I

104TH CONGRESS

2D SESSION H. R. 3185

To provide increased access to health care benefits, to provide increased

portability of health care benefits, to provide increased security of health

care benefits, to increase the purchasing power of individuals and small

employers, to increase the deduction for health insurance costs of selfemployed individuals, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 28, 1996

Mr. DINGELL (for himself, Mr. BENTSEN, and Mr. SPRATT) introduced the

following bill; which was referred to the Committee on Ways and Means,

and in addition to the Committees on Commerce, and Economic and Educational Opportunities, for a period to be subsequently determined by the

Speaker, in each case for consideration of such provisions as fall within

the jurisdiction of the committee concerned

A BILL

To provide increased access to health care benefits, to provide

increased portability of health care benefits, to provide

increased security of health care benefits, to increase

the purchasing power of individuals and small employers,

to increase the deduction for health insurance costs of

self-employed individuals, 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.

2 This Act may be cited as the ‘‘Health Insurance Re3 form Act of 1996’’.

4 TITLE I—HEALTH CARE ACCESS,

5 PORTABILITY, AND RENEWABILITY

TABLE OF CONTENTS

Sec. 100. Definitions.

SUBTITLE A—GROUP MARKET RULES

Sec. 101. Guaranteed availability of health coverage.

Sec. 102. Guaranteed renewability of health coverage.

Sec. 103. Portability of health coverage and limitation on preexisting condition

exclusions.

Sec. 104. Special enrollment periods.

Sec. 105. Disclosure of information.

SUBTITLE B—INDIVIDUAL MARKET RULES

Sec. 110. Individual health plan portability.

Sec. 111. Guaranteed renewability of individual health coverage.

Sec. 112. State flexibility in individual market reforms.

Sec. 113. Definition.

SUBTITLE C—COBRA CLARIFICATIONS

Sec. 121. Cobra clarification.

SUBTITLE D—PRIVATE HEALTH PLAN PURCHASING COOPERATIVES

Sec. 131. Private health plan purchasing cooperatives.

SUBTITLE E—APPLICATION AND ENFORCEMENT OF STANDARDS

Sec. 141. Applicability.

Sec. 142. Enforcement of standards.

SUBTITLE F—MISCELLANEOUS PROVISIONS

Sec. 191. Health coverage availability study.

Sec. 192. Effective date.

Sec. 193. Severability.

6 SEC. 100. DEFINITIONS.

7 As used in this title:

8 (1) BENEFICIARY.—The term ‘‘beneficiary’’ has

9 the meaning given such term under section 3(8) of
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1 the Employee Retirement Income Security Act of

2 1974 (29 U.S.C. 1002(8)).

3 (2) EMPLOYEE.—The term ‘‘employee’’ has the

4 meaning given such term under section 3(6) of the

5 Employee Retirement Income Security Act of 1974

6 (29 U.S.C. 1002(6)).

7 (3) EMPLOYER.—The term ‘‘employer’’ has the

8 meaning given such term under section 3(5) of the

9 Employee Retirement Income Security Act of 1974

10 (29 U.S.C. 1002(5)), except that such term shall in11 clude only employers of two or more employees.

12 (4) EMPLOYEE HEALTH BENEFIT PLAN.—

13 (A) IN GENERAL.—The term ‘‘employee

14 health benefit plan’’ means any employee wel15 fare benefit plan, governmental plan, or church

16 plan (as defined under paragraphs (1), (32),

17 and (33) of section 3 of the Employee Retire18 ment Income Security Act of 1974 (29 U.S.C.

19 1002 (1), (32), and (33))) that provides or pays

20 for health benefits (such as provider and hos21 pital benefits) for participants and beneficiaries

22 whether—

23 (i) directly;
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1 (ii) through a group health plan of2 fered by a health plan issuer as defined in

3 paragraph (8); or

4 (iii) otherwise.

5 (B) RULE OF CONSTRUCTION.—An em6 ployee health benefit plan shall not be con7 strued to be a group health plan, an individual

8 health plan, or a health plan issuer.

9 (C) ARRANGEMENTS NOT INCLUDED.—

10 Such term does not include the following, or

11 any combination thereof:

12 (i) Coverage only for accident, or dis13 ability income insurance, or any combina14 tion thereof.

15 (ii) Medicare supplemental health in16 surance (as defined under section

17 1882(g)(1) of the Social Security Act).

18 (iii) Coverage issued as a supplement

19 to liability insurance.

20 (iv) Liability insurance, including gen21 eral liability insurance and automobile li22 ability insurance.

23 (v) Workers compensation or similar

24 insurance.
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1 (vi) Automobile medical payment in2 surance.

3 (vii) Coverage for a specified disease

4 or illness.

5 (viii) Hospital or fixed indemnity in6 surance.

7 (ix) Short-term limited duration in8 surance.

9 (x) Credit-only, dental-only, or vision10 only insurance.

11 (xi) A health insurance policy provid12 ing benefits only for long-term care, nurs13 ing home care, home health care, commu14 nity-based care, or any combination there15 of.

16 (5) FAMILY.—

17 (A) IN GENERAL.—The term ‘‘family’’

18 means an individual, the individual’s spouse,

19 and the child of the individual (if any).

20 (B) CHILD.—For purposes of subpara21 graph (A), the term ‘‘child’’ means any individ22 ual who is a child within the meaning of section

23 151(c)(3) of the Internal Revenue Code of

24 1986.

25 (6) GROUP HEALTH PLAN.—
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1 (A) IN GENERAL.—The term ‘‘group

2 health plan’’ means any contract, policy, certifi3 cate or other arrangement offered by a health

4 plan issuer to a group purchaser that provides

5 or pays for health benefits (such as provider

6 and hospital benefits) in connection with an em7 ployee health benefit plan.

8 (B) ARRANGEMENTS NOT INCLUDED.—

9 Such term does not include the following, or

10 any combination thereof:

11 (i) Coverage only for accident, or dis12 ability income insurance, or any combina13 tion thereof.

14 (ii) Medicare supplemental health in15 surance (as defined under section

16 1882(g)(1) of the Social Security Act).

17 (iii) Coverage issued as a supplement

18 to liability insurance.

19 (iv) Liability insurance, including gen20 eral liability insurance and automobile li21 ability insurance.

22 (v) Workers compensation or similar

23 insurance.

24 (vi) Automobile medical payment in25 surance.
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1 (vii) Coverage for a specified disease

2 or illness.

3 (ix) Short-term limited duration in4 surance.

5 (x) Credit-only, dental-only, or vision6 only insurance.

7 (xi) A health insurance policy provid8 ing benefits only for long-term care, nurs9 ing home care, home health care, commu10 nity-based care, or any combination there11 of.

12 (7) GROUP PURCHASER.—The term ‘‘group

13 purchaser’’ means any person (as defined under

14 paragraph (9) of section 3 of the Employee Retire15 ment Income Security Act of 1974 (29 U.S.C.

16 1002(9)) or entity that purchases or pays for health

17 benefits (such as provider or hospital benefits) on

18 behalf of two or more participants or beneficiaries in

19 connection with an employee health benefit plan. A

20 health plan purchasing cooperative established under

21 section 131 shall not be considered to be a group

22 purchaser.

23 (8) HEALTH PLAN ISSUER.—The term ‘‘health

24 plan issuer’’ means any entity that is licensed (prior

25 to or after the date of enactment of this Act) by a
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1 State to offer a group health plan or an individual

2 health plan.

3 (9) HEALTH STATUS.—The term ‘‘health sta4 tus’’ includes. with respect to an individual, medical

5 condition, claims experience, receipt of health care,

6 medical history, genetic information, evidence of in7 surability (including conditions arising out of acts of

8 domestic violence), or disability.

9 (10) PARTICIPANT.—The term ‘‘participant’’

10 has the meaning given such term under section 3(7)

11 of the Employee Retirement Income Security Act of

12 1974 (29 U.S.C. 1002(7)).

13 (11) PLAN SPONSOR.—The term ‘‘plan spon14 sor’’ has the meaning given such term under section

15 3(16)(B) of the Employee Retirement Income Secu16 rity Act of 1974 (29 U.S.C. 1002(16)(B)).

17 (12) SECRETARY.—The term ‘‘Secretary’’, un18 less specifically provided otherwise, means the Sec19 retary of Labor.

20 (13) STATE.—The term ‘‘State’’ means each of

21 the several States, the District of Columbia, Puerto

22 Rico, the United States Virgin Islands, Guam,

23 American Samoa, and the Commonwealth of the

24 Northern Mariana Islands.
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1 Subtitle A—Group Market Rules

2 SECTION 101. GUARANTEED AVAILABILITY OF HEALTH

3 COVERAGE.

4 In General.—

5 (1) NONDISCRIMINATION.—Except as provided

6 in subsection (b), section 102 and section 103—

7 (A) a health plan issuer offering a group

8 health plan may not decline to offer whole

9 group coverage to a group purchaser desiring to

10 purchase such coverage; and

11 (B) an employee health benefit plan or a

12 health plan issuer offering a group health plan

13 may establish eligibility, continuation of eligi14 bility, enrollment, or premium; contribution re15 quirements under the terms of such plan, ex16 cept that such requirements shall not be based

17 on health status (as defined in section 100(9)).

18 (2) HEALTH PROMOTION AND DISEASE PRE19 VENTION.—Nothing in this subsection shall prevent

20 an employee health benefit plan or a health plan is21 suer from establishing premium; discounts or modi22 fying otherwise applicable copayments or deductibles

23 in return for adherence to programs of health pro24 motion and disease prevention.

25 (b) APPLICATION OF CAPACITY LIMITS.—
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1 (1) IN GENERAL.—Subject to paragraph (2), a

2 health plan issuer offering a group health plan may

3 cease offering coverage to group purchasers under

4 the plan if—

5 (A) the health plan issuer ceases to offer

6 coverage to any additional group purchasers;

7 and

8 (B) the health plan issuer can demonstrate

9 to the applicable certifying authority (as defined

10 in section 142(d)), if required, that its financial

11 or provider capacity to serve previously covered

12 participants and beneficiaries (and additional

13 participants and beneficiaries who will be ex14 pected to enroll because of their affiliation with

15 a group purchaser or such previously covered

16 participants or beneficiaries) will be impaired if

17 the health plan issuer is required to offer cov18 erage to additional group purchasers.

19 Such health plan issuer shall be prohibited from of20 fering coverage after a cessation in offering coverage

21 under this paragraph for a 6-month period or until

22 the health plan issuer can demonstrate to the appli23 cable certifying authority (as defined in section

24 142(d)) that the health plan issuer has adequate ca25 pacity, whichever is later.
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1 (2) FIRST-COME-FIRST-SERVED.—A health plan

2 issuer offering a group health plan is only eligible to

3 exercise the limitations provided for in paragraph

4 (1) if the health plan issuer offers coverage to group

5 purchasers under such plan on a first-come-first6 served basis or other basis established by a State to

7 ensure a fair opportunity to enroll in the plan and

8 avoid risk selection.

9 (e) CONSTRUCTION.—

10 (1) MARKETING OF GROUP HEALTH PLANS.—

11 Nothing in this section shall be construed to prevent

12 a State from requiring health plan issuers offering

13 group health plans to actively market such plans.

14 (2) INVOLUNTARY OFFERING OF GROUP

15 HEALTH PLANS.—Nothing is this section shall be

16 construed to require a health plan issuer to involun17 tarily offer group health plans in a particular mar18 ket. For the purposes of this paragraph, the term

19 ‘‘market’’ means either the large employer market or

20 the small employer market (as defined under appli21 cable State law, or if not so defined, an employer

22 with not more than 50 employees).

23 SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COV24 ERAGE.

25 (a) IN GENERAL.—
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1 (1) GROUP PURCHASER.—Subject to sub2 sections (b) and (c), a group health plan shall be re3 newed or continued in force by a health plan issuer

4 at the option of the group purchaser, except that the

5 requirement of this subparagraph shall not apply in

6 the case of—

7 (A) the nonpayment of premiums or con8 tributions by the group purchaser in accordance

9 with the terms of the group health plan or

10 where the health plan issuer has not received

11 timely premium payments;

12 (B) fraud or misrepresentation of material

13 fact on the part of the group purchaser;

14 (C) the termination of the group health

15 plan in accordance with subsection (b); or

16 (D) the failure of the group purchaser to

17 meet contribution or participation requirements

18 in accordance with paragraph (3).

19 (2) PARICIPANT.—Subject to subsections (b)

20 and (c), coverage under an employee health benefit

21 plan or group health plan shall be renewed or con22 tinued in force, if the group purchaser elects to con23 tinue to provide coverage under such plan, at the op24 tion of the participant (or beneficiary where such

25 right exists under the terms of the plan or under ap-
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1 plicable law), except that the requirement of this

2 paragraph shall not apply in the case of—

3 (A) the nonpayment of premiums or con4 tributions by the participant or beneficiary in

5 accordance with the terms of the employee

6 health benefit plan or group health plan or

7 where such plan has not received timely pre8 mium payments.

9 (B) fraud or misrepresentation of material

10 fact on the part of the participant or bene11 ficiary relating to an application for coverage or

12 claim for benefits;

13 (C) the termination of the employee health

14 benefit plan or group health plan;

15 (D) loss of eligibility for continuation cov16 erage as described in part 6 of subtitle B of

17 title I of the Employee Retirement Income Se18 curity Act of 1974 (29 U.S.C. 1161 et seq.); or

19 (E) failure of a participant or beneficiary

20 to meet requirements for eligibility for coverage

21 under an employee health benefit plan or group

22 health plan that are not prohibited by this title.

23 (3) RULES OF CONSTRUCTION.—Nothing in

24 this subsection, nor in section 101(a), shall be con25 strued to—
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1 (A) preclude a health plan issuer from es2 tablishing employer contribution rules or group

3 participation rules for group health plans as al4 lowed under applicable State law;

5 (B) preclude a plan defined in section

6 3(37) of the Employee Retirement Income Se7 curity Act of 1974 (29 U.S.C. 1102(37)) from

8 establishing employer contribution rules or

9 group participation rules; or

10 (C) permit individuals to decline coverage

11 under an employee health benefit plan if such

12 right is not otherwise available under such plan.

13 (b) TERMINATION OF GROUP HEALTH PLANS.—

14 (1) PARTICULAR TYPE OF GROUP HEALTH

15 PLAN NOT OFFERED.—In any case in which a health

16 plan issuer decides to discontinue offering a particu17 lar type of group health plan. A group health plan

18 of such type may be discontinued by the health plan

19 issuer only if—

20 (A) the health plan issuer provides notice

21 to each group purchaser covered under a group

22 health plan of this type (and participants and

23 beneficiaries covered under such group health

24 plan) of such discontinuation at least 90 days
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1 prior to the date of the discontinuation of such

2 plan;

3 (B) the health plan issuer offers to each

4 group purchaser covered under a group health

5 plan of this type, the option to purchase any

6 other group health plan currently being offered

7 by the health plan issuer; and

8 (C) in exercising the option to discontinue

9 a group health plan of this type and in offering

10 one or more replacement plans, the health plan

11 issuer acts uniformly without regard to the

12 health status of participants or beneficiaries

13 covered under the group health plan, or new

14 participants or beneficiaries who may become

15 eligible for coverage under the group health

16 plan.

17 (2) DISCONTINUANCE OF ALL GROUP HEALTH

18 PLANS.—

19 (A) IN GENERAL.—In any case in which a

20 health plan issuer elects to discontinue offering

21 all group health plans in a State, a group

22 health plan may be discontinued by the health

23 plan issuer only if—

24 (i) the health plan issuer provides no25 tice to the applicable certifying authority
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1 (as defined in section 142(d)) and to each

2 group purchaser (and participants and

3 beneficiaries covered under such group

4 health plan) of such discontinuation at

5 least 180 days prior to the date of the ex6 piration of such plan, and

7 (ii) all group health plans issued or

8 delivered for issuance in the State or dis9 continued and coverage under such plans is

10 not renewed.

11 (B) APPLICATION OF PROVISIONS.—The

12 provisions of this paragraph and paragraph (3)

13 may be applied separately by a health plan is14 suer—

15 (i) to all group health plans offered to

16 small employers (as defined under applica17 ble State law, or if not so defined, an em18 ployer with not more than 50 employees);

19 or

20 (ii) to all other group health plans of21 fered by the health plan issuer in the

22 State.

23 (3) PROHIBITION ON MARKET REENTRY.—In

24 the case of a discontinuation under paragraph (2),

25 the health plan issuer may not provide for the issu-
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1 ance of any group health plan in the market sector

2 (as described in paragraph (2)(B)) in which issuance

3 of such group health plan was discontinued in the

4 State involved during the 5-year period beginning on

5 the date of the discontinuation of the last group

6 health plan not so renewed.

7 (c) TREATMENT OF NETWORK PLANS.—

8 (1) GEOGRAPHIC LIMITATIONS.—A network

9 plan (as defined in paragraph (2)) may deny contin10 ued participation under such plan to participants or

11 beneficiaries who neither live, reside, nor work in an

12 area in which such network plan is offered, but only

13 if such denial is applied uniformly, without regard to

14 health status of particular participants or bene15 ficiaries.

16 (2) NETWORK PLAN.—As used in paragraph

17 (1), the term ‘‘network plan’’ means an employee

18 health benefit plan or a group health plan that ar19 ranges for the financing and delivery of health care

20 services to participants or beneficiaries covered

21 under such plan, in whole or in part, through ar22 rangements with providers.

23 (d) COBRA COVERAGE.—Nothing in subsection

24 (a)(2)(E) or subsection (c) shall be construed to affect any

25 right to COBRA continuation coverage as described in
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1 part 6 of subtitle B of title I of the employee Retirement

2 Income Security Act of 1974 (29 U.S.C. 1161 et seq.).

3 SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMI4 TATION ON PREEXISTING CONDITION EXCLU5 SIONS.

6 (a) IN GENERAL.—An employee health benefit plan

7 or a health plan issuer offering a group health plan may

8 impose a limitation or exclusion of benefits relating to

9 treatment of a preexisting condition based on the fact that

10 the condition existed prior to the coverage of the partici11 pant or beneficiary under the plan only if—

12 (1) the limitation or exclusion extends for a pe13 riod of not more than 12 months after the date of

14 enrollment in the plan;

15 (2) the limitation or exclusion does not apply to

16 an individual who, within 30 days of the date of

17 birth or placement for adoption (as determined

18 under section 609(c)(3)(B) of the Employee Retire19 ment Income Security Act of 1974 (29 U.S.C.

20 1169(c)(3)(B)), was covered under the plan; and

21 (3) the limitation or exclusion does not apply to

22 a pregnancy.

23 (b) CREDITING OF PREVIOUS QUALIFYING COV24 ERAGE.—
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1 (1) IN GENERAL.—Subject to paragraph (4), an

2 employee health benefit plan or a health plan issuer

3 offering a group health plan shall provide that if a

4 participant or beneficiary is in a period of previous

5 qualifying coverage as of the date of enrollment

6 under such plan, any period of exclusion or limita7 tion of coverage with respect to a preexisting condi8 tion shall be reduced by 1 month for each month in

9 which the participant or beneficiary was in the pe10 riod of previous qualifying coverage. With respect to

11 an individual described in subsection (a)(2) who

12 maintains continuous coverage, no limitation or ex13 clusion of benefits relating to treatment of a pre14 existing condition may be applied to a child within

15 the child’s first 12 months of life or within 12

16 months after the placement of a child for adoption.

17 (2) DISCHARGE OF DUTY.—An employee health

18 benefit plan shall provide documentation of coverage

19 to participants and beneficiaries who coverage is ter20 minated under the plan. Pursuant to regulations

21 promulgated by the Secretary, the duty of an em22 ployee health benefit plan to verify previous qualify23 ing coverage with respect to a participant or bene24 ficiary is effectively discharged when such employee

25 health benefit plan provides documentation to a par-
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1 ticipant or beneficiary that includes the following in2 formation:

3 (A) the dates that the participant or bene4 ficiary was covered under the plan; and

5 (B) the benefits and cost-sharing arrange6 ment available to the participant or beneficiary

7 under such plan.

8 An employee health benefit plan shall retain the doc9 umentation provided to a participant or beneficiary

10 under subparagraphs (A) and (B) for at least the

11 12-month period following the date on which the

12 participant or beneficiary ceases to be covered under

13 the plan. Upon request, an employee health benefit

14 plan shall provide a second copy of such documenta15 tion or such participant or beneficiary within the 12-

16 month period following the date of such ineligibility.

17 (3) DEFINITIONS.—As used in this section:

18 (A) PREVIOUS QUALIFYING COVERAGE.—

19 The term ‘‘previous qualifying coverage’’ means

20 the period beginning on the date—

21 (i) a participant or beneficiary is en22 rolled under an employee health benefit

23 plan or a group health plan, and ending on

24 the date the participant or beneficiary is

25 not so enrolled; or
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1 (ii) an individual is enrolled under an

2 individual health plan (as defined in sec3 tion 113) or under a public or private

4 health plan established under Federal or

5 State law, and ending on the date the indi6 vidual is not so enrolled;

7 for a continuous period of more than 30 days

8 (without regard to any waiting period).

9 (B) LIMITATION OR EXCLUSION OF BENE10 FITS RELATING TO TREATMENT OF A PRE11 EXISTING CONDITION.—The term ‘‘limitation or

12 exclusion of benefits relating to treatment of a

13 preexisting condition’’ means a limitation or ex14 clusion of benefits imposed on an individual

15 based on a preexisting condition of such individ16 ual.

17 (4) EFFECT OF PREVIOUS COVERAGE.—An em18 ployee health benefit plan or a health plan issuer of19 fering a group health plan may impose a limitation

20 or exclusion of benefits relating to the treatment of

21 a preexisting condition, subject to the limits in sub22 section (a)(1), only to the extent that such service

23 or benefit was not previously covered under the

24 group health plan, employee health benefit plan, or

25 individual health plan in which the participant or
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1 beneficiary was enrolled immediately prior to enroll2 ment in the plan involved.

3 (c) LATE ENROLLEES.—Except as provided in sec4 tion 104, with respect to a participant or beneficiary en5 rolling in an employee health benefit plan or group health

6 plan during a time that is other than the first opportunity

7 to enroll during an enrollment period of at least 30 days,

8 coverage with respect to benefits or services relating to

9 the treatment of a preexisting condition in accordance

10 with subsection (a) and (b) may be excluded except the

11 period of such exclusion may not exceed 18 months begin12 ning on the date of coverage under the plan.

13 (d) AFFILIATION PERIODS.—With respect to a par14 ticipant or beneficiary who would otherwise be eligible to

15 receive benefits under an employee health benefit plan or

16 a group health plan but for the operation of a preexisting

17 condition limitation or exclusion, if such plan does not uti18 lize a limitation or exclusion of benefits relating to the

19 treatment of a preexisting condition, such plan may im20 pose an affiliation period on such participant or bene21 ficiary not to exceed 60 days (or in the case of a late par22 ticipant or beneficiary described in subsection (c), 90

23 days) from the date on which the participant or bene24 ficiary would otherwise be eligible to receive benefits under

25 the plan. An employee health benefit plan or a health plan
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1 issuer offering a group health plan may also use alter2 native methods to address adverse section as approved by

3 the applicable certifying authority (as defined in section

4 142(d)). During such an affiliation period, the plan may

5 not be required to provide health care services or benefits

6 and no premium shall be charged to the participant or

7 beneficiary.

8 (e) PREEXISTING CONDITIONS.—For purposes of this

9 section, the term ‘‘preexisting condition’’ means a condi10 tion, regardless of the cause of the condition, for which

11 medical advice, diagnosis, care, or treatment was rec12 ommended or received within the 6-month period ending

13 on the day before the effective date of the coverage (with14 out regard to any waiting period).

15 (f) STATE FLEXIBILITY.—Nothing in this section

16 shall be construed to preempt State laws that—

17 (1) require health plan issuers to impose a limi18 tation or exclusion of benefits relating to the treat19 ment of a preexisting condition for periods that are

20 shorter than those provided for under this section;

21 or

22 (2) allow individuals, participants, and bene23 ficiaries to be considered to be in a period of pre24 vious qualifying coverage if such individual, partici25 pant, or beneficiary experiences a lapse in coverage
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1 that is greater than the 30-day period provided for

2 under subsection (b)(3);

3 unless such laws are preempted by section 514 of the Em4 ployee Retirement Income Security Act of 1974 (29

5 U.S.C. 1144).

6 SEC. 104. SPECIAL ENROLLMENT PERIODS.

7 In the case of a participant, beneficiary or family

8 member who—

9 (1) through marriage, separation, divorce,

10 death, birth or placement of a child for adoption, ex11 periences a change in family composition affecting

12 eligibility under a group health plan, individual

13 health plan, or employee health benefit plan;

14 (2) experiences a change in employment status,

15 as described in section 603(2) of the Employee Re16 tirement Income Security Act of 1974 (29 U.S.C.

17 1163(2)), that causes the loss of eligibility for cov18 erage, other than COBRA continuation coverage

19 under a group health plan, individual health plan, or

20 employee health benefit plan; or

21 (3) experiences a loss of eligibility under a

22 group health plan, individual health plan, or em23 ployee health benefit plan because of a change in the

24 employment status of a family member;
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1 each employee health benefit plan and each group health

2 plan shall provide for a special enrollment period extend3 ing for a reasonable time after such event that would per4 mit the participant to change the individual or family basis

5 of coverage or to enroll in the plan if coverage would have

6 been available to such individual, participant, or bene7 ficiary but for failure to enroll during a previous enroll8 ment period. Such a special enrollment period shall ensure

9 that a child born or placed for adoption shall be deemed

10 to be covered under the plan as of the date of such birth

11 or placement for adoption if such child is enrolled within

12 30 days of the date of such birth or placement for adop13 tion.

14 SEC. 105. DISCLOSURE OF INFORMATION.

15 (a) DISCLOSURE OF INFORMATION BY HEALTH PLAN

16 ISSUER.—

17 (1) IN GENERAL.—In connection with the offer18 ing of any group health plan to a small employer (as

19 defined under applicable State law, or if not so de20 fined, an employer with not more than 50 employ21 ees), a health plan issuer shall make a reasonable

22 disclosure to such employer, as part of its solicita23 tion and sales materials, of—

24 (A) the provisions of such group health

25 plan concerning the health plan issuer’s right to
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1 change premium rates and the factors that may

2 affect changes in premium rates.

3 (B) the provisions of such group health

4 plan relating to renewability of coverage;

5 (C) the provisions of such group health

6 plan relating to any preexisting condition provi7 sion; and

8 (D) descriptive information about the ben9 efits and premiums available under all group

10 health plans for which the employer is qualified.

11 Information shall be provided to small employers

12 under this paragraph in a manner determined to be

13 understandable by the average small employer, and

14 shall be sufficiently accurate and comprehensive to

15 reasonably inform small employers, participants and

16 beneficiaries of their rights and obligations under

17 the group health plan.

18 (2) EXCEPTION.—With respect to the require19 ment of paragraph (1), any information that is pro20 prietary and trade secret information under applica21 ble law shall not be subject to the disclosure require22 ments of such paragraph.

23 (3) CONSTRUCTION.—Nothing in this sub24 section shall be construed to preempt State report25 ing and disclosure requirements to the extent that
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1 such requirements are not preempted under section

2 514 of the Employee Retirement Income Security

3 Act of 1974 (29 U.S.C. 1144).

4 (b) DISCLOSURE OF INFORMATION TO PARTICIPANTS

5 AND BENEFICIARIES.—

6 (1) IN GENERAL.—Section 104(b)(1) of the

7 Employee Retirement Income Security Act of 1974

8 (29 U.S.C. 1024(b)(1)) is amended in the matter

9 following subparagraph (B)—

10 (A) by striking ‘‘102(a)(1),’’ and inserting

11 ‘‘102(a)(1) that is not a material reduction in

12 covered services or benefits provided,’’; and

13 (B) by adding at the end thereof the fol14 lowing new sentences: ‘‘If there is a modifica15 tion or change described in section 102(a)(1)

16 that is a material reduction in covered services

17 or benefits provided, a summary description of

18 such modification or change shall be furnished

19 to participants not later than 60 days after the

20 date of the adoption of the modification or

21 change. In the alternative, the plan sponsors

22 may provide such description at regular inter23 vals of not more than 90 days. The Secretary

24 shall issue regulations within 180 days after the

25 date of enactment of the Health Insurance Re-
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1 form Act of 1996, providing alternative mecha2 nisms to delivery by mail through which em3 ployee health benefit plans may notify partici4 pants of material reductions in covered services

5 or benefits.’’.

6 (2) PLAN DESCRIPTION AND SUMMARY.—Sec7 tion 102(b) of the Employee Retirement Income Se8 curity Act of 1974 (29 U.S.C. 1022(b)) is amend9 ed—

10 (A) by inserting ‘‘including the office or

11 title of the individual who is responsible for ap12 proving or denying claims for coverage of bene13 fits’’ after ‘‘type of administration of the plan’’;

14 (B) by inserting ‘‘including the name of

15 the organization responsible for financing

16 claims’’ after ‘‘source of financing of the plan’’;

17 and

18 (C) by inserting ‘‘including the office, con19 tact, or title of the individual at the Depart20 ment of Labor through which participants may

21 seek assistance or information regarding their

22 rights under this Act and title I of the Health

23 Insurance Reform Act of 1996 with respect to

24 health benefits that are not offered through a
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1 group health plan.’’ after ‘‘benefits under the

2 plan’’.

3 Subtitle B—Individual Market Rules

4 SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

5 (a) LIMITATION ON REQUIREMENTS.—

6 (1) IN GENERAL.—Except as provided in sub7 sections (b) and (c), a health plan issuer described

8 in paragraph (3) may not, with respect to an eligible

9 individual (as defined in subsection (b)) desiring to

10 enroll in an individual health plan—

11 (A) decline to offer coverage to such indi12 vidual, or deny enrollment to such individual

13 based on the health status of the individual; or

14 (B) impose a limitation or exclusion of

15 benefits otherwise covered under the plan for

16 the individual based on a preexisting condition

17 unless such limitation or exclusion could have

18 been imposed if the individual remained covered

19 under a group health plan or employee health

20 benefit plan (including providing credit for pre21 vious coverage in the manner provided under

22 subtitle A).

23 (2) HEALTH PROMOTION AND DISEASE PRE24 VENTION.—Nothing in this subsection shall be con25 strued to prevent a health plan issuer offering an in-
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1 dividual health plan from establishing premium dis2 counts or modifying otherwise applicable copayments

3 or deductibles in return for adherence to programs

4 of health promotion or disease prevention.

5 (3) HEALTH PLAN ISSUER.—A health plan is6 suer described in this paragraph in a health plan is7 suer that issues or renews individual health plans.

8 (4) PREMIUMS.—Nothing in this subsection

9 shall be construed to affect the determination of a

10 health plan issuer as to the amount of the premium

11 payable under an individual health plan under appli12 cable State law.

13 (b) DEFINITION OF ELIGIBLE INDIVIDUAL.—As used

14 in subsection (a)(1), the term ‘‘eligible individual’’ means

15 an individual who—

16 (1) was a participant or beneficiary enrolled

17 under one or more group health plans, employee

18 health benefit plans, or public plans established

19 under Federal or State law, for not less than 18

20 months (without a lapse in coverage of more than 30

21 consecutive days) immediately prior to the date on

22 which the individual desired to enroll in the individ23 ual health plan.

24 (2) is not eligible for coverage under a group

25 health plan or an employee health benefit plan;
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1 (3) has not had coverage terminated under a

2 group health plan or employee health benefit plan

3 for failure to make required premium payments or

4 contributions, or for fraud or misrepresentation of

5 material fact; and

6 (4) has, if applicable, accepted and exhausted

7 the maximum required period of continuous coverage

8 as described in section 602(2)(A) of the Employee

9 Retirement Income Security Act of 1974 (29 U.S.C.

10 1162(2)(A)) or under an equivalent State program.

11 (c) APPLICABLE OF CAPACITY LIMIT.—

12 (1) IN GENERAL.—Subject to paragraph (2), a

13 health plan issuer offering coverage to individuals

14 under an individual health plan may cease enrolling

15 individuals under the plan if—

16 (A) the health plan issuer ceases to enroll

17 any new individuals; and

18 (B) the health plan issuer can demonstrate

19 to the applicable certifying authority (as defined

20 in section 142(d)), if required, that its financial

21 or provider capacity to serve previously covered

22 individuals will be impaired if the health plan

23 issuer is required to enroll additional individ24 uals.
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1 Such a health plan issuer shall be prohibited from

2 offering coverage after a cessation in offering cov3 erage under this paragraph for a 6-month period or

4 until the health plan issuer can demonstrate to the

5 applicable certifying authority (as defined in section

6 142(d)) that the health plan issuer has adequate ca7 pacity, whichever is later.

8 (2) FIRST-COME-FIRST-SERVED.—A health plan

9 issuer offering coverage to individuals under an indi10 vidual health plan is only eligible to exercise the lim11 itations provided for in paragraph (1) if the health

12 plan issuer provides for enrollment of individuals

13 under such plan on a first-come-first-served basis or

14 other basis established by a State to ensure a fair

15 opportunity to enroll in the plan and avoid risk se16 lection.

17 (d) MARKET REQUIREMENT.—

18 (1) IN GENERAL.—The provisions of subsection

19 (a) shall not be construed to require that a health

20 plan issuer offering group health plans to group pur21 chasers offer individual health plans to individuals.

22 (2) CONVERSION POLICIES.—A health plan is23 suer offering group health plans to group purchasers

24 under this title shall not be deemed to be a health

25 plan issuer offering an individual health plan solely
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1 because such health plan issuer offers a conversion

2 policy.

3 (3) MARKETING OF PLANS.—Nothing in this

4 section shall be construed to prevent a State from

5 requiring health plan issuers offering coverage to in6 dividuals under an individual health plan to actively

7 market such plan.

8 SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL

9 HEALTH COVERAGE.

10 (a) IN GENERAL.—Subject to subsections (b) and (c),

11 coverage for individuals under an individual health plan

12 shall be renewed or continued in force by a health plan

13 issuer at the option of the individual, except that the re14 quirement of this subsection shall not apply in the case

15 of—

16 (1) the nonpayment of premiums or contribu17 tions by the individual in accordance with the terms

18 of the individual health plan or where the health

19 plan issuer has not received timely premium pay20 ments;

21 (2) fraud or misrepresentation of material fact

22 on the part of the individual; or

23 (3) the termination of the individual health plan

24 in accordance with subsection (b).
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1 (b) TERMINATION OF INDIVIDUAL HEALTH

2 PLANS.—

3 (1) PARTICULAR TYPE OF INDIVIDUAL HEALTH

4 PLAN NOT OFFERED.—In any case in which a health

5 plan issuer decides to discontinue offering a particu6 lar type of individual health plan to individuals, an

7 individual health plan may be discontinued by the

8 health plan issuer only if—

9 (A) the health plan issuer provides notice

10 to each individual covered under the plan of

11 such discontinuation at least 90 days prior to

12 the date of the expiration of the plan.

13 (B) the health plan issuer offers to each

14 individual covered under the plan the option to

15 purchase any other individual health plan cur16 rently being offered by the health plan issuer to

17 individuals; and

18 (C) in exercising the option to discontinue

19 the individual health plan and in offering one or

20 more replacement plans, the health plan issuer

21 acts uniformly without regard to the health sta22 tus of particular individuals.

23 (2) DISCONTINUANCE OF ALL INDIVIDUAL

24 HEALTH PLANS.—In any case in which a health plan

25 issuer elects to discontinue all individual health
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1 plans in a State, an individual health plan may be

2 discontinued by the health plan issuer only if—

3 (A) the health plan issuer provides notice

4 to the applicable certifying authority (as defined

5 in section 142(d)) and to each individual cov6 ered under the plan of such discontinuation at

7 least 180 days prior to the date of the dis8 continuation of the plan; and

9 (B) all individual health plans issued or

10 delivered for issuance in the State are discon11 tinued and coverage under such plans is not re12 newed.

13 (3) PROHIBITION ON MARKET REENTRY.—In

14 the case of a discontinuation under paragraph (2),

15 the health plan issuer may not provide for the issu16 ance of any individual health plan in the State in17 volved during the 5-year period beginning on the

18 date of the discontinuation of the last plan not so

19 renewed.

20 (c) TREATMENT OF NETWORK PLANS.—

21 (1) GEOGRAPHIC LIMITATIONS.—A health plan

22 issuer which offers a network plan (as defined in

23 paragraph (2)) may deny continued participation

24 under the plan to individuals who neither live, re25 side, nor work in an area in which the individual
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1 health plan is offered, but only if such denial is ap2 plied uniformly, without regard to health status of

3 particular individuals.

4 (2) NETWORK PLAY.—As used in paragraph

5 (1), the term ‘‘network plan’’ means an individual

6 health plan that arranges for the financing and de7 livery of health care services to individuals covered

8 under such health plan, in whole or in part, through

9 arrangements with providers.

10 SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET RE11 FORMS.

12 (a) IN GENERAL.—With respect to any State law

13 with respect to which the Governor of the State notifies

14 the Secretary of Health and Human Services that such

15 State law will achieve the goals of sections 110 and 111,

16 and that is in effect on, or enacted after, the date of enact17 ment of this Act (such as laws providing for guaranteed

18 issue, open enrollment by one or more health plan issuers,

19 high-risk pools, or mandatory conversion policies), such

20 State law shall apply in lieu of the standards described

21 in sections 110 and 111 unless the Secretary of Health

22 and Human Services determines, after considering the cri23 teria described in subsection (b)(1), in consultation with

24 the Governor and Insurance Commissioner or chief insur25 ance regulatory official of the State, that such State law
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1 does not achieve the goals of providing access to affordable

2 health care coverage for those individuals described in sec3 tions 110 and 111.

4 (b) DETERMINATION.—

5 (1) IN GENERAL.—In making a determination

6 under subsection (a), the Secretary of Health and

7 Human Services shall only—

8 (A) evaluate whether the State law or pro9 gram provides guaranteed access to affordable

10 coverage to individuals described in sections

11 110 and 111;

12 (B) evaluate whether the State law or pro13 gram provides coverage for preexisting condi14 tions (as defined in section 103(e)) that were

15 covered under the individuals’ previous group

16 health plan or employee health benefit plan for

17 individuals described in sections 110 and 111.

18 (C) evaluate whether the State law or pro19 gram provides individuals described in sections

20 110 and 111 with a choice of health plans or

21 a health plan providing comprehensive coverage,

22 and

23 (D) evaluate whether the application of the

24 standards described in sections 110 and 111

25 will have an adverse impact on the number of
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1 individuals in such State having access to af2 fordable coverage.

3 (2) NOTICE OF INTENT.—If, within 6 months

4 after the date of enactment of this Act, the Governor

5 of a State notifies the Secretary of Health and

6 Human Services that the State intends to enact a

7 law, or modify an existing law, described in sub8 section (a), the Secretary of Health and Human

9 Services may not make a determination under such

10 subsection until the expiration of the 12-month pe11 riod beginning on the date on which such notifica12 tion is made, or until January 1, 1998, whichever is

13 later. With respect to a State that provides notice

14 under this paragraph and that has a legislature that

15 does not meet within the 12-month period beginning

16 on the date of enactment of this Act, the Secretary

17 shall not make a determination under subsection (a)

18 prior to January 1, 1998.

19 (3) NOTICE TO STATE.—If the Secretary of

20 Health and Human Services determines that a State

21 law or program does not achieve the goals described

22 in subsection (a), the Secretary of Health and

23 Human Services shall provide the State with ade24 quate notice and reasonable opportunity to modify
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1 such law or program to achieve such goals prior to

2 making a final determination under subsection (a).

3 (c) ADOPTION OF NAIC MODEL.—If, not later than

4 9 months after the date of enactment of this Act—

5 (1) the National Association of Insurance Com6 missioners (hereafter referred to as the ‘‘NAIC’’),

7 through a process which the Secretary of Health and

8 Human Services determines has included consulta9 tion with representatives of the insurance industry

10 and consumer groups, adopts a model standard or

11 standards for reform of the individual health insur12 ance market, and

13 (2) the Secretary of Health and Human Serv14 ices determines, within 30 days of the adoption of

15 such NAIC standard or standards, that such stand16 ards comply with the goals of sections 110 and 111

17 a State that elects to adopt such model standards or sub18 stantially adopt such model standards shall be deemed to

19 have met the requirements of sections 110 and 111 and

20 shall be subject to a determination under subsection (a).

21 SEC. 113. DEFINITION.

22 (a) IN GENERAL.—As used this title, the term ‘‘indi23 vidual health plan’’ means any contract, policy, certificate

24 or other arrangement offered to individuals by a health

25 plan issuer that provides or pays for health benefits (such
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1 as provider and hospital benefits) and that is not a group

2 health plan under section 2(6).

3 (b) ARRANGEMENTS NOT INCLUDED.—Such term

4 does not include the following, or any combination thereof:

5 (1) Coverage only for accident, or disability in6 come insurance, or any combination thereof.

7 (2) Medicare supplemental health insurance (as

8 defined under section 1882(g)(1) of the Social Secu9 rity Act).

10 (3) Coverage issued as a supplement to liability

11 insurance.

12 (4) Liability insurance, including general liabil13 ity insurance and automobile liability insurance.

14 (5) Workers’ compensation or similar insurance.

15 (6) Automobile medical payment insurance.

16 (7) Coverage for a specified disease or illness.

17 (8) Hospital of fixed indemnity insurance.

18 (9) Short-term limited duration insurance.

19 (10) Credit-only, dental-only, or vision-only in20 surance.

21 (11) A health insurance policy providing

22 benefits only for long-term care, nursing home

23 care, home health care, community-based care,

24 or any combination thereof.
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1 Subtitle C—COBRA Clarifications

2 SEC. 121. COBRA CLARIFICATIONS.

3 (a) PUBLIC HEALTH SERVICE ACT.—

4 (1) PERIOD OF COVERAGE.—Section 2202(2) of

5 the Public Health Service Act (42 U.S.C. 300bb–

6 2(2)) is amended—

7 (A) in subparagraph (A)—

8 (i) by transferring the sentence imme9 diately preceding clause (iv) so as to ap10 pear immediately following such clause

11 (iv); and

12 (ii) in the last sentence (as so trans13 ferred)—

14 (I) by inserting ‘‘, or a bene15 ficiary-family member of the individ16 ual,’’ after ‘‘an individual’’; and

17 (II) by striking ‘‘at the time of a

18 qualifying event described in section

19 2203(2)’’ and inserting ‘‘at any time

20 during the initial 18-month period of

21 continuing coverage under this title’’;

22 (B) in subparagraph (D)(i), by inserting

23 before ‘‘, or’’ the following: ‘‘, except that the

24 exclusion or limitation contained in this clause

25 shall not be considered to apply to a plan under
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1 which a preexisting condition or exclusion does

2 not apply to an individual otherwise eligible for

3 continuation coverage under this section be4 cause of the provision of the Health Insurance

5 Reform Act of 1996’’, and

6 (C) in subparagraph (E), by striking ‘‘at

7 the time of a qualifying event described in sec8 tion 2203(2)’’ and inserting ‘‘at any time dur9 ing the initial 18-month period of continuing

10 coverage under this title’’,

11 (2) ELECTION.—Section 2205(1)(C) of the

12 Public Health Service Act (42 U.S.C. 300bb–

13 5(1)(C)) is amended—

14 (A) in clause (i), by striking ‘‘or’’ at the

15 end thereof.

16 (B) in clause (ii), by striking the period

17 and inserting ‘‘, or’’, and

18 (C) by adding at the end thereof the fol19 lowing new clause:

20 ‘‘(iii) in the case of an individual de21 scribed in the last sentence of section

22 2202(2)(A), or a beneficiary-family mem23 ber of the individual, the date such individ24 ual is determined to have been disabled.’’.
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1 (3) NOTICES.—Section 2206(3) of the Public

2 Health Service Act (42 U.S.C. 300bb–6(3)) is

3 amended by striking ‘‘at the time of a qualifying

4 event described in section 2203(2)’’ and inserting

5 ‘‘at any time during the initial 18-month period of

6 continuing coverage under this title’’.

7 (4) BIRTH OR ADOPTION OF A CHILD.—Section

8 2208(3)(A) of the Public Health Service Act (42

9 U.S.C. 300bb–8(3)(A)) is amended by adding at the

10 end thereof the following new flush sentence:

11 ‘‘Such term shall also include a child who is born to or

12 placed for adoption with the covered employee during the

13 period of continued coverage under this title.’’.

14 (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT

15 OF 1974.—

16 (1) PERIOD OF COVERAGE.—Section 602(2) of

17 the Employee Retirement Income Security Act of

18 1974 (29 U.S.C. 1162(2)) is amended—

19 (A) in the last sentence of subparagraph

20 (A)—

21 (i) by inserting ‘‘, or a beneficiary22 family member of the individual.’’ after

23 ‘‘an individual’’; and

24 (ii) by striking ‘‘at the time of a

25 qualifying event described in section
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1 603(2)’’ and inserting ‘‘at any time during

2 the initial 18-month period of continuing

3 coverage under this part’’,

4 (B) in subparagraph (D)(i), by inserting

5 before, ‘‘, or’’ the following ‘‘, except that the

6 exclusion or limitation contained in this clause

7 shall not be considered to apply to a plan under

8 which a preexisting condition or exclusion does

9 not apply to an individual otherwise eligible for

10 continuation coverage under this section be11 cause of the provision of the Health Insurance

12 Reform Act of 1996’’; and

13 (C) in subparagraph (E), by striking ‘‘at

14 the time of a qualifying event described in sec15 tion 603(2)’’ and inserting ‘‘at any time during

16 the initial 18-month period of continuing cov17 erage under this part’’.

18 (2) ELECTION.—Section 605(1)(C) of the Em19 ployee Retirement Income Security Act of 1974 (29

20 U.S.C. 1165(1)(C)) is amended—

21 (A) in clause (i), by striking ‘‘or’’ at the

22 end thereof;

23 (B) in clause (ii), by striking the period

24 and inserting ‘‘, or’’; and
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1 (C) by adding at the end thereof the fol2 lowing new clause:

3 ‘‘(iii) in the case of an individual de4 scribed in the last sentence of section

5 602(2)(A), or a beneficiary-family member

6 of the individual, the date such individual

7 is determined to have been disabled.’’.

8 (3) NOTICES.—Section 606(3) of the Employee

9 Retirement Income Security Act of 1974 (29 U.S.C.

10 1166(3)) is amended by striking ‘‘at the time of a

11 qualifying event described in section 603(2)’’ and in12 serting ‘‘at any time during the initial 18-month pe13 riod of continuing coverage under this part’’.

14 (4) BIRTH OR ADOPTION OF A CHILD.—Section

15 607(3)(A) of the Employee Retirement Income Secu16 rity Act of 1974 (29 U.S.C. 1167(3)) is amended by

17 adding at the end thereof the following new flush

18 sentence:

19 ‘‘Such term shall also include a child who is born to or

20 placed for adoption with the covered employee during the

21 period of continued coverage under this part.’’.

22 (c) INTERNAL REVENUE CODE OF 1986.—

23 (1) PERIOD OF COVERAGE.—Section

24 4980B(f)(2)(B) of the Internal Revenue Code of

25 1986 is amended—
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1 (A) in the last sentence of clause (i) by

2 striking ‘‘at the time of a qualifying event de3 scribed in paragraph (3)(B)’’ and inserting ‘‘at

4 any time during the initial 18-month period of

5 continuing coverage under this section’’.

6 (B) in clause (iv)(I), by inserting before ‘‘,

7 or’’ the following: ‘‘, except that the exclusion

8 or limitation contained in this subclause shall

9 not be considered to apply to a plan under

10 which a preexisting condition or exclusion does

11 not apply to an individual otherwise eligible for

12 continuation coverage under this subsection be13 cause of the provision of the Health Insurance

14 Reform Act of 1996’’; and

15 (C) in clause (v), by striking ‘‘at the time

16 of a qualifying event described in paragraph

17 (3)(B)’’ and inserting ‘‘at any time during the

18 initial 18-month period of continuing coverage

19 under this section’’.

20 (2) ELECTION.—Section 4980B(f)(5)(A)(ii) of

21 the Internal Revenue Code of 1986 is amended—

22 (A) in subclause (I), by striking ‘‘or’’ at

23 the end thereof;

24 (B) in subclause (II), by striking the pe25 riod and inserting ‘‘, or’’, and
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1 (C) by adding at the end thereof the fol2 lowing new subclause:

3 ‘‘(III) in the case of an qualified

4 beneficiary described in the last sen5 tence of paragraph (2)(B)(i), the date

6 such individual is determined to have

7 been disabled.’’.

8 (3) NOTICES.—Section 4980B(f)(6)(C) of the

9 Internal Revenue Code of 1986 is amended by strik10 ing ‘‘at the time of a qualifying event described in

11 paragraph (3)(B)’’ and inserting ‘‘at any time dur12 ing the initial 18-month period of continuing cov13 erage under this section’’.

14 (4) BIRTH OR ADOPTION OF A CHILD.—Section

15 4980B(g)(1)(A) of the Internal Revenue Code of

16 1986 is amended by adding at the end thereof the

17 following new flush sentence:

18 ‘‘Such term shall also include a child who is born to or

19 placed for adoption with the covered employee during the

20 period of continued coverage under this section.’’.

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

22 this section shall apply to qualifying events occurring on

23 or after the date of enactment of this Act for plan years

24 beginning after December 31, 1997.
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1 (e) NOTIFICATION OF CHANGES.—Not later than 60

2 days prior to the date on which this section becomes effec3 tive, each group health plan (covered under title XXII of

4 the Public Health Service Act, part 6 of subtitle B of title

5 I of the Employee Retirement Income Security Act of

6 1974, and section 4980B(f) of the Internal Revenue Code

7 of 1986) shall notify each qualified beneficiary who has

8 elected continuation coverage under such title, part or sec9 tion of the amendments made by this section.

10 Subtitle D—Private Health Plan Purchasing

11 Cooperatives

12 SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERA13 TIVES.

14 (a) DEFINITION.—As used in this title, the term

15 ‘‘health plan purchasing cooperative’’ means a group of

16 individuals or employers that, on a voluntary basis and

17 in accordance with this section, form a cooperative for the

18 purpose of purchasing individual health plans or group

19 health plans offered by health plan issuers. A health plan

20 issuer, agent, broker or any other individual or entity en21 gaged in the sale of insurance may not underwrite a coop22 erative.

23 (b) CERTIFICATION.—

24 (1) IN GENERAL.—If a group described in sub25 section (a) desires to form a health plan purchasing
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1 cooperative in accordance with this section and such

2 group appropriately notifies the State and the Sec3 retary of such desire, the State, upon a determina4 tion that such group meets the requirements of this

5 section, shall certify the group as a health plan pur6 chasing cooperative. The State shall make a deter7 mination of whether such group meets the require8 ments of this section in a timely fashion. Each such

9 cooperative shall also be registered with the Sec10 retary.

11 (2) STATE REFUSAL TO CERTIFY.—If a State

12 fails to implement a program for certifying health

13 plan purchasing cooperatives in accordance with the

14 standards under this title, the Secretary shall certify

15 and oversee the operations of such cooperative in

16 such State.

17 (3) INTERSTATE COOPERATIVES.—For purposes

18 of this section a health plan purchasing cooperative

19 operating in more than one State shall be certified

20 by the State in which the cooperative is domiciled.

21 States may enter into cooperative agreements for the

22 purpose of certifying and overseeing the operation of

23 such cooperatives. For purposes of this subsection, a

24 cooperative shall be considered to be domiciled in the
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1 State in which most of the members of the coopera2 tive reside.

3 (c) BOARD OF DIRECTORS.—

4 (1) IN GENERAL.—Each health plan purchasing

5 cooperative shall be governed by a Board of Direc6 tors that shall be responsible for ensuring the per7 formance of the duties of the cooperative under this

8 section. The Board shall be composed of a board

9 cross-section of representatives of employers, em10 ployees, and individuals participating in the coopera11 tive. A health plan issuer, agent, broker or any other

12 individual or entity engaged in the sale of individual

13 health plans or group health plans may not hold or

14 control any right to vote with respect to a coopera15 tive.

16 (2) LIMITATION ON COMPENSATION.—A health

17 plan purchasing cooperative may not provide com18 pensation to members of the Board of Directors.

19 The cooperative may provide reimbursements to

20 such members for the reasonable and necessary ex21 penses incurred by the members in the performance

22 of their duties as members of the Board.

23 (3) CONFLICT OF INTEREST.—No member of

24 the Board of Directors (or family members of such

25 members) nor any management personnel of the co-
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1 operative may be employed by, be a consultant of, be

2 a member of the board of directors or, be affiliated

3 with an agent of, or otherwise be a representative of

4 any health plan issuer, health care provider, or agent

5 or broker. Nothing in the preceding sentence shall

6 limit a member of the Board from purchasing cov7 erage offered through the cooperative.

8 (d) MEMBERSHIP AND MARKETING AREA.—

9 (1) MEMBERSHIP.—A health plan purchasing

10 cooperative may establish limits on the maximum

11 size of employers who may become members of the

12 cooperative, and may determine whether to permit

13 individuals to become members. Upon the establish14 ment of such membership requirements, the coopera15 tive shall, except as provided in subparagraph (B),

16 accept all employers (or individuals) residing within

17 the area served by the cooperative who meet such re18 quirements as members on a first-come, first-served

19 basis, or on another basis established by the State

20 to ensure equitable access to the cooperative.

21 (2) MARKETING AREA.—A State may establish

22 rules regarding the geographic area that must be

23 served by a health plan purchasing cooperative. With

24 respect to a State that has not established such

25 rules, a health plan purchasing cooperative operating
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1 in the State shall define the boundaries of the area

2 to be served by the cooperative, except that such

3 boundaries may not be established on the basis of

4 health status of the populations that reside in the

5 area.

6 (e) DUTIES AND RESPONSIBILITIES.—

7 (1) IN GENERAL.—A health plan purchasing co8 operative shall—

9 (A) enter into agreements with multiple,

10 unaffiliated health plan issuers, except that the

11 requirement of this subparagraph shall not

12 apply in regions (such as remote or frontier

13 areas) in which compliance with such require14 ment is not possible.

15 (B) enter into agreements with employers

16 and individuals who become members of the co17 operative;

18 (C) participate in any program of risk-ad19 justment or reinsurance, or any similar pro20 gram, that is established by the State.

21 (D) prepare and disseminate comparative

22 health plan materials (including information

23 about cost, quality, benefits, and other informa24 tion concerning group health plans and individ-
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1 ual health plans offered through the coopera2 tive);

3 (E) actively market to all eligible employ4 ers and individuals residing within the service

5 area; and

6 (F) act as an ombudsman for group health

7 plan or individual health plan enrollees.

8 (2) PERMISSIBLE ACTIVITIES.—A health plan

9 purchasing cooperative may perform such other

10 functions as necessary to further the purposes of

11 this title, including—

12 (A) collecting and distributing premiums

13 and performing other administrative functions;

14 (B) collecting and analyzing surveys of en15 rollee satisfaction;

16 (C) charging membership fee to enrollees

17 (such fees may not be based on health status)

18 and charging participation fees to health plan

19 issuers;

20 (D) cooperating with (or accepting as

21 members) employers who provide health bene22 fits directly to participants and beneficiaries

23 only for the purpose of negotiating with provid24 ers, and
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1 (E) negotiating with health care providers

2 and health plan issuers.

3 (f) LIMITATIONS ON COOPERATIVE ACTIVITIES.—A

4 health plan purchasing cooperative shall not—

5 (1) perform any activity relating to the licens6 ing of health plan issuers.

7 (2) assume financial risk directly or indirectly

8 on behalf of members of a health plan purchasing

9 cooperative relating to any group health plan or in10 dividual health plan;

11 (3) establish eligibility, continuation of eligi12 bility, enrollment, or premium contribution require13 ments for participants, beneficiaries, or individuals

14 based on health status;

15 (4) operate on a for-profit or other basis where

16 the legal structure of the cooperative permits profits

17 to be made and not returned to the members of the

18 cooperative, except that a for-profit health plan pur19 chasing cooperative may be formed by a nonprofit

20 organization—

21 (A) in which membership in such organiza22 tion is not based on health status; and

23 (B) that accepts as members all employers

24 or individuals on a first-come, first-served basis,

25 subject to any established limit on the maxi-
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1 mum size of and employer that may become a

2 member; or

3 (5) perform any other activities that conflict or

4 are inconsistent with the performance of its duties

5 under this title.

6 (g) LIMITED PREEMPTIONS OF CERTAIN STATE

7 LAWS.—

8 (1) IN GENERAL.—With respect to a health

9 plan purchasing cooperative that meets the require10 ments of this section, State fictitious group laws

11 shall be preempted.

12 (2) HEALTH PLAN ISSUERS.—

13 (A) RATING.—With respect to a health

14 plan issuer offering a group health plan or indi15 vidual health plan through a health plan pur16 chasing cooperative that meets the requirements

17 of this section. State premium rating require18 ment laws, except to the extent provided under

19 subparagraph (B), shall be preempted unless

20 such laws permit premium rates negotiated by

21 the cooperative to be less than rates that would

22 otherwise be permitted under State law, if such

23 rating differential is not based on differences in

24 health status or demographic factors.
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1 (B) EXCEPTION.—State laws referred to in

2 subparagraph (A) shall not be preempted if

3 such laws—

4 (i) prohibit the variance of premium

5 rates among employers, plan sponsors, or

6 individuals that are members of health

7 plan purchasing cooperative in excess of

8 the amount of such variations that would

9 be permitted under such State rating laws

10 among employers, plan sponsors, and indi11 viduals that are not members of the coop12 erative; and

13 (ii) prohibit a percentage increase in

14 premium rates for a new rating period that

15 is in excess of that which would be per16 mitted under State rating laws.

17 (C) BENEFITS.—Except as provided in

18 subparagraph (D), a health plan issuer offering

19 a group health plan or individual health plan

20 through a health plan purchasing cooperative

21 shall comply with all State mandated benefit

22 laws that require the offering of any services,

23 category or care, or services of any class or type

24 of provider.
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1 (D) EXCEPTION.—In those states that

2 have enacted laws authorizing the issuance of

3 alternative benefit plans to small employers,

4 health plan issuers may offer such alternative

5 benefit plans through a health plan purchasing

6 cooperative that meets the requirements of this

7 section.

8 (h) RULES OF CONSTRUCTION.—Nothing in this sec9 tion shall be construed to—

10 (1) require that a State organize, operate, or

11 otherwise create health plan purchasing cooperatives;

12 (2) otherwise require the establishment of

13 health plan purchasing cooperatives.

14 (3) require individuals, plan sponsors, or em15 ployers to purchase group health plans or individual

16 health plans through a health plan purchasing coop17 erative;

18 (4) require that a health plan purchasing coop19 erative be the only type of purchasing arrangement

20 permitted to operate in a State.

21 (5) confer authority upon a State that the State

22 would not otherwise have to regulate health plan is23 suers or employee health benefits plans, or

24 (6) confer authority up a State (or the Federal

25 Government) that the State (or Federal Govern-
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1 ment) would not otherwise have to regulate group

2 purchasing arrangements, coalitions, or other similar

3 entities that do not desire to become a health plan

4 purchasing cooperative in accordance with this sec5 tion.

6 (i) APPLICATION OF ERISA.—For purposes of en7 forcement only, the requirements of parts 4 and 5 of sub8 title B of title I of the Employee Retirement Income Secu9 rity Act of 1974 (29 U.S.C. 1101) shall apply to a health

10 pan purchasing cooperative as if such plan were an em11 ployee welfare benefit plan.

12 Subtitle E—Application and Enforcement of

13 Standards

14 SEC. 141. APPLICABILITY.

15 (a) CONSTRUCTION.—

16 (1) ENFORCEMENT.—

17 (A) IN GENERAL.—A requirement or

18 standard imposed under this title on a group

19 health plan or individual health plan offered by

20 a health plan issuer shall be deemed to be a re21 quirement or standard imposed on the health

22 plan issuer. Such requirements or standards

23 shall be enforced by the State insurance com24 missioner for the State involved or the official

25 or officials designated by the State to enforce
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1 the requirements of this title. In the case of a

2 group health plan offered by a health plan is3 suer in connection with an employee health ben4 efit plan, the requirements of standards im5 posed under the title shall be enforced with re6 spect to the health plan issuer by the State in7 surance commissioner for the State involved or

8 the official of officials designated by the State

9 to enforce the requirements of this title.

10 (B) LIMITATION.—Except as provided in

11 subsection (c), the Secretary shall not enforce

12 the requirements or standards of this title as

13 they relate to health plan issuers, group health

14 plans, or individual health plans. In no case

15 shall a Sate enforce the requirements or stand16 ards of this title as they relate to employee

17 health benefit plans.

18 (2) PREEMPTION OF STATE LAW.—Nothing in

19 this title shall be construed to prevent a State from

20 establishing, implementing, or continuing in effect

21 standards and requirements—

22 (A) not prescribed in this title; or

23 (B) related to the issuance, renewal, or

24 portability of health insurance or the establish25 ment or operation of group purchasing arrange-
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1 ments, that are consistent with, and are not in

2 direct conflict with, this title and provide great3 er protection or benefit to participants, bene4 ficiaries or individuals.

5 (b) RULE OF CONSTRUCTION.—Nothing in this title

6 shall be construed to affect or modify the provisions of

7 section 514 of the Employee Retirement Income Security

8 Act of 1974 (29 U.S.C. 1144).

9 (c) CONTINUATION.—Nothing in this title shall be

10 construed as requiring a group health plan or an employee

11 health benefit plan to provide benefits to a particular par12 ticipant or beneficiary in excess of those provided under

13 the terms of such plan.

14 SEC. 202. ENFORCEMENT OF STANDARDS.

15 (a) HEALTH PLAN ISSUERS.—Each State shall re16 quire that each group health plan and individual health

17 plan issued, sold, renewed, offered for sale or operated in

18 such State by a health plan issuer meet the standards es19 tablished under this title pursuant to an enforcement plan

20 filed by the State with the Secretary. A State shall submit

21 such information as required by the Secretary demonstrat22 ing effective implementation of the State enforcement law.

23 (b) EMPLOYEE HEALTH BENEFIT PLANS.—With re24 spect to employee health benefit plans, the Secretary shall

25 enforce the reform standards established under this title
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1 in the same manner as provided for under sections 502,

2 504, 506, and 510 of the Employee Retirement Income

3 Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and

4 1140). The civil penalties contained in paragraphs (1) and

5 (2) of section 502(c) of such Act (29 U.S.C. 1132(c) (1)

6 and (2)) shall apply to any information required by the

7 Secretary to be disclosed and reported under this section.

8 (c) FAILURE TO IMPLEMENT PLAN.—In the case of

9 the failure of a State to substantially enforce the stand10 ards and requirements set forth in this title with respect

11 to group health plans and individual health plans as pro12 vided for under the State enforcement plan filed under

13 subsection (a), the Secretary, in consultation with the Sec14 retary of Health and Human Services, shall implement an

15 enforcement plan meeting the standards of this title in

16 such State. In the case of a State that fails to substan17 tially enforce the standards and requirements set forth in

18 this title, each health plan issuer operating in such State

19 shall be subject to civil enforcement as provided for under

20 sections 502, 504, 506, and 510 of the Employee Retire21 ment Income Security Act of 1974 (29 U.S.C. 1132, 1134,

22 1136, and 1140). The civil penalties contained in para23 graphs (1) and (2) of section 502(c) of such Act (29

24 U.S.C. 1132(c) (1) and (2)) shall apply to any information
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1 required by the Secretary to be disclosed and reported

2 under this section.

3 (d) APPLICABLE CERTIFYING AUTHORITY.—As used

4 in this title, the term ‘‘applicable certifying

5 authority’’means, with respect to—

6 (1) health plan issuers, the State insurance

7 commissioner or official or officials designated by

8 the State to enforce the requirements of this title for

9 the State involved; and

10 (2) an employee health benefit, plan, the Sec11 retary.

12 (e) REGULATIONS.—The Secretary may promulgate

13 such regulations as may be necessary or appropriate to

14 carry out this title.

15 (f) TECHNICAL AMENDMENT.—Section 508 of the

16 Employee Retirement Income Security Act of 1974 (29

17 U.S.C. 1138) is amended by inserting ‘‘and under the

18 Health Insurance Reform Act of 1996’’ before the period.

19 Subtitle F—Miscellaneous Provisions

20 SEC. 191. HEALTH COVERAGE AVAILABILITY STUDY.

21 (a) IN GENERAL.—The Secretary of Health and

22 Human Services, in consultation with the Secretary, rep23 resentatives of State officials, consumers, and other rep24 resentatives of individuals and entities that have expertise

25 in health insurance and employee benefits, shall conclude
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1 a two-part study, and prepare and submit reports, in ac2 cordance with this section.

3 (b) EVALUATION OF AVAILABILITY.—Not later than

4 January 1, 1998, the Secretary of Health and Human

5 Services shall prepare and submit to the appropriate com6 mittees of Congress a report, concerning—

7 (1) an evaluation, based on the experience of

8 States, expert opinions, and such additional data as

9 may be available, of the various mechanisms used to

10 ensure the availability of reasonably priced health

11 coverage to employers purchasing group coverage

12 and to individuals purchasing coverage on a non13 group basis; and

14 (2) whether standards that limit the variation

15 in premiums will further the purposes of this Act.

16 (c) EVALUATION OF EFFECTIVENESS.—Not later

17 than January 1, 1999, the Secretary of Health and

18 Human Services shall prepare and submit to the appro19 priate committees of Congress a report, concerning the ef20 fectiveness of the provisions of this Act and the various

21 State laws, in ensuring the availability of reasonably

22 priced health coverage to employers purchasing group cov23 erage and individuals purchasing coverage on a nongroup

24 basis.
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1 SEC. 192. EFFECTIVE DATE.

2 Except as otherwise provided for in this title, the pro3 visions of this title shall apply as follows:

4 (1) With respect to group health plans and in5 dividual health plans, such provisions shall apply to

6 plans offered, sold, issued, renewed, in effect, or op7 erated on or after January 1, 1997, and

8 (2) With respect to employee health benefit

9 plans, on the first day of the first plan year begin10 ning on or after January 1, 1997.

11 SEC. 193. SEVERABILITY.

12 If any provision of this title or the application of such

13 provision to any person or circumstance is held to be un14 constitutional, the remainder of this title and the applica15 tion of the provisions of such to any person or cir16 cumstance shall not be affected thereby.

17 TITLE II—INCREASE IN DEDUCTION FOR

18 HEALTH INSURANCE COSTS OF SELF19 EMPLOYED INDIVIDUALS

TABLE OF CONTENTS OF TITLE

TITLE II—INCREASE IN DEDUCTION FOR HEALTH INSURANCE

COSTS OF SELF-EMPLOYED INDIVIDUALS

Sec. 200. Amendment of 1986 Code.

Subtitle A—Increase in Deduction For Health Insurance Costs of SelfEmployed Individuals

Sec. 201. Increase in deduction for health insurance costs of self-employed individuals.
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SUBTITLE B—REVENUE OFFSETS

CHAPTER 1—TREATMENT OF INDIVIDUALS WHO EXPATRIATE

Sec. 211. Revision of tax rules on expatriation.

Sec. 212. Information on individuals expatriating.

CHAPTER 2—FOREIGN TRUST TAX COMPLIANCE

Sec. 221. Improved information reporting on foreign trusts.

Sec. 222. Modifications of rules relating to foreign trusts having one or more

United States beneficiary.

Sec. 223. Foreign persons not to be treated as owners under grantor trust rules.

Sec. 224. Information reporting regarding foreign gifts.

Sec. 225. Modification of rules relating to foreign trusts which are not grantor

trusts.

Sec. 226. Residence of estates and trusts, etc.

CHAPTER 3—REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT

SAVINGS ASSOCIATIONS

Sec. 231. Repeal of bad debt reserve method for thrift savings associations.

1 SEC. 200. AMENDMENT OF 1986 CODE.

2 Except as otherwise expressly provided, whenever in

3 this title an amendment or repeal is expressed in terms

4 of an amendment to, or repeal of, a section or other provi5 sion, the reference shall be considered to be made to a

6 section or other provision of the Internal Revenue Code

7 of 1986.

8 Subtitle A—Increase in Deduction For Health

9 Insurance Costs of Self-Employed Individuals

10 SEC. 201. INCREASE IN DEDUCTION FOR HEALTH INSUR11 ANCE COSTS OF SELF-EMPLOYED INDIVID12 UALS.

13 (a) IN GENERAL.—Paragraph (1) of section 162(l)

14 is amended to read as follows:

15 ‘‘(1) ALLOWANCE OF DEDUCTION.—
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1 ‘‘(A) IN GENERAL.—In the case of an indi2 vidual who is an employee within the meaning

3 of section 401(c)(1), there shall be allowed as

4 a deduction under this section an amount equal

5 to the applicable percentage of the amount paid

6 during the taxable year for insurance which

7 constitutes medical care for the taxpayer, his

8 spouse, and dependents.

9 ‘‘(B) APPLICABLE PERCENTAGE.—For

10 purposes of subparagraph (A), the applicable

11 percentage shall be determined under the fol12 lowing table:

‘‘For taxable years beginning

in calendar year—

The applicable percentage is—

After 1996 and before 2002 .......... 50 percent.

2002 or thereafter ......................... 80 percent.’’

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

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 Subtitle B—Revenue Offsets

17 CHAPTER 1—TREATMENT OF

18 INDIVIDUALS WHO EXPATRIATE

19 SEC. 211. REVISION OF TAX RULES ON EXPATRIATION.

20 (a) IN GENERAL.—Subpart A of part II of sub21 chapter N of chapter 1 is amended by inserting after sec22 tion 877 the following new section:
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1 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

2 ‘‘(a) GENERAL RULES.—For purposes of this sub3 title—

4 ‘‘(1) MARK TO MARKET.—Except as provided in

5 subsection (f), all property of a covered expatriate to

6 which this section applies shall be treated as sold on

7 the expatriation date for its fair market value.

8 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

9 case of any sale under paragraph (1)—

10 ‘‘(A) notwithstanding any other provision

11 of this title, any gain arising from such sale

12 shall be taken into account for the taxable year

13 of the sale unless such gain is excluded from

14 gross income under part III of subchapter B,

15 and

16 ‘‘(B) any loss arising from such sale shall

17 be taken into account for the taxable year of

18 the sale to the extent otherwise provided by this

19 title, except that section 1091 shall not apply

20 (and section 1092 shall apply) to any such loss.

21 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

22 amount which would (but for this paragraph) be in23 cludible in the gross income of any individual by rea24 son of this section shall be reduced (but not below

25 zero) by $600,000. For purposes of this paragraph,

26 allocable expatriation gain taken into account under
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1 subsection (f)(2) shall be treated in the same man2 ner as an amount required to be includible in gross

3 income.

4 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

5 UNITED STATES CITIZEN.—

6 ‘‘(A) IN GENERAL.—If an expatriate elects

7 the application of this paragraph—

8 ‘‘(i) this section (other than this para9 graph) shall not apply to the expatriate,

10 but

11 ‘‘(ii) the expatriate shall be subject to

12 tax under this title, with respect to prop13 erty to which this section would apply but

14 for such election, in the same manner as if

15 the individual were a United States citizen.

16 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

17 GIFT, AND GENERATION-SKIPPING TRANSFER

18 TAXES.—The aggregate amount of taxes im19 posed under subtitle B with respect to any

20 transfer of property by reason of an election

21 under subparagraph (A) shall not exceed the

22 amount of income tax which would be due if the

23 property were sold for its fair market value im24 mediately before the time of the transfer or
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1 death (taking into account the rules of para2 graph (2)).

3 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

4 shall not apply to an individual unless the indi5 vidual—

6 ‘‘(i) provides security for payment of

7 tax in such form and manner, and in such

8 amount, as the Secretary may require,

9 ‘‘(ii) consents to the waiver of any

10 right of the individual under any treaty of

11 the United States which would preclude as12 sessment or collection of any tax which

13 may be imposed by reason of this para14 graph, and

15 ‘‘(iii) complies with such other re16 quirements as the Secretary may prescribe.

17 ‘‘(D) ELECTION.—An election under sub18 paragraph (A) shall apply to all property to

19 which this section would apply but for the elec20 tion and, once made, shall be irrevocable. Such

21 election shall also apply to property the basis of

22 which is determined in whole or in part by ref23 erence to the property with respect to which the

24 election was made.

25 ‘‘(b) ELECTION TO DEFER TAX.—
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1 ‘‘(1) IN GENERAL.—If the taxpayer elects the

2 application of this subsection with respect to any

3 property—

4 ‘‘(A) no amount shall be required to be in5 cluded in gross income under subsection (a)(1)

6 with respect to the gain for such property for

7 the taxable year of the sale, but

8 ‘‘(B) the taxpayer’s tax for the taxable

9 year in which such property is disposed of shall

10 be increased by the deferred tax amount with

11 respect to the property.

12 Except to the extent provided in regulations, sub13 paragraph (B) shall apply to a disposition whether

14 or not gain or loss is recognized in whole or in part

15 on the disposition.

16 ‘‘(2) DEFERRED TAX AMOUNT.—

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1), the term ‘deferred tax amount’

19 means, with respect to any property, an amount

20 equal to the sum of—

21 ‘‘(i) the difference between the

22 amount of tax paid for the taxable year de23 scribed in paragraph (1)(A) and the

24 amount which would have been paid for

25 such taxable year if the election under
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1 paragraph (1) had not applied to such

2 property, plus

3 ‘‘(ii) an amount of interest on the

4 amount described in clause (i) determined

5 for the period—

6 ‘‘(I) beginning on the 91st day

7 after the expatriation date, and

8 ‘‘(II) ending on the due date for

9 the taxable year described in para10 graph (1)(B),

11 by using the rates and method applicable

12 under section 6621 for underpayments of

13 tax for such period.

14 For purposes of clause (ii), the due date is the

15 date prescribed by law (determined without re16 gard to extension) for filing the return of the

17 tax imposed by this chapter for the taxable

18 year.

19 ‘‘(B) ALLOCATION OF LOSSES.—For pur20 poses of subparagraph (A), any losses described

21 in subsection (a)(2)(B) shall be allocated rat22 ably among the gains described in subsection

23 (a)(2)(A).

24 ‘‘(3) SECURITY.—
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1 ‘‘(A) IN GENERAL.—No election may be

2 made under paragraph (1) with respect to any

3 property unless adequate security is provided

4 with respect to such property.

5 ‘‘(B) ADEQUATE SECURITY.—For purposes

6 of subparagraph (A), security with respect to

7 any property shall be treated as adequate secu8 rity if—

9 ‘‘(i) it is a bond in an amount equal

10 to the deferred tax amount under para11 graph (2)(A) for the property, or

12 ‘‘(ii) the taxpayer otherwise estab13 lishes to the satisfaction of the Secretary

14 that the security is adequate.

15 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No elec16 tion may be made under paragraph (1) unless the

17 taxpayer consents to the waiver of any right under

18 any treaty of the United States which would pre19 clude assessment or collection of any tax imposed by

20 reason of this section.

21 ‘‘(5) DISPOSITIONS.—For purposes of this sub22 section, a taxpayer making an election under this

23 subsection with respect to any property shall be

24 treated as having disposed of such property—
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1 ‘‘(A) immediately before death if such

2 property is held at such time, and

3 ‘‘(B) at any time the security provided

4 with respect to the property fails to meet the

5 requirements of paragraph (3) and the taxpayer

6 does not correct such failure within the time

7 specified by the Secretary.

8 ‘‘(6) ELECTIONS.—An election under

9 paragraph (1) shall only apply to property

10 described in the election and, once made, is

11 irrevocable. An election may be under

12 paragraph (1) with respect to an interest

13 in a trust with respect to which gain is re14 quired to be recognized under subsection

15 (f)(1).

16 ‘‘(c) COVERED EXPATRIATE.—For purposes of this

17 section—

18 ‘‘(1) IN GENERAL.—The term ‘covered expatri19 ate’ means an expatriate—

20 ‘‘(A) whose average annual net income tax

21 (as defined in section 38(c)(1)) for the period

22 of 5 taxable years ending before the expatria23 tion date is greater than $100,000, or

24 ‘‘(B) whose net worth as of such date is

25 $500,000 or more.
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1 If the expatriation date is after 1996, such

2 $100,000 and $500,000 amounts shall be increased

3 by an amount equal to such dollar amount multi4 plied by the cost-of-living adjustment determined

5 under section 1(f)(3) for such calendar year by sub6 stituting ‘1995’ for ‘1992’ in subparagraph (B)

7 thereof. Any increase under the preceding sentence

8 shall be rounded to the nearest multiple of $1,000.

9 ‘‘(2) EXCEPTIONS.—An individual shall not be

10 treated as a covered expatriate if—

11 ‘‘(A) the individual—

12 ‘‘(i) became at birth a citizen of the

13 United States and a citizen of another

14 country and, as of the expatriation date,

15 continues to be a citizen of, and is taxed

16 as a resident of, such other country, and

17 ‘‘(ii) has been a resident of the United

18 Stats (as defined in section

19 7701(b)(1)(A)(ii)) for not more than 8 tax20 able years during the 15-taxable year pe21 riod ending with the taxable year during

22 which the expatriation date occurs, or

23 ‘‘(B)(i) the individual’s relinquishment of

24 United States citizenship occurs before such individual attains age 181 25 ⁄2, and
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1 ‘‘(ii) the individual has been a resident of

2 the United States (as so defined) for not more

3 than 5 taxable years before the date of relin4 quishment.

5 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—Except as otherwise pro8 vided by the Secretary, this section shall apply to—

9 ‘‘(A) any interest in property held by a

10 covered expatriate on the expatriation date the

11 gain from which would be included in the gross

12 income of the expatriate if such interest had

13 been sold for its fair market value on such data

14 in a transaction in which gain is recognized in

15 whole or in part, and

16 ‘‘(B) any other interest in a trust to which

17 subsection (f) applies.

18 ‘‘(2) EXCEPTIONS.—This section shall not

19 apply to the following property:

20 ‘‘(A) UNITED STATES REAL PROPERTY IN21 TERESTS.—Any United States real property in22 terest (as defined in section 897(c)(1)), other

23 than stock of a United States real property

24 holding corporation which does not, on the ex-
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1 patriation date, meet the requirements of sec2 tion 897(c)(2).

3 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

4 PLANS.—

5 ‘‘(i) IN GENERAL.—Any interest in a

6 qualified retirement plan (as defined in

7 section 4974(c)), other than any interest

8 attributable to contributions which are in

9 excess of any limitation or which violate

10 any condition for tax-favored treatment.

11 ‘‘(ii) FOREIGN PENSION PLANS.—

12 ‘‘(I) IN GENERAL.—Under regu13 lations prescribed by the Secretary,

14 interests in foreign pension plans or

15 similar retirement arrangements or

16 programs.

17 ‘‘(II) LIMITATION.—The value of

18 property which is treated as not sold

19 by reason of this subparagraph shall

20 not exceed $500,000.

21 ‘‘(e) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

23 means—

24 ‘‘(A) any United States citizen who relin25 quishes his citizenship, or
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1 ‘‘(B) any long-term resident of the United

2 States who—

3 ‘‘(i) ceases to be a lawful permanent

4 resident of the United States (within the

5 meaning of section 7701(b)(6)), or

6 ‘‘(ii) commences to be treated as a

7 resident of a foreign country under the

8 provisions of a tax treaty between the

9 United States and the foreign country and

10 who does not waive the benefits of such

11 treaty applicable to residents of the foreign

12 country.

13 ‘‘(2) EXPATRIATION DATE.—The term ‘expa14 triation date’ means—

15 ‘‘(A) the date an individual relinquishes

16 United States citizenship, or

17 ‘‘(B) in the case of a long-term resident of

18 the United States, the date of the event de19 scribed in clause (i) or (ii) of paragraph (1)(B).

20 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A

21 citizen shall be treated as relinquishing his United

22 States citizenship on the earliest of—

23 ‘‘(A) the date the individual renounces his

24 United States nationality before a diplomatic or

25 consular officer of the United States pursuant
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1 to paragraph (5) of section 349(a) of the Immi2 gration and Nationality Act (8 U.S.C.

3 1481(a)(5)).

4 ‘‘(B) the date the individual furnishes to

5 the United States Department of State a signed

6 statement of voluntary relinquishment of Unit7 ed States nationality confirming the perform8 ance of an act of expatriation specified in para9 graph (1), (2), (3), or (4) of section 349(a) of

10 the Immigration and Nationality Act (8 U.S.C.

11 1481(a)(1)–(4)).

12 ‘‘(C) the date the United States Depart13 ment of State issues to the individual a certifi14 cate of loss of nationality, or

15 ‘‘(D) the date a court of the United States

16 cancels a naturalized citizen’s certificate of nat17 uralization.

18 Subparagraph (A) or (B) shall not apply to any indi19 vidual unless the renunciation or voluntary relin20 quishment is subsequently approved by the issuance

21 to the individual of a certificate of loss of nationality

22 by the United States Department of State.

23 ‘‘(4) LONG-TERM RESIDENT.—

24 ‘‘(A) IN GENERAL.—The term ‘long-term

25 resident’ means any individual (other than a
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1 citizen of the United States) who is a lawful

2 permanent resident of the United States in at

3 least 8 taxable years during the period of 15

4 taxable years ending with the taxable year dur5 ing which the expatriation date occurs. For pur6 poses of the preceding sentence, an individual

7 shall not be treated as a lawful permanent resi8 dent for any taxable year if such individual is

9 treated as a resident of a foreign country for

10 the taxable year under the provisions of a tax

11 treaty between the United States and the for12 eign country and does not waive the benefits of

13 such treaty applicable to residents of the for14 eign country.

15 ‘‘(B) SPECIAL RULE.—For purposes of

16 subparagraph (A), there shall not be taken into

17 account—

18 ‘‘(i) any taxable year during which

19 any prior sale is treated under subsection

20 (a)(1) as occurring, or

21 ‘‘(ii) any taxable year prior to the tax22 able year referred to in clause (i).

23 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE24 FICIARIES’ INTERESTS IN TRUST.—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), if an individual is determined under para3 graph (3) to hold an interest in a trust—

4 ‘‘(A) the individual shall not be treated as

5 having sold such interest,

6 ‘‘(B) such interest shall be treated as a

7 separate share in the trust, and

8 ‘‘(C)(i) such separate share shall be treat9 ed as a separate trust consisting of the assets

10 allocable to such share,

11 ‘‘(ii) the separate trust shall be treated as

12 having sold its assets immediately before the ex13 patriation date for their fair market value and

14 as having distributed all of its assets to the in15 dividual as of such time, and

16 ‘‘(iii) the individual shall be treated as hav17 ing recontributed the assets to the separate

18 trust.

19 Subsection (a)(2) shall apply to any income, gain, or

20 loss of the individual arising from a distribution de21 scribed in subparagraph (C)(ii).

22 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI23 FIED TRUSTS.—
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1 ‘‘(A) IN GENERAL.—If the trust interest

2 described in paragraph (1) is an interest in a

3 qualified trust—

4 ‘‘(i) paragraph (1) and subsection (a)

5 shall not apply, and

6 ‘‘(ii) in addition to any other tax im7 posed by this title, there is hereby imposed

8 on each distribution with respect to such

9 interest a tax in the amount determined

10 under subparagraph (B).

11 ‘‘(B) AMOUNT OF TAX.—The amount of

12 tax under subparagraph (A)(ii) shall be equal to

13 the lesser of—

14 ‘‘(i) the highest rate of tax imposed by

15 section 1(e) for the taxable year in which

16 the expatriation date occurs, multiplied by

17 the amount of the distribution, or

18 ‘‘(ii) the balance in the deferred tax

19 account immediately before the distribution

20 determined without regard to any increases

21 under subparagraph (C)(ii) after the 30th

22 day preceding the distribution.

23 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur24 poses of subparagraph (B)(ii)—
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1 ‘‘(i) OPENING BALANCE.—The open2 ing balance in a deferred tax account with

3 respect to any trust interest in an amount

4 equal to the tax which would have been im5 posed on the allocable expatriation gain

6 with respect to the trust interest if such

7 gain had been included in gross income

8 under subsection (a).

9 ‘‘(ii) INCREASE FOR INTEREST.—The

10 balance in the deferred tax account shall

11 be increased by the amount of interest de12 termined (on the balance in the account at

13 the time the interest accrues), for periods

14 after the 90th day after the expatriation

15 date, by using the rates and method appli16 cable under section 6621 for underpay17 ments of tax for such periods.

18 ‘‘(iii) DECREASE FOR TAXES PRE19 VIOUSLY PAID.—The balance in the tax de20 ferred account shall be reduced—

21 ‘‘(I) by the amount of taxes im22 posed by subparagraph (A) on any

23 distribution to the person holding the

24 trust interest, and
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1 ‘‘(II) in the case of a person

2 holding a nonvested interest, to the

3 extent provided in regulations, by the

4 amount of taxes imposed by subpara5 graph (A) on distributions from the

6 trust with respect to nonvested inter7 ests not held by such person.

8 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—

9 For purposes of this paragraph, the allocable

10 expatriation gain with respect to any bene11 ficiary’s interest in a trust in the amount of

12 gain which would be allocable to such bene13 ficiary’s vested and nonvested interests in the

14 trust if the beneficiary held directly all assets

15 allocable to such interests.

16 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

17 ‘‘(i) IN GENERAL.—The tax imposed

18 by subparagraph (A)(ii) shall be deducted

19 and withheld by the trustees from the dis20 tribution to which it relates.

21 ‘‘(ii) EXCEPTION WHERE FAILURE TO

22 WAIVE TREATY RIGHTS.—If an amount

23 may not be deducted and withheld under

24 clause (i) by reason of the distributee fail-
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1 ing to waive any treaty right with respect

2 to such distribution—

3 ‘‘(I) the tax imposed by subpara4 graph (A)(ii) shall be imposed on the

5 trust and each trustee shall be person6 ally liable for the amount of such tax,

7 and

8 ‘‘(II) any other beneficiary of the

9 trust shall be entitled to recover from

10 the distributee the amount of such tax

11 imposed on the other beneficiary.

12 ‘‘(F) DISPOSITION.—If a trust ceases to be

13 a qualified trust at any time, a covered expatri14 ate disposes of an interest in a qualified trust,

15 or a covered expatriate holding an interest in a

16 qualified trust dies, then, in lieu of the tax im17 posed by subparagraph (A)(ii), there is hereby

18 imposed a tax equal to the lesser of—

19 ‘‘(i) the tax determined under para20 graph (1) as if the expatriation date were

21 the date of such cessation, disposition, or

22 death, whichever is applicable, or

23 ‘‘(ii) the balance in the tax deferred

24 account immediately before such date.
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1 Such tax shall be imposed on the trust and

2 each trustee shall be personally liable for the

3 amount of such tax and any other beneficiary

4 of the trust shall be entitled to recover from the

5 covered expatriate or the estate the amount of

6 such tax imposed on the other beneficiary.

7 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

8 For purposes of this paragraph—

9 ‘‘(i) QUALIFIED TRUST.—The term

10 ‘qualified trust’ means a trust—

11 ‘‘(I) which is organized under,

12 and governed by, the laws of the Unit13 ed States or a State, and

14 ‘‘(II) with respect to which the

15 trust instrument requires that at least

16 1 trustee of the trust be an individual

17 citizen of the United States or a do18 mestic corporation.

19 ‘‘(ii) VESTED INTEREST.—The term

20 ‘vested interest’ means any interest which,

21 as of the expatriation date, is vested in the

22 beneficiary.

23 ‘‘(iii) NONVESTED INTEREST.—The

24 term ‘nonvested interest’ means, with re25 spect to any beneficiary, any interest in a
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1 trust which is not a vested interest. Such

2 interest shall be determined by assuming

3 the maximum exercise of discretion in

4 favor of the beneficiary and the occurrence

5 of all contingencies in favor of the bene6 ficiary.

7 ‘‘(iv) ADJUSTMENTS.—The Secretary

8 may provide for such adjustments to the

9 bases of assets in a trust or a deferred tax

10 account, and the timing of such adjust11 ments, in order to ensure that gain is

12 taxed only once.

13 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN14 TEREST IN TRUST.—

15 ‘‘(A) DETERMINATIONS UNDER PARA16 GRAPH (1)—For purposes of paragraph (1), a

17 beneficiary’s interest in a trust shall be based

18 upon all relevant facts and circumstances, in19 cluding the terms of the trust instrument and

20 any letter of wishes or similar document, histor21 ical patterns of trust distributions, and the ex22 istence of and functions performed by a trust

23 protector or any similar advisor.

24 ‘‘(B) OTHER DETERMINATIONS.—For pur25 poses of this section—
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1 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If

2 a beneficiary of a trust is a corporation,

3 partnership, trust, or estate, the sharehold4 ers, partners, or beneficiaries shall be

5 deemed to be the trust beneficiaries for

6 purposes of this section.

7 ‘‘(ii) TAXPAYER RETURN POSITION.—

8 A taxpayer shall clearly indicate on its in9 come tax return—

10 ‘‘(I) the methodology used to de11 termine that taxpayer’s trust interest

12 under this section, and

13 ‘‘(II) if the taxpayer knows (or

14 has reason to know) that any other

15 beneficiary of such trust is using a

16 different methodology to determine

17 such beneficiary’s trust interest under

18 this section.

19 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the

20 date any property held by an individual is treated as sold

21 under subsection (a), notwithstanding any other provision

22 of this title—

23 ‘‘(1) any period during which recognition of in24 come or gain is deferred shall terminate, and
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1 ‘‘(2) any extension of time for payment of tax

2 shall cease to apply and the unpaid portion of such

3 tax shall be due and payable at the time and in the

4 manner prescribed by the Secretary.

5 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

6 ‘‘(1) IN GENERAL.—If an individual is required

7 to include any amount in gross income under sub8 section (a) for any taxable year, there is hereby im9 posed, immediately before the expatriation date, a

10 tax in an amount equal to the amount of tax which

11 would be imposed if the taxable year were a short

12 taxable year ending on the expatriation date.

13 ‘‘(2) DUE DATE.—The due date for any tax im14 posed by paragraph (1) shall be the 90th day after

15 the expatriation date.

16 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

17 paragraph (1) shall be treated as a payment of the

18 tax imposed by this chapter for the taxable year to

19 which subsection (a) applies.

20 ‘‘(4) DEFERRAL OF TAX.—The provisions of

21 subsection (b) shall apply to the tax imposed by this

22 subsection to the extent attributable to gain includ23 ible in gross income by reason of this section.
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1 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

2 TAXES.—If subsection (a) applies to property held by an

3 individual for any taxable year and—

4 ‘‘(1) such property is includible in the gross es5 tate of such individual solely by reason of section

6 2107, or

7 ‘‘(2) section 2501 applies to a transfer of such

8 property by such individual solely by reason of sec9 tion 2501(a)(3).

10 then there shall be allowed as a credit against the addi11 tional tax imposed by section 2101 or 2501, whichever is

12 applicable, solely by reason of section 2107 or 2501(a)(3)

13 an amount equal to the increase in the tax imposed by

14 this chapter for such taxable year by reason of this sec15 tion.

16 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

17 such regulations as may be necessary or appropriate to

18 carry out the purposes of this section, including regula19 tions—

20 ‘‘(1) to prevent double taxation by ensuring

21 that—

22 ‘‘(A) appropriate adjustments are made to

23 basis to reflect gain recognized by reason of

24 subsection (a) and the exclusion provided by

25 subsection (a)(3), and
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1 ‘‘(B) any gain by reason of a deemed sale

2 under subsection (a) of an interest in a corpora3 tion, partnership, trust, or estate is reduced to

4 reflect that portion of such gain which is attrib5 utable to an interest in a trust which a share6 holder, partner, or beneficiary is treated as

7 holding directly under subsection (f)(3)(B)(i),

8 and

9 ‘‘(2) which provide for the proper allocation of

10 the exclusion under subsection (a)(3) to property to

11 which this section applies.

12 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’.

13 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT14 ANCES FROM COVERED EXPATRIATES.—Section 102 (re15 lating to gifts, etc. not included in gross income) is amend16 ed by adding at the end the following new subsection:

17 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX18 PATRIATES.—Subsection (a) shall not exclude from gross

19 income the value of any property acquired by gift, bequest,

20 devise, or inheritance from a covered expatriate after the

21 expatristion date. For purposes of this subsection, any

22 term used in this subsection which is also used in section

23 877A shall have the same meaning as when used in section

24 877A.’’.
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1 (c) DEFINITION OF TERMINATION OF UNITED

2 STATES CITIZENSHIP.—Section 7701(a) is amended by

3 adding at the end the following new paragraph:

4 ‘‘(47) TERMINATION OF UNITED STATES CITI5 ZENSHIP.—An individual shall not cease to be treat6 ed as a United States citizen before the date on

7 which the individual’s citizenship is treated as relin8 quished under section 877A(e)(3).’’.

9 (d) CONFORMING AMENDMENTS.—

10 (1) Section 877 is amended by adding at the

11 end the following new subsection:

12 ‘‘(f) APPLICATION.—This section shall not apply to

13 any individual who relinquishes (within the meaning of

14 section 877A(e)(3)) United States citizenship on or after

15 February 6, 1995.’’.

16 (2) Section 2107(c) is amended by adding at

17 the end the following new paragraph:

18 ‘‘(3) CROSS REFERENCE.—For credit against

19 the tax imposed by subsection (a) for expatriation

20 tax, see section 877A(i).’’.

21 (3) Section 2501(a)(3) is amended by adding at

22 the end the following new flush sentence: ‘‘For cred23 it against the tax imposed under this section by rea24 son of this paragraph, see section 877A(i).’’.
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1 (4) Paragraph (10) of section 7701(b) is

2 amended by adding at the end the following new

3 sentence: ‘‘This paragraph shall not apply to any

4 long-term resident of the United States who is an

5 expatriate (as defined in section 877A(e)(1)).’’.

6 (e) CLERICAL AMENDMENT.—The table of sections

7 for subpart A of part II of subchapter N of chapter 1

8 is amended by inserting after the item relating to section

9 877 the following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

10 (f) EFFECTIVE DATE.—

11 (1) IN GENERAL.—Except as provided in this

12 subsection, the amendments made by this section

13 shall apply to expatriates (within the meaning of

14 section 877A(e) of the Internal Revenue Code of

15 1986, as added by this section) whose expatriation

16 date (as so defined) occurs on or after February 6,

17 1995.

18 (2) GIFTS AND BEQUESTS.—Section 102(d) of

19 the Internal Revenue Code of 1986 (as added by

20 subsection (b)) shall apply to amounts received from

21 expatriates (as so defined) whose expatriation date

22 (as so defined) occurs on and after February 6,

23 1995.

24 (3) SPECIAL RULES RELATING TO CERTAIN

25 ACTS OCCURRING BEFORE FEBRUARY 6, 1995.—In
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1 the case of an individual who took an act of expa2 triation specified in paragraph (1), (2), (3), or (4)

3 of section 349(a) of the Immigration and Nationality

4 Act (8 U.S.C. 1481(a) (1)–(4)) before February 6,

5 1995, but whose expatriation date (as so defined)

6 occurs after February 6, 1995—

7 (A) the amendment made by subsection (c)

8 shall not apply,

9 (B) the amendment made by subsection

10 (d)(1) shall not apply for any period prior to

11 the expatriation date, and

12 (C) the other amendments made by this

13 section shall apply as of the expatriation date.

14 (4) DUE DATE FOR TENTATIVE TAX.—The due

15 date under section 877A(h)(2) of such Code shall in

16 no event occur before the 90th day after the date of

17 the enactment of this Act.

18 SEC. 212. INFORMATION ON INDIVIDUALS EXPATRIATING.

19 (a) IN GENERAL.—Subpart A of part III of sub20 chapter A of chapter 61 is amended by inserting after sec21 tion 6039E the following new section:

22 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT23 ING.

24 ‘‘(a) REQUIREMENT.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding any other

2 provision of law, any expatriate (within the meaning

3 of section 877A(e)(1)) shall provide a statement

4 which includes the information described in sub5 section (b).

6 ‘‘(2) TIMING.—

7 ‘‘(A) CITIZENS.—In the case of an expatri8 ate described in section 877(e)(1)(A), such

9 statement shall be—

10 ‘‘(i) provided not later than the expa11 triation date (within the meaning of sec12 tion 877A(e)(2)), and

13 ‘‘(ii) provided to the person or court

14 referred to in section 877A(e)(3).

15 ‘‘(B) NONCITIZENS.—In the case of an ex16 patriate described in section 877A(e)(1)(B),

17 such statement shall be provided to the Sec18 retary with the return of tax imposed by chap19 ter 1 for the taxable year during which the

20 event described in such section occurs.

21 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

22 required under subsection (a) shall include—

23 ‘‘(1) the taxpayer’s TIN,

24 ‘‘(2) the mailing address of such individual’s

25 principal foreign residence,
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1 ‘‘(3) the foreign country in which such individ2 ual is residing,

3 ‘‘(4) the foreign country of which such individ4 ual is a citizen,

5 ‘‘(5) in the case of an individual having a net

6 worth of at lease the dollar amount applicable under

7 section 877A(c)(1)(B), information detailing the as8 sets and liabilities of such individual, and

9 ‘‘(6) such other information as the Secretary

10 may prescribe.

11 ‘‘(c) PENALTY.—Any individual failing to provide a

12 statement required under subsection (a) shall be subject

13 to a penalty for each year during any portion of which

14 such failure continues in an amount equal to the greater

15 of—

16 ‘‘(1) 5 percent of the additional tax required to

17 be paid under section 877A for such year, or

18 ‘‘(2) $1,000, unless it is shown that such fail19 ure is due to reasonable cause and not to willful ne20 glect.

21 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC22 RETARY.—Notwithstanding any other provision of law—

23 ‘‘(1) any Federal agency or court which collects

24 (or is required to collect) the statement under sub25 section (a) shall provide to the Secretary—
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1 ‘‘(A) a copy of any such statement, and

2 ‘‘(B) the name (and any other identifying

3 information) of any individual refusing to com4 ply with the provisions of subsection (a),

5 ‘‘(2) the Secretary of State shall provide to the

6 Secretary a copy of each certificate as to the loss of

7 American nationality under section 358 of the Immi8 gration and Nationality Act which is approved by

9 the Secretary of State, and

10 ‘‘(3) the Federal agency primarily responsible

11 for administering the immigration laws shall provide

12 to the Secretary the name of each lawful permanent

13 resident of the United States (within the meaning of

14 section 7701(b)(6)) whose status as such has been

15 revoked or has been administratively or judicially de16 termined to have been abandoned.

17 Notwithstanding any other provision of law, not later than

18 30 days after the close of each calendar quarter, the Sec19 retary shall publish in the Federal Register the name of

20 each individual relinquishing United States citizenship

21 (within the meaning of section 877A(e)(3)) with respect

22 to whom the Secretary receives information under the pre23 ceding sentence during such quarter.

24 ‘‘(e) EXEMPTION.—The Secretary may by regulations

25 exempt any class of individuals from the requirements of
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1 this section if the Secretary determines that applying this

2 section to such individuals is not necessary to carry out

3 the purposes of this section.’’.

4 (b) CLERICAL AMENDMENT.—The table of sections

5 for such subpart A is amended by inserting after the item

6 relating to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’.

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

8 this section shall apply to individuals to whom section

9 877A of the Internal Revenue Code of 1986 applies and

10 whose expatriation date (as defined in section 877A(e)(2))

11 occurs on or after February 6, 1995, except that no state12 ment shall be required by such amendments before the

13 90th day after the date of the enactment of this Act.

14 CHAPTER 2—FOREIGN TRUST TAX

15 COMPLIANCE

16 SEC. 221. IMPROVED INFORMATION REPORTING ON FOR17 EIGN TRUSTS.

18 (a) IN GENERAL.—Section 6048 (relating to returns

19 as to certain foreign trusts) is amended to read as follows:

20 ‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN

21 FOREIGN TRUSTS.

22 ‘‘(a) NOTICE OF CERTAIN EVENTS.—

23 ‘‘(1) GENERAL RULE.—On or before the 90th

24 day (or such later day as the Secretary may pre25 scribe) after any reportable event, the responsible
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1 party shall provide written notice of such event to

2 the Secretary in accordance with paragraph (2).

3 ‘‘(2) CONTENTS OF NOTICE.—The notice re4 quired by paragraph (1) shall contain such informa5 tion as the Secretary may prescribe, including—

6 ‘‘(A) the amount of money or other prop7 erty (if any) transferred to the trust in connec8 tion with the reportable event, and

9 ‘‘(B) the identify of the trust and of each

10 trustee and beneficiary or class of beneficiaries)

11 of the trust.

12 ‘‘(3) REPORTABLE EVENT.—For purposes of

13 this subsection—

14 ‘‘(A) IN GENERAL.—The term ‘reportable

15 event’ means—

16 ‘‘(i) the creation of any foreign trust

17 by a United States person,

18 ‘‘(ii) the transfer of any money or

19 property (directly or indirectly) to a for20 eign trust by a United States person, in21 cluding a transfer by reason of death, and

22 ‘‘(iii) the death of a citizen or resident

23 of the United States if—

24 ‘‘(I) the decedent was treated as

25 the owner of any portion of a foreign
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1 trust under the rules of subpart E of

2 part I of subchapter J of chapter 1,

3 or

4 ‘‘(II) any portion of a foreign

5 trust was included in the gross estate

6 of the decedent.

7 ‘‘(B) EXCEPTIONS.—

8 ‘‘(i) FAIR MARKET VALUE SALES.—

9 Subparagraph (A)(ii) shall not apply to

10 any transfer of property to a trust in ex11 change for consideration of at least the fair

12 market value of the transferred property.

13 For purposes of the preceding sentence,

14 consideration other than cash shall be

15 taken into account at its fair market value

16 and the rules of section 679(a)(3) shall

17 apply.

18 ‘‘(ii) DEFERRED COMPENSATION AND

19 CHARITABLE TRUSTS.—Subparagraph (A)

20 shall not apply with respect to a trust

21 which is—

22 ‘‘(I) described in section 402(b),

23 404(a)(4), or 404A, or
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1 ‘‘(II) determined by the Sec2 retary to be described in section

3 501(c)(3).

4 ‘‘(4) RESPONSIBLE PARTY.—For purposes of

5 this subsection, the term ‘responsible party’

6 means—

7 ‘‘(A) the grantor in the case of the cre8 ation of an inter vivos trust.

9 ‘‘(B) the transferor in the case of a report10 able event described in paragraph (3)(A)(ii)

11 other than a transfer by reason of death, and

12 ‘‘(C) the executor of the decedent’s estate

13 in any other case.

14 ‘‘(b) UNITED STATES GRANTOR OF FOREIGN

15 TRUST.—

16 ‘‘(1) IN GENERAL.—If, at any time during any

17 taxable year of a United States person, such person

18 is treated as the owner of any portion of a foreign

19 trust under the rules of subpart E of part I of sub20 chapter J of chapter 1, such person shall be respon21 sible to ensure that

22 ‘‘(A) such trust makes a return for such

23 year which sets forth a full and complete ac24 counting of all trust activities and operations

25 for the year, the name of the United States
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1 agent for such trust, and such other informa2 tion as the Secretary may prescribe, and

3 ‘‘(B) such trust furnishes such information

4 as the Secretary may prescribe to each United

5 States person (i) who is treated as the owner of

6 any portion of such trust or (ii) who receives

7 (directly or indirectly) any distribution from the

8 trust.

9 ‘‘(2) TRUSTS NOT HAVING UNITED STATES

10 AGENT.—

11 ‘‘(A) IN GENERAL.—If the rules of this

12 paragraph apply to any foreign trust, the deter13 mination of amounts required to be taken into

14 account with respect to such trust by a United

15 States person under the rules of subpart E of

16 part I of subchapter J of chapter 1 shall be de17 termined by the Secretary.

18 ‘‘(B) UNITED STATES AGENT RE19 QUIRED.—The rules of this paragraph shall

20 apply to any foreign trust to which paragraph

21 (1) applies unless such trust agrees (in such

22 manner, subject to such conditions, and at such

23 time as the Secretary shall prescribe) to author24 ize a United States person to act as such

25 trust’s limited agent solely for purposes of ap-
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1 plying sections 7602, 7603, and 7604 with re2 spect to—

3 ‘‘(i) any request by the Secretary to

4 examine records or produce testimony re5 lated to the proper treatment of amounts

6 required to be taken into account under

7 the rules referred to in subparagraph (A),

8 or

9 ‘‘(ii) any summons by the Secretary

10 for such records or testimony.

11 The appearance of persons or production of

12 records by reason of a United States person

13 being such an agent shall not subject such per14 sons or records to legal process for any purpose

15 other than determining the correct treatment

16 under this title of the amounts required to be

17 taken into account under the rules referred to

18 in subparagraph (A). A foreign trust which ap19 points an agent described in this subparagraph

20 shall not be considered to have an office or a

21 permanent establishment in the United States,

22 or to be engaged in a trade or business in the

23 United States, solely because of the activities of

24 such agent pursuant to this subsection.
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1 ‘‘(C) OTHER RULES TO APPLY.—Rules

2 similar to the rules of paragraphs (2) and (4)

3 of section 6038A(e) shall apply for purposes of

4 this paragraph.

5 ‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES

6 OF FOREIGN TRUSTS.—

7 ‘‘(1) IN GENERAL.—If any United States per8 son receives (directly or indirectly) during any tax9 able year of such person any distribution from a for10 eign trust, such person shall make a return with re11 spect to such trust for such year which includes—

12 ‘‘(A) the name of such trust,

13 ‘‘(B) the aggregate amount of the distribu14 tions so received from such trust during such

15 taxable year, and

16 ‘‘(C) such other information as the Sec17 retary may prescribe.

18 ‘‘(2) INCLUSION IN INCOME IF RECORDS NOT

19 PROVIDED.—

20 ‘‘(A) IN GENERAL.—If applicable records

21 are not provided to the Secretary to determine

22 the proper treatment of any distribution from a

23 foreign trust, such distribution shall be treated

24 as an accumulation distribution includable in

25 the gross income of the distributee under chap-
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1 ter 1. To the extent provided in regulations, the

2 preceeding sentence shall not apply if the for3 eign trust elects to be subject to rules similar

4 to the rules of subsection (b)(2)(B).

5 ‘‘(B) APPLICATION OF ACCUMULATION

6 DISTRIBUTION RULES.—For purposes of apply7 ing section 668 in a case to which subpara8 graph (A) applies, the applicable number of

years for purposes of section 668(a) shall be 1 9 ⁄2

10 of the number of years the trust has been in ex11 istence.

12 ‘‘(d) SPECIAL RULES.—

13 ‘‘(1) DETERMINATION OF WHETHER UNITED

14 STATES PERSON RECEIVES DISTRIBUTION.—For

15 purposes of this section, in determining whether a

16 United States person receives a distribution from a

17 foreign trust, the fact that a portion of such trust

18 is treated as owned by another person under the

19 rules of subpart E of part I of subchapter J of chap20 ter 1 shall be disregarded.

21 ‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVI22 TIES.—To the extent provided in regulations, a trust

23 which is a United States person shall be treated as

24 a foreign trust for purposes of this section and sec25 tion 6677 if such trust has substantial activities, or
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1 holds substantial property, outside the United

2 States.

3 ‘‘(3) TIME AND MANNER OF FILING INFORMA4 TION.—Any notice or return required under this sec5 tion shall be made at such time and in such manner

6 as the Secretary shall prescribe.

7 ‘‘(4) MODIFICATION OF RETURN REQUIRE8 MENTS.—The Secretary is authorized to suspend or

9 modify any requirement of this section if the Sec10 retary determines that the United States has no sig11 nificant tax interest in obtaining the required infor12 mation.’’.

13 (b) INCREASED PENALTIES.—Section 6677 (relating

14 to failure to file information returns with respect to cer15 tain foreign trusts) is amended to read as follows:

16 ‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT

17 TO CERTAIN FOREIGN TRUSTS.

18 ‘‘(a) CIVIL PENALTY.—In addition to any criminal

19 penalty provided by law, if any notice or return required

20 to be filed by section 6048—

21 ‘‘(1) is not filed on or before the time provided

22 in such section, or

23 ‘‘(2) does not include all the information re24 quired pursuant to such section or includes incorrect

25 information.
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1 the person required to file such notice or return shall pay

2 a penalty equal to 35 percent of the gross reportable

3 amount. If any failure described in the preceding sentence

4 continues for more than 90 days after the day on which

5 the Secretary mails notice of such failure to the person

6 required to pay such penalty, such person shall pay a pen7 alty (in addition to the amount determined under the pre8 ceding sentence) of $10,000 for each 30-day period (or

9 fraction thereof) during which such failure continues after

10 the expiration of such 90-day period. In no event shall the

11 penalty under this subsection with respect to any failure

12 exceed the gross reportable amount.

13 ‘‘(b) SPECIAL RULES FOR RETURNS UNDER SEC14 TION 6048(b).—In the case of a return required under

15 section 6048(b)—

16 ‘‘(1) the United States person referred to in

17 such section shall be liable for the penalty imposed

18 by subsection (a), and

19 ‘‘(2) subsection (a) shall be applied by sub20 stituting ‘5 percent’ for ‘35 percent’.

21 ‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes

22 of subsection (a), the term ‘gross reportable amount’

23 means—
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1 ‘‘(1) the gross value of the property involved in

2 the event (determined as of the date of the event)

3 in the case of a failure relating to section 6048(a),

4 ‘‘(2) the gross value of the portion of the trust’s

5 assets at the close of the year treated as owned by

6 the United States person in the case of a failure re7 lating to section 6048(b)(1), and

8 ‘‘(3) the gross amount of the distributions in

9 the case of a failure relating to section 6048(c).

10 ‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty

11 shall be imposed by this section on any failure which is

12 shown to be due to reasonable cause and not due to willful

13 neglect. The fact that a foreign jurisdiction would impose

14 a civil or criminal penalty on the taxpayer (or any other

15 person) for disclosing the required information is not rea16 sonable cause.

17 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—

18 Subchapter B of chapter 63 (relating to deficiency proce19 dures for income, estate, gift, and certain excise taxes)

20 shall not apply in respect of the assessment or collection

21 of any penalty imposed by subsection (a).’’.

22 (c) CONFORMING AMENDMENTS.—

23 (1) Paragraph (2) of section 6724(d), as

24 amended by sections 11004 and 11045, is amended

25 by striking ‘‘or’’ at the end of subparagraph (U), by
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1 striking the period at the end of subparagraph (V)

2 and inserting ‘‘,or’’, and by inserting after subpara3 graph (V) the following new subparagraph:

4 ‘‘(W) section 6048(b)(1)(B) (relating to

5 foreign trust reporting requirements).’’.

6 (2) The table of sections for subpart B of part

7 III of subchapter A of chapter 61 is amended by

8 striking the item relating to section 6048 and insert9 ing the following new item:

‘‘Sec. 604 Information with respect to certain foreign trusts.’’.

10 (3) The table of sections for part I of sub11 chapter B of chapter 68 is amended by striking the

12 item relating to section 6677 and inserting the fol13 lowing new item:

‘‘Sec. 6677. Failure to file information with respect to certain foreign trusts’’

14 (d) EFFECTIVE DATES.—

15 (1) REPORTABLE EVENTS.—To the extent re16 lated to subsection (a) of section 6048 of the Inter17 nal Revenue Code of 1986, as amended by this sec18 tion, the amendments made by this section shall

19 apply to reportable events (as defined in such section

20 6048) occurring after the date of the enactment of

21 this Act.

22 (2) GRANTOR TRUST REPORTING.—To the ex23 tent related to subsection (b) of such section 6048,

24 the amendments made by this section shall apply to
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1 taxable years of United States persons beginning

2 after the date of the enactment of this Act.

3 (3) REPORTING BY UNITED STATES BENE4 FICIARIES.—To the extent related to subsection (c)

5 of such section 6048, the amendments made by this

6 section shall apply to distributions received after the

7 date of the enactment of this Act.

8 SEC. 222. MODIFICATIONS OF RULES RELATING TO FOR9 EIGN TRUSTS HAVING ONE OR MORE UNITED

10 STATES BENEFICIARIES.

11 (a) TREATMENT OF TRUST OBLIGATIONS, ETC.—

12 (1) Paragraph (2) of section 679(a) is amended

13 by striking subparagraph (B) and inserting the fol14 lowing:

15 ‘‘(B) TRANSFERS AT FAIR MARKET

16 VALUE.—To any transfer of property to a trust

17 in exchange for consideration of at least the fair

18 market value of the transferred property. For

19 purposes of the preceding sentence, consider20 ation other than cash shall be taken into ac21 count at its fair market value.’’.

22 (2) Subsection (a) of section 679 (relating to

23 foreign trusts having one or more United States

24 beneficiaries) is amended by adding at the end the

25 following new paragraph:
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1 ‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO

2 ACCOUNT UNDER FAIR MARKET VALUE EXCEP3 TIONS.—

4 ‘‘(A) IN GENERAL.—In determining wheth5 er paragraph (2)(B) applies to any transfer by

6 a person described in clause (ii) or (iii) of sub7 paragraph (C), there shall not be taken into ac8 count—

9 ‘‘(i) except as provided in regulations,

10 any obligation of a person described in

11 subparagraph (C), and

12 ‘‘(ii) to the extent provided in regula13 tions, any obligation which is guaranteed

14 by a person described in subparagraph (C).

15 ‘‘(B) TREATMENT OF PRINCIPAL PAY16 MENTS ON OBLIGATION.—Principal payments

17 by the trust on any obligation referred to in

18 subparagraph (A) shall be taken into account

19 on and after the date of the payment in deter20 mining the portion of the trust attributable to

21 the property transferred.

22 ‘‘(C) PERSONS DESCRIBED.—The persons

23 described in this subparagraph are—

24 ‘‘(i) the trust,
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1 ‘‘(ii) any grantor or beneficiary of the

2 trust, and

3 ‘‘(iii) any person who is related (with4 in the meaning of section 643(i)(2)(B)) to

5 any grantor or beneficiary of the trust.’’.

6 (b) EXEMPTION OF TRANSFERS TO CHARITABLE

7 TRUSTS.—Subsection (a) of section 679 is amended by

8 striking ‘‘section 404(a)(4) or 404A’’ and inserting ‘‘sec9 tion 6048(a)*(3)(B)(ii)’’.

10 (c) OTHER MODIFICATIONS.—Subsection (a) of sec11 tion 679 is amended by adding at the end the following

12 new paragraphs:

13 ‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN

14 GRANTOR WHO LATER BECOMES A UNITED STATES

15 PERSON.—

16 ‘‘(A) IN GENERAL.—If a nonresident alien

17 individual has a residency starting date within

18 5 years after directly or indirectly transferring

19 property to a foreign trust, this section and sec20 tion 6048 shall be applied as if such individual

21 transferred to such trust on the residency start22 ing date an amount equal to the portion of such

23 trust attributable to the property transferred by

24 such individual to such trust in such transfer.
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1 ‘‘(B) TREATMENT OF UNDISTRIBUTED IN2 COME.—For purposes of this section, undistrib3 uted net income for periods before such individ4 ual’s residency starting date shall be taken into

5 account in determining the portion of the trust

6 which is attributable to property transferred by

7 such individual to such trust but shall not oth8 erwise be taken into account.

9 ‘‘(C) RESIDENCY STARTING DATE.—For

10 purposes of this paragraph, an individual’s resi11 dency starting date is the residency starting

12 date determined under section 7701(b)(2)(A).

13 ‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—

14 ‘‘(A) an individual who is a citizen or resi15 dent of the United States transferred property

16 to a trust which was not a foreign trust, and

17 ‘‘(B) such trust becomes a foreign trust

18 while such individual is alive,

19 then this section and section 6048 shall be applied

20 as if such individual transferred to such trust on the

21 date such trust becomes a foreign trust an amount

22 equal to the portion of such trust attributable to the

23 property previously transferred by such individual to

24 such trust. A rule similar to the rule of paragraph

25 (4)(B) shall apply for purposes of this paragraph.’’.
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1 (d) MODIFICATION RELATING TO WHETHER TRUST

2 HAS UNITED STATES BENEFICIARIES.—Subsection (c) of

3 section 679 is amended by adding at the end the following

4 new paragraph:

5 ‘‘(3) CERTAIN UNITED STATES BENEFICIARIES

6 DISREGARDED.—A beneficiary shall not be treated

7 as a United States person in applying this section

8 with respect to any transfer of property to foreign

9 trust if such beneficiary first became a United

10 States person more than 5 years after the date of

11 such transfer.’’.

12 (e) TECHNICAL AMENDMENT.—Subparagraph (A) of

13 section 679(c)(2) is amended to read as follows:

14 ‘‘(A) in the case of a foreign corporation,

15 such corporation is a controlled foreign corpora16 tion (as defined in section 957(a)),’’.

17 (f) REGULATIONS.—Section 679 is amended by add18 ing at the end the following new subsection:

19 ‘‘(d) REGULATIONS.—The Secretary shall prescribe

20 such regulations as may be necessary or appropriate to

21 carry out the purposes of this section.’’.

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

23 this section shall apply to transfers of property after Feb24 ruary 6, 1995.
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1 SEC. 233. FOREIGN PERSONS NOT TO BE TREATED AS OWN2 ERS UNDER GRANTOR TRUST RULES.

3 (a) GENERAL RULE.—

4 (1) Subsection (f) of section 672 (relating to

5 special rule where grantor is foreign person) is

6 amended to read as follows:

7 ‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER8 SHIP.—

9 ‘‘(1) IN GENERAL.—Notwithstanding any other

10 provision of this subpart, this subpart shall apply

11 only to the extent such application results in an

12 amount being currently taken into account (directly

13 or through 1 or more entities) under this chapter in

14 computing the income of a citizen or resident of the

15 United States or a domestic corporation.

16 ‘‘(2) EXCEPTIONS.—

17 ‘‘(A) CERTAIN REVOCABLE AND IRREV18 OCABLE TRUSTS.—Paragraph (1) shall not

19 apply to any trust if—

20 ‘‘(i) the power to revest absolutely in

21 the grantor title to the trust property is

22 exercisable solely by the grantor without

23 the approval or consent of any other per24 son or with the consent of a related or sub25 ordinate party who is subservient to the

26 grantor, or
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1 ‘‘(ii) the only amounts distributable

2 from such trust (whether income or cor3 pus) during the lifetime of the grantor are

4 amounts distributable to the grantor or the

5 spouse of the grantor.

6 ‘‘(B) COMPENSATORY TRUSTS.—Except as

7 provided in regulations, paragraph (1) shall not

8 apply to any portion of a trust distributions

9 from which are taxable as compensation for

10 services rendered.

11 ‘‘(3) SPECIAL RULES.—Except as otherwise

12 provided in regulations prescribed by the Sec13 retary—

14 ‘‘(A) a controlled foreign corporation (as

15 defined in section 957) shall be treated as a do16 mestic corporation for purposes of paragraph

17 (1), and

18 ‘‘(B) paragraph (1) shall not apply for

19 purposes of applying section 1296.

20 ‘‘(4) RECHARACTERIZATION OF PURPORTED

21 GIFTS.—In the case of any transfer directly or indi22 rectly from a partnership or foreign corporation

23 which the transferee treats as a gift or bequest, the

24 Secretary may recharacterize such transfer in such

25 circumstances as the Secretary determines to be ap-
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1 propriate to prevent the avoidance of the purposes of

2 this subsection.

3 ‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR4 EIGN PERSON.—If—

5 ‘‘(A) but for this subsection, a foreign per6 son would be treated as the owner of any por7 tion of a trust, and

8 ‘‘(B) such trust has a beneficiary who is a

9 United States person,

10 such beneficiary shall be treated as the grantor of

11 such portion to the extent such beneficiary has made

12 transfers of property by gift (directly or indirectly)

13 to such foreign person. For purposes of the preced14 ing sentence, any gift shall not be taken into account

15 to the extent such gift would be excluded from tax16 able gifts under section 2503(b).

17 ‘‘(6) REGULATIONS.—The Secretary shall pre18 scribe such regulations as may be necessary or ap19 propriate to carry out the purposes of this sub20 section, including regulations providing that para21 graph (1) shall not apply in appropriate cases.’’.

22 (2) The last sentence of subsection (c) of sec23 tion 672 of such Code is amended by inserting ‘‘sub24 section (f) and’’ before ‘‘sections 674’’.
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1 (b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of

2 section 665(d) is amended by adding at the end the follow3 ing new sentence: ‘‘Under rules or regulations prescribed

4 by the Secretary, in the case of any foreign trust of which

5 the settlor or another person would be treated as owner

6 of any portion of the trust under subpart E but for section

7 672(f), the term ‘taxes imposed on the trust’ includes the

8 allocable amount of any income, war profits, and excess

9 profits taxes imposed by any foreign country or possession

10 of the United States on the settlor or such other person

11 in respect of trust gross income.’’.

12 (c) DISTRIBUTION BY CERTAIN FOREIGN TRUSTS

13 THROUGH NOMINEES.—

14 (1) Section 643 is amended by adding at the

15 end the following new subsection:

16 ‘‘(h) DISTRIBUTION BY CERTAIN FOREIGN TRUSTS

17 THROUGH NOMINEES.—For purposes of this part, any

18 amount paid to a United States person which is derived

19 directly or indirectly from a foreign trust of which the

20 payor is not the grantor shall be deemed in the year of

21 payment to have been directly paid by the foreign trust

22 to such United States person.’’.

23 (2) Section 665 is amended by striking sub24 section (c).

25 (d) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—Except as provided by para2 graph (2), the amendments made by this section

3 shall take effort on the date of the enactment of this

4 Act.

5 (2) EXCEPTION FOR CERTAIN TRUSTS.—The

6 amendments made by this section shall not apply to

7 any trust—

8 (A) which is treated as owned by the

9 grantor or another person under section 676 or

10 677 (other than subsection (a)(3) thereof) of

11 the Internal Revenue Code of 1986, and

12 (B) which is in existence on September 19,

13 1995.

14 The preceding sentence shall not apply to the por15 tion of any such trust attributable to any transfer to

16 such trust after September 19, 1995.

17 (e) TRANSITIONAL RULE.—If—

18 (1) by reason of the amendments made by this

19 section, any person other than a United States per20 son ceases to be treated as the owner of a portion

21 of a domestic trust, and

22 (2) before January 1, 1997, such trust becomes

23 a foreign trust, or the assets of such trust are trans24 ferred to a foreign trust,
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1 no tax shall be imposed by section 1491 of the Internal

2 Revenue Code of 1986 by reason of such trust becoming

3 a foreign trust or the assets of such trust being trans4 ferred to a foreign trust.

5 SEC. 224. INFORMATION REPORTING REGARDING FOREIGN

6 GIFTS.

7 (a) IN GENERAL.—Subpart A of part III of sub8 chapter A of chapter 61 is amended by inserting after sec9 tion 6039F the following new section:

10 ‘‘SEC. 6039G. NOTICE OF GIFTS RECEIVED FROM FOREIGN

11 PERSONS.

12 ‘‘(a) IN GENERAL.—If the value of the aggregate for13 eign gifts received by a United States person (other than

14 an organization described in section 501(c) and exempt

15 from tax under section 501(a)) during any taxable year

16 exceeds $10,000, such United States person shall furnish

17 (at such time and in such manner as the Secretary shall

18 prescribe) such information as the Secretary may pre19 scribe regarding each foreign gift received during such

20 year.

21 ‘‘(b) FOREIGN GIFT.—For purposes of this section,

22 the term ‘foreign gift’ means any amount received from

23 a person other than a United States person which the re24 cipient treats as a gift or bequest. Such term shall not
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1 include any qualified transfer (within the meaning of sec2 tion 2503(e)(2)).

3 ‘‘(c) PENALTY FOR FAILURE TO FILE INFORMA4 TION.—

5 ‘‘(1) IN GENERAL.—If a United States person

6 fails to furnish the information required by sub7 section (a) with respect to any foreign gift within

8 the time prescribed therefor (including extensions)—

9 ‘‘(A) the tax consequences of the receipt of

10 such gift shall be determined by the Secretary

11 in the Secretary’s sole discretion from the Sec12 retary’s own knowledge or from such informa13 tion as the Secretary may obtain through testi14 mony or otherwise, and

15 ‘‘(B) such United States person shall pay

16 (upon notice and demand by the Secretary and

17 in the same manner as tax) an amount equal to

18 5 percent of the amount of such foreign gift for

19 each month for which the failure continues (not

20 to exceed 25 percent of such amount in the ag21 gregate).

22 ‘‘(2) REASONABLE CAUSE EXCEPTION.—Para23 graph (1) shall not apply to any failure to report a

24 foreign gift if the United States person shows that
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1 the failure is due to reasonable cause and not due

2 to willful neglect.

3 ‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of

4 any taxable year beginning after December 31, 1996, the

5 $10,000 amount under subsection (a) shall be increased

6 by an amount equal to the product of such amount and

7 the cost-of-living adjustment for such taxable year under

8 section 1(f)(3), except that subparagraph (B) thereof shall

9 be applied by substituting ‘1995’ for ‘1992’.

10 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

11 such regulations as may be necessary or appropriate to

12 carry out the purposes of this section.’’.

13 ‘‘(b) CLERICAL AMENDMENT.—The table of sections

14 for such subpart is amended by inserting after the item

15 relating to section 6039F the following new item:

‘‘Sec. 6039G. Notice of large gifts received from foreign persons.’’.

16 ‘‘(c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to amounts received after the date

18 of the enactment of this Act in taxable years ending after

19 such date.

20 SEC. 225. MODIFICATION OF RULES RELATING TO FOREIGN

21 TRUSTS WHICH ARE NOT GRANTOR TRUSTS.

22 ‘‘(a) MODIFICATION OF INTEREST CHARGE ON ACCU23 MULATION DISTRIBUTIONS.—Subsection (a) of section

24 668 (relating to interest charge on accumulation distribu25 tions from foreign trusts) is amended to read as follows:
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1 ‘‘(a) GENERAL RULE.—For purposes of the tax de2 termined under section 667(a)—

3 ‘‘(1) INTEREST DETERMINED USING

4 UNDERPAYMENT RATES.—The interest charge deter5 mined under this section with respect to any dis6 tribution is the amount of interest which would be

7 determined on the partial tax computed under sec8 tion 667(b) for the period described in paragraph

9 (2) using the rates and the method under section

10 6621 applicable to underpayments of tax.

11 ‘‘(2) PERIOD.—For purposes of paragraph (1),

12 the period described in this paragraph is the period

13 which begins on the date which is the applicable

14 number of years before the date of the distribution

15 and which ends on the date of the distribution.

16 ‘‘(3) APPLICABLE NUMBER OF YEARS.—For

17 purposes of paragraph (2)—

18 ‘‘(A) IN GENERAL.—The applicable num19 ber of years with respect to a distribution is the

20 number determined by dividing—

21 ‘‘(i) the sum of the products described

22 in subparagraph (B) with respect to each

23 undistributed income year, by

24 ‘‘(ii) the aggregate undistributed net

25 income.
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1 The quotient determined under the preceding

2 sentence shall be rounded under procedures

3 prescribed by the Secretary.

4 ‘‘(B) PRODUCT DESCRIBED.—For pur5 poses of subparagraph (A), the product de6 scribed in this subparagraph with respect to

7 any undistributed income year is the product

8 of—

9 ‘‘(i) the undistributed net income for

10 such year, and

11 ‘‘(ii) the sum of the number of taxable

12 years between such year and the taxable

13 year of the distribution (counting in each

14 case the undistributed income year but not

15 counting the taxable year of the distribu16 tion).

17 ‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur18 poses of this subsection, the term ‘undistributed in19 come year’ means any prior taxable year of the trust

20 for which there is undistributed net income, other

21 than a taxable year during all of which the bene22 ficiary receiving the distribution was not a citizen or

23 resident of the United States.

24 ‘‘(5) DETERMINATION OF UNDISTRIBUTED NET

25 INCOME.—Notwithstanding section 666, for pur-
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1 poses of this subsection, an accumulation distribu2 tion from the trust shall be treated as reducing pro3 portionately the undistributed net income for undis4 tributed income years.

5 ‘‘(6) PERIODS BEFORE 1996.—Interest for the

6 portion of the period described in paragraph (2)

7 which occurs before January 1, 1996, shall be deter8 mined—

9 ‘‘(A) by using an interest rate of 6 percent,

10 and

11 ‘‘(B) without compounding until January

12 1, 1996.’’.

13 (b) ABUSIVE TRANSACTIONS.—Section 643(a) is

14 amended by inserting after paragraph (6) the following

15 new paragraph:

16 ‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary

17 shall prescribe such regulations as may be necessary

18 or appropriate to carry out the purposes of this part,

19 including regulations to prevent avoidance of such

20 purposes.’’.

21 (c) TREATMENT OF LOANS FROM TRUSTS.—

22 (1) IN GENERAL.—Section 643 (relating to

23 definitions applicable to subparts A, B, C, and D)

24 is amended by adding at the end the following new

25 subsection:
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1 ‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes

2 of subparts B, C, and D—

3 ‘‘(1) GENERAL RULE.—Except as provided in

4 regulations, if a foreign trust makes a loan of cash

5 or marketable securities directly or indirectly to—

6 ‘‘(A) any grantor or beneficiary of such

7 trust who is a United States person, or

8 ‘‘(B) any United States person not de9 scribed in subparagraph (A) who is related to

10 such grantor or beneficiary,

11 the amount of such loan shall be treated as a dis12 tribution by such trust to such grantor or bene13 ficiary (as the case may be).

14 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For

15 purposes of this subsection—

16 ‘‘(A) CASH.—The term ‘cash’ includes for17 eign currencies and cash equivalents.

18 ‘‘(B) RELATED PERSON.—

19 ‘‘(i) IN GENERAL.—A person is relat20 ed to another person if the relationship be21 tween such persons would result in a dis22 allowance of losses under section 267 or

23 707(b). In applying section 267 for pur24 poses of the preceding sentence, section

25 267(c)(4) shall be applied as if the family
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1 of an individual includes the spouses of the

2 members of the family.

3 ‘‘(ii) ALLOCATION.—If any person de4 scribed in paragraph (1)(B) is related to

5 more than one person, the grantor or bene6 ficiary to whom the treatment under this

7 subsection applies shall be determined

8 under regulations prescribed by the Sec9 retary.

10 ‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The

11 term ‘United States person’ does not include

12 any entity exempt from tax under this chapter.

13 ‘‘(D) TRUST NOT TREATED AS SIMPLE

14 TRUST.—Any trust which is treated under this

15 subsection as making a distribution shall be

16 treated as not described in section 651.

17 ‘‘(3) SUBSEQUENT TRANSACTIONS REGARDING

18 LOAN PRINCIPAL.—If any loan is taken into account

19 under paragraph (1), any subsequent transaction be20 tween the trust and the original borrower regarding

21 the principal of the loan (by way of complete or par22 tial repayment, satisfaction, cancellation, discharge,

23 or otherwise) shall be disregarded for purposes of

24 this title.’’
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1 (2) TECHNICAL AMENDMENT.—Paragraph (8)

2 of section 7872(f) is amended by inserting ‘‘,

3 643(i).’’ before ‘‘or 1274’’ each place it appears.

4 (d) EFFECTIVE DATES.—

5 (1) INTEREST CHARGE.—The amendment made

6 by subsection (a) shall apply to distributions after

7 the date of the enactment of this Act.

8 (2) ABUSIVE TRANSACTIONS.—The amendment

9 made by subsection (b) shall take effect on the date

10 of the enactment of this Act.

11 (3) LOANS FROM TRUSTS.—The amendment

12 made by subsection (c) shall apply to loans of cash

13 or marketable securities after September 19, 1995.

14 SEC. 226. RESIDENCE OF ESTATES AND TRUSTS, ETC.

15 (a) TREATMENT AS UNITED STATES PERSON.—

16 (1) IN GENERAL.—Paragraph (30) of section

17 7701(a) is amended by striking subparagraph (D)

18 and by inserting after subparagraph (C) the follow19 ing:

20 ‘‘(D) any estate or trust if—

21 ‘‘(i) a court within the United States

22 is able to exercise primary supervision over

23 the administration of the estate or trust,

24 and
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1 ‘‘(ii) in the case of a trust, one or

2 more United States fiduciaries have the

3 authority to control all substantial deci4 sions of the trust.’’.

5 (2) CONFORMING AMENDMENT.—Paragraph

6 (31) of section 7701(a) is amended to read as fol7 lows:

8 ‘‘(31) FOREIGN ESTATE OR TRUST.—The term

9 ‘foreign estate’ or ‘foreign trust’ means any estate or

10 trust other than an estate or trust described in sec11 tion 7701(a)(30)(D).’’.

12 (3) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply—

14 (A) to taxable years beginning after De15 cember 31, 1996, or

16 (B) at the election of the trustee of a

17 trust, to taxable years ending after the date of

18 the enactment of this Act.

19 Such an election, once made, shall be irrevocable.

20 (b) DOMETIC TRUSTS WHICH BECOME FOREIGN

21 TRUSTS.—

22 (1) IN GENERAL.—Section 1491 (relating to

23 imposition of tax on transfers to avoid income tax)

24 is amended by adding at the end the following new

25 flush sentence:
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1 ‘‘If a trust which is not a foreign trust becomes a foreign

2 trust, such trust shall be treated for purposes of this sec3 tion as having transferred, immediately before becoming

4 a foreign trust, all of its assets to a foreign trust.’’.

5 (2) PENALTY.—Section 1494 is amended by

6 adding at the end the following new subsection:

7 ‘‘(c) PENALTY.—In the case of any failure to file a

8 return required by the Secretary with respect to any trans9 fer described in section 1491 with respect to a trust, the

10 person required to file such return shall be liable for the

11 penalties provided in section 6677 in the same manner as

12 if such failure were a failure to file a return under section

13 6048(a).’’.

14 (3) EFFECTIVE DATE.—The amendments made

15 by this subsection shall take effect on the date of the

16 enactment of this Act.

17 CHAPTER 3—REPEAL OF BAD DEBT RE18 SERVE METHOD FOR THRIFT SAVINGS

19 ASSOCIATIONS

20 SEC. 231. REPEAL OF BAD DEBT RESERVE METHOD FOR

21 THRIFT SAVINGS ASSOCIATIONS.

22 (a) IN GENERAL.—Section 593 (relating to reserves

23 for losses on loans) is amended by adding at the end the

24 following new subsections:
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1 ‘‘(f) TERMINATION OF RESERVE METHOD.—Sub2 sections (a), (b), (c), and (d) shall not apply to any taxable

3 year beginning after December 31, 1995.

4 ‘‘(g) 6-YEAR SPREAD OF ADJUSTMENTS.—

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

6 who is required by reason of subsection (f) to change

7 its method of computing reserves for bad debts—

8 ‘‘(A) such change shall be treated as a

9 change in a method of accounting,

10 ‘‘(B) such change shall be treated as initi11 ated by the taxpayer and as having been made

12 with the consent of the Secretary, and

13 ‘‘(C) the net amount of the adjustments

14 required to be taken into account by the tax15 payer under section 481(a)—

16 ‘‘(i) shall be determined by taking into

17 account only applicable excess reserves,

18 and

19 ‘‘(ii) as so determined, shall be taken

20 into account ratably over the 6-taxable

21 year period beginning with the first taxable

22 year beginning after December 31, 1995.

23 ‘‘(2) APPLICABLE EXCESS RESERVES.—
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (1), the term ‘applicable excess reserves’

3 means the excess (if any) of—

4 ‘‘(i) the balance of the reserves de5 scribed in subsection (c)(1) (other than the

6 supplemental reserve) as of the close of the

7 taxpayer’s last taxable year beginning be8 fore December 31, 1995, over

9 ‘‘(ii) the lesser of—

10 ‘‘(I) the balance of such reserves

11 as of the close of the taxpayer’s last

12 taxable year beginning before January

13 1, 1988, or

14 ‘‘(II) the balance of the reserves

15 described in subclause (I), reduced in

16 the same manner as under section

17 585(b)(2)(B)(ii) on the basis of the

18 taxable years described in clause (i)

19 and this clause.

20 ‘‘(B) SPECIAL RULE FOR THRIFTS WHICH

21 BECOME SMALL BANKS.—In the case of a bank

22 (as defined in section 581) which was not a

23 large bank (as defined in section 585(c)(2)) for

24 its first taxable year beginning after December

25 31, 1995—
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1 ‘‘(i) the balance taken into account

2 under subparagraph (A)(ii) shall not be

3 less than the amount which would be the

4 balance of such reserves as of the close of

5 its last taxable year beginning before such

6 date if the additions to such reserves for

7 all taxable years had been determined

8 under section 585(b)(2)(A), and

9 ‘‘(ii) the opening balance of the re10 serve for bad debts as of the beginning of

11 such first taxable year shall be the balance

12 taken into account under subparagraph

13 (A)(ii) (determined after the application of

14 clause (i) of this subparagraph).

15 The preceding sentence shall not apply for pur16 poses of paragraphs (5) and (6) or subsection

17 (e)(1).

18 ‘‘(3) RECAPTURE OF PRE–1988 RESERVES

19 WHERE TAXPAYER CEASES TO BE BANK.—If, during

20 any taxable year beginning after December 31,

21 1995, a taxpayer to which paragraph (1) applied is

22 not a bank (as defined in section 581), paragraph

23 (1) shall apply to the reserves described in para24 graph (2)(A)(ii) and the supplemental reserve: ex25 cept that such reserves shall be taken into account
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1 ratably over the 6-taxable year period beginning with

2 such taxable year.

3 ‘‘(4) SUSPENSION OF RECAPTURE IF RESIDEN4 TIAL LOAN REQUIREMENT MET.—

5 ‘‘(A) IN GENERAL.— In the case of a bank

6 which meets the residential loan requirement of

7 subparagraph (B) for the first taxable year be8 ginning after December 31, 1995, or for the

9 following taxable year—

10 ‘‘(i) no adjustment shall be taken into

11 account under paragraph (1) for such tax12 able year, and

13 ‘‘(ii) such taxable year shall be dis14 regarded in determining—

15 ‘‘(I) whether any other taxable

16 year is a taxable year for which an

17 adjustment is required to be taken

18 into account under paragraph (1), and

19 ‘‘(II) the amount of such adjust20 ment.

21 ‘‘(B) RESIDENTIAL LOAN REQUIRE22 MENT.—A taxpayer meets the residential loan

23 requirement of this subparagraph for any tax24 able year if the principal amount of the residen25 tial loans made by the taxpayer during such
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1 year is not less than the base amount for such

2 year.

3 ‘‘(C) RESIDENTIAL LOAN.—For purposes

4 of this paragraph, the term ‘residential loan’

5 means any loan described in clause (v) of sec6 tion 7701(a)(19)(C) but only if such loan is in7 curred in acquiring, constructing, or improving

8 the property described in such clause.

9 ‘‘(D) BASE AMOUNT.—For purposes of

10 subparagraph (B), the base amount is the aver11 age of the principal amounts of the residential

12 loans made by the taxpayer during the 6 most

13 recent taxable years beginning on or before De14 cember 31, 1995. At the election of the tax15 payer who made such loans during each of such

16 6 taxable years, the preceding sentence shall be

17 applied without regard to the taxable year in

18 which such principal amount was the highest

19 and the taxable year in such principal amount

20 was the lowest. Such an election may be made

21 only for the first taxable year beginning after

22 such date, and, if made for such taxable year,

23 shall apply to the succeeding taxable year un24 less revoked with the consent of the Secretary.
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1 ‘‘(E) CONTROLLED GROUPS.—In the case

2 of a taxpayer which is a member of any con3 trolled group of corporations described in sec4 tion 1563(a)(1), subparagraph (B) shall be ap5 plied with respect to such group.

6 ‘‘(5) CONTINUED APPLICATION OF FRESH

7 START UNDER SECTION 585 TRANSITIONAL RULES.—

8 In the case of a taxpayer to which paragraph (1) ap9 plied and which was not a large bank (as defined in

10 section 585(c)(2)) for its first taxable year beginning

11 after December 31, 1995.

12 ‘‘(A) IN GENERAL.—For purposes of deter13 mining the net amount of adjustments referred

14 to in section 585(c)(3)(A)(iii), there shall be

15 taken into account only the excess (if any) of

16 the reserve for bad debts as of the close of the

17 last taxable year before the disqualification year

18 over the balance taken into account by such

19 taxpayer under paragraph (2)(A)(ii) of this sub20 section.

21 ‘‘(B) TREATMENT UNDER ELECTIVE CUT22 OFF METHOD.—For purposes of applying sec23 tion 585(c)(4)—

24 ‘‘(i) the balance of the reserve taken

25 into account under subparagraph (B)
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1 thereof shall be reduced by the balance

2 taken into account by such taxpayer under

3 paragraph (2)(A)(ii) of this subsection,

4 and

5 ‘‘(ii) no amount shall be includable in

6 gross income by reason of such reduction.

7 ‘‘(6) SUSPENDED RESERVE INCLUDED AS SEC8 TION 381(C) ITEMS.—The balance taken into account

9 by a taxpayer under paragraph (2)(A)(ii) of this

10 subsection and the supplemental reserve shall be

11 treated as items described in section 381(c).

12 ‘‘(7) CONVERSIONS TO CREDIT UNIONS.—In the

13 case of a taxpayer to which paragraph (1) applied

14 which becomes a credit union described in section

15 501(c) and exempt from taxation under section

16 501(a)—

17 ‘‘(A) any amount required to be included

18 in the gross income of the credit union by rea19 son of this subsection shall be treated as de20 rived from an unrelated trade or business (as

21 defined in section 513), and

22 ‘‘(B) for purposes of paragraph (3), the

23 credit union shall not be treated as if it were

24 a bank.
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1 ‘‘(8) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out this subsection and subsection (e), including reg4 ulations providing for the application of such sub5 sections in the case of acquisitions, mergers, spin6 offs, and other reorganizations.’’

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subsection (d) of section 50 is amended by

9 adding at the end the following new sentence:

10 ‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e)

11 referred to in paragraph (1) of this subsection shall not

12 apply to any taxable year beginning after December 31,

13 1995.’’

14 (2) Subsection (e) of section 52 is amended by

15 striking paragraph (1) and by redesignating para16 graph (2) and (3) as paragraphs (1) and (2), respec17 tively.

18 (3) Subsection (a) of section 57 is amended by

19 striking paragraph (4).

20 (4) Section 246 is amended by striking sub21 section (f).

22 (5) Clause (i) of section 291(e)(1)(B) is amend23 ed by striking ‘‘or to which section 593 applies’’.
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1 (6) Subparagraph (A) of section 585(a)(2) is

2 amended by striking ‘‘other than an organization to

3 which section 593 applies’’.

4 (7)(A) The material preceding subparagraph

5 (A) of section 593(e)(1) is amended by striking ‘‘by

6 a domestic building and loan association or an insti7 tution that is treated as a mutual savings bank

8 under section 591(b)’’ and inserting ‘‘by a taxpayer

9 having a balance described in subsection

10 (g)(2)(A)(ii)’’.

11 (B) Subparagraph (B) of section 593(e)(1) is amend12 ed to read as follows:

13 (B) then out of the balance taken into account

14 under subsection (g)(2)(A)(ii) (properly adjusted for

15 amounts charged against such reserves for taxable

16 years beginning after December 31, 1987).’’.

17 (C) Paragraph (1) of section 593(e) is amended by

18 adding at the end the following new sentence: ‘‘This para19 graph shall not apply to any distribution of all of the stock

20 of a bank (as defined in section 581 to another corporation

21 if, immediately after the distribution, such bank and such

22 other corporation are members of the same affiliated

23 group (as defined in section 1504) and the provisions of

24 section 5(e) of the Federal Deposit Insurance Act (as in
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1 effect on December 31, 1995) or similar provisions are

2 in effect.’’.

3 (8) Section 595 is hereby repealed.

4 (9) Section 596 is hereby repealed.

5 (10) Subsection (a) of section 860E is amended—

6 (A) by striking ‘‘Except as provided in para7 graph (2), the’’ in paragraph (1) and inserting

8 ‘‘The’’.

9 (B) by striking paragraphs (2) and (4) and re10 designating paragraphs (3) and (5) as paragraphs

11 (2) and (3), respectively, and

12 (C) by striking in paragraph (2) (as so redesig13 nated) all that follows ‘‘subsection’’ and inserting a

14 period.

15 (11) Paragraph (3) of section 992(d) is amended by

16 striking ‘‘or 593’’.

17 (12) Section 1038 is amended by striking subsection

18 (f).

19 (13) Clause (ii) of section 1042(c)(4)(B) is amended

20 by striking ‘‘or 593’’.

21 (14) Subsection (c) of section 1277 is amended by

22 striking ‘‘or to which section 593 applies’’.

23 (15) Subparagraph (B) of section 1361(b)(2) is

24 amended by striking ‘‘or to which section 593 applies’’.
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1 (16) The table of sections for part II of subchapter

2 H of chapter 1 is amended by striking the items relating

3 to sections 595 and 596.

4 (c) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, the amendments made by

7 this section shall apply to taxable years beginning

8 after December 31, 1995.

9 (2) SUBSECTION (b)(7).—The amendments

10 made by subsection (b)(7) shall not apply to any dis11 tribution with respect to preferred stock if—

12 (A) such stock is outstanding at all times

13 after October 31, 1995, and before the distribu14 tion, and

15 (B) such distribution is made before the

16 date which is 1 year after the date of the enact17 ment of this Act (or, in the case of stock which

18 may be redeemed, if later, the date which is 30

19 days after the earliest date that such stock may

20 be redeemed).

21 (3) SUBSECTION (b)(8).—The amendment

22 made by subsection (b)(8) shall apply to property

23 acquired in taxable years beginning after December

24 31, 1995.
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1 (4) SUBSECTION (b)(10).—The amendments

2 made by subsection (b)(10) shall not apply to any

3 residual interest held by a taxpayer if such interest

4 has been held by such taxpayer at all times after Oc5 tober 31, 1995.

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