Calendar No. 438

104TH CONGRESS

2D SESSION H. R. 3448

[Report No. 104–281]

AN ACT

To provide tax relief for small businesses, to protect

overtime requirements under that Act.employers in complying with minimum wage andand to prevent job loss by providing flexibility toAct of 1938 to increase the minimum wage ratehicles, and to amend the Fair Labor Standardswages to employees who use employer owned vePortal Act of 1947 relating to the payment ofhome pay of workers, to amend the Portal-tojobs, to create opportunities, to increase the take

JUNE 18, 1996

Reported with an amendment
II

Calendar No. 438

104TH CONGRESS

2D SESSION H. R. 3448

[Report No. 104–281]

IN THE SENATE OF THE UNITED STATES

MAY 24, 1996

Received

JUNE 6, 1996

Read twice and referred to the Committee on Finance

JUNE 18, 1996

Reported by Mr. ROTH, with an amendment

[Omit the part struck through and insert the part printed in italic]

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

6 (b) TABLE OF CONTENTS.—

TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.

Sec. 1102. Underpayments of estimated tax.

Subtitle A—Expensing; Etc.

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

Sec. 1112. Treatment of employee tips.

Sec. 1113. Treatment of storage of product samples.

Sec. 1114. Treatment of certain charitable risk pools.

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

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

Subtitle B—Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.

Sec. 1202. Employer-provided educational assistance programs.

Sec. 1203. FUTA exemption for alien agricultural workers.

Subtitle C—Provisions Relating to S Corporations

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

Sec. 1302. Electing small business trusts.

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

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

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

Sec. 1306. Agreement to terminate year.

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

Sec. 1308. S corporations permitted to hold subsidiaries.

Sec. 1309. Treatment of distributions during loss years.

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

Sec. 1311. Elimination of certain earnings and profits.

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

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

income.

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

Sec. 1315. Effective date.

Subtitle D—Pension Simplification
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CHAPTER 1—SIMPLIFIED DISTRIBUTION RULES

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

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

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

Sec. 1404. Required distributions.

CHAPTER 2—INCREASED ACCESS TO PENSION PLANS

SUBCHAPTER A—SIMPLE SAVINGS PLANS

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

small employers.

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

SUBCHAPTER B—OTHER PROVISIONS

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

CHAPTER 3—NONDISCRIMINATION PROVISIONS

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

Sec. 1432. Modification of additional participation requirements.

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

and matching contributions.

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

CHAPTER 4—MISCELLANEOUS PROVISIONS

Sec. 1441. Plans covering self-employed individuals.

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

Sec. 1443. Distributions under rural cooperative plans.

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

Sec. 1445. Uniform retirement age.

Sec. 1446. Contributions on behalf of disabled employees.

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

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

local governments.

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

limitations.

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

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

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

Sec. 1453. Tax on prohibited transactions.

Sec. 1454. Treatment of leased employees.

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

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

from self-employment.

Sec. 1457. Date for adoption of plan amendments.

Subtitle E—Foreign Simplification
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Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive assets.

Subtitle F—Revenue Offsets

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

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

securities.

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

Sec. 1604. Depreciation under income forecast method.

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

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

Subtitle G—Technical Corrections

Sec. 1701. Coordination with other subtitles.

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

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

Sec. 1704. Miscellaneous provisions.

TITLE II—PAYMENT OF WAGES

Section 1. Short title.

Sec. 2. Proper compensation for use of employer vehicles.

Sec. 3. Effective date.

Sec. 4. Minimum wage increase.

Sec. 5. Fair Labor Standards Act Amendments.

1 TITLE I—SMALL BUSINESS AND

2 OTHER TAX PROVISIONS

3 SEC. 1101. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

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

8 section or other provision of the Internal Revenue Code

9 of 1986.

10 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

11 No addition to the tax shall be made under section

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

2 underpayment of an installment required to be paid before

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

4 underpayment was created or increased by any provision

5 of this title.

6 Subtitle A—Expensing; Etc.

7 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

8 BUSINESSES.

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

10 179(b) (relating to dollar limitation) is amended to read

11 as follows:

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

13 which may be taken into account under subsection

14 (a) for any taxable year shall not exceed the follow15 ing applicable amount:

‘‘If the taxable year The applicable

begins in: amount is:

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

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

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

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

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

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

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

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

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

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

18 December 31, 1995.

19 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

20 (a) EMPLOYEE CASH TIPS.—
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1 (1) REPORTING REQUIREMENT NOT CONSID2 ERED.—Subparagraph (A) of section 45B(b)(1) (re3 lating to excess employer social security tax) is

4 amended by inserting ‘‘(without regard to whether

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

6 ‘‘section 3121(q)’’.

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

8 13443 of the Revenue Reconciliation Act of 1993 is

9 amended by inserting ‘‘, with respect to services per10 formed before, on, or after such date’’ after ‘‘1993’’.

11 (3) EFFECTIVE DATE.—The amendments made

12 by this subsection shall take effect as if included in

13 the amendments made by, and the provisions of, sec14 tion 13443 of the Revenue Reconciliation Act of

15 1993.

16 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR

17 BEVERAGES.—

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

19 45B(b) is amended to read as follows:

20 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV21 ERAGES TAKEN INTO ACCOUNT.—In applying para22 graph (1), there shall be taken into account only tips

23 received from customers in connection with the deliv24 ering or serving of food or beverages for consump-
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1 tion if the tipping of employees delivering or serving

2 food or beverages by customers is customary.’’

3 (2) EFFECTIVE DATE.—The amendment made

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

5 services performed after December 31, 1996.

6 SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAM7 PLES.

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

9 is amended by striking ‘‘inventory’’ and inserting ‘‘inven10 tory or product samples’’.

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

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

13 December 31, 1995.

14 SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK

15 POOLS.

16 (a) GENERAL RULE.—Section 501 (relating to ex17 emption from tax on corporations, certain trusts, etc.) is

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

19 and by inserting after subsection (m) the following new

20 subsection:

21 ‘‘(n) CHARITABLE RISK POOLS.—

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

23 ‘‘(A) a qualified charitable risk pool shall

24 be treated as an organization organized and op25 erated exclusively for charitable purposes, and
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1 ‘‘(B) subsection (m) shall not apply to a

2 qualified charitable risk pool.

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

4 purposes of this subsection, the term ‘qualified char5 itable risk pool’ means any organization—

6 ‘‘(A) which is organized and operated sole7 ly to pool insurable risks of its members (other

8 than risks related to medical malpractice) and

9 to provide information to its members with re10 spect to loss control and risk management,

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

12 that are organizations described in subsection

13 (c)(3) and exempt from tax under subsection

14 (a), and

15 ‘‘(C) which meets the organizational re16 quirements of paragraph (3).

17 ‘‘(3) ORGANIZATIONAL REQUIREMENTS.—An

18 organization (hereinafter in this subsection referred

19 to as the ‘risk pool’) meets the organizational re20 quirements of this paragraph if—

21 ‘‘(A) such risk pool is organized as a non22 profit organization under State law provisions

23 authorizing risk pooling arrangements for chari24 table organizations,
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1 ‘‘(B) such risk pool is exempt from any in2 come tax imposed by the State (or will be so ex3 empt after such pool qualifies as an organiza4 tion exempt from tax under this title),

5 ‘‘(C) such risk pool has obtained at least

6 $1,000,000 in startup capital from nonmember

7 charitable organizations,

8 ‘‘(D) such risk pool is controlled by a

9 board of directors elected by its members, and

10 ‘‘(E) the organizational documents of such

11 risk pool require that—

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

13 all times be an organization described in

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

15 under subsection (a),

16 ‘‘(ii) any member which receives a

17 final determination that it no longer quali18 fies as an organization described in sub19 section (c)(3) shall immediately notify the

20 pool of such determination and the effec21 tive date of such determination, and

22 ‘‘(iii) each policy of insurance issued

23 by the risk pool shall provide that such

24 policy will not cover the insured with re25 spect to events occurring after the date
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1 such final determination was issued to the

2 insured.

3 An organization shall not cease to qualify as a quali4 fied charitable risk pool solely by reason of the fail5 ure of any of its members to continue to be an orga6 nization described in subsection (c)(3) if, within a

7 reasonable period of time after such pool is notified

8 as required under subparagraph (C)(ii), such pool

9 takes such action as may be reasonably necessary to

10 remove such member from such pool.

11 ‘‘(4) OTHER DEFINITIONS.—For purposes of

12 this subsection—

13 ‘‘(A) STARTUP CAPITAL.—The term ‘start14 up capital’ means any capital contributed to,

15 and any program-related investments (within

16 the meaning of section 4944(c)) made in, the

17 risk pool before such pool commences oper18 ations.

19 ‘‘(B) NONMEMBER CHARITABLE ORGANI20 ZATION.—The term ‘nonmember charitable or21 ganization’ means any organization which is de22 scribed in subsection (c)(3) and exempt from

23 tax under subsection (a) and which is not a

24 member of the risk pool and does not benefit
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1 (directly or indirectly) from the insurance cov2 erage provided by the pool to its members.’’

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

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

5 the date of the enactment of this Act.

6 SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL

7 OR HORTICULTURAL ORGANIZATIONS.

8 (a) GENERAL RULE.—Section 512 (defining unre9 lated business taxable income) is amended by adding at

10 the end thereof the following new subsection:

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

12 HORTICULTURAL ORGANIZATIONS.—

13 ‘‘(1) IN GENERAL.—If—

14 ‘‘(A) an agricultural or horticultural orga15 nization described in section 501(c)(5) requires

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

17 of such organization, and

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

19 dues does not exceed $100,

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

21 as derived by such organization from an unrelated

22 trade or business by reason of any benefits or privi23 leges to which members of such organization are en24 titled.
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1 ‘‘(2) INDEXATION OF $100 AMOUNT.—In the

2 case of any taxable year beginning in a calendar

3 year after 1995, the $100 amount in paragraph (1)

4 shall be increased by an amount equal to—

5 ‘‘(A) $100, multiplied by

6 ‘‘(B) the cost-of-living adjustment deter7 mined under section 1(f)(3) for the calendar

8 year in which the taxable year begins, by sub9 stituting ‘calendar year 1994’ for ‘calendar year

10 1992’ in subparagraph (B) thereof.

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

12 the term ‘dues’ includes any payment required to be

13 made in order to be recognized by the organization

14 as a member of the organization.’’.

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

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

17 December 31, 1994.

18 SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS

19 OF CERTAIN FISHERMEN; INFORMATION RE20 PORTING.

21 (a) CLARIFICATION OF EMPLOYMENT TAX STA22 TUS.—

23 (1) AMENDMENTS OF INTERNAL REVENUE

24 CODE OF 1986.—
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1 (A) DETERMINATION OF SIZE OF CREW.—

2 Subsection (b) of section 3121 (defining em3 ployment) is amended by adding at the end

4 thereof the following new sentence:

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

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

7 10 individuals if the average size of the operating crew

8 on trips made during the preceding 4 calendar quarters

9 consisted of fewer than 10 individuals.’’.

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

12 3121(b)(20) is amended to read as follows:

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

14 cash remuneration other than as provided in

15 subparagraph (B) and other than cash remu16 neration—

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

18 trip;

19 ‘‘(ii) which is contingent on a mini20 mum catch; and

21 ‘‘(iii) which is paid solely for addi22 tional duties (such as mate, engineer, or

23 cook) for which additional cash remunera24 tion is traditional in the industry,’’.
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1 (C) CONFORMING AMENDMENT.—Section

2 6050A(a) is amended by striking ‘‘and’’ at the

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

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

5 and by adding at the end thereof the following

6 new paragraph:

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

8 3121(b)(20)(A).’’.

9 (2) AMENDMENT OF SOCIAL SECURITY ACT.—

10 (A) DETERMINATION OF SIZE OF CREW.—

11 Subsection (a) of section 210 of the Social Se12 curity Act is amended by adding at the end

13 thereof the following new sentence:

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

15 a boat shall be treated as normally made up of fewer than

16 10 individuals if the average size of the operating crew

17 on trips made during the preceding 4 calendar quarters

18 consisted of fewer than 10 individuals.’’.

19 (B) CERTAIN CASH REMUNERATION PER20 MITTED.—Subparagraph (A) of section

21 210(a)(20) of such Act is amended to read as

22 follows:

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

24 additional compensation other than as provided
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1 in subparagraph (B) and other than cash remu2 neration—

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

4 trip;

5 ‘‘(ii) which is contingent on a mini6 mum catch; and

7 ‘‘(iii) which is paid solely for addi8 tional duties (such as mate, engineer, or

9 cook) for which additional cash remunera10 tion is traditional in the industry,’’.

11 (3) EFFECTIVE DATE.—

12 (A) IN GENERAL.—The amendments made

13 by this subsection shall apply to remuneration

14 paid after December 31, 1996.

15 (B) SPECIAL RULE.—The amendments

16 made by this subsection (other than paragraph

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

18 after December 31, 1984, and before January

19 1, 1997, unless the payor treated such remu20 neration (when paid) as being subject to tax

21 under chapter 21 of the Internal Revenue Code

22 of 1986.

23 (b) INFORMATION REPORTING.—

24 (1) IN GENERAL.—Subpart B of part III of

25 subchapter A of chapter 68 (relating to information
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1 concerning transactions with other persons) is

2 amended by adding at the end the following new sec3 tion:

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

5 OF FISH.

6 ‘‘(a) REQUIREMENT OF REPORTING.—Every per7 son—

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

9 purchasing fish for resale from any person engaged

10 in the trade or business of catching fish; and

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

12 of such trade or business to such a person of $600

13 or more during any calendar year for the purchase

14 of fish,

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

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

17 person to whom such a payment was made during such

18 calendar year.

19 ‘‘(b) RETURN.—A return is described in this sub20 section if such return—

21 ‘‘(1) is in such form as the Secretary may pre22 scribe, and

23 ‘‘(2) contains—

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

25 person to whom a payment described in sub-
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1 section (a)(2) was made during the calendar

2 year;

3 ‘‘(B) the aggregate amount of such pay4 ments made to such person during such cal5 endar year and the date and amount of each

6 such payment, and

7 ‘‘(C) such other information as the Sec8 retary may require.

9 ‘‘(c) STATEMENT TO BE FURNISHED WITH RE10 SPECT TO WHOM INFORMATION IS REQUIRED.—Every

11 person required to make a return under subsection (a)

12 shall furnish to each person whose name is required to

13 be set forth in such return a written statement showing—

14 ‘‘(1) the name and address of the person re15 quired to make such a return, and

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

17 person required to be shown on the return.

18 The written statement required under the preceding sen19 tence shall be furnished to the person on or before Janu20 ary 31 of the year following the calendar year for which

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

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

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

24 given such term by section 6050I(d).
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1 ‘‘(2) FISH.—The term ‘fish’ includes other

2 forms of aquatic life.’’.

3 (2) TECHNICAL AMENDMENTS.—

4 (A) Subparagraph (A) of section

5 6724(d)(1) is amended by striking ‘‘or’’ at the

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

7 of clause (vii) and inserting ‘‘or’’, and by add8 ing at the end the following new clause:

9 ‘‘(viii) section 6050Q (relating to re10 turns relating to certain purchases of fish),

11 and’’.

12 (B) Paragraph (2) of section 6724(d) is

13 amended by redesignating subparagraphs (Q)

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

15 respectively, and by inserting after subpara16 graph (P) the following new subparagraph:

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

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

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

20 part III of subchapter A of chapter 68 is

21 amended by adding at the end the following

22 new item:

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

23 (3) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to payments made

25 after December 31, 1996.
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1 Subtitle B—Extension of Certain

2 Expiring Provisions

3 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

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

5 51 (relating to amount of credit) is amended by striking

6 ‘‘40 percent’’ and inserting ‘‘35 percent’’.

7 (b) MEMBERS OF TARGETED GROUPS.—Subsection

8 (d) of section 51 is amended to read as follows:

9 ‘‘(d) MEMBERS OF TARGETED GROUPS.—For pur10 poses of this subpart—

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

12 of a targeted group if such individual is—

13 ‘‘(A) a qualified IV–A recipient,

14 ‘‘(B) a qualified veteran,

15 ‘‘(C) a qualified ex-felon,

16 ‘‘(D) a high-risk youth,

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

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

19 ‘‘(2) QUALIFIED IV–A RECIPIENT.—

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

21 IV–A recipient’ means any individual who is

22 certified by the designated local agency as being

23 a member of a family receiving assistance under

24 a IV–A program for at least a 9-month period
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1 ending during the 9-month period ending on the

2 hiring date.

3 ‘‘(B) IV–A PROGRAM.—For purposes of

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

5 any program providing assistance under a State

6 plan approved under part A of title IV of the

7 Social Security Act (relating to assistance for

8 needy families with minor children) and any

9 successor of such program.

10 ‘‘(3) QUALIFIED VETERAN.—

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

12 veteran’ means any veteran who is certified by

13 the designated local agency as being—

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

15 assistance under a IV–A program (as de16 fined in paragraph (2)(B)) for at least a 9-

17 month period ending during the 12-month

18 period ending on the hiring date, or

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

20 assistance under a food stamp program

21 under the Food Stamp Act of 1977 for at

22 least a 3-month period ending during the

23 12-month period ending on the hiring date.

24 ‘‘(B) VETERAN.—For purposes of subpara25 graph (A), the term ‘veteran’ means any indi-
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1 vidual who is certified by the designated local

2 agency as—

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

4 (other than active duty for training) in the

5 Armed Forces of the United States for a

6 period of more than 180 days, or

7 ‘‘(II) having been discharged or re8 leased from active duty in the Armed

9 Forces of the United States for a service10 connected disability, and

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

12 60-day period ending on the hiring date

13 which was a day of extended active duty in

14 the Armed Forces of the United States.

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

16 active duty’ means a period of more than 90

17 days during which the individual was on active

18 duty (other than active duty for training).

19 ‘‘(4) QUALIFIED EX-FELON.—The term ‘quali20 fied ex-felon’ means any individual who is certified

21 by the designated local agency—

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

23 under any statute of the United States or any

24 State,
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1 ‘‘(B) as having a hiring date which is not

2 more than 1 year after the last date on which

3 such individual was so convicted or was released

4 from prison, and

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

6 had an income during the 6 months imme7 diately preceding the earlier of the month in

8 which such income determination occurs or the

9 month in which the hiring date occurs, which,

10 on an annual basis, would be 70 percent or less

11 of the Bureau of Labor Statistics lower living

12 standard.

13 Any determination under subparagraph (C) shall be

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

15 such determination is made.

16 ‘‘(5) HIGH-RISK YOUTH.—

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

18 youth’ means any individual who is certified by

19 the designated local agency—

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

21 age 25 on the hiring date, and

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

23 abode within an empowerment zone or en24 terprise community.
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1 ‘‘(B) YOUTH MUST CONTINUE TO RESIDE

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

3 term ‘qualified wages’ shall not include wages

4 paid or incurred for services performed while

5 such youth’s principal place of abode is outside

6 an empowerment zone or enterprise community.

7 ‘‘(6) VOCATIONAL REHABILITATION REFER8 RAL.—The term ‘vocational rehabilitation referral’

9 means any individual who is certified by the des10 ignated local agency as—

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

12 which, for such individual, constitutes or results

13 in a substantial handicap to employment, and

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

15 upon completion of (or while receiving) rehabili16 tative services pursuant to—

17 ‘‘(i) an individualized written rehabili18 tation plan under a State plan for voca19 tional rehabilitation services approved

20 under the Rehabilitation Act of 1973, or

21 ‘‘(ii) a program of vocational rehabili22 tation carried out under chapter 31 of title

23 38, United States Code.

24 ‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 summer youth employee’ means any individ3 ual—

4 ‘‘(i) who performs services for the em5 ployer between May 1 and September 15,

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

7 local agency as having attained age 16 but

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

9 May 1 of the calendar year involved),

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

11 of the employer during any period prior to

12 the 90-day period described in subpara13 graph (B)(i), and

14 ‘‘(iv) who is certified by the des15 ignated local agency as having his principal

16 place of abode within an empowerment

17 zone or enterprise community.

18 ‘‘(B) SPECIAL RULES FOR DETERMINING

19 AMOUNT OF CREDIT.—For purposes of applying

20 this subpart to wages paid or incurred to any

21 qualified summer youth employee—

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

23 by substituting ‘any 90-day period between

24 May 1 and September 15’ for ‘the 1-year
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1 period beginning with the day the individ2 ual begins work for the employer’, and

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

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

5 The preceding sentence shall not apply to an in6 dividual who, with respect to the same em7 ployer, is certified as a member of another tar8 geted group after such individual has been a

9 qualified summer youth employee.

10 ‘‘(C) YOUTH MUST CONTINUE TO RESIDE

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

12 purposes of this paragraph.

13 ‘‘(8) HIRING DATE.—The term ‘hiring date’

14 means the day the individual is hired by the em15 ployer.

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

17 ‘designated local agency’ means a State employment

18 security agency established in accordance with the

19 Act of June 6, 1933, as amended (29 U.S.C. 49-

20 49n).

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

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

23 not be treated as a member of a targeted group

24 unless—
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1 ‘‘(i) on or before the day on which

2 such individual begins work for the em3 ployer, the employer has received a certifi4 cation from a designated local agency that

5 such individual is a member of a targeted

6 group, or

7 ‘‘(ii)(I) on or before the day the indi8 vidual is offered employment with the em9 ployer, a pre-screening notice is completed

10 by the employer with respect to such indi11 vidual, and

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

13 the individual begins work for the em14 ployer, the employer submits such notice,

15 signed by the employer and the individual

16 under penalties of perjury, to the des17 ignated local agency as part of a written

18 request for such a certification from such

19 agency.

20 For purposes of this paragraph, the term ‘pre21 screening notice’ means a document (in such

22 form as the Secretary shall prescribe) which

23 contains information provided by the individual

24 on the basis of which the employer believes that

25 the individual is a member of a targeted group.
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1 ‘‘(B) INCORRECT CERTIFICATIONS.—If—

2 ‘‘(i) an individual has been certified

3 by a designated local agency as a member

4 of a targeted group, and

5 ‘‘(ii) such certification is incorrect be6 cause it was based on false information

7 provided by such individual,

8 the certification shall be revoked and wages

9 paid by the employer after the date on which

10 notice of revocation is received by the employer

11 shall not be treated as qualified wages.

12 ‘‘(C) EXPLANATION OF DENIAL OF RE13 QUEST.—If a designated local agency denies a

14 request for certification of membership in a tar15 geted group, such agency shall provide to the

16 person making such request a written expla17 nation of the reasons for such denial.’’.

18 (c) MINIMUM EMPLOYMENT PERIOD.—Paragraph

19 (3) of section 51(i) (relating to certain individuals ineli20 gible) is amended to read as follows:

21 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM22 PLOYMENT PERIOD.—No wages shall be taken into

23 account under subsection (a) with respect to any in24 dividual unless such individual either—
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1 ‘‘(A) is employed by the employer at least

2 180 days (20 days in the case of a qualified

3 summer youth employee), or

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

5 (120 hours in the case of a qualified summer

6 youth employee) of services performed for the

7 employer.’’.

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

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

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

11 not include any amount paid or incurred to an indi12 vidual who begins work for the employer—

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

14 July 1, 1996, or

15 ‘‘(B) after June 30, 1997.’’.

16 (e) REDESIGNATION OF CREDIT.—

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

18 amended by striking ‘‘targeted jobs credit’’ and in19 serting ‘‘work opportunity credit’’.

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

21 IV of subchapter A of chapter 1 is amended by

22 striking ‘‘Targeted Jobs Credit’’ and inserting

23 ‘‘Work Opportunity Credit’’.
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1 (3) The table of subparts for such part IV is

2 amended by striking ‘‘targeted jobs credit’’ and in3 serting ‘‘work opportunity credit’’.

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

5 1396(c) is amended by striking ‘‘TARGETED JOBS

6 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED7 IT’’.

8 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec9 tion 51(c) is amended by striking ‘‘, subsection

10 (d)(8)(D),’’.

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

12 this section shall apply to individuals who begin work for

13 the employer after June 30, 1996.

14 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST15 ANCE PROGRAMS.

16 (a) EXTENSION.—Subsection (d) of section 127 (re17 lating to educational assistance programs) is amended by

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

19 31, 1996’’.

20 (b) LIMITATION TO EDUCATION BELOW GRADUATE

21 LEVEL.—The last sentence of section 127(c)(1) is amend22 ed by inserting before the period ‘‘or at the graduate

23 level’’.

24 (c) EFFECTIVE DATES.—
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1 (1) EXTENSION.—The amendment made by

2 subsection (a) shall apply to taxable years beginning

3 after December 31, 1994.

4 (2) LIMITATION.—The amendment made by

5 subsection (b) shall apply to taxable years beginning

6 after December 31, 1995.

7 (3) EXPEDITED PROCEDURES.—The Secretary

8 of the Treasury shall establish expedited procedures

9 for the refund of any overpayment of taxes imposed

10 by chapter 24 of the Internal Revenue Code of 1986

11 which is attributable to amounts excluded from

12 gross income during 1995 or 1996 under section

13 127 of such Code, including procedures waiving the

14 requirement that an employer obtain an employee’s

15 signature where the employer demonstrates to the

16 satisfaction of the Secretary that any refund col17 lected by the employer on behalf of the employee will

18 be paid to the employee.

19 SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL

20 WORKERS.

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

22 3306(c)(1) (defining employment) is amended by striking

23 ‘‘before January 1, 1995,’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to services performed after De3 cember 31, 1994.

4 Subtitle C—Provisions Relating to

5 S Corporations

6 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

7 SHAREHOLDERS.

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

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

10 shareholders’’ and inserting ‘‘75 shareholders’’.

11 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

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

13 1361(c)(2) (relating to certain trusts permitted as share14 holders) is amended by inserting after clause (iv) the fol15 lowing new clause:

16 ‘‘(v) An electing small business

17 trust.’’.

18 (b) CURRENT BENEFICIARIES TREATED AS SHARE19 HOLDERS.—Subparagraph (B) of section 1361(c)(2) is

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

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

22 in clause (v) of subparagraph (A), each po23 tential current beneficiary of such trust

24 shall be treated as a shareholder; except

25 that, if for any period there is no potential
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1 current beneficiary of such trust, such

2 trust shall be treated as the shareholder

3 during such period.’’.

4 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

5 Section 1361 (defining S corporation) is amended by add6 ing at the end the following new subsection:

7 ‘‘(e) ELECTING SMALL BUSINESS TRUST DE8 FINED.—

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

10 purposes of this section—

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

12 subparagraph (B), the term ‘electing small

13 business trust’ means any trust if—

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

15 beneficiary any person other than (I) an

16 individual, (II) an estate, or (III) an orga17 nization described in paragraph (2), (3),

18 (4), or (5) of section 170(c) which holds a

19 contingent interest and is not a potential

20 current beneficiary,

21 ‘‘(ii) no interest in such trust was ac22 quired by purchase, and

23 ‘‘(iii) an election under this subsection

24 applies to such trust.
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1 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—

2 The term ‘electing small business trust’ shall

3 not include—

4 ‘‘(i) any qualified subchapter S trust

5 (as defined in subsection (d)(3)) if an elec6 tion under subsection (d)(2) applies to any

7 corporation the stock of which is held by

8 such trust, and

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

10 this subtitle.

11 ‘‘(C) PURCHASE.—For purposes of sub12 paragraph (A), the term ‘purchase’ means any

13 acquisition if the basis of the property acquired

14 is determined under section 1012.

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

16 purposes of this section, the term ‘potential current

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

18 person who at any time during such period is enti19 tled to, or at the discretion of any person may re20 ceive, a distribution from the principal or income of

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

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

23 such corporation, the term ‘potential current bene24 ficiary’ does not include any person who first met

25 the requirements of the preceding sentence during
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1 the 60-day period ending on the date of such dis2 position.

3 ‘‘(3) ELECTION.—An election under this sub4 section shall be made by the trustee. Any such elec5 tion shall apply to the taxable year of the trust for

6 which made and all subsequent taxable years of such

7 trust unless revoked with the consent of the Sec8 retary.

9 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’.

10 (d) TAXATION OF ELECTING SMALL BUSINESS

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

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

13 subsection:

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

15 SMALL BUSINESS TRUSTS.—

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

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

20 S corporations shall be treated as a separate

21 trust, and

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

23 this chapter on such separate trust shall be de-
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1 termined with the modifications of paragraph

2 (2).

3 ‘‘(2) MODIFICATIONS.—For purposes of para4 graph (1), the modifications of this paragraph are

5 the following:

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

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

8 shall be determined by using the highest rate of

9 tax set forth in section 1(e).

10 ‘‘(B) The exemption amount under section

11 55(d) shall be zero.

12 ‘‘(C) The only items of income, loss, deduc13 tion, or credit to be taken into account are the

14 following:

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

16 into account under section 1366.

17 ‘‘(ii) Any gain or loss from the dis18 position of stock in an S corporation.

19 ‘‘(iii) To the extent provided in regu20 lations, State or local income taxes or ad21 ministrative expenses to the extent alloca22 ble to items described in clauses (i) and

23 (ii).

24 No deduction or credit shall be allowed for any

25 amount not described in this paragraph, and no
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1 item described in this paragraph shall be appor2 tioned to any beneficiary.

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

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

5 ‘‘(3) TREATMENT OF REMAINDER OF TRUST

6 AND DISTRIBUTIONS.—For purposes of determin7 ing—

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

9 this chapter on the portion of any electing small

10 business trust not treated as a separate trust

11 under paragraph (1), and

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

13 entire trust,

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

15 excluded. Except as provided in the preceding sen16 tence, this subsection shall not affect the taxation of

17 any distribution from the trust.

18 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

19 WHERE TERMINATION OF SEPARATE TRUST.—If a

20 portion of an electing small business trust ceases to

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

22 any carryover or excess deduction of the separate

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

24 taken into account by the entire trust.
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1 ‘‘(5) ELECTING SMALL BUSINESS TRUST.—For

2 purposes of this subsection, the term ‘electing small

3 business trust’ has the meaning given such term by

4 section 1361(e)(1).’’.

5 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec6 tion 1366(a) is amended by inserting ‘‘, or of a trust or

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

8 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

9 FOR CERTAIN TRUSTS.

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

11 certain trusts permitted as shareholders) is amended—

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

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

14 period’’, and

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

16 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

17 SAFE HARBOR DEBT.

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

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

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

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

22 engaged in the business of lending money’’.
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1 SEC. 1305. RULES RELATING TO INADVERTENT TERMI2 NATIONS AND INVALID ELECTIONS.

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

4 (relating to inadvertent terminations) is amended to read

5 as follows:

6 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI7 NATIONS.—If—

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

9 corporation—

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

11 for which made (determined without regard to

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

13 the requirements of section 1361(b) or to ob14 tain shareholder consents, or

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

16 or (3) of subsection (d),

17 ‘‘(2) the Secretary determines that the cir18 cumstances resulting in such ineffectiveness or ter19 mination were inadvertent,

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

21 after discovery of the circumstances resulting in

22 such ineffectiveness or termination, steps were

23 taken—

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

25 business corporation, or
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1 ‘‘(B) to acquire the required shareholder

2 consents, and

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

4 a shareholder in the corporation at any time during

5 the period specified pursuant to this subsection,

6 agrees to make such adjustments (consistent with

7 the treatment of the corporation as an S corpora8 tion) as may be required by the Secretary with re9 spect to such period,

10 then, notwithstanding the circumstances resulting in such

11 ineffectiveness or termination, such corporation shall be

12 treated as an S corporation during the period specified

13 by the Secretary.’’.

14 (b) LATE ELECTIONS, ETC.—Subsection (b) of sec15 tion 1362 is amended by adding at the end the following

16 new paragraph:

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

18 ETC., AS TIMELY.—If—

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

20 made for any taxable year (determined without

21 regard to paragraph (3)) after the date pre22 scribed by this subsection for making such elec23 tion for such taxable year or no such election is

24 made for any taxable year, and
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1 ‘‘(B) the Secretary determines that there

2 was reasonable cause for the failure to timely

3 make such election,

4 the Secretary may treat such an election as timely

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

6 not apply).’’.

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

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

9 for taxable years beginning after December 31, 1982.

10 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

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

12 rata share) is amended to read as follows:

13 ‘‘(2) ELECTION TO TERMINATE YEAR.—

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

15 prescribed by the Secretary, if any shareholder

16 terminates the shareholder’s interest in the cor17 poration during the taxable year and all af18 fected shareholders and the corporation agree

19 to the application of this paragraph, paragraph

20 (1) shall be applied to the affected shareholders

21 as if the taxable year consisted of 2 taxable

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

23 termination.

24 ‘‘(B) AFFECTED SHAREHOLDERS.—For

25 purposes of subparagraph (A), the term ‘af-
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1 fected shareholders’ means the shareholder

2 whose interest is terminated and all sharehold3 ers to whom such shareholder has transferred

4 shares during the taxable year. If such share5 holder has transferred shares to the corpora6 tion, the term ‘affected shareholders’ shall in7 clude all persons who are shareholders during

8 the taxable year.’’.

9 SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION

10 PERIOD.

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

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

13 by striking ‘‘and’’ at the end of subparagraph (A), by re14 designating subparagraph (B) as subparagraph (C), and

15 by inserting after subparagraph (A) the following new sub16 paragraph:

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

18 date of any determination pursuant to an audit

19 of the taxpayer which follows the termination of

20 the corporation’s election and which adjusts a

21 subchapter S item of income, loss, or deduction

22 of the corporation arising during the S period

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

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

25 section 1377(b) is amended by striking subparagraphs (A)
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1 and (B), by redesignating subparagraph (C) as subpara2 graph (B), and by inserting before subparagraph (B) (as

3 so redesignated) the following new subparagraph:

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

5 1313(a), or’’.

6 (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR

7 SUBCHAPTER S ITEMS.—

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

9 63 (relating to tax treatment of subchapter S items)

10 is hereby repealed.

11 (2) CONSISTENT TREATMENT REQUIRED.—Sec12 tion 6037 (relating to return of S corporation) is

13 amended by adding at the end the following new

14 subsection:

15 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST16 ENT WITH CORPORATE RETURN OR SECRETARY NOTI17 FIED OF INCONSISTENCY.—

18 ‘‘(1) IN GENERAL.—A shareholder of an S cor19 poration shall, on such shareholder’s return, treat a

20 subchapter S item in a manner which is consistent

21 with the treatment of such item on the corporate re22 turn.

23 ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT24 MENT.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 subchapter S item, if—

3 ‘‘(i)(I) the corporation has filed a re4 turn but the shareholder’s treatment on

5 his return is (or may be) inconsistent with

6 the treatment of the item on the corporate

7 return, or

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

9 return, and

10 ‘‘(ii) the shareholder files with the

11 Secretary a statement identifying the in12 consistency,

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

14 ‘‘(B) SHAREHOLDER RECEIVING INCOR15 RECT INFORMATION.—A shareholder shall be

16 treated as having complied with clause (ii) of

17 subparagraph (A) with respect to a subchapter

18 S item if the shareholder—

19 ‘‘(i) demonstrates to the satisfaction

20 of the Secretary that the treatment of the

21 subchapter S item on the shareholder’s re22 turn is consistent with the treatment of the

23 item on the schedule furnished to the

24 shareholder by the corporation, and
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1 ‘‘(ii) elects to have this paragraph

2 apply with respect to that item.

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

4 case—

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

6 of paragraph (2), and

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

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

9 (2),

10 any adjustment required to make the treatment of

11 the items by such shareholder consistent with the

12 treatment of the items on the corporate return shall

13 be treated as arising out of mathematical or clerical

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

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

16 any assessment referred to in the preceding sen17 tence.

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

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

20 any item of an S corporation to the extent that reg21 ulations prescribed by the Secretary provide that, for

22 purposes of this subtitle, such item is more appro23 priately determined at the corporation level than at

24 the shareholder level.
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1 ‘‘(5) ADDITION TO TAX FOR FAILURE TO COM2 PLY WITH SECTION.—

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

negligence in connection with, or disregard of, the

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

3 (3) CONFORMING AMENDMENTS.—

4 (A) Section 1366 is amended by striking

5 subsection (g).

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

7 amended to read as follows:

8 ‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part9 nership return is filed for any taxable year but it is deter10 mined that there is no entity for such taxable year, to the

11 extent provided in regulations, rules similar to the rules

12 of subsection (a) shall apply.’’.

13 (C) The table of subchapters for chapter

14 63 is amended by striking the item relating to

15 subchapter D.

16 SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUB17 SIDIARIES.

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

19 (defining ineligible corporation) is amended by striking

20 subparagraph (A) and by redesignating subparagraphs

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

22 and (D), respectively.
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1 (b) TREATMENT OF CERTAIN WHOLLY OWNED S

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

3 small business corporation) is amended by adding at the

4 end the following new paragraph:

5 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

6 SUBSIDIARIES.—

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

8 title—

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

10 subchapter S subsidiary shall not be treat11 ed as a separate corporation, and

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

13 income, deduction, and credit of a qualified

14 subchapter S subsidiary shall be treated as

15 assets, liabilities, and such items (as the

16 case may be) of the S corporation.

17 ‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI18 ARY.—For purposes of this paragraph, the term

19 ‘qualified subchapter S subsidiary’ means any

20 domestic corporation which is not an ineligible

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

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

23 corporation is held by the S corporation,

24 and
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1 ‘‘(ii) the S corporation elects to treat

2 such corporation as a qualified subchapter

3 S subsidiary.

4 ‘‘(C) TREATMENT OF TERMINATIONS OF

5 QUALIFIED SUBCHAPTER S SUBSIDIARY STA6 TUS.—For purposes of this title, if any corpora7 tion which was a qualified subchapter S subsidi8 ary ceases to meet the requirements of subpara9 graph (B), such corporation shall be treated as

10 a new corporation acquiring all of its assets

11 (and assuming all of its liabilities) immediately

12 before such cessation from the S corporation in

13 exchange for its stock.’’.

14 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

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

16 is amended by adding at the end the following new sub17 paragraph:

18 ‘‘(F) TREATMENT OF CERTAIN DIVI19 DENDS.—If an S corporation holds stock in a

20 C corporation meeting the requirements of sec21 tion 1504(a)(2), the term ‘passive investment

22 income’ shall not include dividends from such C

23 corporation to the extent such dividends are at24 tributable to the earnings and profits of such C
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1 corporation derived from the active conduct of

2 a trade or business.’’.

3 (d) CONFORMING AMENDMENTS.—

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

5 by striking paragraph (6).

6 (2) Subsection (b) of section 1504 (defining in7 cludible corporation) is amended by adding at the

8 end the following new paragraph:

9 ‘‘(8) An S corporation.’’.

10 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

11 YEARS.

12 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

13 ACCOUNT BEFORE LOSSES.—

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

15 (relating to losses and deductions cannot exceed

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

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

18 (1) and (2)(A)’’.

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

20 certain adjustments taken into account) is amended

21 by adding at the end the following new sentence:

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

23 year, the adjusted basis of the stock shall be determined

24 with regard to the adjustments provided in paragraph (1)

25 of section 1367(a) for the taxable year.’’.
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1 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para2 graph (1) of section 1368(e) (relating to accumulated ad3 justments account) is amended by adding at the end the

4 following new subparagraph:

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

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

7 to distributions made during any taxable year,

8 the amount in the accumulated adjustments ac9 count as of the close of such taxable year shall

10 be determined without regard to any net nega11 tive adjustment for such taxable year.

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

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

14 adjustment’ means, with respect to any taxable

15 year, the excess (if any) of—

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

17 the taxable year (other than for distribu18 tions), over

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

20 such taxable year.’’.

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

22 of section 1368(e)(1) is amended—

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

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

25 paragraph’’, and
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1 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in2 serting ‘‘section 1367(a)(2)’’.

3 SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB4 CHAPTER C.

5 Subsection (a) of section 1371 (relating to applica6 tion of subchapter C rules) is amended to read as follows:

7 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex8 cept as otherwise provided in this title, and except to the

9 extent inconsistent with this subchapter, subchapter C

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

11 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND

12 PROFITS.

13 (a) IN GENERAL.—If—

14 (1) a corporation was an electing small business

15 corporation under subchapter S of chapter 1 of the

16 Internal Revenue Code of 1986 for any taxable year

17 beginning before January 1, 1983, and

18 (2) such corporation is an S corporation under

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

20 taxable year beginning after December 31, 1996,

21 the amount of such corporation’s accumulated earnings

22 and profits (as of the beginning of such first taxable year)

23 shall be reduced by an amount equal to the portion (if

24 any) of such accumulated earnings and profits which were

25 accumulated in any taxable year beginning before January
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1 1, 1983, for which such corporation was an electing small

2 business corporation under such subchapter S.

3 (b) CONFORMING AMENDMENTS.—

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

5 amended by section 1308, is amended—

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

7 paragraph heading and inserting ‘‘ACCUMU8 LATED’’,

9 (B) by striking ‘‘subchapter C’’ in sub10 paragraph (A)(i)(I) and inserting ‘‘accumu11 lated’’, and

12 (C) by striking subparagraph (B) and re13 designating the following subparagraphs accord14 ingly.

15 (2)(A) Subsection (a) of section 1375 is amend16 ed by striking ‘‘subchapter C’’ in paragraph (1) and

17 inserting ‘‘accumulated’’.

18 (B) Paragraph (3) of section 1375(b) is amend19 ed to read as follows:

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

21 terms ‘passive investment income’ and ‘gross re22 ceipts’ have the same respective meanings as when

23 used in paragraph (3) of section 1362(d).’’.
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1 (C) The section heading for section 1375 is

2 amended by striking ‘‘SUBCHAPTER C’’ and insert3 ing ‘‘ACCUMULATED’’.

4 (D) The table of sections for part III of sub5 chapter S of chapter 1 is amended by striking ‘‘sub6 chapter C’’ in the item relating to section 1375 and

7 inserting ‘‘accumulated’’.

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

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

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

11 SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE12 DUCTIONS UNDER AT-RISK RULES ALLOWED.

13 Paragraph (3) of section 1366(d) (relating to carry14 over of disallowed losses and deductions to post-termi15 nation transition period) is amended by adding at the end

16 the following new subparagraph:

17 ‘‘(D) AT-RISK LIMITATIONS.—To the ex18 tent that any increase in adjusted basis de19 scribed in subparagraph (B) would have in20 creased the shareholder’s amount at risk under

21 section 465 if such increase had occurred on

22 the day preceding the commencement of the

23 post-termination transition period, rules similar

24 to the rules described in subparagraphs (A)
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1 through (C) shall apply to any losses disallowed

2 by reason of section 465(a).’’.

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

4 TO REFLECT CERTAIN ITEMS OF INCOME.

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

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

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

8 paragraph:

9 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

10 STOCK.—

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

12 stock in an S corporation by reason of the

13 death of a decedent or by bequest, devise, or in14 heritance, section 691 shall be applied with re15 spect to any item of income of the S corpora16 tion in the same manner as if the decedent had

17 held directly his pro rata share of such item.

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

19 determined under section 1014 of any stock in

20 an S corporation shall be reduced by the por21 tion of the value of the stock which is attrib22 utable to items constituting income in respect

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

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

3 after the date of the enactment of this Act.

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

6 SALE BY NONCORPORATE TAXPAYERS.

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

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

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

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

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

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

16 SEC. 1315. EFFECTIVE DATE.

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

18 this subtitle, the amendments made by this subtitle shall

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

20 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

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

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

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

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

2 CHAPTER 1—SIMPLIFIED DISTRIBUTION

3 RULES

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

5 LUMP-SUM DISTRIBUTIONS.

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

8 amended to read as follows:

9 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

10 FOREIGN SITUS TRUSTS.—For purposes of subsections

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

12 trust which would qualify for exemption from tax under

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

14 or organized outside the United States shall be treated

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

16 501(a).’’.

17 (b) CONFORMING AMENDMENTS.—

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

20 amended to read as follows:

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

23 ‘‘(i) IN GENERAL.—The term ‘lump

24 sum distribution’ means the distribution or

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

2 employee which becomes payable to the re3 cipient—

4 ‘‘(I) on account of the employee’s

5 death,

6 ‘‘(II) after the employee attains

age 591 7 ⁄2,

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

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

12 section 72(m)(7)),

13 from a trust which forms a part of a plan

14 described in section 401(a) and which is

15 exempt from tax under section 501 or from

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

18 only with respect to an individual who is

19 an employee without regard to section

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

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

23 For purposes of this clause, a distribution

24 to two or more trusts shall be treated as

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

2 credit of the employee does not include the

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

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

6 ‘‘(ii) AGGREGATION OF CERTAIN

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

9 employee under clause (i)—

10 ‘‘(I) all trusts which are part of

11 a plan shall be treated as a single

12 trust, all pension plans maintained by

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

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

19 plan, and

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

22 annuity contracts which do not satisfy

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

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

2 The provisions of this paragraph shall be

3 applied without regard to community prop4 erty laws.

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

7 amounts described in subparagraph (A) of

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

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

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

18 meaning of section 414(p)).

19 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

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

24 shall not include any amount transferred

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

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

3 defined benefit plan.

4 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

5 ALTERNATE PAYEES.—If any distribution

6 or payment of the balance to the credit of

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

9 paragraph, the payment under a qualified

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

12 credit of an alternate payee who is the

13 spouse or former spouse of the employee

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

17 shall not include any amount payable to

18 the employee.’’.

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

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

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

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

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

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

7 clause (v).

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

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

11 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

12 purposes of this subparagraph, the term

13 ‘lump-sum distribution’ has the meaning

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

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

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

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

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

20 tax) is hereby repealed.

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

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

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

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

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

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

6 55’’.

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

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

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

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

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

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

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

15 paragraph apply’’,

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

17 flush sentence:

18 ‘‘An individual may elect to have this paragraph

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

20 (C) by striking the heading and inserting:

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

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

23 paragraph (5).

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

2 this section shall apply to taxable years beginning

3 after December 31, 1998.

4 (2) RETENTION OF CERTAIN TRANSITION

5 RULES.—Notwithstanding any other provision of

6 this section, the amendments made by this section

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

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

10 of the preceding sentence, the rules of sections

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

12 of 1986 (as in effect before the amendments made

13 by this Act) shall apply.

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

15 DEATH BENEFITS.

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

17 hereby repealed.

18 (b) CONFORMING AMENDMENTS.—

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

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

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

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

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

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

6 this section shall apply with respect to decedents dying

7 after the date of the enactment of this Act.

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

10 PLANS.

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

12 (relating to annuities; certain proceeds of endowment and

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

14 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

15 RETIREMENT PLANS.—

16 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

17 PAYMENTS.—

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

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

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

22 and

23 ‘‘(ii) the investment in the contract

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

3 ‘‘(i) IN GENERAL.—Gross income

4 shall not include so much of any monthly

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

7 the amount obtained by dividing—

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

10 by

11 ‘‘(II) the number of anticipated

12 payments determined under the table

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

14 case of a contract to which subsection

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

16 monthly annuity payments under such

17 contract).

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

21 apply for purposes of this paragraph.

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

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

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

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

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

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

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

1 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

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

6 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

7 PAID IN CONNECTION WITH COMMENCEMENT

8 OF ANNUITY PAYMENTS.—If, in connection with

9 the commencement of annuity payments under

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

12 ‘‘(i) such payment shall be taxable

13 under subsection (e) as if received before

14 the annuity starting date, and

15 ‘‘(ii) the investment in the contract

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

18 received.

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

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

2 guaranteed payments under the annuity.

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

5 where the annuity payments are not made on a

6 monthly basis, appropriate adjustments in the

7 application of this paragraph shall be made to

8 take into account the period on the basis of

9 which such payments are made.

10 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

11 PLAN.—For purposes of this paragraph, the

12 term ‘qualified employer retirement plan’ means

13 any plan or contract described in paragraph

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

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

17 For purposes of this section, employee contributions

18 (and any income allocable thereto) under a defined

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

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

22 this section shall apply in cases where the annuity starting

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

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

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

4 ‘‘(C) REQUIRED BEGINNING DATE.—For

5 purposes of this paragraph—

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

8 the calendar year following the later of—

9 ‘‘(I) the calendar year in which

the employee attains age 701 10 ⁄2, or

11 ‘‘(II) the calendar year in which

12 the employee retires.

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

14 clause (i) shall not apply—

15 ‘‘(I) except as provided in section

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

17 who is a 5-percent owner (as defined

18 in section 416) with respect to the

19 plan year ending in the calendar year

20 in which the employee attains age

701 21 ⁄2, or

22 ‘‘(II) for purposes of section 408

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

24 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

25 the case of an employee to whom clause

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

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

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

after age 701 5 ⁄2 in which the employee was

6 not receiving any benefits under the plan.

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

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

10 a governmental plan or church plan. For

11 purposes of this clause, the term ‘church

12 plan’ means a plan maintained by a church

13 for church employees, and the term

14 ‘church’ means any church (as defined in

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

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

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

2 PENSION PLANS

3 Subchapter A—Simple Savings Plans

4 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE

5 MATCH PLANS FOR EMPLOYEES OF SMALL

6 EMPLOYERS.

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

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

11 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

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

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

15 7701(a)(37))—

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

18 and

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

21 qualified salary reduction arrangement.

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

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

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

2 an eligible employer under which—

3 ‘‘(i) an employee eligible to participate

4 in the arrangement may elect to have the

5 employer make payments—

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

9 ‘‘(II) to the employee directly in

10 cash,

11 ‘‘(ii) the amount which an employee

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

13 required to be expressed as a percentage of

14 compensation and may not exceed a total

15 of $6,000 for any year,

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

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

19 amount equal to so much of the amount

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

21 does not exceed the applicable percentage

22 of compensation for the year, and

23 ‘‘(iv) no contributions may be made

24 other than contributions described in

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

2 NONELECTIVE CONTRIBUTION.—An employer

3 shall be treated as meeting the requirements of

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

5 the contributions described in such clause, the

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

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

13 employees of such election within a reasonable

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

15 year under paragraph (5)(C).

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

17 subsection—

18 ‘‘(i) ELIGIBLE EMPLOYER.—The term

19 ‘eligible employer’ means an employer who

20 employs 100 or fewer employees on any

21 day during the year.

22 ‘‘(ii) APPLICABLE PERCENTAGE.—

23 ‘‘(I) IN GENERAL.—The term

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

3 apply a lower percentage (not less

4 than 1 percent) for any year for all

5 employees eligible to participate in the

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

9 time before the 30-day election period

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

11 An employer may not elect a lower

12 percentage under this subclause for

13 any year if that election would result

14 in the applicable percentage being

15 lower than 3 percent in more than 2

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

18 ‘‘(III) SPECIAL RULE FOR YEARS

19 ARRANGEMENT NOT IN EFFECT.—If

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

22 prior to the first year for which any

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

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

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

5 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN

6 OF EMPLOYER.—

7 ‘‘(i) IN GENERAL.—An arrangement

8 shall not be treated as a qualified salary

9 reduction arrangement for any year if the

10 employer (or any predecessor employer)

11 maintained a qualified plan with respect to

12 which contributions were made, or benefits

13 were accrued, for service in any year in the

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

16 with the year for which the determination

17 is being made.

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

19 of this subparagraph, the term ‘qualified

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

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

22 of section 219(g)(5).

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

24 Secretary shall adjust the $6,000 amount under

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

3 shall be the calendar quarter ending September

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

6 rounded to the next lower multiple of $500.

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

9 simple retirement account if the employee’s rights to

10 any contribution to the simple retirement account

11 are nonforfeitable. For purposes of this paragraph,

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

13 apply.

14 ‘‘(4) PARTICIPATION REQUIREMENTS.—

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

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

18 the qualified salary reduction arrangement, all

19 employees of the employer who—

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

22 preceding years, and

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

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

8 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The

9 requirements of this paragraph are met with respect

10 to any simplified retirement account if, under the

11 qualified salary reduction arrangement—

12 ‘‘(A) an employer must—

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

15 later than the close of the 30-day period

16 following the last day of the month with

17 respect to which the contributions are to

18 be made, and

19 ‘‘(ii) make the matching contributions

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

21 nonelective contributions under paragraph

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

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

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

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

2 terminates, the arrangement may provide that

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

5 ‘‘(C) each employee eligible to participate

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

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

8 before the first day such employee is eligible to

9 participate), to participate in the arrangement,

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

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

14 ‘‘(A) COMPENSATION.—

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

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

18 ‘‘(ii) SELF-EMPLOYED.—In the case

19 of an employee described in subparagraph

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

21 earnings from self-employment determined

22 under section 1402(a) without regard to

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

3 401(c)(1).

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

5 calendar year.’’.

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

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

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

11 amount of deduction) is amended by adding at

12 the end the following new paragraph:

13 ‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT

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

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

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

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

20 following new clause:

21 ‘‘(vi) any simple retirement account

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

23 or’’.

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

2 amended by adding at the end the following new

3 subsection:

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

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

7 a simple retirement account shall be treated as if

8 they are made to a plan subject to the requirements

9 of this section.

10 ‘‘(2) TIMING.—

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

13 the taxable year of the employer with or within

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

16 ‘‘(B) CONTRIBUTIONS AFTER END OF

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

19 year if they are made on account of the taxable

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

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

2 beneficiary of employees’ trust) is amended by

3 adding at the end the following new subsection:

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

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

7 distributions with respect to a simple retirement account

8 under section 408(p).’’.

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

11 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

12 This paragraph shall not apply to any amount

13 paid or distributed out of a simple retirement

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

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

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

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

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

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

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

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

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

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

4 adding at the end the following new paragraph:

5 ‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT

6 ACCOUNTS.—In the case of any amount received

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

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

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

14 (B) FAILURE TO REPORT.—Section 6693

15 is amended by redesignating subsection (c) as

16 subsection (d) and by inserting after subsection

17 (b) the following new subsection:

18 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

19 ACCOUNTS.—

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

21 fails to provide 1 or more notices required by section

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

23 on which such failures continue.

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

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

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

4 which such failures continue, or

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

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

8 such failures continue.

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

10 penalty shall be imposed under this subsection with

11 respect to any failure which the taxpayer shows was

12 due to reasonable cause.’’.

13 (5) REPORTING REQUIREMENTS.—

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

15 at the end the following new paragraph:

16 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

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

18 provided in this paragraph, no report shall be

19 required under this section by an employer

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

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

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

2 each year a description containing the following

3 information:

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

6 ‘‘(ii) The requirements for eligibility

7 for participation.

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

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

11 elections with respect to the arrangement.

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

13 of, withdrawals (including rollovers) from

14 the arrangement.

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

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

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

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

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

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

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

3 new flush sentence:

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

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

8 addition to the report under this subsection, there shall

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

10 the individual on whose behalf the account is maintained

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

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

13 year.’’.

14 (7) EXEMPTION FROM TOP-HEAVY PLAN

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

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

17 end the following new subparagraph:

18 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

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

20 simple retirement account under section

21 408(p).’’.

22 (8) EMPLOYMENT TAXES.—

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

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

2 the following new subparagraph:

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

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

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

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

11 the end thereof.

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

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

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

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

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

21 amended by adding the following new subparagraph:

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

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

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

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

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

7 ‘‘(D) a simple retirement account described

8 in section 408(p).’’.

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

11 striking the period at the end of subparagraph

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

13 subparagraph (C) the following new subpara14 graph:

15 ‘‘(D) any elective employer contribution

16 under section 408(p)(2)(A)(i).’’.

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

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

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

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

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

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

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

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

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

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

5 adding at the end the following new subparagraph:

6 ‘‘(H) TERMINATION.—This paragraph

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

9 apply to a simplified employee pension if the

10 terms of such pension, as in effect on December

11 31, 1996, provide that an employee may make

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

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

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

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

18 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

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

21 adding at the end the following new paragraph:

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

23 NONDISCRIMINATION TESTS.—

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

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

3 meets—

4 ‘‘(i) the contribution requirements of

5 subparagraph (B),

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

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

10 ‘‘(B) CONTRIBUTION REQUIREMENTS.—

11 ‘‘(i) IN GENERAL.—The requirements

12 of this subparagraph are met if, under the

13 arrangement—

14 ‘‘(I) an employee may elect to

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

17 the employee to a trust under the plan

18 in an amount which is expressed as a

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

21 $6,000,

22 ‘‘(II) the employer is required to

23 make a matching contribution to the

24 trust for the year in an amount equal

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

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

4 ‘‘(III) no other contributions may

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

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

9 employer shall be treated as meeting the

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

11 if, in lieu of the contributions described in

12 such clause, the employer elects (pursuant

13 to the terms of the arrangement) to make

14 nonelective contributions of 2 percent of

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

17 who has at least $5,000 of compensation

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

21 notify employees of such election within a

22 reasonable period of time before the 30th

23 day before the beginning of such year.

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

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

7 described in subparagraph (B).

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

9 ‘‘(i) DEFINITIONS.—For purposes of

10 this paragraph, any term used in this

11 paragraph which is also used in section

12 408(p) shall have the meaning given such

13 term by such section.

14 ‘‘(ii) COORDINATION WITH TOP-HEAVY

15 RULES.—A plan meeting the requirements

16 of this paragraph for any year shall not be

17 treated as a top-heavy plan under section

18 416 for such year.’’.

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

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

22 contributions and employee contributions) is amended by

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

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

2 TESTS.—A defined contribution plan shall be treated

3 as meeting the requirements of paragraph (2) with

4 respect to matching contributions if the plan—

5 ‘‘(A) meets the contribution requirements

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

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

9 ‘‘(C) meets the vesting requirements of

10 section 408(p)(3).’’.

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

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

14 Subchapter B—Other Provisions

15 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

16 SECTION 401(k).

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

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

19 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

20 GOVERNMENTS AND TAX-EXEMPT ORGANIZA21 TIONS.—

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

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

2 by it.

3 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

4 cash or deferred arrangement shall not be

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

8 political subdivision thereof, or any agency

9 or instrumentality thereof. This clause

10 shall not apply to a rural cooperative plan

11 or to a plan of an employer described in

12 clause (iii).

13 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

14 GOVERNMENTS.—An employer which is an

15 Indian tribal government (as defined in

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

17 Indian tribal government (determined in

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

20 government or subdivision thereof, or a

21 corporation chartered under Federal,

22 State, or tribal law which is owned in

23 whole or in part by any of the foregoing

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

2 of clause (i).’’.

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

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

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

8 CHAPTER 3—NONDISCRIMINATION

9 PROVISIONS

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

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

13 (defining highly compensated employee) is amended to

14 read as follows:

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

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

18 during the year or the preceding year, or

19 ‘‘(B) for the preceding year—

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

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

23 employer.

24 The Secretary shall adjust the $80,000 amount

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

2 the base period shall be the calendar quarter ending

3 September 30, 1996.’’.

4 (b) REPEAL OF FAMILY AGGREGATION RULES.—

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

6 414(q) is hereby repealed.

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

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

9 sentence.

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

11 is amended by striking the last sentence.

12 (c) CONFORMING AMENDMENTS.—

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

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

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

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

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

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

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

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

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

23 414(r)(9)’’.

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

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

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

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

5 months of service.

6 ‘‘(B) Employees who normally work less

than 171 7 ⁄2 hours per week.

8 ‘‘(C) Employees who normally work not

9 more than 6 months during any year.

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

11 age of 21.

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

14 of employees covered by an agreement which

15 the Secretary of Labor finds to be a collective

16 bargaining agreement between employee rep17 resentatives and the employer.

18 Except as provided by the Secretary, the employer

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

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

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

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

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

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

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

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

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

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

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

11 (d) EFFECTIVE DATE.—

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

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

16 years beginning in 1997, such amendments shall be

17 treated as having been in effect for years beginning

18 in 1996.

19 (2) FAMILY AGGREGATION.—The amendments

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

2 REQUIREMENTS.

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

5 to read as follows:

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

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

8 trust shall not constitute a qualified trust under

9 this subsection unless on each day of the plan

10 year such trust benefits at least the lesser of—

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

12 ‘‘(ii) the greater of—

13 ‘‘(I) 40 percent of all employees

14 of the employer, or

15 ‘‘(II) 2 employees (or if there is

16 only 1 employee, such employee).’’.

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

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

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

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

22 this section shall apply to years beginning after December

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

2 CASH OR DEFERRED ARRANGEMENTS AND

3 MATCHING CONTRIBUTIONS.

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

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

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

8 end the following new paragraph:

9 ‘‘(12) ALTERNATIVE METHODS OF MEETING

10 NONDISCRIMINATION REQUIREMENTS.—

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

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

17 ‘‘(ii) meets the notice requirements of

18 subparagraph (D).

19 ‘‘(B) MATCHING CONTRIBUTIONS.—

20 ‘‘(i) IN GENERAL.—The requirements

21 of this subparagraph are met if, under the

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

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

2 contributions of the employee to the

3 extent such elective contributions do

4 not exceed 3 percent of the employee’s

5 compensation, and

6 ‘‘(II) 50 percent of the elective

7 contributions of the employee to the

8 extent that such elective contributions

9 exceed 3 percent but do not exceed 5

10 percent of the employee’s compensa11 tion.

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

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

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

20 employee who is not a highly compensated

21 employee.

22 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

23 If the rate of any matching contribution

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

2 shall not be treated as failing to meet the

3 requirements of clause (i) if—

4 ‘‘(I) the rate of an employer’s

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

8 ‘‘(II) the aggregate amount of

9 matching contributions at such rate of

10 elective contribution is at least equal

11 to the aggregate amount of matching

12 contributions which would be made if

13 matching contributions were made on

14 the basis of the percentages described

15 in clause (i).

16 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

17 The requirements of this subparagraph are met

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

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

22 contribution plan on behalf of each employee

23 who is not a highly compensated employee and

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

2 employee’s compensation.

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

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

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

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

12 such rights and obligations, and

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

14 to be understood by the average employee

15 eligible to participate.

16 ‘‘(E) OTHER REQUIREMENTS.—

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

19 treated as meeting the requirements of

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

21 unless the requirements of subparagraphs

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

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

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

2 of this paragraph are met.

3 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

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

6 treated as meeting the requirements of

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

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

12 account.

13 ‘‘(F) OTHER PLANS.—An arrangement

14 shall be treated as meeting the requirements

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

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

18 the arrangement.’’.

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

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

22 contributions and employee contributions), as amended by

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

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

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

2 TESTS.—

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

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

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

10 ‘‘(ii) meets the notice requirements of

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

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

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

17 ‘‘(i) matching contributions on behalf

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

20 elective deferrals in excess of 6 percent of

21 the employee’s compensation,

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

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

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

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

7 employee.’’.

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

10 (1) CASH OR DEFERRED ARRANGEMENTS.—

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

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

13 ‘‘the plan year’’,

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

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

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

17 sentence: ‘‘An arrangement may apply this

18 clause by using the plan year rather than the

19 preceding plan year if the employer so elects,

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

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

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

2 ‘‘highly compensated employees’’,

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

4 year’’ after ‘‘eligible employees’’ each place it

5 appears in clause (i) and clause (ii), and

6 (C) by adding at the end the following

7 flush sentence: ‘‘This subparagraph may be ap8 plied by using the plan year rather than the

9 preceding plan year if the employer so elects,

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

11 not be changed except as provided the Sec12 retary.’’.

13 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE14 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

15 (1) Paragraph (3) of section 401(k) is amended

16 by adding at the end the following new subpara17 graph:

18 ‘‘(E) For purposes of this paragraph, in

19 the case of the first plan year of any plan

20 (other than a successor plan), the amount taken

21 into account as the actual deferral percentage

22 of nonhighly compensated employees for the

23 preceding plan year shall be—

24 ‘‘(i) 3 percent, or
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1 ‘‘(ii) if the employer makes an election

2 under this subclause, the actual deferral

3 percentage of nonhighly compensated em4 ployees determined for such first plan

5 year.’’.

6 (2) Paragraph (3) of section 401(m) is amend7 ed by adding at the end the following: ‘‘Rules similar

8 to the rules of subsection (k)(3)(E) shall apply for

9 purposes of this subsection.’’.

10 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

11 EXCESS AGGREGATE CONTRIBUTIONS.—

12 (1) Subparagraph (C) of section 401(k)(8) (re13 lating to arrangement not disqualified if excess con14 tributions distributed) is amended by striking ‘‘on

15 the basis of the respective portions of the excess con16 tributions attributable to each of such employees’’

17 and inserting ‘‘on the basis of the amount of con18 tributions by, or on behalf of, each of such employ19 ees’’.

20 (2) Subparagraph (C) of section 401(m)(6) (re21 lating to method of distributing excess aggregate

22 contributions) is amended by striking ‘‘on the basis

23 of the respective portions of such amounts attrib24 utable to each of such employees’’ and inserting ‘‘on
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1 the basis of the amount of contributions on behalf

2 of, or by, each such employee’’.

3 (f) EFFECTIVE DATES.—

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

5 this section shall apply to years beginning after De6 cember 31, 1998.

7 (2) EXCEPTIONS.—The amendments made by

8 subsections (c), (d), and (e) shall apply to years be9 ginning after December 31, 1996.

10 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

11 415 PURPOSES.

12 (a) GENERAL RULE.—Section 415(c)(3) (defining

13 participant’s compensation) is amended by adding at the

14 end the following new subparagraph:

15 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—

16 The term ‘participant’s compensation’ shall in17 clude—

18 ‘‘(i) any elective deferral (as defined

19 in section 402(g)(3)), and

20 ‘‘(ii) any amount which is contributed

21 by the employer at the election of the em22 ployee and which is not includible in the

23 gross income of the employee under section

24 125 or 457.’’.

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 414(q)(4), as redesignated by sec2 tion 1431, is amended to read as follows:

3 ‘‘(4) COMPENSATION.—For purposes of this

4 subsection, the term ‘compensation’ has the meaning

5 given such term by section 415(c)(3).’’.

6 (2) Section 414(s)(2) is amended by inserting

7 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

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

9 this section shall apply to years beginning after December

10 31, 1997.

11 CHAPTER 4—MISCELLANEOUS

12 PROVISIONS

13 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID14 UALS.

15 (a) AGGREGATION RULES.—Section 401(d) (relating

16 to additional requirements for qualification of trusts and

17 plans benefiting owner-employees) is amended to read as

18 follows:

19 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY20 EES.—A trust forming part of a pension or profit-sharing

21 plan which provides contributions or benefits for employ22 ees some or all of whom are owner-employees shall con23 stitute a qualified trust under this section only if, in addi24 tion to meeting the requirements of subsection (a), the

25 plan provides that contributions on behalf of any owner-
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1 employee may be made only with respect to the earned

2 income of such owner-employee which is derived from the

3 trade or business with respect to which such plan is estab4 lished.’’.

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

6 this section shall apply to years beginning after December

7 31, 1996.

8 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

9 MULTIEMPLOYER PLANS.

10 (a) IN GENERAL.—Paragraph (2) of section 411(a)

11 (relating to minimum vesting standards) is amended—

12 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

13 and inserting ‘‘subparagraph (A) or (B)’’; and

14 (2) by striking subparagraph (C).

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to plan years beginning on or after

17 the earlier of—

18 (1) the later of—

19 (A) January 1, 1997, or

20 (B) the date on which the last of the col21 lective bargaining agreements pursuant to

22 which the plan is maintained terminates (deter23 mined without regard to any extension thereof

24 after the date of the enactment of this Act), or

25 (2) January 1, 1999.
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1 Such amendments shall not apply to any individual who

2 does not have more than 1 hour of service under the plan

3 on or after the 1st day of the 1st plan year to which such

4 amendments apply.

5 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

6 PLANS.

7 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A

8 CERTAIN AGE.—Section 401(k)(7) is amended by adding

9 at the end the following new subparagraph:

10 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS11 TRIBUTIONS.—A rural cooperative plan which

12 includes a qualified cash or deferred arrange13 ment shall not be treated as violating the re14 quirements of section 401(a) or of paragraph

15 (2) merely by reason of a hardship distribution

16 or a distribution to a participant after attainment of age 591 17 ⁄2. For purposes of this section,

18 the term ‘hardship distribution’ means a dis19 tribution described in paragraph (2)(B)(i)(IV)

20 (without regard to the limitation of its applica21 tion to profit-sharing or stock bonus plans).’’.

22 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of sec23 tion 401(k)(7)(B) (defining rural cooperative) is amended

24 to read as follows:

25 ‘‘(i) any organization which—
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1 ‘‘(I) is engaged primarily in pro2 viding electric service on a mutual or

3 cooperative basis, or

4 ‘‘(II) is engaged primarily in pro5 viding electric service to the public in

6 its area of service and which is ex7 empt from tax under this subtitle or

8 which is a State or local government

9 (or an agency or instrumentality

10 thereof), other than a municipality (or

11 an agency or instrumentality there12 of),’’.

13 (c) EFFECTIVE DATES.—

14 (1) DISTRIBUTIONS.—The amendments made

15 by subsection (a) shall apply to distributions after

16 the date of the enactment of this Act.

17 (2) RURAL COOPERATIVE.—The amendments

18 made by subsection (b) shall apply to plan years be19 ginning after December 31, 1996.

20 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

21 SECTION 415.

22 (a) COMPENSATION LIMIT.—Subsection (b) of sec23 tion 415 is amended by adding immediately after para24 graph (10) the following new paragraph:
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1 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN2 MENTAL PLANS.—In the case of a governmental

3 plan (as defined in section 414(d)), subparagraph

4 (B) of paragraph (1) shall not apply.’’.

5 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

6 PLANS.—

7 (1) IN GENERAL.—Section 415 is amended by

8 adding at the end the following new subsection:

9 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

10 EXCESS BENEFIT ARRANGEMENTS.—

11 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—

12 In determining whether a governmental plan (as de13 fined in section 414(d)) meets the requirements of

14 this section, benefits provided under a qualified gov15 ernmental excess benefit arrangement shall not be

16 taken into account. Income accruing to a govern17 mental plan (or to a trust that is maintained solely

18 for the purpose of providing benefits under a quali19 fied governmental excess benefit arrangement) in re20 spect of a qualified governmental excess benefit ar21 rangement shall constitute income derived from the

22 exercise of an essential governmental function upon

23 which such governmental plan (or trust) shall be ex24 empt from tax under section 115.
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1 ‘‘(2) TAXATION OF PARTICIPANT.—For pur2 poses of this chapter—

3 ‘‘(A) the taxable year or years for which

4 amounts in respect of a qualified governmental

5 excess benefit arrangement are includible in

6 gross income by a participant, and

7 ‘‘(B) the treatment of such amounts when

8 so includible by the participant,

9 shall be determined as if such qualified govern10 mental excess benefit arrangement were treated as a

11 plan for the deferral of compensation which is main12 tained by a corporation not exempt from tax under

13 this chapter and which does not meet the require14 ments for qualification under section 401.

15 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN16 EFIT ARRANGEMENT.—For purposes of this sub17 section, the term ‘qualified governmental excess ben18 efit arrangement’ means a portion of a governmental

19 plan if—

20 ‘‘(A) such portion is maintained solely for

21 the purpose of providing to participants in the

22 plan that part of the participant’s annual bene23 fit otherwise payable under the terms of the

24 plan that exceeds the limitations on benefits im25 posed by this section,
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1 ‘‘(B) under such portion no election is pro2 vided at any time to the participant (directly or

3 indirectly) to defer compensation, and

4 ‘‘(C) benefits described in subparagraph

5 (A) are not paid from a trust forming a part

6 of such governmental plan unless such trust is

7 maintained solely for the purpose of providing

8 such benefits.’’.

9 (2) COORDINATION WITH SECTION 457.—Sub10 section (e) of section 457 is amended by adding at

11 the end the following new paragraph:

12 ‘‘(14) TREATMENT OF QUALIFIED GOVERN13 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub14 sections (b)(2) and (c)(1) shall not apply to any

15 qualified governmental excess benefit arrangement

16 (as defined in section 415(m)(3)), and benefits pro17 vided under such an arrangement shall not be taken

18 into account in determining whether any other plan

19 is an eligible deferred compensation plan.’’.

20 (3) CONFORMING AMENDMENT.—Paragraph (2)

21 of section 457(f) is amended by striking ‘‘and’’ at

22 the end of subparagraph (C), by striking the period

23 at the end of subparagraph (D) and inserting ‘‘,

24 and’’, and by inserting immediately thereafter the

25 following new subparagraph:
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1 ‘‘(E) a qualified governmental excess bene2 fit arrangement described in section 415(m).’’.

3 (c) EXEMPTION FOR SURVIVOR AND DISABILITY

4 BENEFITS.—Paragraph (2) of section 415(b) is amended

5 by adding at the end the following new subparagraph:

6 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS7 ABILITY BENEFITS PROVIDED UNDER GOVERN8 MENTAL PLANS.—Subparagraph (C) of this

9 paragraph and paragraph (5) shall not apply

10 to—

11 ‘‘(i) income received from a govern12 mental plan (as defined in section 414(d))

13 as a pension, annuity, or similar allowance

14 as the result of the recipient becoming dis15 abled by reason of personal injuries or

16 sickness, or

17 ‘‘(ii) amounts received from a govern18 mental plan by the beneficiaries, survivors,

19 or the estate of an employee as the result

20 of the death of the employee.’’.

21 (d) REVOCATION OF GRANDFATHER ELECTION.—

22 (1) IN GENERAL.—Subparagraph (C) of section

23 415(b)(10) is amended by adding at the end the fol24 lowing new clause:
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1 ‘‘(ii) REVOCATION OF ELECTION.—An

2 election under clause (i) may be revoked

3 not later than the last day of the third

4 plan year beginning after the date of the

5 enactment of this clause. The revocation

6 shall apply to all plan years to which the

7 election applied and to all subsequent plan

8 years. Any amount paid by a plan in a tax9 able year ending after the revocation shall

10 be includible in income in such taxable

11 year under the rules of this chapter in ef12 fect for such taxable year, except that, for

13 purposes of applying the limitations im14 posed by this section, any portion of such

15 amount which is attributable to any tax16 able year during which the election was in

17 effect shall be treated as received in such

18 taxable year.’’.

19 (2) CONFORMING AMENDMENT.—Subparagraph

20 (C) of section 415(b)(10) is amended by striking

21 ‘‘This’’ and inserting:

22 ‘‘(i) IN GENERAL.—This’’.

23 (e) EFFECTIVE DATE.—

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

25 subsections (a), (b), and (c) shall apply to years be-
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1 ginning after December 31, 1994. The amendments

2 made by subsection (d) shall apply with respect to

3 revocations adopted after the date of the enactment

4 of this Act.

5 (2) TREATMENT FOR YEARS BEGINNING BE6 FORE JANUARY 1, 1995.—Nothing in the amend7 ments made by this section shall be construed to

8 infer that a governmental plan (as defined in section

9 414(d) of the Internal Revenue Code of 1986) fails

10 to satisfy the requirements of section 415 of such

11 Code for any taxable year beginning before January

12 1, 1995.

13 SEC. 1445. UNIFORM RETIREMENT AGE.

14 (a) DISCRIMINATION TESTING.—Paragraph (5) of

15 section 401(a) (relating to special rules relating to non16 discrimination requirements) is amended by adding at the

17 end the following new subparagraph:

18 ‘‘(F) SOCIAL SECURITY RETIREMENT

19 AGE.—For purposes of testing for discrimina20 tion under paragraph (4)—

21 ‘‘(i) the social security retirement age

22 (as defined in section 415(b)(8)) shall be

23 treated as a uniform retirement age, and

24 ‘‘(ii) subsidized early retirement bene25 fits and joint and survivor annuities shall
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1 not be treated as being unavailable to em2 ployees on the same terms merely because

3 such benefits or annuities are based in

4 whole or in part on an employee’s social

5 security retirement age (as so defined).’’

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

7 this section shall apply to years beginning after December

8 31, 1996.

9 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM10 PLOYEES.

11 (a) ALL DISABLED PARTICIPANTS RECEIVING CON12 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

13 at the end the following: ‘‘If a defined contribution plan

14 provides for the continuation of contributions on behalf

15 of all participants described in clause (i) for a fixed or

16 determinable period, this subparagraph shall be applied

17 without regard to clauses (ii) and (iii).’’.

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

19 this section shall apply to years beginning after December

20 31, 1996.
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1 SEC. 1447. TREATMENT OF DEFERRED COMPENSATION

2 PLANS OF STATE AND LOCAL GOVERNMENTS

3 AND TAX-EXEMPT ORGANIZATIONS.

4 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

5 Paragraph (9) of section 457(e) (relating to other defini6 tions and special rules) is amended to read as follows:

7 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL8 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

9 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500

10 OR LESS.—The total amount payable to a par11 ticipant under the plan shall not be treated as

12 made available merely because the participant

13 may elect to receive such amount (or the plan

14 may distribute such amount without the partici15 pant’s consent) if—

16 ‘‘(i) such amount does not exceed

17 $3,500, and

18 ‘‘(ii) such amount may be distributed

19 only if—

20 ‘‘(I) no amount has been deferred

21 under the plan with respect to such

22 participant during the 2-year period

23 ending on the date of the distribution,

24 and

25 ‘‘(II) there has been no prior dis26 tribution under the plan to such par-
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1 ticipant to which this subparagraph

2 applied.

3 A plan shall not be treated as failing to meet

4 the distribution requirements of subsection (d)

5 by reason of a distribution to which this sub6 paragraph applies.

7 ‘‘(B) ELECTION TO DEFER COMMENCE8 MENT OF DISTRIBUTIONS.—The total amount

9 payable to a participant under the plan shall

10 not be treated as made available merely because

11 the participant may elect to defer commence12 ment of distributions under the plan if—

13 ‘‘(i) such election is made after

14 amounts may be available under the plan

15 in accordance with subsection (d)(1)(A)

16 and before commencement of such dis17 tributions, and

18 ‘‘(ii) the participant may make only 1

19 such election.’’.

20 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE21 FERRAL AMOUNT.—Subsection (e) of section 457, as

22 amended by section 1444(b)(2) (relating to governmental

23 plans), is amended by adding at the end the following new

24 paragraph:
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1 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI2 MUM DEFERRAL AMOUNT.—The Secretary shall ad3 just the $7,500 amount specified in subsections

4 (b)(2) and (c)(1) at the same time and in the same

5 manner as under section 415(d), except that the

6 base period shall be the calendar quarter ending

7 September 30, 1994, and any increase under this

8 paragraph which is not a multiple of $500 shall be

9 rounded to the next lowest multiple of $500.’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM14 PENSATION PLANS OF STATE AND LOCAL

15 GOVERNMENTS.

16 (a) IN GENERAL.—Section 457 is amended by adding

17 at the end the following new subsection:

18 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET19 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

20 ‘‘(1) IN GENERAL.—A plan maintained by an

21 eligible employer described in subsection (e)(1)(A)

22 shall not be treated as an eligible deferred com23 pensation plan unless all assets and income of the

24 plan described in subsection (b)(6) are held in trust
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1 for the exclusive benefit of participants and their

2 beneficiaries.

3 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI4 PANTS.—For purposes of this title—

5 ‘‘(A) a trust described in paragraph (1)

6 shall be treated as an organization exempt from

7 taxation under section 501(a), and

8 ‘‘(B) notwithstanding any other provision

9 of this title, amounts in the trust shall be in10 cludible in the gross income of participants and

11 beneficiaries only to the extent, and at the time,

12 provided in this section.

13 ‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—

14 For purposes of this subsection, custodial accounts

15 and contracts described in section 401(f) shall be

16 treated as trusts under rules similar to the rules

17 under section 401(f).’’.

18 (b) CONFORMING AMENDMENT.—Paragraph (6) of

19 section 457(b) is amended by inserting ‘‘except as pro20 vided in subsection (g),’’ before ‘‘which provides that’’.

21 (c) EFFECTIVE DATES.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section

24 shall apply to assets and income described in section

25 457(b)(6) of the Internal Revenue Code of 1986
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1 held by a plan on and after the date of the enact2 ment of this Act.

3 (2) TRANSITION RULE.—In the case of assets

4 and income described in paragraph (1) held by a

5 plan on the date of the enactment of this Act, a

6 trust need not be established by reason of the

7 amendments made by this section before January 1,

8 1999.

9 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

10 BENEFITS UNDER SECTION 415 LIMITATIONS.

11 (a) IN GENERAL.—Subparagraph (A) of section

12 767(d)(3) of the Uruguay Round Agreements Act is

13 amended to read as follows:

14 ‘‘(A) EXCEPTION.—A plan that was adopt15 ed and in effect before December 8, 1994, shall

16 not be required to apply the amendments made

17 by subsection (b) with respect to benefits ac18 crued before the earlier of—

19 ‘‘(i) the later of the date a plan

20 amendment applying such amendment is

21 adopted or made effective, or

22 ‘‘(ii) the first day of the first limita23 tion year beginning after December 31,

24 1999.
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1 Determinations under section 415(b)(2)(E) of

2 the Internal Revenue Code of 1986 before such

3 earlier date shall be made with respect to such

4 benefits on the basis of such section as in effect

5 on December 7, 1994 (except that the modifica6 tion made by section 1449(b) of the Small

7 Business Job Protection Act of 1996 shall be

8 taken into account), and the provisions of the

9 plan as in effect on December 7, 1994, but only

10 if such provisions of the plan meet the require11 ments of such section (as so in effect).’’.

12 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR

13 ADJUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

14 EARLY RETIREES.—Subparagraph (E) of section

15 415(b)(2) (relating to limitation on certain assumptions)

16 is amended—

17 (1) by striking ‘‘Except as provided in clause

18 (ii), for purposes of adjusting any benefit or limita19 tion under subparagraph (B) or (C),’’ in clause (i)

20 and inserting ‘‘For purposes of adjusting any limita21 tion under subparagraph (C) and, except as provided

22 in clause (ii), for purposes of adjusting any benefit

23 under subparagraph (B),’’, and

24 (2) by striking ‘‘For purposes of adjusting the

25 benefit or limitation of any form of benefit subject
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1 to section 417(e)(3),’’ in clause (ii) and inserting

2 ‘‘For purposes of adjusting any benefit under sub3 paragraph (B) for any form of benefit subject to sec4 tion 417(e)(3),’’.

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

6 this section shall take effect as if included in the provisions

7 of section 767 of the Uruguay Round Agreements Act.

8 (d) TRANSITIONAL RULE.—In the case of a plan that

9 was adopted and in effect before December 8, 1994, if—

10 (1) a plan amendment was adopted or made ef11 fective on or before the date of the enactment of this

12 Act applying the amendments made by section 767

13 of the Uruguay Round Agreements Act, and

14 (2) within 1 year after the date of the enact15 ment of this Act, a plan amendment is adopted

16 which repeals the amendment referred to in para17 graph (1),

18 the amendment referred to in paragraph (1) shall not be

19 taken into account in applying section 767(d)(3)(A) of the

20 Uruguay Round Agreements Act, as amended by sub21 section (a).

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

23 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

24 PERMITTED.—
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1 (1) GENERAL RULE.—For purposes of section

2 403(b) of the Internal Revenue Code of 1986, the

3 frequency that an employee is permitted to enter

4 into a salary reduction agreement, the salary to

5 which such an agreement may apply, and the ability

6 to revoke such an agreement shall be determined

7 under the rules applicable to cash or deferred elec8 tions under section 401(k) of such Code.

9 (2) EFFECTIVE DATE.—This subsection shall

10 apply to taxable years beginning after December 31,

11 1995.

12 (b) TREATMENT OF INDIAN TRIBAL GOVERN13 MENTS.—

14 (1) IN GENERAL.—In the case of any contract

15 purchased in a plan year beginning before January

16 1, 1995, section 403(b) of the Internal Revenue

17 Code of 1986 shall be applied as if any reference to

18 an employer described in section 501(c)(3) of the In19 ternal Revenue Code of 1986 which is exempt from

20 tax under section 501 of such Code included a ref21 erence to an employer which is an Indian tribal gov22 ernment (as defined by section 7701(a)(40) of such

23 Code), a subdivision of an Indian tribal government

24 (determined in accordance with section 7871(d) of

25 such Code), an agency or instrumentality of an In-
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1 dian tribal government or subdivision thereof, or a

2 corporation chartered under Federal, State, or tribal

3 law which is owned in whole or in part by any of the

4 foregoing.

5 (2) ROLLOVERS.—Solely for purposes of apply6 ing section 403(b)(8) of such Code to a contract to

7 which paragraph (1) applies, a qualified cash or de8 ferred arrangement under section 401(k) of such

9 Code shall be treated as if it were a plan or contract

10 described in clause (ii) of section 403(b)(8)(A) of

11 such Code.

12 (c) ELECTIVE DEFERRALS.—

13 (1) IN GENERAL.—Subparagraph (E) of section

14 403(b)(1) is amended to read as follows:

15 ‘‘(E) in the case of a contract purchased

16 under a salary reduction agreement, the con17 tract meets the requirements of section

18 401(a)(30),’’.

19 (2) EFFECTIVE DATE.—The amendment made

20 by this subsection shall apply to years beginning

21 after December 31, 1995, except a contract shall not

22 be required to meet any change in any requirement

23 by reason of such amendment before the 90th day

24 after the date of the enactment of this Act.
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1 SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND

2 SURVIVOR ANNUITY EXPLANATION BEFORE

3 ANNUITY STARTING DATE.

4 (a) GENERAL RULE.—For purposes of section

5 417(a)(3)(A) of the Internal Revenue Code of 1986 (relat6 ing to plan to provide written explanations), the minimum

7 period prescribed by the Secretary of the Treasury be8 tween the date that the explanation referred to in such

9 section is provided and the annuity starting date shall not

10 apply if waived by the participant and, if applicable, the

11 participant’s spouse.

12 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

13 plan years beginning after December 31, 1996.

14 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

15 BENEFIT PLAN AND DEFINED CONTRIBUTION

16 PLAN FOR SAME EMPLOYEE; EXCESS DIS17 TRIBUTIONS.

18 (a) IN GENERAL.—Section 415(e) is repealed.

19 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

20 amended by adding at the end the following new sub21 section:

22 ‘‘(g) LIMITATION ON APPLICATION.—This section

23 shall not apply to distributions during years beginning

24 after December 31, 1995, and before January 1, 1999,

25 and such distributions shall be treated as made first from

26 amounts not described in subsection (f).’’.
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1 (c) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 415(a) is amend3 ed—

4 (A) by adding ‘‘or’’ at the end of subpara5 graph (A),

6 (B) by striking ‘‘, or’’ at the end of sub7 paragraph (B) and inserting a period, and

8 (C) by striking subparagraph (C).

9 (2) Subparagraph (B) of section 415(b)(5) is

10 amended by striking ‘‘and subsection (e)’’.

11 (3) Paragraph (1) of section 415(f) is amended

12 by striking ‘‘subsections (b), (c), and (e)’’ and in13 serting ‘‘subsections (b) and (c)’’.

14 (4) Subsection (g) of section 415 is amended by

15 striking ‘‘subsections (e) and (f)’’ in the last sen16 tence and inserting ‘‘subsection (f)’’.

17 (5) Clause (i) of section 415(k)(2)(A) is amend18 ed to read as follows:

19 ‘‘(i) any contribution made directly by

20 an employee under such an arrangement

21 shall not be treated as an annual addition

22 for purposes of subsection (c), and’’.

23 (6) Clause (ii) of section 415(k)(2)(A) is

24 amended by striking ‘‘subsections (c) and (e)’’ and

25 inserting ‘‘subsection (c)’’.
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1 (7) Section 416 is amended by striking sub2 section (h).

3 (d) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply to limitation years beginning after De7 cember 31, 1998.

8 (2) EXCESS DISTRIBUTIONS.—The amendment

9 made by subsection (b) shall apply to years begin10 ning after December 31, 1995.

11 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

12 (a) IN GENERAL.—Section 4975(a) is amended by

13 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

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

15 this section shall apply to prohibited transactions occur16 ring after the date of the enactment of this Act.

17 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

18 (a) GENERAL RULE.—Subparagraph (C) of section

19 414(n)(2) (defining leased employee) is amended to read

20 as follows:

21 ‘‘(C) such services are performed under

22 primary direction or control by the recipient.’’.

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

24 subsection (a) shall apply to years beginning after Decem25 ber 31, 1996, but shall not apply to any relationship deter-
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1 mined under an Internal Revenue Service ruling issued be2 fore the date of the enactment of this Act pursuant to

3 section 414(n)(2)(C) of the Internal Revenue Code of

4 1986 (as in effect on the day before such date) not to

5 involve a leased employee.

6 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

7 CERTAIN PENSION REPORTING REQUIRE8 MENTS.

9 (a) PENALTIES.—

10 (1) STATEMENTS.—Paragraph (1) of section

11 6724(d) is amended by striking ‘‘and’’ at the end of

12 subparagraph (A), by striking the period at the end

13 of subparagraph (B) and inserting ‘‘, and’’, and by

14 inserting after subparagraph (B) the following new

15 subparagraph:

16 ‘‘(C) any statement of the amount of pay17 ments to another person required to be made to

18 the Secretary under—

19 ‘‘(i) section 408(i) (relating to reports

20 with respect to individual retirement ac21 counts or annuities), or

22 ‘‘(ii) section 6047(d) (relating to re23 ports by employers, plan administrators,

24 etc.).’’.
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1 (2) REPORTS.—Paragraph (2) of section

2 6724(d), as amended by section 1116, is amended

3 by striking ‘‘or’’ at the end of subparagraph (T), by

4 striking the period at the end of subparagraph (U)

5 and inserting a comma, and by inserting after sub6 paragraph (U) the following new subparagraphs:

7 ‘‘(V) section 408(i) (relating to reports

8 with respect to individual retirement plans) to

9 any person other than the Secretary with re10 spect to the amount of payments made to such

11 person, or

12 ‘‘(W) section 6047(d) (relating to reports

13 by plan administrators) to any person other

14 than the Secretary with respect to the amount

15 of payments made to such person.’’.

16 (b) MODIFICATION OF REPORTABLE DESIGNATED

17 DISTRIBUTIONS.—

18 (1) SECTION 408.—Subsection (i) of section 408

19 (relating to individual retirement account reports) is

20 amended by inserting ‘‘aggregating $10 or more in

21 any calendar year’’ after ‘‘distributions’’.

22 (2) SECTION 6047.—Paragraph (1) of section

23 6047(d) (relating to reports by employers, plan ad24 ministrators, etc.) is amended by adding at the end

25 the following new sentence: ‘‘No return or report
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1 may be required under the preceding sentence with

2 respect to distributions to any person during any

3 year unless such distributions aggregate $10 or

4 more.’’.

5 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec6 tion 6652(i) is amended—

7 (1) by striking ‘‘the $10’’ and inserting

8 ‘‘$100’’, and

9 (2) by striking ‘‘$5,000’’ and inserting

10 ‘‘$50,000’’.

11 (d) CONFORMING AMENDMENTS.—

12 (1) Paragraph (1) of section 6047(f) is amend13 ed to read as follows:

‘‘(1) For provisions relating to penalties for failures to file returns and reports required under this

section, see sections 6652(e), 6721, and 6722.’’.

14 (2) Subsection (e) of section 6652 is amended

15 by adding at the end the following new sentence:

16 ‘‘This subsection shall not apply to any return or

17 statement which is an information return described

18 in section 6724(d)(1)(C)(ii) or a payee statement de19 scribed in section 6724(d)(2)(W).’’.

20 (3) Subsection (a) of section 6693 is amended

21 by adding at the end the following new sentence:

22 ‘‘This subsection shall not apply to any report which

23 is an information return described in section
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1 6724(d)(1)(C)(i) or a payee statement described in

2 section 6724(d)(2)(V).’’.

3 (e) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to returns, reports, and other

5 statements the due date for which (determined without re6 gard to extensions) is after December 31, 1996.

7 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB8 JECT TO TAX ON NET EARNINGS FROM SELF9 EMPLOYMENT.

10 (a) IN GENERAL.—Section 1402(a)(8) (defining net

11 earning from self-employment) is amended by inserting ‘‘,

12 but shall not include in such net earnings from self-em13 ployment the rental value of any parsonage (whether or

14 not excludable under section 107) provided after the indi15 vidual retires, or any other retirement benefit received by

16 such individual from a church plan (as defined in section

17 414(e)) after the individual retires’’ before the semicolon

18 at the end.

19 (b) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to years beginning before, on, or

21 after December 31, 1994.

22 SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

23 If any amendment made by this subtitle requires an

24 amendment to any plan or annuity contract, such amend25 ment shall not be required to be made before the first day
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1 of the first plan year beginning on or after January 1,

2 1997, if—

3 (1) during the period after such amendment

4 takes effect and before such first plan year, the plan

5 or contract is operated in accordance with the re6 quirements of such amendment, and

7 (2) such amendment applies retroactively to

8 such period.

9 In the case of a governmental plan (as defined in section

10 414(d) of the Internal Revenue Code of 1986), this section

11 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.

12 Subtitle E—Foreign Simplification

13 SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS

14 INVESTED IN EXCESS PASSIVE ASSETS.

15 (a) IN GENERAL.—

16 (1) REPEAL OF INCLUSION.—Paragraph (1) of

17 section 951(a) (relating to amounts included in

18 gross income of United States shareholders) is

19 amended by striking subparagraph (C), by striking

20 ‘‘; and’’ at the end of subparagraph (B) and insert21 ing a period, and by adding ‘‘and’’ at the end of

22 subparagraph (A).

23 (2) REPEAL OF INCLUSION AMOUNT.—Section

24 956A (relating to earnings invested in excess passive

25 assets) is repealed.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (1) of section 956(b) is amended

3 to read as follows:

4 ‘‘(1) APPLICABLE EARNINGS.—For purposes of

5 this section, the term ‘applicable earnings’ means,

6 with respect to any controlled foreign corporation,

7 the sum of—

8 ‘‘(A) the amount (not including a deficit)

9 referred to in section 316(a)(1), and

10 ‘‘(B) the amount referred to in section

11 316(a)(2),

12 but reduced by distributions made during the tax13 able year.’’.

14 (2) Paragraph (3) of section 956(b) is amended

15 to read as follows:

16 ‘‘(3) SPECIAL RULE WHERE CORPORATION

17 CEASES TO BE CONTROLLED FOREIGN CORPORA18 TION.—If any foreign corporation ceases to be a

19 controlled foreign corporation during any taxable

20 year—

21 ‘‘(A) the determination of any United

22 States shareholder’s pro rata share shall be

23 made on the basis of stock owned (within the

24 meaning of section 958(a)) by such shareholder

25 on the last day during the taxable year on
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1 which the foreign corporation is a controlled

2 foreign corporation,

3 ‘‘(B) the average referred to in subsection

4 (a)(1)(A) for such taxable year shall be deter5 mined by only taking into account quarters end6 ing on or before such last day, and

7 ‘‘(C) in determining applicable earnings,

8 the amount taken into account by reason of

9 being described in paragraph (2) of section

10 316(a) shall be the portion of the amount so

11 described which is allocable (on a pro rata

12 basis) to the part of such year during which the

13 corporation is a controlled foreign corpora14 tion.’’.

15 (3) Subsection (a) of section 959 (relating to

16 exclusion from gross income of previously taxed

17 earnings and profits) is amended by adding ‘‘or’’ at

18 the end of paragraph (1), by striking ‘‘or’’ at the

19 end of paragraph (2), and by striking paragraph (3).

20 (4) Subsection (a) of section 959 is amended by

21 striking ‘‘paragraphs (2) and (3)’’ in the last sen22 tence and inserting ‘‘paragraph (2)’’.

23 (5) Subsection (c) of section 959 is amended by

24 adding at the end the following flush sentence:
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1 ‘‘References in this subsection to section 951(a)(1)(C) and

2 subsection (a)(3) shall be treated as references to such

3 provisions as in effect on the day before the date of the

4 enactment of the Small Business Job Protection Act of

5 1996.’’.

6 (6) Paragraph (1) of section 959(f) is amended

7 to read as follows:

8 ‘‘(1) IN GENERAL.—For purposes of this sec9 tion, amounts that would be included under subpara10 graph (B) of section 951(a)(1) (determined without

11 regard to this section) shall be treated as attrib12 utable first to earnings described in subsection

13 (c)(2), and then to earnings described in subsection

14 (c)(3).’’.

15 (7) Paragraph (2) of section 959(f) is amended

16 by striking ‘‘subparagraphs (B) and (C) of section

17 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

18 (8) Subsection (b) of section 989 is amended by

19 striking ‘‘subparagraph (B) or (C) of section

20 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.

21 (9) Paragraph (9) of section 1297(b) is amend22 ed by striking ‘‘subparagraph (B) or (C) of section

23 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
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1 (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of

2 section 1297 are each amended by striking ‘‘or sec3 tion 956A’’.

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

5 for subpart F of part III of subchapter N of chapter 1

6 is amended by striking the item relating to section 956A.

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

8 this section shall apply to taxable years of foreign corpora9 tions beginning after December 31, 1996, and to taxable

10 years of United States shareholders within which or with

11 which such taxable years of foreign corporations end.

12 Subtitle F—Revenue Offsets

13 SEC. 1601. TERMINATION OF PUERTO RICO AND POSSES14 SION TAX CREDIT.

15 (a) IN GENERAL.—Section 936 is amended by adding

16 at the end the following new subsection:

17 ‘‘(j) TERMINATION.—

18 ‘‘(1) IN GENERAL.—Except as otherwise pro19 vided in this subsection, this section shall not apply

20 to any taxable year beginning after December 31,

21 1995.

22 ‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS

23 INCOME CREDIT.—Except as provided in paragraph

24 (3)—
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1 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

2 case of an existing credit claimant—

3 ‘‘(i) with respect to a possession other

4 than Puerto Rico, and

5 ‘‘(ii) to which subsection (a)(4)(B)

6 does not apply,

7 the credit determined under subsection

8 (a)(1)(A) shall be allowed for taxable years be9 ginning after December 31, 1995, and before

10 January 1, 2002.

11 ‘‘(B) SPECIAL RULE FOR REDUCED CRED12 IT.—

13 ‘‘(i) IN GENERAL.—In the case of an

14 existing credit claimant to which sub15 section (a)(4)(B) applies, the credit deter16 mined under subsection (a)(1)(A) shall be

17 allowed for taxable years beginning after

18 December 31, 1995, and before January 1,

19 1998.

20 ‘‘(ii) ELECTION IRREVOCABLE AFTER

21 1997.—An election under subsection

22 (a)(4)(B)(iii) which is in effect for the tax23 payer’s last taxable year beginning before

24 1997 may not be revoked unless it is re25 voked for the taxpayer’s first taxable year
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1 beginning in 1997 and all subsequent tax2 able years.

3 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

4 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

5 ‘‘(3) ADDITIONAL RESTRICTED CREDIT.—

6 ‘‘(A) IN GENERAL.—In the case of an ex7 isting credit claimant—

8 ‘‘(i) the credit under subsection

9 (a)(1)(A) shall be allowed for the period

10 beginning with the first taxable year after

11 the last taxable year to which subpara12 graph (A) or (B) of paragraph (2), which13 ever is appropriate, applied and ending

14 with the last taxable year beginning before

15 January 1, 2006, except that

16 ‘‘(ii) the aggregate amount of taxable

17 income taken into account under sub18 section (a)(1)(A) for any such taxable year

19 shall not exceed the adjusted base period

20 income of such claimant.

21 ‘‘(B) COORDINATION WITH SUBSECTION

22 (a)(4).—The amount of income described in sub23 section (a)(1)(A) which is taken into account in
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1 applying subsection (a)(4) shall be such income

2 as reduced under this paragraph.

3 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

4 purposes of paragraph (3)—

5 ‘‘(A) IN GENERAL.—The term ‘adjusted

6 base period income’ means the average of the

7 inflation-adjusted possession incomes of the cor8 poration for each base period year.

9 ‘‘(B) INFLATION-ADJUSTED POSSESSION

10 INCOME.—For purposes of subparagraph (A),

11 the inflation-adjusted possession income of any

12 corporation for any base period year shall be an

13 amount equal to the sum of—

14 ‘‘(i) the possession income of such

15 corporation for such base period year, plus

16 ‘‘(ii) such possession income multi17 plied by the inflation adjustment percent18 age for such base period year.

19 ‘‘(C) INFLATION ADJUSTMENT PERCENT20 AGE.—For purposes of subparagraph (B), the

21 inflation adjustment percentage for any base

22 period year means the percentage (if any) by

23 which—

24 ‘‘(i) the CPI for 1995, exceeds
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1 ‘‘(ii) the CPI for the calendar year in

2 which the base period year for which the

3 determination is being made ends.

4 For purposes of the preceding sentence, the

5 CPI for any calendar year is the CPI (as de6 fined in section 1(f)(5)) for such year under

7 section 1(f)(4).

8 ‘‘(D) INCREASE IN INFLATION ADJUST9 MENT PERCENTAGE FOR GROWTH DURING BASE

10 YEARS.—The inflation adjustment percentage

11 (determined under subparagraph (C) without

12 regard to this subparagraph) for each of the 5

13 taxable years referred to in paragraph (5)(A)

14 shall be increased by—

15 ‘‘(i) 5 percentage points in the case of

16 a taxable year ending during the 1-year pe17 riod ending on October 13, 1995;

18 ‘‘(ii) 10.25 percentage points in the

19 case of a taxable year ending during the 1-

20 year period ending on October 13, 1994;

21 ‘‘(iii) 15.76 percentage points in the

22 case of a taxable year ending during the 1-

23 year period ending on October 13, 1993;

24 ‘‘(iv) 21.55 percentage points in the

25 case of a taxable year ending during the 1-
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1 year period ending on October 13, 1992;

2 and

3 ‘‘(v) 27.63 percentage points in the

4 case of a taxable year ending during the 1-

5 year period ending on October 13, 1991.

6 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

7 subsection—

8 ‘‘(A) IN GENERAL.—The term ‘base period

9 year’ means each of 3 taxable years which are

10 among the 5 most recent taxable years of the

11 corporation ending before October 14, 1995, de12 termined by disregarding—

13 ‘‘(i) one taxable year for which the

14 corporation had the largest inflation-ad15 justed possession income, and

16 ‘‘(ii) one taxable year for which the

17 corporation had the smallest inflation-ad18 justed possession income.

19 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI20 CANT POSSESSION INCOME THROUGHOUT 5-

21 YEAR PERIOD.—

22 ‘‘(i) IN GENERAL.—If a corporation

23 does not have significant possession income

24 for each of the most recent 5 taxable years

25 ending before October 14, 1995, then, in
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1 lieu of applying subparagraph (A), the

2 term ‘base period year’ means only those

3 taxable years (of such 5 taxable years) for

4 which the corporation has significant pos5 session income; except that, if such cor6 poration has significant possession income

7 for 4 of such 5 taxable years, the rule of

8 subparagraph (A)(ii) shall apply.

9 ‘‘(ii) SPECIAL RULE.—If there is no

10 year (of such 5 taxable years) for which a

11 corporation has significant possession in12 come—

13 ‘‘(I) the term ‘base period year’

14 means the first taxable year ending on

15 or after October 14, 1995, but

16 ‘‘(II) the amount of possession

17 income for such year which is taken

18 into account under paragraph (4)

19 shall be the amount which would be

20 determined if such year were a short

21 taxable year ending on September 30,

22 1995.

23 ‘‘(iii) SIGNIFICANT POSSESSION IN24 COME.—For purposes of this subpara25 graph, the term ‘significant possession in-
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1 come’ means possession income which ex2 ceeds 2 percent of the possession income of

3 the taxpayer for the taxable year (of the

4 period of 6 taxable years ending with the

5 first taxable year ending on or after Octo6 ber 14, 1995) having the greatest posses7 sion income.

8 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

9 YEAR.—

10 ‘‘(i) IN GENERAL.—At the election of

11 the taxpayer, the term ‘base period year’

12 means—

13 ‘‘(I) only the last taxable year of

14 the corporation ending in calendar

15 year 1992, or

16 ‘‘(II) a deemed taxable year

17 which includes the first ten months of

18 calendar year 1995.

19 ‘‘(ii) BASE PERIOD INCOME FOR

20 1995.—In determining the adjusted base

21 period income of the corporation for the

22 deemed taxable year under clause (i)(II),

23 the possession income shall be annualized

24 and shall be determined without regard to

25 any extraordinary item.
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1 ‘‘(iii) ELECTION.—An election under

2 this subparagraph by any possession cor3 poration may be made only for the cor4 poration’s first taxable year beginning

5 after December 31, 1995, for which it is a

6 possession corporation. The rules of sub7 clauses (II) and (III) of subsection

8 (a)(4)(B)(iii) shall apply to the election

9 under this subparagraph.

10 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

11 Rules similar to the rules of subparagraphs (A)

12 and (B) of section 41(f)(3) shall apply for pur13 poses of this subsection.

14 ‘‘(6) POSSESSION INCOME.—For purposes of

15 this subsection, the term ‘possession income’ means,

16 with respect to any possession, the income referred

17 to in subsection (a)(1)(A) determined with respect to

18 that possession. In no event shall possession income

19 be treated as being less than zero.

20 ‘‘(7) SHORT YEARS.—If the current year or a

21 base period year is a short taxable year, the applica22 tion of this subsection shall be made with such

23 annualizations as the Secretary shall prescribe.

24 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES25 SIONS.—
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1 ‘‘(A) IN GENERAL.—In the case of an ex2 isting credit claimant with respect to an appli3 cable possession, this section (other than the

4 preceding paragraphs of this subsection) shall

5 apply to such claimant with respect to such ap6 plicable possession for taxable years beginning

7 after December 31, 1995, and before January

8 1, 2006.

9 ‘‘(B) APPLICABLE POSSESSION.—For pur10 poses of this paragraph, the term ‘applicable

11 possession’ means Guam, American Samoa, and

12 the Commonwealth of the Northern Mariana Is13 lands.

14 ‘‘(9) EXISTING CREDIT CLAIMANT.—For pur15 poses of this subsection—

16 ‘‘(A) IN GENERAL.—The term ‘existing

17 credit claimant’ means a corporation—

18 ‘‘(i) which was actively conducting a

19 trade or business in a possession on Octo20 ber 13, 1995, and

21 ‘‘(ii) with respect to which an election

22 under this section is in effect for the cor23 poration’s taxable year which includes Oc24 tober 13, 1995.
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1 ‘‘(B) NEW LINES OF BUSINESS PROHIB2 ITED.—If, after October 13, 1995, a corpora3 tion which would (but for this subparagraph) be

4 an existing credit claimant adds a substantial

5 new line of business, such corporation shall

6 cease to be treated as an existing credit claim7 ant as of the close of the taxable year ending

8 before the date of such addition.

9 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

10 on October 13, 1995, and at all times there11 after, there is in effect with respect to a cor12 poration a binding contract for the acquisition

13 of assets to be used in, or for the sale of assets

14 to be produced from, a trade or business, the

15 corporation shall be treated for purposes of this

16 paragraph as actively conducting such trade or

17 business on October 13, 1995. The preceding

18 sentence shall not apply if such trade or busi19 ness is not actively conducted before January 1,

20 1996.

21 ‘‘(10) SEPARATE APPLICATION TO EACH POS22 SESSION.—For purposes of determining—

23 ‘‘(A) whether a taxpayer is an existing

24 credit claimant, and
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1 ‘‘(B) the amount of the credit allowed

2 under this section,

3 this subsection (and so much of this section as re4 lates to this subsection) shall be applied separately

5 with respect to each possession.’’.

6 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO

7 RICO.—

8 (1) IN GENERAL.—Subpart B of part IV of

9 subchapter A of chapter 1 is amended by adding at

10 the end the following new section:

11 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

12 ‘‘(a) ALLOWANCE OF CREDIT.—

13 ‘‘(1) IN GENERAL.—Except as otherwise pro14 vided in this section, if the conditions of both para15 graph (1) and paragraph (2) of subsection (b) are

16 satisfied with respect to a qualified domestic cor17 poration, there shall be allowed as a credit against

18 the tax imposed by this chapter an amount equal to

19 the portion of the tax which is attributable to the

20 taxable income, from sources without the United

21 States, from—

22 ‘‘(A) the active conduct of a trade or busi23 ness within Puerto Rico, or
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1 ‘‘(B) the sale or exchange of substantially

2 all of the assets used by the taxpayer in the ac3 tive conduct of such trade or business.

4 In the case of any taxable year beginning after De5 cember 31, 2001, the aggregate amount of taxable

6 income taken into account under the preceding sen7 tence (and in applying subsection (d)) shall not ex8 ceed the adjusted base period income of such cor9 poration, as determined in the same manner as

10 under section 936(j).

11 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—

12 For purposes of paragraph (1), the term ‘qualified

13 domestic corporation’ means a domestic corpora14 tion—

15 ‘‘(A) which is an existing credit claimant

16 with respect to Puerto Rico, and

17 ‘‘(B) with respect to which section

18 936(a)(4)(B) does not apply for the taxable

19 year.

20 ‘‘(3) SEPARATE APPLICATION.—For purposes of

21 determining—

22 ‘‘(A) whether a taxpayer is an existing

23 credit claimant with respect to Puerto Rico, and

24 ‘‘(B) the amount of the credit allowed

25 under this section,
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1 this section (and so much of section 936 as relates

2 to this section) shall be applied separately with re3 spect to Puerto Rico.

4 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—

5 The conditions referred to in subsection (a) are—

6 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

7 the gross income of the qualified domestic corpora8 tion for the 3-year period immediately preceding the

9 close of the taxable year (or for such part of such

10 period immediately preceding the close of such tax11 able year as may be applicable) was derived from

12 sources within a possession (determined without re13 gard to section 904(f)).

14 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

15 more of the gross income of the qualified domestic

16 corporation for such period or such part thereof was

17 derived from the active conduct of a trade or busi18 ness within a possession.

19 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

20 TAXES.—The credit provided by subsection (a) shall not

21 be allowed against the tax imposed by—

22 ‘‘(1) section 59A (relating to environmental

23 tax),

24 ‘‘(2) section 531 (relating to the tax on accu25 mulated earnings),
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1 ‘‘(3) section 541 (relating to personal holding

2 company tax), or

3 ‘‘(4) section 1351 (relating to recoveries of for4 eign expropriation losses).

5 ‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSI6 NESS INCOME.—The amount of the credit determined

7 under subsection (a) for any taxable year shall not exceed

8 the sum of the following amounts:

9 ‘‘(1) 60 percent of the sum of—

10 ‘‘(A) the aggregate amount of the qualified

11 domestic corporation’s qualified possession

12 wages for such taxable year, plus

13 ‘‘(B) the allocable employee fringe benefit

14 expenses of the qualified domestic corporation

15 for such taxable year.

16 ‘‘(2) The sum of—

17 ‘‘(A) 15 percent of the deprecation allow18 ances for the taxable year with respect to short19 life qualified tangible property,

20 ‘‘(B) 40 percent of the depreciation allow21 ances for the taxable year with respect to me22 dium-life qualified tangible property, and

23 ‘‘(C) 65 percent of the depreciation allow24 ances for the taxable year with respect to long25 life qualified tangible property.
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1 ‘‘(3) If the qualified domestic corporation does

2 not have an election to use the method described in

3 section 936(h)(5)(C)(ii) (relating to profit split) in

4 effect for the taxable year, the amount of the quali5 fied possession income taxes for the taxable year al6 locable to nonsheltered income.

7 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

8 this title—

9 ‘‘(1) the provisions of section 936 (including

10 any applicable election thereunder) shall apply in the

11 same manner as if the credit under this section were

12 a credit under section 936(a)(1)(A) for a domestic

13 corporation to which section 936(a)(4)(A) applies,

14 ‘‘(2) the credit under this section shall be treat15 ed in the same manner as the credit under section

16 936, and

17 ‘‘(3) a corporation to which this section applies

18 shall be treated in the same manner as if it were a

19 corporation electing the application of section 936.

20 ‘‘(f) DEFINITIONS.—For purposes of this section, any

21 term used in this section which is also used in section 936

22 shall have the same meaning given such term by section

23 936.
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1 ‘‘(g) APPLICATION OF SECTION.—This section shall

2 apply to taxable years beginning after December 31, 1995,

3 and before January 1, 2006.’’.

4 (2) CONFORMING AMENDMENTS.—

5 (A) Paragraph (1) of section 55(c) is

6 amended by striking ‘‘and the section 936 cred7 it allowable under section 27(b)’’ and inserting

8 ‘‘, the section 936 credit allowable under section

9 27(b), and the Puerto Rican economic activity

10 credit under section 30A’’.

11 (B) Subclause (I) of section 56(g)(4)(C)(ii)

12 is amended—

13 (i) by inserting ‘‘30A,’’ before ‘‘936’’,

14 and

15 (ii) by striking ‘‘and (i)’’ and inserting

16 ‘‘, (i), and (j)’’.

17 (C) Clause (iii) of section 56(g)(4)(C) is

18 amended by adding at the end the following

19 new subclause:

20 ‘‘(VI) APPLICATION TO SECTION

21 30A CORPORATIONS.—References in

22 this clause to section 936 shall be

23 treated as including references to sec24 tion 30A.’’.
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1 (D) Subsection (b) of section 59 is amend2 ed by striking ‘‘section 936,’’ and all that fol3 lows and inserting ‘‘section 30A or 936, alter4 native minimum taxable income shall not in5 clude any income with respect to which a credit

6 is determined under section 30A or 936.’’.

7 (E) The table of sections for subpart B of

8 part IV of subchapter A of chapter 1 is amend9 ed by adding at the end the following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’.

10 (F)(i) The heading for subpart B of part

11 IV of subchapter A of chapter 1 is amended to

12 read as follows:

13 ‘‘Subpart B—Other Credits’’.

14 (ii) The table of subparts for part IV of

15 subchapter A of chapter 1 is amended by strik16 ing the item relating to subpart B and inserting

17 the following new item:

‘‘Subpart B. Other credits.’’.

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

19 this section shall apply to taxable years beginning after

20 December 31, 1995.
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1 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

2 LOANS USED TO ACQUIRE EMPLOYER SECU3 RITIES.

4 (a) IN GENERAL.—Section 133 (relating to interest

5 on certain loans used to acquire employer securities) is

6 hereby repealed.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subparagraph (B) of section 291(e)(1) is

9 amended by striking clause (iv) and by redesignating

10 clause (v) as clause (iv).

11 (2) Section 812 is amended by striking sub12 section (g).

13 (3) Paragraph (5) of section 852(b) is amended

14 by striking subparagraph (C).

15 (4) Paragraph (2) of section 4978(b) is amend16 ed by striking subparagraph (A) and all that follows

17 and inserting the following:

18 ‘‘(A) first from qualified securities to

19 which section 1042 applied acquired during the

20 3-year period ending on the date of the disposi21 tion, beginning with the securities first so ac22 quired, and

23 ‘‘(B) then from any other employer securi24 ties.

25 If subsection (d) applies to a disposition, the disposi26 tion shall be treated as made from employer securi-
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1 ties in the opposite order of the preceding sen2 tence.’’.

3 (5)(A) Section 4978B (relating to tax on dis4 position of employer securities to which section 133

5 applied) is hereby repealed.

6 (B) The table of sections for chapter 43 is

7 amended by striking the item relating to section

8 4978B.

9 (6) Subsection (e) of section 6047 is amended

10 by striking paragraphs (1), (2), and (3) and insert11 ing the following new paragraphs:

12 ‘‘(1) any employer maintaining, or the plan ad13 ministrator (within the meaning of section 414(g))

14 of, an employee stock ownership plan which holds

15 stock with respect to which section 404(k) applies to

16 dividends paid on such stock, or

17 ‘‘(2) both such employer or plan adminis18 trator,’’.

19 (7) Subsection (f) of section 7872 is amended

20 by striking paragraph (12).

21 (8) The table of sections for part III of sub22 chapter B of chapter 1 is amended by striking the

23 item relating to section 133.

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

2 this section shall apply to loans made after October

3 13, 1995.

4 (2) REFINANCINGS.—The amendments made by

5 this section shall not apply to loans made after Octo6 ber 13, 1995, to refinance securities acquisition

7 loans (determined without regard to section

8 133(b)(1)(B) of the Internal Revenue Code of 1986,

9 as in effect on the day before the date of the enact10 ment of this Act) made on or before such date or

11 to refinance loans described in this paragraph if—

12 (A) the refinancing loans meet the require13 ments of section 133 of such Code (as so in ef14 fect),

15 (B) immediately after the refinancing the

16 principal amount of the loan resulting from the

17 refinancing does not exceed the principal

18 amount of the refinanced loan (immediately be19 fore the refinancing), and

20 (C) the term of such refinancing loan does

21 not extend beyond the last day of the term of

22 the original securities acquisition loan.

23 For purposes of this paragraph, the term ‘‘securities

24 acquisition loan’’ includes a loan from a corporation
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1 to an employee stock ownership plan described in

2 section 133(b)(3) of such Code (as so in effect).

3 (3) EXCEPTION.—Any loan made pursuant to a

4 binding written contract in effect on October 13,

5 1995, and at all times thereafter before such loan is

6 made, shall be treated for purposes of paragraphs

7 (1) and (2) as a loan made before such date.

8 SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN

9 CORPORATIONS TREATED AS UNRELATED

10 BUSINESS TAXABLE INCOME.

11 (a) GENERAL RULE.—Subsection (b) of section 512

12 (relating to modifications) is amended by adding at the

13 end the following new paragraph:

14 ‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE15 RIVED FROM FOREIGN CORPORATIONS.—

16 ‘‘(A) IN GENERAL.—Notwithstanding para17 graph (1), any amount included in gross income

18 under section 951(a)(1)(A) shall be included as

19 an item of gross income derived from an unre20 lated trade or business to the extent the

21 amount so included is attributable to insurance

22 income (as defined in section 953) which, if de23 rived directly by the organization, would be

24 treated as gross income from an unrelated

25 trade or business. There shall be allowed all de-
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1 ductions directly connected with amounts in2 cluded in gross income under the preceding sen3 tence.

4 ‘‘(B) EXCEPTION.—Subparagraph (A)

5 shall not apply to income attributable to a pol6 icy of insurance or reinsurance with respect to

7 which the person (directly or indirectly) insured

8 is—

9 ‘‘(i) such organization,

10 ‘‘(ii) an affiliate of such organization

11 which is exempt from tax under section

12 501(a), or

13 ‘‘(iii) a director or officer of, or an in14 dividual who (directly or indirectly) per15 forms services for, such organization or af16 filiate but only if the insurance covers pri17 marily risks associated with the perform18 ance of services in connection with such or19 ganization or affiliate.

20 For purposes of this subparagraph, the deter21 mination as to whether an entity is an affiliate

22 of an organization shall be made under rules

23 similar to the rules of section 168(h)(4)(B).

24 ‘‘(C) REGULATIONS.—The Secretary shall

25 prescribe such regulations as may be necessary
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1 or appropriate to carry out the purposes of this

2 paragraph, including regulations for the appli3 cation of this paragraph in the case of income

4 paid through 1 or more entities or between 2 or

5 more chains of entities.’’.

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

7 this section shall apply to amounts included in gross in8 come in any taxable year beginning after December 31,

9 1995.

10 SEC. 1604. DEPRECIATION UNDER INCOME FORECAST

11 METHOD.

12 (a) GENERAL RULE.—Section 167 (relating to depre13 ciation) is amended by redesignating subsection (g) as

14 subsection (h) and by inserting after subsection (f) the

15 following new subsection:

16 ‘‘(g) DEPRECIATION UNDER INCOME FORECAST

17 METHOD.—

18 ‘‘(1) IN GENERAL.—If the depreciation deduc19 tion allowable under this section to any taxpayer

20 with respect to any property is determined under the

21 income forecast method or any similar method—

22 ‘‘(A) the income from the property to be

23 taken into account in determining the deprecia24 tion deduction under such method shall be

25 equal to the amount of income earned in con-
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1 nection with the property before the close of the

2 10th taxable year following the taxable year in

3 which the property was placed in service,

4 ‘‘(B) the adjusted basis of the property

5 shall only include amounts with respect to

6 which the requirements of section 461(h) are

7 satisfied,

8 ‘‘(C) the depreciation deduction under such

9 method for the 10th taxable year beginning

10 after the taxable year in which the property was

11 placed in service shall be equal to the adjusted

12 basis of such property as of the beginning of

13 such 10th taxable year, and

14 ‘‘(D) such taxpayer shall pay (or be enti15 tled to receive) interest computed under the

16 look-back method of paragraph (2) for any re17 computation year.

18 ‘‘(2) LOOK-BACK METHOD.—The interest com19 puted under the look-back method of this paragraph

20 for any recomputation year shall be determined by—

21 ‘‘(A) first determining the depreciation de22 ductions under this section with respect to such

23 property which would have been allowable for

24 prior taxable years if the determination of the

25 amounts so allowable had been made on the
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1 basis of the sum of the following (instead of the

2 estimated income from such property)—

3 ‘‘(i) the actual income earned in con4 nection with such property for periods be5 fore the close of the recomputation year,

6 and

7 ‘‘(ii) an estimate of the future income

8 to be earned in connection with such prop9 erty for periods after the recomputation

10 year and before the close of the 10th tax11 able year following the taxable year in

12 which the property was placed in service,

13 ‘‘(B) second, determining (solely for pur14 poses of computing such interest) the overpay15 ment or underpayment of tax for each such

16 prior taxable year which would result solely

17 from the application of subparagraph (A), and

18 ‘‘(C) then using the adjusted overpayment

19 rate (as defined in section 460(b)(7)),

20 compounded daily, on the overpayment or

21 underpayment determined under subparagraph

22 (B).

23 For purposes of the preceding sentence, any cost in24 curred after the property is placed in service (which

25 is not treated as a separate property under para-
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1 graph (5)) shall be taken into account by discount2 ing (using the Federal mid-term rate determined

3 under section 1274(d) as of the time such cost is in4 curred) such cost to its value as of the date the

5 property is placed in service. The taxpayer may elect

6 with respect to any property to have the preceding

7 sentence not apply to such property.

8 ‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—

9 Paragraph (1)(D) shall not apply with respect to

10 any property which, when placed in service by the

11 taxpayer, had a basis of $100,000 or less.

12 ‘‘(4) RECOMPUTATION YEAR.—For purposes of

13 this subsection, except as provided in regulations,

14 the term ‘recomputation year’ means, with respect to

15 any property, the 3d and the 10th taxable years be16 ginning after the taxable year in which the property

17 was placed in service, unless the actual income

18 earned in connection with the property for the pe19 riod before the close of such 3d or 10th taxable year

20 is within 10 percent of the income earned in connec21 tion with the property for such period which was

22 taken into account under paragraph (1)(A).

23 ‘‘(5) SPECIAL RULES.—

24 ‘‘(A) CERTAIN COSTS TREATED AS SEPA25 RATE PROPERTY.—For purposes of this sub-
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1 section, the following costs shall be treated as

2 separate properties:

3 ‘‘(i) Any costs incurred with respect

4 to any property after the 10th taxable year

5 beginning after the taxable year in which

6 the property was placed in service.

7 ‘‘(ii) Any costs incurred after the

8 property is placed in service and before the

9 close of such 10th taxable year if such

10 costs are significant and give rise to a sig11 nificant increase in the income from the

12 property which was not included in the es13 timated income from the property.

14 ‘‘(B) SYNDICATION INCOME FROM TELE15 VISION SERIES.—In the case of property which

16 is an episode in a television series, income from

17 syndicating such series shall not be required to

18 be taken into account under this subsection be19 fore the earlier of—

20 ‘‘(i) the 4th taxable year beginning

21 after the date the first episode in such se22 ries is placed in service, or

23 ‘‘(ii) the earliest taxable year in which

24 the taxpayer has an arrangement relating

25 to the future syndication of such series.
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1 ‘‘(C) SPECIAL RULES FOR FINANCIAL EX2 PLOITATION OF CHARACTERS, ETC.—For pur3 poses of this subsection, in the case of television

4 and motion picture films, the income from the

5 property shall include income from the exploi6 tation of characters, designs, scripts, scores,

7 and other incidental income associated with

8 such films, but only to the extent that such in9 come is earned in connection with the ultimate

10 use of such items by, or the ultimate sale of

11 merchandise to, persons who are not related

12 persons (within the meaning of section 267(b))

13 to the taxpayer.

14 ‘‘(D) COLLECTION OF INTEREST.—For

15 purposes of subtitle F (other than sections

16 6654 and 6655), any interest required to be

17 paid by the taxpayer under paragraph (1) for

18 any recomputation year shall be treated as an

19 increase in the tax imposed by this chapter for

20 such year.

21 ‘‘(E) DETERMINATIONS.—For purposes of

22 paragraph (2), determinations of the amount of

23 income earned in connection with any property

24 shall be made in the same manner as for pur25 poses of applying the income forecast method;
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1 except that any income from the disposition of

2 such property shall be taken into account.

3 ‘‘(F) TREATMENT OF PASS-THRU ENTI4 TIES.—Rules similar to the rules of section

5 460(b)(4) shall apply for purposes of this sub6 section.’’.

7 (b) EFFECTIVE DATE.—

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

9 subsection (a) shall apply to property placed in serv10 ice after September 13, 1995.

11 (2) BINDING CONTRACTS.—The amendment

12 made by subsection (a) shall not apply to any prop13 erty produced or acquired by the taxpayer pursuant

14 to a written contract which was binding on Septem15 ber 13, 1995, and at all times thereafter before such

16 production or acquisition.

17 SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES

18 AND FOR DAMAGES NOT ATTRIBUTABLE TO

19 PHYSICAL INJURIES OR SICKNESS.

20 (a) IN GENERAL.—Paragraph (2) of section 104(a)

21 (relating to compensation for injuries or sickness) is

22 amended to read as follows:

23 ‘‘(2) the amount of any damages (other than

24 punitive damages) received (whether by suit or

25 agreement and whether as lump sums or as periodic
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1 payments) on account of personal physical injuries

2 or physical sickness;’’.

3 (b) EMOTIONAL DISTRESS AS SUCH TREATED AS

4 NOT PHYSICAL INJURY OR PHYSICAL SICKNESS.—Sec5 tion 104(a) is amended by striking the last sentence and

6 inserting the following new sentence: ‘‘For purposes of

7 paragraph (2), emotional distress shall not be treated as

8 a physical injury or physical sickness. The preceding sen9 tence shall not apply to an amount of damages not in ex10 cess of the amount paid for medical care (described in sub11 paragraph (A) or (B) of section 213(d)(1)) attributable

12 to emotional distress.’’.

13 (c) APPLICATION OF PRIOR LAW FOR STATES IN

14 WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN

15 WRONGFUL DEATH ACTIONS.—Section 104 is amended

16 by redesignating subsection (c) as subsection (d) and by

17 inserting after subsection (b) the following new subsection:

18 ‘‘(c) APPLICATION OF PRIOR LAW IN CERTAIN

19 CASES.—The phrase ‘(other than punitive damages)’ shall

20 not apply to punitive damages awarded in a civil action—

21 ‘‘(1) which is a wrongful death action, and

22 ‘‘(2) with respect to which applicable State law

23 (as in effect on September 13, 1995 and without re24 gard to any modification after such date) provides,

25 or has been construed to provide by a court of com-
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1 petent jurisdiction pursuant to a decision issued on

2 or before September 13, 1995, that only punitive

3 damages may be awarded in such an action.

4 This subsection shall cease to apply to any civil action filed

5 on or after the first date on which the applicable State

6 law ceases to provide (or is no longer construed to provide)

7 the treatment described in paragraph (2).’’.

8 (d) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section

11 shall apply to amounts received after June 30, 1996,

12 in taxable years ending after such date.

13 (2) EXCEPTION.—The amendments made by

14 this section shall not apply to any amount received

15 under a written binding agreement, court decree, or

16 mediation award in effect on (or issued on or before)

17 September 13, 1995.

18 SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR19 CHASERS OF DIESEL-POWERED AUTO20 MOBILES AND LIGHT TRUCKS.

21 (a) IN GENERAL.—Section 6427 (relating to fuels

22 not used for taxable purposes) is amended by striking sub23 section (g).

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Paragraph (3) of section 34(a) is amended

2 to read as follows:

3 ‘‘(3) under section 6427 with respect to fuels

4 used for nontaxable purposes or resold during the

5 taxable year (determined without regard to section

6 6427(k)).’’.

7 (2) Paragraphs (1) and (2)(A) of section

8 6427(i) are each amended—

9 (A) by striking ‘‘(g),’’, and

10 (B) by striking ‘‘(or a qualified diesel pow11 ered highway vehicle purchased)’’ each place it

12 appears.

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

14 this section shall apply to vehicles purchased after the date

15 of the enactment of this Act.

16 Subtitle G—Technical Corrections

17 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

18 For purposes of applying the amendments made by

19 any subtitle of this title other than this subtitle, the provi20 sions of this subtitle shall be treated as having been en21 acted immediately before the provisions of such other sub22 titles.

23 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC24 ONCILIATION ACT OF 1990.

25 (a) AMENDMENTS RELATED TO SUBTITLE A.—
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1 (1) Subparagraph (B) of section 59(j)(3) is

2 amended by striking ‘‘section 1(i)(3)(B)’’ and insert3 ing ‘‘section 1(g)(3)(B)’’.

4 (2) Clause (i) of section 151(d)(3)(C) is amend5 ed by striking ‘‘joint of a return’’ and inserting

6 ‘‘joint return’’.

7 (b) AMENDMENTS RELATED TO SUBTITLE B.—

8 (1) Paragraph (1) of section 11212(e) of the

9 Revenue Reconciliation Act of 1990 is amended by

10 striking ‘‘Paragraph (1) of section 6724(d)’’ and in11 serting ‘‘Subparagraph (B) of section 6724(d)(1)’’.

12 (2)(A) Subparagraph (B) of section 4093(c)(2),

13 as in effect before the amendments made by the

14 Revenue Reconciliation Act of 1993, is amended by

15 inserting before the period ‘‘unless such fuel is sold

16 for exclusive use by a State or any political subdivi17 sion thereof’’.

18 (B) Paragraph (4) of section 6427(l), as in ef19 fect before the amendments made by the Revenue

20 Reconciliation Act of 1993, is amended by inserting

21 before the period ‘‘unless such fuel was used by a

22 State or any political subdivision thereof’’.

23 (3) Paragraph (1) of section 6416(b) is amend24 ed by striking ‘‘chapter 32 or by section 4051’’ and

25 inserting ‘‘chapter 31 or 32’’.
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1 (4) Section 7012 is amended—

2 (A) by striking ‘‘production or importation

3 of gasoline’’ in paragraph (3) and inserting

4 ‘‘taxes on gasoline and diesel fuel’’, and

5 (B) by striking paragraph (4) and redesig6 nating paragraphs (5) and (6) as paragraphs

7 (4) and (5), respectively.

8 (5) Subsection (c) of section 5041 is amended

9 by striking paragraph (6) and by inserting the fol10 lowing new paragraphs:

11 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

12 ‘‘(A) wine produced by any person would

13 be eligible for any credit under paragraph (1)

14 if removed by such person during the calendar

15 year,

16 ‘‘(B) wine produced by such person is re17 moved during such calendar year by any other

18 person (hereafter in this paragraph referred to

19 as the ‘transferee’) to whom such wine was

20 transferred in bond and who is liable for the tax

21 imposed by this section with respect to such

22 wine, and

23 ‘‘(C) such producer holds title to such wine

24 at the time of its removal and provides to the

25 transferee such information as is necessary to
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1 properly determine the transferee’s credit under

2 this paragraph,

3 then, the transferee (and not the producer) shall be

4 allowed the credit under paragraph (1) which would

5 be allowed to the producer if the wine removed by

6 the transferee had been removed by the producer on

7 that date.

8 ‘‘(7) REGULATIONS.—The Secretary may pre9 scribe such regulations as may be necessary to carry

10 out the purposes of this subsection, including regula11 tions—

12 ‘‘(A) to prevent the credit provided in this

13 subsection from benefiting any person who pro14 duces more than 250,000 wine gallons during a

15 calendar year, and

16 ‘‘(B) to assure proper reduction of such

17 credit for persons producing more than 150,000

18 wine gallons of wine during a calendar year.’’.

19 (6) Paragraph (3) of section 5061(b) is amend20 ed to read as follows:

21 ‘‘(3) section 5041(f),’’.

22 (7) Section 5354 is amended by inserting ‘‘(tak23 ing into account the appropriate amount of credit

24 with respect to such wine under section 5041(c))’’

25 after ‘‘any one time’’.
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1 (c) AMENDMENTS RELATED TO SUBTITLE C.—

2 (1) Paragraph (4) of section 56(g) is amended

3 by redesignating subparagraphs (I) and (J) as sub4 paragraphs (H) and (I), respectively.

5 (2) Subparagraph (B) of section 6724(d)(1) is

6 amended—

7 (A) by striking ‘‘or’’ at the end of clause

8 (xii), and

9 (B) by striking the period at the end of

10 clause (xiii) and inserting ‘‘, or’’.

11 (3) Subsection (g) of section 6302 is amended

12 by inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

13 (4) The earnings and profits of any insurance

14 company to which section 11305(c)(3) of the Reve15 nue Reconciliation Act of 1990 applies shall be de16 termined without regard to any deduction allowed

17 under such section; except that, for purposes of ap18 plying sections 56 and 902, and subpart F of part

19 III of subchapter N of chapter 1 of the Internal

20 Revenue Code of 1986, such deduction shall be

21 taken into account.

22 (5) Subparagraph (D) of section 6038A(e)(4) is

23 amended—
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1 (A) by striking ‘‘any transaction to which

2 the summons relates’’ and inserting ‘‘any af3 fected taxable year’’, and

4 (B) by adding at the end thereof the fol5 lowing new sentence: ‘‘For purposes of this sub6 paragraph, the term ‘affected taxable year’

7 means any taxable year if the determination of

8 the amount of tax imposed for such taxable

9 year is affected by the treatment of the trans10 action to which the summons relates.’’.

11 (6) Subparagraph (A) of section 6621(c)(2) is

12 amended by adding at the end thereof the following

13 new flush sentence:

14 ‘‘The preceding sentence shall be applied with15 out regard to any such letter or notice which is

16 withdrawn by the Secretary.’’.

17 (7) Clause (i) of section 6621(c)(2)(B) is

18 amended by striking ‘‘this subtitle’’ and inserting

19 ‘‘this title’’.

20 (d) AMENDMENTS RELATED TO SUBTITLE D.—

21 (1) Notwithstanding section 11402(c) of the

22 Revenue Reconciliation Act of 1990, the amendment

23 made by section 11402(b)(1) of such Act shall apply

24 to taxable years ending after December 31, 1989.
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1 (2) Clause (ii) of section 143(m)(4)(C) is

2 amended—

3 (A) by striking ‘‘any month of the 10-year

4 period’’ and inserting ‘‘any year of the 4-year

5 period’’,

6 (B) by striking ‘‘succeeding months’’ and

7 inserting ‘‘succeeding years’’, and

8 (C) by striking ‘‘over the remainder of

9 such period (or, if lesser, 5 years)’’ and insert10 ing ‘‘to zero over the succeeding 5 years’’.

11 (e) AMENDMENTS RELATED TO SUBTITLE E.—

12 (1)(A) Clause (ii) of section 56(d)(1)(B) is

13 amended to read as follows:

14 ‘‘(ii) appropriate adjustments in the

15 application of section 172(b)(2) shall be

16 made to take into account the limitation of

17 subparagraph (A).’’.

18 (B) For purposes of applying sections 56(g)(1)

19 and 56(g)(3) of the Internal Revenue Code of 1986

20 with respect to taxable years beginning in 1991 and

21 1992, the reference in such sections to the alter22 native tax net operating loss deduction shall be

23 treated as including a reference to the deduction

24 under section 56(h) of such Code as in effect before
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1 the amendments made by section 1915 of the En2 ergy Policy Act of 1992.

3 (2) Clause (i) of section 613A(c)(3)(A) is

4 amended by striking ‘‘the table contained in’’.

5 (3) Section 6501 is amended—

6 (A) by striking subsection (m) (relating to

7 deficiency attributable to election under section

8 44B) and by redesignating subsections (n) and

9 (o) as subsections (m) and (n), respectively, and

10 (B) by striking ‘‘section 40(f) or 51(j)’’ in

11 subsection (m) (as redesignated by subpara12 graph (A)) and inserting ‘‘section 40(f), 43, or

13 51(j)’’.

14 (4) Subparagraph (C) of section 38(c)(2) (as in

15 effect on the day before the date of the enactment

16 of the Revenue Reconciliation Act of 1990) is

17 amended by inserting before the period at the end

18 of the first sentence the following: ‘‘and without re19 gard to the deduction under section 56(h)’’.

20 (5) The amendment made by section

21 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

22 shall apply to taxable years beginning after Decem23 ber 31, 1990.

24 (f) AMENDMENTS RELATED TO SUBTITLE F.—
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1 (1)(A) Section 2701(a)(3) is amended by add2 ing at the end thereof the following new subpara3 graph:

4 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

5 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

6 case of an applicable retained interest which is

7 described in subparagraph (B)(i) but not sub8 paragraph (B)(ii), the value of the distribution

9 right shall be determined without regard to this

10 section.’’.

11 (B) Section 2701(a)(3)(B) is amended by in12 serting ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the head13 ing thereof.

14 (C) Sections 2701 (d)(1) and (d)(4) are each

15 amended by striking ‘‘subsection (a)(3)(B)’’ and in16 serting ‘‘subsection (a)(3) (B) or (C)’’.

17 (2) Clause (i) of section 2701(a)(4)(B) is

18 amended by inserting ‘‘(or, to the extent provided in

19 regulations, the rights as to either income or cap20 ital)’’ after ‘‘income and capital’’.

21 (3)(A) Section 2701(b)(2) is amended by add22 ing at the end thereof the following new subpara23 graph:

24 ‘‘(C) APPLICABLE FAMILY MEMBER.—For

25 purposes of this subsection, the term ‘applicable
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1 family member’ includes any lineal descendant

2 of any parent of the transferor or the transfer3 or’s spouse.’’.

4 (B) Section 2701(e)(3) is amended—

5 (i) by striking subparagraph (B), and

6 (ii) by striking so much of paragraph (3)

7 as precedes ‘‘shall be treated as holding’’ and

8 inserting:

9 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS

10 AND TRANSFERS.—An individual’’.

11 (C) Section 2704(c)(3) is amended by striking

12 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

13 2701(e)(3)’’.

14 (4) Clause (i) of section 2701(c)(1)(B) is

15 amended to read as follows:

16 ‘‘(i) a right to distributions with re17 spect to any interest which is junior to the

18 rights of the transferred interest,’’.

19 (5)(A) Clause (i) of section 2701(c)(3)(C) is

20 amended to read as follows:

21 ‘‘(i) IN GENERAL.—Payments under

22 any interest held by a transferor which

23 (without regard to this subparagraph) are

24 qualified payments shall be treated as

25 qualified payments unless the transferor
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1 elects not to treat such payments as quali2 fied payments. Payments described in the

3 preceding sentence which are held by an

4 applicable family member shall be treated

5 as qualified payments only if such member

6 elects to treat such payments as qualified

7 payments.’’.

8 (B) The first sentence of section

9 2701(c)(3)(C)(ii) is amended to read as follows: ‘‘A

10 transferor or applicable family member holding any

11 distribution right which (without regard to this sub12 paragraph) is not a qualified payment may elect to

13 treat such right as a qualified payment, to be paid

14 in the amounts and at the times specified in such

15 election.’’.

16 (C) The time for making an election under the

17 second sentence of section 2701(c)(3)(C)(i) of the

18 Internal Revenue Code of 1986 (as amended by sub19 paragraph (A)) shall not expire before the due date

20 (including extensions) for filing the transferor’s re21 turn of the tax imposed by section 2501 of such

22 Code for the first calendar year ending after the

23 date of enactment.

24 (6) Section 2701(d)(3)(A)(iii) is amended by

25 striking ‘‘the period ending on the date of’’.
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1 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

2 amended by inserting ‘‘or the exclusion under sec3 tion 2503(b),’’ after ‘‘section 2523,’’.

4 (8) Section 2701(e)(5) is amended—

5 (A) by striking ‘‘such contribution to cap6 ital or such redemption, recapitalization, or

7 other change’’ in subparagraph (A) and insert8 ing ‘‘such transaction’’, and

9 (B) by striking ‘‘the transfer’’ in subpara10 graph (B) and inserting ‘‘such transaction’’.

11 (9) Section 2701(d)(4) is amended by adding at

12 the end thereof the following new subparagraph:

13 ‘‘(C) TRANSFER TO TRANSFERORS.—In

14 the case of a taxable event described in para15 graph (3)(A)(ii) involving a transfer of an ap16 plicable retained interest from an applicable

17 family member to a transferor, this subsection

18 shall continue to apply to the transferor during

19 any period the transferor holds such interest.’’.

20 (10) Section 2701(e)(6) is amended by insert21 ing ‘‘or to reflect the application of subsection (d)’’

22 before the period at the end thereof.

23 (11)(A) Section 2702(a)(3)(A) is amended—

24 (i) by striking ‘‘to the extent’’ and insert25 ing ‘‘if’’ in clause (i),
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1 (ii) by striking ‘‘or’’ at the end of clause

2 (i),

3 (iii) by striking the period at the end of

4 clause (ii) and inserting ‘‘, or’’, and

5 (iv) by adding at the end thereof the fol6 lowing new clause:

7 ‘‘(iii) to the extent that regulations

8 provide that such transfer is not inconsist9 ent with the purposes of this section.’’.

10 (B)(i) Section 2702(a)(3) is amended by strik11 ing ‘‘incomplete transfer’’ each place it appears and

12 inserting ‘‘incomplete gift’’.

13 (ii) The heading for section 2702(a)(3)(B) is

14 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

15 inserting ‘‘INCOMPLETE GIFT’’.

16 (g) AMENDMENTS RELATED TO SUBTITLE G.—

17 (1)(A) Subsection (a) of section 1248 is

18 amended—

19 (i) by striking ‘‘, or if a United States per20 son receives a distribution from a foreign cor21 poration which, under section 302 or 331, is

22 treated as an exchange of stock’’ in paragraph

23 (1), and

24 (ii) by adding at the end thereof the follow25 ing new sentence: ‘‘For purposes of this section,
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1 a United States person shall be treated as hav2 ing sold or exchanged any stock if, under any

3 provision of this subtitle, such person is treated

4 as realizing gain from the sale or exchange of

5 such stock.’’.

6 (B) Paragraph (1) of section 1248(e) is amend7 ed by striking ‘‘, or receives a distribution from a

8 domestic corporation which, under section 302 or

9 331, is treated as an exchange of stock’’.

10 (C) Subparagraph (B) of section 1248(f)(1) is

11 amended by striking ‘‘or 361(c)(1)’’ and inserting

12 ‘‘355(c)(1), or 361(c)(1)’’.

13 (D) Paragraph (1) of section 1248(i) is amend14 ed to read as follows:

15 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

16 percent corporate shareholder of a foreign corpora17 tion exchanges stock of the 10-percent corporate

18 shareholder for stock of the foreign corporation,

19 such 10-percent corporate shareholder shall recog20 nize gain in the same manner as if the stock of the

21 foreign corporation received in such exchange had

22 been—

23 ‘‘(A) issued to the 10-percent corporate

24 shareholder, and
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1 ‘‘(B) then distributed by the 10-percent

2 corporate shareholder to such shareholder in re3 demption or liquidation (whichever is appro4 priate).

5 The amount of gain recognized by such 10-percent

6 corporate shareholder under the preceding sentence

7 shall not exceed the amount treated as a dividend

8 under this section.’’.

9 (2) Section 897 is amended by striking sub10 section (f).

11 (3) Paragraph (13) of section 4975(d) is

12 amended by striking ‘‘section 408(b)’’ and inserting

13 ‘‘section 408(b)(12)’’.

14 (4) Clause (iii) of section 56(g)(4)(D) is

15 amended by inserting ‘‘, but only with respect to

16 taxable years beginning after December 31, 1989’’

17 before the period at the end thereof.

18 (5)(A) Paragraph (11) of section 11701(a) of

19 the Revenue Reconciliation Act of 1990 (and the

20 amendment made by such paragraph) are hereby re21 pealed, and section 7108(r)(2) of the Revenue Rec22 onciliation Act of 1989 shall be applied as if such

23 paragraph (and amendment) had never been en24 acted.
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1 (B) Subparagraph (A) shall not apply to any

2 building if the owner of such building establishes to

3 the satisfaction of the Secretary of the Treasury or

4 his delegate that such owner reasonably relied on the

5 amendment made by such paragraph (11).

6 (h) AMENDMENTS RELATED TO SUBTITLE H.—

7 (1)(A) Clause (vi) of section 168(e)(3)(B) is

8 amended by striking ‘‘or’’ at the end of subclause

9 (I), by striking the period at the end of subclause

10 (II) and inserting ‘‘, or’’, and by adding at the end

11 thereof the following new subclause:

12 ‘‘(III) is described in section

13 48(l)(3)(A)(ix) (as in effect on the

14 day before the date of the enactment

15 of the Revenue Reconciliation Act of

16 1990).’’.

17 (B) Subparagraph (B) of section 168(e)(3) (re18 lating to 5-year property) is amended by adding at

19 the end the following flush sentence:

20 ‘‘Nothing in any provision of law shall be con21 strued to treat property as not being described

22 in clause (vi)(I) (or the corresponding provi23 sions of prior law) by reason of being public

24 utility property (within the meaning of section

25 48(a)(3)).’’.
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1 (C) Subparagraph (K) of section 168(g)(4) is

2 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

3 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

4 day before the date of the enactment of the Revenue

5 Reconciliation Act of 1990)’’.

6 (2) Clause (ii) of section 172(b)(1)(E) is

7 amended by striking ‘‘subsection (m)’’ and inserting

8 ‘‘subsection (h)’’.

9 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

10 and 832(b)(5)(D)(ii)(II) are each amended by strik11 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

12 (4) Subparagraph (A) of section 243(b)(3) is

13 amended by inserting ‘‘of’’ after ‘‘In the case’’.

14 (5) The subsection heading for subsection (a) of

15 section 280F is amended by striking ‘‘INVESTMENT

16 TAX CREDIT AND’’.

17 (6) Clause (i) of section 1504(c)(2)(B) is

18 amended by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

19 (7) Paragraph (3) of section 341(f) is amended

20 by striking ‘‘351, 361, 371(a), or 374(a)’’ and in21 serting ‘‘351, or 361’’.

22 (8) Paragraph (2) of section 243(b) is amended

23 to read as follows:

24 ‘‘(2) AFFILIATED GROUP.—For purposes of this

25 subsection:
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1 ‘‘(A) IN GENERAL.—The term ‘affiliated

2 group’ has the meaning given such term by sec3 tion 1504(a), except that for such purposes sec4 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

5 not apply.

6 ‘‘(B) GROUP MUST BE CONSISTENT IN

7 FOREIGN TAX TREATMENT.—The requirements

8 of paragraph (1)(A) shall not be treated as

9 being met with respect to any dividend received

10 by a corporation if, for any taxable year which

11 includes the day on which such dividend is re12 ceived—

13 ‘‘(i) 1 or more members of the affili14 ated group referred to in paragraph (1)(A)

15 choose to any extent to take the benefits of

16 section 901, and

17 ‘‘(ii) 1 or more other members of such

18 group claim to any extent a deduction for

19 taxes otherwise creditable under section

20 901.’’.

21 (9) The amendment made by section

22 11813(b)(17) of the Revenue Reconciliation Act of

23 1990 shall be applied as if the material stricken by

24 such amendment included the closing parenthesis

25 after ‘‘section 48(a)(5)’’.
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1 (10) Paragraph (1) of section 179(d) is amend2 ed by striking ‘‘in a trade or business’’ and inserting

3 ‘‘a trade or business’’.

4 (11) Subparagraph (E) of section 50(a)(2) is

5 amended by striking ‘‘section 48(a)(5)(A)’’ and in6 serting ‘‘section 48(a)(5)’’.

7 (12) The amendment made by section

8 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

9 of 1990 shall be applied as if it struck ‘‘Section

10 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

11 (13) Subparagraph (B) of section 424(c)(3) is

12 amended by striking ‘‘a qualified stock option, an in13 centive stock option, an option granted under an em14 ployee stock purchase plan, or a restricted stock op15 tion’’ and inserting ‘‘an incentive stock option or an

16 option granted under an employee stock purchase

17 plan’’.

18 (14) Subparagraph (E) of section 1367(a)(2) is

19 amended by striking ‘‘section 613A(c)(13)(B)’’ and

20 inserting ‘‘section 613A(c)(11)(B)’’.

21 (15) Subparagraph (B) of section 460(e)(6) is

22 amended by striking ‘‘section 167(k)’’ and inserting

23 ‘‘section 168(e)(2)(A)(ii)’’.
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1 (16) Subparagraph (C) of section 172(h)(4) is

2 amended by striking ‘‘subsection (b)(1)(M)’’ and in3 serting ‘‘subsection (b)(1)(E)’’.

4 (17) Section 6503 is amended—

5 (A) by redesignating the subsection relat6 ing to extension in case of certain summonses

7 as subsection (j), and

8 (B) by redesignating the subsection relat9 ing to cross references as subsection (k).

10 (18) Paragraph (4) of section 1250(e) is hereby

11 repealed.

12 (i) EFFECTIVE DATE.—Except as otherwise expressly

13 provided—

14 (1) the amendments made by this section shall

15 be treated as amendments to the Internal Revenue

16 Code of 1986 as amended by the Revenue Reconcili17 ation Act of 1993; and

18 (2) any amendment made by this section shall

19 apply to periods before the date of the enactment of

20 this section in the same manner as if it had been in21 cluded in the provision of the Revenue Reconciliation

22 Act of 1990 to which such amendment relates.
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1 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC2 ONCILIATION ACT OF 1993.

3 (a) AMENDMENT RELATED TO SECTION 13114.—

4 Paragraph (2) of section 1044(c) is amended to read as

5 follows:

6 ‘‘(2) PURCHASE.—The taxpayer shall be consid7 ered to have purchased any property if, but for sub8 section (d), the unadjusted basis of such property

9 would be its cost within the meaning of section

10 1012.’’.

11 (b) AMENDMENTS RELATED TO SECTION 13142.—

12 (1) Subparagraph (B) of section 13142(b)(6) of

13 the Revenue Reconciliation Act of 1993 is amended

14 to read as follows:

15 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU16 THORITY, AND PROHIBITED DISCRIMINATION.—

17 The amendments made by paragraphs (2), (3),

18 and (4) shall take effect on the date of the en19 actment of this Act.’’.

20 (2) Subparagraph (C) of section 13142(b)(6) of

21 such Act is amended by striking ‘‘paragraph (2)’’

22 and inserting ‘‘paragraph (5)’’.

23 (c) AMENDMENT RELATED TO SECTION 13161.—

24 (1) IN GENERAL.—Subsection (e) of section

25 4001 (relating to inflation adjustment) is amended

26 to read as follows:
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1 ‘‘(e) INFLATION ADJUSTMENT.—

2 ‘‘(1) IN GENERAL.—The $30,000 amount in

3 subsection (a) and section 4003(a) shall be increased

4 by an amount equal to—

5 ‘‘(A) $30,000, multiplied by

6 ‘‘(B) the cost-of-living adjustment under

7 section 1(f)(3) for the calendar year in which

8 the vehicle is sold, determined by substituting

9 ‘calendar year 1990’ for ‘calendar year 1992’ in

10 subparagraph (B) thereof.

11 ‘‘(2) ROUNDING.—If any amount as adjusted

12 under paragraph (1) is not a multiple of $2,000,

13 such amount shall be rounded to the next lowest

14 multiple of $2,000.’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect on the date of the

17 enactment of this Act.

18 (d) AMENDMENT RELATED TO SECTION 13201.—

19 Clause (ii) of section 135(b)(2)(B) is amended by insert20 ing before the period at the end thereof the following: ‘‘,

21 determined by substituting ‘calendar year 1989’ for ‘cal22 endar year 1992’ in subparagraph (B) thereof’’.

23 (e) AMENDMENTS RELATED TO SECTION 13203.—

24 Subsection (a) of section 59 is amended—
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1 (1) by striking ‘‘the amount determined under

2 section 55(b)(1)(A)’’ in paragraph (1)(A) and

3 (2)(A)(i) and inserting ‘‘the pre-credit tentative min4 imum tax’’,

5 (2) by striking ‘‘specified in section

6 55(b)(1)(A)’’ in paragraph (1)(C) and inserting

7 ‘‘specified in subparagraph (A)(i) or (B)(i) of section

8 55(b)(1) (whichever applies)’’,

9 (3) by striking ‘‘which would be determined

10 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

11 and inserting ‘‘which would be the pre-credit ten12 tative minimum tax’’, and

13 (4) by adding at the end thereof the following

14 new paragraph:

15 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

16 For purposes of this subsection, the term ‘pre-credit

17 tentative minimum tax’ means—

18 ‘‘(A) in the case of a taxpayer other than

19 a corporation, the amount determined under the

20 first sentence of section 55(b)(1)(A)(i), or

21 ‘‘(B) in the case of a corporation, the

22 amount determined under section

23 55(b)(1)(B)(i).’’.

24 (f) AMENDMENT RELATED TO SECTION 13221.—

25 Sections 1201(a) and 1561(a) are each amended by strik-
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1 ing ‘‘last sentence’’ each place it appears and inserting

2 ‘‘last 2 sentences’’.

3 (g) AMENDMENTS RELATED TO SECTION 13222.—

4 (1) Subparagraph (B) of section 6033(e)(1) is

5 amended by adding at the end thereof the following

6 new clause:

7 ‘‘(iii) COORDINATION WITH SECTION

8 527(f).—This subsection shall not apply to

9 any amount on which tax is imposed by

10 reason of section 527(f).’’.

11 (2) Clause (i) of section 6033(e)(1)(B) is

12 amended by striking ‘‘this subtitle’’ and inserting

13 ‘‘section 501’’.

14 (h) AMENDMENT RELATED TO SECTION 13225.—

15 Paragraph (3) of section 6655(g) is amended by striking

16 all that follows ‘‘ ‘3rd month’ ’’ in the sentence following

17 subparagraph (C) and inserting ‘‘, subsection (e)(2)(A)

18 shall be applied by substituting ‘2 months’ for ‘3 months’

19 in clause (i)(I), the election under clause (i) of subsection

20 (e)(2)(C) may be made separately for each installment,

21 and clause (ii) of subsection (e)(2)(C) shall not apply.’’.

22 (i) AMENDMENTS RELATED TO SECTION 13231.—

23 (1) Subparagraph (G) of section 904(d)(3) is

24 amended by striking ‘‘section 951(a)(1)(B)’’ and in-
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1 serting ‘‘subparagraph (B) or (C) of section

2 951(a)(1)’’.

3 (2) Paragraph (1) of section 956A(b) is amend4 ed to read as follows:

5 ‘‘(1) the amount (not including a deficit) re6 ferred to in section 316(a)(1) to the extent such

7 amount was accumulated in prior taxable years be8 ginning after September 30, 1993, and’’.

9 (3) Subsection (f) of section 956A is amended

10 by inserting before the period at the end thereof:

11 ‘‘and regulations coordinating the provisions of sub12 sections (c)(3)(A) and (d)’’.

13 (4) Subsection (b) of section 958 is amended by

14 striking ‘‘956(b)(2)’’ each place it appears and in15 serting ‘‘956(c)(2)’’.

16 (5)(A) Subparagraph (A) of section 1297(d)(2)

17 is amended by striking ‘‘The adjusted basis of any

18 asset’’ and inserting ‘‘The amount taken into ac19 count under section 1296(a)(2) with respect to any

20 asset’’.

21 (B) The paragraph heading of paragraph (2) of

22 section 1297(d) is amended to read as follows:

23 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.
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1 (6) Subsection (e) of section 1297 is amended

2 by inserting ‘‘For purposes of this part—’’ after the

3 subsection heading.

4 (j) AMENDMENT RELATED TO SECTION 13241.—

5 Subparagraph (B) of section 40(e)(1) is amended to read

6 as follows:

7 ‘‘(B) for any period before January 1,

8 2001, during which the rates of tax under sec9 tion 4081(a)(2)(A) are 4.3 cents per gallon.’’.

10 (k) AMENDMENT RELATED TO SECTION 13261.—

11 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec12 onciliation Act of 1993 is amended by striking ‘‘by the

13 taxpayer’’ and inserting ‘‘by the taxpayer or a related

14 person’’.

15 (l) AMENDMENT RELATED TO SECTION 13301.—

16 Subparagraph (B) of section 1397B(d)(5) is amended by

17 striking ‘‘preceding’’.

18 (m) CLERICAL AMENDMENTS.—

19 (1) Subsection (d) of section 39 is amended—

20 (A) by striking ‘‘45’’ in the heading of

21 paragraph (5) and inserting ‘‘45A’’, and

22 (B) by striking ‘‘45’’ in the heading of

23 paragraph (6) and inserting ‘‘45B’’.
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1 (2) Subparagraph (A) of section 108(d)(9) is

2 amended by striking ‘‘paragraph (3)(B)’’ and insert3 ing ‘‘paragraph (3)(C)’’.

4 (3) Subparagraph (C) of section 143(d)(2) is

5 amended by striking the period at the end thereof

6 and inserting a comma.

7 (4) Clause (ii) of section 163(j)(6)(E) is amend8 ed by striking ‘‘which is a’’ and inserting ‘‘which is’’.

9 (5) Subparagraph (A) of section 1017(b)(4) is

10 amended by striking ‘‘subsection (b)(2)(D)’’ and in11 serting ‘‘subsection (b)(2)(E)’’.

12 (6) So much of section 1245(a)(3) as precedes

13 subparagraph (A) thereof is amended to read as

14 follows:

15 ‘‘(3) SECTION 1245 PROPERTY.—For purposes

16 of this section, the term ‘section 1245 property’

17 means any property which is or has been property

18 of a character subject to the allowance for deprecia19 tion provided in section 167 and is either—’’.

20 (7) Paragraph (2) of section 1394(e) is amend21 ed—

22 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

23 and

24 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.
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1 (8) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘or

3 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

4 (9)(A) The section 6714 added by section

5 13242(b)(1) of the Revenue Reconciliation Act of

6 1993 is hereby redesignated as section 6715.

7 (B) The table of sections for part I of sub8 chapter B of chapter 68 is amended by striking

9 ‘‘6714’’ in the item added by such section

10 13242(b)(2) of such Act and inserting ‘‘6715’’.

11 (10) Paragraph (2) of section 9502(b) is

12 amended by inserting ‘‘and before’’ after ‘‘1982,’’.

13 (11) Subsection (a)(3) of section 13206 of the

14 Revenue Reconciliation Act of 1993 is amended by

15 striking ‘‘this section’’ and inserting ‘‘this sub16 section’’.

17 (12) Paragraph (1) of section 13215(c) of the

18 Revenue Reconciliation Act of 1993 is amended by

19 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

20 Law 98–21’’.

21 (13) Paragraph (2) of section 13311(e) of the

22 Revenue Reconciliation Act of 1993 is amended by

23 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

24 1393(a)(2)’’.
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1 (14) Subparagraph (B) of section 117(d)(2) is

2 amended by striking ‘‘section 132(f)’’ and inserting

3 ‘‘section 132(h)’’.

4 (n) EFFECTIVE DATE.—Any amendment made by

5 this section shall take effect as if included in the provision

6 of the Revenue Reconciliation Act of 1993 to which such

7 amendment relates.

8 SEC. 1704. MISCELLANEOUS PROVISIONS.

9 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

10 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

11 1990.—Except as otherwise expressly provided, whenever

12 in title XII of the Omnibus Budget Reconciliation Act of

13 1990 an amendment or repeal is expressed in terms of

14 an amendment to, or repeal of, a section or other provi15 sion, the reference shall be considered to be made to a

16 section or other provision of the Internal Revenue Code

17 of 1986.

18 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

19 HEDGE BOND RULES.—

20 (1) Clause (iii) of section 149(g)(3)(B) is

21 amended to read as follows:

22 ‘‘(iii) AMOUNTS HELD PENDING REIN23 VESTMENT OR REDEMPTION.—Amounts

24 held for not more than 30 days pending re25 investment or bond redemption shall be
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1 treated as invested in bonds described in

2 clause (i).’’.

3 (2) The amendment made by paragraph (1)

4 shall take effect as if included in the amendments

5 made by section 7651 of the Omnibus Budget Rec6 onciliation Act of 1989.

7 (c) TREATMENT OF CERTAIN DISTRIBUTIONS

8 UNDER SECTION 1445.—

9 (1) IN GENERAL.—Paragraph (3) of section

10 1445(e) is amended by adding at the end thereof

11 the following new sentence: ‘‘Rules similar to the

12 rules of the preceding provisions of this paragraph

13 shall apply in the case of any distribution to which

14 section 301 applies and which is not made out of the

15 earnings and profits of such a domestic corpora16 tion.’’.

17 (2) EFFECTIVE DATE.—The amendment made

18 by paragraph (1) shall apply to distributions after

19 the date of the enactment of this Act.

20 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC21 TION 469.—

22 (1) IN GENERAL.—Subparagraph (B) of section

23 469(c)(3) is amended by adding at the end thereof

24 the following new sentence: ‘‘If the preceding sen25 tence applies to the net income from any property
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1 for any taxable year, any credits allowable under

2 subpart B (other than section 27(a)) or D of part

3 IV of subchapter A for such taxable year which are

4 attributable to such property shall be treated as

5 credits not from a passive activity to the extent the

6 amount of such credits does not exceed the regular

7 tax liability of the taxpayer for the taxable year

8 which is allocable to such net income.’’.

9 (2) EFFECTIVE DATE.—The amendment made

10 by paragraph (1) shall apply to taxable years begin11 ning after December 31, 1986.

12 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

13 LOSS RULES.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 469(g)(1) is amended to read as follows:

16 ‘‘(A) IN GENERAL.—If all gain or loss real17 ized on such disposition is recognized, the ex18 cess of—

19 ‘‘(i) any loss from such activity for

20 such taxable year (determined after the ap21 plication of subsection (b)), over

22 ‘‘(ii) any net income or gain for such

23 taxable year from all other passive activi24 ties (determined after the application of

25 subsection (b)),
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1 shall be treated as a loss which is not from a

2 passive activity.’’.

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall apply to taxable years begin5 ning after December 31, 1986.

6 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN

7 PROVISIONS.—

8 (1) COORDINATION OF UNIFIED ESTATE TAX

9 CREDIT WITH TREATIES.—Subparagraph (A) of sec10 tion 2102(c)(3) is amended by adding at the end

11 thereof the following new sentence: ‘‘For purposes

12 of the preceding sentence, property shall not be

13 treated as situated in the United States if such

14 property is exempt from the tax imposed by this

15 subchapter under any treaty obligation of the United

16 States.’’.

17 (2) TREATMENT OF CERTAIN INTEREST PAID

18 TO RELATED PERSON.—

19 (A) Subparagraph (B) of section 163(j)(1)

20 is amended by inserting before the period at the

21 end thereof the following: ‘‘(and clause (ii) of

22 paragraph (2)(A) shall not apply for purposes

23 of applying this subsection to the amount so

24 treated)’’.
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1 (B) Subsection (j) of section 163 is amend2 ed by redesignating paragraph (7) as paragraph

3 (8) and by inserting after paragraph (6) the

4 following new paragraph:

5 ‘‘(7) COORDINATION WITH PASSIVE LOSS

6 RULES, ETC.—This subsection shall be applied be7 fore sections 465 and 469.’’.

8 (C) The amendments made by this para9 graph shall apply as if included in the amend10 ments made by section 7210(a) of the Revenue

11 Reconciliation Act of 1989.

12 (3) TREATMENT OF INTEREST ALLOCABLE TO

13 EFFECTIVELY CONNECTED INCOME.—

14 (A) IN GENERAL.—

15 (i) Subparagraph (B) of section

16 884(f)(1) is amended by striking ‘‘to the

17 extent’’ and all that follows down through

18 ‘‘subparagraph (A)’’ and inserting ‘‘to the

19 extent that the allocable interest exceeds

20 the interest described in subparagraph

21 (A)’’.

22 (ii) The second sentence of section

23 884(f)(1) is amended by striking ‘‘reason24 ably expected’’ and all that follows down

25 through the period at the end thereof and
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1 inserting ‘‘reasonably expected to be alloca2 ble interest.’’

3 (iii) Paragraph (2) of section 884(f) is

4 amended to read as follows:

5 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

6 this subsection, the term ‘allocable interest’ means

7 any interest which is allocable to income which is ef8 fectively connected (or treated as effectively con9 nected) with the conduct of a trade or business in

10 the United States.’’.

11 (B) EFFECTIVE DATE.—The amendments

12 made by subparagraph (A) shall take effect as

13 if included in the amendments made by section

14 1241(a) of the Tax Reform Act of 1986.

15 (4) CLARIFICATION OF SOURCE RULE.—

16 (A) IN GENERAL.—Paragraph (2) of sec17 tion 865(b) is amended by striking ‘‘863(b)’’

18 and inserting ‘‘863’’.

19 (B) EFFECTIVE DATE.—The amendment

20 made by subparagraph (A) shall take effect as

21 if included in the amendments made by section

22 1211 of the Tax Reform Act of 1986.

23 (5) REPEAL OF OBSOLETE PROVISIONS.—

24 (A) Paragraph (1) of section 6038(a) is

25 amended by striking ‘‘, and’’ at the end of sub-
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1 paragraph (E) and inserting a period, and by

2 striking subparagraph (F).

3 (B) Subsection (b) of section 6038A is

4 amended by adding ‘‘and’’ at the end of para5 graph (2), by striking ‘‘, and’’ at the end of

6 paragraph (3) and inserting a period, and by

7 striking paragraph (4).

8 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

9 CERTAIN BOND-FINANCED FACILITIES.—

10 (1) IN GENERAL.—Subparagraph (A) of section

11 1317(3) of the Tax Reform Act of 1986 is amended

12 by adding at the end thereof the following new sen13 tence: ‘‘A facility shall not fail to be treated as de14 scribed in this subparagraph by reason of an assign15 ment (or an agreement to an assignment) by the

16 governmental unit on whose behalf the bonds are is17 sued of any part of its interest in the property fi18 nanced by such bonds to another governmental

19 unit.’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall take effect as if included in

22 such section 1317 on the date of the enactment of

23 the Tax Reform Act of 1986.

24 (h) CLARIFICATION OF TREATMENT OF MEDICARE

25 ENTITLEMENT UNDER COBRA PROVISIONS.—
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1 (1) IN GENERAL.—

2 (A) Subclause (V) of section

3 4980B(f)(2)(B)(i) is amended to read as

4 follows:

5 ‘‘(V) MEDICARE ENTITLEMENT

6 FOLLOWED BY QUALIFYING EVENT.—

7 In the case of a qualifying event de8 scribed in paragraph (3)(B) that oc9 curs less than 18 months after the

10 date the covered employee became en11 titled to benefits under title XVIII of

12 the Social Security Act, the period of

13 coverage for qualified beneficiaries

14 other than the covered employee shall

15 not terminate under this clause before

16 the close of the 36-month period be17 ginning on the date the covered em18 ployee became so entitled.’’.

19 (B) Clause (v) of section 602(2)(A) of the

20 Employee Retirement Income Security Act of

21 1974 is amended to read as follows:

22 ‘‘(v) MEDICARE ENTITLEMENT FOL23 LOWED BY QUALIFYING EVENT.—In the

24 case of a qualifying event described in sec25 tion 603(2) that occurs less than 18
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1 months after the date the covered em2 ployee became entitled to benefits under

3 title XVIII of the Social Security Act, the

4 period of coverage for qualified bene5 ficiaries other than the covered employee

6 shall not terminate under this subpara7 graph before the close of the 36-month pe8 riod beginning on the date the covered em9 ployee became so entitled.’’.

10 (C) Clause (iv) of section 2202(2)(A) of

11 the Public Health Service Act is amended to

12 read as follows:

13 ‘‘(iv) MEDICARE ENTITLEMENT FOL14 LOWED BY QUALIFYING EVENT.—In the

15 case of a qualifying event described in sec16 tion 2203(2) that occurs less than 18

17 months after the date the covered em18 ployee became entitled to benefits under

19 title XVIII of the Social Security Act, the

20 period of coverage for qualified bene21 ficiaries other than the covered employee

22 shall not terminate under this subpara23 graph before the close of the 36-month pe24 riod beginning on the date the covered em25 ployee became so entitled.’’.
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1 (2) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to plan years begin3 ning after December 31, 1989.

4 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

5 (1) IN GENERAL.—Subsection (a) of section

6 860E is amended by adding at the end thereof the

7 following new paragraph:

8 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

9 purposes of part VI of subchapter A of this

10 chapter—

11 ‘‘(A) the reference in section 55(b)(2) to

12 taxable income shall be treated as a reference

13 to taxable income determined without regard to

14 this subsection,

15 ‘‘(B) the alternative minimum taxable in16 come of any holder of a residual interest in a

17 REMIC for any taxable year shall in no event

18 be less than the excess inclusion for such tax19 able year, and

20 ‘‘(C) any excess inclusion shall be dis21 regarded for purposes of computing the alter22 native tax net operating loss deduction.

23 The preceding sentence shall not apply to any orga24 nization to which section 593 applies, except to the
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1 extent provided in regulations prescribed by the Sec2 retary under paragraph (2).’’.

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall take effect as if included in

5 the amendments made by section 671 of the Tax Re6 form Act of 1986 unless the taxpayer elects to apply

7 such amendment only to taxable years beginning

8 after the date of the enactment of this Act.

9 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

10 FOR CERTAIN PASSENGERS.—

11 (1) IN GENERAL.—Subparagraph (D) of section

12 4462(b)(1) (relating to special rule for Alaska, Ha13 waii, and possessions) is amended by inserting be14 fore the period the following: ‘‘, or passengers trans15 ported on United States flag vessels operating solely

16 within the State waters of Alaska or Hawaii and ad17 jacent international waters’’.

18 (2) EFFECTIVE DATE.—The amendment made

19 by paragraph (1) shall take effect as if included in

20 the amendments made by section 1402(a) of the

21 Harbor Maintenance Revenue Act of 1986.

22 (k) AMENDMENTS RELATED TO REVENUE PROVI23 SIONS OF ENERGY POLICY ACT OF 1992.—

24 (1) Effective with respect to taxable years be25 ginning after December 31, 1990, subclause (II) of
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1 section 53(d)(1)(B)(iv) is amended to read as

2 follows:

3 ‘‘(II) the adjusted net minimum

4 tax for any taxable year is the amount

5 of the net minimum tax for such year

6 increased in the manner provided in

7 clause (iii).’’.

8 (2) Subsection (g) of section 179A is redesig9 nated as subsection (f).

10 (3) Subparagraph (E) of section 6724(d)(3) is

11 amended by striking ‘‘section 6109(f)’’ and inserting

12 ‘‘section 6109(h)’’.

13 (4)(A) Subsection (d) of section 30 is amend14 ed—

15 (i) by inserting ‘‘(determined without re16 gard to subsection (b)(3))’’ before the period at

17 the end of paragraph (1) thereof, and

18 (ii) by adding at the end thereof the follow19 ing new paragraph:

20 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No

21 credit shall be allowed under subsection (a) for any

22 vehicle if the taxpayer elects to not have this section

23 apply to such vehicle.’’.
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1 (B) Subsection (m) of section 6501 (as redesig2 nated by section 1602) is amended by striking ‘‘sec3 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

4 (5) Subclause (III) of section 501(c)(21)(D)(ii)

5 is amended by striking ‘‘section 101(6)’’ and insert6 ing ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and

7 inserting ‘‘1752(7)’’.

8 (6) Paragraph (1) of section 1917(b) of the En9 ergy Policy Act of 1992 shall be applied as if ‘‘at a

10 rate’’ appeared instead of ‘‘at the rate’’ in the mate11 rial proposed to be stricken.

12 (7) Paragraph (2) of section 1921(b) of the En13 ergy Policy Act of 1992 shall be applied as if a

14 comma appeared after ‘‘(2)’’ in the material pro15 posed to be stricken.

16 (8) Subsection (a) of section 1937 of the En17 ergy Policy Act of 1992 shall be applied as if ‘‘Sub18 part B’’ appeared instead of ‘‘Subpart C’’.

19 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

20 PLAN.—

21 (1) IN GENERAL.—Subparagraph (F) of section

22 3(37) of the Employee Retirement Income Security

23 Act of 1974 (29 U.S.C. 1002(37)(F)) is amended by

24 redesignating clause (ii) as clause (iii) and by insert25 ing after clause (i) the following new clause:
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1 ‘‘(ii) For purposes of the Internal Revenue Code of

2 1986—

3 ‘‘(I) clause (i) shall apply, and

4 ‘‘(II) a qualified football coaches plan shall be

5 treated as a multiemployer collectively bargained

6 plan.’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by paragraph (1) shall apply to years beginning

9 after December 22, 1987.

10 (m) DETERMINATION OF UNRECOVERED INVEST11 MENT IN ANNUITY CONTRACT.—

12 (1) IN GENERAL.—Subparagraph (A) of section

13 72(b)(4) is amended by inserting ‘‘(determined with14 out regard to subsection (c)(2))’’ after ‘‘contract’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall take effect as if included in

17 the amendments made by section 1122(c) of the Tax

18 Reform Act of 1986.

19 (n) MODIFICATIONS TO ELECTION TO INCLUDE

20 CHILD’S INCOME ON PARENT’S RETURN.—

21 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

22 section 1(g)(7)(A) (relating to election to include

23 certain unearned income of child on parent’s return)

24 is amended to read as follows:
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1 ‘‘(ii) such gross income is more than

2 the amount described in paragraph

3 (4)(A)(ii)(I) and less than 10 times the

4 amount so described,’’.

5 (2) COMPUTATION OF TAX.—Subparagraph (B)

6 of section 1(g)(7) (relating to income included on

7 parent’s return) is amended—

8 (A) by striking ‘‘$1,000’’ in clause (i) and

9 inserting ‘‘twice the amount described in para10 graph (4)(A)(ii)(I)’’, and

11 (B) by amending subclause (II) of clause

12 (ii) to read as follows:

13 ‘‘(II) for each such child, 15 per14 cent of the lesser of the amount de15 scribed in paragraph (4)(A)(ii)(I) or

16 the excess of the gross income of such

17 child over the amount so described,

18 and’’.

19 (3) MINIMUM TAX.—Subparagraph (B) of sec20 tion 59(j)(1) is amended by striking ‘‘$1,000’’ and

21 inserting ‘‘twice the amount in effect for the taxable

22 year under section 63(c)(5)(A)’’.

23 (4) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to taxable years begin25 ning after December 31, 1995.
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1 (o) TREATMENT OF CERTAIN VETERANS’ REEM2 PLOYMENT RIGHTS.—

3 (1) IN GENERAL.—Section 414 is amended by

4 adding at the end the following new subsection:

5 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ RE6 EMPLOYMENT RIGHTS UNDER USERRA.—

7 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

8 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

9 RIGHTS.—If any contribution is made by an em10 ployer or an employee under an individual account

11 plan with respect to an employee, or by an employee

12 to a defined benefit plan that provides for employee

13 contributions, and such contribution is required by

14 reason of such employee’s rights under chapter 43 of

15 title 38, United States Code, resulting from qualified

16 military service, then—

17 ‘‘(A) such contribution shall not be subject

18 to any otherwise applicable limitation contained

19 in section 402(g), 402(h), 403(b), 404(a),

20 404(h), 408, 415, or 457, and shall not be

21 taken into account in applying such limitations

22 to other contributions or benefits under such

23 plan or any other plan, with respect to the year

24 in which the contribution is made,
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1 ‘‘(B) such contribution shall be subject to

2 the limitations referred to in subparagraph (A)

3 with respect to the year to which the contribu4 tion relates (in accordance with rules prescribed

5 by the Secretary), and

6 ‘‘(C) such plan shall not be treated as fail7 ing to meet the requirements of section

8 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),

9 401(k)(12), 401(m), 403(b)(12), 408(k)(3),

10 408(k)(6), 408(p), 410(b), or 416 by reason of

11 the making of (or the right to make) such con12 tribution.

13 For purposes of the preceding sentence, any elective

14 deferral or employee contribution made under para15 graph (2) shall be treated as required by reason of

16 the employee’s rights under such chapter 43.

17 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

18 WITH RESPECT TO ELECTIVE DEFERRALS.—

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

20 subchapter and section 457, if an employee is

21 entitled to the benefits of chapter 43 of title 38,

22 United States Code, with respect to any plan

23 which provides for elective deferrals, the em24 ployer sponsoring the plan shall be treated as

25 meeting the requirements of such chapter 43
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1 with respect to such elective deferrals only if

2 such employer—

3 ‘‘(i) permits such employee to make

4 additional elective deferrals under such

5 plan (in the amount determined under sub6 paragraph (B) or such lesser amount as is

7 elected by the employee) during the period

8 which begins on the date of the reemploy9 ment of such employee with such employer

10 and has the same length as the lesser of—

11 ‘‘(I) the product of 3 and the pe12 riod of qualified military service which

13 resulted in such rights, and

14 ‘‘(II) 5 years, and

15 ‘‘(ii) makes a matching contribution

16 with respect to any additional elective de17 ferral made pursuant to clause (i) which

18 would have been required had such defer19 ral actually been made during the period of

20 such qualified military service.

21 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—

22 The amount determined under this subpara23 graph with respect to any plan is the maximum

24 amount of the elective deferrals that the indi25 vidual would have been permitted to make
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1 under the plan in accordance with the limita2 tions referred to in paragraph (1)(A) during the

3 period of qualified military service if the indi4 vidual had continued to be employed by the em5 ployer during such period and received com6 pensation as determined under paragraph (7).

7 Proper adjustment shall be made to the amount

8 determined under the preceding sentence for

9 any elective deferrals actually made during the

10 period of such qualified military service.

11 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

12 of this paragraph, the term ‘elective deferral’

13 has the meaning given such term by section

14 402(g)(3); except that such term shall include

15 any deferral of compensation under an eligible

16 deferred compensation plan (as defined in sec17 tion 457(b)).

18 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU19 TIONS.—References in subparagraphs (A) and

20 (B) to elective deferrals shall be treated as in21 cluding references to employee contributions.

22 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS

23 NOT REQUIRED.—For purposes of this subchapter

24 and subchapter E, no provision of chapter 43 of title
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1 38, United States Code, shall be construed as re2 quiring—

3 ‘‘(A) any crediting of earnings to an em4 ployee with respect to any contribution before

5 such contribution is actually made, or

6 ‘‘(B) any allocation of any forfeiture with

7 respect to the period of qualified military serv8 ice.

9 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER10 MITTED.—If any plan suspends the obligation to

11 repay any loan made to an employee from such plan

12 for any part of any period during which such em13 ployee is performing service in the uniformed serv14 ices (as defined in chapter 43 of title 38, United

15 States Code), whether or not qualified military serv16 ice, such suspension shall not be taken into account

17 for purposes of section 72(p), 401(a), or 4975(d)(1).

18 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur19 poses of this subsection, the term ‘qualified military

20 service’ means any service in the uniformed services

21 (as defined in chapter 43 of title 38, United States

22 Code) by any individual if such individual is entitled

23 to reemployment rights under such chapter with re24 spect to such service.
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1 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For pur2 poses of this subsection, the term ‘individual account

3 plan’ means any defined contribution plan (including

4 any tax-sheltered annuity plan under section 403(b),

5 any simplified employee pension under section

6 408(k), any qualified salary reduction arrangement

7 under section 408(p), and any eligible deferred com8 pensation plan (as defined in section 457(b)).

9 ‘‘(7) COMPENSATION.—For purposes of sections

10 403(b)(3), 415(c)(3), and 457(e)(5), an employee

11 who is in qualified military service shall be treated

12 as receiving compensation from the employer during

13 such period of qualified military service equal to—

14 ‘‘(A) the compensation the employee would

15 have received during such period if the em16 ployee were not in qualified military service, de17 termined based on the rate of pay the employee

18 would have received from the employer but for

19 absence during the period of qualified military

20 service, or

21 ‘‘(B) if the compensation the employee

22 would have received during such period was not

23 reasonably certain, the employee’s average com24 pensation from the employer during the 12-

25 month period immediately preceding the quali-
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1 fied military service (or, if shorter, the period of

2 employment immediately preceding the qualified

3 military service).

4 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

5 RETIREMENT PLANS.—For purposes of this sub6 chapter and section 457, an employer sponsoring a

7 retirement plan shall be treated as meeting the re8 quirements of chapter 43 of title 38, United States

9 Code, only if each of the following requirements is

10 met:

11 ‘‘(A) An individual reemployed under such

12 chapter is treated with respect to such plan as

13 not having incurred a break in service with the

14 employer maintaining the plan by reason of

15 such individual’s period of qualified military

16 service.

17 ‘‘(B) Each period of qualified military

18 service served by an individual is, upon reem19 ployment under such chapter, deemed with re20 spect to such plan to constitute service with the

21 employer maintaining the plan for the purpose

22 of determining the nonforfeitability of the indi23 vidual’s accrued benefits under such plan and

24 for the purpose of determining the accrual of

25 benefits under such plan.
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1 ‘‘(C) An individual reemployed under such

2 chapter is entitled to accrued benefits that are

3 contingent on the making of, or derived from,

4 employee contributions or elective deferrals only

5 to the extent the individual makes payment to

6 the plan with respect to such contributions or

7 deferrals. No such payment may exceed the

8 amount the individual would have been per9 mitted or required to contribute had the indi10 vidual remained continuously employed by the

11 employer throughout the period of qualified

12 military service. Any payment to such plan shall

13 be made during the period beginning with the

14 date of reemployment and whose duration is 3

15 times the period of the qualified military service

16 (but not greater than 5 years).

17 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

18 subsection shall not apply to any retirement plan to

19 which chapter 43 of title 38, United States Code,

20 does not apply.

21 ‘‘(10) REFERENCES.—For purposes of this sec22 tion, any reference to chapter 43 of title 38, United

23 States Code, shall be treated as a reference to such

24 chapter as in effect on December 12, 1994 (without

25 regard to any subsequent amendment).’’.
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1 (2) EFFECTIVE DATE.—The amendment made

2 by this subsection shall be effective as of December

3 12, 1994.

4 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

5 (1) IN GENERAL.—Paragraph (3) of section

6 6045(e) (relating to prohibition of separate charge

7 for filing return) is amended by adding at the end

8 the following new sentence: ‘‘Nothing in this para9 graph shall be construed to prohibit the real estate

10 reporting person from taking into account its cost of

11 complying with such requirement in establishing its

12 charge (other than a separate charge for complying

13 with such requirement) to any customer for perform14 ing services in the case of a real estate trans15 action.’’.

16 (2) EFFECTIVE DATE.—The amendment made

17 by paragraph (1) shall take effect as if included in

18 section 1015(e)(2)(A) of the Technical and Mis19 cellaneous Revenue Act of 1988.

20 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

21 STOCK REDEMPTION EXPENSES.

22 (1) IN GENERAL.—Paragraph (1) of section

23 162(k) is amended by striking ‘‘the redemption of

24 its stock’’ and inserting ‘‘the reacquisition of its
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1 stock or of the stock of any related person (as de2 fined in section 465(b)(3)(C))’’.

3 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub4 paragraph (A) of section 162(k)(2) is amended by

5 striking ‘‘or’’ at the end of clause (i), by redesignat6 ing clause (ii) as clause (iii), and by inserting after

7 clause (i) the following new clause:

8 ‘‘(ii) deduction for amounts which are

9 properly allocable to indebtedness and am10 ortized over the term of such indebtedness,

11 or’’.

12 (3) CLERICAL AMENDMENT.—The subsection

13 heading for subsection (k) of section 162 is amended

14 by striking ‘‘REDEMPTION’’ and inserting ‘‘REAC15 QUISITION’’.

16 (4) EFFECTIVE DATE.—

17 (A) IN GENERAL.—Except as provided in

18 subparagraph (B), the amendments made by

19 this subsection shall apply to amounts paid or

20 incurred after September 13, 1995, in taxable

21 years ending after such date.

22 (B) PARAGRAPH (2).—The amendment

23 made by paragraph (2) shall take effect as if

24 included in the amendment made by section

25 613 of the Tax Reform Act of 1986.
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1 (r) CLERICAL AMENDMENT TO SECTION 404.—

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

3 404(j) is amended by striking ‘‘(10)’’ and inserting

4 ‘‘(9)’’.

5 (2) EFFECTIVE DATE.—The amendment made

6 by paragraph (1) shall take effect as if included in

7 the amendments made by section 713(d)(4)(A) of

8 the Deficit Reduction Act of 1984.

9 (s) PASSIVE INCOME NOT TO INCLUDE FSC IN10 COME, ETC.—

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

12 1296(b) is amended by striking ‘‘or’’ at the end of

13 subparagraph (B), by striking the period at the end

14 of subparagraph (C) and inserting ‘‘, or’’, and by in15 serting after subparagraph (C) the following new

16 subparagraph:

17 ‘‘(D) which is foreign trade income of a

18 FSC or export trade income of an export trade

19 corporation (as defined in section 971).’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall take effect as if included in

22 the amendments made by section 1235 of the Tax

23 Reform Act of 1986.

24 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—
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1 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

2 amended by striking ‘‘of the subclause’’ and insert3 ing ‘‘of subclause’’.

4 (2) Paragraph (2) of section 72(m) is amended

5 by inserting ‘‘and’’ at the end of subparagraph (A),

6 by striking subparagraph (B), and by redesignating

7 subparagraph (C) as subparagraph (B).

8 (3) Paragraph (2) of section 86(b) is amended

9 by striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

10 (4)(A) The heading for section 112 is amended

11 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COM12 BAT ZONE COMPENSATION’’.

13 (B) The item relating to section 112 in the

14 table of sections for part III of subchapter B of

15 chapter 1 is amended by striking ‘‘combat pay’’ and

16 inserting ‘‘combat zone compensation’’.

17 (C) Paragraph (1) of section 3401(a) is amend18 ed by striking ‘‘combat pay’’ and inserting ‘‘combat

19 zone compensation’’.

20 (5) Clause (i) of section 172(h)(3)(B) is amend21 ed by striking the comma at the end thereof and in22 serting a period.

23 (6) Clause (ii) of section 543(a)(2)(B) is

24 amended by striking ‘‘section 563(c)’’ and inserting

25 ‘‘section 563(d)’’.
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1 (7) Paragraph (1) of section 958(a) is amended

2 by striking ‘‘sections 955(b)(1) (A) and (B),

3 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec4 tion 960(a)(1)’’.

5 (8) Subsection (g) of section 642 is amended by

6 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

7 section 2621(a)(2)’’.

8 (9) Section 1463 is amended by striking ‘‘this

9 subsection’’ and inserting ‘‘this section’’.

10 (10) Subsection (k) of section 3306 is amended

11 by inserting a period at the end thereof.

12 (11) The item relating to section 4472 in the

13 table of sections for subchapter B of chapter 36 is

14 amended by striking ‘‘and special rules’’.

15 (12) Paragraph (3) of section 5134(c) is

16 amended by striking ‘‘section 6662(a)’’ and inserting

17 ‘‘section 6665(a)’’.

18 (13) Paragraph (2) of section 5206(f) is

19 amended by striking ‘‘section 5(e)’’ and inserting

20 ‘‘section 105(e)’’.

21 (14) Paragraph (1) of section 6050B(c) is

22 amended by striking ‘‘section 85(c)’’ and inserting

23 ‘‘section 85(b)’’.

24 (15) Subsection (k) of section 6166 is amended

25 by striking paragraph (6).
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1 (16) Subsection (e) of section 6214 is amended

2 to read as follows:

3 ‘‘(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).’’.

4 (17) The section heading for section 6043 is

5 amended by striking the semicolon and inserting a

6 comma.

7 (18) The item relating to section 6043 in the

8 table of sections for subpart B of part III of sub9 chapter A of chapter 61 is amended by striking the

10 semicolon and inserting a comma.

11 (19) The table of sections for part I of sub12 chapter A of chapter 68 is amended by striking the

13 item relating to section 6662.

14 (20)(A) Section 7232 is amended—

15 (i) by striking ‘‘LUBRICATING OIL,’’ in

16 the heading, and

17 (ii) by striking ‘‘lubricating oil,’’ in the

18 text.

19 (B) The table of sections for part II of sub20 chapter A of chapter 75 is amended by striking ‘‘lu21 bricating oil,’’ in the item relating to section 7232.

22 (21) Paragraph (1) of section 6701(a) of the

23 Omnibus Budget Reconciliation Act of 1989 is
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•HR 3448 RS

1 amended by striking ‘‘subclause (IV)’’ and inserting

2 ‘‘subclause (V)’’.

3 (22) Clause (ii) of section 7304(a)(2)(D) of

4 such Act is amended by striking ‘‘subsection (c)(2)’’

5 and inserting ‘‘subsection (c)’’.

6 (23) Paragraph (1) of section 7646(b) of such

7 Act is amended by striking ‘‘section 6050H(b)(1)’’

8 and inserting ‘‘section 6050H(b)(2)’’.

9 (24) Paragraph (10) of section 7721(c) of

10 such Act is amended by striking ‘‘section

11 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

12 6661(b)(2)(C)(ii)’’.

13 (25) Subparagraph (A) of section 7811(i)(3) of

14 such Act is amended by inserting ‘‘the first place it

15 appears’’ before ‘‘in clause (i)’’.

16 (26) Paragraph (10) of section 7841(d) of

17 such Act is amended by striking ‘‘section 381(a)’’

18 and inserting ‘‘section 381(c)’’.

19 (27) Paragraph (2) of section 7861(c) of such

20 Act is amended by inserting ‘‘the second place it ap21 pears’’ before ‘‘and inserting’’.

22 (28) Paragraph (1) of section 460(b) is amend23 ed by striking ‘‘the look-back method of paragraph

24 (3)’’ and inserting ‘‘the look-back method of para25 graph (2)’’.
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1 (29) Subparagraph (C) of section 50(a)(2) is

2 amended by striking ‘‘subsection (c)(4)’’ and insert3 ing ‘‘subsection (d)(5)’’.

4 (30) Subparagraph (B) of section 172(h)(4) is

5 amended by striking the material following the head6 ing and preceding clause (i) and inserting ‘‘For pur7 poses of subsection (b)(2)—’’.

8 (31) Subparagraph (A) of section 355(d)(7) is

9 amended by inserting ‘‘section’’ before ‘‘267(b)’’.

10 (32) Subparagraph (C) of section 420(e)(1) is

11 amended by striking ‘‘mean’’ and inserting ‘‘means’’.

12 (33) Paragraph (4) of section 537(b) is amend13 ed by striking ‘‘section 172(i)’’ and inserting ‘‘sec14 tion 172(f)’’.

15 (34) Subparagraph (B) of section 613(e)(1) is

16 amended by striking the comma at the end thereof

17 and inserting a period.

18 (35) Paragraph (4) of section 856(a) is amend19 ed by striking ‘‘section 582(c)(5)’’ and inserting

20 ‘‘section 582(c)(2)’’.

21 (36) Sections 904(f)(2)(B)(i) and

22 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

23 in effect on the day before the date of the enactment

24 of the Revenue Reconciliation Act of 1990)’’ after

25 ‘‘section 172(h)’’.
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1 (37) Subsection (b) of section 936 is amended

2 by striking ‘‘subparagraphs (D)(ii)(I)’’ and inserting

3 ‘‘subparagraphs (D)(ii)’’.

4 (38) Subsection (c) of section 2104 is amended

5 by striking ‘‘subparagraph (A), (C), or (D) of

6 section 861(a)(1)’’ and inserting ‘‘section

7 861(a)(1)(A)’’.

8 (39) Subparagraph (A) of section 280A(c)(1) is

9 amended to read as follows:

10 ‘‘(A) as the principal place of business for

11 any trade or business of the taxpayer,’’.

12 (40) Section 6038 is amended by redesignating

13 the subsection relating to cross references as sub14 section (f).

15 (41) Clause (iv) of section 6103(e)(1)(A) is

16 amended by striking all that follows ‘‘provisions of’’

17 and inserting ‘‘section 1(g) or 59(j);’’.

18 (42) The subsection (f) of section 6109 of the

19 Internal Revenue Code of 1986 which was added by

20 section 2201(d) of Public Law 101–624 is redesig21 nated as subsection (g).

22 (43) Subsection (b) of section 7454 is amended

23 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec24 tion 4955(f)(2)’’.
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1 (44) Subsection (d) of section 11231 of the

2 Revenue Reconciliation Act of 1990 shall be applied

3 as if ‘‘comma’’ appeared instead of ‘‘period’’ and as

4 if the paragraph (9) proposed to be added ended

5 with a comma.

6 (45) Paragraph (1) of section 11303(b) of the

7 Revenue Reconciliation Act of 1990 shall be applied

8 as if ‘‘paragraph’’ appeared instead of ‘‘subpara9 graph’’ in the material proposed to be stricken.

10 (46) Subsection (f) of section 11701 of the Rev11 enue Reconciliation Act of 1990 is amended by in12 serting ‘‘(relating to definitions)’’ after ‘‘section

13 6038(e)’’.

14 (47) Subsection (i) of section 11701 of the Rev15 enue Reconciliation Act of 1990 shall be applied as

16 if ‘‘subsection’’ appeared instead of ‘‘section’’ in the

17 material proposed to be stricken.

18 (48) Subparagraph (B) of section 11801(c)(2)

19 of the Revenue Reconciliation Act of 1990 shall be

20 applied as if ‘‘section 56(g)’’ appeared instead of

21 ‘‘section 59(g)’’.

22 (49) Subparagraph (C) of section 11801(c)(8)

23 of the Revenue Reconciliation Act of 1990 shall be

24 applied as if ‘‘reorganizations’’ appeared instead of
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1 ‘‘reorganization’’ in the material proposed to be

2 stricken.

3 (50) Subparagraph (H) of section 11801(c)(9)

4 of the Revenue Reconciliation Act of 1990 shall be

5 applied as if ‘‘section 1042(c)(1)(B)’’ appeared in6 stead of ‘‘section 1042(c)(2)(B)’’.

7 (51) Subparagraph (F) of section 11801(c)(12)

8 of the Revenue Reconciliation Act of 1990 shall be

9 applied as if ‘‘and (3)’’ appeared instead of ‘‘and

10 (E)’’.

11 (52) Subparagraph (A) of section 11801(c)(22)

12 of the Revenue Reconciliation Act of 1990 shall be

13 applied as if ‘‘chapters 21’’ appeared instead of

14 ‘‘chapter 21’’ in the material proposed to be strick15 en.

16 (53) Paragraph (3) of section 11812(b) of the

17 Revenue Reconciliation Act of 1990 shall be applied

18 by not executing the amendment therein to the

19 heading of section 42(d)(5)(B).

20 (54) Clause (i) of section 11813(b)(9)(A) of the

21 Revenue Reconciliation Act of 1990 shall be applied

22 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the

23 material proposed to be stricken.

24 (55) Subparagraph (F) of section 11813(b)(13)

25 of the Revenue Reconciliation Act of 1990 shall be
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1 applied as if ‘‘tax’’ appeared after ‘‘investment’’ in

2 the material proposed to be stricken.

3 (56) Paragraph (19) of section 11813(b) of the

4 Revenue Reconciliation Act of 1990 shall be applied

5 as if ‘‘Paragraph (20) of section 1016(a), as redesig6 nated by section 11801,’’ appeared instead of ‘‘Para7 graph (21) of section 1016(a)’’.

8 (57) Paragraph (5) section 8002(a) of the Sur9 face Transportation Revenue Act of 1991 shall be

10 applied as if ‘‘4481(e)’’ appeared instead of

11 ‘‘4481(c)’’.

12 (58) Section 7872 is amended—

13 (A) by striking ‘‘foregone’’ each place it

14 appears in subsections (a) and (e)(2) and in15 serting ‘‘forgone’’, and

16 (B) by striking ‘‘FOREGONE’’ in the head17 ing for subsection (e) and the heading for para18 graph (2) of subsection (e) and inserting ‘‘FOR19 GONE’’.

20 (59) Paragraph (7) of section 7611(h) is

21 amended by striking ‘‘approporiate’’ and inserting

22 ‘‘appropriate’’.

23 (60) The heading of paragraph (3) of section

24 419A(c) is amended by striking ‘‘SEVERENCE’’ and

25 inserting ‘‘SEVERANCE’’.
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1 (61) Clause (ii) of section 807(d)(3)(B) is

2 amended by striking ‘‘Commissoners’ ’’ and insert3 ing ‘‘Commissioners’ ’’.

4 (62) Subparagraph (B) of section 1274A(c)(1)

5 is amended by striking ‘‘instument’’ and inserting

6 ‘‘instrument’’.

7 (63) Subparagraph (B) of section 724(d)(3) by

8 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara9 graph’’.

10 (64) The last sentence of paragraph (2) of sec11 tion 42(c) is amended by striking ‘‘of 1988’’.

12 (65) Paragraph (1) of section 9707(d) is

13 amended by striking ‘‘diligence,’’ and inserting ‘‘dili14 gence’’.

15 (66) Subsection (c) of section 4977 is amended

16 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘sec17 tion 132(h)’’.

18 (67) The last sentence of section 401(a)(20) is

19 amended by striking ‘‘section 211’’ and inserting

20 ‘‘section 521’’.

21 (68) Subparagraph (A) of section 402(g)(3) is

22 amended by striking ‘‘subsection (a)(8)’’ and insert23 ing ‘‘subsection (e)(3)’’.
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1 (69) The last sentence of section 403(b)(10) is

2 amended by striking ‘‘an direct’’ and inserting ‘‘a

3 direct’’.

4 (70) Subparagraph (A) of section 4973(b)(1) is

5 amended by striking ‘‘sections 402(c)’’ and inserting

6 ‘‘section 402(c)’’.

7 (71) Paragraph (12) of section 3405(e) is

8 amended by striking ‘‘(b)(3)’’ and inserting

9 ‘‘(b)(2)’’.

10 (72) Paragraph (41) of section 521(b) of the

11 Unemployment Compensation Amendments of 1992

12 shall be applied as if ‘‘section’’ appeared instead of

13 ‘‘sections’’ in the material proposed to be stricken.

14 (73) Paragraph (27) of section 521(b) of the

15 Unemployment Compensation Amendments of 1992

16 shall be applied as if ‘‘Section 691(c)(5)’’ appeared

17 instead of ‘‘Section 691(c)’’.

18 (74) Paragraph (5) of section 860F(a) is

19 amended by striking ‘‘paragraph (1)’’ and inserting

20 ‘‘paragraph (2)’’.

21 (75) Paragraph (1) of section 415(k) is amend22 ed by adding ‘‘or’’ at the end of subparagraph (C),

23 by striking subparagraphs (D) and (E), and by re24 designating subparagraph (F) as subparagraph (D).
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1 (76) Paragraph (2) of section 404(a) is amend2 ed by striking ‘‘(18),’’.

3 (77) Clause (ii) of section 72(p)(4)(A) is

4 amended to read as follows:

5 ‘‘(ii) SPECIAL RULE.—The term

6 ‘qualified employer plan’ shall not include

7 any plan which was (or was determined to

8 be) a qualified employer plan or a govern9 ment plan.’’.

10 (78) Sections 461(i)(3)(C) and

11 1274(b)(3)(B)(i) are each amended by striking ‘‘sec12 tion 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

13 6662(d)(2)(C)(iii)’’.

14 (79) Subsection (a) of section 164 is amended

15 by striking the paragraphs relating to the genera16 tion-skipping tax and the environmental tax imposed

17 by section 59A and by inserting after paragraph (3)

18 the following new paragraphs:

19 ‘‘(4) The GST tax imposed on income distribu20 tions.

21 ‘‘(5) The environmental tax imposed by section

22 59A.’’.

23 (u) CERTAIN PROPERTY NOT TREATED AS SECTION

24 179 PROPERTY.—
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1 (1) IN GENERAL.—Paragraph (1) of section

2 179(d) is amended by adding at the end thereof the

3 following new sentence: ‘‘Such term shall not include

4 any property described in section 50(b) and shall not

5 include air conditioning or heating units and

6 horses.’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by paragraph (1) shall apply to property placed in

9 service after May 14, 1996.

10 (b) TABLE OF CONTENTS.—

TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.

Sec. 1102. Underpayments of estimated tax.

Subtitle A—Expensing; Etc.

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

Sec. 1112. Treatment of employee tips.

Sec. 1113. Treatment of 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.

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 dieselpowered motorboats.
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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 of simple plan to 401(k) arrangements.

SUBCHAPTER B—OTHER PROVISIONS

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

Sec. 1443. Distributions under rural cooperative plans.

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

Sec. 1445. Uniform retirement age.

Sec. 1446. Contributions on behalf of disabled employees.

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

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

governments.

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

limitations.

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

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

before annuity starting date.

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

Sec. 1453. Tax on prohibited transactions.

Sec. 1454. Treatment of leased employees.

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

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

from self-employment.

Sec. 1457. 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. 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.

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.
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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

Section 1. Short title.

Sec. 2. Proper compensation for use of employer vehicles.

Sec. 3. Effective date.

Sec. 4. Minimum wage increase.

Sec. 5. Fair Labor Standards Act Amendments.

1 TITLE I—SMALL BUSINESS AND

2 OTHER TAX PROVISIONS

3 SEC. 1101. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

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

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

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

8 other provision of the Internal Revenue Code of 1986.

9 SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

10 No addition to the tax shall be made under section

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

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

2 date of the enactment of this Act to the extent such under3 payment was created or increased by any provision of this

4 title.

5 Subtitle A—Expensing; Etc.

6 SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL

7 BUSINESSES.

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

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

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

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

12 for any taxable year shall not exceed the following ap13 plicable 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.’’

14 (b) EFFECTIVE DATE.—The amendment made by sub15 section (a) shall apply to taxable years beginning after De16 cember 31, 1996.

17 SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

18 (a) EMPLOYEE CASH TIPS.—

19 (1) REPORTING REQUIREMENT NOT CONSID20 ERED.—Subparagraph (A) of section 45B(b)(1) (re21 lating to excess employer social security tax) is
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1 amended by inserting ‘‘(without regard to whether

2 such tips are reported under section 6053)’’ after ‘‘sec3 tion 3121(q)’’.

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

5 13443 of the Revenue Reconciliation Act of 1993 is

6 amended by inserting ‘‘, with respect to services per7 formed before, on, or after such date’’ after ‘‘1993’’.

8 (3) EFFECTIVE DATE.—The amendments made

9 by this subsection shall take effect as if included in

10 the amendments made by, and the provisions of, sec11 tion 13443 of the Revenue Reconciliation Act of 1993.

12 (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEV13 ERAGES.—

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

15 45B(b) is amended to read as follows:

16 ‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV17 ERAGES TAKEN INTO ACCOUNT.—In applying para18 graph (1), there shall be taken into account only tips

19 received from customers in connection with the deliv20 ering or serving of food or beverages for consumption

21 if the tipping of employees delivering or serving food

22 or beverages by customers is customary.’’

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

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

25 performed after December 31, 1996.
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1 SEC. 1113. TREATMENT OF DUES PAID TO AGRICULTURAL

2 OR HORTICULTURAL ORGANIZATIONS.

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

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

5 the following new subsection:

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

7 HORTICULTURAL ORGANIZATIONS.—

8 ‘‘(1) IN GENERAL.—If—

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

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

12 of such organization, and

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

14 dues does not exceed $100,

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

16 as derived by such organization from an unrelated

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

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

21 of any taxable year beginning in a calendar year

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

23 be increased by an amount equal to—

24 ‘‘(A) $100, multiplied by

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

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

3 subparagraph (B) thereof.

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

5 term ‘dues’ means any payment (whether or not des6 ignated as dues) which is required to be made in

7 order to be recognized by the organization as a mem8 ber of the organization.’’.

9 (b) EFFECTIVE DATE.—The amendment made by sub10 section (a) shall apply to taxable years beginning after De11 cember 31, 1994.

12 SEC. 1114. CLARIFICATION OF EMPLOYMENT TAX STATUS

13 OF CERTAIN FISHERMEN.

14 (a) CLARIFICATION OF EMPLOYMENT TAX STATUS.—

15 (1) AMENDMENTS OF INTERNAL REVENUE CODE

16 OF 1986.—

17 (A) DETERMINATION OF SIZE OF CREW.—

18 Subsection (b) of section 3121 (defining employ19 ment) is amended by adding at the end the fol20 lowing new sentence:

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

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

23 10 individuals if the average size of the operating crew

24 on trips made during the preceding 4 calendar quarters

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

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

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

5 cash remuneration other than as provided in

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

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

9 trip;

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

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

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

16 (C) CONFORMING AMENDMENT.—Section

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

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

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

20 and by adding at the end the following new

21 paragraph:

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

23 3121(b)(20)(A).’’.

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

2 Subsection (a) of section 210 of the Social Secu3 rity Act is amended by adding at the end the fol4 lowing new sentence:

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

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

7 10 individuals if the average size of the operating crew

8 on trips made during the preceding 4 calendar quarters

9 consisted of fewer than 10 individuals.’’.

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

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

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

15 additional compensation other than as provided

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

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

19 trip;

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

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

24 cook) for which additional cash remunera25 tion is traditional in the industry,’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to remuneration paid after December

3 31, 1994.

4 SEC. 1115. MODIFICATIONS OF TAX-EXEMPT BOND RULES

5 FOR FIRST-TIME FARMERS.

6 (a) ACQUISITION FROM RELATED PERSON AL7 LOWED.—Section 147(c)(2) (relating to exception for first8 time farmers) is amended by adding at the end the follow9 ing new subparagraph:

10 ‘‘(G) ACQUISITION FROM RELATED PER11 SON.—For purposes of this paragraph and sec12 tion 144(a), the acquisition by a first-time farm13 er of land or personal property from a related

14 person (within the meaning of section 144(a)(3))

15 shall not be treated as an acquisition from a re16 lated person, if—

17 ‘‘(i) the acquisition price is for the fair

18 market value of such land or property, and

19 ‘‘(ii) subsequent to such acquisition,

20 the related person does not have a financial

21 interest in the farming operation with re22 spect to which the bond proceeds are to be

23 used.’’

24 (b) SUBSTANTIAL FARMLAND AMOUNT DOUBLED.—

25 Clause (i) of section 147(c)(2)(E) (defining substantial
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1 farmland) is amended by striking ‘‘15 percent’’ and insert2 ing ‘‘30 percent’’.

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

4 section shall apply to bonds issued after the date of the en5 actment of this Act.

6 SEC. 1116. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT

7 SELLERS.

8 (a) IN GENERAL.—Section 3508(b)(2)(A) is amended

9 by striking ‘‘or’’ at the end of clause (i), by inserting ‘‘or’’

10 at the end of clause (ii), and by inserting after clause (ii)

11 the following new clause:

12 ‘‘(iii) is engaged in the trade or busi13 ness of the delivering or distribution of

14 newspapers or shopping news (including

15 any services directly related to such trade or

16 business),’’.

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

18 section shall apply to services performed after December 31,

19 1995.

20 SEC. 1117. APPLICATION OF INVOLUNTARY CONVERSION

21 RULES TO PRESIDENTIALLY DECLARED DIS22 ASTERS.

23 (a) IN GENERAL.—Section 1033(h) is amended by re24 designating paragraphs (2) and (3) as paragraphs (3) and
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1 (4) and by inserting after paragraph (1) the following new

2 paragraph:

3 ‘‘(2) TRADE OR BUSINESS AND INVESTMENT

4 PROPERTY.—If a taxpayer’s property held for produc5 tive use in a trade or business or for investment is

6 compulsorily or involuntarily converted as a result of

7 a Presidentially declared disaster, tangible property

8 of a type held for productive use in a trade or busi9 ness shall be treated for purposes of subsection (a) as

10 property similar or related in service or use to the

11 property so converted.’’.

12 (b) CONFORMING AMENDMENTS.—Section 1033(h) is

13 amended—

14 (1) by striking ‘‘residence’’ in paragraph (3) (as

15 redesignated by subsection (a)) and inserting ‘‘prop16 erty’’,

17 (2) by striking ‘‘PRINCIPAL RESIDENCES’’ in the

18 heading and inserting ‘‘PROPERTY’’, and

19 (3) by striking ‘‘(1) IN GENERAL.—’’ and insert20 ing ‘‘(1) PRINCIPAL RESIDENCES.—’’.

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

22 section shall apply to disasters declared after December 31,

23 1994, in taxable years ending after such date.
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1 SEC. 1118. CLASS LIFE FOR GAS STATION CONVENIENCE

2 STORES AND SIMILAR STRUCTURES.

3 (a) IN GENERAL.—Section 168(e)(3)(E) (classifying

4 certain property as 15-year property) is amended by strik5 ing ‘‘and’’ at the end of clause (i), by striking the period

6 at the end of clause (ii) and inserting ‘‘, and’’, and by add7 ing at the end the following new clause:

8 ‘‘(iii) any section 1250 property which

9 is a retail motor fuels outlet (whether or not

10 food or other convenience items are sold at

11 the outlet).’’

12 (b) CONFORMING AMENDMENT.—Subparagraph (B) of

13 section 168(g)(3) is amended by inserting after the item re14 lating to subparagraph (E)(ii) in the table contained there15 in the following new item:

‘‘(E)(iii) . . . . . . . . . . . . . . . . . 20’’.

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

17 section shall apply to property which is placed in service

18 on or after the date of the enactment of this Act and to

19 which section 168 of the Internal Revenue Code of 1986 ap20 plies after the amendment made by section 201 of the Tax

21 Reform Act of 1986. A taxpayer may elect (in such form

22 and manner as the Secretary of the Treasury may pre23 scribe) to have such amendments apply with respect to any
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1 property placed in service before such date and to which

2 such section so applies.

3 SEC. 1119. TREATMENT OF ABANDONMENT OF LESSOR IM4 PROVEMENTS AT TERMINATION OF LEASE.

5 (a) IN GENERAL.—Paragraph (8) of section 168(i) is

6 amended to read as follows:

7 ‘‘(8) TREATMENT OF LEASEHOLD IMPROVE8 MENTS.—

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

10 building erected (or improvements made) on

11 leased property, if such building or improvement

12 is property to which this section applies, the de13 preciation deduction shall be determined under

14 the provisions of this section.

15 ‘‘(B) TREATMENT OF LESSOR IMPROVE16 MENTS WHICH ARE ABANDONED AT TERMINATION

17 OF LEASE.—An improvement—

18 ‘‘(i) which is made by the lessor of

19 leased property for the lessee of such prop20 erty, and

21 ‘‘(ii) which is irrevocably disposed of

22 or abandoned by the lessor at the termi23 nation of the lease by such lessee,
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1 shall be treated for purposes of determining gain

2 or loss under this title as disposed of by the les3 sor when so disposed of or abandoned.’’

4 (b) EFFECTIVE DATE.—Subparagraph (B) of section

5 168(i)(8) of the Internal Revenue Code of 1986, as added

6 by the amendment made by subsection (a), shall apply to

7 improvements disposed of or abandoned after June 12,

8 1996.

9 SEC. 1120. DEDUCTIBILITY OF BUSINESS MEAL EXPENSES

10 FOR CERTAIN SEAFOOD PROCESSING FACILI11 TIES.

12 (a) IN GENERAL.—Subparagraph (E) of section

13 274(n)(2) is amended by striking ‘‘or’’ at the end of clause

14 (iii), by striking the period at the end of clause (iv) and

15 inserting ‘‘, or’’, and by inserting after clause (iv) the fol16 lowing new clause:

17 ‘‘(v) provided at a remote seafood proc18 essing facility located in the United States

19 north of 53 degrees north latitude.’’

20 (b) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to taxable years beginning after Decem22 ber 31, 1996.
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1 SEC. 1121. CLARIFICATION OF TAX TREATMENT OF HARD

2 CIDER.

3 (a) HARD CIDER CONTAINING NOT MORE THAN 7

4 PERCENT ALCOHOL TAXED AS WINE.—Subsection (b) of

5 section 5041 (relating to imposition and rate of tax) is

6 amended by striking ‘‘and’’ at the end of paragraph (4),

7 by striking the period at the end of paragraph (5) and in8 serting ‘‘; and’’, and by adding at the end the following

9 new paragraph:

10 ‘‘(6) On hard cider derived primarily from ap11 ples or apple concentrate and water, containing no

12 other fruit product, and containing at least one-half

13 of 1 percent and not more than 7 percent of alcohol

14 by volume, 22.6 cents per wine gallon.’’

15 (b) EXCLUSION FROM SMALL PRODUCER CREDIT.—

16 Paragraph (1) of section 5041(c) (relating to credit for

17 small domestic producers) is amended by striking ‘‘sub18 section (b)(4)’’ and inserting ‘‘paragraphs (4) and (6) of

19 subsection (b)’’.

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

21 section shall take effect on January 1, 1997.
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1 SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION

2 WHETHER INDIVIDUALS ARE EMPLOYEES

3 FOR PURPOSES OF EMPLOYMENT TAXES.

4 (a) IN GENERAL.—Section 530 of the Revenue Act of

5 1978 is amended by adding at the end the following new

6 subsection:

7 ‘‘(e) SPECIAL RULES FOR APPLICATION OF SEC8 TION.—

9 ‘‘(1) NOTICE REQUIREMENTS.—

10 ‘‘(A) WRITTEN AGREEMENT REQUIRED BE11 TWEEN TAXPAYER AND INDIVIDUAL.—The provi12 sions of subsection (a)(1) shall not apply with

13 respect to a taxpayer and any individual unless

14 such taxpayer and individual sign a statement

15 (at such time and in such form as the Secretary

16 may prescribe) which provides that such individ17 ual will not be treated as an employee of the tax18 payer for purposes of employment taxes.

19 ‘‘(B) NOTICE OF AVAILABILITY OF SEC20 TION.—An officer or employee of the Internal

21 Revenue Service shall, before or at the commence22 ment of any audit relating to the employment

23 status of one or more individuals who perform

24 services for the taxpayer, provide the taxpayer

25 with a written notice of the provisions of this

26 section.
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1 ‘‘(2) RULES RELATING TO STATUTORY STAND2 ARDS.—For purposes of subsection (a)(2)—

3 ‘‘(A) a taxpayer may not rely on an audit

4 commenced after December 31, 1996, for pur5 poses of subparagraph (B) thereof unless such

6 audit included an examination for employment

7 tax purposes of whether the individual involved

8 (or any individual holding a position substan9 tially similar to the position held by the individ10 ual involved) should be treated as an employee of

11 the taxpayer,

12 ‘‘(B) in no event shall the significant seg13 ment requirement of subparagraph (C) thereof be

14 construed to require a reasonable showing of the

15 practice of more than 25 percent of the industry

16 (determined by not taking into account the tax17 payer), and

18 ‘‘(C) in applying the long-standing recog19 nized practice requirement of subparagraph (C)

20 thereof—

21 ‘‘(i) such requirement shall not be con22 strued as requiring the practice to have con23 tinued for more than 10 years, and
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1 ‘‘(ii) a practice shall not fail to be

2 treated as long-standing merely because

3 such practice began after 1978.

4 ‘‘(3) AVAILABILITY OF SAFE HARBORS.—Nothing

5 in this section shall be construed to provide that sub6 section (a) only applies where the individual involved

7 is otherwise an employee of the taxpayer.

8 ‘‘(4) BURDEN OF PROOF.—

9 ‘‘(A) IN GENERAL.—If—

10 ‘‘(i) a taxpayer establishes a prima

11 facie case that it was reasonable not to treat

12 an individual as an employee for purposes

13 of this section, and

14 ‘‘(ii) the taxpayer has fully cooperated

15 with reasonable requests from the Secretary

16 of the Treasury or his delegate,

17 then the burden of proof with respect to such

18 treatment shall be on the Secretary.

19 ‘‘(B) EXCEPTION FOR OTHER REASONABLE

20 BASIS.—In the case of any issue involving

21 whether the taxpayer had a reasonable basis not

22 to treat an individual as an employee for pur23 poses of this section, subparagraph (A) shall only

24 apply for purposes of determining whether the
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1 taxpayer meets the requirements of subparagraph

2 (A), (B), or (C) of subsection (a)(2).’’

3 (b) EFFECTIVE DATES.—

4 (1) IN GENERAL.—The amendment made by this

5 section shall apply to periods after December 31,

6 1996.

7 (2) NOTICE REQUIREMENTS.—

8 (A) WRITTEN AGREEMENT.—In the case of

9 individuals who first perform services for a tax10 payer before January 1, 1997, the requirements

11 of section 530(e)(1)(A) of the Revenue Act of

12 1978 (as added by subsection (a)) shall not

13 apply before January 1, 1998, unless the tax14 payer elects to apply such requirements before

15 such date.

16 (B) NOTICE BY INTERNAL REVENUE SERV17 ICE.—Section 530(e)(1)(B) of the Revenue Act of

18 1978 (as added by subsection (a)) shall apply to

19 audits which commence after December 31, 1996.

20 (3) BURDEN OF PROOF.—

21 (A) IN GENERAL.—Section 530(e)(4) of the

22 Revenue Act of 1978 (as added by subsection (a))

23 shall apply to disputes involving periods after

24 December 31, 1996.
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1 (B) NO INFERENCE.—Nothing in the

2 amendments made by this section shall be con3 strued to infer the proper treatment of the bur4 den of proof with respect to disputes involving

5 periods before January 1, 1997.

6 Subtitle B—Extension of Certain

7 Expiring Provisions

8 SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

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

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

11 percent’’ and inserting ‘‘35 percent’’.

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

13 of section 51 is amended to read as follows:

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

15 of this subpart—

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

17 of a targeted group if such individual is—

18 ‘‘(A) a qualified IV–A recipient,

19 ‘‘(B) a qualified veteran,

20 ‘‘(C) a qualified ex-felon,

21 ‘‘(D) a high-risk youth,

22 ‘‘(E) a vocational rehabilitation referral,

23 ‘‘(F) a qualified summer youth employee, or

24 ‘‘(G) a qualified food stamp recipient.

25 ‘‘(2) QUALIFIED IV–A RECIPIENT.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified IV–

2 A recipient’ means any individual who is cer3 tified by the designated local agency as being a

4 member of a family receiving assistance under a

5 IV–A program for at least a 9-month period end6 ing during the 9-month period ending on the

7 hiring date.

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

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

10 program providing assistance under a State

11 plan approved under part A of title IV of the So12 cial Security Act (relating to assistance for

13 needy families with minor children) and any

14 successor of such program.

15 ‘‘(3) QUALIFIED VETERAN.—

16 ‘‘(A) IN GENERAL.—The term ‘qualified vet17 eran’ means any veteran who is certified by the

18 designated local agency as being—

19 ‘‘(i) a member of a family receiving as20 sistance under a IV–A program (as defined

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

22 period ending during the 12-month period

23 ending on the hiring date, or

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

25 assistance under a food stamp program
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1 under the Food Stamp Act of 1977 for at

2 least a 3-month period ending during the

3 12-month period ending on the hiring date.

4 ‘‘(B) VETERAN.—For purposes of subpara5 graph (A), the term ‘veteran’ means any individ6 ual who is certified by the designated local agen7 cy as—

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

9 (other than active duty for training) in the

10 Armed Forces of the United States for a pe11 riod of more than 180 days, or

12 ‘‘(II) having been discharged or re13 leased from active duty in the Armed Forces

14 of the United States for a service-connected

15 disability, and

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

17 60-day period ending on the hiring date

18 which was a day of extended active duty in

19 the Armed Forces of the United States.

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

21 active duty’ means a period of more than 90

22 days during which the individual was on active

23 duty (other than active duty for training).
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1 ‘‘(4) QUALIFIED EX-FELON.—The term ‘qualified

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

3 designated local agency—

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

5 under any statute of the United States or any

6 State,

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

8 more than 1 year after the last date on which

9 such individual was so convicted or was released

10 from prison, and

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

12 had an income during the 6 months immediately

13 preceding the earlier of the month in which such

14 income determination occurs or the month in

15 which the hiring date occurs, which, on an an16 nual basis, would be 70 percent or less of the Bu17 reau of Labor Statistics lower living standard.

18 Any determination under subparagraph (C) shall be

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

20 such determination is made.

21 ‘‘(5) HIGH-RISK YOUTH.—

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

23 youth’ means any individual who is certified by

24 the designated local agency—
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1 ‘‘(i) as having attained age 18 but not

2 age 25 on the hiring date, and

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

4 abode within an empowerment zone or en5 terprise community.

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

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

8 ‘qualified wages’ shall not include wages paid or

9 incurred for services performed while such

10 youth’s principal place of abode is outside an

11 empowerment zone or enterprise community.

12 ‘‘(6) VOCATIONAL REHABILITATION REFERRAL.—

13 The term ‘vocational rehabilitation referral’ means

14 any individual who is certified by the designated

15 local agency as—

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

17 which, for such individual, constitutes or results

18 in a substantial handicap to employment, and

19 ‘‘(B) having been referred to the employer

20 upon completion of (or while receiving) rehabili21 tative services pursuant to—

22 ‘‘(i) an individualized written rehabili23 tation plan under a State plan for voca24 tional rehabilitation services approved

25 under the Rehabilitation Act of 1973, or
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1 ‘‘(ii) a program of vocational rehabili2 tation carried out under chapter 31 of title

3 38, United States Code.

4 ‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 summer youth employee’ means any individ7 ual—

8 ‘‘(i) who performs services for the em9 ployer between May 1 and September 15,

10 ‘‘(ii) who is certified by the designated

11 local agency as having attained age 16 but

12 not 18 on the hiring date (or if later, on

13 May 1 of the calendar year involved),

14 ‘‘(iii) who has not been an employee of

15 the employer during any period prior to the

16 90-day period described in subparagraph

17 (B)(i), and

18 ‘‘(iv) who is certified by the designated

19 local agency as having his principal place

20 of abode within an empowerment zone or

21 enterprise community.

22 ‘‘(B) SPECIAL RULES FOR DETERMINING

23 AMOUNT OF CREDIT.—For purposes of applying

24 this subpart to wages paid or incurred to any

25 qualified summer youth employee—
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1 ‘‘(i) subsection (b)(2) shall be applied

2 by substituting ‘any 90-day period between

3 May 1 and September 15’ for ‘the 1-year

4 period beginning with the day the individ5 ual begins work for the employer’, and

6 ‘‘(ii) subsection (b)(3) shall be applied

7 by substituting ‘$3,000’ for ‘$6,000’.

8 The preceding sentence shall not apply to an in9 dividual who, with respect to the same employer,

10 is certified as a member of another targeted

11 group after such individual has been a qualified

12 summer youth employee.

13 ‘‘(C) YOUTH MUST CONTINUE TO RESIDE IN

14 ZONE.—Paragraph (5)(B) shall apply for pur15 poses of subparagraph (A)(iv).

16 ‘‘(8) QUALIFIED FOOD STAMP RECIPIENT.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 food stamp recipient’ means any individual who

19 is certified by the designated local agency—

20 ‘‘(i) as having attained age 18 but not

21 age 25 on the hiring date, and

22 ‘‘(ii) as being a member of a family re23 ceiving assistance under a food stamp pro24 gram under the Food Stamp Act of 1977 for
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1 the 3-month period ending on the hiring

2 date.

3 ‘‘(B) PARTICIPATION INFORMATION.—Not4 withstanding any other provision of law, the

5 Secretary of the Treasury and the Secretary of

6 Agriculture shall enter into an agreement to pro7 vide information to designated local agencies

8 with respect to participation in the food stamp

9 program.

10 ‘‘(9) HIRING DATE.—The term ‘hiring date’

11 means the day the individual is hired by the em12 ployer.

13 ‘‘(10) DESIGNATED LOCAL AGENCY.—The term

14 ‘designated local agency’ means a State employment

15 security agency established in accordance with the Act

16 of June 6, 1933, as amended (29 U.S.C. 49–49n).

17 ‘‘(11) SPECIAL RULES FOR CERTIFICATIONS.—

18 ‘‘(A) IN GENERAL.—An individual shall not

19 be treated as a member of a targeted group un20 less—

21 ‘‘(i) on or before the day on which such

22 individual begins work for the employer, the

23 employer has received a certification from a

24 designated local agency that such individual

25 is a member of a targeted group, or
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1 ‘‘(ii)(I) on or before the day the indi2 vidual is offered employment with the em3 ployer, a pre-screening notice is completed

4 by the employer with respect to such indi5 vidual, and

6 ‘‘(II) not later than the 21st day after

7 the individual begins work for the employer,

8 the employer submits such notice, signed by

9 the employer and the individual under pen10 alties of perjury, to the designated local

11 agency as part of a written request for such

12 a certification from such agency.

13 For purposes of this paragraph, the term ‘pre14 screening notice’ means a document (in such

15 form as the Secretary shall prescribe) which con16 tains information provided by the individual on

17 the basis of which the employer believes that the

18 individual is a member of a targeted group.

19 ‘‘(B) INCORRECT CERTIFICATIONS.—If—

20 ‘‘(i) an individual has been certified by

21 a designated local agency as a member of a

22 targeted group, and

23 ‘‘(ii) such certification is incorrect be24 cause it was based on false information pro25 vided by such individual,
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1 the certification shall be revoked and wages paid

2 by the employer after the date on which notice

3 of revocation is received by the employer shall

4 not be treated as qualified wages.

5 ‘‘(C) EXPLANATION OF DENIAL OF RE6 QUEST.—If a designated local agency denies a

7 request for certification of membership in a tar8 geted group, such agency shall provide to the per9 son making such request a written explanation

10 of the reasons for such denial.’’

11 (c) MINIMUM EMPLOYMENT PERIOD.—Paragraph (3)

12 of section 51(i) (relating to certain individuals ineligible)

13 is amended to read as follows:

14 ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM15 PLOYMENT PERIOD.—No wages shall be taken into ac16 count under subsection (a) with respect to any indi17 vidual unless such individual either—

18 ‘‘(A) is employed by the employer at least

19 180 days (20 days in the case of a qualified

20 summer youth employee), or

21 ‘‘(B) has completed at least 375 hours (120

22 hours in the case of a qualified summer youth

23 employee) of services performed for the em24 ployer.’’
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1 (d) TERMINATION.—Paragraph (4) of section 51(c)

2 (relating to wages defined) is amended to read as follows:

3 ‘‘(4) TERMINATION.—The term ‘wages’ shall not

4 include any amount paid or incurred to an individ5 ual who begins work for the employer—

6 ‘‘(A) after December 31, 1994, and before

7 October 1, 1996, or

8 ‘‘(B) after September 30, 1997.’’

9 (e) REDESIGNATION OF CREDIT.—

10 (1) Sections 38(b)(2) and 51(a) are each amend11 ed by striking ‘‘targeted jobs credit’’ and inserting

12 ‘‘work opportunity credit’’.

13 (2) The subpart heading for subpart F of part IV

14 of subchapter A of chapter 1 is amended by striking

15 ‘‘Targeted Jobs Credit’’ and inserting ‘‘Work

16 Opportunity Credit’’.

17 (3) The table of subparts for such part IV is

18 amended by striking ‘‘targeted jobs credit’’ and insert19 ing ‘‘work opportunity credit’’.

20 (4) The heading for paragraph (3) of section

21 1396(c) is amended by striking ‘‘TARGETED JOBS

22 CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED23 IT’’.

24 (f) TECHNICAL AMENDMENT.—Paragraph (1) of sec25 tion 51(c) is amended by striking ‘‘, subsection (d)(8)(D),’’.
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1 (g) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to individuals who begin work for the

3 employer after September 30, 1996.

4 SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST5 ANCE PROGRAMS.

6 (a) EXTENSION.—Subsection (d) of section 127 (relat7 ing to educational assistance programs) is amended by

8 striking ‘‘December 31, 1994’’ and inserting ‘‘December 31,

9 1996’’.

10 (b) EFFECTIVE DATES.—

11 (1) EXTENSION.—The amendment made by sub12 section (a) shall apply to taxable years beginning

13 after December 31, 1994.

14 (2) EXPEDITED PROCEDURES.—The Secretary of

15 the Treasury shall establish expedited procedures for

16 the refund of any overpayment of taxes imposed by

17 the Internal Revenue Code of 1986 which is attrib18 utable to amounts excluded from gross income during

19 1995 or 1996 under section 127 of such Code, includ20 ing procedures waiving the requirement that an em21 ployer obtain an employee’s signature where the em22 ployer demonstrates to the satisfaction of the Sec23 retary that any refund collected by the employer on

24 behalf of the employee will be paid to the employee.
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1 SEC. 1203. RESEARCH CREDIT.

2 (a) IN GENERAL.—Subsection (h) of section 41 (relat3 ing to credit for research activities) is amended to read as

4 follows:

5 ‘‘(h) TERMINATION.—

6 ‘‘(1) IN GENERAL.—This section shall not apply

7 to any amount paid or incurred—

8 ‘‘(A) after June 30, 1995, and before July

9 1, 1996, or

10 ‘‘(B) after June 30, 1997.’’

11 ‘‘(2) COMPUTATION OF BASE AMOUNT.—In the

12 case of any taxable year with respect to which this

13 section applies to a number of days which is less than

14 the total number of days in such taxable year, the

15 base amount with respect to such taxable year shall

16 be the amount which bears the same ratio to the base

17 amount for such year (determined without regard to

18 this paragraph) as the number of days in such tax19 able year to which this section applies bears to the

20 total number of days in such taxable year.’’

21 (b) BASE AMOUNT FOR START-UP COMPANIES.—

22 Clause (i) of section 41(c)(3)(B) (relating to start-up com23 panies) is amended to read as follows:

24 ‘‘(i) TAXPAYERS TO WHICH SUBPARA25 GRAPH APPLIES.—The fixed-base percentage
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1 shall be determined under this subpara2 graph if—

3 ‘‘(I) the first taxable year in

4 which a taxpayer had both gross re5 ceipts and qualified research expenses

6 begins after December 31, 1983, or

7 ‘‘(II) there are fewer than 3 tax8 able years beginning after December

9 31, 1983, and before January 1, 1989,

10 in which the taxpayer had both gross

11 receipts and qualified research ex12 penses.’’

13 (c) ELECTION OF ALTERNATIVE INCREMENTAL CRED14 IT.—Subsection (c) of section 41 is amended by redesignat15 ing paragraphs (4) and (5) as paragraphs (5) and (6), re16 spectively, and by inserting after paragraph (3) the follow17 ing new paragraph:

18 ‘‘(4) ELECTION OF ALTERNATIVE INCREMENTAL

19 CREDIT.—

20 ‘‘(A) IN GENERAL.—At the election of the

21 taxpayer, the credit determined under subsection

22 (a)(1) shall be equal to the sum of—

23 ‘‘(i) 1.65 percent of so much of the

24 qualified research expenses for the taxable

25 year as exceeds 1 percent of the average de-
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1 scribed in subsection (c)(1)(B) but does not

2 exceed 1.5 percent of such average,

3 ‘‘(ii) 2.2 percent of so much of such ex4 penses as exceeds 1.5 percent of such average

5 but does not exceed 2 percent of such aver6 age, and

7 ‘‘(iii) 2.75 percent of so much of such

8 expenses as exceeds 2 percent of such aver9 age.

10 ‘‘(B) ELECTION.—An election under this

11 paragraph may be made only for the first tax12 able year of the taxpayer beginning after June

13 30, 1996. Such an election shall apply to the

14 taxable year for which made and all succeeding

15 taxable years unless revoked with the consent of

16 the Secretary.’’

17 (d) INCREASED CREDIT FOR CONTRACT RESEARCH

18 EXPENSES WITH RESPECT TO CERTAIN RESEARCH CON19 SORTIA.—Paragraph (3) of section 41(b) is amended by

20 adding at the end the following new subparagraph:

21 ‘‘(C) AMOUNTS PAID TO CERTAIN RESEARCH

22 CONSORTIA.—

23 ‘‘(i) IN GENERAL.—Subparagraph (A)

24 shall be applied by substituting ‘75 percent’

25 for ‘65 percent’ with respect to amounts
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1 paid or incurred by the taxpayer to a quali2 fied research consortium for qualified re3 search on behalf of the taxpayer and 1 or

4 more unrelated taxpayers. For purposes of

5 the preceding sentence, all persons treated

6 as a single employer under subsection (a)

7 or (b) of section 52 shall be treated as relat8 ed taxpayers.

9 ‘‘(ii) QUALIFIED RESEARCH CONSOR10 TIUM.—The term ‘qualified research consor11 tium’ means any organization which—

12 ‘‘(I) is described in section

13 501(c)(3) or 501(c)(6) and is exempt

14 from tax under section 501(a),

15 ‘‘(II) is organized and operated

16 primarily to conduct scientific re17 search, and

18 ‘‘(III) is not a private founda19 tion.’’

20 (e) CONFORMING AMENDMENT.—Subparagraph (D) of

21 section 28(b)(1) is amended by inserting ‘‘, and before July

22 1, 1996, and periods after June 30, 1997’’ after ‘‘June 30,

23 1995’’.

24 (f) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section shall

3 apply to taxable years ending after June 30, 1996.

4 (2) SUBSECTIONS (c) AND (d).—The amendments

5 made by subsections (c) and (d) shall apply to taxable

6 years beginning after June 30, 1996.

7 SEC. 1204. ORPHAN DRUG TAX CREDIT.

8 (a) RECATEGORIZED AS A BUSINESS CREDIT.—

9 (1) IN GENERAL.—Section 28 (relating to clini10 cal testing expenses for certain drugs for rare diseases

11 or conditions) is transferred to subpart D of part IV

12 of subchapter A of chapter 1, inserted after section

13 45B, and redesignated as section 45C.

14 (2) CONFORMING AMENDMENT.—Subsection (b)

15 of section 38 (relating to general business credit) is

16 amended by striking ‘‘plus’’ at the end of paragraph

17 (10), by striking the period at the end of paragraph

18 (11) and inserting ‘‘, plus’’, and by adding at the end

19 the following new paragraph:

20 ‘‘(12) the orphan drug credit determined under

21 section 45C(a).’’

22 (3) CLERICAL AMENDMENTS.—

23 (A) The table of sections for subpart B of

24 such part IV is amended by striking the item re25 lating to section 28.
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1 (B) The table of sections for subpart D of

2 such part IV is amended by adding at the end

3 the following new item:

‘‘Sec. 45C. Clinical testing expenses for certain drugs for rare diseases or

conditions.’’

4 (b) CREDIT TERMINATION.—Subsection (e) of section

5 45C, as redesignated by subsection (a)(1), is amended to

6 read as follows:

7 ‘‘(e) TERMINATION.—This section shall not apply to

8 any amount paid or incurred—

9 ‘‘(A) after December 31, 1994, and before

10 July 1, 1996, or

11 ‘‘(B) after June 30, 1997.’’

12 (c) NO PRE-JULY 1, 1996 CARRYBACKS.—Subsection

13 (d) of section 39 (relating to carryback and carryforward

14 of unused credits) is amended by adding at the end the fol15 lowing new paragraph:

16 ‘‘(7) NO CARRYBACK OF SECTION 45C CREDIT BE17 FORE JULY 1, 1996.—No portion of the unused busi18 ness credit for any taxable year which is attributable

19 to the orphan drug credit determined under section

20 45C may be carried back to a taxable year ending be21 fore July 1, 1996.’’

22 (d) ADDITIONAL CONFORMING AMENDMENTS.—

23 (1) Section 45C(a), as redesignated by subsection

24 (a)(1), is amended by striking ‘‘There shall be allowed
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1 as a credit against the tax imposed by this chapter

2 for the taxable year’’ and inserting ‘‘For purposes of

3 section 38, the credit determined under this section

4 for the taxable year is’’.

5 (2) Section 45C(d), as so redesignated, is amend6 ed by striking paragraph (2) and by redesignating

7 paragraphs (3), (4), and (5) as paragraphs (2), (3),

8 and (4).

9 (3) Section 29(b)(6)(A) is amended by striking

10 ‘‘sections 27 and 28’’ and inserting ‘‘section 27’’.

11 (4) Section 30(b)(3)(A) is amended by striking

12 ‘‘sections 27, 28, and 29’’ and inserting ‘‘sections 27

13 and 29’’.

14 (5) Section 53(d)(1)(B) is amended—

15 (A) by striking ‘‘or not allowed under sec16 tion 28 solely by reason of the application of sec17 tion 28(d)(2)(B),’’ in clause (iii), and

18 (B) by striking ‘‘or not allowed under sec19 tion 28 solely by reason of the application of sec20 tion 28(d)(2)(B)’’ in clause (iv)(II).

21 (6) Section 55(c)(2) is amended by striking

22 ‘‘28(d)(2),’’.

23 (7) Section 280C(b) is amended—

24 (A) by striking ‘‘section 28(b)’’ in para25 graph (1) and inserting ‘‘section 45C(b)’’,
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1 (B) by striking ‘‘section 28’’ in paragraphs

2 (1) and (2)(A) and inserting ‘‘section 45C(b)’’,

3 and

4 (C) by striking ‘‘subsection (d)(2) thereof’’

5 in paragraphs (1) and (2)(A) and inserting ‘‘sec6 tion 38(c)’’.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to amounts paid or incurred in taxable

9 years ending after June 30, 1996.

10 SEC. 1205. CONTRIBUTIONS OF STOCK TO PRIVATE FOUN11 DATIONS.

12 (a) IN GENERAL.—Subparagraph (D) of section

13 170(e)(5) (relating to special rule for contributions of stock

14 for which market quotations are readily available) is

15 amended to read as follows:

16 ‘‘(D) TERMINATION.—This paragraph shall

17 not apply to contributions made—

18 ‘‘(A) after December 31, 1994, and before

19 July 1, 1996, or

20 ‘‘(B) after June 30, 1997.’’

21 (b) EFFECTIVE DATE.—The amendment made by this

22 section shall apply to contributions made after June 30,

23 1996.
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1 SEC. 1206. EXTENSION OF BINDING CONTRACT DATE FOR

2 BIOMASS AND COAL FACILITIES.

3 (a) IN GENERAL.—Subparagraph (A) of section

4 29(g)(1) (relating to extension of certain facilities) is

5 amended by striking ‘‘January 1, 1997’’ and inserting

6 ‘‘January 1, 1998’’ and by striking ‘‘January 1, 1996’’ and

7 inserting ‘‘the date which is 6 months after the date of the

8 enactment of the Small Business Job Protection Act of

9 1996’’.

10 (b) EFFECTIVE DATE.—The amendment made by this

11 section shall take effect on the date of the enactment of this

12 Act.

13 SEC. 1207. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL

14 SOLD FOR USE OR USED IN DIESEL-POWERED

15 MOTORBOATS.

16 (a) IN GENERAL.—Subparagraph (D) of section

17 4041(a)(1) (relating to the imposition of tax on diesel fuel

18 and special motor fuels) is amended by redesignating

19 clauses (i) and (ii) as clauses (ii) and (iii), respectively,

20 and by inserting before clause (ii) (as redesignated) the fol21 lowing new clause:

22 ‘‘(i) no tax shall be imposed by sub23 section (a) or (d)(1) during the period after

24 June 30, 1996, and before July 1, 1997,’’.

25 (b) EFFECTIVE DATE.—The amendments made by this

26 section shall take effect on July 1, 1996.
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1 Subtitle C—Provisions Relating to

2 S Corporations

3 SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75

4 SHAREHOLDERS.

5 Subparagraph (A) of section 1361(b)(1) (defining

6 small business corporation) is amended by striking ‘‘35

7 shareholders’’ and inserting ‘‘75 shareholders’’.

8 SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

9 (a) GENERAL RULE.—Subparagraph (A) of section

10 1361(c)(2) (relating to certain trusts permitted as share11 holders) is amended by inserting after clause (iv) the follow12 ing new clause:

13 ‘‘(v) An electing small business trust.’’.

14 (b) CURRENT BENEFICIARIES TREATED AS SHARE15 HOLDERS.—Subparagraph (B) of section 1361(c)(2) is

16 amended by adding at the end the following new clause:

17 ‘‘(v) In the case of a trust described in

18 clause (v) of subparagraph (A), each poten19 tial current beneficiary of such trust shall

20 be treated as a shareholder; except that, if

21 for any period there is no potential current

22 beneficiary of such trust, such trust shall be

23 treated as the shareholder during such pe24 riod.’’.
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1 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

2 Section 1361 (defining S corporation) is amended by add3 ing at the end the following new subsection:

4 ‘‘(e) ELECTING SMALL BUSINESS TRUST DEFINED.—

5 ‘‘(1) ELECTING SMALL BUSINESS TRUST.—For

6 purposes of this section—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 subparagraph (B), the term ‘electing small busi9 ness trust’ means any trust if—

10 ‘‘(i) such trust does not have as a bene11 ficiary any person other than (I) an indi12 vidual, (II) an estate, or (III) an organiza13 tion described in paragraph (2), (3), (4), or

14 (5) of section 170(c) which holds a contin15 gent interest and is not a potential current

16 beneficiary,

17 ‘‘(ii) no interest in such trust was ac18 quired by purchase, and

19 ‘‘(iii) an election under this subsection

20 applies to such trust.

21 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—The

22 term ‘electing small business trust’ shall not in23 clude—

24 ‘‘(i) any qualified subchapter S trust

25 (as defined in subsection (d)(3)) if an elec-
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1 tion under subsection (d)(2) applies to any

2 corporation the stock of which is held by

3 such trust, and

4 ‘‘(ii) any trust exempt from tax under

5 this subtitle.

6 ‘‘(C) PURCHASE.—For purposes of subpara7 graph (A), the term ‘purchase’ means any acqui8 sition if the basis of the property acquired is de9 termined under section 1012.

10 ‘‘(2) POTENTIAL CURRENT BENEFICIARY.—For

11 purposes of this section, the term ‘potential current

12 beneficiary’ means, with respect to any period, any

13 person who at any time during such period is entitled

14 to, or at the discretion of any person may receive, a

15 distribution from the principal or income of the trust.

16 If a trust disposes of all of the stock which it holds

17 in an S corporation, then, with respect to such cor18 poration, the term ‘potential current beneficiary’ does

19 not include any person who first met the requirements

20 of the preceding sentence during the 60-day period

21 ending on the date of such disposition.

22 ‘‘(3) ELECTION.—An election under this sub23 section shall be made by the trustee. Any such election

24 shall apply to the taxable year of the trust for which
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1 made and all subsequent taxable years of such trust

2 unless revoked with the consent of the Secretary.

3 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’.

4 (d) TAXATION OF ELECTING SMALL BUSINESS

5 TRUSTS.—Section 641 (relating to imposition of tax on

6 trusts) is amended by adding at the end the following new

7 subsection:

8 ‘‘(d) SPECIAL RULES FOR TAXATION OF ELECTING

9 SMALL BUSINESS TRUSTS.—

10 ‘‘(1) IN GENERAL.—For purposes of this chap11 ter—

12 ‘‘(A) the portion of any electing small busi13 ness trust which consists of stock in 1 or more

14 S corporations shall be treated as a separate

15 trust, and

16 ‘‘(B) the amount of the tax imposed by this

17 chapter on such separate trust shall be deter18 mined with the modifications of paragraph (2).

19 ‘‘(2) MODIFICATIONS.—For purposes of para20 graph (1), the modifications of this paragraph are the

21 following:

22 ‘‘(A) Except as provided in section 1(h), the

23 amount of the tax imposed by section 1(e) shall
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1 be determined by using the highest rate of tax set

2 forth in section 1(e).

3 ‘‘(B) The exemption amount under section

4 55(d) shall be zero.

5 ‘‘(C) The only items of income, loss, deduc6 tion, or credit to be taken into account are the

7 following:

8 ‘‘(i) The items required to be taken

9 into account under section 1366.

10 ‘‘(ii) Any gain or loss from the disposi11 tion of stock in an S corporation.

12 ‘‘(iii) To the extent provided in regula13 tions, State or local income taxes or admin14 istrative expenses to the extent allocable to

15 items described in clauses (i) and (ii).

16 No deduction or credit shall be allowed for any

17 amount not described in this paragraph, and no

18 item described in this paragraph shall be appor19 tioned to any beneficiary.

20 ‘‘(D) No amount shall be allowed under

21 paragraph (1) or (2) of section 1211(b).

22 ‘‘(3) TREATMENT OF REMAINDER OF TRUST AND

23 DISTRIBUTIONS.—For purposes of determining—

24 ‘‘(A) the amount of the tax imposed by this

25 chapter on the portion of any electing small
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1 business trust not treated as a separate trust

2 under paragraph (1), and

3 ‘‘(B) the distributable net income of the en4 tire trust,

5 the items referred to in paragraph (2)(C) shall be ex6 cluded. Except as provided in the preceding sentence,

7 this subsection shall not affect the taxation of any dis8 tribution from the trust.

9 ‘‘(4) TREATMENT OF UNUSED DEDUCTIONS

10 WHERE TERMINATION OF SEPARATE TRUST.—If a

11 portion of an electing small business trust ceases to

12 be treated as a separate trust under paragraph (1),

13 any carryover or excess deduction of the separate

14 trust which is referred to in section 642(h) shall be

15 taken into account by the entire trust.

16 ‘‘(5) ELECTING SMALL BUSINESS TRUST.—For

17 purposes of this subsection, the term ‘electing small

18 business trust’ has the meaning given such term by

19 section 1361(e)(1).’’.

20 (e) TECHNICAL AMENDMENT.—Paragraph (1) of sec21 tion 1366(a) is amended by inserting ‘‘, or of a trust or

22 estate which terminates,’’ after ‘‘who dies’’.
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1 SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION

2 FOR CERTAIN TRUSTS.

3 Subparagraph (A) of section 1361(c)(2) (relating to

4 certain trusts permitted as shareholders) is amended—

5 (1) by striking ‘‘60-day period’’ each place it ap6 pears in clauses (ii) and (iii) and inserting ‘‘2-year

7 period’’, and

8 (2) by striking the last sentence in clause (ii).

9 SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD

10 SAFE HARBOR DEBT.

11 Clause (iii) of section 1361(c)(5)(B) (defining straight

12 debt) is amended by striking ‘‘or a trust described in para13 graph (2)’’ and inserting ‘‘a trust described in paragraph

14 (2), or a person which is actively and regularly engaged

15 in the business of lending money’’.

16 SEC. 1305. RULES RELATING TO INADVERTENT TERMI17 NATIONS AND INVALID ELECTIONS.

18 (a) GENERAL RULE.—Subsection (f) of section 1362

19 (relating to inadvertent terminations) is amended to read

20 as follows:

21 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI22 NATIONS.—If—

23 ‘‘(1) an election under subsection (a) by any cor24 poration—

25 ‘‘(A) was not effective for the taxable year

26 for which made (determined without regard to
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1 subsection (b)(2)) by reason of a failure to meet

2 the requirements of section 1361(b) or to obtain

3 shareholder consents, or

4 ‘‘(B) was terminated under paragraph (2)

5 or (3) of subsection (d),

6 ‘‘(2) the Secretary determines that the cir7 cumstances resulting in such ineffectiveness or termi8 nation were inadvertent,

9 ‘‘(3) no later than a reasonable period of time

10 after discovery of the circumstances resulting in such

11 ineffectiveness or termination, steps were taken—

12 ‘‘(A) so that the corporation is a small busi13 ness corporation, or

14 ‘‘(B) to acquire the required shareholder

15 consents, and

16 ‘‘(4) the corporation, and each person who was

17 a shareholder in the corporation at any time during

18 the period specified pursuant to this subsection, agrees

19 to make such adjustments (consistent with the treat20 ment of the corporation as an S corporation) as may

21 be required by the Secretary with respect to such pe22 riod,

23 then, notwithstanding the circumstances resulting in such

24 ineffectiveness or termination, such corporation shall be
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1 treated as an S corporation during the period specified by

2 the Secretary.’’.

3 (b) LATE ELECTIONS, ETC.—Subsection (b) of section

4 1362 is amended by adding at the end the following new

5 paragraph:

6 ‘‘(5) AUTHORITY TO TREAT LATE ELECTIONS,

7 ETC., AS TIMELY.—If—

8 ‘‘(A) an election under subsection (a) is

9 made for any taxable year (determined without

10 regard to paragraph (3)) after the date pre11 scribed by this subsection for making such elec12 tion for such taxable year or no such election is

13 made for any taxable year, and

14 ‘‘(B) the Secretary determines that there

15 was reasonable cause for the failure to timely

16 make such election,

17 the Secretary may treat such an election as timely

18 made for such taxable year (and paragraph (3) shall

19 not apply).’’.

20 (c) EFFECTIVE DATE.—The amendments made by sub21 section (a) and (b) shall apply with respect to elections for

22 taxable years beginning after December 31, 1982.

23 SEC. 1306. AGREEMENT TO TERMINATE YEAR.

24 Paragraph (2) of section 1377(a) (relating to pro rata

25 share) is amended to read as follows:
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1 ‘‘(2) ELECTION TO TERMINATE YEAR.—

2 ‘‘(A) IN GENERAL.—Under regulations pre3 scribed by the Secretary, if any shareholder ter4 minates the shareholder’s interest in the corpora5 tion during the taxable year and all affected

6 shareholders and the corporation agree to the ap7 plication of this paragraph, paragraph (1) shall

8 be applied to the affected shareholders as if the

9 taxable year consisted of 2 taxable years the first

10 of which ends on the date of the termination.

11 ‘‘(B) AFFECTED SHAREHOLDERS.—For

12 purposes of subparagraph (A), the term ‘affected

13 shareholders’ means the shareholder whose inter14 est is terminated and all shareholders to whom

15 such shareholder has transferred shares during

16 the taxable year. If such shareholder has trans17 ferred shares to the corporation, the term ‘af18 fected shareholders’ shall include all persons who

19 are shareholders during the taxable year.’’.

20 SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION

21 PERIOD.

22 (a) IN GENERAL.—Paragraph (1) of section 1377(b)

23 (relating to post-termination transition period) is amended

24 by striking ‘‘and’’ at the end of subparagraph (A), by redes25 ignating subparagraph (B) as subparagraph (C), and by
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1 inserting after subparagraph (A) the following new sub2 paragraph:

3 ‘‘(B) the 120-day period beginning on the

4 date of any determination pursuant to an audit

5 of the taxpayer which follows the termination of

6 the corporation’s election and which adjusts a

7 subchapter S item of income, loss, or deduction

8 of the corporation arising during the S period

9 (as defined in section 1368(e)(2)), and’’.

10 (b) DETERMINATION DEFINED.—Paragraph (2) of sec11 tion 1377(b) is amended by striking subparagraphs (A) and

12 (B), by redesignating subparagraph (C) as subparagraph

13 (B), and by inserting before subparagraph (B) (as so redes14 ignated) the following new subparagraph:

15 ‘‘(A) a determination as defined in section

16 1313(a), or’’.

17 (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR SUB18 CHAPTER S ITEMS.—

19 (1) GENERAL RULE.—Subchapter D of chapter

20 63 (relating to tax treatment of subchapter S items)

21 is hereby repealed.

22 (2) CONSISTENT TREATMENT REQUIRED.—Sec23 tion 6037 (relating to return of S corporation) is

24 amended by adding at the end the following new sub25 section:
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1 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSISTENT

2 WITH CORPORATE RETURN OR SECRETARY NOTIFIED OF

3 INCONSISTENCY.—

4 ‘‘(1) IN GENERAL.—A shareholder of an S cor5 poration shall, on such shareholder’s return, treat a

6 subchapter S item in a manner which is consistent

7 with the treatment of such item on the corporate re8 turn.

9 ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT10 MENT.—

11 ‘‘(A) IN GENERAL.—In the case of any sub12 chapter S item, if—

13 ‘‘(i)(I) the corporation has filed a re14 turn but the shareholder’s treatment on his

15 return is (or may be) inconsistent with the

16 treatment of the item on the corporate re17 turn, or

18 ‘‘(II) the corporation has not filed a re19 turn, and

20 ‘‘(ii) the shareholder files with the Sec21 retary a statement identifying the inconsist22 ency,

23 paragraph (1) shall not apply to such item.

24 ‘‘(B) SHAREHOLDER RECEIVING INCORRECT

25 INFORMATION.—A shareholder shall be treated as
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1 having complied with clause (ii) of subpara2 graph (A) with respect to a subchapter S item if

3 the shareholder—

4 ‘‘(i) demonstrates to the satisfaction of

5 the Secretary that the treatment of the sub6 chapter S item on the shareholder’s return

7 is consistent with the treatment of the item

8 on the schedule furnished to the shareholder

9 by the corporation, and

10 ‘‘(ii) elects to have this paragraph

11 apply with respect to that item.

12 ‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any

13 case—

14 ‘‘(A) described in subparagraph (A)(i)(I) of

15 paragraph (2), and

16 ‘‘(B) in which the shareholder does not com17 ply with subparagraph (A)(ii) of paragraph (2),

18 any adjustment required to make the treatment of the

19 items by such shareholder consistent with the treat20 ment of the items on the corporate return shall be

21 treated as arising out of mathematical or clerical er22 rors and assessed according to section 6213(b)(1).

23 Paragraph (2) of section 6213(b) shall not apply to

24 any assessment referred to in the preceding sentence.
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1 ‘‘(4) SUBCHAPTER S ITEM.—For purposes of this

2 subsection, the term ‘subchapter S item’ means any

3 item of an S corporation to the extent that regula4 tions prescribed by the Secretary provide that, for

5 purposes of this subtitle, such item is more appro6 priately determined at the corporation level than at

7 the shareholder level.

8 ‘‘(5) ADDITION TO TAX FOR FAILURE TO COMPLY

9 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.’’.

10 (3) CONFORMING AMENDMENTS.—

11 (A) Section 1366 is amended by striking

12 subsection (g).

13 (B) Subsection (b) of section 6233 is

14 amended to read as follows:

15 ‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part16 nership return is filed for any taxable year but it is deter17 mined that there is no entity for such taxable year, to the

18 extent provided in regulations, rules similar to the rules

19 of subsection (a) shall apply.’’.

20 (C) The table of subchapters for chapter 63

21 is amended by striking the item relating to sub22 chapter D.
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1 SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDI2 ARIES.

3 (a) IN GENERAL.—Paragraph (2) of section 1361(b)

4 (defining ineligible corporation) is amended by striking

5 subparagraph (A) and by redesignating subparagraphs (B),

6 (C), (D), and (E) as subparagraphs (A), (B), (C), and (D),

7 respectively.

8 (b) TREATMENT OF CERTAIN WHOLLY OWNED S COR9 PORATION SUBSIDIARIES.—Section 1361(b) (defining small

10 business corporation) is amended by adding at the end the

11 following new paragraph:

12 ‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED

13 SUBSIDIARIES.—

14 ‘‘(A) IN GENERAL.—For purposes of this

15 title—

16 ‘‘(i) a corporation which is a qualified

17 subchapter S subsidiary shall not be treated

18 as a separate corporation, and

19 ‘‘(ii) all assets, liabilities, and items of

20 income, deduction, and credit of a qualified

21 subchapter S subsidiary shall be treated as

22 assets, liabilities, and such items (as the

23 case may be) of the S corporation.

24 ‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI25 ARY.—For purposes of this paragraph, the term

26 ‘qualified subchapter S subsidiary’ means any
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1 domestic corporation which is not an ineligible

2 corporation (as defined in paragraph (2)), if—

3 ‘‘(i) 100 percent of the stock of such

4 corporation is held by the S corporation,

5 and

6 ‘‘(ii) the S corporation elects to treat

7 such corporation as a qualified subchapter

8 S subsidiary.

9 ‘‘(C) TREATMENT OF TERMINATIONS OF

10 QUALIFIED SUBCHAPTER S SUBSIDIARY STA11 TUS.—For purposes of this title, if any corpora12 tion which was a qualified subchapter S subsidi13 ary ceases to meet the requirements of subpara14 graph (B), such corporation shall be treated as

15 a new corporation acquiring all of its assets

16 (and assuming all of its liabilities) immediately

17 before such cessation from the S corporation in

18 exchange for its stock.

19 ‘‘(D) ELECTION AFTER TERMINATION.—If a

20 corporation’s status as a qualified subchapter S

21 subsidiary terminates, such corporation (and

22 any successor corporation) shall not be eligible to

23 make—
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1 ‘‘(i) an election under subparagraph

2 (B)(ii) to be treated as a qualified sub3 chapter S subsidiary, or

4 ‘‘(ii) an election under section 1362(a)

5 to be treated as an S corporation,

6 before its 5th taxable year which begins after the

7 1st taxable year for which such termination was

8 effective, unless the Secretary consents to such

9 election.’’

10 (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE

11 INVESTMENT INCOME.—Paragraph (3) of section 1362(d) is

12 amended by adding at the end the following new subpara13 graph:

14 ‘‘(F) TREATMENT OF CERTAIN DIVI15 DENDS.—If an S corporation holds stock in a C

16 corporation meeting the requirements of section

17 1504(a)(2), the term ‘passive investment income’

18 shall not include dividends from such C corpora19 tion to the extent such dividends are attributable

20 to the earnings and profits of such C corporation

21 derived from the active conduct of a trade or

22 business.’’.

23 (d) CONFORMING AMENDMENTS.—

24 (1) Subsection (c) of section 1361 is amended by

25 striking paragraph (6).
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1 (2) Subsection (b) of section 1504 (defining in2 cludible corporation) is amended by adding at the

3 end the following new paragraph:

4 ‘‘(8) An S corporation.’’.

5 SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS

6 YEARS.

7 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

8 ACCOUNT BEFORE LOSSES.—

9 (1) Subparagraph (A) of section 1366(d)(1) (re10 lating to losses and deductions cannot exceed share11 holder’s basis in stock and debt) is amended by strik12 ing ‘‘paragraph (1)’’ and inserting ‘‘paragraphs (1)

13 and (2)(A)’’.

14 (2) Subsection (d) of section 1368 (relating to

15 certain adjustments taken into account) is amended

16 by adding at the end the following new sentence:

17 ‘‘In the case of any distribution made during any taxable

18 year, the adjusted basis of the stock shall be determined with

19 regard to the adjustments provided in paragraph (1) of sec20 tion 1367(a) for the taxable year.’’.

21 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para22 graph (1) of section 1368(e) (relating to accumulated ad23 justments account) is amended by adding at the end the

24 following new subparagraph:

25 ‘‘(C) NET LOSS FOR YEAR DISREGARDED.—
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1 ‘‘(i) IN GENERAL.—In applying this section

2 to distributions made during any taxable year,

3 the amount in the accumulated adjustments ac4 count as of the close of such taxable year shall

5 be determined without regard to any net negative

6 adjustment for such taxable year.

7 ‘‘(ii) NET NEGATIVE ADJUSTMENT.—For

8 purposes of clause (i), the term ‘net negative ad9 justment’ means, with respect to any taxable

10 year, the excess (if any) of—

11 ‘‘(I) the reductions in the account for

12 the taxable year (other than for distribu13 tions), over

14 ‘‘(II) the increases in such account for

15 such taxable year.’’.

16 (c) CONFORMING AMENDMENTS.—Subparagraph (A)

17 of section 1368(e)(1) is amended—

18 (1) by striking ‘‘as provided in subparagraph

19 (B)’’ and inserting ‘‘as otherwise provided in this

20 paragraph’’, and

21 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in22 serting ‘‘section 1367(a)(2)’’.
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1 SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB2 CHAPTER C.

3 Subsection (a) of section 1371 (relating to application

4 of subchapter C rules) is amended to read as follows:

5 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex6 cept as otherwise provided in this title, and except to the

7 extent inconsistent with this subchapter, subchapter C shall

8 apply to an S corporation and its shareholders.’’.

9 SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROF10 ITS.

11 (a) IN GENERAL.—If—

12 (1) a corporation was an electing small business

13 corporation under subchapter S of chapter 1 of the

14 Internal Revenue Code of 1986 for any taxable year

15 beginning before January 1, 1983, and

16 (2) such corporation is an S corporation under

17 subchapter S of chapter 1 of such Code for its first

18 taxable year beginning after December 31, 1996,

19 the amount of such corporation’s accumulated earnings and

20 profits (as of the beginning of such first taxable year) shall

21 be reduced by an amount equal to the portion (if any) of

22 such accumulated earnings and profits which were accumu23 lated in any taxable year beginning before January 1, 1983,

24 for which such corporation was an electing small business

25 corporation under such subchapter S.

26 (b) CONFORMING AMENDMENTS.—
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1 (1) Paragraph (3) of section 1362(d), as amend2 ed by section 1308, is amended—

3 (A) by striking ‘‘SUBCHAPTER C’’ in the

4 paragraph heading and inserting ‘‘ACCUMU5 LATED’’,

6 (B) by striking ‘‘subchapter C’’ in subpara7 graph (A)(i)(I) and inserting ‘‘accumulated’’,

8 and

9 (C) by striking subparagraph (B) and re10 designating the following subparagraphs accord11 ingly.

12 (2)(A) Subsection (a) of section 1375 is amended

13 by striking ‘‘subchapter C’’ in paragraph (1) and in14 serting ‘‘accumulated’’.

15 (B) Paragraph (3) of section 1375(b) is amended

16 to read as follows:

17 ‘‘(3) PASSIVE INVESTMENT INCOME, ETC.—The

18 terms ‘passive investment income’ and ‘gross receipts’

19 have the same respective meanings as when used in

20 paragraph (3) of section 1362(d).’’.

21 (C) The section heading for section 1375 is

22 amended by striking ‘‘SUBCHAPTER C’’ and insert23 ing ‘‘ACCUMULATED’’.

24 (D) The table of sections for part III of sub25 chapter S of chapter 1 is amended by striking ‘‘sub-
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1 chapter C’’ in the item relating to section 1375 and

2 inserting ‘‘accumulated’’.

3 (3) Clause (i) of section 1042(c)(4)(A) is amend4 ed by striking ‘‘section 1362(d)(3)(D)’’ and inserting

5 ‘‘section 1362(d)(3)(C)’’.

6 SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE7 DUCTIONS UNDER AT-RISK RULES ALLOWED.

8 Paragraph (3) of section 1366(d) (relating to carryover

9 of disallowed losses and deductions to post-termination

10 transition period) is amended by adding at the end the fol11 lowing new subparagraph:

12 ‘‘(D) AT-RISK LIMITATIONS.—To the extent

13 that any increase in adjusted basis described in

14 subparagraph (B) would have increased the

15 shareholder’s amount at risk under section 465 if

16 such increase had occurred on the day preceding

17 the commencement of the post-termination tran18 sition period, rules similar to the rules described

19 in subparagraphs (A) through (C) shall apply to

20 any losses disallowed by reason of section

21 465(a).’’.

22 SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK

23 TO REFLECT CERTAIN ITEMS OF INCOME.

24 (a) IN GENERAL.—Subsection (b) of section 1367 (re25 lating to adjustments to basis of stock of shareholders, etc.)
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1 is amended by adding at the end the following new para2 graph:

3 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

4 STOCK.—

5 ‘‘(A) IN GENERAL.—If any person acquires

6 stock in an S corporation by reason of the death

7 of a decedent or by bequest, devise, or inherit8 ance, section 691 shall be applied with respect to

9 any item of income of the S corporation in the

10 same manner as if the decedent had held directly

11 his pro rata share of such item.

12 ‘‘(B) ADJUSTMENTS TO BASIS.—The basis

13 determined under section 1014 of any stock in

14 an S corporation shall be reduced by the portion

15 of the value of the stock which is attributable to

16 items constituting income in respect of the dece17 dent.’’.

18 (b) EFFECTIVE DATE.—The amendment made by sub19 section (a) shall apply in the case of decedents dying after

20 the date of the enactment of this Act.

21 SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLI22 CABLE TO REAL PROPERTY SUBDIVIDED FOR

23 SALE BY NONCORPORATE TAXPAYERS.

24 (a) IN GENERAL.—Subsection (a) of section 1237 (re25 lating to real property subdivided for sale) is amended by
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1 striking ‘‘other than a corporation’’ in the material preced2 ing paragraph (1) and inserting ‘‘other than a C corpora3 tion’’.

4 (b) CONFORMING AMENDMENT.—Subparagraph (A) of

5 section 1237(a)(2) is amended by inserting ‘‘an S corpora6 tion which included the taxpayer as a shareholder,’’ after

7 ‘‘controlled by the taxpayer,’’.

8 SEC. 1315. FINANCIAL INSTITUTIONS.

9 Subparagraph (A) of section 1361(b)(2) (defining in10 eligible corporation), as redesignated by section 1308(a), is

11 amended to read as follows:

12 ‘‘(A) a financial institution which uses the

13 reserve method of accounting for bad debts de14 scribed in section 585 or 593,’’.

15 SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO

16 BE SHAREHOLDERS.

17 (a) ELIGIBILITY TO BE SHAREHOLDERS.—

18 (1) IN GENERAL.—Subparagraph (B) of section

19 1361(b)(1) (defining small business corporation) is

20 amended to read as follows:

21 ‘‘(B) have as a shareholder a person (other

22 than an estate, a trust described in subsection

23 (c)(2), or an organization described in subsection

24 (c)(7)) who is not an individual,’’.
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1 (2) ELIGIBLE EXEMPT ORGANIZATIONS.—Section

2 1361(c) (relating to special rules for applying sub3 section (b)) is amended by adding at the end the fol4 lowing new paragraph:

5 ‘‘(7) CERTAIN EXEMPT ORGANIZATIONS PER6 MITTED AS SHAREHOLDERS.—For purposes of sub7 section (b)(1)(B), an organization which is—

8 ‘‘(A) described in section 401(a) or

9 501(c)(3), and

10 ‘‘(B) exempt from taxation under section

11 501(a),

12 may be a shareholder in an S corporation.’’

13 (b) CONTRIBUTIONS OF S CORPORATION STOCK.—Sec14 tion 170(e)(1) (relating to certain contributions of ordinary

15 income and capital gain property) is amended by adding

16 at the end the following new sentence: ‘‘For purposes of ap17 plying this paragraph in the case of a charitable contribu18 tion of stock in an S corporation, rules similar to the rules

19 of section 751 shall apply in determining whether gain on

20 such stock would have been long-term capital gain if such

21 stock were sold by the taxpayer.’’

22 (c) TREATMENT OF INCOME.—Section 512 (relating to

23 unrelated business taxable income), as amended by section

24 1113, is amended by adding at the end the following new

25 subsection:
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1 ‘‘(e) SPECIAL RULES APPLICABLE TO S CORPORA2 TIONS.—

3 ‘‘(1) IN GENERAL.—If an organization described

4 in section 1361(c)(7) holds stock in an S corpora5 tion—

6 ‘‘(A) such interest shall be treated as an in7 terest in an unrelated trade or business; and

8 ‘‘(B) notwithstanding any other provision

9 of this part, all items of income, loss, deduction

10 or credit taken into account under section

11 1366(a) and any gain or loss on the disposition

12 of the stock in the S corporation shall be taken

13 into account in computing the unrelated business

14 taxable income of such organization.

15 ‘‘(2) DISPOSITION GAIN.—For purposes of para16 graph (1), gain on the sale or other disposition of C

17 corporation stock which was an S corporation at any

18 time the organization held such stock shall be treated

19 as gain from the disposition of stock in an S corpora20 tion to the extent of any gain which the organization

21 would have realized if it had sold the stock for fair

22 market value as of the last day of the corporation’s

23 last taxable year as an S corporation.’’

24 (d) CERTAIN BENEFITS NOT APPLICABLE TO S COR25 PORATIONS.—
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1 (1) CONTRIBUTION TO ESOPS.—Paragraph (9) of

2 section 404(a) (relating to certain contributions to

3 employee ownership plans) is amended by inserting

4 at the end the following new subparagraph:

5 ‘‘(C) S CORPORATIONS.—This paragraph

6 shall not apply to an S corporation.’’

7 (2) DIVIDENDS ON EMPLOYER SECURITIES.—

8 Paragraph (1) of section 404(k) (relating to deduction

9 for dividends on certain employer securities) is

10 amended by striking ‘‘a corporation’’ and inserting

11 ‘‘a C corporation’’.

12 (3) EXCHANGE TREATMENT.—Subparagraph (A)

13 of section 1042(c)(1) (defining qualified securities) is

14 amended by striking ‘‘domestic corporation’’ and in15 serting ‘‘domestic C corporation’’.

16 (e) CONFORMING AMENDMENT.—Clause (i) of section

17 1361(e)(1)(A), as added by section 1302, is amended by

18 striking ‘‘which holds a contingent interest and is not a

19 potential current beneficiary’’.

20 (f) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to taxable years beginning after Decem22 ber 31, 1997.
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1 SEC. 1317. EFFECTIVE DATE.

2 (a) IN GENERAL.—Except as otherwise provided in

3 this subtitle, the amendments made by this subtitle shall

4 apply to taxable years beginning after December 31, 1996.

5 (b) TREATMENT OF CERTAIN ELECTIONS UNDER

6 PRIOR LAW.—For purposes of section 1362(g) of the Inter7 nal Revenue Code of 1986 (relating to election after termi8 nation), any termination under section 1362(d) of such

9 Code in a taxable year beginning before January 1, 1997,

10 shall not be taken into account.

11 Subtitle D—Pension Simplification

12 CHAPTER 1—SIMPLIFIED DISTRIBUTION

13 RULES

14 SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR

15 LUMP-SUM DISTRIBUTIONS.

16 (a) IN GENERAL.—Subsection (d) of section 402 (relat17 ing to taxability of beneficiary of employees’ trust) is

18 amended to read as follows:

19 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOR20 EIGN SITUS TRUSTS.—For purposes of subsections (a), (b),

21 and (c), a stock bonus, pension, or profit-sharing trust

22 which would qualify for exemption from tax under section

23 501(a) except for the fact that it is a trust created or orga24 nized outside the United States shall be treated as if it were

25 a trust exempt from tax under section 501(a).’’.

26 (b) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (D) of section 402(e)(4) (relat2 ing to other rules applicable to exempt trusts) is

3 amended to read as follows:

4 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur5 poses of this paragraph—

6 ‘‘(i) IN GENERAL.—The term ‘lump

7 sum distribution’ means the distribution or

8 payment within one taxable year of the re9 cipient of the balance to the credit of an em10 ployee which becomes payable to the recipi11 ent—

12 ‘‘(I) on account of the employee’s

13 death,

14 ‘‘(II) after the employee attains

age 591 15 ⁄2,

16 ‘‘(III) on account of the employ17 ee’s separation from service, or

18 ‘‘(IV) after the employee has be19 come disabled (within the meaning of

20 section 72(m)(7)),

21 from a trust which forms a part of a plan

22 described in section 401(a) and which is ex23 empt from tax under section 501 or from a

24 plan described in section 403(a). Subclause

25 (III) of this clause shall be applied only
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1 with respect to an individual who is an em2 ployee without regard to section 401(c)(1),

3 and subclause (IV) shall be applied only

4 with respect to an employee within the

5 meaning of section 401(c)(1). For purposes

6 of this clause, a distribution to two or more

7 trusts shall be treated as a distribution to

8 one recipient. For purposes of this para9 graph, the balance to the credit of the em10 ployee does not include the accumulated de11 ductible employee contributions under the

12 plan (within the meaning of section

13 72(o)(5)).

14 ‘‘(ii) AGGREGATION OF CERTAIN

15 TRUSTS AND PLANS.—For purposes of deter16 mining the balance to the credit of an em17 ployee under clause (i)—

18 ‘‘(I) all trusts which are part of a

19 plan shall be treated as a single trust,

20 all pension plans maintained by the

21 employer shall be treated as a single

22 plan, all profit-sharing plans main23 tained by the employer shall be treated

24 as a single plan, and all stock bonus
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1 plans maintained by the employer

2 shall be treated as a single plan, and

3 ‘‘(II) trusts which are not quali4 fied trusts under section 401(a) and

5 annuity contracts which do not satisfy

6 the requirements of section 404(a)(2)

7 shall not be taken into account.

8 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

9 The provisions of this paragraph shall be

10 applied without regard to community prop11 erty laws.

12 ‘‘(iv) AMOUNTS SUBJECT TO PEN13 ALTY.—This paragraph shall not apply to

14 amounts described in subparagraph (A) of

15 section 72(m)(5) to the extent that section

16 72(m)(5) applies to such amounts.

17 ‘‘(v) BALANCE TO CREDIT OF EM18 PLOYEE NOT TO INCLUDE AMOUNTS PAY19 ABLE UNDER QUALIFIED DOMESTIC RELA20 TIONS ORDER.—For purposes of this para21 graph, the balance to the credit of an em22 ployee shall not include any amount pay23 able to an alternate payee under a qualified

24 domestic relations order (within the mean25 ing of section 414(p)).
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1 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

2 ARRANGEMENT NOT TREATED AS DISTRIBU3 TION.—For purposes of this paragraph, the

4 balance to the credit of an employee under

5 a defined contribution plan shall not in6 clude any amount transferred from such de7 fined contribution plan to a qualified cost8 of-living arrangement (within the meaning

9 of section 415(k)(2)) under a defined benefit

10 plan.

11 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

12 ALTERNATE PAYEES.—If any distribution

13 or payment of the balance to the credit of

14 an employee would be treated as a lump15 sum distribution, then, for purposes of this

16 paragraph, the payment under a qualified

17 domestic relations order (within the mean18 ing of section 414(p)) of the balance to the

19 credit of an alternate payee who is the

20 spouse or former spouse of the employee

21 shall be treated as a lump-sum distribution.

22 For purposes of this clause, the balance to

23 the credit of the alternate payee shall not

24 include any amount payable to the em25 ployee.’’.
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1 (2) Section 402(c) (relating to rules applicable to

2 rollovers from exempt trusts) is amended by striking

3 paragraph (10).

4 (3) Paragraph (1) of section 55(c) (defining reg5 ular tax) is amended by striking ‘‘shall not include

6 any tax imposed by section 402(d) and’’.

7 (4) Paragraph (8) of section 62(a) (relating to

8 certain portion of lump-sum distributions from pen9 sion plans taxed under section 402(d)) is hereby re10 pealed.

11 (5) Section 401(a)(28)(B) (relating to coordina12 tion with distribution rules) is amended by striking

13 clause (v).

14 (6) Subparagraph (B)(ii) of section 401(k)(10)

15 (relating to distributions that must be lump-sum dis16 tributions) is amended to read as follows:

17 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

18 purposes of this subparagraph, the term

19 ‘lump-sum distribution’ has the meaning

20 given such term by section 402(e)(4)(D)

21 (without regard to subclauses (I), (II), (III),

22 and (IV) of clause (i) thereof).’’.

23 (7) Section 406(c) (relating to termination of

24 status as deemed employee not to be treated as sepa-
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1 ration from service for purposes of limitation of tax)

2 is hereby repealed.

3 (8) Section 407(c) (relating to termination of

4 status as deemed employee not to be treated as sepa5 ration from service for purposes of limitation of tax)

6 is hereby repealed.

7 (9) Section 691(c) (relating to deduction for es8 tate tax) is amended by striking paragraph (5).

9 (10) Paragraph (1) of section 871(b) (relating to

10 imposition of tax) is amended by striking ‘‘section 1,

11 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

12 (11) Subsection (b) of section 877 (relating to al13 ternative tax) is amended by striking ‘‘section 1, 55,

14 or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

15 (12) Section 4980A(c)(4) is amended—

16 (A) by striking ‘‘to which an election under

17 section 402(d)(4)(B) applies’’ and inserting ‘‘(as

18 defined in section 402(e)(4)(D)) with respect to

19 which the individual elects to have this para20 graph apply’’,

21 (B) by adding at the end the following new

22 flush sentence:

23 ‘‘An individual may elect to have this paragraph

24 apply to only one lump-sum distribution.’’, and

25 (C) by striking the heading and inserting:
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1 ‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.

2 (13) Section 402(e) is amended by striking para3 graph (5).

4 (c) EFFECTIVE DATES.—

5 (1) IN GENERAL.—The amendments made by

6 this section shall apply to taxable years beginning

7 after December 31, 1999.

8 (2) RETENTION OF CERTAIN TRANSITION

9 RULES.—The amendments made by this section shall

10 not apply to any distribution for which the taxpayer

11 is eligible to elect the benefits of section 1122 (h)(3)

12 or (h)(5) of the Tax Reform Act of 1986. Notwith13 standing the preceding sentence, individuals who elect

14 such benefits after December 31, 1999, shall not be eli15 gible for 5-year averaging under section 402(d) of the

16 Internal Revenue Code of 1986 (as in effect imme17 diately before such amendments).

18 SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’

19 DEATH BENEFITS.

20 (a) IN GENERAL.—Subsection (b) of section 101 is

21 hereby repealed.

22 (b) CONFORMING AMENDMENTS.—

23 (1) Subsection (c) of section 101 is amended by

24 striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub25 section (a)’’.
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1 (2) Sections 406(e) and 407(e) are each amended

2 by striking paragraph (2) and by redesignating para3 graph (3) as paragraph (2).

4 (3) Section 7701(a)(20) is amended by striking

5 ‘‘, for the purpose of applying the provisions of sec6 tion 101(b) with respect to employees’ death benefits’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply with respect to decedents dying after the

9 date of the enactment of this Act.

10 SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS11 TRIBUTIONS UNDER CERTAIN EMPLOYER

12 PLANS.

13 (a) GENERAL RULE.—Subsection (d) of section 72 (re14 lating to annuities; certain proceeds of endowment and life

15 insurance contracts) is amended to read as follows:

16 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RE17 TIREMENT PLANS.—

18 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

19 PAYMENTS.—

20 ‘‘(A) IN GENERAL.—In the case of any

21 amount received as an annuity under a qualified

22 employer retirement plan—

23 ‘‘(i) subsection (b) shall not apply, and
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1 ‘‘(ii) the investment in the contract

2 shall be recovered as provided in this para3 graph.

4 ‘‘(B) METHOD OF RECOVERING INVESTMENT

5 IN CONTRACT.—

6 ‘‘(i) IN GENERAL.—Gross income shall

7 not include so much of any monthly annu8 ity payment under a qualified employer re9 tirement plan as does not exceed the amount

10 obtained by dividing—

11 ‘‘(I) the investment in the con12 tract (as of the annuity starting date),

13 by

14 ‘‘(II) the number of anticipated

15 payments determined under the table

16 contained in clause (iii) (or, in the

17 case of a contract to which subsection

18 (c)(3)(B) applies, the number of

19 monthly annuity payments under such

20 contract).

21 ‘‘(ii) CERTAIN RULES MADE APPLICA22 BLE.—Rules similar to the rules of para23 graphs (2) and (3) of subsection (b) shall

24 apply for purposes of this paragraph.
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1 ‘‘(iii) NUMBER OF ANTICIPATED PAY2 MENTS.—

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

Not more than 55 .................................... 360

More than 55 but not more than 60 ...... 310

More than 60 but not more than 65 ...... 260

More than 65 but not more than 70 ...... 210

More than 70 ........................................... 160.

3 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

4 NOT APPLICABLE.—For purposes of this para5 graph, investment in the contract shall be deter6 mined under subsection (c)(1) without regard to

7 subsection (c)(2).

8 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

9 PAID IN CONNECTION WITH COMMENCEMENT OF

10 ANNUITY PAYMENTS.—If, in connection with the

11 commencement of annuity payments under any

12 qualified employer retirement plan, the taxpayer

13 receives a lump sum payment—

14 ‘‘(i) such payment shall be taxable

15 under subsection (e) as if received before the

16 annuity starting date, and

17 ‘‘(ii) the investment in the contract for

18 purposes of this paragraph shall be deter19 mined as if such payment had been so re20 ceived.
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1 ‘‘(E) EXCEPTION.—This paragraph shall

2 not apply in any case where the primary annu3 itant has attained age 75 on the annuity start4 ing date unless there are fewer than 5 years of

5 guaranteed payments under the annuity.

6 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY7 MENTS NOT ON MONTHLY BASIS.—In any case

8 where the annuity payments are not made on a

9 monthly basis, appropriate adjustments in the

10 application of this paragraph shall be made to

11 take into account the period on the basis of

12 which such payments are made.

13 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

14 PLAN.—For purposes of this paragraph, the term

15 ‘qualified employer retirement plan’ means any

16 plan or contract described in paragraph (1), (2),

17 or (3) of section 4974(c).

18 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS

19 UNDER DEFINED CONTRIBUTION PLANS.—For pur20 poses of this section, employee contributions (and any

21 income allocable thereto) under a defined contribution

22 plan may be treated as a separate contract.’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply in cases where the annuity starting date
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1 is after the 90th day after the date of the enactment of this

2 Act.

3 SEC. 1404. REQUIRED DISTRIBUTIONS.

4 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re5 quired beginning date) is amended to read as follows:

6 ‘‘(C) REQUIRED BEGINNING DATE.—For

7 purposes of this paragraph—

8 ‘‘(i) IN GENERAL.—The term ‘required

9 beginning date’ means April 1 of the cal10 endar year following the later of—

11 ‘‘(I) the calendar year in which

the employee attains age 701 12 ⁄2, or

13 ‘‘(II) the calendar year in which

14 the employee retires.

15 ‘‘(ii) EXCEPTION.—Subclause (II) of

16 clause (i) shall not apply—

17 ‘‘(I) except as provided in section

18 409(d), in the case of an employee who

19 is a 5-percent owner (as defined in sec20 tion 416) with respect to the plan year

21 ending in the calendar year in which

the employee attains age 701 22 ⁄2, or

23 ‘‘(II) for purposes of section 408

24 (a)(6) or (b)(3).
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1 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

2 the case of an employee to whom clause

3 (i)(II) applies who retires in a calendar

4 year after the calendar year in which the

employee attains age 701 5 ⁄2, the employee’s

6 accrued benefit shall be actuarially in7 creased to take into account the period after

age 701 8 ⁄2 in which the employee was not re9 ceiving any benefits under the plan.

10 ‘‘(iv) EXCEPTION FOR GOVERNMENTAL

11 AND CHURCH PLANS.—Clauses (ii) and (iii)

12 shall not apply in the case of a govern13 mental plan or church plan. For purposes

14 of this clause, the term ‘church plan’ means

15 a plan maintained by a church for church

16 employees, and the term ‘church’ means any

17 church (as defined in section

18 3121(w)(3)(A)) or qualified church-con19 trolled organization (as defined in section

20 3121(w)(3)(B)).’’.

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall apply to years beginning after December

23 31, 1996.
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1 CHAPTER 2—INCREASED ACCESS TO

2 RETIREMENT PLANS

3 Subchapter A—Simple Savings Plans

4 SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH

5 PLANS FOR EMPLOYEES OF SMALL EMPLOY6 ERS.

7 (a) IN GENERAL.—Section 408 (relating to individual

8 retirement accounts) is amended by redesignating sub9 section (p) as subsection (q) and by inserting after sub10 section (o) the following new subsection:

11 ‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—

12 ‘‘(1) IN GENERAL.—For purposes of this title, the

13 term ‘simple retirement account’ means an individual

14 retirement plan (as defined in section 7701(a)(37))—

15 ‘‘(A) with respect to which the requirements

16 of paragraphs (3), (4), and (5) are met; and

17 ‘‘(B) with respect to which the only con18 tributions allowed are contributions under a

19 qualified salary reduction arrangement.

20 ‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE21 MENT.—

22 ‘‘(A) IN GENERAL.—For purposes of this

23 subsection, the term ‘qualified salary reduction

24 arrangement’ means a written arrangement of

25 an eligible employer under which—
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1 ‘‘(i) an employee eligible to participate

2 in the arrangement may elect to have the

3 employer make payments—

4 ‘‘(I) as elective employer contribu5 tions to a simple retirement account on

6 behalf of the employee, or

7 ‘‘(II) to the employee directly in

8 cash,

9 ‘‘(ii) the amount which an employee

10 may elect under clause (i) for any year is

11 required to be expressed as a percentage of

12 compensation and may not exceed a total of

13 $6,000 for any year,

14 ‘‘(iii) the employer is required to make

15 a matching contribution to the simple re16 tirement account for any year in an

17 amount equal to so much of the amount the

18 employee elects under clause (i)(I) as does

19 not exceed the applicable percentage of com20 pensation for the year, and

21 ‘‘(iv) no contributions may be made

22 other than contributions described in clause

23 (i) or (iii).

24 ‘‘(B) EMPLOYER MAY ELECT 2-PERCENT

25 NONELECTIVE CONTRIBUTION.—
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1 ‘‘(i) IN GENERAL.—An employer shall

2 be treated as meeting the requirements of

3 subparagraph (A)(iii) for any year if, in

4 lieu of the contributions described in such

5 clause, the employer elects to make nonelec6 tive contributions of 2 percent of compensa7 tion for each employee who is eligible to

8 participate in the arrangement and who

9 has at least $5,000 of compensation from

10 the employer for the year. If an employer

11 makes an election under this subparagraph

12 for any year, the employer shall notify em13 ployees of such election within a reasonable

14 period of time before the 60-day period for

15 such year under paragraph (5)(C).

16 ‘‘(ii) COMPENSATION LIMITATION.—

17 The compensation taken into account under

18 clause (i) for any year shall not exceed the

19 limitation in effect for such year under sec20 tion 401(a)(17).

21 ‘‘(C) DEFINITIONS.—For purposes of this

22 subsection—

23 ‘‘(i) ELIGIBLE EMPLOYER.—

24 ‘‘(I) IN GENERAL.—The term ‘eli25 gible employer’ means, with respect to
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1 any year, an employer which had no

2 more than 100 employees who received

3 at least $5,000 of compensation from

4 the employer for the preceding year.

5 ‘‘(II) 2-YEAR GRACE PERIOD.—An

6 eligible employer who establishes and

7 maintains a plan under this subsection

8 for 1 or more years and who fails to be

9 an eligible employer for any subsequent

10 year shall be treated as an eligible em11 ployer for the 2 years following the last

12 year the employer was an eligible em13 ployer. If such failure is due to any ac14 quisition, disposition, or similar trans15 action involving an eligible employer,

16 the preceding sentence shall apply only

17 in accordance with rules similar to the

18 rules of section 410(b)(6)(C)(i).

19 ‘‘(ii) APPLICABLE PERCENTAGE.—

20 ‘‘(I) IN GENERAL.—The term ‘ap21 plicable percentage’ means 3 percent.

22 ‘‘(II) ELECTION OF LOWER PER23 CENTAGE.—An employer may elect to

24 apply a lower percentage (not less than

25 1 percent) for any year for all employ-
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1 ees eligible to participate in the plan

2 for such year if the employer notifies

3 the employees of such lower percentage

4 within a reasonable period of time be5 fore the 60-day election period for such

6 year under paragraph (5)(C). An em7 ployer may not elect a lower percent8 age under this subclause for any year

9 if that election would result in the ap10 plicable percentage being lower than 3

11 percent in more than 2 of the years in

12 the 5-year period ending with such

13 year.

14 ‘‘(III) SPECIAL RULE FOR YEARS

15 ARRANGEMENT NOT IN EFFECT.—If

16 any year in the 5-year period de17 scribed in subclause (II) is a year

18 prior to the first year for which any

19 qualified salary reduction arrangement

20 is in effect with respect to the employer

21 (or any predecessor), the employer

22 shall be treated as if the level of the

23 employer matching contribution was at

24 3 percent of compensation for such

25 prior year.
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1 ‘‘(D) ARRANGEMENT MAY BE ONLY PLAN OF

2 EMPLOYER.—

3 ‘‘(i) IN GENERAL.—An arrangement

4 shall not be treated as a qualified salary re5 duction arrangement for any year if the

6 employer (or any predecessor employer)

7 maintained a qualified plan with respect to

8 which contributions were made, or benefits

9 were accrued, for service in any year in the

10 period beginning with the year such ar11 rangement became effective and ending with

12 the year for which the determination is

13 being made.

14 ‘‘(ii) QUALIFIED PLAN.—For purposes

15 of this subparagraph, the term ‘qualified

16 plan’ means a plan, contract, pension, or

17 trust described in subparagraph (A) or (B)

18 of section 219(g)(5).

19 ‘‘(E) COST-OF-LIVING ADJUSTMENT.—The

20 Secretary shall adjust the $6,000 amount under

21 subparagraph (A)(ii) at the same time and in

22 the same manner as under section 415(d), except

23 that the base period taken into account shall be

24 the calendar quarter ending September 30, 1996,

25 and any increase under this subparagraph which
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1 is not a multiple of $500 shall be rounded to the

2 next lower multiple of $500.

3 ‘‘(3) VESTING REQUIREMENTS.—The require4 ments of this paragraph are met with respect to a

5 simple retirement account if the employee’s rights to

6 any contribution to the simple retirement account are

7 nonforfeitable. For purposes of this paragraph, rules

8 similar to the rules of subsection (k)(4) shall apply.

9 ‘‘(4) PARTICIPATION REQUIREMENTS.—

10 ‘‘(A) IN GENERAL.—The requirements of

11 this paragraph are met with respect to any sim12 ple retirement account for a year only if, under

13 the qualified salary reduction arrangement, all

14 employees of the employer who—

15 ‘‘(i) received at least $5,000 in com16 pensation from the employer during any 2

17 preceding years, and

18 ‘‘(ii) are reasonably expected to receive

19 at least $5,000 in compensation during the

20 year,

21 are eligible to make the election under paragraph

22 (2)(A)(i) or receive the nonelective contribution

23 described in paragraph (2)(B).

24 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em25 ployer may elect to exclude from the requirement
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1 under subparagraph (A) employees described in

2 section 410(b)(3).

3 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The re4 quirements of this paragraph are met with respect to

5 any simplified retirement account if, under the quali6 fied salary reduction arrangement—

7 ‘‘(A) an employer must—

8 ‘‘(i) make the elective employer con9 tributions under paragraph (2)(A)(i) not

10 later than the close of the 30-day period fol11 lowing the last day of the month with re12 spect to which the contributions are to be

13 made, and

14 ‘‘(ii) make the matching contributions

15 under paragraph (2)(A)(iii) or the nonelec16 tive contributions under paragraph (2)(B)

17 not later than the date described in section

18 404(m)(2)(B),

19 ‘‘(B) an employee may elect to terminate

20 participation in such arrangement at any time

21 during the year, except that if an employee so

22 terminates, the arrangement may provide that

23 the employee may not elect to resume participa24 tion until the beginning of the next year, and
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1 ‘‘(C) each employee eligible to participate

2 may elect, during the 60-day period before the

3 beginning of any year (and the 60-day period

4 before the first day such employee is eligible to

5 participate), to participate in the arrangement,

6 or to modify the amounts subject to such ar7 rangement, for such year.

8 ‘‘(6) DEFINITIONS.—For purposes of this sub9 section—

10 ‘‘(A) COMPENSATION.—

11 ‘‘(i) IN GENERAL.—The term ‘com12 pensation’ means amounts described in

13 paragraphs (3) and (8) of section 6051(a).

14 ‘‘(ii) SELF-EMPLOYED.—In the case of

15 an employee described in subparagraph (B),

16 the term ‘compensation’ means net earnings

17 from self-employment determined under sec18 tion 1402(a) without regard to any con19 tribution under this subsection.

20 ‘‘(B) EMPLOYEE.—The term ‘employee’ in21 cludes an employee as defined in section

22 401(c)(1).

23 ‘‘(C) YEAR.—The term ‘year’ means the cal24 endar year.
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1 ‘‘(7) USE OF DESIGNATED FINANCIAL INSTITU2 TION.—A plan shall not be treated as failing to sat3 isfy the requirements of this subsection or any other

4 provision of this title merely because the employer

5 makes all contributions to the individual retirement

6 accounts or annuities of a designated trustee or is7 suer. The preceding sentence shall not apply unless

8 each plan participant is notified in writing (either

9 separately or as part of the notice under subsection

10 (l)(2)(C)) that the participant’s balance may be

11 transferred without cost or penalty to another indi12 vidual account or annuity in accordance with section

13 408(d)(3)(G).’’

14 (b) TAX TREATMENT OF SIMPLE RETIREMENT AC15 COUNTS.—

16 (1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM17 PLOYEES.—

18 (A) Section 219(b) (relating to maximum

19 amount of deduction) is amended by adding at

20 the end the following new paragraph:

21 ‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT

22 ACCOUNTS.—This section shall not apply with respect

23 to any amount contributed to a simple retirement ac24 count established under section 408(p).’’.
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1 (B) Section 219(g)(5)(A) (defining active

2 participant) is amended by striking ‘‘or’’ at the

3 end of clause (iv) and by adding at the end the

4 following new clause:

5 ‘‘(vi) any simple retirement account

6 (within the meaning of section 408(p)), or’’.

7 (2) DEDUCTIBILITY OF EMPLOYER CONTRIBU8 TIONS.—Section 404 (relating to deductions for con9 tributions of an employer to pension, etc. plans) is

10 amended by adding at the end the following new sub11 section:

12 ‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC13 COUNTS.—

14 ‘‘(1) IN GENERAL.—Employer contributions to a

15 simple retirement account shall be treated as if they

16 are made to a plan subject to the requirements of this

17 section.

18 ‘‘(2) TIMING.—

19 ‘‘(A) DEDUCTION.—Contributions described

20 in paragraph (1) shall be deductible in the tax21 able year of the employer with or within which

22 the calendar year for which the contributions

23 were made ends.

24 ‘‘(B) CONTRIBUTIONS AFTER END OF

25 YEAR.—For purposes of this subsection, contribu-
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1 tions shall be treated as made for a taxable year

2 if they are made on account of the taxable year

3 and are made not later than the time prescribed

4 by law for filing the return for the taxable year

5 (including extensions thereof).’’.

6 (3) CONTRIBUTIONS AND DISTRIBUTIONS.—

7 (A) Section 402 (relating to taxability of

8 beneficiary of employees’ trust) is amended by

9 adding at the end the following new subsection:

10 ‘‘(k) TREATMENT OF SIMPLE RETIREMENT AC11 COUNTS.—Rules similar to the rules of paragraphs (1) and

12 (3) of subsection (h) shall apply to contributions and dis13 tributions with respect to a simple retirement account

14 under section 408(p).’’.

15 (B) Section 408(d)(3) is amended by add16 ing at the end the following new subparagraph:

17 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—

18 This paragraph shall not apply to any amount

19 paid or distributed out of a simple retirement

20 account (as defined in section 408(p)) unless—

21 ‘‘(i) it is paid into another simple re22 tirement account, or

23 ‘‘(ii) in the case of any payment or

24 distribution to which section 72(t)(6) does
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1 not apply, it is paid into an individual re2 tirement plan.’’.

3 (C) Clause (i) of section 457(c)(2)(B) is

4 amended by striking ‘‘section 402(h)(1)(B)’’ and

5 inserting ‘‘section 402(h)(1)(B) or (k)’’.

6 (4) PENALTIES.—

7 (A) EARLY WITHDRAWALS.—Section 72(t)

8 (relating to additional tax in early distribu9 tions) is amended by adding at the end the fol10 lowing new paragraph:

11 ‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT

12 ACCOUNTS.—In the case of any amount received from

13 a simple retirement account (within the meaning of

14 section 408(p)) during the 2-year period beginning on

15 the date such individual first participated in any

16 qualified salary reduction arrangement maintained

17 by the individual’s employer under section 408(p)(2),

18 paragraph (1) shall be applied by substituting ‘25

19 percent’ for ‘10 percent’.’’.

20 (B) FAILURE TO REPORT.—Section 6693 is

21 amended by redesignating subsection (c) as sub22 section (d) and by inserting after subsection (b)

23 the following new subsection:

24 ‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT

25 ACCOUNTS.—
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1 ‘‘(1) EMPLOYER PENALTIES.—An employer who

2 fails to provide 1 or more notices required by section

3 408(l)(2)(C) shall pay a penalty of $50 for each day

4 on which such failures continue.

5 ‘‘(2) TRUSTEE PENALTIES.—A trustee who

6 fails—

7 ‘‘(A) to provide 1 or more statements re8 quired by the last sentence of section 408(i) shall

9 pay a penalty of $50 for each day on which such

10 failures continue, or

11 ‘‘(B) to provide 1 or more summary de12 scriptions required by section 408(l)(2)(B) shall

13 pay a penalty of $50 for each day on which such

14 failures continue.

15 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen16 alty shall be imposed under this subsection with re17 spect to any failure which the taxpayer shows was

18 due to reasonable cause.’’.

19 (5) REPORTING REQUIREMENTS.—

20 (A) Section 408(l) is amended by adding at

21 the end the following new paragraph:

22 ‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—

23 ‘‘(A) NO EMPLOYER REPORTS.—Except as

24 provided in this paragraph, no report shall be

25 required under this section by an employer
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1 maintaining a qualified salary reduction ar2 rangement under subsection (p).

3 ‘‘(B) SUMMARY DESCRIPTION.—The trustee

4 of any simple retirement account established

5 pursuant to a qualified salary reduction ar6 rangement under subsection (p) shall provide to

7 the employer maintaining the arrangement, each

8 year a description containing the following in9 formation:

10 ‘‘(i) The name and address of the em11 ployer and the trustee.

12 ‘‘(ii) The requirements for eligibility

13 for participation.

14 ‘‘(iii) The benefits provided with re15 spect to the arrangement.

16 ‘‘(iv) The time and method of making

17 elections with respect to the arrangement.

18 ‘‘(v) The procedures for, and effects of,

19 withdrawals (including rollovers) from the

20 arrangement.

21 ‘‘(C) EMPLOYEE NOTIFICATION.—The em22 ployer shall notify each employee immediately

23 before the period for which an election described

24 in subsection (p)(5)(C) may be made of the em25 ployee’s opportunity to make such election. Such
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1 notice shall include a copy of the description de2 scribed in subparagraph (B).’’.

3 (B) Section 408(l) is amended by striking

4 ‘‘An employer’’ and inserting the following:

5 ‘‘(1) IN GENERAL.—An employer’’.

6 (6) REPORTING REQUIREMENTS.—Section 408(i)

7 is amended by adding at the end the following new

8 flush sentence:

9 ‘‘In the case of a simple retirement account under sub10 section (p), only one report under this subsection shall be

11 required to be submitted each calendar year to the Secretary

12 (at the time provided under paragraph (2)) but, in addition

13 to the report under this subsection, there shall be furnished,

14 within 30 days after each calendar year, to the individual

15 on whose behalf the account is maintained a statement with

16 respect to the account balance as of the close of, and the

17 account activity during, such calendar year.’’.

18 (7) EXEMPTION FROM TOP-HEAVY PLAN

19 RULES.—Section 416(g)(4) (relating to special rules

20 for top-heavy plans) is amended by adding at the end

21 the following new subparagraph:

22 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—The

23 term ‘top-heavy plan’ shall not include a simple

24 retirement account under section 408(p).’’.

25 (8) EMPLOYMENT TAXES.—
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1 (A) Paragraph (5) of section 3121(a) is

2 amended by striking ‘‘or’’ at the end of subpara3 graph (F), by inserting ‘‘or’’ at the end of sub4 paragraph (G), and by adding at the end the fol5 lowing new subparagraph:

6 ‘‘(H) under an arrangement to which sec7 tion 408(p) applies, other than any elective con8 tributions under paragraph (2)(A)(i) thereof,’’.

9 (B) Section 209(a)(4) of the Social Security

10 Act is amended by inserting ‘‘; or (J) under an

11 arrangement to which section 408(p) of such

12 Code applies, other than any elective contribu13 tions under paragraph (2)(A)(i) thereof’’ before

14 the semicolon at the end thereof.

15 (C) Paragraph (5) of section 3306(b) is

16 amended by striking ‘‘or’’ at the end of subpara17 graph (F), by inserting ‘‘or’’ at the end of sub18 paragraph (G), and by adding at the end the fol19 lowing new subparagraph:

20 ‘‘(H) under an arrangement to which sec21 tion 408(p) applies, other than any elective con22 tributions under paragraph (2)(A)(i) thereof,’’.

23 (D) Paragraph (12) of section 3401(a) is

24 amended by adding the following new subpara25 graph:
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•HR 3448 RS

1 ‘‘(D) under an arrangement to which sec2 tion 408(p) applies; or’’.

3 (9) CONFORMING AMENDMENTS.—

4 (A) Section 280G(b)(6) is amended by strik5 ing ‘‘or’’ at the end of subparagraph (B), by

6 striking the period at the end of subparagraph

7 (C) and inserting ‘‘, or’’ and by adding after

8 subparagraph (C) the following new subpara9 graph:

10 ‘‘(D) a simple retirement account described

11 in section 408(p).’’.

12 (B) Section 402(g)(3) is amended by strik13 ing ‘‘and’’ at the end of subparagraph (B), by

14 striking the period at the end of subparagraph

15 (C) and inserting ‘‘, and’’, and by adding after

16 subparagraph (C) the following new subpara17 graph:

18 ‘‘(D) any elective employer contribution

19 under section 408(p)(2)(A)(i).’’.

20 (C) Subsections (b), (c), (m)(4)(B), and

21 (n)(3)(B) of section 414 are each amended by in22 serting ‘‘408(p),’’ after ‘‘408(k),’’.

23 (D) Section 4972(d)(1)(A) is amended by

24 striking ‘‘and’’ at the end of clause (ii), by strik25 ing the period at the end of clause (iii) and in-
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1 serting ‘‘, and’’, and by adding after clause (iii)

2 the following new clause:

3 ‘‘(iv) any simple retirement account

4 (within the meaning of section 408(p)).’’.

5 (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM6 PLOYEE PENSIONS.—Section 408(k)(6) is amended by add7 ing at the end the following new subparagraph:

8 ‘‘(H) TERMINATION.—This paragraph shall

9 not apply to years beginning after December 31,

10 1996. The preceding sentence shall not apply to

11 a simplified employee pension if the terms of

12 such pension, as in effect on December 31, 1996,

13 provide that an employee may make the election

14 described in subparagraph (A).’’.

15 (d) MODIFICATIONS OF ERISA.—

16 (1) REPORTING REQUIREMENTS.—Section 101 of

17 the Employee Retirement Income Security Act of

18 1974 (29 U.S.C. 1021) is amended by redesignating

19 subsection (g) as subsection (h) and by inserting after

20 subsection (f) the following new subsection:

21 ‘‘(g) SIMPLE RETIREMENT ACCOUNTS.—

22 ‘‘(1) NO EMPLOYER REPORTS.—Except as pro23 vided in this subsection, no report shall be required

24 under this section by an employer maintaining a
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1 qualified salary reduction arrangement under section

2 408(p) of the Internal Revenue Code of 1986.

3 ‘‘(2) SUMMARY DESCRIPTION.—The trustee of

4 any simple retirement account established pursuant

5 to a qualified salary reduction arrangement under

6 section 408(p) of such Code shall provide to the em7 ployer maintaining the arrangement each year a de8 scription containing the following information:

9 ‘‘(A) The name and address of the employer

10 and the trustee.

11 ‘‘(B) The requirements for eligibility for

12 participation.

13 ‘‘(C) The benefits provided with respect to

14 the arrangement.

15 ‘‘(D) The time and method of making elec16 tions with respect to the arrangement.

17 ‘‘(E) The procedures for, and effects of,

18 withdrawals (including rollovers) from the ar19 rangement.

20 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

21 shall notify each employee immediately before the pe22 riod for which an election described in section

23 408(p)(5)(C) of such Code may be made of the em24 ployee’s opportunity to make such election. Such no-
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1 tice shall include a copy of the description described

2 in paragraph (2).’’

3 (2) FIDUCIARY DUTIES.—Section 404(c) of such

4 Act (29 U.S.C. 1104(c)) is amended by inserting

5 ‘‘(1)’’ after ‘‘(c)’’, by redesignating paragraphs (1)

6 and (2) as subparagraphs (A) and (B), respectively,

7 and by adding at the end the following new para8 graph:

9 ‘‘(2) In the case of a simple retirement account

10 established pursuant to a qualified salary reduction

11 arrangement under section 408(p) of the Internal

12 Revenue Code of 1986, a participant or beneficiary

13 shall, for purposes of paragraph (1), be treated as ex14 ercising control over the assets in the account upon

15 the earliest of—

16 ‘‘(A) an affirmative election with respect to

17 the initial investment of any contribution,

18 ‘‘(B) a rollover to any other simple retire19 ment account or individual retirement plan, or

20 ‘‘(C) one year after the simple retirement

21 account is established.

22 No reports, other than those required under section

23 101(g), shall be required with respect to a simple re24 tirement account established pursuant to such a

25 qualified salary reduction arrangement.’’
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1 (e) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 1996.

4 SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR5 RANGEMENTS.

6 (a) ALTERNATIVE METHOD OF SATISFYING SECTION

7 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat8 ing to cash or deferred arrangements) is amended by adding

9 at the end the following new paragraph:

10 ‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET NON11 DISCRIMINATION TESTS.—

12 ‘‘(A) IN GENERAL.—A cash or deferred ar13 rangement maintained by an eligible employer

14 shall be treated as meeting the requirements of

15 paragraph (3)(A)(ii) if such arrangement

16 meets—

17 ‘‘(i) the contribution requirements of

18 subparagraph (B),

19 ‘‘(ii) the exclusive plan requirements of

20 subparagraph (C), and

21 ‘‘(iii) the vesting requirements of sec22 tion 408(p)(3).

23 ‘‘(B) CONTRIBUTION REQUIREMENTS.—
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1 ‘‘(i) IN GENERAL.—The requirements

2 of this subparagraph are met if, under the

3 arrangement—

4 ‘‘(I) an employee may elect to

5 have the employer make elective con6 tributions for the year on behalf of the

7 employee to a trust under the plan in

8 an amount which is expressed as a

9 percentage of compensation of the em10 ployee but which in no event exceeds

11 $6,000,

12 ‘‘(II) the employer is required to

13 make a matching contribution to the

14 trust for the year in an amount equal

15 to so much of the amount the employee

16 elects under subclause (I) as does not

17 exceed 3 percent of compensation for

18 the year, and

19 ‘‘(III) no other contributions may

20 be made other than contributions de21 scribed in subclause (I) or (II).

22 ‘‘(ii) EMPLOYER MAY ELECT 2-PER23 CENT NONELECTIVE CONTRIBUTION.—An

24 employer shall be treated as meeting the re25 quirements of clause (i)(II) for any year if,
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1 in lieu of the contributions described in

2 such clause, the employer elects (pursuant to

3 the terms of the arrangement) to make non4 elective contributions of 2 percent of com5 pensation for each employee who is eligible

6 to participate in the arrangement and who

7 has at least $5,000 of compensation from

8 the employer for the year. If an employer

9 makes an election under this subparagraph

10 for any year, the employer shall notify em11 ployees of such election within a reasonable

12 period of time before the 60th day before the

13 beginning of such year.

14 ‘‘(C) EXCLUSIVE PLAN REQUIREMENT.—The

15 requirements of this subparagraph are met for

16 any year to which this paragraph applies if no

17 contributions were made, or benefits were ac18 crued, for services during such year under any

19 qualified plan of the employer on behalf of any

20 employee eligible to participate in the cash or de21 ferred arrangement, other than contributions de22 scribed in subparagraph (B).

23 ‘‘(D) DEFINITIONS AND SPECIAL RULE.—

24 ‘‘(i) DEFINITIONS.—For purposes of

25 this paragraph, any term used in this para-
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1 graph which is also used in section 408(p)

2 shall have the meaning given such term by

3 such section.

4 ‘‘(ii) COORDINATION WITH TOP-HEAVY

5 RULES.—A plan meeting the requirements

6 of this paragraph for any year shall not be

7 treated as a top-heavy plan under section

8 416 for such year.’’.

9 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

10 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re11 lating to nondiscrimination test for matching contributions

12 and employee contributions) is amended by redesignating

13 paragraph (10) as paragraph (11) and by adding after

14 paragraph (9) the following new paragraph:

15 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

16 TESTS.—A defined contribution plan shall be treated

17 as meeting the requirements of paragraph (2) with re18 spect to matching contributions if the plan—

19 ‘‘(A) meets the contribution requirements of

20 subparagraph (B) of subsection (k)(11),

21 ‘‘(B) meets the exclusive plan requirements

22 of subsection (k)(11)(C), and

23 ‘‘(C) meets the vesting requirements of sec24 tion 408(p)(3).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to plan years beginning after December

3 31, 1996.

4 Subchapter B—Other Provisions

5 SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

6 SECTION 401(k).

7 (a) IN GENERAL.—Subparagraph (B) of section

8 401(k)(4) is amended to read as follows:

9 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

10 GOVERNMENTS AND TAX-EXEMPT ORGANIZA11 TIONS.—

12 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Except

13 as provided in clause (ii), any organization

14 exempt from tax under this subtitle may in15 clude a qualified cash or deferred arrange16 ment as part of a plan maintained by it.

17 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

18 cash or deferred arrangement shall not be

19 treated as a qualified cash or deferred ar20 rangement if it is part of a plan main21 tained by a State or local government or

22 political subdivision thereof, or any agency

23 or instrumentality thereof. This clause shall

24 not apply to a rural cooperative plan or to
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1 a plan of an employer described in clause

2 (iii).

3 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

4 GOVERNMENTS.—An employer which is an

5 Indian tribal government (as defined in sec6 tion 7701(a)(40)), a subdivision of an In7 dian tribal government (determined in ac8 cordance with section 7871(d)), an agency

9 or instrumentality of an Indian tribal gov10 ernment or subdivision thereof, or a cor11 poration chartered under Federal, State, or

12 tribal law which is owned in whole or in

13 part by any of the foregoing may include a

14 qualified cash or deferred arrangement as

15 part of a plan maintained by the em16 ployer.’’.

17 (b) EFFECTIVE DATE.—The amendment made by this

18 section shall apply to plan years beginning after December

19 31, 1996, but shall not apply to any cash or deferred ar20 rangement to which clause (i) of section 1116(f)(2)(B) of

21 the Tax Reform Act of 1986 applies.

22 SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUC23 TION.

24 (a) SPOUSAL IRA COMPUTED ON BASIS OF COM25 PENSATION OF BOTH SPOUSES.—Subsection (c) of section
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1 219 (relating to special rules for certain married individ2 uals) is amended to read as follows:

3 ‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVID4 UALS.—

5 ‘‘(1) IN GENERAL.—In the case of an individual

6 to whom this paragraph applies for the taxable year,

7 the limitation of paragraph (1) of subsection (b) shall

8 be equal to the lesser of—

9 ‘‘(A) the dollar amount in effect under sub10 section (b)(1)(A) for the taxable year, or

11 ‘‘(B) the sum of—

12 ‘‘(i) the compensation includible in

13 such individual’s gross income for the tax14 able year, plus

15 ‘‘(ii) the compensation includible in

16 the gross income of such individual’s spouse

17 for the taxable year reduced by the amount

18 allowed as a deduction under subsection (a)

19 to such spouse for such taxable year.

20 ‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1) AP21 PLIES.—Paragraph (1) shall apply to any individual

22 if—

23 ‘‘(A) such individual files a joint return for

24 the taxable year, and
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1 ‘‘(B) the amount of compensation (if any)

2 includible in such individual’s gross income for

3 the taxable year is less than the compensation

4 includible in the gross income of such individ5 ual’s spouse for the taxable year.’’.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Paragraph (2) of section 219(f) (relating to

8 other definitions and special rules) is amended by

9 striking ‘‘subsections (b) and (c)’’ and inserting ‘‘sub10 section (b)’’.

11 (2) Section 219(g)(1) is amended by striking

12 ‘‘(c)(2)’’ and inserting ‘‘(c)(1)(A)’’.

13 (3) Section 408(d)(5) is amended by striking

14 ‘‘$2,250’’ and inserting ‘‘the dollar amount in effect

15 under section 219(b)(1)(A)’’.

16 (c) EFFECTIVE DATE.—The amendments made by this

17 section shall apply to taxable years beginning after Decem18 ber 31, 1996.

19 CHAPTER 3—NONDISCRIMINATION

20 PROVISIONS

21 SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOY22 EES; REPEAL OF FAMILY AGGREGATION.

23 (a) IN GENERAL.—Paragraph (1) of section 414(q)

24 (defining highly compensated employee) is amended to read

25 as follows:
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1 ‘‘(1) IN GENERAL.—The term ‘highly com2 pensated employee’ means any employee who—

3 ‘‘(A) was a 5-percent owner at any time

4 during the year or the preceding year, or

5 ‘‘(B) for the preceding year had compensa6 tion from the employer in excess of $80,000.

7 The Secretary shall adjust the $80,000 amount under

8 subparagraph (B) at the same time and in the same

9 manner as under section 415(d), except that the base

10 period shall be the calendar quarter ending September

11 30, 1996.’’.

12 (b) REPEAL OF FAMILY AGGREGATION RULES.—

13 (1) IN GENERAL.—Paragraph (6) of section

14 414(q) is hereby repealed.

15 (2) COMPENSATION LIMIT.—Paragraph (17)(A)

16 of section 401(a) is amended by striking the last sen17 tence.

18 (3) DEDUCTION.—Subsection (l) of section 404 is

19 amended by striking the last sentence.

20 (c) CONFORMING AMENDMENTS.—

21 (1)(A) Subsection (q) of section 414 is amended

22 by striking paragraphs (2), (4), (5), (8), and (12)

23 and by redesignating paragraphs (3), (7), (9), (10),

24 and (11) as paragraphs (2) through (6), respectively.
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1 (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),

2 408(k)(2)(C), and 416(i)(1)(D) are each amended by

3 striking ‘‘section 414(q)(7)’’ and inserting ‘‘section

4 414(q)(3)’’.

5 (C) Section 416(i)(1)(A) is amended by striking

6 ‘‘section 414(q)(8)’’ and inserting ‘‘section 414(r)(9)’’.

7 (2)(A) Section 414(r) is amended by adding at

8 the end the following new paragraph:

9 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

10 paragraph (2)(A), the following employees shall be ex11 cluded:

12 ‘‘(A) Employees who have not completed 6

13 months of service.

14 ‘‘(B) Employees who normally work less

than 171 15 ⁄2 hours per week.

16 ‘‘(C) Employees who normally work not

17 more than 6 months during any year.

18 ‘‘(D) Employees who have not attained the

19 age of 21.

20 ‘‘(E) Except to the extent provided in regu21 lations, employees who are included in a unit of

22 employees covered by an agreement which the

23 Secretary of Labor finds to be a collective bar24 gaining agreement between employee representa25 tives and the employer.
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1 Except as provided by the Secretary, the employer

2 may elect to apply subparagraph (A), (B), (C), or (D)

3 by substituting a shorter period of service, smaller

4 number of hours or months, or lower age for the pe5 riod of service, number of hours or months, or age (as

6 the case may be) specified in such subparagraph.’’.

7 (B) Subparagraph (A) of section 414(r)(2) is

8 amended by striking ‘‘subsection (q)(8)’’ and inserting

9 ‘‘paragraph (9)’’.

10 (3) Section 1114(c)(4) of the Tax Reform Act of

11 1986 is amended by adding at the end the following

12 new sentence: ‘‘Any reference in this paragraph to

13 section 414(q) shall be treated as a reference to such

14 section as in effect on the day before the date of the

15 enactment of the Small Business Job Protection Act

16 of 1996.’’.

17 (d) EFFECTIVE DATE.—

18 (1) IN GENERAL.—The amendments made by

19 this section shall apply to years beginning after De20 cember 31, 1996, except that in determining whether

21 an employee is a highly compensated employee for

22 years beginning in 1997, such amendments shall be

23 treated as having been in effect for years beginning in

24 1996.
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1 (2) FAMILY AGGREGATION.—The amendments

2 made by subsection (b) shall apply to years beginning

3 after December 31, 1996.

4 SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION

5 REQUIREMENTS.

6 (a) GENERAL RULE.—Section 401(a)(26)(A) (relating

7 to additional participation requirements) is amended to

8 read as follows:

9 ‘‘(A) IN GENERAL.—In the case of a trust

10 which is a part of a defined benefit plan, such

11 trust shall not constitute a qualified trust under

12 this subsection unless on each day of the plan

13 year such trust benefits at least the lesser of—

14 ‘‘(i) 50 employees of the employer, or

15 ‘‘(ii) the greater of—

16 ‘‘(I) 40 percent of all employees of

17 the employer, or

18 ‘‘(II) 2 employees (or if there is

19 only 1 employee, such employee).’’.

20 (b) SEPARATE LINE OF BUSINESS TEST.—Section

21 401(a)(26)(G) (relating to separate line of business) is

22 amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para23 graph (2)(A) or (7)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to years beginning after December 31,

3 1996.

4 SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED

5 CASH OR DEFERRED ARRANGEMENTS AND

6 MATCHING CONTRIBUTIONS.

7 (a) ALTERNATIVE METHODS OF SATISFYING SECTION

8 401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat9 ing to cash or deferred arrangements), as amended by sec10 tion 1422, is amended by adding at the end the following

11 new paragraph:

12 ‘‘(12) ALTERNATIVE METHODS OF MEETING NON13 DISCRIMINATION REQUIREMENTS.—

14 ‘‘(A) IN GENERAL.—A cash or deferred ar15 rangement shall be treated as meeting the re16 quirements of paragraph (3)(A)(ii) if such ar17 rangement—

18 ‘‘(i) meets the contribution require19 ments of subparagraph (B) or (C), and

20 ‘‘(ii) meets the notice requirements of

21 subparagraph (D).

22 ‘‘(B) MATCHING CONTRIBUTIONS.—

23 ‘‘(i) IN GENERAL.—The requirements

24 of this subparagraph are met if, under the

25 arrangement, the employer makes matching
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1 contributions on behalf of each employee

2 who is not a highly compensated employee

3 in an amount equal to—

4 ‘‘(I) 100 percent of the elective

5 contributions of the employee to the ex6 tent such elective contributions do not

7 exceed 3 percent of the employee’s com8 pensation, and

9 ‘‘(II) 50 percent of the elective

10 contributions of the employee to the ex11 tent that such elective contributions ex12 ceed 3 percent but do not exceed 5 per13 cent of the employee’s compensation.

14 ‘‘(ii) RATE FOR HIGHLY COMPENSATED

15 EMPLOYEES.—The requirements of this sub16 paragraph are not met if, under the ar17 rangement, the rate of matching contribu18 tion with respect to any elective contribu19 tion of a highly compensated employee at

20 any rate of elective contribution is greater

21 than that with respect to an employee who

22 is not a highly compensated employee.

23 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

24 If the rate of any matching contribution

25 with respect to any rate of elective contribu-
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1 tion is not equal to the percentage required

2 under clause (i), an arrangement shall not

3 be treated as failing to meet the require4 ments of clause (i) if—

5 ‘‘(I) the rate of an employer’s

6 matching contribution does not in7 crease as an employee’s rate of elective

8 contributions increase, and

9 ‘‘(II) the aggregate amount of

10 matching contributions at such rate of

11 elective contribution is at least equal to

12 the aggregate amount of matching con13 tributions which would be made if

14 matching contributions were made on

15 the basis of the percentages described in

16 clause (i).

17 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—The

18 requirements of this subparagraph are met if,

19 under the arrangement, the employer is required,

20 without regard to whether the employee makes an

21 elective contribution or employee contribution, to

22 make a contribution to a defined contribution

23 plan on behalf of each employee who is not a

24 highly compensated employee and who is eligible

25 to participate in the arrangement in an amount
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1 equal to at least 3 percent of the employee’s com2 pensation.

3 ‘‘(D) NOTICE REQUIREMENT.—An arrange4 ment meets the requirements of this paragraph

5 if, under the arrangement, each employee eligible

6 to participate is, within a reasonable period be7 fore any year, given written notice of the em8 ployee’s rights and obligations under the ar9 rangement which—

10 ‘‘(i) is sufficiently accurate and com11 prehensive to appraise the employee of such

12 rights and obligations, and

13 ‘‘(ii) is written in a manner calculated

14 to be understood by the average employee el15 igible to participate.

16 ‘‘(E) OTHER REQUIREMENTS.—

17 ‘‘(i) WITHDRAWAL AND VESTING RE18 STRICTIONS.—An arrangement shall not be

19 treated as meeting the requirements of sub20 paragraph (B) or (C) of this paragraph un21 less the requirements of subparagraphs (B)

22 and (C) of paragraph (2) are met with re23 spect to all employer contributions (includ24 ing matching contributions) taken into ac25 count in determining whether the require-
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1 ments of subparagraphs (B) and (C) of this

2 paragraph are met.

3 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

4 CONTRIBUTIONS NOT TAKEN INTO AC5 COUNT.—An arrangement shall not be treat6 ed as meeting the requirements of subpara7 graph (B) or (C) unless such requirements

8 are met without regard to subsection (l),

9 and, for purposes of subsection (l), employer

10 contributions under subparagraph (B) or

11 (C) shall not be taken into account.

12 ‘‘(F) OTHER PLANS.—An arrangement shall

13 be treated as meeting the requirements under

14 subparagraph (A)(i) if any other plan main15 tained by the employer meets such requirements

16 with respect to employees eligible under the ar17 rangement.’’.

18 (b) ALTERNATIVE METHODS OF SATISFYING SECTION

19 401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re20 lating to nondiscrimination test for matching contributions

21 and employee contributions), as amended by this section

22 1422(b), is amended by redesignating paragraph (11) as

23 paragraph (12) and by adding after paragraph (10) the

24 following new paragraph:
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1 ‘‘(11) ALTERNATIVE METHOD OF SATISFYING

2 TESTS.—

3 ‘‘(A) IN GENERAL.—A defined contribution

4 plan shall be treated as meeting the requirements

5 of paragraph (2) with respect to matching con6 tributions if the plan—

7 ‘‘(i) meets the contribution require8 ments of subparagraph (B) or (C) of sub9 section (k)(12),

10 ‘‘(ii) meets the notice requirements of

11 subsection (k)(12)(D), and

12 ‘‘(iii) meets the requirements of sub13 paragraph (B).

14 ‘‘(B) LIMITATION ON MATCHING CONTRIBU15 TIONS.—The requirements of this subparagraph

16 are met if—

17 ‘‘(i) matching contributions on behalf

18 of any employee may not be made with re19 spect to an employee’s contributions or elec20 tive deferrals in excess of 6 percent of the

21 employee’s compensation,

22 ‘‘(ii) the rate of an employer’s match23 ing contribution does not increase as the

24 rate of an employee’s contributions or elec25 tive deferrals increase, and
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1 ‘‘(iii) the matching contribution with

2 respect to any highly compensated employee

3 at any rate of an employee contribution or

4 rate of elective deferral is not greater than

5 that with respect to an employee who is not

6 a highly compensated employee.’’.

7 (c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED

8 EMPLOYEE PERCENTAGE.—

9 (1) CASH OR DEFERRED ARRANGEMENTS.—Sec10 tion 401(k)(3)(A) is amended—

11 (A) by striking ‘‘such year’’ in clause (ii)

12 and inserting ‘‘the plan year’’,

13 (B) by striking ‘‘for such plan year’’ in

14 clause (ii) and inserting ‘‘for the preceding plan

15 year’’, and

16 (C) by adding at the end the following new

17 sentence: ‘‘An arrangement may apply clause

18 (ii) by using the plan year rather than the pre19 ceding plan year if the employer so elects, except

20 that if such an election is made, it may not be

21 changed except as provided by the Secretary.’’.

22 (2) MATCHING AND EMPLOYEE CONTRIBU23 TIONS.—Section 401(m)(2)(A) is amended—

24 (A) by inserting ‘‘for such plan year’’ after

25 ‘‘highly compensated employees’’,
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1 (B) by inserting ‘‘for the preceding plan

2 year’’ after ‘‘eligible employees’’ each place it ap3 pears in clause (i) and clause (ii), and

4 (C) by adding at the end the following flush

5 sentence:

6 ‘‘This subparagraph may be applied by using the

7 plan year rather than the preceding plan year if

8 the employer so elects, except that if such an elec9 tion is made, it may not be changed except as

10 provided the Secretary.’’.

11 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE12 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

13 (1) Paragraph (3) of section 401(k) is amended

14 by adding at the end the following new subparagraph:

15 ‘‘(E) For purposes of this paragraph, in the

16 case of the first plan year of any plan (other

17 than a successor plan), the amount taken into

18 account as the actual deferral percentage of non19 highly compensated employees for the preceding

20 plan year shall be—

21 ‘‘(i) 3 percent, or

22 ‘‘(ii) if the employer makes an election

23 under this subclause, the actual deferral

24 percentage of nonhighly compensated em-
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1 ployees determined for such first plan

2 year.’’.

3 (2) Paragraph (3) of section 401(m) is amended

4 by adding at the end the following: ‘‘Rules similar to

5 the rules of subsection (k)(3)(E) shall apply for pur6 poses of this subsection.’’.

7 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

8 EXCESS AGGREGATE CONTRIBUTIONS.—

9 (1) Subparagraph (C) of section 401(k)(8) (relat10 ing to arrangement not disqualified if excess contribu11 tions distributed) is amended by striking ‘‘on the

12 basis of the respective portions of the excess contribu13 tions attributable to each of such employees’’ and in14 serting ‘‘on the basis of the amount of contributions

15 by, or on behalf of, each of such employees’’.

16 (2) Subparagraph (C) of section 401(m)(6) (re17 lating to method of distributing excess aggregate con18 tributions) is amended by striking ‘‘on the basis of the

19 respective portions of such amounts attributable to

20 each of such employees’’ and inserting ‘‘on the basis

21 of the amount of contributions on behalf of, or by,

22 each such employee’’.

23 (f) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to years beginning after De3 cember 31, 1998.

4 (2) EXCEPTIONS.—The amendments made by

5 subsections (c), (d), and (e) shall apply to years be6 ginning after December 31, 1996.

7 SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION

8 415 PURPOSES.

9 (a) GENERAL RULE.—Section 415(c)(3) (defining par10 ticipant’s compensation) is amended by adding at the end

11 the following new subparagraph:

12 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—The

13 term ‘participant’s compensation’ shall in14 clude—

15 ‘‘(i) any elective deferral (as defined in

16 section 402(g)(3)), and

17 ‘‘(ii) any amount which is contributed

18 or deferred by the employer at the election

19 of the employee and which is not includible

20 in the gross income of the employee by rea21 son of section 125 or 457.’’.

22 (b) CONFORMING AMENDMENTS.—

23 (1) Section 414(q)(3), as redesignated by section

24 1431, is amended to read as follows:
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1 ‘‘(4) COMPENSATION.—For purposes of this sub2 section, the term ‘compensation’ has the meaning

3 given such term by section 415(c)(3).’’.

4 (2) Section 414(s)(2) is amended by inserting

5 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

6 (c) EFFECTIVE DATE.—The amendments made by this

7 section shall apply to years beginning after December 31,

8 1997.

9 CHAPTER 4—MISCELLANEOUS

10 PROVISIONS

11 SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID12 UALS.

13 (a) AGGREGATION RULES.—Section 401(d) (relating

14 to additional requirements for qualification of trusts and

15 plans benefiting owner-employees) is amended to read as

16 follows:

17 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—

18 A trust forming part of a pension or profit-sharing plan

19 which provides contributions or benefits for employees some

20 or all of whom are owner-employees shall constitute a quali21 fied trust under this section only if, in addition to meeting

22 the requirements of subsection (a), the plan provides that

23 contributions on behalf of any owner-employee may be

24 made only with respect to the earned income of such owner-
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1 employee which is derived from the trade or business with

2 respect to which such plan is established.’’.

3 (b) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to years beginning after December 31,

5 1996.

6 SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR

7 MULTIEMPLOYER PLANS.

8 (a) AMENDMENTS TO 1986 CODE.—Paragraph (2) of

9 section 411(a) (relating to minimum vesting standards) is

10 amended—

11 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

12 and inserting ‘‘subparagraph (A) or (B)’’; and

13 (2) by striking subparagraph (C).

14 (b) AMENDMENTS TO ERISA.—Paragraph (2) of sec15 tion 203(a) of the Employee Retirement Income Security

16 Act of 1974 (29 U.S.C. 1053(a)) is amended—

17 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

18 and inserting ‘‘subparagraph (A) or (B)’’; and

19 (2) by striking subparagraph (C).

20 (c) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to plan years beginning on or after the

22 earlier of—

23 (1) the later of—

24 (A) January 1, 1997, or
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1 (B) the date on which the last of the collec2 tive bargaining agreements pursuant to which

3 the plan is maintained terminates (determined

4 without regard to any extension thereof after the

5 date of the enactment of this Act), or

6 (2) January 1, 1999.

7 Such amendments shall not apply to any individual who

8 does not have more than 1 hour of service under the plan

9 on or after the 1st day of the 1st plan year to which such

10 amendments apply.

11 SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE

12 PLANS.

13 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CER14 TAIN AGE.—Section 401(k)(7) is amended by adding at the

15 end the following new subparagraph:

16 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS17 TRIBUTIONS.—A rural cooperative plan which

18 includes a qualified cash or deferred arrange19 ment shall not be treated as violating the re20 quirements of section 401(a) or of paragraph (2)

21 merely by reason of a hardship distribution or a

22 distribution to a participant after attainment of

age 591 23 ⁄2. For purposes of this section, the term

24 ‘hardship distribution’ means a distribution de25 scribed in paragraph (2)(B)(i)(IV) (without re-
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1 gard to the limitation of its application to prof2 it-sharing or stock bonus plans).’’.

3 (b) PUBLIC UTILITY DISTRICTS.—Clause (i) of section

4 401(k)(7)(B) (defining rural cooperative) is amended to

5 read as follows:

6 ‘‘(i) any organization which—

7 ‘‘(I) is engaged primarily in pro8 viding electric service on a mutual or

9 cooperative basis, or

10 ‘‘(II) is engaged primarily in pro11 viding electric service to the public in

12 its area of service and which is exempt

13 from tax under this subtitle or which is

14 a State or local government (or an

15 agency or instrumentality thereof),

16 other than a municipality (or an agen17 cy or instrumentality thereof),’’.

18 (c) EFFECTIVE DATES.—

19 (1) DISTRIBUTIONS.—The amendments made by

20 subsection (a) shall apply to distributions after the

21 date of the enactment of this Act.

22 (2) PUBLIC UTILITY DISTRICTS.—The amend23 ments made by subsection (b) shall apply to plan

24 years beginning after December 31, 1996.
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1 SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER

2 SECTION 415.

3 (a) COMPENSATION LIMIT.—Subsection (b) of section

4 415 is amended by adding immediately after paragraph

5 (10) the following new paragraph:

6 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN7 MENTAL PLANS.—In the case of a governmental plan

8 (as defined in section 414(d)), subparagraph (B) of

9 paragraph (1) shall not apply.’’.

10 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

11 PLANS.—

12 (1) IN GENERAL.—Section 415 is amended by

13 adding at the end the following new subsection:

14 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL EX15 CESS BENEFIT ARRANGEMENTS.—

16 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—In

17 determining whether a governmental plan (as defined

18 in section 414(d)) meets the requirements of this sec19 tion, benefits provided under a qualified governmental

20 excess benefit arrangement shall not be taken into ac21 count. Income accruing to a governmental plan (or to

22 a trust that is maintained solely for the purpose of

23 providing benefits under a qualified governmental ex24 cess benefit arrangement) in respect of a qualified

25 governmental excess benefit arrangement shall con26 stitute income derived from the exercise of an essen-
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1 tial governmental function upon which such govern2 mental plan (or trust) shall be exempt from tax under

3 section 115.

4 ‘‘(2) TAXATION OF PARTICIPANT.—For purposes

5 of this chapter—

6 ‘‘(A) the taxable year or years for which

7 amounts in respect of a qualified governmental

8 excess benefit arrangement are includible in

9 gross income by a participant, and

10 ‘‘(B) the treatment of such amounts when so

11 includible by the participant,

12 shall be determined as if such qualified governmental

13 excess benefit arrangement were treated as a plan for

14 the deferral of compensation which is maintained by

15 a corporation not exempt from tax under this chapter

16 and which does not meet the requirements for quali17 fication under section 401.

18 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BENE19 FIT ARRANGEMENT.—For purposes of this subsection,

20 the term ‘qualified governmental excess benefit ar21 rangement’ means a portion of a governmental plan

22 if—

23 ‘‘(A) such portion is maintained solely for

24 the purpose of providing to participants in the

25 plan that part of the participant’s annual bene-
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1 fit otherwise payable under the terms of the plan

2 that exceeds the limitations on benefits imposed

3 by this section,

4 ‘‘(B) under such portion no election is pro5 vided at any time to the participant (directly or

6 indirectly) to defer compensation, and

7 ‘‘(C) benefits described in subparagraph (A)

8 are not paid from a trust forming a part of such

9 governmental plan unless such trust is main10 tained solely for the purpose of providing such

11 benefits.’’.

12 (2) COORDINATION WITH SECTION 457.—Sub13 section (e) of section 457 is amended by adding at the

14 end the following new paragraph:

15 ‘‘(14) TREATMENT OF QUALIFIED GOVERN16 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub17 sections (b)(2) and (c)(1) shall not apply to any

18 qualified governmental excess benefit arrangement (as

19 defined in section 415(m)(3)), and benefits provided

20 under such an arrangement shall not be taken into

21 account in determining whether any other plan is an

22 eligible deferred compensation plan.’’.

23 (3) CONFORMING AMENDMENT.—Paragraph (2)

24 of section 457(f) is amended by striking ‘‘and’’ at the

25 end of subparagraph (C), by striking the period at the
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1 end of subparagraph (D) and inserting ‘‘, and’’, and

2 by inserting immediately thereafter the following new

3 subparagraph:

4 ‘‘(E) a qualified governmental excess benefit

5 arrangement described in section 415(m).’’.

6 (c) EXEMPTION FOR SURVIVOR AND DISABILITY BENE7 FITS.—Paragraph (2) of section 415(b) is amended by add8 ing at the end the following new subparagraph:

9 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS10 ABILITY BENEFITS PROVIDED UNDER GOVERN11 MENTAL PLANS.—Subparagraph (C) of this

12 paragraph and paragraph (5) shall not apply

13 to—

14 ‘‘(i) income received from a govern15 mental plan (as defined in section 414(d))

16 as a pension, annuity, or similar allowance

17 as the result of the recipient becoming dis18 abled by reason of personal injuries or sick19 ness, or

20 ‘‘(ii) amounts received from a govern21 mental plan by the beneficiaries, survivors,

22 or the estate of an employee as the result of

23 the death of the employee.’’.

24 (d) REVOCATION OF GRANDFATHER ELECTION.—
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1 (1) IN GENERAL.—Subparagraph (C) of section

2 415(b)(10) is amended by adding at the end the fol3 lowing new clause:

4 ‘‘(ii) REVOCATION OF ELECTION.—An

5 election under clause (i) may be revoked not

6 later than the last day of the third plan

7 year beginning after the date of the enact8 ment of this clause. The revocation shall

9 apply to all plan years to which the election

10 applied and to all subsequent plan years.

11 Any amount paid by a plan in a taxable

12 year ending after the revocation shall be in13 cludible in income in such taxable year

14 under the rules of this chapter in effect for

15 such taxable year, except that, for purposes

16 of applying the limitations imposed by this

17 section, any portion of such amount which

18 is attributable to any taxable year during

19 which the election was in effect shall be

20 treated as received in such taxable year.’’.

21 (2) CONFORMING AMENDMENT.—Subparagraph

22 (C) of section 415(b)(10) is amended by striking

23 ‘‘This’’ and inserting:

24 ‘‘(i) IN GENERAL.—This’’.

25 (e) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 subsections (a), (b), and (c) shall apply to years be3 ginning after December 31, 1994. The amendments

4 made by subsection (d) shall apply with respect to

5 revocations adopted after the date of the enactment of

6 this Act.

7 (2) TREATMENT FOR YEARS BEGINNING BEFORE

8 JANUARY 1, 1995.—Nothing in the amendments made

9 by this section shall be construed to imply that a gov10 ernmental plan (as defined in section 414(d) of the

11 Internal Revenue Code of 1986) fails to satisfy the re12 quirements of section 415 of such Code for any tax13 able year beginning before January 1, 1995.

14 SEC. 1445. UNIFORM RETIREMENT AGE.

15 (a) DISCRIMINATION TESTING.—Paragraph (5) of sec16 tion 401(a) (relating to special rules relating to non17 discrimination requirements) is amended by adding at the

18 end the following new subparagraph:

19 ‘‘(F) SOCIAL SECURITY RETIREMENT AGE.—

20 For purposes of testing for discrimination under

21 paragraph (4)—

22 ‘‘(i) the social security retirement age

23 (as defined in section 415(b)(8)) shall be

24 treated as a uniform retirement age, and
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1 ‘‘(ii) subsidized early retirement bene2 fits and joint and survivor annuities shall

3 not be treated as being unavailable to em4 ployees on the same terms merely because

5 such benefits or annuities are based in

6 whole or in part on an employee’s social se7 curity retirement age (as so defined).’’

8 (b) EFFECTIVE DATE.—The amendment made by this

9 section shall apply to years beginning after December 31,

10 1996.

11 SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM12 PLOYEES.

13 (a) ALL DISABLED PARTICIPANTS RECEIVING CON14 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

15 at the end the following: ‘‘If a defined contribution plan

16 provides for the continuation of contributions on behalf of

17 all participants described in clause (i) for a fixed or deter18 minable period, this subparagraph shall be applied without

19 regard to clauses (ii) and (iii).’’.

20 (b) EFFECTIVE DATE.—The amendment made by this

21 section shall apply to years beginning after December 31,

22 1996.
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1 SEC. 1447. TREATMENT OF DEFERRED COMPENSATION

2 PLANS OF STATE AND LOCAL GOVERNMENTS

3 AND TAX-EXEMPT ORGANIZATIONS.

4 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

5 Paragraph (9) of section 457(e) (relating to other defini6 tions and special rules) is amended to read as follows:

7 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL8 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

9 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500 OR

10 LESS.—The total amount payable to a partici11 pant under the plan shall not be treated as made

12 available merely because the participant may

13 elect to receive such amount (or the plan may

14 distribute such amount without the participant’s

15 consent) if—

16 ‘‘(i) such amount does not exceed

17 $3,500, and

18 ‘‘(ii) such amount may be distributed

19 only if—

20 ‘‘(I) no amount has been deferred

21 under the plan with respect to such

22 participant during the 2-year period

23 ending on the date of the distribution,

24 and

25 ‘‘(II) there has been no prior dis26 tribution under the plan to such par-
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1 ticipant to which this subparagraph

2 applied.

3 A plan shall not be treated as failing to meet the

4 distribution requirements of subsection (d) by

5 reason of a distribution to which this subpara6 graph applies.

7 ‘‘(B) ELECTION TO DEFER COMMENCEMENT

8 OF DISTRIBUTIONS.—The total amount payable

9 to a participant under the plan shall not be

10 treated as made available merely because the

11 participant may elect to defer commencement of

12 distributions under the plan if—

13 ‘‘(i) such election is made after

14 amounts may be available under the plan

15 in accordance with subsection (d)(1)(A) and

16 before commencement of such distributions,

17 and

18 ‘‘(ii) the participant may make only 1

19 such election.’’.

20 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE21 FERRAL AMOUNT.—Subsection (e) of section 457, as amend22 ed by section 1444(b)(2) (relating to governmental plans),

23 is amended by adding at the end the following new para24 graph:
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1 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM

2 DEFERRAL AMOUNT.—The Secretary shall adjust the

3 $7,500 amount specified in subsections (b)(2) and

4 (c)(1) at the same time and in the same manner as

5 under section 415(d), except that the base period shall

6 be the calendar quarter ending September 30, 1994,

7 and any increase under this paragraph which is not

8 a multiple of $500 shall be rounded to the next lowest

9 multiple of $500.’’.

10 (c) EFFECTIVE DATE.—The amendments made by this

11 section shall apply to taxable years beginning after Decem12 ber 31, 1996.

13 SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM14 PENSATION PLANS OF STATE AND LOCAL

15 GOVERNMENTS.

16 (a) IN GENERAL.—Section 457 is amended by adding

17 at the end the following new subsection:

18 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET19 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

20 ‘‘(1) IN GENERAL.—A plan maintained by an el21 igible employer described in subsection (e)(1)(A) shall

22 not be treated as an eligible deferred compensation

23 plan unless all assets and income of the plan de24 scribed in subsection (b)(6) are held in trust for the
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1 exclusive benefit of participants and their bene2 ficiaries.

3 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI4 PANTS.—For purposes of this title—

5 ‘‘(A) a trust described in paragraph (1)

6 shall be treated as an organization exempt from

7 taxation under section 501(a), and

8 ‘‘(B) notwithstanding any other provision

9 of this title, amounts in the trust shall be includ10 ible in the gross income of participants and

11 beneficiaries only to the extent, and at the time,

12 provided in this section.

13 ‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—

14 For purposes of this subsection, custodial accounts

15 and contracts described in section 401(f) shall be

16 treated as trusts under rules similar to the rules

17 under section 401(f).’’.

18 (b) CONFORMING AMENDMENT.—Paragraph (6) of sec19 tion 457(b) is amended by inserting ‘‘except as provided

20 in subsection (g),’’ before ‘‘which provides that’’.

21 (c) EFFECTIVE DATES.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section shall

24 apply to assets and income described in section

25 457(b)(6) of the Internal Revenue Code of 1986 held
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1 by a plan on and after the date of the enactment of

2 this Act.

3 (2) TRANSITION RULE.—In the case of a plan in

4 existence on the date of the enactment of this Act, a

5 trust need not be established by reason of the amend6 ments made by this section before January 1, 1999.

7 SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM

8 BENEFITS UNDER SECTION 415 LIMITATIONS.

9 (a) IN GENERAL.—Subparagraph (A) of section

10 767(d)(3) of the Uruguay Round Agreements Act is amend11 ed to read as follows:

12 ‘‘(A) EXCEPTION.—A plan that was adopt13 ed and in effect before December 8, 1994, shall

14 not be required to apply the amendments made

15 by subsection (b) with respect to benefits accrued

16 before the earlier of—

17 ‘‘(i) the later of the date a plan amend18 ment applying the amendments made by

19 subsection (b) is adopted or made effective,

20 or

21 ‘‘(ii) the first day of the first limita22 tion year beginning after December 31,

23 1999.

24 Determinations under section 415(b)(2)(E) of the

25 Internal Revenue Code of 1986 before such ear-
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1 lier date shall be made with respect to such bene2 fits on the basis of such section as in effect on

3 December 7, 1994 (except that the modification

4 made by section 1449(b) of the Small Business

5 Job Protection Act of 1996 shall be taken into

6 account), and the provisions of the plan as in ef7 fect on December 7, 1994, but only if such provi8 sions of the plan meet the requirements of such

9 section (as so in effect).’’.

10 (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD11 JUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR

12 EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)

13 (relating to limitation on certain assumptions) is amend14 ed—

15 (1) by striking ‘‘Except as provided in clause

16 (ii), for purposes of adjusting any benefit or limita17 tion under subparagraph (B) or (C),’’ in clause (i)

18 and inserting ‘‘For purposes of adjusting any limita19 tion under subparagraph (C) and, except as provided

20 in clause (ii), for purposes of adjusting any benefit

21 under subparagraph (B),’’, and

22 (2) by striking ‘‘For purposes of adjusting the

23 benefit or limitation of any form of benefit subject to

24 section 417(e)(3),’’ in clause (ii) and inserting ‘‘For

25 purposes of adjusting any benefit under subparagraph
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1 (B) for any form of benefit subject to section

2 417(e)(3),’’.

3 (c) EFFECTIVE DATE.—The amendments made by this

4 section shall take effect as if included in the provisions of

5 section 767 of the Uruguay Round Agreements Act.

6 (d) TRANSITIONAL RULE.—In the case of a plan that

7 was adopted and in effect before December 8, 1994, if—

8 (1) a plan amendment was adopted or made ef9 fective on or before the date of the enactment of this

10 Act applying the amendments made by section 767 of

11 the Uruguay Round Agreements Act, and

12 (2) within 1 year after the date of the enactment

13 of this Act, a plan amendment is adopted which re14 peals the amendment referred to in paragraph (1),

15 the amendment referred to in paragraph (1) shall not be

16 taken into account in applying section 767(d)(3)(A) of the

17 Uruguay Round Agreements Act, as amended by subsection

18 (a).

19 SEC. 1450. MODIFICATIONS OF SECTION 403(b).

20 (a) MULTIPLE SALARY REDUCTION AGREEMENTS

21 PERMITTED.—

22 (1) GENERAL RULE.—For purposes of section

23 403(b) of the Internal Revenue Code of 1986, the fre24 quency that an employee is permitted to enter into a

25 salary reduction agreement, the salary to which such
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1 an agreement may apply, and the ability to revoke

2 such an agreement shall be determined under the rules

3 applicable to cash or deferred elections under section

4 401(k) of such Code.

5 (2) CONSTRUCTIVE RECEIPT.—Section 402(e)(3)

6 is amended by inserting ‘‘or which is part of a salary

7 reduction agreement under section 403(b)’’ after ‘‘sec8 tion 401(k)(2))’’.

9 (3) EFFECTIVE DATE.—This subsection shall

10 apply to taxable years beginning after December 31,

11 1995.

12 (b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—

13 (1) IN GENERAL.—Subparagraph (A) of section

14 403(b)(1) (relating to taxability of beneficiary under

15 annuity purchased by section 501(c)(3) organization

16 or public school) is amended by striking ‘‘or’’ at the

17 end of clause (i), by inserting ‘‘or’’ at the end of

18 clause (ii), and by adding at the end the following

19 new clause:

20 ‘‘(iii) for an employee by an employer

21 which is an Indian tribal government (as

22 defined in section 7701(a)(40)), a subdivi23 sion of an Indian tribal government (deter24 mined in accordance with section 7871(d)),

25 an agency or instrumentality of an Indian
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1 tribal government or subdivision thereof, or

2 a corporation chartered under Federal,

3 State, or tribal law which is owned in

4 whole or part by any of the foregoing,’’.

5 (2) CONFORMING AMENDMENT.—The heading for

6 section 403(b) is amended by striking ‘‘OR PUBLIC

7 SCHOOL’’ and inserting ‘‘, PUBLIC SCHOOL, OR IN8 DIAN TRIBE’’.

9 (3) EFFECTIVE DATES.—

10 (A) IN GENERAL.—The amendments made

11 by this section shall apply to plan years begin12 ning after December 31, 1996.

13 (B) TRANSITION RULES.—

14 (i) IN GENERAL.—In the case of any

15 contract purchased in a plan year begin16 ning before January 1, 1997, section 403(b)

17 of the Internal Revenue Code of 1986 shall

18 be applied as if any reference to an em19 ployer described in section 501(c)(3) of the

20 Internal Revenue Code of 1986 which is ex21 empt from tax under section 501 of such

22 Code included a reference to an employer

23 which is an Indian tribal government (as

24 defined by section 7701(a)(40) of such

25 Code), a subdivision of an Indian tribal
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1 government (determined in accordance with

2 section 7871(d) of such Code), an agency or

3 instrumentality of an Indian tribal govern4 ment or subdivision thereof, or a corpora5 tion chartered under Federal, State, or trib6 al law which is owned in whole or in part

7 by any of the foregoing.

8 (ii) ROLLOVERS.—Solely for purposes

9 of applying section 403(b)(8) of such Code

10 to a contract to which clause (i) applies, a

11 qualified cash or deferred arrangement

12 under section 401(k) of such Code shall be

13 treated as if it were a plan or contract de14 scribed in clause (ii) of section 403(b)(8)(A)

15 of such Code.

16 (c) ELECTIVE DEFERRALS.—

17 (1) IN GENERAL.—Subparagraph (E) of section

18 403(b)(1) is amended to read as follows:

19 ‘‘(E) in the case of a contract purchased

20 under a salary reduction agreement, the contract

21 meets the requirements of section 401(a)(30),’’.

22 (2) EFFECTIVE DATE.—The amendment made by

23 this subsection shall apply to years beginning after

24 December 31, 1995, except a contract shall not be re25 quired to meet any change in any requirement by
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1 reason of such amendment before the 90th day after

2 the date of the enactment of this Act.

3 SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND

4 SURVIVOR ANNUITY EXPLANATION BEFORE

5 ANNUITY STARTING DATE.

6 (a) GENERAL RULE.—For purposes of section

7 417(a)(3)(A) of the Internal Revenue Code of 1986 (relating

8 to plan to provide written explanations), the minimum pe9 riod prescribed by the Secretary of the Treasury between

10 the date that the explanation referred to in such section is

11 provided and the annuity starting date shall not apply if

12 waived by the participant and, if applicable, the partici13 pant’s spouse.

14 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

15 plan years beginning after December 31, 1996.

16 SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED

17 BENEFIT PLAN AND DEFINED CONTRIBUTION

18 PLAN FOR SAME EMPLOYEE; EXCESS DIS19 TRIBUTIONS.

20 (a) IN GENERAL.—Section 415(e) is repealed.

21 (b) EXCESS DISTRIBUTIONS.—Section 4980A is

22 amended by adding at the end the following new subsection:

23 ‘‘(g) LIMITATION ON APPLICATION.—This section shall

24 not apply to distributions during years beginning after De25 cember 31, 1996, and before January 1, 2000, and such dis-
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1 tributions shall be treated as made first from amounts not

2 described in subsection (f).’’.

3 (c) CONFORMING AMENDMENTS.—

4 (1) Paragraph (1) of section 415(a) is amend5 ed—

6 (A) by adding ‘‘or’’ at the end of subpara7 graph (A),

8 (B) by striking ‘‘, or’’ at the end of sub9 paragraph (B) and inserting a period, and

10 (C) by striking subparagraph (C).

11 (2) Subparagraph (B) of section 415(b)(5) is

12 amended by striking ‘‘and subsection (e)’’.

13 (3) Paragraph (1) of section 415(f) is amended

14 by striking ‘‘subsections (b), (c), and (e)’’ and insert15 ing ‘‘subsections (b) and (c)’’.

16 (4) Subsection (g) of section 415 is amended by

17 striking ‘‘subsections (e) and (f)’’ in the last sentence

18 and inserting ‘‘subsection (f)’’.

19 (5) Clause (i) of section 415(k)(2)(A) is amended

20 to read as follows:

21 ‘‘(i) any contribution made directly by

22 an employee under such an arrangement

23 shall not be treated as an annual addition

24 for purposes of subsection (c), and’’.
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1 (6) Clause (ii) of section 415(k)(2)(A) is amend2 ed by striking ‘‘subsections (c) and (e)’’ and inserting

3 ‘‘subsection (c)’’.

4 (7) Section 416 is amended by striking sub5 section (h).

6 (d) EFFECTIVE DATE.—

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section shall

9 apply to limitation years beginning after December

10 31, 1999.

11 (2) EXCESS DISTRIBUTIONS.—The amendment

12 made by subsection (b) shall apply to years beginning

13 after December 31, 1996.

14 SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

15 (a) IN GENERAL.—Section 4975(a) is amended by

16 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

17 (b) EFFECTIVE DATE.—The amendment made by this

18 section shall apply to prohibited transactions occurring

19 after the date of the enactment of this Act.

20 SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

21 (a) GENERAL RULE.—Subparagraph (C) of section

22 414(n)(2) (defining leased employee) is amended to read as

23 follows:

24 ‘‘(C) such services are performed under pri25 mary direction or control by the recipient.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to years beginning after December

3 31, 1996, but shall not apply to any relationship deter4 mined under an Internal Revenue Service ruling issued be5 fore the date of the enactment of this Act pursuant to section

6 414(n)(2)(C) of the Internal Revenue Code of 1986 (as in

7 effect on the day before such date) not to involve a leased

8 employee.

9 SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO

10 CERTAIN PENSION REPORTING REQUIRE11 MENTS.

12 (a) PENALTIES.—

13 (1) STATEMENTS.—Paragraph (1) of section

14 6724(d) is amended by striking ‘‘and’’ at the end of

15 subparagraph (A), by striking the period at the end

16 of subparagraph (B) and inserting ‘‘, and’’, and by

17 inserting after subparagraph (B) the following new

18 subparagraph:

19 ‘‘(C) any statement of the amount of pay20 ments to another person required to be made to

21 the Secretary under—

22 ‘‘(i) section 408(i) (relating to reports

23 with respect to individual retirement ac24 counts or annuities), or
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1 ‘‘(ii) section 6047(d) (relating to re2 ports by employers, plan administrators,

3 etc.).’’.

4 (2) REPORTS.—Paragraph (2) of section 6724(d)

5 is amended by striking ‘‘or’’ at the end of subpara6 graph (S), by striking the period at the end of sub7 paragraph (T) and inserting a comma, and by insert8 ing after subparagraph (T) the following new sub9 paragraphs:

10 ‘‘(U) section 408(i) (relating to reports with

11 respect to individual retirement plans) to any

12 person other than the Secretary with respect to

13 the amount of payments made to such person, or

14 ‘‘(V) section 6047(d) (relating to reports by

15 plan administrators) to any person other than

16 the Secretary with respect to the amount of pay17 ments made to such person.’’.

18 (b) MODIFICATION OF REPORTABLE DESIGNATED DIS19 TRIBUTIONS.—

20 (1) SECTION 408.—Subsection (i) of section 408

21 (relating to individual retirement account reports) is

22 amended by inserting ‘‘aggregating $10 or more in

23 any calendar year’’ after ‘‘distributions’’.

24 (2) SECTION 6047.—Paragraph (1) of section

25 6047(d) (relating to reports by employers, plan ad-
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1 ministrators, etc.) is amended by adding at the end

2 the following new sentence: ‘‘No return or report may

3 be required under the preceding sentence with respect

4 to distributions to any person during any year unless

5 such distributions aggregate $10 or more.’’.

6 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Section

7 6652(i) is amended—

8 (1) by striking ‘‘the $10’’ and inserting ‘‘$100’’,

9 and

10 (2) by striking ‘‘$5,000’’ and inserting

11 ‘‘$50,000’’.

12 (d) CONFORMING AMENDMENTS.—

13 (1) Paragraph (1) of section 6047(f) is amended

14 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.’’.

15 (2) Subsection (e) of section 6652 is amended by

16 adding at the end the following new sentence: ‘‘This

17 subsection shall not apply to any return or statement

18 which is an information return described in section

19 6724(d)(1)(C)(ii) or a payee statement described in

20 section 6724(d)(2)(V).’’.

21 (3) Subsection (a) of section 6693 is amended by

22 adding at the end the following new sentence: ‘‘This

23 subsection shall not apply to any report which is an

24 information return described in section
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1 6724(d)(1)(C)(i) or a payee statement described in

2 section 6724(d)(2)(U).’’.

3 (e) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to returns, reports, and other statements

5 the due date for which (determined without regard to exten6 sions) is after December 31, 1996.

7 SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB8 JECT TO TAX ON NET EARNINGS FROM SELF9 EMPLOYMENT.

10 (a) IN GENERAL.—Section 1402(a)(8) (defining net

11 earning from self-employment) is amended by inserting ‘‘,

12 but shall not include in such net earnings from self-employ13 ment the rental value of any parsonage or any parsonage

14 allowance (whether or not excludable under section 107)

15 provided after the individual retires, or any other retire16 ment benefit received by such individual from a church plan

17 (as defined in section 414(e)) after the individual retires’’

18 before the semicolon at the end.

19 (b) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to years beginning before, on, or after

21 December 31, 1994.

22 SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND

23 QUALIFIED DOMESTIC RELATIONS FORMS.

24 (a) DEVELOPMENT OF FORMS.—Not later than Janu25 ary 1, 1997, the Secretary of the Treasury shall develop—
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1 (1) a model form for the spousal consent required

2 under section 417(a)(2) of the Internal Revenue Code

3 of 1986 and section 205(c)(2) of the Employee Retire4 ment Income Security Act of 1974 which—

5 (A) is written in a manner calculated to be

6 understood by the average person, and

7 (B) discloses in plain form—

8 (i) whether the waiver to which the

9 spouse consents is irrevocable, and

10 (ii) whether such waiver may be re11 voked by a qualified domestic relations

12 order, and

13 (2) a model form for a qualified domestic rela14 tions order described in section 414(p)(1)(A) of such

15 Code and section 206(d)(3)(B)(i) of such Act which—

16 (A) meets the requirements contained in

17 such sections, and

18 (B) the provisions of which focus attention

19 on the need to consider the treatment of any

20 lump sum payment, qualified joint and survivor

21 annuity, or qualified preretirement survivor an22 nuity.

23 (b) PUBLICITY.—The Secretary of the Treasury shall

24 include publicity for the model forms developed under sub-
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1 section (a) in the pension outreach efforts undertaken by

2 the Secretary.

3 SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS

4 TO VOLUNTEERS PERFORMING FIRE FIGHT5 ING OR PREVENTION SERVICES, EMERGENCY

6 MEDICAL SERVICES, OR AMBULANCE SERV7 ICES.

8 (a) IN GENERAL.—Paragraph (11) of section 457(e)

9 (relating to deferred compensation plans of State and local

10 governments and tax-exempt organizations) is amended to

11 read as follows:

12 ‘‘(11) CERTAIN PLANS EXCLUDED.—

13 ‘‘(A) IN GENERAL.—The following plans

14 shall be treated as not providing for the deferral

15 of compensation:

16 ‘‘(i) Any bona fide vacation leave, sick

17 leave, compensatory time, severance pay,

18 disability pay, or death benefit plan.

19 ‘‘(ii) Any plan paying solely length of

20 service awards to bona fide volunteers (or

21 their beneficiaries) on account of qualified

22 services performed by such volunteers.

23 ‘‘(B) SPECIAL RULES APPLICABLE TO

24 LENGTH OF SERVICE AWARD PLANS.—
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1 ‘‘(i) BONA FIDE VOLUNTEER.—An in2 dividual shall be treated as a bona fide vol3 unteer for purposes of subparagraph (A)(ii)

4 if the only compensation received by such

5 individual for performing qualified services

6 is in the form of—

7 ‘‘(I) reimbursement for (or a rea8 sonable allowance for) reasonable ex9 penses incurred in the performance of

10 such services, or

11 ‘‘(II) reasonable benefits (includ12 ing length of service awards), and

13 nominal fees for such services, cus14 tomarily paid by eligible employers in

15 connection with the performance of

16 such services by volunteers.

17 ‘‘(ii) LIMITATION ON ACCRUALS.—A

18 plan shall not be treated as described in

19 subparagraph (A)(ii) if the aggregate

20 amount of length of service awards accruing

21 with respect to any year of service for any

22 bona fide volunteer exceeds $3,000.

23 ‘‘(C) QUALIFIED SERVICES.—For purposes

24 of this paragraph, the term ‘qualified services’

25 means fire fighting and prevention services,
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1 emergency medical services, and ambulance serv2 ices.’’

3 (b) EXEMPTION FROM SOCIAL SECURITY TAXES.—

4 (1) Subsection (a)(5) of section 3121, as amend5 ed by section 1421, is amended by striking ‘‘(or)’’ at

6 the end of subparagraph (G), by inserting ‘‘or’’ at the

7 end of subparagraph (H), and by adding at the end

8 the following new subparagraph:

9 ‘‘(I) under a plan described in section

10 457(e)(11)(A)(ii) and maintained by an eligible

11 employer (as defined in section 457(e)(1)).’’.

12 (2) Section 209(a)(4) of the Social Security Act

13 is amended by inserting ‘‘; or (K) under a plan de14 scribed in section 457(e)(11)(A)(ii) of the Internal

15 Revenue Code of 1986 and maintained by an eligible

16 employer (as defined in section 457(e)(1) of such

17 Code)’’ before the semicolon at the end thereof.

18 (c) EFFECTIVE DATE.—

19 (1) SUBSECTION (a).—The amendment made by

20 subsection (a) shall apply to accruals of length of

21 service awards after December 31, 1996.

22 (2) SUBSECTION (b).—The amendments made by

23 subsection (b) shall apply to remuneration paid after

24 December 31, 1996.
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1 SEC. 1459. DATE FOR ADOPTION OF PLAN AMENDMENTS.

2 If any amendment made by this subtitle requires an

3 amendment to any plan or annuity contract, such amend4 ment shall not be required to be made before the first day

5 of the first plan year beginning on or after January 1,

6 1997, if—

7 (1) during the period after such amendment

8 takes effect and before such first plan year, the plan

9 or contract is operated in accordance with the re10 quirements of such amendment, and

11 (2) such amendment applies retroactively to such

12 period.

13 In the case of a governmental plan (as defined in section

14 414(d) of the Internal Revenue Code of 1986), this section

15 shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.

16 Subtitle E—Revenue Offsets

17 PART I—GENERAL PROVISIONS

18 SEC. 1601. MODIFICATIONS OF PUERTO RICO AND POSSES19 SION TAX CREDIT.

20 (a) IN GENERAL.—Section 936 is amended by adding

21 at the end the following new subsection:

22 ‘‘(j) TERMINATION OF QPSII AND REDUCED CREDIT;

23 REDUCTION IN ECONOMIC ACTIVITY CREDIT.—

24 ‘‘(1) IN GENERAL.—Except as otherwise provided

25 in this subsection, this section shall not apply to any

26 taxable year beginning after December 31, 1995.
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1 ‘‘(2) SPECIAL RULES FOR ACTIVE BUSINESS IN2 COME CREDIT.—Except as provided in paragraph

3 (3)—

4 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the

5 case of an existing credit claimant—

6 ‘‘(i) with respect to a possession other

7 than Puerto Rico, and

8 ‘‘(ii) to which subsection (a)(4)(B) does

9 not apply,

10 the credit determined under subsection (a)(1)(A)

11 shall be allowed for taxable years beginning after

12 December 31, 1995, except that in the case of

13 taxable years beginning after December 31, 2005,

14 subsection (a)(4)(A)(i) shall be applied by sub15 stituting ‘40 percent’ for ‘60 percent’.

16 ‘‘(B) REDUCED CREDIT.—

17 ‘‘(i) IN GENERAL.—In the case of an

18 existing credit claimant to which subsection

19 (a)(4)(B) applies, the credit determined

20 under subsection (a)(1)(A) shall be allowed

21 for taxable years beginning after December

22 31, 1995, and before January 1, 2006.

23 ‘‘(ii) ELECTION IRREVOCABLE AFTER

24 1997.—An election under subsection

25 (a)(4)(B)(iii) which is in effect for the tax-
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1 payer’s last taxable year beginning before

2 1997 may not be revoked unless it is re3 voked for the taxpayer’s first taxable year

4 beginning in 1997 and all subsequent tax5 able years.

6 ‘‘(C) ECONOMIC ACTIVITY CREDIT FOR

7 PUERTO RICO.—

‘‘For economic activity credit for Puerto Rico, see

section 30A.

8 ‘‘(3) ADDITIONAL RESTRICTION ON CREDIT.—

9 ‘‘(A) IN GENERAL.—In the case of an exist10 ing credit claimant, the aggregate amount of

11 taxable income taken into account under sub12 section (a)(1)(A) shall not exceed the adjusted

13 base period income of such claimant—

14 ‘‘(i) in the case of the credit described

15 in paragraph (2)(A), for any taxable year

16 beginning after December 31, 2001, and

17 ‘‘(ii) in the case of the credit described

18 in paragraph (2)(B), for any taxable year

19 beginning after December 31, 1997.

20 ‘‘(B) COORDINATION WITH SUBSECTION

21 (a)(4).—The amount of income described in sub22 section (a)(1)(A) which is taken into account in

23 applying subsection (a)(4) shall be such income

24 as reduced under this paragraph.
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1 ‘‘(4) ADJUSTED BASE PERIOD INCOME.—For

2 purposes of paragraph (3)—

3 ‘‘(A) IN GENERAL.—The term ‘adjusted base

4 period income’ means the average of the infla5 tion-adjusted possession incomes of the corpora6 tion for each base period year.

7 ‘‘(B) INFLATION-ADJUSTED POSSESSION IN8 COME.—For purposes of subparagraph (A), the

9 inflation-adjusted possession income of any cor10 poration for any base period year shall be an

11 amount equal to the sum of—

12 ‘‘(i) the possession income of such cor13 poration for such base period year, plus

14 ‘‘(ii) such possession income multiplied

15 by the inflation adjustment percentage for

16 such base period year.

17 ‘‘(C) INFLATION ADJUSTMENT PERCENT18 AGE.—For purposes of subparagraph (B), the in19 flation adjustment percentage for any base pe20 riod year means the percentage (if any) by

21 which—

22 ‘‘(i) the CPI for 1995, exceeds

23 ‘‘(ii) the CPI for the calendar year in

24 which the base period year for which the de25 termination is being made ends.
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1 For purposes of the preceding sentence, the CPI

2 for any calendar year is the CPI (as defined in

3 section 1(f)(5)) for such year under section

4 1(f)(4).

5 ‘‘(D) INCREASE IN INFLATION ADJUSTMENT

6 PERCENTAGE FOR GROWTH DURING BASE

7 YEARS.—The inflation adjustment percentage

8 (determined under subparagraph (C) without re9 gard to this subparagraph) for each of the 5 tax10 able years referred to in paragraph (5)(A) shall

11 be increased by—

12 ‘‘(i) 5 percentage points in the case of

13 a taxable year ending during the 1-year pe14 riod ending on October 13, 1995;

15 ‘‘(ii) 10.25 percentage points in the

16 case of a taxable year ending during the 1-

17 year period ending on October 13, 1994;

18 ‘‘(iii) 15.76 percentage points in the

19 case of a taxable year ending during the 1-

20 year period ending on October 13, 1993;

21 ‘‘(iv) 21.55 percentage points in the

22 case of a taxable year ending during the 1-

23 year period ending on October 13, 1992;

24 and
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1 ‘‘(v) 27.63 percentage points in the

2 case of a taxable year ending during the 1-

3 year period ending on October 13, 1991.

4 ‘‘(5) BASE PERIOD YEAR.—For purposes of this

5 subsection—

6 ‘‘(A) IN GENERAL.—The term ‘base period

7 year’ means each of 3 taxable years which are

8 among the 5 most recent taxable years of the cor9 poration ending before October 14, 1995, deter10 mined by disregarding—

11 ‘‘(i) one taxable year for which the cor12 poration had the largest inflation-adjusted

13 possession income, and

14 ‘‘(ii) one taxable year for which the

15 corporation had the smallest inflation-ad16 justed possession income.

17 ‘‘(B) CORPORATIONS NOT HAVING SIGNIFI18 CANT POSSESSION INCOME THROUGHOUT 5-YEAR

19 PERIOD.—

20 ‘‘(i) IN GENERAL.—If a corporation

21 does not have significant possession income

22 for each of the most recent 5 taxable years

23 ending before October 14, 1995, then, in lieu

24 of applying subparagraph (A), the term

25 ‘base period year’ means only those taxable
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1 years (of such 5 taxable years) for which the

2 corporation has significant possession in3 come; except that, if such corporation has

4 significant possession income for 4 of such

5 5 taxable years, the rule of subparagraph

6 (A)(ii) shall apply.

7 ‘‘(ii) SPECIAL RULE.—If there is no

8 year (of such 5 taxable years) for which a

9 corporation has significant possession in10 come—

11 ‘‘(I) the term ‘base period year’

12 means the first taxable year ending on

13 or after October 14, 1995, but

14 ‘‘(II) the amount of possession in15 come for such year which is taken into

16 account under paragraph (4) shall be

17 the amount which would be determined

18 if such year were a short taxable year

19 ending on September 30, 1995.

20 ‘‘(iii) SIGNIFICANT POSSESSION IN21 COME.—For purposes of this subparagraph,

22 the term ‘significant possession income’

23 means possession income which exceeds 2

24 percent of the possession income of the tax25 payer for the taxable year (of the period of
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1 6 taxable years ending with the first taxable

2 year ending on or after October 14, 1995)

3 having the greatest possession income.

4 ‘‘(C) ELECTION TO USE ONE BASE PERIOD

5 YEAR.—

6 ‘‘(i) IN GENERAL.—At the election of

7 the taxpayer, the term ‘base period year’

8 means—

9 ‘‘(I) only the last taxable year of

10 the corporation ending in calendar

11 year 1992, or

12 ‘‘(II) a deemed taxable year which

13 includes the first ten months of cal14 endar year 1995.

15 ‘‘(ii) BASE PERIOD INCOME FOR

16 1995.—In determining the adjusted base pe17 riod income of the corporation for the

18 deemed taxable year under clause (i)(II),

19 the possession income shall be annualized

20 and shall be determined without regard to

21 any extraordinary item.

22 ‘‘(iii) ELECTION.—An election under

23 this subparagraph by any possession cor24 poration may be made only for the corpora25 tion’s first taxable year beginning after De-
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1 cember 31, 1995, for which it is a possession

2 corporation. The rules of subclauses (II)

3 and (III) of subsection (a)(4)(B)(iii) shall

4 apply to the election under this subpara5 graph.

6 ‘‘(D) ACQUISITIONS AND DISPOSITIONS.—

7 Rules similar to the rules of subparagraphs (A)

8 and (B) of section 41(f)(3) shall apply for pur9 poses of this subsection.

10 ‘‘(6) POSSESSION INCOME.—For purposes of this

11 subsection, the term ‘possession income’ means, with

12 respect to any possession, the income referred to in

13 subsection (a)(1)(A) determined with respect to that

14 possession. In no event shall possession income be

15 treated as being less than zero.

16 ‘‘(7) SHORT YEARS.—If the current year or a

17 base period year is a short taxable year, the applica18 tion of this subsection shall be made with such

19 annualizations as the Secretary shall prescribe.

20 ‘‘(8) SPECIAL RULES FOR CERTAIN POSSES21 SIONS.—

22 ‘‘(A) IN GENERAL.—In the case of an exist23 ing credit claimant with respect to an applicable

24 possession—
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1 ‘‘(i) this section (other than the preced2 ing paragraphs of this subsection) shall

3 apply to such claimant with respect to such

4 applicable possession for taxable years be5 ginning after December 31, 1995, and before

6 January 1, 2006, and

7 ‘‘(ii) this section (including the preced8 ing paragraphs of this subsection) shall

9 apply to such claimant with respect to such

10 applicable possession for taxable years be11 ginning after December 31, 2005.

12 ‘‘(B) APPLICABLE POSSESSION.—For pur13 poses of this paragraph, the term ‘applicable pos14 session’ means Guam, American Samoa, and the

15 Commonwealth of the Northern Mariana Islands.

16 ‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes

17 of this subsection—

18 ‘‘(A) IN GENERAL.—The term ‘existing cred19 it claimant’ means a corporation—

20 ‘‘(i) which was actively conducting a

21 trade or business in a possession on October

22 13, 1995, and

23 ‘‘(ii) with respect to which an election

24 under this section is in effect for the cor-
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1 poration’s taxable year which includes Octo2 ber 13, 1995.

3 ‘‘(B) NEW LINES OF BUSINESS PROHIB4 ITED.—If, after October 13, 1995, a corporation

5 which would (but for this subparagraph) be an

6 existing credit claimant adds a substantial new

7 line of business, such corporation shall cease to

8 be treated as an existing credit claimant as of

9 the close of the taxable year ending before the

10 date of such addition.

11 ‘‘(C) BINDING CONTRACT EXCEPTION.—If,

12 on October 13, 1995, and at all times thereafter,

13 there is in effect with respect to a corporation a

14 binding contract for the acquisition of assets to

15 be used in, or for the sale of assets to be produced

16 from, a trade or business, the corporation shall

17 be treated for purposes of this paragraph as ac18 tively conducting such trade or business on Octo19 ber 13, 1995. The preceding sentence shall not

20 apply if such trade or business is not actively

21 conducted before January 1, 1996.

22 ‘‘(10) SEPARATE APPLICATION TO EACH POSSES23 SION.—For purposes of determining—

24 ‘‘(A) whether a taxpayer is an existing

25 credit claimant, and
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1 ‘‘(B) the amount of the credit allowed under

2 this section,

3 this subsection (and so much of this section as relates

4 to this subsection) shall be applied separately with re5 spect to each possession.’’.

6 (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—

7 (1) IN GENERAL.—Subpart B of part IV of sub8 chapter A of chapter 1 is amended by adding at the

9 end the following new section:

10 ‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

11 ‘‘(a) ALLOWANCE OF CREDIT.—

12 ‘‘(1) IN GENERAL.—Except as otherwise provided

13 in this section, if the conditions of both paragraph (1)

14 and paragraph (2) of subsection (b) are satisfied with

15 respect to a qualified domestic corporation, there shall

16 be allowed as a credit against the tax imposed by this

17 chapter an amount equal to the portion of the tax

18 which is attributable to the taxable income, from

19 sources without the United States, from—

20 ‘‘(A) the active conduct of a trade or busi21 ness within Puerto Rico, or

22 ‘‘(B) the sale or exchange of substantially

23 all of the assets used by the taxpayer in the ac24 tive conduct of such trade or business.
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1 In the case of any taxable year beginning after De2 cember 31, 2001, the aggregate amount of taxable in3 come taken into account under the preceding sentence

4 (and in applying subsection (d)) shall not exceed the

5 adjusted base period income of such corporation, as

6 determined in the same manner as under section

7 936(j).

8 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For

9 purposes of paragraph (1), the term ‘qualified domes10 tic corporation’ means a domestic corporation—

11 ‘‘(A) which is an existing credit claimant

12 with respect to Puerto Rico, and

13 ‘‘(B) with respect to which section

14 936(a)(4)(B) does not apply for the taxable year.

15 ‘‘(3) SEPARATE APPLICATION.—For purposes of

16 determining—

17 ‘‘(A) whether a taxpayer is an existing

18 credit claimant with respect to Puerto Rico, and

19 ‘‘(B) the amount of the credit allowed under

20 this section,

21 this section (and so much of section 936 as relates to

22 this section) shall be applied separately with respect

23 to Puerto Rico.

24 ‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The

25 conditions referred to in subsection (a) are—
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1 ‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of

2 the gross income of the qualified domestic corporation

3 for the 3-year period immediately preceding the close

4 of the taxable year (or for such part of such period

5 immediately preceding the close of such taxable year

6 as may be applicable) was derived from sources with7 in a possession of the United States (determined with8 out regard to section 904(f)).

9 ‘‘(2) TRADE OR BUSINESS.—If 75 percent or

10 more of the gross income of the qualified domestic cor11 poration for such period or such part thereof was de12 rived from the active conduct of a trade or business

13 within a possession of the United States.

14 ‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN

15 TAXES.—The credit provided by subsection (a) shall not be

16 allowed against the tax imposed by—

17 ‘‘(1) section 59A (relating to environmental tax),

18 ‘‘(2) section 531 (relating to the tax on accumu19 lated earnings),

20 ‘‘(3) section 541 (relating to personal holding

21 company tax), or

22 ‘‘(4) section 1351 (relating to recoveries of for23 eign expropriation losses).
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1 ‘‘(d) LIMITATIONS ON CREDIT.—The amount of the

2 credit determined under subsection (a) for any taxable year

3 shall not exceed the sum of the following amounts:

4 ‘‘(1) 60 percent (40 percent in the case of taxable

5 years beginning after December 31, 2005) of the sum

6 of—

7 ‘‘(A) the aggregate amount of the qualified

8 domestic corporation’s qualified possession wages

9 for such taxable year, plus

10 ‘‘(B) the allocable employee fringe benefit

11 expenses of the qualified domestic corporation for

12 such taxable year.

13 ‘‘(2) The sum of—

14 ‘‘(A) 15 percent of the depreciation allow15 ances for the taxable year with respect to short16 life qualified tangible property,

17 ‘‘(B) 40 percent of the depreciation allow18 ances for the taxable year with respect to me19 dium-life qualified tangible property, and

20 ‘‘(C) 65 percent of the depreciation allow21 ances for the taxable year with respect to long22 life qualified tangible property.

23 ‘‘(3) If the qualified domestic corporation does

24 not have an election to use the method described in

25 section 936(h)(5)(C)(ii) (relating to profit split) in ef-
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1 fect for the taxable year, the amount of the qualified

2 possession income taxes for the taxable year allocable

3 to nonsheltered income.

4 ‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of

5 this title (other than section 27)—

6 ‘‘(1) the provisions of section 936 (including any

7 applicable election thereunder) shall apply in the

8 same manner as if the credit under this section were

9 a credit under section 936(a)(1)(A) for a domestic

10 corporation to which section 936(a)(4)(A) applies,

11 ‘‘(2) the credit under this section shall be treated

12 in the same manner as the credit under section 936,

13 and

14 ‘‘(3) a corporation to which this section applies

15 shall be treated in the same manner as if it were a

16 corporation electing the application of section 936.

17 ‘‘(f) DEFINITIONS.—For purposes of this section, any

18 term used in this section which is also used in section 936

19 shall have the same meaning given such term by section

20 936.

21 ‘‘(g) APPLICATION OF SECTION.—This section shall

22 apply to taxable years beginning after December 31, 1995.’’

23 (2) CONFORMING AMENDMENTS.—

24 (A) Paragraph (1) of section 55(c) is

25 amended by striking ‘‘and the section 936 credit
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1 allowable under section 27(b)’’ and inserting ‘‘,

2 the section 936 credit allowable under section

3 27(b), and the Puerto Rican economic activity

4 credit under section 30A’’.

5 (B) Subclause (I) of section 56(g)(4)(C)(ii)

6 is amended—

7 (i) by inserting ‘‘30A,’’ before ‘‘936’’,

8 and

9 (ii) by striking ‘‘and (i)’’ and insert10 ing ‘‘, (i), and (j)’’.

11 (C) Clause (iii) of section 56(g)(4)(C) is

12 amended by adding at the end the following new

13 subclause:

14 ‘‘(VI) APPLICATION TO SECTION

15 30A CORPORATIONS.—References in this

16 clause to section 936 shall be treated as

17 including references to section 30A.’’.

18 (D)(i) Subsection (b) of section 59 is

19 amended by striking ‘‘section 936,’’ and all that

20 follows and inserting ‘‘section 30A or 936, alter21 native minimum taxable income shall not in22 clude any income with respect to which a credit

23 is determined under section 30A or 936.’’.

24 (ii) The heading for section 59(b) is amend25 ed by inserting ‘‘30A OR’’ before ‘‘936’’.
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1 (E) The table of sections for subpart B of

2 part IV of subchapter A of chapter 1 is amended

3 by adding at the end the following new item:

‘‘Sec. 30A. Puerto Rican economic activity credit.’’.

4 (F)(i) The heading for subpart B of part IV

5 of subchapter A of chapter 1 is amended to read

6 as follows:

7 ‘‘Subpart B—Other Credits’’.

8 (ii) The table of subparts for part IV of sub9 chapter A of chapter 1 is amended by striking

10 the item relating to subpart B and inserting the

11 following new item:

‘‘Subpart B. Other credits.’’.

12 (c) EFFECTIVE DATES.—

13 (1) IN GENERAL.—The amendments made by

14 this section shall apply to taxable years beginning

15 after December 31, 1995.

16 (2) SPECIAL RULE FOR QUALIFIED POSSESSION

17 SOURCE INVESTMENT INCOME.—The amendments

18 made by this section shall not apply to qualified pos19 session source investment income received or accrued

20 before July 1, 1996, without regard to the taxable

21 year in which received or accrued.
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1 SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON

2 LOANS USED TO ACQUIRE EMPLOYER SECU3 RITIES.

4 (a) IN GENERAL.—Section 133 (relating to interest on

5 certain loans used to acquire employer securities) is hereby

6 repealed.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subparagraph (B) of section 291(e)(1) is

9 amended by striking clause (iv) and by redesignating

10 clause (v) as clause (iv).

11 (2) Section 812 is amended by striking sub12 section (g).

13 (3) Paragraph (5) of section 852(b) is amended

14 by striking subparagraph (C).

15 (4) Paragraph (2) of section 4978(b) is amended

16 by striking subparagraph (A) and all that follows and

17 inserting the following:

18 ‘‘(A) first from qualified securities to which

19 section 1042 applied acquired during the 3-year

20 period ending on the date of the disposition, be21 ginning with the securities first so acquired, and

22 ‘‘(B) then from any other employer securi23 ties.

24 If subsection (d) applies to a disposition, the disposi25 tion shall be treated as made from employer securities

26 in the opposite order of the preceding sentence.’’.
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1 (5)(A) Section 4978B (relating to tax on disposi2 tion of employer securities to which section 133 ap3 plied) is hereby repealed.

4 (B) The table of sections for chapter 43 is

5 amended by striking the item relating to section

6 4978B.

7 (6) Subsection (e) of section 6047 is amended by

8 striking paragraphs (1), (2), and (3) and inserting

9 the following new paragraphs:

10 ‘‘(1) any employer maintaining, or the plan ad11 ministrator (within the meaning of section 414(g)) of,

12 an employee stock ownership plan which holds stock

13 with respect to which section 404(k) applies to divi14 dends paid on such stock, or

15 ‘‘(2) both such employer or plan administrator,’’.

16 (7) Subsection (f) of section 7872 is amended by

17 striking paragraph (12).

18 (8) The table of sections for part III of sub19 chapter B of chapter 1 is amended by striking the

20 item relating to section 133.

21 (c) EFFECTIVE DATE.—

22 (1) IN GENERAL.—The amendments made by

23 this section shall apply to loans made after the date

24 of the enactment of this Act.
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1 (2) REFINANCINGS.—The amendments made by

2 this section shall not apply to loans made after the

3 date of the enactment of this Act to refinance securi4 ties acquisition loans (determined without regard to

5 section 133(b)(1)(B) of the Internal Revenue Code of

6 1986, as in effect on the day before the date of the en7 actment of this Act) made on or before such date or

8 to refinance loans described in this paragraph if—

9 (A) the refinancing loans meet the require10 ments of section 133 of such Code (as so in ef11 fect),

12 (B) immediately after the refinancing the

13 principal amount of the loan resulting from the

14 refinancing does not exceed the principal amount

15 of the refinanced loan (immediately before the re16 financing), and

17 (C) the term of such refinancing loan does

18 not extend beyond the last day of the term of the

19 original securities acquisition loan.

20 For purposes of this paragraph, the term ‘‘securities

21 acquisition loan’’ includes a loan from a corporation

22 to an employee stock ownership plan described in sec23 tion 133(b)(3) of such Code (as so in effect).

24 (3) EXCEPTION.—Any loan made pursuant to a

25 binding written contract in effect before June 10,
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1 1996, and at all times thereafter before such loan is

2 made, shall be treated for purposes of paragraphs (1)

3 and (2) as a loan made on or before the date of the

4 enactment of this Act.

5 SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.

6 (a) IN GENERAL.—Paragraph (2) of section 104(a)

7 (relating to compensation for injuries or sickness) is amend8 ed to read as follows:

9 ‘‘(2) the amount of any damages (other than pu10 nitive damages) received (whether by suit or agree11 ment and whether as lump sums or as periodic pay12 ments) on account of personal injuries or sickness;’’.

13 (b) APPLICATION OF PRIOR LAW FOR STATES IN

14 WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN

15 WRONGFUL DEATH ACTIONS.—Section 104 is amended by

16 redesignating subsection (c) as subsection (d) and by insert17 ing after subsection (b) the following new subsection:

18 ‘‘(c) APPLICATION OF PRIOR LAW IN CERTAIN

19 CASES.—Notwithstanding subsection (a)(2), gross income

20 shall not include punitive damages awarded in a civil ac21 tion—

22 ‘‘(1) which is a wrongful death action, and

23 ‘‘(2) with respect to which applicable State law

24 (as in effect on September 13, 1995 and without re25 gard to any modification after such date) provides, or
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1 has been construed to provide by a court of competent

2 jurisdiction pursuant to a decision issued on or before

3 September 13, 1995, that only punitive damages may

4 be awarded in such an action.

5 This subsection shall cease to apply to any civil action filed

6 on or after the first date on which the applicable State law

7 ceases to provide (or is no longer construed to provide) the

8 treatment described in paragraph (2).’’.

9 (c) CONFORMING AMENDMENT.—Section 104(a) is

10 amended by striking the last sentence.

11 (d) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section shall

14 apply to amounts received after June 30, 1996, in

15 taxable years ending after such date.

16 (2) EXCEPTION.—The amendments made by this

17 section shall not apply to any amount received under

18 a written binding agreement, court decree, or medi19 ation award in effect on (or issued on or before) Sep20 tember 13, 1995.

21 SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PAS22 SENGER AUTOMOBILE TAX.

23 (a) EXTENSION.—Subsection (f) of section 4001 is

24 amended by striking ‘‘1999’’ and inserting ‘‘2002’’.
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1 (b) PHASEDOWN.—Section 4001 is amended by redes2 ignating subsection (f) (as amended by subsection (a) of this

3 section) as subsection (g) and by inserting after subsection

4 (e) the following new subsection:

5 ‘‘(f) PHASEDOWN.—For sales occurring after June 30

6 in calendar year 1996, and in calendar years after 1996

7 and before 2003, subsection (a) shall be applied by sub8 stituting for ‘10 percent’ the percentage determined in ac9 cordance 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.’’

10 (c) EFFECTIVE DATE.—The amendments made by this

11 section shall take effect on July 1, 1996.

12 SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FI13 NANCING FOR LOCAL FURNISHERS OF ELEC14 TRICITY AND GAS.

15 Section 142(f) (relating to local furnishing of electric

16 energy or gas) is amended by adding at the end the follow17 ing new paragraphs:

18 ‘‘(3) TERMINATION OF FUTURE FINANCING.—For

19 purposes of this section, no bond may be issued as

20 part of an issue described in subsection (a)(8) with

21 respect to a facility for the local furnishing of electric
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1 energy or gas on or after the date of the enactment

2 of this paragraph unless—

3 ‘‘(A) the facility will—

4 ‘‘(i) be used by a person who is en5 gaged in the local furnishing of that energy

6 source on such date, and

7 ‘‘(ii) be used to provide service within

8 the area served by such person on such date,

9 or

10 ‘‘(B) the facility will be used by a successor

11 in interest to such person for the same use and

12 within the same service area as described in sub13 paragraph (A).

14 ‘‘(4) ELECTION TO TERMINATE TAX-EXEMPT

15 BOND FINANCING BY CERTAIN FURNISHERS.—

16 ‘‘(A) IN GENERAL.—In the case of a facility

17 financed with bonds issued before the date of the

18 enactment of this paragraph which would cease

19 to be tax-exempt by reason of the failure to meet

20 the local furnishing requirement of subsection

21 (a)(8) as a result of a service area expansion,

22 such bonds shall not cease to be tax-exempt bonds

23 (and section 150(b)(4) shall not apply) if the

24 person engaged in such local furnishing by such
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1 facility makes an election described in subpara2 graph (B).

3 ‘‘(B) ELECTION.—An election is described

4 in this subparagraph if it is an election made in

5 such manner as the Secretary prescribes, and

6 such person (or its predecessor in interest) agrees

7 that—

8 ‘‘(i) such election is made with respect

9 to all facilities for the local furnishing of

10 electric energy or gas, or both, by such per11 son,

12 ‘‘(ii) no bond exempt from tax under

13 section 103 and described in subsection

14 (a)(8) may be issued on or after the date of

15 the enactment of this paragraph with re16 spect to all such facilities of such person,

17 ‘‘(iii) any expansion of the service

18 area—

19 ‘‘(I) is not financed with the pro20 ceeds of any exempt facility bond de21 scribed in subsection (a)(8), and

22 ‘‘(II) is not treated as a non23 qualifying use under the rules of para24 graph (2), and
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1 ‘‘(iv) all outstanding bonds used to fi2 nance the facilities for such person are re3 deemed not later than 6 months after the

4 later of—

5 ‘‘(I) the earliest date on which

6 such bonds may be redeemed, or

7 ‘‘(II) the date of the election.

8 ‘‘(C) RELATED PERSONS.—For purposes of

9 this paragraph, the term ‘person’ includes a

10 group of related persons (within the meaning of

11 section 144(a)(3)) which includes such person.’’

12 SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSI13 TION RULE TO INTEREST ALLOCATION

14 RULES.

15 (a) IN GENERAL.—Paragraph (5) of section 1215(c)

16 of the Tax Reform Act of 1986 (Public Law 99–514, 100

17 Stat. 2548) is hereby repealed.

18 (b) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to taxable years beginning after Decem20 ber 31, 1995.

21 SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST

22 FUND EXCISE TAXES.

23 (a) FUEL TAX.—

24 (1) Subparagraph (A) of section 4091(b)(3) is

25 amended to read as follows:
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1 ‘‘(A) The rate of tax specified in paragraph

2 (1) shall be 4.3 cents per gallon—

3 ‘‘(i) after December 31, 1995, and be4 fore the date which is 7 days after the date

5 of the enactment of the Small Business Job

6 Protection Act of 1996, and

7 ‘‘(ii) after December 31, 1996.’’

8 (2) Section 4081(d) is amended—

9 (A) by adding at the end the following new

10 paragraph:

11 ‘‘(3) AVIATION GASOLINE.—After December 31,

12 1996, the rate of tax specified in subsection

13 (a)(2)(A)(i) on aviation gasoline shall be 4.3 cents per

14 gallon.’’, and

15 (B) by inserting ‘‘(other than the tax on

16 aviation gasoline)’’ after ‘‘subsection (a)(2)(A)’’.

17 (3) Section 4041(c)(5) is amended by inserting

18 ‘‘, and during the period beginning on the date which

19 is 7 days after the date of the enactment of the Small

20 Business Job Protection Act of 1996 and ending on

21 December 31, 1996’’ after ‘‘December 31, 1995’’.

22 (b) TICKET TAXES.—Sections 4261(g) and 4271(d) are

23 each amended by striking ‘‘January 1, 1996’’ and inserting

24 ‘‘January 1, 1996, and to transportation beginning on or

25 after the date which is 7 days after the date of the enactment
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1 of the Small Business Job Protection Act of 1996 and before

2 January 1, 1997’’.

3 (c) TRANSFERS TO AIRPORT AND AIRWAY TRUST

4 FUND.—

5 (1) Subsection (b) of section 9502 is amended by

6 striking ‘‘January 1, 1996’’ each place it appears and

7 inserting ‘‘January 1, 1997’’.

8 (2) Paragraph (3) of section 9502(f) is amended

9 to read as follows:

10 ‘‘(3) TERMINATION.—Notwithstanding the pre11 ceding provisions of this subsection, the Airport and

12 Airway Trust Fund financing rate shall be zero with

13 respect to—

14 ‘‘(A) taxes imposed after December 31,

15 1995, and before the date which is 7 days after

16 the date of the enactment of the Small Business

17 Job Protection Act of 1996, and

18 ‘‘(B) taxes imposed after December 31,

19 1996.’’

20 (3) Subsection (d) of section 9502 is amended by

21 adding at the end the following new paragraph:

22 ‘‘(5) TRANSFERS FROM AIRPORT AND AIRWAY

23 TRUST FUND ON ACCOUNT OF REFUNDS OF TAXES ON

24 TRANSPORTATION BY AIR.—The Secretary of the

25 Treasury shall pay from time to time from the Air-
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1 port and Airway Trust Fund into the general fund

2 of the Treasury amounts equivalent to the amounts

3 paid after December 31, 1995, under section 6402 (re4 lating to authority to make credits or refunds) or sec5 tion 6415 (relating to credits or refunds to persons

6 who collected certain taxes) in respect of taxes under

7 sections 4261 and 4271.’’

8 (d) EXCISE TAX EXEMPTION FOR CERTAIN EMER9 GENCY MEDICAL TRANSPORTATION BY AIR AMBULANCE.—

10 Subsection (f) of section 4261 (relating to imposition of tax

11 on transportation by air) is amended to read as follows:

12 ‘‘(f) EXEMPTION FOR AIR AMBULANCES PROVIDING

13 CERTAIN EMERGENCY MEDICAL TRANSPORTATION.—No

14 tax shall be imposed under this section or section 4271 on

15 any air transportation for the purpose of providing emer16 gency medical services—

17 ‘‘(1) by helicopter, or

18 ‘‘(2) by a fixed-wing aircraft equipped for and

19 exclusively dedicated to acute care emergency medical

20 services.’’

21 (e) EXEMPTION FOR CERTAIN HELICOPTER USES.—

22 Subsection (e) of section 4261 is amended by adding at the

23 end the following new sentence: ‘‘In the case of helicopter

24 transportation described in paragraph (1), this subsection
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1 shall be applied by treating each flight segment as a distinct

2 flight.’’

3 (f) FLOOR STOCKS TAXES ON AVIATION FUEL.—

4 (1) IMPOSITION OF TAX.—In the case of aviation

5 fuel on which tax was imposed under section 4091 of

6 the Internal Revenue Code of 1986 before the tax-in7 crease date described in paragraph (3)(A)(i) and

8 which is held on such date by any person, there is

9 hereby imposed a floor stocks tax of 17.5 cents per

10 gallon.

11 (2) LIABILITY FOR TAX AND METHOD OF PAY12 MENT.—

13 (A) LIABILITY FOR TAX.—A person holding

14 aviation fuel on a tax-increase date to which the

15 tax imposed by paragraph (1) applies shall be

16 liable for such tax.

17 (B) METHOD OF PAYMENT.—The tax im18 posed by paragraph (1) shall be paid in such

19 manner as the Secretary shall prescribe.

20 (C) TIME FOR PAYMENT.—The tax imposed

21 by paragraph (1) with respect to any tax-in22 crease date shall be paid on or before the first

23 day of the 7th month beginning after such tax24 increase date.
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1 (3) DEFINITIONS.—For purposes of this sub2 section—

3 (A) TAX INCREASE DATE.—The term ‘‘tax4 increase date’’ means the date which is 7 days

5 after the date of the enactment of this Act.

6 (B) AVIATION FUEL.—The term ‘‘aviation

7 fuel’’ has the meaning given such term by section

8 4093 of such Code.

9 (C) HELD BY A PERSON.—Aviation fuel

10 shall be considered as ‘‘held by a person’’ if title

11 thereto has passed to such person (whether or not

12 delivery to the person has been made).

13 (D) SECRETARY.—The term ‘‘Secretary’’

14 means the Secretary of the Treasury or his dele15 gate.

16 (4) EXCEPTION FOR EXEMPT USES.—The tax

17 imposed by paragraph (1) shall not apply to aviation

18 fuel held by any person on any tax-increase date ex19 clusively for any use for which a credit or refund of

20 the entire tax imposed by section 4091 of such Code

21 is allowable for aviation fuel purchased on or after

22 such tax-increase date for such use.

23 (5) EXCEPTION FOR CERTAIN AMOUNTS OF

24 FUEL.—
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1 (A) IN GENERAL.—No tax shall be imposed

2 by paragraph (1) on aviation fuel held on any

3 tax-increase date by any person if the aggregate

4 amount of aviation fuel held by such person on

5 such date does not exceed 2,000 gallons. The pre6 ceding sentence shall apply only if such person

7 submits to the Secretary (at the time and in the

8 manner required by the Secretary) such informa9 tion as the Secretary shall require for purposes

10 of this paragraph.

11 (B) EXEMPT FUEL.—For purposes of sub12 paragraph (A), there shall not be taken into ac13 count fuel held by any person which is exempt

14 from the tax imposed by paragraph (1) by rea15 son of paragraph (4).

16 (C) CONTROLLED GROUPS.—For purposes of

17 this paragraph—

18 (i) CORPORATIONS.—

19 (I) IN GENERAL.—All persons

20 treated as a controlled group shall be

21 treated as 1 person.

22 (II) CONTROLLED GROUP.—The

23 term ‘‘controlled group’’ has the mean24 ing given to such term by subsection

25 (a) of section 1563 of such Code; except
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1 that for such purposes the phrase

2 ‘‘more than 50 percent’’ shall be sub3 stituted for the phrase ‘‘at least 80 per4 cent’’ each place it appears in such

5 subsection.

6 (ii) NONINCORPORATED PERSONS

7 UNDER COMMON CONTROL.—Under regula8 tions prescribed by the Secretary, principles

9 similar to the principles of clause (i) shall

10 apply to a group of persons under common

11 control where 1 or more of such persons is

12 not a corporation.

13 (6) OTHER LAW APPLICABLE.—All provisions of

14 law, including penalties, applicable with respect to

15 the taxes imposed by section 4091 of such Code shall,

16 insofar as applicable and not inconsistent with the

17 provisions of this subsection, apply with respect to the

18 floor stock taxes imposed by paragraph (1) to the

19 same extent as if such taxes were imposed by such sec20 tion 4091.

21 (g) EFFECTIVE DATE.—The amendments made by this

22 section shall take effect 7 days after the date of the enact23 ment of this Act, except that the amendment made by sub24 section (b) shall not apply to any amount paid on or before

25 such date.
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1 SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY

2 CORPORATION WHERE STOCK IN CORPORA3 TION IS REPLACEMENT PROPERTY UNDER IN4 VOLUNTARY CONVERSION RULES.

5 (a) IN GENERAL.—Subsection (b) of section 1033 is

6 amended to read as follows:

7 ‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN8 VOLUNTARY CONVERSION.—

9 ‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION

10 (a)(1).—If the property was acquired as the result of

11 a compulsory or involuntary conversion described in

12 subsection (a)(1), the basis shall be the same as in the

13 case of the property so converted—

14 ‘‘(A) decreased in the amount of any money

15 received by the taxpayer which was not expended

16 in accordance with the provisions of law (appli17 cable to the year in which such conversion was

18 made) determining the taxable status of the gain

19 or loss upon such conversion, and

20 ‘‘(B) increased in the amount of gain or de21 creased in the amount of loss to the taxpayer rec22 ognized upon such conversion under the law ap23 plicable to the year in which such conversion

24 was made.

25 ‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION

26 (a)(2).—In the case of property purchased by the tax-
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1 payer in a transaction described in subsection (a)(2)

2 which resulted in the nonrecognition of any part of

3 the gain realized as the result of a compulsory or in4 voluntary conversion, the basis shall be the cost of

5 such property decreased in the amount of the gain not

6 so recognized; and if the property purchased consists

7 of more than 1 piece of property, the basis determined

8 under this sentence shall be allocated to the purchased

9 properties in proportion to their respective costs.

10 ‘‘(3) PROPERTY HELD BY CORPORATION THE

11 STOCK OF WHICH IS REPLACEMENT PROPERTY.—

12 ‘‘(A) IN GENERAL.—If the basis of stock in

13 a corporation is decreased under paragraph (2),

14 an amount equal to such decrease shall also be

15 applied to reduce the basis of property held by

16 the corporation at the time the taxpayer ac17 quired control (as defined in subsection

18 (a)(2)(E)) of such corporation.

19 ‘‘(B) LIMITATION.—Subparagraph (A) shall

20 not apply to the extent that it would (but for

21 this subparagraph) require a reduction in the

22 aggregate adjusted bases of the property of the

23 corporation below the taxpayer’s adjusted basis

24 of the stock in the corporation (determined im-
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1 mediately after such basis is decreased under

2 paragraph (2)).

3 ‘‘(C) ALLOCATION OF BASIS REDUCTION.—

4 The decrease required under subparagraph (A)

5 shall be allocated—

6 ‘‘(i) first to property which is similar

7 or related in service or use to the converted

8 property,

9 ‘‘(ii) second to depreciable property (as

10 defined in section 1017(b)(3)(B)) not de11 scribed in clause (i), and

12 ‘‘(iii) then to other property.

13 ‘‘(D) SPECIAL RULES.—

14 ‘‘(i) REDUCTION NOT TO EXCEED AD15 JUSTED BASIS OF PROPERTY.—No reduction

16 in the basis of any property under this

17 paragraph shall exceed the adjusted basis of

18 such property (determined without regard

19 to such reduction).

20 ‘‘(ii) ALLOCATION OF REDUCTION

21 AMONG PROPERTIES.—If more than 1 prop22 erty is described in a clause of subpara23 graph (C), the reduction under this para24 graph shall be allocated among such prop-
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1 erty in proportion to the adjusted bases of

2 such property (as so determined).’’

3 (b) EFFECTIVE DATE.—The amendment made by this

4 section shall apply to involuntary conversions occurring

5 after the date of the enactment of this Act.

6 SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAM7 BLING WINNINGS.

8 (a) REPEAL OF EXEMPTION FOR BINGO AND KENO.—

9 Paragraph (5) of section 3402(q) is amended to read as fol10 lows:

11 ‘‘(5) EXEMPTION FOR SLOT MACHINES.—The tax

12 imposed under paragraph (1) shall not apply to

13 winnings from a slot machine.’’.

14 (b) THRESHOLD AMOUNT.—Paragraph (3) of section

15 3402(q) is amended—

16 (1) by striking ‘‘(B) and (C)’’ in subparagraph

17 (A) and inserting ‘‘(B), (C), and (D)’’, and

18 (2) by adding at the end the following new sub19 paragraph:

20 ‘‘(D) BINGO AND KENO.—Proceeds of more

21 than $5,000 from a wager placed in a bingo or

22 keno game.’’.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall take effect on the 30th day after the date of

25 the enactment of this Act.
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1 SEC. 1610. TREATMENT OF CERTAIN INSURANCE CON2 TRACTS ON RETIRED LIVES.

3 (a) GENERAL RULE.—

4 (1) Paragraph (2) of section 817(d) (defining

5 variable contract) is amended by striking ‘‘or’’ at the

6 end of subparagraph (A), by striking ‘‘and’’ at the

7 end of subparagraph (B) and inserting ‘‘or’’, and by

8 inserting after subparagraph (B) the following new

9 subparagraph:

10 ‘‘(C) provides for funding of insurance on

11 retired lives as described in section 807(c)(6),

12 and’’.

13 (2) Paragraph (3) of section 817(d) is amended

14 by striking ‘‘or’’ at the end of subparagraph (A), by

15 striking the period at the end of subparagraph (B)

16 and inserting ‘‘, or’’, and by inserting after subpara17 graph (B) the following new subparagraph:

18 ‘‘(C) in the case of funds held under a con19 tract described in paragraph (2)(C), the amounts

20 paid in, or the amounts paid out, reflect the in21 vestment return and the market value of the seg22 regated asset account.’’.

23 (b) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 1995.
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1 SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CON2 STRUCTION.

3 (a) TREATMENT OF CONTRIBUTIONS IN AID OF CON4 STRUCTION.—

5 (1) IN GENERAL.—Section 118 (relating to con6 tributions to the capital of a corporation) is amend7 ed—

8 (A) by redesignating subsection (c) as sub9 section (e), and

10 (B) by inserting after subsection (b) the fol11 lowing new subsections:

12 ‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE

13 DISPOSAL UTILITIES.—

14 ‘‘(1) GENERAL RULE.—For purposes of this sec15 tion, the term ‘contribution to the capital of the tax16 payer’ includes any amount of money or other prop17 erty received from any person (whether or not a

18 shareholder) by a regulated public utility which pro19 vides water or sewerage disposal services if—

20 ‘‘(A) such amount is a contribution in aid

21 of construction,

22 ‘‘(B) in the case of contribution of property

23 other than water or sewerage disposal facilities,

24 such amount meets the requirements of the ex25 penditure rule of paragraph (2), and
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1 ‘‘(C) such amount (or any property ac2 quired or constructed with such amount) is not

3 included in the taxpayer’s rate base for rate4 making purposes.

5 ‘‘(2) EXPENDITURE RULE.—An amount meets

6 the requirements of this paragraph if—

7 ‘‘(A) an amount equal to such amount is

8 expended for the acquisition or construction of

9 tangible property described in section 1231(b)—

10 ‘‘(i) which is the property for which

11 the contribution was made or is of the same

12 type as such property, and

13 ‘‘(ii) which is used predominantly in

14 the trade or business of furnishing water or

15 sewerage disposal services,

16 ‘‘(B) the expenditure referred to in subpara17 graph (A) occurs before the end of the second tax18 able year after the year in which such amount

19 was received, and

20 ‘‘(C) accurate records are kept of the

21 amounts contributed and expenditures made, the

22 expenditures to which contributions are allo23 cated, and the year in which the contributions

24 and expenditures are received and made.
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1 ‘‘(3) DEFINITIONS.—For purposes of this sub2 section—

3 ‘‘(A) CONTRIBUTION IN AID OF CONSTRUC4 TION.—The term ‘contribution in aid of con5 struction’ shall be defined by regulations pre6 scribed by the Secretary, except that such term

7 shall not include amounts paid as service

8 charges for starting or stopping services.

9 ‘‘(B) PREDOMINANTLY.—The term ‘pre10 dominantly’ means 80 percent or more.

11 ‘‘(C) REGULATED PUBLIC UTILITY.—The

12 term ‘regulated public utility’ has the meaning

13 given such term by section 7701(a)(33), except

14 that such term shall not include any utility

15 which is not required to provide water or sewer16 age disposal services to members of the general

17 public in its service area.

18 ‘‘(4) DISALLOWANCE OF DEDUCTIONS AND CRED19 ITS; ADJUSTED BASIS.—Notwithstanding any other

20 provision of this subtitle, no deduction or credit shall

21 be allowed for, or by reason of, any expenditure which

22 constitutes a contribution in aid of construction to

23 which this subsection applies. The adjusted basis of

24 any property acquired with contributions in aid of
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1 construction to which this subsection applies shall be

2 zero.

3 ‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for

4 any taxable year treats an amount as a contribution to the

5 capital of the taxpayer described in subsection (c), then—

6 ‘‘(1) the statutory period for the assessment of

7 any deficiency attributable to any part of such

8 amount shall not expire before the expiration of 3

9 years from the date the Secretary is notified by the

10 taxpayer (in such manner as the Secretary may pre11 scribe) of—

12 ‘‘(A) the amount of the expenditure referred

13 to in subparagraph (A) of subsection (c)(2),

14 ‘‘(B) the taxpayer’s intention not to make

15 the expenditures referred to in such subpara16 graph, or

17 ‘‘(C) a failure to make such expenditure

18 within the period described in subparagraph (B)

19 of subsection (c)(2), and

20 ‘‘(2) such deficiency may be assessed before the

21 expiration of such 3-year period notwithstanding the

22 provisions of any other law or rule of law which

23 would otherwise prevent such assessment.’’.
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1 (2) CONFORMING AMENDMENT.—Section 118(b)

2 is amended by inserting ‘‘except as provided in sub3 section (c),’’ before ‘‘the term’’.

4 (3) EFFECTIVE DATE.—The amendments made

5 by this subsection shall apply to amounts received

6 after June 12, 1996.

7 (b) RECOVERY METHOD AND PERIOD FOR WATER

8 UTILITY PROPERTY.—

9 (1) REQUIREMENT TO USE STRAIGHT LINE

10 METHOD.—Section 168(b)(3) is amended by adding

11 at the end the following new subparagraph:

12 ‘‘(F) Water utility property described in

13 subsection (e)(5).’’.

14 (2) 25-YEAR RECOVERY PERIOD.—The table con15 tained in section 168(c)(1) is amended by inserting

16 the following item after the item relating to 20-year

17 property:

‘‘Water utility property ................................................................. 25 years’’.

18 (3) WATER UTILITY PROPERTY.—

19 (A) IN GENERAL.—Section 168(e) is amend20 ed by adding at the end the following new para21 graph:

22 ‘‘(5) WATER UTILITY PROPERTY.—The term

23 ‘water utility property’ means property—

24 ‘‘(A) which is an integral part of the gath25 ering, treatment, or commercial distribution of
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1 water, and which, without regard to this para2 graph, would be 20-year property, and

3 ‘‘(B) any municipal sewer.’’.

4 (B) CONFORMING AMENDMENTS.—Section

5 168 is amended—

6 (i) by striking subparagraph (F) of

7 subsection (e)(3), and

8 (ii) by striking the item relating to

9 subparagraph (F) in the table in subsection

10 (g)(3).

11 (4) ALTERNATIVE SYSTEM.—Clause (iv) of sec12 tion 168(g)(2)(C) is amended by inserting ‘‘or water

13 utility property’’ after ‘‘tunnel bore’’.

14 (5) EFFECTIVE DATE.—The amendments made

15 by this subsection shall apply to property placed in

16 service after June 12, 1996, other than property

17 placed in service pursuant to a binding contract in

18 effect before June 10, 1996, and at all times thereafter

19 before the property is placed in service.

20 PART II—FINANCIAL ASSET SECURITIZATION

21 INVESTMENTS

22 SEC. 1621. FINANCIAL ASSET SECURITIZATION INVEST23 MENT TRUSTS.

24 (a) IN GENERAL.—Subchapter M of chapter 1 is

25 amended by adding at the end the following new part:
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1 ‘‘PART V—FINANCIAL ASSET SECURITIZATION

2 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.

3 ‘‘SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

4 ‘‘(a) TAXATION OF FASIT.—A FASIT as such shall

5 not be subject to taxation under this subtitle (and shall not

6 be treated as a trust, partnership, corporation, or taxable

7 mortgage pool).

8 ‘‘(b) TAXATION OF HOLDER OF OWNERSHIP INTER9 EST.—In determining the taxable income of the holder of

10 the ownership interest in a FASIT—

11 ‘‘(1) all assets, liabilities, and items of income,

12 gain, deduction, loss, and credit of a FASIT shall be

13 treated as assets, liabilities, and such items (as the

14 case may be) of such holder,

15 ‘‘(2) the constant yield method (including the

16 rules of section 1272(a)(6)) shall be applied under an

17 accrual method of accounting in determining all in18 terest, acquisition discount, original issue discount,

19 and market discount and all premium deductions or

20 adjustments with respect to all debt instruments of the

21 FASIT,
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1 ‘‘(3) there shall not be taken into account any

2 item of income, gain, or deduction allocable to a pro3 hibited transaction, and

4 ‘‘(4) interest accrued by the FASIT which is ex5 empt from tax imposed by this subtitle shall, when

6 taken into account by such holder, be treated as ordi7 nary income.

8 For purposes of this subtitle, securities treated as held by

9 such holder under paragraph (1) shall be treated as held

10 for investment.

11 ‘‘(c) TREATMENT OF REGULAR INTERESTS.—For pur12 poses of this title—

13 ‘‘(1) a regular interest in a FASIT, if not other14 wise a debt instrument, shall be treated as a debt in15 strument,

16 ‘‘(2) section 163(e)(5) shall not apply to such an

17 interest, and

18 ‘‘(3) amounts includible in gross income with re19 spect to such an interest shall be determined under an

20 accrual method of accounting.

21 ‘‘SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO

22 AND DISTRIBUTIONS FROM A FASIT AND IN

23 OTHER CASES.

24 ‘‘(a) TREATMENT OF PROPERTY ACQUIRED BY

25 FASIT.—
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1 ‘‘(1) PROPERTY ACQUIRED FROM HOLDER OF

2 OWNERSHIP INTEREST OR RELATED PERSON.—If

3 property is sold or contributed to a FASIT by the

4 holder of the ownership interest in such FASIT (or by

5 a related person) gain (if any) shall be recognized to

6 such holder (or person) in an amount equal to the ex7 cess (if any) of such property’s value under subsection

8 (d) on the date of such sale or contribution over its

9 adjusted basis on such date.

10 ‘‘(2) PROPERTY ACQUIRED OTHER THAN FROM

11 HOLDER OF OWNERSHIP INTEREST OR RELATED PER12 SON.—Property which is acquired by a FASIT other

13 than in a transaction to which paragraph (1) applies

14 shall be treated—

15 ‘‘(A) as having been acquired by the holder

16 of the ownership interest in the FASIT for an

17 amount equal to the FASIT’s adjusted basis in

18 such property as of the date such property is ac19 quired by the FASIT, and

20 ‘‘(B) as having been sold by such holder to

21 the FASIT at its value under subsection (d) on

22 such date.

23 ‘‘(b) GAIN RECOGNITION ON PROPERTY OUTSIDE

24 FASIT WHICH SUPPORTS REGULAR INTERESTS.—If prop25 erty held by the holder of the ownership interest in a FASIT
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1 (or by any person related to such holder) supports any regu2 lar interest in such FASIT—

3 ‘‘(1) gain shall be recognized to such holder in

4 the same manner as if such holder had sold such

5 property at its value under subsection (d) on the ear6 liest date such property supports such an interest,

7 and

8 ‘‘(2) such property shall be treated as held by

9 such FASIT for purposes of this part.

10 ‘‘(c) DEFERRAL OF GAIN RECOGNITION.—The Sec11 retary may prescribe regulations which—

12 ‘‘(1) provide that gain otherwise recognized

13 under subsection (a) or (b) shall not be recognized be14 fore the earliest date on which such property supports

15 any regular interest in such FASIT or any indebted16 ness of the holder of the ownership interest (or of any

17 person related to such holder), and

18 ‘‘(2) provide such adjustments to the other provi19 sions of this part to the extent appropriate in the con20 text of the treatment provided under paragraph (1).

21 ‘‘(d) VALUATION.—For purposes of this section—

22 ‘‘(1) IN GENERAL.—The value of any property

23 under this subsection shall be—

24 ‘‘(A) in the case of a debt instrument which

25 is not traded on an established securities market,
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1 the sum of the present values of the reasonably

2 expected payments under such instrument deter3 mined (in the manner provided by regulations

4 prescribed by the Secretary)—

5 ‘‘(i) as of the date of the event resulting

6 in the gain recognition under this section,

7 and

8 ‘‘(ii) by using a discount rate equal to

9 120 percent of the applicable Federal rate

10 (as defined in section 1274(d)), or such

11 other discount rate specified in such regula12 tions, compounded semiannually, and

13 ‘‘(B) in the case of any other property, its

14 fair market value.

15 ‘‘(2) SPECIAL RULE FOR REVOLVING LOAN AC16 COUNTS.—For purposes of paragraph (1)—

17 ‘‘(A) each extension of credit (other than the

18 accrual of interest) on a revolving loan account

19 shall be treated as a separate debt instrument,

20 and

21 ‘‘(B) payments on such extensions of credit

22 having substantially the same terms shall be ap23 plied to such extensions beginning with the earli24 est such extension.

25 ‘‘(e) SPECIAL RULES.—
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1 ‘‘(1) NONRECOGNITION RULES NOT TO APPLY.—

2 Gain required to be recognized under this section

3 shall be recognized notwithstanding any other provi4 sion of this subtitle.

5 ‘‘(2) BASIS ADJUSTMENTS.—The basis of any

6 property on which gain is recognized under this sec7 tion shall be increased by the amount of gain so rec8 ognized.

9 ‘‘SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN

10 FASIT INCLUSIONS.

11 ‘‘(a) IN GENERAL.—The taxable income of the holder

12 of the ownership interest or any high-yield interest in a

13 FASIT for any taxable year shall in no event be less than

14 such holder’s taxable income determined solely with respect

15 to such interests.

16 ‘‘(b) COORDINATION WITH SECTION 172.—Any in17 crease in the taxable income of any holder of the ownership

18 interest or a high-yield interest in a FASIT for any taxable

19 year by reason of subsection (a) shall be disregarded—

20 ‘‘(1) in determining under section 172 the

21 amount of any net operating loss for such taxable

22 year, and

23 ‘‘(2) in determining taxable income for such tax24 able year for purposes of the 2nd sentence of section

25 172(b)(2).
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1 ‘‘(c) COORDINATION WITH MINIMUM TAX.—For pur2 poses of part VI of subchapter A of this chapter—

3 ‘‘(1) the reference in section 55(b)(2) to taxable

4 income shall be treated as a reference to taxable in5 come determined without regard to this section,

6 ‘‘(2) the alternative minimum taxable income of

7 any holder of the ownership interest or a high-yield

8 interest in a FASIT for any taxable year shall in no

9 event be less than such holder’s taxable income deter10 mined solely with respect to such interests, and

11 ‘‘(3) any increase in taxable income under this

12 section shall be disregarded for purposes of computing

13 the alternative tax net operating loss deduction.

14 ‘‘SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD IN15 TERESTS TO DISQUALIFIED HOLDERS.

16 ‘‘(a) GENERAL RULE.—In the case of any high-yield

17 interest which is held by a disqualified holder—

18 ‘‘(1) the gross income of such holder shall not in19 clude any income (other than gain) attributable to

20 such interest, and

21 ‘‘(2) amounts not includible in the gross income

22 of such holder by reason of paragraph (1) shall be in23 cluded (at the time otherwise includible under para24 graph (1)) in the gross income of the most recent
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1 holder of such interest which is not a disqualified

2 holder.

3 ‘‘(b) EXCEPTIONS.—Rules similar to the rules of para4 graphs (4) and (7) of section 860E(e) shall apply to the

5 tax imposed by reason of subsection (a).

6 ‘‘(c) DISQUALIFIED HOLDER.—For purposes of this

7 section, the term ‘disqualified holder’ means any holder

8 other than—

9 ‘‘(1) an eligible corporation (as defined in sec10 tion 860L(a)(2)), or

11 ‘‘(2) a FASIT.

12 ‘‘(d) TREATMENT OF INTERESTS HELD BY SECURI13 TIES DEALERS.—

14 ‘‘(1) IN GENERAL.—Subsection (a) shall not

15 apply to any high-yield interest held by a disqualified

16 holder if such holder is a dealer in securities who ac17 quired such interest exclusively for sale to customers

18 in the ordinary course of business (and not for invest19 ment).

20 ‘‘(2) CHANGE IN DEALER STATUS.—

21 ‘‘(A) IN GENERAL.—In the case of a dealer

22 in securities which is not an eligible corporation

23 (as defined in section 860L(a)(2)), if—

24 ‘‘(i) such dealer ceases to be a dealer in

25 securities, or
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1 ‘‘(ii) such dealer commences holding

2 the high-yield interest for investment,

3 there is hereby imposed (in addition to other

4 taxes) an excise tax equal to the product of the

5 highest rate of tax specified in section 11(b)(1)

6 and the income of such dealer attributable to

7 such interest for periods after the date of such

8 cessation or commencement.

9 ‘‘(B) HOLDING FOR 31 DAYS OR LESS.—For

10 purposes of subparagraph (A)(ii), a dealer shall

11 not be treated as holding an interest for invest12 ment before the 32d day after the date such deal13 er acquired such interest unless such interest is

14 so held as part of a plan to avoid the purposes

15 of this paragraph.

16 ‘‘(C) ADMINISTRATIVE PROVISIONS.—The

17 deficiency procedures of subtitle F shall apply to

18 the tax imposed by this paragraph.

19 ‘‘(e) TREATMENT OF HIGH-YIELD INTERESTS IN PASS20 THRU ENTITIES.—

21 ‘‘(1) IN GENERAL.—If a pass-thru entity (as de22 fined in section 860E(e)(6)) issues a debt or equity

23 interest—

24 ‘‘(A) which is supported by any regular in25 terest in a FASIT, and
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1 ‘‘(B) which has an original yield to matu2 rity which is greater than each of—

3 ‘‘(i) the sum determined under clauses

4 (i) and (ii) of section 163(i)(1)(B) with re5 spect to such debt or equity interest, and

6 ‘‘(ii) the yield to maturity to such en7 tity on such regular interest (determined as

8 of the date such entity acquired such inter9 est),

10 there is hereby imposed on the pass-thru entity a tax

11 (in addition to other taxes) equal to the product of the

12 highest rate of tax specified in section 11(b)(1) and

13 the income of the holder of such debt or equity interest

14 which is properly attributable to such regular inter15 est. For purposes of the preceding sentence, the yield

16 to maturity of any equity interest shall be determined

17 under regulations prescribed by the Secretary.

18 ‘‘(2) EXCEPTION.—The Secretary may provide

19 that paragraph (1) shall not apply to arrangements

20 not having as a principal purpose the avoidance of

21 the purposes of this subsection.

22 ‘‘SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

23 ‘‘(a) FASIT.—
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1 ‘‘(1) IN GENERAL.—For purposes of this title, the

2 terms ‘financial asset securitization investment trust’

3 and ‘FASIT’ mean any entity—

4 ‘‘(A) for which an election to be treated as

5 a FASIT applies for the taxable year,

6 ‘‘(B) all of the interests in which are regu7 lar interests or the ownership interest,

8 ‘‘(C) which has only 1 ownership interest

9 and such ownership interest is held directly by

10 an eligible corporation,

11 ‘‘(D) as of the close of the 3rd month begin12 ning after the day of its formation and at all

13 times thereafter, substantially all of the assets of

14 which (including assets treated as held by the en15 tity under section 860I(c)(2)) consist of per16 mitted assets, and

17 ‘‘(E) which is not described in section

18 851(a).

19 A rule similar to the rule of the last sentence of sec20 tion 860D(a) shall apply for purposes of this para21 graph.

22 ‘‘(2) ELIGIBLE CORPORATION.—For purposes of

23 paragraph (1)(C), the term ‘eligible corporation’

24 means any domestic C corporation other than—
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1 ‘‘(A) a corporation which is exempt from, or

2 is not subject to, tax under this chapter,

3 ‘‘(B) an entity described in section 851(a)

4 or 856(a),

5 ‘‘(C) a REMIC, and

6 ‘‘(D) an organization to which part I of

7 subchapter T applies.

8 ‘‘(3) ELECTION.—An entity (otherwise meeting

9 the requirements of paragraph (1)) may elect to be

10 treated as a FASIT. Except as provided in paragraph

11 (5), such an election shall apply to the taxable year

12 for which made and all subsequent taxable years un13 less revoked with the consent of the Secretary.

14 ‘‘(4) TERMINATION.—If any entity ceases to be a

15 FASIT at any time during the taxable year, such en16 tity shall not be treated as a FASIT for such taxable

17 year or any succeeding taxable year.

18 ‘‘(5) INADVERTENT TERMINATIONS, ETC.—Rules

19 similar to the rules of section 860D(b)(2)(B) shall

20 apply to inadvertent failures to qualify or remain

21 qualified as a FASIT.

22 ‘‘(b) INTERESTS IN FASIT.—For purposes of this

23 part—

24 ‘‘(1) REGULAR INTEREST.—
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1 ‘‘(A) IN GENERAL.—The term ‘regular in2 terest’ means any interest which is issued by a

3 FASIT after the startup date with fixed terms

4 and which is designated as a regular interest

5 if—

6 ‘‘(i) such interest unconditionally enti7 tles the holder to receive a specified prin8 cipal amount (or other similar amount),

9 ‘‘(ii) except as otherwise provided by

10 the Secretary—

11 ‘‘(I) in the case of a FASIT which

12 would be treated as a REMIC if an

13 election under section 860D(b) had

14 been made, interest payments (or other

15 similar amounts), if any, with respect

16 to such interest at or before maturity

17 meet the requirements applicable under

18 clause (i) or (ii) of section

19 860G(a)(1)(B), or

20 ‘‘(II) in the case of any other

21 FASIT, interest payments (or other

22 similar amounts), if any, with respect

23 to such interest are determined based

24 on a fixed rate, a current rate which is

25 reasonably expected to measure contem-
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1 poraneous variations in the cost of

2 newly borrowed funds in the currency

3 in which the regular interest is de4 nominated, or any combination of such

5 rates,

6 ‘‘(iii) such interest does not have a

7 stated maturity (including options to

8 renew) greater than 30 years (or such

9 longer period as may be permitted by regu10 lations),

11 ‘‘(iv) the issue price of such interest

12 does not exceed 125 percent of its stated

13 principal amount, and

14 ‘‘(v) the yield to maturity on such in15 terest is less than the sum determined under

16 section 163(i)(1)(B) with respect to such in17 terest.

18 An interest shall not fail to meet the require19 ments of clause (i) merely because the timing

20 (but not the amount) of the principal payments

21 (or other similar amounts) may be contingent on

22 the extent that payments on debt instruments

23 held by the FASIT are made in advance of an24 ticipated payments and on the amount of income

25 from permitted assets.
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1 ‘‘(B) HIGH-YIELD INTERESTS.—

2 ‘‘(i) IN GENERAL.—The term ‘regular

3 interest’ includes any high-yield interest.

4 ‘‘(ii) HIGH-YIELD INTEREST.—The

5 term ‘high-yield interest’ means any interest

6 which would be described in subparagraph

7 (A) but for failing to meet the requirements

8 of one or more of clauses (i), (iv), or (v)

9 thereof.

10 ‘‘(2) OWNERSHIP INTEREST.—The term ‘owner11 ship interest’ means the interest issued by a FASIT

12 after the startup day which is designated as an own13 ership interest and which is not a regular interest.

14 ‘‘(c) PERMITTED ASSETS.—For purposes of this

15 part—

16 ‘‘(1) IN GENERAL.—The term ‘permitted asset’

17 means—

18 ‘‘(A) cash or cash equivalents,

19 ‘‘(B) any debt instrument (as defined in

20 section 1275(a)(1)) under which interest pay21 ments (or other similar amounts), if any, at or

22 before maturity meet the requirements applicable

23 under clause (i) or (ii) of section 860G(a)(1)(B),

24 ‘‘(C) foreclosure property,

25 ‘‘(D) any asset—
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1 ‘‘(i) which is an interest rate or foreign

2 currency notional principal contract, letter

3 of credit, insurance, guarantee against pay4 ment defaults, or other similar instrument

5 permitted by the Secretary, and

6 ‘‘(ii) which is reasonably required to

7 guarantee or hedge against the FASIT’s

8 risks associated with being the obligor on

9 interests issued by the FASIT,

10 ‘‘(E) contract rights to acquire debt instru11 ments described in subparagraph (B) or assets

12 described in subparagraph (D), and

13 ‘‘(F) any regular interest in another

14 FASIT.

15 ‘‘(2) DEBT ISSUED BY HOLDER OF OWNERSHIP

16 INTEREST NOT PERMITTED ASSET.—The term ‘per17 mitted asset’ shall not include any debt instrument is18 sued by the holder of the ownership interest in the

19 FASIT or by any person related to such holder or

20 any direct or indirect interest in such a debt instru21 ment. The preceding sentence shall not apply to cash

22 equivalents and to any other investment specified in

23 regulations prescribed by the Secretary.

24 ‘‘(3) FORECLOSURE PROPERTY.—The term ‘fore25 closure property’ means property—
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1 ‘‘(A) which would be foreclosure property

2 under section 856(e) (determined without regard

3 to paragraph (5) thereof) if acquired by a real

4 estate investment trust, and

5 ‘‘(B) which is acquired in connection with

6 the default or imminent default of a debt instru7 ment held by the FASIT unless the security in8 terest in such property was created for the prin9 cipal purpose of permitting the FASIT to invest

10 in such property.

11 Solely for purposes of subsection (a)(1), the deter12 mination of whether any property is foreclosure prop13 erty shall be made without regard to section

14 856(e)(4).

15 ‘‘(d) STARTUP DAY.—For purposes of this part—

16 ‘‘(1) IN GENERAL.—The term ‘startup day’

17 means the date designated in the election under sub18 section (a)(3) as the startup day of the FASIT. Such

19 day shall be the beginning of the first taxable year of

20 the FASIT.

21 ‘‘(2) TREATMENT OF PROPERTY HELD ON START22 UP DAY.—All property held (or treated as held under

23 section 860I(c)(2)) by an entity as of the startup day

24 shall be treated as contributed to such entity on such
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1 day by the holder of the ownership interest in such

2 entity.

3 ‘‘(e) TAX ON PROHIBITED TRANSACTIONS.—

4 ‘‘(1) IN GENERAL.—There is hereby imposed for

5 each taxable year of a FASIT a tax equal to 100 per6 cent of the net income derived from prohibited trans7 actions. Such tax shall be paid by the holder of the

8 ownership interest in the FASIT.

9 ‘‘(2) PROHIBITED TRANSACTIONS.—For purposes

10 of this part, the term ‘prohibited transaction’

11 means—

12 ‘‘(A) the receipt of any income derived from

13 any asset that is not a permitted asset,

14 ‘‘(B) except as provided in paragraph (3),

15 the disposition of any permitted asset,

16 ‘‘(C) the receipt of any income derived from

17 any loan originated by the FASIT, and

18 ‘‘(D) the receipt of any income representing

19 a fee or other compensation for services (other

20 than any fee received as compensation for a

21 waiver, amendment, or consent under permitted

22 assets (other than foreclosure property) held by

23 the FASIT).

24 ‘‘(3) EXCEPTION FOR INCOME FROM CERTAIN

25 DISPOSITIONS.—
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1 ‘‘(A) IN GENERAL.—Paragraph (2)(B) shall

2 not apply to a disposition which would not be a

3 prohibited transaction (as defined in section

4 860F(a)(2)) by reason of—

5 ‘‘(i) clause (ii), (iii), or (iv) of section

6 860F(a)(2)(A), or

7 ‘‘(ii) section 860F(a)(5),

8 if the FASIT were treated as a REMIC and debt

9 instruments described in subsection (c)(1)(B)

10 were treated as qualified mortgages.

11 ‘‘(B) SUBSTITUTION OF DEBT INSTRU12 MENTS; REDUCTION OF OVER13 COLLATERALIZATION.—Paragraph (2)(B) shall

14 not apply to—

15 ‘‘(i) the substitution of a debt instru16 ment described in subsection (c)(1)(B) for

17 another debt instrument which is a per18 mitted asset, or

19 ‘‘(ii) the distribution of a debt instru20 ment contributed by the holder of the owner21 ship interest to such holder in order to re22 duce over-collateralization of the FASIT,

23 but only if a principal purpose of acquiring the

24 debt instrument which is disposed of was not the

25 recognition of gain (or the reduction of a loss) as
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1 a result of an increase in the market value of the

2 debt instrument after its acquisition by the

3 FASIT.

4 ‘‘(C) LIQUIDATION OF CLASS OF REGULAR

5 INTERESTS.—Paragraph (2)(B) shall not apply

6 to the complete liquidation of any class of regu7 lar interests.

8 ‘‘(4) NET INCOME.—For purposes of this sub9 section, net income shall be determined in accordance

10 with section 860F(a)(3).

11 ‘‘(f) COORDINATION WITH WASH SALES RULES.—

12 Rules similar to the rules of section 860F(d) shall apply

13 to the ownership interest in a FASIT.

14 ‘‘(g) RELATED PERSON.—For purposes of this part, a

15 person (hereinafter in this subsection referred to as the ‘re16 lated person’) is related to any person if—

17 ‘‘(1) the related person bears a relationship to

18 such person specified in section 267(b) or section

19 707(b)(1), or

20 ‘‘(2) the related person and such person are en21 gaged in trades or businesses under common control

22 (within the meaning of subsections (a) and (b) of sec23 tion 52).
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1 For purposes of paragraph (1), in applying section 267(b)

2 or 707(b)(1), ‘20 percent’ shall be substituted for ‘50 per3 cent’.

4 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

5 such regulations as may be necessary or appropriate to

6 carry out the purposes of this part, including regulations

7 to prevent the abuse of the purposes of this part through

8 transactions which are not primarily related to

9 securitization of debt instruments by a FASIT.’’.

10 (b) TECHNICAL AMENDMENTS.—

11 (1) Paragraph (2) of section 26(b) is amended by

12 striking ‘‘and’’ at the end of subparagraph (M), by

13 striking the period at the end of subparagraph (N)

14 and inserting ‘‘, and’’, and by adding at the end the

15 following new subparagraph:

16 ‘‘(O) section 860K (relating to treatment of

17 transfers of high-yield interests to disqualified

18 holders).’’.

19 (2) Paragraph (6) of section 56(g) is amended by

20 striking ‘‘or REMIC’’ and inserting ‘‘REMIC, or

21 FASIT’’.

22 (3) Clause (ii) of section 382(l)(4)(B) is amended

23 by striking ‘‘or a REMIC to which part IV of sub24 chapter M applies’’ and inserting ‘‘a REMIC to
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1 which part IV of subchapter M applies, or a FASIT

2 to which part V of subchapter M applies’’.

3 (4) Paragraph (1) of section 582(c) is amended

4 by inserting ‘‘, and any regular or ownership interest

5 in a FASIT,’’ after ‘‘REMIC’’.

6 (5) Subparagraph (E) of section 856(c)(6) is

7 amended by adding at the end the following new sen8 tence: ‘‘The principles of the preceding provisions of

9 this subparagraph shall apply to regular and owner10 ship interests in a FASIT.’’.

11 (6) Subparagraph (C) of section 1202(e)(4) is

12 amended by striking ‘‘or REMIC’’ and inserting

13 ‘‘REMIC, or FASIT’’.

14 (7) Clause (xi) of section 7701(a)(19)(C) is

15 amended to read as follows:

16 ‘‘(xi) any regular or residual interest

17 in a REMIC, and any regular or ownership

18 interest in a FASIT, but only in the pro19 portion which the assets of such REMIC or

20 FASIT consist of property described in any

21 of the preceding clauses of this subpara22 graph; except that if 95 percent or more of

23 the assets of such REMIC or FASIT are as24 sets described in clauses (i) through (x), the
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1 entire interest in the REMIC or FASIT

2 shall qualify.’’.

3 (8) Subparagraph (A) of section 7701(i)(2) is

4 amended by inserting ‘‘or a FASIT’’ after ‘‘a

5 REMIC’’.

6 (c) CLERICAL AMENDMENT.—The table of parts for

7 subchapter M of chapter 1 is amended by adding at the

8 end the following new item:

‘‘Part V. Financial asset securitization investment trusts.’’.

9 (d) EFFECTIVE DATE.—The amendments made by this

10 section shall take effect on the date of the enactment of this

11 Act.

12 (e) TREATMENT OF EXISTING SECURITIZATION ENTI13 TIES.—

14 (1) IN GENERAL.—In the case of the holder of the

15 ownership interest in a pre-effective date FASIT—

16 (A) gain shall not be recognized under sec17 tion 860L(d)(2) of the Internal Revenue Code of

18 1986 on property deemed contributed to the

19 FASIT, and

20 (B) gain shall not be recognized under sec21 tion 860I of such Code on property contributed

22 to such FASIT,

23 until such property (or portion thereof) ceases to be

24 properly allocable to a pre-FASIT interest.
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1 (2) ALLOCATION OF PROPERTY TO PRE-FASIT IN2 TEREST.—For purposes of paragraph (1), property

3 shall be allocated to a pre-FASIT interest in such

4 manner as the Secretary of the Treasury may pre5 scribe, except that all property in a FASIT shall be

6 treated as properly allocable to pre-FASIT interests if

7 the fair market value of all such property does not ex8 ceed 107 percent of the aggregate principal amount of

9 all outstanding pre-FASIT interests.

10 (3) DEFINITIONS.—For purposes of this sub11 section—

12 (A) PRE-EFFECTIVE DATE FASIT.—The

13 term ‘‘pre-effective date FASIT’’ means any

14 FASIT if the entity (with respect to which the

15 election under section 860L(a)(3) of such Code

16 was made) was in existence on June 10, 1996.

17 (B) PRE-FASIT INTEREST.—The term ‘‘pre18 FASIT interest’’ means any interest in the en19 tity referred to in subparagraph (A) which was

20 issued before the startup day (other than any in21 terest held by the holder of the ownership interest

22 in the FASIT).
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1 PART III—TREATMENT OF INDIVIDUALS WHO

2 EXPATRIATE

3 SEC. 1631. REVISION OF TAX RULES ON EXPATRIATION.

4 (a) IN GENERAL.—Subpart A of part II of subchapter

5 N of chapter 1 is amended by inserting after section 877

6 the following new section:

7 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

8 ‘‘(a) GENERAL RULES.—For purposes of this sub9 title—

10 ‘‘(1) MARK TO MARKET.—Except as provided in

11 subsection (f), all property of a covered expatriate to

12 which this section applies shall be treated as sold on

13 the expatriation date for its fair market value.

14 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

15 case of any sale under paragraph (1)—

16 ‘‘(A) notwithstanding any other provision of

17 this title, any gain arising from such sale shall

18 be taken into account for the taxable year of the

19 sale unless such gain is excluded from gross in20 come under part III of subchapter B, and

21 ‘‘(B) any loss arising from such sale shall

22 be taken into account for the taxable year of the

23 sale to the extent otherwise provided by this title,

24 except that section 1091 shall not apply (and

25 section 1092 shall apply) to any such loss.
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1 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

2 amount which would (but for this paragraph) be in3 cludible in the gross income of any individual by rea4 son of this section shall be reduced (but not below

5 zero) by $600,000. For purposes of this paragraph, al6 locable expatriation gain taken into account under

7 subsection (f)(2) shall be treated in the same manner

8 as an amount required to be includible in gross in9 come.

10 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

11 UNITED STATES CITIZEN.—

12 ‘‘(A) IN GENERAL.—If an expatriate elects

13 the application of this paragraph—

14 ‘‘(i) this section (other than this para15 graph) shall not apply to the expatriate, but

16 ‘‘(ii) the expatriate shall be subject to

17 tax under this title, with respect to property

18 to which this section would apply but for

19 such election, in the same manner as if the

20 individual were a United States citizen.

21 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

22 GIFT, AND GENERATION-SKIPPING TRANSFER

23 TAXES.—The aggregate amount of taxes imposed

24 under subtitle B with respect to any transfer of

25 property by reason of an election under subpara-
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1 graph (A) shall not exceed the amount of income

2 tax which would be due if the property were sold

3 for its fair market value immediately before the

4 time of the transfer or death (taking into account

5 the rules of paragraph (2)).

6 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

7 shall not apply to an individual unless the indi8 vidual—

9 ‘‘(i) provides security for payment of

10 tax in such form and manner, and in such

11 amount, as the Secretary may require,

12 ‘‘(ii) consents to the waiver of any

13 right of the individual under any treaty of

14 the United States which would preclude as15 sessment or collection of any tax which may

16 be imposed by reason of this paragraph,

17 and

18 ‘‘(iii) complies with such other require19 ments as the Secretary may prescribe.

20 ‘‘(D) ELECTION.—An election under sub21 paragraph (A) shall apply to all property to

22 which this section would apply but for the elec23 tion and, once made, shall be irrevocable. Such

24 election shall also apply to property the basis of

25 which is determined in whole or in part by ref-
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1 erence to the property with respect to which the

2 election was made.

3 ‘‘(b) ELECTION TO DEFER TAX.—

4 ‘‘(1) IN GENERAL.—If the taxpayer elects the ap5 plication of this subsection with respect to any prop6 erty—

7 ‘‘(A) no amount shall be required to be in8 cluded in gross income under subsection (a)(1)

9 with respect to the gain from such property for

10 the taxable year of the sale, but

11 ‘‘(B) the taxpayer’s tax for the taxable year

12 in which such property is disposed of shall be in13 creased by the deferred tax amount with respect

14 to the property.

15 Except to the extent provided in regulations, subpara16 graph (B) shall apply to a disposition whether or not

17 gain or loss is recognized in whole or in part on the

18 disposition.

19 ‘‘(2) DEFERRED TAX AMOUNT.—

20 ‘‘(A) IN GENERAL.—For purposes of para21 graph (1), the term ‘deferred tax amount’ means,

22 with respect to any property, an amount equal

23 to the sum of—

24 ‘‘(i) the difference between the amount

25 of tax paid for the taxable year described in
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1 paragraph (1)(A) and the amount which

2 would have been paid for such taxable year

3 if the election under paragraph (1) had not

4 applied to such property, plus

5 ‘‘(ii) an amount of interest on the

6 amount described in clause (i) determined

7 for the period—

8 ‘‘(I) beginning on the 91st day

9 after the expatriation date, and

10 ‘‘(II) ending on the due date for

11 the taxable year described in para12 graph (1)(B),

13 by using the rates and method applicable

14 under section 6621 for underpayments of

15 tax for such period.

16 For purposes of clause (ii), the due date is the

17 date prescribed by law (determined without re18 gard to extension) for filing the return of the tax

19 imposed by this chapter for the taxable year.

20 ‘‘(B) ALLOCATION OF LOSSES.—For pur21 poses of subparagraph (A), any losses described

22 in subsection (a)(2)(B) shall be allocated ratably

23 among the gains described in subsection

24 (a)(2)(A).

25 ‘‘(3) SECURITY.—
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1 ‘‘(A) IN GENERAL.—No election may be

2 made under paragraph (1) with respect to any

3 property unless adequate security is provided

4 with respect to such property.

5 ‘‘(B) ADEQUATE SECURITY.—For purposes

6 of subparagraph (A), security with respect to

7 any property shall be treated as adequate secu8 rity if—

9 ‘‘(i) it is a bond in an amount equal

10 to the deferred tax amount under paragraph

11 (2)(A) for the property, or

12 ‘‘(ii) the taxpayer otherwise establishes

13 to the satisfaction of the Secretary that the

14 security is adequate.

15 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No election

16 may be made under paragraph (1) unless the tax17 payer consents to the waiver of any right under any

18 treaty of the United States which would preclude as19 sessment or collection of any tax imposed by reason

20 of this section.

21 ‘‘(5) DISPOSITIONS.—For purposes of this sub22 section, a taxpayer making an election under this

23 subsection with respect to any property shall be treat24 ed as having disposed of such property—
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1 ‘‘(A) immediately before death if such prop2 erty is held at such time, and

3 ‘‘(B) at any time the security provided with

4 respect to the property fails to meet the require5 ments of paragraph (3) and the taxpayer does

6 not correct such failure within the time specified

7 by the Secretary.

8 ‘‘(6) ELECTIONS.—An election under paragraph

9 (1) shall only apply to property described in the elec10 tion and, once made, is irrevocable. An election may

11 be under paragraph (1) with respect to an interest in

12 a trust with respect to which gain is required to be

13 recognized under subsection (f)(1).

14 ‘‘(c) COVERED EXPATRIATE.—For purposes of this sec15 tion—

16 ‘‘(1) IN GENERAL.—The term ‘covered expatriate’

17 means an expatriate—

18 ‘‘(A) whose average annual net income tax

19 (as defined in section 38(c)(1)) for the period of

20 5 taxable years ending before the expatriation

21 date is greater than $100,000, or

22 ‘‘(B) whose net worth as of such date is

23 $500,000 or more.

24 If the expatriation date is after 1996, such $100,000

25 and $500,000 amounts shall be increased by an
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1 amount equal to such dollar amount multiplied by

2 the cost-of-living adjustment determined under section

3 1(f)(3) for such calendar year by substituting ‘1995’

4 for ‘1992’ in subparagraph (B) thereof. Any increase

5 under the preceding sentence shall be rounded to the

6 nearest multiple of $1,000.

7 ‘‘(2) EXCEPTIONS.—An individual shall not be

8 treated as a covered expatriate if—

9 ‘‘(A) the individual—

10 ‘‘(i) became at birth a citizen of the

11 United States and a citizen of another

12 country and, as of the expatriation date,

13 continues to be a citizen of, and is taxed as

14 a resident of, such other country, and

15 ‘‘(ii) has been a resident of the United

16 States (as defined in section

17 7701(b)(1)(A)(ii)) for not more than 8 tax18 able years during the 15-taxable year period

19 ending with the taxable year during which

20 the expatriation date occurs, or

21 ‘‘(B)(i) the individual’s relinquishment of

22 United States citizenship occurs before such individual attains age 181 23 ⁄2, and

24 ‘‘(ii) the individual has been a resident of

25 the United States (as so defined) for not more
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1 than 5 taxable years before the date of relin2 quishment.

3 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

4 purposes of this section—

5 ‘‘(1) IN GENERAL.—Except as otherwise provided

6 by the Secretary, this section shall apply to—

7 ‘‘(A) any interest in property held by a cov8 ered expatriate on the expatriation date the gain

9 from which would be includible in the gross in10 come of the expatriate if such interest had been

11 sold for its fair market value on such date in a

12 transaction in which gain is recognized in whole

13 or in part, and

14 ‘‘(B) any other interest in a trust to which

15 subsection (f) applies.

16 ‘‘(2) EXCEPTIONS.—This section shall not apply

17 to the following property:

18 ‘‘(A) UNITED STATES REAL PROPERTY IN19 TERESTS.—Any United States real property in20 terest (as defined in section 897(c)(1)), other

21 than stock of a United States real property hold22 ing corporation which does not, on the expatria23 tion date, meet the requirements of section

24 897(c)(2).
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1 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

2 PLANS.—

3 ‘‘(i) IN GENERAL.—Any interest in a

4 qualified retirement plan (as defined in sec5 tion 4974(c)), other than any interest at6 tributable to contributions which are in ex7 cess of any limitation or which violate any

8 condition for tax-favored treatment.

9 ‘‘(ii) FOREIGN PENSION PLANS.—

10 ‘‘(I) IN GENERAL.—Under regula11 tions prescribed by the Secretary, in12 terests in foreign pension plans or

13 similar retirement arrangements or

14 programs.

15 ‘‘(II) LIMITATION.—The value of

16 property which is treated as not sold

17 by reason of this subparagraph shall

18 not exceed $500,000.

19 ‘‘(e) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

21 means—

22 ‘‘(A) any United States citizen who relin23 quishes his citizenship, or

24 ‘‘(B) any long-term resident of the United

25 States who—
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1 ‘‘(i) ceases to be a lawful permanent

2 resident of the United States (within the

3 meaning of section 7701(b)(6)), or

4 ‘‘(ii) commences to be treated as a resi5 dent of a foreign country under the provi6 sions of a tax treaty between the United

7 States and the foreign country and who

8 does not waive the benefits of such treaty

9 applicable to residents of the foreign coun10 try.

11 ‘‘(2) EXPATRIATION DATE.—The term ‘expatria12 tion date’ means—

13 ‘‘(A) the date an individual relinquishes

14 United States citizenship, or

15 ‘‘(B) in the case of a long-term resident of

16 the United States, the date of the event described

17 in clause (i) or (ii) of paragraph (1)(B).

18 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A citi19 zen shall be treated as relinquishing his United States

20 citizenship on the earliest of—

21 ‘‘(A) the date the individual renounces his

22 United States nationality before a diplomatic or

23 consular officer of the United States pursuant to

24 paragraph (5) of section 349(a) of the Immigra25 tion and Nationality Act (8 U.S.C. 1481(a)(5)),
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1 ‘‘(B) the date the individual furnishes to the

2 United States Department of State a signed

3 statement of voluntary relinquishment of United

4 States nationality confirming the performance of

5 an act of expatriation specified in paragraph

6 (1), (2), (3), or (4) of section 349(a) of the Im7 migration and Nationality Act (8 U.S.C.

8 1481(a)(1)–(4)),

9 ‘‘(C) the date the United States Department

10 of State issues to the individual a certificate of

11 loss of nationality, or

12 ‘‘(D) the date a court of the United States

13 cancels a naturalized citizen’s certificate of natu14 ralization.

15 Subparagraph (A) or (B) shall not apply to any in16 dividual unless the renunciation or voluntary relin17 quishment is subsequently approved by the issuance to

18 the individual of a certificate of loss of nationality by

19 the United States Department of State.

20 ‘‘(4) LONG-TERM RESIDENT.—

21 ‘‘(A) IN GENERAL.—The term ‘long-term

22 resident’ means any individual (other than a cit23 izen of the United States) who is a lawful per24 manent resident of the United States in at least

25 8 taxable years during the period of 15 taxable
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1 years ending with the taxable year during which

2 the expatriation date occurs. For purposes of the

3 preceding sentence, an individual shall not be

4 treated as a lawful permanent resident for any

5 taxable year if such individual is treated as a

6 resident of a foreign country for the taxable year

7 under the provisions of a tax treaty between the

8 United States and the foreign country and does

9 not waive the benefits of such treaty applicable

10 to residents of the foreign country.

11 ‘‘(B) SPECIAL RULE.—For purposes of sub12 paragraph (A), there shall not be taken into ac13 count—

14 ‘‘(i) any taxable year during which

15 any prior sale is treated under subsection

16 (a)(1) as occurring, or

17 ‘‘(ii) any taxable year prior to the tax18 able year referred to in clause (i).

19 ‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’

20 INTERESTS IN TRUST.—

21 ‘‘(1) IN GENERAL.—Except as provided in para22 graph (2), if an individual is determined under para23 graph (3) to hold an interest in a trust—

24 ‘‘(A) the individual shall not be treated as

25 having sold such interest,
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1 ‘‘(B) such interest shall be treated as a sep2 arate share in the trust, and

3 ‘‘(C)(i) such separate share shall be treated

4 as a separate trust consisting of the assets alloca5 ble to such share,

6 ‘‘(ii) the separate trust shall be treated as

7 having sold its assets immediately before the ex8 patriation date for their fair market value and

9 as having distributed all of its assets to the indi10 vidual as of such time, and

11 ‘‘(iii) the individual shall be treated as hav12 ing recontributed the assets to the separate trust.

13 Subsection (a)(2) shall apply to any income, gain, or

14 loss of the individual arising from a distribution de15 scribed in subparagraph (C)(ii).

16 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI17 FIED TRUSTS.—

18 ‘‘(A) IN GENERAL.—If the trust interest de19 scribed in paragraph (1) is an interest in a

20 qualified trust—

21 ‘‘(i) paragraph (1) and subsection (a)

22 shall not apply, and

23 ‘‘(ii) in addition to any other tax im24 posed by this title, there is hereby imposed

25 on each distribution with respect to such in-
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1 terest a tax in the amount determined

2 under subparagraph (B).

3 ‘‘(B) AMOUNT OF TAX.—The amount of tax

4 under subparagraph (A)(ii) shall be equal to the

5 lesser of—

6 ‘‘(i) the highest rate of tax imposed by

7 section 1(e) for the taxable year in which

8 the expatriation date occurs, multiplied by

9 the amount of the distribution, or

10 ‘‘(ii) the balance in the deferred tax ac11 count immediately before the distribution

12 determined without regard to any increases

13 under subparagraph (C)(ii) after the 30th

14 day preceding the distribution.

15 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur16 poses of subparagraph (B)(ii)—

17 ‘‘(i) OPENING BALANCE.—The opening

18 balance in a deferred tax account with re19 spect to any trust interest is an amount

20 equal to the tax which would have been im21 posed on the allocable expatriation gain

22 with respect to the trust interest if such

23 gain had been included in gross income

24 under subsection (a).
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1 ‘‘(ii) INCREASE FOR INTEREST.—The

2 balance in the deferred tax account shall be

3 increased by the amount of interest deter4 mined (on the balance in the account at the

5 time the interest accrues), for periods after

6 the 90th day after the expatriation date, by

7 using the rates and method applicable

8 under section 6621 for underpayments of

9 tax for such periods.

10 ‘‘(iii) DECREASE FOR TAXES PRE11 VIOUSLY PAID.—The balance in the tax de12 ferred account shall be reduced—

13 ‘‘(I) by the amount of taxes im14 posed by subparagraph (A) on any dis15 tribution to the person holding the

16 trust interest, and

17 ‘‘(II) in the case of a person hold18 ing a nonvested interest, to the extent

19 provided in regulations, by the amount

20 of taxes imposed by subparagraph (A)

21 on distributions from the trust with re22 spect to nonvested interests not held by

23 such person.

24 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For

25 purposes of this paragraph, the allocable expa-
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1 triation gain with respect to any beneficiary’s

2 interest in a trust is the amount of gain which

3 would be allocable to such beneficiary’s vested

4 and nonvested interests in the trust if the bene5 ficiary held directly all assets allocable to such

6 interests.

7 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

8 ‘‘(i) IN GENERAL.—The tax imposed by

9 subparagraph (A)(ii) shall be deducted and

10 withheld by the trustees from the distribu11 tion to which it relates.

12 ‘‘(ii) EXCEPTION WHERE FAILURE TO

13 WAIVE TREATY RIGHTS.—If an amount may

14 not be deducted and withheld under clause

15 (i) by reason of the distributee failing to

16 waive any treaty right with respect to such

17 distribution—

18 ‘‘(I) the tax imposed by subpara19 graph (A)(ii) shall be imposed on the

20 trust and each trustee shall be person21 ally liable for the amount of such tax,

22 and

23 ‘‘(II) any other beneficiary of the

24 trust shall be entitled to recover from
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1 the distributee the amount of such tax

2 imposed on the other beneficiary.

3 ‘‘(F) DISPOSITION.—If a trust ceases to be

4 a qualified trust at any time, a covered expatri5 ate disposes of an interest in a qualified trust,

6 or a covered expatriate holding an interest in a

7 qualified trust dies, then, in lieu of the tax im8 posed by subparagraph (A)(ii), there is hereby

9 imposed a tax equal to the lesser of—

10 ‘‘(i) the tax determined under para11 graph (1) as if the expatriation date were

12 the date of such cessation, disposition, or

13 death, whichever is applicable, or

14 ‘‘(ii) the balance in the tax deferred ac15 count immediately before such date.

16 Such tax shall be imposed on the trust and each

17 trustee shall be personally liable for the amount

18 of such tax and any other beneficiary of the trust

19 shall be entitled to recover from the covered expa20 triate or the estate the amount of such tax im21 posed on the other beneficiary.

22 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

23 For purposes of this paragraph—

24 ‘‘(i) QUALIFIED TRUST.—The term

25 ‘qualified trust’ means a trust—
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1 ‘‘(I) which is organized under,

2 and governed by, the laws of the Unit3 ed States or a State, and

4 ‘‘(II) with respect to which the

5 trust instrument requires that at least

6 1 trustee of the trust be an individual

7 citizen of the United States or a do8 mestic corporation.

9 ‘‘(ii) VESTED INTEREST.—The term

10 ‘vested interest’ means any interest which,

11 as of the expatriation date, is vested in the

12 beneficiary.

13 ‘‘(iii) NONVESTED INTEREST.—The

14 term ‘nonvested interest’ means, with re15 spect to any beneficiary, any interest in a

16 trust which is not a vested interest. Such

17 interest shall be determined by assuming the

18 maximum exercise of discretion in favor of

19 the beneficiary and the occurrence of all

20 contingencies in favor of the beneficiary.

21 ‘‘(iv) ADJUSTMENTS.—The Secretary

22 may provide for such adjustments to the

23 bases of assets in a trust or a deferred tax

24 account, and the timing of such adjust-
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1 ments, in order to ensure that gain is taxed

2 only once.

3 ‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER4 EST IN TRUST.—

5 ‘‘(A) DETERMINATIONS UNDER PARAGRAPH

6 (1).—For purposes of paragraph (1), a bene7 ficiary’s interest in a trust shall be based upon

8 all relevant facts and circumstances, including

9 the terms of the trust instrument and any letter

10 of wishes or similar document, historical pat11 terns of trust distributions, and the existence of

12 and functions performed by a trust protector or

13 any similar advisor.

14 ‘‘(B) OTHER DETERMINATIONS.—For pur15 poses of this section—

16 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a

17 beneficiary of a trust is a corporation, part18 nership, trust, or estate, the shareholders,

19 partners, or beneficiaries shall be deemed to

20 be the trust beneficiaries for purposes of this

21 section.

22 ‘‘(ii) TAXPAYER RETURN POSITION.—A

23 taxpayer shall clearly indicate on its in24 come tax return—
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1 ‘‘(I) the methodology used to de2 termine that taxpayer’s trust interest

3 under this section, and

4 ‘‘(II) if the taxpayer knows (or

5 has reason to know) that any other

6 beneficiary of such trust is using a dif7 ferent methodology to determine such

8 beneficiary’s trust interest under this

9 section.

10 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the date

11 any property held by an individual is treated as sold under

12 subsection (a), notwithstanding any other provision of this

13 title—

14 ‘‘(1) any period during which recognition of in15 come or gain is deferred shall terminate, and

16 ‘‘(2) any extension of time for payment of tax

17 shall cease to apply and the unpaid portion of such

18 tax shall be due and payable at the time and in the

19 manner prescribed by the Secretary.

20 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

21 ‘‘(1) IN GENERAL.—If an individual is required

22 to include any amount in gross income under sub23 section (a) for any taxable year, there is hereby im24 posed, immediately before the expatriation date, a tax

25 in an amount equal to the amount of tax which
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1 would be imposed if the taxable year were a short tax2 able year ending on the expatriation date.

3 ‘‘(2) DUE DATE.—The due date for any tax im4 posed by paragraph (1) shall be the 90th day after the

5 expatriation date.

6 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

7 paragraph (1) shall be treated as a payment of the

8 tax imposed by this chapter for the taxable year to

9 which subsection (a) applies.

10 ‘‘(4) DEFERRAL OF TAX.—The provisions of sub11 section (b) shall apply to the tax imposed by this sub12 section to the extent attributable to gain includible in

13 gross income by reason of this section.

14 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

15 TAXES.—If subsection (a) applies to property held by an

16 individual for any taxable year and—

17 ‘‘(1) such property is includible in the gross es18 tate of such individual solely by reason of section

19 2107, or

20 ‘‘(2) section 2501 applies to a transfer of such

21 property by such individual solely by reason of sec22 tion 2501(a)(3),

23 then there shall be allowed as a credit against the additional

24 tax imposed by section 2101 or 2501, whichever is applica25 ble, solely by reason of section 2107 or 2501(a)(3) an
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1 amount equal to the increase in the tax imposed by this

2 chapter for such taxable year by reason of this section.

3 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section, including regula6 tions—

7 ‘‘(1) to prevent double taxation by ensuring

8 that—

9 ‘‘(A) appropriate adjustments are made to

10 basis to reflect gain recognized by reason of sub11 section (a) and the exclusion provided by sub12 section (a)(3), and

13 ‘‘(B) any gain by reason of a deemed sale

14 under subsection (a) of an interest in a corpora15 tion, partnership, trust, or estate is reduced to

16 reflect that portion of such gain which is attrib17 utable to an interest in a trust which a share18 holder, partner, or beneficiary is treated as hold19 ing directly under subsection (f)(3)(B)(i), and

20 ‘‘(2) which provide for the proper allocation of

21 the exclusion under subsection (a)(3) to property to

22 which this section applies.
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1 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’.

2 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT3 ANCES FROM COVERED EXPATRIATES.—Section 102 (relat4 ing to gifts, etc. not included in gross income) is amended

5 by adding at the end the following new subsection:

6 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX7 PATRIATES.—Subsection (a) shall not exclude from gross in8 come the value of any property acquired by gift, bequest,

9 devise, or inheritance from a covered expatriate after the

10 expatriation date. For purposes of this subsection, any term

11 used in this subsection which is also used in section 877A

12 shall have the same meaning as when used in section

13 877A.’’.

14 (c) DEFINITION OF TERMINATION OF UNITED STATES

15 CITIZENSHIP.—Section 7701(a) is amended by adding at

16 the end the following new paragraph:

17 ‘‘(47) TERMINATION OF UNITED STATES CITIZEN18 SHIP.—An individual shall not cease to be treated as

19 a United States citizen before the date on which the

20 individual’s citizenship is treated as relinquished

21 under section 877A(e)(3).’’.

22 (d) CONFORMING AMENDMENTS.—

23 (1) Section 877 is amended by adding at the end

24 the following new subsection:
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1 ‘‘(f) APPLICATION.—This section shall not apply to

2 any individual who relinquishes (within the meaning of

3 section 877A(e)(3)) United States citizenship on or after

4 February 6, 1995.’’.

5 (2) Section 2107(c) is amended by adding at the

6 end the following new paragraph:

7 ‘‘(3) CROSS REFERENCE.—For credit against the

8 tax imposed by subsection (a) for expatriation tax, see

9 section 877A(i).’’.

10 (3) Section 2501(a)(3) is amended by adding at

11 the end the following new flush sentence:

12 ‘‘For credit against the tax imposed under this section

13 by reason of this paragraph, see section 877A(i).’’.

14 (4) Paragraph (10) of section 7701(b) is amend15 ed by adding at the end the following new sentence:

16 ‘‘This paragraph shall not apply to any long-term

17 resident of the United States who is an expatriate (as

18 defined in section 877A(e)(1)).’’.

19 (e) CLERICAL AMENDMENT.—The table of sections for

20 subpart A of part II of subchapter N of chapter 1 is amend21 ed by inserting after the item relating to section 877 the

22 following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

23 (f) EFFECTIVE DATE.—

24 (1) IN GENERAL.—Except as provided in this

25 subsection, the amendments made by this section shall
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1 apply to expatriates (within the meaning of section

2 877A(e) of the Internal Revenue Code of 1986, as

3 added by this section) whose expatriation date (as so

4 defined) occurs on or after February 6, 1995.

5 (2) GIFTS AND BEQUESTS.—Section 102(d) of

6 the Internal Revenue Code of 1986 (as added by sub7 section (b)) shall apply to amounts received from ex8 patriates (as so defined) whose expatriation date (as

9 so defined) occurs on and after February 6, 1995.

10 (3) SPECIAL RULES RELATING TO CERTAIN ACTS

11 OCCURRING BEFORE FEBRUARY 6, 1995.—In the case

12 of an individual who took an act of expatriation spec13 ified in paragraph (1), (2), (3), or (4) of section

14 349(a) of the Immigration and Nationality Act (8

15 U.S.C. 1481(a) (1)–(4)) before February 6, 1995, but

16 whose expatriation date (as so defined) occurs after

17 February 6, 1995—

18 (A) the amendment made by subsection (c)

19 shall not apply,

20 (B) the amendment made by subsection

21 (d)(1) shall not apply for any period prior to the

22 expatriation date, and

23 (C) the other amendments made by this sec24 tion shall apply as of the expatriation date.
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1 (4) DUE DATE FOR TENTATIVE TAX.—The due

2 date under section 877A(h)(2) of such Code shall in

3 no event occur before the 90th day after the date of

4 the enactment of this Act.

5 SEC. 1632. INFORMATION ON INDIVIDUALS EXPATRIATING.

6 (a) IN GENERAL.—Subpart A of part III of subchapter

7 A of chapter 61 is amended by inserting after section 6039E

8 the following new section:

9 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT10 ING.

11 ‘‘(a) REQUIREMENT.—

12 ‘‘(1) IN GENERAL.—Notwithstanding any other

13 provision of law, any expatriate (within the meaning

14 of section 877A(e)(1)) shall provide a statement which

15 includes the information described in subsection (b).

16 ‘‘(2) TIMING.—

17 ‘‘(A) CITIZENS.—In the case of an expatri18 ate described in section 877(e)(1)(A), such state19 ment shall be—

20 ‘‘(i) provided not later than the expa21 triation date (within the meaning of section

22 877A(e)(2)), and

23 ‘‘(ii) provided to the person or court

24 referred to in section 877A(e)(3).
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1 ‘‘(B) NONCITIZENS.—In the case of an ex2 patriate described in section 877A(e)(1)(B), such

3 statement shall be provided to the Secretary with

4 the return of tax imposed by chapter 1 for the

5 taxable year during which the event described in

6 such section occurs.

7 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

8 required under subsection (a) shall include—

9 ‘‘(1) the taxpayer’s TIN,

10 ‘‘(2) the mailing address of such individual’s

11 principal foreign residence,

12 ‘‘(3) the foreign country in which such individ13 ual is residing,

14 ‘‘(4) the foreign country of which such individual

15 is a citizen,

16 ‘‘(5) in the case of an individual having a net

17 worth of at least the dollar amount applicable under

18 section 877A(c)(1)(B), information detailing the as19 sets and liabilities of such individual, and

20 ‘‘(6) such other information as the Secretary

21 may prescribe.

22 ‘‘(c) PENALTY.—Any individual failing to provide a

23 statement required under subsection (a) shall be subject to

24 a penalty for each year during any portion of which such

25 failure continues in an amount equal to the greater of—
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1 ‘‘(1) 5 percent of the additional tax required to

2 be paid under section 877A for such year, or

3 ‘‘(2) $1,000,

4 unless it is shown that such failure is due to reasonable

5 cause and not to willful neglect.

6 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC7 RETARY.—Notwithstanding any other provision of law—

8 ‘‘(1) any Federal agency or court which collects

9 (or is required to collect) the statement under sub10 section (a) shall provide to the Secretary—

11 ‘‘(A) a copy of any such statement, and

12 ‘‘(B) the name (and any other identifying

13 information) of any individual refusing to com14 ply with the provisions of subsection (a),

15 ‘‘(2) the Secretary of State shall provide to the

16 Secretary a copy of each certificate as to the loss of

17 American nationality under section 358 of the Immi18 gration and Nationality Act which is approved by the

19 Secretary of State, and

20 ‘‘(3) the Federal agency primarily responsible for

21 administering the immigration laws shall provide to

22 the Secretary the name of each lawful permanent resi23 dent of the United States (within the meaning of sec24 tion 7701(b)(6)) whose status as such has been re-
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1 voked or has been administratively or judicially de2 termined to have been abandoned.

3 Notwithstanding any other provision of law, not later than

4 30 days after the close of each calendar quarter, the Sec5 retary shall publish in the Federal Register the name of

6 each individual relinquishing United States citizenship

7 (within the meaning of section 877A(e)(3)) with respect to

8 whom the Secretary receives information under the preced9 ing sentence during such quarter.

10 ‘‘(e) EXEMPTION.—The Secretary may by regulations

11 exempt any class of individuals from the requirements of

12 this section if the Secretary determines that applying this

13 section to such individuals is not necessary to carry out

14 the purposes of this section.’’.

15 (b) CLERICAL AMENDMENT.—The table of sections for

16 such subpart A is amended by inserting after the item relat17 ing to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’.

18 (c) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to individuals to whom section 877A

20 of the Internal Revenue Code of 1986 applies and whose

21 expatriation date (as defined in section 877A(e)(2)) occurs

22 on or after February 6, 1995, except that no statement shall

23 be required by such amendments before the 90th day after

24 the date of the enactment of this Act.
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1 SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED

2 STATES CITIZENS AND RESIDENTS LIVING

3 ABROAD.

4 Not later than 90 days after the date of the enactment

5 of this Act, the Secretary of the Treasury shall prepare and

6 submit to the Committee on Ways and Means of the House

7 of Representatives and the Committee on Finance of the

8 Senate a report—

9 (1) describing the compliance with subtitle A of

10 the Internal Revenue Code of 1986 by citizens and

11 lawful permanent residents of the United States

12 (within the meaning of section 7701(b)(6) of such

13 Code) residing outside the United States, and

14 (2) recommending measures to improve such

15 compliance (including improved coordination between

16 executive branch agencies).

17 Subtitle F—Technical Corrections

18 SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

19 For purposes of applying the amendments made by

20 any subtitle of this title other than this subtitle, the provi21 sions of this subtitle shall be treated as having been enacted

22 immediately before the provisions of such other subtitles.

23 SEC. 1702. AMENDMENTS RELATED TO REVENUE REC24 ONCILIATION ACT OF 1990.

25 (a) AMENDMENTS RELATED TO SUBTITLE A.—
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1 (1) Subparagraph (B) of section 59(j)(3) is

2 amended by striking ‘‘section 1(i)(3)(B)’’ and insert3 ing ‘‘section 1(g)(3)(B)’’.

4 (2) Clause (i) of section 151(d)(3)(C) is amended

5 by striking ‘‘joint of a return’’ and inserting ‘‘joint

6 return’’.

7 (b) AMENDMENTS RELATED TO SUBTITLE B.—

8 (1) Paragraph (1) of section 11212(e) of the Rev9 enue Reconciliation Act of 1990 is amended by strik10 ing ‘‘Paragraph (1) of section 6724(d)’’ and inserting

11 ‘‘Subparagraph (B) of section 6724(d)(1)’’.

12 (2)(A) Subparagraph (B) of section 4093(c)(2),

13 as in effect before the amendments made by the Reve14 nue Reconciliation Act of 1993, is amended by insert15 ing before the period ‘‘unless such fuel is sold for ex16 clusive use by a State or any political subdivision

17 thereof’’.

18 (B) Paragraph (4) of section 6427(l), as in effect

19 before the amendments made by the Revenue Rec20 onciliation Act of 1993, is amended by inserting be21 fore the period ‘‘unless such fuel was used by a State

22 or any political subdivision thereof’’.

23 (3) Paragraph (1) of section 6416(b) is amended

24 by striking ‘‘chapter 32 or by section 4051’’ and in25 serting ‘‘chapter 31 or 32’’.
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1 (4) Section 7012 is amended—

2 (A) by striking ‘‘production or importation

3 of gasoline’’ in paragraph (3) and inserting

4 ‘‘taxes on gasoline and diesel fuel’’, and

5 (B) by striking paragraph (4) and redesig6 nating paragraphs (5) and (6) as paragraphs

7 (4) and (5), respectively.

8 (5) Subsection (c) of section 5041 is amended by

9 striking paragraph (6) and by inserting the following

10 new paragraphs:

11 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

12 ‘‘(A) wine produced by any person would be

13 eligible for any credit under paragraph (1) if re14 moved by such person during the calendar year,

15 ‘‘(B) wine produced by such person is re16 moved during such calendar year by any other

17 person (hereafter in this paragraph referred to as

18 the ‘transferee’) to whom such wine was trans19 ferred in bond and who is liable for the tax im20 posed by this section with respect to such wine,

21 and

22 ‘‘(C) such producer holds title to such wine

23 at the time of its removal and provides to the

24 transferee such information as is necessary to
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1 properly determine the transferee’s credit under

2 this paragraph,

3 then, the transferee (and not the producer) shall be al4 lowed the credit under paragraph (1) which would be

5 allowed to the producer if the wine removed by the

6 transferee had been removed by the producer on that

7 date.

8 ‘‘(7) REGULATIONS.—The Secretary may pre9 scribe such regulations as may be necessary to carry

10 out the purposes of this subsection, including regula11 tions—

12 ‘‘(A) to prevent the credit provided in this

13 subsection from benefiting any person who pro14 duces more than 250,000 wine gallons of wine

15 during a calendar year, and

16 ‘‘(B) to assure proper reduction of such

17 credit for persons producing more than 150,000

18 wine gallons of wine during a calendar year.’’.

19 (6) Paragraph (3) of section 5061(b) is amended

20 to read as follows:

21 ‘‘(3) section 5041(f),’’.

22 (7) Section 5354 is amended by inserting ‘‘(tak23 ing into account the appropriate amount of credit

24 with respect to such wine under section 5041(c))’’

25 after ‘‘any one time’’.
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1 (c) AMENDMENTS RELATED TO SUBTITLE C.—

2 (1) Paragraph (4) of section 56(g) is amended by

3 redesignating subparagraphs (I) and (J) as subpara4 graphs (H) and (I), respectively.

5 (2) Subparagraph (B) of section 6724(d)(1) is

6 amended—

7 (A) by striking ‘‘or’’ at the end of clause

8 (xii), and

9 (B) by striking the period at the end of

10 clause (xiii) and inserting ‘‘, or’’.

11 (3) Subsection (g) of section 6302 is amended by

12 inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

13 (4) The earnings and profits of any insurance

14 company to which section 11305(c)(3) of the Revenue

15 Reconciliation Act of 1990 applies shall be deter16 mined without regard to any deduction allowed under

17 such section; except that, for purposes of applying sec18 tions 56 and 902, and subpart F of part III of sub19 chapter N of chapter 1 of the Internal Revenue Code

20 of 1986, such deduction shall be taken into account.

21 (5) Subparagraph (D) of section 6038A(e)(4) is

22 amended—

23 (A) by striking ‘‘any transaction to which

24 the summons relates’’ and inserting ‘‘any af25 fected taxable year’’, and
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1 (B) by adding at the end thereof the follow2 ing new sentence: ‘‘For purposes of this subpara3 graph, the term ‘affected taxable year’ means

4 any taxable year if the determination of the

5 amount of tax imposed for such taxable year is

6 affected by the treatment of the transaction to

7 which the summons relates.’’.

8 (6) Subparagraph (A) of section 6621(c)(2) is

9 amended by adding at the end thereof the following

10 new flush sentence:

11 ‘‘The preceding sentence shall be applied without

12 regard to any such letter or notice which is with13 drawn by the Secretary.’’.

14 (7) Clause (i) of section 6621(c)(2)(B) is amend15 ed by striking ‘‘this subtitle’’ and inserting ‘‘this

16 title’’.

17 (d) AMENDMENTS RELATED TO SUBTITLE D.—

18 (1) Notwithstanding section 11402(c) of the Rev19 enue Reconciliation Act of 1990, the amendment

20 made by section 11402(b)(1) of such Act shall apply

21 to taxable years ending after December 31, 1989.

22 (2) Clause (ii) of section 143(m)(4)(C) is amend23 ed—
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1 (A) by striking ‘‘any month of the 10-year

2 period’’ and inserting ‘‘any year of the 4-year

3 period’’,

4 (B) by striking ‘‘succeeding months’’ and

5 inserting ‘‘succeeding years’’, and

6 (C) by striking ‘‘over the remainder of such

7 period (or, if lesser, 5 years)’’ and inserting ‘‘to

8 zero over the succeeding 5 years’’.

9 (e) AMENDMENTS RELATED TO SUBTITLE E.—

10 (1)(A) Clause (ii) of section 56(d)(1)(B) is

11 amended to read as follows:

12 ‘‘(ii) appropriate adjustments in the

13 application of section 172(b)(2) shall be

14 made to take into account the limitation of

15 subparagraph (A).’’.

16 (B) For purposes of applying sections 56(g)(1)

17 and 56(g)(3) of the Internal Revenue Code of 1986

18 with respect to taxable years beginning in 1991 and

19 1992, the reference in such sections to the alternative

20 tax net operating loss deduction shall be treated as

21 including a reference to the deduction under section

22 56(h) of such Code as in effect before the amendments

23 made by section 1915 of the Energy Policy Act of

24 1992.
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1 (2) Clause (i) of section 613A(c)(3)(A) is amend2 ed by striking ‘‘the table contained in’’.

3 (3) Section 6501 is amended—

4 (A) by striking subsection (m) (relating to

5 deficiency attributable to election under section

6 44B) and by redesignating subsections (n) and

7 (o) as subsections (m) and (n), respectively, and

8 (B) by striking ‘‘section 40(f) or 51(j)’’ in

9 subsection (m) (as redesignated by subparagraph

10 (A)) and inserting ‘‘section 40(f), 43, or 51(j)’’.

11 (4) Subparagraph (C) of section 38(c)(2) (as in

12 effect on the day before the date of the enactment of

13 the Revenue Reconciliation Act of 1990) is amended

14 by inserting before the period at the end of the first

15 sentence the following: ‘‘and without regard to the de16 duction under section 56(h)’’.

17 (5) The amendment made by section

18 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

19 shall apply to taxable years beginning after December

20 31, 1990.

21 (f) AMENDMENTS RELATED TO SUBTITLE F.—

22 (1)(A) Section 2701(a)(3) is amended by adding

23 at the end thereof the following new subparagraph:

24 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

25 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the
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1 case of an applicable retained interest which is

2 described in subparagraph (B)(i) but not sub3 paragraph (B)(ii), the value of the distribution

4 right shall be determined without regard to this

5 section.’’.

6 (B) Section 2701(a)(3)(B) is amended by insert7 ing ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the heading

8 thereof.

9 (C) Sections 2701 (d)(1) and (d)(4) are each

10 amended by striking ‘‘subsection (a)(3)(B)’’ and in11 serting ‘‘subsection (a)(3) (B) or (C)’’.

12 (2) Clause (i) of section 2701(a)(4)(B) is amend13 ed by inserting ‘‘(or, to the extent provided in regula14 tions, the rights as to either income or capital)’’ after

15 ‘‘income and capital’’.

16 (3)(A) Section 2701(e)(3) is amended—

17 (i) by striking subparagraph (B), and

18 (ii) by striking so much of paragraph (3) as

19 precedes ‘‘shall be treated as holding’’ and insert20 ing:

21 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS AND

22 TRANSFERS.—An individual’’.

23 (B) Section 2704(c)(3) is amended by striking

24 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

25 2701(e)(3)’’.
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1 (4) Clause (i) of section 2701(c)(1)(B) is amend2 ed to read as follows:

3 ‘‘(i) a right to distributions with re4 spect to any interest which is junior to the

5 rights of the transferred interest,’’.

6 (5)(A) Clause (i) of section 2701(c)(3)(C) is

7 amended to read as follows:

8 ‘‘(i) IN GENERAL.—Payments under

9 any interest held by a transferor which

10 (without regard to this subparagraph) are

11 qualified payments shall be treated as

12 qualified payments unless the transferor

13 elects not to treat such payments as quali14 fied payments. Payments described in the

15 preceding sentence which are held by an ap16 plicable family member shall be treated as

17 qualified payments only if such member

18 elects to treat such payments as qualified

19 payments.’’.

20 (B) The first sentence of section 2701(c)(3)(C)(ii)

21 is amended to read as follows: ‘‘A transferor or appli22 cable family member holding any distribution right

23 which (without regard to this subparagraph) is not a

24 qualified payment may elect to treat such right as a
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1 qualified payment, to be paid in the amounts and at

2 the times specified in such election.’’.

3 (C) The time for making an election under the

4 second sentence of section 2701(c)(3)(C)(i) of the In5 ternal Revenue Code of 1986 (as amended by sub6 paragraph (A)) shall not expire before the due date

7 (including extensions) for filing the transferor’s re8 turn of the tax imposed by section 2501 of such Code

9 for the first calendar year ending after the date of en10 actment.

11 (6) Section 2701(d)(3)(A)(iii) is amended by

12 striking ‘‘the period ending on the date of’’.

13 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

14 amended by inserting ‘‘or the exclusion under section

15 2503(b),’’ after ‘‘section 2523,’’.

16 (8) Section 2701(e)(5) is amended—

17 (A) by striking ‘‘such contribution to cap18 ital or such redemption, recapitalization, or

19 other change’’ in subparagraph (A) and insert20 ing ‘‘such transaction’’, and

21 (B) by striking ‘‘the transfer’’ in subpara22 graph (B) and inserting ‘‘such transaction’’.

23 (9) Section 2701(d)(4) is amended by adding at

24 the end thereof the following new subparagraph:
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1 ‘‘(C) TRANSFER TO TRANSFERORS.—In the

2 case of a taxable event described in paragraph

3 (3)(A)(ii) involving a transfer of an applicable

4 retained interest from an applicable family

5 member to a transferor, this subsection shall con6 tinue to apply to the transferor during any pe7 riod the transferor holds such interest.’’.

8 (10) Section 2701(e)(6) is amended by inserting

9 ‘‘or to reflect the application of subsection (d)’’ before

10 the period at the end thereof.

11 (11)(A) Section 2702(a)(3)(A) is amended—

12 (i) by striking ‘‘to the extent’’ and inserting

13 ‘‘if’’ in clause (i),

14 (ii) by striking ‘‘or’’ at the end of clause (i),

15 (iii) by striking the period at the end of

16 clause (ii) and inserting ‘‘, or’’, and

17 (iv) by adding at the end thereof the follow18 ing new clause:

19 ‘‘(iii) to the extent that regulations

20 provide that such transfer is not inconsist21 ent with the purposes of this section.’’.

22 (B)(i) Section 2702(a)(3) is amended by striking

23 ‘‘incomplete transfer’’ each place it appears and in24 serting ‘‘incomplete gift’’.
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1 (ii) The heading for section 2702(a)(3)(B) is

2 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

3 inserting ‘‘INCOMPLETE GIFT’’.

4 (g) AMENDMENTS RELATED TO SUBTITLE G.—

5 (1)(A) Subsection (a) of section 1248 is amend6 ed—

7 (i) by striking ‘‘, or if a United States per8 son receives a distribution from a foreign cor9 poration which, under section 302 or 331, is

10 treated as an exchange of stock’’ in paragraph

11 (1), and

12 (ii) by adding at the end thereof the follow13 ing new sentence: ‘‘For purposes of this section,

14 a United States person shall be treated as having

15 sold or exchanged any stock if, under any provi16 sion of this subtitle, such person is treated as re17 alizing gain from the sale or exchange of such

18 stock.’’.

19 (B) Paragraph (1) of section 1248(e) is amended

20 by striking ‘‘, or receives a distribution from a domes21 tic corporation which, under section 302 or 331, is

22 treated as an exchange of stock’’.

23 (C) Subparagraph (B) of section 1248(f)(1) is

24 amended by striking ‘‘or 361(c)(1)’’ and inserting

25 ‘‘355(c)(1), or 361(c)(1)’’.
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1 (D) Paragraph (1) of section 1248(i) is amended

2 to read as follows:

3 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

4 percent corporate shareholder of a foreign corporation

5 exchanges stock of the 10-percent corporate share6 holder for stock of the foreign corporation, such 10-

7 percent corporate shareholder shall recognize gain in

8 the same manner as if the stock of the foreign cor9 poration received in such exchange had been—

10 ‘‘(A) issued to the 10-percent corporate

11 shareholder, and

12 ‘‘(B) then distributed by the 10-percent cor13 porate shareholder to such shareholder in re14 demption or liquidation (whichever is appro15 priate).

16 The amount of gain recognized by such 10-percent

17 corporate shareholder under the preceding sentence

18 shall not exceed the amount treated as a dividend

19 under this section.’’.

20 (2) Section 897 is amended by striking sub21 section (f).

22 (3) Paragraph (13) of section 4975(d) is amend23 ed by striking ‘‘section 408(b)’’ and inserting ‘‘section

24 408(b)(12)’’.
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1 (4) Clause (iii) of section 56(g)(4)(D) is

2 amended by inserting ‘‘, but only with respect to tax3 able years beginning after December 31, 1989’’ before

4 the period at the end thereof.

5 (5)(A) Paragraph (11) of section 11701(a) of the

6 Revenue Reconciliation Act of 1990 (and the amend7 ment made by such paragraph) are hereby repealed,

8 and section 7108(r)(2) of the Revenue Reconciliation

9 Act of 1989 shall be applied as if such paragraph

10 (and amendment) had never been enacted.

11 (B) Subparagraph (A) shall not apply to any

12 building if the owner of such building establishes to

13 the satisfaction of the Secretary of the Treasury or his

14 delegate that such owner reasonably relied on the

15 amendment made by such paragraph (11).

16 (h) AMENDMENTS RELATED TO SUBTITLE H.—

17 (1)(A) Clause (vi) of section 168(e)(3)(B) is

18 amended by striking ‘‘or’’ at the end of subclause (I),

19 by striking the period at the end of subclause (II) and

20 inserting ‘‘, or’’, and by adding at the end thereof the

21 following new subclause:

22 ‘‘(III) is described in section

23 48(l)(3)(A)(ix) (as in effect on the day

24 before the date of the enactment of the

25 Revenue Reconciliation Act of 1990).’’.
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1 (B) Subparagraph (B) of section 168(e)(3) (re2 lating to 5-year property) is amended by adding at

3 the end the following flush sentence:

4 ‘‘Nothing in any provision of law shall be con5 strued to treat property as not being described in

6 clause (vi)(I) (or the corresponding provisions of

7 prior law) by reason of being public utility

8 property (within the meaning of section

9 48(a)(3)).’’.

10 (C) Subparagraph (K) of section 168(g)(4) is

11 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

12 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

13 day before the date of the enactment of the Revenue

14 Reconciliation Act of 1990)’’.

15 (2) Clause (ii) of section 172(b)(1)(E) is amend16 ed by striking ‘‘subsection (m)’’ and inserting ‘‘sub17 section (h)’’.

18 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

19 and 832(b)(5)(D)(ii)(II) are each amended by strik20 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

21 (4) Subparagraph (A) of section 243(b)(3) is

22 amended by inserting ‘‘of’’ after ‘‘In the case’’.

23 (5) The subsection heading for subsection (a) of

24 section 280F is amended by striking ‘‘INVESTMENT

25 TAX CREDIT AND’’.
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1 (6) Clause (i) of section 1504(c)(2)(B) is amend2 ed by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

3 (7) Paragraph (3) of section 341(f) is amended

4 by striking ‘‘351, 361, 371(a), or 374(a)’’ and insert5 ing ‘‘351, or 361’’.

6 (8) Paragraph (2) of section 243(b) is amended

7 to read as follows:

8 ‘‘(2) AFFILIATED GROUP.—For purposes of this

9 subsection:

10 ‘‘(A) IN GENERAL.—The term ‘affiliated

11 group’ has the meaning given such term by sec12 tion 1504(a), except that for such purposes sec13 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

14 not apply.

15 ‘‘(B) GROUP MUST BE CONSISTENT IN FOR16 EIGN TAX TREATMENT.—The requirements of

17 paragraph (1)(A) shall not be treated as being

18 met with respect to any dividend received by a

19 corporation if, for any taxable year which in20 cludes the day on which such dividend is re21 ceived—

22 ‘‘(i) 1 or more members of the affili23 ated group referred to in paragraph (1)(A)

24 choose to any extent to take the benefits of

25 section 901, and
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1 ‘‘(ii) 1 or more other members of such

2 group claim to any extent a deduction for

3 taxes otherwise creditable under section

4 901.’’.

5 (9) The amendment made by section

6 11813(b)(17) of the Revenue Reconciliation Act of

7 1990 shall be applied as if the material stricken by

8 such amendment included the closing parenthesis

9 after ‘‘section 48(a)(5)’’.

10 (10) Paragraph (1) of section 179(d) is amended

11 by striking ‘‘in a trade or business’’ and inserting ‘‘a

12 trade or business’’.

13 (11) Subparagraph (E) of section 50(a)(2) is

14 amended by striking ‘‘section 48(a)(5)(A)’’ and in15 serting ‘‘section 48(a)(5)’’.

16 (12) The amendment made by section

17 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

18 of 1990 shall be applied as if it struck ‘‘Section

19 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

20 (13) Subparagraph (B) of section 424(c)(3) is

21 amended by striking ‘‘a qualified stock option, an in22 centive stock option, an option granted under an em23 ployee stock purchase plan, or a restricted stock op24 tion’’ and inserting ‘‘an incentive stock option or an
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1 option granted under an employee stock purchase

2 plan’’.

3 (14) Subparagraph (E) of section 1367(a)(2) is

4 amended by striking ‘‘section 613A(c)(13)(B)’’ and

5 inserting ‘‘section 613A(c)(11)(B)’’.

6 (15) Subparagraph (B) of section 460(e)(6) is

7 amended by striking ‘‘section 167(k)’’ and inserting

8 ‘‘section 168(e)(2)(A)(ii)’’.

9 (16) Subparagraph (C) of section 172(h)(4) is

10 amended by striking ‘‘subsection (b)(1)(M)’’ and in11 serting ‘‘subsection (b)(1)(E)’’.

12 (17) Section 6503 is amended—

13 (A) by redesignating the subsection relating

14 to extension in case of certain summonses as sub15 section (j), and

16 (B) by redesignating the subsection relating

17 to cross references as subsection (k).

18 (18) Paragraph (4) of section 1250(e) is hereby

19 repealed.

20 (19) Paragraph (1) of section 179(d) is amended

21 by adding at the end the following new sentence:

22 ‘‘Such term shall not include any property described

23 in section 50(b) and shall not include air condi24 tioning or heating units.’’.
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1 (i) EFFECTIVE DATE.—Except as otherwise expressly

2 provided—

3 (1) the amendments made by this section shall be

4 treated as amendments to the Internal Revenue Code

5 of 1986 as amended by the Revenue Reconciliation

6 Act of 1993; and

7 (2) any amendment made by this section shall

8 apply to periods before the date of the enactment of

9 this section in the same manner as if it had been in10 cluded in the provision of the Revenue Reconciliation

11 Act of 1990 to which such amendment relates.

12 SEC. 1703. AMENDMENTS RELATED TO REVENUE REC13 ONCILIATION ACT OF 1993.

14 (a) AMENDMENT RELATED TO SECTION 13114.—

15 Paragraph (2) of section 1044(c) is amended to read as fol16 lows:

17 ‘‘(2) PURCHASE.—The taxpayer shall be consid18 ered to have purchased any property if, but for sub19 section (d), the unadjusted basis of such property

20 would be its cost within the meaning of section

21 1012.’’.

22 (b) AMENDMENTS RELATED TO SECTION 13142.—

23 (1) Subparagraph (B) of section 13142(b)(6) of

24 the Revenue Reconciliation Act of 1993 is amended to

25 read as follows:
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1 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU2 THORITY, AND PROHIBITED DISCRIMINATION.—

3 The amendments made by paragraphs (2), (3),

4 and (4) shall take effect on the date of the enact5 ment of this Act.’’.

6 (2) Subparagraph (C) of section 13142(b)(6) of

7 such Act is amended by striking ‘‘paragraph (2)’’ and

8 inserting ‘‘paragraph (5)’’.

9 (c) AMENDMENT RELATED TO SECTION 13161.—

10 (1) IN GENERAL.—Subsection (e) of section 4001

11 (relating to inflation adjustment) is amended to read

12 as follows:

13 ‘‘(e) INFLATION ADJUSTMENT.—

14 ‘‘(1) IN GENERAL.—The $30,000 amount in sub15 section (a) and section 4003(a) shall be increased by

16 an amount equal to—

17 ‘‘(A) $30,000, multiplied by

18 ‘‘(B) the cost-of-living adjustment under sec19 tion 1(f)(3) for the calendar year in which the

20 vehicle is sold, determined by substituting ‘cal21 endar year 1990’ for ‘calendar year 1992’ in

22 subparagraph (B) thereof.

23 ‘‘(2) ROUNDING.—If any amount as adjusted

24 under paragraph (1) is not a multiple of $2,000, such
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1 amount shall be rounded to the next lowest multiple

2 of $2,000.’’.

3 (2) EFFECTIVE DATE.—The amendment made by

4 paragraph (1) shall take effect on the date of the en5 actment of this Act.

6 (d) AMENDMENT RELATED TO SECTION 13201.—

7 Clause (ii) of section 135(b)(2)(B) is amended by inserting

8 before the period at the end thereof the following: ‘‘, deter9 mined by substituting ‘calendar year 1989’ for ‘calendar

10 year 1992’ in subparagraph (B) thereof’’.

11 (e) AMENDMENTS RELATED TO SECTION 13203.—Sub12 section (a) of section 59 is amended—

13 (1) by striking ‘‘the amount determined under

14 section 55(b)(1)(A)’’ in paragraph (1)(A) and

15 (2)(A)(i) and inserting ‘‘the pre-credit tentative mini16 mum tax’’,

17 (2) by striking ‘‘specified in section 55(b)(1)(A)’’

18 in paragraph (1)(C) and inserting ‘‘specified in sub19 paragraph (A)(i) or (B)(i) of section 55(b)(1) (which20 ever applies)’’,

21 (3) by striking ‘‘which would be determined

22 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

23 and inserting ‘‘which would be the pre-credit tentative

24 minimum tax’’, and
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1 (4) by adding at the end thereof the following

2 new paragraph:

3 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

4 For purposes of this subsection, the term ‘pre-credit

5 tentative minimum tax’ means—

6 ‘‘(A) in the case of a taxpayer other than a

7 corporation, the amount determined under the

8 first sentence of section 55(b)(1)(A)(i), or

9 ‘‘(B) in the case of a corporation, the

10 amount determined under section

11 55(b)(1)(B)(i).’’.

12 (f) AMENDMENT RELATED TO SECTION 13221.—Sec13 tions 1201(a) and 1561(a) are each amended by striking

14 ‘‘last sentence’’ each place it appears and inserting ‘‘last

15 2 sentences’’.

16 (g) AMENDMENTS RELATED TO SECTION 13222.—

17 (1) Subparagraph (B) of section 6033(e)(1) is

18 amended by adding at the end thereof the following

19 new clause:

20 ‘‘(iii) COORDINATION WITH SECTION

21 527(f).—This subsection shall not apply to

22 any amount on which tax is imposed by

23 reason of section 527(f).’’.
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1 (2) Clause (i) of section 6033(e)(1)(B) is amend2 ed by striking ‘‘this subtitle’’ and inserting ‘‘section

3 501’’.

4 (h) AMENDMENT RELATED TO SECTION 13225.—Para5 graph (3) of section 6655(g) is amended by striking all that

6 follows ‘‘ ‘3rd month’ ’’ in the sentence following subpara7 graph (C) and inserting ‘‘, subsection (e)(2)(A) shall be ap8 plied by substituting ‘2 months’ for ‘3 months’ in clause

9 (i)(I), the election under clause (i) of subsection (e)(2)(C)

10 may be made separately for each installment, and clause

11 (ii) of subsection (e)(2)(C) shall not apply.’’.

12 (i) AMENDMENTS RELATED TO SECTION 13231.—

13 (1) Subparagraph (G) of section 904(d)(3) is

14 amended by striking ‘‘section 951(a)(1)(B)’’ and in15 serting ‘‘subparagraph (B) or (C) of section

16 951(a)(1)’’.

17 (2) Paragraph (1) of section 956A(b) is amended

18 to read as follows:

19 ‘‘(1) the amount (not including a deficit) re20 ferred to in section 316(a)(1) to the extent such

21 amount was accumulated in prior taxable years be22 ginning after September 30, 1993, and’’.

23 (3) Subsection (f) of section 956A is amended by

24 inserting before the period at the end thereof: ‘‘and
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1 regulations coordinating the provisions of subsections

2 (c)(3)(A) and (d)’’.

3 (4) Subsection (b) of section 958 is amended by

4 striking ‘‘956(b)(2)’’ each place it appears and insert5 ing ‘‘956(c)(2)’’.

6 (5)(A) Subparagraph (A) of section 1297(d)(2) is

7 amended by striking ‘‘The adjusted basis of any

8 asset’’ and inserting ‘‘The amount taken into account

9 under section 1296(a)(2) with respect to any asset’’.

10 (B) The paragraph heading of paragraph (2) of

11 section 1297(d) is amended to read as follows:

12 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.

13 (6) Subsection (e) of section 1297 is amended by

14 inserting ‘‘For purposes of this part—’’ after the sub15 section heading.

16 (j) AMENDMENT RELATED TO SECTION 13241.—Sub17 paragraph (B) of section 40(e)(1) is amended to read as

18 follows:

19 ‘‘(B) for any period before January 1, 2001,

20 during which the rates of tax under section

21 4081(a)(2)(A) are 4.3 cents per gallon.’’.

22 (k) AMENDMENT RELATED TO SECTION 13242.—Para23 graph (4) of section 6427(f) is amended by striking ‘‘1995’’

24 and inserting ‘‘1999’’.
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1 (l) AMENDMENT RELATED TO SECTION 13261.—

2 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec3 onciliation Act of 1993 is amended by striking ‘‘by the tax4 payer’’ and inserting ‘‘by the taxpayer or a related person’’.

5 (m) AMENDMENT RELATED TO SECTION 13301.—Sub6 paragraph (B) of section 1397B(d)(5) is amended by strik7 ing ‘‘preceding’’.

8 (n) CLERICAL AMENDMENTS.—

9 (1) Subsection (d) of section 39 is amended—

10 (A) by striking ‘‘45’’ in the heading of

11 paragraph (5) and inserting ‘‘45A’’, and

12 (B) by striking ‘‘45’’ in the heading of

13 paragraph (6) and inserting ‘‘45B’’.

14 (2) Subparagraph (A) of section 108(d)(9) is

15 amended by striking ‘‘paragraph (3)(B)’’ and insert16 ing ‘‘paragraph (3)(C)’’.

17 (3) Subparagraph (C) of section 143(d)(2) is

18 amended by striking the period at the end thereof and

19 inserting a comma.

20 (4) Clause (ii) of section 163(j)(6)(E) is amended

21 by striking ‘‘which is a’’ and inserting ‘‘which is’’.

22 (5) Subparagraph (A) of section 1017(b)(4) is

23 amended by striking ‘‘subsection (b)(2)(D)’’ and in24 serting ‘‘subsection (b)(2)(E)’’.
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1 (6) So much of section 1245(a)(3) as precedes

2 subparagraph (A) thereof is amended to read as fol3 lows:

4 ‘‘(3) SECTION 1245 PROPERTY.—For purposes of

5 this section, the term ‘section 1245 property’ means

6 any property which is or has been property of a char7 acter subject to the allowance for depreciation pro8 vided in section 167 and is either—’’.

9 (7) Paragraph (2) of section 1394(e) is amend10 ed—

11 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

12 and

13 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.

14 (8) Subsection (m) of section 6501 (as redesig15 nated by section 1602) is amended by striking ‘‘or

16 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

17 (9)(A) The section 6714 added by section

18 13242(b)(1) of the Revenue Reconciliation Act of 1993

19 is hereby redesignated as section 6715.

20 (B) The table of sections for part I of subchapter

21 B of chapter 68 is amended by striking ‘‘6714’’ in the

22 item added by such section 13242(b)(2) of such Act

23 and inserting ‘‘6715’’.

24 (10) Paragraph (2) of section 9502(b) is amend25 ed by inserting ‘‘and before’’ after ‘‘1982,’’.
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1 (11) Subsection (a)(3) of section 13206 of the

2 Revenue Reconciliation Act of 1993 is amended by

3 striking ‘‘this section’’ and inserting ‘‘this sub4 section’’.

5 (12) Paragraph (1) of section 13215(c) of the

6 Revenue Reconciliation Act of 1993 is amended by

7 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

8 Law 98–21’’.

9 (13) Paragraph (2) of section 13311(e) of the

10 Revenue Reconciliation Act of 1993 is amended by

11 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

12 1393(a)(2)’’.

13 (14) Subparagraph (B) of section 117(d)(2) is

14 amended by striking ‘‘section 132(f)’’ and inserting

15 ‘‘section 132(h)’’.

16 (o) EFFECTIVE DATE.—Any amendment made by this

17 section shall take effect as if included in the provision of

18 the Revenue Reconciliation Act of 1993 to which such

19 amendment relates.

20 SEC. 1704. MISCELLANEOUS PROVISIONS.

21 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

22 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

23 1990.—Except as otherwise expressly provided, whenever in

24 title XII of the Omnibus Budget Reconciliation Act of 1990

25 an amendment or repeal is expressed in terms of an amend-
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1 ment to, or repeal of, a section or other provision, the ref2 erence shall be considered to be made to a section or other

3 provision of the Internal Revenue Code of 1986.

4 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

5 HEDGE BOND RULES.—

6 (1) Clause (iii) of section 149(g)(3)(B) is amend7 ed to read as follows:

8 ‘‘(iii) AMOUNTS HELD PENDING REIN9 VESTMENT OR REDEMPTION.—Amounts held

10 for not more than 30 days pending reinvest11 ment or bond redemption shall be treated as

12 invested in bonds described in clause (i).’’.

13 (2) The amendment made by paragraph (1) shall

14 take effect as if included in the amendments made by

15 section 7651 of the Omnibus Budget Reconciliation

16 Act of 1989.

17 (c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER

18 SECTION 1445.—

19 (1) IN GENERAL.—Paragraph (3) of section

20 1445(e) is amended by adding at the end thereof the

21 following new sentence: ‘‘Rules similar to the rules of

22 the preceding provisions of this paragraph shall

23 apply in the case of any distribution to which section

24 301 applies and which is not made out of the earn25 ings and profits of such a domestic corporation.’’.
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1 (2) EFFECTIVE DATE.—The amendment made by

2 paragraph (1) shall apply to distributions after the

3 date of the enactment of this Act.

4 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC5 TION 469.—

6 (1) IN GENERAL.—Subparagraph (B) of section

7 469(c)(3) is amended by adding at the end thereof the

8 following new sentence: ‘‘If the preceding sentence ap9 plies to the net income from any property for any

10 taxable year, any credits allowable under subpart B

11 (other than section 27(a)) or D of part IV of sub12 chapter A for such taxable year which are attributable

13 to such property shall be treated as credits not from

14 a passive activity to the extent the amount of such

15 credits does not exceed the regular tax liability of the

16 taxpayer for the taxable year which is allocable to

17 such net income.’’.

18 (2) EFFECTIVE DATE.—The amendment made by

19 paragraph (1) shall apply to taxable years beginning

20 after December 31, 1986.

21 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

22 LOSS RULES.—

23 (1) IN GENERAL.—Subparagraph (A) of section

24 469(g)(1) is amended to read as follows:
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1 ‘‘(A) IN GENERAL.—If all gain or loss real2 ized on such disposition is recognized, the excess

3 of—

4 ‘‘(i) any loss from such activity for

5 such taxable year (determined after the ap6 plication of subsection (b)), over

7 ‘‘(ii) any net income or gain for such

8 taxable year from all other passive activities

9 (determined after the application of sub10 section (b)),

11 shall be treated as a loss which is not from a

12 passive activity.’’.

13 (2) EFFECTIVE DATE.—The amendment made by

14 paragraph (1) shall apply to taxable years beginning

15 after December 31, 1986.

16 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN PRO17 VISIONS.—

18 (1) COORDINATION OF UNIFIED ESTATE TAX

19 CREDIT WITH TREATIES.—Subparagraph (A) of sec20 tion 2102(c)(3) is amended by adding at the end

21 thereof the following new sentence: ‘‘For purposes of

22 the preceding sentence, property shall not be treated

23 as situated in the United States if such property is

24 exempt from the tax imposed by this subchapter

25 under any treaty obligation of the United States.’’.
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1 (2) TREATMENT OF CERTAIN INTEREST PAID TO

2 RELATED PERSON.—

3 (A) Subparagraph (B) of section 163(j)(1)

4 is amended by inserting before the period at the

5 end thereof the following: ‘‘(and clause (ii) of

6 paragraph (2)(A) shall not apply for purposes of

7 applying this subsection to the amount so treat8 ed)’’.

9 (B) Subsection (j) of section 163 is amended

10 by redesignating paragraph (7) as paragraph

11 (8) and by inserting after paragraph (6) the fol12 lowing new paragraph:

13 ‘‘(7) COORDINATION WITH PASSIVE LOSS RULES,

14 ETC.—This subsection shall be applied before sections

15 465 and 469.’’.

16 (C) The amendments made by this para17 graph shall apply as if included in the amend18 ments made by section 7210(a) of the Revenue

19 Reconciliation Act of 1989.

20 (3) TREATMENT OF INTEREST ALLOCABLE TO

21 EFFECTIVELY CONNECTED INCOME.—

22 (A) IN GENERAL.—

23 (i) Subparagraph (B) of section

24 884(f)(1) is amended by striking ‘‘to the ex25 tent’’ and all that follows down through
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1 ‘‘subparagraph (A)’’ and inserting ‘‘to the

2 extent that the allocable interest exceeds the

3 interest described in subparagraph (A)’’.

4 (ii) The second sentence of section

5 884(f)(1) is amended by striking ‘‘reason6 ably expected’’ and all that follows down

7 through the period at the end thereof and

8 inserting ‘‘reasonably expected to be alloca9 ble interest.’’

10 (iii) Paragraph (2) of section 884(f) is

11 amended to read as follows:

12 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

13 this subsection, the term ‘allocable interest’ means any

14 interest which is allocable to income which is effec15 tively connected (or treated as effectively connected)

16 with the conduct of a trade or business in the United

17 States.’’.

18 (B) EFFECTIVE DATE.—The amendments

19 made by subparagraph (A) shall take effect as if

20 included in the amendments made by section

21 1241(a) of the Tax Reform Act of 1986.

22 (4) CLARIFICATION OF SOURCE RULE.—

23 (A) IN GENERAL.—Paragraph (2) of section

24 865(b) is amended by striking ‘‘863(b)’’ and in25 serting ‘‘863’’.
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1 (B) EFFECTIVE DATE.—The amendment

2 made by subparagraph (A) shall take effect as if

3 included in the amendments made by section

4 1211 of the Tax Reform Act of 1986.

5 (5) REPEAL OF OBSOLETE PROVISIONS.—

6 (A) Paragraph (1) of section 6038(a) is

7 amended by striking ‘‘, and’’ at the end of sub8 paragraph (E) and inserting a period, and by

9 striking subparagraph (F).

10 (B) Subsection (b) of section 6038A is

11 amended by adding ‘‘and’’ at the end of para12 graph (2), by striking ‘‘, and’’ at the end of

13 paragraph (3) and inserting a period, and by

14 striking paragraph (4).

15 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

16 CERTAIN BOND-FINANCED FACILITIES.—

17 (1) IN GENERAL.—Subparagraph (A) of section

18 1317(3) of the Tax Reform Act of 1986 is amended

19 by adding at the end thereof the following new sen20 tence: ‘‘A facility shall not fail to be treated as de21 scribed in this subparagraph by reason of an assign22 ment (or an agreement to an assignment) by the gov23 ernmental unit on whose behalf the bonds are issued

24 of any part of its interest in the property financed by

25 such bonds to another governmental unit.’’.
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1 (2) EFFECTIVE DATE.—The amendment made by

2 paragraph (1) shall take effect as if included in such

3 section 1317 on the date of the enactment of the Tax

4 Reform Act of 1986.

5 (h) CLARIFICATION OF TREATMENT OF MEDICARE EN6 TITLEMENT UNDER COBRA PROVISIONS.—

7 (1) IN GENERAL.—

8 (A) Subclause (V) of section

9 4980B(f)(2)(B)(i) is amended to read as follows:

10 ‘‘(V) MEDICARE ENTITLEMENT

11 FOLLOWED BY QUALIFYING EVENT.—In

12 the case of a qualifying event described

13 in paragraph (3)(B) that occurs less

14 than 18 months after the date the cov15 ered employee became entitled to bene16 fits under title XVIII of the Social Se17 curity Act, the period of coverage for

18 qualified beneficiaries other than the

19 covered employee shall not terminate

20 under this clause before the close of the

21 36-month period beginning on the date

22 the covered employee became so enti23 tled.’’.
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1 (B) Clause (v) of section 602(2)(A) of the

2 Employee Retirement Income Security Act of

3 1974 is amended to read as follows:

4 ‘‘(v) MEDICARE ENTITLEMENT FOL5 LOWED BY QUALIFYING EVENT.—In the case

6 of a qualifying event described in section

7 603(2) that occurs less than 18 months after

8 the date the covered employee became enti9 tled to benefits under title XVIII of the So10 cial Security Act, the period of coverage for

11 qualified beneficiaries other than the covered

12 employee shall not terminate under this

13 subparagraph before the close of the 36-

14 month period beginning on the date the cov15 ered employee became so entitled.’’.

16 (C) Clause (iv) of section 2202(2)(A) of the

17 Public Health Service Act is amended to read as

18 follows:

19 ‘‘(iv) MEDICARE ENTITLEMENT FOL20 LOWED BY QUALIFYING EVENT.—In the case

21 of a qualifying event described in section

22 2203(2) that occurs less than 18 months

23 after the date the covered employee became

24 entitled to benefits under title XVIII of the

25 Social Security Act, the period of coverage
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1 for qualified beneficiaries other than the

2 covered employee shall not terminate under

3 this subparagraph before the close of the 36-

4 month period beginning on the date the cov5 ered employee became so entitled.’’.

6 (2) EFFECTIVE DATE.—The amendments made

7 by this subsection shall apply to plan years beginning

8 after December 31, 1989.

9 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

10 (1) IN GENERAL.—Subsection (a) of section 860E

11 is amended by adding at the end thereof the following

12 new paragraph:

13 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

14 purposes of part VI of subchapter A of this chapter—

15 ‘‘(A) the reference in section 55(b)(2) to tax16 able income shall be treated as a reference to tax17 able income determined without regard to this

18 subsection,

19 ‘‘(B) the alternative minimum taxable in20 come of any holder of a residual interest in a

21 REMIC for any taxable year shall in no event

22 be less than the excess inclusion for such taxable

23 year, and
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1 ‘‘(C) any excess inclusion shall be dis2 regarded for purposes of computing the alter3 native tax net operating loss deduction.

4 The preceding sentence shall not apply to any organi5 zation to which section 593 applies, except to the ex6 tent provided in regulations prescribed by the Sec7 retary under paragraph (2).’’.

8 (2) EFFECTIVE DATE.—The amendment made by

9 paragraph (1) shall take effect as if included in the

10 amendments made by section 671 of the Tax Reform

11 Act of 1986 unless the taxpayer elects to apply such

12 amendment only to taxable years beginning after the

13 date of the enactment of this Act.

14 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

15 FOR CERTAIN PASSENGERS.—

16 (1) IN GENERAL.—Subparagraph (D) of section

17 4462(b)(1) (relating to special rule for Alaska, Ha18 waii, and possessions) is amended by inserting before

19 the period the following: ‘‘, or passengers transported

20 on United States flag vessels operating solely within

21 the State waters of Alaska or Hawaii and adjacent

22 international waters’’.

23 (2) EFFECTIVE DATE.—The amendment made by

24 paragraph (1) shall take effect as if included in the
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1 amendments made by section 1402(a) of the Harbor

2 Maintenance Revenue Act of 1986.

3 (k) AMENDMENTS RELATED TO REVENUE PROVISIONS

4 OF ENERGY POLICY ACT OF 1992.—

5 (1) Effective with respect to taxable years begin6 ning after December 31, 1990, subclause (II) of sec7 tion 53(d)(1)(B)(iv) is amended to read as follows:

8 ‘‘(II) the adjusted net minimum

9 tax for any taxable year is the amount

10 of the net minimum tax for such year

11 increased in the manner provided in

12 clause (iii).’’.

13 (2) Subsection (g) of section 179A is redesignated

14 as subsection (f).

15 (3) Subparagraph (E) of section 6724(d)(3) is

16 amended by striking ‘‘section 6109(f)’’ and inserting

17 ‘‘section 6109(h)’’.

18 (4)(A) Subsection (d) of section 30 is amended—

19 (i) by inserting ‘‘(determined without re20 gard to subsection (b)(3))’’ before the period at

21 the end of paragraph (1) thereof, and

22 (ii) by adding at the end thereof the follow23 ing new paragraph:

24 ‘‘(4) ELECTION TO NOT TAKE CREDIT.—No credit

25 shall be allowed under subsection (a) for any vehicle
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1 if the taxpayer elects to not have this section apply

2 to such vehicle.’’.

3 (B) Subsection (m) of section 6501 (as redesig4 nated by section 1602) is amended by striking ‘‘sec5 tion 40(f)’’ and inserting ‘‘section 30(d)(4), 40(f)’’.

6 (5) Subclause (III) of section 501(c)(21)(D)(ii) is

7 amended by striking ‘‘section 101(6)’’ and inserting

8 ‘‘section 101(7)’’ and by striking ‘‘1752(6)’’ and in9 serting ‘‘1752(7)’’.

10 (6) Paragraph (1) of section 1917(b) of the En11 ergy Policy Act of 1992 shall be applied as if ‘‘at a

12 rate’’ appeared instead of ‘‘at the rate’’ in the mate13 rial proposed to be stricken.

14 (7) Paragraph (2) of section 1921(b) of the En15 ergy Policy Act of 1992 shall be applied as if a

16 comma appeared after ‘‘(2)’’ in the material proposed

17 to be stricken.

18 (8) Subsection (a) of section 1937 of the Energy

19 Policy Act of 1992 shall be applied as if ‘‘Subpart B’’

20 appeared instead of ‘‘Subpart C’’.

21 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

22 PLAN.—

23 (1) IN GENERAL.—For purposes of the Internal

24 Revenue Code of 1986, a qualified football coaches

25 plan—
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1 (A) shall be treated as a multiemployer col2 lectively bargained plan, and

3 (B) notwithstanding section 401(k)(4)(B) of

4 such Code, may include a qualified cash and de5 ferred arrangement under section 401(k) of such

6 Code.

7 (2) QUALIFIED FOOTBALL COACHES PLAN.—For

8 purposes of this subsection, the term ‘‘qualified foot9 ball coaches plan’’ means any defined contribution

10 plan which is established and maintained by an orga11 nization—

12 (A) which is described in section 501(c) of

13 such Code,

14 (B) the membership of which consists en15 tirely of individuals who primarily coach foot16 ball as full-time employees of 4-year colleges or

17 universities described in section 170(b)(1)(A)(ii)

18 of such Code, and

19 (C) which was in existence on September

20 18, 1986.

21 (3) EFFECTIVE DATE.—This subsection shall

22 apply to years beginning after December 22, 1987.

23 (m) DETERMINATION OF UNRECOVERED INVESTMENT

24 IN ANNUITY CONTRACT.—
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1 (1) IN GENERAL.—Subparagraph (A) of section

2 72(b)(4) is amended by inserting ‘‘(determined with3 out regard to subsection (c)(2))’’ after ‘‘contract’’.

4 (2) EFFECTIVE DATE.—The amendment made by

5 paragraph (1) shall take effect as if included in the

6 amendments made by section 1122(c) of the Tax Re7 form Act of 1986.

8 (n) MODIFICATIONS TO ELECTION TO INCLUDE

9 CHILD’S INCOME ON PARENT’S RETURN.—

10 (1) ELIGIBILITY FOR ELECTION.—Clause (ii) of

11 section 1(g)(7)(A) (relating to election to include cer12 tain unearned income of child on parent’s return) is

13 amended to read as follows:

14 ‘‘(ii) such gross income is more than

15 the amount described in paragraph

16 (4)(A)(ii)(I) and less than 10 times the

17 amount so described,’’.

18 (2) COMPUTATION OF TAX.—Subparagraph (B)

19 of section 1(g)(7) (relating to income included on par20 ent’s return) is amended—

21 (A) by striking ‘‘$1,000’’ in clause (i) and

22 inserting ‘‘twice the amount described in para23 graph (4)(A)(ii)(I)’’, and

24 (B) by amending subclause (II) of clause

25 (ii) to read as follows:
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•HR 3448 RS

1 ‘‘(II) for each such child, 15 per2 cent of the lesser of the amount de3 scribed in paragraph (4)(A)(ii)(I) or

4 the excess of the gross income of such

5 child over the amount so described,

6 and’’.

7 (3) MINIMUM TAX.—Subparagraph (B) of section

8 59(j)(1) is amended by striking ‘‘$1,000’’ and insert9 ing ‘‘twice the amount in effect for the taxable year

10 under section 63(c)(5)(A)’’.

11 (4) EFFECTIVE DATE.—The amendments made

12 by this subsection shall apply to taxable years begin13 ning after December 31, 1995.

14 (o) TREATMENT OF CERTAIN VETERANS’ REEMPLOY15 MENT RIGHTS.—

16 (1) IN GENERAL.—Section 414 is amended by

17 adding at the end the following new subsection:

18 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ REEM19 PLOYMENT RIGHTS UNDER USERRA.—

20 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

21 MADE PURSUANT TO VETERANS’ REEMPLOYMENT

22 RIGHTS.—If any contribution is made by an em23 ployer or an employee under an individual account

24 plan with respect to an employee, or by an employee

25 to a defined benefit plan that provides for employee
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•HR 3448 RS

1 contributions, and such contribution is required by

2 reason of such employee’s rights under chapter 43 of

3 title 38, United States Code, resulting from qualified

4 military service, then—

5 ‘‘(A) such contribution shall not be subject

6 to any otherwise applicable limitation contained

7 in section 402(g), 402(h), 403(b), 404(a), 404(h),

8 408, 415, or 457, and shall not be taken into ac9 count in applying such limitations to other con10 tributions or benefits under such plan or any

11 other plan, with respect to the year in which the

12 contribution is made,

13 ‘‘(B) such contribution shall be subject to

14 the limitations referred to in subparagraph (A)

15 with respect to the year to which the contribu16 tion relates (in accordance with rules prescribed

17 by the Secretary), and

18 ‘‘(C) such plan shall not be treated as fail19 ing to meet the requirements of section 401(a)(4),

20 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),

21 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p),

22 410(b), or 416 by reason of the making of (or the

23 right to make) such contribution.

24 For purposes of the preceding sentence, any elective

25 deferral or employee contribution made under para-
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•HR 3448 RS

1 graph (2) shall be treated as required by reason of the

2 employee’s rights under such chapter 43.

3 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

4 WITH RESPECT TO ELECTIVE DEFERRALS.—

5 ‘‘(A) IN GENERAL.—For purposes of this

6 subchapter and section 457, if an employee is en7 titled to the benefits of chapter 43 of title 38,

8 United States Code, with respect to any plan

9 which provides for elective deferrals, the em10 ployer sponsoring the plan shall be treated as

11 meeting the requirements of such chapter 43 with

12 respect to such elective deferrals only if such em13 ployer—

14 ‘‘(i) permits such employee to make ad15 ditional elective deferrals under such plan

16 (in the amount determined under subpara17 graph (B) or such lesser amount as is elect18 ed by the employee) during the period which

19 begins on the date of the reemployment of

20 such employee with such employer and has

21 the same length as the lesser of—

22 ‘‘(I) the product of 3 and the pe23 riod of qualified military service which

24 resulted in such rights, and

25 ‘‘(II) 5 years, and
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•HR 3448 RS

1 ‘‘(ii) makes a matching contribution

2 with respect to any additional elective defer3 ral made pursuant to clause (i) which

4 would have been required had such deferral

5 actually been made during the period of

6 such qualified military service.

7 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—The

8 amount determined under this subparagraph

9 with respect to any plan is the maximum

10 amount of the elective deferrals that the individ11 ual would have been permitted to make under the

12 plan in accordance with the limitations referred

13 to in paragraph (1)(A) during the period of

14 qualified military service if the individual had

15 continued to be employed by the employer during

16 such period and received compensation as deter17 mined under paragraph (7). Proper adjustment

18 shall be made to the amount determined under

19 the preceding sentence for any elective deferrals

20 actually made during the period of such quali21 fied military service.

22 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

23 of this paragraph, the term ‘elective deferral’ has

24 the meaning given such term by section

25 402(g)(3); except that such term shall include
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•HR 3448 RS

1 any deferral of compensation under an eligible

2 deferred compensation plan (as defined in sec3 tion 457(b)).

4 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU5 TIONS.—References in subparagraphs (A) and

6 (B) to elective deferrals shall be treated as in7 cluding references to employee contributions.

8 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT

9 REQUIRED.—For purposes of this subchapter and sub10 chapter E, no provision of chapter 43 of title 38,

11 United States Code, shall be construed as requiring—

12 ‘‘(A) any crediting of earnings to an em13 ployee with respect to any contribution before

14 such contribution is actually made, or

15 ‘‘(B) any allocation of any forfeiture with

16 respect to the period of qualified military service.

17 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER18 MITTED.—If any plan suspends the obligation to

19 repay any loan made to an employee from such plan

20 for any part of any period during which such em21 ployee is performing service in the uniformed services

22 (as defined in chapter 43 of title 38, United States

23 Code), whether or not qualified military service, such

24 suspension shall not be taken into account for pur25 poses of section 72(p), 401(a), or 4975(d)(1).
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•HR 3448 RS

1 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur2 poses of this subsection, the term ‘qualified military

3 service’ means any service in the uniformed services

4 (as defined in chapter 43 of title 38, United States

5 Code) by any individual if such individual is entitled

6 to reemployment rights under such chapter with re7 spect to such service.

8 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For purposes

9 of this subsection, the term ‘individual account plan’

10 means any defined contribution plan (including any

11 tax-sheltered annuity plan under section 403(b), any

12 simplified employee pension under section 408(k),

13 any qualified salary reduction arrangement under

14 section 408(p), and any eligible deferred compensa15 tion plan (as defined in section 457(b)).

16 ‘‘(7) COMPENSATION.—For purposes of sections

17 403(b)(3), 415(c)(3), and 457(e)(5), an employee who

18 is in qualified military service shall be treated as re19 ceiving compensation from the employer during such

20 period of qualified military service equal to—

21 ‘‘(A) the compensation the employee would

22 have received during such period if the employee

23 were not in qualified military service, deter24 mined based on the rate of pay the employee

25 would have received from the employer but for
541

•HR 3448 RS

1 absence during the period of qualified military

2 service, or

3 ‘‘(B) if the compensation the employee

4 would have received during such period was not

5 reasonably certain, the employee’s average com6 pensation from the employer during the 12-

7 month period immediately preceding the quali8 fied military service (or, if shorter, the period of

9 employment immediately preceding the qualified

10 military service).

11 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

12 RETIREMENT PLANS.—For purposes of this subchapter

13 and section 457, an employer sponsoring a retirement

14 plan shall be treated as meeting the requirements of

15 chapter 43 of title 38, United States Code, only if

16 each of the following requirements is met:

17 ‘‘(A) An individual reemployed under such

18 chapter is treated with respect to such plan as

19 not having incurred a break in service with the

20 employer maintaining the plan by reason of such

21 individual’s period of qualified military service.

22 ‘‘(B) Each period of qualified military serv23 ice served by an individual is, upon reemploy24 ment under such chapter, deemed with respect to

25 such plan to constitute service with the employer
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•HR 3448 RS

1 maintaining the plan for the purpose of deter2 mining the nonforfeitability of the individual’s

3 accrued benefits under such plan and for the

4 purpose of determining the accrual of benefits

5 under such plan.

6 ‘‘(C) An individual reemployed under such

7 chapter is entitled to accrued benefits that are

8 contingent on the making of, or derived from,

9 employee contributions or elective deferrals only

10 to the extent the individual makes payment to

11 the plan with respect to such contributions or de12 ferrals. No such payment may exceed the amount

13 the individual would have been permitted or re14 quired to contribute had the individual remained

15 continuously employed by the employer through16 out the period of qualified military service. Any

17 payment to such plan shall be made during the

18 period beginning with the date of reemployment

19 and whose duration is 3 times the period of the

20 qualified military service (but not greater than

21 5 years).

22 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

23 subsection shall not apply to any retirement plan to

24 which chapter 43 of title 38, United States Code, does

25 not apply.
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•HR 3448 RS

1 ‘‘(10) REFERENCES.—For purposes of this sec2 tion, any reference to chapter 43 of title 38, United

3 States Code, shall be treated as a reference to such

4 chapter as in effect on December 12, 1994 (without re5 gard to any subsequent amendment).’’.

6 (2) EFFECTIVE DATE.—The amendment made by

7 this subsection shall be effective as of December 12,

8 1994.

9 (p) REPORTING OF REAL ESTATE TRANSACTIONS.—

10 (1) IN GENERAL.—Paragraph (3) of section

11 6045(e) (relating to prohibition of separate charge for

12 filing return) is amended by adding at the end the

13 following new sentence: ‘‘Nothing in this paragraph

14 shall be construed to prohibit the real estate reporting

15 person from taking into account its cost of complying

16 with such requirement in establishing its charge

17 (other than a separate charge for complying with such

18 requirement) to any customer for performing services

19 in the case of a real estate transaction.’’.

20 (2) EFFECTIVE DATE.—The amendment made by

21 paragraph (1) shall take effect as if included in sec22 tion 1015(e)(2)(A) of the Technical and Miscellaneous

23 Revenue Act of 1988.

24 (q) CLARIFICATION OF DENIAL OF DEDUCTION FOR

25 STOCK REDEMPTION EXPENSES.
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•HR 3448 RS

1 (1) IN GENERAL.—Paragraph (1) of section

2 162(k) is amended by striking ‘‘the redemption of its

3 stock’’ and inserting ‘‘the reacquisition of its stock or

4 of the stock of any related person (as defined in sec5 tion 465(b)(3)(C))’’.

6 (2) CERTAIN DEDUCTIONS PERMITTED.—Sub7 paragraph (A) of section 162(k)(2) is amended by

8 striking ‘‘or’’ at the end of clause (i), by redesignating

9 clause (ii) as clause (iii), and by inserting after

10 clause (i) the following new clause:

11 ‘‘(ii) deduction for amounts which are

12 properly allocable to indebtedness and am13 ortized over the term of such indebtedness,

14 or’’.

15 (3) CLERICAL AMENDMENT.—The subsection

16 heading for subsection (k) of section 162 is amended

17 by striking ‘‘REDEMPTION’’ and inserting ‘‘REACQUI18 SITION’’.

19 (4) EFFECTIVE DATE.—

20 (A) IN GENERAL.—Except as provided in

21 subparagraph (B), the amendments made by this

22 subsection shall apply to amounts paid or in23 curred after September 13, 1995, in taxable

24 years ending after such date.
545

•HR 3448 RS

1 (B) PARAGRAPH (2).—The amendment

2 made by paragraph (2) shall take effect as if in3 cluded in the amendment made by section 613 of

4 the Tax Reform Act of 1986.

5 (r) CLERICAL AMENDMENT TO SECTION 404.—

6 (1) IN GENERAL.—Paragraph (1) of section

7 404(j) is amended by striking ‘‘(10)’’ and inserting

8 ‘‘(9)’’.

9 (2) EFFECTIVE DATE.—The amendment made by

10 paragraph (1) shall take effect as if included in the

11 amendments made by section 713(d)(4)(A) of the Def12 icit Reduction Act of 1984.

13 (s) PASSIVE INCOME NOT TO INCLUDE FSC INCOME,

14 ETC.—

15 (1) IN GENERAL.—Paragraph (2) of section

16 1296(b) is amended by striking ‘‘or’’ at the end of

17 subparagraph (B), by striking the period at the end

18 of subparagraph (C) and inserting ‘‘, or’’, and by in19 serting after subparagraph (C) the following new sub20 paragraph:

21 ‘‘(D) which is foreign trade income of a

22 FSC or export trade income of an export trade

23 corporation (as defined in section 971).’’.

24 (2) EFFECTIVE DATE.—The amendment made by

25 paragraph (1) shall take effect as if included in the
546

•HR 3448 RS

1 amendments made by section 1235 of the Tax Reform

2 Act of 1986.

3 (t) MISCELLANEOUS CLERICAL AMENDMENTS.—

4 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

5 amended by striking ‘‘of the subclause’’ and inserting

6 ‘‘of subclause’’.

7 (2) Paragraph (2) of section 72(m) is amended

8 by inserting ‘‘and’’ at the end of subparagraph (A),

9 by striking subparagraph (B), and by redesignating

10 subparagraph (C) as subparagraph (B).

11 (3) Paragraph (2) of section 86(b) is amended by

12 striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

13 (4)(A) The heading for section 112 is amended

14 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COMBAT

15 ZONE COMPENSATION’’.

16 (B) The item relating to section 112 in the table

17 of sections for part III of subchapter B of chapter 1

18 is amended by striking ‘‘combat pay’’ and inserting

19 ‘‘combat zone compensation’’.

20 (C) Paragraph (1) of section 3401(a) is amended

21 by striking ‘‘combat pay’’ and inserting ‘‘combat zone

22 compensation’’.

23 (5) Clause (i) of section 172(h)(3)(B) is amended

24 by striking the comma at the end thereof and insert25 ing a period.
547

•HR 3448 RS

1 (6) Clause (ii) of section 543(a)(2)(B) is amend2 ed by striking ‘‘section 563(c)’’ and inserting ‘‘section

3 563(d)’’.

4 (7) Paragraph (1) of section 958(a) is amended

5 by striking ‘‘sections 955(b)(1) (A) and (B),

6 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec7 tion 960(a)(1)’’.

8 (8) Subsection (g) of section 642 is amended by

9 striking ‘‘under 2621(a)(2)’’ and inserting ‘‘under

10 section 2621(a)(2)’’.

11 (9) Section 1463 is amended by striking ‘‘this

12 subsection’’ and inserting ‘‘this section’’.

13 (10) Subsection (k) of section 3306 is amended

14 by inserting a period at the end thereof.

15 (11) The item relating to section 4472 in the

16 table of sections for subchapter B of chapter 36 is

17 amended by striking ‘‘and special rules’’.

18 (12) Paragraph (3) of section 5134(c) is amend19 ed by striking ‘‘section 6662(a)’’ and inserting ‘‘sec20 tion 6665(a)’’.

21 (13) Paragraph (2) of section 5206(f) is amended

22 by striking ‘‘section 5(e)’’ and inserting ‘‘section

23 105(e)’’.
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•HR 3448 RS

1 (14) Paragraph (1) of section 6050B(c) is

2 amended by striking ‘‘section 85(c)’’ and inserting

3 ‘‘section 85(b)’’.

4 (15) Subsection (k) of section 6166 is amended

5 by striking paragraph (6).

6 (16) Subsection (e) of section 6214 is amended to

7 read as follows:

8 ‘‘(e) CROSS REFERENCE.—

‘‘For provision giving Tax Court jurisdiction to

order a refund of an overpayment and to award

sanctions, see section 6512(b)(2).’’.

9 (17) The section heading for section 6043 is

10 amended by striking the semicolon and inserting a

11 comma.

12 (18) The item relating to section 6043 in the

13 table of sections for subpart B of part III of sub14 chapter A of chapter 61 is amended by striking the

15 semicolon and inserting a comma.

16 (19) The table of sections for part I of subchapter

17 A of chapter 68 is amended by striking the item relat18 ing to section 6662.

19 (20)(A) Section 7232 is amended—

20 (i) by striking ‘‘LUBRICATING OIL,’’ in

21 the heading, and

22 (ii) by striking ‘‘lubricating oil,’’ in the

23 text.
549

•HR 3448 RS

1 (B) The table of sections for part II of sub2 chapter A of chapter 75 is amended by striking ‘‘lu3 bricating oil,’’ in the item relating to section 7232.

4 (21) Paragraph (1) of section 6701(a) of the Om5 nibus Budget Reconciliation Act of 1989 is amended

6 by striking ‘‘subclause (IV)’’ and inserting ‘‘subclause

7 (V)’’.

8 (22) Clause (ii) of section 7304(a)(2)(D) of such

9 Act is amended by striking ‘‘subsection (c)(2)’’ and

10 inserting ‘‘subsection (c)’’.

11 (23) Paragraph (1) of section 7646(b) of such

12 Act is amended by striking ‘‘section 6050H(b)(1)’’

13 and inserting ‘‘section 6050H(b)(2)’’.

14 (24) Paragraph (10) of section 7721(c) of

15 such Act is amended by striking ‘‘section

16 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

17 6661(b)(2)(C)(ii)’’.

18 (25) Subparagraph (A) of section 7811(i)(3) of

19 such Act is amended by inserting ‘‘the first place it

20 appears’’ before ‘‘in clause (i)’’.

21 (26) Paragraph (10) of section 7841(d) of

22 such Act is amended by striking ‘‘section 381(a)’’

23 and inserting ‘‘section 381(c)’’.
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•HR 3448 RS

1 (27) Paragraph (2) of section 7861(c) of such Act

2 is amended by inserting ‘‘the second place it appears’’

3 before ‘‘and inserting’’.

4 (28) Paragraph (1) of section 460(b) is amended

5 by striking ‘‘the look-back method of paragraph (3)’’

6 and inserting ‘‘the look-back method of paragraph

7 (2)’’.

8 (29) Subparagraph (C) of section 50(a)(2) is

9 amended by striking ‘‘subsection (c)(4)’’ and inserting

10 ‘‘subsection (d)(5)’’.

11 (30) Subparagraph (B) of section 172(h)(4) is

12 amended by striking the material following the head13 ing and preceding clause (i) and inserting ‘‘For pur14 poses of subsection (b)(2)—’’.

15 (31) Subparagraph (A) of section 355(d)(7) is

16 amended by inserting ‘‘section’’ before ‘‘267(b)’’.

17 (32) Subparagraph (C) of section 420(e)(1) is

18 amended by striking ‘‘mean’’ and inserting ‘‘means’’.

19 (33) Paragraph (4) of section 537(b) is amended

20 by striking ‘‘section 172(i)’’ and inserting ‘‘section

21 172(f)’’.

22 (34) Subparagraph (B) of section 613(e)(1) is

23 amended by striking the comma at the end thereof

24 and inserting a period.
551

•HR 3448 RS

1 (35) Paragraph (4) of section 856(a) is amended

2 by striking ‘‘section 582(c)(5)’’ and inserting ‘‘section

3 582(c)(2)’’.

4 (36) Sections 904(f)(2)(B)(i) and

5 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

6 in effect on the day before the date of the enactment

7 of the Revenue Reconciliation Act of 1990)’’ after

8 ‘‘section 172(h)’’.

9 (37) Subsection (b) of section 936 is amended by

10 striking ‘‘subparagraphs (D)(ii)(I)’’ and inserting

11 ‘‘subparagraphs (D)(ii)’’.

12 (38) Subsection (c) of section 2104 is amended

13 by striking ‘‘subparagraph (A), (C), or (D) of section

14 861(a)(1)’’ and inserting ‘‘section 861(a)(1)(A)’’.

15 (39) Subparagraph (A) of section 280A(c)(1) is

16 amended to read as follows:

17 ‘‘(A) as the principal place of business for

18 any trade or business of the taxpayer,’’.

19 (40) Section 6038 is amended by redesignating

20 the subsection relating to cross references as subsection

21 (f).

22 (41) Clause (iv) of section 6103(e)(1)(A) is

23 amended by striking all that follows ‘‘provisions of’’

24 and inserting ‘‘section 1(g) or 59(j);’’.
552

•HR 3448 RS

1 (42) The subsection (f) of section 6109 of the In2 ternal Revenue Code of 1986 which was added by sec3 tion 2201(d) of Public Law 101–624 is redesignated

4 as subsection (g).

5 (43) Subsection (b) of section 7454 is amended

6 by striking ‘‘section 4955(e)(2)’’ and inserting ‘‘sec7 tion 4955(f)(2)’’.

8 (44) Subsection (d) of section 11231 of the Reve9 nue Reconciliation Act of 1990 shall be applied as if

10 ‘‘comma’’ appeared instead of ‘‘period’’ and as if the

11 paragraph (9) proposed to be added ended with a

12 comma.

13 (45) Paragraph (1) of section 11303(b) of the

14 Revenue Reconciliation Act of 1990 shall be applied

15 as if ‘‘paragraph’’ appeared instead of ‘‘subpara16 graph’’ in the material proposed to be stricken.

17 (46) Subsection (f) of section 11701 of the Reve18 nue Reconciliation Act of 1990 is amended by insert19 ing ‘‘(relating to definitions)’’ after ‘‘section 6038(e)’’.

20 (47) Subsection (i) of section 11701 of the Reve21 nue Reconciliation Act of 1990 shall be applied as if

22 ‘‘subsection’’ appeared instead of ‘‘section’’ in the ma23 terial proposed to be stricken.

24 (48) Subparagraph (B) of section 11801(c)(2) of

25 the Revenue Reconciliation Act of 1990 shall be ap-
553

•HR 3448 RS

1 plied as if ‘‘section 56(g)’’ appeared instead of ‘‘sec2 tion 59(g)’’.

3 (49) Subparagraph (C) of section 11801(c)(8) of

4 the Revenue Reconciliation Act of 1990 shall be ap5 plied as if ‘‘reorganizations’’ appeared instead of ‘‘re6 organization’’ in the material proposed to be stricken.

7 (50) Subparagraph (H) of section 11801(c)(9) of

8 the Revenue Reconciliation Act of 1990 shall be ap9 plied as if ‘‘section 1042(c)(1)(B)’’ appeared instead

10 of ‘‘section 1042(c)(2)(B)’’.

11 (51) Subparagraph (F) of section 11801(c)(12) of

12 the Revenue Reconciliation Act of 1990 shall be ap13 plied as if ‘‘and (3)’’ appeared instead of ‘‘and (E)’’.

14 (52) Subparagraph (A) of section 11801(c)(22) of

15 the Revenue Reconciliation Act of 1990 shall be ap16 plied as if ‘‘chapters 21’’ appeared instead of ‘‘chap17 ter 21’’ in the material proposed to be stricken.

18 (53) Paragraph (3) of section 11812(b) of the

19 Revenue Reconciliation Act of 1990 shall be applied

20 by not executing the amendment therein to the head21 ing of section 42(d)(5)(B).

22 (54) Clause (i) of section 11813(b)(9)(A) of the

23 Revenue Reconciliation Act of 1990 shall be applied

24 as if a comma appeared after ‘‘(3)(A)(ix)’’ in the ma25 terial proposed to be stricken.
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•HR 3448 RS

1 (55) Subparagraph (F) of section 11813(b)(13)

2 of the Revenue Reconciliation Act of 1990 shall be ap3 plied as if ‘‘tax’’ appeared after ‘‘investment’’ in the

4 material proposed to be stricken.

5 (56) Paragraph (19) of section 11813(b) of the

6 Revenue Reconciliation Act of 1990 shall be applied

7 as if ‘‘Paragraph (20) of section 1016(a), as redesig8 nated by section 11801,’’ appeared instead of ‘‘Para9 graph (21) of section 1016(a)’’.

10 (57) Paragraph (5) section 8002(a) of the Sur11 face Transportation Revenue Act of 1991 shall be ap12 plied as if ‘‘4481(e)’’ appeared instead of ‘‘4481(c)’’.

13 (58) Section 7872 is amended—

14 (A) by striking ‘‘foregone’’ each place it ap15 pears in subsections (a) and (e)(2) and inserting

16 ‘‘forgone’’, and

17 (B) by striking ‘‘FOREGONE’’ in the heading

18 for subsection (e) and the heading for paragraph

19 (2) of subsection (e) and inserting ‘‘FORGONE’’.

20 (59) Paragraph (7) of section 7611(h) is amend21 ed by striking ‘‘approporiate’’ and inserting ‘‘appro22 priate’’.

23 (60) The heading of paragraph (3) of section

24 419A(c) is amended by striking ‘‘SEVERENCE’’ and

25 inserting ‘‘SEVERANCE’’.
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•HR 3448 RS

1 (61) Clause (ii) of section 807(d)(3)(B) is

2 amended by striking ‘‘Commissoners’ ’’ and inserting

3 ‘‘Commissioners’ ’’.

4 (62) Subparagraph (B) of section 1274A(c)(1) is

5 amended by striking ‘‘instument’’ and inserting ‘‘in6 strument’’.

7 (63) Subparagraph (B) of section 724(d)(3) by

8 striking ‘‘Subparagaph’’ and inserting ‘‘Subpara9 graph’’.

10 (64) The last sentence of paragraph (2) of section

11 42(c) is amended by striking ‘‘of 1988’’.

12 (65) Paragraph (1) of section 9707(d) is amend13 ed by striking ‘‘diligence,’’ and inserting ‘‘diligence’’.

14 (66) Subsection (c) of section 4977 is amended

15 by striking ‘‘section 132(i)(2)’’ and inserting ‘‘section

16 132(h)’’.

17 (67) The last sentence of section 401(a)(20) is

18 amended by striking ‘‘section 211’’ and inserting

19 ‘‘section 521’’.

20 (68) Subparagraph (A) of section 402(g)(3) is

21 amended by striking ‘‘subsection (a)(8)’’ and insert22 ing ‘‘subsection (e)(3)’’.

23 (69) The last sentence of section 403(b)(10) is

24 amended by striking ‘‘an direct’’ and inserting ‘‘a

25 direct’’.
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•HR 3448 RS

1 (70) Subparagraph (A) of section 4973(b)(1) is

2 amended by striking ‘‘sections 402(c)’’ and inserting

3 ‘‘section 402(c)’’.

4 (71) Paragraph (12) of section 3405(e) is

5 amended by striking ‘‘(b)(3)’’ and inserting ‘‘(b)(2)’’.

6 (72) Paragraph (41) of section 521(b) of the Un7 employment Compensation Amendments of 1992 shall

8 be applied as if ‘‘section’’ appeared instead of ‘‘sec9 tions’’ in the material proposed to be stricken.

10 (73) Paragraph (27) of section 521(b) of the Un11 employment Compensation Amendments of 1992 shall

12 be applied as if ‘‘Section 691(c)(5)’’ appeared instead

13 of ‘‘Section 691(c)’’.

14 (74) Paragraph (5) of section 860F(a) is amend15 ed by striking ‘‘paragraph (1)’’ and inserting ‘‘para16 graph (2)’’.

17 (75) Paragraph (1) of section 415(k) is amended

18 by adding ‘‘or’’ at the end of subparagraph (C), by

19 striking subparagraphs (D) and (E), and by redesig20 nating subparagraph (F) as subparagraph (D).

21 (76) Paragraph (2) of section 404(a) is amended

22 by striking ‘‘(18),’’.

23 (77) Clause (ii) of section 72(p)(4)(A) is amend24 ed to read as follows:
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1 ‘‘(ii) SPECIAL RULE.—The term ‘quali2 fied employer plan’ shall include any plan

3 which was (or was determined to be) a

4 qualified employer plan or a government

5 plan.’’.

6 (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i)

7 are each amended by striking ‘‘section

8 6662(d)(2)(C)(ii)’’ and inserting ‘‘section

9 6662(d)(2)(C)(iii)’’.

10 (79) Subsection (a) of section 164 is amended by

11 striking the paragraphs relating to the generation12 skipping tax and the environmental tax imposed by

13 section 59A and by inserting after paragraph (3) the

14 following new paragraphs:

15 ‘‘(4) The GST tax imposed on income distribu16 tions.

17 ‘‘(5) The environmental tax imposed by section

18 59A.’’.

19 (80) Subclause (I) of section 936(a)(4)(A)(ii) is

20 amended by striking ‘‘deprecation’’ and inserting ‘‘de21 preciation’’.
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1 Subtitle G—Other Provisions

2 SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING

3 REQUIREMENTS WITH RESPECT TO CERTAIN

4 STATES.

5 (a) IN GENERAL.—Section 4082 (relating to exemp6 tions for diesel fuel) is amended by redesignating sub7 sections (c) and (d) as subsections (d) and (e), respectively,

8 and by inserting after subsection (b) the following new sub9 section:

10 ‘‘(c) EXCEPTION TO DYEING REQUIREMENTS.—Para11 graph (2) of subsection (a) shall not apply with respect to

12 any diesel fuel—

13 ‘‘(1) removed, entered, or sold in a State for ulti14 mate sale or use in an area of such State during the

15 period such area is exempted from the fuel dyeing re16 quirements under subsection (i) of section 211 of the

17 Clean Air Act (as in effect on the date of the enact18 ment of this subsection) by the Administrator of the

19 Environmental Protection Agency under paragraph

20 (4) of such subsection (i) (as so in effect), and

21 ‘‘(2) the use of which is certified pursuant to reg22 ulations issued by the Secretary.’’

23 (b) EFFECTIVE DATE.—The amendments made by this

24 section shall apply with respect to fuel removed, entered,
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1 or sold on or after the first day of the first calendar quarter

2 beginning after the date of the enactment of this Act.

3 SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY

4 ACCOUNTS.

5 (a) IN GENERAL.—For purposes of subsection (s) of

6 section 3121 of the Internal Revenue Code of 1986 (relating

7 to concurrent employment by 2 or more employers)—

8 (1) the following entities shall be deemed to be

9 related corporations that concurrently employ the

10 same individual:

11 (A) a State university which employs health

12 professionals as faculty members at a medical

13 school, and

14 (B) an agency account of a State university

15 which is described in subparagraph (A) and

16 from which there is distributed to such faculty

17 members payments forming a part of the com18 pensation that the State, or such State univer19 sity, as the case may be, agrees to pay to such

20 faculty members, but only if—

21 (i) such agency account is authorized

22 by State law and receives the funds for such

23 payments from a faculty practice plan de24 scribed in section 501(c)(3) of such Code
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1 and exempt from tax under section 501(a)

2 of such Code,

3 (ii) such payments are distributed by

4 such agency account to such faculty mem5 bers who render patient care at such medi6 cal school, and

7 (iii) such faculty members comprise at

8 least 30 percent of the membership of such

9 faculty practice plan, and

10 (2) remuneration which is disbursed by such

11 agency account to any such faculty member of the

12 medical school described in paragraph (1)(A) shall be

13 deemed to have been actually disbursed by the State,

14 or such State university, as the case may be, as a

15 common paymaster and not to have been actually dis16 bursed by such agency account.

17 (b) EFFECTIVE DATE.—The provisions of subsection

18 (a) shall apply to remuneration paid after December 31,

19 1996.

20 SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DE21 PLETING CHEMICALS.

22 (a) RECYCLED HALON.—

23 (1) IN GENERAL.—Section 4682(d)(1) (relating

24 to recycling) is amended by inserting ‘‘, or on any re25 cycled halon imported from any country which is a
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1 signatory to the Montreal Protocol on Substances that

2 Deplete the Ozone Layer’’ before the period at the end.

3 (2) CERTIFICATION SYSTEM.—The Secretary of

4 the Treasury, after consultation with the Adminis5 trator of the Environmental Protection Agency, shall

6 develop a certification system to ensure compliance

7 with the recycling requirement for imported halon

8 under section 4682(d)(1) of the Internal Revenue Code

9 of 1986, as amended by paragraph (1).

10 (b) CHEMICALS USED AS PROPELLANTS IN METERED11 DOSE INHALERS TAX-EXEMPT.—Paragraph (4) of section

12 4682(g) (relating to phase-in of tax on certain substances)

13 is amended to read as follows:

14 ‘‘(4) CHEMICALS USED AS PROPELLANTS IN ME15 TERED-DOSE INHALERS.—

16 ‘‘(A) TAX-EXEMPT.—

17 ‘‘(i) IN GENERAL.—No tax shall be im18 posed by section 4681 on—

19 ‘‘(I) any use of any substance as

20 a propellant in metered-dose inhalers,

21 or

22 ‘‘(II) any qualified sale by the

23 manufacturer, producer, or importer of

24 any substance.
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1 ‘‘(ii) QUALIFIED SALE.—For purposes

2 of clause (i), the term ‘qualified sale’ means

3 any sale by the manufacturer, producer, or

4 importer of any substance—

5 ‘‘(I) for use by the purchaser as a

6 propellant in metered-dose inhalers, or

7 ‘‘(II) for resale by the purchaser

8 to a 2d purchaser for such use by the

9 2d purchaser.

10 The preceding sentence shall apply only if

11 the manufacturer, producer, and importer,

12 and the 1st and 2d purchasers (if any) meet

13 such registration requirements as may be

14 prescribed by the Secretary.

15 ‘‘(B) OVERPAYMENTS.—If any substance on

16 which tax was paid under this subchapter is

17 used by any person as a propellant in metered18 dose inhalers, credit or refund without interest

19 shall be allowed to such person in an amount

20 equal to the excess of—

21 ‘‘(i) the tax paid under this subchapter

22 on such substance, over

23 ‘‘(ii) the tax (if any) which would be

24 imposed by section 4681 if such substance

25 were used for such use by the manufacturer,
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1 producer, or importer thereof on the date of

2 its use by such person.

3 Amounts payable under the preceding sen4 tence with respect to uses during the taxable

5 year shall be treated as described in section

6 34(a) for such year unless claim thereof has

7 been timely filed under this subparagraph.’’

8 (c) EFFECTIVE DATES.—

9 (1) RECYCLED HALON.—The amendment made

10 by subsection (a)(1) shall take effect on January 1,

11 1997.

12 (2) METERED-DOSE INHALERS.—The amend13 ment made by subsection (b) shall take effect on the

14 7th day after the date of the enactment of this Act.

15 SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA

16 POWER ADMINISTRATION FACILITY.

17 Sections 142(f)(3) (as added by section 1605) and

18 147(d) of the Internal Revenue Code of 1986 shall not apply

19 in determining whether any private activity bond issued

20 after the date of the enactment of this Act and used to fi21 nance the acquisition of the Snettisham hydroelectric

22 project from the Alaska Power Administration is a quali23 fied bond for purposes of such Code.
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1 SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN

2 TRANSFERS BY COMMON TRUST FUNDS TO

3 REGULATED INVESTMENT COMPANIES.

4 (a) GENERAL RULE.—Section 584 (relating to com5 mon trust funds) is amended by redesignating subsection

6 (h) as subsection (i) and by inserting after subsection (g)

7 the following new subsection:

8 ‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN

9 TRANSFERS TO REGULATED INVESTMENT COMPANIES.—

10 ‘‘(1) IN GENERAL.—If—

11 ‘‘(A) a common trust fund transfers sub12 stantially all of its assets to one or more regu13 lated investment companies in exchange solely

14 for stock in the company or companies to which

15 such assets are so transferred, and

16 ‘‘(B) such stock is distributed by such com17 mon trust fund to participants in such common

18 trust fund in exchange solely for their interests

19 in such common trust fund,

20 no gain or loss shall be recognized by such common

21 trust fund by reason of such transfer or distribution,

22 and no gain or loss shall be recognized by any partic23 ipant in such common trust fund by reason of such

24 exchange.

25 ‘‘(2) BASIS RULES.—
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1 ‘‘(A) REGULATED INVESTMENT COMPANY.—

2 The basis of any asset received by a regulated in3 vestment company in a transfer referred to in

4 paragraph (1)(A) shall be the same as it would

5 be in the hands of the common trust fund.

6 ‘‘(B) PARTICIPANTS.—The basis of the stock

7 which is received in an exchange referred to in

8 paragraph (1)(B) shall be the same as that of the

9 property exchanged. If stock in more than one

10 regulated investment company is received in

11 such exchange, the basis determined under the

12 preceding sentence shall be allocated among the

13 stock in each such company on the basis of re14 spective fair market values.

15 ‘‘(3) TREATMENT OF ASSUMPTIONS OF

16 LIABILITY.—

17 ‘‘(A) IN GENERAL.—In determining whether

18 the transfer referred to in paragraph (1)(A) is in

19 exchange solely for stock in one or more regu20 lated investment companies, the assumption by

21 any such company of a liability of the common

22 trust fund, and the fact that any property trans23 ferred by the common trust fund is subject to a

24 liability, shall be disregarded.
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1 ‘‘(B) SPECIAL RULE WHERE ASSUMED

2 LIABILITIES EXCEED BASIS.—

3 ‘‘(i) IN GENERAL.—If, in any transfer

4 referred to in paragraph (1)(A), the as5 sumed liabilities exceed the aggregate ad6 justed bases (in the hands of the common

7 trust fund) of the assets transferred to the

8 regulated investment company or

9 companies—

10 ‘‘(I) notwithstanding paragraph

11 (1), gain shall be recognized to the

12 common trust fund on such transfer in

13 an amount equal to such excess,

14 ‘‘(II) the basis of the assets re15 ceived by the regulated investment

16 company or companies in such trans17 fer shall be increased by the amount so

18 recognized, and

19 ‘‘(III) any adjustment to the basis

20 of a participant’s interest in the com21 mon trust fund as a result of the gain

22 so recognized shall be treated as occur23 ring immediately before the exchange

24 referred to in paragraph (1)(B).
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1 If the transfer referred to in paragraph

2 (1)(A) is to two or more regulated invest3 ment companies, the basis increase under

4 subclause (II) shall be allocated among such

5 companies on the basis of the respective fair

6 market values of the assets received by each

7 of such companies.

8 ‘‘(ii) ASSUMED LIABILITIES.—For pur9 poses of clause (i), the term ‘assumed liabil10 ities’ means the aggregate of—

11 ‘‘(I) any liability of the common

12 trust fund assumed by any regulated

13 investment company in connection

14 with the transfer referred to in para15 graph (1)(A), and

16 ‘‘(II) any liability to which prop17 erty so transferred is subject.

18 ‘‘(4) COMMON TRUST FUND MUST MEET DIVER19 SIFICATION RULES.—This subsection shall not apply

20 to any common trust fund which would not meet the

21 requirements of section 368(a)(2)(F)(ii) if it were a

22 corporation. For purposes of the preceding sentence,

23 Government securities shall not be treated as securi24 ties of an issuer in applying the 25-percent and 50-

25 percent test and such securities shall not be excluded
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1 for purposes of determining total assets under clause

2 (iv) of section 368(a)(2)(F).’’.

3 (b) EFFECTIVE DATE.—The amendment made by sub4 section (a) shall apply to transfers after December 31, 1995.

5 SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.

6 (a) IN GENERAL.—Subchapter F of chapter 1 (relating

7 to exempt organizations) is amended by adding at the end

8 the following new part:

9 ‘‘PART VIII—QUALIFIED STATE TUITION

10 PROGRAMS

‘‘Sec. 529. Qualified State tuition programs.

11 ‘‘SEC. 529. QUALIFIED STATE TUITION PROGRAMS.

12 ‘‘(a) GENERAL RULE.—A qualified State tuition pro13 gram shall be exempt from taxation under this subtitle. Not14 withstanding the preceding sentence, such program shall be

15 subject to the taxes imposed by section 511 (relating to im16 position of tax on unrelated business income of charitable

17 organizations).

18 ‘‘(b) QUALIFIED STATE TUITION PROGRAM.—For pur19 poses of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified State

21 tuition program’ means a program established and

22 maintained by a State or agency or instrumentality

23 thereof—

24 ‘‘(A) under which a person—
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1 ‘‘(i) may purchase tuition credits or

2 certificates on behalf of a designated bene3 ficiary which entitle the beneficiary to the

4 waiver or payment of qualified higher edu5 cation expenses of the beneficiary, or

6 ‘‘(ii) may make contributions to an ac7 count which is established for the sole pur8 pose of meeting the qualified higher edu9 cation expenses of the designated beneficiary

10 of the account, and

11 ‘‘(B) which meets the other requirements of

12 this subsection.

13 ‘‘(2) CASH CONTRIBUTIONS.—A program shall

14 not be treated as a qualified State tuition program

15 unless it provides that purchases or contributions

16 may only be made in cash.

17 ‘‘(3) REFUNDS.—A program shall not be treated

18 as a qualified State tuition program unless it imposes

19 a more than de minimis penalty on any refund of

20 earnings from the account which are not—

21 ‘‘(A) used for qualified higher education ex22 penses of the designated beneficiary,

23 ‘‘(B) made on account of the death or dis24 ability of the designated beneficiary, or
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1 ‘‘(C) made on account of a scholarship re2 ceived by the designated beneficiary to the extent

3 the amount of the refund does not exceed the

4 amount of the scholarship used for qualified

5 higher education expenses.

6 ‘‘(4) SEPARATE ACCOUNTING.—A program shall

7 not be treated as a qualified State tuition program

8 unless it provides separate accounting for each des9 ignated beneficiary.

10 ‘‘(5) NO INVESTMENT DIRECTION.—A program

11 shall not be treated as a qualified State tuition pro12 gram unless it provides that any contributor to, or

13 designated beneficiary under, such program may not

14 direct the investment of any contributions to the pro15 gram (or any earnings thereon).

16 ‘‘(6) NO PLEDGING OF INTEREST AS SECURITY.—

17 A program shall not be treated as a qualified State

18 tuition program if it allows any interest in the pro19 gram or any portion thereof to be used as security for

20 a loan.

21 ‘‘(c) TAX TREATMENT OF DESIGNATED BENE22 FICIARIES AND CONTRIBUTORS.—

23 ‘‘(1) IN GENERAL.—Except as otherwise provided

24 in this subsection, no amount shall be includible in

25 gross income of—
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1 ‘‘(A) a designated beneficiary under a

2 qualified State tuition program, or

3 ‘‘(B) a contributor to such program on be4 half of a designated beneficiary,

5 with respect to any contribution to, or earnings

6 under, such program.

7 ‘‘(2) DISTRIBUTIONS.—

8 ‘‘(A) IN GENERAL.—Any distribution under

9 a qualified State tuition program shall be in10 cludible in the gross income of the distributee in

11 the same manner as provided under section 72

12 to the extent not excluded from gross income

13 under any other provision of this chapter.

14 ‘‘(B) IN-KIND DISTRIBUTIONS.—The fur15 nishing of education to a designated beneficiary

16 under a qualified State tuition program shall be

17 treated as a distribution to the beneficiary.

18 ‘‘(C) CHANGE IN BENEFICIARIES.—

19 ‘‘(i) ROLLOVERS.—Subparagraph (A)

20 shall not apply to that portion of any dis21 tribution which, within 60 days of such dis22 tribution, is transferred to the credit of an23 other designated beneficiary under a quali24 fied State tuition program who is a member

25 of the same family as the designated bene-
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1 ficiary with respect to which the distribu2 tion was made.

3 ‘‘(ii) CHANGE IN DESIGNATED BENE4 FICIARIES.—Any change in the designated

5 beneficiary of an interest in a qualified

6 State tuition program shall not be treated

7 as a distribution for purposes of subpara8 graph (A) if the new beneficiary is a mem9 ber of the same family as the old bene10 ficiary.

11 ‘‘(D) OPERATING RULES.—For purposes of

12 applying section 72—

13 ‘‘(i) all qualified State tuition pro14 grams of which an individual is a des15 ignated beneficiary shall be treated as one

16 program,

17 ‘‘(ii) all distributions during a taxable

18 year shall be treated as one distribution,

19 and

20 ‘‘(iii) the value of the contract, income

21 on the contract, and investment in the con22 tract shall be computed as of the close of the

23 calendar year in which the taxable year be24 gins.
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1 ‘‘(3) GIFT TAX TREATMENT.—Any contribution

2 on behalf of a designated beneficiary to a qualified

3 State tuition program shall be treated as a qualified

4 transfer for purposes of section 2503(e).

5 ‘‘(d) REPORTING REQUIREMENTS.—

6 ‘‘(1) IN GENERAL.—If—

7 ‘‘(A) a designated beneficiary is furnished

8 education under a qualified State tuition pro9 gram during any calendar year, or

10 ‘‘(B) there is a distribution to any individ11 ual with respect to an interest in such program

12 during any calendar year,

13 each officer or employee having control of the quali14 fied State tuition program or their designee shall

15 make such reports as the Secretary may require re16 garding such education or distribution to the Sec17 retary and to the designated beneficiary or the indi18 vidual to whom the distribution was made. Any such

19 report shall include such information as the Secretary

20 may prescribe.

21 ‘‘(2) TIMING OF REPORTS.—Any report required

22 by this subsection—

23 ‘‘(A) shall be filed at such time and in such

24 matter as the Secretary prescribes, and
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1 ‘‘(B) shall be furnished to individuals not

2 later than January 31 of the calendar year fol3 lowing the calendar year to which such report re4 lates.

5 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For

6 purposes of this section—

7 ‘‘(1) DESIGNATED BENEFICIARY.—The term ‘des8 ignated beneficiary’ means—

9 ‘‘(A) the individual designated at the com10 mencement of participation in the qualified

11 State tuition program as the beneficiary of

12 amounts paid (or to be paid) to the program,

13 ‘‘(B) in the case of a change in beneficiaries

14 described in subsection (c)(2)(C)(ii), the individ15 ual who is the new beneficiary, and

16 ‘‘(C) in the case of an interest in a qualified

17 State tuition program purchased by a State or

18 local government or an organization described in

19 section 501(c)(3) and exempt from taxation

20 under section 501(a) as part of a scholarship

21 program operated by such government or organi22 zation, the individual receiving such interest as

23 a scholarship.
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1 ‘‘(2) MEMBER OF FAMILY.—The term ‘member of

2 family’ has the same meaning given such term as sec3 tion 2032A(e)(2).

4 ‘‘(3) QUALIFIED HIGHER EDUCATION EX5 PENSES.—The term ‘qualified higher education ex6 penses’ means tuition, fees, books, supplies, and

7 equipment required for the enrollment or attendance

8 of a designated beneficiary at an eligible education

9 institution (as defined in section 135(c)(3)).

10 ‘‘(4) APPLICATION OF SECTION 514.—An interest

11 in a qualified State tuition program shall not be

12 treated as debt for purposes of section 514.’’

13 (b) EFFECTIVE DATES.—

14 (1) IN GENERAL.—The amendments made by

15 this section shall apply to taxable years ending after

16 the date of the enactment of this Act.

17 (2) TRANSITION RULE.—If—

18 (A) a State or agency or instrumentality

19 thereof maintains, on the date of the enactment

20 of this Act, a program under which persons may

21 purchase tuition credits or certificates on behalf

22 of, or make contributions for education expenses

23 of, a designated beneficiary, and
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1 (B) such program meets the requirements of

2 a qualified State tuition program before the later

3 of—

4 (i) the date which is 1 year after such

5 date of enactment, or

6 (ii) the first day of the first calendar

7 quarter after the close of the first regular

8 session of the State legislature that begins

9 after such date of enactment,

10 the amendments made by this section shall apply

11 to contributions (and earnings allocable thereto)

12 made before the later of such dates without re13 gard to whether any requirements of such

14 amendments are met with respect to such con15 tributions and earnings. For purposes of sub16 paragraph (B)(ii), if a State has a 2-year legis17 lative session, each year of such session shall be

18 deemed to be a separate regular session of the

19 State legislature.

20 TITLE II—PAYMENT OF WAGES

21 SECTION 1. SHORT TITLE.

22 This Act may be cited as the ‘‘Employee Commuting

23 Flexibility Act of 1996’’.
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1 SEC. 2. PROPER COMPENSATION FOR USE OF EMPLOYER

2 VEHICLES.

3 Section 4(a) of the Portal-to-Portal Act of 1947 (29

4 U.S.C. 254(a)) is amended by adding at the end the fol5 lowing: ‘‘For purposes of this subsection, the use of an

6 employer’s vehicle for travel by an employee and activities

7 performed by an employee which are incidental to the use

8 of such vehicle for commuting shall not be considered part

9 of the employee’s principal activities if the use of such ve10 hicle for travel is within the normal commuting area for

11 the employer’s business or establishment and the use of

12 the employer’s vehicle is subject to an agreement on the

13 part of the employer and the employee or representative

14 of such employee.’’.

15 SEC. 3. EFFECTIVE DATE.

16 The amendment made by section 1 shall take effect

17 on the date of the enactment of this Act and shall apply

18 in determining the application of section 4 of the Portal19 to-Portal Act of 1947 to an employee in any civil action

20 brought before such date of enactment but pending on

21 such date.

22 SEC. 4. MINIMUM WAGE INCREASE.

23 (a) SHORT TITLE.—This section may be cited as the

24 ‘‘Minimum Wage Increase Act of 1996’’.
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1 (b) AMENDMENT.—Paragraph (1) of section 6(a) of

2 the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a))

3 is amended to read as follows:

4 ‘‘(1) except as otherwise provided in this sec5 tion, not less than $4.25 an hour during the period

6 ending on June 30, 1996, not less than $4.75 an

7 hour during the year beginning on July 1, 1996, and

8 not less than $5.15 an hour after the expiration of

9 such year;’’.

10 SEC. 5. FAIR LABOR STANDARDS ACT AMENDMENTS.

11 (a) COMPUTER PROFESSIONALS.—Section 13(a) of

12 the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a))

13 is amended by striking the period at the end of paragraph

14 (16) and inserting ‘‘; or’’ and by adding after that para15 graph the following:

16 ‘‘(17) any employee who is a computer systems

17 analyst, computer programmer, software engineer,

18 or other similarly skilled worker, whose primary duty

19 is—

20 ‘‘(A) the application of systems analysis

21 techniques and procedures, including consulting

22 with users, to determine hardware, software, or

23 system functional specifications;

24 ‘‘(B) the design, development, documenta25 tion, analysis, creation, testing, or modification
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1 of computer systems or programs, including

2 prototypes, based on and related to user or sys3 tem design specifications;

4 ‘‘(C) the design, documentation, testing,

5 creation, or modification of computer programs

6 related to machine operating systems; or

7 ‘‘(D) a combination of duties described in

8 subparagraphs (A), (B), and (C) the perform9 ance of which requires the same level of skills,

10 and

11 who, in the case of an employee who is compensated

12 on an hourly basis, is compensated at a rate of not

13 less than $27.63 an hour.’’.

14 (b) TIP CREDIT.—The next to last sentence of sec15 tion 3(m) of the Fair Labor Standards Act of 1938 (29

16 U.S.C. 203(m)) is amended to read as follows: ‘‘In deter17 mining the wage an employer is required to pay a tipped

18 employee, the amount paid such employee by the employ19 ee’s employer shall be an amount equal to—

20 ‘‘(1) the cash wage paid such employee which

21 for purposes of such determination shall be not less

22 than the cash wage required to be paid such an em23 ployee on the date of the enactment of this para24 graph; and
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1 ‘‘(2) an additional amount on account of the

2 tips received by such employee which amount is

3 equal to the difference between the wage specified in

4 paragraph (1) and the cash wage in effect under sec5 tion 6(a)(1).

6 The additional amount on account of tips may not exceed

7 the value of the tips actually received by an employee.’’.

8 (c) OPPORTUNITY WAGE.—Section 6 of the Fair

9 Labor Standards Act of 1938 (29 U.S.C. 206) is amended

10 by adding at the end the following:

11 ‘‘(g)(1) In lieu of the rate prescribed by subsection

12 (a)(1), any employer may pay any employee of such em13 ployer, during the first 90 consecutive calendar days after

14 such employee is initially employed by such employer, a

15 wage which is not less than $4.25 an hour.

16 ‘‘(2) No employer may take any action to displace

17 employees (including partial displacements such as reduc18 tion in hours, wages, or employment benefits) for purposes

19 of hiring individuals at the wage authorized in paragraph

20 (1).

21 ‘‘(3) Any employer who violates this subsection shall

22 be considered to have violated section 15(a)(3).
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1 ‘‘(4) This subsection shall only apply to an employee

2 who has not attained the age of 20 years.’’.

Passed the House of Representatives May 22, 1996.

Attest: ROBIN H. CARLE,

Clerk.

By LINDA NAVE,

Deputy Clerk.