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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3448 Engrossed Amendment Senate (EAS)]

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

                  In the Senate of the United States,

                                                          July 9, 1996.
      Resolved, That the bill from the House of Representatives (H.R. 
3448) entitled ``An Act to provide tax relief for small businesses, to 
protect jobs, to create opportunities, to increase the take home pay of 
workers, to amend the Portal-to-Portal Act of 1947 relating to the 
payment of wages to employees who use employer owned vehicles, and to 
amend the Fair Labor Standards Act of 1938 to increase the minimum wage 
rate and to prevent job loss by providing flexibility to employers in 
complying with minimum wage and overtime requirements under that 
Act.'', do pass with the following

                              AMENDMENTS:

(1)Page 2, strike out all after line 5, over to and including line 9 on 
page 236 and insert:
    (b) Table of Contents.--
Sec. 1. Short title; table of contents.

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.

                      Subtitle A--Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of dues paid to agricultural or horticultural 
                            organizations.
Sec. 1114. Clarification of employment tax status of certain fishermen.
Sec. 1115. Modifications of tax-exempt bond rules for first-time 
                            farmers.
Sec. 1116. Newspaper distributors treated as direct sellers.
Sec. 1117. Application of involuntary conversion rules to 
                            presidentially declared disasters.
Sec. 1118. Class life for gas station convenience stores and similar 
                            structures.
Sec. 1119. Treatment of abandonment of lessor improvements at 
                            termination of lease.
Sec. 1120. Deductibility of business meal expenses for certain seafood 
                            processing facilities.
Sec. 1121. Clarification of tax treatment of hard cider.
Sec. 1122. Special rules relating to determination whether individuals 
                            are employees for purposes of employment 
                            taxes.
Sec. 1123. Treatment of housing provided to employees by academic 
                            health centers.

          Subtitle B--Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. Research credit.
Sec. 1204. Orphan drug tax credit.
Sec. 1205. Contributions of stock to private foundations.
Sec. 1206. Extension of binding contract date for biomass and coal 
                            facilities.
Sec. 1207. Moratorium for excise tax on diesel fuel sold for use or 
                            used in diesel-powered motorboats.
Sec. 1208. Extension of transition rule for certain publicly traded 
                            partnerships.

           Subtitle C--Provisions Relating to S Corporations

Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid 
                            elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk 
                            rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain 
                            items of income.
Sec. 1314. S corporations eligible for rules applicable to real 
                            property subdivided for sale by 
                            noncorporate taxpayers.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.

                   Subtitle D--Pension Simplification

                Chapter 1--Simplified Distribution Rules

Sec. 1401. Repeal of 5-year income averaging for lump-sum 
                            distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under 
                            certain employer plans.
Sec. 1404. Required distributions.

            Chapter 2--Increased Access to Retirement Plans

                   subchapter a--simple savings plans
Sec. 1421. Establishment of savings incentive match plans for employees 
                            of small employers.
Sec. 1422. Extension subchapter b--other provisionsgements.
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
Sec. 1427. Homemakers eligible for full IRA deduction.

                Chapter 3--Nondiscrimination Provisions

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

                  Chapter 4--Miscellaneous Provisions

Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local 
                            governments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State 
                            and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 
                            415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Missing participants.
Sec. 1452. Repeal of limitation in case of defined benefit plan and 
                            defined contribution plan for same 
                            employee; excess distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension 
                            reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net 
                            earnings from self-employment.
Sec. 1457. Model forms for spousal consent and qualified domestic 
                            relations forms.
Sec. 1458. Treatment of length of service awards to volunteers 
                            performing fire fighting or prevention 
                            services, emergency medical services, or 
                            ambulance services.
Sec. 1459. Alternative nondiscrimination rules for certain plans that 
                            provide for early participation.
Sec. 1460. Modifications of joint and survivor annuity requirements.
Sec. 1461. Clarification of application of ERISA to insurance company 
                            general accounts.
Sec. 1462. Special rules for chaplains and self-employed ministers.
Sec. 1463. Definition of highly compensated employee for pre-ERISA 
                            church plans.
Sec. 1464. Rule relating to investment in contract not to apply to 
                            foreign missionaries.
Sec. 1465. Increase in guaranteed amount of multi-employer plan 
                            benefits.
Sec. 1466. Waiver of excise tax on failure to pay liquidity shortfall.
Sec. 1467. Treatment of multiemployer plans under section 415.
Sec. 1468. Payment of lump-sum credit for former spouses of Federal 
                            employees.
Sec. 1469. Date for adoption of plan amendments.

                      Subtitle E--Revenue Offsets

                       Part I--General Provisions

Sec. 1601. Modifications of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire 
                            employer securities.
Sec. 1603. Repeal of exclusion for punitive damages.
Sec. 1604. Extension and phasedown of luxury passenger automobile tax.
Sec. 1605. Termination of future tax-exempt bond financing for local 
                            furnishers of electricity and gas.
Sec. 1606. Repeal of financial institution transition rule to interest 
                            allocation rules.
Sec. 1607. Extension of airport and airway trust fund excise taxes.
Sec. 1608. Basis adjustment to property held by corporation where stock 
                            in corporation is replacement property 
                            under involuntary conversion rules.
Sec. 1609. Extension of withholding to certain gambling winnings.
Sec. 1610. Treatment of certain insurance contracts on retired lives.
Sec. 1611. Treatment of contributions in aid of construction.
Sec. 1612. Election to cease status as qualified scholarship funding 
                            corporation.
Sec. 1613. Certain tax benefits denied to individuals failing to 
                            provide taxpayer identification numbers.

          Part II--Financial Asset Securitization Investments

Sec. 1621. Financial asset securitization investment trusts.

           Part III--Treatment of Individuals Who Expatriate

Sec. 1631. Revision of tax rules on expatriation.
Sec. 1632. Information on individuals expatriating.
Sec. 1633. Report on tax compliance by United States citizens and 
                            residents living abroad.

                   Subtitle F--Technical Corrections

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

                      Subtitle G--Other Provisions

Sec. 1801. Exemption from diesel fuel dyeing requirements with respect 
                            to certain States.
Sec. 1802. Treatment of certain university accounts.
Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.
Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration 
                            facility.
Sec. 1805. Nonrecognition treatment for certain transfers by common 
                            trust funds to regulated investment 
                            companies.
Sec. 1806. Qualified State tuition programs.

                       TITLE II--PAYMENT OF WAGES

Sec. 2101. Short title.
Sec. 2102. Proper compensation for use of employer vehicles.
Sec. 2103. Effective date.
Sec. 2104. Minimum wage increase.
Sec. 2105. Fair Labor Standards Act Amendments.

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

SEC. 1101. AMENDMENT OF 1986 CODE.

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

SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

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

                      Subtitle A--Expensing; Etc.

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

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

        ``If the taxable year
                                                         The applicable
          begins in:
                                                             amount is:
                  1997...............................           18,000 
                  1998...............................           18,500 
                  1999...............................           19,000 
                  2000...............................           20,000 
                  2001...............................           24,000 
                  2002...............................           24,000 
                  2003 or thereafter.................        25,000.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

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

SEC. 1113. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL 
              ORGANIZATIONS.

    (a) General Rule.--Section 512 (defining unrelated business taxable 
income) is amended by adding at the end the following new subsection:
    ``(d) Treatment of Dues of Agricultural or Horticultural 
Organizations.--
            ``(1) In general.--If--
                    ``(A) an agricultural or horticultural organization 
                described in section 501(c)(5) requires annual dues to 
                be paid in order to be a member of such organization, 
                and
                    ``(B) the amount of such required annual dues does 
                not exceed $100,
        in no event shall any portion of such dues be treated as 
        derived by such organization from an unrelated trade or 
        business by reason of any benefits or privileges to which 
        members of such organization are entitled.
            ``(2) Indexation of $100 amount.--In the case of any 
        taxable year beginning in a calendar year after 1995, the $100 
        amount in paragraph (1) shall be increased by an amount equal 
        to--
                    ``(A) $100, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `calendar year 
                1994' for `calendar year 1992' in subparagraph (B) 
                thereof.
            ``(3) Dues.--For purposes of this subsection, the term 
        `dues' means any payment (whether or not designated as dues) 
        which is required to be made in order to be recognized by the 
        organization as a member of the organization.''.
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to taxable years beginning after December 31, 1986.
            (2) Transitional rule.--If--
                    (A) for purposes of applying part III of subchapter 
                F of chapter 1 of the Internal Revenue Code of 1986 to 
                any taxable year beginning before January 1, 1987, an 
                agricultural or horticultural organization did not 
                treat any portion of membership dues received by it as 
                income derived in an unrelated trade or business, and
                    (B) such organization had a reasonable basis for 
                not treating such dues as income derived in an 
                unrelated trade or business,
        then, for purposes of applying such part III to any such 
        taxable year, in no event shall any portion of such dues be 
        treated as derived in an unrelated trade or business.
            (3) Reasonable basis.--For purposes of paragraph (2), an 
        organization shall be treated as having a reasonable basis for 
        not treating membership dues as income derived in an unrelated 
        trade or business if the taxpayer's treatment of such dues was 
        in reasonable reliance on any of the following:
                    (A) Judicial precedent, published rulings, 
                technical advice with respect to the organization, or a 
                letter ruling to the organization.
                    (B) A past Internal Revenue Service audit of the 
                organization in which there was no assessment 
                attributable to the reclassification of membership dues 
                for purposes of the tax on unrelated business income.
                    (C) Long-standing recognized practice of 
                agricultural or horticultural organizations.

SEC. 1114. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN FISHERMEN.

    (a) Clarification of Employment Tax Status.--
            (1) Amendments of internal revenue code of 1986.--
                    (A) Determination of size of crew.--Subsection (b) 
                of section 3121 (defining employment) is amended by 
                adding at the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be 
treated as normally made up of fewer than 10 individuals if the average 
size of the operating crew on trips made during the preceding 4 
calendar quarters consisted of fewer than 10 individuals.''.
                    (B) Certain cash remuneration permitted.--
                Subparagraph (A) of section 3121(b)(20) is amended to 
                read as follows:
                    ``(A) such individual does not receive any cash 
                remuneration other than as provided in subparagraph (B) 
                and other than cash remuneration--
                            ``(i) which does not exceed $100 per trip;
                            ``(ii) which is contingent on a minimum 
                        catch; and
                            ``(iii) which is paid solely for additional 
                        duties (such as mate, engineer, or cook) for 
                        which additional cash remuneration is 
                        traditional in the industry,''.
                    (C) Conforming amendment.--Section 6050A(a) is 
                amended by striking ``and'' at the end of paragraph 
                (3), by striking the period at the end of paragraph (4) 
                and inserting ``; and'', and by adding at the end the 
                following new paragraph:
            ``(5) any cash remuneration described in section 
        3121(b)(20)(A).''.
            (2) Amendment of social security act.--
                    (A) Determination of size of crew.--Subsection (a) 
                of section 210 of the Social Security Act is amended by 
                adding at the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be 
treated as normally made up of fewer than 10 individuals if the average 
size of the operating crew on trips made during the preceding 4 
calendar quarters consisted of fewer than 10 individuals.''.
                    (B) Certain cash remuneration permitted.--
                Subparagraph (A) of section 210(a)(20) of such Act is 
                amended to read as follows:
                    ``(A) such individual does not receive any 
                additional compensation other than as provided in 
                subparagraph (B) and other than cash remuneration--
                            ``(i) which does not exceed $100 per trip;
                            ``(ii) which is contingent on a minimum 
                        catch; and
                            ``(iii) which is paid solely for additional 
                        duties (such as mate, engineer, or cook) for 
                        which additional cash remuneration is 
                        traditional in the industry,''.
    (b) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to remuneration paid--
                    (A) after December 31, 1994, and
                    (B) after December 31, 1984, and before January 1, 
                1995, unless the payor treated such remuneration (when 
                paid) as being subject to tax under chapter 21 of the 
                Internal Revenue Code of 1986.
            (2) Reporting requirement.--The amendment made by 
        subsection (a)(1)(C) shall apply to remuneration paid after 
        December 31, 1996.

SEC. 1115. MODIFICATIONS OF TAX-EXEMPT BOND RULES FOR FIRST-TIME 
              FARMERS.

    (a) Acquisition From Related Person Allowed.--Section 147(c)(2) 
(relating to exception for first-time farmers) is amended by adding at 
the end the following new subparagraph:
                    ``(G) Acquisition from related person.--For 
                purposes of this paragraph and section 144(a), the 
                acquisition by a first-time farmer of land or personal 
                property from a related person (within the meaning of 
                section 144(a)(3)) shall not be treated as an 
                acquisition from a related person, if--
                            ``(i) the acquisition price is for the fair 
                        market value of such land or property, and
                            ``(ii) subsequent to such acquisition, the 
                        related person does not have a financial 
                        interest in the farming operation with respect 
                        to which the bond proceeds are to be used.''.
    (b) Substantial Farmland Amount Doubled.--Clause (i) of section 
147(c)(2)(E) (defining substantial farmland) is amended by striking 
``15 percent'' and inserting ``30 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 1116. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.

    (a) In General.--Section 3508(b)(2)(A) is amended by striking 
``or'' at the end of clause (i), by inserting ``or'' at the end of 
clause (ii), and by inserting after clause (ii) the following new 
clause:
                            ``(iii) is engaged in the trade or business 
                        of the delivering or distribution of newspapers 
                        or shopping news (including any services 
                        directly related to such trade or business),''.
    (b) Effective Date.--The amendments made by this section shall 
apply to services performed after December 31, 1995.

SEC. 1117. APPLICATION OF INVOLUNTARY CONVERSION RULES TO 
              PRESIDENTIALLY DECLARED DISASTERS.

    (a) In General.--Section 1033(h) is amended by redesignating 
paragraphs (2) and (3) as paragraphs (3) and (4) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Trade or business and investment property.--If a 
        taxpayer's property held for productive use in a trade or 
        business or for investment is compulsorily or involuntarily 
        converted as a result of a Presidentially declared disaster, 
        tangible property of a type held for productive use in a trade 
        or business shall be treated for purposes of subsection (a) as 
        property similar or related in service or use to the property 
        so converted.''.
    (b) Conforming Amendments.--Section 1033(h) is amended--
            (1) by striking ``residence'' in paragraph (3) (as 
        redesignated by subsection (a)) and inserting ``property'',
            (2) by striking ``Principal Residences'' in the heading and 
        inserting ``Property'', and
            (3) by striking ``(1) In general.--'' and inserting ``(1) 
        Principal residences.--''.
    (c) Effective Date.--The amendments made by this section shall 
apply to disasters declared after December 31, 1994, in taxable years 
ending after such date.

SEC. 1118. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND SIMILAR 
              STRUCTURES.

    (a) In General.--Section 168(e)(3)(E) (classifying certain property 
as 15-year property) is amended by striking ``and'' at the end of 
clause (i), by striking the period at the end of clause (ii) and 
inserting ``, and'', and by adding at the end the following new clause:
                            ``(iii) any section 1250 property which is 
                        a retail motor fuels outlet (whether or not 
                        food or other convenience items are sold at the 
                        outlet).''.
    (b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) is 
amended by inserting after the item relating to subparagraph (E)(ii) in 
the table contained therein the following new item:

                              ``(E)(iii)................. 20''.

    (c) Effective Date.--The amendments made by this section shall 
apply to property which is placed in service on or after the date of 
the enactment of this Act and to which section 168 of the Internal 
Revenue Code of 1986 applies after the amendment made by section 201 of 
the Tax Reform Act of 1986. A taxpayer may elect (in such form and 
manner as the Secretary of the Treasury may prescribe) to have such 
amendments apply with respect to any property placed in service before 
such date and to which such section so applies.

SEC. 1119. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT 
              TERMINATION OF LEASE.

    (a) In General.--Paragraph (8) of section 168(i) is amended to read 
as follows:
            ``(8) Treatment of leasehold improvements.--
                    ``(A) In general.--In the case of any building 
                erected (or improvements made) on leased property, if 
                such building or improvement is property to which this 
                section applies, the depreciation deduction shall be 
                determined under the provisions of this section.
                    ``(B) Treatment of lessor improvements which are 
                abandoned at termination of lease.--An improvement--
                            ``(i) which is made by the lessor of leased 
                        property for the lessee of such property, and
                            ``(ii) which is irrevocably disposed of or 
                        abandoned by the lessor at the termination of 
                        the lease by such lessee,
                shall be treated for purposes of determining gain or 
                loss under this title as disposed of by the lessor when 
                so disposed of or abandoned.''.
    (b) Effective Date.--Subparagraph (B) of section 168(i)(8) of the 
Internal Revenue Code of 1986, as added by the amendment made by 
subsection (a), shall apply to improvements disposed of or abandoned 
after June 12, 1996.

SEC. 1120. DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR CERTAIN SEAFOOD 
              PROCESSING FACILITIES.

    (a) In General.--Subparagraph (E) of section 274(n)(2) is amended 
by striking ``or'' at the end of clause (iii), by striking the period 
at the end of clause (iv) and inserting ``, or'', and by inserting 
after clause (iv) the following new clause:
                            ``(v) provided at a remote seafood 
                        processing facility located in the United 
                        States north of 53 degrees north latitude.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1121. CLARIFICATION OF TAX TREATMENT OF HARD CIDER.

    (a) Hard Cider Containing Not More Than 7 Percent Alcohol Taxed as 
Wine.--Subsection (b) of section 5041 (relating to imposition and rate 
of tax) is amended by striking ``and'' at the end of paragraph (4), by 
striking the period at the end of paragraph (5) and inserting ``; 
and'', and by adding at the end the following new paragraph:
            ``(6) On hard cider derived primarily from apples or apple 
        concentrate and water, containing no other fruit product, and 
        containing at least one-half of 1 percent and not more than 7 
        percent of alcohol by volume, 22.6 cents per wine gallon.''.
    (b) Exclusion From Small Producer Credit.--Paragraph (1) of section 
5041(c) (relating to credit for small domestic producers) is amended by 
striking ``subsection (b)(4)'' and inserting ``paragraphs (4) and (6) 
of subsection (b)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1997.

SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS 
              ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.

    (a) In General.--Section 530 of the Revenue Act of 1978 is amended 
by adding at the end the following new subsection:
    ``(e) Special Rules for Application of Section.--
            ``(1) Notice requirements.--
                    ``(A) Written agreement required between taxpayer 
                and individual.--The provisions of subsection (a)(1) 
                shall not apply with respect to a taxpayer and any 
                individual unless such taxpayer and individual sign a 
                statement (at such time and in such form as the 
                Secretary may prescribe) which provides that such 
                individual will not be treated as an employee of the 
                taxpayer for purposes of employment taxes.
                    ``(B) Notice of availability of section.--An 
                officer or employee of the Internal Revenue Service 
                shall, before or at the commencement of any audit 
                relating to the employment status of one or more 
                individuals who perform services for the taxpayer, 
                provide the taxpayer with a written notice of the 
                provisions of this section.
            ``(2) Rules relating to statutory standards.--For purposes 
        of subsection (a)(2)--
                    ``(A) a taxpayer may not rely on an audit commenced 
                after December 31, 1996, for purposes of subparagraph 
                (B) thereof unless such audit included an examination 
                for employment tax purposes of whether the individual 
                involved (or any individual holding a position 
                substantially similar to the position held by the 
                individual involved) should be treated as an employee 
                of the taxpayer,
                    ``(B) in no event shall the significant segment 
                requirement of subparagraph (C) thereof be construed to 
                require a reasonable showing of the practice of more 
                than 25 percent of the industry (determined by not 
                taking into account the taxpayer), and
                    ``(C) in applying the long-standing recognized 
                practice requirement of subparagraph (C) thereof--
                            ``(i) such requirement shall not be 
                        construed as requiring the practice to have 
                        continued for more than 10 years, and
                            ``(ii) a practice shall not fail to be 
                        treated as long-standing merely because such 
                        practice began after 1978.
            ``(3) Availability of safe harbors.--Nothing in this 
        section shall be construed to provide that subsection (a) only 
        applies where the individual involved is otherwise an employee 
        of the taxpayer.
            ``(4) Burden of proof.--
                    ``(A) In general.--If--
                            ``(i) a taxpayer establishes a prima facie 
                        case that it was reasonable not to treat an 
                        individual as an employee for purposes of this 
                        section, and
                            ``(ii) the taxpayer has fully cooperated 
                        with reasonable requests from the Secretary of 
                        the Treasury or his delegate,
                then the burden of proof with respect to such treatment 
                shall be on the Secretary.
                    ``(B) Exception for other reasonable basis.--In the 
                case of any issue involving whether the taxpayer had a 
                reasonable basis not to treat an individual as an 
                employee for purposes of this section, subparagraph (A) 
                shall only apply for purposes of determining whether 
                the taxpayer meets the requirements of subparagraph 
                (A), (B), or (C) of subsection (a)(2).
            ``(5) Preservation of prior period safe harbor.--If--
                    ``(A) an individual would (but for the treatment 
                referred to in subparagraph (B)) be deemed not to be an 
                employee of the taxpayer under subsection (a) for any 
                prior period, and
                    ``(B) such individual is treated by the taxpayer as 
                an employee for employment tax purposes for any 
                subsequent period,
        then, for purposes of applying such taxes for such prior period 
        with respect to the taxpayer, the individual shall be deemed 
        not to be an employee.
            ``(6) Substantially similar position.--For purposes of this 
        section, the determination as to whether an individual holds a 
        position substantially similar to a position held by another 
        individual shall include consideration of the relationship 
        between the taxpayer and such individuals.''.
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to periods after December 31, 1996.
            (2) Notice requirements.--
                    (A) Written agreement.--In the case of individuals 
                who first perform services for a taxpayer before 
                January 1, 1997, the requirements of section 
                530(e)(1)(A) of the Revenue Act of 1978 (as added by 
                subsection (a)) shall not apply before January 1, 1998, 
                unless the taxpayer elects to apply such requirements 
                before such date.
                    (B) Notice by internal revenue service.--Section 
                530(e)(1)(B) of the Revenue Act of 1978 (as added by 
                subsection (a)) shall apply to audits which commence 
                after December 31, 1996.
            (3) Burden of proof.--
                    (A) In general.--Section 530(e)(4) of the Revenue 
                Act of 1978 (as added by subsection (a)) shall apply to 
                disputes involving periods after December 31, 1996.
                    (B) No inference.--Nothing in the amendments made 
                by this section shall be construed to infer the proper 
                treatment of the burden of proof with respect to 
                disputes involving periods before January 1, 1997.

SEC. 1123. TREATMENT OF HOUSING PROVIDED TO EMPLOYEES BY ACADEMIC 
              HEALTH CENTERS.

    (a) In General.--Paragraph (4) of section 119(d) (relating to 
lodging furnished by certain educational institutions to employees) is 
amended to read as follows:
            ``(4) Educational institution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `educational 
                institution' means--
                            ``(i) an institution described in section 
                        170(b)(1)(A)(ii), or
                            ``(ii) an academic health center.
                    ``(B) Academic health center.--For purposes of 
                subparagraph (A), the term `academic health center' 
                means an entity--
                            ``(i) which is described in section 
                        170(b)(1)(A)(iii),
                            ``(ii) which receives (during the calendar 
                        year in which the taxable year of the taxpayer 
                        begins) payments under subsection (d)(5)(B) or 
                        (h) of section 1886 of the Social Security Act 
                        (relating to graduate medical education), and
                            ``(iii) which has as one of its principal 
                        purposes or functions the providing and 
                        teaching of basic and clinical medical science 
                        and research with the entity's own faculty.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1995.

          Subtitle B--Extension of Certain Expiring Provisions

SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

    (a) Amount of Credit.--Subsection (a) of section 51 (relating to 
amount of credit) is amended by striking ``40 percent'' and inserting 
``35 percent''.
    (b) Members of Targeted Groups.--Subsection (d) of section 51 is 
amended to read as follows:
    ``(d) Members of Targeted Groups.--For purposes of this subpart--
            ``(1) In general.--An individual is a member of a targeted 
        group if such individual is--
                    ``(A) a qualified IV-A recipient,
                    ``(B) a qualified veteran,
                    ``(C) a qualified ex-felon,
                    ``(D) a high-risk youth,
                    ``(E) a vocational rehabilitation referral,
                    ``(F) a qualified summer youth employee, or
                    ``(G) a qualified food stamp recipient.
            ``(2) Qualified iv-a recipient.--
                    ``(A) In general.--The term `qualified IV-A 
                recipient' means any individual who is certified by the 
                designated local agency as being a member of a family 
                receiving assistance under a IV-A program for at least 
                a 9-month period ending during the 9-month period 
                ending on the hiring date.
                    ``(B) IV-A program.--For purposes of this 
                paragraph, the term `IV-A program' means any program 
                providing assistance under a State plan approved under 
                part A of title IV of the Social Security Act (relating 
                to assistance for needy families with minor children) 
                and any successor of such program.
            ``(3) Qualified veteran.--
                    ``(A) In general.--The term `qualified veteran' 
                means any veteran who is certified by the designated 
                local agency as being--
                            ``(i) a member of a family receiving 
                        assistance under a IV-A program (as defined in 
                        paragraph (2)(B)) for at least a 9-month period 
                        ending during the 12-month period ending on the 
                        hiring date, or
                            ``(ii) a member of a family receiving 
                        assistance under a food stamp program under the 
                        Food Stamp Act of 1977 for at least a 3-month 
                        period ending during the 12-month period ending 
                        on the hiring date.
                    ``(B) Veteran.--For purposes of subparagraph (A), 
                the term `veteran' means any individual who is 
                certified by the designated local agency as--
                            ``(i)(I) having served on active duty 
                        (other than active duty for training) in the 
                        Armed Forces of the United States for a period 
                        of more than 180 days, or
                            ``(II) having been discharged or released 
                        from active duty in the Armed Forces of the 
                        United States for a service-connected 
                        disability, and
                            ``(ii) not having any day during the 60-day 
                        period ending on the hiring date which was a 
                        day of extended active duty in the Armed Forces 
                        of the United States.
                For purposes of clause (ii), the term `extended active 
                duty' means a period of more than 90 days during which 
                the individual was on active duty (other than active 
                duty for training).
            ``(4) Qualified ex-felon.--The term `qualified ex-felon' 
        means any individual who is certified by the designated local 
        agency--
                    ``(A) as having been convicted of a felony under 
                any statute of the United States or any State,
                    ``(B) as having a hiring date which is not more 
                than 1 year after the last date on which such 
                individual was so convicted or was released from 
                prison, and
                    ``(C) as being a member of a family which had an 
                income during the 6 months immediately preceding the 
                earlier of the month in which such income determination 
                occurs or the month in which the hiring date occurs, 
                which, on an annual basis, would be 70 percent or less 
                of the Bureau of Labor Statistics lower living 
                standard.
        Any determination under subparagraph (C) shall be valid for the 
        45-day period beginning on the date such determination is made.
            ``(5) High-risk youth.--
                    ``(A) In general.--The term `high-risk youth' means 
                any individual who is certified by the designated local 
                agency--
                            ``(i) as having attained age 18 but not age 
                        25 on the hiring date, and
                            ``(ii) as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Youth must continue to reside in zone.--In 
                the case of a high-risk youth, the term `qualified 
                wages' shall not include wages paid or incurred for 
                services performed while such youth's principal place 
                of abode is outside an empowerment zone or enterprise 
                community.
            ``(6) Vocational rehabilitation referral.--The term 
        `vocational rehabilitation referral' means any individual who 
        is certified by the designated local agency as--
                    ``(A) having a physical or mental disability which, 
                for such individual, constitutes or results in a 
                substantial handicap to employment, and
                    ``(B) having been referred to the employer upon 
                completion of (or while receiving) rehabilitative 
                services pursuant to--
                            ``(i) an individualized written 
                        rehabilitation plan under a State plan for 
                        vocational rehabilitation services approved 
                        under the Rehabilitation Act of 1973, or
                            ``(ii) a program of vocational 
                        rehabilitation carried out under chapter 31 of 
                        title 38, United States Code.
            ``(7) Qualified summer youth employee.--
                    ``(A) In general.--The term `qualified summer youth 
                employee' means any individual--
                            ``(i) who performs services for the 
                        employer between May 1 and September 15,
                            ``(ii) who is certified by the designated 
                        local agency as having attained age 16 but not 
                        18 on the hiring date (or if later, on May 1 of 
                        the calendar year involved),
                            ``(iii) who has not been an employee of the 
                        employer during any period prior to the 90-day 
                        period described in subparagraph (B)(i), and
                            ``(iv) who is certified by the designated 
                        local agency as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Special rules for determining amount of 
                credit.--For purposes of applying this subpart to wages 
                paid or incurred to any qualified summer youth 
                employee--
                            ``(i) subsection (b)(2) shall be applied by 
                        substituting `any 90-day period between May 1 
                        and September 15' for `the 1-year period 
                        beginning with the day the individual begins 
                        work for the employer', and
                            ``(ii) subsection (b)(3) shall be applied 
                        by substituting `$3,000' for `$6,000'.
                The preceding sentence shall not apply to an individual 
                who, with respect to the same employer, is certified as 
                a member of another targeted group after such 
                individual has been a qualified summer youth employee.
                    ``(C) Youth must continue to reside in zone.--
                Paragraph (5)(B) shall apply for purposes of 
                subparagraph (A)(iv).
            ``(8) Qualified food stamp recipient.--
                    ``(A) In general.--The term `qualified food stamp 
                recipient' means any individual who is certified by the 
                designated local agency--
                            ``(i) as having attained age 18 but not age 
                        25 on the hiring date, and
                            ``(ii) as being a member of a family 
                        receiving assistance under a food stamp program 
                        under the Food Stamp Act of 1977 for the 3-
                        month period ending on the hiring date.
                    ``(B) Participation information.--Notwithstanding 
                any other provision of law, the Secretary of the 
                Treasury and the Secretary of Agriculture shall enter 
                into an agreement to provide information to designated 
                local agencies with respect to participation in the 
                food stamp program.
            ``(9) Hiring date.--The term `hiring date' means the day 
        the individual is hired by the employer.
            ``(10) Designated local agency.--The term `designated local 
        agency' means a State employment security agency established in 
        accordance with the Act of June 6, 1933, as amended (29 U.S.C. 
        49-49n).
            ``(11) Special rules for certifications.--
                    ``(A) In general.--An individual shall not be 
                treated as a member of a targeted group unless--
                            ``(i) on or before the day on which such 
                        individual begins work for the employer, the 
                        employer has received a certification from a 
                        designated local agency that such individual is 
                        a member of a targeted group, or
                            ``(ii)(I) on or before the day the 
                        individual is offered employment with the 
                        employer, a pre-screening notice is completed 
                        by the employer with respect to such 
                        individual, and
                            ``(II) not later than the 21st day after 
                        the individual begins work for the employer, 
                        the employer submits such notice, signed by the 
                        employer and the individual under penalties of 
                        perjury, to the designated local agency as part 
                        of a written request for such a certification 
                        from such agency.
                For purposes of this paragraph, the term `pre-screening 
                notice' means a document (in such form as the Secretary 
                shall prescribe) which contains information provided by 
                the individual on the basis of which the employer 
                believes that the individual is a member of a targeted 
                group.
                    ``(B) Incorrect certifications.--If--
                            ``(i) an individual has been certified by a 
                        designated local agency as a member of a 
                        targeted group, and
                            ``(ii) such certification is incorrect 
                        because it was based on false information 
                        provided by such individual,
                the certification shall be revoked and wages paid by 
                the employer after the date on which notice of 
                revocation is received by the employer shall not be 
                treated as qualified wages.
                    ``(C) Explanation of denial of request.--If a 
                designated local agency denies a request for 
                certification of membership in a targeted group, such 
                agency shall provide to the person making such request 
                a written explanation of the reasons for such 
                denial.''.
    (c) Minimum Employment Period.--Paragraph (3) of section 51(i) 
(relating to certain individuals ineligible) is amended to read as 
follows:
            ``(3) Individuals not meeting minimum employment period.--
        No wages shall be taken into account under subsection (a) with 
        respect to any individual unless such individual either--
                    ``(A) is employed by the employer at least 180 days 
                (20 days in the case of a qualified summer youth 
                employee), or
                    ``(B) has completed at least 375 hours (120 hours 
                in the case of a qualified summer youth employee) of 
                services performed for the employer.''.
    (d) Termination.--Paragraph (4) of section 51(c) (relating to wages 
defined) is amended to read as follows:
            ``(4) Termination.--The term `wages' shall not include any 
        amount paid or incurred to an individual who begins work for 
        the employer--
                    ``(A) after December 31, 1994, and before October 
                1, 1996, or
                    ``(B) after September 30, 1997.''.
    (e) Redesignation of Credit.--
            (1) Sections 38(b)(2) and 51(a) are each amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (2) The subpart heading for subpart F of part IV of 
        subchapter A of chapter 1 is amended by striking ``Targeted 
        Jobs Credit'' and inserting ``Work Opportunity Credit''.
            (3) The table of subparts for such part IV is amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (4) The heading for paragraph (3) of section 1396(c) is 
        amended by striking ``targeted jobs credit'' and inserting 
        ``work opportunity credit''.
    (f) Technical Amendment.--Paragraph (1) of section 51(c) is amended 
by striking ``, subsection (d)(8)(D),''.
    (g) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after September 
30, 1996.

SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

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

SEC. 1203. RESEARCH CREDIT.

    (a) In General.--Subsection (h) of section 41 (relating to credit 
for research activities) is amended to read as follows:
    ``(h) Termination.--
            ``(1) In general.--This section shall not apply to any 
        amount paid or incurred--
                    ``(A) after June 30, 1995, and before July 1, 1996, 
                or
                    ``(B) after December 31, 1997.
        Notwithstanding the preceding sentence, in the case of a 
        taxpayer making an election under subsection (c)(4) for its 
        first taxable year beginning after June 30, 1996, and before 
        July 1, 1997, this section shall apply to amounts paid or 
        incurred during such first taxable year and the first 6 months 
        of the succeeding taxable year.''
            ``(2) Computation of base amount.--In the case of any 
        taxable year with respect to which this section applies to a 
        number of days which is less than the total number of days in 
        such taxable year, the base amount with respect to such taxable 
        year shall be the amount which bears the same ratio to the base 
        amount for such year (determined without regard to this 
        paragraph) as the number of days in such taxable year to which 
        this section applies bears to the total number of days in such 
        taxable year.''.
    (b) Base Amount for Start-Up Companies.--Clause (i) of section 
41(c)(3)(B) (relating to start-up companies) is amended to read as 
follows:
                            ``(i)  Taxpayers to which subparagraph 
                        applies.--The fixed-base percentage shall be 
                        determined under this subparagraph if--
                                    ``(I) the first taxable year in 
                                which a taxpayer had both gross 
                                receipts and qualified research 
                                expenses begins after December 31, 
                                1983, or
                                    ``(II) there are fewer than 3 
                                taxable years beginning after December 
                                31, 1983, and before January 1, 1989, 
                                in which the taxpayer had both gross 
                                receipts and qualified research 
                                expenses.''.
    (c) Election of Alternative Incremental Credit.--Subsection (c) of 
section 41 is amended by redesignating paragraphs (4) and (5) as 
paragraphs (5) and (6), respectively, and by inserting after paragraph 
(3) the following new paragraph:
            ``(4) Election of alternative incremental credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to the sum of--
                            ``(i) 1.65 percent of so much of the 
                        qualified research expenses for the taxable 
                        year as exceeds 1 percent of the average 
                        described in subsection (c)(1)(B) but does not 
                        exceed 1.5 percent of such average,
                            ``(ii) 2.2 percent of so much of such 
                        expenses as exceeds 1.5 percent of such average 
                        but does not exceed 2 percent of such average, 
                        and
                            ``(iii) 2.75 percent of so much of such 
                        expenses as exceeds 2 percent of such average.
                    ``(B) Election.--An election under this paragraph 
                may be made only for the first taxable year of the 
                taxpayer beginning after June 30, 1996. Such an 
                election shall apply to the taxable year for which made 
                and all succeeding taxable years unless revoked with 
                the consent of the Secretary.''.
    (d) Increased Credit for Contract Research Expenses With Respect to 
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended 
by adding at the end the following new subparagraph:
                    ``(C) Amounts paid to certain research consortia.--
                            ``(i) In general.--Subparagraph (A) shall 
                        be applied by substituting `75 percent' for `65 
                        percent' with respect to amounts paid or 
                        incurred by the taxpayer to a qualified 
                        research consortium for qualified research on 
                        behalf of the taxpayer and 1 or more unrelated 
                        taxpayers. For purposes of the preceding 
                        sentence, all persons treated as a single 
                        employer under subsection (a) or (b) of section 
                        52 shall be treated as related taxpayers.
                            ``(ii) Qualified research consortium.--The 
                        term `qualified research consortium' means any 
                        organization which--
                                    ``(I) is described in section 
                                501(c)(3) or 501(c)(6) and is exempt 
                                from tax under section 501(a),
                                    ``(II) is organized and operated 
                                primarily to conduct scientific 
                                research, and
                                    ``(III) is not a private 
                                foundation.''.
    (e)  Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is 
amended by inserting ``, and before July 1, 1996, and periods after 
December 31, 1997'' after ``June 30, 1995''.
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending after June 30, 1996.
            (2) Subsections (c) and (d).--The amendments made by 
        subsections (c) and (d) shall apply to taxable years beginning 
        after June 30, 1996.
            (3) Estimated tax.--The amendments made by this section 
        shall not be taken into account under section 6654 or 6655 of 
        the Internal Revenue Code of 1986 (relating to failure to pay 
        estimated tax) in determining the amount of any installment 
        required to be paid before October 1, 1996.

SEC. 1204. ORPHAN DRUG TAX CREDIT.

    (a) Recategorized as a Business Credit.--
            (1) In general.--Section 28 (relating to clinical testing 
        expenses for certain drugs for rare diseases or conditions) is 
        transferred to subpart D of part IV of subchapter A of chapter 
        1, inserted after section 45B, and redesignated as section 45C.
            (2) Conforming amendment.--Subsection (b) of section 38 
        (relating to general business credit) is amended by striking 
        ``plus'' at the end of paragraph (10), by striking the period 
        at the end of paragraph (11) and inserting ``, plus'', and by 
        adding at the end the following new paragraph:
            ``(12) the orphan drug credit determined under section 
        45C(a).''.
            (3) Clerical amendments.--
                    (A) The table of sections for subpart B of such 
                part IV is amended by striking the item relating to 
                section 28.
                    (B) The table of sections for subpart D of such 
                part IV is amended by adding at the end the following 
                new item:

        ``Sec. 45C. Clinical testing expenses for certain drugs for 
                            rare diseases or conditions.''.
    (b) Credit Termination.--Subsection (e) of section 45C, as 
redesignated by subsection (a)(1), is amended to read as follows:
    ``(e) Termination.--This section shall not apply to any amount paid 
or incurred--
                    ``(A) after December 31, 1994, and before July 1, 
                1996, or
                    ``(B) after December 31, 1997.''.
    (c) No Pre-July 1, 1996 Carrybacks.--Subsection (d) of section 39 
(relating to carryback and carryforward of unused credits) is amended 
by adding at the end the following new paragraph:
            ``(7) No carryback of section 45c credit before july 1, 
        1996.--No portion of the unused business credit for any taxable 
        year which is attributable to the orphan drug credit determined 
        under section 45C may be carried back to a taxable year ending 
        before July 1, 1996.''.
    (d) Additional Conforming Amendments.--
            (1) Section 45C(a), as redesignated by subsection (a)(1), 
        is amended by striking ``There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year'' 
        and inserting ``For purposes of section 38, the credit 
        determined under this section for the taxable year is''.
            (2) Section 45C(d), as so redesignated, is amended by 
        striking paragraph (2) and by redesignating paragraphs (3), 
        (4), and (5) as paragraphs (2), (3), and (4).
            (3) Section 29(b)(6)(A) is amended by striking ``sections 
        27 and 28'' and inserting ``section 27''.
            (4) Section 30(b)(3)(A) is amended by striking ``sections 
        27, 28, and 29'' and inserting ``sections 27 and 29''.
            (5) Section 53(d)(1)(B) is amended--
                    (A) by striking ``or not allowed under section 28 
                solely by reason of the application of section 
                28(d)(2)(B),'' in clause (iii), and
                    (B) by striking ``or not allowed under section 28 
                solely by reason of the application of section 
                28(d)(2)(B)'' in clause (iv)(II).
            (6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
            (7) Section 280C(b) is amended--
                    (A) by striking ``section 28(b)'' in paragraph (1) 
                and inserting ``section 45C(b)'',
                    (B) by striking ``section 28'' in paragraphs (1) 
                and (2)(A) and inserting ``section 45C(b)'', and
                    (C) by striking ``subsection (d)(2) thereof'' in 
                paragraphs (1) and (2)(A) and inserting ``section 
                38(c)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years ending after June 
30, 1996.

SEC. 1205. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Subparagraph (D) of section 170(e)(5) (relating to 
special rule for contributions of stock for which market quotations are 
readily available) is amended to read as follows:
                    ``(D) Termination.--This paragraph shall not apply 
                to contributions made--
                    ``(A) after December 31, 1994, and before July 1, 
                1996, or
                    ``(B) after December 31, 1997.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made after June 30, 1996.

SEC. 1206. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND COAL 
              FACILITIES.

    (a) In General.--Subparagraph (A) of section 29(g)(1) (relating to 
extension of certain facilities) is amended by striking ``January 1, 
1997'' and inserting ``January 1, 1999'' and by striking ``January 1, 
1996'' and inserting ``the date which is 6 months after the date of the 
enactment of the Small Business Job Protection Act of 1996''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1207. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR USE OR 
              USED IN DIESEL-POWERED MOTORBOATS.

    Subparagraph (D) of section 4041(a)(1) (relating to the imposition 
of tax on diesel fuel and special motor fuels) is amended by 
redesignating clauses (i) and (ii) as clauses (ii) and (iii), 
respectively, and by inserting before clause (ii) (as redesignated) the 
following new clause:
                            ``(i) no tax shall be imposed by subsection 
                        (a) or (d)(1) during the period beginning on 
                        the date which is 7 days after the date of the 
                        enactment of the Small Business Job Protection 
                        Act of 1996 and ending on December 31, 1997.''.

SEC. 1208. EXTENSION OF TRANSITION RULE FOR CERTAIN PUBLICLY TRADED 
              PARTNERSHIPS.

    (a) In General.--Subparagraph (B) of section 10211(c)(1) of the 
Revenue Act of 1987 (Public Law 100-203) is amended by striking 
``December 31, 1997'' and inserting ``December 31, 1999''.
    (b) Conforming Amendment.--Subparagraph (C)(i) of section 
10211(c)(2) of the Revenue Act of 1987, as added by section 2004(f)(2) 
of the Technical and Miscellaneous Revenue Act of 1988, is amended by 
striking ``December 31, 1997'' and inserting ``December 31, 1999''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of section 10211 of the Revenue 
Act of 1987.

           Subtitle C--Provisions Relating to S Corporations

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

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

SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

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

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

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

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

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

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

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

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

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

SEC. 1306. AGREEMENT TO TERMINATE YEAR.

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

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

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

                                ``For addition to tax in the case of a 
shareholder's negligence in connection with, or disregard of, the 
requirements of this section, see part II of subchapter A of chapter 
68.''.
            (3) Conforming amendments.--
                    (A) Section 1366 is amended by striking subsection 
                (g).
                    (B) Subsection (b) of section 6233 is amended to 
                read as follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership return is 
filed for any taxable year but it is determined that there is no entity 
for such taxable year, to the extent provided in regulations, rules 
similar to the rules of subsection (a) shall apply.''.
                    (C) The table of subchapters for chapter 63 is 
                amended by striking the item relating to subchapter D.

SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) In General.--Paragraph (2) of section 1361(b) (defining 
ineligible corporation) is amended by striking subparagraph (A) and by 
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs 
(A), (B), (C), and (D), respectively.
    (b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by 
adding at the end the following new paragraph:
            ``(3) Treatment of certain wholly owned subsidiaries.--
                    ``(A) In general.--For purposes of this title--
                            ``(i) a corporation which is a qualified 
                        subchapter S subsidiary shall not be treated as 
                        a separate corporation, and
                            ``(ii) all assets, liabilities, and items 
                        of income, deduction, and credit of a qualified 
                        subchapter S subsidiary shall be treated as 
                        assets, liabilities, and such items (as the 
                        case may be) of the S corporation.
                    ``(B) Qualified subchapter s subsidiary.--For 
                purposes of this paragraph, the term `qualified 
                subchapter S subsidiary' means any domestic corporation 
                which is not an ineligible corporation (as defined in 
                paragraph (2)), if--
                            ``(i) 100 percent of the stock of such 
                        corporation is held by the S corporation, and
                            ``(ii) the S corporation elects to treat 
                        such corporation as a qualified subchapter S 
                        subsidiary.
                    ``(C) Treatment of terminations of qualified 
                subchapter s subsidiary status.--For purposes of this 
                title, if any corporation which was a qualified 
                subchapter S subsidiary ceases to meet the requirements 
                of subparagraph (B), such corporation shall be treated 
                as a new corporation acquiring all of its assets (and 
                assuming all of its liabilities) immediately before 
                such cessation from the S corporation in exchange for 
                its stock.
                    ``(D) Election after termination.--If a 
                corporation's status as a qualified subchapter S 
                subsidiary terminates, such corporation (and any 
                successor corporation) shall not be eligible to make--
                            ``(i) an election under subparagraph 
                        (B)(ii) to be treated as a qualified subchapter 
                        S subsidiary, or
                            ``(ii) an election under section 1362(a) to 
                        be treated as an S corporation,
                before its 5th taxable year which begins after the 1st 
                taxable year for which such termination was effective, 
                unless the Secretary consents to such election.''.
    (c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Treatment of certain dividends.--If an S 
                corporation holds stock in a C corporation meeting the 
                requirements of section 1504(a)(2), the term `passive 
                investment income' shall not include dividends from 
                such C corporation to the extent such dividends are 
                attributable to the earnings and profits of such C 
                corporation derived from the active conduct of a trade 
                or business.''.
    (d) Conforming Amendments.--
            (1) Subsection (c) of section 1361 is amended by striking 
        paragraph (6).
            (2) Subsection (b) of section 1504 (defining includible 
        corporation) is amended by adding at the end the following new 
        paragraph:
            ``(8) An S corporation.''.

SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

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

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

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

SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

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

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

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

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

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

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

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

SEC. 1315. FINANCIAL INSTITUTIONS.

    Subparagraph (A) of section 1361(b)(2) (defining ineligible 
corporation), as redesignated by section 1308(a), is amended to read as 
follows:
                    ``(A) a financial institution which uses the 
                reserve method of accounting for bad debts described in 
                section 585 or 593,''.

SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE SHAREHOLDERS.

    (a) Eligibility To Be Shareholders.--
            (1) In general.--Subparagraph (B) of section 1361(b)(1) 
        (defining small business corporation) is amended to read as 
        follows:
                    ``(B) have as a shareholder a person (other than an 
                estate, a trust described in subsection (c)(2), or an 
                organization described in subsection (c)(7)) who is not 
                an individual,''.
            (2) Eligible exempt organizations.--Section 1361(c) 
        (relating to special rules for applying subsection (b)) is 
        amended by adding at the end the following new paragraph:
            ``(7) Certain exempt organizations permitted as 
        shareholders.--For purposes of subsection (b)(1)(B), an 
        organization which is--
                    ``(A) described in section 401(a) or 501(c)(3), and
                    ``(B) exempt from taxation under section 501(a),
        may be a shareholder in an S corporation.''.
    (b) Contributions of S Corporation Stock.--Section 170(e)(1) 
(relating to certain contributions of ordinary income and capital gain 
property) is amended by adding at the end the following new sentence: 
``For purposes of applying this paragraph in the case of a charitable 
contribution of stock in an S corporation, rules similar to the rules 
of section 751 shall apply in determining whether gain on such stock 
would have been long-term capital gain if such stock were sold by the 
taxpayer.''
    (c) Treatment of Income.--Section 512 (relating to unrelated 
business taxable income), as amended by section 1113, is amended by 
adding at the end the following new subsection:
    ``(e) Special Rules Applicable to S Corporations.--If an 
organization described in section 1361(c)(7) holds stock in an S 
corporation--
            ``(1) such interest shall be treated as an interest in an 
        unrelated trade or business; and
            ``(2) notwithstanding any other provision of this part, all 
        items of income, loss, deduction, or credit taken into account 
        under section 1366(a) and any gain or loss on the disposition 
        of the stock in the S corporation shall be taken into account 
        in computing the unrelated business taxable income of such 
        organization.''.
    (d) Certain Benefits not Applicable to S Corporations.--
            (1) Contribution to esops.--Paragraph (9) of section 404(a) 
        (relating to certain contributions to employee ownership plans) 
        is amended by inserting at the end the following new 
        subparagraph:
                    ``(C) S corporations.--This paragraph shall not 
                apply to an S corporation.''.
            (2) Dividends on employer securities.--Paragraph (1) of 
        section 404(k) (relating to deduction for dividends on certain 
        employer securities) is amended by striking ``a corporation'' 
        and inserting ``a C corporation''.
            (3) Exchange treatment.--Subparagraph (A) of section 
        1042(c)(1) (defining qualified securities) is amended by 
        striking ``domestic corporation'' and inserting ``domestic C 
        corporation''.
    (e) Conforming Amendment.--Clause (i) of section 1361(e)(1)(A), as 
added by section 1302, is amended by striking ``which holds a 
contingent interest and is not a potential current beneficiary''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1317. EFFECTIVE DATE.

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

                   Subtitle D--Pension Simplification

                CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES

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

    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended to read as 
follows:
    ``(d) Taxability of Beneficiary of Certain Foreign Situs Trusts.--
For purposes of subsections (a), (b), and (c), a stock bonus, pension, 
or profit-sharing trust which would qualify for exemption from tax 
under section 501(a) except for the fact that it is a trust created or 
organized outside the United States shall be treated as if it were a 
trust exempt from tax under section 501(a).''.
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 402(e)(4) (relating to 
        other rules applicable to exempt trusts) is amended to read as 
        follows:
                    ``(D) Lump-sum distribution.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `lump sum 
                        distribution' means the distribution or payment 
                        within one taxable year of the recipient of the 
                        balance to the credit of an employee which 
                        becomes payable to the recipient--
                                    ``(I) on account of the employee's 
                                death,
                                    ``(II) after the employee attains 
                                age 59\1/2\,
                                    ``(III) on account of the 
                                employee's separation from service, or
                                    ``(IV) after the employee has 
                                become disabled (within the meaning of 
                                section 72(m)(7)),
                        from a trust which forms a part of a plan 
                        described in section 401(a) and which is exempt 
                        from tax under section 501 or from a plan 
                        described in section 403(a). Subclause (III) of 
                        this clause shall be applied only with respect 
                        to an individual who is an employee without 
                        regard to section 401(c)(1), and subclause (IV) 
                        shall be applied only with respect to an 
                        employee within the meaning of section 
                        401(c)(1). For purposes of this clause, a 
                        distribution to two or more trusts shall be 
                        treated as a distribution to one recipient. For 
                        purposes of this paragraph, the balance to the 
                        credit of the employee does not include the 
                        accumulated deductible employee contributions 
                        under the plan (within the meaning of section 
                        72(o)(5)).
                            ``(ii) Aggregation of certain trusts and 
                        plans.--For purposes of determining the balance 
                        to the credit of an employee under clause (i)--
                                    ``(I) all trusts which are part of 
                                a plan shall be treated as a single 
                                trust, all pension plans maintained by 
                                the employer shall be treated as a 
                                single plan, all profit-sharing plans 
                                maintained by the employer shall be 
                                treated as a single plan, and all stock 
                                bonus plans maintained by the employer 
                                shall be treated as a single plan, and
                                    ``(II) trusts which are not 
                                qualified trusts under section 401(a) 
                                and annuity contracts which do not 
                                satisfy the requirements of section 
                                404(a)(2) shall not be taken into 
                                account.
                            ``(iii) Community property laws.--The 
                        provisions of this paragraph shall be applied 
                        without regard to community property laws.
                            ``(iv) Amounts subject to penalty.--This 
                        paragraph shall not apply to amounts described 
                        in subparagraph (A) of section 72(m)(5) to the 
                        extent that section 72(m)(5) applies to such 
                        amounts.
                            ``(v) Balance to credit of employee not to 
                        include amounts payable under qualified 
                        domestic relations order.--For purposes of this 
                        paragraph, the balance to the credit of an 
                        employee shall not include any amount payable 
                        to an alternate payee under a qualified 
                        domestic relations order (within the meaning of 
                        section 414(p)).
                            ``(vi) Transfers to cost-of-living 
                        arrangement not treated as distribution.--For 
                        purposes of this paragraph, the balance to the 
                        credit of an employee under a defined 
                        contribution plan shall not include any amount 
                        transferred from such defined contribution plan 
                        to a qualified cost-of-living arrangement 
                        (within the meaning of section 415(k)(2)) under 
                        a defined benefit plan.
                            ``(vii) Lump-sum distributions of alternate 
                        payees.--If any distribution or payment of the 
                        balance to the credit of an employee would be 
                        treated as a lump-sum distribution, then, for 
                        purposes of this paragraph, the payment under a 
                        qualified domestic relations order (within the 
                        meaning of section 414(p)) of the balance to 
                        the credit of an alternate payee who is the 
                        spouse or former spouse of the employee shall 
                        be treated as a lump-sum distribution. For 
                        purposes of this clause, the balance to the 
                        credit of the alternate payee shall not include 
                        any amount payable to the employee.''.
            (2) Section 402(c) (relating to rules applicable to 
        rollovers from exempt trusts) is amended by striking paragraph 
        (10).
            (3) Paragraph (1) of section 55(c) (defining regular tax) 
        is amended by striking ``shall not include any tax imposed by 
        section 402(d) and''.
            (4) Paragraph (8) of section 62(a) (relating to certain 
        portion of lump-sum distributions from pension plans taxed 
        under section 402(d)) is hereby repealed.
            (5) Section 401(a)(28)(B) (relating to coordination with 
        distribution rules) is amended by striking clause (v).
            (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
        distributions that must be lump-sum distributions) is amended 
        to read as follows:
                            ``(ii) Lump-sum distribution.--For purposes 
                        of this subparagraph, the term `lump-sum 
                        distribution' has the meaning given such term 
                        by section 402(e)(4)(D) (without regard to 
                        subclauses (I), (II), (III), and (IV) of clause 
                        (i) thereof).''.
            (7) Section 406(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (8) Section 407(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (9) Section 691(c) (relating to deduction for estate tax) 
        is amended by striking paragraph (5).
            (10) Paragraph (1) of section 871(b) (relating to 
        imposition of tax) is amended by striking ``section 1, 55, or 
        402(d)(1)'' and inserting ``section 1 or 55''.
            (11) Subsection (b) of section 877 (relating to alternative 
        tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and 
        inserting ``section 1 or 55''.
            (12) Section 4980A(c)(4) is amended--
                    (A) by striking ``to which an election under 
                section 402(d)(4)(B) applies'' and inserting ``(as 
                defined in section 402(e)(4)(D)) with respect to which 
                the individual elects to have this paragraph apply'',
                    (B) by adding at the end the following new flush 
                sentence:
        ``An individual may elect to have this paragraph apply to only 
        one lump-sum distribution.'', and
                    (C) by striking the heading and inserting:
            ``(4) Special one-time election.--''.
            (13) Section 402(e) is amended by striking paragraph (5).
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1999.
            (2) Retention of certain transition rules.--The amendments 
        made by this section shall not apply to any distribution for 
        which the taxpayer is eligible to elect the benefits of section 
        1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986. 
        Notwithstanding the preceding sentence, individuals who elect 
        such benefits after December 31, 1999, shall not be eligible 
        for 5-year averaging under section 402(d) of the Internal 
        Revenue Code of 1986 (as in effect immediately before such 
        amendments).

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

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

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

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

                         ``If the age of the
                                                                       
                           primary annuitant on
                                                             The number
                           the annuity starting
                                                         of anticipated
                           date is:
                                                           payments is:
                               Not more than 55......              360 
                               More than 55 but not                310 
                            more than 60.
                               More than 60 but not                260 
                            more than 65.
                               More than 65 but not                210 
                            more than 70.
                               More than 70..........              160.
                    ``(C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, investment 
                in the contract shall be determined under subsection 
                (c)(1) without regard to subsection (c)(2).
                    ``(D) Special rule where lump sum paid in 
                connection with commencement of annuity payments.--If, 
                in connection with the commencement of annuity payments 
                under any qualified employer retirement plan, the 
                taxpayer receives a lump sum payment--
                            ``(i) such payment shall be taxable under 
                        subsection (e) as if received before the 
                        annuity starting date, and
                            ``(ii) the investment in the contract for 
                        purposes of this paragraph shall be determined 
                        as if such payment had been so received.
                    ``(E) Exception.--This paragraph shall not apply in 
                any case where the primary annuitant has attained age 
                75 on the annuity starting date unless there are fewer 
                than 5 years of guaranteed payments under the annuity.
                    ``(F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity payments 
                are not made on a monthly basis, appropriate 
                adjustments in the application of this paragraph shall 
                be made to take into account the period on the basis of 
                which such payments are made.
                    ``(G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term `qualified 
                employer retirement plan' means any plan or contract 
                described in paragraph (1), (2), or (3) of section 
                4974(c).
            ``(2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, employee 
        contributions (and any income allocable thereto) under a 
        defined contribution plan may be treated as a separate 
        contract.''.
    (b) Effective Date.--The amendment made by this section shall apply 
in cases where the annuity starting date is after the 90th day after 
the date of the enactment of this Act.

SEC. 1404. REQUIRED DISTRIBUTIONS.

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

            CHAPTER 2--INCREASED ACCESS TO RETIREMENT PLANS

                   Subchapter A--Simple Savings Plans

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

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (p) as subsection (q) 
and by inserting after subsection (o) the following new subsection:
    ``(p) Simple Retirement Accounts.--
            ``(1) In general.--For purposes of this title, the term 
        `simple retirement account' means an individual retirement plan 
        (as defined in section 7701(a)(37))--
                    ``(A) with respect to which the requirements of 
                paragraphs (3), (4), and (5) are met; and
                    ``(B) with respect to which the only contributions 
                allowed are contributions under a qualified salary 
                reduction arrangement.
            ``(2) Qualified salary reduction arrangement.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified salary reduction arrangement' means 
                a written arrangement of an eligible employer under 
                which--
                            ``(i) an employee eligible to participate 
                        in the arrangement may elect to have the 
                        employer make payments--
                                    ``(I) as elective employer 
                                contributions to a simple retirement 
                                account on behalf of the employee, or
                                    ``(II) to the employee directly in 
                                cash,
                            ``(ii) the amount which an employee may 
                        elect under clause (i) for any year is required 
                        to be expressed as a percentage of compensation 
                        and may not exceed a total of $6,000 for any 
                        year,
                            ``(iii) the employer is required to make a 
                        matching contribution to the simple retirement 
                        account for any year in an amount equal to so 
                        much of the amount the employee elects under 
                        clause (i)(I) as does not exceed the applicable 
                        percentage of compensation for the year, and
                            ``(iv) no contributions may be made other 
                        than contributions described in clause (i) or 
                        (iii).
                    ``(B) Employer may elect 2-percent nonelective 
                contribution.--
                            ``(i) In general.--An employer shall be 
                        treated as meeting the requirements of 
                        subparagraph (A)(iii) for any year if, in lieu 
                        of the contributions described in such clause, 
                        the employer elects to make nonelective 
                        contributions of 2 percent of compensation for 
                        each employee who is eligible to participate in 
                        the arrangement and who has at least $5,000 of 
                        compensation from the employer for the year. If 
                        an employer makes an election under this 
                        subparagraph for any year, the employer shall 
                        notify employees of such election within a 
                        reasonable period of time before the 60-day 
                        period for such year under paragraph (5)(C).
                            ``(ii) Compensation limitation.--The 
                        compensation taken into account under clause 
                        (i) for any year shall not exceed the 
                        limitation in effect for such year under 
                        section 401(a)(17).
                    ``(C) Definitions.--For purposes of this 
                subsection--
                            ``(i) Eligible employer.--
                                    ``(I) In general.--The term 
                                `eligible employer' means, with respect 
                                to any year, an employer which had no 
                                more than 100 employees who received at 
                                least $5,000 of compensation from the 
                                employer for the preceding year.
                                    ``(II) 2-year grace period.--An 
                                eligible employer who establishes and 
                                maintains a plan under this subsection 
                                for 1 or more years and who fails to be 
                                an eligible employer for any subsequent 
                                year shall be treated as an eligible 
                                employer for the 2 years following the 
                                last year the employer was an eligible 
                                employer. If such failure is due to any 
                                acquisition, disposition, or similar 
                                transaction involving an eligible 
                                employer, the preceding sentence shall 
                                apply only in accordance with rules 
                                similar to the rules of section 
                                410(b)(6)(C)(i).
                            ``(ii) Applicable percentage.--
                                    ``(I) In general.--The term 
                                `applicable percentage' means 3 
                                percent.
                                    ``(II) Election of lower 
                                percentage.--An employer may elect to 
                                apply a lower percentage (not less than 
                                1 percent) for any year for all 
                                employees eligible to participate in 
                                the plan for such year if the employer 
                                notifies the employees of such lower 
                                percentage within a reasonable period 
                                of time before the 60-day election 
                                period for such year under paragraph 
                                (5)(C). An employer may not elect a 
                                lower percentage under this subclause 
                                for any year if that election would 
                                result in the applicable percentage 
                                being lower than 3 percent in more than 
                                2 of the years in the 5-year period 
                                ending with such year.
                                    ``(III) Special rule for years 
                                arrangement not in effect.--If any year 
                                in the 5-year period described in 
                                subclause (II) is a year prior to the 
                                first year for which any qualified 
                                salary reduction arrangement is in 
                                effect with respect to the employer (or 
                                any predecessor), the employer shall be 
                                treated as if the level of the employer 
                                matching contribution was at 3 percent 
of compensation for such prior year.
                    ``(D) Arrangement may be only plan of employer.--
                            ``(i) In general.--An arrangement shall not 
                        be treated as a qualified salary reduction 
                        arrangement for any year if the employer (or 
                        any predecessor employer) maintained a 
                        qualified plan with respect to which 
                        contributions were made, or benefits were 
                        accrued, for service in any year in the period 
                        beginning with the year such arrangement became 
                        effective and ending with the year for which 
                        the determination is being made.
                            ``(ii) Qualified plan.--For purposes of 
                        this subparagraph, the term `qualified plan' 
                        means a plan, contract, pension, or trust 
                        described in subparagraph (A) or (B) of section 
                        219(g)(5).
                    ``(E) Cost-of-living adjustment.--The Secretary 
                shall adjust the $6,000 amount under subparagraph 
                (A)(ii) at the same time and in the same manner as 
                under section 415(d), except that the base period taken 
                into account shall be the calendar quarter ending 
                September 30, 1996, and any increase under this 
                subparagraph which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met with respect to a simple retirement account 
        if the employee's rights to any contribution to the simple 
        retirement account are nonforfeitable. For purposes of this 
        paragraph, rules similar to the rules of subsection (k)(4) 
        shall apply.
            ``(4) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any simple retirement 
                account for a year only if, under the qualified salary 
                reduction arrangement, all employees of the employer 
                who--
                            ``(i) received at least $5,000 in 
                        compensation from the employer during any 2 
                        preceding years, and
                            ``(ii) are reasonably expected to receive 
                        at least $5,000 in compensation during the 
                        year,
                are eligible to make the election under paragraph 
                (2)(A)(i) or receive the nonelective contribution 
                described in paragraph (2)(B).
                    ``(B) Excludable employees.--An employer may elect 
                to exclude from the requirement under subparagraph (A) 
                employees described in section 410(b)(3).
            ``(5) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any simplified 
        retirement account if, under the qualified salary reduction 
        arrangement--
                    ``(A) an employer must--
                            ``(i) make the elective employer 
                        contributions under paragraph (2)(A)(i) not 
                        later than the close of the 30-day period 
                        following the last day of the month with 
                        respect to which the contributions are to be 
                        made, and
                            ``(ii) make the matching contributions 
                        under paragraph (2)(A)(iii) or the nonelective 
                        contributions under paragraph (2)(B) not later 
                        than the date described in section 
                        404(m)(2)(B),
                    ``(B) an employee may elect to terminate 
                participation in such arrangement at any time during 
                the year, except that if an employee so terminates, the 
                arrangement may provide that the employee may not elect 
                to resume participation until the beginning of the next 
                year, and
                    ``(C) each employee eligible to participate may 
                elect, during the 60-day period before the beginning of 
                any year (and the 60-day period before the first day 
                such employee is eligible to participate), to 
                participate in the arrangement, or to modify the 
                amounts subject to such arrangement, for such year.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Compensation.--
                            ``(i) In general.--The term `compensation' 
                        means amounts described in paragraphs (3) and 
                        (8) of section 6051(a).
                            ``(ii) Self-employed.--In the case of an 
                        employee described in subparagraph (B), the 
                        term `compensation' means net earnings from 
                        self-employment determined under section 
                        1402(a) without regard to any contribution 
                        under this subsection.
                    ``(B) Employee.--The term `employee' includes an 
                employee as defined in section 401(c)(1).
                    ``(C) Year.--The term `year' means the calendar 
                year.
            ``(7) Use of designated financial institution.--A plan 
        shall not be treated as failing to satisfy the requirements of 
        this subsection or any other provision of this title merely 
        because the employer makes all contributions to the individual 
        retirement accounts or annuities of a designated trustee or 
        issuer. The preceding sentence shall not apply unless each plan 
        participant is notified in writing (either separately or as 
        part of the notice under subsection (l)(2)(C)) that the 
        participant's balance may be transferred without cost or 
        penalty to another individual account or annuity in accordance 
        with section 408(d)(3)(G).''.
    (b) Tax Treatment of Simple Retirement Accounts.--
            (1) Deductibility of contributions by employees.--
                    (A) Section 219(b) (relating to maximum amount of 
                deduction) is amended by adding at the end the 
                following new paragraph:
            ``(4) Special rule for simple retirement accounts.--This 
        section shall not apply with respect to any amount contributed 
        to a simple retirement account established under section 
        408(p).''.
                    (B) Section 219(g)(5)(A) (defining active 
                participant) is amended by striking ``or'' at the end 
                of clause (iv) and by adding at the end the following 
                new clause:
                            ``(vi) any simple retirement account 
                        (within the meaning of section 408(p)), or''.
            (2) Deductibility of employer contributions.--Section 404 
        (relating to deductions for contributions of an employer to 
        pension, etc. plans) is amended by adding at the end the 
        following new subsection:
    ``(m) Special Rules for Simple Retirement Accounts.--
            ``(1) In general.--Employer contributions to a simple 
        retirement account shall be treated as if they are made to a 
        plan subject to the requirements of this section.
            ``(2) Timing.--
                    ``(A) Deduction.--Contributions described in 
                paragraph (1) shall be deductible in the taxable year 
                of the employer with or within which the calendar year 
                for which the contributions were made ends.
                    ``(B) Contributions after end of year.--For 
                purposes of this subsection, contributions shall be 
                treated as made for a taxable year if they are made on 
                account of the taxable year and are made not later than 
                the time prescribed by law for filing the return for 
                the taxable year (including extensions thereof).''.
            (3) Contributions and distributions.--
                    (A) Section 402 (relating to taxability of 
                beneficiary of employees' trust) is amended by adding 
                at the end the following new subsection:
    ``(k) Treatment of Simple Retirement Accounts.--Rules similar to 
the rules of paragraphs (1) and (3) of subsection (h) shall apply to 
contributions and distributions with respect to a simple retirement 
account under section 408(p).''.
                    (B) Section 408(d)(3) is amended by adding at the 
                end the following new subparagraph:
                    ``(G) Simple retirement accounts.--This paragraph 
                shall not apply to any amount paid or distributed out 
                of a simple retirement account (as defined in section 
                408(p)) unless--
                            ``(i) it is paid into another simple 
                        retirement account, or
                            ``(ii) in the case of any payment or 
                        distribution to which section 72(t)(6) does not 
                        apply, it is paid into an individual retirement 
                        plan.''.
                    (C) Clause (i) of section 457(c)(2)(B) is amended 
                by striking ``section 402(h)(1)(B)'' and inserting 
                ``section 402(h)(1)(B) or (k)''.
            (4) Penalties.--
                    (A) Early withdrawals.--Section 72(t) (relating to 
                additional tax in early distributions) is amended by 
                adding at the end the following new paragraph:
            ``(6) Special rules for simple retirement accounts.--In the 
        case of any amount received from a simple retirement account 
        (within the meaning of section 408(p)) during the 2-year period 
        beginning on the date such individual first participated in any 
        qualified salary reduction arrangement maintained by the 
        individual's employer under section 408(p)(2), paragraph (1) 
        shall be applied by substituting `25 percent' for `10 
        percent'.''.
                    (B) Failure to report.--Section 6693 is amended by 
                redesignating subsection (c) as subsection (d) and by 
                inserting after subsection (b) the following new 
                subsection:
    ``(c) Penalties Relating to Simple Retirement Accounts.--
            ``(1) Employer penalties.--An employer who fails to provide 
        1 or more notices required by section 408(l)(2)(C) shall pay a 
        penalty of $50 for each day on which such failures continue.
            ``(2) Trustee penalties.--A trustee who fails--
                    ``(A) to provide 1 or more statements required by 
                the last sentence of section 408(i) shall pay a penalty 
                of $50 for each day on which such failures continue, or
                    ``(B) to provide 1 or more summary descriptions 
                required by section 408(l)(2)(B) shall pay a penalty of 
                $50 for each day on which such failures continue.
            ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure which 
        the taxpayer shows was due to reasonable cause.''.
            (5) Reporting requirements.--
                    (A) Section 408(l) is amended by adding at the end 
                the following new paragraph:
            ``(2) Simple retirement accounts.--
                    ``(A) No employer reports.--Except as provided in 
                this paragraph, no report shall be required under this 
                section by an employer maintaining a qualified salary 
                reduction arrangement under subsection (p).
                    ``(B) Summary description.--The trustee of any 
                simple retirement account established pursuant to a 
                qualified salary reduction arrangement under subsection 
                (p) shall provide to the employer maintaining the 
                arrangement, each year a description containing the 
                following information:
                            ``(i) The name and address of the employer 
                        and the trustee.
                            ``(ii) The requirements for eligibility for 
                        participation.
                            ``(iii) The benefits provided with respect 
                        to the arrangement.
                            ``(iv) The time and method of making 
                        elections with respect to the arrangement.
                            ``(v) The procedures for, and effects of, 
                        withdrawals (including rollovers) from the 
                        arrangement.
                    ``(C) Employee notification.--The employer shall 
                notify each employee immediately before the period for 
                which an election described in subsection (p)(5)(C) may 
                be made of the employee's opportunity to make such 
                election. Such notice shall include a copy of the 
                description described in subparagraph (B).''.
                    (B) Section 408(l) is amended by striking ``An 
                employer'' and inserting the following:
            ``(1) In general.--An employer''.
            (6) Reporting requirements.--Section 408(i) is amended by 
        adding at the end the following new flush sentence:
``In the case of a simple retirement account under subsection (p), only 
one report under this subsection shall be required to be submitted each 
calendar year to the Secretary (at the time provided under paragraph 
(2)) but, in addition to the report under this subsection, there shall 
be furnished, within 30 days after each calendar year, to the 
individual on whose behalf the account is maintained a statement with 
respect to the account balance as of the close of, and the account 
activity during, such calendar year.''.
            (7) Exemption from top-heavy plan rules.--Section 416(g)(4) 
        (relating to special rules for top-heavy plans) is amended by 
        adding at the end the following new subparagraph:
                    ``(G) Simple retirement accounts.--The term `top-
                heavy plan' shall not include a simple retirement 
                account under section 408(p).''.
            (8) Employment taxes.--
                    (A) Paragraph (5) of section 3121(a) is amended by 
                striking ``or'' at the end of subparagraph (F), by 
                inserting ``or'' at the end of subparagraph (G), and by 
                adding at the end the following new subparagraph:
                    ``(H) under an arrangement to which section 408(p) 
                applies, other than any elective contributions under 
                paragraph (2)(A)(i) thereof,''.
                    (B) Section 209(a)(4) of the Social Security Act is 
                amended by inserting ``; or (J) under an arrangement to 
                which section 408(p) of such Code applies, other than 
                any elective contributions under paragraph (2)(A)(i) 
                thereof'' before the semicolon at the end thereof.
                    (C) Paragraph (5) of section 3306(b) is amended by 
                striking ``or'' at the end of subparagraph (F), by 
                inserting ``or'' at the end of subparagraph (G), and by 
                adding at the end the following new subparagraph:
                    ``(H) under an arrangement to which section 408(p) 
                applies, other than any elective contributions under 
                paragraph (2)(A)(i) thereof,''.
                    (D) Paragraph (12) of section 3401(a) is amended by 
                adding the following new subparagraph:
                    ``(D) under an arrangement to which section 408(p) 
                applies; or''.
            (9) Conforming amendments.--
                    (A) Section 280G(b)(6) is amended by striking 
                ``or'' at the end of subparagraph (B), by striking the 
                period at the end of subparagraph (C) and inserting ``, 
                or'' and by adding after subparagraph (C) the following 
                new subparagraph:
                    ``(D) a simple retirement account described in 
                section 408(p).''.
                    (B) Section 402(g)(3) is amended by striking 
                ``and'' at the end of subparagraph (B), by striking the 
                period at the end of subparagraph (C) and inserting ``, 
                and'', and by adding after subparagraph (C) the 
                following new subparagraph:
                    ``(D) any elective employer contribution under 
                section 408(p)(2)(A)(i).''.
                    (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) 
                of section 414 are each amended by inserting 
                ``408(p),'' after ``408(k),''.
                    (D) Section 4972(d)(1)(A) is amended by striking 
                ``and'' at the end of clause (ii), by striking the 
                period at the end of clause (iii) and inserting ``, 
                and'', and by adding after clause (iii) the following 
                new clause:
                            ``(iv) any simple retirement account 
                        (within the meaning of section 408(p)).''.
    (c) Repeal of Salary Reduction Simplified Employee Pensions.--
Section 408(k)(6) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Termination.--This paragraph shall not apply 
                to years beginning after December 31, 1996. The 
                preceding sentence shall not apply to a simplified 
                employee pension if the terms of such pension, as in 
                effect on December 31, 1996, provide that an employee 
                may make the election described in subparagraph (A).''.
    (d) Modifications of ERISA.--
            (1) Reporting requirements.--Section 101 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1021) is 
        amended by redesignating subsection (g) as subsection (h) and 
        by inserting after subsection (f) the following new subsection:
    ``(g) Simple Retirement Accounts.--
            ``(1) No employer reports.--Except as provided in this 
        subsection, no report shall be required under this section by 
        an employer maintaining a qualified salary reduction 
        arrangement under section 408(p) of the Internal Revenue Code 
        of 1986.
            ``(2) Summary description.--The trustee of any simple 
        retirement account established pursuant to a qualified salary 
        reduction arrangement under section 408(p) of such Code shall 
        provide to the employer maintaining the arrangement each year a 
        description containing the following information:
                    ``(A) The name and address of the employer and the 
                trustee.
                    ``(B) The requirements for eligibility for 
                participation.
                    ``(C) The benefits provided with respect to the 
                arrangement.
                    ``(D) The time and method of making elections with 
                respect to the arrangement.
                    ``(E) The procedures for, and effects of, 
                withdrawals (including rollovers) from the arrangement.
            ``(3) Employee notification.--The employer shall notify 
        each employee immediately before the period for which an 
        election described in section 408(p)(5)(C) of such Code may be 
        made of the employee's opportunity to make such election. Such 
        notice shall include a copy of the description described in 
        paragraph (2).''
            (2) Fiduciary duties.--Section 404(c) of such Act (29 
        U.S.C. 1104(c)) is amended by inserting ``(1)'' after ``(c)'', 
        by redesignating paragraphs (1) and (2) as subparagraphs (A) 
        and (B), respectively, and by adding at the end the following 
        new paragraph:
            ``(2) In the case of a simple retirement account 
        established pursuant to a qualified salary reduction 
        arrangement under section 408(p) of the Internal Revenue Code 
        of 1986, a participant or beneficiary shall, for purposes of 
        paragraph (1), be treated as exercising control over the assets 
        in the account upon the earliest of--
                    ``(A) an affirmative election with respect to the 
                initial investment of any contribution,
                    ``(B) a rollover to any other simple retirement 
                account or individual retirement plan, or
                    ``(C) one year after the simple retirement account 
                is established.
        No reports, other than those required under section 101(g), 
        shall be required with respect to a simple retirement account 
        established pursuant to such a qualified salary reduction 
        arrangement.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

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

    (a) Alternative Method of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements) is amended by adding at the end the following new 
paragraph:
            ``(11) Adoption of simple plan to meet nondiscrimination 
        tests.--
                    ``(A) In general.--A cash or deferred arrangement 
                maintained by an eligible employer shall be treated as 
                meeting the requirements of paragraph (3)(A)(ii) if 
                such arrangement meets--
                            ``(i) the contribution requirements of 
                        subparagraph (B),
                            ``(ii) the exclusive plan requirements of 
                        subparagraph (C), and
                            ``(iii) the vesting requirements of section 
                        408(p)(3).
                    ``(B) Contribution requirements.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the 
                        arrangement--
                                    ``(I) an employee may elect to have 
                                the employer make elective 
                                contributions for the year on behalf of 
                                the employee to a trust under the plan 
                                in an amount which is expressed as a 
                                percentage of compensation of the 
                                employee but which in no event exceeds 
                                $6,000,
                                    ``(II) the employer is required to 
                                make a matching contribution to the 
                                trust for the year in an amount equal 
                                to so much of the amount the employee 
                                elects under subclause (I) as does not 
                                exceed 3 percent of compensation for 
                                the year, and
                                    ``(III) no other contributions may 
                                be made other than contributions 
                                described in subclause (I) or (II).
                            ``(ii) Employer may elect 2-percent 
                        nonelective contribution.--An employer shall be 
                        treated as meeting the requirements of clause 
                        (i)(II) for any year if, in lieu of the 
                        contributions described in such clause, the 
                        employer elects (pursuant to the terms of the 
                        arrangement) to make nonelective contributions 
                        of 2 percent of compensation for each employee 
                        who is eligible to participate in the 
                        arrangement and who has at least $5,000 of 
                        compensation from the employer for the year. If 
                        an employer makes an election under this 
                        subparagraph for any year, the employer shall 
                        notify employees of such election within a 
                        reasonable period of time before the 60th day 
                        before the beginning of such year.
                    ``(C) Exclusive plan requirement.--The requirements 
                of this subparagraph are met for any year to which this 
                paragraph applies if no contributions were made, or 
                benefits were accrued, for services during such year 
                under any qualified plan of the employer on behalf of 
                any employee eligible to participate in the cash or 
                deferred arrangement, other than contributions 
                described in subparagraph (B).
                    ``(D) Definitions and special rule.--
                            ``(i) Definitions.--For purposes of this 
                        paragraph, any term used in this paragraph 
                        which is also used in section 408(p) shall have 
                        the meaning given such term by such section.
                            ``(ii) Coordination with top-heavy rules.--
                        A plan meeting the requirements of this 
                        paragraph for any year shall not be treated as 
                        a top-heavy plan under section 416 for such 
                        year.''.
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions) is amended 
by redesignating paragraph (10) as paragraph (11) and by adding after 
paragraph (9) the following new paragraph:
            ``(10) Alternative method of satisfying tests.--A defined 
        contribution plan shall be treated as meeting the requirements 
        of paragraph (2) with respect to matching contributions if the 
        plan--
                    ``(A) meets the contribution requirements of 
                subparagraph (B) of subsection (k)(11),
                    ``(B) meets the exclusive plan requirements of 
                subsection (k)(11)(C), and
                    ``(C) meets the vesting requirements of section 
                408(p)(3).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1996.

                     Subchapter B--Other Provisions

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

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

SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

    (a) Spousal IRA Computed on Basis of Compensation of Both 
Spouses.--Subsection (c) of section 219 (relating to special rules for 
certain married individuals) is amended to read as follows:
    ``(c) Special Rules for Certain Married Individuals.--
            ``(1) In general.--In the case of an individual to whom 
        this paragraph applies for the taxable year, the limitation of 
        paragraph (1) of subsection (b) shall be equal to the lesser 
        of--
                    ``(A) the dollar amount in effect under subsection 
                (b)(1)(A) for the taxable year, or
                    ``(B) the sum of--
                            ``(i) the compensation includible in such 
                        individual's gross income for the taxable year, 
                        plus
                            ``(ii) the compensation includible in the 
                        gross income of such individual's spouse for 
                        the taxable year reduced by the amount allowed 
                        as a deduction under subsection (a) to such 
                        spouse for such taxable year.
            ``(2) Individuals to whom paragraph (1) applies.--Paragraph 
        (1) shall apply to any individual if--
                    ``(A) such individual files a joint return for the 
                taxable year, and
                    ``(B) the amount of compensation (if any) 
                includible in such individual's gross income for the 
                taxable year is less than the compensation includible 
                in the gross income of such individual's spouse for the 
                taxable year.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 219(f) (relating to other 
        definitions and special rules) is amended by striking 
        ``subsections (b) and (c)'' and inserting ``subsection (b)''.
            (2) Section 219(g)(1) is amended by striking ``(c)(2)'' and 
        inserting ``(c)(1)(A)''.
            (3) Section 408(d)(5) is amended by striking ``$2,250'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                CHAPTER 3--NONDISCRIMINATION PROVISIONS

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

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

SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

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

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

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

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

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

                  CHAPTER 4--MISCELLANEOUS PROVISIONS

SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

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

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

    (a) Amendments to 1986 Code.--Paragraph (2) of section 411(a) 
(relating to minimum vesting standards) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Amendments to ERISA.--Paragraph (2) of section 203(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
            (1) the later of--
                    (A) January 1, 1997, or
                    (B) the date on which the last of the collective 
                bargaining agreements pursuant to which the plan is 
                maintained terminates (determined without regard to any 
                extension thereof after the date of the enactment of 
                this Act), or
            (2) January 1, 1999.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.

SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

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

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

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

SEC. 1445. UNIFORM RETIREMENT AGE.

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

SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

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

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

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

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

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

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

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

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

    (a) Multiple Salary Reduction Agreements Permitted.--
            (1) General rule.--For purposes of section 403(b) of the 
        Internal Revenue Code of 1986, the frequency that an employee 
        is permitted to enter into a salary reduction agreement, the 
        salary to which such an agreement may apply, and the ability to 
        revoke such an agreement shall be determined under the rules 
        applicable to cash or deferred elections under section 401(k) 
        of such Code.
            (2) Constructive receipt.--Section 402(e)(3) is amended by 
        inserting ``or which is part of a salary reduction agreement 
        under section 403(b)'' after ``section 401(k)(2))''.
            (3) Effective date.--This subsection shall apply to taxable 
        years beginning after December 31, 1995.
    (b) Treatment of Indian Tribal Governments.--
            (1) In general.--Subparagraph (A) of section 403(b)(1) 
        (relating to taxability of beneficiary under annuity purchased 
        by section 501(c)(3) organization or public school) is amended 
        by striking ``or'' at the end of clause (i), by inserting 
        ``or'' at the end of clause (ii), and by adding at the end the 
        following new clause:
                            ``(iii) for an employee by an employer 
                        which is an Indian tribal government (as 
                        defined in section 7701(a)(40)), a subdivision 
                        of an Indian tribal government (determined in 
                        accordance with section 7871(d)), an agency or 
                        instrumentality of an Indian tribal government 
                        or subdivision thereof, or a corporation 
                        chartered under Federal, State, or tribal law 
                        which is owned in whole or part by any of the 
                        foregoing,''.
            (2) Conforming amendment.--The heading for section 403(b) 
        is amended by striking ``or Public School'' and inserting ``, 
        Public School, or Indian Tribe''.
            (3) Effective dates.--
                    (A) In general.--The amendments made by this 
                section shall apply to plan years beginning after 
                December 31, 1996.
                    (B) Transition rules.--
                            (i) In general.--In the case of any 
                        contract purchased in a plan year beginning 
                        before January 1, 1997, section 403(b) of the 
                        Internal Revenue Code of 1986 shall be applied 
                        as if any reference to an employer described in 
                        section 501(c)(3) of the Internal Revenue Code 
                        of 1986 which is exempt from tax under section 
                        501 of such Code included a reference to an 
                        employer which is an Indian tribal government 
                        (as defined by section 7701(a)(40) of such 
                        Code), a subdivision of an Indian tribal 
                        government (determined in accordance with 
                        section 7871(d) of such Code), an agency or 
                        instrumentality of an Indian tribal government 
                        or subdivision thereof, or a corporation 
                        chartered under Federal, State, or tribal law 
                        which is owned in whole or in part by any of 
                        the foregoing.
                            (ii) Rollovers.--Solely for purposes of 
                        applying section 403(b)(8) of such Code to a 
                        contract to which clause (i) applies, a 
                        qualified cash or deferred arrangement under 
                        section 401(k) of such Code shall be treated as 
                        if it were a plan or contract described in 
                        clause (ii) of section 403(b)(8)(A) of such 
                        Code.
    (c) Elective Deferrals.--
            (1) In general.--Subparagraph (E) of section 403(b)(1) is 
        amended to read as follows:
                    ``(E) in the case of a contract purchased under a 
                salary reduction agreement, the contract meets the 
                requirements of section 401(a)(30),''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 1995, except 
        a contract shall not be required to meet any change in any 
        requirement by reason of such amendment before the 90th day 
        after the date of the enactment of this Act.

SEC. 1451. MISSING PARTICIPANTS.

    (a) In General.--Section 4050 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections:
    ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
    ``(d) Plans Not Otherwise Subject to Title.--
            ``(1) Transfer to corporation.--The plan administrator of a 
        plan described in paragraph (4) may elect to transfer a missing 
        participant's benefits to the corporation upon termination of 
        the plan.
            ``(2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a plan that 
        makes the election described in paragraph (1) shall, upon 
        termination of the plan, provide the corporation information 
        with respect to benefits of a missing participant.
            ``(3) Payment by the corporation.--If benefits of a missing 
        participant were transferred to the corporation under paragraph 
        (1), the corporation shall, upon location of the participant or 
        beneficiary, pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) either--
                    ``(A) in a single sum (plus interest), or
                    ``(B) in such other form as is specified in 
                regulations of the corporation.
            ``(4) Plans described.--A plan is described in this 
        paragraph if--
                    ``(A) the plan is a pension plan (within the 
                meaning of section 3(2))--
                            ``(i) to which the provisions of this 
                        section do not apply (without regard to this 
                        subsection), and
                            ``(ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 4021(b), 
                        and
                    ``(B) at the time the assets are to be distributed 
                upon termination, the plan--
                            ``(i) has missing participants, and
                            ``(ii) has not provided for the transfer of 
                        assets to pay the benefits of all missing 
                        participants to another pension plan (within 
                        the meaning of section 3(2)).
            ``(5) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (4).''.
    (b) Conforming Amendments.--
            (1) Section 206(f) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1056(f)) is amended--
                    (A) by striking ``title IV'' and inserting 
                ``section 4050'', and
                    (B) by striking ``the plan shall provide that''.
            (2) Section 401(a)(34) (relating to benefits of missing 
        participants on plan termination) is amended by striking 
        ``title IV'' and inserting ``section 4050''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions made after final regulations implementing 
subsections (c) and (d) of section 4050 of the Employee Retirement 
Income Security Act of 1974 (as added by subsection (a)), respectively, 
are prescribed.

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

    (a) In General.--Section 415(e) is repealed.
    (b) Excess Distributions.--Section 4980A is amended by adding at 
the end the following new subsection:
    ``(g) Limitation on Application.--This section shall not apply to 
distributions during years beginning after December 31, 1996, and 
before January 1, 2000, and such distributions shall be treated as made 
first from amounts not described in subsection (f).''.
    (c) Conforming Amendments.--
            (1) Paragraph (1) of section 415(a) is amended--
                    (A) by adding ``or'' at the end of subparagraph 
                (A),
                    (B) by striking ``, or'' at the end of subparagraph 
                (B) and inserting a period, and
                    (C) by striking subparagraph (C).
            (2) Subparagraph (B) of section 415(b)(5) is amended by 
        striking ``and subsection (e)''.
            (3) Paragraph (1) of section 415(f) is amended by striking 
        ``subsections (b), (c), and (e)'' and inserting ``subsections 
        (b) and (c)''.
            (4) Subsection (g) of section 415 is amended by striking 
        ``subsections (e) and (f)'' in the last sentence and inserting 
        ``subsection (f)''.
            (5) Clause (i) of section 415(k)(2)(A) is amended to read 
        as follows:
                            ``(i) any contribution made directly by an 
                        employee under such an arrangement shall not be 
                        treated as an annual addition for purposes of 
                        subsection (c), and''.
            (6) Clause (ii) of section 415(k)(2)(A) is amended by 
        striking ``subsections (c) and (e)'' and inserting ``subsection 
        (c)''.
            (7) Section 416 is amended by striking subsection (h).
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to limitation years 
        beginning after December 31, 1999.
            (2) Excess distributions.--The amendment made by subsection 
        (b) shall apply to years beginning after December 31, 1996.

SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

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

SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

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

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

    (a) Penalties.--
            (1) Statements.--Paragraph (1) of section 6724(d) is 
        amended by striking ``and'' at the end of subparagraph (A), by 
        striking the period at the end of subparagraph (B) and 
        inserting ``, and'', and by inserting after subparagraph (B) 
        the following new subparagraph:
                    ``(C) any statement of the amount of payments to 
                another person required to be made to the Secretary 
                under--
                            ``(i) section 408(i) (relating to reports 
                        with respect to individual retirement accounts 
                        or annuities), or
                            ``(ii) section 6047(d) (relating to reports 
                        by employers, plan administrators, etc.).''.
            (2) Reports.--Paragraph (2) of section 6724(d) is amended 
        by striking ``or'' at the end of subparagraph (S), by striking 
        the period at the end of subparagraph (T) and inserting a 
        comma, and by inserting after subparagraph (T) the following 
        new subparagraphs:
                    ``(U) section 408(i) (relating to reports with 
                respect to individual retirement plans) to any person 
                other than the Secretary with respect to the amount of 
                payments made to such person, or
                    ``(V) section 6047(d) (relating to reports by plan 
                administrators) to any person other than the Secretary 
                with respect to the amount of payments made to such 
                person.''.
    (b) Modification of Reportable Designated Distributions.--
            (1) Section 408.--Subsection (i) of section 408 (relating 
        to individual retirement account reports) is amended by 
        inserting ``aggregating $10 or more in any calendar year'' 
        after ``distributions''.
            (2) Section 6047.--Paragraph (1) of section 6047(d) 
        (relating to reports by employers, plan administrators, etc.) 
        is amended by adding at the end the following new sentence: 
        ``No return or report may be required under the preceding 
        sentence with respect to distributions to any person during any 
        year unless such distributions aggregate $10 or more.''.
    (c) Qualifying Rollover Distributions.--Section 6652(i) is 
amended--
            (1) by striking ``the $10'' and inserting ``$100'', and
            (2) by striking ``$5,000'' and inserting ``$50,000''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 6047(f) is amended to read as 
        follows:

                                ``(1) For provisions relating to 
penalties for failures to file returns and reports required under this 
section, see sections 6652(e), 6721, and 6722.''.
            (2) Subsection (e) of section 6652 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any return or statement which is an information return 
        described in section 6724(d)(1)(C)(ii) or a payee statement 
        described in section 6724(d)(2)(V).''.
            (3) Subsection (a) of section 6693 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any report which is an information return described in 
        section 6724(d)(1)(C)(i) or a payee statement described in 
        section 6724(d)(2)(U).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to returns, reports, and other statements the due date for which 
(determined without regard to extensions) is after December 31, 1996.

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

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

SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND QUALIFIED DOMESTIC 
              RELATIONS FORMS.

    (a) Development of Forms.--Not later than January 1, 1997, the 
Secretary of the Treasury shall develop--
            (1) a model form for the spousal consent required under 
        section 417(a)(2) of the Internal Revenue Code of 1986 and 
        section 205(c)(2) of the Employee Retirement Income Security 
        Act of 1974 which--
                    (A) is written in a manner calculated to be 
                understood by the average person, and
                    (B) discloses in plain form--
                            (i) whether the waiver to which the spouse 
                        consents is irrevocable, and
                            (ii) whether such waiver may be revoked by 
                        a qualified domestic relations order, and
            (2) a model form for a qualified domestic relations order 
        described in section 414(p)(1)(A) of such Code and section 
        206(d)(3)(B)(i) of such Act which--
                    (A) meets the requirements contained in such 
                sections, and
                    (B) the provisions of which focus attention on the 
                need to consider the treatment of any lump sum payment, 
                qualified joint and survivor annuity, or qualified 
                preretirement survivor annuity.
    (b) Publicity.--The Secretary of the Treasury shall include 
publicity for the model forms developed under subsection (a) in the 
pension outreach efforts undertaken by the Secretary.

SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS TO VOLUNTEERS 
              PERFORMING FIRE FIGHTING OR PREVENTION SERVICES, 
              EMERGENCY MEDICAL SERVICES, OR AMBULANCE SERVICES.

    (a) In General.--Paragraph (11) of section 457(e) (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations) is amended to read as follows:
            ``(11) Certain plans excluded.--
                    ``(A) In general.--The following plans shall be 
                treated as not providing for the deferral of 
                compensation:
                            ``(i) Any bona fide vacation leave, sick 
                        leave, compensatory time, severance pay, 
                        disability pay, or death benefit plan.
                            ``(ii) Any plan paying solely length of 
                        service awards to bona fide volunteers (or 
                        their beneficiaries) on account of qualified 
                        services performed by such volunteers.
                    ``(B) Special rules applicable to length of service 
                award plans.--
                            ``(i) Bona fide volunteer.--An individual 
                        shall be treated as a bona fide volunteer for 
                        purposes of subparagraph (A)(ii) if the only 
                        compensation received by such individual for 
                        performing qualified services is in the form 
                        of--
                                    ``(I) reimbursement for (or a 
                                reasonable allowance for) reasonable 
                                expenses incurred in the performance of 
                                such services, or
                                    ``(II) reasonable benefits 
                                (including length of service awards), 
                                and nominal fees for such services, 
                                customarily paid by eligible employers 
                                in connection with the performance of 
                                such services by volunteers.
                            ``(ii) Limitation on accruals.--A plan 
                        shall not be treated as described in 
                        subparagraph (A)(ii) if the aggregate amount of 
                        length of service awards accruing with respect 
                        to any year of service for any bona fide 
                        volunteer exceeds $3,000.
                    ``(C) Qualified services.--For purposes of this 
                paragraph, the term `qualified services' means fire 
                fighting and prevention services, emergency medical 
                services, and ambulance services.''.
    (b) Exemption From Social Security Taxes.--
            (1) Subsection (a)(5) of section 3121, as amended by 
        section 1421, is amended by striking ``(or)'' at the end of 
        subparagraph (G), by inserting ``or'' at the end of 
        subparagraph (H), and by adding at the end the following new 
        subparagraph:
                    ``(I) under a plan described in section 
                457(e)(11)(A)(ii) and maintained by an eligible 
                employer (as defined in section 457(e)(1)).''.
            (2) Section 209(a)(4) of the Social Security Act is amended 
        by inserting ``; or (K) under a plan described in section 
        457(e)(11)(A)(ii) of the Internal Revenue Code of 1986 and 
        maintained by an eligible employer (as defined in section 
        457(e)(1) of such Code)'' before the semicolon at the end 
        thereof.
    (c) Effective Date.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to accruals of length of service awards after 
        December 31, 1996.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to remuneration paid after December 31, 1996.

SEC. 1459. ALTERNATIVE NONDISCRIMINATION RULES FOR CERTAIN PLANS THAT 
              PROVIDE FOR EARLY PARTICIPATION.

    (a) Cash or Deferred Arrangements.--Paragraph (3) of section 401(k) 
(relating to application of participation and discrimination 
standards), as amended by section 1433(d)(1) of this Act, is amended by 
adding at the end the following new subparagraph:
                    ``(F) Special rule for early participation.--If an 
                employer elects to apply section 410(b)(4)(B) in 
                determining whether a cash or deferred arrangement 
                meets the requirements of subparagraph (A)(i), the 
                employer may, in determining whether the arrangement 
                meets the requirements of subparagraph (A)(ii), exclude 
                from consideration all eligible employees (other than 
                highly compensated employees) who have not met the 
                minimum age and service requirements of section 
                410(a)(1)(A).''.
    (b) Matching Contributions.--Paragraph (5) of section 401(m) 
(relating to employees taken into consideration) is amended by adding 
at the end the following new subparagraph:
                    ``(C) Special rule for early participation.--If an 
                employer elects to apply section 410(b)(4)(B) in 
                determining whether a plan meets the requirements of 
                section 410(b), the employer may, in determining 
                whether the plan meets the requirements of paragraph 
                (2), exclude from consideration all eligible employees 
                (other than highly compensated employees) who have not 
                met the minimum age and service requirements of section 
                410(a)(1)(A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1998.

SEC. 1460. MODIFICATIONS OF JOINT AND SURVIVOR ANNUITY REQUIREMENTS.

    (a) Amendments to Internal Revenue Code.--Section 417(b) is 
amended--
            (1) by striking ``For'' and inserting:
            ``(1) In general.--'',
            (2) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively, and
            (3) by adding at the end the following new paragraph:
            ``(2) Election of 66\2/3\ percent survivor annuity.--
                    ``(A) In general.--In the case of any plan with 
                respect to which the survivor annuity under a qualified 
                joint and survivor annuity is not equal to 66\2/3\ 
                percent of the amount of the annuity which is payable 
                during the joint lives of the participant and the 
                spouse, such plan shall not be treated as meeting the 
                requirements of section 401(a)(11) unless the 
                participant may elect a qualified joint and survivor 
                annuity with a survivor annuity which is equal to 66\2/
                3\ percent of such amount.
                    ``(B) Treatment of annuity.--If a participant 
                elects a survivor annuity under subparagraph (A), such 
                annuity shall be treated as a qualified joint and 
                survivor annuity for purposes of this title (other than 
                subsection (c)(1)(A)).''.
    (b) Amendments to ERISA.--Subsection (d) of section 205 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1055) is 
amended--
            (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively,
            (2) by inserting ``(1)'' after ``(d)'', and
            (3) by adding at the end the following new paragraph:
            ``(2)(A) In the case of any plan with respect to which the 
        survivor annuity under a qualified joint and survivor annuity 
        is not equal to 66\2/3\ percent of the amount of the annuity 
        which is payable during the joint lives of the participant and 
        the spouse, such plan shall not be treated as meeting the 
        requirements of subsection (a) unless the participant may elect 
        a qualified joint and survivor annuity with a survivor annuity 
        which is equal to 66\2/3\ percent of such amount.
            ``(B) If a participant elects a survivor annuity under 
        subparagraph (A), such annuity shall be treated as a qualified 
        joint and survivor annuity for purposes of this title (other 
        than subsection (e)(1)(A)).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 1996.
            (2) Special rule for existing plans.--In the case of a plan 
        in existence on the date of the enactment of this Act, the 
        amendments made by this section shall apply to any plan year 
        following the first plan year with respect to which the first 
        plan amendment adopted after such date of enactment takes 
        effect.

SEC. 1461. CLARIFICATION OF APPLICATION OF ERISA TO INSURANCE COMPANY 
              GENERAL ACCOUNTS.

    (a) In General.--Section 401 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1101) is amended by adding at the end 
the following new subsection:
    ``(c)(1)(A) Not later than December 31, 1996, the Secretary shall 
issue proposed regulations to provide guidance for the purpose of 
determining, in cases where an insurer issues 1 or more policies to or 
for the benefit of an employee benefit plan (and such policies are 
supported by the assets of such insurer's general account), which 
assets of the insurer (other than plan assets held in its separate 
accounts) constitute assets of the plan for purposes of this part and 
section 4975 of the Internal Revenue Code of 1986.
    ``(B) The proposed regulations under subparagraph (A) shall be 
subject to public notice and comment until March 31, 1997.
    ``(C) The Secretary shall issue final regulations providing the 
guidance described in subparagraph (A) not later than June 30, 1997.
    ``(2) In issuing regulations under paragraph (1), the Secretary--
            ``(A) subject to subparagraph (C), may exclude any assets 
        of the insurer with respect to its operations, products, or 
        services from treatment as plan assets,
            ``(B) shall provide that assets not treated as plan assets 
        under subsection (b)(2) shall not be treated as plan assets 
        under paragraph (1), and
            ``(C) shall ensure that the regulations--
                            ``(i) are administratively feasible, and
                            ``(ii) are designed to protect the 
                        interests and rights of the plan and of its 
                        participants and beneficiaries.
    ``(3)(A) Subject to subparagraph (B), any regulations issued under 
paragraph (1) shall not take effect before the date on which such 
regulations become final.
    ``(B) No person shall be subject to liability under this part or 
section 4975 of the Internal Revenue Code of 1986 for conduct which 
occurred before the date which is 18 months following the date 
described in subparagraph (A) on the basis of a claim that the assets 
of an insurer (other than plan assets held in a separate account) 
constitute assets of the plan, except--
            ``(i) as otherwise provided by the Secretary in regulations 
        intended to prevent avoidance of the regulations issued under 
        paragraph (1), or
            ``(ii) as provided in an action brought by the Secretary 
        pursuant to subsection (a) (2) or (5) of section 502 for a 
        breach of fiduciary responsibilities which would also 
        constitute a violation of Federal criminal law or constitute a 
        felony under applicable State law.
    ``(4) Nothing in this subsection shall preclude the application of 
any Federal criminal law.
    ``(5) For purposes of this subsection, the term `policy' includes a 
contract.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendment made by this section shall take effect on January 1, 
        1975.
            (2) Civil actions.--The amendment made by this section 
        shall not apply to any civil action commenced before November 
        7, 1995.

SEC. 1462. SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED MINISTERS.

    (a) In General.--Section 414(e) (defining church plan) is amended 
by adding at the end the following new paragraph:
            ``(5) Special rules for chaplains and self-employed 
        ministers.--
                    ``(A) Certain ministers may participate.--For 
                purposes of this part--
                            ``(i) In general.--An employee of a church 
                        or a convention or association of churches 
                        shall include a duly ordained, commissioned, or 
                        licensed minister of a church who, in 
                        connection with the exercise of his or her 
                        ministry--
                                    ``(I) is a self-employed individual 
                                (within the meaning of section 
                                401(c)(1)(B)), or
                                    ``(II) is employed by an 
                                organization other than an organization 
                                described in section 501(c)(3).
                            ``(ii) Treatment as employer and 
                        employee.--
                                    ``(I) Self-employed.--A minister 
                                described in clause (i)(I) shall be 
                                treated as his or her own employer 
                                which is an organization described in 
                                section 501(c)(3) and which is exempt 
                                from tax under section 501(a).
                                    ``(II) Others.--A minister 
                                described in clause (i)(II) shall be 
                                treated as employed by an organization 
                                described in section 501(c)(3) and 
                                exempt from tax under section 501(a).
                    ``(B) Special rules for applying section 403(b) to 
                self-employed ministers.--In the case of a minister 
                described in subparagraph (A)(i)(I)--
                            ``(i) the minister's includible 
                        compensation under section 403(b)(3) shall be 
                        determined by reference to the minister's 
                        earned income (within the meaning of section 
                        401(c)(2)) from such ministry rather than the 
                        amount of compensation which is received from 
                        an employer, and
                            ``(ii) the years (and portions of years) in 
                        which such minister was a self-employed 
                        individual (within the meaning of section 
                        401(c)(1)(B)) with respect to such ministry 
                        shall be included for purposes of section 
                        403(b)(4).
                    ``(C) Effect on non-denominational plans.--If a 
                duly ordained, commissioned, or licensed minister of a 
                church in the exercise of his or her ministry 
                participates in a church plan (within the meaning of 
                this section) and is employed by an employer not 
                eligible to participate in such church plan, then such 
                minister shall not be treated as an employee of such 
                employer for purposes of applying sections 401(a)(3), 
                401(a)(4), and 401(a)(5), as in effect on September 1, 
                1974, and sections 401(a)(4), 401(a)(5), 401(a)(26), 
                401(k)(3), 401(m), 403(b)(1)(D) (including section 
                403(b)(12)), and 410 to any stock bonus, pension, 
                profit-sharing, or annuity plan (including an annuity 
                described in section 403(b) or a retirement income 
                account described in section 403(b)(9)).''.
    (b) Contributions by Certain Ministers to Retirement Income 
Accounts.--Section 404(a) (relating to deduction for contributions of 
an employer to an employees' trust or annuity plan and compensation 
under a deferred-payment plan) is amended by adding at the end the 
following new paragraph:
            ``(10) Contributions by certain ministers to retirement 
        income accounts.--In the case of contributions made by a 
        minister described in section 414(e)(5) to a retirement income 
        account described in section 403(b)(9) and not by a person 
        other than such minister, such contributions--
                    ``(A) shall be treated as made to a trust which is 
                exempt from tax under section 501(a) and which is part 
                of a plan which is described in section 401(a), and
                    ``(B) shall be deductible under this subsection to 
                the extent such contributions do not exceed the limit 
                on elective deferrals under section 402(g), the 
                exclusion allowance under section 403(b)(2), or the 
                limit on annual additions under section 415.
        For purposes of this paragraph, all plans in which the minister 
        is a participant shall be treated as one plan.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.

SEC. 1463. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE FOR PRE-ERISA 
              CHURCH PLANS.

    (a) In General.--Section 414(q) (defining highly compensated 
employee), as amended by section 1431(c)1(A) of this Act, is amended by 
adding at the end the following new paragraph:
            ``(7) Certain employees not considered highly compensated 
        and excluded employees under pre-erisa church plans.--In the 
        case of a church plan (as defined in subsection (e)), no 
        employee shall be considered an officer, a person whose 
        principal duties consist in supervising the work of other 
        employees, or a highly compensated employee for any year unless 
        such employee is a highly compensated employee under paragraph 
        (1) for such year.''.
    (b) Safeharbor Authority.--The Secretary of the Treasury may design 
nondiscrimination and coverage safe harbors for church plans.
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to years beginning after December 31, 1996.

SEC. 1464. RULE RELATING TO INVESTMENT IN CONTRACT NOT TO APPLY TO 
              FOREIGN MISSIONARIES.

    (a) In General.--The last sentence of section 72(f) is amended by 
inserting ``, or to the extent such credits are attributable to 
services performed as a foreign missionary (within the meaning of 
section 403(b)(2)(D)(iii))'' before the end period.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

SEC. 1465. INCREASE IN GUARANTEED AMOUNT OF MULTIEMPLOYER PLAN 
              BENEFITS.

    (a) In General.--Section 4022A(c) of the Employee Retirement Income 
Security Act of 1974 is amended by adding at the end the following new 
paragraph:
            ``(7)(A) In the case of a multiemployer plan which first 
        receives financial assistance (within the meaning of section 
        4261) during the applicable period--
                    ``(i) paragraph (1) shall be applied with respect 
                to the guarantee of benefits under such plan by 
                substituting `$11' for `$5' each place it appears and 
                by substituting `$33' for `$15', and
                    ``(ii) paragraphs (2), (5), and (6) shall not apply 
                with respect to such plan.
            ``(B) For purposes of subparagraph (A), the applicable 
        period is the period--
                    ``(i) beginning on the date of the enactment of 
                this paragraph, and
                    ``(ii) ending on the last day of the first fiscal 
                year for which the surplus in the corporation's 
                multiemployer insurance program is less than 50 percent 
                of such surplus for the fiscal year ending September 
                30, 1995.
            ``(C) For purposes of subparagraph (B), the surplus for any 
        fiscal year shall be the surplus reflected in the Statement of 
        Financial Condition for the fiscal year contained in the 
        corporation's annual report, except that the assumptions used 
        in computing such surplus shall be the same as those used for 
        the fiscal year ending September 30, 1995.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1466. WAIVER OF EXCISE TAX ON FAILURE TO PAY LIQUIDITY SHORTFALL.

    (a) In General.--Section 4971(f) (relating to failure to pay 
liquidity shortfall) is amended by adding at the end the following new 
paragraph:
            ``(4) Waiver by secretary.--If the taxpayer establishes to 
        the satisfaction of the Secretary that--
                    ``(A) the liquidity shortfall described in 
                paragraph (1) was due to reasonable cause and not 
                willful neglect, and
                    ``(B) reasonable steps have been taken to remedy 
                such liquidity shortfall,
        the Secretary may waive all or part of the tax imposed by this 
        subsection.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendment made by clause (ii) of section 
751(a)(9)(B) of the Retirement Protection Act of 1994 (108 Stat. 5020).

SEC. 1467. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b), as added 
by section 1444(a), is amended--
            (1) by inserting ``or a multiemployer plan (as defined in 
        section 414(f))'' after ``section 414(d))'', and
            (2) by inserting ``and multiemployer'' after 
        ``governmental'' in the heading thereof.
    (b) Exemption for Survivor and Disability Benefits.--Subparagraph 
(I) of section 415(b)(2), as added by section 1444(c), is amended--
            (1) by inserting ``or a multiemployer plan (as defined in 
        section 414(f))'' after ``section 414(d))'' in clause (i) 
        thereof,
            (2) by inserting ``or multiemployer'' after 
        ``governmental'' in clause (ii) thereof, and
            (3) by inserting ``and multiemployer'' after 
        ``governmental'' in the heading thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.

SEC. 1468. PAYMENT OF LUMP-SUM CREDIT FOR FORMER SPOUSES OF FEDERAL 
              EMPLOYEES.

    (a) In General.--Title 5, United States Code, is amended--
            (1) in section 8342(c) by striking ``Lump-sum'' and 
        inserting ``Except as provided in section 8345(j), lump-sum'';
            (2) in section 8345(j)--
                    (A) in paragraph (1) by inserting after ``that 
                individual'' the following: ``, or be made under 
                section 8342(d) through (f) to an individual entitled 
                under section 8342(c),''; and
                    (B) by adding at the end the following:
    ``(4) Any payment under this subsection to a person bars recovery 
by any other person.'';
            (3) in section 8424(d) by striking ``Lump-sum'' and 
        inserting ``Except as provided in section 8467(a), lump-sum''; 
        and
            (4) in section 8467--
                    (A) in subsection (a) by inserting after ``that 
                individual'' the following: ``, or be made under 
                section 8424 (e) through (g) to an individual entitled 
                under section 8424(d),''; and
                    (B) by adding at the end the following:
    ``(d) Any payment under this section to a person bars recovery by 
any other person.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to any death occurring after the 90th day after the 
date of the enactment of this Act.

SEC. 1469. DATE FOR ADOPTION OF PLAN AMENDMENTS.

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

                      Subtitle E--Revenue Offsets

                       PART I--GENERAL PROVISIONS

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

    (a) In General.--Section 936 is amended by adding at the end the 
following new subsection:
    ``(j) Termination of QPSII and Reduced Credit; Reduction in 
Economic Activity Credit.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, this section shall not apply to any taxable year 
        beginning after December 31, 1995.
            ``(2) Special rules for active business income credit.--
        Except as provided in paragraph (3)--
                    ``(A) Economic activity credit.--In the case of an 
                existing credit claimant--
                            ``(i) with respect to a possession other 
                        than Puerto Rico, and
                            ``(ii) to which subsection (a)(4)(B) does 
                        not apply,
                the credit determined under subsection (a)(1)(A) shall 
                be allowed for taxable years beginning after December 
                31, 1995, except that in the case of taxable years 
                beginning after December 31, 2005, subsection 
                (a)(4)(A)(i) shall be applied by substituting `40 
                percent' for `60 percent'.
                    ``(B) Reduced credit.--
                            ``(i) In general.--In the case of an 
                        existing credit claimant to which subsection 
                        (a)(4)(B) applies, the credit determined under 
                        subsection (a)(1)(A) shall be allowed for 
                        taxable years beginning after December 31, 
                        1995, and before January 1, 2006.
                            ``(ii) Election irrevocable after 1997.--An 
                        election under subsection (a)(4)(B)(iii) which 
                        is in effect for the taxpayer's last taxable 
                        year beginning before 1997 may not be revoked 
                        unless it is revoked for the taxpayer's first 
                        taxable year beginning in 1997 and all 
                        subsequent taxable years.
                    ``(C) Economic activity credit for puerto rico.--

                                ``For economic activity credit for 
Puerto Rico, see section 30A.
            ``(3) Additional restriction on credit.--
                    ``(A) In general.--In the case of an existing 
                credit claimant, the aggregate amount of taxable income 
                taken into account under subsection (a)(1)(A) shall not 
                exceed the adjusted base period income of such 
                claimant--
                            ``(i) in the case of the credit described 
                        in paragraph (2)(A), for any taxable year 
                        beginning after December 31, 2001, and
                            ``(ii) in the case of the credit described 
                        in paragraph (2)(B), for any taxable year 
                        beginning after December 31, 1997.
                    ``(B) Coordination with subsection (a)(4).--The 
                amount of income described in subsection (a)(1)(A) 
                which is taken into account in applying subsection 
                (a)(4) shall be such income as reduced under this 
                paragraph.
            ``(4) Adjusted base period income.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `adjusted base period 
                income' means the average of the inflation-adjusted 
                possession incomes of the corporation for each base 
                period year.
                    ``(B) Inflation-adjusted possession income.--For 
                purposes of subparagraph (A), the inflation-adjusted 
                possession income of any corporation for any base 
                period year shall be an amount equal to the sum of--
                            ``(i) the possession income of such 
                        corporation for such base period year, plus
                            ``(ii) such possession income multiplied by 
                        the inflation adjustment percentage for such 
                        base period year.
                    ``(C) Inflation adjustment percentage.--For 
                purposes of subparagraph (B), the inflation adjustment 
                percentage for any base period year means the 
                percentage (if any) by which--
                            ``(i) the CPI for 1995, exceeds
                            ``(ii) the CPI for the calendar year in 
                        which the base period year for which the 
                        determination is being made ends.
                For purposes of the preceding sentence, the CPI for any 
                calendar year is the CPI (as defined in section 
                1(f)(5)) for such year under section 1(f)(4).
                    ``(D) Increase in inflation adjustment percentage 
                for growth during base years.--The inflation adjustment 
                percentage (determined under subparagraph (C) without 
                regard to this subparagraph) for each of the 5 taxable 
                years referred to in paragraph (5)(A) shall be 
                increased by--
                            ``(i) 5 percentage points in the case of a 
                        taxable year ending during the 1-year period 
                        ending on October 13, 1995;
                            ``(ii) 10.25 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1994;
                            ``(iii) 15.76 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1993;
                            ``(iv) 21.55 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1992; and
                            ``(v) 27.63 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on October 13, 1991.
            ``(5) Base period year.--For purposes of this subsection--
                    ``(A) In general.--The term `base period year' 
                means each of 3 taxable years which are among the 5 
                most recent taxable years of the corporation ending 
                before October 14, 1995, determined by disregarding--
                            ``(i) one taxable year for which the 
                        corporation had the largest inflation-adjusted 
                        possession income, and
                            ``(ii) one taxable year for which the 
                        corporation had the smallest inflation-adjusted 
                        possession income.
                    ``(B) Corporations not having significant 
                possession income throughout 5-year period.--
                            ``(i) In general.--If a corporation does 
                        not have significant possession income for each 
                        of the most recent 5 taxable years ending 
                        before October 14, 1995, then, in lieu of 
                        applying subparagraph (A), the term `base 
                        period year' means only those taxable years (of 
                        such 5 taxable years) for which the corporation 
                        has significant possession income; except that, 
                        if such corporation has significant possession 
                        income for 4 of such 5 taxable years, the rule 
                        of subparagraph (A)(ii) shall apply.
                            ``(ii) Special rule.--If there is no year 
                        (of such 5 taxable years) for which a 
                        corporation has significant possession income--
                                    ``(I) the term `base period year' 
                                means the first taxable year ending on 
                                or after October 14, 1995, but
                                    ``(II) the amount of possession 
                                income for such year which is taken 
                                into account under paragraph (4) shall 
                                be the amount which would be determined 
                                if such year were a short taxable year 
                                ending on September 30, 1995.
                            ``(iii) Significant possession income.--For 
                        purposes of this subparagraph, the term 
                        `significant possession income' means 
                        possession income which exceeds 2 percent of 
                        the possession income of the taxpayer for the 
                        taxable year (of the period of 6 taxable years 
                        ending with the first taxable year ending on or 
                        after October 14, 1995) having the greatest 
                        possession income.
                    ``(C) Election to use one base period year.--
                            ``(i) In general.--At the election of the 
                        taxpayer, the term `base period year' means--
                                    ``(I) only the last taxable year of 
                                the corporation ending in calendar year 
                                1992, or
                                    ``(II) a deemed taxable year which 
                                includes the first ten months of 
                                calendar year 1995.
                            ``(ii) Base period income for 1995.--In 
                        determining the adjusted base period income of 
                        the corporation for the deemed taxable year 
                        under clause (i)(II), the possession income 
                        shall be annualized and shall be determined 
                        without regard to any extraordinary item.
                            ``(iii) Election.--An election under this 
                        subparagraph by any possession corporation may 
                        be made only for the corporation's first 
                        taxable year beginning after December 31, 1995, 
                        for which it is a possession corporation. The 
                        rules of subclauses (II) and (III) of 
                        subsection (a)(4)(B)(iii) shall apply to the 
                        election under this subparagraph.
                    ``(D) Acquisitions and dispositions.--Rules similar 
                to the rules of subparagraphs (A) and (B) of section 
                41(f)(3) shall apply for purposes of this subsection.
            ``(6) Possession income.--For purposes of this subsection, 
        the term `possession income' means, with respect to any 
        possession, the income referred to in subsection (a)(1)(A) 
        determined with respect to that possession. In no event shall 
        possession income be treated as being less than zero.
            ``(7) Short years.--If the current year or a base period 
        year is a short taxable year, the application of this 
        subsection shall be made with such annualizations as the 
        Secretary shall prescribe.
            ``(8) Special rules for certain possessions.--
                    ``(A) In general.--In the case of an existing 
                credit claimant with respect to an applicable 
                possession--
                            ``(i) this section (other than the 
                        preceding paragraphs of this subsection) shall 
                        apply to such claimant with respect to such 
                        applicable possession for taxable years 
                        beginning after December 31, 1995, and before 
                        January 1, 2006, and
                            ``(ii) this section (including the 
                        preceding paragraphs of this subsection) shall 
                        apply to such claimant with respect to such 
                        applicable possession for taxable years 
                        beginning after December 31, 2005.
                    ``(B) Applicable possession.--For purposes of this 
                paragraph, the term `applicable possession' means Guam, 
                American Samoa, and the Commonwealth of the Northern 
                Mariana Islands.
            ``(9) Existing credit claimant.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `existing credit 
                claimant' means a corporation--
                            ``(i) which was actively conducting a trade 
                        or business in a possession on October 13, 
                        1995, and
                            ``(ii) with respect to which an election 
                        under this section is in effect for the 
                        corporation's taxable year which includes 
                        October 13, 1995.
                    ``(B) New lines of business prohibited.--If, after 
                October 13, 1995, a corporation which would (but for 
                this subparagraph) be an existing credit claimant adds 
                a substantial new line of business, such corporation 
                shall cease to be treated as an existing credit 
                claimant as of the close of the taxable year ending 
                before the date of such addition.
                    ``(C) Binding contract exception.--If, on October 
                13, 1995, and at all times thereafter, there is in 
                effect with respect to a corporation a binding contract 
                for the acquisition of assets to be used in, or for the 
                sale of assets to be produced from, a trade or 
                business, the corporation shall be treated for purposes 
                of this paragraph as actively conducting such trade or 
                business on October 13, 1995. The preceding sentence 
                shall not apply if such trade or business is not 
                actively conducted before January 1, 1996.
            ``(10) Separate application to each possession.--For 
        purposes of determining--
                    ``(A) whether a taxpayer is an existing credit 
                claimant, and
                    ``(B) the amount of the credit allowed under this 
                section,
        this subsection (and so much of this section as relates to this 
        subsection) shall be applied separately with respect to each 
        possession.''.
    (b) Economic Activity Credit for Puerto Rico.--
            (1) In general.--Subpart B of part IV of subchapter A of 
        chapter 1 is amended by adding at the end the following new 
        section:

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

    ``(a) Allowance of Credit.--
            ``(1) In general.--Except as otherwise provided in this 
        section, if the conditions of both paragraph (1) and paragraph 
        (2) of subsection (b) are satisfied with respect to a qualified 
        domestic corporation, there shall be allowed as a credit 
        against the tax imposed by this chapter an amount equal to the 
        portion of the tax which is attributable to the taxable income, 
        from sources without the United States, from--
                    ``(A) the active conduct of a trade or business 
                within Puerto Rico, or
                    ``(B) the sale or exchange of substantially all of 
                the assets used by the taxpayer in the active conduct 
                of such trade or business.
        In the case of any taxable year beginning after December 31, 
        2001, the aggregate amount of taxable income taken into account 
        under the preceding sentence (and in applying subsection (d)) 
        shall not exceed the adjusted base period income of such 
        corporation, as determined in the same manner as under section 
        936(j).
            ``(2) Qualified domestic corporation.--For purposes of 
        paragraph (1), the term `qualified domestic corporation' means 
        a domestic corporation--
                    ``(A) which is an existing credit claimant with 
                respect to Puerto Rico, and
                    ``(B) with respect to which section 936(a)(4)(B) 
                does not apply for the taxable year.
            ``(3) Separate application.--For purposes of determining--
                    ``(A) whether a taxpayer is an existing credit 
                claimant with respect to Puerto Rico, and
                    ``(B) the amount of the credit allowed under this 
                section,
        this section (and so much of section 936 as relates to this 
        section) shall be applied separately with respect to Puerto 
        Rico.
    ``(b) Conditions Which Must Be Satisfied.--The conditions referred 
to in subsection (a) are--
            ``(1) 3-year period.--If 80 percent or more of the gross 
        income of the qualified domestic corporation for the 3-year 
        period immediately preceding the close of the taxable year (or 
        for such part of such period immediately preceding the close of 
        such taxable year as may be applicable) was derived from 
        sources within a possession of the United States (determined 
        without regard to section 904(f)).
            ``(2) Trade or business.--If 75 percent or more of the 
        gross income of the qualified domestic corporation for such 
        period or such part thereof was derived from the active conduct 
        of a trade or business within a possession of the United 
        States.
    ``(c) Credit Not Allowed Against Certain Taxes.--The credit 
provided by subsection (a) shall not be allowed against the tax imposed 
by--
            ``(1) section 59A (relating to environmental tax),
            ``(2) section 531 (relating to the tax on accumulated 
        earnings),
            ``(3) section 541 (relating to personal holding company 
        tax), or
            ``(4) section 1351 (relating to recoveries of foreign 
        expropriation losses).
    ``(d) Limitations on Credit.--The amount of the credit determined 
under subsection (a) for any taxable year shall not exceed the sum of 
the following amounts:
            ``(1) 60 percent (40 percent in the case of taxable years 
        beginning after December 31, 2005) of the sum of--
                    ``(A) the aggregate amount of the qualified 
                domestic corporation's qualified possession wages for 
                such taxable year, plus
                    ``(B) the allocable employee fringe benefit 
                expenses of the qualified domestic corporation for such 
                taxable year.
            ``(2) The sum of--
                    ``(A) 15 percent of the depreciation allowances for 
                the taxable year with respect to short-life qualified 
                tangible property,
                    ``(B) 40 percent of the depreciation allowances for 
                the taxable year with respect to medium-life qualified 
                tangible property, and
                    ``(C) 65 percent of the depreciation allowances for 
                the taxable year with respect to long-life qualified 
                tangible property.
            ``(3) If the qualified domestic corporation does not have 
        an election to use the method described in section 
        936(h)(5)(C)(ii) (relating to profit split) in effect for the 
        taxable year, the amount of the qualified possession income 
        taxes for the taxable year allocable to nonsheltered income.
    ``(e) Administrative Provisions.--For purposes of this title (other 
than section 27)--
            ``(1) the provisions of section 936 (including any 
        applicable election thereunder) shall apply in the same manner 
        as if the credit under this section were a credit under section 
        936(a)(1)(A) for a domestic corporation to which section 
        936(a)(4)(A) applies,
            ``(2) the credit under this section shall be treated in the 
        same manner as the credit under section 936, and
            ``(3) a corporation to which this section applies shall be 
        treated in the same manner as if it were a corporation electing 
        the application of section 936.
    ``(f) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 936 shall have the same 
meaning given such term by section 936.
    ``(g) Application of Section.--This section shall apply to taxable 
years beginning after December 31, 1995.''.
            (2) Conforming amendments.--
                    (A) Paragraph (1) of section 55(c) is amended by 
                striking ``and the section 936 credit allowable under 
                section 27(b)'' and inserting ``, the section 936 
                credit allowable under section 27(b), and the Puerto 
                Rican economic activity credit under section 30A''.
                    (B) Subclause (I) of section 56(g)(4)(C)(ii) is 
                amended--
                            (i) by inserting ``30A,'' before ``936'', 
                        and
                            (ii) by striking ``and (i)'' and inserting 
                        ``, (i), and (j)''.
                    (C) Clause (iii) of section 56(g)(4)(C) is amended 
                by adding at the end the following new subclause:
                                    ``(VI) Application to section 30a 
                                corporations.--References in this 
                                clause to section 936 shall be treated 
                                as including references to section 
                                30A.''.
                    (D)(i) Subsection (b) of section 59 is amended by 
                striking ``section 936,'' and all that follows and 
                inserting ``section 30A or 936, alternative minimum 
                taxable income shall not include any income with 
                respect to which a credit is determined under section 
                30A or 936.''.
                    (ii) The heading for section 59(b) is amended by 
                inserting ``30A or'' before ``936''.
                    (E) The table of sections for subpart B of part IV 
                of subchapter A of chapter 1 is amended by adding at 
                the end the following new item:

``Sec. 30A. Puerto Rican economic activity credit.''.
                    (F)(i) The heading for subpart B of part IV of 
                subchapter A of chapter 1 is amended to read as 
                follows:

                     ``Subpart B--Other Credits''.

                    (ii) The table of subparts for part IV of 
                subchapter A of chapter 1 is amended by striking the 
                item relating to subpart B and inserting the following 
                new item:

``Subpart B. Other credits.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1995.
            (2) Special rule for qualified possession source investment 
        income.--The amendments made by this section shall not apply to 
        qualified possession source investment income received or 
        accrued before July 1, 1996, without regard to the taxable year 
        in which received or accrued.

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

    (a) In General.--Section 133 (relating to interest on certain loans 
used to acquire employer securities) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 291(e)(1) is amended by 
        striking clause (iv) and by redesignating clause (v) as clause 
        (iv).
            (2) Section 812 is amended by striking subsection (g).
            (3) Paragraph (5) of section 852(b) is amended by striking 
        subparagraph (C).
            (4) Paragraph (2) of section 4978(b) is amended by striking 
        subparagraph (A) and all that follows and inserting the 
        following:
                    ``(A) first from qualified securities to which 
                section 1042 applied acquired during the 3-year period 
                ending on the date of the disposition, beginning with 
                the securities first so acquired, and
                    ``(B) then from any other employer securities.
        If subsection (d) applies to a disposition, the disposition 
        shall be treated as made from employer securities in the 
        opposite order of the preceding sentence.''.
            (5)(A) Section 4978B (relating to tax on disposition of 
        employer securities to which section 133 applied) is hereby 
        repealed.
            (B) The table of sections for chapter 43 is amended by 
        striking the item relating to section 4978B.
            (6) Subsection (e) of section 6047 is amended by striking 
        paragraphs (1), (2), and (3) and inserting the following new 
        paragraphs:
            ``(1) any employer maintaining, or the plan administrator 
        (within the meaning of section 414(g)) of, an employee stock 
        ownership plan which holds stock with respect to which section 
        404(k) applies to dividends paid on such stock, or
            ``(2) both such employer or plan administrator,''.
            (7) Subsection (f) of section 7872 is amended by striking 
        paragraph (12).
            (8) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        133.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to loans made after the date of the enactment of this 
        Act.
            (2) Refinancings.--The amendments made by this section 
        shall not apply to loans made after the date of the enactment 
        of this Act to refinance securities acquisition loans 
        (determined without regard to section 133(b)(1)(B) of the 
        Internal Revenue Code of 1986, as in effect on the day before 
        the date of the enactment of this Act) made on or before such 
        date or to refinance loans described in this paragraph if--
                    (A) the refinancing loans meet the requirements of 
                section 133 of such Code (as so in effect),
                    (B) immediately after the refinancing the principal 
                amount of the loan resulting from the refinancing does 
                not exceed the principal amount of the refinanced loan 
                (immediately before the refinancing), and
                    (C) the term of such refinancing loan does not 
                extend beyond the last day of the term of the original 
                securities acquisition loan.
        For purposes of this paragraph, the term ``securities 
        acquisition loan'' includes a loan from a corporation to an 
        employee stock ownership plan described in section 133(b)(3) of 
        such Code (as so in effect).
            (3) Exception.--Any loan made pursuant to a binding written 
        contract in effect before June 10, 1996, and at all times 
        thereafter before such loan is made, shall be treated for 
        purposes of paragraphs (1) and (2) as a loan made on or before 
        the date of the enactment of this Act.

SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.

    (a) In General.--Paragraph (2) of section 104(a) (relating to 
compensation for injuries or sickness) is amended to read as follows:
            ``(2) the amount of any damages (other than punitive 
        damages) received (whether by suit or agreement and whether as 
        lump sums or as periodic payments) on account of personal 
        injuries or sickness;''.
    (b) Application of Prior Law for States in Which Only Punitive 
Damages May Be Awarded in Wrongful Death Actions.--Section 104 is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Application of Prior Law in Certain Cases.--Notwithstanding 
subsection (a)(2), gross income shall not include punitive damages 
awarded in a civil action--
            ``(1) which is a wrongful death action, and
            ``(2) with respect to which applicable State law (as in 
        effect on September 13, 1995 and without regard to any 
        modification after such date) provides, or has been construed 
        to provide by a court of competent jurisdiction pursuant to a 
        decision issued on or before September 13, 1995, that only 
        punitive damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed on or 
after the first date on which the applicable State law ceases to 
provide (or is no longer construed to provide) the treatment described 
in paragraph (2).''.
    (c) Conforming Amendment.--Section 104(a) is amended by striking 
the last sentence.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to amounts received 
        after June 30, 1996, in taxable years ending after such date.
            (2) Exception.--The amendments made by this section shall 
        not apply to any amount received under a written binding 
        agreement, court decree, or mediation award in effect on (or 
        issued on or before) September 13, 1995.

SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE TAX.

    (a) Extension.--Subsection (f) of section 4001 is amended by 
striking ``1999'' and inserting ``2002''.
    (b) Phasedown.--Section 4001 is amended by redesignating subsection 
(f) (as amended by subsection (a) of this section) as subsection (g) 
and by inserting after subsection (e) the following new subsection:
    ``(f) Phasedown.--For sales occurring in calendar years after 1995 
and before 2003, subsection (a) shall be applied by substituting for 
`10 percent' the percentage determined in accordance with the following 
table:

``If the calendar year is:
                                                     The percentage is:
  1996...............................................  9 percent       
  1997...............................................  8 percent       
  1998...............................................  7 percent       
  1999...............................................  6 percent       
  2000...............................................  5 percent       
  2001...............................................  4 percent       
  2002............................................... 3 percent.''.    
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to sales occurring after the date which is 7 days 
after the date of the enactment of this Act.

SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING FOR LOCAL 
              FURNISHERS OF ELECTRICITY AND GAS.

    Section 142(f) (relating to local furnishing of electric energy or 
gas) is amended by adding at the end the following new paragraphs:
            ``(3) Termination of future financing.--For purposes of 
        this section, no bond may be issued as part of an issue 
        described in subsection (a)(8) with respect to a facility for 
        the local furnishing of electric energy or gas on or after the 
        date of the enactment of this paragraph unless--
                    ``(A) the facility will--
                            ``(i) be used by a person who is engaged in 
                        the local furnishing of that energy source on 
                        such date, and
                            ``(ii) be used to provide service within 
                        the area served by such person on such date, or
                    ``(B) the facility will be used by a successor in 
                interest to such person for the same use and within the 
                same service area as described in subparagraph (A).
            ``(4) Election to terminate tax-exempt bond financing by 
        certain furnishers.--
                    ``(A) In general.--In the case of a facility 
                financed with bonds issued before the date of the 
                enactment of this paragraph which would cease to be 
                tax-exempt by reason of the failure to meet the local 
                furnishing requirement of subsection (a)(8) as a result 
                of a service area expansion, such bonds shall not cease 
                to be tax-exempt bonds (and section 150(b)(4) shall not 
                apply) if the person engaged in such local furnishing 
                by such facility makes an election described in 
                subparagraph (B).
                    ``(B) Election.--An election is described in this 
                subparagraph if it is an election made in such manner 
                as the Secretary prescribes, and such person (or its 
                predecessor in interest) agrees that--
                            ``(i) such election is made with respect to 
                        all facilities for the local furnishing of 
                        electric energy or gas, or both, by such 
                        person,
                            ``(ii) no bond exempt from tax under 
                        section 103 and described in subsection (a)(8) 
                        may be issued on or after the date of the 
                        enactment of this paragraph with respect to all 
                        such facilities of such person,
                            ``(iii) any expansion of the service area--
                                    ``(I) is not financed with the 
                                proceeds of any exempt facility bond 
                                described in subsection (a)(8), and
                                    ``(II) is not treated as a 
                                nonqualifying use under the rules of 
                                paragraph (2), and
                            ``(iv) all outstanding bonds used to 
                        finance the facilities for such person are 
                        redeemed not later than 6 months after the 
                        later of--
                                    ``(I) the earliest date on which 
                                such bonds may be redeemed, or
                                    ``(II) the date of the election.
                    ``(C) Related persons.--For purposes of this 
                paragraph, the term `person' includes a group of 
                related persons (within the meaning of section 
                144(a)(3)) which includes such person.''.

SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO INTEREST 
              ALLOCATION RULES.

    (a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform 
Act of 1986 (Public Law 99-514, 100 Stat. 2548) is hereby repealed.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.

    (a) Fuel Tax.--
            (1) Subparagraph (A) of section 4091(b)(3) is amended to 
        read as follows:
                    ``(A) The rate of tax specified in paragraph (1) 
                shall be 4.3 cents per gallon--
                            ``(i) after December 31, 1995, and before 
                        the date which is 7 days after the date of the 
                        enactment of the Small Business Job Protection 
                        Act of 1996, and
                            ``(ii) after April 15, 1997.''.
            (2) Section 4081(d) is amended--
                    (A) by adding at the end the following new 
                paragraph:
            ``(3) Aviation gasoline.--After April 15, 1997, the rate of 
        tax specified in subsection (a)(2)(A)(i) on aviation gasoline 
        shall be 4.3 cents per gallon.'', and
                    (B) by inserting ``(other than the tax on aviation 
                gasoline)'' after ``subsection (a)(2)(A)''.
            (3) Section 4041(c)(5) is amended by inserting ``, and 
        during the period beginning on the date which is 7 days after 
        the date of the enactment of the Small Business Job Protection 
        Act of 1996 and ending on April 15, 1997'' after ``December 31, 
        1995''.
    (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each amended by 
striking ``January 1, 1996'' and inserting ``January 1, 1996, and to 
transportation beginning on or after the date which is 7 days after the 
date of the enactment of the Small Business Job Protection Act of 1996 
and before April 16, 1997''.
    (c) Transfers to Airport and Airway Trust Fund.--
            (1) Subsection (b) of section 9502 is amended by striking 
        ``January 1, 1996'' each place it appears and inserting ``April 
        16, 1997''.
            (2) Paragraph (3) of section 9502(f) is amended to read as 
        follows:
            ``(3) Termination.--Notwithstanding the preceding 
        provisions of this subsection, the Airport and Airway Trust 
        Fund financing rate shall be zero with respect to--
                    ``(A) taxes imposed after December 31, 1995, and 
                before the date which is 7 days after the date of the 
                enactment of the Small Business Job Protection Act of 
                1996, and
                    ``(B) taxes imposed after April 15, 1997.''.
            (3) Subsection (d) of section 9502 is amended by adding at 
        the end the following new paragraph:
            ``(5) Transfers from airport and airway trust fund on 
        account of refunds of taxes on transportation by air.--The 
        Secretary of the Treasury shall pay from time to time from the 
        Airport and Airway Trust Fund into the general fund of the 
        Treasury amounts equivalent to the amounts paid after December 
        31, 1995, under section 6402 (relating to authority to make 
        credits or refunds) or section 6415 (relating to credits or 
        refunds to persons who collected certain taxes) in respect of 
        taxes under sections 4261 and 4271.''.
    (d) Excise Tax Exemption for Certain Emergency Medical 
Transportation by Air Ambulance.--Subsection (f) of section 4261 
(relating to imposition of tax on transportation by air) is amended to 
read as follows:
    ``(f) Exemption for Air Ambulances Providing Certain Emergency 
Medical Transportation.--No tax shall be imposed under this section or 
section 4271 on any air transportation for the purpose of providing 
emergency medical services--
            ``(1) by helicopter, or
            ``(2) by a fixed-wing aircraft equipped for and exclusively 
        dedicated to acute care emergency medical services.''.
    (e) Exemption for Certain Helicopter Uses.--Subsection (e) of 
section 4261 is amended by adding at the end the following new 
sentence: ``In the case of helicopter transportation described in 
paragraph (1), this subsection shall be applied by treating each flight 
segment as a distinct flight.''.
    (f) Floor Stocks Taxes on Aviation Fuel.--
            (1) Imposition of tax.--In the case of aviation fuel on 
        which tax was imposed under section 4091 of the Internal 
        Revenue Code of 1986 before the tax-increase date described in 
        paragraph (3)(A)(i) and which is held on such date by any 
        person, there is hereby imposed a floor stocks tax of 17.5 
        cents per gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding aviation 
                fuel on a tax-increase date to which the tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) with respect to any tax-increase date shall be paid 
                on or before the first day of the 7th month beginning 
                after such tax-increase date.
            (3) Definitions.--For purposes of this subsection--
                    (A) Tax increase date.--The term ``tax-increase 
                date'' means the date which is 7 days after the date of 
                the enactment of this Act.
                    (B) Aviation fuel.--The term ``aviation fuel'' has 
                the meaning given such term by section 4093 of such 
                Code.
                    (C) Held by a person.--Aviation fuel shall be 
                considered as ``held by a person'' if title thereto has 
                passed to such person (whether or not delivery to the 
                person has been made).
                    (D) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to aviation fuel held by any 
        person on any tax-increase date exclusively for any use for 
        which a credit or refund of the entire tax imposed by section 
        4091 of such Code is allowable for aviation fuel purchased on 
        or after such tax-increase date for such use.
            (5) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on aviation fuel held on any tax-increase 
                date by any person if the aggregate amount of aviation 
                fuel held by such person on such date does not exceed 
                2,000 gallons. The preceding sentence shall apply only 
                if such person submits to the Secretary (at the time 
                and in the manner required by the Secretary) such 
                information as the Secretary shall require for purposes 
                of this paragraph.
                    (B) Exempt fuel.--For purposes of subparagraph (A), 
                there shall not be taken into account fuel held by any 
                person which is exempt from the tax imposed by 
                paragraph (1) by reason of paragraph (4).
                    (C) Controlled groups.--For purposes of this 
                paragraph--
                            (i) Corporations.--
                                    (I) In general.--All persons 
                                treated as a controlled group shall be 
                                treated as 1 person.
                                    (II) Controlled group.--The term 
                                ``controlled group'' has the meaning 
                                given to such term by subsection (a) of 
                                section 1563 of such Code; except that 
                                for such purposes the phrase ``more 
                                than 50 percent'' shall be substituted 
                                for the phrase ``at least 80 percent'' 
                                each place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under common 
                        control.--Under regulations prescribed by the 
                        Secretary, principles similar to the principles 
                        of clause (i) shall apply to a group of persons 
                        under common control where 1 or more of such 
                        persons is not a corporation.
            (6) Other law applicable.--All provisions of law, including 
        penalties, applicable with respect to the taxes imposed by 
        section 4091 of such Code shall, insofar as applicable and not 
        inconsistent with the provisions of this subsection, apply with 
        respect to the floor stock taxes imposed by paragraph (1) to 
        the same extent as if such taxes were imposed by such section 
        4091.
    (g) Effective Date.--The amendments made by this section shall take 
effect 7 days after the date of the enactment of this Act, except that 
the amendments made by subsection (b) shall not apply to any amount 
paid on or before such date.

SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE STOCK 
              IN CORPORATION IS REPLACEMENT PROPERTY UNDER INVOLUNTARY 
              CONVERSION RULES.

    (a) In General.--Subsection (b) of section 1033 is amended to read 
as follows:
    ``(b) Basis of Property Acquired Through Involuntary Conversion.--
            ``(1) Conversions described in subsection (a)(1).--If the 
        property was acquired as the result of a compulsory or 
        involuntary conversion described in subsection (a)(1), the 
        basis shall be the same as in the case of the property so 
        converted--
                    ``(A) decreased in the amount of any money received 
                by the taxpayer which was not expended in accordance 
                with the provisions of law (applicable to the year in 
                which such conversion was made) determining the taxable 
                status of the gain or loss upon such conversion, and
                    ``(B) increased in the amount of gain or decreased 
                in the amount of loss to the taxpayer recognized upon 
                such conversion under the law applicable to the year in 
                which such conversion was made.
            ``(2) Conversions described in subsection (a)(2).--In the 
        case of property purchased by the taxpayer in a transaction 
        described in subsection (a)(2) which resulted in the 
        nonrecognition of any part of the gain realized as the result 
        of a compulsory or involuntary conversion, the basis shall be 
        the cost of such property decreased in the amount of the gain 
        not so recognized; and if the property purchased consists of 
        more than 1 piece of property, the basis determined under this 
        sentence shall be allocated to the purchased properties in 
        proportion to their respective costs.
            ``(3) Property held by corporation the stock of which is 
        replacement property.--
                    ``(A) In general.--If the basis of stock in a 
                corporation is decreased under paragraph (2), an amount 
                equal to such decrease shall also be applied to reduce 
                the basis of property held by the corporation at the 
                time the taxpayer acquired control (as defined in 
                subsection (a)(2)(E)) of such corporation.
                    ``(B) Limitation.--Subparagraph (A) shall not apply 
                to the extent that it would (but for this subparagraph) 
                require a reduction in the aggregate adjusted bases of 
                the property of the corporation below the taxpayer's 
                adjusted basis of the stock in the corporation 
                (determined immediately after such basis is decreased 
                under paragraph (2)).
                    ``(C) Allocation of basis reduction.--The decrease 
                required under subparagraph (A) shall be allocated--
                            ``(i) first to property which is similar or 
                        related in service or use to the converted 
                        property,
                            ``(ii) second to depreciable property (as 
                        defined in section 1017(b)(3)(B)) not described 
                        in clause (i), and
                            ``(iii) then to other property.
                    ``(D) Special rules.--
                            ``(i) Reduction not to exceed adjusted 
                        basis of property.--No reduction in the basis 
                        of any property under this paragraph shall 
                        exceed the adjusted basis of such property 
                        (determined without regard to such reduction).
                            ``(ii) Allocation of reduction among 
                        properties.--If more than 1 property is 
                        described in a clause of subparagraph (C), the 
                        reduction under this paragraph shall be 
                        allocated among such property in proportion to 
                        the adjusted bases of such property (as so 
                        determined).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to involuntary conversions occurring after the date of the enactment of 
this Act.

SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING WINNINGS.

    (a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) of 
section 3402(q) is amended to read as follows:
            ``(5) Exemption for slot machines.--The tax imposed under 
        paragraph (1) shall not apply to winnings from a slot 
        machine.''.
    (b) Threshold Amount.--Paragraph (3) of section 3402(q) is 
amended--
            (1) by striking ``(B) and (C)'' in subparagraph (A) and 
        inserting ``(B), (C), and (D)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(D) Bingo and keno.--Proceeds of more than $5,000 
                from a wager placed in a bingo or keno game.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the 30th day after the date of the enactment of this Act.

SEC. 1610. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.

    (a) General Rule.--
            (1) Paragraph (2) of section 817(d) (defining variable 
        contract) is amended by striking ``or'' at the end of 
        subparagraph (A), by striking ``and'' at the end of 
        subparagraph (B) and inserting ``or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) provides for funding of insurance on retired 
                lives as described in section 807(c)(6), and''.
            (2) Paragraph (3) of section 817(d) is amended by striking 
        ``or'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, or'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) in the case of funds held under a contract 
                described in paragraph (2)(C), the amounts paid in, or 
                the amounts paid out, reflect the investment return and 
                the market value of the segregated asset account.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.

    (a) Treatment of Contributions in Aid of Construction.--
            (1) In general.--Section 118 (relating to contributions to 
        the capital of a corporation) is amended--
                    (A) by redesignating subsection (c) as subsection 
                (e), and
                    (B) by inserting after subsection (b) the following 
                new subsections:
    ``(c) Special Rules for Water and Sewerage Disposal Utilities.--
            ``(1) General rule.--For purposes of this section, the term 
        `contribution to the capital of the taxpayer' includes any 
        amount of money or other property received from any person 
        (whether or not a shareholder) by a regulated public utility 
        which provides water or sewerage disposal services if--
                    ``(A) such amount is a contribution in aid of 
                construction,
                    ``(B) in the case of contribution of property other 
                than water or sewerage disposal facilities, such amount 
                meets the requirements of the expenditure rule of 
                paragraph (2), and
                    ``(C) such amount (or any property acquired or 
                constructed with such amount) is not included in the 
                taxpayer's rate base for ratemaking purposes.
            ``(2) Expenditure rule.--An amount meets the requirements 
        of this paragraph if--
                    ``(A) an amount equal to such amount is expended 
                for the acquisition or construction of tangible 
                property described in section 1231(b)--
                            ``(i) which is the property for which the 
                        contribution was made or is of the same type as 
                        such property, and
                            ``(ii) which is used predominantly in the 
                        trade or business of furnishing water or 
                        sewerage disposal services,
                    ``(B) the expenditure referred to in subparagraph 
                (A) occurs before the end of the second taxable year 
                after the year in which such amount was received, and
                    ``(C) accurate records are kept of the amounts 
                contributed and expenditures made, the expenditures to 
                which contributions are allocated, and the year in 
                which the contributions and expenditures are received 
                and made.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Contribution in aid of construction.--The 
                term `contribution in aid of construction' shall be 
                defined by regulations prescribed by the Secretary, 
                except that such term shall not include amounts paid as 
                service charges for starting or stopping services.
                    ``(B) Predominantly.--The term `predominantly' 
                means 80 percent or more.
                    ``(C) Regulated public utility.--The term 
                `regulated public utility' has the meaning given such 
                term by section 7701(a)(33), except that such term 
                shall not include any utility which is not required to 
                provide water or sewerage disposal services to members 
                of the general public in its service area.
            ``(4) Disallowance of deductions and credits; adjusted 
        basis.--Notwithstanding any other provision of this subtitle, 
        no deduction or credit shall be allowed for, or by reason of, 
        any expenditure which constitutes a contribution in aid of 
        construction to which this subsection applies. The adjusted 
        basis of any property acquired with contributions in aid of 
        construction to which this subsection applies shall be zero.
    ``(d) Statute of Limitations.--If the taxpayer for any taxable year 
treats an amount as a contribution to the capital of the taxpayer 
described in subsection (c), then--
            ``(1) the statutory period for the assessment of any 
        deficiency attributable to any part of such amount shall not 
        expire before the expiration of 3 years from the date the 
        Secretary is notified by the taxpayer (in such manner as the 
        Secretary may prescribe) of--
                    ``(A) the amount of the expenditure referred to in 
                subparagraph (A) of subsection (c)(2),
                    ``(B) the taxpayer's intention not to make the 
                expenditures referred to in such subparagraph, or
                    ``(C) a failure to make such expenditure within the 
                period described in subparagraph (B) of subsection 
                (c)(2), and
            ``(2) such deficiency may be assessed before the expiration 
        of such 3-year period notwithstanding the provisions of any 
        other law or rule of law which would otherwise prevent such 
        assessment.''.
            (2) Conforming amendment.--Section 118(b) is amended by 
        inserting ``except as provided in subsection (c),'' before 
        ``the term''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts received after June 12, 1996.
    (b) Recovery Method and Period for Water Utility Property.--
            (1) Requirement to use straight line method.--Section 
        168(b)(3) is amended by adding at the end the following new 
        subparagraph:
                    ``(F) Water utility property described in 
                subsection (e)(5).''.
            (2) 25-year recovery period.--The table contained in 
        section 168(c)(1) is amended by inserting the following item 
        after the item relating to 20-year property:

    ``Water utility property......................          25 years''.
            (3) Water utility property.--
                    (A) In general.--Section 168(e) is amended by 
                adding at the end the following new paragraph:
            ``(5) Water utility property.--The term `water utility 
        property' means property--
                    ``(A) which is an integral part of the gathering, 
                treatment, or commercial distribution of water, and 
                which, without regard to this paragraph, would be 20-
                year property, and
                    ``(B) any municipal sewer.''.
                    (B) Conforming amendments.--Section 168 is 
                amended--
                            (i) by striking subparagraph (F) of 
                        subsection (e)(3), and
                            (ii) by striking the item relating to 
                        subparagraph (F) in the table in subsection 
                        (g)(3).
            (4) Alternative system.--Clause (iv) of section 
        168(g)(2)(C) is amended by inserting ``or water utility 
        property'' after ``tunnel bore''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to property placed in service after June 12, 1996, 
        other than property placed in service pursuant to a binding 
        contract in effect before June 10, 1996, and at all times 
        thereafter before the property is placed in service.

SEC. 1612. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING 
              CORPORATION.

    (a) In General.--Subsection (d) of section 150 (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
            ``(3) Election to cease status as qualified scholarship 
        funding corporation.--
                    ``(A) In general.--Any qualified scholarship 
                funding bond, and qualified student loan bond, 
                outstanding on the date of the issuer's election under 
                this paragraph (and any bond (or series of bonds) 
                issued to refund such a bond) shall not fail to be a 
                tax-exempt bond solely because the issuer ceases to be 
                described in subparagraphs (A) and (B) of paragraph (2) 
                if the issuer meets the requirements of subparagraphs 
                (B) and (C) of this paragraph.
                    ``(B) Assets and liabilities of issuer transferred 
                to taxable subsidiary.--The requirements of this 
                subparagraph are met by an issuer if--
                            ``(i) all of the student loan notes of the 
                        issuer and other assets pledged to secure the 
                        repayment of qualified scholarship funding bond 
                        indebtedness of the issuer are transferred to 
                        another corporation within a reasonable period 
                        after the election is made under this 
                        paragraph;
                            ``(ii) such transferee corporation assumes 
                        or otherwise provides for the payment of all of 
                        the qualified scholarship funding bond 
                        indebtedness of the issuer within a reasonable 
                        period after the election is made under this 
                        paragraph;
                            ``(iii) to the extent permitted by law, 
                        such transferee corporation assumes all of the 
                        responsibilities, and succeeds to all of the 
                        rights, of the issuer under the issuer's 
                        agreements with the Secretary of Education in 
                        respect of student loans;
                            ``(iv) immediately after such transfer, the 
                        issuer, together with any other issuer which 
                        has made an election under this paragraph in 
                        respect of such transferee, hold all of the 
                        senior stock in such transferee corporation; 
                        and
                            ``(v) such transferee corporation is not 
                        exempt from tax under this chapter.
                    ``(C) Issuer to operate as independent organization 
                described in section 501(c)(3).--The requirements of 
                this subparagraph are met by an issuer if, within a 
                reasonable period after the transfer referred to in 
                subparagraph (B)--
                            ``(i) the issuer is described in section 
                        501(c)(3) and exempt from tax under section 
                        501(a);
                            ``(ii) the issuer no longer is described in 
                        subparagraphs (A) and (B) of paragraph (2); and
                            ``(iii) at least 80 percent of the members 
                        of the board of directors of the issuer are 
                        independent members.
                    ``(D) Senior stock.--For purposes of this 
                paragraph, the term `senior stock' means stock--
                            ``(i) which participates pro rata and fully 
                        in the equity value of the corporation with all 
                        other common stock of the corporation but which 
                        has the right to payment of liquidation 
                        proceeds prior to payment of liquidation 
                        proceeds in respect of other common stock of 
                        the corporation;
                            ``(ii) which has a fixed right upon 
                        liquidation and upon redemption to an amount 
                        equal to the greater of--
                                    ``(I) the fair market value of such 
                                stock on the date of liquidation or 
                                redemption (whichever is applicable); 
                                or
                                    ``(II) the fair market value of all 
                                assets transferred in exchange for such 
                                stock and reduced by the amount of all 
                                liabilities of the corporation which 
                                has made an election under this 
                                paragraph assumed by the transferee 
                                corporation in such transfer;
                            ``(iii) the holder of which has the right 
                        to require the transferee corporation to redeem 
                        on a date that is not later than 10 years after 
                        the date on which an election under this 
                        paragraph was made and pursuant to such 
                        election such stock was issued; and
                            ``(iv) in respect of which, during the time 
                        such stock is outstanding, there is not 
                        outstanding any equity interest in the 
                        corporation having any liquidation, redemption 
                        or dividend rights in the corporation which are 
                        superior to those of such stock.
                    ``(E) Independent member.--The term `independent 
                member' means a member of the board of directors of the 
                issuer who (except for services as a member of such 
                board) receives no compensation directly or 
                indirectly--
                            ``(i) for services performed in connection 
                        with such transferee corporation, or
                            ``(ii) for services as a member of the 
                        board of directors or as an officer of such 
                        transferee corporation.
                For purposes of clause (ii), the term `officer' 
                includes any individual having powers or 
                responsibilities similar to those of officers.
                    ``(F) Coordination with certain private foundation 
                taxes.--For purposes of sections 4942 (relating to the 
                excise tax on a failure to distribute income) and 4943 
                (relating to the excise tax on excess business 
                holdings), the transferee corporation referred to in 
                subparagraph (B) shall be treated as a functionally 
                related business (within the meaning of section 
                4942(j)(4)) with respect to the issuer during the 
                period commencing with the date on which an election is 
                made under this paragraph and ending on the date that 
                is the earlier of--
                            ``(i) the last day of the last taxable year 
                        for which more than 50 percent of the gross 
                        income of such transferee corporation is 
                        derived from, or more than 50 percent of the 
                        assets (by value) of such transferee 
                        corporation consists of, student loan notes 
                        incurred under the Higher Education Act of 
                        1965; or
                            ``(ii) the last day of the taxable year of 
                        the issuer during which occurs the date which 
                        is 10 years after the date on which the 
                        election under this paragraph is made.
                    ``(G) Election.--An election under this paragraph 
                may be revoked only with the consent of the 
                Secretary.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1613. CERTAIN TAX BENEFITS DENIED TO INDIVIDUALS FAILING TO 
              PROVIDE TAXPAYER IDENTIFICATION NUMBERS.

    (a) Personal Exemption.--
            (1) In general.--Section 151 (relating to allowance of 
        deductions for personal exemptions) is amended by adding at the 
        end the following new subsection:
    ``(e) Identifying Information Required.--No exemption shall be 
allowed under this section with respect to any individual unless the 
TIN of such individual is included on the return claiming the 
exemption.''.
            (2) Conforming amendments.--
                    (A) Subsection (e) of section 6109 is repealed.
                    (B) Section 6724(d)(3) is amended by adding ``and'' 
                at the end of subparagraph (C), by striking 
                subparagraph (D), and by redesignating subparagraph (E) 
                as subparagraph (D).
    (b) Dependent Care Credit.--Subsection (e) of section 21 (relating 
to expenses for household and dependent care services necessary for 
gainful employment) is amended by adding at the end the following new 
paragraph:
            ``(10) Identifying information required with respect to 
        qualifying individuals.--No credit shall be allowed under this 
        section with respect to any qualifying individual unless the 
        TIN of such individual is included on the return claiming the 
        credit.''.
    (c) Extension of Procedures Applicable to Mathematical or Clerical 
Errors.--Section 6213(g)(2) (relating to the definition of mathematical 
or clerical errors) is amended by striking ``and' at the end of 
subparagraph (D), by striking the period at the end of subparagraph (E) 
and inserting ``, and'', and by inserting at the end the following new 
subparagraph:
                    ``(F) an omission of a correct TIN required under 
                section 21 (relating to expenses for household and 
                dependent care services necessary for gainful 
                employment) or section 151 (relating to allowance of 
                deductions for personal exemptions).''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply with respect to returns the due date for which (without 
        regard to extensions) is on or after the 30th day after the 
        date of the enactment of this Act.
            (2) Special rule for 1995 and 1996.--In the case of returns 
        for taxable years beginning in 1995 or 1996, a taxpayer shall 
        not be required by the amendments made by this section to 
        provide a taxpayer identification number for a child who is 
        born after October 31, 1995, in the case of a taxable year 
        beginning in 1995 or November 30, 1996, in the case of a 
        taxable year beginning in 1996.

          PART II--FINANCIAL ASSET SECURITIZATION INVESTMENTS

SEC. 1621. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    (a) In General.--Subchapter M of chapter 1 is amended by adding at 
the end the following new part:

       ``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS

                              ``Sec. 860H. Taxation of a FASIT; other 
                                        general rules.
                              ``Sec. 860I. Gain recognition on 
                                        contributions to and 
                                        distributions from a FASIT and 
                                        in other cases.
                              ``Sec. 860J. Non-FASIT losses not to 
                                        offset certain FASIT 
                                        inclusions.
                              ``Sec. 860K. Treatment of transfers of 
                                        high-yield interests to 
                                        disqualified holders.
                              ``Sec. 860L. Definitions and other 
                                        special rules.

``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

    ``(a) Taxation of FASIT.--A FASIT as such shall not be subject to 
taxation under this subtitle (and shall not be treated as a trust, 
partnership, corporation, or taxable mortgage pool).
    ``(b) Taxation of Holder of Ownership Interest.--In determining the 
taxable income of the holder of the ownership interest in a FASIT--
            ``(1) all assets, liabilities, and items of income, gain, 
        deduction, loss, and credit of a FASIT shall be treated as 
        assets, liabilities, and such items (as the case may be) of 
        such holder,
            ``(2) the constant yield method (including the rules of 
        section 1272(a)(6)) shall be applied under an accrual method of 
        accounting in determining all interest, acquisition discount, 
        original issue discount, and market discount and all premium 
        deductions or adjustments with respect to all debt instruments 
        of the FASIT,
            ``(3) there shall not be taken into account any item of 
        income, gain, or deduction allocable to a prohibited 
        transaction, and
            ``(4) interest accrued by the FASIT which is exempt from 
        tax imposed by this subtitle shall, when taken into account by 
        such holder, be treated as ordinary income.
For purposes of this subtitle, securities treated as held by such 
holder under paragraph (1) shall be treated as held for investment.
    ``(c) Treatment of Regular Interests.--For purposes of this title--
            ``(1) a regular interest in a FASIT, if not otherwise a 
        debt instrument, shall be treated as a debt instrument,
            ``(2) section 163(e)(5) shall not apply to such an 
        interest, and
            ``(3) amounts includible in gross income with respect to 
        such an interest shall be determined under an accrual method of 
        accounting.

``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO AND DISTRIBUTIONS 
              FROM A FASIT AND IN OTHER CASES.

    ``(a) Treatment of Property Acquired by FASIT.--
            ``(1) Property acquired from holder of ownership interest 
        or related person.--If property is sold or contributed to a 
        FASIT by the holder of the ownership interest in such FASIT (or 
        by a related person) gain (if any) shall be recognized to such 
        holder (or person) in an amount equal to the excess (if any) of 
        such property's value under subsection (d) on the date of such 
        sale or contribution over its adjusted basis on such date.
            ``(2) Property acquired other than from holder of ownership 
        interest or related person.--Property which is acquired by a 
        FASIT other than in a transaction to which paragraph (1) 
        applies shall be treated--
                    ``(A) as having been acquired by the holder of the 
                ownership interest in the FASIT for an amount equal to 
                the FASIT's adjusted basis in such property as of the 
                date such property is acquired by the FASIT, and
                    ``(B) as having been sold by such holder to the 
                FASIT at its value under subsection (d) on such date.
    ``(b) Gain Recognition on Property Outside FASIT Which Supports 
Regular Interests.--If property held by the holder of the ownership 
interest in a FASIT (or by any person related to such holder) supports 
any regular interest in such FASIT--
            ``(1) gain shall be recognized to such holder in the same 
        manner as if such holder had sold such property at its value 
        under subsection (d) on the earliest date such property 
        supports such an interest, and
            ``(2) such property shall be treated as held by such FASIT 
        for purposes of this part.
    ``(c) Deferral of Gain Recognition.--The Secretary may prescribe 
regulations which--
            ``(1) provide that gain otherwise recognized under 
        subsection (a) or (b) shall not be recognized before the 
        earliest date on which such property supports any regular 
        interest in such FASIT or any indebtedness of the holder of the 
        ownership interest (or of any person related to such holder), 
        and
            ``(2) provide such adjustments to the other provisions of 
        this part to the extent appropriate in the context of the 
        treatment provided under paragraph (1).
    ``(d) Valuation.--For purposes of this section--
            ``(1) In general.--The value of any property under this 
        subsection shall be--
                    ``(A) in the case of a debt instrument which is not 
                traded on an established securities market, the sum of 
                the present values of the reasonably expected payments 
                under such instrument determined (in the manner 
                provided by regulations prescribed by the Secretary)--
                            ``(i) as of the date of the event resulting 
                        in the gain recognition under this section, and
                            ``(ii) by using a discount rate equal to 
                        120 percent of the applicable Federal rate (as 
                        defined in section 1274(d)), or such other 
                        discount rate specified in such regulations, 
                        compounded semiannually, and
                    ``(B) in the case of any other property, its fair 
                market value.
            ``(2) Special rule for revolving loan accounts.--For 
        purposes of paragraph (1)--
                    ``(A) each extension of credit (other than the 
                accrual of interest) on a revolving loan account shall 
                be treated as a separate debt instrument, and
                    ``(B) payments on such extensions of credit having 
                substantially the same terms shall be applied to such 
                extensions beginning with the earliest such extension.
    ``(e) Special Rules.--
            ``(1) Nonrecognition rules not to apply.--Gain required to 
        be recognized under this section shall be recognized 
        notwithstanding any other provision of this subtitle.
            ``(2) Basis adjustments.--The basis of any property on 
        which gain is recognized under this section shall be increased 
        by the amount of gain so recognized.

``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT INCLUSIONS.

    ``(a) In General.--The taxable income of the holder of the 
ownership interest or any high-yield interest in a FASIT for any 
taxable year shall in no event be less than such holder's taxable 
income determined solely with respect to such interests.
    ``(b) Coordination With Section 172.--Any increase in the taxable 
income of any holder of the ownership interest or a high-yield interest 
in a FASIT for any taxable year by reason of subsection (a) shall be 
disregarded--
            ``(1) in determining under section 172 the amount of any 
        net operating loss for such taxable year, and
            ``(2) in determining taxable income for such taxable year 
        for purposes of the 2nd sentence of section 172(b)(2).
    ``(c) Coordination With Minimum Tax.--For purposes of part VI of 
subchapter A of this chapter--
            ``(1) the reference in section 55(b)(2) to taxable income 
        shall be treated as a reference to taxable income determined 
        without regard to this section,
            ``(2) the alternative minimum taxable income of any holder 
        of the ownership interest or a high-yield interest in a FASIT 
        for any taxable year shall in no event be less than such 
        holder's taxable income determined solely with respect to such 
        interests, and
            ``(3) any increase in taxable income under this section 
        shall be disregarded for purposes of computing the alternative 
        tax net operating loss deduction.

``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS TO 
              DISQUALIFIED HOLDERS.

    ``(a) General Rule.--In the case of any high-yield interest which 
is held by a disqualified holder--
            ``(1) the gross income of such holder shall not include any 
        income (other than gain) attributable to such interest, and
            ``(2) amounts not includible in the gross income of such 
        holder by reason of paragraph (1) shall be included (at the 
        time otherwise includible under paragraph (1)) in the gross 
        income of the most recent holder of such interest which is not 
        a disqualified holder.
    ``(b) Exceptions.--Rules similar to the rules of paragraphs (4) and 
(7) of section 860E(e) shall apply to the tax imposed by reason of 
subsection (a).
    ``(c) Disqualified Holder.--For purposes of this section, the term 
`disqualified holder' means any holder other than--
            ``(1) an eligible corporation (as defined in section 
        860L(a)(2)), or
            ``(2) a FASIT.
    ``(d) Treatment of Interests Held By Securities Dealers.--
            ``(1) In general.--Subsection (a) shall not apply to any 
        high-yield interest held by a disqualified holder if such 
        holder is a dealer in securities who acquired such interest 
        exclusively for sale to customers in the ordinary course of 
        business (and not for investment).
            ``(2) Change in dealer status.--
                    ``(A) In general.--In the case of a dealer in 
                securities which is not an eligible corporation (as 
                defined in section 860L(a)(2)), if--
                            ``(i) such dealer ceases to be a dealer in 
                        securities, or
                            ``(ii) such dealer commences holding the 
                        high-yield interest for investment,
                there is hereby imposed (in addition to other taxes) an 
                excise tax equal to the product of the highest rate of 
                tax specified in section 11(b)(1) and the income of 
                such dealer attributable to such interest for periods 
                after the date of such cessation or commencement.
                    ``(B) Holding for 31 days or less.--For purposes of 
                subparagraph (A)(ii), a dealer shall not be treated as 
                holding an interest for investment before the 32d day 
                after the date such dealer acquired such interest 
                unless such interest is so held as part of a plan to 
                avoid the purposes of this paragraph.
                    ``(C) Administrative provisions.--The deficiency 
                procedures of subtitle F shall apply to the tax imposed 
                by this paragraph.
    ``(e) Treatment of High-Yield Interests in Pass-Thru Entities.--
            ``(1) In general.--If a pass-thru entity (as defined in 
        section 860E(e)(6)) issues a debt or equity interest--
                    ``(A) which is supported by any regular interest in 
                a FASIT, and
                    ``(B) which has an original yield to maturity which 
                is greater than each of--
                            ``(i) the sum determined under clauses (i) 
                        and (ii) of section 163(i)(1)(B) with respect 
                        to such debt or equity interest, and
                            ``(ii) the yield to maturity to such entity 
                        on such regular interest (determined as of the 
                        date such entity acquired such interest),
        there is hereby imposed on the pass-thru entity a tax (in 
        addition to other taxes) equal to the product of the highest 
        rate of tax specified in section 11(b)(1) and the income of the 
        holder of such debt or equity interest which is properly 
        attributable to such regular interest. For purposes of the 
        preceding sentence, the yield to maturity of any equity 
        interest shall be determined under regulations prescribed by 
        the Secretary.
            ``(2) Exception.--The Secretary may provide that paragraph 
        (1) shall not apply to arrangements not having as a principal 
        purpose the avoidance of the purposes of this subsection.

``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

    ``(a) FASIT.--
            ``(1) In general.--For purposes of this title, the terms 
        `financial asset securitization investment trust' and `FASIT' 
        mean any entity--
                    ``(A) for which an election to be treated as a 
                FASIT applies for the taxable year,
                    ``(B) all of the interests in which are regular 
                interests or the ownership interest,
                    ``(C) which has only 1 ownership interest and such 
                ownership interest is held directly by an eligible 
                corporation,
                    ``(D) as of the close of the 3rd month beginning 
                after the day of its formation and at all times 
                thereafter, substantially all of the assets of which 
                (including assets treated as held by the entity under 
                section 860I(c)(2)) consist of permitted assets, and
                    ``(E) which is not described in section 851(a).
        A rule similar to the rule of the last sentence of section 
        860D(a) shall apply for purposes of this paragraph.
            ``(2) Eligible corporation.--For purposes of paragraph 
        (1)(C), the term `eligible corporation' means any domestic C 
        corporation other than--
                    ``(A) a corporation which is exempt from, or is not 
                subject to, tax under this chapter,
                    ``(B) an entity described in section 851(a) or 
                856(a),
                    ``(C) a REMIC, and
                    ``(D) an organization to which part I of subchapter 
                T applies.
            ``(3) Election.--An entity (otherwise meeting the 
        requirements of paragraph (1)) may elect to be treated as a 
        FASIT. Except as provided in paragraph (5), such an election 
        shall apply to the taxable year for which made and all 
        subsequent taxable years unless revoked with the consent of the 
        Secretary.
            ``(4) Termination.--If any entity ceases to be a FASIT at 
        any time during the taxable year, such entity shall not be 
        treated as a FASIT for such taxable year or any succeeding 
        taxable year.
            ``(5) Inadvertent terminations, etc.--Rules similar to the 
        rules of section 860D(b)(2)(B) shall apply to inadvertent 
        failures to qualify or remain qualified as a FASIT.
    ``(b) Interests in FASIT.--For purposes of this part--
            ``(1) Regular interest.--
                    ``(A) In general.--The term `regular interest' 
                means any interest which is issued by a FASIT after the 
                startup date with fixed terms and which is designated 
                as a regular interest if--
                            ``(i) such interest unconditionally 
                        entitles the holder to receive a specified 
                        principal amount (or other similar amount),
                            ``(ii) except as otherwise provided by the 
                        Secretary--
                                    ``(I) in the case of a FASIT which 
                                would be treated as a REMIC if an 
                                election under section 860D(b) had been 
                                made, interest payments (or other 
                                similar amounts), if any, with respect 
                                to such interest at or before maturity 
                                meet the requirements applicable under 
                                clause (i) or (ii) of section 
                                860G(a)(1)(B), or
                                    ``(II) in the case of any other 
                                FASIT, interest payments (or other 
                                similar amounts), if any, with respect 
                                to such interest are determined based 
                                on a fixed rate, a current rate which 
                                is reasonably expected to measure 
                                contemporaneous variations in the cost 
                                of newly borrowed funds in the currency 
                                in which the regular interest is 
                                denominated, or any combination of such 
                                rates,
                            ``(iii) such interest does not have a 
                        stated maturity (including options to renew) 
                        greater than 30 years (or such longer period as 
                        may be permitted by regulations),
                            ``(iv) the issue price of such interest 
                        does not exceed 125 percent of its stated 
                        principal amount, and
                            ``(v) the yield to maturity on such 
                        interest is less than the sum determined under 
                        section 163(i)(1)(B) with respect to such 
                        interest.
                An interest shall not fail to meet the requirements of 
                clause (i) merely because the timing (but not the 
                amount) of the principal payments (or other similar 
                amounts) may be contingent on the extent that payments 
                on debt instruments held by the FASIT are made in 
                advance of anticipated payments and on the amount of 
                income from permitted assets.
                    ``(B) High-yield interests.--
                            ``(i) In general.--The term `regular 
                        interest' includes any high-yield interest.
                            ``(ii) High-yield interest.--The term 
                        `high-yield interest' means any interest which 
                        would be described in subparagraph (A) but for 
                        failing to meet the requirements of one or more 
                        of clauses (i), (iv), or (v) thereof.
            ``(2) Ownership interest.--The term `ownership interest' 
        means the interest issued by a FASIT after the startup day 
        which is designated as an ownership interest and which is not a 
        regular interest.
    ``(c) Permitted Assets.--For purposes of this part--
            ``(1) In general.--The term `permitted asset' means--
                    ``(A) cash or cash equivalents,
                    ``(B) any debt instrument (as defined in section 
                1275(a)(1)) under which interest payments (or other 
                similar amounts), if any, at or before maturity meet 
                the requirements applicable under clause (i) or (ii) of 
                section 860G(a)(1)(B),
                    ``(C) foreclosure property,
                    ``(D) any asset--
                            ``(i) which is an interest rate or foreign 
                        currency notional principal contract, letter of 
                        credit, insurance, guarantee against payment 
                        defaults, or other similar instrument permitted 
                        by the Secretary, and
                            ``(ii) which is reasonably required to 
                        guarantee or hedge against the FASIT's risks 
                        associated with being the obligor on interests 
                        issued by the FASIT,
                    ``(E) contract rights to acquire debt instruments 
                described in subparagraph (B) or assets described in 
                subparagraph (D), and
                    ``(F) any regular interest in another FASIT.
            ``(2) Debt issued by holder of ownership interest not 
        permitted asset.--The term `permitted asset' shall not include 
        any debt instrument issued by the holder of the ownership 
        interest in the FASIT or by any person related to such holder 
        or any direct or indirect interest in such a debt instrument. 
        The preceding sentence shall not apply to cash equivalents and 
        to any other investment specified in regulations prescribed by 
        the Secretary.
            ``(3) Foreclosure property.--The term `foreclosure 
        property' means property--
                    ``(A) which would be foreclosure property under 
                section 856(e) (determined without regard to paragraph 
                (5) thereof) if acquired by a real estate investment 
                trust, and
                    ``(B) which is acquired in connection with the 
                default or imminent default of a debt instrument held 
                by the FASIT unless the security interest in such 
                property was created for the principal purpose of 
                permitting the FASIT to invest in such property.
        Solely for purposes of subsection (a)(1), the determination of 
        whether any property is foreclosure property shall be made 
        without regard to section 856(e)(4).
    ``(d) Startup Day.--For purposes of this part--
            ``(1) In general.--The term `startup day' means the date 
        designated in the election under subsection (a)(3) as the 
        startup day of the FASIT. Such day shall be the beginning of 
        the first taxable year of the FASIT.
            ``(2) Treatment of property held on startup day.--All 
        property held (or treated as held under section 860I(c)(2)) by 
        an entity as of the startup day shall be treated as contributed 
        to such entity on such day by the holder of the ownership 
        interest in such entity.
    ``(e) Tax on Prohibited Transactions.--
            ``(1) In general.--There is hereby imposed for each taxable 
        year of a FASIT a tax equal to 100 percent of the net income 
        derived from prohibited transactions. Such tax shall be paid by 
        the holder of the ownership interest in the FASIT.
            ``(2) Prohibited transactions.--For purposes of this part, 
        the term `prohibited transaction' means--
                    ``(A) the receipt of any income derived from any 
                asset that is not a permitted asset,
                    ``(B) except as provided in paragraph (3), the 
                disposition of any permitted asset,
                    ``(C) the receipt of any income derived from any 
                loan originated by the FASIT, and
                    ``(D) the receipt of any income representing a fee 
                or other compensation for services (other than any fee 
                received as compensation for a waiver, amendment, or 
                consent under permitted assets (other than foreclosure 
                property) held by the FASIT).
            ``(3) Exception for income from certain dispositions.--
                    ``(A) In general.--Paragraph (2)(B) shall not apply 
                to a disposition which would not be a prohibited 
                transaction (as defined in section 860F(a)(2)) by 
                reason of--
                            ``(i) clause (ii), (iii), or (iv) of 
                        section 860F(a)(2)(A), or
                            ``(ii) section 860F(a)(5),
                if the FASIT were treated as a REMIC and debt 
                instruments described in subsection (c)(1)(B) were 
                treated as qualified mortgages.
                    ``(B) Substitution of debt instruments; reduction 
                of over-collateralization.--Paragraph (2)(B) shall not 
                apply to--
                            ``(i) the substitution of a debt instrument 
                        described in subsection (c)(1)(B) for another 
                        debt instrument which is a permitted asset, or
                            ``(ii) the distribution of a debt 
                        instrument contributed by the holder of the 
                        ownership interest to such holder in order to 
                        reduce over-collateralization of the FASIT,
                but only if a principal purpose of acquiring the debt 
                instrument which is disposed of was not the recognition 
                of gain (or the reduction of a loss) as a result of an 
                increase in the market value of the debt instrument 
                after its acquisition by the FASIT.
                    ``(C) Liquidation of class of regular interests.--
                Paragraph (2)(B) shall not apply to the complete 
                liquidation of any class of regular interests.
            ``(4) Net income.--For purposes of this subsection, net 
        income shall be determined in accordance with section 
        860F(a)(3).
    ``(f) Coordination With Wash Sales Rules.--Rules similar to the 
rules of section 860F(d) shall apply to the ownership interest in a 
FASIT.
    ``(g) Related Person.--For purposes of this part, a person 
(hereinafter in this subsection referred to as the `related person') is 
related to any person if--
            ``(1) the related person bears a relationship to such 
        person specified in section 267(b) or section 707(b)(1), or
            ``(2) the related person and such person are engaged in 
        trades or businesses under common control (within the meaning 
        of subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or 707(b)(1), 
`20 percent' shall be substituted for `50 percent'.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
part, including regulations to prevent the abuse of the purposes of 
this part through transactions which are not primarily related to 
securitization of debt instruments by a FASIT.''.
    (b) Technical Amendments.--
            (1) Paragraph (2) of section 26(b) is amended by striking 
        ``and'' at the end of subparagraph (M), by striking the period 
        at the end of subparagraph (N) and inserting ``, and'', and by 
        adding at the end the following new subparagraph:
                    ``(O) section 860K (relating to treatment of 
                transfers of high-yield interests to disqualified 
                holders).''.
            (2) Paragraph (6) of section 56(g) is amended by striking 
        ``or REMIC'' and inserting ``REMIC, or FASIT''.
            (3) Clause (ii) of section 382(l)(4)(B) is amended by 
        striking ``or a REMIC to which part IV of subchapter M 
        applies'' and inserting ``a REMIC to which part IV of 
        subchapter M applies, or a FASIT to which part V of subchapter 
        M applies''.
            (4) Paragraph (1) of section 582(c) is amended by inserting 
        ``, and any regular or ownership interest in a FASIT,'' after 
        ``REMIC''.
            (5) Subparagraph (E) of section 856(c)(6) is amended by 
        adding at the end the following new sentence: ``The principles 
        of the preceding provisions of this subparagraph shall apply to 
        regular and ownership interests in a FASIT.''.
            (6) Subparagraph (C) of section 1202(e)(4) is amended by 
        striking ``or REMIC'' and inserting ``REMIC, or FASIT''.
            (7) Clause (xi) of section 7701(a)(19)(C) is amended to 
        read as follows:
                            ``(xi) any regular or residual interest in 
                        a REMIC, and any regular or ownership interest 
                        in a FASIT, but only in the proportion which 
                        the assets of such REMIC or FASIT consist of 
                        property described in any of the preceding 
                        clauses of this subparagraph; except that if 95 
                        percent or more of the assets of such REMIC or 
                        FASIT are assets described in clauses (i) 
                        through (x), the entire interest in the REMIC 
                        or FASIT shall qualify.''.
            (8) Subparagraph (A) of section 7701(i)(2) is amended by 
        inserting ``or a FASIT'' after ``a REMIC''.
    (c) Clerical Amendment.--The table of parts for subchapter M of 
chapter 1 is amended by adding at the end the following new item:

                              ``Part V. Financial asset securitization 
                                        investment trusts.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
    (e) Treatment of Existing Securitization Entities.--
            (1) In general.--In the case of the holder of the ownership 
        interest in a pre-effective date FASIT--
                    (A) gain shall not be recognized under section 
                860L(d)(2) of the Internal Revenue Code of 1986 on 
                property deemed contributed to the FASIT, and
                    (B) gain shall not be recognized under section 860I 
                of such Code on property contributed to such FASIT,
        until such property (or portion thereof) ceases to be properly 
        allocable to a pre-FASIT interest.
            (2) Allocation of property to pre-fasit interest.--For 
        purposes of paragraph (1), property shall be allocated to a 
        pre-FASIT interest in such manner as the Secretary of the 
        Treasury may prescribe, except that all property in a FASIT 
        shall be treated as properly allocable to pre-FASIT interests 
        if the fair market value of all such property does not exceed 
        107 percent of the aggregate principal amount of all 
        outstanding pre-FASIT interests.
            (3) Definitions.--For purposes of this subsection--
                    (A) Pre-effective date fasit.--The term ``pre-
                effective date FASIT'' means any FASIT if the entity 
                (with respect to which the election under section 
                860L(a)(3) of such Code was made) was in existence on 
                June 10, 1996.
                    (B) Pre-fasit interest.--The term ``pre-FASIT 
                interest'' means any interest in the entity referred to 
                in subparagraph (A) which was issued before the startup 
                day (other than any interest held by the holder of the 
                ownership interest in the FASIT).

           PART III--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

SEC. 1631. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsection 
        (f), all property of a covered expatriate to which this section 
        applies shall be treated as sold on the expatriation date for 
        its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale unless 
                such gain is excluded from gross income under part III 
                of subchapter B, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply (and section 1092 
                shall apply) to any such loss.
            ``(3) Exclusion for certain gain.--The amount which would 
        (but for this paragraph) be includible in the gross income of 
        any individual by reason of this section shall be reduced (but 
        not below zero) by $600,000. For purposes of this paragraph, 
        allocable expatriation gain taken into account under subsection 
        (f)(2) shall be treated in the same manner as an amount 
        required to be includible in gross income.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If an expatriate elects the 
                application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph) shall not apply to the expatriate, 
                        but
                            ``(ii) the expatriate shall be subject to 
                        tax under this title, with respect to property 
                        to which this section would apply but for such 
                        election, in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Limitation on amount of estate, gift, and 
                generation-skipping transfer taxes.--The aggregate 
                amount of taxes imposed under subtitle B with respect 
                to any transfer of property by reason of an election 
                under subparagraph (A) shall not exceed the amount of 
                income tax which would be due if the property were sold 
                for its fair market value immediately before the time 
                of the transfer or death (taking into account the rules 
                of paragraph (2)).
                    ``(C) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(D) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property--
                    ``(A) no amount shall be required to be included in 
                gross income under subsection (a)(1) with respect to 
                the gain from such property for the taxable year of the 
                sale, but
                    ``(B) the taxpayer's tax for the taxable year in 
                which such property is disposed of shall be increased 
                by the deferred tax amount with respect to the 
                property.
        Except to the extent provided in regulations, subparagraph (B) 
        shall apply to a disposition whether or not gain or loss is 
        recognized in whole or in part on the disposition.
            ``(2) Deferred tax amount.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `deferred tax amount' means, with respect to 
                any property, an amount equal to the sum of--
                            ``(i) the difference between the amount of 
                        tax paid for the taxable year described in 
                        paragraph (1)(A) and the amount which would 
                        have been paid for such taxable year if the 
                        election under paragraph (1) had not applied to 
                        such property, plus
                            ``(ii) an amount of interest on the amount 
                        described in clause (i) determined for the 
                        period--
                                    ``(I) beginning on the 91st day 
                                after the expatriation date, and
                                    ``(II) ending on the due date for 
                                the taxable year described in paragraph 
                                (1)(B),
                        by using the rates and method applicable under 
                        section 6621 for underpayments of tax for such 
                        period.
                For purposes of clause (ii), the due date is the date 
                prescribed by law (determined without regard to 
                extension) for filing the return of the tax imposed by 
                this chapter for the taxable year.
                    ``(B) Allocation of losses.--For purposes of 
                subparagraph (A), any losses described in subsection 
                (a)(2)(B) shall be allocated ratably among the gains 
                described in subsection (a)(2)(A).
            ``(3) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided with respect to such 
                property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2)(A) 
                        for the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(4) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(5) Dispositions.--For purposes of this subsection, a 
        taxpayer making an election under this subsection with respect 
        to any property shall be treated as having disposed of such 
        property--
                    ``(A) immediately before death if such property is 
                held at such time, and
                    ``(B) at any time the security provided with 
                respect to the property fails to meet the requirements 
                of paragraph (3) and the taxpayer does not correct such 
                failure within the time specified by the Secretary.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be under paragraph (1) 
        with respect to an interest in a trust with respect to which 
        gain is required to be recognized under subsection (f)(1).
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--The term `covered expatriate' means an 
        expatriate--
                    ``(A) whose average annual net income tax (as 
                defined in section 38(c)(1)) for the period of 5 
                taxable years ending before the expatriation date is 
                greater than $100,000, or
                    ``(B) whose net worth as of such date is $500,000 
                or more.
        If the expatriation date is after 1996, such $100,000 and 
        $500,000 amounts shall be increased by an amount equal to such 
        dollar amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) for such calendar year by 
        substituting `1995' for `1992' in subparagraph (B) thereof. Any 
        increase under the preceding sentence shall be rounded to the 
        nearest multiple of $1,000.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has been a resident of the United 
                        States (as defined in section 
                        7701(b)(1)(A)(ii)) for not more than 8 taxable 
                        years during the 15-taxable year period ending 
                        with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Property to Which Section Applies.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided by the 
        Secretary, this section shall apply to--
                    ``(A) any interest in property held by a covered 
                expatriate on the expatriation date the gain from which 
                would be includible in the gross income of the 
                expatriate if such interest had been sold for its fair 
                market value on such date in a transaction in which 
                gain is recognized in whole or in part, and
                    ``(B) any other interest in a trust to which 
                subsection (f) applies.
            ``(2) Exceptions.--This section shall not apply to the 
        following property:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the expatriation date, meet the requirements of section 
                897(c)(2).
                    ``(B) Interest in certain retirement plans.--
                            ``(i) In general.--Any interest in a 
                        qualified retirement plan (as defined in 
                        section 4974(c)), other than any interest 
                        attributable to contributions which are in 
                        excess of any limitation or which violate any 
                        condition for tax-favored treatment.
                            ``(ii) Foreign pension plans.--
                                    ``(I) In general.--Under 
                                regulations prescribed by the 
                                Secretary, interests in foreign pension 
                                plans or similar retirement 
                                arrangements or programs.
                                    ``(II) Limitation.--The value of 
                                property which is treated as not sold 
                                by reason of this subparagraph shall 
                                not exceed $500,000.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                his citizenship, or
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his United 
                States nationality before a diplomatic or consular 
                officer of the United States pursuant to paragraph (5) 
                of section 349(a) of the Immigration and Nationality 
                Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--
                    ``(A) In general.--The term `long-term resident' 
                means any individual (other than a citizen of the 
                United States) who is a lawful permanent resident of 
                the United States in at least 8 taxable years during 
                the period of 15 taxable years ending with the taxable 
                year during which the expatriation date occurs. For 
                purposes of the preceding sentence, an individual shall 
                not be treated as a lawful permanent resident for any 
                taxable year if such individual is treated as a 
                resident of a foreign country for the taxable year 
                under the provisions of a tax treaty between the United 
                States and the foreign country and does not waive the 
                benefits of such treaty applicable to residents of the 
                foreign country.
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), there shall not be taken into account--
                            ``(i) any taxable year during which any 
                        prior sale is treated under subsection (a)(1) 
                        as occurring, or
                            ``(ii) any taxable year prior to the 
                        taxable year referred to in clause (i).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets immediately before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii).
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year in which the 
                        expatriation date occurs, multiplied by the 
                        amount of the distribution, or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the expatriation date were the date 
                        of such cessation, disposition, or death, 
                        whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rule.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust--
                                    ``(I) which is organized under, and 
                                governed by, the laws of the United 
                                States or a State, and
                                    ``(II) with respect to which the 
                                trust instrument requires that at least 
                                1 trustee of the trust be an individual 
                                citizen of the United States or a 
                                domestic corporation.
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        expatriation date, is vested in the 
                        beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar advisor.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, Etc.--On the date any property held 
by an individual is treated as sold under subsection (a), 
notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply and the unpaid portion of such tax shall be due and 
        payable at the time and in the manner prescribed by the 
        Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Coordination With Estate and Gift Taxes.--If subsection (a) 
applies to property held by an individual for any taxable year and--
            ``(1) such property is includible in the gross estate of 
        such individual solely by reason of section 2107, or
            ``(2) section 2501 applies to a transfer of such property 
        by such individual solely by reason of section 2501(a)(3),
then there shall be allowed as a credit against the additional tax 
imposed by section 2101 or 2501, whichever is applicable, solely by 
reason of section 2107 or 2501(a)(3) an amount equal to the increase in 
the tax imposed by this chapter for such taxable year by reason of this 
section.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) to prevent double taxation by ensuring that--
                    ``(A) appropriate adjustments are made to basis to 
                reflect gain recognized by reason of subsection (a) and 
                the exclusion provided by subsection (a)(3), and
                    ``(B) any gain by reason of a deemed sale under 
                subsection (a) of an interest in a corporation, 
                partnership, trust, or estate is reduced to reflect 
                that portion of such gain which is attributable to an 
                interest in a trust which a shareholder, partner, or 
                beneficiary is treated as holding directly under 
                subsection (f)(3)(B)(i), and
            ``(2) which provide for the proper allocation of the 
        exclusion under subsection (a)(3) to property to which this 
        section applies.
    ``(k) Cross Reference.--

                                ``For income tax treatment of 
individuals who terminate United States citizenship, see section 
7701(a)(47).''.
    (b) Inclusion in Income of Gifts and Inheritances From Covered 
Expatriates.--Section 102 (relating to gifts, etc. not included in 
gross income) is amended by adding at the end the following new 
subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--Subsection 
(a) shall not exclude from gross income the value of any property 
acquired by gift, bequest, devise, or inheritance from a covered 
expatriate after the expatriation date. For purposes of this 
subsection, any term used in this subsection which is also used in 
section 877A shall have the same meaning as when used in section 
877A.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(47) Termination of united states citizenship.--An 
        individual shall not cease to be treated as a United States 
        citizen before the date on which the individual's citizenship 
        is treated as relinquished under section 877A(e)(3).''.
    (d) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 2107 is 
                amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance with the 
        table contained in section 2001 is hereby imposed on the 
        transfer of the taxable estate, determined as provided in 
        section 2106, of every decedent nonresident who is an 
        expatriate if the expatriation date of the decedent is within 
        the 10-year period ending with the date of death, unless such 
        expatriation did not have for 1 of its principal purposes the 
        avoidance of taxes under this subtitle or subtitle A.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--For purposes of paragraph (1), an individual shall be 
        treated as having a principal purpose to avoid such taxes if 
        such individual is a covered expatriate.
            ``(3) Definitions.--For purposes of this subsection, the 
        terms `expatriate', `expatriation date', and `covered 
        expatriate' have the meanings given such terms by section 
        877A.''.
                    (B) Credit for foreign death taxes.--Subsection (c) 
                of section 2107 is amended by redesignating paragraph 
                (2) as paragraph (3) and by inserting after paragraph 
                (1) the following new paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by subsection 
                (a) shall be credited with the amount of any estate, 
                inheritance, legacy, or succession taxes actually paid 
                to any foreign country in respect of any property which 
                is included in the gross estate solely by reason of 
                subsection (b).
                    ``(B) Limitations on credit.--The credit allowed by 
                subparagraph (A) for such taxes paid to a foreign 
                country shall not exceed the lesser of--
                            ``(i) the amount which bears the same ratio 
                        to the amount of such taxes actually paid to 
                        such foreign country in respect of property 
                        included in the gross estate as the value of 
                        the property included in the gross estate 
                        solely by reason of subsection (b) bears to the 
                        value of all property subjected to such taxes 
                        by such foreign country, or
                            ``(ii) such property's proportionate share 
                        of the excess of--
                                    ``(I) the tax imposed by subsection 
                                (a), over
                                    ``(II) the tax which would be 
                                imposed by section 2101 but for this 
                                section.
                The amount applicable under clause (i) or (ii) shall be 
                reduced by the amount of any credit allowed under 
                section 877A(i).
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate share is 
                the percentage of the value of the property which is 
                included in the gross estate solely by reason of 
                subsection (b) bears to the total value of the gross 
                estate.''.
                    (C) Expansion of inclusion in gross estate of stock 
                of foreign corporations.--Paragraph (2) of section 
                2107(b) is amended by striking ``more than 50 percent 
                of'' and all that follows and inserting ``more than 50 
                percent of--
                    ``(A) the total combined voting power of all 
                classes of stock entitled to vote of such corporation, 
                or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 2501(a) 
                is amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) shall not 
                apply in the case of a donor who is an expatriate if 
                the expatriation date of the donor is within the 10-
                year period ending with the date of transfer, unless 
                such expatriation did not have for 1 of its principal 
                purposes the avoidance of taxes under this subtitle or 
                subtitle A.
                    ``(B) Certain individuals treated as having tax 
                avoidance purpose.--For purposes of subparagraph (A), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is a 
                covered expatriate.
                    ``(C) Credit for foreign gift taxes.--The tax 
                imposed by this section solely by reason of this 
                paragraph shall be credited with the amount of any gift 
                tax actually paid to any foreign country in respect of 
                any gift which is taxable under this section solely by 
                reason of this paragraph. The amount of such credit 
                shall be reduced by the amount of the credit allowed 
                under section 877A(i).
                    ``(D) Definitions.--For purposes of this paragraph, 
                the term `expatriate', `expatriation date', and 
                `covered expatriate' have the meanings given such terms 
                by section 877A.''.
    (e) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any individual 
who relinquishes (within the meaning of section 877A(e)(3)) United 
States citizenship on or after February 6, 1995.''.
            (2) Section 2107(c) is amended by adding at the end the 
        following new paragraph:
            ``(3) Cross reference.--For credit against the tax imposed 
        by subsection (a) for expatriation tax, see section 877A(i).''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new flush sentence:
        ``For credit against the tax imposed under this section by 
        reason of this paragraph, see section 877A(i).''.
            (4) Paragraph (10) of section 7701(b) is amended by adding 
        at the end the following new sentence: ``This paragraph shall 
        not apply to any long-term resident of the United States who is 
        an expatriate (as defined in section 877A(e)(1)).''.
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after February 6, 1995.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to amounts received from expatriates (as so defined) whose 
        expatriation date (as so defined) occurs on and after February 
        6, 1995.
            (3) Special rules relating to certain acts occurring before 
        february 6, 1995.--In the case of an individual who took an act 
        of expatriation specified in paragraph (1), (2), (3), or (4) of 
        section 349(a) of the Immigration and Nationality Act (8 U.S.C. 
        1481(a) (1)-(4)) before February 6, 1995, but whose 
        expatriation date (as so defined) occurs after February 6, 
        1995--
                    (A) the amendment made by subsection (c) shall not 
                apply,
                    (B) the amendment made by subsection (e)(1) shall 
                not apply for any period prior to the expatriation 
                date, and
                    (C) the other amendments made by this section shall 
                apply as of the expatriation date.
            (4) Due date for tentative tax.--The due date under section 
        877A(h)(2) of such Code shall in no event occur before the 90th 
        day after the date of the enactment of this Act.

SEC. 1632. INFORMATION ON INDIVIDUALS EXPATRIATING.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:

``SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.

    ``(a) Requirement.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, any expatriate (within the meaning of section 877A(e)(1)) 
        shall provide a statement which includes the information 
        described in subsection (b).
            ``(2) Timing.--
                    ``(A) Citizens.--In the case of an expatriate 
                described in section 877(e)(1)(A), such statement shall 
                be--
                            ``(i) provided not later than the 
                        expatriation date (within the meaning of 
                        section 877A(e)(2)), and
                            ``(ii) provided to the person or court 
                        referred to in section 877A(e)(3).
                    ``(B) Noncitizens.--In the case of an expatriate 
                described in section 877A(e)(1)(B), such statement 
                shall be provided to the Secretary with the return of 
                tax imposed by chapter 1 for the taxable year during 
                which the event described in such section occurs.
    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877A(c)(1)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year during any portion of which such failure continues in an amount 
equal to the greater of--
            ``(1) 5 percent of the additional tax required to be paid 
        under section 877A for such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not 
to willful neglect.
    ``(d) Information To Be Provided to Secretary.--Notwithstanding any 
other provision of law--
            ``(1) any Federal agency or court which collects (or is 
        required to collect) the statement under subsection (a) shall 
        provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to comply with 
                the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the Secretary 
        a copy of each certificate as to the loss of American 
        nationality under section 358 of the Immigration and 
        Nationality Act which is approved by the Secretary of State, 
        and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) whose 
        status as such has been revoked or has been administratively or 
        judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days 
after the close of each calendar quarter, the Secretary shall publish 
in the Federal Register the name of each individual relinquishing 
United States citizenship (within the meaning of section 877A(e)(3)) 
with respect to whom the Secretary receives information under the 
preceding sentence during such quarter.
    ``(e) Exemption.--The Secretary may by regulations exempt any class 
of individuals from the requirements of this section if the Secretary 
determines that applying this section to such individuals is not 
necessary to carry out the purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 6039E the 
following new item:

``Sec. 6039F. Information on individuals expatriating.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to individuals to whom section 877A of the Internal Revenue Code 
of 1986 applies and whose expatriation date (as defined in section 
877A(e)(2)) occurs on or after February 6, 1995, except that no 
statement shall be required by such amendments before the 90th day 
after the date of the enactment of this Act.

SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND 
              RESIDENTS LIVING ABROAD.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall prepare and submit to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report--
            (1) describing the compliance with subtitle A of the 
        Internal Revenue Code of 1986 by citizens and lawful permanent 
        residents of the United States (within the meaning of section 
        7701(b)(6) of such Code) residing outside the United States, 
        and
            (2) recommending measures to improve such compliance 
        (including improved coordination between executive branch 
        agencies).

                   Subtitle F--Technical Corrections

SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

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

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

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

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

    (a) Amendment Related to Section 13114.--Paragraph (2) of section 
1044(c) is amended to read as follows:
            ``(2) Purchase.--The taxpayer shall be considered to have 
        purchased any property if, but for subsection (d), the 
        unadjusted basis of such property would be its cost within the 
        meaning of section 1012.''.
    (b) Amendments Related to Section 13142.--
            (1) Subparagraph (B) of section 13142(b)(6) of the Revenue 
        Reconciliation Act of 1993 is amended to read as follows:
                    ``(B) Full-time students, waiver authority, and 
                prohibited discrimination.--The amendments made by 
                paragraphs (2), (3), and (4) shall take effect on the 
                date of the enactment of this Act.''.
            (2) Subparagraph (C) of section 13142(b)(6) of such Act is 
        amended by striking ``paragraph (2)'' and inserting ``paragraph 
        (5)''.
    (c) Amendment Related to Section 13161.--
            (1) In general.--Subsection (e) of section 4001 (relating 
        to inflation adjustment) is amended to read as follows:
    ``(e) Inflation Adjustment.--
            ``(1) In general.--The $30,000 amount in subsection (a) and 
        section 4003(a) shall be increased by an amount equal to--
                    ``(A) $30,000, multiplied by
                    ``(B) the cost-of-living adjustment under section 
                1(f)(3) for the calendar year in which the vehicle is 
                sold, determined by substituting `calendar year 1990' 
                for `calendar year 1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $2,000, such amount shall be rounded 
        to the next lowest multiple of $2,000.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
    (d) Amendment Related to Section 13201.--Clause (ii) of section 
135(b)(2)(B) is amended by inserting before the period at the end 
thereof the following: ``, determined by substituting `calendar year 
1989' for `calendar year 1992' in subparagraph (B) thereof''.
    (e) Amendments Related to Section 13203.--Subsection (a) of section 
59 is amended--
            (1) by striking ``the amount determined under section 
        55(b)(1)(A)'' in paragraph (1)(A) and (2)(A)(i) and inserting 
        ``the pre-credit tentative minimum tax'',
            (2) by striking ``specified in section 55(b)(1)(A)'' in 
        paragraph (1)(C) and inserting ``specified in subparagraph 
        (A)(i) or (B)(i) of section 55(b)(1) (whichever applies)'',
            (3) by striking ``which would be determined under section 
        55(b)(1)(A)'' in paragraph (2)(A)(ii) and inserting ``which 
        would be the pre-credit tentative minimum tax'', and
            (4) by adding at the end thereof the following new 
        paragraph:
            ``(3) Pre-credit tentative minimum tax.--For purposes of 
        this subsection, the term `pre-credit tentative minimum tax' 
        means--
                    ``(A) in the case of a taxpayer other than a 
                corporation, the amount determined under the first 
                sentence of section 55(b)(1)(A)(i), or
                    ``(B) in the case of a corporation, the amount 
                determined under section 55(b)(1)(B)(i).''.
    (f) Amendment Related to Section 13221.--Sections 1201(a) and 
1561(a) are each amended by striking ``last sentence'' each place it 
appears and inserting ``last 2 sentences''.
    (g) Amendments Related to Section 13222.--
            (1) Subparagraph (B) of section 6033(e)(1) is amended by 
        adding at the end thereof the following new clause:
                            ``(iii) Coordination with section 527(f).--
                        This subsection shall not apply to any amount 
                        on which tax is imposed by reason of section 
                        527(f).''.
            (2) Clause (i) of section 6033(e)(1)(B) is amended by 
        striking ``this subtitle'' and inserting ``section 501''.
    (h) Amendment Related to Section 13225.--Paragraph (3) of section 
6655(g) is amended by striking all that follows ```3rd month''' in the 
sentence following subparagraph (C) and inserting ``, subsection 
(e)(2)(A) shall be applied by substituting `2 months' for `3 months' in 
clause (i)(I), the election under clause (i) of subsection (e)(2)(C) 
may be made separately for each installment, and clause (ii) of 
subsection (e)(2)(C) shall not apply.''.
    (i) Amendments Related to Section 13231.--
            (1) Subparagraph (G) of section 904(d)(3) is amended by 
        striking ``section 951(a)(1)(B)'' and inserting ``subparagraph 
        (B) or (C) of section 951(a)(1)''.
            (2) Paragraph (1) of section 956A(b) is amended to read as 
        follows:
            ``(1) the amount (not including a deficit) referred to in 
        section 316(a)(1) to the extent such amount was accumulated in 
        prior taxable years beginning after September 30, 1993, and''.
            (3) Subsection (f) of section 956A is amended by inserting 
        before the period at the end thereof: ``and regulations 
        coordinating the provisions of subsections (c)(3)(A) and (d)''.
            (4) Subsection (b) of section 958 is amended by striking 
        ``956(b)(2)'' each place it appears and inserting 
        ``956(c)(2)''.
            (5)(A) Subparagraph (A) of section 1297(d)(2) is amended by 
        striking ``The adjusted basis of any asset'' and inserting 
        ``The amount taken into account under section 1296(a)(2) with 
        respect to any asset''.
            (B) The paragraph heading of paragraph (2) of section 
        1297(d) is amended to read as follows:
            ``(2) Amount taken into account.--''.
            (6) Subsection (e) of section 1297 is amended by inserting 
        ``For purposes of this part--'' after the subsection heading.
    (j) Amendment Related to Section 13241.--Subparagraph (B) of 
section 40(e)(1) is amended to read as follows:
                    ``(B) for any period before January 1, 2001, during 
                which the rates of tax under section 4081(a)(2)(A) are 
                4.3 cents per gallon.''.
    (k) Amendment Related to Section 13242.--Paragraph (4) of section 
6427(f) is amended by striking ``1995'' and inserting ``1999''.
    (l) Amendment Related to Section 13261.--Clause (iii) of section 
13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by 
striking ``by the taxpayer'' and inserting ``by the taxpayer or a 
related person''.
    (m) Amendment Related to Section 13301.--Subparagraph (B) of 
section 1397B(d)(5) is amended by striking ``preceding''.
    (n) Clerical Amendments.--
            (1) Subsection (d) of section 39 is amended--
                    (A) by striking ``45'' in the heading of paragraph 
                (5) and inserting ``45A'', and
                    (B) by striking ``45'' in the heading of paragraph 
                (6) and inserting ``45B''.
            (2) Subparagraph (A) of section 108(d)(9) is amended by 
        striking ``paragraph (3)(B)'' and inserting ``paragraph 
        (3)(C)''.
            (3) Subparagraph (C) of section 143(d)(2) is amended by 
        striking the period at the end thereof and inserting a comma.
            (4) Clause (ii) of section 163(j)(6)(E) is amended by 
        striking ``which is a'' and inserting ``which is''.
            (5) Subparagraph (A) of section 1017(b)(4) is amended by 
        striking ``subsection (b)(2)(D)'' and inserting ``subsection 
        (b)(2)(E)''.
            (6) So much of section 1245(a)(3) as precedes subparagraph 
        (A) thereof is amended to read as follows:
            ``(3) Section 1245 property.--For purposes of this section, 
        the term `section 1245 property' means any property which is or 
        has been property of a character subject to the allowance for 
        depreciation provided in section 167 and is either--''.
            (7) Paragraph (2) of section 1394(e) is amended--
                    (A) by striking ``(i)'' and inserting ``(A)'', and
                    (B) by striking ``(ii)'' and inserting ``(B)''.
            (8) Subsection (m) of section 6501 (as redesignated by 
        section 1602) is amended by striking ``or 51(j)'' and inserting 
        ``45B, or 51(j)''.
            (9)(A) The section 6714 added by section 13242(b)(1) of the 
        Revenue Reconciliation Act of 1993 is hereby redesignated as 
        section 6715.
            (B) The table of sections for part I of subchapter B of 
        chapter 68 is amended by striking ``6714'' in the item added by 
        such section 13242(b)(2) of such Act and inserting ``6715''.
            (10) Paragraph (2) of section 9502(b) is amended by 
        inserting ``and before'' after ``1982,''.
            (11) Subsection (a)(3) of section 13206 of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``this 
        section'' and inserting ``this subsection''.
            (12) Paragraph (1) of section 13215(c) of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``Public Law 
        92-21'' and inserting ``Public Law 98-21''.
            (13) Paragraph (2) of section 13311(e) of the Revenue 
        Reconciliation Act of 1993 is amended by striking ``section 
        1393(a)(3)'' and inserting ``section 1393(a)(2)''.
            (14) Subparagraph (B) of section 117(d)(2) is amended by 
        striking ``section 132(f)'' and inserting ``section 132(h)''.
    (o) Effective Date.--Any amendment made by this section shall take 
effect as if included in the provision of the Revenue Reconciliation 
Act of 1993 to which such amendment relates.

SEC. 1704. MISCELLANEOUS PROVISIONS.

    (a) Application of Amendments Made by Title XII of Omnibus Budget 
Reconciliation Act of 1990.--Except as otherwise expressly provided, 
whenever in title XII of the Omnibus Budget Reconciliation Act of 1990 
an amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.
    (b) Treatment of Certain Amounts Under Hedge Bond Rules.--
            (1) In general.--Clause (iii) of section 149(g)(3)(B) is 
        amended to read as follows:
                            ``(iii) Amounts held pending reinvestment 
                        or redemption.--Amounts held for not more than 
                        30 days pending reinvestment or bond redemption 
                        shall be treated as invested in bonds described 
                        in clause (i).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 7651 of the Omnibus Budget Reconciliation Act of 1989.
    (c) Treatment of Certain Distributions Under Section 1445.--
            (1) In general.--Paragraph (3) of section 1445(e) is 
        amended by adding at the end thereof the following new 
        sentence: ``Rules similar to the rules of the preceding 
        provisions of this paragraph shall apply in the case of any 
        distribution to which section 301 applies and which is not made 
        out of the earnings and profits of such a domestic 
        corporation.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to distributions after the date of the enactment of 
        this Act.
    (d) Treatment of Certain Credits Under Section 469.--
            (1) In general.--Subparagraph (B) of section 469(c)(3) is 
        amended by adding at the end thereof the following new 
        sentence: ``If the preceding sentence applies to the net income 
        from any property for any taxable year, any credits allowable 
        under subpart B (other than section 27(a)) or D of part IV of 
        subchapter A for such taxable year which are attributable to 
        such property shall be treated as credits not from a passive 
        activity to the extent the amount of such credits does not 
        exceed the regular tax liability of the taxpayer for the 
        taxable year which is allocable to such net income.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.
    (e) Treatment of Dispositions Under Passive Loss Rules.--
            (1) In general.--Subparagraph (A) of section 469(g)(1) is 
        amended to read as follows:
                    ``(A) In general.--If all gain or loss realized on 
                such disposition is recognized, the excess of--
                            ``(i) any loss from such activity for such 
                        taxable year (determined after the application 
                        of subsection (b)), over
                            ``(ii) any net income or gain for such 
                        taxable year from all other passive activities 
                        (determined after the application of subsection 
                        (b)),
                shall be treated as a loss which is not from a passive 
                activity.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.
    (f) Miscellaneous Amendments to Foreign Provisions.--
            (1) Coordination of unified estate tax credit with 
        treaties.--Subparagraph (A) of section 2102(c)(3) is amended by 
        adding at the end thereof the following new sentence: ``For 
        purposes of the preceding sentence, property shall not be 
        treated as situated in the United States if such property is 
        exempt from the tax imposed by this subchapter under any treaty 
        obligation of the United States.''.
            (2) Treatment of certain interest paid to related person.--
                    (A) Subparagraph (B) of section 163(j)(1) is 
                amended by inserting before the period at the end 
                thereof the following: ``(and clause (ii) of paragraph 
                (2)(A) shall not apply for purposes of applying this 
                subsection to the amount so treated)''.
                    (B) Subsection (j) of section 163 is amended by 
                redesignating paragraph (7) as paragraph (8) and by 
                inserting after paragraph (6) the following new 
                paragraph:
            ``(7) Coordination with passive loss rules, etc.--This 
        subsection shall be applied before sections 465 and 469.''.
                    (C) The amendments made by this paragraph shall 
                apply as if included in the amendments made by section 
                7210(a) of the Revenue Reconciliation Act of 1989.
            (3) Treatment of interest allocable to effectively 
        connected income.--
                    (A) In general.--
                            (i) Subparagraph (B) of section 884(f)(1) 
                        is amended by striking ``to the extent'' and 
                        all that follows down through ``subparagraph 
                        (A)'' and inserting ``to the extent that the 
                        allocable interest exceeds the interest 
                        described in subparagraph (A)''.
                            (ii) The second sentence of section 
                        884(f)(1) is amended by striking ``reasonably 
                        expected'' and all that follows down through 
                        the period at the end thereof and inserting 
                        ``reasonably expected to be allocable 
                        interest.''.
                            (iii) Paragraph (2) of section 884(f) is 
                        amended to read as follows:
            ``(2) Allocable interest.--For purposes of this subsection, 
        the term `allocable interest' means any interest which is 
        allocable to income which is effectively connected (or treated 
        as effectively connected) with the conduct of a trade or 
        business in the United States.''.
                    (B) Effective date.--The amendments made by 
                subparagraph (A) shall take effect as if included in 
                the amendments made by section 1241(a) of the Tax 
                Reform Act of 1986.
            (4) Clarification of source rule.--
                    (A) In general.--Paragraph (2) of section 865(b) is 
                amended by striking ``863(b)'' and inserting ``863''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall take effect as if included in 
                the amendments made by section 1211 of the Tax Reform 
                Act of 1986.
            (5) Repeal of obsolete provisions.--
                    (A) Paragraph (1) of section 6038(a) is amended by 
                striking ``, and'' at the end of subparagraph (E) and 
                inserting a period, and by striking subparagraph (F).
                    (B) Subsection (b) of section 6038A is amended by 
                adding ``and'' at the end of paragraph (2), by striking 
                ``, and'' at the end of paragraph (3) and inserting a 
                period, and by striking paragraph (4).
    (g) Treatment of Assignment of Interest in Certain Bond-Financed 
Facilities.--
            (1) In general.--Subparagraph (A) of section 1317(3) of the 
        Tax Reform Act of 1986 is amended by adding at the end thereof 
        the following new sentence: ``A facility shall not fail to be 
        treated as described in this subparagraph by reason of an 
        assignment (or an agreement to an assignment) by the 
        governmental unit on whose behalf the bonds are issued of any 
        part of its interest in the property financed by such bonds to 
        another governmental unit.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in such section 1317 on the 
        date of the enactment of the Tax Reform Act of 1986.
    (h) Clarification of Treatment of Medicare Entitlement Under COBRA 
Provisions.--
            (1) In general.--
                    (A) Subclause (V) of section 4980B(f)(2)(B)(i) is 
                amended to read as follows:
                                    ``(V) Medicare entitlement followed 
                                by qualifying event.--In the case of a 
                                qualifying event described in paragraph 
                                (3)(B) that occurs less than 18 months 
                                after the date the covered employee 
                                became entitled to benefits under title 
                                XVIII of the Social Security Act, the 
                                period of coverage for qualified 
                                beneficiaries other than the covered 
                                employee shall not terminate under this 
                                clause before the close of the 36-month 
                                period beginning on the date the 
                                covered employee became so entitled.''.
                    (B) Clause (v) of section 602(2)(A) of the Employee 
                Retirement Income Security Act of 1974 is amended to 
                read as follows:
                            ``(v) Medicare entitlement followed by 
                        qualifying event.--In the case of a qualifying 
                        event described in section 603(2) that occurs 
                        less than 18 months after the date the covered 
                        employee became entitled to benefits under 
                        title XVIII of the Social Security Act, the 
                        period of coverage for qualified beneficiaries 
                        other than the covered employee shall not 
                        terminate under this subparagraph before the 
                        close of the 36-month period beginning on the 
                        date the covered employee became so 
                        entitled.''.
                    (C) Clause (iv) of section 2202(2)(A) of the Public 
                Health Service Act is amended to read as follows:
                            ``(iv) Medicare entitlement followed by 
                        qualifying event.--In the case of a qualifying 
                        event described in section 2203(2) that occurs 
                        less than 18 months after the date the covered 
                        employee became entitled to benefits under 
                        title XVIII of the Social Security Act, the 
                        period of coverage for qualified beneficiaries 
                        other than the covered employee shall not 
                        terminate under this subparagraph before the 
                        close of the 36-month period beginning on the 
                        date the covered employee became so 
                        entitled.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to plan years beginning after December 31, 1989.
    (i) Treatment of Certain REMIC Inclusions.--
            (1) In general.--Subsection (a) of section 860E is amended 
        by adding at the end thereof the following new paragraph:
            ``(6) Coordination with minimum tax.--For purposes of part 
        VI of subchapter A of this chapter--
                    ``(A) the reference in section 55(b)(2) to taxable 
                income shall be treated as a reference to taxable 
                income determined without regard to this subsection,
                    ``(B) the alternative minimum taxable income of any 
                holder of a residual interest in a REMIC for any 
                taxable year shall in no event be less than the excess 
                inclusion for such taxable year, and
                    ``(C) any excess inclusion shall be disregarded for 
                purposes of computing the alternative tax net operating 
                loss deduction.
        The preceding sentence shall not apply to any organization to 
        which section 593 applies, except to the extent provided in 
        regulations prescribed by the Secretary under paragraph (2).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 671 of the Tax Reform Act of 1986 unless the taxpayer 
        elects to apply such amendment only to taxable years beginning 
        after the date of the enactment of this Act.
    (j) Exemption From Harbor Maintenance Tax for Certain Passengers.--
            (1) In general.--Subparagraph (D) of section 4462(b)(1) 
        (relating to special rule for Alaska, Hawaii, and possessions) 
        is amended by inserting before the period the following: ``, or 
        passengers transported on United States flag vessels operating 
        solely within the State waters of Alaska or Hawaii and adjacent 
        international waters''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1402(a) of the Harbor Maintenance Revenue Act of 1986.
    (k) Amendments Related to Revenue Provisions of Energy Policy Act 
of 1992.--
            (1) Effective with respect to taxable years beginning after 
        December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is 
        amended to read as follows:
                                    ``(II) the adjusted net minimum tax 
                                for any taxable year is the amount of 
                                the net minimum tax for such year 
                                increased in the manner provided in 
                                clause (iii).''.
            (2) Subsection (g) of section 179A is redesignated as 
        subsection (f).
            (3) Subparagraph (E) of section 6724(d)(3) is amended by 
        striking ``section 6109(f)'' and inserting ``section 6109(h)''.
            (4)(A) Subsection (d) of section 30 is amended--
                    (i) by inserting ``(determined without regard to 
                subsection (b)(3))'' before the period at the end of 
                paragraph (1) thereof, and
                    (ii) by adding at the end thereof the following new 
                paragraph:
            ``(4) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.''.
            (B) Subsection (m) of section 6501 (as redesignated by 
        section 1602) is amended by striking ``section 40(f)'' and 
        inserting ``section 30(d)(4), 40(f)''.
            (5) Subclause (III) of section 501(c)(21)(D)(ii) is amended 
        by striking ``section 101(6)'' and inserting ``section 101(7)'' 
        and by striking ``1752(6)'' and inserting ``1752(7)''.
            (6) Paragraph (1) of section 1917(b) of the Energy Policy 
        Act of 1992 shall be applied as if ``at a rate'' appeared 
        instead of ``at the rate'' in the material proposed to be 
        stricken.
            (7) Paragraph (2) of section 1921(b) of the Energy Policy 
        Act of 1992 shall be applied as if a comma appeared after 
        ``(2)'' in the material proposed to be stricken.
            (8) Subsection (a) of section 1937 of the Energy Policy Act 
        of 1992 shall be applied as if ``Subpart B'' appeared instead 
        of ``Subpart C''.
    (l) Treatment of Qualified Football Coaches Plan.--
            (1) In general.--For purposes of the Internal Revenue Code 
        of 1986, a qualified football coaches plan--
                    (A) shall be treated as a multiemployer 
                collectively bargained plan, and
                    (B) notwithstanding section 401(k)(4)(B) of such 
                Code, may include a qualified cash and deferred 
                arrangement under section 401(k) of such Code.
            (2) Qualified football coaches plan.--For purposes of this 
        subsection, the term ``qualified football coaches plan'' means 
        any defined contribution plan which is established and 
        maintained by an organization--
                    (A) which is described in section 501(c) of such 
                Code,
                    (B) the membership of which consists entirely of 
                individuals who primarily coach football as full-time 
                employees of 4-year colleges or universities described 
                in section 170(b)(1)(A)(ii) of such Code, and
                    (C) which was in existence on September 18, 1986.
            (3) Effective date.--This subsection shall apply to years 
        beginning after December 22, 1987.
    (m) Determination of Unrecovered Investment in Annuity Contract.--
            (1) In general.--Subparagraph (A) of section 72(b)(4) is 
        amended by inserting ``(determined without regard to subsection 
        (c)(2))'' after ``contract''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1122(c) of the Tax Reform Act of 1986.
    (n) Modifications to Election To Include Child's Income on Parent's 
Return.--
            (1) Eligibility for election.--Clause (ii) of section 
        1(g)(7)(A) (relating to election to include certain unearned 
        income of child on parent's return) is amended to read as 
        follows:
                            ``(ii) such gross income is more than the 
                        amount described in paragraph (4)(A)(ii)(I) and 
                        less than 10 times the amount so described,''.
            (2) Computation of tax.--Subparagraph (B) of section 
        1(g)(7) (relating to income included on parent's return) is 
        amended--
                    (A) by striking ``$1,000'' in clause (i) and 
                inserting ``twice the amount described in paragraph 
                (4)(A)(ii)(I)'', and
                    (B) by amending subclause (II) of clause (ii) to 
                read as follows:
                                    ``(II) for each such child, 15 
                                percent of the lesser of the amount 
                                described in paragraph (4)(A)(ii)(I) or 
                                the excess of the gross income of such 
                                child over the amount so described, 
                                and''.
            (3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is 
        amended by striking ``$1,000'' and inserting ``twice the amount 
        in effect for the taxable year under section 63(c)(5)(A)''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1995.
    (o) Treatment of Certain Veterans' Reemployment Rights.--
            (1) In general.--Section 414 is amended by adding at the 
        end the following new subsection:
    ``(u) Special Rules Relating to Veterans' Reemployment Rights Under 
USERRA.--
            ``(1) Treatment of certain contributions made pursuant to 
        veterans' reemployment rights.--If any contribution is made by 
        an employer or an employee under an individual account plan 
        with respect to an employee, or by an employee to a defined 
        benefit plan that provides for employee contributions, and such 
        contribution is required by reason of such employee's rights 
        under chapter 43 of title 38, United States Code, resulting 
        from qualified military service, then--
                    ``(A) such contribution shall not be subject to any 
                otherwise applicable limitation contained in section 
                402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 
                457, and shall not be taken into account in applying 
                such limitations to other contributions or benefits 
                under such plan or any other plan, with respect to the 
                year in which the contribution is made,
                    ``(B) such contribution shall be subject to the 
                limitations referred to in subparagraph (A) with 
                respect to the year to which the contribution relates 
                (in accordance with rules prescribed by the Secretary), 
                and
                    ``(C) such plan shall not be treated as failing to 
                meet the requirements of section 401(a)(4), 401(a)(26), 
                401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 
                408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason 
                of the making of (or the right to make) such 
                contribution.
        For purposes of the preceding sentence, any elective deferral 
        or employee contribution made under paragraph (2) shall be 
        treated as required by reason of the employee's rights under 
        such chapter 43.
            ``(2) Reemployment rights under userra with respect to 
        elective deferrals.--
                    ``(A) In general.--For purposes of this subchapter 
                and section 457, if an employee is entitled to the 
                benefits of chapter 43 of title 38, United States Code, 
                with respect to any plan which provides for elective 
                deferrals, the employer sponsoring the plan shall be 
                treated as meeting the requirements of such chapter 43 
                with respect to such elective deferrals only if such 
                employer--
                            ``(i) permits such employee to make 
                        additional elective deferrals under such plan 
                        (in the amount determined under subparagraph 
                        (B) or such lesser amount as is elected by the 
                        employee) during the period which begins on the 
                        date of the reemployment of such employee with 
                        such employer and has the same length as the 
                        lesser of--
                                    ``(I) the product of 3 and the 
                                period of qualified military service 
                                which resulted in such rights, and
                                    ``(II) 5 years, and
                            ``(ii) makes a matching contribution with 
                        respect to any additional elective deferral 
                        made pursuant to clause (i) which would have 
                        been required had such deferral actually been 
                        made during the period of such qualified 
                        military service.
                    ``(B) Amount of makeup required.--The amount 
                determined under this subparagraph with respect to any 
                plan is the maximum amount of the elective deferrals 
                that the individual would have been permitted to make 
                under the plan in accordance with the limitations 
                referred to in paragraph (1)(A) during the period of 
                qualified military service if the individual had 
                continued to be employed by the employer during such 
                period and received compensation as determined under 
                paragraph (7). Proper adjustment shall be made to the 
                amount determined under the preceding sentence for any 
                elective deferrals actually made during the period of 
                such qualified military service.
                    ``(C) Elective deferral.--For purposes of this 
                paragraph, the term `elective deferral' has the meaning 
                given such term by section 402(g)(3); except that such 
                term shall include any deferral of compensation under 
                an eligible deferred compensation plan (as defined in 
                section 457(b)).
                    ``(D) After-tax employee contributions.--References 
                in subparagraphs (A) and (B) to elective deferrals 
                shall be treated as including references to employee 
                contributions.
            ``(3) Certain retroactive adjustments not required.--For 
        purposes of this subchapter and subchapter E, no provision of 
        chapter 43 of title 38, United States Code, shall be construed 
        as requiring--
                    ``(A) any crediting of earnings to an employee with 
                respect to any contribution before such contribution is 
                actually made, or
                    ``(B) any allocation of any forfeiture with respect 
                to the period of qualified military service.
            ``(4) Loan repayment suspensions permitted.--If any plan 
        suspends the obligation to repay any loan made to an employee 
        from such plan for any part of any period during which such 
        employee is performing service in the uniformed services (as 
        defined in chapter 43 of title 38, United States Code), whether 
        or not qualified military service, such suspension shall not be 
        taken into account for purposes of section 72(p), 401(a), or 
        4975(d)(1).
            ``(5) Qualified military service.--For purposes of this 
        subsection, the term `qualified military service' means any 
        service in the uniformed services (as defined in chapter 43 of 
        title 38, United States Code) by any individual if such 
        individual is entitled to reemployment rights under such 
        chapter with respect to such service.
            ``(6) Individual account plan.--For purposes of this 
        subsection, the term `individual account plan' means any 
        defined contribution plan (including any tax-sheltered annuity 
        plan under section 403(b), any simplified employee pension 
        under section 408(k), any qualified salary reduction 
        arrangement under section 408(p), and any eligible deferred 
        compensation plan (as defined in section 457(b)).
            ``(7) Compensation.--For purposes of sections 403(b)(3), 
        415(c)(3), and 457(e)(5), an employee who is in qualified 
        military service shall be treated as receiving compensation 
        from the employer during such period of qualified military 
        service equal to--
                    ``(A) the compensation the employee would have 
                received during such period if the employee were not in 
                qualified military service, determined based on the 
                rate of pay the employee would have received from the 
                employer but for absence during the period of qualified 
                military service, or
                    ``(B) if the compensation the employee would have 
                received during such period was not reasonably certain, 
                the employee's average compensation from the employer 
                during the 12-month period immediately preceding the 
                qualified military service (or, if shorter, the period 
                of employment immediately preceding the qualified 
                military service).
            ``(8) USERRA requirements for qualified retirement plans.--
        For purposes of this subchapter and section 457, an employer 
        sponsoring a retirement plan shall be treated as meeting the 
        requirements of chapter 43 of title 38, United States Code, 
        only if each of the following requirements is met:
                    ``(A) An individual reemployed under such chapter 
                is treated with respect to such plan as not having 
                incurred a break in service with the employer 
                maintaining the plan by reason of such individual's 
                period of qualified military service.
                    ``(B) Each period of qualified military service 
                served by an individual is, upon reemployment under 
                such chapter, deemed with respect to such plan to 
                constitute service with the employer maintaining the 
                plan for the purpose of determining the 
                nonforfeitability of the individual's accrued benefits 
                under such plan and for the purpose of determining the 
                accrual of benefits under such plan.
                    ``(C) An individual reemployed under such chapter 
                is entitled to accrued benefits that are contingent on 
                the making of, or derived from, employee contributions 
                or elective deferrals only to the extent the individual 
                makes payment to the plan with respect to such 
                contributions or deferrals. No such payment may exceed 
                the amount the individual would have been permitted or 
                required to contribute had the individual remained 
                continuously employed by the employer throughout the 
                period of qualified military service. Any payment to 
                such plan shall be made during the period beginning 
                with the date of reemployment and whose duration is 3 
                times the period of the qualified military service (but 
                not greater than 5 years).
            ``(9) Plans not subject to title 38.--This subsection shall 
        not apply to any retirement plan to which chapter 43 of title 
        38, United States Code, does not apply.
            ``(10) References.--For purposes of this section, any 
        reference to chapter 43 of title 38, United States Code, shall 
        be treated as a reference to such chapter as in effect on 
        December 12, 1994 (without regard to any subsequent 
        amendment).''.
            (2) Effective date.--The amendment made by this subsection 
        shall be effective as of December 12, 1994.
    (p) Reporting of Real Estate Transactions.--
            (1) In general.--Paragraph (3) of section 6045(e) (relating 
        to prohibition of separate charge for filing return) is amended 
        by adding at the end the following new sentence: ``Nothing in 
        this paragraph shall be construed to prohibit the real estate 
        reporting person from taking into account its cost of complying 
        with such requirement in establishing its charge (other than a 
        separate charge for complying with such requirement) to any 
        customer for performing services in the case of a real estate 
        transaction.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in section 1015(e)(2)(A) of 
        the Technical and Miscellaneous Revenue Act of 1988.
    (q) Clarification of Denial of Deduction for Stock Redemption 
Expenses.
            (1) In general.--Paragraph (1) of section 162(k) is amended 
        by striking ``the redemption of its stock'' and inserting ``the 
        reacquisition of its stock or of the stock of any related 
        person (as defined in section 465(b)(3)(C))''.
            (2) Certain deductions permitted.--Subparagraph (A) of 
        section 162(k)(2) is amended by striking ``or'' at the end of 
        clause (i), by redesignating clause (ii) as clause (iii), and 
        by inserting after clause (i) the following new clause:
                            ``(ii) deduction for amounts which are 
                        properly allocable to indebtedness and 
                        amortized over the term of such indebtedness, 
                        or''.
            (3) Clerical amendment.--The subsection heading for 
        subsection (k) of section 162 is amended by striking 
        ``Redemption'' and inserting ``Reacquisition''.
            (4) Effective date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to amounts paid or incurred after September 13, 1995, 
                in taxable years ending after such date.
                    (B) Paragraph (2).--The amendment made by paragraph 
                (2) shall take effect as if included in the amendment 
                made by section 613 of the Tax Reform Act of 1986.
    (r) Clerical Amendment to Section 404.--
            (1) In general.--Paragraph (1) of section 404(j) is amended 
        by striking ``(10)'' and inserting ``(9)''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 713(d)(4)(A) of the Deficit Reduction Act of 1984.
    (s) Passive Income Not To Include FSC Income, Etc.--
            (1) In general.--Paragraph (2) of section 1296(b) is 
        amended by striking ``or'' at the end of subparagraph (B), by 
        striking the period at the end of subparagraph (C) and 
        inserting ``, or'', and by inserting after subparagraph (C) the 
        following new subparagraph:
                    ``(D) which is foreign trade income of a FSC or 
                export trade income of an export trade corporation (as 
                defined in section 971).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect as if included in the amendments made by 
        section 1235 of the Tax Reform Act of 1986.
    (t) Miscellaneous Clerical Amendments.--
            (1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by 
        striking ``of the subclause'' and inserting ``of subclause''.
            (2) Paragraph (2) of section 72(m) is amended by inserting 
        ``and'' at the end of subparagraph (A), by striking 
        subparagraph (B), and by redesignating subparagraph (C) as 
        subparagraph (B).
            (3) Paragraph (2) of section 86(b) is amended by striking 
        ``adusted'' and inserting ``adjusted''.
            (4)(A) The heading for section 112 is amended by striking 
        ``combat pay'' and inserting ``combat zone compensation''.
            (B) The item relating to section 112 in the table of 
        sections for part III of subchapter B of chapter 1 is amended 
        by striking ``combat pay'' and inserting ``combat zone 
        compensation''.
            (C) Paragraph (1) of section 3401(a) is amended by striking 
        ``combat pay'' and inserting ``combat zone compensation''.
            (5) Clause (i) of section 172(h)(3)(B) is amended by 
        striking the comma at the end thereof and inserting a period.
            (6) Clause (ii) of section 543(a)(2)(B) is amended by 
        striking ``section 563(c)'' and inserting ``section 563(d)''.
            (7) Paragraph (1) of section 958(a) is amended by striking 
        ``sections 955(b)(1) (A) and (B), 955(c)(2)(A)(ii), and 
        960(a)(1)'' and inserting ``section 960(a)(1)''.
            (8) Subsection (g) of section 642 is amended by striking 
        ``under 2621(a)(2)'' and inserting ``under section 
        2621(a)(2)''.
            (9) Section 1463 is amended by striking ``this subsection'' 
        and inserting ``this section''.
            (10) Subsection (k) of section 3306 is amended by inserting 
        a period at the end thereof.
            (11) The item relating to section 4472 in the table of 
        sections for subchapter B of chapter 36 is amended by striking 
        ``and special rules''.
            (12) Paragraph (3) of section 5134(c) is amended by 
        striking ``section 6662(a)'' and inserting ``section 6665(a)''.
            (13) Paragraph (2) of section 5206(f) is amended by 
        striking ``section 5(e)'' and inserting ``section 105(e)''.
            (14) Paragraph (1) of section 6050B(c) is amended by 
        striking ``section 85(c)'' and inserting ``section 85(b)''.
            (15) Subsection (k) of section 6166 is amended by striking 
        paragraph (6).
            (16) Subsection (e) of section 6214 is amended to read as 
        follows:
    ``(e) Cross Reference.--

                                  ``For provision giving Tax Court 
jurisdiction to order a refund of an overpayment and to award 
sanctions, see section 6512(b)(2).''.
            (17) The section heading for section 6043 is amended by 
        striking the semicolon and inserting a comma.
            (18) The item relating to section 6043 in the table of 
        sections for subpart B of part III of subchapter A of chapter 
        61 is amended by striking the semicolon and inserting a comma.
            (19) The table of sections for part I of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662.
            (20)(A) Section 7232 is amended--
                    (i) by striking ``lubricating oil,'' in the 
                heading, and
                    (ii) by striking ``lubricating oil,'' in the text.
            (B) The table of sections for part II of subchapter A of 
        chapter 75 is amended by striking ``lubricating oil,'' in the 
        item relating to section 7232.
            (21) Paragraph (1) of section 6701(a) of the Omnibus Budget 
        Reconciliation Act of 1989 is amended by striking ``subclause 
        (IV)'' and inserting ``subclause (V)''.
            (22) Clause (ii) of section 7304(a)(2)(D) of such Act is 
        amended by striking ``subsection (c)(2)'' and inserting 
        ``subsection (c)''.
            (23) Paragraph (1) of section 7646(b) of such Act is 
        amended by striking ``section 6050H(b)(1)'' and inserting 
        ``section 6050H(b)(2)''.
            (24) Paragraph (10) of section 7721(c) of such Act is 
        amended by striking ``section 6662(b)(2)(C)(ii)'' and inserting 
        ``section 6661(b)(2)(C)(ii)''.
            (25) Subparagraph (A) of section 7811(i)(3) of such Act is 
        amended by inserting ``the first place it appears'' before ``in 
        clause (i)''.
            (26) Paragraph (10) of section 7841(d) of such Act is 
        amended by striking ``section 381(a)'' and inserting ``section 
        381(c)''.
            (27) Paragraph (2) of section 7861(c) of such Act is 
        amended by inserting ``the second place it appears'' before 
        ``and inserting''.
            (28) Paragraph (1) of section 460(b) is amended by striking 
        ``the look-back method of paragraph (3)'' and inserting ``the 
        look-back method of paragraph (2)''.
            (29) Subparagraph (C) of section 50(a)(2) is amended by 
        striking ``subsection (c)(4)'' and inserting ``subsection 
        (d)(5)''.
            (30) Subparagraph (B) of section 172(h)(4) is amended by 
        striking the material following the heading and preceding 
        clause (i) and inserting ``For purposes of subsection (b)(2)--
        ''.
            (31) Subparagraph (A) of section 355(d)(7) is amended by 
        inserting ``section'' before ``267(b)''.
            (32) Subparagraph (C) of section 420(e)(1) is amended by 
        striking ``mean'' and inserting ``means''.
            (33) Paragraph (4) of section 537(b) is amended by striking 
        ``section 172(i)'' and inserting ``section 172(f)''.
            (34) Subparagraph (B) of section 613(e)(1) is amended by 
        striking the comma at the end thereof and inserting a period.
            (35) Paragraph (4) of section 856(a) is amended by striking 
        ``section 582(c)(5)'' and inserting ``section 582(c)(2)''.
            (36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are 
        each amended by inserting ``(as in effect on the day before the 
        date of the enactment of the Revenue Reconciliation Act of 
        1990)'' after ``section 172(h)''.
            (37) Subsection (b) of section 936 is amended by striking 
        ``subparagraphs (D)(ii)(I)'' and inserting ``subparagraphs 
        (D)(ii)''.
            (38) Subsection (c) of section 2104 is amended by striking 
        ``subparagraph (A), (C), or (D) of section 861(a)(1)'' and 
        inserting ``section 861(a)(1)(A)''.
            (39) Subparagraph (A) of section 280A(c)(1) is amended to 
        read as follows:
                    ``(A) as the principal place of business for any 
                trade or business of the taxpayer,''.
            (40) Section 6038 is amended by redesignating the 
        subsection relating to cross references as subsection (f).
            (41) Clause (iv) of section 6103(e)(1)(A) is amended by 
        striking all that follows ``provisions of'' and inserting 
        ``section 1(g) or 59(j);''.
            (42) The subsection (f) of section 6109 of the Internal 
        Revenue Code of 1986 which was added by section 2201(d) of 
        Public Law 101-624 is redesignated as subsection (g).
            (43) Subsection (b) of section 7454 is amended by striking 
        ``section 4955(e)(2)'' and inserting ``section 4955(f)(2)''.
            (44) Subsection (d) of section 11231 of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``comma'' 
        appeared instead of ``period'' and as if the paragraph (9) 
        proposed to be added ended with a comma.
            (45) Paragraph (1) of section 11303(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``paragraph'' 
        appeared instead of ``subparagraph'' in the material proposed 
        to be stricken.
            (46) Subsection (f) of section 11701 of the Revenue 
        Reconciliation Act of 1990 is amended by inserting ``(relating 
        to definitions)'' after ``section 6038(e)''.
            (47) Subsection (i) of section 11701 of the Revenue 
        Reconciliation Act of 1990 shall be applied as if 
        ``subsection'' appeared instead of ``section'' in the material 
        proposed to be stricken.
            (48) Subparagraph (B) of section 11801(c)(2) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``section 
        56(g)'' appeared instead of ``section 59(g)''.
            (49) Subparagraph (C) of section 11801(c)(8) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if 
        ``reorganizations'' appeared instead of ``reorganization'' in 
        the material proposed to be stricken.
            (50) Subparagraph (H) of section 11801(c)(9) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``section 
        1042(c)(1)(B)'' appeared instead of ``section 1042(c)(2)(B)''.
            (51) Subparagraph (F) of section 11801(c)(12) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if ``and 
        (3)'' appeared instead of ``and (E)''.
            (52) Subparagraph (A) of section 11801(c)(22) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if 
        ``chapters 21'' appeared instead of ``chapter 21'' in the 
        material proposed to be stricken.
            (53) Paragraph (3) of section 11812(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied by not executing 
        the amendment therein to the heading of section 42(d)(5)(B).
            (54) Clause (i) of section 11813(b)(9)(A) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if a comma 
        appeared after ``(3)(A)(ix)'' in the material proposed to be 
        stricken.
            (55) Subparagraph (F) of section 11813(b)(13) of the 
        Revenue Reconciliation Act of 1990 shall be applied as if 
        ``tax'' appeared after ``investment'' in the material proposed 
        to be stricken.
            (56) Paragraph (19) of section 11813(b) of the Revenue 
        Reconciliation Act of 1990 shall be applied as if ``Paragraph 
        (20) of section 1016(a), as redesignated by section 11801,'' 
        appeared instead of ``Paragraph (21) of section 1016(a)''.
            (57) Paragraph (5) section 8002(a) of the Surface 
        Transportation Revenue Act of 1991 shall be applied as if 
        ``4481(e)'' appeared instead of ``4481(c)''.
            (58) Section 7872 is amended--
                    (A) by striking ``foregone'' each place it appears 
                in subsections (a) and (e)(2) and inserting 
                ``forgone'', and
                    (B) by striking ``Foregone'' in the heading for 
                subsection (e) and the heading for paragraph (2) of 
                subsection (e) and inserting ``Forgone''.
            (59) Paragraph (7) of section 7611(h) is amended by 
        striking ``approporiate'' and inserting ``appropriate''.
            (60) The heading of paragraph (3) of section 419A(c) is 
        amended by striking ``severence'' and inserting ``severance''.
            (61) Clause (ii) of section 807(d)(3)(B) is amended by 
        striking ``Commissoners' '' and inserting ``Commissioners' ''.
            (62) Subparagraph (B) of section 1274A(c)(1) is amended by 
        striking ``instument'' and inserting ``instrument''.
            (63) Subparagraph (B) of section 724(d)(3) by striking 
        ``Subparagaph'' and inserting ``Subparagraph''.
            (64) The last sentence of paragraph (2) of section 42(c) is 
        amended by striking ``of 1988''.
            (65) Paragraph (1) of section 9707(d) is amended by 
        striking ``diligence,'' and inserting ``diligence''.
            (66) Subsection (c) of section 4977 is amended by striking 
        ``section 132(i)(2)'' and inserting ``section 132(h)''.
            (67) The last sentence of section 401(a)(20) is amended by 
        striking ``section 211'' and inserting ``section 521''.
            (68) Subparagraph (A) of section 402(g)(3) is amended by 
        striking ``subsection (a)(8)'' and inserting ``subsection 
        (e)(3)''.
            (69) The last sentence of section 403(b)(10) is amended by 
        striking ``an direct'' and inserting ``a direct''.
            (70) Subparagraph (A) of section 4973(b)(1) is amended by 
        striking ``sections 402(c)'' and inserting ``section 402(c)''.
            (71) Paragraph (12) of section 3405(e) is amended by 
        striking ``(b)(3)'' and inserting ``(b)(2)''.
            (72) Paragraph (41) of section 521(b) of the Unemployment 
        Compensation Amendments of 1992 shall be applied as if 
        ``section'' appeared instead of ``sections'' in the material 
        proposed to be stricken.
            (73) Paragraph (27) of section 521(b) of the Unemployment 
        Compensation Amendments of 1992 shall be applied as if 
        ``Section 691(c)(5)'' appeared instead of ``Section 691(c)''.
            (74) Paragraph (5) of section 860F(a) is amended by 
        striking ``paragraph (1)'' and inserting ``paragraph (2)''.
            (75) Paragraph (1) of section 415(k) is amended by adding 
        ``or'' at the end of subparagraph (C), by striking 
        subparagraphs (D) and (E), and by redesignating subparagraph 
        (F) as subparagraph (D).
            (76) Paragraph (2) of section 404(a) is amended by striking 
        ``(18),''.
            (77) Clause (ii) of section 72(p)(4)(A) is amended to read 
        as follows:
                            ``(ii) Special rule.--The term `qualified 
                        employer plan' shall include any plan which was 
                        (or was determined to be) a qualified employer 
                        plan or a government plan.''.
            (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each 
        amended by striking ``section 6662(d)(2)(C)(ii)'' and inserting 
        ``section 6662(d)(2)(C)(iii)''.
            (79) Subsection (a) of section 164 is amended by striking 
        the paragraphs relating to the generation-skipping tax and the 
        environmental tax imposed by section 59A and by inserting after 
        paragraph (3) the following new paragraphs:
            ``(4) The GST tax imposed on income distributions.
            ``(5) The environmental tax imposed by section 59A.''.
            (80) Subclause (I) of section 936(a)(4)(A)(ii) is amended 
        by striking ``deprecation'' and inserting ``depreciation''.

                      Subtitle G--Other Provisions

SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT 
              TO CERTAIN STATES.

    (a) In General.--Section 4082 (relating to exemptions for diesel 
fuel) is amended by redesignating subsections (c) and (d) as 
subsections (d) and (e), respectively, and by inserting after 
subsection (b) the following new subsection:
    ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
subsection (a) shall not apply with respect to any diesel fuel--
            ``(1) removed, entered, or sold in a State for ultimate 
        sale or use in an area of such State during the period such 
        area is exempted from the fuel dyeing requirements under 
        subsection (i) of section 211 of the Clean Air Act (as in 
        effect on the date of the enactment of this subsection) by the 
        Administrator of the Environmental Protection Agency under 
        paragraph (4) of such subsection (i) (as so in effect), and
            ``(2) the use of which is certified pursuant to regulations 
        issued by the Secretary.''
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to fuel removed, entered, or sold on or after the 
first day of the first calendar quarter beginning after the date of the 
enactment of this Act.

SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY ACCOUNTS.

    (a) In General.--For purposes of subsection (s) of section 3121 of 
the Internal Revenue Code of 1986 (relating to concurrent employment by 
2 or more employers)--
            (1) the following entities shall be deemed to be related 
        corporations that concurrently employ the same individual:
                    (A) a State university which employs health 
                professionals as faculty members at a medical school, 
                and
                    (B) an agency account of a State university which 
                is described in subparagraph (A) and from which there 
                is distributed to such faculty members payments forming 
                a part of the compensation that the State, or such 
                State university, as the case may be, agrees to pay to 
                such faculty members, but only if--
                            (i) such agency account is authorized by 
                        State law and receives the funds for such 
                        payments from a faculty practice plan described 
                        in section 501(c)(3) of such Code and exempt 
                        from tax under section 501(a) of such Code,
                            (ii) such payments are distributed by such 
                        agency account to such faculty members who 
                        render patient care at such medical school, and
                            (iii) such faculty members comprise at 
                        least 30 percent of the membership of such 
                        faculty practice plan, and
            (2) remuneration which is disbursed by such agency account 
        to any such faculty member of the medical school described in 
        paragraph (1)(A) shall be deemed to have been actually 
        disbursed by the State, or such State university, as the case 
        may be, as a common paymaster and not to have been actually 
        disbursed by such agency account.
    (b) Effective Date.--The provisions of subsection (a) shall apply 
to remuneration paid after December 31, 1996.

SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING CHEMICALS.

    (a) Recycled Halon.--
            (1) In general.--Section 4682(d)(1) (relating to recycling) 
        is amended by inserting ``, or on any recycled halon imported 
        from any country which is a signatory to the Montreal Protocol 
        on Substances that Deplete the Ozone Layer'' before the period 
        at the end.
            (2) Certification system.--The Secretary of the Treasury, 
        after consultation with the Administrator of the Environmental 
        Protection Agency, shall develop a certification system to 
        ensure compliance with the recycling requirement for imported 
        halon under section 4682(d)(1) of the Internal Revenue Code of 
        1986, as amended by paragraph (1).
    (b) Chemicals Used as Propellants in Metered-Dose Inhalers Tax-
Exempt.--Paragraph (4) of section 4682(g) (relating to phase-in of tax 
on certain substances) is amended to read as follows:
            ``(4) Chemicals used as propellants in metered-dose 
        inhalers.--
                    ``(A) Tax-exempt.--
                            ``(i) In general.--No tax shall be imposed 
                        by section 4681 on--
                                    ``(I) any use of any substance as a 
                                propellant in metered-dose inhalers, or
                                    ``(II) any qualified sale by the 
                                manufacturer, producer, or importer of 
                                any substance.
                            ``(ii) Qualified sale.--For purposes of 
                        clause (i), the term `qualified sale' means any 
                        sale by the manufacturer, producer, or importer 
                        of any substance--
                                    ``(I) for use by the purchaser as a 
                                propellant in metered-dose inhalers, or
                                    ``(II) for resale by the purchaser 
                                to a 2d purchaser for such use by the 
                                2d purchaser.
                        The preceding sentence shall apply only if the 
                        manufacturer, producer, and importer, and the 
                        1st and 2d purchasers (if any) meet such 
                        registration requirements as may be prescribed 
                        by the Secretary.
                    ``(B) Overpayments.--If any substance on which tax 
                was paid under this subchapter is used by any person as 
                a propellant in metered-dose inhalers, credit or refund 
                without interest shall be allowed to such person in an 
                amount equal to the excess of--
                            ``(i) the tax paid under this subchapter on 
                        such substance, over
                            ``(ii) the tax (if any) which would be 
                        imposed by section 4681 if such substance were 
                        used for such use by the manufacturer, 
                        producer, or importer thereof on the date of 
                        its use by such person.
                        Amounts payable under the preceding sentence 
                        with respect to uses during the taxable year 
                        shall be treated as described in section 34(a) 
                        for such year unless claim thereof has been 
                        timely filed under this subparagraph.''
    (c) Effective Dates.--
            (1) Recycled halon.--The amendment made by subsection 
        (a)(1) shall take effect on January 1, 1997.
            (2) Metered-dose inhalers.--The amendment made by 
        subsection (b) shall take effect on the 7th day after the date 
        of the enactment of this Act.

SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER ADMINISTRATION 
              FACILITY.

    Sections 142(f)(3) (as added by section 1605) and 147(d) of the 
Internal Revenue Code of 1986 shall not apply in determining whether 
any private activity bond issued after the date of the enactment of 
this Act and used to finance the acquisition of the Snettisham 
hydroelectric project from the Alaska Power Administration is a 
qualified bond for purposes of such Code.

SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON 
              TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.

    (a) General Rule.--Section 584 (relating to common trust funds) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Nonrecognition Treatment for Certain Transfers to Regulated 
Investment Companies.--
            ``(1) In general.--If--
                    ``(A) a common trust fund transfers substantially 
                all of its assets to one or more regulated investment 
                companies in exchange solely for stock in the company 
                or companies to which such assets are so transferred, 
                and
                    ``(B) such stock is distributed by such common 
                trust fund to participants in such common trust fund in 
                exchange solely for their interests in such common 
                trust fund,
        no gain or loss shall be recognized by such common trust fund 
        by reason of such transfer or distribution, and no gain or loss 
        shall be recognized by any participant in such common trust 
        fund by reason of such exchange.
            ``(2) Basis rules.--
                    ``(A) Regulated investment company.--The basis of 
                any asset received by a regulated investment company in 
                a transfer referred to in paragraph (1)(A) shall be the 
                same as it would be in the hands of the common trust 
                fund.
                    ``(B) Participants.--The basis of the stock which 
                is received in an exchange referred to in paragraph 
                (1)(B) shall be the same as that of the property 
                exchanged. If stock in more than one regulated 
                investment company is received in such exchange, the 
                basis determined under the preceding sentence shall be 
                allocated among the stock in each such company on the 
                basis of respective fair market values.
            ``(3) Treatment of assumptions of liability.--
                    ``(A) In general.--In determining whether the 
                transfer referred to in paragraph (1)(A) is in exchange 
                solely for stock in one or more regulated investment 
                companies, the assumption by any such company of a 
                liability of the common trust fund, and the fact that 
                any property transferred by the common trust fund is 
                subject to a liability, shall be disregarded.
                    ``(B) Special rule where assumed liabilities exceed 
                basis.--
                            ``(i) In general.--If, in any transfer 
                        referred to in paragraph (1)(A), the assumed 
                        liabilities exceed the aggregate adjusted bases 
                        (in the hands of the common trust fund) of the 
                        assets transferred to the regulated investment 
                        company or companies--
                                    ``(I) notwithstanding paragraph 
                                (1), gain shall be recognized to the 
                                common trust fund on such transfer in 
                                an amount equal to such excess,
                                    ``(II) the basis of the assets 
                                received by the regulated investment 
                                company or companies in such transfer 
                                shall be increased by the amount so 
                                recognized, and
                                    ``(III) any adjustment to the basis 
                                of a participant's interest in the 
                                common trust fund as a result of the 
                                gain so recognized shall be treated as 
                                occurring immediately before the 
                                exchange referred to in paragraph 
                                (1)(B).
                        If the transfer referred to in paragraph (1)(A) 
                        is to two or more regulated investment 
                        companies, the basis increase under subclause 
                        (II) shall be allocated among such companies on 
                        the basis of the respective fair market values 
                        of the assets received by each of such 
                        companies.
                            ``(ii) Assumed liabilities.--For purposes 
                        of clause (i), the term `assumed liabilities' 
                        means the aggregate of--
                                    ``(I) any liability of the common 
                                trust fund assumed by any regulated 
                                investment company in connection with 
                                the transfer referred to in paragraph 
                                (1)(A), and
                                    ``(II) any liability to which 
                                property so transferred is subject.
            ``(4) Common trust fund must meet diversification rules.--
        This subsection shall not apply to any common trust fund which 
        would not meet the requirements of section 368(a)(2)(F)(ii) if 
        it were a corporation. For purposes of the preceding sentence, 
        Government securities shall not be treated as securities of an 
        issuer in applying the 25-percent and 50-percent test and such 
        securities shall not be excluded for purposes of determining 
        total assets under clause (iv) of section 368(a)(2)(F).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after December 31, 1995.

SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.

    (a) In General.--Subchapter F of chapter 1 (relating to exempt 
organizations) is amended by adding at the end the following new part:

             ``PART VIII--QUALIFIED STATE TUITION PROGRAMS

                              ``Sec. 529. Qualified State tuition 
                                        programs.

``SEC. 529. QUALIFIED STATE TUITION PROGRAMS.

    ``(a) General Rule.--A qualified State tuition program shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, such program shall be subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated business income of 
charitable organizations).
    ``(b) Qualified State Tuition Program.--For purposes of this 
section--
            ``(1) In general.--The term `qualified State tuition 
        program' means a program established and maintained by a State 
        or agency or instrumentality thereof--
                    ``(A) under which a person--
                            ``(i) may purchase tuition credits or 
                        certificates on behalf of a designated 
                        beneficiary which entitle the beneficiary to 
                        the waiver or payment of qualified higher 
                        education expenses of the beneficiary, or
                            ``(ii) may make contributions to an account 
                        which is established for the sole purpose of 
                        meeting the qualified higher education expenses 
                        of the designated beneficiary of the account, 
                        and
                    ``(B) which meets the other requirements of this 
                subsection.
            ``(2) Cash contributions.--A program shall not be treated 
        as a qualified State tuition program unless it provides that 
        purchases or contributions may only be made in cash.
            ``(3) Refunds.--A program shall not be treated as a 
        qualified State tuition program unless it imposes a more than 
        de minimis penalty on any refund of earnings from the account 
        which are not--
                    ``(A) used for qualified higher education expenses 
                of the designated beneficiary,
                    ``(B) made on account of the death or disability of 
                the designated beneficiary, or
                    ``(C) made on account of a scholarship received by 
                the designated beneficiary to the extent the amount of 
                the refund does not exceed the amount of the 
                scholarship used for qualified higher education 
                expenses.
            ``(4) Separate accounting.--A program shall not be treated 
        as a qualified State tuition program unless it provides 
        separate accounting for each designated beneficiary.
            ``(5) No investment direction.--A program shall not be 
        treated as a qualified State tuition program unless it provides 
        that any contributor to, or designated beneficiary under, such 
        program may not direct the investment of any contributions to 
        the program (or any earnings thereon).
            ``(6) No pledging of interest as security.--A program shall 
        not be treated as a qualified State tuition program if it 
        allows any interest in the program or any portion thereof to be 
        used as security for a loan.
    ``(c) Tax Treatment of Designated Beneficiaries and Contributors.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, no amount shall be includible in gross income of--
                    ``(A) a designated beneficiary under a qualified 
                State tuition program, or
                    ``(B) a contributor to such program on behalf of a 
                designated beneficiary,
        with respect to any distribution from, or earnings under, such 
        program.
            ``(2) Distributions.--
                    ``(A) In general.--Any distribution under a 
                qualified State tuition program shall be includible in 
                the gross income of the distributee in the same manner 
                as provided under section 72 to the extent not excluded 
                from gross income under any other provision of this 
                chapter.
                    ``(B) In-kind distributions.--The furnishing of 
                education to a designated beneficiary under a qualified 
                State tuition program shall be treated as a 
                distribution to the beneficiary.
                    ``(C) Change in beneficiaries.--
                            ``(i) Rollovers.--Subparagraph (A) shall 
                        not apply to that portion of any distribution 
                        which, within 60 days of such distribution, is 
                        transferred to the credit of another designated 
                        beneficiary under a qualified State tuition 
                        program who is a member of the same family as 
                        the designated beneficiary with respect to 
                        which the distribution was made.
                            ``(ii) Change in designated 
                        beneficiaries.--Any change in the designated 
                        beneficiary of an interest in a qualified State 
                        tuition program shall not be treated as a 
                        distribution for purposes of subparagraph (A) 
                        if the new beneficiary is a member of the same 
                        family as the old beneficiary.
                    ``(D) Operating rules.--For purposes of applying 
                section 72--
                            ``(i) all qualified State tuition programs 
                        of which an individual is a designated 
                        beneficiary shall be treated as one program,
                            ``(ii) all distributions during a taxable 
                        year shall be treated as one distribution, and
                            ``(iii) the value of the contract, income 
                        on the contract, and investment in the contract 
                        shall be computed as of the close of the 
                        calendar year in which the taxable year begins.
            ``(3) Gift tax treatment.--Any contribution on behalf of a 
        designated beneficiary to a qualified State tuition program 
        shall be treated as a qualified transfer for purposes of 
        section 2503(e).
    ``(d) Reporting Requirements.--
            ``(1) In general.--If--
                    ``(A) a designated beneficiary is furnished 
                education under a qualified State tuition program 
                during any calendar year, or
                    ``(B) there is a distribution to any individual 
                with respect to an interest in such program during any 
                calendar year,
        each officer or employee having control of the qualified State 
        tuition program or their designee shall make such reports as 
        the Secretary may require regarding such education or 
        distribution to the Secretary and to the designated beneficiary 
        or the individual to whom the distribution was made. Any such 
        report shall include such information as the Secretary may 
        prescribe.
            ``(2) Timing of reports.--Any report required by this 
        subsection--
                    ``(A) shall be filed at such time and in such 
                matter as the Secretary prescribes, and
                    ``(B) shall be furnished to individuals not later 
                than January 31 of the calendar year following the 
                calendar year to which such report relates.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Designated beneficiary.--The term `designated 
        beneficiary' means--
                    ``(A) the individual designated at the commencement 
                of participation in the qualified State tuition program 
                as the beneficiary of amounts paid (or to be paid) to 
                the program,
                    ``(B) in the case of a change in beneficiaries 
                described in subsection (c)(2)(C)(ii), the individual 
                who is the new beneficiary, and
                    ``(C) in the case of an interest in a qualified 
                State tuition program purchased by a State or local 
                government or an organization described in section 
                501(c)(3) and exempt from taxation under section 501(a) 
                as part of a scholarship program operated by such 
                government or organization, the individual receiving 
                such interest as a scholarship.
            ``(2) Member of family.--The term `member of family' has 
        the same meaning given such term as section 2032A(e)(2).
            ``(3) Qualified higher education expenses.--The term 
        `qualified higher education expenses' means tuition, fees, 
        books, supplies, and equipment required for the enrollment or 
        attendance of a designated beneficiary at an eligible education 
        institution (as defined in section 135(c)(3)).
            ``(4) Application of section 514.--An interest in a 
        qualified State tuition program shall not be treated as debt 
        for purposes of section 514.''.
    (b) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Transition rule.--If--
                    (A) a State or agency or instrumentality thereof 
                maintains, on the date of the enactment of this Act, a 
                program under which persons may purchase tuition 
                credits or certificates on behalf of, or make 
                contributions for education expenses of, a designated 
                beneficiary, and
                    (B) such program meets the requirements of a 
                qualified State tuition program before the later of--
                            (i) the date which is 1 year after such 
                        date of enactment, or
                            (ii) the first day of the first calendar 
                        quarter after the close of the first regular 
                        session of the State legislature that begins 
                        after such date of enactment,
                the amendments made by this section shall apply to 
                contributions (and earnings allocable thereto) made 
                before the later of such dates without regard to 
                whether any requirements of such amendments are met 
                with respect to such contributions and earnings. For 
                purposes of subparagraph (B)(ii), if a State has a 2-
                year legislative session, each year of such session 
                shall be deemed to be a separate regular session of the 
                State legislature.
(2)Page 236, line 11, strike out [section 1] and insert: sec. 2101

(3)Page 236, line 14, strike out [sec. 2] and insert: sec. 2102

(4)Page 237, line 3, strike out [sec. 3] and insert: sec. 2103

(5)Page 237, line 10, strike out [sec. 4] and insert: sec. 2104

(6)Page 237, line 22, strike out [sec. 5] and insert: sec. 2105

            Attest:

                                                             Secretary.
104th CONGRESS

  2d Session

                               H. R. 3448

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                               AMENDMENTS

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