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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3448 Introduced in House (IH)]

104th CONGRESS
  2d Session
                                H. R. 3448

To provide tax relief for small businesses, to protect jobs, to create 
opportunities, to increase the take home pay of workers, and for other 
                               purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 14, 1996

  Mr. Archer introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
To provide tax relief for small businesses, to protect jobs, to create 
opportunities, to increase the take home pay of workers, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Small Business Job 
Protection Act of 1996''.
    (b) Table of Contents.--

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.
                      Subtitle A--Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
          Subtitle B--Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. FUTA exemption for alien agricultural workers.
           Subtitle C--Provisions Relating to S Corporations

Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid 
                            elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk 
                            rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain 
                            items of income.
Sec. 1314. S corporations eligible for rules applicable to real 
                            property subdivided for sale by 
                            noncorporate taxpayers.
Sec. 1315. Effective date.
                   Subtitle D--Pension Simplification

                Chapter 1--Simplified Distribution Rules

Sec. 1401. Repeal of 5-year income averaging for lump-sum 
                            distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under 
                            certain employer plans.
Sec. 1404. Required distributions.
              Chaptsubchapter a--simple savings plansPlans
Sec. 1421. Establishment of savings incentive match plans for employees 
                            of small employers.
Sec. 1422. Extension subchapter b--other provisionsgements.
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
                Chapter 3--Nondiscrimination Provisions

Sec. 1431. Definition of highly compensated employees; repeal of family 
                            aggregation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred 
                            arrangements and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.
                  Chapter 4--Miscellaneous Provisions

Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local 
                            governments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State 
                            and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 
                            415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Waiver of minimum period for joint and survivor annuity 
                            explanation before annuity starting date.
Sec. 1452. Repeal of limitation in case of defined benefit plan and 
                            defined contribution plan for same 
                            employee; excess distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension 
                            reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net 
                            earnings from self-employment.
Sec. 1457. Date for adoption of plan amendments.
                   Subtitle E--Foreign Simplification

Sec. 1501. Repeal of inclusion of certain earnings invested in excess 
                            passive assets.
                      Subtitle F--Revenue Offsets

Sec. 1601. Termination of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire 
                            employer securities.
Sec. 1603. Certain amounts derived from foreign corporations treated as 
                            unrelated business taxable income.
Sec. 1604. Depreciation under income forecast method.
Sec. 1605. Repeal of exclusion for punitive damages and for damages not 
                            attributable to physical injuries or 
                            sickness.
Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-
                            powered automobiles and light trucks.
                   Subtitle G--Technical Corrections

Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

SEC. 1101. AMENDMENT OF 1986 CODE.

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

SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

    No addition to the tax shall be made under section 6654 or 6655 of 
the Internal Revenue Code of 1986 (relating to failure to pay estimated 
tax) with respect to any underpayment of an installment required to be 
paid before the date of the enactment of this Act to the extent such 
underpayment was created or increased by any provision of this title.

                      Subtitle A--Expensing; Etc.

SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) General Rule.--Paragraph (1) of section 179(b) (relating to 
dollar limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which may be 
        taken into account under subsection (a) for any taxable year 
        shall not exceed the following applicable amount:

        ``If the taxable year
                                                         The applicable
          begins in:
                                                             amount is:
                  1996...............................          $18,500 
                  1997...............................           19,000 
                  1998...............................           20,000 
                  1999...............................           21,000 
                  2000...............................           22,000 
                  2001...............................           23,000 
                  2002...............................           23,500 
                  2003 or thereafter.................         25,000.''

    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

    (a) Employee Cash Tips.--
            (1) Reporting requirement not considered.--Subparagraph (A) 
        of section 45B(b)(1) (relating to excess employer social 
        security tax) is amended by inserting ``(without regard to 
        whether such tips are reported under section 6053)'' after 
        ``section 3121(q)''.
            (2) Taxes paid.--Subsection (d) of section 13443 of the 
        Revenue Reconciliation Act of 1993 is amended by inserting ``, 
        with respect to services performed before, on, or after such 
        date'' after ``1993''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect as if included in the amendments made by, and 
        the provisions of, section 13443 of the Revenue Reconciliation 
        Act of 1993.
    (b) Tips for Employees Delivering Food or Beverages.--
            (1) In general.--Paragraph (2) of section 45B(b) is amended 
        to read as follows:
            ``(2) Only tips received for food or beverages taken into 
        account.--In applying paragraph (1), there shall be taken into 
        account only tips received from customers in connection with 
        the delivering or serving of food or beverages for consumption 
        if the tipping of employees delivering or serving food or 
        beverages by customers is customary.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to tips received for services performed after 
        December 31, 1996.

          Subtitle B--Extension of Certain Expiring Provisions

SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

    (a) Amount of Credit.--Subsection (a) of section 51 (relating to 
amount of credit) is amended by striking ``40 percent'' and inserting 
``35 percent''.
    (b) Members of Targeted Groups.--Subsection (d) of section 51 is 
amended to read as follows:
    ``(d) Members of Targeted Groups.--For purposes of this subpart--
            ``(1) In general.--An individual is a member of a targeted 
        group if such individual is--
                    ``(A) a qualified IV-A recipient,
                    ``(B) a qualified veteran,
                    ``(C) a qualified ex-felon,
                    ``(D) a high-risk youth,
                    ``(E) a vocational rehabilitation referral, or
                    ``(F) a qualified summer youth employee.
            ``(2) Qualified iv-a recipient.--
                    ``(A) In general.--The term `qualified IV-A 
                recipient' means any individual who is certified by the 
                designated local agency as being a member of a family 
                receiving assistance under a IV-A program for at least 
                a 9-month period ending during the 9-month period 
                ending on the hiring date.
                    ``(B) IV-A program.--For purposes of this 
                paragraph, the term `IV-A program' means any program 
                providing assistance under a State plan approved under 
                part A of title IV of the Social Security Act (relating 
                to assistance for needy families with minor children) 
                and any successor of such program.
            ``(3) Qualified veteran.--
                    ``(A) In general.--The term `qualified veteran' 
                means any veteran who is certified by the designated 
                local agency as being--
                            ``(i) a member of a family receiving 
                        assistance under a IV-A program (as defined in 
                        paragraph (2)(B)) for at least a 9-month period 
                        ending during the 12-month period ending on the 
                        hiring date, or
                            ``(ii) a member of a family receiving 
                        assistance under a food stamp program under the 
                        Food Stamp Act of 1977 for at least a 3-month 
                        period ending during the 12-month period ending 
                        on the hiring date.
                    ``(B) Veteran.--For purposes of subparagraph (A), 
                the term `veteran' means any individual who is 
                certified by the designated local agency as--
                            ``(i)(I) having served on active duty 
                        (other than active duty for training) in the 
                        Armed Forces of the United States for a period 
                        of more than 180 days, or
                            ``(II) having been discharged or released 
                        from active duty in the Armed Forces of the 
                        United States for a service-connected 
                        disability, and
                            ``(ii) not having any day during the 60-day 
                        period ending on the hiring date which was a 
                        day of extended active duty in the Armed Forces 
                        of the United States.
                For purposes of clause (ii), the term `extended active 
                duty' means a period of more than 90 days during which 
                the individual was on active duty (other than active 
                duty for training).
            ``(4) Qualified ex-felon.--The term `qualified ex-felon' 
        means any individual who is certified by the designated local 
        agency--
                    ``(A) as having been convicted of a felony under 
                any statute of the United States or any State,
                    ``(B) as having a hiring date which is not more 
                than 1 year after the last date on which such 
                individual was so convicted or was released from 
                prison, and
                    ``(C) as being a member of a family which had an 
                income during the 6 months immediately preceding the 
                earlier of the month in which such income determination 
                occurs or the month in which the hiring date occurs, 
                which, on an annual basis, would be 70 percent or less 
                of the Bureau of Labor Statistics lower living 
                standard.
        Any determination under subparagraph (C) shall be valid for the 
        45-day period beginning on the date such determination is made.
            ``(5) High-risk youth.--
                    ``(A) In general.--The term `high-risk youth' means 
                any individual who is certified by the designated local 
                agency--
                            ``(i) as having attained age 18 but not age 
                        25 on the hiring date, and
                            ``(ii) as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Youth must continue to reside in zone.--In 
                the case of a high-risk youth, the term `qualified 
                wages' shall not include wages paid or incurred for 
                services performed while such youth's principal place 
                of abode is outside an empowerment zone or enterprise 
                community.
            ``(6) Vocational rehabilitation referral.--The term 
        `vocational rehabilitation referral' means any individual who 
        is certified by the designated local agency as--
                    ``(A) having a physical or mental disability which, 
                for such individual, constitutes or results in a 
                substantial handicap to employment, and
                    ``(B) having been referred to the employer upon 
                completion of (or while receiving) rehabilitative 
                services pursuant to--
                            ``(i) an individualized written 
                        rehabilitation plan under a State plan for 
                        vocational rehabilitation services approved 
                        under the Rehabilitation Act of 1973, or
                            ``(ii) a program of vocational 
                        rehabilitation carried out under chapter 31 of 
                        title 38, United States Code.
            ``(7) Qualified summer youth employee.--
                    ``(A) In general.--The term `qualified summer youth 
                employee' means any individual--
                            ``(i) who performs services for the 
                        employer between May 1 and September 15,
                            ``(ii) who is certified by the designated 
                        local agency as having attained age 16 but not 
                        18 on the hiring date (or if later, on May 1 of 
                        the calendar year involved),
                            ``(iii) who has not been an employee of the 
                        employer during any period prior to the 90-day 
                        period described in subparagraph (B)(i), and
                            ``(iv) who is certified by the designated 
                        local agency as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Special rules for determining amount of 
                credit.--For purposes of applying this subpart to wages 
                paid or incurred to any qualified summer youth 
                employee--
                            ``(i) subsection (b)(2) shall be applied by 
                        substituting `any 90-day period between May 1 
                        and September 15' for `the 1-year period 
                        beginning with the day the individual begins 
                        work for the employer', and
                            ``(ii) subsection (b)(3) shall be applied 
                        by substituting `$3,000' for `$6,000'.
                The preceding sentence shall not apply to an individual 
                who, with respect to the same employer, is certified as 
                a member of another targeted group after such 
                individual has been a qualified summer youth employee.
                    ``(C) Youth must continue to reside in zone.--
                Paragraph (5)(B) shall apply for purposes of this 
                paragraph.
            ``(8) Hiring date.--The term `hiring date' means the day 
        the individual is hired by the employer.
            ``(9) Designated local agency.--The term `designated local 
        agency' means a State employment security agency established in 
        accordance with the Act of June 6, 1933, as amended (29 U.S.C. 
        49-49n).
            ``(10) Special rules for certifications.--
                    ``(A) In general.--An individual shall not be 
                treated as a member of a targeted group unless--
                            ``(i) on or before the day on which such 
                        individual begins work for the employer, the 
                        employer has received a certification from a 
                        designated local agency that such individual is 
                        a member of a targeted group, or
                            ``(ii)(I) on or before the day the 
                        individual is offered employment with the 
                        employer, a pre-screening notice is completed 
                        by the employer with respect to such 
                        individual, and
                            ``(II) not later than the 14th day after 
                        the individual begins work for the employer, 
                        the employer submits such notice, signed by the 
                        employer and the individual under penalties of 
                        perjury, to the designated local agency as part 
                        of a written request for such a certification 
                        from such agency.
                For purposes of this paragraph, the term `pre-screening 
                notice' means a document (in such form as the Secretary 
                shall prescribe) which contains information provided by 
                the individual on the basis of which the employer 
                believes that the individual is a member of a targeted 
                group.
                    ``(B) Incorrect certifications.--If--
                            ``(i) an individual has been certified by a 
                        designated local agency as a member of a 
                        targeted group, and
                            ``(ii) such certification is incorrect 
                        because it was based on false information 
                        provided by such individual,
                the certification shall be revoked and wages paid by 
                the employer after the date on which notice of 
                revocation is received by the employer shall not be 
                treated as qualified wages.
                    ``(C) Explanation of denial of request.--If a 
                designated local agency denies a request for 
                certification of membership in a targeted group, such 
                agency shall provide to the person making such request 
                a written explanation of the reasons for such denial.''
    (c) Minimum Employment Period.--Paragraph (3) of section 51(i) 
(relating to certain individuals ineligible) is amended to read as 
follows:
            ``(3) Individuals not meeting minimum employment period.--
        No wages shall be taken into account under subsection (a) with 
        respect to any individual unless such individual either--
                    ``(A) is employed by the employer at least 180 days 
                (20 days in the case of a qualified summer youth 
                employee), or
                    ``(B) has completed at least 500 hours (120 hours 
                in the case of a qualified summer youth employee) of 
                services performed for the employer.''
    (d) Termination.--Paragraph (4) of section 51(c) (relating to wages 
defined) is amended to read as follows:
            ``(4) Termination.--The term `wages' shall not include any 
        amount paid or incurred to an individual who begins work for 
        the employer--
                    ``(A) after December 31, 1994, and before July 1, 
                1996, or
                    ``(B) after June 30, 1997.''
    (e) Redesignation of Credit.--
            (1) Sections 38(b)(2) and 51(a) are each amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (2) The subpart heading for subpart F of part IV of 
        subchapter A of chapter 1 is amended by striking ``Targeted 
        Jobs Credit'' and inserting ``Work Opportunity Credit''.
            (3) The table of subparts for such part IV is amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (4) The heading for paragraph (3) of section 1396(c) is 
        amended by striking ``targeted jobs credit'' and inserting 
        ``work opportunity credit''.
    (f) Technical Amendment.--Paragraph (1) of section 51(c) is amended 
by striking ``, subsection (d)(8)(D),''.
    (g) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after June 30, 
1996.

SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) Extension.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended by striking ``December 31, 
1994'' and inserting ``December 31, 1997''.
    (b) Limitation to Education Below Graduate Level.--The last 
sentence of section 127(c)(1) is amended by inserting before the period 
``or at the graduate level''.
    (c) Effective Dates.--
            (1) Extension.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 1994.
            (2) Limitation.--The amendment made by subsection (b) shall 
        apply to taxable years beginning after December 31, 1995.
            (3) Expedited procedures.--The Secretary of the Treasury 
        shall establish expedited procedures for the refund of any 
        overpayment of taxes imposed by chapter 24 of the Internal 
        Revenue Code of 1986 which is attributable to amounts excluded 
        from gross income during 1995 or 1996 under section 127 of such 
        Code, including procedures waiving the requirement that an 
        employer obtain an employee's signature where the employer 
        demonstrates to the satisfaction of the Secretary that any 
        refund collected by the employer on behalf of the employee will 
        be paid to the employee.

SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.

    (a) In General.--Subparagraph (B) of section 3306(c)(1) (defining 
employment) is amended by striking ``before January 1, 1995,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services performed after December 31, 1994.

           Subtitle C--Provisions Relating to S Corporations

SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small business 
corporation) is amended by striking ``35 shareholders'' and inserting 
``75 shareholders''.

SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

    (a) General Rule.--Subparagraph (A) of section 1361(c)(2) (relating 
to certain trusts permitted as shareholders) is amended by inserting 
after clause (iv) the following new clause:
                            ``(v) An electing small business trust.''
    (b) Current Beneficiaries Treated as Shareholders.--Subparagraph 
(B) of section 1361(c)(2) is amended by adding at the end the following 
new clause:
                            ``(v) In the case of a trust described in 
                        clause (v) of subparagraph (A), each potential 
                        current beneficiary of such trust shall be 
                        treated as a shareholder; except that, if for 
                        any period there is no potential current 
                        beneficiary of such trust, such trust shall be 
                        treated as the shareholder during such 
                        period.''
    (c) Electing Small Business Trust Defined.--Section 1361 (defining 
S corporation) is amended by adding at the end the following new 
subsection:
    ``(e) Electing Small Business Trust Defined.--
            ``(1) Electing small business trust.--For purposes of this 
        section--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `electing small business 
                trust' means any trust if--
                            ``(i) such trust does not have as a 
                        beneficiary any person other than (I) an 
                        individual, (II) an estate, or (III) an 
                        organization described in paragraph (2), (3), 
                        (4), or (5) of section 170(c) which holds a 
                        contingent interest and is not a potential 
                        current beneficiary,
                            ``(ii) no interest in such trust was 
                        acquired by purchase, and
                            ``(iii) an election under this subsection 
                        applies to such trust.
                    ``(B) Certain trusts not eligible.--The term 
                `electing small business trust' shall not include--
                            ``(i) any qualified subchapter S trust (as 
                        defined in subsection (d)(3)) if an election 
                        under subsection (d)(2) applies to any 
                        corporation the stock of which is held by such 
                        trust, and
                            ``(ii) any trust exempt from tax under this 
                        subtitle.
                    ``(C) Purchase.--For purposes of subparagraph (A), 
                the term `purchase' means any acquisition if the basis 
                of the property acquired is determined under section 
                1012.
            ``(2) Potential current beneficiary.--For purposes of this 
        section, the term `potential current beneficiary' means, with 
        respect to any period, any person who at any time during such 
        period is entitled to, or at the discretion of any person may 
        receive, a distribution from the principal or income of the 
        trust. If a trust disposes of all of the stock which it holds 
        in an S corporation, then, with respect to such corporation, 
        the term `potential current beneficiary' does not include any 
        person who first met the requirements of the preceding sentence 
        during the 60-day period ending on the date of such 
        disposition.
            ``(3) Election.--An election under this subsection shall be 
        made by the trustee. Any such election shall apply to the 
        taxable year of the trust for which made and all subsequent 
        taxable years of such trust unless revoked with the consent of 
        the Secretary.
            ``(4) Cross reference.--

                                ``For special treatment of electing 
small business trusts, see section 641(d).''

    (d) Taxation of Electing Small Business Trusts.--Section 641 
(relating to imposition of tax on trusts) is amended by adding at the 
end the following new subsection:
    ``(d) Special Rules for Taxation of Electing Small Business 
Trusts.--
            ``(1) In general.--For purposes of this chapter--
                    ``(A) the portion of any electing small business 
                trust which consists of stock in 1 or more S 
                corporations shall be treated as a separate trust, and
                    ``(B) the amount of the tax imposed by this chapter 
                on such separate trust shall be determined with the 
                modifications of paragraph (2).
            ``(2) Modifications.--For purposes of paragraph (1), the 
        modifications of this paragraph are the following:
                    ``(A) Except as provided in section 1(h), the 
                amount of the tax imposed by section 1(e) shall be 
                determined by using the highest rate of tax set forth 
                in section 1(e).
                    ``(B) The exemption amount under section 55(d) 
                shall be zero.
                    ``(C) The only items of income, loss, deduction, or 
                credit to be taken into account are the following:
                            ``(i) The items required to be taken into 
                        account under section 1366.
                            ``(ii) Any gain or loss from the 
                        disposition of stock in an S corporation.
                            ``(iii) To the extent provided in 
                        regulations, State or local income taxes or 
                        administrative expenses to the extent allocable 
                        to items described in clauses (i) and (ii).
                No deduction or credit shall be allowed for any amount 
                not described in this paragraph, and no item described 
                in this paragraph shall be apportioned to any 
                beneficiary.
                    ``(D) No amount shall be allowed under paragraph 
                (1) or (2) of section 1211(b).
            ``(3) Treatment of remainder of trust and distributions.--
        For purposes of determining--
                    ``(A) the amount of the tax imposed by this chapter 
                on the portion of any electing small business trust not 
                treated as a separate trust under paragraph (1), and
                    ``(B) the distributable net income of the entire 
                trust,
        the items referred to in paragraph (2)(C) shall be excluded. 
        Except as provided in the preceding sentence, this subsection 
        shall not affect the taxation of any distribution from the 
        trust.
            ``(4) Treatment of unused deductions where termination of 
        separate trust.--If a portion of an electing small business 
        trust ceases to be treated as a separate trust under paragraph 
        (1), any carryover or excess deduction of the separate trust 
        which is referred to in section 642(h) shall be taken into 
        account by the entire trust.
            ``(5) Electing small business trust.--For purposes of this 
        subsection, the term `electing small business trust' has the 
        meaning given such term by section 1361(e)(1).''
    (e) Technical Amendment.--Paragraph (1) of section 1366(a) is 
amended by inserting ``, or of a trust or estate which terminates,'' 
after ``who dies''.

SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.

    Subparagraph (A) of section 1361(c)(2) (relating to certain trusts 
permitted as shareholders) is amended--
            (1) by striking ``60-day period'' each place it appears in 
        clauses (ii) and (iii) and inserting ``2-year period'', and
            (2) by striking the last sentence in clause (ii).

SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.

    Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is 
amended by striking ``or a trust described in paragraph (2)'' and 
inserting ``a trust described in paragraph (2), or a person which is 
actively and regularly engaged in the business of lending money''.

SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID 
              ELECTIONS.

    (a) General Rule.--Subsection (f) of section 1362 (relating to 
inadvertent terminations) is amended to read as follows:
    ``(f) Inadvertent Invalid Elections or Terminations.--If--
            ``(1) an election under subsection (a) by any corporation--
                    ``(A) was not effective for the taxable year for 
                which made (determined without regard to subsection 
                (b)(2)) by reason of a failure to meet the requirements 
                of section 1361(b) or to obtain shareholder consents, 
                or
                    ``(B) was terminated under paragraph (2) or (3) of 
                subsection (d),
            ``(2) the Secretary determines that the circumstances 
        resulting in such ineffectiveness or termination were 
        inadvertent,
            ``(3) no later than a reasonable period of time after 
        discovery of the circumstances resulting in such 
        ineffectiveness or termination, steps were taken--
                    ``(A) so that the corporation is a small business 
                corporation, or
                    ``(B) to acquire the required shareholder consents, 
                and
            ``(4) the corporation, and each person who was a 
        shareholder in the corporation at any time during the period 
        specified pursuant to this subsection, agrees to make such 
        adjustments (consistent with the treatment of the corporation 
        as an S corporation) as may be required by the Secretary with 
        respect to such period,
then, notwithstanding the circumstances resulting in such 
ineffectiveness or termination, such corporation shall be treated as an 
S corporation during the period specified by the Secretary.''
    (b) Late Elections, Etc.--Subsection (b) of section 1362 is amended 
by adding at the end the following new paragraph:
            ``(5) Authority to treat late elections, etc., as timely.--
        If--
                    ``(A) an election under subsection (a) is made for 
                any taxable year (determined without regard to 
                paragraph (3)) after the date prescribed by this 
                subsection for making such election for such taxable 
                year or no such election is made for any taxable year, 
                and
                    ``(B) the Secretary determines that there was 
                reasonable cause for the failure to timely make such 
                election,
        the Secretary may treat such an election as timely made for 
        such taxable year (and paragraph (3) shall not apply).''
    (c) Effective Date.--The amendments made by subsection (a) and (b) 
shall apply with respect to elections for taxable years beginning after 
December 31, 1982.

SEC. 1306. AGREEMENT TO TERMINATE YEAR.

    Paragraph (2) of section 1377(a) (relating to pro rata share) is 
amended to read as follows:
            ``(2) Election to terminate year.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, if any shareholder terminates the 
                shareholder's interest in the corporation during the 
                taxable year and all affected shareholders and the 
                corporation agree to the application of this paragraph, 
                paragraph (1) shall be applied to the affected 
                shareholders as if the taxable year consisted of 2 
                taxable years the first of which ends on the date of 
                the termination.
                    ``(B) Affected shareholders.--For purposes of 
                subparagraph (A), the term `affected shareholders' 
                means the shareholder whose interest is terminated and 
                all shareholders to whom such shareholder has 
                transferred shares during the taxable year. If such 
                shareholder has transferred shares to the corporation, 
                the term `affected shareholders' shall include all 
                persons who are shareholders during the taxable year.''

SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

    (a) In General.--Paragraph (1) of section 1377(b) (relating to 
post-termination transition period) is amended by striking ``and'' at 
the end of subparagraph (A), by redesignating subparagraph (B) as 
subparagraph (C), and by inserting after subparagraph (A) the following 
new subparagraph:
                    ``(B) the 120-day period beginning on the date of 
                any determination pursuant to an audit of the taxpayer 
                which follows the termination of the corporation's 
                election and which adjusts a subchapter S item of 
                income, loss, or deduction of the corporation arising 
                during the S period (as defined in section 1368(e)(2)), 
                and''.
    (b) Determination Defined.--Paragraph (2) of section 1377(b) is 
amended by striking subparagraphs (A) and (B), by redesignating 
subparagraph (C) as subparagraph (B), and by inserting before 
subparagraph (B) (as so redesignated) the following new subparagraph:
                    ``(A) a determination as defined in section 
                1313(a), or''.
    (c) Repeal of Special Audit Provisions for Subchapter S Items.--
            (1) General rule.--Subchapter D of chapter 63 (relating to 
        tax treatment of subchapter S items) is hereby repealed.
            (2) Consistent treatment required.--Section 6037 (relating 
        to return of S corporation) is amended by adding at the end the 
        following new subsection:
    ``(c) Shareholder's Return Must Be Consistent With Corporate Return 
or Secretary Notified of Inconsistency.--
            ``(1) In general.--A shareholder of an S corporation shall, 
        on such shareholder's return, treat a subchapter S item in a 
manner which is consistent with the treatment of such item on the 
corporate return.
            ``(2) Notification of inconsistent treatment.--
                    ``(A) In general.--In the case of any subchapter S 
                item, if--
                            ``(i)(I) the corporation has filed a return 
                        but the shareholder's treatment on his return 
                        is (or may be) inconsistent with the treatment 
                        of the item on the corporate return, or
                            ``(II) the corporation has not filed a 
                        return, and
                            ``(ii) the shareholder files with the 
                        Secretary a statement identifying the 
                        inconsistency,
                paragraph (1) shall not apply to such item.
                    ``(B) Shareholder receiving incorrect 
                information.--A shareholder shall be treated as having 
                complied with clause (ii) of subparagraph (A) with 
                respect to a subchapter S item if the shareholder--
                            ``(i) demonstrates to the satisfaction of 
                        the Secretary that the treatment of the 
                        subchapter S item on the shareholder's return 
                        is consistent with the treatment of the item on 
                        the schedule furnished to the shareholder by 
                        the corporation, and
                            ``(ii) elects to have this paragraph apply 
                        with respect to that item.
            ``(3) Effect of failure to notify.--In any case--
                    ``(A) described in subparagraph (A)(i)(I) of 
                paragraph (2), and
                    ``(B) in which the shareholder does not comply with 
                subparagraph (A)(ii) of paragraph (2),
        any adjustment required to make the treatment of the items by 
        such shareholder consistent with the treatment of the items on 
        the corporate return shall be treated as arising out of 
        mathematical or clerical errors and assessed according to 
        section 6213(b)(1). Paragraph (2) of section 6213(b) shall not 
        apply to any assessment referred to in the preceding sentence.
            ``(4) Subchapter s item.--For purposes of this subsection, 
        the term `subchapter S item' means any item of an S corporation 
        to the extent that regulations prescribed by the Secretary 
        provide that, for purposes of this subtitle, such item is more 
        appropriately determined at the corporation level than at the 
        shareholder level.
            ``(5) Addition to tax for failure to comply with section.--

                                ``For addition to tax in the case of a 
shareholder's negligence in connection with, or disregard of, the 
requirements of this section, see part II of subchapter A of chapter 
68.''

            (3) Conforming amendments.--
                    (A) Section 1366 is amended by striking subsection 
                (g).
                    (B) Subsection (b) of section 6233 is amended to 
                read as follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership return is 
filed for any taxable year but it is determined that there is no entity 
for such taxable year, to the extent provided in regulations, rules 
similar to the rules of subsection (a) shall apply.''
                    (C) The table of subchapters for chapter 63 is 
                amended by striking the item relating to subchapter D.

SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) In General.--Paragraph (2) of section 1361(b) (defining 
ineligible corporation) is amended by striking subparagraph (A) and by 
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs 
(A), (B), (C), and (D), respectively.
    (b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by 
adding at the end the following new paragraph:
            ``(3) Treatment of certain wholly owned subsidiaries.--
                    ``(A) In general.--For purposes of this title--
                            ``(i) a corporation which is a qualified 
                        subchapter S subsidiary shall not be treated as 
                        a separate corporation, and
                            ``(ii) all assets, liabilities, and items 
                        of income, deduction, and credit of a qualified 
                        subchapter S subsidiary shall be treated as 
                        assets, liabilities, and such items (as the 
                        case may be) of the S corporation.
                    ``(B) Qualified subchapter s subsidiary.--For 
                purposes of this paragraph, the term `qualified 
                subchapter S subsidiary' means any domestic corporation 
                which is not an ineligible corporation (as defined in 
                paragraph (2)), if--
                            ``(i) 100 percent of the stock of such 
                        corporation is held by the S corporation, and
                            ``(ii) the S corporation elects to treat 
                        such corporation as a qualified subchapter S 
                        subsidiary.
                    ``(C) Treatment of terminations of qualified 
                subchapter s subsidiary status.--For purposes of this 
                title, if any corporation which was a qualified 
                subchapter S subsidiary ceases to meet the requirements 
                of subparagraph (B), such corporation shall be treated 
                as a new corporation acquiring all of its assets (and 
                assuming all of its liabilities) immediately before 
                such cessation from the S corporation in exchange for 
                its stock.''
    (c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Treatment of certain dividends.--If an S 
                corporation holds stock in a C corporation meeting the 
                requirements of section 1504(a)(2), the term `passive 
                investment income' shall not include dividends from 
                such C corporation to the extent such dividends are 
                attributable to the earnings and profits of such C 
                corporation derived from the active conduct of a trade 
                or business.''
    (d) Conforming Amendments.--
            (1) Subsection (c) of section 1361 is amended by striking 
        paragraph (6).
            (2) Subsection (b) of section 1504 (defining includible 
        corporation) is amended by adding at the end the following new 
        paragraph:
            ``(8) An S corporation.''

SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) Adjustments for Distributions Taken Into Account Before 
Losses.--
            (1) Subparagraph (A) of section 1366(d)(1) (relating to 
        losses and deductions cannot exceed shareholder's basis in 
        stock and debt) is amended by striking ``paragraph (1)'' and 
        inserting ``paragraphs (1) and (2)(A)''.
            (2) Subsection (d) of section 1368 (relating to certain 
        adjustments taken into account) is amended by adding at the end 
        the following new sentence:
``In the case of any distribution made during any taxable year, the 
adjusted basis of the stock shall be determined with regard to the 
adjustments provided in paragraph (1) of section 1367(a) for the 
taxable year.''
    (b) Accumulated Adjustments Account.--Paragraph (1) of section 
1368(e) (relating to accumulated adjustments account) is amended by 
adding at the end the following new subparagraph:
            ``(C) Net loss for year disregarded.--
                    ``(i) In general.--In applying this section to 
                distributions made during any taxable year, the amount 
                in the accumulated adjustments account as of the close 
                of such taxable year shall be determined without regard 
                to any net negative adjustment for such taxable year.
                    ``(ii) Net negative adjustment.--For purposes of 
                clause (i), the term `net negative adjustment' means, 
                with respect to any taxable year, the excess (if any) 
                of--
                            ``(I) the reductions in the account for the 
                        taxable year (other than for distributions), 
                        over
                            ``(II) the increases in such account for 
                        such taxable year.''
    (c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1) 
is amended--
            (1) by striking ``as provided in subparagraph (B)'' and 
        inserting ``as otherwise provided in this paragraph'', and
            (2) by striking ``section 1367(b)(2)(A)'' and inserting 
        ``section 1367(a)(2)''.

SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

    Subsection (a) of section 1371 (relating to application of 
subchapter C rules) is amended to read as follows:
    ``(a) Application of Subchapter C Rules.--Except as otherwise 
provided in this title, and except to the extent inconsistent with this 
subchapter, subchapter C shall apply to an S corporation and its 
shareholders.''

SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

    (a) In General.--If--
            (1) a corporation was an electing small business 
        corporation under subchapter S of chapter 1 of the Internal 
        Revenue Code of 1986 for any taxable year beginning before 
        January 1, 1983, and
            (2) such corporation is an S corporation under subchapter S 
        of chapter 1 of such Code for its first taxable year beginning 
        after December 31, 1996,
the amount of such corporation's accumulated earnings and profits (as 
of the beginning of such first taxable year) shall be reduced by an 
amount equal to the portion (if any) of such accumulated earnings and 
profits which were accumulated in any taxable year beginning before 
January 1, 1983, for which such corporation was an electing small 
business corporation under such subchapter S.
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 1362(d), as amended by section 
        1308, is amended--
                    (A) by striking ``subchapter c'' in the paragraph 
                heading and inserting ``accumulated'',
                    (B) by striking ``subchapter C'' in subparagraph 
                (A)(i)(I) and inserting ``accumulated'', and
                    (C) by striking subparagraph (B) and redesignating 
                the following subparagraphs accordingly.
            (2)(A) Subsection (a) of section 1375 is amended by 
        striking ``subchapter C'' in paragraph (1) and inserting 
        ``accumulated''.
            (B) Paragraph (3) of section 1375(b) is amended to read as 
        follows:
            ``(3) Passive investment income, etc.--The terms `passive 
        investment income' and `gross receipts' have the same 
        respective meanings as when used in paragraph (3) of section 
        1362(d).''
            (C) The section heading for section 1375 is amended by 
        striking ``subchapter c'' and inserting ``accumulated''.
            (D) The table of sections for part III of subchapter S of 
        chapter 1 is amended by striking ``subchapter C'' in the item 
        relating to section 1375 and inserting ``accumulated''.
            (3) Clause (i) of section 1042(c)(4)(A) is amended by 
        striking ``section 1362(d)(3)(D)'' and inserting ``section 
        1362(d)(3)(C)''.

SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK 
              RULES ALLOWED.

    Paragraph (3) of section 1366(d) (relating to carryover of 
disallowed losses and deductions to post-termination transition period) 
is amended by adding at the end the following new subparagraph:
                    ``(D) At-risk limitations.--To the extent that any 
                increase in adjusted basis described in subparagraph 
                (B) would have increased the shareholder's amount at 
                risk under section 465 if such increase had occurred on 
                the day preceding the commencement of the post-
                termination transition period, rules similar to the 
                rules described in subparagraphs (A) through (C) shall 
                apply to any losses disallowed by reason of section 
                465(a).''

SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN 
              ITEMS OF INCOME.

    (a) In General.--Subsection (b) of section 1367 (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end the following new paragraph:
            ``(4) Adjustments in case of inherited stock.--
                    ``(A) In general.--If any person acquires stock in 
                an S corporation by reason of the death of a decedent 
                or by bequest, devise, or inheritance, section 691 
                shall be applied with respect to any item of income of 
                the S corporation in the same manner as if the decedent 
                had held directly his pro rata share of such item.
                    ``(B) Adjustments to basis.--The basis determined 
                under section 1014 of any stock in an S corporation 
                shall be reduced by the portion of the value of the 
                stock which is attributable to items constituting 
                income in respect of the decedent.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply in the case of decedents dying after the date of the enactment of 
this Act.

SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL 
              PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.

    (a) In General.--Subsection (a) of section 1237 (relating to real 
property subdivided for sale) is amended by striking ``other than a 
corporation'' in the material preceding paragraph (1) and inserting 
``other than a C corporation''.
    (b) Conforming Amendment.--Subparagraph (A) of section 1237(a)(2) 
is amended by inserting ``an S corporation which included the taxpayer 
as a shareholder,'' after ``controlled by the taxpayer,''.

SEC. 1315. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this subtitle, the 
amendments made by this subtitle shall apply to taxable years beginning 
after December 31, 1996.
    (b) Treatment of Certain Elections Under Prior Law.--For purposes 
of section 1362(g) of the Internal Revenue Code of 1986 (relating to 
election after termination), any termination under section 1362(d) of 
such Code in a taxable year beginning before January 1, 1997, shall not 
be taken into account.

                   Subtitle D--Pension Simplification

                CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES

SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
              DISTRIBUTIONS.

    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended to read as 
follows:
    ``(d) Taxability of Beneficiary of Certain Foreign Situs Trusts.--
For purposes of subsections (a), (b), and (c), a stock bonus, pension, 
or profit-sharing trust which would qualify for exemption from tax 
under section 501(a) except for the fact that it is a trust created or 
organized outside the United States shall be treated as if it were a 
trust exempt from tax under section 501(a).''
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 402(e)(4) (relating to 
        other rules applicable to exempt trusts) is amended to read as 
        follows:
                    ``(D) Lump-sum distribution.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `lump sum 
                        distribution' means the distribution or payment 
                        within one taxable year of the recipient of the 
                        balance to the credit of an employee which 
                        becomes payable to the recipient--
                                    ``(I) on account of the employee's 
                                death,
                                    ``(II) after the employee attains 
                                age 59\1/2\,
                                    ``(III) on account of the 
                                employee's separation from service, or
                                    ``(IV) after the employee has 
                                become disabled (within the meaning of 
                                section 72(m)(7)),
                        from a trust which forms a part of a plan 
                        described in section 401(a) and which is exempt 
                        from tax under section 501 or from a plan 
                        described in section 403(a). Subclause (III) of 
                        this clause shall be applied only with respect 
                        to an individual who is an employee without 
                        regard to section 401(c)(1), and subclause (IV) 
                        shall be applied only with respect to an 
                        employee within the meaning of section 
                        401(c)(1). For purposes of this clause, a 
                        distribution to two or more trusts shall be 
                        treated as a distribution to one recipient. For 
                        purposes of this paragraph, the balance to the 
                        credit of the employee does not include the 
                        accumulated deductible employee contributions 
                        under the plan (within the meaning of section 
                        72(o)(5)).
                            ``(ii) Aggregation of certain trusts and 
                        plans.--For purposes of determining the balance 
                        to the credit of an employee under clause (i)--
                                    ``(I) all trusts which are part of 
                                a plan shall be treated as a single 
                                trust, all pension plans maintained by 
                                the employer shall be treated as a 
                                single plan, all profit-sharing plans 
                                maintained by the employer shall be 
                                treated as a single plan, and all stock 
                                bonus plans maintained by the employer 
                                shall be treated as a single plan, and
                                    ``(II) trusts which are not 
                                qualified trusts under section 401(a) 
                                and annuity contracts which do not 
                                satisfy the requirements of section 
                                404(a)(2) shall not be taken into 
                                account.
                            ``(iii) Community property laws.--The 
                        provisions of this paragraph shall be applied 
                        without regard to community property laws.
                            ``(iv) Amounts subject to penalty.--This 
                        paragraph shall not apply to amounts described 
                        in subparagraph (A) of section 72(m)(5) to the 
                        extent that section 72(m)(5) applies to such 
                        amounts.
                            ``(v) Balance to credit of employee not to 
                        include amounts payable under qualified 
                        domestic relations order.--For purposes of this 
                        paragraph, the balance to the credit of an 
                        employee shall not include any amount payable 
                        to an alternate payee under a qualified 
                        domestic relations order (within the meaning of 
                        section 414(p)).
                            ``(vi) Transfers to cost-of-living 
                        arrangement not treated as distribution.--For 
                        purposes of this paragraph, the balance to the 
                        credit of an employee under a defined 
                        contribution plan shall not include any amount 
                        transferred from such defined contribution plan 
                        to a qualified cost-of-living arrangement 
                        (within the meaning of section 415(k)(2)) under 
                        a defined benefit plan.
                            ``(vii) Lump-sum distributions of alternate 
                        payees.--If any distribution or payment of the 
                        balance to the credit of an employee would be 
                        treated as a lump-sum distribution, then, for 
                        purposes of this paragraph, the payment under a 
                        qualified domestic relations order (within the 
                        meaning of section 414(p)) of the balance to 
                        the credit of an alternate payee who is the 
                        spouse or former spouse of the employee shall 
                        be treated as a lump-sum distribution. For 
                        purposes of this clause, the balance to the 
                        credit of the alternate payee shall not include 
                        any amount payable to the employee.''
            (2) Section 402(c) (relating to rules applicable to 
        rollovers from exempt trusts) is amended by striking paragraph 
        (10).
            (3) Paragraph (1) of section 55(c) (defining regular tax) 
        is amended by striking ``shall not include any tax imposed by 
        section 402(d) and''.
            (4) Paragraph (8) of section 62(a) (relating to certain 
        portion of lump-sum distributions from pension plans taxed 
        under section 402(d)) is hereby repealed.
            (5) Section 401(a)(28)(B) (relating to coordination with 
        distribution rules) is amended by striking clause (v).
            (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
        distributions that must be lump-sum distributions) is amended 
        to read as follows:
                            ``(ii) Lump-sum distribution.--For purposes 
                        of this subparagraph, the term `lump-sum 
                        distribution' has the meaning given such term 
                        by section 402(e)(4)(D) (without regard to 
                        subclauses (I), (II), (III), and (IV) of clause 
                        (i) thereof).''
            (7) Section 406(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (8) Section 407(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (9) Section 691(c) (relating to deduction for estate tax) 
        is amended by striking paragraph (5).
            (10) Paragraph (1) of section 871(b) (relating to 
        imposition of tax) is amended by striking ``section 1, 55, or 
        402(d)(1)'' and inserting ``section 1 or 55''.
            (11) Subsection (b) of section 877 (relating to alternative 
        tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and 
        inserting ``section 1 or 55''.
            (12) Section 4980A(c)(4) is amended--
                    (A) by striking ``to which an election under 
                section 402(d)(4)(B) applies'' and inserting ``(as 
                defined in section 402(e)(4)(D)) with respect to which 
                the individual elects to have this paragraph apply'',
                    (B) by adding at the end the following new flush 
                sentence:
        ``An individual may elect to have this paragraph apply to only 
        one lump-sum distribution.'', and
                    (C) by striking the heading and inserting:
            ``(4) Special one-time election.--''.
            (13) Section 402(e) is amended by striking paragraph (5).
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1998.
            (2) Retention of certain transition rules.--Notwithstanding 
        any other provision of this section, the amendments made by 
        this section shall not apply to any distribution for which the 
        taxpayer elects the benefits of section 1122 (h)(3) or (h)(5) 
        of the Tax Reform Act of 1986. For purposes of the preceding 
        sentence, the rules of sections 402(c)(10) and 402(d) of the 
        Internal Revenue Code of 1986 (as in effect before the 
        amendments made by this Act) shall apply.

SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.

    (a) In General.--Subsection (b) of section 101 is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 101 is amended by striking 
        ``subsection (a) or (b)'' and inserting ``subsection (a)''.
            (2) Sections 406(e) and 407(e) are each amended by striking 
        paragraph (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (3) Section 7701(a)(20) is amended by striking ``, for the 
        purpose of applying the provisions of section 101(b) with 
        respect to employees' death benefits''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to decedents dying after the date of the enactment 
of this Act.

SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER 
              CERTAIN EMPLOYER PLANS.

    (a) General Rule.--Subsection (d) of section 72 (relating to 
annuities; certain proceeds of endowment and life insurance contracts) 
is amended to read as follows:
    ``(d) Special Rules for Qualified Employer Retirement Plans.--
            ``(1) Simplified method of taxing annuity payments.--
                    ``(A) In general.--In the case of any amount 
                received as an annuity under a qualified employer 
                retirement plan--
                            ``(i) subsection (b) shall not apply, and
                            ``(ii) the investment in the contract shall 
                        be recovered as provided in this paragraph.
                    ``(B) Method of recovering investment in 
                contract.--
                            ``(i) In general.--Gross income shall not 
                        include so much of any monthly annuity payment 
                        under a qualified employer retirement plan as 
                        does not exceed the amount obtained by 
                        dividing--
                                    ``(I) the investment in the 
                                contract (as of the annuity starting 
                                date), by
                                    ``(II) the number of anticipated 
                                payments determined under the table 
                                contained in clause (iii) (or, in the 
                                case of a contract to which subsection 
                                (c)(3)(B) applies, the number of 
                                monthly annuity payments under such 
                                contract).
                            ``(ii) Certain rules made applicable.--
                        Rules similar to the rules of paragraphs (2) 
                        and (3) of subsection (b) shall apply for 
                        purposes of this paragraph.
                            ``(iii) Number of anticipated payments.--

                         ``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                310 
                            more than 60.
                               More than 60 but not                260 
                            more than 65.
                               More than 65 but not                210 
                            more than 70.
                               More than 70..........              160.

                    ``(C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, investment 
                in the contract shall be determined under subsection 
                (c)(1) without regard to subsection (c)(2).
                    ``(D) Special rule where lump sum paid in 
                connection with commencement of annuity payments.--If, 
                in connection with the commencement of annuity payments 
                under any qualified employer retirement plan, the 
                taxpayer receives a lump sum payment--
                            ``(i) such payment shall be taxable under 
                        subsection (e) as if received before the 
                        annuity starting date, and
                            ``(ii) the investment in the contract for 
                        purposes of this paragraph shall be determined 
                        as if such payment had been so received.
                    ``(E) Exception.--This paragraph shall not apply in 
                any case where the primary annuitant has attained age 
                75 on the annuity starting date unless there are fewer 
                than 5 years of guaranteed payments under the annuity.
                    ``(F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity payments 
                are not made on a monthly basis, appropriate 
                adjustments in the application of this paragraph shall 
                be made to take into account the period on the basis of 
                which such payments are made.
                    ``(G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term `qualified 
                employer retirement plan' means any plan or contract 
                described in paragraph (1), (2), or (3) of section 
                4974(c).
            ``(2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, employee 
        contributions (and any income allocable thereto) under a 
        defined contribution plan may be treated as a separate 
        contract.''
    (b) Effective Date.--The amendment made by this section shall apply 
in cases where the annuity starting date is after the 90th day after 
the date of the enactment of this Act.

SEC. 1404. REQUIRED DISTRIBUTIONS.

    (a) In General.--Section 401(a)(9)(C) (defining required beginning 
date) is amended to read as follows:
                    ``(C) Required beginning date.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term `required 
                        beginning date' means April 1 of the calendar 
                        year following the later of--
                                    ``(I) the calendar year in which 
                                the employee attains age 70\1/2\, or
                                    ``(II) the calendar year in which 
                                the employee retires.
                            ``(ii) Exception.--Subclause (II) of clause 
                        (i) shall not apply--
                                    ``(I) except as provided in section 
                                409(d), in the case of an employee who 
                                is a 5-percent owner (as defined in 
                                section 416) with respect to the plan 
                                year ending in the calendar year in 
                                which the employee attains age 70\1/2\, 
                                or
                                    ``(II) for purposes of section 408 
                                (a)(6) or (b)(3).
                            ``(iii) Actuarial adjustment.--In the case 
                        of an employee to whom clause (i)(II) applies 
                        who retires in a calendar year after the 
                        calendar year in which the employee attains age 
                        70\1/2\, the employee's accrued benefit shall 
                        be actuarially increased to take into account 
                        the period after age 70\1/2\ in which the 
                        employee was not receiving any benefits under 
                        the plan.
                            ``(iv) Exception for governmental and 
                        church plans.--Clauses (ii) and (iii) shall not 
                        apply in the case of a governmental plan or 
                        church plan. For purposes of this clause, the 
                        term `church plan' means a plan maintained by a 
                        church for church employees, and the term 
                        `church' means any church (as defined in 
                        section 3121(w)(3)(A)) or qualified church-
                        controlled organization (as defined in section 
                        3121(w)(3)(B)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1996.

              CHAPTER 2--INCREASED ACCESS TO PENSION PLANS

                   Subchapter A--Simple Savings Plans

SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES 
              OF SMALL EMPLOYERS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (p) as subsection (q) 
and by inserting after subsection (o) the following new subsection:
    ``(p) Simple Retirement Accounts.--
            ``(1) In general.--For purposes of this title, the term 
        `simple retirement account' means an individual retirement plan 
        (as defined in section 7701(a)(37))--
                    ``(A) with respect to which the requirements of 
                paragraphs (3), (4), and (5) are met; and
                    ``(B) with respect to which the only contributions 
                allowed are contributions under a qualified salary 
                reduction arrangement.
            ``(2) Qualified salary reduction arrangement.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified salary reduction arrangement' means 
                a written arrangement of an eligible employer under 
                which--
                            ``(i) an employee eligible to participate 
                        in the arrangement may elect to have the 
                        employer make payments--
                                    ``(I) as elective employer 
                                contributions to a simple retirement 
                                account on behalf of the employee, or
                                    ``(II) to the employee directly in 
                                cash,
                            ``(ii) the amount which an employee may 
                        elect under clause (i) for any year is required 
                        to be expressed as a percentage of compensation 
                        and may not exceed a total of $6,000 for any 
                        year,
                            ``(iii) the employer is required to make a 
                        matching contribution to the simple retirement 
                        account for any year in an amount equal to so 
                        much of the amount the employee elects under 
                        clause (i)(I) as does not exceed the applicable 
                        percentage of compensation for the year, and
                            ``(iv) no contributions may be made other 
                        than contributions described in clause (i) or 
                        (iii).
                    ``(B) Employer may elect 2-percent nonelective 
                contribution.--An employer shall be treated as meeting 
                the requirements of subparagraph (A)(iii) for any year 
                if, in lieu of the contributions described in such 
                clause, the employer elects to make nonelective 
                contributions of 2 percent of compensation for each 
                employee who is eligible to participate in the 
                arrangement and who has at least $5,000 of compensation 
                from the employer for the year. If an employer makes an 
                election under this subparagraph for any year, the 
                employer shall notify employees of such election within 
                a reasonable period of time before the 30-day period 
                for such year under paragraph (5)(C).
                    ``(C) Definitions.--For purposes of this 
                subsection--
                            ``(i) Eligible employer.--The term 
                        `eligible employer' means an employer who 
                        employs 100 or fewer employees on any day 
                        during the year.
                            ``(ii) Applicable percentage.--
                                    ``(I) In general.--The term 
                                `applicable percentage' means 3 
                                percent.
                                    ``(II) Election of lower 
                                percentage.--An employer may elect to 
                                apply a lower percentage (not less than 
                                1 percent) for any year for all 
                                employees eligible to participate in 
                                the plan for such year if the employer 
                                notifies the employees of such lower 
                                percentage within a reasonable period 
                                of time before the 30-day election 
                                period for such year under paragraph 
                                (5)(C). An employer may not elect a 
                                lower percentage under this subclause 
                                for any year if that election would 
                                result in the applicable percentage 
                                being lower than 3 percent in more than 
                                2 of the years in the 5-year period 
                                ending with such year.
                                    ``(III) Special rule for years 
                                arrangement not in effect.--If any year 
                                in the 5-year period described in 
                                subclause (II) is a year prior to the 
                                first year for which any qualified 
                                salary reduction arrangement is in 
                                effect with respect to the employer (or 
                                any predecessor), the employer shall be 
treated as if the level of the employer matching contribution was at 3 
percent of compensation for such prior year.
                    ``(D) Arrangement may be only plan of employer.--
                            ``(i) In general.--An arrangement shall not 
                        be treated as a qualified salary reduction 
                        arrangement for any year if the employer (or 
                        any predecessor employer) maintained a 
                        qualified plan with respect to which 
                        contributions were made, or benefits were 
                        accrued, for service in any year in the period 
                        beginning with the year such arrangement became 
                        effective and ending with the year for which 
                        the determination is being made.
                            ``(ii) Qualified plan.--For purposes of 
                        this subparagraph, the term `qualified plan' 
                        means a plan, contract, pension, or trust 
                        described in subparagraph (A) or (B) of section 
                        219(g)(5).
                    ``(E) Cost-of-living adjustment.--The Secretary 
                shall adjust the $6,000 amount under subparagraph 
                (A)(ii) at the same time and in the same manner as 
                under section 415(d), except that the base period taken 
                into account shall be the calendar quarter ending 
                September 30, 1995, and any increase under this 
                subparagraph which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met with respect to a simple retirement account 
        if the employee's rights to any contribution to the simple 
        retirement account are nonforfeitable. For purposes of this 
        paragraph, rules similar to the rules of subsection (k)(4) 
        shall apply.
            ``(4) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any simple retirement 
                account for a year only if, under the qualified salary 
                reduction arrangement, all employees of the employer 
                who--
                            ``(i) received at least $5,000 in 
                        compensation from the employer during any 2 
                        preceding years, and
                            ``(ii) are reasonably expected to receive 
                        at least $5,000 in compensation during the 
                        year,
                are eligible to make the election under paragraph 
                (2)(A)(i) or receive the nonelective contribution 
                described in paragraph (2)(B).
                    ``(B) Excludable employees.--An employer may elect 
                to exclude from the requirement under subparagraph (A) 
                employees described in section 410(b)(3).
            ``(5) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any simplified 
        retirement account if, under the qualified salary reduction 
        arrangement--
                    ``(A) an employer must--
                            ``(i) make the elective employer 
                        contributions under paragraph (2)(A)(i) not 
                        later than the close of the 30-day period 
                        following the last day of the month with 
                        respect to which the contributions are to be 
                        made, and
                            ``(ii) make the matching contributions 
                        under  paragraph  (2)(A)(iii)  or the 
                        nonelective contributions under paragraph 
                        (2)(B) not  later than the date described in 
                        section 404(m)(2)(B),
                    ``(B) an employee may elect to terminate 
                participation in such arrangement at any time during 
                the year, except that if an employee so terminates, the 
                arrangement may provide that the employee may not elect 
                to resume participation until the beginning of the next 
                year, and
                    ``(C) each employee eligible to participate may 
                elect, during the 30-day period before the beginning of 
                any year (and the 30-day period before the first day 
                such employee is eligible to participate), to 
                participate in the arrangement, or to modify the 
                amounts subject to such arrangement, for such year.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Compensation.--
                            ``(i) In general.--The term `compensation' 
                        means amounts described in paragraphs (3) and 
                        (8) of section 6051(a).
                            ``(ii) Self-employed.--In the case of an 
                        employee described in subparagraph (B), the 
                        term `compensation' means net earnings from 
                        self-employment determined under section 
                        1402(a) without regard to any contribution 
                        under this subsection.
                    ``(B) Employee.--The term `employee' includes an 
                employee as defined in section 401(c)(1).
                    ``(C) Year.--The term `year' means the calendar 
                year.''
    (b) Tax Treatment of Simple Retirement Accounts.--
            (1) Deductibility of contributions by employees.--
                    (A) Section 219(b) (relating to maximum amount of 
                deduction) is amended by adding at the end the 
                following new paragraph:
            ``(4) Special rule for simple retirement accounts.--This 
        section shall not apply with respect to any amount contributed 
        to a simple retirement account established under section 
        408(p).''
                    (B) Section 219(g)(5)(A) (defining active 
                participant) is amended by striking ``or'' at the end 
                of clause (iv) and by adding at the end the following 
                new clause:
                            ``(vi) any simple retirement account 
                        (within the meaning of section 408(p)), or''.
            (2) Deductibility of employer contributions.--Section 404 
        (relating to deductions for contributions of an employer to 
        pension, etc. plans) is amended by adding at the end the 
        following new subsection:
    ``(m) Special Rules for Simple Retirement Accounts.--
            ``(1) In general.--Employer contributions to a simple 
        retirement account shall be treated as if they are made to a 
        plan subject to the requirements of this section.
            ``(2) Timing.--
                    ``(A) Deduction.--Contributions described in 
                paragraph (1) shall be deductible in the taxable year 
                of the employer with or within which the calendar year 
                for which the contributions were made ends.
                    ``(B) Contributions after end of year.--For 
                purposes of this subsection, contributions shall be 
                treated as made for a taxable year if they are made on 
                account of the taxable year and are made not later than 
                the time prescribed by law for filing the return for 
                the taxable year (including extensions thereof).''
            (3) Contributions and distributions.--
                    (A) Section 402 (relating to taxability of 
                beneficiary of employees' trust) is amended by adding 
                at the end the following new subsection:
    ``(k) Treatment of Simple Retirement Accounts.--Rules similar to 
the rules of paragraphs (1) and (3) of subsection (h) shall apply to 
contributions and distributions with respect to a simple retirement 
account under section 408(p).''
                    (B) Section 408(d)(3) is amended by adding at the 
                end the following new subparagraph:
                    ``(G) Simple retirement accounts.--This paragraph 
                shall not apply to any amount paid or distributed out 
                of a simple retirement account (as defined in section 
                408(p)) unless--
                            ``(i) it is paid into another simple 
                        retirement account, or
                            ``(ii) in the case of any payment or 
                        distribution to which section 72(t)(8) does not 
                        apply, it is paid into an individual retirement 
                        plan.''
                    (C) Clause (i) of section 457(c)(2)(B) is amended 
                by striking ``section 402(h)(1)(B)'' and inserting 
                ``section 402(h)(1)(B) or (k)''.
            (4) Penalties.--
                    (A) Early withdrawals.--Section 72(t) (relating to 
                additional tax in early distributions), as amended by 
                this Act, is amended by adding at the end the following 
                new paragraph:
            ``(8) Special rules for simple retirement accounts.--In the 
        case of any amount received from a simple retirement account 
        (within the meaning of section 408(p)) during the 2-year period 
        beginning on the date such individual first participated in any 
        qualified salary reduction arrangement maintained by the 
        individual's employer under section 408(p)(2), paragraph (1) 
        shall be applied by substituting `25 percent' for `10 
        percent'.''
                    (B) Failure to report.--Section 6693 is amended by 
                redesignating subsection (c) as subsection (d) and by 
                inserting after subsection (b) the following new 
                subsection:
    ``(c) Penalties Relating to Simple Retirement Accounts.--
            ``(1) Employer penalties.--An employer who fails to provide 
        1 or more notices required by section 408(l)(2)(C) shall pay a 
        penalty of $50 for each day on which such failures continue.
            ``(2) Trustee penalties.--A trustee who fails--
                    ``(A) to provide 1 or more statements required by 
                the last sentence of section 408(i) shall pay a penalty 
                of $50 for each day on which such failures continue, or
                    ``(B) to provide 1 or more summary descriptions 
                required by section 408(l)(2)(B) shall pay a penalty of 
                $50 for each day on which such failures continue.
            ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure which 
        the taxpayer shows was due to reasonable cause.''
            (5) Reporting requirements.--
                    (A) Section 408(l) is amended by adding at the end 
                the following new paragraph:
            ``(2) Simple retirement accounts.--
                    ``(A) No employer reports.--Except as provided in 
                this paragraph, no report shall be required under this 
                section by an employer maintaining a qualified salary 
                reduction arrangement under subsection (p).
                    ``(B) Summary description.--The trustee of any 
                simple retirement account established pursuant to a 
                qualified salary reduction arrangement under subsection 
                (p) shall provide to the employer maintaining the 
                arrangement, each year a description containing the 
                following information:
                            ``(i) The name and address of the employer 
                        and the trustee.
                            ``(ii) The requirements for eligibility for 
                        participation.
                            ``(iii) The benefits provided with respect 
                        to the arrangement.
                            ``(iv) The time and method of making 
                        elections with respect to the arrangement.
                            ``(v) The procedures for, and effects of, 
                        withdrawals (including rollovers) from the 
                        arrangement.
                    ``(C) Employee notification.--The employer shall 
                notify each employee immediately before the period for 
                which an election described in subsection (p)(5)(C) may 
                be made of the employee's opportunity to make such 
                election. Such notice shall include a copy of the 
                description described in subparagraph (B).''
                    (B) Section 408(l) is amended by striking ``An 
                employer'' and inserting the following:
            ``(1) In general.--An employer''.
            (6) Reporting requirements.--Section 408(i) is amended by 
        adding at the end the following new flush sentence:
``In the case of a simple retirement account under subsection (p), only 
one report under this subsection shall be required to be submitted each 
calendar year to the Secretary (at the time provided under paragraph 
(2)) but, in addition to the report under this subsection, there shall 
be furnished, within 30 days after each calendar year, to the 
individual on whose behalf the account is maintained a statement with 
respect to the account balance as of the close of, and the account 
activity during, such calendar year.''
            (7) Exemption from top-heavy plan rules.--Section 416(g)(4) 
        (relating to special rules for top-heavy plans) is amended by 
        adding at the end the following new subparagraph:
                    ``(G) Simple retirement accounts.--The term `top-
                heavy plan' shall not include a simple retirement 
                account under section 408(p).''
            (8) Employment taxes.--
                    (A) Paragraph (5) of section 3121(a) is amended by 
                striking ``or'' at the end of subparagraph (F), by 
                inserting ``or'' at the end of subparagraph (G), and by 
                adding at the end the following new subparagraph:
                    ``(H) under an arrangement to which section 408(p) 
                applies, other than any elective contributions under 
                paragraph (2)(A)(i) thereof,''.
            (B) Section 209(a)(4) of the Social Security Act is amended 
        by inserting ``, or (J) under an arrangement to which section 
        408(p) of such Code applies, other than any elective 
        contributions under paragraph (2)(A)(i) thereof'' before the 
        semicolon at the end thereof.
            (C) Paragraph (5) of section 3306(b) is amended by striking 
        ``or'' at the end of subparagraph (F), by inserting ``or'' at 
        the end of subparagraph (G), and by adding at the end the 
        following new subparagraph:
                    ``(H) under an arrangement to which section 408(p) 
                applies, other than any elective contributions under 
                paragraph (2)(A)(i) thereof,''.
            (D) Paragraph (12) of section 3401(a) is amended by adding 
        the following new subparagraph:
                    ``(D) under an arrangement to which section 408(p) 
                applies; or''.
            (9) Conforming amendments.--
                    (A) Section 280G(b)(6) is amended by striking 
                ``or'' at the end of subparagraph (B), by striking the 
                period at the end of subparagraph (C) and inserting ``, 
                or'' and by adding after subparagraph (C) the following 
                new subparagraph:
                    ``(D) a simple retirement account described in 
                section 408(p).''
                    (B) Section 402(g)(3) is amended by striking 
                ``and'' at the end of subparagraph (B), by striking the 
                period at the end of subparagraph (C) and inserting ``, 
                and'', and by adding after subparagraph (C) the 
                following new subparagraph:
                    ``(D) any elective employer contribution under 
                section 408(p)(2)(A)(i).''
                    (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) 
                of section 414 are each amended by inserting 
                ``408(p),'' after ``408(k),''.
                    (D) Section 4972(d)(1)(A) is amended by striking 
                ``and'' at the end of clause (ii), by striking the 
                period at the end of clause (iii) and inserting ``, 
                and'', and by adding after clause (iii) the following 
                new clause:
                            ``(iv) any simple retirement account 
                        (within the meaning of section 408(p)).''
    (c) Repeal of Salary Reduction Simplified Employee Pensions.--
Section 408(k)(6) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Termination.--This paragraph shall not apply 
                to years beginning after December 31, 1996. The 
                preceding sentence shall not apply to a simplified 
                employee pension if the terms of such pension, as in 
                effect on December 31, 1996, provide that an employee 
                may make the election described in subparagraph (A).''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

    (a) Alternative Method of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements) is amended by adding at the end the following new 
paragraph:
            ``(11) Adoption of simple plan to meet nondiscrimination 
        tests.--
                    ``(A) In general.--A cash or deferred arrangement 
                maintained by an eligible employer shall be treated as 
                meeting the requirements of paragraph (3)(A)(ii) if 
                such arrangement meets--
                            ``(i) the contribution requirements of 
                        subparagraph (B),
                            ``(ii) the exclusive benefit requirements 
                        of subparagraph (C), and
                            ``(iii) the vesting requirements of section 
                        408(p)(3).
                    ``(B) Contribution requirements.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the 
                        arrangement--
                                    ``(I) an employee may elect to have 
                                the employer make elective 
                                contributions for the year on behalf of 
                                the employee to a trust under the plan 
                                in an amount which is expressed as a 
                                percentage of compensation of the 
                                employee but which in no event exceeds 
                                $6,000,
                                    ``(II) the employer is required to 
                                make a matching contribution to the 
                                trust for the year in an amount equal 
                                to so much of the amount the employee 
                                elects under subclause (I) as does not 
                                exceed 3 percent of compensation for 
                                the year, and
                                    ``(III) no other contributions may 
                                be made other than contributions 
                                described in subclause (I) or (II).
                            ``(ii) Employer may elect 2-percent 
                        nonelective contribution.--An employer shall be 
                        treated as meeting the requirements of clause 
                        (i)(II) for any year if, in lieu of the 
                        contributions described in such clause, the 
                        employer elects (pursuant to the terms of the 
                        arrangement) to make nonelective contributions 
                        of 2 percent of compensation for each employee 
                        who is eligible to participate in the 
                        arrangement and who has at least $5,000 of 
                        compensation from the employer for the year. If 
                        an employer makes an election under this 
                        subparagraph for any year, the employer shall 
                        notify employees of such election within a 
                        reasonable period of time before the 30th day 
                        before the beginning of such year.
                    ``(C) Exclusive benefit.--The requirements of this 
                subparagraph are met for any year to which this 
                paragraph applies if no contributions were made, or 
                benefits were accrued, for services during such year 
                under any qualified plan of the employer on behalf of 
                any employee eligible to participate in the cash or 
                deferred arrangement, other than contributions 
                described in subparagraph (B).
                    ``(D) Definitions and special rule.--
                            ``(i) Definitions.--For purposes of this 
                        paragraph, any term used in this paragraph 
                        which is also used in section 408(p) shall have 
                        the meaning given such term by such section.
                            ``(ii) Coordination with top-heavy rules.--
                        A plan meeting the requirements of this 
                        paragraph for any year shall not be treated as 
                        a top-heavy plan under section 416 for such 
                        year.''
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions) is amended 
by redesignating paragraph (10) as paragraph (11) and by adding after 
paragraph (9) the following new paragraph:
            ``(10) Alternative method of satisfying tests.--A defined 
        contribution plan shall be treated as meeting the requirements 
        of paragraph (2) with respect to matching contributions if the 
        plan--
                    ``(A) meets the contribution requirements of 
                subparagraph (B) of subsection (k)(11),
                    ``(B) meets the exclusive benefit requirements of 
                subsection (k)(11)(C), and
                    ``(C) meets the vesting requirements of section 
                408(p)(3).''
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1996.

                     Subchapter B--Other Provisions

SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

    (a) In General.--Subparagraph (B) of section 401(k)(4) is amended 
to read as follows:
                    ``(B) Eligibility of state and local governments 
                and tax-exempt organizations.--
                            ``(i) Tax-exempts eligible.--Except as 
                        provided in clause (ii), any organization 
                        exempt from tax under this subtitle may include 
                        a qualified cash or deferred arrangement as 
                        part of a plan maintained by it.
                            ``(ii) Governments ineligible.--A cash or 
                        deferred arrangement shall not be treated as a 
                        qualified cash or deferred arrangement if it is 
                        part of a plan maintained by a State or local 
                        government or political subdivision thereof, or 
                        any agency or instrumentality thereof. This 
                        clause shall not apply to a rural cooperative 
                        plan or to a plan of an employer described in 
                        clause (iii).
                            ``(iii) Treatment of indian tribal 
                        governments.--An employer which is an Indian 
                        tribal government (as defined in section 
                        7701(a)(40)), a subdivision of an Indian tribal 
                        government (determined in accordance with 
                        section 7871(d)), an agency or instrumentality 
                        of an Indian tribal government or subdivision 
                        thereof, or a corporation chartered under 
                        Federal, State, or tribal law which is owned in 
                        whole or in part by any of the foregoing shall 
                        be treated as an organization exempt from tax 
                        under this subtitle for purposes of clause 
                        (i).''
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 1996, but shall not apply to 
any cash or deferred arrangement to which clause (i) of section 
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

                CHAPTER 3--NONDISCRIMINATION PROVISIONS

SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY 
              AGGREGATION.

    (a) In General.--Paragraph (1) of section 414(q) (defining highly 
compensated employee) is amended to read as follows:
            ``(1) In general.--The term `highly compensated employee' 
        means any employee who--
                    ``(A) was a 5-percent owner at any time during the 
                year or the preceding year, or
                    ``(B) for the preceding year--
                            ``(i) had compensation from the employer in 
                        excess of $80,000, and
                            ``(ii) was in the top-paid group of the 
                        employer.
        The Secretary shall adjust the $80,000 amount under 
        subparagraph (B) at the same time and in the same manner as 
        under section 415(d), except that the base period shall be the 
        calendar quarter ending September 30, 1996.''
    (b) Repeal of Family Aggregation Rules.--
            (1) In general.--Paragraph (6) of section 414(q) is hereby 
        repealed.
            (2) Compensation limit.--Paragraph (17)(A) of section 
        401(a) is amended by striking the last sentence.
            (3) Deduction.--Subsection (l) of section 404 is amended by 
        striking the last sentence.
    (c) Conforming Amendments.--
            (1)(A) Subsection (q) of section 414 is amended by striking 
        paragraphs (2), (5), (8), and (12) and by redesignating 
        paragraphs (3), (4), (7), (9), (10), and (11) as paragraphs (2) 
        through (7), respectively.
            (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), 
        and 416(i)(1)(D) are each amended by striking ``section 
        414(q)(7)'' and inserting ``section 414(q)(4)''.
            (C) Section 416(i)(1)(A) is amended by striking ``section 
        414(q)(8)'' and inserting ``section 414(r)(9)''.
            (2)(A) Section 414(r) is amended by adding at the end the 
        following new paragraph:
            ``(9) Excluded employees.--For purposes of this subsection, 
        the following employees shall be excluded:
                    ``(A) Employees who have not completed 6 months of 
                service.
                    ``(B) Employees who normally work less than 17\1/2\ 
                hours per week.
                    ``(C) Employees who normally work not more than 6 
                months during any year.
                    ``(D) Employees who have not attained the age of 
                21.
                    ``(E) Except to the extent provided in regulations, 
                employees who are included in a unit of employees 
                covered by an agreement which the Secretary of Labor 
                finds to be a collective bargaining agreement between 
                employee representatives and the employer.
        Except as provided by the Secretary, the employer may elect to 
        apply subparagraph (A), (B), (C), or (D) by substituting a 
        shorter period of service, smaller number of hours or months, 
        or lower age for the period of service, number of hours or 
        months, or age (as the case may be) specified in such 
        subparagraph.''
            (B) Subparagraph (A) of section 414(r)(2) is amended by 
        striking ``subsection (q)(8)'' and inserting ``paragraph (9)''.
            (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
        amended by adding at the end the following new sentence: ``Any 
        reference in this paragraph to section 414(q) shall be treated 
        as a reference to such section as in effect on the day before 
        the date of the enactment of the Small Business Job Protection 
        Act of 1996.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to years beginning after December 31, 1996, except that 
        in determining whether an employee is a highly compensated 
        employee for years beginning in 1997, such amendments shall be 
        treated as having been in effect for years beginning in 1996.
            (2) Family aggregation.--The amendments made by subsection 
        (b) shall apply to years beginning after December 31, 1996.

SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) General Rule.--Section 401(a)(26)(A) (relating to additional 
participation requirements) is amended to read as follows:
                    ``(A) In general.--In the case of a trust which is 
                a part of a defined benefit plan, such trust shall not 
                constitute a qualified trust under this subsection 
                unless on each day of the plan year such trust benefits 
                at least the lesser of--
                            ``(i) 50 employees of the employer, or
                            ``(ii) the greater of--
                                    ``(I) 40 percent of all employees 
                                of the employer, or
                                    ``(II) 2 employees (or if there is 
                                only 1 employee, such employee).''
    (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
(relating to separate line of business) is amended by striking 
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.

SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED 
              ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) Alternative Methods of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements), as amended by section 1422, is amended by adding at the 
end the following new paragraph:
            ``(12) Alternative methods of meeting nondiscrimination 
        requirements.--
                    ``(A) In general.--A cash or deferred arrangement 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C), and
                            ``(ii) meets the notice requirements of 
                        subparagraph (D).
                    ``(B) Matching contributions.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        the employer makes matching contributions on 
                        behalf of each employee who is not a highly 
                        compensated employee in an amount equal to--
                                    ``(I) 100 percent of the elective 
                                contributions of the employee to the 
                                extent such elective contributions do 
                                not exceed 3 percent of the employee's 
                                compensation, and
                                    ``(II) 50 percent of the elective 
                                contributions of the employee to the 
                                extent that such elective contributions 
                                exceed 3 percent but do not exceed 5 
                                percent of the employee's compensation.
                            ``(ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the rate of matching contribution 
                        with respect to any elective contribution of a 
                        highly compensated employee at any rate of 
                        elective contribution is greater than that with 
                        respect to an employee who is not a highly 
                        compensated employee.
                            ``(iii) Alternative plan designs.--If the 
                        rate of any matching contribution with respect 
                        to any rate of elective contribution is not 
                        equal to the percentage required under clause 
                        (i), an arrangement shall not be treated as 
                        failing to meet the requirements of clause (i) 
                        if--
                                    ``(I) the rate of an employer's 
                                matching contribution does not increase 
                                as an employee's rate of elective 
                                contributions increase, and
                                    ``(II) the aggregate amount of 
                                matching contributions at such rate of 
                                elective contribution is at least equal 
                                to the aggregate amount of matching 
                                contributions which would be made if 
                                matching contributions were made on the 
                                basis of the percentages described in 
                                clause (i).
                    ``(C) Nonelective contributions.--The requirements 
                of this subparagraph are met if, under the arrangement, 
                the employer is required, without regard to whether the 
                employee makes an elective contribution or employee 
                contribution, to make a contribution to a defined 
                contribution plan on behalf of each employee who is not 
                a highly compensated employee and who is eligible to 
                participate in the arrangement in an amount equal to at 
                least 3 percent of the employee's compensation.
                    ``(D) Notice requirement.--An arrangement meets the 
                requirements of this paragraph if, under the 
                arrangement, each employee eligible to participate is, 
                within a reasonable period before any year, given 
                written notice of the employee's rights and obligations 
                under the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to appraise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee eligible 
                        to participate.
                    ``(E) Other requirements.--
                            ``(i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not be 
                        treated as meeting the requirements of 
                        subparagraph (B) or (C) of this paragraph 
                        unless the requirements of subparagraphs (B) 
                        and (C) of paragraph (2) are met with respect 
                        to all employer contributions (including 
                        matching contributions) taken into account in 
                        determining whether the requirements of 
                        subparagraphs (B) and (C) of this paragraph are 
                        met.
                            ``(ii) Social security and similar 
                        contributions not taken into account.--An 
                        arrangement shall not be treated as meeting the 
                        requirements of subparagraph (B) or (C) unless 
                        such requirements are met without regard to 
                        subsection (l), and, for purposes of subsection 
                        (l), employer contributions under subparagraph 
                        (B) or (C) shall not be taken into account.
                    ``(F) Other plans.--An arrangement shall be treated 
                as meeting the requirements under subparagraph (A)(i) 
                if any other plan maintained by the employer meets such 
                requirements with respect to employees eligible under 
                the arrangement.''
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions), as amended 
by this Act, is amended by redesignating paragraph (11) as paragraph 
(12) and by adding after paragraph (10) the following new paragraph:
            ``(11) Alternative method of satisfying tests.--
                    ``(A) In general.--A defined contribution plan 
                shall be treated as meeting the requirements of 
                paragraph (2) with respect to matching contributions if 
                the plan--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C) of subsection 
                        (k)(12),
                            ``(ii) meets the notice requirements of 
                        subsection (k)(12)(D), and
                            ``(iii) meets the requirements of 
                        subparagraph (B).
                    ``(B) Limitation on matching contributions.--The 
                requirements of this subparagraph are met if--
                            ``(i) matching contributions on behalf of 
                        any employee may not be made with respect to an 
                        employee's contributions or elective deferrals 
                        in excess of 6 percent of the employee's 
                        compensation,
                            ``(ii) the rate of an employer's matching 
                        contribution does not increase as the rate of 
                        an employee's contributions or elective 
                        deferrals increase, and
                            ``(iii) the matching contribution with 
                        respect to any highly compensated employee at 
                        any rate of an employee contribution or rate of 
                        elective deferral is not greater than that with 
                        respect to an employee who is not a highly 
                        compensated employee.''
    (c) Year for Computing Nonhighly Compensated Employee Percentage.--
            (1) Cash or deferred arrangements.--Clause (ii) of section 
        401(k)(3)(A) is amended--
                    (A) by striking ``such year'' and inserting ``the 
                plan year'',
                    (B) by striking ``for such plan year'' and 
                inserting ``for the preceding plan year'', and
                    (C) by adding at the end the following new 
                sentence: ``An arrangement may apply this clause by 
                using the plan year rather than the preceding plan year 
                if the employer so elects, except that if such an 
                election is made, it may not be changed except as 
                provided by the Secretary.''
            (2) Matching and employee contributions.--Section 
        401(m)(2)(A) is amended--
                    (A) by inserting ``for such plan year'' after 
                ``highly compensated employees'',
                    (B) by inserting ``for the preceding plan year'' 
                after ``eligible employees'' each place it appears in 
                clause (i) and clause (ii), and
                    (C) by adding at the end the following flush 
                sentence: ``This subparagraph may be applied by using 
                the plan year rather than the preceding plan year if 
                the employer so elects, except that if such an election 
                is made, it may not be changed except as provided the 
                Secretary.''
    (d) Special Rule for Determining Average Deferral Percentage for 
First Plan Year, Etc.--
            (1) Paragraph (3) of section 401(k) is amended by adding at 
        the end the following new subparagraph:
                    ``(E) For purposes of this paragraph, in the case 
                of the first plan year of any plan (other than a 
                successor plan), the amount taken into account as the 
                actual deferral percentage of nonhighly compensated 
                employees for the preceding plan year shall be--
                            ``(i) 3 percent, or
                            ``(ii) if the employer makes an election 
                        under this subclause, the actual deferral 
                        percentage of nonhighly compensated employees 
                        determined for such first plan year.''
            (2) Paragraph (3) of section 401(m) is amended by adding at 
        the end the following: ``Rules similar to the rules of 
        subsection (k)(3)(E) shall apply for purposes of this 
        subsection.''
    (e) Distribution of Excess Contributions and Excess Aggregate 
Contributions.--
            (1) Subparagraph (C) of section 401(k)(8) (relating to 
        arrangement not disqualified if excess contributions 
        distributed) is amended by striking ``on the basis of the 
        respective portions of the excess contributions attributable to 
        each of such employees'' and inserting ``on the basis of the 
        amount of contributions by, or on behalf of, each of such 
        employees''.
            (2) Subparagraph (C) of section 401(m)(6) (relating to 
        method of distributing excess aggregate contributions) is 
        amended by striking ``on the basis of the respective portions 
        of such amounts attributable to each of such employees'' and 
        inserting ``on the basis of the amount of contributions on 
        behalf of, or by, each such employee''.
    (f) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to years beginning after December 31, 1998.
            (2) Exceptions.--The amendments made by subsections (c), 
        (d), and (e) shall apply to years beginning after December 31, 
        1996.

SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.

    (a) General Rule.--Section 415(c)(3) (defining participant's 
compensation) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Certain deferrals included.--The term 
                `participant's compensation' shall include--
                            ``(i) any elective deferral (as defined in 
                        section 402(g)(3)), and
                            ``(ii) any amount which is contributed by 
                        the employer at the election of the employee 
                        and which is not includible in the gross income 
                        of the employee under section 125 or 457.''
    (b) Conforming Amendments.--
            (1) Section 414(q)(4), as redesignated by section 1431, is 
        amended to read as follows:
            ``(4) Compensation.--For purposes of this subsection, the 
        term `compensation' has the meaning given such term by section 
        415(c)(3).''
            (2) Section 414(s)(2) is amended by inserting ``not'' after 
        ``elect'' in the text and heading thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1997.

                  CHAPTER 4--MISCELLANEOUS PROVISIONS

SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) Aggregation Rules.--Section 401(d) (relating to additional 
requirements for qualification of trusts and plans benefiting owner-
employees) is amended to read as follows:
    ``(d) Contribution Limit on Owner-Employees.--A trust forming part 
of a pension or profit-sharing plan which provides contributions or 
benefits for employees some or all of whom are owner-employees shall 
constitute a qualified trust under this section only if, in addition to 
meeting the requirements of subsection (a), the plan provides that 
contributions on behalf of any owner-employee may be made only with 
respect to the earned income of such owner-employee which is derived 
from the trade or business with respect to which such plan is 
established.''
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.

SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.

    (a) In General.--Paragraph (2) of section 411(a) (relating to 
minimum vesting standards) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
            (1) the later of--
                    (A) January 1, 1997, or
                    (B) the date on which the last of the collective 
                bargaining agreements pursuant to which the plan is 
                maintained terminates (determined without regard to any 
                extension thereof after the date of the enactment of 
                this Act), or
            (2) January 1, 1999.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.

SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) Distributions for Hardship or After a Certain Age.--Section 
401(k)(7) is amended by adding at the end the following new 
subparagraph:
                    ``(C) Special rule for certain distributions.--A 
                rural cooperative plan which includes a qualified cash 
                or deferred arrangement shall not be treated as 
                violating the requirements of section 401(a) or of 
                paragraph (2) merely by reason of a hardship 
                distribution or a distribution to a participant after 
                attainment of age 59\1/2\. For purposes of this 
                section, the term `hardship distribution' means a 
                distribution described in paragraph (2)(B)(i)(IV) 
                (without regard to the limitation of its application to 
                profit-sharing or stock bonus plans).''
    (b) Public Utility Districts.--Clause (i) of section 401(k)(7)(B) 
(defining rural cooperative) is amended to read as follows:
                            ``(i) any organization which--
                                    ``(I) is engaged primarily in 
                                providing electric service on a mutual 
                                or cooperative basis, or
                                    ``(II) is engaged primarily in 
                                providing electric service to the 
                                public in its area of service and which 
                                is exempt from tax under this subtitle 
                                or which is a State or local government 
                                (or an agency or instrumentality 
                                thereof), other than a municipality (or 
                                an agency or instrumentality 
                                thereof).''
    (c) Effective Dates.--
            (1) Distributions.--The amendments made by subsection (a) 
        shall apply to distributions after the date of the enactment of 
        this Act.
            (2) Rural cooperative.--The amendments made by subsection 
        (b) shall apply to plan years beginning after December 31, 
        1996.

SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Subsection (b) of section 415 is amended 
by adding immediately after paragraph (10) the following new paragraph:
            ``(11) Special limitation rule for governmental plans.--In 
        the case of a governmental plan (as defined in section 414(d)), 
        subparagraph (B) of paragraph (1) shall not apply.''
    (b) Treatment of Certain Excess Benefit Plans.--
            (1) In general.--Section 415 is amended by adding at the 
        end the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
            ``(1) Governmental plan not affected.--In determining 
        whether a governmental plan (as defined in section 414(d)) 
        meets the requirements of this section, benefits provided under 
        a qualified governmental excess benefit arrangement shall not 
        be taken into account. Income accruing to a governmental plan 
        (or to a trust that is maintained solely for the purpose of 
        providing benefits under a qualified governmental excess 
        benefit arrangement) in respect of a qualified governmental 
        excess benefit arrangement shall constitute income derived from 
        the exercise of an essential governmental function upon which 
        such governmental plan (or trust) shall be exempt from tax 
        under section 115.
            ``(2) Taxation of participant.--For purposes of this 
        chapter--
                    ``(A) the taxable year or years for which amounts 
                in respect of a qualified governmental excess benefit 
                arrangement are includible in gross income by a 
                participant, and
                    ``(B) the treatment of such amounts when so 
                includible by the participant,
        shall be determined as if such qualified governmental excess 
        benefit arrangement were treated as a plan for the deferral of 
        compensation which is maintained by a corporation not exempt 
        from tax under this chapter and which does not meet the 
        requirements for qualification under section 401.
            ``(3) Qualified governmental excess benefit arrangement.--
        For purposes of this subsection, the term `qualified 
        governmental excess benefit arrangement' means a portion of a 
        governmental plan if--
                    ``(A) such portion is maintained solely for the 
                purpose of providing to participants in the plan that 
                part of the participant's annual benefit otherwise 
                payable under the terms of the plan that exceeds the 
                limitations on benefits imposed by this section,
                    ``(B) under such portion no election is provided at 
                any time to the participant (directly or indirectly) to 
                defer compensation, and
                    ``(C) benefits described in subparagraph (A) are 
                not paid from a trust forming a part of such 
                governmental plan unless such trust is maintained 
                solely for the purpose of providing such benefits.''
            (2) Coordination with section 457.--Subsection (e) of 
        section 457 is amended by adding at the end the following new 
        paragraph:
            ``(14) Treatment of qualified governmental excess benefit 
        arrangements.--Subsections (b)(2) and (c)(1) shall not apply to 
        any qualified governmental excess benefit arrangement (as 
        defined in section 415(m)(3)), and benefits provided under such 
        an arrangement shall not be taken into account in determining 
        whether any other plan is an eligible deferred compensation 
        plan.''
            (3) Conforming amendment.--Paragraph (2) of section 457(f) 
        is amended by striking ``and'' at the end of subparagraph (C), 
        by striking the period at the end of subparagraph (D) and 
        inserting ``, and'', and by inserting immediately thereafter 
        the following new subparagraph:
                    ``(E) a qualified governmental excess benefit 
                arrangement described in section 415(m).''
    (c) Exemption for Survivor and Disability Benefits.--Paragraph (2) 
of section 415(b) is amended by adding at the end the following new 
subparagraph:
                    ``(I) Exemption for survivor and disability 
                benefits provided under governmental plans.--
                Subparagraph (C) of this paragraph and paragraph (5) 
                shall not apply to--
                            ``(i) income received from a governmental 
                        plan (as defined in section 414(d)) as a 
                        pension, annuity, or similar allowance as the 
                        result of the recipient becoming disabled by 
                        reason of personal injuries or sickness, or
                            ``(ii) amounts received from a governmental 
                        plan by the beneficiaries, survivors, or the 
                        estate of an employee as the result of the 
                        death of the employee.''
    (d) Revocation of Grandfather Election.--
            (1) In general.--Subparagraph (C) of section 415(b)(10) is 
        amended by adding at the end the following new clause:
                            ``(ii) Revocation of election.--An election 
                        under clause (i) may be revoked not later than 
                        the last day of the third plan year beginning 
                        after the date of the enactment of this clause. 
                        The revocation shall apply to all plan years to 
                        which the election applied and to all 
                        subsequent plan years. Any amount paid by a 
                        plan in a taxable year ending after the 
                        revocation shall be includible in income in 
                        such taxable year under the rules of this 
                        chapter in effect for such taxable year, except 
                        that, for purposes of applying the limitations 
                        imposed by this section, any portion of such 
                        amount which is attributable to any taxable 
                        year during which the election was in effect 
                        shall be treated as received in such taxable 
                        year.''
            (2) Conforming amendment.--Subparagraph (C) of section 
        415(b)(10) is amended by striking ``This'' and inserting:
                            ``(i) In general.--This''.
    (e) Effective Date.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c) shall apply to years beginning after December 31, 
        1994. The amendments made by subsection (d) shall apply with 
        respect to revocations adopted after the date of the enactment 
        of this Act.
            (2) Treatment for years beginning before january 1, 1995.--
        Nothing in the amendments made by this section shall be 
        construed to infer that a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986) fails to 
        satisfy the requirements of section 415 of such Code for any 
        taxable year beginning before January 1, 1995.

SEC. 1445. UNIFORM RETIREMENT AGE.

    (a) Discrimination Testing.--Paragraph (5) of section 401(a) 
(relating to special rules relating to nondiscrimination requirements) 
is amended by adding at the end the following new subparagraph:
                    ``(F) Social security retirement age.--For purposes 
                of testing for discrimination under paragraph (4)--
                            ``(i) the social security retirement age 
                        (as defined in section 415(b)(8)) shall be 
                        treated as a uniform retirement age, and
                            ``(ii) subsidized early retirement benefits 
                        and joint and survivor annuities shall not be 
                        treated as being unavailable to employees on 
                        the same terms merely because such benefits or 
                        annuities are based in whole or in part on an 
                        employee's social security retirement age (as 
                        so defined).''
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1996.

SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) All Disabled Participants Receiving Contributions.--Section 
415(c)(3)(C) is amended by adding at the end the following: ``If a 
defined contribution plan provides for the continuation of 
contributions on behalf of all participants described in clause (i) for 
a fixed or determinable period, this subparagraph shall be applied 
without regard to clauses (ii) and (iii).''
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1996.

SEC. 1447. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
              GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) Special Rules for Plan Distributions.--Paragraph (9) of section 
457(e) (relating to other definitions and special rules) is amended to 
read as follows:
            ``(9) Benefits not treated as made available by reason of 
        certain elections, etc.--
                    ``(A) Total amount payable is $3,500 or less.--The 
                total amount payable to a participant under the plan 
                shall not be treated as made available merely because 
                the participant may elect to receive such amount (or 
                the plan may distribute such amount without the 
                participant's consent) if--
                            ``(i) such amount does not exceed $3,500, 
                        and
                            ``(ii) such amount may be distributed only 
                        if--
                                    ``(I) no amount has been deferred 
                                under the plan with respect to such 
                                participant during the 2-year period 
                                ending on the date of the distribution, 
                                and
                                    ``(II) there has been no prior 
                                distribution under the plan to such 
                                participant to which this subparagraph 
                                applied.
                A plan shall not be treated as failing to meet the 
                distribution requirements of subsection (d) by reason 
                of a distribution to which this subparagraph applies.
                    ``(B) Election to defer commencement of 
                distributions.--The total amount payable to a 
                participant under the plan shall not be treated as made 
                available merely because the participant may elect to 
                defer commencement of distributions under the plan if--
                            ``(i) such election is made after amounts 
                        may be available under the plan in accordance 
                        with subsection (d)(1)(A) and before 
                        commencement of such distributions, and
                            ``(ii) the participant may make only 1 such 
                        election.''
    (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457, as amended by section 1444(b)(2) 
(relating to governmental plans), is amended by adding at the end the 
following new paragraph:
            ``(15) Cost-of-living adjustment of maximum deferral 
        amount.--The Secretary shall adjust the $7,500 amount specified 
        in subsections (b)(2) and (c)(1) at the same time and in the 
        same manner as under section 415(d), except that the base 
        period shall be the calendar quarter ending September 30, 1994, 
        and any increase under this paragraph which is not a multiple 
        of $500 shall be rounded to the next lowest multiple of $500.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE 
              AND LOCAL GOVERNMENTS.

    (a) In General.--Section 457 is amended by adding at the end the 
following new subsection:
    ``(g) Governmental Plans Must Maintain Set-Asides for Exclusive 
Benefit of Participants.--
            ``(1) In general.--A plan maintained by an eligible 
        employer described in subsection (e)(1)(A) shall not be treated 
        as an eligible deferred compensation plan unless all assets and 
        income of the plan described in subsection (b)(6) are held in 
        trust for the exclusive benefit of participants and their 
        beneficiaries.
            ``(2) Taxability of trusts and participants.--For purposes 
        of this title--
                    ``(A) a trust described in paragraph (1) shall be 
                treated as an organization exempt from taxation under 
                section 501(a), and
                    ``(B) notwithstanding any other provision of this 
                title, amounts in the trust shall be includible in the 
                gross income of participants and beneficiaries only to 
                the extent, and at the time, provided in this section.
            ``(3) Custodial accounts and contracts.--For purposes of 
        this subsection, custodial accounts and contracts described in 
        section 401(f) shall be treated as trusts under rules similar 
        to the rules under section 401(f).''
    (b) Conforming Amendment.--Paragraph (6) of section 457(b) is 
amended by inserting ``except as provided in subsection (g),'' before 
``which provides that''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to assets and 
        income described in section 457(b)(6) of the Internal Revenue 
        Code of 1986 held by a plan on and after the date of the 
        enactment of this Act.
            (2) Transition rule.--In the case of assets and income 
        described in paragraph (1) held by a plan on the date of the 
        enactment of this Act, a trust need not be established by 
        reason of the amendments made by this section before January 1, 
        1999.

SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER SECTION 
              415 LIMITATIONS.

    (a) In General.--Subparagraph (A) of section 767(d)(3) of the 
Uruguay Round Agreements Act is amended to read as follows:
                    ``(A) Exception.--A plan that was adopted and in 
                effect before December 8, 1994, shall not be required 
                to apply the amendments made by subsection (b) with 
                respect to benefits accrued before the earlier of--
                            ``(i) the later of the date a plan 
                        amendment applying such amendment is adopted or 
                        made effective, or
                            ``(ii) the first day of the first 
                        limitation year beginning after December 31, 
                        1999.
                Determinations under section 415(b)(2)(E) of the 
                Internal Revenue Code of 1986 before such earlier date 
                shall be made with respect to such benefits on the 
                basis of such section as in effect on December 7, 1994 
                (except that the modification made by section 1449(b) 
                of the Small Business Job Protection Act of 1996 shall 
                be taken into account), and the provisions of the plan 
                as in effect on December 7, 1994, but only if such 
                provisions of the plan meet the requirements of such 
                section (as so in effect).''
    (b) Modification of Certain Assumptions for Adjusting Benefits of 
Defined Benefit Plans for Early Retirees.--Subparagraph (E) of section 
415(b)(2) (relating to limitation on certain assumptions) is amended--
            (1) by striking ``Except as provided in clause (ii), for 
        purposes of adjusting any benefit or limitation under 
        subparagraph (B) or (C),'' in clause (i) and inserting ``For 
        purposes of adjusting any limitation under subparagraph (C) 
        and, except as provided in clause (ii), for purposes of 
        adjusting any benefit under subparagraph (B),'', and
            (2) by striking ``For purposes of adjusting the benefit or 
        limitation of any form of benefit subject to section 
        417(e)(3),'' in clause (ii) and inserting ``For purposes of 
        adjusting any benefit under subparagraph (B) for any form of 
        benefit subject to section 417(e)(3),''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of section 767 of the Uruguay 
Round Agreements Act.
    (d) Transitional Rule.--In the case of a plan that was adopted and 
in effect before December 8, 1994, if--
            (1) a plan amendment was adopted or made effective on or 
        before the date of the enactment of this Act applying the 
        amendments made by section 767 of the Uruguay Round Agreements 
        Act, and
            (2) within 1 year after the date of the enactment of this 
        Act, a plan amendment is adopted which repeals the amendment 
        referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into 
account in applying section 767(d)(3)(A) of the Uruguay Round 
Agreements Act, as amended by subsection (a).

SEC. 1450. MODIFICATIONS OF SECTION 403(b).

    (a) Multiple Salary Reduction Agreements Permitted.--
            (1) General rule.--For purposes of section 403(b) of the 
        Internal Revenue Code of 1986, the frequency that an employee 
        is permitted to enter into a salary reduction agreement, the 
        salary to which such an agreement may apply, and the ability to 
        revoke such an agreement shall be determined under the rules 
        applicable to cash or deferred elections under section 401(k) 
        of such Code.
            (2) Effective date.--This subsection shall apply to taxable 
        years beginning after December 31, 1995.
    (b) Treatment of Indian Tribal Governments.--
            (1) In general.--In the case of any contract purchased in a 
        plan year beginning before January 1, 1995, section 403(b) of 
        the Internal Revenue Code of 1986 shall be applied as if any 
        reference to an employer described in section 501(c)(3) of the 
        Internal Revenue Code of 1986 which is exempt from tax under 
        section 501 of such Code included a reference to an employer 
        which is an Indian tribal government (as defined by section 
        7701(a)(40) of such Code), a subdivision of an Indian tribal 
        government (determined in accordance with section 7871(d) of 
        such Code), an agency or instrumentality of an Indian tribal 
        government or subdivision thereof, or a corporation chartered 
        under Federal, State, or tribal law which is owned in whole or 
        in part by any of the foregoing.
            (2) Rollovers.--Solely for purposes of applying section 
        403(b)(8) of such Code to a contract to which paragraph (1) 
        applies, a qualified cash or deferred arrangement under section 
        401(k) of such Code shall be treated as if it were a plan or 
        contract described in clause (ii) of section 403(b)(8)(A) of 
        such Code.
    (c) Elective Deferrals.--
            (1) In general.--Subparagraph (E) of section 403(b)(1) is 
        amended to read as follows:
                    ``(E) in the case of a contract purchased under a 
                salary reduction agreement, the contract meets the 
                requirements of section 401(a)(30),''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 1995, except 
        a contract shall not be required to meet any change in any 
        requirement by reason of such amendment before the 90th day 
        after the date of the enactment of this Act.

SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR ANNUITY 
              EXPLANATION BEFORE ANNUITY STARTING DATE.

    (a) General Rule.--For purposes of section 417(a)(3)(A) of the 
Internal Revenue Code of 1986 (relating to plan to provide written 
explanations), the minimum period prescribed by the Secretary of the 
Treasury between the date that the explanation referred to in such 
section is provided and the annuity starting date shall not apply if 
waived by the participant and, if applicable, the participant's spouse.
    (b) Effective Date.--Subsection (a) shall apply to plan years 
beginning after December 31, 1996.

SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND 
              DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS 
              DISTRIBUTIONS.

    (a) In General.--Section 415(e) is repealed.
    (b) Excess Distributions.--Section 4980A is amended by adding at 
the end the following new subsection:
    ``(g) Limitation on Application.--This section shall not apply to 
distributions during years beginning after December 31, 1995, and 
before January 1, 1999, and such distributions shall be treated as made 
first from amounts not described in subsection (f).''
    (c) Conforming Amendments.--
            (1) Paragraph (1) of section 415(a) is amended--
                    (A) by adding ``or'' at the end of subparagraph 
                (A),
                    (B) by striking ``, or'' at the end of subparagraph 
                (B) and inserting a period, and
                    (C) by striking subparagraph (C).
            (2) Subparagraph (B) of section 415(b)(5) is amended by 
        striking ``and subsection (e)''.
            (3) Paragraph (1) of section 415(f) is amended by striking 
        ``subsections (b), (c), and (e)'' and inserting ``subsections 
        (b) and (c)''.
            (4) Subsection (g) of section 415 is amended by striking 
        ``subsections (e) and (f)'' in the last sentence and inserting 
        ``subsection (f)''.
            (5) Clause (i) of section 415(k)(2)(A) is amended to read 
        as follows:
                            ``(i) any contribution made directly by an 
                        employee under such an arrangement shall not be 
                        treated as an annual addition for purposes of 
                        subsection (c), and''.
            (6) Clause (ii) of section 415(k)(2)(A) is amended by 
        striking ``subsections (c) and (e)'' and inserting ``subsection 
        (c)''.
            (7) Section 416 is amended by striking subsection (h).
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to limitation years 
        beginning after December 31, 1998.
            (2) Excess distributions.--The amendment made by subsection 
        (b) shall apply to years beginning after December 31, 1995.

SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

    (a) In General.--Section 4975(a) is amended by striking ``5 
percent'' and inserting ``10 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to prohibited transactions occurring after the date of the enactment of 
this Act.

SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

    (a) General Rule.--Subparagraph (C) of section 414(n)(2) (defining 
leased employee) is amended to read as follows:
                    ``(C) such services are performed under primary 
                direction or control by the recipient.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1996, but shall not apply 
to any relationship determined under an Internal Revenue Service ruling 
issued before the date of the enactment of this Act pursuant to section 
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the 
day before such date) not to involve a leased employee.

SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION 
              REPORTING REQUIREMENTS.

    (a) Penalties.--
            (1) Statements.--Paragraph (1) of section 6724(d) is 
        amended by striking ``and'' at the end of subparagraph (A), by 
        striking the period at the end of subparagraph (B) and 
        inserting ``, and'', and by inserting after subparagraph (B) 
        the following new subparagraph:
                    ``(C) any statement of the amount of payments to 
                another person required to be made to the Secretary 
                under--
                            ``(i) section 408(i) (relating to reports 
                        with respect to individual retirement accounts 
                        or annuities), or
                            ``(ii) section 6047(d) (relating to reports 
                        by employers, plan administrators, etc.).''
            (2) Reports.--Paragraph (2) of section 6724(d) is amended 
        by striking ``or'' at the end of subparagraph (S), by striking 
        the period at the end of subparagraph (T) and inserting a 
        comma, and by inserting after subparagraph (T) the following 
        new subparagraphs:
                    ``(U) section 408(i) (relating to reports with 
                respect to individual retirement plans) to any person 
                other than the Secretary with respect to the amount of 
                payments made to such person, or
                    ``(V) section 6047(d) (relating to reports by plan 
                administrators) to any person other than the Secretary 
                with respect to the amount of payments made to such 
                person.''
    (b) Modification of Reportable Designated Distributions.--
            (1) Section 408.--Subsection (i) of section 408 (relating 
        to individual retirement account reports) is amended by 
        inserting ``aggregating $10 or more in any calendar year'' 
        after ``distributions''.
            (2) Section 6047.--Paragraph (1) of section 6047(d) 
        (relating to reports by employers, plan administrators, etc.) 
        is amended by adding at the end the following new sentence: 
        ``No return or report may be required under the preceding 
        sentence with respect to distributions to any person during any 
        year unless such distributions aggregate $10 or more.''
    (c) Qualifying Rollover Distributions.--Section 6652(i) is 
amended--
            (1) by striking ``the $10'' and inserting ``$100'', and
            (2) by striking ``$5,000'' and inserting ``$50,000''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 6047(f) is amended 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.''
            (2) Subsection (e) of section 6652 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any return or statement which is an information return 
        described in section 6724(d)(1)(C)(ii) or a payee statement 
        described in section 6724(d)(2)(V).''
            (3) Subsection (a) of section 6693 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any report which is an information return described in 
        section 6724(d)(1)(C)(i) or a payee statement described in 
        section 6724(d)(2)(U).''
    (e) Effective Date.--The amendments made by this section shall 
apply to returns, reports, and other statements the due date for which 
(determined without regard to extensions) is after December 31, 1996.

SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO TAX ON NET 
              EARNINGS FROM SELF-EMPLOYMENT.

    (a) In General.--Section 1402(a)(8) (defining net earning from 
self-employment) is amended by inserting ``, but shall not include in 
such net earnings from self-employment the rental value of any 
parsonage (whether or not excludable under section 107) provided after 
the individual retires, or any other retirement benefit received by 
such individual from a church plan (as defined in section 414(e)) after 
the individual retires'' before the semicolon at the end.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning before, on, or after December 31, 1994.

SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this subtitle requires an amendment to any 
plan or annuity contract, such amendment shall not be required to be 
made before the first day of the first plan year beginning on or after 
January 1, 1997, if--
            (1) during the period after such amendment takes effect and 
        before such first plan year, the plan or contract is operated 
        in accordance with the requirements of such amendment, and
            (2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of the 
Internal Revenue Code of 1986), this section shall be applied by 
substituting ``1999'' for ``1997''.

                   Subtitle E--Foreign Simplification

SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS 
              PASSIVE ASSETS.

    (a) In General.--
            (1) Repeal of inclusion.--Paragraph (1) of section 951(a) 
        (relating to amounts included in gross income of United States 
        shareholders) is amended by striking subparagraph (C), by 
        striking ``; and'' at the end of subparagraph (B) and inserting 
        a period, and by adding ``and'' at the end of subparagraph (A).
            (2) Repeal of inclusion amount.--Section 956A (relating to 
        earnings invested in excess passive assets) is repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 956(b) is amended to read as 
        follows:
            ``(1) Applicable earnings.--For purposes of this section, 
        the term `applicable earnings' means, with respect to any 
        controlled foreign corporation, the sum of--
                    ``(A) the amount (not including a deficit) referred 
                to in section 316(a)(1), and
                    ``(B) the amount referred to in section 316(a)(2),
        but reduced by distributions made during the taxable year.''
            (2) Paragraph (3) of section 956(b) is amended to read as 
        follows:
            ``(3) Special rule where corporation ceases to be 
        controlled foreign corporation.--If any foreign corporation 
        ceases to be a controlled foreign corporation during any 
        taxable year--
                    ``(A) the determination of any United States 
                shareholder's pro rata share shall be made on the basis 
                of stock owned (within the meaning of section 958(a)) 
                by such shareholder on the last day during the taxable 
                year on which the foreign corporation is a controlled 
                foreign corporation,
                    ``(B) the average referred to in subsection 
                (a)(1)(A) for such taxable year shall be determined by 
                only taking into account quarters ending on or before 
                such last day, and
                    ``(C) in determining applicable earnings, the 
                amount taken into account by reason of being described 
                in paragraph (2) of section 316(a) shall be the portion 
                of the amount so described which is allocable (on a pro 
                rata basis) to the part of such year during which the 
                corporation is a controlled foreign corporation.''
            (3) Subsection (a) of section 959 (relating to exclusion 
        from gross income of previously taxed earnings and profits) is 
        amended by adding ``or'' at the end of paragraph (1), by 
        striking ``or'' at the end of paragraph (2), and by striking 
        paragraph (3).
            (4) Subsection (a) of section 959 is amended by striking 
        ``paragraphs (2) and (3)'' in the last sentence and inserting 
        ``paragraph (2)''.
            (5) Subsection (c) of section 959 is amended by adding at 
        the end the following flush sentence:
``References in this subsection to section 951(a)(1)(C) and subsection 
(a)(3) shall be treated as references to such provisions as in effect 
on the day before the date of the enactment of the Revenue 
Reconciliation Act of 1995.''
            (6) Paragraph (1) of section 959(f) is amended to read as 
        follows:
            ``(1) In general.--For purposes of this section, amounts 
        that would be included under subparagraph (B) of section 
        951(a)(1) (determined without regard to this section) shall be 
        treated as attributable first to earnings described in 
        subsection (c)(2), and then to earnings described in subsection 
        (c)(3).''
            (7) Paragraph (2) of section 959(f) is amended by striking 
        ``subparagraphs (B) and (C) of section 951(a)(1)'' and 
        inserting ``section 951(a)(1)(B)''.
            (8) Subsection (b) of section 989 is amended by striking 
        ``subparagraph (B) or (C) of section 951(a)(1)'' and inserting 
        ``section 951(a)(1)(B)''.
            (9) Paragraph (9) of section 1298(b), as redesignated by 
        section 11482, is amended by striking ``subparagraph (B) or (C) 
        of section 951(a)(1)'' and inserting ``section 951(a)(1)(B)''.
            (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 
        1298, as redesignated by section 11482, are each amended by 
        striking ``or section 956A''.
    (c) Clerical Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by striking the item 
relating to section 956A.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 1996, and to taxable years of United States shareholders within 
which or with which such taxable years of foreign corporations end.

                      Subtitle F--Revenue Offsets

SEC. 1601. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.

    (a) In General.--Section 936 is amended by adding at the end the 
following new subsection:
    ``(j) Termination.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, this section shall not apply to any taxable year 
        beginning after December 31, 1995.
            ``(2) Transition rules for active business income credit.--
        Except as provided in paragraph (3)--
                    ``(A) Economic activity credit.--In the case of an 
                existing credit claimant--
                            ``(i) with respect to a possession other 
                        than Puerto Rico, and
                            ``(ii) to which subsection (a)(4)(B) does 
                        not apply,
                the credit determined under subsection (a)(1)(A) shall 
                be allowed for taxable years beginning after December 
                31, 1995, and before January 1, 2002.
                    ``(B) Special rule for reduced credit.--
                            ``(i) In general.--In the case of an 
                        existing credit claimant to which subsection 
                        (a)(4)(B) applies, the credit determined under 
                        subsection (a)(1)(A) shall be allowed for 
                        taxable years beginning after December 31, 
                        1995, and before January 1, 1998.
                            ``(ii) Election irrevocable after 1997.--An 
                        election under subsection (a)(4)(B)(iii) which 
                        is in effect for the taxpayer's last taxable 
                        year beginning before 1997 may not be revoked 
                        unless it is revoked for the taxpayer's first 
                        taxable year beginning in 1997 and all 
                        subsequent taxable years.
                    ``(C) Economic activity credit for Puerto Rico.--

                                ``For economic activity credit for 
Puerto Rico, see section 30A.
            ``(3) Additional restricted credit.--
                    ``(A) In general.--In the case of an existing 
                credit claimant--
                            ``(i) the credit under subsection (a)(1)(A) 
                        shall be allowed for the period beginning with 
                        the first taxable year after the last taxable 
                        year to which subparagraph (A) or (B) of 
                        paragraph (2), whichever is appropriate, 
                        applied and ending with the last taxable year 
                        beginning before January 1, 2006, except that
                            ``(ii) the aggregate amount of taxable 
                        income taken into account under subsection 
                        (a)(1)(A) for any such taxable year shall not 
                        exceed the adjusted base period income of such 
                        claimant.
                    ``(B) Coordination with subsection (a)(4).--The 
                amount of income described in subsection (a)(1)(A) 
                which is taken into account in applying subsection 
                (a)(4) shall be such income as reduced under this 
                paragraph.
            ``(4) Adjusted base period income.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `adjusted base period 
                income' means the average of the inflation-adjusted 
                possession incomes of the corporation for each base 
                period year.
                    ``(B) Inflation-adjusted possession income.--For 
                purposes of subparagraph (A), the inflation-adjusted 
                possession income of any corporation for any base 
                period year shall be an amount equal to the sum of--
                            ``(i) the possession income of such 
                        corporation for such base period year, plus
                            ``(ii) such possession income multiplied by 
                        the inflation adjustment percentage for such 
                        base period year.
                    ``(C) Inflation adjustment percentage.--For 
                purposes of subparagraph (B), the inflation adjustment 
                percentage for any base period year means the 
                percentage (if any) by which--
                            ``(i) the CPI for 1995, exceeds
                            ``(ii) the CPI for the calendar year in 
                        which the base period year for which the 
                        determination is being made ends.
                For purposes of the preceding sentence, the CPI for any 
                calendar year is the CPI (as defined in section 
                1(f)(5)) for such year under section 1(f)(4).
                    ``(D) Increase in inflation adjustment percentage 
                for growth during base years.--The inflation adjustment 
                percentage (determined under subparagraph (C) without 
                regard to this subparagraph) for each of the 5 taxable 
                years referred to in paragraph (5)(A) shall be 
                increased by--
                            ``(i) 5 percentage points in the case of a 
                        taxable year ending during the 1-year period 
                        ending on October 13, 1995;
                            ``(ii) 10.25 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1994;
                            ``(iii) 15.76 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1993;
                            ``(iv) 21.55 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1992; and
                            ``(v) 27.63 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1991.
            ``(5) Base period year.--For purposes of this subsection--
                    ``(A) In general.--The term `base period year' 
                means each of 3 taxable years which are among the 5 
                most recent taxable years of the corporation ending 
                before October 14, 1995, determined by disregarding--
                            ``(i) one taxable year for which the 
                        corporation had the largest inflation-adjusted 
                        possession income, and
                            ``(ii) one taxable year for which the 
                        corporation had the smallest inflation-adjusted 
                        possession income.
                    ``(B) Corporations not having significant 
                possession income throughout 5-year period.--
                            ``(i) In general.--If a corporation does 
                        not have significant possession income for each 
                        of the most recent 5 taxable years ending 
                        before October 14, 1995, then, in lieu of 
                        applying subparagraph (A), the term `base 
                        period year' means only those taxable years (of 
                        such 5 taxable years) for which the corporation 
                        has significant possession income; except that, 
                        if such corporation has significant possession 
                        income for 4 of such 5 taxable years, the rule 
                        of subparagraph (A)(ii) shall apply.
                            ``(ii) Special rule.--If there is no year 
                        (of such 5 taxable years) for which a 
                        corporation has significant possession income--
                                    ``(I) the term `base period year' 
                                means the first taxable year ending on 
                                or after October 14, 1995, but
                                    ``(II) the amount of possession 
                                income for such year which is taken 
                                into account under paragraph (4) shall 
                                be the amount which would be determined 
                                if such year were a short taxable year 
                                ending on September 30, 1995.
                            ``(iii) Significant possession income.--For 
                        purposes of this subparagraph, the term 
                        `significant possession income' means 
                        possession income which exceeds 2 percent of 
                        the possession income of the taxpayer for the 
                        taxable year (of the period of 6 taxable years 
                        ending with the first taxable year ending on or 
                        after October 14, 1995) having the greatest 
                        possession income.
                    ``(C) Election to use one base period year.--
                            ``(i) In general.--At the election of the 
                        taxpayer, the term `base period year' means--
                                    ``(I) only the last taxable year of 
                                the corporation ending in calendar year 
                                1992, or
                                    ``(II) a deemed taxable year which 
                                includes the first ten months of 
                                calendar year 1995.
                            ``(ii) Base period income for 1995.--In 
                        determining the adjusted base period income of 
                        the corporation for the deemed taxable year 
                        under clause (i)(II), the possession income 
                        shall be annualized and shall be determined 
                        without regard to any extraordinary item.
                            ``(iii) Election.--An election under this 
                        subparagraph by any possession corporation may 
                        be made only for the corporation's first 
                        taxable year beginning after December 31, 1995, 
                        for which it is a possession corporation. The 
                        rules of subclauses (II) and (III) of 
                        subsection (a)(4)(B)(iii) shall apply to the 
                        election under this subparagraph.
                    ``(D) Acquisitions and dispositions.--Rules similar 
                to the rules of subparagraphs (A) and (B) of section 
                41(f)(3) shall apply for purposes of this subsection.
            ``(6) Possession income.--For purposes of this subsection, 
        the term `possession income' means, with respect to any 
        possession, the income referred to in subsection (a)(1)(A) 
        determined with respect to that possession. In no event shall 
        possession income be treated as being less than zero.
            ``(7) Short years.--If the current year or a base period 
        year is a short taxable year, the application of this 
        subsection shall be made with such annualizations as the 
        Secretary shall prescribe.
            ``(8) Special rules for certain possessions.--
                    ``(A) In general.--In the case of an existing 
                credit claimant with respect to an applicable 
                possession, this section (other than the preceding 
                paragraphs of this subsection) shall apply to such 
                claimant with respect to such applicable possession for 
                taxable years beginning after December 31, 1995, and 
                before January 1, 2006.
                    ``(B) Applicable possession.--For purposes of this 
                paragraph, the term `applicable possession' means Guam, 
                American Samoa, and the Commonwealth of the Northern 
                Mariana Islands.
            ``(9) Existing credit claimant.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `existing credit 
                claimant' means a corporation--
                            ``(i) which was actively conducting a trade 
                        or business in a possession on October 13, 
                        1995, and
                            ``(ii) with respect to which an election 
                        under this section is in effect for the 
                        corporation's taxable year which includes 
                        October 13, 1995.
                    ``(B) New lines of business prohibited.--If, after 
                October 13, 1995, a corporation which would (but for 
                this subparagraph) be an existing credit claimant adds 
a substantial new line of business, such corporation shall cease to be 
treated as an existing credit claimant as of the close of the taxable 
year ending before the date of such addition.
                    ``(C) Binding contract exception.--If, on October 
                13, 1995, and at all times thereafter, there is in 
                effect with respect to a corporation a binding contract 
                for the acquisition of assets to be used in, or for the 
                sale of assets to be produced from, a trade or 
                business, the corporation shall be treated for purposes 
                of this paragraph as actively conducting such trade or 
                business on October 13, 1995. The preceding sentence 
                shall not apply if such trade or business is not 
                actively conducted before January 1, 1996.
            ``(10) Separate application to each possession.--In the 
        case of any taxpayer, this subsection (and so much of this 
        section as relates to this subsection) shall be applied 
        separately with respect to each possession.''
    (b) Economic Activity Credit for Puerto Rico.--
            (1) In general.--Subpart B of part IV of subchapter A of 
        chapter 1 is amended by adding at the end the following new 
        section:

``SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--If a qualified domestic corporation 
        elects the application of this subsection, and if the 
        conditions of both paragraph (1) and paragraph (2) of 
        subsection (b) are satisfied, there shall be allowed as a 
        credit against the tax imposed by this chapter an amount equal 
        to the portion of the tax which is attributable to the taxable 
        income, from sources without the United States, from--
                    ``(A) the active conduct of a trade or business 
                within Puerto Rico, or
                    ``(B) the sale or exchange of substantially all of 
                the assets used by the taxpayer in the active conduct 
                of such trade or business.
        In the case of any taxable year beginning after December 31, 
        2001, the aggregate amount of taxable income taken into account 
        under the preceding sentence (and in applying subsection (d)) 
        shall not exceed the adjusted base period income of such 
        corporation, as determined in the same manner as under section 
        936(j).
            ``(2) Qualified domestic corporation.--For purposes of 
        paragraph (1), the term `qualified domestic corporation' means 
        a domestic corporation--
                    ``(A) which is an existing credit claimant with 
                respect to Puerto Rico, and
                    ``(B) with respect to which section 936(a)(4)(B) 
                does not apply for the taxable year.
            ``(3) Separate application.--Section 936 shall be applied 
        separately with respect to Puerto Rico for purposes of this 
        section.
    ``(b) Conditions Which Must Be Satisfied.--The conditions referred 
to in subsection (a) are--
            ``(1) 3-year period.--If 80 percent or more of the gross 
        income of such domestic corporation for the 3-year period 
        immediately preceding the close of the taxable year (or for 
        such part of such period immediately preceding the close of 
        such taxable year as may be applicable) was derived from 
        sources within a possession (determined without regard to 
        section 904(f)).
            ``(2) Trade or business.--If 75 percent or more of the 
        gross income of such domestic corporation for such period or 
        such part thereof was derived from the active conduct of a 
        trade or business within a possession.
    ``(c) Credit Not Allowed Against Certain Taxes.--The credit 
provided by subsection (a) shall not be allowed against the tax imposed 
by--
            ``(1) section 59A (relating to environmental tax),
            ``(2) section 531 (relating to the tax on accumulated 
        earnings),
            ``(3) section 541 (relating to personal holding company 
        tax), or
            ``(4) section 1351 (relating to recoveries of foreign 
        expropriation losses).
    ``(d) Limitations on Credit for Active Business Income.--The amount 
of the credit determined under subsection (a) for any taxable year 
shall not exceed the sum of the following amounts:
            ``(1) 60 percent of the sum of--
                    ``(A) the aggregate amount of the possession 
                corporation's qualified possession wages for such 
                taxable year, plus
                    ``(B) the allocable employee fringe benefit 
                expenses of the possession corporation for such taxable 
                year.
            ``(2) The sum of--
                    ``(A) 15 percent of the deprecation allowances for 
                the taxable year with respect to short-life qualified 
                tangible property,
                    ``(B) 40 percent of the depreciation allowances for 
                the taxable year with respect to medium-life qualified 
                tangible property, and
                    ``(C) 65 percent of the depreciation allowances for 
                the taxable year with respect to long-life qualified 
                tangible property.
            ``(3) If the possession corporation does not have an 
        election to use the method described in section 
        936(h)(5)(C)(ii) (relating to profit split) in effect for the 
        taxable year, the amount of the qualified possession income 
        taxes for the taxable year allocable to nonsheltered income.
    ``(e) Administrative Provisions.--For purposes of this title--
            ``(1) the provisions of section 936 (including any 
        applicable election thereunder) shall apply in the same manner 
        as if it were a credit under section 936(a)(1)(A) for a 
        domestic corporation to which section 936(a)(4)(A) applies (as 
        in effect for taxable years beginning before 1996), and
            ``(2) a corporation electing the application of this 
        section shall be treated in the same manner as if it were a 
        corporation electing the application of section 936.
    ``(f) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 936 shall have the same 
meaning given such term by section 936.
    ``(g) Application of Section.--This section shall apply to taxable 
years beginning after December 31, 1995, and before January 1, 2006.''
            (2) Conforming amendment.--The table of sections for 
        subpart B of part IV of subchapter A of chapter 1 is amended by 
        adding at the end the following new item:

                              ``Sec. 30A. Puerto Rican economic 
                                        activity credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO ACQUIRE 
              EMPLOYER SECURITIES.

    (a) In General.--Section 133 (relating to interest on certain loans 
used to acquire employer securities) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 291(e)(1) is amended by 
        striking clause (iv) and by redesignating clause (v) as clause 
        (iv).
            (2) Section 812 is amended by striking subsection (g).
            (3) Paragraph (5) of section 852(b) is amended by striking 
        subparagraph (C).
            (4) Paragraph (2) of section 4978(b) is amended by striking 
        subparagraph (A) and all that follows and inserting the 
        following:
                    ``(A) first from qualified securities to which 
                section 1042 applied acquired during the 3-year period 
                ending on the date of the disposition, beginning with 
                the securities first so acquired, and
                    ``(B) then from any other employer securities.
        If subsection (d) applies to a disposition, the disposition 
        shall be treated as made from employer securities in the 
        opposite order of the preceding sentence.''.
            (5)(A) Section 4978B (relating to tax on disposition of 
        employer securities to which section 133 applied) is hereby 
        repealed.
            (B) The table of sections for chapter 43 is amended by 
        striking the item relating to section 4978B.
            (6) Subsection (e) of section 6047 is amended by striking 
        paragraphs (1), (2), and (3) and inserting the following new 
        paragraphs:
            ``(1) any employer maintaining, or the plan administrator 
        (within the meaning of section 414(g)) of, an employee stock 
        ownership plan which holds stock with respect to which section 
        404(k) applies to dividends paid on such stock, or
            ``(2) both such employer or plan administrator,''.
            (7) Subsection (f) of section 7872 is amended by striking 
        paragraph (12).
            (8) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        133.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to loans made after October 13, 1995.
            (2) Refinancings.--The amendments made by this section 
        shall not apply to loans made after October 13, 1995, to 
        refinance securities acquisition loans (determined without 
        regard to section 133(b)(1)(B) of the Internal Revenue Code of 
        1986, as in effect on the day before the date of the enactment 
        of this Act) made on or before such date or to refinance loans 
        described in this paragraph if--
                    (A) the refinancing loans meet the requirements of 
                section 133 of such Code (as so in effect),
                    (B) immediately after the refinancing the principal 
                amount of the loan resulting from the refinancing does 
                not exceed the principal amount of the refinanced loan 
                (immediately before the refinancing), and
                    (C) the term of such refinancing loan does not 
                extend beyond the last day of the term of the original 
                securities acquisition loan.
        For purposes of this paragraph, the term ``securities 
        acquisition loan'' includes a loan from a corporation to an 
        employee stock ownership plan described in section 133(b)(3) of 
        such Code (as so in effect).

SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS TREATED AS 
              UNRELATED BUSINESS TAXABLE INCOME.

    (a) General Rule.--Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the following new 
paragraph:
            ``(17) Treatment of certain amounts derived from foreign 
        corporations.--
                    ``(A) In general.--Notwithstanding paragraph (1), 
                any amount included in gross income under section 
                951(a)(1)(A) shall be included as an item of gross 
                income derived from an unrelated trade or business to 
                the extent the amount so included is attributable to 
                insurance income (as defined in section 953) which, if 
                derived directly by the organization, would be treated 
                as gross income from an unrelated trade or business. 
                There shall be allowed all deductions directly 
                connected with amounts included in gross income under 
                the preceding sentence.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to income attributable to a policy of insurance or 
                reinsurance with respect to which the person (directly 
                or indirectly) insured is--
                            ``(i) such organization,
                            ``(ii) an affiliate of such organization 
                        which is exempt from tax under section 501(a), 
                        or
                            ``(iii) a director or officer of, or an 
                        individual who (directly or indirectly) 
                        performs services for, such organization or 
                        affiliate but only if the insurance covers 
                        primarily risks associated with the performance 
                        of services in connection with such 
                        organization or affiliate.
                For purposes of this subparagraph, the determination as 
                to whether an entity is an affiliate of an organization 
                shall be made under rules similar to the rules of 
                section 168(h)(4)(B).
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out the purposes of this paragraph, including 
                regulations for the application of this paragraph in 
                the case of income paid through 1 or more entities or 
                between 2 or more chains of entities.''
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts included in gross income in any taxable year beginning after 
December 31, 1995.

SEC. 1604. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) General Rule.--Section 167 (relating to depreciation) is 
amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Depreciation Under Income Forecast Method.--
            ``(1) In general.--If the depreciation deduction allowable 
        under this section to any taxpayer with respect to any property 
        is determined under the income forecast method or any similar 
        method--
                    ``(A) the income from the property to be taken into 
                account in determining the depreciation deduction under 
                such method shall be equal to the amount of income 
                earned in connection with the property before the close 
                of the 10th taxable year following the taxable year in 
                which the property was placed in service,
                    ``(B) the adjusted basis of the property shall only 
                include amounts with respect to which the requirements 
                of section 461(h) are satisfied,
                    ``(C) the depreciation deduction under such method 
                for the 10th taxable year beginning after the taxable 
                year in which the property was placed in service shall 
                be equal to the adjusted basis of such property as of 
                the beginning of such 10th taxable year, and
                    ``(D) such taxpayer shall pay (or be entitled to 
                receive) interest computed under the look-back method 
                of paragraph (2) for any recomputation year.
            ``(2) Look-back method.--The interest computed under the 
        look-back method of this paragraph for any recomputation year 
        shall be determined by--
                    ``(A) first determining the depreciation deductions 
                under this section with respect to such property which 
                would have been allowable for prior taxable years if 
                the determination of the amounts so allowable had been 
                made on the basis of the sum of the following (instead 
                of the estimated income from such property)--
                            ``(i) the actual income earned in 
                        connection with such property for periods 
                        before the close of the recomputation year, and
                            ``(ii) an estimate of the future income to 
                        be earned in connection with such property for 
                        periods after the recomputation year and before 
                        the close of the 10th taxable year following 
                        the taxable year in which the property was 
                        placed in service,
                    ``(B) second, determining (solely for purposes of 
                computing such interest) the overpayment or 
                underpayment of tax for each such prior taxable year 
                which would result solely from the application of 
                subparagraph (A), and
                    ``(C) then using the adjusted overpayment rate (as 
                defined in section 460(b)(7)), compounded daily, on the 
                overpayment or underpayment determined under 
                subparagraph (B).
        For purposes of the preceding sentence, any cost incurred after 
        the property is placed in service (which is not treated as a 
        separate property under paragraph (5)) shall be taken into 
        account by discounting (using the Federal mid-term rate 
        determined under section 1274(d) as of the time such cost is 
        incurred) such cost to its value as of the date the property is 
        placed in service. The taxpayer may elect with respect to any 
        property to have the preceding sentence not apply to such 
        property.
            ``(3) Exception from look-back method.--Paragraph (1)(D) 
        shall not apply with respect to any property which, when placed 
        in service by the taxpayer, had a basis of $100,000 or less.
            ``(4) Recomputation year.--For purposes of this subsection, 
        except as provided in regulations, the term `recomputation 
        year' means, with respect to any property, the 3d and the 10th 
        taxable years beginning after the taxable year in which the 
        property was placed in service, unless the actual income earned 
        in connection with the property for the period before the close 
        of such 3d or 10th taxable year is within 10 percent of the 
        income earned in connection with the property for such period 
        which was taken into account under paragraph (1)(A).
            ``(5) Special rules.--
                    ``(A) Certain costs treated as separate property.--
                For purposes of this subsection, the following costs 
                shall be treated as separate properties:
                            ``(i) Any costs incurred with respect to 
                        any property after the 10th taxable year 
                        beginning after the taxable year in which the 
                        property was placed in service.
                            ``(ii) Any costs incurred after the 
                        property is placed in service and before the 
                        close of such 10th taxable year if such costs 
                        are significant and give rise to a significant 
                        increase in the income from the property which 
                        was not included in the estimated income from 
                        the property.
                    ``(B) Syndication income from television series.--
                In the case of property which is an episode in a 
                television series, income from syndicating such series 
                shall not be required to be taken into account under 
                this subsection before the earlier of--
                            ``(i) the 4th taxable year beginning after 
                        the date the first episode in such series is 
                        placed in service, or
                            ``(ii) the earliest taxable year in which 
                        the taxpayer has an arrangement relating to the 
                        future syndication of such series.
                    ``(C) Special rules for financial exploitation of 
                characters, etc.--For purposes of this subsection, in 
                the case of television and motion picture films, the 
                income from the property shall include income from the 
                exploitation of characters, designs, scripts, scores, 
                and other incidental income associated with such films, 
                but only to the extent that such income is earned in 
                connection with the ultimate use of such items by, or 
                the ultimate sale of merchandise to, persons who are 
                not related persons (within the meaning of section 
                267(b)) to the taxpayer.
                    ``(D) Collection of interest.--For purposes of 
                subtitle F (other than sections 6654 and 6655), any 
                interest required to be paid by the taxpayer under 
                paragraph (1) for any recomputation year shall be 
                treated as an increase in the tax imposed by this 
                chapter for such year.
                    ``(E) Determinations.--For purposes of paragraph 
                (2), determinations of the amount of income earned in 
                connection with any property shall be made in the same 
                manner as for purposes of applying the income forecast 
                method; except that any income from the disposition of 
                such property shall be taken into account.
                    ``(F) Treatment of pass-thru entities.--Rules 
                similar to the rules of section 460(b)(4) shall apply 
for purposes of this subsection.''
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to property placed in service after September 13, 1995.
            (2) Binding contracts.--The amendment made by subsection 
        (a) shall not apply to any property produced or acquired by the 
        taxpayer pursuant to a written contract which was binding on 
        September 13, 1995, and at all times thereafter before such 
        production or acquisition.

SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES NOT 
              ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.

    (a) In General.--Paragraph (2) of section 104(a) (relating to 
compensation for injuries or sickness) is amended to read as follows:
            ``(2) the amount of any damages (other than punitive 
        damages) received (whether by suit or agreement and whether as 
        lump sums or as periodic payments) on account of personal 
        physical injuries or physical sickness;''.
    (b) Emotional Distress as Such Treated as Not Physical Injury or 
Physical Sickness.--Section 104(a) is amended by striking the last 
sentence and inserting the following new sentence: ``For purposes of 
paragraph (2), emotional distress shall not be treated as a physical 
injury or physical sickness. The preceding sentence shall not apply to 
an amount of damages not in excess of the amount paid for medical care 
(described in subparagraph (A) or (B) of section 213(d)(1)) 
attributable to emotional distress.''.
    (c) Special Rule for States in Which Only Punitive Damages May Be 
Awarded in Wrongful Death Actions.--Section 104 is amended by 
redesignating subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Restriction on Punitive Damages Not to Apply in Certain 
Cases.--The restriction on the application of subsection (a)(2) to 
punitive damages shall not apply to punitive damages awarded in a civil 
action--
            ``(1) which is a wrongful death action, and
            ``(2) with respect to which applicable State law (as in 
        effect on September 13, 1995 and without regard to any 
        modification after such date) provides, or has been construed 
        to provide by a court of competent jurisdiction pursuant to a 
        decision issued on or before September 13, 1995, that only 
        punitive damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed on or 
after the first date on which the applicable State law ceases to 
provide (or is no longer construed to provide) the treatment described 
in paragraph (2).''
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to amounts received 
        after June 30, 1996, in taxable years ending after such date.
            (2) Exception.--The amendments made by this section shall 
        not apply to any amount received under a written binding 
        agreement, court decree, or mediation award in effect on (or 
        issued on or before) September 13, 1995.

SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF DIESEL-
              POWERED AUTOMOBILES AND LIGHT TRUCKS.

    (a) In General.--Section 6427 (relating to fuels not used for 
taxable purposes) is amended by striking subsection (g).
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 34(a) is amended to read as 
        follows:
            ``(3) under section 6427 with respect to fuels used for 
        nontaxable purposes or resold during the taxable year 
        (determined without regard to section 6427(k)).''.
            (2) Paragraphs (1) and (2)(A) of section 6427(i) are each 
        amended--
                    (A) by striking ``(g),'', and
                    (B) by striking ``(or a qualified diesel powered 
                highway vehicle purchased)'' each place it appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to vehicles purchased after the date of the enactment of this 
Act.

                   Subtitle G--Technical Corrections

SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

    For purposes of applying the amendments made by any subtitle of 
this title other than this subtitle, the provisions of this subtitle 
shall be treated as having been enacted immediately before the 
provisions of such other subtitles.

SEC. 1702. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1990.

    (a) Amendments Related to Subtitle A.--
            (1) Subparagraph (B) of section 59(j)(3) is amended by 
        striking ``section 1(i)(3)(B)'' and inserting ``section 
        1(g)(3)(B)''.
            (2) Clause (i) of section 151(d)(3)(C) is amended by 
        striking ``joint of a return'' and inserting ``joint return''.
    (b) Amendments Related to Subtitle B.--
            (1) Paragraph (1) of section 11212(e) of the Revenue 
        Reconciliation Act of 1990 is amended by striking ``Paragraph 
        (1) of section 6724(d)'' and inserting ``Subparagraph (B) of 
        section 6724(d)(1)''.
            (2)(A) Subparagraph (B) of section 4093(c)(2), as in effect 
        before the amendments made by the Revenue Reconciliation Act of 
        1993, is amended by inserting before the period ``unless such 
        fuel is sold for exclusive use by a State or any political 
        subdivision thereof''.
            (B) Paragraph (4) of section 6427(l), as in effect before 
        the amendments made by the Revenue Reconciliation Act of 1993, 
        is amended by inserting before the period ``unless such fuel 
        was used by a State or any political subdivision thereof''.
            (3) Paragraph (1) of section 6416(b) is amended by striking 
        ``chapter 32 or by section 4051'' and inserting ``chapter 31 or 
        32''.
            (4) Section 7012 is amended--
                    (A) by striking ``production or importation of 
                gasoline'' in paragraph (3) and inserting ``taxes on 
                gasoline and diesel fuel'', and
                    (B) by striking paragraph (4) and redesignating 
                paragraphs (5) and (6) as paragraphs (4) and (5), 
                respectively.
            (5) Subsection (c) of section 5041 is amended by striking 
        paragraph (6) and by inserting the following new paragraphs:
            ``(6) Credit for transferee in bond.--If--
                    ``(A) wine produced by any person would be eligible 
                for any credit under paragraph (1) if removed by such 
                person during the calendar year,
                    ``(B) wine produced by such person is removed 
                during such calendar year by any other person 
                (hereafter in this paragraph referred to as the 
                `transferee') to whom such wine was transferred in bond 
                and who is liable for the tax imposed by this section 
                with respect to such wine, and
                    ``(C) such producer holds title to such wine at the 
                time of its removal and provides to the transferee such 
                information as is necessary to properly determine the 
                transferee's credit under this paragraph,
        then, the transferee (and not the producer) shall be allowed 
        the credit under paragraph (1) which would be allowed to the 
        producer if the wine removed by the transferee had been removed 
        by the producer on that date.
            ``(7) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection, including regulations--
                    ``(A) to prevent the credit provided in this 
                subsection from benefiting any person who produces more 
                than 250,000 wine gallons during a calendar year, and
                    ``(B) to assure proper reduction of such credit for 
                persons producing more than 150,000 wine gallons of 
                wine during a calendar year.''
            (6) Paragraph (3) of section 5061(b) is amended to read as 
        follows:
            ``(3) section 5041(f),''.
            (7) Section 5354 is amended by inserting ``(taking into 
        account the appropriate amount of credit with respect to such 
        wine under section 5041(c))'' after ``any one time''.
    (c) Amendments Related to Subtitle C.--
            (1) Paragraph (4) of section 56(g) is amended by 
        redesignating subparagraphs (I) and (J) as subparagraphs (H) 
        and (I), respectively.
            (2) Subparagraph (B) of section 6724(d)(1) is amended--
                    (A) by striking ``or'' at the end of clause (xii), 
                and
                    (B) by striking the period at the end of clause 
                (xiii) and inserting ``, or''.
            (3) Subsection (g) of section 6302 is amended by inserting 
        ``, 22,'' after ``chapters 21''.
            (4) The earnings and profits of any insurance company to 
        which section 11305(c)(3) of the Revenue Reconciliation Act of 
        1990 applies shall be determined without regard to any 
        deduction allowed under such section; except that, for purposes 
        of applying sections 56 and 902, and subpart F of part III of 
        subchapter N of chapter 1 of the Internal Revenue Code of 1986, 
        such deduction shall be taken into account.
            (5) Subparagraph (D) of section 6038A(e)(4) is amended--
                    (A) by striking ``any transaction to which the 
                summons relates'' and inserting ``any affected taxable 
                year'', and
                    (B) by adding at the end thereof the following new 
                sentence: ``For purposes of this subparagraph, the term 
                `affected taxable year' means any taxable year if the 
                determination of the amount of tax imposed for such 
                taxable year is affected by the treatment of the 
                transaction to which the summons relates.''.
            (6) Subparagraph (A) of section 6621(c)(2) is amended by 
        adding at the end thereof the following new flush sentence:
                ``The preceding sentence shall be applied without 
                regard to any such letter or notice which is withdrawn 
                by the Secretary.''.
            (7) Clause (i) of section 6621(c)(2)(B) is amended by 
        striking ``this subtitle'' and inserting ``this title''.
    (d) Amendments Related to Subtitle D.--
            (1) Notwithstanding section 11402(c) of the Revenue 
        Reconciliation Act of 1990, the amendment made by section 
        11402(b)(1) of such Act shall apply to taxable years ending 
        after December 31, 1989.
            (2) Clause (ii) of section 143(m)(4)(C) is amended--
                    (A) by striking ``any month of the 10-year period'' 
                and inserting ``any year of the 4-year period'',
                    (B) by striking ``succeeding months'' and inserting 
                ``succeeding years'', and
                    (C) by striking ``over the remainder of such period 
                (or, if lesser, 5 years)'' and inserting ``to zero over 
                the succeeding 5 years''.
    (e) Amendments Related to Subtitle E.--
            (1)(A) Clause (ii) of section 56(d)(1)(B) is amended to 
        read as follows:
                            ``(ii) appropriate adjustments in the 
                        application of section 172(b)(2) shall be made 
                        to take into account the limitation of 
                        subparagraph (A).''
            (B) For purposes of applying sections 56(g)(1) and 56(g)(3) 
        of the Internal Revenue Code of 1986 with respect to taxable 
        years beginning in 1991 and 1992, the reference in such 
        sections to the alternative tax net operating loss deduction 
        shall be treated as including a reference to the deduction 
        under section 56(h) of such Code as in effect before the 
        amendments made by section 1915 of the Energy Policy Act of 
        1992.
            (2) Clause (i) of section 613A(c)(3)(A) is amended by 
        striking ``the table contained in''.
            (3) Section 6501 is amended--
                    (A) by striking subsection (m) (relating to 
                deficiency attributable to election under section 44B) 
                and by redesignating subsections (n) and (o) as 
                subsections (m) and (n), respectively, and
                    (B) by striking ``section 40(f) or 51(j)'' in 
                subsection (m) (as redesignated by subparagraph (A)) 
                and inserting ``section 40(f), 43, or 51(j)''.
            (4) Subparagraph (C) of section 38(c)(2) (as in effect on 
        the day before the date of the enactment of the Revenue 
        Reconciliation Act of 1990) is amended by inserting before the 
        period at the end of the first sentence the following: ``and 
        without regard to the deduction under section 56(h)''.
            (5) The amendment made by section 1913(b)(2)(C)(i) of the 
        Energy Policy Act of 1992 shall apply to taxable years 
        beginning after December 31, 1990.
    (f) Amendments Related to Subtitle F.--
            (1)(A) Section 2701(a)(3) is amended by adding at the end 
        thereof the following new subparagraph:
                    ``(C) Valuation of qualified payments where no 
                liquidation, etc. rights.--In the case of an applicable 
                retained interest which is described in subparagraph 
                (B)(i) but not subparagraph (B)(ii), the value of the 
                distribution right shall be determined without regard 
                to this section.''
            (B) Section 2701(a)(3)(B) is amended by inserting 
        ``certain'' before ``qualified'' in the heading thereof.
            (C) Sections 2701 (d)(1) and (d)(4) are each amended by 
        striking ``subsection (a)(3)(B)'' and inserting ``subsection 
        (a)(3) (B) or (C)''.
            (2) Clause (i) of section 2701(a)(4)(B) is amended by 
        inserting ``(or, to the extent provided in regulations, the 
        rights as to either income or capital)'' after ``income and 
        capital''.
            (3)(A) Section 2701(b)(2) is amended by adding at the end 
        thereof the following new subparagraph:
                    ``(C) Applicable family member.--For purposes of 
                this subsection, the term `applicable family member' 
includes any lineal descendant of any parent of the transferor or the 
transferor's spouse.''
            (B) Section 2701(e)(3) is amended--
                    (i) by striking subparagraph (B), and
                    (ii) by striking so much of paragraph (3) as 
                precedes ``shall be treated as holding'' and inserting:
            ``(3) Attribution of indirect holdings and transfers.--An 
        individual''.
            (C) Section 2704(c)(3) is amended by striking ``section 
        2701(e)(3)(A)'' and inserting ``section 2701(e)(3)''.
            (4) Clause (i) of section 2701(c)(1)(B) is amended to read 
        as follows:
                            ``(i) a right to distributions with respect 
                        to any interest which is junior to the rights 
                        of the transferred interest,''.
            (5)(A) Clause (i) of section 2701(c)(3)(C) is amended to 
        read as follows:
                            ``(i) In general.--Payments under any 
                        interest held by a transferor which (without 
                        regard to this subparagraph) are qualified 
                        payments shall be treated as qualified payments 
                        unless the transferor elects not to treat such 
                        payments as qualified payments. Payments 
                        described in the preceding sentence which are 
                        held by an applicable family member shall be 
                        treated as qualified payments only if such 
                        member elects to treat such payments as 
                        qualified payments.''
            (B) The first sentence of section 2701(c)(3)(C)(ii) is 
        amended to read as follows: ``A transferor or applicable family 
        member holding any distribution right which (without regard to 
        this subparagraph) is not a qualified payment may elect to 
        treat such right as a qualified payment, to be paid in the 
        amounts and at the times specified in such election.''.
            (C) The time for making an election under the second 
        sentence of section 2701(c)(3)(C)(i) of the Internal Revenue 
        Code of 1986 (as amended by subparagraph (A)) shall not expire 
        before the due date (including extensions) for filing the 
        transferor's return of the tax imposed by section 2501 of such 
        Code for the first calendar year ending after the date of 
        enactment.
            (6) Section 2701(d)(3)(A)(iii) is amended by striking ``the 
        period ending on the date of''.
            (7) Subclause (I) of section 2701(d)(3)(B)(ii) is amended 
        by inserting ``or the exclusion under section 2503(b),'' after 
        ``section 2523,''.
            (8) Section 2701(e)(5) is amended--
                    (A) by striking ``such contribution to capital or 
                such redemption, recapitalization, or other change'' in 
                subparagraph (A) and inserting ``such transaction'', 
                and
                    (B) by striking ``the transfer'' in subparagraph 
                (B) and inserting ``such transaction''.
            (9) Section 2701(d)(4) is amended by adding at the end 
        thereof the following new subparagraph:
                    ``(C) Transfer to transferors.--In the case of a 
                taxable event described in paragraph (3)(A)(ii) 
                involving a transfer of an applicable retained interest 
                from an applicable family member to a transferor, this 
                subsection shall continue to apply to the transferor 
                during any period the transferor holds such interest.''
            (10) Section 2701(e)(6) is amended by inserting ``or to 
        reflect the application of subsection (d)'' before the period 
        at the end thereof.
            (11)(A) Section 2702(a)(3)(A) is amended--
                    (i) by striking ``to the extent'' and inserting 
                ``if'' in clause (i),
                    (ii) by striking ``or'' at the end of clause (i),
                    (iii) by striking the period at the end of clause 
                (ii) and inserting ``, or'', and
                    (iv) by adding at the end thereof the following new 
                clause:
                            ``(iii) to the extent that regulations 
                        provide that such transfer is not inconsistent 
                        with the purposes of this section.''
            (B)(i) Section 2702(a)(3) is amended by striking 
        ``incomplete transfer'' each place it appears and inserting 
        ``incomplete gift''.
            (ii) The heading for section 2702(a)(3)(B) is amended by 
        striking ``Incomplete transfer'' and inserting ``Incomplete 
        gift''.
    (g) Amendments Related to Subtitle G.--
            (1)(A) Subsection (a) of section 1248 is amended--
                    (i) by striking ``, or if a United States person 
                receives a distribution from a foreign corporation 
                which, under section 302 or 331, is treated as an 
                exchange of stock'' in paragraph (1), and
                    (ii) by adding at the end thereof the following new 
                sentence: ``For purposes of this section, a United 
                States person shall be treated as having sold or 
                exchanged any stock if, under any provision of this 
                subtitle, such person is treated as realizing gain from 
                the sale or exchange of such stock.''.
            (B) Paragraph (1) of section 1248(e) is amended by striking 
        ``, or receives a distribution from a domestic corporation 
        which, under section 302 or 331, is treated as an exchange of 
        stock''.
            (C) Subparagraph (B) of section 1248(f)(1) is amended by 
        striking ``or 361(c)(1)'' and inserting ``355(c)(1), or 
        361(c)(1)''.
            (D) Paragraph (1) of section 1248(i) is amended to read as 
        follows:
            ``(1) In general.--If any shareholder of a 10-percent 
        corporate shareholder of a foreign corporation exchanges stock 
        of the 10-percent corporate shareholder for stock of the 
        foreign corporation, such 10-percent corporate shareholder 
        shall recognize gain in the same manner as if the stock of the 
        foreign corporation received in such exchange had been--
                    ``(A) issued to the 10-percent corporate 
                shareholder, and
                    ``(B) then distributed by the 10-percent corporate 
                shareholder to such shareholder in redemption or 
                liquidation (whichever is appropriate).
        The amount of gain recognized by such 10-percent corporate 
        shareholder under the preceding sentence shall not exceed the 
        amount treated as a dividend under this section.''
            (2) Section 897 is amended by striking subsection (f).
            (3) Paragraph (13) of section 4975(d) is amended by 
        striking ``section 408(b)'' and inserting ``section 
        408(b)(12)''.
            (4) Clause (iii) of section 56(g)(4)(D) is amended by 
        inserting ``, but only with respect to taxable years beginning 
        after December 31, 1989'' before the period at the end thereof.
            (5)(A) Paragraph (11) of section 11701(a) of the Revenue 
        Reconciliation Act of 1990 (and the amendment made by such 
        paragraph) are hereby repealed, and section 7108(r)(2) of the 
        Revenue Reconciliation Act of 1989 shall be applied as if such 
        paragraph (and amendment) had never been enacted.
            (B) Subparagraph (A) shall not apply to any building if the 
        owner of such building establishes to the satisfaction of the 
        Secretary of the Treasury or his delegate that such owner 
        reasonably relied on the amendment made by such paragraph (11).
    (h) Amendments Related to Subtitle H.--
            (1)(A) Clause (vi) of section 168(e)(3)(B) is amended by 
        striking ``or'' at the end of subclause (I), by striking the 
        period at the end of subclause (II) and inserting ``, or'', and 
        by adding at the end thereof the following new subclause:
                                    ``(III) is described in section 
                                48(l)(3)(A)(ix) (as in effect on the 
                                day before the date of the enactment of 
                                the Revenue Reconciliation Act of 
                                1990).''
            (B) Subparagraph (B) of section 168(e)(3) (relating to 5-
        year property) is amended by adding at the end the following 
        flush sentence:
                ``Nothing in any provision of law shall be construed to 
                treat property as not being described in clause (vi)(I) 
                (or the corresponding provisions of prior law) by 
                reason of being public utility property (within the 
                meaning of section 48(a)(3)).''
            (C) Subparagraph (K) of section 168(g)(4) is amended by 
        striking ``section 48(a)(3)(A)(iii)'' and inserting ``section 
        48(l)(3)(A)(ix) (as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1990)''.
            (2) Clause (ii) of section 172(b)(1)(E) is amended by 
        striking ``subsection (m)'' and inserting ``subsection (h)''.
            (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and 
        832(b)(5)(D)(ii)(II) are each amended by striking ``243(b)(5)'' 
        and inserting ``243(b)(2)''.
            (4) Subparagraph (A) of section 243(b)(3) is amended by 
        inserting ``of'' after ``In the case''.
            (5) The subsection heading for subsection (a) of section 
        280F is amended by striking ``Investment Tax Credit and''.
            (6) Clause (i) of section 1504(c)(2)(B) is amended by 
        inserting ``section'' before ``243(b)(2)''.
            (7) Paragraph (3) of section 341(f) is amended by striking 
        ``351, 361, 371(a), or 374(a)'' and inserting ``351, or 361''.
            (8) Paragraph (2) of section 243(b) is amended to read as 
        follows:
            ``(2) Affiliated group.--For purposes of this subsection:
                    ``(A) In general.--The term `affiliated group' has 
                the meaning given such term by section 1504(a), except 
                that for such purposes sections 1504(b)(2), 1504(b)(4), 
                and 1504(c) shall not apply.
                    ``(B) Group must be consistent in foreign tax 
                treatment.--The requirements of paragraph (1)(A) shall 
                not be treated as being met with respect to any 
                dividend received by a corporation if, for any taxable 
                year which includes the day on which such dividend is 
                received--
                            ``(i) 1 or more members of the affiliated 
                        group referred to in paragraph (1)(A) choose to 
                        any extent to take the benefits of section 901, 
                        and
                            ``(ii) 1 or more other members of such 
                        group claim to any extent a deduction for taxes 
                        otherwise creditable under section 901.''
            (9) The amendment made by section 11813(b)(17) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if the 
        material stricken by such amendment included the closing 
        parenthesis after ``section 48(a)(5)''.
            (10) Paragraph (1) of section 179(d) is amended by striking 
        ``in a trade or business'' and inserting ``a trade or 
        business''.
            (11) Subparagraph (E) of section 50(a)(2) is amended by 
        striking ``section 48(a)(5)(A)'' and inserting ``section 
        48(a)(5)''.
            (12) The amendment made by section 11801(c)(9)(G)(ii) of 
        the Revenue Reconciliation Act of 1990 shall be applied as if 
        it struck ``Section 422A(c)(2)'' and inserted ``Section 
        422(c)(2)''.
            (13) Subparagraph (B) of section 424(c)(3) is amended by 
        striking ``a qualified stock option, an incentive stock option, 
        an option granted under an employee stock purchase plan, or a 
        restricted stock option'' and inserting ``an incentive stock 
        option or an option granted under an employee stock purchase 
        plan''.
            (14) Subparagraph (E) of section 1367(a)(2) is amended by 
        striking ``section 613A(c)(13)(B)'' and inserting ``section 
        613A(c)(11)(B)''.
            (15) Subparagraph (B) of section 460(e)(6) is amended by 
        striking ``section 167(k)'' and inserting ``section 
        168(e)(2)(A)(ii)''.
            (16) Subparagraph (C) of section 172(h)(4) is amended by 
        striking ``subsection (b)(1)(M)'' and inserting ``subsection 
        (b)(1)(E)''.
            (17) Section 6503 is amended--
                    (A) by redesignating the subsection relating to 
                extension in case of certain summonses as subsection 
                (j), and
                    (B) by redesignating the subsection relating to 
                cross references as subsection (k).
            (18) Paragraph (4) of section 1250(e) is hereby repealed.
    (i) Effective Date.--Except as otherwise expressly provided--
            (1) the amendments made by this section shall be treated as 
        amendments to the Internal Revenue Code of 1986 as amended by 
        the Revenue Reconciliation Act of 1993; and
            (2) any amendment made by this section shall apply to 
        periods before the date of the enactment of this section in the 
        same manner as if it had been included in the provision of the 
        Revenue Reconciliation Act of 1990 to which such amendment 
        relates.

SEC. 1703. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1993.

    (a) Amendment Related to Section 13114.--Paragraph (2) of section 
1044(c) is amended to read as follows:
            ``(2) Purchase.--The taxpayer shall be considered to have 
        purchased any property if, but for subsection (d), the 
        unadjusted basis of such property would be its cost within the 
        meaning of section 1012.''
    (b) Amendments Related to Section 13142.--
            (1) Subparagraph (B) of section 13142(b)(6) of the Revenue 
        Reconciliation Act of 1993 is amended to read as follows:
                    ``(B) Full-time students, waiver authority, and 
                prohibited discrimination.--The amendments made by 
                paragraphs (2), (3), and (4) shall take effect on the 
                date of the enactment of this Act.''
            (2) Subparagraph (C) of section 13142(b)(6) of such Act is 
        amended by striking ``paragraph (2)'' and inserting ``paragraph 
        (5)''.
    (c) Amendment Related to Section 13161.--
            (1) In general.--Subsection (e) of section 4001 (relating 
        to inflation adjustment) is amended to read as follows:
    ``(e) Inflation Adjustment.--
            ``(1) In general.--The $30,000 amount in subsection (a) and 
        section 4003(a) shall be increased by an amount equal to--
                    ``(A) $30,000, multiplied by
                    ``(B) the cost-of-living adjustment under section 
                1(f)(3) for the calendar year in which the vehicle is 
                sold, determined by substituting `calendar year 1990' 
                for `calendar year 1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $2,000, such amount shall be rounded 
        to the next lowest multiple of $2,000.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
    (d) Amendment Related to Section 13201.--Clause (ii) of section 
135(b)(2)(B) is amended by inserting before the period at the end 
thereof the following: ``, determined by substituting `calendar year 
1989' for `calendar year 1992' in subparagraph (B) thereof''.
    (e) Amendments Related to Section 13203.--Subsection (a) of section 
59 is amended--
            (1) by striking ``the amount determined under section 
        55(b)(1)(A)'' in paragraph (1)(A) and (2)(A)(i) and inserting 
        ``the pre-credit tentative minimum tax'',
            (2) by striking ``specified in section 55(b)(1)(A)'' in 
        paragraph (1)(C) and inserting ``specified in subparagraph 
        (A)(i) or (B)(i) of section 55(b)(1) (whichever applies)'',
            (3) by striking ``which would be determined under section 
        55(b)(1)(A)'' in paragraph (2)(A)(ii) and inserting ``which 
        would be the pre-credit tentative minimum tax'', and
            (4) by adding at the end thereof the following new 
        paragraph:
            ``(3) Pre-credit tentative minimum tax.--For purposes of 
        this subsection, the term `pre-credit tentative minimum tax' 
        means--
                    ``(A) in the case of a taxpayer other than a 
                corporation, the amount determined under the first 
                sentence of section 55(b)(1)(A)(i), or
                    ``(B) in the case of a corporation, the amount 
                determined under section 55(b)(1)(B)(i).''
    (f) Amendment Related to Section 13221.--Sections 1201(a) and 
1561(a) are each amended by striking ``last sentence'' each place it 
appears and inserting ``last 2 sentences''.
    (g) Amendments Related to Section 13222.--
            (1) Subparagraph (B) of section 6033(e)(1) is amended by 
        adding at the end thereof the following new clause:
                            ``(iii) Coordination with section 527(f).--
                        This subsection shall not apply to any amount 
                        on which tax is imposed by reason of section 
                        527(f).''.
            (2) Clause (i) of section 6033(e)(1)(B) is amended by 
        striking ``this subtitle'' and inserting ``section 501''.
    (h) Amendment Related to Section 13225.--Paragraph (3) of section 
6655(g) is amended by striking all that follows ```3rd month''' in the 
sentence following subparagraph (C) and inserting ``, subsection 
(e)(2)(A) shall be applied by substituting `2 months' for `3 months' in 
clause (i)(I), the election under clause (i) of subsection (e)(2)(C) 
may be made separately for each installment, and clause (ii) of 
subsection (e)(2)(C) shall not apply.''.
    (i) Amendments Related to Section 13231.--
            (1) Subparagraph (G) of section 904(d)(3) is amended by 
        striking ``section 951(a)(1)(B)'' and inserting ``subparagraph 
        (B) or (C) of section 951(a)(1)''.
            (2) Paragraph (1) of section 956A(b) is amended to read as 
        follows:
            ``(1) the amount (not including a deficit) referred to in 
        section 316(a)(1) to the extent such amount was accumulated in 
        prior taxable years beginning after September 30, 1993, and''.
            (3) Subsection (f) of section 956A is amended by inserting 
        before the period at the end thereof: ``and regulations 
        coordinating the provisions of subsections (c)(3)(A) and (d)''.
            (4) Subsection (b) of section 958 is amended by striking 
        ``956(b)(2)'' each place it appears and inserting 
        ``956(c)(2)''.
            (5)(A) Subparagraph (A) of section 1297(d)(2) is amended by 
        striking ``The adjusted basis of any asset'' and inserting 
        ``The amount taken into account under section 1296(a)(2) with 
        respect to any asset''.
            (B) The paragraph heading of paragraph (2) of section 
        1297(d) is amended to read as follows:
            ``(2) Amount taken into account.--''.
            (6) Subsection (e) of section 1297 is amended by inserting 
        ``For purposes of this part--'' after the subsection heading.
    (j) Amendment Related to Section 13241.--Subparagraph (B) of 
section 40(e)(1) is amended to read as follows:
                    ``(B) for any period before January 1, 2001, during 
                which the rates of tax under section 4081(a)(2)(A) are 
                4.3 cents per gallon.''
    (k) Amendment Related to Section 13261.--Clause (iii) of section 
13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by 
striking ``by the taxpayer'' and inserting ``by the taxpayer or a 
related person''.
    (l) Amendment Related to Section 13301.--Subparagraph (B) of 
section 1397B(d)(5) is amended by striking ``preceding''.
    (m) Clerical Amendments.--
            (1) Subsection (d) of section 39 is amended--
                    (A) by striking ``45'' in the heading of paragraph 
                (5) and inserting ``45A'', and
                    (B) by striking ``45'' in the heading of paragraph 
                (6) and inserting ``45B''.
            (2) Subparagraph (A) of section 108(d)(9) is amended by 
        striking ``paragraph (3)(B)'' and inserting ``paragraph 
        (3)(C)''.
            (3) Subparagraph (C) of section 143(d)(2) is amended by 
        striking the period at the end thereof and inserting a comma.
            (4) Clause (ii) of section 163(j)(6)(E) is amended by 
        striking ``which is a'' and inserting ``which is''.
            (5) Subparagraph (A) of section 1017(b)(4) is amended by 
        striking ``subsection (b)(2)(D)'' and inserting ``subsection 
        (b)(2)(E)''.
            (6) So much of section 1245(a)(3) as precedes subparagraph 
        (A) thereof is amended to read as follows:
            ``(3) Section 1245 property.--For purposes of this section, 
        the term `section 1245 property' means any property which is or 
        has been property of a character subject to the allowance for 
        depreciation provided in section 167 and is either--''.
            (7) Paragraph (2) of section 1394(e) is amended--
                    (A) by striking ``(i)'' and inserting ``(A)'', and
                    (B) by striking ``(ii)'' and inserting ``(B)''.
            (8) Subsection (m) of section 6501 (as redesignated by 
        section 1602) is amended by striking ``or 51(j)'' and inserting 
        ``45B, or 51(j)''.
            (9)(A) The section 6714 added by section 13242(b)(1) of the 
        Revenue Reconciliation Act of 1993 is hereby redesignated as 
        section 6715.
            (B) The table of sections for part I of subchapter B of 
        chapter 68 is amended by striking ``6714'' in the item added by 
        such section 13242(b)(2) of such Act and inserting ``6715''.
            (10) Paragraph (2) of section 9502(b) is amended by 
        inserting ``and before'' after ``1982,''.
            (11) Subsection (a)(3) of section 13206 of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``this 
        section'' and inserting ``this subsection''.
            (12) Paragraph (1) of section 13215(c) of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``Public Law 
        92-21'' and inserting ``Public Law 98-21''.
            (13) Paragraph (2) of section 13311(e) of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``section 
        1393(a)(3)'' and inserting ``section 1393(a)(2)''.
            (14) Subparagraph (B) of section 117(d)(2) is amended by 
        striking ``section 132(f)'' and inserting ``section 132(h)''.
    (n) Effective Date.--Any amendment made by this section shall take 
effect as if included in the provision of the Revenue Reconciliation 
Act of 1993 to which such amendment relates.

SEC. 1704. MISCELLANEOUS PROVISIONS.

    (a) Application of Amendments Made by Title XII of Omnibus Budget 
Reconciliation Act of 1990.--Except as otherwise expressly provided, 
whenever in title XII of the Omnibus Budget Reconciliation Act of 1990 
an amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.
    (b) Treatment of Certain Amounts Under Hedge Bond Rules.--
            (1) Clause (iii) of section 149(g)(3)(B) is amended to read 
        as follows:
                            ``(iii) Amounts held pending reinvestment 
                        or redemption.--Amounts held for not more than 
                        30 days pending reinvestment or bond redemption 
                        shall be treated as invested in bonds described 
                        in clause (i).''
            (2) The amendment made by paragraph (1) shall take effect 
        as if included in the amendments made by section 7651 of the 
        Omnibus Budget Reconciliation Act of 1989.
    (c) Treatment of Certain Distributions Under Section 1445.--
            (1) In general.--Paragraph (3) of section 1445(e) is 
        amended by adding at the end thereof the following new 
        sentence: ``Rules similar to the rules of the preceding 
        provisions of this paragraph shall apply in the case of any 
        distribution to which section 301 applies and which is not made 
        out of the earnings and profits of such a domestic 
        corporation.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to distributions after the date of the enactment of 
        this Act.
    (d) Treatment of Certain Credits Under Section 469.--
            (1) In general.--Subparagraph (B) of section 469(c)(3) is 
        amended by adding at the end thereof the following new 
        sentence: ``If the preceding sentence applies to the net income 
        from any property for any taxable year, any credits allowable 
under subpart B (other than section 27(a)) or D of part IV of 
subchapter A for such taxable year which are attributable to such 
property shall be treated as credits not from a passive activity to the 
extent the amount of such credits does not exceed the regular tax 
liability of the taxpayer for the taxable year which is allocable to 
such net income.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.
    (e) Treatment of Dispositions Under Passive Loss Rules.--
            (1) In general.--Subparagraph (A) of section 469(g)(1) is 
        amended to read as follows:
                    ``(A) In general.--If all gain or loss realized on 
                such disposition is recognized, the excess of--
                            ``(i) any loss from such activity for such 
                        taxable year (determined after the application 
                        of subsection (b)), over
                            ``(ii) any net income or gain for such 
                        taxable year from all other passive activities 
                        (determined after the application of subsection 
                        (b)),
                shall be treated as a loss which is not from a passive 
                activity.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.
    (f) Miscellaneous Amendments to Foreign Provisions.--
            (1) Coordination of unified estate tax credit with 
        treaties.--Subparagraph (A) of section 2102(c)(3) is amended by 
        adding at the end thereof the following new sentence: ``For 
        purposes of the preceding sentence, property shall not be 
        treated as situated in the United States if such property is 
        exempt from the tax imposed by this subchapter under any treaty 
        obligation of the United States.''
            (2) Treatment of certain interest paid to related person.--
                    (A) Subparagraph (B) of section 163(j)(1) is 
                amended by inserting before the period at the end 
                thereof the following: ``(and clause (ii) of paragraph 
                (2)(A) shall not apply for purposes of applying this 
                subsection to the amount so treated)''.
                    (B) Subsection (j) of section 163 is amended by 
                redesignating paragraph (7) as paragraph (8) and by 
                inserting after paragraph (6) the following new 
                paragraph:
            ``(7) Coordination with passive loss rules, etc.--This 
        subsection shall be applied before sections 465 and 469.''
                    (C) The amendments made by this paragraph shall 
                apply as if included in the amendments made by section 
                7210(a) of the Revenue Reconciliation Act of 1989.
            (3) Treatment of interest allocable to effectively 
        connected income.--
                    (A) In general.--
                            (i) Subparagraph (B) of section 884(f)(1) 
                        is amended by striking ``to the extent'' and 
                        all that follows down through ``subparagraph 
                        (A)'' and inserting ``to the extent that the 
                        allocable interest exceeds the interest 
                        described in subparagraph (A)''.
                            (ii) The second sentence of section 
                        884(f)(1) is amended by striking ``reasonably 
                        expected'' and all that follows down through 
                        the period at the end thereof and inserting 
                        ``reasonably expected to be allocable 
                        interest.''
                            (iii) Paragraph (2) of section 884(f) is 
                        amended to read as follows:
            ``(2) Allocable interest.--For purposes of this subsection, 
        the term `allocable interest' means any interest which is 
        allocable to income which is effectively connected (or treated 
        as effectively connected) with the conduct of a trade or 
        business in the United States.''
                    (B) Effective date.--The amendments made by 
                subparagraph (A) shall take effect as if included in 
                the amendments made by section 1241(a) of the Tax 
                Reform Act of 1986.
            (4) Clarification of source rule.--
                    (A) In general.--Paragraph (2) of section 865(b) is 
                amended by striking ``863(b)'' and inserting ``863''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall take effect as if included in 
                the amendments made by section 1211 of the Tax Reform 
                Act of 1986.
            (5) Repeal of obsolete provisions.--
                    (A) Paragraph (1) of section 6038(a) is amended by 
                striking ``, and'' at the end of subparagraph (E) and 
                inserting a period, and by striking subparagraph (F).
                    (B) Subsection (b) of section 6038A is amended by 
                adding ``and'' at the end of paragraph (2), by striking 
                ``, and'' at the end of paragraph (3) and inserting a 
                period, and by striking paragraph (4).
    (g) Treatment of Assignment of Interest in Certain Bond-Financed 
Facilities.--
            (1) In general.--Subparagraph (A) of section 1317(3) of the 
        Tax Reform Act of 1986 is amended by adding at the end thereof 
        the following new sentence: ``A facility shall not fail to be 
        treated as described in this subparagraph by reason of an 
        assignment (or an agreement to an assignment) by the 
        governmental unit on whose behalf the bonds are issued of any 
        part of its interest in the property financed by such bonds to 
        another governmental unit.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in such section 1317 on the 
        date of the enactment of the Tax Reform Act of 1986.
    (h) Clarification of Treatment of Medicare Entitlement Under COBRA 
Provisions.--
            (1) In general.--
                    (A) Subclause (V) of section 4980B(f)(2)(B)(i) is 
                amended to read as follows:
                                    ``(V) Medicare entitlement followed 
                                by qualifying event.--In the case of a 
                                qualifying event described in paragraph 
                                (3)(B) that occurs less than 18 months 
                                after the date the covered employee 
                                became entitled to benefits under title 
                                XVIII of the Social Security Act, the 
                                period of coverage for qualified 
                                beneficiaries other than the covered 
                                employee shall not terminate under this 
                                clause before the close of the 36-month 
                                period beginning on the date the 
                                covered employee became so entitled.''
                    (B) Clause (v) of section 602(2)(A) of the Employee 
                Retirement Income Security Act of 1974 is amended to 
                read as follows:
                            ``(v) Medicare entitlement followed by 
                        qualifying event.--In the case of a qualifying 
                        event described in section 603(2) that occurs 
                        less than 18 months after the date the covered 
                        employee became entitled to benefits under 
                        title XVIII of the Social Security Act, the 
                        period of coverage for qualified beneficiaries 
                        other than the covered employee shall not 
                        terminate under this subparagraph before the 
                        close of the 36-month period beginning on the 
                        date the covered employee became so entitled.''
                    (C) Clause (iv) of section 2202(2)(A) of the Public 
                Health Service Act is amended to read as follows:
                            ``(iv) Medicare entitlement followed by 
                        qualifying event.--In the case of a qualifying 
                        event described in section 2203(2) that occurs 
                        less than 18 months after the date the covered 
                        employee became entitled to benefits under 
                        title XVIII of the Social Security Act, the 
                        period of coverage for qualified beneficiaries 
                        other than the covered employee shall not 
                        terminate under this subparagraph before the 
                        close of the 36-month period beginning on the 
                        date the covered employee became so entitled.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to plan years beginning after December 31, 1989.
    (i) Treatment of Certain REMIC Inclusions.--
            (1) In general.--Subsection (a) of section 860E is amended 
        by adding at the end thereof the following new paragraph:
            ``(6) Coordination with minimum tax.--For purposes of part 
        VI of subchapter A of this chapter--
                    ``(A) the reference in section 55(b)(2) to taxable 
                income shall be treated as a reference to taxable 
                income determined without regard to this subsection,
                    ``(B) the alternative minimum taxable income of any 
                holder of a residual interest in a REMIC for any 
                taxable year shall in no event be less than the excess 
                inclusion for such taxable year, and
                    ``(C) any excess inclusion shall be disregarded for 
                purposes of computing the alternative tax net operating 
                loss deduction.
        The preceding sentence shall not apply to any organization to 
        which section 593 applies, except to the extent provided in 
        regulations prescribed by the Secretary under paragraph (2).''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 671 of the Tax Reform Act of 1986 unless the taxpayer 
        elects to apply such amendment only to taxable years beginning 
        after the date of the enactment of this Act.
    (j) Exemption From Harbor Maintenance Tax for Certain Passengers.--
            (1) In general.--Subparagraph (D) of section 4462(b)(1) 
        (relating to special rule for Alaska, Hawaii, and possessions) 
        is amended by inserting before the period the following: ``, or 
        passengers transported on United States flag vessels operating 
        solely within the State waters of Alaska or Hawaii and adjacent 
        international waters''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1402(a) of the Harbor Maintenance Revenue Act of 1986.
    (k) Amendments Related to Revenue Provisions of Energy Policy Act 
of 1992.--
            (1) Effective with respect to taxable years beginning after 
        December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is 
        amended to read as follows:
                                    ``(II) the adjusted net minimum tax 
                                for any taxable year is the amount of 
                                the net minimum tax for such year 
                                increased in the manner provided in 
                                clause (iii).''
            (2) Subsection (g) of section 179A is redesignated as 
        subsection (f).
            (3) Subparagraph (E) of section 6724(d)(3) is amended by 
        striking ``section 6109(f)'' and inserting ``section 6109(h)''.
            (4)(A) Subsection (d) of section 30 is amended--
                    (i) by inserting ``(determined without regard to 
                subsection (b)(3))'' before the period at the end of 
                paragraph (1) thereof, and
                    (ii) by adding at the end thereof the following new 
                paragraph:
            ``(4) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.''
            (B) Subsection (m) of section 6501 (as redesignated by 
        section 1602) is amended by striking ``section 40(f)'' and 
        inserting ``section 30(d)(4), 40(f)''.
            (5) Subclause (III) of section 501(c)(21)(D)(ii) is amended 
        by striking ``section 101(6)'' and inserting ``section 101(7)'' 
        and by striking ``1752(6)'' and inserting ``1752(7)''.
            (6) Paragraph (1) of section 1917(b) of the Energy Policy 
        Act of 1992 shall be applied as if ``at a rate'' appeared 
        instead of ``at the rate'' in the material proposed to be 
        stricken.
            (7) Paragraph (2) of section 1921(b) of the Energy Policy 
        Act of 1992 shall be applied as if a comma appeared after 
        ``(2)'' in the material proposed to be stricken.
            (8) Subsection (a) of section 1937 of the Energy Policy Act 
        of 1992 shall be applied as if ``Subpart B'' appeared instead 
        of ``Subpart C''.
    (l) Treatment of Qualified Football Coaches Plan.--
            (1) In general.--Subparagraph (F) of section 3(37) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(37)(F)) is amended by redesignating clause (ii) as clause 
        (iii) and by inserting after clause (i) the following new 
        clause:
                    ``(ii) For purposes of the Internal Revenue Code of 
                1986--
                            ``(I) clause (i) shall apply, and
                            ``(II) a qualified football coaches plan 
                        shall be treated as a multiemployer 
                        collectively bargained plan.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to years beginning after December 22, 1987.
    (m) Determination of Unrecovered Investment in Annuity Contract.--
            (1) In general.--Subparagraph (A) of section 72(b)(4) is 
        amended by inserting ``(determined without regard to subsection 
        (c)(2))'' after ``contract''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1122(c) of the Tax Reform Act of 1986.
    (n) Modifications to Election To Include Child's Income on Parent's 
Return.--
            (1) Eligibility for election.--Clause (ii) of section 
        1(g)(7)(A) (relating to election to include certain unearned 
        income of child on parent's return) is amended to read as 
        follows:
                            ``(ii) such gross income is more than the 
                        amount described in paragraph (4)(A)(ii)(I) and 
                        less than 10 times the amount so described,''.
            (2) Computation of tax.--Subparagraph (B) of section 
        1(g)(7) (relating to income included on parent's return) is 
        amended--
                    (A) by striking ``$1,000'' in clause (i) and 
                inserting ``twice the amount described in paragraph 
                (4)(A)(ii)(I)'', and
                    (B) by amending subclause (II) of clause (ii) to 
                read as follows:
                                    ``(II) for each such child, 15 
                                percent of the lesser of the amount 
                                described in paragraph (4)(A)(ii)(I) or 
                                the excess of the gross income of such 
                                child over the amount so described, 
                                and''.
            (3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is 
        amended by striking ``$1,000'' and inserting ``twice the amount 
        in effect for the taxable year under section 63(c)(5)(A)''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1995.
    (o) Treatment of Certain Veterans' Reemployment Rights.--
            (1) In general.--Section 414 is amended by adding at the 
        end the following new subsection:
    ``(u) Special Rules Relating to Veterans' Reemployment Rights Under 
USERRA.--
            ``(1) Treatment of certain contributions made pursuant to 
        veterans' reemployment rights.--If any contribution is made by 
        an employer or an employee under an individual account plan 
        with respect to an employee, or by an employee to a defined 
        benefit plan that provides for employee contributions, and such 
        contribution is required by reason of such employee's rights 
        under chapter 43 of title 38, United States Code, resulting 
        from qualified military service, then--
                    ``(A) such contribution shall not be subject to any 
                otherwise applicable limitation contained in section 
                402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 
                457, and shall not be taken into account in applying 
                such limitations to other contributions or benefits 
                under such plan or any other plan, with respect to the 
                year in which the contribution is made,
                    ``(B) such contribution shall be subject to the 
                limitations referred to in subparagraph (A) with 
                respect to the year to which the contribution relates 
                (in accordance with rules prescribed by the Secretary), 
                and
                    ``(C) such plan shall not be treated as failing to 
                meet the requirements of section 401(a)(4), 401(a)(26), 
                401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 
                408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason 
                of the making of (or the right to make) such 
                contribution.
        For purposes of the preceding sentence, any elective deferral 
        or employee contribution made under paragraph (2) shall be 
        treated as required by reason of the employee's rights under 
        such chapter 43.
            ``(2) Reemployment rights under userra with respect to 
        elective deferrals.--
                    ``(A) In general.--For purposes of this subchapter 
                and section 457, if an employee is entitled to the 
                benefits of chapter 43 of title 38, United States Code, 
                with respect to any plan which provides for elective 
                deferrals, the employer sponsoring the plan shall be 
                treated as meeting the requirements of such chapter 43 
                with respect to such elective deferrals only if such 
                employer--
                            ``(i) permits such employee to make 
                        additional elective deferrals under such plan 
                        (in the amount determined under subparagraph 
                        (B) or such lesser amount as is elected by the 
employee) during the period which begins on the date of the 
reemployment of such employee with such employer and has the same 
length as the lesser of--
                                    ``(I) the product of 3 and the 
                                period of qualified military service 
                                which resulted in such rights, and
                                    ``(II) 5 years, and
                            ``(ii) makes a matching contribution with 
                        respect to any additional elective deferral 
                        made pursuant to clause (i) which would have 
                        been required had such deferral actually been 
                        made during the period of such qualified 
                        military service.
                    ``(B) Amount of makeup required.--The amount 
                determined under this subparagraph with respect to any 
                plan is the maximum amount of the elective deferrals 
                that the individual would have been permitted to make 
                under the plan in accordance with the limitations 
                referred to in paragraph (1)(A) during the period of 
                qualified military service if the individual had 
                continued to be employed by the employer during such 
                period and received compensation as determined under 
                paragraph (7). Proper adjustment shall be made to the 
                amount determined under the preceding sentence for any 
                elective deferrals actually made during the period of 
                such qualified military service.
                    ``(C) Elective deferral.--For purposes of this 
                paragraph, the term `elective deferral' has the meaning 
                given such term by section 402(g)(3); except that such 
                term shall include any deferral of compensation under 
                an eligible deferred compensation plan (as defined in 
                section 457(b)).
                    ``(D) After-tax employee contributions.--References 
                in subparagraphs (A) and (B) to elective deferrals 
                shall be treated as including references to employee 
                contributions.
            ``(3) Certain retroactive adjustments not required.--For 
        purposes of this subchapter and subchapter E, no provision of 
        chapter 43 of title 38, United States Code, shall be construed 
        as requiring--
                    ``(A) any crediting of earnings to an employee with 
                respect to any contribution before such contribution is 
                actually made, or
                    ``(B) any allocation of any forfeiture with respect 
                to the period of qualified military service.
            ``(4) Loan repayment suspensions permitted.--If any plan 
        suspends the obligation to repay any loan made to an employee 
        from such plan for any part of any period during which such 
        employee is performing service in the uniformed services (as 
        defined in chapter 43 of title 38, United States Code), whether 
        or not qualified military service, such suspension shall not be 
        taken into account for purposes of section 72(p), 401(a), or 
        4975(d)(1).
            ``(5) Qualified military service.--For purposes of this 
        subsection, the term `qualified military service' means any 
        service in the uniformed services (as defined in chapter 43 of 
        title 38, United States Code) by any individual if such 
        individual is entitled to reemployment rights under such 
        chapter with respect to such service.
            ``(6) Individual account plan.--For purposes of this 
        subsection, the term `individual account plan' means any 
        defined contribution plan (including any tax-sheltered annuity 
        plan under section 403(b), any simplified employee pension 
        under section 408(k), any qualified salary reduction 
        arrangement under section 408(p), and any eligible deferred 
        compensation plan (as defined in section 457(b)).
            ``(7) Compensation.--For purposes of sections 403(b)(3), 
        415(c)(3), and 457(e)(5), an employee who is in qualified 
        military service shall be treated as receiving compensation 
        from the employer during such period of qualified military 
        service equal to--
                    ``(A) the compensation the employee would have 
                received during such period if the employee were not in 
                qualified military service, determined based on the 
                rate of pay the employee would have received from the 
                employer but for absence during the period of qualified 
                military service, or
                    ``(B) if the compensation the employee would have 
                received during such period was not reasonably certain, 
                the employee's average compensation from the employer 
                during the 12-month period immediately preceding the 
                qualified military service (or, if shorter, the period 
                of employment immediately preceding the qualified 
                military service).
            ``(8) USERRA requirements for qualified retirement plans.--
        For purposes of this subchapter and section 457, an employer 
        sponsoring a retirement plan shall be treated as meeting the 
        requirements of chapter 43 of title 38, United States Code, 
        only if each of the following requirements is met:
                    ``(A) An individual reemployed under such chapter 
                is treated with respect to such plan as not having 
                incurred a break in service with the employer 
                maintaining the plan by reason of such individual's 
                period of qualified military service.
                    ``(B) Each period of qualified military service 
                served by an individual is, upon reemployment under 
                such chapter, deemed with respect to such plan to 
                constitute service with the employer maintaining the 
                plan for the purpose of determining the 
                nonforfeitability of the individual's accrued benefits 
                under such plan and for the purpose of determining the 
                accrual of benefits under such plan.
                    ``(C) An individual reemployed under such chapter 
                is entitled to accrued benefits that are contingent on 
                the making of, or derived from, employee contributions 
                or elective deferrals only to the extent the individual 
                makes payment to the plan with respect to such 
                contributions or deferrals. No such payment may exceed 
                the amount the individual would have been permitted or 
                required to contribute had the individual remained 
                continuously employed by the employer throughout the 
                period of qualified military service. Any payment to 
                such plan shall be made during the period beginning 
                with the date of reemployment and whose duration is 3 
                times the period of the qualified military service (but 
                not greater than 5 years).
            ``(9) Plans not subject to title 38.--This subsection shall 
        not apply to any retirement plan to which chapter 43 of title 
        38, United States Code, does not apply.
            ``(10) References.--For purposes of this section, any 
        reference to chapter 43 of title 38, United States Code, shall 
        be treated as a reference to such chapter as in effect on 
        December 12, 1994 (without regard to any subsequent 
        amendment).''
            (2) Effective date.--The amendment made by this subsection 
        shall be effective as of December 12, 1994.
    (p) Reporting of Real Estate Transactions.--
            (1) In general.--Paragraph (3) of section 6045(e) (relating 
        to prohibition of separate charge for filing return) is amended 
        by adding at the end the following new sentence: ``Nothing in 
        this paragraph shall be construed to prohibit the real estate 
        reporting person from taking into account its cost of complying 
        with such requirement in establishing its charge (other than a 
        separate charge for complying with such requirement) to any 
        customer for performing services in the case of a real estate 
        transaction.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in section 1015(e)(2)(A) of 
        the Technical and Miscellaneous Revenue Act of 1988.
    (q) Clarification of Denial of Deduction for Stock Redemption 
Expenses.
            (1) In general.--Paragraph (1) of section 162(k) is amended 
        by striking ``the redemption of its stock'' and inserting ``the 
        reacquisition of its stock or of the stock of any related 
        person (as defined in section 465(b)(3)(C))''.
            (2) Certain deductions permitted.--Subparagraph (A) of 
        section 162(k)(2) is amended by striking ``or'' at the end of 
        clause (i), by redesignating clause (ii) as clause (iii), and 
        by inserting after clause (i) the following new clause:
                            ``(ii) deduction for amounts which are 
                        properly allocable to indebtedness and 
                        amortized over the term of such indebtedness, 
                        or''.
            (3) Clerical amendment.--The subsection heading for 
        subsection (k) of section 162 is amended by striking 
        ``Redemption'' and inserting ``Reacquisition''.
            (4) Effective date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to amounts paid or incurred after September 13, 1995, 
                in taxable years ending after such date.
                    (B) Paragraph (2).--The amendment made by paragraph 
                (2) shall take effect as if included in the amendment 
                made by section 613 of the Tax Reform Act of 1986.
    (r) Clerical Amendment to Section 404.--
            (1) In general.--Paragraph (1) of section 404(j) is amended 
        by striking ``(10)'' and inserting ``(9)''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 713(d)(4)(A) of the Deficit Reduction Act of 1984.
    (s) Passive Income Not To Include FSC Income, Etc.--
            (1) In general.--Paragraph (2) of section 1296(b) is 
        amended by striking ``or'' at the end of subparagraph (B), by 
        striking the period at the end of subparagraph (C) and 
        inserting ``, or'', and by inserting after subparagraph (C) the 
        following new subparagraph:
                    ``(D) which is foreign trade income of a FSC or 
                export trade income of an export trade corporation (as 
                defined in section 971).''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1235 of the Tax Reform Act of 1986.
    (t) Miscellaneous Clerical Amendments.--
            (1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by 
        striking ``of the subclause'' and inserting ``of subclause''.
            (2) Paragraph (2) of section 72(m) is amended by inserting 
        ``and'' at the end of subparagraph (A), by striking 
        subparagraph (B), and by redesignating subparagraph (C) as 
        subparagraph (B).
            (3) Paragraph (2) of section 86(b) is amended by striking 
        ``adusted'' and inserting ``adjusted''.
            (4)(A) The heading for section 112 is amended by striking 
        ``combat pay'' and inserting ``combat zone compensation''.
            (B) The item relating to section 112 in the table of 
        sections for part III of subchapter B of chapter 1 is amended 
        by striking ``combat pay'' and inserting ``combat zone 
        compensation''.
            (C) Paragraph (1) of section 3401(a) is amended by striking 
        ``combat pay'' and inserting ``combat zone compensation''.
            (5) Clause (i) of section 172(h)(3)(B) is amended by 
        striking the comma at the end thereof and inserting a period.
            (6) Clause (ii) of section 543(a)(2)(B) is amended by 
        striking ``section 563(c)'' and inserting ``section 563(d)''.
            (7) Paragraph (1) of section 958(a) is amended by striking 
        ``sections 955(b)(1) (A) and (B), 955(c)(2)(A)(ii), and 
        960(a)(1)'' and inserting ``section 960(a)(1)''.
            (8) Subsection (g) of section 642 is amended by striking 
        ``under 2621(a)(2)'' and inserting ``under section 
        2621(a)(2)''.
            (9) Section 1463 is amended by striking ``this subsection'' 
        and inserting ``this section''.
            (10) Subsection (k) of section 3306 is amended by inserting 
        a period at the end thereof.
            (11) The item relating to section 4472 in the table of 
        sections for subchapter B of chapter 36 is amended by striking 
        ``and special rules''.
            (12) Paragraph (2) of section 4978(b) is amended by 
        striking the period at the end of subparagraph (A) and 
        inserting a comma, and by striking the period and quotation 
        marks at the end of subparagraph (B) and inserting a comma.
            (13) Paragraph (3) of section 5134(c) is amended by 
        striking ``section 6662(a)'' and inserting ``section 6665(a)''.
            (14) Paragraph (2) of section 5206(f) is amended by 
        striking ``section 5(e)'' and inserting ``section 105(e)''.
            (15) Paragraph (1) of section 6050B(c) is amended by 
        striking ``section 85(c)'' and inserting ``section 85(b)''.
            (16) Subsection (k) of section 6166 is amended by striking 
        paragraph (6).
            (17) Subsection (e) of section 6214 is amended to read as 
        follows:
    ``(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).''
            (18) The section heading for section 6043 is amended by 
        striking the semicolon and inserting a comma.
            (19) The item relating to section 6043 in the table of 
        sections for subpart B of part III of subchapter A of chapter 
        61 is amended by striking the semicolon and inserting a comma.
            (20) The table of sections for part I of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662.
            (21)(A) Section 7232 is amended--
                    (i) by striking ``lubricating oil,'' in the 
                heading, and
                    (ii) by striking ``lubricating oil,'' in the text.
            (B) The table of sections for part II of subchapter A of 
        chapter 75 is amended by striking ``lubricating oil,'' in the 
        item relating to section 7232.
            (22) Paragraph (1) of section 6701(a) of the Omnibus Budget 
        Reconciliation Act of 1989 is amended by striking ``subclause 
        (IV)'' and inserting ``subclause (V)''.
            (23) Clause (ii) of section 7304(a)(2)(D) of such Act is 
        amended by striking ``subsection (c)(2)'' and inserting 
        ``subsection (c)''.
            (24) Paragraph (1) of section 7646(b) of such Act is 
        amended by striking ``section 6050H(b)(1)'' and inserting 
        ``section 6050H(b)(2)''.
            (25) Paragraph (10) of section 7721(c) of such Act is 
        amended by striking ``section 6662(b)(2)(C)(ii)'' and inserting 
        ``section 6661(b)(2)(C)(ii)''.
            (26) Subparagraph (A) of section 7811(i)(3) of such Act is 
        amended by inserting ``the first place it appears'' before ``in 
        clause (i)''.
            (27) Paragraph (10) of section 7841(d) of such Act is 
        amended by striking ``section 381(a)'' and inserting ``section 
        381(c)''.
            (28) Paragraph (2) of section 7861(c) of such Act is 
        amended by inserting ``the second place it appears'' before 
        ``and inserting''.
            (29) Paragraph (1) of section 460(b) is amended by striking 
        ``the look-back method of paragraph (3)'' and inserting ``the 
        look-back method of paragraph (2)''.
            (30) Subparagraph (C) of section 50(a)(2) is amended by 
        striking ``subsection (c)(4)'' and inserting ``subsection 
        (d)(5)''.
            (31) Subparagraph (B) of section 172(h)(4) is amended by 
        striking the material following the heading and preceding 
        clause (i) and inserting ``For purposes of subsection (b)(2)--
        ''.
            (32) Subparagraph (A) of section 355(d)(7) is amended by 
        inserting ``section'' before ``267(b)''.
            (33) Subparagraph (C) of section 420(e)(1) is amended by 
        striking ``mean'' and inserting ``means''.
            (34) Paragraph (4) of section 537(b) is amended by striking 
        ``section 172(i)'' and inserting ``section 172(f)''.
            (35) Subparagraph (B) of section 613(e)(1) is amended by 
        striking the comma at the end thereof and inserting a period.
            (36) Paragraph (4) of section 856(a) is amended by striking 
        ``section 582(c)(5)'' and inserting ``section 582(c)(2)''.
            (37) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are 
        each amended by inserting ``(as in effect on the day before the 
        date of the enactment of the Revenue Reconciliation Act of 
        1990)'' after ``section 172(h)''.
            (38) Subsection (b) of section 936 is amended by striking 
        ``subparagraphs (D)(ii)(I)'' and inserting ``subparagraphs 
        (D)(ii)''.
            (39) Subsection (c) of section 2104 is amended by striking 
        ``subparagraph (A), (C), or (D) of section 861(a)(1)'' and 
        inserting ``section 861(a)(1)(A)''.
            (40) Subparagraph (A) of section 280A(c)(1) is amended to 
        read as follows:
                    ``(A) as the principal place of business for any 
                trade or business of the taxpayer,''.
            (41) Section 6038 is amended by redesignating the 
        subsection relating to cross references as subsection (f).
            (42) Clause (iv) of section 6103(e)(1)(A) is amended by 
        striking all that follows ``provisions of'' and inserting 
        ``section 1(g) or 59(j);''.
            (43) The subsection (f) of section 6109 of the Internal 
        Revenue Code of 1986 which was added by section 2201(d) of 
        Public Law 101-624 is redesignated as subsection (g).
            (44) Subsection (b) of section 7454 is amended by striking 
        ``section 4955(e)(2)'' and inserting ``section 4955(f)(2)''.
            (45) Subsection (d) of section 11231 of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``comma'' 
        appeared instead of ``period'' and as if the paragraph (9) 
        proposed to be added ended with a comma.
            (46) Paragraph (1) of section 11303(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``paragraph'' 
        appeared instead of ``subparagraph'' in the material proposed 
        to be stricken.
            (47) Subsection (f) of section 11701 of the Revenue 
        Reconciliation Act of 1990 is amended by inserting ``(relating 
        to definitions)'' after ``section 6038(e)''.
            (48) Subsection (i) of section 11701 of the Revenue 
        Reconciliation Act of 1990 shall be applied as if 
        ``subsection'' appeared instead of ``section'' in the material 
        proposed to be stricken.
            (49) Subparagraph (B) of section 11801(c)(2) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``section 
        56(g)'' appeared instead of ``section 59(g)''.
            (50) Subparagraph (C) of section 11801(c)(8) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if 
        ``reorganizations'' appeared instead of ``reorganization'' in 
        the material proposed to be stricken.
            (51) Subparagraph (H) of section 11801(c)(9) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``section 
        1042(c)(1)(B)'' appeared instead of ``section 1042(c)(2)(B)''.
            (52) Subparagraph (F) of section 11801(c)(12) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if ``and 
        (3)'' appeared instead of ``and (E)''.
            (53) Subparagraph (A) of section 11801(c)(22) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if 
        ``chapters 21'' appeared instead of ``chapter 21'' in the 
        material proposed to be stricken.
            (54) Paragraph (3) of section 11812(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied by not executing 
        the amendment therein to the heading of section 42(d)(5)(B).
            (55) Clause (i) of section 11813(b)(9)(A) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if a comma 
        appeared after ``(3)(A)(ix)'' in the material proposed to be 
        stricken.
            (56) Subparagraph (F) of section 11813(b)(13) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if 
        ``tax'' appeared after ``investment'' in the material proposed 
        to be stricken.
            (57) Paragraph (19) of section 11813(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``Paragraph 
        (20) of section 1016(a), as redesignated by section 11801,'' 
        appeared instead of ``Paragraph (21) of section 1016(a)''.
            (58) Paragraph (5) section 8002(a) of the Surface 
        Transportation Revenue Act of 1991 shall be applied as if 
        ``4481(e)'' appeared instead of ``4481(c)''.
            (59) Section 7872 is amended--
                    (A) by striking ``foregone'' each place it appears 
                in subsections (a) and (e)(2) and inserting 
                ``forgone'', and
                    (B) by striking ``Foregone'' in the heading for 
                subsection (e) and the heading for paragraph (2) of 
                subsection (e) and inserting ``Forgone''.
            (60) Paragraph (7) of section 7611(h) is amended by 
        striking ``approporiate'' and inserting ``appropriate''.
            (61) The heading of paragraph (3) of section 419A(c) is 
        amended by striking ``severence'' and inserting ``severance''.
            (62) Clause (ii) of section 807(d)(3)(B) is amended by 
        striking ``Commissoners' '' and inserting ``Commissioners' ''.
            (63) Subparagraph (B) of section 1274A(c)(1) is amended by 
        striking ``instument'' and inserting ``instrument''.
            (64) Subparagraph (B) of section 724(d)(3) by striking 
        ``Subparagaph'' and inserting ``Subparagraph''.
            (65) The last sentence of paragraph (2) of section 42(c) is 
        amended by striking ``of 1988''.
            (66) Paragraph (1) of section 9707(d) is amended by 
        striking ``diligence,'' and inserting ``diligence''.
            (67) Subsection (c) of section 4977 is amended by striking 
        ``section 132(i)(2)'' and inserting ``section 132(h)''.
            (68) The last sentence of section 401(a)(20) is amended by 
        striking ``section 211'' and inserting ``section 521''.
            (69) Subparagraph (A) of section 402(g)(3) is amended by 
        striking ``subsection (a)(8)'' and inserting ``subsection 
        (e)(3)''.
            (70) The last sentence of section 403(b)(10) is amended by 
        striking ``an direct'' and inserting ``a direct''.
            (71) Subparagraph (A) of section 4973(b)(1) is amended by 
        striking ``sections 402(c)'' and inserting ``section 402(c)''.
            (72) Paragraph (12) of section 3405(e) is amended by 
        striking ``(b)(3)'' and inserting ``(b)(2)''.
            (73) Paragraph (41) of section 521(b) of the Unemployment 
        Compensation Amendments of 1992 shall be applied as if 
        ``section'' appeared instead of ``sections'' in the material 
        proposed to be stricken.
            (74) Paragraph (27) of section 521(b) of the Unemployment 
        Compensation Amendments of 1992 shall be applied as if 
        ``Section 691(c)(5)'' appeared instead of ``Section 691(c)''.
            (75) Paragraph (5) of section 860F(a) is amended by 
        striking ``paragraph (1)'' and inserting ``paragraph (2)''.
            (76) Paragraph (1) of section 415(k) is amended by adding 
        ``or'' at the end of subparagraph (C), by striking 
        subparagraphs (D) and (E), and by redesignating subparagraph 
        (F) as subparagraph (D).
            (77) Paragraph (2) of section 404(a) is amended by striking 
        ``(18),''.
            (78) Clause (ii) of section 72(p)(4)(A) is amended to read 
        as follows:
                            ``(ii) Special rule.--The term `qualified 
                        employer plan' shall not include any plan which 
                        was (or was determined to be) a qualified 
                        employer plan or a government plan.''
            (79) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each 
        amended by striking ``section 6662(d)(2)(C)(ii)'' and inserting 
        ``section 6662(d)(2)(C)(iii)''.
            (80) Subsection (a) of section 164 is amended by striking 
        the paragraphs relating to the generation-skipping tax and the 
        environmental tax imposed by section 59A and by inserting after 
        paragraph (3) the following new paragraphs:
            ``(4) The GST tax imposed on income distributions.
            ``(5) The environmental tax imposed by section 59A.''
                                 <all>
```