igible to participate.

14 ‘‘(E) OTHER REQUIREMENTS.—

15 ‘‘(i) WITHDRAWAL AND VESTING RE16 STRICTIONS.—An arrangement shall not be

17 treated as meeting the requirements of sub18 paragraph (B) or (C) of this paragraph un19 less the requirements of subparagraphs (B)

20 and (C) of paragraph (2) are met with re21 spect to all employer contributions (includ22 ing matching contributions) taken into ac23 count in determining whether the require24 ments of subparagraphs (B) and (C) of this

25 paragraph are met.
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1 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

2 CONTRIBUTIONS NOT TAKEN INTO AC3 COUNT.—An arrangement shall not be treat4 ed as meeting the requirements of subpara5 graph (B) or (C) unless such requirements

6 are met without regard to subsection (l),

7 and, for purposes of subsection (l), employer

8 contributions under subparagraph (B) or

9 (C) shall not be taken into account.

10 ‘‘(F) OTHER PLANS.—An arrangement shall

11 be treated as meeting the requirements under

12 subparagraph (A)(i) if any other plan main13 tained by the employer meets such requirements

14 with respect to employees eligible under the ar15 rangement.’’.

16 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

17 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re18 lating to nondiscrimination test for matching contributions

19 and employee contributions), as amended by this section

20 1422(b), is amended by redesignating paragraph (11) as

21 paragraph (12) and by adding after paragraph (10) the

22 following new paragraph:

23 ‘‘(11) ALTERNATIVE METHOD OF SATISFYING

24 TESTS.—
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1 ‘‘(A) IN GENERAL.—A defined contribution

2 plan shall be treated as meeting the requirements

3 of paragraph (2) with respect to matching con4 tributions if the plan—

5 ‘‘(i) meets the contribution require6 ments of subparagraph (B) or (C) of sub7 section (k)(12),

8 ‘‘(ii) meets the notice requirements of

9 subsection (k)(12)(D), and

10 ‘‘(iii) meets the requirements of sub11 paragraph (B).

12 ‘‘(B) LIMITATION ON MATCHING CONTRIBU13 TIONS.—The requirements of this subparagraph

14 are met if—

15 ‘‘(i) matching contributions on behalf

16 of any employee may not be made with re17 spect to an employee’s contributions or elec18 tive deferrals in excess of 6 percent of the

19 employee’s compensation,

20 ‘‘(ii) the rate of an employer’s match21 ing contribution does not increase as the

22 rate of an employee’s contributions or elec23 tive deferrals increase, and

24 ‘‘(iii) the matching contribution with

25 respect to any highly compensated employee
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1 at any rate of an employee contribution or

2 rate of elective deferral is not greater than

3 that with respect to an employee who is not

4 a highly compensated employee.’’.

5 (c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED

6 EMPLOYEE PERCENTAGE.—

7 (1) CASH OR DEFERRED ARRANGEMENTS.—Sec8 tion 401(k)(3)(A) is amended—

9 (A) by striking ‘‘such year’’ in clause (ii)

10 and inserting ‘‘the plan year’’,

11 (B) by striking ‘‘for such plan year’’ in

12 clause (ii) and inserting ‘‘for the preceding plan

13 year’’, and

14 (C) by adding at the end the following new

15 sentence: ‘‘An arrangement may apply clause

16 (ii) by using the plan year rather than the pre17 ceding plan year if the employer so elects, except

18 that if such an election is made, it may not be

19 changed except as provided by the Secretary.’’.

20 (2) MATCHING AND EMPLOYEE CONTRIBU21 TIONS.—Section 401(m)(2)(A) is amended—

22 (A) by inserting ‘‘for such plan year’’ after

23 ‘‘highly compensated employees’’,
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1 (B) by inserting ‘‘for the preceding plan

2 year’’ after ‘‘eligible employees’’ each place it ap3 pears in clause (i) and clause (ii), and

4 (C) by adding at the end the following flush

5 sentence:

6 ‘‘This subparagraph may be applied by using the

7 plan year rather than the preceding plan year if

8 the employer so elects, except that if such an elec9 tion is made, it may not be changed except as

10 provided the Secretary.’’.

11 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE12 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

13 (1) Paragraph (3) of section 401(k) is amended

14 by adding at the end the following new subparagraph:

15 ‘‘(E) For purposes of this paragraph, in the

16 case of the first plan year of any plan (other

17 than a successor plan), the amount taken into

18 account as the actual deferral percentage of non19 highly compensated employees for the preceding

20 plan year shall be—

21 ‘‘(i) 3 percent, or

22 ‘‘(ii) if the employer makes an election

23 under this subclause, the actual deferral

24 percentage of nonhighly compensated em-
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1 ployees determined for such first plan

2 year.’’.

3 (2) Paragraph (3) of section 401(m) is amended

4 by adding at the end the following: ‘‘Rules similar to

5 the rules of subsection (k)(3)(E) shall apply for pur6 poses of this subsection.’’.

7 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

8 EXCESS AGGREGATE CONTRIBUTIONS.—

9 (1) Subparagraph (C) of section 401(k)(8) (relat10 ing to arrangement not disqualified if excess contribu11 tions distributed) is amended by striking ‘‘on the

12 basis of the respective portions of the excess contribu13 tions attributable to each of such employees’’ and in14 serting ‘‘on the basis of the amount of contributions

15 by, or on behalf of, each of such employees’’.

16 (2) Subparagraph (C) of section 401(m)(6) (re17 lating to method of distributing excess aggregate con18 tributions) is amended by striking ‘‘on the basis of the

19 respective portions of such amounts attributable to

20 each of such employees’’ and inserting ‘‘on the basis

21 of the amount of contributions on behalf of, or by,

22 each such employee’’.

23 (f) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to years beginning after De3 cember 31, 1998.

4 (2) EXCEPTIONS.—The amendments made by

5 subsections (c), (d), and (e) shall apply to years be6 ginning after December 31, 1996.

7 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

8 415 PURPOSES.

9 (a) GENERAL RULE.—Section 415(c)(3) (defining par10 ticipant’s compensation) is amended by adding at the end

11 the following new subparagraph:

12 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—The

13 term ‘participant’s compensation’ shall in14 clude—

15 ‘‘(i) any elective deferral (as defined in

16 section 402(g)(3)), and

17 ‘‘(ii) any amount which is contributed

18 or deferred by the employer at the election

19 of the employee and which is not includible

20 in the gross income of the employee by rea21 son of section 125 or 457.’’.

22 (b) CONFORMING AMENDMENTS.—

23 (1) Section 414(q)(3), as redesignated by section

24 1431, is amended to read as follows:
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1 ‘‘(4) COMPENSATION.—For purposes of this sub2 section, the term ‘compensation’ has the meaning

3 given such term by section 415(c)(3).’’.

4 (2) Section 414(s)(2) is amended by inserting

5 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

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

7 section shall apply to years beginning after December 31,

8 1997.

9 CHAPTER 4—MISCELLANEOUS

10 PROVISIONS

11 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID12 UALS.

13 (a) AGGREGATION RULES.—Section 401(d) (relating

14 to additional requirements for qualification of trusts and

15 plans benefiting owner-employees) is amended to read as

16 follows:

17 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—

18 A trust forming part of a pension or profit-sharing plan

19 which provides contributions or benefits for employees some

20 or all of whom are owner-employees shall constitute a quali21 fied trust under this section only if, in addition to meeting

22 the requirements of subsection (a), the plan provides that

23 contributions on behalf of any owner-employee may be

24 made only with respect to the earned income of such owner-
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1 employee which is derived from the trade or business with

2 respect to which such plan is established.’’.

3 (b) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to years beginning after December 31,

5 1996.

6 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

7 MULTIEMPLOYER PLANS.

8 (a) AMENDMENTS TO 1986 CODE.—Paragraph (2) of

9 section 411(a) (relating to minimum vesting standards) is

10 amended—

11 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

12 and inserting ‘‘subparagraph (A) or (B)’’; and

13 (2) by striking subparagraph (C).

14 (b) AMENDMENTS TO ERISA.—Paragraph (2) of sec15 tion 203(a) of the Employee Retirement Income Security

16 Act of 1974 (29 U.S.C. 1053(a)) is amended—

17 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

18 and inserting ‘‘subparagraph (A) or (B)’’; and

19 (2) by striking subparagraph (C).

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

21 section shall apply to plan years beginning on or after the

22 earlier of—

23 (1) the later of—

24 (A) January 1, 1997, or
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1 (B) the date on which the last of the collec2 tive bargaining agreements pursuant to which

3 the plan is maintained terminates (determined

4 without regard to any extension thereof after the

5 date of the enactment of this Act), or

6 (2) January 1, 1999.

7 Such amendments shall not apply to any individual who

8 does not have more than 1 hour of service under the plan

9 on or after the 1st day of the 1st plan year to which such

10 amendments apply.

11 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

12 PLANS.

13 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CER14 TAIN AGE.—Section 401(k)(7) is amended by adding at the

15 end the following new subparagraph:

16 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS17 TRIBUTIONS.—A rural cooperative plan which

18 includes a qualified cash or deferred arrange19 ment shall not be treated as violating the re20 quirements of section 401(a) or of paragraph (2)

21 merely by reason of a hardship distribution or a

22 distribution to a participant after attainment of

age 591 23 ⁄2. For purposes of this section, the term

24 ‘hardship distribution’ means a distribution de25 scribed in paragraph (2)(B)(i)(IV) (without re-
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1 gard to the limitation of its application to prof2 it-sharing or stock bonus plans).’’.

3 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of section

4 401(k)(7)(B) (defining rural cooperative) is amended to

5 read as follows:

6 ‘‘(i) any organization which—

7 ‘‘(I) is engaged primarily in pro8 viding electric service on a mutual or

9 cooperative basis, or

10 ‘‘(II) is engaged primarily in pro11 viding electric service to the public in

12 its area of service and which is exempt

13 from tax under this subtitle or which is

14 a State or local government (or an

15 agency or instrumentality thereof),

16 other than a municipality (or an agen17 cy or instrumentality thereof),’’.

18 (c) EFFECTIVE DATES.—

19 (1) DISTRIBUTIONS.—The amendments made by

20 subsection (a) shall apply to distributions after the

21 date of the enactment of this Act.

22 (2) PUBLIC UTILITY DISTRICTS.—The amend23 ments made by subsection (b) shall apply to plan

24 years beginning after December 31, 1996.
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1 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

2 SECTION 415.

3 (a) COMPENSATION LIMIT.—Subsection (b) of section

4 415 is amended by adding immediately after paragraph

5 (10) the following new paragraph:

6 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN7 MENTAL PLANS.—In the case of a governmental plan

8 (as defined in section 414(d)), subparagraph (B) of

9 paragraph (1) shall not apply.’’.

10 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

11 PLANS.—

12 (1) IN GENERAL.—Section 415 is amended by

13 adding at the end the following new subsection:

14 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL EX15 CESS BENEFIT ARRANGEMENTS.—

16 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—In

17 determining whether a governmental plan (as defined

18 in section 414(d)) meets the requirements of this sec19 tion, benefits provided under a qualified governmental

20 excess benefit arrangement shall not be taken into ac21 count. Income accruing to a governmental plan (or to

22 a trust that is maintained solely for the purpose of

23 providing benefits under a qualified governmental ex24 cess benefit arrangement) in respect of a qualified

25 governmental excess benefit arrangement shall con26 stitute income derived from the exercise of an essen-
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1 tial governmental function upon which such govern2 mental plan (or trust) shall be exempt from tax under

3 section 115.

4 ‘‘(2) TAXATION OF PARTICIPANT.—For purposes

5 of this chapter—

6 ‘‘(A) the taxable year or years for which

7 amounts in respect of a qualified governmental

8 excess benefit arrangement are includible in

9 gross income by a participant, and

10 ‘‘(B) the treatment of such amounts when so

11 includible by the participant,

12 shall be determined as if such qualified governmental

13 excess benefit arrangement were treated as a plan for

14 the deferral of compensation which is maintained by

15 a corporation not exempt from tax under this chapter

16 and which does not meet the requirements for quali17 fication under section 401.

18 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BENE19 FIT ARRANGEMENT.—For purposes of this subsection,

20 the term ‘qualified governmental excess benefit ar21 rangement’ means a portion of a governmental plan

22 if—

23 ‘‘(A) such portion is maintained solely for

24 the purpose of providing to participants in the

25 plan that part of the participant’s annual bene-
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1 fit otherwise payable under the terms of the plan

2 that exceeds the limitations on benefits imposed

3 by this section,

4 ‘‘(B) under such portion no election is pro5 vided at any time to the participant (directly or

6 indirectly) to defer compensation, and

7 ‘‘(C) benefits described in subparagraph (A)

8 are not paid from a trust forming a part of such

9 governmental plan unless such trust is main10 tained solely for the purpose of providing such

11 benefits.’’.

12 (2) COORDINATION WITH SECTION 457.—Sub13 section (e) of section 457 is amended by adding at the

14 end the following new paragraph:

15 ‘‘(14) TREATMENT OF QUALIFIED GOVERN16 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub17 sections (b)(2) and (c)(1) shall not apply to any

18 qualified governmental excess benefit arrangement (as

19 defined in section 415(m)(3)), and benefits provided

20 under such an arrangement shall not be taken into

21 account in determining whether any other plan is an

22 eligible deferred compensation plan.’’.

23 (3) CONFORMING AMENDMENT.—Paragraph (2)

24 of section 457(f) is amended by striking ‘‘and’’ at the

25 end of subparagraph (C), by striking the period at the
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1 end of subparagraph (D) and inserting ‘‘, and’’, and

2 by inserting immediately thereafter the following new

3 subparagraph:

4 ‘‘(E) a qualified governmental excess benefit

5 arrangement described in section 415(m).’’.

6 (c) EXEMPTION FOR SURVIVOR AND DISABILITY BENE7 FITS.—Paragraph (2) of section 415(b) is amended by add8 ing at the end the following new subparagraph:

9 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS10 ABILITY BENEFITS PROVIDED UNDER GOVERN11 MENTAL PLANS.—Subparagraph (C) of this

12 paragraph and paragraph (5) shall not apply

13 to—

14 ‘‘(i) income received from a govern15 mental plan (as defined in section 414(d))

16 as a pension, annuity, or similar allowance

17 as the result of the recipient becoming dis18 abled by reason of personal injuries or sick19 ness, or

20 ‘‘(ii) amounts received from a govern21 mental plan by the beneficiaries, survivors,

22 or the estate of an employee as the result of

23 the death of the employee.’’.

24 (d) REVOCATION OF GRANDFATHER ELECTION.—
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1 (1) IN GENERAL.—Subparagraph (C) of section

2 415(b)(10) is amended by adding at the end the fol3 lowing new clause:

4 ‘‘(ii) REVOCATION OF ELECTION.—An

5 election under clause (i) may be revoked not

6 later than the last day of the third plan

7 year beginning after the date of the enact8 ment of this clause. The revocation shall

9 apply to all plan years to which the election

10 applied and to all subsequent plan years.

11 Any amount paid by a plan in a taxable

12 year ending after the revocation shall be in13 cludible in income in such taxable year

14 under the rules of this chapter in effect for

15 such taxable year, except that, for purposes

16 of applying the limitations imposed by this

17 section, any portion of such amount which

18 is attributable to any taxable year during

19 which the election was in effect shall be

20 treated as received in such taxable year.’’.

21 (2) CONFORMING AMENDMENT.—Subparagraph

22 (C) of section 415(b)(10) is amended by striking

23 ‘‘This’’ and inserting:

24 ‘‘(i) IN GENERAL.—This’’.

25 (e) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 subsections (a), (b), and (c) shall apply to years be3 ginning after December 31, 1994. The amendments

4 made by subsection (d) shall apply with respect to

5 revocations adopted after the date of the enactment of

6 this Act.

7 (2) TREATMENT FOR YEARS BEGINNING BEFORE

8 JANUARY 1, 1995.—Nothing in the amendments made

9 by this section shall be construed to imply that a gov10 ernmental plan (as defined in section 414(d) of the

11 Internal Revenue Code of 1986) fails to satisfy the re12 quirements of section 415 of such Code for any tax13 able year beginning before January 1, 1995.

14 SEC. 1445. UNIFORM RETIREMENT AGE.

15 (a) DISCRIMINATION TESTING.—Paragraph (5) of sec16 tion 401(a) (relating to special rules relating to non17 discrimination requirements) is amended by adding at the

18 end the following new subparagraph:

19 ‘‘(F) SOCIAL SECURITY RETIREMENT AGE.—

20 For purposes of testing for discrimination under

21 paragraph (4)—

22 ‘‘(i) the social security retirement age

23 (as defined in section 415(b)(8)) shall be

24 treated as a uniform retirement age, and
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1 ‘‘(ii) subsidized early retirement bene2 fits and joint and survivor annuities shall

3 not be treated as being unavailable to em4 ployees on the same terms merely because

5 such benefits or annuities are based in

6 whole or in part on an employee’s social se7 curity retirement age (as so defined).’’.

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

9 section shall apply to years beginning after December 31,

10 1996.

11 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM12 PLOYEES.

13 (a) ALL DISABLED PARTICIPANTS RECEIVING CON14 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

15 at the end the following: ‘‘If a defined contribution plan

16 provides for the continuation of contributions on behalf of

17 all participants described in clause (i) for a fixed or deter18 minable period, this subparagraph shall be applied without

19 regard to clauses (ii) and (iii).’’.

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

21 section shall apply to years beginning after December 31,

22 1996.
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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 OR

10 LESS.—The total amount payable to a partici11 pant under the plan shall not be treated as made

12 available merely because the participant may

13 elect to receive such amount (or the plan may

14 distribute such amount without the participant’s

15 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-
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1 ticipant to which this subparagraph

2 applied.

3 A plan shall not be treated as failing to meet the

4 distribution requirements of subsection (d) by

5 reason of a distribution to which this subpara6 graph applies.

7 ‘‘(B) ELECTION TO DEFER COMMENCEMENT

8 OF DISTRIBUTIONS.—The total amount payable

9 to a participant under the plan shall not be

10 treated as made available merely because the

11 participant may elect to defer commencement of

12 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) and

16 before commencement of such distributions,

17 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 amend22 ed by section 1444(b)(2) (relating to governmental plans),

23 is amended by adding at the end the following new para24 graph:
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1 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM

2 DEFERRAL AMOUNT.—The Secretary shall adjust the

3 $7,500 amount specified in subsections (b)(2) and

4 (c)(1) at the same time and in the same manner as

5 under section 415(d), except that the base period shall

6 be the calendar quarter ending September 30, 1994,

7 and any increase under this paragraph which is not

8 a multiple of $500 shall be rounded to the next lowest

9 multiple of $500.’’.

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

11 section shall apply to taxable years beginning after Decem12 ber 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 el21 igible employer described in subsection (e)(1)(A) shall

22 not be treated as an eligible deferred compensation

23 plan unless all assets and income of the plan de24 scribed in subsection (b)(6) are held in trust for the
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1 exclusive benefit of participants and their bene2 ficiaries.

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 includ10 ible 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 sec19 tion 457(b) is amended by inserting ‘‘except as provided

20 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 shall

24 apply to assets and income described in section

25 457(b)(6) of the Internal Revenue Code of 1986 held
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1 by a plan on and after the date of the enactment of

2 this Act.

3 (2) TRANSITION RULE.—In the case of a plan in

4 existence on the date of the enactment of this Act, a

5 trust need not be established by reason of the amend6 ments made by this section before January 1, 1999.

7 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

8 BENEFITS UNDER SECTION 415 LIMITATIONS.

9 (a) IN GENERAL.—Subparagraph (A) of section

10 767(d)(3) of the Uruguay Round Agreements Act is amend11 ed to read as follows:

12 ‘‘(A) EXCEPTION.—A plan that was adopt13 ed and in effect before December 8, 1994, shall

14 not be required to apply the amendments made

15 by subsection (b) with respect to benefits accrued

16 before the earlier of—

17 ‘‘(i) the later of the date a plan amend18 ment applying the amendments made by

19 subsection (b) is adopted or made effective,

20 or

21 ‘‘(ii) the first day of the first limita22 tion year beginning after December 31,

23 1999.

24 Determinations under section 415(b)(2)(E) of the

25 Internal Revenue Code of 1986 before such ear-
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1 lier date shall be made with respect to such bene2 fits on the basis of such section as in effect on

3 December 7, 1994 (except that the modification

4 made by section 1449(b) of the Small Business

5 Job Protection Act of 1996 shall be taken into

6 account), and the provisions of the plan as in ef7 fect on December 7, 1994, but only if such provi8 sions of the plan meet the requirements of such

9 section (as so in effect).’’.

10 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD11 JUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

12 EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)

13 (relating to limitation on certain assumptions) is amend14 ed—

15 (1) by striking ‘‘Except as provided in clause

16 (ii), for purposes of adjusting any benefit or limita17 tion under subparagraph (B) or (C),’’ in clause (i)

18 and inserting ‘‘For purposes of adjusting any limita19 tion under subparagraph (C) and, except as provided

20 in clause (ii), for purposes of adjusting any benefit

21 under subparagraph (B),’’, and

22 (2) by striking ‘‘For purposes of adjusting the

23 benefit or limitation of any form of benefit subject to

24 section 417(e)(3),’’ in clause (ii) and inserting ‘‘For

25 purposes of adjusting any benefit under subparagraph
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1 (B) for any form of benefit subject to section

2 417(e)(3),’’.

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

4 section shall take effect as if included in the provisions of

5 section 767 of the Uruguay Round Agreements Act.

6 (d) TRANSITIONAL RULE.—In the case of a plan that

7 was adopted and in effect before December 8, 1994, if—

8 (1) a plan amendment was adopted or made ef9 fective on or before the date of the enactment of this

10 Act applying the amendments made by section 767 of

11 the Uruguay Round Agreements Act, and

12 (2) within 1 year after the date of the enactment

13 of this Act, a plan amendment is adopted which re14 peals the amendment referred to in paragraph (1),

15 the amendment referred to in paragraph (1) shall not be

16 taken into account in applying section 767(d)(3)(A) of the

17 Uruguay Round Agreements Act, as amended by subsection

18 (a).

19 SEC. 1450. MODIFICATIONS OF SECTION 403(b).

20 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

21 PERMITTED.—

22 (1) GENERAL RULE.—For purposes of section

23 403(b) of the Internal Revenue Code of 1986, the fre24 quency that an employee is permitted to enter into a

25 salary reduction agreement, the salary to which such
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1 an agreement may apply, and the ability to revoke

2 such an agreement shall be determined under the rules

3 applicable to cash or deferred elections under section

4 401(k) of such Code.

5 (2) CONSTRUCTIVE RECEIPT.—Section 402(e)(3)

6 is amended by inserting ‘‘or which is part of a salary

7 reduction agreement under section 403(b)’’ after ‘‘sec8 tion 401(k)(2))’’.

9 (3) EFFECTIVE DATE.—This subsection shall

10 apply to taxable years beginning after December 31,

11 1995.

12 (b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—

13 (1) IN GENERAL.—Subparagraph (A) of section

14 403(b)(1) (relating to taxability of beneficiary under

15 annuity purchased by section 501(c)(3) organization

16 or public school) is amended by striking ‘‘or’’ at the

17 end of clause (i), by inserting ‘‘or’’ at the end of

18 clause (ii), and by adding at the end the following

19 new clause:

20 ‘‘(iii) for an employee by an employer

21 which is an Indian tribal government (as

22 defined in section 7701(a)(40)), a subdivi23 sion of an Indian tribal government (deter24 mined in accordance with section 7871(d)),

25 an agency or instrumentality of an Indian
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1 tribal government or subdivision thereof, or

2 a corporation chartered under Federal,

3 State, or tribal law which is owned in

4 whole or part by any of the foregoing,’’.

5 (2) CONFORMING AMENDMENT.—The heading for

6 section 403(b) is amended by striking ‘‘OR PUBLIC

7 SCHOOL’’ and inserting ‘‘, PUBLIC SCHOOL, OR IN8 DIAN TRIBE’’.

9 (3) EFFECTIVE DATES.—

10 (A) IN GENERAL.—The amendments made

11 by this section shall apply to plan years begin12 ning after December 31, 1996.

13 (B) TRANSITION RULES.—

14 (i) IN GENERAL.—In the case of any

15 contract purchased in a plan year begin16 ning before January 1, 1997, section 403(b)

17 of the Internal Revenue Code of 1986 shall

18 be applied as if any reference to an em19 ployer described in section 501(c)(3) of the

20 Internal Revenue Code of 1986 which is ex21 empt from tax under section 501 of such

22 Code included a reference to an employer

23 which is an Indian tribal government (as

24 defined by section 7701(a)(40) of such

25 Code), a subdivision of an Indian tribal
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1 government (determined in accordance with

2 section 7871(d) of such Code), an agency or

3 instrumentality of an Indian tribal govern4 ment or subdivision thereof, or a corpora5 tion chartered under Federal, State, or trib6 al law which is owned in whole or in part

7 by any of the foregoing.

8 (ii) ROLLOVERS.—Solely for purposes

9 of applying section 403(b)(8) of such Code

10 to a contract to which clause (i) applies, a

11 qualified cash or deferred arrangement

12 under section 401(k) of such Code shall be

13 treated as if it were a plan or contract de14 scribed in clause (ii) of section 403(b)(8)(A)

15 of such Code.

16 (c) ELECTIVE DEFERRALS.—

17 (1) IN GENERAL.—Subparagraph (E) of section

18 403(b)(1) is amended to read as follows:

19 ‘‘(E) in the case of a contract purchased

20 under a salary reduction agreement, the contract

21 meets the requirements of section 401(a)(30),’’.

22 (2) EFFECTIVE DATE.—The amendment made by

23 this subsection shall apply to years beginning after

24 December 31, 1995, except a contract shall not be re25 quired to meet any change in any requirement by
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1 reason of such amendment before the 90th day after

2 the date of the enactment of this Act.

3 SEC. 1451. MISSING PARTICIPANTS.

4 (a) IN GENERAL.—Section 4050 of the Employee Re5 tirement Income Security Act of 1974 (29 U.S.C. 1350) is

6 amended by redesignating subsection (c) as subsection (e)

7 and by inserting after subsection (b) the following new sub8 sections:

9 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation shall

10 prescribe rules similar to the rules in subsection (a) for mul11 tiemployer plans covered by this title that terminate under

12 section 4041A.

13 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

14 ‘‘(1) TRANSFER TO CORPORATION.—The plan ad15 ministrator of a plan described in paragraph (4) may

16 elect to transfer a missing participant’s benefits to the

17 corporation upon termination of the plan.

18 ‘‘(2) INFORMATION TO THE CORPORATION.—To

19 the extent provided in regulations, the plan adminis20 trator of a plan that makes the election described in

21 paragraph (1) shall, upon termination of the plan,

22 provide the corporation information with respect to

23 benefits of a missing participant.

24 ‘‘(3) PAYMENT BY THE CORPORATION.—If bene25 fits of a missing participant were transferred to the
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1 corporation under paragraph (1), the corporation

2 shall, upon location of the participant or beneficiary,

3 pay to the participant or beneficiary the amount

4 transferred (or the appropriate survivor benefit) ei5 ther—

6 ‘‘(A) in a single sum (plus interest), or

7 ‘‘(B) in such other form as is specified in

8 regulations of the corporation.

9 ‘‘(4) PLANS DESCRIBED.—A plan is described in

10 this paragraph if—

11 ‘‘(A) the plan is a pension plan (within the

12 meaning of section 3(2))—

13 ‘‘(i) to which the provisions of this sec14 tion do not apply (without regard to this

15 subsection), and

16 ‘‘(ii) which is not a plan described in

17 paragraphs (2) through (11) of section

18 4021(b), and

19 ‘‘(B) at the time the assets are to be distrib20 uted upon termination, the plan—

21 ‘‘(i) has missing participants, and

22 ‘‘(ii) has not provided for the transfer

23 of assets to pay the benefits of all missing

24 participants to another pension plan (with25 in the meaning of section 3(2)).
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1 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—Sub2 sections (a)(1) and (a)(3) shall not apply to a plan

3 described in paragraph (4).’’.

4 (b) CONFORMING AMENDMENTS.—

5 (1) Section 206(f) of the Employee Retirement

6 Income Security Act of 1974 (29 U.S.C. 1056(f)) is

7 amended—

8 (A) by striking ‘‘title IV’’ and inserting

9 ‘‘section 4050’’, and

10 (B) by striking ‘‘the plan shall provide

11 that’’.

12 (2) Section 401(a)(34) (relating to benefits of

13 missing participants on plan termination) is amend14 ed by striking ‘‘title IV’’ and inserting ‘‘section

15 4050’’.

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

17 section shall apply to distributions made after final regula18 tions implementing subsections (c) and (d) of section 4050

19 of the Employee Retirement Income Security Act of 1974

20 (as added by subsection (a)), respectively, are prescribed.

21 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

22 BENEFIT PLAN AND DEFINED CONTRIBUTION

23 PLAN FOR SAME EMPLOYEE; EXCESS DIS24 TRIBUTIONS.

25 (a) IN GENERAL.—Section 415(e) is repealed.
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1 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

2 amended by adding at the end the following new subsection:

3 ‘‘(g) LIMITATION ON APPLICATION.—This section shall

4 not apply to distributions during years beginning after De5 cember 31, 1996, and before January 1, 2000, and such dis6 tributions shall be treated as made first from amounts not

7 described in subsection (f).’’.

8 (c) CONFORMING AMENDMENTS.—

9 (1) Paragraph (1) of section 415(a) is amend10 ed—

11 (A) by adding ‘‘or’’ at the end of subpara12 graph (A),

13 (B) by striking ‘‘, or’’ at the end of sub14 paragraph (B) and inserting a period, and

15 (C) by striking subparagraph (C).

16 (2) Subparagraph (B) of section 415(b)(5) is

17 amended by striking ‘‘and subsection (e)’’.

18 (3) Paragraph (1) of section 415(f) is amended

19 by striking ‘‘subsections (b), (c), and (e)’’ and insert20 ing ‘‘subsections (b) and (c)’’.

21 (4) Subsection (g) of section 415 is amended by

22 striking ‘‘subsections (e) and (f)’’ in the last sentence

23 and inserting ‘‘subsection (f)’’.

24 (5) Clause (i) of section 415(k)(2)(A) is amended

25 to read as follows:
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1 ‘‘(i) any contribution made directly by

2 an employee under such an arrangement

3 shall not be treated as an annual addition

4 for purposes of subsection (c), and’’.

5 (6) Clause (ii) of section 415(k)(2)(A) is amend6 ed by striking ‘‘subsections (c) and (e)’’ and inserting

7 ‘‘subsection (c)’’.

8 (7) Section 416 is amended by striking sub9 section (h).

10 (d) EFFECTIVE DATE.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall

13 apply to limitation years beginning after December

14 31, 1999.

15 (2) EXCESS DISTRIBUTIONS.—The amendment

16 made by subsection (b) shall apply to years beginning

17 after December 31, 1996.

18 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

19 (a) IN GENERAL.—Section 4975(a) is amended by

20 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

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

22 section shall apply to prohibited transactions occurring

23 after the date of the enactment of this Act.
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1 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

2 (a) GENERAL RULE.—Subparagraph (C) of section

3 414(n)(2) (defining leased employee) is amended to read as

4 follows:

5 ‘‘(C) such services are performed under pri6 mary direction or control by the recipient.’’.

7 (b) EFFECTIVE DATE.—The amendment made by sub8 section (a) shall apply to years beginning after December

9 31, 1996, but shall not apply to any relationship deter10 mined under an Internal Revenue Service ruling issued be11 fore the date of the enactment of this Act pursuant to section

12 414(n)(2)(C) of the Internal Revenue Code of 1986 (as in

13 effect on the day before such date) not to involve a leased

14 employee.

15 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

16 CERTAIN PENSION REPORTING REQUIRE17 MENTS.

18 (a) PENALTIES.—

19 (1) STATEMENTS.—Paragraph (1) of section

20 6724(d) is amended by striking ‘‘and’’ at the end of

21 subparagraph (A), by striking the period at the end

22 of subparagraph (B) and inserting ‘‘, and’’, and by

23 inserting after subparagraph (B) the following new

24 subparagraph:
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1 ‘‘(C) any statement of the amount of pay2 ments to another person required to be made to

3 the Secretary under—

4 ‘‘(i) section 408(i) (relating to reports

5 with respect to individual retirement ac6 counts or annuities), or

7 ‘‘(ii) section 6047(d) (relating to re8 ports by employers, plan administrators,

9 etc.).’’.

10 (2) REPORTS.—Paragraph (2) of section 6724(d)

11 is amended by striking ‘‘or’’ at the end of subpara12 graph (S), by striking the period at the end of sub13 paragraph (T) and inserting a comma, and by insert14 ing after subparagraph (T) the following new sub15 paragraphs:

16 ‘‘(U) section 408(i) (relating to reports with

17 respect to individual retirement plans) to any

18 person other than the Secretary with respect to

19 the amount of payments made to such person, or

20 ‘‘(V) section 6047(d) (relating to reports by

21 plan administrators) to any person other than

22 the Secretary with respect to the amount of pay23 ments made to such person.’’.

24 (b) MODIFICATION OF REPORTABLE DESIGNATED DIS25 TRIBUTIONS.—
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1 (1) SECTION 408.—Subsection (i) of section 408

2 (relating to individual retirement account reports) is

3 amended by inserting ‘‘aggregating $10 or more in

4 any calendar year’’ after ‘‘distributions’’.

5 (2) SECTION 6047.—Paragraph (1) of section

6 6047(d) (relating to reports by employers, plan ad7 ministrators, etc.) is amended by adding at the end

8 the following new sentence: ‘‘No return or report may

9 be required under the preceding sentence with respect

10 to distributions to any person during any year unless

11 such distributions aggregate $10 or more.’’.

12 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Section

13 6652(i) is amended—

14 (1) by striking ‘‘the $10’’ and inserting ‘‘$100’’,

15 and

16 (2) by striking ‘‘$5,000’’ and inserting

17 ‘‘$50,000’’.

18 (d) CONFORMING AMENDMENTS.—

19 (1) Paragraph (1) of section 6047(f) is amended

20 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.’’.

21 (2) Subsection (e) of section 6652 is amended by

22 adding at the end the following new sentence: ‘‘This

23 subsection shall not apply to any return or statement

24 which is an information return described in section
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1 6724(d)(1)(C)(ii) or a payee statement described in

2 section 6724(d)(2)(V).’’.

3 (3) Subsection (a) of section 6693 is amended by

4 adding at the end the following new sentence: ‘‘This

5 subsection shall not apply to any report which is an

6 information return described in section

7 6724(d)(1)(C)(i) or a payee statement described in

8 section 6724(d)(2)(U).’’.

9 (e) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to returns, reports, and other statements

11 the due date for which (determined without regard to exten12 sions) is after December 31, 1996.

13 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB14 JECT TO TAX ON NET EARNINGS FROM SELF15 EMPLOYMENT.

16 (a) IN GENERAL.—Section 1402(a)(8) (defining net

17 earning from self-employment) is amended by inserting ‘‘,

18 but shall not include in such net earnings from self-employ19 ment the rental value of any parsonage or any parsonage

20 allowance (whether or not excludable under section 107)

21 provided after the individual retires, or any other retire22 ment benefit received by such individual from a church plan

23 (as defined in section 414(e)) after the individual retires’’

24 before the semicolon at the end.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to years beginning before, on, or after

3 December 31, 1994.

4 SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND

5 QUALIFIED DOMESTIC RELATIONS FORMS.

6 (a) DEVELOPMENT OF FORMS.—Not later than Janu7 ary 1, 1997, the Secretary of the Treasury shall develop—

8 (1) a model form for the spousal consent required

9 under section 417(a)(2) of the Internal Revenue Code

10 of 1986 and section 205(c)(2) of the Employee Retire11 ment Income Security Act of 1974 which—

12 (A) is written in a manner calculated to be

13 understood by the average person, and

14 (B) discloses in plain form—

15 (i) whether the waiver to which the

16 spouse consents is irrevocable, and

17 (ii) whether such waiver may be re18 voked by a qualified domestic relations

19 order, and

20 (2) a model form for a qualified domestic rela21 tions order described in section 414(p)(1)(A) of such

22 Code and section 206(d)(3)(B)(i) of such Act which—

23 (A) meets the requirements contained in

24 such sections, and
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1 (B) the provisions of which focus attention

2 on the need to consider the treatment of any

3 lump sum payment, qualified joint and survivor

4 annuity, or qualified preretirement survivor an5 nuity.

6 (b) PUBLICITY.—The Secretary of the Treasury shall

7 include publicity for the model forms developed under sub8 section (a) in the pension outreach efforts undertaken by

9 the Secretary.

10 SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS

11 TO VOLUNTEERS PERFORMING FIRE FIGHT12 ING OR PREVENTION SERVICES, EMERGENCY

13 MEDICAL SERVICES, OR AMBULANCE SERV14 ICES.

15 (a) IN GENERAL.—Paragraph (11) of section 457(e)

16 (relating to deferred compensation plans of State and local

17 governments and tax-exempt organizations) is amended to

18 read as follows:

19 ‘‘(11) CERTAIN PLANS EXCLUDED.—

20 ‘‘(A) IN GENERAL.—The following plans

21 shall be treated as not providing for the deferral

22 of compensation:

23 ‘‘(i) Any bona fide vacation leave, sick

24 leave, compensatory time, severance pay,

25 disability pay, or death benefit plan.
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1 ‘‘(ii) Any plan paying solely length of

2 service awards to bona fide volunteers (or

3 their beneficiaries) on account of qualified

4 services performed by such volunteers.

5 ‘‘(B) SPECIAL RULES APPLICABLE TO

6 LENGTH OF SERVICE AWARD PLANS.—

7 ‘‘(i) BONA FIDE VOLUNTEER.—An in8 dividual shall be treated as a bona fide vol9 unteer for purposes of subparagraph (A)(ii)

10 if the only compensation received by such

11 individual for performing qualified services

12 is in the form of—

13 ‘‘(I) reimbursement for (or a rea14 sonable allowance for) reasonable ex15 penses incurred in the performance of

16 such services, or

17 ‘‘(II) reasonable benefits (includ18 ing length of service awards), and

19 nominal fees for such services, cus20 tomarily paid by eligible employers in

21 connection with the performance of

22 such services by volunteers.

23 ‘‘(ii) LIMITATION ON ACCRUALS.—A

24 plan shall not be treated as described in

25 subparagraph (A)(ii) if the aggregate
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1 amount of length of service awards accruing

2 with respect to any year of service for any

3 bona fide volunteer exceeds $3,000.

4 ‘‘(C) QUALIFIED SERVICES.—For purposes

5 of this paragraph, the term ‘qualified services’

6 means fire fighting and prevention services,

7 emergency medical services, and ambulance serv8 ices.’’.

9 (b) EXEMPTION FROM SOCIAL SECURITY TAXES.—

10 (1) Subsection (a)(5) of section 3121, as amend11 ed by section 1421, is amended by striking ‘‘(or)’’ at

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

13 end of subparagraph (H), and by adding at the end

14 the following new subparagraph:

15 ‘‘(I) under a plan described in section

16 457(e)(11)(A)(ii) and maintained by an eligible

17 employer (as defined in section 457(e)(1)).’’.

18 (2) Section 209(a)(4) of the Social Security Act

19 is amended by inserting ‘‘; or (K) under a plan de20 scribed in section 457(e)(11)(A)(ii) of the Internal

21 Revenue Code of 1986 and maintained by an eligible

22 employer (as defined in section 457(e)(1) of such

23 Code)’’ before the semicolon at the end thereof.

24 (c) EFFECTIVE DATE.—
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1 (1) SUBSECTION (a).—The amendment made by

2 subsection (a) shall apply to accruals of length of

3 service awards after December 31, 1996.

4 (2) SUBSECTION (b).—The amendments made by

5 subsection (b) shall apply to remuneration paid after

6 December 31, 1996.

7 SEC. 1459. ALTERNATIVE NONDISCRIMINATION RULES FOR

8 CERTAIN PLANS THAT PROVIDE FOR EARLY

9 PARTICIPATION.

10 (a) CASH OR DEFERRED ARRANGEMENTS.—Para11 graph (3) of section 401(k) (relating to application of par12 ticipation and discrimination standards), as amended by

13 section 1433(d)(1) of this Act, is amended by adding at the

14 end the following new subparagraph:

15 ‘‘(F) SPECIAL RULE FOR EARLY PARTICIPA16 TION.—If an employer elects to apply section

17 410(b)(4)(B) in determining whether a cash or

18 deferred arrangement meets the requirements of

19 subparagraph (A)(i), the employer may, in de20 termining whether the arrangement meets the re21 quirements of subparagraph (A)(ii), exclude from

22 consideration all eligible employees (other than

23 highly compensated employees) who have not met

24 the minimum age and service requirements of

25 section 410(a)(1)(A).’’.
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1 (b) MATCHING CONTRIBUTIONS.—Paragraph (5) of

2 section 401(m) (relating to employees taken into consider3 ation) is amended by adding at the end the following new

4 subparagraph:

5 ‘‘(C) SPECIAL RULE FOR EARLY PARTICIPA6 TION.—If an employer elects to apply section

7 410(b)(4)(B) in determining whether a plan

8 meets the requirements of section 410(b), the em9 ployer may, in determining whether the plan

10 meets the requirements of paragraph (2), exclude

11 from consideration all eligible employees (other

12 than highly compensated employees) who have

13 not met the minimum age and service require14 ments of section 410(a)(1)(A).’’.

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

16 section shall apply to plan years beginning after December

17 31, 1998.

18 SEC. 1460. MODIFICATIONS OF JOINT AND SURVIVOR ANNU19 ITY REQUIREMENTS.

20 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

21 Section 417(b) is amended—

22 (1) by striking ‘‘For’’ and inserting:

23 ‘‘(1) IN GENERAL.—’’,

24 (2) by redesignating paragraphs (1) and (2) as

25 subparagraphs (A) and (B), respectively, and
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1 (3) by adding at the end the following new para2 graph:

‘‘(2) ELECTION OF 662 3 ⁄3 PERCENT SURVIVOR AN4 NUITY.—

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

6 with respect to which the survivor annuity under

7 a qualified joint and survivor annuity is not

equal to 662 8 ⁄3 percent of the amount of the annu9 ity which is payable during the joint lives of the

10 participant and the spouse, such plan shall not

11 be treated as meeting the requirements of section

12 401(a)(11) unless the participant may elect a

13 qualified joint and survivor annuity with a survivor annuity which is equal to 662 14 ⁄3 percent of

15 such amount.

16 ‘‘(B) TREATMENT OF ANNUITY.—If a par17 ticipant elects a survivor annuity under sub18 paragraph (A), such annuity shall be treated as

19 a qualified joint and survivor annuity for pur20 poses of this title (other than subsection

21 (c)(1)(A)).’’.

22 (b) AMENDMENTS TO ERISA.—Subsection (d) of sec23 tion 205 of the Employee Retirement Income Security Act

24 of 1974 (29 U.S.C. 1055) is amended—
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1 (1) by redesignating paragraphs (1) and (2) as

2 subparagraphs (A) and (B), respectively,

3 (2) by inserting ‘‘(1)’’ after ‘‘(d)’’, and

4 (3) by adding at the end the following new para5 graph:

6 ‘‘(2)(A) In the case of any plan with respect to

7 which the survivor annuity under a qualified joint

and survivor annuity is not equal to 662 8 ⁄3 percent of

9 the amount of the annuity which is payable during

10 the joint lives of the participant and the spouse, such

11 plan shall not be treated as meeting the requirements

12 of subsection (a) unless the participant may elect a

13 qualified joint and survivor annuity with a survivor

annuity which is equal to 662 14 ⁄3 percent of such

15 amount.

16 ‘‘(B) If a participant elects a survivor annuity

17 under subparagraph (A), such annuity shall be treat18 ed as a qualified joint and survivor annuity for pur19 poses of this title (other than subsection (e)(1)(A)).’’.

20 (c) EFFECTIVE DATES.—

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

22 this section shall apply to plan years beginning after

23 December 31, 1996.

24 (2) SPECIAL RULE FOR EXISTING PLANS.—In the

25 case of a plan in existence on the date of the enact-
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1 ment of this Act, the amendments made by this sec2 tion shall apply to any plan year following the first

3 plan year with respect to which the first plan amend4 ment adopted after such date of enactment takes ef5 fect.

6 SEC. 1461. CLARIFICATION OF APPLICATION OF ERISA TO

7 INSURANCE COMPANY GENERAL ACCOUNTS.

8 (a) IN GENERAL.—Section 401 of the Employee Re9 tirement Income Security Act of 1974 (29 U.S.C. 1101) is

10 amended by adding at the end the following new subsection:

11 ‘‘(c)(1)(A) Not later than December 31, 1996, the Sec12 retary shall issue proposed regulations to provide guidance

13 for the purpose of determining, in cases where an insurer

14 issues 1 or more policies to or for the benefit of an employee

15 benefit plan (and such policies are supported by the assets

16 of such insurer’s general account), which assets of the in17 surer (other than plan assets held in its separate accounts)

18 constitute assets of the plan for purposes of this part and

19 section 4975 of the Internal Revenue Code of 1986.

20 ‘‘(B) The proposed regulations under subparagraph

21 (A) shall be subject to public notice and comment until

22 March 31, 1997.

23 ‘‘(C) The Secretary shall issue final regulations pro24 viding the guidance described in subparagraph (A) not later

25 than June 30, 1997.
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1 ‘‘(2) In issuing regulations under paragraph (1), the

2 Secretary—

3 ‘‘(A) subject to subparagraph (C), may exclude

4 any assets of the insurer with respect to its oper5 ations, products, or services from treatment as plan

6 assets,

7 ‘‘(B) shall provide that assets not treated as plan

8 assets under subsection (b)(2) shall not be treated as

9 plan assets under paragraph (1), and

10 ‘‘(C) shall ensure that the regulations—

11 ‘‘(i) are administratively feasible, and

12 ‘‘(ii) are designed to protect the inter13 ests and rights of the plan and of its par14 ticipants and beneficiaries.

15 ‘‘(3)(A) Subject to subparagraph (B), any regulations

16 issued under paragraph (1) shall not take effect before the

17 date on which such regulations become final.

18 ‘‘(B) No person shall be subject to liability under this

19 part or section 4975 of the Internal Revenue Code of 1986

20 for conduct which occurred before the date which is 18

21 months following the date described in subparagraph (A)

22 on the basis of a claim that the assets of an insurer (other

23 than plan assets held in a separate account) constitute as24 sets of the plan, except—
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1 ‘‘(i) as otherwise provided by the Secretary in

2 regulations intended to prevent avoidance of the regu3 lations issued under paragraph (1), or

4 ‘‘(ii) as provided in an action brought by the

5 Secretary pursuant to subsection (a) (2) or (5) of sec6 tion 502 for a breach of fiduciary responsibilities

7 which would also constitute a violation of Federal

8 criminal law or constitute a felony under applicable

9 State law.

10 ‘‘(4) Nothing in this subsection shall preclude the ap11 plication of any Federal criminal law.

12 ‘‘(5) For purposes of this subsection, the term ‘policy’

13 includes a contract.’’.

14 (b) EFFECTIVE DATE.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendment made by this section shall

17 take effect on January 1, 1975.

18 (2) CIVIL ACTIONS.—The amendment made by

19 this section shall not apply to any civil action com20 menced before November 7, 1995.

21 SEC. 1462. SPECIAL RULES FOR CHAPLAINS AND SELF-EM22 PLOYED MINISTERS.

23 (a) IN GENERAL.—Section 414(e) (defining church

24 plan) is amended by adding at the end the following new

25 paragraph:
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1 ‘‘(5) SPECIAL RULES FOR CHAPLAINS AND SELF2 EMPLOYED MINISTERS.—

3 ‘‘(A) CERTAIN MINISTERS MAY PARTICI4 PATE.—For purposes of this part—

5 ‘‘(i) IN GENERAL.—An employee of a

6 church or a convention or association of

7 churches shall include a duly ordained,

8 commissioned, or licensed minister of a

9 church who, in connection with the exercise

10 of his or her ministry—

11 ‘‘(I) is a self-employed individual

12 (within the meaning of section

13 401(c)(1)(B)), or

14 ‘‘(II) is employed by an organiza15 tion other than an organization de16 scribed in section 501(c)(3).

17 ‘‘(ii) TREATMENT AS EMPLOYER AND

18 EMPLOYEE.—

19 ‘‘(I) SELF-EMPLOYED.—A min20 ister described in clause (i)(I) shall be

21 treated as his or her own employer

22 which is an organization described in

23 section 501(c)(3) and which is exempt

24 from tax under section 501(a).
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1 ‘‘(II) OTHERS.—A minister de2 scribed in clause (i)(II) shall be treated

3 as employed by an organization de4 scribed in section 501(c)(3) and exempt

5 from tax under section 501(a).

6 ‘‘(B) SPECIAL RULES FOR APPLYING SEC7 TION 403(b) TO SELF-EMPLOYED MINISTERS.—In

8 the case of a minister described in subparagraph

9 (A)(i)(I)—

10 ‘‘(i) the minister’s includible com11 pensation under section 403(b)(3) shall be

12 determined by reference to the minister’s

13 earned income (within the meaning of sec14 tion 401(c)(2)) from such ministry rather

15 than the amount of compensation which is

16 received from an employer, and

17 ‘‘(ii) the years (and portions of years)

18 in which such minister was a self-employed

19 individual (within the meaning of section

20 401(c)(1)(B)) with respect to such ministry

21 shall be included for purposes of section

22 403(b)(4).

23 ‘‘(C) EFFECT ON NON-DENOMINATIONAL

24 PLANS.—If a duly ordained, commissioned, or li25 censed minister of a church in the exercise of his
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1 or her ministry participates in a church plan

2 (within the meaning of this section) and is em3 ployed by an employer not eligible to participate

4 in such church plan, then such minister shall not

5 be treated as an employee of such employer for

6 purposes of applying sections 401(a)(3),

7 401(a)(4), and 401(a)(5), as in effect on Septem8 ber 1, 1974, and sections 401(a)(4), 401(a)(5),

9 401(a)(26), 401(k)(3), 401(m), 403(b)(1)(D) (in10 cluding section 403(b)(12)), and 410 to any stock

11 bonus, pension, profit-sharing, or annuity plan

12 (including an annuity described in section

13 403(b) or a retirement income account described

14 in section 403(b)(9)).’’.

15 (b) CONTRIBUTIONS BY CERTAIN MINISTERS TO RE16 TIREMENT INCOME ACCOUNTS.—Section 404(a) (relating to

17 deduction for contributions of an employer to an employees’

18 trust or annuity plan and compensation under a deferred19 payment plan) is amended by adding at the end the follow20 ing new paragraph:

21 ‘‘(10) CONTRIBUTIONS BY CERTAIN MINISTERS

22 TO RETIREMENT INCOME ACCOUNTS.—In the case of

23 contributions made by a minister described in section

24 414(e)(5) to a retirement income account described in
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1 section 403(b)(9) and not by a person other than such

2 minister, such contributions—

3 ‘‘(A) shall be treated as made to a trust

4 which is exempt from tax under section 501(a)

5 and which is part of a plan which is described

6 in section 401(a), and

7 ‘‘(B) shall be deductible under this sub8 section to the extent such contributions do not ex9 ceed the limit on elective deferrals under section

10 402(g), the exclusion allowance under section

11 403(b)(2), or the limit on annual additions

12 under section 415.

13 For purposes of this paragraph, all plans in which

14 the minister is a participant shall be treated as one

15 plan.’’.

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

17 section shall apply to years beginning after December 31,

18 1996.

19 SEC. 1463. DEFINITION OF HIGHLY COMPENSATED EM20 PLOYEE FOR PRE-ERISA CHURCH PLANS.

21 (a) IN GENERAL.—Section 414(q) (defining highly

22 compensated employee), as amended by section 1431(c)1(A)

23 of this Act, is amended by adding at the end the following

24 new paragraph:
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1 ‘‘(7) CERTAIN EMPLOYEES NOT CONSIDERED

2 HIGHLY COMPENSATED AND EXCLUDED EMPLOYEES

3 UNDER PRE-ERISA CHURCH PLANS.—In the case of a

4 church plan (as defined in subsection (e)), no em5 ployee shall be considered an officer, a person whose

6 principal duties consist in supervising the work of

7 other employees, or a highly compensated employee

8 for any year unless such employee is a highly com9 pensated employee under paragraph (1) for such

10 year.’’.

11 (b) SAFEHARBOR AUTHORITY.—The Secretary of the

12 Treasury may design nondiscrimination and coverage safe

13 harbors for church plans.

14 (c) EFFECTIVE DATE.—The amendments made by sub15 section (a) shall apply to years beginning after December

16 31, 1996.

17 SEC. 1464. RULE RELATING TO INVESTMENT IN CONTRACT

18 NOT TO APPLY TO FOREIGN MISSIONARIES.

19 (a) IN GENERAL.—The last sentence of section 72(f)

20 is amended by inserting ‘‘, or to the extent such credits are

21 attributable to services performed as a foreign missionary

22 (within the meaning of section 403(b)(2)(D)(iii))’’ before

23 the end period.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 1996.

4 SEC. 1465. INCREASE IN GUARANTEED AMOUNT OF MULTI5 EMPLOYER PLAN BENEFITS.

6 (a) IN GENERAL.—Section 4022A(c) of the Employee

7 Retirement Income Security Act of 1974 is amended by

8 adding at the end the following new paragraph:

9 ‘‘(7)(A) In the case of a multiemployer plan

10 which first receives financial assistance (within the

11 meaning of section 4261) during the applicable pe12 riod—

13 ‘‘(i) paragraph (1) shall be applied with re14 spect to the guarantee of benefits under such plan

15 by substituting ‘$11’ for ‘$5’ each place it ap16 pears and by substituting ‘$33’ for ‘$15’, and

17 ‘‘(ii) paragraphs (2), (5), and (6) shall not

18 apply with respect to such plan.

19 ‘‘(B) For purposes of subparagraph (A), the ap20 plicable period is the period—

21 ‘‘(i) beginning on the date of the enactment

22 of this paragraph, and

23 ‘‘(ii) ending on the last day of the first fis24 cal year for which the surplus in the corpora25 tion’s multiemployer insurance program is less
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1 than 50 percent of such surplus for the fiscal

2 year ending September 30, 1995.

3 ‘‘(C) For purposes of subparagraph (B), the sur4 plus for any fiscal year shall be the surplus reflected

5 in the Statement of Financial Condition for the fiscal

6 year contained in the corporation’s annual report, ex7 cept that the assumptions used in computing such

8 surplus shall be the same as those used for the fiscal

9 year ending September 30, 1995.’’.

10 (b) EFFECTIVE DATE.—The amendments made by this

11 section shall take effect on the date of the enactment of this

12 Act.

13 SEC. 1466. WAIVER OF EXCISE TAX ON FAILURE TO PAY LI14 QUIDITY SHORTFALL.

15 (a) IN GENERAL.—Section 4971(f) (relating to failure

16 to pay liquidity shortfall) is amended by adding at the end

17 the following new paragraph:

18 ‘‘(4) WAIVER BY SECRETARY.—If the taxpayer

19 establishes to the satisfaction of the Secretary that—

20 ‘‘(A) the liquidity shortfall described in

21 paragraph (1) was due to reasonable cause and

22 not willful neglect, and

23 ‘‘(B) reasonable steps have been taken to

24 remedy such liquidity shortfall,
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1 the Secretary may waive all or part of the tax im2 posed by this subsection.’’.

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

4 section shall take effect as if included in the amendment

5 made by clause (ii) of section 751(a)(9)(B) of the Retire6 ment Protection Act of 1994 (108 Stat. 5020).

7 SEC. 1467. TREATMENT OF MULTIEMPLOYER PLANS UNDER

8 SECTION 415.

9 (a) COMPENSATION LIMIT.—Paragraph (11) of section

10 415(b), as added by section 1444(a), is amended—

11 (1) by inserting ‘‘or a multiemployer plan (as

12 defined in section 414(f))’’ after ‘‘section 414(d))’’,

13 and

14 (2) by inserting ‘‘AND MULTIEMPLOYER’’ after

15 ‘‘GOVERNMENTAL’’ in the heading thereof.

16 (b) EXEMPTION FOR SURVIVOR AND DISABILITY BENE17 FITS.—Subparagraph (I) of section 415(b)(2), as added by

18 section 1444(c), is amended—

19 (1) by inserting ‘‘or a multiemployer plan (as

20 defined in section 414(f))’’ after ‘‘section 414(d))’’ in

21 clause (i) thereof,

22 (2) by inserting ‘‘or multiemployer’’ after ‘‘gov23 ernmental’’ in clause (ii) thereof, and

24 (3) by inserting ‘‘AND MULTIEMPLOYER’’ after

25 ‘‘GOVERNMENTAL’’ in the heading thereof.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to years beginning after December 31,

3 1996.

4 SEC. 1468. PAYMENT OF LUMP-SUM CREDIT FOR FORMER

5 SPOUSES OF FEDERAL EMPLOYEES.

6 (a) IN GENERAL.—Title 5, United States Code, is

7 amended—

8 (1) in section 8342(c) by striking ‘‘Lump-sum’’

9 and inserting ‘‘Except as provided in section 8345(j),

10 lump-sum’’;

11 (2) in section 8345(j)—

12 (A) in paragraph (1) by inserting after

13 ‘‘that individual’’ the following: ‘‘, or be made

14 under section 8342(d) through (f) to an individ15 ual entitled under section 8342(c),’’; and

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

17 ‘‘(4) Any payment under this subsection to a person

18 bars recovery by any other person.’’;

19 (3) in section 8424(d) by striking ‘‘Lump-sum’’

20 and inserting ‘‘Except as provided in section 8467(a),

21 lump-sum’’; and

22 (4) in section 8467—

23 (A) in subsection (a) by inserting after

24 ‘‘that individual’’ the following: ‘‘, or be made
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1 under section 8424 (e) through (g) to an individ2 ual entitled under section 8424(d),’’; and

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

4 ‘‘(d) Any payment under this section to a person bars

5 recovery by any other person.’’.

6 (b) EFFECTIVE DATE.—The amendments made by this

7 section shall apply with respect to any death occurring after

8 the 90th day after the date of the enactment of this Act.

9 SEC. 1469. DATE FOR ADOPTION OF PLAN AMENDMENTS.

10 If any amendment made by this subtitle requires an

11 amendment to any plan or annuity contract, such amend12 ment shall not be required to be made before the first day

13 of the first plan year beginning on or after January 1,

14 1997, if—

15 (1) during the period after such amendment

16 takes effect and before such first plan year, the plan

17 or contract is operated in accordance with the re18 quirements of such amendment, and

19 (2) such amendment applies retroactively to such

20 period.

21 In the case of a governmental plan (as defined in section

22 414(d) of the Internal Revenue Code of 1986), this section

23 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.
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1 Subtitle E—Revenue Offsets

2 PART I—GENERAL PROVISIONS

3 SEC. 1601. MODIFICATIONS OF PUERTO RICO AND POSSES4 SION TAX CREDIT.

5 (a) IN GENERAL.—Section 936 is amended by adding

6 at the end the following new subsection:

7 ‘‘(j) TERMINATION OF QPSII AND REDUCED CREDIT;

8 REDUCTION IN ECONOMIC ACTIVITY CREDIT.—

9 ‘‘(1) IN GENERAL.—Except as otherwise provided

10 in this subsection, this section shall not apply to any

11 taxable year beginning after December 31, 1995.

12 ‘‘(2) SPECIAL RULES FOR ACTIVE BUSINESS IN13 COME CREDIT.—Except as provided in paragraph

14 (3)—

15 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

16 case of an existing credit claimant—

17 ‘‘(i) with respect to a possession other

18 than Puerto Rico, and

19 ‘‘(ii) to which subsection (a)(4)(B) does

20 not apply,

21 the credit determined under subsection (a)(1)(A)

22 shall be allowed for taxable years beginning after

23 December 31, 1995, except that in the case of

24 taxable years beginning after December 31, 2005,
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1 subsection (a)(4)(A)(i) shall be applied by sub2 stituting ‘40 percent’ for ‘60 percent’.

3 ‘‘(B) REDUCED CREDIT.—

4 ‘‘(i) IN GENERAL.—In the case of an

5 existing credit claimant to which subsection

6 (a)(4)(B) applies, the credit determined

7 under subsection (a)(1)(A) shall be allowed

8 for taxable years beginning after December

9 31, 1995, and before January 1, 2006.

10 ‘‘(ii) ELECTION IRREVOCABLE AFTER

11 1997.—An election under subsection

12 (a)(4)(B)(iii) which is in effect for the tax13 payer’s last taxable year beginning before

14 1997 may not be revoked unless it is re15 voked for the taxpayer’s first taxable year

16 beginning in 1997 and all subsequent tax17 able years.

18 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

19 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

20 ‘‘(3) ADDITIONAL RESTRICTION ON CREDIT.—

21 ‘‘(A) IN GENERAL.—In the case of an exist22 ing credit claimant, the aggregate amount of

23 taxable income taken into account under sub-
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1 section (a)(1)(A) shall not exceed the adjusted

2 base period income of such claimant—

3 ‘‘(i) in the case of the credit described

4 in paragraph (2)(A), for any taxable year

5 beginning after December 31, 2001, and

6 ‘‘(ii) in the case of the credit described

7 in paragraph (2)(B), for any taxable year

8 beginning after December 31, 1997.

9 ‘‘(B) COORDINATION WITH SUBSECTION

10 (a)(4).—The amount of income described in sub11 section (a)(1)(A) which is taken into account in

12 applying subsection (a)(4) shall be such income

13 as reduced under this paragraph.

14 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

15 purposes of paragraph (3)—

16 ‘‘(A) IN GENERAL.—The term ‘adjusted base

17 period income’ means the average of the infla18 tion-adjusted possession incomes of the corpora19 tion for each base period year.

20 ‘‘(B) INFLATION-ADJUSTED POSSESSION IN21 COME.—For purposes of subparagraph (A), the

22 inflation-adjusted possession income of any cor23 poration for any base period year shall be an

24 amount equal to the sum of—
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1 ‘‘(i) the possession income of such cor2 poration for such base period year, plus

3 ‘‘(ii) such possession income multiplied

4 by the inflation adjustment percentage for

5 such base period year.

6 ‘‘(C) INFLATION ADJUSTMENT PERCENT7 AGE.—For purposes of subparagraph (B), the in8 flation adjustment percentage for any base pe9 riod year means the percentage (if any) by

10 which—

11 ‘‘(i) the CPI for 1995, exceeds

12 ‘‘(ii) the CPI for the calendar year in

13 which the base period year for which the de14 termination is being made ends.

15 For purposes of the preceding sentence, the CPI

16 for any calendar year is the CPI (as defined in

17 section 1(f)(5)) for such year under section

18 1(f)(4).

19 ‘‘(D) INCREASE IN INFLATION ADJUSTMENT

20 PERCENTAGE FOR GROWTH DURING BASE

21 YEARS.—The inflation adjustment percentage

22 (determined under subparagraph (C) without re23 gard to this subparagraph) for each of the 5 tax24 able years referred to in paragraph (5)(A) shall

25 be increased by—
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1 ‘‘(i) 5 percentage points in the case of

2 a taxable year ending during the 1-year pe3 riod ending on October 13, 1995;

4 ‘‘(ii) 10.25 percentage points in the

5 case of a taxable year ending during the 1-

6 year period ending on October 13, 1994;

7 ‘‘(iii) 15.76 percentage points in the

8 case of a taxable year ending during the 1-

9 year period ending on October 13, 1993;

10 ‘‘(iv) 21.55 percentage points in the

11 case of a taxable year ending during the 1-

12 year period ending on October 13, 1992;

13 and

14 ‘‘(v) 27.63 percentage points in the

15 case of a taxable year ending during the 1-

16 year period ending on October 13, 1991.

17 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

18 subsection—

19 ‘‘(A) IN GENERAL.—The term ‘base period

20 year’ means each of 3 taxable years which are

21 among the 5 most recent taxable years of the cor22 poration ending before October 14, 1995, deter23 mined by disregarding—
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1 ‘‘(i) one taxable year for which the cor2 poration had the largest inflation-adjusted

3 possession income, and

4 ‘‘(ii) one taxable year for which the

5 corporation had the smallest inflation-ad6 justed possession income.

7 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI8 CANT POSSESSION INCOME THROUGHOUT 5-YEAR

9 PERIOD.—

10 ‘‘(i) IN GENERAL.—If a corporation

11 does not have significant possession income

12 for each of the most recent 5 taxable years

13 ending before October 14, 1995, then, in lieu

14 of applying subparagraph (A), the term

15 ‘base period year’ means only those taxable

16 years (of such 5 taxable years) for which the

17 corporation has significant possession in18 come; except that, if such corporation has

19 significant possession income for 4 of such

20 5 taxable years, the rule of subparagraph

21 (A)(ii) shall apply.

22 ‘‘(ii) SPECIAL RULE.—If there is no

23 year (of such 5 taxable years) for which a

24 corporation has significant possession in25 come—
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1 ‘‘(I) the term ‘base period year’

2 means the first taxable year ending on

3 or after October 14, 1995, but

4 ‘‘(II) the amount of possession in5 come for such year which is taken into

6 account under paragraph (4) shall be

7 the amount which would be determined

8 if such year were a short taxable year

9 ending on September 30, 1995.

10 ‘‘(iii) SIGNIFICANT POSSESSION IN11 COME.—For purposes of this subparagraph,

12 the term ‘significant possession income’

13 means possession income which exceeds 2

14 percent of the possession income of the tax15 payer for the taxable year (of the period of

16 6 taxable years ending with the first taxable

17 year ending on or after October 14, 1995)

18 having the greatest possession income.

19 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

20 YEAR.—

21 ‘‘(i) IN GENERAL.—At the election of

22 the taxpayer, the term ‘base period year’

23 means—
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1 ‘‘(I) only the last taxable year of

2 the corporation ending in calendar

3 year 1992, or

4 ‘‘(II) a deemed taxable year which

5 includes the first ten months of cal6 endar year 1995.

7 ‘‘(ii) BASE PERIOD INCOME FOR

8 1995.—In determining the adjusted base pe9 riod income of the corporation for the

10 deemed taxable year under clause (i)(II),

11 the possession income shall be annualized

12 and shall be determined without regard to

13 any extraordinary item.

14 ‘‘(iii) ELECTION.—An election under

15 this subparagraph by any possession cor16 poration may be made only for the corpora17 tion’s first taxable year beginning after De18 cember 31, 1995, for which it is a possession

19 corporation. The rules of subclauses (II)

20 and (III) of subsection (a)(4)(B)(iii) shall

21 apply to the election under this subpara22 graph.

23 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

24 Rules similar to the rules of subparagraphs (A)
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1 and (B) of section 41(f)(3) shall apply for pur2 poses of this subsection.

3 ‘‘(6) POSSESSION INCOME.—For purposes of this

4 subsection, the term ‘possession income’ means, with

5 respect to any possession, the income referred to in

6 subsection (a)(1)(A) determined with respect to that

7 possession. In no event shall possession income be

8 treated as being less than zero.

9 ‘‘(7) SHORT YEARS.—If the current year or a

10 base period year is a short taxable year, the applica11 tion of this subsection shall be made with such

12 annualizations as the Secretary shall prescribe.

13 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES14 SIONS.—

15 ‘‘(A) IN GENERAL.—In the case of an exist16 ing credit claimant with respect to an applicable

17 possession—

18 ‘‘(i) this section (other than the preced19 ing paragraphs of this subsection) shall

20 apply to such claimant with respect to such

21 applicable possession for taxable years be22 ginning after December 31, 1995, and before

23 January 1, 2006, and

24 ‘‘(ii) this section (including the preced25 ing paragraphs of this subsection) shall
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1 apply to such claimant with respect to such

2 applicable possession for taxable years be3 ginning after December 31, 2005.

4 ‘‘(B) APPLICABLE POSSESSION.—For pur5 poses of this paragraph, the term ‘applicable pos6 session’ means Guam, American Samoa, and the

7 Commonwealth of the Northern Mariana Islands.

8 ‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes

9 of this subsection—

10 ‘‘(A) IN GENERAL.—The term ‘existing cred11 it claimant’ means a corporation—

12 ‘‘(i) which was actively conducting a

13 trade or business in a possession on October

14 13, 1995, and

15 ‘‘(ii) with respect to which an election

16 under this section is in effect for the cor17 poration’s taxable year which includes Octo18 ber 13, 1995.

19 ‘‘(B) NEW LINES OF BUSINESS PROHIB20 ITED.—If, after October 13, 1995, a corporation

21 which would (but for this subparagraph) be an

22 existing credit claimant adds a substantial new

23 line of business, such corporation shall cease to

24 be treated as an existing credit claimant as of
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1 the close of the taxable year ending before the

2 date of such addition.

3 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

4 on October 13, 1995, and at all times thereafter,

5 there is in effect with respect to a corporation a

6 binding contract for the acquisition of assets to

7 be used in, or for the sale of assets to be produced

8 from, a trade or business, the corporation shall

9 be treated for purposes of this paragraph as ac10 tively conducting such trade or business on Octo11 ber 13, 1995. The preceding sentence shall not

12 apply if such trade or business is not actively

13 conducted before January 1, 1996.

14 ‘‘(10) SEPARATE APPLICATION TO EACH POSSES15 SION.—For purposes of determining—

16 ‘‘(A) whether a taxpayer is an existing

17 credit claimant, and

18 ‘‘(B) the amount of the credit allowed under

19 this section,

20 this subsection (and so much of this section as relates

21 to this subsection) shall be applied separately with re22 spect to each possession.’’.

23 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
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1 (1) IN GENERAL.—Subpart B of part IV of sub2 chapter A of chapter 1 is amended by adding at the

3 end the following new section:

4 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

5 ‘‘(a) ALLOWANCE OF CREDIT.—

6 ‘‘(1) IN GENERAL.—Except as otherwise provided

7 in this section, if the conditions of both paragraph (1)

8 and paragraph (2) of subsection (b) are satisfied with

9 respect to a qualified domestic corporation, there shall

10 be allowed as a credit against the tax imposed by this

11 chapter an amount equal to the portion of the tax

12 which is attributable to the taxable income, from

13 sources without the United States, from—

14 ‘‘(A) the active conduct of a trade or busi15 ness within Puerto Rico, or

16 ‘‘(B) the sale or exchange of substantially

17 all of the assets used by the taxpayer in the ac18 tive conduct of such trade or business.

19 In the case of any taxable year beginning after De20 cember 31, 2001, the aggregate amount of taxable in21 come taken into account under the preceding sentence

22 (and in applying subsection (d)) shall not exceed the

23 adjusted base period income of such corporation, as

24 determined in the same manner as under section

25 936(j).
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1 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For

2 purposes of paragraph (1), the term ‘qualified domes3 tic corporation’ means a domestic corporation—

4 ‘‘(A) which is an existing credit claimant

5 with respect to Puerto Rico, and

6 ‘‘(B) with respect to which section

7 936(a)(4)(B) does not apply for the taxable year.

8 ‘‘(3) SEPARATE APPLICATION.—For purposes of

9 determining—

10 ‘‘(A) whether a taxpayer is an existing

11 credit claimant with respect to Puerto Rico, and

12 ‘‘(B) the amount of the credit allowed under

13 this section,

14 this section (and so much of section 936 as relates to

15 this section) shall be applied separately with respect

16 to Puerto Rico.

17 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The

18 conditions referred to in subsection (a) are—

19 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

20 the gross income of the qualified domestic corporation

21 for the 3-year period immediately preceding the close

22 of the taxable year (or for such part of such period

23 immediately preceding the close of such taxable year

24 as may be applicable) was derived from sources with-
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1 in a possession of the United States (determined with2 out regard to section 904(f)).

3 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

4 more of the gross income of the qualified domestic cor5 poration for such period or such part thereof was de6 rived from the active conduct of a trade or business

7 within a possession of the United States.

8 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

9 TAXES.—The credit provided by subsection (a) shall not be

10 allowed against the tax imposed by—

11 ‘‘(1) section 59A (relating to environmental tax),

12 ‘‘(2) section 531 (relating to the tax on accumu13 lated earnings),

14 ‘‘(3) section 541 (relating to personal holding

15 company tax), or

16 ‘‘(4) section 1351 (relating to recoveries of for17 eign expropriation losses).

18 ‘‘(d) LIMITATIONS ON CREDIT.—The amount of the

19 credit determined under subsection (a) for any taxable year

20 shall not exceed the sum of the following amounts:

21 ‘‘(1) 60 percent (40 percent in the case of taxable

22 years beginning after December 31, 2005) of the sum

23 of—
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1 ‘‘(A) the aggregate amount of the qualified

2 domestic corporation’s qualified possession wages

3 for such taxable year, plus

4 ‘‘(B) the allocable employee fringe benefit

5 expenses of the qualified domestic corporation for

6 such taxable year.

7 ‘‘(2) The sum of—

8 ‘‘(A) 15 percent of the depreciation allow9 ances for the taxable year with respect to short10 life qualified tangible property,

11 ‘‘(B) 40 percent of the depreciation allow12 ances for the taxable year with respect to me13 dium-life qualified tangible property, and

14 ‘‘(C) 65 percent of the depreciation allow15 ances for the taxable year with respect to long16 life qualified tangible property.

17 ‘‘(3) If the qualified domestic corporation does

18 not have an election to use the method described in

19 section 936(h)(5)(C)(ii) (relating to profit split) in ef20 fect for the taxable year, the amount of the qualified

21 possession income taxes for the taxable year allocable

22 to nonsheltered income.

23 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

24 this title (other than section 27)—
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1 ‘‘(1) the provisions of section 936 (including any

2 applicable election thereunder) shall apply in the

3 same manner as if the credit under this section were

4 a credit under section 936(a)(1)(A) for a domestic

5 corporation to which section 936(a)(4)(A) applies,

6 ‘‘(2) the credit under this section shall be treated

7 in the same manner as the credit under section 936,

8 and

9 ‘‘(3) a corporation to which this section applies

10 shall be treated in the same manner as if it were a

11 corporation electing the application of section 936.

12 ‘‘(f) DEFINITIONS.—For purposes of this section, any

13 term used in this section which is also used in section 936

14 shall have the same meaning given such term by section

15 936.

16 ‘‘(g) APPLICATION OF SECTION.—This section shall

17 apply to taxable years beginning after December 31, 1995.’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Paragraph (1) of section 55(c) is

20 amended by striking ‘‘and the section 936 credit

21 allowable under section 27(b)’’ and inserting ‘‘,

22 the section 936 credit allowable under section

23 27(b), and the Puerto Rican economic activity

24 credit under section 30A’’.
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1 (B) Subclause (I) of section 56(g)(4)(C)(ii)

2 is amended—

3 (i) by inserting ‘‘30A,’’ before ‘‘936’’,

4 and

5 (ii) by striking ‘‘and (i)’’ and insert6 ing ‘‘, (i), and (j)’’.

7 (C) Clause (iii) of section 56(g)(4)(C) is

8 amended by adding at the end the following new

9 subclause:

10 ‘‘(VI) APPLICATION TO SECTION

11 30A CORPORATIONS.—References in this

12 clause to section 936 shall be treated as

13 including references to section 30A.’’.

14 (D)(i) Subsection (b) of section 59 is

15 amended by striking ‘‘section 936,’’ and all that

16 follows and inserting ‘‘section 30A or 936, alter17 native minimum taxable income shall not in18 clude any income with respect to which a credit

19 is determined under section 30A or 936.’’.

20 (ii) The heading for section 59(b) is amend21 ed by inserting ‘‘30A OR’’ before ‘‘936’’.

22 (E) The table of sections for subpart B of

23 part IV of subchapter A of chapter 1 is amended

24 by adding at the end the following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’.
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1 (F)(i) The heading for subpart B of part IV

2 of subchapter A of chapter 1 is amended to read

3 as follows:

4 ‘‘Subpart B—Other Credits’’.

5 (ii) The table of subparts for part IV of sub6 chapter A of chapter 1 is amended by striking

7 the item relating to subpart B and inserting the

8 following new item:

‘‘Subpart B. Other credits.’’.

9 (c) EFFECTIVE DATES.—

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

11 this section shall apply to taxable years beginning

12 after December 31, 1995.

13 (2) SPECIAL RULE FOR QUALIFIED POSSESSION

14 SOURCE INVESTMENT INCOME.—The amendments

15 made by this section shall not apply to qualified pos16 session source investment income received or accrued

17 before July 1, 1996, without regard to the taxable

18 year in which received or accrued.

19 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

20 LOANS USED TO ACQUIRE EMPLOYER SECU21 RITIES.

22 (a) IN GENERAL.—Section 133 (relating to interest on

23 certain loans used to acquire employer securities) is hereby

24 repealed.

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (B) of section 291(e)(1) is

2 amended by striking clause (iv) and by redesignating

3 clause (v) as clause (iv).

4 (2) Section 812 is amended by striking sub5 section (g).

6 (3) Paragraph (5) of section 852(b) is amended

7 by striking subparagraph (C).

8 (4) Paragraph (2) of section 4978(b) is amended

9 by striking subparagraph (A) and all that follows and

10 inserting the following:

11 ‘‘(A) first from qualified securities to which

12 section 1042 applied acquired during the 3-year

13 period ending on the date of the disposition, be14 ginning with the securities first so acquired, and

15 ‘‘(B) then from any other employer securi16 ties.

17 If subsection (d) applies to a disposition, the disposi18 tion shall be treated as made from employer securities

19 in the opposite order of the preceding sentence.’’.

20 (5)(A) Section 4978B (relating to tax on disposi21 tion of employer securities to which section 133 ap22 plied) is hereby repealed.

23 (B) The table of sections for chapter 43 is

24 amended by striking the item relating to section

25 4978B.
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1 (6) Subsection (e) of section 6047 is amended by

2 striking paragraphs (1), (2), and (3) and inserting

3 the following new paragraphs:

4 ‘‘(1) any employer maintaining, or the plan ad5 ministrator (within the meaning of section 414(g)) of,

6 an employee stock ownership plan which holds stock

7 with respect to which section 404(k) applies to divi8 dends paid on such stock, or

9 ‘‘(2) both such employer or plan administrator,’’.

10 (7) Subsection (f) of section 7872 is amended by

11 striking paragraph (12).

12 (8) The table of sections for part III of sub13 chapter B of chapter 1 is amended by striking the

14 item relating to section 133.

15 (c) EFFECTIVE DATE.—

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

17 this section shall apply to loans made after the date

18 of the enactment of this Act.

19 (2) REFINANCINGS.—The amendments made by

20 this section shall not apply to loans made after the

21 date of the enactment of this Act to refinance securi22 ties acquisition loans (determined without regard to

23 section 133(b)(1)(B) of the Internal Revenue Code of

24 1986, as in effect on the day before the date of the en-
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1 actment of this Act) made on or before such date or

2 to refinance loans described in this paragraph if—

3 (A) the refinancing loans meet the require4 ments of section 133 of such Code (as so in ef5 fect),

6 (B) immediately after the refinancing the

7 principal amount of the loan resulting from the

8 refinancing does not exceed the principal amount

9 of the refinanced loan (immediately before the re10 financing), and

11 (C) the term of such refinancing loan does

12 not extend beyond the last day of the term of the

13 original securities acquisition loan.

14 For purposes of this paragraph, the term ‘‘securities

15 acquisition loan’’ includes a loan from a corporation

16 to an employee stock ownership plan described in sec17 tion 133(b)(3) of such Code (as so in effect).

18 (3) EXCEPTION.—Any loan made pursuant to a

19 binding written contract in effect before June 10,

20 1996, and at all times thereafter before such loan is

21 made, shall be treated for purposes of paragraphs (1)

22 and (2) as a loan made on or before the date of the

23 enactment of this Act.
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1 SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.

2 (a) IN GENERAL.—Paragraph (2) of section 104(a)

3 (relating to compensation for injuries or sickness) is amend4 ed to read as follows:

5 ‘‘(2) the amount of any damages (other than pu6 nitive damages) received (whether by suit or agree7 ment and whether as lump sums or as periodic pay8 ments) on account of personal injuries or sickness;’’.

9 (b) APPLICATION OF PRIOR LAW FOR STATES IN

10 WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN

11 WRONGFUL DEATH ACTIONS.—Section 104 is amended by

12 redesignating subsection (c) as subsection (d) and by insert13 ing after subsection (b) the following new subsection:

14 ‘‘(c) APPLICATION OF PRIOR LAW IN CERTAIN

15 CASES.—Notwithstanding subsection (a)(2), gross income

16 shall not include punitive damages awarded in a civil ac17 tion—

18 ‘‘(1) which is a wrongful death action, and

19 ‘‘(2) with respect to which applicable State law

20 (as in effect on September 13, 1995 and without re21 gard to any modification after such date) provides, or

22 has been construed to provide by a court of competent

23 jurisdiction pursuant to a decision issued on or before

24 September 13, 1995, that only punitive damages may

25 be awarded in such an action.
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1 This subsection shall cease to apply to any civil action filed

2 on or after the first date on which the applicable State law

3 ceases to provide (or is no longer construed to provide) the

4 treatment described in paragraph (2).’’.

5 (c) CONFORMING AMENDMENT.—Section 104(a) is

6 amended by striking the last sentence.

7 (d) EFFECTIVE DATE.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section shall

10 apply to amounts received after June 30, 1996, in

11 taxable years ending after such date.

12 (2) EXCEPTION.—The amendments made by this

13 section shall not apply to any amount received under

14 a written binding agreement, court decree, or medi15 ation award in effect on (or issued on or before) Sep16 tember 13, 1995.

17 SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PAS18 SENGER AUTOMOBILE TAX.

19 (a) EXTENSION.—Subsection (f) of section 4001 is

20 amended by striking ‘‘1999’’ and inserting ‘‘2002’’.

21 (b) PHASEDOWN.—Section 4001 is amended by redes22 ignating subsection (f) (as amended by subsection (a) of this

23 section) as subsection (g) and by inserting after subsection

24 (e) the following new subsection:
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1 ‘‘(f) PHASEDOWN.—For sales occurring in calendar

2 years after 1995 and before 2003, subsection (a) shall be

3 applied by substituting for ‘10 percent’ the percentage deter4 mined in accordance with the following table:

‘‘If the calendar year is: The percentage is:

1996 ............................................................................................. 9 percent

1997 ............................................................................................. 8 percent

1998 ............................................................................................. 7 percent

1999 ............................................................................................. 6 percent

2000 ............................................................................................. 5 percent

2001 ............................................................................................. 4 percent

2002 ............................................................................................. 3 percent.’’.

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

6 section shall apply with respect to sales occurring after the

7 date which is 7 days after the date of the enactment of this

8 Act.

9 SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FI10 NANCING FOR LOCAL FURNISHERS OF ELEC11 TRICITY AND GAS.

12 Section 142(f) (relating to local furnishing of electric

13 energy or gas) is amended by adding at the end the follow14 ing new paragraphs:

15 ‘‘(3) TERMINATION OF FUTURE FINANCING.—For

16 purposes of this section, no bond may be issued as

17 part of an issue described in subsection (a)(8) with

18 respect to a facility for the local furnishing of electric

19 energy or gas on or after the date of the enactment

20 of this paragraph unless—

21 ‘‘(A) the facility will—
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1 ‘‘(i) be used by a person who is en2 gaged in the local furnishing of that energy

3 source on such date, and

4 ‘‘(ii) be used to provide service within

5 the area served by such person on such date,

6 or

7 ‘‘(B) the facility will be used by a successor

8 in interest to such person for the same use and

9 within the same service area as described in sub10 paragraph (A).

11 ‘‘(4) ELECTION TO TERMINATE TAX-EXEMPT

12 BOND FINANCING BY CERTAIN FURNISHERS.—

13 ‘‘(A) IN GENERAL.—In the case of a facility

14 financed with bonds issued before the date of the

15 enactment of this paragraph which would cease

16 to be tax-exempt by reason of the failure to meet

17 the local furnishing requirement of subsection

18 (a)(8) as a result of a service area expansion,

19 such bonds shall not cease to be tax-exempt bonds

20 (and section 150(b)(4) shall not apply) if the

21 person engaged in such local furnishing by such

22 facility makes an election described in subpara23 graph (B).

24 ‘‘(B) ELECTION.—An election is described

25 in this subparagraph if it is an election made in
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1 such manner as the Secretary prescribes, and

2 such person (or its predecessor in interest) agrees

3 that—

4 ‘‘(i) such election is made with respect

5 to all facilities for the local furnishing of

6 electric energy or gas, or both, by such per7 son,

8 ‘‘(ii) no bond exempt from tax under

9 section 103 and described in subsection

10 (a)(8) may be issued on or after the date of

11 the enactment of this paragraph with re12 spect to all such facilities of such person,

13 ‘‘(iii) any expansion of the service

14 area—

15 ‘‘(I) is not financed with the pro16 ceeds of any exempt facility bond de17 scribed in subsection (a)(8), and

18 ‘‘(II) is not treated as a non19 qualifying use under the rules of para20 graph (2), and

21 ‘‘(iv) all outstanding bonds used to fi22 nance the facilities for such person are re23 deemed not later than 6 months after the

24 later of—
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1 ‘‘(I) the earliest date on which

2 such bonds may be redeemed, or

3 ‘‘(II) the date of the election.

4 ‘‘(C) RELATED PERSONS.—For purposes of

5 this paragraph, the term ‘person’ includes a

6 group of related persons (within the meaning of

7 section 144(a)(3)) which includes such person.’’.

8 SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSI9 TION RULE TO INTEREST ALLOCATION

10 RULES.

11 (a) IN GENERAL.—Paragraph (5) of section 1215(c)

12 of the Tax Reform Act of 1986 (Public Law 99–514, 100

13 Stat. 2548) is hereby repealed.

14 (b) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to taxable years beginning after Decem16 ber 31, 1995.

17 SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST

18 FUND EXCISE TAXES.

19 (a) FUEL TAX.—

20 (1) Subparagraph (A) of section 4091(b)(3) is

21 amended to read as follows:

22 ‘‘(A) The rate of tax specified in paragraph

23 (1) shall be 4.3 cents per gallon—

24 ‘‘(i) after December 31, 1995, and be25 fore the date which is 7 days after the date
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1 of the enactment of the Small Business Job

2 Protection Act of 1996, and

3 ‘‘(ii) after April 15, 1997.’’.

4 (2) Section 4081(d) is amended—

5 (A) by adding at the end the following new

6 paragraph:

7 ‘‘(3) AVIATION GASOLINE.—After April 15, 1997,

8 the rate of tax specified in subsection (a)(2)(A)(i) on

9 aviation gasoline shall be 4.3 cents per gallon.’’, and

10 (B) by inserting ‘‘(other than the tax on

11 aviation gasoline)’’ after ‘‘subsection (a)(2)(A)’’.

12 (3) Section 4041(c)(5) is amended by inserting

13 ‘‘, and during the period beginning on the date which

14 is 7 days after the date of the enactment of the Small

15 Business Job Protection Act of 1996 and ending on

16 April 15, 1997’’ after ‘‘December 31, 1995’’.

17 (b) TICKET TAXES.—Sections 4261(g) and 4271(d) are

18 each amended by striking ‘‘January 1, 1996’’ and inserting

19 ‘‘January 1, 1996, and to transportation beginning on or

20 after the date which is 7 days after the date of the enactment

21 of the Small Business Job Protection Act of 1996 and before

22 April 16, 1997’’.

23 (c) TRANSFERS TO AIRPORT AND AIRWAY TRUST

24 FUND.—
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1 (1) Subsection (b) of section 9502 is amended by

2 striking ‘‘January 1, 1996’’ each place it appears and

3 inserting ‘‘April 16, 1997’’.

4 (2) Paragraph (3) of section 9502(f) is amended

5 to read as follows:

6 ‘‘(3) TERMINATION.—Notwithstanding the pre7 ceding provisions of this subsection, the Airport and

8 Airway Trust Fund financing rate shall be zero with

9 respect to—

10 ‘‘(A) taxes imposed after December 31,

11 1995, and before the date which is 7 days after

12 the date of the enactment of the Small Business

13 Job Protection Act of 1996, and

14 ‘‘(B) taxes imposed after April 15, 1997.’’.

15 (3) Subsection (d) of section 9502 is amended by

16 adding at the end the following new paragraph:

17 ‘‘(5) TRANSFERS FROM AIRPORT AND AIRWAY

18 TRUST FUND ON ACCOUNT OF REFUNDS OF TAXES ON

19 TRANSPORTATION BY AIR.—The Secretary of the

20 Treasury shall pay from time to time from the Air21 port and Airway Trust Fund into the general fund

22 of the Treasury amounts equivalent to the amounts

23 paid after December 31, 1995, under section 6402 (re24 lating to authority to make credits or refunds) or sec25 tion 6415 (relating to credits or refunds to persons
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1 who collected certain taxes) in respect of taxes under

2 sections 4261 and 4271.’’.

3 (d) EXCISE TAX EXEMPTION FOR CERTAIN EMER4 GENCY MEDICAL TRANSPORTATION BY AIR AMBULANCE.—

5 Subsection (f) of section 4261 (relating to imposition of tax

6 on transportation by air) is amended to read as follows:

7 ‘‘(f) EXEMPTION FOR AIR AMBULANCES PROVIDING

8 CERTAIN EMERGENCY MEDICAL TRANSPORTATION.—No

9 tax shall be imposed under this section or section 4271 on

10 any air transportation for the purpose of providing emer11 gency medical services—

12 ‘‘(1) by helicopter, or

13 ‘‘(2) by a fixed-wing aircraft equipped for and

14 exclusively dedicated to acute care emergency medical

15 services.’’.

16 (e) EXEMPTION FOR CERTAIN HELICOPTER USES.—

17 Subsection (e) of section 4261 is amended by adding at the

18 end the following new sentence: ‘‘In the case of helicopter

19 transportation described in paragraph (1), this subsection

20 shall be applied by treating each flight segment as a distinct

21 flight.’’.

22 (f) FLOOR STOCKS TAXES ON AVIATION FUEL.—

23 (1) IMPOSITION OF TAX.—In the case of aviation

24 fuel on which tax was imposed under section 4091 of

25 the Internal Revenue Code of 1986 before the tax-in-
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1 crease date described in paragraph (3)(A)(i) and

2 which is held on such date by any person, there is

3 hereby imposed a floor stocks tax of 17.5 cents per

4 gallon.

5 (2) LIABILITY FOR TAX AND METHOD OF PAY6 MENT.—

7 (A) LIABILITY FOR TAX.—A person holding

8 aviation fuel on a tax-increase date to which the

9 tax imposed by paragraph (1) applies shall be

10 liable for such tax.

11 (B) METHOD OF PAYMENT.—The tax im12 posed by paragraph (1) shall be paid in such

13 manner as the Secretary shall prescribe.

14 (C) TIME FOR PAYMENT.—The tax imposed

15 by paragraph (1) with respect to any tax-in16 crease date shall be paid on or before the first

17 day of the 7th month beginning after such tax18 increase date.

19 (3) DEFINITIONS.—For purposes of this sub20 section—

21 (A) TAX INCREASE DATE.—The term ‘‘tax22 increase date’’ means the date which is 7 days

23 after the date of the enactment of this Act.
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1 (B) AVIATION FUEL.—The term ‘‘aviation

2 fuel’’ has the meaning given such term by section

3 4093 of such Code.

4 (C) HELD BY A PERSON.—Aviation fuel

5 shall be considered as ‘‘held by a person’’ if title

6 thereto has passed to such person (whether or not

7 delivery to the person has been made).

8 (D) SECRETARY.—The term ‘‘Secretary’’

9 means the Secretary of the Treasury or his dele10 gate.

11 (4) EXCEPTION FOR EXEMPT USES.—The tax

12 imposed by paragraph (1) shall not apply to aviation

13 fuel held by any person on any tax-increase date ex14 clusively for any use for which a credit or refund of

15 the entire tax imposed by section 4091 of such Code

16 is allowable for aviation fuel purchased on or after

17 such tax-increase date for such use.

18 (5) EXCEPTION FOR CERTAIN AMOUNTS OF

19 FUEL.—

20 (A) IN GENERAL.—No tax shall be imposed

21 by paragraph (1) on aviation fuel held on any

22 tax-increase date by any person if the aggregate

23 amount of aviation fuel held by such person on

24 such date does not exceed 2,000 gallons. The pre25 ceding sentence shall apply only if such person
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1 submits to the Secretary (at the time and in the

2 manner required by the Secretary) such informa3 tion as the Secretary shall require for purposes

4 of this paragraph.

5 (B) EXEMPT FUEL.—For purposes of sub6 paragraph (A), there shall not be taken into ac7 count fuel held by any person which is exempt

8 from the tax imposed by paragraph (1) by rea9 son of paragraph (4).

10 (C) CONTROLLED GROUPS.—For purposes of

11 this paragraph—

12 (i) CORPORATIONS.—

13 (I) IN GENERAL.—All persons

14 treated as a controlled group shall be

15 treated as 1 person.

16 (II) CONTROLLED GROUP.—The

17 term ‘‘controlled group’’ has the mean18 ing given to such term by subsection

19 (a) of section 1563 of such Code; except

20 that for such purposes the phrase

21 ‘‘more than 50 percent’’ shall be sub22 stituted for the phrase ‘‘at least 80 per23 cent’’ each place it appears in such

24 subsection.
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1 (ii) NONINCORPORATED PERSONS

2 UNDER COMMON CONTROL.—Under regula3 tions prescribed by the Secretary, principles

4 similar to the principles of clause (i) shall

5 apply to a group of persons under common

6 control where 1 or more of such persons is

7 not a corporation.

8 (6) OTHER LAW APPLICABLE.—All provisions of

9 law, including penalties, applicable with respect to

10 the taxes imposed by section 4091 of such Code shall,

11 insofar as applicable and not inconsistent with the

12 provisions of this subsection, apply with respect to the

13 floor stock taxes imposed by paragraph (1) to the

14 same extent as if such taxes were imposed by such sec15 tion 4091.

16 (g) EFFECTIVE DATE.—The amendments made by this

17 section shall take effect 7 days after the date of the enact18 ment of this Act, except that the amendments made by sub19 section (b) shall not apply to any amount paid on or before

20 such date.
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1 SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY

2 CORPORATION WHERE STOCK IN CORPORA3 TION IS REPLACEMENT PROPERTY UNDER IN4 VOLUNTARY CONVERSION RULES.

5 (a) IN GENERAL.—Subsection (b) of section 1033 is

6 amended to read as follows:

7 ‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN8 VOLUNTARY CONVERSION.—

9 ‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION

10 (a)(1).—If the property was acquired as the result of

11 a compulsory or involuntary conversion described in

12 subsection (a)(1), the basis shall be the same as in the

13 case of the property so converted—

14 ‘‘(A) decreased in the amount of any money

15 received by the taxpayer which was not expended

16 in accordance with the provisions of law (appli17 cable to the year in which such conversion was

18 made) determining the taxable status of the gain

19 or loss upon such conversion, and

20 ‘‘(B) increased in the amount of gain or de21 creased in the amount of loss to the taxpayer rec22 ognized upon such conversion under the law ap23 plicable to the year in which such conversion

24 was made.

25 ‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION

26 (a)(2).—In the case of property purchased by the tax-
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1 payer in a transaction described in subsection (a)(2)

2 which resulted in the nonrecognition of any part of

3 the gain realized as the result of a compulsory or in4 voluntary conversion, the basis shall be the cost of

5 such property decreased in the amount of the gain not

6 so recognized; and if the property purchased consists

7 of more than 1 piece of property, the basis determined

8 under this sentence shall be allocated to the purchased

9 properties in proportion to their respective costs.

10 ‘‘(3) PROPERTY HELD BY CORPORATION THE

11 STOCK OF WHICH IS REPLACEMENT PROPERTY.—

12 ‘‘(A) IN GENERAL.—If the basis of stock in

13 a corporation is decreased under paragraph (2),

14 an amount equal to such decrease shall also be

15 applied to reduce the basis of property held by

16 the corporation at the time the taxpayer ac17 quired control (as defined in subsection

18 (a)(2)(E)) of such corporation.

19 ‘‘(B) LIMITATION.—Subparagraph (A) shall

20 not apply to the extent that it would (but for

21 this subparagraph) require a reduction in the

22 aggregate adjusted bases of the property of the

23 corporation below the taxpayer’s adjusted basis

24 of the stock in the corporation (determined im-
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1 mediately after such basis is decreased under

2 paragraph (2)).

3 ‘‘(C) ALLOCATION OF BASIS REDUCTION.—

4 The decrease required under subparagraph (A)

5 shall be allocated—

6 ‘‘(i) first to property which is similar

7 or related in service or use to the converted

8 property,

9 ‘‘(ii) second to depreciable property (as

10 defined in section 1017(b)(3)(B)) not de11 scribed in clause (i), and

12 ‘‘(iii) then to other property.

13 ‘‘(D) SPECIAL RULES.—

14 ‘‘(i) REDUCTION NOT TO EXCEED AD15 JUSTED BASIS OF PROPERTY.—No reduction

16 in the basis of any property under this

17 paragraph shall exceed the adjusted basis of

18 such property (determined without regard

19 to such reduction).

20 ‘‘(ii) ALLOCATION OF REDUCTION

21 AMONG PROPERTIES.—If more than 1 prop22 erty is described in a clause of subpara23 graph (C), the reduction under this para24 graph shall be allocated among such prop-
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1 erty in proportion to the adjusted bases of

2 such property (as so determined).’’.

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

4 section shall apply to involuntary conversions occurring

5 after the date of the enactment of this Act.

6 SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAM7 BLING WINNINGS.

8 (a) REPEAL OF EXEMPTION FOR BINGO AND KENO.—

9 Paragraph (5) of section 3402(q) is amended to read as fol10 lows:

11 ‘‘(5) EXEMPTION FOR SLOT MACHINES.—The tax

12 imposed under paragraph (1) shall not apply to

13 winnings from a slot machine.’’.

14 (b) THRESHOLD AMOUNT.—Paragraph (3) of section

15 3402(q) is amended—

16 (1) by striking ‘‘(B) and (C)’’ in subparagraph

17 (A) and inserting ‘‘(B), (C), and (D)’’, and

18 (2) by adding at the end the following new sub19 paragraph:

20 ‘‘(D) BINGO AND KENO.—Proceeds of more

21 than $5,000 from a wager placed in a bingo or

22 keno game.’’.

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

24 section shall take effect on the 30th day after the date of

25 the enactment of this Act.
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1 SEC. 1610. TREATMENT OF CERTAIN INSURANCE CON2 TRACTS ON RETIRED LIVES.

3 (a) GENERAL RULE.—

4 (1) Paragraph (2) of section 817(d) (defining

5 variable contract) is amended by striking ‘‘or’’ at the

6 end of subparagraph (A), by striking ‘‘and’’ at the

7 end of subparagraph (B) and inserting ‘‘or’’, and by

8 inserting after subparagraph (B) the following new

9 subparagraph:

10 ‘‘(C) provides for funding of insurance on

11 retired lives as described in section 807(c)(6),

12 and’’.

13 (2) Paragraph (3) of section 817(d) is amended

14 by striking ‘‘or’’ at the end of subparagraph (A), by

15 striking the period at the end of subparagraph (B)

16 and inserting ‘‘, or’’, and by inserting after subpara17 graph (B) the following new subparagraph:

18 ‘‘(C) in the case of funds held under a con19 tract described in paragraph (2)(C), the amounts

20 paid in, or the amounts paid out, reflect the in21 vestment return and the market value of the seg22 regated asset account.’’.

23 (b) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 1995.
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1 SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CON2 STRUCTION.

3 (a) TREATMENT OF CONTRIBUTIONS IN AID OF CON4 STRUCTION.—

5 (1) IN GENERAL.—Section 118 (relating to con6 tributions to the capital of a corporation) is amend7 ed—

8 (A) by redesignating subsection (c) as sub9 section (e), and

10 (B) by inserting after subsection (b) the fol11 lowing new subsections:

12 ‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE

13 DISPOSAL UTILITIES.—

14 ‘‘(1) GENERAL RULE.—For purposes of this sec15 tion, the term ‘contribution to the capital of the tax16 payer’ includes any amount of money or other prop17 erty received from any person (whether or not a

18 shareholder) by a regulated public utility which pro19 vides water or sewerage disposal services if—

20 ‘‘(A) such amount is a contribution in aid

21 of construction,

22 ‘‘(B) in the case of contribution of property

23 other than water or sewerage disposal facilities,

24 such amount meets the requirements of the ex25 penditure rule of paragraph (2), and
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1 ‘‘(C) such amount (or any property ac2 quired or constructed with such amount) is not

3 included in the taxpayer’s rate base for rate4 making purposes.

5 ‘‘(2) EXPENDITURE RULE.—An amount meets

6 the requirements of this paragraph if—

7 ‘‘(A) an amount equal to such amount is

8 expended for the acquisition or construction of

9 tangible property described in section 1231(b)—

10 ‘‘(i) which is the property for which

11 the contribution was made or is of the same

12 type as such property, and

13 ‘‘(ii) which is used predominantly in

14 the trade or business of furnishing water or

15 sewerage disposal services,

16 ‘‘(B) the expenditure referred to in subpara17 graph (A) occurs before the end of the second tax18 able year after the year in which such amount

19 was received, and

20 ‘‘(C) accurate records are kept of the

21 amounts contributed and expenditures made, the

22 expenditures to which contributions are allo23 cated, and the year in which the contributions

24 and expenditures are received and made.
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1 ‘‘(3) DEFINITIONS.—For purposes of this sub2 section—

3 ‘‘(A) CONTRIBUTION IN AID OF CONSTRUC4 TION.—The term ‘contribution in aid of con5 struction’ shall be defined by regulations pre6 scribed by the Secretary, except that such term

7 shall not include amounts paid as service

8 charges for starting or stopping services.

9 ‘‘(B) PREDOMINANTLY.—The term ‘pre10 dominantly’ means 80 percent or more.

11 ‘‘(C) REGULATED PUBLIC UTILITY.—The

12 term ‘regulated public utility’ has the meaning

13 given such term by section 7701(a)(33), except

14 that such term shall not include any utility

15 which is not required to provide water or sewer16 age disposal services to members of the general

17 public in its service area.

18 ‘‘(4) DISALLOWANCE OF DEDUCTIONS AND CRED19 ITS; ADJUSTED BASIS.—Notwithstanding any other

20 provision of this subtitle, no deduction or credit shall

21 be allowed for, or by reason of, any expenditure which

22 constitutes a contribution in aid of construction to

23 which this subsection applies. The adjusted basis of

24 any property acquired with contributions in aid of
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1 construction to which this subsection applies shall be

2 zero.

3 ‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for

4 any taxable year treats an amount as a contribution to the

5 capital of the taxpayer described in subsection (c), then—

6 ‘‘(1) the statutory period for the assessment of

7 any deficiency attributable to any part of such

8 amount shall not expire before the expiration of 3

9 years from the date the Secretary is notified by the

10 taxpayer (in such manner as the Secretary may pre11 scribe) of—

12 ‘‘(A) the amount of the expenditure referred

13 to in subparagraph (A) of subsection (c)(2),

14 ‘‘(B) the taxpayer’s intention not to make

15 the expenditures referred to in such subpara16 graph, or

17 ‘‘(C) a failure to make such expenditure

18 within the period described in subparagraph (B)

19 of subsection (c)(2), and

20 ‘‘(2) such deficiency may be assessed before the

21 expiration of such 3-year period notwithstanding the

22 provisions of any other law or rule of law which

23 would otherwise prevent such assessment.’’.
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1 (2) CONFORMING AMENDMENT.—Section 118(b)

2 is amended by inserting ‘‘except as provided in sub3 section (c),’’ before ‘‘the term’’.

4 (3) EFFECTIVE DATE.—The amendments made

5 by this subsection shall apply to amounts received

6 after June 12, 1996.

7 (b) RECOVERY METHOD AND PERIOD FOR WATER

8 UTILITY PROPERTY.—

9 (1) REQUIREMENT TO USE STRAIGHT LINE

10 METHOD.—Section 168(b)(3) is amended by adding

11 at the end the following new subparagraph:

12 ‘‘(F) Water utility property described in

13 subsection (e)(5).’’.

14 (2) 25-YEAR RECOVERY PERIOD.—The table con15 tained in section 168(c)(1) is amended by inserting

16 the following item after the item relating to 20-year

17 property:

‘‘Water utility property ................................................................. 25 years’’.

18 (3) WATER UTILITY PROPERTY.—

19 (A) IN GENERAL.—Section 168(e) is amend20 ed by adding at the end the following new para21 graph:

22 ‘‘(5) WATER UTILITY PROPERTY.—The term

23 ‘water utility property’ means property—

24 ‘‘(A) which is an integral part of the gath25 ering, treatment, or commercial distribution of
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1 water, and which, without regard to this para2 graph, would be 20-year property, and

3 ‘‘(B) any municipal sewer.’’.

4 (B) CONFORMING AMENDMENTS.—Section

5 168 is amended—

6 (i) by striking subparagraph (F) of

7 subsection (e)(3), and

8 (ii) by striking the item relating to

9 subparagraph (F) in the table in subsection

10 (g)(3).

11 (4) ALTERNATIVE SYSTEM.—Clause (iv) of sec12 tion 168(g)(2)(C) is amended by inserting ‘‘or water

13 utility property’’ after ‘‘tunnel bore’’.

14 (5) EFFECTIVE DATE.—The amendments made

15 by this subsection shall apply to property placed in

16 service after June 12, 1996, other than property

17 placed in service pursuant to a binding contract in

18 effect before June 10, 1996, and at all times thereafter

19 before the property is placed in service.

20 SEC. 1612. ELECTION TO CEASE STATUS AS QUALIFIED

21 SCHOLARSHIP FUNDING CORPORATION.

22 (a) IN GENERAL.—Subsection (d) of section 150 (relat23 ing to definitions and special rules) is amended by adding

24 at the end the following new paragraph:
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1 ‘‘(3) ELECTION TO CEASE STATUS AS QUALIFIED

2 SCHOLARSHIP FUNDING CORPORATION.—

3 ‘‘(A) IN GENERAL.—Any qualified scholar4 ship funding bond, and qualified student loan

5 bond, outstanding on the date of the issuer’s elec6 tion under this paragraph (and any bond (or se7 ries of bonds) issued to refund such a bond) shall

8 not fail to be a tax-exempt bond solely because

9 the issuer ceases to be described in subpara10 graphs (A) and (B) of paragraph (2) if the is11 suer meets the requirements of subparagraphs

12 (B) and (C) of this paragraph.

13 ‘‘(B) ASSETS AND LIABILITIES OF ISSUER

14 TRANSFERRED TO TAXABLE SUBSIDIARY.—The

15 requirements of this subparagraph are met by an

16 issuer if—

17 ‘‘(i) all of the student loan notes of the

18 issuer and other assets pledged to secure the

19 repayment of qualified scholarship funding

20 bond indebtedness of the issuer are trans21 ferred to another corporation within a rea22 sonable period after the election is made

23 under this paragraph;

24 ‘‘(ii) such transferee corporation as25 sumes or otherwise provides for the payment
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1 of all of the qualified scholarship funding

2 bond indebtedness of the issuer within a

3 reasonable period after the election is made

4 under this paragraph;

5 ‘‘(iii) to the extent permitted by law,

6 such transferee corporation assumes all of

7 the responsibilities, and succeeds to all of

8 the rights, of the issuer under the issuer’s

9 agreements with the Secretary of Education

10 in respect of student loans;

11 ‘‘(iv) immediately after such transfer,

12 the issuer, together with any other issuer

13 which has made an election under this

14 paragraph in respect of such transferee,

15 hold all of the senior stock in such transferee

16 corporation; and

17 ‘‘(v) such transferee corporation is not

18 exempt from tax under this chapter.

19 ‘‘(C) ISSUER TO OPERATE AS INDEPENDENT

20 ORGANIZATION DESCRIBED IN SECTION

21 501(C)(3).—The requirements of this subpara22 graph are met by an issuer if, within a reason23 able period after the transfer referred to in sub24 paragraph (B)—
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1 ‘‘(i) the issuer is described in section

2 501(c)(3) and exempt from tax under sec3 tion 501(a);

4 ‘‘(ii) the issuer no longer is described

5 in subparagraphs (A) and (B) of paragraph

6 (2); and

7 ‘‘(iii) at least 80 percent of the mem8 bers of the board of directors of the issuer

9 are independent members.

10 ‘‘(D) SENIOR STOCK.—For purposes of this

11 paragraph, the term ‘senior stock’ means stock—

12 ‘‘(i) which participates pro rata and

13 fully in the equity value of the corporation

14 with all other common stock of the corpora15 tion but which has the right to payment of

16 liquidation proceeds prior to payment of

17 liquidation proceeds in respect of other com18 mon stock of the corporation;

19 ‘‘(ii) which has a fixed right upon liq20 uidation and upon redemption to an

21 amount equal to the greater of—

22 ‘‘(I) the fair market value of such

23 stock on the date of liquidation or re24 demption (whichever is applicable); or
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1 ‘‘(II) the fair market value of all

2 assets transferred in exchange for such

3 stock and reduced by the amount of all

4 liabilities of the corporation which has

5 made an election under this paragraph

6 assumed by the transferee corporation

7 in such transfer;

8 ‘‘(iii) the holder of which has the right

9 to require the transferee corporation to re10 deem on a date that is not later than 10

11 years after the date on which an election

12 under this paragraph was made and pursu13 ant to such election such stock was issued;

14 and

15 ‘‘(iv) in respect of which, during the

16 time such stock is outstanding, there is not

17 outstanding any equity interest in the cor18 poration having any liquidation, redemp19 tion or dividend rights in the corporation

20 which are superior to those of such stock.

21 ‘‘(E) INDEPENDENT MEMBER.—The term

22 ‘independent member’ means a member of the

23 board of directors of the issuer who (except for

24 services as a member of such board) receives no

25 compensation directly or indirectly—
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1 ‘‘(i) for services performed in connec2 tion with such transferee corporation, or

3 ‘‘(ii) for services as a member of the

4 board of directors or as an officer of such

5 transferee corporation.

6 For purposes of clause (ii), the term ‘officer’ in7 cludes any individual having powers or respon8 sibilities similar to those of officers.

9 ‘‘(F) COORDINATION WITH CERTAIN PRI10 VATE FOUNDATION TAXES.—For purposes of sec11 tions 4942 (relating to the excise tax on a failure

12 to distribute income) and 4943 (relating to the

13 excise tax on excess business holdings), the trans14 feree corporation referred to in subparagraph (B)

15 shall be treated as a functionally related business

16 (within the meaning of section 4942(j)(4)) with

17 respect to the issuer during the period commenc18 ing with the date on which an election is made

19 under this paragraph and ending on the date

20 that is the earlier of—

21 ‘‘(i) the last day of the last taxable

22 year for which more than 50 percent of the

23 gross income of such transferee corporation

24 is derived from, or more than 50 percent of

25 the assets (by value) of such transferee cor-
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1 poration consists of, student loan notes in2 curred under the Higher Education Act of

3 1965; or

4 ‘‘(ii) the last day of the taxable year of

5 the issuer during which occurs the date

6 which is 10 years after the date on which

7 the election under this paragraph is made.

8 ‘‘(G) ELECTION.—An election under this

9 paragraph may be revoked only with the consent

10 of the Secretary.’’.

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

12 section shall take effect on the date of the enactment of this

13 Act.

14 SEC. 1613. CERTAIN TAX BENEFITS DENIED TO INDIVID15 UALS FAILING TO PROVIDE TAXPAYER IDEN16 TIFICATION NUMBERS.

17 (a) PERSONAL EXEMPTION.—

18 (1) IN GENERAL.—Section 151 (relating to al19 lowance of deductions for personal exemptions) is

20 amended by adding at the end the following new sub21 section:

22 ‘‘(e) IDENTIFYING INFORMATION REQUIRED.—No ex23 emption shall be allowed under this section with respect to

24 any individual unless the TIN of such individual is in25 cluded on the return claiming the exemption.’’.
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1 (2) CONFORMING AMENDMENTS.—

2 (A) Subsection (e) of section 6109 is re3 pealed.

4 (B) Section 6724(d)(3) is amended by add5 ing ‘‘and’’ at the end of subparagraph (C), by

6 striking subparagraph (D), and by redesignating

7 subparagraph (E) as subparagraph (D).

8 (b) DEPENDENT CARE CREDIT.—Subsection (e) of sec9 tion 21 (relating to expenses for household and dependent

10 care services necessary for gainful employment) is amended

11 by adding at the end the following new paragraph:

12 ‘‘(10) IDENTIFYING INFORMATION REQUIRED

13 WITH RESPECT TO QUALIFYING INDIVIDUALS.—No

14 credit shall be allowed under this section with respect

15 to any qualifying individual unless the TIN of such

16 individual is included on the return claiming the

17 credit.’’.

18 (c) EXTENSION OF PROCEDURES APPLICABLE TO

19 MATHEMATICAL OR CLERICAL ERRORS.—Section

20 6213(g)(2) (relating to the definition of mathematical or

21 clerical errors) is amended by striking ‘‘and’ at the end of

22 subparagraph (D), by striking the period at the end of sub23 paragraph (E) and inserting ‘‘, and’’, and by inserting at

24 the end the following new subparagraph:
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1 ‘‘(F) an omission of a correct TIN required

2 under section 21 (relating to expenses for house3 hold and dependent care services necessary for

4 gainful employment) or section 151 (relating to

5 allowance of deductions for personal exemp6 tions).’’.

7 (d) EFFECTIVE DATE.—

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

9 this section shall apply with respect to returns the

10 due date for which (without regard to extensions) is

11 on or after the 30th day after the date of the enact12 ment of this Act.

13 (2) SPECIAL RULE FOR 1995 AND 1996.—In the

14 case of returns for taxable years beginning in 1995 or

15 1996, a taxpayer shall not be required by the amend16 ments made by this section to provide a taxpayer

17 identification number for a child who is born after

18 October 31, 1995, in the case of a taxable year begin19 ning in 1995 or November 30, 1996, in the case of a

20 taxable year beginning in 1996.
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1 PART II—FINANCIAL ASSET SECURITIZATION

2 INVESTMENTS

3 SEC. 1621. FINANCIAL ASSET SECURITIZATION INVEST4 MENT TRUSTS.

5 (a) IN GENERAL.—Subchapter M of chapter 1 is

6 amended by adding at the end the following new part:

7 ‘‘PART V—FINANCIAL ASSET SECURITIZATION

8 INVESTMENT TRUSTS

‘‘Sec. 860H. Taxation of a FASIT; other general rules.

‘‘Sec. 860I. Gain recognition on contributions to and distributions

from a FASIT and in other cases.

‘‘Sec. 860J. Non-FASIT losses not to offset certain FASIT inclusions.

‘‘Sec. 860K. Treatment of transfers of high-yield interests to disqualified holders.

‘‘Sec. 860L. Definitions and other special rules.

9 ‘‘SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

10 ‘‘(a) TAXATION OF FASIT.—A FASIT as such shall

11 not be subject to taxation under this subtitle (and shall not

12 be treated as a trust, partnership, corporation, or taxable

13 mortgage pool).

14 ‘‘(b) TAXATION OF HOLDER OF OWNERSHIP INTER15 EST.—In determining the taxable income of the holder of

16 the ownership interest in a FASIT—

17 ‘‘(1) all assets, liabilities, and items of income,

18 gain, deduction, loss, and credit of a FASIT shall be

19 treated as assets, liabilities, and such items (as the

20 case may be) of such holder,
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1 ‘‘(2) the constant yield method (including the

2 rules of section 1272(a)(6)) shall be applied under an

3 accrual method of accounting in determining all in4 terest, acquisition discount, original issue discount,

5 and market discount and all premium deductions or

6 adjustments with respect to all debt instruments of the

7 FASIT,

8 ‘‘(3) there shall not be taken into account any

9 item of income, gain, or deduction allocable to a pro10 hibited transaction, and

11 ‘‘(4) interest accrued by the FASIT which is ex12 empt from tax imposed by this subtitle shall, when

13 taken into account by such holder, be treated as ordi14 nary income.

15 For purposes of this subtitle, securities treated as held by

16 such holder under paragraph (1) shall be treated as held

17 for investment.

18 ‘‘(c) TREATMENT OF REGULAR INTERESTS.—For pur19 poses of this title—

20 ‘‘(1) a regular interest in a FASIT, if not other21 wise a debt instrument, shall be treated as a debt in22 strument,

23 ‘‘(2) section 163(e)(5) shall not apply to such an

24 interest, and
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1 ‘‘(3) amounts includible in gross income with re2 spect to such an interest shall be determined under an

3 accrual method of accounting.

4 ‘‘SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO

5 AND DISTRIBUTIONS FROM A FASIT AND IN

6 OTHER CASES.

7 ‘‘(a) TREATMENT OF PROPERTY ACQUIRED BY

8 FASIT.—

9 ‘‘(1) PROPERTY ACQUIRED FROM HOLDER OF

10 OWNERSHIP INTEREST OR RELATED PERSON.—If

11 property is sold or contributed to a FASIT by the

12 holder of the ownership interest in such FASIT (or by

13 a related person) gain (if any) shall be recognized to

14 such holder (or person) in an amount equal to the ex15 cess (if any) of such property’s value under subsection

16 (d) on the date of such sale or contribution over its

17 adjusted basis on such date.

18 ‘‘(2) PROPERTY ACQUIRED OTHER THAN FROM

19 HOLDER OF OWNERSHIP INTEREST OR RELATED PER20 SON.—Property which is acquired by a FASIT other

21 than in a transaction to which paragraph (1) applies

22 shall be treated—

23 ‘‘(A) as having been acquired by the holder

24 of the ownership interest in the FASIT for an

25 amount equal to the FASIT’s adjusted basis in
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1 such property as of the date such property is ac2 quired by the FASIT, and

3 ‘‘(B) as having been sold by such holder to

4 the FASIT at its value under subsection (d) on

5 such date.

6 ‘‘(b) GAIN RECOGNITION ON PROPERTY OUTSIDE

7 FASIT WHICH SUPPORTS REGULAR INTERESTS.—If prop8 erty held by the holder of the ownership interest in a FASIT

9 (or by any person related to such holder) supports any regu10 lar interest in such FASIT—

11 ‘‘(1) gain shall be recognized to such holder in

12 the same manner as if such holder had sold such

13 property at its value under subsection (d) on the ear14 liest date such property supports such an interest,

15 and

16 ‘‘(2) such property shall be treated as held by

17 such FASIT for purposes of this part.

18 ‘‘(c) DEFERRAL OF GAIN RECOGNITION.—The Sec19 retary may prescribe regulations which—

20 ‘‘(1) provide that gain otherwise recognized

21 under subsection (a) or (b) shall not be recognized be22 fore the earliest date on which such property supports

23 any regular interest in such FASIT or any indebted24 ness of the holder of the ownership interest (or of any

25 person related to such holder), and
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1 ‘‘(2) provide such adjustments to the other provi2 sions of this part to the extent appropriate in the con3 text of the treatment provided under paragraph (1).

4 ‘‘(d) VALUATION.—For purposes of this section—

5 ‘‘(1) IN GENERAL.—The value of any property

6 under this subsection shall be—

7 ‘‘(A) in the case of a debt instrument which

8 is not traded on an established securities market,

9 the sum of the present values of the reasonably

10 expected payments under such instrument deter11 mined (in the manner provided by regulations

12 prescribed by the Secretary)—

13 ‘‘(i) as of the date of the event resulting

14 in the gain recognition under this section,

15 and

16 ‘‘(ii) by using a discount rate equal to

17 120 percent of the applicable Federal rate

18 (as defined in section 1274(d)), or such

19 other discount rate specified in such regula20 tions, compounded semiannually, and

21 ‘‘(B) in the case of any other property, its

22 fair market value.

23 ‘‘(2) SPECIAL RULE FOR REVOLVING LOAN AC24 COUNTS.—For purposes of paragraph (1)—
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1 ‘‘(A) each extension of credit (other than the

2 accrual of interest) on a revolving loan account

3 shall be treated as a separate debt instrument,

4 and

5 ‘‘(B) payments on such extensions of credit

6 having substantially the same terms shall be ap7 plied to such extensions beginning with the earli8 est such extension.

9 ‘‘(e) SPECIAL RULES.—

10 ‘‘(1) NONRECOGNITION RULES NOT TO APPLY.—

11 Gain required to be recognized under this section

12 shall be recognized notwithstanding any other provi13 sion of this subtitle.

14 ‘‘(2) BASIS ADJUSTMENTS.—The basis of any

15 property on which gain is recognized under this sec16 tion shall be increased by the amount of gain so rec17 ognized.

18 ‘‘SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN

19 FASIT INCLUSIONS.

20 ‘‘(a) IN GENERAL.—The taxable income of the holder

21 of the ownership interest or any high-yield interest in a

22 FASIT for any taxable year shall in no event be less than

23 such holder’s taxable income determined solely with respect

24 to such interests.
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1 ‘‘(b) COORDINATION WITH SECTION 172.—Any in2 crease in the taxable income of any holder of the ownership

3 interest or a high-yield interest in a FASIT for any taxable

4 year by reason of subsection (a) shall be disregarded—

5 ‘‘(1) in determining under section 172 the

6 amount of any net operating loss for such taxable

7 year, and

8 ‘‘(2) in determining taxable income for such tax9 able year for purposes of the 2nd sentence of section

10 172(b)(2).

11 ‘‘(c) COORDINATION WITH MINIMUM TAX.—For pur12 poses of part VI of subchapter A of this chapter—

13 ‘‘(1) the reference in section 55(b)(2) to taxable

14 income shall be treated as a reference to taxable in15 come determined without regard to this section,

16 ‘‘(2) the alternative minimum taxable income of

17 any holder of the ownership interest or a high-yield

18 interest in a FASIT for any taxable year shall in no

19 event be less than such holder’s taxable income deter20 mined solely with respect to such interests, and

21 ‘‘(3) any increase in taxable income under this

22 section shall be disregarded for purposes of computing

23 the alternative tax net operating loss deduction.
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1 ‘‘SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD IN2 TERESTS TO DISQUALIFIED HOLDERS.

3 ‘‘(a) GENERAL RULE.—In the case of any high-yield

4 interest which is held by a disqualified holder—

5 ‘‘(1) the gross income of such holder shall not in6 clude any income (other than gain) attributable to

7 such interest, and

8 ‘‘(2) amounts not includible in the gross income

9 of such holder by reason of paragraph (1) shall be in10 cluded (at the time otherwise includible under para11 graph (1)) in the gross income of the most recent

12 holder of such interest which is not a disqualified

13 holder.

14 ‘‘(b) EXCEPTIONS.—Rules similar to the rules of para15 graphs (4) and (7) of section 860E(e) shall apply to the

16 tax imposed by reason of subsection (a).

17 ‘‘(c) DISQUALIFIED HOLDER.—For purposes of this

18 section, the term ‘disqualified holder’ means any holder

19 other than—

20 ‘‘(1) an eligible corporation (as defined in sec21 tion 860L(a)(2)), or

22 ‘‘(2) a FASIT.

23 ‘‘(d) TREATMENT OF INTERESTS HELD BY SECURI24 TIES DEALERS.—

25 ‘‘(1) IN GENERAL.—Subsection (a) shall not

26 apply to any high-yield interest held by a disqualified
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1 holder if such holder is a dealer in securities who ac2 quired such interest exclusively for sale to customers

3 in the ordinary course of business (and not for invest4 ment).

5 ‘‘(2) CHANGE IN DEALER STATUS.—

6 ‘‘(A) IN GENERAL.—In the case of a dealer

7 in securities which is not an eligible corporation

8 (as defined in section 860L(a)(2)), if—

9 ‘‘(i) such dealer ceases to be a dealer in

10 securities, or

11 ‘‘(ii) such dealer commences holding

12 the high-yield interest for investment,

13 there is hereby imposed (in addition to other

14 taxes) an excise tax equal to the product of the

15 highest rate of tax specified in section 11(b)(1)

16 and the income of such dealer attributable to

17 such interest for periods after the date of such

18 cessation or commencement.

19 ‘‘(B) HOLDING FOR 31 DAYS OR LESS.—For

20 purposes of subparagraph (A)(ii), a dealer shall

21 not be treated as holding an interest for invest22 ment before the 32d day after the date such deal23 er acquired such interest unless such interest is

24 so held as part of a plan to avoid the purposes

25 of this paragraph.
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1 ‘‘(C) ADMINISTRATIVE PROVISIONS.—The

2 deficiency procedures of subtitle F shall apply to

3 the tax imposed by this paragraph.

4 ‘‘(e) TREATMENT OF HIGH-YIELD INTERESTS IN PASS5 THRU ENTITIES.—

6 ‘‘(1) IN GENERAL.—If a pass-thru entity (as de7 fined in section 860E(e)(6)) issues a debt or equity

8 interest—

9 ‘‘(A) which is supported by any regular in10 terest in a FASIT, and

11 ‘‘(B) which has an original yield to matu12 rity which is greater than each of—

13 ‘‘(i) the sum determined under clauses

14 (i) and (ii) of section 163(i)(1)(B) with re15 spect to such debt or equity interest, and

16 ‘‘(ii) the yield to maturity to such en17 tity on such regular interest (determined as

18 of the date such entity acquired such inter19 est),

20 there is hereby imposed on the pass-thru entity a tax

21 (in addition to other taxes) equal to the product of the

22 highest rate of tax specified in section 11(b)(1) and

23 the income of the holder of such debt or equity interest

24 which is properly attributable to such regular inter25 est. For purposes of the preceding sentence, the yield
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1 to maturity of any equity interest shall be determined

2 under regulations prescribed by the Secretary.

3 ‘‘(2) EXCEPTION.—The Secretary may provide

4 that paragraph (1) shall not apply to arrangements

5 not having as a principal purpose the avoidance of

6 the purposes of this subsection.

7 ‘‘SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

8 ‘‘(a) FASIT.—

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

10 terms ‘financial asset securitization investment trust’

11 and ‘FASIT’ mean any entity—

12 ‘‘(A) for which an election to be treated as

13 a FASIT applies for the taxable year,

14 ‘‘(B) all of the interests in which are regu15 lar interests or the ownership interest,

16 ‘‘(C) which has only 1 ownership interest

17 and such ownership interest is held directly by

18 an eligible corporation,

19 ‘‘(D) as of the close of the 3rd month begin20 ning after the day of its formation and at all

21 times thereafter, substantially all of the assets of

22 which (including assets treated as held by the en23 tity under section 860I(c)(2)) consist of per24 mitted assets, and
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1 ‘‘(E) which is not described in section

2 851(a).

3 A rule similar to the rule of the last sentence of sec4 tion 860D(a) shall apply for purposes of this para5 graph.

6 ‘‘(2) ELIGIBLE CORPORATION.—For purposes of

7 paragraph (1)(C), the term ‘eligible corporation’

8 means any domestic C corporation other than—

9 ‘‘(A) a corporation which is exempt from, or

10 is not subject to, tax under this chapter,

11 ‘‘(B) an entity described in section 851(a)

12 or 856(a),

13 ‘‘(C) a REMIC, and

14 ‘‘(D) an organization to which part I of

15 subchapter T applies.

16 ‘‘(3) ELECTION.—An entity (otherwise meeting

17 the requirements of paragraph (1)) may elect to be

18 treated as a FASIT. Except as provided in paragraph

19 (5), such an election shall apply to the taxable year

20 for which made and all subsequent taxable years un21 less revoked with the consent of the Secretary.

22 ‘‘(4) TERMINATION.—If any entity ceases to be a

23 FASIT at any time during the taxable year, such en24 tity shall not be treated as a FASIT for such taxable

25 year or any succeeding taxable year.
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1 ‘‘(5) INADVERTENT TERMINATIONS, ETC.—Rules

2 similar to the rules of section 860D(b)(2)(B) shall

3 apply to inadvertent failures to qualify or remain

4 qualified as a FASIT.

5 ‘‘(b) INTERESTS IN FASIT.—For purposes of this

6 part—

7 ‘‘(1) REGULAR INTEREST.—

8 ‘‘(A) IN GENERAL.—The term ‘regular in9 terest’ means any interest which is issued by a

10 FASIT after the startup date with fixed terms

11 and which is designated as a regular interest

12 if—

13 ‘‘(i) such interest unconditionally enti14 tles the holder to receive a specified prin15 cipal amount (or other similar amount),

16 ‘‘(ii) except as otherwise provided by

17 the Secretary—

18 ‘‘(I) in the case of a FASIT which

19 would be treated as a REMIC if an

20 election under section 860D(b) had

21 been made, interest payments (or other

22 similar amounts), if any, with respect

23 to such interest at or before maturity

24 meet the requirements applicable under
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1 clause (i) or (ii) of section

2 860G(a)(1)(B), or

3 ‘‘(II) in the case of any other

4 FASIT, interest payments (or other

5 similar amounts), if any, with respect

6 to such interest are determined based

7 on a fixed rate, a current rate which is

8 reasonably expected to measure contem9 poraneous variations in the cost of

10 newly borrowed funds in the currency

11 in which the regular interest is de12 nominated, or any combination of such

13 rates,

14 ‘‘(iii) such interest does not have a

15 stated maturity (including options to

16 renew) greater than 30 years (or such

17 longer period as may be permitted by regu18 lations),

19 ‘‘(iv) the issue price of such interest

20 does not exceed 125 percent of its stated

21 principal amount, and

22 ‘‘(v) the yield to maturity on such in23 terest is less than the sum determined under

24 section 163(i)(1)(B) with respect to such in25 terest.
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1 An interest shall not fail to meet the require2 ments of clause (i) merely because the timing

3 (but not the amount) of the principal payments

4 (or other similar amounts) may be contingent on

5 the extent that payments on debt instruments

6 held by the FASIT are made in advance of an7 ticipated payments and on the amount of income

8 from permitted assets.

9 ‘‘(B) HIGH-YIELD INTERESTS.—

10 ‘‘(i) IN GENERAL.—The term ‘regular

11 interest’ includes any high-yield interest.

12 ‘‘(ii) HIGH-YIELD INTEREST.—The

13 term ‘high-yield interest’ means any interest

14 which would be described in subparagraph

15 (A) but for failing to meet the requirements

16 of one or more of clauses (i), (iv), or (v)

17 thereof.

18 ‘‘(2) OWNERSHIP INTEREST.—The term ‘owner19 ship interest’ means the interest issued by a FASIT

20 after the startup day which is designated as an own21 ership interest and which is not a regular interest.

22 ‘‘(c) PERMITTED ASSETS.—For purposes of this

23 part—

24 ‘‘(1) IN GENERAL.—The term ‘permitted asset’

25 means—
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1 ‘‘(A) cash or cash equivalents,

2 ‘‘(B) any debt instrument (as defined in

3 section 1275(a)(1)) under which interest pay4 ments (or other similar amounts), if any, at or

5 before maturity meet the requirements applicable

6 under clause (i) or (ii) of section 860G(a)(1)(B),

7 ‘‘(C) foreclosure property,

8 ‘‘(D) any asset—

9 ‘‘(i) which is an interest rate or foreign

10 currency notional principal contract, letter

11 of credit, insurance, guarantee against pay12 ment defaults, or other similar instrument

13 permitted by the Secretary, and

14 ‘‘(ii) which is reasonably required to

15 guarantee or hedge against the FASIT’s

16 risks associated with being the obligor on

17 interests issued by the FASIT,

18 ‘‘(E) contract rights to acquire debt instru19 ments described in subparagraph (B) or assets

20 described in subparagraph (D), and

21 ‘‘(F) any regular interest in another

22 FASIT.

23 ‘‘(2) DEBT ISSUED BY HOLDER OF OWNERSHIP

24 INTEREST NOT PERMITTED ASSET.—The term ‘per25 mitted asset’ shall not include any debt instrument is-
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1 sued by the holder of the ownership interest in the

2 FASIT or by any person related to such holder or

3 any direct or indirect interest in such a debt instru4 ment. The preceding sentence shall not apply to cash

5 equivalents and to any other investment specified in

6 regulations prescribed by the Secretary.

7 ‘‘(3) FORECLOSURE PROPERTY.—The term ‘fore8 closure property’ means property—

9 ‘‘(A) which would be foreclosure property

10 under section 856(e) (determined without regard

11 to paragraph (5) thereof) if acquired by a real

12 estate investment trust, and

13 ‘‘(B) which is acquired in connection with

14 the default or imminent default of a debt instru15 ment held by the FASIT unless the security in16 terest in such property was created for the prin17 cipal purpose of permitting the FASIT to invest

18 in such property.

19 Solely for purposes of subsection (a)(1), the deter20 mination of whether any property is foreclosure prop21 erty shall be made without regard to section

22 856(e)(4).

23 ‘‘(d) STARTUP DAY.—For purposes of this part—

24 ‘‘(1) IN GENERAL.—The term ‘startup day’

25 means the date designated in the election under sub-
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1 section (a)(3) as the startup day of the FASIT. Such

2 day shall be the beginning of the first taxable year of

3 the FASIT.

4 ‘‘(2) TREATMENT OF PROPERTY HELD ON START5 UP DAY.—All property held (or treated as held under

6 section 860I(c)(2)) by an entity as of the startup day

7 shall be treated as contributed to such entity on such

8 day by the holder of the ownership interest in such

9 entity.

10 ‘‘(e) TAX ON PROHIBITED TRANSACTIONS.—

11 ‘‘(1) IN GENERAL.—There is hereby imposed for

12 each taxable year of a FASIT a tax equal to 100 per13 cent of the net income derived from prohibited trans14 actions. Such tax shall be paid by the holder of the

15 ownership interest in the FASIT.

16 ‘‘(2) PROHIBITED TRANSACTIONS.—For purposes

17 of this part, the term ‘prohibited transaction’

18 means—

19 ‘‘(A) the receipt of any income derived from

20 any asset that is not a permitted asset,

21 ‘‘(B) except as provided in paragraph (3),

22 the disposition of any permitted asset,

23 ‘‘(C) the receipt of any income derived from

24 any loan originated by the FASIT, and
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1 ‘‘(D) the receipt of any income representing

2 a fee or other compensation for services (other

3 than any fee received as compensation for a

4 waiver, amendment, or consent under permitted

5 assets (other than foreclosure property) held by

6 the FASIT).

7 ‘‘(3) EXCEPTION FOR INCOME FROM CERTAIN

8 DISPOSITIONS.—

9 ‘‘(A) IN GENERAL.—Paragraph (2)(B) shall

10 not apply to a disposition which would not be a

11 prohibited transaction (as defined in section

12 860F(a)(2)) by reason of—

13 ‘‘(i) clause (ii), (iii), or (iv) of section

14 860F(a)(2)(A), or

15 ‘‘(ii) section 860F(a)(5),

16 if the FASIT were treated as a REMIC and debt

17 instruments described in subsection (c)(1)(B)

18 were treated as qualified mortgages.

19 ‘‘(B) SUBSTITUTION OF DEBT INSTRU20 MENTS; REDUCTION OF OVER21 COLLATERALIZATION.—Paragraph (2)(B) shall

22 not apply to—

23 ‘‘(i) the substitution of a debt instru24 ment described in subsection (c)(1)(B) for
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1 another debt instrument which is a per2 mitted asset, or

3 ‘‘(ii) the distribution of a debt instru4 ment contributed by the holder of the owner5 ship interest to such holder in order to re6 duce over-collateralization of the FASIT,

7 but only if a principal purpose of acquiring the

8 debt instrument which is disposed of was not the

9 recognition of gain (or the reduction of a loss) as

10 a result of an increase in the market value of the

11 debt instrument after its acquisition by the

12 FASIT.

13 ‘‘(C) LIQUIDATION OF CLASS OF REGULAR

14 INTERESTS.—Paragraph (2)(B) shall not apply

15 to the complete liquidation of any class of regu16 lar interests.

17 ‘‘(4) NET INCOME.—For purposes of this sub18 section, net income shall be determined in accordance

19 with section 860F(a)(3).

20 ‘‘(f) COORDINATION WITH WASH SALES RULES.—

21 Rules similar to the rules of section 860F(d) shall apply

22 to the ownership interest in a FASIT.

23 ‘‘(g) RELATED PERSON.—For purposes of this part, a

24 person (hereinafter in this subsection referred to as the ‘re25 lated person’) is related to any person if—
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1 ‘‘(1) the related person bears a relationship to

2 such person specified in section 267(b) or section

3 707(b)(1), or

4 ‘‘(2) the related person and such person are en5 gaged in trades or businesses under common control

6 (within the meaning of subsections (a) and (b) of sec7 tion 52).

8 For purposes of paragraph (1), in applying section 267(b)

9 or 707(b)(1), ‘20 percent’ shall be substituted for ‘50 per10 cent’.

11 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

12 such regulations as may be necessary or appropriate to

13 carry out the purposes of this part, including regulations

14 to prevent the abuse of the purposes of this part through

15 transactions which are not primarily related to

16 securitization of debt instruments by a FASIT.’’.

17 (b) TECHNICAL AMENDMENTS.—

18 (1) Paragraph (2) of section 26(b) is amended by

19 striking ‘‘and’’ at the end of subparagraph (M), by

20 striking the period at the end of subparagraph (N)

21 and inserting ‘‘, and’’, and by adding at the end the

22 following new subparagraph:

23 ‘‘(O) section 860K (relating to treatment of

24 transfers of high-yield interests to disqualified

25 holders).’’.
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1 (2) Paragraph (6) of section 56(g) is amended by

2 striking ‘‘or REMIC’’ and inserting ‘‘REMIC, or

3 FASIT’’.

4 (3) Clause (ii) of section 382(l)(4)(B) is amended

5 by striking ‘‘or a REMIC to which part IV of sub6 chapter M applies’’ and inserting ‘‘a REMIC to

7 which part IV of subchapter M applies, or a FASIT

8 to which part V of subchapter M applies’’.

9 (4) Paragraph (1) of section 582(c) is amended

10 by inserting ‘‘, and any regular or ownership interest

11 in a FASIT,’’ after ‘‘REMIC’’.

12 (5) Subparagraph (E) of section 856(c)(6) is

13 amended by adding at the end the following new sen14 tence: ‘‘The principles of the preceding provisions of

15 this subparagraph shall apply to regular and owner16 ship interests in a FASIT.’’.

17 (6) Subparagraph (C) of section 1202(e)(4) is

18 amended by striking ‘‘or REMIC’’ and inserting

19 ‘‘REMIC, or FASIT’’.

20 (7) Clause (xi) of section 7701(a)(19)(C) is

21 amended to read as follows:

22 ‘‘(xi) any regular or residual interest

23 in a REMIC, and any regular or ownership

24 interest in a FASIT, but only in the pro25 portion which the assets of such REMIC or
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1 FASIT consist of property described in any

2 of the preceding clauses of this subpara3 graph; except that if 95 percent or more of

4 the assets of such REMIC or FASIT are as5 sets described in clauses (i) through (x), the

6 entire interest in the REMIC or FASIT

7 shall qualify.’’.

8 (8) Subparagraph (A) of section 7701(i)(2) is

9 amended by inserting ‘‘or a FASIT’’ after ‘‘a

10 REMIC’’.

11 (c) CLERICAL AMENDMENT.—The table of parts for

12 subchapter M of chapter 1 is amended by adding at the

13 end the following new item:

‘‘Part V. Financial asset securitization investment trusts.’’.

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

15 section shall take effect on the date of the enactment of this

16 Act.

17 (e) TREATMENT OF EXISTING SECURITIZATION ENTI18 TIES.—

19 (1) IN GENERAL.—In the case of the holder of the

20 ownership interest in a pre-effective date FASIT—

21 (A) gain shall not be recognized under sec22 tion 860L(d)(2) of the Internal Revenue Code of

23 1986 on property deemed contributed to the

24 FASIT, and
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1 (B) gain shall not be recognized under sec2 tion 860I of such Code on property contributed

3 to such FASIT,

4 until such property (or portion thereof) ceases to be

5 properly allocable to a pre-FASIT interest.

6 (2) ALLOCATION OF PROPERTY TO PRE-FASIT IN7 TEREST.—For purposes of paragraph (1), property

8 shall be allocated to a pre-FASIT interest in such

9 manner as the Secretary of the Treasury may pre10 scribe, except that all property in a FASIT shall be

11 treated as properly allocable to pre-FASIT interests if

12 the fair market value of all such property does not ex13 ceed 107 percent of the aggregate principal amount of

14 all outstanding pre-FASIT interests.

15 (3) DEFINITIONS.—For purposes of this sub16 section—

17 (A) PRE-EFFECTIVE DATE FASIT.—The

18 term ‘‘pre-effective date FASIT’’ means any

19 FASIT if the entity (with respect to which the

20 election under section 860L(a)(3) of such Code

21 was made) was in existence on June 10, 1996.

22 (B) PRE-FASIT INTEREST.—The term ‘‘pre23 FASIT interest’’ means any interest in the en24 tity referred to in subparagraph (A) which was

25 issued before the startup day (other than any in-
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1 terest held by the holder of the ownership interest

2 in the FASIT).

3 PART III—TREATMENT OF INDIVIDUALS WHO

4 EXPATRIATE

5 SEC. 1631. REVISION OF TAX RULES ON EXPATRIATION.

6 (a) IN GENERAL.—Subpart A of part II of subchapter

7 N of chapter 1 is amended by inserting after section 877

8 the following new section:

9 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

10 ‘‘(a) GENERAL RULES.—For purposes of this sub11 title—

12 ‘‘(1) MARK TO MARKET.—Except as provided in

13 subsection (f), all property of a covered expatriate to

14 which this section applies shall be treated as sold on

15 the expatriation date for its fair market value.

16 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

17 case of any sale under paragraph (1)—

18 ‘‘(A) notwithstanding any other provision of

19 this title, any gain arising from such sale shall

20 be taken into account for the taxable year of the

21 sale unless such gain is excluded from gross in22 come under part III of subchapter B, and

23 ‘‘(B) any loss arising from such sale shall

24 be taken into account for the taxable year of the

25 sale to the extent otherwise provided by this title,
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1 except that section 1091 shall not apply (and

2 section 1092 shall apply) to any such loss.

3 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

4 amount which would (but for this paragraph) be in5 cludible in the gross income of any individual by rea6 son of this section shall be reduced (but not below

7 zero) by $600,000. For purposes of this paragraph, al8 locable expatriation gain taken into account under

9 subsection (f)(2) shall be treated in the same manner

10 as an amount required to be includible in gross in11 come.

12 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

13 UNITED STATES CITIZEN.—

14 ‘‘(A) IN GENERAL.—If an expatriate elects

15 the application of this paragraph—

16 ‘‘(i) this section (other than this para17 graph) shall not apply to the expatriate, but

18 ‘‘(ii) the expatriate shall be subject to

19 tax under this title, with respect to property

20 to which this section would apply but for

21 such election, in the same manner as if the

22 individual were a United States citizen.

23 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

24 GIFT, AND GENERATION-SKIPPING TRANSFER

25 TAXES.—The aggregate amount of taxes imposed
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1 under subtitle B with respect to any transfer of

2 property by reason of an election under subpara3 graph (A) shall not exceed the amount of income

4 tax which would be due if the property were sold

5 for its fair market value immediately before the

6 time of the transfer or death (taking into account

7 the rules of paragraph (2)).

8 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

9 shall not apply to an individual unless the indi10 vidual—

11 ‘‘(i) provides security for payment of

12 tax in such form and manner, and in such

13 amount, as the Secretary may require,

14 ‘‘(ii) consents to the waiver of any

15 right of the individual under any treaty of

16 the United States which would preclude as17 sessment or collection of any tax which may

18 be imposed by reason of this paragraph,

19 and

20 ‘‘(iii) complies with such other require21 ments as the Secretary may prescribe.

22 ‘‘(D) ELECTION.—An election under sub23 paragraph (A) shall apply to all property to

24 which this section would apply but for the elec25 tion and, once made, shall be irrevocable. Such
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1 election shall also apply to property the basis of

2 which is determined in whole or in part by ref3 erence to the property with respect to which the

4 election was made.

5 ‘‘(b) ELECTION TO DEFER TAX.—

6 ‘‘(1) IN GENERAL.—If the taxpayer elects the ap7 plication of this subsection with respect to any prop8 erty—

9 ‘‘(A) no amount shall be required to be in10 cluded in gross income under subsection (a)(1)

11 with respect to the gain from such property for

12 the taxable year of the sale, but

13 ‘‘(B) the taxpayer’s tax for the taxable year

14 in which such property is disposed of shall be in15 creased by the deferred tax amount with respect

16 to the property.

17 Except to the extent provided in regulations, subpara18 graph (B) shall apply to a disposition whether or not

19 gain or loss is recognized in whole or in part on the

20 disposition.

21 ‘‘(2) DEFERRED TAX AMOUNT.—

22 ‘‘(A) IN GENERAL.—For purposes of para23 graph (1), the term ‘deferred tax amount’ means,

24 with respect to any property, an amount equal

25 to the sum of—
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1 ‘‘(i) the difference between the amount

2 of tax paid for the taxable year described in

3 paragraph (1)(A) and the amount which

4 would have been paid for such taxable year

5 if the election under paragraph (1) had not

6 applied to such property, plus

7 ‘‘(ii) an amount of interest on the

8 amount described in clause (i) determined

9 for the period—

10 ‘‘(I) beginning on the 91st day

11 after the expatriation date, and

12 ‘‘(II) ending on the due date for

13 the taxable year described in para14 graph (1)(B),

15 by using the rates and method applicable

16 under section 6621 for underpayments of

17 tax for such period.

18 For purposes of clause (ii), the due date is the

19 date prescribed by law (determined without re20 gard to extension) for filing the return of the tax

21 imposed by this chapter for the taxable year.

22 ‘‘(B) ALLOCATION OF LOSSES.—For pur23 poses of subparagraph (A), any losses described

24 in subsection (a)(2)(B) shall be allocated ratably
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1 among the gains described in subsection

2 (a)(2)(A).

3 ‘‘(3) SECURITY.—

4 ‘‘(A) IN GENERAL.—No election may be

5 made under paragraph (1) with respect to any

6 property unless adequate security is provided

7 with respect to such property.

8 ‘‘(B) ADEQUATE SECURITY.—For purposes

9 of subparagraph (A), security with respect to

10 any property shall be treated as adequate secu11 rity if—

12 ‘‘(i) it is a bond in an amount equal

13 to the deferred tax amount under paragraph

14 (2)(A) for the property, or

15 ‘‘(ii) the taxpayer otherwise establishes

16 to the satisfaction of the Secretary that the

17 security is adequate.

18 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No election

19 may be made under paragraph (1) unless the tax20 payer consents to the waiver of any right under any

21 treaty of the United States which would preclude as22 sessment or collection of any tax imposed by reason

23 of this section.

24 ‘‘(5) DISPOSITIONS.—For purposes of this sub25 section, a taxpayer making an election under this
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1 subsection with respect to any property shall be treat2 ed as having disposed of such property—

3 ‘‘(A) immediately before death if such prop4 erty is held at such time, and

5 ‘‘(B) at any time the security provided with

6 respect to the property fails to meet the require7 ments of paragraph (3) and the taxpayer does

8 not correct such failure within the time specified

9 by the Secretary.

10 ‘‘(6) ELECTIONS.—An election under paragraph

11 (1) shall only apply to property described in the elec12 tion and, once made, is irrevocable. An election may

13 be under paragraph (1) with respect to an interest in

14 a trust with respect to which gain is required to be

15 recognized under subsection (f)(1).

16 ‘‘(c) COVERED EXPATRIATE.—For purposes of this sec17 tion—

18 ‘‘(1) IN GENERAL.—The term ‘covered expatriate’

19 means an expatriate—

20 ‘‘(A) whose average annual net income tax

21 (as defined in section 38(c)(1)) for the period of

22 5 taxable years ending before the expatriation

23 date is greater than $100,000, or

24 ‘‘(B) whose net worth as of such date is

25 $500,000 or more.
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1 If the expatriation date is after 1996, such $100,000

2 and $500,000 amounts shall be increased by an

3 amount equal to such dollar amount multiplied by

4 the cost-of-living adjustment determined under section

5 1(f)(3) for such calendar year by substituting ‘1995’

6 for ‘1992’ in subparagraph (B) thereof. Any increase

7 under the preceding sentence shall be rounded to the

8 nearest multiple of $1,000.

9 ‘‘(2) EXCEPTIONS.—An individual shall not be

10 treated as a covered expatriate if—

11 ‘‘(A) the individual—

12 ‘‘(i) became at birth a citizen of the

13 United States and a citizen of another

14 country and, as of the expatriation date,

15 continues to be a citizen of, and is taxed as

16 a resident of, such other country, and

17 ‘‘(ii) has been a resident of the United

18 States (as defined in section

19 7701(b)(1)(A)(ii)) for not more than 8 tax20 able years during the 15-taxable year period

21 ending with the taxable year during which

22 the expatriation date occurs, or

23 ‘‘(B)(i) the individual’s relinquishment of

24 United States citizenship occurs before such individual attains age 181 25 ⁄2, and
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1 ‘‘(ii) the individual has been a resident of

2 the United States (as so defined) for not more

3 than 5 taxable years before the date of relin4 quishment.

5 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—Except as otherwise provided

8 by the Secretary, this section shall apply to—

9 ‘‘(A) any interest in property held by a cov10 ered expatriate on the expatriation date the gain

11 from which would be includible in the gross in12 come of the expatriate if such interest had been

13 sold for its fair market value on such date in a

14 transaction in which gain is recognized in whole

15 or in part, and

16 ‘‘(B) any other interest in a trust to which

17 subsection (f) applies.

18 ‘‘(2) EXCEPTIONS.—This section shall not apply

19 to the following property:

20 ‘‘(A) UNITED STATES REAL PROPERTY IN21 TERESTS.—Any United States real property in22 terest (as defined in section 897(c)(1)), other

23 than stock of a United States real property hold24 ing corporation which does not, on the expatria-
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1 tion date, meet the requirements of section

2 897(c)(2).

3 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

4 PLANS.—

5 ‘‘(i) IN GENERAL.—Any interest in a

6 qualified retirement plan (as defined in sec7 tion 4974(c)), other than any interest at8 tributable to contributions which are in ex9 cess of any limitation or which violate any

10 condition for tax-favored treatment.

11 ‘‘(ii) FOREIGN PENSION PLANS.—

12 ‘‘(I) IN GENERAL.—Under regula13 tions prescribed by the Secretary, in14 terests in foreign pension plans or

15 similar retirement arrangements or

16 programs.

17 ‘‘(II) LIMITATION.—The value of

18 property which is treated as not sold

19 by reason of this subparagraph shall

20 not exceed $500,000.

21 ‘‘(e) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

23 means—

24 ‘‘(A) any United States citizen who relin25 quishes his citizenship, or
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1 ‘‘(B) any long-term resident of the United

2 States who—

3 ‘‘(i) ceases to be a lawful permanent

4 resident of the United States (within the

5 meaning of section 7701(b)(6)), or

6 ‘‘(ii) commences to be treated as a resi7 dent of a foreign country under the provi8 sions of a tax treaty between the United

9 States and the foreign country and who

10 does not waive the benefits of such treaty

11 applicable to residents of the foreign coun12 try.

13 ‘‘(2) EXPATRIATION DATE.—The term ‘expatria14 tion date’ means—

15 ‘‘(A) the date an individual relinquishes

16 United States citizenship, or

17 ‘‘(B) in the case of a long-term resident of

18 the United States, the date of the event described

19 in clause (i) or (ii) of paragraph (1)(B).

20 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A citi21 zen shall be treated as relinquishing his United States

22 citizenship on the earliest of—

23 ‘‘(A) the date the individual renounces his

24 United States nationality before a diplomatic or

25 consular officer of the United States pursuant to
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1 paragraph (5) of section 349(a) of the Immigra2 tion and Nationality Act (8 U.S.C. 1481(a)(5)),

3 ‘‘(B) the date the individual furnishes to the

4 United States Department of State a signed

5 statement of voluntary relinquishment of United

6 States nationality confirming the performance of

7 an act of expatriation specified in paragraph

8 (1), (2), (3), or (4) of section 349(a) of the Im9 migration and Nationality Act (8 U.S.C.

10 1481(a)(1)–(4)),

11 ‘‘(C) the date the United States Department

12 of State issues to the individual a certificate of

13 loss of nationality, or

14 ‘‘(D) the date a court of the United States

15 cancels a naturalized citizen’s certificate of natu16 ralization.

17 Subparagraph (A) or (B) shall not apply to any in18 dividual unless the renunciation or voluntary relin19 quishment is subsequently approved by the issuance to

20 the individual of a certificate of loss of nationality by

21 the United States Department of State.

22 ‘‘(4) LONG-TERM RESIDENT.—

23 ‘‘(A) IN GENERAL.—The term ‘long-term

24 resident’ means any individual (other than a cit25 izen of the United States) who is a lawful per-
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1 manent resident of the United States in at least

2 8 taxable years during the period of 15 taxable

3 years ending with the taxable year during which

4 the expatriation date occurs. For purposes of the

5 preceding sentence, an individual shall not be

6 treated as a lawful permanent resident for any

7 taxable year if such individual is treated as a

8 resident of a foreign country for the taxable year

9 under the provisions of a tax treaty between the

10 United States and the foreign country and does

11 not waive the benefits of such treaty applicable

12 to residents of the foreign country.

13 ‘‘(B) SPECIAL RULE.—For purposes of sub14 paragraph (A), there shall not be taken into ac15 count—

16 ‘‘(i) any taxable year during which

17 any prior sale is treated under subsection

18 (a)(1) as occurring, or

19 ‘‘(ii) any taxable year prior to the tax20 able year referred to in clause (i).

21 ‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’

22 INTERESTS IN TRUST.—

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (2), if an individual is determined under para25 graph (3) to hold an interest in a trust—
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1 ‘‘(A) the individual shall not be treated as

2 having sold such interest,

3 ‘‘(B) such interest shall be treated as a sep4 arate share in the trust, and

5 ‘‘(C)(i) such separate share shall be treated

6 as a separate trust consisting of the assets alloca7 ble to such share,

8 ‘‘(ii) the separate trust shall be treated as

9 having sold its assets immediately before the ex10 patriation date for their fair market value and

11 as having distributed all of its assets to the indi12 vidual as of such time, and

13 ‘‘(iii) the individual shall be treated as hav14 ing recontributed the assets to the separate trust.

15 Subsection (a)(2) shall apply to any income, gain, or

16 loss of the individual arising from a distribution de17 scribed in subparagraph (C)(ii).

18 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI19 FIED TRUSTS.—

20 ‘‘(A) IN GENERAL.—If the trust interest de21 scribed in paragraph (1) is an interest in a

22 qualified trust—

23 ‘‘(i) paragraph (1) and subsection (a)

24 shall not apply, and
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1 ‘‘(ii) in addition to any other tax im2 posed by this title, there is hereby imposed

3 on each distribution with respect to such in4 terest a tax in the amount determined

5 under subparagraph (B).

6 ‘‘(B) AMOUNT OF TAX.—The amount of tax

7 under subparagraph (A)(ii) shall be equal to the

8 lesser of—

9 ‘‘(i) the highest rate of tax imposed by

10 section 1(e) for the taxable year in which

11 the expatriation date occurs, multiplied by

12 the amount of the distribution, or

13 ‘‘(ii) the balance in the deferred tax ac14 count immediately before the distribution

15 determined without regard to any increases

16 under subparagraph (C)(ii) after the 30th

17 day preceding the distribution.

18 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur19 poses of subparagraph (B)(ii)—

20 ‘‘(i) OPENING BALANCE.—The opening

21 balance in a deferred tax account with re22 spect to any trust interest is an amount

23 equal to the tax which would have been im24 posed on the allocable expatriation gain

25 with respect to the trust interest if such
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1 gain had been included in gross income

2 under subsection (a).

3 ‘‘(ii) INCREASE FOR INTEREST.—The

4 balance in the deferred tax account shall be

5 increased by the amount of interest deter6 mined (on the balance in the account at the

7 time the interest accrues), for periods after

8 the 90th day after the expatriation date, by

9 using the rates and method applicable

10 under section 6621 for underpayments of

11 tax for such periods.

12 ‘‘(iii) DECREASE FOR TAXES PRE13 VIOUSLY PAID.—The balance in the tax de14 ferred account shall be reduced—

15 ‘‘(I) by the amount of taxes im16 posed by subparagraph (A) on any dis17 tribution to the person holding the

18 trust interest, and

19 ‘‘(II) in the case of a person hold20 ing a nonvested interest, to the extent

21 provided in regulations, by the amount

22 of taxes imposed by subparagraph (A)

23 on distributions from the trust with re24 spect to nonvested interests not held by

25 such person.
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1 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For

2 purposes of this paragraph, the allocable expa3 triation gain with respect to any beneficiary’s

4 interest in a trust is the amount of gain which

5 would be allocable to such beneficiary’s vested

6 and nonvested interests in the trust if the bene7 ficiary held directly all assets allocable to such

8 interests.

9 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

10 ‘‘(i) IN GENERAL.—The tax imposed by

11 subparagraph (A)(ii) shall be deducted and

12 withheld by the trustees from the distribu13 tion to which it relates.

14 ‘‘(ii) EXCEPTION WHERE FAILURE TO

15 WAIVE TREATY RIGHTS.—If an amount may

16 not be deducted and withheld under clause

17 (i) by reason of the distributee failing to

18 waive any treaty right with respect to such

19 distribution—

20 ‘‘(I) the tax imposed by subpara21 graph (A)(ii) shall be imposed on the

22 trust and each trustee shall be person23 ally liable for the amount of such tax,

24 and
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1 ‘‘(II) any other beneficiary of the

2 trust shall be entitled to recover from

3 the distributee the amount of such tax

4 imposed on the other beneficiary.

5 ‘‘(F) DISPOSITION.—If a trust ceases to be

6 a qualified trust at any time, a covered expatri7 ate disposes of an interest in a qualified trust,

8 or a covered expatriate holding an interest in a

9 qualified trust dies, then, in lieu of the tax im10 posed by subparagraph (A)(ii), there is hereby

11 imposed a tax equal to the lesser of—

12 ‘‘(i) the tax determined under para13 graph (1) as if the expatriation date were

14 the date of such cessation, disposition, or

15 death, whichever is applicable, or

16 ‘‘(ii) the balance in the tax deferred ac17 count immediately before such date.

18 Such tax shall be imposed on the trust and each

19 trustee shall be personally liable for the amount

20 of such tax and any other beneficiary of the trust

21 shall be entitled to recover from the covered expa22 triate or the estate the amount of such tax im23 posed on the other beneficiary.

24 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

25 For purposes of this paragraph—
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1 ‘‘(i) QUALIFIED TRUST.—The term

2 ‘qualified trust’ means a trust—

3 ‘‘(I) which is organized under,

4 and governed by, the laws of the Unit5 ed States or a State, and

6 ‘‘(II) with respect to which the

7 trust instrument requires that at least

8 1 trustee of the trust be an individual

9 citizen of the United States or a do10 mestic corporation.

11 ‘‘(ii) VESTED INTEREST.—The term

12 ‘vested interest’ means any interest which,

13 as of the expatriation date, is vested in the

14 beneficiary.

15 ‘‘(iii) NONVESTED INTEREST.—The

16 term ‘nonvested interest’ means, with re17 spect to any beneficiary, any interest in a

18 trust which is not a vested interest. Such

19 interest shall be determined by assuming the

20 maximum exercise of discretion in favor of

21 the beneficiary and the occurrence of all

22 contingencies in favor of the beneficiary.

23 ‘‘(iv) ADJUSTMENTS.—The Secretary

24 may provide for such adjustments to the

25 bases of assets in a trust or a deferred tax
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1 account, and the timing of such adjust2 ments, in order to ensure that gain is taxed

3 only once.

4 ‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER5 EST IN TRUST.—

6 ‘‘(A) DETERMINATIONS UNDER PARAGRAPH

7 (1).—For purposes of paragraph (1), a bene8 ficiary’s interest in a trust shall be based upon

9 all relevant facts and circumstances, including

10 the terms of the trust instrument and any letter

11 of wishes or similar document, historical pat12 terns of trust distributions, and the existence of

13 and functions performed by a trust protector or

14 any similar advisor.

15 ‘‘(B) OTHER DETERMINATIONS.—For pur16 poses of this section—

17 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a

18 beneficiary of a trust is a corporation, part19 nership, trust, or estate, the shareholders,

20 partners, or beneficiaries shall be deemed to

21 be the trust beneficiaries for purposes of this

22 section.

23 ‘‘(ii) TAXPAYER RETURN POSITION.—A

24 taxpayer shall clearly indicate on its in25 come tax return—
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1 ‘‘(I) the methodology used to de2 termine that taxpayer’s trust interest

3 under this section, and

4 ‘‘(II) if the taxpayer knows (or

5 has reason to know) that any other

6 beneficiary of such trust is using a dif7 ferent methodology to determine such

8 beneficiary’s trust interest under this

9 section.

10 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the date

11 any property held by an individual is treated as sold under

12 subsection (a), notwithstanding any other provision of this

13 title—

14 ‘‘(1) any period during which recognition of in15 come or gain is deferred shall terminate, and

16 ‘‘(2) any extension of time for payment of tax

17 shall cease to apply and the unpaid portion of such

18 tax shall be due and payable at the time and in the

19 manner prescribed by the Secretary.

20 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

21 ‘‘(1) IN GENERAL.—If an individual is required

22 to include any amount in gross income under sub23 section (a) for any taxable year, there is hereby im24 posed, immediately before the expatriation date, a tax

25 in an amount equal to the amount of tax which
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1 would be imposed if the taxable year were a short tax2 able year ending on the expatriation date.

3 ‘‘(2) DUE DATE.—The due date for any tax im4 posed by paragraph (1) shall be the 90th day after the

5 expatriation date.

6 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

7 paragraph (1) shall be treated as a payment of the

8 tax imposed by this chapter for the taxable year to

9 which subsection (a) applies.

10 ‘‘(4) DEFERRAL OF TAX.—The provisions of sub11 section (b) shall apply to the tax imposed by this sub12 section to the extent attributable to gain includible in

13 gross income by reason of this section.

14 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

15 TAXES.—If subsection (a) applies to property held by an

16 individual for any taxable year and—

17 ‘‘(1) such property is includible in the gross es18 tate of such individual solely by reason of section

19 2107, or

20 ‘‘(2) section 2501 applies to a transfer of such

21 property by such individual solely by reason of sec22 tion 2501(a)(3),

23 then there shall be allowed as a credit against the additional

24 tax imposed by section 2101 or 2501, whichever is applica25 ble, solely by reason of section 2107 or 2501(a)(3) an
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1 amount equal to the increase in the tax imposed by this

2 chapter for such taxable year by reason of this section.

3 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section, including regula6 tions—

7 ‘‘(1) to prevent double taxation by ensuring

8 that—

9 ‘‘(A) appropriate adjustments are made to

10 basis to reflect gain recognized by reason of sub11 section (a) and the exclusion provided by sub12 section (a)(3), and

13 ‘‘(B) any gain by reason of a deemed sale

14 under subsection (a) of an interest in a corpora15 tion, partnership, trust, or estate is reduced to

16 reflect that portion of such gain which is attrib17 utable to an interest in a trust which a share18 holder, partner, or beneficiary is treated as hold19 ing directly under subsection (f)(3)(B)(i), and

20 ‘‘(2) which provide for the proper allocation of

21 the exclusion under subsection (a)(3) to property to

22 which this section applies.
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1 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’.

2 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT3 ANCES FROM COVERED EXPATRIATES.—Section 102 (relat4 ing to gifts, etc. not included in gross income) is amended

5 by adding at the end the following new subsection:

6 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX7 PATRIATES.—Subsection (a) shall not exclude from gross in8 come the value of any property acquired by gift, bequest,

9 devise, or inheritance from a covered expatriate after the

10 expatriation date. For purposes of this subsection, any term

11 used in this subsection which is also used in section 877A

12 shall have the same meaning as when used in section

13 877A.’’.

14 (c) DEFINITION OF TERMINATION OF UNITED STATES

15 CITIZENSHIP.—Section 7701(a) is amended by adding at

16 the end the following new paragraph:

17 ‘‘(47) TERMINATION OF UNITED STATES CITIZEN18 SHIP.—An individual shall not cease to be treated as

19 a United States citizen before the date on which the

20 individual’s citizenship is treated as relinquished

21 under section 877A(e)(3).’’.

22 (d) COMPARABLE ESTATE AND GIFT TAX TREAT23 MENT.—

24 (1) ESTATE TAX.—
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1 (A) IN GENERAL.—Subsection (a) of section

2 2107 is amended to read as follows:

3 ‘‘(a) TREATMENT OF EXPATRIATES.—

4 ‘‘(1) RATE OF TAX.—A tax computed in accord5 ance with the table contained in section 2001 is here6 by imposed on the transfer of the taxable estate, deter7 mined as provided in section 2106, of every decedent

8 nonresident who is an expatriate if the expatriation

9 date of the decedent is within the 10-year period end10 ing with the date of death, unless such expatriation

11 did not have for 1 of its principal purposes the avoid12 ance of taxes under this subtitle or subtitle A.

13 ‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING

14 TAX AVOIDANCE PURPOSE.—For purposes of para15 graph (1), an individual shall be treated as having a

16 principal purpose to avoid such taxes if such individ17 ual is a covered expatriate.

18 ‘‘(3) DEFINITIONS.—For purposes of this sub19 section, the terms ‘expatriate’, ‘expatriation date’, and

20 ‘covered expatriate’ have the meanings given such

21 terms by section 877A.’’.

22 (B) CREDIT FOR FOREIGN DEATH TAXES.—

23 Subsection (c) of section 2107 is amended by re24 designating paragraph (2) as paragraph (3) and
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1 by inserting after paragraph (1) the following

2 new paragraph:

3 ‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—

4 ‘‘(A) IN GENERAL.—The tax imposed by

5 subsection (a) shall be credited with the amount

6 of any estate, inheritance, legacy, or succession

7 taxes actually paid to any foreign country in re8 spect of any property which is included in the

9 gross estate solely by reason of subsection (b).

10 ‘‘(B) LIMITATIONS ON CREDIT.—The credit

11 allowed by subparagraph (A) for such taxes paid

12 to a foreign country shall not exceed the lesser

13 of—

14 ‘‘(i) the amount which bears the same

15 ratio to the amount of such taxes actually

16 paid to such foreign country in respect of

17 property included in the gross estate as the

18 value of the property included in the gross

19 estate solely by reason of subsection (b)

20 bears to the value of all property subjected

21 to such taxes by such foreign country, or

22 ‘‘(ii) such property’s proportionate

23 share of the excess of—

24 ‘‘(I) the tax imposed by subsection

25 (a), over
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1 ‘‘(II) the tax which would be im2 posed by section 2101 but for this sec3 tion.

4 The amount applicable under clause (i) or (ii)

5 shall be reduced by the amount of any credit al6 lowed under section 877A(i).

7 ‘‘(C) PROPORTIONATE SHARE.—For pur8 poses of subparagraph (B), a property’s propor9 tionate share is the percentage of the value of the

10 property which is included in the gross estate

11 solely by reason of subsection (b) bears to the

12 total value of the gross estate.’’.

13 (C) EXPANSION OF INCLUSION IN GROSS ES14 TATE OF STOCK OF FOREIGN CORPORATIONS.—

15 Paragraph (2) of section 2107(b) is amended by

16 striking ‘‘more than 50 percent of’’ and all that

17 follows and inserting ‘‘more than 50 percent of—

18 ‘‘(A) the total combined voting power of all

19 classes of stock entitled to vote of such corpora20 tion, or

21 ‘‘(B) the total value of the stock of such cor22 poration,’’.

23 (2) GIFT TAX.—

24 (A) IN GENERAL.—Paragraph (3) of section

25 2501(a) is amended to read as follows:
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1 ‘‘(3) EXCEPTION.—

2 ‘‘(A) CERTAIN INDIVIDUALS.—Paragraph

3 (2) shall not apply in the case of a donor who

4 is an expatriate if the expatriation date of the

5 donor is within the 10-year period ending with

6 the date of transfer, unless such expatriation did

7 not have for 1 of its principal purposes the

8 avoidance of taxes under this subtitle or subtitle

9 A.

10 ‘‘(B) CERTAIN INDIVIDUALS TREATED AS

11 HAVING TAX AVOIDANCE PURPOSE.—For pur12 poses of subparagraph (A), an individual shall

13 be treated as having a principal purpose to

14 avoid such taxes if such individual is a covered

15 expatriate.

16 ‘‘(C) CREDIT FOR FOREIGN GIFT TAXES.—

17 The tax imposed by this section solely by reason

18 of this paragraph shall be credited with the

19 amount of any gift tax actually paid to any for20 eign country in respect of any gift which is tax21 able under this section solely by reason of this

22 paragraph. The amount of such credit shall be

23 reduced by the amount of the credit allowed

24 under section 877A(i).
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1 ‘‘(D) DEFINITIONS.—For purposes of this

2 paragraph, the term ‘expatriate’, ‘expatriation

3 date’, and ‘covered expatriate’ have the meanings

4 given such terms by section 877A.’’.

5 (e) CONFORMING AMENDMENTS.—

6 (1) Section 877 is amended by adding at the end

7 the following new subsection:

8 ‘‘(f) APPLICATION.—This section shall not apply to

9 any individual who relinquishes (within the meaning of

10 section 877A(e)(3)) United States citizenship on or after

11 February 6, 1995.’’.

12 (2) Section 2107(c) is amended by adding at the

13 end the following new paragraph:

14 ‘‘(3) CROSS REFERENCE.—For credit against the

15 tax imposed by subsection (a) for expatriation tax, see

16 section 877A(i).’’.

17 (3) Section 2501(a)(3) is amended by adding at

18 the end the following new flush sentence:

19 ‘‘For credit against the tax imposed under this section

20 by reason of this paragraph, see section 877A(i).’’.

21 (4) Paragraph (10) of section 7701(b) is amend22 ed by adding at the end the following new sentence:

23 ‘‘This paragraph shall not apply to any long-term

24 resident of the United States who is an expatriate (as

25 defined in section 877A(e)(1)).’’.
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1 (f) CLERICAL AMENDMENT.—The table of sections for

2 subpart A of part II of subchapter N of chapter 1 is amend3 ed by inserting after the item relating to section 877 the

4 following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

5 (g) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in this

7 subsection, the amendments made by this section shall

8 apply to expatriates (within the meaning of section

9 877A(e) of the Internal Revenue Code of 1986, as

10 added by this section) whose expatriation date (as so

11 defined) occurs on or after February 6, 1995.

12 (2) GIFTS AND BEQUESTS.—Section 102(d) of

13 the Internal Revenue Code of 1986 (as added by sub14 section (b)) shall apply to amounts received from ex15 patriates (as so defined) whose expatriation date (as

16 so defined) occurs on and after February 6, 1995.

17 (3) SPECIAL RULES RELATING TO CERTAIN ACTS

18 OCCURRING BEFORE FEBRUARY 6, 1995.—In the case

19 of an individual who took an act of expatriation spec20 ified in paragraph (1), (2), (3), or (4) of section

21 349(a) of the Immigration and Nationality Act (8

22 U.S.C. 1481(a) (1)–(4)) before February 6, 1995, but

23 whose expatriation date (as so defined) occurs after

24 February 6, 1995—
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1 (A) the amendment made by subsection (c)

2 shall not apply,

3 (B) the amendment made by subsection

4 (e)(1) shall not apply for any period prior to the

5 expatriation date, and

6 (C) the other amendments made by this sec7 tion shall apply as of the expatriation date.

8 (4) DUE DATE FOR TENTATIVE TAX.—The due

9 date under section 877A(h)(2) of such Code shall in

10 no event occur before the 90th day after the date of

11 the enactment of this Act.

12 SEC. 1632. INFORMATION ON INDIVIDUALS EXPATRIATING.

13 (a) IN GENERAL.—Subpart A of part III of subchapter

14 A of chapter 61 is amended by inserting after section 6039E

15 the following new section:

16 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT17 ING.

18 ‘‘(a) REQUIREMENT.—

19 ‘‘(1) IN GENERAL.—Notwithstanding any other

20 provision of law, any expatriate (within the meaning

21 of section 877A(e)(1)) shall provide a statement which

22 includes the information described in subsection (b).

23 ‘‘(2) TIMING.—
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1 ‘‘(A) CITIZENS.—In the case of an expatri2 ate described in section 877(e)(1)(A), such state3 ment shall be—

4 ‘‘(i) provided not later than the expa5 triation date (within the meaning of section

6 877A(e)(2)), and

7 ‘‘(ii) provided to the person or court

8 referred to in section 877A(e)(3).

9 ‘‘(B) NONCITIZENS.—In the case of an ex10 patriate described in section 877A(e)(1)(B), such

11 statement shall be provided to the Secretary with

12 the return of tax imposed by chapter 1 for the

13 taxable year during which the event described in

14 such section occurs.

15 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

16 required under subsection (a) shall include—

17 ‘‘(1) the taxpayer’s TIN,

18 ‘‘(2) the mailing address of such individual’s

19 principal foreign residence,

20 ‘‘(3) the foreign country in which such individ21 ual is residing,

22 ‘‘(4) the foreign country of which such individual

23 is a citizen,

24 ‘‘(5) in the case of an individual having a net

25 worth of at least the dollar amount applicable under
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1 section 877A(c)(1)(B), information detailing the as2 sets and liabilities of such individual, and

3 ‘‘(6) such other information as the Secretary

4 may prescribe.

5 ‘‘(c) PENALTY.—Any individual failing to provide a

6 statement required under subsection (a) shall be subject to

7 a penalty for each year during any portion of which such

8 failure continues in an amount equal to the greater of—

9 ‘‘(1) 5 percent of the additional tax required to

10 be paid under section 877A for such year, or

11 ‘‘(2) $1,000,

12 unless it is shown that such failure is due to reasonable

13 cause and not to willful neglect.

14 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC15 RETARY.—Notwithstanding any other provision of law—

16 ‘‘(1) any Federal agency or court which collects

17 (or is required to collect) the statement under sub18 section (a) shall provide to the Secretary—

19 ‘‘(A) a copy of any such statement, and

20 ‘‘(B) the name (and any other identifying

21 information) of any individual refusing to com22 ply with the provisions of subsection (a),

23 ‘‘(2) the Secretary of State shall provide to the

24 Secretary a copy of each certificate as to the loss of

25 American nationality under section 358 of the Immi-
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1 gration and Nationality Act which is approved by the

2 Secretary of State, and

3 ‘‘(3) the Federal agency primarily responsible for

4 administering the immigration laws shall provide to

5 the Secretary the name of each lawful permanent resi6 dent of the United States (within the meaning of sec7 tion 7701(b)(6)) whose status as such has been re8 voked or has been administratively or judicially de9 termined to have been abandoned.

10 Notwithstanding any other provision of law, not later than

11 30 days after the close of each calendar quarter, the Sec12 retary shall publish in the Federal Register the name of

13 each individual relinquishing United States citizenship

14 (within the meaning of section 877A(e)(3)) with respect to

15 whom the Secretary receives information under the preced16 ing sentence during such quarter.

17 ‘‘(e) EXEMPTION.—The Secretary may by regulations

18 exempt any class of individuals from the requirements of

19 this section if the Secretary determines that applying this

20 section to such individuals is not necessary to carry out

21 the purposes of this section.’’.

22 (b) CLERICAL AMENDMENT.—The table of sections for

23 such subpart A is amended by inserting after the item relat24 ing to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to individuals to whom section 877A

3 of the Internal Revenue Code of 1986 applies and whose

4 expatriation date (as defined in section 877A(e)(2)) occurs

5 on or after February 6, 1995, except that no statement shall

6 be required by such amendments before the 90th day after

7 the date of the enactment of this Act.

8 SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED

9 STATES CITIZENS AND RESIDENTS LIVING

10 ABROAD.

11 Not later than 90 days after the date of the enactment

12 of this Act, the Secretary of the Treasury shall prepare and

13 submit to the Committee on Ways and Means of the House

14 of Representatives and the Committee on Finance of the

15 Senate a report—

16 (1) describing the compliance with subtitle A of

17 the Internal Revenue Code of 1986 by citizens and

18 lawful permanent residents of the United States

19 (within the meaning of section 7701(b)(6) of such

20 Code) residing outside the United States, and

21 (2) recommending measures to improve such

22 compliance (including improved coordination between

23 executive branch agencies).
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1 Subtitle F—Technical Corrections

2 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

3 For purposes of applying the amendments made by

4 any subtitle of this title other than this subtitle, the provi5 sions of this subtitle shall be treated as having been enacted

6 immediately before the provisions of such other subtitles.

7 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC8 ONCILIATION ACT OF 1990.

9 (a) AMENDMENTS RELATED TO SUBTITLE A.—

10 (1) Subparagraph (B) of section 59(j)(3) is

11 amended by striking ‘‘section 1(i)(3)(B)’’ and insert12 ing ‘‘section 1(g)(3)(B)’’.

13 (2) Clause (i) of section 151(d)(3)(C) is amended

14 by striking ‘‘joint of a return’’ and inserting ‘‘joint

15 return’’.

16 (b) AMENDMENTS RELATED TO SUBTITLE B.—

17 (1) Paragraph (1) of section 11212(e) of the Rev18 enue Reconciliation Act of 1990 is amended by strik19 ing ‘‘Paragraph (1) of section 6724(d)’’ and inserting

20 ‘‘Subparagraph (B) of section 6724(d)(1)’’.

21 (2)(A) Subparagraph (B) of section 4093(c)(2),

22 as in effect before the amendments made by the Reve23 nue Reconciliation Act of 1993, is amended by insert24 ing before the period ‘‘unless such fuel is sold for ex-
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1 clusive use by a State or any political subdivision

2 thereof’’.

3 (B) Paragraph (4) of section 6427(l), as in effect

4 before the amendments made by the Revenue Rec5 onciliation Act of 1993, is amended by inserting be6 fore the period ‘‘unless such fuel was used by a State

7 or any political subdivision thereof’’.

8 (3) Paragraph (1) of section 6416(b) is amended

9 by striking ‘‘chapter 32 or by section 4051’’ and in10 serting ‘‘chapter 31 or 32’’.

11 (4) Section 7012 is amended—

12 (A) by striking ‘‘production or importation

13 of gasoline’’ in paragraph (3) and inserting

14 ‘‘taxes on gasoline and diesel fuel’’, and

15 (B) by striking paragraph (4) and redesig16 nating paragraphs (5) and (6) as paragraphs

17 (4) and (5), respectively.

18 (5) Subsection (c) of section 5041 is amended by

19 striking paragraph (6) and by inserting the following

20 new paragraphs:

21 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

22 ‘‘(A) wine produced by any person would be

23 eligible for any credit under paragraph (1) if re24 moved by such person during the calendar year,
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1 ‘‘(B) wine produced by such person is re2 moved during such calendar year by any other

3 person (hereafter in this paragraph referred to as

4 the ‘transferee’) to whom such wine was trans5 ferred in bond and who is liable for the tax im6 posed by this section with respect to such wine,

7 and

8 ‘‘(C) such producer holds title to such wine

9 at the time of its removal and provides to the

10 transferee such information as is necessary to

11 properly determine the transferee’s credit under

12 this paragraph,

13 then, the transferee (and not the producer) shall be al14 lowed the credit under paragraph (1) which would be

15 allowed to the producer if the wine removed by the

16 transferee had been removed by the producer on that

17 date.

18 ‘‘(7) REGULATIONS.—The Secretary may pre19 scribe such regulations as may be necessary to carry

20 out the purposes of this subsection, including regula21 tions—

22 ‘‘(A) to prevent the credit provided in this

23 subsection from benefiting any person who pro24 duces more than 250,000 wine gallons of wine

25 during a calendar year, and
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1 ‘‘(B) to assure proper reduction of such

2 credit for persons producing more than 150,000

3 wine gallons of wine during a calendar year.’’.

4 (6) Paragraph (3) of section 5061(b) is amended

5 to read as follows:

6 ‘‘(3) section 5041(f),’’.

7 (7) Section 5354 is amended by inserting ‘‘(tak8 ing into account the appropriate amount of credit

9 with respect to such wine under section 5041(c))’’

10 after ‘‘any one time’’.

11 (c) AMENDMENTS RELATED TO SUBTITLE C.—

12 (1) Paragraph (4) of section 56(g) is amended by

13 redesignating subparagraphs (I) and (J) as subpara14 graphs (H) and (I), respectively.

15 (2) Subparagraph (B) of section 6724(d)(1) is

16 amended—

17 (A) by striking ‘‘or’’ at the end of clause

18 (xii), and

19 (B) by striking the period at the end of

20 clause (xiii) and inserting ‘‘, or’’.

21 (3) Subsection (g) of section 6302 is amended by

22 inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

23 (4) The earnings and profits of any insurance

24 company to which section 11305(c)(3) of the Revenue

25 Reconciliation Act of 1990 applies shall be deter-
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1 mined without regard to any deduction allowed under

2 such section; except that, for purposes of applying sec3 tions 56 and 902, and subpart F of part III of sub4 chapter N of chapter 1 of the Internal Revenue Code

5 of 1986, such deduction shall be taken into account.

6 (5) Subparagraph (D) of section 6038A(e)(4) is

7 amended—

8 (A) by striking ‘‘any transaction to which

9 the summons relates’’ and inserting ‘‘any af10 fected taxable year’’, and

11 (B) by adding at the end thereof the follow12 ing new sentence: ‘‘For purposes of this subpara13 graph, the term ‘affected taxable year’ means

14 any taxable year if the determination of the

15 amount of tax imposed for such taxable year is

16 affected by the treatment of the transaction to

17 which the summons relates.’’.

18 (6) Subparagraph (A) of section 6621(c)(2) is

19 amended by adding at the end thereof the following

20 new flush sentence:

21 ‘‘The preceding sentence shall be applied without

22 regard to any such letter or notice which is with23 drawn by the Secretary.’’.
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1 (7) Clause (i) of section 6621(c)(2)(B) is amend2 ed by striking ‘‘this subtitle’’ and inserting ‘‘this

3 title’’.

4 (d) AMENDMENTS RELATED TO SUBTITLE D.—

5 (1) Notwithstanding section 11402(c) of the Rev6 enue Reconciliation Act of 1990, the amendment

7 made by section 11402(b)(1) of such Act shall apply

8 to taxable years ending after December 31, 1989.

9 (2) Clause (ii) of section 143(m)(4)(C) is amend10 ed—

11 (A) by striking ‘‘any month of the 10-year

12 period’’ and inserting ‘‘any year of the 4-year

13 period’’,

14 (B) by striking ‘‘succeeding months’’ and

15 inserting ‘‘succeeding years’’, and

16 (C) by striking ‘‘over the remainder of such

17 period (or, if lesser, 5 years)’’ and inserting ‘‘to

18 zero over the succeeding 5 years’’.

19 (e) AMENDMENTS RELATED TO SUBTITLE E.—

20 (1)(A) Clause (ii) of section 56(d)(1)(B) is

21 amended to read as follows:

22 ‘‘(ii) appropriate adjustments in the

23 application of section 172(b)(2) shall be

24 made to take into account the limitation of

25 subparagraph (A).’’.
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1 (B) For purposes of applying sections 56(g)(1)

2 and 56(g)(3) of the Internal Revenue Code of 1986

3 with respect to taxable years beginning in 1991 and

4 1992, the reference in such sections to the alternative

5 tax net operating loss deduction shall be treated as

6 including a reference to the deduction under section

7 56(h) of such Code as in effect before the amendments

8 made by section 1915 of the Energy Policy Act of

9 1992.

10 (2) Clause (i) of section 613A(c)(3)(A) is amend11 ed by striking ‘‘the table contained in’’.

12 (3) Section 6501 is amended—

13 (A) by striking subsection (m) (relating to

14 deficiency attributable to election under section

15 44B) and by redesignating subsections (n) and

16 (o) as subsections (m) and (n), respectively, and

17 (B) by striking ‘‘section 40(f) or 51(j)’’ in

18 subsection (m) (as redesignated by subparagraph

19 (A)) and inserting ‘‘section 40(f), 43, or 51(j)’’.

20 (4) Subparagraph (C) of section 38(c)(2) (as in

21 effect on the day before the date of the enactment of

22 the Revenue Reconciliation Act of 1990) is amended

23 by inserting before the period at the end of the first

24 sentence the following: ‘‘and without regard to the de25 duction under section 56(h)’’.
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1 (5) The amendment made by section

2 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

3 shall apply to taxable years beginning after December

4 31, 1990.

5 (f) AMENDMENTS RELATED TO SUBTITLE F.—

6 (1)(A) Section 2701(a)(3) is amended by adding

7 at the end thereof the following new subparagraph:

8 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

9 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

10 case of an applicable retained interest which is

11 described in subparagraph (B)(i) but not sub12 paragraph (B)(ii), the value of the distribution

13 right shall be determined without regard to this

14 section.’’.

15 (B) Section 2701(a)(3)(B) is amended by insert16 ing ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the heading

17 thereof.

18 (C) Sections 2701 (d)(1) and (d)(4) are each

19 amended by striking ‘‘subsection (a)(3)(B)’’ and in20 serting ‘‘subsection (a)(3) (B) or (C)’’.

21 (2) Clause (i) of section 2701(a)(4)(B) is amend22 ed by inserting ‘‘(or, to the extent provided in regula23 tions, the rights as to either income or capital)’’ after

24 ‘‘income and capital’’.
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1 (3) Clause (i) of section 2701(c)(1)(B) is amend2 ed to read as follows:

3 ‘‘(i) a right to distributions with re4 spect to any interest which is junior to the

5 rights of the transferred interest,’’.

6 (4)(A) Clause (i) of section 2701(c)(3)(C) is

7 amended to read as follows:

8 ‘‘(i) IN GENERAL.—Payments under

9 any interest held by a transferor which

10 (without regard to this subparagraph) are

11 qualified payments shall be treated as

12 qualified payments unless the transferor

13 elects not to treat such payments as quali14 fied payments. Payments described in the

15 preceding sentence which are held by an ap16 plicable family member shall be treated as

17 qualified payments only if such member

18 elects to treat such payments as qualified

19 payments.’’.

20 (B) The first sentence of section 2701(c)(3)(C)(ii)

21 is amended to read as follows: ‘‘A transferor or appli22 cable family member holding any distribution right

23 which (without regard to this subparagraph) is not a

24 qualified payment may elect to treat such right as a
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1 qualified payment, to be paid in the amounts and at

2 the times specified in such election.’’.

3 (C) The time for making an election under the

4 second sentence of section 2701(c)(3)(C)(i) of the In5 ternal Revenue Code of 1986 (as amended by sub6 paragraph (A)) shall not expire before the due date

7 (including extensions) for filing the transferor’s re8 turn of the tax imposed by section 2501 of such Code

9 for the first calendar year ending after the date of en10 actment.

11 (5) Section 2701(d)(3)(A)(iii) is amended by

12 striking ‘‘the period ending on the date of’’.

13 (6) Subclause (I) of section 2701(d)(3)(B)(ii) is

14 amended by inserting ‘‘or the exclusion under section

15 2503(b),’’ after ‘‘section 2523,’’.

16 (7) Section 2701(e)(5) is amended—

17 (A) by striking ‘‘such contribution to cap18 ital or such redemption, recapitalization, or

19 other change’’ in subparagraph (A) and insert20 ing ‘‘such transaction’’, and

21 (B) by striking ‘‘the transfer’’ in subpara22 graph (B) and inserting ‘‘such transaction’’.

23 (8) Section 2701(d)(4) is amended by adding at

24 the end thereof the following new subparagraph:
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1 ‘‘(C) TRANSFER TO TRANSFERORS.—In the

2 case of a taxable event described in paragraph

3 (3)(A)(ii) involving a transfer of an applicable

4 retained interest from an applicable family

5 member to a transferor, this subsection shall con6 tinue to apply to the transferor during any pe7 riod the transferor holds such interest.’’.

8 (9) Section 2701(e)(6) is amended by inserting

9 ‘‘or to reflect the application of subsection (d)’’ before

10 the period at the end thereof.

11 (10)(A) Section 2702(a)(3)(A) is amended—

12 (i) by striking ‘‘to the extent’’ and inserting

13 ‘‘if’’ in clause (i),

14 (ii) by striking ‘‘or’’ at the end of clause (i),

15 (iii) by striking the period at the end of

16 clause (ii) and inserting ‘‘, or’’, and

17 (iv) by adding at the end thereof the follow18 ing new clause:

19 ‘‘(iii) to the extent that regulations

20 provide that such transfer is not inconsist21 ent with the purposes of this section.’’.

22 (B)(i) Section 2702(a)(3) is amended by striking

23 ‘‘incomplete transfer’’ each place it appears and in24 serting ‘‘incomplete gift’’.
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1 (ii) The heading for section 2702(a)(3)(B) is

2 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

3 inserting ‘‘INCOMPLETE GIFT’’.

4 (g) AMENDMENTS RELATED TO SUBTITLE G.—

5 (1)(A) Subsection (a) of section 1248 is amend6 ed—

7 (i) by striking ‘‘, or if a United States per8 son receives a distribution from a foreign cor9 poration which, under section 302 or 331, is

10 treated as an exchange of stock’’ in paragraph

11 (1), and

12 (ii) by adding at the end thereof the follow13 ing new sentence: ‘‘For purposes of this section,

14 a United States person shall be treated as having

15 sold or exchanged any stock if, under any provi16 sion of this subtitle, such person is treated as re17 alizing gain from the sale or exchange of such

18 stock.’’.

19 (B) Paragraph (1) of section 1248(e) is amended

20 by striking ‘‘, or receives a distribution from a domes21 tic corporation which, under section 302 or 331, is

22 treated as an exchange of stock’’.

23 (C) Subparagraph (B) of section 1248(f)(1) is

24 amended by striking ‘‘or 361(c)(1)’’ and inserting

25 ‘‘355(c)(1), or 361(c)(1)’’.
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1 (D) Paragraph (1) of section 1248(i) is amended

2 to read as follows:

3 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

4 percent corporate shareholder of a foreign corporation

5 exchanges stock of the 10-percent corporate share6 holder for stock of the foreign corporation, such 10-

7 percent corporate shareholder shall recognize gain in

8 the same manner as if the stock of the foreign cor9 poration received in such exchange had been—

10 ‘‘(A) issued to the 10-percent corporate

11 shareholder, and

12 ‘‘(B) then distributed by the 10-percent cor13 porate shareholder to such shareholder in re14 demption or liquidation (whichever is appro15 priate).

16 The amount of gain recognized by such 10-percent

17 corporate shareholder under the preceding sentence

18 shall not exceed the amount treated as a dividend

19 under this section.’’.

20 (2) Section 897 is amended by striking sub21 section (f).

22 (3) Paragraph (13) of section 4975(d) is amend23 ed by striking ‘‘section 408(b)’’ and inserting ‘‘section

24 408(b)(12)’’.
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1 (4) Clause (iii) of section 56(g)(4)(D) is amend2 ed by inserting ‘‘, but only with respect to taxable

3 years beginning after December 31, 1989’’ before the

4 period at the end thereof.

5 (5)(A) Paragraph (11) of section 11701(a) of the

6 Revenue Reconciliation Act of 1990 (and the amend7 ment made by such paragraph) are hereby repealed,

8 and section 7108(r)(2) of the Revenue Reconciliation

9 Act of 1989 shall be applied as if such paragraph

10 (and amendment) had never been enacted.

11 (B) Subparagraph (A) shall not apply to any

12 building if the owner of such building establishes to

13 the satisfaction of the Secretary of the Treasury or his

14 delegate that such owner reasonably relied on the

15 amendment made by such paragraph (11).

16 (h) AMENDMENTS RELATED TO SUBTITLE H.—

17 (1)(A) Clause (vi) of section 168(e)(3)(B) is

18 amended by striking ‘‘or’’ at the end of subclause (I),

19 by striking the period at the end of subclause (II) and

20 inserting ‘‘, or’’, and by adding at the end thereof the

21 following new subclause:

22 ‘‘(III) is described in section

23 48(l)(3)(A)(ix) (as in effect on the day

24 before the date of the enactment of the

25 Revenue Reconciliation Act of 1990).’’.
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1 (B) Subparagraph (B) of section 168(e)(3) (re2 lating to 5-year property) is amended by adding at

3 the end the following flush sentence:

4 ‘‘Nothing in any provision of law shall be con5 strued to treat property as not being described in

6 clause (vi)(I) (or the corresponding provisions of

7 prior law) by reason of being public utility

8 property (within the meaning of section

9 48(a)(3)).’’.

10 (C) Subparagraph (K) of section 168(g)(4) is

11 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

12 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

13 day before the date of the enactment of the Revenue

14 Reconciliation Act of 1990)’’.

15 (2) Clause (ii) of section 172(b)(1)(E) is amend16 ed by striking ‘‘subsection (m)’’ and inserting ‘‘sub17 section (h)’’.

18 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

19 and 832(b)(5)(D)(ii)(II) are each amended by strik20 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

21 (4) Subparagraph (A) of section 243(b)(3) is

22 amended by inserting ‘‘of’’ after ‘‘In the case’’.

23 (5) The subsection heading for subsection (a) of

24 section 280F is amended by striking ‘‘INVESTMENT

25 TAX CREDIT AND’’.
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1 (6) Clause (i) of section 1504(c)(2)(B) is amend2 ed by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

3 (7) Paragraph (3) of section 341(f) is amended

4 by striking ‘‘351, 361, 371(a), or 374(a)’’ and insert5 ing ‘‘351, or 361’’.

6 (8) Paragraph (2) of section 243(b) is amended

7 to read as follows:

8 ‘‘(2) AFFILIATED GROUP.—For purposes of this

9 subsection:

10 ‘‘(A) IN GENERAL.—The term ‘affiliated

11 group’ has the meaning given such term by sec12 tion 1504(a), except that for such purposes sec13 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

14 not apply.

15 ‘‘(B) GROUP MUST BE CONSISTENT IN FOR16 EIGN TAX TREATMENT.—The requirements of

17 paragraph (1)(A) shall not be treated as being

18 met with respect to any dividend received by a

19 corporation if, for any taxable year which in20 cludes the day on which such dividend is re21 ceived—

22 ‘‘(i) 1 or more members of the affili23 ated group referred to in paragraph (1)(A)

24 choose to any extent to take the benefits of

25 section 901, and
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1 ‘‘(ii) 1 or more other members of such

2 group claim to any extent a deduction for

3 taxes otherwise creditable under section

4 901.’’.

5 (9) The amendment made by section

6 11813(b)(17) of the Revenue Reconciliation Act of

7 1990 shall be applied as if the material stricken by

8 such amendment included the closing parenthesis

9 after ‘‘section 48(a)(5)’’.

10 (10) Paragraph (1) of section 179(d) is amended

11 by striking ‘‘in a trade or business’’ and inserting ‘‘a

12 trade or business’’.

13 (11) Subparagraph (E) of section 50(a)(2) is

14 amended by striking ‘‘section 48(a)(5)(A)’’ and in15 serting ‘‘section 48(a)(5)’’.

16 (12) The amendment made by section

17 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

18 of 1990 shall be applied as if it struck ‘‘Section

19 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

20 (13) Subparagraph (B) of section 424(c)(3) is

21 amended by striking ‘‘a qualified stock option, an in22 centive stock option, an option granted under an em23 ployee stock purchase plan, or a restricted stock op24 tion’’ and inserting ‘‘an incentive stock option or an
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1 option granted under an employee stock purchase

2 plan’’.

3 (14) Subparagraph (E) of section 1367(a)(2) is

4 amended by striking ‘‘section 613A(c)(13)(B)’’ and

5 inserting ‘‘section 613A(c)(11)(B)’’.

6 (15) Subparagraph (B) of section 460(e)(6) is

7 amended by striking ‘‘section 167(k)’’ and inserting

8 ‘‘section 168(e)(2)(A)(ii)’’.

9 (16) Subparagraph (C) of section 172(h)(4) is

10 amended by striking ‘‘subsection (b)(1)(M)’’ and in11 serting ‘‘subsection (b)(1)(E)’’.

12 (17) Section 6503 is amended—

13 (A) by redesignating the subsection relating

14 to extension in case of certain summonses as sub15 section (j), and

16 (B) by redesignating the subsection relating

17 to cross references as subsection (k).

18 (18) Paragraph (4) of section 1250(e) is hereby

19 repealed.

20 (19) Paragraph (1) of section 179(d) is amended

21 by adding at the end the following new sentence:

22 ‘‘Such term shall not include any property described

23 in section 50(b) and shall not include air condi24 tioning or heating units.’’.
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1 ‘‘(i) EFFECTIVE DATE.—Except as otherwise expressly

2 provided, any amendment made by this section shall take

3 effect as if included in the provision of the Revenue Rec4 onciliation Act of 1990 to which such amendment relates.’’.

5 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC6 ONCILIATION ACT OF 1993.

7 (a) AMENDMENT RELATED TO SECTION 13114.—

8 Paragraph (2) of section 1044(c) is amended to read as fol9 lows:

10 ‘‘(2) PURCHASE.—The taxpayer shall be consid11 ered to have purchased any property if, but for sub12 section (d), the unadjusted basis of such property

13 would be its cost within the meaning of section

14 1012.’’.

15 (b) AMENDMENTS RELATED TO SECTION 13142.—

16 (1) Subparagraph (B) of section 13142(b)(6) of

17 the Revenue Reconciliation Act of 1993 is amended to

18 read as follows:

19 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU20 THORITY, AND PROHIBITED DISCRIMINATION.—

21 The amendments made by paragraphs (2), (3),

22 and (4) shall take effect on the date of the enact23 ment of this Act.’’.
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1 (2) Subparagraph (C) of section 13142(b)(6) of

2 such Act is amended by striking ‘‘paragraph (2)’’ and

3 inserting ‘‘paragraph (5)’’.

4 (c) AMENDMENT RELATED TO SECTION 13161.—

5 (1) IN GENERAL.—Subsection (e) of section 4001

6 (relating to inflation adjustment) is amended to read

7 as follows:

8 ‘‘(e) INFLATION ADJUSTMENT.—

9 ‘‘(1) IN GENERAL.—The $30,000 amount in sub10 section (a) and section 4003(a) shall be increased by

11 an amount equal to—

12 ‘‘(A) $30,000, multiplied by

13 ‘‘(B) the cost-of-living adjustment under sec14 tion 1(f)(3) for the calendar year in which the

15 vehicle is sold, determined by substituting ‘cal16 endar year 1990’ for ‘calendar year 1992’ in

17 subparagraph (B) thereof.

18 ‘‘(2) ROUNDING.—If any amount as adjusted

19 under paragraph (1) is not a multiple of $2,000, such

20 amount shall be rounded to the next lowest multiple

21 of $2,000.’’.

22 (2) EFFECTIVE DATE.—The amendment made by

23 paragraph (1) shall take effect on the date of the en24 actment of this Act.
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1 (d) AMENDMENT RELATED TO SECTION 13201.—

2 Clause (ii) of section 135(b)(2)(B) is amended by inserting

3 before the period at the end thereof the following: ‘‘, deter4 mined by substituting ‘calendar year 1989’ for ‘calendar

5 year 1992’ in subparagraph (B) thereof’’.

6 (e) AMENDMENTS RELATED TO SECTION 13203.—Sub7 section (a) of section 59 is amended—

8 (1) by striking ‘‘the amount determined under

9 section 55(b)(1)(A)’’ in paragraph (1)(A) and

10 (2)(A)(i) and inserting ‘‘the pre-credit tentative mini11 mum tax’’,

12 (2) by striking ‘‘specified in section 55(b)(1)(A)’’

13 in paragraph (1)(C) and inserting ‘‘specified in sub14 paragraph (A)(i) or (B)(i) of section 55(b)(1) (which15 ever applies)’’,

16 (3) by striking ‘‘which would be determined

17 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

18 and inserting ‘‘which would be the pre-credit tentative

19 minimum tax’’, and

20 (4) by adding at the end thereof the following

21 new paragraph:

22 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

23 For purposes of this subsection, the term ‘pre-credit

24 tentative minimum tax’ means—
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1 ‘‘(A) in the case of a taxpayer other than a

2 corporation, the amount determined under the

3 first sentence of section 55(b)(1)(A)(i), or

4 ‘‘(B) in the case of a corporation, the

5 amount determined under section

6 55(b)(1)(B)(i).’’.

7 (f) AMENDMENT RELATED TO SECTION 13221.—Sec8 tions 1201(a) and 1561(a) are each amended by striking

9 ‘‘last sentence’’ each place it appears and inserting ‘‘last

10 2 sentences’’.

11 (g) AMENDMENTS RELATED TO SECTION 13222.—

12 (1) Subparagraph (B) of section 6033(e)(1) is

13 amended by adding at the end thereof the following

14 new clause:

15 ‘‘(iii) COORDINATION WITH SECTION

16 527(f).—This subsection shall not apply to

17 any amount on which tax is imposed by

18 reason of section 527(f).’’.

19 (2) Clause (i) of section 6033(e)(1)(B) is amend20 ed by striking ‘‘this subtitle’’ and inserting ‘‘section

21 501’’.

22 (h) AMENDMENT RELATED TO SECTION 13225.—Para23 graph (3) of section 6655(g) is amended by striking all that

24 follows ‘‘ ‘3rd month’ ’’ in the sentence following subpara25 graph (C) and inserting ‘‘, subsection (e)(2)(A) shall be ap-
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1 plied by substituting ‘2 months’ for ‘3 months’ in clause

2 (i)(I), the election under clause (i) of subsection (e)(2)(C)

3 may be made separately for each installment, and clause

4 (ii) of subsection (e)(2)(C) shall not apply.’’.

5 (i) AMENDMENTS RELATED TO SECTION 13231.—

6 (1) Subparagraph (G) of section 904(d)(3) is

7 amended by striking ‘‘section 951(a)(1)(B)’’ and in8 serting ‘‘subparagraph (B) or (C) of section

9 951(a)(1)’’.

10 (2) Paragraph (1) of section 956A(b) is amended

11 to read as follows:

12 ‘‘(1) the amount (not including a deficit) re13 ferred to in section 316(a)(1) to the extent such

14 amount was accumulated in prior taxable years be15 ginning after September 30, 1993, and’’.

16 (3) Subsection (f) of section 956A is amended by

17 inserting before the period at the end thereof: ‘‘and

18 regulations coordinating the provisions of subsections

19 (c)(3)(A) and (d)’’.

20 (4) Subsection (b) of section 958 is amended by

21 striking ‘‘956(b)(2)’’ each place it appears and insert22 ing ‘‘956(c)(2)’’.

23 (5)(A) Subparagraph (A) of section 1297(d)(2) is

24 amended by striking ‘‘The adjusted basis of any
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1 asset’’ and inserting ‘‘The amount taken into account

2 under section 1296(a)(2) with respect to any asset’’.

3 (B) The paragraph heading of paragraph (2) of

4 section 1297(d) is amended to read as follows:

5 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.

6 (6) Subsection (e) of section 1297 is amended by

7 inserting ‘‘For purposes of this part—’’ after the sub8 section heading.

9 (j) AMENDMENT RELATED TO SECTION 13241.—Sub10 paragraph (B) of section 40(e)(1) is amended to read as

11 follows:

12 ‘‘(B) for any period before January 1, 2001,

13 during which the rates of tax under section

14 4081(a)(2)(A) are 4.3 cents per gallon.’’.

15 (k) AMENDMENT RELATED TO SECTION 13242.—Para16 graph (4) of section 6427(f) is amended by striking ‘‘1995’’

17 and inserting ‘‘1999’’.

18 (l) AMENDMENT RELATED TO SECTION 13261.—

19 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec20 onciliation Act of 1993 is amended by striking ‘‘by the tax21 payer’’ and inserting ‘‘by the taxpayer or a related person’’.

22 (m) AMENDMENT RELATED TO SECTION 13301.—Sub23 paragraph (B) of section 1397B(d)(5) is amended by strik24 ing ‘‘preceding’’.

25 (n) CLERICAL AMENDMENTS.—
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1 (1) Subsection (d) of section 39 is amended—

2 (A) by striking ‘‘45’’ in the heading of

3 paragraph (5) and inserting ‘‘45A’’, and

4 (B) by striking ‘‘45’’ in the heading of

5 paragraph (6) and inserting ‘‘45B’’.

6 (2) Subparagraph (A) of section 108(d)(9) is

7 amended by striking ‘‘paragraph (3)(B)’’ and insert8 ing ‘‘paragraph (3)(C)’’.

9 (3) Subparagraph (C) of section 143(d)(2) is

10 amended by striking the period at the end thereof and

11 inserting a comma.

12 (4) Clause (ii) of section 163(j)(6)(E) is amended

13 by striking ‘‘which is a’’ and inserting ‘‘which is’’.

14 (5) Subparagraph (A) of section 1017(b)(4) is

15 amended by striking ‘‘subsection (b)(2)(D)’’ and in16 serting ‘‘subsection (b)(2)(E)’’.

17 (6) So much of section 1245(a)(3) as precedes

18 subparagraph (A) thereof is amended to read as fol19 lows:

20 ‘‘(3) SECTION 1245 PROPERTY.—For purposes of

21 this section, the term ‘section 1245 property’ means

22 any property which is or has been property of a char23 acter subject to the allowance for depreciation pro24 vided in section 167 and is either—’’.
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1 (7) Paragraph (2) of section 1394(e) is amend2 ed—

3 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

4 and

5 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.

6 (8) Subsection (m) of section 6501 (as redesig7 nated by section 1602) is amended by striking ‘‘or

8 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

9 (9)(A) The section 6714 added by section

10 13242(b)(1) of the Revenue Reconciliation Act of 1993

11 is hereby redesignated as section 6715.

12 (B) The table of sections for part I of subchapter

13 B of chapter 68 is amended by striking ‘‘6714’’ in the

14 item added by such section 13242(b)(2) of such Act

15 and inserting ‘‘6715’’.

16 (10) Paragraph (2) of section 9502(b) is amend17 ed by inserting ‘‘and before’’ after ‘‘1982,’’.

18 (11) Subsection (a)(3) of section 13206 of the

19 Revenue Reconciliation Act of 1993 is amended by

20 striking ‘‘this section’’ and inserting ‘‘this sub21 section’’.

22 (12) Paragraph (1) of section 13215(c) of the

23 Revenue Reconciliation Act of 1993 is amended by

24 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

25 Law 98–21’’.
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1 (13) Paragraph (2) of section 13311(e) of the

2 Revenue Reconciliation Act of 1993 is amended by

3 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

4 1393(a)(2)’’.

5 (14) Subparagraph (B) of section 117(d)(2) is

6 amended by striking ‘‘section 132(f)’’ and inserting

7 ‘‘section 132(h)’’.

8 (o) EFFECTIVE DATE.—Any amendment made by this

9 section shall take effect as if included in the provision of

10 the Revenue Reconciliation Act of 1993 to which such

11 amendment relates.

12 SEC. 1704. MISCELLANEOUS PROVISIONS.

13 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

14 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

15 1990.—Except as otherwise expressly provided, whenever in

16 title XII of the Omnibus Budget Reconciliation Act of 1990

17 an amendment or repeal is expressed in terms of an amend18 ment to, or repeal of, a section or other provision, the ref19 erence shall be considered to be made to a section or other

20 provision of the Internal Revenue Code of 1986.

21 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

22 HEDGE BOND RULES.—

23 (1) IN GENERAL.—Clause (iii) of section

24 149(g)(3)(B) is amended to read as follows:
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1 ‘‘(iii) AMOUNTS HELD PENDING REIN2 VESTMENT OR REDEMPTION.—Amounts held

3 for not more than 30 days pending reinvest4 ment or bond redemption shall be treated as

5 invested in bonds described in clause (i).’’.

6 (2) EFFECTIVE DATE.—The amendment made by

7 paragraph (1) shall take effect as if included in the

8 amendments made by section 7651 of the Omnibus

9 Budget Reconciliation Act of 1989.

10 (c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER

11 SECTION 1445.—

12 (1) IN GENERAL.—Paragraph (3) of section

13 1445(e) is amended by adding at the end thereof the

14 following new sentence: ‘‘Rules similar to the rules of

15 the preceding provisions of this paragraph shall

16 apply in the case of any distribution to which section

17 301 applies and which is not made out of the earn18 ings and profits of such a domestic corporation.’’.

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

20 paragraph (1) shall apply to distributions after the

21 date of the enactment of this Act.

22 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC23 TION 469.—

24 (1) IN GENERAL.—Subparagraph (B) of section

25 469(c)(3) is amended by adding at the end thereof the
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1 following new sentence: ‘‘If the preceding sentence ap2 plies to the net income from any property for any

3 taxable year, any credits allowable under subpart B

4 (other than section 27(a)) or D of part IV of sub5 chapter A for such taxable year which are attributable

6 to such property shall be treated as credits not from

7 a passive activity to the extent the amount of such

8 credits does not exceed the regular tax liability of the

9 taxpayer for the taxable year which is allocable to

10 such net income.’’.

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

12 paragraph (1) shall apply to taxable years beginning

13 after December 31, 1986.

14 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

15 LOSS RULES.—

16 (1) IN GENERAL.—Subparagraph (A) of section

17 469(g)(1) is amended to read as follows:

18 ‘‘(A) IN GENERAL.—If all gain or loss real19 ized on such disposition is recognized, the excess

20 of—

21 ‘‘(i) any loss from such activity for

22 such taxable year (determined after the ap23 plication of subsection (b)), over

24 ‘‘(ii) any net income or gain for such

25 taxable year from all other passive activities
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1 (determined after the application of sub2 section (b)),

3 shall be treated as a loss which is not from a

4 passive activity.’’.

5 (2) EFFECTIVE DATE.—The amendment made by

6 paragraph (1) shall apply to taxable years beginning

7 after December 31, 1986.

8 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN PRO9 VISIONS.—

10 (1) COORDINATION OF UNIFIED ESTATE TAX

11 CREDIT WITH TREATIES.—Subparagraph (A) of sec12 tion 2102(c)(3) is amended by adding at the end

13 thereof the following new sentence: ‘‘For purposes of

14 the preceding sentence, property shall not be treated

15 as situated in the United States if such property is

16 exempt from the tax imposed by this subchapter

17 under any treaty obligation of the United States.’’.

18 (2) TREATMENT OF CERTAIN INTEREST PAID TO

19 RELATED PERSON.—

20 (A) Subparagraph (B) of section 163(j)(1)

21 is amended by inserting before the period at the

22 end thereof the following: ‘‘(and clause (ii) of

23 paragraph (2)(A) shall not apply for purposes of

24 applying this subsection to the amount so treat25 ed)’’.
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1 (B) Subsection (j) of section 163 is amended

2 by redesignating paragraph (7) as paragraph

3 (8) and by inserting after paragraph (6) the fol4 lowing new paragraph:

5 ‘‘(7) COORDINATION WITH PASSIVE LOSS RULES,

6 ETC.—This subsection shall be applied before sections

7 465 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 ex17 tent’’ and all that follows down through

18 ‘‘subparagraph (A)’’ and inserting ‘‘to the

19 extent that the allocable interest exceeds the

20 interest described in subparagraph (A)’’.

21 (ii) The second sentence of section

22 884(f)(1) is amended by striking ‘‘reason23 ably expected’’ and all that follows down

24 through the period at the end thereof and
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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 any

7 interest which is allocable to income which is effec8 tively connected (or treated as effectively connected)

9 with the conduct of a trade or business in the United

10 States.’’.

11 (B) EFFECTIVE DATE.—The amendments

12 made by subparagraph (A) shall take effect as if

13 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 section

17 865(b) is amended by striking ‘‘863(b)’’ and in18 serting ‘‘863’’.

19 (B) EFFECTIVE DATE.—The amendment

20 made by subparagraph (A) shall take effect as if

21 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-
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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 gov16 ernmental unit on whose behalf the bonds are issued

17 of any part of its interest in the property financed by

18 such bonds to another governmental unit.’’.

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

20 paragraph (1) shall take effect as if included in such

21 section 1317 on the date of the enactment of the Tax

22 Reform Act of 1986.

23 (h) CLARIFICATION OF TREATMENT OF MEDICARE EN24 TITLEMENT UNDER COBRA PROVISIONS.—

25 (1) IN GENERAL.—
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1 (A) Subclause (V) of section

2 4980B(f)(2)(B)(i) is amended to read as follows:

3 ‘‘(V) MEDICARE ENTITLEMENT

4 FOLLOWED BY QUALIFYING EVENT.—In

5 the case of a qualifying event described

6 in paragraph (3)(B) that occurs less

7 than 18 months after the date the cov8 ered employee became entitled to bene9 fits under title XVIII of the Social Se10 curity Act, the period of coverage for

11 qualified beneficiaries other than the

12 covered employee shall not terminate

13 under this clause before the close of the

14 36-month period beginning on the date

15 the covered employee became so enti16 tled.’’.

17 (B) Clause (v) of section 602(2)(A) of the

18 Employee Retirement Income Security Act of

19 1974 is amended to read as follows:

20 ‘‘(v) MEDICARE ENTITLEMENT FOL21 LOWED BY QUALIFYING EVENT.—In the case

22 of a qualifying event described in section

23 603(2) that occurs less than 18 months after

24 the date the covered employee became enti25 tled to benefits under title XVIII of the So-
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1 cial Security Act, the period of coverage for

2 qualified beneficiaries other than the covered

3 employee shall not terminate under this

4 subparagraph before the close of the 36-

5 month period beginning on the date the cov6 ered employee became so entitled.’’.

7 (C) Clause (iv) of section 2202(2)(A) of the

8 Public Health Service Act is amended to read as

9 follows:

10 ‘‘(iv) MEDICARE ENTITLEMENT FOL11 LOWED BY QUALIFYING EVENT.—In the case

12 of a qualifying event described in section

13 2203(2) that occurs less than 18 months

14 after the date the covered employee became

15 entitled to benefits under title XVIII of the

16 Social Security Act, the period of coverage

17 for qualified beneficiaries other than the

18 covered employee shall not terminate under

19 this subparagraph before the close of the 36-

20 month period beginning on the date the cov21 ered employee became so entitled.’’.

22 (2) EFFECTIVE DATE.—The amendments made

23 by this subsection shall apply to plan years beginning

24 after December 31, 1989.

25 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—
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1 (1) IN GENERAL.—Subsection (a) of section 860E

2 is amended by adding at the end thereof the following

3 new paragraph:

4 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

5 purposes of part VI of subchapter A of this chapter—

6 ‘‘(A) the reference in section 55(b)(2) to tax7 able income shall be treated as a reference to tax8 able income determined without regard to this

9 subsection,

10 ‘‘(B) the alternative minimum taxable in11 come of any holder of a residual interest in a

12 REMIC for any taxable year shall in no event

13 be less than the excess inclusion for such taxable

14 year, and

15 ‘‘(C) any excess inclusion shall be dis16 regarded for purposes of computing the alter17 native tax net operating loss deduction.

18 The preceding sentence shall not apply to any organi19 zation to which section 593 applies, except to the ex20 tent provided in regulations prescribed by the Sec21 retary under paragraph (2).’’.

22 (2) EFFECTIVE DATE.—The amendment made by

23 paragraph (1) shall take effect as if included in the

24 amendments made by section 671 of the Tax Reform

25 Act of 1986 unless the taxpayer elects to apply such
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1 amendment only to taxable years beginning after the

2 date of the enactment of this Act.

3 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

4 FOR CERTAIN PASSENGERS.—

5 (1) IN GENERAL.—Subparagraph (D) of section

6 4462(b)(1) (relating to special rule for Alaska, Ha7 waii, and possessions) is amended by inserting before

8 the period the following: ‘‘, or passengers transported

9 on United States flag vessels operating solely within

10 the State waters of Alaska or Hawaii and adjacent

11 international waters’’.

12 (2) EFFECTIVE DATE.—The amendment made by

13 paragraph (1) shall take effect as if included in the

14 amendments made by section 1402(a) of the Harbor

15 Maintenance Revenue Act of 1986.

16 (k) AMENDMENTS RELATED TO REVENUE PROVISIONS

17 OF ENERGY POLICY ACT OF 1992.—

18 (1) Effective with respect to taxable years begin19 ning after December 31, 1990, subclause (II) of sec20 tion 53(d)(1)(B)(iv) is amended to read as follows:

21 ‘‘(II) the adjusted net minimum

22 tax for any taxable year is the amount

23 of the net minimum tax for such year

24 increased in the manner provided in

25 clause (iii).’’.
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1 (2) Subsection (g) of section 179A is redesignated

2 as subsection (f).

3 (3) Subparagraph (E) of section 6724(d)(3) is

4 amended by striking ‘‘section 6109(f)’’ and inserting

5 ‘‘section 6109(h)’’.

6 (4)(A) Subsection (d) of section 30 is amended—

7 (i) by inserting ‘‘(determined without re8 gard to subsection (b)(3))’’ before the period at

9 the end of paragraph (1) thereof, and

10 (ii) by adding at the end thereof the follow11 ing new paragraph:

12 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No credit

13 shall be allowed under subsection (a) for any vehicle

14 if the taxpayer elects to not have this section apply

15 to such vehicle.’’.

16 (B) Subsection (m) of section 6501 (as redesig17 nated by section 1602) is amended by striking ‘‘sec18 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

19 (5) Subclause (III) of section 501(c)(21)(D)(ii) is

20 amended by striking ‘‘section 101(6)’’ and inserting

21 ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and in22 serting ‘‘1752(7)’’.

23 (6) Paragraph (1) of section 1917(b) of the En24 ergy Policy Act of 1992 shall be applied as if ‘‘at a
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1 rate’’ appeared instead of ‘‘at the rate’’ in the mate2 rial proposed to be stricken.

3 (7) Paragraph (2) of section 1921(b) of the En4 ergy Policy Act of 1992 shall be applied as if a

5 comma appeared after ‘‘(2)’’ in the material proposed

6 to be stricken.

7 (8) Subsection (a) of section 1937 of the Energy

8 Policy Act of 1992 shall be applied as if ‘‘Subpart B’’

9 appeared instead of ‘‘Subpart C’’.

10 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

11 PLAN.—

12 (1) IN GENERAL.—For purposes of the Internal

13 Revenue Code of 1986, a qualified football coaches

14 plan—

15 (A) shall be treated as a multiemployer col16 lectively bargained plan, and

17 (B) notwithstanding section 401(k)(4)(B) of

18 such Code, may include a qualified cash and de19 ferred arrangement under section 401(k) of such

20 Code.

21 (2) QUALIFIED FOOTBALL COACHES PLAN.—For

22 purposes of this subsection, the term ‘‘qualified foot23 ball coaches plan’’ means any defined contribution

24 plan which is established and maintained by an orga25 nization—
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1 (A) which is described in section 501(c) of

2 such Code,

3 (B) the membership of which consists en4 tirely of individuals who primarily coach foot5 ball as full-time employees of 4-year colleges or

6 universities described in section 170(b)(1)(A)(ii)

7 of such Code, and

8 (C) which was in existence on September

9 18, 1986.

10 (3) EFFECTIVE DATE.—This subsection shall

11 apply to years beginning after December 22, 1987.

12 (m) DETERMINATION OF UNRECOVERED INVESTMENT

13 IN ANNUITY CONTRACT.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 72(b)(4) is amended by inserting ‘‘(determined with16 out regard to subsection (c)(2))’’ after ‘‘contract’’.

17 (2) EFFECTIVE DATE.—The amendment made by

18 paragraph (1) shall take effect as if included in the

19 amendments made by section 1122(c) of the Tax Re20 form Act of 1986.

21 (n) MODIFICATIONS TO ELECTION TO INCLUDE

22 CHILD’S INCOME ON PARENT’S RETURN.—

23 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

24 section 1(g)(7)(A) (relating to election to include cer-
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1 tain unearned income of child on parent’s return) is

2 amended to read as follows:

3 ‘‘(ii) such gross income is more than

4 the amount described in paragraph

5 (4)(A)(ii)(I) and less than 10 times the

6 amount so described,’’.

7 (2) COMPUTATION OF TAX.—Subparagraph (B)

8 of section 1(g)(7) (relating to income included on par9 ent’s return) is amended—

10 (A) by striking ‘‘$1,000’’ in clause (i) and

11 inserting ‘‘twice the amount described in para12 graph (4)(A)(ii)(I)’’, and

13 (B) by amending subclause (II) of clause

14 (ii) to read as follows:

15 ‘‘(II) for each such child, 15 per16 cent of the lesser of the amount de17 scribed in paragraph (4)(A)(ii)(I) or

18 the excess of the gross income of such

19 child over the amount so described,

20 and’’.

21 (3) MINIMUM TAX.—Subparagraph (B) of section

22 59(j)(1) is amended by striking ‘‘$1,000’’ and insert23 ing ‘‘twice the amount in effect for the taxable year

24 under section 63(c)(5)(A)’’.
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1 (4) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to taxable years begin3 ning after December 31, 1995.

4 (o) TREATMENT OF CERTAIN VETERANS’ REEMPLOY5 MENT RIGHTS.—

6 (1) IN GENERAL.—Section 414 is amended by

7 adding at the end the following new subsection:

8 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ REEM9 PLOYMENT RIGHTS UNDER USERRA.—

10 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

11 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

12 RIGHTS.—If any contribution is made by an em13 ployer or an employee under an individual account

14 plan with respect to an employee, or by an employee

15 to a defined benefit plan that provides for employee

16 contributions, and such contribution is required by

17 reason of such employee’s rights under chapter 43 of

18 title 38, United States Code, resulting from qualified

19 military service, then—

20 ‘‘(A) such contribution shall not be subject

21 to any otherwise applicable limitation contained

22 in section 402(g), 402(h), 403(b), 404(a), 404(h),

23 408, 415, or 457, and shall not be taken into ac24 count in applying such limitations to other con25 tributions or benefits under such plan or any
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1 other plan, with respect to the year in which the

2 contribution is made,

3 ‘‘(B) such contribution shall be subject to

4 the limitations referred to in subparagraph (A)

5 with respect to the year to which the contribu6 tion relates (in accordance with rules prescribed

7 by the Secretary), and

8 ‘‘(C) such plan shall not be treated as fail9 ing to meet the requirements of section 401(a)(4),

10 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),

11 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p),

12 410(b), or 416 by reason of the making of (or the

13 right to make) such contribution.

14 For purposes of the preceding sentence, any elective

15 deferral or employee contribution made under para16 graph (2) shall be treated as required by reason of the

17 employee’s rights under such chapter 43.

18 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

19 WITH RESPECT TO ELECTIVE DEFERRALS.—

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

21 subchapter and section 457, if an employee is en22 titled to the benefits of chapter 43 of title 38,

23 United States Code, with respect to any plan

24 which provides for elective deferrals, the em25 ployer sponsoring the plan shall be treated as
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1 meeting the requirements of such chapter 43 with

2 respect to such elective deferrals only if such em3 ployer—

4 ‘‘(i) permits such employee to make ad5 ditional elective deferrals under such plan

6 (in the amount determined under subpara7 graph (B) or such lesser amount as is elect8 ed by the employee) during the period which

9 begins on the date of the reemployment of

10 such employee with such employer and has

11 the same length as the lesser of—

12 ‘‘(I) the product of 3 and the pe13 riod of qualified military service which

14 resulted in such rights, and

15 ‘‘(II) 5 years, and

16 ‘‘(ii) makes a matching contribution

17 with respect to any additional elective defer18 ral made pursuant to clause (i) which

19 would have been required had such deferral

20 actually been made during the period of

21 such qualified military service.

22 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—The

23 amount determined under this subparagraph

24 with respect to any plan is the maximum

25 amount of the elective deferrals that the individ-
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1 ual would have been permitted to make under the

2 plan in accordance with the limitations referred

3 to in paragraph (1)(A) during the period of

4 qualified military service if the individual had

5 continued to be employed by the employer during

6 such period and received compensation as deter7 mined under paragraph (7). Proper adjustment

8 shall be made to the amount determined under

9 the preceding sentence for any elective deferrals

10 actually made during the period of such quali11 fied military service.

12 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

13 of this paragraph, the term ‘elective deferral’ has

14 the meaning given such term by section

15 402(g)(3); except that such term shall include

16 any deferral of compensation under an eligible

17 deferred compensation plan (as defined in sec18 tion 457(b)).

19 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU20 TIONS.—References in subparagraphs (A) and

21 (B) to elective deferrals shall be treated as in22 cluding references to employee contributions.

23 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT

24 REQUIRED.—For purposes of this subchapter and sub-
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1 chapter E, no provision of chapter 43 of title 38,

2 United States Code, shall be construed as requiring—

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 service.

8 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER9 MITTED.—If any plan suspends the obligation to

10 repay any loan made to an employee from such plan

11 for any part of any period during which such em12 ployee is performing service in the uniformed services

13 (as defined in chapter 43 of title 38, United States

14 Code), whether or not qualified military service, such

15 suspension shall not be taken into account for pur16 poses of section 72(p), 401(a), or 4975(d)(1).

17 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur18 poses of this subsection, the term ‘qualified military

19 service’ means any service in the uniformed services

20 (as defined in chapter 43 of title 38, United States

21 Code) by any individual if such individual is entitled

22 to reemployment rights under such chapter with re23 spect to such service.

24 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For purposes

25 of this subsection, the term ‘individual account plan’
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1 means any defined contribution plan (including any

2 tax-sheltered annuity plan under section 403(b), any

3 simplified employee pension under section 408(k),

4 any qualified salary reduction arrangement under

5 section 408(p), and any eligible deferred compensa6 tion plan (as defined in section 457(b)).

7 ‘‘(7) COMPENSATION.—For purposes of sections

8 403(b)(3), 415(c)(3), and 457(e)(5), an employee who

9 is in qualified military service shall be treated as re10 ceiving compensation from the employer during such

11 period of qualified military service equal to—

12 ‘‘(A) the compensation the employee would

13 have received during such period if the employee

14 were not in qualified military service, deter15 mined based on the rate of pay the employee

16 would have received from the employer but for

17 absence during the period of qualified military

18 service, or

19 ‘‘(B) if the compensation the employee

20 would have received during such period was not

21 reasonably certain, the employee’s average com22 pensation from the employer during the 12-

23 month period immediately preceding the quali24 fied military service (or, if shorter, the period of
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1 employment immediately preceding the qualified

2 military service).

3 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

4 RETIREMENT PLANS.—For purposes of this subchapter

5 and section 457, an employer sponsoring a retirement

6 plan shall be treated as meeting the requirements of

7 chapter 43 of title 38, United States Code, only if

8 each of the following requirements is met:

9 ‘‘(A) An individual reemployed under such

10 chapter is treated with respect to such plan as

11 not having incurred a break in service with the

12 employer maintaining the plan by reason of such

13 individual’s period of qualified military service.

14 ‘‘(B) Each period of qualified military serv15 ice served by an individual is, upon reemploy16 ment under such chapter, deemed with respect to

17 such plan to constitute service with the employer

18 maintaining the plan for the purpose of deter19 mining the nonforfeitability of the individual’s

20 accrued benefits under such plan and for the

21 purpose of determining the accrual of benefits

22 under such plan.

23 ‘‘(C) An individual reemployed under such

24 chapter is entitled to accrued benefits that are

25 contingent on the making of, or derived from,
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1 employee contributions or elective deferrals only

2 to the extent the individual makes payment to

3 the plan with respect to such contributions or de4 ferrals. No such payment may exceed the amount

5 the individual would have been permitted or re6 quired to contribute had the individual remained

7 continuously employed by the employer through8 out the period of qualified military service. Any

9 payment to such plan shall be made during the

10 period beginning with the date of reemployment

11 and whose duration is 3 times the period of the

12 qualified military service (but not greater than

13 5 years).

14 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

15 subsection shall not apply to any retirement plan to

16 which chapter 43 of title 38, United States Code, does

17 not apply.

18 ‘‘(10) REFERENCES.—For purposes of this sec19 tion, any reference to chapter 43 of title 38, United

20 States Code, shall be treated as a reference to such

21 chapter as in effect on December 12, 1994 (without re22 gard to any subsequent amendment).’’.

23 (2) EFFECTIVE DATE.—The amendment made by

24 this subsection shall be effective as of December 12,

25 1994.
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1 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

2 (1) IN GENERAL.—Paragraph (3) of section

3 6045(e) (relating to prohibition of separate charge for

4 filing return) is amended by adding at the end the

5 following new sentence: ‘‘Nothing in this paragraph

6 shall be construed to prohibit the real estate reporting

7 person from taking into account its cost of complying

8 with such requirement in establishing its charge

9 (other than a separate charge for complying with such

10 requirement) to any customer for performing services

11 in the case of a real estate transaction.’’.

12 (2) EFFECTIVE DATE.—The amendment made by

13 paragraph (1) shall take effect as if included in sec14 tion 1015(e)(2)(A) of the Technical and Miscellaneous

15 Revenue Act of 1988.

16 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

17 STOCK REDEMPTION EXPENSES.

18 (1) IN GENERAL.—Paragraph (1) of section

19 162(k) is amended by striking ‘‘the redemption of its

20 stock’’ and inserting ‘‘the reacquisition of its stock or

21 of the stock of any related person (as defined in sec22 tion 465(b)(3)(C))’’.

23 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub24 paragraph (A) of section 162(k)(2) is amended by

25 striking ‘‘or’’ at the end of clause (i), by redesignating
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1 clause (ii) as clause (iii), and by inserting after

2 clause (i) the following new clause:

3 ‘‘(ii) deduction for amounts which are

4 properly allocable to indebtedness and am5 ortized over the term of such indebtedness,

6 or’’.

7 (3) CLERICAL AMENDMENT.—The subsection

8 heading for subsection (k) of section 162 is amended

9 by striking ‘‘REDEMPTION’’ and inserting ‘‘REACQUI10 SITION’’.

11 (4) EFFECTIVE DATE.—

12 (A) IN GENERAL.—Except as provided in

13 subparagraph (B), the amendments made by this

14 subsection shall apply to amounts paid or in15 curred after September 13, 1995, in taxable

16 years ending after such date.

17 (B) PARAGRAPH (2).—The amendment

18 made by paragraph (2) shall take effect as if in19 cluded in the amendment made by section 613 of

20 the Tax Reform Act of 1986.

21 (r) CLERICAL AMENDMENT TO SECTION 404.—

22 (1) IN GENERAL.—Paragraph (1) of section

23 404(j) is amended by striking ‘‘(10)’’ and inserting

24 ‘‘(9)’’.
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1 (2) EFFECTIVE DATE.—The amendment made by

2 paragraph (1) shall take effect as if included in the

3 amendments made by section 713(d)(4)(A) of the Def4 icit Reduction Act of 1984.

5 (s) PASSIVE INCOME NOT TO INCLUDE FSC INCOME,

6 ETC.—

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

8 1296(b) is amended by striking ‘‘or’’ at the end of

9 subparagraph (B), by striking the period at the end

10 of subparagraph (C) and inserting ‘‘, or’’, and by in11 serting after subparagraph (C) the following new sub12 paragraph:

13 ‘‘(D) which is foreign trade income of a

14 FSC or export trade income of an export trade

15 corporation (as defined in section 971).’’.

16 (2) EFFECTIVE DATE.—The amendment made by

17 paragraph (1) shall take effect as if included in the

18 amendments made by section 1235 of the Tax Reform

19 Act of 1986.

20 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—

21 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

22 amended by striking ‘‘of the subclause’’ and inserting

23 ‘‘of subclause’’.

24 (2) Paragraph (2) of section 72(m) is amended

25 by inserting ‘‘and’’ at the end of subparagraph (A),
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1 by striking subparagraph (B), and by redesignating

2 subparagraph (C) as subparagraph (B).

3 (3) Paragraph (2) of section 86(b) is amended by

4 striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

5 (4)(A) The heading for section 112 is amended

6 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COMBAT

7 ZONE COMPENSATION’’.

8 (B) The item relating to section 112 in the table

9 of sections for part III of subchapter B of chapter 1

10 is amended by striking ‘‘combat pay’’ and inserting

11 ‘‘combat zone compensation’’.

12 (C) Paragraph (1) of section 3401(a) is amended

13 by striking ‘‘combat pay’’ and inserting ‘‘combat zone

14 compensation’’.

15 (5) Clause (i) of section 172(h)(3)(B) is amended

16 by striking the comma at the end thereof and insert17 ing a period.

18 (6) Clause (ii) of section 543(a)(2)(B) is amend19 ed by striking ‘‘section 563(c)’’ and inserting ‘‘section

20 563(d)’’.

21 (7) Paragraph (1) of section 958(a) is amended

22 by striking ‘‘sections 955(b)(1) (A) and (B),

23 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec24 tion 960(a)(1)’’.
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1 (8) Subsection (g) of section 642 is amended by

2 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

3 section 2621(a)(2)’’.

4 (9) Section 1463 is amended by striking ‘‘this

5 subsection’’ and inserting ‘‘this section’’.

6 (10) Subsection (k) of section 3306 is amended

7 by inserting a period at the end thereof.

8 (11) The item relating to section 4472 in the

9 table of sections for subchapter B of chapter 36 is

10 amended by striking ‘‘and special rules’’.

11 (12) Paragraph (3) of section 5134(c) is amend12 ed by striking ‘‘section 6662(a)’’ and inserting ‘‘sec13 tion 6665(a)’’.

14 (13) Paragraph (2) of section 5206(f) is amended

15 by striking ‘‘section 5(e)’’ and inserting ‘‘section

16 105(e)’’.

17 (14) Paragraph (1) of section 6050B(c) is

18 amended by striking ‘‘section 85(c)’’ and inserting

19 ‘‘section 85(b)’’.

20 (15) Subsection (k) of section 6166 is amended

21 by striking paragraph (6).

22 (16) Subsection (e) of section 6214 is amended to

23 read as follows:
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1 ‘‘(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).’’.

2 (17) The section heading for section 6043 is

3 amended by striking the semicolon and inserting a

4 comma.

5 (18) The item relating to section 6043 in the

6 table of sections for subpart B of part III of sub7 chapter A of chapter 61 is amended by striking the

8 semicolon and inserting a comma.

9 (19) The table of sections for part I of subchapter

10 A of chapter 68 is amended by striking the item relat11 ing to section 6662.

12 (20)(A) Section 7232 is amended—

13 (i) by striking ‘‘LUBRICATING OIL,’’ in

14 the heading, and

15 (ii) by striking ‘‘lubricating oil,’’ in the

16 text.

17 (B) The table of sections for part II of sub18 chapter A of chapter 75 is amended by striking ‘‘lu19 bricating oil,’’ in the item relating to section 7232.

20 (21) Paragraph (1) of section 6701(a) of the Om21 nibus Budget Reconciliation Act of 1989 is amended

22 by striking ‘‘subclause (IV)’’ and inserting ‘‘subclause

23 (V)’’.
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1 (22) Clause (ii) of section 7304(a)(2)(D) of such

2 Act is amended by striking ‘‘subsection (c)(2)’’ and

3 inserting ‘‘subsection (c)’’.

4 (23) Paragraph (1) of section 7646(b) of such

5 Act is amended by striking ‘‘section 6050H(b)(1)’’

6 and inserting ‘‘section 6050H(b)(2)’’.

7 (24) Paragraph (10) of section 7721(c) of such

8 Act is amended by striking ‘‘section

9 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

10 6661(b)(2)(C)(ii)’’.

11 (25) Subparagraph (A) of section 7811(i)(3) of

12 such Act is amended by inserting ‘‘the first place it

13 appears’’ before ‘‘in clause (i)’’.

14 (26) Paragraph (10) of section 7841(d) of such

15 Act is amended by striking ‘‘section 381(a)’’ and in16 serting ‘‘section 381(c)’’.

17 (27) Paragraph (2) of section 7861(c) of such Act

18 is amended by inserting ‘‘the second place it appears’’

19 before ‘‘and inserting’’.

20 (28) Paragraph (1) of section 460(b) is amended

21 by striking ‘‘the look-back method of paragraph (3)’’

22 and inserting ‘‘the look-back method of paragraph

23 (2)’’.
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1 (29) Subparagraph (C) of section 50(a)(2) is

2 amended by striking ‘‘subsection (c)(4)’’ and inserting

3 ‘‘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 amended

13 by striking ‘‘section 172(i)’’ and inserting ‘‘section

14 172(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 amended

19 by striking ‘‘section 582(c)(5)’’ and inserting ‘‘section

20 582(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)’’.
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1 (37) Subsection (b) of section 936 is amended by

2 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 section

6 861(a)(1)’’ and inserting ‘‘section 861(a)(1)(A)’’.

7 (39) Subparagraph (A) of section 280A(c)(1) is

8 amended to read as follows:

9 ‘‘(A) as the principal place of business for

10 any trade or business of the taxpayer,’’.

11 (40) Section 6038 is amended by redesignating

12 the subsection relating to cross references as subsection

13 (f).

14 (41) Clause (iv) of section 6103(e)(1)(A) is

15 amended by striking all that follows ‘‘provisions of’’

16 and inserting ‘‘section 1(g) or 59(j);’’.

17 (42) The subsection (f) of section 6109 of the In18 ternal Revenue Code of 1986 which was added by sec19 tion 2201(d) of Public Law 101–624 is redesignated

20 as subsection (g).

21 (43) Subsection (b) of section 7454 is amended

22 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec23 tion 4955(f)(2)’’.

24 (44) Subsection (d) of section 11231 of the Reve25 nue Reconciliation Act of 1990 shall be applied as if
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1 ‘‘comma’’ appeared instead of ‘‘period’’ and as if the

2 paragraph (9) proposed to be added ended with a

3 comma.

4 (45) Paragraph (1) of section 11303(b) of the

5 Revenue Reconciliation Act of 1990 shall be applied

6 as if ‘‘paragraph’’ appeared instead of ‘‘subpara7 graph’’ in the material proposed to be stricken.

8 (46) Subsection (f) of section 11701 of the Reve9 nue Reconciliation Act of 1990 is amended by insert10 ing ‘‘(relating to definitions)’’ after ‘‘section 6038(e)’’.

11 (47) Subsection (i) of section 11701 of the Reve12 nue Reconciliation Act of 1990 shall be applied as if

13 ‘‘subsection’’ appeared instead of ‘‘section’’ in the ma14 terial proposed to be stricken.

15 (48) Subparagraph (B) of section 11801(c)(2) of

16 the Revenue Reconciliation Act of 1990 shall be ap17 plied as if ‘‘section 56(g)’’ appeared instead of ‘‘sec18 tion 59(g)’’.

19 (49) Subparagraph (C) of section 11801(c)(8) of

20 the Revenue Reconciliation Act of 1990 shall be ap21 plied as if ‘‘reorganizations’’ appeared instead of ‘‘re22 organization’’ in the material proposed to be stricken.

23 (50) Subparagraph (H) of section 11801(c)(9) of

24 the Revenue Reconciliation Act of 1990 shall be ap-
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HR 3448 EAS

1 plied as if ‘‘section 1042(c)(1)(B)’’ appeared instead

2 of ‘‘section 1042(c)(2)(B)’’.

3 (51) Subparagraph (F) of section 11801(c)(12) of

4 the Revenue Reconciliation Act of 1990 shall be ap5 plied as if ‘‘and (3)’’ appeared instead of ‘‘and (E)’’.

6 (52) Subparagraph (A) of section 11801(c)(22) of

7 the Revenue Reconciliation Act of 1990 shall be ap8 plied as if ‘‘chapters 21’’ appeared instead of ‘‘chap9 ter 21’’ in the material proposed to be stricken.

10 (53) Paragraph (3) of section 11812(b) of the

11 Revenue Reconciliation Act of 1990 shall be applied

12 by not executing the amendment therein to the head13 ing of section 42(d)(5)(B).

14 (54) Clause (i) of section 11813(b)(9)(A) of the

15 Revenue Reconciliation Act of 1990 shall be applied

16 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the ma17 terial proposed to be stricken.

18 (55) Subparagraph (F) of section 11813(b)(13)

19 of the Revenue Reconciliation Act of 1990 shall be ap20 plied as if ‘‘tax’’ appeared after ‘‘investment’’ in the

21 material proposed to be stricken.

22 (56) Paragraph (19) of section 11813(b) of the

23 Revenue Reconciliation Act of 1990 shall be applied

24 as if ‘‘Paragraph (20) of section 1016(a), as redesig-
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1 nated by section 11801,’’ appeared instead of ‘‘Para2 graph (21) of section 1016(a)’’.

3 (57) Paragraph (5) section 8002(a) of the Sur4 face Transportation Revenue Act of 1991 shall be ap5 plied as if ‘‘4481(e)’’ appeared instead of ‘‘4481(c)’’.

6 (58) Section 7872 is amended—

7 (A) by striking ‘‘foregone’’ each place it ap8 pears in subsections (a) and (e)(2) and inserting

9 ‘‘forgone’’, and

10 (B) by striking ‘‘FOREGONE’’ in the heading

11 for subsection (e) and the heading for paragraph

12 (2) of subsection (e) and inserting ‘‘FORGONE’’.

13 (59) Paragraph (7) of section 7611(h) is amend14 ed by striking ‘‘approporiate’’ and inserting ‘‘appro15 priate’’.

16 (60) The heading of paragraph (3) of section

17 419A(c) is amended by striking ‘‘SEVERENCE’’ and

18 inserting ‘‘SEVERANCE’’.

19 (61) Clause (ii) of section 807(d)(3)(B) is

20 amended by striking ‘‘Commissoners’ ’’ and inserting

21 ‘‘Commissioners’ ’’.

22 (62) Subparagraph (B) of section 1274A(c)(1) is

23 amended by striking ‘‘instument’’ and inserting ‘‘in24 strument’’.
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1 (63) Subparagraph (B) of section 724(d)(3) by

2 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara3 graph’’.

4 (64) The last sentence of paragraph (2) of section

5 42(c) is amended by striking ‘‘of 1988’’.

6 (65) Paragraph (1) of section 9707(d) is amend7 ed by striking ‘‘diligence,’’ and inserting ‘‘diligence’’.

8 (66) Subsection (c) of section 4977 is amended

9 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘section

10 132(h)’’.

11 (67) The last sentence of section 401(a)(20) is

12 amended by striking ‘‘section 211’’ and inserting

13 ‘‘section 521’’.

14 (68) Subparagraph (A) of section 402(g)(3) is

15 amended by striking ‘‘subsection (a)(8)’’ and insert16 ing ‘‘subsection (e)(3)’’.

17 (69) The last sentence of section 403(b)(10) is

18 amended by striking ‘‘an direct’’ and inserting ‘‘a

19 direct’’.

20 (70) Subparagraph (A) of section 4973(b)(1) is

21 amended by striking ‘‘sections 402(c)’’ and inserting

22 ‘‘section 402(c)’’.

23 (71) Paragraph (12) of section 3405(e) is

24 amended by striking ‘‘(b)(3)’’ and inserting ‘‘(b)(2)’’.
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1 (72) Paragraph (41) of section 521(b) of the Un2 employment Compensation Amendments of 1992 shall

3 be applied as if ‘‘section’’ appeared instead of ‘‘sec4 tions’’ in the material proposed to be stricken.

5 (73) Paragraph (27) of section 521(b) of the Un6 employment Compensation Amendments of 1992 shall

7 be applied as if ‘‘Section 691(c)(5)’’ appeared instead

8 of ‘‘Section 691(c)’’.

9 (74) Paragraph (5) of section 860F(a) is amend10 ed by striking ‘‘paragraph (1)’’ and inserting ‘‘para11 graph (2)’’.

12 (75) Paragraph (1) of section 415(k) is amended

13 by adding ‘‘or’’ at the end of subparagraph (C), by

14 striking subparagraphs (D) and (E), and by redesig15 nating subparagraph (F) as subparagraph (D).

16 (76) Paragraph (2) of section 404(a) is amended

17 by striking ‘‘(18),’’.

18 (77) Clause (ii) of section 72(p)(4)(A) is amend19 ed to read as follows:

20 ‘‘(ii) SPECIAL RULE.—The term ‘quali21 fied employer plan’ shall include any plan

22 which was (or was determined to be) a

23 qualified employer plan or a government

24 plan.’’.
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1 (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i)

2 are each amended by striking ‘‘section

3 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

4 6662(d)(2)(C)(iii)’’.

5 (79) Subsection (a) of section 164 is amended by

6 striking the paragraphs relating to the generation7 skipping tax and the environmental tax imposed by

8 section 59A and by inserting after paragraph (3) the

9 following new paragraphs:

10 ‘‘(4) The GST tax imposed on income distribu11 tions.

12 ‘‘(5) The environmental tax imposed by section

13 59A.’’.

14 (80) Subclause (I) of section 936(a)(4)(A)(ii) is

15 amended by striking ‘‘deprecation’’ and inserting ‘‘de16 preciation’’.

17 Subtitle G—Other Provisions

18 SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING

19 REQUIREMENTS WITH RESPECT TO CERTAIN

20 STATES.

21 (a) IN GENERAL.—Section 4082 (relating to exemp22 tions for diesel fuel) is amended by redesignating sub23 sections (c) and (d) as subsections (d) and (e), respectively,

24 and by inserting after subsection (b) the following new sub25 section:
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1 ‘‘(c) EXCEPTION TO DYEING REQUIREMENTS.—Para2 graph (2) of subsection (a) shall not apply with respect to

3 any diesel fuel—

4 ‘‘(1) removed, entered, or sold in a State for ulti5 mate sale or use in an area of such State during the

6 period such area is exempted from the fuel dyeing re7 quirements under subsection (i) of section 211 of the

8 Clean Air Act (as in effect on the date of the enact9 ment of this subsection) by the Administrator of the

10 Environmental Protection Agency under paragraph

11 (4) of such subsection (i) (as so in effect), and

12 ‘‘(2) the use of which is certified pursuant to reg13 ulations issued by the Secretary.’’

14 (b) EFFECTIVE DATE.—The amendments made by this

15 section shall apply with respect to fuel removed, entered,

16 or sold on or after the first day of the first calendar quarter

17 beginning after the date of the enactment of this Act.

18 SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY AC19 COUNTS.

20 (a) IN GENERAL.—For purposes of subsection (s) of

21 section 3121 of the Internal Revenue Code of 1986 (relating

22 to concurrent employment by 2 or more employers)—

23 (1) the following entities shall be deemed to be

24 related corporations that concurrently employ the

25 same individual:
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1 (A) a State university which employs health

2 professionals as faculty members at a medical

3 school, and

4 (B) an agency account of a State university

5 which is described in subparagraph (A) and

6 from which there is distributed to such faculty

7 members payments forming a part of the com8 pensation that the State, or such State univer9 sity, as the case may be, agrees to pay to such

10 faculty members, but only if—

11 (i) such agency account is authorized

12 by State law and receives the funds for such

13 payments from a faculty practice plan de14 scribed in section 501(c)(3) of such Code

15 and exempt from tax under section 501(a)

16 of such Code,

17 (ii) such payments are distributed by

18 such agency account to such faculty mem19 bers who render patient care at such medi20 cal school, and

21 (iii) such faculty members comprise at

22 least 30 percent of the membership of such

23 faculty practice plan, and

24 (2) remuneration which is disbursed by such

25 agency account to any such faculty member of the
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1 medical school described in paragraph (1)(A) shall be

2 deemed to have been actually disbursed by the State,

3 or such State university, as the case may be, as a

4 common paymaster and not to have been actually dis5 bursed by such agency account.

6 (b) EFFECTIVE DATE.—The provisions of subsection

7 (a) shall apply to remuneration paid after December 31,

8 1996.

9 SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DE10 PLETING CHEMICALS.

11 (a) RECYCLED HALON.—

12 (1) IN GENERAL.—Section 4682(d)(1) (relating

13 to recycling) is amended by inserting ‘‘, or on any re14 cycled halon imported from any country which is a

15 signatory to the Montreal Protocol on Substances that

16 Deplete the Ozone Layer’’ before the period at the end.

17 (2) CERTIFICATION SYSTEM.—The Secretary of

18 the Treasury, after consultation with the Adminis19 trator of the Environmental Protection Agency, shall

20 develop a certification system to ensure compliance

21 with the recycling requirement for imported halon

22 under section 4682(d)(1) of the Internal Revenue Code

23 of 1986, as amended by paragraph (1).

24 (b) CHEMICALS USED AS PROPELLANTS IN METERED25 DOSE INHALERS TAX-EXEMPT.—Paragraph (4) of section
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1 4682(g) (relating to phase-in of tax on certain substances)

2 is amended to read as follows:

3 ‘‘(4) CHEMICALS USED AS PROPELLANTS IN ME4 TERED-DOSE INHALERS.—

5 ‘‘(A) TAX-EXEMPT.—

6 ‘‘(i) IN GENERAL.—No tax shall be im7 posed by section 4681 on—

8 ‘‘(I) any use of any substance as

9 a propellant in metered-dose inhalers,

10 or

11 ‘‘(II) any qualified sale by the

12 manufacturer, producer, or importer of

13 any substance.

14 ‘‘(ii) QUALIFIED SALE.—For purposes

15 of clause (i), the term ‘qualified sale’ means

16 any sale by the manufacturer, producer, or

17 importer of any substance—

18 ‘‘(I) for use by the purchaser as a

19 propellant in metered-dose inhalers, or

20 ‘‘(II) for resale by the purchaser

21 to a 2d purchaser for such use by the

22 2d purchaser.

23 The preceding sentence shall apply only if

24 the manufacturer, producer, and importer,

25 and the 1st and 2d purchasers (if any) meet
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1 such registration requirements as may be

2 prescribed by the Secretary.

3 ‘‘(B) OVERPAYMENTS.—If any substance on

4 which tax was paid under this subchapter is

5 used by any person as a propellant in metered6 dose inhalers, credit or refund without interest

7 shall be allowed to such person in an amount

8 equal to the excess of—

9 ‘‘(i) the tax paid under this subchapter

10 on such substance, over

11 ‘‘(ii) the tax (if any) which would be

12 imposed by section 4681 if such substance

13 were used for such use by the manufacturer,

14 producer, or importer thereof on the date of

15 its use by such person.

16 Amounts payable under the preceding sen17 tence with respect to uses during the taxable

18 year shall be treated as described in section

19 34(a) for such year unless claim thereof has

20 been timely filed under this subparagraph.’’

21 (c) EFFECTIVE DATES.—

22 (1) RECYCLED HALON.—The amendment made

23 by subsection (a)(1) shall take effect on January 1,

24 1997.
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1 (2) METERED-DOSE INHALERS.—The amend2 ment made by subsection (b) shall take effect on the

3 7th day after the date of the enactment of this Act.

4 SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA

5 POWER ADMINISTRATION FACILITY.

6 Sections 142(f)(3) (as added by section 1605) and

7 147(d) of the Internal Revenue Code of 1986 shall not apply

8 in determining whether any private activity bond issued

9 after the date of the enactment of this Act and used to fi10 nance the acquisition of the Snettisham hydroelectric

11 project from the Alaska Power Administration is a quali12 fied bond for purposes of such Code.

13 SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN

14 TRANSFERS BY COMMON TRUST FUNDS TO

15 REGULATED INVESTMENT COMPANIES.

16 (a) GENERAL RULE.—Section 584 (relating to com17 mon trust funds) is amended by redesignating subsection

18 (h) as subsection (i) and by inserting after subsection (g)

19 the following new subsection:

20 ‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN

21 TRANSFERS TO REGULATED INVESTMENT COMPANIES.—

22 ‘‘(1) IN GENERAL.—If—

23 ‘‘(A) a common trust fund transfers sub24 stantially all of its assets to one or more regu25 lated investment companies in exchange solely
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1 for stock in the company or companies to which

2 such assets are so transferred, and

3 ‘‘(B) such stock is distributed by such com4 mon trust fund to participants in such common

5 trust fund in exchange solely for their interests

6 in such common trust fund,

7 no gain or loss shall be recognized by such common

8 trust fund by reason of such transfer or distribution,

9 and no gain or loss shall be recognized by any partic10 ipant in such common trust fund by reason of such

11 exchange.

12 ‘‘(2) BASIS RULES.—

13 ‘‘(A) REGULATED INVESTMENT COMPANY.—

14 The basis of any asset received by a regulated in15 vestment company in a transfer referred to in

16 paragraph (1)(A) shall be the same as it would

17 be in the hands of the common trust fund.

18 ‘‘(B) PARTICIPANTS.—The basis of the stock

19 which is received in an exchange referred to in

20 paragraph (1)(B) shall be the same as that of the

21 property exchanged. If stock in more than one

22 regulated investment company is received in

23 such exchange, the basis determined under the

24 preceding sentence shall be allocated among the
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1 stock in each such company on the basis of re2 spective fair market values.

3 ‘‘(3) TREATMENT OF ASSUMPTIONS OF

4 LIABILITY.—

5 ‘‘(A) IN GENERAL.—In determining whether

6 the transfer referred to in paragraph (1)(A) is in

7 exchange solely for stock in one or more regu8 lated investment companies, the assumption by

9 any such company of a liability of the common

10 trust fund, and the fact that any property trans11 ferred by the common trust fund is subject to a

12 liability, shall be disregarded.

13 ‘‘(B) SPECIAL RULE WHERE ASSUMED

14 LIABILITIES EXCEED BASIS.—

15 ‘‘(i) IN GENERAL.—If, in any transfer

16 referred to in paragraph (1)(A), the as17 sumed liabilities exceed the aggregate ad18 justed bases (in the hands of the common

19 trust fund) of the assets transferred to the

20 regulated investment company or

21 companies—

22 ‘‘(I) notwithstanding paragraph

23 (1), gain shall be recognized to the

24 common trust fund on such transfer in

25 an amount equal to such excess,
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1 ‘‘(II) the basis of the assets re2 ceived by the regulated investment

3 company or companies in such trans4 fer shall be increased by the amount so

5 recognized, and

6 ‘‘(III) any adjustment to the basis

7 of a participant’s interest in the com8 mon trust fund as a result of the gain

9 so recognized shall be treated as occur10 ring immediately before the exchange

11 referred to in paragraph (1)(B).

12 If the transfer referred to in paragraph

13 (1)(A) is to two or more regulated invest14 ment companies, the basis increase under

15 subclause (II) shall be allocated among such

16 companies on the basis of the respective fair

17 market values of the assets received by each

18 of such companies.

19 ‘‘(ii) ASSUMED LIABILITIES.—For pur20 poses of clause (i), the term ‘assumed liabil21 ities’ means the aggregate of—

22 ‘‘(I) any liability of the common

23 trust fund assumed by any regulated

24 investment company in connection
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1 with the transfer referred to in para2 graph (1)(A), and

3 ‘‘(II) any liability to which prop4 erty so transferred is subject.

5 ‘‘(4) COMMON TRUST FUND MUST MEET DIVER6 SIFICATION RULES.—This subsection shall not apply

7 to any common trust fund which would not meet the

8 requirements of section 368(a)(2)(F)(ii) if it were a

9 corporation. For purposes of the preceding sentence,

10 Government securities shall not be treated as securi11 ties of an issuer in applying the 25-percent and 50-

12 percent test and such securities shall not be excluded

13 for purposes of determining total assets under clause

14 (iv) of section 368(a)(2)(F).’’.

15 (b) EFFECTIVE DATE.—The amendment made by sub16 section (a) shall apply to transfers after December 31, 1995.

17 SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.

18 (a) IN GENERAL.—Subchapter F of chapter 1 (relating

19 to exempt organizations) is amended by adding at the end

20 the following new part:

21 ‘‘PART VIII—QUALIFIED STATE TUITION

22 PROGRAMS

‘‘Sec. 529. Qualified State tuition programs.
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1 ‘‘SEC. 529. QUALIFIED STATE TUITION PROGRAMS.

2 ‘‘(a) GENERAL RULE.—A qualified State tuition pro3 gram shall be exempt from taxation under this subtitle. Not4 withstanding the preceding sentence, such program shall be

5 subject to the taxes imposed by section 511 (relating to im6 position of tax on unrelated business income of charitable

7 organizations).

8 ‘‘(b) QUALIFIED STATE TUITION PROGRAM.—For pur9 poses of this section—

10 ‘‘(1) IN GENERAL.—The term ‘qualified State

11 tuition program’ means a program established and

12 maintained by a State or agency or instrumentality

13 thereof—

14 ‘‘(A) under which a person—

15 ‘‘(i) may purchase tuition credits or

16 certificates on behalf of a designated bene17 ficiary which entitle the beneficiary to the

18 waiver or payment of qualified higher edu19 cation expenses of the beneficiary, or

20 ‘‘(ii) may make contributions to an ac21 count which is established for the sole pur22 pose of meeting the qualified higher edu23 cation expenses of the designated beneficiary

24 of the account, and

25 ‘‘(B) which meets the other requirements of

26 this subsection.
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1 ‘‘(2) CASH CONTRIBUTIONS.—A program shall

2 not be treated as a qualified State tuition program

3 unless it provides that purchases or contributions

4 may only be made in cash.

5 ‘‘(3) REFUNDS.—A program shall not be treated

6 as a qualified State tuition program unless it imposes

7 a more than de minimis penalty on any refund of

8 earnings from the account which are not—

9 ‘‘(A) used for qualified higher education ex10 penses of the designated beneficiary,

11 ‘‘(B) made on account of the death or dis12 ability of the designated beneficiary, or

13 ‘‘(C) made on account of a scholarship re14 ceived by the designated beneficiary to the extent

15 the amount of the refund does not exceed the

16 amount of the scholarship used for qualified

17 higher education expenses.

18 ‘‘(4) SEPARATE ACCOUNTING.—A program shall

19 not be treated as a qualified State tuition program

20 unless it provides separate accounting for each des21 ignated beneficiary.

22 ‘‘(5) NO INVESTMENT DIRECTION.—A program

23 shall not be treated as a qualified State tuition pro24 gram unless it provides that any contributor to, or

25 designated beneficiary under, such program may not
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1 direct the investment of any contributions to the pro2 gram (or any earnings thereon).

3 ‘‘(6) NO PLEDGING OF INTEREST AS SECURITY.—

4 A program shall not be treated as a qualified State

5 tuition program if it allows any interest in the pro6 gram or any portion thereof to be used as security for

7 a loan.

8 ‘‘(c) TAX TREATMENT OF DESIGNATED BENE9 FICIARIES AND CONTRIBUTORS.—

10 ‘‘(1) IN GENERAL.—Except as otherwise provided

11 in this subsection, no amount shall be includible in

12 gross income of—

13 ‘‘(A) a designated beneficiary under a

14 qualified State tuition program, or

15 ‘‘(B) a contributor to such program on be16 half of a designated beneficiary,

17 with respect to any distribution from, or earnings

18 under, such program.

19 ‘‘(2) DISTRIBUTIONS.—

20 ‘‘(A) IN GENERAL.—Any distribution under

21 a qualified State tuition program shall be in22 cludible in the gross income of the distributee in

23 the same manner as provided under section 72

24 to the extent not excluded from gross income

25 under any other provision of this chapter.
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1 ‘‘(B) IN-KIND DISTRIBUTIONS.—The fur2 nishing of education to a designated beneficiary

3 under a qualified State tuition program shall be

4 treated as a distribution to the beneficiary.

5 ‘‘(C) CHANGE IN BENEFICIARIES.—

6 ‘‘(i) ROLLOVERS.—Subparagraph (A)

7 shall not apply to that portion of any dis8 tribution which, within 60 days of such dis9 tribution, is transferred to the credit of an10 other designated beneficiary under a quali11 fied State tuition program who is a member

12 of the same family as the designated bene13 ficiary with respect to which the distribu14 tion was made.

15 ‘‘(ii) CHANGE IN DESIGNATED BENE16 FICIARIES.—Any change in the designated

17 beneficiary of an interest in a qualified

18 State tuition program shall not be treated

19 as a distribution for purposes of subpara20 graph (A) if the new beneficiary is a mem21 ber of the same family as the old bene22 ficiary.

23 ‘‘(D) OPERATING RULES.—For purposes of

24 applying section 72—
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1 ‘‘(i) all qualified State tuition pro2 grams of which an individual is a des3 ignated beneficiary shall be treated as one

4 program,

5 ‘‘(ii) all distributions during a taxable

6 year shall be treated as one distribution,

7 and

8 ‘‘(iii) the value of the contract, income

9 on the contract, and investment in the con10 tract shall be computed as of the close of the

11 calendar year in which the taxable year be12 gins.

13 ‘‘(3) GIFT TAX TREATMENT.—Any contribution

14 on behalf of a designated beneficiary to a qualified

15 State tuition program shall be treated as a qualified

16 transfer for purposes of section 2503(e).

17 ‘‘(d) REPORTING REQUIREMENTS.—

18 ‘‘(1) IN GENERAL.—If—

19 ‘‘(A) a designated beneficiary is furnished

20 education under a qualified State tuition pro21 gram during any calendar year, or

22 ‘‘(B) there is a distribution to any individ23 ual with respect to an interest in such program

24 during any calendar year,
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1 each officer or employee having control of the quali2 fied State tuition program or their designee shall

3 make such reports as the Secretary may require re4 garding such education or distribution to the Sec5 retary and to the designated beneficiary or the indi6 vidual to whom the distribution was made. Any such

7 report shall include such information as the Secretary

8 may prescribe.

9 ‘‘(2) TIMING OF REPORTS.—Any report required

10 by this subsection—

11 ‘‘(A) shall be filed at such time and in such

12 matter as the Secretary prescribes, and

13 ‘‘(B) shall be furnished to individuals not

14 later than January 31 of the calendar year fol15 lowing the calendar year to which such report re16 lates.

17 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For

18 purposes of this section—

19 ‘‘(1) DESIGNATED BENEFICIARY.—The term ‘des20 ignated beneficiary’ means—

21 ‘‘(A) the individual designated at the com22 mencement of participation in the qualified

23 State tuition program as the beneficiary of

24 amounts paid (or to be paid) to the program,
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1 ‘‘(B) in the case of a change in beneficiaries

2 described in subsection (c)(2)(C)(ii), the individ3 ual who is the new beneficiary, and

4 ‘‘(C) in the case of an interest in a qualified

5 State tuition program purchased by a State or

6 local government or an organization described in

7 section 501(c)(3) and exempt from taxation

8 under section 501(a) as part of a scholarship

9 program operated by such government or organi10 zation, the individual receiving such interest as

11 a scholarship.

12 ‘‘(2) MEMBER OF FAMILY.—The term ‘member of

13 family’ has the same meaning given such term as sec14 tion 2032A(e)(2).

15 ‘‘(3) QUALIFIED HIGHER EDUCATION EX16 PENSES.—The term ‘qualified higher education ex17 penses’ means tuition, fees, books, supplies, and

18 equipment required for the enrollment or attendance

19 of a designated beneficiary at an eligible education

20 institution (as defined in section 135(c)(3)).

21 ‘‘(4) APPLICATION OF SECTION 514.—An interest

22 in a qualified State tuition program shall not be

23 treated as debt for purposes of section 514.’’.

24 (b) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxable years ending after

3 the date of the enactment of this Act.

4 (2) TRANSITION RULE.—If—

5 (A) a State or agency or instrumentality

6 thereof maintains, on the date of the enactment

7 of this Act, a program under which persons may

8 purchase tuition credits or certificates on behalf

9 of, or make contributions for education expenses

10 of, a designated beneficiary, and

11 (B) such program meets the requirements of

12 a qualified State tuition program before the later

13 of—

14 (i) the date which is 1 year after such

15 date of enactment, or

16 (ii) the first day of the first calendar

17 quarter after the close of the first regular

18 session of the State legislature that begins

19 after such date of enactment,

20 the amendments made by this section shall apply

21 to contributions (and earnings allocable thereto)

22 made before the later of such dates without re23 gard to whether any requirements of such

24 amendments are met with respect to such con25 tributions and earnings. For purposes of sub-
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1 paragraph (B)(ii), if a State has a 2-year legis2 lative session, each year of such session shall be

3 deemed to be a separate regular session of the

4 State legislature.

5 Ω2æPage 236, line 11, strike out øSECTION 1¿ and in6 sert: SEC. 2101

7 Ω3æPage 236, line 14, strike out øSEC. 2¿ and insert:

8 SEC. 2102

9 Ω4æPage 237, line 3, strike out øSEC. 3¿ and insert: SEC.

10 2103

11 Ω5æPage 237, line 10, strike out øSEC. 4¿ and insert:

12 SEC. 2104

13 Ω6æPage 237, line 22, strike out øSEC. 5¿ and insert:

14 SEC. 2105

Attest:

Secretary.
104TH CONGRESS

2D SESSION H. R. 3448

AMENDMENTS
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