Union Calendar No. 191

103D CONGRESS

1ST SESSION H. R. 3419

[Report No. 103–353]

A BILL

To simplify certain provisions of the Internal

Revenue Code of 1986, and for other purposes.

NOVEMBER 10, 1993

Reported with amendments, committed to the Committee

dered to be printedof the Whole House on the State of the Union, and or-
IB

Union Calendar No. 191

103D CONGRESS

1ST SESSION H. R. 3419

[Report No. 103–353]

To simplify certain provisions of the Internal Revenue Code of 1986, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 1, 1993

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

Committee on Ways and Means

NOVEMBER 10, 1993

Reported with amendments, committed to the Committee of the Whole House

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

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

A BILL

To simplify certain provisions of the Internal Revenue Code

of 1986, and for other purposes.

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

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

3 ‘‘Tax Simplification and Technical Corrections Act of

4 1993’’.

5 (b) AMENDMENT OF 1986 CODE.—Except as other6 wise expressly provided, whenever in this Act an amend7 ment or repeal is expressed in terms of an amendment

8 to, or repeal of, a section or other provision, the reference

9 shall be considered to be made to a section or other provi10 sion of the Internal Revenue Code of 1986.

11 (c) TABLE OF CONTENTS.—

Sec. 1. Short title, etc.

TITLE I—PROVISIONS RELATING TO INDIVIDUALS

Subtitle A—Provisions Relating to Rollover of Gain on Sale of Principal

Residence

Sec. 101. Multiple sales within rollover period.

Sec. 102. Special rules in case of divorce.

Subtitle B—Other Provisions

Sec. 111. De minimis exception to passive loss rules.

Sec. 112. Payment of tax by credit card.

Sec. 113. Modifications to election to include child’s income on parent’s return.

Sec. 114. Simplified foreign tax credit limitation for individuals.

Sec. 115. Treatment of personal transactions by individuals under foreign currency rules.

Sec. 116. Expanded access to simplified income tax returns.

Sec. 117. Treatment of certain reimbursed expenses of rural mail carriers.

Sec. 118. Exclusion of combat pay from withholding limited to amount excludable from gross income.

TITLE II—PENSION SIMPLIFICATION

Subtitle A—Simplified Distribution Rules

Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.

Sec. 202. Repeal of $5,000 exclusion of employees’ death benefits.

Sec. 203. Simplified method for taxing annuity distributions under certain employer plans.

Sec. 204. Required distributions.
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Subtitle B—Increased Access to Pension Plans

Sec. 211. Modifications of simplified employee pensions.

Sec. 212. Tax exempt organizations eligible under section 401(k).

Sec. 213. Duties of sponsors of certain prototype plans.

Subtitle C—Nondiscrimination Provisions

Sec. 221. Definition of highly compensated employees.

Sec. 222. Modification of additional participation requirements.

Sec. 223. Nondiscrimination rules for qualified cash or deferred arrangements

and matching contributions.

Subtitle D—Miscellaneous Simplification

Sec. 231. Treatment of leased employees.

Sec. 232. Modifications of cost-of-living adjustments.

Sec. 233. Plans covering self-employed individuals.

Sec. 234. Elimination of special vesting rule for multiemployer plans.

Sec. 235. Full-funding limitation of multiemployer plans.

Sec. 236. Alternative full-funding limitation.

Sec. 237. Distributions under rural cooperative plans.

Sec. 238. Treatment of governmental plans under section 415.

Sec. 239. Uniform retirement age.

Sec. 240. Uniform penalty provisions to apply to certain pension reporting requirements.

Sec. 241. Contributions on behalf of disabled employees.

Sec. 242. Special rules for plans covering pilots.

Sec. 243. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

Sec. 244. Treatment of employer reversions required by contract to be paid to

the United States.

Sec. 245. Continuation health coverage for employees of failed financial institutions.

Sec. 246. Date for adoption of plan amendments.

TITLE III—TREATMENT OF LARGE PARTNERSHIPS

Subtitle A—General Provisions

Sec. 301. Simplified flow-through for large partnerships.

Sec. 302. Simplified audit procedures for large partnerships.

Sec. 303. Due date for furnishing information to partners of large partnerships.

Sec. 304. Returns may be required on magnetic media.

Sec. 305. Treatment of partnership items of individual retirement accounts.

Sec. 306. Effective date.

Subtitle B—Provisions Related to TEFRA Partnership Proceedings

Sec. 311. Treatment of partnership items in deficiency proceedings.

Sec. 312. Partnership return to be determinative of audit procedures to be followed.

Sec. 313. Provisions relating to statute of limitations.

Sec. 314. Expansion of small partnership exception.

Sec. 315. Exclusion of partial settlements from 1 year limitation on assessment.

Sec. 316. Extension of time for filing a request for administrative adjustment.
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Sec. 317. Availability of innocent spouse relief in context of partnership proceedings.

Sec. 318. Determination of penalties at partnership level.

Sec. 319. Provisions relating to court jurisdiction, etc.

Sec. 320. Treatment of premature petitions filed by notice partners or 5-percent groups.

Sec. 321. Bonds in case of appeals from TEFRA proceeding.

Sec. 322. Suspension of interest where delay in computational adjustment resulting from TEFRA settlements.

Sec. 323. Special rules for administrative adjustment requests with respect to

bad debts or worthless securities.

TITLE IV—FOREIGN PROVISIONS

Subtitle A—Simplification of Treatment of Passive Foreign Corporations

Sec. 401. Repeal of foreign personal holding company rules and foreign investment company rules.

Sec. 402. Replacement for passive foreign investment company rules.

Sec. 403. Technical and conforming amendments.

Sec. 404. Effective date.

Subtitle B—Treatment of Controlled Foreign Corporations

Sec. 411. Gain on certain stock sales by controlled foreign corporations treated

as dividends.

Sec. 412. Miscellaneous modifications to subpart F.

Sec. 413. Indirect foreign tax credit allowed for certain lower tier companies.

Subtitle C—Other Provisions

Sec. 421. Exchange rate used in translating foreign taxes.

Sec. 422. Election to use simplified section 904 limitation for alternative minimum tax.

Sec. 423. Modification of section 1491.

Sec. 424. Modification of section 367(b).

TITLE V—OTHER INCOME TAX PROVISIONS

Subtitle A—Provisions Relating to Subchapter S Corporations

Sec. 501. Authority to validate certain invalid elections.

Sec. 502. Treatment of distributions during loss years.

Sec. 503. Electing small business trusts.

Sec. 504. Other modifications.

Subtitle B—Accounting Provision

Sec. 511. Modifications to look-back method for long-term contracts.

Subtitle C—Provisions Relating to Regulated Investment Companies

Sec. 521. Repeal of 30-percent gross income limitation.

Sec. 522. Basis rules for shares in open-end regulated investment companies.

Sec. 523. Nonrecognition treatment for certain transfers by common trust

funds to regulated investment companies.

Subtitle D—Tax-Exempt Bond Provisions
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Sec. 531. Repeal of $100,000 limitation on unspent proceeds under 1-year exception from rebate.

Sec. 532. Exception from rebate for earnings on bona fide debt service fund

under construction bond rules.

Sec. 533. Repeal of debt service-based limitation on investment in certain

nonpurpose investments.

Sec. 534. Repeal of expired provisions.

Sec. 535. Clarification of investment-type property.

Sec. 536. Effective dates.

Subtitle E—Insurance Provisions

Sec. 541. Treatment of certain insurance contracts on retired lives.

Sec. 542. Treatment of modified guaranteed contracts.

Subtitle F—Other Provisions

Sec. 551. Closing of partnership taxable year with respect to deceased partner,

etc.

Sec. 552. Modification of credit for producing fuel from a nonconventional

source.

TITLE VI—ESTATE AND GIFT TAX PROVISIONS

Sec. 601. Clarification of waiver of certain rights of recovery.

Sec. 602. Adjustments for gifts within 3 years of decedent’s death.

Sec. 603. Clarification of qualified terminable interest rules.

Sec. 604. Transitional rule under section 2056A.

Sec. 605. Opportunity to correct certain failures under section 2032A.

TITLE VII—EXCISE TAX SIMPLIFICATION

Subtitle A—Provisions Related to Distilled Spirits, Wines, and Beer

Sec. 701. Credit or refund for imported bottled distilled spirits returned to distilled spirits plant.

Sec. 702. Authority to cancel or credit export bonds without submission of

records.

Sec. 703. Repeal of required maintenance of records on premises of distilled

spirits plant.

Sec. 704. Fermented material from any brewery may be received at a distilled

spirits plant.

Sec. 705. Repeal of requirement for wholesale dealers in liquors to post sign.

Sec. 706. Refund of tax to wine returned to bond not limited to

unmerchantable wine.

Sec. 707. Use of additional ameliorating material in certain wines.

Sec. 708. Domestically produced beer may be withdrawn free of tax for use of

foreign embassies, legations, etc.

Sec. 709. Beer may be withdrawn free of tax for destruction.

Sec. 710. Authority to allow drawback on exported beer without submission of

records.

Sec. 711. Transfer to brewery of beer imported in bulk without payment of tax.

Subtitle B—Other Excise Tax Provisions

Sec. 721. Authority to grant exemptions from registration requirements.

Sec. 722. Repeal of expired provisions.
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TITLE VIII—ADMINISTRATIVE PROVISIONS

Subtitle A—General Provisions

Sec. 801. Use of reproductions of returns stored in digital image format.

Sec. 802. Repeal of authority to disclose whether prospective juror has been audited.

Sec. 803. Repeal of special audit provisions for subchapter S items.

Sec. 804. Clarification of statute of limitations.

Sec. 805. Certain notices disregarded under provision increasing interest rate

on large corporate underpayments.

Subtitle B—Tax Court Procedures

Sec. 811. Overpayment determinations of Tax Court.

Sec. 812. Awarding of administrative costs.

Sec. 813. Redetermination of interest pursuant to motion.

Sec. 814. Application of net worth requirement for awards of litigation costs.

Subtitle C—Authority for Certain Cooperative Agreements

Sec. 821. Cooperative agreements with State tax authorities.

Subtitle D—Administrative Practice and Procedural Simplification

Sec. 831. Notification of reasons for termination or denial of installment agreements.

Sec. 832. Joint return may be made after separate returns without full payment of tax.

Sec. 833. Offers-in-compromise.

Sec. 834. Preliminary notice requirement.

Sec. 835. Penalties under section 6672.

Sec. 836. Required content of certain notices.

Sec. 837. Required notice of certain payments.

Sec. 838. Improved procedures for notifying Service of change of address or

name.

Sec. 839. Rights and responsibilities of divorced individuals.

TITLE IX—FINANCING PROVISIONS

Sec. 901. Certain amounts derived from foreign corporations treated as unrelated business taxable income.

Sec. 902. Special rules for rental use of dwelling for less than 15 days per year.

Sec. 903. Loss carryovers and carrybacks not excluded in applying taxable income limitation on certain reserve deductions.

Sec. 904. Extension of withholding to certain gambling winnings.

TITLE X—TECHNICAL CORRECTIONS

Subtitle A—Revenue Provisions

Sec. 1001. Amendments related to Revenue Reconciliation Act of 1990.

Sec. 1002. Amendments related to Revenue Reconciliation Act of 1993.

Sec. 1003. Miscellaneous provisions.

Subtitle B—Income Security and Human Resource Amendments
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PART I—AMENDMENTS RELATING TO OLD-AGE, SURVIVORS, AND DISABILITY

INSURANCE PROGRAM

Sec. 1011. Technical corrections related to OASDI in the Omnibus Budget

Reconciliation Act of 1990.

Sec. 1012. Elimination of rounding distortion in the calculation of the old-age,

survivors, and disability insurance contribution and benefit

base and the earnings test exempt amounts.

PART II—HUMAN RESOURCES PROVISIONS

Sec. 1016. Corrections related to the income security and human resources provisions of the Omnibus Budget Reconciliation Act of 1990.

Sec. 1017. Technical corrections related to the human resource and income security provisions of Omnibus Budget Reconciliation Act of

1989.

Sec. 1018. Elimination of obsolete provisions relating to treatment of the

earned income tax credit.

Sec. 1019. Redesignation of certain provisions.

Subtitle C—Tariff and Customs

Sec. 1021. Technical amendments to the Harmonized Tariff Schedule of the

United States.

Sec. 1022. Clarification regarding the application of customs user fees.

Sec. 1023. Technical amendments to the Omnibus Trade and Competitiveness

Act of 1988.

Sec. 1024. Technical amendment to the Customs and Trade Act of 1990.

Sec. 1025. Technical amendments regarding certain beneficiary countries.

Sec. 1026. Clarification of fees for certain customs services.

Sec. 1027. Conforming amendment to section 337 of the Tariff Act of 1930.

1 TITLE I—PROVISIONS RELATING

2 TO INDIVIDUALS

3 Subtitle A—Provisions Relating to

4 Rollover of Gain on Sale of

5 Principal Residence

6 SEC. 101. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

7 (a) GENERAL RULE.—

8 (1) Section 1034 (relating to rollover of gain on

9 sale of principal residence) is amended by striking

10 subsection (d).
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1 (2) Paragraph (4) of section 1034(c) is amend2 ed to read as follows:

3 ‘‘(4) If the taxpayer, during the period de4 scribed in subsection (a), purchases more than 1 res5 idence which is used by him as his principal resi6 dence at some time within 2 years after the date of

7 the sale of the old residence, only the first of such

8 residences so used by him after the date of such sale

9 shall constitute the new residence.’’

10 (3) Subsections (h)(1) and (k) of section 1034

11 are each amended by striking ‘‘(other than the 2

12 years referred to in subsection (c)(4))’’.

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

14 this section shall apply to sales of old residences (within

15 the meaning of section 1034 of the Internal Revenue Code

16 of 1986) after the date of the enactment of this Act.

17 SEC. 102. SPECIAL RULES IN CASE OF DIVORCE.

18 (a) IN GENERAL.—Subsection (c) of section 1034 is

19 amended by adding at the end thereof the following new

20 paragraph:

21 ‘‘(5) If—

22 ‘‘(A) a residence is sold by an individual

23 pursuant to a divorce or marital separation,

24 and
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1 ‘‘(B) the taxpayer used such residence as

2 his principal residence at any time during the

3 2-year period ending on the date of such sale,

4 for purposes of this section, such residence shall be

5 treated as the taxpayer’s principal residence at the

6 time of such sale.’’

7 (b) EFFECTIVE DATES.—The amendment made by

8 subsection (a) shall apply to sales of old residences (within

9 the meaning of section 1034 of the Internal Revenue Code

10 of 1986) after the date of the enactment of this Act.

11 Subtitle B—Other Provisions

12 SEC. 111. DE MINIMIS EXCEPTION TO PASSIVE LOSS RULES.

13 (a) GENERAL RULE.—Section 469 (relating to pas14 sive activity losses and credits limited) is amended—

15 (1) by striking subsection (m),

16 (2) by redesignating subsection (l) as subsection

17 (m), and

18 (3) by inserting after subsection (k) the follow19 ing new subsection:

20 ‘‘(l) DE MINIMIS EXCEPTION.—

21 ‘‘(1) IN GENERAL.—In the case of a natural

22 person, subsection (a) shall not apply to the passive

23 activity loss for any taxable year if the amount of

24 such loss does not exceed $200.
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1 ‘‘(2) EXCEPTION FOR ITEMS ATTRIBUTABLE TO

2 PUBLICLY TRADED PARTNERSHIPS.—This subsection

3 shall not apply to items treated separately under

4 subsection (k) (and such items shall not be taken

5 into account in determining whether paragraph (1)

6 applies to the taxpayer for the taxable year with re7 spect to other items).

8 ‘‘(3) ESTATES ELIGIBLE.—For purposes of this

9 subsection, an estate shall be treated as a natural

10 person with respect to any taxable year ending less

11 than 2 years after the death of the decedent.

12 ‘‘(4) MARRIED INDIVIDUALS FILING SEPA13 RATELY.—

14 ‘‘(A) IN GENERAL.—This subsection shall

15 not apply to a taxpayer who—

16 ‘‘(i) is a married individual filing a

17 separate return for the taxable year, and

18 ‘‘(ii) does not live apart from his

19 spouse at all times during such taxable

20 year.

21 ‘‘(B) LIMITATION.—Paragraph (1) shall be

22 applied by substituting ‘$100’ for ‘$200’ in the

23 case of a married individual who files a sepa24 rate return for the taxable year and to whom
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1 this subsection applies after the application of

2 subparagraph (A).’’

3 (b) CONFORMING AMENDMENTS.—

4 (1) Subparagraph (C) of section 56(b)(1) is

5 amended by striking clause (ii) and redesignating

6 the following clauses accordingly.

7 (2) Subsection (b) of section 58 is amended by

8 inserting ‘‘and’’ at the end of paragraph (1), by

9 striking paragraph (2), and by redesignating para10 graph (3) as paragraph (2).

11 (3) Paragraph (4) of section 163(d) is amended

12 by striking subparagraph (E).

13 (4) Subsection (d) of section 163 is amended by

14 striking paragraph (6).

15 (5) Subsection (h) of section 163 is amended by

16 striking paragraph (5).

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

18 this section shall apply to taxable years beginning after

19 December 31, 1993.

20 SEC. 112. PAYMENT OF TAX BY CREDIT CARD.

21 (a) GENERAL RULE.—Section 6311 is amended to

22 read as follows:
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1 ‘‘SEC. 6311. PAYMENT BY CHECK, MONEY ORDER, OR

2 OTHER MEANS.

3 ‘‘(a) AUTHORITY TO RECEIVE.—It shall be lawful for

4 the Secretary to receive for internal revenue taxes (or in

5 payment for internal revenue stamps) checks, money or6 ders, or any other commercially acceptable means that the

7 Secretary deems appropriate, including payment by use of

8 credit cards or debit cards, to the extent and under the

9 conditions provided in regulations prescribed by the

10 Secretary.

11 ‘‘(b) ULTIMATE LIABILITY.—If a check, money

12 order, or other method of payment, including payment by

13 credit card or debit card, so received is not duly paid, or

14 is paid and subsequently charged back to the Secretary,

15 the person by whom such check, or money order, or other

16 method of payment has been tendered shall remain liable

17 for the payment of the tax or for the stamps, and for all

18 legal penalties and additions, to the same extent as if such

19 check, money order, or other method of payment had not

20 been tendered.

21 ‘‘(c) LIABILITY OF BANKS AND OTHERS.—If any cer22 tified, treasurer’s, or cashier’s check (or other guaranteed

23 draft), or any money order, or any other means of pay24 ment that has been guaranteed by a financial institution

25 (such as a credit card or debit card transaction which has

26 been guaranteed expressly by a financial institution) so
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1 received is not duly paid, the United States shall, in addi2 tion to its right to exact payment from the party originally

3 indebted therefor, have a lien for—

4 ‘‘(1) the amount of such check (or draft) upon

5 all assets of the financial institution on which

6 drawn,

7 ‘‘(2) the amount of such money order upon all

8 the assets of the issuer thereof, or

9 ‘‘(3) the guaranteed amount of any other trans10 action upon all the assets of the institution making

11 such guarantee,

12 and such amount shall be paid out of such assets in pref13 erence to any other claims whatsoever against such finan14 cial institution, issuer, or guaranteeing institution, except

15 the necessary costs and expenses of administration and

16 the reimbursement of the United States for the amount

17 expended in the redemption of the circulating notes of

18 such financial institution.

19 ‘‘(d) PAYMENT BY OTHER MEANS.—

20 ‘‘(1) AUTHORITY TO PRESCRIBE REGULA21 TIONS.—The Secretary shall prescribe such regula22 tions as the Secretary deems necessary to receive

23 payment by commercially acceptable means, includ24 ing regulations that—
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1 ‘‘(A) specify which methods of payment by

2 commercially acceptable means will be accept3 able,

4 ‘‘(B) specify when payment by such means

5 will be considered received,

6 ‘‘(C) identify types of nontax matters re7 lated to payment by such means that are to be

8 resolved by persons ultimately liable for pay9 ment and financial intermediaries, without the

10 involvement of the Secretary, and

11 ‘‘(D) ensure that tax matters will be re12 solved by the Secretary, without the involve13 ment of financial intermediaries.

14 ‘‘(2) AUTHORITY TO ENTER INTO CON15 TRACTS.—Notwithstanding section 3718(f) of title

16 31, United States Code, the Secretary is authorized

17 to enter into contracts to obtain services related to

18 receiving payment by other means where cost bene19 ficial to the Government and is further authorized to

20 pay any fees required by such contracts.

21 ‘‘(3) SPECIAL PROVISIONS FOR USE OF CREDIT

22 CARDS.—If use of credit cards is accepted as a

23 method of payment of taxes pursuant to subsection

24 (a)—
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1 ‘‘(A) a payment of internal revenue taxes

2 (or a payment for internal revenue stamps) by

3 a person by use of a credit card shall not be

4 subject to section 161 of the Truth-in-Lending

5 Act (15 U.S.C. 1666), or to any similar provi6 sions of State law, if the error alleged by the

7 person is an error relating to the underlying tax

8 liability, rather than an error relating to the

9 credit card account such as a computational

10 error or numerical transposition in the credit

11 card transaction or an issue as to whether the

12 person authorized payment by use of the credit

13 card,

14 ‘‘(B) a payment of internal revenue taxes

15 (or a payment for internal revenue stamps)

16 shall not be subject to section 170 of the Truth17 in-Lending Act (15 U.S.C. 1666i), or to any

18 similar provisions of State law,

19 ‘‘(C) a payment of internal revenue taxes

20 (or a payment for internal revenue stamps) by

21 a person by use of a debit card shall not be

22 subject to section 908 of the Electronic Fund

23 Transfer Act (15 U.S.C. 1693f), or to any simi24 lar provisions of State law, if the error alleged

25 by the person is an error relating to the under-
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1 lying tax liability, rather than an error relating

2 to the debit card account such as a computa3 tional error or numerical transposition in the

4 debit card transaction or an issue as to whether

5 the person authorized payment by use of the

6 debit card,

7 ‘‘(D) the term ‘creditor’ under section

8 103(f) of the Truth-in-Lending Act (15 U.S.C.

9 1602(f)) shall not include the Secretary with re10 spect to credit card transactions in payment of

11 internal revenue taxes (or payment for internal

12 revenue stamps), and

13 ‘‘(E) notwithstanding any other provision

14 of law to the contrary, in the case of payment

15 made by credit card or debit card transaction of

16 an amount owed to a person as the result of the

17 correction of an error under section 161 of the

18 Truth-in-Lending Act (15 U.S.C. 1666) or sec19 tion 908 of the Electronic Fund Transfer Act

20 (15 U.S.C. 1693f), the Secretary is authorized

21 to provide such amount to such person as a

22 credit to that person’s credit card or debit card

23 account through the applicable credit card or

24 debit card system.

25 ‘‘(e) CONFIDENTIALITY OF INFORMATION.—
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1 ‘‘(1) IN GENERAL.—Except as otherwise au2 thorized by this subsection, no person may use or

3 disclose any information relating to credit or debit

4 card transactions obtained pursuant to section

5 6103(k)(8) other than for purposes directly related

6 to the processing of such transactions, or the billing

7 or collection of amounts charged or debited pursuant

8 thereto.

9 ‘‘(2) EXCEPTIONS.—

10 ‘‘(A) Debit or credit card issuers or others

11 acting on behalf of such issuers may also use

12 and disclose such information for purposes di13 rectly related to servicing an issuer’s accounts.

14 ‘‘(B) Debit or credit card issuers or others

15 directly involved in the processing of credit or

16 debit card transactions or the billing or collec17 tion of amounts charged or debited thereto may

18 also use and disclose such information for pur19 poses directly related to—

20 ‘‘(i) statistical risk and profitability

21 assessment;

22 ‘‘(ii) transferring receivables, ac23 counts, or interest therein;

24 ‘‘(iii) auditing the account informa25 tion;
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1 ‘‘(iv) complying with Federal, State,

2 or local law; and

3 ‘‘(v) properly authorized civil, crimi4 nal, or regulatory investigation by Federal,

5 State, or local authorities.

6 ‘‘(3) PROCEDURES.—Use and disclosure of in7 formation under this paragraph shall be made only

8 to the extent authorized by written procedures pro9 mulgated by the Secretary.

10 ‘‘(4) CROSS REFERENCE.—

‘‘For provision providing for civil damages for violation of paragraph (1), see section 7431.’’

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

12 for subchapter B of chapter 64 is amended by striking

13 the item relating to section 6311 and inserting the follow14 ing:

‘‘Sec. 6311. Payment by check, money order, or other means.’’

15 (c) AMENDMENTS TO SECTIONS 6103 AND 7431

16 WITH RESPECT TO DISCLOSURE AUTHORIZATION.—

17 (1) Subsection (k) of section 6103 (relating to

18 confidentiality and disclosure of returns and return

19 information) is amended by adding at the end there20 of the following new paragraph:

21 ‘‘(8) DISCLOSURE OF INFORMATION TO ADMIN22 ISTER SECTION 6311.—The Secretary may disclose

23 returns or return information to financial institu-
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1 tions and others to the extent the Secretary deems

2 necessary for the administration of section 6311.

3 Disclosures of information for purposes other than

4 to accept payments by checks or money orders shall

5 be made only to the extent authorized by written

6 procedures promulgated by the Secretary.’’

7 (2) Section 7431 (relating to civil damages for

8 unauthorized disclosure of returns and return infor9 mation) is amended by adding at the end thereof the

10 following new subsection:

11 ‘‘(g) SPECIAL RULE FOR INFORMATION OBTAINED

12 UNDER SECTION 6103(k)(8).—For purposes of this sec13 tion, any reference to section 6103 shall be treated as in14 cluding a reference to section 6311(e).’’

15 (3) Section 6103(p)(3)(A) is amended by strik16 ing ‘‘or (6)’’ and inserting in lieu thereof ‘‘(6), or

17 (8)’’.

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

19 this section shall take effect on the day 9 months after

20 the date of the enactment of this Act.

21 SEC. 113. MODIFICATIONS TO ELECTION TO INCLUDE

22 CHILD’S INCOME ON PARENT’S RETURN.

23 (a) ELIGIBILITY FOR ELECTION.—Clause (ii) of sec24 tion 1(g)(7)(A) (relating to election to include certain un-
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1 earned income of child on parent’s return) is amended to

2 read as follows:

3 ‘‘(i) (ii) such gross income is more

4 than the amount described in paragraph

5 (4)(A)(ii)(I) and less than 10 times the

6 amount so described,’’.

7 (b) COMPUTATION OF TAX.—Subparagraph (B) of

8 section 1(g)(7) (relating to income included on parent’s

9 return) is amended—

10 (1) by striking ‘‘$1,000’’ in clause (i) and in11 serting ‘‘twice the amount described in paragraph

12 (4)(A)(ii)(I)’’, and

13 (2) by amending subclause (II) of clause (ii) to

14 read as follows:

15 ‘‘(II) for each such child, 15 per16 cent of the lesser of the amount de17 scribed in paragraph (4)(A)(ii)(I) or

18 the excess of the gross income of such

19 child over the amount so described,

20 and’’.

21 (c) MINIMUM TAX.—Subparagraph (B) of section

22 59(j)(1) is amended by striking ‘‘$1,000’’ and inserting

23 ‘‘twice the amount in effect for the taxable year under sec24 tion 63(c)(5)(A)’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 SEC. 114. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION

5 FOR INDIVIDUALS.

6 (a) GENERAL RULE.—Section 904 (relating to limi7 tations on foreign tax credit) is amended by redesignating

8 subsection (j) as subsection (k) and by inserting after sub9 section (i) the following new subsection:

10 ‘‘(j) SIMPLIFIED LIMITATION FOR CERTAIN INDIVID11 UALS.—

12 ‘‘(1) IN GENERAL.—In the case of an individual

13 to whom this subsection applies for any taxable year,

14 the limitation of subsection (a) shall be the lesser

15 of—

16 ‘‘(A) 25 percent of such individual’s gross

17 income for the taxable year from sources with18 out the United States, or

19 ‘‘(B) the amount of the creditable foreign

20 taxes paid or accrued by the individual during

21 the taxable year (determined without regard to

22 subsection (c)).

23 No taxes paid or accrued by the individual during

24 such taxable year may be deemed paid or accrued in

25 any other taxable year under subsection (c).
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1 ‘‘(2) INDIVIDUALS TO WHOM SUBSECTION AP2 PLIES.—This subsection shall apply to an individual

3 for any taxable year if—

4 ‘‘(A) the entire amount of such individual’s

5 gross income for the taxable year from sources

6 without the United States consists of qualified

7 passive income,

8 ‘‘(B) the amount of the creditable foreign

9 taxes paid or accrued by the individual during

10 the taxable year does not exceed $200 ($400 in

11 the case of a joint return), and

12 ‘‘(C) such individual elects to have this

13 subsection apply for the taxable year.

14 ‘‘(3) DEFINITIONS.—For purposes of this sub15 section—

16 ‘‘(A) QUALIFIED PASSIVE INCOME.—The

17 term ‘qualified passive income’ means any item

18 of gross income if—

19 ‘‘(i) such item of income is passive in20 come (as defined in subsection (d)(2)(A)

21 without regard to clause (iii) thereof), and

22 ‘‘(ii) such item of income is shown on

23 a payee statement furnished to the individ24 ual.
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1 ‘‘(B) CREDITABLE FOREIGN TAXES.—The

2 term ‘creditable foreign taxes’ means any taxes

3 for which a credit is allowable under section

4 901; except that such term shall not include

5 any tax unless such tax is shown on a payee

6 statement furnished to such individual.

7 ‘‘(C) PAYEE STATEMENT.—The term

8 ‘payee statement’ has the meaning given to

9 such term by section 6724(d)(2).

10 ‘‘(D) ESTATES AND TRUSTS NOT ELIGI11 BLE.—This subsection shall not apply to any

12 estate or trust.’’

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

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

15 December 31, 1993.

16 SEC. 115. TREATMENT OF PERSONAL TRANSACTIONS BY

17 INDIVIDUALS UNDER FOREIGN CURRENCY

18 RULES.

19 (a) GENERAL RULE.—Subsection (e) of section 988

20 (relating to application to individuals) is amended to read

21 as follows:

22 ‘‘(e) APPLICATION TO INDIVIDUALS.—

23 ‘‘(1) IN GENERAL.—The preceding provisions of

24 this section shall not apply to any section 988 trans-
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1 action entered into by an individual which is a per2 sonal transaction.

3 ‘‘(2) EXCLUSION FOR CERTAIN PERSONAL

4 TRANSACTIONS.—If—

5 ‘‘(A) nonfunctional currency is disposed of

6 by an individual in any transaction, and

7 ‘‘(B) such transaction is a personal trans8 action,

9 no gain shall be recognized for purposes of this sub10 title by reason of changes in exchange rates after

11 such currency was acquired by such individual and

12 before such disposition. The preceding sentence shall

13 not apply if the gain which would otherwise be rec14 ognized exceeds $200.

15 ‘‘(3) PERSONAL TRANSACTIONS.—For purposes

16 of this subsection, the term ‘personal transaction’

17 means any transaction entered into by an individual,

18 except that such term shall not include any trans19 action to the extent that expenses properly allocable

20 to such transaction meet the requirements of section

21 162 or 212 (other than that part of section 212

22 dealing with expenses incurred in connection with

23 taxes).’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1992.

4 SEC. 116. EXPANDED ACCESS TO SIMPLIFIED INCOME TAX

5 RETURNS.

6 (a) GENERAL RULE.—The Secretary of the Treasury

7 or his delegate shall take such actions as may be appro8 priate to expand access to simplified individual income tax

9 returns and to otherwise simplify the individual income tax

10 returns, including—

11 (1) (if appropriate) allowing taxpayers who

12 itemize deductions to file their return on Form

13 1040A, and

14 (2) removing or raising the taxable income limi15 tations on taxpayers who may file Form 1040A.

16 (b) REPORT.—Not later than the date 1 year after

17 the date of the enactment of this Act, the Secretary of

18 the Treasury or his delegate shall submit a report to the

19 Committee on Ways and Means of the House of Rep20 resentatives and the Committee on Finance of the Senate,

21 a report on his actions under subsection (a), together with

22 such recommendations as he may deem advisable.
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1 SEC. 117. TREATMENT OF CERTAIN REIMBURSED EX2 PENSES OF RURAL MAIL CARRIERS.

3 (a) IN GENERAL.—Section 162 (relating to trade or

4 business expenses) is amended by redesignating subsection

5 (o) as subsection (p) and by inserting after subsection (n)

6 the following new subsection:

7 ‘‘(o) TREATMENT OF CERTAIN REIMBURSED EX8 PENSES OF RURAL MAIL CARRIERS.—

9 ‘‘(1) GENERAL RULE.—In the case of any em10 ployee of the United States Postal Service who per11 forms services involving the collection and delivery of

12 mail on a rural route and who receives qualified re13 imbursements for the expenses incurred by such em14 ployee for the use of a vehicle in performing such

15 services—

16 ‘‘(A) the amount allowable as a deduction

17 under this chapter for the use of a vehicle in

18 performing such services shall be equal to the

19 amount of such qualified reimbursements; and

20 ‘‘(B) such qualified reimbursements shall

21 be treated as paid under a reimbursement or

22 other expense allowance arrangement for pur23 poses of section 62(a)(2)(A) (and section 62(c)

24 shall not apply to such qualified reimburse25 ments).
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1 ‘‘(2) DEFINITION OF QUALIFIED REIMBURSE2 MENTS.—For purposes of this subsection, the term

3 ‘qualified reimbursements’ means the amounts paid

4 by the United States Postal Service to employees as

5 an equipment maintenance allowance under the

6 1991 collective bargaining agreement between the

7 United States Postal Service and the National Rural

8 Letter Carriers’ Association. Amounts paid as an

9 equipment maintenance allowance by such Postal

10 Service under later collective bargaining agreements

11 that supersede the 1991 agreement shall be consid12 ered qualified reimbursements if such amounts do

13 not exceed the amounts that would have been paid

14 under the 1991 agreement, adjusted for changes in

15 the Consumer Price Index (as defined in section

16 1(f)(5)) since 1991.’’

17 (b) TECHNICAL AMENDMENT.—Section 6008 of the

18 Technical and Miscellaneous Revenue Act of 1988 is here19 by repealed.

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

21 this section shall apply to taxable years beginning after

22 December 31, 1992.
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1 SEC. 118. EXCLUSION OF COMBAT PAY FROM WITHHOLD2 ING LIMITED TO AMOUNT EXCLUDABLE

3 FROM GROSS INCOME.

4 (a) IN GENERAL.—Paragraph (1) of section 3401(a)

5 (defining wages) is amended by inserting before the semi6 colon the following: ‘‘to the extent remuneration for such

7 service is excludable from gross income under such

8 section’’.

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

10 subsection (a) shall apply to remuneration paid after

11 December 31, 1994.

12 TITLE II—PENSION

13 SIMPLIFICATION

14 Subtitle A—Simplified Distribution

15 Rules

16 SEC. 201. REPEAL OF 5-YEAR INCOME AVERAGING FOR

17 LUMP-SUM DISTRIBUTIONS.

18 (a) IN GENERAL.—Subsection (d) of section 402 (re19 lating to taxability of beneficiary of employees’ trust) is

20 amended to read as follows:

21 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

22 FOREIGN SITUS TRUSTS.—For purposes of subsections

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

24 trust which would qualify for exemption from tax under

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

26 or organized outside the United States shall be treated
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1 as if it were a trust exempt from tax under section

2 501(a).’’

3 (b) CONFORMING AMENDMENTS.—

4 (1) Subparagraph (D) of section 402(e)(4) (re5 lating to other rules applicable to exempt trusts) is

6 amended to read as follows:

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

9 ‘‘(i) IN GENERAL.—The term ‘lump

10 sum distribution’ means the distribution or

11 payment within one taxable year of the re12 cipient of the balance to the credit of an

13 employee which becomes payable to the re14 cipient—

15 ‘‘(I) on account of the employee’s

16 death,

17 ‘‘(II) after the employee attains

age 591 18 ⁄2,

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

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

23 section 72(m)(7)),

24 from a trust which forms a part of a plan

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

2 a plan described in section 403(a).

3 Subclause (III) of this clause shall be ap4 plied only with respect to an individual

5 who is an employee without regard to sec6 tion 401(c)(1), and subclause (IV) shall be

7 applied only with respect to an employee

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

9 For purposes of this clause, a distribution

10 to two or more trusts shall be treated as

11 a distribution to one recipient. For pur12 poses of this paragraph, the balance to the

13 credit of the employee does not include the

14 accumulated deductible employee contribu15 tions under the plan (within the meaning

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

17 ‘‘(ii) AGGREGATION OF CERTAIN

18 TRUSTS AND PLANS.—For purposes of de19 termining the balance to the credit of an

20 employee under clause (i)—

21 ‘‘(I) all trusts which are part of

22 a plan shall be treated as a single

23 trust, all pension plans maintained by

24 the employer shall be treated as a sin25 gle plan, all profit-sharing plans main-
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1 tained by the employer shall be treat2 ed as a single plan, and all stock

3 bonus plans maintained by the em4 ployer shall be treated as a single

5 plan, and

6 ‘‘(II) trusts which are not quali7 fied trusts under section 401(a) and

8 annuity contracts which do not satisfy

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

10 shall not be taken into account.

11 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

12 The provisions of this paragraph shall be

13 applied without regard to community prop14 erty laws.

15 ‘‘(iv) AMOUNTS SUBJECT TO PEN16 ALTY.—This paragraph shall not apply to

17 amounts described in subparagraph (A) of

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

19 72(m)(5) applies to such amounts.

20 ‘‘(v) BALANCE TO CREDIT OF EM21 PLOYEE NOT TO INCLUDE AMOUNTS PAY22 ABLE UNDER QUALIFIED DOMESTIC RELA23 TIONS ORDER.—For purposes of this para24 graph, the balance to the credit of an em25 ployee shall not include any amount pay-
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1 able to an alternate payee under a quali2 fied domestic relations order (within the

3 meaning of section 414(p)).

4 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

5 ARRANGEMENT NOT TREATED AS DIS6 TRIBUTION.—For purposes of this para7 graph, the balance to the credit of an em8 ployee under a defined contribution plan

9 shall not include any amount transferred

10 from such defined contribution plan to a

11 qualified cost-of-living arrangement (within

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

13 defined benefit plan.

14 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

15 ALTERNATE PAYEES.—If any distribution

16 or payment of the balance to the credit of

17 an employee would be treated as a lump18 sum distribution, then, for purposes of this

19 paragraph, the payment under a qualified

20 domestic relations order (within the mean21 ing of section 414(p)) of the balance to the

22 credit of an alternate payee who is the

23 spouse or former spouse of the employee

24 shall be treated as a lump-sum distribu25 tion. For purposes of this clause, the bal-
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1 ance to the credit of the alternate payee

2 shall not include any amount payable to

3 the employee.’’

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

5 to rollovers from exempt trusts) is amended by strik6 ing paragraph (10).

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

8 regular tax) is amended by striking ‘‘shall not in9 clude any tax imposed by section 402(d) and’’.

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

11 certain portion of lump-sum distributions from pen12 sion plans taxed under section 402(d)) is hereby

13 repealed.

14 (5) Section 401(a)(28)(B) (relating to coordina15 tion with distribution rules) is amended by striking

16 clause (v).

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

18 (relating to distributions that must be lump-sum dis19 tributions) is amended to read as follows:

20 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

21 purposes of this subparagraph, the term

22 ‘lump-sum distribution’ means any dis23 tribution of the balance to the credit of an

24 employee immediately before the distribu25 tion.’’
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1 (7) Section 406(c) (relating to termination of

2 status as deemed employee not to be treated as sep3 aration from service for purposes of limitation of

4 tax) is hereby repealed.

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

6 status as deemed employee not to be treated as sep7 aration from service for purposes of limitation of

8 tax) is hereby repealed.

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

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

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

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

14 55’’.

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

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

17 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

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

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

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

21 ‘‘(as defined in section 402(e)(4)(D)) with re22 spect to which the individual elects to have this

23 paragraph apply’’,

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

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

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

3 (C) by striking the heading and inserting:

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

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

6 paragraph (5).

7 (c) EFFECTIVE DATES.—

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

9 this section shall apply to taxable years beginning

10 after December 31, 1993.

11 (2) RETENTION OF CERTAIN TRANSITION

12 RULES.—Notwithstanding any other provision of

13 this section, the amendments made by this section

14 shall not apply to any distribution for which the tax15 payer elects the benefits of section 1122 (h)(3) or

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

17 of the preceding sentence, the rules of sections

18 402(c)(10) and 402(d) of the Internal Revenue Code

19 of 1986 (as in effect before the amendments made

20 by this Act) shall apply.

21 SEC. 202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’

22 DEATH BENEFITS.

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

24 hereby repealed.
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1 (b) CONFORMING AMENDMENT.—Subsection (c) of

2 section 101 is amended by striking ‘‘subsection (a) or (b)’’

3 and inserting ‘‘subsection (a)’’.

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

5 this section shall apply to taxable years beginning after

6 December 31, 1993.

7 SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS8 TRIBUTIONS UNDER CERTAIN EMPLOYER

9 PLANS.

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

11 (relating to annuities; certain proceeds of endowment and

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

13 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

14 RETIREMENT PLANS.—

15 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

16 PAYMENTS.—

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

18 amount received as an annuity under a quali19 fied employer retirement plan—

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

21 and

22 ‘‘(ii) the investment in the contract

23 shall be recovered as provided in this para24 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.—

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

Not more than 55 ................................ 300
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More than 55 but not more than 60 ... 260

More than 60 but not more than 65 ... 240

More than 65 but not more than 70 ... 170

More than 70 ....................................... 120

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 start22 ing date unless there are fewer than 5 years of

23 guaranteed payments under the annuity.
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1 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY2 MENTS NOT ON MONTHLY BASIS.—In any case

3 where the annuity payments are not made on a

4 monthly basis, appropriate adjustments in the

5 application of this paragraph shall be made to

6 take into account the period on the basis of

7 which such payments are made.

8 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

9 PLAN.—For purposes of this paragraph, the

10 term ‘qualified employer retirement plan’ means

11 any plan or contract described in paragraph

12 (1), (2), or (3) of section 4974(c).

13 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBU14 TIONS UNDER DEFINED CONTRIBUTION PLANS.—

15 For purposes of this section, employee contributions

16 (and any income allocable thereto) under a defined

17 contribution plan may be treated as a separate

18 contract.’’

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

20 subsection (a) shall apply in cases where the annuity start21 ing date is after December 31, 1993.

22 SEC. 204. REQUIRED DISTRIBUTIONS.

23 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re24 quired beginning date) is amended to read as follows:
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1 ‘‘(C) REQUIRED BEGINNING DATE.—For

2 purposes of this paragraph—

3 ‘‘(i) IN GENERAL.—The term ‘re4 quired beginning date’ means April 1 of

5 the calendar year following the later of—

6 ‘‘(I) the calendar year in which

the employee attains age 701 7 ⁄2, or

8 ‘‘(II) the calendar year in which

9 the employee retires.

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

11 clause (i) shall not apply—

12 ‘‘(I) except as provided in section

13 409(d), in the case of an employee

14 who is a 5-percent owner (as defined

15 in section 416) with respect to the

16 plan year ending in the calendar year

17 in which the employee attains age

701 18 ⁄2, or

19 ‘‘(II) for purposes of section 408

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

21 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

22 the case of an employee to whom clause

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

24 year after the calendar year in which the

employee attains age 701 25 ⁄2, the employee’s
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1 accrued benefit shall be actuarially in2 creased to take into account the period

after age 701 3 ⁄2 in which the employee was

4 not receiving any benefits under the plan.

5 ‘‘(iv) EXCEPTION FOR GOVERN6 MENTAL AND CHURCH PLANS.—Clauses

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

8 a governmental plan or church plan. For

9 purposes of this clause, the term ‘church

10 plan’ means a plan maintained by a church

11 for church employees, and the term

12 ‘church’ means any church (as defined in

13 section 3121(w)(3)(A)) or qualified church14 controlled organization (as defined in sec15 tion 3121(w)(3)(B)).’’

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

17 subsection (a) shall apply to years beginning after Decem18 ber 31, 1993.

19 Subtitle B—Increased Access to

20 Pension Plans

21 SEC. 211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PEN22 SIONS.

23 (a) INCREASE IN NUMBER OF ALLOWABLE PARTICI24 PANTS FOR SALARY REDUCTION ARRANGEMENTS.—Sec25 tion 408(k)(6)(B) is amended by striking ‘‘25’’ each place
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1 it appears in the text and heading thereof and inserting

2 ‘‘100’’.

3 (b) REPEAL OF PARTICIPATION REQUIREMENT.—

4 Section 408(k)(6)(A) is amended by striking clause (ii)

5 and by redesignating clauses (iii) and (iv) as clauses (ii)

6 and (iii), respectively.

7 (c) CONFORMING AMENDMENTS.—Clause (ii) of sec8 tion 408(k)(6)(C) and clause (ii) of section 408(k)(6)(F)

9 are each amended by striking ‘‘subparagraph (A)(iii)’’ and

10 inserting ‘‘subparagraph (A)(ii)’’.

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

12 this section shall apply to years beginning after December

13 31, 1993.

14 SEC. 212. TAX EXEMPT ORGANIZATIONS ELIGIBLE UNDER

15 SECTION 401(k).

16 (a) GENERAL RULE.—Subparagraph (B) of section

17 401(k)(4) is amended to read as follows:

18 ‘‘(B) STATE AND LOCAL GOVERNMENTS

19 NOT ELIGIBLE.—A cash or deferred arrange20 ment shall not be treated as a qualified cash or

21 deferred arrangement if it is part of a plan

22 maintained by a State or local government or

23 political subdivision thereof, or any agency or

24 instrumentality thereof. This subparagraph

25 shall not apply to a rural cooperative plan.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to plan years beginning after De3 cember 31, 1993, but shall not apply to any cash or de4 ferred arrangement to which clause (i) of section

5 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

6 SEC. 213. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE

7 PLANS.

8 (a) IN GENERAL.—The Secretary of the Treasury

9 may, as a condition of sponsorship, prescribe rules defin10 ing the duties and responsibilities of sponsors of master

11 and prototype plans, regional prototype plans, and other

12 Internal Revenue Service preapproved plans.

13 (b) DUTIES RELATING TO PLAN AMENDMENT, NOTI14 FICATION OF ADOPTERS, AND PLAN ADMINISTRATION.—

15 The duties and responsibilities referred to in subsection

16 (a) may include—

17 (1) the maintenance of lists of persons adopting

18 the sponsor’s plans, including the updating of such

19 lists not less frequently than annually,

20 (2) the furnishing of notices at least annually

21 to such persons and to the Secretary or his delegate,

22 in such form and at such time as the Secretary shall

23 prescribe,

24 (3) duties relating to administrative services to

25 such persons in the operation of their plans, and
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1 (4) other duties that the Secretary considers

2 necessary to ensure that—

3 (A) the master and prototype, regional

4 prototype, and other preapproved plans of

5 adopting employers are timely amended to meet

6 the requirements of the Internal Revenue Code

7 of 1986 or of any rule or regulation of the Sec8 retary, and

9 (B) adopting employers receive timely noti10 fication of amendments and other actions taken

11 by sponsors with respect to their plans.

12 Subtitle C—Nondiscrimination

13 Provisions

14 SEC. 221. DEFINITION OF HIGHLY COMPENSATED EM15 PLOYEES.

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

17 (defining highly compensated employee) is amended to

18 read as follows:

19 ‘‘(1) IN GENERAL.—The term ‘highly com20 pensated employee’ means any employee who—

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

22 during the year or the preceding year, or

23 ‘‘(B) had compensation for the preceding

24 year from the employer in excess of $50,000.
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1 The Secretary shall adjust the $50,000 amount

2 under subparagraph (B) at the same time and in the

3 same manner as under section 415(d).’’

4 (b) SPECIAL RULE WHERE NO EMPLOYEES TREAT5 ED AS HIGHLY COMPENSATED.—Paragraph (2) of section

6 414(q) is amended to read as follows:

7 ‘‘(2) SPECIAL RULE IF NO EMPLOYEE DE8 SCRIBED IN PARAGRAPH (1).—If no employee is

9 treated as a highly compensated employee under

10 paragraph (1), the highest paid officer for the year

11 shall be treated as a highly compensated employee.’’

12 (c) TREATMENT OF FAMILY MEMBERS.—Paragraph

13 (6) of section 414(q) is hereby repealed.

14 (d) CONFORMING AMENDMENTS.—

15 (1) Paragraphs (4), (5), (8), and (12) of section

16 414(q) are hereby repealed.

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

18 the end thereof the following new paragraph:

19 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

20 this subsection, the following employees shall be ex21 cluded:

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

23 months of service.

24 ‘‘(B) Employees who normally work less

than 171 25 ⁄2 hours per week.
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1 ‘‘(C) Employees who normally work not

2 more than 6 months during any year.

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

4 age of 21.

5 ‘‘(E) Except to the extent provided in reg6 ulations, employees who are included in a unit

7 of employees covered by an agreement which

8 the Secretary of Labor finds to be a collective

9 bargaining agreement between employee rep10 resentatives and the employer.

11 Except as provided by the Secretary, the employer

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

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

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

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

16 age (as the case may be) specified in such subpara17 graph.’’

18 (B) Subparagraph (A) of section 414(r)(2) is

19 amended by striking ‘‘subsection (q)(8)’’ and insert20 ing ‘‘paragraph (9)’’.

21 (3) Subparagraph (A) of section 401(a)(17) is

22 amended by striking the last sentence.

23 (4) Subsection (l) of section 404 is amended by

24 striking the last sentence.
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1 (5) Section 1114(c)(4) of the Tax Reform Act

2 of 1986 is amended by adding at the end the follow3 ing new sentence: ‘‘Any reference in this paragraph

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

5 such section as in effect before the Tax Simplifica6 tion and Technical Corrections Act of 1993.’’

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

8 this section shall apply to years beginning after December

9 31, 1993.

10 SEC. 222. MODIFICATION OF ADDITIONAL PARTICIPATION

11 REQUIREMENTS.

12 (a) GENERAL RULE.—Section 401(a)(26)(A) (relat13 ing to additional participation requirements) is amended

14 to read as follows:

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

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

17 trust shall not constitute a qualified trust under

18 this subsection unless on each day of the plan

19 year such trust benefits at least the lesser of—

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

21 ‘‘(ii) the greater of—

22 ‘‘(I) 40 percent of all employees

23 of the employer, or

24 ‘‘(II) 2 employees (or if there is

25 only 1 employee, such employee).’’
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1 (b) SEPARATE LINE OF BUSINESS TEST.—Section

2 401(a)(26)(G) (relating to separate line of business) is

3 amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para4 graph (2)(A) or (7)’’.

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

6 this section shall apply to years beginning after December

7 31, 1993.

8 SEC. 223. NONDISCRIMINATION RULES FOR QUALIFIED

9 CASH OR DEFERRED ARRANGEMENTS AND

10 MATCHING CONTRIBUTIONS.

11 (a) ALTERNATIVE METHODS OF SATISFYING SEC12 TION 401(k) NONDISCRIMINATION TESTS.—Section

13 401(k) (relating to cash or deferred arrangements) is

14 amended by adding at the end thereof the following new

15 paragraph:

16 ‘‘(11) ALTERNATIVE METHODS OF MEETING

17 NONDISCRIMINATION REQUIREMENTS.—

18 ‘‘(A) IN GENERAL.—A cash or deferred ar19 rangement shall be treated as meeting the re20 quirements of paragraph (3)(A)(ii) if such ar21 rangement—

22 ‘‘(i) meets the contribution require23 ments of subparagraph (B) or (C), and

24 ‘‘(ii) meets the notice requirements of

25 subparagraph (D).
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1 ‘‘(B) MATCHING CONTRIBUTIONS.—

2 ‘‘(i) IN GENERAL.—The requirements

3 of this subparagraph are met if, under the

4 arrangement, the employer makes match5 ing contributions on behalf of each em6 ployee who is not a highly compensated

7 employee in an amount equal to—

8 ‘‘(I) 100 percent of the elective

9 contributions of the employee to the

10 extent such elective contributions do

11 not exceed 3 percent of the employee’s

12 compensation, and

13 ‘‘(II) 50 percent of the elective

14 contributions of the employee to the

15 extent that such elective contributions

16 exceed 3 percent but do not exceed 5

17 percent of the employee’s compensa18 tion.

19 ‘‘(ii) RATE FOR HIGHLY COM20 PENSATED EMPLOYEES.—The require21 ments of this subparagraph are not met if,

22 under the arrangement, the matching con23 tribution with respect to any elective con24 tribution of a highly compensated employee

25 at any level of compensation is greater
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1 than that with respect to an employee who

2 is not a highly compensated employee.

3 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

4 If the matching contribution with respect

5 to any elective contribution at any specific

6 level of compensation is not equal to the

7 percentage required under clause (i), an

8 arrangement shall not be treated as failing

9 to meet the requirements of clause (i) if—

10 ‘‘(I) the level of an employer’s

11 matching contribution does not in12 crease as an employee’s elective con13 tributions increase, and

14 ‘‘(II) the aggregate amount of

15 matching contributions with respect to

16 elective contributions not in excess of

17 such level of compensation is at least

18 equal to the amount of matching con19 tributions which would be made if

20 matching contributions were made on

21 the basis of the percentages described

22 in clause (i).

23 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

24 The requirements of this subparagraph are met

25 if, under the arrangement, the employer is re-
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1 quired, without regard to whether the employee

2 makes an elective contribution or employee con3 tribution, to make a contribution to a defined

4 contribution plan on behalf of each employee

5 who is not a highly compensated employee and

6 who is eligible to participate in the arrangement

7 in an amount equal to at least 3 percent of the

8 employee’s compensation.

9 ‘‘(D) NOTICE REQUIREMENT.—An ar10 rangement meets the requirements of this para11 graph if, under the arrangement, each employee

12 eligible to participate is, within a reasonable pe13 riod before any year, given written notice of the

14 employee’s rights and obligations under the ar15 rangement which—

16 ‘‘(i) is sufficiently accurate and com17 prehensive to appraise the employee of

18 such rights and obligations, and

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

20 to be understood by the average employee

21 eligible to participate.

22 ‘‘(E) OTHER REQUIREMENTS.—

23 ‘‘(i) WITHDRAWAL AND VESTING RE24 STRICTIONS.—An arrangement shall not be

25 treated as meeting the requirements of
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1 subparagraph (B) or (C) unless the re2 quirements of subparagraphs (B) and (C)

3 of paragraph (2) are met with respect to

4 all employer contributions (including

5 matching contributions).

6 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

7 CONTRIBUTIONS NOT TAKEN INTO AC8 COUNT.—An arrangement shall not be

9 treated as meeting the requirements of

10 subparagraph (B) or (C) unless such re11 quirements are met without regard to sub12 section (l), and, for purposes of subsection

13 (l), employer contributions under subpara14 graph (B) or (C) shall not be taken into

15 account.

16 ‘‘(F) OTHER PLANS.—An arrangement

17 shall be treated as meeting the requirements

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

19 maintained by the employer meets such require20 ments with respect to employees eligible under

21 the arrangement.’’

22 (b) ALTERNATIVE METHODS OF SATISFYING SEC23 TION 401(m) NONDISCRIMINATION TESTS.—Section

24 401(m) (relating to nondiscrimination test for matching

25 contributions and employee contributions) is amended by
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1 redesignating paragraph (10) as paragraph (11) and by

2 adding after paragraph (9) the following new paragraph:

3 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

4 TESTS.—

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

6 plan shall be treated as meeting the require7 ments of paragraph (2) with respect to match8 ing contributions if the plan—

9 ‘‘(i) meets the contribution require10 ments of subparagraph (B) or (C) of sub11 section (k)(11),

12 ‘‘(ii) meets the notice requirements of

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

14 ‘‘(iii) meets the requirements of sub15 paragraph (B).

16 ‘‘(B) LIMITATION ON MATCHING CON17 TRIBUTIONS.—The requirements of this sub18 paragraph are met if—

19 ‘‘(i) matching contributions on behalf

20 of any employee may not be made with

21 respect to an employee’s contributions or

22 elective deferrals in excess of 6 percent of

23 the employee’s compensation,

24 ‘‘(ii) the level of an employer’s match25 ing contribution does not increase as an
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1 employee’s contributions or elective defer2 rals increase, and

3 ‘‘(iii) the matching contribution with

4 respect to any highly compensated em5 ployee at a specific level of compensation is

6 not greater than that with respect to an

7 employee who is not a highly compensated

8 employee.’’

9 (c) YEAR FOR COMPUTING NONHIGHLY COM10 PENSATED EMPLOYEE PERCENTAGE.—

11 (1) CASH OR DEFERRED ARRANGEMENTS.—

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

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

14 ‘‘the plan year’’, and

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

16 inserting ‘‘the preceding plan year’’.

17 (2) MATCHING AND EMPLOYEE CONTRIBU18 TIONS.—Section 401(m)(2)(A) is amended—

19 (A) by inserting ‘‘for such plan year’’ after

20 ‘‘highly compensated employee employees’’, and

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

22 year’’ after ‘‘eligible employees’’ each place it

23 appears in clause (i) and clause (ii).

24 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE25 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—
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1 (1) Paragraph (3) of section 401(k) is amended

2 by adding at the end thereof the following new sub3 paragraph:

4 ‘‘(E) For purposes of this paragraph, in

5 the case of the first plan year of any plan, the

6 amount taken into account as the actual defer7 ral percentage of nonhighly compensated em8 ployees for the preceding plan year shall be—

9 ‘‘(i) 3 percent, or

10 ‘‘(ii) if the employer makes an election

11 under this subclause, the actual deferral

12 percentage of nonhighly compensated em13 ployees determined for such first plan

14 year.’’

15 (2) Paragraph (3) of section 401(m) is amend16 ed by adding at the end thereof the following:

17 ‘‘Rules similar to the rules of subsection (k)(3)(E)

18 shall apply for purposes of this subsection.’’

19 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS.—

20 (1) Subparagraph (C) of section 401(k)(8) (re21 lating to arrangement not disqualified if excess con22 tributions distributed) is amended by striking ‘‘on

23 the basis of the respective portions of the excess con24 tributions attributable to each of such employees’’

25 and inserting ‘‘on the basis of the amount of con-
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1 tributions by, or on behalf of, each of such employ2 ees’’.

3 (2) Subparagraph (C) of section 401(m)(6) (re4 lating to method of distributing excess aggregate

5 contributions) is amended by striking ‘‘on the basis

6 of the respective portions of such amounts attrib7 utable to each of such employees’’ and inserting ‘‘on

8 the basis of the amount of contributions on behalf

9 of, or by, each such employee’’.

10 (f) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to years beginning after December

12 31, 1993.

13 Subtitle D—Miscellaneous

14 Simplification

15 SEC. 231. TREATMENT OF LEASED EMPLOYEES.

16 (a) GENERAL RULE.—Subparagraph (C) of section

17 414(n)(2) (defining leased employee) is amended to read

18 as follows:

19 ‘‘(C) such services are performed under

20 significant direction or control by the recipi21 ent.’’

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

23 subsection (a) shall apply to years beginning after Decem24 ber 31, 1993, but shall not apply to any relationship deter25 mined under an Internal Revenue Service ruling issued be-
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1 fore the date of the enactment of this Act pursuant to

2 section 414(n)(2)(C) of the Internal Revenue Code of

3 1986 (as in effect on the day before such date) not to

4 involve a leased employee.

5 SEC. 232. MODIFICATIONS OF COST-OF-LIVING ADJUST6 MENTS.

7 (a) IN GENERAL.—Section 415(d) (relating to cost8 of-living adjustments) is amended to read as follows:

9 ‘‘(d) COST-OF-LIVING ADJUSTMENTS.—

10 ‘‘(1) IN GENERAL.—The Secretary shall adjust

11 annually—

12 ‘‘(A) the $90,000 amount in subsection

13 (b)(1)(A), and

14 ‘‘(B) in the case of a participant who sepa15 rated from service, the amount taken into ac16 count under subsection (b)(1)(B),

17 for increases in the cost-of-living in accordance with

18 regulations prescribed by the Secretary.

19 ‘‘(2) METHOD.—

20 ‘‘(A) IN GENERAL.—The regulations pre21 scribed under paragraph (1) shall provide for

22 adjustment procedures which are similar to the

23 procedures used to adjust benefit amounts

24 under section 215(i)(2)(A) of the Social Secu25 rity Act.
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1 ‘‘(B) PERIODS FOR ADJUSTMENT OF DOL2 LAR AMOUNT.—For purposes of paragraph

3 (1)(A)—

4 ‘‘(i) IN GENERAL.—The adjustment

5 with respect to any calendar year shall be

6 based on the increase in the applicable

7 index as of the close of the calendar quar8 ter ending September 30 of the preceding

9 calendar year over such index as of the

10 close of the base period.

11 ‘‘(ii) BASE PERIOD.—For purposes of

12 clause (i), the base period is the calendar

13 quarter beginning October 1, 1986.

14 ‘‘(C) BASE PERIOD FOR SEPARATIONS.—

15 For purposes of paragraph (1)(B), the base pe16 riod is the last calendar quarter of the calendar

17 year preceding the calendar year in which the

18 participant separated from service.

19 ‘‘(3) ROUNDING.—Any amount determined

20 under paragraph (1) (or by reference to this sub21 section) shall be rounded to the nearest $1,000, ex22 cept that the amounts under sections 402(g)(1),

23 408(k)(2)(C), and 457(e)(14) shall be rounded to

24 the nearest $100 and the amount under section
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1 401(a)(17) shall be rounded, to the next lowest mul2 tiple of $10,000.’’

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

4 this section apply to adjustments with respect to calendar

5 years beginning after December 31, 1993.

6 SEC. 233. PLANS COVERING SELF-EMPLOYED INDIVID7 UALS.

8 (a) AGGREGATION RULES.—Section 401(d) (relating

9 to additional requirements for qualification of trusts and

10 plans benefiting owner-employees) is amended to read as

11 follows:

12 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY13 EES.—A trust forming part of a pension or profit-sharing

14 plan which provides contributions or benefits for employ15 ees some or all of whom are owner-employees shall con16 stitute a qualified trust under this section only if, in addi17 tion to meeting the requirements of subsection (a), the

18 plan provides that contributions on behalf of any owner19 employee may be made only with respect to the earned

20 income of such owner-employee which is derived from the

21 trade or business with respect to which such plan is

22 established.’’

23 (b) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to years beginning after December

25 31, 1993.
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1 SEC. 234. ELIMINATION OF SPECIAL VESTING RULE FOR

2 MULTIEMPLOYER PLANS.

3 (a) IN GENERAL.—Paragraph (2) of section 411(a)

4 (relating to minimum vesting standards) is amended—

5 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

6 and inserting ‘‘subparagraph (A) or (B)’’; and

7 (2) by striking subparagraph (C).

8 (b) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to plan years beginning on or after

10 the earlier of—

11 (1) the later of—

12 (A) January 1, 1994, or

13 (B) the date on which the last of the col14 lective bargaining agreements pursuant to

15 which the plan is maintained terminates (deter16 mined without regard to any extension thereof

17 after the date of the enactment of this Act), or

18 (2) January 1, 1996.

19 Such amendments shall not apply to any individual who

20 does not have more than 1 hour of service under the plan

21 on or after the 1st day of the 1st plan year to which such

22 amendments apply.
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1 SEC. 235. FULL-FUNDING LIMITATION OF MULTIEM2 PLOYER PLANS.

3 (a) FULL-FUNDING LIMITATION.—Section

4 412(c)(7)(C) (relating to full-funding limitation) is

5 amended—

6 (1) by inserting ‘‘or in the case of a multiem7 ployer plan,’’ after ‘‘paragraph (6)(B),’’, and

8 (2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’

9 after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.

10 (b) VALUATION.—Section 412(c)(9) is amended—

11 (1) by inserting ‘‘(3 years in the case of a mul12 tiemployer plan)’’ after ‘‘year’’, and

13 (2) by striking ‘‘ANNUAL VALUATION’’ in the

14 heading and inserting ‘‘VALUATION’’.

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

16 this section shall apply to years beginning after December

17 31, 1993.

18 SEC. 236. ALTERNATIVE FULL-FUNDING LIMITATION.

19 (a) IN GENERAL.—Subsection (c) of section 412 (re20 lating to minimum funding standards) is amended by re21 designating paragraphs (8) through (11) as paragraphs

22 (9) through (12), respectively, and by adding after para23 graph (7) the following new paragraph:

24 ‘‘(8) ALTERNATIVE FULL-FUNDING LIMITA25 TION.—
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1 ‘‘(A) GENERAL RULE.—An employer may

2 elect the full-funding limitation under this para3 graph with respect to any defined benefit plan

4 of the employer in lieu of the full-funding limi5 tation determined under paragraph (7) if the

6 requirements of subparagraphs (C) and (D) are

7 met.

8 ‘‘(B) ALTERNATIVE FULL-FUNDING LIMI9 TATION.—The full-funding limitation under this

10 paragraph is the full-funding limitation deter11 mined under paragraph (7) without regard to

12 subparagraph (A)(i)(I) thereof.

13 ‘‘(C) REQUIREMENTS RELATING TO PLAN

14 ELIGIBILITY.—

15 ‘‘(i) IN GENERAL.—The requirements

16 of this subparagraph are met with respect

17 to a defined benefit plan if—

18 ‘‘(I) as of the 1st day of the elec19 tion period, the average accrued liabil20 ity of participants accruing benefits

21 under the plan for the 5 immediately

22 preceding plan years is at least 80

23 percent of the plan’s total accrued li24 ability,
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1 ‘‘(II) the plan is not a top-heavy

2 plan (as defined in section 416(g)) for

3 the 1st plan year of the election pe4 riod or either of the 2 preceding plan

5 years, and

6 ‘‘(III) each defined benefit plan

7 of the employer (and each defined

8 benefit plan of each employer who is

9 a member of any controlled group

10 which includes such employer) meets

11 the requirements of subclauses (I) and

12 (II).

13 ‘‘(ii) FAILURE TO CONTINUE TO MEET

14 REQUIREMENTS.—

15 ‘‘(I) If any plan fails to meet the

16 requirement of clause (i)(I) for any

17 plan year during an election period,

18 the benefits of the election under this

19 paragraph shall be phased out under

20 regulations prescribed by the Sec21 retary.

22 ‘‘(II) If any plan fails to meet

23 the requirement of clause (i)(II) for

24 any plan year during an election pe25 riod, such plan shall be treated as not
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1 meeting the requirements of clause (i)

2 for the remainder of the election

3 period.

4 If there is a failure described in subclause

5 (I) or (II) with respect to any plan, such

6 plan (and each plan described in clause

7 (i)(III) with respect to such plan) shall be

8 treated as not meeting the requirements of

9 clause (i) for any of the 10 plan years be10 ginning after the election period.

11 ‘‘(D) REQUIREMENTS RELATING TO ELEC12 TION.—

13 ‘‘(i) IN GENERAL.—The requirements

14 of this subparagraph are met with respect

15 to an election if—

16 ‘‘(I) FILING DATE.—Notice of

17 such election is filed with the Sec18 retary (in such form and manner and

19 containing such information as the

20 Secretary may provide) by January 1

21 of any calendar year, and is effective

22 as of the 1st day of the election period

23 beginning on or after January 1 of

24 the following calendar year.
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1 ‘‘(II) CONSISTENT ELECTION.—

2 Such an election is made for all de3 fined benefit plans maintained by the

4 employer or by any member of a con5 trolled group which includes the em6 ployer.

7 ‘‘(ii) TRANSITION PERIOD.—In the

8 case of any election period beginning on or

9 after July 1, 1994, and before January 1,

10 1995, the requirements of clause (i) shall

11 not apply and the requirements of this

12 subparagraph are met with respect to such

13 election period if—

14 ‘‘(I) FILING DATE.—Notice of

15 election is filed with the Secretary by

16 October 1, 1994.

17 ‘‘(II) INFORMATION.—The notice

18 sets forth the name and tax identifica19 tion number of the plan sponsor, the

20 names and tax identification numbers

21 of the plans to which the election ap22 plies, the limitation under paragraph

23 (7) (determined with and without re24 gard to this paragraph), and a signed

25 certification by an officer of the em-
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1 ployer stating that the requirements

2 of this paragraph have been met.

3 ‘‘(iii) REVENUE OFFSET PROCE4 DURES.—The Secretary shall, by January

5 1, 1995, notify defined benefit plans that

6 have not made an election under this para7 graph for the transition period described in

8 clause (ii) of the adjustment required by

9 subparagraph (H). The revenue offset for

10 the transition period shall apply to plan

11 years beginning on or after July 1, 1994,

12 and before January 1, 1995.

13 ‘‘(iv) EXCESS CONTRIBUTIONS MADE

14 BY NON-ELECTING PLANS.—To the extent

15 a defined benefit plan sponsor makes a

16 contribution to a defined benefit plan with

17 respect to the transition period described

18 in clause (ii) which exceeds the limitation

19 of paragraph (7), as adjusted by the Sec20 retary for the transition period, the spon21 sor shall offset the excess contribution

22 against allowable contributions to the plan

23 in subsequent quarters in the taxable year

24 of the sponsor. If no subsequent contribu25 tions may be made for the taxable year,
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1 the trustee of the defined benefit plan shall

2 return the excess contribution to the spon3 sor in that taxable year or the following

4 taxable year. Notwithstanding any other

5 provision of this title, no deduction shall be

6 allowed for any contribution made in ex7 cess of the limitation of paragraph (7), as

8 adjusted by the Secretary for the transi9 tion period, and no penalty shall apply

10 with respect to contributions made in ex11 cess of such limitation to the extent such

12 excess contributions are either used to off13 set subsequent contributions, or returned

14 to the plan sponsor, as provided in this

15 clause.

16 ‘‘(E) TERM OF ELECTION.—Any election

17 made under this paragraph shall apply for the

18 election period.

19 ‘‘(F) OTHER CONSEQUENCES OF ELEC20 TION.—

21 ‘‘(i) NO FUNDING WAIVERS.—In the

22 case of a plan with respect to which an

23 election is made under this paragraph, no

24 waiver may be granted under subsection

25 (d) for any plan year beginning after the
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1 date the election was made and ending at

2 the close of the election period with respect

3 thereto.

4 ‘‘(ii) FAILURE TO MAKE SUCCESSIVE

5 ELECTIONS.—If an election is made under

6 this paragraph with respect to any plan

7 and such an election does not apply for

8 each successive plan year of such plan,

9 such plan shall be treated as not meeting

10 the requirements of subparagraph (C) for

11 the period of 10 plan years beginning after

12 the close of the last election period for

13 such plan.

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

15 paragraph—

16 ‘‘(i) ELECTION PERIOD.—The term

17 ‘election period’ means the period of 5 con18 secutive plan years beginning with the 1st

19 plan year for which the election is made.

20 ‘‘(ii) CONTROLLED GROUP.—The term

21 ‘controlled group’ means all persons who

22 are treated as a single employer under sub23 section (b), (c), (m), or (o) of section 414.
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1 ‘‘(H) PROCEDURES IF ALTERNATIVE

2 FUNDING LIMITATION REDUCES NET FEDERAL

3 REVENUES.—

4 ‘‘(i) IN GENERAL.—At least once with

5 respect to each fiscal year, the Secretary

6 shall estimate whether the application of

7 this paragraph will result in a net reduc8 tion in Federal revenues for such fiscal

9 year.

10 ‘‘(ii) ADJUSTMENT OF FULL-FUNDING

11 LIMITATION IF REVENUE SHORTFALL.—If

12 the Secretary estimates that the applica13 tion of this paragraph will result in a more

14 than insubstantial net reduction in Federal

15 revenues for any fiscal year, the Sec16 retary—

17 ‘‘(I) shall make the adjustment

18 described in clause (iii), and

19 ‘‘(II) to the extent such adjust20 ment is not sufficient to reduce such

21 reduction to an insubstantial amount,

22 shall make the adjustment described

23 in clause (iv).

24 Such adjustments shall apply only to de25 fined benefit plans with respect to which
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1 an election under this paragraph is not in

2 effect.

3 ‘‘(iii) REDUCTION IN LIMITATION

4 BASED ON 150 PERCENT OF CURRENT LI5 ABILITY.—The adjustment described in

6 this clause is an adjustment which sub7 stitutes a percentage (not lower than 140

8 percent) for the percentage described in

9 paragraph (7)(A)(i)(I) determined by re10 ducing the percentage of current liability

11 taken into account with respect to partici12 pants who are not accruing benefits under

13 the plan.

14 ‘‘(iv) REDUCTION IN LIMITATION

15 BASED ON ACCRUED LIABILITY.—The ad16 justment described in this clause is an ad17 justment which reduces the percentage of

18 accrued liability taken into account under

19 paragraph (7)(A)(i)(II). In no event may

20 the amount of accrued liability taken into

21 account under such paragraph after the

22 adjustment be less than 140 percent of

23 current liability.’’

24 (b) ALTERATION OF DISCRETIONARY REGULATORY

25 AUTHORITY.—Subparagraph (D) of section 412(c)(7) is
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1 amended by striking ‘‘provide—’’ and all that follows

2 through ‘‘(iii) for’’ and inserting ‘‘provide for’’.

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

4 this section shall take effect on January 1, 1995, except

5 that, in the case of an election under subparagraph (D)(ii)

6 of paragraph (8) of section 412(c) of the Internal Revenue

7 Code of 1986, as added by this section, such amendments

8 shall take effect on July 1, 1994.

9 SEC. 237. DISTRIBUTIONS UNDER RURAL COOPERATIVE

10 PLANS.

11 (a) DISTRIBUTIONS AFTER CERTAIN AGE.—Section

12 401(k)(7) is amended by adding at the end thereof the

13 following new subparagraph:

14 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS15 TRIBUTIONS.—A rural cooperative plan which

16 includes a qualified cash or deferred arrange17 ment shall not be treated as violating the re18 quirements of section 401(a) merely by reason

19 of a distribution to a participant after attainment of age 591 20 ⁄2.’’

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

22 this section shall apply to distributions after the date of

23 the enactment of this Act.
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1 SEC. 238. TREATMENT OF GOVERNMENTAL PLANS UNDER

2 SECTION 415.

3 (a) DEFINITION OF COMPENSATION.—Subsection (k)

4 of section 415 (regarding limitations on benefits and con5 tributions under qualified plans) is amended by adding im6 mediately after paragraph (2) thereof the following new

7 paragraph:

8 ‘‘(3) DEFINITION OF COMPENSATION FOR GOV9 ERNMENTAL PLANS.—For purposes of this section,

10 in the case of a governmental plan (as defined in

11 section 414(d)), the term ‘compensation’ includes, in

12 addition to the amounts described in subsection

13 (c)(3)—

14 ‘‘(A) any elective deferral (as defined in

15 section 402(g)(3)), and

16 ‘‘(B) any amount which is contributed by

17 the employer at the election of the employee

18 and which is not includible in the gross income

19 of an employee under section 125 or 457.’’

20 (b) COMPENSATION LIMIT.—Subsection (b) of sec21 tion 415 is amended by adding immediately after para22 graph (10) the following new paragraph:

23 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN24 MENTAL PLANS.—In the case of a governmental

25 plan (as defined in section 414(d)), subparagraph

26 (B) of paragraph (1) shall not apply.’’
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1 (c) TREATMENT OF CERTAIN EXCESS BENEFIT

2 PLANS.—

3 (1) IN GENERAL.—Section 415 is amended by

4 adding at the end thereof the following new sub5 section:

6 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

7 EXCESS BENEFIT ARRANGEMENTS.—

8 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—

9 In determining whether a governmental plan (as de10 fined in section 414(d)) meets the requirements of

11 this section, benefits provided under a qualified gov12 ernmental excess benefit arrangement shall not be

13 taken into account. Income accruing to a govern14 mental plan (or to a trust that is maintained solely

15 for the purpose of providing benefits under a quali16 fied governmental excess benefit arrangement) in re17 spect of a qualified governmental excess benefit ar18 rangement shall constitute income derived from the

19 exercise of an essential governmental function upon

20 which such governmental plan (or trust) shall be ex21 empt from tax under section 115.

22 ‘‘(2) TAXATION OF PARTICIPANT.—For pur23 poses of this chapter—

24 ‘‘(A) the taxable year or years for which

25 amounts in respect of a qualified governmental
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1 excess benefit arrangement are includible in

2 gross income by a participant, and

3 ‘‘(B) the treatment of such amounts when

4 so includible by the participant,

5 shall be determined as if such qualified govern6 mental excess benefit arrangement were treated as a

7 plan for the deferral of compensation which is main8 tained by a corporation not exempt from tax under

9 this chapter and which does not meet the require10 ments for qualification under section 401.

11 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN12 EFIT ARRANGEMENT.—For purposes of this sub13 section, the term ‘qualified governmental excess ben14 efit arrangement’ means a portion of a governmental

15 plan if—

16 ‘‘(A) such portion is maintained solely for

17 the purpose of providing to participants in the

18 plan that part of the participant’s annual bene19 fit otherwise payable under the terms of the

20 plan that exceeds the limitations on benefits im21 posed by this section,

22 ‘‘(B) under such portion no election is pro23 vided at any time to the participant (directly or

24 indirectly) to defer compensation, and
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1 ‘‘(C) benefits described in subparagraph

2 (A) are not paid from a trust forming a part

3 of such governmental plan unless such trust is

4 maintained solely for the purpose of providing

5 such benefits.’’

6 (2) COORDINATION WITH SECTION 457.—Sub7 section (e) of section 457 is amended by adding at

8 the end thereof the following new paragraph:

9 ‘‘(15) TREATMENT OF QUALIFIED GOVERN10 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub11 sections (b)(2) and (c)(1) shall not apply to any

12 qualified governmental excess benefit arrangement

13 (as defined in section 415(m)(3)), and benefits pro14 vided under such an arrangement shall not be taken

15 into account in determining whether any other plan

16 is an eligible deferred compensation plan.’’

17 (3) CONFORMING AMENDMENT.—Paragraph (2)

18 of section 457(f) is amended by striking the word

19 ‘‘and’’ at the end of subparagraph (C), by striking

20 the period after subparagraph (D) and inserting the

21 words ‘‘, and’’, and by inserting immediately there22 after the following new subparagraph:

23 ‘‘(E) a qualified governmental excess bene24 fit arrangement described in section 415(m).’’
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1 (d) EXEMPTION FOR SURVIVOR AND DISABILITY

2 BENEFITS.—Paragraph (2) of section 415(b) is amended

3 by adding at the end thereof the following new subpara4 graph:

5 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS6 ABILITY BENEFITS PROVIDED UNDER GOVERN7 MENTAL PLANS.—Subparagraph (B) of para8 graph (1), subparagraph (C) of this paragraph,

9 and paragraph (5) shall not apply to—

10 ‘‘(i) income received from a govern11 mental plan (as defined in section 414(d))

12 as a pension, annuity, or similar allowance

13 as the result of the recipient becoming dis14 abled by reason of personal injuries or

15 sickness, or

16 ‘‘(ii) amounts received from a govern17 mental plan by the beneficiaries, survivors,

18 or the estate of an employee as the result

19 of the death of the employee.’’

20 (e) REVOCATION OF GRANDFATHER ELECTION.—

21 Subparagraph (C) of section 415(b)(10) is amended by

22 adding at the end thereof the following new sentence: ‘‘An

23 election made pursuant to the preceding sentence to have

24 the provisions of this paragraph applied to the plan may

25 be revoked not later than the last day of the 3rd plan year
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1 beginning after the date of enactment with respect to all

2 plan years as to which such election has been applicable

3 and all subsequent plan years; provided that any amount

4 paid by the plan in a taxable year ending after revocation

5 of such election in respect of benefits attributable to a tax6 able year during which such election was in effect shall

7 be includible in income by the recipient in accordance with

8 the rules of this chapter in the taxable year in which such

9 amount is received (except that such amount shall be

10 treated as received for purposes of the limitations imposed

11 by this section in the earlier taxable year or years to which

12 such amount is attributable).’’

13 (f) EFFECTIVE DATE.—

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

15 subsections (a), (b), (c), and (d) shall apply to tax16 able years beginning on or after the date of the en17 actment of this Act. The amendments made by sub18 section (e) shall apply with respect to election rev19 ocations adopted after the date of the enactment of

20 this Act.

21 (2) TREATMENT FOR YEARS BEGINNING BE22 FORE DATE OF ENACTMENT.—In the case of a gov23 ernmental plan (as defined in section 414(d) of the

24 Internal Revenue Code of 1986), such plan shall be

25 treated as satisfying the requirements of section 415
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1 of such Code for all taxable years beginning before

2 the date of the enactment of this Act.

3 SEC. 239. UNIFORM RETIREMENT AGE.

4 (a) DISCRIMINATION TESTING.—Paragraph (5) of

5 section 401(a) (relating to special rules relating to non6 discrimination requirements) is amended by adding at the

7 end thereof the following new subparagraph:

8 ‘‘(F) SOCIAL SECURITY RETIREMENT

9 AGE.—For purposes of testing for discrimina10 tion under paragraph (4)—

11 ‘‘(i) the social security retirement age

12 (as defined in section 415(b)(8)) shall be

13 treated as a uniform retirement age, and

14 ‘‘(ii) subsidized early retirement bene15 fits and joint and survivor annuities shall

16 not be treated as being unavailable to em17 ployees on the same terms merely because

18 such benefits or annuities are based in

19 whole or in part on an employee’s social

20 security retirement age (as so defined).’’

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

22 this section shall apply to years beginning after December

23 31, 1993.
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1 SEC. 240. UNIFORM PENALTY PROVISIONS TO APPLY TO

2 CERTAIN PENSION REPORTING REQUIRE3 MENTS.

4 (a) IN GENERAL.—

5 (1) Paragraph (1) of section 6724(d) is amend6 ed by striking ‘‘and’’ at the end of subparagraph

7 (A), by striking the period at the end of subpara8 graph (B) and inserting ‘‘, and’’, and by inserting

9 after subparagraph (B) the following new subpara10 graph:

11 ‘‘(C) any statement of the amount of pay12 ments to another person required to be made to

13 the Secretary under—

14 ‘‘(i) section 408(i) (relating to reports

15 with respect to individual retirement ac16 counts or annuities), or

17 ‘‘(ii) section 6047(d) (relating to re18 ports by employers, plan administrators,

19 etc.).’’

20 (2) Paragraph (2) of section 6724(d) is amend21 ed by striking ‘‘or’’ at the end of subparagraph (S),

22 by striking the period at the end of subparagraph

23 (T) and inserting a comma, and by inserting after

24 subparagraph (T) the following new

25 subparagraphs:
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1 ‘‘(U) section 408(i) (relating to reports

2 with respect to individual retirement plans) to

3 any person other than the Secretary with re4 spect to the amount of payments made to such

5 person, or

6 ‘‘(V) section 6047(d) (relating to reports

7 by plan administrators) to any person other

8 than the Secretary with respect to the amount

9 of payments made to such person.’’

10 (b) MODIFICATION OF REPORTABLE DESIGNATED

11 DISTRIBUTIONS.—

12 (1) SECTION 408.—Subsection (i) of section 408

13 (relating to individual retirement account reports) is

14 amended by inserting ‘‘aggregating $10 or more in

15 any calendar year’’ after ‘‘distributions’’.

16 (2) SECTION 6047.—Paragraph (1) of section

17 6047(d) (relating to reports by employers, plan ad18 ministrators, etc.) is amended by adding at the end

19 thereof the following new sentence: ‘‘No return or

20 report may be required under the preceding sentence

21 with respect to distributions to any person during

22 any year unless such distributions aggregate $10 or

23 more.’’

24 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec25 tion 6652(i) is amended—
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1 (1) by striking ‘‘the $10’’ and inserting

2 ‘‘$100’’, and

3 (2) by striking ‘‘$5,000’’ and inserting

4 ‘‘$50,000’’.

5 (d) CONFORMING AMENDMENTS.—

6 (1) Paragraph (1) of section 6047(f) is amend7 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.’’

8 (2) Subsection (e) of section 6652 is amended

9 by adding at the end thereof the following new sen10 tence: ‘‘This subsection shall not apply to any return

11 or statement which is an information return de12 scribed in section 6724(d)(1)(C)(ii) or a payee state13 ment described in section 6724(d)(2)(U).’’

14 (3) Subsection (a) of section 6693 is amended

15 by adding at the end thereof the following new sen16 tence: ‘‘This subsection shall not apply to any report

17 which is an information return described in section

18 6724(d)(1)(C)(i) or a payee statement described in

19 section 6724(d)(2)(T).’’

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

21 this section shall apply to returns, reports, and other

22 statements the due date for which (determined without re23 gard to extensions) is after December 31, 1993.
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1 SEC. 241. CONTRIBUTIONS ON BEHALF OF DISABLED EM2 PLOYEES.

3 (a) ALL DISABLED PARTICIPANTS RECEIVING CON4 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

5 at the end thereof the following: ‘‘If a defined contribution

6 plan provides for the continuation of contributions on be7 half of all participants described in clause (i) for a fixed

8 or determinable period, this subparagraph shall be applied

9 without regard to clauses (ii) and (iii).’’

10 (b) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to years beginning after December

12 31, 1993.

13 SEC. 242. SPECIAL RULES FOR PLANS COVERING PILOTS.

14 (a) GENERAL RULE.—

15 (1) Subparagraph (B) of section 410(b)(3) is

16 amended to read as follows:

17 ‘‘(B) in the case of a plan established or

18 maintained by one or more employers to provide

19 contributions or benefits for air pilots employed

20 by one or more common carriers engaged in

21 interstate or foreign commerce or air pilots em22 ployed by carriers transporting mail for or

23 under contract with the United States Govern24 ment, all employees who are not air pilots.’’

25 (2) Paragraph (3) of section 410(b) is amended

26 by striking the last sentence and inserting the fol-
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1 lowing new sentence: ‘‘Subparagraph (B) shall not

2 apply in the case of a plan which provides contribu3 tions or benefits for employees who are not air pilots

4 or for air pilots whose principal duties are not cus5 tomarily performed aboard aircraft in flight.’’

6 (b) EFFECTIVE DATE.—The amendments made by

7 subsection (a) shall apply to years beginning after Decem8 ber 31, 1993.

9 SEC. 243. TREATMENT OF DEFERRED COMPENSATION

10 PLANS OF STATE AND LOCAL GOVERNMENTS

11 AND TAX-EXEMPT ORGANIZATIONS.

12 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

13 Paragraph (9) of section 457(e) (relating to other defini14 tions and special rules) is amended to read as follows:

15 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL16 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

17 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500

18 OR LESS.—The total amount payable to a par19 ticipant under the plan shall not be treated as

20 made available merely because the participant

21 may elect to receive such amount (or the plan

22 may distribute such amount without the partici23 pant’s consent) if—

24 ‘‘(i) such amount does not exceed

25 $3,500, and
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1 ‘‘(ii) such amount may be distributed

2 only if—

3 ‘‘(I) no amount has been deferred

4 under the plan with respect to such

5 participant during the 2-year period

6 ending on the date of the distribution,

7 and

8 ‘‘(II) there has been no prior dis9 tribution under the plan to such par10 ticipant to which this subparagraph

11 applied.

12 A plan shall not be treated as failing to

13 meet the distribution requirements of sub14 section (d) by reason of a distribution to which

15 this subparagraph applies.

16 ‘‘(B) ELECTION TO DEFER COMMENCE17 MENT OF DISTRIBUTIONS.—The total amount

18 payable to a participant under the plan shall

19 not be treated as made available merely because

20 the participant may elect to defer commence21 ment of distributions under the plan if—

22 ‘‘(i) such election is made after

23 amounts may be available under the plan

24 in accordance with subsection (d)(1)(A)
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1 and before commencement of such dis2 tributions, and

3 ‘‘(ii) the participant may make only 1

4 such election.’’

5 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE6 FERRAL AMOUNT.—Subsection (e) of section 457 is

7 amended by adding at the end thereof the following new

8 paragraph:

9 ‘‘(14) COST-OF-LIVING ADJUSTMENT OF MAXI10 MUM DEFERRAL AMOUNT.—The Secretary shall ad11 just the $7,500 amount specified in subsections

12 (b)(2) and (c)(1) at the same time and in the same

13 manner as under section 415(d), except that the

14 base year in applying such section for purposes of

15 this paragraph shall be 1993.’’

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

17 this section shall apply to taxable years beginning after

18 the date of the enactment of this Act.

19 SEC. 244. TREATMENT OF EMPLOYER REVERSIONS RE20 QUIRED BY CONTRACT TO BE PAID TO THE

21 UNITED STATES.

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

23 4980(c)(2) (defining employer reversion) is amended by

24 striking ‘‘or’’ at the end of clause (i), by striking the pe-
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1 riod at the end of clause (ii) and inserting ‘‘, or’’, and

2 by adding at the end thereof the following new clause:

3 ‘‘(iii) any distribution to the employer

4 to the extent that the distribution is paid

5 within a reasonable period to the United

6 States in satisfaction of a Federal claim

7 for an equitable share of the plan’s surplus

8 assets, as determined pursuant to Federal

9 contracting regulations.’’

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

11 subsection (a) shall apply to reversions on or after the date

12 of the enactment of this Act.

13 SEC. 245. CONTINUATION HEALTH COVERAGE FOR EM14 PLOYEES OF FAILED FINANCIAL INSTITU15 TIONS.

16 (a) ENFORCEMENT OF CONTINUATION OF HEALTH

17 PLAN REQUIREMENTS OF ACQUIRERS OF FAILED DEPOS18 ITORY INSTITUTIONS.—Subsection (f) of section 4980B

19 (relating to continuation of coverage requirements of

20 group health plans) is amended by adding at the end

21 thereof the following new paragraph:

22 ‘‘(9) SPECIAL RULES FOR ACQUIRERS OF

23 FAILED DEPOSITORY INSTITUTIONS.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B), any acquirer of a failed de3 pository institution—

4 ‘‘(i) shall have the same obligation to

5 provide a group health plan meeting the

6 requirements of this subsection with re7 spect to qualified individuals of such insti8 tution as the failed depository institution

9 would have had but for its failure, and

10 ‘‘(ii) shall be treated as the employer

11 of such qualified individuals for purposes

12 of this section.

13 ‘‘(B) TAX NOT TO APPLY IF FDIC OR RTC

14 PROVIDE CONTINUATION COVERAGE.—No per15 son shall be subject to any liability under this

16 section by reason of being an acquirer of a

17 failed depository institution if the Federal De18 posit Insurance Corporation or the Resolution

19 Trust Corporation elects to relieve such

20 acquirer from its obligations under subpara21 graph (A). In any such case, the requirements

22 of subparagraph (A) shall apply to the Federal

23 Deposit Insurance Corporation or the Resolu24 tion Trust Corporation, as the case may be.
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1 ‘‘(C) ACQUIRER.—For purposes of this

2 paragraph, an entity is an acquirer of a failed

3 depository institution during any period if—

4 ‘‘(i) such entity holds substantially all

5 of the assets or liabilities of such institu6 tion, and

7 ‘‘(ii)(I) such entity is a bridge bank,

8 or

9 ‘‘(II) such entity acquired such assets

10 or liabilities from the Federal Deposit In11 surance Corporation, the Resolution Trust

12 Corporation, or a bridge bank.

13 ‘‘(D) FAILED DEPOSITORY INSTITUTION.—

14 For purposes of this section, the term ‘failed

15 depository institution’ means any depository in16 stitution (as defined in section 3(c) of the Fed17 eral Deposit Insurance Act) for which a receiver

18 or conservator has been appointed.

19 ‘‘(E) QUALIFIED INDIVIDUAL.—For pur20 poses of this section, the term ‘qualified individ21 ual’ means—

22 ‘‘(i) any individual who was, on the

23 day before the date of the appointment of

24 the receiver or conservator, provided cov25 erage under a group health plan of the
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1 failed depository institution by reason of

2 the performance of services for such insti3 tution, and

4 ‘‘(ii) any individual who was, on such

5 day, a beneficiary under such plan as the

6 spouse or dependent child of the individual

7 described in clause (i).’’

8 (b) TREATMENT OF DEPOSITORY INSTITUTION FAIL9 URES AS QUALIFYING EVENTS FOR RETIREES OF SUCH

10 INSTITUTIONS.—

11 (1) IN GENERAL.—Subparagraph (B) of section

12 4980B(f)(3) is amended—

13 (A) by striking ‘‘The termination’’ and in14 serting ‘‘(i) The termination’’,

15 (B) by striking the period at the end and

16 inserting ‘‘, or’’, and

17 (C) by inserting after clause (i) the follow18 ing new clause:

19 ‘‘(ii) the appointment of a receiver or con20 servator for a failed depository institution from

21 whose employment the covered employee retired

22 at any time.’’

23 (2) CONFORMING AMENDMENT.—Subclause (I)

24 of section 4980B(f)(2)(B)(i) is amended by striking

25 ‘‘AND REDUCED HOURS’’ and inserting ‘‘, REDUCED
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1 HOURS, AND FAILURES OF DEPOSITORY INSTITU2 TIONS’’.

3 (c) EFFECTIVE DATES.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply as if included in section 451 of the Fed7 eral Deposit Insurance Corporation Improvement

8 Act of 1991 as of the date of the enactment of such

9 Act.

10 (2) LIABILITY OF FDIC.—In the case of the

11 Federal Deposit Insurance Corporation or any

12 acquirer from such Corporation, the amendments

13 made by this section shall apply only to failed depos14 itory institutions for which the receiver or conserva15 tor is appointed after the date of the enactment of

16 this Act.

17 (3) SPECIAL RULE FOR COVERAGE UNDER FDIC

18 PLAN.—Effective as of the date of the enactment of

19 the Federal Deposit Insurance Corporation Improve20 ment Act of 1991, coverage under the health care

21 continuation plan maintained by the Federal Deposit

22 Insurance Corporation on June 25, 1992, and any

23 other substantially similar plan maintained by such

24 Corporation, shall be deemed to satisfy the obliga25 tions of the Federal Deposit Insurance Corporation
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1 (and any acquirer from such Corporation) under sec2 tion 4980B(f) of the Internal Revenue Code of 1986

3 and section 451 of the Federal Deposit Insurance

4 Corporation Improvement Act of 1991 with respect

5 to qualified individuals of failed depository institu6 tions.

7 SEC. 246. DATE FOR ADOPTION OF PLAN AMENDMENTS.

8 If any amendment made by this title requires an

9 amendment to any plan, such plan amendment shall not

10 be required to be made before the first day of the first

11 plan year beginning on or after January 1, 1995, if—

12 (1) during the period after such amendment

13 takes effect and before such first plan year, the plan

14 is operated in accordance with the requirements of

15 such amendment, and

16 (2) such plan amendment applies retroactively

17 to such period.

18 TITLE III—TREATMENT OF

19 LARGE PARTNERSHIPS

20 Subtitle A—General Provisions

21 SEC. 301. SIMPLIFIED FLOW-THROUGH FOR LARGE PART22 NERSHIPS.

23 (a) GENERAL RULE.—Subchapter K (relating to

24 partners and partnerships) is amended by adding at the

25 end thereof the following new part:
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1 ‘‘PART IV—SPECIAL RULES FOR LARGE

2 PARTNERSHIPS

‘‘Sec. 771. Application of subchapter to large partnerships.

‘‘Sec. 772. Simplified flow-through.

‘‘Sec. 773. Computations at partnership level.

‘‘Sec. 774. Other modifications.

‘‘Sec. 775. Large partnership defined.

‘‘Sec. 776. Special rules for partnerships holding oil and gas

properties.

‘‘Sec. 777. Regulations.

3 ‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO LARGE PART4 NERSHIPS.

5 ‘‘The preceding provisions of this subchapter to the

6 extent inconsistent with the provisions of this part shall

7 not apply to a large partnership and its partners.

8 ‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH.

9 ‘‘(a) GENERAL RULE.—In determining the income

10 tax of a partner of a large partnership, such partner shall

11 take into account separately such partner’s distributive

12 share of the partnership’s—

13 ‘‘(1) taxable income or loss from passive loss

14 limitation activities,

15 ‘‘(2) taxable income or loss from other activi16 ties,

17 ‘‘(3) net capital gain (or net capital loss)—

18 ‘‘(A) to the extent allocable to passive loss

19 limitation activities, and

20 ‘‘(B) to the extent allocable to other activi21 ties,
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1 ‘‘(4) tax-exempt interest,

2 ‘‘(5) applicable net AMT adjustment separately

3 computed for—

4 ‘‘(A) passive loss limitation activities, and

5 ‘‘(B) other activities,

6 ‘‘(6) general credits,

7 ‘‘(7) low-income housing credit determined

8 under section 42,

9 ‘‘(8) rehabilitation credit determined under sec10 tion 47,

11 ‘‘(9) foreign income taxes,

12 ‘‘(10) the credit allowable under section 29, and

13 ‘‘(11) other items to the extent that the Sec14 retary determines that the separate treatment of

15 such items is appropriate.

16 ‘‘(b) SEPARATE COMPUTATIONS.—In determining

17 the amounts required under subsection (a) to be sepa18 rately taken into account by any partner, this section and

19 section 773 shall be applied separately with respect to

20 such partner by taking into account such partner’s dis21 tributive share of the items of income, gain, loss, deduc22 tion, or credit of the partnership.

23 ‘‘(c) TREATMENT AT PARTNER LEVEL.—

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

25 subsection, rules similar to the rules of section
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1 702(b) shall apply to any partner’s distributive share

2 of the amounts referred to in subsection (a).

3 ‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIM4 ITATION ACTIVITIES.—For purposes of this chapter,

5 any partner’s distributive share of any income or

6 loss described in subsection (a)(1) shall be treated as

7 an item of income or loss (as the case may be) from

8 the conduct of a trade or business which is a single

9 passive activity (as defined in section 469). A similar

10 rule shall apply to a partner’s distributive share of

11 amounts referred to in paragraphs (3)(A) and

12 (5)(A) of subsection (a).

13 ‘‘(3) INCOME OR LOSS FROM OTHER ACTIVI14 TIES.—

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

16 chapter, any partner’s distributive share of any

17 income or loss described in subsection (a)(2)

18 shall be treated as an item of income or expense

19 (as the case may be) with respect to property

20 held for investment.

21 ‘‘(B) DEDUCTIONS FOR LOSS NOT SUB22 JECT TO SECTION 67.—The deduction under

23 section 212 for any loss described in subpara24 graph (A) shall not be treated as a miscellane-
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1 ous itemized deduction for purposes of section

2 67.

3 ‘‘(4) TREATMENT OF NET CAPITAL GAIN OR

4 LOSS.—For purposes of this chapter, any partner’s

5 distributive share of any gain or loss described in

6 subsection (a)(3) shall be treated as a long-term

7 capital gain or loss, as the case may be.

8 ‘‘(5) MINIMUM TAX TREATMENT.—In determin9 ing the alternative minimum taxable income of any

10 partner, such partner’s distributive share of any ap11 plicable net AMT adjustment shall be taken into ac12 count in lieu of making the separate adjustments

13 provided in sections 56, 57, and 58 with respect to

14 the items of the partnership. Except as provided in

15 regulations, the applicable net AMT adjustment

16 shall be treated, for purposes of section 53, as an

17 adjustment or item of tax preference not specified in

18 section 53(d)(1)(B)(ii).

19 ‘‘(6) GENERAL CREDITS.—A partner’s distribu20 tive share of the amount referred to in paragraph

21 (6) of subsection (a) shall be taken into account as

22 a current year business credit.

23 ‘‘(d) OPERATING RULES.—For purposes of this sec24 tion—
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1 ‘‘(1) PASSIVE LOSS LIMITATION ACTIVITY.—

2 The term ‘passive loss limitation activity’ means—

3 ‘‘(A) any activity which involves the con4 duct of a trade or business, and

5 ‘‘(B) any rental activity.

6 For purposes of the preceding sentence, the term

7 ‘trade or business’ includes any activity treated as a

8 trade or business under paragraph (5) or (6) of sec9 tion 469(c).

10 ‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax11 exempt interest’ means interest excludable from

12 gross income under section 103.

13 ‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—

14 ‘‘(A) IN GENERAL.—The applicable net

15 AMT adjustment is—

16 ‘‘(i) with respect to taxpayers other

17 than corporations, the net adjustment de18 termined by using the adjustments applica19 ble to individuals, and

20 ‘‘(ii) with respect to corporations, the

21 net adjustment determined by using the

22 adjustments applicable to corporations.

23 ‘‘(B) NET ADJUSTMENT.—The term ‘net

24 adjustment’ means the net adjustment in the

25 items attributable to passive loss activities or
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1 other activities (as the case may be) which

2 would result if such items were determined with

3 the adjustments of sections 56, 57, and 58.

4 ‘‘(4) TREATMENT OF CERTAIN SEPARATELY

5 STATED ITEMS.—

6 ‘‘(A) EXCLUSION FOR CERTAIN PUR7 POSES.—In determining the amounts referred

8 to in paragraphs (1) and (2) of subsection (a),

9 any net capital gain or net capital loss (as the

10 case may be), and any item referred to in sub11 section (a)(11), shall be excluded.

12 ‘‘(B) ALLOCATION RULES.—The net cap13 ital gain shall be treated—

14 ‘‘(i) as allocable to passive loss limita15 tion activities to the extent the net capital

16 gain does not exceed the net capital gain

17 determined by only taking into account

18 gains and losses from sales and exchanges

19 of property used in connection with such

20 activities, and

21 ‘‘(ii) as allocable to other activities to

22 the extent such gain exceeds the amount

23 allocated under clause (i).

24 A similar rule shall apply for purposes of allo25 cating any net capital loss.
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1 ‘‘(C) NET CAPITAL LOSS.—The term ‘net

2 capital loss’ means the excess of the losses from

3 sales or exchanges of capital assets over the

4 gains from sales or exchange of capital assets.

5 ‘‘(5) GENERAL CREDITS.—The term ‘general

6 credits’ means any credit other than the low-income

7 housing credit, the rehabilitation credit, the foreign

8 tax credit, and the credit allowable under section 29.

9 ‘‘(6) FOREIGN INCOME TAXES.—The term ‘for10 eign income taxes’ means taxes described in section

11 901 which are paid or accrued to foreign countries

12 and to possessions of the United States.

13 ‘‘(e) SPECIAL RULE FOR UNRELATED BUSINESS

14 TAX.—In the case of a partner which is an organization

15 subject to tax under section 511, such partner’s distribu16 tive share of any items shall be taken into account sepa17 rately to the extent necessary to comply with the provi18 sions of section 512(c)(1).

19 ‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS

20 LIMITATIONS.—If any person holds an interest in a large

21 partnership other than as a limited partner—

22 ‘‘(1) paragraph (2) of subsection (c) shall not

23 apply to such partner, and

24 ‘‘(2) such partner’s distributive share of the

25 partnership items allocable to passive loss limitation
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1 activities shall be taken into account separately to

2 the extent necessary to comply with the provisions of

3 section 469.

4 The preceding sentence shall not apply to any items alloca5 ble to an interest held as a limited partner.

6 ‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

7 ‘‘(a) GENERAL RULE.—

8 ‘‘(1) TAXABLE INCOME.—The taxable income of

9 a large partnership shall be computed in the same

10 manner as in the case of an individual except that—

11 ‘‘(A) the items described in section 772(a)

12 shall be separately stated, and

13 ‘‘(B) the modifications of subsection (b)

14 shall apply.

15 ‘‘(2) ELECTIONS.—All elections affecting the

16 computation of the taxable income of a large part17 nership or the computation of any credit of a large

18 partnership shall be made by the partnership; except

19 that the election under section 901, and any election

20 under section 108, shall be made by each partner

21 separately.

22 ‘‘(3) LIMITATIONS, ETC.—

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

24 subparagraph (B), all limitations and other pro25 visions affecting the computation of the taxable
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1 income of a large partnership or the computa2 tion of any credit of a large partnership shall

3 be applied at the partnership level (and not at

4 the partner level).

5 ‘‘(B) CERTAIN LIMITATIONS APPLIED AT

6 PARTNER LEVEL.—The following provisions

7 shall be applied at the partner level (and not at

8 the partnership level):

9 ‘‘(i) Section 68 (relating to overall

10 limitation on itemized deductions).

11 ‘‘(ii) Sections 49 and 465 (relating to

12 at risk limitations).

13 ‘‘(iii) Section 469 (relating to limita14 tion on passive activity losses and credits).

15 ‘‘(iv) Any other provision specified in

16 regulations.

17 ‘‘(4) COORDINATION WITH OTHER PROVI18 SIONS.—Paragraphs (2) and (3) shall apply notwith19 standing any other provision of this chapter other

20 than this part.

21 ‘‘(b) MODIFICATIONS TO DETERMINATION OF TAX22 ABLE INCOME.—In determining the taxable income of a

23 large partnership—

24 ‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—

25 The following deductions shall not be allowed:
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1 ‘‘(A) The deduction for personal exemp2 tions provided in section 151.

3 ‘‘(B) The net operating loss deduction pro4 vided in section 172.

5 ‘‘(C) The additional itemized deductions

6 for individuals provided in part VII of sub7 chapter B (other than section 212 thereof).

8 ‘‘(2) CHARITABLE DEDUCTIONS.—In determin9 ing the amount allowable under section 170, the lim10 itation of section 170(b)(2) shall apply.

11 ‘‘(3) COORDINATION WITH SECTION 67.—In lieu

12 of applying section 67, 70 percent of the amount of

13 the miscellaneous itemized deductions shall be dis14 allowed.

15 ‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE

16 OF INDEBTEDNESS.—If a large partnership has income

17 from the discharge of any indebtedness—

18 ‘‘(1) such income shall be excluded in determin19 ing the amounts referred to in section 772(a), and

20 ‘‘(2) in determining the income tax of any part21 ner of such partnership—

22 ‘‘(A) such income shall be treated as an

23 item required to be separately taken into ac24 count under section 772(a), and
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1 ‘‘(B) the provisions of section 108 shall be

2 applied without regard to this part.

3 ‘‘SEC. 774. OTHER MODIFICATIONS.

4 ‘‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUST5 MENTS, ETC.—In the case of a large partnership—

6 ‘‘(1) computations under section 773 shall be

7 made without regard to any adjustment under sec8 tion 743(b) or 108(b), but

9 ‘‘(2) a partner’s distributive share of any

10 amount referred to in section 772(a) shall be appro11 priately adjusted to take into account any adjust12 ment under section 743(b) or 108(b) with respect to

13 such partner.

14 ‘‘(b) CREDIT RECAPTURE DETERMINED AT PART15 NERSHIP LEVEL.—

16 ‘‘(1) IN GENERAL.—In the case of a large part17 nership—

18 ‘‘(A) any credit recapture shall be taken

19 into account by the partnership, and

20 ‘‘(B) the amount of such recapture shall be

21 determined as if the credit with respect to

22 which the recapture is made had been fully uti23 lized to reduce tax.

24 ‘‘(2) METHOD OF TAKING RECAPTURE INTO AC25 COUNT.—A large partnership shall take into account
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1 a credit recapture by reducing the amount of the ap2 propriate current year credit to the extent thereof,

3 and if such recapture exceeds the amount of such

4 current year credit, the partnership shall be liable to

5 pay such excess.

6 ‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP7 TURE.—No credit recapture shall be required by rea8 son of any transfer of an interest in a large partner9 ship.

10 ‘‘(4) CREDIT RECAPTURE.—For purposes of

11 this subsection, the term ‘credit recapture’ means

12 any increase in tax under section 42(j) or 50(a).

13 ‘‘(c) PARTNERSHIP NOT TERMINATED BY REASON

14 OF CHANGE IN OWNERSHIP.—Subparagraph (B) of sec15 tion 708(b)(1) shall not apply to a large partnership.

16 ‘‘(d) PARTNERSHIP ENTITLED TO CERTAIN CRED17 ITS.—The following shall be allowed to a large partnership

18 and shall not be taken into account by the partners of

19 such partnership:

20 ‘‘(1) The credit provided by section 34.

21 ‘‘(2) Any credit or refund under section

22 852(b)(3)(D).

23 ‘‘(e) TREATMENT OF REMIC RESIDUALS.—For pur24 poses of applying section 860E(e)(6) to any large partner25 ship—
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1 ‘‘(1) all interests in such partnership shall be

2 treated as held by disqualified organizations,

3 ‘‘(2) in lieu of applying subparagraph (C) of

4 section 860E(e)(6), the amount subject to tax under

5 section 860E(e)(6) shall be excluded from the gross

6 income of such partnership, and

7 ‘‘(3) subparagraph (D) of section 860E(e)(6)

8 shall not apply.

9 ‘‘(f) SPECIAL RULES FOR APPLYING CERTAIN IN10 STALLMENT SALE RULES.—In the case of a large partner11 ship—

12 ‘‘(1) the provisions of sections 453(l)(3) and

13 453A shall be applied at the partnership level, and

14 ‘‘(2) in determining the amount of interest pay15 able under such sections, such partnership shall be

16 treated as subject to tax under this chapter at the

17 highest rate of tax in effect under section 1 or 11.

18 ‘‘SEC. 775. LARGE PARTNERSHIP.

19 ‘‘(a) GENERAL RULE.—For purposes of this part—

20 ‘‘(1) IN GENERAL.—Except as otherwise pro21 vided in this section or section 776, the term ‘large

22 partnership’ means, with respect to any partnership

23 taxable year, any partnership if the number of per24 sons who were partners in such partnership in such

25 taxable year or any preceding partnership taxable
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1 year ending on or after December 31, 1994, equaled

2 or exceeded 250. To the extent provided in regula3 tions, a partnership shall cease to be treated as a

4 large partnership for any partnership taxable year if

5 in such taxable year fewer than 100 persons were

6 partners in such partnership.

7 ‘‘(2) ELECTION FOR PARTNERSHIPS WITH AT

8 LEAST 100 PARTNERS.—If a partnership makes an

9 election under this paragraph, paragraph (1) shall

10 be applied by substituting ‘100’ for ‘250’. Such an

11 election shall apply to the taxable year for which

12 made and all subsequent taxable years unless re13 voked with the consent of the Secretary.

14 ‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART15 NERSHIPS.—

16 ‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For

17 purposes of this section, the term ‘partner’ does not

18 include any individual performing substantial serv19 ices in connection with the activities of the partner20 ship and holding an interest in such partnership, or

21 an individual who formerly performed substantial

22 services in connection with such activities and who

23 held an interest in such partnership at the time the

24 individual performed such services.
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1 ‘‘(2) EXCLUSION.—For purposes of this part,

2 the term ‘large partnership’ does not include any

3 partnership if substantially all the partners of such

4 partnership—

5 ‘‘(A) are individuals performing substantial

6 services in connection with the activities of such

7 partnership or are personal service corporations

8 (as defined in section 269A(b)) the owner-em9 ployees (as defined in section 269A(b)) of which

10 perform such substantial services,

11 ‘‘(B) are retired partners who had per12 formed such substantial services, or

13 ‘‘(C) are spouses of partners who are per14 forming (or had previously performed) such

15 substantial services.

16 ‘‘(3) SPECIAL RULE FOR LOWER TIER PART17 NERSHIPS.—For purposes of this subsection, the ac18 tivities of a partnership shall include the activities of

19 any other partnership in which the partnership owns

20 directly an interest in the capital and profits of at

21 least 80 percent.

22 ‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur23 poses of this part, the term ‘large partnership’ does not

24 include any partnership the principal activity of which is

25 the buying and selling of commodities (not described in
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1 section 1221(1)), or options, futures, or forwards with re2 spect to such commodities.

3 ‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE4 TURN.—If, on the partnership return of any partnership,

5 such partnership is treated as a large partnership, such

6 treatment shall be binding on such partnership and all

7 partners of such partnership but not on the Secretary.

8 ‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING

9 OIL AND GAS PROPERTIES.

10 ‘‘(a) EXCEPTION FOR PARTNERSHIPS HOLDING SIG11 NIFICANT OIL AND GAS PROPERTIES.—

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

13 the term ‘large partnership’ shall not include any

14 partnership if the average percentage of assets (by

15 value) held by such partnership during the taxable

16 year which are oil or gas properties is at least 25

17 percent. For purposes of the preceding sentence, any

18 interest held by a partnership in another partnership

19 shall be disregarded, except that the partnership

20 shall be treated as holding its proportionate share of

21 the assets of such other partnership.

22 ‘‘(2) ELECTION TO WAIVE EXCEPTION.—Any

23 partnership may elect to have paragraph (1) not

24 apply. Such an election shall apply to the partner25 ship taxable year for which made and all subsequent
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1 partnership taxable years unless revoked with the

2 consent of the Secretary.

3 ‘‘(b) SPECIAL RULES WHERE PART APPLIES.—

4 ‘‘(1) COMPUTATION OF PERCENTAGE DEPLE5 TION.—In the case of a large partnership, except as

6 provided in paragraph (2)—

7 ‘‘(A) the allowance for depletion under sec8 tion 611 with respect to any partnership oil or

9 gas property shall be computed at the partner10 ship level without regard to any provision of

11 section 613A requiring such allowance to be

12 computed separately by each partner,

13 ‘‘(B) such allowance shall be determined

14 without regard to the provisions of section

15 613A(c) limiting the amount of production for

16 which percentage depletion is allowable and

17 without regard to paragraph (1) of section

18 613A(d), and

19 ‘‘(C) paragraph (3) of section 705(a) shall

20 not apply.

21 ‘‘(2) TREATMENT OF CERTAIN PARTNERS.—

22 ‘‘(A) IN GENERAL.—In the case of a dis23 qualified person, the treatment under this chap24 ter of such person’s distributive share of any

25 item of income, gain, loss, deduction, or credit
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1 attributable to any partnership oil or gas prop2 erty shall be determined without regard to this

3 part. Such person’s distributive share of any

4 such items shall be excluded for purposes of

5 making determinations under sections 772 and

6 773.

7 ‘‘(B) DISQUALIFIED PERSON.—For pur8 poses of subparagraph (A), the term ‘disquali9 fied person’ means, with respect to any partner10 ship taxable year—

11 ‘‘(i) any person referred to in para12 graph (2) or (4) of section 613A(d) for

13 such person’s taxable year in which such

14 partnership taxable year ends, and

15 ‘‘(ii) any other person if such person’s

16 average daily production of domestic crude

17 oil and natural gas for such person’s tax18 able year in which such partnership tax19 able year ends exceeds 500 barrels.

20 ‘‘(C) AVERAGE DAILY PRODUCTION.—For

21 purposes of subparagraph (B), a person’s aver22 age daily production of domestic crude oil and

23 natural gas for any taxable year shall be com24 puted as provided in section 613A(c)(2)—
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1 ‘‘(i) by taking into account all produc2 tion of domestic crude oil and natural gas

3 (including such person’s proportionate

4 share of any production of a partnership),

5 ‘‘(ii) by treating 6,000 cubic feet of

6 natural gas as a barrel of crude oil, and

7 ‘‘(iii) by treating as 1 person all per8 sons treated as 1 taxpayer under section

9 613A(c)(8) or among whom allocations are

10 required under such section.

11 ‘‘SEC. 777. REGULATIONS.

12 ‘‘The Secretary shall prescribe such regulations as

13 may be appropriate to carry out the purposes of this

14 part.’’

15 (b) CLERICAL AMENDMENT.—The table of parts for

16 subchapter K of chapter 1 is amended by adding at the

17 end thereof the following new item:

‘‘Part IV. Special rules for large partnerships.’’

18 SEC. 302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE

19 PARTNERSHIPS.

20 (a) GENERAL RULE.—Chapter 63 is amended by

21 adding at the end thereof the following new subchapter:

22 ‘‘Subchapter D—Treatment of Large

23 Partnerships

‘‘Part I. Treatment of partnership items and adjustments.

‘‘Part II. Partnership level adjustments.

‘‘Part III. Definitions and special rules.
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1 ‘‘PART I—TREATMENT OF PARTNERSHIP ITEMS

2 AND ADJUSTMENTS

‘‘Sec. 6240. Application of subchapter.

‘‘Sec. 6241. Partner’s return must be consistent with partnership

return.

‘‘Sec. 6242. Procedures for taking partnership adjustments into

account.

3 ‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.

4 ‘‘(a) GENERAL RULE.—This subchapter shall only

5 apply to large partnerships and partners in such partner6 ships.

7 ‘‘(b) COORDINATION WITH OTHER PARTNERSHIP

8 AUDIT PROCEDURES.—

9 ‘‘(1) IN GENERAL.—Subchapter C of this chap10 ter shall not apply to any large partnership other

11 than in its capacity as a partner in another partner12 ship which is not a large partnership.

13 ‘‘(2) TREATMENT WHERE PARTNER IN OTHER

14 PARTNERSHIP.—If a large partnership is a partner

15 in another partnership which is not a large partner16 ship—

17 ‘‘(A) subchapter C of this chapter shall

18 apply to items of such large partnership which

19 are partnership items with respect to such other

20 partnership, but

21 ‘‘(B) any adjustment under such sub22 chapter C shall be taken into account in the

23 manner provided by section 6242.
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1 ‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT

2 WITH PARTNERSHIP RETURN.

3 ‘‘(a) GENERAL RULE.—A partner of any large part4 nership shall, on the partner’s return, treat each partner5 ship item attributable to such partnership in a manner

6 which is consistent with the treatment of such partnership

7 item on the partnership return.

8 ‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT

9 TREATMENT ASSESSED AS MATH ERROR.—Any

10 underpayment of tax by a partner by reason of failing to

11 comply with the requirements of subsection (a) shall be

12 assessed and collected in the same manner as if such

13 underpayment were on account of a mathematical or cleri14 cal error appearing on the partner’s return. Paragraph (2)

15 of section 6213(b) shall not apply to any assessment of

16 an underpayment referred to in the preceding sentence.

17 ‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR

18 OF PARTNERS.—

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), subsections (a) and (b) shall apply with21 out regard to any adjustment to the partnership

22 item under part II.

23 ‘‘(2) CERTAIN CHANGES IN DISTRIBUTIVE

24 SHARE TAKEN INTO ACCOUNT BY PARTNER.—

25 ‘‘(A) IN GENERAL.—To the extent that

26 any adjustment under part II involves a change
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1 under section 704 in a partner’s distributive

2 share of the amount of any partnership item

3 shown on the partnership return, such adjust4 ment shall be taken into account in applying

5 this title to such partner for the partner’s tax6 able year for which such item was required to

7 be taken into account.

8 ‘‘(B) COORDINATION WITH DEFICIENCY

9 PROCEDURES.—

10 ‘‘(i) IN GENERAL.—Subchapter B

11 shall not apply to the assessment or collec12 tion of any underpayment of tax attrib13 utable to an adjustment referred to in sub14 paragraph (A).

15 ‘‘(ii) ADJUSTMENT NOT PRE16 CLUDED.—Notwithstanding any other law

17 or rule of law, nothing in subchapter B (or

18 in any proceeding under subchapter B)

19 shall preclude the assessment or collection

20 of any underpayment of tax (or the allow21 ance of any credit or refund of any over22 payment of tax) attributable to an adjust23 ment referred to in subparagraph (A) and

24 such assessment or collection or allowance

25 (or any notice thereof) shall not preclude
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1 any notice, proceeding, or determination

2 under subchapter B.

3 ‘‘(C) PERIOD OF LIMITATIONS.—The pe4 riod for—

5 ‘‘(i) assessing any underpayment of

6 tax, or

7 ‘‘(ii) filing a claim for credit or refund

8 of any overpayment of tax,

9 attributable to an adjustment referred to in

10 subparagraph (A) shall not expire before the

11 close of the period prescribed by section 6248

12 for making adjustments with respect to the

13 partnership taxable year involved.

14 ‘‘(D) TIERED STRUCTURES.—If the part15 ner referred to in subparagraph (A) is another

16 partnership or an S corporation, the rules of

17 this paragraph shall also apply to persons hold18 ing interests in such partnership or S corpora19 tion (as the case may be); except that, if such

20 partner is a large partnership, the adjustment

21 referred to in subparagraph (A) shall be taken

22 into account in the manner provided by section

23 6242.
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1 ‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY

2 WITH SECTION.—

‘‘For addition to tax in case of partner’s disregard

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

3 ‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP AD4 JUSTMENTS INTO ACCOUNT.

5 ‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS

6 FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT.—

7 ‘‘(1) IN GENERAL.—If any partnership adjust8 ment with respect to any partnership item takes ef9 fect (within the meaning of subsection (d)(2)) during

10 any partnership taxable year and if an election

11 under paragraph (2) does not apply to such adjust12 ment, such adjustment shall be taken into account

13 in determining the amount of such item for the part14 nership taxable year in which such adjustment takes

15 effect. In applying this title to any person who is

16 (directly or indirectly) a partner in such partnership

17 during such partnership taxable year, such adjust18 ment shall be treated as an item actually arising

19 during such taxable year.

20 ‘‘(2) PARTNERSHIP LIABLE IN CERTAIN

21 CASES.—If—

22 ‘‘(A) a partnership elects under this para23 graph to not take an adjustment into account

24 under paragraph (1),
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1 ‘‘(B) a partnership does not make such an

2 election but in filing its return for any partner3 ship taxable year fails to take fully into account

4 any partnership adjustment as required under

5 paragraph (1), or

6 ‘‘(C) any partnership adjustment involves a

7 reduction in a credit which exceeds the

8 amount of such credit determined for the

9 partnership taxable year in which the adjust10 ment takes effect,

11 the partnership shall pay to the Secretary an

12 amount determined by applying the rules of sub13 section (b)(4) to the adjustments not so taken into

14 account and any excess referred to in subparagraph

15 (C).

16 ‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO

17 ACCOUNT.—If a partnership adjustment requires an18 other adjustment in a taxable year after the ad19 justed year and before the partnership taxable year

20 in which such partnership adjustment takes effect,

21 such other adjustment shall be taken into account

22 under this subsection for the partnership taxable

23 year in which such partnership adjustment takes ef24 fect.
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1 ‘‘(4) COORDINATION WITH PART II.—Amounts

2 taken into account under this subsection for any

3 partnership taxable year shall continue to be treated

4 as adjustments for the adjusted year for purposes of

5 determining whether such amounts may be read6 justed under part II.

7 ‘‘(b) PARTNERSHIP LIABLE FOR INTEREST AND

8 PENALTIES.—

9 ‘‘(1) IN GENERAL.—If a partnership adjust10 ment takes effect during any partnership taxable

11 year and such adjustment results in an imputed

12 underpayment for the adjusted year, the partner13 ship—

14 ‘‘(A) shall pay to the Secretary interest

15 computed under paragraph (2), and

16 ‘‘(B) shall be liable for any penalty, addi17 tion to tax, or additional amount as provided in

18 paragraph (3).

19 ‘‘(2) DETERMINATION OF AMOUNT OF INTER20 EST.—The interest computed under this paragraph

21 with respect to any partnership adjustment is the in22 terest which would be determined under chapter

23 67—
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1 ‘‘(A) on the imputed underpayment deter2 mined under paragraph (4) with respect to such

3 adjustment,

4 ‘‘(B) for the period beginning on the day

5 after the return due date for the adjusted year

6 and ending on the return due date for the part7 nership taxable year in which such adjustment

8 takes effect (or, if earlier, in the case of any ad9 justment to which subsection (a)(2) applies, the

10 date on which the payment under subsection

11 (a)(2) is made).

12 Proper adjustments in the amount determined under

13 the preceding sentence shall be made for adjust14 ments required for partnership taxable years after

15 the adjusted year and before the year in which the

16 partnership adjustment takes effect by reason of

17 such partnership adjustment.

18 ‘‘(3) PENALTIES.—A partnership shall be liable

19 for any penalty, addition to tax, or additional

20 amount for which it would have been liable if such

21 partnership had been an individual subject to tax

22 under chapter 1 for the adjusted year and the im23 puted underpayment determined under paragraph

24 (4) were an actual underpayment (or understate25 ment) for such year.
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1 ‘‘(4) IMPUTED UNDERPAYMENT.—For purposes

2 of this subsection, the imputed underpayment deter3 mined under this paragraph with respect to any

4 partnership adjustment is the underpayment (if any)

5 which would result—

6 ‘‘(A) by netting all adjustments to items of

7 income, gain, loss, or deduction and by treating

8 any net increase in income as an underpayment

9 equal to the amount of such net increase multi10 plied by the highest rate of tax in effect under

11 section 1 or 11 for the adjusted year, and

12 ‘‘(B) by taking adjustments to credits into

13 account as increases or decreases (whichever is

14 appropriate) in the amount of tax.

15 For purposes of the preceding sentence, any net de16 crease in a loss shall be treated as an increase in in17 come and a similar rule shall apply to a net increase

18 in a loss.

19 ‘‘(c) ADMINISTRATIVE PROVISIONS.—

20 ‘‘(1) IN GENERAL.—Any payment required by

21 subsection (a)(2) or (b)(1)(A)—

22 ‘‘(A) shall be assessed and collected in the

23 same manner as if it were a tax imposed by

24 subtitle C, and
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1 ‘‘(B) shall be paid on or before the return

2 due date for the partnership taxable year in

3 which the partnership adjustment takes effect.

4 ‘‘(2) INTEREST.—For purposes of determining

5 interest, any payment required by subsection (a)(2)

6 or (b)(1)(A) shall be treated as an underpayment

7 of tax.

8 ‘‘(3) PENALTIES.—

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

10 failure by any partnership to pay on the date

11 prescribed therefor any amount required by

12 subsection (a)(2) or (b)(1)(A), there is hereby

13 imposed on such partnership a penalty of 10

14 percent of the underpayment. For purposes of

15 the preceding sentence, the term

16 ‘underpayment’ means the excess of any pay17 ment required under this section over the

18 amount (if any) paid on or before the date pre19 scribed therefor.

20 ‘‘(B) ACCURACY-RELATED AND FRAUD

21 PENALTIES MADE APPLICABLE.—For purposes

22 of part II of subchapter A of chapter 68, any

23 payment required by subsection (a)(2) shall be

24 treated as an underpayment of tax.
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1 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section—

3 ‘‘(1) PARTNERSHIP ADJUSTMENT.—The term

4 ‘partnership adjustment’ means any adjustment in

5 the amount of any partnership item of a large part6 nership.

7 ‘‘(2) WHEN ADJUSTMENT TAKES EFFECT.—A

8 partnership adjustment takes effect—

9 ‘‘(A) in the case of an adjustment pursu10 ant to the decision of a court in a proceeding

11 brought under part II, when such decision be12 comes final,

13 ‘‘(B) in the case of an adjustment pursu14 ant to any administrative adjustment request

15 under section 6251, when such adjustment is

16 allowed by the Secretary, or

17 ‘‘(C) in any other case, when such adjust18 ment is made.

19 ‘‘(3) ADJUSTED YEAR.—The term ‘adjusted

20 year’ means the partnership taxable year to which

21 the item being adjusted relates.

22 ‘‘(4) RETURN DUE DATE.—The term ‘return

23 due date’ means, with respect to any taxable year,

24 the date prescribed for filing the partnership return
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1 for such taxable year (determined without regard to

2 extensions).

3 ‘‘(5) ADJUSTMENTS INVOLVING CHANGES IN

4 CHARACTER.—Under regulations, appropriate ad5 justments in the application of this section shall be

6 made for purposes of taking into account partner7 ship adjustments which involve a change in the char8 acter of any item of income, gain, loss, or deduction.

9 ‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction

10 shall be allowed under subtitle A for any payment required

11 to be made by a large partnership under this section.

12 ‘‘PART II—PARTNERSHIP LEVEL ADJUSTMENTS

‘‘Subpart A. Adjustments by Secretary.

‘‘Subpart B. Claims for adjustments by partnership.

13 ‘‘Subpart A—Adjustments by Secretary

‘‘Sec. 6245. Secretarial authority.

‘‘Sec. 6246. Restrictions on partnership adjustments.

‘‘Sec. 6247. Judicial review of partnership adjustment.

‘‘Sec. 6248. Period of limitations for making adjustments.

14 ‘‘SEC. 6245. SECRETARIAL AUTHORITY.

15 ‘‘(a) GENERAL RULE.—The Secretary is authorized

16 and directed to make adjustments at the partnership level

17 in any partnership item to the extent necessary to have

18 such item be treated in the manner required.

19 ‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—

20 ‘‘(1) IN GENERAL.—If the Secretary determines

21 that a partnership adjustment is required, the Sec22 retary is authorized to send notice of such adjust-
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1 ment to the partnership by certified mail or reg2 istered mail. Such notice shall be sufficient if mailed

3 to the partnership at its last known address even if

4 the partnership has terminated its existence.

5 ‘‘(2) FURTHER NOTICES RESTRICTED.—If the

6 Secretary mails a notice of a partnership adjustment

7 to any partnership for any partnership taxable year

8 and the partnership files a petition under section

9 6247 with respect to such notice, in the absence of

10 a showing of fraud, malfeasance, or misrepresenta11 tion of a material fact, the Secretary shall not mail

12 another such notice to such partnership with respect

13 to such taxable year.

14 ‘‘(3) AUTHORITY TO RESCIND NOTICE WITH

15 PARTNERSHIP CONSENT.—The Secretary may, with

16 the consent of the partnership, rescind any notice of

17 a partnership adjustment mailed to such partner18 ship. Any notice so rescinded shall not be treated as

19 a notice of a partnership adjustment, for purposes of

20 this section, section 6246, and section 6247, and the

21 taxpayer shall have no right to bring a proceeding

22 under section 6247 with respect to such notice.

23 Nothing in this subsection shall affect any suspen24 sion of the running of any period of limitations dur-
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1 ing any period during which the rescinded notice

2 was outstanding.

3 ‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUST4 MENTS.

5 ‘‘(a) GENERAL RULE.—Except as otherwise provided

6 in this chapter, no adjustment to any partnership item

7 may be made (and no levy or proceeding in any court for

8 the collection of any amount resulting from such adjust9 ment may be made, begun or prosecuted) before—

10 ‘‘(1) the close of the 90th day after the day on

11 which a notice of a partnership adjustment was

12 mailed to the partnership, and

13 ‘‘(2) if a petition is filed under section 6247

14 with respect to such notice, the decision of the court

15 has become final.

16 ‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—

17 Notwithstanding section 7421(a), any action which vio18 lates subsection (a) may be enjoined in the proper court,

19 including the Tax Court. The Tax Court shall have no ju20 risdiction to enjoin any action under this subsection unless

21 a timely petition has been filed under section 6247 and

22 then only in respect of the adjustments that are the sub23 ject of such petition.

24 ‘‘(c) EXCEPTIONS TO RESTRICTIONS ON ADJUST25 MENTS.—
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1 ‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR

2 CLERICAL ERRORS.—

3 ‘‘(A) IN GENERAL.—If the partnership is

4 notified that, on account of a mathematical or

5 clerical error appearing on the partnership re6 turn, an adjustment to a partnership item is re7 quired, rules similar to the rules of paragraphs

8 (1) and (2) of section 6213(b) shall apply to

9 such adjustment.

10 ‘‘(B) SPECIAL RULE.—If a large partner11 ship is a partner in another large partnership,

12 any adjustment on account of such partner13 ship’s failure to comply with the requirements

14 of section 6241(a) with respect to its interest in

15 such other partnership shall be treated as an

16 adjustment referred to in subparagraph (A), ex17 cept that paragraph (2) of section 6213(b) shall

18 not apply to such adjustment.

19 ‘‘(2) PARTNERSHIP MAY WAIVE RESTRIC20 TIONS.—The partnership shall at any time (whether

21 or not a notice of partnership adjustment has been

22 issued) have the right, by a signed notice in writing

23 filed with the Secretary, to waive the restrictions

24 provided in subsection (a) on the making of any

25 partnership adjustment.
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1 ‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.—If no

2 proceeding under section 6247 is begun with respect to

3 any notice of a partnership adjustment during the 90-day

4 period described in subsection (a), the amount for which

5 the partnership is liable under section 6242 (and any in6 crease in any partner’s liability for tax under chapter 1

7 by reason of any adjustment under section 6242(a)) shall

8 not exceed the amount determined in accordance with such

9 notice.

10 ‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUST11 MENT.

12 ‘‘(a) GENERAL RULE.—Within 90 days after the date

13 on which a notice of a partnership adjustment is mailed

14 to the partnership with respect to any partnership taxable

15 year, the partnership may file a petition for a readjust16 ment of the partnership items for such taxable year with—

17 ‘‘(1) the Tax Court,

18 ‘‘(2) the district court of the United States for

19 the district in which the partnership’s principal place

20 of business is located, or

21 ‘‘(3) the Claims Court.

22 ‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING

23 ACTION IN DISTRICT COURT OR CLAIMS COURT.—

24 ‘‘(1) IN GENERAL.—A readjustment petition

25 under this section may be filed in a district court of
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1 the United States or the Claims Court only if the

2 partnership filing the petition deposits with the Sec3 retary, on or before the date the petition is filed, the

4 amount for which the partnership would be liable

5 under section 6242(b) (as of the date of the filing

6 of the petition) if the partnership items were ad7 justed as provided by the notice of partnership ad8 justment. The court may by order provide that the

9 jurisdictional requirements of this paragraph are

10 satisfied where there has been a good faith attempt

11 to satisfy such requirement and any shortfall of the

12 amount required to be deposited is timely corrected.

13 ‘‘(2) INTEREST PAYABLE.—Any amount depos14 ited under paragraph (1), while deposited, shall not

15 be treated as a payment of tax for purposes of this

16 title (other than chapter 67).

17 ‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court with

18 which a petition is filed in accordance with this section

19 shall have jurisdiction to determine all partnership items

20 of the partnership for the partnership taxable year to

21 which the notice of partnership adjustment relates and the

22 proper allocation of such items among the partners (and

23 the applicability of any penalty, addition to tax, or addi24 tional amount for which the partnership may be liable

25 under section 6242(b)).
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1 ‘‘(d) DETERMINATION OF COURT REVIEWABLE.—

2 Any determination by a court under this section shall have

3 the force and effect of a decision of the Tax Court or a

4 final judgment or decree of the district court or the Claims

5 Court, as the case may be, and shall be reviewable as such.

6 The date of any such determination shall be treated as

7 being the date of the court’s order entering the decision.

8 ‘‘(e) EFFECT OF DECISION DISMISSING ACTION.—If

9 an action brought under this section is dismissed other

10 than by reason of a rescission under section 6245(b)(3),

11 the decision of the court dismissing the action shall be con12 sidered as its decision that the notice of partnership ad13 justment is correct, and an appropriate order shall be en14 tered in the records of the court.

15 ‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUST16 MENTS.

17 ‘‘(a) GENERAL RULE.—Except as otherwise provided

18 in this section, no adjustment under this subpart to any

19 partnership item for any partnership taxable year may be

20 made after the date which is 3 years after the later of—

21 ‘‘(1) the date on which the partnership return

22 for such taxable year was filed, or

23 ‘‘(2) the last day for filing such return for such

24 year (determined without regard to extensions).
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1 ‘‘(b) EXTENSION BY AGREEMENT.—The period de2 scribed in subsection (a) (including an extension period

3 under this subsection) may be extended by an agreement

4 entered into by the Secretary and the partnership before

5 the expiration of such period.

6 ‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—

7 ‘‘(1) FALSE RETURN.—In the case of a false or

8 fraudulent partnership return with intent to evade

9 tax, the adjustment may be made at any time.

10 ‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If

11 any partnership omits from gross income an amount

12 properly includible therein which is in excess of 25

13 percent of the amount of gross income stated in its

14 return, subsection (a) shall be applied by substitut15 ing ‘6 years’ for ‘3 years’.

16 ‘‘(3) NO RETURN.—In the case of a failure by

17 a partnership to file a return for any taxable year,

18 the adjustment may be made at any time.

19 ‘‘(4) RETURN FILED BY SECRETARY.—For pur20 poses of this section, a return executed by the Sec21 retary under subsection (b) of section 6020 on be22 half of the partnership shall not be treated as a re23 turn of the partnership.

24 ‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE

25 OF ADJUSTMENT.—If notice of a partnership adjustment
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1 with respect to any taxable year is mailed to the partner2 ship, the running of the period specified in subsection (a)

3 (as modified by the other provisions of this section) shall

4 be suspended—

5 ‘‘(1) for the period during which an action may

6 be brought under section 6247 (and, if a petition is

7 filed under section 6247 with respect to such notice,

8 until the decision of the court becomes final), and

9 ‘‘(2) for 1 year thereafter.

10 ‘‘Subpart B—Claims for Adjustments by Partnership

‘‘Sec. 6251. Administrative adjustment requests.

‘‘Sec. 6252. Judicial review where administrative adjustment request is not allowed in full.

11 ‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

12 ‘‘(a) GENERAL RULE.—A partnership may file a re13 quest for an administrative adjustment of partnership

14 items for any partnership taxable year at any time which

15 is—

16 ‘‘(1) within 3 years after the later of—

17 ‘‘(A) the date on which the partnership re18 turn for such year is filed, or

19 ‘‘(B) the last day for filing the partnership

20 return for such year (determined without re21 gard to extensions), and

22 ‘‘(2) before the mailing to the partnership of a

23 notice of a partnership adjustment with respect to

24 such taxable year.
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1 ‘‘(b) SECRETARIAL ACTION.—If a partnership files

2 an administrative adjustment request under subsection

3 (a), the Secretary may allow any part of the requested

4 adjustments.

5 ‘‘(c) SPECIAL RULE IN CASE OF EXTENSION UNDER

6 SECTION 6248.—If the period described in section

7 6248(a) is extended pursuant to an agreement under sec8 tion 6248(b), the period prescribed by subsection (a)(1)

9 shall not expire before the date 6 months after the expira10 tion of the extension under section 6248(b).

11 ‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE

12 ADJUSTMENT REQUEST IS NOT ALLOWED IN

13 FULL.

14 ‘‘(a) IN GENERAL.—If any part of an administrative

15 adjustment request filed under section 6251 is not allowed

16 by the Secretary, the partnership may file a petition for

17 an adjustment with respect to the partnership items to

18 which such part of the request relates with—

19 ‘‘(1) the Tax Court,

20 ‘‘(2) the district court of the United States for

21 the district in which the principal place of business

22 of the partnership is located, or

23 ‘‘(3) the Claims Court.
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1 ‘‘(b) PERIOD FOR FILING PETITION.—A petition may

2 be filed under subsection (a) with respect to partnership

3 items for a partnership taxable year only—

4 ‘‘(1) after the expiration of 6 months from the

5 date of filing of the request under section 6251, and

6 ‘‘(2) before the date which is 2 years after the

7 date of such request.

8 The 2-year period set forth in paragraph (2) shall be ex9 tended for such period as may be agreed upon in writing

10 by the partnership and the Secretary.

11 ‘‘(c) COORDINATION WITH SUBPART A.—

12 ‘‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT

13 BEFORE FILING OF PETITION.—No petition may be

14 filed under this section after the Secretary mails to

15 the partnership a notice of a partnership adjustment

16 for the partnership taxable year to which the request

17 under section 6251 relates.

18 ‘‘(2) NOTICE OF PARTNERSHIP ADJUSTMENT

19 AFTER FILING BUT BEFORE HEARING OF PETI20 TION.—If the Secretary mails to the partnership a

21 notice of a partnership adjustment for the partner22 ship taxable year to which the request under section

23 6251 relates after the filing of a petition under this

24 subsection but before the hearing of such petition,

25 such petition shall be treated as an action brought
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1 under section 6247 with respect to such notice, ex2 cept that subsection (b) of section 6247 shall not

3 apply.

4 ‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF

5 STATUTE OF LIMITATIONS.—A notice of a partner6 ship adjustment for the partnership taxable year

7 shall be taken into account under paragraphs (1)

8 and (2) only if such notice is mailed before the expi9 ration of the period prescribed by section 6248 for

10 making adjustments to partnership items for such

11 taxable year.

12 ‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in the

13 case described in paragraph (2) of subsection (c), a court

14 with which a petition is filed in accordance with this sec15 tion shall have jurisdiction to determine only those part16 nership items to which the part of the request under sec17 tion 6251 not allowed by the Secretary relates and those

18 items with respect to which the Secretary asserts adjust19 ments as offsets to the adjustments requested by the part20 nership.

21 ‘‘(e) DETERMINATION OF COURT REVIEWABLE.—

22 Any determination by a court under this subsection shall

23 have the force and effect of a decision of the Tax Court

24 or a final judgment or decree of the district court or the

25 Claims Court, as the case may be, and shall be reviewable
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1 as such. The date of any such determination shall be

2 treated as being the date of the court’s order entering the

3 decision.

4 ‘‘PART III—DEFINITIONS AND SPECIAL RULES

‘‘Sec. 6255. Definitions and special rules.

5 ‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.

6 ‘‘(a) DEFINITIONS.—For purposes of this sub7 chapter—

8 ‘‘(1) LARGE PARTNERSHIP.—The term ‘large

9 partnership’ has the meaning given to such term by

10 section 775 without regard to section 776(a).

11 ‘‘(2) PARTNERSHIP ITEM.—The term ‘partner12 ship item’ has the meaning given to such term by

13 section 6231(a)(3).

14 ‘‘(b) PARTNERS BOUND BY ACTIONS OF PARTNER15 SHIP, ETC.—

16 ‘‘(1) DESIGNATION OF PARTNER.—Each large

17 partnership shall designate (in the manner pre18 scribed by the Secretary) a partner (or other person)

19 who shall have the sole authority to act on behalf of

20 such partnership under this subchapter. In any case

21 in which such a designation is not in effect, the Sec22 retary may select any partner as the partner with

23 such authority.
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1 ‘‘(2) BINDING EFFECT.—A large partnership

2 and all partners of such partnership shall be

3 bound—

4 ‘‘(A) by actions taken under this sub5 chapter by the partnership, and

6 ‘‘(B) by any decision in a proceeding

7 brought under this subchapter.

8 ‘‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF

9 BUSINESS OUTSIDE THE UNITED STATES.—For purposes

10 of sections 6247 and 6252, a principal place of business

11 located outside the United States shall be treated as lo12 cated in the District of Columbia.

13 ‘‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO

14 EXIST.—If a partnership ceases to exist before a partner15 ship adjustment under this subchapter takes effect, such

16 adjustment shall be taken into account by the former part17 ners of such partnership under regulations prescribed by

18 the Secretary.

19 ‘‘(e) DATE DECISION BECOMES FINAL.—For pur20 poses of this subchapter, the principles of section 7481(a)

21 shall be applied in determining the date on which a deci22 sion of a district court or the Claims Court becomes final.

23 ‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF

24 THE UNITED STATES CODE.—The running of any period

25 of limitations provided in this subchapter on making a
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1 partnership adjustment (or provided by section 6501 or

2 6502 on the assessment or collection of any amount re3 quired to be paid under section 6242) shall, in a case

4 under title 11 of the United States Code, be suspended

5 during the period during which the Secretary is prohibited

6 by reason of such case from making the adjustment (or

7 assessment or collection) and—

8 ‘‘(1) for adjustment or assessment, 60 days

9 thereafter, and

10 ‘‘(2) for collection, 6 months thereafter.

11 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

12 such regulations as may be necessary to carry out the pro13 visions of this subchapter, including regulations—

14 ‘‘(1) to prevent abuse through manipulation of

15 the provisions of this subchapter, and

16 ‘‘(2) providing that this subchapter shall not

17 apply to any case described in section 6231(c)(1) (or

18 the regulations prescribed thereunder) where the ap19 plication of this subchapter to such a case would

20 interfere with the effective and efficient enforcement

21 of this title.

22 In any case to which this subchapter does not apply by

23 reason of paragraph (2), rules similar to the rules of sec24 tions 6229(f) and 6255(f) shall apply.’’
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1 (b) CLERICAL AMENDMENT.—The table of sub2 chapters for chapter 63 is amended by adding at the end

3 thereof the following new item:

‘‘SUBCHAPTER D. Treatment of large partnerships.’’

4 SEC. 303. DUE DATE FOR FURNISHING INFORMATION TO

5 PARTNERS OF LARGE PARTNERSHIPS.

6 (a) GENERAL RULE.—Subsection (b) of section 6031

7 (relating to copies to partners) is amended by adding at

8 the end thereof the following new sentence: ‘‘In the case

9 of a large partnership (as defined in sections 775 and

10 776(a)), such information shall be furnished on or before

11 the first March 15 following the close of such taxable

12 year.’’

13 (b) TREATMENT AS INFORMATION RETURN.—Sec14 tion 6724 is amended by adding at the end thereof the

15 following new subsection:

16 ‘‘(e) SPECIAL RULE FOR CERTAIN PARTNERSHIP RE17 TURNS.—If any partnership return under section 6031(a)

18 is required under section 6011(e) to be filed on magnetic

19 media or in other machine-readable form, for purposes of

20 this part, each schedule required to be included with such

21 return with respect to each partner shall be treated as a

22 separate information return.’’
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1 SEC. 304. RETURNS MAY BE REQUIRED ON MAGNETIC

2 MEDIA.

3 Paragraph (2) of section 6011(e) (relating to returns

4 on magnetic media) is amended by adding at the end

5 thereof the following new sentence:

6 ‘‘The preceding sentence shall not apply in the case

7 of the partnership return of a large partnership (as

8 defined in sections 775 and 776(a)) or any other

9 partnership with 250 or more partners.’’

10 SEC. 305. TREATMENT OF PARTNERSHIP ITEMS OF INDI11 VIDUAL RETIREMENT ACCOUNTS.

12 Subsection (b) of section 6012 is amended by adding

13 at the end thereof the following new paragraph:

14 ‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.—

15 In the case of a trust which is exempt from taxation

16 under section 408(e), for purposes of this section,

17 the trust’s distributive share of items of gross in18 come and gain of any partnership to which sub19 chapter C or D of chapter 63 applies shall be treat20 ed as equal to the trust’s distributive share of the

21 taxable income of such partnership.’’

22 SEC. 306. EFFECTIVE DATE.

23 (a) GENERAL RULE.—Except as otherwise provided

24 in this section, the amendments made by this subtitle shall

25 apply to partnership taxable years ending on or after De26 cember 31, 1994.
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1 (b) SPECIAL RULE FOR SECTION 304.—In the case

2 of a partnership which is not a large partnership (as de3 fined in sections 775 and 776(a) of the Internal Revenue

4 Code of 1986, as added by this subtitle), the amendment

5 made by section 304 shall only apply to partnership tax6 able years ending on or after December 31, 1998.

7 (c) SPECIAL RULE FOR SECTION 305.—The amend8 ment made by section 305 shall apply to taxable years be9 ginning after December 31, 1993.

10 Subtitle B—Provisions Related to

11 TEFRA Partnership Proceedings

12 SEC. 311. TREATMENT OF PARTNERSHIP ITEMS IN DEFI13 CIENCY PROCEEDINGS.

14 (a) IN GENERAL.—Subchapter C of chapter 63 is

15 amended by adding at the end thereof the following new

16 section:

17 ‘‘SEC. 6234. DECLARATORY JUDGMENT RELATING TO

18 TREATMENT OF ITEMS OTHER THAN PART19 NERSHIP ITEMS WITH RESPECT TO AN

20 OVERSHELTERED RETURN.

21 ‘‘(a) GENERAL RULE.—If—

22 ‘‘(1) a taxpayer files an oversheltered return for

23 a taxable year,

24 ‘‘(2) the Secretary makes a determination with

25 respect to the treatment of items (other than part-
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1 nership items) of such taxpayer for such taxable

2 year, and

3 ‘‘(3) the adjustments resulting from such deter4 mination do not give rise to a deficiency (as defined

5 in section 6211) but would give rise to a deficiency

6 if there were no net loss from partnership items,

7 the Secretary is authorized to send a notice of adjustment

8 reflecting such determination to the taxpayer by certified

9 or registered mail.

10 ‘‘(b) OVERSHELTERED RETURN.—For purposes of

11 this section, the term ‘oversheltered return’ means an in12 come tax return which—

13 ‘‘(1) shows no taxable income for the taxable

14 year, and

15 ‘‘(2) shows a net loss from partnership items.

16 ‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.—Within

17 90 days, or 150 days if the notice is addressed to a person

18 outside the United States, after the day on which the no19 tice of adjustment authorized in subsection (a) is mailed

20 to the taxpayer, the taxpayer may file a petition with the

21 Tax Court for redetermination of the adjustments. Upon

22 the filing of such a petition, the Tax Court shall have ju23 risdiction to make a declaration with respect to all items

24 (other than partnership items and affected items which

25 require partner level determinations as described in sec-
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1 tion 6230(a)(2)(A)(i)) for the taxable year to which the

2 notice of adjustment relates, in accordance with the prin3 ciples of section 6214(a). Any such declaration shall have

4 the force and effect of a decision of the Tax Court and

5 shall be reviewable as such.

6 ‘‘(d) FAILURE TO FILE PETITION.—

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2), if the taxpayer does not file a petition

9 with the Tax Court within the time prescribed in

10 subsection (c), the determination of the Secretary

11 set forth in the notice of adjustment that was mailed

12 to the taxpayer shall be deemed to be correct.

13 ‘‘(2) EXCEPTION.—Paragraph (1) shall not

14 apply after the date that the taxpayer—

15 ‘‘(A) files a petition with the Tax Court

16 within the time prescribed in subsection (c)

17 with respect to a subsequent notice of adjust18 ment relating to the same taxable year, or

19 ‘‘(B) files a claim for refund of an overpay20 ment of tax under section 6511 for the taxable

21 year involved.

22 If a claim for refund is filed by the taxpayer, then

23 solely for purposes of determining (for the taxable

24 year involved) the amount of any computational ad25 justment in connection with a partnership proceed-
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1 ing under this subchapter (other than under this

2 section) or the amount of any deficiency attributable

3 to affected items in a proceeding under section

4 6230(a)(2), the items that are the subject of the no5 tice of adjustment shall be presumed to have been

6 correctly reported on the taxpayer’s return during

7 the pendency of the refund claim (and, if within the

8 time prescribed by section 6532 the taxpayer com9 mences a civil action for refund under section 7422,

10 until the decision in the refund action becomes

11 final).

12 ‘‘(e) LIMITATIONS PERIOD.—

13 ‘‘(1) IN GENERAL.—Any notice to a taxpayer

14 under subsection (a) shall be mailed before the expi15 ration of the period prescribed by section 6501 (re16 lating to the period of limitations on assessment).

17 ‘‘(2) SUSPENSION WHEN SECRETARY MAILS NO18 TICE OF ADJUSTMENT.—If the Secretary mails a no19 tice of adjustment to the taxpayer for a taxable year,

20 the period of limitations on the making of assess21 ments shall be suspended for the period during

22 which the Secretary is prohibited from making the

23 assessment (and, in any event, if a proceeding in re24 spect of the notice of adjustment is placed on the

25 docket of the Tax Court, until the decision of the
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1 Tax Court becomes final), and for 60 days there2 after.

3 ‘‘(3) RESTRICTIONS ON ASSESSMENT.—Except

4 as otherwise provided in section 6851, 6852, or

5 6861, no assessment of a deficiency with respect to

6 any tax imposed by subtitle A attributable to any

7 item (other than a partnership item or any item af8 fected by a partnership item) shall be made—

9 ‘‘(A) until the expiration of the applicable

10 90-day or 150-day period set forth in sub11 section (c) for filing a petition with the Tax

12 Court, or

13 ‘‘(B) if a petition has been filed with the

14 Tax Court, until the decision of the Tax Court

15 has become final.

16 ‘‘(f) FURTHER NOTICES OF ADJUSTMENT RE17 STRICTED.—If the Secretary mails a notice of adjustment

18 to the taxpayer for a taxable year and the taxpayer files

19 a petition with the Tax Court within the time prescribed

20 in subsection (c), the Secretary may not mail another such

21 notice to the taxpayer with respect to the same taxable

22 year in the absence of a showing of fraud, malfeasance,

23 or misrepresentation of a material fact.

24 ‘‘(g) COORDINATION WITH OTHER PROCEEDINGS

25 UNDER THIS SUBCHAPTER.—
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1 ‘‘(1) IN GENERAL.—The treatment of any item

2 that has been determined pursuant to subsection (c)

3 or (d) shall be taken into account in determining the

4 amount of any computational adjustment that is

5 made in connection with a partnership proceeding

6 under this subchapter (other than under this sec7 tion), or the amount of any deficiency attributable to

8 affected items in a proceeding under section

9 6230(a)(2), for the taxable year involved. Notwith10 standing any other law or rule of law pertaining to

11 the period of limitations on the making of assess12 ments, for purposes of the preceding sentence, any

13 adjustment made in accordance with this section

14 shall be taken into account regardless of whether

15 any assessment has been made with respect to such

16 adjustment.

17 ‘‘(2) SPECIAL RULE IN CASE OF COMPUTA18 TIONAL ADJUSTMENT.—In the case of a computa19 tional adjustment that is made in connection with a

20 partnership proceeding under this subchapter (other

21 than under this section), the provisions of paragraph

22 (1) shall apply only if the computational adjustment

23 is made within the period prescribed by section 6229

24 for assessing any tax under subtitle A which is at-
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1 tributable to any partnership item or affected item

2 for the taxable year involved.

3 ‘‘(3) CONVERSION TO DEFICIENCY PROCEED4 ING.—If—

5 ‘‘(A) after the notice referred to in sub6 section (a) is mailed to a taxpayer for a taxable

7 year but before the expiration of the period for

8 filing a petition with the Tax Court under sub9 section (c) (or, if a petition is filed with the Tax

10 Court, before the Tax Court makes a declara11 tion for that taxable year), the treatment of any

12 partnership item for the taxable year is finally

13 determined, or any such item ceases to be a

14 partnership item pursuant to section 6231(b),

15 and

16 ‘‘(B) as a result of that final determination

17 or cessation, a deficiency can be determined

18 with respect to the items that are the subject

19 of the notice of adjustment,

20 the notice of adjustment shall be treated as a notice

21 of deficiency under section 6212 and any petition

22 filed in respect of the notice shall be treated as an

23 action brought under section 6213.
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1 ‘‘(4) FINALLY DETERMINED.—For purposes of

2 this subsection, the treatment of partnership items

3 shall be treated as finally determined if—

4 ‘‘(A) the Secretary enters into a settlement

5 agreement (within the meaning of section 6224)

6 with the taxpayer regarding such items,

7 ‘‘(B) a notice of final partnership adminis8 trative adjustment has been issued and—

9 ‘‘(i) no petition has been filed under

10 section 6226 and the time for doing so has

11 expired, or

12 ‘‘(ii) a petition has been filed under

13 section 6226 and the decision of the court

14 has become final, or

15 ‘‘(C) the period within which any tax at16 tributable to such items may be assessed

17 against the taxpayer has expired.

18 ‘‘(h) SPECIAL RULES IF SECRETARY INCORRECTLY

19 DETERMINES APPLICABLE PROCEDURE.—

20 ‘‘(1) SPECIAL RULE IF SECRETARY ERRO21 NEOUSLY MAILS NOTICE OF ADJUSTMENT.—If the

22 Secretary erroneously determines that subchapter B

23 does not apply to a taxable year of a taxpayer and

24 consistent with that determination timely mails a no25 tice of adjustment to the taxpayer pursuant to sub-
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1 section (a) of this section, the notice of adjustment

2 shall be treated as a notice of deficiency under sec3 tion 6212 and any petition that is filed in respect of

4 the notice shall be treated as an action brought

5 under section 6213.

6 ‘‘(2) SPECIAL RULE IF SECRETARY ERRO7 NEOUSLY MAILS NOTICE OF DEFICIENCY.—If the

8 Secretary erroneously determines that subchapter B

9 applies to a taxable year of a taxpayer and consist10 ent with that determination timely mails a notice of

11 deficiency to the taxpayer pursuant to section 6212,

12 the notice of deficiency shall be treated as a notice

13 of adjustment under subsection (a) and any petition

14 that is filed in respect of the notice shall be treated

15 as an action brought under subsection (c).’’

16 (b) TREATMENT OF PARTNERSHIP ITEMS IN DEFI17 CIENCY PROCEEDINGS.—Section 6211 (defining defi18 ciency) is amended by adding at the end thereof the follow19 ing new subsection:

20 ‘‘(c) COORDINATION WITH SUBCHAPTER C.—In de21 termining the amount of any deficiency for purposes of

22 this subchapter, adjustments to partnership items shall be

23 made only as provided in subchapter C.’’
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1 (c) CLERICAL AMENDMENT.—The table of sections

2 for subchapter C of chapter 63 is amended by adding at

3 the end thereof the following new item:

‘‘Sec. 6234. Declaratory judgment relating to treatment of items

other than partnership items with respect to an

oversheltered return.’’

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

5 this section shall apply to partnership taxable years ending

6 after the date of the enactment of this Act.

7 SEC. 312. PARTNERSHIP RETURN TO BE DETERMINATIVE

8 OF AUDIT PROCEDURES TO BE FOLLOWED.

9 (a) IN GENERAL.—Section 6231 (relating to defini10 tions and special rules) is amended by adding at the end

11 thereof the following new subsection:

12 ‘‘(g) PARTNERSHIP RETURN TO BE DETERMINATIVE

13 OF WHETHER SUBCHAPTER APPLIES.—

14 ‘‘(1) DETERMINATION THAT SUBCHAPTER AP15 PLIES.—If, on the basis of a partnership return for

16 a taxable year, the Secretary reasonably determines

17 that this subchapter applies to such partnership for

18 such year but such determination is erroneous, then

19 the provisions of this subchapter are hereby ex20 tended to such partnership (and its items) for such

21 taxable year and to partners of such partnership.

22 ‘‘(2) DETERMINATION THAT SUBCHAPTER DOES

23 NOT APPLY.—If, on the basis of a partnership re24 turn for a taxable year, the Secretary reasonably de-
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1 termines that this subchapter does not apply to such

2 partnership for such year but such determination is

3 erroneous, then the provisions of this subchapter

4 shall not apply to such partnership (and its items)

5 for such taxable year or to partners of such partner6 ship.’’

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

8 this section shall apply to partnership taxable years ending

9 after the date of the enactment of this Act.

10 SEC. 313. PROVISIONS RELATING TO STATUTE OF LIMITA11 TIONS.

12 (a) SUSPENSION OF STATUTE WHERE UNTIMELY

13 PETITION FILED.—Paragraph (1) of section 6229(d) (re14 lating to suspension where Secretary makes administrative

15 adjustment) is amended by striking all that follows ‘‘sec16 tion 6226’’ and inserting the following: ‘‘(and, if a petition

17 is filed under section 6226 with respect to such adminis18 trative adjustment, until the decision of the court becomes

19 final), and’’.

20 (b) SUSPENSION OF STATUTE DURING BANKRUPTCY

21 PROCEEDING.—Section 6229 is amended by adding at the

22 end thereof the following new subsection:

23 ‘‘(h) SUSPENSION DURING PENDENCY OF BANK24 RUPTCY PROCEEDING.—If a petition is filed naming a

25 partner as a debtor in a bankruptcy proceeding under title
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1 11 of the United States Code, the running of the period

2 of limitations provided in this section with respect to such

3 partner shall be suspended—

4 ‘‘(1) for the period during which the Secretary

5 is prohibited by reason of such bankruptcy proceed6 ing from making an assessment, and

7 ‘‘(2) for 60 days thereafter.’’

8 (c) TAX MATTERS PARTNER IN BANKRUPTCY.—Sec9 tion 6229(b) is amended by redesignating paragraph (2)

10 as paragraph (3) and by inserting after paragraph (1) the

11 following new paragraph:

12 ‘‘(2) SPECIAL RULE WITH RESPECT TO DEBT13 ORS IN TITLE 11 CASES.—Notwithstanding any other

14 law or rule of law, if an agreement is entered into

15 under paragraph (1)(B) and the agreement is signed

16 by a person who would be the tax matters partner

17 but for the fact that, at the time that the agreement

18 is executed, the person is a debtor in a bankruptcy

19 proceeding under title 11 of the United States Code,

20 such agreement shall be binding on all partners in

21 the partnership unless the Secretary has been noti22 fied of the bankruptcy proceeding in accordance with

23 regulations prescribed by the Secretary.’’

24 (d) EFFECTIVE DATES.—
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1 (1) SUBSECTIONS (a) AND (b).—The amend2 ments made by subsections (a) and (b) shall apply

3 to partnership taxable years with respect to which

4 the period under section 6229 of the Internal Reve5 nue Code of 1986 for assessing tax has not expired

6 on or before the date of the enactment of this Act.

7 (2) SUBSECTION (c).—The amendment made

8 by subsection (c) shall apply to agreements entered

9 into after the date of the enactment of this Act.

10 SEC. 314. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

11 (a) IN GENERAL.—Clause (i) of section

12 6231(a)(1)(B) (relating to exception for small partner13 ships) is amended to read as follows:

14 ‘‘(i) IN GENERAL.—The term ‘part15 nership’ shall not include any partnership

16 having 10 or fewer partners each of whom

17 is an individual (other than a nonresident

18 alien), a C corporation, or an estate of a

19 deceased partner. For purposes of the pre20 ceding sentence, a husband and wife (and

21 their estates) shall be treated as 1 part22 ner.’’

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

24 this section shall apply to partnership taxable years ending

25 after the date of the enactment of this Act.
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1 SEC. 315. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1

2 YEAR LIMITATION ON ASSESSMENT.

3 (a) IN GENERAL.—Subsection (f) of section 6229 (re4 lating to items becoming nonpartnership items) is amend5 ed—

6 (1) by striking ‘‘(f) ITEMS BECOMING

7 NONPARTNERSHIP ITEMS.—If’’ and inserting the

8 following:

9 ‘‘(f) SPECIAL RULES.—

10 ‘‘(1) ITEMS BECOMING NONPARTNERSHIP

11 ITEMS.—If’’,

12 (2) by moving the text of such subsection 2 ems

13 to the right, and

14 (3) by adding at the end thereof the following

15 new paragraph:

16 ‘‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT

17 AGREEMENTS.—If a partner enters into a settlement

18 agreement with the Secretary with respect to the

19 treatment of some of the partnership items in dis20 pute for a partnership taxable year but other part21 nership items for such year remain in dispute, the

22 period of limitations for assessing any tax attrib23 utable to the settled items shall be determined as if

24 such agreement had not been entered into.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to settlements entered into after

3 the date of the enactment of this Act.

4 SEC. 316. EXTENSION OF TIME FOR FILING A REQUEST

5 FOR ADMINISTRATIVE ADJUSTMENT.

6 (a) IN GENERAL.—Section 6227 (relating to admin7 istrative adjustment requests) is amended by redesignat8 ing subsections (b) and (c) as subsections (c) and (d), re9 spectively, and by inserting after subsection (a) the follow10 ing new subsection:

11 ‘‘(b) SPECIAL RULE IN CASE OF EXTENSION OF PE12 RIOD OF LIMITATIONS UNDER SECTION 6229.—The pe13 riod prescribed by subsection (a)(1) for filing of a request

14 for an administrative adjustment shall be extended—

15 ‘‘(1) for the period within which an assessment

16 may be made pursuant to an agreement (or any ex17 tension thereof) under section 6229(b), and

18 ‘‘(2) for 6 months thereafter.’’

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

20 this section shall take effect as if included in the amend21 ments made by section 402 of the Tax Equity and Fiscal

22 Responsibility Act of 1982.
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1 SEC. 317. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN

2 CONTEXT OF PARTNERSHIP PROCEEDINGS.

3 (a) IN GENERAL.—Subsection (a) of section 6230 is

4 amended by adding at the end thereof the following new

5 paragraph:

6 ‘‘(3) SPECIAL RULE IN CASE OF ASSERTION BY

7 PARTNER’S SPOUSE OF INNOCENT SPOUSE RE8 LIEF.—

9 ‘‘(A) Notwithstanding section 6404(b), if

10 the spouse of a partner asserts that section

11 6013(e) applies with respect to a liability that

12 is attributable to any adjustment to a partner13 ship item, then such spouse may file with the

14 Secretary within 60 days after the notice of

15 computational adjustment is mailed to the

16 spouse a request for abatement of the assess17 ment specified in such notice. Upon receipt of

18 such request, the Secretary shall abate the as19 sessment. Any reassessment of the tax with re20 spect to which an abatement is made under this

21 subparagraph shall be subject to the deficiency

22 procedures prescribed by subchapter B. The pe23 riod for making any such reassessment shall

24 not expire before the expiration of 60 days after

25 the date of such abatement.
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1 ‘‘(B) If the spouse files a petition with the

2 Tax Court pursuant to section 6213 with re3 spect to the request for abatement described in

4 subparagraph (A), the Tax Court shall only

5 have jurisdiction pursuant to this section to de6 termine whether the requirements of section

7 6013(e) have been satisfied. For purposes of

8 such determination, the treatment of partner9 ship items under the settlement, the final part10 nership administrative adjustment, or the deci11 sion of the court (whichever is appropriate) that

12 gave rise to the liability in question shall be

13 conclusive.

14 ‘‘(C) Rules similar to the rules contained

15 in subparagraphs (B) and (C) of paragraph (2)

16 shall apply for purposes of this paragraph.’’

17 (b) CLAIMS FOR REFUND.—Subsection (c) of section

18 6230 is amended by adding at the end thereof the follow19 ing new paragraph:

20 ‘‘(5) RULES FOR SEEKING INNOCENT SPOUSE

21 RELIEF.—

22 ‘‘(A) IN GENERAL.—The spouse of a part23 ner may file a claim for refund on the ground

24 that the Secretary failed to relieve the spouse

25 under section 6013(e) from a liability that is at-
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1 tributable to an adjustment to a partnership

2 item.

3 ‘‘(B) TIME FOR FILING CLAIM.—Any claim

4 under subparagraph (A) shall be filed within 6

5 months after the day on which the Secretary

6 mails to the spouse the notice of computational

7 adjustment referred to in subsection (a)(3)(A).

8 ‘‘(C) SUIT IF CLAIM NOT ALLOWED.—If

9 the claim under subparagraph (B) is not al10 lowed, the spouse may bring suit with respect

11 to the claim within the period specified in para12 graph (3).

13 ‘‘(D) PRIOR DETERMINATIONS ARE BIND14 ING.—For purposes of any claim or suit under

15 this paragraph, the treatment of partnership

16 items under the settlement, the final partner17 ship administrative adjustment, or the decision

18 of the court (whichever is appropriate) that

19 gave rise to the liability in question shall be

20 conclusive.’’

21 (c) TECHNICAL AMENDMENTS.—

22 (1) Paragraph (1) of section 6230(a) is amend23 ed by striking ‘‘paragraph (2)’’ and inserting ‘‘para24 graph (2) or (3)’’.
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1 (2) Subsection (a) of section 6503 is amended

2 by striking ‘‘section 6230(a)(2)(A)’’ and inserting

3 ‘‘paragraph (2)(A) or (3) of section 6230(a)’’.

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

5 this section shall take effect as if included in the amend6 ments made by section 402 of the Tax Equity and Fiscal

7 Responsibility Act of 1982.

8 SEC. 318. DETERMINATION OF PENALTIES AT PARTNER9 SHIP LEVEL.

10 (a) IN GENERAL.—Section 6221 (relating to tax

11 treatment determined at partnership level) is amended by

12 striking ‘‘item’’ and inserting ‘‘item (and the applicability

13 of any penalty, addition to tax, or additional amount which

14 relates to an adjustment to a partnership item)’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Subsection (f) of section 6226 is amended—

17 (A) by striking ‘‘relates and’’ and inserting

18 ‘‘relates,’’, and

19 (B) by inserting before the period ‘‘, and

20 the applicability of any penalty, addition to tax,

21 or additional amount which relates to an ad22 justment to a partnership item’’.

23 (2) Clause (i) of section 6230(a)(2)(A) is

24 amended to read as follows:
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1 ‘‘(i) affected items which require part2 ner level determinations (other than pen3 alties, additions to tax, and additional

4 amounts that relate to adjustments to

5 partnership items), or’’.

6 (3)(A) Subparagraph (A) of section 6230(a)(3),

7 as added by section 317, is amended by inserting

8 ‘‘(including any liability for any penalty, addition to

9 tax, or additional amount relating to such adjust10 ment)’’ after ‘‘partnership item’’.

11 (B) Subparagraph (B) of such section is

12 amended by inserting ‘‘(and the applicability of any

13 penalties, additions to tax, or additional amounts)’’

14 after ‘‘partnership items’’.

15 (C) Subparagraph (A) of section 6230(c)(5), as

16 added by section 317, is amended by inserting before

17 the period ‘‘(including any liability for any penalties,

18 additions to tax, or additional amounts relating to

19 such adjustment)’’.

20 (D) Subparagraph (D) of section 6230(c)(5), as

21 added by section 317, is amended by inserting ‘‘(and

22 the applicability of any penalties, additions to tax, or

23 additional amounts)’’ after ‘‘partnership items’’.

24 (4) Paragraph (1) of section 6230(c) is amend25 ed by striking ‘‘or’’ at the end of subparagraph (A),
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1 by striking the period at the end of subparagraph

2 (B) and inserting ‘‘, or’’, and by adding at the end

3 thereof the following new subparagraph:

4 ‘‘(C) the Secretary erroneously imposed

5 any penalty, addition to tax, or additional

6 amount which relates to an adjustment to a

7 partnership item.’’

8 (5) So much of subparagraph (A) of section

9 6230(c)(2) as precedes ‘‘shall be filed’’ is amended

10 to read as follows:

11 ‘‘(A) UNDER PARAGRAPH (1) (A) OR (C).—

12 Any claim under subparagraph (A) or (C) of

13 paragraph (1)’’.

14 (6) Paragraph (4) of section 6230(c) is amend15 ed by adding at the end thereof the following: ‘‘In

16 addition, the determination under the final partner17 ship administrative adjustment or under the decision

18 of the court (whichever is appropriate) concerning

19 the applicability of any penalty, addition to tax, or

20 additional amount which relates to an adjustment to

21 a partnership item shall also be conclusive. Notwith22 standing the preceding sentence, the partner shall be

23 allowed to assert any partner level defenses that may

24 apply or to challenge the amount of the computa25 tional adjustment.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to partnership taxable years ending

3 after the date of the enactment of this Act.

4 SEC. 319. PROVISIONS RELATING TO COURT JURISDIC5 TION, ETC.

6 (a) TAX COURT JURISDICTION TO ENJOIN PRE7 MATURE ASSESSMENTS OF DEFICIENCIES ATTRIBUTABLE

8 TO PARTNERSHIP ITEMS.—Subsection (b) of section 6225

9 is amended by striking ‘‘the proper court.’’ and inserting

10 ‘‘the proper court, including the Tax Court. The Tax

11 Court shall have no jurisdiction to enjoin any action or

12 proceeding under this subsection unless a timely petition

13 for a readjustment of the partnership items for the taxable

14 year has been filed and then only in respect of the adjust15 ments that are the subject of such petition.’’

16 (b) JURISDICTION TO CONSIDER STATUTE OF LIMI17 TATIONS WITH RESPECT TO PARTNERS.—Paragraph (1)

18 of section 6226(d) is amended by adding at the end there19 of the following new sentence:

20 ‘‘Notwithstanding subparagraph (B), any person

21 treated under subsection (c) as a party to an action

22 shall be permitted to participate in such action (or

23 file a readjustment petition under subsection (b) or

24 paragraph (2) of this subsection) solely for the pur25 pose of asserting that the period of limitations for
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1 assessing any tax attributable to partnership items

2 has expired with respect to such person, and the

3 court having jurisdiction of such action shall have

4 jurisdiction to consider such assertion.’’

5 (c) TAX COURT JURISDICTION TO DETERMINE

6 OVERPAYMENTS ATTRIBUTABLE TO AFFECTED ITEMS.—

7 (1) Paragraph (6) of section 6230(d) is amend8 ed by striking ‘‘(or an affected item)’’.

9 (2) Paragraph (3) of section 6512(b) is amend10 ed by adding at the end thereof the following new

11 sentence:

12 ‘‘In the case of a credit or refund relating to an af13 fected item (within the meaning of section

14 6231(a)(5)), the preceding sentence shall be applied

15 by substituting the periods under sections 6229 and

16 6230(d) for the periods under section 6511(b)(2),

17 (c), and (d).’’

18 (d) VENUE ON APPEAL.—

19 (1) Paragraph (1) of section 7482(b) is amend20 ed by striking ‘‘or’’ at the end of subparagraph (D),

21 by striking the period at the end of subparagraph

22 (E) and inserting ‘‘, or’’, and by inserting after sub23 paragraph (E) the following new subparagraph:

24 ‘‘(F) in the case of a petition under section

25 6234(c)—
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1 ‘‘(i) the legal residence of the peti2 tioner if the petitioner is not a corporation,

3 and

4 ‘‘(ii) the place or office applicable

5 under subparagraph (B) if the petitioner is

6 a corporation.’’

7 (2) The last sentence of section 7482(b)(1) is

8 amended by striking ‘‘or 6228(a)’’ and inserting ‘‘,

9 6228(a), or 6234(c)’’.

10 (e) OTHER PROVISIONS.—

11 (1) Subsection (c) of section 7459 is amended

12 by striking ‘‘or section 6228(a)’’ and inserting ‘‘,

13 6228(a), or 6234(c)’’.

14 (2) Subsection (o) of section 6501 is amended

15 by adding at the end thereof the following new para16 graph:

17 ‘‘(3) For declaratory judgment relating to treat18 ment of items other than partnership items with re19 spect to an oversheltered return, see section 6234.’’

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

21 this section shall apply to partnership taxable years ending

22 after the date of the enactment of this Act.
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1 SEC. 320. TREATMENT OF PREMATURE PETITIONS FILED

2 BY NOTICE PARTNERS OR 5-PERCENT

3 GROUPS.

4 (a) IN GENERAL.—Subsection (b) of section 6226

5 (relating to judicial review of final partnership administra6 tive adjustments) is amended by redesignating paragraph

7 (5) as paragraph (6) and by inserting after paragraph (4)

8 the following new paragraph:

9 ‘‘(5) TREATMENT OF PREMATURE PETI10 TIONS.—If—

11 ‘‘(A) a petition for a readjustment of part12 nership items for the taxable year involved is

13 filed by a notice partner (or a 5-percent group)

14 during the 90-day period described in sub15 section (a), and

16 ‘‘(B) no action is brought under paragraph

17 (1) during the 60-day period described therein

18 with respect to such taxable year which is not

19 dismissed,

20 such petition shall be treated for purposes of para21 graph (1) as filed on the last day of such 60-day

22 period.’’

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

24 this section shall apply to petitions filed after the date of

25 the enactment of this Act.
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1 SEC. 321. BONDS IN CASE OF APPEALS FROM TEFRA PRO2 CEEDING.

3 (a) IN GENERAL.—Subsection (b) of section 7485

4 (relating to bonds to stay assessment of collection) is

5 amended—

6 (1) by inserting ‘‘penalties,’’ after ‘‘any inter7 est,’’, and

8 (2) by striking ‘‘aggregate of such deficiencies’’

9 and inserting ‘‘aggregate liability of the parties to

10 the action’’.

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

12 this section shall take effect as if included in the amend13 ments made by section 402 of the Tax Equity and Fiscal

14 Responsibility Act of 1982.

15 SEC. 322. SUSPENSION OF INTEREST WHERE DELAY IN

16 COMPUTATIONAL ADJUSTMENT RESULTING

17 FROM TEFRA SETTLEMENTS.

18 (a) IN GENERAL.—Subsection (c) of section 6601

19 (relating to interest on underpayment, nonpayment, or ex20 tension of time for payment, of tax) is amended by adding

21 at the end thereof the following new sentence: ‘‘In the case

22 of a settlement under section 6224(c) which results in the

23 conversion of partnership items to nonpartnership items

24 pursuant to section 6231(b)(1)(C), the preceding sentence

25 shall apply to a computational adjustment resulting from

26 such settlement in the same manner as if such adjustment
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1 were a deficiency and such settlement were a waiver re2 ferred to in the preceding sentence.’’

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

4 this section shall apply to adjustments with respect to

5 partnership taxable years beginning after the date of the

6 enactment of this Act.

7 SEC. 323. SPECIAL RULES FOR ADMINISTRATIVE ADJUST8 MENT REQUESTS WITH RESPECT TO BAD

9 DEBTS OR WORTHLESS SECURITIES.

10 (a) GENERAL RULE.—Section 6227 (relating to ad11 ministrative adjustment requests) is amended by adding

12 at the end thereof the following new subsection:

13 ‘‘(d) REQUESTS WITH RESPECT TO BAD DEBTS OR

14 WORTHLESS SECURITIES.—In the case of that portion of

15 any request for an administrative adjustment which re16 lates to the deductibility by the partnership under section

17 166 of a debt as a debt which became worthless, or under

18 section 165(g) of a loss from worthlessness of a security,

19 the period prescribed in subsection (a)(1) shall be 7 years

20 from the last day for filing the partnership return for the

21 year with respect to which such request is made (deter22 mined without regard to extensions).’’

23 (b) EFFECTIVE DATE.—

24 (1) IN GENERAL.—The amendment made by

25 subsection (a) shall take effect as if included in the
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1 amendments made by section 402 of the Tax Equity

2 and Fiscal Responsibility Act of 1982.

3 (2) TREATMENT OF REQUESTS FILED BEFORE

4 DATE OF ENACTMENT.—In the case of that portion

5 of any request (filed before the date of the enact6 ment of this Act) for an administrative adjustment

7 which relates to the deductibility of a debt as a debt

8 which became worthless or the deductibility of a loss

9 from the worthlessness of a security—

10 (A) paragraph (2) of section 6227(a) of

11 the Internal Revenue Code of 1986 shall not

12 apply,

13 (B) the period for filing a petition under

14 section 6228 of the Internal Revenue Code of

15 1986 with respect to such request shall not ex16 pire before the date 6 months after the date of

17 the enactment of this Act, and

18 (C) such a petition may be filed without

19 regard to whether there was a notice of the be20 ginning of an administrative proceeding or a

21 final partnership administrative adjustment.
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1 TITLE IV—FOREIGN PROVISIONS

2 Subtitle A—Simplification of Treat3 ment of Passive Foreign Cor4 porations

5 SEC. 401. REPEAL OF FOREIGN PERSONAL HOLDING COM6 PANY RULES AND FOREIGN INVESTMENT

7 COMPANY RULES.

8 (a) GENERAL RULE.—The following provisions are

9 hereby repealed:

10 (1) Part III of subchapter G of chapter 1 (re11 lating to foreign personal holding companies).

12 (2) Section 1246 (relating to gain on foreign in13 vestment company stock).

14 (3) Section 1247 (relating to election by foreign

15 investment companies to distribute income cur16 rently).

17 (b) EXEMPTION OF FOREIGN CORPORATIONS FROM

18 ACCUMULATED EARNINGS TAX AND PERSONAL HOLDING

19 COMPANY RULES.—

20 (1) ACCUMULATED EARNINGS TAX.—Subsection

21 (b) of section 532 (relating to exceptions) is amend22 ed—

23 (A) by striking paragraph (2) and insert24 ing the following:

25 ‘‘(2) a foreign corporation, or’’,
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1 (B) by striking ‘‘, or’’ at the end of para2 graph (3) and inserting a period, and

3 (C) by striking paragraph (4).

4 (2) PERSONAL HOLDING COMPANY RULES.—

5 Subsection (c) of section 542 (relating to exceptions)

6 is amended—

7 (A) by striking paragraph (5) and insert8 ing the following:

9 ‘‘(5) a foreign corporation,’’,

10 (B) by striking paragraphs (7) and (10)

11 and by redesignating paragraphs (8) and (9) as

12 paragraphs (7) and (8), respectively,

13 (C) by inserting ‘‘and’’ at the end of para14 graph (7) (as so redesignated), and

15 (D) by striking ‘‘; and’’ at the end of para16 graph (8) (as so redesignated) and inserting a

17 period.

18 (c) TREATMENT OF CERTAIN SERVICE CONTRACTS

19 UNDER SUBPART F.—

20 (1) Paragraph (1) of section 954(c) (defining

21 foreign personal holding company income) is amend22 ed by adding at the end thereof the following new

23 subparagraph:

24 ‘‘(F) PERSONAL SERVICE CONTRACTS.—
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1 ‘‘(i) Amounts received under a con2 tract under which the corporation is to fur3 nish personal services, if some person other

4 than the corporation has the right to des5 ignate (by name or by description) the in6 dividual who is to perform the services, or

7 if the individual who is to perform the

8 services is designated (by name or by de9 scription) in the contract.

10 ‘‘(ii) Amounts received from the sale

11 or other disposition of such contract.

12 This subparagraph shall apply with respect to

13 amounts received for services under a particular

14 contract only if at some time during the taxable

15 year 25 percent or more in value of the out16 standing stock of the corporation is owned, di17 rectly or indirectly, by or for the individual who

18 has performed, is to perform, or may be des19 ignated (by name or by description) as the one

20 to perform, such services. For purposes of the

21 preceding sentence, the attribution rules of sec22 tion 544 shall apply, determined as if any ref23 erence to section 543(a)(7) were a reference to

24 this subparagraph.’’
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1 (2) Clause (iii) of section 904(d)(2)(A) is

2 amended by striking ‘‘and’’ at the end of subclause

3 (III) (II), by striking the period at the end of

4 subclause (IV) (III) and inserting ‘‘, and’’, and by

5 adding at the end thereof the following new

6 subclause:

7 ‘‘(V) (IV) any income described

8 in section 954(c)(1)(F) (relating to

9 personal service contracts).’’

10 SEC. 402. REPLACEMENT FOR PASSIVE FOREIGN INVEST11 MENT COMPANY RULES.

12 (a) GENERAL RULE.—Part VI of subchapter P of

13 chapter 1 (relating to treatment of certain passive foreign

14 investment companies) is amended to read as follows:

15 ‘‘PART VI—TREATMENT OF PASSIVE FOREIGN

16 CORPORATIONS

‘‘Subpart A. Current taxation rules.

‘‘Subpart B. Interest on holdings to which subpart A does not

apply.

‘‘Subpart C. General provisions.

17 ‘‘Subpart A—Current Taxation Rules

‘‘Sec. 1291. Stock in certain passive foreign corporations marked

to market.

‘‘Sec. 1292. Inclusion of income of certain passive foreign corporations.

18 ‘‘SEC. 1291. STOCK IN CERTAIN PASSIVE FOREIGN COR19 PORATIONS MARKED TO MARKET.

20 ‘‘(a) GENERAL RULE.—In the case of marketable

21 stock in a passive foreign corporation which is owned (or
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1 treated under subsection (g) as owned) by a United States

2 person at the close of any taxable year of such person—

3 ‘‘(1) If the fair market value of such stock as

4 of the close of such taxable year exceeds its adjusted

5 basis, such United States person shall include in

6 gross income for such taxable year an amount equal

7 to the amount of such excess.

8 ‘‘(2) If the adjusted basis of such stock exceeds

9 the fair market value of such stock as of the close

10 of such taxable year, such United States person

11 shall be allowed a deduction for such taxable year

12 equal to the lesser of—

13 ‘‘(A) the amount of such excess, or

14 ‘‘(B) the unreversed inclusions with respect

15 to such stock.

16 ‘‘(b) BASIS ADJUSTMENTS.—

17 ‘‘(1) IN GENERAL.—The adjusted basis of stock

18 in a passive foreign corporation—

19 ‘‘(A) shall be increased by the amount in20 cluded in the gross income of the United States

21 person under subsection (a)(1) with respect to

22 such stock, and

23 ‘‘(B) shall be decreased by the amount al24 lowed as a deduction to the United States per-
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1 son under subsection (a)(2) with respect to

2 such stock.

3 ‘‘(2) SPECIAL RULE FOR STOCK CONSTRUC4 TIVELY OWNED.—In the case of stock in a passive

5 foreign corporation which the United States person

6 is treated as owning under subsection (g)—

7 ‘‘(A) the adjustments under paragraph (1)

8 shall apply to such stock in the hands of the

9 person actually holding such stock but only for

10 purposes of determining the subsequent treat11 ment under this chapter of the United States

12 person with respect to such stock, and

13 ‘‘(B) similar adjustments shall be made to

14 the adjusted basis of the property by reason of

15 which the United States person is treated as

16 owning such stock.

17 ‘‘(c) CHARACTER AND SOURCE RULES.—

18 ‘‘(1) ORDINARY TREATMENT.—

19 ‘‘(A) GAIN.—Any amount included in gross

20 income under subsection (a)(1), and any gain

21 on the sale or other disposition of marketable

22 stock in a passive foreign corporation, shall be

23 treated as ordinary income.

24 ‘‘(B) LOSS.—Any—
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1 ‘‘(i) amount allowed as a deduction

2 under subsection (a)(2), and

3 ‘‘(ii) loss on the sale or other disposi4 tion of marketable stock in a passive for5 eign corporation to the extent that the

6 amount of such loss does not exceed the

7 unreversed inclusions with respect to such

8 stock,

9 shall be treated as an ordinary loss. The

10 amount so treated shall be treated as a deduc11 tion allowable in computing adjusted gross in12 come.

13 ‘‘(2) SOURCE.—The source of any amount in14 cluded in gross income under subsection (a)(1) (or

15 allowed as a deduction under subsection (a)(2)) shall

16 be determined in the same manner as if such

17 amount were gain or loss (as the case may be) from

18 the sale of stock in the passive foreign corporation.

19 ‘‘(d) UNREVERSED INCLUSIONS.—For purposes of

20 this section, the term ‘unreversed inclusions’ means, with

21 respect to any stock in a passive foreign corporation, the

22 excess (if any) of—

23 ‘‘(1) the amount included in gross income of

24 the taxpayer under subsection (a)(1) with respect to

25 such stock for prior taxable years, over
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1 ‘‘(2) the amount allowed as a deduction under

2 subsection (a)(2) with respect to such stock for prior

3 taxable years.

4 The amount referred to in paragraph (1) shall include any

5 amount which would have been included in gross income

6 under subsection (a)(1) with respect to such stock for any

7 prior taxable year but for section 1293.

8 ‘‘(e) COORDINATION WITH SECTION 1292.—This

9 section shall not apply with respect to any stock in a pas10 sive foreign corporation—

11 ‘‘(1) which is U.S. controlled,

12 ‘‘(2) which is a qualified electing fund with re13 spect to the United States person for the taxable

14 year, or

15 ‘‘(3) in which the United States person is a 25-

16 percent shareholder.

17 ‘‘(f) TREATMENT OF CONTROLLED FOREIGN COR18 PORATIONS WHICH ARE SHAREHOLDERS IN PASSIVE

19 FOREIGN CORPORATIONS.—In the case of a foreign cor20 poration which is a controlled foreign corporation (or is

21 treated as a controlled foreign corporation under section

22 1292) and which owns (or is treated under subsection (g)

23 as owning) stock in a passive foreign corporation—

24 ‘‘(1) this section (other than subsection (c)(2)

25 thereof) shall apply to such foreign corporation in
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1 the same manner as if such corporation were a

2 United States person, and

3 ‘‘(2) for purposes of subpart F of part III of

4 subchapter N—

5 ‘‘(A) any amount included in gross income

6 under subsection (a)(1) shall be treated as for7 eign personal holding company income de8 scribed in section 954(c)(1)(A), and

9 ‘‘(B) any amount allowed as a deduction

10 under subsection (a)(2) shall be treated as a de11 duction allocable to foreign personal holding

12 company income so described.

13 ‘‘(g) STOCK OWNED THROUGH CERTAIN FOREIGN

14 ENTITIES.—Except as provided in regulations—

15 ‘‘(1) IN GENERAL.—For purposes of this sec16 tion, stock owned, directly or indirectly, by or for a

17 foreign partnership or foreign trust or foreign estate

18 shall be considered as being owned proportionately

19 by its partners or beneficiaries. Stock considered to

20 be owned by a person by reason of the application

21 of the preceding sentence shall, for purposes of ap22 plying such sentence, be treated as actually owned

23 by such person.

24 ‘‘(2) TREATMENT OF CERTAIN DISPOSITIONS.—

25 In any case in which a United States person is
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1 treated as owning stock in a passive foreign corpora2 tion by reason of paragraph (1)—

3 ‘‘(A) any disposition by the United States

4 person or by any other person which results in

5 the United States person being treated as no

6 longer owning such stock, and

7 ‘‘(B) any disposition by the person owning

8 such stock,

9 shall be treated as a disposition by the United

10 States person of the stock in the passive foreign cor11 poration.

12 ‘‘(h) COORDINATION WITH SECTION 851(b).—For

13 purposes of paragraphs (2) and (3) of section 851(b), any

14 amount included in gross income under subsection (a)

15 shall be treated as a dividend.

16 ‘‘(i) TRANSITION RULES.—

17 ‘‘(1) INDIVIDUALS BECOMING SUBJECT TO

18 UNITED STATES TAX.—If any individual becomes a

19 United States person in a taxable year beginning

20 after December 31, 1993, solely for purposes of this

21 section, the adjusted basis (before adjustments

22 under subsection (b)) of any marketable stock in a

23 passive foreign corporation owned (or treated as

24 owned under subsection (g)) by such individual on

25 the first day of such taxable year shall be treated as
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1 being the greater of its fair market value on such

2 first day or its adjusted basis on such first day.

3 ‘‘(2) MARKETABLE STOCK HELD BEFORE EF4 FECTIVE DATE.—

5 ‘‘(A) IN GENERAL.—If any marketable

6 stock in a passive foreign corporation is owned

7 (or treated under subsection (g) as owned) by

8 a United States person on the first day of such

9 person’s first taxable year, beginning after De10 cember 31, 1993—

11 ‘‘(i) paragraph (2) of section 1294(a)

12 shall apply to such stock as if it became

13 marketable during such first taxable year;

14 except that—

15 ‘‘(I) section 1293 shall not apply

16 to the amount included in gross in17 come under subsection (a) to the ex18 tent such amount is attributable to in19 creases in fair market value during

20 such first taxable year, and

21 ‘‘(II) the taxpayer’s holding pe22 riod shall be treated as having ended

23 on the last day of the preceding tax24 able year for purposes of allocating
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1 amounts under section 1293(a)(1)(A),

2 and

3 ‘‘(ii) such person may elect to extend

4 the time for the payment of the applicable

5 section 1293 deferred tax as provided in

6 subparagraph (B).

7 ‘‘(B) ELECTION TO EXTEND TIME FOR

8 PAYMENT.—

9 ‘‘(i) IN GENERAL.—At the election of

10 the taxpayer, the time for the payment of

11 the applicable section 1293 deferred tax

12 shall be extended to the extent and subject

13 to the limitations provided in this subpara14 graph.

15 ‘‘(ii) TERMINATION OF EXTENSION.—

16 ‘‘(I) DISTRIBUTIONS.—If any

17 distribution is received with respect to

18 any stock to which an extension under

19 clause (i) relates and such distribution

20 would be an excess distribution within

21 the meaning of section 1293 if such

22 section applied to such stock, then the

23 extension under clause (i) for the ap24 propriate portion (as determined

25 under regulations) of the applicable
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1 section 1293 deferred tax shall expire

2 on the last day prescribed by law (de3 termined without regard to exten4 sions) for filing the return of tax for

5 the taxable year in which the distribu6 tion is received.

7 ‘‘(II) REVERSAL OF INCLU8 SION.—If an amount is allowable as a

9 deduction under subsection (a)(2)

10 with respect to any stock to which an

11 extension under clause (i) relates and

12 the amount so allowable is allocable to

13 the amount which gave rise to the ap14 plicable section 1293 deferred tax,

15 then the extension under clause (i) for

16 the appropriate portion (as deter17 mined under regulations) of the appli18 cable section 1293 deferred tax shall

19 expire on the last day prescribed by

20 law (determined without regard to ex21 tensions) for filing the return of the

22 tax for the taxable year for which

23 such deduction is allowed.

24 ‘‘(III) DISPOSITIONS, ETC.—If

25 stock in a passive foreign corporation
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1 is disposed of during the taxable year,

2 all extensions under clause (i) for pay3 ment of the applicable section 1293

4 deferred tax attributable to such stock

5 which have not expired before the date

6 of such disposition shall expire on the

7 last date prescribed by law (deter8 mined without regard to extensions)

9 for filing the return of tax for the tax10 able year in which such disposition oc11 curs. To the extent provided in regu12 lations, the preceding sentence shall

13 not apply in the case of a disposition

14 in a transaction with respect to which

15 gain or loss is not recognized (in

16 whole or in part), and the person ac17 quiring such stock in such transaction

18 shall succeed to the treatment under

19 this section of the person making such

20 disposition.

21 ‘‘(iii) OTHER RULES.—

22 ‘‘(I) ELECTION.—The election

23 under clause (i) shall be made not

24 later than the time prescribed by law

25 (including extensions) for filing the
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1 return of tax imposed by this chapter

2 for the first taxable year referred to

3 in subparagraph (A).

4 ‘‘(II) TREATMENT OF LOANS TO

5 SHAREHOLDER.—For purposes of this

6 subparagraph, any loan by a passive

7 foreign corporation (directly or indi8 rectly) to a shareholder of such cor9 poration shall be treated as a distribu10 tion to such shareholder.

11 ‘‘(C) CROSS REFERENCE.—

‘‘For provisions providing for interest for the period of the extension under this paragraph, see section 6601.

12 ‘‘(D) APPLICABLE SECTION 1293 DE13 FERRED TAX.—For purposes of this paragraph,

14 the term ‘applicable section 1293 deferred tax’

15 means the deferred tax amount determined

16 under section 1293 with respect to the amount

17 which, but for section 1293, would have been

18 included in gross income for the first taxable

19 year referred to in subparagraph (A). Such

20 term also includes the tax imposed by this

21 chapter for such first taxable year to the extent

22 attributable to the amounts allocated under sec23 tion 1293(a)(1)(A) to a period described in sec24 tion 1293(a)(1)(B)(ii).
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1 ‘‘(3) SPECIAL RULES FOR REGULATED INVEST2 MENT COMPANIES.—

3 ‘‘(A) IN GENERAL.—If any marketable

4 stock in a passive foreign corporation is owned

5 (or treated under subsection (g) as owned) by

6 a regulated investment company on the first

7 day of such company’s first taxable year begin8 ning after December 31, 1993—

9 ‘‘(i) section 1293 shall not apply to

10 such stock with respect to any distribution

11 or disposition during, or amount included

12 in gross income under this section for,

13 such first taxable year, but

14 ‘‘(ii) such company’s tax under this

15 chapter for such first taxable year shall be

16 increased by the aggregate amount of in17 terest which would have been determined

18 under section 1293(c)(3) if section 1293

19 were applied without regard to this sub20 paragraph.

21 ‘‘(B) DISALLOWANCE OF DEDUCTION.—No

22 deduction shall be allowed to any regulated in23 vestment company for the increase in tax under

24 subparagraph (A)(ii).
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1 ‘‘SEC. 1292. CURRENT INCLUSION OF INCOME OF CERTAIN

2 PASSIVE FOREIGN CORPORATIONS.

3 ‘‘(a) PASSIVE FOREIGN CORPORATIONS WHICH ARE

4 UNITED STATES CONTROLLED.—

5 ‘‘(1) TREATMENT UNDER SUBPART F.—

6 ‘‘(A) IN GENERAL.—If a passive foreign

7 corporation is United States controlled, then for

8 purposes of subpart F of part III of subchapter

9 N—

10 ‘‘(i) such corporation, if not otherwise

11 a controlled foreign corporation, shall be

12 treated as a controlled foreign corporation,

13 ‘‘(ii) the term ‘United States share14 holder’ means, with respect to such cor15 poration, any United States person who

16 owns (within the meaning of section

17 958(a)) any stock in such corporation,

18 ‘‘(iii) the entire gross income of such

19 corporation shall, after being reduced

20 under the principles of paragraph (5) of

21 section 954(b), be treated as foreign base

22 company income, and

23 ‘‘(iv) sections 970 and 971 shall not

24 apply to such corporation.
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1 Except as provided in regulations, the preceding

2 sentence shall also apply for purposes of section

3 904(d).

4 ‘‘(B) SPECIAL RULES.—If any taxpayer is

5 treated as being a United States shareholder in

6 a controlled foreign corporation solely by reason

7 of this section—

8 ‘‘(i) section 954(b)(4) (relating to ex9 ception for certain income subject to high

10 foreign taxes) shall not apply for purposes

11 of determining the amount included in the

12 gross income of such taxpayer under sec13 tion 951 by reason of being so treated with

14 respect to such corporation,

15 ‘‘(ii) the amount so included in the

16 gross income of such taxpayer under sec17 tion 951 with respect to such corporation

18 shall be treated as long-term capital gain

19 to the extent attributable to the net capital

20 gain of such corporation, and

21 ‘‘(iii) sections 956 and 956A shall not

22 apply to such taxpayer.

23 ‘‘(2) U.S. CONTROLLED.—For purposes of this

24 subpart, a passive foreign corporation is United

25 States controlled if—
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1 ‘‘(A) such corporation is a controlled for2 eign corporation determined without regard to

3 this subsection, or

4 ‘‘(B) at any time during the taxable year

5 more than 50 percent of—

6 ‘‘(i) the total combined voting power

7 of all classes of stock of such corporation

8 entitled to vote, or

9 ‘‘(ii) the total value of the stock of

10 such corporation,

11 is owned directly or indirectly by 5 or fewer

12 United States persons.

13 ‘‘(3) CONSTRUCTIVE OWNERSHIP RULES FOR

14 PURPOSES OF PARAGRAPH (2)(B).—For purposes of

15 paragraph (2)(B), the attribution rules provided in

16 section 544 shall apply, determined as if any ref17 erence to a personal holding company were a ref18 erence to a corporation described in paragraph

19 (2)(B) (and any reference to the stock ownership re20 quirement provided in section 542(a)(2) were a ref21 erence to the requirement of paragraph (2)(B));

22 except that—

23 ‘‘(A) subsection (a)(4) of such section shall

24 be applied by substituting ‘Paragraphs (1), (2),

25 and (3)’ for ‘Paragraphs (2) and (3)’,
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1 ‘‘(B) stock owned by a nonresident alien

2 individual shall not be considered by reason of

3 attribution through family membership as

4 owned by a citizen or resident alien individual

5 who is not the spouse of the nonresident alien

6 individual and who does not otherwise own

7 stock in the foreign corporation (determined

8 after the application of such attribution rules

9 other than attribution through family member10 ship), and

11 ‘‘(C) stock of a corporation owned by any

12 foreign person shall not be considered by reason

13 of attribution through partners as owned by a

14 citizen or resident of the United States who

15 does not otherwise own stock in the foreign cor16 poration (determined after the application of

17 such attribution rules and subparagraph (A),

18 other than attribution through partners).

19 ‘‘(b) TAXPAYERS ELECTING CURRENT INCLUSION

20 AND 25-PERCENT SHAREHOLDERS.—

21 ‘‘(1) IN GENERAL.—If a passive foreign cor22 poration which is not United States controlled is a

23 qualified electing fund with respect to any taxpayer

24 or the taxpayer is a 25-percent shareholder in such
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1 corporation, then for purposes of subpart F of part

2 III of subchapter N—

3 ‘‘(A) such passive foreign corporation shall

4 be treated as a controlled foreign corporation

5 with respect to such taxpayer,

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

7 United States shareholder in such corporation,

8 and

9 ‘‘(C) the modifications of clauses (iii) and

10 (iv) of subsection (a)(1)(A) and of subpara11 graph (B) of subsection (a)(1) shall apply in

12 determining the amount included under such

13 subpart F in the gross income of such taxpayer

14 (and the character of the amount so included).

15 For purposes of section 904(d), any amount in16 cluded in the gross income of the taxpayer under the

17 preceding sentence shall be treated as a dividend

18 from a foreign corporation which is not a controlled

19 foreign corporation.

20 ‘‘(2) QUALIFIED ELECTING FUND.—For pur21 poses of this subpart, the term ‘qualified electing

22 fund’ means any passive foreign corporation if—

23 ‘‘(A) an election by the taxpayer under

24 paragraph (3) applies to such corporation for

25 the taxable year of the taxpayer, and
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1 ‘‘(B) such corporation complies with such

2 requirements as the Secretary may prescribe for

3 purposes of carrying out the purposes of this

4 subpart.

5 ‘‘(3) ELECTION.—

6 ‘‘(A) IN GENERAL.—A taxpayer may make

7 an election under this paragraph with respect to

8 any passive foreign corporation for any taxable

9 year of the taxpayer. Such an election, once

10 made with respect to any corporation, shall

11 apply to all subsequent taxable years of the tax12 payer with respect to such corporation unless

13 revoked by the taxpayer with the consent of the

14 Secretary.

15 ‘‘(B) WHEN MADE.—An election under

16 this subsection may be made for any taxable

17 year of the taxpayer at any time on or before

18 the due date (determined with regard to exten19 sions) for filing the return of the tax imposed

20 by this chapter for such taxable year. To the

21 extent provided in regulations, such an election

22 may be made later than as required in the pre23 ceding sentence where the taxpayer fails to

24 make a timely election because the taxpayer
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1 reasonably believes that the corporation was not

2 a passive foreign corporation.

3 ‘‘(4) 25-PERCENT SHAREHOLDER.—For pur4 poses of this subpart, the term ‘25-percent share5 holder’ means, with respect to any passive foreign

6 corporation, any United States person who owns

7 (within the meaning of section 958(a)), or is consid8 ered as owning by applying the rules of section

9 958(b), 25 percent or more (by vote or value) of the

10 stock of such corporation.

11 ‘‘Subpart B—Interest on Holdings To Which Subpart

12 A Does Not Apply

‘‘Sec. 1293. Interest on tax deferral.

‘‘Sec. 1294. Definitions and special rules.

13 ‘‘SEC. 1293. INTEREST ON TAX DEFERRAL.

14 ‘‘(a) TREATMENT OF DISTRIBUTIONS AND STOCK

15 DISPOSITIONS.—

16 ‘‘(1) DISTRIBUTIONS.—If a United States per17 son receives an excess distribution in respect of

18 stock to which this section applies, then—

19 ‘‘(A) the amount of the excess distribution

20 shall be allocated ratably to each day in the tax21 payer’s holding period for the stock,

22 ‘‘(B) with respect to such excess distribu23 tion, the taxpayer’s gross income for the cur24 rent year shall include (as ordinary income)
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1 only the amounts allocated under subparagraph

2 (A) to—

3 ‘‘(i) the current year, or

4 ‘‘(ii) any period in the taxpayer’s

5 holding period before the first day of the

6 first taxable year of the corporation which

7 begins after December 31, 1986, and for

8 which it was a passive foreign corporation,

9 and

10 ‘‘(C) the tax imposed by this chapter for

11 the current year shall be increased by the de12 ferred tax amount (determined under sub13 section (c)).

14 ‘‘(2) DISPOSITIONS.—If the taxpayer disposes

15 of stock to which this section applies, then the rules

16 of paragraph (1) shall apply to any gain recognized

17 on such disposition in the same manner as if such

18 gain were an excess distribution.

19 ‘‘(3) DEFINITIONS.—For purposes of this sub20 part—

21 ‘‘(A) HOLDING PERIOD.—The taxpayer’s

22 holding period shall be determined under sec23 tion 1223; except that—

24 ‘‘(i) for purposes of applying this sec25 tion to an excess distribution, such holding
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1 period shall be treated as ending on the

2 date of such distribution, and

3 ‘‘(ii) if section 1291 applied to such

4 stock with respect to the taxpayer for any

5 prior taxable year, such holding period

6 shall be treated as beginning on the first

7 day of the first taxable year beginning

8 after the last taxable year for which sec9 tion 1291 so applied.

10 ‘‘(B) CURRENT YEAR.—The term ‘current

11 year’ means the taxable year in which the ex12 cess distribution or disposition occurs.

13 ‘‘(b) EXCESS DISTRIBUTION.—

14 ‘‘(1) IN GENERAL.—For purposes of this sec15 tion, the term ‘excess distribution’ means any dis16 tribution in respect of stock received during any tax17 able year to the extent such distribution does not ex18 ceed its ratable portion of the total excess distribu19 tion (if any) for such taxable year.

20 ‘‘(2) TOTAL EXCESS DISTRIBUTION.—For pur21 poses of this subsection—

22 ‘‘(A) IN GENERAL.—The term ‘total excess

23 distribution’ means the excess (if any) of—
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1 ‘‘(i) the amount of the distributions in

2 respect of the stock received by the tax3 payer during the taxable year, over

4 ‘‘(ii) 125 percent of the average

5 amount of the distributions received in re6 spect of such stock by the taxpayer during

7 the 3 preceding taxable years (or, if short8 er, the portion of the taxpayer’s holding

9 period before the taxable year).

10 For purposes of clause (ii), any excess distribu11 tion received during such 3-year period shall be

12 taken into account only to the extent it was in13 cluded in gross income under subsection

14 (a)(1)(B).

15 ‘‘(B) NO EXCESS FOR FIRST YEAR.—The

16 total excess distributions with respect to any

17 stock shall be zero for the taxable year in which

18 the taxpayer’s holding period in such stock be19 gins.

20 ‘‘(3) ADJUSTMENTS.—Under regulations pre21 scribed by the Secretary—

22 ‘‘(A) determinations under this subsection

23 shall be made on a share-by-share basis, except

24 that shares with the same holding period may

25 be aggregated,
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1 ‘‘(B) proper adjustments shall be made for

2 stock splits and stock dividends,

3 ‘‘(C) if the taxpayer does not hold the

4 stock during the entire taxable year, distribu5 tions received during such year shall be

6 annualized,

7 ‘‘(D) if the taxpayer’s holding period in8 cludes periods during which the stock was held

9 by another person, distributions received by

10 such other person shall be taken into account

11 as if received by the taxpayer,

12 ‘‘(E) if the distributions are received in a

13 foreign currency, determinations under this

14 subsection shall be made in such currency and

15 the amount of any excess distribution deter16 mined in such currency shall be translated into

17 dollars,

18 ‘‘(F) proper adjustment shall be made for

19 amounts not includible in gross income by rea20 son of section 959(a) or for which a deduction

21 is allowable under section 245(c), and

22 ‘‘(G) if a charitable deduction was allow23 able under section 642(c) to a trust for any dis24 tribution of its income, proper adjustments

25 shall be made for the deduction so allowable to
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1 the extent allocable to distributions or gain in

2 respect of stock in a passive foreign corpora3 tion.

4 For purposes of subparagraph (F), any amount not

5 includible in gross income by reason of section

6 551(d) (as in effect on January 1, 1993) or 1293(c)

7 (as so in effect) shall be treated as an amount not

8 includible in gross income by reason of section

9 959(a).

10 ‘‘(c) DEFERRED TAX AMOUNT.—For purposes of this

11 section—

12 ‘‘(1) IN GENERAL.—The term ‘deferred tax

13 amount’ means, with respect to any distribution or

14 disposition to which subsection (a) applies, an

15 amount equal to the sum of—

16 ‘‘(A) the aggregate increases in taxes de17 scribed in paragraph (2), plus

18 ‘‘(B) the aggregate amount of interest (de19 termined in the manner provided under para20 graph (3)) on such increases in tax.

21 Any increase in the tax imposed by this chapter for

22 the current year under subsection (a) to the extent

23 attributable to the amount referred to in subpara24 graph (B) shall be treated as interest paid under

25 section 6601 on the due date for the current year.
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1 ‘‘(2) AGGREGATE INCREASES IN TAXES.—For

2 purposes of paragraph (1)(A), the aggregate in3 creases in taxes shall be determined by multiplying

4 each amount allocated under subsection (a)(1)(A) to

5 any taxable year (other than any taxable year re6 ferred to in subsection (a)(1)(B)) by the highest rate

7 of tax in effect for such taxable year under section

8 1 or 11, whichever applies.

9 ‘‘(3) COMPUTATION OF INTEREST.—

10 ‘‘(A) IN GENERAL.—The amount of inter11 est referred to in paragraph (1)(B) on any in12 crease determined under paragraph (2) for any

13 taxable year shall be determined for the pe14 riod—

15 ‘‘(i) beginning on the day after the

16 due date for such taxable year, and

17 ‘‘(ii) ending on the due date for the

18 taxable year with or within which the dis19 tribution or disposition occurs,

20 by using the rates and method applicable under

21 section 6621 for underpayments of tax for such

22 period.

23 ‘‘(B) DUE DATE.—For purposes of this

24 subsection, the term ‘due date’ means the date

25 prescribed by law (determined without regard to
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1 extensions) for filing the return of the tax im2 posed by this chapter for the taxable year.

3 ‘‘(C) SPECIAL RULE.—For purposes of de4 termining the amount of interest referred to in

5 paragraph (1)(B), the amount of any increase

6 in tax determined under paragraph (2) shall be

7 determined without regard to any reduction

8 under section 1294(d) for a tax described in

9 paragraph (2)(A)(ii) thereof.

10 ‘‘SEC. 1294. DEFINITIONS AND SPECIAL RULES.

11 ‘‘(a) STOCK TO WHICH SECTION 1293 APPLIES.—

12 ‘‘(1) IN GENERAL.—Except as otherwise pro13 vided in this subsection, section 1293 shall apply to

14 any stock in a passive foreign corporation unless—

15 ‘‘(A) such stock is marketable stock as of

16 the time of the distribution or disposition in17 volved, or

18 ‘‘(B)(i) with respect to each of such cor19 poration’s taxable years for which such corpora20 tion was a passive foreign corporation and

21 which began after December 31, 1993, and in22 cluded any portion of the taxpayer’s holding pe23 riod in such stock—
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1 ‘‘(I) such corporation was United

2 States controlled (within the meaning of

3 section 1292(a)(2)), or

4 ‘‘(II) such corporation was treated as

5 a controlled foreign corporation under sec6 tion 1292(b) with respect to the taxpayer,

7 and

8 ‘‘(ii) with respect to each of such corpora9 tion’s taxable years for which such corporation

10 was a passive foreign corporation and which

11 begin after December 31, 1986, and before

12 January 1, 1994, and included any portion of

13 the taxpayer’s holding period in such stock,

14 such corporation was treated as a qualified

15 electing fund under this part (as in effect on

16 January 1, 1993) with respect to the taxpayer.

17 ‘‘(2) TREATMENT WHERE STOCK BECOMES

18 MARKETABLE.—If any stock in a passive foreign

19 corporation becomes marketable stock after the be20 ginning of the taxpayer’s holding period in such

21 stock, and if the requirements of paragraph (1)(B)

22 are not satisfied, section 1293 shall apply to—

23 ‘‘(A) any distributions with respect to, or

24 disposition of, such stock in the taxable year of
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1 the taxpayer in which it becomes so marketable,

2 and

3 ‘‘(B) any amount which, but for section

4 1293, would have been included in gross income

5 under section 1291(a) with respect to such

6 stock for such taxable year in the same manner

7 as if such amount were gain on the disposition

8 of such stock.

9 ‘‘(3) ELECTION TO RECOGNIZE GAIN WHERE

10 COMPANY BECOMES SUBJECT TO CURRENT INCLU11 SIONS.—

12 ‘‘(A) IN GENERAL.—If—

13 ‘‘(i) a passive foreign corporation first

14 meets the requirements of clause (i) of

15 paragraph (1)(B) with respect to the tax16 payer for a taxable year of such taxpayer

17 which begins after December 31, 1993,

18 ‘‘(ii) the taxpayer holds stock in such

19 company on the first day of such taxable

20 year, and

21 ‘‘(iii) the taxpayer establishes to the

22 satisfaction of the Secretary the fair mar23 ket value of such stock on such first day,
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1 the taxpayer may elect to recognize gain as if

2 he sold such stock on such first day for such

3 fair market value.

4 ‘‘(B) ADDITIONAL ELECTION FOR SHARE5 HOLDER OF CONTROLLED FOREIGN CORPORA6 TIONS.—

7 ‘‘(i) IN GENERAL.—If—

8 ‘‘(I) a passive foreign corporation

9 first meets the requirements of

10 subclause (I) of paragraph (1)(B)(i)

11 with respect to the taxpayer for a tax12 able year of such taxpayer which be13 gins after December 31, 1993,

14 ‘‘(II) the taxpayer holds stock in

15 such corporation on the first day of

16 such taxable year, and

17 ‘‘(III) such corporation is a con18 trolled foreign corporation without re19 gard to this part,

20 the taxpayer may elect to be treated as receiv21 ing a dividend on such first day in an amount

22 equal to the portion of the post-1986 earnings

23 and profits of such corporation attributable

24 (under regulations prescribed by the Secretary)

25 to the stock in such corporation held by the tax-
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1 payer on such first day. The amount treated as

2 a dividend under the preceding sentence shall

3 be treated as an excess distribution and shall be

4 allocated under section 1293(a)(1)(A) only to

5 days during periods taken into account in deter6 mining the post-1986 earnings and profits so

7 attributable.

8 ‘‘(ii) POST-1986 EARNINGS AND PROF9 ITS.—For purposes of clause (i), the term

10 ‘post-1986 earnings and profits’ means

11 earnings and profits which were accumu12 lated in taxable years of the corporation

13 beginning after December 31, 1986, and

14 during the period or periods the stock was

15 held by the taxpayer while the corporation

16 was a passive foreign corporation.

17 ‘‘(iii) COORDINATION WITH SECTION

18 959(e).—For purposes of section 959(e),

19 any amount treated as a dividend under

20 this subparagraph shall be treated as in21 cluded in gross income under section

22 1248(a).

23 ‘‘(C) ADJUSTMENTS.—In the case of any

24 stock to which subparagraph (A) or (B) ap25 plies—
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1 ‘‘(i) the adjusted basis of such stock

2 shall be increased by the gain recognized

3 under subparagraph (A) or the amount

4 treated as a dividend under subparagraph

5 (B), as the case may be, and

6 ‘‘(ii) the taxpayer’s holding period in

7 such stock shall be treated as beginning on

8 the first day referred to in such subpara9 graph.

10 ‘‘(b) RULES RELATING TO STOCK ACQUIRED FROM

11 A DECEDENT.—

12 ‘‘(1) BASIS.—In the case of stock of a passive

13 foreign corporation acquired by bequest, devise, or

14 inheritance (or by the decedent’s estate), notwith15 standing section 1014, the basis of such stock in the

16 hands of the person so acquiring it shall be the ad17 justed basis of such stock in the hands of the dece18 dent immediately before his death (or, if lesser, the

19 basis which would have been determined under sec20 tion 1014 without regard to this paragraph).

21 ‘‘(2) DEDUCTION FOR ESTATE TAX.—If stock

22 in a passive foreign corporation is acquired from a

23 decedent, the taxpayer shall, under regulations pre24 scribed by the Secretary, be allowed (for the taxable

25 year of the sale or exchange) a deduction from gross
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1 income equal to that portion of the decedent’s estate

2 tax deemed paid which is attributable to the excess

3 of (A) the value at which such stock was taken into

4 account for purposes of determining the value of the

5 decedent’s gross estate, over (B) the basis deter6 mined under paragraph (1).

7 ‘‘(3) EXCEPTIONS.—This subsection shall not

8 apply to any stock in a passive foreign corporation

9 if—

10 ‘‘(A) section 1293 would not have applied

11 to a disposition of such stock by the decedent

12 immediately before his death, or

13 ‘‘(B) the decedent was a nonresident alien

14 at all times during his holding period in such

15 stock.

16 ‘‘(c) RECOGNITION OF GAIN.—Except as otherwise

17 provided in regulations, in the case of any transfer of stock

18 in a passive foreign company to which section 1293 ap19 plies, where (but for this subsection) there is not full rec20 ognition of gain, the excess (if any) of—

21 ‘‘(1) the fair market value of such stock, over

22 ‘‘(2) its adjusted basis,

23 shall be treated as gain from the sale or exchange of such

24 stock and shall be recognized notwithstanding any provi25 sion of law. Proper adjustment shall be made to the basis
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1 of property for gain recognized under the preceding sen2 tence.

3 ‘‘(d) COORDINATION WITH FOREIGN TAX CREDIT

4 RULES.—

5 ‘‘(1) IN GENERAL.—If there are creditable for6 eign taxes with respect to any distribution in respect

7 of stock in a passive foreign corporation—

8 ‘‘(A) the amount of such distribution shall

9 be determined for purposes of section 1293 with

10 regard to section 78,

11 ‘‘(B) the excess distribution taxes shall be

12 allocated ratably to each day in the taxpayer’s

13 holding period for the stock, and

14 ‘‘(C) to the extent—

15 ‘‘(i) that such excess distribution

16 taxes are allocated to a taxable year re17 ferred to in section 1293(a)(1)(B), such

18 taxes shall be taken into account under

19 section 901 for the current year, and

20 ‘‘(ii) that such excess distribution

21 taxes are allocated to any other taxable

22 year, such taxes shall reduce (subject to

23 the principles of section 904 and not below

24 zero) the increase in tax determined under

25 section 1293(c)(2) for such taxable year by
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1 reason of such distribution (but such taxes

2 shall not be taken into account under sec3 tion 901).

4 ‘‘(2) DEFINITIONS.—For purposes of this sub5 section—

6 ‘‘(A) CREDITABLE FOREIGN TAXES.—The

7 term ‘creditable foreign taxes’ means, with re8 spect to any distribution—

9 ‘‘(i) any foreign taxes deemed paid

10 under section 902 with respect to such dis11 tribution, and

12 ‘‘(ii) any withholding tax imposed with

13 respect to such distribution,

14 but only if the taxpayer chooses the benefits of

15 section 901 and such taxes are creditable under

16 section 901 (determined without regard to

17 paragraph (1)(C)(ii)).

18 ‘‘(B) EXCESS DISTRIBUTION TAXES.—The

19 term ‘excess distribution taxes’ means, with re20 spect to any distribution, the portion of the

21 creditable foreign taxes with respect to such

22 distribution which is attributable (on a pro rata

23 basis) to the portion of such distribution which

24 is an excess distribution.
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1 ‘‘(C) SECTION 1248 GAIN.—The rules of

2 this subsection also shall apply in the case of

3 any gain which but for this section would be in4 cludible in gross income as a dividend under

5 section 1248.

6 ‘‘(e) ATTRIBUTION OF OWNERSHIP.—For purposes

7 of this subpart—

8 ‘‘(1) ATTRIBUTION TO UNITED STATES PER9 SONS.—This subsection—

10 ‘‘(A) shall apply to the extent that the ef11 fect is to treat stock of a passive foreign cor12 poration as owned by a United States person,

13 and

14 ‘‘(B) except as provided in paragraph (3)

15 or in regulations, shall not apply to treat stock

16 owned (or treated as owned under this sub17 section) by a United States person as owned by

18 any other person.

19 ‘‘(2) CORPORATIONS.—

20 ‘‘(A) IN GENERAL.—If 50 percent or more

21 in value of the stock of a corporation (other

22 than an S corporation) is owned, directly or in23 directly, by or for any person, such person shall

24 be considered as owning the stock owned di25 rectly or indirectly by or for such corporation in
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1 that proportion which the value of the stock

2 which such person so owns bears to the value

3 of all stock in the corporation.

4 ‘‘(B) 50-PERCENT LIMITATION NOT TO

5 APPLY IN CERTAIN CASES.—For purposes of de6 termining whether a shareholder of a passive

7 foreign corporation (or whether a United States

8 shareholder of a controlled foreign corporation

9 which is not a passive foreign corporation) is

10 treated as owning stock owned directly or indi11 rectly by or for such corporation, subparagraph

12 (A) shall be applied without regard to the 50-

13 percent limitation contained therein.

14 ‘‘(C) FAMILY AND PARTNER ATTRIBUTION

15 FOR 50-PERCENT LIMITATION.—For purposes of

16 determining whether the 50-percent limitation

17 of subparagraph (A) is met, the constructive

18 ownership rules of section 544(a)(2) shall apply

19 in addition to the other rules of this subsection.

20 ‘‘(3) PARTNERSHIPS, ETC.—Except as provided

21 in regulations, stock owned, directly or indirectly, by

22 or for a partnership, S corporation, estate, or trust

23 shall be considered as being owned proportionately

24 by its partners, shareholders, or beneficiaries (as the

25 case may be).
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1 ‘‘(4) OPTIONS.—To the extent provided in regu2 lations, if any person has an option to acquire stock,

3 such stock shall be considered as owned by such per4 son. For purposes of this paragraph, an option to

5 acquire such an option, and each one of a series of

6 such options, shall be considered as an option to ac7 quire such stock.

8 ‘‘(5) SUCCESSIVE APPLICATION.—Stock consid9 ered to be owned by a person by reason of the appli10 cation of paragraph (2), (3), or (4) shall, for pur11 poses of applying such paragraphs, be considered as

12 actually owned by such person.

13 ‘‘(f) OTHER SPECIAL RULES.—For purposes of this

14 subpart—

15 ‘‘(1) TIME FOR DETERMINATION.—Stock held

16 by a taxpayer shall be treated as stock in a passive

17 foreign corporation if, at any time during the hold18 ing period of the taxpayer with respect to such

19 stock, such corporation (or any predecessor) was a

20 passive foreign corporation. The preceding sentence

21 shall not apply if the taxpayer elects to recognize

22 gain (as of the last day of the last taxable year for

23 which the company was a passive foreign corpora24 tion) under rules similar to the rules of subsection

25 (a)(3)(A).
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1 ‘‘(2) APPLICATION OF SUBPART WHERE STOCK

2 HELD BY OTHER ENTITY.—Under regulations—

3 ‘‘(A) IN GENERAL.—In any case in which

4 a United States person is treated as owning

5 stock in a passive foreign corporation by reason

6 of subsection (e)—

7 ‘‘(i) any transaction which results in

8 the United States person being treated as

9 no longer owning such stock,

10 ‘‘(ii) any disposition of such stock by

11 the person owning such stock, and

12 ‘‘(iii) any distribution of property in

13 respect of such stock to the person holding

14 such stock,

15 shall be treated as a disposition by, or distribu16 tion to, the United States person with respect

17 to the stock in the passive foreign corporation.

18 ‘‘(B) AMOUNT TREATED IN SAME MANNER

19 AS PREVIOUSLY TAXED INCOME.—Rules similar

20 to the rules of section 959(b) shall apply to any

21 amount described in subparagraph (A) in re22 spect of stock which the taxpayer is treated as

23 owning under subsection (e).

24 ‘‘(C) COORDINATION WITH SECTION 951.—

25 If, but for this subparagraph, an amount would
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1 be taken into account under section 1293 by

2 reason of subparagraph (A) and such amount

3 would also be included in the gross income of

4 the taxpayer under section 951, such amount

5 shall only be taken into account under section

6 1293.

7 ‘‘(3) DISPOSITIONS.—Except as provided in

8 regulations, if a taxpayer uses any stock in a passive

9 foreign corporation as security for a loan, the tax10 payer shall be treated as having disposed of such

11 stock.

12 ‘‘Subpart C—General Provisions

‘‘Sec. 1296. Passive foreign corporation.

‘‘Sec. 1297. Special rules.

13 ‘‘SEC. 1296. PASSIVE FOREIGN CORPORATION.

14 ‘‘(a) IN GENERAL.—For purposes of this part, except

15 as otherwise provided in this subpart, the term ‘passive

16 foreign corporation’ means any foreign corporation if—

17 ‘‘(1) 60 percent or more of the gross income of

18 such corporation for the taxable year is passive in19 come,

20 ‘‘(2) the average percentage of assets (by value)

21 held by such corporation during the taxable year

22 which produce passive income or which are held for

23 the production of passive income is at least 50 per24 cent, or
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1 ‘‘(3) such corporation is registered under the

2 Investment Company Act of 1940, as amended (15

3 U.S.C. 80a–1 to 80b–2), either as a management

4 company or as a unit investment trust.

5 In the case of a controlled foreign corporation (or any

6 other foreign corporation if such corporation so elects), the

7 determination under paragraph (2) shall be based on the

8 adjusted bases (as determined for purposes of computing

9 earnings and profits) of its assets in lieu of their value.

10 Such an election, once made, may be revoked only with

11 the consent of the Secretary.

12 ‘‘(b) PASSIVE INCOME.—For purposes of this sec13 tion—

14 ‘‘(1) IN GENERAL.—Except as otherwise pro15 vided in this subsection, the term ‘passive income’

16 means any income which is of a kind which would

17 be foreign personal holding company income as de18 fined in section 954(c) without regard to paragraph

19 (3) thereof.

20 ‘‘(2) EXCEPTIONS.—Except as provided in reg21 ulations, the term ‘passive income’ does not include

22 any income—

23 ‘‘(A) derived in the active conduct of a

24 banking business by an institution licensed to

25 do business as a bank in the United States (or,
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1 to the extent provided in regulations, by any

2 other corporation),

3 ‘‘(B) derived in the active conduct of an in4 surance business by a corporation which is pre5 dominantly engaged in an insurance business

6 and which would be subject to tax under sub7 chapter L if it were a domestic corporation,

8 ‘‘(C) which is interest, a dividend, or a

9 rent or royalty, which is received or accrued

10 from a related person (within the meaning of

11 section 954(d)(3)) to the extent such amount is

12 properly allocable (under regulations prescribed

13 by the Secretary) to income of such related per14 son which is not passive income, or

15 ‘‘(D) any foreign trade income of a FSC.

16 For purposes of subparagraph (C), the term ‘related

17 person’ has the meaning given such term by section

18 954(d)(3) determined by substituting ‘foreign cor19 poration’ for ‘controlled foreign corporation’ each

20 place it appears in section 954(d)(3).

21 ‘‘(3) TREATMENT OF INCOME FROM CERTAIN

22 ASSETS.—To the extent that any asset is properly

23 treated as not held for the production of passive in24 come for purposes of subsection (a)(2), all income
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1 from such asset shall be treated as income which is

2 not passive income.

3 ‘‘(4) TREATMENT OF CERTAIN DEALERS IN SE4 CURITIES.—

5 ‘‘(A) IN GENERAL.—In the case of any for6 eign corporation which is a controlled foreign

7 corporation (as defined in section 957(a)), the

8 term ‘passive income’ does not include any in9 come derived in the active conduct of a securi10 ties business by such corporation if such cor11 poration is registered as a securities broker or

12 dealer under section 15(a) of the Securities Ex13 change Act of 1934 or is registered as a Gov14 ernment securities broker or dealer under sec15 tion 15C(a) of such Act. To the extent provided

16 in regulations, such term shall not include any

17 income derived in the active conduct of a securi18 ties business by a controlled foreign corporation

19 which is not so registered.

20 ‘‘(B) APPLICATION OF LOOK-THROUGH

21 RULES.—For purposes of paragraph (2)(C),

22 rules similar to the rules of subparagraph (A)

23 of this paragraph shall apply in determining

24 whether any income of a related person (wheth25 er or not a corporation) is passive income.
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1 ‘‘(C) LIMITATION.—The preceding provi2 sions of this paragraph shall only apply in the

3 case of persons who are United States share4 holders (as defined in section 951(b)) in the

5 controlled foreign corporation.

6 ‘‘(c) LOOK-THROUGH IN CASE OF 25-PERCENT

7 OWNED CORPORATION.—If a foreign corporation owns

8 (directly or indirectly) at least 25 percent (by value) of

9 the stock of another corporation, for purposes of determin10 ing whether such foreign corporation is a passive foreign

11 corporation, such foreign corporation shall be treated as

12 if it—

13 ‘‘(1) held its proportionate share of the assets

14 of such other corporation, and

15 ‘‘(2) received directly its proportionate share of

16 the income of such other corporation.

17 ‘‘SEC. 1297. SPECIAL RULES.

18 ‘‘(a) UNITED STATES PERSON.—For purposes of this

19 part, the term ‘United States person’ has the meaning

20 given to such term by section 7701(a)(30).

21 ‘‘(b) CONTROLLED FOREIGN CORPORATION.—For

22 purposes of this part, the term ‘controlled foreign corpora23 tion’ has the meaning given such term by section 957(a).

24 ‘‘(c) MARKETABLE STOCK.—For purposes of this

25 part—
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1 ‘‘(1) IN GENERAL.—The term ‘marketable

2 stock’ means—

3 ‘‘(A) any stock which is regularly traded

4 on—

5 ‘‘(i) a national securities exchange

6 which is registered with the Securities and

7 Exchange Commission or the national mar8 ket system established pursuant to section

9 11A of the Securities and Exchange Act of

10 1934, or

11 ‘‘(ii) any exchange or other market

12 which the Secretary determines has rules

13 adequate to carry out the purposes of this

14 part, and

15 ‘‘(B) to the extent provided in regulations,

16 stock in any foreign corporation which is com17 parable to a regulated investment company and

18 which offers for sale or has outstanding any

19 stock of which it is the issuer and which is re20 deemable at its net asset value.

21 ‘‘(2) SPECIAL RULE FOR REGULATED INVEST22 MENT COMPANIES.—In the case of any regulated in23 vestment company which is offering for sale or has

24 outstanding any stock of which it is the issuer and

25 which is redeemable at its net asset value, all stock
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1 in a passive foreign corporation which it owns (or is

2 treated under section 1291(g) as owning) shall be

3 treated as marketable stock for purposes of this

4 part. Except as provided in regulations, a similar

5 rule shall apply in the case of any other regulated

6 investment company.

7 ‘‘(d) OTHER SPECIAL RULES.—For purposes of this

8 part—

9 ‘‘(1) CERTAIN CORPORATIONS NOT TREATED AS

10 PASSIVE.—A corporation shall not be treated as a

11 passive foreign corporation for the 1st taxable year

12 such corporation has gross income (hereinafter in

13 this paragraph referred to as the ‘start-up year’)

14 if—

15 ‘‘(A) no predecessor of such corporation

16 was a passive foreign corporation,

17 ‘‘(B) it is established to the satisfaction of

18 the Secretary that such corporation will not be

19 a passive foreign corporation for either of the

20 1st 2 taxable years following the start-up year,

21 and

22 ‘‘(C) such corporation is not a passive for23 eign corporation for either of the 1st 2 taxable

24 years following the start-up year.
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1 ‘‘(2) CERTAIN CORPORATIONS CHANGING BUSI2 NESSES.—A corporation shall not be treated as a

3 passive foreign corporation for any taxable year if—

4 ‘‘(A) neither such corporation (nor any

5 predecessor) was a passive foreign corporation

6 for any prior taxable year,

7 ‘‘(B) it is established to the satisfaction of

8 the Secretary that—

9 ‘‘(i) substantially all of the passive in10 come of the corporation for the taxable

11 year is attributable to proceeds from the

12 disposition of 1 or more active trades or

13 businesses, and

14 ‘‘(ii) such corporation will not be a

15 passive foreign corporation for either of

16 the first 2 taxable years following the tax17 able year, and

18 ‘‘(C) such corporation is not a passive for19 eign corporation for either of such 2 taxable

20 years.

21 For purposes of section 1296(c), any passive income

22 referred to in subparagraph (B)(i) shall be treated

23 as income which is not passive income and any as24 sets which produce income so described shall be
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1 treated as assets producing income other than pas2 sive income.

3 ‘‘(3) TREATMENT OF CERTAIN FOREIGN COR4 PORATIONS OWNING STOCK IN 25-PERCENT OWNED

5 DOMESTIC CORPORATION.—

6 ‘‘(A) IN GENERAL.—If a foreign corpora7 tion owns at least 25 percent (by value) of the

8 stock of a domestic corporation, for purposes of

9 determining whether such foreign corporation is

10 a passive foreign corporation, any qualified

11 stock held by such domestic corporation shall be

12 treated as an asset which does not produce pas13 sive income (and is not held for the production

14 of passive income) and any amount included in

15 gross income with respect to such stock shall

16 not be treated as passive income.

17 ‘‘(B) QUALIFIED STOCK.—For purposes of

18 subparagraph (A), the term ‘qualified stock’

19 means any stock in a C corporation which is a

20 domestic corporation and which is not a regu21 lated investment company or real estate invest22 ment trust.

23 ‘‘(4) TREATMENT OF CORPORATION WHICH WAS

24 A PFIC.—A corporation shall be treated as a passive

25 foreign corporation for any taxable year beginning
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1 before January 1, 1994, if and only if such corpora2 tion was a passive foreign investment company

3 under this part as in effect for such taxable year.

4 ‘‘(5) SEPARATE INTERESTS TREATED AS SEPA5 RATE CORPORATIONS.—Under regulations prescribed

6 by the Secretary, where necessary to carry out the

7 purposes of this part, separate classes of stock (or

8 other interests) in a corporation shall be treated as

9 interests in separate corporations.

10 ‘‘(6) TREATMENT OF CERTAIN SUBPART F IN11 CLUSIONS.—Any amount included in gross income

12 under subparagraph (B) or (C) of section 951(a)(1)

13 shall be treated as a distribution received with re14 spect to the stock.

15 ‘‘(e) TREATMENT OF CERTAIN LEASED PROP16 ERTY.—For purposes of this part—

17 ‘‘(1) IN GENERAL.—Any tangible personal

18 property with respect to which a foreign corporation

19 is the lessee under a lease with a term of at least

20 12 months shall be treated as an asset actually held

21 by such corporation.

22 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—

23 ‘‘(A) IN GENERAL.—The amount taken

24 into account under section 1296(a)(2) with re25 spect to any asset to which paragraph (1) ap-
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1 plies shall be the unamortized portion (as deter2 mined under regulations prescribed by the Sec3 retary) of the present value of the payments

4 under the lease for the use of such property.

5 ‘‘(B) PRESENT VALUE.—For purposes of

6 subparagraph (A), the present value of pay7 ments described in subparagraph (A) shall be

8 determined in the manner provided in regula9 tions prescribed by the Secretary—

10 ‘‘(i) as of the beginning of the lease

11 term, and

12 ‘‘(ii) except as provided in such regu13 lations, by using a discount rate equal to

14 the applicable Federal rate determined

15 under section 1274(d)—

16 ‘‘(I) by substituting the lease

17 term for the term of the debt instru18 ment, and

19 ‘‘(II) without regard to para20 graph (2) or (3) thereof.

21 ‘‘(3) EXCEPTIONS.—This subsection shall not

22 apply in any case where—

23 ‘‘(A) the lessor is a related person (as de24 fined in section 954(d)(3)) with respect to the

25 foreign corporation, or
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1 ‘‘(B) a principal purpose of leasing the

2 property was to avoid the provisions of this part

3 or section 956A.

4 ‘‘(f) SPECIAL RULES FOR CERTAIN INTANGIBLES.—

5 For purposes of this part—

6 ‘‘(1) RESEARCH EXPENDITURES.—The adjusted

7 basis of the total assets of a controlled foreign cor8 poration shall be increased by the research or experi9 mental expenditures (within the meaning of section

10 174) paid or incurred by such foreign corporation

11 during the taxable year and the preceding 2 taxable

12 years. Any expenditure otherwise taken into account

13 under the preceding sentence shall be reduced by the

14 amount of any reimbursement received by the con15 trolled foreign corporation with respect to such ex16 penditure.

17 ‘‘(2) CERTAIN LICENSED INTANGIBLES.—

18 ‘‘(A) IN GENERAL.—In the case of any in19 tangible property (as defined in section

20 936(h)(3)(B)) with respect to which a con21 trolled foreign corporation is a licensee and

22 which is used by such foreign corporation in the

23 active conduct of a trade or business, the ad24 justed basis of the total assets of such foreign

25 corporation shall be increased by an amount
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1 equal to 300 percent of the payments made

2 during the taxable year by such foreign cor3 poration for the use of such intangible property.

4 ‘‘(B) EXCEPTIONS.—Subparagraph (A)

5 shall not apply to—

6 ‘‘(i) any payments to a foreign person

7 if such foreign person is a related person

8 (as defined in section 954(d)(3)) with re9 spect to the controlled foreign corporation,

10 and

11 ‘‘(ii) any payments under a license if

12 a principal purpose of entering into such

13 license was to avoid the provisions of this

14 part or section 956A.

15 ‘‘(3) CONTROLLED FOREIGN CORPORATION.—

16 For purposes of this subsection, the term ‘controlled

17 foreign corporation’ has the meaning given such

18 term by section 957(a).

19 ‘‘(g) ELECTION BY CERTAIN PASSIVE FOREIGN COR20 PORATIONS TO BE TREATED AS A DOMESTIC CORPORA21 TION.—

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

23 if—

24 ‘‘(A) a passive foreign corporation would

25 qualify as a regulated investment company
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1 under part I of subchapter M if such passive

2 foreign corporation were a domestic corpora3 tion,

4 ‘‘(B) such passive foreign corporation

5 meets such requirements as the Secretary shall

6 prescribe to ensure that the taxes imposed by

7 this title on such passive foreign corporation

8 are paid, and

9 ‘‘(C) such passive foreign corporation

10 makes an election to have this paragraph apply

11 and waives all benefits which are granted by the

12 United States under any treaty and to which

13 such corporation would otherwise be entitled by

14 reason of being a resident of another country,

15 such corporation shall be treated as a domestic cor16 poration.

17 ‘‘(2) CERTAIN RULES MADE APPLICABLE.—

18 Rules similar to the rules of paragraphs (2), (3),

19 (4)(A), and (5) of section 953(d) shall apply with re20 spect to any corporation making an election under

21 paragraph (1).

22 ‘‘(h) SPECIAL RULES FOR CERTAIN TAXPAYERS.—

23 ‘‘(1) TAX-EXEMPT ORGANIZATIONS.—In the

24 case of any organization exempt from tax under sec25 tion 501—
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1 ‘‘(A) this part shall apply to any stock in

2 a passive foreign corporation owned (or treated

3 as owned under section 1294(e)) by such orga4 nization only to the extent that a dividend on

5 such stock would be taken into account in de6 termining the unrelated business taxable income

7 of such organization, and

8 ‘‘(B) to the extent that this part applies to

9 any such stock, this part shall be applied in the

10 same manner as if such organization were not

11 exempt from tax under section 501(a).

12 ‘‘(2) TREATMENT OF STOCK HELD BY POOLED

13 INCOME FUND.—If stock in a passive foreign cor14 poration is owned (or treated as owned under section

15 1294(e)) by a pooled income fund (as defined in sec16 tion 642(c)(5)) and no portion of any gain from a

17 disposition of such stock may be allocated to income

18 under the terms of the governing instrument of such

19 fund—

20 ‘‘(A) section 1293 shall not apply to any

21 gain on a disposition of such stock by such fund

22 if (without regard to section 1293) a deduction

23 would be allowable with respect to such gain

24 under section 642(c)(3),
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1 ‘‘(B) subpart A shall not apply with re2 spect to such stock, and

3 ‘‘(C) in determining whether section 1293

4 applies to any distribution in respect of such

5 stock, such stock shall be treated as failing to

6 qualify for the exceptions under section

7 1294(a)(1).

8 ‘‘(i) INFORMATION FROM SHAREHOLDERS.—Every

9 United States person who owns stock in any passive for10 eign corporation shall furnish with respect to such cor11 poration such information as the Secretary may prescribe.

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

13 such regulations as may be necessary or appropriate to

14 carry out the purposes of this part, including regula15 tions—

16 ‘‘(1) providing that gross income shall be deter17 mined without regard to section 1293 for such pur18 poses as may be specified in such regulations, and

19 ‘‘(2) to prevent avoidance of the provisions of

20 this part through changes in citizenship or residence

21 status.’’

22 (b) INSTALLMENT SALES TREATMENT NOT AVAIL23 ABLE.—Paragraph (2) of section 453(k) is amended by

24 striking ‘‘or’’ at the end of subparagraph (A), by inserting
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1 ‘‘or’’ at the end of subparagraph (B), and by adding at

2 the end thereof the following new subparagraph:

3 ‘‘(C) stock in a passive foreign corporation

4 (as defined in section 1296) if section 1293 ap5 plies to such sale,’’.

6 (c) TREATMENT OF MARK-TO-MARKET GAIN UNDER

7 SECTION 4982.—

8 (1) Subsection (e) of section 4982 is amended

9 by adding at the end thereof the following new para10 graph:

11 ‘‘(6) TREATMENT OF GAIN RECOGNIZED UNDER

12 SECTION 1291.—For purposes of determining a regu13 lated investment company’s ordinary income—

14 ‘‘(A) notwithstanding paragraph (1)(C),

15 section 1291 shall be applied as if such compa16 ny’s taxable year ended on October 31, and

17 ‘‘(B) any ordinary gain or loss from an ac18 tual disposition of stock in a passive foreign

19 corporation during the portion of the calendar

20 year after October 31 shall be taken into ac21 count in determining such company’s ordinary

22 income for the following calendar year.

23 In the case of a company making an election under

24 paragraph (4), the preceding sentence shall be ap-
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1 plied by substituting the last day of the company’s

2 taxable year for October 31.’’

3 (2) Subsection (b) of section 852 is amended by

4 adding at the end thereof the following new para5 graph:

6 ‘‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON

7 STOCK IN PASSIVE FOREIGN CORPORATIONS.—To

8 the extent provided in regulations, the taxable in9 come of a regulated investment company (other than

10 a company to which an election under section

11 4982(e)(4) applies) shall be computed without re12 gard to any net reduction in the value of any stock

13 of a passive foreign corporation to which section

14 1291 applies occurring after October 31 of the tax15 able year, and any such reduction shall be treated as

16 occurring on the first day of the following taxable

17 year.’’

18 (3) Subsection (c) of section 852 is amended by

19 inserting after ‘‘October 31 of such year’’ the follow20 ing: ‘‘, without regard to any net reduction in the

21 value of any stock of a passive foreign corporation

22 to which section 1291 applies occurring after Octo23 ber 31 of such year,’’.

24 (d) TREATMENT OF CERTAIN PREVIOUSLY TAXED

25 AMOUNTS.—Subsection (e) of section 959 is amended—
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1 (1) by adding at the end thereof the following

2 new sentence: ‘‘A similar rule shall apply in the case

3 of amounts included in gross income under section

4 1293 (as in effect on January 1, 1993).’’, and

5 (2) by striking ‘‘AMOUNTS PREVIOUSLY TAXED

6 UNDER SECTION 1248’’ in the subsection heading

7 and inserting ‘‘CERTAIN PREVIOUSLY TAXED

8 AMOUNTS’’.

9 SEC. 403. TECHNICAL AND CONFORMING AMENDMENTS.

10 (a) GENERAL RULE.—

11 (1) Paragraph (2) of section 171(c) is amend12 ed—

13 (A) by striking ‘‘, or by a foreign personal

14 holding company, as defined in section 552’’,

15 and

16 (B) by striking ‘‘, or a or foreign personal

17 holding company’’.

18 (2) Section 312 is amended by striking sub19 section (j).

20 (3) Subsection (m) of section 312 is amended

21 by striking ‘‘, a foreign investment company (within

22 the meaning of section 1246(b)), or a foreign per23 sonal holding company (within the meaning of sec24 tion 552)’’ and inserting ‘‘or a passive foreign cor25 poration (as defined in section 1296)’’.
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1 (4) Subsection (e) of section 443 is amended by

2 striking paragraph (3) and by redesignating para3 graphs (4) and (5) as paragraphs (3) and (4),

4 respectively.

5 (5) Clause (ii) of section 465(c)(7)(B) is

6 amended to read as follows:

7 ‘‘(ii) a passive foreign corporation

8 with respect to which the stock ownership

9 requirements of section 1292(a)(2)(B) are

10 met, or’’.

11 (6) Subsection (b) of section 535 is amended by

12 striking paragraph (9).

13 (7) Subsection (d) of section 535 is hereby re14 pealed.

15 (8) Paragraph (1) of section 543(b) is amended

16 by inserting ‘‘and’’ at the end of subparagraph (A),

17 by striking ‘‘, and’’ at the end of subparagraph (B)

18 and inserting a period, and by striking subparagraph

19 (C).

20 (9) Section 545 is amended by striking sub21 sections (b)(7) and (c).

22 (10) Paragraph (1) of section 562(b) is amend23 ed by striking ‘‘or a foreign personal holding com24 pany described in section 552’’.

25 (11) Section 563 is amended—
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1 (A) by striking subsection (c),

2 (B) by redesignating subsection (d) as sub3 section (c), and

4 (C) by striking ‘‘subsection (a), (b), or (c)’’

5 in subsection (c) (as so redesignated) and in6 serting ‘‘subsection (a) or (b)’’.

7 (12) Paragraph (2) of section 751(d) is amend8 ed by striking ‘‘subsection (a) of section 1246 (relat9 ing to gain on foreign investment company stock)’’

10 and inserting ‘‘section 1291 (relating to stock in

11 certain passive foreign corporations marked to

12 market)’’.

13 (13) Subsection (b) of section 851 is amended

14 by striking the sentence following paragraph (4)(B)

15 which contains a reference to section 1293(a).

16 (14) Clause (ii) of section 864(b)(2)(A) is

17 amended by striking ‘‘(other than’’ and all that fol18 lows down through ‘‘holding company)’’ and insert19 ing ‘‘(other than a corporation which would be a

20 personal holding company but for section 542(c)(5)

21 and which is not United States controlled (as de22 fined in section 1292(a)(2))’’.

23 (15) Subsection (d) of section 904 is amended

24 by striking paragraphs (2)(A)(ii), (2)(E)(iii), and

25 (3)(I).
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1 (16)(A) Subparagraph (A) of section 904(g)(1)

2 is amended to read as follows:

3 ‘‘(A) Any amount included in gross income

4 under section 951(a) (relating to amounts in5 cluded in gross income of United States share6 holders).’’

7 (B) The paragraph heading of paragraph (2) of

8 section 904(g) is amended by striking ‘‘AND FOR9 EIGN PERSONAL HOLDING OR PASSIVE FOREIGN IN10 VESTMENT COMPANY’’.

11 (17) Section 951 is amended by striking sub12 sections (c), (d), and (f), and by redesignating sub13 section (e) as subsection (c).

14 (18) Paragraph (3) of section 956A(c) is

15 amended—

16 (A) by striking ‘‘1297(d)’’ in subparagraph

17 (B) and inserting ‘‘1297(e)’’, and

18 (B) by striking ‘‘1297(e)’’ in subparagraph

19 (C) and inserting ‘‘1297(f)’’.

20 (19) Paragraph (1) of section 986(c) is amend21 ed by striking ‘‘or 1293(c)’’.

22 (20) Paragraph (3) of section 989(b) is amend23 ed by striking ‘‘, 551(a), or 1293(a)’’.

24 (21) Paragraph (5) of section 1014(b) is hereby

25 repealed.
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1 (22) Subsection (a) of section 1016 is amended

2 by striking paragraph (13) and by redesignating the

3 following paragraphs accordingly.

4 (23) Paragraph (3) of section 1212(a) is

5 amended—

6 (A) by striking subparagraph (A),

7 (B) by redesignating subparagraphs (B)

8 and (C) as subparagraphs (A) and (B), respec9 tively, and

10 (C) by amending subparagraph (D) to read

11 as follows:

12 ‘‘(C) for which it is a passive foreign cor13 poration.’’

14 (24) Section 1223 is amended by striking para15 graph (10) and by redesignating the following para16 graphs accordingly.

17 (25) Subsection (d) of section 1248 is amended

18 by striking paragraphs (5) and (7).

19 (26)(A) Subsection (a) of section 6035 is

20 amended by striking ‘‘foreign personal holding com21 pany (as defined in section 552)’’ and inserting

22 ‘‘passive foreign corporation with respect to which

23 the stock ownership requirements of section

24 1292(a)(2)(B) are met’’.
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1 (B) The section heading for section 6035 is

2 amended by striking ‘‘FOREIGN PERSONAL HOLD3 ING COMPANIES’’ and inserting ‘‘CLOSELY HELD

4 PASSIVE FOREIGN CORPORATIONS’’.

5 (C) The table of sections for subpart A of part

6 III of subchapter A of chapter 61 is amended by

7 striking ‘‘foreign personal holding companies’’ in the

8 item relating to section 6035 and inserting ‘‘closely9 held passive foreign corporations’’.

10 (27) Subparagraph (D) of section 6103(e)(1) is

11 amended by striking clause (iv) and redesignating

12 clauses (v) and (vi) as clauses (iv) and (v), respec13 tively.

14 (28) Subparagraph (B) of section 6501(e)(1) is

15 amended to read as follows:

16 ‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the

17 taxpayer omits from gross income an amount

18 properly includible therein under section

19 951(a), the tax may be assessed, or a proceed20 ing in court for the collection of such tax may

21 be done without assessing, at any time within

22 6 years after the return was filed.’’

23 (29) Section 4947 and section 4948(c)(4) are

24 each amended by striking ‘‘556(b)(2),’’ each place it

25 appears.
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1 (b) CLERICAL AMENDMENTS.—

2 (1) The table of parts for subchapter G of

3 chapter 1 is amended by striking the item relating

4 to part III.

5 (2) The table of sections for part IV of sub6 chapter P of chapter 1 is amended by striking the

7 items relating to sections 1246 and 1247.

8 (3) The table of parts for subchapter P of chap9 ter 1 is amended by striking the item relating to

10 part VI and inserting the following:

‘‘Part VI. Treatment of passive foreign corporations.’’

11 SEC. 404. EFFECTIVE DATE.

12 (a) GENERAL RULE.—Except as otherwise provided

13 in this section, the amendments made by this subtitle shall

14 apply to—

15 (1) taxable years of United States persons be16 ginning after December 31, 1993, and

17 (2) taxable years of foreign corporations ending

18 with or within such taxable years of United States

19 persons.

20 (b) DENIAL OF INSTALLMENT SALES TREATMENT.—

21 The amendment made by section 402(b) shall apply to dis22 positions after December 31, 1993.

23 (c) BASIS RULE.—The amendments made by this

24 subtitle shall not affect the determination of the basis of
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1 any stock acquired from a decedent in a taxable year be2 ginning before January 1, 1994.

3 Subtitle B—Treatment of

4 Controlled Foreign Corporations

5 SEC. 411. GAIN ON CERTAIN STOCK SALES BY CON6 TROLLED FOREIGN CORPORATIONS TREAT7 ED AS DIVIDENDS.

8 (a) GENERAL RULE.—Section 964 (relating to mis9 cellaneous provisions) is amended by adding at the end

10 thereof the following new subsection:

11 ‘‘(f) (e) GAIN ON CERTAIN STOCK SALES BY CON12 TROLLED FOREIGN CORPORATIONS TREATED AS DIVI13 DENDS.—

14 ‘‘(1) IN GENERAL.—If a controlled foreign cor15 poration sells or exchanges stock in any other for16 eign corporation, gain recognized on such sale or ex17 change shall be included in the gross income of such

18 controlled foreign corporation as a dividend to the

19 same extent that it would have been so included

20 under section 1248(a) if such controlled foreign cor21 poration were a United States person. For purposes

22 of determining the amount which would have been so

23 includible, the determination of whether such other

24 foreign corporation was a controlled foreign corpora-
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1 tion shall be made without regard to the preceding

2 sentence.

3 ‘‘(2) SAME COUNTRY EXCEPTION NOT APPLICA4 BLE.—Clause (i) of section 954(c)(3)(A) shall not

5 apply to any amount treated as a dividend by reason

6 of paragraph (1).

7 ‘‘(3) CLARIFICATION OF DEEMED SALES.—For

8 purposes of this subsection, a controlled foreign cor9 poration shall be treated as having sold or ex10 changed any stock if, under any provision of this

11 subtitle, such controlled foreign corporation is treat12 ed as having gain from the sale or exchange of such

13 stock.’’

14 (b) AMENDMENT OF SECTION 904(d).—Clause (i) of

15 section 904(d)(2)(E) is amended by striking ‘‘and except

16 as provided in regulations, the taxpayer was a United

17 States shareholder in such corporation’’.

18 (c) EFFECTIVE DATES.—

19 (1) The amendment made by subsection (a)

20 shall apply to gain recognized on transactions occur21 ring after the date of the enactment of this Act.

22 (2) The amendment made by subsection (b)

23 shall apply to distributions after the date of the en24 actment of this Act.
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1 SEC. 412. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

2 (a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN

3 DETERMINING PRO RATA SHARE.—

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

5 951(a) (defining pro rata share of subpart F in6 come) is amended by adding at the end thereof the

7 following new sentence: ‘‘For purposes of subpara8 graph (B), any gain included in the gross income of

9 any person as a dividend under section 1248 shall

10 be treated as a distribution received by such person

11 with respect to the stock involved.’’

12 (2) EFFECTIVE DATE.—The amendment made

13 by paragraph (1) shall apply to dispositions after the

14 date of the enactment of this Act.

15 (b) BASIS ADJUSTMENTS IN STOCK HELD BY FOR16 EIGN CORPORATION.—

17 (1) IN GENERAL.—Section 961 (relating to ad18 justments to basis of stock in controlled foreign cor19 porations and of other property) is amended by add20 ing at the end thereof the following new subsection:

21 ‘‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOR22 EIGN CORPORATION.—Under regulations prescribed by

23 the Secretary, if a United States shareholder is treated

24 under section 958(a)(2) as owning any stock in a con25 trolled foreign corporation which is actually owned by an26 other controlled foreign corporation, adjustments similar
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1 to the adjustments provided by subsections (a) and (b)

2 shall be made to the basis of such stock in the hands of

3 such other controlled foreign corporation, but only for the

4 purposes of determining the amount included under sec5 tion 951 in the gross income of such United States share6 holder (or any other United States shareholder who ac7 quires from any person any portion of the interest of such

8 United States shareholder by reason of which such share9 holder was treated as owning such stock, but only to the

10 extent of such portion, and subject to such proof of iden11 tity of such interest as the Secretary may prescribe by reg12 ulations).’’

13 (2) EFFECTIVE DATE.—The amendment made

14 by paragraph (1) shall apply for purposes of deter15 mining inclusions for taxable years of United States

16 shareholders beginning after December 31, 1993.

17 (c) DETERMINATION OF PREVIOUSLY TAXED IN18 COME IN SECTION 304 DISTRIBUTIONS, ETC.—

19 (1) IN GENERAL.—Section 959 (relating to ex20 clusion from gross income of previously taxed earn21 ings and profits) is amended by adding at the end

22 thereof the following new subsection:

23 ‘‘(g) ADJUSTMENTS FOR CERTAIN TRANSACTIONS.—

24 If by reason of—

25 ‘‘(1) a transaction to which section 304 applies,
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1 ‘‘(2) the structure of a United States sharehold2 er’s holdings in controlled foreign corporations, or

3 ‘‘(3) other circumstances,

4 there would be a multiple inclusion of any item in income

5 (or an inclusion or exclusion without an appropriate basis

6 adjustment) by reason of this subpart, the Secretary may

7 prescribe regulations providing such modifications in the

8 application of this subpart as may be necessary to elimi9 nate such multiple inclusion or provide such basis adjust10 ment, as the case may be.’’

11 (2) EFFECTIVE DATE.—The amendment made

12 by paragraph (1) shall take effect on the date of the

13 enactment of this Act.

14 (d) CLARIFICATION OF TREATMENT OF BRANCH TAX

15 EXEMPTIONS OR REDUCTIONS.—

16 (1) IN GENERAL.—Subsection (b) of section

17 952 is amended by adding at the end thereof the fol18 lowing new sentence: ‘‘For purposes of this sub19 section, any exemption (or reduction) with respect to

20 the tax imposed by section 884 shall not be taken

21 into account.’’.

22 (2) EFFECTIVE DATE.—The amendment made

23 by paragraph (1) shall apply to taxable years begin24 ning after December 31, 1986.
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1 SEC. 413. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR

2 CERTAIN LOWER TIER COMPANIES.

3 (a) SECTION 902 CREDIT.—

4 (1) IN GENERAL.—Subsection (b) of section

5 902 (relating to deemed taxes increased in case of

6 certain 2nd and 3rd tier foreign corporations) is

7 amended to read as follows:

8 ‘‘(b) DEEMED TAXES INCREASED IN CASE OF CER9 TAIN LOWER TIER CORPORATIONS.—

10 ‘‘(1) IN GENERAL.—If—

11 ‘‘(A) any foreign corporation is a member

12 of a qualified group, and

13 ‘‘(B) such foreign corporation owns 10 per14 cent or more of the voting stock of another

15 member of such group from which it receives

16 dividends in any taxable year,

17 such foreign corporation shall be deemed to have

18 paid the same proportion of such other member’s

19 post-1986 foreign income taxes as would be deter20 mined under subsection (a) if such foreign corpora21 tion were a domestic corporation.

22 ‘‘(2) QUALIFIED GROUP.—For purposes of

23 paragraph (1), the term ‘qualified group’ means—

24 ‘‘(A) the foreign corporation described in

25 subsection (a), and

26 ‘‘(B) any other foreign corporation if—
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1 ‘‘(i) the domestic corporation owns at

2 least 5 percent of the voting stock of such

3 other foreign corporation indirectly

4 through a chain of foreign corporations

5 connected through stock ownership of at

6 least 10 percent of their voting stock,

7 ‘‘(ii) the foreign corporation described

8 in subsection (a) is the first tier corpora9 tion in such chain, and

10 ‘‘(iii) such other corporation is not

11 below the sixth tier in such chain,

12 The term ‘qualified group’ shall not include any for13 eign corporation below the third tier in the chain re14 ferred to in clause (i) unless such foreign corpora15 tion is a controlled foreign corporation (as defined in

16 section 957) and the domestic corporation is a Unit17 ed States shareholder (as defined in section 951(b))

18 in such foreign corporation. Paragraph (1) shall

19 apply to those taxes paid by a member of the quali20 fied group below the third tier only with respect to

21 periods during which it was a controlled foreign cor22 poration.’’

23 (2) CONFORMING AMENDMENTS.—

24 (A) Subparagraph (B) of section 902(c)(3)

25 is amended by adding ‘‘or’’ at the end of clause
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1 (i) and by striking clauses (ii) and (iii) and in2 serting the following new clause:

3 ‘‘(ii) the requirements of subsection

4 (b)(2) are met with respect to such foreign

5 corporation.’’

6 (B) Subparagraph (B) of section 902(c)(4)

7 is amended by striking ‘‘3rd foreign corpora8 tion’’ and inserting ‘‘sixth tier foreign corpora9 tion’’.

10 (C) The heading for paragraph (3) of sec11 tion 902(c) is amended by striking ‘‘WHERE DO12 MESTIC CORPORATION ACQUIRES 10 PERCENT

13 OF FOREIGN CORPORATION’’ and inserting

14 ‘‘WHERE FOREIGN CORPORATION FIRST QUALI15 FIES’’.

16 (D) Paragraph (3) of section 902(c) is

17 amended by striking ‘‘ownership’’ each place it

18 appears.

19 (b) SECTION 960 CREDIT.—Paragraph (1) of section

20 960(a) (relating to special rules for foreign tax credits)

21 is amended to read as follows:

22 ‘‘(1) DEEMED PAID CREDIT.—For purposes of

23 subpart A of this part, if there is included under

24 section 951(a) in the gross income of a domestic cor25 poration any amount attributable to earnings and
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1 profits of a foreign corporation which is a member

2 of a qualified group (as defined in section 902(b))

3 with respect to the domestic corporation, then, ex4 cept to the extent provided in regulations, section

5 902 shall be applied as if the amount so included

6 were a dividend paid by such foreign corporation

7 (determined by applying section 902(c) in accord8 ance with section 904(d)(3)(B)).’’

9 (c) EFFECTIVE DATE.—

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

11 this section shall apply to taxes of foreign corpora12 tions for taxable years of such corporations begin13 ning after the date of enactment of this Act.

14 (2) SPECIAL RULE.—In the case of any chain

15 of foreign corporations described in clauses (i) and

16 (ii) of section 902(b)(2)(B) of the Internal Revenue

17 Code of 1986 (as amended by this section), no liq18 uidation, reorganization, or similar transaction in a

19 taxable year beginning after the date of the enact20 ment of this Act shall have the effect of permitting

21 taxes to be taken into account under section 902 of

22 the Internal Revenue Code of 1986 which could not

23 have been taken into account under such section but

24 for such transaction.
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1 Subtitle C—Other Provisions

2 SEC. 421. EXCHANGE RATE USED IN TRANSLATING FOR3 EIGN TAXES.

4 (a) ACCRUED TAXES TRANSLATED BY USING AVER5 AGE RATE FOR YEAR TO WHICH TAXES RELATE.—

6 (1) IN GENERAL.—Subsection (a) of section

7 986 (relating to translation of foreign taxes) is

8 amended to read as follows:

9 ‘‘(a) FOREIGN INCOME TAXES.—

10 ‘‘(1) TRANSLATION OF ACCRUED TAXES.—

11 ‘‘(A) IN GENERAL.—For purposes of deter12 mining the amount of the foreign tax credit, in

13 the case of a taxpayer who takes foreign income

14 taxes into account when accrued, the amount of

15 any foreign income taxes (and any adjustment

16 thereto) shall be translated into dollars by using

17 the average exchange rate for the taxable year

18 to which such taxes relate.

19 ‘‘(B) EXCEPTION FOR TAXES NOT PAID

20 WITHIN FOLLOWING 2 YEARS.—

21 ‘‘(i) Subparagraph (A) shall not apply

22 to any foreign income taxes paid after the

23 date 2 years after the close of the taxable

24 year to which such taxes relate.
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1 ‘‘(ii) Subparagraph (A) shall not

2 apply to taxes paid before the beginning of

3 the taxable year to which such taxes relate.

4 ‘‘(C) EXCEPTION FOR INFLATIONARY CUR5 RENCIES.—To the extent provided in regula6 tions, subparagraph (A) shall not apply to any

7 foreign income taxes the liability for which is

8 denominated in any currency determined to be

9 an inflationary currency under such regulations.

10 ‘‘(D) CROSS REFERENCE.—

‘‘For adjustments where tax is not paid within 2

years, see section 905(c).

11 ‘‘(2) TRANSLATION OF TAXES TO WHICH PARA12 GRAPH (1) DOES NOT APPLY.—For purposes of de13 termining the amount of the foreign tax credit, in

14 the case of any foreign income taxes to which sub15 paragraph (A) of paragraph (1) does not apply—

16 ‘‘(A) such taxes shall be translated into

17 dollars using the exchange rates as of the time

18 such taxes were paid to the foreign country or

19 possession of the United States, and

20 ‘‘(B) any adjustment to the amount of

21 such taxes shall be translated into dollars

22 using—

23 ‘‘(i) except as provided in clause (ii),

24 the exchange rate as of the time when such
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1 adjustment is paid to the foreign country

2 or possession, or

3 ‘‘(ii) in the case of any refund or cred4 it of foreign income taxes, using the ex5 change rate as of the time of the original

6 payment of such foreign income taxes.

7 ‘‘(3) FOREIGN INCOME TAXES.—For purposes

8 of this subsection, the term ‘foreign income taxes’

9 means any income, war profits, or excess profits

10 taxes paid or accrued to any foreign country or to

11 any possession of the United States.’’

12 (2) ADJUSTMENT WHEN NOT PAID WITHIN 2

13 YEARS AFTER YEAR TO WHICH TAXES RELATE.—

14 Subsection (c) of section 905 is amended to read as

15 follows:

16 ‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.—

17 ‘‘(1) IN GENERAL.—If—

18 ‘‘(A) accrued taxes when paid differ from

19 the amounts claimed as credits by the taxpayer,

20 ‘‘(B) accrued taxes are not paid before the

21 date 2 years after the close of the taxable year

22 to which such taxes relate, or

23 ‘‘(C) any tax paid is refunded in whole or

24 in part,
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1 the taxpayer shall notify the Secretary, who shall re2 determine the amount of the tax for the year or

3 years affected.

4 ‘‘(2) SPECIAL RULE FOR TAXES NOT PAID

5 WITHIN 2 YEARS.—In making the redetermination

6 under paragraph (1), no credit shall be allowed for

7 accrued taxes not paid before the date referred to in

8 subparagraph (B) of paragraph (1). Any such taxes

9 if subsequently paid shall be taken into account for

10 the taxable year in which paid and no redetermina11 tion under this section shall be made on account of

12 such payment.

13 ‘‘(3) ADJUSTMENTS.—The amount of tax due

14 on any redetermination under paragraph (1) (if any)

15 shall be paid by the taxpayer on notice and demand

16 by the Secretary, and the amount of tax overpaid (if

17 any) shall be credited or refunded to the taxpayer in

18 accordance with subchapter B of chapter 66 (section

19 6511 et seq.).

20 ‘‘(4) BOND REQUIREMENTS.—In the case of

21 any tax accrued but not paid, the Secretary, as a

22 condition precedent to the allowance of the credit

23 provided in this subpart, may require the taxpayer

24 to give a bond, with sureties satisfactory to and ap25 proved by the Secretary, in such sum as the Sec-
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1 retary may require, conditioned on the payment by

2 the taxpayer of any amount of tax found due on any

3 such redetermination. Any such bond shall contain

4 such further conditions as the Secretary may re5 quire.

6 ‘‘(5) OTHER SPECIAL RULES.—In any redeter7 mination under paragraph (1) by the Secretary of

8 the amount of tax due from the taxpayer for the

9 year or years affected by a refund, the amount of

10 the taxes refunded for which credit has been allowed

11 under this section shall be reduced by the amount of

12 any tax described in section 901 imposed by the for13 eign country or possession of the United States with

14 respect to such refund; but no credit under this sub15 part, or deduction under section 164, shall be al16 lowed for any taxable year with respect to any such

17 tax imposed on the refund. No interest shall be as18 sessed or collected on any amount of tax due on any

19 redetermination by the Secretary, resulting from a

20 refund to the taxpayer, for any period before the re21 ceipt of such refund, except to the extent interest

22 was paid by the foreign country or possession of the

23 United States on such refund for such period.’’

24 (b) AUTHORITY TO USE AVERAGE RATES.—
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1 (1) IN GENERAL.—Subsection (a) of section

2 986 (relating to foreign taxes) is amended by adding

3 at the end thereof the following new paragraph:

4 (1) IN GENERAL.—Subsection (a) of section 986

5 (as amended by subsection (a)) is amended by redes6 ignating paragraph (3) as paragraph (4) and insert7 ing after paragraph (2) the following new paragraph:

8 ‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE

9 RATES.—To the extent prescribed in regulations, the

10 average exchange rate for the period (specified in

11 such regulations) during which the taxes or adjust12 ment is paid may be used instead of the exchange

13 rate as of the time of such payment.’’

14 (2) DETERMINATION OF AVERAGE RATES.—

15 Subsection (c) of section 989 is amended by striking

16 ‘‘and’’ at the end of paragraph (4), by striking the

17 period at the end of paragraph (5) and inserting ‘‘,

18 and’’, and by adding at the end thereof the following

19 new paragraph:

20 ‘‘(6) setting forth procedures for determining

21 the average exchange rate for any period.’’

22 (3) CONFORMING AMENDMENTS.—Subsection

23 (b) of section 989 is amended by striking ‘‘weight24 ed’’ each place it appears.

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

2 subsections (a)(1) and (b) shall apply to taxes paid

3 or accrued in taxable years beginning after Decem4 ber 31, 1992.

5 (2) SUBSECTION (a)(2).—The amendment made

6 by subsection (a)(2) shall apply to taxes which relate

7 to taxable years beginning after December 31, 1992.

8 SEC. 422. ELECTION TO USE SIMPLIFIED SECTION 904 LIM9 ITATION FOR ALTERNATIVE MINIMUM TAX.

10 (a) GENERAL RULE.—Subsection (a) of section 59

11 (relating to alternative minimum tax foreign tax credit)

12 is amended by adding at the end thereof the following new

13 paragraph:

14 ‘‘(3) ELECTION TO USE SIMPLIFIED SECTION

15 904 LIMITATION.—

16 ‘‘(A) IN GENERAL.—In determining the al17 ternative minimum tax foreign tax credit for

18 any taxable year to which an election under this

19 paragraph applies—

20 ‘‘(i) subparagraph (B) of paragraph

21 (1) shall not apply, and

22 ‘‘(ii) the limitation of section 904

23 shall be based on the proportion which—

24 ‘‘(I) the taxpayer’s taxable in25 come (as determined for purposes of
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1 the regular tax) from sources without

2 the United States (but not in excess

3 of the taxpayer’s entire alternative

4 minimum taxable income), bears to

5 ‘‘(II) the taxpayer’s entire alter6 native minimum taxable income for

7 the taxable year.

8 ‘‘(B) ELECTION.—

9 ‘‘(i) IN GENERAL.—An election under

10 this paragraph may be made only for the

11 taxpayer’s first taxable year which begins

12 after December 31, 1993, and for which

13 the taxpayer claims an alternative mini14 mum tax foreign tax credit.

15 ‘‘(ii) ELECTION REVOCABLE ONLY

16 WITH CONSENT.—An election under this

17 paragraph, once made, shall apply to the

18 taxable year for which made and all subse19 quent taxable years unless revoked with

20 the consent of the Secretary.’’

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

22 this section shall apply to taxable years beginning after

23 December 31, 1993.
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1 SEC. 423. MODIFICATION OF SECTION 1491.

2 (a) GENERAL RULE.—So much of chapter 5 (relating

3 to tax on transfers to avoid income tax) as precedes sec4 tion 1492 is amended to read as follows:

5 ‘‘CHAPTER 5—TREATMENT OF TRANSFERS

6 TO AVOID INCOME TAX

‘‘Sec. 1491. Recognition of gain.

‘‘Sec. 1492. Exceptions.

7 ‘‘SEC. 1491. RECOGNITION OF GAIN.

8 ‘‘In the case of any transfer of property by a United

9 States person to a foreign corporation as paid-in surplus

10 or as a contribution to capital, to a foreign estate or trust,

11 or to a foreign partnership, for purposes of this subtitle,

12 such transfer shall be treated as a sale or exchange for

13 an amount equal to the fair market value of the property

14 transferred, and the transferor shall recognize as gain the

15 excess of—

16 ‘‘(1) the fair market value of the property so

17 transferred, over

18 ‘‘(2) the adjusted basis (for purposes of deter19 mining gain) of such property in the hands of the

20 transferor.’’

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 1057 is hereby repealed.

23 (2) Section 1492 is amended to read as follows:
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1 ‘‘SEC. 1492. EXCEPTIONS.

2 ‘‘The provisions of section 1491 shall not apply—

3 ‘‘(1) If the transferee is an organization exempt

4 from income tax under part I of subchapter F of

5 chapter 1 (other than an organization described in

6 section 401(a)),

7 ‘‘(2) To a transfer described in section 367, or

8 ‘‘(3) To any other transfer, to the extent pro9 vided in regulations in accordance with principles

10 similar to the principles of section 367 or otherwise

11 consistent with the purpose of section 1491.’’

12 (3) Section 1494 is hereby repealed.

13 (4) The table of sections for part IV of sub14 chapter O of chapter 1 is amended by striking the

15 item relating to section 1057.

16 (5) The table of chapters for subtitle A is

17 amended by striking ‘‘Tax on’’ in the item relating

18 to chapter 5 and inserting ‘‘Treatment of’’.

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

20 this section shall apply to transfers after December 31,

21 1994.

22 SEC. 424. MODIFICATION OF SECTION 367(b).

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

24 367(b) is amended to read as follows:

25 ‘‘(1) IN GENERAL.—In the case of any trans26 action described in section 332, 351, 354, 355, 356,
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1 or 361 in which the status of a foreign corporation

2 as a corporation is a general condition for non3 recognition by 1 or more of the parties to the trans4 action, income shall be required to be recognized to

5 the extent provided in regulations prescribed by the

6 Secretary which are necessary or appropriate to pre7 vent the avoidance of Federal income taxes. This

8 subsection shall not apply to a transaction in which

9 the foreign corporation is not treated as a corpora10 tion under subsection (a)(1).’’

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

12 subsection (a) shall apply to transfers after December 31,

13 1994.

14 TITLE V—OTHER INCOME TAX

15 PROVISIONS

16 Subtitle A—Provisions Relating to

17 Subchapter S Corporations

18 SEC. 501. AUTHORITY TO VALIDATE CERTAIN INVALID

19 ELECTIONS.

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

21 (relating to inadvertent terminations) is amended to read

22 as follows:

23 ‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI24 NATIONS.—If—
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1 ‘‘(1) an election under subsection (a) by any

2 corporation—

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

4 for which made (determined without regard to

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

6 the requirements of section 1361(b) or to ob7 tain shareholder consents, or

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

9 or (3) of subsection (d),

10 ‘‘(2) the Secretary determines that the cir11 cumstances resulting in such ineffectiveness or ter12 mination were inadvertent,

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

14 after discovery of the circumstances resulting in

15 such ineffectiveness or termination, steps were

16 taken—

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

18 business corporation, or

19 ‘‘(B) to acquire the required shareholder

20 consents, and

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

22 a shareholder in the corporation at any time during

23 the period specified pursuant to this subsection,

24 agrees to make such adjustments (consistent with

25 the treatment of the corporation as an S corpora-
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1 tion) as may be required by the Secretary with re2 spect to such period,

3 then, notwithstanding the circumstances resulting in such

4 ineffectiveness or termination, such corporation shall be

5 treated as an S corporation during the period specified

6 by the Secretary.’’

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

8 1362 is amended by adding at the end thereof the follow9 ing new paragraph:

10 ‘‘(5) AUTHORITY TO TREAT LATE ELECTIONS

11 AS TIMELY.—If—

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

13 made for any taxable year (determined without

14 regard to paragraph (3)) after the date pre15 scribed by this subsection for making such elec16 tion for such taxable year, and

17 ‘‘(B) the Secretary determines that there

18 was reasonable cause for the failure to timely

19 make such election,

20 the Secretary may treat such election as timely

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

22 not apply).’’

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

24 this section shall apply with respect to elections for taxable

25 years beginning after December 31, 1982.
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1 SEC. 502. TREATMENT OF DISTRIBUTIONS DURING LOSS

2 YEARS.

3 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

4 ACCOUNT BEFORE LOSSES.—

5 (1) Subparagraph (A) of section 1366(d)(1) is

6 amended by striking ‘‘paragraph (1)’’ and inserting

7 ‘‘paragraphs (1) and (2)(A)’’.

8 (2) Subsection (d) of section 1368 is amended

9 by adding at the end thereof the following new sen10 tence:

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

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

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

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

15 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para16 graph (1) of section 1368(e) (relating to accumulated ad17 justments account) is amended by adding at the end there18 of the following new subparagraph:

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

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

21 to distributions made during any taxable year,

22 the amount in the accumulated adjustments ac23 count as of the close of such taxable year shall

24 be determined without regard to any net nega25 tive adjustment for such taxable year.
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1 ‘‘(ii) NET NEGATIVE ADJUSTMENT.—For

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

3 adjustment’ means, with respect to any taxable

4 year, the excess (if any) of—

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

6 the taxable year (other than for distribu7 tions), over

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

9 such taxable year.’’

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

11 of section 1368(e)(1) is amended—

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

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

14 paragraph’’, and

15 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in16 serting ‘‘section 1367(a)(2)’’.

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

18 this section shall apply to distributions in taxable years

19 beginning after December 31, 1992.

20 SEC. 503. ELECTING SMALL BUSINESS TRUSTS.

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

22 1361(c)(2) (relating to certain trusts permitted as share23 holders) is amended by inserting after clause (iv) the fol24 lowing new clause:

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

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

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

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

7 shall be treated as a shareholder; except

8 that, if for any period there is no potential

9 current beneficiary of such trust, such

10 trust shall be treated as the shareholder

11 during such period.’’

12 (c) ELECTING SMALL BUSINESS TRUST DEFINED.—

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

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

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

18 purposes of this section—

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

20 subparagraph (B), the term ‘electing small

21 business trust’ means any trust if—

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

23 beneficiary any person other than (I) an

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

2 contingent interest and is not a potential

3 current beneficiary,

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

6 ‘‘(iii) an election under this subsection

7 applies to such trust.

8 ‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—

9 The term ‘electing small business trust’ shall

10 not include—

11 ‘‘(i) any qualified subchapter S trust

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

14 corporation the stock of which is held by

15 such trust, and

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

17 this subtitle.

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

20 acquisition if the basis of the property acquired

21 is determined under section 1012.

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

23 purposes of this section, the term ‘potential current

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

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

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

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

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

7 the requirements of the preceding sentence during

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

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

13 which made and all subsequent taxable years of such

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

16 ‘‘(4) CROSS REFERENCE.—

‘‘For special treatment of electing small business

trusts, see section 641(d).’’

17 (d) TAXATION OF ELECTING SMALL BUSINESS

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

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

20 subsection:

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

22 SMALL BUSINESS TRUSTS.—

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

3 S corporations shall be treated as a separate

4 trust, and

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

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

8 (2).

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

11 the following:

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

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

14 shall be determined by using the highest rate of

15 tax set forth in section 1(e).

16 ‘‘(B) The exemption amount under section

17 55(d) shall be zero.

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

20 following:

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

22 into account under section 1366.

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

5 (ii).

6 No deduction or credit shall be allowed for any

7 amount not described in this paragraph, and no

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

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

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

12 ‘‘(3) TREATMENT OF REMAINDER OF TRUST

13 AND DISTRIBUTIONS.—For purposes of determin14 ing—

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

16 this chapter on the portion of any electing small

17 business trust not treated as a separate trust

18 under paragraph (1), and

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

20 entire trust,

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

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

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

2 WHERE TERMINATION OF SEPARATE TRUST.—If a

3 portion of an electing small business trust ceases to

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

5 any carryover or excess deduction of the separate

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

7 taken into account by the entire trust.

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

9 purposes of this subsection, the term ‘electing small

10 business trust’ has the meaning given such term by

11 section 1361(e)(1).’’

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

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

15 (f) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 the date of the enactment of this Act.

18 SEC. 504. OTHER MODIFICATIONS.

19 (a) TREATMENT OF S CORPORATIONS UNDER SUB20 CHAPTER C.—Subsection (a) of section 1371 (relating to

21 application of subchapter C rules) is amended to read as

22 follows:

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

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

3 (b) S CORPORATIONS PERMITTED TO HOLD SUB4 SIDIARIES.—

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

6 1361(b) (defining ineligible corporation) is amended

7 by striking subparagraph (A) and by redesignating

8 subparagraphs (B), (C), (D), and (E) as subpara9 graphs (A), (B), (C), and (D), respectively.

10 (2) CONFORMING AMENDMENTS.—

11 (A) Subsection (c) of section 1361 is

12 amended by striking paragraph (6).

13 (B) Subsection (b) of section 1504 (defin14 ing includible corporation) is amended by add15 ing at the end thereof the following new para16 graph:

17 ‘‘(8) An S corporation.’’

18 (c) ELIMINATION OF PRE-1983 EARNINGS AND

19 PROFITS.—

20 (1) IN GENERAL.—If—

21 (A) a corporation was an electing small

22 business corporation under subchapter S of

23 chapter 1 of the Internal Revenue Code of 1986

24 for any taxable year beginning before January

25 1, 1983, and
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1 (B) such corporation is an S corporation

2 under subchapter S of chapter 1 of such Code

3 for its first taxable year beginning after Decem4 ber 31, 1992,

5 the amount of such corporation’s accumulated earn6 ings and profits (as of the beginning of such first

7 taxable year) shall be reduced by an amount equal

8 to the portion (if any) of such accumulated earnings

9 and profits which were accumulated in any taxable

10 year beginning before January 1, 1983, for which

11 such corporation was an electing small business cor12 poration under such subchapter S.

13 (2) CONFORMING AMENDMENTS.—

14 (A) Paragraph (3) of section 1362(d) is

15 amended—

16 (i) by striking ‘‘SUBCHAPTER C’’ in

17 the paragraph heading and inserting ‘‘AC18 CUMULATED’’,

19 (ii) by striking ‘‘subchapter C’’ in

20 subparagraph (A)(i)(I) and inserting ‘‘ac21 cumulated’’, and

22 (iii) by striking subparagraph (B) and

23 redesignating the following subparagraphs

24 accordingly.
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1 (B)(i) Subsection (a) of section 1375 is

2 amended by striking ‘‘subchapter C’’ in para3 graph (1) and inserting ‘‘accumulated’’.

4 (ii) Paragraph (3) of section 1375(b) is

5 amended to read as follows:

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

7 terms ‘passive investment income’ and ‘gross re8 ceipts’ have the same respective meanings as when

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

10 (iii) The section heading for section 1375

11 is amended by striking ‘‘SUBCHAPTER C’’ and

12 inserting ‘‘ACCUMULATED’’.

13 (iv) The table of sections for part III of

14 subchapter S of chapter 1 is amended by strik15 ing ‘‘subchapter C’’ in the item relating to sec16 tion 1375 and inserting ‘‘accumulated’’.

17 (C) Clause (i) of section 1042(c)(4)(A) is

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

19 and inserting ‘‘section 1362(d)(3)(C)’’.

20 (d) ADJUSTMENTS TO BASIS OF INHERITED S STOCK

21 TO REFLECT CERTAIN ITEMS OF INCOME.—Subsection

22 (b) of section 1367 (relating to adjustments to basis of

23 stock of shareholders, etc.) is amended by adding at the

24 end thereof the following new paragraph:
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1 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

2 STOCK.—

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

4 stock in an S corporation by reason of the

5 death of a decedent or by bequest, devise, or in6 heritance, section 691 shall be applied with re7 spect to any item of income of the S corpora8 tion in the same manner as if the decedent had

9 held directly his pro rata share of such item.

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

11 determined under section 1014 of any stock in

12 an S corporation shall be reduced by the por13 tion of the value of the stock which is attrib14 utable to items constituting income in respect

15 of the decedent.’’

16 (e) EFFECTIVE DATES.—

17 (1) SUBSECTIONS (a) AND (b).—The amend18 ments made by subsections (a) and (b) shall take ef19 fect on the date of the enactment of this Act.

20 (2) SUBSECTION (c).—The amendments made

21 by subsection (c) shall apply to taxable years begin22 ning after December 31, 1992.

23 (3) SUBSECTION (d).—The amendment made

24 by subsection (d) shall apply in the case of decedents

25 dying after the date of the enactment of this Act.
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1 Subtitle B—Accounting Provision

2 SEC. 511. MODIFICATIONS TO LOOK-BACK METHOD FOR

3 LONG-TERM CONTRACTS.

4 (a) LOOK-BACK METHOD NOT TO APPLY IN CER5 TAIN CASES.—Subsection (b) of section 460 (relating to

6 percentage of completion method) is amended by adding

7 at the end thereof the following new paragraph:

8 ‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD

9 NOT APPLY IN DE MINIMIS CASES.—

10 ‘‘(A) AMOUNTS TAKEN INTO ACCOUNT

11 AFTER COMPLETION OF CONTRACT.—Para12 graph (1)(B) shall not apply with respect to

13 any taxable year (beginning after the taxable

14 year in which the contract is completed) if—

15 ‘‘(i) the cumulative taxable income (or

16 loss) under the contract as of the close of

17 such taxable year, is within

18 ‘‘(ii) 10 percent of the cumulative

19 look-back taxable income (or loss) under

20 the contract as of the close of the most re21 cent taxable year to which paragraph

22 (1)(B) applied (or would have applied but

23 for subparagraph (B)).
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1 ‘‘(B) DE MINIMIS DISCREPANCIES.—Para2 graph (1)(B) shall not apply in any case to

3 which it would otherwise apply if—

4 ‘‘(i) the cumulative taxable income (or

5 loss) under the contract as of the close of

6 each prior contract year, is within

7 ‘‘(ii) 10 percent of the cumulative

8 look-back income (or loss) under the con9 tract as of the close of such prior contract

10 year.

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

12 paragraph—

13 ‘‘(i) CONTRACT YEAR.—The term

14 ‘contract year’ means any taxable year for

15 which income is taken into account under

16 the contract.

17 ‘‘(ii) LOOK-BACK INCOME OR LOSS.—

18 The look-back income (or loss) is the

19 amount which would be the taxable income

20 (or loss) under the contract if the alloca21 tion method set forth in paragraph (2)(A)

22 were used in determining taxable income.

23 ‘‘(iii) DISCOUNTING NOT APPLICA24 BLE.—The amounts taken into account

25 after the completion of the contract shall
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1 be determined without regard to any dis2 counting under the 2nd sentence of para3 graph (2).

4 ‘‘(D) CONTRACTS TO WHICH PARAGRAPH

5 APPLIES.—This paragraph shall only apply if

6 the taxpayer makes an election under this sub7 paragraph. Unless revoked with the consent of

8 the Secretary, such an election shall apply to all

9 long-term contracts completed during the tax10 able year for which election is made or during

11 any subsequent taxable year.’’

12 (b) MODIFICATION OF INTEREST RATE.—

13 (1) IN GENERAL.—Subparagraph (C) of section

14 460(b)(2) is amended by striking ‘‘the overpayment

15 rate established by section 6621’’ and inserting ‘‘the

16 adjusted overpayment rate (as defined in paragraph

17 (7))’’.

18 (2) ADJUSTED OVERPAYMENT RATE.—Sub19 section (b) of section 460 is amended by adding at

20 the end thereof the following new paragraph:

21 ‘‘(7) ADJUSTED OVERPAYMENT RATE.—

22 ‘‘(A) IN GENERAL.—The adjusted overpay23 ment rate for any interest accrual period is the

24 overpayment rate in effect under section 6621
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1 for the calendar quarter in which such interest

2 accrual period begins.

3 ‘‘(B) INTEREST ACCRUAL PERIOD.—For

4 purposes of subparagraph (A), the term ‘inter5 est accrual period’ means the period—

6 ‘‘(i) beginning on the day after the re7 turn due date for any taxable year of the

8 taxpayer, and

9 ‘‘(ii) ending on the return due date

10 for the following taxable year.

11 For purposes of the preceding sentence, the

12 term ‘return due date’ means the date pre13 scribed for filing the return of the tax imposed

14 by this chapter (determined without regard to

15 extensions).’’

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

17 this section shall apply to contracts completed in taxable

18 years ending after the date of the enactment of this Act.

19 Subtitle C—Provisions Relating To

20 Regulated Investment Companies

21 SEC. 521. REPEAL OF 30-PERCENT GROSS INCOME LIMITA22 TION.

23 (a) GENERAL RULE.—Subsection (b) of section 851

24 (relating to limitations) is amended by striking paragraph
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1 (3), by adding ‘‘and’’ at the end of paragraph (2), and

2 by redesignating paragraph (4) as paragraph (3).

3 (b) TECHNICAL AMENDMENTS.—

4 (1) The material following paragraph (3) of sec5 tion 851 (as redesignated by subsection (a)) is

6 amended—

7 (A) by striking out ‘‘paragraphs (2) and

8 (3)’’ and inserting ‘‘paragraph (2)’’, and

9 (B) by striking out the last sentence there10 of.

11 (2) Subsection (c) of section 851 is amended by

12 striking ‘‘subsection (b)(4)’’ each place it appears

13 (including the heading) and inserting ‘‘subsection

14 (b)(3)’’.

15 (3) Subsection (d) of section 851 is amended by

16 striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub17 sections (b)(3)’’.

18 (4) Paragraph (1) of section 851(e) is amended

19 by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub20 section (b)(3)’’.

21 (5) Paragraph (4) of section 851(e) is amended

22 by striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub23 sections (b)(3)’’.
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1 (6) Section 851 is amended by striking sub2 section (g) and redesignating subsection (h) as sub3 section (g).

4 (7) Subsection (g) of section 851 (as redesig5 nated by paragraph (6)) is amended by striking

6 paragraph (3).

7 (8) Section 817(h)(2) is amended—

8 (A) by striking ‘‘851(b)(4)’’ in subpara9 graph (A) and inserting ‘‘851(b)(3)’’, and

10 (B) by striking ‘‘851(b)(4)(A)(i)’’ in sub11 paragraph (B) and inserting ‘‘851(b)(3)(A)(i)’’.

12 (9) Section 1092(f)(2) is amended by striking

13 ‘‘Except for purposes of section 851(b)(3), the’’ and

14 inserting ‘‘The’’.

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

16 this section shall apply to taxable years ending after the

17 date of the enactment of this Act.

18 SEC. 522. BASIS RULES FOR SHARES IN OPEN-END REGU19 LATED INVESTMENT COMPANIES.

20 (a) ADDITIONAL REPORTING REQUIREMENT.—Sec21 tion 6045 (relating to returns of brokers) is amended by

22 adding at the end thereof the following new subsection:

23 ‘‘(f) ADDITIONAL INFORMATION REQUIRED WITH

24 RESPECT TO OPEN-END REGULATED INVESTMENT COM25 PANIES.—
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1 ‘‘(1) IN GENERAL.—If any person is required

2 under subsection (a) to make a return regarding the

3 gross proceeds from any disposition of stock in an

4 open-end regulated investment company, such return

5 shall include—

6 ‘‘(A) the basis of the stock disposed of (de7 termined by reference to the average basis of all

8 of the stock in the account from which the dis9 position was made immediately before the dis10 position), and

11 ‘‘(B) the portion of such basis and such

12 gross proceeds attributable to stock held for

13 more than 1 year and the portion not so attrib14 utable.

15 Determinations under subparagraph (B) shall be

16 made on a first-in, first-out, basis and determina17 tions of basis and holding period shall be made in

18 such manner as the Secretary may prescribe.

19 ‘‘(2) OPEN-END REGULATED INVESTMENT COM20 PANY.—For purposes of this subsection, the term

21 ‘open-end regulated investment company’ means any

22 regulated investment company which is offering for

23 sale or has outstanding any redeemable security (as

24 defined in section 2(a)(32) of the Investment Com25 pany Act of 1940) of which it is the issuer.
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1 ‘‘(3) INFORMATION TRANSFERS.—To the extent

2 provided in regulations, there shall be such ex3 changes of information between brokers as such reg4 ulations may require for purposes of enabling bro5 kers to meet the requirements of this subsection.

6 ‘‘(4) APPLICATION OF SUBSECTION.—This sub7 section shall not apply with respect to stock in any

8 account—

9 ‘‘(A) which was established before January

10 1, 1995, or

11 ‘‘(B) which includes any stock not acquired

12 by purchase.’’

13 (b) BASIS FOR INCOME TAX PURPOSES.—Section

14 1012 of such Code is amended—

15 (1) by striking ‘‘The basis’’ and inserting ‘‘(a)

16 GENERAL RULE.—The basis’’, and

17 (2) by adding at the end thereof the following

18 new subsection:

19 ‘‘(b) SPECIAL RULES FOR STOCK IN OPEN-END REG20 ULATED INVESTMENT COMPANIES.—

21 ‘‘(1) IN GENERAL.—In the case of any disposi22 tion of stock from a covered account—

23 ‘‘(A) the basis of such stock shall be deter24 mined by reference to the average basis of all
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1 of the stock in such account immediately before

2 such disposition, and

3 ‘‘(B) the determination of which stock in

4 such account is so disposed of shall be made on

5 a first-in, first-out, basis.

6 ‘‘(2) COVERED ACCOUNT.—For purposes of this

7 subsection—

8 ‘‘(A) IN GENERAL.—The term ‘covered ac9 count’ means any account of stock in an open10 end regulated investment company if section

11 6045(f) applies to such account.

12 ‘‘(B) ELECTION OUT.—The term ‘covered

13 account’ shall not include any account if, on the

14 taxpayer’s return for his first taxable year in

15 which a disposition from such account occurs,

16 the taxpayer elects to have this subsection not

17 apply to such account.’’

18 (c) COORDINATION WITH WASH SALE RULES.—Sec19 tion 1091 is amended by adding at the end thereof the

20 following new subsection:

21 ‘‘(f) SPECIAL RULES FOR CERTAIN ACCOUNTS IN

22 OPEN-END REGULATED INVESTMENT COMPANIES.—

23 ‘‘(1) IN GENERAL.—In applying this section to

24 a disposition during December of any calendar year

25 of stock from a covered account, any acquisition of
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1 stock after January 15 of the following calendar

2 year shall be disregarded if such acquisition is a re3 sult of a dividend reinvestment pursuant to a divi4 dend reinvestment program established at the time

5 such account was opened or, if later, at least 6

6 months before the date of such disposition.

7 ‘‘(2) DE MINIMIS EXCEPTION.—If

8 ‘‘(A) but for this paragraph, losses from

9 dispositions during December of any calendar

10 year of stock from a covered account would

11 have been disallowed under this section by rea12 son of acquisitions during January of the fol13 lowing calendar year, and

14 ‘‘(B) the amount of such losses which

15 would have been so disallowed does not exceed

16 $25,

17 nothing in this section shall disallow such losses.

18 ‘‘(3) COVERED ACCOUNT.—For purposes of this

19 subsection, the term ‘covered account’ means any ac20 count of stock in an open-end regulated investment

21 company if section 6045(f) applies to such account.’’

22 (d) MODIFICATION OF LOAD BASIS DEFERRAL RULE

23 FOR CERTAIN ACQUISITIONS OCCURRING AFTER JANU24 ARY 15 DECEMBER 31.—
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1 (1) Paragraph (1) of section 852(f) is amended

2 by striking ‘‘subparagraph (C)) shall not’’ and all

3 that follows and inserting ‘‘subparagraph (C)) shall

4 be recaptured as provided in paragraph (2). To the

5 extent such charge is recaptured under paragraph

6 (2), such charge shall be treated as incurred in con7 nection with the acquisition referred to in subpara8 graph (C) (including for purposes of reapplying this

9 paragraph).’’

10 (2) Subsection (f) of section 852 is amended by

11 redesignating paragraph (2) as paragraph (3) and

12 by inserting after paragraph (1) the following new

13 paragraph:

14 ‘‘(2) RECAPTURE.—

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

16 subparagraph (B), any load charge required by

17 paragraph (1) to be recaptured shall not be

18 taken into account in determining the amount

19 of gain or loss on the disposition referred to in

20 paragraph (1)(B).

21 ‘‘(B) SUBSEQUENT ACQUISITIONS OCCUR22 RING AFTER DECEMBER 31.—If—

23 ‘‘(i) the acquisition referred to in

24 paragraph (1)(A) occurs in a calendar

25 year, and
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1 ‘‘(ii) the subsequent acquisition re2 ferred to in paragraph (1)(C) occurs after

3 December 31 of such calendar year,

4 subparagraph (A) shall not apply and the

5 amount of the load charge required by para6 graph (1) to be recaptured shall be included in

7 gross income as short-term capital gain for the

8 taxable year in which the subsequent acquisi9 tion referred to in paragraph (1)(C) occurs.’’

10 (e) TECHNICAL AMENDMENT.—Section 6724 of such

11 Code is amended by adding at the end thereof the follow12 ing new subsection:

13 ‘‘(e) (f) SPECIAL RULE FOR CERTAIN REPORTS

14 WITH RESPECT TO STOCK IN OPEN END REGULATED IN15 VESTMENT COMPANIES.—For purposes of sections

16 6721(e)(2)(B) and 6722(c)(1)(B), the amount required to

17 be reported under section 6045 shall be determined with18 out regard to subsection (f) thereof.’’

19 (f) EFFECTIVE DATE.—

20 (1) IN GENERAL.—Except as provided in para21 graph (2), the amendments made by this section

22 shall apply to returns and statements required for

23 calendar year 1995 and subsequent calendar years.
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1 (2) SUBSECTIONS (b).—The amendments made

2 by subsections (b), (c), and (d) shall apply to dis3 positions after December 31, 1994.

4 SEC. 523. NONRECOGNITION TREATMENT FOR CERTAIN

5 TRANSFERS BY COMMON TRUST FUNDS TO

6 REGULATED INVESTMENT COMPANIES.

7 (a) GENERAL RULE.—Section 584 (relating to com8 mon trust funds) is amended by redesignating subsection

9 (h) as subsection (i) and by inserting after subsection (g)

10 the following new subsection:

11 ‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN

12 TRANSFERS TO REGULATED INVESTMENT COMPANIES.—

13 ‘‘(1) IN GENERAL.—If—

14 ‘‘(A) a common trust fund transfers sub15 stantially all of its assets to a regulated invest16 ment company in exchange solely for stock in

17 such company, and

18 ‘‘(B) such stock is distributed by such

19 common trust fund to participants in such com20 mon trust fund in exchange solely for their in21 terests in such common trust fund,

22 no gain or loss shall be recognized by such common

23 trust fund by reason of such transfer or distribution,

24 and no gain or loss shall be recognized by any par-
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1 ticipant in such common trust fund by reason of

2 such exchange.

3 ‘‘(2) BASIS RULES.—

4 ‘‘(A) REGULATED INVESTMENT COM5 PANY.—The basis of any asset received by a

6 regulated investment company in a transfer re7 ferred to in paragraph (1)(A) shall be the same

8 as it would be in the hands of the common

9 trust fund.

10 ‘‘(B) PARTICIPANTS.—The basis of any

11 stock in a regulated investment company which

12 is received in an exchange referred to in para13 graph (1)(B) shall be the same as that of the

14 property exchanged.

15 ‘‘(3) TREATMENT OF ASSUMPTIONS OF LIABIL16 ITY.—

17 ‘‘(A) IN GENERAL.—In determining wheth18 er the transfer referred to in paragraph (1)(A)

19 is in exchange solely for stock in the regulated

20 investment company, the assumption by such

21 company of a liability of the common trust

22 fund, and the fact that any property trans23 ferred by the common trust fund is subject to

24 a liability, shall be disregarded.
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1 ‘‘(B) SPECIAL RULE WHERE ASSUMED LI2 ABILITIES 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—

9 ‘‘(I) notwithstanding paragraph

10 (1), gain shall be recognized to the

11 common trust fund on such transfer

12 in an amount equal to such excess,

13 ‘‘(II) the basis of the assets re14 ceived by the regulated investment

15 company in such transfer shall be in16 creased by the amount so recognized,

17 and

18 ‘‘(III) any adjustment to the

19 basis of a participant’s interest in the

20 common trust fund as a result of the

21 gain so recognized shall be treated as

22 occurring immediately before the ex23 change referred to in paragraph

24 (1)(B).
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1 ‘‘(ii) ASSUMED LIABILITIES.—For

2 purposes of clause (i), the term ‘assumed

3 liabilities’ means the aggregate of—

4 ‘‘(I) any liability of the common

5 trust fund assumed by the regulated

6 investment company in connection

7 with the transfer referred to in para8 graph (1)(A), and

9 ‘‘(II) any liability to which prop10 erty so transferred is subject.

11 ‘‘(4) COMMON TRUST FUND MUST MEET DIVER12 SIFICATION RULES.—This subsection shall not apply

13 to any common trust fund which would not meet the

14 requirements of section 368(a)(2)(F)(ii) if it were a

15 corporation. For purposes of the preceding sentence,

16 Government securities shall not be treated as securi17 ties of an issuer in applying the 25-percent and 50-

18 percent test and such securities shall not be excluded

19 for purposes of determining total assets under clause

20 (iv) of section 368(a)(2)(F).’’

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

22 subsection (a) shall apply to transfers after the date of

23 the enactment of this Act.
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1 Subtitle D—Tax-Exempt Bond

2 Provisions

3 SEC. 531. REPEAL OF $100,000 LIMITATION ON UNSPENT

4 PROCEEDS UNDER 1-YEAR EXCEPTION FROM

5 REBATE.

6 Subclause (I) of section 148(f)(4)(B)(ii) (relating to

7 additional period for certain bonds) is amended by striking

8 ‘‘the lesser of 5 percent of the proceeds of the issue or

9 $100,000’’ and inserting ‘‘5 percent of the proceeds of the

10 issue’’.

11 SEC. 532. EXCEPTION FROM REBATE FOR EARNINGS ON

12 BONA FIDE DEBT SERVICE FUND UNDER

13 CONSTRUCTION BOND RULES.

14 Subparagraph (C) of section 148(f)(4) is amended by

15 adding at the end thereof the following new clause:

16 ‘‘(xvii) TREATMENT OF BONA FIDE

17 DEBT SERVICE FUNDS.—If the spending

18 requirements of clause (ii) are met with re19 spect to the available construction proceeds

20 of a construction issue, then paragraph (2)

21 shall not apply to earnings on a bona fide

22 debt service fund for such issue.’’
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1 SEC. 533. REPEAL OF DEBT SERVICE-BASED LIMITATION

2 ON INVESTMENT IN CERTAIN NONPURPOSE

3 INVESTMENTS.

4 Subsection (d) of section 148 (relating to special

5 rules for reasonably required reserve or replacement fund)

6 is amended by striking paragraph (3).

7 SEC. 534. REPEAL OF EXPIRED PROVISIONS.

8 (a) Paragraph (2) of section 148(c) is amended by

9 striking subparagraph (B) and by redesignating subpara10 graphs (C), (D), and (E) as subparagraph (B), (C), and

11 (D), respectively.

12 (b) Paragraph (4) of section 148(f) is amended by

13 striking subparagraph (E).

14 SEC. 535. CLARIFICATION OF INVESTMENT–TYPE PROP15 ERTY.

16 Subparagraph (D) of section 148(b)(2) is amended

17 to read as follows:

18 ‘‘(D) any investment-type property, or’’.

19 SEC. 536. EFFECTIVE DATES.

20 (a) IN GENERAL.—Except as provided in subsection

21 (b), the amendments made by this subtitle shall apply to

22 bonds issued after the date of the enactment of this Act.

23 (b) INVESTMENT-TYPE PROPERTY.—The amend24 ment made by section 535 shall take effect as if included

25 in the amendments made by section 1301 of the Tax Re26 form Act of 1986.
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1 Subtitle E—Insurance Provisions

2 SEC. 541. TREATMENT OF CERTAIN INSURANCE CON3 TRACTS ON RETIRED LIVES.

4 (a) GENERAL RULE.—

5 (1) Paragraph (2) of section 817(d) (defining

6 variable contract) is amended by striking ‘‘or’’ at the

7 end of subparagraph (A), by striking ‘‘and’’ at the

8 end of subparagraph (B) and inserting ‘‘or’’, and by

9 inserting after subparagraph (B) the following new

10 subparagraph:

11 ‘‘(C) provides for funding of insurance on

12 retired lives as described in section 807(c)(6),

13 and’’.

14 (2) Paragraph (3) of section 817(d) is amended

15 by striking ‘‘or’’ at the end of subparagraph (A), by

16 striking the period at the end of subparagraph (B)

17 and inserting ‘‘, or’’, and by inserting after subpara18 graph (B) the following new subparagraph:

19 ‘‘(C) in the case of funds held under a con20 tract described in paragraph (2)(C), the

21 amounts paid in, or the amounts paid out, re22 flect the investment return and the market

23 value of the segregated asset account.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1992.

4 SEC. 542. TREATMENT OF MODIFIED GUARANTEED CON5 TRACTS.

6 (a) GENERAL RULE.—Subpart E of part I of sub7 chapter L of chapter 1 (relating to definitions and special

8 rules) is amended by inserting after section 817 the follow9 ing new section:

10 ‘‘SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED

11 CONTRACTS.

12 ‘‘(a) COMPUTATION OF RESERVES.—In the case of

13 a modified guaranteed contract, clause (ii) of section

14 807(e)(1)(A) shall not apply.

15 ‘‘(b) SEGREGATED ASSETS UNDER MODIFIED GUAR16 ANTEED CONTRACTS MARKED TO MARKET.—

17 ‘‘(1) IN GENERAL.—In the case of any life in18 surance company, for purposes of this subtitle—

19 ‘‘(A) Any gain or loss with respect to a

20 segregated asset shall be treated as ordinary in21 come or loss, as the case may be.

22 ‘‘(B) If any segregated asset is held by

23 such company as of the close of any taxable

24 year—
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1 ‘‘(i) such company shall recognize

2 gain or loss as if such asset were sold for

3 its fair market value on the last business

4 day of such taxable year, and

5 ‘‘(ii) any such gain or loss shall be

6 taken into account for such taxable year.

7 Proper adjustment shall be made in the amount

8 of any gain or loss subsequently realized for

9 gain or loss taken into account under the pre10 ceding sentence. The Secretary may provide by

11 regulations for the application of this subpara12 graph at times other than the times provided in

13 this subparagraph.

14 ‘‘(2) SEGREGATED ASSET.—For purposes of

15 paragraph (1), the term ‘segregated asset’ means

16 any asset held as part of a segregated account re17 ferred to in subsection (d)(1) under a modified guar18 anteed contract.

19 ‘‘(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE

20 RESERVES.—For purposes of applying section

21 816(b)(1)(A) to any modified guaranteed contract, an as22 sumed rate of interest shall include a rate of interest de23 termined, from time to time, with reference to a market

24 rate of interest.
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1 ‘‘(d) MODIFIED GUARANTEED CONTRACT DE2 FINED.—For purposes of this section, the term ‘modified

3 guaranteed contract’ means a contract not described in

4 section 817—

5 ‘‘(1) all or part of the amounts received under

6 which are allocated to an account which, pursuant to

7 State law or regulation, is segregated from the gen8 eral asset accounts of the company and is valued

9 from time to time with reference to market values,

10 ‘‘(2) which—

11 ‘‘(A) provides for the payment of annuities,

12 ‘‘(B) is a life insurance contract, or

13 ‘‘(C) is a pension plan contract which is

14 not a life, accident, or health, property, cas15 ualty, or liability contract,

16 ‘‘(3) for which reserves are valued at market for

17 annual statement purposes, and

18 ‘‘(4) which provides for a net surrender value or

19 a policyholder’s fund (as defined in section

20 807(e)(1)).

21 ‘‘(e) REGULATIONS.—The Secretary may prescribe

22 regulations—

23 ‘‘(1) to provide for the treatment of market

24 value adjustments under sections 72, 7702, 7702A,

25 and 807(e)(1)(B),
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1 ‘‘(2) to determine the interest rates applicable

2 under sections 807(c)(3), 807(d)(2)(B), and 812

3 with respect to a modified guaranteed contract an4 nually, in a manner appropriate for modified guar5 anteed contracts and, to the extent appropriate for

6 such a contract, to modify or waive the applicability

7 of section 811(d),

8 ‘‘(3) to provide rules to limit ordinary gain or

9 loss treatment to assets constituting reserves for

10 modified guaranteed contracts (and not other assets)

11 of the company,

12 ‘‘(4) to provide appropriate treatment of trans13 fers of assets to and from the segregated account,

14 and

15 ‘‘(5) as may be necessary or appropriate to

16 carry out the purposes of this section.’’

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

18 for subpart E of part I of subchapter L of chapter 1 is

19 amended by inserting after the item relating to section

20 817 the following new item:

‘‘Sec. 817A. Special rules for modified guaranteed contracts.’’

21 (c) EFFECTIVE DATE.—

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

23 this section shall apply to taxable years beginning

24 after December 31, 1992.
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1 (2) TREATMENT OF NET ADJUSTMENTS.—In

2 the case of any taxpayer required by the amend3 ments made by this section to change its calculation

4 of reserves to take into account market value adjust5 ments and to mark segregated assets to market for

6 any taxable year—

7 (A) such changes shall be treated as a

8 change in method of accounting initiated by the

9 taxpayer,

10 (B) such changes shall be treated as made

11 with the consent of the Secretary, and

12 (C) the adjustments required by reason of

13 section 481 of the Internal Revenue Code of

14 1986 shall be taken into account as ordinary in15 come or loss by the taxpayer for the taxpayer’s

16 first taxable year beginning after December 31,

17 1992.

18 Subtitle F—Other Provisions

19 SEC. 551. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH

20 RESPECT TO DECEASED PARTNER, ETC.

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

22 706(c)(2) (relating to disposition of entire interest) is

23 amended to read as follows:

24 ‘‘(A) DISPOSITION OF ENTIRE INTER25 EST.—The taxable year of a partnership shall
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1 close with respect to a partner whose entire in2 terest in the partnership terminates (whether

3 by reason of death, liquidation, or otherwise).’’

4 (b) CLERICAL AMENDMENT.—The paragraph head5 ing for paragraph (2) of section 706(c) is amended to read

6 as follows:

7 ‘‘(2) TREATMENT OF DISPOSITIONS.—’’.

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

9 this section shall apply to partnership taxable years begin10 ning after December 31, 1993.

11 SEC. 552. MODIFICATION OF CREDIT FOR PRODUCING

12 FUEL FROM A NONCONVENTIONAL SOURCE.

13 (a) IN GENERAL.—Subparagraph (A) of section

14 29(c)(2) (relating to gas from geopressured brine, etc.) is

15 amended by adding at the end the following new sentence:

16 ‘‘If the Federal Energy Regulatory Commission ceases to

17 make the determinations described in the preceding sen18 tence, the Secretary shall make such determinations in ac19 cordance with section 503 of such Act.’’

20 (b) CONFORMING AMENDMENT.—Section

21 29(c)(2)(A) is amended by inserting ‘‘(as in effect before

22 its repeal by the Natural Gas Wellhead Decontrol Act of

23 1989)’’ after ‘‘Natural Gas Policy Act of 1978’’.

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

25 this section shall take effect on January 1, 1993.
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1 TITLE VI—ESTATE AND GIFT TAX

2 PROVISIONS

3 SEC. 601. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS

4 OF RECOVERY.

5 (a) AMENDMENT TO SECTION 2207A.—Paragraph

6 (2) of section 2207A(a) (relating to right of recovery in

7 the case of certain marital deduction property) is amended

8 to read as follows:

9 ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.—

10 Paragraph (1) shall not apply with respect to any

11 property to the extent that the decedent in his will

12 (or a revocable trust) specifically indicates an intent

13 to waive any right of recovery under this subchapter

14 with respect to such property.’’

15 (b) AMENDMENT TO SECTION 2207B.—Paragraph

16 (2) of section 2207B(a) (relating to right of recovery

17 where decedent retained interest) is amended to read as

18 follows:

19 ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.—

20 Paragraph (1) shall not apply with respect to any

21 property to the extent that the decedent in his will

22 (or a revocable trust) specifically indicates an intent

23 to waive any right of recovery under this subchapter

24 with respect to such property.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to the estates of dece3 dents dying after the date of the enactment of this Act.

4 SEC. 602. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF

5 DECEDENT’S DEATH.

6 (a) GENERAL RULE.—Section 2035 is amended to

7 read as follows:

8 ‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE

9 WITHIN 3 YEARS OF DECEDENT’S DEATH.

10 ‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS

11 ESTATE.—If—

12 ‘‘(1) the decedent made a transfer (by trust or

13 otherwise) of an interest in any property, or relin14 quished a power with respect to any property, during

15 the 3-year period ending on the date of the dece16 dent’s death, and

17 ‘‘(2) the value of such property (or an interest

18 therein) would have been included in the decedent’s

19 gross estate under section 2036, 2037, 2038, or

20 2042 if such transferred interest or relinquished

21 power had been retained by the decedent on the date

22 of his death,

23 the value of the gross estate shall include the value of any

24 property (or interest therein) which would have been so

25 included.
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1 ‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DUR2 ING 3 YEARS BEFORE DECEDENT’S DEATH.—The

3 amount of the gross estate (determined without regard to

4 this subsection) shall be increased by the amount of any

5 tax paid under chapter 12 by the decedent or his estate

6 on any gift made by the decedent or his spouse during

7 the 3-year period ending on the date of the decedent’s

8 death.

9 ‘‘(c) OTHER RULES RELATING TO TRANSFERS

10 WITHIN 3 YEARS OF DEATH.—

11 ‘‘(1) IN GENERAL.—For purposes of—

12 ‘‘(A) section 303(b) (relating to distribu13 tions in redemption of stock to pay death

14 taxes),

15 ‘‘(B) section 2032A (relating to special

16 valuation of certain farms, etc., real property),

17 and

18 ‘‘(C) subchapter C of chapter 64 (relating

19 to lien for taxes),

20 the value of the gross estate shall include the value

21 of all property to the extent of any interest therein

22 of which the decedent has at any time made a trans23 fer, by trust or otherwise, during the 3-year period

24 ending on the date of the decedent’s death.
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1 ‘‘(2) COORDINATION WITH SECTION 6166.—An

2 estate shall be treated as meeting the 35 percent of

3 adjusted gross estate requirement of section

4 6166(a)(1) only if the estate meets such requirement

5 both with and without the application of paragraph

6 (1).

7 ‘‘(3) SMALL TRANSFERS.—Paragraph (1) shall

8 not apply to any transfer (other than a transfer with

9 respect to a life insurance policy) made during a cal10 endar year to any donee if the decedent was not re11 quired by section 6019 (other than by reason of sec12 tion 6019(a)(2)) to file any gift tax return for such

13 year with respect to transfers to such donee.

14 ‘‘(d) EXCEPTION.—Subsection (a) shall not apply to

15 any bona fide sale for an adequate and full consideration

16 in money or money’s worth.

17 ‘‘(e) TREATMENT OF CERTAIN TRANSFERS FROM

18 REVOCABLE TRUSTS.—For purposes of this section and

19 section 2038, any transfer from any portion of a trust with

20 respect to which the decedent was the grantor during any

21 period when the decedent held the power to revest in the

22 decedent title to such portion shall be treated as a transfer

23 made directly by the decedent.’’

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

25 for part III of subchapter A of chapter 11 is amended
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1 by striking ‘‘gifts’’ in the item relating to section 2035

2 and inserting ‘‘certain gifts’’.

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

4 this section shall apply to the estates of decedents dying

5 after the date of the enactment of this Act.

6 SEC. 603. CLARIFICATION OF QUALIFIED TERMINABLE IN7 TEREST RULES.

8 (a) GENERAL RULE.—

9 (1) ESTATE TAX.—Subparagraph (B) of section

10 2056(b)(7) (defining qualified terminable interest

11 property) is amended by adding at the end thereof

12 the following new clause:

13 ‘‘(v)(i) (vi) TREATMENT OF CERTAIN

14 INCOME DISTRIBUTIONS.—An income in15 terest shall not fail to qualify as a qualified

16 income interest for life solely because in17 come for the period after the last distribu18 tion date and on or before the date of the

19 surviving spouse’s death is not required to

20 be distributed to the surviving spouse or to

21 the estate of the surviving spouse.’’

22 (2) GIFT TAX.—Paragraph (3) of section

23 2523(f) is amended by striking ‘‘and (iv)’’ and in24 serting ‘‘(iv), and (vi)’’.
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1 (b) CLARIFICATION OF SUBSEQUENT INCLUSIONS.—

2 Section 2044 is amended by adding at the end thereof the

3 following new subsection:

4 ‘‘(d) CLARIFICATION OF INCLUSION OF CERTAIN IN5 COME.—The amount included in the gross estate under

6 subsection (a) shall include the amount of any income

7 from the property to which this section applies for the pe8 riod after the last distribution date and on or before the

9 date of the decedent’s death if such income is not other10 wise included in the decedent’s gross estate.’’

11 (c) EFFECTIVE DATE.—

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

13 this section shall apply with respect to the estates of

14 decedents dying, and gifts made, after the date of

15 the enactment of this Act.

16 (2) APPLICATION OF SECTION 2044 TO TRANS17 FERS BEFORE DATE OF ENACTMENT.—In the case

18 of the estate of any decedent dying after the date of

19 the enactment of this Act, if there was a transfer of

20 property on or before such date—

21 (A) such property shall not be included in

22 the gross estate of the decedent under section

23 2044 of the Internal Revenue Code of 1986 if

24 no prior marital deduction was allowed with re-
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1 spect to such a transfer of such property to the

2 decedent, but

3 (B) such property shall be so included if

4 such a deduction was allowed.

5 SEC. 604. TRANSITIONAL RULE UNDER SECTION 2056A.

6 (a) GENERAL RULE.—In the case of any trust cre7 ated under an instrument executed before the date of the

8 enactment of the Revenue Reconciliation Act of 1990,

9 such trust shall be treated as meeting the requirements

10 of paragraph (1) of section 2056A(a) of the Internal Reve11 nue Code of 1986 if the trust instrument requires that

12 all trustees of the trust be individual citizens of the United

13 States or domestic corporations.

14 (b) EFFECTIVE DATE.—The provisions of subsection

15 (a) shall take effect as if included in the provisions of sec16 tion 11702(g) of the Revenue Reconciliation Act of 1990.

17 SEC. 605. OPPORTUNITY TO CORRECT CERTAIN FAILURES

18 UNDER SECTION 2032A.

19 (a) GENERAL RULE.—Paragraph (3) of section

20 2032A(d) (relating to modification of election and agree21 ment to be permitted) is amended to read as follows:

22 ‘‘(3) MODIFICATION OF ELECTION AND AGREE23 MENT TO BE PERMITTED.—The Secretary shall pre24 scribe procedures which provide that in any case in

25 which the executor makes an election under para-
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1 graph (1) (and submits the agreement referred to in

2 paragraph (2)) within the time prescribed therefor,

3 but—

4 ‘‘(A) the notice of election, as filed, does

5 not contain all required information, or

6 ‘‘(B) signatures of 1 or more persons re7 quired to enter into the agreement described in

8 paragraph (2) are not included on the agree9 ment as filed, or the agreement does not con10 tain all required information,

11 the executor will have a reasonable period of time

12 (not exceeding 90 days) after notification of such

13 failures to provide such information or signatures.’’

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

15 subsection (a) shall apply to the estates of decedents dying

16 after the date of the enactment of this Act.

17 TITLE VII—EXCISE TAX

18 SIMPLIFICATION

19 Subtitle A—Provisions Related to

20 Distilled Spirits, Wines, and Beer

21 SEC. 701. CREDIT OR REFUND FOR IMPORTED BOTTLED

22 DISTILLED SPIRITS RETURNED TO DIS23 TILLED SPIRITS PLANT.

24 (a) IN GENERAL.—Paragraph (1) of section 5008(c)

25 (relating to distilled spirits returned to bonded premises)
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1 is amended by striking ‘‘withdrawn from bonded premises

2 on payment or determination of tax’’ and inserting ‘‘on

3 which tax has been determined or paid’’.

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

5 subsection (a) shall take effect at the beginning of the first

6 calendar quarter beginning more than 180 days after the

7 date of the enactment of this Act.

8 SEC. 702. AUTHORITY TO CANCEL OR CREDIT EXPORT

9 BONDS WITHOUT SUBMISSION OF RECORDS.

10 (a) IN GENERAL.—Subsection (c) of section 5175

11 (relating to export bonds) is amended by striking ‘‘on the

12 submission of’’ and all that follows and inserting ‘‘if there

13 is such proof of exportation as the Secretary may by regu14 lations require.’’

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

16 subsection (a) shall take effect at the beginning of the first

17 calendar quarter beginning more than 180 days after the

18 date of the enactment of this Act.

19 SEC. 703. REPEAL OF REQUIRED MAINTENANCE OF

20 RECORDS ON PREMISES OF DISTILLED SPIR21 ITS PLANT.

22 (a) IN GENERAL.—Subsection (c) of section 5207

23 (relating to records and reports) is amended by striking

24 ‘‘shall be kept on the premises where the operations cov25 ered by the record are carried on and’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall take effect at the beginning of the first

3 calendar quarter beginning more than 180 days after the

4 date of the enactment of this Act.

5 SEC. 704. FERMENTED MATERIAL FROM ANY BREWERY

6 MAY BE RECEIVED AT A DISTILLED SPIRITS

7 PLANT.

8 (a) IN GENERAL.—Paragraph (2) of section 5222(b)

9 (relating to production, receipt, removal, and use of distill10 ing materials) is amended to read as follows:

11 ‘‘(2) beer conveyed without payment of tax

12 from brewery premises, beer which has been lawfully

13 removed from brewery premises upon determination

14 of tax, or’’.

15 (b) CLARIFICATION OF AUTHORITY TO PERMIT RE16 MOVAL OF BEER WITHOUT PAYMENT OF TAX FOR USE

17 AS DISTILLING MATERIAL.—Section 5053 (relating to ex18 emptions) is amended by redesignating subsection (f) as

19 subsection (i) and by inserting after subsection (e) the fol20 lowing new subsection:

21 ‘‘(f) REMOVAL FOR USE AS DISTILLING MATE22 RIAL.—Subject to such regulations as the Secretary may

23 prescribe, beer may be removed from a brewery without

24 payment of tax to any distilled spirits plant for use as

25 distilling material.’’
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1 (c) CLARIFICATION OF REFUND AND CREDIT OF

2 TAX.—Section 5056 (relating to refund and credit of tax,

3 or relief from liability) is amended—

4 (1) by redesignating subsection (c) as sub5 section (d) and by inserting after subsection (b) the

6 following new subsection:

7 ‘‘(c) BEER RECEIVED AT A DISTILLED SPIRITS

8 PLANT.—Any tax paid by any brewer on beer produced

9 in the United States may be refunded or credited to the

10 brewer, without interest, or if the tax has not been paid,

11 the brewer may be relieved of liability therefor, under reg12 ulations as the Secretary may prescribe, if such beer is

13 received on the bonded premises of a distilled spirits plant

14 pursuant to the provisions of section 5222(b)(2), for use

15 in the production of distilled spirits.’’, and

16 (2) by striking ‘‘or rendering unmerchantable’’

17 in subsection (d) (as so redesignated) and inserting

18 ‘‘rendering unmerchantable, or receipt on the bond19 ed premises of a distilled spirits plant’’.

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

21 this section shall take effect at the beginning of the first

22 calendar quarter beginning more than 180 days after the

23 date of the enactment of this Act.
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1 SEC. 705. REPEAL OF REQUIREMENT FOR WHOLESALE

2 DEALERS IN LIQUORS TO POST SIGN.

3 (a) IN GENERAL.—Section 5115 (relating to sign re4 quired on premises) is hereby repealed.

5 (b) CONFORMING AMENDMENTS.—

6 (1) Subsection (a) of section 5681 is amended

7 by striking ‘‘, and every wholesale dealer in liquors,’’

8 and by striking ‘‘section 5115(a) or’’.

9 (2) Subsection (c) of section 5681 is amend10 ed—

11 (A) by striking ‘‘or wholesale liquor estab12 lishment, on which no sign required by section

13 5115(a) or’’ and inserting ‘‘on which no sign

14 required by’’, and

15 (B) by striking ‘‘or wholesale liquor estab16 lishment, or who’’ and inserting ‘‘or who’’.

17 (3) The table of sections for subpart D of part

18 II of subchapter A of chapter 51 is amended by

19 striking the item relating to section 5115.

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

21 this section shall take effect on the date of the enactment

22 of this Act.
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1 SEC. 706. REFUND OF TAX TO WINE RETURNED TO BOND

2 NOT LIMITED TO UNMERCHANTABLE WINE.

3 (a) IN GENERAL.—Subsection (a) of section 5044

4 (relating to refund of tax on unmerchantable wine) is

5 amended by striking ‘‘as unmerchantable’’.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 5361 is amended by striking

8 ‘‘unmerchantable’’.

9 (2) The section heading for section 5044 is

10 amended by striking ‘‘UNMERCHANTABLE’’.

11 (3) The item relating to section 5044 in the

12 table of sections for subpart C of part I of sub13 chapter A of chapter 51 is amended by striking

14 ‘‘unmerchantable’’.

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

16 this section shall take effect at the beginning of the first

17 calendar quarter beginning more than 180 days after the

18 date of the enactment of this Act.

19 SEC. 707. USE OF ADDITIONAL AMELIORATING MATERIAL

20 IN CERTAIN WINES.

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

22 5384(b)(2) (relating to ameliorated fruit and berry wines)

23 is amended by striking ‘‘loganberries, currants, or goose24 berries,’’ and inserting ‘‘any fruit or berry with a natural

25 fixed acid of 20 parts per thousand or more (before any

26 correction of such fruit or berry)’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall take effect at the beginning of the first

3 calendar quarter beginning more than 180 days after the

4 date of the enactment of this Act.

5 SEC. 708. DOMESTICALLY PRODUCED BEER MAY BE WITH6 DRAWN FREE OF TAX FOR USE OF FOREIGN

7 EMBASSIES, LEGATIONS, ETC.

8 (a) IN GENERAL.—Section 5053 (relating to exemp9 tions) is amended by inserting after subsection (f) the fol10 lowing new subsection:

11 ‘‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES,

12 LEGATIONS, ETC.—

13 ‘‘(1) IN GENERAL.—Subject to such regulations

14 as the Secretary may prescribe—

15 ‘‘(A) beer may be withdrawn from the

16 brewery without payment of tax for transfer to

17 any customs bonded warehouse for entry pend18 ing withdrawal therefrom as provided in sub19 paragraph (B), and

20 ‘‘(B) beer entered into any customs bonded

21 warehouse under subparagraph (A) may be

22 withdrawn for consumption in the United

23 States by, and for the official and family use of,

24 such foreign governments, organizations, and
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1 individuals as are entitled to withdraw imported

2 beer from such warehouses free of tax.

3 Beer transferred to any customs bonded warehouse

4 under subparagraph (A) shall be entered, stored,

5 and accounted for in such warehouse under such

6 regulations and bonds as the Secretary may pre7 scribe, and may be withdrawn therefrom by such

8 governments, organizations, and individuals free of

9 tax under the same conditions and procedures as im10 ported beer.

11 ‘‘(2) OTHER RULES TO APPLY.—Rules similar

12 to the rules of paragraphs (2) and (3) of section

13 5362(e) of such section shall apply for purposes of

14 this subsection.’’

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

16 subsection (a) shall take effect at the beginning of the first

17 calendar quarter beginning more than 180 days after the

18 date of the enactment of this Act.

19 SEC. 709. BEER MAY BE WITHDRAWN FREE OF TAX FOR

20 DESTRUCTION.

21 (a) IN GENERAL.—Section 5053 is amended by in22 serting after subsection (g) the following new subsection:

23 ‘‘(h) REMOVALS FOR DESTRUCTION.—Subject to

24 such regulations as the Secretary may prescribe, beer may
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1 be removed from the brewery without payment of tax for

2 destruction.’’

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

4 subsection (a) shall take effect at the beginning of the first

5 calendar quarter beginning more than 180 days after the

6 date of the enactment of this Act.

7 SEC. 710. AUTHORITY TO ALLOW DRAWBACK ON EX8 PORTED BEER WITHOUT SUBMISSION OF

9 RECORDS.

10 (a) IN GENERAL.—The first sentence of section 5055

11 (relating to drawback of tax on beer) is amended by strik12 ing ‘‘found to have been paid’’ and all that follows and

13 inserting ‘‘paid on such beer if there is such proof of ex14 portation as the Secretary may by regulations require.’’

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

16 subsection (a) shall take effect at the beginning of the first

17 calendar quarter beginning more than 180 days after the

18 date of the enactment of this Act.

19 SEC. 711. TRANSFER TO BREWERY OF BEER IMPORTED IN

20 BULK WITHOUT PAYMENT OF TAX.

21 (a) IN GENERAL.—Part II of subchapter G of chap22 ter 51 is amended by adding at the end thereof the follow23 ing new section:
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1 ‘‘SEC. 5418. BEER IMPORTED IN BULK.

2 ‘‘Beer imported or brought into the United States in

3 bulk containers may, under such regulations as the Sec4 retary may prescribe, be withdrawn from customs custody

5 and transferred in such bulk containers to the premises

6 of a brewery without payment of the internal revenue tax

7 imposed on such beer. The proprietor of a brewery to

8 which such beer is transferred shall become liable for the

9 tax on the beer withdrawn from customs custody under

10 this section upon release of the beer from customs custody,

11 and the importer, or the person bringing such beer into

12 the United States, shall thereupon be relieved of the liabil13 ity for such tax.’’

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

15 for such part II is amended by adding at the end thereof

16 the following new item:

‘‘Sec. 5418. Beer imported in bulk.’’

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

18 this section shall take effect at the beginning of the first

19 calendar quarter beginning more than 180 days after the

20 date of the enactment of this Act.
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1 Subtitle B—Other Excise Tax

2 Provisions

3 SEC. 721. AUTHORITY TO GRANT EXEMPTIONS FROM REG4 ISTRATION REQUIREMENTS.

5 (a) IN GENERAL.—The first sentence of section 4222

6 (relating to registration) is amended to read as follows:

7 ‘‘Except as provided in subsection (b), section 4221 shall

8 not apply with respect to the sale of any article by or to

9 any person who is required by the Secretary to be reg10 istered under this section and who is not so registered.’’

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

12 subsection (a) shall apply to sales after the 180th day

13 after the date of the enactment of this Act.

14 SEC. 722. REPEAL OF EXPIRED PROVISIONS.

15 (a) PIGGY-BACK TRAILERS.—Section 4051 is amend16 ed by striking subsection (d) and by redesignating sub17 section (e) as subsection (d).

18 (b) DEEP SEABED MINING.—

19 (1) Subchapter F of chapter 36 (relating to tax

20 on removal of hard mineral resources from deep sea21 bed) is hereby repealed.

22 (2) The table of subchapters for chapter 36 is

23 amended by striking the item relating to subchapter

24 F.
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1 TITLE VIII—ADMINISTRATIVE

2 PROVISIONS

3 Subtitle A—General Provisions

4 SEC. 801. USE OF REPRODUCTIONS OF RETURNS STORED

5 IN DIGITAL IMAGE FORMAT.

6 (a) IN GENERAL.—Paragraph (2) of section 6103(p)

7 (relating to procedure and recordkeeping) is amended by

8 adding at the end thereof the following new subparagraph:

9 ‘‘(D) REPRODUCTION FROM DIGITAL IM10 AGES.—For purposes of this paragraph, the

11 term ‘reproduction’ includes a reproduction

12 from digital images.’’

13 (b) STUDY.—The Comptroller General of the United

14 States shall conduct a study of available digital image

15 technology for the purpose of determining the extent to

16 which reproductions of documents stored using that tech17 nology accurately reflect the data on the original document

18 and the appropriate period for retaining the original docu19 ment. Not later than 1 year after the date of the enact20 ment of this Act, a report on the results of such study

21 shall be submitted to the Committee on Ways and Means

22 of the House of Representatives and the Committee on

23 Finance of the Senate.
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1 SEC. 802. REPEAL OF AUTHORITY TO DISCLOSE WHETHER

2 PROSPECTIVE JUROR HAS BEEN AUDITED.

3 (a) IN GENERAL.—Subsection (h) of section 6103

4 (relating to disclosure to certain Federal officers and em5 ployees for purposes of tax administration, etc.) is amend6 ed by striking paragraph (5) and by redesignating para7 graph (6) as paragraph (5).

8 (b) CONFORMING AMENDMENT.—Paragraph (4) of

9 section 6103(p) is amended by striking ‘‘(h)(6)’’ each

10 place it appears and inserting ‘‘(h)(5)’’.

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

12 this section shall apply to judicial proceedings pending on,

13 or commenced after, the date of the enactment of this Act.

14 SEC. 803. REPEAL OF SPECIAL AUDIT PROVISIONS FOR

15 SUBCHAPTER S ITEMS.

16 (a) GENERAL RULE.—Subchapter D of chapter 63

17 (relating to tax treatment of subchapter S items) is hereby

18 repealed.

19 (b) CONSISTENT TREATMENT REQUIRED.—Section

20 6037 (relating to return of S corporation) is amended by

21 adding at the end thereof the following new subsection:

22 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST23 ENT WITH CORPORATE RETURN OR SECRETARY NOTI24 FIED OF INCONSISTENCY.—

25 ‘‘(1) IN GENERAL.—A shareholder of an S cor26 poration shall, on such shareholder’s return, treat a
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1 subchapter S item in a manner which is consistent

2 with the treatment of such item on the corporate

3 return.

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

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

7 subchapter S item, if—

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

10 his return is (or may be) inconsistent with

11 the treatment of the item on the corporate

12 return, or

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

14 return, and

15 ‘‘(ii) the shareholder files with the

16 Secretary a statement identifying the in17 consistency,

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

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

21 treated as having complied with clause (ii) of

22 subparagraph (A) with respect to a subchapter

23 S item if the shareholder—

24 ‘‘(i) demonstrates to the satisfaction

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

3 item on the schedule furnished to the

4 shareholder by the corporation, and

5 ‘‘(ii) elects to have this paragraph

6 apply with respect to that item.

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

8 case—

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

10 of paragraph (2), and

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

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

13 (2),

14 any adjustment required to make the treatment of

15 the items by such shareholder consistent with the

16 treatment of the items on the corporate return shall

17 be treated as arising out of mathematical or clerical

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

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

20 any assessment referred to in the preceding sen21 tence.

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

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

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

3 the shareholder level.

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

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

negligence in connection with, or disregard of, the

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

6 (c) CONFORMING AMENDMENTS.—

7 (1) Section 1366 is amended by striking sub8 section (g).

9 (2) Subsection (b) of section 6233 is amended

10 to read as follows:

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

14 extent provided in regulations, rules similar to the rules

15 of subsection (a) shall apply.’’

16 (3) The table of subchapters for chapter 63 is

17 amended by striking the item relating to subchapter

18 D.

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

20 this section shall apply to taxable years ending after the

21 date of the enactment of this Act.
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1 SEC. 804. CLARIFICATION OF STATUTE OF LIMITATIONS.

2 (a) IN GENERAL.—Subsection (a) of section 6501

3 (relating to limitations on assessment and collection) is

4 amended by adding at the end thereof the following new

5 sentence: ‘‘For purposes of this chapter, the term ‘return’

6 means the return required to be filed by the taxpayer (and

7 does not include a return of any person from whom the

8 taxpayer has received an item of income, gain, loss, deduc9 tion, or credit).’’

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

11 this section shall apply to taxable years beginning after

12 the date of the enactment of this Act.

13 SEC. 805. CERTAIN NOTICES DISREGARDED UNDER PROVI14 SION INCREASING INTEREST RATE ON LARGE

15 CORPORATE UNDERPAYMENTS.

16 (a) GENERAL RULE.—Subparagraph (B) of section

17 6621(c)(2) (defining applicable date) is amended by add18 ing at the end thereof the following new clause:

19 ‘‘(iii) EXCEPTION FOR LETTERS OR

20 NOTICES INVOLVING SMALL AMOUNTS.—

21 For purposes of this paragraph, any letter

22 or notice shall be disregarded if the

23 amount of the deficiency or proposed defi24 ciency (or the assessment or proposed as25 sessment) set forth in such letter or notice

26 is not greater than $100,000 (determined
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1 by not taking into account any interest,

2 penalties, or additions to tax).’’

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

4 subsection (a) shall apply for purposes of determining in5 terest for periods after December 31, 1993.

6 Subtitle B—Tax Court Procedures

7 SEC. 811. OVERPAYMENT DETERMINATIONS OF TAX

8 COURT.

9 (a) APPEAL OF ORDER.—Paragraph (2) of section

10 6512(b) (relating to jurisdiction to enforce) is amended

11 by adding at the end the following new sentence: ‘‘An

12 order of the Tax Court disposing of a motion under this

13 paragraph shall be reviewable in the same manner as a

14 decision of the Tax Court, but only with respect to the

15 matters determined in such order.’’

16 (b) DENIAL OF JURISDICTION REGARDING CERTAIN

17 CREDITS AND REDUCTIONS.—Subsection (b) of section

18 6512 (relating to overpayment determined by Tax Court)

19 is amended by adding at the end the following new

20 paragraph:

21 ‘‘(4) DENIAL OF JURISDICTION REGARDING

22 CERTAIN CREDITS AND REDUCTIONS.—The Tax

23 Court shall have no jurisdiction under this sub24 section to restrain or review any credit or reduction

25 made by the Secretary under section 6402.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect on the date of the enactment

3 of this Act.

4 SEC. 812. AWARDING OF ADMINISTRATIVE COSTS.

5 (a) RIGHT TO APPEAL TAX COURT DECISION.—Sub6 section (f) of section 7430 (relating to right of appeal)

7 is amended by adding at the end the following new

8 paragraph:

9 ‘‘(3) APPEAL OF TAX COURT DECISION.—An

10 order of the Tax Court disposing of a petition under

11 paragraph (2) shall be reviewable in the same man12 ner as a decision of the Tax Court, but only with re13 spect to the matters determined in such order.’’

14 (b) PERIOD FOR APPLYING TO IRS FOR COSTS.—

15 Subsection (b) of section 7430 (relating to limitations) is

16 amended by adding at the end the following new

17 paragraph:

18 ‘‘(5) PERIOD FOR APPLYING TO IRS FOR AD19 MINISTRATIVE COSTS.—An award may be made

20 under subsection (a) by the Internal Revenue Serv21 ice for reasonable administrative costs only if the

22 prevailing party files an application with the Inter23 nal Revenue Service for such costs before the 91st

24 day after the date on which the final decision of the
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1 Internal Revenue Service as to the determination of

2 the tax, interest, or penalty is mailed to such party.’’

3 (c) PERIOD FOR PETITIONING OF TAX COURT FOR

4 REVIEW OF DENIAL OF COSTS.—Paragraph (2) of section

5 7430(f) (relating to right of appeal) is amended—

6 (1) by striking ‘‘appeal to’’ and inserting ‘‘the

7 filing of a petition for review with’’, and

8 (2) by adding at the end the following new sen9 tence: ‘‘If the Secretary sends by certified or reg10 istered mail a notice of such decision to the peti11 tioner, no proceeding in the Tax Court may be initi12 ated under this paragraph unless such petition is

13 filed before the 91st day after the date of such

14 mailing.’’

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

16 this section shall apply to civil actions or proceedings com17 menced after the date of the enactment of this Act.

18 SEC. 813. REDETERMINATION OF INTEREST PURSUANT TO

19 MOTION.

20 (a) IN GENERAL.—Paragraph (3) of section 7481(c)

21 (relating to jurisdiction over interest determinations) is

22 amended by striking ‘‘petition’’ and inserting ‘‘motion’’.

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

24 this section shall take effect on the date of the enactment

25 of this Act.
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1 SEC. 814. APPLICATION OF NET WORTH REQUIREMENT

2 FOR AWARDS OF LITIGATION COSTS.

3 (a) IN GENERAL.—Paragraph (4) of section 7430(c)

4 (defining prevailing party) is amended by adding at the

5 end thereof the following new subparagraph:

6 ‘‘(C) SPECIAL RULES FOR APPLYING NET

7 WORTH REQUIREMENT.—In applying the re8 quirements of section 2412(d)(2)(B) of title 28,

9 United States Code, for purposes of subpara10 graph (A)(iii) of this paragraph—

11 ‘‘(i) the net worth limitation in clause

12 (i) of such section shall apply to—

13 ‘‘(I) an estate but shall be deter14 mined as of the date of the decedent’s

15 death, and

16 ‘‘(II) a trust but shall be deter17 mined as of the last day of the taxable

18 year involved in the proceeding, and

19 ‘‘(ii) individuals filing a joint return

20 shall be treated as 1 individual for pur21 poses of clause (i) of such section, except

22 in the case of a spouse relieved of liability

23 under section 6013(e).’’

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

25 this section shall apply to proceedings commenced after

26 the date of the enactment of this Act.
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1 Subtitle C—Authority for Certain

2 Cooperative Agreements

3 SEC. 821. COOPERATIVE AGREEMENTS WITH STATE TAX

4 AUTHORITIES.

5 (a) GENERAL RULE.—Chapter 77 (relating to mis6 cellaneous provisions) is amended by adding at the end

7 thereof the following new section:

8 ‘‘SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX

9 AUTHORITIES.

10 ‘‘(a) AUTHORIZATION OF AGREEMENTS.—The Sec11 retary is hereby authorized to enter into cooperative agree12 ments with State tax authorities for purposes of enhancing

13 joint tax administration. Such agreements may provide

14 for—

15 ‘‘(1) joint filing of Federal and State income

16 tax returns,

17 ‘‘(2) single processing of such returns,

18 ‘‘(3) joint collection of taxes (other than Fed19 eral income taxes), and

20 ‘‘(4) such other provisions as may enhance joint

21 tax administration.

22 ‘‘(b) SERVICES ON REIMBURSABLE BASIS.—Any

23 agreement under subsection (a) may require reimburse24 ment for services provided by either party to the

25 agreement.
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1 ‘‘(c) AVAILABILITY OF FUNDS.—Any funds appro2 priated for purposes of the administration of this title

3 shall be available for purposes of carrying out the Sec4 retary’s responsibility under an agreement entered into

5 under subsection (a). Any reimbursement received pursu6 ant to such an agreement shall be credited to the amount

7 so appropriated.

8 ‘‘(d) STATE TAX AUTHORITY.—For purposes of this

9 section, the term ‘State tax authority’ means agency,

10 body, or commission referred to in section 6103(d)(1).’’

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

12 for chapter 77 is amended by adding at the end thereof

13 the following new item:

‘‘Sec. 7524. Cooperative agreements with State tax authorities.’’

14 Subtitle D—Administrative Prac15 tice and Procedural Simplifica16 tion

17 SEC. 831. NOTIFICATION OF REASONS FOR TERMINATION

18 OR DENIAL OF INSTALLMENT AGREEMENTS.

19 (a) TERMINATIONS.—Subsection (b) of section 6159

20 (relating to extent to which agreements remain in effect)

21 is amended by adding at the end thereof the following new

22 paragraph:

23 ‘‘(5) NOTICE REQUIREMENTS.—The Secretary

24 may not take any action under paragraph (2), (3),

25 or (4) unless—
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1 ‘‘(A) a notice of such action is provided to

2 the taxpayer not later than the day 30 days be3 fore the date of such action, and

4 ‘‘(B) such notice includes an explanation

5 why the Secretary intends to take such action.

6 The preceding sentence shall not apply in any case

7 in which the Secretary believes that collection of any

8 tax to which an agreement under this section relates

9 is in jeopardy.’’

10 (b) DENIALS.—Section 6159 (relating to agreements

11 for payment of tax liability in installments) is amended

12 by adding at the end thereof the following new subsection:

13 ‘‘(c) NOTICE REQUIREMENTS FOR DENIALS.—The

14 Secretary may not deny any request for an installment

15 agreement under this section unless—

16 ‘‘(1) a notice of the proposed denial is provided

17 to the taxpayer not later than the day 30 days be18 fore the date of such denial, and

19 ‘‘(2) such notice includes an explanation why

20 the Secretary intends to deny such request.

21 The preceding sentence shall not apply in any case in

22 which the Secretary believes that collection of any tax to

23 which a request for an agreement under this section re24 lates is in jeopardy.’’
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1 (c) CONFORMING AMENDMENT.—Paragraph (3) of

2 section 6159(b) is amended to read as follows:

3 ‘‘(3) SUBSEQUENT CHANGE IN FINANCIAL CON4 DITIONS.—If the Secretary makes a determination

5 that the financial condition of a taxpayer with whom

6 the Secretary has entered into an agreement under

7 subsection (a) has significantly changed, the Sec8 retary may alter, modify, or terminate such agree9 ment.’’

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

11 this section shall take effect on the date 6 months after

12 the date of the enactment of this Act.

13 SEC. 832. JOINT RETURN MAY BE MADE AFTER SEPARATE

14 RETURNS WITHOUT FULL PAYMENT OF TAX.

15 (a) GENERAL RULE.—Paragraph (2) of section

16 6013(b) (relating to limitations on filing of joint return

17 after filing separate returns) is amended by striking sub18 paragraph (A) and redesignating the following subpara19 graphs accordingly.

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

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

22 the date of the enactment of this Act.

23 SEC. 833. OFFERS-IN-COMPROMISE.

24 (a) GENERAL RULE.—Subsection (a) of section 7122

25 (relating to compromises) is amended by adding at the end
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1 thereof the following new sentence: ‘‘The Secretary may

2 make such a compromise in any case where the Secretary

3 determines that such compromise would be in the best in4 terests of the United States.’’.

5 (b) REVIEW REQUIREMENTS.—Subsection (b) of sec6 tion 7122 (relating to records) is amended by striking

7 ‘‘$500.’’ and inserting ‘‘$50,000. However, such com8 promise shall be subject to continuing quality review by

9 the Secretary.’’.

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

11 this section shall take effect on the date of the enactment

12 of this Act.

13 SEC. 834. PRELIMINARY NOTICE REQUIREMENT.

14 (a) IN GENERAL.—Section 6672 (relating to failure

15 to collect and pay over tax, or attempt to evade or defeat

16 tax) is amended by redesignating subsection (b) as sub17 section (c) and by inserting after subsection (a) the follow18 ing new subsection:

19 ‘‘(b) PRELIMINARY NOTICE REQUIREMENT.—

20 ‘‘(1) IN GENERAL.—No penalty shall be im21 posed under subsection (a) unless the Secretary noti22 fies the taxpayer in writing by mail to an address as

23 determined under section 6212(b) that the taxpayer

24 shall be subject to an assessment of such penalty.
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1 ‘‘(2) TIMING OF NOTICE.—The mailing of the

2 notice described in paragraph (1) shall precede any

3 notice and demand of any penalty under subsection

4 (a) by at least 60 days.

5 ‘‘(3) STATUTE OF LIMITATIONS.—If a notice

6 described in paragraph (1) with respect to any pen7 alty is mailed before the expiration of the period

8 provided by section 6501 for the assessment of such

9 penalty (determined without regard to this para10 graph), the period provided by such section for the

11 assessment of such penalty shall not expire before

12 the date 90 days after the date on which such notice

13 was mailed.

14 ‘‘(4) EXCEPTION FOR JEOPARDY.—This sub15 section shall not apply if the Secretary finds that the

16 collection of the penalty is in jeopardy.’’

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

18 subsection (a) shall apply to assessments made after June

19 30, 1995.

20 SEC. 835. PENALTIES UNDER SECTION 6672.

21 (a) PUBLIC INFORMATION REQUIREMENTS.—The

22 Secretary of the Treasury or the Secretary’s delegate

23 (hereafter in this section referred to as the ‘‘Secretary’’)

24 shall take such actions as may be appropriate to ensure

25 that employees are aware of their responsibilities under
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1 the Federal tax depository system, the circumstances

2 under which employees may be liable for the penalty im3 posed by section 6672 of the Internal Revenue Code of

4 1986, and the responsibility to promptly report to the In5 ternal Revenue Service any failure referred to in sub6 section (a) of such section 6672. Such actions shall in7 clude—

8 (1) printing of a warning on deposit coupon

9 booklets and the appropriate tax returns that certain

10 employees may be liable for the penalty imposed by

11 such section 6672, and

12 (2) the development of a special information

13 packet.

14 (b) BOARD MEMBERS OF TAX-EXEMPT ORGANIZA15 TIONS.—

16 (1) VOLUNTARY BOARD MEMBERS.—

17 (A) IN GENERAL.—The penalty under sec18 tion 6672 of the Internal Revenue Code of 1986

19 shall not be imposed on unpaid, volunteer mem20 bers of any board of trustees or directors of an

21 organization referred to in section 501 of such

22 Code to the extent such members are solely

23 serving in an honorary capacity, do not partici24 pate in the day-to-day or financial operations of

25 the organization, and do not have actual knowl-
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1 edge of the failure on which such penalty is

2 imposed.

3 (B) APPLICATION OF PARAGRAPH.—This

4 paragraph shall not apply if it results in no per5 son being held liable for the penalty described

6 in section 6672(a) of the Internal Revenue

7 Code of 1986.

8 (2) DEVELOPMENT OF EXPLANATORY MATE9 RIALS.—The Secretary shall develop materials ex10 plaining the circumstances under which board mem11 bers of tax-exempt organizations (including vol12 untary and honorary members) may be subject to

13 penalty under section 6672 of such Code. Such ma14 terials shall be made available to tax-exempt organi15 zations.

16 (3) IRS INSTRUCTIONS.—The Secretary shall

17 clarify the instructions to Internal Revenue Service

18 employees on the application of the penalty under

19 section 6672 of such Code with regard to voluntary

20 members of boards of trustees or directors of tax-ex21 empt organizations.

22 (c) PROMPT NOTIFICATION.—To the maximum ex23 tent practicable, the Secretary shall notify all persons who

24 have failed to make timely and complete deposit of any

25 taxes described in section 6672 of the Internal Revenue
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1 Code of 1986 of such failure within 30 days after the re2 turn was filed reflecting such failure or after the date on

3 which the Secretary is first aware of such failure. If the

4 person failing to make the deposit is not an individual,

5 the Secretary shall notify the entity subject to such deposit

6 requirement and that entity shall notify, within 15 days

7 of the notification by the Secretary, all officers, general

8 partners, trustees, or other managers of the failure.

9 SEC. 836. REQUIRED CONTENT OF CERTAIN NOTICES.

10 (a) GENERAL RULE.—Subsection (a) of section 7522

11 (relating to content of tax due, deficiency, and other no12 tices) is amended by striking ‘‘shall describe the basis for,

13 and identify’’ and inserting ‘‘shall set forth the adjust14 ments which are the basis for, and shall identify’’.

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

16 subsection (a) shall apply to notices sent after the date

17 6 months after the date of the enactment of this Act.

18 SEC. 837. REQUIRED NOTICE OF CERTAIN PAYMENTS.

19 If any payment is received by the Secretary of the

20 Treasury or the Secretary’s delegate (hereafter in the sec21 tion referred to as the ‘‘Secretary’’) from any taxpayer

22 and the Secretary cannot associate such payment with any

23 outstanding tax liability of such taxpayer, the Secretary

24 shall make reasonable efforts to notify the taxpayer of
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1 such inability within 60 days after the receipt of such

2 payment.

3 SEC. 838. IMPROVED PROCEDURES FOR NOTIFYING SERV4 ICE OF CHANGE OF ADDRESS OR NAME.

5 The Secretary of the Treasury shall provide improved

6 procedures for taxpayers to notify the Secretary of

7 changes in names and addresses. Not later than December

8 31, 1994, the Secretary shall institute procedures for

9 timely updating all Internal Revenue Service records with

10 change-of-address information provided to the Secretary

11 by taxpayers.

12 SEC. 839. RIGHTS AND RESPONSIBILITIES OF DIVORCED

13 INDIVIDUALS.

14 The Secretary of the Treasury shall include in the

15 Internal Revenue Service publication entitled ‘‘Your

16 Rights As A Taxpayer’’ a section on the rights and respon17 sibilities of divorced individuals.

18 TITLE IX—FINANCING

19 PROVISIONS

20 SEC. 901. CERTAIN AMOUNTS DERIVED FROM FOREIGN

21 CORPORATIONS TREATED AS UNRELATED

22 BUSINESS TAXABLE INCOME.

23 (a) GENERAL RULE.—Subsection (b) of section 512

24 (relating to modifications) is amended by adding at the

25 end thereof the following new paragraph:
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1 ‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE2 RIVED FROM FOREIGN CORPORATIONS.—

3 ‘‘(A) IN GENERAL.—Notwithstanding para4 graph (1), any disqualified amount derived by

5 an organization from a foreign corporation in

6 which such organization is a 10-percent share7 holder shall be included as an item of gross in8 come derived from an unrelated trade or busi9 ness. There shall be allowed all deductions di10 rectly connected with amounts included in gross

11 income under the preceding sentence.

12 ‘‘(B) DISQUALIFIED AMOUNT.—For pur13 poses of subparagraph (A), the term ‘disquali14 fied amount’ means any of the following:

15 ‘‘(i) SUBPART F INCLUSION.—Any

16 amount included in gross income under

17 section 951(a)(1)(A) to the extent the

18 amount so included is attributable to in19 come which, if derived directly by the orga20 nization, would be treated as gross income

21 from an unrelated trade or business.

22 ‘‘(ii) DIVIDENDS.—Any dividend paid

23 out of the earnings and profits of any for24 eign corporation in proportion to the ratio

25 of—
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1 ‘‘(I) the portion of the earnings

2 and profits attributable to income

3 which, if derived directly by the orga4 nization, would be treated as gross in5 come from an unrelated trade or busi6 ness, to

7 ‘‘(II) the total amount of earn8 ings and profits.

9 For purposes of the preceding sentence,

10 earnings and profits accumulated in tax11 able years beginning before January 1,

12 1994, shall not be taken into account.

13 ‘‘(C) 10-PERCENT SHAREHOLDER.—The

14 term ‘10-percent shareholder’ means any orga15 nization who owns (within the meaning of sec16 tion 958(a)), or is considered as owning by ap17 plying the rules of section 958(b), 10 percent or

18 more of the combined voting power of all class

19 of stock entitled to vote of the foreign corpora20 tion.

21 ‘‘(D) TREATMENT OF CERTAIN AMOUNTS

22 AS DIVIDENDS.—The rules of section

23 904(d)(3)(G) shall apply for purposes of this

24 paragraph.
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1 ‘‘(E) REGULATIONS.—The Secretary shall

2 prescribe such regulations as may be necessary

3 or appropriate to carry out the purposes of this

4 paragraph, including regulations for the appli5 cation of this paragraph in the case of income

6 paid through 1 or more entities or between 2 or

7 more chains of entities.’’

8 (b) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to—

10 (1) dividends paid out of earnings and profits

11 of foreign corporations for taxable years beginning

12 after December 31, 1993, and

13 (2) amounts included in gross income under

14 section 951(a)(1)(A) of the Internal Revenue Code

15 of 1986 in respect of any such taxable year.

16 SEC. 902. SPECIAL RULES FOR RENTAL USE OF DWELLING

17 FOR LESS THAN 15 DAYS PER YEAR.

18 (a) IN GENERAL.—Section 280A is amended by

19 striking subsection (g) and inserting:

20 ‘‘(g) SPECIAL RULE FOR CERTAIN RENTAL USE.—

21 Notwithstanding any other provision of this section or sec22 tion 183, if the principal residence of the taxpayer is actu23 ally rented for less than 15 days during the taxable year

24 for the purpose of providing accommodations to visitors

25 to an event for which commercial rental accommodations
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1 in the community holding the event are not sufficient to

2 reasonably provide more than one-half of the accommoda3 tions necessary (and the rental income received by the tax4 payer for any visitor is not greater than a reasonable rent5 al rate charged per individual guest by commercial rental

6 accommodations), then—

7 ‘‘(1) no deduction otherwise allowable under

8 this chapter because of the rental use of such dwell9 ing unit shall be allowed, and

10 ‘‘(2) the income derived from such use for the

11 taxable year shall not be included in the gross in12 come of such taxpayer under section 61.

13 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

14 such regulations as may be appropriate to carry out the

15 purposes of this section, including regulations providing

16 such de minimis rules as the Secretary may deem appro17 priate.’’

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

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

20 December 31, 1993.

21 SEC. 903. LOSS CARRYOVERS AND CARRYBACKS NOT EX22 CLUDED IN APPLYING TAXABLE INCOME LIM23 ITATION ON CERTAIN RESERVE DEDUCTIONS.

24 (a) GENERAL RULE.—Subparagraph (D) of section

25 593(b)(2) (relating to computation of taxable income) is
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1 amended by adding at the end thereof the following new

2 sentence:

3 ‘‘Except as providing in the preceding sentence,

4 for purposes of this paragraph, taxable income

5 shall be computed as provided in this chapter,

6 including the application of any carryover or

7 carryback.’’

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

9 subsection (a) shall apply to losses incurred in taxable

10 years ending after December 31, 1993.

11 SEC. 904. EXTENSION OF WITHHOLDING TO CERTAIN GAM12 BLING WINNINGS.

13 (a) REPEAL OF EXEMPTION FOR BINGO AND

14 KENO.—Paragraph (5) of section 3402(q) is amended to

15 read as follows:

16 ‘‘(5) EXEMPTION FOR SLOT MACHINES.—The

17 tax imposed by paragraph (1) shall not apply to

18 winnings from a slot machine.’’

19 (b) THRESHOLD AMOUNT.—Paragraph (3) of section

20 3402(q) is amended—

21 (1) by striking ‘‘(B) and (C)’’ in subparagraph

22 (A) and inserting ‘‘(B), (C), and (D)’’, and

23 (2) by adding at the end thereof the following

24 new subparagraph:
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1 ‘‘(D) BINGO AND KENO.—Proceeds of

2 more than $10,000 from a wager placed in a

3 bingo or keno game.’’

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

5 this section shall take effect on January 1, 1994.

6 TITLE X—TECHNICAL

7 CORRECTIONS

8 Subtitle A—Revenue Provisions

9 SEC. 1001. AMENDMENTS RELATED TO REVENUE REC10 ONCILIATION ACT OF 1990.

11 (a) AMENDMENTS RELATED TO SUBTITLE A.—

12 (1) Subparagraph (B) of section 59(j)(3) is

13 amended by striking ‘‘section 1(i)(3)(B)’’ and insert14 ing ‘‘section 1(g)(3)(B)’’.

15 (2) Clause (i) of section 151(d)(3)(C) is amend16 ed by striking ‘‘joint of a return’’ and inserting

17 ‘‘joint return’’.

18 (3) Subsection (b) of section 1 (as in effect on

19 the day before the date of the enactment of the Rev20 enue Reconciliation Act of 1993) is amended by

21 striking ‘‘$26,500’’ in the table contained therein

22 and inserting ‘‘$26,050’’.

23 (b) AMENDMENTS RELATED TO SUBTITLE B.—

24 (1) Paragraph (1) of section 11212(e) of the

25 Revenue Reconciliation Act of 1990 is amended by
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1 striking ‘‘Paragraph (1) of section 6724(d)’’ and in2 serting ‘‘Subparagraph (B) of section 6724(d)(1)’’.

3 (2)(A) Subparagraph (B) of section 4093(c)(2),

4 as in effect before the amendments made by the

5 Revenue Reconciliation Act of 1993, is amended is

6 amended by inserting before the period ‘‘unless such

7 fuel is sold for exclusive use by a State or any politi8 cal subdivision thereof’’.

9 (B) Paragraph (4) of section 6427(l), as in ef10 fect before the amendments made by the Revenue

11 Reconciliation Act of 1993, is amended by inserting

12 before the period ‘‘unless such fuel was used by a

13 State or any political subdivision thereof’’.

14 (3) Paragraph (1) of section 6416(b) is amend15 ed by striking ‘‘chapter 32 or by section 4051’’ and

16 inserting ‘‘chapter 31 or 32’’.

17 (4) Section 7012 is amended—

18 (A) by striking ‘‘production or importation

19 of gasoline’’ in paragraph (3) and inserting

20 ‘‘taxes on gasoline and diesel fuel’’, and

21 (B) by striking paragraph (4) and redesig22 nating paragraphs (5) and (6) as paragraphs

23 (4) and (5), respectively.
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1 (5) Subsection (c) of section 5041 is amended

2 by striking paragraph (6) and by inserting the fol3 lowing new paragraphs:

4 ‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—

5 ‘‘(A) wine produced by any person would

6 be eligible for any credit under paragraph (1)

7 if removed by such person during the calendar

8 year,

9 ‘‘(B) wine produced by such person is re10 moved during such calendar year by any other

11 person (hereafter in this paragraph referred to

12 as the ‘transferee’) to whom such wine was

13 transferred in bond and who is liable for the tax

14 imposed by this section with respect to such

15 wine, and

16 ‘‘(C) such producer holds title to such wine

17 at the time of its removal and provides to the

18 transferee such information as is necessary to

19 properly determine the transferee’s credit under

20 this paragraph,

21 then, the transferee (and not the producer) shall be

22 allowed the credit under paragraph (1) which would

23 be allowed to the producer if the wine removed by

24 the transferee had been removed by the producer on

25 that date.
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1 ‘‘(7) REGULATIONS.—The Secretary may pre2 scribe such regulations as may be necessary to carry

3 out the purposes of this subsection, including regula4 tions—

5 ‘‘(A) to prevent the credit provided in this

6 subsection from benefiting any person who pro7 duces more than 250,000 wine gallons during a

8 calendar year, and

9 ‘‘(B) to assure proper reduction of such

10 credit for persons producing more than 150,000

11 wine gallons of wine during a calendar year.’’

12 (6) Paragraph (3) of section 5061(b) is amend13 ed to read as follows:

14 ‘‘(3) section 5041(f),’’.

15 (7) Section 5354 is amended by inserting ‘‘(tak16 ing into account the appropriate amount of credit

17 with respect to such wine under section 5041(c))’’

18 after ‘‘any one time’’.

19 (8) Effective on the date of the enactment of

20 this Act, paragraph (7) of section 11202(i) of the

21 Revenue Reconciliation Act of 1990 is amended by

22 adding at the end thereof the following: ‘‘The Sec23 retary may treat any person who bore the ultimate

24 burden of the tax imposed by this subsection as the
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1 person to whom a credit or refund under such provi2 sions may be allowed or made.’’.

3 (c) AMENDMENTS RELATED TO SUBTITLE C.—

4 (1) Paragraph (4) of section 56(g) is amended

5 by redesignating subparagraphs (I) and (J) as sub6 paragraphs (H) and (I), respectively.

7 (2) Subparagraph (B) of section 6724(d)(1) is

8 amended—

9 (A) by striking ‘‘or’’ at the end of clause

10 (xii), and

11 (B) by striking the period at the end of

12 clause (xiii) and inserting ‘‘, or’’.

13 (3) Subsection (g) of section 6302 is amended

14 by inserting ‘‘, 22,’’ after ‘‘chapters 21’’.

15 (4) The earnings and profits of any insurance

16 company to which section 11305(c)(3) of the Reve17 nue Reconciliation Act of 1990 applies shall be de18 termined without regard to any deduction allowed

19 under such section; except that, for purposes of ap20 plying sections 56 and 902, and subpart F of part

21 III of subchapter N of chapter 1 of the Internal

22 Revenue Code of 1986, such deduction shall be

23 taken into account.

24 (5) Subparagraph (D) of section 6038A(e)(4) is

25 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 sentence: ‘‘The preceding sentence shall be ap14 plied without regard to any such letter or notice

15 which is withdrawn by the Secretary.’’.

16 (7) Clause (i) of section 6621(c)(2)(B) is

17 amended by striking ‘‘this subtitle’’ and inserting

18 ‘‘this title’’.

19 (d) AMENDMENTS RELATED TO SUBTITLE D.—

20 (1) Notwithstanding section 11402(c) of the

21 Revenue Reconciliation Act of 1990, the amendment

22 made by section 11402(b)(1) of such Act shall apply

23 to taxable years ending after December 31, 1989.

24 (2) Clause (ii) of section 143(m)(4)(C) is

25 amended—
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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

7 such period (or, if lesser, 5 years)’’ and insert8 ing ‘‘to 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 alter20 native tax net operating loss deduction shall be

21 treated as including a reference to the deduction

22 under section 56(h) of such Code as in effect before

23 the amendments made by section 1915 of the En24 ergy Policy Act of 1992.
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1 (2) Clause (i) of section 613A(c)(3)(A) is

2 amended 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 subpara10 graph (A)) and inserting ‘‘section 40(f), 43, or

11 51(j)’’.

12 (4) Subparagraph (C) of section 38(c)(2) (as in

13 effect on the day before the date of the enactment

14 of the Revenue Reconciliation Act of 1990) is

15 amended by inserting before the period at the end

16 of the first sentence the following: ‘‘and without re17 gard to the deduction under section 56(h)’’.

18 (5) The amendment made by section

19 1913(b)(2)(C)(i) of the Energy Policy Act of 1992

20 shall apply to taxable years beginning after Decem21 ber 31, 1990.

22 (f) AMENDMENTS RELATED TO SUBTITLE F.—

23 (1)(A) Section 2701(a)(3) is amended by add24 ing at the end thereof the following new subpara25 graph:
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1 ‘‘(C) VALUATION OF QUALIFIED PAYMENTS

2 WHERE NO LIQUIDATION, ETC. RIGHTS.—In the

3 case of an applicable retained interest which is

4 described in subparagraph (B)(i) but not sub5 paragraph (B)(ii), the value of the distribution

6 right shall be determined without regard to this

7 section.’’

8 (B) Section 2701(a)(3)(B) is amended by in9 serting ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the head10 ing thereof.

11 (C) Sections 2701 (d)(1) and (d)(4) are each

12 amended by striking ‘‘subsection (a)(3)(B)’’ and in13 serting ‘‘subsection (a)(3) (B) or (C)’’.

14 (2) Clause (i) of section 2701(a)(4)(B) is

15 amended by inserting ‘‘(or, to the extent provided in

16 regulations, the rights as to either income or cap17 ital)’’ after ‘‘income and capital’’.

18 (3)(A) Section 2701(b)(2) is amended by add19 ing at the end thereof the following new subpara20 graph:

21 ‘‘(C) APPLICABLE FAMILY MEMBER.—For

22 purposes of this subsection, the term ‘applicable

23 family member’ includes any lineal descendant

24 of any parent of the transferor or the transfer25 or’s spouse.’’
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1 (B) Section 2701(e)(3) is amended—

2 (i) by striking subparagraph (B), and

3 (ii) by striking so much of paragraph (3)

4 as precedes ‘‘shall be treated as holding’’ and

5 inserting:

6 ‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS

7 AND TRANSFERS.—An individual’’.

8 (C) Section 2704(c)(3) is amended by striking

9 ‘‘section 2701(e)(3)(A)’’ and inserting ‘‘section

10 2701(e)(3)’’.

11 (4) Clause (i) of section 2701(c)(1)(B) is

12 amended to read as follows:

13 ‘‘(i) a right to distributions with re14 spect to any interest which is junior to the

15 rights of the transferred interest,’’.

16 (5)(A) Clause (i) of section 2701(c)(3)(C) is

17 amended to read as follows:

18 ‘‘(i) IN GENERAL.—Payments under

19 any interest held by a transferor which

20 (without regard to this subparagraph) are

21 qualified payments shall be treated as

22 qualified payments unless the transferor

23 elects not to treat such payments as quali24 fied payments. Payments described in the

25 preceding sentence which are held by an
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1 applicable family member shall be treated

2 as qualified payments only if such member

3 elects to treat such payments as qualified

4 payments.’’

5 (B) The first sentence of section

6 2701(c)(3)(C)(ii) is amended to read as follows: ‘‘A

7 transferor or applicable family member holding any

8 distribution right which (without regard to this sub9 paragraph) is not a qualified payment may elect to

10 treat such right as a qualified payment, to be paid

11 in the amounts and at the times specified in such

12 election.’’.

13 (C) The time for making an election under the

14 second sentence of section 2701(c)(3)(C)(i) of the

15 Internal Revenue Code of 1986 (as amended by sub16 paragraph (A)) shall not expire before the due date

17 (including extensions) for filing the transferor’s re18 turn of the tax imposed by section 2501 of such

19 Code for the first calendar year ending after the

20 date of enactment.

21 (6) Section 2701(d)(3)(A)(iii) is amended by

22 striking ‘‘the period ending on the date of’’.

23 (7) Subclause (I) of section 2701(d)(3)(B)(ii) is

24 amended by inserting ‘‘or the exclusion under sec25 tion 2503(b),’’ after ‘‘section 2523,’’.
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1 (8) Section 2701(e)(5) is amended—

2 (A) by striking ‘‘such contribution to cap3 ital or such redemption, recapitalization, or

4 other change’’ in subparagraph (A) and insert5 ing ‘‘such transaction’’, and

6 (B) by striking ‘‘the transfer’’ in subpara7 graph (B) and inserting ‘‘such transaction’’.

8 (9) Section 2701(d)(4) is amended by adding at

9 the end thereof the following new subparagraph:

10 ‘‘(C) TRANSFER TO TRANSFERORS.—In

11 the case of a taxable event described in para12 graph (3)(A)(ii) involving a transfer of an ap13 plicable retained interest from an applicable

14 family member to a transferor, this subsection

15 shall continue to apply to the transferor during

16 any period the transferor holds such interest.’’

17 (10) Section 2701(e)(6) is amended by insert18 ing ‘‘or to reflect the application of subsection (d)’’

19 before the period at the end thereof.

20 (11)(A) Section 2702(a)(3)(A) is amended—

21 (i) by striking ‘‘to the extent’’ and insert22 ing ‘‘if’’ in clause (i),

23 (ii) by striking ‘‘or’’ at the end of clause

24 (i),
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1 (iii) by striking the period at the end of

2 clause (ii) and inserting ‘‘, or’’, and

3 (iv) by adding at the end thereof the fol4 lowing new clause:

5 ‘‘(iii) to the extent that regulations

6 provide that such transfer is not inconsist7 ent with the purposes of this section.’’

8 (B)(i) Section 2702(a)(3) is amended by strik9 ing ‘‘incomplete transfer’’ each place it appears and

10 inserting ‘‘incomplete gift’’.

11 (ii) The heading for section 2702(a)(3)(B) is

12 amended by striking ‘‘INCOMPLETE TRANSFER’’ and

13 inserting ‘‘INCOMPLETE GIFT’’.

14 (g) AMENDMENTS RELATED TO SUBTITLE G.—

15 (1)(A) Subsection (a) of section 1248 is amend16 ed—

17 (i) by striking ‘‘, or if a United States per18 son receives a distribution from a foreign cor19 poration which, under section 302 or 331, is

20 treated as an exchange of stock’’ in paragraph

21 (1), and

22 (ii) by adding at the end thereof the follow23 ing new sentence: ‘‘For purposes of this section,

24 a United States person shall be treated as hav25 ing sold or exchanged any stock if, under any
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1 provision of this subtitle, such person is treated

2 as realizing gain from the sale or exchange of

3 such stock.’’.

4 (B) Paragraph (1) of section 1248(e) is amend5 ed by striking ‘‘, or receives a distribution from a

6 domestic corporation which, under section 302 or

7 331, is treated as an exchange of stock’’.

8 (C) Subparagraph (B) of section 1248(f)(1) is

9 amended by striking ‘‘or 361(c)(1)’’ and inserting

10 ‘‘355(c)(1), or 361(c)(1)’’.

11 (D) Paragraph (1) of section 1248(i) is amend12 ed to read as follows:

13 ‘‘(1) IN GENERAL.—If any shareholder of a 10-

14 percent corporate shareholder of a foreign corpora15 tion exchanges stock of the 10-percent corporate

16 shareholder for stock of the foreign corporation,

17 such 10-percent corporate shareholder shall recog18 nize gain in the same manner as if the stock of the

19 foreign corporation received in such exchange had

20 been—

21 ‘‘(A) issued to the 10-percent corporate

22 shareholder, and

23 ‘‘(B) then distributed by the 10-percent

24 corporate shareholder to such shareholder in re-
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1 demption or liquidation (whichever is appro2 priate).

3 The amount of gain recognized by such 10-percent

4 corporate shareholder under the preceding sentence

5 shall not exceed the amount treated as a dividend

6 under this section.’’

7 (2) Section 897 is amended by striking sub8 section (f).

9 (3) Paragraph (13) of section 4975(d) is

10 amended by striking ‘‘section 408(b)’’ and inserting

11 ‘‘section 408(b)(12)’’.

12 (4) Clause (iii) of section 56(g)(4)(D) is amend13 ed by inserting ‘‘, but only with respect to taxable

14 years beginning after December 31, 1989’’ before

15 the period at the end thereof.

16 (5)(A) Paragraph (11) of section 11701(a) of

17 the Revenue Reconciliation Act of 1990 (and the

18 amendment made by such paragraph) are hereby re19 pealed, and section 7108(r)(2) of the Revenue Rec20 onciliation Act of 1989 shall be applied as if such

21 paragraph (and amendment) had never been en22 acted.

23 (B) Subparagraph (A) shall not apply to any

24 building if the owner of such building establishes to

25 the satisfaction of the Secretary of the Treasury or
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1 his delegate that such owner reasonably relied on the

2 amendment made by such paragraph (11).

3 (h) AMENDMENTS RELATED TO SUBTITLE H.—

4 (1)(A) Clause (vi) of section 168(e)(3)(B) is

5 amended by striking ‘‘or’’ at the end of subclause

6 (I), by striking the period at the end of subclause

7 (II) and inserting ‘‘, or’’, and by adding at the end

8 thereof the following new subclause:

9 ‘‘(III) is described in section

10 48(l)(3)(A)(ix) (as in effect on the day be11 fore the date of the enactment of the Reve12 nue Reconciliation Act of 1990).’’

13 (B) Subparagraph (K) of section 168(g)(4) is

14 amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and

15 inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the

16 day before the date of the enactment of the Revenue

17 Reconciliation Act of 1990)’’.

18 (2) Clause (ii) of section 172(b)(1)(E) is

19 amended by striking ‘‘subsection (m)’’ and inserting

20 ‘‘subsection (h)’’.

21 (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),

22 and 832(b)(5)(D)(ii)(II) are each amended by strik23 ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.

24 (4) Subparagraph (A) of section 243(b)(3) is

25 amended by inserting ‘‘of’’ after ‘‘In the case’’.
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1 (5) The subsection heading for subsection (a) of

2 section 280F is amended by striking ‘‘INVESTMENT

3 TAX CREDIT AND’’.

4 (6) Clause (i) of section 1504(c)(2)(B) is

5 amended by inserting ‘‘section’’ before ‘‘243(b)(2)’’.

6 (7) Paragraph (3) of section 341(f) is amended

7 by striking ‘‘351, 361, 371(a), or 374(a)’’ and in8 serting ‘‘351, or 361’’.

9 (8) Paragraph (2) of section 243(b) is amended

10 to read as follows:

11 ‘‘(2) AFFILIATED GROUP.—For purposes of this

12 subsection:

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

14 group’ has the meaning given such term by sec15 tion 1504(b), except that for such purposes sec16 tions 1504(b)(2), 1504(b)(4), and 1504(c) shall

17 not apply.

18 ‘‘(B) GROUP MUST BE CONSISTENT IN

19 FOREIGN TAX TREATMENT.—The requirements

20 of paragraph (1)(A) shall not be treated as

21 being met with respect to any dividend received

22 by a corporation if, for any taxable year which

23 includes the day on which such dividend is re24 ceived—
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1 ‘‘(i) 1 or more members of the affili2 ated group referred to in paragraph (1)(A)

3 choose to any extent to take the benefits of

4 section 901, and

5 ‘‘(ii) 1 or more other members of such

6 group claim to any extent a deduction for

7 taxes otherwise creditable under section

8 901.’’

9 (9) The amendment made by section

10 11813(b)(17) of the Revenue Reconciliation Act of

11 1990 shall be applied as if the material stricken by

12 such amendment included the closing parenthesis

13 after ‘‘section 48(a)(5)’’.

14 (10) Paragraph (1) of section 179(d) is amend15 ed—

16 (A) by striking ‘‘in a trade or business’’

17 and inserting ‘‘a trade or business’’, and

18 (B) by adding at the end thereof the fol19 lowing new sentence: ‘‘Such term shall not in20 clude any property described in section 50(b)

21 and shall not include air conditioning or heating

22 units and horses’’.

23 (11) Subparagraph (E) of section 50(a)(2) is

24 amended by striking ‘‘section 48(a)(5)(A)’’ and in25 serting ‘‘section 48(a)(5)’’.
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1 (12) The amendment made by section

2 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act

3 of 1990 shall be applied as if it struck ‘‘Section

4 422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.

5 (13) Subparagraph (B) of section 424(c)(3) is

6 amended by striking ‘‘a qualified stock option, an in7 centive stock option, an option granted under an em8 ployee stock purchase plan, or a restricted stock op9 tion’’ and inserting ‘‘an incentive stock option or an

10 option granted under an employee stock purchase

11 plan’’.

12 (14) Subparagraph (E) of section 1367(a)(2) is

13 amended by striking ‘‘section 613A(c)(13)(B)’’ and

14 inserting ‘‘section 613A(c)(11)(B)’’.

15 (15) Subparagraph (B) of section 460(e)(6) is

16 amended by striking ‘‘section 167(k)’’ and inserting

17 ‘‘section 168(e)(2)(A)(ii)’’.

18 (16) Subparagraph (C) of section 172(h)(4) is

19 amended by striking ‘‘subsection (b)(1)(M)’’ and in20 serting ‘‘subsection (b)(1)(E)’’.

21 (17) Section 6503 is amended—

22 (A) by redesignating the subsection relat23 ing to extension in case of certain summonses

24 as subsection (j), and
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1 (B) by redesignating the subsection relat2 ing to cross references as subsection (k).

3 (18) Paragraph (4) of section 1250(e) is hereby

4 repealed.

5 (19) Subsection (c) of section 2104 is amended

6 by striking ‘‘subparagraph (A), (C), or (D)’’ and in7 serting ‘‘subparagraph (A)’’.

8 (i) EFFECTIVE DATE.—Except as otherwise expressly

9 provided—

10 (1) the amendments made by this section shall

11 be treated as amendments to the Internal Revenue

12 Code of 1986 as amended by the Revenue Reconcili13 ation Act of 1993; and

14 (2) any amendment made by this section shall

15 apply to periods before the date of the enactment of

16 this section in the same manner as if it had been in17 cluded in the provision of the Revenue Reconciliation

18 Act of 1990 to which such amendment relates.

19 SEC. 1002. AMENDMENTS RELATED TO REVENUE REC20 ONCILIATION ACT OF 1993.

21 (a) AMENDMENT RELATED TO SECTION 13114.—

22 Paragraph (2) of section 1044(c) is amended to read as

23 follows:

24 ‘‘(2) PURCHASE.—The taxpayer shall be consid25 ered to have purchased any property if, but for sub-
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1 section (d), the unadjusted basis of such property

2 would be its cost within the meaning of section

3 1012.’’

4 (b) AMENDMENTS RELATED TO SECTION 13142.—

5 (1) Subparagraph (B) of section 13142(b)(6) of

6 the Revenue Reconciliation Act of 1993 is amended

7 to read as follows:

8 ‘‘(B) FULL-TIME STUDENTS, WAIVER AU9 THORITY, AND PROHIBITED DISCRIMINATION.—

10 The amendments made by paragraphs (2), (3),

11 and (4) shall take effect on the date of the en12 actment of this Act.’’

13 (2) Subparagraph (C) of section 13142(b)(6) of

14 such Act is amended by striking ‘‘paragraph (2)’’

15 and inserting ‘‘paragraph (5)’’.

16 (c) AMENDMENT RELATED TO SECTION 13161.—

17 (1) IN GENERAL.—Subsection (e) of section

18 4001 (relating to inflation adjustment) is amended

19 to read as follows:

20 ‘‘(e) INFLATION ADJUSTMENT.—

21 ‘‘(1) IN GENERAL.—In the case of any calendar

22 year after 1993, the $30,000 amount in subsection

23 (a) and section 4003(a) shall be increased by an

24 amount equal to—

25 ‘‘(A) $30,000, multiplied by
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1 ‘‘(B) the cost-of-living adjustment under

2 section 1(f)(3) for such calendar year, deter3 mined by substituting ‘calendar year 1990’ for

4 ‘calendar year 1992’ in subparagraph (B)

5 thereof.

6 ‘‘(2) ROUNDING.—If any amount as adjusted

7 under paragraph (1) is not a multiple of $2,000,

8 such amount shall be rounded to the next lowest

9 multiple of $2,000.’’

10 (2) EFFECTIVE DATE.—The amendment made

11 by paragraph (1) shall take effect on January 1,

12 1994.

13 (d) AMENDMENT RELATED TO SECTION 13201.—

14 Clause (ii) of section 135(b)(2)(B) is amended by insert15 ing before the period at the end thereof the following: ‘‘,

16 determined by substituting ‘calendar year 1989’ for ‘cal17 endar year 1992’ in subparagraph (B) thereof’’.

18 (e) AMENDMENTS RELATED TO SECTION 13203.—

19 Subsection (a) of section 59 is amended—

20 (1) by striking ‘‘the amount determined under

21 section 55(b)(1)(A)’’ in paragraph (1)(A) and

22 2(A)(i) (2)(A)(i) and inserting ‘‘the pre-credit ten23 tative minimum tax’’,

24 (2) by striking ‘‘specified in section

25 55(b)(1)(A)’’ in paragraph (1)(C) and inserting
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1 ‘‘specified in subparagraph (A)(i) or (B)(i) of section

2 55(b)(1) (whichever applies)’’,

3 (3) by striking ‘‘which would be determined

4 under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)

5 and inserting ‘‘which would be the pre-credit ten6 tative minimum tax’’, and

7 (4) by adding at the end thereof the following

8 new paragraph:

9 ‘‘(3) (4) PRE-CREDIT TENTATIVE MINIMUM

10 TAX.—For purposes of this subsection, the term

11 ‘pre-credit tentative minimum tax’ means—

12 ‘‘(A) in the case of a taxpayer other than

13 a corporation, the amount determined under the

14 first sentence of section 55(b)(1)(A)(i), or

15 ‘‘(B) in the case of a corporation, the

16 amount determined under section

17 55(b)(1)(B)(i).’’

18 (f) AMENDMENT RELATED TO SECTION 13212.—

19 Subparagraph (B) of section 401(a)(17) is amended to

20 read as follows:

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

22 Secretary shall adjust annually the $150,000

23 amount in subparagraph (A) for increases in

24 the cost-of-living at the same time and in the

25 same manner as under section 415(d), except
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1 that the base period for purposes of section

2 415(d)(1)(A) shall be the calendar quarter be3 ginning October 1, 1993.’’

4 (g) AMENDMENT RELATED TO SECTION 13221.—

5 Subparagraph (A) of section 7518(g)(6) is amended by

6 striking ‘‘34 percent’’ and inserting ‘‘35 percent’’.

7 (h) AMENDMENTS RELATED TO SECTION 13222.—

8 (1) Subparagraph (B) of section 6033(e)(1) is

9 amended by adding at the end thereof the following

10 new clause:

11 ‘‘(iii) COORDINATION WITH SECTION

12 527(f).—This subsection shall not apply to

13 any amount on which tax is imposed by

14 reason of section 527(f).’’.

15 (2) Clause (i) of section 6033(e)(1)(B) is

16 amended by striking ‘‘this subtitle’’ and inserting

17 ‘‘section 501’’.

18 (i) AMENDMENT RELATED TO SECTION 13225.—

19 Paragraph (3) of section 6655(g) is amended by striking

20 all that follows ‘‘ ‘3rd month’ ’’ in the sentence following

21 subparagraph (C) and inserting ‘‘, subsection (e)(2)(A)

22 shall be applied by substituting ‘2 months’ for ‘3 months’

23 in clause (i)(I), the election under clause (i) of subsection

24 (e)(2)(C) may be made separately for each installment,

25 and clause (ii) of subsection (e)(2)(C) shall not apply.’’.
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1 (j) AMENDMENTS RELATED TO SECTION 13231.—

2 (1) Paragraph (1) of section 956A(b) is amend3 ed to read as follows:

4 ‘‘(1) the amount (not including a deficit) re5 ferred to in section 316(a)(1) to the extent such

6 amount was accumulated in prior taxable years be7 ginning after September 30, 1993, and’’.

8 (2) Subsection (f) of section 956A is amended

9 by inserting before the period at the end thereof:

10 ‘‘and regulations coordinating the provisions of sub11 sections (c)(3)(A) and (d)’’.

12 (3)(A) Subparagraph (A) of section 1297(d)(2)

13 is amended by striking ‘‘The adjusted basis of any

14 asset’’ and inserting ‘‘The amount taken into ac15 count under section 1296(a)(2) with respect to any

16 asset’’.

17 (B) The paragraph heading of paragraph (2) of

18 section 1297(d) is amended to read as follows:

19 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.

20 (4) Subsection (e) of section 1297 is amended

21 by inserting ‘‘For purposes of this part—’’ after the

22 subsection heading.

23 (k) AMENDMENT RELATED TO SECTION 13241.—

24 Subparagraph (B) of section 40(e)(1) is amended to read

25 as follows:
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1 ‘‘(B) for any period before January 1,

2 2001, during which the rates of tax under sec3 tion 4081(a)(2)(A) are 4.3 cents per gallon.’’

4 (l) AMENDMENT RELATED TO SECTION 13261.—

5 Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec6 onciliation Act of 1993 is amended by striking ‘‘by the

7 taxpayer’’ and inserting ‘‘by the taxpayer or a related per8 son’’.

9 (m) AMENDMENT RELATED TO SECTION 13301.—

10 Subparagraph (B) of section 1397B(d)(5) is amended by

11 striking ‘‘preceding’’.

12 (n) CLERICAL AMENDMENTS.—

13 (1) Subsection (d) of section 39 is amended—

14 (A) by striking ‘‘45’’ in the heading of

15 paragraph (5) and inserting ‘‘45A’’, and

16 (B) by striking ‘‘45’’ in the heading of

17 paragraph (6) and inserting ‘‘45B’’.

18 (2) Subparagraph (A) of section 108(d)(9) is

19 amended by striking ‘‘paragraph (3)(B)’’ and insert20 ing ‘‘paragraph (3)(C)’’.

21 (3) Subparagraph (C) of section 143(d)(2) is

22 amended by striking the period at the end thereof

23 and inserting a comma.

24 (4) Clause (ii) of section 163(j)(6)(E) is amend25 ed by striking ‘‘which is a’’ and inserting ‘‘which is’’.
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1 (5) Subparagraph (A) of section 1017(b)(4) is

2 amended by striking ‘‘subsection (b)(2)(D)’’ and in3 serting ‘‘subsection (b)(2)(E)’’.

4 (6) So much of section 1245(a)(3) as precedes

5 subparagraph (A) thereof is amended to read as fol6 lows:

7 ‘‘(3) SECTION 1245 PROPERTY.—For purposes

8 of this section, the term ‘section 1245 property’

9 means any property which is or has been property

10 of a character subject to the allowance for deprecia11 tion provided in section 167 and is either—’’.

12 (7) Paragraph (2) of section 1394(e) is amend13 ed—

14 (A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,

15 and

16 (B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.

17 (8) Subsection (m) of section 6501 (as redesig18 nated by section 1001) is amended by striking ‘‘or

19 51(j)’’ and inserting ‘‘45B, or 51(j)’’.

20 (9)(A) The section 6714 added by section

21 13242(b)(1) of the Revenue Reconciliation Act of

22 1993 is hereby redesignated as section 6715.

23 (B) The table of sections for part I of sub24 chapter B of chapter 68 is amended by striking
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1 ‘‘6714’’ in the item added by such section

2 13242(b)(2) of such Act and inserting ‘‘6715’’.

3 (10) Paragraph (2) of section 9502(b) is

4 amended by inserting ‘‘and before’’ after ‘‘1982,’’.

5 (11) Subsections (a)(2) and (a)(3) of section

6 13206 of the Revenue Reconciliation Act of 1993

7 are each amended by striking ‘‘this section’’ and in8 serting ‘‘this subsection’’.

9 (12) Paragraph (1) of section 13215(c) of the

10 Revenue Reconciliation Act of 1993 is amended by

11 striking ‘‘Public Law 92–21’’ and inserting ‘‘Public

12 Law 98–21’’.

13 (13) Paragraph (2) of section 13311(e) of the

14 Revenue Reconciliation Act of 1993 is amended by

15 striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section

16 1393(a)(2)’’.

17 (14) Subparagraph (B) of section 117(d)(2) is

18 amended by striking ‘‘section 132(f)’’ and inserting

19 ‘‘section 132(h)’’.

20 (o) EFFECTIVE DATE.—Any amendment made by

21 this section shall take effect as if included in the provision

22 of the Revenue Reconciliation Act of 1993 to which such

23 amendment relates.
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1 SEC. 1003. MISCELLANEOUS PROVISIONS.

2 (a) APPLICATION OF AMENDMENTS MADE BY TITLE

3 XII OF OMNIBUS BUDGET RECONCILIATION ACT OF

4 1990.—Except as otherwise expressly provided, whenever

5 in title XII of the Omnibus Budget Reconciliation Act of

6 1990 an amendment or repeal is expressed in terms of

7 an amendment to, or repeal of, a section or other provi8 sion, the reference shall be considered to be made to a

9 section or other provision of the Internal Revenue Code

10 of 1986.

11 (b) TREATMENT OF CERTAIN AMOUNTS UNDER

12 HEDGE BOND RULES.—

13 (1) Clause (iii) of section 149(g)(3)(B) is

14 amended to read as follows:

15 ‘‘(iii) AMOUNTS HELD PENDING REIN16 VESTMENT OR REDEMPTION.—Amounts

17 held for not more than 30 days pending re18 investment or bond redemption shall be

19 treated as invested in bonds described in

20 clause (i).’’

21 (2) The amendment made by paragraph (1)

22 shall take effect as if included in the amendments

23 made by section 7651 of the Omnibus Budget Rec24 onciliation Act of 1989.

25 (c) TREATMENT OF CERTAIN DISTRIBUTIONS

26 UNDER SECTION 1445.—
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1 (1) IN GENERAL.—Paragraph (3) of section

2 1445(e) is amended by adding at the end thereof

3 the following new sentence: ‘‘Rules similar to the

4 rules of the preceding provisions of this paragraph

5 shall apply in the case of any distribution to which

6 section 301 applies and which is not made out of the

7 earnings and profits of such a domestic corpora8 tion.’’

9 (2) EFFECTIVE DATE.—The amendment made

10 by paragraph (1) shall apply to distributions after

11 the date of the enactment of this Act.

12 (d) TREATMENT OF CERTAIN CREDITS UNDER SEC13 TION 469.—

14 (1) IN GENERAL.—Subparagraph (B) of section

15 469(c)(3) is amended by adding at the end thereof

16 the following new sentence: ‘‘If the preceding sen17 tence applies to the net income from any property

18 for any taxable year, any credits allowable under

19 subpart B (other than section 27(a)) or D of part

20 IV of subchapter A for such taxable year which are

21 attributable to such property shall be treated as

22 credits not from a passive activity to the extent the

23 amount of such credits does not exceed the regular

24 tax liability of the taxpayer for the taxable year

25 which is allocable to such net income.’’
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1 (2) EFFECTIVE DATE.—The amendment made

2 by paragraph (1) shall apply to taxable years begin3 ning after December 31, 1986.

4 (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE

5 LOSS RULES.—

6 (1) IN GENERAL.—Subparagraph (A) of section

7 469(g)(1) is amended to read as follows:

8 ‘‘(A) IN GENERAL.—If all gain or loss real9 ized on such disposition is recognized, the ex10 cess of—

11 ‘‘(i) any loss from such activity for

12 such taxable year (determined after the ap13 plication of subsection (b)), over

14 ‘‘(ii) any net income or gain for such

15 taxable year from all other passive activi16 ties (determined after the application of

17 subsection (b)),

18 shall be treated as a loss which is not from a

19 passive activity.’’

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall apply to taxable years begin22 ning after December 31, 1986.

23 (f) MISCELLANEOUS AMENDMENTS TO FOREIGN

24 PROVISIONS.—
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1 (1) COORDINATION OF UNIFIED ESTATE TAX

2 CREDIT WITH TREATIES.—Subparagraph (A) of sec3 tion 2102(c)(3) is amended by adding at the end

4 thereof the following new sentence: ‘‘For purposes

5 of the preceding sentence, property shall not be

6 treated as situated in the United States if such

7 property is exempt from the tax imposed by this

8 subchapter under any treaty obligation of the United

9 States.’’

10 (2) TREATMENT OF CERTAIN INTEREST PAID

11 TO RELATED PERSON.—

12 (A) IN GENERAL.—Subparagraph (B) of

13 section 163(j)(1) is amended by inserting before

14 the period at the end thereof the following:

15 ‘‘(and clause (ii) of paragraph (2)(A) shall not

16 apply for purposes of applying this subsection

17 to the amount so treated)’’.

18 (B) EFFECTIVE DATE.—The amendment

19 made by subparagraph (A) shall apply as if in20 cluded in the amendments made by section

21 7210(a) of the Revenue Reconciliation Act of

22 1989.

23 (3) TREATMENT OF INTEREST ALLOCABLE TO

24 EFFECTIVELY CONNECTED INCOME.—

25 (A) IN GENERAL.—
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1 (i) Subparagraph (B) of section

2 884(f)(1) is amended by striking ‘‘to the

3 extent’’ and all that follows down through

4 ‘‘subparagraph (A)’’ and inserting ‘‘to the

5 extent that the allocable interest exceeds

6 the interest described in subparagraph

7 (A)’’.

8 (ii) The second sentence of section

9 884(f)(1) is amended by striking ‘‘reason10 ably expected’’ and all that follows down

11 through the period at the end thereof and

12 inserting ‘‘reasonably expected to be alloca13 ble interest.’’

14 (iii) Paragraph (2) of section 884(f) is

15 amended to read as follows:

16 ‘‘(2) ALLOCABLE INTEREST.—For purposes of

17 this subsection, the term ‘allocable interest’ means

18 any interest which is allocable to income which is ef19 fectively connected (or treated as effectively con20 nected) with the conduct of a trade or business in

21 the United States.’’

22 (B) EFFECTIVE DATE.—The amendments

23 made by subparagraph (A) shall take effect as

24 if included in the amendments made by section

25 1241(a) of the Tax Reform Act of 1986.
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1 (4) CLARIFICATION OF SOURCE RULE.—

2 (A) IN GENERAL.—Paragraph (2) of sec3 tion 865(b) is amended by striking ‘‘863(b)’’

4 and inserting ‘‘863’’.

5 (B) EFFECTIVE DATE.—The amendment

6 made by subparagraph (A) shall take effect as

7 if included in the amendments made by section

8 1211 of the Tax Reform Act of 1986.

9 (5) REPEAL OF OBSOLETE PROVISIONS.—

10 (A) Paragraph (1) of section 6038(a) is

11 amended by striking ‘‘, and’’ at the end of sub12 paragraph (E) and inserting a period, and by

13 striking subparagraph (F).

14 (B) Subsection (b) of section 6038A is

15 amended by adding ‘‘and’’ at the end of para16 graph (2), by striking ‘‘, and’’ at the end of

17 paragraph (3) and inserting a period, and by

18 striking paragraph (4).

19 (g) TREATMENT OF ASSIGNMENT OF INTEREST IN

20 CERTAIN BOND-FINANCED FACILITIES.—

21 (1) IN GENERAL.—Subparagraph (A) of section

22 1317(3) of the Tax Reform Act of 1986 is amended

23 by adding at the end thereof the following new sen24 tence: ‘‘A facility shall not fail to be treated as de25 scribed in this subparagraph by reason of an assign-
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1 ment (or an agreement to an assignment) by the

2 governmental unit on whose behalf the bonds are is3 sued of any part of its interest in the property fi4 nanced by such bonds to another governmental

5 unit.’’

6 (2) EFFECTIVE DATE.—The amendment made

7 by paragraph (1) shall take effect as if included in

8 such section 1317 on the date of the enactment of

9 the Tax Reform Act of 1986.

10 (h) CLARIFICATION OF TREATMENT OF MEDICARE

11 ENTITLEMENT UNDER COBRA PROVISIONS.—

12 (1) IN GENERAL.—

13 (A) Subclause (V) of section

14 4980B(f)(2)(B)(i) is amended to read as fol15 lows:

16 ‘‘(V) MEDICARE ENTITLEMENT

17 FOLLOWED BY QUALIFYING EVENT.—

18 In the case of a qualifying event de19 scribed in paragraph (3)(B) that oc20 curs less than 18 months after the

21 date the covered employee became en22 titled to benefits under title XVIII of

23 the Social Security Act, the period of

24 coverage for qualified beneficiaries

25 other than the covered employee shall
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1 not terminate under this clause before

2 the close of the 36-month period be3 ginning on the date the covered em4 ployee became so entitled.’’

5 (B) Clause (v) of section 602(2)(A) of the

6 Employee Retirement Income Security Act of

7 1974 is amended to read as follows:

8 ‘‘(v) MEDICARE ENTITLEMENT FOL9 LOWED BY QUALIFYING EVENT.—In the

10 case of a qualifying event described in sec11 tion 603(2) that occurs less than 18

12 months after the date the covered em13 ployee became entitled to benefits under

14 title XVIII of the Social Security Act, the

15 period of coverage for qualified bene16 ficiaries other than the covered employee

17 shall not terminate under this subpara18 graph before the close of the 36-month pe19 riod beginning on the date the covered em20 ployee became so entitled.’’

21 (C) Clause (iv) of section 2202(2)(A) of

22 the Public Health Service Act is amended to

23 read as follows:

24 ‘‘(iv) MEDICARE ENTITLEMENT FOL25 LOWED BY QUALIFYING EVENT.—In the
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1 case of a qualifying event described in sec2 tion 2203(2) that occurs less than 18

3 months after the date the covered em4 ployee became entitled to benefits under

5 title XVIII of the Social Security Act, the

6 period of coverage for qualified bene7 ficiaries other than the covered employee

8 shall not terminate under this subpara9 graph before the close of the 36-month pe10 riod beginning on the date the covered em11 ployee became so entitled.’’

12 (2) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply to plan years begin14 ning after December 31, 1989.

15 (i) TREATMENT OF CERTAIN REMIC INCLUSIONS.—

16 (1) IN GENERAL.—Subsection (a) of section

17 860E is amended by adding at the end thereof the

18 following new paragraph:

19 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For

20 purposes of part VI of subchapter A of this chap21 ter—

22 ‘‘(A) the reference in section 55(b)(2) to

23 taxable income shall be treated as a reference

24 to taxable income determined without regard to

25 this subsection,
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1 ‘‘(B) the alternative minimum taxable in2 come of any holder of a residual interest in a

3 REMIC for any taxable year shall in no event

4 be less than the excess inclusion for such tax5 able year, and

6 ‘‘(C) any excess inclusion shall be dis7 regarded for purposes of computing the alter8 native tax net operating loss deduction.

9 The preceding sentence shall not apply to any orga10 nization to which section 593 applies, except to the

11 extent provided in regulations prescribed by the Sec12 retary under paragraph (2).’’

13 (2) EFFECTIVE DATE.—The amendment made

14 by paragraph (1) shall take effect as if included in

15 the amendments made by section 671 of the Tax Re16 form Act of 1986 unless the taxpayer elects to apply

17 such amendment only to taxable years beginning

18 after the date of the enactment of this Act.

19 (j) EXEMPTION FROM HARBOR MAINTENANCE TAX

20 FOR CERTAIN PASSENGERS.—

21 (1) IN GENERAL.—Subparagraph (D) of section

22 4462(b)(1) (relating to special rule for Alaska, Ha23 waii, and possessions) is amended by inserting be24 fore the period the following: ‘‘, or passengers trans25 ported on United States flag vessels operating solely
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1 within the State waters of Alaska or Hawaii and ad2 jacent international waters’’.

3 (2) EFFECTIVE DATE.—The amendment made

4 by paragraph (1) shall take effect as if included in

5 the amendments made by section 1402(a) of the

6 Harbor Maintenance Revenue Act of 1986.

7 (k) AMENDMENTS RELATED TO REVENUE PROVI8 SIONS OF ENERGY POLICY ACT OF 1992.—

9 (1) Effective with respect to taxable years be10 ginning after December 31, 1990, subclause (II) of

11 section 53(d)(1)(B)(iv) is amended to read as fol12 lows:

13 ‘‘(II) the adjusted net minimum

14 tax for any taxable year is the amount

15 of the net minimum tax for such year

16 increased in the manner provided in

17 clause (iii).’’

18 (2) Subsection (g) of section 179A is redesig19 nated as subsection (f).

20 (l) TREATMENT OF QUALIFIED FOOTBALL COACHES

21 PLAN.—

22 (1) IN GENERAL.—Section 1022 of title II of the

23 Employee Retirement Income Security Act of 1974 is

24 amended by adding at the end thereof the following

25 new subsection:
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1 ‘‘(i) QUALIFIED FOOTBALL COACHES PLAN.—For pur2 poses of determining the qualified plan status of a qualified

3 football coaches plan, section 3(37)(F) shall be treated as

4 part of this title and a qualified football coaches plan shall

5 be treated as a multiemployer collectively bargained plan

6 for purposes of the Internal Revenue Code of 1986.’’

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

8 paragraph (1) shall apply to years beginning after

9 the date of the enactment of Public Law 100–202.

10 (l) (m) MISCELLANEOUS CLERICAL AMENDMENTS.—

11 (1) Subclause (II) of section 56(g)(4)(C)(ii) is

12 amended by striking ‘‘of the subclause’’ and insert13 ing ‘‘of subclause’’.

14 (2) Paragraph (2) of section 72(m) is amended

15 by inserting ‘‘and’’ at the end of subparagraph (A),

16 by striking subparagraph (B), and by redesignating

17 subparagraph (C) as subparagraph (B).

18 (3) Paragraph (2) of section 86(b) is amended

19 by striking ‘‘adusted’’ and inserting ‘‘adjusted’’.

20 (4)(A) The heading for section 112 is amended

21 by striking ‘‘COMBAT PAY’’ and inserting ‘‘COM22 BAT ZONE COMPENSATION’’.

23 (B) The item relating to section 112 in the

24 table of sections for part III of subchapter B of
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1 chapter 1 is amended by striking ‘‘combat pay’’ and

2 inserting ‘‘combat zone compensation’’.

3 (C) Paragraph (1) of section 3401(a) is amend4 ed by striking ‘‘combat pay’’ and inserting ‘‘combat

5 zone compensation’’.

6 (5) Clause (i) of section 172(h)(3)(B) is amend7 ed by striking the comma at the end thereof and in8 serting a period.

9 (6) Clause (ii) of section 543(a)(2)(B) is

10 amended by striking ‘‘section 563(c)’’ and inserting

11 ‘‘section 563(d)’’.

12 (7) Paragraph (1) of section 958(a) is amended

13 by striking ‘‘sections 955(b)(1)(A) and (B),

14 955(c)(2)(A)(ii), and 960(a)(1)’’ and inserting ‘‘sec15 tion 960(a)(1)’’.

16 (8) Subparagraph (B) of section 4092(b)(1) is

17 amended by striking ‘‘or’’ at the end of clause (i).

18 (9) (8) Subsection (g) of section 642 is amend19 ed by striking ‘‘under 2621(a)(2)’’ and inserting

20 ‘‘under section 2621(a)(2)’’.

21 (10) (9) Section 1463 is amended by striking

22 ‘‘this subsection’’ and inserting ‘‘this section’’.

23 (11) (10) Subsection (k) of section 3306 is

24 amended by inserting a period at the end thereof.
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1 (12) (11) The item relating to section 4472 in

2 the table of sections for subchapter B of chapter 36

3 is amended by striking ‘‘and special rules’’.

4 (13) (12) Paragraph (2) of section 4978(b) is

5 amended by striking the period at the end of sub6 paragraph (A) and inserting a comma, and by strik7 ing the period and quotation marks at the end of

8 subparagraph (B) and inserting a comma.

9 (14) (13) Paragraph (3) of section 5134(c) is

10 amended by striking ‘‘section 6662(a)’’ and inserting

11 ‘‘section 6665(a)’’.

12 (15) (14) Paragraph (2) of section 5206(f) is

13 amended by striking ‘‘section 5(e)’’ and inserting

14 ‘‘section 105(e)’’.

15 (16) (15) Paragraph (1) of section 6050B(c) is

16 amended by striking ‘‘section 85(c)’’ and inserting

17 ‘‘section 85(b)’’.

18 (17) (16) Subsection (k) of section 6166 is

19 amended by striking paragraph (6).

20 (18) (17) Subsection (e) of section 6214 is

21 amended to read as follows:
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1 ‘‘(e) CROSS REFERENCE.— ‘‘For provision giving Tax Court jurisdiction to

order a refund of an overpayment and to award

sanctions, see section 6512(b)(2).’’

2 (19) (18) The section heading for section 6043

3 is amended by striking the semicolon and inserting

4 a comma.

5 (20) (19) The item relating to section 6043 in

6 the table of sections for subpart B of part III of

7 subchapter A of chapter 61 is amended by striking

8 the semicolon and inserting a comma.

9 (21) (20) The table of sections for part I of

10 subchapter A of chapter 68 is amended by striking

11 the item relating to section 6662.

12 (22) (21)(A) Section 7232 is amended—

13 (i) by striking ‘‘LUBRICATING OIL,’’ in

14 the heading, and

15 (ii) by striking ‘‘lubricating oil,’’ in the

16 text.

17 (B) The table of sections for part II of sub18 chapter A of chapter 75 is amended by striking ‘‘lu19 bricating oil,’’ in the item relating to section 7232.

20 (23) (22) Paragraph (1) of section 6701(a) of

21 the Omnibus Budget Reconciliation Act of 1989 is

22 amended by striking ‘‘subclause (IV)’’ and inserting

23 ‘‘subclause (V)’’.
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1 (24) (23) Clause (ii) of section 7304(a)(2)(D)

2 of such Act is amended by striking ‘‘subsection

3 (c)(2)’’ and inserting ‘‘subsection (c)’’.

4 (25) (24) Paragraph (1) of section 7646(b) of

5 such Act is amended by striking ‘‘section

6 6050H(b)(1)’’ and inserting ‘‘section 6050H(b)(2)’’.

7 (26) (25) Paragraph (10) of section 7721(c)

8 of such Act is amended by striking ‘‘section

9 6662(b)(2)(C)(ii)’’ and inserting ‘‘section

10 6661(b)(2)(C)(ii)’’.

11 (27) (26) Subparagraph (A) of section

12 7811(i)(3) of such Act is amended by inserting ‘‘the

13 first place it appears’’ before ‘‘in clause (i)’’.

14 (28) (27) Paragraph (10) of section 7841(d)

15 of such Act is amended by striking ‘‘section

16 381(a)’’ and inserting ‘‘section 381(c)’’.

17 (29) (28) Paragraph (2) of section 7861(c) of

18 such Act is amended by inserting ‘‘the second place

19 it appears’’ before ‘‘and inserting’’.

20 (30) (29) Paragraph (1) of section 460(b) is

21 amended by striking ‘‘the look-back method of para22 graph (3)’’ and inserting ‘‘the look-back method of

23 paragraph (2)’’.
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1 (31) (30) Subparagraph (C) of section 50(a)(2)

2 is amended by striking ‘‘subsection (c)(4)’’ and in3 serting ‘‘subsection (d)(5)’’.

4 (32) (31) Subparagraph (B) of section

5 172(h)(4) is amended by striking the material fol6 lowing the heading and preceding clause (i) and in7 serting ‘‘For purposes of subsection (b)(2)—’’.

8 (33) (32) Subparagraph (A) of section

9 355(d)(7) is amended by inserting ‘‘section’’ before

10 ‘‘267(b)’’.

11 (34) (33) Subparagraph (C) of section

12 420(e)(1) is amended by striking ‘‘mean’’ and in13 serting ‘‘means’’.

14 (35) (34) Paragraph (4) of section 537(b) is

15 amended by striking ‘‘section 172(i)’’ and inserting

16 ‘‘section 172(f)’’.

17 (36) (35) Subparagraph (B) of section

18 613(e)(1) is amended by striking the comma at the

19 end thereof and inserting a period.

20 (37) (36) Paragraph (4) of section 856(a) is

21 amended by striking ‘‘section 582(c)(5)’’ and insert22 ing ‘‘section 582(c)(2)’’.

23 (38) (37) Sections 904(f)(2)(B)(i) and

24 907(c)(4)(B)(iii) are each amended by inserting ‘‘(as

25 in effect on the day before the date of the enactment
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1 of the Revenue Reconciliation Act of 1990)’’ after

2 ‘‘section 172(h)’’.

3 (39) (38) Subsection (b) of section 936 is

4 amended by striking ‘‘subparagraphs (D)(ii)(I)’’ and

5 inserting ‘‘subparagraphs (D)(ii)’’.

6 (40) (39) Subsection (c) of section 2104 is

7 amended by striking ‘‘subparagraph (A), (C), or (D)

8 of section 861(a)(1)’’ and inserting ‘‘section

9 861(a)(1)(A)’’.

10 (41) (40) Paragraph (1) of section 5002(b) is

11 amended by striking ‘‘section 5041(c)’’ and inserting

12 ‘‘section 5041(d)’’.

13 (42) (41) Section 6038 is amended by redesig14 nating the subsection relating to cross references as

15 subsection (f).

16 (43) (42) Clause (iv) of section 6103(e)(1)(A) is

17 amended by striking all that follows ‘‘provisions of’’

18 and inserting ‘‘section 1(g) or 59(j);’’.

19 (44) (43) The subsection (f) of section 6109 of

20 the Internal Revenue Code of 1986 which was added

21 by section 2201(d) of Public Law 101–624 is redes22 ignated as subsection (g).

23 (45) (44) Subsection (b) of section 7454 is

24 amended by striking ‘‘section 4955(e)(2)’’ and in25 serting ‘‘section 4955(f)(2)’’.
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1 (46) (45) 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 (47) (46) Paragraph (1) of section 11303(b) of

7 the Revenue Reconciliation Act of 1990 shall be ap8 plied as if ‘‘paragraph’’ appeared instead of ‘‘sub9 paragraph’’ in the material proposed to be stricken.

10 (48) (47) Subsection (f) of section 11701 of the

11 Revenue Reconciliation Act of 1990 is amended by

12 inserting ‘‘(relating to definitions)’’ after ‘‘section

13 6038(e)’’.

14 (49) (48) Subsection (i) of section 11701 of the

15 Revenue Reconciliation Act of 1990 shall be applied

16 as if ‘‘subsection’’ appeared instead of ‘‘section’’ in

17 the material proposed to be stricken.

18 (50) (49) Subparagraph (B) of section

19 11801(c)(2) of the Revenue Reconciliation Act of

20 1990 shall be applied as if ‘‘section 56(g)’’ appeared

21 instead of ‘‘section 59(g)’’.

22 (51) (50) Subparagraph (C) of section

23 11801(c)(8) of the Revenue Reconciliation Act of

24 1990 shall be applied as if ‘‘reorganizations’’ ap-
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1 peared instead of ‘‘reorganization’’ in the material

2 proposed to be stricken.

3 (52) (51) Subparagraph (H) of section

4 11801(c)(9) of the Revenue Reconciliation Act of

5 1990 shall be applied as if ‘‘section 1042(c)(1)(B)’’

6 appeared instead of ‘‘section 1042(c)(2)(B)’’.

7 (53) (52) Subparagraph (F) of section

8 11801(c)(12) of the Revenue Reconciliation Act of

9 1990 shall be applied as if ‘‘and (3)’’ appeared in10 stead of ‘‘and (E)’’.

11 (54) (53) Subparagraph (A) of section

12 11801(c)(22) of the Revenue Reconciliation Act of

13 1990 shall be applied as if ‘‘chapters 21’’ appeared

14 instead of ‘‘chapter 21’’ in the material proposed to

15 be stricken.

16 (55) (54) Paragraph (3) of section 11812(b) of

17 the Revenue Reconciliation Act of 1990 shall be ap18 plied by not executing the amendment therein to the

19 heading of section 42(d)(5)(B).

20 (56) (55) Clause (i) of section 11813(b)(9)(A)

21 of the Revenue Reconciliation Act of 1990 shall be

22 applied as if a comma appeared after ‘‘(3)(A)(ix)’’ in

23 the material proposed to be stricken.

24 (57) (56) Subparagraph (F) of section

25 11813(b)(13) of the Revenue Reconciliation Act of
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1 1990 shall be applied as if ‘‘tax’’ appeared after ‘‘in2 vestment’’ in the material proposed to be stricken.

3 (58) (57) Paragraph (19) of section 11813(b)

4 of the Revenue Reconciliation Act of 1990 shall be

5 applied as if ‘‘Paragraph (20) of section 1016(a), as

6 redesignated by section 11801,’’ appeared instead of

7 ‘‘Paragraph (21) of section 1016(a)’’.

8 (59) (58) Paragraph (5) section 8002(a) of the

9 Surface Transportation Revenue Act of 1991 shall

10 be applied as if ‘‘4481(e)’’ appeared instead of

11 ‘‘4481(c)’’.

12 (60) (59) 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 (61) (60) Paragraph (7) of section 7611(h) is

21 amended by striking ‘‘appropriate’’ and inserting

22 ‘‘appropriate’’.

23 (62) (61) The heading of paragraph (3) of sec24 tion 419A(c) is amended by striking ‘‘SEVERENCE’’

25 and inserting ‘‘SEVERANCE’’.
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1 (63) (62) Clause (ii) of section 807(d)(3)(B) is

2 amended by striking ‘‘Commissioners’ ’’ and insert3 ing ‘‘Commissioners’ ’’.

4 (64) (63) Subparagraph (B) of section

5 1274A(c)(1) is amended by striking ‘‘instrument’’

6 and inserting ‘‘instrument’’.

7 (65) (64) Subparagraph (B) of section

8 724(d)(3) by striking ‘‘Subparagraph’’ and inserting

9 ‘‘Subparagraph’’.

10 (66) (65) The last sentence of paragraph (2) of

11 section 42(c) is amended by striking ‘‘of 1988’’.

12 (67) (66) Paragraph (1) of section 9707(d) is

13 amended by striking ‘‘diligence,’’ and inserting ‘‘dili14 gence’’.

15 (68) (67) Subsection (c) of section 4977 is

16 amended by striking ‘‘section 132(g)(2)’’ and insert17 ing ‘‘section 132(h)’’.

18 (69) (68) The last sentence of section

19 401(a)(20) is amended by striking ‘‘section 211’’

20 and inserting ‘‘section 521’’.

21 (70) (69) Subparagraph (A) of section

22 402(g)(3) is amended by striking ‘‘subsection

23 (a)(8)’’ and inserting ‘‘subsection (e)(3)’’.
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1 (71) (70) The last sentence of section

2 403(b)(10) is amended by striking ‘‘an direct’’ and

3 inserting ‘‘a direct’’.

4 (72) (71) Subparagraph (A) of section

5 4973(b)(1) is amended by striking ‘‘sections 402(c)’’

6 and inserting ‘‘section 402(c)’’.

7 (73) (72) Paragraph (12) of section 3405(e) is

8 amended by striking ‘‘(b)(3)’’ and inserting

9 ‘‘(b)(2)’’.

10 (74) (73) Paragraph (41) of section 521(b) of

11 the Unemployment Compensation Amendments of

12 1992 shall be applied as if ‘‘section’’ appeared in13 stead of ‘‘sections’’ in the material proposed to be

14 stricken.

15 (75) (74) Paragraph (27) of section 521(b) of

16 the Unemployment Compensation Amendments of

17 1992 shall be applied as if ‘‘Section 691(c)(5)’’ ap18 peared instead of ‘‘Section 691(c)’’.

19 (76) (75) Paragraph (5) of section 860F(a)(5)

20 860F(a) is amended by striking ‘‘paragraph (1)’’ and

21 inserting ‘‘paragraph (2)’’.
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1 Subtitle B—Income Security and

2 Human Resource Amendments

3 PART I—AMENDMENTS RELATING TO OLD-AGE,

4 SURVIVORS, AND DISABILITY INSURANCE

5 PROGRAM

6 SEC. 1011. TECHNICAL CORRECTIONS RELATED TO OASDI

7 IN THE OMNIBUS BUDGET RECONCILIATION

8 ACT OF 1990.

9 (a) AMENDMENTS RELATED TO PROVISIONS IN SEC10 TION 5103(b) RELATING TO DISABLED WIDOWS.—Sec11 tion 223(f)(2) of the Social Security Act (42 U.S.C.

12 423(f)(2)) is amended—

13 (1) in subparagraph (A), by striking ‘‘(in a case

14 to which clause (ii)(II) does not apply)’’; and

15 (2) by striking subparagraph (B)(ii) and insert16 ing the following:

17 ‘‘(ii) the individual is now able to en18 gage in substantial gainful activity; or’’.

19 (b) AMENDMENTS RELATED TO PROVISIONS IN SEC20 TION 5105(d) RELATING TO REPRESENTATIVE PAY21 EES.—Section 5105(d)(1)(A) of the Omnibus Budget

22 Reconciliation Act of 1990 (Public Law 101–508) is

23 amended—

24 (1) by striking ‘‘Section 205(j)(5)’’ and insert25 ing ‘‘Section 205(j)(6)’’; and
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1 (2) by redesignating the paragraph (5) as

2 amended thereby as paragraph (6).

3 (c) AMENDMENTS RELATED TO PROVISIONS IN SEC4 TION 5106 RELATING TO COORDINATION OF RULES

5 UNDER TITLES II AND XVI GOVERNING FEES FOR REP6 RESENTATIVES OF CLAIMANTS WITH ENTITLEMENTS

7 UNDER BOTH TITLES.—

8 (1) CALCULATION OF FEE OF CLAIMANT’S REP9 RESENTATIVE BASED ON AMOUNT OF PAST-DUE

10 SUPPLEMENTAL SECURITY INCOME BENEFITS AFTER

11 APPLICATION OF WINDFALL OFFSET PROVISION.—

12 Section 1631(d)(2)(A)(i) of the Social Security Act

13 (as amended by section 5106(a)(2) of the Omnibus

14 Budget Reconciliation Act of 1990) (42 U.S.C.

15 1383(d)(2)(A)(i)) is amended to read as follows:

16 ‘‘(i) by substituting, in subparagraphs (A)(ii)(I)

17 and (C)(i), the phrase ‘(as determined before any

18 applicable reduction under section 1631(g), and re19 duced by the amount of any reduction in benefits

20 under this title or title II made pursuant to section

21 1127(a))’ for the parenthetical phrase contained

22 therein; and’’.

23 (2) CALCULATION OF PAST-DUE BENEFITS FOR

24 PURPOSES OF DETERMINING ATTORNEY FEES IN JU25 DICIAL PROCEEDINGS.—
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1 (A) IN GENERAL.—Section 206(b)(1) of

2 such Act (42 U.S.C. 406(b)(1)) is amended—

3 (i) by inserting ‘‘(A)’’ after ‘‘(b)(1)’’;

4 and

5 (ii) by adding at the end the following

6 new subparagraph:

7 ‘‘(B) For purposes of this paragraph—

8 ‘‘(i) the term ‘past-due benefits’ excludes any

9 benefits with respect to which payment has been

10 continued pursuant to subsection (g) or (h) of sec11 tion 223, and

12 ‘‘(ii) amounts of past-due benefits shall be

13 taken into account to the extent provided under the

14 rules applicable in cases before the Secretary.’’.

15 (B) PROTECTION FROM OFFSETTING SSI

16 BENEFITS.—The last sentence of section

17 1127(a) of such Act (as added by section

18 5106(b) of the Omnibus Budget Reconciliation

19 Act of 1990) (42 U.S.C. 1320a–6(a)) is amend20 ed by striking ‘‘section 206(a)(4)’’ and inserting

21 ‘‘subsection (a)(4) or (b) of section 206’’.

22 (3) APPLICATION OF SINGLE DOLLAR AMOUNT

23 CEILING TO CONCURRENT CLAIMS UNDER TITLES II

24 AND XVI.—
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1 (A) IN GENERAL.—Section 206(a)(2) of

2 such Act (as amended by section 5106(a)(1) of

3 the Omnibus Budget Reconciliation Act of

4 1990) (42 U.S.C. 406(a)(2)) is amended—

5 (i) by redesignating subparagraph (C)

6 as subparagraph (D); and

7 (ii) by inserting after subparagraph

8 (B) the following new subparagraph:

9 ‘‘(C) In any case involving—

10 ‘‘(i) an agreement described in subparagraph

11 (A) with any person relating to both a claim of enti12 tlement to past-due benefits under this title and a

13 claim of entitlement to past-due benefits under title

14 XVI, and

15 ‘‘(ii) a favorable determination made by the

16 Secretary with respect to both such claims,

17 the Secretary may approve such agreement only if the

18 total fee or fees specified in such agreement does not ex19 ceed, in the aggregate, the dollar amount in effect under

20 subparagraph (A)(ii)(II).’’.

21 (B) CONFORMING AMENDMENT.—Section

22 206(a)(3)(A) of such Act (as amended by sec23 tion 5106(a)(1) of the Omnibus Budget Rec24 onciliation Act of 1990) (42 U.S.C.

25 406(a)(3)(A)) is amended by striking ‘‘para-
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1 graph (2)(C)’’ and inserting ‘‘paragraph

2 (2)(D)’’.

3 (d) AMENDMENT RELATED TO PROVISIONS IN SEC4 TION 5115 RELATING TO ADVANCE TAX TRANSFERS.—

5 Section 201(a) of the Social Security Act (42 U.S.C.

6 401(a)) is amended in the last sentence by striking ‘‘and’’

7 the second place it appears.

8 (e) EFFECTIVE DATE.—Each amendment made by

9 this section shall take effect as if included in the provisions

10 of the Omnibus Budget Reconciliation Act of 1990 to

11 which such amendment relates.

12 SEC. 1012. ELIMINATION OF ROUNDING DISTORTION IN

13 THE CALCULATION OF THE OLD-AGE, SURVI14 VORS, AND DISABILITY INSURANCE CON15 TRIBUTION AND BENEFIT BASE AND THE

16 EARNINGS TEST EXEMPT AMOUNTS.

17 (a) ADJUSTMENT OF OASDI CONTRIBUTION AND

18 BENEFIT BASE.—

19 (1) IN GENERAL.—Section 230(b) of the Social

20 Security Act (42 U.S.C. 430(b)) is amended by

21 striking paragraphs (1) and (2) and inserting the

22 following:

23 ‘‘(1) $60,600, and

24 ‘‘(2) the ratio of (A) the deemed average total

25 wages (as defined in section 209(k)(1)) for the cal-
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1 endar year before the calendar year in which the de2 termination under subsection (a) is made to (B) the

3 deemed average total wages (as so defined) for

4 1992,’’.

5 (2) CONFORMING AMENDMENT RELATING TO

6 APPLICABLE PRIOR LAW.—Section 230(d) of such

7 Act (42 U.S.C. 430(d)) is amended by striking ‘‘(ex8 cept that’’ and all that follows through the end and

9 inserting ‘‘(except that, for purposes of subsection

10 (b) of such section 230 as so in effect, the reference

11 to the contribution and benefit base in paragraph

12 (1) of such subsection (b) shall be deemed a ref13 erence to an amount equal to $45,000, each ref14 erence in paragraph (2) of such subsection (b) to the

15 average of the wages of all employees as reported to

16 the Secretary of the Treasury shall be deemed a ref17 erence to the deemed average total wages (as defined

18 in section 209(k)(1)), the reference to a preceding

19 calendar year in paragraph (2)(A) of such sub20 section (b) shall be deemed a reference to the cal21 endar year before the calendar year in which the de22 termination under subsection (a) of such section 230

23 is made, and the reference to a calendar year in

24 paragraph (2)(B) of such subsection (b) shall be

25 deemed a reference to 1992).’’.
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1 (3) ADJUSTMENT OF CONTRIBUTION AND BEN2 EFIT BASE APPLICABLE IN DETERMINING YEARS OF

3 COVERAGE FOR PURPOSES OF SPECIAL MINIMUM

4 PRIMARY INSURANCE AMOUNT.—Section

5 215(a)(1)(C)(ii) of such Act is amended by striking

6 ‘‘(except that’’ and all that follows through the end

7 and inserting ‘‘(except that, for purposes of sub8 section (b) of such section 230 as so in effect, the

9 reference to the contribution and benefit base in

10 paragraph (1) of such subsection (b) shall be

11 deemed a reference to an amount equal to $45,000,

12 each reference in paragraph (2) of such subsection

13 (b) to the average of the wages of all employees as

14 reported to the Secretary of the Treasury shall be

15 deemed a reference to the deemed average total

16 wages (as defined in section 209(k)(1)), the ref17 erence to a preceding calendar year in paragraph

18 (2)(A) of such subsection (b) shall be deemed a ref19 erence to the calendar year before the calendar year

20 in which the determination under subsection (a) of

21 such section 230 is made, and the reference to a cal22 endar year in paragraph (2)(B) of such subsection

23 (b) shall be deemed a reference to 1992).’’.

24 (b) ADJUSTMENT OF EARNINGS TEST EXEMPT

25 AMOUNT.—Section 203(f)(8)(B)(ii) of the Social Security
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1 Act (42 U.S.C. 403(f)(8)(B)(ii)) is amended to read as

2 follows:

3 ‘‘(ii) the product of the corresponding ex4 empt amount which is in effect with respect to

5 months in the taxable year ending after 1993

6 and before 1995, and the ratio of—

7 ‘‘(I) the deemed average total wages

8 (as defined in section 209(k)(1)) for the

9 calendar year before the calendar year in

10 which the determination under subpara11 graph (A) is made, to

12 ‘‘(II) the deemed average total wages

13 (as so defined) for 1992,

14 with such product, if not a multiple of $10,

15 being rounded to the next higher multiple of

16 $10 where such product is a multiple of $5 but

17 not of $10 and to the nearest multiple of $10

18 in any other case.’’.

19 (c) EFFECTIVE DATES.—

20 (1) The amendments made by subsection (a)

21 shall be effective with respect to the determination

22 of the contribution and benefit base for years after

23 1994.

24 (2) The amendment made by subsection (b)

25 shall be effective with respect to the determination
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1 of the exempt amounts applicable to any taxable

2 year ending after 1994.

3 PART II—HUMAN RESOURCES PROVISIONS

4 SEC. 1016. CORRECTIONS RELATED TO THE INCOME SECU5 RITY AND HUMAN RESOURCES PROVISIONS

6 OF THE OMNIBUS BUDGET RECONCILIATION

7 ACT OF 1990.

8 (a) AMENDMENT RELATED TO SECTION

9 5035(a)(2).—Section 5035(a)(2) of the Omnibus Budget

10 Reconciliation Act of 1990 (Public Law 101–508) is

11 amended by striking ‘‘a semicolon’’ and inserting

12 ‘‘ ‘; and’ ’’.

13 (b) REPEAL OF PROVISION INADVERTENTLY IN14 CLUDED.—Section 5057 of the Omnibus Budget Rec15 onciliation Act of 1990 (Public Law 101–508), and the

16 amendment made by such section, are hereby repealed,

17 and section 1139(d) of the Social Security Act shall be

18 applied and administered as if such section 5057 had

19 never been enacted.

20 (c) AMENDMENT RELATED TO SECTION

21 5105(d)(1)(B).—Section 5105(d)(1)(B) of the Omnibus

22 Budget Reconciliation Act of 1990 (Public Law 101–508;

23 104 Stat. 1388–266) is amended to read as follows:

24 ‘‘(B) TITLE XVI.—Section 1631(a)(2)(F)

25 (42 U.S.C. 1383(a)(2)(F)), as so redesignated
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1 by subsection (c)(2) of this section, is amended

2 to read as follows:

3 ‘‘ ‘(F) The Secretary shall include as a part of the

4 annual report required under section 704 information with

5 respect to the implementation of the preceding provisions

6 of this paragraph, including—

7 ‘‘ ‘(i) the number of cases in which the rep8 resentative payee was changed;

9 ‘‘ ‘(ii) the number of cases discovered where

10 there has been a misuse of funds;

11 ‘‘ ‘(iii) how any such cases were dealt with by

12 the Secretary;

13 ‘‘ ‘(iv) the final disposition of such cases (in14 cluding any criminal penalties imposed); and

15 ‘‘ ‘(v) such other information as the Secretary

16 determines to be appropriate.’.’’

17 (d) AMENDMENT RELATED TO SECTION

18 5105(a)(1)(B).—The second paragraph of section 1631(a)

19 of the Social Security Act (42 U.S.C. 1383(a)) is amended

20 by striking ‘‘(A)(i) Payments’’ and inserting ‘‘(2)(A)(i)

21 Payments’’.

22 (e) AMENDMENTS RELATED TO SECTION 5105(b).—

23 Section 1631(a)(2)(C) of the Social Security Act (42

24 U.S.C. 1383(a)(2)(C)) is amended—

25 (1) by striking clause (ii);
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1 (2) by redesignating clauses (iii), (iv), and (v)

2 as clauses (ii), (iii), and (iv), respectively; and

3 (3) in clause (iv) (as so redesignated), by strik4 ing ‘‘(iii), and (iv)’’ and inserting ‘‘and (iii)’’.

5 (f) AMENDMENTS RELATED TO SECTION

6 5107(a)(2)(B).—Section 1631(c)(1)(B) of the Social Se7 curity Act (42 U.S.C. 1383(c)(1)(B)) is amended by strik8 ing ‘‘paragraph (1)’’ each place such term appears and

9 inserting ‘‘subparagraph (A)’’.

10 (g) AMENDMENT RELATED TO SECTION

11 5109(a)(2).—Section 1631 of the Social Security Act (42

12 U.S.C. 1383) is amended by redesignating the subsection

13 (n) added by section 5109(a)(2) of the Omnibus Budget

14 Reconciliation Act of 1990, as subsection (o).

15 (h) AMENDMENTS RELATED TO SECTION

16 11115(b)(2).—Section 11115(b)(2) of the Omnibus Budg17 et Reconciliation Act of 1990 (Public Law 101–508) is

18 amended—

19 (1) in subparagraph (A), by striking ‘‘para20 graph (8)’’ and inserting ‘‘paragraph (9)’’;

21 (2) in subparagraph (B), by striking ‘‘para22 graph (9)’’ and inserting ‘‘paragraph (10)’’; and

23 (3) in subparagraph (C), by redesignating the

24 new paragraph added thereby as paragraph (11).
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1 (i) AMENDMENT RELATED TO SECTION

2 13101(d)(2).—Section 256(k)(2)(A) of the Balanced

3 Budget and Emergency Deficit Control Act of 1985 is

4 amended—

5 (1) by striking ‘‘—’’ the second place it appears

6 and all that follows through ‘‘(I)’’; and

7 (2) by striking ‘‘; or’’ and all that follows

8 through ‘‘(II)’’ and inserting ‘‘, except that a State

9 may not be allotted an amount under this subpara10 graph that exceeds’’.

11 (j) (i) EFFECTIVE DATE.—Each amendment made

12 by this section shall take effect as if included in the provi13 sion of the Omnibus Budget Reconciliation Act of 1990

14 to which the amendment relates at the time such provision

15 became law.

16 SEC. 1017. TECHNICAL CORRECTIONS RELATED TO THE

17 HUMAN RESOURCE AND INCOME SECURITY

18 PROVISIONS OF OMNIBUS BUDGET REC19 ONCILIATION ACT OF 1989.

20 (a) AMENDMENT RELATING TO SECTION 8004(a).—

21 Section 408(m)(2)(A) of the Social Security Act (42

22 U.S.C. 608(m)(2)(A)) is amended by striking ‘‘a fiscal’’

23 and inserting ‘‘the fiscal’’.

24 (b) AMENDMENT RELATING TO SECTION 8006(a).—

25 Section 473(a)(6)(B) of such Act (42 U.S.C.
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1 673(a)(6)(B)) is amended by striking ‘‘474(a)(3)(B)’’ and

2 inserting ‘‘474(a)(3)(C)’’.

3 (c) AMENDMENT RELATING TO SECTION

4 8007(b)(3).—Subparagraph (D) of section 475(5) of such

5 Act (42 U.S.C. 675(5)(D)) is amended by moving such

6 subparagraph 2 ems to the right so that the left margin

7 of such subparagraph is aligned with the left margin of

8 subparagraph (C) of such section.

9 (d) EFFECTIVE DATE.—Each amendment made by

10 this section shall take effect as if the amendment had been

11 included in the provision of the Omnibus Budget Rec12 onciliation Act of 1989 to which the amendment relates,

13 at the time the provision became law.

14 SEC. 1018. ELIMINATION OF OBSOLETE PROVISIONS RE15 LATING TO TREATMENT OF THE EARNED IN16 COME TAX CREDIT.

17 (a) TREATMENT OF EITC AS EARNED INCOME.—

18 Section 1612(a)(1) of the Social Security Act (42 U.S.C.

19 1382a(a)(1)) is amended by striking subparagraph (C)

20 and by redesignating subparagraphs (D) and (E) as sub21 paragraphs (C) and (D), respectively.

22 (b) ADJUSTMENT OF BENEFITS DUE TO TREAT23 MENT OF EITC AS EARNED INCOME.—Section 1631(b)

24 of such Act (42 U.S.C. 1383(b)) is amended by striking
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1 paragraph (3) and by redesignating paragraphs (4) and

2 (5) as paragraphs (3) and (4), respectively.

3 SEC. 1019. REDESIGNATION OF CERTAIN PROVISIONS.

4 Section 1631(e)(6) of the Social Security Act (42

5 U.S.C. 1383(e)(6)) is amended by redesignating subpara6 graphs (1) and (2) as subparagraphs (A) and (B), respec7 tively.

8 Subtitle C—Tariff and Customs

9 SEC. 1021. TECHNICAL AMENDMENTS TO THE HAR10 MONIZED TARIFF SCHEDULE OF THE UNITED

11 STATES.

12 (a) IN GENERAL.—The Harmonized Tariff Schedule

13 of the United States is amended as follows:

14 (1) TAPESTRY AND UPHOLSTERY FABRICS.—

15 The article description for subheading 5112.19.20 is

16 amended by striking ‘‘of a weight exceeding 300

g/m2 17 ’’.

18 (2) GLOVES.—

19 (A) Chapter 61 is amended by redesignat20 ing subheading 6116.10.45 as subheading

21 6116.10.48.

22 (B) Chapter 62 is amended by striking the

23 superior text ‘‘Other:’’ that appears between

24 subheadings 6216.00.46 and 6216.00.52.
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1 (3) AGGLOMERATE STONE FLOOR AND WALL

2 TILES.—The article description for subheading

3 6810.19.12 is amended to read as follows: ‘‘Of stone

4 agglomerated with binders other than cement’’.

5 (4) 2,4-DIAMINOBENZENESULFONIC ACID.—

6 The article description for heading 9902.30.43 is

7 amended by striking ‘‘2921.51.50’’ and inserting

8 ‘‘2921.59.50’’.

9 (5) MACHINES USED IN THE MANUFACTURE OF

10 BICYCLE PARTS.—The article description for heading

11 9902.84.79 is amended by striking ‘‘8479.89.90’’

12 and inserting ‘‘8462.49.00, 8479.89.90 or

13 9031.80.00’’.

14 (6) COPYING MACHINES AND PARTS.—The arti15 cle description for heading 9902.90.90 is amended

16 by inserting ‘‘or 8473.40.40’’ after ‘‘8472.90.80’’.

17 (b) STAGED RATE REDUCTIONS FOR GLOVES.—Any

18 staged reduction of a special rate of duty set forth in sub19 heading 6116.10.45 of such Schedule that takes effect on

20 or after October 1, 1990, by reason of section 10011(a)(2)

21 of the Omnibus Budget Reconciliation Act of 1990 shall

22 apply to the corresponding rate of duty in subheading

23 6116.10.48 (as redesignated by subsection (a)(2)(A)).

24 (c) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by subsection (a)

3 shall apply with respect to goods entered, or with4 drawn from warehouse for consumption, on or after

5 the 15th day after the date of the enactment of this

6 Act.

7 (2) RETROACTIVE APPLICATION FOR CERTAIN

8 LIQUIDATIONS AND RELIQUIDATIONS.—

9 (A) Notwithstanding section 514 of the

10 Tariff Act of 1930 or any other provision of

11 law, upon proper request filed with the appro12 priate customs officer on or before the 90th day

13 after the date of the enactment of this Act, any

14 entry—

15 (i) that was made after the applicable

16 date and before the 15th day after such

17 date of enactment; and

18 (ii) with respect to which there would

19 have been a lesser or no duty if any

20 amendment made by subsection (a) applied

21 to such entry;

22 shall be liquidated or reliquidated as though

23 such amendment applied to such entry.

24 (B) For purposes of this subsection, the

25 term ‘‘applicable date’’ means—
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1 (i) if such amendment is made by sub2 section (a)(3) or (a)(6), December 31,

3 1988; and

4 (ii) if such amendment is made by

5 subsection (a)(1), (a)(2), (a)(4), (a)(5),

6 September 30, 1990.

7 SEC. 1022. CLARIFICATION REGARDING THE APPLICATION

8 OF CUSTOMS USER FEES.

9 (a) IN GENERAL.—Subparagraph (D) of section

10 13031(b)(8) of the Consolidated Omnibus Budget Rec11 onciliation Act of 1985 (19 U.S.C. 58c(b)(8)(D)) is

12 amended—

13 (1) by striking ‘‘and’’ at the end of clause (iv);

14 (2) by striking the period at the end of clause

15 (v) and inserting ‘‘; and’’; and

16 (3) by inserting after clause (v) the following

17 new clause:

18 ‘‘(vi) in the case of merchandise entered from

19 a foreign trade zone (other than merchandise to

20 which clause (v) applies), be applied only to the

21 value of the privileged or nonprivileged foreign sta22 tus merchandise under section 3 of the Act of June

23 18, 1934 (commonly known as the Foreign Trade

24 Zones Act, 19 U.S.C. 81c).’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 subsection (a) apply to—

3 (1) any entry made from a foreign trade zone

4 on or after the 15th day after the date of the enact5 ment of this Act; and

6 (2) any entry made from a foreign trade zone

7 after November 30, 1986, and before such 15th day

8 if the entry was not liquidated before such 15th day.

9 (c) APPLICATION OF FEES TO CERTAIN AGRICUL10 TURAL PRODUCTS.—The amendment made by section

11 111(b)(2)(D)(iv) of the Customs and Trade Act of 1990

12 shall apply to—

13 (1) any entry made from a foreign trade zone

14 on or after the 15th day after the date of the enact15 ment of this Act; and

16 (2) any entry made from a foreign trade zone

17 after November 30, 1986, and before such 15th day

18 if the entry was not liquidated, or if the liquidation

19 has not become final, before such 15th day.

20 SEC. 1023. TECHNICAL AMENDMENTS TO THE OMNIBUS

21 TRADE AND COMPETITIVENESS ACT OF 1988.

22 (a) IN GENERAL.—Paragraph (2) of section 1102(a)

23 of the Omnibus Trade and Competitiveness Act of 1988

24 (19 U.S.C. 2902(a)(2)) is amended—

25 (1) in subparagraph (A)—
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1 (A) by striking ‘‘the date of enactment of

2 this Act’’ and inserting ‘‘January 1, 1989’’; and

3 (B) by striking ‘‘such date of enactment’’

4 and inserting ‘‘January 1, 1989’’; and

5 (2) in subparagraph (B), by striking ‘‘such date

6 of enactment’’ and inserting ‘‘January 1, 1989’’.

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

8 subsection (a) shall take effect January 1, 1989.

9 (c) CONSTRUCTION.—For purposes of applying the

10 amendments made by subsection (a), the column 1-general

11 rate of duty established by any amendment to the Har12 monized Tariff Schedule of the United States that was

13 enacted after January 1, 1989, shall, if—

14 (1) such amendment has, or is statutorily treat15 ed as having, an effective date of January 1, 1989;

16 or

17 (2) application for liquidation or reliquidation

18 at such rate with respect to entries made after De19 cember 31, 1988, and before the effective date of the

20 amendment, is provided for;

21 be treated as the rate in effect on January 1, 1989.

22 SEC. 1024. TECHNICAL AMENDMENT TO THE CUSTOMS

23 AND TRADE ACT OF 1990.

24 Subsection (b) of section 484H of the Customs and

25 Trade Act of 1990 (19 U.S.C. 1553 note) is amended by
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1 striking ‘‘, or withdrawn from warehouse for consump2 tion,’’ and inserting ‘‘for transportation in bond’’.

3 SEC. 1025. TECHNICAL AMENDMENTS REGARDING CER4 TAIN BENEFICIARY COUNTRIES.

5 (a) CARIBBEAN BASIN ECONOMIC RECOVERY ACT.—

6 Section 213(h)(1) of the Caribbean Basin Economic Re7 covery Act (19 U.S.C. 2703(h)(1)) is amended by adding

8 at the end thereof the following flush sentence:

9 ‘‘The duty reductions provided for under this para10 graph shall not apply to textile and apparel articles

11 which are subject to textile agreements.’’

12 (b) ANDEAN TRADE PREFERENCE ACT.—Section

13 204(c)(1) of the Andean Trade Preference Act (19 U.S.C.

14 3203(c)(1)) is amended by adding at the end thereof the

15 following flush sentence:

16 ‘‘The duty reductions provided for under this para17 graph shall not apply to textile and apparel articles

18 which are subject to textile agreements.’’

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

20 this section apply with respect to—

21 (1) articles entered, or withdrawn from ware22 house for consumption, on or after the 15th day

23 after the date of the enactment of this Act, and
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1 (2) articles entered after December 31, 1991,

2 and before such 15th day, which are not liquidated

3 before such 15th day.

4 SEC. 1026. CLARIFICATION OF FEES FOR CERTAIN CUS5 TOMS SERVICES.

6 (a) IN GENERAL.—Section 13031(b)(9)(A) of the

7 Consolidated Omnibus Budget Reconciliation Act of 1985

8 (19 U.S.C. 58c(b)(9)(A)) is amended—

9 (1) by striking ‘‘centralized hub facility or’’ in

10 clause (i); and

11 (2) in clause (ii)—

12 (A) by striking ‘‘facility—’’ and inserting

13 ‘‘facility or centralized hub facility—’’,

14 (B) by striking ‘‘customs inspectional’’ in

15 subclause (I), and

16 (C) by striking ‘‘at the facility’’ in

17 subclause (I) and inserting ‘‘for the facility’’.

18 (b) DEFINITIONS.—Section 13031(b)(9)(B)(i) of the

19 Consolidated Omnibus Budget Reconciliation Act of 1985

20 (19 U.S.C. 58c(b)(9)(B)(i)) is amended—

21 (1) by striking ‘‘, as in effect on July 30,

22 1990’’, and

23 (2) by adding at the end thereof the following

24 new sentence: ‘‘Nothing in this paragraph shall be

25 construed as prohibiting the Secretary of the Treas-
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1 ury from processing merchandise that is informally

2 entered or released at any centralized hub facility or

3 express consignment carrier facility during the nor4 mal operating hours of the Customs Service, subject

5 to reimbursement and payment under subparagraph

6 (A).’’.

7 (c) CITATION.—Section 13031(b)(9)(B)(ii) of the

8 Consolidated Omnibus Budget Reconciliation Act of 1985

9 (19 U.S.C. 58c(b)(9)(B)(ii)) is amended by striking ‘‘sec10 tion 236 of the Tariff and Trade Act of 1984’’ and insert11 ing ‘‘section 236 of the Trade and Tariff Act of 1984’’.

12 SEC. 1027. CONFORMING AMENDMENT TO SECTION 337 OF

13 THE TARIFF ACT OF 1930.

14 (a) IN GENERAL.—The second sentence of section

15 337(b)(3) of the Tariff Act of 1930 is amended by striking

16 ‘‘section 303, 671, or 673’’ and inserting ‘‘section 303,

17 701, or 731’’.

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

19 subsection (a) shall take effect October 28, 1992.

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