I

104TH CONGRESS

2D SESSION H. R. 3448

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

IN THE HOUSE OF REPRESENTATIVES

MAY 14, 1996

Mr. ARCHER introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To provide tax relief for small businesses, to protect jobs,

to create opportunities, to increase the take home pay

of workers, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

6 (b) TABLE OF CONTENTS.—

TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.

Sec. 1102. Underpayments of estimated tax.

Subtitle A—Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.
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Sec. 1112. Treatment of employee tips.

Subtitle B—Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.

Sec. 1202. Employer-provided educational assistance programs.

Sec. 1203. FUTA exemption for alien agricultural workers.

Subtitle C—Provisions Relating to S Corporations

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

Sec. 1302. Electing small business trusts.

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

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

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

Sec. 1306. Agreement to terminate year.

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

Sec. 1308. S corporations permitted to hold subsidiaries.

Sec. 1309. Treatment of distributions during loss years.

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

Sec. 1311. Elimination of certain earnings and profits.

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

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

income.

Sec. 1314. S corporations eligible for rules applicable to real property subdivided for sale by noncorporate taxpayers.

Sec. 1315. Effective date.

Subtitle D—Pension Simplification

CHAPTER 1—SIMPLIFIED DISTRIBUTION RULES

Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.

Sec. 1402. Repeal of $5,000 exclusion of employees’ death benefits.

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

Sec. 1404. Required distributions.

CHAPTER 2—INCREASED ACCESS TO PENSION PLANS

SUBCHAPTER A—SIMPLE SAVINGS PLANS

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

small employers.

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

SUBCHAPTER B—OTHER PROVISIONS

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

CHAPTER 3—NONDISCRIMINATION PROVISIONS

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

Sec. 1432. Modification of additional participation requirements.

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

and matching contributions.

Sec. 1434. Definition of compensation for section 415 purposes.
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CHAPTER 4—MISCELLANEOUS PROVISIONS

Sec. 1441. Plans covering self-employed individuals.

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

Sec. 1443. Distributions under rural cooperative plans.

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

Sec. 1445. Uniform retirement age.

Sec. 1446. Contributions on behalf of disabled employees.

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

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

local governments.

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

limitations.

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

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

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

Sec. 1453. Tax on prohibited transactions.

Sec. 1454. Treatment of leased employees.

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

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

from self-employment.

Sec. 1457. Date for adoption of plan amendments.

Subtitle E—Foreign Simplification

Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive assets.

Subtitle F—Revenue Offsets

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

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

securities.

Sec. 1603. Certain amounts derived from foreign corporations treated as unrelated business taxable income.

Sec. 1604. Depreciation under income forecast method.

Sec. 1605. Repeal of exclusion for punitive damages and for damages not attributable to physical injuries or sickness.

Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered automobiles and light trucks.

Subtitle G—Technical Corrections

Sec. 1701. Coordination with other subtitles.

Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.

Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.

Sec. 1704. Miscellaneous provisions.
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1 TITLE I—SMALL BUSINESS AND

2 OTHER TAX PROVISIONS

3 SEC. 1101. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.

10 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

11 No addition to the tax shall be made under section

12 6654 or 6655 of the Internal Revenue Code of 1986 (relat13 ing to failure to pay estimated tax) with respect to any

14 underpayment of an installment required to be paid before

15 the date of the enactment of this Act to the extent such

16 underpayment was created or increased by any provision

17 of this title.

18 Subtitle A—Expensing; Etc.

19 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

20 BUSINESSES.

21 (a) GENERAL RULE.—Paragraph (1) of section

22 179(b) (relating to dollar limitation) is amended to read

23 as follows:

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

25 which may be taken into account under subsection
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1 (a) for any taxable year shall not exceed the follow2 ing applicable amount:

‘‘If the taxable year The applicable

begins in: amount is:

1996 ....................................................................... $18,500

1997 ....................................................................... 19,000

1998 ....................................................................... 20,000

1999 ....................................................................... 21,000

2000 ....................................................................... 22,000

2001 ....................................................................... 23,000

2002 ....................................................................... 23,500

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

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

4 subsection (a) shall apply to taxable years beginning after

5 December 31, 1995.

6 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

7 (a) EMPLOYEE CASH TIPS.—

8 (1) REPORTING REQUIREMENT NOT CONSID9 ERED.—Subparagraph (A) of section 45B(b)(1) (re10 lating to excess employer social security tax) is

11 amended by inserting ‘‘(without regard to whether

12 such tips are reported under section 6053)’’ after

13 ‘‘section 3121(q)’’.

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

15 13443 of the Revenue Reconciliation Act of 1993 is

16 amended by inserting ‘‘, with respect to services per17 formed before, on, or after such date’’ after ‘‘1993’’.

18 (3) EFFECTIVE DATE.—The amendments made

19 by this subsection shall take effect as if included in

20 the amendments made by, and the provisions of, sec-
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1 tion 13443 of the Revenue Reconciliation Act of

2 1993.

3 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR

4 BEVERAGES.—

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

6 45B(b) is amended to read as follows:

7 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV8 ERAGES TAKEN INTO ACCOUNT.—In applying para9 graph (1), there shall be taken into account only tips

10 received from customers in connection with the deliv11 ering or serving of food or beverages for consump12 tion if the tipping of employees delivering or serving

13 food or beverages by customers is customary.’’

14 (2) EFFECTIVE DATE.—The amendment made

15 by paragraph (1) shall apply to tips received for

16 services performed after December 31, 1996.

17 Subtitle B—Extension of Certain

18 Expiring Provisions

19 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

20 (a) AMOUNT OF CREDIT.—Subsection (a) of section

21 51 (relating to amount of credit) is amended by striking

22 ‘‘40 percent’’ and inserting ‘‘35 percent’’.

23 (b) MEMBERS OF TARGETED GROUPS.—Subsection

24 (d) of section 51 is amended to read as follows:
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1 ‘‘(d) MEMBERS OF TARGETED GROUPS.—For pur2 poses of this subpart—

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

4 of a targeted group if such individual is—

5 ‘‘(A) a qualified IV–A recipient,

6 ‘‘(B) a qualified veteran,

7 ‘‘(C) a qualified ex-felon,

8 ‘‘(D) a high-risk youth,

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

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

11 ‘‘(2) QUALIFIED IV–A RECIPIENT.—

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

13 IV–A recipient’ means any individual who is

14 certified by the designated local agency as being

15 a member of a family receiving assistance under

16 a IV–A program for at least a 9-month period

17 ending during the 9-month period ending on the

18 hiring date.

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

20 this paragraph, the term ‘IV–A program’ means

21 any program providing assistance under a State

22 plan approved under part A of title IV of the

23 Social Security Act (relating to assistance for

24 needy families with minor children) and any

25 successor of such program.
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1 ‘‘(3) QUALIFIED VETERAN.—

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

3 veteran’ means any veteran who is certified by

4 the designated local agency as being—

5 ‘‘(i) a member of a family receiving

6 assistance under a IV–A program (as de7 fined in paragraph (2)(B)) for at least a 9-

8 month period ending during the 12-month

9 period ending on the hiring date, or

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

11 assistance under a food stamp program

12 under the Food Stamp Act of 1977 for at

13 least a 3-month period ending during the

14 12-month period ending on the hiring date.

15 ‘‘(B) VETERAN.—For purposes of subpara16 graph (A), the term ‘veteran’ means any indi17 vidual who is certified by the designated local

18 agency as—

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

20 (other than active duty for training) in the

21 Armed Forces of the United States for a

22 period of more than 180 days, or

23 ‘‘(II) having been discharged or re24 leased from active duty in the Armed
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1 Forces of the United States for a service2 connected disability, and

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

4 60-day period ending on the hiring date

5 which was a day of extended active duty in

6 the Armed Forces of the United States.

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

8 active duty’ means a period of more than 90

9 days during which the individual was on active

10 duty (other than active duty for training).

11 ‘‘(4) QUALIFIED EX-FELON.—The term ‘quali12 fied ex-felon’ means any individual who is certified

13 by the designated local agency—

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

15 under any statute of the United States or any

16 State,

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

18 more than 1 year after the last date on which

19 such individual was so convicted or was released

20 from prison, and

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

22 had an income during the 6 months imme23 diately preceding the earlier of the month in

24 which such income determination occurs or the

25 month in which the hiring date occurs, which,
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1 on an annual basis, would be 70 percent or less

2 of the Bureau of Labor Statistics lower living

3 standard.

4 Any determination under subparagraph (C) shall be

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

6 such determination is made.

7 ‘‘(5) HIGH-RISK YOUTH.—

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

9 youth’ means any individual who is certified by

10 the designated local agency—

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

12 age 25 on the hiring date, and

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

14 abode within an empowerment zone or en15 terprise community.

16 ‘‘(B) YOUTH MUST CONTINUE TO RESIDE

17 IN ZONE.—In the case of a high-risk youth, the

18 term ‘qualified wages’ shall not include wages

19 paid or incurred for services performed while

20 such youth’s principal place of abode is outside

21 an empowerment zone or enterprise community.

22 ‘‘(6) VOCATIONAL REHABILITATION REFER23 RAL.—The term ‘vocational rehabilitation referral’

24 means any individual who is certified by the des25 ignated local agency as—
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1 ‘‘(A) having a physical or mental disability

2 which, for such individual, constitutes or results

3 in a substantial handicap to employment, and

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

5 upon completion of (or while receiving) rehabili6 tative services pursuant to—

7 ‘‘(i) an individualized written rehabili8 tation plan under a State plan for voca9 tional rehabilitation services approved

10 under the Rehabilitation Act of 1973, or

11 ‘‘(ii) a program of vocational rehabili12 tation carried out under chapter 31 of title

13 38, United States Code.

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

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

16 summer youth employee’ means any individ17 ual—

18 ‘‘(i) who performs services for the em19 ployer between May 1 and September 15,

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

21 local agency as having attained age 16 but

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

23 May 1 of the calendar year involved),

24 ‘‘(iii) who has not been an employee

25 of the employer during any period prior to
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1 the 90-day period described in subpara2 graph (B)(i), and

3 ‘‘(iv) who is certified by the des4 ignated local agency as having his principal

5 place of abode within an empowerment

6 zone or enterprise community.

7 ‘‘(B) SPECIAL RULES FOR DETERMINING

8 AMOUNT OF CREDIT.—For purposes of applying

9 this subpart to wages paid or incurred to any

10 qualified summer youth employee—

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

12 by substituting ‘any 90-day period between

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

14 period beginning with the day the individ15 ual begins work for the employer’, and

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

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

18 The preceding sentence shall not apply to an in19 dividual who, with respect to the same em20 ployer, is certified as a member of another tar21 geted group after such individual has been a

22 qualified summer youth employee.

23 ‘‘(C) YOUTH MUST CONTINUE TO RESIDE

24 IN ZONE.—Paragraph (5)(B) shall apply for

25 purposes of this paragraph.
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1 ‘‘(8) HIRING DATE.—The term ‘hiring date’

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

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

5 ‘designated local agency’ means a State employment

6 security agency established in accordance with the

7 Act of June 6, 1933, as amended (29 U.S.C. 49–

8 49n).

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

10 ‘‘(A) IN GENERAL.—An individual shall

11 not be treated as a member of a targeted group

12 unless—

13 ‘‘(i) on or before the day on which

14 such individual begins work for the em15 ployer, the employer has received a certifi16 cation from a designated local agency that

17 such individual is a member of a targeted

18 group, or

19 ‘‘(ii)(I) on or before the day the indi20 vidual is offered employment with the em21 ployer, a pre-screening notice is completed

22 by the employer with respect to such indi23 vidual, and

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

25 the individual begins work for the em-
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1 ployer, the employer submits such notice,

2 signed by the employer and the individual

3 under penalties of perjury, to the des4 ignated local agency as part of a written

5 request for such a certification from such

6 agency.

7 For purposes of this paragraph, the term ‘pre8 screening notice’ means a document (in such

9 form as the Secretary shall prescribe) which

10 contains information provided by the individual

11 on the basis of which the employer believes that

12 the individual is a member of a targeted group.

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

14 ‘‘(i) an individual has been certified

15 by a designated local agency as a member

16 of a targeted group, and

17 ‘‘(ii) such certification is incorrect be18 cause it was based on false information

19 provided by such individual,

20 the certification shall be revoked and wages

21 paid by the employer after the date on which

22 notice of revocation is received by the employer

23 shall not be treated as qualified wages.

24 ‘‘(C) EXPLANATION OF DENIAL OF RE25 QUEST.—If a designated local agency denies a
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1 request for certification of membership in a tar2 geted group, such agency shall provide to the

3 person making such request a written expla4 nation of the reasons for such denial.’’

5 (c) MINIMUM EMPLOYMENT PERIOD.—Paragraph

6 (3) of section 51(i) (relating to certain individuals ineli7 gible) is amended to read as follows:

8 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM9 PLOYMENT PERIOD.—No wages shall be taken into

10 account under subsection (a) with respect to any in11 dividual unless such individual either—

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

13 180 days (20 days in the case of a qualified

14 summer youth employee), or

15 ‘‘(B) has completed at least 500 hours

16 (120 hours in the case of a qualified summer

17 youth employee) of services performed for the

18 employer.’’

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

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

21 ‘‘(4) TERMINATION.—The term ‘wages’ shall

22 not include any amount paid or incurred to an indi23 vidual who begins work for the employer—

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

25 July 1, 1996, or
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1 ‘‘(B) after June 30, 1997.’’

2 (e) REDESIGNATION OF CREDIT.—

3 (1) Sections 38(b)(2) and 51(a) are each

4 amended by striking ‘‘targeted jobs credit’’ and in5 serting ‘‘work opportunity credit’’.

6 (2) The subpart heading for subpart F of part

7 IV of subchapter A of chapter 1 is amended by

8 striking ‘‘Targeted Jobs Credit’’ and inserting

9 ‘‘Work Opportunity Credit’’.

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

11 amended by striking ‘‘targeted jobs credit’’ and in12 serting ‘‘work opportunity credit’’.

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

14 1396(c) is amended by striking ‘‘TARGETED JOBS

15 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED16 IT’’.

17 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec18 tion 51(c) is amended by striking ‘‘, subsection

19 (d)(8)(D),’’.

20 (g) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to individuals who begin work for

22 the employer after June 30, 1996.
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1 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST2 ANCE PROGRAMS.

3 (a) EXTENSION.—Subsection (d) of section 127 (re4 lating to educational assistance programs) is amended by

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

6 31, 1997’’.

7 (b) LIMITATION TO EDUCATION BELOW GRADUATE

8 LEVEL.—The last sentence of section 127(c)(1) is amend9 ed by inserting before the period ‘‘or at the graduate

10 level’’.

11 (c) EFFECTIVE DATES.—

12 (1) EXTENSION.—The amendment made by

13 subsection (a) shall apply to taxable years beginning

14 after December 31, 1994.

15 (2) LIMITATION.—The amendment made by

16 subsection (b) shall apply to taxable years beginning

17 after December 31, 1995.

18 (3) EXPEDITED PROCEDURES.—The Secretary

19 of the Treasury shall establish expedited procedures

20 for the refund of any overpayment of taxes imposed

21 by chapter 24 of the Internal Revenue Code of 1986

22 which is attributable to amounts excluded from

23 gross income during 1995 or 1996 under section

24 127 of such Code, including procedures waiving the

25 requirement that an employer obtain an employee’s

26 signature where the employer demonstrates to the
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1 satisfaction of the Secretary that any refund col2 lected by the employer on behalf of the employee will

3 be paid to the employee.

4 SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL

5 WORKERS.

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

7 3306(c)(1) (defining employment) is amended by striking

8 ‘‘before January 1, 1995,’’.

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

10 subsection (a) shall apply to services performed after De11 cember 31, 1994.

12 Subtitle C—Provisions Relating to

13 S Corporations

14 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

15 SHAREHOLDERS.

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

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

18 shareholders’’ and inserting ‘‘75 shareholders’’.

19 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

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

21 1361(c)(2) (relating to certain trusts permitted as share22 holders) is amended by inserting after clause (iv) the fol23 lowing new clause:

24 ‘‘(v) An electing small business trust.’’
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1 (b) CURRENT BENEFICIARIES TREATED AS SHARE2 HOLDERS.—Subparagraph (B) of section 1361(c)(2) is

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

4 ‘‘(v) In the case of a trust described

5 in clause (v) of subparagraph (A), each po6 tential current beneficiary of such trust

7 shall be treated as a shareholder; except

8 that, if for any period there is no potential

9 current beneficiary of such trust, such

10 trust shall be treated as the shareholder

11 during such period.’’

12 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

13 Section 1361 (defining S corporation) is amended by add14 ing at the end the following new subsection:

15 ‘‘(e) ELECTING SMALL BUSINESS TRUST DE16 FINED.—

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

18 purposes of this section—

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

20 subparagraph (B), the term ‘electing small

21 business trust’ means any trust if—

22 ‘‘(i) such trust does not have as a

23 beneficiary any person other than (I) an

24 individual, (II) an estate, or (III) an orga25 nization described in paragraph (2), (3),
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1 (4), or (5) of section 170(c) which holds a

2 contingent interest and is not a potential

3 current beneficiary,

4 ‘‘(ii) no interest in such trust was ac5 quired by purchase, and

6 ‘‘(iii) an election under this subsection

7 applies to such trust.

8 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—

9 The term ‘electing small business trust’ shall

10 not include—

11 ‘‘(i) any qualified subchapter S trust

12 (as defined in subsection (d)(3)) if an elec13 tion under subsection (d)(2) applies to any

14 corporation the stock of which is held by

15 such trust, and

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

17 this subtitle.

18 ‘‘(C) PURCHASE.—For purposes of sub19 paragraph (A), the term ‘purchase’ means any

20 acquisition if the basis of the property acquired

21 is determined under section 1012.

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

23 purposes of this section, the term ‘potential current

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

25 person who at any time during such period is enti-
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1 tled to, or at the discretion of any person may re2 ceive, a distribution from the principal or income of

3 the trust. If a trust disposes of all of the stock which

4 it holds in an S corporation, then, with respect to

5 such corporation, the term ‘potential current bene6 ficiary’ does not include any person who first met

7 the requirements of the preceding sentence during

8 the 60-day period ending on the date of such dis9 position.

10 ‘‘(3) ELECTION.—An election under this sub11 section shall be made by the trustee. Any such elec12 tion shall apply to the taxable year of the trust for

13 which made and all subsequent taxable years of such

14 trust unless revoked with the consent of the Sec15 retary.

16 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’

17 (d) TAXATION OF ELECTING SMALL BUSINESS

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

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

20 subsection:

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

22 SMALL BUSINESS TRUSTS.—

23 ‘‘(1) IN GENERAL.—For purposes of this chap24 ter—
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1 ‘‘(A) the portion of any electing small busi2 ness trust which consists of stock in 1 or more

3 S corporations shall be treated as a separate

4 trust, and

5 ‘‘(B) the amount of the tax imposed by

6 this chapter on such separate trust shall be de7 termined with the modifications of paragraph

8 (2).

9 ‘‘(2) MODIFICATIONS.—For purposes of para10 graph (1), the modifications of this paragraph are

11 the following:

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

13 the amount of the tax imposed by section 1(e)

14 shall be determined by using the highest rate of

15 tax set forth in section 1(e).

16 ‘‘(B) The exemption amount under section

17 55(d) shall be zero.

18 ‘‘(C) The only items of income, loss, deduc19 tion, or credit to be taken into account are the

20 following:

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

22 into account under section 1366.

23 ‘‘(ii) Any gain or loss from the dis24 position of stock in an S corporation.
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1 ‘‘(iii) To the extent provided in regu2 lations, State or local income taxes or ad3 ministrative expenses to the extent alloca4 ble to items described in clauses (i) and

5 (ii).

6 No deduction or credit shall be allowed for any

7 amount not described in this paragraph, and no

8 item described in this paragraph shall be appor9 tioned to any beneficiary.

10 ‘‘(D) No amount shall be allowed under

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

12 ‘‘(3) TREATMENT OF REMAINDER OF TRUST

13 AND DISTRIBUTIONS.—For purposes of determin14 ing—

15 ‘‘(A) the amount of the tax imposed by

16 this chapter on the portion of any electing small

17 business trust not treated as a separate trust

18 under paragraph (1), and

19 ‘‘(B) the distributable net income of the

20 entire trust,

21 the items referred to in paragraph (2)(C) shall be

22 excluded. Except as provided in the preceding sen23 tence, this subsection shall not affect the taxation of

24 any distribution from the trust.
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1 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

2 WHERE TERMINATION OF SEPARATE TRUST.—If a

3 portion of an electing small business trust ceases to

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

5 any carryover or excess deduction of the separate

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

7 taken into account by the entire trust.

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

9 purposes of this subsection, the term ‘electing small

10 business trust’ has the meaning given such term by

11 section 1361(e)(1).’’

12 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec13 tion 1366(a) is amended by inserting ‘‘, or of a trust or

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

15 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

16 FOR CERTAIN TRUSTS.

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

18 certain trusts permitted as shareholders) is amended—

19 (1) by striking ‘‘60-day period’’ each place it

20 appears in clauses (ii) and (iii) and inserting ‘‘2-year

21 period’’, and

22 (2) by striking the last sentence in clause (ii).
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1 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

2 SAFE HARBOR DEBT.

3 Clause (iii) of section 1361(c)(5)(B) (defining

4 straight debt) is amended by striking ‘‘or a trust described

5 in paragraph (2)’’ and inserting ‘‘a trust described in

6 paragraph (2), or a person which is actively and regularly

7 engaged in the business of lending money’’.

8 SEC. 1305. RULES RELATING TO INADVERTENT TERMI9 NATIONS AND INVALID ELECTIONS.

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

11 (relating to inadvertent terminations) is amended to read

12 as follows:

13 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI14 NATIONS.—If—

15 ‘‘(1) an election under subsection (a) by any

16 corporation—

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

18 for which made (determined without regard to

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

20 the requirements of section 1361(b) or to ob21 tain shareholder consents, or

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

23 or (3) of subsection (d),

24 ‘‘(2) the Secretary determines that the cir25 cumstances resulting in such ineffectiveness or ter26 mination were inadvertent,
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1 ‘‘(3) no later than a reasonable period of time

2 after discovery of the circumstances resulting in

3 such ineffectiveness or termination, steps were

4 taken—

5 ‘‘(A) so that the corporation is a small

6 business corporation, or

7 ‘‘(B) to acquire the required shareholder

8 consents, and

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

10 a shareholder in the corporation at any time during

11 the period specified pursuant to this subsection,

12 agrees to make such adjustments (consistent with

13 the treatment of the corporation as an S corpora14 tion) as may be required by the Secretary with re15 spect to such period,

16 then, notwithstanding the circumstances resulting in such

17 ineffectiveness or termination, such corporation shall be

18 treated as an S corporation during the period specified

19 by the Secretary.’’

20 (b) LATE ELECTIONS, ETC.—Subsection (b) of sec21 tion 1362 is amended by adding at the end the following

22 new paragraph:

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

24 ETC., AS TIMELY.—If—
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1 ‘‘(A) an election under subsection (a) is

2 made for any taxable year (determined without

3 regard to paragraph (3)) after the date pre4 scribed by this subsection for making such elec5 tion for such taxable year or no such election is

6 made for any taxable year, and

7 ‘‘(B) the Secretary determines that there

8 was reasonable cause for the failure to timely

9 make such election,

10 the Secretary may treat such an election as timely

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

12 not apply).’’

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

14 subsection (a) and (b) shall apply with respect to elections

15 for taxable years beginning after December 31, 1982.

16 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

17 Paragraph (2) of section 1377(a) (relating to pro

18 rata share) is amended to read as follows:

19 ‘‘(2) ELECTION TO TERMINATE YEAR.—

20 ‘‘(A) IN GENERAL.—Under regulations

21 prescribed by the Secretary, if any shareholder

22 terminates the shareholder’s interest in the cor23 poration during the taxable year and all af24 fected shareholders and the corporation agree

25 to the application of this paragraph, paragraph
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1 (1) shall be applied to the affected shareholders

2 as if the taxable year consisted of 2 taxable

3 years the first of which ends on the date of the

4 termination.

5 ‘‘(B) AFFECTED SHAREHOLDERS.—For

6 purposes of subparagraph (A), the term ‘af7 fected shareholders’ means the shareholder

8 whose interest is terminated and all sharehold9 ers to whom such shareholder has transferred

10 shares during the taxable year. If such share11 holder has transferred shares to the corpora12 tion, the term ‘affected shareholders’ shall in13 clude all persons who are shareholders during

14 the taxable year.’’

15 SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION

16 PERIOD.

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

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

19 by striking ‘‘and’’ at the end of subparagraph (A), by re20 designating subparagraph (B) as subparagraph (C), and

21 by inserting after subparagraph (A) the following new sub22 paragraph:

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

24 date of any determination pursuant to an audit

25 of the taxpayer which follows the termination of
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1 the corporation’s election and which adjusts a

2 subchapter S item of income, loss, or deduction

3 of the corporation arising during the S period

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

5 (b) DETERMINATION DEFINED.—Paragraph (2) of

6 section 1377(b) is amended by striking subparagraphs (A)

7 and (B), by redesignating subparagraph (C) as subpara8 graph (B), and by inserting before subparagraph (B) (as

9 so redesignated) the following new subparagraph:

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

11 1313(a), or’’.

12 (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR

13 SUBCHAPTER S ITEMS.—

14 (1) GENERAL RULE.—Subchapter D of chapter

15 63 (relating to tax treatment of subchapter S items)

16 is hereby repealed.

17 (2) CONSISTENT TREATMENT REQUIRED.—Sec18 tion 6037 (relating to return of S corporation) is

19 amended by adding at the end the following new

20 subsection:

21 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST22 ENT WITH CORPORATE RETURN OR SECRETARY NOTI23 FIED OF INCONSISTENCY.—

24 ‘‘(1) IN GENERAL.—A shareholder of an S cor25 poration shall, on such shareholder’s return, treat a
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1 subchapter S item in a manner which is consistent

2 with the treatment of such item on the corporate

3 return.

4 ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT5 MENT.—

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

7 subchapter S item, if—

8 ‘‘(i)(I) the corporation has filed a re9 turn but the shareholder’s treatment on

10 his return is (or may be) inconsistent with

11 the treatment of the item on the corporate

12 return, or

13 ‘‘(II) the corporation has not filed a

14 return, and

15 ‘‘(ii) the shareholder files with the

16 Secretary a statement identifying the in17 consistency,

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

19 ‘‘(B) SHAREHOLDER RECEIVING INCOR20 RECT INFORMATION.—A shareholder shall be

21 treated as having complied with clause (ii) of

22 subparagraph (A) with respect to a subchapter

23 S item if the shareholder—

24 ‘‘(i) demonstrates to the satisfaction

25 of the Secretary that the treatment of the
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1 subchapter S item on the shareholder’s re2 turn is consistent with the treatment of the

3 item on the schedule furnished to the

4 shareholder by the corporation, and

5 ‘‘(ii) elects to have this paragraph

6 apply with respect to that item.

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

8 case—

9 ‘‘(A) described in subparagraph (A)(i)(I)

10 of paragraph (2), and

11 ‘‘(B) in which the shareholder does not

12 comply with subparagraph (A)(ii) of paragraph

13 (2),

14 any adjustment required to make the treatment of

15 the items by such shareholder consistent with the

16 treatment of the items on the corporate return shall

17 be treated as arising out of mathematical or clerical

18 errors and assessed according to section 6213(b)(1).

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

20 any assessment referred to in the preceding sen21 tence.

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

23 this subsection, the term ‘subchapter S item’ means

24 any item of an S corporation to the extent that reg25 ulations prescribed by the Secretary provide that, for
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1 purposes of this subtitle, such item is more appro2 priately determined at the corporation level than at

3 the shareholder level.

4 ‘‘(5) ADDITION TO TAX FOR FAILURE TO COM5 PLY WITH SECTION.—

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

negligence in connection with, or disregard of, the

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

6 (3) CONFORMING AMENDMENTS.—

7 (A) Section 1366 is amended by striking

8 subsection (g).

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

10 amended to read as follows:

11 ‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part12 nership return is filed for any taxable year but it is deter13 mined that there is no entity for such taxable year, to the

14 extent provided in regulations, rules similar to the rules

15 of subsection (a) shall apply.’’

16 (C) The table of subchapters for chapter

17 63 is amended by striking the item relating to

18 subchapter D.

19 SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUB20 SIDIARIES.

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

22 (defining ineligible corporation) is amended by striking

23 subparagraph (A) and by redesignating subparagraphs
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1 (B), (C), (D), and (E) as subparagraphs (A), (B), (C),

2 and (D), respectively.

3 (b) TREATMENT OF CERTAIN WHOLLY OWNED S

4 CORPORATION SUBSIDIARIES.—Section 1361(b) (defining

5 small business corporation) is amended by adding at the

6 end the following new paragraph:

7 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

8 SUBSIDIARIES.—

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

10 title—

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

12 subchapter S subsidiary shall not be treat13 ed as a separate corporation, and

14 ‘‘(ii) all assets, liabilities, and items of

15 income, deduction, and credit of a qualified

16 subchapter S subsidiary shall be treated as

17 assets, liabilities, and such items (as the

18 case may be) of the S corporation.

19 ‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI20 ARY.—For purposes of this paragraph, the term

21 ‘qualified subchapter S subsidiary’ means any

22 domestic corporation which is not an ineligible

23 corporation (as defined in paragraph (2)), if—
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1 ‘‘(i) 100 percent of the stock of such

2 corporation is held by the S corporation,

3 and

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

5 such corporation as a qualified subchapter

6 S subsidiary.

7 ‘‘(C) TREATMENT OF TERMINATIONS OF

8 QUALIFIED SUBCHAPTER S SUBSIDIARY STA9 TUS.—For purposes of this title, if any corpora10 tion which was a qualified subchapter S subsidi11 ary ceases to meet the requirements of subpara12 graph (B), such corporation shall be treated as

13 a new corporation acquiring all of its assets

14 (and assuming all of its liabilities) immediately

15 before such cessation from the S corporation in

16 exchange for its stock.’’

17 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

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

19 is amended by adding at the end the following new sub20 paragraph:

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

23 C corporation meeting the requirements of sec24 tion 1504(a)(2), the term ‘passive investment

25 income’ shall not include dividends from such C
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1 corporation to the extent such dividends are at2 tributable to the earnings and profits of such C

3 corporation derived from the active conduct of

4 a trade or business.’’

5 (d) CONFORMING AMENDMENTS.—

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

7 by striking paragraph (6).

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

10 end the following new paragraph:

11 ‘‘(8) An S corporation.’’

12 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

13 YEARS.

14 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

15 ACCOUNT BEFORE LOSSES.—

16 (1) Subparagraph (A) of section 1366(d)(1)

17 (relating to losses and deductions cannot exceed

18 shareholder’s basis in stock and debt) is amended by

19 striking ‘‘paragraph (1)’’ and inserting ‘‘paragraphs

20 (1) and (2)(A)’’.

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

22 certain adjustments taken into account) is amended

23 by adding at the end the following new sentence:

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

25 year, the adjusted basis of the stock shall be determined
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1 with regard to the adjustments provided in paragraph (1)

2 of section 1367(a) for the taxable year.’’

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

6 following new subparagraph:

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

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

9 to distributions made during any taxable year,

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

12 be determined without regard to any net nega13 tive adjustment for such taxable year.

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

15 purposes of clause (i), the term ‘net negative

16 adjustment’ means, with respect to any taxable

17 year, the excess (if any) of—

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

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

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

22 such taxable year.’’

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

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

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

3 paragraph’’, and

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

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

8 Subsection (a) of section 1371 (relating to applica9 tion of subchapter C rules) is amended to read as follows:

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

12 extent inconsistent with this subchapter, subchapter C

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

14 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND

15 PROFITS.

16 (a) IN GENERAL.—If—

17 (1) a corporation was an electing small business

18 corporation under subchapter S of chapter 1 of the

19 Internal Revenue Code of 1986 for any taxable year

20 beginning before January 1, 1983, and

21 (2) such corporation is an S corporation under

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

23 taxable year beginning after December 31, 1996,

24 the amount of such corporation’s accumulated earnings

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

2 any) of such accumulated earnings and profits which were

3 accumulated in any taxable year beginning before January

4 1, 1983, for which such corporation was an electing small

5 business corporation under such subchapter S.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Paragraph (3) of section 1362(d), as

8 amended by section 1308, is amended—

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

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

12 (B) by striking ‘‘subchapter C’’ in sub13 paragraph (A)(i)(I) and inserting ‘‘accumu14 lated’’, and

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

18 (2)(A) Subsection (a) of section 1375 is amend19 ed by striking ‘‘subchapter C’’ in paragraph (1) and

20 inserting ‘‘accumulated’’.

21 (B) Paragraph (3) of section 1375(b) is amend22 ed to read as follows:

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

24 terms ‘passive investment income’ and ‘gross re-
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1 ceipts’ have the same respective meanings as when

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

3 (C) The section heading for section 1375 is

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

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

9 inserting ‘‘accumulated’’.

10 (3) Clause (i) of section 1042(c)(4)(A) is

11 amended by striking ‘‘section 1362(d)(3)(D)’’ and

12 inserting ‘‘section 1362(d)(3)(C)’’.

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

15 Paragraph (3) of section 1366(d) (relating to carry16 over of disallowed losses and deductions to post-termi17 nation transition period) is amended by adding at the end

18 the following new subparagraph:

19 ‘‘(D) AT-RISK LIMITATIONS.—To the ex20 tent that any increase in adjusted basis de21 scribed in subparagraph (B) would have in22 creased the shareholder’s amount at risk under

23 section 465 if such increase had occurred on

24 the day preceding the commencement of the

25 post-termination transition period, rules similar
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1 to the rules described in subparagraphs (A)

2 through (C) shall apply to any losses disallowed

3 by reason of section 465(a).’’

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

5 TO REFLECT CERTAIN ITEMS OF INCOME.

6 (a) IN GENERAL.—Subsection (b) of section 1367

7 (relating to adjustments to basis of stock of shareholders,

8 etc.) is amended by adding at the end the following new

9 paragraph:

10 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

11 STOCK.—

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

13 stock in an S corporation by reason of the

14 death of a decedent or by bequest, devise, or in15 heritance, section 691 shall be applied with re16 spect to any item of income of the S corpora17 tion in the same manner as if the decedent had

18 held directly his pro rata share of such item.

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

20 determined under section 1014 of any stock in

21 an S corporation shall be reduced by the por22 tion of the value of the stock which is attrib23 utable to items constituting income in respect

24 of the decedent.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply in the case of decedents dying

3 after the date of the enactment of this Act.

4 SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLI5 CABLE TO REAL PROPERTY SUBDIVIDED FOR

6 SALE BY NONCORPORATE TAXPAYERS.

7 (a) IN GENERAL.—Subsection (a) of section 1237

8 (relating to real property subdivided for sale) is amended

9 by striking ‘‘other than a corporation’’ in the material pre10 ceding paragraph (1) and inserting ‘‘other than a C cor11 poration’’.

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

13 of section 1237(a)(2) is amended by inserting ‘‘an S cor14 poration which included the taxpayer as a shareholder,’’

15 after ‘‘controlled by the taxpayer,’’.

16 SEC. 1315. EFFECTIVE DATE.

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

18 this subtitle, the amendments made by this subtitle shall

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

20 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

21 PRIOR LAW.—For purposes of section 1362(g) of the In22 ternal Revenue Code of 1986 (relating to election after

23 termination), any termination under section 1362(d) of

24 such Code in a taxable year beginning before January 1,

25 1997, shall not be taken into account.
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1 Subtitle D—Pension Simplification

2 CHAPTER 1—SIMPLIFIED DISTRIBUTION

3 RULES

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

5 LUMP-SUM DISTRIBUTIONS.

6 (a) IN GENERAL.—Subsection (d) of section 402 (re7 lating to taxability of beneficiary of employees’ trust) is

8 amended to read as follows:

9 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

10 FOREIGN SITUS TRUSTS.—For purposes of subsections

11 (a), (b), and (c), a stock bonus, pension, or profit-sharing

12 trust which would qualify for exemption from tax under

13 section 501(a) except for the fact that it is a trust created

14 or organized outside the United States shall be treated

15 as if it were a trust exempt from tax under section

16 501(a).’’

17 (b) CONFORMING AMENDMENTS.—

18 (1) Subparagraph (D) of section 402(e)(4) (re19 lating to other rules applicable to exempt trusts) is

20 amended to read as follows:

21 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur22 poses of this paragraph—

23 ‘‘(i) IN GENERAL.—The term ‘lump

24 sum distribution’ means the distribution or

25 payment within one taxable year of the re-
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1 cipient of the balance to the credit of an

2 employee which becomes payable to the re3 cipient—

4 ‘‘(I) on account of the employee’s

5 death,

6 ‘‘(II) after the employee attains

age 591 7 ⁄2,

8 ‘‘(III) on account of the employ9 ee’s separation from service, or

10 ‘‘(IV) after the employee has be11 come disabled (within the meaning of

12 section 72(m)(7)),

13 from a trust which forms a part of a plan

14 described in section 401(a) and which is

15 exempt from tax under section 501 or from

16 a plan described in section 403(a). Sub17 clause (III) of this clause shall be applied

18 only with respect to an individual who is

19 an employee without regard to section

20 401(c)(1), and subclause (IV) shall be ap21 plied only with respect to an employee

22 within the meaning of section 401(c)(1).

23 For purposes of this clause, a distribution

24 to two or more trusts shall be treated as

25 a distribution to one recipient. For pur-
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1 poses of this paragraph, the balance to the

2 credit of the employee does not include the

3 accumulated deductible employee contribu4 tions under the plan (within the meaning

5 of section 72(o)(5)).

6 ‘‘(ii) AGGREGATION OF CERTAIN

7 TRUSTS AND PLANS.—For purposes of de8 termining the balance to the credit of an

9 employee under clause (i)—

10 ‘‘(I) all trusts which are part of

11 a plan shall be treated as a single

12 trust, all pension plans maintained by

13 the employer shall be treated as a sin14 gle plan, all profit-sharing plans main15 tained by the employer shall be treat16 ed as a single plan, and all stock

17 bonus plans maintained by the em18 ployer shall be treated as a single

19 plan, and

20 ‘‘(II) trusts which are not quali21 fied trusts under section 401(a) and

22 annuity contracts which do not satisfy

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

24 shall not be taken into account.
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1 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

2 The provisions of this paragraph shall be

3 applied without regard to community prop4 erty laws.

5 ‘‘(iv) AMOUNTS SUBJECT TO PEN6 ALTY.—This paragraph shall not apply to

7 amounts described in subparagraph (A) of

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

9 72(m)(5) applies to such amounts.

10 ‘‘(v) BALANCE TO CREDIT OF EM11 PLOYEE NOT TO INCLUDE AMOUNTS PAY12 ABLE UNDER QUALIFIED DOMESTIC RELA13 TIONS ORDER.—For purposes of this para14 graph, the balance to the credit of an em15 ployee shall not include any amount pay16 able to an alternate payee under a quali17 fied domestic relations order (within the

18 meaning of section 414(p)).

19 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

20 ARRANGEMENT NOT TREATED AS DIS21 TRIBUTION.—For purposes of this para22 graph, the balance to the credit of an em23 ployee under a defined contribution plan

24 shall not include any amount transferred

25 from such defined contribution plan to a
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1 qualified cost-of-living arrangement (within

2 the meaning of section 415(k)(2)) under a

3 defined benefit plan.

4 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

5 ALTERNATE PAYEES.—If any distribution

6 or payment of the balance to the credit of

7 an employee would be treated as a lump8 sum distribution, then, for purposes of this

9 paragraph, the payment under a qualified

10 domestic relations order (within the mean11 ing of section 414(p)) of the balance to the

12 credit of an alternate payee who is the

13 spouse or former spouse of the employee

14 shall be treated as a lump-sum distribu15 tion. For purposes of this clause, the bal16 ance to the credit of the alternate payee

17 shall not include any amount payable to

18 the employee.’’

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

20 to rollovers from exempt trusts) is amended by strik21 ing paragraph (10).

22 (3) Paragraph (1) of section 55(c) (defining

23 regular tax) is amended by striking ‘‘shall not in24 clude any tax imposed by section 402(d) and’’.
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1 (4) Paragraph (8) of section 62(a) (relating to

2 certain portion of lump-sum distributions from pen3 sion plans taxed under section 402(d)) is hereby re4 pealed.

5 (5) Section 401(a)(28)(B) (relating to coordina6 tion with distribution rules) is amended by striking

7 clause (v).

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

9 (relating to distributions that must be lump-sum dis10 tributions) is amended to read as follows:

11 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

12 purposes of this subparagraph, the term

13 ‘lump-sum distribution’ has the meaning

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

15 (without regard to subclauses (I), (II),

16 (III), and (IV) of clause (i) thereof).’’

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

18 status as deemed employee not to be treated as sep19 aration from service for purposes of limitation of

20 tax) is hereby repealed.

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

22 status as deemed employee not to be treated as sep23 aration from service for purposes of limitation of

24 tax) is hereby repealed.
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1 (9) Section 691(c) (relating to deduction for es2 tate tax) is amended by striking paragraph (5).

3 (10) Paragraph (1) of section 871(b) (relating

4 to imposition of tax) is amended by striking ‘‘section

5 1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or

6 55’’.

7 (11) Subsection (b) of section 877 (relating to

8 alternative tax) is amended by striking ‘‘section 1,

9 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

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

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

12 section 402(d)(4)(B) applies’’ and inserting

13 ‘‘(as defined in section 402(e)(4)(D)) with re14 spect to which the individual elects to have this

15 paragraph apply’’,

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

17 flush sentence:

18 ‘‘An individual may elect to have this paragraph

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

20 (C) by striking the heading and inserting:

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

22 (13) Section 402(e) is amended by striking

23 paragraph (5).

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

2 this section shall apply to taxable years beginning

3 after December 31, 1998.

4 (2) RETENTION OF CERTAIN TRANSITION

5 RULES.—Notwithstanding any other provision of

6 this section, the amendments made by this section

7 shall not apply to any distribution for which the tax8 payer elects the benefits of section 1122 (h)(3) or

9 (h)(5) of the Tax Reform Act of 1986. For purposes

10 of the preceding sentence, the rules of sections

11 402(c)(10) and 402(d) of the Internal Revenue Code

12 of 1986 (as in effect before the amendments made

13 by this Act) shall apply.

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

15 DEATH BENEFITS.

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

17 hereby repealed.

18 (b) CONFORMING AMENDMENTS.—

19 (1) Subsection (c) of section 101 is amended by

20 striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub21 section (a)’’.

22 (2) Sections 406(e) and 407(e) are each amend23 ed by striking paragraph (2) and by redesignating

24 paragraph (3) as paragraph (2).
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1 (3) Section 7701(a)(20) is amended by striking

2 ‘‘, for the purpose of applying the provisions of sec3 tion 101(b) with respect to employees’ death bene4 fits’’.

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

6 this section shall apply with respect to decedents dying

7 after the date of the enactment of this Act.

8 SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS9 TRIBUTIONS UNDER CERTAIN EMPLOYER

10 PLANS.

11 (a) GENERAL RULE.—Subsection (d) of section 72

12 (relating to annuities; certain proceeds of endowment and

13 life insurance contracts) is amended to read as follows:

14 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

15 RETIREMENT PLANS.—

16 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

17 PAYMENTS.—

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

19 amount received as an annuity under a quali20 fied employer retirement plan—

21 ‘‘(i) subsection (b) shall not apply,

22 and

23 ‘‘(ii) the investment in the contract

24 shall be recovered as provided in this para25 graph.
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1 ‘‘(B) METHOD OF RECOVERING INVEST2 MENT IN CONTRACT.—

3 ‘‘(i) IN GENERAL.—Gross income

4 shall not include so much of any monthly

5 annuity payment under a qualified em6 ployer retirement plan as does not exceed

7 the amount obtained by dividing—

8 ‘‘(I) the investment in the con9 tract (as of the annuity starting date),

10 by

11 ‘‘(II) the number of anticipated

12 payments determined under the table

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

14 case of a contract to which subsection

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

16 monthly annuity payments under such

17 contract).

18 ‘‘(ii) CERTAIN RULES MADE APPLICA19 BLE.—Rules similar to the rules of para20 graphs (2) and (3) of subsection (b) shall

21 apply for purposes of this paragraph.

22 ‘‘(iii) NUMBER OF ANTICIPATED PAY23 MENTS.—
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‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

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

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

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

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

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

1 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

2 NOT APPLICABLE.—For purposes of this para3 graph, investment in the contract shall be de4 termined under subsection (c)(1) without re5 gard to subsection (c)(2).

6 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

7 PAID IN CONNECTION WITH COMMENCEMENT

8 OF ANNUITY PAYMENTS.—If, in connection with

9 the commencement of annuity payments under

10 any qualified employer retirement plan, the tax11 payer receives a lump sum payment—

12 ‘‘(i) such payment shall be taxable

13 under subsection (e) as if received before

14 the annuity starting date, and

15 ‘‘(ii) the investment in the contract

16 for purposes of this paragraph shall be de17 termined as if such payment had been so

18 received.

19 ‘‘(E) EXCEPTION.—This paragraph shall

20 not apply in any case where the primary annu21 itant has attained age 75 on the annuity start-
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1 ing date unless there are fewer than 5 years of

2 guaranteed payments under the annuity.

3 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY4 MENTS NOT ON MONTHLY BASIS.—In any case

5 where the annuity payments are not made on a

6 monthly basis, appropriate adjustments in the

7 application of this paragraph shall be made to

8 take into account the period on the basis of

9 which such payments are made.

10 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

11 PLAN.—For purposes of this paragraph, the

12 term ‘qualified employer retirement plan’ means

13 any plan or contract described in paragraph

14 (1), (2), or (3) of section 4974(c).

15 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBU16 TIONS UNDER DEFINED CONTRIBUTION PLANS.—

17 For purposes of this section, employee contributions

18 (and any income allocable thereto) under a defined

19 contribution plan may be treated as a separate con20 tract.’’

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

22 this section shall apply in cases where the annuity starting

23 date is after the 90th day after the date of the enactment

24 of this Act.
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1 SEC. 1404. REQUIRED DISTRIBUTIONS.

2 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re3 quired beginning date) is amended to read as follows:

4 ‘‘(C) REQUIRED BEGINNING DATE.—For

5 purposes of this paragraph—

6 ‘‘(i) IN GENERAL.—The term ‘re7 quired beginning date’ means April 1 of

8 the calendar year following the later of—

9 ‘‘(I) the calendar year in which

the employee attains age 701 10 ⁄2, or

11 ‘‘(II) the calendar year in which

12 the employee retires.

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

14 clause (i) shall not apply—

15 ‘‘(I) except as provided in section

16 409(d), in the case of an employee

17 who is a 5-percent owner (as defined

18 in section 416) with respect to the

19 plan year ending in the calendar year

20 in which the employee attains age

701 21 ⁄2, or

22 ‘‘(II) for purposes of section 408

23 (a)(6) or (b)(3).

24 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

25 the case of an employee to whom clause

26 (i)(II) applies who retires in a calendar
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1 year after the calendar year in which the

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

3 accrued benefit shall be actuarially in4 creased to take into account the period

after age 701 5 ⁄2 in which the employee was

6 not receiving any benefits under the plan.

7 ‘‘(iv) EXCEPTION FOR GOVERN8 MENTAL AND CHURCH PLANS.—Clauses

9 (ii) and (iii) shall not apply in the case of

10 a governmental plan or church plan. For

11 purposes of this clause, the term ‘church

12 plan’ means a plan maintained by a church

13 for church employees, and the term

14 ‘church’ means any church (as defined in

15 section 3121(w)(3)(A)) or qualified church16 controlled organization (as defined in sec17 tion 3121(w)(3)(B)).’’

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

19 subsection (a) shall apply to years beginning after Decem20 ber 31, 1996.
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1 CHAPTER 2—INCREASED ACCESS TO

2 PENSION PLANS

3 Subchapter A—Simple Savings Plans

4 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE

5 MATCH PLANS FOR EMPLOYEES OF SMALL

6 EMPLOYERS.

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

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

11 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

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

13 the term ‘simple retirement account’ means an indi14 vidual retirement plan (as defined in section

15 7701(a)(37))—

16 ‘‘(A) with respect to which the require17 ments of paragraphs (3), (4), and (5) are met;

18 and

19 ‘‘(B) with respect to which the only con20 tributions allowed are contributions under a

21 qualified salary reduction arrangement.

22 ‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE23 MENT.—

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

25 subsection, the term ‘qualified salary reduction
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1 arrangement’ means a written arrangement of

2 an eligible employer under which—

3 ‘‘(i) an employee eligible to participate

4 in the arrangement may elect to have the

5 employer make payments—

6 ‘‘(I) as elective employer con7 tributions to a simple retirement ac8 count on behalf of the employee, or

9 ‘‘(II) to the employee directly in

10 cash,

11 ‘‘(ii) the amount which an employee

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

13 required to be expressed as a percentage of

14 compensation and may not exceed a total

15 of $6,000 for any year,

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

17 a matching contribution to the simple re18 tirement account for any year in an

19 amount equal to so much of the amount

20 the employee elects under clause (i)(I) as

21 does not exceed the applicable percentage

22 of compensation for the year, and

23 ‘‘(iv) no contributions may be made

24 other than contributions described in

25 clause (i) or (iii).
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1 ‘‘(B) EMPLOYER MAY ELECT 2-PERCENT

2 NONELECTIVE CONTRIBUTION.—An employer

3 shall be treated as meeting the requirements of

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

5 the contributions described in such clause, the

6 employer elects to make nonelective contribu7 tions of 2 percent of compensation for each em8 ployee who is eligible to participate in the ar9 rangement and who has at least $5,000 of com10 pensation from the employer for the year. If an

11 employer makes an election under this subpara12 graph for any year, the employer shall notify

13 employees of such election within a reasonable

14 period of time before the 30-day period for such

15 year under paragraph (5)(C).

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

17 subsection—

18 ‘‘(i) ELIGIBLE EMPLOYER.—The term

19 ‘eligible employer’ means an employer who

20 employs 100 or fewer employees on any

21 day during the year.

22 ‘‘(ii) APPLICABLE PERCENTAGE.—

23 ‘‘(I) IN GENERAL.—The term

24 ‘applicable percentage’ means 3 per25 cent.
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1 ‘‘(II) ELECTION OF LOWER PER2 CENTAGE.—An employer may elect to

3 apply a lower percentage (not less

4 than 1 percent) for any year for all

5 employees eligible to participate in the

6 plan for such year if the employer no7 tifies the employees of such lower per8 centage within a reasonable period of

9 time before the 30-day election period

10 for such year under paragraph (5)(C).

11 An employer may not elect a lower

12 percentage under this subclause for

13 any year if that election would result

14 in the applicable percentage being

15 lower than 3 percent in more than 2

16 of the years in the 5-year period end17 ing with such year.

18 ‘‘(III) SPECIAL RULE FOR YEARS

19 ARRANGEMENT NOT IN EFFECT.—If

20 any year in the 5-year period de21 scribed in subclause (II) is a year

22 prior to the first year for which any

23 qualified salary reduction arrange24 ment is in effect with respect to the

25 employer (or any predecessor), the
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1 employer shall be treated as if the

2 level of the employer matching con3 tribution was at 3 percent of com4 pensation for such prior year.

5 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN

6 OF EMPLOYER.—

7 ‘‘(i) IN GENERAL.—An arrangement

8 shall not be treated as a qualified salary

9 reduction arrangement for any year if the

10 employer (or any predecessor employer)

11 maintained a qualified plan with respect to

12 which contributions were made, or benefits

13 were accrued, for service in any year in the

14 period beginning with the year such ar15 rangement became effective and ending

16 with the year for which the determination

17 is being made.

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

19 of this subparagraph, the term ‘qualified

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

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

22 of section 219(g)(5).

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

24 Secretary shall adjust the $6,000 amount under

25 subparagraph (A)(ii) at the same time and in
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1 the same manner as under section 415(d), ex2 cept that the base period taken into account

3 shall be the calendar quarter ending September

4 30, 1995, and any increase under this subpara5 graph which is not a multiple of $500 shall be

6 rounded to the next lower multiple of $500.

7 ‘‘(3) VESTING REQUIREMENTS.—The require8 ments of this paragraph are met with respect to a

9 simple retirement account if the employee’s rights to

10 any contribution to the simple retirement account

11 are nonforfeitable. For purposes of this paragraph,

12 rules similar to the rules of subsection (k)(4) shall

13 apply.

14 ‘‘(4) PARTICIPATION REQUIREMENTS.—

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

16 this paragraph are met with respect to any sim17 ple retirement account for a year only if, under

18 the qualified salary reduction arrangement, all

19 employees of the employer who—

20 ‘‘(i) received at least $5,000 in com21 pensation from the employer during any 2

22 preceding years, and

23 ‘‘(ii) are reasonably expected to re24 ceive at least $5,000 in compensation dur25 ing the year,
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1 are eligible to make the election under para2 graph (2)(A)(i) or receive the nonelective con3 tribution described in paragraph (2)(B).

4 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em5 ployer may elect to exclude from the require6 ment under subparagraph (A) employees de7 scribed in section 410(b)(3).

8 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The

9 requirements of this paragraph are met with respect

10 to any simplified retirement account if, under the

11 qualified salary reduction arrangement—

12 ‘‘(A) an employer must—

13 ‘‘(i) make the elective employer con14 tributions under paragraph (2)(A)(i) not

15 later than the close of the 30-day period

16 following the last day of the month with

17 respect to which the contributions are to

18 be made, and

19 ‘‘(ii) make the matching contributions

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

21 nonelective contributions under paragraph

22 (2)(B) not later than the date described

23 in section 404(m)(2)(B),

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

25 participation in such arrangement at any time
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1 during the year, except that if an employee so

2 terminates, the arrangement may provide that

3 the employee may not elect to resume participa4 tion until the beginning of the next year, and

5 ‘‘(C) each employee eligible to participate

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

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

8 before the first day such employee is eligible to

9 participate), to participate in the arrangement,

10 or to modify the amounts subject to such ar11 rangement, for such year.

12 ‘‘(6) DEFINITIONS.—For purposes of this sub13 section—

14 ‘‘(A) COMPENSATION.—

15 ‘‘(i) IN GENERAL.—The term ‘com16 pensation’ means amounts described in

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

18 ‘‘(ii) SELF-EMPLOYED.—In the case

19 of an employee described in subparagraph

20 (B), the term ‘compensation’ means net

21 earnings from self-employment determined

22 under section 1402(a) without regard to

23 any contribution under this subsection.
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1 ‘‘(B) EMPLOYEE.—The term ‘employee’ in2 cludes an employee as defined in section

3 401(c)(1).

4 ‘‘(C) YEAR.—The term ‘year’ means the

5 calendar year.’’

6 (b) TAX TREATMENT OF SIMPLE RETIREMENT AC7 COUNTS.—

8 (1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM9 PLOYEES.—

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

11 amount of deduction) is amended by adding at

12 the end the following new paragraph:

13 ‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT

14 ACCOUNTS.—This section shall not apply with re15 spect to any amount contributed to a simple retire16 ment account established under section 408(p).’’

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

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

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

20 following new clause:

21 ‘‘(vi) any simple retirement account

22 (within the meaning of section 408(p)),

23 or’’.

24 (2) DEDUCTIBILITY OF EMPLOYER CONTRIBU25 TIONS.—Section 404 (relating to deductions for con-
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1 tributions of an employer to pension, etc. plans) is

2 amended by adding at the end the following new

3 subsection:

4 ‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC5 COUNTS.—

6 ‘‘(1) IN GENERAL.—Employer contributions to

7 a simple retirement account shall be treated as if

8 they are made to a plan subject to the requirements

9 of this section.

10 ‘‘(2) TIMING.—

11 ‘‘(A) DEDUCTION.—Contributions de12 scribed in paragraph (1) shall be deductible in

13 the taxable year of the employer with or within

14 which the calendar year for which the contribu15 tions were made ends.

16 ‘‘(B) CONTRIBUTIONS AFTER END OF

17 YEAR.—For purposes of this subsection, con18 tributions shall be treated as made for a taxable

19 year if they are made on account of the taxable

20 year and are made not later than the time pre21 scribed by law for filing the return for the tax22 able year (including extensions thereof).’’

23 (3) CONTRIBUTIONS AND DISTRIBUTIONS.—
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1 (A) Section 402 (relating to taxability of

2 beneficiary of employees’ trust) is amended by

3 adding at the end the following new subsection:

4 ‘‘(k) TREATMENT OF SIMPLE RETIREMENT AC5 COUNTS.—Rules similar to the rules of paragraphs (1)

6 and (3) of subsection (h) shall apply to contributions and

7 distributions with respect to a simple retirement account

8 under section 408(p).’’

9 (B) Section 408(d)(3) is amended by add10 ing at the end the following new subparagraph:

11 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

12 This paragraph shall not apply to any amount

13 paid or distributed out of a simple retirement

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

15 ‘‘(i) it is paid into another simple re16 tirement account, or

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

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

19 not apply, it is paid into an individual re20 tirement plan.’’

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

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

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

24 (4) PENALTIES.—
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1 (A) EARLY WITHDRAWALS.—Section 72(t)

2 (relating to additional tax in early distribu3 tions), as amended by this Act, is amended by

4 adding at the end the following new paragraph:

5 ‘‘(8) SPECIAL RULES FOR SIMPLE RETIREMENT

6 ACCOUNTS.—In the case of any amount received

7 from a simple retirement account (within the mean8 ing of section 408(p)) during the 2-year period be9 ginning on the date such individual first participated

10 in any qualified salary reduction arrangement main11 tained by the individual’s employer under section

12 408(p)(2), paragraph (1) shall be applied by sub13 stituting ‘25 percent’ for ‘10 percent’.’’

14 (B) FAILURE TO REPORT.—Section 6693

15 is amended by redesignating subsection (c) as

16 subsection (d) and by inserting after subsection

17 (b) the following new subsection:

18 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

19 ACCOUNTS.—

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

21 fails to provide 1 or more notices required by section

22 408(l)(2)(C) shall pay a penalty of $50 for each day

23 on which such failures continue.

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

25 fails—
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1 ‘‘(A) to provide 1 or more statements re2 quired by the last sentence of section 408(i)

3 shall pay a penalty of $50 for each day on

4 which such failures continue, or

5 ‘‘(B) to provide 1 or more summary de6 scriptions required by section 408(l)(2)(B) shall

7 pay a penalty of $50 for each day on which

8 such failures continue.

9 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No

10 penalty shall be imposed under this subsection with

11 respect to any failure which the taxpayer shows was

12 due to reasonable cause.’’

13 (5) REPORTING REQUIREMENTS.—

14 (A) Section 408(l) is amended by adding

15 at the end the following new paragraph:

16 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

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

18 provided in this paragraph, no report shall be

19 required under this section by an employer

20 maintaining a qualified salary reduction ar21 rangement under subsection (p).

22 ‘‘(B) SUMMARY DESCRIPTION.—The trust23 ee of any simple retirement account established

24 pursuant to a qualified salary reduction ar25 rangement under subsection (p) shall provide to
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1 the employer maintaining the arrangement,

2 each year a description containing the following

3 information:

4 ‘‘(i) The name and address of the em5 ployer and the trustee.

6 ‘‘(ii) The requirements for eligibility

7 for participation.

8 ‘‘(iii) The benefits provided with re9 spect to the arrangement.

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

11 elections with respect to the arrangement.

12 ‘‘(v) The procedures for, and effects

13 of, withdrawals (including rollovers) from

14 the arrangement.

15 ‘‘(C) EMPLOYEE NOTIFICATION.—The em16 ployer shall notify each employee immediately

17 before the period for which an election de18 scribed in subsection (p)(5)(C) may be made of

19 the employee’s opportunity to make such elec20 tion. Such notice shall include a copy of the de21 scription described in subparagraph (B).’’

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

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

24 ‘‘(1) IN GENERAL.—An employer’’.
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1 (6) REPORTING REQUIREMENTS.—Section

2 408(i) is amended by adding at the end the following

3 new flush sentence:

4 ‘‘In the case of a simple retirement account under sub5 section (p), only one report under this subsection shall be

6 required to be submitted each calendar year to the Sec7 retary (at the time provided under paragraph (2)) but, in

8 addition to the report under this subsection, there shall

9 be furnished, within 30 days after each calendar year, to

10 the individual on whose behalf the account is maintained

11 a statement with respect to the account balance as of the

12 close of, and the account activity during, such calendar

13 year.’’

14 (7) EXEMPTION FROM TOP-HEAVY PLAN

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

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

17 end the following new subparagraph:

18 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

19 The term ‘top-heavy plan’ shall not include a

20 simple retirement account under section

21 408(p).’’

22 (8) EMPLOYMENT TAXES.—

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

24 amended by striking ‘‘or’’ at the end of sub25 paragraph (F), by inserting ‘‘or’’ at the end of
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1 subparagraph (G), and by adding at the end

2 the following new subparagraph:

3 ‘‘(H) under an arrangement to which sec4 tion 408(p) applies, other than any elective con5 tributions under paragraph (2)(A)(i) thereof,’’.

6 (B) Section 209(a)(4) of the Social Security

7 Act is amended by inserting ‘‘, or (J) under an ar8 rangement to which section 408(p) of such Code ap9 plies, other than any elective contributions under

10 paragraph (2)(A)(i) thereof’’ before the semicolon at

11 the end thereof.

12 (C) Paragraph (5) of section 3306(b) is amend13 ed by striking ‘‘or’’ at the end of subparagraph (F),

14 by inserting ‘‘or’’ at the end of subparagraph (G),

15 and by adding at the end the following new subpara16 graph:

17 ‘‘(H) under an arrangement to which sec18 tion 408(p) applies, other than any elective con19 tributions under paragraph (2)(A)(i) thereof,’’.

20 (D) Paragraph (12) of section 3401(a) is

21 amended by adding the following new subparagraph:

22 ‘‘(D) under an arrangement to which sec23 tion 408(p) applies; or’’.

24 (9) CONFORMING AMENDMENTS.—
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1 (A) Section 280G(b)(6) is amended by

2 striking ‘‘or’’ at the end of subparagraph (B),

3 by striking the period at the end of subpara4 graph (C) and inserting ‘‘, or’’ and by adding

5 after subparagraph (C) the following new sub6 paragraph:

7 ‘‘(D) a simple retirement account described

8 in section 408(p).’’

9 (B) Section 402(g)(3) is amended by strik10 ing ‘‘and’’ at the end of subparagraph (B), by

11 striking the period at the end of subparagraph

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

13 subparagraph (C) the following new subpara14 graph:

15 ‘‘(D) any elective employer contribution

16 under section 408(p)(2)(A)(i).’’

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

18 (n)(3)(B) of section 414 are each amended by

19 inserting ‘‘408(p),’’ after ‘‘408(k),’’.

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

21 striking ‘‘and’’ at the end of clause (ii), by

22 striking the period at the end of clause (iii) and

23 inserting ‘‘, and’’, and by adding after clause

24 (iii) the following new clause:
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1 ‘‘(iv) any simple retirement account

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

3 (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM4 PLOYEE PENSIONS.—Section 408(k)(6) is amended by

5 adding at the end the following new subparagraph:

6 ‘‘(H) TERMINATION.—This paragraph

7 shall not apply to years beginning after Decem8 ber 31, 1996. The preceding sentence shall not

9 apply to a simplified employee pension if the

10 terms of such pension, as in effect on December

11 31, 1996, provide that an employee may make

12 the election described in subparagraph (A).’’

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

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR17 RANGEMENTS.

18 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

19 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (re20 lating to cash or deferred arrangements) is amended by

21 adding at the end the following new paragraph:

22 ‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET

23 NONDISCRIMINATION TESTS.—

24 ‘‘(A) IN GENERAL.—A cash or deferred ar25 rangement maintained by an eligible employer
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1 shall be treated as meeting the requirements of

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

3 meets—

4 ‘‘(i) the contribution requirements of

5 subparagraph (B),

6 ‘‘(ii) the exclusive benefit require7 ments of subparagraph (C), and

8 ‘‘(iii) the vesting requirements of sec9 tion 408(p)(3).

10 ‘‘(B) CONTRIBUTION REQUIREMENTS.—

11 ‘‘(i) IN GENERAL.—The requirements

12 of this subparagraph are met if, under the

13 arrangement—

14 ‘‘(I) an employee may elect to

15 have the employer make elective con16 tributions for the year on behalf of

17 the employee to a trust under the plan

18 in an amount which is expressed as a

19 percentage of compensation of the em20 ployee but which in no event exceeds

21 $6,000,

22 ‘‘(II) the employer is required to

23 make a matching contribution to the

24 trust for the year in an amount equal

25 to so much of the amount the em-
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1 ployee elects under subclause (I) as

2 does not exceed 3 percent of com3 pensation for the year, and

4 ‘‘(III) no other contributions may

5 be made other than contributions de6 scribed in subclause (I) or (II).

7 ‘‘(ii) EMPLOYER MAY ELECT 2-PER8 CENT NONELECTIVE CONTRIBUTION.—An

9 employer shall be treated as meeting the

10 requirements of clause (i)(II) for any year

11 if, in lieu of the contributions described in

12 such clause, the employer elects (pursuant

13 to the terms of the arrangement) to make

14 nonelective contributions of 2 percent of

15 compensation for each employee who is eli16 gible to participate in the arrangement and

17 who has at least $5,000 of compensation

18 from the employer for the year. If an em19 ployer makes an election under this sub20 paragraph for any year, the employer shall

21 notify employees of such election within a

22 reasonable period of time before the 30th

23 day before the beginning of such year.

24 ‘‘(C) EXCLUSIVE BENEFIT.—The require25 ments of this subparagraph are met for any
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1 year to which this paragraph applies if no con2 tributions were made, or benefits were accrued,

3 for services during such year under any quali4 fied plan of the employer on behalf of any em5 ployee eligible to participate in the cash or de6 ferred arrangement, other than contributions

7 described in subparagraph (B).

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

9 ‘‘(i) DEFINITIONS.—For purposes of

10 this paragraph, any term used in this

11 paragraph which is also used in section

12 408(p) shall have the meaning given such

13 term by such section.

14 ‘‘(ii) COORDINATION WITH TOP-HEAVY

15 RULES.—A plan meeting the requirements

16 of this paragraph for any year shall not be

17 treated as a top-heavy plan under section

18 416 for such year.’’

19 (b) ALTERNATIVE METHODS OF SATISFYING SEC20 TION 401(m) NONDISCRIMINATION TESTS.—Section

21 401(m) (relating to nondiscrimination test for matching

22 contributions and employee contributions) is amended by

23 redesignating paragraph (10) as paragraph (11) and by

24 adding after paragraph (9) the following new paragraph:
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1 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

2 TESTS.—A defined contribution plan shall be treated

3 as meeting the requirements of paragraph (2) with

4 respect to matching contributions if the plan—

5 ‘‘(A) meets the contribution requirements

6 of subparagraph (B) of subsection (k)(11),

7 ‘‘(B) meets the exclusive benefit require8 ments of subsection (k)(11)(C), and

9 ‘‘(C) meets the vesting requirements of

10 section 408(p)(3).’’

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

12 this section shall apply to plan years beginning after De13 cember 31, 1996.

14 Subchapter B—Other Provisions

15 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

16 SECTION 401(k).

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

18 401(k)(4) is amended to read as follows:

19 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

20 GOVERNMENTS AND TAX-EXEMPT ORGANIZA21 TIONS.—

22 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Ex23 cept as provided in clause (ii), any organi24 zation exempt from tax under this subtitle

25 may include a qualified cash or deferred
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1 arrangement as part of a plan maintained

2 by it.

3 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

4 cash or deferred arrangement shall not be

5 treated as a qualified cash or deferred ar6 rangement if it is part of a plan main7 tained by a State or local government or

8 political subdivision thereof, or any agency

9 or instrumentality thereof. This clause

10 shall not apply to a rural cooperative plan

11 or to a plan of an employer described in

12 clause (iii).

13 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

14 GOVERNMENTS.—An employer which is an

15 Indian tribal government (as defined in

16 section 7701(a)(40)), a subdivision of an

17 Indian tribal government (determined in

18 accordance with section 7871(d)), an agen19 cy or instrumentality of an Indian tribal

20 government or subdivision thereof, or a

21 corporation chartered under Federal,

22 State, or tribal law which is owned in

23 whole or in part by any of the foregoing

24 shall be treated as an organization exempt
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1 from tax under this subtitle for purposes

2 of clause (i).’’

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

4 this section shall apply to plan years beginning after De5 cember 31, 1996, but shall not apply to any cash or de6 ferred arrangement to which clause (i) of section

7 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

8 CHAPTER 3—NONDISCRIMINATION

9 PROVISIONS

10 SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EM11 PLOYEES; REPEAL OF FAMILY AGGREGATION.

12 (a) IN GENERAL.—Paragraph (1) of section 414(q)

13 (defining highly compensated employee) is amended to

14 read as follows:

15 ‘‘(1) IN GENERAL.—The term ‘highly com16 pensated employee’ means any employee who—

17 ‘‘(A) was a 5-percent owner at any time

18 during the year or the preceding year, or

19 ‘‘(B) for the preceding year—

20 ‘‘(i) had compensation from the em21 ployer in excess of $80,000, and

22 ‘‘(ii) was in the top-paid group of the

23 employer.

24 The Secretary shall adjust the $80,000 amount

25 under subparagraph (B) at the same time and in the
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1 same manner as under section 415(d), except that

2 the base period shall be the calendar quarter ending

3 September 30, 1996.’’

4 (b) REPEAL OF FAMILY AGGREGATION RULES.—

5 (1) IN GENERAL.—Paragraph (6) of section

6 414(q) is hereby repealed.

7 (2) COMPENSATION LIMIT.—Paragraph (17)(A)

8 of section 401(a) is amended by striking the last

9 sentence.

10 (3) DEDUCTION.—Subsection (l) of section 404

11 is amended by striking the last sentence.

12 (c) CONFORMING AMENDMENTS.—

13 (1)(A) Subsection (q) of section 414 is amended

14 by striking paragraphs (2), (5), (8), and (12) and by

15 redesignating paragraphs (3), (4), (7), (9), (10), and

16 (11) as paragraphs (2) through (7), respectively.

17 (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),

18 408(k)(2)(C), and 416(i)(1)(D) are each amended

19 by striking ‘‘section 414(q)(7)’’ and inserting ‘‘sec20 tion 414(q)(4)’’.

21 (C) Section 416(i)(1)(A) is amended by striking

22 ‘‘section 414(q)(8)’’ and inserting ‘‘section

23 414(r)(9)’’.

24 (2)(A) Section 414(r) is amended by adding at

25 the end the following new paragraph:
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1 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

2 this subsection, the following employees shall be ex3 cluded:

4 ‘‘(A) Employees who have not completed 6

5 months of service.

6 ‘‘(B) Employees who normally work less

than 171 7 ⁄2 hours per week.

8 ‘‘(C) Employees who normally work not

9 more than 6 months during any year.

10 ‘‘(D) Employees who have not attained the

11 age of 21.

12 ‘‘(E) Except to the extent provided in reg13 ulations, employees who are included in a unit

14 of employees covered by an agreement which

15 the Secretary of Labor finds to be a collective

16 bargaining agreement between employee rep17 resentatives and the employer.

18 Except as provided by the Secretary, the employer

19 may elect to apply subparagraph (A), (B), (C), or

20 (D) by substituting a shorter period of service,

21 smaller number of hours or months, or lower age for

22 the period of service, number of hours or months, or

23 age (as the case may be) specified in such subpara24 graph.’’
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1 (B) Subparagraph (A) of section 414(r)(2) is

2 amended by striking ‘‘subsection (q)(8)’’ and insert3 ing ‘‘paragraph (9)’’.

4 (3) Section 1114(c)(4) of the Tax Reform Act

5 of 1986 is amended by adding at the end the follow6 ing new sentence: ‘‘Any reference in this paragraph

7 to section 414(q) shall be treated as a reference to

8 such section as in effect on the day before the date

9 of the enactment of the Small Business Job Protec10 tion Act of 1996.’’.

11 (d) EFFECTIVE DATE.—

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

13 this section shall apply to years beginning after De14 cember 31, 1996, except that in determining wheth15 er an employee is a highly compensated employee for

16 years beginning in 1997, such amendments shall be

17 treated as having been in effect for years beginning

18 in 1996.

19 (2) FAMILY AGGREGATION.—The amendments

20 made by subsection (b) shall apply to years begin21 ning after December 31, 1996.
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1 SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION

2 REQUIREMENTS.

3 (a) GENERAL RULE.—Section 401(a)(26)(A) (relat4 ing to additional participation requirements) is amended

5 to read as follows:

6 ‘‘(A) IN GENERAL.—In the case of a trust

7 which is a part of a defined benefit plan, such

8 trust shall not constitute a qualified trust under

9 this subsection unless on each day of the plan

10 year such trust benefits at least the lesser of—

11 ‘‘(i) 50 employees of the employer, or

12 ‘‘(ii) the greater of—

13 ‘‘(I) 40 percent of all employees

14 of the employer, or

15 ‘‘(II) 2 employees (or if there is

16 only 1 employee, such employee).’’

17 (b) SEPARATE LINE OF BUSINESS TEST.—Section

18 401(a)(26)(G) (relating to separate line of business) is

19 amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para20 graph (2)(A) or (7)’’.

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

22 this section shall apply to years beginning after December

23 31, 1996.
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1 SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED

2 CASH OR DEFERRED ARRANGEMENTS AND

3 MATCHING CONTRIBUTIONS.

4 (a) ALTERNATIVE METHODS OF SATISFYING SEC5 TION 401(k) NONDISCRIMINATION TESTS.—Section

6 401(k) (relating to cash or deferred arrangements), as

7 amended by section 1422, is amended by adding at the

8 end the following new paragraph:

9 ‘‘(12) ALTERNATIVE METHODS OF MEETING

10 NONDISCRIMINATION REQUIREMENTS.—

11 ‘‘(A) IN GENERAL.—A cash or deferred ar12 rangement shall be treated as meeting the re13 quirements of paragraph (3)(A)(ii) if such ar14 rangement—

15 ‘‘(i) meets the contribution require16 ments of subparagraph (B) or (C), and

17 ‘‘(ii) meets the notice requirements of

18 subparagraph (D).

19 ‘‘(B) MATCHING CONTRIBUTIONS.—

20 ‘‘(i) IN GENERAL.—The requirements

21 of this subparagraph are met if, under the

22 arrangement, the employer makes match23 ing contributions on behalf of each em24 ployee who is not a highly compensated

25 employee in an amount equal to—
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1 ‘‘(I) 100 percent of the elective

2 contributions of the employee to the

3 extent such elective contributions do

4 not exceed 3 percent of the employee’s

5 compensation, and

6 ‘‘(II) 50 percent of the elective

7 contributions of the employee to the

8 extent that such elective contributions

9 exceed 3 percent but do not exceed 5

10 percent of the employee’s compensa11 tion.

12 ‘‘(ii) RATE FOR HIGHLY COM13 PENSATED EMPLOYEES.—The require14 ments of this subparagraph are not met if,

15 under the arrangement, the rate of match16 ing contribution with respect to any elec17 tive contribution of a highly compensated

18 employee at any rate of elective contribu19 tion is greater than that with respect to an

20 employee who is not a highly compensated

21 employee.

22 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

23 If the rate of any matching contribution

24 with respect to any rate of elective con25 tribution is not equal to the percentage re-
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1 quired under clause (i), an arrangement

2 shall not be treated as failing to meet the

3 requirements of clause (i) if—

4 ‘‘(I) the rate of an employer’s

5 matching contribution does not in6 crease as an employee’s rate of elec7 tive contributions increase, and

8 ‘‘(II) the aggregate amount of

9 matching contributions at such rate of

10 elective contribution is at least equal

11 to the aggregate amount of matching

12 contributions which would be made if

13 matching contributions were made on

14 the basis of the percentages described

15 in clause (i).

16 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

17 The requirements of this subparagraph are met

18 if, under the arrangement, the employer is re19 quired, without regard to whether the employee

20 makes an elective contribution or employee con21 tribution, to make a contribution to a defined

22 contribution plan on behalf of each employee

23 who is not a highly compensated employee and

24 who is eligible to participate in the arrangement
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1 in an amount equal to at least 3 percent of the

2 employee’s compensation.

3 ‘‘(D) NOTICE REQUIREMENT.—An ar4 rangement meets the requirements of this para5 graph if, under the arrangement, each employee

6 eligible to participate is, within a reasonable pe7 riod before any year, given written notice of the

8 employee’s rights and obligations under the ar9 rangement which—

10 ‘‘(i) is sufficiently accurate and com11 prehensive to appraise the employee of

12 such rights and obligations, and

13 ‘‘(ii) is written in a manner calculated

14 to be understood by the average employee

15 eligible to participate.

16 ‘‘(E) OTHER REQUIREMENTS.—

17 ‘‘(i) WITHDRAWAL AND VESTING RE18 STRICTIONS.—An arrangement shall not be

19 treated as meeting the requirements of

20 subparagraph (B) or (C) of this paragraph

21 unless the requirements of subparagraphs

22 (B) and (C) of paragraph (2) are met with

23 respect to all employer contributions (in24 cluding matching contributions) taken into

25 account in determining whether the re-
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1 quirements of subparagraphs (B) and (C)

2 of this paragraph are met.

3 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

4 CONTRIBUTIONS NOT TAKEN INTO AC5 COUNT.—An arrangement shall not be

6 treated as meeting the requirements of

7 subparagraph (B) or (C) unless such re8 quirements are met without regard to sub9 section (l), and, for purposes of subsection

10 (l), employer contributions under subpara11 graph (B) or (C) shall not be taken into

12 account.

13 ‘‘(F) OTHER PLANS.—An arrangement

14 shall be treated as meeting the requirements

15 under subparagraph (A)(i) if any other plan

16 maintained by the employer meets such require17 ments with respect to employees eligible under

18 the arrangement.’’

19 (b) ALTERNATIVE METHODS OF SATISFYING SEC20 TION 401(m) NONDISCRIMINATION TESTS.—Section

21 401(m) (relating to nondiscrimination test for matching

22 contributions and employee contributions), as amended by

23 this Act, is amended by redesignating paragraph (11) as

24 paragraph (12) and by adding after paragraph (10) the

25 following new paragraph:
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1 ‘‘(11) ALTERNATIVE METHOD OF SATISFYING

2 TESTS.—

3 ‘‘(A) IN GENERAL.—A defined contribution

4 plan shall be treated as meeting the require5 ments of paragraph (2) with respect to match6 ing contributions if the plan—

7 ‘‘(i) meets the contribution require8 ments of subparagraph (B) or (C) of sub9 section (k)(12),

10 ‘‘(ii) meets the notice requirements of

11 subsection (k)(12)(D), and

12 ‘‘(iii) meets the requirements of sub13 paragraph (B).

14 ‘‘(B) LIMITATION ON MATCHING CON15 TRIBUTIONS.—The requirements of this sub16 paragraph are met if—

17 ‘‘(i) matching contributions on behalf

18 of any employee may not be made with re19 spect to an employee’s contributions or

20 elective deferrals in excess of 6 percent of

21 the employee’s compensation,

22 ‘‘(ii) the rate of an employer’s match23 ing contribution does not increase as the

24 rate of an employee’s contributions or elec25 tive deferrals increase, and
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1 ‘‘(iii) the matching contribution with

2 respect to any highly compensated em3 ployee at any rate of an employee contribu4 tion or rate of elective deferral is not

5 greater than that with respect to an em6 ployee who is not a highly compensated

7 employee.’’

8 (c) YEAR FOR COMPUTING NONHIGHLY COM9 PENSATED EMPLOYEE PERCENTAGE.—

10 (1) CASH OR DEFERRED ARRANGEMENTS.—

11 Clause (ii) of section 401(k)(3)(A) is amended—

12 (A) by striking ‘‘such year’’ and inserting

13 ‘‘the plan year’’,

14 (B) by striking ‘‘for such plan year’’ and

15 inserting ‘‘for the preceding plan year’’, and

16 (C) by adding at the end the following new

17 sentence: ‘‘An arrangement may apply this

18 clause by using the plan year rather than the

19 preceding plan year if the employer so elects,

20 except that if such an election is made, it may

21 not be changed except as provided by the Sec22 retary.’’

23 (2) MATCHING AND EMPLOYEE CONTRIBU24 TIONS.—Section 401(m)(2)(A) is amended—
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1 (A) by inserting ‘‘for such plan year’’ after

2 ‘‘highly compensated employees’’,

3 (B) by inserting ‘‘for the preceding plan

4 year’’ after ‘‘eligible employees’’ each place it

5 appears in clause (i) and clause (ii), and

6 (C) by adding at the end the following

7 flush sentence: ‘‘This subparagraph may be ap8 plied by using the plan year rather than the

9 preceding plan year if the employer so elects,

10 except that if such an election is made, it may

11 not be changed except as provided the Sec12 retary.’’

13 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE14 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

15 (1) Paragraph (3) of section 401(k) is amended

16 by adding at the end the following new subpara17 graph:

18 ‘‘(E) For purposes of this paragraph, in

19 the case of the first plan year of any plan

20 (other than a successor plan), the amount taken

21 into account as the actual deferral percentage

22 of nonhighly compensated employees for the

23 preceding plan year shall be—

24 ‘‘(i) 3 percent, or
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1 ‘‘(ii) if the employer makes an election

2 under this subclause, the actual deferral

3 percentage of nonhighly compensated em4 ployees determined for such first plan

5 year.’’

6 (2) Paragraph (3) of section 401(m) is amend7 ed by adding at the end the following: ‘‘Rules similar

8 to the rules of subsection (k)(3)(E) shall apply for

9 purposes of this subsection.’’

10 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

11 EXCESS AGGREGATE CONTRIBUTIONS.—

12 (1) Subparagraph (C) of section 401(k)(8) (re13 lating to arrangement not disqualified if excess con14 tributions distributed) is amended by striking ‘‘on

15 the basis of the respective portions of the excess con16 tributions attributable to each of such employees’’

17 and inserting ‘‘on the basis of the amount of con18 tributions by, or on behalf of, each of such employ19 ees’’.

20 (2) Subparagraph (C) of section 401(m)(6) (re21 lating to method of distributing excess aggregate

22 contributions) is amended by striking ‘‘on the basis

23 of the respective portions of such amounts attrib24 utable to each of such employees’’ and inserting ‘‘on
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1 the basis of the amount of contributions on behalf

2 of, or by, each such employee’’.

3 (f) EFFECTIVE DATES.—

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

5 this section shall apply to years beginning after De6 cember 31, 1998.

7 (2) EXCEPTIONS.—The amendments made by

8 subsections (c), (d), and (e) shall apply to years be9 ginning after December 31, 1996.

10 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

11 415 PURPOSES.

12 (a) GENERAL RULE.—Section 415(c)(3) (defining

13 participant’s compensation) is amended by adding at the

14 end the following new subparagraph:

15 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—

16 The term ‘participant’s compensation’ shall in17 clude—

18 ‘‘(i) any elective deferral (as defined

19 in section 402(g)(3)), and

20 ‘‘(ii) any amount which is contributed

21 by the employer at the election of the em22 ployee and which is not includible in the

23 gross income of the employee under section

24 125 or 457.’’

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 414(q)(4), as redesignated by sec2 tion 1431, is amended to read as follows:

3 ‘‘(4) COMPENSATION.—For purposes of this

4 subsection, the term ‘compensation’ has the meaning

5 given such term by section 415(c)(3).’’

6 (2) Section 414(s)(2) is amended by inserting

7 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

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

9 this section shall apply to years beginning after December

10 31, 1997.

11 CHAPTER 4—MISCELLANEOUS

12 PROVISIONS

13 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID14 UALS.

15 (a) AGGREGATION RULES.—Section 401(d) (relating

16 to additional requirements for qualification of trusts and

17 plans benefiting owner-employees) is amended to read as

18 follows:

19 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY20 EES.—A trust forming part of a pension or profit-sharing

21 plan which provides contributions or benefits for employ22 ees some or all of whom are owner-employees shall con23 stitute a qualified trust under this section only if, in addi24 tion to meeting the requirements of subsection (a), the

25 plan provides that contributions on behalf of any owner-
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1 employee may be made only with respect to the earned

2 income of such owner-employee which is derived from the

3 trade or business with respect to which such plan is estab4 lished.’’

5 (b) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to years beginning after December

7 31, 1996.

8 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

9 MULTIEMPLOYER PLANS.

10 (a) IN GENERAL.—Paragraph (2) of section 411(a)

11 (relating to minimum vesting standards) is amended—

12 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

13 and inserting ‘‘subparagraph (A) or (B)’’; and

14 (2) by striking subparagraph (C).

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to plan years beginning on or after

17 the earlier of—

18 (1) the later of—

19 (A) January 1, 1997, or

20 (B) the date on which the last of the col21 lective bargaining agreements pursuant to

22 which the plan is maintained terminates (deter23 mined without regard to any extension thereof

24 after the date of the enactment of this Act), or

25 (2) January 1, 1999.
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1 Such amendments shall not apply to any individual who

2 does not have more than 1 hour of service under the plan

3 on or after the 1st day of the 1st plan year to which such

4 amendments apply.

5 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

6 PLANS.

7 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A

8 CERTAIN AGE.—Section 401(k)(7) is amended by adding

9 at the end the following new subparagraph:

10 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS11 TRIBUTIONS.—A rural cooperative plan which

12 includes a qualified cash or deferred arrange13 ment shall not be treated as violating the re14 quirements of section 401(a) or of paragraph

15 (2) merely by reason of a hardship distribution

16 or a distribution to a participant after attainment of age 591 17 ⁄2. For purposes of this section,

18 the term ‘hardship distribution’ means a dis19 tribution described in paragraph (2)(B)(i)(IV)

20 (without regard to the limitation of its applica21 tion to profit-sharing or stock bonus plans).’’

22 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of sec23 tion 401(k)(7)(B) (defining rural cooperative) is amended

24 to read as follows:

25 ‘‘(i) any organization which—
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1 ‘‘(I) is engaged primarily in pro2 viding electric service on a mutual or

3 cooperative basis, or

4 ‘‘(II) is engaged primarily in pro5 viding electric service to the public in

6 its area of service and which is ex7 empt from tax under this subtitle or

8 which is a State or local government

9 (or an agency or instrumentality

10 thereof), other than a municipality (or

11 an agency or instrumentality there12 of).’’

13 (c) EFFECTIVE DATES.—

14 (1) DISTRIBUTIONS.—The amendments made

15 by subsection (a) shall apply to distributions after

16 the date of the enactment of this Act.

17 (2) RURAL COOPERATIVE.—The amendments

18 made by subsection (b) shall apply to plan years be19 ginning after December 31, 1996.

20 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

21 SECTION 415.

22 (a) COMPENSATION LIMIT.—Subsection (b) of sec23 tion 415 is amended by adding immediately after para24 graph (10) the following new paragraph:
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1 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN2 MENTAL PLANS.—In the case of a governmental

3 plan (as defined in section 414(d)), subparagraph

4 (B) of paragraph (1) shall not apply.’’

5 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

6 PLANS.—

7 (1) IN GENERAL.—Section 415 is amended by

8 adding at the end the following new subsection:

9 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

10 EXCESS BENEFIT ARRANGEMENTS.—

11 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—

12 In determining whether a governmental plan (as de13 fined in section 414(d)) meets the requirements of

14 this section, benefits provided under a qualified gov15 ernmental excess benefit arrangement shall not be

16 taken into account. Income accruing to a govern17 mental plan (or to a trust that is maintained solely

18 for the purpose of providing benefits under a quali19 fied governmental excess benefit arrangement) in re20 spect of a qualified governmental excess benefit ar21 rangement shall constitute income derived from the

22 exercise of an essential governmental function upon

23 which such governmental plan (or trust) shall be ex24 empt from tax under section 115.
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1 ‘‘(2) TAXATION OF PARTICIPANT.—For pur2 poses of this chapter—

3 ‘‘(A) the taxable year or years for which

4 amounts in respect of a qualified governmental

5 excess benefit arrangement are includible in

6 gross income by a participant, and

7 ‘‘(B) the treatment of such amounts when

8 so includible by the participant,

9 shall be determined as if such qualified govern10 mental excess benefit arrangement were treated as a

11 plan for the deferral of compensation which is main12 tained by a corporation not exempt from tax under

13 this chapter and which does not meet the require14 ments for qualification under section 401.

15 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN16 EFIT ARRANGEMENT.—For purposes of this sub17 section, the term ‘qualified governmental excess ben18 efit arrangement’ means a portion of a governmental

19 plan if—

20 ‘‘(A) such portion is maintained solely for

21 the purpose of providing to participants in the

22 plan that part of the participant’s annual bene23 fit otherwise payable under the terms of the

24 plan that exceeds the limitations on benefits im25 posed by this section,
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1 ‘‘(B) under such portion no election is pro2 vided at any time to the participant (directly or

3 indirectly) to defer compensation, and

4 ‘‘(C) benefits described in subparagraph

5 (A) are not paid from a trust forming a part

6 of such governmental plan unless such trust is

7 maintained solely for the purpose of providing

8 such benefits.’’

9 (2) COORDINATION WITH SECTION 457.—Sub10 section (e) of section 457 is amended by adding at

11 the end the following new paragraph:

12 ‘‘(14) TREATMENT OF QUALIFIED GOVERN13 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub14 sections (b)(2) and (c)(1) shall not apply to any

15 qualified governmental excess benefit arrangement

16 (as defined in section 415(m)(3)), and benefits pro17 vided under such an arrangement shall not be taken

18 into account in determining whether any other plan

19 is an eligible deferred compensation plan.’’

20 (3) CONFORMING AMENDMENT.—Paragraph (2)

21 of section 457(f) is amended by striking ‘‘and’’ at

22 the end of subparagraph (C), by striking the period

23 at the end of subparagraph (D) and inserting ‘‘,

24 and’’, and by inserting immediately thereafter the

25 following new subparagraph:
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1 ‘‘(E) a qualified governmental excess bene2 fit arrangement described in section 415(m).’’

3 (c) EXEMPTION FOR SURVIVOR AND DISABILITY

4 BENEFITS.—Paragraph (2) of section 415(b) is amended

5 by adding at the end the following new subparagraph:

6 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS7 ABILITY BENEFITS PROVIDED UNDER GOVERN8 MENTAL PLANS.—Subparagraph (C) of this

9 paragraph and paragraph (5) shall not apply

10 to—

11 ‘‘(i) income received from a govern12 mental plan (as defined in section 414(d))

13 as a pension, annuity, or similar allowance

14 as the result of the recipient becoming dis15 abled by reason of personal injuries or

16 sickness, or

17 ‘‘(ii) amounts received from a govern18 mental plan by the beneficiaries, survivors,

19 or the estate of an employee as the result

20 of the death of the employee.’’

21 (d) REVOCATION OF GRANDFATHER ELECTION.—

22 (1) IN GENERAL.—Subparagraph (C) of section

23 415(b)(10) is amended by adding at the end the fol24 lowing new clause:
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1 ‘‘(ii) REVOCATION OF ELECTION.—An

2 election under clause (i) may be revoked

3 not later than the last day of the third

4 plan year beginning after the date of the

5 enactment of this clause. The revocation

6 shall apply to all plan years to which the

7 election applied and to all subsequent plan

8 years. Any amount paid by a plan in a tax9 able year ending after the revocation shall

10 be includible in income in such taxable

11 year under the rules of this chapter in ef12 fect for such taxable year, except that, for

13 purposes of applying the limitations im14 posed by this section, any portion of such

15 amount which is attributable to any tax16 able year during which the election was in

17 effect shall be treated as received in such

18 taxable year.’’

19 (2) CONFORMING AMENDMENT.—Subparagraph

20 (C) of section 415(b)(10) is amended by striking

21 ‘‘This’’ and inserting:

22 ‘‘(i) IN GENERAL.—This’’.

23 (e) EFFECTIVE DATE.—

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

25 subsections (a), (b), and (c) shall apply to years be-
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1 ginning after December 31, 1994. The amendments

2 made by subsection (d) shall apply with respect to

3 revocations adopted after the date of the enactment

4 of this Act.

5 (2) TREATMENT FOR YEARS BEGINNING BE6 FORE JANUARY 1, 1995.—Nothing in the amend7 ments made by this section shall be construed to

8 infer that a governmental plan (as defined in section

9 414(d) of the Internal Revenue Code of 1986) fails

10 to satisfy the requirements of section 415 of such

11 Code for any taxable year beginning before January

12 1, 1995.

13 SEC. 1445. UNIFORM RETIREMENT AGE.

14 (a) DISCRIMINATION TESTING.—Paragraph (5) of

15 section 401(a) (relating to special rules relating to non16 discrimination requirements) is amended by adding at the

17 end the following new subparagraph:

18 ‘‘(F) SOCIAL SECURITY RETIREMENT

19 AGE.—For purposes of testing for discrimina20 tion under paragraph (4)—

21 ‘‘(i) the social security retirement age

22 (as defined in section 415(b)(8)) shall be

23 treated as a uniform retirement age, and

24 ‘‘(ii) subsidized early retirement bene25 fits and joint and survivor annuities shall
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1 not be treated as being unavailable to em2 ployees on the same terms merely because

3 such benefits or annuities are based in

4 whole or in part on an employee’s social

5 security retirement age (as so defined).’’

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

7 this section shall apply to years beginning after December

8 31, 1996.

9 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM10 PLOYEES.

11 (a) ALL DISABLED PARTICIPANTS RECEIVING CON12 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

13 at the end the following: ‘‘If a defined contribution plan

14 provides for the continuation of contributions on behalf

15 of all participants described in clause (i) for a fixed or

16 determinable period, this subparagraph shall be applied

17 without regard to clauses (ii) and (iii).’’

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

19 this section shall apply to years beginning after December

20 31, 1996.
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1 SEC. 1447. TREATMENT OF DEFERRED COMPENSATION

2 PLANS OF STATE AND LOCAL GOVERNMENTS

3 AND TAX-EXEMPT ORGANIZATIONS.

4 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

5 Paragraph (9) of section 457(e) (relating to other defini6 tions and special rules) is amended to read as follows:

7 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL8 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

9 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500

10 OR LESS.—The total amount payable to a par11 ticipant under the plan shall not be treated as

12 made available merely because the participant

13 may elect to receive such amount (or the plan

14 may distribute such amount without the partici15 pant’s consent) if—

16 ‘‘(i) such amount does not exceed

17 $3,500, and

18 ‘‘(ii) such amount may be distributed

19 only if—

20 ‘‘(I) no amount has been deferred

21 under the plan with respect to such

22 participant during the 2-year period

23 ending on the date of the distribution,

24 and

25 ‘‘(II) there has been no prior dis26 tribution under the plan to such par-
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1 ticipant to which this subparagraph

2 applied.

3 A plan shall not be treated as failing to meet

4 the distribution requirements of subsection (d)

5 by reason of a distribution to which this sub6 paragraph applies.

7 ‘‘(B) ELECTION TO DEFER COMMENCE8 MENT OF DISTRIBUTIONS.—The total amount

9 payable to a participant under the plan shall

10 not be treated as made available merely because

11 the participant may elect to defer commence12 ment of distributions under the plan if—

13 ‘‘(i) such election is made after

14 amounts may be available under the plan

15 in accordance with subsection (d)(1)(A)

16 and before commencement of such dis17 tributions, and

18 ‘‘(ii) the participant may make only 1

19 such election.’’

20 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE21 FERRAL AMOUNT.—Subsection (e) of section 457, as

22 amended by section 1444(b)(2) (relating to governmental

23 plans), is amended by adding at the end the following new

24 paragraph:
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1 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI2 MUM DEFERRAL AMOUNT.—The Secretary shall ad3 just the $7,500 amount specified in subsections

4 (b)(2) and (c)(1) at the same time and in the same

5 manner as under section 415(d), except that the

6 base period shall be the calendar quarter ending

7 September 30, 1994, and any increase under this

8 paragraph which is not a multiple of $500 shall be

9 rounded to the next lowest multiple of $500.’’

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

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM14 PENSATION PLANS OF STATE AND LOCAL

15 GOVERNMENTS.

16 (a) IN GENERAL.—Section 457 is amended by adding

17 at the end the following new subsection:

18 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET19 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

20 ‘‘(1) IN GENERAL.—A plan maintained by an

21 eligible employer described in subsection (e)(1)(A)

22 shall not be treated as an eligible deferred com23 pensation plan unless all assets and income of the

24 plan described in subsection (b)(6) are held in trust
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1 for the exclusive benefit of participants and their

2 beneficiaries.

3 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI4 PANTS.—For purposes of this title—

5 ‘‘(A) a trust described in paragraph (1)

6 shall be treated as an organization exempt from

7 taxation under section 501(a), and

8 ‘‘(B) notwithstanding any other provision

9 of this title, amounts in the trust shall be in10 cludible in the gross income of participants and

11 beneficiaries only to the extent, and at the time,

12 provided in this section.

13 ‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—

14 For purposes of this subsection, custodial accounts

15 and contracts described in section 401(f) shall be

16 treated as trusts under rules similar to the rules

17 under section 401(f).’’

18 (b) CONFORMING AMENDMENT.—Paragraph (6) of

19 section 457(b) is amended by inserting ‘‘except as pro20 vided in subsection (g),’’ before ‘‘which provides that’’.

21 (c) EFFECTIVE DATES.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section

24 shall apply to assets and income described in section

25 457(b)(6) of the Internal Revenue Code of 1986
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1 held by a plan on and after the date of the enact2 ment of this Act.

3 (2) TRANSITION RULE.—In the case of assets

4 and income described in paragraph (1) held by a

5 plan on the date of the enactment of this Act, a

6 trust need not be established by reason of the

7 amendments made by this section before January 1,

8 1999.

9 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

10 BENEFITS UNDER SECTION 415 LIMITATIONS.

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

12 767(d)(3) of the Uruguay Round Agreements Act is

13 amended to read as follows:

14 ‘‘(A) EXCEPTION.—A plan that was adopt15 ed and in effect before December 8, 1994, shall

16 not be required to apply the amendments made

17 by subsection (b) with respect to benefits ac18 crued before the earlier of—

19 ‘‘(i) the later of the date a plan

20 amendment applying such amendment is

21 adopted or made effective, or

22 ‘‘(ii) the first day of the first limita23 tion year beginning after December 31,

24 1999.
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1 Determinations under section 415(b)(2)(E) of

2 the Internal Revenue Code of 1986 before such

3 earlier date shall be made with respect to such

4 benefits on the basis of such section as in effect

5 on December 7, 1994 (except that the modifica6 tion made by section 1449(b) of the Small

7 Business Job Protection Act of 1996 shall be

8 taken into account), and the provisions of the

9 plan as in effect on December 7, 1994, but only

10 if such provisions of the plan meet the require11 ments of such section (as so in effect).’’

12 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR

13 ADJUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

14 EARLY RETIREES.—Subparagraph (E) of section

15 415(b)(2) (relating to limitation on certain assumptions)

16 is amended—

17 (1) by striking ‘‘Except as provided in clause

18 (ii), for purposes of adjusting any benefit or limita19 tion under subparagraph (B) or (C),’’ in clause (i)

20 and inserting ‘‘For purposes of adjusting any limita21 tion under subparagraph (C) and, except as provided

22 in clause (ii), for purposes of adjusting any benefit

23 under subparagraph (B),’’, and

24 (2) by striking ‘‘For purposes of adjusting the

25 benefit or limitation of any form of benefit subject
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1 to section 417(e)(3),’’ in clause (ii) and inserting

2 ‘‘For purposes of adjusting any benefit under sub3 paragraph (B) for any form of benefit subject to sec4 tion 417(e)(3),’’.

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

6 this section shall take effect as if included in the provisions

7 of section 767 of the Uruguay Round Agreements Act.

8 (d) TRANSITIONAL RULE.—In the case of a plan that

9 was adopted and in effect before December 8, 1994, if—

10 (1) a plan amendment was adopted or made ef11 fective on or before the date of the enactment of this

12 Act applying the amendments made by section 767

13 of the Uruguay Round Agreements Act, and

14 (2) within 1 year after the date of the enact15 ment of this Act, a plan amendment is adopted

16 which repeals the amendment referred to in para17 graph (1),

18 the amendment referred to in paragraph (1) shall not be

19 taken into account in applying section 767(d)(3)(A) of the

20 Uruguay Round Agreements Act, as amended by sub21 section (a).

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

23 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

24 PERMITTED.—
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1 (1) GENERAL RULE.—For purposes of section

2 403(b) of the Internal Revenue Code of 1986, the

3 frequency that an employee is permitted to enter

4 into a salary reduction agreement, the salary to

5 which such an agreement may apply, and the ability

6 to revoke such an agreement shall be determined

7 under the rules applicable to cash or deferred elec8 tions under section 401(k) of such Code.

9 (2) EFFECTIVE DATE.—This subsection shall

10 apply to taxable years beginning after December 31,

11 1995.

12 (b) TREATMENT OF INDIAN TRIBAL GOVERN13 MENTS.—

14 (1) IN GENERAL.—In the case of any contract

15 purchased in a plan year beginning before January

16 1, 1995, section 403(b) of the Internal Revenue

17 Code of 1986 shall be applied as if any reference to

18 an employer described in section 501(c)(3) of the In19 ternal Revenue Code of 1986 which is exempt from

20 tax under section 501 of such Code included a ref21 erence to an employer which is an Indian tribal gov22 ernment (as defined by section 7701(a)(40) of such

23 Code), a subdivision of an Indian tribal government

24 (determined in accordance with section 7871(d) of

25 such Code), an agency or instrumentality of an In-
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1 dian tribal government or subdivision thereof, or a

2 corporation chartered under Federal, State, or tribal

3 law which is owned in whole or in part by any of the

4 foregoing.

5 (2) ROLLOVERS.—Solely for purposes of apply6 ing section 403(b)(8) of such Code to a contract to

7 which paragraph (1) applies, a qualified cash or de8 ferred arrangement under section 401(k) of such

9 Code shall be treated as if it were a plan or contract

10 described in clause (ii) of section 403(b)(8)(A) of

11 such Code.

12 (c) ELECTIVE DEFERRALS.—

13 (1) IN GENERAL.—Subparagraph (E) of section

14 403(b)(1) is amended to read as follows:

15 ‘‘(E) in the case of a contract purchased

16 under a salary reduction agreement, the con17 tract meets the requirements of section

18 401(a)(30),’’.

19 (2) EFFECTIVE DATE.—The amendment made

20 by this subsection shall apply to years beginning

21 after December 31, 1995, except a contract shall not

22 be required to meet any change in any requirement

23 by reason of such amendment before the 90th day

24 after the date of the enactment of this Act.
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1 SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND

2 SURVIVOR ANNUITY EXPLANATION BEFORE

3 ANNUITY STARTING DATE.

4 (a) GENERAL RULE.—For purposes of section

5 417(a)(3)(A) of the Internal Revenue Code of 1986 (relat6 ing to plan to provide written explanations), the minimum

7 period prescribed by the Secretary of the Treasury be8 tween the date that the explanation referred to in such

9 section is provided and the annuity starting date shall not

10 apply if waived by the participant and, if applicable, the

11 participant’s spouse.

12 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

13 plan years beginning after December 31, 1996.

14 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

15 BENEFIT PLAN AND DEFINED CONTRIBUTION

16 PLAN FOR SAME EMPLOYEE; EXCESS DIS17 TRIBUTIONS.

18 (a) IN GENERAL.—Section 415(e) is repealed.

19 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

20 amended by adding at the end the following new sub21 section:

22 ‘‘(g) LIMITATION ON APPLICATION.—This section

23 shall not apply to distributions during years beginning

24 after December 31, 1995, and before January 1, 1999,

25 and such distributions shall be treated as made first from

26 amounts not described in subsection (f).’’
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1 (c) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 415(a) is amend3 ed—

4 (A) by adding ‘‘or’’ at the end of subpara5 graph (A),

6 (B) by striking ‘‘, or’’ at the end of sub7 paragraph (B) and inserting a period, and

8 (C) by striking subparagraph (C).

9 (2) Subparagraph (B) of section 415(b)(5) is

10 amended by striking ‘‘and subsection (e)’’.

11 (3) Paragraph (1) of section 415(f) is amended

12 by striking ‘‘subsections (b), (c), and (e)’’ and in13 serting ‘‘subsections (b) and (c)’’.

14 (4) Subsection (g) of section 415 is amended by

15 striking ‘‘subsections (e) and (f)’’ in the last sen16 tence and inserting ‘‘subsection (f)’’.

17 (5) Clause (i) of section 415(k)(2)(A) is amend18 ed to read as follows:

19 ‘‘(i) any contribution made directly by

20 an employee under such an arrangement

21 shall not be treated as an annual addition

22 for purposes of subsection (c), and’’.

23 (6) Clause (ii) of section 415(k)(2)(A) is

24 amended by striking ‘‘subsections (c) and (e)’’ and

25 inserting ‘‘subsection (c)’’.
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1 (7) Section 416 is amended by striking sub2 section (h).

3 (d) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply to limitation years beginning after De7 cember 31, 1998.

8 (2) EXCESS DISTRIBUTIONS.—The amendment

9 made by subsection (b) shall apply to years begin10 ning after December 31, 1995.

11 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

12 (a) IN GENERAL.—Section 4975(a) is amended by

13 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

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

15 this section shall apply to prohibited transactions occur16 ring after the date of the enactment of this Act.

17 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

18 (a) GENERAL RULE.—Subparagraph (C) of section

19 414(n)(2) (defining leased employee) is amended to read

20 as follows:

21 ‘‘(C) such services are performed under

22 primary direction or control by the recipient.’’

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

24 subsection (a) shall apply to years beginning after Decem25 ber 31, 1996, but shall not apply to any relationship deter-
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1 mined under an Internal Revenue Service ruling issued be2 fore the date of the enactment of this Act pursuant to

3 section 414(n)(2)(C) of the Internal Revenue Code of

4 1986 (as in effect on the day before such date) not to

5 involve a leased employee.

6 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

7 CERTAIN PENSION REPORTING REQUIRE8 MENTS.

9 (a) PENALTIES.—

10 (1) STATEMENTS.—Paragraph (1) of section

11 6724(d) is amended by striking ‘‘and’’ at the end of

12 subparagraph (A), by striking the period at the end

13 of subparagraph (B) and inserting ‘‘, and’’, and by

14 inserting after subparagraph (B) the following new

15 subparagraph:

16 ‘‘(C) any statement of the amount of pay17 ments to another person required to be made to

18 the Secretary under—

19 ‘‘(i) section 408(i) (relating to reports

20 with respect to individual retirement ac21 counts or annuities), or

22 ‘‘(ii) section 6047(d) (relating to re23 ports by employers, plan administrators,

24 etc.).’’
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1 (2) REPORTS.—Paragraph (2) of section

2 6724(d) is amended by striking ‘‘or’’ at the end of

3 subparagraph (S), by striking the period at the end

4 of subparagraph (T) and inserting a comma, and by

5 inserting after subparagraph (T) the following new

6 subparagraphs:

7 ‘‘(U) section 408(i) (relating to reports

8 with respect to individual retirement plans) to

9 any person other than the Secretary with re10 spect to the amount of payments made to such

11 person, or

12 ‘‘(V) section 6047(d) (relating to reports

13 by plan administrators) to any person other

14 than the Secretary with respect to the amount

15 of payments made to such person.’’

16 (b) MODIFICATION OF REPORTABLE DESIGNATED

17 DISTRIBUTIONS.—

18 (1) SECTION 408.—Subsection (i) of section 408

19 (relating to individual retirement account reports) is

20 amended by inserting ‘‘aggregating $10 or more in

21 any calendar year’’ after ‘‘distributions’’.

22 (2) SECTION 6047.—Paragraph (1) of section

23 6047(d) (relating to reports by employers, plan ad24 ministrators, etc.) is amended by adding at the end

25 the following new sentence: ‘‘No return or report
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1 may be required under the preceding sentence with

2 respect to distributions to any person during any

3 year unless such distributions aggregate $10 or

4 more.’’

5 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec6 tion 6652(i) is amended—

7 (1) by striking ‘‘the $10’’ and inserting

8 ‘‘$100’’, and

9 (2) by striking ‘‘$5,000’’ and inserting

10 ‘‘$50,000’’.

11 (d) CONFORMING AMENDMENTS.—

12 (1) Paragraph (1) of section 6047(f) is amend13 ed to read as follows:

‘‘(1) For provisions relating to penalties for failures to file returns and reports required under this

section, see sections 6652(e), 6721, and 6722.’’

14 (2) Subsection (e) of section 6652 is amended

15 by adding at the end the following new sentence:

16 ‘‘This subsection shall not apply to any return or

17 statement which is an information return described

18 in section 6724(d)(1)(C)(ii) or a payee statement de19 scribed in section 6724(d)(2)(V).’’

20 (3) Subsection (a) of section 6693 is amended

21 by adding at the end the following new sentence:

22 ‘‘This subsection shall not apply to any report which

23 is an information return described in section
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1 6724(d)(1)(C)(i) or a payee statement described in

2 section 6724(d)(2)(U).’’

3 (e) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to returns, reports, and other

5 statements the due date for which (determined without re6 gard to extensions) is after December 31, 1996.

7 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB8 JECT TO TAX ON NET EARNINGS FROM SELF9 EMPLOYMENT.

10 (a) IN GENERAL.—Section 1402(a)(8) (defining net

11 earning from self-employment) is amended by inserting ‘‘,

12 but shall not include in such net earnings from self-em13 ployment the rental value of any parsonage (whether or

14 not excludable under section 107) provided after the indi15 vidual retires, or any other retirement benefit received by

16 such individual from a church plan (as defined in section

17 414(e)) after the individual retires’’ before the semicolon

18 at the end.

19 (b) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to years beginning before, on, or

21 after December 31, 1994.

22 SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

23 If any amendment made by this subtitle requires an

24 amendment to any plan or annuity contract, such amend25 ment shall not be required to be made before the first day
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1 of the first plan year beginning on or after January 1,

2 1997, if—

3 (1) during the period after such amendment

4 takes effect and before such first plan year, the plan

5 or contract is operated in accordance with the re6 quirements of such amendment, and

7 (2) such amendment applies retroactively to

8 such period.

9 In the case of a governmental plan (as defined in section

10 414(d) of the Internal Revenue Code of 1986), this section

11 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.

12 Subtitle E—Foreign Simplification

13 SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS

14 INVESTED IN EXCESS PASSIVE ASSETS.

15 (a) IN GENERAL.—

16 (1) REPEAL OF INCLUSION.—Paragraph (1) of

17 section 951(a) (relating to amounts included in

18 gross income of United States shareholders) is

19 amended by striking subparagraph (C), by striking

20 ‘‘; and’’ at the end of subparagraph (B) and insert21 ing a period, and by adding ‘‘and’’ at the end of

22 subparagraph (A).

23 (2) REPEAL OF INCLUSION AMOUNT.—Section

24 956A (relating to earnings invested in excess passive

25 assets) is repealed.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 956(b) is amended

3 to read as follows:

4 ‘‘(1) APPLICABLE EARNINGS.—For purposes of

5 this section, the term ‘applicable earnings’ means,

6 with respect to any controlled foreign corporation,

7 the sum of—

8 ‘‘(A) the amount (not including a deficit)

9 referred to in section 316(a)(1), and

10 ‘‘(B) the amount referred to in section

11 316(a)(2),

12 but reduced by distributions made during the tax13 able year.’’

14 (2) Paragraph (3) of section 956(b) is amended

15 to read as follows:

16 ‘‘(3) SPECIAL RULE WHERE CORPORATION

17 CEASES TO BE CONTROLLED FOREIGN CORPORA18 TION.—If any foreign corporation ceases to be a

19 controlled foreign corporation during any taxable

20 year—

21 ‘‘(A) the determination of any United

22 States shareholder’s pro rata share shall be

23 made on the basis of stock owned (within the

24 meaning of section 958(a)) by such shareholder

25 on the last day during the taxable year on
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1 which the foreign corporation is a controlled

2 foreign corporation,

3 ‘‘(B) the average referred to in subsection

4 (a)(1)(A) for such taxable year shall be deter5 mined by only taking into account quarters end6 ing on or before such last day, and

7 ‘‘(C) in determining applicable earnings,

8 the amount taken into account by reason of

9 being described in paragraph (2) of section

10 316(a) shall be the portion of the amount so

11 described which is allocable (on a pro rata

12 basis) to the part of such year during which the

13 corporation is a controlled foreign corporation.’’

14 (3) Subsection (a) of section 959 (relating to

15 exclusion from gross income of previously taxed

16 earnings and profits) is amended by adding ‘‘or’’ at

17 the end of paragraph (1), by striking ‘‘or’’ at the

18 end of paragraph (2), and by striking paragraph (3).

19 (4) Subsection (a) of section 959 is amended by

20 striking ‘‘paragraphs (2) and (3)’’ in the last sen21 tence and inserting ‘‘paragraph (2)’’.

22 (5) Subsection (c) of section 959 is amended by

23 adding at the end the following flush sentence:

24 ‘‘References in this subsection to section 951(a)(1)(C) and

25 subsection (a)(3) shall be treated as references to such
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1 provisions as in effect on the day before the date of the

2 enactment of the Revenue Reconciliation Act of 1995.’’

3 (6) Paragraph (1) of section 959(f) is amended

4 to read as follows:

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, amounts that would be included under subpara7 graph (B) of section 951(a)(1) (determined without

8 regard to this section) shall be treated as attrib9 utable first to earnings described in subsection

10 (c)(2), and then to earnings described in subsection

11 (c)(3).’’

12 (7) Paragraph (2) of section 959(f) is amended

13 by striking ‘‘subparagraphs (B) and (C) of section

14 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

15 (8) Subsection (b) of section 989 is amended by

16 striking ‘‘subparagraph (B) or (C) of section

17 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

18 (9) Paragraph (9) of section 1298(b), as redes19 ignated by section 11482, is amended by striking

20 ‘‘subparagraph (B) or (C) of section 951(a)(1)’’ and

21 inserting ‘‘section 951(a)(1)(B)’’.

22 (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of

23 section 1298, as redesignated by section 11482, are

24 each amended by striking ‘‘or section 956A’’.
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1 (c) CLERICAL AMENDMENT.—The table of sections

2 for subpart F of part III of subchapter N of chapter 1

3 is amended by striking the item relating to section 956A.

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

5 this section shall apply to taxable years of foreign corpora6 tions beginning after December 31, 1996, and to taxable

7 years of United States shareholders within which or with

8 which such taxable years of foreign corporations end.

9 Subtitle F—Revenue Offsets

10 SEC. 1601. TERMINATION OF PUERTO RICO AND POSSES11 SION TAX CREDIT.

12 (a) IN GENERAL.—Section 936 is amended by adding

13 at the end the following new subsection:

14 ‘‘(j) TERMINATION.—

15 ‘‘(1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, this section shall not apply

17 to any taxable year beginning after December 31,

18 1995.

19 ‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS

20 INCOME CREDIT.—Except as provided in paragraph

21 (3)—

22 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

23 case of an existing credit claimant—

24 ‘‘(i) with respect to a possession other

25 than Puerto Rico, and
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1 ‘‘(ii) to which subsection (a)(4)(B)

2 does not apply,

3 the credit determined under subsection

4 (a)(1)(A) shall be allowed for taxable years be5 ginning after December 31, 1995, and before

6 January 1, 2002.

7 ‘‘(B) SPECIAL RULE FOR REDUCED CRED8 IT.—

9 ‘‘(i) IN GENERAL.—In the case of an

10 existing credit claimant to which sub11 section (a)(4)(B) applies, the credit deter12 mined under subsection (a)(1)(A) shall be

13 allowed for taxable years beginning after

14 December 31, 1995, and before January 1,

15 1998.

16 ‘‘(ii) ELECTION IRREVOCABLE AFTER

17 1997.—An election under subsection

18 (a)(4)(B)(iii) which is in effect for the tax19 payer’s last taxable year beginning before

20 1997 may not be revoked unless it is re21 voked for the taxpayer’s first taxable year

22 beginning in 1997 and all subsequent tax23 able years.
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1 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

2 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

3 ‘‘(3) ADDITIONAL RESTRICTED CREDIT.—

4 ‘‘(A) IN GENERAL.—In the case of an ex5 isting credit claimant—

6 ‘‘(i) the credit under subsection

7 (a)(1)(A) shall be allowed for the period

8 beginning with the first taxable year after

9 the last taxable year to which subpara10 graph (A) or (B) of paragraph (2), which11 ever is appropriate, applied and ending

12 with the last taxable year beginning before

13 January 1, 2006, except that

14 ‘‘(ii) the aggregate amount of taxable

15 income taken into account under sub16 section (a)(1)(A) for any such taxable year

17 shall not exceed the adjusted base period

18 income of such claimant.

19 ‘‘(B) COORDINATION WITH SUBSECTION

20 (a)(4).—The amount of income described in sub21 section (a)(1)(A) which is taken into account in

22 applying subsection (a)(4) shall be such income

23 as reduced under this paragraph.
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1 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

2 purposes of paragraph (3)—

3 ‘‘(A) IN GENERAL.—The term ‘adjusted

4 base period income’ means the average of the

5 inflation-adjusted possession incomes of the cor6 poration for each base period year.

7 ‘‘(B) INFLATION-ADJUSTED POSSESSION

8 INCOME.—For purposes of subparagraph (A),

9 the inflation-adjusted possession income of any

10 corporation for any base period year shall be an

11 amount equal to the sum of—

12 ‘‘(i) the possession income of such

13 corporation for such base period year, plus

14 ‘‘(ii) such possession income multi15 plied by the inflation adjustment percent16 age for such base period year.

17 ‘‘(C) INFLATION ADJUSTMENT PERCENT18 AGE.—For purposes of subparagraph (B), the

19 inflation adjustment percentage for any base

20 period year means the percentage (if any) by

21 which—

22 ‘‘(i) the CPI for 1995, exceeds

23 ‘‘(ii) the CPI for the calendar year in

24 which the base period year for which the

25 determination is being made ends.
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1 For purposes of the preceding sentence, the

2 CPI for any calendar year is the CPI (as de3 fined in section 1(f)(5)) for such year under

4 section 1(f)(4).

5 ‘‘(D) INCREASE IN INFLATION ADJUST6 MENT PERCENTAGE FOR GROWTH DURING BASE

7 YEARS.—The inflation adjustment percentage

8 (determined under subparagraph (C) without

9 regard to this subparagraph) for each of the 5

10 taxable years referred to in paragraph (5)(A)

11 shall be increased by—

12 ‘‘(i) 5 percentage points in the case of

13 a taxable year ending during the 1-year pe14 riod ending on October 13, 1995;

15 ‘‘(ii) 10.25 percentage points in the

16 case of a taxable year ending during the 1-

17 year period ending on October 13, 1994;

18 ‘‘(iii) 15.76 percentage points in the

19 case of a taxable year ending during the 1-

20 year period ending on October 13, 1993;

21 ‘‘(iv) 21.55 percentage points in the

22 case of a taxable year ending during the 1-

23 year period ending on October 13, 1992;

24 and
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1 ‘‘(v) 27.63 percentage points in the

2 case of a taxable year ending during the 1-

3 year period ending on October 13, 1991.

4 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

5 subsection—

6 ‘‘(A) IN GENERAL.—The term ‘base period

7 year’ means each of 3 taxable years which are

8 among the 5 most recent taxable years of the

9 corporation ending before October 14, 1995, de10 termined by disregarding—

11 ‘‘(i) one taxable year for which the

12 corporation had the largest inflation-ad13 justed possession income, and

14 ‘‘(ii) one taxable year for which the

15 corporation had the smallest inflation-ad16 justed possession income.

17 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI18 CANT POSSESSION INCOME THROUGHOUT 5-

19 YEAR PERIOD.—

20 ‘‘(i) IN GENERAL.—If a corporation

21 does not have significant possession income

22 for each of the most recent 5 taxable years

23 ending before October 14, 1995, then, in

24 lieu of applying subparagraph (A), the

25 term ‘base period year’ means only those
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1 taxable years (of such 5 taxable years) for

2 which the corporation has significant pos3 session income; except that, if such cor4 poration has significant possession income

5 for 4 of such 5 taxable years, the rule of

6 subparagraph (A)(ii) shall apply.

7 ‘‘(ii) SPECIAL RULE.—If there is no

8 year (of such 5 taxable years) for which a

9 corporation has significant possession in10 come—

11 ‘‘(I) the term ‘base period year’

12 means the first taxable year ending on

13 or after October 14, 1995, but

14 ‘‘(II) the amount of possession

15 income for such year which is taken

16 into account under paragraph (4)

17 shall be the amount which would be

18 determined if such year were a short

19 taxable year ending on September 30,

20 1995.

21 ‘‘(iii) SIGNIFICANT POSSESSION IN22 COME.—For purposes of this subpara23 graph, the term ‘significant possession in24 come’ means possession income which ex25 ceeds 2 percent of the possession income of
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1 the taxpayer for the taxable year (of the

2 period of 6 taxable years ending with the

3 first taxable year ending on or after Octo4 ber 14, 1995) having the greatest posses5 sion income.

6 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

7 YEAR.—

8 ‘‘(i) IN GENERAL.—At the election of

9 the taxpayer, the term ‘base period year’

10 means—

11 ‘‘(I) only the last taxable year of

12 the corporation ending in calendar

13 year 1992, or

14 ‘‘(II) a deemed taxable year

15 which includes the first ten months of

16 calendar year 1995.

17 ‘‘(ii) BASE PERIOD INCOME FOR

18 1995.—In determining the adjusted base

19 period income of the corporation for the

20 deemed taxable year under clause (i)(II),

21 the possession income shall be annualized

22 and shall be determined without regard to

23 any extraordinary item.

24 ‘‘(iii) ELECTION.—An election under

25 this subparagraph by any possession cor-
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1 poration may be made only for the cor2 poration’s first taxable year beginning

3 after December 31, 1995, for which it is a

4 possession corporation. The rules of sub5 clauses (II) and (III) of subsection

6 (a)(4)(B)(iii) shall apply to the election

7 under this subparagraph.

8 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

9 Rules similar to the rules of subparagraphs (A)

10 and (B) of section 41(f)(3) shall apply for pur11 poses of this subsection.

12 ‘‘(6) POSSESSION INCOME.—For purposes of

13 this subsection, the term ‘possession income’ means,

14 with respect to any possession, the income referred

15 to in subsection (a)(1)(A) determined with respect to

16 that possession. In no event shall possession income

17 be treated as being less than zero.

18 ‘‘(7) SHORT YEARS.—If the current year or a

19 base period year is a short taxable year, the applica20 tion of this subsection shall be made with such

21 annualizations as the Secretary shall prescribe.

22 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES23 SIONS.—

24 ‘‘(A) IN GENERAL.—In the case of an ex25 isting credit claimant with respect to an appli-
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1 cable possession, this section (other than the

2 preceding paragraphs of this subsection) shall

3 apply to such claimant with respect to such ap4 plicable possession for taxable years beginning

5 after December 31, 1995, and before January

6 1, 2006.

7 ‘‘(B) APPLICABLE POSSESSION.—For pur8 poses of this paragraph, the term ‘applicable

9 possession’ means Guam, American Samoa, and

10 the Commonwealth of the Northern Mariana Is11 lands.

12 ‘‘(9) EXISTING CREDIT CLAIMANT.—For pur13 poses of this subsection—

14 ‘‘(A) IN GENERAL.—The term ‘existing

15 credit claimant’ means a corporation—

16 ‘‘(i) which was actively conducting a

17 trade or business in a possession on Octo18 ber 13, 1995, and

19 ‘‘(ii) with respect to which an election

20 under this section is in effect for the cor21 poration’s taxable year which includes Oc22 tober 13, 1995.

23 ‘‘(B) NEW LINES OF BUSINESS PROHIB24 ITED.—If, after October 13, 1995, a corpora25 tion which would (but for this subparagraph) be
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1 an existing credit claimant adds a substantial

2 new line of business, such corporation shall

3 cease to be treated as an existing credit claim4 ant as of the close of the taxable year ending

5 before the date of such addition.

6 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

7 on October 13, 1995, and at all times there8 after, there is in effect with respect to a cor9 poration a binding contract for the acquisition

10 of assets to be used in, or for the sale of assets

11 to be produced from, a trade or business, the

12 corporation shall be treated for purposes of this

13 paragraph as actively conducting such trade or

14 business on October 13, 1995. The preceding

15 sentence shall not apply if such trade or busi16 ness is not actively conducted before January 1,

17 1996.

18 ‘‘(10) SEPARATE APPLICATION TO EACH POS19 SESSION.—In the case of any taxpayer, this sub20 section (and so much of this section as relates to

21 this subsection) shall be applied separately with re22 spect to each possession.’’

23 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO

24 RICO.—
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1 (1) IN GENERAL.—Subpart B of part IV of

2 subchapter A of chapter 1 is amended by adding at

3 the end the following new section:

4 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

5 ‘‘(a) ALLOWANCE OF CREDIT.—

6 ‘‘(1) IN GENERAL.—If a qualified domestic cor7 poration elects the application of this subsection,

8 and if the conditions of both paragraph (1) and

9 paragraph (2) of subsection (b) are satisfied, there

10 shall be allowed as a credit against the tax imposed

11 by this chapter an amount equal to the portion of

12 the tax which is attributable to the taxable income,

13 from sources without the United States, from—

14 ‘‘(A) the active conduct of a trade or busi15 ness within Puerto Rico, or

16 ‘‘(B) the sale or exchange of substantially

17 all of the assets used by the taxpayer in the ac18 tive conduct of such trade or business.

19 In the case of any taxable year beginning after De20 cember 31, 2001, the aggregate amount of taxable

21 income taken into account under the preceding sen22 tence (and in applying subsection (d)) shall not ex23 ceed the adjusted base period income of such cor24 poration, as determined in the same manner as

25 under section 936(j).
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1 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—

2 For purposes of paragraph (1), the term ‘qualified

3 domestic corporation’ means a domestic corpora4 tion—

5 ‘‘(A) which is an existing credit claimant

6 with respect to Puerto Rico, and

7 ‘‘(B) with respect to which section

8 936(a)(4)(B) does not apply for the taxable

9 year.

10 ‘‘(3) SEPARATE APPLICATION.—Section 936

11 shall be applied separately with respect to Puerto

12 Rico for purposes of this section.

13 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—

14 The conditions referred to in subsection (a) are—

15 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

16 the gross income of such domestic corporation for

17 the 3-year period immediately preceding the close of

18 the taxable year (or for such part of such period im19 mediately preceding the close of such taxable year as

20 may be applicable) was derived from sources within

21 a possession (determined without regard to section

22 904(f)).

23 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

24 more of the gross income of such domestic corpora25 tion for such period or such part thereof was derived
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1 from the active conduct of a trade or business within

2 a possession.

3 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

4 TAXES.—The credit provided by subsection (a) shall not

5 be allowed against the tax imposed by—

6 ‘‘(1) section 59A (relating to environmental

7 tax),

8 ‘‘(2) section 531 (relating to the tax on accu9 mulated earnings),

10 ‘‘(3) section 541 (relating to personal holding

11 company tax), or

12 ‘‘(4) section 1351 (relating to recoveries of for13 eign expropriation losses).

14 ‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSI15 NESS INCOME.—The amount of the credit determined

16 under subsection (a) for any taxable year shall not exceed

17 the sum of the following amounts:

18 ‘‘(1) 60 percent of the sum of—

19 ‘‘(A) the aggregate amount of the posses20 sion corporation’s qualified possession wages for

21 such taxable year, plus

22 ‘‘(B) the allocable employee fringe benefit

23 expenses of the possession corporation for such

24 taxable year.

25 ‘‘(2) The sum of—
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1 ‘‘(A) 15 percent of the deprecation allow2 ances for the taxable year with respect to short3 life qualified tangible property,

4 ‘‘(B) 40 percent of the depreciation allow5 ances for the taxable year with respect to me6 dium-life qualified tangible property, and

7 ‘‘(C) 65 percent of the depreciation allow8 ances for the taxable year with respect to long9 life qualified tangible property.

10 ‘‘(3) If the possession corporation does not have

11 an election to use the method described in section

12 936(h)(5)(C)(ii) (relating to profit split) in effect for

13 the taxable year, the amount of the qualified posses14 sion income taxes for the taxable year allocable to

15 nonsheltered income.

16 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

17 this title—

18 ‘‘(1) the provisions of section 936 (including

19 any applicable election thereunder) shall apply in the

20 same manner as if it were a credit under section

21 936(a)(1)(A) for a domestic corporation to which

22 section 936(a)(4)(A) applies (as in effect for taxable

23 years beginning before 1996), and

24 ‘‘(2) a corporation electing the application of

25 this section shall be treated in the same manner as
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1 if it were a corporation electing the application of

2 section 936.

3 ‘‘(f) DEFINITIONS.—For purposes of this section, any

4 term used in this section which is also used in section 936

5 shall have the same meaning given such term by section

6 936.

7 ‘‘(g) APPLICATION OF SECTION.—This section shall

8 apply to taxable years beginning after December 31, 1995,

9 and before January 1, 2006.’’

10 (2) CONFORMING AMENDMENT.—The table of

11 sections for subpart B of part IV of subchapter A

12 of chapter 1 is amended by adding at the end the

13 following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’.

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

15 this section shall apply to taxable years beginning after

16 December 31, 1995.

17 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

18 LOANS USED TO ACQUIRE EMPLOYER SECU19 RITIES.

20 (a) IN GENERAL.—Section 133 (relating to interest

21 on certain loans used to acquire employer securities) is

22 hereby repealed.

23 (b) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (B) of section 291(e)(1) is

2 amended by striking clause (iv) and by redesignating

3 clause (v) as clause (iv).

4 (2) Section 812 is amended by striking sub5 section (g).

6 (3) Paragraph (5) of section 852(b) is amended

7 by striking subparagraph (C).

8 (4) Paragraph (2) of section 4978(b) is amend9 ed by striking subparagraph (A) and all that follows

10 and inserting the following:

11 ‘‘(A) first from qualified securities to

12 which section 1042 applied acquired during the

13 3-year period ending on the date of the disposi14 tion, beginning with the securities first so ac15 quired, and

16 ‘‘(B) then from any other employer securi17 ties.

18 If subsection (d) applies to a disposition, the disposi19 tion shall be treated as made from employer securi20 ties in the opposite order of the preceding sen21 tence.’’.

22 (5)(A) Section 4978B (relating to tax on dis23 position of employer securities to which section 133

24 applied) is hereby repealed.
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1 (B) The table of sections for chapter 43 is

2 amended by striking the item relating to section

3 4978B.

4 (6) Subsection (e) of section 6047 is amended

5 by striking paragraphs (1), (2), and (3) and insert6 ing the following new paragraphs:

7 ‘‘(1) any employer maintaining, or the plan ad8 ministrator (within the meaning of section 414(g))

9 of, an employee stock ownership plan which holds

10 stock with respect to which section 404(k) applies to

11 dividends paid on such stock, or

12 ‘‘(2) both such employer or plan adminis13 trator,’’.

14 (7) Subsection (f) of section 7872 is amended

15 by striking paragraph (12).

16 (8) The table of sections for part III of sub17 chapter B of chapter 1 is amended by striking the

18 item relating to section 133.

19 (c) EFFECTIVE DATE.—

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

21 this section shall apply to loans made after October

22 13, 1995.

23 (2) REFINANCINGS.—The amendments made by

24 this section shall not apply to loans made after Octo25 ber 13, 1995, to refinance securities acquisition
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1 loans (determined without regard to section

2 133(b)(1)(B) of the Internal Revenue Code of 1986,

3 as in effect on the day before the date of the enact4 ment of this Act) made on or before such date or

5 to refinance loans described in this paragraph if—

6 (A) the refinancing loans meet the require7 ments of section 133 of such Code (as so in ef8 fect),

9 (B) immediately after the refinancing the

10 principal amount of the loan resulting from the

11 refinancing does not exceed the principal

12 amount of the refinanced loan (immediately be13 fore the refinancing), and

14 (C) the term of such refinancing loan does

15 not extend beyond the last day of the term of

16 the original securities acquisition loan.

17 For purposes of this paragraph, the term ‘‘securities

18 acquisition loan’’ includes a loan from a corporation

19 to an employee stock ownership plan described in

20 section 133(b)(3) of such Code (as so in effect).
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1 SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN

2 CORPORATIONS TREATED AS UNRELATED

3 BUSINESS TAXABLE INCOME.

4 (a) GENERAL RULE.—Subsection (b) of section 512

5 (relating to modifications) is amended by adding at the

6 end the following new paragraph:

7 ‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE8 RIVED FROM FOREIGN CORPORATIONS.—

9 ‘‘(A) IN GENERAL.—Notwithstanding para10 graph (1), any amount included in gross income

11 under section 951(a)(1)(A) shall be included as

12 an item of gross income derived from an unre13 lated trade or business to the extent the

14 amount so included is attributable to insurance

15 income (as defined in section 953) which, if de16 rived directly by the organization, would be

17 treated as gross income from an unrelated

18 trade or business. There shall be allowed all de19 ductions directly connected with amounts in20 cluded in gross income under the preceding sen21 tence.

22 ‘‘(B) EXCEPTION.—Subparagraph (A)

23 shall not apply to income attributable to a pol24 icy of insurance or reinsurance with respect to

25 which the person (directly or indirectly) insured

26 is—
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1 ‘‘(i) such organization,

2 ‘‘(ii) an affiliate of such organization

3 which is exempt from tax under section

4 501(a), or

5 ‘‘(iii) a director or officer of, or an in6 dividual who (directly or indirectly) per7 forms services for, such organization or af8 filiate but only if the insurance covers pri9 marily risks associated with the perform10 ance of services in connection with such or11 ganization or affiliate.

12 For purposes of this subparagraph, the deter13 mination as to whether an entity is an affiliate

14 of an organization shall be made under rules

15 similar to the rules of section 168(h)(4)(B).

16 ‘‘(C) REGULATIONS.—The Secretary shall

17 prescribe such regulations as may be necessary

18 or appropriate to carry out the purposes of this

19 paragraph, including regulations for the appli20 cation of this paragraph in the case of income

21 paid through 1 or more entities or between 2 or

22 more chains of entities.’’

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

24 this section shall apply to amounts included in gross in-
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1 come in any taxable year beginning after December 31,

2 1995.

3 SEC. 1604. DEPRECIATION UNDER INCOME FORECAST

4 METHOD.

5 (a) GENERAL RULE.—Section 167 (relating to depre6 ciation) is amended by redesignating subsection (g) as

7 subsection (h) and by inserting after subsection (f) the

8 following new subsection:

9 ‘‘(g) DEPRECIATION UNDER INCOME FORECAST

10 METHOD.—

11 ‘‘(1) IN GENERAL.—If the depreciation deduc12 tion allowable under this section to any taxpayer

13 with respect to any property is determined under the

14 income forecast method or any similar method—

15 ‘‘(A) the income from the property to be

16 taken into account in determining the deprecia17 tion deduction under such method shall be

18 equal to the amount of income earned in con19 nection with the property before the close of the

20 10th taxable year following the taxable year in

21 which the property was placed in service,

22 ‘‘(B) the adjusted basis of the property

23 shall only include amounts with respect to

24 which the requirements of section 461(h) are

25 satisfied,
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1 ‘‘(C) the depreciation deduction under such

2 method for the 10th taxable year beginning

3 after the taxable year in which the property was

4 placed in service shall be equal to the adjusted

5 basis of such property as of the beginning of

6 such 10th taxable year, and

7 ‘‘(D) such taxpayer shall pay (or be enti8 tled to receive) interest computed under the

9 look-back method of paragraph (2) for any re10 computation year.

11 ‘‘(2) LOOK-BACK METHOD.—The interest com12 puted under the look-back method of this paragraph

13 for any recomputation year shall be determined by—

14 ‘‘(A) first determining the depreciation de15 ductions under this section with respect to such

16 property which would have been allowable for

17 prior taxable years if the determination of the

18 amounts so allowable had been made on the

19 basis of the sum of the following (instead of the

20 estimated income from such property)—

21 ‘‘(i) the actual income earned in con22 nection with such property for periods be23 fore the close of the recomputation year,

24 and
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1 ‘‘(ii) an estimate of the future income

2 to be earned in connection with such prop3 erty for periods after the recomputation

4 year and before the close of the 10th tax5 able year following the taxable year in

6 which the property was placed in service,

7 ‘‘(B) second, determining (solely for pur8 poses of computing such interest) the overpay9 ment or underpayment of tax for each such

10 prior taxable year which would result solely

11 from the application of subparagraph (A), and

12 ‘‘(C) then using the adjusted overpayment

13 rate (as defined in section 460(b)(7)),

14 compounded daily, on the overpayment or

15 underpayment determined under subparagraph

16 (B).

17 For purposes of the preceding sentence, any cost in18 curred after the property is placed in service (which

19 is not treated as a separate property under para20 graph (5)) shall be taken into account by discount21 ing (using the Federal mid-term rate determined

22 under section 1274(d) as of the time such cost is in23 curred) such cost to its value as of the date the

24 property is placed in service. The taxpayer may elect
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1 with respect to any property to have the preceding

2 sentence not apply to such property.

3 ‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—

4 Paragraph (1)(D) shall not apply with respect to

5 any property which, when placed in service by the

6 taxpayer, had a basis of $100,000 or less.

7 ‘‘(4) RECOMPUTATION YEAR.—For purposes of

8 this subsection, except as provided in regulations,

9 the term ‘recomputation year’ means, with respect to

10 any property, the 3d and the 10th taxable years be11 ginning after the taxable year in which the property

12 was placed in service, unless the actual income

13 earned in connection with the property for the pe14 riod before the close of such 3d or 10th taxable year

15 is within 10 percent of the income earned in connec16 tion with the property for such period which was

17 taken into account under paragraph (1)(A).

18 ‘‘(5) SPECIAL RULES.—

19 ‘‘(A) CERTAIN COSTS TREATED AS SEPA20 RATE PROPERTY.—For purposes of this sub21 section, the following costs shall be treated as

22 separate properties:

23 ‘‘(i) Any costs incurred with respect

24 to any property after the 10th taxable year
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1 beginning after the taxable year in which

2 the property was placed in service.

3 ‘‘(ii) Any costs incurred after the

4 property is placed in service and before the

5 close of such 10th taxable year if such

6 costs are significant and give rise to a sig7 nificant increase in the income from the

8 property which was not included in the es9 timated income from the property.

10 ‘‘(B) SYNDICATION INCOME FROM TELE11 VISION SERIES.—In the case of property which

12 is an episode in a television series, income from

13 syndicating such series shall not be required to

14 be taken into account under this subsection be15 fore the earlier of—

16 ‘‘(i) the 4th taxable year beginning

17 after the date the first episode in such se18 ries is placed in service, or

19 ‘‘(ii) the earliest taxable year in which

20 the taxpayer has an arrangement relating

21 to the future syndication of such series.

22 ‘‘(C) SPECIAL RULES FOR FINANCIAL EX23 PLOITATION OF CHARACTERS, ETC.—For pur24 poses of this subsection, in the case of television

25 and motion picture films, the income from the
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1 property shall include income from the exploi2 tation of characters, designs, scripts, scores,

3 and other incidental income associated with

4 such films, but only to the extent that such in5 come is earned in connection with the ultimate

6 use of such items by, or the ultimate sale of

7 merchandise to, persons who are not related

8 persons (within the meaning of section 267(b))

9 to the taxpayer.

10 ‘‘(D) COLLECTION OF INTEREST.—For

11 purposes of subtitle F (other than sections

12 6654 and 6655), any interest required to be

13 paid by the taxpayer under paragraph (1) for

14 any recomputation year shall be treated as an

15 increase in the tax imposed by this chapter for

16 such year.

17 ‘‘(E) DETERMINATIONS.—For purposes of

18 paragraph (2), determinations of the amount of

19 income earned in connection with any property

20 shall be made in the same manner as for pur21 poses of applying the income forecast method;

22 except that any income from the disposition of

23 such property shall be taken into account.

24 ‘‘(F) TREATMENT OF PASS-THRU ENTI25 TIES.—Rules similar to the rules of section
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1 460(b)(4) shall apply for purposes of this sub2 section.’’

3 (b) EFFECTIVE DATE.—

4 (1) IN GENERAL.—The amendment made by

5 subsection (a) shall apply to property placed in serv6 ice after September 13, 1995.

7 (2) BINDING CONTRACTS.—The amendment

8 made by subsection (a) shall not apply to any prop9 erty produced or acquired by the taxpayer pursuant

10 to a written contract which was binding on Septem11 ber 13, 1995, and at all times thereafter before such

12 production or acquisition.

13 SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES

14 AND FOR DAMAGES NOT ATTRIBUTABLE TO

15 PHYSICAL INJURIES OR SICKNESS.

16 (a) IN GENERAL.—Paragraph (2) of section 104(a)

17 (relating to compensation for injuries or sickness) is

18 amended to read as follows:

19 ‘‘(2) the amount of any damages (other than

20 punitive damages) received (whether by suit or

21 agreement and whether as lump sums or as periodic

22 payments) on account of personal physical injuries

23 or physical sickness;’’.

24 (b) EMOTIONAL DISTRESS AS SUCH TREATED AS

25 NOT PHYSICAL INJURY OR PHYSICAL SICKNESS.—Sec-
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1 tion 104(a) is amended by striking the last sentence and

2 inserting the following new sentence: ‘‘For purposes of

3 paragraph (2), emotional distress shall not be treated as

4 a physical injury or physical sickness. The preceding sen5 tence shall not apply to an amount of damages not in ex6 cess of the amount paid for medical care (described in sub7 paragraph (A) or (B) of section 213(d)(1)) attributable

8 to emotional distress.’’.

9 (c) SPECIAL RULE FOR STATES IN WHICH ONLY PU10 NITIVE DAMAGES MAY BE AWARDED IN WRONGFUL

11 DEATH ACTIONS.—Section 104 is amended by redesignat12 ing subsection (c) as subsection (d) and by inserting after

13 subsection (b) the following new subsection:

14 ‘‘(c) RESTRICTION ON PUNITIVE DAMAGES NOT TO

15 APPLY IN CERTAIN CASES.—The restriction on the appli16 cation of subsection (a)(2) to punitive damages shall not

17 apply to punitive damages awarded in a civil action—

18 ‘‘(1) which is a wrongful death action, and

19 ‘‘(2) with respect to which applicable State law

20 (as in effect on September 13, 1995 and without re21 gard to any modification after such date) provides,

22 or has been construed to provide by a court of com23 petent jurisdiction pursuant to a decision issued on

24 or before September 13, 1995, that only punitive

25 damages may be awarded in such an action.
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1 This subsection shall cease to apply to any civil action filed

2 on or after the first date on which the applicable State

3 law ceases to provide (or is no longer construed to provide)

4 the treatment described in paragraph (2).’’

5 (d) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section

8 shall apply to amounts received after June 30, 1996,

9 in taxable years ending after such date.

10 (2) EXCEPTION.—The amendments made by

11 this section shall not apply to any amount received

12 under a written binding agreement, court decree, or

13 mediation award in effect on (or issued on or before)

14 September 13, 1995.

15 SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR16 CHASERS OF DIESEL-POWERED AUTO17 MOBILES AND LIGHT TRUCKS.

18 (a) IN GENERAL.—Section 6427 (relating to fuels

19 not used for taxable purposes) is amended by striking sub20 section (g).

21 (b) CONFORMING AMENDMENTS.—

22 (1) Paragraph (3) of section 34(a) is amended

23 to read as follows:

24 ‘‘(3) under section 6427 with respect to fuels

25 used for nontaxable purposes or resold during the
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1 taxable year (determined without regard to section

2 6427(k)).’’.

3 (2) Paragraphs (1) and (2)(A) of section

4 6427(i) are each amended—

5 (A) by striking ‘‘(g),’’, and

6 (B) by striking ‘‘(or a qualified diesel pow7 ered highway vehicle purchased)’’ each place it

8 appears.

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

10 this section shall apply to vehicles purchased after the date

11 of the enactment of this Act.

12 Subtitle G—Technical Corrections

13 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

14 For purposes of applying the amendments made by

15 any subtitle of this title other than this subtitle, the provi16 sions of this subtitle shall be treated as having been en17 acted immediately before the provisions of such other sub18 titles.

19 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC20 ONCILIATION ACT OF 1990.

21 (a) AMENDMENTS RELATED TO SUBTITLE A.—

22 (1) Subparagraph (B) of section 59(j)(3) is

23 amended by striking ‘‘section 1(i)(3)(B)’’ and insert24 ing ‘‘section 1(g)(3)(B)’’.
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1 (2) Clause (i) of section 151(d)(3)(C) is amend2 ed by striking ‘‘joint of a return’’ and inserting

3 ‘‘joint return’’.

4 (b) AMENDMENTS RELATED TO SUBTITLE B.—

5 (1) Paragraph (1) of section 11212(e) of the

6 Revenue Reconciliation Act of 1990 is amended by

7 striking ‘‘Paragraph (1) of section 6724(d)’’ and in8 serting ‘‘Subparagraph (B) of section 6724(d)(1)’’.

9 (2)(A) Subparagraph (B) of section 4093(c)(2),

10 as in effect before the amendments made by the

11 Revenue Reconciliation Act of 1993, is amended by

12 inserting before the period ‘‘unless such fuel is sold

13 for exclusive use by a State or any political subdivi14 sion thereof’’.

15 (B) Paragraph (4) of section 6427(l), as in ef16 fect before the amendments made by the Revenue

17 Reconciliation Act of 1993, is amended by inserting

18 before the period ‘‘unless such fuel was used by a

19 State or any political subdivision thereof’’.

20 (3) Paragraph (1) of section 6416(b) is amend21 ed by striking ‘‘chapter 32 or by section 4051’’ and

22 inserting ‘‘chapter 31 or 32’’.

23 (4) Section 7012 is amended—
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1 (A) by striking ‘‘production or importation

2 of gasoline’’ in paragraph (3) and inserting

3 ‘‘taxes on gasoline and diesel fuel’’, and

4 (B) by striking paragraph (4) and redesig5 nating paragraphs (5) and (6) as paragraphs

6 (4) and (5), respectively.

7 (5) Subsection (c) of section 5041 is amended

8 by striking paragraph (6) and by inserting the fol9 lowing new paragraphs:

10 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

11 ‘‘(A) wine produced by any person would

12 be eligible for any credit under paragraph (1)

13 if removed by such person during the calendar

14 year,

15 ‘‘(B) wine produced by such person is re16 moved during such calendar year by any other

17 person (hereafter in this paragraph referred to

18 as the ‘transferee’) to whom such wine was

19 transferred in bond and who is liable for the tax

20 imposed by this section with respect to such

21 wine, and

22 ‘‘(C) such producer holds title to such wine

23 at the time of its removal and provides to the

24 transferee such information as is necessary to
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1 properly determine the transferee’s credit under

2 this paragraph,

3 then, the transferee (and not the producer) shall be

4 allowed the credit under paragraph (1) which would

5 be allowed to the producer if the wine removed by

6 the transferee had been removed by the producer on

7 that date.

8 ‘‘(7) REGULATIONS.—The Secretary may pre9 scribe such regulations as may be necessary to carry

10 out the purposes of this subsection, including regula11 tions—

12 ‘‘(A) to prevent the credit provided in this

13 subsection from benefiting any person who pro14 duces more than 250,000 wine gallons during a

15 calendar year, and

16 ‘‘(B) to assure proper reduction of such

17 credit for persons producing more than 150,000

18 wine gallons of wine during a calendar year.’’

19 (6) Paragraph (3) of section 5061(b) is amend20 ed to read as follows:

21 ‘‘(3) section 5041(f),’’.

22 (7) Section 5354 is amended by inserting ‘‘(tak23 ing into account the appropriate amount of credit

24 with respect to such wine under section 5041(c))’’

25 after ‘‘any one time’’.
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1 (c) AMENDMENTS RELATED TO SUBTITLE C.—

2 (1) Paragraph (4) of section 56(g) is amended

3 by redesignating subparagraphs (I) and (J) as sub4 paragraphs (H) and (I), respectively.

5 (2) Subparagraph (B) of section 6724(d)(1) is

6 amended—

7 (A) by striking ‘‘or’’ at the end of clause

8 (xii), and

9 (B) by striking the period at the end of

10 clause (xiii) and inserting ‘‘, or’’.

11 (3) Subsection (g) of section 6302 is amended

12 by inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

13 (4) The earnings and profits of any insurance

14 company to which section 11305(c)(3) of the Reve15 nue Reconciliation Act of 1990 applies shall be de16 termined without regard to any deduction allowed

17 under such section; except that, for purposes of ap18 plying sections 56 and 902, and subpart F of part

19 III of subchapter N of chapter 1 of the Internal

20 Revenue Code of 1986, such deduction shall be

21 taken into account.

22 (5) Subparagraph (D) of section 6038A(e)(4) is

23 amended—
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1 (A) by striking ‘‘any transaction to which

2 the summons relates’’ and inserting ‘‘any af3 fected taxable year’’, and

4 (B) by adding at the end thereof the fol5 lowing new sentence: ‘‘For purposes of this sub6 paragraph, the term ‘affected taxable year’

7 means any taxable year if the determination of

8 the amount of tax imposed for such taxable

9 year is affected by the treatment of the trans10 action to which the summons relates.’’.

11 (6) Subparagraph (A) of section 6621(c)(2) is

12 amended by adding at the end thereof the following

13 new flush sentence:

14 ‘‘The preceding sentence shall be applied with15 out regard to any such letter or notice which is

16 withdrawn by the Secretary.’’.

17 (7) Clause (i) of section 6621(c)(2)(B) is

18 amended by striking ‘‘this subtitle’’ and inserting

19 ‘‘this title’’.

20 (d) AMENDMENTS RELATED TO SUBTITLE D.—

21 (1) Notwithstanding section 11402(c) of the

22 Revenue Reconciliation Act of 1990, the amendment

23 made by section 11402(b)(1) of such Act shall apply

24 to taxable years ending after December 31, 1989.
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1 (2) Clause (ii) of section 143(m)(4)(C) is

2 amended—

3 (A) by striking ‘‘any month of the 10-year

4 period’’ and inserting ‘‘any year of the 4-year

5 period’’,

6 (B) by striking ‘‘succeeding months’’ and

7 inserting ‘‘succeeding years’’, and

8 (C) by striking ‘‘over the remainder of

9 such period (or, if lesser, 5 years)’’ and insert10 ing ‘‘to zero over the succeeding 5 years’’.

11 (e) AMENDMENTS RELATED TO SUBTITLE E.—

12 (1)(A) Clause (ii) of section 56(d)(1)(B) is

13 amended to read as follows:

14 ‘‘(ii) appropriate adjustments in the

15 application of section 172(b)(2) shall be

16 made to take into account the limitation of

17 subparagraph (A).’’

18 (B) For purposes of applying sections 56(g)(1)

19 and 56(g)(3) of the Internal Revenue Code of 1986

20 with respect to taxable years beginning in 1991 and

21 1992, the reference in such sections to the alter22 native tax net operating loss deduction shall be

23 treated as including a reference to the deduction

24 under section 56(h) of such Code as in effect before
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1 the amendments made by section 1915 of the En2 ergy Policy Act of 1992.

3 (2) Clause (i) of section 613A(c)(3)(A) is

4 amended by striking ‘‘the table contained in’’.

5 (3) Section 6501 is amended—

6 (A) by striking subsection (m) (relating to

7 deficiency attributable to election under section

8 44B) and by redesignating subsections (n) and

9 (o) as subsections (m) and (n), respectively, and

10 (B) by striking ‘‘section 40(f) or 51(j)’’ in

11 subsection (m) (as redesignated by subpara12 graph (A)) and inserting ‘‘section 40(f), 43, or

13 51(j)’’.

14 (4) Subparagraph (C) of section 38(c)(2) (as in

15 effect on the day before the date of the enactment

16 of the Revenue Reconciliation Act of 1990) is

17 amended by inserting before the period at the end

18 of the first sentence the following: ‘‘and without re19 gard to the deduction under section 56(h)’’.

20 (5) The amendment made by section

21 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

22 shall apply to taxable years beginning after Decem23 ber 31, 1990.

24 (f) AMENDMENTS RELATED TO SUBTITLE F.—
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1 (1)(A) Section 2701(a)(3) is amended by add2 ing at the end thereof the following new subpara3 graph:

4 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

5 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

6 case of an applicable retained interest which is

7 described in subparagraph (B)(i) but not sub8 paragraph (B)(ii), the value of the distribution

9 right shall be determined without regard to this

10 section.’’

11 (B) Section 2701(a)(3)(B) is amended by in12 serting ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the head13 ing thereof.

14 (C) Sections 2701 (d)(1) and (d)(4) are each

15 amended by striking ‘‘subsection (a)(3)(B)’’ and in16 serting ‘‘subsection (a)(3) (B) or (C)’’.

17 (2) Clause (i) of section 2701(a)(4)(B) is

18 amended by inserting ‘‘(or, to the extent provided in

19 regulations, the rights as to either income or cap20 ital)’’ after ‘‘income and capital’’.

21 (3)(A) Section 2701(b)(2) is amended by add22 ing at the end thereof the following new subpara23 graph:

24 ‘‘(C) APPLICABLE FAMILY MEMBER.—For

25 purposes of this subsection, the term ‘applicable
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1 family member’ includes any lineal descendant

2 of any parent of the transferor or the transfer3 or’s spouse.’’

4 (B) Section 2701(e)(3) is amended—

5 (i) by striking subparagraph (B), and

6 (ii) by striking so much of paragraph (3)

7 as precedes ‘‘shall be treated as holding’’ and

8 inserting:

9 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS

10 AND TRANSFERS.—An individual’’.

11 (C) Section 2704(c)(3) is amended by striking

12 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

13 2701(e)(3)’’.

14 (4) Clause (i) of section 2701(c)(1)(B) is

15 amended to read as follows:

16 ‘‘(i) a right to distributions with re17 spect to any interest which is junior to the

18 rights of the transferred interest,’’.

19 (5)(A) Clause (i) of section 2701(c)(3)(C) is

20 amended to read as follows:

21 ‘‘(i) IN GENERAL.—Payments under

22 any interest held by a transferor which

23 (without regard to this subparagraph) are

24 qualified payments shall be treated as

25 qualified payments unless the transferor
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1 elects not to treat such payments as quali2 fied payments. Payments described in the

3 preceding sentence which are held by an

4 applicable family member shall be treated

5 as qualified payments only if such member

6 elects to treat such payments as qualified

7 payments.’’

8 (B) The first sentence of section

9 2701(c)(3)(C)(ii) is amended to read as follows: ‘‘A

10 transferor or applicable family member holding any

11 distribution right which (without regard to this sub12 paragraph) is not a qualified payment may elect to

13 treat such right as a qualified payment, to be paid

14 in the amounts and at the times specified in such

15 election.’’.

16 (C) The time for making an election under the

17 second sentence of section 2701(c)(3)(C)(i) of the

18 Internal Revenue Code of 1986 (as amended by sub19 paragraph (A)) shall not expire before the due date

20 (including extensions) for filing the transferor’s re21 turn of the tax imposed by section 2501 of such

22 Code for the first calendar year ending after the

23 date of enactment.

24 (6) Section 2701(d)(3)(A)(iii) is amended by

25 striking ‘‘the period ending on the date of’’.
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1 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

2 amended by inserting ‘‘or the exclusion under sec3 tion 2503(b),’’ after ‘‘section 2523,’’.

4 (8) Section 2701(e)(5) is amended—

5 (A) by striking ‘‘such contribution to cap6 ital or such redemption, recapitalization, or

7 other change’’ in subparagraph (A) and insert8 ing ‘‘such transaction’’, and

9 (B) by striking ‘‘the transfer’’ in subpara10 graph (B) and inserting ‘‘such transaction’’.

11 (9) Section 2701(d)(4) is amended by adding at

12 the end thereof the following new subparagraph:

13 ‘‘(C) TRANSFER TO TRANSFERORS.—In

14 the case of a taxable event described in para15 graph (3)(A)(ii) involving a transfer of an ap16 plicable retained interest from an applicable

17 family member to a transferor, this subsection

18 shall continue to apply to the transferor during

19 any period the transferor holds such interest.’’

20 (10) Section 2701(e)(6) is amended by insert21 ing ‘‘or to reflect the application of subsection (d)’’

22 before the period at the end thereof.

23 (11)(A) Section 2702(a)(3)(A) is amended—

24 (i) by striking ‘‘to the extent’’ and insert25 ing ‘‘if’’ in clause (i),
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1 (ii) by striking ‘‘or’’ at the end of clause

2 (i),

3 (iii) by striking the period at the end of

4 clause (ii) and inserting ‘‘, or’’, and

5 (iv) by adding at the end thereof the fol6 lowing new clause:

7 ‘‘(iii) to the extent that regulations

8 provide that such transfer is not inconsist9 ent with the purposes of this section.’’

10 (B)(i) Section 2702(a)(3) is amended by strik11 ing ‘‘incomplete transfer’’ each place it appears and

12 inserting ‘‘incomplete gift’’.

13 (ii) The heading for section 2702(a)(3)(B) is

14 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

15 inserting ‘‘INCOMPLETE GIFT’’.

16 (g) AMENDMENTS RELATED TO SUBTITLE G.—

17 (1)(A) Subsection (a) of section 1248 is

18 amended—

19 (i) by striking ‘‘, or if a United States per20 son receives a distribution from a foreign cor21 poration which, under section 302 or 331, is

22 treated as an exchange of stock’’ in paragraph

23 (1), and

24 (ii) by adding at the end thereof the follow25 ing new sentence: ‘‘For purposes of this section,
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1 a United States person shall be treated as hav2 ing sold or exchanged any stock if, under any

3 provision of this subtitle, such person is treated

4 as realizing gain from the sale or exchange of

5 such stock.’’.

6 (B) Paragraph (1) of section 1248(e) is amend7 ed by striking ‘‘, or receives a distribution from a

8 domestic corporation which, under section 302 or

9 331, is treated as an exchange of stock’’.

10 (C) Subparagraph (B) of section 1248(f)(1) is

11 amended by striking ‘‘or 361(c)(1)’’ and inserting

12 ‘‘355(c)(1), or 361(c)(1)’’.

13 (D) Paragraph (1) of section 1248(i) is amend14 ed to read as follows:

15 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

16 percent corporate shareholder of a foreign corpora17 tion exchanges stock of the 10-percent corporate

18 shareholder for stock of the foreign corporation,

19 such 10-percent corporate shareholder shall recog20 nize gain in the same manner as if the stock of the

21 foreign corporation received in such exchange had

22 been—

23 ‘‘(A) issued to the 10-percent corporate

24 shareholder, and
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1 ‘‘(B) then distributed by the 10-percent

2 corporate shareholder to such shareholder in re3 demption or liquidation (whichever is appro4 priate).

5 The amount of gain recognized by such 10-percent

6 corporate shareholder under the preceding sentence

7 shall not exceed the amount treated as a dividend

8 under this section.’’

9 (2) Section 897 is amended by striking sub10 section (f).

11 (3) Paragraph (13) of section 4975(d) is

12 amended by striking ‘‘section 408(b)’’ and inserting

13 ‘‘section 408(b)(12)’’.

14 (4) Clause (iii) of section 56(g)(4)(D) is amend15 ed by inserting ‘‘, but only with respect to taxable

16 years beginning after December 31, 1989’’ before

17 the period at the end thereof.

18 (5)(A) Paragraph (11) of section 11701(a) of

19 the Revenue Reconciliation Act of 1990 (and the

20 amendment made by such paragraph) are hereby re21 pealed, and section 7108(r)(2) of the Revenue Rec22 onciliation Act of 1989 shall be applied as if such

23 paragraph (and amendment) had never been en24 acted.
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1 (B) Subparagraph (A) shall not apply to any

2 building if the owner of such building establishes to

3 the satisfaction of the Secretary of the Treasury or

4 his delegate that such owner reasonably relied on the

5 amendment made by such paragraph (11).

6 (h) AMENDMENTS RELATED TO SUBTITLE H.—

7 (1)(A) Clause (vi) of section 168(e)(3)(B) is

8 amended by striking ‘‘or’’ at the end of subclause

9 (I), by striking the period at the end of subclause

10 (II) and inserting ‘‘, or’’, and by adding at the end

11 thereof the following new subclause:

12 ‘‘(III) is described in section

13 48(l)(3)(A)(ix) (as in effect on the

14 day before the date of the enactment

15 of the Revenue Reconciliation Act of

16 1990).’’

17 (B) Subparagraph (B) of section 168(e)(3) (re18 lating to 5-year property) is amended by adding at

19 the end the following flush sentence:

20 ‘‘Nothing in any provision of law shall be con21 strued to treat property as not being described

22 in clause (vi)(I) (or the corresponding provi23 sions of prior law) by reason of being public

24 utility property (within the meaning of section

25 48(a)(3)).’’
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1 (C) Subparagraph (K) of section 168(g)(4) is

2 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

3 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

4 day before the date of the enactment of the Revenue

5 Reconciliation Act of 1990)’’.

6 (2) Clause (ii) of section 172(b)(1)(E) is

7 amended by striking ‘‘subsection (m)’’ and inserting

8 ‘‘subsection (h)’’.

9 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

10 and 832(b)(5)(D)(ii)(II) are each amended by strik11 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

12 (4) Subparagraph (A) of section 243(b)(3) is

13 amended by inserting ‘‘of’’ after ‘‘In the case’’.

14 (5) The subsection heading for subsection (a) of

15 section 280F is amended by striking ‘‘INVESTMENT

16 TAX CREDIT AND’’.

17 (6) Clause (i) of section 1504(c)(2)(B) is

18 amended by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

19 (7) Paragraph (3) of section 341(f) is amended

20 by striking ‘‘351, 361, 371(a), or 374(a)’’ and in21 serting ‘‘351, or 361’’.

22 (8) Paragraph (2) of section 243(b) is amended

23 to read as follows:

24 ‘‘(2) AFFILIATED GROUP.—For purposes of this

25 subsection:
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1 ‘‘(A) IN GENERAL.—The term ‘affiliated

2 group’ has the meaning given such term by sec3 tion 1504(a), except that for such purposes sec4 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

5 not apply.

6 ‘‘(B) GROUP MUST BE CONSISTENT IN

7 FOREIGN TAX TREATMENT.—The requirements

8 of paragraph (1)(A) shall not be treated as

9 being met with respect to any dividend received

10 by a corporation if, for any taxable year which

11 includes the day on which such dividend is re12 ceived—

13 ‘‘(i) 1 or more members of the affili14 ated group referred to in paragraph (1)(A)

15 choose to any extent to take the benefits of

16 section 901, and

17 ‘‘(ii) 1 or more other members of such

18 group claim to any extent a deduction for

19 taxes otherwise creditable under section

20 901.’’

21 (9) The amendment made by section

22 11813(b)(17) of the Revenue Reconciliation Act of

23 1990 shall be applied as if the material stricken by

24 such amendment included the closing parenthesis

25 after ‘‘section 48(a)(5)’’.
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1 (10) Paragraph (1) of section 179(d) is amend2 ed by striking ‘‘in a trade or business’’ and inserting

3 ‘‘a trade or business’’.

4 (11) Subparagraph (E) of section 50(a)(2) is

5 amended by striking ‘‘section 48(a)(5)(A)’’ and in6 serting ‘‘section 48(a)(5)’’.

7 (12) The amendment made by section

8 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

9 of 1990 shall be applied as if it struck ‘‘Section

10 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

11 (13) Subparagraph (B) of section 424(c)(3) is

12 amended by striking ‘‘a qualified stock option, an in13 centive stock option, an option granted under an em14 ployee stock purchase plan, or a restricted stock op15 tion’’ and inserting ‘‘an incentive stock option or an

16 option granted under an employee stock purchase

17 plan’’.

18 (14) Subparagraph (E) of section 1367(a)(2) is

19 amended by striking ‘‘section 613A(c)(13)(B)’’ and

20 inserting ‘‘section 613A(c)(11)(B)’’.

21 (15) Subparagraph (B) of section 460(e)(6) is

22 amended by striking ‘‘section 167(k)’’ and inserting

23 ‘‘section 168(e)(2)(A)(ii)’’.
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1 (16) Subparagraph (C) of section 172(h)(4) is

2 amended by striking ‘‘subsection (b)(1)(M)’’ and in3 serting ‘‘subsection (b)(1)(E)’’.

4 (17) Section 6503 is amended—

5 (A) by redesignating the subsection relat6 ing to extension in case of certain summonses

7 as subsection (j), and

8 (B) by redesignating the subsection relat9 ing to cross references as subsection (k).

10 (18) Paragraph (4) of section 1250(e) is hereby

11 repealed.

12 (i) EFFECTIVE DATE.—Except as otherwise expressly

13 provided—

14 (1) the amendments made by this section shall

15 be treated as amendments to the Internal Revenue

16 Code of 1986 as amended by the Revenue Reconcili17 ation Act of 1993; and

18 (2) any amendment made by this section shall

19 apply to periods before the date of the enactment of

20 this section in the same manner as if it had been in21 cluded in the provision of the Revenue Reconciliation

22 Act of 1990 to which such amendment relates.
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1 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC2 ONCILIATION ACT OF 1993.

3 (a) AMENDMENT RELATED TO SECTION 13114.—

4 Paragraph (2) of section 1044(c) is amended to read as

5 follows:

6 ‘‘(2) PURCHASE.—The taxpayer shall be consid7 ered to have purchased any property if, but for sub8 section (d), the unadjusted basis of such property

9 would be its cost within the meaning of section

10 1012.’’

11 (b) AMENDMENTS RELATED TO SECTION 13142.—

12 (1) Subparagraph (B) of section 13142(b)(6) of

13 the Revenue Reconciliation Act of 1993 is amended

14 to read as follows:

15 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU16 THORITY, AND PROHIBITED DISCRIMINATION.—

17 The amendments made by paragraphs (2), (3),

18 and (4) shall take effect on the date of the en19 actment of this Act.’’

20 (2) Subparagraph (C) of section 13142(b)(6) of

21 such Act is amended by striking ‘‘paragraph (2)’’

22 and inserting ‘‘paragraph (5)’’.

23 (c) AMENDMENT RELATED TO SECTION 13161.—

24 (1) IN GENERAL.—Subsection (e) of section

25 4001 (relating to inflation adjustment) is amended

26 to read as follows:
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1 ‘‘(e) INFLATION ADJUSTMENT.—

2 ‘‘(1) IN GENERAL.—The $30,000 amount in

3 subsection (a) and section 4003(a) shall be increased

4 by an amount equal to—

5 ‘‘(A) $30,000, multiplied by

6 ‘‘(B) the cost-of-living adjustment under

7 section 1(f)(3) for the calendar year in which

8 the vehicle is sold, determined by substituting

9 ‘calendar year 1990’ for ‘calendar year 1992’ in

10 subparagraph (B) thereof.

11 ‘‘(2) ROUNDING.—If any amount as adjusted

12 under paragraph (1) is not a multiple of $2,000,

13 such amount shall be rounded to the next lowest

14 multiple of $2,000.’’

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect on the date of the

17 enactment of this Act.

18 (d) AMENDMENT RELATED TO SECTION 13201.—

19 Clause (ii) of section 135(b)(2)(B) is amended by insert20 ing before the period at the end thereof the following: ‘‘,

21 determined by substituting ‘calendar year 1989’ for ‘cal22 endar year 1992’ in subparagraph (B) thereof’’.

23 (e) AMENDMENTS RELATED TO SECTION 13203.—

24 Subsection (a) of section 59 is amended—
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1 (1) by striking ‘‘the amount determined under

2 section 55(b)(1)(A)’’ in paragraph (1)(A) and

3 (2)(A)(i) and inserting ‘‘the pre-credit tentative min4 imum tax’’,

5 (2) by striking ‘‘specified in section

6 55(b)(1)(A)’’ in paragraph (1)(C) and inserting

7 ‘‘specified in subparagraph (A)(i) or (B)(i) of section

8 55(b)(1) (whichever applies)’’,

9 (3) by striking ‘‘which would be determined

10 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

11 and inserting ‘‘which would be the pre-credit ten12 tative minimum tax’’, and

13 (4) by adding at the end thereof the following

14 new paragraph:

15 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

16 For purposes of this subsection, the term ‘pre-credit

17 tentative minimum tax’ means—

18 ‘‘(A) in the case of a taxpayer other than

19 a corporation, the amount determined under the

20 first sentence of section 55(b)(1)(A)(i), or

21 ‘‘(B) in the case of a corporation, the

22 amount determined under section

23 55(b)(1)(B)(i).’’

24 (f) AMENDMENT RELATED TO SECTION 13221.—

25 Sections 1201(a) and 1561(a) are each amended by strik-
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1 ing ‘‘last sentence’’ each place it appears and inserting

2 ‘‘last 2 sentences’’.

3 (g) AMENDMENTS RELATED TO SECTION 13222.—

4 (1) Subparagraph (B) of section 6033(e)(1) is

5 amended by adding at the end thereof the following

6 new clause:

7 ‘‘(iii) COORDINATION WITH SECTION

8 527(f).—This subsection shall not apply to

9 any amount on which tax is imposed by

10 reason of section 527(f).’’.

11 (2) Clause (i) of section 6033(e)(1)(B) is

12 amended by striking ‘‘this subtitle’’ and inserting

13 ‘‘section 501’’.

14 (h) AMENDMENT RELATED TO SECTION 13225.—

15 Paragraph (3) of section 6655(g) is amended by striking

16 all that follows ‘‘ ‘3rd month’ ’’ in the sentence following

17 subparagraph (C) and inserting ‘‘, subsection (e)(2)(A)

18 shall be applied by substituting ‘2 months’ for ‘3 months’

19 in clause (i)(I), the election under clause (i) of subsection

20 (e)(2)(C) may be made separately for each installment,

21 and clause (ii) of subsection (e)(2)(C) shall not apply.’’.

22 (i) AMENDMENTS RELATED TO SECTION 13231.—

23 (1) Subparagraph (G) of section 904(d)(3) is

24 amended by striking ‘‘section 951(a)(1)(B)’’ and in-
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1 serting ‘‘subparagraph (B) or (C) of section

2 951(a)(1)’’.

3 (2) Paragraph (1) of section 956A(b) is amend4 ed to read as follows:

5 ‘‘(1) the amount (not including a deficit) re6 ferred to in section 316(a)(1) to the extent such

7 amount was accumulated in prior taxable years be8 ginning after September 30, 1993, and’’.

9 (3) Subsection (f) of section 956A is amended

10 by inserting before the period at the end thereof:

11 ‘‘and regulations coordinating the provisions of sub12 sections (c)(3)(A) and (d)’’.

13 (4) Subsection (b) of section 958 is amended by

14 striking ‘‘956(b)(2)’’ each place it appears and in15 serting ‘‘956(c)(2)’’.

16 (5)(A) Subparagraph (A) of section 1297(d)(2)

17 is amended by striking ‘‘The adjusted basis of any

18 asset’’ and inserting ‘‘The amount taken into ac19 count under section 1296(a)(2) with respect to any

20 asset’’.

21 (B) The paragraph heading of paragraph (2) of

22 section 1297(d) is amended to read as follows:

23 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.
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1 (6) Subsection (e) of section 1297 is amended

2 by inserting ‘‘For purposes of this part—’’ after the

3 subsection heading.

4 (j) AMENDMENT RELATED TO SECTION 13241.—

5 Subparagraph (B) of section 40(e)(1) is amended to read

6 as follows:

7 ‘‘(B) for any period before January 1,

8 2001, during which the rates of tax under sec9 tion 4081(a)(2)(A) are 4.3 cents per gallon.’’

10 (k) AMENDMENT RELATED TO SECTION 13261.—

11 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec12 onciliation Act of 1993 is amended by striking ‘‘by the

13 taxpayer’’ and inserting ‘‘by the taxpayer or a related

14 person’’.

15 (l) AMENDMENT RELATED TO SECTION 13301.—

16 Subparagraph (B) of section 1397B(d)(5) is amended by

17 striking ‘‘preceding’’.

18 (m) CLERICAL AMENDMENTS.—

19 (1) Subsection (d) of section 39 is amended—

20 (A) by striking ‘‘45’’ in the heading of

21 paragraph (5) and inserting ‘‘45A’’, and

22 (B) by striking ‘‘45’’ in the heading of

23 paragraph (6) and inserting ‘‘45B’’.
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1 (2) Subparagraph (A) of section 108(d)(9) is

2 amended by striking ‘‘paragraph (3)(B)’’ and insert3 ing ‘‘paragraph (3)(C)’’.

4 (3) Subparagraph (C) of section 143(d)(2) is

5 amended by striking the period at the end thereof

6 and inserting a comma.

7 (4) Clause (ii) of section 163(j)(6)(E) is amend8 ed by striking ‘‘which is a’’ and inserting ‘‘which is’’.

9 (5) Subparagraph (A) of section 1017(b)(4) is

10 amended by striking ‘‘subsection (b)(2)(D)’’ and in11 serting ‘‘subsection (b)(2)(E)’’.

12 (6) So much of section 1245(a)(3) as precedes

13 subparagraph (A) thereof is amended to read as

14 follows:

15 ‘‘(3) SECTION 1245 PROPERTY.—For purposes

16 of this section, the term ‘section 1245 property’

17 means any property which is or has been property

18 of a character subject to the allowance for deprecia19 tion provided in section 167 and is either—’’.

20 (7) Paragraph (2) of section 1394(e) is amend21 ed—

22 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

23 and

24 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.
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1 (8) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘or

3 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

4 (9)(A) The section 6714 added by section

5 13242(b)(1) of the Revenue Reconciliation Act of

6 1993 is hereby redesignated as section 6715.

7 (B) The table of sections for part I of sub8 chapter B of chapter 68 is amended by striking

9 ‘‘6714’’ in the item added by such section

10 13242(b)(2) of such Act and inserting ‘‘6715’’.

11 (10) Paragraph (2) of section 9502(b) is

12 amended by inserting ‘‘and before’’ after ‘‘1982,’’.

13 (11) Subsection (a)(3) of section 13206 of the

14 Revenue Reconciliation Act of 1993 is amended by

15 striking ‘‘this section’’ and inserting ‘‘this sub16 section’’.

17 (12) Paragraph (1) of section 13215(c) of the

18 Revenue Reconciliation Act of 1993 is amended by

19 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

20 Law 98–21’’.

21 (13) Paragraph (2) of section 13311(e) of the

22 Revenue Reconciliation Act of 1993 is amended by

23 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

24 1393(a)(2)’’.
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1 (14) Subparagraph (B) of section 117(d)(2) is

2 amended by striking ‘‘section 132(f)’’ and inserting

3 ‘‘section 132(h)’’.

4 (n) EFFECTIVE DATE.—Any amendment made by

5 this section shall take effect as if included in the provision

6 of the Revenue Reconciliation Act of 1993 to which such

7 amendment relates.

8 SEC. 1704. MISCELLANEOUS PROVISIONS.

9 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

10 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

11 1990.—Except as otherwise expressly provided, whenever

12 in title XII of the Omnibus Budget Reconciliation Act of

13 1990 an amendment or repeal is expressed in terms of

14 an amendment to, or repeal of, a section or other provi15 sion, the reference shall be considered to be made to a

16 section or other provision of the Internal Revenue Code

17 of 1986.

18 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

19 HEDGE BOND RULES.—

20 (1) Clause (iii) of section 149(g)(3)(B) is

21 amended to read as follows:

22 ‘‘(iii) AMOUNTS HELD PENDING REIN23 VESTMENT OR REDEMPTION.—Amounts

24 held for not more than 30 days pending re25 investment or bond redemption shall be
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1 treated as invested in bonds described in

2 clause (i).’’

3 (2) The amendment made by paragraph (1)

4 shall take effect as if included in the amendments

5 made by section 7651 of the Omnibus Budget Rec6 onciliation Act of 1989.

7 (c) TREATMENT OF CERTAIN DISTRIBUTIONS

8 UNDER SECTION 1445.—

9 (1) IN GENERAL.—Paragraph (3) of section

10 1445(e) is amended by adding at the end thereof

11 the following new sentence: ‘‘Rules similar to the

12 rules of the preceding provisions of this paragraph

13 shall apply in the case of any distribution to which

14 section 301 applies and which is not made out of the

15 earnings and profits of such a domestic corpora16 tion.’’

17 (2) EFFECTIVE DATE.—The amendment made

18 by paragraph (1) shall apply to distributions after

19 the date of the enactment of this Act.

20 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC21 TION 469.—

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

23 469(c)(3) is amended by adding at the end thereof

24 the following new sentence: ‘‘If the preceding sen25 tence applies to the net income from any property
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1 for any taxable year, any credits allowable under

2 subpart B (other than section 27(a)) or D of part

3 IV of subchapter A for such taxable year which are

4 attributable to such property shall be treated as

5 credits not from a passive activity to the extent the

6 amount of such credits does not exceed the regular

7 tax liability of the taxpayer for the taxable year

8 which is allocable to such net income.’’

9 (2) EFFECTIVE DATE.—The amendment made

10 by paragraph (1) shall apply to taxable years begin11 ning after December 31, 1986.

12 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

13 LOSS RULES.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 469(g)(1) is amended to read as follows:

16 ‘‘(A) IN GENERAL.—If all gain or loss real17 ized on such disposition is recognized, the ex18 cess of—

19 ‘‘(i) any loss from such activity for

20 such taxable year (determined after the ap21 plication of subsection (b)), over

22 ‘‘(ii) any net income or gain for such

23 taxable year from all other passive activi24 ties (determined after the application of

25 subsection (b)),
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1 shall be treated as a loss which is not from a

2 passive activity.’’

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall apply to taxable years begin5 ning after December 31, 1986.

6 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN

7 PROVISIONS.—

8 (1) COORDINATION OF UNIFIED ESTATE TAX

9 CREDIT WITH TREATIES.—Subparagraph (A) of sec10 tion 2102(c)(3) is amended by adding at the end

11 thereof the following new sentence: ‘‘For purposes

12 of the preceding sentence, property shall not be

13 treated as situated in the United States if such

14 property is exempt from the tax imposed by this

15 subchapter under any treaty obligation of the United

16 States.’’

17 (2) TREATMENT OF CERTAIN INTEREST PAID

18 TO RELATED PERSON.—

19 (A) Subparagraph (B) of section 163(j)(1)

20 is amended by inserting before the period at the

21 end thereof the following: ‘‘(and clause (ii) of

22 paragraph (2)(A) shall not apply for purposes

23 of applying this subsection to the amount so

24 treated)’’.
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1 (B) Subsection (j) of section 163 is amend2 ed by redesignating paragraph (7) as paragraph

3 (8) and by inserting after paragraph (6) the

4 following new paragraph:

5 ‘‘(7) COORDINATION WITH PASSIVE LOSS

6 RULES, ETC.—This subsection shall be applied be7 fore sections 465 and 469.’’

8 (C) The amendments made by this para9 graph shall apply as if included in the amend10 ments made by section 7210(a) of the Revenue

11 Reconciliation Act of 1989.

12 (3) TREATMENT OF INTEREST ALLOCABLE TO

13 EFFECTIVELY CONNECTED INCOME.—

14 (A) IN GENERAL.—

15 (i) Subparagraph (B) of section

16 884(f)(1) is amended by striking ‘‘to the

17 extent’’ and all that follows down through

18 ‘‘subparagraph (A)’’ and inserting ‘‘to the

19 extent that the allocable interest exceeds

20 the interest described in subparagraph

21 (A)’’.

22 (ii) The second sentence of section

23 884(f)(1) is amended by striking ‘‘reason24 ably expected’’ and all that follows down

25 through the period at the end thereof and
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1 inserting ‘‘reasonably expected to be alloca2 ble interest.’’

3 (iii) Paragraph (2) of section 884(f) is

4 amended to read as follows:

5 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

6 this subsection, the term ‘allocable interest’ means

7 any interest which is allocable to income which is ef8 fectively connected (or treated as effectively con9 nected) with the conduct of a trade or business in

10 the United States.’’

11 (B) EFFECTIVE DATE.—The amendments

12 made by subparagraph (A) shall take effect as

13 if included in the amendments made by section

14 1241(a) of the Tax Reform Act of 1986.

15 (4) CLARIFICATION OF SOURCE RULE.—

16 (A) IN GENERAL.—Paragraph (2) of sec17 tion 865(b) is amended by striking ‘‘863(b)’’

18 and inserting ‘‘863’’.

19 (B) EFFECTIVE DATE.—The amendment

20 made by subparagraph (A) shall take effect as

21 if included in the amendments made by section

22 1211 of the Tax Reform Act of 1986.

23 (5) REPEAL OF OBSOLETE PROVISIONS.—

24 (A) Paragraph (1) of section 6038(a) is

25 amended by striking ‘‘, and’’ at the end of sub-
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1 paragraph (E) and inserting a period, and by

2 striking subparagraph (F).

3 (B) Subsection (b) of section 6038A is

4 amended by adding ‘‘and’’ at the end of para5 graph (2), by striking ‘‘, and’’ at the end of

6 paragraph (3) and inserting a period, and by

7 striking paragraph (4).

8 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

9 CERTAIN BOND-FINANCED FACILITIES.—

10 (1) IN GENERAL.—Subparagraph (A) of section

11 1317(3) of the Tax Reform Act of 1986 is amended

12 by adding at the end thereof the following new sen13 tence: ‘‘A facility shall not fail to be treated as de14 scribed in this subparagraph by reason of an assign15 ment (or an agreement to an assignment) by the

16 governmental unit on whose behalf the bonds are is17 sued of any part of its interest in the property fi18 nanced by such bonds to another governmental

19 unit.’’

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall take effect as if included in

22 such section 1317 on the date of the enactment of

23 the Tax Reform Act of 1986.

24 (h) CLARIFICATION OF TREATMENT OF MEDICARE

25 ENTITLEMENT UNDER COBRA PROVISIONS.—
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1 (1) IN GENERAL.—

2 (A) Subclause (V) of section

3 4980B(f)(2)(B)(i) is amended to read as

4 follows:

5 ‘‘(V) MEDICARE ENTITLEMENT

6 FOLLOWED BY QUALIFYING EVENT.—

7 In the case of a qualifying event de8 scribed in paragraph (3)(B) that oc9 curs less than 18 months after the

10 date the covered employee became en11 titled to benefits under title XVIII of

12 the Social Security Act, the period of

13 coverage for qualified beneficiaries

14 other than the covered employee shall

15 not terminate under this clause before

16 the close of the 36-month period be17 ginning on the date the covered em18 ployee became so entitled.’’

19 (B) Clause (v) of section 602(2)(A) of the

20 Employee Retirement Income Security Act of

21 1974 is amended to read as follows:

22 ‘‘(v) MEDICARE ENTITLEMENT FOL23 LOWED BY QUALIFYING EVENT.—In the

24 case of a qualifying event described in sec25 tion 603(2) that occurs less than 18
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1 months after the date the covered em2 ployee became entitled to benefits under

3 title XVIII of the Social Security Act, the

4 period of coverage for qualified bene5 ficiaries other than the covered employee

6 shall not terminate under this subpara7 graph before the close of the 36-month pe8 riod beginning on the date the covered em9 ployee became so entitled.’’

10 (C) Clause (iv) of section 2202(2)(A) of

11 the Public Health Service Act is amended to

12 read as follows:

13 ‘‘(iv) MEDICARE ENTITLEMENT FOL14 LOWED BY QUALIFYING EVENT.—In the

15 case of a qualifying event described in sec16 tion 2203(2) that occurs less than 18

17 months after the date the covered em18 ployee became entitled to benefits under

19 title XVIII of the Social Security Act, the

20 period of coverage for qualified bene21 ficiaries other than the covered employee

22 shall not terminate under this subpara23 graph before the close of the 36-month pe24 riod beginning on the date the covered em25 ployee became so entitled.’’
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1 (2) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to plan years begin3 ning after December 31, 1989.

4 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

5 (1) IN GENERAL.—Subsection (a) of section

6 860E is amended by adding at the end thereof the

7 following new paragraph:

8 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

9 purposes of part VI of subchapter A of this

10 chapter—

11 ‘‘(A) the reference in section 55(b)(2) to

12 taxable income shall be treated as a reference

13 to taxable income determined without regard to

14 this subsection,

15 ‘‘(B) the alternative minimum taxable in16 come of any holder of a residual interest in a

17 REMIC for any taxable year shall in no event

18 be less than the excess inclusion for such tax19 able year, and

20 ‘‘(C) any excess inclusion shall be dis21 regarded for purposes of computing the alter22 native tax net operating loss deduction.

23 The preceding sentence shall not apply to any orga24 nization to which section 593 applies, except to the
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1 extent provided in regulations prescribed by the Sec2 retary under paragraph (2).’’

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall take effect as if included in

5 the amendments made by section 671 of the Tax Re6 form Act of 1986 unless the taxpayer elects to apply

7 such amendment only to taxable years beginning

8 after the date of the enactment of this Act.

9 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

10 FOR CERTAIN PASSENGERS.—

11 (1) IN GENERAL.—Subparagraph (D) of section

12 4462(b)(1) (relating to special rule for Alaska, Ha13 waii, and possessions) is amended by inserting be14 fore the period the following: ‘‘, or passengers trans15 ported on United States flag vessels operating solely

16 within the State waters of Alaska or Hawaii and ad17 jacent international waters’’.

18 (2) EFFECTIVE DATE.—The amendment made

19 by paragraph (1) shall take effect as if included in

20 the amendments made by section 1402(a) of the

21 Harbor Maintenance Revenue Act of 1986.

22 (k) AMENDMENTS RELATED TO REVENUE PROVI23 SIONS OF ENERGY POLICY ACT OF 1992.—

24 (1) Effective with respect to taxable years be25 ginning after December 31, 1990, subclause (II) of
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1 section 53(d)(1)(B)(iv) is amended to read as

2 follows:

3 ‘‘(II) the adjusted net minimum

4 tax for any taxable year is the amount

5 of the net minimum tax for such year

6 increased in the manner provided in

7 clause (iii).’’

8 (2) Subsection (g) of section 179A is redesig9 nated as subsection (f).

10 (3) Subparagraph (E) of section 6724(d)(3) is

11 amended by striking ‘‘section 6109(f)’’ and inserting

12 ‘‘section 6109(h)’’.

13 (4)(A) Subsection (d) of section 30 is amend14 ed—

15 (i) by inserting ‘‘(determined without re16 gard to subsection (b)(3))’’ before the period at

17 the end of paragraph (1) thereof, and

18 (ii) by adding at the end thereof the follow19 ing new paragraph:

20 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No

21 credit shall be allowed under subsection (a) for any

22 vehicle if the taxpayer elects to not have this section

23 apply to such vehicle.’’
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1 (B) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘sec3 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

4 (5) Subclause (III) of section 501(c)(21)(D)(ii)

5 is amended by striking ‘‘section 101(6)’’ and insert6 ing ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and

7 inserting ‘‘1752(7)’’.

8 (6) Paragraph (1) of section 1917(b) of the En9 ergy Policy Act of 1992 shall be applied as if ‘‘at a

10 rate’’ appeared instead of ‘‘at the rate’’ in the mate11 rial proposed to be stricken.

12 (7) Paragraph (2) of section 1921(b) of the En13 ergy Policy Act of 1992 shall be applied as if a

14 comma appeared after ‘‘(2)’’ in the material pro15 posed to be stricken.

16 (8) Subsection (a) of section 1937 of the En17 ergy Policy Act of 1992 shall be applied as if ‘‘Sub18 part B’’ appeared instead of ‘‘Subpart C’’.

19 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

20 PLAN.—

21 (1) IN GENERAL.—Subparagraph (F) of section

22 3(37) of the Employee Retirement Income Security

23 Act of 1974 (29 U.S.C. 1002(37)(F)) is amended by

24 redesignating clause (ii) as clause (iii) and by insert25 ing after clause (i) the following new clause:
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1 ‘‘(ii) For purposes of the Internal Revenue

2 Code of 1986—

3 ‘‘(I) clause (i) shall apply, and

4 ‘‘(II) a qualified football coaches plan

5 shall be treated as a multiemployer collec6 tively bargained plan.’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by paragraph (1) shall apply to years beginning

9 after December 22, 1987.

10 (m) DETERMINATION OF UNRECOVERED INVEST11 MENT IN ANNUITY CONTRACT.—

12 (1) IN GENERAL.—Subparagraph (A) of section

13 72(b)(4) is amended by inserting ‘‘(determined with14 out regard to subsection (c)(2))’’ after ‘‘contract’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect as if included in

17 the amendments made by section 1122(c) of the Tax

18 Reform Act of 1986.

19 (n) MODIFICATIONS TO ELECTION TO INCLUDE

20 CHILD’S INCOME ON PARENT’S RETURN.—

21 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

22 section 1(g)(7)(A) (relating to election to include

23 certain unearned income of child on parent’s return)

24 is amended to read as follows:
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1 ‘‘(ii) such gross income is more than

2 the amount described in paragraph

3 (4)(A)(ii)(I) and less than 10 times the

4 amount so described,’’.

5 (2) COMPUTATION OF TAX.—Subparagraph (B)

6 of section 1(g)(7) (relating to income included on

7 parent’s return) is amended—

8 (A) by striking ‘‘$1,000’’ in clause (i) and

9 inserting ‘‘twice the amount described in para10 graph (4)(A)(ii)(I)’’, and

11 (B) by amending subclause (II) of clause

12 (ii) to read as follows:

13 ‘‘(II) for each such child, 15 per14 cent of the lesser of the amount de15 scribed in paragraph (4)(A)(ii)(I) or

16 the excess of the gross income of such

17 child over the amount so described,

18 and’’.

19 (3) MINIMUM TAX.—Subparagraph (B) of sec20 tion 59(j)(1) is amended by striking ‘‘$1,000’’ and

21 inserting ‘‘twice the amount in effect for the taxable

22 year under section 63(c)(5)(A)’’.

23 (4) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to taxable years begin25 ning after December 31, 1995.
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1 (o) TREATMENT OF CERTAIN VETERANS’ REEM2 PLOYMENT RIGHTS.—

3 (1) IN GENERAL.—Section 414 is amended by

4 adding at the end the following new subsection:

5 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ RE6 EMPLOYMENT RIGHTS UNDER USERRA.—

7 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

8 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

9 RIGHTS.—If any contribution is made by an em10 ployer or an employee under an individual account

11 plan with respect to an employee, or by an employee

12 to a defined benefit plan that provides for employee

13 contributions, and such contribution is required by

14 reason of such employee’s rights under chapter 43 of

15 title 38, United States Code, resulting from qualified

16 military service, then—

17 ‘‘(A) such contribution shall not be subject

18 to any otherwise applicable limitation contained

19 in section 402(g), 402(h), 403(b), 404(a),

20 404(h), 408, 415, or 457, and shall not be

21 taken into account in applying such limitations

22 to other contributions or benefits under such

23 plan or any other plan, with respect to the year

24 in which the contribution is made,
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1 ‘‘(B) such contribution shall be subject to

2 the limitations referred to in subparagraph (A)

3 with respect to the year to which the contribu4 tion relates (in accordance with rules prescribed

5 by the Secretary), and

6 ‘‘(C) such plan shall not be treated as fail7 ing to meet the requirements of section

8 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),

9 401(k)(12), 401(m), 403(b)(12), 408(k)(3),

10 408(k)(6), 408(p), 410(b), or 416 by reason of

11 the making of (or the right to make) such con12 tribution.

13 For purposes of the preceding sentence, any elective

14 deferral or employee contribution made under para15 graph (2) shall be treated as required by reason of

16 the employee’s rights under such chapter 43.

17 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

18 WITH RESPECT TO ELECTIVE DEFERRALS.—

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

20 subchapter and section 457, if an employee is

21 entitled to the benefits of chapter 43 of title 38,

22 United States Code, with respect to any plan

23 which provides for elective deferrals, the em24 ployer sponsoring the plan shall be treated as

25 meeting the requirements of such chapter 43
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1 with respect to such elective deferrals only if

2 such employer—

3 ‘‘(i) permits such employee to make

4 additional elective deferrals under such

5 plan (in the amount determined under sub6 paragraph (B) or such lesser amount as is

7 elected by the employee) during the period

8 which begins on the date of the reemploy9 ment of such employee with such employer

10 and has the same length as the lesser of—

11 ‘‘(I) the product of 3 and the pe12 riod of qualified military service which

13 resulted in such rights, and

14 ‘‘(II) 5 years, and

15 ‘‘(ii) makes a matching contribution

16 with respect to any additional elective de17 ferral made pursuant to clause (i) which

18 would have been required had such defer19 ral actually been made during the period of

20 such qualified military service.

21 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—

22 The amount determined under this subpara23 graph with respect to any plan is the maximum

24 amount of the elective deferrals that the indi25 vidual would have been permitted to make
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1 under the plan in accordance with the limita2 tions referred to in paragraph (1)(A) during the

3 period of qualified military service if the indi4 vidual had continued to be employed by the em5 ployer during such period and received com6 pensation as determined under paragraph (7).

7 Proper adjustment shall be made to the amount

8 determined under the preceding sentence for

9 any elective deferrals actually made during the

10 period of such qualified military service.

11 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

12 of this paragraph, the term ‘elective deferral’

13 has the meaning given such term by section

14 402(g)(3); except that such term shall include

15 any deferral of compensation under an eligible

16 deferred compensation plan (as defined in sec17 tion 457(b)).

18 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU19 TIONS.—References in subparagraphs (A) and

20 (B) to elective deferrals shall be treated as in21 cluding references to employee contributions.

22 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS

23 NOT REQUIRED.—For purposes of this subchapter

24 and subchapter E, no provision of chapter 43 of title
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1 38, United States Code, shall be construed as re2 quiring—

3 ‘‘(A) any crediting of earnings to an em4 ployee with respect to any contribution before

5 such contribution is actually made, or

6 ‘‘(B) any allocation of any forfeiture with

7 respect to the period of qualified military serv8 ice.

9 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER10 MITTED.—If any plan suspends the obligation to

11 repay any loan made to an employee from such plan

12 for any part of any period during which such em13 ployee is performing service in the uniformed serv14 ices (as defined in chapter 43 of title 38, United

15 States Code), whether or not qualified military serv16 ice, such suspension shall not be taken into account

17 for purposes of section 72(p), 401(a), or 4975(d)(1).

18 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur19 poses of this subsection, the term ‘qualified military

20 service’ means any service in the uniformed services

21 (as defined in chapter 43 of title 38, United States

22 Code) by any individual if such individual is entitled

23 to reemployment rights under such chapter with re24 spect to such service.
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1 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For pur2 poses of this subsection, the term ‘individual account

3 plan’ means any defined contribution plan (including

4 any tax-sheltered annuity plan under section 403(b),

5 any simplified employee pension under section

6 408(k), any qualified salary reduction arrangement

7 under section 408(p), and any eligible deferred com8 pensation plan (as defined in section 457(b)).

9 ‘‘(7) COMPENSATION.—For purposes of sections

10 403(b)(3), 415(c)(3), and 457(e)(5), an employee

11 who is in qualified military service shall be treated

12 as receiving compensation from the employer during

13 such period of qualified military service equal to—

14 ‘‘(A) the compensation the employee would

15 have received during such period if the em16 ployee were not in qualified military service, de17 termined based on the rate of pay the employee

18 would have received from the employer but for

19 absence during the period of qualified military

20 service, or

21 ‘‘(B) if the compensation the employee

22 would have received during such period was not

23 reasonably certain, the employee’s average com24 pensation from the employer during the 12-

25 month period immediately preceding the quali-
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1 fied military service (or, if shorter, the period of

2 employment immediately preceding the qualified

3 military service).

4 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

5 RETIREMENT PLANS.—For purposes of this sub6 chapter and section 457, an employer sponsoring a

7 retirement plan shall be treated as meeting the re8 quirements of chapter 43 of title 38, United States

9 Code, only if each of the following requirements is

10 met:

11 ‘‘(A) An individual reemployed under such

12 chapter is treated with respect to such plan as

13 not having incurred a break in service with the

14 employer maintaining the plan by reason of

15 such individual’s period of qualified military

16 service.

17 ‘‘(B) Each period of qualified military

18 service served by an individual is, upon reem19 ployment under such chapter, deemed with re20 spect to such plan to constitute service with the

21 employer maintaining the plan for the purpose

22 of determining the nonforfeitability of the indi23 vidual’s accrued benefits under such plan and

24 for the purpose of determining the accrual of

25 benefits under such plan.
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1 ‘‘(C) An individual reemployed under such

2 chapter is entitled to accrued benefits that are

3 contingent on the making of, or derived from,

4 employee contributions or elective deferrals only

5 to the extent the individual makes payment to

6 the plan with respect to such contributions or

7 deferrals. No such payment may exceed the

8 amount the individual would have been per9 mitted or required to contribute had the indi10 vidual remained continuously employed by the

11 employer throughout the period of qualified

12 military service. Any payment to such plan shall

13 be made during the period beginning with the

14 date of reemployment and whose duration is 3

15 times the period of the qualified military service

16 (but not greater than 5 years).

17 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

18 subsection shall not apply to any retirement plan to

19 which chapter 43 of title 38, United States Code,

20 does not apply.

21 ‘‘(10) REFERENCES.—For purposes of this sec22 tion, any reference to chapter 43 of title 38, United

23 States Code, shall be treated as a reference to such

24 chapter as in effect on December 12, 1994 (without

25 regard to any subsequent amendment).’’
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1 (2) EFFECTIVE DATE.—The amendment made

2 by this subsection shall be effective as of December

3 12, 1994.

4 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

5 (1) IN GENERAL.—Paragraph (3) of section

6 6045(e) (relating to prohibition of separate charge

7 for filing return) is amended by adding at the end

8 the following new sentence: ‘‘Nothing in this para9 graph shall be construed to prohibit the real estate

10 reporting person from taking into account its cost of

11 complying with such requirement in establishing its

12 charge (other than a separate charge for complying

13 with such requirement) to any customer for perform14 ing services in the case of a real estate transaction.’’

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect as if included in

17 section 1015(e)(2)(A) of the Technical and Mis18 cellaneous Revenue Act of 1988.

19 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

20 STOCK REDEMPTION EXPENSES.

21 (1) IN GENERAL.—Paragraph (1) of section

22 162(k) is amended by striking ‘‘the redemption of

23 its stock’’ and inserting ‘‘the reacquisition of its

24 stock or of the stock of any related person (as de25 fined in section 465(b)(3)(C))’’.
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1 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub2 paragraph (A) of section 162(k)(2) is amended by

3 striking ‘‘or’’ at the end of clause (i), by redesignat4 ing clause (ii) as clause (iii), and by inserting after

5 clause (i) the following new clause:

6 ‘‘(ii) deduction for amounts which are

7 properly allocable to indebtedness and am8 ortized over the term of such indebtedness,

9 or’’.

10 (3) CLERICAL AMENDMENT.—The subsection

11 heading for subsection (k) of section 162 is amended

12 by striking ‘‘REDEMPTION’’ and inserting ‘‘REAC13 QUISITION’’.

14 (4) EFFECTIVE DATE.—

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

16 subparagraph (B), the amendments made by

17 this subsection shall apply to amounts paid or

18 incurred after September 13, 1995, in taxable

19 years ending after such date.

20 (B) PARAGRAPH (2).—The amendment

21 made by paragraph (2) shall take effect as if

22 included in the amendment made by section

23 613 of the Tax Reform Act of 1986.

24 (r) CLERICAL AMENDMENT TO SECTION 404.—
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1 (1) IN GENERAL.—Paragraph (1) of section

2 404(j) is amended by striking ‘‘(10)’’ and inserting

3 ‘‘(9)’’.

4 (2) EFFECTIVE DATE.—The amendment made

5 by paragraph (1) shall take effect as if included in

6 the amendments made by section 713(d)(4)(A) of

7 the Deficit Reduction Act of 1984.

8 (s) PASSIVE INCOME NOT TO INCLUDE FSC IN9 COME, ETC.—

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

11 1296(b) is amended by striking ‘‘or’’ at the end of

12 subparagraph (B), by striking the period at the end

13 of subparagraph (C) and inserting ‘‘, or’’, and by in14 serting after subparagraph (C) the following new

15 subparagraph:

16 ‘‘(D) which is foreign trade income of a

17 FSC or export trade income of an export trade

18 corporation (as defined in section 971).’’

19 (2) EFFECTIVE DATE.—The amendment made

20 by paragraph (1) shall take effect as if included in

21 the amendments made by section 1235 of the Tax

22 Reform Act of 1986.

23 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—
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1 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

2 amended by striking ‘‘of the subclause’’ and insert3 ing ‘‘of subclause’’.

4 (2) Paragraph (2) of section 72(m) is amended

5 by inserting ‘‘and’’ at the end of subparagraph (A),

6 by striking subparagraph (B), and by redesignating

7 subparagraph (C) as subparagraph (B).

8 (3) Paragraph (2) of section 86(b) is amended

9 by striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

10 (4)(A) The heading for section 112 is amended

11 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COM12 BAT ZONE COMPENSATION’’.

13 (B) The item relating to section 112 in the

14 table of sections for part III of subchapter B of

15 chapter 1 is amended by striking ‘‘combat pay’’ and

16 inserting ‘‘combat zone compensation’’.

17 (C) Paragraph (1) of section 3401(a) is amend18 ed by striking ‘‘combat pay’’ and inserting ‘‘combat

19 zone compensation’’.

20 (5) Clause (i) of section 172(h)(3)(B) is amend21 ed by striking the comma at the end thereof and in22 serting a period.

23 (6) Clause (ii) of section 543(a)(2)(B) is

24 amended by striking ‘‘section 563(c)’’ and inserting

25 ‘‘section 563(d)’’.
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1 (7) Paragraph (1) of section 958(a) is amended

2 by striking ‘‘sections 955(b)(1) (A) and (B),

3 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec4 tion 960(a)(1)’’.

5 (8) Subsection (g) of section 642 is amended by

6 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

7 section 2621(a)(2)’’.

8 (9) Section 1463 is amended by striking ‘‘this

9 subsection’’ and inserting ‘‘this section’’.

10 (10) Subsection (k) of section 3306 is amended

11 by inserting a period at the end thereof.

12 (11) The item relating to section 4472 in the

13 table of sections for subchapter B of chapter 36 is

14 amended by striking ‘‘and special rules’’.

15 (12) Paragraph (2) of section 4978(b) is

16 amended by striking the period at the end of sub17 paragraph (A) and inserting a comma, and by strik18 ing the period and quotation marks at the end of

19 subparagraph (B) and inserting a comma.

20 (13) Paragraph (3) of section 5134(c) is

21 amended by striking ‘‘section 6662(a)’’ and inserting

22 ‘‘section 6665(a)’’.

23 (14) Paragraph (2) of section 5206(f) is

24 amended by striking ‘‘section 5(e)’’ and inserting

25 ‘‘section 105(e)’’.
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1 (15) Paragraph (1) of section 6050B(c) is

2 amended by striking ‘‘section 85(c)’’ and inserting

3 ‘‘section 85(b)’’.

4 (16) Subsection (k) of section 6166 is amended

5 by striking paragraph (6).

6 (17) Subsection (e) of section 6214 is amended

7 to read as follows:

8 ‘‘(e) CROSS REFERENCE.—

‘‘For provision giving Tax Court jurisdiction to

order a refund of an overpayment and to award

sanctions, see section 6512(b)(2).’’

9 (18) The section heading for section 6043 is

10 amended by striking the semicolon and inserting a

11 comma.

12 (19) The item relating to section 6043 in the

13 table of sections for subpart B of part III of sub14 chapter A of chapter 61 is amended by striking the

15 semicolon and inserting a comma.

16 (20) The table of sections for part I of sub17 chapter A of chapter 68 is amended by striking the

18 item relating to section 6662.

19 (21)(A) Section 7232 is amended—

20 (i) by striking ‘‘LUBRICATING OIL,’’ in

21 the heading, and

22 (ii) by striking ‘‘lubricating oil,’’ in the

23 text.
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•HR 3448 IH

1 (B) The table of sections for part II of sub2 chapter A of chapter 75 is amended by striking ‘‘lu3 bricating oil,’’ in the item relating to section 7232.

4 (22) Paragraph (1) of section 6701(a) of the

5 Omnibus Budget Reconciliation Act of 1989 is

6 amended by striking ‘‘subclause (IV)’’ and inserting

7 ‘‘subclause (V)’’.

8 (23) Clause (ii) of section 7304(a)(2)(D) of

9 such Act is amended by striking ‘‘subsection (c)(2)’’

10 and inserting ‘‘subsection (c)’’.

11 (24) Paragraph (1) of section 7646(b) of such

12 Act is amended by striking ‘‘section 6050H(b)(1)’’

13 and inserting ‘‘section 6050H(b)(2)’’.

14 (25) Paragraph (10) of section 7721(c) of

15 such Act is amended by striking ‘‘section

16 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

17 6661(b)(2)(C)(ii)’’.

18 (26) Subparagraph (A) of section 7811(i)(3) of

19 such Act is amended by inserting ‘‘the first place it

20 appears’’ before ‘‘in clause (i)’’.

21 (27) Paragraph (10) of section 7841(d) of

22 such Act is amended by striking ‘‘section 381(a)’’

23 and inserting ‘‘section 381(c)’’.
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•HR 3448 IH

1 (28) Paragraph (2) of section 7861(c) of such

2 Act is amended by inserting ‘‘the second place it ap3 pears’’ before ‘‘and inserting’’.

4 (29) Paragraph (1) of section 460(b) is amend5 ed by striking ‘‘the look-back method of paragraph

6 (3)’’ and inserting ‘‘the look-back method of para7 graph (2)’’.

8 (30) Subparagraph (C) of section 50(a)(2) is

9 amended by striking ‘‘subsection (c)(4)’’ and insert10 ing ‘‘subsection (d)(5)’’.

11 (31) Subparagraph (B) of section 172(h)(4) is

12 amended by striking the material following the head13 ing and preceding clause (i) and inserting ‘‘For pur14 poses of subsection (b)(2)—’’.

15 (32) Subparagraph (A) of section 355(d)(7) is

16 amended by inserting ‘‘section’’ before ‘‘267(b)’’.

17 (33) Subparagraph (C) of section 420(e)(1) is

18 amended by striking ‘‘mean’’ and inserting ‘‘means’’.

19 (34) Paragraph (4) of section 537(b) is amend20 ed by striking ‘‘section 172(i)’’ and inserting ‘‘sec21 tion 172(f)’’.

22 (35) Subparagraph (B) of section 613(e)(1) is

23 amended by striking the comma at the end thereof

24 and inserting a period.
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1 (36) Paragraph (4) of section 856(a) is amend2 ed by striking ‘‘section 582(c)(5)’’ and inserting

3 ‘‘section 582(c)(2)’’.

4 (37) Sections 904(f)(2)(B)(i) and

5 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

6 in effect on the day before the date of the enactment

7 of the Revenue Reconciliation Act of 1990)’’ after

8 ‘‘section 172(h)’’.

9 (38) Subsection (b) of section 936 is amended

10 by striking ‘‘subparagraphs (D)(ii)(I)’’ and inserting

11 ‘‘subparagraphs (D)(ii)’’.

12 (39) Subsection (c) of section 2104 is amended

13 by striking ‘‘subparagraph (A), (C), or (D) of

14 section 861(a)(1)’’ and inserting ‘‘section

15 861(a)(1)(A)’’.

16 (40) Subparagraph (A) of section 280A(c)(1) is

17 amended to read as follows:

18 ‘‘(A) as the principal place of business for

19 any trade or business of the taxpayer,’’.

20 (41) Section 6038 is amended by redesignating

21 the subsection relating to cross references as sub22 section (f).

23 (42) Clause (iv) of section 6103(e)(1)(A) is

24 amended by striking all that follows ‘‘provisions of’’

25 and inserting ‘‘section 1(g) or 59(j);’’.
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1 (43) The subsection (f) of section 6109 of the

2 Internal Revenue Code of 1986 which was added by

3 section 2201(d) of Public Law 101–624 is redesig4 nated as subsection (g).

5 (44) Subsection (b) of section 7454 is amended

6 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec7 tion 4955(f)(2)’’.

8 (45) Subsection (d) of section 11231 of the

9 Revenue Reconciliation Act of 1990 shall be applied

10 as if ‘‘comma’’ appeared instead of ‘‘period’’ and as

11 if the paragraph (9) proposed to be added ended

12 with a comma.

13 (46) Paragraph (1) of section 11303(b) of the

14 Revenue Reconciliation Act of 1990 shall be applied

15 as if ‘‘paragraph’’ appeared instead of ‘‘subpara16 graph’’ in the material proposed to be stricken.

17 (47) Subsection (f) of section 11701 of the Rev18 enue Reconciliation Act of 1990 is amended by in19 serting ‘‘(relating to definitions)’’ after ‘‘section

20 6038(e)’’.

21 (48) Subsection (i) of section 11701 of the Rev22 enue Reconciliation Act of 1990 shall be applied as

23 if ‘‘subsection’’ appeared instead of ‘‘section’’ in the

24 material proposed to be stricken.
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1 (49) Subparagraph (B) of section 11801(c)(2)

2 of the Revenue Reconciliation Act of 1990 shall be

3 applied as if ‘‘section 56(g)’’ appeared instead of

4 ‘‘section 59(g)’’.

5 (50) Subparagraph (C) of section 11801(c)(8)

6 of the Revenue Reconciliation Act of 1990 shall be

7 applied as if ‘‘reorganizations’’ appeared instead of

8 ‘‘reorganization’’ in the material proposed to be

9 stricken.

10 (51) Subparagraph (H) of section 11801(c)(9)

11 of the Revenue Reconciliation Act of 1990 shall be

12 applied as if ‘‘section 1042(c)(1)(B)’’ appeared in13 stead of ‘‘section 1042(c)(2)(B)’’.

14 (52) Subparagraph (F) of section 11801(c)(12)

15 of the Revenue Reconciliation Act of 1990 shall be

16 applied as if ‘‘and (3)’’ appeared instead of ‘‘and

17 (E)’’.

18 (53) Subparagraph (A) of section 11801(c)(22)

19 of the Revenue Reconciliation Act of 1990 shall be

20 applied as if ‘‘chapters 21’’ appeared instead of

21 ‘‘chapter 21’’ in the material proposed to be strick22 en.

23 (54) Paragraph (3) of section 11812(b) of the

24 Revenue Reconciliation Act of 1990 shall be applied
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•HR 3448 IH

1 by not executing the amendment therein to the

2 heading of section 42(d)(5)(B).

3 (55) Clause (i) of section 11813(b)(9)(A) of the

4 Revenue Reconciliation Act of 1990 shall be applied

5 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the

6 material proposed to be stricken.

7 (56) Subparagraph (F) of section 11813(b)(13)

8 of the Revenue Reconciliation Act of 1990 shall be

9 applied as if ‘‘tax’’ appeared after ‘‘investment’’ in

10 the material proposed to be stricken.

11 (57) Paragraph (19) of section 11813(b) of the

12 Revenue Reconciliation Act of 1990 shall be applied

13 as if ‘‘Paragraph (20) of section 1016(a), as redesig14 nated by section 11801,’’ appeared instead of ‘‘Para15 graph (21) of section 1016(a)’’.

16 (58) Paragraph (5) section 8002(a) of the Sur17 face Transportation Revenue Act of 1991 shall be

18 applied as if ‘‘4481(e)’’ appeared instead of

19 ‘‘4481(c)’’.

20 (59) Section 7872 is amended—

21 (A) by striking ‘‘foregone’’ each place it

22 appears in subsections (a) and (e)(2) and in23 serting ‘‘forgone’’, and

24 (B) by striking ‘‘FOREGONE’’ in the head25 ing for subsection (e) and the heading for para-
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•HR 3448 IH

1 graph (2) of subsection (e) and inserting ‘‘FOR2 GONE’’.

3 (60) Paragraph (7) of section 7611(h) is

4 amended by striking ‘‘approporiate’’ and inserting

5 ‘‘appropriate’’.

6 (61) The heading of paragraph (3) of section

7 419A(c) is amended by striking ‘‘SEVERENCE’’ and

8 inserting ‘‘SEVERANCE’’.

9 (62) Clause (ii) of section 807(d)(3)(B) is

10 amended by striking ‘‘Commissoners’ ’’ and insert11 ing ‘‘Commissioners’ ’’.

12 (63) Subparagraph (B) of section 1274A(c)(1)

13 is amended by striking ‘‘instument’’ and inserting

14 ‘‘instrument’’.

15 (64) Subparagraph (B) of section 724(d)(3) by

16 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara17 graph’’.

18 (65) The last sentence of paragraph (2) of sec19 tion 42(c) is amended by striking ‘‘of 1988’’.

20 (66) Paragraph (1) of section 9707(d) is

21 amended by striking ‘‘diligence,’’ and inserting ‘‘dili22 gence’’.

23 (67) Subsection (c) of section 4977 is amended

24 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘sec25 tion 132(h)’’.
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1 (68) The last sentence of section 401(a)(20) is

2 amended by striking ‘‘section 211’’ and inserting

3 ‘‘section 521’’.

4 (69) Subparagraph (A) of section 402(g)(3) is

5 amended by striking ‘‘subsection (a)(8)’’ and insert6 ing ‘‘subsection (e)(3)’’.

7 (70) The last sentence of section 403(b)(10) is

8 amended by striking ‘‘an direct’’ and inserting ‘‘a

9 direct’’.

10 (71) Subparagraph (A) of section 4973(b)(1) is

11 amended by striking ‘‘sections 402(c)’’ and inserting

12 ‘‘section 402(c)’’.

13 (72) Paragraph (12) of section 3405(e) is

14 amended by striking ‘‘(b)(3)’’ and inserting

15 ‘‘(b)(2)’’.

16 (73) Paragraph (41) of section 521(b) of the

17 Unemployment Compensation Amendments of 1992

18 shall be applied as if ‘‘section’’ appeared instead of

19 ‘‘sections’’ in the material proposed to be stricken.

20 (74) Paragraph (27) of section 521(b) of the

21 Unemployment Compensation Amendments of 1992

22 shall be applied as if ‘‘Section 691(c)(5)’’ appeared

23 instead of ‘‘Section 691(c)’’.
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1 (75) Paragraph (5) of section 860F(a) is

2 amended by striking ‘‘paragraph (1)’’ and inserting

3 ‘‘paragraph (2)’’.

4 (76) Paragraph (1) of section 415(k) is amend5 ed by adding ‘‘or’’ at the end of subparagraph (C),

6 by striking subparagraphs (D) and (E), and by re7 designating subparagraph (F) as subparagraph (D).

8 (77) Paragraph (2) of section 404(a) is amend9 ed by striking ‘‘(18),’’.

10 (78) Clause (ii) of section 72(p)(4)(A) is

11 amended to read as follows:

12 ‘‘(ii) SPECIAL RULE.—The term

13 ‘qualified employer plan’ shall not include

14 any plan which was (or was determined to

15 be) a qualified employer plan or a govern16 ment plan.’’

17 (79) Sections 461(i)(3)(C) and

18 1274(b)(3)(B)(i) are each amended by striking ‘‘sec19 tion 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

20 6662(d)(2)(C)(iii)’’.

21 (80) Subsection (a) of section 164 is amended

22 by striking the paragraphs relating to the genera23 tion-skipping tax and the environmental tax imposed

24 by section 59A and by inserting after paragraph (3)

25 the following new paragraphs:
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1 ‘‘(4) The GST tax imposed on income distribu2 tions.

3 ‘‘(5) The environmental tax imposed by section

4 59A.’’

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