Union Calendar No. 290

104TH CONGRESS

2D SESSION H. R. 3448

[Report No. 104–586]

A BILL

To provide tax relief for small businesses, to protect

home pay of workers, and for other purposes.jobs, to create opportunities, to increase the take

MAY 20, 1996

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 290

104TH CONGRESS

2D SESSION H. R. 3448

[Report No. 104–586]

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

MAY 20, 1996

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on May 14, 1996]

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

4 (b) TABLE OF CONTENTS.—

TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.

Sec. 1102. Underpayments of estimated tax.

Subtitle A—Expensing; Etc.

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

Sec. 1112. Treatment of employee tips.

Sec. 1113. Treatment of storage of product samples.

Sec. 1114. Treatment of certain charitable risk pools.

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

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

Subtitle B—Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.

Sec. 1202. Employer-provided educational assistance programs.

Sec. 1203. FUTA exemption for alien agricultural workers.

Subtitle C—Provisions Relating to S Corporations

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

Sec. 1302. Electing small business trusts.

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

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

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

Sec. 1306. Agreement to terminate year.

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

Sec. 1308. S corporations permitted to hold subsidiaries.

Sec. 1309. Treatment of distributions during loss years.

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

Sec. 1311. Elimination of certain earnings and profits.

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

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

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

Sec. 1404. Required distributions.

CHAPTER 2—INCREASED ACCESS TO PENSION PLANS

SUBCHAPTER A—SIMPLE SAVINGS PLANS

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

employers.

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

SUBCHAPTER B—OTHER PROVISIONS

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

CHAPTER 3—NONDISCRIMINATION PROVISIONS

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

Sec. 1432. Modification of additional participation requirements.

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

and matching contributions.

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

CHAPTER 4—MISCELLANEOUS PROVISIONS

Sec. 1441. Plans covering self-employed individuals.

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

Sec. 1443. Distributions under rural cooperative plans.

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

Sec. 1445. Uniform retirement age.

Sec. 1446. Contributions on behalf of disabled employees.

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

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

governments.

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

limitations.

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

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

before annuity starting date.

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

Sec. 1453. Tax on prohibited transactions.

Sec. 1454. Treatment of leased employees.

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

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.
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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.

1 TITLE I—SMALL BUSINESS AND

2 OTHER TAX PROVISIONS

3 SEC. 1101. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms of

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

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

8 other provision of the Internal Revenue Code of 1986.

9 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

10 No addition to the tax shall be made under section

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

12 to failure to pay estimated tax) with respect to any under13 payment of an installment required to be paid before the

14 date of the enactment of this Act to the extent such under15 payment was created or increased by any provision of this

16 title.
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1 Subtitle A—Expensing; Etc.

2 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

3 BUSINESSES.

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

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

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

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

8 for any taxable year shall not exceed the following ap9 plicable 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.’’

10 (b) EFFECTIVE DATE.—The amendment made by sub11 section (a) shall apply to taxable years beginning after De12 cember 31, 1995.

13 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

14 (a) EMPLOYEE CASH TIPS.—

15 (1) REPORTING REQUIREMENT NOT CONSID16 ERED.—Subparagraph (A) of section 45B(b)(1) (re17 lating to excess employer social security tax) is

18 amended by inserting ‘‘(without regard to whether

19 such tips are reported under section 6053)’’ after ‘‘sec20 tion 3121(q)’’.
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1 (2) TAXES PAID.—Subsection (d) of section

2 13443 of the Revenue Reconciliation Act of 1993 is

3 amended by inserting ‘‘, with respect to services per4 formed before, on, or after such date’’ after ‘‘1993’’.

5 (3) EFFECTIVE DATE.—The amendments made

6 by this subsection shall take effect as if included in

7 the amendments made by, and the provisions of, sec8 tion 13443 of the Revenue Reconciliation Act of 1993.

9 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEV10 ERAGES.—

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

12 45B(b) is amended to read as follows:

13 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV14 ERAGES TAKEN INTO ACCOUNT.—In applying para15 graph (1), there shall be taken into account only tips

16 received from customers in connection with the deliv17 ering or serving of food or beverages for consumption

18 if the tipping of employees delivering or serving food

19 or beverages by customers is customary.’’

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

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

22 performed after December 31, 1996.
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1 SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAM2 PLES.

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

4 is amended by striking ‘‘inventory’’ and inserting ‘‘inven5 tory or product samples’’.

6 (b) EFFECTIVE DATE.—The amendment made by sub7 section (a) shall apply to taxable years beginning after De8 cember 31, 1995.

9 SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK

10 POOLS.

11 (a) GENERAL RULE.—Section 501 (relating to exemp12 tion from tax on corporations, certain trusts, etc.) is

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

14 and by inserting after subsection (m) the following new sub15 section:

16 ‘‘(n) CHARITABLE RISK POOLS.—

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

18 ‘‘(A) a qualified charitable risk pool shall be

19 treated as an organization organized and oper20 ated exclusively for charitable purposes, and

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

22 qualified charitable risk pool.

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

24 purposes of this subsection, the term ‘qualified chari25 table risk pool’ means any organization—
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1 ‘‘(A) which is organized and operated solely

2 to pool insurable risks of its members (other than

3 risks related to medical malpractice) and to pro4 vide information to its members with respect to

5 loss control and risk management,

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

7 that are organizations described in subsection

8 (c)(3) and exempt from tax under subsection (a),

9 and

10 ‘‘(C) which meets the organizational re11 quirements of paragraph (3).

12 ‘‘(3) ORGANIZATIONAL REQUIREMENTS.—An or13 ganization (hereinafter in this subsection referred to

14 as the ‘risk pool’) meets the organizational require15 ments of this paragraph if—

16 ‘‘(A) such risk pool is organized as a non17 profit organization under State law provisions

18 authorizing risk pooling arrangements for chari19 table organizations,

20 ‘‘(B) such risk pool is exempt from any in21 come tax imposed by the State (or will be so ex22 empt after such pool qualifies as an organization

23 exempt from tax under this title),
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1 ‘‘(C) such risk pool has obtained at least

2 $1,000,000 in startup capital from nonmember

3 charitable organizations,

4 ‘‘(D) such risk pool is controlled by a board

5 of directors elected by its members, and

6 ‘‘(E) the organizational documents of such

7 risk pool require that—

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

9 all times be an organization described in

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

11 under subsection (a),

12 ‘‘(ii) any member which receives a

13 final determination that it no longer quali14 fies as an organization described in sub15 section (c)(3) shall immediately notify the

16 pool of such determination and the effective

17 date of such determination, and

18 ‘‘(iii) each policy of insurance issued

19 by the risk pool shall provide that such pol20 icy will not cover the insured with respect

21 to events occurring after the date such final

22 determination was issued to the insured.

23 An organization shall not cease to qualify as a quali24 fied charitable risk pool solely by reason of the failure

25 of any of its members to continue to be an organiza-
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1 tion described in subsection (c)(3) if, within a reason2 able period of time after such pool is notified as re3 quired under subparagraph (C)(ii), such pool takes

4 such action as may be reasonably necessary to remove

5 such member from such pool.

6 ‘‘(4) OTHER DEFINITIONS.—For purposes of this

7 subsection—

8 ‘‘(A) STARTUP CAPITAL.—The term ‘startup

9 capital’ means any capital contributed to, and

10 any program-related investments (within the

11 meaning of section 4944(c)) made in, the risk

12 pool before such pool commences operations.

13 ‘‘(B) NONMEMBER CHARITABLE ORGANIZA14 TION.—The term ‘nonmember charitable organi15 zation’ means any organization which is de16 scribed in subsection (c)(3) and exempt from tax

17 under subsection (a) and which is not a member

18 of the risk pool and does not benefit (directly or

19 indirectly) from the insurance coverage provided

20 by the pool to its members.’’

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall apply to taxable years beginning after the

23 date of the enactment of this Act.
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1 SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL

2 OR HORTICULTURAL ORGANIZATIONS.

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

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

5 thereof the following new subsection:

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

7 HORTICULTURAL ORGANIZATIONS.—

8 ‘‘(1) IN GENERAL.—If—

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

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

12 of such organization, and

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

14 dues does not exceed $100,

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

16 as derived by such organization from an unrelated

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

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

21 of any taxable year beginning in a calendar year

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

23 be increased by an amount equal to—

24 ‘‘(A) $100, multiplied by

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

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

3 subparagraph (B) thereof.

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

5 term ‘dues’ includes any payment required to be

6 made in order to be recognized by the organization as

7 a member of the organization.’’

8 (b) EFFECTIVE DATE.—The amendment made by sub9 section (a) shall apply to taxable years beginning after De10 cember 31, 1994.

11 SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS

12 OF CERTAIN FISHERMEN; INFORMATION RE13 PORTING.

14 (a) CLARIFICATION OF EMPLOYMENT TAX STATUS.—

15 (1) AMENDMENTS OF INTERNAL REVENUE CODE

16 OF 1986.—

17 (A) DETERMINATION OF SIZE OF CREW.—

18 Subsection (b) of section 3121 (defining employ19 ment) is amended by adding at the end thereof

20 the following new sentence:

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

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

23 10 individuals if the average size of the operating crew

24 on trips made during the preceding 4 calendar quarters

25 consisted of fewer than 10 individuals.’’
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1 (B) CERTAIN CASH REMUNERATION PER2 MITTED.—Subparagraph (A) of section

3 3121(b)(20) is amended to read as follows:

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

5 cash remuneration other than as provided in

6 subparagraph (B) and other than cash remu7 neration—

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

9 trip;

10 ‘‘(ii) which is contingent on a mini11 mum catch; and

12 ‘‘(iii) which is paid solely for addi13 tional duties (such as mate, engineer, or

14 cook) for which additional cash remunera15 tion is traditional in the industry,’’.

16 (C) CONFORMING AMENDMENT.—Section

17 6050A(a) is amended by striking ‘‘and’’ at the

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

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

20 and by adding at the end thereof the following

21 new paragraph:

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

23 3121(b)(20)(A).’’

24 (2) AMENDMENT OF SOCIAL SECURITY ACT.—
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1 (A) DETERMINATION OF SIZE OF CREW.—

2 Subsection (a) of section 210 of the Social Secu3 rity Act is amended by adding at the end thereof

4 the following new sentence:

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

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

7 10 individuals if the average size of the operating crew

8 on trips made during the preceding 4 calendar quarters

9 consisted of fewer than 10 individuals.’’

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

12 210(a)(20) of such Act is amended to read as fol13 lows:

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

15 additional compensation other than as provided

16 in subparagraph (B) and other than cash remu17 neration—

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

19 trip;

20 ‘‘(ii) which is contingent on a mini21 mum catch; and

22 ‘‘(iii) which is paid solely for addi23 tional duties (such as mate, engineer, or

24 cook) for which additional cash remunera25 tion is traditional in the industry,’’.
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1 (3) EFFECTIVE DATE.—

2 (A) IN GENERAL.—The amendments made

3 by this subsection shall apply to remuneration

4 paid after December 31, 1996.

5 (B) SPECIAL RULE.—The amendments

6 made by this subsection (other than paragraph

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

8 after December 31, 1984, and before January 1,

9 1997, unless the payor treated such remunera10 tion (when paid) as being subject to tax under

11 chapter 21 of the Internal Revenue Code of 1986.

12 (b) INFORMATION REPORTING.—

13 (1) IN GENERAL.—Subpart B of part III of sub14 chapter A of chapter 68 (relating to information con15 cerning transactions with other persons) is amended

16 by adding at the end the following new section:

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

18 OF FISH.

19 ‘‘(a) REQUIREMENT OF REPORTING.—Every person—

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

21 purchasing fish for resale from any person engaged in

22 the trade or business of catching fish; and

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

24 of such trade or business to such a person of $600 or
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1 more during any calendar year for the purchase of

2 fish,

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

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

5 person to whom such a payment was made during such cal6 endar year.

7 ‘‘(b) RETURN.—A return is described in this subsection

8 if such return—

9 ‘‘(1) is in such form as the Secretary may pre10 scribe, and

11 ‘‘(2) contains—

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

13 person to whom a payment described in sub14 section (a)(2) was made during the calendar

15 year;

16 ‘‘(B) the aggregate amount of such pay17 ments made to such person during such calendar

18 year and the date and amount of each such pay19 ment, and

20 ‘‘(C) such other information as the Sec21 retary may require.

22 ‘‘(c) STATEMENT TO BE FURNISHED WITH RESPECT

23 TO WHOM INFORMATION IS REQUIRED.—Every person re24 quired to make a return under subsection (a) shall furnish
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1 to each person whose name is required to be set forth in

2 such return a written statement showing—

3 ‘‘(1) the name and address of the person required

4 to make such a return, and

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

6 person required to be shown on the return.

7 The written statement required under the preceding sen8 tence shall be furnished to the person on or before January

9 31 of the year following the calendar year for which the

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

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

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

13 given such term by section 6050I(d).

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

15 of aquatic life.’’.

16 (2) TECHNICAL AMENDMENTS.—

17 (A) Subparagraph (A) of section 6724(d)(1)

18 is amended by striking ‘‘or’’ at the end of clause

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

20 and inserting ‘‘or’’, and by adding at the end the

21 following new clause:

22 ‘‘(viii) section 6050Q (relating to re23 turns relating to certain purchases of fish),

24 and’’.
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1 (B) Paragraph (2) of section 6724(d) is

2 amended by redesignating subparagraphs (Q)

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

4 respectively, and by inserting after subparagraph

5 (P) the following new subparagraph:

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

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

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

9 part III of subchapter A of chapter 68 is amend10 ed by adding at the end the following new item:

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

11 (3) EFFECTIVE DATE.—The amendments made

12 by this subsection shall apply to payments made after

13 December 31, 1996.

14 Subtitle B—Extension of Certain

15 Expiring Provisions

16 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

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

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

19 percent’’ and inserting ‘‘35 percent’’.

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

21 of section 51 is amended to read as follows:

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

23 of this subpart—

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

25 of a targeted group if such individual is—
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1 ‘‘(A) a qualified IV–A recipient,

2 ‘‘(B) a qualified veteran,

3 ‘‘(C) a qualified ex-felon,

4 ‘‘(D) a high-risk youth,

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

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

7 ‘‘(2) QUALIFIED IV–A RECIPIENT.—

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

9 A recipient’ means any individual who is cer10 tified by the designated local agency as being a

11 member of a family receiving assistance under a

12 IV–A program for at least a 9-month period end13 ing during the 9-month period ending on the

14 hiring date.

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

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

17 program providing assistance under a State

18 plan approved under part A of title IV of the So19 cial Security Act (relating to assistance for

20 needy families with minor children) and any

21 successor of such program.

22 ‘‘(3) QUALIFIED VETERAN.—

23 ‘‘(A) IN GENERAL.—The term ‘qualified vet24 eran’ means any veteran who is certified by the

25 designated local agency as being—
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1 ‘‘(i) a member of a family receiving as2 sistance under a IV–A program (as defined

3 in paragraph (2)(B)) for at least a 9-month

4 period ending during the 12-month period

5 ending on the hiring date, or

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

7 assistance under a food stamp program

8 under the Food Stamp Act of 1977 for at

9 least a 3-month period ending during the

10 12-month period ending on the hiring date.

11 ‘‘(B) VETERAN.—For purposes of subpara12 graph (A), the term ‘veteran’ means any individ13 ual who is certified by the designated local agen14 cy as—

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

16 (other than active duty for training) in the

17 Armed Forces of the United States for a pe18 riod of more than 180 days, or

19 ‘‘(II) having been discharged or re20 leased from active duty in the Armed Forces

21 of the United States for a service-connected

22 disability, and

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

24 60-day period ending on the hiring date
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1 which was a day of extended active duty in

2 the Armed Forces of the United States.

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

4 active duty’ means a period of more than 90

5 days during which the individual was on active

6 duty (other than active duty for training).

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

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

9 designated local agency—

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

11 under any statute of the United States or any

12 State,

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

14 more than 1 year after the last date on which

15 such individual was so convicted or was released

16 from prison, and

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

18 had an income during the 6 months immediately

19 preceding the earlier of the month in which such

20 income determination occurs or the month in

21 which the hiring date occurs, which, on an an22 nual basis, would be 70 percent or less of the Bu23 reau of Labor Statistics lower living standard.
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1 Any determination under subparagraph (C) shall be

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

3 such determination is made.

4 ‘‘(5) HIGH-RISK YOUTH.—

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

6 youth’ means any individual who is certified by

7 the designated local agency—

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

9 age 25 on the hiring date, and

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

11 abode within an empowerment zone or en12 terprise community.

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

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

15 ‘qualified wages’ shall not include wages paid or

16 incurred for services performed while such

17 youth’s principal place of abode is outside an

18 empowerment zone or enterprise community.

19 ‘‘(6) VOCATIONAL REHABILITATION REFERRAL.—

20 The term ‘vocational rehabilitation referral’ means

21 any individual who is certified by the designated

22 local agency as—

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

24 which, for such individual, constitutes or results

25 in a substantial handicap to employment, and
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1 ‘‘(B) having been referred to the employer

2 upon completion of (or while receiving) rehabili3 tative services pursuant to—

4 ‘‘(i) an individualized written rehabili5 tation plan under a State plan for voca6 tional rehabilitation services approved

7 under the Rehabilitation Act of 1973, or

8 ‘‘(ii) a program of vocational rehabili9 tation carried out under chapter 31 of title

10 38, United States Code.

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

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

13 summer youth employee’ means any individ14 ual—

15 ‘‘(i) who performs services for the em16 ployer between May 1 and September 15,

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

18 local agency as having attained age 16 but

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

20 May 1 of the calendar year involved),

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

22 the employer during any period prior to the

23 90-day period described in subparagraph

24 (B)(i), and
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1 ‘‘(iv) who is certified by the designated

2 local agency as having his principal place

3 of abode within an empowerment zone or

4 enterprise community.

5 ‘‘(B) SPECIAL RULES FOR DETERMINING

6 AMOUNT OF CREDIT.—For purposes of applying

7 this subpart to wages paid or incurred to any

8 qualified summer youth employee—

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

10 by substituting ‘any 90-day period between

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

12 period beginning with the day the individ13 ual begins work for the employer’, and

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

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

16 The preceding sentence shall not apply to an in17 dividual who, with respect to the same employer,

18 is certified as a member of another targeted

19 group after such individual has been a qualified

20 summer youth employee.

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

22 ZONE.—Paragraph (5)(B) shall apply for pur23 poses of this paragraph.
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1 ‘‘(8) HIRING DATE.—The term ‘hiring date’

2 means the day the individual is hired by the em3 ployer.

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

5 ‘designated local agency’ means a State employment

6 security agency established in accordance with the Act

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

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

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

10 be treated as a member of a targeted group un11 less—

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

13 individual begins work for the employer, the

14 employer has received a certification from a

15 designated local agency that such individual

16 is a member of a targeted group, or

17 ‘‘(ii)(I) on or before the day the indi18 vidual is offered employment with the em19 ployer, a pre-screening notice is completed

20 by the employer with respect to such indi21 vidual, and

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

23 the individual begins work for the employer,

24 the employer submits such notice, signed by

25 the employer and the individual under pen-
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1 alties of perjury, to the designated local

2 agency as part of a written request for such

3 a certification from such agency.

4 For purposes of this paragraph, the term ‘pre5 screening notice’ means a document (in such

6 form as the Secretary shall prescribe) which con7 tains information provided by the individual on

8 the basis of which the employer believes that the

9 individual is a member of a targeted group.

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

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

12 a designated local agency as a member of a

13 targeted group, and

14 ‘‘(ii) such certification is incorrect be15 cause it was based on false information pro16 vided by such individual,

17 the certification shall be revoked and wages paid

18 by the employer after the date on which notice

19 of revocation is received by the employer shall

20 not be treated as qualified wages.

21 ‘‘(C) EXPLANATION OF DENIAL OF RE22 QUEST.—If a designated local agency denies a

23 request for certification of membership in a tar24 geted group, such agency shall provide to the per-
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1 son making such request a written explanation

2 of the reasons for such denial.’’

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

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

5 is amended to read as follows:

6 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM7 PLOYMENT PERIOD.—No wages shall be taken into ac8 count under subsection (a) with respect to any indi9 vidual unless such individual either—

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

11 180 days (20 days in the case of a qualified

12 summer youth employee), or

13 ‘‘(B) has completed at least 500 hours (120

14 hours in the case of a qualified summer youth

15 employee) of services performed for the em16 ployer.’’

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

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

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

20 include any amount paid or incurred to an individ21 ual who begins work for the employer—

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

23 July 1, 1996, or

24 ‘‘(B) after June 30, 1997.’’

25 (e) REDESIGNATION OF CREDIT.—
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1 (1) Sections 38(b)(2) and 51(a) are each amend2 ed by striking ‘‘targeted jobs credit’’ and inserting

3 ‘‘work opportunity credit’’.

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

5 of subchapter A of chapter 1 is amended by striking

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

7 Opportunity Credit’’.

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

9 amended by striking ‘‘targeted jobs credit’’ and insert10 ing ‘‘work opportunity credit’’.

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

12 1396(c) is amended by striking ‘‘TARGETED JOBS

13 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED14 IT’’.

15 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec16 tion 51(c) is amended by striking ‘‘, subsection (d)(8)(D),’’.

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

18 section shall apply to individuals who begin work for the

19 employer after June 30, 1996.

20 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST21 ANCE PROGRAMS.

22 (a) EXTENSION.—Subsection (d) of section 127 (relat23 ing to educational assistance programs) is amended by

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

25 1996’’.
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1 (b) LIMITATION TO EDUCATION BELOW GRADUATE

2 LEVEL.—The last sentence of section 127(c)(1) is amended

3 by inserting before the period ‘‘or at the graduate level’’.

4 (c) EFFECTIVE DATES.—

5 (1) EXTENSION.—The amendment made by sub6 section (a) shall apply to taxable years beginning

7 after December 31, 1994.

8 (2) LIMITATION.—The amendment made by sub9 section (b) shall apply to taxable years beginning

10 after December 31, 1995.

11 (3) EXPEDITED PROCEDURES.—The Secretary of

12 the Treasury shall establish expedited procedures for

13 the refund of any overpayment of taxes imposed by

14 chapter 24 of the Internal Revenue Code of 1986

15 which is attributable to amounts excluded from gross

16 income during 1995 or 1996 under section 127 of

17 such Code, including procedures waiving the require18 ment that an employer obtain an employee’s signa19 ture where the employer demonstrates to the satisfac20 tion of the Secretary that any refund collected by the

21 employer on behalf of the employee will be paid to the

22 employee.
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1 SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL

2 WORKERS.

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

4 3306(c)(1) (defining employment) is amended by striking

5 ‘‘before January 1, 1995,’’.

6 (b) EFFECTIVE DATE.—The amendment made by sub7 section (a) shall apply to services performed after December

8 31, 1994.

9 Subtitle C—Provisions Relating to

10 S Corporations

11 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

12 SHAREHOLDERS.

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

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

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

16 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

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

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

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

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

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

25 ‘‘(v) In the case of a trust described in

26 clause (v) of subparagraph (A), each poten-
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1 tial current beneficiary of such trust shall

2 be treated as a shareholder; except that, if

3 for any period there is no potential current

4 beneficiary of such trust, such trust shall be

5 treated as the shareholder during such pe6 riod.’’

7 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

8 Section 1361 (defining S corporation) is amended by add9 ing at the end the following new subsection:

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

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

12 purposes of this section—

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

14 subparagraph (B), the term ‘electing small busi15 ness trust’ means any trust if—

16 ‘‘(i) such trust does not have as a bene17 ficiary any person other than (I) an indi18 vidual, (II) an estate, or (III) an organiza19 tion described in paragraph (2), (3), (4), or

20 (5) of section 170(c) which holds a contin21 gent interest and is not a potential current

22 beneficiary,

23 ‘‘(ii) no interest in such trust was ac24 quired by purchase, and
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1 ‘‘(iii) an election under this subsection

2 applies to such trust.

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

4 term ‘electing small business trust’ shall not in5 clude—

6 ‘‘(i) any qualified subchapter S trust

7 (as defined in subsection (d)(3)) if an elec8 tion under subsection (d)(2) applies to any

9 corporation the stock of which is held by

10 such trust, and

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

12 this subtitle.

13 ‘‘(C) PURCHASE.—For purposes of subpara14 graph (A), the term ‘purchase’ means any acqui15 sition if the basis of the property acquired is de16 termined under section 1012.

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

18 purposes of this section, the term ‘potential current

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

20 person who at any time during such period is entitled

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

22 distribution from the principal or income of the trust.

23 If a trust disposes of all of the stock which it holds

24 in an S corporation, then, with respect to such cor25 poration, the term ‘potential current beneficiary’ does
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1 not include any person who first met the requirements

2 of the preceding sentence during the 60-day period

3 ending on the date of such disposition.

4 ‘‘(3) ELECTION.—An election under this sub5 section shall be made by the trustee. Any such election

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

7 made and all subsequent taxable years of such trust

8 unless revoked with the consent of the Secretary.

9 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’

10 (d) TAXATION OF ELECTING SMALL BUSINESS

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

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

13 subsection:

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

15 SMALL BUSINESS TRUSTS.—

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

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

20 S corporations shall be treated as a separate

21 trust, and

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

23 chapter on such separate trust shall be deter24 mined with the modifications of paragraph (2).
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1 ‘‘(2) MODIFICATIONS.—For purposes of para2 graph (1), the modifications of this paragraph are the

3 following:

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

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

6 be determined by using the highest rate of tax set

7 forth in section 1(e).

8 ‘‘(B) The exemption amount under section

9 55(d) shall be zero.

10 ‘‘(C) The only items of income, loss, deduc11 tion, or credit to be taken into account are the

12 following:

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

14 into account under section 1366.

15 ‘‘(ii) Any gain or loss from the disposi16 tion of stock in an S corporation.

17 ‘‘(iii) To the extent provided in regula18 tions, State or local income taxes or admin19 istrative expenses to the extent allocable to

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

21 No deduction or credit shall be allowed for any

22 amount not described in this paragraph, and no

23 item described in this paragraph shall be appor24 tioned to any beneficiary.
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1 ‘‘(D) No amount shall be allowed under

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

3 ‘‘(3) TREATMENT OF REMAINDER OF TRUST AND

4 DISTRIBUTIONS.—For purposes of determining—

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

6 chapter on the portion of any electing small

7 business trust not treated as a separate trust

8 under paragraph (1), and

9 ‘‘(B) the distributable net income of the en10 tire trust,

11 the items referred to in paragraph (2)(C) shall be ex12 cluded. Except as provided in the preceding sentence,

13 this subsection shall not affect the taxation of any dis14 tribution from the trust.

15 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

16 WHERE TERMINATION OF SEPARATE TRUST.—If a

17 portion of an electing small business trust ceases to

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

19 any carryover or excess deduction of the separate

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

21 taken into account by the entire trust.

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

23 purposes of this subsection, the term ‘electing small

24 business trust’ has the meaning given such term by

25 section 1361(e)(1).’’
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1 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec2 tion 1366(a) is amended by inserting ‘‘, or of a trust or

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

4 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

5 FOR CERTAIN TRUSTS.

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

7 certain trusts permitted as shareholders) is amended—

8 (1) by striking ‘‘60-day period’’ each place it ap9 pears in clauses (ii) and (iii) and inserting ‘‘2-year

10 period’’, and

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

12 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

13 SAFE HARBOR DEBT.

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

15 debt) is amended by striking ‘‘or a trust described in para16 graph (2)’’ and inserting ‘‘a trust described in paragraph

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

18 in the business of lending money’’.

19 SEC. 1305. RULES RELATING TO INADVERTENT TERMI20 NATIONS AND INVALID ELECTIONS.

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

22 (relating to inadvertent terminations) is amended to read

23 as follows:

24 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI25 NATIONS.—If—
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1 ‘‘(1) an election under subsection (a) by any cor2 poration—

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

4 for which made (determined without regard to

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

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

7 shareholder consents, or

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

9 or (3) of subsection (d),

10 ‘‘(2) the Secretary determines that the cir11 cumstances resulting in such ineffectiveness or termi12 nation were inadvertent,

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

14 after discovery of the circumstances resulting in such

15 ineffectiveness or termination, steps were taken—

16 ‘‘(A) so that the corporation is a small busi17 ness corporation, or

18 ‘‘(B) to acquire the required shareholder

19 consents, and

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

21 a shareholder in the corporation at any time during

22 the period specified pursuant to this subsection, agrees

23 to make such adjustments (consistent with the treat24 ment of the corporation as an S corporation) as may
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1 be required by the Secretary with respect to such pe2 riod,

3 then, notwithstanding the circumstances resulting in such

4 ineffectiveness or termination, such corporation shall be

5 treated as an S corporation during the period specified by

6 the Secretary.’’

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

8 1362 is amended by adding at the end the following new

9 paragraph:

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

11 ETC., AS TIMELY.—If—

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

13 made for any taxable year (determined without

14 regard to paragraph (3)) after the date pre15 scribed by this subsection for making such elec16 tion for such taxable year or no such election is

17 made for any taxable year, and

18 ‘‘(B) the Secretary determines that there

19 was reasonable cause for the failure to timely

20 make such election,

21 the Secretary may treat such an election as timely

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

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

3 taxable years beginning after December 31, 1982.

4 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

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

6 share) is amended to read as follows:

7 ‘‘(2) ELECTION TO TERMINATE YEAR.—

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

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

14 be applied to the affected shareholders as if the

15 taxable year consisted of 2 taxable years the first

16 of which ends on the date of the termination.

17 ‘‘(B) AFFECTED SHAREHOLDERS.—For

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

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

21 such shareholder has transferred shares during

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

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

2 PERIOD.

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

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

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

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

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

10 date of any determination pursuant to an audit

11 of the taxpayer which follows the termination of

12 the corporation’s election and which adjusts a

13 subchapter S item of income, loss, or deduction

14 of the corporation arising during the S period

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

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

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

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

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

22 1313(a), or’’.

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

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

3 is hereby repealed.

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

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

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

9 WITH CORPORATE RETURN OR SECRETARY NOTIFIED OF

10 INCONSISTENCY.—

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

13 subchapter S item in a manner which is consistent

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

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

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

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

22 return is (or may be) inconsistent with the

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

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

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

7 ‘‘(B) SHAREHOLDER RECEIVING INCORRECT

8 INFORMATION.—A shareholder shall be treated as

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

11 the shareholder—

12 ‘‘(i) demonstrates to the satisfaction of

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

15 is consistent with the treatment of the item

16 on the schedule furnished to the shareholder

17 by the corporation, and

18 ‘‘(ii) elects to have this paragraph

19 apply with respect to that item.

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

21 case—

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

23 paragraph (2), and

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

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

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

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

7 any assessment referred to in the preceding sentence.

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

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

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

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

14 the shareholder level.

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

16 WITH SECTION.—

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

negligence in connection with, or disregard of, the

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

17 (3) CONFORMING AMENDMENTS.—

18 (A) Section 1366 is amended by striking

19 subsection (g).

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

21 amended to read as follows:

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

2 extent provided in regulations, rules similar to the rules

3 of subsection (a) shall apply.’’

4 (C) The table of subchapters for chapter 63

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

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

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

10 (defining ineligible corporation) is amended by striking

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

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

13 respectively.

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

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

17 following new paragraph:

18 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

19 SUBSIDIARIES.—

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

21 title—

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

23 subchapter S subsidiary shall not be treated

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

2 income, deduction, and credit of a qualified

3 subchapter S subsidiary shall be treated as

4 assets, liabilities, and such items (as the

5 case may be) of the S corporation.

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

8 ‘qualified subchapter S subsidiary’ means any

9 domestic corporation which is not an ineligible

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

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

12 corporation is held by the S corporation,

13 and

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

15 such corporation as a qualified subchapter

16 S subsidiary.

17 ‘‘(C) TREATMENT OF TERMINATIONS OF

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

23 a new corporation acquiring all of its assets

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

2 exchange for its stock.’’

3 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

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

5 amended by adding at the end the following new subpara6 graph:

7 ‘‘(F) TREATMENT OF CERTAIN DIVI8 DENDS.—If an S corporation holds stock in a C

9 corporation meeting the requirements of section

10 1504(a)(2), the term ‘passive investment income’

11 shall not include dividends from such C corpora12 tion to the extent such dividends are attributable

13 to the earnings and profits of such C corporation

14 derived from the active conduct of a trade or

15 business.’’

16 (d) CONFORMING AMENDMENTS.—

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

18 striking paragraph (6).

19 (2) Subsection (b) of section 1504 (defining in20 cludible corporation) is amended by adding at the

21 end the following new paragraph:

22 ‘‘(8) An S corporation.’’
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1 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

2 YEARS.

3 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

4 ACCOUNT BEFORE LOSSES.—

5 (1) Subparagraph (A) of section 1366(d)(1) (re6 lating to losses and deductions cannot exceed share7 holder’s basis in stock and debt) is amended by strik8 ing ‘‘paragraph (1)’’ and inserting ‘‘paragraphs (1)

9 and (2)(A)’’.

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

11 certain adjustments taken into account) is amended

12 by adding at the end the following new sentence:

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

14 year, the adjusted basis of the stock shall be determined with

15 regard to the adjustments provided in paragraph (1) of sec16 tion 1367(a) for the taxable year.’’

17 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para18 graph (1) of section 1368(e) (relating to accumulated ad19 justments account) is amended by adding at the end the

20 following new subparagraph:

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

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

23 to distributions made during any taxable year,

24 the amount in the accumulated adjustments ac25 count as of the close of such taxable year shall
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1 be determined without regard to any net negative

2 adjustment for such taxable year.

3 ‘‘(ii) NET NEGATIVE ADJUSTMENT.—For

4 purposes of clause (i), the term ‘net negative ad5 justment’ means, with respect to any taxable

6 year, the excess (if any) of—

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

8 the taxable year (other than for distribu9 tions), over

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

11 such taxable year.’’

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

13 of section 1368(e)(1) is amended—

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

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

16 paragraph’’, and

17 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in18 serting ‘‘section 1367(a)(2)’’.

19 SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB20 CHAPTER C.

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

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

23 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex24 cept as otherwise provided in this title, and except to the
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1 extent inconsistent with this subchapter, subchapter C shall

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

3 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROF4 ITS.

5 (a) IN GENERAL.—If—

6 (1) a corporation was an electing small business

7 corporation under subchapter S of chapter 1 of the

8 Internal Revenue Code of 1986 for any taxable year

9 beginning before January 1, 1983, and

10 (2) such corporation is an S corporation under

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

12 taxable year beginning after December 31, 1996,

13 the amount of such corporation’s accumulated earnings and

14 profits (as of the beginning of such first taxable year) shall

15 be reduced by an amount equal to the portion (if any) of

16 such accumulated earnings and profits which were accumu17 lated in any taxable year beginning before January 1, 1983,

18 for which such corporation was an electing small business

19 corporation under such subchapter S.

20 (b) CONFORMING AMENDMENTS.—

21 (1) Paragraph (3) of section 1362(d), as amend22 ed by section 1308, is amended—

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

24 paragraph heading and inserting ‘‘ACCUMU25 LATED’’,
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1 (B) by striking ‘‘subchapter C’’ in subpara2 graph (A)(i)(I) and inserting ‘‘accumulated’’,

3 and

4 (C) by striking subparagraph (B) and re5 designating the following subparagraphs accord6 ingly.

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

8 by striking ‘‘subchapter C’’ in paragraph (1) and in9 serting ‘‘accumulated’’.

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

11 to read as follows:

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

13 terms ‘passive investment income’ and ‘gross receipts’

14 have the same respective meanings as when used in

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

16 (C) The section heading for section 1375 is

17 amended by striking ‘‘SUBCHAPTER C’’ and insert18 ing ‘‘ACCUMULATED’’.

19 (D) The table of sections for part III of sub20 chapter S of chapter 1 is amended by striking ‘‘sub21 chapter C’’ in the item relating to section 1375 and

22 inserting ‘‘accumulated’’.

23 (3) Clause (i) of section 1042(c)(4)(A) is amend24 ed by striking ‘‘section 1362(d)(3)(D)’’ and inserting

25 ‘‘section 1362(d)(3)(C)’’.
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1 SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE2 DUCTIONS UNDER AT-RISK RULES ALLOWED.

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

4 of disallowed losses and deductions to post-termination

5 transition period) is amended by adding at the end the fol6 lowing new subparagraph:

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

8 that any increase in adjusted basis described in

9 subparagraph (B) would have increased the

10 shareholder’s amount at risk under section 465 if

11 such increase had occurred on the day preceding

12 the commencement of the post-termination tran13 sition period, rules similar to the rules described

14 in subparagraphs (A) through (C) shall apply to

15 any losses disallowed by reason of section

16 465(a).’’

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

18 TO REFLECT CERTAIN ITEMS OF INCOME.

19 (a) IN GENERAL.—Subsection (b) of section 1367 (re20 lating to adjustments to basis of stock of shareholders, etc.)

21 is amended by adding at the end the following new para22 graph:

23 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

24 STOCK.—

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

26 stock in an S corporation by reason of the death
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1 of a decedent or by bequest, devise, or inherit2 ance, section 691 shall be applied with respect to

3 any item of income of the S corporation in the

4 same manner as if the decedent had held directly

5 his pro rata share of such item.

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

7 determined under section 1014 of any stock in

8 an S corporation shall be reduced by the portion

9 of the value of the stock which is attributable to

10 items constituting income in respect of the dece11 dent.’’

12 (b) EFFECTIVE DATE.—The amendment made by sub13 section (a) shall apply in the case of decedents dying after

14 the date of the enactment of this Act.

15 SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLI16 CABLE TO REAL PROPERTY SUBDIVIDED FOR

17 SALE BY NONCORPORATE TAXPAYERS.

18 (a) IN GENERAL.—Subsection (a) of section 1237 (re19 lating to real property subdivided for sale) is amended by

20 striking ‘‘other than a corporation’’ in the material preced21 ing paragraph (1) and inserting ‘‘other than a C corpora22 tion’’.

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

24 section 1237(a)(2) is amended by inserting ‘‘an S corpora-
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1 tion which included the taxpayer as a shareholder,’’ after

2 ‘‘controlled by the taxpayer,’’.

3 SEC. 1315. EFFECTIVE DATE.

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

5 this subtitle, the amendments made by this subtitle shall

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

7 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

8 PRIOR LAW.—For purposes of section 1362(g) of the Inter9 nal Revenue Code of 1986 (relating to election after termi10 nation), any termination under section 1362(d) of such

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

12 shall not be taken into account.

13 Subtitle D—Pension Simplification

14 CHAPTER 1—SIMPLIFIED DISTRIBUTION

15 RULES

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

17 LUMP-SUM DISTRIBUTIONS.

18 (a) IN GENERAL.—Subsection (d) of section 402 (relat19 ing to taxability of beneficiary of employees’ trust) is

20 amended to read as follows:

21 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOR22 EIGN SITUS TRUSTS.—For purposes of subsections (a), (b),

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

24 which would qualify for exemption from tax under section

25 501(a) except for the fact that it is a trust created or orga-
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1 nized outside the United States shall be treated as if it were

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

3 (b) CONFORMING AMENDMENTS.—

4 (1) Subparagraph (D) of section 402(e)(4) (relat5 ing to other rules applicable to exempt trusts) is

6 amended to read as follows:

7 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur8 poses of this paragraph—

9 ‘‘(i) IN GENERAL.—The term ‘lump

10 sum distribution’ means the distribution or

11 payment within one taxable year of the re12 cipient of the balance to the credit of an em13 ployee which becomes payable to the recipi14 ent—

15 ‘‘(I) on account of the employee’s

16 death,

17 ‘‘(II) after the employee attains

age 591 18 ⁄2,

19 ‘‘(III) on account of the employ20 ee’s separation from service, or

21 ‘‘(IV) after the employee has be22 come disabled (within the meaning of

23 section 72(m)(7)),

24 from a trust which forms a part of a plan

25 described in section 401(a) and which is ex-
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1 empt from tax under section 501 or from a

2 plan described in section 403(a). Subclause

3 (III) of this clause shall be applied only

4 with respect to an individual who is an em5 ployee without regard to section 401(c)(1),

6 and subclause (IV) shall be applied only

7 with respect to an employee within the

8 meaning of section 401(c)(1). For purposes

9 of this clause, a distribution to two or more

10 trusts shall be treated as a distribution to

11 one recipient. For purposes of this para12 graph, the balance to the credit of the em13 ployee does not include the accumulated de14 ductible employee contributions under the

15 plan (within the meaning of section

16 72(o)(5)).

17 ‘‘(ii) AGGREGATION OF CERTAIN

18 TRUSTS AND PLANS.—For purposes of deter19 mining the balance to the credit of an em20 ployee under clause (i)—

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

22 plan shall be treated as a single trust,

23 all pension plans maintained by the

24 employer shall be treated as a single

25 plan, all profit-sharing plans main-
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1 tained by the employer shall be treated

2 as a single plan, and all stock bonus

3 plans maintained by the employer

4 shall be treated as a single plan, and

5 ‘‘(II) trusts which are not quali6 fied trusts under section 401(a) and

7 annuity contracts which do not satisfy

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

9 shall not be taken into account.

10 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

11 The provisions of this paragraph shall be

12 applied without regard to community prop13 erty laws.

14 ‘‘(iv) AMOUNTS SUBJECT TO PEN15 ALTY.—This paragraph shall not apply to

16 amounts described in subparagraph (A) of

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

18 72(m)(5) applies to such amounts.

19 ‘‘(v) BALANCE TO CREDIT OF EM20 PLOYEE NOT TO INCLUDE AMOUNTS PAY21 ABLE UNDER QUALIFIED DOMESTIC RELA22 TIONS ORDER.—For purposes of this para23 graph, the balance to the credit of an em24 ployee shall not include any amount pay25 able to an alternate payee under a qualified
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1 domestic relations order (within the mean2 ing of section 414(p)).

3 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

4 ARRANGEMENT NOT TREATED AS DISTRIBU5 TION.—For purposes of this paragraph, the

6 balance to the credit of an employee under

7 a defined contribution plan shall not in8 clude any amount transferred from such de9 fined contribution plan to a qualified cost10 of-living arrangement (within the meaning

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

12 plan.

13 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

14 ALTERNATE PAYEES.—If any distribution

15 or payment of the balance to the credit of

16 an employee would be treated as a lump17 sum distribution, then, for purposes of this

18 paragraph, the payment under a qualified

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

21 credit of an alternate payee who is the

22 spouse or former spouse of the employee

23 shall be treated as a lump-sum distribution.

24 For purposes of this clause, the balance to

25 the credit of the alternate payee shall not
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1 include any amount payable to the em2 ployee.’’

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

4 rollovers from exempt trusts) is amended by striking

5 paragraph (10).

6 (3) Paragraph (1) of section 55(c) (defining reg7 ular tax) is amended by striking ‘‘shall not include

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

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

10 certain portion of lump-sum distributions from pen11 sion plans taxed under section 402(d)) is hereby re12 pealed.

13 (5) Section 401(a)(28)(B) (relating to coordina14 tion with distribution rules) is amended by striking

15 clause (v).

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

17 (relating to distributions that must be lump-sum dis18 tributions) is amended to read as follows:

19 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

20 purposes of this subparagraph, the term

21 ‘lump-sum distribution’ has the meaning

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

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

24 and (IV) of clause (i) thereof).’’
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1 (7) Section 406(c) (relating to termination of

2 status as deemed employee not to be treated as sepa3 ration from service for purposes of limitation of tax)

4 is hereby repealed.

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

6 status as deemed employee not to be treated as sepa7 ration from service for purposes of limitation of tax)

8 is hereby repealed.

9 (9) Section 691(c) (relating to deduction for es10 tate tax) is amended by striking paragraph (5).

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

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

13 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

14 (11) Subsection (b) of section 877 (relating to al15 ternative tax) is amended by striking ‘‘section 1, 55,

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

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

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

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

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

21 which the individual elects to have this para22 graph apply’’,

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

24 flush sentence:
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1 ‘‘An individual may elect to have this paragraph

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

3 (C) by striking the heading and inserting:

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

5 (13) Section 402(e) is amended by striking para6 graph (5).

7 (c) EFFECTIVE DATES.—

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

9 this section shall apply to taxable years beginning

10 after December 31, 1998.

11 (2) RETENTION OF CERTAIN TRANSITION

12 RULES.—Notwithstanding any other provision of this

13 section, the amendments made by this section shall

14 not apply to any distribution for which the taxpayer

15 elects the benefits of section 1122 (h)(3) or (h)(5) of

16 the Tax Reform Act of 1986. For purposes of the pre17 ceding sentence, the rules of sections 402(c)(10) and

18 402(d) of the Internal Revenue Code of 1986 (as in

19 effect before the amendments made by this Act) shall

20 apply.

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

22 DEATH BENEFITS.

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

24 hereby repealed.

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Subsection (c) of section 101 is amended by

2 striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub3 section (a)’’.

4 (2) Sections 406(e) and 407(e) are each amended

5 by striking paragraph (2) and by redesignating para6 graph (3) as paragraph (2).

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

8 ‘‘, for the purpose of applying the provisions of sec9 tion 101(b) with respect to employees’ death benefits’’.

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

11 section shall apply with respect to decedents dying after the

12 date of the enactment of this Act.

13 SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS14 TRIBUTIONS UNDER CERTAIN EMPLOYER

15 PLANS.

16 (a) GENERAL RULE.—Subsection (d) of section 72 (re17 lating to annuities; certain proceeds of endowment and life

18 insurance contracts) is amended to read as follows:

19 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RE20 TIREMENT PLANS.—

21 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

22 PAYMENTS.—

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

24 amount received as an annuity under a qualified

25 employer retirement plan—
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1 ‘‘(i) subsection (b) shall not apply, and

2 ‘‘(ii) the investment in the contract

3 shall be recovered as provided in this para4 graph.

5 ‘‘(B) METHOD OF RECOVERING INVESTMENT

6 IN CONTRACT.—

7 ‘‘(i) IN GENERAL.—Gross income shall

8 not include so much of any monthly annu9 ity payment under a qualified employer re10 tirement plan as does not exceed the amount

11 obtained by dividing—

12 ‘‘(I) the investment in the con13 tract (as of the annuity starting date),

14 by

15 ‘‘(II) the number of anticipated

16 payments determined under the table

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

18 case of a contract to which subsection

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

20 monthly annuity payments under such

21 contract).

22 ‘‘(ii) CERTAIN RULES MADE APPLICA23 BLE.—Rules similar to the rules of para24 graphs (2) and (3) of subsection (b) shall

25 apply for purposes of this paragraph.
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1 ‘‘(iii) NUMBER OF ANTICIPATED PAY2 MENTS.—

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

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

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

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

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

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

3 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

4 NOT APPLICABLE.—For purposes of this para5 graph, investment in the contract shall be deter6 mined under subsection (c)(1) without regard to

7 subsection (c)(2).

8 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

9 PAID IN CONNECTION WITH COMMENCEMENT OF

10 ANNUITY PAYMENTS.—If, in connection with the

11 commencement of annuity payments under any

12 qualified employer retirement plan, the taxpayer

13 receives a lump sum payment—

14 ‘‘(i) such payment shall be taxable

15 under subsection (e) as if received before the

16 annuity starting date, and

17 ‘‘(ii) the investment in the contract for

18 purposes of this paragraph shall be deter19 mined as if such payment had been so re20 ceived.
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1 ‘‘(E) EXCEPTION.—This paragraph shall

2 not apply in any case where the primary annu3 itant has attained age 75 on the annuity start4 ing date unless there are fewer than 5 years of

5 guaranteed payments under the annuity.

6 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY7 MENTS NOT ON MONTHLY BASIS.—In any case

8 where the annuity payments are not made on a

9 monthly basis, appropriate adjustments in the

10 application of this paragraph shall be made to

11 take into account the period on the basis of

12 which such payments are made.

13 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

14 PLAN.—For purposes of this paragraph, the term

15 ‘qualified employer retirement plan’ means any

16 plan or contract described in paragraph (1), (2),

17 or (3) of section 4974(c).

18 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS

19 UNDER DEFINED CONTRIBUTION PLANS.—For pur20 poses of this section, employee contributions (and any

21 income allocable thereto) under a defined contribution

22 plan may be treated as a separate contract.’’

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

24 section shall apply in cases where the annuity starting date
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1 is after the 90th day after the date of the enactment of this

2 Act.

3 SEC. 1404. REQUIRED DISTRIBUTIONS.

4 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re5 quired beginning date) is amended to read as follows:

6 ‘‘(C) REQUIRED BEGINNING DATE.—For

7 purposes of this paragraph—

8 ‘‘(i) IN GENERAL.—The term ‘required

9 beginning date’ means April 1 of the cal10 endar year following the later of—

11 ‘‘(I) the calendar year in which

the employee attains age 701 12 ⁄2, or

13 ‘‘(II) the calendar year in which

14 the employee retires.

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

16 clause (i) shall not apply—

17 ‘‘(I) except as provided in section

18 409(d), in the case of an employee who

19 is a 5-percent owner (as defined in sec20 tion 416) with respect to the plan year

21 ending in the calendar year in which

the employee attains age 701 22 ⁄2, or

23 ‘‘(II) for purposes of section 408

24 (a)(6) or (b)(3).
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1 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

2 the case of an employee to whom clause

3 (i)(II) applies who retires in a calendar

4 year after the calendar year in which the

employee attains age 701 5 ⁄2, the employee’s

6 accrued benefit shall be actuarially in7 creased to take into account the period after

age 701 8 ⁄2 in which the employee was not re9 ceiving any benefits under the plan.

10 ‘‘(iv) EXCEPTION FOR GOVERNMENTAL

11 AND CHURCH PLANS.—Clauses (ii) and (iii)

12 shall not apply in the case of a govern13 mental plan or church plan. For purposes

14 of this clause, the term ‘church plan’ means

15 a plan maintained by a church for church

16 employees, and the term ‘church’ means any

17 church (as defined in section

18 3121(w)(3)(A)) or qualified church-con19 trolled organization (as defined in section

20 3121(w)(3)(B)).’’

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall apply to years beginning after December

23 31, 1996.
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1 CHAPTER 2—INCREASED ACCESS TO

2 PENSION PLANS

3 Subchapter A—Simple Savings Plans

4 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH

5 PLANS FOR EMPLOYEES OF SMALL EMPLOY6 ERS.

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

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

11 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

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

13 term ‘simple retirement account’ means an individual

14 retirement plan (as defined in section 7701(a)(37))—

15 ‘‘(A) with respect to which the requirements

16 of paragraphs (3), (4), and (5) are met; and

17 ‘‘(B) with respect to which the only con18 tributions allowed are contributions under a

19 qualified salary reduction arrangement.

20 ‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE21 MENT.—

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

23 subsection, the term ‘qualified salary reduction

24 arrangement’ means a written arrangement of

25 an eligible employer under which—
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1 ‘‘(i) an employee eligible to participate

2 in the arrangement may elect to have the

3 employer make payments—

4 ‘‘(I) as elective employer contribu5 tions to a simple retirement account on

6 behalf of the employee, or

7 ‘‘(II) to the employee directly in

8 cash,

9 ‘‘(ii) the amount which an employee

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

11 required to be expressed as a percentage of

12 compensation and may not exceed a total of

13 $6,000 for any year,

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

15 a matching contribution to the simple re16 tirement account for any year in an

17 amount equal to so much of the amount the

18 employee elects under clause (i)(I) as does

19 not exceed the applicable percentage of com20 pensation for the year, and

21 ‘‘(iv) no contributions may be made

22 other than contributions described in clause

23 (i) or (iii).

24 ‘‘(B) EMPLOYER MAY ELECT 2-PERCENT

25 NONELECTIVE CONTRIBUTION.—An employer
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1 shall be treated as meeting the requirements of

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

3 the contributions described in such clause, the

4 employer elects to make nonelective contributions

5 of 2 percent of compensation for each employee

6 who is eligible to participate in the arrangement

7 and who has at least $5,000 of compensation

8 from the employer for the year. If an employer

9 makes an election under this subparagraph for

10 any year, the employer shall notify employees of

11 such election within a reasonable period of time

12 before the 30-day period for such year under

13 paragraph (5)(C).

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

15 subsection—

16 ‘‘(i) ELIGIBLE EMPLOYER.—The term

17 ‘eligible employer’ means an employer who

18 employs 100 or fewer employees on any day

19 during the year.

20 ‘‘(ii) APPLICABLE PERCENTAGE.—

21 ‘‘(I) IN GENERAL.—The term ‘ap22 plicable percentage’ means 3 percent.

23 ‘‘(II) ELECTION OF LOWER PER24 CENTAGE.—An employer may elect to

25 apply a lower percentage (not less than
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1 1 percent) for any year for all employ2 ees eligible to participate in the plan

3 for such year if the employer notifies

4 the employees of such lower percentage

5 within a reasonable period of time be6 fore the 30-day election period for such

7 year under paragraph (5)(C). An em8 ployer may not elect a lower percent9 age under this subclause for any year

10 if that election would result in the ap11 plicable percentage being lower than 3

12 percent in more than 2 of the years in

13 the 5-year period ending with such

14 year.

15 ‘‘(III) SPECIAL RULE FOR YEARS

16 ARRANGEMENT NOT IN EFFECT.—If

17 any year in the 5-year period de18 scribed in subclause (II) is a year

19 prior to the first year for which any

20 qualified salary reduction arrangement

21 is in effect with respect to the employer

22 (or any predecessor), the employer

23 shall be treated as if the level of the

24 employer matching contribution was at
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1 3 percent of compensation for such

2 prior year.

3 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN OF

4 EMPLOYER.—

5 ‘‘(i) IN GENERAL.—An arrangement

6 shall not be treated as a qualified salary re7 duction arrangement for any year if the

8 employer (or any predecessor employer)

9 maintained a qualified plan with respect to

10 which contributions were made, or benefits

11 were accrued, for service in any year in the

12 period beginning with the year such ar13 rangement became effective and ending with

14 the year for which the determination is

15 being made.

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

17 of this subparagraph, the term ‘qualified

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

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

20 of section 219(g)(5).

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

22 Secretary shall adjust the $6,000 amount under

23 subparagraph (A)(ii) at the same time and in

24 the same manner as under section 415(d), except

25 that the base period taken into account shall be
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1 the calendar quarter ending September 30, 1995,

2 and any increase under this subparagraph which

3 is not a multiple of $500 shall be rounded to the

4 next lower multiple of $500.

5 ‘‘(3) VESTING REQUIREMENTS.—The require6 ments of this paragraph are met with respect to a

7 simple retirement account if the employee’s rights to

8 any contribution to the simple retirement account are

9 nonforfeitable. For purposes of this paragraph, rules

10 similar to the rules of subsection (k)(4) shall apply.

11 ‘‘(4) PARTICIPATION REQUIREMENTS.—

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

13 this paragraph are met with respect to any sim14 ple retirement account for a year only if, under

15 the qualified salary reduction arrangement, all

16 employees of the employer who—

17 ‘‘(i) received at least $5,000 in com18 pensation from the employer during any 2

19 preceding years, and

20 ‘‘(ii) are reasonably expected to receive

21 at least $5,000 in compensation during the

22 year,

23 are eligible to make the election under paragraph

24 (2)(A)(i) or receive the nonelective contribution

25 described in paragraph (2)(B).
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1 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em2 ployer may elect to exclude from the requirement

3 under subparagraph (A) employees described in

4 section 410(b)(3).

5 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The re6 quirements of this paragraph are met with respect to

7 any simplified retirement account if, under the quali8 fied salary reduction arrangement—

9 ‘‘(A) an employer must—

10 ‘‘(i) make the elective employer con11 tributions under paragraph (2)(A)(i) not

12 later than the close of the 30-day period fol13 lowing the last day of the month with re14 spect to which the contributions are to be

15 made, and

16 ‘‘(ii) make the matching contributions

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

18 nonelective contributions under paragraph

19 (2)(B) not later than the date described in

20 section 404(m)(2)(B),

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

22 participation in such arrangement at any time

23 during the year, except that if an employee so

24 terminates, the arrangement may provide that
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1 the employee may not elect to resume participa2 tion until the beginning of the next year, and

3 ‘‘(C) each employee eligible to participate

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

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

6 before the first day such employee is eligible to

7 participate), to participate in the arrangement,

8 or to modify the amounts subject to such ar9 rangement, for such year.

10 ‘‘(6) DEFINITIONS.—For purposes of this sub11 section—

12 ‘‘(A) COMPENSATION.—

13 ‘‘(i) IN GENERAL.—The term ‘com14 pensation’ means amounts described in

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

16 ‘‘(ii) SELF-EMPLOYED.—In the case of

17 an employee described in subparagraph (B),

18 the term ‘compensation’ means net earnings

19 from self-employment determined under sec20 tion 1402(a) without regard to any con21 tribution under this subsection.

22 ‘‘(B) EMPLOYEE.—The term ‘employee’ in23 cludes an employee as defined in section

24 401(c)(1).
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1 ‘‘(C) YEAR.—The term ‘year’ means the cal2 endar year.’’

3 (b) TAX TREATMENT OF SIMPLE RETIREMENT AC4 COUNTS.—

5 (1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM6 PLOYEES.—

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

8 amount of deduction) is amended by adding at

9 the end the following new paragraph:

10 ‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT

11 ACCOUNTS.—This section shall not apply with respect

12 to any amount contributed to a simple retirement ac13 count established under section 408(p).’’

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

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

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

17 following new clause:

18 ‘‘(vi) any simple retirement account

19 (within the meaning of section 408(p)), or’’.

20 (2) DEDUCTIBILITY OF EMPLOYER CONTRIBU21 TIONS.—Section 404 (relating to deductions for con22 tributions of an employer to pension, etc. plans) is

23 amended by adding at the end the following new sub24 section:
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1 ‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC2 COUNTS.—

3 ‘‘(1) IN GENERAL.—Employer contributions to a

4 simple retirement account shall be treated as if they

5 are made to a plan subject to the requirements of this

6 section.

7 ‘‘(2) TIMING.—

8 ‘‘(A) DEDUCTION.—Contributions described

9 in paragraph (1) shall be deductible in the tax10 able year of the employer with or within which

11 the calendar year for which the contributions

12 were made ends.

13 ‘‘(B) CONTRIBUTIONS AFTER END OF

14 YEAR.—For purposes of this subsection, contribu15 tions shall be treated as made for a taxable year

16 if they are made on account of the taxable year

17 and are made not later than the time prescribed

18 by law for filing the return for the taxable year

19 (including extensions thereof).’’

20 (3) CONTRIBUTIONS AND DISTRIBUTIONS.—

21 (A) Section 402 (relating to taxability of

22 beneficiary of employees’ trust) is amended by

23 adding at the end the following new subsection:

24 ‘‘(k) TREATMENT OF SIMPLE RETIREMENT AC25 COUNTS.—Rules similar to the rules of paragraphs (1) and
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1 (3) of subsection (h) shall apply to contributions and dis2 tributions with respect to a simple retirement account

3 under section 408(p).’’

4 (B) Section 408(d)(3) is amended by add5 ing at the end the following new subparagraph:

6 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

7 This paragraph shall not apply to any amount

8 paid or distributed out of a simple retirement

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

10 ‘‘(i) it is paid into another simple re11 tirement account, or

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

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

14 not apply, it is paid into an individual re15 tirement plan.’’

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

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

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

19 (4) PENALTIES.—

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

21 (relating to additional tax in early distribu22 tions), as amended by this Act, is amended by

23 adding at the end the following new paragraph:

24 ‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT

25 ACCOUNTS.—In the case of any amount received from
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1 a simple retirement account (within the meaning of

2 section 408(p)) during the 2-year period beginning on

3 the date such individual first participated in any

4 qualified salary reduction arrangement maintained

5 by the individual’s employer under section 408(p)(2),

6 paragraph (1) shall be applied by substituting ‘25

7 percent’ for ‘10 percent’.’’

8 (B) FAILURE TO REPORT.—Section 6693 is

9 amended by redesignating subsection (c) as sub10 section (d) and by inserting after subsection (b)

11 the following new subsection:

12 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

13 ACCOUNTS.—

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

15 fails to provide 1 or more notices required by section

16 408(l)(2)(C) shall pay a penalty of $50 for each day

17 on which such failures continue.

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

19 fails—

20 ‘‘(A) to provide 1 or more statements re21 quired by the last sentence of section 408(i) shall

22 pay a penalty of $50 for each day on which such

23 failures continue, or

24 ‘‘(B) to provide 1 or more summary de25 scriptions required by section 408(l)(2)(B) shall
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1 pay a penalty of $50 for each day on which such

2 failures continue.

3 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen4 alty shall be imposed under this subsection with re5 spect to any failure which the taxpayer shows was

6 due to reasonable cause.’’

7 (5) REPORTING REQUIREMENTS.—

8 (A) Section 408(l) is amended by adding at

9 the end the following new paragraph:

10 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

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

12 provided in this paragraph, no report shall be

13 required under this section by an employer

14 maintaining a qualified salary reduction ar15 rangement under subsection (p).

16 ‘‘(B) SUMMARY DESCRIPTION.—The trustee

17 of any simple retirement account established

18 pursuant to a qualified salary reduction ar19 rangement under subsection (p) shall provide to

20 the employer maintaining the arrangement, each

21 year a description containing the following in22 formation:

23 ‘‘(i) The name and address of the em24 ployer and the trustee.
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1 ‘‘(ii) The requirements for eligibility

2 for participation.

3 ‘‘(iii) The benefits provided with re4 spect to the arrangement.

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

6 elections with respect to the arrangement.

7 ‘‘(v) The procedures for, and effects of,

8 withdrawals (including rollovers) from the

9 arrangement.

10 ‘‘(C) EMPLOYEE NOTIFICATION.—The em11 ployer shall notify each employee immediately

12 before the period for which an election described

13 in subsection (p)(5)(C) may be made of the em14 ployee’s opportunity to make such election. Such

15 notice shall include a copy of the description de16 scribed in subparagraph (B).’’

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

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

19 ‘‘(1) IN GENERAL.—An employer’’.

20 (6) REPORTING REQUIREMENTS.—Section 408(i)

21 is amended by adding at the end the following new

22 flush sentence:

23 ‘‘In the case of a simple retirement account under sub24 section (p), only one report under this subsection shall be

25 required to be submitted each calendar year to the Secretary
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1 (at the time provided under paragraph (2)) but, in addition

2 to the report under this subsection, there shall be furnished,

3 within 30 days after each calendar year, to the individual

4 on whose behalf the account is maintained a statement with

5 respect to the account balance as of the close of, and the

6 account activity during, such calendar year.’’

7 (7) EXEMPTION FROM TOP-HEAVY PLAN

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

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

10 the following new subparagraph:

11 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—The

12 term ‘top-heavy plan’ shall not include a simple

13 retirement account under section 408(p).’’

14 (8) EMPLOYMENT TAXES.—

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

16 amended by striking ‘‘or’’ at the end of subpara17 graph (F), by inserting ‘‘or’’ at the end of sub18 paragraph (G), and by adding at the end the fol19 lowing new subparagraph:

20 ‘‘(H) under an arrangement to which sec21 tion 408(p) applies, other than any elective con22 tributions under paragraph (2)(A)(i) thereof,’’.

23 (B) Section 209(a)(4) of the Social Security Act

24 is amended by inserting ‘‘, or (J) under an arrange25 ment to which section 408(p) of such Code applies,
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1 other than any elective contributions under para2 graph (2)(A)(i) thereof’’ before the semicolon at the

3 end thereof.

4 (C) Paragraph (5) of section 3306(b) is amended

5 by striking ‘‘or’’ at the end of subparagraph (F), by

6 inserting ‘‘or’’ at the end of subparagraph (G), and

7 by adding at the end the following new subparagraph:

8 ‘‘(H) under an arrangement to which sec9 tion 408(p) applies, other than any elective con10 tributions under paragraph (2)(A)(i) thereof,’’.

11 (D) Paragraph (12) of section 3401(a) is amend12 ed by adding the following new subparagraph:

13 ‘‘(D) under an arrangement to which sec14 tion 408(p) applies; or’’.

15 (9) CONFORMING AMENDMENTS.—

16 (A) Section 280G(b)(6) is amended by strik17 ing ‘‘or’’ at the end of subparagraph (B), by

18 striking the period at the end of subparagraph

19 (C) and inserting ‘‘, or’’ and by adding after

20 subparagraph (C) the following new subpara21 graph:

22 ‘‘(D) a simple retirement account described

23 in section 408(p).’’

24 (B) Section 402(g)(3) is amended by strik25 ing ‘‘and’’ at the end of subparagraph (B), by
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1 striking the period at the end of subparagraph

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

3 subparagraph (C) the following new subpara4 graph:

5 ‘‘(D) any elective employer contribution

6 under section 408(p)(2)(A)(i).’’

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

8 (n)(3)(B) of section 414 are each amended by in9 serting ‘‘408(p),’’ after ‘‘408(k),’’.

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

11 striking ‘‘and’’ at the end of clause (ii), by strik12 ing the period at the end of clause (iii) and in13 serting ‘‘, and’’, and by adding after clause (iii)

14 the following new clause:

15 ‘‘(iv) any simple retirement account

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

17 (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM18 PLOYEE PENSIONS.—Section 408(k)(6) is amended by add19 ing at the end the following new subparagraph:

20 ‘‘(H) TERMINATION.—This paragraph shall

21 not apply to years beginning after December 31,

22 1996. The preceding sentence shall not apply to

23 a simplified employee pension if the terms of

24 such pension, as in effect on December 31, 1996,
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1 provide that an employee may make the election

2 described in subparagraph (A).’’

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

4 section shall apply to taxable years beginning after Decem5 ber 31, 1996.

6 SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR7 RANGEMENTS.

8 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

9 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat10 ing to cash or deferred arrangements) is amended by adding

11 at the end the following new paragraph:

12 ‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET NON13 DISCRIMINATION TESTS.—

14 ‘‘(A) IN GENERAL.—A cash or deferred ar15 rangement maintained by an eligible employer

16 shall be treated as meeting the requirements of

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

18 meets—

19 ‘‘(i) the contribution requirements of

20 subparagraph (B),

21 ‘‘(ii) the exclusive benefit requirements

22 of subparagraph (C), and

23 ‘‘(iii) the vesting requirements of sec24 tion 408(p)(3).

25 ‘‘(B) CONTRIBUTION REQUIREMENTS.—
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1 ‘‘(i) IN GENERAL.—The requirements

2 of this subparagraph are met if, under the

3 arrangement—

4 ‘‘(I) an employee may elect to

5 have the employer make elective con6 tributions for the year on behalf of the

7 employee to a trust under the plan in

8 an amount which is expressed as a

9 percentage of compensation of the em10 ployee but which in no event exceeds

11 $6,000,

12 ‘‘(II) the employer is required to

13 make a matching contribution to the

14 trust for the year in an amount equal

15 to so much of the amount the employee

16 elects under subclause (I) as does not

17 exceed 3 percent of compensation for

18 the year, and

19 ‘‘(III) no other contributions may

20 be made other than contributions de21 scribed in subclause (I) or (II).

22 ‘‘(ii) EMPLOYER MAY ELECT 2-PER23 CENT NONELECTIVE CONTRIBUTION.—An

24 employer shall be treated as meeting the re25 quirements of clause (i)(II) for any year if,
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1 in lieu of the contributions described in

2 such clause, the employer elects (pursuant to

3 the terms of the arrangement) to make non4 elective contributions of 2 percent of com5 pensation for each employee who is eligible

6 to participate in the arrangement and who

7 has at least $5,000 of compensation from

8 the employer for the year. If an employer

9 makes an election under this subparagraph

10 for any year, the employer shall notify em11 ployees of such election within a reasonable

12 period of time before the 30th day before the

13 beginning of such year.

14 ‘‘(C) EXCLUSIVE BENEFIT.—The require15 ments of this subparagraph are met for any year

16 to which this paragraph applies if no contribu17 tions were made, or benefits were accrued, for

18 services during such year under any qualified

19 plan of the employer on behalf of any employee

20 eligible to participate in the cash or deferred ar21 rangement, other than contributions described in

22 subparagraph (B).

23 ‘‘(D) DEFINITIONS AND SPECIAL RULE.—

24 ‘‘(i) DEFINITIONS.—For purposes of

25 this paragraph, any term used in this para-
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1 graph which is also used in section 408(p)

2 shall have the meaning given such term by

3 such section.

4 ‘‘(ii) COORDINATION WITH TOP-HEAVY

5 RULES.—A plan meeting the requirements

6 of this paragraph for any year shall not be

7 treated as a top-heavy plan under section

8 416 for such year.’’

9 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

10 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re11 lating to nondiscrimination test for matching contributions

12 and employee contributions) is amended by redesignating

13 paragraph (10) as paragraph (11) and by adding after

14 paragraph (9) the following new paragraph:

15 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

16 TESTS.—A defined contribution plan shall be treated

17 as meeting the requirements of paragraph (2) with re18 spect to matching contributions if the plan—

19 ‘‘(A) meets the contribution requirements of

20 subparagraph (B) of subsection (k)(11),

21 ‘‘(B) meets the exclusive benefit require22 ments of subsection (k)(11)(C), and

23 ‘‘(C) meets the vesting requirements of sec24 tion 408(p)(3).’’
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to plan years beginning after December

3 31, 1996.

4 Subchapter B—Other Provisions

5 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

6 SECTION 401(k).

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

8 401(k)(4) is amended to read as follows:

9 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

10 GOVERNMENTS AND TAX-EXEMPT ORGANIZA11 TIONS.—

12 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Except

13 as provided in clause (ii), any organization

14 exempt from tax under this subtitle may in15 clude a qualified cash or deferred arrange16 ment as part of a plan maintained by it.

17 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

18 cash or deferred arrangement shall not be

19 treated as a qualified cash or deferred ar20 rangement if it is part of a plan main21 tained by a State or local government or

22 political subdivision thereof, or any agency

23 or instrumentality thereof. This clause shall

24 not apply to a rural cooperative plan or to
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1 a plan of an employer described in clause

2 (iii).

3 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

4 GOVERNMENTS.—An employer which is an

5 Indian tribal government (as defined in sec6 tion 7701(a)(40)), a subdivision of an In7 dian tribal government (determined in ac8 cordance with section 7871(d)), an agency

9 or instrumentality of an Indian tribal gov10 ernment or subdivision thereof, or a cor11 poration chartered under Federal, State, or

12 tribal law which is owned in whole or in

13 part by any of the foregoing shall be treated

14 as an organization exempt from tax under

15 this subtitle for purposes of clause (i).’’

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

17 section shall apply to plan years beginning after December

18 31, 1996, but shall not apply to any cash or deferred ar19 rangement to which clause (i) of section 1116(f)(2)(B) of

20 the Tax Reform Act of 1986 applies.
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1 CHAPTER 3—NONDISCRIMINATION

2 PROVISIONS

3 SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOY4 EES; REPEAL OF FAMILY AGGREGATION.

5 (a) IN GENERAL.—Paragraph (1) of section 414(q)

6 (defining highly compensated employee) is amended to read

7 as follows:

8 ‘‘(1) IN GENERAL.—The term ‘highly com9 pensated employee’ means any employee who—

10 ‘‘(A) was a 5-percent owner at any time

11 during the year or the preceding year, or

12 ‘‘(B) for the preceding year—

13 ‘‘(i) had compensation from the em14 ployer in excess of $80,000, and

15 ‘‘(ii) was in the top-paid group of the

16 employer.

17 The Secretary shall adjust the $80,000 amount under

18 subparagraph (B) at the same time and in the same

19 manner as under section 415(d), except that the base

20 period shall be the calendar quarter ending September

21 30, 1996.’’

22 (b) REPEAL OF FAMILY AGGREGATION RULES.—

23 (1) IN GENERAL.—Paragraph (6) of section

24 414(q) is hereby repealed.
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1 (2) COMPENSATION LIMIT.—Paragraph (17)(A)

2 of section 401(a) is amended by striking the last sen3 tence.

4 (3) DEDUCTION.—Subsection (l) of section 404 is

5 amended by striking the last sentence.

6 (c) CONFORMING AMENDMENTS.—

7 (1)(A) Subsection (q) of section 414 is amended

8 by striking paragraphs (2), (5), (8), and (12) and by

9 redesignating paragraphs (3), (4), (7), (9), (10), and

10 (11) as paragraphs (2) through (7), respectively.

11 (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),

12 408(k)(2)(C), and 416(i)(1)(D) are each amended by

13 striking ‘‘section 414(q)(7)’’ and inserting ‘‘section

14 414(q)(4)’’.

15 (C) Section 416(i)(1)(A) is amended by striking

16 ‘‘section 414(q)(8)’’ and inserting ‘‘section 414(r)(9)’’.

17 (2)(A) Section 414(r) is amended by adding at

18 the end the following new paragraph:

19 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

20 this subsection, the following employees shall be ex21 cluded:

22 ‘‘(A) Employees who have not completed 6

23 months of service.

24 ‘‘(B) Employees who normally work less

than 171 25 ⁄2 hours per week.
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1 ‘‘(C) Employees who normally work not

2 more than 6 months during any year.

3 ‘‘(D) Employees who have not attained the

4 age of 21.

5 ‘‘(E) Except to the extent provided in regu6 lations, employees who are included in a unit of

7 employees covered by an agreement which the

8 Secretary of Labor finds to be a collective bar9 gaining agreement between employee representa10 tives and the employer.

11 Except as provided by the Secretary, the employer

12 may elect to apply subparagraph (A), (B), (C), or (D)

13 by substituting a shorter period of service, smaller

14 number of hours or months, or lower age for the pe15 riod of service, number of hours or months, or age (as

16 the case may be) specified in such subparagraph.’’

17 (B) Subparagraph (A) of section 414(r)(2) is

18 amended by striking ‘‘subsection (q)(8)’’ and inserting

19 ‘‘paragraph (9)’’.

20 (3) Section 1114(c)(4) of the Tax Reform Act of

21 1986 is amended by adding at the end the following

22 new sentence: ‘‘Any reference in this paragraph to

23 section 414(q) shall be treated as a reference to such

24 section as in effect on the day before the date of the
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1 enactment of the Small Business Job Protection Act

2 of 1996.’’.

3 (d) EFFECTIVE DATE.—

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

5 this section shall apply to years beginning after De6 cember 31, 1996, except that in determining whether

7 an employee is a highly compensated employee for

8 years beginning in 1997, such amendments shall be

9 treated as having been in effect for years beginning in

10 1996.

11 (2) FAMILY AGGREGATION.—The amendments

12 made by subsection (b) shall apply to years beginning

13 after December 31, 1996.

14 SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION

15 REQUIREMENTS.

16 (a) GENERAL RULE.—Section 401(a)(26)(A) (relating

17 to additional participation requirements) is amended to

18 read as follows:

19 ‘‘(A) IN GENERAL.—In the case of a trust

20 which is a part of a defined benefit plan, such

21 trust shall not constitute a qualified trust under

22 this subsection unless on each day of the plan

23 year such trust benefits at least the lesser of—

24 ‘‘(i) 50 employees of the employer, or

25 ‘‘(ii) the greater of—
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1 ‘‘(I) 40 percent of all employees of

2 the employer, or

3 ‘‘(II) 2 employees (or if there is

4 only 1 employee, such employee).’’

5 (b) SEPARATE LINE OF BUSINESS TEST.—Section

6 401(a)(26)(G) (relating to separate line of business) is

7 amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para8 graph (2)(A) or (7)’’.

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

10 section shall apply to years beginning after December 31,

11 1996.

12 SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED

13 CASH OR DEFERRED ARRANGEMENTS AND

14 MATCHING CONTRIBUTIONS.

15 (a) ALTERNATIVE METHODS OF SATISFYING SECTION

16 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat17 ing to cash or deferred arrangements), as amended by sec18 tion 1422, is amended by adding at the end the following

19 new paragraph:

20 ‘‘(12) ALTERNATIVE METHODS OF MEETING NON21 DISCRIMINATION REQUIREMENTS.—

22 ‘‘(A) IN GENERAL.—A cash or deferred ar23 rangement shall be treated as meeting the re24 quirements of paragraph (3)(A)(ii) if such ar25 rangement—
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1 ‘‘(i) meets the contribution require2 ments of subparagraph (B) or (C), and

3 ‘‘(ii) meets the notice requirements of

4 subparagraph (D).

5 ‘‘(B) MATCHING CONTRIBUTIONS.—

6 ‘‘(i) IN GENERAL.—The requirements

7 of this subparagraph are met if, under the

8 arrangement, the employer makes matching

9 contributions on behalf of each employee

10 who is not a highly compensated employee

11 in an amount equal to—

12 ‘‘(I) 100 percent of the elective

13 contributions of the employee to the ex14 tent such elective contributions do not

15 exceed 3 percent of the employee’s com16 pensation, and

17 ‘‘(II) 50 percent of the elective

18 contributions of the employee to the ex19 tent that such elective contributions ex20 ceed 3 percent but do not exceed 5 per21 cent of the employee’s compensation.

22 ‘‘(ii) RATE FOR HIGHLY COMPENSATED

23 EMPLOYEES.—The requirements of this sub24 paragraph are not met if, under the ar25 rangement, the rate of matching contribu-
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1 tion with respect to any elective contribu2 tion of a highly compensated employee at

3 any rate of elective contribution is greater

4 than that with respect to an employee who

5 is not a highly compensated employee.

6 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

7 If the rate of any matching contribution

8 with respect to any rate of elective contribu9 tion is not equal to the percentage required

10 under clause (i), an arrangement shall not

11 be treated as failing to meet the require12 ments of clause (i) if—

13 ‘‘(I) the rate of an employer’s

14 matching contribution does not in15 crease as an employee’s rate of elective

16 contributions increase, and

17 ‘‘(II) the aggregate amount of

18 matching contributions at such rate of

19 elective contribution is at least equal to

20 the aggregate amount of matching con21 tributions which would be made if

22 matching contributions were made on

23 the basis of the percentages described in

24 clause (i).
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1 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—The

2 requirements of this subparagraph are met if,

3 under the arrangement, the employer is required,

4 without regard to whether the employee makes an

5 elective contribution or employee contribution, to

6 make a contribution to a defined contribution

7 plan on behalf of each employee who is not a

8 highly compensated employee and who is eligible

9 to participate in the arrangement in an amount

10 equal to at least 3 percent of the employee’s com11 pensation.

12 ‘‘(D) NOTICE REQUIREMENT.—An arrange13 ment meets the requirements of this paragraph

14 if, under the arrangement, each employee eligible

15 to participate is, within a reasonable period be16 fore any year, given written notice of the em17 ployee’s rights and obligations under the ar18 rangement which—

19 ‘‘(i) is sufficiently accurate and com20 prehensive to appraise the employee of such

21 rights and obligations, and

22 ‘‘(ii) is written in a manner calculated

23 to be understood by the average employee el24 igible to participate.

25 ‘‘(E) OTHER REQUIREMENTS.—
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1 ‘‘(i) WITHDRAWAL AND VESTING RE2 STRICTIONS.—An arrangement shall not be

3 treated as meeting the requirements of sub4 paragraph (B) or (C) of this paragraph un5 less the requirements of subparagraphs (B)

6 and (C) of paragraph (2) are met with re7 spect to all employer contributions (includ8 ing matching contributions) taken into ac9 count in determining whether the require10 ments of subparagraphs (B) and (C) of this

11 paragraph are met.

12 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

13 CONTRIBUTIONS NOT TAKEN INTO AC14 COUNT.—An arrangement shall not be treat15 ed as meeting the requirements of subpara16 graph (B) or (C) unless such requirements

17 are met without regard to subsection (l),

18 and, for purposes of subsection (l), employer

19 contributions under subparagraph (B) or

20 (C) shall not be taken into account.

21 ‘‘(F) OTHER PLANS.—An arrangement shall

22 be treated as meeting the requirements under

23 subparagraph (A)(i) if any other plan main24 tained by the employer meets such requirements
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1 with respect to employees eligible under the ar2 rangement.’’

3 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

4 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re5 lating to nondiscrimination test for matching contributions

6 and employee contributions), as amended by this Act, is

7 amended by redesignating paragraph (11) as paragraph

8 (12) and by adding after paragraph (10) the following new

9 paragraph:

10 ‘‘(11) ALTERNATIVE METHOD OF SATISFYING

11 TESTS.—

12 ‘‘(A) IN GENERAL.—A defined contribution

13 plan shall be treated as meeting the requirements

14 of paragraph (2) with respect to matching con15 tributions if the plan—

16 ‘‘(i) meets the contribution require17 ments of subparagraph (B) or (C) of sub18 section (k)(12),

19 ‘‘(ii) meets the notice requirements of

20 subsection (k)(12)(D), and

21 ‘‘(iii) meets the requirements of sub22 paragraph (B).

23 ‘‘(B) LIMITATION ON MATCHING CONTRIBU24 TIONS.—The requirements of this subparagraph

25 are met if—
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1 ‘‘(i) matching contributions on behalf

2 of any employee may not be made with re3 spect to an employee’s contributions or elec4 tive deferrals in excess of 6 percent of the

5 employee’s compensation,

6 ‘‘(ii) the rate of an employer’s match7 ing contribution does not increase as the

8 rate of an employee’s contributions or elec9 tive deferrals increase, and

10 ‘‘(iii) the matching contribution with

11 respect to any highly compensated employee

12 at any rate of an employee contribution or

13 rate of elective deferral is not greater than

14 that with respect to an employee who is not

15 a highly compensated employee.’’

16 (c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED

17 EMPLOYEE PERCENTAGE.—

18 (1) CASH OR DEFERRED ARRANGEMENTS.—

19 Clause (ii) of section 401(k)(3)(A) is amended—

20 (A) by striking ‘‘such year’’ and inserting

21 ‘‘the plan year’’,

22 (B) by striking ‘‘for such plan year’’ and

23 inserting ‘‘for the preceding plan year’’, and

24 (C) by adding at the end the following new

25 sentence: ‘‘An arrangement may apply this
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1 clause by using the plan year rather than the

2 preceding plan year if the employer so elects, ex3 cept that if such an election is made, it may not

4 be changed except as provided by the Secretary.’’

5 (2) MATCHING AND EMPLOYEE CONTRIBU6 TIONS.—Section 401(m)(2)(A) is amended—

7 (A) by inserting ‘‘for such plan year’’ after

8 ‘‘highly compensated employees’’,

9 (B) by inserting ‘‘for the preceding plan

10 year’’ after ‘‘eligible employees’’ each place it ap11 pears in clause (i) and clause (ii), and

12 (C) by adding at the end the following flush

13 sentence: ‘‘This subparagraph may be applied by

14 using the plan year rather than the preceding

15 plan year if the employer so elects, except that

16 if such an election is made, it may not be

17 changed except as provided the Secretary.’’

18 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE19 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

20 (1) Paragraph (3) of section 401(k) is amended

21 by adding at the end the following new subparagraph:

22 ‘‘(E) For purposes of this paragraph, in the

23 case of the first plan year of any plan (other

24 than a successor plan), the amount taken into

25 account as the actual deferral percentage of non-
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1 highly compensated employees for the preceding

2 plan year shall be—

3 ‘‘(i) 3 percent, or

4 ‘‘(ii) if the employer makes an election

5 under this subclause, the actual deferral

6 percentage of nonhighly compensated em7 ployees determined for such first plan

8 year.’’

9 (2) Paragraph (3) of section 401(m) is amended

10 by adding at the end the following: ‘‘Rules similar to

11 the rules of subsection (k)(3)(E) shall apply for pur12 poses of this subsection.’’

13 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

14 EXCESS AGGREGATE CONTRIBUTIONS.—

15 (1) Subparagraph (C) of section 401(k)(8) (relat16 ing to arrangement not disqualified if excess contribu17 tions distributed) is amended by striking ‘‘on the

18 basis of the respective portions of the excess contribu19 tions attributable to each of such employees’’ and in20 serting ‘‘on the basis of the amount of contributions

21 by, or on behalf of, each of such employees’’.

22 (2) Subparagraph (C) of section 401(m)(6) (re23 lating to method of distributing excess aggregate con24 tributions) is amended by striking ‘‘on the basis of the

25 respective portions of such amounts attributable to
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1 each of such employees’’ and inserting ‘‘on the basis

2 of the amount of contributions on behalf of, or by,

3 each such employee’’.

4 (f) EFFECTIVE DATES.—

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

6 this section shall apply to years beginning after De7 cember 31, 1998.

8 (2) EXCEPTIONS.—The amendments made by

9 subsections (c), (d), and (e) shall apply to years be10 ginning after December 31, 1996.

11 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

12 415 PURPOSES.

13 (a) GENERAL RULE.—Section 415(c)(3) (defining par14 ticipant’s compensation) is amended by adding at the end

15 the following new subparagraph:

16 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—The

17 term ‘participant’s compensation’ shall in18 clude—

19 ‘‘(i) any elective deferral (as defined in

20 section 402(g)(3)), and

21 ‘‘(ii) any amount which is contributed

22 by the employer at the election of the em23 ployee and which is not includible in the

24 gross income of the employee under section

25 125 or 457.’’
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 414(q)(4), as redesignated by section

3 1431, is amended to read as follows:

4 ‘‘(4) COMPENSATION.—For purposes of this sub5 section, the term ‘compensation’ has the meaning

6 given such term by section 415(c)(3).’’

7 (2) Section 414(s)(2) is amended by inserting

8 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

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

10 section shall apply to years beginning after December 31,

11 1997.

12 CHAPTER 4—MISCELLANEOUS

13 PROVISIONS

14 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID15 UALS.

16 (a) AGGREGATION RULES.—Section 401(d) (relating

17 to additional requirements for qualification of trusts and

18 plans benefiting owner-employees) is amended to read as

19 follows:

20 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—

21 A trust forming part of a pension or profit-sharing plan

22 which provides contributions or benefits for employees some

23 or all of whom are owner-employees shall constitute a quali24 fied trust under this section only if, in addition to meeting

25 the requirements of subsection (a), the plan provides that
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1 contributions on behalf of any owner-employee may be

2 made only with respect to the earned income of such owner3 employee which is derived from the trade or business with

4 respect to which such plan is established.’’

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

6 section shall apply to years beginning after December 31,

7 1996.

8 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

9 MULTIEMPLOYER PLANS.

10 (a) IN GENERAL.—Paragraph (2) of section 411(a)

11 (relating to minimum vesting standards) is amended—

12 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

13 and inserting ‘‘subparagraph (A) or (B)’’; and

14 (2) by striking subparagraph (C).

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

16 section shall apply to plan years beginning on or after the

17 earlier of—

18 (1) the later of—

19 (A) January 1, 1997, or

20 (B) the date on which the last of the collec21 tive bargaining agreements pursuant to which

22 the plan is maintained terminates (determined

23 without regard to any extension thereof after the

24 date of the enactment of this Act), or

25 (2) January 1, 1999.
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1 Such amendments shall not apply to any individual who

2 does not have more than 1 hour of service under the plan

3 on or after the 1st day of the 1st plan year to which such

4 amendments apply.

5 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

6 PLANS.

7 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CER8 TAIN AGE.—Section 401(k)(7) is amended by adding at the

9 end the following new subparagraph:

10 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS11 TRIBUTIONS.—A rural cooperative plan which

12 includes a qualified cash or deferred arrange13 ment shall not be treated as violating the re14 quirements of section 401(a) or of paragraph (2)

15 merely by reason of a hardship distribution or a

16 distribution to a participant after attainment of

age 591 17 ⁄2. For purposes of this section, the term

18 ‘hardship distribution’ means a distribution de19 scribed in paragraph (2)(B)(i)(IV) (without re20 gard to the limitation of its application to prof21 it-sharing or stock bonus plans).’’

22 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of section

23 401(k)(7)(B) (defining rural cooperative) is amended to

24 read as follows:

25 ‘‘(i) any organization which—
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1 ‘‘(I) is engaged primarily in pro2 viding electric service on a mutual or

3 cooperative basis, or

4 ‘‘(II) is engaged primarily in pro5 viding electric service to the public in

6 its area of service and which is exempt

7 from tax under this subtitle or which is

8 a State or local government (or an

9 agency or instrumentality thereof),

10 other than a municipality (or an agen11 cy or instrumentality thereof),’’.

12 (c) EFFECTIVE DATES.—

13 (1) DISTRIBUTIONS.—The amendments made by

14 subsection (a) shall apply to distributions after the

15 date of the enactment of this Act.

16 (2) RURAL COOPERATIVE.—The amendments

17 made by subsection (b) shall apply to plan years be18 ginning after December 31, 1996.

19 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

20 SECTION 415.

21 (a) COMPENSATION LIMIT.—Subsection (b) of section

22 415 is amended by adding immediately after paragraph

23 (10) the following new paragraph:

24 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN25 MENTAL PLANS.—In the case of a governmental plan
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1 (as defined in section 414(d)), subparagraph (B) of

2 paragraph (1) shall not apply.’’

3 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

4 PLANS.—

5 (1) IN GENERAL.—Section 415 is amended by

6 adding at the end the following new subsection:

7 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL EX8 CESS BENEFIT ARRANGEMENTS.—

9 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—In

10 determining whether a governmental plan (as defined

11 in section 414(d)) meets the requirements of this sec12 tion, benefits provided under a qualified governmental

13 excess benefit arrangement shall not be taken into ac14 count. Income accruing to a governmental plan (or to

15 a trust that is maintained solely for the purpose of

16 providing benefits under a qualified governmental ex17 cess benefit arrangement) in respect of a qualified

18 governmental excess benefit arrangement shall con19 stitute income derived from the exercise of an essen20 tial governmental function upon which such govern21 mental plan (or trust) shall be exempt from tax under

22 section 115.

23 ‘‘(2) TAXATION OF PARTICIPANT.—For purposes

24 of this chapter—
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1 ‘‘(A) the taxable year or years for which

2 amounts in respect of a qualified governmental

3 excess benefit arrangement are includible in

4 gross income by a participant, and

5 ‘‘(B) the treatment of such amounts when so

6 includible by the participant,

7 shall be determined as if such qualified governmental

8 excess benefit arrangement were treated as a plan for

9 the deferral of compensation which is maintained by

10 a corporation not exempt from tax under this chapter

11 and which does not meet the requirements for quali12 fication under section 401.

13 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BENE14 FIT ARRANGEMENT.—For purposes of this subsection,

15 the term ‘qualified governmental excess benefit ar16 rangement’ means a portion of a governmental plan

17 if—

18 ‘‘(A) such portion is maintained solely for

19 the purpose of providing to participants in the

20 plan that part of the participant’s annual bene21 fit otherwise payable under the terms of the plan

22 that exceeds the limitations on benefits imposed

23 by this section,
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1 ‘‘(B) under such portion no election is pro2 vided at any time to the participant (directly or

3 indirectly) to defer compensation, and

4 ‘‘(C) benefits described in subparagraph (A)

5 are not paid from a trust forming a part of such

6 governmental plan unless such trust is main7 tained solely for the purpose of providing such

8 benefits.’’

9 (2) COORDINATION WITH SECTION 457.—Sub10 section (e) of section 457 is amended by adding at the

11 end the following new paragraph:

12 ‘‘(14) TREATMENT OF QUALIFIED GOVERN13 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub14 sections (b)(2) and (c)(1) shall not apply to any

15 qualified governmental excess benefit arrangement (as

16 defined in section 415(m)(3)), and benefits provided

17 under such an arrangement shall not be taken into

18 account in determining whether any other plan is an

19 eligible deferred compensation plan.’’

20 (3) CONFORMING AMENDMENT.—Paragraph (2)

21 of section 457(f) is amended by striking ‘‘and’’ at the

22 end of subparagraph (C), by striking the period at the

23 end of subparagraph (D) and inserting ‘‘, and’’, and

24 by inserting immediately thereafter the following new

25 subparagraph:
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1 ‘‘(E) a qualified governmental excess benefit

2 arrangement described in section 415(m).’’

3 (c) EXEMPTION FOR SURVIVOR AND DISABILITY BENE4 FITS.—Paragraph (2) of section 415(b) is amended by add5 ing at the end the following new subparagraph:

6 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS7 ABILITY BENEFITS PROVIDED UNDER GOVERN8 MENTAL PLANS.—Subparagraph (C) of this

9 paragraph and paragraph (5) shall not apply

10 to—

11 ‘‘(i) income received from a govern12 mental plan (as defined in section 414(d))

13 as a pension, annuity, or similar allowance

14 as the result of the recipient becoming dis15 abled by reason of personal injuries or sick16 ness, or

17 ‘‘(ii) amounts received from a govern18 mental plan by the beneficiaries, survivors,

19 or the estate of an employee as the result of

20 the death of the employee.’’

21 (d) REVOCATION OF GRANDFATHER ELECTION.—

22 (1) IN GENERAL.—Subparagraph (C) of section

23 415(b)(10) is amended by adding at the end the fol24 lowing new clause:
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1 ‘‘(ii) REVOCATION OF ELECTION.—An

2 election under clause (i) may be revoked not

3 later than the last day of the third plan

4 year beginning after the date of the enact5 ment of this clause. The revocation shall

6 apply to all plan years to which the election

7 applied and to all subsequent plan years.

8 Any amount paid by a plan in a taxable

9 year ending after the revocation shall be in10 cludible in income in such taxable year

11 under the rules of this chapter in effect for

12 such taxable year, except that, for purposes

13 of applying the limitations imposed by this

14 section, any portion of such amount which

15 is attributable to any taxable year during

16 which the election was in effect shall be

17 treated as received in such taxable year.’’

18 (2) CONFORMING AMENDMENT.—Subparagraph

19 (C) of section 415(b)(10) is amended by striking

20 ‘‘This’’ and inserting:

21 ‘‘(i) IN GENERAL.—This’’.

22 (e) EFFECTIVE DATE.—

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

24 subsections (a), (b), and (c) shall apply to years be25 ginning after December 31, 1994. The amendments
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1 made by subsection (d) shall apply with respect to

2 revocations adopted after the date of the enactment of

3 this Act.

4 (2) TREATMENT FOR YEARS BEGINNING BEFORE

5 JANUARY 1, 1995.—Nothing in the amendments made

6 by this section shall be construed to infer that a gov7 ernmental plan (as defined in section 414(d) of the

8 Internal Revenue Code of 1986) fails to satisfy the re9 quirements of section 415 of such Code for any tax10 able year beginning before January 1, 1995.

11 SEC. 1445. UNIFORM RETIREMENT AGE.

12 (a) DISCRIMINATION TESTING.—Paragraph (5) of sec13 tion 401(a) (relating to special rules relating to non14 discrimination requirements) is amended by adding at the

15 end the following new subparagraph:

16 ‘‘(F) SOCIAL SECURITY RETIREMENT AGE.—

17 For purposes of testing for discrimination under

18 paragraph (4)—

19 ‘‘(i) the social security retirement age

20 (as defined in section 415(b)(8)) shall be

21 treated as a uniform retirement age, and

22 ‘‘(ii) subsidized early retirement bene23 fits and joint and survivor annuities shall

24 not be treated as being unavailable to em25 ployees on the same terms merely because
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1 such benefits or annuities are based in

2 whole or in part on an employee’s social se3 curity retirement age (as so defined).’’

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

5 section shall apply to years beginning after December 31,

6 1996.

7 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM8 PLOYEES.

9 (a) ALL DISABLED PARTICIPANTS RECEIVING CON10 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

11 at the end the following: ‘‘If a defined contribution plan

12 provides for the continuation of contributions on behalf of

13 all participants described in clause (i) for a fixed or deter14 minable period, this subparagraph shall be applied without

15 regard to clauses (ii) and (iii).’’

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

17 section shall apply to years beginning after December 31,

18 1996.

19 SEC. 1447. TREATMENT OF DEFERRED COMPENSATION

20 PLANS OF STATE AND LOCAL GOVERNMENTS

21 AND TAX-EXEMPT ORGANIZATIONS.

22 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

23 Paragraph (9) of section 457(e) (relating to other defini24 tions and special rules) is amended to read as follows:
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1 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL2 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

3 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500 OR

4 LESS.—The total amount payable to a partici5 pant under the plan shall not be treated as made

6 available merely because the participant may

7 elect to receive such amount (or the plan may

8 distribute such amount without the participant’s

9 consent) if—

10 ‘‘(i) such amount does not exceed

11 $3,500, and

12 ‘‘(ii) such amount may be distributed

13 only if—

14 ‘‘(I) no amount has been deferred

15 under the plan with respect to such

16 participant during the 2-year period

17 ending on the date of the distribution,

18 and

19 ‘‘(II) there has been no prior dis20 tribution under the plan to such par21 ticipant to which this subparagraph

22 applied.

23 A plan shall not be treated as failing to meet the

24 distribution requirements of subsection (d) by
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1 reason of a distribution to which this subpara2 graph applies.

3 ‘‘(B) ELECTION TO DEFER COMMENCEMENT

4 OF DISTRIBUTIONS.—The total amount payable

5 to a participant under the plan shall not be

6 treated as made available merely because the

7 participant may elect to defer commencement of

8 distributions under the plan if—

9 ‘‘(i) such election is made after

10 amounts may be available under the plan

11 in accordance with subsection (d)(1)(A) and

12 before commencement of such distributions,

13 and

14 ‘‘(ii) the participant may make only 1

15 such election.’’

16 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE17 FERRAL AMOUNT.—Subsection (e) of section 457, as amend18 ed by section 1444(b)(2) (relating to governmental plans),

19 is amended by adding at the end the following new para20 graph:

21 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM

22 DEFERRAL AMOUNT.—The Secretary shall adjust the

23 $7,500 amount specified in subsections (b)(2) and

24 (c)(1) at the same time and in the same manner as

25 under section 415(d), except that the base period shall
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1 be the calendar quarter ending September 30, 1994,

2 and any increase under this paragraph which is not

3 a multiple of $500 shall be rounded to the next lowest

4 multiple of $500.’’

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

6 section shall apply to taxable years beginning after Decem7 ber 31, 1996.

8 SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM9 PENSATION PLANS OF STATE AND LOCAL

10 GOVERNMENTS.

11 (a) IN GENERAL.—Section 457 is amended by adding

12 at the end the following new subsection:

13 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET14 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

15 ‘‘(1) IN GENERAL.—A plan maintained by an el16 igible employer described in subsection (e)(1)(A) shall

17 not be treated as an eligible deferred compensation

18 plan unless all assets and income of the plan de19 scribed in subsection (b)(6) are held in trust for the

20 exclusive benefit of participants and their bene21 ficiaries.

22 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI23 PANTS.—For purposes of this title—
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1 ‘‘(A) a trust described in paragraph (1)

2 shall be treated as an organization exempt from

3 taxation under section 501(a), and

4 ‘‘(B) notwithstanding any other provision

5 of this title, amounts in the trust shall be includ6 ible in the gross income of participants and

7 beneficiaries only to the extent, and at the time,

8 provided in this section.

9 ‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—

10 For purposes of this subsection, custodial accounts

11 and contracts described in section 401(f) shall be

12 treated as trusts under rules similar to the rules

13 under section 401(f).’’

14 (b) CONFORMING AMENDMENT.—Paragraph (6) of sec15 tion 457(b) is amended by inserting ‘‘except as provided

16 in subsection (g),’’ before ‘‘which provides that’’.

17 (c) EFFECTIVE DATES.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the amendments made by this section shall

20 apply to assets and income described in section

21 457(b)(6) of the Internal Revenue Code of 1986 held

22 by a plan on and after the date of the enactment of

23 this Act.

24 (2) TRANSITION RULE.—In the case of assets and

25 income described in paragraph (1) held by a plan on
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1 the date of the enactment of this Act, a trust need

2 not be established by reason of the amendments made

3 by this section before January 1, 1999.

4 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

5 BENEFITS UNDER SECTION 415 LIMITATIONS.

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

7 767(d)(3) of the Uruguay Round Agreements Act is amend8 ed to read as follows:

9 ‘‘(A) EXCEPTION.—A plan that was adopt10 ed and in effect before December 8, 1994, shall

11 not be required to apply the amendments made

12 by subsection (b) with respect to benefits accrued

13 before the earlier of—

14 ‘‘(i) the later of the date a plan amend15 ment applying such amendment is adopted

16 or made effective, or

17 ‘‘(ii) the first day of the first limita18 tion year beginning after December 31,

19 1999.

20 Determinations under section 415(b)(2)(E) of the

21 Internal Revenue Code of 1986 before such ear22 lier date shall be made with respect to such bene23 fits on the basis of such section as in effect on

24 December 7, 1994 (except that the modification

25 made by section 1449(b) of the Small Business
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1 Job Protection Act of 1996 shall be taken into

2 account), and the provisions of the plan as in ef3 fect on December 7, 1994, but only if such provi4 sions of the plan meet the requirements of such

5 section (as so in effect).’’

6 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD7 JUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

8 EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)

9 (relating to limitation on certain assumptions) is amend10 ed—

11 (1) by striking ‘‘Except as provided in clause

12 (ii), for purposes of adjusting any benefit or limita13 tion under subparagraph (B) or (C),’’ in clause (i)

14 and inserting ‘‘For purposes of adjusting any limita15 tion under subparagraph (C) and, except as provided

16 in clause (ii), for purposes of adjusting any benefit

17 under subparagraph (B),’’, and

18 (2) by striking ‘‘For purposes of adjusting the

19 benefit or limitation of any form of benefit subject to

20 section 417(e)(3),’’ in clause (ii) and inserting ‘‘For

21 purposes of adjusting any benefit under subparagraph

22 (B) for any form of benefit subject to section

23 417(e)(3),’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

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

3 section 767 of the Uruguay Round Agreements Act.

4 (d) TRANSITIONAL RULE.—In the case of a plan that

5 was adopted and in effect before December 8, 1994, if—

6 (1) a plan amendment was adopted or made ef7 fective on or before the date of the enactment of this

8 Act applying the amendments made by section 767 of

9 the Uruguay Round Agreements Act, and

10 (2) within 1 year after the date of the enactment

11 of this Act, a plan amendment is adopted which re12 peals the amendment referred to in paragraph (1),

13 the amendment referred to in paragraph (1) shall not be

14 taken into account in applying section 767(d)(3)(A) of the

15 Uruguay Round Agreements Act, as amended by subsection

16 (a).

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

18 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

19 PERMITTED.—

20 (1) GENERAL RULE.—For purposes of section

21 403(b) of the Internal Revenue Code of 1986, the fre22 quency that an employee is permitted to enter into a

23 salary reduction agreement, the salary to which such

24 an agreement may apply, and the ability to revoke

25 such an agreement shall be determined under the rules
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1 applicable to cash or deferred elections under section

2 401(k) of such Code.

3 (2) EFFECTIVE DATE.—This subsection shall

4 apply to taxable years beginning after December 31,

5 1995.

6 (b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—

7 (1) IN GENERAL.—In the case of any contract

8 purchased in a plan year beginning before January

9 1, 1995, section 403(b) of the Internal Revenue Code

10 of 1986 shall be applied as if any reference to an em11 ployer described in section 501(c)(3) of the Internal

12 Revenue Code of 1986 which is exempt from tax

13 under section 501 of such Code included a reference

14 to an employer which is an Indian tribal government

15 (as defined by section 7701(a)(40) of such Code), a

16 subdivision of an Indian tribal government (deter17 mined in accordance with section 7871(d) of such

18 Code), an agency or instrumentality of an Indian

19 tribal government or subdivision thereof, or a cor20 poration chartered under Federal, State, or tribal law

21 which is owned in whole or in part by any of the

22 foregoing.

23 (2) ROLLOVERS.—Solely for purposes of apply24 ing section 403(b)(8) of such Code to a contract to

25 which paragraph (1) applies, a qualified cash or de-
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1 ferred arrangement under section 401(k) of such Code

2 shall be treated as if it were a plan or contract de3 scribed in clause (ii) of section 403(b)(8)(A) of such

4 Code.

5 (c) ELECTIVE DEFERRALS.—

6 (1) IN GENERAL.—Subparagraph (E) of section

7 403(b)(1) is amended to read as follows:

8 ‘‘(E) in the case of a contract purchased

9 under a salary reduction agreement, the contract

10 meets the requirements of section 401(a)(30),’’.

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

12 this subsection shall apply to years beginning after

13 December 31, 1995, except a contract shall not be re14 quired to meet any change in any requirement by

15 reason of such amendment before the 90th day after

16 the date of the enactment of this Act.

17 SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND

18 SURVIVOR ANNUITY EXPLANATION BEFORE

19 ANNUITY STARTING DATE.

20 (a) GENERAL RULE.—For purposes of section

21 417(a)(3)(A) of the Internal Revenue Code of 1986 (relating

22 to plan to provide written explanations), the minimum pe23 riod prescribed by the Secretary of the Treasury between

24 the date that the explanation referred to in such section is

25 provided and the annuity starting date shall not apply if
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1 waived by the participant and, if applicable, the partici2 pant’s spouse.

3 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

4 plan years beginning after December 31, 1996.

5 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

6 BENEFIT PLAN AND DEFINED CONTRIBUTION

7 PLAN FOR SAME EMPLOYEE; EXCESS DIS8 TRIBUTIONS.

9 (a) IN GENERAL.—Section 415(e) is repealed.

10 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

11 amended by adding at the end the following new subsection:

12 ‘‘(g) LIMITATION ON APPLICATION.—This section shall

13 not apply to distributions during years beginning after De14 cember 31, 1995, and before January 1, 1999, and such dis15 tributions shall be treated as made first from amounts not

16 described in subsection (f).’’

17 (c) CONFORMING AMENDMENTS.—

18 (1) Paragraph (1) of section 415(a) is amend19 ed—

20 (A) by adding ‘‘or’’ at the end of subpara21 graph (A),

22 (B) by striking ‘‘, or’’ at the end of sub23 paragraph (B) and inserting a period, and

24 (C) by striking subparagraph (C).
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1 (2) Subparagraph (B) of section 415(b)(5) is

2 amended by striking ‘‘and subsection (e)’’.

3 (3) Paragraph (1) of section 415(f) is amended

4 by striking ‘‘subsections (b), (c), and (e)’’ and insert5 ing ‘‘subsections (b) and (c)’’.

6 (4) Subsection (g) of section 415 is amended by

7 striking ‘‘subsections (e) and (f)’’ in the last sentence

8 and inserting ‘‘subsection (f)’’.

9 (5) Clause (i) of section 415(k)(2)(A) is amended

10 to read as follows:

11 ‘‘(i) any contribution made directly by

12 an employee under such an arrangement

13 shall not be treated as an annual addition

14 for purposes of subsection (c), and’’.

15 (6) Clause (ii) of section 415(k)(2)(A) is amend16 ed by striking ‘‘subsections (c) and (e)’’ and inserting

17 ‘‘subsection (c)’’.

18 (7) Section 416 is amended by striking sub19 section (h).

20 (d) EFFECTIVE DATE.—

21 (1) IN GENERAL.—Except as provided in para22 graph (2), the amendments made by this section shall

23 apply to limitation years beginning after December

24 31, 1998.
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1 (2) EXCESS DISTRIBUTIONS.—The amendment

2 made by subsection (b) shall apply to years beginning

3 after December 31, 1995.

4 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

5 (a) IN GENERAL.—Section 4975(a) is amended by

6 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

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

8 section shall apply to prohibited transactions occurring

9 after the date of the enactment of this Act.

10 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

11 (a) GENERAL RULE.—Subparagraph (C) of section

12 414(n)(2) (defining leased employee) is amended to read as

13 follows:

14 ‘‘(C) such services are performed under pri15 mary direction or control by the recipient.’’

16 (b) EFFECTIVE DATE.—The amendment made by sub17 section (a) shall apply to years beginning after December

18 31, 1996, but shall not apply to any relationship deter19 mined under an Internal Revenue Service ruling issued be20 fore the date of the enactment of this Act pursuant to section

21 414(n)(2)(C) of the Internal Revenue Code of 1986 (as in

22 effect on the day before such date) not to involve a leased

23 employee.
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1 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

2 CERTAIN PENSION REPORTING REQUIRE3 MENTS.

4 (a) PENALTIES.—

5 (1) STATEMENTS.—Paragraph (1) of section

6 6724(d) is amended by striking ‘‘and’’ at the end of

7 subparagraph (A), by striking the period at the end

8 of subparagraph (B) and inserting ‘‘, and’’, and by

9 inserting after subparagraph (B) the following new

10 subparagraph:

11 ‘‘(C) any statement of the amount of pay12 ments to another person required to be made to

13 the Secretary under—

14 ‘‘(i) section 408(i) (relating to reports

15 with respect to individual retirement ac16 counts or annuities), or

17 ‘‘(ii) section 6047(d) (relating to re18 ports by employers, plan administrators,

19 etc.).’’

20 (2) REPORTS.—Paragraph (2) of section

21 6724(d), as amended by section 1116, is amended by

22 striking ‘‘or’’ at the end of subparagraph (T), by

23 striking the period at the end of subparagraph (U)

24 and inserting a comma, and by inserting after sub25 paragraph (U) the following new subparagraphs:
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1 ‘‘(V) section 408(i) (relating to reports with

2 respect to individual retirement plans) to any

3 person other than the Secretary with respect to

4 the amount of payments made to such person, or

5 ‘‘(W) section 6047(d) (relating to reports by

6 plan administrators) to any person other than

7 the Secretary with respect to the amount of pay8 ments made to such person.’’

9 (b) MODIFICATION OF REPORTABLE DESIGNATED DIS10 TRIBUTIONS.—

11 (1) SECTION 408.—Subsection (i) of section 408

12 (relating to individual retirement account reports) is

13 amended by inserting ‘‘aggregating $10 or more in

14 any calendar year’’ after ‘‘distributions’’.

15 (2) SECTION 6047.—Paragraph (1) of section

16 6047(d) (relating to reports by employers, plan ad17 ministrators, etc.) is amended by adding at the end

18 the following new sentence: ‘‘No return or report may

19 be required under the preceding sentence with respect

20 to distributions to any person during any year unless

21 such distributions aggregate $10 or more.’’

22 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Section

23 6652(i) is amended—

24 (1) by striking ‘‘the $10’’ and inserting ‘‘$100’’,

25 and
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1 (2) by striking ‘‘$5,000’’ and inserting

2 ‘‘$50,000’’.

3 (d) CONFORMING AMENDMENTS.—

4 (1) Paragraph (1) of section 6047(f) is amended

5 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.’’

6 (2) Subsection (e) of section 6652 is amended by

7 adding at the end the following new sentence: ‘‘This

8 subsection shall not apply to any return or statement

9 which is an information return described in section

10 6724(d)(1)(C)(ii) or a payee statement described in

11 section 6724(d)(2)(W).’’

12 (3) Subsection (a) of section 6693 is amended by

13 adding at the end the following new sentence: ‘‘This

14 subsection shall not apply to any report which is an

15 information return described in section

16 6724(d)(1)(C)(i) or a payee statement described in

17 section 6724(d)(2)(V).’’

18 (e) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to returns, reports, and other statements

20 the due date for which (determined without regard to exten21 sions) is after December 31, 1996.
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1 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB2 JECT TO TAX ON NET EARNINGS FROM SELF3 EMPLOYMENT.

4 (a) IN GENERAL.—Section 1402(a)(8) (defining net

5 earning from self-employment) is amended by inserting ‘‘,

6 but shall not include in such net earnings from self-employ7 ment the rental value of any parsonage (whether or not ex8 cludable under section 107) provided after the individual

9 retires, or any other retirement benefit received by such in10 dividual from a church plan (as defined in section 414(e))

11 after the individual retires’’ before the semicolon at the end.

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

13 section shall apply to years beginning before, on, or after

14 December 31, 1994.

15 SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

16 If any amendment made by this subtitle requires an

17 amendment to any plan or annuity contract, such amend18 ment shall not be required to be made before the first day

19 of the first plan year beginning on or after January 1,

20 1997, if—

21 (1) during the period after such amendment

22 takes effect and before such first plan year, the plan

23 or contract is operated in accordance with the re24 quirements of such amendment, and

25 (2) such amendment applies retroactively to such

26 period.
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1 In the case of a governmental plan (as defined in section

2 414(d) of the Internal Revenue Code of 1986), this section

3 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.

4 Subtitle E—Foreign Simplification

5 SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS

6 INVESTED IN EXCESS PASSIVE ASSETS.

7 (a) IN GENERAL.—

8 (1) REPEAL OF INCLUSION.—Paragraph (1) of

9 section 951(a) (relating to amounts included in gross

10 income of United States shareholders) is amended by

11 striking subparagraph (C), by striking ‘‘; and’’ at the

12 end of subparagraph (B) and inserting a period, and

13 by adding ‘‘and’’ at the end of subparagraph (A).

14 (2) REPEAL OF INCLUSION AMOUNT.—Section

15 956A (relating to earnings invested in excess passive

16 assets) is repealed.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Paragraph (1) of section 956(b) is amended

19 to read as follows:

20 ‘‘(1) APPLICABLE EARNINGS.—For purposes of

21 this section, the term ‘applicable earnings’ means,

22 with respect to any controlled foreign corporation, the

23 sum of—

24 ‘‘(A) the amount (not including a deficit)

25 referred to in section 316(a)(1), and
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1 ‘‘(B) the amount referred to in section

2 316(a)(2),

3 but reduced by distributions made during the taxable

4 year.’’

5 (2) Paragraph (3) of section 956(b) is amended

6 to read as follows:

7 ‘‘(3) SPECIAL RULE WHERE CORPORATION

8 CEASES TO BE CONTROLLED FOREIGN CORPORA9 TION.—If any foreign corporation ceases to be a con10 trolled foreign corporation during any taxable year—

11 ‘‘(A) the determination of any United

12 States shareholder’s pro rata share shall be made

13 on the basis of stock owned (within the meaning

14 of section 958(a)) by such shareholder on the last

15 day during the taxable year on which the foreign

16 corporation is a controlled foreign corporation,

17 ‘‘(B) the average referred to in subsection

18 (a)(1)(A) for such taxable year shall be deter19 mined by only taking into account quarters end20 ing on or before such last day, and

21 ‘‘(C) in determining applicable earnings,

22 the amount taken into account by reason of

23 being described in paragraph (2) of section

24 316(a) shall be the portion of the amount so de25 scribed which is allocable (on a pro rata basis)
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1 to the part of such year during which the cor2 poration is a controlled foreign corporation.’’

3 (3) Subsection (a) of section 959 (relating to ex4 clusion from gross income of previously taxed earn5 ings and profits) is amended by adding ‘‘or’’ at the

6 end of paragraph (1), by striking ‘‘or’’ at the end of

7 paragraph (2), and by striking paragraph (3).

8 (4) Subsection (a) of section 959 is amended by

9 striking ‘‘paragraphs (2) and (3)’’ in the last sentence

10 and inserting ‘‘paragraph (2)’’.

11 (5) Subsection (c) of section 959 is amended by

12 adding at the end the following flush sentence:

13 ‘‘References in this subsection to section 951(a)(1)(C) and

14 subsection (a)(3) shall be treated as references to such provi15 sions as in effect on the day before the date of the enactment

16 of the Small Business Job Protection Act of 1996.’’

17 (6) Paragraph (1) of section 959(f) is amended

18 to read as follows:

19 ‘‘(1) IN GENERAL.—For purposes of this section,

20 amounts that would be included under subparagraph

21 (B) of section 951(a)(1) (determined without regard

22 to this section) shall be treated as attributable first to

23 earnings described in subsection (c)(2), and then to

24 earnings described in subsection (c)(3).’’
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1 (7) Paragraph (2) of section 959(f) is amended

2 by striking ‘‘subparagraphs (B) and (C) of section

3 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

4 (8) Subsection (b) of section 989 is amended by

5 striking ‘‘subparagraph (B) or (C) of section

6 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

7 (9) Paragraph (9) of section 1297(b) is amended

8 by striking ‘‘subparagraph (B) or (C) of section

9 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

10 (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of

11 section 1297 are each amended by striking ‘‘or section

12 956A’’.

13 (c) CLERICAL AMENDMENT.—The table of sections for

14 subpart F of part III of subchapter N of chapter 1 is

15 amended by striking the item relating to section 956A.

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

17 section shall apply to taxable years of foreign corporations

18 beginning after December 31, 1996, and to taxable years

19 of United States shareholders within which or with which

20 such taxable years of foreign corporations end.

21 Subtitle F—Revenue Offsets

22 SEC. 1601. TERMINATION OF PUERTO RICO AND POSSES23 SION TAX CREDIT.

24 (a) IN GENERAL.—Section 936 is amended by adding

25 at the end the following new subsection:
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1 ‘‘(j) TERMINATION.—

2 ‘‘(1) IN GENERAL.—Except as otherwise provided

3 in this subsection, this section shall not apply to any

4 taxable year beginning after December 31, 1995.

5 ‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS

6 INCOME CREDIT.—Except as provided in paragraph

7 (3)—

8 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

9 case of an existing credit claimant—

10 ‘‘(i) with respect to a possession other

11 than Puerto Rico, and

12 ‘‘(ii) to which subsection (a)(4)(B) does

13 not apply,

14 the credit determined under subsection (a)(1)(A)

15 shall be allowed for taxable years beginning after

16 December 31, 1995, and before January 1, 2002.

17 ‘‘(B) SPECIAL RULE FOR REDUCED CRED18 IT.—

19 ‘‘(i) IN GENERAL.—In the case of an

20 existing credit claimant to which subsection

21 (a)(4)(B) applies, the credit determined

22 under subsection (a)(1)(A) shall be allowed

23 for taxable years beginning after December

24 31, 1995, and before January 1, 1998.
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1 ‘‘(ii) ELECTION IRREVOCABLE AFTER

2 1997.—An election under subsection

3 (a)(4)(B)(iii) which is in effect for the tax4 payer’s last taxable year beginning before

5 1997 may not be revoked unless it is re6 voked for the taxpayer’s first taxable year

7 beginning in 1997 and all subsequent tax8 able years.

9 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

10 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

11 ‘‘(3) ADDITIONAL RESTRICTED CREDIT.—

12 ‘‘(A) IN GENERAL.—In the case of an exist13 ing credit claimant—

14 ‘‘(i) the credit under subsection

15 (a)(1)(A) shall be allowed for the period be16 ginning with the first taxable year after the

17 last taxable year to which subparagraph (A)

18 or (B) of paragraph (2), whichever is ap19 propriate, applied and ending with the last

20 taxable year beginning before January 1,

21 2006, except that

22 ‘‘(ii) the aggregate amount of taxable

23 income taken into account under subsection

24 (a)(1)(A) for any such taxable year shall
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1 not exceed the adjusted base period income

2 of such claimant.

3 ‘‘(B) COORDINATION WITH SUBSECTION

4 (a)(4).—The amount of income described in sub5 section (a)(1)(A) which is taken into account in

6 applying subsection (a)(4) shall be such income

7 as reduced under this paragraph.

8 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

9 purposes of paragraph (3)—

10 ‘‘(A) IN GENERAL.—The term ‘adjusted base

11 period income’ means the average of the infla12 tion-adjusted possession incomes of the corpora13 tion for each base period year.

14 ‘‘(B) INFLATION-ADJUSTED POSSESSION IN15 COME.—For purposes of subparagraph (A), the

16 inflation-adjusted possession income of any cor17 poration for any base period year shall be an

18 amount equal to the sum of—

19 ‘‘(i) the possession income of such cor20 poration for such base period year, plus

21 ‘‘(ii) such possession income multiplied

22 by the inflation adjustment percentage for

23 such base period year.

24 ‘‘(C) INFLATION ADJUSTMENT PERCENT25 AGE.—For purposes of subparagraph (B), the in-
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1 flation adjustment percentage for any base pe2 riod year means the percentage (if any) by

3 which—

4 ‘‘(i) the CPI for 1995, exceeds

5 ‘‘(ii) the CPI for the calendar year in

6 which the base period year for which the de7 termination is being made ends.

8 For purposes of the preceding sentence, the CPI

9 for any calendar year is the CPI (as defined in

10 section 1(f)(5)) for such year under section

11 1(f)(4).

12 ‘‘(D) INCREASE IN INFLATION ADJUSTMENT

13 PERCENTAGE FOR GROWTH DURING BASE

14 YEARS.—The inflation adjustment percentage

15 (determined under subparagraph (C) without re16 gard to this subparagraph) for each of the 5 tax17 able years referred to in paragraph (5)(A) shall

18 be increased by—

19 ‘‘(i) 5 percentage points in the case of

20 a taxable year ending during the 1-year pe21 riod ending on October 13, 1995;

22 ‘‘(ii) 10.25 percentage points in the

23 case of a taxable year ending during the 1-

24 year period ending on October 13, 1994;
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1 ‘‘(iii) 15.76 percentage points in the

2 case of a taxable year ending during the 1-

3 year period ending on October 13, 1993;

4 ‘‘(iv) 21.55 percentage points in the

5 case of a taxable year ending during the 1-

6 year period ending on October 13, 1992;

7 and

8 ‘‘(v) 27.63 percentage points in the

9 case of a taxable year ending during the 1-

10 year period ending on October 13, 1991.

11 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

12 subsection—

13 ‘‘(A) IN GENERAL.—The term ‘base period

14 year’ means each of 3 taxable years which are

15 among the 5 most recent taxable years of the cor16 poration ending before October 14, 1995, deter17 mined by disregarding—

18 ‘‘(i) one taxable year for which the cor19 poration had the largest inflation-adjusted

20 possession income, and

21 ‘‘(ii) one taxable year for which the

22 corporation had the smallest inflation-ad23 justed possession income.
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1 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI2 CANT POSSESSION INCOME THROUGHOUT 5-YEAR

3 PERIOD.—

4 ‘‘(i) IN GENERAL.—If a corporation

5 does not have significant possession income

6 for each of the most recent 5 taxable years

7 ending before October 14, 1995, then, in lieu

8 of applying subparagraph (A), the term

9 ‘base period year’ means only those taxable

10 years (of such 5 taxable years) for which the

11 corporation has significant possession in12 come; except that, if such corporation has

13 significant possession income for 4 of such

14 5 taxable years, the rule of subparagraph

15 (A)(ii) shall apply.

16 ‘‘(ii) SPECIAL RULE.—If there is no

17 year (of such 5 taxable years) for which a

18 corporation has significant possession in19 come—

20 ‘‘(I) the term ‘base period year’

21 means the first taxable year ending on

22 or after October 14, 1995, but

23 ‘‘(II) the amount of possession in24 come for such year which is taken into

25 account under paragraph (4) shall be
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1 the amount which would be determined

2 if such year were a short taxable year

3 ending on September 30, 1995.

4 ‘‘(iii) SIGNIFICANT POSSESSION IN5 COME.—For purposes of this subparagraph,

6 the term ‘significant possession income’

7 means possession income which exceeds 2

8 percent of the possession income of the tax9 payer for the taxable year (of the period of

10 6 taxable years ending with the first taxable

11 year ending on or after October 14, 1995)

12 having the greatest possession income.

13 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

14 YEAR.—

15 ‘‘(i) IN GENERAL.—At the election of

16 the taxpayer, the term ‘base period year’

17 means—

18 ‘‘(I) only the last taxable year of

19 the corporation ending in calendar

20 year 1992, or

21 ‘‘(II) a deemed taxable year which

22 includes the first ten months of cal23 endar year 1995.

24 ‘‘(ii) BASE PERIOD INCOME FOR

25 1995.—In determining the adjusted base pe-
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1 riod income of the corporation for the

2 deemed taxable year under clause (i)(II),

3 the possession income shall be annualized

4 and shall be determined without regard to

5 any extraordinary item.

6 ‘‘(iii) ELECTION.—An election under

7 this subparagraph by any possession cor8 poration may be made only for the corpora9 tion’s first taxable year beginning after De10 cember 31, 1995, for which it is a possession

11 corporation. The rules of subclauses (II)

12 and (III) of subsection (a)(4)(B)(iii) shall

13 apply to the election under this subpara14 graph.

15 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

16 Rules similar to the rules of subparagraphs (A)

17 and (B) of section 41(f)(3) shall apply for pur18 poses of this subsection.

19 ‘‘(6) POSSESSION INCOME.—For purposes of this

20 subsection, the term ‘possession income’ means, with

21 respect to any possession, the income referred to in

22 subsection (a)(1)(A) determined with respect to that

23 possession. In no event shall possession income be

24 treated as being less than zero.
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1 ‘‘(7) SHORT YEARS.—If the current year or a

2 base period year is a short taxable year, the applica3 tion of this subsection shall be made with such

4 annualizations as the Secretary shall prescribe.

5 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES6 SIONS.—

7 ‘‘(A) IN GENERAL.—In the case of an exist8 ing credit claimant with respect to an applicable

9 possession, this section (other than the preceding

10 paragraphs of this subsection) shall apply to

11 such claimant with respect to such applicable

12 possession for taxable years beginning after De13 cember 31, 1995, and before January 1, 2006.

14 ‘‘(B) APPLICABLE POSSESSION.—For pur15 poses of this paragraph, the term ‘applicable pos16 session’ means Guam, American Samoa, and the

17 Commonwealth of the Northern Mariana Islands.

18 ‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes

19 of this subsection—

20 ‘‘(A) IN GENERAL.—The term ‘existing cred21 it claimant’ means a corporation—

22 ‘‘(i) which was actively conducting a

23 trade or business in a possession on October

24 13, 1995, and
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1 ‘‘(ii) with respect to which an election

2 under this section is in effect for the cor3 poration’s taxable year which includes Octo4 ber 13, 1995.

5 ‘‘(B) NEW LINES OF BUSINESS PROHIB6 ITED.—If, after October 13, 1995, a corporation

7 which would (but for this subparagraph) be an

8 existing credit claimant adds a substantial new

9 line of business, such corporation shall cease to

10 be treated as an existing credit claimant as of

11 the close of the taxable year ending before the

12 date of such addition.

13 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

14 on October 13, 1995, and at all times thereafter,

15 there is in effect with respect to a corporation a

16 binding contract for the acquisition of assets to

17 be used in, or for the sale of assets to be produced

18 from, a trade or business, the corporation shall

19 be treated for purposes of this paragraph as ac20 tively conducting such trade or business on Octo21 ber 13, 1995. The preceding sentence shall not

22 apply if such trade or business is not actively

23 conducted before January 1, 1996.

24 ‘‘(10) SEPARATE APPLICATION TO EACH POSSES25 SION.—For purposes of determining—
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1 ‘‘(A) whether a taxpayer is an existing

2 credit claimant, and

3 ‘‘(B) the amount of the credit allowed under

4 this section,

5 this subsection (and so much of this section as relates

6 to this subsection) shall be applied separately with re7 spect to each possession.’’

8 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—

9 (1) IN GENERAL.—Subpart B of part IV of sub10 chapter A of chapter 1 is amended by adding at the

11 end the following new section:

12 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

13 ‘‘(a) ALLOWANCE OF CREDIT.—

14 ‘‘(1) IN GENERAL.—Except as otherwise provided

15 in this section, if the conditions of both paragraph (1)

16 and paragraph (2) of subsection (b) are satisfied with

17 respect to a qualified domestic corporation, there shall

18 be allowed as a credit against the tax imposed by this

19 chapter an amount equal to the portion of the tax

20 which is attributable to the taxable income, from

21 sources without the United States, from—

22 ‘‘(A) the active conduct of a trade or busi23 ness within Puerto Rico, or
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1 ‘‘(B) the sale or exchange of substantially

2 all of the assets used by the taxpayer in the ac3 tive conduct of such trade or business.

4 In the case of any taxable year beginning after De5 cember 31, 2001, the aggregate amount of taxable in6 come taken into account under the preceding sentence

7 (and in applying subsection (d)) shall not exceed the

8 adjusted base period income of such corporation, as

9 determined in the same manner as under section

10 936(j).

11 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For

12 purposes of paragraph (1), the term ‘qualified domes13 tic corporation’ means a domestic corporation—

14 ‘‘(A) which is an existing credit claimant

15 with respect to Puerto Rico, and

16 ‘‘(B) with respect to which section

17 936(a)(4)(B) does not apply for the taxable year.

18 ‘‘(3) SEPARATE APPLICATION.—For purposes of

19 determining—

20 ‘‘(A) whether a taxpayer is an existing

21 credit claimant with respect to Puerto Rico, and

22 ‘‘(B) the amount of the credit allowed under

23 this section,
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1 this section (and so much of section 936 as relates to

2 this section) shall be applied separately with respect

3 to Puerto Rico.

4 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The

5 conditions referred to in subsection (a) are—

6 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

7 the gross income of the qualified domestic corporation

8 for the 3-year period immediately preceding the close

9 of the taxable year (or for such part of such period

10 immediately preceding the close of such taxable year

11 as may be applicable) was derived from sources with12 in a possession (determined without regard to section

13 904(f)).

14 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

15 more of the gross income of the qualified domestic cor16 poration for such period or such part thereof was de17 rived from the active conduct of a trade or business

18 within a possession.

19 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

20 TAXES.—The credit provided by subsection (a) shall not be

21 allowed against the tax imposed by—

22 ‘‘(1) section 59A (relating to environmental tax),

23 ‘‘(2) section 531 (relating to the tax on accumu24 lated earnings),
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1 ‘‘(3) section 541 (relating to personal holding

2 company tax), or

3 ‘‘(4) section 1351 (relating to recoveries of for4 eign expropriation losses).

5 ‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSINESS

6 INCOME.—The amount of the credit determined under sub7 section (a) for any taxable year shall not exceed the sum

8 of the following amounts:

9 ‘‘(1) 60 percent of the sum of—

10 ‘‘(A) the aggregate amount of the qualified

11 domestic corporation’s qualified possession wages

12 for such taxable year, plus

13 ‘‘(B) the allocable employee fringe benefit

14 expenses of the qualified domestic corporation for

15 such taxable year.

16 ‘‘(2) The sum of—

17 ‘‘(A) 15 percent of the deprecation allow18 ances for the taxable year with respect to short19 life qualified tangible property,

20 ‘‘(B) 40 percent of the depreciation allow21 ances for the taxable year with respect to me22 dium-life qualified tangible property, and

23 ‘‘(C) 65 percent of the depreciation allow24 ances for the taxable year with respect to long25 life qualified tangible property.
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1 ‘‘(3) If the qualified domestic corporation does

2 not have an election to use the method described in

3 section 936(h)(5)(C)(ii) (relating to profit split) in ef4 fect for the taxable year, the amount of the qualified

5 possession income taxes for the taxable year allocable

6 to nonsheltered income.

7 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

8 this title—

9 ‘‘(1) the provisions of section 936 (including any

10 applicable election thereunder) shall apply in the

11 same manner as if the credit under this section were

12 a credit under section 936(a)(1)(A) for a domestic

13 corporation to which section 936(a)(4)(A) applies,

14 ‘‘(2) the credit under this section shall be treated

15 in the same manner as the credit under section 936,

16 and

17 ‘‘(3) a corporation to which this section applies

18 shall be treated in the same manner as if it were a

19 corporation electing the application of section 936.

20 ‘‘(f) DEFINITIONS.—For purposes of this section, any

21 term used in this section which is also used in section 936

22 shall have the same meaning given such term by section

23 936.
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1 ‘‘(g) APPLICATION OF SECTION.—This section shall

2 apply to taxable years beginning after December 31, 1995,

3 and before January 1, 2006.’’

4 (2) CONFORMING AMENDMENTS.—

5 (A) Paragraph (1) of section 55(c) is

6 amended by striking ‘‘and the section 936 credit

7 allowable under section 27(b)’’ and inserting ‘‘,

8 the section 936 credit allowable under section

9 27(b), and the Puerto Rican economic activity

10 credit under section 30A’’.

11 (B) Subclause (I) of section 56(g)(4)(C)(ii)

12 is amended—

13 (i) by inserting ‘‘30A,’’ before ‘‘936’’,

14 and

15 (ii) by striking ‘‘and (i)’’ and insert16 ing ‘‘, (i), and (j)’’.

17 (C) Clause (iii) of section 56(g)(4)(C) is

18 amended by adding at the end the following new

19 subclause:

20 ‘‘(VI) APPLICATION TO SECTION

21 30A CORPORATIONS.—References in this

22 clause to section 936 shall be treated as

23 including references to section 30A.’’

24 (D) Subsection (b) of section 59 is amended

25 by striking ‘‘section 936,’’ and all that follows
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1 and inserting ‘‘section 30A or 936, alternative

2 minimum taxable income shall not include any

3 income with respect to which a credit is deter4 mined under section 30A or 936.’’.

5 (E) The table of sections for subpart B of

6 part IV of subchapter A of chapter 1 is amended

7 by adding at the end the following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’

8 (F)(i) The heading for subpart B of part IV

9 of subchapter A of chapter 1 is amended to read

10 as follows:

11 ‘‘Subpart B—Other Credits’’.

12 (ii) The table of subparts for part IV of sub13 chapter A of chapter 1 is amended by striking

14 the item relating to subpart B and inserting the

15 following new item:

‘‘Subpart B. Other credits.’’

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

17 section shall apply to taxable years beginning after Decem18 ber 31, 1995.

19 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

20 LOANS USED TO ACQUIRE EMPLOYER SECU21 RITIES.

22 (a) IN GENERAL.—Section 133 (relating to interest on

23 certain loans used to acquire employer securities) is hereby

24 repealed.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Subparagraph (B) of section 291(e)(1) is

3 amended by striking clause (iv) and by redesignating

4 clause (v) as clause (iv).

5 (2) Section 812 is amended by striking sub6 section (g).

7 (3) Paragraph (5) of section 852(b) is amended

8 by striking subparagraph (C).

9 (4) Paragraph (2) of section 4978(b) is amended

10 by striking subparagraph (A) and all that follows and

11 inserting the following:

12 ‘‘(A) first from qualified securities to which

13 section 1042 applied acquired during the 3-year

14 period ending on the date of the disposition, be15 ginning with the securities first so acquired, and

16 ‘‘(B) then from any other employer securi17 ties.

18 If subsection (d) applies to a disposition, the disposi19 tion shall be treated as made from employer securities

20 in the opposite order of the preceding sentence.’’.

21 (5)(A) Section 4978B (relating to tax on disposi22 tion of employer securities to which section 133 ap23 plied) is hereby repealed.
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1 (B) The table of sections for chapter 43 is

2 amended by striking the item relating to section

3 4978B.

4 (6) Subsection (e) of section 6047 is amended by

5 striking paragraphs (1), (2), and (3) and inserting

6 the following new paragraphs:

7 ‘‘(1) any employer maintaining, or the plan ad8 ministrator (within the meaning of section 414(g)) of,

9 an employee stock ownership plan which holds stock

10 with respect to which section 404(k) applies to divi11 dends paid on such stock, or

12 ‘‘(2) both such employer or plan administrator,’’.

13 (7) Subsection (f) of section 7872 is amended by

14 striking paragraph (12).

15 (8) The table of sections for part III of sub16 chapter B of chapter 1 is amended by striking the

17 item relating to section 133.

18 (c) EFFECTIVE DATE.—

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

20 this section shall apply to loans made after October

21 13, 1995.

22 (2) REFINANCINGS.—The amendments made by

23 this section shall not apply to loans made after Octo24 ber 13, 1995, to refinance securities acquisition loans

25 (determined without regard to section 133(b)(1)(B) of
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1 the Internal Revenue Code of 1986, as in effect on the

2 day before the date of the enactment of this Act) made

3 on or before such date or to refinance loans described

4 in this paragraph if—

5 (A) the refinancing loans meet the require6 ments of section 133 of such Code (as so in ef7 fect),

8 (B) immediately after the refinancing the

9 principal amount of the loan resulting from the

10 refinancing does not exceed the principal amount

11 of the refinanced loan (immediately before the re12 financing), and

13 (C) the term of such refinancing loan does

14 not extend beyond the last day of the term of the

15 original securities acquisition loan.

16 For purposes of this paragraph, the term ‘‘securities

17 acquisition loan’’ includes a loan from a corporation

18 to an employee stock ownership plan described in sec19 tion 133(b)(3) of such Code (as so in effect).

20 (3) EXCEPTION.—Any loan made pursuant to a

21 binding written contract in effect on October 13,

22 1995, and at all times thereafter before such loan is

23 made, shall be treated for purposes of paragraphs (1)

24 and (2) as a loan made before such date.
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1 SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN

2 CORPORATIONS TREATED AS UNRELATED

3 BUSINESS TAXABLE INCOME.

4 (a) GENERAL RULE.—Subsection (b) of section 512

5 (relating to modifications) is amended by adding at the end

6 the following new paragraph:

7 ‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE8 RIVED FROM FOREIGN CORPORATIONS.—

9 ‘‘(A) IN GENERAL.—Notwithstanding para10 graph (1), any amount included in gross income

11 under section 951(a)(1)(A) shall be included as

12 an item of gross income derived from an unre13 lated trade or business to the extent the amount

14 so included is attributable to insurance income

15 (as defined in section 953) which, if derived di16 rectly by the organization, would be treated as

17 gross income from an unrelated trade or busi18 ness. There shall be allowed all deductions di19 rectly connected with amounts included in gross

20 income under the preceding sentence.

21 ‘‘(B) EXCEPTION.—Subparagraph (A) shall

22 not apply to income attributable to a policy of

23 insurance or reinsurance with respect to which

24 the person (directly or indirectly) insured is—

25 ‘‘(i) such organization,
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1 ‘‘(ii) an affiliate of such organization

2 which is exempt from tax under section

3 501(a), or

4 ‘‘(iii) a director or officer of, or an in5 dividual who (directly or indirectly) per6 forms services for, such organization or af7 filiate but only if the insurance covers pri8 marily risks associated with the perform9 ance of services in connection with such or10 ganization or affiliate.

11 For purposes of this subparagraph, the deter12 mination as to whether an entity is an affiliate

13 of an organization shall be made under rules

14 similar to the rules of section 168(h)(4)(B).

15 ‘‘(C) REGULATIONS.—The Secretary shall

16 prescribe such regulations as may be necessary

17 or appropriate to carry out the purposes of this

18 paragraph, including regulations for the appli19 cation of this paragraph in the case of income

20 paid through 1 or more entities or between 2 or

21 more chains of entities.’’

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

23 section shall apply to amounts included in gross income

24 in any taxable year beginning after December 31, 1995.
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1 SEC. 1604. DEPRECIATION UNDER INCOME FORECAST

2 METHOD.

3 (a) GENERAL RULE.—Section 167 (relating to depre4 ciation) is amended by redesignating subsection (g) as sub5 section (h) and by inserting after subsection (f) the follow6 ing new subsection:

7 ‘‘(g) DEPRECIATION UNDER INCOME FORECAST

8 METHOD.—

9 ‘‘(1) IN GENERAL.—If the depreciation deduction

10 allowable under this section to any taxpayer with re11 spect to any property is determined under the income

12 forecast method or any similar method—

13 ‘‘(A) the income from the property to be

14 taken into account in determining the deprecia15 tion deduction under such method shall be equal

16 to the amount of income earned in connection

17 with the property before the close of the 10th tax18 able year following the taxable year in which the

19 property was placed in service,

20 ‘‘(B) the adjusted basis of the property shall

21 only include amounts with respect to which the

22 requirements of section 461(h) are satisfied,

23 ‘‘(C) the depreciation deduction under such

24 method for the 10th taxable year beginning after

25 the taxable year in which the property was

26 placed in service shall be equal to the adjusted
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1 basis of such property as of the beginning of such

2 10th taxable year, and

3 ‘‘(D) such taxpayer shall pay (or be entitled

4 to receive) interest computed under the look-back

5 method of paragraph (2) for any recomputation

6 year.

7 ‘‘(2) LOOK-BACK METHOD.—The interest com8 puted under the look-back method of this paragraph

9 for any recomputation year shall be determined by—

10 ‘‘(A) first determining the depreciation de11 ductions under this section with respect to such

12 property which would have been allowable for

13 prior taxable years if the determination of the

14 amounts so allowable had been made on the basis

15 of the sum of the following (instead of the esti16 mated income from such property)—

17 ‘‘(i) the actual income earned in con18 nection with such property for periods be19 fore the close of the recomputation year, and

20 ‘‘(ii) an estimate of the future income

21 to be earned in connection with such prop22 erty for periods after the recomputation

23 year and before the close of the 10th taxable

24 year following the taxable year in which the

25 property was placed in service,
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1 ‘‘(B) second, determining (solely for pur2 poses of computing such interest) the overpay3 ment or underpayment of tax for each such prior

4 taxable year which would result solely from the

5 application of subparagraph (A), and

6 ‘‘(C) then using the adjusted overpayment

7 rate (as defined in section 460(b)(7)),

8 compounded daily, on the overpayment or under9 payment determined under subparagraph (B).

10 For purposes of the preceding sentence, any cost in11 curred after the property is placed in service (which

12 is not treated as a separate property under para13 graph (5)) shall be taken into account by discounting

14 (using the Federal mid-term rate determined under

15 section 1274(d) as of the time such cost is incurred)

16 such cost to its value as of the date the property is

17 placed in service. The taxpayer may elect with respect

18 to any property to have the preceding sentence not

19 apply to such property.

20 ‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—

21 Paragraph (1)(D) shall not apply with respect to any

22 property which, when placed in service by the tax23 payer, had a basis of $100,000 or less.

24 ‘‘(4) RECOMPUTATION YEAR.—For purposes of

25 this subsection, except as provided in regulations, the
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1 term ‘recomputation year’ means, with respect to any

2 property, the 3d and the 10th taxable years beginning

3 after the taxable year in which the property was

4 placed in service, unless the actual income earned in

5 connection with the property for the period before the

6 close of such 3d or 10th taxable year is within 10 per7 cent of the income earned in connection with the

8 property for such period which was taken into ac9 count under paragraph (1)(A).

10 ‘‘(5) SPECIAL RULES.—

11 ‘‘(A) CERTAIN COSTS TREATED AS SEPA12 RATE PROPERTY.—For purposes of this sub13 section, the following costs shall be treated as

14 separate properties:

15 ‘‘(i) Any costs incurred with respect to

16 any property after the 10th taxable year be17 ginning after the taxable year in which the

18 property was placed in service.

19 ‘‘(ii) Any costs incurred after the prop20 erty is placed in service and before the close

21 of such 10th taxable year if such costs are

22 significant and give rise to a significant in23 crease in the income from the property

24 which was not included in the estimated in25 come from the property.
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1 ‘‘(B) SYNDICATION INCOME FROM TELE2 VISION SERIES.—In the case of property which is

3 an episode in a television series, income from

4 syndicating such series shall not be required to

5 be taken into account under this subsection be6 fore the earlier of—

7 ‘‘(i) the 4th taxable year beginning

8 after the date the first episode in such series

9 is placed in service, or

10 ‘‘(ii) the earliest taxable year in which

11 the taxpayer has an arrangement relating

12 to the future syndication of such series.

13 ‘‘(C) SPECIAL RULES FOR FINANCIAL EX14 PLOITATION OF CHARACTERS, ETC.—For pur15 poses of this subsection, in the case of television

16 and motion picture films, the income from the

17 property shall include income from the exploi18 tation of characters, designs, scripts, scores, and

19 other incidental income associated with such

20 films, but only to the extent that such income is

21 earned in connection with the ultimate use of

22 such items by, or the ultimate sale of merchan23 dise to, persons who are not related persons

24 (within the meaning of section 267(b)) to the

25 taxpayer.
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1 ‘‘(D) COLLECTION OF INTEREST.—For pur2 poses of subtitle F (other than sections 6654 and

3 6655), any interest required to be paid by the

4 taxpayer under paragraph (1) for any recom5 putation year shall be treated as an increase in

6 the tax imposed by this chapter for such year.

7 ‘‘(E) DETERMINATIONS.—For purposes of

8 paragraph (2), determinations of the amount of

9 income earned in connection with any property

10 shall be made in the same manner as for pur11 poses of applying the income forecast method; ex12 cept that any income from the disposition of

13 such property shall be taken into account.

14 ‘‘(F) TREATMENT OF PASS-THRU ENTI15 TIES.—Rules similar to the rules of section

16 460(b)(4) shall apply for purposes of this sub17 section.’’

18 (b) EFFECTIVE DATE.—

19 (1) IN GENERAL.—The amendment made by sub20 section (a) shall apply to property placed in service

21 after September 13, 1995.

22 (2) BINDING CONTRACTS.—The amendment

23 made by subsection (a) shall not apply to any prop24 erty produced or acquired by the taxpayer pursuant

25 to a written contract which was binding on Septem-
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1 ber 13, 1995, and at all times thereafter before such

2 production or acquisition.

3 SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES

4 AND FOR DAMAGES NOT ATTRIBUTABLE TO

5 PHYSICAL INJURIES OR SICKNESS.

6 (a) IN GENERAL.—Paragraph (2) of section 104(a)

7 (relating to compensation for injuries or sickness) is amend8 ed to read as follows:

9 ‘‘(2) the amount of any damages (other than pu10 nitive damages) received (whether by suit or agree11 ment and whether as lump sums or as periodic pay12 ments) on account of personal physical injuries or

13 physical sickness;’’.

14 (b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT

15 PHYSICAL INJURY OR PHYSICAL SICKNESS.—Section

16 104(a) is amended by striking the last sentence and insert17 ing the following new sentence: ‘‘For purposes of paragraph

18 (2), emotional distress shall not be treated as a physical

19 injury or physical sickness. The preceding sentence shall not

20 apply to an amount of damages not in excess of the amount

21 paid for medical care (described in subparagraph (A) or

22 (B) of section 213(d)(1)) attributable to emotional dis23 tress.’’.

24 (c) APPLICATION OF PRIOR LAW FOR STATES IN

25 WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN
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1 WRONGFUL DEATH ACTIONS.—Section 104 is amended by

2 redesignating subsection (c) as subsection (d) and by insert3 ing after subsection (b) the following new subsection:

4 ‘‘(c) APPLICATION OF PRIOR LAW IN CERTAIN

5 CASES.—The phrase ‘(other than punitive damages)’ shall

6 not apply to punitive damages awarded in a civil action—

7 ‘‘(1) which is a wrongful death action, and

8 ‘‘(2) with respect to which applicable State law

9 (as in effect on September 13, 1995 and without re10 gard to any modification after such date) provides, or

11 has been construed to provide by a court of competent

12 jurisdiction pursuant to a decision issued on or before

13 September 13, 1995, that only punitive damages may

14 be awarded in such an action.

15 This subsection shall cease to apply to any civil action filed

16 on or after the first date on which the applicable State law

17 ceases to provide (or is no longer construed to provide) the

18 treatment described in paragraph (2).’’

19 (d) EFFECTIVE DATE.—

20 (1) IN GENERAL.—Except as provided in para21 graph (2), the amendments made by this section shall

22 apply to amounts received after June 30, 1996, in

23 taxable years ending after such date.

24 (2) EXCEPTION.—The amendments made by this

25 section shall not apply to any amount received under
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1 a written binding agreement, court decree, or medi2 ation award in effect on (or issued on or before) Sep3 tember 13, 1995.

4 SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR5 CHASERS OF DIESEL-POWERED AUTO6 MOBILES AND LIGHT TRUCKS.

7 (a) IN GENERAL.—Section 6427 (relating to fuels not

8 used for taxable purposes) is amended by striking subsection

9 (g).

10 (b) CONFORMING AMENDMENTS.—

11 (1) Paragraph (3) of section 34(a) is amended to

12 read as follows:

13 ‘‘(3) under section 6427 with respect to fuels

14 used for nontaxable purposes or resold during the tax15 able year (determined without regard to section

16 6427(k)).’’.

17 (2) Paragraphs (1) and (2)(A) of section 6427(i)

18 are each amended—

19 (A) by striking ‘‘(g),’’, and

20 (B) by striking ‘‘(or a qualified diesel pow21 ered highway vehicle purchased)’’ each place it

22 appears.

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

24 section shall apply to vehicles purchased after the date of

25 the enactment of this Act.
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1 Subtitle G—Technical Corrections

2 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

3 For purposes of applying the amendments made by

4 any subtitle of this title other than this subtitle, the provi5 sions of this subtitle shall be treated as having been enacted

6 immediately before the provisions of such other subtitles.

7 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC8 ONCILIATION ACT OF 1990.

9 (a) AMENDMENTS RELATED TO SUBTITLE A.—

10 (1) Subparagraph (B) of section 59(j)(3) is

11 amended by striking ‘‘section 1(i)(3)(B)’’ and insert12 ing ‘‘section 1(g)(3)(B)’’.

13 (2) Clause (i) of section 151(d)(3)(C) is amended

14 by striking ‘‘joint of a return’’ and inserting ‘‘joint

15 return’’.

16 (b) AMENDMENTS RELATED TO SUBTITLE B.—

17 (1) Paragraph (1) of section 11212(e) of the Rev18 enue Reconciliation Act of 1990 is amended by strik19 ing ‘‘Paragraph (1) of section 6724(d)’’ and inserting

20 ‘‘Subparagraph (B) of section 6724(d)(1)’’.

21 (2)(A) Subparagraph (B) of section 4093(c)(2),

22 as in effect before the amendments made by the Reve23 nue Reconciliation Act of 1993, is amended by insert24 ing before the period ‘‘unless such fuel is sold for ex-
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1 clusive use by a State or any political subdivision

2 thereof’’.

3 (B) Paragraph (4) of section 6427(l), as in effect

4 before the amendments made by the Revenue Rec5 onciliation Act of 1993, is amended by inserting be6 fore the period ‘‘unless such fuel was used by a State

7 or any political subdivision thereof’’.

8 (3) Paragraph (1) of section 6416(b) is amended

9 by striking ‘‘chapter 32 or by section 4051’’ and in10 serting ‘‘chapter 31 or 32’’.

11 (4) Section 7012 is amended—

12 (A) by striking ‘‘production or importation

13 of gasoline’’ in paragraph (3) and inserting

14 ‘‘taxes on gasoline and diesel fuel’’, and

15 (B) by striking paragraph (4) and redesig16 nating paragraphs (5) and (6) as paragraphs

17 (4) and (5), respectively.

18 (5) Subsection (c) of section 5041 is amended by

19 striking paragraph (6) and by inserting the following

20 new paragraphs:

21 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

22 ‘‘(A) wine produced by any person would be

23 eligible for any credit under paragraph (1) if re24 moved by such person during the calendar year,
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1 ‘‘(B) wine produced by such person is re2 moved during such calendar year by any other

3 person (hereafter in this paragraph referred to as

4 the ‘transferee’) to whom such wine was trans5 ferred in bond and who is liable for the tax im6 posed by this section with respect to such wine,

7 and

8 ‘‘(C) such producer holds title to such wine

9 at the time of its removal and provides to the

10 transferee such information as is necessary to

11 properly determine the transferee’s credit under

12 this paragraph,

13 then, the transferee (and not the producer) shall be al14 lowed the credit under paragraph (1) which would be

15 allowed to the producer if the wine removed by the

16 transferee had been removed by the producer on that

17 date.

18 ‘‘(7) REGULATIONS.—The Secretary may pre19 scribe such regulations as may be necessary to carry

20 out the purposes of this subsection, including regula21 tions—

22 ‘‘(A) to prevent the credit provided in this

23 subsection from benefiting any person who pro24 duces more than 250,000 wine gallons during a

25 calendar year, and
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1 ‘‘(B) to assure proper reduction of such

2 credit for persons producing more than 150,000

3 wine gallons of wine during a calendar year.’’

4 (6) Paragraph (3) of section 5061(b) is amended

5 to read as follows:

6 ‘‘(3) section 5041(f),’’.

7 (7) Section 5354 is amended by inserting ‘‘(tak8 ing into account the appropriate amount of credit

9 with respect to such wine under section 5041(c))’’

10 after ‘‘any one time’’.

11 (c) AMENDMENTS RELATED TO SUBTITLE C.—

12 (1) Paragraph (4) of section 56(g) is amended by

13 redesignating subparagraphs (I) and (J) as subpara14 graphs (H) and (I), respectively.

15 (2) Subparagraph (B) of section 6724(d)(1) is

16 amended—

17 (A) by striking ‘‘or’’ at the end of clause

18 (xii), and

19 (B) by striking the period at the end of

20 clause (xiii) and inserting ‘‘, or’’.

21 (3) Subsection (g) of section 6302 is amended by

22 inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

23 (4) The earnings and profits of any insurance

24 company to which section 11305(c)(3) of the Revenue

25 Reconciliation Act of 1990 applies shall be deter-
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1 mined without regard to any deduction allowed under

2 such section; except that, for purposes of applying sec3 tions 56 and 902, and subpart F of part III of sub4 chapter N of chapter 1 of the Internal Revenue Code

5 of 1986, such deduction shall be taken into account.

6 (5) Subparagraph (D) of section 6038A(e)(4) is

7 amended—

8 (A) by striking ‘‘any transaction to which

9 the summons relates’’ and inserting ‘‘any af10 fected taxable year’’, and

11 (B) by adding at the end thereof the follow12 ing new sentence: ‘‘For purposes of this subpara13 graph, the term ‘affected taxable year’ means

14 any taxable year if the determination of the

15 amount of tax imposed for such taxable year is

16 affected by the treatment of the transaction to

17 which the summons relates.’’.

18 (6) Subparagraph (A) of section 6621(c)(2) is

19 amended by adding at the end thereof the following

20 new flush sentence:

21 ‘‘The preceding sentence shall be applied without

22 regard to any such letter or notice which is with23 drawn by the Secretary.’’.
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1 (7) Clause (i) of section 6621(c)(2)(B) is amend2 ed by striking ‘‘this subtitle’’ and inserting ‘‘this

3 title’’.

4 (d) AMENDMENTS RELATED TO SUBTITLE D.—

5 (1) Notwithstanding section 11402(c) of the Rev6 enue Reconciliation Act of 1990, the amendment

7 made by section 11402(b)(1) of such Act shall apply

8 to taxable years ending after December 31, 1989.

9 (2) Clause (ii) of section 143(m)(4)(C) is amend10 ed—

11 (A) by striking ‘‘any month of the 10-year

12 period’’ and inserting ‘‘any year of the 4-year

13 period’’,

14 (B) by striking ‘‘succeeding months’’ and

15 inserting ‘‘succeeding years’’, and

16 (C) by striking ‘‘over the remainder of such

17 period (or, if lesser, 5 years)’’ and inserting ‘‘to

18 zero over the succeeding 5 years’’.

19 (e) AMENDMENTS RELATED TO SUBTITLE E.—

20 (1)(A) Clause (ii) of section 56(d)(1)(B) is

21 amended to read as follows:

22 ‘‘(ii) appropriate adjustments in the

23 application of section 172(b)(2) shall be

24 made to take into account the limitation of

25 subparagraph (A).’’
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1 (B) For purposes of applying sections 56(g)(1)

2 and 56(g)(3) of the Internal Revenue Code of 1986

3 with respect to taxable years beginning in 1991 and

4 1992, the reference in such sections to the alternative

5 tax net operating loss deduction shall be treated as

6 including a reference to the deduction under section

7 56(h) of such Code as in effect before the amendments

8 made by section 1915 of the Energy Policy Act of

9 1992.

10 (2) Clause (i) of section 613A(c)(3)(A) is amend11 ed by striking ‘‘the table contained in’’.

12 (3) Section 6501 is amended—

13 (A) by striking subsection (m) (relating to

14 deficiency attributable to election under section

15 44B) and by redesignating subsections (n) and

16 (o) as subsections (m) and (n), respectively, and

17 (B) by striking ‘‘section 40(f) or 51(j)’’ in

18 subsection (m) (as redesignated by subparagraph

19 (A)) and inserting ‘‘section 40(f), 43, or 51(j)’’.

20 (4) Subparagraph (C) of section 38(c)(2) (as in

21 effect on the day before the date of the enactment of

22 the Revenue Reconciliation Act of 1990) is amended

23 by inserting before the period at the end of the first

24 sentence the following: ‘‘and without regard to the de25 duction under section 56(h)’’.
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1 (5) The amendment made by section

2 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

3 shall apply to taxable years beginning after December

4 31, 1990.

5 (f) AMENDMENTS RELATED TO SUBTITLE F.—

6 (1)(A) Section 2701(a)(3) is amended by adding

7 at the end thereof the following new subparagraph:

8 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

9 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

10 case of an applicable retained interest which is

11 described in subparagraph (B)(i) but not sub12 paragraph (B)(ii), the value of the distribution

13 right shall be determined without regard to this

14 section.’’

15 (B) Section 2701(a)(3)(B) is amended by insert16 ing ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the heading

17 thereof.

18 (C) Sections 2701 (d)(1) and (d)(4) are each

19 amended by striking ‘‘subsection (a)(3)(B)’’ and in20 serting ‘‘subsection (a)(3) (B) or (C)’’.

21 (2) Clause (i) of section 2701(a)(4)(B) is amend22 ed by inserting ‘‘(or, to the extent provided in regula23 tions, the rights as to either income or capital)’’ after

24 ‘‘income and capital’’.
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1 (3)(A) Section 2701(b)(2) is amended by adding

2 at the end thereof the following new subparagraph:

3 ‘‘(C) APPLICABLE FAMILY MEMBER.—For

4 purposes of this subsection, the term ‘applicable

5 family member’ includes any lineal descendant

6 of any parent of the transferor or the transferor’s

7 spouse.’’

8 (B) Section 2701(e)(3) is amended—

9 (i) by striking subparagraph (B), and

10 (ii) by striking so much of paragraph (3) as

11 precedes ‘‘shall be treated as holding’’ and insert12 ing:

13 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS AND

14 TRANSFERS.—An individual’’.

15 (C) Section 2704(c)(3) is amended by striking

16 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

17 2701(e)(3)’’.

18 (4) Clause (i) of section 2701(c)(1)(B) is amend19 ed to read as follows:

20 ‘‘(i) a right to distributions with re21 spect to any interest which is junior to the

22 rights of the transferred interest,’’.

23 (5)(A) Clause (i) of section 2701(c)(3)(C) is

24 amended to read as follows:
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1 ‘‘(i) IN GENERAL.—Payments under

2 any interest held by a transferor which

3 (without regard to this subparagraph) are

4 qualified payments shall be treated as

5 qualified payments unless the transferor

6 elects not to treat such payments as quali7 fied payments. Payments described in the

8 preceding sentence which are held by an ap9 plicable family member shall be treated as

10 qualified payments only if such member

11 elects to treat such payments as qualified

12 payments.’’

13 (B) The first sentence of section 2701(c)(3)(C)(ii)

14 is amended to read as follows: ‘‘A transferor or appli15 cable family member holding any distribution right

16 which (without regard to this subparagraph) is not a

17 qualified payment may elect to treat such right as a

18 qualified payment, to be paid in the amounts and at

19 the times specified in such election.’’.

20 (C) The time for making an election under the

21 second sentence of section 2701(c)(3)(C)(i) of the In22 ternal Revenue Code of 1986 (as amended by sub23 paragraph (A)) shall not expire before the due date

24 (including extensions) for filing the transferor’s re25 turn of the tax imposed by section 2501 of such Code
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1 for the first calendar year ending after the date of en2 actment.

3 (6) Section 2701(d)(3)(A)(iii) is amended by

4 striking ‘‘the period ending on the date of’’.

5 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

6 amended by inserting ‘‘or the exclusion under section

7 2503(b),’’ after ‘‘section 2523,’’.

8 (8) Section 2701(e)(5) is amended—

9 (A) by striking ‘‘such contribution to cap10 ital or such redemption, recapitalization, or

11 other change’’ in subparagraph (A) and insert12 ing ‘‘such transaction’’, and

13 (B) by striking ‘‘the transfer’’ in subpara14 graph (B) and inserting ‘‘such transaction’’.

15 (9) Section 2701(d)(4) is amended by adding at

16 the end thereof the following new subparagraph:

17 ‘‘(C) TRANSFER TO TRANSFERORS.—In the

18 case of a taxable event described in paragraph

19 (3)(A)(ii) involving a transfer of an applicable

20 retained interest from an applicable family

21 member to a transferor, this subsection shall con22 tinue to apply to the transferor during any pe23 riod the transferor holds such interest.’’
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1 (10) Section 2701(e)(6) is amended by inserting

2 ‘‘or to reflect the application of subsection (d)’’ before

3 the period at the end thereof.

4 (11)(A) Section 2702(a)(3)(A) is amended—

5 (i) by striking ‘‘to the extent’’ and inserting

6 ‘‘if’’ in clause (i),

7 (ii) by striking ‘‘or’’ at the end of clause (i),

8 (iii) by striking the period at the end of

9 clause (ii) and inserting ‘‘, or’’, and

10 (iv) by adding at the end thereof the follow11 ing new clause:

12 ‘‘(iii) to the extent that regulations

13 provide that such transfer is not inconsist14 ent with the purposes of this section.’’

15 (B)(i) Section 2702(a)(3) is amended by striking

16 ‘‘incomplete transfer’’ each place it appears and in17 serting ‘‘incomplete gift’’.

18 (ii) The heading for section 2702(a)(3)(B) is

19 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

20 inserting ‘‘INCOMPLETE GIFT’’.

21 (g) AMENDMENTS RELATED TO SUBTITLE G.—

22 (1)(A) Subsection (a) of section 1248 is

23 amended—

24 (i) by striking ‘‘, or if a United States per25 son receives a distribution from a foreign cor-
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1 poration which, under section 302 or 331, is

2 treated as an exchange of stock’’ in paragraph

3 (1), and

4 (ii) by adding at the end thereof the follow5 ing new sentence: ‘‘For purposes of this section,

6 a United States person shall be treated as having

7 sold or exchanged any stock if, under any provi8 sion of this subtitle, such person is treated as re9 alizing gain from the sale or exchange of such

10 stock.’’.

11 (B) Paragraph (1) of section 1248(e) is amended

12 by striking ‘‘, or receives a distribution from a domes13 tic corporation which, under section 302 or 331, is

14 treated as an exchange of stock’’.

15 (C) Subparagraph (B) of section 1248(f)(1) is

16 amended by striking ‘‘or 361(c)(1)’’ and inserting

17 ‘‘355(c)(1), or 361(c)(1)’’.

18 (D) Paragraph (1) of section 1248(i) is amended

19 to read as follows:

20 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

21 percent corporate shareholder of a foreign corporation

22 exchanges stock of the 10-percent corporate share23 holder for stock of the foreign corporation, such 10-

24 percent corporate shareholder shall recognize gain in
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1 the same manner as if the stock of the foreign cor2 poration received in such exchange had been—

3 ‘‘(A) issued to the 10-percent corporate

4 shareholder, and

5 ‘‘(B) then distributed by the 10-percent cor6 porate shareholder to such shareholder in re7 demption or liquidation (whichever is appro8 priate).

9 The amount of gain recognized by such 10-percent

10 corporate shareholder under the preceding sentence

11 shall not exceed the amount treated as a dividend

12 under this section.’’

13 (2) Section 897 is amended by striking sub14 section (f).

15 (3) Paragraph (13) of section 4975(d) is

16 amended by striking ‘‘section 408(b)’’ and inserting

17 ‘‘section 408(b)(12)’’.

18 (4) Clause (iii) of section 56(g)(4)(D) is

19 amended by inserting ‘‘, but only with respect to tax20 able years beginning after December 31, 1989’’ before

21 the period at the end thereof.

22 (5)(A) Paragraph (11) of section 11701(a) of the

23 Revenue Reconciliation Act of 1990 (and the amend24 ment made by such paragraph) are hereby repealed,

25 and section 7108(r)(2) of the Revenue Reconciliation
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1 Act of 1989 shall be applied as if such paragraph

2 (and amendment) had never been enacted.

3 (B) Subparagraph (A) shall not apply to any

4 building if the owner of such building establishes to

5 the satisfaction of the Secretary of the Treasury or his

6 delegate that such owner reasonably relied on the

7 amendment made by such paragraph (11).

8 (h) AMENDMENTS RELATED TO SUBTITLE H.—

9 (1)(A) Clause (vi) of section 168(e)(3)(B) is

10 amended by striking ‘‘or’’ at the end of subclause (I),

11 by striking the period at the end of subclause (II) and

12 inserting ‘‘, or’’, and by adding at the end thereof the

13 following new subclause:

14 ‘‘(III) is described in section

15 48(l)(3)(A)(ix) (as in effect on the day

16 before the date of the enactment of the

17 Revenue Reconciliation Act of 1990).’’

18 (B) Subparagraph (B) of section 168(e)(3) (re19 lating to 5-year property) is amended by adding at

20 the end the following flush sentence:

21 ‘‘Nothing in any provision of law shall be con22 strued to treat property as not being described in

23 clause (vi)(I) (or the corresponding provisions of

24 prior law) by reason of being public utility
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1 property (within the meaning of section

2 48(a)(3)).’’

3 (C) Subparagraph (K) of section 168(g)(4) is

4 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

5 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

6 day before the date of the enactment of the Revenue

7 Reconciliation Act of 1990)’’.

8 (2) Clause (ii) of section 172(b)(1)(E) is amend9 ed by striking ‘‘subsection (m)’’ and inserting ‘‘sub10 section (h)’’.

11 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

12 and 832(b)(5)(D)(ii)(II) are each amended by strik13 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

14 (4) Subparagraph (A) of section 243(b)(3) is

15 amended by inserting ‘‘of’’ after ‘‘In the case’’.

16 (5) The subsection heading for subsection (a) of

17 section 280F is amended by striking ‘‘INVESTMENT

18 TAX CREDIT AND’’.

19 (6) Clause (i) of section 1504(c)(2)(B) is amend20 ed by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

21 (7) Paragraph (3) of section 341(f) is amended

22 by striking ‘‘351, 361, 371(a), or 374(a)’’ and insert23 ing ‘‘351, or 361’’.

24 (8) Paragraph (2) of section 243(b) is amended

25 to read as follows:
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1 ‘‘(2) AFFILIATED GROUP.—For purposes of this

2 subsection:

3 ‘‘(A) IN GENERAL.—The term ‘affiliated

4 group’ has the meaning given such term by sec5 tion 1504(a), except that for such purposes sec6 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

7 not apply.

8 ‘‘(B) GROUP MUST BE CONSISTENT IN FOR9 EIGN TAX TREATMENT.—The requirements of

10 paragraph (1)(A) shall not be treated as being

11 met with respect to any dividend received by a

12 corporation if, for any taxable year which in13 cludes the day on which such dividend is re14 ceived—

15 ‘‘(i) 1 or more members of the affili16 ated group referred to in paragraph (1)(A)

17 choose to any extent to take the benefits of

18 section 901, and

19 ‘‘(ii) 1 or more other members of such

20 group claim to any extent a deduction for

21 taxes otherwise creditable under section

22 901.’’

23 (9) The amendment made by section

24 11813(b)(17) of the Revenue Reconciliation Act of

25 1990 shall be applied as if the material stricken by
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1 such amendment included the closing parenthesis

2 after ‘‘section 48(a)(5)’’.

3 (10) Paragraph (1) of section 179(d) is amended

4 by striking ‘‘in a trade or business’’ and inserting ‘‘a

5 trade or business’’.

6 (11) Subparagraph (E) of section 50(a)(2) is

7 amended by striking ‘‘section 48(a)(5)(A)’’ and in8 serting ‘‘section 48(a)(5)’’.

9 (12) The amendment made by section

10 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

11 of 1990 shall be applied as if it struck ‘‘Section

12 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

13 (13) Subparagraph (B) of section 424(c)(3) is

14 amended by striking ‘‘a qualified stock option, an in15 centive stock option, an option granted under an em16 ployee stock purchase plan, or a restricted stock op17 tion’’ and inserting ‘‘an incentive stock option or an

18 option granted under an employee stock purchase

19 plan’’.

20 (14) Subparagraph (E) of section 1367(a)(2) is

21 amended by striking ‘‘section 613A(c)(13)(B)’’ and

22 inserting ‘‘section 613A(c)(11)(B)’’.

23 (15) Subparagraph (B) of section 460(e)(6) is

24 amended by striking ‘‘section 167(k)’’ and inserting

25 ‘‘section 168(e)(2)(A)(ii)’’.
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1 (16) Subparagraph (C) of section 172(h)(4) is

2 amended by striking ‘‘subsection (b)(1)(M)’’ and in3 serting ‘‘subsection (b)(1)(E)’’.

4 (17) Section 6503 is amended—

5 (A) by redesignating the subsection relating

6 to extension in case of certain summonses as sub7 section (j), and

8 (B) by redesignating the subsection relating

9 to cross references as subsection (k).

10 (18) Paragraph (4) of section 1250(e) is hereby

11 repealed.

12 (i) EFFECTIVE DATE.—Except as otherwise expressly

13 provided—

14 (1) the amendments made by this section shall be

15 treated as amendments to the Internal Revenue Code

16 of 1986 as amended by the Revenue Reconciliation

17 Act of 1993; and

18 (2) any amendment made by this section shall

19 apply to periods before the date of the enactment of

20 this section in the same manner as if it had been in21 cluded in the provision of the Revenue Reconciliation

22 Act of 1990 to which such amendment relates.
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1 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC2 ONCILIATION ACT OF 1993.

3 (a) AMENDMENT RELATED TO SECTION 13114.—

4 Paragraph (2) of section 1044(c) is amended to read as fol5 lows:

6 ‘‘(2) PURCHASE.—The taxpayer shall be consid7 ered to have purchased any property if, but for sub8 section (d), the unadjusted basis of such property

9 would be its cost within the meaning of section 1012.’’

10 (b) AMENDMENTS RELATED TO SECTION 13142.—

11 (1) Subparagraph (B) of section 13142(b)(6) of

12 the Revenue Reconciliation Act of 1993 is amended to

13 read as follows:

14 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU15 THORITY, AND PROHIBITED DISCRIMINATION.—

16 The amendments made by paragraphs (2), (3),

17 and (4) shall take effect on the date of the enact18 ment of this Act.’’

19 (2) Subparagraph (C) of section 13142(b)(6) of

20 such Act is amended by striking ‘‘paragraph (2)’’ and

21 inserting ‘‘paragraph (5)’’.

22 (c) AMENDMENT RELATED TO SECTION 13161.—

23 (1) IN GENERAL.—Subsection (e) of section 4001

24 (relating to inflation adjustment) is amended to read

25 as follows:

26 ‘‘(e) INFLATION ADJUSTMENT.—
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1 ‘‘(1) IN GENERAL.—The $30,000 amount in sub2 section (a) and section 4003(a) shall be increased by

3 an amount equal to—

4 ‘‘(A) $30,000, multiplied by

5 ‘‘(B) the cost-of-living adjustment under sec6 tion 1(f)(3) for the calendar year in which the

7 vehicle is sold, determined by substituting ‘cal8 endar year 1990’ for ‘calendar year 1992’ in

9 subparagraph (B) thereof.

10 ‘‘(2) ROUNDING.—If any amount as adjusted

11 under paragraph (1) is not a multiple of $2,000, such

12 amount shall be rounded to the next lowest multiple

13 of $2,000.’’

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

15 paragraph (1) shall take effect on the date of the en16 actment of this Act.

17 (d) AMENDMENT RELATED TO SECTION 13201.—

18 Clause (ii) of section 135(b)(2)(B) is amended by inserting

19 before the period at the end thereof the following: ‘‘, deter20 mined by substituting ‘calendar year 1989’ for ‘calendar

21 year 1992’ in subparagraph (B) thereof’’.

22 (e) AMENDMENTS RELATED TO SECTION 13203.—Sub23 section (a) of section 59 is amended—

24 (1) by striking ‘‘the amount determined under

25 section 55(b)(1)(A)’’ in paragraph (1)(A) and
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1 (2)(A)(i) and inserting ‘‘the pre-credit tentative mini2 mum tax’’,

3 (2) by striking ‘‘specified in section 55(b)(1)(A)’’

4 in paragraph (1)(C) and inserting ‘‘specified in sub5 paragraph (A)(i) or (B)(i) of section 55(b)(1) (which6 ever applies)’’,

7 (3) by striking ‘‘which would be determined

8 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

9 and inserting ‘‘which would be the pre-credit tentative

10 minimum tax’’, and

11 (4) by adding at the end thereof the following

12 new paragraph:

13 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

14 For purposes of this subsection, the term ‘pre-credit

15 tentative minimum tax’ means—

16 ‘‘(A) in the case of a taxpayer other than a

17 corporation, the amount determined under the

18 first sentence of section 55(b)(1)(A)(i), or

19 ‘‘(B) in the case of a corporation, the

20 amount determined under section

21 55(b)(1)(B)(i).’’

22 (f) AMENDMENT RELATED TO SECTION 13221.—Sec23 tions 1201(a) and 1561(a) are each amended by striking

24 ‘‘last sentence’’ each place it appears and inserting ‘‘last

25 2 sentences’’.
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1 (g) AMENDMENTS RELATED TO SECTION 13222.—

2 (1) Subparagraph (B) of section 6033(e)(1) is

3 amended by adding at the end thereof the following

4 new clause:

5 ‘‘(iii) COORDINATION WITH SECTION

6 527(f).—This subsection shall not apply to

7 any amount on which tax is imposed by

8 reason of section 527(f).’’.

9 (2) Clause (i) of section 6033(e)(1)(B) is amend10 ed by striking ‘‘this subtitle’’ and inserting ‘‘section

11 501’’.

12 (h) AMENDMENT RELATED TO SECTION 13225.—Para13 graph (3) of section 6655(g) is amended by striking all that

14 follows ‘‘ ‘3rd month’ ’’ in the sentence following subpara15 graph (C) and inserting ‘‘, subsection (e)(2)(A) shall be ap16 plied by substituting ‘2 months’ for ‘3 months’ in clause

17 (i)(I), the election under clause (i) of subsection (e)(2)(C)

18 may be made separately for each installment, and clause

19 (ii) of subsection (e)(2)(C) shall not apply.’’.

20 (i) AMENDMENTS RELATED TO SECTION 13231.—

21 (1) Subparagraph (G) of section 904(d)(3) is

22 amended by striking ‘‘section 951(a)(1)(B)’’ and in23 serting ‘‘subparagraph (B) or (C) of section

24 951(a)(1)’’.
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1 (2) Paragraph (1) of section 956A(b) is amended

2 to read as follows:

3 ‘‘(1) the amount (not including a deficit) re4 ferred to in section 316(a)(1) to the extent such

5 amount was accumulated in prior taxable years be6 ginning after September 30, 1993, and’’.

7 (3) Subsection (f) of section 956A is amended by

8 inserting before the period at the end thereof: ‘‘and

9 regulations coordinating the provisions of subsections

10 (c)(3)(A) and (d)’’.

11 (4) Subsection (b) of section 958 is amended by

12 striking ‘‘956(b)(2)’’ each place it appears and insert13 ing ‘‘956(c)(2)’’.

14 (5)(A) Subparagraph (A) of section 1297(d)(2) is

15 amended by striking ‘‘The adjusted basis of any

16 asset’’ and inserting ‘‘The amount taken into account

17 under section 1296(a)(2) with respect to any asset’’.

18 (B) The paragraph heading of paragraph (2) of

19 section 1297(d) is amended to read as follows:

20 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.

21 (6) Subsection (e) of section 1297 is amended by

22 inserting ‘‘For purposes of this part—’’ after the sub23 section heading.
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1 (j) AMENDMENT RELATED TO SECTION 13241.—Sub2 paragraph (B) of section 40(e)(1) is amended to read as

3 follows:

4 ‘‘(B) for any period before January 1, 2001,

5 during which the rates of tax under section

6 4081(a)(2)(A) are 4.3 cents per gallon.’’

7 (k) AMENDMENT RELATED TO SECTION 13261.—

8 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec9 onciliation Act of 1993 is amended by striking ‘‘by the tax10 payer’’ and inserting ‘‘by the taxpayer or a related person’’.

11 (l) AMENDMENT RELATED TO SECTION 13301.—Sub12 paragraph (B) of section 1397B(d)(5) is amended by strik13 ing ‘‘preceding’’.

14 (m) CLERICAL AMENDMENTS.—

15 (1) Subsection (d) of section 39 is amended—

16 (A) by striking ‘‘45’’ in the heading of

17 paragraph (5) and inserting ‘‘45A’’, and

18 (B) by striking ‘‘45’’ in the heading of

19 paragraph (6) and inserting ‘‘45B’’.

20 (2) Subparagraph (A) of section 108(d)(9) is

21 amended by striking ‘‘paragraph (3)(B)’’ and insert22 ing ‘‘paragraph (3)(C)’’.

23 (3) Subparagraph (C) of section 143(d)(2) is

24 amended by striking the period at the end thereof and

25 inserting a comma.
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1 (4) Clause (ii) of section 163(j)(6)(E) is amended

2 by striking ‘‘which is a’’ and inserting ‘‘which is’’.

3 (5) Subparagraph (A) of section 1017(b)(4) is

4 amended by striking ‘‘subsection (b)(2)(D)’’ and in5 serting ‘‘subsection (b)(2)(E)’’.

6 (6) So much of section 1245(a)(3) as precedes

7 subparagraph (A) thereof is amended to read as

8 follows:

9 ‘‘(3) SECTION 1245 PROPERTY.—For purposes of

10 this section, the term ‘section 1245 property’ means

11 any property which is or has been property of a char12 acter subject to the allowance for depreciation pro13 vided in section 167 and is either—’’.

14 (7) Paragraph (2) of section 1394(e) is amend15 ed—

16 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

17 and

18 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.

19 (8) Subsection (m) of section 6501 (as redesig20 nated by section 1602) is amended by striking ‘‘or

21 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

22 (9)(A) The section 6714 added by section

23 13242(b)(1) of the Revenue Reconciliation Act of 1993

24 is hereby redesignated as section 6715.
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1 (B) The table of sections for part I of subchapter

2 B of chapter 68 is amended by striking ‘‘6714’’ in the

3 item added by such section 13242(b)(2) of such Act

4 and inserting ‘‘6715’’.

5 (10) Paragraph (2) of section 9502(b) is amend6 ed by inserting ‘‘and before’’ after ‘‘1982,’’.

7 (11) Subsection (a)(3) of section 13206 of the

8 Revenue Reconciliation Act of 1993 is amended by

9 striking ‘‘this section’’ and inserting ‘‘this sub10 section’’.

11 (12) Paragraph (1) of section 13215(c) of the

12 Revenue Reconciliation Act of 1993 is amended by

13 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

14 Law 98–21’’.

15 (13) Paragraph (2) of section 13311(e) of the

16 Revenue Reconciliation Act of 1993 is amended by

17 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

18 1393(a)(2)’’.

19 (14) Subparagraph (B) of section 117(d)(2) is

20 amended by striking ‘‘section 132(f)’’ and inserting

21 ‘‘section 132(h)’’.

22 (n) EFFECTIVE DATE.—Any amendment made by this

23 section shall take effect as if included in the provision of

24 the Revenue Reconciliation Act of 1993 to which such

25 amendment relates.
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1 SEC. 1704. MISCELLANEOUS PROVISIONS.

2 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

3 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

4 1990.—Except as otherwise expressly provided, whenever in

5 title XII of the Omnibus Budget Reconciliation Act of 1990

6 an amendment or repeal is expressed in terms of an amend7 ment to, or repeal of, a section or other provision, the ref8 erence shall be considered to be made to a section or other

9 provision of the Internal Revenue Code of 1986.

10 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

11 HEDGE BOND RULES.—

12 (1) Clause (iii) of section 149(g)(3)(B) is amend13 ed to read as follows:

14 ‘‘(iii) AMOUNTS HELD PENDING REIN15 VESTMENT OR REDEMPTION.—Amounts held

16 for not more than 30 days pending reinvest17 ment or bond redemption shall be treated as

18 invested in bonds described in clause (i).’’

19 (2) The amendment made by paragraph (1) shall

20 take effect as if included in the amendments made by

21 section 7651 of the Omnibus Budget Reconciliation

22 Act of 1989.

23 (c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER

24 SECTION 1445.—

25 (1) IN GENERAL.—Paragraph (3) of section

26 1445(e) is amended by adding at the end thereof the
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1 following new sentence: ‘‘Rules similar to the rules of

2 the preceding provisions of this paragraph shall

3 apply in the case of any distribution to which section

4 301 applies and which is not made out of the earn5 ings and profits of such a domestic corporation.’’

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

7 paragraph (1) shall apply to distributions after the

8 date of the enactment of this Act.

9 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC10 TION 469.—

11 (1) IN GENERAL.—Subparagraph (B) of section

12 469(c)(3) is amended by adding at the end thereof the

13 following new sentence: ‘‘If the preceding sentence ap14 plies to the net income from any property for any

15 taxable year, any credits allowable under subpart B

16 (other than section 27(a)) or D of part IV of sub17 chapter A for such taxable year which are attributable

18 to such property shall be treated as credits not from

19 a passive activity to the extent the amount of such

20 credits does not exceed the regular tax liability of the

21 taxpayer for the taxable year which is allocable to

22 such net income.’’

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

24 paragraph (1) shall apply to taxable years beginning

25 after December 31, 1986.
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1 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

2 LOSS RULES.—

3 (1) IN GENERAL.—Subparagraph (A) of section

4 469(g)(1) is amended to read as follows:

5 ‘‘(A) IN GENERAL.—If all gain or loss real6 ized on such disposition is recognized, the excess

7 of—

8 ‘‘(i) any loss from such activity for

9 such taxable year (determined after the ap10 plication of subsection (b)), over

11 ‘‘(ii) any net income or gain for such

12 taxable year from all other passive activities

13 (determined after the application of sub14 section (b)),

15 shall be treated as a loss which is not from a

16 passive activity.’’

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

18 paragraph (1) shall apply to taxable years beginning

19 after December 31, 1986.

20 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN PRO21 VISIONS.—

22 (1) COORDINATION OF UNIFIED ESTATE TAX

23 CREDIT WITH TREATIES.—Subparagraph (A) of sec24 tion 2102(c)(3) is amended by adding at the end

25 thereof the following new sentence: ‘‘For purposes of
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1 the preceding sentence, property shall not be treated

2 as situated in the United States if such property is

3 exempt from the tax imposed by this subchapter

4 under any treaty obligation of the United States.’’

5 (2) TREATMENT OF CERTAIN INTEREST PAID TO

6 RELATED PERSON.—

7 (A) Subparagraph (B) of section 163(j)(1)

8 is amended by inserting before the period at the

9 end thereof the following: ‘‘(and clause (ii) of

10 paragraph (2)(A) shall not apply for purposes of

11 applying this subsection to the amount so treat12 ed)’’.

13 (B) Subsection (j) of section 163 is amended

14 by redesignating paragraph (7) as paragraph

15 (8) and by inserting after paragraph (6) the fol16 lowing new paragraph:

17 ‘‘(7) COORDINATION WITH PASSIVE LOSS RULES,

18 ETC.—This subsection shall be applied before sections

19 465 and 469.’’

20 (C) The amendments made by this para21 graph shall apply as if included in the amend22 ments made by section 7210(a) of the Revenue

23 Reconciliation Act of 1989.

24 (3) TREATMENT OF INTEREST ALLOCABLE TO

25 EFFECTIVELY CONNECTED INCOME.—
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1 (A) IN GENERAL.—

2 (i) Subparagraph (B) of section

3 884(f)(1) is amended by striking ‘‘to the ex4 tent’’ and all that follows down through

5 ‘‘subparagraph (A)’’ and inserting ‘‘to the

6 extent that the allocable interest exceeds the

7 interest described in subparagraph (A)’’.

8 (ii) The second sentence of section

9 884(f)(1) is amended by striking ‘‘reason10 ably expected’’ and all that follows down

11 through the period at the end thereof and

12 inserting ‘‘reasonably expected to be alloca13 ble interest.’’

14 (iii) Paragraph (2) of section 884(f) is

15 amended to read as follows:

16 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

17 this subsection, the term ‘allocable interest’ means any

18 interest which is allocable to income which is effec19 tively connected (or treated as effectively connected)

20 with the conduct of a trade or business in the United

21 States.’’

22 (B) EFFECTIVE DATE.—The amendments

23 made by subparagraph (A) shall take effect as if

24 included in the amendments made by section

25 1241(a) of the Tax Reform Act of 1986.
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1 (4) CLARIFICATION OF SOURCE RULE.—

2 (A) IN GENERAL.—Paragraph (2) of section

3 865(b) is amended by striking ‘‘863(b)’’ and in4 serting ‘‘863’’.

5 (B) EFFECTIVE DATE.—The amendment

6 made by subparagraph (A) shall take effect as if

7 included in the amendments made by section

8 1211 of the Tax Reform Act of 1986.

9 (5) REPEAL OF OBSOLETE PROVISIONS.—

10 (A) Paragraph (1) of section 6038(a) is

11 amended by striking ‘‘, and’’ at the end of sub12 paragraph (E) and inserting a period, and by

13 striking subparagraph (F).

14 (B) Subsection (b) of section 6038A is

15 amended by adding ‘‘and’’ at the end of para16 graph (2), by striking ‘‘, and’’ at the end of

17 paragraph (3) and inserting a period, and by

18 striking paragraph (4).

19 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

20 CERTAIN BOND-FINANCED FACILITIES.—

21 (1) IN GENERAL.—Subparagraph (A) of section

22 1317(3) of the Tax Reform Act of 1986 is amended

23 by adding at the end thereof the following new sen24 tence: ‘‘A facility shall not fail to be treated as de25 scribed in this subparagraph by reason of an assign-
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1 ment (or an agreement to an assignment) by the gov2 ernmental unit on whose behalf the bonds are issued

3 of any part of its interest in the property financed by

4 such bonds to another governmental unit.’’

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

6 paragraph (1) shall take effect as if included in such

7 section 1317 on the date of the enactment of the Tax

8 Reform Act of 1986.

9 (h) CLARIFICATION OF TREATMENT OF MEDICARE EN10 TITLEMENT UNDER COBRA PROVISIONS.—

11 (1) IN GENERAL.—

12 (A) Subclause (V) of section

13 4980B(f)(2)(B)(i) is amended to read as follows:

14 ‘‘(V) MEDICARE ENTITLEMENT

15 FOLLOWED BY QUALIFYING EVENT.—In

16 the case of a qualifying event described

17 in paragraph (3)(B) that occurs less

18 than 18 months after the date the cov19 ered employee became entitled to bene20 fits under title XVIII of the Social Se21 curity Act, the period of coverage for

22 qualified beneficiaries other than the

23 covered employee shall not terminate

24 under this clause before the close of the

25 36-month period beginning on the date
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1 the covered employee became so enti2 tled.’’

3 (B) Clause (v) of section 602(2)(A) of the

4 Employee Retirement Income Security Act of

5 1974 is amended to read as follows:

6 ‘‘(v) MEDICARE ENTITLEMENT FOL7 LOWED BY QUALIFYING EVENT.—In the case

8 of a qualifying event described in section

9 603(2) that occurs less than 18 months after

10 the date the covered employee became enti11 tled to benefits under title XVIII of the So12 cial Security Act, the period of coverage for

13 qualified beneficiaries other than the covered

14 employee shall not terminate under this

15 subparagraph before the close of the 36-

16 month period beginning on the date the cov17 ered employee became so entitled.’’

18 (C) Clause (iv) of section 2202(2)(A) of the

19 Public Health Service Act is amended to read as

20 follows:

21 ‘‘(iv) MEDICARE ENTITLEMENT FOL22 LOWED BY QUALIFYING EVENT.—In the case

23 of a qualifying event described in section

24 2203(2) that occurs less than 18 months

25 after the date the covered employee became
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1 entitled to benefits under title XVIII of the

2 Social Security Act, the period of coverage

3 for qualified beneficiaries other than the

4 covered employee shall not terminate under

5 this subparagraph before the close of the 36-

6 month period beginning on the date the cov7 ered employee became so entitled.’’

8 (2) EFFECTIVE DATE.—The amendments made

9 by this subsection shall apply to plan years beginning

10 after December 31, 1989.

11 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

12 (1) IN GENERAL.—Subsection (a) of section 860E

13 is amended by adding at the end thereof the following

14 new paragraph:

15 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

16 purposes of part VI of subchapter A of this chapter—

17 ‘‘(A) the reference in section 55(b)(2) to tax18 able income shall be treated as a reference to tax19 able income determined without regard to this

20 subsection,

21 ‘‘(B) the alternative minimum taxable in22 come of any holder of a residual interest in a

23 REMIC for any taxable year shall in no event

24 be less than the excess inclusion for such taxable

25 year, and
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1 ‘‘(C) any excess inclusion shall be dis2 regarded for purposes of computing the alter3 native tax net operating loss deduction.

4 The preceding sentence shall not apply to any organi5 zation to which section 593 applies, except to the ex6 tent provided in regulations prescribed by the Sec7 retary under paragraph (2).’’

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

9 paragraph (1) shall take effect as if included in the

10 amendments made by section 671 of the Tax Reform

11 Act of 1986 unless the taxpayer elects to apply such

12 amendment only to taxable years beginning after the

13 date of the enactment of this Act.

14 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

15 FOR CERTAIN PASSENGERS.—

16 (1) IN GENERAL.—Subparagraph (D) of section

17 4462(b)(1) (relating to special rule for Alaska, Ha18 waii, and possessions) is amended by inserting before

19 the period the following: ‘‘, or passengers transported

20 on United States flag vessels operating solely within

21 the State waters of Alaska or Hawaii and adjacent

22 international waters’’.

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

24 paragraph (1) shall take effect as if included in the
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1 amendments made by section 1402(a) of the Harbor

2 Maintenance Revenue Act of 1986.

3 (k) AMENDMENTS RELATED TO REVENUE PROVISIONS

4 OF ENERGY POLICY ACT OF 1992.—

5 (1) Effective with respect to taxable years begin6 ning after December 31, 1990, subclause (II) of sec7 tion 53(d)(1)(B)(iv) is amended to read as follows:

8 ‘‘(II) the adjusted net minimum

9 tax for any taxable year is the amount

10 of the net minimum tax for such year

11 increased in the manner provided in

12 clause (iii).’’

13 (2) Subsection (g) of section 179A is redesignated

14 as subsection (f).

15 (3) Subparagraph (E) of section 6724(d)(3) is

16 amended by striking ‘‘section 6109(f)’’ and inserting

17 ‘‘section 6109(h)’’.

18 (4)(A) Subsection (d) of section 30 is amended—

19 (i) by inserting ‘‘(determined without re20 gard to subsection (b)(3))’’ before the period at

21 the end of paragraph (1) thereof, and

22 (ii) by adding at the end thereof the follow23 ing new paragraph:

24 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No credit

25 shall be allowed under subsection (a) for any vehicle
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1 if the taxpayer elects to not have this section apply

2 to such vehicle.’’

3 (B) Subsection (m) of section 6501 (as redesig4 nated by section 1602) is amended by striking ‘‘sec5 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

6 (5) Subclause (III) of section 501(c)(21)(D)(ii) is

7 amended by striking ‘‘section 101(6)’’ and inserting

8 ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and in9 serting ‘‘1752(7)’’.

10 (6) Paragraph (1) of section 1917(b) of the En11 ergy Policy Act of 1992 shall be applied as if ‘‘at a

12 rate’’ appeared instead of ‘‘at the rate’’ in the mate13 rial proposed to be stricken.

14 (7) Paragraph (2) of section 1921(b) of the En15 ergy Policy Act of 1992 shall be applied as if a

16 comma appeared after ‘‘(2)’’ in the material proposed

17 to be stricken.

18 (8) Subsection (a) of section 1937 of the Energy

19 Policy Act of 1992 shall be applied as if ‘‘Subpart B’’

20 appeared instead of ‘‘Subpart C’’.

21 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

22 PLAN.—

23 (1) IN GENERAL.—Subparagraph (F) of section

24 3(37) of the Employee Retirement Income Security

25 Act of 1974 (29 U.S.C. 1002(37)(F)) is amended by
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1 redesignating clause (ii) as clause (iii) and by insert2 ing after clause (i) the following new clause:

3 ‘‘(ii) For purposes of the Internal Revenue Code of

4 1986—

5 ‘‘(I) clause (i) shall apply, and

6 ‘‘(II) a qualified football coaches plan shall be

7 treated as a multiemployer collectively bargained

8 plan.’’.

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

10 paragraph (1) shall apply to years beginning after

11 December 22, 1987.

12 (m) DETERMINATION OF UNRECOVERED INVESTMENT

13 IN ANNUITY CONTRACT.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 72(b)(4) is amended by inserting ‘‘(determined with16 out regard to subsection (c)(2))’’ after ‘‘contract’’.

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

18 paragraph (1) shall take effect as if included in the

19 amendments made by section 1122(c) of the Tax Re20 form Act of 1986.

21 (n) MODIFICATIONS TO ELECTION TO INCLUDE

22 CHILD’S INCOME ON PARENT’S RETURN.—

23 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

24 section 1(g)(7)(A) (relating to election to include cer-
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1 tain unearned income of child on parent’s return) is

2 amended to read as follows:

3 ‘‘(ii) such gross income is more than

4 the amount described in paragraph

5 (4)(A)(ii)(I) and less than 10 times the

6 amount so described,’’.

7 (2) COMPUTATION OF TAX.—Subparagraph (B)

8 of section 1(g)(7) (relating to income included on par9 ent’s return) is amended—

10 (A) by striking ‘‘$1,000’’ in clause (i) and

11 inserting ‘‘twice the amount described in para12 graph (4)(A)(ii)(I)’’, and

13 (B) by amending subclause (II) of clause

14 (ii) to read as follows:

15 ‘‘(II) for each such child, 15 per16 cent of the lesser of the amount de17 scribed in paragraph (4)(A)(ii)(I) or

18 the excess of the gross income of such

19 child over the amount so described,

20 and’’.

21 (3) MINIMUM TAX.—Subparagraph (B) of section

22 59(j)(1) is amended by striking ‘‘$1,000’’ and insert23 ing ‘‘twice the amount in effect for the taxable year

24 under section 63(c)(5)(A)’’.
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1 (4) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to taxable years begin3 ning after December 31, 1995.

4 (o) TREATMENT OF CERTAIN VETERANS’ REEMPLOY5 MENT RIGHTS.—

6 (1) IN GENERAL.—Section 414 is amended by

7 adding at the end the following new subsection:

8 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ REEM9 PLOYMENT RIGHTS UNDER USERRA.—

10 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

11 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

12 RIGHTS.—If any contribution is made by an em13 ployer or an employee under an individual account

14 plan with respect to an employee, or by an employee

15 to a defined benefit plan that provides for employee

16 contributions, and such contribution is required by

17 reason of such employee’s rights under chapter 43 of

18 title 38, United States Code, resulting from qualified

19 military service, then—

20 ‘‘(A) such contribution shall not be subject

21 to any otherwise applicable limitation contained

22 in section 402(g), 402(h), 403(b), 404(a), 404(h),

23 408, 415, or 457, and shall not be taken into ac24 count in applying such limitations to other con25 tributions or benefits under such plan or any
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1 other plan, with respect to the year in which the

2 contribution is made,

3 ‘‘(B) such contribution shall be subject to

4 the limitations referred to in subparagraph (A)

5 with respect to the year to which the contribu6 tion relates (in accordance with rules prescribed

7 by the Secretary), and

8 ‘‘(C) such plan shall not be treated as fail9 ing to meet the requirements of section 401(a)(4),

10 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),

11 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p),

12 410(b), or 416 by reason of the making of (or the

13 right to make) such contribution.

14 For purposes of the preceding sentence, any elective

15 deferral or employee contribution made under para16 graph (2) shall be treated as required by reason of the

17 employee’s rights under such chapter 43.

18 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

19 WITH RESPECT TO ELECTIVE DEFERRALS.—

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

21 subchapter and section 457, if an employee is en22 titled to the benefits of chapter 43 of title 38,

23 United States Code, with respect to any plan

24 which provides for elective deferrals, the em25 ployer sponsoring the plan shall be treated as
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1 meeting the requirements of such chapter 43 with

2 respect to such elective deferrals only if such em3 ployer—

4 ‘‘(i) permits such employee to make ad5 ditional elective deferrals under such plan

6 (in the amount determined under subpara7 graph (B) or such lesser amount as is elect8 ed by the employee) during the period which

9 begins on the date of the reemployment of

10 such employee with such employer and has

11 the same length as the lesser of—

12 ‘‘(I) the product of 3 and the pe13 riod of qualified military service which

14 resulted in such rights, and

15 ‘‘(II) 5 years, and

16 ‘‘(ii) makes a matching contribution

17 with respect to any additional elective defer18 ral made pursuant to clause (i) which

19 would have been required had such deferral

20 actually been made during the period of

21 such qualified military service.

22 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—The

23 amount determined under this subparagraph

24 with respect to any plan is the maximum

25 amount of the elective deferrals that the individ-
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1 ual would have been permitted to make under the

2 plan in accordance with the limitations referred

3 to in paragraph (1)(A) during the period of

4 qualified military service if the individual had

5 continued to be employed by the employer during

6 such period and received compensation as deter7 mined under paragraph (7). Proper adjustment

8 shall be made to the amount determined under

9 the preceding sentence for any elective deferrals

10 actually made during the period of such quali11 fied military service.

12 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

13 of this paragraph, the term ‘elective deferral’ has

14 the meaning given such term by section

15 402(g)(3); except that such term shall include

16 any deferral of compensation under an eligible

17 deferred compensation plan (as defined in sec18 tion 457(b)).

19 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU20 TIONS.—References in subparagraphs (A) and

21 (B) to elective deferrals shall be treated as in22 cluding references to employee contributions.

23 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT

24 REQUIRED.—For purposes of this subchapter and sub-
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1 chapter E, no provision of chapter 43 of title 38,

2 United States Code, shall be construed as requiring—

3 ‘‘(A) any crediting of earnings to an em4 ployee with respect to any contribution before

5 such contribution is actually made, or

6 ‘‘(B) any allocation of any forfeiture with

7 respect to the period of qualified military service.

8 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER9 MITTED.—If any plan suspends the obligation to

10 repay any loan made to an employee from such plan

11 for any part of any period during which such em12 ployee is performing service in the uniformed services

13 (as defined in chapter 43 of title 38, United States

14 Code), whether or not qualified military service, such

15 suspension shall not be taken into account for pur16 poses of section 72(p), 401(a), or 4975(d)(1).

17 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur18 poses of this subsection, the term ‘qualified military

19 service’ means any service in the uniformed services

20 (as defined in chapter 43 of title 38, United States

21 Code) by any individual if such individual is entitled

22 to reemployment rights under such chapter with re23 spect to such service.

24 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For purposes

25 of this subsection, the term ‘individual account plan’
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1 means any defined contribution plan (including any

2 tax-sheltered annuity plan under section 403(b), any

3 simplified employee pension under section 408(k),

4 any qualified salary reduction arrangement under

5 section 408(p), and any eligible deferred compensa6 tion plan (as defined in section 457(b)).

7 ‘‘(7) COMPENSATION.—For purposes of sections

8 403(b)(3), 415(c)(3), and 457(e)(5), an employee who

9 is in qualified military service shall be treated as re10 ceiving compensation from the employer during such

11 period of qualified military service equal to—

12 ‘‘(A) the compensation the employee would

13 have received during such period if the employee

14 were not in qualified military service, deter15 mined based on the rate of pay the employee

16 would have received from the employer but for

17 absence during the period of qualified military

18 service, or

19 ‘‘(B) if the compensation the employee

20 would have received during such period was not

21 reasonably certain, the employee’s average com22 pensation from the employer during the 12-

23 month period immediately preceding the quali24 fied military service (or, if shorter, the period of
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1 employment immediately preceding the qualified

2 military service).

3 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

4 RETIREMENT PLANS.—For purposes of this subchapter

5 and section 457, an employer sponsoring a retirement

6 plan shall be treated as meeting the requirements of

7 chapter 43 of title 38, United States Code, only if

8 each of the following requirements is met:

9 ‘‘(A) An individual reemployed under such

10 chapter is treated with respect to such plan as

11 not having incurred a break in service with the

12 employer maintaining the plan by reason of such

13 individual’s period of qualified military service.

14 ‘‘(B) Each period of qualified military serv15 ice served by an individual is, upon reemploy16 ment under such chapter, deemed with respect to

17 such plan to constitute service with the employer

18 maintaining the plan for the purpose of deter19 mining the nonforfeitability of the individual’s

20 accrued benefits under such plan and for the

21 purpose of determining the accrual of benefits

22 under such plan.

23 ‘‘(C) An individual reemployed under such

24 chapter is entitled to accrued benefits that are

25 contingent on the making of, or derived from,
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1 employee contributions or elective deferrals only

2 to the extent the individual makes payment to

3 the plan with respect to such contributions or de4 ferrals. No such payment may exceed the amount

5 the individual would have been permitted or re6 quired to contribute had the individual remained

7 continuously employed by the employer through8 out the period of qualified military service. Any

9 payment to such plan shall be made during the

10 period beginning with the date of reemployment

11 and whose duration is 3 times the period of the

12 qualified military service (but not greater than

13 5 years).

14 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

15 subsection shall not apply to any retirement plan to

16 which chapter 43 of title 38, United States Code, does

17 not apply.

18 ‘‘(10) REFERENCES.—For purposes of this sec19 tion, any reference to chapter 43 of title 38, United

20 States Code, shall be treated as a reference to such

21 chapter as in effect on December 12, 1994 (without re22 gard to any subsequent amendment).’’

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

24 this subsection shall be effective as of December 12,

25 1994.
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1 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

2 (1) IN GENERAL.—Paragraph (3) of section

3 6045(e) (relating to prohibition of separate charge for

4 filing return) is amended by adding at the end the

5 following new sentence: ‘‘Nothing in this paragraph

6 shall be construed to prohibit the real estate reporting

7 person from taking into account its cost of complying

8 with such requirement in establishing its charge

9 (other than a separate charge for complying with such

10 requirement) to any customer for performing services

11 in the case of a real estate transaction.’’

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

13 paragraph (1) shall take effect as if included in sec14 tion 1015(e)(2)(A) of the Technical and Miscellaneous

15 Revenue Act of 1988.

16 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

17 STOCK REDEMPTION EXPENSES.

18 (1) IN GENERAL.—Paragraph (1) of section

19 162(k) is amended by striking ‘‘the redemption of its

20 stock’’ and inserting ‘‘the reacquisition of its stock or

21 of the stock of any related person (as defined in sec22 tion 465(b)(3)(C))’’.

23 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub24 paragraph (A) of section 162(k)(2) is amended by

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

2 clause (i) the following new clause:

3 ‘‘(ii) deduction for amounts which are

4 properly allocable to indebtedness and am5 ortized over the term of such indebtedness,

6 or’’.

7 (3) CLERICAL AMENDMENT.—The subsection

8 heading for subsection (k) of section 162 is amended

9 by striking ‘‘REDEMPTION’’ and inserting ‘‘REACQUI10 SITION’’.

11 (4) EFFECTIVE DATE.—

12 (A) IN GENERAL.—Except as provided in

13 subparagraph (B), the amendments made by this

14 subsection shall apply to amounts paid or in15 curred after September 13, 1995, in taxable

16 years ending after such date.

17 (B) PARAGRAPH (2).—The amendment

18 made by paragraph (2) shall take effect as if in19 cluded in the amendment made by section 613 of

20 the Tax Reform Act of 1986.

21 (r) CLERICAL AMENDMENT TO SECTION 404.—

22 (1) IN GENERAL.—Paragraph (1) of section

23 404(j) is amended by striking ‘‘(10)’’ and inserting

24 ‘‘(9)’’.
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1 (2) EFFECTIVE DATE.—The amendment made by

2 paragraph (1) shall take effect as if included in the

3 amendments made by section 713(d)(4)(A) of the Def4 icit Reduction Act of 1984.

5 (s) PASSIVE INCOME NOT TO INCLUDE FSC INCOME,

6 ETC.—

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

8 1296(b) is amended by striking ‘‘or’’ at the end of

9 subparagraph (B), by striking the period at the end

10 of subparagraph (C) and inserting ‘‘, or’’, and by in11 serting after subparagraph (C) the following new sub12 paragraph:

13 ‘‘(D) which is foreign trade income of a

14 FSC or export trade income of an export trade

15 corporation (as defined in section 971).’’

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

17 paragraph (1) shall take effect as if included in the

18 amendments made by section 1235 of the Tax Reform

19 Act of 1986.

20 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—

21 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

22 amended by striking ‘‘of the subclause’’ and inserting

23 ‘‘of subclause’’.

24 (2) Paragraph (2) of section 72(m) is amended

25 by inserting ‘‘and’’ at the end of subparagraph (A),
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1 by striking subparagraph (B), and by redesignating

2 subparagraph (C) as subparagraph (B).

3 (3) Paragraph (2) of section 86(b) is amended by

4 striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

5 (4)(A) The heading for section 112 is amended

6 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COMBAT

7 ZONE COMPENSATION’’.

8 (B) The item relating to section 112 in the table

9 of sections for part III of subchapter B of chapter 1

10 is amended by striking ‘‘combat pay’’ and inserting

11 ‘‘combat zone compensation’’.

12 (C) Paragraph (1) of section 3401(a) is amended

13 by striking ‘‘combat pay’’ and inserting ‘‘combat zone

14 compensation’’.

15 (5) Clause (i) of section 172(h)(3)(B) is amended

16 by striking the comma at the end thereof and insert17 ing a period.

18 (6) Clause (ii) of section 543(a)(2)(B) is amend19 ed by striking ‘‘section 563(c)’’ and inserting ‘‘section

20 563(d)’’.

21 (7) Paragraph (1) of section 958(a) is amended

22 by striking ‘‘sections 955(b)(1) (A) and (B),

23 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec24 tion 960(a)(1)’’.
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1 (8) Subsection (g) of section 642 is amended by

2 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

3 section 2621(a)(2)’’.

4 (9) Section 1463 is amended by striking ‘‘this

5 subsection’’ and inserting ‘‘this section’’.

6 (10) Subsection (k) of section 3306 is amended

7 by inserting a period at the end thereof.

8 (11) The item relating to section 4472 in the

9 table of sections for subchapter B of chapter 36 is

10 amended by striking ‘‘and special rules’’.

11 (12) Paragraph (3) of section 5134(c) is amend12 ed by striking ‘‘section 6662(a)’’ and inserting ‘‘sec13 tion 6665(a)’’.

14 (13) Paragraph (2) of section 5206(f) is amended

15 by striking ‘‘section 5(e)’’ and inserting ‘‘section

16 105(e)’’.

17 (14) Paragraph (1) of section 6050B(c) is

18 amended by striking ‘‘section 85(c)’’ and inserting

19 ‘‘section 85(b)’’.

20 (15) Subsection (k) of section 6166 is amended

21 by striking paragraph (6).

22 (16) Subsection (e) of section 6214 is amended to

23 read as follows:
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1 ‘‘(e) CROSS REFERENCE.—

‘‘For provision giving Tax Court jurisdiction to

order a refund of an overpayment and to award

sanctions, see section 6512(b)(2).’’

2 (17) The section heading for section 6043 is

3 amended by striking the semicolon and inserting a

4 comma.

5 (18) The item relating to section 6043 in the

6 table of sections for subpart B of part III of sub7 chapter A of chapter 61 is amended by striking the

8 semicolon and inserting a comma.

9 (19) The table of sections for part I of subchapter

10 A of chapter 68 is amended by striking the item relat11 ing to section 6662.

12 (20)(A) Section 7232 is amended—

13 (i) by striking ‘‘LUBRICATING OIL,’’ in

14 the heading, and

15 (ii) by striking ‘‘lubricating oil,’’ in the

16 text.

17 (B) The table of sections for part II of sub18 chapter A of chapter 75 is amended by striking ‘‘lu19 bricating oil,’’ in the item relating to section 7232.

20 (21) Paragraph (1) of section 6701(a) of the Om21 nibus Budget Reconciliation Act of 1989 is amended

22 by striking ‘‘subclause (IV)’’ and inserting ‘‘subclause

23 (V)’’.
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1 (22) Clause (ii) of section 7304(a)(2)(D) of such

2 Act is amended by striking ‘‘subsection (c)(2)’’ and

3 inserting ‘‘subsection (c)’’.

4 (23) Paragraph (1) of section 7646(b) of such

5 Act is amended by striking ‘‘section 6050H(b)(1)’’

6 and inserting ‘‘section 6050H(b)(2)’’.

7 (24) Paragraph (10) of section 7721(c) of

8 such Act is amended by striking ‘‘section

9 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

10 6661(b)(2)(C)(ii)’’.

11 (25) Subparagraph (A) of section 7811(i)(3) of

12 such Act is amended by inserting ‘‘the first place it

13 appears’’ before ‘‘in clause (i)’’.

14 (26) Paragraph (10) of section 7841(d) of

15 such Act is amended by striking ‘‘section 381(a)’’

16 and inserting ‘‘section 381(c)’’.

17 (27) Paragraph (2) of section 7861(c) of such Act

18 is amended by inserting ‘‘the second place it appears’’

19 before ‘‘and inserting’’.

20 (28) Paragraph (1) of section 460(b) is amended

21 by striking ‘‘the look-back method of paragraph (3)’’

22 and inserting ‘‘the look-back method of paragraph

23 (2)’’.
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1 (29) Subparagraph (C) of section 50(a)(2) is

2 amended by striking ‘‘subsection (c)(4)’’ and inserting

3 ‘‘subsection (d)(5)’’.

4 (30) Subparagraph (B) of section 172(h)(4) is

5 amended by striking the material following the head6 ing and preceding clause (i) and inserting ‘‘For pur7 poses of subsection (b)(2)—’’.

8 (31) Subparagraph (A) of section 355(d)(7) is

9 amended by inserting ‘‘section’’ before ‘‘267(b)’’.

10 (32) Subparagraph (C) of section 420(e)(1) is

11 amended by striking ‘‘mean’’ and inserting ‘‘means’’.

12 (33) Paragraph (4) of section 537(b) is amended

13 by striking ‘‘section 172(i)’’ and inserting ‘‘section

14 172(f)’’.

15 (34) Subparagraph (B) of section 613(e)(1) is

16 amended by striking the comma at the end thereof

17 and inserting a period.

18 (35) Paragraph (4) of section 856(a) is amended

19 by striking ‘‘section 582(c)(5)’’ and inserting ‘‘section

20 582(c)(2)’’.

21 (36) Sections 904(f)(2)(B)(i) and

22 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

23 in effect on the day before the date of the enactment

24 of the Revenue Reconciliation Act of 1990)’’ after

25 ‘‘section 172(h)’’.
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1 (37) Subsection (b) of section 936 is amended by

2 striking ‘‘subparagraphs (D)(ii)(I)’’ and inserting

3 ‘‘subparagraphs (D)(ii)’’.

4 (38) Subsection (c) of section 2104 is amended

5 by striking ‘‘subparagraph (A), (C), or (D) of section

6 861(a)(1)’’ and inserting ‘‘section 861(a)(1)(A)’’.

7 (39) Subparagraph (A) of section 280A(c)(1) is

8 amended to read as follows:

9 ‘‘(A) as the principal place of business for

10 any trade or business of the taxpayer,’’.

11 (40) Section 6038 is amended by redesignating

12 the subsection relating to cross references as subsection

13 (f).

14 (41) Clause (iv) of section 6103(e)(1)(A) is

15 amended by striking all that follows ‘‘provisions of’’

16 and inserting ‘‘section 1(g) or 59(j);’’.

17 (42) The subsection (f) of section 6109 of the In18 ternal Revenue Code of 1986 which was added by sec19 tion 2201(d) of Public Law 101–624 is redesignated

20 as subsection (g).

21 (43) Subsection (b) of section 7454 is amended

22 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec23 tion 4955(f)(2)’’.

24 (44) Subsection (d) of section 11231 of the Reve25 nue Reconciliation Act of 1990 shall be applied as if
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1 ‘‘comma’’ appeared instead of ‘‘period’’ and as if the

2 paragraph (9) proposed to be added ended with a

3 comma.

4 (45) Paragraph (1) of section 11303(b) of the

5 Revenue Reconciliation Act of 1990 shall be applied

6 as if ‘‘paragraph’’ appeared instead of ‘‘subpara7 graph’’ in the material proposed to be stricken.

8 (46) Subsection (f) of section 11701 of the Reve9 nue Reconciliation Act of 1990 is amended by insert10 ing ‘‘(relating to definitions)’’ after ‘‘section 6038(e)’’.

11 (47) Subsection (i) of section 11701 of the Reve12 nue Reconciliation Act of 1990 shall be applied as if

13 ‘‘subsection’’ appeared instead of ‘‘section’’ in the ma14 terial proposed to be stricken.

15 (48) Subparagraph (B) of section 11801(c)(2) of

16 the Revenue Reconciliation Act of 1990 shall be ap17 plied as if ‘‘section 56(g)’’ appeared instead of ‘‘sec18 tion 59(g)’’.

19 (49) Subparagraph (C) of section 11801(c)(8) of

20 the Revenue Reconciliation Act of 1990 shall be ap21 plied as if ‘‘reorganizations’’ appeared instead of ‘‘re22 organization’’ in the material proposed to be stricken.

23 (50) Subparagraph (H) of section 11801(c)(9) of

24 the Revenue Reconciliation Act of 1990 shall be ap-
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1 plied as if ‘‘section 1042(c)(1)(B)’’ appeared instead

2 of ‘‘section 1042(c)(2)(B)’’.

3 (51) Subparagraph (F) of section 11801(c)(12) of

4 the Revenue Reconciliation Act of 1990 shall be ap5 plied as if ‘‘and (3)’’ appeared instead of ‘‘and (E)’’.

6 (52) Subparagraph (A) of section 11801(c)(22) of

7 the Revenue Reconciliation Act of 1990 shall be ap8 plied as if ‘‘chapters 21’’ appeared instead of ‘‘chap9 ter 21’’ in the material proposed to be stricken.

10 (53) Paragraph (3) of section 11812(b) of the

11 Revenue Reconciliation Act of 1990 shall be applied

12 by not executing the amendment therein to the head13 ing of section 42(d)(5)(B).

14 (54) Clause (i) of section 11813(b)(9)(A) of the

15 Revenue Reconciliation Act of 1990 shall be applied

16 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the ma17 terial proposed to be stricken.

18 (55) Subparagraph (F) of section 11813(b)(13)

19 of the Revenue Reconciliation Act of 1990 shall be ap20 plied as if ‘‘tax’’ appeared after ‘‘investment’’ in the

21 material proposed to be stricken.

22 (56) Paragraph (19) of section 11813(b) of the

23 Revenue Reconciliation Act of 1990 shall be applied

24 as if ‘‘Paragraph (20) of section 1016(a), as redesig-
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1 nated by section 11801,’’ appeared instead of ‘‘Para2 graph (21) of section 1016(a)’’.

3 (57) Paragraph (5) section 8002(a) of the Sur4 face Transportation Revenue Act of 1991 shall be ap5 plied as if ‘‘4481(e)’’ appeared instead of ‘‘4481(c)’’.

6 (58) Section 7872 is amended—

7 (A) by striking ‘‘foregone’’ each place it ap8 pears in subsections (a) and (e)(2) and inserting

9 ‘‘forgone’’, and

10 (B) by striking ‘‘FOREGONE’’ in the heading

11 for subsection (e) and the heading for paragraph

12 (2) of subsection (e) and inserting ‘‘FORGONE’’.

13 (59) Paragraph (7) of section 7611(h) is amend14 ed by striking ‘‘approporiate’’ and inserting ‘‘appro15 priate’’.

16 (60) The heading of paragraph (3) of section

17 419A(c) is amended by striking ‘‘SEVERENCE’’ and

18 inserting ‘‘SEVERANCE’’.

19 (61) Clause (ii) of section 807(d)(3)(B) is

20 amended by striking ‘‘Commissoners’ ’’ and inserting

21 ‘‘Commissioners’ ’’.

22 (62) Subparagraph (B) of section 1274A(c)(1) is

23 amended by striking ‘‘instument’’ and inserting ‘‘in24 strument’’.
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1 (63) Subparagraph (B) of section 724(d)(3) by

2 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara3 graph’’.

4 (64) The last sentence of paragraph (2) of section

5 42(c) is amended by striking ‘‘of 1988’’.

6 (65) Paragraph (1) of section 9707(d) is amend7 ed by striking ‘‘diligence,’’ and inserting ‘‘diligence’’.

8 (66) Subsection (c) of section 4977 is amended

9 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘section

10 132(h)’’.

11 (67) The last sentence of section 401(a)(20) is

12 amended by striking ‘‘section 211’’ and inserting

13 ‘‘section 521’’.

14 (68) Subparagraph (A) of section 402(g)(3) is

15 amended by striking ‘‘subsection (a)(8)’’ and insert16 ing ‘‘subsection (e)(3)’’.

17 (69) The last sentence of section 403(b)(10) is

18 amended by striking ‘‘an direct’’ and inserting ‘‘a

19 direct’’.

20 (70) Subparagraph (A) of section 4973(b)(1) is

21 amended by striking ‘‘sections 402(c)’’ and inserting

22 ‘‘section 402(c)’’.

23 (71) Paragraph (12) of section 3405(e) is

24 amended by striking ‘‘(b)(3)’’ and inserting ‘‘(b)(2)’’.
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1 (72) Paragraph (41) of section 521(b) of the Un2 employment Compensation Amendments of 1992 shall

3 be applied as if ‘‘section’’ appeared instead of ‘‘sec4 tions’’ in the material proposed to be stricken.

5 (73) Paragraph (27) of section 521(b) of the Un6 employment Compensation Amendments of 1992 shall

7 be applied as if ‘‘Section 691(c)(5)’’ appeared instead

8 of ‘‘Section 691(c)’’.

9 (74) Paragraph (5) of section 860F(a) is amend10 ed by striking ‘‘paragraph (1)’’ and inserting ‘‘para11 graph (2)’’.

12 (75) Paragraph (1) of section 415(k) is amended

13 by adding ‘‘or’’ at the end of subparagraph (C), by

14 striking subparagraphs (D) and (E), and by redesig15 nating subparagraph (F) as subparagraph (D).

16 (76) Paragraph (2) of section 404(a) is amended

17 by striking ‘‘(18),’’.

18 (77) Clause (ii) of section 72(p)(4)(A) is amend19 ed to read as follows:

20 ‘‘(ii) SPECIAL RULE.—The term ‘quali21 fied employer plan’ shall not include any

22 plan which was (or was determined to be)

23 a qualified employer plan or a government

24 plan.’’
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1 (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i)

2 are each amended by striking ‘‘section

3 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

4 6662(d)(2)(C)(iii)’’.

5 (79) Subsection (a) of section 164 is amended by

6 striking the paragraphs relating to the generation7 skipping tax and the environmental tax imposed by

8 section 59A and by inserting after paragraph (3) the

9 following new paragraphs:

10 ‘‘(4) The GST tax imposed on income distribu11 tions.

12 ‘‘(5) The environmental tax imposed by section

13 59A.’’

14 (u) CERTAIN PROPERTY NOT TREATED AS SECTION

15 179 PROPERTY.—

16 (1) IN GENERAL.—Paragraph (1) of section

17 179(d) is amended by adding at the end thereof the

18 following new sentence: ‘‘Such term shall not include

19 any property described in section 50(b) and shall not

20 include air conditioning or heating units and horses.’’

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

22 paragraph (1) shall apply to property placed in serv23 ice after May 14, 1996.